PETER HARDIE MCNAMARA AND PATRICK STURGEON MCNAMARA AS TRUSTEES OF THE P H MCNAMARA FAMILY TRUST V MALCOLM J LUSBY LIMITED AND ORS HC AK CIV 2006-404-002967

PETER HARDIE MCNAMARA AND PATRICK STURGEON MCNAMARA AS TRUSTEES OF THE P H MCNAMARA FAMILY TRUST V MALCOLM J LUSBY LIMITED AND ORS HC AK CIV 2006-404- 002967 10 September 2009IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2006-404-002967BETWEEN PETER HARDIE MCNAMARA AND PATRICK STURGEON MCNAMARA AS TRUSTEES OF THE P H MCNAMARA FAMILY TRUST Plaintiffs AND MALCOLM J LUSBY LIMITED First Defendant AND MALCOLM JOHN LUSBY Second Defendant AND KEPA DESIGN LIMITED Third Defendant AND AUCKLAND CITY COUNCIL Fourth Defendant AND DAVID M CHAPMAN & ORS Eighteenth Defendants Hearing: 20 November 2008 Appearances: M Keall for eighteenth defendant in support G S G Erskine for plaintiff in opposition Judgment: 10 September 2009 at 4 pmJUDGMENT OF ASSOCIATE JUDGE ROBINSONThis judgment was delivered by me on 10 September 2009 at 4 pm, Pursuant to Rule 11.5 of the High Court Rules Registrar/Deputy Registrar Date. Solicitors: Carter & Partners, PO Box 2137, Auckland Fowler & Associates, PO Box 38-913, Auckland[1] On 7 April 2004 the plaintiff purchased a property at 19 Arney Crescent, Remuera from Carmel Properties Ltd (now in liquidation). Carmel properties together with Malcolm J Lusby Ltd, the first defendant had built a new home on the Arney Crescent property in accordance with a building consent issued by the Auckland City Council, the fourth defendant on 16 August 2001. [2] The plaintiff claims: a) That the eighteenth defendant, David Chapman was one of the developers and project managers in respect of the construction of the new home and thereby personally owed the plaintiffs a duty to take reasonable care that the home would be built to a proper and workmanlike standard in accordance with the building code. b) As a result of David Chapman's breach of his duty to the plaintiffs the home was constructed with a significant number of serious defects and thereby failed to comply with the building code. c) As a result of the defect the home is not weather-tight and the plaintiff seeks damages including the sum of $1,056,594.08 for the cost involved to make the home weather-tight. [3] David Chapman seeks summary judgment in his favour against the plaintiffs on the basis that their claim cannot succeed and discloses no reasonable cause of action against him. He claims his involvement in the building of the home was limited to that of a management consultant under contract with Malcolm J Lusby Ltd and did not include involvement as a developer in that he never owned the Arney Crescent property and did not become involved in decisions relating to the design and construction of the home. He claims his involvement did not include any of the following i) The selection of building or construction contractors or suppliers.ii) The execution of contracts. iii) Building work of any kind. iv) The direction, supervision or control of any building work. v) On site management of any kind. vi) The making of financial or other decisions other than the selection of products. vii) Duties akin to a director. Consequently, Mr David Chapman contends he is entitled to summary judgment in his favour as the plaintiffs' cause of action against him cannot succeed.Background Facts[4] Prior to December 2003 David Chapman had worked with Malcolm Lusby, the second defendant and who is now bankrupt in connection with Malcolm Lusby Ltd, the first defendant being a company established by Malcolm Lusby. Malcolm Lusby is the director and sole shareholder of Malcolm Lusby Ltd. [5] Malcolm Lusby Ltd was involved in the construction of the home in Arney Crescent as a half owner of a joint venture company Carmel Properties Ltd. The owner of the other half of Carmel Properties Ltd was Leslie Viskovich, who is the nineteenth defendant. Both Malcolm Lusby and Leslie Viskovich were the directors of Carmel Properties Ltd. [6] On 10 August 2001 Carmel Properties Ltd lodged with the Auckland City Council an application for a building consent in respect of the construction of the home at Arney Crescent. Following the issue by the council of a building consent on 16 August 2001 construction of the home which included a monolithic claddingsystem commenced on 8 March 2002. The construction was carried out by Malcolm J Lusby Ltd and Carmel Properties Ltd as a joint venture. [7] David Chapman was employed by Malcolm J Lusby Ltd. He says that under the verbal contract of employment his role was limited to that of a contract manager consultant to handle office administration, project costing and marketing. He was paid a regular monthly fee and was to have a half share in the profit from the development. [8] On 7 April 2004 Carmel Properties Ltd sold the property at Arney Crescent to the plaintiffs for $3,650,000. According to profit estimates prepared by David Chapman, development costs incurred including the cost of the land totalled $1,897,878. Thus the profit after taking into account overhead costs estimated by Mr David Chapman at $372,900 is $1,379,222. [9] The plaintiffs claim that following their purchase they became aware that the house they had purchased was not weather-tight. They estimate the cost of repairs to be $1,056,594.08.Basis of plaintiffs' claim against eighteenth defendant[10] The basis of the plaintiffs' claim against the eighteenth defendant is set forth in paragraph 19.2 of the amended statement of claim where the following particulars are set forth.His personal duty of care and a liability for negligence arose further to his direct personal involvement, responsibility, and exercise of actual control in respect of the development and/or building of the home, and includes his extensive and day to day direct personal knowledge, involvement, responsibility and exercise of control in relation to the development and/or work carried out, his knowledge of the particular conditions, concerns, issues and problems in respect of the home, his extensive involvement with parties involved, and includes him acting as or akin to a developer and/or project manager, and for the first defendant, Malcolm J Lusby Ltd, and Carmel Properties Ltd, and in his having responsibility for, exercise and control of and over, and managing, directing or supervising business, affairs, activities of the first defendant and Carmel Properties Ltd in respect of the work and operations and decisions.The eighteenth defendant breached his duty of care to the plaintiffs by his personal acts and omissions, involvement, responsibility and exercise of control, in respect of the development and/or the building of the home having the defects set forth in paragraph 1.37, and whereby the home failed to comply with the building code. As a result of the eighteenth defendant's breach of duty, the defects caused, and the plaintiffs' incurred loss or further damage set out above at paragraph 1.39.[11] Relying on decisions such as Bowen v Paramount Builders Ltd [1977] 1 NZLR 394, Morton v Douglas Homes Ltd [1984] 2 NZLR 548 and Body Corporate No 188273 & Ors v Leuschke Group Architects Ltd & Ors 28 September 2007 CIV 2004-404-002033 Harrison J it is claimed: a) That Mr David Chapman was involved in building the house at Arney Crescent for sale as a profit. b) Was directly involved in the building process. c) Was guilty of acts or omission of negligence in respect of the construction of the home causing the defects more particularly set forth in the amended statement of claim. [12] As held by Hardie-Boys J in Morton v Douglas Homes Ltd and cited with approval by Harrison J in Body Corporate No 188273 & Ors v Leuschke Group Architects Ltd, paragraphs 58-60, person in the position of the eighteenth defendant when exercising personal control over the construction of a house being built for sale at a profit owe a duty of care to the purchaser. The fact that the eighteenth defendant is not a tradesman does not necessarily exonerate him from liability. In this respect Speight J in Callaghan v Robert Ronayne Ltd AK A1112/76 17 September 1979 made the following comments concerning the liability of directors of a development company who were airline pilots.To establish personal liability proof is required that the directors were the actual tortfeasors, in which case their status as directors is irrelevant. It is their personal liability. In the present case it will be noted that most if not all the particulars of negligence and breach of statutory duty alleged are allegations of matters of default, that is to say, failure rather than commission of tortious acts. There has been no proof here of any individualacts of neglect. The defective work was in all cases done by workmen orsubcontractors employed by one or more of the individual second defendants, then in respect of such failure by him in the role of controller which might be proved which had led to defects, then liability might have been established. But there were four of these people, and the evidence showed little more than that individual ones of them were present at that scene from time to time. There is little specific evidence of individual participation by them or any of them, and to the extent that there is any suggestion that directors were sometimes on the scene, there is no distinguishing evidence as to who did what and I cannot see that this claim can succeed.[13] Evidence relied upon by the plaintiff in support of their case against the eighteenth defendant includes the following: a) The defendant has been described as a developer. In particular when completing the execution of a Deed between Mr Chapman's company Carmel Properties Ltd and others, Mr Chapman stated his occupation to be "developer". In an article published about the home built at Arney Crescent in "New Home Trends" magazine Mr Chapman is described as the General Manager of Malcolm J Lusby. b) In a letter from David Chapman to Brian Bramwell the project accountant Mr Chapman requests the preparation of draft heads of agreement for discussion. Included in the instructions is the following:M J Lusby – D M Chapman responsible for site assessment, architect briefing, design input, project specification, product selection, external cost estimating, internal costing and quotations, cash plan, invoice approval, monthly creditors schedule, cheque signing, creditor payments, interior design/landscaping design (using external consultants), construction, project manager and code compliance certificate.c) The fact that he was to receive a fifty percent share in the profit indicates more than limited involvement as a contract consultant and supports the view that he was an equal individual partner in the project for development and profit. d) Correspondence including a letter of 4 February 2002 by Mr Chapman to Mr Viskovich reporting on the progress of a number of developments including the Arney Crescent development which theplaintiffs' contend supports their view of Mr Chapman's greater role and involvement. e) Evidence of his attendance at site meetings, authorising variations which it claims led to at least one of the defects. In this respect it is pointed out that he authorised a variation in price request with regard to a contract with Natural Habitats noting "H1ok reduce cost". f) Evidence that Mr David Chapman had specific design and detailing skills as shown by a parapet detail drawn up by him. g) The costing work sheet prepared by Mr David Chapman is an example of his comprehensive knowledge of building matters.Case for the Eighteenth Defendant in support of application for summary judgment[14] It is submitted on behalf of Mr Chapman that he was not the owner of the property nor did he control the consent, design, construction or approval process. Counsel for Mr Chapman relied on the test applied by Harrison J in Body Corporate No 188273 & Ors v Leuschke Group Architects Ltd & Ors where at paragraph 32 of the judgment the following is stated:The developer, and I accept there can be more than one, is the party sitting at the centre of and directing the project, invariably for its own financial benefit. It is the entity which decides upon and engages the builder and any professional advisors. It is responsible for the implementation and completion of the development process. It has the power to make all important decisions. Policy demands that the developer owes actionable duties to owners of the buildings it develops.[15] In this respect it is pointed out on behalf of Mr Chapman that he was not the party sitting in the centre of and directing the project. He did not personally engage any of the contractors or professional advisors. It is claimed there is no evidence Mr Chapman was personally involved with the building work giving rise to the defects.[16] In his affidavit in support of the application for summary judgment Mr Chapman whilst acknowledging working for Malcolm Lusby's company for over fifteen years emphasised he was employed as a contract management consultant to handle office administration, project costing and marketing. This he claims reflected his background in general management and marketing. He says the purpose of his employment was to free up Malcolm Lusby from office duties to enable him to focus on project management and related construction matters being Mr Lusby's area of proven expertise. [17] He emphasised in that affidavit that his experience was that of a chartered accountant with no qualification or experience as a developer, builder or project manager. He said apart from the selection of some of the more aesthetic items his function was limited to a supporting role in the area of office administration and cost management. [18] He says the description of areas of responsibility in his draft letter to Brian Bramwell referred to in paragraph 13(b) of this judgment related to areas of responsibility of both himself and Malcolm Lusby and does not separate his duties from those of Malcolm Lusby. He says there was no need in that letter to specify the respective areas of responsibility between himself and Malcolm Lusby as the purpose of the draft letter was to set forth the areas of responsibility between both himself and Malcolm Lusby on the one part and Carmel on the other part. [19] With regard to the minutes of a site meeting held on 11 August 2003 when he was recorded as being present when discussions took place with Natural Habitats concerning the landscaping with regard to Arney Crescent he claims his role was little more than that of an observer. He emphasises he was not allocated any tasks under the action plan adopted at that meeting. [20] However, when the plaintiffs adduced evidence Mr Chapman had described his occupation as developer when witnessing the execution of a Deed Mr Chapman says:At the time I witnessed this Deed I was a contract consultant to a construction company involved in building and development. When Idescribed myself as a "developer" I was guilty of overstating the matter for the sake of brevity and not giving the matter any thought. The exact nature of my occupation was not a matter of any importance at the time. I do not believe that I described myself this way at any other time.[21] With regard to his description as being "General Manager" and "Developer" in the "Trends" magazine article he says:Trends magazine chose to describe me as a "General Manager" and as a "Developer". I had no control over that. I note that I only spoke to them about matters of interior and exterior decoration and that is reflected in the article.[22] He acknowledged drawing a parapet detail and gave the following explanation:It is true that I drew this detail but I transcribed and enlarged it after the house was built. Because of my general skill at drawing Mr Lusby asked to produce this detail to help him respond to a complaint by Mr McNamara about the parapets at that time. The purpose of the drawing was to show clearly how the parapet should have been built according to the plans.Decision[23] The plaintiffs' claim against Mr Chapman is based on the degree of control exercised by Mr Chapman over the building work. The basis for liability was explained by Hardie-Boy J in Morton v Douglas Homes Ltd at 548 when considering the liability of directors of a building company involved in the construction of a home:The relevance of the degree of control which a director has over the operations of the company is that it provides a test of whether or not his personal carelessness may be likely to cause damage to a third party, so that he becomes subject to a duty of care. It is not the fact that he is a director that creates the control, but rather the fact of control, however derived, may create the duty. There is therefore no essential difference in this respect between a Director and a General Manager or indeed a more humble employee of the company. Each is under a duty of care, both to those with whom he deals on the company's behalf and those with whom the company deals in so far as that dealing is subject to his control.[24] Thus in the present case if Mr Chapman exercised control either solely or jointly with Mr Lusby in the way in which the home at Arney Crescent wasconstructed then he owes a duty of care to the plaintiffs and is liable to them if he is negligent in carrying out his duty. [25] To succeed Mr Chapman must satisfy the Court that the plaintiffs' claim cannot succeed. The test to be applied by the Court in determining whether summary judgment should be entered for Mr Chapman has been summarised by the Privy Council in Jones v Attorney-General [2004] 1 NZLR 433 at page 440, line 40 as follows:Summary judgment should not be given for the defendant unless he shows on the balance of probabilities that none of the plaintiffs claims can succeed. That is an exacting test, and rightly so since it is a serious thing to stop a plaintiff bringing his claim to trial unless it is quite clearly hopeless. In the opinion of the board, this exacting test is not satisfied in this case. The appellant may, or may not, succeed in establishing his version of events at trial. It cannot, however, be said at this stage that he cannot do so, and if the outcome of the action is potentially dependant on the facts found it is inappropriate to give summary judgment for the defendant.[26] In the present case there are inconsistencies in the defendant's evidence. Whilst on the one hand claiming to have very limited knowledge of construction leaving such matters to Mr Lusby it is significant that Mr Chapman acknowledges drawing a detailed plan of the parapet to demonstrate to Mr Lusby "how the parapet should have been built according to the plans" (see paragraph 28, Mr Chapman's affidavit sworn 3 November 2008). Such evidence is not consistent with the claim by Mr Chapman that Mr Lusby was solely in charge of construction issues because of Mr Lusby's particular expertise. If that was the position then it is surprising that Mr Lusby had to rely upon Mr Chapman to prepare a plan with detail to show how a parapet should have been built in accordance with the plans used by the contractors. [27] If as he claims Mr Chapman's involvement was limited to that of an accountant approving payments and attending to office management it is surprising that he has described himself as "developer" when witnessing a Deed and is referred to by the author of the article in Trends magazine as a "Developer" and "General Manager".Such a description is consistent with Mr Chapman's description of his duties in the letter to Brian Bramwell referred to in paragraph 13(b) of this judgment. [28] He acknowledges in paragraph 12 of his affidavit sworn on 28 August 2008:I did keep a tight rein on some of the design and decorative elements of the work such as the tiling of the bathroom. Most of that management was done from the office. I did not supervise the work itself.Reference to problems with the floor of the bathroom which includes the tiles is contained in paragraph 1.37(dd)(i) of the second amended statement of claim where the following was pleaded:(dd) (i) Sub-floor moisture was found to be a significant issue in a non-conforming sub-floor space below the concrete floor of the bathroom and bedrooms. The moisture gained entry through holes cut for wastepipes as this created space was also used as a duct area for piping. The space itself was heavy laden with condensating moisture to the bottom side of the steel Traydeck causing corrosion, as well as omitting heavily moisture-laden air into the bathroom areas increasing the bio-contamination problems in those areas. There was no means of secondary ventilation to alleviate the problem and the construction did not comply with the requiremenets of the original building consent where the concrete floor was to be on grade. The issues as well as leading to increase in bio-contamination also raised structural and durability issues on the long term performance of the Traydeck flooring, which is part of the structure of the concrete floor.[29] If Mr Chapman's involvement in "the design and decorative elements of tiling of the bathroom" did include supervision then the plaintiff may be able to establish that Mr Chapman's failure to supervise the bathroom tiling contributed to the loss referred to in the amended statement of claim referred to above. [30] Mr Chapman has not produced any independent evidence to establish that his involvement was limited to office administration and accountancy and did not include any building supervision. [31] In the circumstances I am satisfied that there is a genuine dispute as to the extent of Mr Chapman's involvement in the construction of the Arney Crescent home. Such dispute can only be resolved at a full hearing after full discovery and when evidence will be given by a number of contractors who may or may not support Mr Chapman's case.[32] Consequently, I am satisfied that Mr Chapman has failed to establish on the balance of probabilities that the plaintiffs' claim against him cannot succeed and his application for summary judgment must be dismissed.Costs[33] Unless there are exceptional circumstances which include seeking summary judgment in the certain knowledge that there is a bona fide question of law or fact which can be determined only after a trial the proper course on refusing summary judgment is to reserve costs until the result of the litigation is known. (see NZI Bank Ltd v Philpott [1990] 2 NZLR 403 and Air Nelson Ltd v Airways Corporation of New Zealand Ltd (1992) 6 PRNZ 1). Unless the plaintiffs seeks an order for costs I will direct that costs on dismissal of the eighteenth defendant's application for summary judgment shall be reserved. The plaintiffs will have twenty-one days from the date of delivery of this judgment to file any memorandum in support of an application for costs. On the filing and service of the memorandum the eighteenth defendant shall have twenty-one days to file any memorandum in reply and the plaintiffs will have a further seven days to file any memorandum in answer. On the filing of those memoranda the registrar shall refer the file to me for decision. [34] If however the plaintiffs do not file a memorandum in support of an application for costs within the twenty-one days I have specified there will be an order that costs be reserved. ______________________Associate Judge Robinson