Body Corporate 397322 v Bayside Roofing Limited
[2024] NZHC 3425
•18 November 2024
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2022-485-329
[2024] NZHC 3425
UNDER the Consumer Guarantees Act 1993 IN THE MATTER
of alleged breaches of warranty and of the Consumer Guarantees Act 1993
BETWEEN
BODY CORPORATE 397322
First Plaintiff
CHRISTOPHER JOHN GARVIE & ORS
Second PlaintiffsAND
BAYSIDE ROOFING LIMITED
First Defendant
ARDEX NEW ZEALAND LIMITED
Second Defendant
Hearing: 13 November 2024 Appearances:
M Wolff for Plaintiffs
M Freeman for First Defendant
Judgment:
18 November 2024
JUDGMENT OF ASSOCIATE JUDGE SKELTON
[1] The first defendant, Bayside Roofing Ltd (Bayside), applies under r 8.19 of the High Court Rules 2016 for discovery of the settlement agreement between the plaintiffs and the second defendant, Ardex New Zealand Ltd (Ardex). The first and second plaintiffs, Body Corporate 39722 and Christopher John Garvie and Ors, oppose the application.
BODY CORPORATE 397322 v BAYSIDE ROOFING LIMITED [2024] NZHC 3425 [18 November 2024]
What happened?
[2] In 2008, the plaintiffs contracted Bayside to undertake construction work involving membrane and profiled metal roofing and wall cladding on units 1-17 of a unit title development in Island Bay.
[3] Bayside obtained products from Ardex, including Butynol, a synthetic rubber membrane, which it applied to construct the roofing on the units. Bayside undertook the works between 2008 and 2009. Following completion of the works, Bayside provided workmanship warranties including that it had installed the Butynol in accordance with the manufacturer’s instructions and its workmanship would maintain a waterproof barrier for 15 years.
[4] Ardex provided a product guarantee/warranty that the Butynol product supplied and installed would retain its waterproofing properties for 20 years.
[5] The plaintiffs allege that the product supplied by Ardex was defective, in that the Butynol membrane prematurely split and failed to maintain its waterproofing properties for the period of 20 years. The plaintiffs also claim that the works undertaken by Bayside were not in accordance with the manufacturer’s instructions and/or good trade practice and did not maintain a waterproof barrier for 15 years. Accordingly, it says that remedial work is required to the roofing of the units, resulting in loss to the plaintiffs.
[6] The plaintiffs claim against Bayside for breach of workmanship warranties; and breaches of the guarantees owed to the plaintiffs under ss 28 and 29 of the Consumer Guarantees Act 1993 (CGA). The plaintiffs also claimed against Ardex as the manufacturer and supplier of the Butynol, for breach of its product warranty; breach of the guarantees owed to the plaintiffs under ss 6, 14 and 25 of the CGA; and for negligence.
[7] However, on 6 November 2023, the plaintiffs entered into a settlement agreement with Ardex. There is no evidence before me as to the terms of the settlement agreement.
[8] On 7 November 2023, the plaintiffs circulated a draft joint memorandum to the defendants concerning a discontinuance against Ardex. Initially, Bayside refused to give consent to the discontinuance, but ultimately consent was given and the discontinuance filed.
[9] Bayside subsequently applied for particular discovery of the settlement agreement.
Applicable legal principles
Further discovery
[10]Rule 8.19 of the High Court Rules 2016 provides:
8.19 Order for particular discovery against party after proceeding commenced
If at any stage of the proceeding it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered
1 or more documents or a group of documents that should have been discovered, the Judge may order that party—
(a)to file an affidavit stating—
(i)whether the documents are or have been in the party’s control; and
(ii)if they have been but are no longer in the party’s control, the party’s best knowledge and belief as to when the documents ceased to be in the party’s control and who now has control of them; and
(b)to serve the affidavit on the other party or parties; and
(c)if the documents are in the person’s control, to make those documents available for inspection, in accordance with rule 8.27, to the other party or parties.
[11] Rule 8.19 provides an avenue to a party to circumvent the presumption that the affidavits of documents already filed are conclusive. The onus is on the applicant to establish grounds for its belief that the plaintiffs are, or have been, in control of the documents sought. A party required to make discovery is required to disclose documents only if they are relevant to an issue in the proceeding. Relevance is to be
assessed by reference to the pleadings. The four-pronged test, following Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd, is:1
(a)Are the documents sought relevant, and if so how important will they be (materiality)? 2
(b)Are there grounds for belief that the documents sought exist?3
(c)Is discovery proportionate (balancing the time and cost of discovery against the potential value of discovery)?4
(d)Weighing and balancing these matters, in the Court’s discretion applying r 8.19, is an order appropriate?
Privilege
[12]Section 57(1) of the Evidence Act 2006 provides:
57 Privilege for settlement negotiations, mediation, or plea discussions
(1)A person who is a party to, or a mediator in, a dispute of a kind for which relief may be given in a civil proceeding has a privilege in respect of any communication between that person and any other person who is a party to the dispute if the communication—
(a)was intended to be confidential; and
(b)was made in connection with an attempt to settle or mediate the dispute between the persons.
...
(3)This section does not apply to—
(a)the terms of an agreement settling the dispute; or
(b)evidence necessary to prove the existence of such an agreement in a proceeding in which the conclusion of such an agreement is in issue; or
1 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760, [2018] NZAR 600 at [14] [Assa Abloy].
2 Robert Jones Holdings Ltd v McCullagh [2016] NZHC 2529.
3 This will often be a matter of inference based on the strength of the evidence. Assa Abloy, above n 1, at [12]: “The threshold embodied in ‘grounds for belief’ is not that high.”
4 Southland Building Society v Barlow Justice Ltd [2013] NZHC 1125 at [17].
...
(d)the use in a proceeding of a communication or document made or prepared in connection with any settlement negotiations or mediation if the court considers that, in the interests of justice, the need for the communication or document to be disclosed in the proceeding outweighs the need for the privilege, taking into account the particular nature and benefit of the settlement negotiations or mediation.
Analysis
[13] There is no dispute that the settlement agreement between the plaintiffs and Ardex exists and is in the possession and/or control of the plaintiffs. Discovery of the settlement agreement could not be disproportionate.
[14]The plaintiffs oppose discovery on two grounds, privilege and relevance.
[15] First, the plaintiffs submit that the settlement agreement is privileged. Mr Wolff, for the plaintiffs, submits that the exception in s 57(3)(a) does not apply. He submits that the term “dispute” in s 57 should be given a broad interpretation, and applying a broad view of “dispute” in the context of s 57(3)(a), it would not be appropriate to interpret “the terms of an agreement settling the dispute” to mean “the terms of an agreement settling particular matters between the plaintiff and only the second defendant”. Mr Wolff submits that there are good policy reasons for this interpretation, as it allows the parties to make concessions and and/or negotiate freely with other parties without the risk of those matters being disclosed or put before the Court. He contends that the proceeding remains on foot as between the plaintiffs and the first defendant, so the settlement agreement does not “settle the dispute”, it only settles part of the dispute as against the second defendant.
[16] The plaintiffs refer to Morgan v Whanganui College Board of Trustees.5 In that case it was found that the word “dispute” is not intended to be exclusive and should not be construed narrowly and that “negotiations” or the broader term “difference” will suffice. However, this does not mean that, in proceedings involving more than one defendant, the word “dispute” as used in s 57 of the Evidence Act 2006
5 Morgan v Whanganui College Board of Trustees [2014] NZCA 340 at [17].
should necessarily be construed as referring to the entire proceeding, encompassing all claims against all defendants.
[17] The settlement negotiations in issue in this case were between the plaintiffs and Ardex in connection with an attempt to settle the dispute arising out of the plaintiffs’ claim against Ardex. Under s 57(2) of the Evidence Act, the plaintiffs and Ardex have a privilege in respect of the without prejudice communications and correspondence between them in connection with their attempt to negotiate settlement of that dispute. This reflects the policy referred to by Mr Wolff. However, section 57(3)(a) then explicitly provides that the privilege does not apply to the terms of an agreement settling “the dispute”, that is, in this case, the dispute between the plaintiffs and Ardex which was the subject of negotiations under s 57(2). The exception in s 57(3)(a) reflects the common law position that a settlement agreement is not covered by without prejudice privilege including in multi-defendant cases where a plaintiff settles with one defendant.6
[18] Second, the plaintiffs contend that the settlement agreement is not relevant. The documents sought must be relevant by reference to those matters which will be in issue before the Court. Relevance is to be assessed according to the pleadings.7
[19] Bayside contends that there is an element of joint liability between it and Ardex in relation to the allegations in the amended statement of claim under the CGA. Bayside says that the terms of the settlement agreement are therefore directly relevant because it may have been released from liability in this regard.8 The plaintiffs refute any joint liability based on the allegations in the amended statement of claim and say that Bayside is concurrently liable with Ardex. However, even if there is no joint liability, and Bayside is concurrently liable with Ardex, the terms of the settlement agreement may be relevant to Bayside’s liability as follows:9
6 For example, see BGC Brokers LP and others v Tradition (UK) Ltd and others [2019] EWCA Civ 1937 at [10]–[14].
7 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR8.19.03(4)].
8 Allison v KPMG Peat Marwick [2000] 1 NZLR 560 (CA).
9 At [190]-[194]; DB Breweries Ltd v Mainzeal Property and Construction Ltd HC Auckland CP418/96, 26 June 2000 at [88(e)]; Body Corporate 185960 v North Shore City Council, HC Auckland CIV-2006-004-3535, 28 April 2009 at [5]–[14]; and Stephen Todd (ed) Todd on Torts (9th ed, Thomson Reuters, Wellington, 2023) at [23.2.2].
(a)If the plaintiffs have recovered the full amount of their loss from Ardex, then the claim against Bayside would be discharged because there is no loss left to compensate.
(b)The terms of the settlement agreement may be construed as intending to release Bayside and this could be enforced by Bayside if appropriately designated under subpt 1 of pt 2 of the Contract and Commercial Law Act 2017.
[20] Mr Wolff submits that these are not issues in the current pleadings. However, the settlement agreement potentially raises fundamental issues as to Bayside’s liability and whether there is any loss left to compensate. In its statement of defence, Bayside has denied liability for the pleaded causes of action and that the plaintiffs have suffered loss, so these matters are generally in issue. Bayside can hardly be expected to have specifically pleaded discharge or release on the basis of the settlement agreement at this stage when the plaintiffs have refused to disclose the agreement.
[21] The current pleadings also raise issues as to whether the alleged defects and damage requiring remedial works have been caused by defective workmanship and/or defective materials.
[22] Bayside contends that the allegations against it under s 29 of the CGA (which are denied), include breach of a guarantee in respect of the product resulting from the services, and that services includes, where relevant, the supply of goods associated with the services.10 Bayside contends that the amended statement of claim pleads that Bayside obtained (and therefore supplied) the Ardex products to install the roofing system. Therefore, Bayside contends that it is also being sued in respect of the materials that formed the Butynol roof system. Paul Whitburn, a director of Bayside, states in his affidavit that Bayside was relying on the fact that issues around the alleged product defects would primarily be answered by Ardex in its evidence. He states that it is difficult for Bayside to assess the claim against it without knowing what, if any, issues have been settled and what is still in issue.
10 Consumer Guarantees Act, s 2(b)(i) (definition of “services”).
[23] The settlement agreement may be relevant to these issues. For example, if it is apparent from the settlement agreement that the materials or product issues have been resolved with Ardex, then Bayside may be able to focus solely on defending the defective workmanship allegations against it.
[24] Mr Wolff acknowledges that settlement agreements with some but not all defendants in multi-defendant proceedings are relevant at the recovery stage to “prevent double recovery”. However, he submits that such settlement agreements are not relevant to determining quantum at trial for the purpose of entry of judgment. He submits that where the defendants are concurrent tortfeasors being sued for the same loss (as in this case) then, regardless of settlement with one defendant, the plaintiffs may obtain judgment against the other defendant for the full amount of their loss. Mr Wolff relies on the decisions in Body Corporate 185960 v North Shore City Council11 and Wordsworth v Purdie.12 In these cases, the Court was prepared to enter judgment against the remaining defendant for the full amount of the loss even though there had been settlements with other defendants so that at the time of entry of judgment the plaintiff had already recovered a significant proportion of its claimed loss. In both cases, the Court had been made aware at least of the quantum of the settlements,13 and it was made clear in the judgments that the plaintiffs would have to account for the settlements and could not recover more than the full amount of their loss.
[25] In Body Corporate 185960 the Court relied on the decision in Body Corporate No 199348 v Nielsen as an example of the Court dealing with a similar issue and entering judgment for the full amount of the damages.14 However, in Body Corporate No 199348, there had been a settlement between some defendants and the original plaintiffs for $2,500,000, being the agreed costs of remediation. One of the settling defendants (North Shore City Council) took an assignment of the original plaintiffs’ rights to seek recovery of the amount that it had contributed to the settlement
11 Body Corporate 185960 v North Shore City Council above n 9 at [19].
12 Wordsworth v Purdie HC Auckland CIV-2010-404-1933, 25 October 2011 and Wordsworth v Purdie [2012] NZHC 474.
13 In Body Corporate 185960 v North Shore City Council, above n 9, the judgment records that the relevant settlement agreement between the plaintiff and the first defendant was not in evidence. However, it may have been disclosed to the other defendants.
14 Body Corporate No 199348 v Nielsen HC Auckland CIV-2004-404-3989, 3 December 2008.
($1,025,000) from a defendant who had not been involved in the settlement. The claim by the Council and the original plaintiffs against the remaining defendant was for the sum of $1,025,000 (the Council’s contribution) and the difference ($174,389.82) between the full amount of the costs of remediation and the amount received in settlement by the original plaintiffs. Judgment was entered for the sum of
$1,199,389.82 against the remaining defendant. It is not apparent that this was judgment for the full amount of the damages/loss (remediation costs), which seem to have been in the order of $2,674,389.82. It was a judgment for the sum of $1,025,000 to reimburse the Council for its contribution to the settlement, and for $174,389.82 being the balance of the costs of remediation not recovered in the settlement.
[26] Even if the correct approach is that the Court should enter judgment for the full amount of the loss against a concurrent tortfeasor where the plaintiff has already recovered some of its loss from another concurrent tortfeasor prior to judgment, it seems to me that the terms of any settlement agreement are relevant to the issue of quantum of damages and entry of judgment. This is because the Court should be made aware of the position (at least the quantum of the settlement) prior to judgment being entered. It is apparent from the decisions relied on by Mr Wolff that, although judgment was entered for the full amount of the loss, the Court was concerned to make it clear that the plaintiffs would have to account for the settlements and could not recover more than the full amount of damages.
[27] Mr Wolff also refers to the confidentiality of the settlement agreement. However, confidentiality is not a ground for opposing discovery.15 Rules 8.15(2)(f) and 8.28(3) provide for restrictions on inspection that may be set out in the affidavit of documents to protect claimed confidentiality. The parties should confer and attempt to reach agreement on any proposed restrictions.
15 See McNabb v Manning HC Auckland CIV-2004-404-4271, 16 August 2006 at [36]: “... confidentiality is not a ground for resisting discovery. Protection is given by the general principle that documents obtained in discovery are not to be used for any other purpose, and that can be extended by specific limits on disclosure. I do not expect the content of this document
to become public knowledge. Its discovery is being ordered for purposes of this litigation only. Counsel have been reminded of the Court's powers in respect of contempt should the document be misused.” See also McGechan on Procedure, above n 7, at [HR8.25.17].
Conclusion
[28] The settlement agreement is not subject to privilege, it is relevant, in the plaintiffs’ control, and discovery of the agreement is not disproportionate. Weighing and balancing these matters, it is appropriate to order discovery of the settlement agreement.
Result
[29]Within 10 working days of the date of this judgment, the plaintiffs are to:
(a)file an affidavit of documents listing the settlement agreement as a document within their control; and
(b)serve that affidavit on Bayside; and
(c)make the settlement agreement available to Bayside for inspection in accordance with r 8.27 of the High Court Rules.
[30] My preliminary view is that Bayside has been successful and is entitled to costs on a 2B basis. The parties are expected to agree costs. However, if agreement cannot be reached then memoranda may be filed (not exceeding three pages, excluding costs schedules) and costs will be determined on the papers.
Associate Judge Skelton
Solicitors:
JB Morrison, Wellington for Plaintiffs
Thomas Dewar Sziranyi Letts, Lower Hutt for First Defendant
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