Deeming v Eig-Ansvar Ltd
[2013] NZHC 955
•2 May 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-6476 [2013] NZHC 955
BETWEEN SUSAN JANE DEEMING Plaintiff
ANDEIG-ANSVAR LIMITED First Defendant
ANDLEUNG MING CHU AND CHENG HUA LUI
Second Defendant
ANDMOUNTFORT ESTATE AGENT LIMITED
Third Defendant
ANDMICHAEL ALEXANDER DAVIDSON Fourth Defendant
ANDTHE INSPECTOR LIMITED Fifth Defendant
ANDAUCKLAND COUNCIL Sixth Defendant
ANDGEOTEK SERVICES LIMITED Seventh Defendant
ANDSIMON JAMES WOODWARD Eighth Defendant
Hearing: 11 April 2013
Appearances: Mr P Wright for plaintiff
Ms R Moses for sixth defendant
Ms E Tobeck and Mr Bierre for seventh and eighth defendants
Judgment: 2 May 2013
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
This judgment was delivered by me on
2 May 2013 at 4 pm, pursuant to
Rule 11.5 of the High Court Rules. Registrar/Deputy Registra
Date……………
DEEMING V EIG-ANSVAR LIMITED & ORS HC AK CIV-2011-404-6476 [2 May 2013]
Background
[1] The seventh and eighth defendants (to be collectively referred to as “Geotek”) prepared three reports dated 21 August 1998, 2 June 1999, and an addendum dated 6 July 1999. The question is whether this work carried out by Geotek was “building work” in accordance with the Building Act 1991 and the Building Act 2004, so that the plaintiff’s claims are barred by the limitation provisions in s 393 of the Building Act 2004. Such a result would follow from the fact that the proceedings were filed on 7 August 2011, more than 10 years after the work was undertaken which has given rise to the claim that is made against the seventh and eighth defendants. The circumstances in which Geotek came to perform the work will appear from the account that follows.
[2] The plaintiff, Mrs Deeming, owns a property at 32 Lansell Drive, East
Tamaki Heights.
[3] Howick Parklands Limited, which was the developer (“Parklands”), obtained geotechnical reports from the seventh and eighth defendants to be used in support of its application for resource consent approving a subdivision of the land which resulted in the issue of, amongst other titles, the title to the property in question. Geotek was engaged by exchange of letters in June 1998 to undertake a geotechnical investigation for the purpose of determining whether the land at Flatbush Road, Manukau was suitable for residential subdivision. Those reports were produced on
21 August 1998, 2 June 1999 and an addendum report on 6 July 1999.
[4] The property was part of a subdivision which was consented to by the Manukau City Council (“the Council”) which was the relevant territorial authority at some point prior to October 1999. Following the construction of the house on the title, the Council issued a final code of compliance certificate for the structure on 5
December 2001.
[5] The plaintiff purchased the property from the second defendants by agreement for sale and purchase dated 21 December 2008. They had been the first owners of the property following the issue of a Certificate of Title on 7 October 1999 and the subsequent construction of the house on the property in or about 2001.
[6] Within weeks of her taking possession of the property, the plaintiff discovered cracks in the house. She says that the house and land are being damaged irreparably as a result of geotechnical issues. Essentially she says the property has nil value. She has brought claims against a number of defendants but the present applications concern only the seventh and eight defendants. She says her loss is in the amount of $895,000. She claims that the loss she suffered was in part caused by work which the seventh and eighth defendants carried out when preparing the geotechnical reports in 1998 and 1999. She makes that claim on the ground that conditions were unsuitable for the construction of her house which has resulted in ground movement and the resulting cracking appearing in it.
[7] One of the parties to the proceedings is the Auckland Council which is the successor to the Manuakau City Council. It also represents Manukau City in its capacity as the authority issuing the building consent and the final code compliance certificate for the property.
[8] Auckland Council claims against the seventh and eighth defendants for a contribution or indemnity for any amount the Council is found liable to pay to the plaintiff.
[9] The resource consent for the subdivision was forthcoming on 27 April 1999 and it included the following requirements:
4(a) A Foundation Completion Report for the site shall be submitted to the satisfaction of the Manager – Development compliance upon the completion of the land modification works.
(b) For any lot for which the Foundation Completion Report recommends specific engineering investigation and design or other additional works beyond the scope of NZS 3604-1990 at building consent stage the development of such lots shall be undertaken generally in terms of the recommendations in that report.
A consent notice shall be registered on the Certificate of Title of the relevant lots in accordance with section 221 of the Act to require compliance with the foundation requirement on a continuing basis.
[10] It is necessary to make brief mention of the reference to NZS 3604-1990. I was informed that that standard was a relevant code of practice for light timber framed buildings at the relevant time. It was explained to me that if a light timber
framed building was not expected to exceed a certain live and dead ground loading, there would be no requirements for additional foundation engineering. The effect of the condition in the resource consent therefore was to require that the completed subdivision earthworks should meet the standard set out in NZS 3604-1990 for buildings which are described in that standard.
[11] On 2 June 1999 Geotek provided a further report entitled “Geotechnical Completion Report”. I apprehend that at that point the earthworks for the subdivision had been completed. In that report Geotek confirmed that all lots were NZS 3604-1990 compliant and that, from a geotechnical perspective, the plaintiff’s lot, 304, was suitable for construction on the basis of NZS 3604. The essence of that advice was passed on to the Council by the consulting engineers and surveyors with overall responsibility for making the application, Harrison Grierson, on 23 June
1999. The involvement of Geotek ended in 1999 so about two years went by before the house was built by Newcastle Homes Limited.
[12] The parties accept that the reports produced by Geotek were subject to disclaimers, the terms of which I will make further reference to below.
[13] As I have noted already, shortly after taking possession the plaintiff apparently noticed that there were significant cracks developing in the house. I gather that this would have occurred in or about January 2009. She subsequently issued these proceedings on 8 June 2012, some three and a half years later. Her proceeding would not be barred by operation of the six year limitation period contained in the Limitation Act. However, Geotek takes the point that given that the geotechnical reports were issued in 1998 and 1999, if the ten year longstop limitation defence provided for in s 393 of the Building Act 2004 applies, her proceedings were issued too late and are time barred under that Act. Whether or not the proceedings are time-barred depends upon whether the actions of Geotek came within the scope of s 393 of the 2004 Act and this is the matter which will be considered subsequently.
[14] Geotek now applies for summary judgment or strike out orders in respect of the plaintiff’s causes of action. The plaintiff accepts that if the proceeding is caught by s 393 then her claim is time-barred.
Principles relating to strike out and summary judgment applications
[15] There was broad agreement between the parties as to the principles to be applied when the Court is dealing with strike out and summary judgment applications. As to the former, I accept the submissions made by counsel for Geotek, Mr Bierre and Ms Tobeck that r 15.1 High Court Rules (“HCR”) provides that the Court may strike out all or part of a pleading if it discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or is likely to cause prejudice or delay; or is frivolous or vexatious; or is otherwise an abuse of the Court.
[16] I also accept that the summary that appears in McGechan on Civil Procedure at para 15.1.02, to which counsel referred, is applicable:1
The established criteria for striking out was summarised by the Court of Appeal in A-G v Prince [1998] 1 NZLR 262, (1997) 16 FRNZ 258, [1998] NZFLR 145 (CA) at 267, and endorsed by the Supreme Court in Couch v A-G [2008] NZSC 45 at [33], per Elias CJ and Anderson J:
(a) Pleaded facts, whether or not admitted, are assumed to be true. This does not extend to pleaded allegations which are entirely speculative and without foundation.
(b) The cause of action for (sic) defence must be clearly untenable. In Couch Elias CJ and Anderson J, at [33], said: “It is inappropriate to strike out a claim summarily unless the court can be certain that it cannot succeed.”
(c) The jurisdiction is to be exercised sparingly, and only in clear cases.
This reflects the Court’s reluctance to terminate a claim or defence
short of trial.
(d) The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument.
(e) The Court should be particularly slow to strike out a claim in any developing area of the law, perhaps particularly where a duty of care is alleged in a new situation. In Couch, at [33], Elias CJ and Anderson J said: “Particular care is required in areas where the law is confused or developing.” There is considerable authority that developments in negligence need to be based on proved rather than hypothetical facts.
[17] I also accept the submission for Geotek that a cause of action may be struck out as statute barred if the defendant satisfies the Court that the plaintiff’s cause of action is so clearly statute barred that the plaintiff’s claim can properly be regarded as frivolous, vexatious, or an abuse of process.2
[18] Further, counsel for Geotek also correctly identified the principles which are to be applied to applications for defendant’s summary judgment. Rule 12.2 HCR provides that the Court may give judgment against the plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff’s statement of claim can succeed. It may be appropriate to seek summary judgment in respect of an absolute limitation defence.3 The onus is on the defendant to satisfy the Court that the plaintiffs have no answer to the defence, but it is not sufficient for the plaintiffs to raise general issues as to possible answers without some foundation.4 The defendant must be able to show on the balance of probabilities that none of the
plaintiff’s claims can succeed.
2 Murray v Morel & Co Limited [2007] NZSC 27; [2007] 3 NZLR 721 at 33.
3 Stuart v Australian Guarantee Corporation (NZ) Limited (2002) 16 PRNZ 139 (HC).
4 Ferrymead Tavern Limited v The Christchurch Press Company Limited (1999) 13 PRNZ 616 (HC).
Limitation
[19] In their written submissions, all counsel referred to both the limitation provision contained in the 1991 Act and in the 2004 Act. Mr Wright referred to Montgomery v Auckland Council5 in which the Judge determined that the repeal of the Building Act 1991 (“the 1991 Act”) meant that s 393 of the Building Act 2004 (“the 2004 Act”) applied, but that the Council’s conduct should be assessed by reference to the applicable law at the time (i.e. the 1991 Act).
[20] While I am not entirely clear about what was intended by that submission, given the absence of adverse comment by the other parties, I intend to apply s 393 as the relevant section for the purposes of the present applications.
[21] The section reads as follows:
393 Limitation defences
(1) The Limitation Act 2010 applies to civil proceedings against any person if those proceedings arise from—
(a) building work associated with the design, construction, alteration, demolition, or removal of any building; or
(b) the performance of a function under this Act or a previous enactment relating to the construction, alteration, demolition, or removal of the building.
(2) However, no relief may be granted in respect of civil proceedings relating to building work if those proceedings are brought against a person after 10 years or more from the date of the act or omission on which the proceedings are based.
(3) For the purposes of subsection (2), the date of the act or omission is,—
(a) in the case of civil proceedings that are brought against a territorial authority, a building consent authority, a regional authority, or the chief executive in relation to the issue of a building consent or a code compliance certificate under Part 2 or a determination under Part 3, the date of issue of the consent, certificate, or determination, as the case may be; and
...
(emphasis added)
[22] In deciding whether the applications in this case should be granted, it is necessary to determine whether the work which Geotek undertook was, relevantly within the meaning of s 393, “building work”. If it was, the work which was carried out by Geotek falls within the ambit of the limitation period provided for in s 393 of the Building Act. If it is not, it is governed by the limitation period provided for in the Limitation Act. Before discussing that issue, it is useful to make brief comment about the background to the enactment of the long stop limitation provision.
Legislative history
[23] In her judgment in the case of Klinac Glazebrook J considered the history of the legislation.6 Glazebrook J made extensive references to Hansard and to the Law Commission report upon which the legislation was based. Rather than repeating everything that the Judge noted in her judgment, I limit myself to recording the main features of the history which she identified as relevant.
[24] Underlying the legislation was a concern that there was no limit to the time within which an aggrieved owner of a building could bring a claim against the builder, the relevant local authority or building certifier. It was therefore proposed that a 15 year long stop provision should be adopted in legislation. The form of the legislation was affected by the report of the Law Commission, Limitation Defences In Civil Proceedings.7
[25] The objective of the legislation was to attempt to establish a balance between two competing considerations. First, it is inherent in the nature of building defects that a latent problem will not manifest itself for many years after the defective construction which gave rise to the problem took place. If too short a limitation period is established, property owners will find that they lost their right to sue at a time when they were not even aware of problems with the building. But in the second place, building contractors and the like ought not to be exposed to potential
litigation for unjustifiably long periods after the original construction took place. It
6 Klinac v Lehmann (2002) 4 NZ ConvC 193,547 (HC).
7 Law Commission Limitation Defences in Civil Proceedings (NZLC R6, 1988).
is for these reasons that the legislature intervened to enact the reform provisions now under discussion.
Discussion of “building work”
[26] With that background in mind, I now turn to the issue of whether what Geotek did is able to be classified as “building work”. In several decided cases, the Courts have commented on the width of the expression “building work” which is central to resolving the applications in this case.
[27] There are other sections of the Act which are relevant to the interpretation of s 393. The term “building work” is defined in s 7 of the Building Act 2004 as follows:
Building work
(a) means work—
(i) for, or in connection with, the construction, alteration, demolition, or removal of a building; and
...
(b) includes sitework; and
...
[28] The quoted parts of the definition are the same as that in s 2 Building Act
1991.
[29] It is also relevant to consider how the term “building” is defined in the Act.
The germane provisions of that section are as follows:
8 Building: what it means and includes
(1) In this Act, unless the context otherwise requires, building—
(a) means a temporary or permanent movable or immovable structure (including a structure intended for occupation by people, animals, machinery, or chattels); and
(b) includes—
(i) a mechanical, electrical, or other system; and
(ii) a fence as defined in section 2 of the Fencing of
Swimming Pools Act 1987; and
(iii) a vehicle or motor vehicle (including a vehicle or motor 1998) that is immovable and is occupied by people on a permanent or long-term basis; and
(iv) a mast pole or a telecommunication aerial that is on, or forms part of, a building and that is more than 7
m in height above the point of its attachment or
base support (except a dish aerial that is less than 2 m wide); and
(c) includes any 2 or more buildings that, on completion of building work, are intended to be managed as one building with a common use and a common set of ownership arrangements; and
(d) includes the non-moving parts of a cable car attached to or servicing a building; and
...
[30] The issue which the Court is required to determine in this case is whether the expression in the Act, “building work”, extends to the activities of an engineer who, as in this case, became involved by preparing a report on the geotechnical suitability of the land prior to the point where a subdivision was carried out.
Defendants’ submissions
[31] Counsel for the defendants’ argument is that preparation of the geotechnical reports is “building work” because the definition of “building work” is broadly defined. “In connection with” is also a broad term. Counsel referred to McGechan J’s discussion of the term “in connection with” in the case Hammington v Ross which related to an insurance policy which covered civil liability incurred “in connection with” the provision of “professional services”.8 The approach taken was that claims incurred in connection with the provision of professional services were not limited to the strict components of those services themselves. Counsel submitted that the same approach should be taken here. Support was also taken from Carter
Holt Harvey Ltd v Genesis Power Ltd, where Randerson J said the expression “for, or in connection with” emphasised the broad scope Parliament intended s 91 to take.9
The essence of the defendants’ argument is that the building cannot be constructed
8 Hammington v Ross [1992] 2 NZConvC 191,150 (HC).
9 Carter Holt Harvey Limited v Genesis Power Limited (No 8) HC Auckland CIV-2001-404-1974, 29
August 2008.
without foundations and that adequate foundations depend on an adequate geotechnical report being provided.
Plaintiff’s submissions
[32] Counsel for the plaintiff argued that the Building Act draws a distinction between a subdivision consent granted under the Resource Managment Act and a building consent. “Building work” must relate to a particular building, and can be work which is in connection with the construction of that particular building. “Building work” is work which must comply with the building code in respect of that particular building, includes the plans and specifications for that particular building, and is work for which a building consent is required. Counsel submitted that Geotek’s reports do not relate to any particular building and were provided for assessing the suitability of subdivision generally. Counsel argued that the reports are not work in connection with construction in the same way that subdivisional earthworks are not work in connection with construction. They are also not work “in connection with” a particular building. The essence of Counsel’s submissions was the following:
While it is accepted that “in connection” is a broad phrase there must be some practical limit to it in this context otherwise it is impossible to draw any real line between the Geotek reports on the one hand and general subdivision works under the RMA (including earthworks and road building) on the other.
If the Geotek reports were “in connection” with building, then on the same reasoning, earthworks and road building would be building work too. Those works are essential works necessary to create the base on which the building is to be built, including the building site and are therefore “in connection with” the building. Clearly that is not the case.
The simple and essential distinction is between work for the purposes of creating a subdivision including as to the suitability of the soil and ground for the anticipated building and building work itself. Geotek’s reports are of the former.
Analysis
[33] The following factors seem to me to be relevant. First, while the preparation of a geotechnical plan doubtless qualifies as “design” as that expression is commonly understood, that factor needs to be balanced against other considerations.
The “design” which is spoken of is design of a building. The preparation of the geotechnical report in this case cannot be said to have constituted design of the building. The report, to the extent that it was a design, apparently commented on the ground conditions in various portions of the overall land which was earmarked for subdivision. The layout, size and overall configuration of those sections was not fixed by the geotechnical report. When describing ground conditions in the proposed subdivision, it is correct that the engineer used the proposed lot numbers as a shorthand way of describing in aggregate what the geotechnical conditions were in that particular portion of the subdivision.
[34] Beyond that, the geotechnical report was concerned with whether the ground conditions resulting from the carrying out of subdivision earthworks were such that the land possessed load-bearing characteristics which meant that it was suitable for construction of houses to the standards set out in the relevant NZS 3604-1990. To the extent that it obliquely referred to houses which were to be constructed, it only did so on the basis that it assumed that houses with certain characteristics (light construction) were intended for the subdivision and commented on the suitability of the land in the light of that assumption.
[35] As well, it is necessary to give additional consideration to the regulatory processes which Manukau City Council adopted from the beginning of the subdivision up to the completion of houses on the Flat Bush land. The first part was the application for resource consent which I have already noted. That application is one of the kind that is recognised in s 87 of the Resource Management Act 1991 (“RMA”). This application was made by Howick Parklands Limited. In deciding whether or not to grant subdivision approval, the territorial authority, not unexpectedly, took into account many matters including promotion of diversity and choice of lifestyle, maintenance of a high level of amenities and open space, retention of trees, standards of roading and stormwater. In short, in addressing the question of whether subdivisional consent ought to be granted, the characteristics of the proposed subdivision overall were under scrutiny. It was to this process that Geotek contributed by submitting geotechnical reports. While it can be said without challenge that houses could not ultimately be built on the properties unless there was a successful resource consent application, and such an outcome could not be assured
without the input of Geotek, amongst other people, it is difficult to view this phase of the activities as falling within the purview of the Building Act. Putting matters another way, it is difficult to view the contribution that Geotek made to the resource consent stage as falling within the four corners of the Building Act, a statute which is concerned with “building work associated with the design, construction, alteration, demolition, or removal of a building.”
[36] Once the subdivisional consent had been granted and individual titles issued, it was open to property owners to erect houses on those lots.
[37] The applicants sought to link the two phases by pointing to the fact that the geotechnical report was referred to by the Council when granting building consent for individual houses including that on the plaintiff’s title.
[38] I do not consider this line of reasoning to be persuasive. On closer analysis, such a relationship as can be established between the geotechnical reports and the building consent came about in the following way. First, the Council at a general level wanted to be assured that the minimum standards for construction of light houses which were contained in NZS 3604-1990 could be met in regard to all of the houses that were to be constructed if the subdivision were to proceed. It was to satisfy this need that the geotechnical report was submitted. No doubt, the Council would thereafter take the view that having had an assurance about the general load- bearing characteristics of the sub-strata, it would be appropriate to judge the acceptability of the proposed earthworks in the subdivision on the basis that it would enable houses to be constructed on the land which which came within the parameters of NZS 3604-1990 without the need for a specific geotechnical report concerning the ground conditions in any particular allotment. The effect of all of this is that Geotek contributed to the formation of the view by the Council that the lots in the subdivision would in general be suitable for construction of NZS 3604-1990 standard houses and that no additional geotechnical investigation would be required for houses of that kind. The geotechnical report was not provided for the purpose of influencing the decision of whether or not any particular house should be built on a title in the subdivision.
[39] Any contributions that Geotek made were to the design of, and assistance in, the construction of the subdivision land. It may be correct that the land was not suitable for the house that was ultimately erected on it. To that extent there is a relationship between the actions and omissions of Geotek and the damage to the house. It could be said that the actions and omissions of Geotek were a contributing factor which caused the damage to the house. Proof of such a causative link would of course be necessary if the plaintiff is to obtain judgment against Geotek. But that is not a matter that is relevant to the question of whether Geotek contributed to the design or construction of the house. The possibility of a causative link between the actions and omissions of Geotek and the damage suffered by the plaintiff is a different question from whether Geotek’s reports are “building work”.
[40] It does not seem possible to me to describe the actions which the geotechnical engineer took as coming within this subsection. Self evidently, the building which is the subject of these proceedings was not in existence at the time when the engineer carried out his obligations. It cannot be ruled out that in some circumstances a geotechnical engineer could be fairly described as involving him/her self in the “design” of a building if, for example, the engineer provided loading recommendations which were incorporated into the design of foundations for a particular building. But on the basis of the evidence that has been put forward in this case, it cannot be maintained that the engineer in this case fell within that category. The work which the engineer did was not specific to the building which is the subject of the claim in this case, namely, the house which the plaintiff purchased. The engineer assessed and then certified to the Council the suitability of the land generally for construction of houses. It is for those reasons that I cannot agree that the engineer provided design services which were part of the building work that resulted in the construction of the house.
[41] Because of the broadness of the concept described in the words “in connection with” building there is a danger that being influenced by purely textual considerations, the Court would read the legislation as extending into areas which were outside the intended scope of the legislation. The concern of the Act is with proceedings arising out of “building work associated with… any building”. The design of earthworks for a planned subdivision does not seem to me to be aptly
described as “building work”. The fact that the house could not have been built without design of earthworks followed by construction of earthworks on which the house was ultimately constructed may well show that the latter would not have come about but for the former having taken place. But the intention of the Act was not to extend the ambit of the expression to any activity no matter how remote it was from the actual building of the house so long as a causal connection between the two events could be traced. In my assessment, application of such a test will not be helpful. Instead the question must be posed whether this work was building work that was part of the design and building of the house which is the subject of the claim.
[42] For the reasons that I have set out it is untenable to view the report by Geotek as being a contribution to the design or construction of any specific house which might thereafter be constructed on any particular allotment, including the plaintiff’s property. It is therefore incorrect to view the geotechnical reports as “building work” as that term is used in the Building Act.
[43] The applications by the seventh and eighth defendants to strike out the plaintiff’s claim, or to enter summary judgment for those defendants on that claim, are dismissed.
The claim in negligence
[44] The seventh and eighth defendants submitted that the negligence cause of action ought to be struck out on the grounds that it was time-barred under the Building Act. They accepted, though, that if the time-bar did not apply then that cause of action could not be struck out. Because of the conclusion that I have come to in the limitation point, the application to strike out this part of the claims cannot succeed.
Claim in negligent misstatement arising from reports issued by the seventh and eighth defendants
[45] The plaintiff has included in her claim a cause of action alleging negligent misstatement on the part of the seventh and eighth defendants.
[46] The Council also relies upon a cause of action for negligent misstatement arising out of the same report.
[47] The first point to be noted is that the position of the Council with respect to both the negligent misstatement and negligence claims is that it is entitled to a contribution from the seventh and eighth defendants on the grounds that they are joint tortfeasors. Secondly, the Council has pleaded that it was owed an independent duty of care by the seventh and eighth defendants which gives rise to a cause of action for negligent misstatement.
[48] The first claim which derives from the plaintiff’s claim for negligent advice, stands or falls depending on the outcome of the application to strike out the plaintiff’s claim based upon those torts.
[49] Nothing additional needs to be said about the claim that the sixth defendant bases upon the plaintiff’s claims in negligence and negligent misstatement. I shall deal separately with the plaintiff’s claims and then the sixth defendant’s claims.
Claim by a plaintiff for negligent misstatement
[50] The plaintiff pleads that the land was generally unsuitable for conventional light timber framed dwellings and that included the property the plaintiff ultimately acquired and that Geotek owed the plaintiff a duty of care when stating that the land to be subdivided “and hence the property that became Ms Deeming’s was generally suitable for conventional light timber framed dwellings constructed in accordance with the requirements of NZS 3604 or 1990 Code of Practice for Light Timber Framed Buildings Not Requiring Specific Design.” It is claimed that the statements were false and inaccurate in that the plaintiff’s property was unsuitable “to have a house with foundations in accordance with NZS 3604 constructed on it because the highly expansive nature of the soils meant that such foundations would be inadequate and would not support the house causing it to crack.”
Defendants’ submissions
[51] The defendant applicants make two main points. First, they point out that for the plaintiff to succeed she must establish a special relationship existed between her and the defendants, and that such a relationship will be held to exist where it is plain that the party seeking information or advice is relying upon the other to exercise reasonable care in the giving of that advice, where it is reasonable to so rely, and where that person giving the information or advice knows or ought to have known
that it is being relied upon.10
[52] The applicants also submitted that there has to be actual reliance upon the negligent statements. Their counsel referred to Body Corporate No 207624 v North Shore City Council11 as the basis for that submission and I accept that the citation in question which is to the judgments of McGrath and Chambers JJ does in fact support the submission. Counsel also referred to the judgment of Harrison J in the Court of Appeal, with whom Ellen France J and Randerson J agreed on this point, at paragraph 71:
[71] By contrast, the discrete tort of negligent misstatement requires proof both of actual reliance and of its reasonableness. The latter is designed to limit the scope of potential liability, consistent with the underlying policy touchstone of what is fair, just and reasonable. This limitation – introduced through the mechanism of foreseeability – emerged as a dominant feature in Caparo. The purpose for which the impugned statement was prepared controls the reasonableness of reliance. And direct dealing between the parties or their representatives is normally required to satisfy the separate proximity component of actual reliance if a Court is to find a special relationship of the type justifying liability on one party to another for want of care in making a statement. Then the maker may be said to have assumed a responsibility to the recipient for the statement’s accuracy, truth or reliability.
[53] I respectfully agree with and intend to apply that statement in the present case. While the case was successfully appealed to the Supreme Court, this statement of law was not disturbed as the Supreme Court considered the negligent
misstatement action added nothing of substance to the proceeding.
10 The applicants identify the source of these propositions as Laws of New Zealand Negligence at
[66].
11 Body Corporate No 207624 v North Shore City Council [2012] NZSC 83 at [220].
[54] The plaintiff in her statement of claim does not plead that she relied upon the reports which the applicants prepared and issued with relation to the subdivision application. Further, the applicants have given evidence that they had no contact with the plaintiff prior to the issue of these proceedings. That evidence has not been contradicted by the plaintiff.
Plaintiff’s submissions
[55] The submissions that Mr Wright made for the plaintiff dealt with the issue of reliance by stressing that actual reliance is not always required. It was his submission that more recently, the New Zealand Courts have consistently moved towards a broader approach, where negligent misstatement is analysed in terms of proximity and policy. The ultimate inquiry is whether it is fair, just and reasonable to
require the defendant to take reasonable care to avoid causing loss to the plaintiff.12
He further submitted that it will not be fatal if the plaintiff is unable to establish assumption of responsibility by the defendant in making the statement or reasonable detrimental reliance by the plaintiff on the statement.
Discussion of plaintiff’s claim in negligent misstatement
[56] My understanding of the current authority in New Zealand is that so far as local body cases are concerned, local authorities may be in a special category for the reasons which were stated in the Spencer on Byron case to which Mr Wright drew my attention. There the Court of Appeal recognised that in the area of local authority liability, the law exempts a home owner suing in negligence from the
requirement to establish actual reliance:13
It recognises that purchasers of residential premises rely in a general sense on local authorities to act carefully when fulfilling their statutory duties and reliance is assumed without proof.
12 Relying on authorities such as South Pacific Manufacturing [1992] 2 NZLR 282 (CA); Attorney- General v Carter [2003] 2 NZLR 160 (CA); Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) at [58]; McKinlay Hendry v Tonkin & Taylor CA81/04, 9 December 2005); North Shore City Council v Body Corporate 207624[2011] NZCA 164; [2011] 2 NZLR 744 at [68] to [70].
13 North Shore City Council v Body Corporate 207624 [2011] NZCA 164; [2011] 2 NZLR 744 at [70].
[57] I would not accept that similar considerations would justify imputing to a person in the position of a geotechnical engineer the same willingness to accept generalised responsibility to anyone for inaccuracies in a report prepared for a client to submit to the local Council as part of a subdivisional consent application. The local authority has a responsibility to discharge its statutory obligations with care when it comes to inspecting properties for compliance with the relevant bylaws and building codes, the certification of which is contained in documents issued by councils such as code compliance certificates. That New Zealand homeowners have historically relied upon the proper discharge by the councils of the functions is now beyond dispute. That however is a very considerable distance from the case of a surveyor in private practice who takes engagements from individuals who choose to retain his services. It could not possibly be viewed as just and reasonable for an individual in that position to be fixed with liability to what can only be described as a class of potential claimants which is indeterminate in size. The number of properties in regard to which someone in the position of the applicants would be exposed to liability also needs to be considered. It is difficult to see, if the applicants are liable to the plaintiff, why they would not similarly be liable to any other owner of the house property in the subdivision. The evidence and submissions for the plaintiff prepared to focus upon the causation aspect of the plaintiff’s claim. Counsel submitted that the applicants knew that the information contained in the geotechnical report would be communicated to the Council (for the purpose of recommending the land for subdivision and to enable titles to be issued) and thereby [to] future owners of the land (at least implicitly) for that purpose. Further, Geotek knew the report was likely to be acted upon without independent inquiry. As a result of the negligent misstatement, Ms Deeming purchased the property and has suffered detriment.
[58] Beyond submitting that although direct dealing is usually a feature of reliance on negligent misstatement, it may be possible in some circumstances for a claimant to succeed without it, counsel for the plaintiff did not engage in any analysis of the plaintiff’s claim which would justify the Court concluding that the engineer assumed responsibility to Ms Deeming for the statement’s accuracy, truth or reliability.
[59] The position summarised, then, is that the plaintiff does not plead or allege that there was any actual reliance on the geotechnical reports. The position is the same with regard to the lack of direct dealing between herself and the engineer. The essential elements of the claim which she seeks to bring include pleading and proof of the two matters just discussed. Reliance is not pleaded and it was accepted in the course of argument for the plaintiff by Mr Wright that there was no reliance in the usual sense in which that term is used in negligent misstatement cases. Because of their omission, it is inevitable that the plaintiff’s claim will not succeed and that it ought to be struck out
[60] In case I am wrong in that conclusion, I shall consider the relevance of the disclaimers which applied to the advice that Geotek gave.
The disclaimer
[61] The advice that Geotek gave was subject to a disclaimer in the following form:
Areas A, B1 & B2
Fowler Block Subdivision, East Tamaki Road.
This report has been commissioned for the benefit of our client, Howick Parklands Limited, specifically in relation to the project described herein. No liability is accepted by this firm or any of its directors, servants or agents, in respect of its use by any other person, and any other person who relies upon any information contained herein does so entirely at their own risk, with the exception that the local Territorial Authority may rely on it when issuing the subject consent. Where other parties may wish to rely on it, this permission may be extended, subject to our satisfactory review of their interpretation of the report. Moreover, any variations from the development proposals forming the basis of this appraisal (e.g. such as, but not limited to, changes to final contour) should be referred back to us for further evaluation.
Although this report may be submitted to a local authority in connection with an application for a consent, permission, approval, or pursuant to any other requirement of the law, this disclaimer shall still apply and require all other parties to use due diligence where necessary. This opinion is not a guarantee, and does not remove the necessity for the normal inspection of site conditions and the design of foundations, that should be made under all normal circumstances.
GEOTEK SERVICES LIMITED.
[62] In regard to the disclaimers the submission for Geotek was to the following effect:
The cases have held consistently that a disclaimer is relevant to establishing whether a duty is owed in a claim of negligent misstatement. In Hedley Byrne & Co Ltd v Heller & Partners Ltd, (1963) 2 ALL ER 575, a disclaimer and footnote made it clear that the defendant bank was assuming no responsibility for the correctness of the information supplied and, therefore, the Court held the bank had no liability.
[63] Mr Wright for the plaintiff accepted that a defendant may exclude his or her liability by contract or by non-contractual notice. However, the notice must be reasonable in the circumstances. He accepted that generally speaking, if advice is given subject to a stipulation disclaiming liability for it, the recipient is bound. He/she cannot accept the advice and yet at the same time reject the stipulation. I agree with that submission which is based upon Hedley Byrne & Co Ltd v Heller &
Partners Ltd.14 While accepting that in general a disclaimer will be determinative in
cases where the cause of action is negligent misstatement, the case for the plaintiff is that there will be exceptional cases where that will not be the effect of a disclaimer.
[64] Mr Wright made reference to the authority of McKinlay Hendry v Tonkin & Taylor15 where the defendant engineers provided a geotechnical report concerning the suitability of re-claimed land for building. The report was prepared for a company called Centrepoint which was intended to be the owner of a coolstore to be built upon the reclaimed land. However, unknown to the defendant Centrepoint was replaced as the intended owner by Kings Wharf. The report contained a disclosure in the following terms:
“This report has been prepared solely for the benefit of you as our client with respect to a particular brief given to us, and data or opinions contained in it may not be used in other contexts or for any other purpose without prior review and agreement.”
[65] The report contained negligent misstatement and Kings Wharf sued the engineers because of loss that they had suffered through relying on the report. The
14 Hedley Byrne & Co Ltd v Hellar & Partners Ltd (1963) 2 ALL ER 575.
15 McKinlay Hendry Ltd v Tonkin & Taylor CA81/04, 9 December 2005.
claim failed because the Court of Appeal concluded that the exclusion clause necessarily excluded reliance by Kings Wharf. The Court held that the engineers could only owe Kings Wharf a duty of care if it “subsequently conducted itself in such a way as to make it reasonably foreseeable that a third party would rely on the report, contrary to the stated intention when the report was submitted.”16
[66] It was the plaintiff’s position that Geotek was aware that this report would be relied upon by subsequent owners of the property, but that the report itself was unlikely to be accessed. It was further submitted that the real issue raised in relation to the disclaimer is whether it would be reasonable for the plaintiff to be bound by the disclaimer when clearly she had no notice of it.
[67] It would appear that the plaintiff in asserting “reliance” does not refer to the conventional way in which such a term is used in the context of claims based upon negligent misstatement. Rather, the plaintiff is referring to an indirect type of reliance resulting from the totality of the following circumstances:
a) The report was obtained by the developer, Howick Parklands Ltd, in support of its application for approval of a planned subdivision of land;
b)subdivision would not have been approved without a supporting geotechnical report;
c) in a general way, the plaintiff, like any other house property purchaser, assumed that the Council would not have consented to the erection of the house on the land without first checking suitability of the property.
d)The Council approved subdivision of the land influenced, in part, by the report;
e) the engineer knew that the report would be influential in obtaining subdivision consent; it also knew about the reliance in general terms on the checking functions that the Council would carry out before granting subdivisional consent;
f) therefore it can be said that the engineer knew that notwithstanding any disclaimer in the report, a decision to buy the property that the plaintiff or some other party might make would be influenced by its report.
[68] The plaintiff also referred to cases where the Court has gone behind a disclaimer so as to allow a party who was not an intended recipient of the report to plead reliance on the report where that party had no option but to place reliance on it. I do not consider that such is the case here. It was always open to the plaintiff to obtain her own geotechnical report.
[69] I do not consider that any of these circumstances on their own or in combination enable the plaintiff to succeed in an argument that the disclaimer ought not to be given effect to.
[70] The next question is whether an order striking out the cause of action in negligent misstatement ought to be made. I consider that such an order is justified. Even assuming the accuracy of the facts which the plaintiff pleads, she could not succeed on a claim of negligent misstatement brought against Geotek. There is no special relationship between the parties, there was no reliance on the part of the plaintiff and it would be unjust if Geotek were to be fixed with liability notwithstanding the inclusion in their report of the disclaimer which made it clear that they did not accept any such liability.
[71] I do not ignore the warning that the Supreme Court gave in Couch v Attorney-General17 concerning the unsuitability in many cases of issues about the existence of duties of care being decided on the basis of a strikeout application
where, necessarily, there has been no opportunity to resolve the question before the
Court on a firm evidential footing. Particularly, the Court said at [34]:
Proper and necessary limits to liability in negligence do not require blanket immunity through over-restriction of the circumstances in which a duty of care arises. There is particular risk of such over-restriction on summary consideration on strike-out where policy considerations are said to preclude a duty of care.
[72] I consider that the Court can rule upon the strike out application in this case because the purported liability lies so far outside the parameters of what has been accepted by the courts to date that it is unlikely that even at trial a judge might take a different view which is more favourable to the plaintiff’s position.
[73] For these reasons, the 10th claim contained in the amended statement of claim being a claim based upon the alleged negligent misstatement on the part of Mr Woodward and Geotek is struck out.
[74] Because I consider that the plaintiff’s claim based upon alleged negligent misstatement cannot succeed, it follows that the Council’s claim for contribution also cannot succeed.
Plaintiff and sixth defendant’s claims against seventh and eighth defendants for
misleading or deceptive conduct
[75] The seventh and eighth defendants also seek to strike out the eighth claim in the statement of claim which alleges that the geotechnical reports which Mr Woodward wrote were false and misleading or deceptive or likely to mislead or deceive in that Ms Deeming’s property was unsuitable to have a house with foundations in accordance with NZS 3604 constructed on it. This was because of the highly expansive nature of the foundation material, which would not be able to support the house and would therefore expose it to cracking, and because artesian water pressure beneath the house meant that the land was unsuitable for constructing a house.
[76] The statement of claim alleges that Geotek was acting in the course of trade when providing the geotechnical reports, whereas the application to strike out alleges that the statements were not made “in trade” to the plaintiff.
[77] I do not accept that the statements were not made in the course of trade. In my view the same circumstances which justified the conclusion that statements were made “in trade” in Norbrook Laboratories Limited v Bomac Laboratories Ltd No (3)18 and Frankel Consultants Ltd v Enviro Waste Service Ltd19 apply to the circumstances of this case. Bomac was referred to in Frankel as follows:20
The essential argument in that case was whether when providing information to a regulatory authority, a party could be liable for representations made in trade and therefore come within the provisions of the FTA.
Heath J concluded that the question should be answered in the affirmative. He said:
“It is important that the Courts support the desirability of accurate information being conveyed to regulatory authorities required to make determinations. In this case the ACVM's determination impinged upon both animal welfare and public health (in the sense that milk or meat from treated cows is likely to enter the food chain) considerations. ”
[78] Notwithstanding the grounds set out in the notice of application, the argument also went into questions of whether the plaintiff had suffered any loss as a result of the alleged misleading or deceptive conduct. That raises considerations of causation. The question arises whether the Court could appropriately make orders for the striking out of that part of the statement of claim. Summary judgment is not available with regard to this cause of action per r 12.2 HCR (although Geotek sought it) because the defendants application for summary judgment will not dispose of all of the causes of action.
[79] If it is established that a defendant did in fact engage in misleading or deceptive conduct, then a party who wishes to claim has to prove that there is a link between that conduct and loss which he/she suffered. Analysis of the immediacy of the link that is required between the misleading conduct and the loss is not at all straightforward. It would not be a legitimate exercise of the power to strike out for the Court to engage in an attempt at foreseeing the path that the plaintiff’s claim
might follow with the possible end in view that the Court could conclude that the
18 Norbrook Laboratories Ltd v Bomac Laboratories Ltd No (3) HC Auckland CIV 241-SW02, 2
December 2002.
19 Frankel Consultants Ltd v Enviro Waste Service Ltd [2012] NZHC 2142.
20 At [65].
chances of establishing recoverable loss are non-existent leading the Court to dismiss the claim.
[80] There is some evidence that the advice which Geotek gave about the suitability of a substantial part of the subdivisional area for the loadings that would be imposed by light framed buildings was in fact erroneous. It cannot be ruled out that the trial Court could take the view that the advice can be categorised as conduct which falls within s 9 Fair Trading Act 1986 (“FTA”).
[81] For those brief reasons I conclude that the application to strike out a claim brought under the FTA ought to be dismissed as well.
Sixth defendant’s claim for negligent misstatement against seventh and eighth defendants
[82] The sixth defendant seeks a contribution from the seventh and eighth defendants based upon an alleged negligent misrepresentation on the part of those defendants. This claim is brought on the basis that if the seventh and eighth defendants are found liable for negligent misstatement, they will be liable to contribute to the sixth defendant’s damages as joint tortfeasors. To the extent that the plaintiff’s claim for negligent misstatement is dismissed, this ground for claiming contribution cannot succeed.
[83] However, the sixth defendant also brings a claim for negligent misstatement directly against the seventh defendant in its own right. It claims that it relied upon the contents of the geotechnical reports which amounted to negligent misstatement, that it relied upon them when it issued the subdivision consent, and that it suffered loss as a result - presumably being damages which it apprehends may be ordered against it at the suit of the plaintiff.
[84] The seventh and eighth defendants attempt to strike out this part of the sixth defendant’s claim on the basis that it, too, is time-barred on the ground that it contravenes the long stop limitation provision in the Building Act.
[85] This ground for striking out cannot succeed for the same reasons that I have declined to accept that the provision of the geotechnical report was “building work” for the purposes of the Building Act when dealing with the application to strike out the plaintiff’s claim.
[86] The notice of opposition which the sixth defendant filed included the following ground (3(d)):
(d) the seventh and eighth defendants’ geotechnical reports expressly provided that “this report may be submitted to a local authority in connection with an application for consent, permission, approval or pursuant to any other requirement of law.
[87] The fact that it was contemplated that the report would be submitted to Manukau City Council does not, in my view, necessitate the conclusion that it enables the sixth defendant to avoid the effect of the disclaimer of liability which the reports contained. It is entirely likely that the reference to submission of the report to the Council was an authority to use the information contained in the report for that purpose. It might have been apprehended that but for such an authority, there might be doubt about the authority concerning what the developer could use the report for. It may have been intended to limit its dissemination any further than the Council and the developer. It certainly does not warrant a conclusion that because an end-user of the report was identified by name, that the general terms of the disclaimer of liability were to be construed as though they did not apply to that entity.
[88] The disclaimer is available to the seventh and eighth defendants and for that reason the claim based on negligent advice which the sixth defendant brings in its own right is struck out.
Sixth defendant’s claim against seventh defendants based on FTA
[89] The sixth defendant also brings a claim against the seventh defendant which alleges that the provision of the geotechnical report which contained wrong information amounted to misleading or deceptive conduct on the part of the seventh defendant. Based upon the breach of the Act, the sixth defendant claims an order
pursuant to s 43(2)(d) of the FTA that the seventh defendant pay to it the amount of damages etc determined by the court to be payable in favour of the plaintiff.
[90] The sixth defendant raises the same type of argument that the plaintiff put forward in order to oppose the strikeout application with respect to the causes of action against the seventh defendant. This ground for striking out the claim based upon the FTA cannot succeed in my view. The seventh defendant’s application against the sixth defendant concerning the FTA cause of action must be dismissed for the same reasons that apply to its application against the plaintiff.
Summary of conclusions
[91] The conclusions I have come to in this judgment are as follows:
a) Geotek’s work cannot be viewed as “building work” for the purposes of the Building Act so that s 393 does not apply and the proceedings are not time-barred. Geotek’s work was about suitability of subdivided land generally and was used to assist the Council in coming to a decision on whether to grant consent. The work was not a design or contribution to construction of any specific house. The seventh and eighth defendants’ application to strike out the plaintiff’s claim and for summary judgment for those defendants is dismissed.
b)The plaintiff’s cause of action in negligent misstatement against the seventh and eighth defendants cannot succeed because the plaintiff does not plead any actual reliance on the geotechnical reports or direct dealing between herself and the engineer. The Court would not be justified in concluding that the engineer assumed responsibility to the plaintiff for the statement’s accuracy, truth or reliability. The plaintiff is not successful in arguing that Geotek’s disclaimer ought not to be given effect to. This is not an exceptional case where the disclaimer should not be given effect to.
c) The sixth defendant’s claims to the extent that they depend upon the plaintiff’s claim succeeding and to the extent that the sixth defendant
is found to be a joint tortfeasor together with the seventh and eighth defendants cannot be struck out on the basis of the limitation defence arising from the Building Act.
d)The ground that the seventh and eighth defendants put forward for striking out the sixth defendant’s claim based on negligent misstatement cannot be defeated by considerations of lack of reliance. The sixth defendant did rely upon the geotechnical report in granting subdivisional consent. However, the sixth defendant’s claim in negligent misstatement against the seventh and eighth defendant is prevented by the disclaimer clause and must be struck out for that reason.
e) I do not accept that the statements made by the seventh and eighth defendants were not made “in trade” for the purposes of s 9 Fair Trading Act. This conclusion applies both to the claims which the plaintiff has brought under the Act and the sixth defendant’s cross-
claim.
Orders
[92] I make the following orders:
a) The claim contained in the amended statement of claim, based on negligent misstatements on the part of the seventh and eighth defendants, is struck out.
b)The sixth defendant’s claim based on negligent misstatement on the part of the seventh and eighth defendants is struck out.
Costs
[93] The parties should confer on costs and attempt to agree the incidence and quantum of costs. If this proves to be impossible counsel are to file memoranda not exceeding five pages on each side within 15 working days of the date of this judgment.
J.P. Doogue
Associate Judge
Counsel:
Mr P Wright, Barrister, - [email protected]
Heaney & Co Solicitors, P O Box 105391, Auckland – [email protected]
Morgan Coakle, P O Box 114, Auckland – [email protected]
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