Body Corporate 76712 v Thompson Wentworth Limited

[2021] NZHC 693

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2019-409-000397

[2021] NZHC 693

BETWEEN

BODY CORPORATE 76712

Plaintiff

AND

THOMPSON WENTWORTH LIMITED

First Defendant

AND

A FERGUSON

Second Defendant

Hearing:

19 March 2021

Appearances:

S J Jamieson and J A Higby for Plaintiff

W J Hamilton and M J Claughton for Defendants

Judgment:

31 March 2021

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 31 March 2021 at 10.00 am pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

BODY CORPORATE 76712 v THOMPSON WENTWORTH LTD [2021] NZHC 693 [31 March 2021]

The application

[1]    The defendants applied under r 4.4 of the High Court Rules 2016 to join several third parties. They do not now pursue the application except in relation to Peter Donald Smith (Mr Smith). The plaintiff opposes the application.

Background

[2]    The plaintiff is a body corporate under the Unit Titles Act 2010 comprising the owners of commercial units and common property at 44-46 Clarence Street, Addington, Christchurch (the property).

[3]Mr Smith, via a partnership, owns two of the units in the property.

[4]    The first defendant carries on business as a property and corporate body manager.

[5]    The second defendant (Mr Ferguson) was, at material times, an employee of the first defendant.

[6]The property suffered damage in the February 2011 Christchurch earthquake.

[7]    In August 2012, the plaintiff engaged the first defendant to provide it with body corporate management services. The plaintiff pleads Mr Smith accepted the first defendant’s proposal to provide those services on behalf of the plaintiff.

[8]    The plaintiff’s claim relates to the settlement of its insurance claim following the February 2011 earthquake. The insurance claim had been notified to the plaintiff’s insurer, Zurich Australian Insurance Ltd (Zurich), in May 2011. Zurich’s settlement offer was accepted by Mr Ferguson on behalf of the plaintiff in June 2013 and a settlement agreement was signed by him in September 2013. Zurich paid the agreed settlement sum. Broadly, the plaintiff says the settlement sum is insufficient to repair the property and Mr Ferguson signed the settlement agreement without its knowledge or authority.

[9]    The defendants deny liability and there is a significant difference between them as to the repair work required and the cost of that work.

[10]   Whether, and for which periods, Mr Smith was authorised to act as the plaintiff’s agent in the management and settlement of the insurance claim, the extent of his involvement and, whether he authorised Mr Ferguson to accept Zurich’s settlement offer on the plaintiff’s behalf, are all in issue.

[11]   The defendants say Mr Smith was the plaintiff’s Secretary until March 2013, was authorised to deal with third parties on its behalf and was responsible for managing the insurance claim from the outset. Among other things, it is said he:

(a)had his staff member notify the claim to the plaintiff’s broker;

(b)arranged for Mr Lewis, an engineer, to inspect the property and prepare a report to support the insurance claim;

(c)received Mr Lewis’ engineering report on 23 August 2011;

(d)sent Mr Lewis’ report to Zurich, via its loss adjusters;

(e)asked Mr Lewis about the %NBS of the property;

(g)asked Mr Lewis to complete a DEE for the property;

(h)was the approved contact person for Zurich until 18 October 2012;

(i)corresponded with Mr Ferguson concerning the insurance claim; and

(j)authorised Mr Ferguson to accept Zurich’s settlement offer and sign the settlement agreement on behalf of the plaintiff.

[12]   The plaintiff filed this proceeding in July 2019. The defendants were initially represented by other solicitors; Chapman Tripp was instructed in February/March 2020. Since then:

(a)the plaintiff provided discovery on 24 June 2020;

(b)the first defendant provided discovery on 30 June 2020;

(c)in September 2020, the plaintiff filed an amended statement of claim increasing  the  quantum  of  the  claim  from  an  indicative  figure  of

$401,000 to more than $2.4m;

(d)in October 2020 the defendants served a statement of defence to the amended claim, and an engineering report and repair costing from Maynard Marks; and

(e)dates for a judicial settlement conference have been allocated but vacated at the parties’ request.

[13]   Mr Hamilton took me through correspondence between the parties’ solicitors that bear upon this application, which I set out below:

(a)On 12 October 2020, the plaintiff’s solicitors requested particulars of certain matters in the defendants’ statement of defence, including “how Mr Smith “purported” to be acting for the Body Corporate”;

(b)By letter dated 4 November 2020, the defendants provided particulars, and asked whether the Body Corporate would suggest that Mr Smith was not authorised to deal with Mr Ferguson on its behalf;

(c)On 2 December 2020, the plaintiff’s solicitors answered that question by stating:

Mr Smith served as the Body Corporate’s secretary prior to the engagement of your clients, following which he resigned from this role. Following that engagement, your clients had an obligation to report to the Body Corporate as a whole, not just Mr Smith.

(d)On 28 January 2021, Counsel sought further clarification regarding Mr Smith’s authority and advised that the plaintiff’s position might raise issues of personal liability for Mr Smith;

(e)On 16 February 2021, the defendants Counsel again asked for confirmation of the plaintiff’s position regarding Mr Smith’s authority; and

(f)Later that day the plaintiff’s solicitor responded by email stating (among other things):

If you think that the matters you have set out at your paragraph 11 create an agency relationship between  the  Body  Corporate  and  Mr Smith, such that he owed the duties to the Body Corporate that you set out, then we suggest you will need to bring an application for leave to join Mr Smith as a third party … Mr Smith no longer had authority shortly after the Body Corporate had engaged Thompson Wentworth to provide those services ...

Legal principles

[14]   The defendants require leave to join a third party under r 4.4(2)(b) of the High Court Rules.

[15]   Rule 4.4(1) provides that a defendant may issue a third party notice if it claims any or all of the following:

(a)that the defendant is entitled to a contribution or an indemnity from a person who is not a party to the proceeding (a third party):

(b)that the defendant is entitled to relief or a remedy relating to, or connected with, the subject matter of the proceeding from a third party and the relief or remedy is substantially the same as that claimed by the plaintiff against the defendant:

(c)that a question or issue in the proceeding ought to be determined not only between the plaintiff and the defendant but also between—

(i)the plaintiff, the defendant, and the third party; or

(ii)the defendant and the third party; or

(iii)the plaintiff and the third party:

(d)that there is a question or an issue between the defendant and the third party relating to, or connected with, the subject matter of the proceeding that is substantially the same as a question or an issue arising between the plaintiff and the defendant.

[16]   Rule 4.8 provides that on an application for leave, the Court must have regard to all relevant circumstances, including delay to the plaintiff.

[17]The Court may grant leave to join a third party on terms.1

[18]   As I have noted previously,2 underlying applications to join third parties is the principle that all persons potentially responsible for a loss should be parties and present in the same action and at the same trial. The principle is supported by the two main considerations of practicality and justice. The latter is the overarching consideration. In Turpin v Direct Transport Ltd Cooke J observed, “[u]ltimately the determining considerations seems [sic] to be to me the requirements of justice to all parties and a reasonably speedy and convenient resolution of all the issues.”3

[19]   Mr Hamilton referred, and I accept, the principles expressed by Associate Judge Osborne in Westwood Group Holdings Ltd v Rilean Construction (South Island)

Ltd as follows:4

(a)The defendant’s claim against the third party must be covered by one of the four grounds set out in r 4.4(1). A defendant may join the third party as of right within the time limit set down in r 4.4(2)(a). An application  outside  this  time  limit  requires  leave  of  the  Court  (r 4.4(2)(b)).

(b)Where leave is sought, the Court must consider firstly whether one of the grounds in r 4.4(1) exists and secondly whether to exercise its discretion to join the third party: ANZ Banking Group (NZ) Ltd v Dairy Containers Ltd (CA156/92, 17 December 1992).

(c)In exercising its discretion, the Court must have regard to all relevant circumstances, including delay to the plaintiff (r 4.8).

(d)The interest of justice between all parties, however, is paramount. While any delay to the plaintiff is regrettable, the attainment of justice by the most efficient means is an overriding consideration: KPMG Peat Marwick v Cory-Wright & Salmon Ltd (in rec and liq) (CA77/94, 20 May 1994).

(e)Where the defendant has not been guilty of unreasonable delay, a factor in favour of exercising the discretion will be whether the defendant could have joined the third party as of right if it had applied

1      High Court Rules 2016, r 4.8(2).

2      Penley Ltd v Attorney General [2020] NZHC 2601.

3      Turpin v Direct Transport Ltd [1975] 2 NZLR 172 (SC) at 176.

4      Westwood Group Holdings Ltd v Rilean Construction (South Island) Ltd [2013] NZHC 1739 at [15].

within the time limit: ANZ Banking Group (NZ) Ltd v Dairy Containers Ltd.

(f)Equally, unexplained or unacceptable delay by the defendant may result in leave being refused: Meroiti v National Australia Finance Ltd (CA128/90, 6 December 1990).

(g)In cases of serious delay that risk prejudicing the plaintiff, the court may be prepared to make an order for joinder on conditions designed to preserve the hearing date for the plaintiff’s claim against the defendant: Total Air Supply Company Ltd v Total Air Supply Company (2007) Ltd (HC Auckland CIV-2008-404-7627, 10 January 2011).

(h)Avoiding duplicity of proceedings and preventing the same question being tried with different results militate in favour of allowing the application. The overriding purpose of the third party rules is to enable all the issues to be dealt with in one action: Turpin v Direct Transport Ltd ([1975] 2 NZLR 172 (SC)).

(i)There is, however, a need to strike a balance between all the parties’ interests. The extent to which the plaintiff is necessarily involved in the issues between the defendant and the third party is a consideration. Equally, it can be oppressive and unjust to involve a third party in a proceeding where much of the proceeding will not involve that third party.

(j)The Court may have regard to the relative strengths and weaknesses of the parties’ cases, including the case against the proposed third party and the likelihood of recovery: Dairy Containers Ltd v NZI Bank Ltd ([1993] 1 NZLR 160 (HC) at 167).

[20]   Further, if a prima facie case is made bringing the application within r 4.4(1), the Court should not investigate disputed facts.5 Factual allegations will be presumed capable of proof.6

Discussion

The threshold

[21]   The defendants have filed a draft statement of claim against Mr Smith. They submit the grounds in r 4.4(1)(a), (c) and (d) are engaged. I do not need to dwell on this issue. Ms Jamieson accepts, subject to the Court being satisfied there is a prima facie case for the assertions made against Mr Smith, the defendants can make out at least one of the grounds under r 4.4(1).

5      Kupe Group Ltd v Ariadne Australia Ltd (No 2) HC Auckland CL151/88, 20 April 1990.

6      Just Sounds Ltd v Watt HC Auckland CP506/97, 12 November 1998.

[22]   I have reservations as to the application of r 4.4(1)(a). I am, however, satisfied that at least r 4.4(1)(c)(ii) is engaged. There are issues arising in the proceeding as between the plaintiff and the defendants which should also be determined between the defendants and Mr Smith. This arises in the following way.

[23]   By way of defence to the plaintiff’s claim, the defendants say Mr Smith, acting as the agent of the plaintiff, authorised Mr Ferguson to accept Zurich’s settlement offer. The plaintiff’s position is that Mr Smith did not authorise Mr Ferguson to accept the offer and had no authority from the plaintiff to do so. In their draft statement of claim against Mr Smith, the defendants plead if Mr Smith did not have authority (as the plaintiff contends) then he breached an implied warrant of authority to the defendants that will sound in damages.7  The issues of whether Mr Smith directed  Mr Ferguson to accept Zurich’s settlement offer and, if so, whether Mr Smith had authority as the plaintiff’s agent to do so therefore arise as substantive issues both as between the plaintiff and the defendants and as between the defendants and Mr Smith.

The prima facie case

[24]   Ms Jamieson argues that the defendants have not made out a prima facie case to join Mr Smith. Their  position,  she  says,  relies  upon  bald  assertions  against Mr Smith without supporting evidence. She refers to Kupe Group Ltd v Ariadne Australian Ltd (No 2) where Barker J said, in relation to an application to join third parties:8

The Court should not investigate disputed facts of a third party joinder application, if a prima facie case has been made out to bring the proposed third party notice within the scope of the Rule.

[25]   In Kupe the judgment records there were two days of hearing involving painstaking analysis of affidavit evidence concerning whether the proposed claims were genuine and should or should not be allowed to proceed. Here, Ms Jamieson contends, there is no affidavit evidence of Mr Ferguson and no documentary evidence

7      Peter Watts and FMB Reynolds Bowstead and Reynolds on Agency (21st ed, Thomson Reuters,

London, 2018) at

[9-060].

8      Kupe Group Ltd v Ariadne Australian Ltd (No 2), above n 5, at 7.

to support the allegation that Mr Smith authorised acceptance of the Zurich’s settlement offer. She says the suggestion that Mr Smith authorised the settlement was asserted by Mr Ferguson in his original statement of defence but only subsequently adopted by the first defendant in watered-down terms. She contends the high watermark of the defendants’ submissions is only that the allegations are “plausible” based on the fact that Mr Ferguson was a professional body corporate manager who had nothing to gain from accepting the settlement.

[26]   I do not accept Ms Jamieson’s submission. Mr Ferguson’s position has always been he was authorised by Mr Smith to accept Zurich’s settlement. Particulars of the circumstances under which Mr Smith is said to have done so have been provided by the defendants. It cannot seriously be contended this will not be Mr Ferguson’s position at trial. There is also much in the plaintiff’s amended statement of claim touching upon Mr Smith’s dealings as agent of the plaintiff, his dealings with the defendants and his role in the management of the insurance claim. There are also documents before me, including correspondence between Mr Smith and Mr Ferguson concerning the settlement offer. I am satisfied the defendants have made out a prima facie case for the allegations they are making.

[27]   I note also that in Kupe Barker J was of the view the Court should not investigate disputed facts on a third party joinder application. Furthermore, the suggestion here is an absence of documents to support the allegation that Mr Smith authorised settlement of the insurance claim. This has parallels with Kupe where Barker J said:9

I indicate, without having heard cross-examination, there is much to be said for the submission of counsel for Kupe that it strains belief there would be no written record of a transaction involving half a billion dollars. However, it is clear that I cannot adjudicate on the allegation at this stage. Subject to considerations relating to the exercise of discretion, there is a sufficient prima facie cause of action alleged against these proposed third parties.

9      At 9.

The discretion

[28]   The order sought is not to be made lightly when it will expose the newly joined party to much inconvenience and cost.

[29]   On the other hand, the application recognises the benefit of having all persons potentially responsible for the loss claimed by the plaintiff before the Court in the same action.

[30]   Mr Hamilton also submits that if Mr Smith is not made a party to the claim and the Court ultimately accepts the  defendants’  position  that  Mr  Smith  authorised Mr Ferguson to accept Zurich’s settlement offer, the plaintiff might issue a separate proceeding against Mr Smith. He submits, and I accept, the risk of sequential proceedings is to be avoided.10

[31]   Ms Jamieson submits that delay in making this application is a factor which the defendants have not adequately addressed. She contends it should always have been apparent that Mr Smith’s authority would be in issue. On this basis the application should have been made sooner. Mr Hamilton says the plaintiff’s position concerning Mr Smith’s authority (or lack of it) was only confirmed in the correspondence between Counsel on 16 February 2021.

[32]   I note in the plaintiff’s  replies to the  statements  of  defence  the issue  of  Mr Smith’s authority was not put directly in issue. The same can be said about correspondence between Counsel until the 16 February 2021 email exchange. As soon as the question of Mr Smith’s authority was directly identified as a live issue the defendants made the application for leave to join Mr Smith. I consider the delay in making this application is reasonably explained.

[33]   Ms Jamieson also raises future delay as an issue. She accepts there will not be the same level of future delay caused by joining Mr Smith as there might be by joining a previously uninvolved party. Mr Hamilton argues there will not be material delay as the case is not ready to be set down for trial. Further, he says, Mr Smith is well

10     Penley Ltd v Attorney General, above n 2.

apprised of the status of the proceeding, has provided partial discovery and it will not take him long to come up to speed.

[34]   I do not think future delay is of significance in this case. If the parties were to apply for a trial date today it is unlikely they would get one before mid-2022. But they are not yet in that position. Whilst the plaintiff’s desire to move forward with the claim is perfectly understandable that can be accommodated by appropriate case management to avoid delays.

[35]   Mr Hamilton argues that granting leave to join Mr Smith may promote settlement by creating a more open dialogue and allow the parties to properly assess their risk. Ms Jamieson disputes this argument and says the real issue between the parties concerns the wide gulf between them on quantum and joining Mr Smith does nothing to resolve this.

[36]   Whether joining Mr Smith will promote settlement is a largely speculative enquiry. I expect the extent to which the interests of the plaintiff and Mr Smith ultimately diverge may be important and it is not known what further information may become available. I do not discount entirely the promotion of settlement as a relevant factor in favour of joinder.

[37]   Ultimately, I am required to weigh the competing arguments and interests of the parties and determine what is, consistent with the attainment of justice, the most efficient means of resolving the issues between the parties. For the reasons given, I consider that the balance is heavily in favour of granting leave to join Mr Smith.

Results

[38]   The defendants are granted leave pursuant to r 4.8(2) of the High Court Rules to join Mr Smith as a third party in this proceeding. The first defendant’s third party notice and statement of claim are to be filed within 10 working days and served upon Mr Smith as soon as reasonably practicable thereafter.

[39]   The defendants’ application to join the other persons/entities listed in their notice of application is dismissed.

[40]   In relation to costs, while the defendant was successful on its application to join Mr Smith, the plaintiffs opposed the joinder of other persons. Ultimately the plaintiff’s stance was vindicated as the defendants did not pursue their application other than in respect of Mr Smith. Costs shall lie where they fall.

O G Paulsen Associate Judge

Solicitors:

Tavendale and Partners, Christchurch Chapman Tripp, Christchurch