Body Corporate 444813 v Auckland Council
[2022] NZHC 1346
•9 June 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-559
[2022] NZHC 1346
BETWEEN BODY CORPORATE 444813
First Plaintiff
JCWH LIMITED & OTHERS
Second PlaintiffAND
AUCKLAND COUNCIL
First Defendant
HUGHES CONSTRUCTION LIMTIED and 14 OTHERS
Second Defendants
BRIAN JONES ENGINEERING LIMITED
First Third PartyBRIAN ALLAN JONES
Second Third Party
Hearing: 2 May 2022 Appearances:
No appearance for the Plaintiffs
Jo-Anne Knight for the First Defendant Ross Dillon for the Third Parties
Judgment:
9 June 2022
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
This judgment was delivered by me on 9 June 2022 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
Solicitors:
………………………….
Registrar/Deputy Registrar
Simpson Grierson (Jo-Anne Knight), Auckland, for the First Defendant R M Dillon, Glenfield, Auckland, for the Third Parties
BODY CORPORATE 444813 v AUCKLAND COUNCIL [2022] NZHC 1346 [9 June 2022]
[1] This proceeding concerns the apartment complex at 19–21 Tawari Street, Mount Eden, known as the Tawari Mews. Body Corporate 444813 and unit owners (the plaintiffs) allege the complex suffers from various structural defects. The plaintiffs have claimed against Auckland Council (the Council) as the consenting authority, and against various other parties involved in the complex’s design and construction.
[2] The Council has brought a third party claim under s 17(1)(c) of the Law Reform Act 1936 against two third parties (together, the third parties) in relation to any defects for which those third parties would have been liable to the plaintiffs.
[3] The first third party is Brian Jones Engineering Ltd (BJEL), a civil engineering company. BJEL was engaged to carry out the structural design for Tawari Mews, to observe the construction of the building’s structural aspects to a “CM4” level,1 and to certify those works with a Producer Statement Construction Review (PS4). The second third party is Mr Brian Jones (Mr Jones), a chartered professional engineer at the relevant time and the sole director and ultimate shareholder of the first third party. Mr Jones observed construction of the building and signed the PS4.
[4] The third parties have applied to the Court to set aside the third party notices. The Council opposes the application, saying the third parties owed duties of care to the plaintiffs and should contribute to any liability the Council has to the plaintiffs in respect of the alleged structural defects. The Council says further that the present application is not the appropriate occasion to determine finally the extent of the third parties’ liability for the alleged defects. It would be unjust to set aside the notices because any subsequent claims against the third parties would be subject to limitation defences.
1 The requirements of CM4 construction monitoring are specified in Engineering New Zealand’s Construction Monitoring Services document. CM4 construction monitoring requires review of regular samples of work procedures, construction materials and components for compliance with the requirements of the plans and specifications, and review of the majority of completed work prior to the enclosure or on completion as appropriate. It is said to be a level of service appropriate for projects where a lower than normal risk of non-compliance is required.
Background
[5] On 25 September 2007, Hughes Construction Ltd engaged BJEL to provide the structural design and working drawings, civil engineering design and drawings, and construction observation for the Tawari Mews development.
[6] It is alleged that it became clear after Tawari Mews was constructed that the building suffered from defects. The plaintiffs claim that as a result of the defects they need to carry out remedial works to the common property and to individual units. They have accordingly claimed against a number of parties involved in the design and development of the complex.
[7] In its capacity as a qualified independent certifier, BJEL certified the development’s structural steel works as complete in a PS4 dated 9 November 2011. Mr Jones personally signed the PS4, which recorded that BJEL was engaged to provide CM4 observation for the building works described in Building Consent B/2010/1614 and that Mr Jones believed, on reasonable grounds, that the structure of Tawari Mews was completed in accordance with cl B1 of the Building Code.
[8] The Council says that if it is proved that Tawari Mews suffers from the defects, BJEL owed the plaintiffs a duty of care to exercise reasonable care and skill in carrying out the monitoring and certification, to ensure the building works complied with the requirements of cl B1 and were carried out with good trade practice. In that event, the Council says, BJEL would have breached this duty. It follows that BJEL owes the Council a contribution or indemnity as a concurrent tortfeasor.
[9] The Council similarly claims that Mr Jones, as sole director of BJEL, was responsible for ensuring the quality of the building works. It contends that in signing the PS4, Mr Jones confirmed the building works had been undertaken in accordance with the requirements of cl B1 of the Building Code. As with its claim against BJEL, the Council says Mr Jones owed the plaintiffs a duty of care to exercise reasonable care and skill in doing so. Should the Council be found liable to the plaintiffs, it claims a contribution or indemnity from Mr Jones as a concurrent tortfeasor.
[10] Mr Jones denies that he or BJEL share any responsibility for Tawari Mews’ alleged defects. The third parties now apply to set aside the third party notices.
Third parties’ application to set aside third party notices
[11]The third parties seek orders that:2
1.1.the third party notices issued by the First Defendant against the Applicants be set aside;
1.2.the Applicants be awarded costs; and
1.3.the Court make other orders as appropriate.
[12]The grounds on which each order is sought are:3
2.1pursuant to HCR 4.4 and 4.16, the third party notices should be set aside as:
2.1.1the First Defendant’s claims against the Applicants have no real prospect of success;
2.1.2the Applicants involvement at 19 -21 Tawari Street was peripheral to the Plaintiffs’ main allegations against the First Defendant; and
2.1.3the interests of justice and balance of convenience favour setting aside.
Affidavit of Mr Jones dated 1 February 2022
[13] Mr Jones has made an affidavit in support of the third parties’ application to set aside the third party notices. He deposes that BJEL was engaged to provide only structural design, public wastewater drainage design and construction monitoring for the Tawari Mews. He says CM4 construction monitoring does not require permanent on-site supervision, but only a periodic audit. Further, he says a PS4 certifies a belief on reasonable grounds that the building work is properly completed.4
2 Interlocutory application for order setting aside third party notice against the first and second third party dated 1 February 2022 at [1].
3 At [2].
4 Affidavit of Brian Allan Jones in support of interlocutory application for order setting aside third party notices against first third party and second third party dated 1 February 2022 at [2]–[8].
[14] Mr Jones says cl B1 of the Building Code is solely concerned with the stability of a building’s structure and does not encompass durability issues. He further deposes that he and the Council agreed that the CM4 construction monitoring would encompass cl B1 stability monitoring, with cl B2 durability monitoring being excluded. The PS4 was limited accordingly. He says there were reasonable grounds to believe the building met the requirements of the plans and specifications and, therefore, met the structural requirements of cl B1, having regard to the work procedures, construction materials and components used on the site.5
[15] Next, Mr Jones deposes that the PS4 contained express disclaimers that it was only to be relied upon by the Council and that liability under it would accrue only to BJEL. He says the Council was aware at all times about the nature of the construction monitoring he was doing, and that he wrote reports for the 16 inspections he conducted during the construction phase. Those reports contain express disclaimers that the inspections were for cl B1 only, were to be relied upon by the Council only and that any liability resulting from them accrued to BJEL only. He also deposes he visited the site 26 times during the construction phase to carry out inspections or resolve construction issues. He says relevant invoices show he spent 101.5 hours working on the project.6
[16] Mr Jones deposes that of the plaintiffs’ itemised defects, only defects A and L (relating to deflection of pre-cast concrete balcony slabs) and C and G (relating to steel coating applications) have to do with structural engineering concerns. He attributes the former defects to design issues for which neither he nor BJEL are responsible, and says the latter defects were outside the ambit of the cl B1 review (encompassing only structural stability) and the CM4 construction monitoring requirements.7
[17] Mr Jones deposes that he has found the experience of being joined as a third party upsetting, and that he believes neither he nor BJEL have any responsibility for any defects in the works.8
5 At [9]–[11].
6 At [12]–[17].
7 At [18]–[26].
8 At [27].
The Council’s notice of opposition to the third parties’ application to set aside third party notices
[18]The Council opposes the third parties’ application on the grounds:9
(a)The plaintiffs claim damages from the first defendant in respect of, among other things, alleged structural defects in the building known as Tawari Mews, at 19-21 Tawari St (the building).
(b)As at the date of this notice, the alleged structural defects are:
(i)Defect A – Inadequate waterproofing to balconies and podium
– pre-cast concrete slabs have moved / deflected over time, causing membranes to spilt / tear;
(ii)Defect C – Inadequately waterproofed concrete / steel frame junctions;
(iii)Defect G – Inadequate coating to exposed steel; and
(iv)Defect L – Excessive deflection of the concrete slabs forming the balconies.
(together, the alleged structural defects)
(c)The first third party, Brian Jones Engineering Ltd, and the second third party, Brian Allan Jones, were the structural engineers for the design and during construction of the building. The second third party signed the Producer Statement Construction Review (PS4) dated 9 November 2021.
(d)The first defendant pleads that the first and second third parties owed duties of care to the plaintiffs in carrying out their structural engineering work on the building. The first defendant claims a contribution from the first and second third parties in respect of any liability that the first defendant has to the plaintiffs in respect of the alleged structural defects.
(e)The first and second third parties do not dispute that they were the structural engineers for the design and during construction of the building. Rather, they allege that they were not involved in work giving rise to the alleged structural defects, and that those defects arose from the work of others.
(f)The evidence of Mr Jacobs, in his affidavit sworn 2 March 2022, is that first and second third parties had a role in the structural design, including in the areas which are the subject of Defects A and L, and in the monitoring of construction work, including the work that is the subject of Defects C and G. The first defendant’s claim for a contribution from the first and second third parties is tenable.
9 Notice of opposition by first defendant to interlocutory application by first and second third parties for order setting aside third party notices against first and second third party dated 2 March 2022 at [4].
(g)The claim against the first and second third parties goes to the root of the plaintiffs’ claim against the first defendant in relation to the alleged structural defects. The plaintiffs’ claim against the first defendant regarding the alleged structural defects, and the first defendant’s claim against the first and second third parties, are closely and directly connected.
(h)The third party claims will determine whether the first defendant or the first and second third parties should ultimately bear the plaintiffs’ loss arising from the alleged structural defects.
(i)This application is not the appropriate forum to finally determine the extent of the first and second third parties’ liability for the alleged structural defects. These issues should be determined in the course of a trial in a manner that will properly dispose of each issue and which will bind the appropriate parties.
(j)It would be unjust to set aside the third party notices because any subsequent claims against the first and second third parties would now be subject to limitation defences.
(k)It is in the interests of justice between all parties for the first and second third parties to remain in the proceeding.
Affidavit of Dr Murray Jacobs dated 2 March 2022
[19] Dr Murray Jacobs, a civil and structural engineer with a doctorate in engineering, has made an affidavit in support of the Council’s opposition to the third parties’ interlocutory application. He deposes his expert opinion is Mr Jones did not fully meet the requirement of CM4 construction monitoring. He says CM4 construction monitoring should require at least twice weekly site visits, while Mr Jones was, on average, only visiting the site every second week.10
[20] As to defects L and A, Mr Jacobs deposes that the deflection of the balcony precast concrete slabs likely resulted from a design problem, but that the deflection would have happened as soon as the slabs were installed. He says Mr Jones should have seen the deflection and been aware of the problem when conducting his site observations under CM4 construction monitoring. Further, Mr Jacobs deposes his belief that Mr Jones, in his affidavit, incorrectly stated he had no part in the design of the balconies or the supporting structure. He says relevant documents indicate Mr Jones provided the preliminary structural design, and that it would not make sense
10 Affidavit of Murray Lionel Jacobs in support of first defendant’s opposition to interlocutory application for order setting aside third party notices against first and second third party dated 2 March 2022 at [21]–[26].
for Mr Jones to be reviewing and approving structural shop drawings if he was not involved in the design of the balconies or supporting structure. Mr Jacobs says it appears Mr Jones had a significant role in the structural design in the areas the subject of defects A and L.11
[21] As to defects C and G, Mr Jacobs says relevant document show Mr Jones was involved in calculating the fire rating of the structural steel, which is needed to determine the specifications for the coating. He says that as a structural engineer providing a PS4, he would not have simply relied on the installer or supplier’s Producer Statements, and that he would have either tested the application of the coating himself or requested and reviewed some sort of quality assurance to satisfy himself the application was correct. Further, Mr Jacobs deposes he disagrees with Mr Jones that the coating is a cl B2 durability issue and not a cl B1 stability issue. He says fire rating of structural steel is a stability issue because it relates to the structure’s ability to perform during a fire. As well, a structural engineer will be concerned about corrosion of structural steel for cl B1 stability reasons, and should inspect the structural steel to ensure any exposed structural steel is adequately protected.12
Reply affidavit of Mr Jones dated 24 March 2022
[22] Mr Jones has made an affidavit in reply to Mr Jacobs. Among other things, he says the there is no requirement, when carrying out CM4 construction monitoring, to review the design. As well, he says there is no fixed, arbitrary frequency of site visits required to meet the review requirements defined for CM4. He deposes he made enough site visits to inspect all the structural work carried out prior to enclosure and that extra visits would not have provided any benefit.13
[23] As to defects A and L, Mr Jones reiterates that, save for some preliminary design sketches, he was not personally involved in any structural design relating to defects A and L, and that BJEL was involved only to the extent that it had a
11 At [28]–[56].
12 At [57]–[74].
13 Affidavit of Brian Allan Jones in reply dated 24 March 2022 at [21]–[26].
subcontracting relationship with a structural design subconsultant, Kevin O’Connor & Associates Ltd.14
[24] As to defects C and G, Mr Jones deposes that no design issue is part of the third party claim and BJEL’s observational duties under cl B1 required that the building components installed were in accordance with the specifications of the Building Consent. He says the Building Consent contained a mechanism for comprehensive certification of the coating of the structural steel components, and it was reasonable for the entity certifying B1 compliance to be aware of those requirements and accept that certification by the manufacturer and applicator satisfied those requirements.15
Third parties’ submissions
[25] Mr Ross Dillon, for the third parties, submits the “one prime evidential document” in the case is the PS4. He identifies that the PS4 contains a note to the effect that it shall only be relied upon by the Council and that liability under the PS4 accrued only to BJEL. Further, he says it is clear Mr Jones did not sign the PS4 in his personal capacity — as set out on the face of the document and reinforced by the special note and various ancillary documents leading to the PS4. The Council, therefore, cannot make a claim on Mr Jones personally. Mr Dillon says there is no real prospect of success against Mr Jones, and the notice should therefore be struck out.16
[26] As to BJEL’s liability, Mr Dillon reiterates the PS4 was addressed exclusively to the Council, for its sole reliance. He says this means BJEL cannot be liable to the plaintiffs, and therefore cannot be a joint tortfeasor. As well, he says there is nothing to suggest the frequency of observation visits had any impact on any claimed defect sufficient for the Council to claim contribution from the third parties.17
14 At [30]–[56.3].
15 At [58]–[74].
16 Submissions of third parties in support of the interlocutory application for order setting aside dated 12 April 2022 at [8]–[23], citing TSB Bank Ltd v Burgess [2013] NZHC 1228 at [38]; R M Turton & Co (in liq) v Kerslake & Partners [2000] 3 NZLR 406 (CA) at 7–15; and Mammoet Shipping BV v Compter HC Whangārei CP13/86, 6 July 1987.
17 At [24]–[27].
[27] Mr Dillon submits defects A and L, both relating to the deflection of the balcony slabs, are linked. He says the issue relates to the items’ design and is not in any way relevant to the third parties’ observation duties under the PS4. Further, he says the Council has not claimed against the third parties regarding the items’ design and the third parties are not required to answer matters not pleaded against them.18
[28] Mr Dillon says the PS4 did not speak to defects C and G, concerning the protective coating for structural steelwork, and that the Council knew this. He says it was completely reasonable for the third parties to rely on the producer statements made by the coating manufacturers and applicators retained for that purpose. Further, he submits it is relevant the plaintiffs have made direct claims against the coating applicator and the coating manufacturer — indicating a reliance on those parties’ separate certification, and that the plaintiffs did not rely on the third parties for such certification.19
[29] Concluding, Mr Dillon submits the PS4 and relevant ancillary documents exclude any prospect of Mr Jones having any personal liability and any prospect of BJEL being a joint or concurrent tortfeasor. The third parties cannot be liable for negligent misstatement regarding defects A and L, and it was reasonable for the third parties to rely on the specialist certifications in respect of the protective coating the subject of defects C and G. Accordingly, the third party claims should be struck out.20
The Council’s submissions
[30] Ms Jo-Anne Knight, for the Council, submits that the third parties have mischaracterised the Council’s claim as being for negligent misstatement. She says the Council’s claim is instead grounded in negligence simpliciter, with the third parties owing a duty of care to the plaintiffs in carrying out the works at Tawari Mews. That is because when Mr Jones signed the PS4, he (and, by extension, BJEL) confirmed that the structural aspects of the building works at Tawari Mews had been “completed in accordance with the relevant requirements of the Building Code”. The confirmation was based on Mr Jones’ personal on-site observations and the “information supplied
18 At [28]–[30].
19 At [31]–[38].
20 At [39]–[44].
by the contractor during the course of the works”. Ms Knight says the Council relied on the PS4 in issuing the Code Compliance Certificate for Tawari Mews.21
[31] Ms Knight says it is common ground that the purpose of issuing the PS4 was to allow the Council confidently to issue the Code Compliance Certificate. She says that, notwithstanding this, the wording of the PS4 cannot affect the third parties’ liability to the plaintiffs in respect of their design and construction work. Ms Knight says to take such an approach would be to cut across the duty of care professionals in the third parties’ position owe to plaintiffs in these circumstances. That duty of care arises from the fact the third parties ought to have known that loss to the plaintiffs was a reasonably foreseeable consequence of their negligent observation of the building works. The wording of the PS4 does not limit that duty.22
[32] As to Mr Jones’ liability, Ms Knight says it is well established that directors facing claims in respect of defective buildings will be exposed to liability in circumstances where the relevant company is a one person company or where the director was personally involved in supervision or design detail. She submits that Mr Jones, as the sole director of BJEL and as a chartered professional engineer at the relevant time, had a high degree of control over the alleged negligent acts or omissions leading to the plaintiffs’ loss. Further, Ms Knight submits, for the same reasons already given, the wording of the PS4 does not limit Mr Jones’ duty of care to the plaintiffs.23
[33] Ms Knight submits that in signing the PS4, the third parties certified that the structural aspects of the building works complied with cl B1of the Building Code, in circumstances where the works (allegedly) did not comply. The independent expert structural engineer, Mr Jacobs, says the third parties were negligent in carrying out
21 Synopsis of submissions for the first defendant in opposition to the first and second third parties’ interlocutory application for order setting aside third party notices dated 22 April 2022 at [13]– [16], citing Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394 (CA); Weaver v HML Nominees Ltd [2014] NZHC 2073; and Body Corporate 328392 v Auckland Council [2021] NZHC 1473 at [43].
22 At [17]–[19], citing R M Turton & Co Ltd (in liq) v Kerslake & Partners, above n 16; Mammoet Shipping BV v Compter, above n 16; and Stephen Todd The Law of Torts in New Zealand (online ed, Thomson Reuters) at [59.21.5(2)].
23 At [20]–[23], citing Body Corporate 183523 v Tony Tay & Associates Ltd HC Auckland CIV- 2004-404-4824, 30 March 2009;
their observation role and in signing the PS4. Whether the third parties were in fact negligent, Ms Knight submits, is a matter appropriately dealt with at trial.24
[34] Ms Knight submits Mr Jacobs’ expert opinion is that alleged structural defects A and L, being the deflection in the balcony slabs at Tawari Mews, would have been observable at the time of installation. Mr Jones should have seen the deflection immediately and known that any existing deflection would continue over time.25 Defects C and G, meanwhile, relating to inadequate coating applied to the structural steel at Tawari Mews were cl B1 stability issues and within the scope of Mr Jones’ PS4. Mr Jacobs’ expert opinion is that Mr Jones should have tested the application of the coating himself, or should otherwise have requested and reviewed some sort of quality assurance documentation so he could be satisfied the steel coating had been properly applied and would not undermine the building’s structural stability.26
[35] Ms Knight also submits that Mr Jacobs’ view is that the 26 site visits Mr Jones made during the construction phase were insufficient to meet the review requirements for CM4 generally.27
[36] Finally, Ms Knight submits that the interests of justice favour the third parties remaining in the proceeding. It is appropriate their involvement in causing the alleged structural defects be considered alongside that of the other defendants. As well, the last relevant act or omission of the third parties was the issuing of the PS4 in November 2011. Any fresh proceeding against the third parties would likely be met by a successful limitation defence based on s 393 of the Building Act 2004.28
[37] Concluding, Ms Knight submits the Council has demonstrated that the third parties owed a duty of care to the plaintiffs. On that basis, if the Council is liable to the plaintiffs for defects for which the third parties are also liable, the Council is entitled to a contribution from the third parties. Any dispute as to the third parties’
24 At [24]–[26].
25 At [27]–[32].
26 At [33]–[35].
27 At [36]–[37].
28 At [38]–[39].
liability is more appropriately dealt with at trial. It is in the interests of justice that the third parties remain joined, as any future separate claim would likely be time-barred.29
Legal principles
Setting aside third party notice
[38]Rule 4.16 of the High Court Rules provides:
4.16 Setting aside third party notice
(1)A third party may apply to the court to have a third party notice issued and served with the leave of the court set aside.
(2)A party to a proceeding served with a third party notice issued and served without leave of the court may apply to the court to have the notice set aside.
(3)In either case, the court may—
(a)set the third party notice aside and dismiss the defendant’s statement of claim against the third party—
(i)on the merits; or
(ii)without prejudice to the right of the defendant to pursue that claim against the third party in an
independent proceeding; or
(b)give other directions.
[39] Rule 4.16 therefore confers a wide discretion under which the Court may set aside a third party notice. Orders setting aside third party notices are often granted on the same principles as applications to strike out pleadings under r 15.1.30 But broader considerations such as convenience and overall justice may separately justify an order setting aside a third party notice.31
29 At [40]–[41].
30 Strathmore Group Ltd v Fraser (1991) 5 NZCLC 67,183 (HC) at 19; and Equiticorp Industries Group Ltd (in stat man) v Hawkins (No 4) (1992) 5 PRNZ 484 (HC) at 485. In broad terms, that test requires it be shown the claim is clearly untenable and cannot succeed. The jurisdiction is exercised sparingly: Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].
31 TSB Bank Ltd v Burgess [2013] NZHC 1228 at [37].
[40] The Court will be slow to enter into a close examination of contentious evidence in determining an application to set aside a third party notice.32 And it may be a relevant consideration going to fairness that the setting aside of the third party notice would result in a defendant being faced with a plea of limitation in any defendant-initiated separate proceeding.33
Analysis
[41]The issues to be determined in this proceeding are as follows:
(a)Is the Council’s claim against the first third party BJEL solely a claim in negligent misstatement based on the PS4, or a claim in negligence simpliciter based on duties of care owed by BJEL and Mr Jones to the plaintiffs?
(b)If the Council’s claim is in negligence simpliciter does the wording in the PS4 protect BJEL from a claim as a joint tortfeasor in negligence simpliciter?
(c)Is there a cause of action against Mr Jones personally that could succeed?
(d)In the interests of justice, should the third party notices be set aside?
Limitation defence in respect of third parties’ liability for design defects
[42] Before dealing with the questions set out at [41] above, I will deal with the submissions made by Mr Dillon in relation to the design work allegedly carried out by BJEL, and the limitation defence relating to any claim against the third parties in respect of such design work. Ms Knight, I think correctly, submitted that the third parties had not properly pleaded the limitation defence in relation to any defects in the design work allegedly carried out by BJEL, and accordingly it should not be dealt with as part of this application. As will become apparent from later in this judgment, it is
32 See, in the similar context of leave to issue third party notices, Kupe Group Ltd v Ariadne Australia Ltd (No 2) HC Auckland CL151/88, 20 April 1990 at 7–8.
33 Stevenson v National Bank of NZ Ltd [1987] 2 NZLR 331 (CA) at 8.
not necessary for me to decide any issues relating to defects in any design work allegedly carried out by BJEL and the limitation defence in relation thereto in order to deal with this application.
[43] Mr Dillon submitted that BJEL did not carry out structural design work in respect of the building, but such work was done under a sub-contract with Kevin O’Connor & Associates Ltd. There is conflicting evidence as to the extent to which BJEL was involved in the structural design work of the building.
[44] Mr Dillon submitted that in any event, to the extent that any design work was carried out by BJEL, it was completed on 12 February 2008. Therefore, a claim relating to any defects in that design work is barred by s 393 of the Building Act which prevents claims arising from building work associated with design of any building after a period of 10 years from the date on which the act or omission on which the proceedings are based.
[45] As noted at [42] above, without full pleadings and submissions of counsel in relation to a claim for design defects and the effect of s 393 of the Building Act, it is not appropriate (or necessary) for this judgment to deal with any issues relating to design defect claims against BJEL.
Is the Council’s claim against BJEL and Mr Jones based on negligent misstatement in the PS4, or a claim in negligence simpliciter based on duties of care owed by BJEL and Mr Jones to the plaintiffs?
[46] Mr Dillon submitted that the PS4 issued by BJEL is addressed exclusively to the Council and can only be relied on by the Council. He submitted that no other person can rely on it and the terms of the PS4 cannot be ignored if a claim of a duty of care in tort relies upon it.
[47] Mr Dillon relied on Hedley Byrne & Co Ltd v Heller & Partners Ltd34 and drew a distinction between negligent misstatement and negligence simpliciter. He pointed out that in Hedley Byrne v Heller, the House of Lords made it clear that the
34 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL).
treatment of negligent words must be different from treatment of negligent acts. This concept is perhaps best expressed by Lord Pearce:35
The reason for some divergence between the law of negligence in word and that of negligence in act is clear. Negligence in word creates problems different from those in negligence in act. Words are more volatile than deeds. They travel fast and far afield. They are used without being expended and take effect in combination with innumerable facts and other words. Yet they are dangerous and can cause vast financial damage. How fare they are relied on unchecked … must in many cases be a matter of doubt and difficulty. If the mere hearing or reading of words would help create proximity, there might be no limit to the persons to whom the speaker or writer could be liable. Damage by negligent acts to persons or property on the other hand is more visible and obvious; its limits are more easily defined, and it is with this damage that the earlier cases were more concerned.
[48] Mr Dillon submitted that to determine whether there is a duty of care by the maker of a negligent misstatement to the recipient of the misstatement, this must be deduced from the surrounding circumstances of how the misstatement was made. In this case, as the PS4 contained an exclusion of liability stating that it could only be relied on by the Council, this negates any duty of care that may have been owed by BJEL to the plaintiffs. Mr Dillon cited in support of this argument the conclusions reached by various Law Lords in Hedley Byrne v Heller that in fact no duty of care was owed by the maker of the statement because it was negatived by the exemption clause. This concept is perhaps best summarised by Lord Devlin in Hedley Byrne v Heller as follows:36
I agree entirely with the reasons and conclusion on this point of my noble and learned friend, Lord Reid. A man cannot be said voluntarily to be undertaking a responsibility if at the very moment when he is said to be accepting it he declares that in fact he is not. The problem of reconciling words of exemption with the existence of a duty arises only when a party is claiming exemption from a responsibility he has already undertaken or which he is contracting to undertake.
[49] Mr Dillon then submitted that the case of Weaver v HML Nominees Ltd37 was really a case involving negligence simpliciter rather than negligent misstatement. He referred to the judgment of Associate Judge Smith at [78] and [79]. Mr Dillon submitted that Weaver was a case which depended on negligence simpliciter as well
35 At 534.
36 At 533.
37 Weaver v HML Nominees Ltd, above n 21.
as negligent misstatement and accordingly is not direct authority for the imposition of liability in the present case based on negligent misstatement in the PS4.
[50] Mr Dillon also referred to the decision of Associate Judge Bell in Body Corporate 328392 v Auckland Council38 and submitted that this decision is not an endorsement of the Weaver decision.
Alleged defects A and L and Defects C and G
[51] In relation to BJEL’s liability, Mr Dillon then turned to analyse the defects in the building for which, it was common ground, BJEL and Mr Jones could be responsible for these defects A and L, and C and G in the schedule of defects in the plaintiffs’ claim. In relation to Defects A and L, relating to the deflection of the concrete slabs which caused tearing of the waterproof membrane and permitted water ingress, Mr Dillon said that:
(a)to the extent the problem was caused by a design defect, then as mentioned at [43] and [44] above, BJEL and Mr Jones did not undertake the design work. It was subcontracted to Kevin O’Connor & Associates Ltd and, in any event, any claim relating to defect design work is barred by the limitation period under the Building Act;
(b)the construction of the balconies occurred off-site with no supervision by BJEL or Mr Jones;
(c)there was no deflection observed when the slabs were installed, and this is corroborated by the applicator of the waterproof membrane to the concrete slabs, to the extent that the applicator would not reasonably have applied the waterproof membrane if there was an issue with the slabs at the time; and
38 Body Corporate 328392 v Auckland Council, above n 21.
(d)while there were packers evident at the end of the slab, these were normal construction practice and not evidence of the slabs being deformed at the time of installation.
[52] Mr Dillon also submitted that while there is conflicting evidence on the number of inspections that were required under the Building Code cl B1, there is no evidence before the Court that shows the different number of inspections led to a failure to observe any potential damage. He stated that Mr Jones made all inspections necessary before any concrete was poured.
Alleged defects C and G
[53] Mr Dillion submitted in relation to these defects, which related to the coating of structural steel used in the building, that:
(a)The PS4 did not speak to the coatings of the structural steel used in the building. Structural steel coatings are part of B2 (durability) and not part of B1 (stability) in relation to the Building Code inspection. Mr Dillon further submitted that it was clear to the Council that the coatings were not part of BJEL’s monitoring obligations due to correspondence between BJEL and the Council.39 In particular, Mr Dillon pointed to an email to the Council dated 5 May 2010 which he said makes it clear that the PS4 did not speak to the protective coatings of exposed steel.
(b)The Council did not rely on the PS4 in respect of structural steel coatings. The Council sought and relied on other certifications, being certifications from the manufacturer, the applicator, and the technical specialist. If the Council did not rely on the PS4 in relation to the structural steel coatings, then no duty of care on the part of BJEL to the Council could arise.
39 Affidavit of Brian Allan Jones, above n 4, at [25].
(c)To the extent the PS4 could be regarded as speaking to the paint coatings, then BJEL was only required to believe on reasonable grounds that the coatings were properly applied. Reliance on the certifications of the manufacturer, the applicator and the technical specialist by BJEL was entirely reasonable.
(d)The plaintiff has claimed directly against the manufacturer and the applicator of the paint coating in its claim and has not claimed against the third parties in relation to these coatings.
[54] Ms Knight submitted that the claim by the Council against BJEL is not based in negligent misstatement but in negligence simpliciter. She submitted Hedley Byrne v Heller is not relevant as the Council’s claim against the third parties is not a negligent misstatement claim. She submits that it is established that those involved in building work in New Zealand owe duties of care to future owners of the property, citing Bowen v Paramount Builders (Hamilton) Ltd.40 She submits the Council’s claim for contribution against the third parties is based on a duty of care that the third parties owed to the plaintiffs in carrying out work in respect of the building. In support of the Council’s claim in negligence simpliciter, she cited the authorities of Weaver v HML Nominees Ltd41 and Body Corporate 328392 v Auckland Council.42
[55] Ms Knight referred the Court to the passage from the Weaver decision where Associate Judge Smith said:43
On the face of it, it may seem strange that the same act could form the basis of both torts, especially in circumstances where there is no reliance by, or special relationship with, the plaintiffs. But as Chambers J noted in the passage quoted from Taylor, a builder’s liability in negligence does not turn on assumption of responsibility, but on ordinary principles of negligence for physical damage to property caused by faulty work or construction. It seems to me to be at least arguable that if an opinion which contains negligent advice causing a property owner damage also happens to qualify as “building work” under the 2004 Act, there should be a cause of action in negligence simpliciter (i.e. negligently performing “building work”), in addition to the cause of action in negligent mis-statement which may be available to anyone who read the Opinion and relied on it.
40 Bowen v Paramount Builders (Hamilton) Limited, above n 21.
41 Weaver v HML Nominees Ltd, above n 21.
42 Body Corporate 328392 v Auckland Council, above n 21, at [43].
43 At [79].
Ms Knight submitted that there is no dispute that the work carried out by BJEL was “building work” and therefore the statements by Associate Judge Smith are applicable to the present case and the claim of negligence simpliciter.
[56] Ms Knight submitted that BJEL and Mr Jones’ liability to the plaintiffs arises in circumstances where they ought to have known that loss to the plaintiffs was a reasonably foreseeable consequence of their negligent observation and verification of the building works as complying with cl B1 of the Building Code. BJEL and Mr Jones ought to have known that if the Council relied on a negligently issued PS4 (based on construction observations that were also negligently carried out) in issuing the Code Compliance Certificate, it could cause loss to the plaintiffs.
[57] Ms Knight then went on to distinguish the case of Turner v First Fifteen Holdings Ltd.44 In that case, the plaintiff sued its architects for breach of contract and negligence in connection with faulty construction work. The architects issued a third party notice against the engineer, claiming that there was in essence a design fault. The engineer applied to set the third party notice aside. Ms Knight pointed out that this decision could be distinguished because the architects and the engineer owe different duties to the plaintiffs under different contracts. Whereas the architects allegedly failed to supervise adequately, the engineer’s fault was in the design work. Consequently, the present case can be distinguished because in this instance the duty and breach are the same.
[58] Ms Knight also referred to the decision of Body Corporate 346799 v KNZ International Co Ltd.45 In that case the Court accepted that the owner/developer, the design-and-build contractor and the Council all shared liability for the same damage and were correctly described as concurrent tortfeasors.46
[59] Ms Knight submitted that in the case of R M Turton & Co (in liq) v Kerslake & Partners47 there was a chain of contract between the parties, and that this is distinguishable from the present case where the duty is imposed in negligence. In that
44 Turner v First Fifteen Holdings Ltd (1991) 3 PRNZ 145 (HC).
45 Body Corporate 346799 v KNZ International Co Ltd [2017] NZHC 511.
46 At [153].
47 R M Turton & Co (in liq) v Kerslake & Partners, above n 16.
case it was held that the engineer should not be regarded as having voluntarily assumed the responsibility to contractors and subcontractors.48 It was distinguished from the present case where the duty is imposed in tort, in relation to building work.
[60] Ms Knight also distinguished the case of Mammoet Shipping BV v Compter.49 She submitted that this case was not a case of joint tortfeasors, but a case of a claim in contract.50
Alleged defects A and L
[61] In response to Mr Dillon’s submission regarding the specific defects, Ms Knight made the submission set out below.
[62] As noted above, defects A and L relate to the deflection occurring between the precast concrete slabs that formed the balconies at the building. As to the potential liability of BJEL, Ms Knight pointed to the evidence of Mr Jacobs. She submitted that Mr Jacobs’ evidence is that deflection between the concrete slabs would have been observable at installation (and that it is likely further deflection would occur over time). He also states that “packers have been placed underneath the seating of the precast balcony slabs” suggesting the deflection was recognised during construction and the packers were used to minimise the deflection between the two slabs. Mr Jacobs’ opinion is that Mr Jones, when carrying out the inspection, should have seen the deflection between the concrete slabs immediately. Furthermore, because he was a qualified structural engineer, he would have known that any existing deflection would continue over time.
Alleged defects C and G
[63] As noted above, defects C and G relate to the inadequacy of the coating applied to the structural steel to protect it against corrosion and fire. BJEL and Mr Jones have said that the coating of the steelwork was not within the scope of his construction review or covered by the PS4 that he provided. He claims the PS4 was limited to
48 At [32].
49 Mammoet Shipping BV v Compter, above n 16.
50 At 9.
Building Code cl B1 (relating to stability) and the steel coatings fall within cl B2 of the Building Code (relating to durability).
[64] Ms Knight again pointed to the evidence of Mr Jacobs, in whose opinion the protective coating of the structural steel is a B1 stability issue because inadequate protection of structural steel (resulting in water damage, corrosion, and general deterioration of the steel) can compromise the long-term stability of the structure. She also pointed to Mr Jacobs’ evidence that producer statements provided by the suppliers and installers of the steel coatings contained no assurance as to the quality and the correct application of the process had been followed. In Mr Jacobs’ view, BJEL and Mr Jones should have either tested the application of the coatings themselves or requested and reviewed some sort of quality assurance documentation so that they could be satisfied that the steel coatings had been properly applied and would not undermine the structural stability of the building.
[65] There is a clear conflict of evidence between the evidence of BJEL and Mr Jones regarding the defects and that of Mr Jacobs. This factor weighs in favour of not setting aside the third party notices.
Conclusions in relation to the questions set out at [41](a) and (b)
[66] In relation to the third party notice in respect of BJEL, I am of the view that there is a reasonable argument based on the discussion of the authorities at [54] to [60] above that BJEL has a potential liability to the plaintiffs in negligence simpliciter for works carried out by BJEL in respect of the building. Accordingly, if the Council is liable to the plaintiffs in negligence for defects A, L, C and G, BJEL arguably has liability as a joint tortfeasor in respect of them.
[67] Whether BJEL’s liability in negligence can be established will require a trial. Mr Dillon canvassed reasons why BJEL should not be found liable and I have summarised these at [51] to [53] above. There is, however, the affidavit evidence of Mr Jacobs, which I summarised at [19] to [21] above. There are conflicts of evidence which need to be resolved at a trial. In my view, there is enough in the affidavit evidence of Mr Jacobs to require the matter to go to trial.
[68] Turning now to the question set out at [41(b)], Ms Knight submits that the exclusionary wording of the PS4 cannot cut across the duty of care owed to the plaintiffs. The plaintiffs have neither seen or relied on the PS4 and therefore cannot be bound by its terms. In my view, Ms Knight’s submission is correct and the terms of the PS4 do not protect BJEL from potential liability to the plaintiffs under a claim in negligence simpliciter and therefore from potential liability to the Council as a joint tortfeasor.
Is there a cause of action against Mr Jones personally that could succeed?
[69] Mr Dillon submitted that the Council cannot make a claim against Mr Jones personally because Mr Jones personally did not provide the PS4. He submitted that this is set out on the face of the document as reinforced by the special note to the document. The document itself directed the Council to who was providing the statement for all intents and purposes.
[70] Mr Dillon pointed out that the claim by the Council alleges that it is entitled to contribution and/or indemnity from Mr Jones “as a concurrent tortfeasor” pursuant to s 17(1)(c) of the Law Reform Act. Mr Dillon submitted that to be a concurrent tortfeasor, Mr Jones would have to be liable to the plaintiffs. He submitted that the PS4 prevents any such liability arising by limiting itself addressed only to the Council.
[71] In support of the argument, Mr Dillon relied on Smith v Waitakere City Council,51 citing the decision of Trevor Ivory Ltd v Anderson.52 In the Trevor Ivory decision, the Court of Appeal declined to impose personal liability in tort on Mr Ivory, who was the major shareholder and managing director of the company. The Court decided that the actions of Mr Ivory did not result in him assuming the duty of care to the plaintiffs. The position is best summarised by Cooke P:53
In this field I agree with Nourse J (as he then was) in the White Horse case that it behoves the Courts to avoid imposing on the owner of a one-man company a personal duty of care which would erode the limited liability and separate identity principles associated with the names of Salomon and Lee. Viewing the issue as one of the assumption of a duty of care, which is the way
51 Smith v Waitakere City Council 00277 WHT, 20 July 2004.
52 Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 (CA).
53 At 523.
in which Mr Fogarty for the respondents rightly asked us to view it, I cannot think it reasonable to say that Mr Ivory assumed a duty of care to the plaintiffs as if he were carrying on business on his own account and not through a company.
[72] Mr Dillon also relied on a decision in Body Corporate 183523 v Tony Tay & Associates Ltd.54 In that case, the Court found that Mr Tay had played only a minor administrative role in respect of a building development to which the claim related. Priestley J said:55
… in terms of the Ellerslie Gardens development his direct role was indeed minor. He had no part to play in TTA’s production of designs, plans and drawings. He was not involved in the detail or the minutiae of the construction. … He had no day to day involvement, oversight, or indeed corporate responsibilities during the Ellerslie Gardens construction phase.
[73] Mr Dillon also pointed out that the ancillary documents that led to the PS4 further refer to BJEL, not Mr Jones personally, issuing the statements.56
[74] Ms Knight, on the other hand, submitted that it is well-established that directors facing claims in respect of defective buildings will be exposed to liability in circumstances where the companies involved are “one-person companies” or where the director was personally involved in supervision or detailed design. She submitted that whether Mr Jones can be liable in these circumstances depends on whether he had “a sufficient degree of control over the relevant acts or omissions” that led to the plaintiffs’ loss.
[75] For this proposition Ms Knight relied on Queenstown Lakes District Council v Dent57 and Morton v Douglas Homes Ltd.58 On reviewing the decisions, it is apparent that a careful examination of the facts is necessary for the Court to decide whether the individual against whom a liability claim is made has been involved in sufficient actions which are under his control to create a duty of care to the relevant plaintiff. This issue is perhaps best expressed in Morton v Douglas Homes Ltd. In that case, Hardie Boys J held that the liability of a director, manager or employee of the company
54 Body Corporate 183523 v Tony Tay & Associates Ltd HC Auckland CIV-2004-404-4824, 30 March 2009.
55 At [147].
56 Affidavit of Brian Allan Jones, above n 4, at [10] and [14]–[17] with Exhibits “E” and “F”.
57 Queenstown Lakes District Council v Dent [2019] NZHC 2140 at [51].
58 Morton v Douglas Homes Ltd [1984] 2 NZLR 548 (HC).
turns on the degree of control the individual has over the relevant acts that are the subject of the complaint. In particular, his Honour said:59
The relevance of the degree of control which a director has over the operations of the company is that it provides a test of whether or not his personal carelessness may be likely to cause damage to a third party, so that he becomes subject to a duty of care. It is not the fact that he is a director that creates the control, but rather that 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 the company’s behalf and to those with whom the company deals in so far as that dealing is subject to his control.
[76] In the Queenstown Lakes District Council v Dent decision, Gendall J summarised the principles that emerge from the cases as follows:60
(a)The primary test for whether an individual such as Mr Crisp here is liable is whether they had a sufficient degree of control over the relevant acts or omissions resulting in the plaintiff’s loss; and
(b)A director may also be personally liable if they exercise such control over the development in a case such as the present that they then assumed responsibility for it … .
(c)Assumption of responsibility, however, is not a precondition to liability of a director as to the liability in a case such as this of a director in negligence.
[77] Applying these principles in the present instance in relation to Mr Jones, Ms Knight submitted that Mr Jones is the sole director of BJEL. More importantly, she submitted that Mr Jones is a chartered professional engineer who personally carried out the construction observation duties and signed the PS4. She submitted that despite the PS4 states that it was signed “on behalf” of BJEL, Mr Jones had a high degree of control over the relevant acts or omissions in the circumstances.
[78] Ms Knight also submitted that for the same reasons set out above, the wording of the PS4 could not limit Mr Jones’ duties to the plaintiffs. She submitted that the third parties are not able to point to any authority to support their position that the exclusion clause in the PS4 should cut across the duty of care that Mr Jones owes to the plaintiffs.
59 At 595.
60 Queenstown Lakes District Council v Dent, above n 57, at [51].
[79] I am of the view that a detailed examination at trial of the factual matrix relating to Mr Jones’ work in respect of the structural design (if that occurred) and building observation work needs to be carried out to decide the degree of control he has had over the issues which have caused the plaintiffs’ loss. The outcome of this examination will determine whether a duty of care should be imposed on Mr Jones, and whether that duty was breached, exposing him to personal liability in relation to negligence. The conflicting authorities relied on by Mr Dillon, as opposed to those relied on by Ms Knight, show the requirement to carry out a detailed review of the facts to determine liability.
[80] In my view, given that Mr Jones as a registered engineer personally carried out the observations as required for cl B1 of the Building Code and signed the PS4, there is a reasonable argument that Mr Jones has potential liability in negligence to the plaintiffs. As the defects (A, L, C and G) are the same defects for which the Council has potential liability to the plaintiffs, Mr Jones, if found negligent, would be a joint tortfeasor. As stated above, in relation to BJEL at [67], Mr Jacobs’ evidence raises a reasonable argument for potentially establishing negligence and for the matter to go to trial.
Other considerations in respect of the Court’s discretion to set aside the third party notices
[81] As noted at [39] above, in deciding whether to set aside the notices, the Court should have regard to considerations such as convenience and overall justice as between the parties.
[82] In relation to the interests of justice. Ms Knight has submitted that it is appropriate the third parties remain in the proceeding and that their involvement in the creation of the alleged structural defects in the building be considered alongside that of other parties the plaintiffs have sued. She also submits that the last relevant act or omission of the third parties currently known to the Council is the issue of the PS4 in or around November 2011. Accordingly, any fresh proceedings against the third parties would likely be met by a successful limitation defence, based on s 393 of the Building Act. In my view, this weighs in favour of the third party notices not being set aside.
Conclusion
[83] As demonstrated, there is a reasonable argument that BJEL and Mr Jones owed a duty of care to the plaintiffs in the circumstances. On that basis, the Council could be entitled to contribution from BJEL and/or Mr Jones if the Council is liable to the plaintiffs for defects for which BJEL and/or Mr Jones are also liable on the basis of BJEL and/or Mr Jones being joint tortfeasors. Accordingly, the third party notices should not be set aside. It has not been demonstrated that the causes of action against BJEL and Mr Jones are untenable.
[84] The availability of the limitation defence to BJEL and Mr Jones if fresh proceedings are instituted against them by the Council, when weighing the interests of justice as between the parties, also weighs in favour of retaining the third party notices.
Orders
[85]I make the following orders:
(a)The application by BJEL and Mr Jones for an order setting aside the third party notices is dismissed.
(b)Costs are awarded to the Council on a 2B basis.
…………………………….. Associate Judge Taylor
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