Body Corporate 314950 v James Hardie New Zealand
[2013] NZHC 1744
•11 July 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2012-404-006338 [2013] NZHC 1744
BETWEEN BODY CORPORATE 314950
First Plaintiff
APARTMENTS LIMITED AND OTHERS
Second Plaintiffs
ANDJAMES HARDIE NEW ZEALAND First Defendant
STUDORP LIMITED Second Defendant
GEORGE CLARKE Third Defendant
ROBERT CUNNINGHAM Fourth Defendant
Hearing: 9 July 2013
Appearances: A Thorn for plaintiffs/respondents
K F Gould fourth defendant/applicant
Judgment: 11 July 2013
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
11.07.13 at 12:00pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
BODY CORPORATE 314950 v JAMES HARDIE NEW ZEALAND [2013] NZHC 1744 [11 July 2013]
[1] The plaintiffs’ proceeding concerns their 45 apartment development at Waterview, Auckland. It was built in the period 2002-2004. It is a leaky building. It was built by Robert Cunningham Construction Limited (RCCL), now in liquidation.
[2] It was the development project of Townscape Consultants Limited (now struck off), and another. Mr G W Richardson (Mr Richardson) was the director of that company.
[3] The fourth defendant Mr Cunningham was the sole director of RCCL. It is pleaded he was the manager of RCCL and was personally responsible for the construction of the property.
[4] Broadly, it is alleged that Mr Cunningham owed duties to the plaintiffs:
(a) as the person ultimately in control of the construction company; and
(b)in relation to his positive acts (particularly in relation to the flashing/cladding meeting and the specific instructions/advice given in relation to that system); and
(c) for failing to have in place adequate instruction and/or to exercise adequate supervision of all employees (including the project manager and site foreman and/or subcontractors and/or contractors); and
(d)for failing to attend a sufficient number of site visits to have proper control of the construction of the contract works.
[5] The plaintiffs also allege that Mr Cunningham had actual knowledge that the proposed cladding system was likely to fail.
[6] Mr Cunningham’s summary judgment application pleads that the plaintiffs’ claims cannot succeed against him. The application refers to five case authorities but does not directly refer to relevant parts of those authorities for the purpose of identifying the relevance of them.
[7] The Court infers it is Mr Cunningham’s case, and indeed counsels submissions present his involvement with the development as being at some distance from a position of control or influence or his having done anything in circumstances from which he assumed any personal responsibility beyond that for which RCCL could be held to account.
When a company director may assume personal liability
[8] The bulk of submissions for the plaintiffs are presented to reflect claims of an assumption of personal responsibility. If Mr Cunningham had personal control over the building operation he could be personally liable if his personal carelessness was the cause of damage to others such that he became subject to a duty of care. As
noted by Hardie Boys J in Morton v Douglas Homes Limited 1:
It is not the fact that he is a director that creates the control, but rather the fact of control, however derived, may create the duty. There is therefore no essential difference in this respect between a director and a general manager or indeed a more humble employee of the company. Each is under a duty of care, both to those with whom he deals on a company’s behalf and to those with whom the company deals insofar as that dealing is subject to his control.
[9] In Trevor Ivory v Anderson 2 the Court of Appeal confirmed that an officer of the company might in the course of activities on behalf of that company come under a personal duty to a third party, breach of which might entail a personal liability. The Court noted that the test as to whether that liability had been incurred was whether there had been an assumption of a duty of care, actual or imputed. Liability depended on the facts, on the degree of implicit assumption of personal
responsibility and the balancing of policy considerations. In that case Mr Ivory had
1 [1984] 2 NZLR 548 (HC).
2 [1992] 2 NZLR 517 (CA).
made it plain that limited liability was intended. The Court held there was no just reasonable policy consideration for imposing any duty of care upon him. The case against him did not succeed.
[10] In Drillien v Tubberty 3 Associate Judge Faire held that a director whose involvement in the building process had been limited to organise what was necessary for specific subcontractors and who had left those subcontractors to get on with the actual building themselves, had not thereby assumed personal liability.
[11] In Body Corp 199348 v Nielson 4 a director was held personally exposed in a situation where he had primary responsibility for supervising construction works which supervision extended to coordinating sub trades and ensuring work was carried out in accordance with the plans and specifications. The director attended the site for at least one or two hours each day in builders clothes and gave daily instructions to the site manager.
[12] In Body Corp 183523 & Ors v Tony Tay & Associates Limited & Ors 5
Priestley J considered the position of Mr Tay the managing director and majority shareholder of the company that developed and built an apartment block which was “shoddily constructed”. While noting Mr Tay was the company’s managing director and majority shareholder and that he had liaised and negotiated the development contract, and that he was responsible for the filing of documents with the Auckland City Council, that he organised subcontracts, arranged Master Build guarantees and liaised with the solicitors for the development owners, that he raised finance and “from an organisational standing point, was able, if he so chose, to control what happened on the site”, yet he was considered by the Learned Judge not to have assumed personal liability. Of his actions Priestly J said:
These are the actions and mechanisms whereby a limited liability company makes decisions, commitments, and enters into legal relationships.
[13] Priestly J found that Mr Tay was not a tortfeasor. In his consideration of other case authority he noted:
3 (2005) 6 NZCPR 470.
4 HC AK CIV 2004-404-3989, 3 December 2008, Heath J.
5 HC AK CIV 2004-404-4824, 30 March 2009, Priestley J.
Although all these cases revolve around their individual facts, as a general rule directors facing claims in respect of leaky buildings would be exposed in situations where the companies involved are one person or single venture companies or in situations where there are factual findings that the director was personally involved in site and building supervision or architectural and design detail.
[14] In the case before him the learned Judge noted that the plaintiffs had failed to prove that Mr Tay personally was involved to that degree in any of those areas.
What role did Mr Cunningham have in this development?
[15] In the present case and as already noted Mr Cunningham is the sole director and shareholder of RCCL. He negotiated the building contract on behalf of RCCL. Mr Neumann a quantity surveyor in the employ of RCCL was, Mr Cunningham says, the project manager for the contract with Mr T Hudson a builder being employed as the site supervisor.
[16] Mr Cunningham says his role was restricted to that of the officer in charge of finance, contract and administration. He says he did not attend any site meetings and nor were any of the architects instructions directed to him. The plaintiffs disagree and say:
(a) in October 2002 Mr Cunningham required a change of the specified flashing system and required the installation of a new flashing system;
(b)Mr Cunningham represented that he had a particular concern about the installation of the old flashing system, and more generally, about the apartments being “leaky buildings”;
(c) Mr Cunningham represented that the new flashing system would
perform and that the apartments would not be “leaky buildings”; and
(d)Mr Cunningham represented that he had spoken/obtained a report relating to the performance of the new flashing system from Prendos and he had specialist knowledge about the suitability of the new
flashing system and was aware of Monolithic Cladding and/or flashing systems failing,
[17] Mr Cunningham says these statements were not accurate or correct. Mr Cunningham challenges records or recollections from which it might be inferred he played a role in the recommendation of a process or materials to address leaky building concerns. He challenges claims of his attending a site meeting on a particular date. He disputes Mr Richardson’s’ recollection or suggestions made directly or by inference that he was in attendance at any meeting at which he agreed a particular flashing would be installed.
[18] It appears clear that Mr Cunningham relies upon the legal structure he created in RCCL for the development with the intention that he be distanced from any later claims by disappointed owners. If the plaintiff’s case is to succeed then it is because it can prove there were some direct personal involvements by Mr Cunningham that were crucial in the decisions which are now subject to the weather tightness claims. That direct involvement does not necessarily mean that Mr Cunningham undertook physical construction work. However, it may in the particular circumstances of the case involve acts of participation in administering the construction of the building.
[19] The evidence of Mr Cunningham and Mr Richardson is replete with examples of their disagreement of recollections and proper inferences to be drawn from written records. In a similar vein Mr Cunningham challenges the recollections, assumptions and opinions of other witnesses including Mr Light.
Overview of the plaintiffs’ evidence
[20] RCCL’s contract provided that RCCL must provide all necessary supervision of the contract works. RCCL was required to appoint a competent onsite representative who was authorised to receive all of the architect’s directions to the contract. Also, RCCL was entitled to appoint subcontractors to do any parts of the contract works although that would not affect RCCL’s obligations and liabilities in connection with completion of those works.
[21] Mr Richardson deposes that on 15 October 2002 he met with Mr Cunningham to discuss cladding and flashing system issues. He said he walked around the site with Mr Cunningham, physically pointing out the flashing and his concerns. He thought the site visit lasted approximately one hour.
[22] Mr Richardson said there was another meeting on 11 November 2002 “in relation to the failure of the cladding system”. Mr Cunningham denies attending this meeting.
[23] Mr Cunningham expressly rejects there is any such connection. He describes his role as relating to financial, contractual and administrative functions.
[24] He admits attending a meeting on 15 October 2002 at the architect’s office and he admits attending a post-construction meeting. He does not accept Mr Richardson’s description of those.
[25] A significant focus of the plaintiffs’ case concerns the pleading that Mr Cunningham represented that the apartments required a change of the specified window flashing system and cladding system. The plaintiffs say this was because he was concerned the old flashing system would cause the apartments to be “leaky”. It is pleaded Mr Cunningham spoke to James Hardie the cladding system manufacturer, and that this led to a subsequent change in the system installed in the development. Mr Richardson deposes to their being a meeting on 16 October 2002 when there were “lengthy discussions” in relation to the window flashing system. Mr Richardson said Mr Cunningham was present. Further he said that he dealt directly with Mr Cunningham subsequently in the “post construction/defects period”, because Mr Cunningham had been contacted directly to fix some defects.
[26] The plaintiffs plead that by this involvement and in Mr Cunningham’s providing advice to change the specified window flashing and cladding system he assumed responsibility for the accuracy of that advice and that he must have foreseen, or ought to have foreseen, that the plaintiffs would reasonably rely on his statement as future purchasers of the residential units. It is apparently not in
question that the failure of the flashing/cladding system is the most central defect causing weather-tightness loss.
The actual evidence and comments about that evidence
[27] The first hand evidence is given by Mr Richardson who as earlier noted was the principal of the developer company, which company is now in liquidation. Mr Richardson is not a party to the proceeding. The other evidence of significance supporting claims that Mr Cunningham would or should have been engaged in a capacity, from which personal liability would attach, was provided by Mr Light a registered building surveyor and a certified weather tightness inspector. His evidence was presented as that from an expert who was asked to comment on the role and responsibilities of Mr Cunningham in this development. Mr Light reviewed correspondence and other documents which he refers to for the purpose of reaching those conclusions he did.
[28] The Court will return to the evidence of Mr Light following its assessment of the evidence of Mr Richardson.
[29] By his affidavit dated 16 April 2013 Mr Richardson deposes (inter alia):
[12] Throughout the period of construction, Mr Cunningham was the sole director of RCCL. During construction I had a number of conversations with him. I agree with him that he was not “on the tools” as such and was not physically carrying out building work. I recall seeing his employees (including Mr Neumann) onsite. However my impression is that whenever issues arose, Mr Cunningham was to address things...
[13] It also seemed to me, based on the construction contract and discussions with Mr Cunningham, that he was ultimately in control of all builders and subcontractors onsite.
[14] In short it appeared to me that Mr Cunningham exercised ultimate control over the construction. In addition:
(a) I was aware that Mr Cunningham was a qualified quantity surveyor and my perception is that he had detailed knowledge of building and building practices.
(b) During construction he also attended numerous meetings with
Mr Clark [the architect] and I.
(c) I recall he attended the pre-tender meeting – before RCCL’s tender was accepted on behalf of RCCL, I recall he walked around the site at 310 Great North Road and physically pointed out his concerns about the joinery...
(d) I also recall that issues relating to price and variations (which generally involved price) were referred to Mr Cunningham.
[16] I recall part way through construction that there was much communication relating to Mr Cunningham’s concern that the flashing system... could (and was likely to) fail. I recall having a meeting with Mr Cunningham (and possibly Mr Clark) where Mr Cunningham explained that he was genuinely concerned about the flashings failing and the apartments being “leaky buildings”. He said that Mr Clark’s details of the flashings would not perform and he wanted new flashing details.
[17] I recall walking around the site with Mr Cunningham and him physically pointing out the flashing and his concerns. I think that site visit lasted approximately one hour. I cannot be certain, but based on the documents, it seems that the site meeting was around
15 October 2002 when there was a meeting about an extension of time in relation to flashing issue. I also recall Mr Cunningham
explaining to me that he had had discussions with James Hardie’s
technical representatives... and separately with an independent expert (that I believed was Prendos...). Mr Cunningham suggested an alternative flashing system that [the developer] agreed (and the significant increase in price). That alternative system (that Mr Cunningham suggested) has failed.
[18] On 1 October 2002 I attended a meeting onsite at which Mr Cunningham was present, and it was agreed the Monoteck flashings would be installed...
[20] It seems to me that Mr Cunningham should have been onsite more often than he was. My recollection is that he was mainly onsite relating to the cladding and flashing issue...
[22] I also recall dealing with Mr Cunningham personally during the post-construction/defects period. He was contacted and asked to return and fix defects...
[24] Mr Cunningham specifically required the cladding system that was installed. Mr Cunningham was particularly concerned about the leaky building syndrome. [The developer] relied on Mr Cunningham’s expertise in relation to the selection of the flashing/cladding system...
[25] I personally attended a meeting onsite with Mr Cunningham about the concern relating to the flashings.
[26] As far as [the developer] was concerned, Mr Cunningham was ultimately in control of the performance of the construction contract. Whenever a serious issue arose – such as the likely failure of the flashing system – he was personally involved. Whenever a question
was referred to Mr Neumann that did not involve day-two-day projection management he said that he would refer that to Mr Cunningham.
[30] Of immediate concern regarding Mr Richardson’s evidence is his use of statements like “it also seemed to me”, “it appeared to me”, “I cannot be certain”, “it seems the site meeting was around 15 October 2002”, “it seems to me that Mr Cunningham should have been onsite more often than he was”, and “in my view”.
[31] Mr Cunningham gave evidence that he did not walk around the site with Mr Richardson. He suggests Mr Richardson’s recollection must be faulty because if he had taken a tour of the site pre-tender as Mr Richardson suggests then Mr Cunningham said there would have been no construction work to view, just an empty site.
[32] Ms Thorn for the plaintiffs submitted to the Court that the evidence of Mr Cunningham’s attendance onsite and with others in connection with discussion regarding variations to the contract to discuss flashings issues was the singular most important event which connected Mr Cunningham to evidence of an assumption of personal responsibility in relation to building work done.
[33] I think counsel assumes too much of the evidence in drawing that conclusion.
[34] Mr Cunningham acknowledges attending a meeting at the office of the architect on 15 October 2002 in connection with ‘EOT’ (extension of time) discussions. The architect’s records show that an EOT meeting was scheduled for 15
October 2002, but that as well a site meeting was scheduled for the following day.
[35] Mr Cunningham acknowledges being at the first meeting because extension of time considerations was all about added costs. The only evidence that he attended a site meeting the following day was that from Mr Richardson and the Court has already referred to the uncertainty of Mr Richardson’s recollections in that regard.
[36] As well there are the architect’s minutes of the site meeting on 16 October
2002. It noted that Mr Richardson, Mr Neumann, Mr Hudson and the architect were present at that meeting. It does not mention that Mr Cunningham was present.
[37] Regarding the window flashings the minutes noted:
Confirmation Memorandum of Agreement has been made of the costs of the contract for... window flashings at the special meeting of 15 October 2002. All matters to the variation and costs associated had been resolved.
[38] It appears to the Court that rather than the events of 15 and 16 October providing the singular most important evidence against Mr Cunningham, the record indeed supports Mr Cunningham’s account that his attendance on 15 October was concerned with cost considerations, and that he was not at the site meeting the following day, and that his connection with issues regarding flashings appeared to be confined to the matter of costs involved.
[39] Mr Richardson had mentioned walking around the site pre-tender with Mr Cunningham who “physically pointed out his concerns about the joinery”. The value of this statement is far from clear. Mr Richardson does not refer to anything that was said but rather to gestures made by Mr Cunningham.
[40] It is clear that issues were raised in connection with the window flashing. A
letter from Mr Neumann of RCCL dated 13 August 2002 to the architect noted:
Given that we are unconvinced that the new detail will be sufficient to provide a totally waterproof solution we sought the advice of an independent consultant. The comments that we received addressed replacing the original solution with alternatives...
Obviously and instructing the change of this detail you have sought advice from Hardies...
Given that we are inevitably the ones that are going to be called upon to remedy any defects caused by leakage I believe it is only fair and reasonable that we either agree upon the detail or be indemnified from any failure.
[41] Then there are the minutes of a site meeting held on 18 September 2002 at which Mr Richardson, Mr Neumann, Mr Hudson and the architect were in attendance. The minute recorded:
Window flashings
Meeting held 27 August between Windsor Jones, Tony Hudson, Stewart Neumann and Murray Goldfinch to discuss window flashing and deletion of back flashing.
It was resolved to proceed with window flashings as detailed to the contract documents.
RCC reopened their concern over the type of flashing having spoken to Philip O’Sullivan of Prendos recommending that the use of propriety system RCC wished to revise to a Monoteck Hardie system with its proprietary backing and assurety.
[Mr Richardson] confirmed in the light of the immediate public concerns
with ‘leaky building’ that a proprietary system would have its advantages.
RCC indicated the belief that the back flashings as detailed to the documents have been fabricated and are ready to be finished.
RCC indicated that he would put it to Bob Cunningham to see if both parties could contribute to the variation costs.
RCC has tried to commission a review/report on the proposed documented system of flashing. Prendos however are too busy at present to respond.
...
[The architect] would wish to see a technical report outlining the concerns or potentials to failure of the proposed system.
...
[42] It is clear from this record that Mr Cunningham was not present at that meeting when resolution was reached regarding installation of window flashings. The meeting record confirming Mr Cunningham’s input would come from a consideration of the costs involved.
[43] Discussions concerning flashings occurred between the architect, Mr Richardson and RCCL’s supervisor. No independent report was obtained by RCCL but in any event it is clear that Mr Cunningham’s connection with the flashing exercise was one limited to cost considerations.
[44] Mr Richardson deposed that there had been a site meeting on 1 October 2002 at which Mr Cunningham was present. It is clear there was no meeting on that date. Instead there was a meeting the following day. The minute of that meeting noted RCCL was represented by Mr Neumann and Mr Hudson. There is no mention of Mr Cunningham’s attendance. Mr Cunningham said he was not in attendance.
[45] Mr Richardson has drawn conclusions from his inspection of the extracts from the diary of Mr Campbell (now deceased) of James Hardie. Mr Richardson’s assumptions about the noting of Mr Cunningham’s name on five of the ten pages concerned cannot be accepted. On four of those pages there is nothing more than the name of R Cunningham noted. On the fifth page dated 11 November 2012 it could be inferred that Mr Cunningham agreed to supply ‘40 sheets’ without cost.
[46] The most that can be gathered from this latter entry is that considerations of costs were involved.
[47] Mr Richardson recalled dealing with Mr Cunningham during the post construction defects period. Mr Cunningham agrees he did have a conversation with Mr Richardson regarding the timely completion of defects.
[48] Mr Richardson deposed that Mr Cunningham specifically required the cladding system that was installed. He said Mr Cunningham was particularly concerned about leaky building syndrome. In fact, the contemporaneous documentation supports Mr Cunningham that he had nothing to do with the cladding and/or flashing system and rather it was Mr Richardson who was concerned about leaky building syndrome reference to which was made at a meeting that was not attended by Mr Cunningham. Claims that Mr Cunningham was personally involved with the flashing system, other than in connection with the costs of same, are not supported by contemporaneous documents at all.
[49] Next for consideration is the evidence of Mr Light an expert witness. He deposed that there were no minutes of the EOT meeting on 15 October 2002. Clearly he is not correct. Then Mr Light gives evidence that those minutes were critical as they related to the decision made to change the flashing system and he alleged Mr Cunningham was concerned about the possibility of the joinery of the property failing. That conclusion is wrong, as is any assumption Mr Light may have that Mr Cunningham was present at the site meeting of 18 September 2002 for Mr Cunningham was not there.
[50] Mr Light hints that Mr Cunningham has not on behalf of RCCL fulfilled its obligation with appropriate appointments of persons to fulfil certain roles. He seems to overlook the fact that Mr Neumann was appointed as the project manager and Mr Hudson as the site manager.
[51] Mr Light says that he would have expected Mr Cunningham to be at site meetings. It appears on the one hand Mr Light suggests Mr Cunningham was at meetings but then did not attend enough of them. He overlooks the fact that Mr Neumann and Mr Hudson were appointed in all respects to oversee control of construction.
[52] Mr Light says that documents show that Mr Cunningham was aware of the concern over flashings and specifically instructed that Monoteck be used. However the documents to which Mr Light refers clearly show that it was not Mr Cunningham raising concerns with respect to the flashing but rather Mrs Neumann and Hudson, together with the architect, and Mr Richardson.
[53] Mr Light says Mr Cunningham would or should have been involved with respect to the flashings. No evidential basis is provided to support this claim.
[54] Mr Light states that Mr Cunningham would have been interested in what James Hardie had undertaken to establish that Monoteck could comply with the building code. However the clear evidence is that it was not RCCL that sought advice from James Hardie but rather the architect.
[55] It is the Court’s view that Mr Light also assumes too much by his reference to
the diary entries of Mr Campbell suggesting that each referred to a site meeting.
[56] Mr Light asserts there was a meeting on 10 October 2002. He is incorrect. Regardless, Mr Light says that Mr Cunningham should have participated to a greater extent to ensure an adequate degree of skill and care was inputted towards completion of the contract.
Discussion
[57] The plaintiffs claim against Mr Cunningham is formulated by three causes of action, namely negligence as a builder, breach of the Companies Act 1993 (by the transfer of assets from RCCL to RCCCL), and negligent misstatement.
The negligence claim
[58] Concerning the two claims in negligence it is alleged Mr Cunningham:
(a) Held himself out as being in control and/or having responsibility for the construction of the property.
(b)Held himself out as being an experienced builder and/or manager of building work and/or quantity surveyor.
(c) Gave specific instructions/advice in relation to the construction of the cladding system/flashings to be used at the property.
(d)Was required to oversee the proper construction of the building works and failed to provide adequate instruction and/or exercise adequate supervision over the project manager, the site foreman, subcontractors and contractors.
(e) Failed to attend a sufficient number of site visits to have proper control over the works.
(f) Failed to carryout adequate inspections and/or supervision of the building works.
(g) Failed to put in place sufficient quality control systems. (h) Failed to put a proper management plan.
(i)Failed to properly educate and/or train all employees and contractors and subcontractors, such that the building work would meet acceptable standards.
(j)Failed to require the construction of a ventilated cavity or a cladding system that would properly perform at the time of construction.
(k)Advised he had obtained support/advice from Prendos relating to the cladding system/flashings of the property.
(l)In October 2002 he required a change of the specified flashing system and required the installation of a new flashing system.
(m)Represented he had a particular concern about the installation of the old flashing system and, more generally, about the apartments being “leaky buildings”.
(n) Represented that the new flashing system would perform and that the
apartments would not be “leaky buildings”.
(o)Represented that he had spoken/obtained a report relating to the performance of the new flashing system from Prendos and he had specialist knowledge about the suitability of the new flashing system and was aware of monolithic cladding and/or flashing systems failing.
[59] The evidence shows, as Mr Cunningham claims, is that his role was constrained to that of finance, the contracting of services, and administration.
[60] The plaintiffs claim they have not had the benefit of discovery or the use of interlocutories to pursue their enquiries further. Whilst acknowledging that Mr Cunningham has freely and without Court requirement provided what he says is RCCL’s complete record of relevant meetings, minutes and correspondence, Ms Thorn says the plaintiffs cannot be sure he has done that.
[61] The plaintiffs’ position is that he was connected importantly actively and outside of his role as a director in construction issues but even if he was not then he ought to have been.
[62] The evidence is that the development contract with which this proceeding is concerned was but one of a number that were ongoing at the same time. Mr Cunningham’s role in the development contract appears to have been the same as was his involvement with those others, namely in finance and administration of the company’s business. Qualified and experienced persons were employed in the contractual role. Mr Cunningham’s concerns about building considerations seemed consistently to be confined to costs.
[63] There is a lack of reliable evidence to show that Mr Cunningham was personally involved in site and building supervision or architectural and design detail.
[64] With respect to all those matters alleged by the two negligence pleadings in support of claims of a breach of duty, there is a complete lack of reliable evidence to support those pleadings. Of course the Court must err on the side of caution when dealing with disputes of fact where a determination of those should be left at trial.
[65] On the other hand where the evidence raised by a plaintiff is without a solid foundation and it appears to rely on assumption or suspicion rather than clear fact, then a Court can and ought to be prepared to discard that evidence.
[66] It follows that the plaintiffs’ causes of action in negligence against Mr Cunningham must fail. He has not breached a duty of care towards the plaintiffs or committed acts of negligence which have been causative of their loss.
The Companies Act 1993 breach claims
[67] That leaves standing the cause of action pleaded under the Companies Act
1993 (the Act). Specifically it is alleged in breaches of ss 131, 133 and 134 of the
Act that Mr Cunningham failed to act in good faith and in the best interests of the
company. This occurred it is pleaded when Mr Cunningham in or about 2004 transferred “much of the property/assets of RCCL to Robert Cunningham Construction Commercial Limited (RCCCL). It is pleaded that “there is no evidence that RCCCL paid any or proper value to RCCL”.
[68] Although the sections of the Act referred to prescribe a duty of care owed by directors to his/her company the plaintiffs claim they are owed a duty as contingent creditors of the company; and whilst as a general rule directors do not owe duties for creditors reliance in the present case is placed upon the judgment of Cooke J in Nicolson v Permakarft (New Zealand) Limited (In liquidation), 6 who considered that directors are required to consider the interests of creditors when a company is insolvent or near insolvent.
[69] In this case it appears that RCCL was not insolvent at the time of this transfer of assets. It did enter into voluntary liquidation about eight years later in 2012.
[70] The plaintiffs’ case is that while there is no direct evidence of actual knowledge on the part of Mr Cunningham of the interests of the plaintiffs as future creditors, given that he was involved in residential construction it is submitted that he must have had, or ought to have had, knowledge of the plaintiffs as the group of future owners with the potential to claim if his decisions resulted in defective construction.
[71] For present purposes Ms Thorn relies on the authority of Robb v Sojourner 7. In that case there had been a transfer of assets from one company to another in the control of the same directors. There the Court recognised that “ring-fencing” of losses and the associated setting up of a Phoenix company to reserve a “salvageable business” was not unusual.
[72] The Court noted that care was needed to ensure proper recognition was given to the value of the assets being transferred. The learned Judge considered proper
6 [1985] 1 NZLR 242 at 250.
7 HC CHCH CIV 2004-476-568 4 July 2006 Fogarty J.
value had not been paid and in effect required a further payment to the company from which the assets had been transferred.
[73] This separate and quite distinct claim is also challenged by Mr Cunningham’s
summary judgment application.
[74] The purpose of the plaintiffs claim would appear to be to source funds from Mr Cunningham on behalf of RCCL for payment back to RCCCL which would be available to the plaintiffs to meet any claim they might have in the liquidation of RCCL.
[75] Although s 301 of the Act provides there is a right of recovery from a director who has misapplied or retained or who has become liable or accountable for anything transferred for less than proper value, there does not appear in this case to be any suggestion that Mr Cunningham rather than RCCCL would have received the benefit of any extra value transferred.
[76] A number of issues arise in relation to this pleading.
[77] The plaintiffs appear never to have filed any claim against RCCL much less in its liquidation which occurred by resolution of shareholders on 6 August 2012.
[78] The plaintiffs have provided expert evidence from Mr J P Meltzer an insolvency practitioner. Upon his perusal of accounting records it is his opinion that there is no record of any consideration paid for contracts in progress or goodwill which “business appears to have been transferred to [RCCCL]”.
[79] An affidavit from Mr Cunningham’s accountant refutes claims that proper
value was not given at the time of transfer.
[80] The present Companies Act pleading against Mr Cunningham invites the Court to consider that he personally may be accountable for his actions in implementing a transfer of assets from one company of his to another (in circumstances where it has not been suggested he personally benefitted from that transfer) because in that exercise he owed a duty of care to the plaintiffs whom it is
said Mr Cunningham ought to have known had the potential to make a claim against him in respect of decisions he made which resulted in any defective construction of an apartment building in 2002 – 2004. The inter-company transfer was apparently effected in 2004 when RCCCL was incorporated. The transferor company was placed into voluntary liquidation in August 2012.
[81] The claim draws a very long bow. It is premised upon Mr Cunningham being found personally responsible for decisions which resulted in defective construction. I have already held he has no such liability.
[82] As far as Mr Meltzer was able to reach any conclusions at all they were to the effect that there may have been an undervalue and that the transferee company paid very much less for the transferor’s assets than it should have.
[83] In the Court’s view it is not appropriate to permit such a claim to be sustained awaiting the outcome of a trial in the distant future in the outcome of which there will be no judgment against Mr Cunningham in respect of the negligence claims. If, as the evidence suggests, the asset transfer occurred in 2004 then any claim in relation to that has been brought out of time.
[84] In these circumstances it is appropriate to conclude that the Companies Act proceeding against Mr Cunningham cannot succeed and accordingly summary judgment ought to be entered in his favour on this aspect of the plaintiffs claims also.
Judgment
[85] The fourth defendant’s applications for summary judgment are successful in
all respects and judgment is entered accordingly.
[86] The plaintiffs are to pay the fourth defendant’s costs calculated on a 2B basis
together with disbursements as approved.
Associate Judge Christiansen
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