Fairview Park Limited v Harrison Grierson Consultants Limited HC Auckland CIV 2006-404-6588
[2010] NZHC 651
•4 May 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2006-404-006588
BETWEEN FAIRVIEW PARK LIMITED Plaintiff
ANDHARRISON GRIERSON CONSULTANTS LIMITED First Defendant
ANDRAYMOND GRANT ULYATE AND STANLEY IAN ROBERT BORWICK ULYATE
Second Defendants
ANDHICK BROS CIVIL CONSTRUCTION LIMITED
Third Party
Hearing: 28 April 2010
Counsel: M Borcoski and K Perry for first defendant
NJ Carter for second defendants
Judgment: 4 May 2010 at 11:00am
RESERVED JUDGMENT OF ASSOCIATE JUDGE FAIRE
[on application by second defendant to file and serve amended cross-claim]
This judgment was delivered by me on 4 May 2010 at 11:00am pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Hesketh Henry, Private Bag 92 093, Auckland for plaintiff
Kennedys, PO Box 3158, Auckland for first defendant
Carter & Partners, PO Box 2137, Auckland for second defendant
Simpson Western, Private Bag 93 533, Takapuna for third party
FAIRVIEW PARK LTD V HARRISON GRIERSON CONSULTANTS LTD HC AK CIV 2006-404-006588 4
May 2010
The application
[1] The second defendants apply for an order granting leave to them to file and serve an amended cross-claim in accordance with a draft document which is attached to the application.
Relevant rules
[2] The application requires consideration of r 7.77 dealing, generally, with amendments to pleadings and r 7.18 which prohibits the filing of an amended pleading without the leave of the court after the setting down of the case for trial.
Priority hearing of this application
[3] This proceeding has been allocated seven days for trial starting on 24 May
2010. Counsel confirm that briefs of evidence have been served. That includes briefs of evidence by the plaintiff in support of the claim, briefs of evidence by the defendants in opposition and covering the matters set forth in the draft counterclaim, and reply briefs of evidence but not covering matters contained in the draft counterclaim. Lang J directed a priority hearing for this application at a conference he held on 31 March 2010. All of this has occurred after the formal setting down of the proceeding.
Background
[4] This proceeding relates to a subdivision which the plaintiff and the second defendants undertook on their respective lands in Fairview Avenue, North Shore City. The first defendant provided consultancy and project management services to the plaintiff and the second defendants in respect of the subdivisions.
[5] The second defendants own a property which adjoins the plaintiff’s land. The plaintiff and the second defendants are parties to an agreement which provides for the joint subdivision of the respective properties and for the sharing of
development costs. It is in relation to this agreement that the second defendants claim that the first defendant made negligent representations which the second defendants relied upon for the purposes of finalising the terms of their agreement with the plaintiff. The amendment sought seeks to base their claim on what is described as a further or alternative cause of action. In reality, it appears to be an alternative cause of action. It alleges breach of fiduciary duty. As a consequence, it is alleged that they have suffered loss. In addition, they seek contribution or indemnity from the first defendant for any sum for which they are found to be liable to the plaintiff.
The amendments
[6] A document which contains the proposed amendments is helpfully marked in the margin with the precise words which make up the amendment underlined. Because not all amendments are opposed, I attach to this judgment the draft as Schedule A.
The opposition
[7] The amendment sought to paragraph 2 was abandoned by Mr Carter. The remaining amendments which are objected to are those contained in paragraphs 33 to
40 of the draft cross-claim. Accordingly, there being no objection to the amendments sought outside paragraphs 2 and 33 to 40 of the draft cross-claim, orders will be made granting leave to amend the cross-claim accordingly. It is now necessary to examine the objection to the amendments proposed by paragraphs 33 to
40 of the draft cross-claim.
[8] The specific objections raised to paragraphs 33 to 40, in summary, are as follows:
a) The foundation for the alleged breach of fiduciary duty pleaded in paragraphs 33 to 40 is suspect because the pleaded facts do not
provide a basis for finding that a fiduciary duty was owed by the first defendant to the second defendants;
b)Paragraphs 33 to 40 introduce a new cause of action which is statute- barred. Reliance is placed on the equitable bar by analogy principle preserved by the Limitation Act 1950, s 4(9);
c) Paragraphs 33 to 40 are an attempt to plead what is a tortious cause of action as a breach of fiduciary duty in an attempt to defeat the provisions of the Limitation Act 1950;
d)The factual allegations in paragraph 37(c) to (e) are new. They are made at a late stage. The first defendant would be prejudiced if the amendment is granted because of the lack of time available to deal with them before trial;
e) There is no proper particularisation of the claim of equitable fraud in paragraph 38. This ground is linked to the issue of whether a fiduciary duty exists in this case at all; and
f) If the amendment is granted the trial would need to be adjourned so that requests particulars could be resolved.
The law in relation to leave to amend after the setting down date
[9] It is common ground that this proceeding has, in fact, been set down. If there was any doubt about the matter, the default provision pursuant to r 7.13(5) applies with the result that at the time the application was made this case had, in fact, been set down.
[10] Rule 7.18(2) provides:
7.18 No steps after setting down date without leave
…
(2)No statement of defence or amended pleading or affidavit may be filed, and no interlocutory application may be made or step taken, in the proceeding after the setting down date without the leave of a Judge.
[11] The principles on which the court may decide if leave is justified were discussed in Fordham v Xcentrix Communications Ltd.[1] Five general matters were considered important, namely:
[1] Fordham v Xcentrix Communications Ltd (1996) 9 PRNZ 682.
a) The discretion to grant leave is to be exercised in a way that will best achieve justice;
b)There must be some basis or material on which the court can exercise its discretion;
c) The court will weigh injustice to the plaintiff/defendant to see where the justice lies;
d)The reasons for not making the application before setting down will be considered; and
e) The court will consider whether irreparable damage will be suffered by the applicant if the order is not made.
[12] The application is specifically an application to amend a pleading. Reference must, therefore, be made to r 7.77. Rule 7.77(2) prohibits the introduction of a fresh cause of action which is statute-barred. Save for that matter, the guiding principle in any application to amend is the need for the court to ensure that the real controversy goes to trial so that the court is confident that a just determination of the proceeding
will occur: Thornton Hall Manufacturing Ltd v Shanton Apparel Ltd.[2]
The amendment and grounds in opposition analysed
[2] Thornton Hall Manufacturing Ltd v Shanton Apparel Ltd [1989] 3 NZLR 304.
[13] The starting point for this analysis is a consideration whether the pleaded facts give rise to an arguable basis for the imposition of fiduciary obligations on the first defendant.
[14] The first defendant entered into a contract with one of the second defendants for consultancy work in October 2001. The relationship of the parties derives from that contract. The first defendant was required to provide engineering and surveying advice to the second defendants under the contract in return for payment. The first- named second defendant confirms, in his affidavit, that he knew that the first defendant had been engaged as the consultant to the plaintiff.
[15] Ms Borcoski submitted that the above facts bring this case squarely within the statement of principle contained in DHL International New Zealand Ltd v Richmond Ltd:[3]
Arm's length commercial transactions rarely give rise to fiduciary obligations. They are matters of contract where the parties reasonably expect their contract to govern, rather than matters of conscience.
[3] DHL International New Zealand Ltd v Richmond Ltd [1993] NZLR 10 at 22 (CA).
[16] That being the case, she submitted, there is no foundation for bringing a claim which, in essence, either mirrors or varies the obligations undertaken in the contract which was entered into between the parties.
[17] Mr Carter referred to passages from Snell’s Equity:[4]
[4] Snell’s Equity (31st ed, Sweet and Maxwell, London (UK), 2005) at [7-91].
It is an automatic breach of fiduciary duty for a fiduciary to act for two principals with potentially conflicting interests without the informed consent of both.
He discussed the position of informed consent. He next referred to Clark Boyce v Mouat[5] and Nationwide Building Society v Balmer Radmore.[6] Ms Borcoski noted that the authorities referred to were all solicitor/client cases where the special nature
of the relationship was the foundation for the fiduciary duty that was found to exist. It is perhaps significant that no authority was advanced by counsel dealing with a consultancy agreement where the court has confirmed a fiduciary obligation in addition to the obligations imposed by what is essentially a commercial agreement itself.
[5] Clark Boyce v Mouat [1993] 3 NZLR 641.
[6] Nationwide Building Society v Balmer Radmore (1999) PNLR 606.
[18] The position is that the first defendant entered into a commercial contract with the first-named second defendant in October 2001 for consultancy work. The relationship between the first and second defendants was purely a business one established by the contract. It was an arm’s length transaction. The first defendant was providing engineering and surveying advice to the second defendants pursuant to a commercial contract in return for payment. Although the parties relied on each other to fulfil their respective obligations under the contract, they were doing so for separate advantages under that contract. As the relationship was founded in contract, each party was free to pursue its own interest in the course of the business relationship. The first-named second defendant was aware that the first defendant was also engaged as the consultant for the plaintiff. I find no foundation for the proposition that the second defendant was entitled to expect that the first defendant would act only in the second defendants’ interests in carrying out the contract and not in the first defendant's interests, or for that matter, a third party, the plaintiff. I conclude that there is no foundation for the proposition that a fiduciary duty obligation existed in addition to the obligations incurred by the parties under the contract.
[19] I refer to the limitation points referred to in [8]b) and [8]c). Mr Carter did not dispute the application of the equitable bar by analogy principle. What he submitted, however, was that time would not begin to run by the operation of the Limitation Act
1950, s 28. An action based on equitable fraud, including a breach of fiduciary duty, is encompassed by the Limitation Act 1950, s 28(a). The inquiry that needs to be made, then, on the limitation point is an inquiry as to when the second defendants could, with reasonable diligence, have discovered the fraud or the mistake.
[20] The first-named second defendant is quite candid in this respect. He firstly confirms that he was the person responsible for dealing with the plaintiff and the first
defendant over all matters pertaining to the subdivision. Both he and his brother took a deliberate decision not to instruct any expert engineer until after they had received the plaintiff’s briefs of evidence. It was only as a result of receiving the briefs of evidence that he decided to instruct an expert. He said it was only when the experts reviewed the briefs of evidence that the conflict of interest issue was drawn to their attention in three additional aspects, namely:
a) The locating of the stormwater pond;
b)The issue of the huge quantities of fill which were need to be taken from the second defendants’ land for use on the plaintiff’s land without any compensation for it being paid; and
c) The fact that the removal of the fill was a loss of fill that would be needed when they developed their subdivision in the future.
If one assumed that there was a fiduciary duty breached in this case it would be difficult for me on the material before me to establish precisely when the alleged loss should have been discovered with reasonable diligence. Certainly, from the time of the issue of proceedings against the second defendants one would have thought that time would have begun to run. My examination of this issue, therefore, cannot be decisive. However, because of my finding on the first ground of opposition, it is not necessary to make a final determination on this issue.
[21] The remaining grounds of objection in essence all relate to prejudice caused to the first defendant by the late bringing of this alternative cause of action, in particular, with the new allegations that are made in paragraph 37(c) to (e). Clearly, late notification of this cause of action does impose difficulties for what is the party opposing this cause of action.
[22] When I return to the issue of whether there is a sound foundation for a breach of the fiduciary duty claimed together the lateness with which this claim has been raised and the obvious difficulties that will arise to all the parties if, in fact, it becomes an issue which requires the court’s attention at the trial on 24 May 2010, I
conclude that the amendment which introduces paragraphs 33 to 40 of the draft cross-claim should not be permitted and that leave to file the amended pleading including those paragraphs should not be granted. For reasons earlier referred to the balance of the amendments, save for paragraph 2, are allowed.
[23] I order accordingly.
[24] As was mentioned in relation to the other applications heard in relation to this proceeding on 28 April 2010, there was no time to hear counsel on costs. The second defendants have failed on the application. That, in normal circumstances, would justify an order for costs on the application in favour of the plaintiff. My preliminary view is that Category 2 should apply and on a Band B basis to this application. However, I leave it counsel in the first place to agree on costs and if they cannot agree then memoranda in support, opposition and reply should be filed
and served at seven-day intervals.
JA Faire
Associate Judge
SCHEDULE A
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2006-404-6588
BETWEEN FAIRVIEW PARK LIMITED
Plaintiff
A N D HARRISON GRIERSON CONSULTANTS LIMITED
First Defendant
A N DRAYMOND GRANT ULYATE & STANLEY IAN ROBERT BORWICK ULYATE
Second Defendants
DRAFT AMENDED STATEMENT OF CLAIM BY SECOND DEFENDANTS AGAINST FIRST DEFENDANT
Dated: March 2010
Next Event Date: 24 May 2010
Judicial Officer: Associate Judge Sargisson
Case Officer: Anita Filemoni
CARTER & PARTNERS
Solicitors
Ninth Floor West Plaza Building
1-3 Albert Street
AUCKLAND
Person Acting: John Carter
Tel: (09) 366-1366
Fax (09) 366-1363
PO Box 2137 Auckland
DX CP 21005
email: [email protected]
DRAFT AMENDED STATEMENT OF CLAIM BY SECOND DEFENDANTS AGAINST FIRST DEFENDANT
The second defendants by their solicitor say:
1. On or about 25 October 2000 Mr David Ison, a representative of the first defendant, approached Mr Raymond Grant Ulyate on behalf of both second defendants with proposals to co-operate with the plaintiff over various requirements the plaintiff had in respect of a proposed subdivision of its land.
2. In or about February and March 2001 and continuously down to 12
December 2001 David Ison represented to Ray Ulyate that:
(a) the land to be provided by the second defendants as a storm water pond lot was virtually worthless to them; but
(b)that they would get a substantial Reserve Contribution in respect of the pond lot which would not only cover their proposed 7 sites but would provide a credit to carry over for another 8 sites.
3. David Ison at the same time or until after the deed was signed also failed to advise Ray Ulyate that if the second defendants did not provide the land for the storm water pond lot the plaintiff would have to provide valuable land itself for such pond lot and that the plaintiff would have lost an area of land of approximately 2,000m2 resulting in a loss of 3 or 4 residential lots. The costs of constructing the
storm water pond lot on the plaintiff’s own land would have been approximately the same.
4. These were continuing representations until the deed referred to in para 3 was signed.
5. Subsequently the second defendants entered into a deed with the plaintiff recording an agreement relating to subdivision between them which was signed in December 2001 (“the deed”).
6. Amongst other things the second defendants agreed under the deed to provide the necessary land for a storm water pond lot to permanently service the plaintiff’s subdivision.
7. Contrary to David Ison’s advice the pond lot land provided by the second defendants would have had a substantial value for subdivision by the second defendants alone by suitable filling, namely $1.35 million net after the cost of filling, levelling, services and other subdivisional costs.
8. Alternatively, the net value of the 2,000m2 of land preserved for sale by the plaintiff for residential lots and sale was $1.7m.
9. The first defendant owed a duty of care to the plaintiff, by reason of it being an expert on subdivision developments and by reason of the fact that if the second defendants accepted his advice the first defendant would become the surveyor and engineer to act for both
the plaintiff and the second defendants under the deed, to give the second defendants proper professional advice in relation to the subject matter of the proposed deed and joint venture, as formally proposed by the first defendant on 2 October 2001.
10. In breach of that duty the first defendant negligently advised the second defendants that its pond lot land was valueless and negligently failed to advise the second defendants of the benefit of
$1.7m which would accrue to the plaintiff and negligently advised them in relation to the expected credits for the pond lot.
11. The second defendants relied on the first defendant’s advice.
12. The second defendants became aware of their loss after the earthworks were completed in about February 2005 and they could see the lie of the land and when the reserve contributions were levied in August 2005.
13. If the value of the pond lot to the plaintiff had been disclosed by David Ison then the second defendants would have negotiated with the first defendant and the plaintiff for further financial benefits under the deed and the second defendants lost the chance to negotiate for at least one half of the value to the plaintiff of $1.7m, namely
$850,000.
14. Or the second defendants would not have entered into the deed at all and would have kept the pond lot for themselves at a value of $1.35 million.
15. The plaintiff now sues the second defendants for the Reserve
Contribution credit of $64,063.00.
16. The second defendants were in fact assessed for reserves amounting to $115,593.17 for 7 lots and have no credit for another 8 lots, worth
$132,106.28.
WHEREFORE THE SECOND DEFENDANTS CLAIM JUDGMENT AGAINST THE FIRST DEFENDANT FOR:
A. The sum of $1.35 million or $850,000.00. B. The sums of $115,593.17 and $132,106.28.
C. The costs of and incidental to this cross claim.
D. Interest at the rate and for the time as ordered by this Honourable
Court.
AND AS A FURTHER AND ALTERNATIVE CAUSE OF ACTION AGAINST THE FIRST DEFENDANT, THE SECOND DEFENDANTS SAY FURTHER:
17. They repeat paras 1 – 8 and 18 – 16 hereof.
18.The first defendant was at all relevant times in trade namely the industry profession or occupation or commercial activity relating to the supply of services in respect of the subdivision of land.
19.The representations and omission set out in paras 2 and 3 hereof were conduct which was misleading or deceptive or was likely to mislead or deceive contrary to s.9 of the Fair Trading Act 1986 or were false or misleading representations concerning the price payable for the second defendants land (the pond lot), the characteristics of that land or the use to which the land was capable of being put in breach of s.14(1)(b) of the Fair Trading Act 1986.
20.As a result of relying on that conduct and/or misrepresentations the second defendants suffered the losses set out in paras 14 to 16 of this statement of claim.
WHEREFORE THE SECOND DEFENDANTS CLAIM JUDGMENT AGAINST THE FIRST DEFENDANT FOR:
A. The sum of $1.35 million or $850,000.00. B. The sums of $115,593.17 and $132,106.28.
C. The costs of and incidental to this cross claim.
D. Interest at the rate and for the time as ordered by this Honourable
Court.
AND AS A FURTHER AND ALTERNATIVE CAUSE OF ACTION AGAINST THE FIRST DEFENDANT, THE SECOND DEFENDANTS SAY FURTHER:
21.At the time the deed was signed the intention of the plaintiff was only to develop the lots on the southern side of the new road adjacent to the second defendants’ land and the balance of the plaintiff’s land was going to be subdivided as a separate stage two.
22.One of the reasons for that, as represented by the first defendant, was that the water supply was only a couple of hundred metres down the road and it would not cost much to bring the water supply up for the stage one of the plaintiff’s subdivision but the water pressure was such that it would only supply water to the 55 contour level which is roughly along the level of the new road.
23.The first defendant represented to the second defendants that the plaintiff was going to wait until someone else brought the water down before proceeding with stage two.
24.The plaintiff later decided to proceed with both stages at once and needed to bring the water down to service the total subdivision at significant extra expense.
25.At a date which the second defendants cannot presently specify, the second defendant Ray Ulyate had a meeting at David Ison’s office and refused to contribute 7/48ths of bringing the water down as opposed to what had been originally contemplated and agreed.
26.David Ison, on behalf of the first defendant acting as agent for the second defendants, agreed that the second defendants should only pay 7/48ths of the original water supply costs.
27. The second defendants accepted and relied upon that agreement.
28.The plaintiff now sues the second defendants for a share of the extra costs of bringing the water down to the subdivision rather than bringing it up.
29.The second defendants deny they are liable to the plaintiff in respect of the increased cost of water supply.
30.However, if the second defendants are found liable then they seek an indemnity from the first defendant in respect of any such amount.
31.The second defendants entered into a contract for professional services with the first defendant on the same terms as the plaintiff and relies on all the terms thereof set out in clause 49.2 of the fifth amended statement of claim as though set out herein.
32.The second defendants claim indemnity against the first defendant based on:
a) breach of contract;
b)negligent breach of a tortious duty of care to use reasonable skill, care and diligence and in particular to get the plaintiff’s agreement to the water sharing cost arrangement (if in fact the first defendant failed to do so) or to advise the second defendants to the contrary;
c) breach of fiduciary duties to advise of failure to obtain plaintiff’s agreement;
d)the first defendant’s agreement with the second defendants that the second defendants would only pay 7/48ths of the original water supply scheme was conduct which was misleading or deceptive or was likely to mislead or deceive or was a false or misleading representation as to the cost of the water supply contrary to the Fair Trading Act 1986.
WHEREFORE THE SECOND DEFENDANTS CLAIM JUDGMENT AGAINST THE FIRST DEFENDANT FOR:
A.Such sum as the second defendants may be adjudged to pay to the plaintiff in respect of the water supply;
B. The costs of and incidental to this costs claim.
AND AS A FURTHER AND ALTERNATIVE CAUSE OF ACTION AGAINST THE FIRST DEFENDANT THE SECOND DEFENDANTS REPEAT PARAGRAPHS 1 – 32 HEREOF AND SAY FURTHER:
33.On or about 18 October 2001 the second defendants executed a formal contract, at the request of the first defendant appointing the first defendant its professional surveyor and engineer in respect of the proposed joint venture subdivision.
34.The Deed of Agreement relating to the joint venture was subsequently executed by the plaintiff and the second defendants on or about 12 December 2001.
35.By virtue of the second defendants appointing the first defendant its engineer, the first defendant was in a position of professional conflict in serving the best interests of the plaintiff and the second defendants.
36.As a result of that conflict the first defendant had a duty of good faith and of full disclosure to the second defendants.
37. In breach of that duty the first defendant failed to disclose:
(a) that the land provided by the second defendants for the pond lot, if filled, would have a substantial value for development;
(b)that by the second defendants providing land for the pond lot the plaintiff would not have to provide the pond lot on its own land and thereby received a benefit of an additional 3 or 4 sections worth approximately $1.7m net;
(c) failed to disclosed to the second defendants that moving the site of the proposed pond lot from below the proposed road to above the road would provide substantial cost savings to the plaintiff;
(d)that, before pre-entering into the Deed of Agreement with the plaintiff substantial fill would be required by the plaintiff from the second defendants’ land which would have a substantial value to the plaintiff of the order of
$144,000;
(e) that the removal of the fill from the second defendants’ land would have a substantial negative impact on the second defendants if and when the balance of their land was subdivided, in that the second defendants or any developer purchasing from them would have to import replacement fill to develop the balance of the land.
38.The plaintiffs only discovered this equitable fraud by the first defendant on various dates between May 2004 and March 2010.
39.As a result of the first defendant’s breach of fiduciary duty the second defendants have suffered the losses set out in paragraphs
10, 13 & 14 above and the following additional losses: ($1.35 million or $850,000.00)
(a) in respect of the repositioning of the pond lot, the sum of $[
];
(b)in respect of the negative impact of removing fill from the second defendant’s own land the sum of $[ ];
(c) in respect of the value of the fill to the plaintiffs the sum of
$144,000.
40.The first defendant as the second defendants professional surveyor and engineer failed to disclose to them that the terms of the Deed of Agreement entered into between the plaintiff and second defendants did not necessarily:
(a) ensure that the second defendants would get the benefit of the Reserve Contribution credit in respect of their land;
(b)would render the second defendants exposed to any extra costs of bringing the stormwater down to the RL 55.0 contour (instead of up to it from below);
(c) would make the second defendants vulnerable for costs other than earthworks in respect of the development of the pond lot.
WHEREFORE THE SECOND DEFENDANTS CLAIM JUDGMENT AGAINST THE FIRST DEFENDANT FOR:
A. The sum of $1.35 million or $850,000.00. B. The sums of $115,593.17 and $132,106.28
C. D.
E. The sum of $144,000.00.
F. The costs of and incidental to this cross claim.
G. Interest at the rate and for the time as ordered by this
Honourable Court.
This statement of claim by the second defendants is filed by NORMAN JOHN CARTER, Solicitor for the second defendants, whose address for service is c/- Carter & Partners, Solicitors, 9th Floor, West Plaza, Cnr Albert & Customs Street West, Auckland.
Documents for service may be left at the address for service or may be:
(a) Posted to the solicitor at PO Box 2137, Auckland Central; or
(b) Left for the solicitor at a document exchange for direction to DX CP 21005, Auckland; or
(c) Transmitted to the solicitor by facsimile to (09) 366-1363.
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