ANTHONY TAYLOR DRILLIEN AND MARGARET JOSEPHINE DRILLIEN s AND PETER THOMAS TUBBERTY AND RAKESH CHAND AND AUCKLAND CITY COUNCIL Hearing: 8 February 2005
[2005] NZHC 1840
•8 February 2005
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2004-404-2873
BETWEEN ANTHONY TAYLOR DRILLIEN AND
MARGARET JOSEPHINE DRILLIEN
Plaintiffs AND
PETER THOMAS TUBBERTY
First Defendant
AND
RAKESH CHAND
Second Defendant
AND
AUCKLAND CITY COUNCIL
Third Defendant
Hearing:
8 February 2005
Appearances: MH Benvie for plaintiffs
JRF Fardell QC and CR Andrews for first defendant Judgment: 15 February 2005 at 10:45
JUDGMENT OF ASSOCIATE JUDGE FAIRE
[on application for summary judgment]
Solicitors:Alexander Dorrington, PO Box 7246, Auckland for plaintiffs McVeagh Fleming, PO Box 4099, Auckland for first defendant
Drillien & Anor V Tubberty And Ors HC AK CIV 2004-404-2873 15 February 2005
Introduction
[1] The first defendant applies for:
a)leave to seek summary judgment;
b)summary judgment against the plaintiffs; or, in the alternative,
c)an order striking out the plaintiffs’ pleading against the first defendant.
[2] The application is opposed by the plaintiffs. The third defendant did not wish to be heard on this application. At a conference on 21 July 2004 I was advised that the second defendant had not been served. The second defendant accordingly took no part in the application.
[3] Mr Benvie advised that the plaintiffs do not oppose the granting of leave to make the application for summary judgment. Accordingly, leave is granted in terms of r 138(3) of the High Court Rules.
[4] The plaintiffs oppose the application for summary judgment, or, in the alternative, the striking out of the proceedings. Counsel’s submissions focussed on the summary judgment application. Both counsel took the view that there was no practical distinction, for the purpose of the outcome, in determining either the summary judgment application or the strike out application in this case. For that reason, although the approach which the Court adopts is different in respect of each type of application, I will consider this application as principally an application for summary judgment by the first defendant.
Background
[5] Kenview Homes Limited is a company which was incorporated in November 1986. The first defendant and his wife were at all material times the directors and shareholders of the company. The company ceased trading in 2002. It was struck
off the Register of Companies on 28 February 2003. The first defendant estimated that the company purchased, developed and sold approximately 70 residential properties in Auckland in the period between 1986 and 2002.
[6] The company acquired a property at 45 Ngapuhi Road, Remuera, Auckland. It removed an existing dwelling and subdivided the land. It then constructed a two- level building on part of the land. To do this it sought, and obtained, a building consent. It engaged appropriate contractors, generally on a labour-only basis, to construct the dwelling in accordance with plans approved by the third defendant. The third defendant issued a building consent.
[7] The first defendant has sworn an affidavit. He said that his relationship with contractors who worked on Kenview Homes Limited’s building site goes back many years. Evidence was also given by affidavits from some of the contractors who were employed by the company. In substance, that disclosed that, as a result of the long- standing relationship, it was not necessary for the first defendant to carry out any detailed supervision work on behalf of the company. The deponents in fact say that the first defendant did not carry out detailed supervision of building work on the construction site. The company’s only employee was the son of the first defendant and his wife. PAYE was paid by the company in respect of his employment. The first defendant and his wife drew drawings from the company on current account. No salary was received by the first defendant.
[8] The company, at any one time, usually had two or three developments under way. At the time the Ngapuhi Road property was being constructed the company also had constructions at East Glen Street, Glen Eden and at New Windsor Road, Blockhouse Bay.
[9] The first defendant has described the practice that he adopted with respect to the development of 45 Ngapuhi Road as follows:
11.1On behalf of Kenview I would provide the proposed plans and drawings to Kenview’s engineers for checking and certification.
11.2I would complete a building consent application in Kenview’s name, and submit it, together with the certified
plans and proposed specifications to the relevant city council for a building consent (in this case the Auckland City Council).
11.3I would provide a cheque from Kenview in payment of the building consent application fee.
11.4Once the consent had been obtained, I would pass the plans to Kenview’s timber supplier, Pinepac Timber for quotes for timber quantities, manufacturing of pre-nail trusses, and so forth.
11.5The same process would be adopted with Kenview’s other suppliers.
11.6At the same time I would contact the contractors and let them have copies of the plans, and let them see any conditions that the council might have placed on the building consent.
11.7The usual arrangement, and that following on 45 Ngapuhi Road, was that the contractors worked on a labour only basis, and Kenview paid for and supplied the materials that they used.
12. Once work had started on site, I spent my time co-ordinating the supply and delivery of materials and arranging the various required council inspections at the appropriate times. Obviously, this meant liasing with the various contractors concerning the materials they required, what stage the work was at so that I could co-ordinate the inspections and also co-ordinate the arrival of other trades.
[10] Mr Tubberty said that it had been many years since he carried out any physical building work for the company. He said that he did not build any part of the building at 45 Ngapuhi Road nor, for that matter, did he do any of the building work on East Glen Street or New Windsor Road. Rather, he carried out the matters that are summarised in the preceding paragraph and also carried out work on a project at Mt Maunganui.
[11] In early 2002, when the construction of the property at 45 Ngapuhi Road was nearing completion, the company marketed the property for sale through a real estate agent, Unlimited Potential Limited. The plaintiffs were apparently introduced to the property by Unlimited Potential Limited’s salesman. They asked for a number of special conditions to be put into a standard ADLS (7th ed) sale and purchase contract which the land agent duly prepared. Kenview Homes Limited was shown as vendor on the contract. There was some to-ing and fro-ing apparently through the offices of
the real estate agent before the agreement in final form was acceptable to the parties and executed. The contract was signed on 5 March 2002.
[12] It is significant that the first defendant gave notice to the local authority of completion of the building works in respect of the property on 12 March 2002. At that stage there had been no actual meeting of the plaintiffs and the first defendant. All negotiations had been conducted by the land agent.
[13]The sale and purchase contract contained four special terms as follows:
14.0The vendor warrants to complete the property to a professional and workmanlike standard including the:
(1)installation of the Gas Hobbs, Oven and dishwasher
(2)adjustment of the kitchen pantry cabinets and replacement of the glass door in the end cabinet.
(3)The repair of the wall behind the handrail going downstairs to repair the screw holes in the Gib.
15.0 The vendor covenants with the purchaser that it will, at its own cost, forthwith remedy all the defects or faults which may have arisen from faulty workmanship or materials for which written notice has been given to the vendor within a period of
60,2540 days from the date on which the purchasers enter into possession of the property.
16.0 The vendor Kenview Homes Ltd will do all things necessary to complete the subdivision and issue a new title for the land herein described with all due speed. However, should the new title not be issued by 26/4/02 the purchaser shall upon payment of the balance of the purchase price in full be entitled to have possession of the property. The balance of the purchase price shall be held undispersed in the vendors solicitors trust account until title is available.
[14] The third defendant issued a code of compliance on 9 April 2002. The plaintiffs then settled their purchase with Kenview Homes Limited and took possession on 26 April 2002. Subsequent to that time there was a meeting between the plaintiffs and the defendant when the matters the subject of special condition 14 were discussed and actioned.
[15] I will return to complete the summary of facts as I discuss the specific issues which arise in this application. The above background, however, sets the position that applies.
The pleadings
[16] The plaintiffs filed a statement of claim in this Court on 4 June 2004. It pleads causes of action against the first defendant in tort, alleging that the first defendant personally undertook building work and supervised the construction of the property at 45 Ngapuhi Road and thereby assumed a personal duty of care to the plaintiffs as purchasers in respect of the construction of the dwelling. The statement of claim pleads that the first defendant, as builder and owner, gave notice to the third defendant of the completion of the works on 12 March 2002. The statement of claim next asserts that the first defendant breached the duty of care owed to the plaintiffs and was negligent in that he failed to take reasonable care to ensure that the building work was undertaken in accordance with good workmanlike practices and in accordance with the requirements of the Building Code. The statement of claim then alleges a number of defects in the cladding of the building, the external joinery, the roof, the structural framing timbers and then alleges that, as a result, water has entered the building causing damage to it. It then alleges that the plaintiffs will suffer economic loss in respect of the cost of remedial works together with building consultant fees, accommodation costs, travelling costs and other consequential costs of the remedial works. In addition, damages for distress and inconvenience are claimed.
The Court’s approach to summary judgment
[17] The Court of Appeal has given guidance as to the approach which is to be adopted when the Court considers entering summary judgment on a defendant’s application against a plaintiff pursuant to r 136(2) of the High Court Rules. That was given in Westpac Banking Corporation v MM Kembla (NZ) Ltd [2001] 2 NZLR 298 at [58]-[64] and Bernard v Space 2000 Ltd (2001) 15 PRNZ 338.
[18]In Westpac Banking Corporation v MM Kembla (NZ) Ltd the Court said:
[58]The applications for summary judgment were made under R 136(2) of the High Court Rules which permits the Court to give judgment against the plaintiff “if the defendant satisfies the Court that none of the causes of action in the plaintiff's statement of claim can succeed”.
[59]Since R 136(2) permits summary judgment only where a defendant satisfies the Court that the plaintiff cannot succeed on any of its causes of action, the procedure is not directly equivalent to the plaintiff's summary judgment provided by R 136(1).
[60]Where a claim is untenable on the pleadings as a matter of law, it will not usually be necessary to have recourse to the summary judgment procedure because a defendant can apply to strike out the claim under R 186. Rather R 136(2) permits a defendant who has a clear answer to the plaintiff which cannot be contradicted to put up the evidence which constitutes the answer so that the proceedings can be summarily dismissed. The difference between an application to strike out the claim and summary judgment is that strike-out is usually determined on the pleadings alone whereas summary judgment requires evidence. Summary judgment is a judgment between the parties on the dispute which operates as issue estoppel, whereas if a pleading is struck out as untenable as a matter of law the plaintiff is not precluded from bringing a further properly constituted claim.
[61]The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually summary judgment for a defendant will arise where the defendant can offer evidence which is a complete defence to the plaintiff's claim. Examples, cited in McGechan on Procedure at HR 136.09A, are where the wrong party has proceeded or where the claim is clearly met by qualified privilege.
[62]Application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment only able to be properly arrived at after a full hearing of the evidence. Summary judgment is suitable for cases where abbreviated procedure and affidavit evidence will sufficiently expose the facts and the legal issues. Although a legal point may be as well decided on summary judgment application as at trial if sufficiently clear (Pemberton v Chappell [1987] 1 NZLR 1), novel or developing points of law may require the context provided by trial to provide the Court with sufficient perspective.
[63]Except in clear cases, such as a claim upon a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary procedure the sufficiency of the proof of the plaintiff's claim. That would permit a defendant, perhaps more in possession of the facts than the plaintiff (as is not
uncommon where a plaintiff is the victim of deceit), to force on the plaintiff’s case prematurely before completion of discovery or other interlocutory steps and before the plaintiff’s evidence can reasonably be assembled.
[64]The defendant bears the onus of satisfying the Court that none of the claims can succeed. It is not necessary for the plaintiff to put up evidence at all although, if the defendant supplies evidence which would satisfy the Court that the claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own. Even then it is perhaps unhelpful to describe the effect as one where an onus is transferred. At the end of the day, the Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment made by the Court on interlocutory application is not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial.
[19] This passage was cited with approval by the Privy Council in Jones v Attorney-General [2004] 1 NZLR 433 at 437.
Issues
[20] It is apparent from the background and the summary of the pleadings that I have set out, that the plaintiffs seek to establish a cause of action in tort against the first defendant which involves matters which may well have involved a cause of action in contract against the company, Kenview Homes Limited, from which the plaintiffs purchased the subject house.
[21] Mr Fardell summarised the specific issues. His summary, by and large, was accepted by Mr Benvie for the purposes of the examination I am now undertaking. That summary provided:
6.1Has the first defendant demonstrated, on the balance of probabilities, that the plaintiffs’ entire claim against him cannot succeed?
6.2Specifically, and firstly, has the first defendant demonstrated that there is not, or is unlikely to be, sufficient evidence to establish an arguable case that there exist any acts or omissions of the first defendant which have caused loss to the plaintiffs?
6.3Secondly, if so, has the first defendant demonstrated that there is not, or is unlikely to be, sufficient evidence to establish an arguable case for the plaintiffs that the first
defendant acted such as to incur a personal duty of care to the plaintiffs, separate from Kenview, in respect of construction of the subject dwelling and/or supervision of that construction.
7.Lastly, does the pleading in the plaintiffs’ statement of claim disclose a reasonable cause of action, namely the existence and breach of a personal duty of care, as distinct from any such duty on the part of Kenview, when merely pleading inter alia that:
7.1Kenview by its agents and contractors constructed the subject dwelling.
7.2At all material times the first defendant was a director and agent of Kenview.
7.3The first defendant personally undertook building work and supervised construction of the subject dwelling thereby assuming a personal duty of care to the plaintiffs?
[22] This application puts in issue the liability in tort of a shareholder/director of a company which has built a residential property, to the purchaser from the company of that residential property for defects in the construction of it. The background which I have outlined makes it plain that there was no personal contact between the plaintiffs and the first defendant prior to actual completion of the house purchase. The contact only occurred in relation to the completion of the special conditions and, I infer, in relation to remedying faults, again pursuant to special condition 15. I will return later in this judgment to a more detailed examination of the evidence. It is important, however, before doing so to examine the principles which are relevant and which should be applied in determining whether the first defendant owed the duty of care contended for.
The test for imposing a duty of care
[23] The Court of Appeal in Rolls Royce New Zealand Ltd v Carter Holt Harvey Ltd CA259/02 23 June 2004 examined this issue. At [58] – [65] the Court said:
[58]The ultimate question when deciding whether a duty of care should be recognised in New Zealand is whether, in the light of all the circumstances of the case, it is just and reasonable that such a duty be imposed. The focus is on two broad fields of inquiry but these provide only a framework rather than a straightjacket. The first area of inquiry is as to the degree of proximity or relationship between the parties. The second is whether there are other wider policy
considerations that tend to negative or restrict or strengthen the existence of a duty in the particular class of case. At this second stage, the court’s inquiry is concerned with the effect of the recognition of a duty on other legal duties and, more generally, on society. See South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd[1992] 2 NZLR 282, 293-294 (Cooke P), 305-306 (Richardson J), 312 (Casey J), 316-318 (Hardie Boys J) and Attorney-General v Carter[2003] 2 NZLR 169 at paras [22] and [30].
[59]The inquiry into proximity is concerned with the nature of the relationship between the parties and is more than a simple question of foreseeability. It involves consideration of the degree of analogy with cases in which duties are already established. This is because courts should only move gradually into new areas of liability and also because the examination of factors that have influenced earlier decisions ensures that any development of the law occurs in a principled and cohesive manner – Connell v Odlum [1993] 2 NZLR 257, 265.
[60]The proximity inquiry can be seen as reflecting a balancing of the plaintiff’s moral claim to compensation for avoidable harm and the defendant’s moral claim to be protected from undue restrictions on its freedom of action and from an undue burden of legal responsibility. That necessarily involves a consideration of how close the nexus is between the defendant’s alleged negligence and the plaintiff’s loss and the degree of harm to the plaintiff. It also involves considering the burden on the defendant of taking precautions against the risk and also whether the consequences to the defendant may be out of proportion to its fault - see South Pacific Manufacturing at 306-308 Richardson J, Stephen Todd (ed) The Law of Torts in New Zealand(3ed, 2001) 142-151 and John A Smillie “ The Foundation of the Duty of Care in Negligence” (1989) 15 Monash UL Rev 302, 328-330. As Cardozo CJ said in the oft-cited case of Ultramares Corporation v Touche, Niven & Co174 NE 441, 444 (NY,1931), the courts are concerned to limit the risk of exposing defendants to “ a liability in an indeterminate amount for an indeterminate time to an indeterminate class".
[61]The extent to which those in the plaintiff’s position are vulnerable can also be taken into account. The inquiry may in this case concentrate on whether a defendant with special skills has power over a vulnerable plaintiff - see South Pacific Manufacturingat 296 (Cooke P), 307 (Richardson J) and 317 (Hardie Boys J), Professor Smillie in “ Negligence and Economic Loss” (1982) 32 U Toronto LJ 231, 236 and Professor Jane Stapleton, “ Duty of Care Factors: a Selection from the Judicial Menus” in Peter Cane and Jane Stapleton (eds) The Law of Obligations: Essays in Celebration of John Flemin(g1998) 59, 79-81. That vulnerability is a key factor in determining liability was recently noted by the High Court of Australia in Woolcock Street Investments Pty Ltd v CDG Pty Ltd[2004] HCA 16 – see the majority judgment at paras 23-24 and McHugh J’s concurring judgment at paras 80-86, although that factor was thought to be of lesser importance in the other concurring judgment of Callinan J (para 224).
[62]Whether there are or could realistically have been other remedies for a plaintiff is relevant to the assessment of vulnerability. If there are, then this may point to there having been adequate means for the plaintiff to protect itself and to there being adequate deterrence for the defendant - see Jane Stapleton “Duty of Care: Peripheral Parties and Alternative Opportunities for Deterrence” (1995) 111 LQR 301 and the explicit application of this principle by Richardson J in South Pacific Manufacturingat 308-309. Professor Todd considers that the focus should be on what steps a person could reasonably have taken to look after his or her interests and, in commercial cases, includes the consideration of bargaining power and market reality – see Stephen Todd “A Methodology of Duty” (High Court of Australia Centenary Conference, Canberra, 11 October 2003) at 12.
[63]The nature of the loss can also be taken into account. The courts have been less willing to impose a duty of care in cases of economic loss than where there is physical damage to property or, in jurisdictions other than New Zealand with its accident compensation regime, physical injury. As McHugh J explained in Perre v Apand (1999) 198 CLR 180, 213-214 this is because claims for economic loss may result in mere transfers of wealth, so that one person’s loss is another gain, whereas harm to a person or property involves a net loss to social wealth. See also McHugh J’s recent remarks in Woolcock Street Investments Pty Ltd v CDG Pty Ltd[2004] HCA 16 at para 21 and Stephen Todd “A Methodology of Duty” (High Court of Australia Centenary Conference, Canberra, 11 October 2003) at 10.
[64]The statutory and contractual background may also be relevant in defining the relationship between the parties and can point, depending on the circumstances, both towards and away from a finding of proximity. The statutory and contractual background can raise wider policy issues and thus the boundary between proximity and policy can merge. The two stage approach is, however, only a framework and no presumptions, rebuttable or otherwise, arise at any stage of the inquiry. This means that the important object is that all relevant factors are properly weighed, not the stage of the inquiry at which they are taken into account – see the remarks of Cooke P in South Pacific Manufacturingat 294 and Tipping J in Attorney-General v Carter at 169-170, para 30.
[65]For example, in Price Waterhouse v Kwan[2000] NZLR 39, 41 para 6 Tipping J considered the relevant legislative environment to be of considerable relevance to the issues of both proximity and policy and, in South Pacific Manufacturing,all of the Judges considered that the existence of contractual remedies against the insurer militated against there being a duty of care. Casey J, at 314, treated this factor as being a factor pointing against there being the requisite degree of proximity. Hardie Boys J, at 318-319, said that the existence of alternative remedies was a factor that could point against proximity being present but in fact dealt with the contractual remedy against the insurer as a policy consideration weighing against the imposition of a duty, as did all the other Judges. Cooke P, however, (at 301) also referred to the contractual structure in his discussion of proximity, approving of the reasoning in Simaan.
[24] When discussing the case law, the Court considered the cases involving liability to subsequent owners of domestic dwellings and said at [71]:
Liability to subsequent owners of domestic dwellings for defects in such dwellings has, however, long been a feature of New Zealand case law, since Bowen v Paramount Builders (Hamilton) Ltd[1977] 1 NZLR 394. This position was upheld by the Privy Council in Invercargill City Council v Hamlin[1996] 1 NZLR 513, despite a special seven judge panel of the House of Lords in Murphy v Brentwood District Council[1991] 1 AC 398, retreating from its earlier decisions and denying liability in a similar case. These cases involved the liability of a council but it was assumed that the liability of the builder would have been no less extensive.
And at [73]:
Liability of a professional builder to a subsequent owner of a domestic dwelling has been upheld in Australia – see Bryan v Maloney(1995) 182 CLR 690.
[25] The Court next considered a distinction that had been drawn in some of the cases between commercial and domestic buildings and noted that that was not favoured because of difficulty of definition. The Court next looked at the position in the United States noting that there was no uniform position. It also reviewed the Canadian authority and then gave consideration to the position in England. The Court noted that the decision Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] 1 QB 758 (CA) had been widely approved both in New Zealand and in the United Kingdom: [84]. In that case the Court of Appeal rejected a claim by the main contractor in tort against the nominated supplier to a subcontractor for economic loss occasioned by defects in the quality of the goods supplied, namely the glass.
[26] The Court considered the concept of assumption of responsibility and observed at [100] that:
assumption of responsibility for the task cannot be sufficient in itself, at least in so far as the negligent construction cases are concerned. If it were, then the result in Simaan (which has been so widely approved) could not be justified, as the subcontractor in that case had clearly assumed responsibility for the task of supplying glass that accorded with the contractual specifications.
[27] The question in Simaan was whether:
the subcontractor had assumed responsibility to the plaintiffs and the answer given in the case, although not expressed in that manner, was that it had not. Any assumption of responsibility was only to the direct contracting party.
[28] The position of company directors in respect of personal liability for negligence, must be specifically considered. The Court of Appeal had to consider the position in Trevor Ivory Ltd v Anderson [1992] 2 NZLR 571.
[29] Mr Fardell helpfully summarised the position in his memorandum, which I adopt.
24.Recognising the allegations of negligence against company directors involve the usual general inquiry into the existence of a duty of care, Hardie-Boys J then explained the relevance of a company’s separate legal personality to this field of inquiry (p527):
An agent is in general personally liable for his own tortious acts: Bowstead on Agency (15th ed, 1985) at p 490. But one cannot from that conclude that whenever a company's liability in tort arises through the act or omission of a director, he, because he must be either an agent or an employee, will be primarily liable, and the company liable only vicariously. In the area of negligence, what must always first be determined is the existence of a duty of care. As is always so in such an inquiry, it is a matter of fact and degree, and a balancing of policy considerations. In the policy area, I find no difficulty in the imposition of personal liability on a director in appropriate circumstances. To make a director liable for his personal negligence does not in my opinion run counter to the purposes and effect of incorporation.
He continues:
What does run counter to the purposes and effect of incorporation is a failure to recognise the two capacities in which directors may act; that in appropriate circumstances they are to be identified with the company itself, so that their acts are in truth the company's acts. Indeed I consider that the nature of corporate personality requires that this identification normally be the basic premise and that clear evidence be needed to displace it with a finding that a director is acting not as the company but as the company's agent or servant in a way that renders him personally liable.
… Essentially, I think the test is, or at least includes, whether there has been an assumption of responsibility, actual or imputed.
25.Earlier in the judgment, His Honour expanded on this ‘identification’ question (p256):
To described a director as the agent of the company can be deceptive. It is a useful description, for a corporation, being an "abstraction" (per Lord Haldane in Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705), cannot of itself think, resolve or act, but does so through its directors. In that sense they are certainly agents; but in the popular rather than the strictly legal sense of the word. It is not the case that they are always agents in the legal sense. The concept of corporate personality means that for some purposes the directors and the company are one.
26.In the same judgment the President made the same points as Hardie- Boys J and went so far as to say that, in the context of dealings with third parties, if a person is identified with a company vis-à-vis third parties, it is reasonable that prima facie the company should be the only party liable: Cooke P at p 520.
27.He qualified his point by adding that an officer or servant of a company may in the course of activities on behalf of the company come under a personal duty to a third party: Ibid, lines 20-26.
28.However, His Honour at p 520, lines 40-52, cited Nourse J in White Horse Distillers Limited v Gregson Associates Limited [1984] RPC 61 at 92, and later in his judgment (p 523, line 48) expresses agreement with this quotation:
‘it would seem to be irrational that there should be personal liability merely because the director expressly or impliedly directs or procures the commission of the tortious act or conduct. In the extreme, but familiar, example of the one- man company, that would go near to imposing personal liability in every case. As for deliberateness or recklessness and knowledge or means of knowledge that the act or conduct is likely to be tortious, I think that these may on examination be found to be no more than characteristic, perhaps essential, elements in the director's making the act or conduct his own.’
29.Relevant to the proximity enquiry, and most particularly to policy factors militating against the existence of a duty of care, His Honour concluded, at p524:
Lines 20-25:
if an economic loss claim depends on establishing a personal duty of care, it is especially important to consider how far the duty asserted would cut across patterns of law evolved over the years in the process of balancing interests.
Lines 28-29:
In the instant case it is patent that the object of Mr Ivory in forming a limited liability company, an object encouraged by long-established legislative policy, would be undermined by imposing personal liability.
Lines 31-37:
I commit myself to the opinion that, when he formed his company, Mr Ivory made it plain to all the world that limited liability was intended. Possibly the plaintiffs gave little thought to that in entering into the consultancy contract; but such a limitation is a common fact of business and, in relation to economic loss and duties of care, the consequences should in my view be accepted in the absence of special circumstances. It is not to be doubted that, in relation to an obligation to give careful and skilful advice, the owner of a one-man company may assume personal responsibility. Fairline is an analogy. But it seems to me that something special is required to justify putting a case in that class.
[30] Mr Fardell noted that Trevor Ivory had been followed on numerous occasions. He drew attention to the article by Neil Campbell, Leaking Homes, Leaking Companies [2002] CSLB 101 and the suggestion that the Courts, on occasions, have misapplied Trevor Ivory. Again, in a helpful summary, he referred to decisions where he submitted the Trevor Ivory decision had been correctly applied.
31.1Mahon v Crockett (1999) 8 NZCLC 262,043 – a successful appeal to the Court of Appeal by a defendant director of several construction and development companies in regard to judgment against him on claims that he was personally liable to pay commissions to the plaintiff. The Court of Appeal considered that there was a requirement for a clear establishment of an assumption of personal liability on the part of the director, as distinct from the companies or corporate entities which he controlled, and the evidence did not justify the conclusion that the director was personally liable.
31.2O’Sullivan v New Zealand Ostriches (2000) 14 PRNZ 593 – the plaintiffs unsuccessfully applied to join the defendant company’s director to the proceeding, on their allegation that the director owed them a duty of care and was negligent in setting up, and managing the defendant company’s ostrich breeding operation. The plaintiffs had contracted with the company; the plaintiffs’ ostriches to be agisted at the company’s ostrich farm, of which it was alleged that the director was the ‘promoter and controller’. The application was declined because the evidence produced did not support the cause of action against the director, as it fell well short of establishing grounds to allege the existence of a duty of care. Potter J acknowledged that personal liability may be imposed on a company director in appropriate circumstances, but it was always necessary to distinguish between acting in the capacity of a company director and one’s personal capacity. It was considered relevant that the director had had not contact with the plaintiffs at any material time.
31.3Plypac Industries Ltd v Marsh (1998) 8 NZCLC – the defendant director successfully applied for an order striking out the plaintiff’s claim against him as disclosing no reasonable cause of action. The plaintiff had earlier obtained judgment against the director’s company (which was subsequently placed into liquidation) on the company’s failure to fulfil its obligations under a contract with the plaintiff to design and supply machinery, and to provide evidence of a current professional indemnity policy. The plaintiff alleged against the director a breach of duty of care which it said the director owed to the company and to itself to make full and accurate statements to the company’s insurer, to correctly inform the plaintiff that appropriate insurance had been obtained, and to ensure that the company acted prudently and properly in its dealings with its insurer once the plaintiff’s claim had been lodged with the company. In the course of holding that a director on behalf of a company assumes a personal duty of care to the company’s client where special circumstances are shown, which were not present in this case, and in holding that the only duty owed by the director was to the company and not to the plaintiff, Master Venning (as he then was) observed:
(a)the New Zealand authorities dealing with assumption of a personal duty of care by company directors (including Trevor Ivory and Brookes v New Zealand Guardian Trust), make it clear that special circumstances must be shown for the imposition of such a duty of care, and those were not present on facts in the present case: p 261, 716.
(b)Cooke P’s comments in Trevor Ivory at p 524 were apposite concerning the director making it plain to all the world that limited liability was intended, and that this should be accepted in the absence of ‘special circumstances’: p 261, 718.
(c)Similarly, there were no circumstances present in Plypac to elevate the plaintiff’s claim against the director into one of those classes. Indeed, the plaintiff was apparently concerned not to rely so much on the director but addressed its concern solely to the company: Ibid.
(d)Policy considerations pointed against the imposition of a duty: to impose a duty on a director in the Plypac case would be equivalent to placing the director in the shoes of an insurer for parties dealing with the company. The plaintiff and the company were free, as are other parties to commercial contracts, to regulate their affairs by contract and to determine the extent of the obligations they had to each other: p 261, 719.
31.4Banfield v Johnson (1994) 7 NZCLC 260,496 – an unsuccessful strike out application by the director of a building company which had contracted with the plaintiff to construct motels. Thorpe J considered the judgements of Cooke P and Hardie-Boys J in Trevor Ivory and accepted counsel for the applicant’s submission that, in situations where plaintiffs pursue a claim in negligence against the director of a company with which they have been dealing, ‘a special
case must be established’: p 260, 498. However, recognising the limitations of the Court’s jurisdiction under HCR 186, and having regard to the further particulars provided to the Court in that case in a draft amended statement of claim, His Honour was satisfied that the respondent had pointed to further particulars which were sufficient to require the material facts to be determined at trial.
[31] Mr Benvie did not take issue with Mr Fardell’s summary. He drew attention to the following:
a)The duty alleged is a duty to take reasonable care to ensure that the building work was undertaken in accordance with good workmanlike practises and in accordance with the requirements of the New Zealand Building Code;
b)The fact that a developer delegates the task of building to others does not relieve the developer of this duty: Mount Albert City Council v Johnson [1979] 2 NZLR 234, 240-241; and
c)A director (or any person or entity acting as agent of the company) can be subject to a personal duty of care in respect of defective construction. Two cases illustrate this: Morton v Douglas Homes Ltd [1984] 2 NZLR 595 and Callaghan v Robert Ronayne Ltd (1979) 1 NZCPR 98.
[32] It is appropriate to record the position of the directors in Morton. They were the sole individuals who were armed with knowledge of important engineering requirements. They assumed control of the process of constructing the foundations in the absence of any other party doing so. This situation was found to create an assumption of personal responsibility and was the basis upon which liability was founded. That was specifically observed to be the position by Cooke P in Trevor Ivory at 523. For reasons which will become apparent when I consider the facts in more detail, that situation does not apply in the instant case.
[33] In Callaghan Speight J had to consider a claim against the directors of a development company. He found that the directors had no personal involvement in the building work and thus were not liable. Although that case recognises the
possibility of a claim against the directors, its factual circumstances do not assist the plaintiffs in this case.
[34] I wish to add yet a further comment on the issue of assumption of responsibility. In the editorial article by Neil Campbell, Leaking Homes, Leaking Companies the author submits that cases subsequent to Trevor Ivory had misconstrued the requirement that a defendant has assumed responsibility by expanding it to cases where such an element is not an element of the actual cause of action.
[35] Mr Fardell submitted that that statement goes too far in endeavouring to restrict the relevance of the assumption of responsibility inquiry. That is because the phrase is used in more than one sense. It is relevant to the broader proximity inquiry in the much wider class of negligence cases where a duty of care is asserted against some party other than the party with whom the plaintiff had, primarily, been dealing with. In this case, of course, that is the company. Mr Fardell drew attention to the different senses in which the phrase is used, something which was acknowledged by Glazebrook J in Rolls Royce at [96] - [98].
[36] Mr Fardell also drew attention to the fact that the need to consider whether there has been an express, imputed or imposed assumption of responsibility was noted in a number of authorities. As well as those set out at [30], he mentioned the following.
[37] In South Pacific Manufacturing Co Ltd v New Zealand Security Consultants and Investigations Ltd [1992] 2 NZLR 282 at 307 Richardson J said:
Finally, viewed simply in terms of proximity there is a clear parallel with two categories of cases where a duty of care has been recognised. One is the duty owed by a solicitor to a designated beneficiary under a will where the solicitor has accepted instructions to prepare the will for execution but has failed to do so before the testatrix died (Gartside v Sheffield, Young & Ellis [1983] NZLR 37). The other is the duty owed by a receiver appointed by a debenture holder to the holder of a subordinate security, the value of which is adversely affected by the conduct of the receiver (First City Corporation Ltd v Downsview Nominees Ltd [1990] 3 NZLR 265). In those two cases, as here, the defendant assumes a responsibility to act carefully in undertaking an activity; in each there is a similar dependence and power relation between the plaintiff and the defendant; in each there is a high degree of likelihood
that careless performance of that responsibility will cause harm to the plaintiff.
[38]In Simaan Bingham LJ said at 781:
Where a specialist sub-contractor is vetted, selected and nominated by a building owner it may be possible to conclude (as in the Junior Books case [1983] 1 AC 520) that the nominated sub-contractor has assumed a direct responsibility to the building owner … I do not, however, see any basis on which the defendants could be said to have assumed a direct responsibility for the quality of the goods to the plaintiffs: such a responsibility is, I think inconsistent with the structure of the contract that the parties have chosen to make.
[39] In Plypac Master Venning, as he then was, also noted the need to determine whether there has been an assumption of responsibility by the agent of the company to the client. The company was, of course, required to obtain the insurance cover.
[40] For present purposes it is only necessary to make two points as to the scope of the assumption of responsibility requirement.
[41] First, where the liability of directors for breach of a personal duty of care in negligence is at issue, whether there has been a personal assumption of responsibility has particular prominence as the focus of the enquiry, as held in Trevor Ivory. This extends to cases involving directors’ liability for defective buildings. At 523 Cooke P referred to Morton, which involved precisely this situation, and accepted that:
on the particular facts there was an assumption of responsibility.
[42] Secondly, the case law subsequent to Trevor Ivory referred to by Mr Fardell (as set out at [30]), has affirmed personal assumption of responsibility as a requirement of directors’ personal liability in respect of a variety of duties of care. Notably, in Mahon v Crockett (1999) 8 NZCLC 262,043, the Court of Appeal acknowledged at [9]-[12] that the requirement of assumption of responsibility, as articulated in Trevor Ivory, generally applies to tortious causes of action against directors.
[43] Assumption of responsibility in negligent construction cases in respect of the task undertaken, is not, by itself sufficient to ground liability. There must be something further as was explained by Glazebook J in Rolls Royce at [100].
[44] I now return to the specific facts. For the purposes of determining whether there is the necessary proximity or relationship between the parties to justify the existence of the duty of care pleaded, the following points are relevant:
a)The land on which the house was built was, at all material times, owned by the company, Kenview Homes Limited;
b)The company applied for and obtained the building consent for the house which is the subject of this claim;
c)The company ordered and paid for all materials required for the erection of the house;
d)The company alone contracted with all trades personnel, ie plumbers, painters, electricians, etc in respect of the building of the house;
e)The first defendant was not directly involved in the erection of those parts of the building which are the subject of the complaint. They were: the fixing of the cladding, the erection of the external joinery, the construction of the roof, and the assembly of the structural framing timbers;
f)The first defendant’s only involvement, accepting without challenge for the purpose of this application the evidence advanced by the plaintiffs, was:
i)Co-ordinating the supply of materials and making payment using the company’s resources for them;
ii)Arranging on the company’s behalf for the preparation of plans, the supply of plans to engineers for checking and
certifying, and the passing of plans to material suppliers and the trades people who were to carry out the work;
iii)Completing on the company’s behalf all matters relating to the building consent. I do not overlook that one of the forms, the notice of completion, refers to the applicant as the first defendant. That is a document forwarded to the Council. It was obviously treated by the Council as a notice on behalf of the company and nobody else;
iv)Co-ordinating the supply of materials and paying for same, paying the tradespersons concerned: all steps undertaken specifically on the company’s behalf and using the company’s funds;
v)The evidence of Mr Dent, a neighbour, that:
Peter was definitely ‘hands on’ doing building work until the framing of the house was put up by other workmen. I saw Peter digging holes when the foundation work was being done.
It is significant that none of this work has any bearing on the areas of complaint that I have earlier made reference to;
vi)On the evidence of Mr Simpson, another neighbour, there is reference to the first defendant directing the operations of an excavator. Again, there is no specific evidence of involvement in the areas of construction about which complaint is made. There is reference to a discussion concerning leaky buildings but I fail to see how that specifically adds anything which might found a ground for finding a duty in favour of the plaintiffs owed by the first defendant;
vii)The plaintiff, Mrs Drillien, observed that subsequent to the purchase, the first defendant was involved in the clearing of
drains, repairing a driveway and, of course, attending to the special conditions. It is difficult to see how any of that evidence, however, could found the basis for the duty sought to be imposed. None of it relates to the work that is the subject of the complaint. None of it involves the period in time when the house was being built.
[45] No allegation is made anywhere of direct personal involvement by the first defendant in the specific areas where complaint is made. His position can be contrasted with those directors found liable in Morton. Those directors were found liable only in respect of the specific areas where they had direct involvement and, therefore, responsibility. Even if one ignored the issue of assumption of responsibility, what is evident on the facts before me is that, viewed as action taken by an agent, the first defendant has not, in fact, carried out the specific tasks which are said to have caused the loss. Further, I can find no foundation which would suggest that the first defendant was, in reality, himself the builder or developer in this case. The facts that I have listed above simply disclose that that is not the case.
[46] The plaintiffs entered into a contract with a company which contained specific warranties and obligations to be carried out by the company which owned the property concerned and which, as I have outlined above, was the developer and builder.
[47] The tradespeople involved, the plumbers, the painters, the electricians, have all confirmed the first defendant’s account that he was not involved in the specific areas which are the subject of complaint in the statement of claim. The contract was with the company. That reinforces the view that I have expressed, that there is simply no foundation in this case for the proposition that the defendant was either the builder or the developer of the house concerned.
[48] In summary, there is no evidence to suggest that the first defendant was directly responsible for the work which is said to be defective and which leads to the plaintiffs’ claim. The builder of the house concerned and the developer of the property were clearly the company and not the first defendant.
Conclusions
[49] I am satisfied that the evidence discloses that the cause of action pleaded against the first defendant cannot succeed. All of the requirements for the entry of summary judgment in favour of the first defendant which are referred to in the Court of Appeal’s judgment in Westpac and to which I referred in [18] of this judgment are met by the first defendant. Accordingly I enter summary judgment for the first defendant.
Judgment
[50] Judgment is entered in favour of the first defendant in respect of the plaintiffs’ claim against the first defendant.
Costs
[51] Normally costs follow the event. If counsel cannot agree memoranda in support, opposition and reply shall be filed and served at seven-day intervals. The Registrar shall refer same to me when all have been filed for decision if required.
Future of this case
[52] I schedule a case management conference by telephone with counsel at 10.10am on 22 March 2005. It will deal with:
a)Any matter arising out of the pleadings as a result of this judgment;
b)Any outstanding interlocutory matter;
c)Settlement;
d)Service in respect of the second defendant;
e)Trial time required, the fixing of a trial date, a setting down date and the making of any trial directions which are appropriate.
Counsel shall file and serve memoranda dealing with these items two working days before the conference.
JA Faire Associate Judge
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