Conning v Martoni Limited
[2012] NZHC 401
•4 May 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-5351 [2012] NZHC 401
BETWEEN GRAEME EDWARD CONNING AND ROBERT WILLIAM BELL-BOOTH AND OTHERS
Plaintiffs
ANDMARTONI LIMITED First Defendant
ANDTONCI EDI MARINOVIC Second Defendant
ANDROY LESLIE ANDREW Third Defendant
Hearing: 8 March 2012
Appearances: Mr R Bell-Booth for Plaintiffs
Mr P Rice for Second Defendant
Judgment: 4 May 2012
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
This judgment was delivered by me on
04.05.12 at 4 pm, pursuant to
Rule 11.5 of the High Court Rules.
Counsel:
Registrar/Deputy Registrar Date……………
Mr R Bell-Booth, P O Box 33-002, Takapuna - [email protected] for Plaintiffs
Mr P Rice, P O Box 4341, Auckland – [email protected] for Second Defendant
G Brown-Haysom, Brennan & Brown-Haysom, Papatoetoe – [email protected] - Third
Defendant
Corban Revell, P O Box 21-180, Waitakere City – [email protected] for fourth defendant
S J Telford, Morgan Coakle, Auckland – [email protected] - Fifth DefendantC McLean, Heaney & Co, Auckland - [email protected] - Sixth Defendant
Z Brentnall, Gilbert Walker, Auckland - [email protected] /
[email protected] - First Named Seventh Defendant
Mr P Craighead, Manukau City – [email protected] for one of the seventh defendants
Mr E St John, Auckland – [email protected] for Tenth Defendant –
Alistaire Hall Lawyers,, PO Box 76154, Manukau City - [email protected]H Thompson, McMahon Butterworth Thompson, Auckland – [email protected] - Twelfth
Defendant
CONNING AND OTHERS V MARTONI LIMITED & ORS HC AK CIV-2010-404-5351 [4 May 2012]
ANDGORDON ALLEN MARTINSEN Fourth Defendant
ANDMSC CONSULTING GROUP LIMITED Fifth Defendant
ANDNORTH SHORE CITY COUNCIL Sixth Defendant
ANDMAURICE HERBET HINTON & ALEC JAMES WHORWOOD
Seventh Defendants
ANDTHE ATTORNEY-GENERAL Eighth Defendant
ANDBRENT SALTER & PAUL SALTER Ninth Defendants
ANDJOHN BISSETT LIMITED Tenth Defendant
AND BODY CORPORATE NO. 204090
Eleventh Defendant
ANDANTHONY JOHN STEPHEN LESTER & LYN LESTER, MARY CATHERINE RYAN, THE TRUSTEES EXECUTORS AND AGENCY CO OF NZ LIMITED Twelfth Defendant
Background
[1] This is an application by the second defendant (Mr T E Marinovic) for summary judgment and strike out of the plaintiffs’ claim. The plaintiffs are the proprietors of residential units situated at 8 Rugby Road, Birkenhead, and have claimed that the defendants’ negligence caused the complex to become leaky. The first defendant, Martoni Ltd, is an incorporated company carrying on business as a property developer. It originally owned the land on which the units are situated, and also developed and constructed the units. The second defendant is the sole director and shareholder of Martoni Ltd. Other defendants to this action include (inter alia) the project manager, the architects, the engineers, and the North Shore City Council. The first and second defendants have cross-claimed against all other defendants except the eighth, eleventh, and twelfth defendants, seeking contribution (if it is found to be liable to the plaintiffs) on the basis of s 17(1)(c) of the Law Reform Act
1936.
[2] The complex was constructed between January 2000 and February 2001. It consists of a total of 12 units — 5 units on the ground floor, 5 units on the first floor, and 2 units on the second floor. The external walls, and the inter-tenancy walls up to the second floor, were constructed using a method known in the building trade as “chilly bin” construction: concrete is poured into polystyrene moulds resembling chilly bins, creating concrete-filled polystyrene blocks, the external faces of which are then plastered over. Some of the polystyrene remains embedded within the concrete after the construction is completed. The plaintiffs’ claim is based on the detailed way in which certain aspects of the construction was carried out, rather than the type of construction technique used per se.
[3] The inter-tenancy walls of the second floor, containing the penthouses, are constructed from reinforced concrete. The basement, used for storage, is constructed from concrete. The structure of the development has been mainly constructed from timber framing. The upper storey is mainly clad with 40 millimetre polystyrene sheets finished with fibre-glass reinforced plaster. The balustrade walls to the balconies are generally clad with texture-coated fibre cement sheets. The main roof
over the development is flat and waterproofed with a rubber membrane. It discharges into externally mounted metal spouting draining into external gutters.
[4] The North Shore City Council (the sixth defendant) issued a code compliance certificate for the property in February 2001, following inspections and reports by
the seventh defendants. The first and second defendants carried out further construction development, maintenance and remedial works to the building until about 2009.
Summary judgment principles
[5] Rule 12.2 of the High Court Rules 2008 states that the Court may give summary judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[6] The Court of Appeal in Westpac Banking Corporation v M M Kembla (New
Zealand) Ltd noted the following when dealing with r 136(2), the predecessor of r
12.2(2):1
[60] Where a claim is untenable on the pleadings as a matter of law, it will not usually be necessary to have recourse to the summary judgment procedure because a defendant can apply to strike out the claim under r 186. Rather R
136(2) permits a defendant who has a clear answer to the plaintiff which cannot be contradicted to put up the evidence which constitutes the answer
so that the proceedings can be summarily dismissed. The difference between an application to strike out the claim and summary judgment is that strike-
out is usually determined on the pleadings alone whereas summary judgment requires evidence. Summary judgment is a judgment between the parties on the dispute which operates as issue estoppel, whereas if a
pleading is struck out as untenable as a matter of law the plaintiff is not precluded from bringing a further properly constituted claim.
[61] The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually summary judgment for a defendant will arise where the defendant can offer evidence which is a complete defence to the plaintiff's claim. Examples, cited in McGechan on Procedure at HR 136.09A, are where the wrong party has proceeded or where the claim is clearly met by qualified privilege.
[62] Application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment only able to be properly arrived at after a full hearing of the
1 Westpac Banking Corporation v M M Kembla NZ Ltd [2001] 2 NZLR 298 (CA) at [60]-[64].
evidence. Summary judgment is suitable for cases where abbreviated procedure and affidavit evidence will sufficiently expose the facts and the legal issues. Although a legal point may be as well decided on summary judgment application as at trial if sufficiently clear (Pemberton v Chappell [1987] 1 NZLR 1), novel or developing points of law may require the context provided by trial to provide the Court with sufficient perspective.
[63] Except in clear cases, such as a claim upon a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary procedure the sufficiency of the proof of the plaintiff's claim. That would permit a defendant, perhaps more in possession of the facts than the plaintiff (as is not uncommon where a plaintiff is the victim of deceit), to force on the plaintiff's case prematurely before completion of discovery or other interlocutory steps and before the plaintiff's evidence can reasonably be assembled.
[64] The defendant bears the onus of satisfying the Court that none of the claims can succeed. It is not necessary for the plaintiff to put up evidence at all although, if the defendant supplies evidence which would satisfy the Court that the claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own. Even then it is perhaps unhelpful to describe the effect as one where an onus is transferred. At the end of the day, the Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment made by the Court on interlocutory application is not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial.
[7] Furthermore, the Court of Appeal in Krukziener v Hanover Finance Ltd
stated:2
The court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as, for example, where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at
341. In the end the court’s assessment of the evidence is a matter of judgment. The court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corporation Ltd v Patel (1987) 1 PRNZ 84 (CA).
[8] Therefore, at the end of the inquiry, the Court will only grant the application for summary judgment if it has reached a point where it can say that the defendant has a clear answer to the claims against him which would be a complete defence to the plaintiffs’ case.
[9] In this case the Court received the usual invitation from the applicant to act
"robustly". But as the name of the procedure suggests, summary judgment is only
2 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
available where the Court is entitled to deal with the matter summarily — where there is no issue of substance that ought to go to trial.
[10] In my view, the claim that it has been brought in so far as it attempts to attach liability to the director, cannot be described as a legal impossibility. Therefore, whether or not the claim is a viable one, cannot be resolved on the basis that the law does not permit claims of this type. Rather, the question is whether on the basis of the facts advanced by the plaintiffs', it is apparent that a claim against the company director, cannot in the circumstances of this case, succeed. In the circumstances it is not therefore necessary to say anything about the principles relating to strike out applications and the matter shall be disposed of solely on the basis of the summary judgment application.
[11] Summary judgment can be awarded where the defendant satisfies the Court that none of the causes of action in the plaintiff's statement of claim can succeed. Strike out is not appropriate, as the factual circumstances of the case are crucial in determining whether a director should be held to be personally liable. The same observation applies to cases belonging to the larger category of negligent construction causing financial loss.
Causes of water ingress
[12] After construction, the building began to exhibit signs of water ingress, including bubbling on the external paintwork. The firm of Alexander & Co produced a preliminary report followed by a detailed report in 2009, confirming that there had been water ingress into the building. In their report dated 22 December
2009, they identified the following as the main causes of water ingress:
a) Water had entered through the external walls of the ground and first floors due to the use of flat-topped parapets with no flashings. The unflashed junctions between main walls and the polystyrene stuck-on features caused cracks in the external paint coating.
b)The cladding was brought hard down onto the deck tiles, allowing water to “wick” up through capillary action through the external walls on the second floor.
c) The sills and jambs did not have flashings to the joinery, and were completely reliant on the head flashings. The sills and jambs came away once the sealant failed.
d)The wing walls, which were fitted to the exterior between the apartments, were completely dependent upon the strength of the sealant where they joined onto other walls. The wing walls had no cap flashings or slope for drainage. The balustrades also lacked flashings at the point it joined with the exterior cladding, and when the sealant gave way, water ingress inevitably occurred.
e) The sealant between the roof’s rubber membrane and the stuck-on polystyrene feature had cracked and split. The cladding was hard down to the roof shingles allowing moisture to wick up through capillary action and preventing adequate base drainage. The flashing details were also poorly formed. There were visible water entry paths.
[13] An assessor surveyed the property for the Weathertight Services Group of the Department of Building and Housing in September 2010, and noted that the defects included: flat-topped plastered parapets (some with handrail penetrations), cracking to cladding sheets, minimal deck-to-door thresholds, buckled deck tiling, lack of visible sill flashings, cladding installed down to ground level and penetrations reliant upon sealant for weathertightness. He concluded that there were a large number of visual defects to the property, and the deck balustrading had failed, leading to a high moisture content in the timber framing.
The claims
[14] The plaintiffs’ claim that Mr Marinovic (along with the other defendants) owed a general duty of care to the plaintiffs to ensure that the building was constructed in a manner that complies with the required building legislation, and in a
good and workmanlike manner, and that Mr Marinovic breached his duty of care in the construction and development process.
a) The plaintiffs’ allege that Mr Marinovic was the principal member and officer of the first defendant, and personally undertook the functions of the first defendant and the construction of the building. The plaintiffs assert the function of the first defendant to be carrying on business as a contractor and property developer, and developing and constructing the complex, and:
b)That both Martoni Ltd and Mr Marinovic applied to the North Shore City Council for a building consent on or about 30 November 1999 for the first stage of the development, and again on or about 3 April
2000 for the second stage of the development.
c) That Martoni Ltd and Mr Marinovic carried out further construction development, maintenance and remedial works to the building relevant to the defects in or about 2009.
[15] The plaintiffs’ allege that Martoni Ltd and Mr Marinovic’s duty of care arose from:
a) Being the owners of the land and property;
b) Causing the building to be constructed;
c) Engaging the third defendant (the project manager, against whom the plaintiffs have now discontinued) to manage, supervise, build and instruct the works being carried out;
d)Applying for building consents and inspecting and reporting upon the work carried out, and procuring compliance certificates.
e) Developing the building with a view to selling the units for profit.
[16] Mr Marinovic applies for summary judgment on the following grounds.
a) He disputes that he applied for the building consents. The applications for the building consents were prepared and filed by Compass Building Certification Ltd, a building certification company engaged by the architect and that the applicant on both applications is shown as ‘Martoni Developments’, not Mr Marinovic himself.
b)That Martoni Ltd was the developer, not himself. Mr Marinovic transferred the property to Martoni Ltd in February 2000 when the building work commenced, therefore taking him outside of the ten- year long stop provisions in s 393(2) of the Building Act 2004. This matter was not raised at the hearing.
c) That the functions of designing and constructing the building, obtaining consents and approvals, and supervising the various tradespeople involved were carried out by parties other than Martoni Ltd or Mr Marinovic. Mr Marinovic describes his occupation as a restauranteur, not a builder or designer.
d)That the acts of Mr Marinovic in attending site meetings and arranging funding were all performed in his capacity as the director of a property development company.
e) That all profits from the development were reaped by Martoni Ltd.
[17] The plaintiffs’ oppose Mr Marinovic’s summary judgment application on the
ground that Mr Marinovic did owe them a duty of care:
a) That this duty included obligations of overseeing and being satisfied on reasonable grounds that the construction was undertaken by methods and persons using materials of specifications and standards compliant with the applicable building code;
b)That Mr Marinovic personally designed, specified and instructed the construction of planter structures into roof area balustrades and the decks of the subject building, none of which were part of the consented drawings or supporting specifications for the construction of the subject building. These features adversely affected the weathertightness of the building.
c) That by his actions noted above, Mr Marinovic personally assumed responsibility for those otherwise unauthorised works and their consequences for the building.
d)That Mr Marinovic failed to take reasonable steps to ensure that the construction complied with relevant building codes and standards.
[18] The plaintiffs seek to impose personal liability on Mr Marinovic in two ways:
a) That Mr Marinovic was the developer of the project, and therefore subject to a non-delegable duty of care; and
b)That Mr Marinovic was personally involved in a hands-on way (at least in isolated parts of the construction); that he took charge of altering the building design to provide for planter boxes to be built into the structure of the building at the penthouse level, and that this design was deficient and was one of the causes of water ingress into the building.
[19] I accept for the purposes of the present application that a developer owes a non-delegable duty of care to those who purchase residential buildings from them.3
That issue is not, however, a central one in the present claim. The present application raises the question of whether there is a claim for liability against the property development company, and whether such a claim can be extended to
impose liability on a director of the company.
3 Mount Albert Borough Council v Johnson [1979] 2 NZLR 234 (CA) at 240-241.
[20] Mr Marinovic does not dispute that, through his company, he undertook the functions of being a property developer. However, Mr Rice, counsel for Mr Marinovic, went on to argue the untenability of the contention that Mr Marinovic personally undertook the construction of the building, given that he was removed from actual construction work by several degrees:
a) He had established a company to undertake the development;
b)He had engaged an architectural draughtsman to design the building and apply for resource consents;
c) He engaged a project management company to coordinate and supervise the project, and a construction company to construct the building; and
d)The construction company engaged all the tradespeople required, and purchased all the materials, and employed a site manager to supervise
the work on site.
The issues
[21] The main issue in this case is whether Mr Marinovic owed a personal duty of care to the plaintiffs to take reasonable care to ensure that design and construction of the apartments was such that it would not cause damage and loss to the purchasers. This depends on whether a director can be made personally liable even if he had incorporated a company for the very purpose of limiting personal liability.
[22] Even if it is shown that Mr Marinovic owed a personal duty of care, it must be determined whether his personal actions or omissions contributed to the weathertightness problem.
The personal liability of directors
[23] The existence of a company does not rule out the possibility that the director may be personally liable for his tortious actions or omissions, even if the harm was
caused in the course of the director’s company discharging its obligations under a
contract.
[24] Morton v Douglas Homes Ltd concerned a claim against the company directors for damage caused through the negligent construction of a building.4
Hardie Boys J held that though a director can be personally liable for his own torts, any duty of care owed personally by the director would arise because there was proximity between the director and the plaintiff, not by reason of the defendant’s status as a director. Though it may well be because he is a director that the duty arises, the fact that he is a director does not of itself create the relationship.5
[25] In Morton, the defendants built residential units on suspect piling. The directors were not themselves builders. The company employed a registered Master Builder, assisted by two carpenters. There was no reason to suspect that the Master Builder was not competent. At this phase of design and construction, the defendants were not closely involved. However, at a later point, after the Master Builder had left, the defendants became more involved, and took it upon themselves to manage the building operations. It was in this phase where a consulting engineer had considered the problem of the unsuitable sub-strata and had designed a system of piling. The engineer had also warned the defendants of the danger of eccentric loadings (such as fireplaces on the perimeter of the structures). The defendants ignored or did not pass on the engineer’s warnings, and as a result, the units all suffered from subsidence, as the proposed piling had not been carried out properly.
[26] Hardie Boys J found that as to parts of the work, the directors were personally liable in addition to the company. In particular, after the Master Builder left, the defendants’ became more involved in the building process, part of which had resulted in defective construction, subsidence and loss. In these circumstances, notwithstanding that the purchasers had contracted with the company, claims in
negligence were available both against the company and the directors.
4 Morton v Douglas Homes Ltd [1984] 2 NZLR 548 (HC).
5 Ibid, at 593-594.
[27] In his judgment, Hardie Boys J compared the position with the case of Callaghan v Robert Ronayne Ltd,6 where the defendant company had undertaken a residential development. Though the claim against the company was successful, the claim against the directors in negligence failed. The directors of the development company in that case were airline pilots, not tradesmen, and the property was constructed by carpenters and contractors. Speight J referred to the fact that if there
had been evidence that any one of the directors had exercised “personal control and instruction...which might be proved which had led to defects, then liability might have been established”.7 Speight J went on to note that there was little specific evidence of individual participation by the directors, and though there was a suggestion that the directors were sometimes on the scene, there was no evidence as to who did what.8
[28] Hardie Boys J in Morton found Speight J’s comments significant in assessing proximity and whether a duty should be imposed, and used it to formulate what is now known as the “degree of control” test: that the degree of control the director has over the operations of the company is relevant to determining whether or not the director’s personal carelessness may be likely to cause damage to a third party, and
therefore establish a duty of care.9
[29] Subsequently, the Court of Appeal in Trevor Ivory Ltd v Anderson considered the question of whether a director can be made personally liable in the context of negligent misstatement.10
[30] Hardie Boys J cautioned against confusing the company as a separate legal entity with the persons who are the directors and shareholders. But he noted that to make a director liable for his personal negligence does not run counter to the purposes and effect of incorporation.11 However, the nature of corporate personality would generally require that the identification of the director with the company is
normally the basic premise and that clear evidence is needed to replace it with a
6 Callaghan v Robert Ronayne Ltd (1979) 1 NZCPR 98 (SC).
7 Ibid, at 132.
8 Ibid.
9 Morton v Douglas Homes Ltd, above n 4, at 595.
10 Trevor Ivory v Anderson [1992] 2 NZLR 517 (CA).11 Ibid, at 527-528 per Hardie Boys J.
finding that the director is acting not as the company but as the company's agent in a way that renders him personally liable.12 The appropriate test was expressed to be whether there was an assumption of responsibility, actual or imputed.13
[31] Cooke P and McGechan J in Trevor Ivory regarded the facts of Morton as a case where the director was liable because he assumed responsibility for his actions, rather than as a case decided under the general tort principles of when a duty of care should be imposed. Cooke P also stated that Morton was not intended to lay down a
general rule in building negligence cases.14 McGechan J stated that assumption for
responsibility may arise where the director exercises particular control over the situation, and saw Morton as an example of this.15
[32] The Court of Appeal considered both Morton and Trevor Ivory in Body Corporate 202254 v Taylor (“Taylor”),16 which concerned an appeal from the striking out of a negligence claim against a director of a company that had constructed defective properties.
[33] The majority preferred an “elements of the tort” approach:
a) Where assumption of responsibility is an element of tortious liability, an employee who is acting on behalf of a principal can only be liable if there is a personal assumption of responsibility by that employee.17
b)However, a restricted approach must be taken to finding employee responsibility, in order to preserve the existing framework of the law of contracts and the idea of a separate corporate personality. But where the case involves provision of services of a professional or
skilled kind, this restrictive approach is not needed.18
12 Ibid.
13 Ibid.
14 Ibid, at 532 per McGechan J.
15 Ibid, at 523 per Cooke P.
16 Body Corporate 202254 v Taylor [2008] NZCA 317, [2009] 2 NZLR 17 [Taylor].
17Taylor, at [29]. This is the approach adopted by McGechan J in Trevor Ivory.18 Ibid.
[34] The majority explicitly stated that the Trevor Ivory approach (or the elements of the tort approach) does not apply to cases where assumption of responsibility is not an element of the tort. Therefore, in cases of pure negligence, simply assuming responsibility of itself will not necessarily render the director personally liable. However, the majority then went on to apply Trevor Ivory and consider how Mr
Taylor might have assumed responsibility.19 The present application turns on the
reasoning of the majority in Taylor. It will assist understanding of that judgment if some reference is made to the minority judgment of Chambers J. Chambers J considered that the correct approach was to leave Trevor Ivory to one side, and to apply the elements of the general tort approach to negligent acts and omissions. Having done so, he was of the view that it was not appropriate to strike out the
action against Mr Taylor:20
[I]f a builder carelessly constructs a residential building and thereby causes damage, the owners of the residential building can sue the builder in negligence
...That is really the long and short of it. If Mr Taylor was self-employed, no-one
would have a moment’s doubt about the propriety of the appellants making the above allegations against him. It should make no difference whether or not he was employed at the time he allegedly did these careless things. But the only relevance of his being employed is that his employer or employees may be vicariously liable for his tort committed in the course of employment.
All of this was stated with admirable clarity by Hardie Boys J in Morton v Douglas Homes. Hardie Boys J made it clear that, if the company directors had personal control over the building operation, they could be personally liable.
...
In short there is nothing in principle preventing a builder owing a duty of care to subsequent owners of the building. Of course, in the present case, Mr Taylor did not “build” the villas on his own...[T]hat will not prevent Mr Taylor being liable in negligence. It is enough that his conduct is a contributory cause.
(Emphasis added)
[35] Chambers J explicitly stated that assumption of responsibility was relevant to cases where it is an element of the tort. However, in cases of negligence simpliciter,
a director’s liability for negligence would not turn on an assumption of responsibility
19 Ibid, at [42].
20 Ibid, at [125], [126], [128].
— rather, it would turn on “ordinary principles of negligence for physical dmage to property caused by faulty work or construction.21
[36] It is sufficient for present purposes to note for now that post-Taylor cases have generally taken the approach of determining whether a director is personally liable by evaluating the proximity between the director and the claimants. The concepts of assumption of responsibility and degree of control have been stated as relevant factors in determining whether there is sufficient proximity.22
a) T & T Drainage Ltd v Rennell:23 Courtney J cited Chambers J’s judgment in Taylor, to the effect that nothing in principle prevents a builder from being under a duty of care to subsequent owners of the building, and that the builder is liable on ordinary principles of negligence for physical damage to property caused by faulty work.24
b)Chee v Stareast Investment Ltd:25 Wylie J noted that an assumption of responsibility is not an element of the tort of negligence. Rather, the plaintiffs had to establish that the individual directors owed a legal duty to take care — that the Tribunal should have asked itself whether the elements of the tort of negligence was made out against the directors, and in doing so, bearing in mind the presumption against the imposition of personal responsibility where the director was simply acting on behalf of the company, and whether the director had assumed personal responsibility for the relevant conduct, and the “degree of control” test in Morton. Wylie J also noted that Taylor should not be taken to say that the assumption of responsibility is
inapplicable to cases of negligence simpliciter, but that it merely
21 Ibid, at [144].
22 See for example Body Corporate 183523 v Tony Tay and Associates Ltd HC Auckland CIV 2004-
404-4824, 4 December 2009.
23 T & T Drainage Ltd v Rennell HC Auckland CIV-2009-404-001506, 11 March 2010.
24 Ibid, at [94].
25 Chee v Stareast Investment Ltd HC Auckland CIV-2009-404-005255, 1 April 2010.
limited the operation of Trevor Ivory.26 Wylie J took the same approach in Chen v Zhong.27
c) Spargo v Franklin:28 Potter J noted that as a result of Taylor, it is now generally accepted that a director has no special status in tort, and will be liable once the elements of the tort are made out, regardless of whether it was committed on behalf of the company or not, though noting that the position is unclear given that the majority went on to consider the ways in which Mr Taylor might have assumed responsibility for negligent building work.29 Therefore, under Taylor, the Morton control test is relevant whether it is treated as the test establishing proximity when pure Hamlin-type negligence is alleged, or whether it is indicative of the assumption of personal responsibility required to establish proximity under the Trevor Ivory framework.30
[37] Given the approach taken by these post-Taylor cases, I propose to determine Mr Marinovic’s liability by assessing whether the elements of negligence have been made out against him. Anns v London Borough of Merton elucidated a two-step approach to determining whether a duty of care should be imposed.31
[38] First, whether there is a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the alleged wrongdoer, carelessness on his part may be likely to cause damage to the person who has actually suffered the damage. If so, then a prima facie duty of care arises. In assessing proximity, the “degree of control” test (and insofar as Trevor Ivory has assimilated this test into the notion of “assumption of responsibility”) should be considered.
[39] In assessing proximity, judicial comments regarding one-man companies should also be addressed. The fact that a one-man company is the contracting party
26 Ibid, at [113].
27 Chen v Zhong HC Auckland CIV 2010-404-001995, 14 November 2011.
28 Spargo v Franklin HC Tauranga CIV 2010-470-000091, 9 November 2011.
29 Ibid, at [83].
30 Ibid, at [92].31 Anns v London Borough of Merton [1978] AC 728.
does not automatically mean that the director has assumed personal responsibility.32
Indeed, that factor may tell against personal responsibility, for using a one-man company may be seen as a personal disclaimer. There must be clear evidence that the director assumed some personal commitment over and above routine involvement for and through his company.33
[40] If a prima facie duty of care arises, it must be considered whether that duty should be negatived by policy concerns.
[41] I consider that the correct analysis, on the basis of the reasoning of the majority judgment in Taylor, is that Mr Marinovic is not liable solely on the basis that he was the director of the company that commissioned the construction of the apartment complex by arranging for it to be designed, arranged for another company to complete applications for building permits, and contracted workers (overseen by a project manager) to construct the building. Before he can be found liable, it would have to be established that Mr Marinovic was sufficiently proximate to the plaintiffs, by showing perhaps that he had accepted responsibility to the owners for ensuring that the work was properly done, or if he directly intervened in the design or construction of the apartments in such a way that he ought to be found liable due to
his degree of control.34
[42] Therefore, the crucial question to be determined is what Mr Marinovic's involvement was in the events leading to the apartment building being constructed in such a way that it was not weathertight.
Mr Marinovic’s general role in the construction process
Mr Marinovic’s evidence about his general role
[43] Mr Marinovic gave evidence to the effect that he played what might be termed a supervisory role in the development process, a role that was more
administrative than hands-on:
32 Trevor Ivory, above n 10, at 528 per Hardie Boys J and at 532 per McGechan J.
33 Ibid, at 528 per Hardie Boys J and at 532 per McGechan J.
34 Morton v Douglas Homes, above n 4, at 595.
a) Mr Marinovic instructed a Mr Martinsen, who was an architectural draughtsman, to prepare the drawings for the land use consent, and to apply for the consent in 1997. Though the application was in Mr Marinovic’s name, it was signed by Mr Martinsen, the fourth defendant, as Mr Marinovic’s agent. The same occurred with the subsequent application to vary the resource consent filed in March
1999.
b) Mr Martinsen also prepared drawings to obtain the building consent.
c) Mr Marinovic engaged Compass Building Certification Ltd to apply for the building consents for site development and some of the works.
d)Chelsea Management Services Ltd was engaged to project manage the development. Chelsea Management was responsible for coordinating and supervising the on-site activity and liaising with the architect.
e) Mr Marinovic engaged Chelsea Developments Ltd to carry out the actual construction work. Chelsea Developments Ltd in turn engaged subcontractors, and invoiced Martoni Ltd for the relevant expenses. The invoices would be passed to the quantity surveyor acting for the bank, who would approve them for payment, and for a drawdown to be made from Martoni Ltd’s loan. Mr Bissett, the principal of the company engaged as the painting contractor, deposed that his company worked on the site from late September 2000. He said the site foreman was Mr Roy Andrew and that communications his company received came from Ms Yvonne Andrew, who worked for Chelsea Developments Ltd (the construction company engaged to build the complex).
f) Mr Marinovic admitted to selecting tiles, light and bathroom fittings.
He admits to attending regular site meetings. But he maintains that he did not give instructions or advice to Roy regarding construction issues.
g) Mr Marinovic stated his duties as the director of Martoni Ltd to be arranging the payment of bills, the Council’s fees, and managing the funding arrangements with the bank.
The plaintiffs’ evidence about Mr Marinovic’s general role
[44] Mr Bell-Booth for the plaintiffs said that the "factual matrix" concerning Mr Marinovic's personal involvement in the development could only be properly examined at trial. Nonetheless he set out a number of factual circumstances which pointed to Mr Marinovic exercising a degree of personal control over the development. These included the fact that Mr Marinovic spent considerable time on the site, and that no site meetings took place without him being present. Mr Bell- Booth submitted that the arrangement that Martoni Ltd had with the project manager could be criticised because of its failure to cover a number of aspects of the relationship, including “quality control and accountability”. He submitted that there was liberal scope for Mr Marinovic to take an active developer’s role.
[45] Mr Bell-Booth referred to evidence about statements Mr Marinovic made after the completion of the development, when problems with watertightness had emerged. The context of this submission was that Mr Marinovic made statements to owners about the causes of the defects that the property was exhibiting and about the remedial steps that would seem to be called for in order to fix the problems. Mr Bell- Booth particularly focused upon the planter box structures, discussed later in this judgment.
[46] The plaintiffs allege:
a) That Chelsea Developments Ltd (the construction company engaged by Mr Marinovic) did not make the decision in its contract works as to any matters of design.
b)That Mr Marinovic’s approach was that no changes to design could be taken except with his personal prior approval, unless there was one choice available in respect of an individual or particular item.
c) That Mr Marinovic “personally gave instructions” concerning the variation of the design of the penthouse ranch slider installation, and the design of the two planter structures, by instructing the plasterer to change the concrete and plaster columns shown on the plans around the openings of the ranch sliders and bifold doors, and had personally approved the mouldings. The plasterer told Mr Marinovic that the changes he wanted would require a different specification. Mr Marinovic provided this new specification. In relation to the ranch slider, Mr Marinovic states that he did not like the way it looked protruding up from the floor slab, so asked Roy to rebate it into the concrete floor slab.
d)The plaintiffs also pointed to a video showing Mr Marinovic carrying out a walk-through of the building, and providing a commentary as he made his way through the building.
The Planter Boxes
[47] The plaintiffs claim that the two planter boxes at the top level of the complex, allegedly designed or constructed by Mr Marinovic, led to water getting into the building.
[48] In his report dated September 2011, Mr Simon Paykel, an expert building surveyor, noted that the planter boxes constructed into the balustrade walls in apartments nine and ten were not specified in the drawings. It was also his view that in such circumstances, the responsibility to obtain additional details or clarification from the designer lay with either the builder, or the developer, or both. However, he did not specifically refer to the planter boxes and their contribution to the water ingress in this report.
[49] Mr Paykel prepared a subsequent report dated December 2011, where he and a colleague considered in detail the date when the various faults in design and construction that led to the water ingress occurred. This report specifically reviewed the planter boxes, and noted that the planter boxes were not detailed on the building consent drawings and in fact were contrary to the consented drawings in certain
respects. This report indicated that there was evidence of significant moisture ingress and decay damage to the underlying timber framing, and that there was inadequate weatherproofing of the horizontal surfaces where the planters were incorporated into the structure.
[50] For the purposes of the present application, I am persuaded that the planter boxes were of a defective design and contributed to the damage to the building.
The plaintiffs’ evidence as to Mr Marinovic’s involvement with the planter boxes
[51] The plaintiffs’ submissions at the hearing made only limited references to the detailed factual situation that they rely upon. The heart of their submissions rely on the comments Mr Marinovic made at the Body Corporate meeting on 19 October
2011. The plaintiffs seek to construe these comments as evidence of Mr Marinovic’s personal involvement, and consequent assumption of responsibility, in part, of the faulty works.
[52] Mr Paul Cooke who, with his wife, acquired unit 1A in the complex in 2004 from the original owner, gave evidence about a review of records that he carried out relating to the Body Corporate minutes. He deposed that at the Body Corporate meeting in October 2011, Mr Marinovic said that “he made a mistake” when he chose to use a non-breathable paint when he repainted the building a couple of years after it was finished. Mr Marinovic expressed a view as to where the sources of the leaks were located. According to Mr Cooke, Mr Marinovic also acknowledged:
a) That it was his decision to add the two (unpermitted) planter boxes;
and
b)That he had described the design and the construction of the planters in detail, including the materials he chose to use and the finishes, and also described where and why they leaked.
[53] I interpolate that the reference to the planter boxes being “unpermitted” represents a comment by Mr Cooke rather than an acknowledgment by Mr Marinovic that the planter boxes were “unpermitted”.
[54] Mr Cooke annexed to his affidavit minutes that he said were a record of what was discussed at the meeting. The minutes do not apparently record the matters set out in “a” and “b” in paragraph [52], though for the purposes of the present applications I will assume that Mr Cooke has given a correct account of what Mr Marinovic said.
[55] A plasterer who worked on the project, Mr Salter, in his evidence acknowledged that he was told to plaster over the two large planter box structures on the roof decks.
Mr Marinovic’s evidence about his involvement with the planter boxes
[56] Mr Marinovic’s position in relation to the planter boxes is that he only gave directions that resulted in a change to the design of the complex by the addition of the planter boxes.
[57] Mr Marinovic acknowledges that he had personally asked the fourth defendant to include the planter boxes on the penthouse level. However, he maintains that after discussion with the third and fourth defendants, it was left to the third defendant to organise and supervise their construction. He states:
Gordon and I discussed with Roy what we wanted and where we wanted them built and left it to Roy to arrange their construction. I did not provide him with any design drawings or specification.
[58] The fourth defendant, the architectural draughtsman, confirmed Mr Marinovic’s position in his affidavit that he, Mr Marinovic and the third defendant had discussed the size and location of the planter boxes, and that it had been left to the third defendant to organise the construction, and that no plans or specifications were provided.
Discussion
[59] A defendant who seeks summary judgment has to show that he has a “clear answer” to the claim against him. In this case there are two reasons why I do not consider I can accept that Mr Marinovic is in such a position. The first reason is that it is a difficult question to decide what circumstances a company director is subject
to a separate liability from his company and when he is not. Secondly, the factual position concerning the addition of the planter boxes is not clear. While Mr Marinovic’s counsel, Mr Rice, understandably emphasised those matters which distanced Mr Marinovic from the design, construction and supervision of construction that may not necessarily have been the position with respect to the planter boxes, the decision to add which seems to have covered a late stage in the life of the project. I am left with the impression from the evidence that they were almost an improvisation and were not subject to detailed and considered design by professional persons who were contracted to attend to such matters. I agree that there is little explicit evidence showing that the addition of the planter boxes was carried out under the direct control and supervision of Mr Marinovic. But equally, in his evidence he does not describe a process in which his part was confined to giving a broad mandate to add the planters, leaving it to the architect and others to implement in detail what he had decided upon.
[60] The uncertainty of the legal position combined with the haziness of the factual situation means that I cannot with confidence rule that the Court should not conclude that it is reasonable to find that Mr Marinovic, in taking such steps as he did, did not step out from the shadow of the company by acting in such a way that the presence of the company and the overall arrangements was incidental, if not irrelevant. For those reasons the application for summary judgment is dismissed. For the reasons I gave at the beginning of this judgment, the strikeout application is also dismissed. Costs are reserved. The Registrar is to allocate a further case
management conference for this proceeding at a convenient date.
J.P. Doogue
Associate Judge
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