Bhargav v First Trust Limited
[2023] NZHC 1150
•16 May 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1260
[2023] NZHC 1150
BETWEEN AMEET BHARGAV AND RANU KHAJURIA
Plaintiffs
AND
FIRST TRUST LIMITED
First Defendant
DAVINDER SINGH RAHAL
Second Defendant(continued next page)
Hearing: 17 April 2023 Counsel:
S Wroe and B Foster for Plaintiffs A Grant for First Defendant
G Collecutt for Third and Fourth Third Parties
Judgment:
16 May 2023
JUDGMENT OF HINTON J
(Re: Application to set aside third party notices)
This judgment was delivered by me on 16 May 2023 at 10.00 am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date: ………………………….
BHARGAV v FIRST TRUST LIMITED [2023] NZHC 1150 [16 May 2023]
AND METSONS (NZ) LIMITED
Third Defendant
VINAY MEHTA
Fourth DefendantLOCAL REALTY LIMITED
Fifth DefendantGURBIR SINGH BAL
Sixth Defendant
AND VIVEK PUNJ
First Third Party
HOVERD & CO LIMITED
Second Third PartySAMAR CONSTRUCTION LIMITED
Third Third PartyMANPRIT SINGH
Fourth Third Party
[1] This judgment relates to a challenge to third party notices issued by the first defendant, First Trust Limited (FTL), shortly after FTL along with others had succeeded in partially setting aside a formal proof judgment entered against them.
Background
[2] The plaintiffs bought a residential property in May 2020 and discovered immediately afterwards that it was a leaky building. They gave notice at the same time to FTL, their vendor. In July 2021, they issued proceedings against six defendants: FTL, a building inspector (Metsons), the real estate agent acting on the sale (Local Realty) and the sole director of each corporate entity.
[3] FTL was served with a statement of claim on 11 August 2021, but it and the second to fourth defendants took no steps in the proceeding. On 20 July 2022, the plaintiffs obtained judgment by formal proof against the first to fourth defendants for breach of warranty (that where work required a building consent, such consent was obtained) and for misleading conduct under s 9 of the Fair Trading Act 1986.
[4] Meanwhile, the proceeding against the fifth and sixth defendants had progressed in accordance with the rules1 and a four-day trial had been set down on 28 October 2021 to commence on 27 February 2023.
[5] The formal proof judgment was served on the first to fourth defendants on 1 August 2022. On 10 October 2022, they applied to set it aside. That application was heard on 7 December 2022. By judgment dated 10 February 2023,2 the formal proof judgment was set aside in part, being as to quantum (only) in relation to the breach of warranty by FTL, and as to quantum and liability in relation to the Fair Trading Act claim. The Judge directed that the first to fourth defendants file a statement of defence within ten working days of the judgment and that the matter be placed in the list for further directions. The first to fourth defendants were ordered to pay the plaintiffs’ wasted costs and disbursements and were subsequently ordered to pay costs on the application to set aside.
1 High Court Rules 2016.
2 Bhargav v First Trust Limited [2023] NZHC 174.
[6] As a consequence of the setting aside of the judgment, the four-day trial was vacated and on 15 February 2023, Lang J made timetabling directions.
[7]On 24 February 2023, FTL filed its statement of defence.
Issue of third party notices and this application
[8] On 10 March 2023, FTL served the four notices of third party claims against Mr Punj and Hoverd & Co Limited (the Hoverd parties) and against Samar Construction Limited and Mr Singh (the Samar parties).
[9] On the application to set aside the judgment, no mention was made of any proposed joinder of third parties in the written submissions of the first and second defendants, nor was any mention of such made in the judgment of Tahana J.3 Similarly, in the joint memorandum provided to Lang J dated 14 February 2023, there was no reference to third party notices.
[10] FTL maintains that it can serve the third party notices as of right by virtue of Tahana J allowing ten days to file a statement of defence. FTL says the effect of r 5.47(2) and r 4.4(2)(a) is that it is automatically allowed more time to join third parties.4
[11]Rule 4.4(2) provides:
4.4 Third parties
…
(2)A third party notice must be issued within –
(a)10 working days after the expiry of the time for filing the defendant’s statement of defence; or
(b) A longer time given by leave of the court. (emphasis added)
3 Apparently, counsel for the first and second defendants referred to third parties briefly in oral submissions. This is not reflected in the judgment.
4 High Court Rules 2016, rr 5.47 and 4.4.
[12]Rule 5.47(2) provides:
5.47 Filing and service of statement of defence ...
(2)
Unless otherwise ordered by the court, -
(a) the place for filing the statement of defence must be the registry of the court in which the statement of claim was filed or into which it has been transferred:
(b) the time within which the statement of defence is required to be filed is 25 working days after the day on which the statement of claim and notice of proceeding are served on the
defendant.
(emphasis added)
[13] The plaintiffs apply to set aside the third party notices on the grounds that FTL required leave to issue them and even if it could file the notices as of right, justice requires they be set aside. The plaintiffs seek in the alternative that if the third parties are unable or unwilling to participate in an early trial, the claims against them should be adjourned and heard separately, after the plaintiffs’ claims against the defendants.
[14] The Samar parties support the plaintiffs’ argument regarding leave and have also applied to set aside the third party notices issued against them.
Leave
[15] I agree with the plaintiffs and the Samar parties that leave is required. It would be illogical if that were not the case. Had the first defendant complied with the rules and not been the subject of a formal proof judgment, it would clearly have had to seek leave under r 4.4(2)(b) to be able to join third parties as at March 2023. It would also have had to seek leave (and arguably still does) under r 7.7 because the close of pleadings date (14 October 2022) had passed. At the latest, FTL should have sought leave to file third party notices along with its application to set aside judgment.5 It
5 By way of example, in Richmond v Heskett Holdings Ltd (1995) 8 PRNZ 533 Penlington J set aside a judgment obtained by the plaintiffs and ordered that a statement of defence be submitted within a certain time frame and also that an application for leave to join third parties be submitted. There was no suggestion that the defendants were able to join third parties by right.
failed to do so and then argues that by the happenstance of Tahana J’s direction, it has skipped that hurdle. If that were correct, the first defendant would be placed in a much improved position by virtue of significant default and the grant of an indulgence. With respect, that makes little sense.
[16] In my view, the correct analysis is that the direction the Judge made allowing time to file a statement of defence was made under r 15.10 where, following setting aside of a judgment, the Court may impose “such terms as it thinks just”. The direction was not made under r 5.47 and consequently is also not applicable to r 4.4(2)(a).
[17] In any event, time had long expired for issuing third party notices under r 4.4(2) because they had to be issued within ten working days after expiry of the time for filing a statement of defence. The time for filing a statement of defence expired on 15 September 2021. After that date FTL was required to seek leave under r 4.4(2)(b). In other words, an extension of time for filing a defence under r 5.47 would only have the effect of automatically extending time for third party notices if time had not already expired under r 4.4(2)(a).
[18] Further, as noted above, leave is arguably still required under r 7.7 as the close of pleadings date had passed by the time the notices issued.
[19] If there is any ambiguity in the application of r 4.4(2) or otherwise, then in terms of the Court’s inherent jurisdiction, I find in any event that leave is required. A party who has had the luxury of setting aside a judgment does not go back to square one with all of the rights that entails and cannot assert a better position than a party who had complied. In my view, FTL’s argument in this regard is without merit. Plainly it should have sought leave.
Should leave be granted or the notices be set aside?
[20] An application for leave is made under r 4.8. Rule 4.16 applies to applications to set aside a third party notice. Under both rules the Court has a wide discretion.6 All counsel agreed that the same factors are relevant for leave as for setting aside.
6 Turner v First Fifteen Holdings Ltd HC Auckland CP435/88, 19 February 1991 at 10.
[21]The applicants say that in this case the relevant factors are:
(a)unreasonable delay by FTL and the effect of that delay on the plaintiffs;
(b)apparent weakness of FTL’s claims against the third parties;
(c)the different issues between the relevant parties and the inconvenience to the third parties and the plaintiffs of being tied up in issues in which they are not involved; and
(d)proportionality or otherwise between the scope of the various claims.
[22] I agree that these factors are all relevant, in particular the delay and disruption to the plaintiffs. Even more than that, I consider it relevant in the circumstances of this case that had the wish to join third parties been communicated to Tahana J, the added delay and complexity might have led to the judgment not being set aside. Alternatively, the setting aside may have been on the condition that FTL not be permitted to file third party claims. In applying to set aside the judgment, FTL not only did not seek leave to join third parties, but submitted that it could be ready for the trial already set down in February 2023 should the formal proof judgment be set aside. That position is clearly inconsistent with the issuing of third party notices.
[23] Whether the hearing of this case takes place next year, as the Judge indicated was possible based on advice from the registry at the time, or whether it takes place sooner, there is no question but that the addition of third parties adds materially to time and cost, both in terms of interlocutory steps and in terms of preparation for and length of hearing. In this case the estimate is that the hearing will be expanded by some days. While the Court is entitled to impose tighter timeframes on the first to fourth defendants under r 15.10 or otherwise, and matters can be expedited as against them, that does not apply to third parties.
[24] The effect on the plaintiffs is not just delay in the proceedings and additional cost, but delay in remedying their living situation. The plaintiffs have given evidence
about the deteriorating condition of their property and their consequential physical and mental health issues.
[25] As Mr Collecutt submits, the claims by FTL against the third parties do not appear strong. In a general sense, this is indicated by FTL’s own inaction in not raising a claim against the third parties, either on service of this proceeding or even on its application to set aside judgment. A strong claim would have obviously been made immediately, not nearly two years after being served with proceedings, let alone the time that has passed since FTL received notice of the issue from the plaintiffs.
[26] In terms of FTL’s claim against the Samar parties, FTL has filed no evidence in reply to the evidence filed by Samar in support of its application to set aside. In exercising its discretion to allow an application to join a third party, the Court is entitled to expect some detail and prima facie evidence from the applicant party.7 This must apply especially where the third party has filed evidence that requires answer. The Samar parties annex two quotes given to FTL by them, one for a reclad at $90,000 and one which the Samar parties say was specified as being for repairs to enable the property to be tenanted, at $4,700. The Samar parties say it was the latter work only which was contracted, FTL rejecting the quote for a reclad. It would be surprising in these circumstances if the Samar parties were liable for significant damages, and in particular for the cost of a reclad.
[27] FTL’s claim against the Hoverd parties is that Mr Punj knew and failed to tell it that the building was leaky. FTL says it consequently on-sold without knowledge of the issues. Mr Punj gave evidence in support of the plaintiffs’ formal proof application that he had told Mr Rahal’s son about the state of the building so that FTL clearly knew it was leaky at the point of on-sale. That is obviously now contested but, as the plaintiffs say, the difficulty in this regard for FTL is the apparent strength nonetheless of the plaintiffs’ claim against FTL and corresponding weakness of FTL’s claim against the Hoverd parties. This is because, quite apart from whatever Mr Punj may have said or not said to FTL, by the time it on-sold to the plaintiffs, it seems FTL had the quote for a full reclad and a report which confirmed unacceptable levels of
7 Mammoet Shipping BV v Compter HC Whangarei CP 13/86, 6 July 1987 at 17.
moisture with photographic evidence. The claim by FTL against the Hoverd parties also appears weak. Even if the Court accepts that Mr Rahal Junior was not explicitly told there were weathertightness issues, FTL would have been on notice of the physical presentation of the property at that time, prior to the works carried out by FTL and will have to persuade the Court that it is misleading in those circumstances to describe the property as a “do up”.
[28] While it is obviously premature to make any finding, it is legitimate to observe in this context that overall FTL’s third party claims do not appear strong on the face of the material presently before the Court.
[29] I accept there may be sufficient similarity between the issues, particularly with regard to the Hoverd parties, to meet the threshold requirement under r 4.4(1). It is also relevant that Mr Punj is a common witness. There are, however, significant differences in the issues, particularly vis-à-vis the Samar parties. The plaintiffs have judgment for breach of warranty. The issue of quantum of damage for that breach is distinct from the claim FTL wishes to bring against the Samar parties. FTL alleges that those parties failed to carry out the building work to a reasonable workmanlike standard and in compliance with the Building Code. None of that evidence will be relevant to the plaintiffs’ claim.
[30] As against the above, on a very broad-brush basis, all of the claims do relate to the weathertightness of the same property, and there will obviously be some double- up if FTL needs to bring its claims in separate proceedings, if it were in fact to do so. I must give due weight to the overriding principle that it is desirable to dispose of all disputes in the one proceeding at one time.8 I am also concerned about the position of Mr Punj who could otherwise be giving evidence for the plaintiffs in one proceeding while possibly being sued in a proceeding to follow. I note that the Hoverd third parties have not taken part in this application.
[31] By a fine margin, weighing all of the above, I have decided that leave should be granted and the applications for setting aside the notices be dismissed. I make that
8 Anderson v Van Der Maas HC Auckland M 302-86, 15 June 1987 at 12.
order on the condition that FTL pay the hearing fee for the additional three days of hearing time.
[32] As explained during the hearing, I do not consider that the alternative argument advanced by the plaintiffs that the third party claims should be adjourned and heard separately after the plaintiffs’ claims is viable.
Costs
[33] Given the clear need for a leave application by FTL and the fact that the granting of leave is a further indulgence, costs are awarded in favour of the plaintiffs on this application. If quantum is not agreed, short memoranda should be filed within seven days. Costs in respect of the Samar parties’ applications are reserved pending the outcome of this proceeding or further Court order.
Case management conference
[34] A case management telephone conference is to take place before me next Friday, 19 May 2023 at 1.30 pm to set any further directions required. If the parties can agree, which I hope they can, then a consent memorandum can be filed and no conference will be required. If they cannot, memoranda are to be filed setting out the directions each party seeks by 1.00 pm, Wednesday, 17 May 2023.
Hinton