Bonney v Cottle HC Auckland CIV-2010-404-427
[2011] NZHC 1896
•24 November 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-427
BETWEEN CALVEN DENNIS BONNEY, PATRICIA ANN BONNEY, CST TRUSTEES LIMITED AND MURDOCH COURT TRUSTEE COMPANY LIMITED Plaintiffs
ANDVALERIE JOY COTTLE First Defendant
ANDJOHN GILMOUR MCLINTOCK TRADING AS JG MCLINTOCK AND ASSOCIATES
Second Defendant
ANDROBERT GERARD MEDEMBLINK Third Defendant
ANDLORETTA MARY BOLER AND ROBERT NEIL BOLER
Fourth Defendants
ANDAUCKLAND COUNCIL Fifth Defendant
ANDTONY HERON Sixth Defendant
ANDJO STANTON Seventh Defendant
ANDBRENT COTTLE Eighth Defendant
ANDJOHN BERNARD TUCKER AND HEATHER MAUREEN TUCKER Ninth Defendants
ANDROGER WILLIAM CARTWIRGHT AND DAVID STEPHEN HUGHES
Tenth Defendants
ANDBUILDING CODE CONSULTANTS LIMITED
Eleventh Defendant
BONNEY & ORS V COTTLE & ORS HC AK CIV-2010-404-427 24 November 2011
ANDMURDOCH PRICE BARRISTERS AND SOLICITORS
Twelfth Defendant
Hearing: 11 November 2011
Counsel: J P J Mackie for Plaintiffs
D J Neutze for Tenth Defendants
No appearance for other parties
Judgment: 24 November 2011 at 4:00 PM
INTERIM JUDGMENT OF JUDGE BELL
This interim judgment was delivered by me on 24 November 2011 at 4:00pm
pursuant to Rule 11.5 of the High Court Rules.
...................................
Registrar/Deputy Registrar
Solicitors:
Fortune Manning (R P Coltman/J P J Mackie), P O Box 4139 Auckland 1140, for Plaintiffs
Email: [email protected] / [email protected]
Brookfields (D Neutze/S Corlett) P O Box 240 Auckland 1140, for 10th Defendants
Email: [email protected]
Case Officer: [email protected]
[1] The plaintiffs, trustees of the Calann Trust, bought a residential property at
12 Ronaki Road, Mission Bay, Auckland as nominees under an agreement for sale and purchase made on 8 June 2004. The house suffered weathertightness defects, which the plaintiffs say they first discovered from June to December 2005. They say that the costs of fixing the defects come to $799,686.45. They are suing a number of people:
(a) the director of a company that built the house;
(b) the engineer who did the engineering design for the house; (c) the architect who designed the house;
(d)the directors of a company that carried on business as a building certifier and inspected the house;
(e) the Auckland Council as the successor of the Auckland City Council, with responsibilities under the Building Acts 1991 and 2004;
(f) two certified building inspectors; (g) a project manager;
(h) the vendors of the property, Mr and Mrs Tucker, the ninth defendants;
(i)the directors of a building inspection company engaged by the vendors, Mr Cartwright and Mr Hughes, the tenth defendants;
(j)a building inspection company the plaintiffs engaged to inspect the premises; and
(k) the lawyers who acted for them on the purchase.
Only some of the defendants are actively opposing the plaintiffs’ claims.
[2] The tenth defendants are the directors of Citywide Building Consultants (Auckland) Ltd, a building inspection company engaged by the vendors. The plaintiffs sue the tenth defendants for negligent misstatement in a company report of
31 May 2004 of a visual inspection of the premises made for the vendors. The tenth defendants wish to be removed from the proceeding. They have applied for summary judgment and strike out against the plaintiffs and against the eleventh defendant (the building inspection company the plaintiffs engaged to inspect the premises). The eleventh defendant has cross-claimed against them as concurrent tortfeasors seeking contribution under s 17 of the Law Reform Act 1936. The basis for the tenth defendants’ application is that as directors of Citywide Building Consultants (Auckland) Ltd, they cannot be held to have assumed responsibility to the plaintiffs. They rely on the decision of the Court of Appeal in Trevor Ivory Ltd v
Anderson.1
[3] The Court of Appeal’s decision in Attorney-General v Prince and Gardner2 is leading authority on the principles followed in applications to strike out for lack of a reasonable cause of action under r 15.1 of the High Court Rules. That court’s decision in Westpac Banking Corp v MM Kembla New Zealand Ltd3 is leading authority on defendants’ summary judgment applications under r 12.2. The principles set out in both cases are well-known and do not need repeating. I follow them. The only matter that requires adding is that it does not appear that one defendant can apply for summary judgment against another defendant if both are to remain defendants in the proceeding.4
[4] The tenth defendants, Roger Cartwright and David Hughes, were directors of Citywide Building Consultants (Auckland) Ltd, later known as D & B Building Services Ltd. The company went into liquidation on 21 May 2010. When trading,
the company provided pre-purchase inspections and reports as well as other services.
1 Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 (CA).
2 Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA) 267.
3 Westpac Banking Corp v MM Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).4 Lee v North Shore City Council HC Auckland CIV 2009-404-2091, 12 April 2010 at [7]-[8].
Mr Cartwright and Mr Hughes worked for the company as building inspectors. They were also shareholders.
[5] In 2004 the Tuckers, the ninth defendants, put 12 Ronaki Road on the market for sale. They listed it with land agents. There was an auction in April, but the property did not sell. Mr and Mrs Bonney were interested in buying the property. They had attended the auction in October 2003 where the Tuckers had bid successfully for the property. The Bonneys went to an open home in April 2004 and the auction where the property was passed in. The land agent arranged a private viewing at the end of May 2004. The Bonneys made an offer for the property.
[6] In May 2004 Mrs Tucker, one of the owners of 12 Ronaki Road, arranged for Citywide Building Consultants (Auckland) Ltd to carry out an inspection of the property. Mr Hughes carried out the inspection on 31 May 2004. Mrs Tucker signed the company’s terms of engagement, which include acknowledgements and disclaimers, many of which overlap:
1I acknowledge that your Property Report will be based on a visual inspection of the property using such access as is readily available and that you will not test any components in assessing the overall structural condition of the building and be subject to the conditions which appear hereafter.
2The Report will be a visual one only of the building elements, which could be seen and will not include any item that is closed in or concealed including flooring, walls, ceiling, framing, plumbing, heating, ventilation and wiring etc. Therefore Citywide Building Consultants (Auckland) Limited will be unable to report that any such part of the structure is free from defects.
3The Property Report to be given will not include the structural, electrical, plumbing or gas piping and fitting and home heating state of the premises as Citywide Building Consultants (Auckland) Limited is not qualified for this but can arrange for these areas to be inspected by those people whose qualifications enable them to do so if you expressly request the Company to do so.
4Except to the extent that the same are specifically referred to in the Report no investigation will be made by the Company of the condition and position of the underground drainage and services or of the electrical, gas and plumbing services.
5The Report and all consulting services provided by Citywide Building Services (Auckland) Limited or the Consultants employed by that firm will be provided solely for the use of the Client who
gives the instructions. Citywide Building Consultants (Auckland) Limited does not now and will not hereafter assume any responsibility to any person other than the Client who gives instructions to us under this document for any reason whatsoever including breach of contract, negligence (including negligent mis- statement) or wilful act or default of the Company or others by reason of or arising out of the provision of the Report and the consultancy services to be given. Any person, other than the Client, who uses or relies upon this Report or the matters contained in it, does so at the risk of that person.
6The Report will be completed for the specific purpose stated in the Report and no responsibilities accepted to any person including the Client in the event that the Report is used for any other purpose.
7The Report relates to the situation at the date of the preparation of the Report and is relevant to the circumstances, which prevail at the time.
8The whole or any part of the Report may not be included in any published document or circular or statement except with the prior written approval of Citywide Building Consultants (Auckland) Limited as to the form and context in which it may appear.
9No claim shall be made against the Company arising directly or indirectly upon or attributed to or in consequent of –
(a) The ingress of water into a building or structure and any physical loss or damage to the building or structure arising directly or indirectly in whole or in part from the ingress of water
(b) Rot or gradual deterioration of a building or structure arising directly or indirectly in whole or in part from the ingress of water
(c) Fungus, mould, mildew, yeast, rot or decay gradual deterioration, micro-organisms, bacteria, protozoa or any similar or like forms in any building structure or any spore or toxin produced by such fungus, mould, mildew, yeast, micro-organisms, bacteria, protozoa or any similar or like forms
(d) Any costs or expenses arising out of the abusing, testing for, monitoring, cleaning up, removing, containing, treating, detoxifying, neutralizing, remedying or disposing of or in any way responding to or assessing the effects of any of the conditions heretofore described in paragraph (c) hereof.
The failure of any building or structure to meet or conform to the requirements of the New Zealand Building Code contained in the First Schedule to the Building Regulations 1992 (or any amendment of Act in substitution thereof) in relation to:
i) External water or moisture; or
ii) Either durability or protection from external water or moisture entering that building or structure or the effects thereof.
10The Report to be given by the Company will comment on the presence of hazardous material such as asbestos, other chemicals, toxic waste and other potentially hazardous materials to the extent that it is possible to determine their presence by a superficial examination of the premises, which will not reveal hidden substances. If the Client is concerned about the presence of asbestos, other chemicals and toxic waste or other potentially hazardous materials, then a more thorough examination of the premises may be required including permission to remove certain building materials in order to examine what lies underneath. While due care will be taken to note the presence of such potentially hazardous materials as are visible upon a superficial examination of the premises, the Report will not constitute an environmental audit and a full Report on potentially hazardous service materials could not be undertaken without additional work and research being carried out with the consent of the Client and with additional costs to the Client.
11 The Report is furnished subject to the provisions of the Consumer Guarantees Act 1993 and to the limitations contained therein relating to services supplied to a consumer. Unless this Report is acquired for the purposes of a Business as defined in the Consumer Guarantees Act 1993 (in which case the guarantees contained in that Act shall not apply) if there is any inconsistency between the provisions of the Consumer Guarantees Act 1993 shall prevail.
12The written Report of the Company shall constitute the whole of the Report of the Company and no oral or verbal comments shall be considered to be part of the Report of the Company to the Client.
13The Report will relate to the condition of the property at the date of inspection and no assumption should be made that the Report will remain accurate on future dates.
14No destruction, testing nor removal of fixed surfaces has been carried out. No water testing had been carried out.
15In furnishing the Report of the Company will not undertake a search of Land Information Reports or Property Information Reports or of the Certificates of Title and sub-division plans.
16 No investigation will be made of:
(a) Building height or location with regard to boundaries. (b) Land stability.
(c) Land contamination or pollution.
(d) Plumbing or drainage concealed from view.(e) The Report will not include an electrical compliance survey.
17The Memorandum contains the whole of the Contract between the parties.
18The liability of the Company shall be limited to direct loss or damage arising from proven negligence of the Company. If the Company shall be found liable to the Client (whether under the express or implied terms of this Agreement or whether in negligence or otherwise at Common Law) or shall be found liable for any loss or damage suffered by the Client arising out of or connected with the performance or failure of performance of services by the Company, then the maximum amount of that liability for pay [sic] or all of such claims shall not exceed five times the fee paid in aggregate in respect of the services provided under the contract. The liability of the Company arising from services provided by the Company whether under the express or implied terms of this Agreement or whether in negligence or otherwise at Common Law or in respect of any loss or damage suffered by the Client arising out of or in connection with the performance or failure of performance of services by the Company shall cease at the expiration of one year following the date of the Report of the Company PROVIDED HOWEVER that such liability of the Company shall continue after that date only in respect of any matter on which you have given notice of claim in writing of the Company prior to that date.
19The Report to be furnished to you and all consulting services provided by Citywide Building Consultants (Auckland) Limited or Consultants employed by the Firm will be provided solely for the use of the Client who gave the instructions. Citywide Building Consultants (Auckland) Limited will not assume any responsibility to any person other than the Client for any reason whatsoever including breach of contract, negligence (including negligent mis- statement) or wilful act of default of the Company or others by reason or of arising out of the provision of the Report to be provided by the Company or its Consultancy Services. Any person, other than the Client, who uses or relies upon the Report to be provided by the Company or the matters contained in it, will do so at the risk of that person. The Report will be completed for the specific purpose stated in the Report. No responsibility will be accepted to any person including the Client in the event that the Report is used for any other purpose.
[7] Citywide Building Consultants (Auckland) Ltd sent its report to Mrs Tucker at 12 Ronaki Road. It is dated 31 May 2004 and is eight pages long. It says that a visual inspection was undertaken in wet conditions. The report is said to provide opinion as to the current condition and to identify any matters that may require remedial works. The report refers to water penetration into bedroom one and into the laundry. It says that the owners and a waterproofing contractor are in the course of addressing the water penetration. The last page of the report contains a number of disclaimers, which correspond to clauses 3, 5, 6, 7, 8, 10 and 11 of the terms of engagement. Mr Hughes signed the last page. The author of the report is not apparent from any other page. Citywide Building Consultants (Auckland) Ltd
charged $350.00 plus GST for the report. The invoice and the terms of engagement
refer to the report as a “pre-purchase report”.
[8] Mr Bonney says that he received a copy of the report before the plaintiffs signed the agreement to buy 12 Ronaki Road on 3 June 2004. The faxed copy of the report he puts in evidence has only the first seven pages, without the disclaimers and Mr Hughes’ signature described in [7]. Mr Bonney says that the plaintiffs had been negotiating the purchase. An earlier version of the agreement for sale and purchase had a condition as to the purchasers being satisfied with a report on the building structure to be obtained from a builder of their choice. In light of the report by Citywide Building Consultants (Auckland) Ltd, this was replaced with a new condition in the agreement for sale and purchase signed by the Tuckers and the Bonneys:
The Vendors acknowledge their responsibility for all costs of repair of water leakage damage as outlined in paragraphs 5.12 and 5.26 of the Report of Citywide Building Consultants Ltd of the 31st May 2004. The Vendors undertake to use their best endeavours to have the damage professionally assessed and repairs completed to a professional standard before the date of settlement.
[9] The plaintiffs say that the house at 12 Ronaki Road had defects which should have been apparent to a reasonably competent building consultant on a visual inspection, including poorly installed parapet flashings, no weatherproofing of a balcony and unprotected penetrations in the cladding of a meter box and in a steel post on a balcony balustrade.
[10] Contrary to the defendants’ submission, the plaintiffs have a reasonable argument that the report was made to assist the Tuckers in selling 12 Ronaki Road. Mr Bonney refers to land agents’ signs at the property, indicating that it was for sale. It is arguable that Mr Hughes was aware that the property was for sale. Mrs Tucker as an owner wishing to sell the property commissioned the report. It was arguably foreseeable that she would use the report to tell potential purchasers about the property and that they would rely on information in the report. As potential purchasers the Bonneys are within the class of people who could be expected to rely on the report. The defendants say that the report was for a standard building inspection. However, that assertion is not enough to show that the plaintiffs do not
have a reasonable argument that the purpose of the report was to assist the Tuckers in the sale of the property.
[11] Contrary to the plaintiffs’ submission, the defendants have shown that Mr Cartwright was not involved in the inspection of 12 Ronaki Road or in the writing of the report. That was Mr Hughes’ work alone.
[12] Contrary to the plaintiffs’ submission, Citywide Building Consultants (Auckland) Ltd and its directors had nothing further to do with 12 Ronaki Road after the report. Mr Bonney refers to a meeting on site in early August 2004. A consultant helping the Tuckers attended. Mr Bonney speculates that that consultant was one of the directors of Citywide Building Consultants (Auckland) Ltd. In addition to the defendants’ own evidence that they did not attend that meeting there is a letter of Building Code Consultants Ltd (the eleventh defendant) dated 3 August 2004 that refers to Mr Bond, the Tuckers’ waterproofing contractor, attending the meeting.
[13] I accept the defendants’ submissions that Mr Cartwright and Mr Hughes had no direct contact with the plaintiffs and that the plaintiffs could not have been aware that it was Mr Cartwright or Mr Hughes, as opposed to employees of Citywide Building Consultants (Auckland) Ltd generally, who inspected and made the report. The version of the report the Bonneys received did not identify the inspector or the author.
[14] While the defendants base their application on Trevor Ivory Ltd v Anderson to say that they did not assume responsibility to the plaintiffs, it is helpful first to consider questions that may arise in claims among other parties: between the Tuckers and Citywide Building Consultants (Auckland) Ltd, between the Tuckers and the tenth defendants, and between the plaintiffs and Citywide Building Consultants (Auckland) Ltd.
[15] As between the Tuckers and Citywide Building Consultants (Auckland) Ltd, the Tuckers were consumers under the Consumer Guarantees Act 1993 who acquired services, an inspection and report, from Citywide Building Consultants (Auckland) Ltd. The supply of services was subject to the guarantees under the Consumer
Guarantees Act, including the guarantee as to reasonable care and skill under s 28. Under s 43, Citywide Building Consultants (Auckland) Ltd could not contract out of the Act. Clause 11 of the terms of engagement recognises this. Subject to the mandatory guarantees under the Consumer Guarantees Act, the terms of engagement are the terms of contract between the Tuckers and Citywide Building Consultants (Auckland) Ltd. Subject again to the Consumer Guarantees Act, any claim by the Tuckers for breach of contract is made under and subject to the terms of engagement, as they establish what responsibilities Citywide Building Consultants (Auckland) Ltd assumed under the contract. Similarly, any claim by the Tuckers for negligent misstatement in making the report is subject to the terms of engagement. In such cases, claims in tort and for breach of contract are usually concurrent and co-
extensive.5 Claims for negligent misstatement may be made if the defendant has
assumed responsibility for his statements. It is open to someone making a statement to disclaim responsibility, as happened in Hedley Byrne & Co Ltd v Heller & Partners Ltd.6 There Lord Reid said:7
A reasonable man, knowing that he was being trusted or that his skill and judgment were being relied on, would, I think, have three courses open to him. He could keep silent or decline to give the information or advice sought: or he could give an answer with a clear qualification that he accepted no responsibility for it or that it was given without that reflection or inquiry which a careful answer would require: or he could simply answer without any such qualification. If he chooses to adopt the last course he must, I think, be held to have accepted some responsibility for his answer being given carefully, or to have accepted a relationship with the inquirer which requires him to exercise such care as the circumstances require.
[16] Any claim by the Tuckers against the tenth defendants could not be made under the Consumer Guarantees Act (the Tuckers did not acquire services from the defendants) or in contract (Mrs Tucker’s agreement was with the company, not with the defendants). Any claim could be made only in tort. Any such tort claim would require consideration whether the directors could invoke the disclaimers in the company’s terms of engagement. Further, the Tuckers would need to show that the
defendants personally assumed responsibility to the Tuckers, notwithstanding that
5 Frost & Sutcliffe v Tuiara [2004] 1 NZLR 782 (CA) at [22].
6 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL) at 492 per Lord Reid,
504 per Lord Morris, 533 per Lord Devlin, 540 per Lord Pearce. See also Smith v Eric S Bush [1990] 1 AC 831 (HL) where disclaimers would have been effective but for the application of the Unfair Contract Terms Act 1977 (UK)
7 At 486
they were directors of Citywide Building Consultants (Auckland) Ltd. This last point requires a consideration of Trevor Ivory Ltd v Anderson.
[17] A claim by the plaintiffs against the company would be in tort for negligent misstatement in the report of 31 May 2004. Both parties summarised the ingredients of the tort:
(a) The advice is required for a purpose, particularly or generally described, which purpose is made known, either actually or inferentially, to the advisor at the time the advice is given;
(b)The advisor knows that his advice will be communicated to the advisee, either specifically or as a member of an ascertainable class, in order that it should be used by that advisee for that purpose;
(c) It is known, actually or inferentially, that the advice so communicated is likely to be acted upon by the advisee for that purpose without independent inquiry;
(d) The advice is so acted upon by the advisee to his detriment;
(e) To establish personal liability there has to have been such an assumption of responsibility as to create a special relationship with the plaintiff.
[18] In elaboration of the last proposition, Lord Oliver’s speech in Caparo
Industries Plc v Dickman8 is important guidance:
What can be deduced from the Hedley Byrne case, therefore, is that the necessary relationship between the maker of a statement or giver of advice ("the adviser") and the recipient who acts in reliance upon it ("the advisee") may typically be held to exist where (1) the advice is required for a purpose, whether particularly specified or generally described, which is made known, either actually or inferentially, to the adviser at the time when the advice is given; (2) the adviser knows, either actually or inferentially, that his advice will be communicated to the advisee, either specifically or as a member of an ascertainable class, in order that it should be used by the advisee for that
8 Caparo Industries Plc v Dickman [1990] 2 AC 605 (HL) at 638.
purpose; (3) it is known either actually or inferentially, that the advice so communicated is likely to be acted upon by the advisee for that purpose without independent inquiry, and (4) it is so acted upon by the advisee to his detriment. That is not, of course, to suggest that these conditions are either conclusive or exclusive, but merely that the actual decision in the case does not warrant any broader propositions.
[19] Where the advice may be communicated to members of an ascertainable class, there is no requirement for the advisor to know the identity of the advisee.
[20] In this case the plaintiffs have an arguable case of negligent misstatement against the company, subject to the question of the company’s disclaimers. It is arguable that the information the company gave the Tuckers in their report would be passed on to potential purchasers, who would use it when deciding whether to buy the property and in negotiating an agreement. The plaintiffs are within Lord Oliver’s ascertainable class and have an argument that they relied on the report to their detriment. While they also instructed their own building inspector (the eleventh defendant) to make a report, on a summary judgment application it is not possible to decide causation arguments along the lines that as a result of the eleventh defendant’s report the plaintiffs did not rely on the Citywide report. The plaintiffs may be able to argue that they relied on both reports.
[21] As noted above at [15], it is a proper answer to a claim for negligent misstatement that the advisor has made it clear that he does not assume responsibility for the accuracy of the advice he gives. The plaintiffs say that they were not told of the disclaimers and refer to the missing eighth page of the report which they did not receive. When an advisee claiming for negligent misstatement has not received the information directly from the advisor, but only indirectly through some intermediary, the liability of the advisor will be decided by reference to the information that the advisor has given, not the information that the advisee has received. His conduct is relevant to his liability. If the advisor has attached qualifications to his advice, so that with those qualifications, his advice cannot be faulted, but his advice is passed on without those qualifications, the advisor cannot be held liable for faulty advice, even though someone within the ascertainable class of recipients has relied on it to their detriment. Similarly the advisor is entitled to put in place safeguards against his advice being changed in the course of transmission by disclaiming or limiting his
assumption of responsibility. One way to limit his responsibility is to make it clear that his advice is intended only for the recipient, and not for anyone else, even though they may be within the ascertainable class of recipients. The advisor’s liability is decided by reference to the advice as given by the advisor, including any qualifications as to assumption of responsibility, not by reference to the version of the advice received by the advisor, even if the advisor’s qualifications as to responsibility are omitted. The extent of responsibility assumed by Citywide is decided by referring to its terms of engagement and to the version of the report it gave Mrs Tucker, not by referring to the version the plaintiffs received. Clause 5 of Citywide’s terms of engagement, which was reproduced on page 8 of the report, made it clear that Citywide did not assume responsibility to any person other than Mrs Tucker, as the person who gave instructions for the report. Citywide effectively disclaimed responsibility to anyone else, including the plaintiffs. Citywide’s responsibility for the report cannot be enlarged because someone else has sent on a version of the report that does not contain the qualifications and disclaimers inserted by Citywide. In the light of Citywide’s disclaimer of responsibility to anyone but Mrs Tucker, the plaintiffs do not have a claim for negligent misstatement against the company.
[22] The plaintiffs’ claim against the tenth defendants is for negligent misstatement. No alternative causes of action were proposed. Specifically, the plaintiffs did not acquire services from the tenth defendants within the Consumer Guarantees Act and did not have a contract with them, which might give a claim for breach. The claim against the tenth defendants for negligent misstatement turns on their assuming responsibility so as to create a special relationship between the plaintiffs and the tenth defendants: see generally Hedley Byrne & Co Ltd v Heller &
Partners Ltd, Smith v Eric S Bush (a firm),9 Caparo Industries Plc v Dickman, Scott
Group Ltd v McFarlane10 and Attorney-General v Carter11.
[23] Given that Mr Cartwright had nothing to do with the inspection of 12 Ronaki
Road or the writing of the report and had no contact with the plaintiffs, the
9 Smith v Eric S Bush (a firm) [1987] 1 WLR 1510 (HL).
10 Scott Group Ltd v McFarlane [1978] 1 NZLR 553 at 566-567 per Richmond P.
11 Attorney-General v Carter [2003] 2 NZLR 160 (CA) at [24]-[26].
defendants have shown that the plaintiffs do not have any realistic prospect of proving that Mr Cartwright assumed personal responsibility to the plaintiffs for the report of 31 May 2004.
[24] For Mr Hughes, there are two related factors that count against his assuming responsibility, the company’s disclaimer of responsibility and the absence of any personal assumption of responsibility by Mr Hughes. On the first factor, the company effectively disclaimed responsibility to anyone but Mrs Tucker. If the company did not assume responsibility, it cannot be right to impose responsibility on Mr Hughes, in the absence of any evidence that, notwithstanding the company’s disclaimer, Mr Hughes himself assumed responsibility to potential purchasers for the accuracy of the report. The plaintiffs would have it that the case should go to trial to see whether Mr Hughes did assume such a responsibility. That is not necessary. Mr Hughes, as agent of Citywide, arranged the inspection and report with Mrs Tucker. The arrangements he made were that the company, of which he was a director and shareholder, would not assume responsibility except to Mrs Tucker. Having limited the company’s responsibility, it is entirely speculative to suggest that, notwithstanding the protections he put in place for the company, he then took on personal responsibility to anyone within the ascertainable class who might receive a copy of the report. It would not make commercial sense for him to do so.
[25] Mr Hughes’ role as agent of Citywide is important in deciding whether he assumed responsibility. That is the relevance of the Court of Appeal’s decision in Trevor Ivory Ltd v Anderson. There the director of a one man company, that was found to have given negligent advice, was held not to have assumed personal responsibility himself. He had acted only as director of the company. There is a helpful explanation in Lord Steyn’s speech in Williams v Natural Life Health Foods
Ltd:12
What matters is not that the liability of the shareholders of a company is limited but that a company is a separate entity, distinct from its directors, servants or other agents. The trader who incorporates a company to which he transfers his business creates a legal person on whose behalf he may afterwards act as director. For present purposes, his position is the same as if he had sold his business to another individual and agreed to act on his behalf.
12 Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL) at 835.
Thus the issue in this case is not peculiar to companies. Whether the principal is a company or a natural person, someone acting on his behalf may incur personal liability in tort as well as imposing vicarious or attributed liability upon his principal. But in order to establish personal liability under the principle of Hedley Byrne, which requires the existence of a special relationship between plaintiff and tortfeaser, it is not sufficient that there should have been a special relationship with the principal. There must have been an assumption of responsibility such as to create a special relationship with the director or employee himself.
[26] The question of whether directors or employees of building inspection companies have personally assumed responsibility has come before the court in two cases of pre-purchase inspections: North Shore City Council v Wightman13 and Lockie v North Shore City Council.14. In Wightman purchasers claimed against an employee of a building inspection company they had engaged to report on a
property. The matters that the purchasers relied on were that the employee had made the inspection, had written and sent the report, offered to discuss the report with the purchasers and assured them that he had the skills necessary to provide the report. MacKenzie J held that these matters fell far short of indicating an acceptance of personal responsibility as distinct from responsibility on behalf of the employer. In Lockie the purchaser had engaged a consulting engineering company to inspect a house she had agreed to buy. The purchaser sued the senior building engineer, an employee, who made the inspection and wrote the report. She relied on factors similar to those raised in the Wightman case to say that the engineer had assumed personal responsibility. Associate Judge Faire followed MacKenzie J in Wightman in holding that these did not give grounds for finding personal responsibility. The
engineer was doing work for the company, not of the company.15
[27] Both cases were decided summarily: Wightman was an appeal from an interlocutory decision of the Weathertight Homes Tribunal removing a defendant and Lockie was an application for summary judgment and strike out. This case is a stronger case against a finding of personal responsibility than Wightman or Lockie. In all cases, an employee made an inspection and wrote a report, but in Wightman
and Lockie the purchasers commissioned the report, the employee dealt directly with
13 North Shore City Council v Wightman HC Auckland CIV 2010-404-3942, 30 November 2010 per MacKenzie J.
14 Lockie v North Shore City Council HC Auckland CIV 2007-404-6546, 6 July 2011 per Associate
Judge Faire.
15 Ibid, at [58].
the purchasers and gave assurances as to competence. In this case, the vendors commissioned the report, agreed to the terms of engagement, received the report and dealt with Mr Hughes, who expressly limited the responsibility of the company. Mr Hughes at all times acted as employee and director of the company. The plaintiffs did not commission the report, had no contact with Mr Hughes, could not have known that Mr Hughes wrote the report, and did not seek or receive any assurances as to Mr Hughes’ competence. The plaintiffs refer to two Citywide WebPages that vaunted the expertise of the company, including the skills of Mr Cartwright and Mr Hughes, but that is not enough to show that Mr Hughes assumed personal responsibility to the plaintiffs when he made his inspection and report. There is no evidence that the plaintiffs referred to the website when they considered the report. There could not be because Mr Bonney says that the WebPages are for the period April – May 2006, two years after the report.
[28] I am satisfied that the plaintiffs’ cause of action against both the tenth defendants cannot succeed because the defendants have established that they did not take on personal responsibility to the plaintiffs for the report of 31 May 2004. The tenth defendants are entitled to summary judgment against the plaintiffs. The tenth defendants took issue with defects in the plaintiffs’ pleading, in particular the failures to plead any special relationship between the plaintiffs and the tenth defendants and to plead an assumption of personal responsibility. Given that the cause of action cannot succeed, the pleading is incurable. But as summary judgment can be given, a striking out order is not necessary. As the defendants have established their entitlement to summary judgment, there is no reason to give them a lesser remedy.
[29] As the plaintiffs do not have a cause of action against the tenth defendants, the eleventh defendant cannot have a claim against them for contribution as concurrent tortfeasors. Even though summary judgment cannot be given to the tenth defendants against the eleventh defendant, an order can be made striking out the eleventh defendant’s cross claim.
[30] Only the plaintiffs and the tenth defendants were heard on these applications. They are not the only active parties in this proceeding. When there are multiple parties, there is the risk of procedural difficulties if one party is removed from a
proceeding without notice to all parties.16 To check whether any such difficulties might arise, other parties should be given the opportunity to be heard before any orders are made. To that end this case will be called in my summary judgment list on 13 December 2011 at 2.15 pm, so that other parties may be heard whether the orders contemplated in [28] and [29] should not be made. It is not to be a rehearing of the arguments on the tenth defendants’ applications.
[31] If the parties cannot agree, I will also fix costs on 13 December.
........................................... Associate Judge R M Bell
16 See for example Thorburn Consultants (N Z) Ltd v Air Action Installation Ltd [2011] NZCA 317 at [26]-[29].
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