Davern v QBE Insurance (Australia) Limited

[2022] NZHC 3057

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2020-409-390

[2022] NZHC 3057

BETWEEN

AND

JOHN TIMOTHY DAVERN and MARITA DAVERN

First Plaintiffs

IAG NEW ZEALAND LIMITED
Second Plaintiff

AND

QBE INSURANCE (AUSTRALIA) LIMITED

Defendant

Hearing:	15 November 2022
Appearances:	D J Cooper KC and V A Ma for Plaintiffs A J Peat and M Holland for Defendant
Judgment:	22 November 2022

JUDGMENT OF ASSOCIATE JUDGE LESTER

DAVERN v QBE INSURANCE (AUSTRALIA) LIMITED [2022] NZHC 3057 [22 November 2022]

[1]                  The plaintiffs seek leave to file a third amended statement of claim (proposed 3ASOC). Leave is required as pleadings closed on 29 July 2022. The second amended statement of claim (2ASOC) was filed on 28 July 2022.

[2]                  The application to file the proposed 3ASOC was made on 4 November 2022 and  is   opposed.   The   hearing   is   set   down   for   two   weeks   commencing   13 February 2023. The need to let the parties know where they stand means this is essentially a results judgment with brief reasons.

[3]                  The  defendant,  having  received   the   plaintiffs’   evidence,   applied   on  31 October 2022 to adjourn the 13 February 2023 hearing saying the plaintiffs’ evidence raised new unpleaded issues. The defendants say, had those issues been pleaded earlier, they would have sought the joinder of two third parties.

What was pleaded and what the plaintiffs propose to change

[4]                  The first plaintiffs (the homeowners) own a hillside property in Christchurch which was damaged in the Canterbury earthquakes. The damage was such that the house had to be rebuilt.

[5]                  The second plaintiff, IAG New Zealand Limited (IAG), appointed Hawkins Management Limited (now Orange H Management Limited) (Hawkins) to manage the demolition of the building and the construction work required for the rebuild.1

[6]                  The homeowners engaged another building company (now in liquidation) to undertake the building work. Hawkins provided services to the homeowners including assessing the scope of works required for the rebuild, assessing, processing and certifying payment claims by the builder, monitoring the delivery of the rebuild works and providing co-ordination between the builders, the homeowners and IAG.

[7]                  At the time of the Canterbury earthquakes, there was a wooden retaining wall along the southern boundary of the property referred to in the 2ASOC as the “southern retaining wall”. The plan submitted with the building consent application referred to

1      Hawkins Group Ltd (now Orange H Group Ltd) is also referred to in the 2ASOC. It is not necessary in this Judgment to distinguish between the two Orange companies.

the “partial retaining wall” (PRW) which was on the eastern end of the then existing southern retaining wall. In these plans the PRW would be replaced due to that end of the southern retaining wall being undermined. The plans showed the remaining section of the southern retaining wall being left in place.

[8]                  Before building work got underway, Hawkins identified an issue with the finished floor levels of the house to be rebuilt. The existing building consent was therefore amended resulting in the floor levels being 300mm lower than originally planned. This required parts of the section to be further excavated to allow for the lower floor levels.

[9]                  During the required excavation, the entire southern retaining wall was removed, not just the PRW. Shortly after this work, the building company engaged by the homeowners advised Hawkins that the hillside where it had been intended to rebuild the PRW under the existing plans was collapsing. In addition, due to the excavation work, the  minimum  height  for  the  new  PRW  required  to  address  the collapsing hillside was greater than the height of the previously existing southern retaining wall which, as I have said, was entirely removed.

[10]              Works on the property were halted to allow the construction of the new PRW which was built between March 2016 and June 2016.

[11]              By the middle of 2016 the house rebuild had been completed to the extent the house floor and walls had been substantially completed.

[12]              Despite the complete removal of the southern retaining wall, that part of it which, under the original plans was to be retained (called in the proceeding “the required retaining wall), was not rebuilt.

[13]              The core pleading is that the failure to construct the required retaining wall prior to the main structure of the house being completed in June 2016 was a sequencing error because the access needed to construct the required retaining wall is blocked by the rebuilt house.

[14]              As I have said, the original construction plans assumed the balance of the southern retaining wall would be retained and therefore those plans did not contemplate the rebuilding of the required retaining wall.

[15]The sequencing error is pleaded as causing the following defects:

41.1Without the Required Retaining Wall, the unretained land above the position of the Required Retaining Wall poses a risk to the house;

41.2The Required Retaining Wall will need to be completed in order to undertake drainage, decking, hard landscaping and other outstanding elements of the Rebuild Works.

41.3Without completion of the Required Retaining Wall and the other outstanding elements of the Rebuild Works, it is not possible to obtain a Code of Compliance Certificate for the Rebuild Works and it is not possible for the first plaintiffs to reside in the house.

[16]              The pleading is, in order to build the retaining walls, access had to be negotiated and obtained from the homeowners’ neighbours.   A piece of land from    a neighbour had to be purchased and further consents were required. What is alleged to have gone wrong and its consequences are repeated in the different causes of action relied on.

The proposed amended pleading

[17]              The proposed 3ASOC accompanied the application for leave. The proposed changes are by and large not apparently significant until one comes to the particulars of loss claimed to have been caused by Hawkins’ failure to pick up the sequencing error.

[18]              There is a new pleading that it was necessary to completely demolish the PRW. The pleading does not identify why demolition of the PRW was required.

[19]              I say not apparently significant as Mr Peat, counsel for the defendant, was concerned that what at first glance was an innocuous change to para 45.2, had wider implications. As addressed below, if the application to file the 3ASOC is granted,  Mr Peat’s concerns on this issue will be addressed.

The adjournment application – have new issues been raised in evidence?

[20]              The defendant’s application for an adjournment notes that the 2ASOC alleges it was the sequencing error that made access to construct the required retaining wall impossible.

[21]              In the course of building the required retaining wall, the PRW built in 2016 has now been removed.

[22]              The defendant notes the brief of evidence from an engineer giving expert evidence for the plaintiffs now says one of the reasons for the removal of the PRW was that its design was not consistent with the current best practice and the engineer gave several reasons for that view. The engineer says even if the PRW had been built adequately, it would still have needed strengthening to carry the loads as calculated by him. The evidence asserts the PRW ought not to have been rebuilt as a partial wall but that the southern retaining wall, that is, the original retaining wall, should have been replaced in its entirety. Finally, the evidence claims that building the new required retaining wall required access through the PRW built in 2016.

[23]              The defendant is concerned that the plaintiffs seek to amend their statement of claim to reflect the position in the engineer’s brief of evidence, hence the defendant’s concerns about the proposed amended pleading referring to the need to demolish the PRW.

[24]              The defendants says the evidence that the PRW was defective, requires it to get a response from its experts and means it should have the opportunity to consider joining the designer and contractor used to build the PRW.

[25]              A further factor relied on by the defendant in its application for adjournment is that the plaintiffs recently provided almost 1,800 further documents, most of which are from 2021 or before and which relate to the new issues.

The plaintiffs’ position in respect of the new evidence

[26]              The plaintiffs say the application for an adjournment is premised on the false assumption that because the plaintiffs’ evidence refers to defects in the design of the PRW that the plaintiffs are alleging the defendant is responsible for those defects. They assert the evidence is only to explain the full context of the remedial works required to all retaining walls including the PRW.

[27]              That explanation is not easily reconciled with the engineer’s evidence which, before referring to the defective design and poor construction practices says: “[t]he reasons for the removal of [the] [PRW] are set out below”.

What are the plaintiffs wanting to allege?

[28]              If the plaintiffs’ case is that it was more efficient to remove the PRW in order to build one new retaining wall then that is a different proposition from that of concern to the defendant, that is, the plaintiffs claim the PRW had to be removed because if was defective.

Plaintiffs’ position clarified at hearing

[29]              Mr Cooper KC, counsel for the plaintiffs, confirmed that the Trial Judge would not be asked by the plaintiffs to decide if the PRW was inadequately designed or constructed. The plaintiffs’ case will be that the PRW was removed because:

(i)the need to excavate the bank closest to the rear of the house meant the PRW was left “stranded”, that is, the bank behind it had been removed;

(ii)the excavation also resulted in the PRW becoming too low; and

(iii)removal created construction efficiencies for the required retaining wall;

all being issues the plaintiffs say, arise from the sequencing error.

[30]              Mr Cooper emphasised that the proposed 3ASOC did not allege the defendant was responsible for the design/construction issues of the PRW asserted by the plaintiffs’ expert and no such claim  will be made at trial.   Mr Cooper confirmed   the plaintiffs’ claim will either succeed or fail on the only error asserted in the proposed 3ASOC, that is, the sequencing error. Mr Cooper’s confirmation of that position raised a question: why is the plaintiffs’ expert giving his opinion on design/construction issues when such are not in issue in the 2ASOC nor in the proposed 3ASOC? Mr Cooper indicated, if required by the defendant, the plaintiffs would remove reference to the PRW design and construction issues from the engineer’s brief. Mr Peat is to reflect on that invitation.

[31] Further, Mr Cooper submitted if leave was granted, the proposed 3ASOC would plead the PRW had to be removed for the reasons given at [29] above.

[32]              Those reasons for the removal of the PRW are covered by practical rather than technical evidence, that is, the evidence of construction difficulties on site that required its removal. Reply to such evidence would not require the defendant’s experts to delve into the technical design issues raised by the plaintiffs’ engineer.

[33]              On the above basis, Mr Cooper submitted the amendment sought could not cause substantial prejudice to the defendant and the Court should be anxious to retain the existing hearing date.

[34]              I do not consider the amendment to paragraph 40 of the proposed 3ASOC changes the substance of what is defined as the sequencing error. Paragraph 40 as pleaded and with the proposed amendment is as follows:

40The  failure  to  construct  the  Required  Retaining  Wall   prior  to    June 2016 , when  the  Partial  Retaining Wall  was  completed,  was a sequencing error because access needed to construct the Required Retaining Wall is blocked by the rebuild house (the Sequencing Error).

[35]              It is common ground that the PRW had been completed prior to June 2016. Deleting the words as shown does not change that fact. Accordingly, the deletion does not materially change what is defined as a sequencing error. It is true, as Mr Peat submitted, that the sequencing error is said to be that construction of the required

retaining wall was blocked by the rebuilt house rather than the PRW. The allegation, as I understand it, is that the removal of the PRW created construction efficiencies for the required retaining wall rather than being an absolute impediment. In any event, this is a relatively focused evidentiary issue.

Defendant’s concerns notwithstanding plaintiffs’ clarifications

[36]              The defendant’s concerns based on the proposed 3ASOC as it was tabled, coupled with the focus of the engineer’s brief on design/construction issues were, in my view, well founded. The position adopted by the plaintiffs at the hearing addressed the major concerns raised – in short, the engineer’s evidence on defective design/construction could be disregarded – hence Mr Cooper’s offer to excise it from the engineer’s brief.

[37]              Mr Peat submitted other issues remained. He submitted the plaintiffs’ engineer’s evidence raised for the first time that the PRW was defective from when it was originally built in 2015. If it had to be removed for that reason then the defendant would potentially have had third party claims against the PRW designer and builder. Further, he submitted the defective design/construction claim raised causation issues that the defendant would want to explore.

Decision

[38]              The short point is the matters the defendant says it wants time to consider concerning the possible defective design/construction of the PRW do not arise because of the proposed 3ASOC. They arise because of arguably irrelevant evidence in the plaintiffs’ engineer’s brief on that issue. Until that brief, the defendant says it assumed the PRW had been properly designed/constructed. If that was not the case, then the plaintiffs were not led astray on that issue by the proposed 3ASOC. That a witness for the plaintiffs has theorised on an issue not relevant to the pleadings and not averted to  by  the defendant  is  not  a basis  to  adjourn  a two  week  hearing  allocated on  3 February 2022. The essence of the claim faced by the defendant has not changed. The proposed amendments to the statement of claim do not give rise to the possibility of third party claims.

[39]              I am satisfied the proposed 3ASOC will of itself not cause substantial prejudice to the defendant. What the defendant really complains about is being taken by surprise by the opinion expressed by the plaintiffs’ expert in relation to the PRW.

Orders

[40]              Accordingly, there is leave for the plaintiffs to file a third amended statement of claim, subject to the following:

(1)The proposed amendment at paragraph 45.2 is to make it clear that the additional  costs  pleaded  under  paragraph  45.2  are  a  result  of   the sequencing error and no other reason.

(2)The pleading is to set out the plaintiffs’ allegations as to why demolition of the PRW was required with all necessary particulars.

(3)The proposed claim amended in accord with this leave is to be filed in draft within five working days of the date of this order. The Court will then confirm it meets the terms of the leave.

(4)The defendant’s application for an adjournment is declined.

Further issues

[41]              Mr Peat was critical of some of the privilege claims raised by the plaintiffs and some document redactions.

[42]              Mr Cooper, who is relatively recently instructed, acknowledged some of the discovery complaints had substance and he would look into those.

[43]Further, counsel are to address the issue of conferral between their experts.

[44]              Mr Peat raises concerns as to the extent of discovery in relation to the decision to remove the PRW. That retaining wall was one of many walls removed. When and how the decision to remove the PRW was made will have produced a documentary record. Mr Cooper is requested to also address that issue.

[45]              I also confirm matters that may be covered in the statement of defence to the 3ASOC were discussed at the hearing. The defendant is free to raise any pleading it sees fit provided it is linked to the changes incorporated into the 3ASOC.

[46]Leave is reserved to the parties to raise any issue arising from the 3ASOC.

Associate Judge Lester

Solicitors:

Duncan Cotterill, Auckland (for Plaintiffs) Hazelton Law, Wellington (for Defendant)

Copy to counsel:
D Cooper KC, Barrister, Auckland (for Plaintiffs)