Body Corporate 187947 v E P Maddren & Sons Limited HC Auckland CIV 2004-404-1149

[2005] NZHC 1753

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2004-404-1149

BETWEEN  BODY CORPORATE NO. 187947

First Plaintiff

AND  JUDITH CHRISTINE LING & OTHERS

Second Plaintiff

AND  E P MADDREN & SONS LIMITED

First Defendant

AND  NORTH SHORE CITY COUNCIL

Second Defendant

AND  TIMOTHY TERENCE MANNING

Third Defendant

AND  METALCRAFT INDUSTRIES LIMITED

Fourth Defendant

ANDFIRST CENTRAL ALUMINIUM LIMITED

Fifth Defendant

ANDMIKE ALLAN CONSTRUCTION LIMITED

Sixth Defendant

AND  SYKES RESIDENTIAL LIMITED

Seventh Defendant

AND  W F MCNABNEY LIMITED

Eighth Defendant

ANDRUBBER ROOFING CO CONTRACTING LIMITED

Fourth Third Party

AND  X & W TILING

Fifth Third Party

BODY CORPORATE NO. 187947 And Anor V E P MADDREN & SONS LIMITED And Ors HC AK CIV 2004-404-1149 [13 May 2005]

Hearing:         11 April 2005

Appearances: WA McCartney for Third Defendant in support of the application TJ Rainey for the Plaintiffs to oppose

Judgment:      13 May 2005

JUDGMENT OF RODNEY HANSEN J

Solicitors:          Cairns Slane, P O Box 6849, Auckland for Plaintiffs

Kensington Swan, Private Bag 92101, Auckland for First Defendant Heaney & Co, P Box 105391, Auckland for Second Defendant

CMS Legal, Level 1, cnr Como & Auburn Streets, Takapuna for Third Defendant Keegan Alexander, P O Box 999, Auckland for Fourth Defendant

John Hickey, P O Box 100-802, North Shore Mail Centre, Auckland for Fifth Defendant

Brennan and Brown-Haysom, P O Box 200025, Papatoetoe for Sixth Defendant Ross Devitt & Associates, P O Box 302326, Auckland for Seventh Defendant McIntosh Napier, P O Box 21245, Henderson for Eighth Defendant

2

Introduction

[1]    The third defendant, Mr Timothy Manning, applies to strike out the plaintiffs’ claim against him and/or for summary judgment to be entered against the plaintiffs. He is one of eight defendants to a claim by the Body Corporate and owners of units in a development at Albany known as Norfolk Pines. He was the sole director of Taradale Albany Highway Limited, the company responsible for the development which went into liquidation in June 2003 and has now been struck off the register of companies.

[2]    The units in the development have developed serious  leaking  problems. They are among the so-called leaky buildings. The claim is brought against the builder, the territorial authority which granted the relevant consents and others involved in the project.

[3]    Mr Manning is sued for negligence. The most recent pleading against him needs to be set out in full:

“FIRST CAUSE OF ACTION BY BOTH PLAINTIFFS AGAINST THE THIRD DEFENDANT – NEGLIGENCE

24.The third defendant owed the plaintiffs a duty to take proper skill and care in the development of the units, to the extent that he was involved.

Particulars

(a)The developers of the property, Taradale Albany Highway Limited, had a non-delegable duty to take proper skill and  care in the development of the units.

(b)Taradale Albany Highway Limited could only act through its directors, employees and/or agents and any tortious acts committed by Taradale Albany Highway Limited could only be committed by these parties;

(c)The third defendant was the director and an employee and/or agent of Taradale Albany Highway Limited.

(d)Taradale Albany Highway Limited was vicariously liable for the actions or omissions of the third defendant;

(e)The third defendant was involved in:

(i)       Setting the budget for; and

(ii)      Having control over; and

(iii)     Supervising;

the building work carried out in the development of the units and owed the plaintiffs a duty to take proper skill in carrying out these functions.

25.In breach of that duty the third defendant failed to take proper skill and care in carrying out the listed functions, so that the units suffer from the defects set out in paragraph 15.

26.Further (and without limiting the generality of the foregoing) the third defendant instructed the first defendant not to use horizontal control joints in the erection of the cladding, the absence of which has caused the defect particularised in paragraph 20(d) above.

27.As a result of the third defendant’s breaches of duty the plaintiffs have suffered losses currently assessed as set out in paragraph 20(d) above.”

[4]    Mr Manning applies for the entire pleading against him to be struck out on the grounds that the plaintiffs have failed to properly particularise the claim. Alternatively, orders are sought that particular paragraphs be struck out.  The entry  of summary judgment was submitted to be the appropriate sequel in either case.

[5]    As argument developed it became clear, however, that the survival of the cause of action depends on whether the plaintiffs have shown there may exist the special circumstances necessary for a claim against a director personally. For this purpose affidavits were filed. It was accepted that if this evidence disclosed a proper basis for a claim, any deficiencies in the pleading could be cured by an appropriate order for further particulars.

Director’s liability – legal principles

[6]    A director will be liable for acts committed on behalf of the company only in special circumstances. The leading case in New Zealand, Trevor Ivory Limited v Anderson [1992] 2 NZLR 517 (CA) affirmed that because a company is a separate legal entity incapable of acting on its own account, normally the acts of a director will be identified with those of the company itself. This is what Hardie Boys J called

at p 527 “the basic premise”. He went on to say that clear evidence is needed to displace that premise with a finding that a director is acting not as the company but as the company’s agent or servant in a way which renders him personally liable.

[7]    The question is what that clear evidence needs to show. The judgments in Trevor Ivory suggest that what is required is an assumption of responsibility. To quote again from the judgment of Hardie Boys J at p 527:

“Essentially, I think the test is, or at least includes, whether there has been an assumption of responsibility, actual or imputed. That is an appropriate test for the personal liability of both a director and an employee

Assumption of responsibility may well arise or be imputed where  the director or employee exercises particular control or control over a particular operation or activity …”

Both Cooke P (at p 523) and McGechan J (at p 532) also referred to the requirement of an assumption of responsibility, McGechan J referring to the need for:

“… a representation, expressed or implicit, of personal involvement, as distinct from routine involvement for and through his company.”

[8]    Mr Rainey argued that Trevor Ivory should not be understood to lay down a principle of general application but should be confined to cases of negligent misstatement. He submitted that the test in South Pacific Manufacturing Co Limited v New Zealand Security Consultants and Investigations Limited [1992] 2 NZLR 282 for formulating a novel duty of care should instead be applied in cases such as the present.

[9]    I do not read the judgments in Trevor Ivory as confining the rule in this way. The judgment of Cooke P (at p 524) refers to claims for economic loss and duties of care in broad terms; Hardie Boys J (at p 527) makes it clear he is considering a director’s liability for any breach of a duty of care; and McGechan J refers at p 530 to the assumption of responsibility as the touchstone in cases involving negligent acts and omissions as well as those involving negligent advice. Subsequent cases have not interpreted Trevor Ivory as limited to negligent misstatement: see, for example, Banfield v Johnson (1994) 7 NZCLC 260,496, Plypac Industries Limited v Marsh (1998) 8 NZCLC 261,713, Mahon v Crockett (1999) 8 NZCLC 262,043

(CA), O’Sullivan v New Zealand Ostriches (2000) 14 PRNZ 593 and Drillien v Tubberty (High Court, Auckland, CIV 2004-404-2873, 15 February 2005, Faire AJ). See also the judgment of Keane J in Body Corporate No 202254 v  Approved Building Certifiers Limited (HC, Auckland, CIV 2003-404-3116, 13 April) delivered after argument in the present case was heard.

[10]   I am satisfied therefore that the principles to be extracted from Trevor Ivory are not restricted to cases of negligent advice. They apply whenever a company director is claimed to owe a duty of care. What the discussion in Trevor Ivory makes clear, however, is that whether of duty of care arises will depend on the facts of each case. There is no simple formula which makes it possible to categorise the circumstances in which a director may be personally liable.

[11]   Among the critical considerations may be the nature of the injury; Cooke P said in Trevor Ivory (at p 524) that he may have been disposed to find a personal duty of care in that case if it had been a personal injuries claim. The nature of the relationship between the plaintiff and the alleged tort feasors may also be important. Todd et al, The Law of Torts in New Zealand (3^rd ed, 2001) suggest that a claim of immunity is available only as a defence to a claim based on an existing contractual  or business relationship. The authors say at p 365-366:

“The crucial point giving rise to the Ivory and Williams [Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL] immunity must be found in the fact that the plaintiff is a company client, not a third party. If Mr Ivory had negligently sprayed someone else’s property, there can be no doubt that he would have been liable. So also would the director in Williams if he had given business advice directly to a non-client. Arguably, then, the principle  is that a director, employee or agent acting or acting or purporting to act in the course of employment in carrying out a contract between his or her employer and a client is not personally liable in any action for negligence by the client. Seemingly, the principle should operate as a defence to an otherwise existing liability. The director can raise it only in answer to a  claim by the client.”

If this analysis is correct and a distinction can properly be made between cases in which there is an existing relationship between the plaintiff and the company and those in which there is not, the existence of a duty of care in the latter situation may well fall to be considered, as Mr Rainey submitted, by reference to the broader approach required by South Pacific Manufacturing (supra).

[12]   These considerations suggest that a cautious approach to the strike out application is warranted. The application of the unifying principles in individual cases is not always obvious, as the extended discussion in Todd (supra) at pp 360- 367 shows.

Duty of care in this case

[13]   The plaintiffs assert that the Mr Manning exercised control over the building works as particularised in para 24(e) and that a duty of care thereby arose. However, they rely on Mr Manning’s role in the application of the cladding to the units as pleaded in para 26 as providing the actionable breach of duty. (Mr Rainey concedes that the pleading in para 25 is insufficiently particularised to be relied on.)

[14]   The pleading in para 26 is supported by affidavit evidence. Mr Kenneth Henderson was employed by the builder (Maddren) as site foreman of the North Pines Development. He deposes that as site foreman he was involved in most of the site meetings. Generally he took his instructions regarding any variations to the contract works from the project manager. He says Mr Manning was on site  from time to time. He said Mr Manning attended an informal site meeting as the builder was about to begin putting the Eterpan cladding on to the units. He, Mr Henderson, had asked the suppliers of the cladding to attend the meeting to discuss the technicalities of the cladding as it was a new product to the market with which Mr Henderson was unfamiliar.

[15]   Mr Henderson deposes that the Eterpan literature specified horizontal and vertical control joints to allow for the cladding to expand and contract in response to temperature changes without cracking. At the meeting the supplier’s representative confirmed the specifications. However, Mr Henderson says that Mr Manning was insistent that control joints should not be used. Mr Henderson understood this was because Mr Manning thought the control joints would detract from the exterior appearance of the units. As he was insistent on the point, the outcome of the meeting was that control joints would not be used.

[16]   A building consultant, Peter Jordan retained by the plaintiffs, deposes that the absence of horizontal control joints has resulted in uncontrolled cracking of the Eterpan cladding. He says control joints are needed with monolithic cladding in order to allow it to expand and contract as temperatures vary. In Mr  Jordan’s opinion, the omission of control joints when installing the cladding has contributed significantly to the damage to the units.

[17]   I am satisfied the facts and matters pleaded in para 26 (as supported by the affidavit evidence) provide a sufficient basis for the claim to proceed to trial and for the plaintiffs to resist summary judgment. At the least they provide a foundation for an argument that Mr Manning’s action involved an assumption of responsibility sufficient to give rise to personal liability. It is an allegation that he involved himself directly in the day to day workings of the company. The claim is that he personally gave directions at an operational level. It is, furthermore, that he gave directions which countermanded the supplier’s specification and expert advice for the sake of appearance.

[18]   These, it seems to me, are circumstances which clearly suggest an assumption of responsibility sufficient to found personal liability. They are not dissimilar to those in which a duty of care by directors was found to arise in Morton v Douglas Homes Limited [1984] 2 NZLR 548 where directors of a company which developed residential units and who failed to follow expert advice in their construction were held to be personally liable to subsequent purchasers for the damage which resulted. In Ivory Cooke P said that on the particular facts of Morton, he was content to accept that there had been an assumption of responsibility (at p 523).

[19]   For the reasons earlier discussed, I do not exclude the possibility of the plaintiffs establishing a duty of care which widens the potential ambit of liability beyond that pleaded in para 26. Paragraphs 24 and 25 may therefore also remain although, as Mr Rainey frankly acknowledged in argument, para 25 cannot survive without particulars of the further breaches relied on. There is also a question, which  I pose but do not seek to answer, whether the circumstances relied on in para 24, without the additional matters pleaded in para 26, are sufficient to establish a duty of care.

Result

[20]   Mr Manning’s application to strike out the claim against him is dismissed, as is his application for summary judgment against the plaintiffs. The plaintiffs are to provide further and better particulars of the breaches of duty referred to in para 25 within 14 days.

[21]   The plaintiffs are entitled to costs on the application on a Category 2 Band B basis.