Barron v Hutton HC Auckland CIV-2010-404-7270
[2011] NZHC 1118
•13 September 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-7270
BETWEEN SUSAN PATRICIA BARRON First Plaintiff
ANDTHE OFFICIAL ASSIGNEE ON BEHALF OF DENNIS SCOTT BARRON
Second Plaintiff
ANDANTHONY MAURICE HUTTON First Defendant
ANDGRAEME TREVOR STEPHENS AND MARY STEPHENS
Second Defendants
ANDIAG NEW ZEALAND LIMITED Third Defendant
ANDFORENSIC & INDUSTRIAL SCIENCE LIMITED
Fourth Defendant
ANDNICHOLAS GARTH POWELL Fifth Defendant
Hearing: 9 June 2011
Counsel: NW Woods for First and Second Plaintiffs to oppose
No appearance for First and Second Defendants
PM Smith for Third Defendant in support
B Rooney for the Fourth and Fifth Defendants in support
Judgment: 13 September 2011 at 4:00 PM
JUDGMENT OF TOOGOOD J
This judgment was delivered by me on 13 September 2011 at 4:00 pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
BARRON V HUTTON & ORS HC AK CIV-2010-404-7270 13 September 2011
Table of Contents Paragraph
Number Introduction [1] The disputed issues of fact and law [8] The applications under consideration [10] The second plaintiff [13] Security for costs [14]
Decision as to security for costs [21] Strike out application [24] Paragraph 18(g) [26] Paragraph 18(h) [33]
Fourth cause of action [35]
Fifth cause of action [41]
Introduction
[1] In 2002 and 2003, Susan Barron and her now-estranged husband Dennis
Barron built a new brick and tile house at 73 Waimahia Avenue, Weymouth. On
6 December 2006, the first defendant, Mr Hutton, carried out carpet cleaning and insect spraying on the property. Mr Hutton was then an employee of Auckland Carpet Steam „N‟ Dry Cleaning Limited (“ACSD”), a company now in liquidation. It is alleged that Mr Hutton undertook the spraying of insecticide in the property negligently, either in terms of the method of application or as to the contents of the spray, or both.
[2] The nature of the contaminants in the spray is a matter of serious dispute between scientific witnesses engaged by the parties, but the plaintiffs say that people have suffered ill health, and that the attempts by, or on behalf of, the defendants to remedy the obvious damage to the property have been inadequate and/or carried out negligently, and that monetary compensation offered is inadequate to compensate them for their loss. A scientific witness engaged by Mrs Barron, Mr Molony, has
gone so far as to say that the property is not “fit for human habitation”1 and “is
incapable of remediation without demolition.”2
[3] The second defendants were the directors and shareholders of ACSD. It is alleged they controlled, managed and operated the company‟s carpet cleaning and pest control business, and it is said that Mr Stephens “personally guaranteed” the company‟s cleaning activities.
[4] The third defendant, IAG New Zealand Limited (“IAG”) is sued in the capacity of underwriter of a public liability policy under which, it is alleged, ACSD was insured in respect of the events giving rise to the plaintiffs‟ claims. IAG is also sued in the capacity of insurer of Mr and Mrs Barron under a homeowner insurance
policy and a home contents insurance policy.
1 Affidavit of Robert Henry Molony, 10 March 2011, Vol. 1 Bundle of Relevant Court Documents, Tab 14 at paragraph 62.
2 Molony affidavit, paragraph 17.
[5] The fourth defendant (“FISL”) is a scientific consultant engaged by IAG to carry out tests and advise on remedial steps to be taken in relation to the alleged damage to Mr and Mrs Barron‟s property.
[6] The fifth defendant was the sole director and shareholder of FISL and is alleged to have controlled, managed and operated the company.
[7] Mr Hutton has not filed a defence or taken any other steps in the proceeding. The other defendants deny the plaintiffs‟ allegations and the third defendant, as alleged insurer of both ACSD and the plaintiffs, sues the fourth and fifth defendants for negligence and indemnities or contributions under the Law Reform Act.
The disputed issues of fact and law
[8] It appears from the pleadings and memoranda filed on behalf of the parties that the following are the disputed issues of fact and law:
(a) Whether the plaintiffs‟ property is contaminated with a substance that is harmful to health and has caused damage to the house and its contents.
(b)The extent of remediation required to the house and contents, including whether the house is capable of remediation to make it habitable, or whether it must be destroyed.
(c) The extent, if any, to which the third, fourth and fifth defendants should be held liable for breaches of obligation in connection with the identification of the nature and cause of damage to the house and contents, and the extent of consequential compensable losses.
(d) Quantum of damages.
[9] At the heart of the case is a serious contest between scientific and other advisers to the parties as to causation and the extent of damage.
The applications under consideration
[10] The third defendant has applied to strike out those parts of the plaintiffs‟
claim seeking damages for:
(a) the reduced expectancy of life of the plaintiffs (paragraph 18(g));
(b)to compensate them for the personal costs grandparents might be reasonably expected to contribute to the care and maintenance of Jemma Kon (Mr and Mrs Barrons‟ grandchild), who is alleged to have suffered in vitro oxygen depletion causing permanent brain injury as a result of the contamination;
(c) the alleged failure by the third defendant, as insurer of the company, to pay proper compensation to the plaintiffs as indemnifier of the company under an applicable NZI (Public Liability) policy of insurance; and
(d)breaches of express or implied or inferred terms of duties owed to the plaintiffs, in its capacity as insurer of the plaintiffs under a Home Policy and a Contents Policy, and as insurer of the company under the NZI (Public Liability) policy.
[11] The third defendant also seeks payment of security for costs by the first and second plaintiffs, including an order that the proceeding be stayed until such costs are paid into Court.
[12] The fourth and fifth defendants also seek orders for payment of security for costs.
The second plaintiff
[13] The Official Assignee, as second plaintiff, sues pursuant to paragraph (b) of Schedule 1 to the Insolvency Act 2006, Mr Barron being an undischarged bankrupt. The effect of Mr Barron‟s bankruptcy was to vest in the Official Assignee his interest in the property at 73 Waimahia Avenue, which had been held as a joint tenancy between Mr and Mrs Barron. It would appear that the effect of the adjudication is to
sever the joint tenancy and for the property thereafter to have been vested in Mrs Barron and the Official Assignee as tenants in common, probably in equal shares.3
Security for costs
[14] The third, fourth and fifth defendants apply for security for costs under High
Court Rule 5.45. That rule provides:
5.45 Order for security of costs
(1) Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—
(a) that a plaintiff—
(i) is resident out of New Zealand; or
(ii) is a corporation incorporated outside New
Zealand; or
(iii) is a subsidiary (within the meaning of section 5 of the Companies Act 1993) of a corporation incorporated outside New Zealand; or
(b) that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff's proceeding.
(2) A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.
(3) An order under subclause (2)—
(a) requires the plaintiff or plaintiffs against whom the order is made to give security for costs as directed for a sum that the Judge considers sufficient—
(i) by paying that sum into court; or
(ii) by giving, to the satisfaction of the Judge or the Registrar, security for that sum; and
(b) may stay the proceeding until the sum is paid or the security given.
(4) A Judge may treat a plaintiff as being resident out of New Zealand even though the plaintiff is temporarily resident in New Zealand.
3 Insolvency Act 2006, s 101(1); Hinde McMorland & Sim, Land Law in New Zealand, at 13.013(a);
Bedson v Bedson [1965] 3 All ER 307, 319.
(5) A Judge may make an order under subclause (2) even if the defendant has taken a step in the proceeding before applying for security.
(6) References in this rule to a plaintiff and defendant are references to the person (however described on the record) who, because of a document filed in the proceeding (for example, a counterclaim), is in the position of plaintiff or defendant.
[15] Guidance on the application of that rule is provided by Nikau Holdings Limited v Bank of New Zealand4 and more recently by the Court of Appeal in McLachlan v MEL Network Ltd.5 Those cases confirm that subclause (1) provides a threshold which must be met before the discretion to make an award of costs can be exercised. The relevant paragraph in this instance is para (b): there must be reason to
believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff
is unsuccessful in the plaintiff‟s proceeding.
[16] Counsel for the fourth and fifth defendants submits that there is no dispute as to whether the threshold is met in this case. He cites an affidavit confirming Mr Barron‟s bankruptcy and Mrs Barron‟s impecuniosity in support of this contention. Similarly, counsel for the third defendant makes reference to a number of affidavits which allude to the Barrons‟ lack of funds.
[17] It cannot seriously be contended that Mr or Mrs Barron have any extensive funds or that there is reason to believe that the Barrons would be able to pay the costs of the defendants. So much is confirmed by counsel for the first and second plaintiffs. But Mr Barron is not a party to these proceedings. As has been emphasised in the evidence and submissions, Mr Barron is bankrupt. Consequently, his share of the property at the centre of this litigation has vested in the Official Assignee. These proceedings are brought by Mrs Barron and the Official Assignee as the joint owners of the property.
[18] Counsel for the third defendant cited the case of Siemer v Heron6 as authority for the proposition that this Court can make orders for security against bankrupts. As
Venning J noted, however, that case involved a cause of action personal to the
4 Nikau Holdings Ltd v Bank of New Zealand (1992) 5 PRNZ 430 (HC).
5 McLachlan v MEL Network Ltd (2002) 16 PRNZ 747 (CA).
6 Siemer v Heron HC Auckland CIV-2008-404-008058, 29 March 2010.
plaintiff.7 It was for that reason that the cause of action had not vested in the Official Assignee and that Mr Siemer could pursue his claim notwithstanding his bankruptcy. The obvious distinction in this case is that, as I have said, Mr Barron is not a party to the litigation.
[19] The threshold inquiry, therefore, is concerned with the ability of Mrs Barron and the Official Assignee to pay the costs of the defendants. That inquiry must be conducted subject to the comments of the Court of Appeal in Ariadne Australia Ltd v Grayburn.8 There the Court observed that:9
Where, as here, two parties are suing in the same interest with the same solicitors and counsel there will ordinarily be only one set of costs. In those circumstances if one of the two can pay the costs no security will be needed; otherwise security from the one who can best provide it will meet the case.
[20] The Court of Appeal has since confirmed the applicability of that approach in light of a change of the language of the rule.10
Decision as to security for costs
[21] The Court of Appeal‟s observations are directly applicable to the present case. I have no reason to believe that the Official Assignee will be unable to meet an award of costs and since only one costs award is likely to be made, there is consequently no need for an order for security in the present case.
[22] Some reference has been made to an agreement reached between the first and second plaintiffs whereby Mrs Barron has indemnified the Official Assignee for any costs which he might be held liable. I do not consider such an agreement to be relevant to my assessment of whether the r 5.45 threshold is met. Agreements between the plaintiffs as to how they might meet any adverse costs judgment are matters for them. A similar view was taken in Tasman Charters Inc v Kamphuis.11
[23] For these reasons, I decline to make an order for security for costs.
7 At [3].
8 Ariadne Australia Ltd v Grayburn [1991] 1 NZLR 329
9 At 333.
10 Smith v Covington Spencer Ltd [2007] NZCA 224 at [24].11 Tasman Charters Inc v Kamphuis HC Auckland CP16-SD02, 31 May 2002.
Strike out application
[24] The third defendant applies to strike out aspects of the plaintiffs‟ pleadings. That application is advanced on the basis of r 15.1 of the High Court Rules, which reads:
15.1 Dismissing or staying all or part of proceeding
(1) 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.
(2) If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.
(3) Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.
(4) This rule does not affect the court's inherent jurisdiction.
[25] The principles relating to strike-out applications are well established. The approach of the Court of Appeal in Attorney-General v Prince12 was endorsed by the Supreme Court in Attorney-General v Couch.13 The cases provide that before the Court may strike out proceedings the causes of action must be so clearly untenable that they cannot succeed; the jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied it has the requisite material; but the fact that
this application to strike out raises difficult questions of law, and requires extensive argument, does not exclude jurisdiction.
Paragraph 18(g)
[26] Paragraph 18(g) of the pleadings, amongst other things, alleges that the plaintiffs have suffered reduced life expectancy and needed medical care, uncompensated by ACC. The third defendant submits that those particular pleadings
should be struck out. First, because there is no possibility of a causal link between
12 Attorney-General v Prince [1998] 1 NZLR 262 at 267.
13 Attorney-General v Couch [2008] NZSC 45 at [33]
the alleged contractual breaches and the alleged losses and second, and perhaps more fundamentally, because such pleadings are barred by the Accident Compensation Act
2001.
[27] Section 317 of that Act is as follows:
317 Proceedings for personal injury
(1) No person may bring proceedings independently of this Act, whether under any rule of law or any enactment, in any court in New Zealand, for damages arising directly or indirectly out of
(a) personal injury covered by this Act; or
(b) personal injury covered by the former Acts.
(2) Subsection (1) does not prevent any person bringing proceedings relating to, or arising from,—
(a) any damage to property; or
(b) any express term of any contract or agreement (other than an accident insurance contract under the Accident Insurance Act 1998); or
(c) the unjustifiable dismissal of any person or any other personal grievance arising out of a contract of service.
(3) However, no court, tribunal, or other body may award compensation in any proceedings referred to in subsection (2) for personal injury of the kinds described in subsection (1).
(4) Subsection (1) does not prevent any person bringing proceedings under—
(a) section 50 or section 51 of the Health and Disability
Commissioner Act 1994; or
(b) any of sections 92B, 92E, 92R, 122, 122A, 122B, 123, or
124 of the Human Rights Act 1993.
(5) Subsection (1) does not prevent any person bringing proceedings in any court in New Zealand for damages for personal injury of the kinds described in subsection (1), suffered in New Zealand or elsewhere, if the cause of action is the defendant's liability for damages under the law of New Zealand under any international convention relating to the carriage of passengers.
(6) Subsection (1) does not affect proceedings to which section 318(3)
applies.
(7) Nothing in this section is affected by—
(a) the failure or refusal of any person to lodge a claim for personal injury of the kinds described in subsection (1); or
(b) any purported denial or surrender by any person of any rights relating to personal injury of the kinds described in subsection (1); or
(c) the fact that a person who has suffered personal injury of the kinds described in subsection (1) is not entitled to any entitlement under this Act.
[28] That section is clearly apposite. It is a fundamental tenet of our Accident
Compensation scheme that personal injury cannot be the subject of proceedings for damages outside of the scheme. Personal injury is defined in s 26 of the Act:
26 Personal injury (1) Personal injury means— (a) the death of a person; or (b) physical injuries suffered by a person, including, for example, a strain or a sprain; or
(c) mental injury suffered by a person because of physical injuries suffered by the person ...
[29] In Falwasser v Attorney General,14 Stevens J adopted the following interpretation of s 26(1)(b):
It is clear from that definition that physical injury is clearly distinguished as a separate category of injury from mental injury. Physical in this context I find to be in accordance with the dictionary meaning “of or relating to the body as distinguished from the mind or spirit”. Using the definition of physical injury in line with the natural and ordinary meaning it must therefore involve physical damage or hurt, that is bodily harm or damage.
[30] It seems clear to me that diminished life expectancy is “of or relating to the body as distinguished from the body or mind” and, consequently, that such a claim is barred by the Act.15 That approach is confirmed by the generous and unniggardly approach to interpretation which should be adopted under the Act.16
[31] That s 317 also prevents the plaintiffs from claiming medical expenses uncompensated by ACC is confirmed by the Supreme Court decision of Police v Davies.17 There the Court observed that:
Section 317(7) makes it clear that it is the scope of the Injury Prevention, Rehabilitation, and Compensation Act that prevents recovery, rather than whether a claimant actually receives any entitlement under the Act.
14 Falwasser v Attorney General [2010] NZAR 445.
15 Green v Matheson [1989] 3 NZLR 564.
16 Accident Compensation Corporation v Mitchell [1992] 2 NZLR 436 (CA) at 438.17 Police v Davies [2009] NZSC 47, [2009] 3 NZLR 189.
[32] Accordingly, I strike out that part of paragraph 18(g) which refers to “Reduced expectancy of life, and the plaintiffs [sic] medical care (uncompensated by ACC)”.
Paragraph 18(h)
[33] In paragraph 18(h) of the pleadings, Mrs Barron, at least, claims damages for personal costs that she may have to bear in the future in looking after her granddaughter who, she says, has a permanent injury consequent on the contamination of the house.
[34] Quite apart from any issues of causation, it seems to me that the law as it relates to paragraph 18(g) of the pleadings is equally applicable here. The claim for damages is premised on the brain injury suffered by the first plaintiff‟s granddaughter. That is a physical injury and a personal injury in terms of s 26 of the Act. The claim is consequently barred by s 317 of the Act. Paragraph 18(h) is struck out.
Fourth cause of action
[35] The fourth cause of action alleges that the third defendant failed, as insurer of the company, to pay proper compensation to the plaintiffs as indemnifier of ACSD under an applicable NZI (Public Liability) policy of insurance.
[36] As a preliminary matter, the bringing of that claim relies on leave being granted under s 9 of the Law Reform Act 1936. I understand from counsel that there is no objection to leave being granted and I grant leave accordingly.
[37] The pleadings allege that NZI indemnified ACSD by way of a public liability insurance policy. That policy, it is said, covered any loss or damage to any person for personal injury and damage to or loss of property caused by ACSD. The loss suffered by the plaintiffs was, in their contention, such loss.
[38] The third defendant‟s strike out application contends that the fourth cause of action is a duplication of the third cause of action which adds nothing to the proceeding. It will, it says, unnecessarily occupy the Court‟s time. The crux of the argument advanced before me was that, if the plaintiffs succeed on the third cause of
action, they will also inevitably succeed on the fourth; if they fail on the third, then they will fail on the fourth. The third defendant submits that those inevitabilities warrant the striking out of the fourth cause of action or, at the very least, its staying.
[39] I am not attracted to the prospect of staying the fourth cause of action. It may be based on the same factual allegations as the third cause of action but the basis of the claim differs in law. Staying the fourth cause of action may lead to a later hearing where the same evidence called at the first is again put before the Court. That, it seems, would result in an outcome which the third defendant seeks to avoid.
[40] I am not satisfied that striking out the cause of action would achieve the desired purpose either. If, as the third defendant alleges, there is a large measure of duplication in the evidence, then the prolonging of the proceeding will be minimal. It is preferable that that issue be left in the proceedings at present, to be dealt with by the trial judge if the need arises as the trial unfolds.
Fifth cause of action
[41] The fifth cause of action alleges that implied terms in the insurance contract between IAG and the Barrons required IAG to act reasonably, honestly and in the utmost good faith. No less than 17 breaches of those implied terms are alleged by the plaintiffs.
[42] The third defendant‟s strike out application makes out a number of hurdles purportedly faced by the plaintiffs in bringing the fifth cause of action. There cannot, it says, be such implied terms as are alleged by the plaintiffs because the contact is capable of construction without reference to those terms. In any event, the third defendant says, in reliance on Re Zurich Australian Insurance Limited,18 there is no stand-alone post-contractual duty on an insurer of good faith as an implied term. Furthermore, it is said that damages are not available for a breach of the duty of good faith; the only remedy being avoidance. Issues of causation, the position of IAG as
ACSD‟s insurer and the remedies available in the event of success were also raised
in support of the application to strike out the fifth cause of action or, at a minimum, its staying.
18 Re Zurich Australian Insurance Limited (1999) 10 ANZ Insurance Cases 61
[43] For reasons similar to those expressed at [36] above, I am not attracted to the prospect of staying the fifth cause of action. As with the prospect of staying the fourth cause of action, it seems to me that adopting that course runs the risk of potentially duplicating the proceedings in this Court. I now consider whether there is sufficient merit in the fourth cause of action for it to proceed to trial.
[44] While Zurich may stand for the proposition that there is no specific duty to act in good faith, that is not what I take the pleadings of the plaintiffs to be alleging. The proposition that the relationship of insured and insurer is one of “utmost good faith” is fundamental to the law of insurance contracts.19 Similarly, it is widely accepted that other duties arise from that relationship of “utmost good faith”. So much was accepted in Zurich itself.20 Consequently, I cannot say that the causes pleaded are unarguable. It seems to me that the exact nature of the duties arising in this case fall to be determined at trial.
[45] Furthermore, I see no merit, at the strike out stage, in the third defendant‟s argument that the only available remedy for a breach of the duty of good faith is avoidance. That submission is premised on Banque Financière de la Cité SA v Westgate Insurance Co Limited.21 However, the position in New Zealand, as the third defendant acknowledged, is unresolved. So much is clear from Winkelmann J‟s observations in Pegasus Group Limited v QBE Inusrance.22 That the position in this country is uncertain is a clear indicator that a claim should not be struck out. As Elias CJ observed in Couch v Attorney-General, particular care is required in striking out claims in areas of the law which are confused or developing.23 Furthermore, I must be certain that such claim cannot succeed,24 and I am not of that view.
[46] The other objections to the fifth cause of action raised by the third defendant, including issues of causation and remedies, do not justify its striking out. Issues of
causation are what need to be resolved at trial. As for the availability, or in this case
19 See: Desmond Keith Derrington and Ronald Shaw Ashton The Law of Liability Insurance (2nd ed, LexisNexis, Chatswood, NSW, 2005), Chapter 4; UEB Packaging Ltd v QBE Insurance (International) Ltd [1998] 2 NZLR 64 (CA)
20 See for example [39].
21 Banque Financière de la Cité SA v Westgate Insurance Co Limited [1991] 2 AC 249
22 Pegasus Group Limited v QBE Inusrance (International) Limited HC Auckland CIV-2006-404-
6941, 1 December 2009.
23 Attorney-General v Couch [2008] NZSC 45 at [33]
24 Ibid.
the alleged unavailability, of remedies, that is an issue which stands to be resolved after liability has been established. It is not, however, an issue which affects the plaintiffs‟ ability to allege the fifth cause of action.
[47] There is more merit in the argument that the implied duties cannot be owed by IAG in its capacity as ACSD‟s insurer. The duties of the “utmost good faith” arise between the plaintiffs and IAG by virtue of the insurance contract entered into by Mr and Mrs Barron as the insured and IAG as the insurer under the homeowners and home contents policies. In the proceedings against IAG as ACSD‟s insurer, liability is limited to the extent that IAG stands in the place of ACSD.25 If ACSD were not in liquidation, there would be no liability to the plaintiffs in the terms pleaded under the fifth cause of action. I strike out the fifth cause of action in so far as it is pleaded against IAG as ACSD‟s insurer. The fifth cause of action against IAG as Mr and Mrs
Barron‟s insurer, however, remains on foot.
[48] The plaintiffs are directed to file and serve an amended statement of claim which reflects this judgment within 21 days.
[49] Costs are reserved. Since the plaintiffs and the applicant defendants have each had a measure of success, I am inclined to think costs should lie where they fall. However, any party wishing to apply for costs may do so by filing and serving a memorandum within 20 working days. Any party responding shall file and serve a memorandum in reply within 20 working days thereafter.
............................................
Toogood J
25 Law Reform Act 1936, s 9.
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