Auckland City Council v Effuzi (International) Limited HC Auckland CIV-2009-404-6044

[2011] NZHC 1290

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-6044

BETWEEN  AUCKLAND CITY COUNCIL Plaintiff

ANDEFFUZI (INTERNATIONAL) LIMITED Defendant

Hearing:         6 September 2011 (Heard at Auckland)

Counsel:         M. Lloyd - Counsel for Plaintiff

K.P. Sullivan - Counsel for Defendant

Judgment:      19 October 2011 at 4:00 PM

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment of Associate Judge Gendall was delivered on 19 October 2011 at

4.00 pm under r 11.5 of the High Court Rules.

Solicitors:           Corporate Counsel, Legal Services Group, Auckland City Council

Duncan Cotterill, Solicitors, PO Box 10376, Wellington

AUCKLAND CITY COUNCIL V EFFUZI (INTERNATIONAL) LIMITED HC AK CIV-2009-404-6044 19

October 2011

Introduction

[1]      This proceeding involves a claim by the plaintiff against the defendant for the supply and installation in 1999 of seats alleged to be defective in the auditorium of the plaintiff‘s Civic Theatre at Queen Street, Auckland.

[2]      Before me are applications by the defendant to strike out the plaintiff‘s fourth amended statement of claim dated 5 August 2011, or to award the defendant summary judgment against the plaintiff.

[3]      The  plaintiff  asserts  two  claims.    First,  it  contends  the  defendant  was negligent  in  that  it  caused  the  plaintiff  loss  by  breaching  its  duty to  exercise reasonable skill and care while performing the contract in relation to supplying seats that were not dangerous in the event of fire.  Second, it says that under the Contractual  Mistakes Act  1977  the  contract  was  entered  into  under  a  mutual mistake resulting in an unequal exchange of values in that both of the parties entered into the contract in the mistaken belief that the seats were fire safe.

[4]      The defendant‘s response is that no such duty of care was owed or breached and in any event the plaintiff‘s claims are time barred.  It is common ground that s 4 of the Limitation Act 1950 provides for a six year limitation period on claims of this type.  With regard to the claim of mutual mistake, the defendant argues that no such mistake was made.

[5]      The defendant‘s grounds for strike-out are that the plaintiff‘s claim is so clearly statute-barred that its claim can properly be regarded as frivolous, vexatious or an abuse of process. And, its ground for summary judgment is that the pleadings contain no reasonably arguable cause of action, they are frivolous and vexatious or an abuse of process.

[6]      The plaintiff opposes the applications on the basis that the two remaining causes of action (negligence and mistake) are not time barred.   In particular it alleges that the causes of action did not accrue until June 2007, when it could first reasonably  have  discovered  that  the  seats  were  dangerous  from  a  fire  safety

perspective.  As proceedings were filed in September 2009 the plaintiff says they are not therefore time barred.

[7]      With respect to the duty of care issue, the plaintiff says that there is at least an arguable case i.e. a case that should go to trial, for a duty of care having been owed and a strong case for it having been breached.  Similarly it says that there is a strong case for there having been mutual mistake leading to an unequal exchange of values.

Background

[8]      In 1998 the plaintiff began the refurbishment of the auditorium of the Civic

Theatre, a large and historic public theatre in central Auckland.   On 7 December

1998 the plaintiff put out for tender the supply and installation of public theatre seating in the auditorium.

[9]      The terms on which tenders were sought included the following:

a)       The seats supplied were to be of merchantable quality and free from defects in material, workmanship and design;

b)The seats were to be fit for the purpose for which they were required, namely for the comfortable and safe seating of theatre goers within what is a heritage building; and

c)       The seats were to have a high level of fire safety/resistance and in particular were to comply with the provisions of an industry standard which was then in force (AS 1530).

[10]     In January 1999 the defendant, through its director Mr Murray Maclean Treweek (Mr Treweek), submitted a written tender which appears to have complied with those requirements.  Between January and May 1999 the parties entered into negotiations including discussions over the need for the seats to comply with the above requirements and in particular to be fire safe/resistant.   In May 1999 the defendant‘s tender was accepted and in July 1999 the parties entered into a formal written contract (the contract).

[11]     The seats to be supplied by the defendant were the same as seats it had some time earlier installed in a casino in Sydney, Australia under a contract it had with the casino operator, except for the actual fabric covering required for the Civic Theatre seat and the plywood seatback.   That particular change was a variation made by the plaintiff to the defendant‘s tender.   Under the tender documents specification a 100 per cent wool or 95 per cent wool and 5 per cent crepe nylon fabric was to be used.  However, the plaintiff subsequently required that a specific fabric was to be used for the seat covering, the design for which had been procured by the plaintiff.

[12]     When the defendant had its earlier seats installed in the casino in Sydney, it seems that fire safety testing was undertaken and those seats complied there with the relevant standards.  In a 9 April 1999 letter from Mr Treweek of the defendant to Carson Group, the project managers employed by the plaintiff for the renovation of the theatre, Mr Treweek stated:

b)        Fire Testing: The fire testing is indeed the [Sydney casino] seat but the components are the same as those to be used at the Civic.  By this we mean the foam seat and back are to the same specification and comply with AS1530 part 2.  The steel cradle is of no significance and the ply back caused no notable problem. If anything having a fire retardant fabric over the back could only improve the results.

[13]   That recommendation appears to have been accepted and despite later discussions on the issue, no comprehensive testing of the seats for the Civic Theatre was undertaken prior to installation.

[14]     Indeed, on 13 April 1999 a Mr Martin Feeney (Mr Feeney) of Holmes Fire and Safety, Consulting Enginners, the plaintiff‘s fire and safety consultants, wrote to Mr Malcolm Neil Sabourin (Mr Sabourin) project manager for Carson Group at the time:

We understand that the seats to be used for the Civic are the same as those tested for the Sydney Casino except that there is a fabric covering to the plywood seat back.

We are satisfied that the test results for the seats used in the Sydney Casino can be used as evidence of satisfactory performance of the seats to be installed at the Civic Theatre.  Therefore we are satisfied that the seat construction is within the bounds of our fire design assumptions and that there is no need to carry out further fire testing of the seats for the Civic Theatre project.

[15]     Subsequent to this, Mr Treweek, at paras [11] and [12] of his 18 July 2011 affidavit filed in this proceeding, deposes to concerns he had raised in mid 1999 about fire retardancy issues with the fabric to be used for the seats.  The fabric, now specified and required for the contract by the plaintiff, was a special fabric designed and manufactured by Fabriche Textiles Limited (Fabriche Textiles).

[16]     On  this  aspect,  following  communications  with  Fabriche  Textiles,  Mr Treweek deposes in his 18 July 2011 affidavit that he contacted Carson Group in July 1999 as follows:

Specifically I brought the lack of fire retardancy to the attention of Carson Group in my letter of 5 July 1999.  I was concerned that some testing of the fabric under the standard had not been done. I drew the importance of this to Carson Group.

[17]     With respect, however, Mr Treweek‘s 5 July 1999 letter to Carson Group was not quite that unequivocal.  Instead, he simply notes in that letter:

6)        Fire Retardancy – You requested fire retardancy to AS 1530 parts 2 and 3.

An official test report has been provided for part 3 tests but not part 2. Part 2 has reasonable importance as this states the flammability results.

[18]     It is that report dated 11 March 1998 from AWTA Textile Testing, Victoria, Australia which was attached that shows what I understand to be a high ignitability index.   However, there is no discussion of that fact, only a bare figure (14 on a

―Range‖ specified as ―0-20‖) in a column.

[19]     On 22 July 1999, however, it appears Mr Treweek obtained further fabric tests from Fabriche Textiles, these being from APL Applied Physics Laboratory, Auckland and WRONZ Developments, Christchurch.  Those tests appear to suggest a more favourable level of flammability.  Subsequently, it seems the defendant and the plaintiff‘s agents discussed the prospect of further testing.  It appears that the only option, to obtain the required testing, was to send four seats to Australia.  That would  have  delayed  the  installation  for  several  weeks  and  been  at  a  not insignificant cost.  It did not occur.

[20]     The contract then proceeded and in November 1999 the defendant supplied and installed the seats in the Civic Theatre.  Completion occurred by March 2000. Payment under the contract was made by the plaintiff (around $978,578.30), although the defendant alleges that there is still some money outstanding.

[21]     Little happened it seems until June 2007 when, following complaints of ergonomic, comfort and structural problems with the seats the plaintiff commissioned a full assessment and analysis of the seats by an independent expert. That assessment also apparently revealed that the seats might not comply with fire safety  standards.     Then,  between  June  2007  and  June  2008,  further  expert assessment  was  undertaken  by  the  plaintiff  to  determine  the  seats‘ fire  safety standard.   That it is said confirmed the earlier suspicion that the seats did not comply with relevant standards as allegedly represented by the defendant.

[22]     Thus, the plaintiff maintains that in 2009 it had no choice but to replace all the seats for fire safety reasons at a cost of around $1.4 million.

[23]     The  plaintiff  now  seeks  to  recover  one-half  of  this  cost  of  the  seats replacement (the seats had a life expectancy of 20 years and having had 10 years use, the plaintiff seeks one-half). The plaintiff pleads causes of action in negligence and mutual mistake under ss 6 and 7 of the Contractual Mistakes Act 1977.  The defendant replies to the plaintiff‘s substantive claim primarily on the basis that it is said to be time-barred.  It says also in particular that any lack of fire safety here is due to the fabric that the plaintiff itself required in a variation to the contract, and not due to the defendant‘s work in supplying the seats.  Thus, with respect to the negligence claim the defendant contends that it owed no duty of care to the plaintiff and if one was owed it was not breached.  And, with respect to the plaintiff‘s claim of mistake, the defendant alleges no mistake is made out here.

Defendants’ Summary Judgment Principles

[24]     Turning now to the principles to be applied in this case, the defendant‘s first application is one for summary judgment and is brought pursuant to r 12.2(2) of the High Court Rules. This provides:

12.2      Judgment when there is no Defence or when no Cause of Action Can

Succeed

(2)       The Court may give judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff‗s statement of claim can succeed.

[25]     McGechan on Procedure at [HR12.2.07] addresses a defendant‗s summary

judgment application and notes:1

Where the defendant applies for summary judgment, the position is rather different from an application by the plaintiff. A defendant‘s application is similar to a striking- out application in that the defendant has to show that the plaintiff cannot succeed. The difference between an application for summary judgment and an application to strike out is that the summary judgment application requires affidavit evidence to be provided. It will therefore be possible to obtain judgment on the basis of material other than that contained in the pleadings. As in the case of an application by the plaintiff, if there are material disputes of fact which cannot be resolved on affidavit, summary judgment will have to be refused.

The Courts have noted the similarity between the two types of application and the difficulty of succeeding where there is a material dispute of fact: Ferrymead Tavern Ltd v Christchurch Press Ltd (1999) 13 PRNZ 616. In A-G v Jones (2001) 15 PRNZ

347 (CA), the Court of Appeal adopted a robust approach to disputes of fact, and held that summary judgment ought to have been granted. The Privy Council overruled the Court of Appeal (A-G v Jones (2003) 16 PRNZ 715 (PC)) on the basis that there was a hypothetical scenario in which the factual differences might make a defence arguable. The decision emphasises the need to avoid factual disputes if judgment is to be obtained.

Summary judgment will not be appropriate where it is possible for the plaintiff to amend its claim so as to remedy the defects relied on by the defendant; it should be used only where the defendant has a clear answer to the plaintiff which cannot be contradicted: Westpac Banking Corp v M M Kembla NZ Ltd [2001] 2 NZLR 298, (2000) 14 PRNZ 631 (CA); A-G v Jones (2003) 16 PRNZ 715 (PC). Where the claim is untenable as a matter of law, it will generally be appropriate to apply to strike it out: Bernard v Space 2000 Ltd (2001) 15 PRNZ 338 (CA).

The defendant has to show that none of the plaintiff ‘s causes of action can succeed. While the plaintiff may obtain summary judgment on one of several causes of action, the defendant must be able to knock out the entire claim in order to be able to apply for summary judgment. If the defendant is only able to show that some of the causes of action cannot succeed, the proper course will be to apply for striking out

[26]     Essentially, r 12.2(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.   Caution should be exercised, however, in using the procedure to dispose of novel or developing points of law.2    And, the application of r 12.2(2) is clearly unsuited to situations where

there are material disputes of fact.3    Further, while it is generally accepted that a

court,  on  a  plaintiff ‘s  application  for  summary  judgment,  may  grant  summary

1 Andrew Beck and others McGechan on Procedure (online looseleaf ed, Brookers) at [HR12.2.07].

2 Westpac Banking Corp v M M Kembla New Zealand Limited [2001] 2 NZLR 298.

3 Attorney-General v Jones [2003] UKPC 48, [2004] 1 NZLR 433, (2003) 16 PRNZ 715.

judgment for part of a plaintiff‘s claim,4 on the wording of r 12.2 there is no such

scope on a defendant‘s application.

Strike-Out Principles

[27]     The defendant‘s second application here is one for strike out and is brought under r 15.1(1).  This states that the Court may strike out all or part of a pleading if it—

(a)      discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or

(b)      is likely to cause prejudice or delay; or

(c)       is frivolous or vexatious; or

(d)       is otherwise an abuse of the process of the court.

[28]     The authors of McGechan on Procedure provide the following summary of the principles relevant to r 15.1(1):5

The established criteria for striking out was summarised by the Court of Appeal in A-G v Prince [1998] 1 NZLR 262, (1997) 16 FRNZ 258, [1998] NZFLR 145 (CA) at 267, and endorsed by the Supreme Court in Couch v A-G [2008] NZSC 45 at [33], per Elias CJ and Anderson J:

(a)      Pleaded facts, whether or not admitted, are assumed to be true. This does not  extend  to  pleaded  allegations  which  are  entirely  speculative  and without foundation.

(b)The cause of action for defence must be clearly untenable. In Couch Elias CJ and Anderson J, at [33], said: ―It is inappropriate to strike out a claim summarily unless the court can be certain that it cannot succeed.‖

(c)       The jurisdiction is to be exercised sparingly, and only in clear cases. This

reflects the Court‘s reluctance to terminate a claim or defence short of trial.

(d)       The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument.

(e)       The  Court  should  be  particularly  slow  to  strike  out  a  claim  in  any developing area of the law, perhaps particularly where a duty of care is alleged in a new situation. In Couch, at [33], Elias CJ and Anderson J said:

―Particular   care  is  required  in  areas  where  the  law  is  confused  or

4 Raptorial Holdings Ltd (in rec) v Elders Pastoral Holdings Ltd (2000) 14 PRNZ 663 (CA).

5 (online looseleaf ed, Brookers) at [HR15.1.02(1)].

developing.‖   There   is   considerable   authority   that   developments   in negligence need to be based on proved rather than hypothetical facts.

[29]     In order to succeed in striking out a cause of action as statute-barred, the defendant must satisfy the Court that the plaintiff‘s cause of action is so clearly statute-barred that the plaintiff‘s claim can properly be regarded as frivolous, vexatious or an abuse of process.  On this Tipping J said in Murray v Morel & Co Ltd:6

In the end the judge must assess whether, in such a case, the plaintiff has presented enough by way of pleadings and particulars (and evidence, if the plaintiff elects to produce evidence), to persuade the court that what might have looked like a claim which was clearly subject to a statute bar is not, after all, to be viewed in that way, because of a fairly arguable claim for extension or postponement. If the plaintiff demonstrates that to be so, the court cannot say that the plaintiff ‘s claim is frivolous, vexatious or an abuse of process. The plaintiff must, however, produce something by way of pleadings, particulars and, if so advised, evidence, in order to give an air of reality to the contention that the plaintiff is entitled to an extension or postponement which will bring the claim back within time.

[30]     It is appropriate to consider first the defendant‘s strike out application before the Court and I now do so.

Counsels’ Submissions and My Decision

The negligence claim – Duty of Care

[31]     The defendant‘s position presented at the outset is that the relationship in this  case  was  governed  by  a  comprehensive  commercial  contract  between  the parties.  It alleges that both parties were commercially savy, independently advised entities who elected to define their rights and responsibilities by contract and that therefore any claims they have should be limited to contract.  The defendant points out the contract contained defects liability and guarantee periods (for 5 years) that have long since expired.   All of this, the defendant says, militates against there being a duty of care owed by the defendant independently of the contract.

[32]     It  seems  to  be  accepted  by the  plaintiff  that  the  parties  are  both  large commercial entities who knowingly and with independent advice entered into the

comprehensive commercial contract, a contract which did prescribe their rights and

6 Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721 at [33].

obligations and contain defects liability and guarantee periods.   However the plaintiff‘s position here is that, in the unique circumstances of this particular case, an independent duty of care in negligence should be held to exist with respect to what it says were latent or hidden fire safety defects that the seats were found, in

2007, to possess.

[33]     Turning now to this claim in negligence set out by the plaintiff, in order to establish a cause of action in negligence, it must show that:

a.        The defendant owed it a duty of care;

b.        That duty was breached;

c.        The breach caused damage;

d.        The damage was not too remote.

[34]     It is clear from the decision of the Court of Appeal in Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd that there is no duty in tort to take reasonable care to perform a contract.7    However, in that case Glazebrook J, for the Court, noted that ―there is a duty to take reasonable care in or while performing the contract, which is quite a different concept‖.8    The latter is what the plaintiff claims here.   The plaintiff‘s claim in negligence is that the defendant failed to exercise reasonable skill and care while performing the contract, particularly in relation to supplying seats that were not dangerous in the event of fire.   It is important to record at this point the type of contract which was signed between the parties, recorded at clause 2.2 of the contract thus:

The supplier shall supply the Goods described in the Contract Documents and fulfil all of its obligations thereunder.

7 [2005] 1 NZLR 324 (CA) at [66].

8 At [66].

[35]     It is not disputed that the present claim, therefore, is one for economic loss arising essentially out of the negligent supply of goods.

[36]     The parties‘ relationship here clearly arose out of a contract negotiated at arm‘s  length.    As  I  have  noted,  that  contract  contained  defects  liability  and guarantee periods.  Both parties accept, however, that causes of action in contract and tort can be concurrent and co-extensive.9    The plaintiff also accepts first, that the duty alleged by it must exist independently of the contract as it goes beyond the obligations contained therein, and secondly, that the existence of the comprehensive

contractual relationship between the parties here as large commercial entities of equal bargaining power must militate against there being a duty of care owed independent of the contractual relationship.  Such a proposition is evident from the Court of Appeal‘s reasoning in Rolls-Royce.

[37]     On the issue of determining whether a duty of care may exist, this was the subject of recent discussion in Minister of Education v Econicorp Holdings Ltd [2011] NZCA 450. There, Arnold J delivering the majority judgment for the Court of Appeal adopted the conclusions reached in Rolls-Royce and stated:

[23]     The way in which the existence of a duty of care is to be determined has been the subject of a number of recent decisions of the Supreme Court and this Court in various contexts.  For present purposes, it is sufficient that I refer to one, this Court‘s decision in Rolls Royce New Zealand Ltd v Carter Holt Harvey Ltd.

[24]     In that case Carter Holt Harvey Ltd (CHH) contracted with Electricity Corporation of New Zealand Ltd (ECNZ) to procure the design, manufacture, construction, purchase and installation of a cogeneration plant at CHH‘s Kinleith mill (the cogeneration contract).  ECNZ then contracted Rolls Royce New Zealand Ltd  (Rolls Royce) to  design, construct and commission the plant (the turnkey contract).   Although the cogeneration contract was entered into on the basis that Rolls Royce was to be the subcontractor, there was no direct contractual relationship between CHH and Rolls Royce.

[25]     CHH considered that the plant was defective.  It sued ECNZ‘s successor, Genesis Power Ltd (Genesis), for breach of contract and Rolls Royce in negligence.   By the time the matter reached this Court, there were two aspects to CHH‘s claim against Rolls Royce.  First, CHH alleged that Rolls Royce had been negligent in failing to take reasonable care to perform the turnkey contract.  Second, CHH alleged that Rolls Royce had failed to use reasonable  care  and  skill  in  making  statements  and  giving  advice

9 Frost & Sutcliffe v Tuiara [2004] 1 NZLR 782 at [22].

concerning the design, installation and construction of the plant (the Hedley Byrne claim).10   This Court concluded that the first aspect should be struck out but the second allowed to proceed.

[26]     Delivering  the  judgment  of  the  Court,  Glazebrook  J  summarised  the approach to be adopted when considering whether there should be a duty of care in the following terms:

The ultimate question when deciding whether a duty of care should be recognised in New Zealand is whether, in light of all the circumstances of the case, it us 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.

[27]     Glazebrook J went on to discuss what was involved in the inquiry into proximity.   She noted that it was concerned with the nature of the relationship   between   the   parties   and   involved   more   than   simply forseeability.  The Judge described the proximity enquiry 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‖.11

The extent to which those in the plaintiff ‘s position were vulnerable was relevant, which could involve an assessment of whether the plaintiff has, or could have had, other remedies.  The nature of the loss could also be taken into account, the courts being less willing to impose liability in cases of economic as opposed to physical loss.  Finally, Glazebrook J noted that the contractual and statutory context may be relevant to defining the nature of the relationship between the parties and could point either towards or away from a finding of proximity.  This could give rise to wider issues of policy, which may merge into the policy assessment that is the second stage of the duty enquiry.

[28]       In discussing proximity in the context of the factual situation, Glazebrook J

said:

(a)       The factors pointing towards proximity were:

It was clearly foreseeable that a lack of reasonable care by Rolls Royce would cause CHH loss of the type that occurred;12 and

There was a great deal of contact between CHH and Rolls

Royce before the turnkey contract was entered into.

10 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL).

11 At [60].

12  At [121] of the judgment Glazebrook J described foreseeability as ―the  main factor pointing towards a duty‖.

(b)       The factors pointing against proximity were:

The contractual structure, in particular the fact that there was no contractual relationship between CHH and Rolls Royce, although  the  cogeneration  contract  did  foreshadow  the turnkey contract and CHH and Rolls Royce had considerable interaction before it was entered into.

The parties were sophisticated commercial parties, bargaining from  positions of  equality,  and  they had  made  their  own allocations of risk through the contractual provisions, allocations which were inconsistent with alleged liability in tort. The cogeneration contract and the turnkey contract were significantly different in terms of limitation of liability and dispute resolution.

(c)        The statutory context (the Building Act 1991) was a neutral factor. [29]     Turning to  policy considerations, Glazebrook J  identified the  principal

consideration as being the need for commercial certainty:   ―Commercial parties are normally entitled to expect that the risk allocation they have negotiated (and paid for) will not be disturbed by the Courts.‖13   Moreover, such parties are capable of looking after their own interests.   The Judge referred  to  the  fact  that  there  had  been  numerous observations in  the authorities that tort liability with regard to defects in quality will not extend to commercial construction cases.

[30]       Finally, the Judge considered whether it was fair and just to impose a duty.

She said that, while the requirement for foreseeability was met, the detailed contractual structure pointed strongly against a finding of proximity. Although CHH well knew that the successful completion of the project depended on Rolls Royce, it did not seek to contract directly with Rolls Royce.  The Court concluded that CHH‘s claim against Rolls Royce should be struck out to the extent that it pleaded a duty owed by Rolls Royce to take reasonable care to perform the turnkey contract.  However, the Hedley Byrne claim was not struck out, although it required repleading.

[38]     In the present case, Mr Lloyd for the plaintiff, suggested however that the Court of Appeal‘s decision in Rolls-Royce can be distinguished from the present case on five grounds.  First, there is a direct contractual relationship in the present case, which was not present in Rolls-Royce.   That closer relationship creates a higher level of proximity between the parties.   Secondly, no issue was taken in Rolls-Royce with the right for Carter Holt Harvey to claim against Rolls-Royce in negligent misstatement.   Thirdly, in Rolls-Royce Carter Holt Harvey had other contractual remedies available to it, whereas the plaintiff‘s contractual remedies here are time barred.  Fourthly, the defects in Rolls-Royce were neither latent nor

dangerous,  which  circumstances  the  Court  of Appeal  left  open  as  inviting  the

13 At [118].

possibility of an increased duty of care in tort.14   In the present case the defects are said to be both latent (or at least they were latent) and dangerous.  And fifthly, the degree of reliance by the plaintiff on the defendant with respect to any possible fire safety issue with the seats, the vulnerability of the plaintiff and the assumption of the risk by the defendant in making the representations that it did about fire safety, constitute additional special features.

[39]     Before me, the plaintiff further relied on a decision of Associate Judge Abbott in R v Barns & Associates Ltd in which the Associate Judge declined an application to strike out a claim on the basis that no duty of care was owed.15    In that case the defendants were engaged by the Ministry of Education to build two buildings at a school in Rūātoki in 1996.   The buildings experienced problems (poor ventilation, leaks, condensation and glare) and a report was obtained by BRANZ in 1998.  Proceedings were not issued until 2005.  The Associate Judge concluded that it was not a case where he could dismiss the existence of a duty of care by way of summary judgment.16

[40]     In response, the defendant argues that a duty of care, outside the scope of the contractual relationship, cannot be founded in the present case.

[41]     A useful starting point in a proper consideration of these aspects is Tipping

J‘s statement, for the Court of Appeal, in Frost & Sutcliffe v Tuiara at [19] and [22]:

It would be strange if in ordinary circumstances the parties by their contract could not restrict or modify the tortious duty which might otherwise have been owed. Prima facie the two duties, in cases like the present, should be coextensive. Any wider duty in tort would need some clear and principled justification, and should, as noted above, be the exception rather than the rule.

…

The view which now prevails is that in conventional circumstances the two causes of action will usually be concurrent and coextensive. That will be so unless the relevant factual context involves matters which are not relevant to the contract cause of action but do have relevance to the relationship of the parties in tort. If the relevant facts are not coextensive, there may be a wider duty in tort because of the

14 See [55], [75]-[79] and [94].

15 HC Rotorua CIV-2005-463-323, 1 September 2006; overturned on appeal [2007] NZCA 389, but the Court of Appeal declined to deal with the duty point, see at [11].

16 At [50].

greater  width of the  circumstances relevant to  that cause of action. But  if the relevant facts are the same for the purposes of both contract and tort, the situation would have to be most unusual before it would be appropriate to hold that greater duties were owed in tort than in contract. We have suggested a possible example in para [12] above. We also observe that, in general, parties should be able to limit the scope of their potential liability by the terms of their contract. It would not normally be appropriate for that express or implied limitation to be outflanked by an unlimited application of general tortious liability.

[42]     In the present case, the plaintiff does not argue that there are factors which are not relevant to a contract cause of action.  For example, the plaintiff does not allege a cause of action in negligent misstatement.   Rather, as I understand the plaintiff‘s case, it says this is a case where there are relevant facts for the purposes of either cause of action and that this is, as Tipping J put it, an ―unusual  case‖ where a greater duty is owed in tort than in contract.   It seems, the key unusual factor is the suggestion of a danger element inherent in the seats.

[43]     Generally, the approach the courts of New Zealand have adapted to the imposition on a defendant of a duty of care has been the two-stage test arising out of the House of Lords decision in Anns v Merton London Borough Council.17   That two-stage  test  focuses  first,  on  the  proximity  of  the  parties‘ relationship  and secondly, on policy issues.  If sufficient proximity is found to exist, one must turn to consider the policy implications that arise, (for example the impact on society),18 and thus whether it is appropriate to impose a duty of care.19

[44]     The focus on the duty will generally be undertaken without reference to questions of breach or causation.20   The ultimate question is whether it is fair, just

17 [1978] AC 728. See for its application in New Zealand Couch v Attorney-General [2008] NZSC

45, [2008] 3 NZLR 725.

18 Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) at [58].

19 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [79].

20 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [80] per Blanchard, Tipping and McGrath JJ, cf the discussion of Elias CJ and Anderson J at [41]-[42].

and reasonable that such a duty be imposed.21    The important object of the test is that all relevant factors are properly weighed.22.

[45]     As  I  have  noted  above,  in  Rolls-Royce,  Glazebrook  J,  for  the  Court, identified several factors which will inform the proximity analysis, and thus the relationship between the parties.  In sum, those were:23

i.         Whether duties have been imposed in analogous situations;

ii.        How close the nexus is between the defendant‘s alleged negligence

and the plaintiff‘s loss and the degree of harm to the plaintiff;24

iii.The burden on the defendant of taking precautions against the risk and whether the consequences to the defendant may be out of proportion to its fault;25

iv.       The extent to which those in the plaintiff ‘s position are vulnerable,26 and relevant to that inquiry whether there are or realistically have been other remedies for a plaintiff (that includes a consideration of bargaining power and market reality);27

v.        The nature of the loss – courts have been less willing to impose a duty of care in cases of economic loss than where there is physical

damage to property;28 and

21  Attorney-General v Carter [2003] 2 NZLR 160 (CA) at [22]; Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [15]; Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) at [58].

22 Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) at [64].

23 See also the Court‘s statement of relevant factors in Attorney-General v Body Corporate 200200 (Sacramento) [2007] 1 NZLR 95 (CA) at [37].

24 At [60].

25 At [60].

26 At [61].

27 At [62].

28 At [63].

vi.The statutory and contractual background (which is also relevant to policy considerations).29

[46]     I was not directed to any case law by the parties in which the supplier under a contract for the delivery of goods which were defective and caused danger to a commercial building was held liable in negligence even where a comprehensive commercial contract existed between the parties.   While there are clear policy differences between the imposition of a duty of care regarding  real estate and

building construction,30  a close analogy here can be found in my view with the

ongoing debate as to whether liability in negligence should exist with regard to commercial constructions.31

[47]     Of course, in New Zealand it is established law that builders owe a duty of care to owners and subsequent purchasers of residential property.32    However, significant doubt exists as to whether that liability should also extend to the construction of commercial property.  That point was left open by Cooke P in the Court of Appeal‘s consideration of Invercargill City Council v Hamlin.33     More recently,  in  Three  Meade  Street  Ltd  v  Rotorua  District  Council  Venning  J considered that, while there was sufficient proximity between the parties, policy reasons weighed against the finding of a duty of care.34    The Court of Appeal has since settled the question.   In Queenstown Lakes District Council v Charterhall Trustees Ltd at [37] the Court conclusively found that the Hamlin duty of care does

not extend to commercial properties.35

29 At [64].

30 See for example Richardson J‘s judgment in Invercargill City Council v Hamlin [1994] 3 NZLR

513 (CA) at 524-525; and North Shore City Council v Body Corporate 207624 [2011] NZCA 164, [2011] 2 NZLR 744 at [104].

31  See for the latest step, the Supreme Court‘s granting of leave to appeal in North Shore City

Council v Body Corporate 207624 [2011] NZSC 82.

32 See Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC).

33 [1994] 3 NZLR 513.

34 [2005] 1 NZLR 504.

35 [2009] NZCA 374, [2009] 3 NZLR 786. Leave was granted to appeal to the Supreme Court
[2009] NZSC 116, but later revoked [2010] NZSC 44, [2010] 3 NZLR 17 on the ground that a party

[48]     The main factor weighing against the finding of a duty in cases involving commercial   constructions   such   as   Rolls-Royce,   Three   Meade   Street   and Queenstown Lakes was the vulnerability of the plaintiff (or lack thereof).36     In Three Meade Street Venning J commented at [53]:

The initial developer, in this case the first plaintiff, has the opportunity to protect itself by way of contractual arrangements. A subsequent purchaser in a commercial property context will have the opportunity and would be expected to obtain pre- inspection reports for the property as well as obtaining warranties from previous owners. A commercial property owner will have the opportunity to protect itself from the type of economic damage and losses that the first plaintiff seeks to recover in this case.

[49]     In Rolls-Royce Glazebrook J commented at [118]:

The  main policy factor  militating against a  duty of  care  is  the  need  for  commercial certainty. Commercial parties are normally entitled to expect that the risk allocation they have negotiated (and paid for) will not be disturbed by the Courts. It is also to be expected that  commercial  parties  are  capable  of  looking  after  their  own  interests,  including, especially in an industry where insolvency is a major risk, the risk of insolvency of an intermediate party. On the other hand, it is not necessarily the case that private individuals are in a position to be able to protect themselves and this can justify a difference in treatment.

[50]     In Canada and the United Kingdom however, Courts have extended a duty of care in commercial building construction situations.  In Winnipeg Condominium Corp No 36 v Bird Construction Co the Supreme Court of Canada applied the Anns principle in a commercial context.37     There, the owner of a 94-unit apartment building sued the builder after a large piece of concrete cladding fell from the building requiring the removal and replacement of the entire cladding.  The Court

held  that  where  negligence  in  planning  or  constructing  a  building  caused  the building to be dangerous, the owner could recover the costs of making the building safe.  The Supreme Court, however, did emphasise that the duty arose because the defects posed a substantial danger to the health and safety of the occupants.  It is worthy of mention however that Lord Oliver considered the distinction between a

dangerous defect and a mere defect to be ―fallacious‖  in Murphy v Brentwood

had  abandoned since the  Court of Appeal‘s decision.   The Court of Appeal has  subsequently followed its decision in Charterhall in North Shore City Council v Body Corporate 207624 [2011] NZCA 164, [2011] 2 NZLR 744 and leave to appeal was granted in [2011] NZSC 82.

36 See Queenstown Lakes at [37] and [39].

37 [1995] 1 SCR 85.

District Council.38     In Rolls-Royce our Court of Appeal left open the issue of dangerous defects, declining to deal with the question as it did not arise on the facts of that case.39    The issue of dangerous defects was revisited by Baragwanath J in obiter in Te Mata Properties Ltd v Hastings District Council.40   However, the Court in Queenstown Lakes again conclusively dealt with this issue at [41]-[42] where the Court said:

Mr Hunt sought to argue that fire as a hazard justified a different approach from that applied in Te Mata Properties in relation to water ingress. Fogarty J gave some weight to the idea that the law has traditionally treated fire as a ―dangerous thing‖ and ―frequently the subject of recognition of tortious liability‖: at [49] and [52]. For our part, we see no principled basis for such a distinction in the present context. As Mr Goddard submitted, it is illogical to say that the Council owed Charterhall a duty of care to secure compliance with the appropriate standards in relation to fire safety but not those in relation to matters such as weathertightness or foundations.

Nor do we see the new cause of action based on health and safety as affecting the analysis. Clearly the Building Act does have a purpose of protecting the health and safety of those who use buildings, as Mr Goddard accepted: see Venning J in Three Meade Street Ltd at [48] – [49] and Asher J in Mt Albert Grammar School Board of Trustees v Auckland City Council HC AK CIV 2007-404-4090 25 June 2009 at [41]

– [47]. But the fact that a body has statutory responsibility for a task (even in the form of a statutory duty) does not necessarily mean that it will be liable at common law for damages to anyone who suffers loss as a result of its careless performance of the task: see Todd The Law of Torts in New Zealand (5ed 2009) at [6.6]. And even if the imposition of a duty of care in relation to health and safety was consistent with the policy of the Building Act, Charterhall does not, as we have already noted, sue as a person whose health and safety has been jeopardised. It sues as an entity which has suffered financial loss, in part through property damage but principally through loss of income.

[51]     Of course, that decision was made in the context of a statutory duty owed by a council to a subsequent purchaser.  I will consider the effect of that determination on the facts of this case below.

[52]     The House of Lords in its decision in Junior Books Ltd v Veitchi Co Ltd went on to extend the Anns principle, holding that subcontractors who had built a defective floor in the plaintiff‘s factory were liable for the cost of repairing the floor notwithstanding that the defect posed no injury to health.41    That case has been

criticised however by subsequent decisions of the Court of Appeal and House of

38 [1991] 1 AC 398 (HL) at 488; see also 470, 479, 484 and 497.

39 At [79].

40 [2008] NZCA 446, [2009] 1 NZLR 460 at [77].

41 [1983] 1 AC 520 (HL).

Lords.   In D & F Estates Ltd v Church Commissioners for England Lord Bridge said at 202:42

The consensus of judicial opinion, with which I concur, seems to be that the decision of the majority is so far dependent upon the unique, albeit non- contractual, relationship between the pursuer and the defender in that case and the unique scope of the duty of care owed by the defender to the pursuer arising from that relationship that the decision cannot be regarded as laying down any principle of general application in the law of tort or delict.

[53]     In Murphy v Brentwood District Council Lords Keith43  and Bridge44  said that the decision in Junior Books is to be restricted to a situation where a subcontractor can be seen as having a special relationship with the owner through an assumption of responsibility in the Hedley Byrne sense.45   Our Court of Appeal in Rolls-Royce  did not  find the House of  Lords‘ approach to  Junior  Books in subsequent decisions overly compelling.46    Nevertheless, the Court in Rolls-Royce clarified that Junior Books could have no wider application in New Zealand than it now has, as limited by Murphy and D & F Estates, in the United Kingdom.47

[54]     There is one further factor which the Court declined to comment on in Rolls-Royce and this related to latent defects. At [92]-[94] Glazebrook J considered the views of commentators.  Her Honour noted that one article written by Robby Bernstein48  suggested that there should be liability with regard to latent defects, subject to the effect of exclusion or limitation clauses.  Her Honour went on to note that this approach was dismissed by Kirby J in his dissenting judgment in the High

Court of Australia in Woolcock Street Investments Pty Ltd v CDG Pty Ltd.49

42 [1989] 1 AC 177.

43 At 466.

44 At 481.

45 [1991] 1 AC 398 (HL).

46 At [88]-[90].

47 At [127].

48 Robby Bernstein Economic Loss (2nd ed, Sweet & Maxwell, London, 1998) at 346-347.

49 (2004) 216 CLR 515 at 168-173.

[55]     The state of the law post Rolls-Royce can be summed up at [120] of the

Court‘s decision:

... [in] none of the jurisdictions we have surveyed is liability now recognised for commercial parties with regard to quality defects, except in very limited circumstances. There is no reason to think that the position of commercial parties in New Zealand differs from that in  other jurisdictions. Indeed, parity with other jurisdictions in commercial matters is something to be aimed for.

[56]     Those ―limited circumstances‖ would seem to be:

a.        Where there is a latent defect;

b.        Where there is a dangerous defect; or

c.        Where there is an assumption of responsibility.

[57]     It is unclear whether any of those circumstances are actually part of the law in New Zealand.  I acknowledge the statement of the Supreme Court in Couch that particular care is required in areas where the law is confused or developing,50  and that of the Court of Appeal in Rolls-Royce that consideration of whether a novel duty exists would normally wait until trial.51     Of course, that must be balanced against the position that defendants should not be subjected to substantial costs by defending untenable claims.52   From that background, it appears sufficiently clear to me that there is no prospect of imposing a duty of care in the present case.

[58]     Here, in considering whether there is no prospect of imposing a duty of care, I  acknowledge  that  the  contract  in  this  case  is  materially  different  to  those considered in the cases decided above.  The present contract is for the delivery of goods, not the construction of a building.  As discussed by both the Privy Council in  Hamlin,  and  indeed  all  of  the  cases  mentioned  above,  physical  building properties have considerable importance in the eyes of the courts in New Zealand.

And, while the present contract involves the installation of goods presumably to be

50 Couch at [33].

51 At [125].

52 Queenstown Lakes District Council v Chaterhall Trustees Ltd [2009] NZCA 374, [2009] 3 NZLR
786 at [16].

fixed to the floor of a physical building, that is materially different to the construction of the building itself.

[59]     The possible factors in favour of finding proximity in my view readily distinguish this case from the decisions in Queenstown Lakes, Te Mata and North Shore City Council v Body Corporate 207624.  In those cases, the unwillingness to require councils to effectively act as insurers for building owners pointed against imposing a duty of care.  Here, the potential degree of forseeability arises out of the parties‘ direct contractual relationship along with what is said to be the burden on the defendant in ensuring that reasonable care was taken in performing the contract.

[60]     Weighing heavily against a finding of proximity in the present case however is first, as in Queenstown Lakes, the fact that this is a defendant suing for pure economic loss.  The plaintiff does not sue as a person whose health and safety has been  put  at  risk.53    Further,  the  comprehensive  nature  of  the  contract  itself specifying  periods  for  defects  liability,  warranties  and  covenants  as  well  as  a detailed dispute resolution process (with a referral for a full and final arbitration decision – clause 15.3) is a relevant factor here.   That is in addition to the comprehensive standards detailed in the contract against which the seats were to be

assessed.  Further, factors include the sophisticated commercial nature of the parties and the absence of any suggestion of inequality in their bargaining power.  I also add to these factors weighing against a finding of proximity the fact that, even if one accepts an assumption of responsibility on the part of a defendant may theoretically have occurred here with regard to a matter within its special skill and on which the plaintiff reasonably relied, this is not a case in my view which that concept should extend to cover.  While I am satisfied in this case that there was no express assumption of responsibility on the part of the defendant, where, as noted by the Court in Rolls-Royce (relying on its earlier statement in Attorney-General v Carter), it is fair, just and equitable to do so, the court may deem a defendant to

have assumed responsibility. The Court in Rolls-Royce went on to note:54

53 Queenstown Lakes at [32].

54 At [99].

Whether it is fair, just and reasonable to deem an assumption of responsibility and then  a  duty  of  care  will  depend  on  a  combination  of  factors,  including  the assumption of responsibility for the task, any vulnerability of the plaintiff, any special skill of the defendant, the need for deterrence and promotion of professional standards, lack of alternative means of protection and so on…

[61]     Here  the  plaintiff  had  the  benefit  of  several  firms  of  consultants  at  its disposal.   Indeed one was a specialist in fire safety.   In circumstances where the defect was not hidden in the sense that it could not be discovered through a seemingly straight forward test, absolute reliance on the defendant‘s word could not be reasonable.  That is not in the same category at all for example, as one where it is reasonable for an individual to rely on the advice of a financial adviser as to

where to invest one‘s money.55    Further, the plaintiff in the present case had clear

alternative means in which it could enforce liability for defects.   For example, it could have contractually extended the remedial period in the contract with regard to defects or extended the guarantee period.   This is not a case where the plaintiff needed to helplessly rely on the words or assurances of the defendant.

[62]     Turning   next   to   policy   considerations,   there   are   several   policy considerations which point away from a duty of care being imposed here.  These include the detailed contractual specifications for the seats, the fact that the parties as  experienced  commercial  operators  negotiated  at  arms  length  and   could reasonably  be  expected  to  look  after  themselves,  and  the  overall  need  for commercial certainty in contracts of this type.  The key argument for the plaintiff here, however, is the suggested element of fire danger inherent in the allegedly defective seats.

[63]     As discussed above, the Court in Queenstown Lakes dismissed the damage exception  left  open  by  the  Court  of Appeal  in  Rolls-Royce  and  Te  Mata.    In Queenstown Lakes a fire had occurred in Charterhall‘s tourist lodge, causing significant damage.   Charterhall alleged that the fire was caused by a defective tower which encased two exhaust flues from a large open fireplace.   Charterhall argued that the tower was not code compliant and that the council was negligent in

issuing consent for its construction, in conducting inspections during the tower

55 See, for example Armitage v Church HC Wellington CIV-2009-485-1952, 27 May 2011.

construction and in issuing a certificate of code compliance upon its completion.  In a 2009 article Stephen Todd commented:56

However, this conclusion does not necessarily bar a tort claim against a builder, architect, or engineer in respect of a dangerous commercial building.  It is one thing to deny a duty owed by a public body carrying out general supervisory responsibilities for failing to detect negligence by others.  It is quite another thing to deny a duty on the part of the person who or body which has actually created the defect.    Further, and  contrary to  the  interpretation in  [Queenstown Lakes],  the Winnipeg decision in Canada did not recognize a duty by a builder to take care to avoid dangerous defects in the context of commercial buildings.   Rather, it recognized such a duty in the context of a residential building with a commercial owner.   The decision surely is unremarkable, for no sensible distinction can be drawn between a commercial and a private owner.  So the principle in Winnipeg can easily apply in  New  Zealand.    But  the  difficult  question  remains  whether  the

―danger‖ argument might assist in the case of a defective commercial building.

[64]     Ultimately, as recorded above, the question is: is it fair, just and reasonable to impose a duty.  I am satisfied that Professor Todd‘s comment is not enough to plant the seeds of doubt against this application. As the learned professor notes, the building in Winnipeg was used for residential accommodation.  In New Zealand, the Supreme Court has upheld the important  policy factors surrounding residential

housing.57    Here, there is a commercial contract for the supply of goods and the

plaintiff has suffered only economic loss.  In other words, the plaintiff is not suing as a party directly affected by a dangerous state of affairs.   I am satisfied that a robust approach to the present application is required here and that the Court of Appeal‘s  decision  in  Queenstown  Lakes  closes  the door to  the plaintiff in  the present case.  I am satisfied that the proximity threshold to create a duty has not been met here by the plaintiff and further that policy factors do not assist the plaintiff.  These experienced commercial parties allocated risk under the contract between them (and clearly agreed contractually on 5 year warranty and guarantee undertakings).   The imposition of a duty of care in this case in my view would undermine commercial certainty and is not appropriate.  The defendant‘s strike-out

application therefore must succeed on this duty of care issue.

56 Stephen Todd ―Tort‖ [2009] NZ Law Review 743 at 766.

57  See North Shore City Council v Body Corporate 188529 (Sunset Terraces) [2010] NZSC 158, [2011] 2 NZLR 289 at [48]-[49].

The negligence claim – limitation defence

[65]     Due to my conclusion on the duty issue above, strictly speaking, I do not need to deal with the limitation defence question.  Nevertheless, even if I am wrong as to the finding of a duty of care, here, I am satisfied that the plaintiff‘s negligence claim is clearly time barred.

[66]     The defendant here pleads its limitation defence under s 4 of the Limitation Act 1950.   This is to the effect that contract or tort claims can only be brought within six years of the date the causes of action accrue.  A legal issue arises here about the date the cause of action did accrue.

[67]     The plaintiff argues that its cause of action in negligence did not accrue until

2007 as the loss/damage suffered by it was not discovered until then.  Mr Lloyd, for the plaintiff, clarifies, however, that the plaintiff does not rely on an extension of the doctrine of reasonable discoverability.  He maintains that the plaintiff relies on the ―ordinary application of negligence principles‖.   Accordingly, he submits, drawing an analogy between defective seats and defective buildings that, as no loss or damage could reasonably have been discovered until June 2007, this cause of action could not have accrued until that date.   On this, the plaintiff relies on the

Supreme Court decision in Murray v Morel & Co Ltd.58     Mr Sullivan, for the

defendant, however contends that there is no analogy here with the cases where a reasonable discoverability extension has been used.

[68]     More recently the Supreme Court considered the question of the existence of loss, with respect to claims in negligence, in Thom v Davys Burton.59   In Thom the Supreme Court held that where a solicitor had drafted a relationship property agreement for his client, which later turned out to be unenforceable as it did not comply with the formal requirements of the Matrimonial Property Act 1976 (now the Property (Relationships) Act 1976), time for the purposes of the Limitation Act

1950 ran against the client from the date that the defective agreement had been

executed.

58 [2007] NZSC 27, [2007] 3 NZLR 721 at [40].

59 [2008] NZSC 65, [2009] 1 NZLR 437.

[69]     In Thom, Wilson J, for the majority of the Court stated at [38]:

The existence of loss or injury is an element without which the cause of action does not exist and accordingly until it occurs time does not run against the plaintiff for limitation purposes.

[70]     That  is  because,  as  loss  is  required  in  order  to  succeed  in  a  claim  in negligence, it would be unjust and unreasonable to expect a plaintiff to commence proceedings before the loss is quantified.60  As for the test to determine at what time damage will be actual and quantifiable, the Supreme Court in Thom expressed it thus:61

Damage will be contingent, and hence not actual for limitation purposes, if the plaintiff will suffer no damage at all unless and until a contingency is fulfilled. That will be so if the damage results from the plaintiff being exposed to a liability which is contingent on the occurrence of a future uncertain event … A reduction in the value of an asset, whether tangible or intangible, constitutes actual damage and exists as soon as the asset becomes less valuable.

[71]     Therefore, it matters not whether the actual pleaded damage had come into existence.  Rather:62

if it can be shown that a claimant is worse off in terms that can be measured financially at the date of receipt of the advice or the negligent failure, the cause of action will accrue on that date, even though accurate measurement of damage would be difficult and some of the damage may still be contingent.

[72]     The question is whether some measurable loss can be proven at an earlier point in time, notwithstanding the contingent loss and that the full extent of the plaintiff‘s financial loss may be incapable of ascertainment until some later date.63

[73]     Of course, that decision does not affect the rationalisation of the Court in

Murray v Morel that the issue of reasonable discoverability is, in the line of cases

60 Wardley Australia Ltd v Western Australia [1992] HCA 55, (1992) 175 CLR 514 at 533.

61 At [46] (emphasis added).

62 Spencer v Secretary of State for Work and Pensions and Moore v Secretary of State for Transport
and Motor Insurers’ Bureau [2008] EWCA Civ 750 at [24].

63  JC Cooper Trust v Peach Cornwall and Partners HC Whanganui CIV-2009-483-325, 24 May
2011 at [24]; Wardley Australia Ltd v Western Australia [1992] HCA 55, (1992) 175 CLR 514 at
530-531.

beginning with Hamlin, a component of damage.64   That is, not in the least, because Elias CJ commented in Thom at [15] that it was not necessary to consider whether the cause of action should be treated as arising only when the damage was reasonably discoverable by Mr Thom because of the District Court‘s finding that the defect in the agreement was reasonably discoverable.

[74]     I  now  turn  to  consider  whether  and  when  damage  was  reasonably discoverable in the present case.   The line of cases giving rise to the concept of reasonable discoverability is a helpful starting point.

[75]     In Invercargill City Council v Hamlin Lord Lloyd, delivering the judgment of the Privy Council, said:65

Once it is appreciated that the loss in respect of which the plaintiff in the present case is suing is loss to his pocket, and not for physical damage to the house or foundations, then most, if not all the difficulties surrounding the limitation question fall  away.  The  plaintiff ‘s  loss  occurs  when  the  market  value  of  the  house  is depreciated by reason of the defective foundations, and not before. If he resells the house at full value before the defect is discovered, he has suffered no loss. Thus in the common case the occurrence of the loss and the discovery of the loss will coincide.

[76]     There  are  two  further  cases  of  relevance,  which  the  Supreme  Court considered at length in Murray v Morel.  The first is S v G.66   In S v G the plaintiff suffered sexual abuse as a child.  Although she was aware of the abuse, she had not linked it with the serious psychological and emotional harm that she had suffered. As McGrath J summarised in Murray v Morel:67

Reasoning by analogy with its decision in Hamlin, the Court of Appeal decided that the cause of action accrued and time began to run under the Limitation Act, only when the damage should have been linked by the plaintiff to the abuse she had suffered.

64 See

65 [1996] 1 NZLR 513 (PC) at 526.

66 [1995] 3 NZLR 681 (CA).

67 At [97].

[77]     The second is G D Searle & Co v Gunn.68   In Searle the plaintiff claimed for personal injury, a pelvic inflammatory disease, caused by being fitted with a negligently manufactured intrauterine device.  The device was installed in 1981 but the plaintiff did not connect the presence of the device to health complications suffered until some time later in her life.  Again, the Court of Appeal held that the plaintiff‘s cause of action did not accrue until the plaintiff could have reasonably discovered the facts relevant to the cause of action.

[78]     Tipping J commented at [53] in Murray v Morel:

The discoverability issue [in Hamlin] related to an element of the cause of action. No cause of action accrued until loss occurred and loss did not occur until it was discovered or was reasonably discoverable.

[79]     Importantly, for present purposes, McGrath J stated at [101], after rejecting reasonable discoverability as a generally-applicable principle in New Zealand tort law:

In the continuing absence in New Zealand of legislative reforms enacted by other jurisdictions, the application of reasonable discoverability, to determine whether a cause of action has accrued in tort, remains a matter of judgment to be made in particular situations having regard to decided cases and analogies that can be fairly drawn from them. In that regard it must be borne in mind that the unfairness to plaintiffs, if damage treated as arising before they knew or ought to have known of it, in some situations will be matched and outweighed if allegations of wrongful conduct  can  be  raised  many  years  after  what  is  complained  of  happened.  I understand this to be the concern of Cooke P in Hamlin when he said that his preference was to proceed step by step. Provided the Hamlin principle is applied on this basis, I regard it as sound in principle and a valuable development in New Zealand law. I would affirm it.

[80]     At [102] McGrath J commented that there was little analogy between the circumstances of the case in Murray v Morel (whether a cause of action accrues in a claim for civil liability for misstatements in a registered prospectus under s 56 of the Securities Act 1978) and those in the cases where the courts have applied the approach in Hamlin.

[81]     McGrath  J  (along  with  Gault69   and  Henry70   JJ), therefore,  supports  the proposition that the development in Hamlin ought not to be limited to that case.

68 [1996] 2 NZLR 129 (CA).

69 At [115].

[82]     In Bayliss v Central Hawkes Bay District Council Andrews J summed up

the effect of the Supreme Court‘s decision in Murray v Morel:71

It is clear that the majority of the Supreme Court in [Murray v Morel] rejected the submission that ―reasonable discoverability‖ can be applied as a general test as to when a cause of action has accrued. However, it appears that Blanchard, Tipping, and Henry JJ agreed that in cases of claims for economic loss, reasonable discoverability is an element of the accrual of part of the cause of action. Thus, in a latent defect case such as Hamlin economic loss (a necessary element of the cause of action) does not occur until the market value of the property is affected on the defects becoming reasonably discoverable. Thus reasonable discoverability applies where it is a pre-requisite for loss.

[83]     In Bayliss Andrews J considered an appeal against the entering of summary judgment against the appellants in that case on the ground that the appellants‘ claim was  barred  by  the  Limitation  Act  1950.    Prior  to  purchasing  a  property  the appellants requested a LIM report from the respondent council.   The appellants alleged that the respondent council breached its statutory duty to include in that report any special features or characteristics of the property relating to subsistence which were known to the respondent council at that time.   The council did not, despite the appellants‘ allegations that it knew of issues with the property‘s foundations.  The appellants purchased the property in 1999.  In 2001 cracks began to appear in the house.  The respondent council engaged engineers and reported that there were no issues of concern. The house was tenanted in 2003 and the appellants were advised in 2006 of significant further deterioration.  The District Court Judge, in granting the respondent council summary judgment considered it unnecessary to consider authorities such as Hamlin as the cause of action was a breach of statutory duty.

[84]     Andrews J found that the District Court Judge was wrong to ignore Hamlin, in that there is nothing in that case, or indeed in Murray v Morel or Thom to suggest that its principles may not be of broader application.72

[85]     At [68]-[71] her Honour concluded:

70 At [144].

71 (2011) 11 NZCPR 843 at [55].

72 At [66]-[67].

I accept that it is arguable (and certainly not able to be rejected on a summary judgment application) that the plaintiffs did not suffer any loss immediately on receiving the LIM report and relying on it to settle the purchase. I also accept that it is arguable (and again not able to be rejected on summary judgment) that the defect in the LIM report, and the loss in value in the property, were not reasonably discoverable on receipt of the LIM report and purchase of the property.

Accordingly, I accept that it could not be concluded, on a summary judgment application, that the appellants were not in a similar situation to that of Mr Hamlin, or that the Privy Council‘s reasoning in Hamlin could not be applied to them, by analogy.

The appellants‘ case is, of course, different from that of Hamlin and the ―latent defect‖ cases. However, the factor in Hamlin (PC) that is applicable is the kind and timing of the loss. The loss discussed in Hamlin (PC) is economic loss, which occurs when the market value of the property falls. The loss being claimed by the appellants is, in effect, identical: a permanent fall in market value and costs of repair. Both losses claimed are economic loss.

Application of the Hamlin (PC) reasoning by analogy is not precluded by the Supreme Court‘s judgment in [Murray v Morel]. While the Supreme Court clearly rejected a general application of reasonable discoverability, it did not overrule Hamlin (PC), nor confine it to its precise facts. Rather, the majority affirmed the reasoning of the Privy Council, finding that discoverability was an essential component of loss.

[86]     In a decision released around a month prior to that in Bayliss, Associate Judge Christiansen in Singh v Sovereign Assurance Company Ltd, struck out the plaintiff‘s claim relating to an argued extension to the principle in Hamlin.73    In Singh the first defendant issued a life insurance policy to Mr Singh as owner.  The life insured was Mr Singh‘s mother‘s.  Upon his mother‘s death, Mr Singh applied for payment of the policy‘s proceeds.  It was then established that his mother had never obtained New Zealand residency and the defendant did not insure non-New Zealand  residents.    The  second  defendant  was  the  first  defendant‘s  agent  in

arranging that insurance.  The second defendant admitted that it owed Mr Singh a duty to exercise reasonable care, but pleaded that Mr Singh‘s claim was time barred alleging that Mr Singh‘s loss accrued upon obtaining the policy.  As declining Mr Singh‘s claim required investigation and a court‘s finding that the first defendant could avoid the policy, Mr Singh argued that his cause of action could not accrue until resolution of his claim against the first defendant at trial.  Associate Judge Christiansen found at [15] that Mr Singh‘s policy asset was not defective from the outset as in Thom.   Nevertheless, the Associate Judge considered that from its inception, the first defendant would have avoided the policy because the insured

was not a New Zealand resident.74

73 HC Auckland CIV-2009-404-2779, 26 January 2010.

74 At [18].

[87]     Mr Singh also argued that he could not reasonably have discovered that loss until  he  was  advised  by  the  first  defendant  that  it  was  avoiding  the  policy. Associate Judge Christiansen said at [21]-[22]:

A cause of action accrues from the date of the damage. Whether the actual damage has happened is a question of fact in each case. If it has, the objection that the plaintiff does not know that he or she has suffered harm, or does not know that the defendant caused it, has not usually been seen as preventing time from starting to run. Exceptions to this general rule have, as previously noted, been admitted in recent times in cases involving latent building defects or personal injury. Beyond this  however the  Courts have  been  reluctant to  admit  a  regime  permitting the doctrine of reasonable discoverability in other cases where a plaintiff did not know and could not with reasonable diligence have known of the essential elements of a claim.

I do not consider this case as one where a court could be convinced to grant an exception in the overall interests of justice as has been done with building and sexual abuse cases. The facts in this case do not disclose suggestions of fraud of the kind to indicate resort to the longer time limitation period permitted under s 28 of the Limitation Act.

[88]     In an earlier strike-out decision still, National Pacific Commercial Equities Ltd v C B Richard Ellis Ltd, Associate Judge Doogue considered the effect of the Supreme Court‘s decision in Murray v Morel on a limitation defence concerning a negligent valuation of a building.75

[89]     In National Pacific, the plaintiff purchased a property in central Auckland in May 2000.  The defendant provided a valuation which was largely over the market value of the property.   The property was sold, pursuant to a mortgagee sale, in November 2001.  Proceedings were not brought against the defendant until 2007, which was outside the limitation period if the May 2000 date was the date accepted as the date the cause of action accrued.  Associate Judge Doogue considered that the effect of the Supreme Court‘s decision in Murray v Morel is that whether the principle of reasonable discoverability is to be applied in a particular case has to be decided on a case by case basis with an analogy drawn to the decided cases of Hamlin, S v G and Searle & Co.

[90]     His Honour considered that the case before him was distinguishable from those where the principle of reasonable discoverability has operated to extend time.

Associate Judge Doogue stated at [54]-[55]:

75 HC Auckland CIV-2007-404-5832, 7 February 2008.

There were two consequences of the allegedly negligent advice. The first is that the plaintiff entered into an agreement by which it suffered financial loss. The second and less direct detriment which it suffered, was that the very actions of the defendant lulled the plaintiff into a false sense of security about a matter concerning which, had it known the truth, it may well have promptly issued timeous proceedings against the defendant.

But the relationship between the defendant and the plaintiff in this case was not of a kind that would prevent the plaintiff from discovering the relevant facts concerning the cause of action. The plaintiff was not under any disability arising from the actions of the defendant which would inhibit or prevent it from enquiring into the actual circumstances of its purchase of the property; it was not disabled as a result of the defendant‘s actions from making the enquiries which would have revealed that it had brought the building at a price which was substantially in excess of its market value. If that approach is correct, the case is not analogous with the S v G type of authority. The present case is not one where the actions of the defendant created concealed or ―invisible‖ circumstances without which the plaintiff would not appreciate that it had suffered loss as a result of the defendant‘s actions. All the information that was required for the plaintiff to understand its position was there to be had.

[91]     Turning now to the present case before me, I accept that here the loss is economic loss and may, accordingly, fit within the principle in Hamlin.  Further, I consider, with respect, that Associate Judge Doogue was correct when he said that the principle of reasonable discoverability is to be considered on a case by case basis with analogy to Hamlin, S v G and Searle & Co.  Nevertheless, in my view the present case is not dissimilar in principle to the situation that arose in National Pacific.  Here, testing of the seats was evidently a concern for the parties involved in the refurbishment of the theatre.   There is before the Court considerable correspondence at the time of the contract between the defendant, Holmes Fire and Safety and Carson Group discussing whether and what fire safety tests should be carried out.  In the end, no testing was undertaken on the seats themselves, although it appears some testing was done on the fabric addition to the seats.  If there was concern over the standard of the seats it could have clearly been questioned at the time by the plaintiff or its agents.  In those circumstances, I am satisfied that this defect was not a concealed or ―invisible‖ defect such that the reasonably discoverability principle may apply.   Nor was the plaintiff, a large metropolitan Council, under any disability in investigating whether the seats were what they were represented to be.   Accordingly, in my view this case can be distinguished from that in Bayliss where the defects were invisible to the plaintiffs.  The question is, therefore, whether some measurable loss can be proven at the time that the contract  was  completed,  notwithstanding  that  the  full  extent  of  the  plaintiff‘s

financial loss was not able to be ascertained probably until the further fire safety tests were undertaken in 2007 and 2008.

[92]     I take the view that the plaintiff suffered some measurable loss at the time that installation of the seats was completed in early 2000 (March 2000 at the latest, as that is when the defendant issued its final payment claim).   As the Supreme Court noted in Thom, reduction in the value of an asset, whether tangible or intangible, constitutes actual damage and exists as soon as the asset becomes less

valuable.76   In Bell v Peter Browne & Co (adopted by the Supreme Court in Thom

at [47] and [26]) Nicholls LJ expressed the following test to assist in determining whether some loss was actual and quantifiable at an earlier time:77

In considering whether damage was suffered in 1978 one can test the matter by considering what would have happened if in, say, 1980 the plaintiff had learned of his solicitors' default and brought an action for damages. Of course, he would have taken steps to remedy the default. But he would have been entitled at least to recover from the defendants the cost incurred in going to other solicitors for advice on what should be done and for their assistance in lodging the appropriate caution. The cost would have been modest, but not negligible.

[93]     Accordingly,  as  loss  was  suffered  in  early  2000,  the  elements  of  the plaintiff‘s claim were established then. The plaintiff‘s claim in negligence is therefore so clearly time barred that it ought to be struck-out.  For this reason also, the defendant‘s strike-out application succeeds with regard to the negligence claim.

The Mistake Claim

[94]     Section 4 of the Limitation Act 1950 is subject to s 28.  Section 28 of that

Act provides:

28        Postponement of limitation period in case of fraud or mistake

Where,  in  the  case  of  any  action  for  which  a  period  of  limitation is prescribed by this Act, ........

…

(c)        The action is for relief from the consequences of a mistake,—

76 At [46].

77 [1990] 2 QB 495 (CA) at 503.

the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it:

[95]     Mr Sullivan for the defendant submitted that a common sense approach ought to be taken in this case as to whether a mistake could be made out.78    He further argued that if the plaintiff was not aware that proper fire testing of the seats had been undertaken then its complaint here should be with its own consultants. There was no mistake according to Mr Sullivan as the plaintiff should have taken steps itself in order to ensure that the seats met the fire safety standard.

[96]     In response, Mr Lloyd for the plaintiff argued that both parties believed here that the seats were fire safe, which belief was a mistake.  Further, he suggests that both parties were influenced in their decision to enter into the contract by virtue of that mistake.  Reliance is made on s 6 of the Contractual Mistakes Act 1977.

[97]     Section 2 of that Act defines mistake as a mistake of either law or fact. There can only be a relevant mistake where the parties have given consideration to a particular matter and come to an erroneous conclusion as to that matter.79

[98]     Under s 6, there must be:

a.        A mistake coming under s 6(1)(a);

b.        Inequality of consideration consequent on the mistake (s 6(1)(b));

and

c.        The plaintiff was not obliged under the contract to bear the burden of any risk as to a mistake (s 6(1)(c)).

[99]     There is no real issue, on the facts as they are before me, as to (b) and (c). Indeed, I do not understand Mr Sullivan to mount his defence against either of those.  Requirement (a) was the one in contention.

[100]   Section 6(1)(a) specifies the three categories which a mistake must fall into in order to engage a judge‘s discretion under s 6. These are:

78 Sze v Fletcher Residential Ltd HC Auckland CIV-2006-404-6731, 25 February 2008.

79  Yeoh v Al Saffaf HC Auckland CIV-2005-404-964, 8 December 2005; Burrows, Finn and Todd

Law of Contract in New Zealand (3rd ed, LexisNexis, Wellington, 2007) at [10.3.3].

(i)That party was influenced in his decision to enter into the contract by a mistake that was material to him, and the existence of the mistake was known to the other party or one or more of the other parties to the contract (not being a party or parties having substantially the same interest under the contract as the party seeking relief); or

(ii)All the parties to the contract were influenced in their respective decisions to enter into the contract by the same mistake; or

(iii)That party and at least one other party (not being a party having substantially the same interest under the contract as the party seeking relief) were each influenced in their respective decisions to enter into the contract by a different mistake about the same matter of fact or of law; and

[101]   Here, the plaintiff relies on (ii), mutual mistake, that is, a mistake which influenced both parties‘ decisions to enter into the contract.  The contract between the parties was entered into in July 1999.  From my understanding of the evidence, it is said that issues over the compliance of the seats with fire standards were generally resolved in the months leading up to that date.  Therefore, if there was a mistake regarding the fire safety of the seats, it is seriously arguable that it did induce entry into the contract.

[102]   On the basis of the evidence outlined above, I consider that it is seriously arguable here that both parties were under the misapprehension that the seats did comply with fire safety standards.  I accept at this point that Mr Treweek did put the plaintiff‘s agent on notice as to concerns over the fire retardancy of the fabric to be used for the seats.  However, none of the evidence that I was taken to unequivocally establishes that Mr Treweek, or indeed the plaintiff, knew that the seats did not meet the relevant safety standards.  In Ware v Johnson Prichard J used the analogy of the sale of an item of jewellery where both vendor and purchaser wrongly

believed that the article was genuine.80    Here, there is evidence indicating that a view was held that the material added to the seats would not inhibit the seats‘ ability to meet fire safety standards.  It seems that that was certainly the case with regard to the plaintiff, through its agents.  I have no doubt that had it known that the seats did not meet the required standards it would not have contracted with the defendant.

[103]   For all these reasons I am satisfied that the plaintiff‘s claim under mutual mistake ought not to be struck out.  As I have noted above, however, I am satisfied that the plaintiff has no prospect of succeeding in its claim in negligence and that is struck out.  On this, I acknowledge the warning generally expressed about partial strike-out applications.81     Notwithstanding that warning, generally courts will be reluctant to strike-out claims where in defending them a defendant will be put to negligible expense and so the merit in striking out a claim will be marginal.  That is not  the  case  here  however.    The  plaintiff ‘s  claim  in  negligence  is  sufficiently

different in kind such that the defendant would be put to unnecessary expense in defending it along with the contractual mistake claim.   Further, if it were only a matter of establishing a duty of care in negligence here I may possibly have been minded not to strike out the claim.  However, in light of the fact that I have found on two grounds that the plaintiff‘s negligence claim has no prospect of success, not striking out the claim as I see it would be tantamount to allowing a hopeless case to proceed.

[104]   Given my decisions in these matters  I do not now need to address the

defendant‘s summary judgment application before the Court.

Costs

[105]   As to costs, the defendant has been partially successful in its application.  I

note the warning given by Doogue J in Apple Fields Ltd v New Zealand Apple and

Pear Marketing Board against an applicant pursuing a strike-out application if it

80 [1984] 2 NZLR 518 (HC).

81 Whitman v Airways Corp of NZ Ltd (1994) 8 PRNZ 155 (HC).

will not fully dispose of the plaintiff‘s case.82    In the present case, however, the defendant‘s success before me will have a significant impact on the length of the trial.  As I understand it, the matter is currently set down for an 8 day hearing.  In that light I consider that an award of costs against the defendant would be unduly harsh.  As both parties have had a measure of success in this application there is to be no award of costs.  Costs are to lie where they fall.

‘Associate Judge D.I. Gendall’

82 HC Wellington CP35/94, 21 April 1994.