Body Corporate 326421 v Auckland Council

[2013] NZHC 753

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV2009-404-008136 [2013] NZHC 753

BETWEEN  BODY CORPORATE 326421

First Plaintiff

ANDWILLIAM MILLER AND RAEWYN MILLER & ORS

Second Plaintiffs

ANDAUCKLAND COUNCIL First Defendant

ANDBROOKFIELD MULTIPLEX CONSTRUCTIONS (NZ) LIMITED Second Defendant

ANDWALKER ARCHITECTS LIMITED Third Defendant

ANDDOWNER EDI WORKS LIMITED Fourth Defendant

ANDFACADE TECHNOLOGIES LIMITED Fifth Defendant

ANDCHARLES NORAGER & SONS LIMITED

Sixth Defendant

ANDBOSTIK NEW ZEALAND LIMITED Third Party

Hearing:         11 April 2013

Appearances: C Meechan, J Heatlie and T Rainey for the Plaintiffs

A R Galbraith QC and L Douglas for the First Defendant
D J Broadmore for the Second Defendant
J N Batchelor-Smith for the Third Party
M G Ring QC and M J Francis for the Underwriters

Judgment:      15 April 2013

BODY CORPORATE 326421 V AUCKLAND COUNCIL HC AK CIV 2009-404-008136 [15 April 2013]

JUDGMENT OF GILBERT J

This judgment was delivered by me on 15 April 2013 at 11.30 am

Pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:………………

Counsel: C Meechan, Auckland:  [email protected]

T Rainey, Auckland:  [email protected]

J Heatlie, Auckland:  [email protected]

A R Galbraith, Auckland:  [email protected] D J Broadmore, Auckland:  [email protected] L J Douglas, Auckland:  [email protected]

J N Batchelor-Smith, Auckland:  [email protected]

M Ring, Auckland:  [email protected]

M  J Francis, Auckland:  [email protected]

[1]      The plaintiffs are the Body Corporate and owners of units in a multi-unit residential apartment and retail complex in Orewa, north of Auckland, known as the “Nautilus”.  They have issued these proceedings seeking to recover approximately

$22 million, being their estimate of the costs required to rectify alleged defects in the building.

[2]      The second defendant, Brookfield Multiplex Constructions (NZ) Limited (Brookfield Multiplex), was contracted to build the Nautilus as head contractor. Brookfield Multiplex not only faces the plaintiffs’ claims; the first and third defendants and the third party have cross claimed against it on the basis that if they are liable to the plaintiffs, they are entitled to contribution from Brookfield Multiplex as a concurrent tortfeasor.

[3]      Brookfield Multiplex went into liquidation on 3 December 2012.  This had the effect of staying the claims and cross claims against it in terms of s 248(1)(c) of the Companies Act 1993.  The liquidator has not given his consent to the proceeding continuing against Brookfield Multiplex because he does not wish to prejudice any insurance claim in respect of the company’s potential liability.

[4]      In these circumstances, the plaintiffs, the first and third defendants, and the third party, all apply for an order under s 248 for leave to continue their claims in the proceedings   against   Brookfield   Multiplex.   There   is   no   opposition   to   these applications and they can accordingly be granted.

[5] The plaintiffs also apply to join Brookfield Multiplex’s insurers (the Underwriters) as defendants to the proceedings, relying on the statutory charge created by s 9 of the Law Reform Act 1936 or, alternatively, the comparable charge created by s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). The parties accept that, for the purposes of the present application only, I should proceed on the basis that Brookfield Multiplex is indemnified for at least some of the liabilities claimed against it in the proceeding.

[6]      The first defendant similarly applies for leave to issue third party proceedings against the Underwriters.  It relies only on s 9 of the Law Reform Act 1936.

[7]      Brookfield Multiplex is incorporated in New Zealand, had its sole place of business in New Zealand, and carried out construction works solely in New Zealand. It is a wholly owned subsidiary of Brookfield Multiplex Constructions Pty Limited which is based in Sydney, New South Wales.  Brookfield Multiplex Constructions Pty Limited is a named insured under a professional indemnity insurance policy issued by the Underwriters.   The other named insureds are Brookfield Multiplex Limited  and  various  other  companies  in  the  group  based  in  Australia  and  the United Kingdom.  Although not named in the policy, Brookfield Multiplex is also an insured because the definition of “insured” in the policy extends to subsidiaries of all named insureds.

[8]      The policy provides indemnity, subject to the terms and conditions of the policy, for liability in respect of any claims made against an insured and notified to the Underwriters during the policy period where such liability results from acts of neglect or error or omission or negligence.   The policy is governed by the law of Australia and the parties agreed to submit to the exclusive jurisdiction of the Australian courts.

[9] The Underwriters are Zurich Insurance plc, Ace European Group Limited, Markel International Insurance Company Limited, Liberty Mutual Insurance Europe Limited and QBE Casualty Syndicate 386, a Lloyd’s syndicate. Each underwriter is liable for the subscribed proportion of the amount indemnified under the policy. This liability is several, not joint. The Underwriters are all based in London and have no other place of business. They have filed an appearance under protest to jurisdiction and oppose the joinder application. They argue that s 9 of the Law Reform Act and s 6 of the Law Reform (Miscellaneous Provisions) Act (NSW) do not apply to the contract of insurance and that the New Zealand courts have no jurisdiction to require them to pay monies directly to the plaintiffs or the first defendants, rather than to their insured.

[10]     The central issue I have to decide in connection with the present applications is whether s 9 of the Law Reform Act applies to the insurance contract between Brookfield Multiplex and the Underwriters.  If it does, the parties agree that leave should be granted to the plaintiffs and the first defendant under s 9(4) to claim against the Underwriters directly and for an order joining them to the proceeding.  In that event, the appearance filed by the Underwriters objecting to jurisdiction under r 5.49 of the High Court Rules should be set aside.

[11] However, if the Underwriters succeed on this central issue and s 9 does not apply to the insurance contract, I must then consider the alternative basis of the plaintiffs’ application, which relies on s 6 of the Law Reform (Miscellaneous Provisions) Act (NSW).

[12]     Section 9 of the Law Reform Act was enacted to overcome the unfairness of insurance proceeds being paid to the general pool of creditors of an insolvent insured defendant rather than to the third party claimant who had suffered the injury or loss. The section creates a statutory charge in favour of third party claimants on monies which are or may become payable by an insurer to an insured defendant in respect of its liability to the claimants.  Section 9(4) enables the claimant to enforce the charge by an action against the insurer in the same way as if the action were against the insured.

[13]     The  Supreme  Court  recently  held  in  Ludgater  Holdings  Ltd  v  Gerling Australia Insurance Co Pty Ltd1 that s 9 does not have extraterritorial effect and does not apply unless the New Zealand court has both personal jurisdiction, in the sense that the insurer can be brought before the court, and subject-matter jurisdiction in respect of the indemnity payment or debt.

[14]     In  Ludgater,  the  issue  was  whether  a  New  Zealand  company,  suffering damage  in  New  Zealand  caused  by  an  Australian  company  in  liquidation  in Australia, could obtain an order from a New Zealand court under s 9 requiring the Australian insurers to pay any insurance proceeds directly to it.  The Supreme Court

held that s 9 does not have extraterritorial reach. It found that a New Zealand court

1 Ludgater Holdings Ltd v Gerling Australia Insurance Co Pty Ltd [2010] NZSC 49.

could not make an order under s 9 in that case because it did not have subject-matter jurisdiction over the insurance proceeds which were payable by insurers resident in Australia.  Blanchard J, giving the reasons of the court, stated:

[25] In the absence of a statutory indication to the contrary, a court will not as a matter of principle exercise its power, statutory or otherwise, in relation to property situated in another country in a manner which would compel someone to do or refrain from doing something in relation to that property if its order may create a risk of conflict with an actual or likely determination of a court in that other country…

[26] Accordingly, if a New Zealand plaintiff wishes to have the benefit of an order that something shall be done with property whose situs is in another jurisdiction it will ordinarily have to apply directly to a court in that jurisdiction.  If a New Zealand court did make an order which required someone to do or refrain from doing something with property whose situs was in a foreign jurisdiction, the foreign court where the New Zealand judgment was sought to be registered would appear to have every right to decline to accept and enforce it.  A New Zealand court is likely to react in a similar way if the situation were in reverse.

[15]     Blanchard J noted the possibility that any payment made in accordance with an order made under s 9 could be inconsistent with priorities as between claimants under Australian law.   This was a factor the Supreme Court took into account in finding that s 9 should not be given extraterritorial reach.

[16]     Ms Meechan, for the plaintiffs, sought to distinguish Ludgater on the basis that the insured and the insurer in that case were resident in Australia and the proceeds were payable there.  She pointed out that because Brookfield Multiplex is a New Zealand company in liquidation here, the concern expressed by Blanchard J in Ludgater that any order under s 9 might be inconsistent with the priority of claims applicable under Australian law does not arise.  Ms Meechan submits that the situs of the debt is not determined solely by reference to the debtor’s residence.  She argues that in the present case the situs of the debt is New Zealand because, she contends, this is where the insurance monies must be paid.

[17]     It has long been established that the situs of a debt is ordinarily where the debtor resides, but it may be difficult to determine where the debtor resides if it is a

corporation with a presence in different countries.  Atkin LJ addressed this issue in

New York Life Insurance Company v Public Trustee:2

It appears to me plain that a corporation according to our law is deemed to reside for the purposes of suit in the place where it carries on business in its own name, and in the case of corporations, you have many activities in many countries, such as the big insurance companies – for example, the plaintiffs in this case.  It appears to me that the true view is that the corporation resides for the purposes of suit in as many places as it carries on business, and it is to be noticed that in ordinary cases where an obligation is entered into by the corporation without any particular limits of the place where it is payable, inasmuch as that obligation is an ordinary personal obligation which follows the person, you have in each jurisdiction a right to sue the corporation there; the corporation is resident there, and the obligation is enforceable there. Under ordinary circumstances the debt would be situate in each place where the corporation can be found.

[18]     In Kwok v Commissioner of Estate Duty3  the Privy Council had to consider the position of a corporation with two places of residence.  Having cited the passage quoted above with approval, Lord Oliver stated:4

In that situation it is clearly established that the locality of the chose in action falls to be determined by reference to the place – assuming it to be also a place where the company is resident – where, under the contract creating the chose in action, the primary obligation is expressed to be performed.

[19]     This position was confirmed by the Supreme Court in Ludgater.  Blanchard J

stated at [27]:

The  situs  of  a  debt  is  ordinarily  where  the  debtor  is  resident,  but  a corporation which has more than one office may be found to be resident wherever it has places of business.   It has been said in relation to an international insurance company that it is necessary to choose which of its places of business (residences) is, in relation to a debt owing by it, to be treated as its residence for this purpose.  That depends upon the insurance contract in question.   In what place does it oblige the insurer to make payment?  The situs of a debt has been said to be where it is required to be paid by an express or implied provision of the contract or, if there is none, where it would be paid in the ordinary course of business.

[20]     These authorities establish that the situs of a debt is where the debtor resides. Where the debtor is a corporation with only one residence or place of business that

will be the situs of the debt.   Where the debtor corporation has more than one

2 New York Life Insurance Company v Public Trustee [1924] 2 Ch. 101 (CA) at 120.

3 Kwok v Commissioner of Estate Duty [1988] 1 WLR 1035 (PC).

4 At 1041-1042.

residence or place of business, the situs of the debt will depend on where the debt must be paid in terms of the contract or, in the absence of any express or implied term requiring payment at a particular place, where it would be paid in the ordinary course of business.  However, the situs of the debt cannot be at a place where the debtor corporation was not incorporated and has no place of business irrespective of where the relevant contract requires payment.

[21]   Ms Meechan relied on the decision of Clarke J in Cambridge Credit Corporation Limited v Lissenden5  in support of her contention that the situs of the debt is New Zealand in this case despite the fact that the Underwriters all reside in London.   That case involved three policies underwritten by a large number of underwriters in many different countries.  After reviewing the authorities, the Judge stated:6

These authorities justify the following propositions:

1. In the case of a single residence obligor/debtor the situs of the chose is the country in which that residence is situated.

2. Where the obligor has two or more residences then the chose is situated where the debt, or money, is payable in accordance with the terms of the contract.  If no provision appears concerning the place of payment then the question “Where it would be paid according to the ordinary course of business” needs to be answered.

However, the Judge found that the residence test was of no use in a case where there were multiple debtors in multiple countries.   For that reason he was prepared to depart  from  the  residence  requirement  and  determine  the  situs  of  the  debt  by reference to the place where payment was required:7

That test affords, in my view, the only solution to a case in which the policy is underwritten by many persons in different countries concerning a risk situated in a country in which the underwriters neither reside nor have a place of business.

5 Cambridge Credit Corporation Limited v Lissenden (1987) 4 ANZ Insurance Cases 60-776 (NSWSC).

6 At 74,721.

7 At 74,723.

[22]     The  decision  in  Cambridge  Credit  is  distinguishable  and  appears  to  be confined to its own particular facts.  As Windeyer J said in New Cap Reinsurance v Faraday Underwriting:8

Whatever problems arose there I consider it to be clear that the liability is situated where the defendant resides, at least where there is only one place of residence.

[23]     The   present   case   does   not   give   rise   to   the   same   difficulty   as   in Cambridge Credit.  There is no dispute that the Underwriters reside only in London. None has a place of business anywhere else. No issue arises in this case as to which of several possible residences is the correct situs of the debt.  I therefore do not have to determine where the debt is payable under the contract of insurance.  The situs of the  debt  is  plainly  London.    It  follows  that  the  New  Zealand  courts  have  no subject-matter jurisdiction in respect of the monies payable by the Underwriters under the policy.

[24] The plaintiffs’ alternative argument based on s 6 of the Law Reform (Miscellaneous Provisions) Act (NSW), which is in materially the same terms as s 9 of the New Zealand legislation, was to cover the prospect that I might find that the insurance proceeds are payable in New South Wales and accordingly the situs of the debt is New South Wales. This argument is also predicated on the contention that the situs of the debt is determined by the place where the insurance proceeds must be paid. For the reasons I have given, the situs of the debt is not determined, in this case, by reference to the place where the insurance monies must be paid; rather it is determined by the residence of the Underwriters.

[25] Further, a New Zealand court is not empowered to make orders pursuant to s 6 of the New South Wales legislation. The powers conferred by s 6 on “the Court” are conferred on the court in New South Wales.

[26]     For these reasons this alternative ground of application must also fail.

8 New Cap Reinsurance v Faraday Underwriting (2003) 12 ANZ Insurance Cases 61-581 (NSWSC)

at 76,913.

Result

[27]     The applications by the plaintiffs, the first and third defendants and the third party    for    leave    to    continue    their    claims    in    the    proceeding    against Brookfield Multiplex Constructions (NZ) Limited (in liquidation) are granted.

[28]     The application by the plaintiffs for leave to commence proceedings against the Underwriters is dismissed.

[29]     The  application  by  the  first  defendant  for  leave  to  issue  third  party proceedings against the Underwriters is also dismissed.

[30]     The Underwriters are entitled to costs on a 2B basis.

M A Gilbert J