Carroll v Equus Industries Limited
[2015] NZHC 942
•6 May 2015
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2010-485-1387 [2015] NZHC 942
BETWEEN A J CARROLL, M M CARROLL AND
P J MCLAREN Plaintiffs
AND
EQUUS INDUSTRIES LIMITED Defendant (Judgment Creditor)
AND
GARY GEORGE CRAIG
First Third Party (Judgment Debtor)AND
INTEGRATED PROTECTION SYSTEMS
Second Third Party (Judgment Debtor)
Hearing: 13 October 2014 Counsel:
Q A M Davies for Defendant
G Holgate for First and Second Third PartiesJudgment:
6 May 2015
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] This is an application by the first and second-named third parties, Mr Craig and Integrated Protection Systems Limited (Integrated), to set aside a judgment entered against them by default on 12 December 2012.
Background
[2] The plaintiffs, in their capacities as trustees of the Carroll Family Trust, are the owners of a property in Captain Edward Daniel Drive, Wellington (the property). They purchased the property from Mr Stephen Matthews in October 2002, taking
possession on 6 December 2002.
A J CARROLL, M M CARROLL AND P J MCLAREN v EQUUS INDUSTRIES LIMITED [2015] NZHC 942 [6 May 2015]
[3] The dwelling on the property (the dwelling) turned out to be a “leaky home”. There were major problems with incorrectly installed cladding, lack of adequate ground clearance, unsealed penetrations through the cladding, leaks through the roof, and poorly constructed decking. Repairs have cost the plaintiffs in excess of
$900,000.
[4] In July 2010, the plaintiffs sued the Wellington City Council (the Council), alleging that the Council had failed to exercise due care and skill in conducting inspections in the course of the construction work, and in issuing a Code Compliance Certificate (CCC) for the dwelling. The Council had carried out some inspections in
1999, in the early stages of the construction work, but had not then been prepared to issue a CCC. It carried out further inspections in November and December of 2002 (when the property was subject to the sale agreement to the plaintiffs and Mr Matthews needed to obtain a CCC for the dwelling), and in February 2003. It eventually issued the CCC on 10 March 2003.
[5] The Council filed a statement of defence to the plaintiffs’ claim, and then issued third party claims against Mr Craig, Integrated, and the party now named as defendant, Equus Industries Limited (Equus). The Council asked for orders that those parties contribute to any liability it might have to the plaintiffs.
[6] Equus was the original manufacturer and supplier of the “Thermexx” cladding system used on the dwelling. Integrated carried out certain remedial plastering and sealing work on the dwelling in November 2002, following the issue of a “Notice to Rectify” by the Council which listed 23 separate areas where remedial work was required. Mr Craig was and is the sole director of Integrated.
[7] The Council’s third party claim against Integrated and Mr Craig alleged that they owed a duty of care to the plaintiffs, and breached that duty of care in various respects. In the event of the Council being held liable to the plaintiffs for breach of duties owed by it to the plaintiffs, the Council asked for an order directing Integrated and Mr Craig to contribute to that liability, to an extent the Court considered just and
equitable.1 The Council also contended that Integrated and Mr Craig were directly
1 Relying on s 17 of the Law Reform Act 1936, which provides for the making of contribution or
liable to it in negligent misstatement. That claim was based on a letter written by Integrated to Mr Matthews on 5 December 2002 (the Integrated guarantee), which was passed on by Mr Matthews to the Council. Integrated stated that the remedial plastering and/or waterproofing work carried out by it on the dwelling had been carried out using products which were compatible with the substrates to which they had been applied (and with each other), and that all products had been applied appropriately, by experienced applicators, as per the manufacturer’s specifications. The Integrated guarantee offered a five year guarantee on the workmanship and products in the areas concerned.
[8] Integrated and Mr Craig were duly served with the Council’s third party
claims against them, but neither took adequate steps in response to the claims.
[9] When Mr Craig was served, he telephoned the solicitor acting for the Council and told her that he had nothing to do with the cladding of the dwelling. He says that the solicitor asked him to send her a letter outlining his position, which he did.
[10] Mr Craig’s letter to the Council’s solicitor was dated 15 April 2011. It was sent on behalf of himself and Integrated. In it, Mr Craig denied any liability, stating that “There was of course no guarantee”. He referred in the letter to “the tiny amount of cosmetic work” Integrated undertook, and contended that it had no knowledge of any “systemic problems” with the dwelling. He concluded the letter by saying:
As responding to you takes time away from my business, I hope this will be an end of the matter.
[11] Mr Craig and Integrated never heard back from the Council’s solicitor in response to that letter. Mr Craig now acknowledges that he was surprised by that, but as time went by he presumed that the matter had ended.
[12] Equus did file a statement of defence to the Council’s third party claim
against it. Settlement negotiations followed, and on 13 February 2012 a settlement was achieved between the plaintiffs, the Council, and Equus. Under the settlement,
indemnity orders between concurrent tortfeasors who are both liable to a third person for the same damage.
Equus contributed $175,000 to the total settlement sum of $850,000 paid by the Council to the plaintiffs. In consideration of its contribution to the settlement, Equus took an assignment of the Council’s third party claims against Integrated and Mr Craig.
[13] Equus then applied to be substituted as defendant in the proceeding, in order to pursue the Council’s claims against Integrated and Mr Craig. It arranged to have the claims set down for the purpose of assessing damages, under r 15.10 of the High Court Rules which were then in force.
[14] The application for an order substituting Equus as defendant, and for judgment against Integrated and Mr Craig, came before Collins J on
12 December 2012. There was no appearance by or on behalf of Integrated or Mr
Craig: it appears they were not given any notice of the hearing.
[15] Equus limited its claim against Integrated and Mr Craig to the $175,000 it had contributed to the settlement with the plaintiffs. The Judge made an order substituting Equus for the Council as defendant, and gave judgment for Equus against Integrated and Mr Craig for that sum. Costs were awarded to Equus on a Category 2, Band B basis.
[16] The Judge gave written reasons for his judgment on 17 December 2012. In his reasons, Collins J stated that he was satisfied that the assignment of the Council’s third party claims to Equus was a valid assignment, and that there was no other bar to the substitution order. His Honour was also satisfied that Mr Craig and Integrated owed relevant duties of care to the plaintiffs and to the Council, and that they had breached those duties. He was further satisfied that, in breaching their duties, Integrated and Mr Craig contributed to the losses suffered by the plaintiffs.
[17] Collins J found that the settlement between the plaintiffs, the Council and Equus was fair and reasonable in the circumstances and that, had the matter proceeded to the point where it was necessary to give judgment, Integrated and Mr Craig would in all likelihood have been liable to both the plaintiffs and the Council. Equus was accordingly entitled to judgment against Mr Craig and
Integrated, for what the Judge referred to as the “undisputed sum” of $175,000, and
costs.
[18] Equus took no step to enforce its judgment for a period in excess of 18 months. Nor did it advise Mr Craig and Integrated in that period that it had obtained judgment against them.
[19] Mr Craig and Integrated were eventually served with the judgment, and a charging order which Equus had obtained, on 1 August 2014. They filed their application to set aside the judgment on 29 August 2014.
[20] It is not suggested that either Integrated or Mr Craig had any knowledge of the fact or the details of the settlement between the plaintiffs, the Council and Equus.
The application to set aside judgment and Equus’ opposition
[21] In their application to set aside the judgment, Integrated and Mr Craig say that they have substantial grounds of defence, and that there will be a miscarriage of justice if the judgment is not set aside. They contend that their failure to take any steps in the proceeding is reasonably explained, and that Equus will not suffer irreparable harm if the judgment is set aside.
[22] They do not suggest that the judgment against them was irregularly obtained. They accept that there was no requirement in the Rules for Equus to give them notice of the 12 December 2012 hearing. Nor do they raise any issue over the validity of the assignment of the Council’s causes of action to Equus, or the propriety of the order substituting Equus for the Council as the defendant in the proceeding. There was no suggestion in the evidence (or in the submissions made on the application to set aside the judgment) that the Council had paid too much in settling the claims against it for $850,000.
[23] The argument for Integrated and Mr Craig is simply that neither of them was liable to either the plaintiffs or the Council. In the alternative, they say that there was insufficient evidence for the Court to assess their liability to Equus (as assignee of the Council’s third party claims against them) at $175,000.
[24] Equus opposes the application to set aside the judgment. It says that Integrated and Mr Craig have no defence, and that the Council was entitled to contribution from them for breach of their duties owed to the plaintiffs, and/or damages for negligent statements made by them direct to the Council. Equus says that Mr Craig’s explanation that he did not file a statement of defence because he sent a letter to the Council’s solicitor is inadequate, and that there has been no miscarriage of justice.
[25] In addition to the causes of action on which its judgment was based, Equus says that Mr Craig’s affidavit sworn in support of the application to set aside the judgment shows that he wrote the Integrated guarantee recklessly and without belief in its truth, in circumstances making Integrated and Mr Craig liable to the Council in the tort of deceit. Although deceit had not been pleaded against Integrated and Mr Craig when Equus obtained its judgment against them, Equus says that the Court should nevertheless take its deceit argument into account in dismissing the setting aside application. It says there can be no miscarriage of justice in allowing the judgment to stand if Integrated and Mr Craig were liable for that sum anyway, on the separate ground of deceit.
[26] On the quantum of the judgment, Equus says that the terms of the assignment of the Council’s claims to it would have entitled it to sue Integrated and Mr Craig for the full $850,000 paid by the Council to the plaintiffs. However, it elected to limit its claims against them to the $175,000 it had contributed to the settlement. It says that sum represents only a modest contribution to the settlement sum, and was more than justified having regard to the responsibility of Integrated and Mr Craig for the plaintiffs’ losses.
Applications to set aside judgments obtained by default – legal principles
[27] The application is made under r 15.10 of the High Court Rules. That Rule provides:
15.10 Judgment may be set aside or varied
Any judgment obtained by default under rule 15.7, 15.8, or 15.9 may be set aside or varied by the court on such terms as it thinks just, if it appears to the court that there has been, or may have been, a miscarriage of justice.
[28] In this case the judgment was not entered under any of the rules mentioned in r 15.10 – those rules only came into force in February 2013. The judgment was entered under the former Rule 15.10, which provided:
15.10 Unliquidated demand
If the relief claimed by the plaintiff is payment of an unliquidated demand in money and the defendant does not file a defence within the number of working days required by the notice of proceeding, the proceeding must be tried to assess damage.
[29] Rule 15.13 of the Rules as they then stood provided that a judgment obtained by a defendant could be set aside or varied by the Court on such terms as the Court considered just, if it appeared to the Court that there had been or may have been, a miscarriage of justice.
[30] No suggestion was made by Equus that the Court does not have jurisdiction to entertain the application to set aside the judgment, and whether the application is treated as having been made under r 15.10 of the Rules as they now stand or under r 15.13 of the Rules as they stood in December 2012 clearly makes no difference.2
In either case the principal issue for the Court will be the possibility of a miscarriage of justice if the judgment is allowed to stand.3 The Court’s discretion is unrestricted, but relevant factors usually include: 4
(a) Whether the party’s failure to appear was excusable.
(b) Whether there is a substantial ground of defence.
2 If Integrated and Mr Craig had an existing right to apply to set aside the judgment under r 15.13 immediately after 12 December 2012, the repeal of r 15.13 would not have removed that right: Interpretation Act 1999, s 18.
3 KBR MacKinder Ltd v Fine Art Productions Ltd HC Wellington A372/84, 17 April 1986.
4 Russell v Cox [1983] NZLR 654 (CA) at 659; Norwich Winterthur Insurance NZ Ltd v Erikson
CA370/91, 2 October 1992; and Nottingham v Registered Securities Ltd (in liq) (1998) 12 PRNZ
625 (CA). See also Paterson v Wellington Free Kindergarten Assoc Inc [1966] NZLR 975 at
983.
(c) Whether irreparable injury to the party that obtained the judgment would result if the judgment was set aside.
[31] The defendant carries the onus of establishing that it has a substantial ground of defence.5
[32] A judgment may be set aside in part,6 and the Court may set aside or vary the judgment on such terms as it thinks just.
[33] The jurisdiction to set aside a judgment obtained by default may be exercised by an Associate Judge, notwithstanding that the default judgment was given by a Judge.7
The issues to be determined
[34] The following issues arise:
(a) Have Integrated and Mr Craig shown that they have a substantial ground of defence to Equus’ claims against them based on negligence and negligent misstatement?
(b)Have they shown that their failure to file a statement of defence (which led to their failure to appear at the December 2012 hearing) was excusable?
(c) Have they shown that there would be no irreparable harm to Equus if the judgment were set aside?
(d)Should the judgment be allowed to stand because Integrated and Mr Craig were guilty of deceit in providing the Integrated guarantee to the Council without any knowledge as to the truth or otherwise of
what they were warranting?
5 Pioneer Farms Ltd v Stoddart [2012] NZHC 3114 at [24].
6 Wing v Leeder [1961] NZLR 30 (HC) at 35.
7 Dominion Finance Ltd (in liq) v Young (1993) 7 PRNZ 168 (HC).
(e) Looked at in the round, have Integrated and Mr Craig shown that there may have been a miscarriage of justice?
Discussion and conclusions
Issues (2) and (3): was the default excusable, and will there be irreparable harm to Equus if the judgment is set aside?
[35] Issues (2) and (3) in para [34] above can be dealt with fairly shortly, so I will address them first.
[36] In my view, Integrated and Mr Craig have not shown that the failure to file a statement of defence was excusable. They were served with third party notices which clearly set out the steps they were required to take if they wished to defend the claims, and sending a letter to the Council’s solicitors and then hoping that “it would all go away” was unacceptably casual. It can nevertheless be said in their favour that they did not ignore the Council’s claims – they put forward their position in writing to the Council’s solicitors, and I can accept that Mr Craig probably did believe that if the position set out in his letter was not accepted by the Council, the solicitors would get back to him and advise him accordingly. Of course the Council was not obliged to do that, and he heard nothing further until after the judgment had been entered.
[37] The default in this case appears to have arisen out of a mistaken assumption by Mr Craig that his letter would be sufficient, and of course he and Integrated did not receive notice of the hearing. While inexcusable, I do not regard the default on its own as fatal to the application to set aside. If my consideration of the other issues shows that, viewed overall, there has been or may have been a miscarriage of justice, the application will be granted.
[38] On Issue 3, I agree with Ms Holgate that there would be no irreparable harm to Equus if the application were granted. There would be further delay before a trial could take place, and of course further costs for Equus in pursuing its claims. But those matters could be compensated for by appropriate case management and awards of interest and costs. Of course any further delay in dealing with events going back to late 2002 is undesirable, but the claim was not commenced by the plaintiffs until
July 2010, and I do not have any evidence that additional delays beyond December
2012 are likely to cause any irreparable harm to Equus. Mr Davies submits that witnesses may be unavailable, and that documents such as the invoice from Integrated to Mr Matthews for the work done on the property may also be unavailable, but there is no evidence to suggest that any of those difficulties have or may have arisen since the default judgment was entered in December 2012. Nor is it clear why the judgment, which appears to have been sealed in December 2012, was not promptly served on Integrated and Mr Craig as required by r 11.11(5) of the Rules.
Issue (1): Have Integrated and Mr Craig shown that they have substantial grounds of defence to Equus’ claims against them in negligence and negligent misstatement?
The evidence before the Judge on 12 December 2012 (a) Mr Ng
[39] The evidence which was before Collins J on 12 December 2012 included an affidavit by Mr Ng, the Council’s building inspector who carried out inspections of the construction work at the property.
[40] Mr Ng carried out an inspection on 1 November 2002, in the course of which he identified 24 aspects of the building construction which he considered needed to be addressed and/or remedied. The primary issues identified by Mr Ng, and recorded by him in his site notes numbers 6353–6357, related to the cladding system.
[41] On 1 November 2002 Mr Ng sent a Notice to Rectify Building Work to Mr
Matthews. The notice advised that the items set out in Mr Ng’s site notes numbers
6353–6357 would have to be addressed before the Council could issue a CCC.
[42] The following items were listed in site notes 6353–6357 (the passages shown in bold are annotations made subsequently by Mr Ng, when he saw or was advised that an item had been addressed):
1. Harditex Producer Statement-refer to specification pages.
2. Electrical certification.
3.External walls show hairline cracks to the texture plaster system (Equus System) to submit a report on the defects and proposed remedial work.
4.Front entry area: wall cladding system between edge is in direct contact with paved groundline. There should be a gap of 50mm minimum between the bottom edge cladding and the ground.
5. Lower level timber decking is in contact with the Harditex cladding
– there should be a gap of minimum 5mm. Bottom edge of Harditex should also be textured or sealed against ingress of moisture.
6.North elevation: landscaped stone wall appears to have been constructed hard up against the Harditex cladding. Settlement of the wall has occurred causing it to sink approximately 25mm. This settling effect has exposed to bottom of the Harditex sheet which has been left unsealed or textured.
7. North elevation – arched roof over window WH shows hairline crack
– Remedied by Equus – request confirmation (Integrated
Protection Systems Ltd).
8.Meter box unit requires flashing or sealant for waterproofing (clear sealant).
9.Cable penetrations adjacent to conc. blockwork retaining wall requires weatherproofing (timber structure frame and sealant).
10.Block wall/Harditex cladding intersection – Request detail showing method of flashing or weathertightness (sealant and timber bead installed).
11. Producer Statement certification for deck liquid membrane installation by the approved installer – Image Roofing Ltd.
12. Deck barrier on west elevation (bedroom area):
(a) Deck not on original plans – amended drawings required.
6.12.02.
(b) Deck barrier also shows evidence of penetration through wall cladding. Builder to verify its construction (sealant and beading installed).
(c) Deck barrier railing has been nailed fixed and penetrated deck liquid membrane (sealed and beaded).
(d) Top of textured clad deck wall between roof and deck is horizontal. Top of wall should have a 15º bevel to dispel water or possibly the installation of a metal cap flashing (side fixed). This deck wall should be fully textured for waterproofing.
(e) Edge flashing/metal edge has separated from the deck liquid membrane.
13.Skylight over stairwell (west elevation):– (Integrated Protection Systems Ltd) there is evidence of moisture entry to the skylight viewed from the inside. External cladding shows signs of cracking outside stair window.
14.Timber subfloor to study on north elevation: Stonewall landscaping have fully enclosed the perimeter subfloor in this area. Adequate venting is required to this area to comply with NZS3604 1990 (also referred at item 6).
15.The room to north elevation: Deck has been deleted and room layout has been increased in size. Require amended plans. Low level window requires a complying restrictor to prevent a max. opening of
100mm (restrictor installed).
16. Family room adjacent to kitchen on South Elevation:
(a) A timber subfloor has been installed instead of a concrete slab floor – Require amended drawings. See amended drawings – already submitted to WCC and scanned. Landscaped stonewall has been constructed up to bottom of Harditex sheet. Inspection reveals lower portion of sheet is not sealed or textured for protection against the ingress of moisture request written approval (Integrated Production Systems – soaker has been installed) See subfloor ventilation may be inadequate to this area – re-inspect. (*A visual inspection shows the subfloor being fairly dry) – 90mm circular holes to stonewall and extra vents to underside of deck.
17.Soffit linings: Nail fixings to soffit linings already indicate rust/corrosion – repainted and primed.
18.Main bathroom shower sill: grouting has failed. Re-grouting required (re-grouted).
19 Main bedroom deck on South Elevation
(a) Textured cladded barrier. (i) top of barrier should have a 15º bevel to dispel water or possibly a metal cap/flashing side fixed (Integrated Protection Systems) bevel installed. (ii) A crack has formed on the wall surface. (iii) Deck rail appears to have penetrated the textured wall cladding. Builder to verify construction. Sealant with timber cover bead.
20. Ornate timber columns: Refer to Architect’s details on sheet. Nos
13, 14 & 15. All columns to have haunching or cap flashings to dispel any water/moisture. (bevels installed. Plant on styrene).
21. Grouting to master bedroom ensuite.
22. Deck bearer to family Room South Elevation:
Deck barrier [sic] has been directly fixed against the unsealed bottom edge sheet of the Harditex cladding. The bearer should have spacers to allow water to drain through as well as allowing air to dry the timber member. The Harditex cladding should also be fully textured or sealed (Integrated Protection Systems). Equus/STO sealer has been installed to waterproof the bearer. Request approval and warranty from STO/Equus.
23.A full inspection should be undertaken by the both Hardies and Equus Texturer representatives for a full report on the wall cladding system. – Received PS from Equus and report of remedial work from Integrated Protection Systems.
24.Access required to the subfloor framing at north elevation (access trap door from internal side of study).
[43] Mr Ng carried out a further inspection on 6 November 2002 to discuss the remedial work list with Mr Matthews and with the contractor. Mr Matthews then provided Mr Ng with an Equus Producer Statement for the cladding. Mr Ng says that he was not satisfied with the Producer Statement, as it did not address the need for remedial work required to correct the cracking to the cladding. Nor did he consider that it went far enough to demonstrate that the installation of the cladding system was Code compliant.
[44] There was further contact between Mr Ng and Mr Matthews on
15 November 2002 and 18 November 2002. On the latter date, Mr Ng issued another site note asking Mr Matthews to advise how each of the remedial items was to be remedied.
[45] Mr Ng carried out a further inspection on 4 December 2002. In the course of this inspection, he noted that repair work to the cladding system had been carried out. He told Mr Matthews that he would nevertheless require Equus certification for the repair work.
[46] Mr Ng stated that in the course of his 4 December 2002 inspection, he noted that a waterproofing product called Sto Flexyl had been applied to the bottom edge of the wall cladding and the stonework, and also to a deck bearer. The Sto Flexyl product was not manufactured or supplied by Equus. Mr Ng sought Sto certification for the repair work, and verification that the products were compatible with the Equus texture system used on the property.
[47] Mr Ng stated that his understanding was that Equus was involved with Integrated in the repair work, and that Integrated had carried out “at least part of the remedial work”.
[48] Following his 4 December 2002 inspection, Mr Ng issued revised site notes
6383 and 6384. These site notes were supplied to Mr Matthews, and they were said to supersede site inspection notes Nos 6353–6357.
[49] There were six items listed on site notes 6383–6384. The following appear to be relevant:
1. External cracks to texture system has been repaired to the wall cladding. Require ‘Equus’ certification for the repair work (refer to item 3 on the site No 6353).
2. ‘Sto’ Flexyl waterproofing has been installed to bottom edge of wall cladding and stonework and also to deck bearer on south side. Require ‘Sto’ certification for the repair work and verification of the product being compatible with the Equus texture system (refer to site no. 6353 item 5 and
6) (item 22 site note No. 6357).
[50] Mr Ng received from Mr Matthews’ solicitors a copy of the Integrated guarantee, on or soon after 5 December 2002. The Integrated guarantee, handwritten on Integrated letterhead, read:
To: Steve Matthews
Remedial Plastering & Waterproofing
We have carried out the above mentioned works, as required to address the concerns in the W.C.C Site Reports 6353 to 6357. All products used are compatible with the various substrates on which they are used and with each other.
All products were applied as per manufacturers specification and by experienced applicators.
We offer a 5 year guarantee on the workship [sic] and products to the areas concerned.
We are applicators for both STO and Equus. Regards,
Gary Craig
Manager
[51] Mr Ng stated that he considered it reasonable for him to take the Integrated guarantee into account when evaluating whether or not he could be satisfied that the cladding construction and finishing work complied with the Building Code. He noted also that he was expecting a revised Equus Producer Statement (which would be specific to the property).
(b) Mr Greenall
[52] Mr Greenall, the managing director of Equus, gave evidence that he had no knowledge of Integrated or Mr Craig being involved with the remedial work at the property until long afterwards, when he saw discovery documents provided in this proceeding by the Council. His evidence was that neither he nor Mr Arcus, the manager of Equus’ Wellington branch at the time, nor Mr Barr (then Equus’ northern area manager) had been asked at any time to prepare remedial specifications for the dwelling on the property. Equus’ records did show that some materials had been supplied to Integrated for “Matthews”, but Mr Greenall denied that Equus had any role in instructing Integrated to carry out the remedial work. He underlined the point by noting that mixed materials from both Sto (who was a competing supplier) and Equus had been used in the remedial works, and there was no way any Equus staff member would have specified a Sto product. Nor would the quantity of materials supplied by Equus to Integrated at about this time have been sufficient for the complete remediation work (as listed in Mr Ng’s site notes) to have been carried out using only Equus materials.
[53] Mr Greenall confirmed that Equus did issue a Producer Statement for its “generic” Thermexx cladding system which had been used on the property. That was the Producer Statement which was provided on 7 November 2002 to Mr Matthews.
[54] Mr Greenall stated that on 3 or 4 December 2002 he was advised by Mr Arcus that the Council required a further Producer Statement for the cladding at the property. Mr Matthews followed up on 9 December 2002, demanding a further Producer Statement from Equus.
[55] Mr Greenall said that he had no knowledge of the background to this request. He spoke to Mr Arcus the following day to find out. Mr Arcus told him that the Council had rejected the earlier Producer Statement and wanted a statement specific to the application of the Equus products at the property.
[56] Mr Greenall then produced a new form of Producer Statement, based on the information provided to him by his Wellington staff. The document was prepared without any knowledge of the remedial works which had been carried out by Integrated and/or Mr Craig. Mr Greenall stated that he was not told that the Producer Statement was required specifically for work that had been completed as remedial work implementing the instructions given in Mr Ng’s site reports.
[57] Equus’ second Producer Statement was completed and dated 12 December
2002, and sent to Mr Matthews for forwarding on to the Council.
[58] Mr Greenall does not appear to have produced a copy of the 12 December
2002 Producer Statement.
(c) Mr Flay
[59] Equus also provided an affidavit from a building consultant, Mr Flay, and produced (as attachments to an affidavit provided by a legal secretary) copies of five briefs of evidence which had been served on behalf of the plaintiffs in the substantive proceeding. Mr Flay’s brief was to comment on two of those briefs of evidence provided by the plaintiffs, namely the expert briefs of Mr Edward Saul and Mr Thomas Wutzler.
[60] In his brief of evidence, Mr Wutzler dealt with each of the 23 items identified by Mr Ng in his site minutes numbers 6353-6357. Mr Wutzler noted that many of the defects identified by Mr Ng in these site minutes were not addressed (or were inadequately addressed) and contributed to the water ingress and resulting damage.8
[61] Item 3 in Mr Ng’s 1 November 2002 list concerned hairline cracks in the
cladding. Mr Wutzler noted in his brief that some attempt had been made to
8 Wutzler brief of evidence, exhibit C to the affidavit of Maida Jones, at [99].
remediate cracks at sheet joints with sealant. He expressed the view that such repairs could only be considered temporary at best. They had failed by the time of Mr Wutzler’s own inspection of the dwelling.
[62] Mr Wutzler also addressed items 5 and 6 in Mr Ng’s 1 November 2002 site notes. I discuss his evidence on those items in detail at paras [106] and [107] of this judgment.
[63] Mr Ng’s item 8 noted that a meter box unit required flashing or sealant for waterproofing. His subsequent annotation recorded that “clear sealant” had been applied. In his brief, Mr Wutzler noted that this work appeared to have been undertaken, in that sealant had been applied to the cladding/meter box junctions. Mr Wutzler again expressed the view that the repair was at best a temporary solution. In his view, it failed to address the penetration of water which tracked through the meter box (and through the holes at the base of the meter box). Mr Wutzler observed that no consideration seemed to have been given to the effect of the water penetration that had occurred prior to the date of the repairs on the durability of the
timbers.9
[64] Mr Flay commented in his affidavit that this was one of the cladding areas where sealing should have occurred. He went on to note that Mr Ng “was satisfied the issue had been addressed both with repair work and when he relied on the cladding certification”.10
[65] Item 9 on Mr Ng’s 1 November 2002 rectification list related to cable penetrations adjacent to a concrete blockwork retaining wall requiring weatherproofing. Mr Ng’s subsequent annotation referred to the application of sealant in the affected area. Mr Wutzler noted in his brief that this work appeared to have been undertaken, but the repair did not in his view address the likely
consequences of previous water ingress on the timbers.11
9 Wutzler brief at [100(g)].
10 Flay affidavit at [173].
11 Wutzler brief at [100(h)].
[66] Item 10 in Mr Ng’s 1 November 2002 remediation list referred to the block wall/Harditex cladding intersection. Mr Ng requested details showing the method of flashing or weathertightness. Mr Ng’s subsequent annotation recorded that a sealant and timber bead had been installed. Mr Wutzler noted that this item was omitted from the subsequent site notes Mr Ng made on 4 December 2002. He considered that both the proposed repair, and the repair undertaken, were inadequate. The use of sealant to embed a timber bead to the internal corner junction of texture coated fibre cement cladding over timber framing and block work could only be considered a
temporary repair.12
[67] Item 16B on Mr Ng’s 1 November 2002 list concerned a landscaped stone wall which had been constructed up to the bottom of the Harditex sheet. The lower portion of the sheet was not sealed or textured for protection against the ingress of moisture. Mr Ng’s subsequent annotation read “request written approval (Integrated Protection Systems – soaker has been installed)”. Mr Wutzler noted that sealant had been applied between the stone and the fibre cement sheet, but there was no evidence of the application of plaster to the top of the stone wall to create an appropriate fall. He again expressed the view that the application of the sealant was a temporary
repair at best.13
[68] Item 22 in Mr Ng’s 1 November 2002 list related to the deck barrier to the family room (south elevation). The deck barrier had been directly fixed against the unsealed bottom edge sheet of the Harditex cladding, and the Harditex cladding should have been fully textured or sealed. Mr Ng’s subsequent annotation referred to “Integrated Protection Systems”, and noted that an Equus/Sto sealer had been installed to waterproof the bearer. Approval and warranty was to be requested from Sto/Equus. Mr Wutzler noted that the bearer was installed hard against the cladding
in places and the fibre cement sheet was unsealed.14
[69] Although Mr Flay’s brief was to comment on Mr Wutzler’s evidence, I do not
understand him to have challenged Mr Wutzler’s observations on each of these items
in Mr Ng’s 1 November 2002 remedial work list. Rather, the focus of Mr Flay’s
12 Wutzler brief at [100(i)].
13 Wutzler brief at [100(q)].
14 Wutzler brief at [100(y)].
evidence appears to have been more on whether the Council was negligent in failing to pick up defects in the remedial work. In that respect, Mr Flay noted that the texture coating would need to be applied over a compliant surface. Certification for this was obtained from the contractor (apparently a reference to Integrated) and Equus. He expressed the opinion that it was reasonable for the Council to rely on the
texture coating certification.15
[70] Mr Flay expressed the view that “the inadequate application, incorrect components, and/or no application of jointing compound and reinforcing tape has caused the failure of the system. This has led to the cracking of the joints in the system and water ingress”.16 He agreed with the plaintiffs’ experts that a reclad was necessary.
[71] In response to a criticism that no reliance should have been placed on sealant to protect the junctions between schist stone work and fibre cement sheet cladding, Mr Flay said that this was noted by Mr Ng in November 2002. In Mr Flay’s opinion, Mr Ng’s requirement that sealing be carried out in the affected areas was appropriate
at that time.17
[72] More generally, Mr Flay expressed the view that Mr Ng had acted appropriately in insisting upon the remediation that was carried out, and in relying upon the Producer Statements that were provided by those parties who were competent and capable of providing them. He expressed the view that the primary defect that resulted in a reclad of the building being required was the treatment of the polystyrene bands around the joinery. Mr Flay’s view was that this defect, common to all elevations, would not have been able to be viewed by a Council inspector in
2002 after the construction was complete and the cladding repairs carried out.18
[73] Mr Edward Saul is a Wellington-based building consultant. His brief of
evidence was directed to the Council’s performance in relation to the dwelling on the property. In his brief, he had noted that uncoated Harditex is not intended to be used
15 Flay affidavit at [123].
16 Flay affidavit at [127].
17 Flay affidavit at [181].
18 Flay affidavit at [279].
as a finished product. The installation of stone facings and stringers against an unsealed sheet was also inappropriate. Mr Saul noted that these matters would have been observable at a cladding or final inspection (including the inspections undertaken by Mr Ng between November 2002 and 10 March 2003). Mr Saul also noted that Mr Ng had accepted sealant as a repair to many of the faults he had noted. Mr Ng also accepted “documents of dubious worth” as confirming compliance.
[74] Mr Flay emphasised throughout his evidence that not as much was known in
2002 about weathertightness problems as is known today. He would not have expected a council in 2002 to have required rectification of the dwelling by full re- clad, as direct-fixed monolithic cladding systems were regarded as acceptable at that time. The need for a drained and ventilated cavity between the framing timbers and the monolithic cladding was not known until 2004 or 2005.
Evidence on the application to set aside the judgment
(a) Mr Craig
[75] Mr Craig has 37 years’ experience as a waterproofing applicator, carrying out work such as joint sealing, epoxy injections and the like. He has never done plastering work: the main type of work done by Integrated was waterproofing work. However Integrated did have two employed plasterers in late 2002, and they did carry out a limited amount of remedial plastering work on the property in November of that year.
[76] Mr Craig was introduced to the remedial job at the property by Mr Barr of Equus. (That is denied by Equus: it says that it had no involvement in the remedial work at all (other than by providing the Producer Statements dated 7 November 2002 and 12 December 2002).)
[77] Mr Barr showed Mr Craig a garage block wall at the property that needed plastering, and told him that he wanted Integrated to do the work using Equus’ Thermexx product, with an additional coat of plaster to be re-applied over the wall.
[78] This work was carried out by the plasterers employed by Integrated. Mr Craig was on site for at least some of the time this work was being done, but he did not supervise the work, or otherwise participate in it.
[79] While the plastering work was being carried out, Mr Barr asked Mr Craig if he could also do some sealant touch-up work to small areas around a timber beam, a protrusion from a wall, and the joints between the plaster surface on which Integrated was working and the existing building. Mr Craig agreed to do these extra jobs, which were completed within two hours the following morning.
[80] All of the remedial work was completed by Integrated in just over a day, none of it done by Mr Craig.
[81] Mr Craig did not produce any invoice for the remedial work done by Integrated, but he did produce a copy of Integrated’s bank statement at the relevant time, showing that it received $2,751.47 for the work.
[82] Integrated was not asked to investigate the cause of the cracks, or to work on any other part of the house. Nor did it carry out the remedial work referred to in Mr Ng’s site minutes. This work would have taken far more time than the period of a little over one day which Integrated staff spent on the job. Integrated would not have had enough labour to do the work, as it only had two plasterers employed at the time.
[83] Mr Craig also denies that his staff used a mix of Equus and Sto products on the property – they only used Equus products, which were either supplied by Mr Barr or left over from jobs Integrated had done previously.
[84] After the work was completed, Mr Barr asked Mr Craig to provide a guarantee for the work done by Integrated on the property. This had not been mentioned when Mr Craig agreed to carry out the work, but Mr Barr nevertheless asked Mr Craig to come into Mr Barr’s office and handwrite a guarantee (the Integrated guarantee) “because [Mr Barr] needed it for his paperwork”. It was unusual for Mr Craig to handwrite a guarantee, as the guarantees provided by
Integrated at the time were normally computer-generated, and part of a set of contract documents which would be signed at the beginning of a job.
[85] Mr Craig contends that he signed the Integrated guarantee without seeing Mr Ng’s site reports which are referred to in the Integrated guarantee. He says that it was only after Integrated and Mr Craig became involved in this proceeding that Mr Craig read the site reports. He complied with Mr Barr’s request for the Integrated guarantee because he was not aware of any further issues with the property, and because he had a longstanding relationship with Mr Barr, both professionally and personally. He says he “never thought to question what [Mr Barr] asked me to do”.
[86] Mr Craig says that he now accepts that he should have asked Mr Barr what the Council site note reference numbers related to, and asked for copies, before he wrote the Integrated guarantee.
[87] In the letter which he sent to the Council’s solicitors after he and Integrated had been served with the Council’s third party claims, Mr Craig stated (having described the work which Integrated did carry out on the property) that “there was of course no guarantee”. This statement was a simple oversight. Before Mr Craig wrote the letter to the Council’s solicitors he checked on his computer to see if he could find any guarantee for the work done on the property, and did not find one. He forgot about the handwritten document (the Integrated guarantee) he had signed on
5 December 2002.
(b) Mr Isles
[88] There was also evidence in support of the setting aside application from Mr Vincent Isles, a plasterer employed by Integrated. Mr Isles says that he did do work on the property, but it was limited to residual plastering work carried out to the concrete block wall of the garage. He says that he did not work on any other part of the property.
(c) Mr Greenall
[89] Mr Greenall provided a further affidavit in opposition to the setting aside application. In this affidavit, Mr Greenall notes that Mr Craig attended the property on 22 November 2002, and that Integrated’s staff used the Equus products Thermexx Binder and Premix. The cost of the materials was $200.47 including GST, and Mr Greenall says those products would have covered an area of approximately 7m². The Thermexx system involves the application of plaster over fibreglass, and the application of a topcoat to the plaster. Mr Greenall says that there is no record of Mr Craig having purchased any fibreglass or topcoat from Equus.
[90] On Mr Craig’s evidence that the total paid to Integrated for the job was
$2,751.47, Mr Greenall notes that, deducting the known material costs of $200.47, the labour component for work must have been $2,551. He says that in 2002 the cost of a skilled plasterer would have been approximately $35/hour plus GST.
[91] Dividing the total labour cost of $2,319.09 (the total labour charge of $2,551 minus the GST component of that sum) by $35 suggests that a total of approximately
66 man-hours were spent on the job – far more than the total of approximately 20 hours’ work which Mr Craig says was put in by his two plasterers (at ten hours each).
(d) Mr Craig in reply
[92] In his reply affidavit, Mr Craig repeated that he had seen Mr Barr on the property on the day Mr Craig attended, but that he could not specifically recall seeing Mr Barr overseeing any work.
Discussion and conclusions on Issue 1
(a) The judgment against Integrated on liability
(i) The contribution claim under s 17 of the Law Reform Act 1936
[93] While the hearing before Collins J was a hearing for the purpose of assessing damages under the rules then in force, Integrated and Mr Craig say that a miscarriage
of justice will arise if the judgment is not set aside, because they were not liable to Equus at all. Both counsel argued the matter on the basis that liability is in issue. I will therefore deal with the application on that basis.
[94] First, I am not satisfied that the involvement of Integrated and Mr Craig in the remedial work carried out in November and/or early December 2002 was as minor as Mr Craig now contends.
[95] I do not accept Mr Craig’s attempt to dismiss the Integrated guarantee as something done simply to assist Mr Barr. Mr Craig had nearly 30 years’ experience as a waterproofing applicator by the time he wrote the Integrated guarantee, and he would have understood perfectly well that Integrated was providing a 5 year guarantee of workmanship and products for all of the remedial plastering and waterproofing work identified in the Council’s site reports numbers 6353-6357. I do not consider it plausible that an experienced businessman such as Mr Craig would have signed a guarantee relating to specific remedial work described in Council site notes without seeing those site notes, or at least being aware of what they contained. I accept, too, Mr Davies’ submission that Mr Craig would have understood perfectly well that the letter was likely to be passed on to the Council to assist Mr Matthews in obtaining a CCC for the dwelling.
[96] Mr Greenall’s evidence suggests that Integrated carried out more extensive work on the property than Mr Craig is now prepared to acknowledge. While Mr Craig says that all of the remedial work carried out by Integrated on the property was completed in a little over a day, that is not consistent with Mr Greenall’s evidence that the amount which was paid to Integrated for the work was far more than what would have been paid for a little over a day’s work. Mr Craig did not challenge Mr Greenall’s evidence that the charge-out rate for a plasterer in 2002 would have been in the order of $35 per hour, so that two plasterers working for ten hours each would have been billed at $700. The proved material costs were relatively modest, leaving a large gap between the apparent value of the work based on Mr Craig’s version of what was done, and the total sum of over $2,700 which Integrated was paid for its work.
[97] Mr Craig says in his affidavit that Integrated only used Equus products in carrying out its work at the property, but does not explain why he apparently found it necessary to state in the Integrated guarantee that “We are applicators for both STO and Equus”.
[98] The overall onus is on Integrated and Mr Craig to show that there may have been a miscarriage of justice in entering the judgment against them. On the issue of what work Integrated actually carried out at the property, they have failed to persuade me that Integrated did not carry out remedial work on all of the items listed in the Council’s site reports 6353-6357 which required remedial plastering and waterproofing (including the sealing and/or texturing of unsealed Harditex cladding).
[99] Mr Craig says that Integrated was not required to address the cause of the cracking in the cladding, but again it seems to me that the most reliable evidence of Integrated’s brief is probably the wording of the Integrated guarantee: Integrated carried out such remedial plastering and waterproofing work as was “required to address the concerns in the [Council’s] site reports 6353-6357”.
[100] Mr Davies identified the following items in the 1 November 2002 site reports as probably having been attended to by Integrated: items 3, 7, 8, 9, 10, 13, 16(b), 19,
22 and 23. He identified those items either because they required the application of sealant (a task which Mr Craig acknowledges that Integrated undertook on some parts of the dwelling), or because Mr Ng specifically referred (in the annotations which he made on his site notes) to Integrated as having been involved in the remedial work. Mr Craig has not provided clear evidence of specific repair items listed by Mr Ng which Integrated attended to, and in the absence of that evidence I think it more likely than not that Integrated did attend to the remedial work items identified by Mr Davies.
[101] It seems to me that Integrated probably also assumed responsibility for the
remedial sealing or texturing work referred to in items 5 and 6 of Mr Ng’s 1
November 2002 site notes. Each of those items required the texturing or sealing of the bottom of Harditex sheets which had been left unsealed or untextured, and Integrated confirmed in the Integrated guarantee that it had carried out the necessary
work required to address the Council’s concerns over items in the 1 November 2002
site notes where “waterproofing” was required.
[102] I conclude that Integrated probably carried out remedial plastering or waterproofing work in order to meet the Council’s concerns expressed in Mr Ng’s items 3, 5, 6, 7, 8, 9, 10, 13, 16(b), 19, 22 and 23, insofar as those items required remedial plastering and/or waterproofing work. In carrying out that work, Integrated’s task was to address the Council’s concerns as expressed in the items in the site notes.
[103] The next question is whether there is evidence that Integrated carried out any of that work negligently. I think that there is.
[104] First, Mr Flay referred in his evidence to the “inadequate application, incorrect components, and/or no application of jointing compound and reinforcing tape”, as the cause of the failure of the cladding system. His evidence was that these failures led to the cracking of the joints in the system and water ingress. He accepted the plaintiffs’ view that it was necessary to reclad the building. Mr Flay did express the view that Mr Ng’s acceptance of the use of sealants was “appropriate to the time” (given what he understood to be the state of councils’ knowledge about weathertightness issues in late 2002/early 2003), but I do not think that could have affected his view on such matters as the inadequacy of the application work, the use of incorrect components, or the absence of jointing compounds and/or reinforcing tape. Joint sealing was an activity within Mr Craig’s area of expertise, and if there were issues with the original sealant work which Integrated undertook to remediate (in order to address waterproofing concerns identified in Mr Ng’s 1 November 2002 site notes), which appears to have been the case, Mr Flay’s evidence supports the view that at least some of the that remedial work was probably carried out negligently.
[105] In respect of item number 5 in Mr Ng’s 1 November 2002 site notes, Mr Wutzler noted in his brief that the defects were still evident in 2010. He stated that he had found no evidence that Sto Flexyl had been applied to the bottom edge of the wall cladding below and above the deck, or to the deck bearer of the lower deck, as
per Mr Ng’s 4 December 2002 site note. And in respect of item number 6 in Mr Ng’s 1 November 2002 site notes, Mr Wutzler again noted that the defects were still evident in 2010. Some sealant had been applied to the junction between the stonework and the Harditex cladding, but Mr Wutzler viewed that as a “temporary repair at best”.
[106] Mr Wutzler stated that he found no evidence of the application of the Sto Flexyl membrane in the relevant area referred to in item 6 of the 1 November 2002 site notes. He also stated that it would have been impossible to access the bottom edge of the fibre cement sheets without the removal of the stone wall, which did not appear to have been done.
[107] If, as I have held, Integrated’s brief was to carry out such waterproofing work as would meet the Council’s concerns, including in respect of items 5 and 6 on Mr Ng’s list, Mr Wutzler’s brief makes it fairly clear that Integrated failed to do that.
[108] Mr Flay, in commenting on Mr Wutzler’s evidence in his affidavit provided for the formal proof hearing, does not appear to have challenged Mr Wutzler’s conclusion on Mr Ng’s items 5 and 6.
[109] Item 22 in Mr Ng’s 1 November 2002 site notes referred to a deck bearer being directly fixed against the unsealed bottom edge sheet of the Harditex cladding. Mr Ng noted that the Harditex cladding should be fully textured or sealed. Again, Mr Wutzler stated that this defect still existed in 2010. In his brief, he said that the “stringer was installed hard against the cladding in places and the fibre cement sheets were unsealed under the bearers and the deck tread”. Mr Wutzler also noted that Mr Ng had noted on the original 1 November 2002 site notes “Integrated Protection Systems. Equus/Sto sealer has been installed to waterproof the bearer. Request written approval and warranty from Sto/Equus”. Mr Wutzler stated that he found no evidence that the Sto Flexyl had been applied to the deck bearer under the family room deck. Again, Mr Flay does not appear to have taken issue with Mr Wutzler’s statements in this respect in his affidavit provided for the assessment of damages hearing.
[110] There are other items where it appears to me to be more likely than not that work carried out by Integrated was carried out negligently. For example, item 8 in the 1 November 2002 list of remedial items referred to a meter box unit requiring flashing or sealant for waterproofing. Mr Ng’s annotation noted that a clear sealant had been applied. In his brief, Mr Wutzler expressed the view that the repair was at best “a temporary solution”, in that it failed to address the penetration of water which tracks through the meter box (and through the holes at the base of the meter box). It seems to me to be more likely than not that Integrated should have appreciated the issue of penetration of water tracking through the meter box, and through the holes at the base of the meter box. And in item 10 of the 1 November 2002 site notes, Mr Ng requested details showing “method of flashing or weathertightness” for a block wall/Harditex cladding intersection. He later annotated his notes on this item “sealant and timber bead installed”. Mr Wutzler’s view is that this proposed repair, and the repair undertaken, was inadequate. He expressed the opinion that the use of sealant to embed a timber bead to the internal corner junction of texture-coated fibre cement cladding over timber framing and a block work could only be considered a temporary repair.
[111] I conclude that there is evidence supporting the view that the remedial work
carried out by Integrated on at least items 5, 6, 8, 10 and 22 in Mr Ng’s 1 November
2002 site notes was probably carried out negligently.
[112] I do not think it could be contended that Integrated did not owe a duty of care to the plaintiffs in carrying out that work. The Integrated guarantee makes it clear that the work was required to meet concerns expressed by the Council’s building inspector, and Mr Craig would have been well aware that provisions designed to ensure an acceptable level of weathertightness formed an important part of the Building Code. Compliance with the Building Code was of course necessary if a CCC was to be obtained for the dwelling.
[113] In Koria and Lava v Hardy, Ellis J referred to the test for the existence of a duty of care as involving:19
19 Koria & Lava v Hardy [2013] NZHC 3178, at [44].
…the usual inquiry, namely whether in all the circumstances it is just and
reasonable that a duty be imposed, having regard to:
(a) whether it was reasonably foreseeable that the appellants, as subsequent purchasers, would suffer harm (loss of value and/or repair costs) if Mr Hardy was careless?
(b) if so, whether the relationship between Mr Hardy and the appellants was sufficiently proximate to give rise to a duty of care?
(c) if so, whether there are any relevant policy considerations that might militate against (or possibly favour) the imposition of such a duty.
[114] Ms Holgate has not persuaded me that a duty of care to the plaintiffs, as future owners of the property, did not exist in this case. It was clearly foreseeable by Integrated that subsequent purchasers of the land such as the plaintiffs would suffer economic harm if the remedial waterproofing work was done carelessly, and in my view the relationship between Integrated and the plaintiffs was sufficiently proximate to give rise to a duty. The Courts have held that those responsible for the construction or supervision of the erection of buildings in New Zealand owe a duty to building owners, and in Body Corporate No 207624 v North Shore City Council (Spencer on Byron), the Chief Justice noted that the Building Act 1991 “sets up an interlocking system of assurance under which all undertaking building work are
to the plaintiff akin to acceptance of a contractual obligation.39
[148] Can it be said in this case that Mr Craig assumed personal responsibility to the Council? It seems to me to be fairly strongly arguable for Mr Craig that he did not. While he was the director of Integrated – and I have found it likely that he at least directed or supervised the waterproofing work at the property – the letter on which this cause of action is based was written on Integrated’s letterhead and signed by Mr Craig as “Manager”. It commenced with the words “We have carried out the above mentioned works…” and concluded with a paragraph commencing “We offer a five year guarantee…”.
[149] I see nothing in the letter which could be construed as Mr Craig assuming some personal responsibility to the Council for the accuracy of the statements made
in the Integrated guarantee.
39 Body Corporate 202254 v Taylor, above n 24, at [16].
[150] Nor does the Council appear to have been looking to Mr Craig personally for any expertise he held – the various annotations which Mr Ng made on his
1 November 2002 site notes include a number of references to Integrated, but none to Mr Craig personally. One annotation appears to refer specifically to the Integrated guarantee (the annotation made in respect of item 23). It does not mention Mr Craig, referring only to a “report of remedial work” having been received “from Integrated Protection Systems”.
[151] As MacKenzie J noted in North Shore City Council v Wightman, it is not enough in negligent misstatement cases to establish only that the defendant employee was the person who made the statement for which his or her employer has assumed responsibility. There must be circumstances, on which the claimant could reasonably rely, demonstrating an assumption of personal responsibility by the employee.40 It is true that the employee in Wightman was not a director, or a shareholder of the company, but in my view the fact that Mr Craig was a director and shareholder cannot, on its own, support an inference that he assumed personal
responsibility for the accuracy of the Integrated guarantee.
[152] In my view, Mr Craig has shown that he has a substantial ground of defence to the negligent misstatement claim made against him.
The quantum of the judgment
[153] The basis for Equus’ contribution claim against Integrated and Mr Craig is s 17(2) of the Law Reform Act 1936. Section 17(1) and (2) of that Act materially provide:
17Proceedings against, and contribution between, joint and several tortfeasors
(1) Where damage is suffered by any person as a result of a tort …
…
(c) any tortfeasor liable in respect of that damage may recover contribution from any other tortfeasor who is, or would if sued in time have been, liable in respect of the same damage, whether as a joint tortfeasor or otherwise, so, however, that
40 North Shore City Council v Wightman HC Auckland CIV-2010-404-3942, 30 November 2010.
no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by him in respect of the liability in respect of which the contribution is sought.
(2) In any proceedings for contribution under this section the amount of the contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage; and the court shall have power to exempt any person from liability to make contribution, or to direct that the contribution to be recovered from any person shall amount to a complete indemnity.
[154] In his submissions, Mr Davies describes the question of whether Integrated and/or Mr Craig are liable for $175,000 (approximately 21 per cent of the total settlement sum paid by the Council) as the only serious issue. But he submits that it is difficult to see how Mr Craig and Integrated could be responsible for less than 21 per cent of the settlement sum. He submits that Integrated and Mr Craig have not provided any evidence to suggest that the apportionment is wrong, and the onus is on them to establish that they have a substantial ground of defence. He points to the fact that Equus has identified 10 out of the 23 items on Mr Ng’s 1 November 2002 remedial list as having been attended to by Integrated and Mr Craig, and submits that given that number of items, the apportionment of liability in the sum of $175,000 accepted by Collins J is not unreasonable.
[155] For Integrated and Mr Craig, Ms Holgate takes as her starting point the Judge’s reference to the “undisputed sum” of $175,000. She submits that the default judgment did not have adequate regard to the extent of Integrated’s or Mr Craig’s responsibility for the damage: the judgment did not state which particular defects Mr Craig or Integrated were responsible for, how much those defects would cost to rectify, or what proportion of responsibility Integrated and Mr Craig should bear for the defects as between themselves and the Council.
[156] Ms Holgate refers to the judgment of Ellis J in Re Van Loghem Investments Ltd.41 In that case Ellis J heard an application to review a decision of Associate Judge Bell, in which the Associate Judge had declined to vary or set aside
an oral judgment given by Andrews J following a formal proof hearing at which
41 Re Van Loghem Investments Ltd [2012] NZHC 1446.
Van Loghem had recovered a judgment of $380,000 from a third party, Mr Saltmarshall. As in this case, Van Loghem’s claim against Mr Saltmarshall was a claim for contribution under s 17 of the Law Reform Act 1936.
[157] Ellis J held that the Associate Judge had been wrong not to set aside the quantum aspect of the default judgment. Her Honour considered that the default judgment had not assessed the “causative potency” of the acts or omissions of the relevant joint tortfeasors, and nor had it apportioned responsibility between them on the basis of justice and equity. Her Honour held that the proof required to support the default judgment as to the quantum of Mr Saltmarshall’s contribution was “very arguably not present”, and that on that basis there may have been a miscarriage of
justice.42
[158] Ellis J referred to the following passage from The Law of Torts in New
Zealand:43
In making an apportionment [under s 17(2) of the Law Reform Act] the Court must have regard to the causative potency of the conduct and to the relative blameworthiness of the parties. A more serious fault having less causative impact on the plaintiff’s damage may represent an equivalent responsibility to a less serious fault which had a greater causative impact.
…
Ultimately what is a “just and equitable” division of responsibility is
essentially a question of fact.
[159] In this case, there does not appear to have been any direct evidence before the Judge of the damage caused specifically by defects in products or workmanship of Integrated and Mr Craig, or of how much that damage would have cost to repair. The Judge was obliged to make a “broad brush strokes” assessment of the likely extent of the damage caused by the negligence of Integrated and Mr Craig, having regard in particular to the facts that (i) the Council’s liability could only have arisen out of its November 2002–March 2003 inspections (any liability for inspection work undertaken in 1999 would have been statute-barred by the ten year longstop
limitation period set out in s 393 of the Building Act 2004) and (ii) an apparently
42 At [20].
43 Stephen Todd (ed) The Law of Torts in New Zealand (5 ed, Thomson Reuters, Wellington 2009)
at [24.3.05].
significant proportion of the 24 defects listed by Mr Ng on 1 November 2002 appeared to have been the subject of remedial work carried out by Integrated and Mr Craig. The decision of Ellis J in Van Loghem Investments, although given in June 2012, does not appear to have been referred to the Judge.
[160] It may be that the $175,000 for which judgment was entered against Integrated and Mr Craig will be found to represent a just and equitable contribution to the amount of the Council’s liability to the plaintiffs – I do not know. But on the evidence which is available to me, I do not think I can discount the possibility that the “causative potency” of the negligent work performed by Integrated and Mr Craig might, with the benefit of evidence targeted more directly at the work actually carried out by Integrated and Mr Craig, and the cost of rectifying that work, be assessed at a lower level than is reflected in the judgment for $175,000 which was entered against them. The judgment simply refers to the $175,000 as an “undisputed sum”. It does not expressly weigh “blameworthiness” as between the Council on the one hand and Integrated/Mr Craig on the other; the learned Judge appears to have accepted Equus’ argument that, on any view of it, a just and equitable contribution from Integrated/Mr Craig could not be less than $175,000 out of the total $850,000 paid by the Council to the plaintiffs.
[161] I think one of the difficulties with that approach is that it is not clear how many of the individual items in Mr Ng’s 1 November 2002 list were completed negligently by Integrated and Mr Craig – I have found only that it is likely that some of them were, and that at least some of the negligently completed work caused damage, findings which provide a sufficient basis for allowing the judgment for contribution to stand on liability. And there appears to have been little or no evidence that defects for which Integrated and Mr Craig were responsible cost more or less than $175,000 to rectify, or evidence directed to the “causative potency” of the negligence of Integrated and Mr Craig (in the sense discussed by Ellis J in Van Loghem).
[162] In reaching those views, I take into account that Integrated was not the builder of the dwelling. The construction work was substantially completed in 1999, and Integrated was only called in in November 2002 to carry out a limited amount of
remedial waterproofing and plastering work, in particular parts of the dwelling
specifically identified in Mr Ng’s 1 November 2002 site notes.
[163] In his brief of evidence Mr Wutzler identified a number of defects which he identified as being the main cause or causes of the moisture ingress. The defects included the installation of polystyrene plant-on mouldings around the joinery units, combined with the lack of sealing of the fibre cement sheets under the plant-on mouldings, and the lack of any sill flashings. Another major issue was concerned with inadequate detailing of the liquid applied membrane decks to the upper storey. It is not clear to me that remediation of either of those defects was within Integrated’s brief, which appears to have extended no further than attending to waterproofing and/or plastering remedial works specifically identified in Mr Ng’s
1 November 2002 site notes.
[164] It is not clear what factors the Judge considered in coming to the conclusion that the $175,000 was a just and equitable contribution. In those circumstances I accept Ms Holgate’s submission that the reference in the judgment to the figure of
$175,000 as an “undisputed sum” raises at least the possibility that the “causative potency” and “relative blameworthiness” issues may not have been fully considered in the decision to award Equus the full amount it claimed.
[165] If that was the case, I think that the proof required to support the default judgment as to quantum was arguably not present (as was the position in Re Van Loghem), and that there may have been a miscarriage of justice. In my view the possibility that that may have occurred requires that the judgment should be set aside insofar as it found Integrated and Mr Craig liable to contribute a specific sum of money to the Council under s 17. The judgment on the s 17 contribution claim should stand on the issue of liability.
[166] I am also of the view that Integrated may have a defence to the negligent misstatement cause of action, limited to the quantum of the judgment to which Equus was entitled.
[167] The extent to which Integrated had failed to remediate the various weatherproofing defects identified by Mr Ng on 1 November 2002, and the costs of rectification where the advice in the Integrated guarantee that these defects had been remediated was incorrect, are not clear. Nor is it clear to what extent Mr Ng relied on Integrated’s statements that the defects had been remediated (as opposed to relying on his inspections, including those carried out on 23 December 2002 and 21
February 2003, or on the Producer Statement provided by Equus on 12 December
2002).
The judgment for costs
[168] Ms Holgate raised an additional issue over the judgment for costs entered against Integrated and Mr Craig. The total award was $31,370.50, and Ms Holgate submits that costs items were included in that figure which did not relate to the third party claims against Mr Craig and Integrated. Those items included costs relating to the commencement of the defence, list of documents for discovery and inspection, and pleading in response to an amended statement of claim. She submits that Equus was not entitled to recover any costs associated with defending itself against the Council’s claim.
[169] Given the conclusions I have reached on the application to set aside, I do not think it appropriate to allow the costs order to stand. Costs is always a matter in the discretion of the Court, and if it should turn out on the re-hearing of the proceeding that Integrated’s and/or Mr Craig’s liability is significantly less than the $175,000 for which judgment was entered, it is possible that the Court may take a different view of their liability for costs, including Equus’ costs of defending the third party claims made against it by the Council. There will be an order setting aside the costs order.
Issue 4: Should the judgment be allowed to stand because Integrated and Mr Craig were guilty of deceit in giving a warranty to the Council without any knowledge as to the truth or otherwise of what they were warranting?
[170] In view of my findings on the liability of Integrated and Mr Craig on the claims for contribution and negligent misstatement, it is not necessary for me to consider Equus’ alternative argument based on deceit. As far as the amount of the
judgment is concerned, I do not consider Equus’ position could be any stronger than it was on the negligent misstatement cause of action.
Issue 5: Looked at in the round, have Integrated and Mr Craig shown that there has been, or may have been, a miscarriage of justice?
[171] For the reasons set out above, I conclude that there may have been a miscarriage of justice on the issues of the quantum of the judgment which was entered and costs, and on the entry of judgment against Mr Craig on the negligent misstatement cause of action. The judgment should be set aside to that extent. The judgment for liability should stand against Integrated on both causes of action, and against Mr Craig on the contribution cause of action.
Orders
[172] I make the following orders:
(a) The judgment stands insofar as it found Integrated and Mr Craig liable to Equus on the claim for contribution under s 17 of the Law Reform Act 1936, but is set aside insofar as it fixed the amount they are liable to contribute on that cause of action.
(b)The judgment stands insofar as it found Integrated liable on the negligent misstatement cause of action, but is set aside as to quantum on that cause of action.
(c) The judgment against Mr Craig on the negligent misstatement cause of action is set aside.
(d) The costs order made on 12 December 2012 is set aside.
(e) Integrated and Mr Craig are to file their statements of defence (limited to issues of quantum and Mr Craig’s liability on the negligent misstatement cause of action) within 21 days of the date of this judgment. Thereafter, a case management conference is to be convened, at which directions will be given for the further conduct of
the proceeding. Counsel should consider in advance of that conference whether mediation or some other form of alternative dispute resolution would be appropriate for the resolution of the remaining issues.
Costs on the setting aside application
[173] Although Integrated and Mr Craig have been partially successful with their application, Equus should not have been put in the position of having to expend time and resources on the setting aside application. In the circumstances, I consider it appropriate to award costs to Equus on the setting aside application. There will be an order for costs on the application on a 2B basis, plus disbursements as fixed by
the Registrar.
Solicitors:
Grimshaw & Co, Wellington for Plaintiffs
Gascoigne Wicks, Blenheim for DefendantHazelton Law, Wellington for First Third Party and Second Third Party
Associate Judge Smith
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