THE MINISTER OF EDUCATION v JAMES HARDIE NZ LTD [2013] NZHC 2230

THE MINISTER OF EDUCATION v JAMES HARDIE NZ LTD [2013] NZHC 2230 [29 August 2013]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCOMMERCIAL LISTCIV-2013-404-001899[2013] NZHC 2230UNDER the Consumer Guarantees Act 1993, theFair Trading Act 1986, the Building Act1991 and the Building Act 2004BETWEEN THE MINISTER OF EDUCATIONFirst PlaintiffTHE SECRETARY FOR EDUCATIONSecond PlaintiffTHE MINISTRY OF EDUCATIONThird PlaintiffBOARD OF TRUSTEES OFPAPATOETOE WEST SCHOOLFourth PlaintiffBOARD OF TRUSTEES OF HOWICKINTERMEDIATEFifth PlaintiffBOARD OF TRUSTEES OF NEWPLYMOUTH BOYS' HIGH SCHOOLSixth PlaintiffBOARD OF TRUSTEES OFROTOTUNA PRIMARY SCHOOLSeventh PlaintiffAND JAMES HARDIE NEW ZEALANDLIMITEDFirst DefendantSTUDORP LIMITEDSecond DefendantCARTER HOLT HARVEY LIMITEDThird DefendantCSR BUILDINGS PRODUCTS (NZ)LIMITEDFourth DefendantHearing: 13 August 2013Appearances: J Farmer QC, N F Flanagan, K C Francis and B J Thompson forPlaintiffsA R Galbraith QC and E S Scorgie for First and SecondDefendantsD J Goddard QC and J Q Wilson for Third DefendantJ Miles QC, S C Price and J K Wilson for Fourth DefendantJudgment: 29 August 2013JUDGMENT OF VENNING JThis judgment was delivered by me on 29 August 2013 at 5.00 pm, pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors: Meredith Connell, AucklandChapman Tripp, AucklandBell Gully, AucklandMinter Ellison Rudd Watts, AucklandCopy to: J Farmer QC, AucklandA R Galbraith QC, AucklandD J Goddard QC, AucklandJ G Miles QC, AucklandIntroduction[1] The defendants apply to remove this case from the Commercial List. They seek the assignment of a Judge to manage the case.Parties/background[2] The plaintiffs are the Minister of Education, Secretary of Education, Ministry of Education and representatives of the Boards of Trustees of a number of schools.[3] The defendants are the manufacturers and/or suppliers of exterior cladding products (the cladding systems). The cladding systems have been used in approximately 5,590 school buildings.[4] The plaintiffs plead five causes of action:(a) negligence –failure to take care in the manufacture and supply of the cladding systems;(b) breach of the Consumer Guarantees Act 1993;(c) negligent misstatement – as to the qualities and performance of the cladding systems;(d) negligence – failure to warn plaintiffs and contractors as to risks associated with use of the cladding systems; and(e) breach of s 9 of the Fair Trading Act 1986.The parties' approaches to the case[5] The plaintiffs' case is that the cladding systems are inherently flawed. They will inevitably have to be replaced, whether the schools' buildings currently leak ornot. This is not a leaky building case. It does not raise issues as to the adequacy of installation of the cladding systems or the design of the school buildings.[6] Although yet to file statements of defence, the defendants have a fundamentally different approach to the case. They will deny the cladding systems are inherently flawed. When properly installed the cladding systems are fully code compliant. The defendants consider that any problems in relation to the cladding systems arise out of or are caused by the design of the school buildings and/or the installation of the cladding systems. The defendants wish to join third parties involved in the design and approval of the schools' buildings and the installation of the cladding systems.[7] All parties acknowledge there will be extensive interlocutory applications. The plaintiffs consider the "discipline" of the Commercial List, particularly the needto obtain leave for joinder and to appeal interlocutory decisions to be important, if not essential, to the efficient management of this case.[8] The defendants reject that and submit that the case will be most efficiently managed by removal from the list and the assignment of a dedicated Judge.The issues[9] Two issues arise on this application:(a) is the proceeding eligible for the Commercial List? And(b) if it is, should it be removed from the list? This issue turns on how the proceeding may best be managed – by assignment of a Judge or on the Commercial List?Eligibility for the Commercial List[10] The plaintiffs rely on the following provisions of s 24B(1) of the Judicature Act 1908 (the Act) as providing eligibility for entry on the Commercial List:24B Proceedings eligible for commercial list(1) The classes of proceedings eligible for entry on a commercial list are as follows:(a) Any proceedings arising out of or otherwise relating to:(i) The ordinary transactions of persons engaged in commerce or trade or of shippers:...(iii) The construction of commercial, shipping, or transport documents:...(g) Proceedings of a commercial nature required or permitted to be entered on a commercial list by or under any Act or by or under the High Court Rules or any rules made under section51C of this Act.[11] The plaintiffs primarily rely on s 24B(1)(a)(i). Mr Farmer QC submitted the defendants are significant commercial entities that are plainly engaged in commerce or trade. The supply of the cladding systems is an ordinary transaction in the courseof the defendants' business.[12] Mr Goddard QC submitted the claim does not have a sufficiently close relationship to the ordinary transactions of persons engaged in commerce or trade. The plaintiffs are, by definition, not involved in commerce or trade. Nor is the claim based on a direct transaction between the plaintiffs and defendants. Any connection is indirect and general. This is no more a commercial proceeding than any other building defect claim brought by a home owner.[13] Mr Farmer submitted that s 24B(1)(a)(i) does not require all parties to the proceedings to be engaged in trade or commerce. He referred to Dreux Holdings Ltd v Attorney-General and W Williamson Construction Co Ltd (In Receivership) v Attorney-General as examples of cases that have included claims by or against government agencies or non-profit organisations which have been retained on the Commercial List.1 However, Dreux Holdings involved the construction of a verycomplicated "negotiated agreement" pursuant to which the New Zealand RailwaysCorporation was disposing of a large portfolio of property surplus to requirements. It was by its nature a commercial transaction and involved the construction of a commercial document, the negotiated agreement. W Williamson Construction Co1 Dreux Holdings Ltd v Attorney-General (1995) 8 PRNZ 485 (HC); and W Williamson Construction Co Ltd (In Receivership) v Attorney-General (1989) 2 PRNZ 650 HC.Ltd again primarily involved a question of construction of a contract. It, like Dreux Holdings, would have been eligible for entry under s 24B(1)(a)(iii).[14] For a proceeding to be eligible for entry on the Commercial List under s 24B(1)(a)(i) there must be more to it than the fact one of the parties to it is engaged in trade or commerce. The "ordinary transactions" of commerce or trade referred to must contemplate more than simply the supply of allegedly defective goods. Otherwise, as Mr Goddard submitted, every leaky building case would be eligible for admission to the Commercial List, a proposition which has been rejected by the Court on a number of occasions: W Williamson Construction Co Ltd and City Realties (Holdings) Ltd v UEB Industries Ltd.2 Further, even modest claims for breach of the Consumer Guarantees Act 1993 would be eligible for entry on the list. That cannot be correct.[15] As noted, the defendants also make the point that there is no direct"transaction" between the plaintiffs and defendants. I accept Mr Farmer'ssubmission that the proceeding need not involve a direct transaction between two litigants, and tortious claims may still be eligible for inclusion. However, the cases Mr Farmer relies on to support the inclusion of tortious claims can be distinguished from the present proceeding. In Ports of Auckland Ltd v NZ Seafarers Industrial Union of Works3 Fisher J concluded that, while the union may not have been involved in the commercial sector in the sense that it was trading within the sector,nevertheless:its activities can be expected to have a very real and direct impact upon commercial activities and quite properly so. It seems to me that this case is concerned with commercial activity.The fact the case concerned and affected the commercial activities of shippers was a particularly relevant matter. That element is lacking from the present proceeding.2 W Williamson Construction Co Ltd (In Receivership) v Attorney-General, above n 1; and City Realties (Holdings) Ltd v UEB Industries Ltd HC Auckland CC166/88, 26 May 1989.3 Ports of Auckland Ltd v NZ Seafarers Industrial Union of Works (1998) 11 PRNZ 696 (HC).[16] The second case was Taspac Oysters Ltd v James Hardie & Co Pty Ltd.4That case concerned a claim against James Hardie for negligent design and manufacture of spat sticks. Barker J rejected James Hardies' application to removethe case from the Commercial List, including its reliance on the argument there was no contractual nexus between the parties. However, while accepting there was no transaction directly between the parties, Barker J noted and relied on the fact that the plaintiffs were all in business as oyster farmers or distributers and the defendant was also in the business of manufacturing specialised equipment for the oyster farmer'sbusiness. As both parties were in business or engaged in commerce, there was asufficient "commercial flavour" to the claim. Again that is different to the present case. The plaintiffs are not in business or trade.[17] The above cases are not authority for the proposition that, as of right, tortious claims involving a sale of a product may be included on the Commercial List. Onthe plaintiffs' case this case is about defective product. It does not affect any ongoing commercial activity. The plaintiffs are not engaged in commerce or trade. The case does not have the "commercial flavour" referred to by Barker J in Taspac Oysters. I do not consider the case comes within s 24(1)(a)(i).[18] The plaintiffs also rely on s 24B(1)(a)(iii) of the Act. They submit that the proceedings otherwise relate to the construction of commercial documents, namely the specifications and technical literature describing the features of the cladding systems and the installation process for the cladding systems. With respect to that submission I consider it to be drawing too long a bow to suggest that consideration of specifications and the installation process (to the extent they may feature in the case) is the type of construction of contract contemplated by the law makers when inserting s 24B(1)(a)(iii). I do not accept the plaintiffs' reliance on that subsection.[19] Finally the plaintiffs rely on s 24B(1)(g) of the Act and submit this proceeding falls into proceedings "of a commercial nature". Mr Farmer submitted,in reliance on the Taspak Oysters case, that s 24B(1)(g) applied. Even if the proceedings fell outside s 24B(1)(a) to (f) they were of a sufficiently commercial nature so as to be permitted entry to the list. In the Taspak Oysters case, despite4 Taspac Oysters Ltd v James Hardie & Co Pty Ltd [1990] 1 NZLR 422 (HC).having found that the proceeding did not concern a transaction Barker J still considered it had the necessary "commercial flavour" to qualify for entry to the list under s 24B(1)(g). However, Barker J does not appear to have had argument directed to him as to the requirement under s 24B(1)(g) that entry under that subsection is only permissible if the proceedings are required or permitted to beentered "by or under any Act or by or under the High Court Rules ...".[20] In my view, properly interpreted, s 24B(1)(g) is not a catch all for proceedings of a commercial nature not otherwise referred to in s 24B(1)(a) to (f).5It is necessary to point to a requirement or permission under another Act or rule for inclusion. Mr Farmer acknowledged the point but submitted that, if necessary the plaintiffs would rely on r 29.4(4) and effectively made an application for entry under that rule in the course of his submissions.[21] Rule 29.4(4) provides:If the statement of claim in a proceeding that is of a commercial nature but that is not within any of the classes of proceeding specified in paragraphs(a) to (f) of section 24B(1) of the Act is filed in a registry of the court at which a commercial list is established, any party to the proceeding may, at any time after the filing of the statement of claim but not later than 10 working days after the day on which a statement of defence in the proceeding is filed, apply to a commercial list Judge for the entry of that proceeding on the commercial list.[22] As yet no statements of defence have been filed. The issue whether the proceeding should be on the Commercial List has been fully argued. In the circumstances I would be prepared to accept the oral application. However, while I accept on its face r 29.4(4) permits the entry of a proceeding of a commercial nature not within s 24B(1)(a) to (f), and so may come within the wording of s 24B(1)(g), eligibility for entry is still premised on the basis the proceeding is of a sufficiently commercial nature. As Mr Goddard submitted, it is not sufficient that the matter be linked in some way to a commercial transaction.65 Allied Nationwide Finance Ltd (In Receivership) v Southland Building Society HC Auckland CIV-2010-404-8228, 19 August 2011 at [18].6 Adams v Commissioner of Inland Revenue (2000) 14 PRNZ 313 (HC).[23] As noted above, there is no transaction between the parties. The defendants manufacture and supply cladding systems which are then supplied to merchants whoprovide them to builders who have installed them in the plaintiffs' schools. The plaintiffs' claim is not based on any term of the contract between the parties. The contractual chains and the relationship between those parties is not in issue. On theplaintiffs' case this is, at its heart, a claim in relation to defective products. It is not of a sufficiently commercial nature per se to permit entry under r 29.4, particularly where the plaintiffs are not engaged in commerce or trade.[24] I conclude that, while involving substantial sums of money, the current proceeding is not of a sufficiently commercial nature so as to be eligible for entry on the Commercial List. The fact substantial sums of money may be at stake does not, of itself, make what is a non-commercial claim, commercial. The sums at stake may make the proceedings important and even generate public interest, but that is not the test.The Court's discretion as to removal[25] In the event I am wrong and the proceeding is properly on the Commercial List the second issue is whether, in the exercise of its "untrammelled discretion" the Court should remove the proceeding from the list.7 There is no onus either way. The Court must carry out a balancing exercise to determine if it is appropriate the case remain on the Commercial List.[26] Mr Farmer submitted the proceeding should remain on the Commercial List in order to permit the "just, speedy and inexpensive determination" of theproceeding.8 I fear that in litigation of this nature, whether the proceeding remains in the Commercial List or otherwise, an inexpensive determination is an unlikely prospect. This will be hard fought and difficult litigation. The objectives of a just and expeditious result are, however, hopefully more achievable. The issue is the best means to achieve those aims.7 Clear Communications Ltd v Attorney-General (1998) 12 PRNZ 287 (CA).8 High Court Rules, r 1.2.[27] The parties are agreed the proceeding requires careful and active case management. They have a different approach or philosophy as to whether that is best achieved by the proceeding remaining on the Commercial List or by being managed by a Judge.[28] Mr Farmer referred again to the sheer scale of the potential effect of the claim and the significance of the proceeding to the parties as evidenced by the share trading halt announced by the first defendant when initially served with the proceedings. However, significant and important cases involving substantial sums are routinely managed outside the Commercial List by Judges assigned to them.[29] Mr Farmer next points to the complexity of legal and procedural issues. It is common ground the proceeding will be complex. He also identified there will be significant expert evidence and complex factual issues of causation and quantum (although they may be unlikely to need to be dealt with before liability, if they need to be dealt with at all). However, complexity of issues does not make a proceeding commercial in nature.[30] It is helpful to consider the advantages identified by the plaintiffs of the proceeding remaining on the Commercial List with the management of the proceedings by an assigned Judge. First Mr Farmer pointed to the frequent calls of the proceedings and the regular review on the Commercial List. However, an assigned Judge can allocate calls and reviews of the proceedings as required.[31] Next, the plaintiffs refer to the limited number of Commercial List Judges who will become familiar with the file, avoiding issues that could arise with the absence of the assigned Judge (on leave or circuit). However, the potential issue of the absence or unavailability of an assigned Judge can be addressed by the assigned Judge working with another Judge or an Associate Judge, if necessary. The practical reality is that this case will become so complex that it would not be possible for each of the Commercial List Judges, who otherwise might deal with it on occasion in the list, to become sufficiently familiar with all relevant aspects.[32] Mr Farmer also referred to the specific rules providing for directions concerning preparation, service and use of expert reports in the Commercial List.9However, it is now common place for similar directions to be given in civil proceedings involving expert witnesses.[33] Mr Farmer also noted the provisions in the Rules that require the plaintiffs and defendants to file statements of essential issues.10 Again however, issues conferences are now regularly convened by assigned Judges. Case management directions are also now regularly made to provide for such conferences and to address specific and directed discovery for example.[34] The major difference between the two methods of management is that the Commercial List requires leave for certain steps, such as issue of third party notices and to appeal interlocutory decisions.11 The theme of the plaintiffs' argument forretention and their reliance on the "discipline" of the Commercial List is based on those requirements.[35] However, to a degree the difference may be illusory. On any substantive interlocutory issues, such as strike out or even on other important interlocutory arguments it is likely leave would be granted in any event, and largely for the reasons Mr Farmer relies on to argue for retention in the list – the significance of the claim and its importance to the parties. As Allan J observed in Godfrey Waterhouse v Contractors Bonding Ltd:12The restriction on rights of appeal to the Court of Appeal is intended to weed out appeals on relatively minor (especially procedural) matters so as to ensure that the substance of the dispute reaches the Court at the earliest reasonable time. It is not intended to preclude a party from taking to the Court of Appeal significant interlocutory issues, not obviously devoid of merit.(emphasis added).9 High Court Rules, r 29.16(2)(a).10 High Court Rules, rr 29.3(5) and 26(6).11 High Court Rules, r 4.4(3)(b) and Judicature Act 1908, s 24G.12 Godfrey Waterhouse v Contractors Bonding Ltd HC Auckland CIV-2010-404-3074, 13 December 2010 at [56].[36] I accept joinder is a major issue, and has the potential to complicate the proceedings. The plaintiffs argue joinder is unnecessary because on their case this isall about whether the defendants' cladding systems are inherently defective. No issue of building design or installation arises. However, from the defendants' pointof view the cladding systems are not inherently defective, and they also wish to argue that, to the extent installations of the cladding systems have failed, that is because of the building design and/or installation. To protect their position the defendants may wish to join the parties responsible for design, approval and installation. While the plaintiffs may define its case in the way they have, the defendants are entitled to approach their defence from a different perspective.[37] The difficulty with the plaintiffs' approach is highlighted by the case of theRototuna School, currently the seventh plaintiff. Rototuna School issued separate proceedings in the Tauranga Registry of the Court against the architect and project manager. The architect has joined Carter Holt Harvey and the Council. There is an apparent overlap of the issues in that proceeding and this. Mr Farmer submitted the present claim would be amended and Rototuna School removed as a plaintiff, but the case is a good example of the issues that may properly arise in relation to the claims by other plaintiffs.[38] As discussed with counsel during the course of the hearing there are casemanagement methods available to ensure that, even if other parties are joined, theproceedings do not become unmanageable. Without binding the parties there seemsto be an acknowledgement amongst counsel that some type of representative set ofschools and products will need to be identified within the general proceedings.[39] If, ultimately, the defendants approach to the case is correct, and responsibility for any issues with the cladding systems lies with, or is even contributed to by, defective design and or installation for which other parties are responsible, the defendants should be able to pursue claims against those parties and not be faced with limitation defences. The long-stop provisions of the Building Acts are particularly significant to the defendants' position. One possibility may be for third party claims to be issued but perhaps stayed pending the hearing of representative claims. There are a variety of methods available to the Court and theparties to address those issues. They are all matters that can be considered and addressed by an assigned Judge. An assigned Judge will have the ability to control and focus appropriate interlocutory applications and steps in the proceedings.[40] For those reasons, if necessary, I am satisfied that in any event it would have been appropriate to remove this case from the Commercial List.Result/orders[41] (a) The proceeding is to be removed from the Commercial List.(b) A Judge(s) is to be assigned by the Chief High Court Judge to manage this case.(c) The Registrar is to convene a telephone conference with the assigned Judge.(d) The applicants are to have costs of this application on a 3B basis (for one counsel each) together with disbursements.Other issues[42] I note counsel have filed memoranda regarding preservation and inspection issues.13 I apprehend nothing further is required on those issues at present.[43] The first and second defendants have applied for leave to issue third party notices to a number of local authorities. To the extent the application remains relevant (there may be an issue of delay in terms of r 4.4(2)) it is to be referred to the assigned Judge.__________________________ Venning J13 2 August 2013 for plaintiffs and third defendants; 23 August 2013 plaintiffs and first and second defendants.