Chow v Thomson
[2012] NZHC 712
•15 March 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2009-404-4765 [2012] NZHC 712
BETWEEN LAP HANG CHOW AND LAP LEE CHOW
Plaintiffs
ANDRAYMOND JOHN THOMSON AND VANESSA LOUISE THOMSON
First Defendants
ANDFRANKLIN DISTRICT COUNCIL Second Defendant
ANDCARNACHAN ARCHITECTS LIMITED Third Defendant
ANDGOOD BROS. CONSTRUCTION LIMITED
Fourth Defendant
ANDM.P.M WATERPROOFING LIMITED (IN LIQUIDATION)
Fifth Defendant (discontinued)
ANDGENERAL MANUKAU ENTERPRISES LIMITED (IN LIQUIDATION)
Sixth Defendant
ANDWHENUAPAI JOINERY (1998) LIMITED Seventh Defendant
ANDR & B PLASTERING LIMITED Eighth Defendant
ANDCAPET HOLDINGS LIMITED First Third Party
ANDP R HEALEY Second Third Party
ANDIAG NEW ZEALAND LIMITED Third Third Party
Hearing: 1 March 2012
CHOW V THOMSON HC AK CIV 2009-404-4765 [15 March 2012]
Appearances: S A Thodey for Second Defendant
M Mitchell for Third Third Party
Judgment: 15 March 2012
JUDGMENT OF PETERS J
This judgment was delivered by Justice Peters on 15 March 2012 at 4:30 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date: ...................................
Solicitors:
Heaney & Co, Auckland – email: [email protected]
Fortune Manning, Auckland – email: [email protected]
ANDM.P.M WATERPROOFING LIMITED (IN LIQUIDATION)
Fifth Defendant (discontinued)
ANDGENERAL MANUKAU ENTERPRISES LIMITED (IN LIQUIDATION)
Sixth Defendant
ANDWHENUAPAI JOINERY (1998) LIMITED Seventh Defendant
ANDR & B PLASTERING LIMITED Eighth Defendant
ANDCAPET HOLDINGS LIMITED First Third Party
ANDP R HEALEY Second Third Party
ANDIAG NEW ZEALAND LIMITED Third Third Party
Introduction
[1] The applicant, being the second defendant and now Auckland Council
(“Council”), seeks review of a decision of an Associate Judge in chambers.1
[2] The Associate Judge declined to grant the Council leave to commence a proceeding against IAG New Zealand Limited (“IAG”), in the latter’s capacity as insurer of the fourth defendant, Good Bros Construction Limited (“Good Bros”).2
[3] The Associate Judge declined the Council’s application because he did not consider that the Council had satisfied the relevant criteria. In particular, the Associate Judge was not satisfied that Good Bros was not a “perfectly good common law defendant”.
[4] Quite independently of the application for review, the Council seeks leave to commence another proceeding against IAG, but this time in IAG’s capacity as insurer of the sixth defendant, General Manukau Enterprises Limited (in liquidation) (“GME”). This application for leave was before the Associate Judge but was overlooked. The trial of the plaintiffs’ claim is to be held over 10 days, commencing on 30 April 2012 and the parties wish me to determine this second application for leave contemporaneously, rather than refer it back to the Associate Judge.
Background
[5] This is a leaky building claim. The plaintiffs are the owners of a residential property in South Auckland. The house was completed in about 2001. The plaintiffs acquired the house from the first defendants in 2005 and the plaintiffs sue them in contract. Repairs to the property have almost been completed. In round terms, and subject to issues as to betterment, the cost of those repairs is about $2.3 million.
[6] The second to eighth defendants comprise the parties involved in the construction work. The plaintiffs have discontinued against the fifth defendant.
1 Chow v Thomson & Ors HC Auckland CIV-2009-404-4765, 19 December 2011.
2 Law Reform Act 1936, s 9(4).
Good Bros was the builder on the project and GME waterproofed all or some parts of the building(s).
[7] There is no dispute that Good Bros and GME each had in place insurance policies with IAG or some predecessor company at the time the relevant work was done. There is or may be a dispute between each insured and IAG as to whether the policy covers such liability, if any, as the insured might have.
[8] There are cross claims between many of the defendants and there are also third party claims.
[9] The Council has a cross claim against each of Good Bros and GME. Good Bros has a cross claim against other defendants and third party proceedings against IAG. IAG is defending the third party claim. GME has not issued any cross claims nor any third party claims against IAG.
Section 9 Law Reform Act 1936
[10] The Council’s applications are made pursuant to the provisions of s 9 Law
Reform Act 1936 (“the Act”). The relevant parts of s 9 read as follows:
9Amount of liability to be charge on insurance money payable against that liability
(1) If any person (hereinafter in this Part of this Act referred to as the insured) has, whether before or after the passing of this Act, entered into a contract of insurance by which he is indemnified against liability to pay any damages or compensation, the amount of his liability shall, on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance money that is or may become payable in respect of that liability.
...
(4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same Court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the Court shall have the same powers, as if the action were against the insured:
Provided that, except where the provisions of subsection (2) of this section apply, no such action shall be commenced in any Court except with the leave of that Court.
(5) Such an action may be brought although judgment has been already recovered against the insured for damages or compensation in respect of the same matter.
...
[11] The origin, development and effect of s 9 is discussed in Ludgater Holdings Ltd v Gerling Australia Insurance Company Pty Ltd.3 For present purposes, however, the following passage from Laws of New Zealand is a sufficient summary of the effect of s 9(1) of the Act:4
... if any person has entered into a contract of insurance by which he or she is indemnified against liability to pay any damages or compensation, the amount of the insured’s liability will be a charge on all insurance money that is or may become payable in respect of that liability. The charge arises at the time of the event giving rise to the claim against the insured, regardless of the fact that the amount of the liability may not have been determined at that time. The charge has priority over all other charges ...
[12] Section 9(4) of the Act is concerned with how the charge created by s 9(1) is to be enforced against the insurer. The effect of the proviso to s 9(4) is to require a party seeking to enforce the charge, as the Council does in this case, to obtain the leave of the Court before commencing proceedings. The only circumstance in which leave is not required is if the insured is insolvent on the happening of the event
giving rise to the claim for damages or compensation.5 That exception does not arise
in this case and so leave is required.
[13] It is common ground between the parties that the Court must be satisfied as to three matters before it will grant leave pursuant to s 9(4) of the Act:
(a) that there is a prima facie claim against the insured;
(b) that the insured has a prima facie claim under the policy of insurance;
3 Ludgater Holdings Ltd v Gerling Australia Insurance Company Pty Ltd [2010] NZSC 49, [2010] 3
NZLR 713 at [14] – [21].
4 Laws of New Zealand Insurance at [475].
5 Law Reform Act 1936, s 9(2).
(c) that the insured is not a “perfectly good common law defendant”.
Application for review
[14] The Associate Judge’s decision was made following a defended hearing and it is supported by documented reasons. Accordingly, the application for review proceeds as a rehearing and it is for the Council to persuade me that the decision is wrong in that it rested on unsupportable findings of fact or that the Associate Judge applied a wrong principle of law.6
[15] There is no dispute between the parties that the requirements of [13](a) and [13](b) above are satisfied in the case of Good Bros. The sole issue is whether the Associate Judge erred in concluding that the Council had not satisfied the requirement in [13](c).
[16] The phrase “perfectly good common law defendant” derives from Campbell v Mutual Life and Citizens Fire and General Insurance Co (New Zealand) Ltd,7 in which Roper J said:
I have no doubt that the real purpose of the proviso to [s 9(4)] is to insure that a plaintiff does not take direct action against an insurer when there is a perfectly good common law defendant available.
[17] Comments of the Court of Appeal in a subsequent case, FAI (NZ) General Insurance Co Ltd v Blundell and Brown Ltd,8 are also of assistance in determining the circumstances in which leave is to be granted:9
The onus is on the appellant to show why leave to commence proceedings against the insurer should be given. It is not granted as of course. In Campbell v Mutual Life and Citizens Fire and General Insurance Company (New Zealand) Ltd [1971] NZLR 240, 243 Roper J considered that the real purpose of the proviso was to ensure that a plaintiff does not take direct action against an insurer where there is a perfectly good common law defendant available. Put positively leave should be granted whenever desirable to protect the claimants from the charge that subs (1) creates
6 High Court Rules, r 2.3(4).
7 Campbell v Mutual Life and Citizens Fire and General Insurance Co (New Zealand) Ltd [1971] NZLR 240 (SC) at 243.
8 FAI (NZ) General Insurance Co Ltd v Blundell [1994] 1 NZLR 11.
9 At 15 – 16.
against any insurance money that is or may become payable in respect of the liability of the insured to the claimants. ...
But if there are no doubts as to the insured's capacity to meet the claim the granting of leave could impose an unnecessary burden on the insurer. ... Leave should not be granted unless there is an arguable case against the insured and the claimant's prospects of practical recovery might be frustrated without direct access to the insurance money.
[18] Before me, counsel for the Council submitted that leave ought to be granted if there is reason to doubt the insured’s ability to meet a judgment or if there is reason to doubt whether the insured has the means or resolve to pursue a claim against the insurer. Counsel referred me to several authorities in support of that proposition.10
[19] In support of its contention that Good Bros is not to be considered a perfectly good common law defendant, the Council referred to such evidence as it had been able to obtain regarding Good Bros’ financial position; to the quantum of any judgment likely to be ordered against Good Bros, if liability is established; and to documents filed or served to date by Good Bros. In the Council’s submission, it is apparent from such documents that Good Bros is not defending the plaintiffs’ claim or the cross claims against it or pursuing its third party proceedings with the vigour one would expect of a perfectly good common law defendant.
[20] As to Good Bros’ financial position, the Council adduced Good Bros financial statements to 31 March 2011. The statements were in draft, as they had not been signed by Good Bros’ directors, and there are other respects in which the financial statements do not comply with the relevant reporting standards. On their face, however, the financial statements are to the effect that as at 31 March 2011
Good Bros had net assets of approximately $400,000.00.
[21] The Council also relied on an affidavit of Mr A Ferguson, a claims manager and barrister and solicitor sworn in September 2011. In that affidavit, Mr Ferguson
gives (hearsay) evidence that counsel for Good Bros has indicated that the
10 Manettas v Underwriters at Lloyds (1993) 7 ANZ Insurance Cases 61-180 (NSWSC); Tzaidas v Char (2004) 61 NSWLR 18 (NSWCA); Schipp v Cameron (1995) 8 ANZ Insurance Cases 61-256 (NSWCA); and Aboriginal Land Council (NSW) v Ace Global Markets (2005) 188 FLR 389 (NSWSC).
company’s conduct of its case may be affected adversely by a lack of financial
resources.
[22] The Associate Judge said that it was possible that any judgment against Good Bros might exceed $400,000.00 by a considerable margin. In that event, Good Bros would have to rely on a claim against IAG if it were to meet the judgment.
[23] I do not place great weight on Good Bros’ draft financial statements or on Mr Ferguson’s affidavit. The financial statements cannot be relied on as evidence of Good Bros’ existing financial position. In so far as concerns Mr Ferguson’s affidavit, stronger evidence than that would be required to persuade me that Good Bros is not in a position to pursue its defence or its proceedings against other defendants or IAG.
[24] The Associate Judge then considered what the prospects were of Good Bros passing any judgment on to the insurer. In my view, that is the important point on the application for review.
[25] On the face of the Court file, and as counsel for IAG submitted to me, Good Bros has instructed solicitors and counsel. Good Bros has opposed the plaintiffs’ claim, has issued cross claims, and it has taken the necessary procedural steps to pass any judgment on to its insurer. The Associate Judge did not consider that there was any immediate prospect that Good Bros would cease to defend the claims against it or to prosecute its claim against IAG. Accordingly, the Associate Judge concluded that leave ought not to be granted to the Council to proceed directly against IAG.
[26] Before me, counsel for the Council submitted that, whatever steps Good Bros may have taken, there is now reason to believe that Good Bros is not protecting its position as one would expect. The Council relied on two matters in particular. The first was the evidence that Good Bros has served or, more to the point, has not served. The second is Good Bros’ failure, even now, to pursue IAG for its discovery.
[27] The parties were required to serve briefs of evidence prior to Christmas 2011. Good Bros served one brief of evidence which is just over two pages long, from a Mr Cunningham, a quantity surveyor. This is despite the fact that the plaintiffs’ statement of claim is a comprehensive document, Good Bros were the builders on the project and the project itself was very substantial. On the pleadings, it is common ground that Good Bros constructed the buildings on the property between November 1999 and April 2001, that is over a period of 18 months. Despite that, however, Mr Cunningham’s evidence consists of five paragraphs in response to the plaintiffs’ claim, being two as to liability and three as to quantum. Mr Cunningham’s evidence against the insurer comprises three paragraphs.
[28] Counsel for the applicant advised me that IAG has served four briefs of evidence alone, solely on its case that it is not liable to Good Bros.
[29] The second matter on which the Council relies is that Good Bros has not pursued IAG for a list of documents. At the hearing, counsel for IAG informed me that IAG’s list is almost complete. That does not, however, detract from the fact that Good Bros appears to have taken no steps to require IAG to serve its list. In the usual course of events, a party such as Good Bros would wish to consider IAG’s discovery before serving its evidence.
[30] Quite properly, counsel for IAG emphasised that the Associate Judge’s decision was not to be departed from unless plainly wrong. Counsel for IAG submitted that the Associate Judge knew when he made his decision that Good Bros’ evidence consisted of Mr Cunningham’s short statement.
[31] In addition to that matter, counsel for IAG submitted that a direct claim by the Council against IAG constitutes an unnecessary duplication of proceedings. To grant leave would require IAG not only to contest Good Bros’ claim but also the Council’s. I accept that there is a risk on that score. I am not satisfied, however, that the risk is sufficiently great in the circumstances of this case to warrant declining leave.
[32] I propose to grant this application for review. The position is different from that which was before the Associate Judge because the parties are now six weeks from trial, rather than several months.
[33] I am satisfied there is reason to doubt that Good Bros remains a perfectly good common law defendant and I propose to grant leave accordingly. I add that counsel for IAG’s submissions were all very well made. It is, however, a matter of making the best assessment I can at the present time. I consider Good Bros’ failure to serve any more evidence or to pursue IAG for its discovery to be significant.
[34] I therefore allow the application for review as regards the fourth defendant.
General Manukau Enterprises Limited (in liquidation)
[35] I turn now to the application for leave to issue proceedings against IAG in its capacity as insurer of GME.
[36] IAG accepts that GME is not a perfectly good common law defendant and that there is also a prima facie case that the policies GME had in place respond to the event giving rise to liability, if any. I am also satisfied that there is a prima facie case against GME.
[37] IAG submits that I should not grant leave to the Council because GME breached conditions of the policy and the effect of those breaches has been to prejudice IAG in two respects. I assume for the sake of argument that there is a discretion to decline leave for reasons such as those referred to in the following paragraphs.
[38] The first respect in which IAG contends it has been prejudiced is that it has not investigated matters relevant to GME’s liability for the work it undertook on the property, nor investigated the quantum of any liability that GME might have in the proceedings. The repairs to the property are almost complete and it is now too late for IAG to obtain such evidence.
[39] The second respect in which IAG submits it is prejudiced is that GME failed to file any cross claims or third party proceedings. IAG considers it may now be too late to attend to either of these matters.
[40] Taking the first of these submissions, conditions in GME’s policy required GME to notify IAG of a situation likely to give rise to a claim; to take all reasonable steps to minimise the claim and avoid any further claim arising; and to refrain from taking a step which might prejudice IAG’s ability to defend the claim. IAG submits GME has breached these conditions.
[41] In an affidavit sworn in opposition to this application, a representative of IAG
gave evidence that GME was insured under various NZI policy wordings between
1 August 1991 and 1 August 2011. GME gave notice to IAG of the present claim by claim form dated 27 May 2009. The plaintiffs commenced their proceedings in July
2009. IAG declined GME’s claim by letter dated 19 January 2010.
[42] The affidavit goes on to state that GME did not advise IAG that any information in the declinature letter was incorrect and nor did GME seek a review of IAG’s decision. Such a review would have been carried out internally. IAG’s evidence is that it believed that GME had accepted the declinature, as GME took no further steps to advance the claim for indemnity nor to keep IAG informed of the progress of the High Court proceedings. As a result, IAG did not take any further steps to investigate the claim. IAG’s evidence is that it would have instructed an expert to make further enquiry and so on, if GME had disputed the declinature.
[43] In response to this submission and to the following submission for IAG, the Council submits that the evidence from IAG falls short of establishing a clear breach on GME’s part, so as to deprive GME of cover under the policy. I accept that submission. Whether GME breached the policy and, if so, the consequence of that breach, is not a matter that I can determine on this application. I note also that, in its declinature letter, IAG said it had arranged for its building surveyor to inspect the decks and to report on the cause and timing of water entry to the decks on which GME worked. IAG quoted extensively from the surveyor’s report in its letter to GME. It was open to IAG to obtain further evidence at that time or later if it wished.
[44] The second respect in which IAG contends it is prejudiced is by virtue of the “long stop” provisions contained in s 91 of the Building Act 1991 or s 393 of the Building Act 2004. These provisions preclude a party commencing civil proceedings in respect of building work if 10 years or more have passed since the work was done.
[45] For the purposes of argument, I accept IAG’s submission that these long stop provisions might preclude IAG commencing a cross claim or third party proceedings. A claim against a third party is not a fanciful possibility. For instance, IAG referred me to an affidavit from a Mr McGunnigle sworn on 14 February 2012. To give just one example, Mr McGunnigle’s evidence is that at least some of the damage to the timber frame of the house has been caused by the method of installation of metal handrails to the deck(s). Mr McGunnigle’s evidence is that the supports for the handrails have punctured the waterproof membrane and have allowed water to enter the dwelling. Had IAG been joined earlier, it may have been able to join the party who installed the handrails.
[46] In response to these submissions, the Council again submitted that the matters on which IAG relies are not capable of determination in this present application but are matters to be considered in the course of the proceedings the Council seeks leave to commence. The Council referred to other decisions of the Court in which an insurer has raised similar arguments.11 The Court has held that such matters are to be argued in the course of the proceedings, and are not to be determined on an interlocutory basis. I accept this submission. It may be that IAG has a good defence to the proceedings because of the matters to which it has referred,
but I cannot resolve them at present.
[47] There are other matters which I consider have some relevance to this application.
[48] The first is that there is always a risk to an insurer that a third party will make an application for leave to commence proceedings pursuant to s 9(4) of the Act, even
11 Body Corporate 169791 v Auckland City Council (2008) 15 ANZ Insurance Cases 61-767 (HC);
and Price v New Zealand Insurance Limited [2003] DCR 300 (DC).
at a very late stage. Section 9(5) of the Act allows an action to enforce the s 9(1)
charge, even though judgment has already been recovered against the insured.12
[49] Secondly, on the facts of the case it is possible that IAG’s position would not
been improved even if the Council had sought leave at an earlier time.
[50] As I have said, in their statement of claim the plaintiffs allege that the works were done between November 1999 and April 2001. If that is correct, then on IAG’s view of the long stop provisions, no claim could have been brought in respect of any of the works after, say, April 2011. To have avoided the long stop, IAG would have had to be joined in respect of GME prior to April 2011.
[51] Counsel for IAG submitted that the present application for leave could have been brought at an earlier time. GME’s list of documents dated February 2010 contains a reference to communications between GME and NZI. Although GME went into liquidation in December 2010, the first reference to GME’s liquidation on the face of the Court file appears to have been in counsel for GME’s application for leave to withdraw, made in August 2011. There is no evidence that the Council knew of GME’s liquidation prior to the best estimate I can make of when the 10 year period probably expired.
[52] For the reasons given, I am persuaded by a very narrow margin to grant the Council the leave it seeks in respect of GME. I am not satisfied that the prejudice to IAG is sufficiently clear cut to decline leave.
Result
[53] I grant the Council’s application to review the decision of the Associate Judge made on 19 December 2011 and make the orders sought in paragraphs [1](a) and (b)
of the Council’s application dated 21 September 2011.
12 Law Reform Act 1936, s 9(5).
[54] The Council is to file and serve its proceedings forthwith and IAG is to file and serve its statement(s) of defence no later than 4 pm, 29 March 2012. The parties have leave to apply for any directions relating to IAG’s joinder.
[55] Costs on this application are reserved pending determination of the proceedings.
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PETERS J
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