Body Corporate 346799 v KNZ International Co Ltd
[2016] NZHC 1523
•6 July 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-006290 [2016] NZHC 1523
IN THE MATTER of Victopia Apartments BETWEEN
BODY CORPORATE 346799
First PlaintiffHA THI HOANG & Ors
Second PlaintiffsAND
KNZ INTERNATIONAL CO LIMITED (FORMERLY NAMED GANADA DEVELOPMENT CO LIMITED AND DAE JU DEVELOPMENTS CO LIMITED)
First Defendant
BROOKFIELD MULTIPLEX CONSTRUCTION (NZ) LIMITED Second Defendant
… / continued
Hearing: 18 May 2016 Appearances:
GB Lewis and R F Harvey for Applicant
S A Thodey and L J Douglas for Fifth Defendant
J H Morrison for Sixth DefendantJudgment:
6 July 2016
JUDGMENT OF PALMER J
This judgment is delivered by me on 6 July 2016 at 11 am pursuant to r 11.5 of the High Court Rules.
Registrar / Deputy Registrar
Solicitors:
Grimshaw & Co, Auckland (G B Lewis)
Heaney & Partners, Auckland (L Douglas) MinterEllisonRuddWatts, Auckland (S Price)
BODY CORPORATE 346799 v KNZ INTERNATIONAL CO LTD [2016] NZHC 1523 [6 July 2016]
…/2
FAÇADE DESIGN SERVICES LIMITED Third Defendant
PBS CONTRACTING LIMITED (in liquidation – discontinued)
Fourth Defendant
AUCKLAND CITY Fifth Defendant
BOSTIK NEW ZEALAND LIMITED Sixth defendant
ANDSTEPHEN MITCHELL ENGINEERS LIMITED (discontinued)
First Third Party
STEPHEN MITCHELL
Second Third Party (discontinued)CITY DESIGN LIMITED
Third Third Party (discontinued)DAVID LEE
Fourth Third Party (discontinued)DAVID JAMES FOSTER Fifth Third Party
TRISTAN D’ARCY HARVEY-SMITH Sixth Third Party
WILLIS NEW ZEALAND LIMITED Seventh Third Party
Summary
[1] The Auckland City Council, the fifth defendant, applies to strike out parts of the amended Statement of Claim relating to additional fire safety defects. I give short shrift to the Council’s argument that service by email within the deadline was insufficient. I decline to strike out the fire safety defect parts of the amended claim as a new cause of action that is out of time. It is not “essentially different” from the previously pleaded claim. Rather it is the same basic legal claim backed up by the addition of new facts. I also decline to strike out the fire safety defect parts of the amended claim on the basis that it prejudices the Council. That power under r 7.7(1)(b) does not extend to the ordinary prejudice caused to a party by losing on the basis of the pleading.
Context
[2] The Body Corporate 346799 and 201 owners of units in the Victopia apartments, at 135 Victoria Street West, Auckland, are suing a variety of parties over defects in the construction of the apartments including: the developer; the builder; the façade design company; the cladding installer; the Auckland City Council; and the membrane supplier. The Body Corporate issued proceedings on 19 October
2012. The Council was joined on 27 February 2013.
[3] A ten week trial of the proceeding is to commence on 10 October 2016. A timetable is in place leading up to the trial.
[4] On 18 May 2016 I heard an application by the Body Corporate to amend its Statement of Claim. It was opposed because of disagreement about the timetable that should then apply. Later on 18 May 2016 the parties filed a joint memorandum proposing an agreed timetable which I approved. Accordingly the Statement of Claim could be amended.
[5] I also note that Faire J’s minute of 5 June 2015 directed, if there is no agreement on the time and appropriate directions for an experts’ conference by
31 July 2016, an urgent judicial teleconference will be convened.
[6] On 18 May 2016 I heard an application by the Council to strike out parts of the amended Statement of Claim. This judgment relates to that.
The strike out application
[7] The Council has long been concerned to achieve some precision in exactly what defects were being alleged to exist in these proceedings. Yet on 30 November
2015, the close of pleadings date of the proceedings and more than 3 years after the proceedings were issued, the Body Corporate amended its pleadings to include allegations of fire safety defects.
[8] On 25 January 2016 the Council applied to strike out the parts of the
Statement of Claim that relate to fire safety defects.1 It amended its application on 6
May 2016. The Council submits the fire safety defect aspects should be struck out because they effectively constitute a new cause of action which has been brought outside the limitation periods under the Limitation Act 2010 and the Building Act
2004. It also submits that the fire safety defect aspects should be struck out because it has been prejudiced as its ability to join third parties is also time-barred. The Council says the amendments were not properly served and are frivolous, vexatious or an abuse of process.
[9] The Body Corporate submits that the pleadings regarding fire safety defects are not a new cause of action but only particulars of damage under an existing cause of action. It says it is not obvious the pleading is time-barred and that issue can be pursued at trial. It submits that the Council is not prejudiced in any way that would justify the fire safety aspects being struck out. And it says the relevant parts of the pleading are not frivolous, vexatious or an abuse of process.
Law relating to strike out
[10] The parties do not disagree about the relevant law. The Council applies to strike out the fire safety pleadings under r 15.1 of the High Court Rules (the Rules)
which provides:
1 By memorandum of 19 May 2016 the Council identified (in the amended March 2016 claim) the parts of the claim it sought to be struck out as: paragraphs 34(h) and (i), 35, 36(d), 37(d), 58(a) and (v), 59(b), schedule 2, schedule 10, schedule 12 and schedule 16.
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.
[11] In Attorney-General v Prince and Gardner the Court of Appeal said that, to be struck out under the equivalent of r 15.1(1)(a), causes of action must be “so clearly untenable that they cannot possibly succeed”.2 In Commissioner of Inland Revenue v Chesterfields the Court of Appeal stated that:3
The grounds of strike out listed in r 15.1(1)(b)-(d) concern the misuse of the court’s processes. Rule 15.1(1)(b), which deals with pleadings that are likely to cause prejudice or delay, requires an element of impropriety and abuse of the court’s processes.4 Pleadings which can cause delay include those that are prolix; are scandalous and irrelevant; plead purely evidential matters; or are unintelligible. In regards to r 15.1(1)(c), a “frivolous” pleading is one which trifles with the court’s processes, while a vexatious one contains an element of impropriety.5 Rule 15.1(1)(d) – “otherwise an abuse of process of the court” – extends beyond the other grounds and captures all other instances of misuse of the court’s processes, such as a proceeding that has been brought with an improper motive or are an attempt to obtain a collateral benefit. An important qualification to the grounds of strike out listed in r 15.1(1) is that the jurisdiction to dismiss the proceeding is only used sparingly. The powers of the court must be used properly and for bona fide purposes. If the defect in the pleadings can be cured, then the court would normally order an amendment of the statement of claim.
2 Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA) at 264. Approved by a minority of the Supreme Court in Couch v Attorney-General [2008] NZSC 45 at [33].
3 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] 2 NZLR 679 at [89].
4 McGechan on Procedure at [HR15.1.03].
5 At [HR15.1.04].
Issue 1: Were the amendments properly served?
[12] As a preliminary issue the Council says the amended Statement of Claim was not properly served on it under the Rules on 30 November 2015.
[13] The first answer to this is, as the Body Corporate submits, that r 7.7(1) prohibits any amended pleading being filed after the close of pleadings date without leave of a judge. The pleading here was filed with the court on that date. It is not required to be served by that date. Ms Thodey, for the Council, continued to take this point at the hearing. She submitted that leave is required under 7.7(1) because service is a “step taken” which is also prohibited by r 7.7(1) without leave of a judge after the close of pleadings date. I do not agree. The purpose of r 7.7 is to put a deadline on further formal steps in proceedings involving the court. Service of documents that have already been filed with the Court is not implicated by the rule.
[14] The essence of the Council’s challenge here is that service was by email rather than by post or facsimile in accordance with its specified service requirements. Yet the Council’s solicitors clearly did receive the amended pleading by email at
4.49 pm on the close of pleadings date, 30 November 2015. They did not object to the mode of service by email rather than by post or fax at the time. That’s probably because service by email appears to have been standard practice in these proceedings as it is in many proceedings.
[15] In addition, the Body Corporate submits that r 1.5(2) provides non- compliance with the rules does not nullify any step taken, or document, in the proceeding. And r 1.5(2) requires any party wishing to set aside such a step or document to apply to do so. The Council has not done so.
[16] The Council’s argument is technical. I do not regard it as a basis for striking out, or supporting the striking out, of the amendments. Leave to file the amended pleading was not required by r 7.7 and, in any case, the substantive function of service was fulfilled by service by email.
Issue 2: Are the fire safety claims a new cause of action?
[17] A more central issue in this case is whether the fire safety defect claims constitute a new cause of action. If they do, the Council argues they are time-barred under the Limitation Act and should be struck out. If they do not constitute a new cause of action, then they may be litigated.
What is a new cause of action in law?
[18] There is little difference between the parties about the law on what constitutes a new cause of action. The question is how it is applied. A line of authorities starting, in New Zealand, with Smith v Wilkins & Davies Construction Ltd6 was helpfully summarised by the Court of Appeal in Transpower New Zealand Ltd v Todd Energy Ltd as follows: 7
(a) A cause of action is a factual situation the existence of which entitles one person to obtain a legal remedy against another;
(b) Only material facts are taken into account and the selection of those
facts “is made at the highest level of abstraction”;
(c) The test of whether an amended pleading is “fresh” is whether it is something “essentially different”. Whether there is such a change is a question of degree. The change in character could be brought about by alterations in matters of law, or of fact, or both; and
(d) A plaintiff will not be permitted, after the period of limitation has run, to set up a new case “varying so substantially” from the previous pleadings that it would involve investigation of factual or legal matters, or both, “different from what have already been raised and of which no fair warning has been given”.
[19] The Court of Appeal in Commerce Commission v Visy Board Pty Ltd
reiterated those principles and added:8
The theme running through all three cases is that in order for an amendment to amount to a new cause of action, there must be a change to the legal basis for the claim. That can, in theory, occur through the addition of new facts, but only if the facts added are so fundamental that they change the essence of the case against the defendant. If the basic legal claims made are the same, and they are simply backed up by the addition or substitution of a new fact, that is unlikely to amount to a new cause of action.
6 Smith v Wilkins & Davies Construction Ltd [1958] NZLR 958 (SC) at 961.
7 Transpower New Zealand Ltd v Todd Energy Ltd [2007] NZCA 302 at [61] (citations omitted).
8 Commerce Commission v Visy Board Pty Ltd [2012] NZCA 383 at [146].
[20] The application of this approach in previous cases involving tort claims has included the following decisions:
(a) Addition of a claim that plaintiffs were lifted into position by a hook, to a claim that the defendant had failed to provide a safe system of work, was not a new cause of action.9
(b)Addition of new defects not consequent on or associated with previously alleged defects but falling within the same contractual duty alleged, were not a new cause of action but addition of new defects in a tort claim required evidence and limitation issues to be raised at trial
by way of a new cause of action.10
(c) Addition of a wider scope of remedial works than in the original defective building claim was not a new cause of action.11
(d)Addition of new “even significantly different” particulars of defects in a defective building claim were left to trial to determine whether they constituted a new cause of action.12
(e) Addition of further defects in a defective building claim were also left to trial to determine whether they constituted a new cause of action as insufficient information was before the court to justify a strike out application.13
(f) Addition of further defects in a defective building claim were not a new cause of action.14
9 Smith v Wilkins & Davies Construction Ltd [1958] NZLR 958 (SC) at 961.
10 Steen Bros Ltd v Youth Hostels Association of New Zealand Inc CA3/86, 17 April 1986 at 6.
11 Body Corporate 338356 v Endean [2014] NZHC 2644.
12 Body Corporate 325261 v McDonough [2014] NZHC 331 at [95].
13 Body Corporate 325261 v McDonough [2015] NZHC 764 at [75].
14 Body Corporate 89408 v MacRitchie [2016] NZHC 844.
Submissions
[21] Here, the Council submits that the additional pleadings involve new facts, different issues and new damage. The Council provides evidence by affidavit that the timing would prevent the Council from issuing proceedings against other parties due to the limitation period having expired.
[22] The Body Corporate submits that the fire safety defects are further particulars of damage to the existing cause of action. The duty claim is the same. Only the details of the breach claimed, and the loss suffered, are amended. It notes that the limitation provisions of the Building Act 2004 refer to proceedings that “arise out of the issue of a building consent, a code compliance certificate” which these pleadings did before amendment and still do.
Are the fire safety defects a new cause of action?
[23] Clause 23 of the Statement of Claim of 16 October 2015 reads “[t]he Victopia Apartments were constructed with defects, and in particular:”, followed by headings for: “Cladding defect”; “Balcony waterproofing defects”; and “The Podium defect”. The equivalent clause now, clause 34 of the amended Statement of Claim of
30 November 2015, adds to those three sets of defects another set, “The Fire Safety defects”, twenty five details of which are particularised in schedule 2. The losses arising from the fire safety defects are identified in clause 37(d) and itemised in Schedule 10, totalling $5,943,073 (only $38,120 of which are identified as works in common with other defects).
[24] The causes of action against the defendants are all pleaded in negligence in terms of duty, breach and damage. The fire safety defects in the 30 November 2015
Statement of Claim are only pleaded specifically against the Council. The duty said to be owed by the Council, which did not change, was in performing its functions under the Act of issuing building consents, inspecting the building work and issuing the Code Compliance Certificate. The Council’s alleged breach of duty was unchanged in the 30 November 2015 Statement of Claim, at clause 58(a), as having “issued the Building Consents when it did not have reasonable grounds to be satisfied that if the building work was carried out in accordance with the Building
Consents the provisions of the Building Code would be complied with”. An additional particular of this breach is now at cl 58(a)(v): “The [Council] did not have reasonable grounds to be satisfied that the fire safety systems in the Victopia Apartments would comply with clause C3 of the New Zealand building code”. And the damages claimed against the Council for total economic loss are higher by
$4,290,060.45.
[25] I consider the fire safety defects are additional particulars of defects alleged in the Statement of Claim that do not change the essence of the claim being met by the Council. The duty and breaches alleged against the Council are framed in terms of issuance of consents, inspection and issuance of code compliance certificate. All that has changed is the details in respect of which the Council should have consented, inspected and issued a code compliance certificate issued.
[26] It is true that the amended Statement of Claim means there are new factual claims for the Council to meet. And the most persuasive point for the Council is that it would wish to seek contribution from additional parties. But I do not consider that the factual situation which entitles the Body Corporate to claim against the Council is “essentially different”. The Body Corporate is pleading the same duty and the same generic terms of breach against the same party. This comes most clearly into focus when it is recalled that the material facts must be identified “at the highest level of abstraction”. In the Court of Appeal’s words, in Commerce Commission v Visy Board Pty Ltd, the basic legal claim is the same and is simply backed up by the addition of new facts. This is also consistent with the other case law summarised above where additional defects were not struck out as a new cause of action. There is no frivolity, vexatiousness or abuse of process here.
[27] Accordingly, I decline to strike out the fire safety defect amendments to the
Statement of Claim for being a new cause of action and time-barred.
Issue 2: Has the Body Corporate’s delay significantly prejudiced the Council?
[28] The issue of whether the fire safety defects should be struck out on the basis of prejudice to the Council, under r 15.1(1)(b), is separate from, and alternative to,
the issue of whether they should be struck out because they are beyond the limitation period as a new cause of action under r 15.1(1)(a) (or (c)).
Submissions
[29] The Council submits that “prejudice” in r 15.1(1)(a) should be given its ordinary meaning of “some harm or injury that results or may result from some action or judgment”. The Council relies on the High Court’s judgment in Carter Holt Harvey Ltd v Genesis Power Ltd (No 8) where Randerson J, in an “overall exercise of discretion”, concluded it would not be just to grant leave to amend pleadings because the defendant would not have the opportunity to seek contribution
or indemnity from third parties.15
[30] The Council says the amended pleadings here cause it clear prejudice because the Body Corporate had four years to identify all defects, were aware of the limitation issues, gave no prior warning to the Council of fire safety issues, amended the pleadings when the Council’s limitation period to join third parties had expired, and has given no explanation for the delay. Ms Thodey submits that there are significant other entities, such as Beca Carter, which should be involved in the fire safety aspects of the proceedings and could not have been joined on the basis of previous claims.
[31] In response the Body Corporate submits that the focus of r 15.1(1)(b) is on whether the pleading itself is defective to the extent that there is impropriety, not whether the Council would face more work or a more difficult claim – which would be the effect of most amendments to pleadings.
Analysis
[32] Since it was joined to these proceedings in February 2013 the Council has expressed concern at the potential for expiry of the limitation period for it to bring claims against third parties. Two years and nine months later that fear was realised
with the fire safety claim amendments. This increased the scope of remedial works
15 Carter Holt Harvey Ltd v Genesis Power Ltd (No 8) Auckland HC CIV-2001-404-1974, 29
August 2008.
and the value of the claim against the Council but also meant that the Council is likely out of time to join third parties in respect of this aspect of the claim.
[33] But I do not consider that is open to me to strike out the pleadings on the grounds of prejudice to the Council, given the purpose of r 7.7. As the Body Corporate submits, almost any amendment to pleadings that a defendant will want to strike out will cause “prejudice” in the sense argued by the Council to exist here. That is the point of the pleading – to advance one party’s case at the expense of another’s. Rule 7.7 is not aimed at that sort of prejudice. The other provisions in sub-rule (1) give the court sufficient tools to clear away from the court system cases that are hopeless, frivolous or vexatious or otherwise an abuse of process of the court. Rule 7.7(1)(b) must be interpreted in that context. The Court of Appeal’s characterisation of the rule in Chesterfields quoted above supports that. It stated that all of rules (1)(b) to (d) “concern the misuse of the court’s processes”. I do not consider the ability conferred on the court by r 7.7(1)(b), to strike out parts of a pleading if it is “likely to cause prejudice”, extends to ordinary prejudice caused to a party by losing on the basis of that pleading.
[34] That is the essence of what the Council complains of here. The Council appears to me to have legitimate cause for complaint about the unexplained delay in the appearance of the fire safety defects. But no rule or requirement was imposed on the Body Corporate to make them finalise their pleadings earlier. The close of pleadings date of 30 November 2015 was set on 5 June 2015 with the timetable for the plaintiff’s and defendants’ evidence set after that accordingly and a ten week trial set to commence on 10 October 2016. The Body Corporate was entitled to amend its case on 30 November 2015. That is what it did.
[35] Counsel for the Council responsibly advised me at the hearing on 18 May
2016 that it considered it was obliged to continue to prepare its case as if the fire safety defects are part of the case it has to meet. My judgment confirms that they are.
Result
[36] I decline the application to strike out aspects of the statement of claim relating to fire safety defects. Costs are reserved for consideration along with the costs of the substantive proceeding.
Palmer J
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