Body Corporate Number 368533
[2018] NZHC 2789
•30 October 2018
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2012-441-126 [2018] NZHC 2789
BETWEEN BODY CORPORATE NUMBER 368533
Plaintiff
AND
NAPIER CITY COUNCIL First Defendant
AND OTHERS
Second to Thirty-Fifth Defendants
Hearing: 5 October 2018 Appearances:
Mr Craig Stevens and Ms Charlotte Robertson for 17th and 32nd to 35th defendants/applicants
Mr Graham Kohler QC and Mr Richard Potter for plaintiff/ respondent
Judgment:
30 October 2018
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
Introduction and issue
[1] This is an application pursuant to r 10.15 of the High Court Rules 2016 by the
17th and 32nd–35th defendants (applicants) for an order that certain questions be heard and determined before the substantive trial.
[2] It is opposed by the plaintiff (respondent). The first defendant and the seventh and eighth defendants also oppose the application, but they elected not to participate in the hearing. The first defendant, Napier City Council, contented itself with filing a notice of opposition and a memorandum outlining the basis for its opposition. The seventh and eighth defendants, Lattey Civil Engineers and Mr Hugh Lattey, also filed
a notice of opposition. Their solicitors then emailed the Registry indicating that that
BODY CORPORATE NUMBER 368533 v NAPIER CITY COUNCIL [2018] NZHC 2789 [30 October 2018]
document contained everything they wished to say. It is appropriate to say at this stage that I have had regard to the Council’s notice of opposition and memorandum and to the notice of opposition filed and served by the seventh and eighth defendants. I do not think these covered any ground not covered by Mr Kohler for the plaintiff. As a result, it will not be necessary to refer further to them.
[3] This is a complex case involving a multitude of parties. The plaintiff, the body corporate that owns the common area and is the assignee of the claims of the unit title holders, sues the Council and 34 other parties in connection with alleged defects in the multi-unit residential complex known as West Quay in Napier. Third parties have also been joined.
[4] The sixth defendant, Holmes Structures Ltd, is a firm of consulting engineers. It was engaged to provide engineering input into the design and build of the complex. In its pleadings, the plaintiff alleges that the sixth defendant was negligent in doing so and that its negligence was causative of defects in the building and loss to it and the unit title holders. The plaintiff seeks damages in respect of those alleged losses.
[5] After the proceeding was commenced the plaintiff became aware that the sixth defendant had ceased trading. It also learned that it had held insurance which might respond to the claim against it. Pursuant to s 9 of the Law Reform Act 1936 it sought
leave to pursue a claim against the 17th defendant, Dual New Zealand Ltd, which the plaintiff understood to be the sixth defendant’s insurer. Associate Judge Smith granted such leave in a comprehensive interlocutory judgment dated 30 June 2016.
[6] As it transpired, the 17th defendant was a mere agent, the underwriters being the 32nd–35th defendants, four Lloyds syndicates, Arch Underwriting at Lloyds Ltd, Barbican Managing Agency Ltd, Hiscox Syndicates Ltd and Liberty Managing Agency Ltd, who, it is said, between them, insured the sixth defendant. An application to join the underwriters followed and an order joining them was made by consent. The plaintiff’s claim against the 17th defendant is, I am told, to be abandoned. For all intents and purposes, then, the 32nd–35th defendants are the applicants here.
[7] The applicants say that there are issues arising between the plaintiff and them that, in terms of r 10.15, should be argued and disposed of prior to the substantive trial
[8] It is relevant to mention at this stage that the substantive trial is set down to commence on 11 May 2020 and that a ten-week fixture has been allocated.
[9] Rule 10.15 provides simply that in any proceeding the Court may order that any question be tried separately.
[10] By the time that this application came on for hearing, the applicants were seeking orders that two questions be determined prior to the substantive trial:
(a)Was a charge under s 9 of the Law Reform Act 1936 … created in respect of the claims in this proceeding against the sixth defendant?
(b)Is the plaintiff’s claim against the sixth defendant in the proceeding excluded by exclusion (a) of the [17th defendant’s] building defects exclusion because it alleges, arises directly or indirectly out of, or is in respect of the failure of the “weld plates” to comply with the requirements of the New Zealand Building Code, B1 or B2, or AS/NZS 2312:1994, in relation to weatherproofing or moisture?
Some general principles
[11] It is common ground that:
(a) rule 10.15 confers a broad discretion on the Court;1
(b)its purpose is to expedite proceedings by limiting or defining the scope of the trial in advance or obviating the need for a trial altogether;2
(c)the Court will approach applications under r 10.15 having regard not only to the interests of the applicant or applicants and the respondent or respondents, but also to those of the other parties involved it the proceeding;3
1 Turners and Growers Ltd v Zespri Group Ltd HC Auckland CIV-2009-404-4392, 5 May 2010 at [9].
2 Imes v Ewing (1986) 4 PRNZ 10 (HC) at 18.
3 Turners and Growers Ltd v Zespri Group Ltd, above n 1, at [9].
(d)the starting point is an assumption that all matters in issue in any litigation are to be determined at one trial;4 and
(e)the applicant for an order under the rule bears the burden of establishing that that starting point should be departed from.5
[12] In Turners and Growers Ltd v Zespri Group Ltd, the High Court identified the main criteria that had been taken into account in the cases as follows:6
(a) the likelihood of delay in finally resolving the proceeding;
(b) the probable length of the hearing if there is a split trial;
(c) whether a decision one way or the other on the separate question(s)
would end the litigation;
(d) the impact on the length of any subsequent hearing;
(e)a balancing of the advantages to the parties and the public interest in shortening litigation against any disadvantages asserted by parties opposing a split trial.
(f)demarcation difficulties in defining issues to be addressed at the first trial, and those left for the second;
(g) resulting difficulties of issue estoppel;
(h)inadvertent disqualification of a judge who expressed views at the first trial on matters for decision at the second trial;
(i)inadvertent findings at the first trial upon matters that are for full evidence and argument at the second hearing;
4 At [10].
5 At [10].
6 At [11].
(j) the need to recall some witnesses at the second hearing;
(k)the duplication of time involved in the Court and counsel “coming up to speed” again for the second hearing;
(l) the prospect of multiple appeals;
(m) the need for a second round of discovery or other interlocutories and amended pleadings following the first trial; and
(n)rostering difficulties in ensuring that the same judge is available for the second hearing.
[13] In Haddon v Attorney-General, Kós J sought to develop a more manageable approach by positing five questions to be asked in determining applications under the r 10.15:7
(a)Will there be difficult demarcation questions between those issues to be addressed at the first trial and those left for the second?
(b) Will the proceedings be brought to an end?
(c) What potential timesaving does the separate question offer?
(d) How will appeals be dealt with?
(e)Are there any other practical considerations tending one way or the other?
[14] Finally, the law reports are replete with warnings about the dangers of departing from the principle that all matters in issue should be determined at the same time. As an example of these, in Windsor Refrigerator Co Ltd v Branch Nominees Ltd, Lord Evershed MR said:8
7 Hadden v Attorney-General (2011) 22 PRNZ 1 (HC) at [50].
8 Windsor Refrigerator Co Ltd v Branch Nominees Ltd [1951] Ch 375 (CA) at 396.
[T]he course which this matter has taken emphasises, as clearly as any case in my experience has emphasised, the extreme unwisdom – save in very exceptional cases – of adopting this procedure of preliminary issues. My experience has taught me (and this case emphasises the teaching) that the shortest cut so attempted inevitably turns out to be the longest way round.
The competing arguments
[15] Mr Stevens’ argument in support of the application relating to the first question was not complicated.
[16] He submitted that if the applicants were able to establish that:
(a)under s 9 of the Law Reform Act 1936 the charge comes into existence upon the reasonable discoverability of the event giving rise to the claim;
(b)such a charge can only apply in respect of a policy of insurance that existed at the time of the event; and
(c)the event here was reasonably discoverable at a time that the policy relied on by the plaintiff was not in force;
then that would be an end of the plaintiff’s claim against the (17th and) 32-35th defendants. As Mr Stevens put it, that would “get rid of [those defendants] as parties from a 10 week hearing in 19 months’ time”.
[17] Mr Stevens’ emphasis on the word “parties” is because, whilst the underwriters’ declinature of a claim by Homes Structures Ltd (the sixth defendant) and its employees (the 19th, 20th and 21st defendants) is apparently unchallenged, the 27th defendant, Homes Fire and Safety Ltd9, has made a claim against the same underwriters, which, at least for the purposes of determining this interlocutory application, I am assuming has been accepted so that the underwriters will be involved in the litigation in that capacity.
9 It should be noted that this former company was struck from the register some years ago. The plaintiff has applied for an order restoring it to the register. For present purposes, though, its legal status can be put to one side.
[18] Quite rightly Mr Stevens cautioned me against setting out to determine the merits of the argument that the applicants wish to run, which, as he submitted, is not before the Court at this stage. “The issue for today” he submitted “is that the plaintiff is trying to deny [the underwriters] the opportunity to even argue the s 9 question ahead of a 2020 10-week trial – the implication is so as to hold deep pocket defendants in for the 10 weeks in a claim against a raft of consultants/tradespeople, their employees and the Council”. The first part of that sentence is undoubtedly correct, though I do not draw the inference imputed to the plaintiff in the second.
[19] Turning to the second question, Mr Stevens categorised this as a legal issue, albeit “one informed by the facts – ie are rust and moisture different things?”
[20] His contention was that the essential issue was whether the rusting of the weld plates was a defect that was excluded by the relevant exclusion clause in the sixth defendant’s professional indemnity policy.
[21] He submitted that there is “a high degree of agreement between the parties on the relevant facts (confirmed in Associate Judge Smith’s judgment dated 30 June
2016)”. His submission was that the disposal of this issue would not involve a major evidential exercise.
[22] In relation to both issues, Mr Stevens contended that they were discrete and readily severable from all the other matters that would arise at trial.
[23] Referring to the Haddon v Attorney-General factors, he submitted that there were no or minimal difficulties with demarcation between the issues that the applicant wishes to argue as preliminary points and the issues that would remain for trial if the applicants were to be successful. Whilst accepting that even if the applicants were successful, that would not bring the proceeding to an end, he emphasised that it would at least bring the direct claims pursuant to s 9 of the Law Reform Act against the (17th and) 32-35th defendants to an end, meaning that those parties would no longer be involved as defendants in their own rights. He submitted that if there were to be an appeal, or even two appeals, these were capable of being disposed of prior to the trial
scheduled to commence on 11 May 2020. Finally, he submitted that there were no other obvious practical difficulties.
[24] For the plaintiff, Mr Kohler began by emphasising the centrality of the plaintiff’s claim against the sixth defendant (and by implication its employees who are also named defendants). He described the sixth defendant as “the engineer for the unit title development … responsible for all building elements …”. He also emphasised the independent claims against the 26th and 27th defendants (Homes Fire and Safety Ltd, and its employee, Mr Kevin Irwin).
[25] Mr Kohler then canvassed the principles governing applications such as this, to which I have already referred, and summarised the plaintiff’s contention in these terms:
The questions raise issues that affect whether the Body Corporate can bring a claim against the 32nd–35th defendants under s 9 of the Law Reform Act 1936 for defects in the construction of the Structural Elements and defects in the coating of those elements.
A separate hearing for the Questions should not be ordered because (as discussed further below):
Demarcation between the issues to be determined at that hearing and the substantive hearing will be difficult;
Demarcation of the Questions will not resolve any of the claims against the current defendants;
A separate questions hearing will not result in any time saving, irrespective of the outcome.
[26] As to the first question, Mr Kohler questioned whether, as currently framed, and focused as it is on reasonable discoverability, it would determine when a charge under s 9 of the Act might be said to come into force. He contended that, in order to dispose of the issue of whether or not the plaintiff was entitled to rely on s 9 in a claim against the underwriters, it would be necessary to undertake a wider ranging analysis. Mr Kohler added that, even as framed, the issue of when the Body Corporate knew or ought to have known of the defects was not a straightforward one and would necessitate the calling of detailed factual and expert evidence from a number of witnesses.
[27] Turning to the second question, Mr Kohler said that the plaintiff did not accept that there was a large measure of agreement between the parties as to the facts which would need to be resolved. His submission was that in order to resolve this question the parties would need to call all relevant factual and expert evidence and that this would be highly contentious.
[28] On those bases, Mr Kohler resisted the application primarily on the basis that a separate hearing would generate duplication of effort and be wasteful of resources. He expressly denied that the plaintiff was concerned to keep the underwriters involved for tactical reasons associated with settlement.
Discussion
[29] Whilst accepting Mr Stevens’ submission that it is not for the Court in the context of this interlocutory application to embark upon an exhaustive examination of the merits of the argument that the underwriters seek to run, in my view, it is certainly relevant to consider the way in which the questions are framed.
[30] In relation to this I have reservations about whether the correct enquiry, for the purposes of determining whether the Body Corporate has a claim pursuant to s 9 against the underwriters, is the reasonable discoverability of the defects. I reach no conclusions as to this. I raise it only to identify my concern that the issue as framed may not in fact resolve the underlying issue as between the Body Corporate and the underwriters and therefore whether an order for a separate trial of this issue may in the end result in the expansion of that issue and to further difficulties.
[31] Putting that to one side, I am inclined to agree with Mr Kohler that, even as framed, this question would require all factual and expert witnesses to give evidence and would not be a confined issue.
[32] Having regard to those factors, my assessment is that if the Court were to order that the first question be litigated prior to trial there is every possibility that the plaintiff and the underwriters (and any other parties that chose to engage in the preliminary hearing) would find themselves effectively addressing the factual and legal basis for the plaintiff’s claim against the sixth defendant and in doing so calling the evidence
— factual and expert — that would need to be called at trial and developing all of the arguments involved, much of which may have to be repeated in the substantive trial.
[33] For only slightly different reasons, I have similar concerns relating to the second question. Obviously, the issue of whether the claim made by the plaintiff against the 6th defendant is one that is outside the scope of the latter’s insurance cover with the underwriters is not an issue that can be determined without reference to the factual circumstances. At one level, it might be said that those factual circumstances are set out in the plaintiff’s pleading against the 6th defendant. However, as the argument unfolded, it became increasingly obvious that this is not a situation in which the Court could simply rely on the pleading. It will necessitate a close examination of the facts.
[34] The argument is a comparatively technical one. The exclusion relates to moisture damage. A component of the plaintiff’s claim against the 6th defendant is that it did not take steps to guard against the weld plates being adversely affected by moisture.
[35] Putting the point in lay terms (as I must, having not had the benefit of any expert evidence) it would seem that the issue is likely to be whether an exclusion clause relating to water ingress and consequential moisture damage excludes a claim in respect of the rusting of weld plates on the outside of the building.
[36] In my judgment, the proper examination of that issue in the context of a preliminary hearing would inevitably involve the calling of detailed factual and expert evidence and submissions as to the application or otherwise of the exclusion clause.
[37] Against that background, I approach the Haddon v Attorney-General factors:
(a) My judgment is that there are real demarcation questions in this case.
Indeed, the view I have reached is that there are no bright lines between the factual and expert evidence, and the legal submissions, necessary to dispose of either of the proposed questions and the factual and expert evidence that will be called at trial. Certainly I accept, as Mr Steven’s
urged on me, that the legal questions raised will be somewhat different, but the differences are likely to be in terms of degree and emphasis rather than substance. On balance, my view is that there will a substantial amount of repetition of both evidence and submissions should these two questions be litigated prior to trial.
(b)Certainly the proceeding will not be bought to an end by the resolution of these questions prior to trial. Mr Stevens did not suggest that it would be. However, as he submits, were the underwriters to be successful in the argument they wish to run then the impact would be that it would remove four defendants (I do not include the 17th defendant as it is unlikely to feature in the litigation in any event).
(c)In my view, the practical impact on the litigation of the removal of the underwriters will be minimal. The matter would proceed to trial with
31 (or 30) defendants rather than 35. Whilst that may result in some reduction in the evidence and perhaps a somewhat greater reduction in the ground that counsel would need to cover, I cannot see that it would make a material difference to the length of the trial.
(d)Mr Stevens may be correct that as the substantive trial is not scheduled to commence until 11 May 2020, there is sufficient time to deal with one or two appeals, though that is speculative and risky in my view. In any event, what is of more concern to me is that that process would divert attention and resources from preparation for trial;
(e) I think there are other practical considerations here:
(i)first, there is the point that Mr Kohler makes that as the same underwriters insure the 26th defendant, they will in any event be engaged in the litigation. As Mr Stevens says, engagement as parties is a different matter from engagement by underwriters exercising their power of subrogation. Nevertheless, the fact remains that these underwriters will have an interest in the
outcome of the litigation and some – no doubt – level of involvement. Accordingly, any order I may make at this stage would not remove them altogether from its ambit;
(ii) second, as was said in Turners and Growers Ltd v Zespri Group Ltd,10 although only the plaintiff and the underwriters have taken sufficient interest in this application to involve themselves in the hearing, I must have regard to the interests of all of the parties in the proceeding. The first defendant and the seventh and eighth defendants have at least signalled their opposition to the underwriters’ application. Insofar as they and the other defendants and third parties are concerned, my sense is that they are entitled to expect the plaintiff and the underwriters, and for that matter the first defendant and the seventh and eighth defendants, to focus their attention and resources on getting this matter to trial and having all issues between the parties disposed of. A preliminary hearing would be a significant distraction;
(iii) third, whether the factual and expert evidence called in relation to these two issues at a preliminary trial would cover the full range of material that would be called on corresponding issues at the trial or not, there is, it appears to me, some inherent danger in the Court reaching a determination in relation to those issues, which might present difficulties for the trial judge when he or she came to address the same points. Whether this issue is framed as one of res judicata, issue estoppel or anything else, is less important than the potential difficulties involved;
(iv) fourth, there must, I think, be some risk that if the judge assigned to this case were to deal with these issues as preliminary matters, he or she might ultimately become disqualified — for reasons which it would be fruitless to
10 Turners and Growers Ltd v Zespri Group Ltd, above n 1, at [10].
speculate about here — from dealing with the trial, which would result in a waste of judicial and other resources;
(v)fifth, the issues involved are sufficiently complex in my view that the Court, counsel and witnesses would all have to devote substantial resources to preparation for a preliminary hearing, and inevitably there would be some duplication of effort for the trial.
[38] For all of those reasons, I have come to the view that the wisest course is to decline this application and to direct that all matters be litigated in one hearing. In the end, my view is that that course would be most conducive to the appropriate use of the Court’s resources and those of the parties (in which I include not only the parties to this application but all the parties to the substantive litigation).
[39] The application is declined.
[40] I did not hear the parties as to costs. I would expect counsel to resolve any costs issues that arise. In case it assists I indicate that my preliminary view is that the plaintiff is entitled to its costs on a 2B basis. If costs cannot be resolved, counsel may come back by memorandum and I will deal with them on the papers.
Associate Judge Johnston
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