Auckland Council v Ewins
[2014] NZHC 1174
•4 June 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-709 [2014] NZHC 1174
BETWEEN AUCKLAND COUNCIL
Appellant
AND
SALLY FRANCES EWINS & ANOR
Respondents
Hearing: 28 May 2014 Counsel:
D J Barr for Appellant
No appearance for RespondentsJudgment:
4 June 2014
JUDGMENT OF KATZ J
This judgment was delivered by me on 4 June 2014 at 3:00 pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: Simpson Grierson, Auckland
Copy to: B Beauchamp, Auckland
AUCKLAND COUNCIL v EWINS & ANOR [2014] NZHC 1174 [4 June 2014]
Introduction
[1] Ms Sally Ewins purchased a house on Waiheke Island in late 2011 from the original owner, Matthew Smith. She later discovered it was a leaky home. Ms Ewins made a claim in the Weathertight Homes Tribunal (“Tribunal”) against Auckland Council, as the territorial authority responsible for the enforcement of the building standards applicable to the construction of the house. She also made a claim against Grant Payne, the original builder of the house.
[2] A full assessor’s report was prepared pursuant to the provisions of the Weathertight Homes Resolution Service Act 2006 (“WHRS Act”). It concluded that any claims in relation to the original construction of the house (which was completed in 1997) were statute barred. The house had, however, been re-clad during the period 2004 to 2006. The assessor concluded that the damage to the house probably arose from systemic problems relating to that re-cladding, as well as issues arising from some other alterations undertaken during that period. The defects are such that a further full re-clad is required. Claims relating to the 2004 to 2006 re-clad are not statute barred.
[3] The Tribunal summonsed Mr Smith to give evidence as to who was involved in the re-cladding and alteration work that now form the basis of the claim. Mr Smith confirmed that Mr Payne was not involved in the work undertaken during
2004 to 2006. He was accordingly removed as a party. Mr Smith identified Bruce Beauchamp as the builder he had engaged, by way of a loose verbal contract, to undertake the re-clad. He said that Mr Beauchamp had got “his boys” to do the job.
[4] Based on Mr Smith’s evidence, the Council applied to join Mr Beauchamp to the claim. The Tribunal declined that application.1 The Tribunal subsequently reconsidered its decision and came to the same conclusion.2 The Council now
appeals those determinations.3
1 Procedural Order 4.
2 Procedural Order 5.
3 Pursuant to s 93(1) of the WHRS Act 2006. The right of appeal is a general one and accordingly the well known approach described by the Supreme Court in Austin Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [4]-[5],[13] and [17] applies.
Grounds of appeal
[5] The Council appeals on the basis that the Tribunal’s determinations are wrong
in fact and in law, in that:
(a) The Tribunal was wrong at law to find that Mr Beauchamp’s
employees or labour only contractors were independent contractors.4
(b)The Tribunal was wrong at law to find that Mr Beauchamp could not be vicariously liable for the actions of his employees and/or labour only contractors employed by him.5
(c) The Tribunal was wrong at law to find that a sole trader could not have liability for the acts and/or omissions of the sole trader’s employees and/or agents.6
(d)The Tribunal was wrong to find that joinder of Bruce Beauchamp was not justified.7
Approach to joinder applications
[6] Section 111(1) of the WHRS Act provides for the joinder of parties. It states:
111 Joinder of parties
(1) The Tribunal may order that a person be joined as a respondent in an adjudication if it considers that—
(a) the person ought to be bound by, or have the benefit of, an order of the Tribunal; or
(b) the person's interests are affected by the adjudication; or
(c) for another reason it is desirable the person be joined as a respondent.
4 Procedural Order 5 at [4].
5 Procedural Order 5 at [6].
6 Procedural Order 5 at [6].
7 Procedural Order 4 at [17] and Procedural Order 5 at [8].
[7] Section 111(2) provides that an order for joinder may be made by the
Tribunal on the application of any party or on its own initiative.
[8] Harrison J considered the correct approach to joinder applications in Auckland City Council v Weathertight Homes Resolution Service & Dennerly.8 He stated that the party seeking joinder must be able to point to an arguable factual foundation that would satisfy one of the three statutory criteria set out in the section.
[9] In Thomson v Christchurch City Council9 Warwick Gendall J also considered the correct approach to joinder applications. He noted that whether or not a person owes a duty of care to another, and if so the standard of care required, is a mixed question of law and factual analysis. He referred, by analogy, to the following observation of the Supreme Court in Couch v Attorney-General.10
We consider that a claim should not be struck out as disclosing no duty of care unless there is clear legal impediment to its succeeding at trial.
[10] And further:11
…care needs to be taken in strike-out determinations to ensure that the facts are sufficiently known to enable it to be confidently said that no duty of care can be owed. In difficult cases, duty of care is no more suitable for peremptory assessment on assumed facts than questions of breach or damage.
[11] Although Couch was concerned with striking out, as opposed to joinder, Warwick Gendall J expressed the view that the same general approach ought to be applied to joinder cases involving duty of care issues. He concluded that:12
Unless the proposition is so clearly wrong or unsustainable (and this would involve close inquiry of all the surrounding involving factors such as relationship between the parties, the nature of the duty alleged and its breach and so on) it is premature to decline joinder simply on the basis that, as the Adjudicator said:
It cannot be established on the evidence so far produced that he [that is Mr Hewitson] owed a duty to the complainant to inspect other parts of the building and to give expert advice. (Emphasis added)
8 Auckland City Council v Weathertight Homes Resolution Service & Dennerly HC Auckland
CIV-2004-404-4407, 28 September 2004.
9 Thomson v Christchurch City Council HC Christchurch CIV-2010-409-2298, 28 March 2011.
10 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 (CA) at [38].
11 At [43].
12 At [54]-[55].
It may be that it is not established that a duty of care existed or that there was any breach of that duty, whether vicariously or through the existence of a primary duty of care, by Equus, but that must await full inquiry.
[12] Applying the above principles to this case, the issue on appeal is, in effect, whether it can confidently be said on the basis of the facts known at this preliminary stage that no duty of care could be owed by Mr Beauchamp in relation to the re-cladding work undertaken on the house. Unless the proposition that Mr Beauchamp may owe a relevant duty of care is “clearly wrong or unsustainable” it should not be peremptorily dismissed. Rather, if the facts currently known provide an arguable factual foundation for liability, Mr Beauchamp should be joined to the proceedings to enable a full factual inquiry to be undertaken.
Mr Beauchamp’s potential liability in negligence
Evidence relating to Mr Beauchamp’s involvement
[13] The assessor’s report identifies faulty installation of the re-cladding undertaken during 2004 to 2006 as the key contributor to Ms Ewin’s property being a leaky home. It is therefore clearly appropriate that some, or all, of those responsible for the installation of the cladding be joined as parties to the claim in the Tribunal. The issue is whether Mr Beauchamp is arguably one of those people, or whether it can confidently be said at this stage that sole responsibility must rest with others who were involved in the re-cladding work.
[14] Mr Smith identified Mr Beauchamp in his evidence as the builder he engaged to undertake the re-clad, on the basis of a “very loose” verbal contract. He said that Mr Beauchamp then got “his boys” to do the job. The key passage of Mr Smith’s evidence is as follows:
Q. And what was, what was the sort of contract did he have?
A. Ah a very loose contract, he’s actually the son of a very good friend of mine and it was just a verbal arrangement and I just, I don’t think he actually did anything himself, his boys did, get a team of guys and it was just a cash only basis where I just paid them cash on a weekly basis to, ah, to complete the work.
Q. And so does he have a building company or?
A. Not so much….[A]t that time, I don’t know whether he was working for
somebody else or whether he just was an independent contractor.
Q. But he was the one who – he had –
A. He was my contact, he was the person that I paid the money and he paid his boys.
Q. And so what did – so he did the re-cladding work? A. Yes.
[15] Mr Smith’s evidence was accordingly that he entered into a verbal contract with Mr Beauchamp (who was acting in a personal capacity, not a corporate one) to undertake the re-cladding work. Mr Beauchamp did not do the physical work himself but got “his boys” to do it. Mr Smith paid Mr Beauchamp in cash. Mr Beauchamp in turn paid “his boys”.
[16] It is not clear from this evidence precisely what the legal relationship between Mr Beauchamp and the men who actually did the work was. Indeed, that was probably not a matter within Mr Smith’s knowledge. Three possible scenarios arise from Mr Smith’s evidence. First, Mr Beauchamp’s “boys” may have been his employees. Secondly, they could have been independent contractors, in the full sense of that phrase. Thirdly, they may have been “labour only” contractors.
[17] A fourth scenario is raised in an email sent by Mr Beauchamp to this Court prior to the hearing of the appeal. In that email he says that, contrary to Mr Smith’s evidence, he did not have a verbal contract with him to undertake the re-cladding. Rather, he was simply a middle man who introduced Mr Smith to a couple of builders, “Brent” and “James” (no surnames provided) who had sub-contracted for him in the past.13 Mr Beauchamp says his only further involvement was to pass on a brown envelope from Mr Smith to Brent. I note that this “evidence” was not verified by affidavit, nor has it been tested in cross-examination. I will, however, consider it
in my analysis, as a fourth possible scenario.
13 Mr Beauchamp’s email does not meet the requirements for the admission of further evidence on appeal. I will nevertheless, for completeness, consider the contents of his email as a fourth possible scenario.
[18] Obviously, any final determination as to which of the four scenarios I have outlined is the correct one would need to await the “full inquiry” referred to by Gendall J in Thomson. At this preliminary stage, if Mr Beauchamp could be liable to Ms Ewins in negligence on any of the four possible scenarios arising out of the evidence, he should in my view be joined to the claim. This will enable the issue as to his relationship with the men who actually physically undertook the re-cladding work to be properly considered and tested and any necessary factual determinations made.
Could Mr Beauchamp be liable in negligence if his employees undertook the re-cladding work?
[19] Mr Smith’s evidence was that he contracted with Mr Beaumont (personally) and Mr Beaumont’s “boys” undertook the re-cladding work. If those who undertook the re-cladding work were Mr Beaumont’s employees then it is trite law that he will be vicariously liable for their acts and omissions in the course of their employment.14
[20] Indeed, until relatively recently, where an employee was negligent the general practice at common law was for a plaintiff to only claim against the employer on the basis of vicarious liability, and not the employee. This was because the employer was usually best placed to meet the claim and, further, would be more likely to have appropriate insurance cover. It is only with the increase in leaky building claims in recent years that it has become more common for claimants to directly sue employees for negligence (albeit usually high level employees or company directors). This usually arises in circumstances where the employer is now insolvent.
Could Mr Beauchamp be liable in negligence if he engaged others, on an independent contract basis, to undertake the re-cladding work?
[21] The second scenario arising from Mr Smith’s evidence is that Mr Beauchamp’s “boys” were in fact independent contractors who he engaged to undertake the re-cladding work.
[22] The Tribunal relied heavily on the decision of Tipping J in Cashfield House15 in concluding that, on this scenario, Mr Beauchamp could not be liable. Tipping J summarised the liability of a principal for the negligence of an independent contractor in that case as follows:
1.A principal has no vicarious, ie secondary, liability for the negligence of an independent contractor on the basis that the activity involved is a particularly hazardous one or on any other basis.
2.The principal may nevertheless in some circumstances owe a primary non-delegable duty of care and thus be liable to those to whom the independent contractor is liable if the independent contractor is negligent.
3.The principal may well also owe a primary duty of care to those who could foreseeably be damaged by the acts or omissions of the independent contractor. That duty may include a duty to select, instruct and sometimes to supervise the independent contractor with reasonable care. The greater the expertise of the independent contractor and the more specialised the task the less call there may well be for the involvement of the principal beyond selection and instruction. If the principal has selected and instructed the independent contractor with the skill and care appropriate to the occasion, the principal should generally be entitled to leave the task to the independent contractor without further supervision. If the principal does so there will be no liability unless, of course, the principal owes a non-delegable primary duty to those damaged by the independent contractor’s negligence.
[23] Accordingly, if those who undertook the re-cladding work were engaged by Mr Beauchamp as independent contractors, then Mr Beauchamp would not be vicariously liable for any negligence on their part. He may, however, be in breach of a non-delegable duty of care. He may also be in breach of his primary duty of care if, for example, he did not select or instruct the independent contractors with the level of skill and care appropriate to the occasion. Whether there have been any such breaches is simply not possible to determine at this preliminary stage. A full factual inquiry would need to be undertaken.
Could Mr Beauchamp be liable in negligence if he engaged “labour only”
contractors to undertake the re-cladding work?
[24] The third scenario arising from Mr Smith’s evidence is that Mr Beauchamp may have engaged those who undertook the re-cladding work on a “labour only” contract basis.
[25] Vicarious liability is an incident of a relationship of controlled employment, traditionally described as that of “master and servant”. Where the element of control is absent, the person engaged to complete a particular task will usually be an independent contractor (in which case vicarious liability will not arise).16 As the learned author of a recent article in the New Zealand Business Law Quarterly observes:17
Currently the position under English and New Zealand common law is that in carrying out these enquiries the courts will not be restricted by how the person is labelled or categorised in other areas of the law. As such, businesses have been found to be vicariously liable for persons other than those who bear the title “employee” – such as directors and “labour only” contractors.
[Footnotes omitted]
[26] A labour only contractor is a contractor who provides only labour. Such a contractor does not undertake functions such as sourcing materials or supervising others. Labour only contractors are therefore in a different position to independent contractors, who are contracted to take on overall responsibility for a particular job (or a specified part of it). Without appropriate direction and supervision, and the provision of necessary materials, a labour only contractor will not be able to perform any building work. As such they are not “independent” from the person who engaged them, who will usually be the person who provides them with the required
direction and supervision.
16 Carolyn Sappideen and Prie Vines Fleming's The Law of Tort (10th ed, Thomson Reuters, Australia, 2011).
17 Michael Sharp “Who assumes responsibility for negligent acts of employees?”(2012)
[27] In this case, if labour only contractors undertook the re-cladding work, and they worked in accordance with the instructions they were given, they will be unlikely to have breached any duty of care owed. The relevant duty of care will be owed by the person who directed them and supervised their work.
[28] Accordingly, in this case, if Mr Beauchamp engaged labour only contractors to undertake the re-cladding work, he could be vicariously liable for any negligence on their part. In addition, he could be primarily liable for any failure to supervise or direct their work adequately.
Could Mr Beauchamp be liable in negligence if he simply introduced Mr Smith to other builders, who then contracted directly with Mr Smith to undertake the re- cladding work?
[29] Finally, I turn to consider the scenario advanced by Mr Beauchamp in his email to the Court. He says that his role was essentially that of a “middle man” who was too busy to undertake the work himself. His role was simply to introduce Mr Smith to other builders (who had previously sub-contracted to him) to undertake the work. His sole further role was to pass an envelope (presumably containing payment for the work) on to one of those men.
[30] Obviously it is not possible to determine whether this scenario is the correct one in the absence of a full factual inquiry being undertaken. If, however, Mr Beauchamp ultimately established that this version of events is the correct one, it seems unlikely that he would have any potential liability in negligence. Rather, it would be the builders Mr Beauchamp introduced Mr Smith to who would potentially be liable.
Summary and conclusion
[31] The assessor’s report identifies faulty installation of the re-cladding undertaken during 2004 to 2006 as a key contributor to the weathertightness issues in Ms Ewin’s property. The original home owner, Mr Smith, has given evidence before the Tribunal that he contracted with Mr Beauchamp to undertake the re-clad. It is not in dispute that Mr Beauchamp did not physically undertake the re-cladding work himself. Mr Smith’s evidence is that Mr Beauchamp arranged for “his boys” to do it.
As I have outlined above, based on Mr Smith’s evidence, those who physically undertook the re-cladding work were likely Mr Beauchamp’s employees, independent contractors or “labour only” contractors.
[32] If they were employees or labour only contractors Mr Beauchamp may be vicariously liable for any negligence on their part. In addition he may also be primarily liable, for example if he failed to adequately supervise those who undertook the work.
[33] If the relevant workers were independent sub-contractors, Mr Beauchamp will not be vicariously liable for any negligence on their part. He may, however, be in breach of a primary duty of care. This would arise if, for example, he did not select or instruct the independent sub-contractors with the level of skill and care appropriate to the occasion.
[34] It is only on the fourth scenario I have outlined, that set out in
Mr Beauchamp’s email, that he would likely owe no duty of care.
[35] It is not possible, nor indeed appropriate, to speculate at this stage as to which scenario may ultimately be proved to be correct, once a full factual inquiry is undertaken. All scenarios are open on the information currently before the Court.
[36] It necessarily follows, in accordance with the joinder principles I have outlined above, that it cannot confidently be said at this preliminary stage that no duty of care could be owed by Mr Beauchamp in relation to the re-cladding work. On three of the four possible scenarios I have outlined, a duty of care could arise. Unless the proposition that Mr Beauchamp may owe a relevant duty of care is “clearly wrong or unsustainable” it should not be peremptorily dismissed. Rather, Mr Beauchamp should be joined to the proceedings to enable a full and proper factual inquiry to be undertaken.
[37] The consequence of declining to join Mr Beauchamp to the proceedings would be, in effect, to determine, on the basis of very limited evidence, that as between Mr Beauchamp and “Brent” and “James” only the latter could be potentially
liable for negligent installation of the cladding. Making such an assumption at a preliminary stage of the proceedings could potentially give rise problems at a later stage, as illustrated by Hooft Van Huijsduijnen v Woodley.18 In that case Ronald Young J found that because the architect was removed from proceedings in the Tribunal, none of the Hoofts’ claims that relied on finding that the architect’s plans were prepared negligently could succeed. To claim that the plans had been prepared negligently, when the architect had been removed, was an abuse of process. If a similar principle was applied to this case “Brent” and “James” (if joined) could well
be precluded from defending the claim on the basis that it was Mr Beauchamp who was negligent not them.
[38] Of course, following a full factual inquiry, it may well be established that Mr Beauchamp is not liable for any re-cladding defects that may exist and that responsibility for any such defects rests solely with “Brent” and “James” (or someone else entirely). That determination cannot, however, be made on the basis of the limited information that is currently available. It is important that claims that may ultimately prove to be meritorious are not, in effect, peremptorily dismissed at an interlocutory stage.
Result
[39] The appeal is allowed and that part of the Tribunal’s determination declining to join Bruce Beauchamp to proceeding TRI-2013-100-000068 is set aside. Mr Beauchamp is to be joined as a respondent to the proceeding.
[40] As no party appeared in opposition to the appeal, I make no order as to costs.
Katz J
18 Hooft Van Huijsduijnen v Woodley [2012] NZHC 2685.
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