Farrelly v Wellington City Council
[2019] NZHC 3394
•19 December 2019
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2018-485-692
[2019] NZHC 3394
BETWEEN PATRICIA ELIZABETH FARRELLY
and OTHERS
First to thirty-eighth plaintiffsAND
WELLINGTON CITY COUNCIL
First defendant
GPE HOLDINGS LIMITED
Second defendantCRAIG ALAN STEWART
Third defendantSTRATUM MANAGEMENT LIMITED
Fourth defendant
DAVID EDWARD STEWART
Fifth defendantROBERT ARTHUR CLEMENS
Sixth defendantROBERT JOHN BONNER
Seventh defendantRONALD FREDERICK TURLOW
Eighth defendantJULIA LOUISE LELOIR
Ninth defendantJULES CONSULTANCY LIMITED
Tenth defendant
Hearing: 11 November 2019 Appearances:
D Parker and E Dalzell for plaintiffs
H Rennie QC and R Conner for second to sixth defendants No appearance by or for first, seventh, eighth, ninth or tenth defendants.
FARRELLY v WELLINGTON CITY COUNCIL [2019] NZHC 3394 [19 December 2019]
Judgment: 19 December 2019
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
Introduction
[1]Two applications are before the Court for determination:
(a)an application by the plaintiffs for leave to appeal from my judgment of 2 August 2019 concerning discovery;1 and
(b)an application by the plaintiffs for an order joining a further defendant.
[2]Both are opposed.
Background
[3] The second defendant, GPE Holdings, was the identified developer of a major residential development at Greta Point, Evans Bay, Wellington. The complex consists of 91 units. Construction commenced in or about 1999. The question of when the work was completed is controversial. There may even be an issue as to whether it was ever completed. The plaintiffs are the current owners of 39 of the units. Broadly, they say that the complex was not built to an acceptable standard. As a result, the plaintiffs say, the complex is not weathertight. They sue to recover the costs of remedial work to their units.
[4] More importantly for present purposes, the plaintiffs say that, whilst GPE Holdings may have been the identified developer, there were other developers, including that company’s director, the third defendant, Mr Craig Stewart, and the fourth defendant, Stratum Management.
1 Farrelly v Wellington City Council [2019] NZHC 1875.
The leave application
[5]The plaintiffs and the 2nd to 6th defendants agreed that the latter would provide tailored discovery. The plaintiffs’ solicitors proposed categories of documents to be discovered. The defendants agreed to provide documents in the majority of those categories, and a consent order was made by Grice J for discovery of that documentation on 9 May 2019.
[6]The parties were unable to agree on the remaining categories:
(a)documents identified in the plaintiffs’ schedule at items 8(a)(i), (v) and
(vi) and (s)–(x);
(b)documents identified in 8(f); and
(c)documents identified in 8(y).
[7]The broad terms in which the categories were described by the plaintiffs’ solicitors led me to question whether it was appropriate to consider discovery of all documentation in those categories, or to limit discovery to relevant documentation in each category. Essentially on the basis that the purpose of discovery is to ensure that the parties to litigation discover relevant documentation, I adopted the latter approach. That does not appear to be the subject of challenge.
[8]The plaintiffs say in their application and submissions that I declined to order that the defendants discover the documentation referred to at [6](a). Whilst I did dismiss the application in respect of categories 8(a)(i), (v) and (vi), (t), (v) and (x), I ordered discovery of relevant documentation in categories 8(s), 8(u) and 8(w) from 1 April 2005 onwards (excluding Mr Craig Stewart’s personal financial records), 1 April 2005 being the commencement of the financial year in which Stratum Management was incorporated.
[9] Essentially, the documents I declined to require the second to sixth defendants to discover were those I perceived to be the financial and other internal records of
GPE Holdings and Mr Craig Stewart concerning the latter’s financial ties to the development project.
[10] The plaintiffs require leave to appeal by reason of s 56(3) of the Senior Courts Act 2016, which provides:
56 Jurisdiction
…
(3)No appeal, except an appeal under subsection (4), lies from any order or decision of the High Court made on an interlocutory application in respect of any civil proceeding unless leave to appeal to the Court of Appeal is given by the High Court on application made within 20 working days after the date of that order or decision or within any further time that the High Court may allow.
…
[11]The principles applying to applications under s 56(3) are well settled:
(a)The expectation is that reasons for granting or declining leave are expressed in brief and general terms.
(b)The leave requirement is a “filtering mechanism” intended to ensure that only appeals on significant matters are allowed — the process weeds out appeals that are trivial or unmeritorious, or merely tactical.2
(c)The threshold for leave is high and intended to reduce the number of interlocutory appeals.3
(d)The proposed grounds of appeal should raise matters “of general or public importance” or of sufficient importance to the parties to outweigh the lack of general or public importance.4
2 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13], affirmed in Fairway Holdings Ltd v McCullagh [2018] NZCA 605 at [11].
3 Finewood Upholstery Ltd v Vaughan, above n 2, at [9](a); and Ngai Te Hapu Inc v Bay of Plenty Regional Council [2018] NZCA 291 at [15].
4 Finewood Upholstery Ltd v Vaughan, above n 2, at [9](c); and Ngai Te Hapu Inc v Bay of Plenty Regional Council, above n 3, at [17].
(e)Thus, applications for leave involve balancing the substantive merits of the proposed appeal on the one hand against the inevitable delay in the resolution of the litigation that would result from an appeal on the other.
(f)The ultimate question is whether, standing back and assessing matters “in a pragmatic and realistic way”, the interests of justice are served by granting leave to appeal.5
[12] At trial the plaintiffs wish to contend that, in addition to GPE Holdings, Mr Craig Stewart and Stratum Management were developers. Essentially, this is so that they can argue that Mr Craig Stewart and Stratum Management, along with GPE Holdings, owed what the Court of Appeal in Mount Albert Borough Council v Johnson referred to as a non-delegable duty of care to ensure that proper skill and care was exercised in the construction work.6 They wish to review the financial records identified above because they believe that those records will demonstrate that Mr Craig Stewart and Stratum Management stood to benefit financially from the development, which they say is one of the indicia of whether a party was a developer
— and subject to the so called non-delegable duty.
[13] The basis upon which I declined to order discovery of the relevant categories of material was that, even assuming that this material demonstrated that Mr Craig Stewart stood to benefit financially from the development, that would not be a decisive factor in determining the scope of his duties. It would simply reflect the corporate structure involved. By reference to Harrison J’s remarks in Body Corporate 188273 v Leuschke Group Architects Ltd, I concluded that such information would not be materially helpful in advancing the plaintiffs’ case that Mr Craig Stewart was also a developer. To establish this, the plaintiffs would have to go further and, in Harrison J’s words, show the corporate structure was a “sham”. I concluded that the likelihood of discovering documents amongst the financial material sought that would assist the plaintiffs in advancing the proposition that the corporate structure was a sham was small, while the number of documents involved was large.
5 Finewood Upholstery Ltd v Vaughan, above n 2, at [14].
6 Mount Albert Borough Council v Johnson [1979] 2 NZLR 234 (CA) at 241 per Cooke and Somers JJ.
[14] On that basis, I concluded that an order requiring disclose of all financial records for GPE Holdings and Mr Craig Stewart over so many years was disproportionately burdensome and would be inconsistent with the principle of proportionality. No similar issue arose with Stratum Management, which is why I ordered the discovery of relevant documentation in categories 8(s), 8(u) and 8(w) from
1 April 2005, being the earliest date from which documents concerning Stratum Management were likely to be found.
[15] In both his written submissions and in the course of his oral submissions, Mr Parker levelled criticism at the manner in which I expressed this conclusion and in particular my reference to the need for the plaintiffs to demonstrate that the arrangements put in place for the development amounted to a sham. The use of the term sham by Harrison J was simply a shorthand way of conveying the notion that something more is necessary before the Court will conclude that a shareholder and director of a company, acting as such, and receiving benefits in those capacities, is a developer in his or her own right.
[16] Regardless of terminology, the short point is that documentation demonstrating that Mr Craig Stewart stood to benefit financially from the development would not greatly assist the plaintiffs’ case that he was a developer. The plaintiffs will need to demonstrate that Mr Craig Stewart stepped beyond the ordinary roles of shareholders and directors. They are unlikely to find this in the categories of documents sought. The decision to decline discovery of those documents has not, therefore, prevented the plaintiffs from pursuing their case against Mr Craig Stewart as a developer.
[17] Mr Parker referred me to a contract dated 19 February 1999, in which GPE Holdings procured management services from Mr Craig Stewart in relation to the development.7 Mr Parker submitted this was “compelling evidence contrary to the conclusion reached” in my judgment. I do not view the document in that way. It appears to me simply to reflect the particular legal structures through which Mr Craig Stewart conducted his role in the development project. It does not make it any more
7 See further discussion about this contract at [26] below.
or less likely that the plaintiffs would find relevant documents in the declined categories.
[18] Finally, Mr Parker suggested that the way in which I expressed my conclusions as to the likelihood of finding documents that support the plaintiffs’ case against Mr Craig Stewart were “effectively findings made prematurely on the merits of the substantive claim”. Again, that is not my view of the matter. It may well be that the plaintiffs can demonstrate that Mr Craig Stewart was a developer in his own right. All I determined was the likelihood of finding documents to support that proposition amongst the categories of financial records referred to in the discovery application, and the related question of whether it would be disproportionate to require the defendants to discover those documents.
[19] That remains my view of the matter. This is sufficient to dispose of the application. However, it may be helpful to make some general observations about the interests of justice.
[20] At one level, I accept that issues relating to the proper scope of discovery in litigation are of general or public importance, and certainly that discovery is important to the parties in this case. The view I take, however, is that the point the plaintiffs want to take on appeal is not sufficiently significant in the context of this litigation, which concerns a development that began 20 years ago, to justify the delay that would inevitably follow. If the ultimate question is one of pragmatism and realism, my view is that the interests of justice would not be served by granting leave to appeal.
The joinder application
[21] The plaintiffs apply for leave pursuant to r 4.56 of the High Court Rules 2016 to join an eleventh defendant, a company by the name of TWA Investments Ltd.
[22]Rule 4.56 provides:
4.56 Striking out and adding parties
(1)A Judge may, at any stage of a proceeding, order that—
(a)the name of a party be struck out as a plaintiff or defendant because the party was improperly or mistakenly joined; or
(b)the name of a person be added as a plaintiff or defendant because—
(i)the person ought to have been joined; or
(ii)the person’s presence before the court may be necessary to adjudicate on and settle all questions involved in the proceeding.
(2)An order does not require an application and may be made on terms the court considers just.
(3)Despite subclause (1)(b), no person may be added as a plaintiff without that person’s consent.
[23] Though counsel approach the principles that apply to applications pursuant to this rule from different perspectives, and in doing so used different language, my view is that the essential burden facing a plaintiff seeking to join an additional defendant is to demonstrate that he, she or it has an arguable claim against the proposed additional defendant at very least so that the pleading would be likely to survive an application by that defendant pursuant to r 15.1 of the High Court Rules for an order striking it out on the basis that it revealed no tenable cause of action.8
[24] Above and beyond that core issue there is room for the Court to exercise its discretion, if for example the plaintiff has an arguable cause of action but the joinder of an additional defendant would unfairly prejudice other parties.
[25] As I understand the plaintiffs’ case they would accept that the second defendant, GPE Holdings, was at least the identified, and possibly the principal, developer. But they say that in addition to GPE Holdings there were several other developers, including the third defendant, Mr Craig Stewart.
[26] In this application, the plaintiffs say that on discovery it has become apparent to them that it was pursuant to a contract between GPE Holdings and TWA Investments dated 19 February 1999 that GPE Holdings secured the services of Mr Craig Stewart to play the role he did in the development — the role that the
8 Bridgeway Projects Ltd v Webb HC Auckland CIV-2003-404-1965, 7 July 2003 at [10].
plaintiffs say points to him being in the position of a developer. A copy of this contract is in evidence and without going into any detail it is apparent that whatever services Mr Craig Stewart provided to the development might be said to have been provided through TWA Investments.
[27] On that basis, the plaintiffs allege that TWA Investments too was a developer. As already said, the importance of this is that it enables the plaintiffs to assert that TWA Investments owed a non-delegable duty to take all reasonable steps to ensure that proper care and skill was exercised in construction work.
[28] In the context of this application, the plaintiffs have put before the Court a proposed amended statement of claim. Their proposed claim against TWA Investments mirrors their claim against other parties said to have been developers. They propose to plead four causes of action against TWA Investments:
(a)breach of s 9 of the Fair Trading Act 1986;
(b)breach of s 11 of the Fair Trading Act;
(c)estoppel;
(d)negligence as a developer.
[29] The plaintiffs’ application to join TWA Investments as a further defendant is resisted by the second to sixth defendants on various grounds.
[30] The first argument advanced against joinder is that the application is based exclusively on the terms of the 19 February 1999 agreement or in other words merely on the basis that TWA was contracted to provide Mr Craig Stewart’s services. The submission is that nothing in the material put before the Court on behalf of the plaintiffs contains an assertion that TWA Investments in its own right acted in a way that would expose it to liability and that the 19 February 1999 agreement makes it quite clear that whilst TWA Investments was obliged to provide Mr Craig Stewart’s services, control of the development remained very much with GPE Holdings. Whilst there is some force in that argument, it is equally true that TWA stood to gain
financially by the development and was granted considerable management responsibilities that could arguably amount to the requisite degree of control. It also ignores potential arguments about the company’s vicarious responsibility for Mr Craig Stewart’s actions.
[31] Second, it is argued that to the extent that the plaintiffs may be seeking to join TWA Investments for the purposes of expanding the scope of discovery in this case, that is not a legitimate basis for joinder. I agree. If the plaintiffs perceive that TWA Investments may hold relevant documentation, then there are other avenues available to them in that regard.
[32] Third, it is said that, in relation to the fourth cause of action against TWA Investments, which alleges negligence as a developer, the plaintiffs have been unable to identify specific actions on TWA Investments’ part involving a breach of any duty of care owed by that company. That submission appears to me to ignore the primary basis for the claim against TWA Investments, which — like the primary cause of action against the other alleged developers — is that TWA Investments was implicated in failing to ensure that the development did not have the defects the plaintiffs allege.
[33] Finally, it is said that any claim that the plaintiffs may have had against TWA Investments is time-barred. There is a dispute over when TWA Investments ceased to provide management services. The second to sixth defendants say it had no practical involvement in the development after 2004. The plaintiffs allege that TWA Investments continued to be involved until at least 2014. This is not the occasion to get into the details of the evidence. For the purpose of assessing whether the plaintiffs’ claim meets the threshold of being untenable, their pleadings are assumed to be true unless they are entirely speculative and without foundation.9
[34] The overall view I take is that the criticisms levelled against the merits of the plaintiffs’ proposed claim against TWA Investments might equally be levelled against
9 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33] per Elias CJ and Anderson J.
their claims against other parties they assert were developers (along with GPE Holdings).
[35] In short, I am satisfied that the plaintiffs are able to at least make out an arguable claim against TWA Investments as articulated in their proposed amended pleading.
[36] Turning to the discretionary element of the application, whilst the joinder of an additional defendant will no doubt delay the progress of the proceeding to one extent or another, the reality is that the proceeding is only in its early interlocutory stages and I am not satisfied that the remaining defendants will suffer any material prejudice from the joinder of TWA Investments.
Result
[37]The application for leave to appeal is dismissed.
[38]The application to join TWA Investments as a defendant is granted.
[39] I reserve costs in the expectation that counsel will be able to resolve these. If they cannot do so, the parties may come back by memorandum in the usual way.
Associate Judge Johnston
Solicitors:
Parker & Associates, Wellington for plaintiffs
Hazelton Law, Wellington for second to sixth defendant
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