Fenton v Building Code Consultants Limited HC Auckland CIV 2009-404-6348

[2010] NZHC 311

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV-2009-404-6348

IN THE MATTER OF     an appeal of an adjudication of the

Weathertight Homes Tribunal at Auckland

BETWEEN  BARRY FENTON, MARGARET FENTON AND MURRAY TANNER Appellants

ANDBUILDING CODE CONSULTANTS LIMITED, NIGEL HAILSTONE & OTHERS

Respondents

Hearing:         18 February 2010

Appearances:  J M Holland for Appellants

J Stafford for Respondents

Judgment:      15 March 2010

JUDGMENT OF COOPER J

This judgment was delivered by Justice Cooper on

15 March 2010 at 11.30 a.m, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Solicitors:

Chambers Craig Jarvis, PO Box 47830, Auckland

Duncan Cotterill, PO Box 5326, Auckland

Copy to:

James Holland, PO Box 7204, Auckland

FENTON & ORS V BUILDING CODE CONSULTANTS LIMITED & ORS HC AK CIV-2009-404-6348  15

March 2010

[1]      This is an appeal against a decision of the Weathertight Homes Tribunal (“the

Tribunal”) exercising its power to remove parties to adjudication proceedings under

s 112(1) of the Weathertight Homes Resolution Services Act 2006 (“the Act”).

[2]      Section 93 of the Act gives a right of appeal to any party to a claim that has been “determined” by the Tribunal.   The parties in this case proceeded on the basis that the Tribunal’s decision, subject to appeal, amounted to a determination of the claims  against  the  parties  removed.     In  Auckland  City  Council  v  Unit  Owners  in Stonemason Apartment 27 Falcon Street, Parnell   & Others[1]  Andrews J held that a decision to strike out a party is a determination of the claim in respect of that party.  I agree.

[1] Auckland  City  Council  v  Unit  Owners  in  Stonemason  Apartment  27  Falcon  Street,  Parnell    & Others HC Auckland CIV-2009-404-3118, 11 December 2009.

Background

[3]      The  appellants  are  the  trustees  of  a  family  trust  who  have  commenced  a dwellinghouse  claim  under  the  Act,  in  respect  of  a  property  in  St  Mary’s  Bay  in Auckland.   There were originally twelve respondents referred to in the statement of claim.  They  were  said  to  have  been  responsible  in  various  ways  for  defective building work and damage set out in a schedule to the claim.   It was claimed that there  has  been  moisture  ingress  as  a  result  of  errors  and  omissions  by  those responsible for the design and construction of the dwelling.

[4]      In addition, it was alleged that the Auckland City Council acted negligently when it issued the building consent, and that a building certifier breached duties of care  by  failing  adequately  to  inspect  the  building  work  and  in  issuing  a  code compliance certificate.

[5]      Other respondents to the claim included former owners of the property from whom the appellants purchased it, pursuant to an agreement dated 17 February 2005

(“the agreement”) for the sum of $2,650,000.  Clause 17 of the agreement stated:

The Purchaser acknowledges that  there  are  weather  tightness  and  other building issues with the property, and that he has received and read reports by Holloway Builders Limited (dated 16-4-03) and Building Code Consultants Limited (dated 10 February 2005).  Accordingly the Vendor will on settlement date allow to the Purchaser a credit in the sum of $5,000.00 in full  and  final  settlement  of  all  claims  which  the  Purchaser  may  otherwise have  had  against  the  Vendor  howsoever  or  whensoever  arising  directly  or indirectly out of the said weather tightness and other building issues.

[6]      Under the clause were the handwritten words:

The purchaser, Barry Fenton confirms that this agreement is unconditional.

[7]      One  David  Holloway  was  the  eighth  respondent  to  the  claim  and  his company, Holloway Builders (Auckland) Ltd, the ninth.  They had been engaged by the appellants’ predecessors in title in April 2003.  They appellants claimed that the report produced by Mr Holloway was negligent in that it failed to identify the defects that were subsequently discovered.

[8]      The   statement   of   claim   alleged   that   in   February  2005   the   appellants’ predecessors in title commissioned a further report, from Building Code Consultants Ltd  (“BCCL”),  named  as  the  seventh  respondent. The  report  in  question  was produced on 10 February 2005 (“the report”).   Its author was Nigel Hailstone, the eleventh  respondent,  who  was  employed  by  BCCL  as  a  building  surveyor. Mr Hailstone  was  added  to  the  claim  by  the  Tribunal’s  Procedural  Order  No.3  on 27 May 2009.  The statement of claim alleged, against both BCCL and Mr Hailstone, that  they  knew  or  ought  to  have  known  that  the  report  would  be  relied  on  by  a prospective future owner of the property, and that therefore they owed a duty of care to such persons when inspecting and reporting on the property.

[9]      The appellants allege in the statement of claim that BCCL and Mr Hailstone failed to identify “all or any” of the defects of the property.   Further, they say that they entered into the agreement “in reliance, or partly in reliance” on the report and thereby suffered loss.

[10]     Despite the allegations in the statement of claim, both parties have subsequently proceeded on the basis that the report was in fact  commissioned  by Mr Barry Fenton, one of the appellants.  That was the basis on which the appellants

originally  applied  to  join  Mr Hailstone,  and  it  was  an  assumption  apparent  in  the reasoning of the Tribunal that made Procedural Order No.3.  It was also assumed in both the application, made by BCCL and Mr Hailstone to be removed as parties, and in the opposition by the appellants to that application.

[11]     It should be noted that two other respondents have been added to the claim,

as  thirteenth  and  fourteenth  respondents,  while  other  respondents  have  variously become  bankrupt,  been  placed  in  liquidation,  or  been  struck  off  the  Company’s Register.                 Others,  including  the  Auckland  City  Council,  have  been  removed  by previous  procedural  orders  of  the  Tribunal.   Procedural  Order  No.8,  which  is  the subject of the present appeal, struck out both BCCL and Mr Hailstone as parties to the  proceeding.     According  to  Mr  Holland,  that  meant  only  five  respondents remained.

Joinder application

[12]     Before addressing the application  made  by  BCCL  and  Mr Hailstone  under

s 112, I mention briefly the appellants’ prior application for joinder.   While BCCL

was initially named as a respondent, Mr Hailstone was only added as a consequence

of Procedural Order No.3.  That order was made on 27 May 2009.

[13]     The appellants had applied to join a number of additional parties by a memorandum dated 22 May 2009. Insofar as Mr Hailstone was concerned, the memorandum noted that he was the author of  the  BCCL report  dated  10 February

2005  prepared  for  the  appellants,  and  claimed  that  the  appellants  had  made  the agreement  for  sale  and  purchase  unconditional  after  satisfying  themselves  of  the matters contained in the report.  It was asserted:

19The  report  misrepresented  the  degree  to  which  the  property  was  a leaky home.  Whilst the report isolated some leaks on the northwest wall  of  the  lower  accommodation  it  failed to  find  water  ingress  to the upper areas of the building on all elevations.

20When questioned about the cost to remedy the building on or about the date of the report the author indicated to the claimants that the costs would be in the region of $20,000.

21       The report writer was negligent.

22       At  all  material  times  Hailstone  and  or  Building  Code  Consultants

Limited knew or ought to have known that the Hailstone/BCC report to Fenton would be relied upon by them.

23Hailstone/BCC owed a duty of care to the Fentons as purchasers to exercise all reasonable care when inspecting and reporting upon the property.

24In breach of the said duty of care Hailstone failed to identify all or any of the defects with the property in the BCC/Hailstone report.

25The claimants entered into the agreement in reliance on or partly in reliance  on  the  BCC/Hailstone  report  and  thereby  suffered  loss  in that the cost of remedying the damage is not less than $518,226.78.

26       The claimants accordingly seek orders joining Nigel Hailstone and

Building Code Consultants Limited as the 11th  respondent.

[14]     In deciding the joinder application, the Tribunal held that there was tenable evidence that the parties sought to be joined (including Mr Hailstone) had breached a duty of care, with a causative link to the remedial work required to be carried out on the property.

The application under s 112

[15]     BCCL and Mr Hailstone’s application under  s 112  of  the  Act  followed  on

28 July 2009.   It was contained in a memorandum by counsel which noted that the report  had  raised  a  number  of  issues  with  the  state  of  the  dwelling,  including instances  of  moisture  ingress,  unsatisfactory construction  practices,  water  damage, rust  and  corrosion.   The  memorandum  noted  that  the  report  had  concluded  with  a number of recommendations including:

1The  source  of  the  water  observed  in  the  lower  north  west  of  the building  is  problematic.   The  presence  of  the  concrete  slab  above suggests a masonry wall is behind the Titan board cladding.  Should moisture  be  entering  the  wall  from  above  this  may  explain  why efflorescent type streaking is apparent on the outside wall and on the internal surfaces. …

10Where water has entered beside the sliding door there may be some damage to the framing.  As elsewhere in the building where moisture has  been  noted,  further  investigation  may  be  warranted  to  identify the presence and extent of any damage.  Should fungally affected or damaged  timber  be  found  it  should  be  moved  and  replaced  with suitably treated timber. …

12The house itself is clad with materials that require ongoing scrutiny and maintenance.   The plaster clad fibre cement board in particular

is susceptible to cracking which may allow water to damage framing behind.  Any cracking should be dealt with as soon as it is noted.  As

discussed by phone, the negative detail on the Titan board cladding may be filled with sealant to increase the weathering characteristics

of the building.   As the house is some five years of age it will soon

require  the  repainting  of  the  monolithic  cladding  elements. We would  recommend  that  a hi-build  acrylic  such  as  Resene X-200  is used for this task. …

14Owing  to  the  presence  of  monolithic  cladding  and  of  the  likely presence  of  untreated  timber,  no  guarantee  can  be  provided  in relation to the long term performance of the cladding and framing.

[16]     The respondents’ memorandum refuted the pleading in the statement of claim that BCCL had been engaged by the appellants’ predecessors in title, and noted that

it had been engaged directly by Mr Barry Fenton.  It recorded Mr Hailstone’s denial that he had made any representation regarding the estimate of the costs of remedying the  defects  in  the  BCCL  report,  as  was  alleged  in  para  20  of  the  appellants’ memorandum. Further,  the  respondents  denied  that  they  had  breached  any  duty owed  to  the  appellants  noting  that  the  report  had  identified  areas  of  concern,  and suggested further investigation of areas of potential moisture ingress.   They pointed out  that  they  had  not  been  engaged  to  provide  a  comprehensive  analysis  of  all potential  issues,  nor  to  undertake  the  invasive  testing  necessary  to  do  so. The memorandum  also  disputed  that  Mr Hailstone  could  have  personal  liability  as BCCL’s  employee,  there  being  nothing  to  indicate  that  he  had  assumed  personal responsibility.

[17]     The appellants’ memorandum was accompanied by an affidavit sworn by Mr Hailstone on 28 July 2009. He stated that he had been employed by BCCL as a building surveyor, a role in which he  undertook  pre-purchase  property inspections

for prospective purchasers.  These would typically be completed in one or two hours, and were limited to non-invasive surveys of buildings attempting to identify issues

of water ingress, maintenance requirements and safety issues.  He never attempted to advise about the cost implications of issues that  he  noted; any  inquiry  about potential costs was met with the response that clients should ask contractors to price specific work. In this case, he had visited the property after arranging in advance to meet the land agent there. He carried out a visual inspection inside the dwelling and

surveyed its external surfaces including from the roof.   He subsequently wrote the report.   He could not recall meeting Mr Fenton during the inspection, nor could he recall  any subsequent  communication,  but  he  accepted  he  had  a  conversation  with him prior to writing the report in view of the content of paragraph 12 of the report’s recommendations.  (“As discussed by phone … .”)

[18]     At paragraph 14, Mr Hailstone recorded his surprise at the allegations in the appellants’ memorandum.  He continued:

14.…  As  well  as  identifying  corrosion,  efflorescence  and  moisture  in the walls of the lower floor (all indicating the failure of the structure

to  adequately  deal  with  water)  I  also  found  that  “there  is  also

evidence  of  moisture  ingress  beside  the  sliding  door  in  the  south bedroom on the middle level” (p3 BCCL Report).

15.I also identified “What appears to be water damage is apparent on the ceiling of the master bedroom” (p2 BCCL Report).   The master bedroom is on the top floor of the Property.

16.As  well  as  the  generic  statement  at  the  beginning  of  the  BCCL Report, “The cladding has allowed moisture ingress in a number of areas”,  five  individual  areas  of  concern  are  then  identified  on  the upper, middle and lower floors of the Property.

[19]     He observed at para 20:

20.The  BCCL  Report  clearly  sets  out  a  number  of  areas  of  concern regarding  water  ingress. I  do  not  accept  that  the  BCCL  Report misrepresented   the    degree   to    which   the    Property   exhibited characteristics of a leaky home.  Taking into account the fact that my investigation took between 1-2 hours and was visual only I believe that I identified all the main areas of concern visible at the time.

[20]     He then refuted as untrue the allegation that had been made by the appellants that, when questioned about the cost of remedying the problems, he had referred to a figure in the  region  of  $20,000. He  was  certain  that  he  had  not  given  any  cost estimate. To  do  so  would  have  been  contrary  to  BCCL’s  policy  and  outside  his expertise. Even  an  experienced  contractor  could  not  have  given  such  an  estimate without further investigation to ascertain the scope of the works.

[21]     Mr Holland filed a memorandum  in  opposition  to  the  application  for  the appellants, but there was no affidavit responding to what Mr Hailstone had said in

his  affidavit. In his memorandum,  which  was  dated  21  August  2009,  Mr Holland

discussed the law relating to striking out claims, submitting that, before that could occur, the Tribunal must be of the opinion that the pleaded causes of action were so untenable that the claim could not possibly succeed. He emphasised that the Tribunal must consider the application on the basis that the allegations pleaded by the appellants were correct. He noted Mr Hailstone’s denial that he had given advice

to Mr Fenton that costs of repair would be in the region of $20,000, but also noted that Mr Hailstone accepted he had a discussion with Mr Fenton prior to writing the report.

[22]     Mr Holland observed that clause 17 of the agreement for sale and purchase of

17 February 2005 specifically recorded receipt of the report, and provided that the vendor would allow the purchasers a credit in the sum of $5,000 to settle claims the purchasers might otherwise have in relation to weathertightness and other building issues.   Moreover, that claim had been preceded in negotiations by an earlier draft clause 17, providing:

17.      The  vendor  and  the  purchaser  agree  to  contribute  equally  up  to  a maximum  amount  of  $20,000  ($10,000  each  party)  to  remedy  the  issues outlined in the building inspection report for the property dated 10th  February 2005   by   Building   Code   Consultants   Ltd   described   in   Section   “E” Recommendations and Conclusions.

All invoices shall be copied to both parties to ensure transparency for both parties.

[23]     Mr Holland  submitted  in  his  memorandum  that  both  the  earlier  version  of clause 17 and that actually agreed showed the appellants had been concerned to be appraised  of  likely  remediation  costs  before  entering  into  the  contract. Further, Mr Fenton  must  have  understood  that  remedial  costs  would  be  in  the  region  of $20,000  and  possibly less,  that  he  had  intended  to  rely on  the  BCCL report  when deciding to purchase the property and made the agreement unconditional only after the  report  was  made  available.    Since  the  report  predated  the  agreement,  the  last submission cannot be correct.

[24]     The appellants contended that  the  report  had  inadequately  covered  the weathertightness issues, and coupled with the negligent estimate of repair costs given

by  Mr Hailstone,  both  respondents  would  be  liable  if  the  appellants  could  sustain their  factual allegations. BCCL would be liable in contract, Mr Hailstone in tort.

Mr Hailstone had assumed personal responsibility for the work he did and owed a duty to  the  appellants  in  undertaking  those  services. There  was  mention  too  of  a claim under the Fair Trading Act 1986 in respect of the misrepresentation of likely costs  of  repair. Both  the  report  and  the  misrepresentation  had  been  influential  in inducing the appellants to purchase the property. Consequently, it would be wrong for the Tribunal to grant the application.

The Tribunal’s decision

[25]     The  Tribunal  recognised  (at  [39])  that  strike  out  applications  should  be considered  on  the  assumption  that  the  facts  pleaded  in  the  statement  of  claim  are correct.  It also stated that before proceedings can be struck out causes of action must be so clearly untenable that they cannot proceed.

[26]     At [37] the Tribunal discussed the range of factors it considered relevant in removal  applications.                   The  factors  discussed  included  the  likelihood  of  success against  the  party  seeking  removal,  the  nature  and  quality  of  the  evidence  as  to liability for the leaks affecting the building (which it called the “tenability test”) and the relative significance of the allegations of breach of duty against the respondents in the context of the overall claim.

[27]     The Tribunal discussed the submissions that had been made in support of the application  and  Mr Hailstone’s  affidavit  (at  [40]-[44])  and  noted  (at  [45])  that  no evidence  had  been  adduced  in  opposition  to  the  application. In  the  ensuing discussions the Tribunal was plainly influenced by Mr Hailstone’s affidavit and the absence of evidence contradicting it. For example, at [47] the Tribunal referred to Mr Hailstone’s evidence that he did not express any opinion  as  to  the  cost  of remedial work;  at [50] it held that the investigation preliminary to the preparation of the  report  did  not  include  invasive  testing  of  the  affected  dwelling,  and  discussed other aspects of the report;  and at [51] observed that:

The  claimants   have   not   established   any   evidential   foundation   for   the contractual statutory or tortuous allegations set down in their submission.

[28] The Tribunal’s essential reasoning was then contained in [56] and [57]. Those paragraphs read as follows:

56.      What  is  the  likelihood  of  success  of  the  claimants  claim  against

Building Code Consultants Limited and Mr Hailstone?  On the basis

of the evidence outlined above it could only be described as extremely  low. What was the  nature  and  quality  of  the  evidence indicating  the  company’s  and  Mr Hailstone’s  liability,  that  is,  the tenability test?  The evidence is simply allegations and submissions, but opposed by sworn statements to the contrary.   Accordingly the evidence is some what tenuous.

57.Taking into account all relative factors the Tribunal holds it is fair and  appropriate  in  all  the  circumstances  to  remove  the  seventh respondent  Building  Code  Consultants  Limited  and  the  eleventh respondent Nigel Vaughan Hailstone from this proceeding.

[29] The questions posed in [56] clearly reflected the range of factors held to be generally relevant at [37].

The appeal

[30]     The appellants adopt the same stance on appeal as they did in opposing the application  before  the  Tribunal.  Mr  Holland  submitted  that  there  was  a  genuine factual dispute as to whether Mr Hailstone told Mr Fenton that the costs to remedy the defects would be minor when in fact they were  in  excess  of  $500,000. That conflict could not be resolved on the papers, as the Tribunal had attempted to do. On the contrary, the Tribunal was bound to deal with the application on the basis that the facts pleaded by the appellants were correct, which it failed to do.

[31]         Acknowledging  that  the  appellants  had  not  adduced  evidence   to  rebut Mr Hailstone’s  affidavit,  Mr Holland  argued  that  that  was  not  necessary  in  the context of an application to strike out a claim.   Evidence should only be necessary where a respondent is relying on a limitation defence or some other issue for which evidence  is  necessary.     That  was  not  the  case  here,  where  the  appellants  could essentially rely on their allegations.   Mr Hailstone’s affidavit should not have been regarded  as  sufficiently  compelling  to  be  the  basis  of  the  Tribunal’s  order  under s 112 because it was no more than an untested denial by him of the facts on which the appellants rely.

[32]     In response, Ms Stafford pointed out that the allegation that Mr Hailstone had advised the appellants that the cost to remedy the defects identified in the report would be in the region of $20,000 was not pleaded in the statement of claim.  It arose

for the first time in the appellants’ memorandum of 22 May 2009 filed in support of the  joinder  application.  Similarly, the further matters raised  in  Mr Holland’s memorandum opposing the present application were not mentioned in the statement

of  claim. Ms Stafford  also  complained  that  none of  the  statement  of  claim,  the application for joinder or the opposition for removal provided any detail as to when, where, how or to whom the alleged representation by Mr Hailstone was made.

[33]     Ms Stafford submitted that although the principles  to  be  applied  when considering an application for removal under s 112 of the Act were similar to those which applied to strike out applications in the High and District Courts, the language

of  the  section,  stating  that  a  removal  order  can  be  made  whenever  the  Tribunal considers it “fair and appropriate in all the circumstances” indicates that the powers are  in  fact  broader.   That  broader  power  includes  the  ability  to  take  into  account affidavit evidence when considering factors relevant to the exercise of the Tribunal’s power.  That approach is consistent with the stated purpose of the Act set out in s 3, namely  to  provide  “access  to  speedy,  flexible,  and  cost-effective  procedures  for assessment and resolution of claims…”.   In this case, the Tribunal had legitimately taken   into   account   the   affidavit   evidence   of   Mr Hailstone   and   had   correctly concluded  that  there  was  not  a  tenable  cause  of  action  against  either  BCCL  or Mr Hailstone.

[34]     Ms Stafford  emphasised  that  the  report  had  identified  areas  of  concern, suggested that they be further investigated and provided a general caution against the long-term  performance  of  properties  constructed  using  monolithic  cladding  and untreated  timber.      On  the  other  hand,  BCCL  had  not  been  engaged  to  provide  a comprehensive  analysis  of  all  potential  issues  regarding  the  property  nor  was  it instructed to undertake the invasive testing necessary in order to carry out such an investigation. In the  circumstances,  there  was  no  evidence  before  the  Tribunal  to suggest  that  the  respondents  had  failed  to  meet  the  requisite  standard  for  the production of a pre-purchase report.  Ms Stafford further submitted that there was no basis  upon  which  the  appellants  could  succeed  in  establishing personal  liability of

Mr Hailstone, and that there was no causative link between the alleged representation  by  him  as  to  the  cost  of  remedial  works  and  the  actual  cost  of  the work  subsequently  undertaken  by  the  appellants, for  which  they  now  seek  to  be compensated. Even if he had made the representation, it could only ever have been

in respect of the items specifically identified in the report.

Discussion

[35]     Section 112 of the Act provides:

112     Removal of party from proceedings

(1)The  tribunal  may,  on  the  application  of  any  party  or  on  its  own initiative, order that a person be struck out as a party to adjudication proceedings if the tribunal considers it fair and appropriate in all the circumstances to do so.

(2)      This section is subject to section 57(2).

[36]     Under  s 57(1),  the  Tribunal  has  the  obligation  to  manage  adjudication proceedings in a manner that “tends best to ensure that they are speedy, flexible and cost-effective…”.   Section 57(2), referred to in s 112(2), provides that in managing adjudication  proceedings  the  Tribunal  must  comply  with  the  principles  of  natural justice.

[37]     When an application is made to the High Court for the striking out of a party

or  a  claim  the  Court  exercises  powers  given  to  it  under  r 15.1  of  the  High  Court Rules as well as, on occasion, the powers that it has under its inherent jurisdiction. Rule 15.1(1) of the High Court Rules provides:

15.1     Dismissing or staying all or part of proceeding

(1)      The court may strike out all or part of a pleading if it—

(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading;  or

(b)      is likely to cause prejudice or delay;  or

(c)      is frivolous or vexatious;  or

(d)      is otherwise an abuse of the process of the court.

Rule 2.50.1 of the District Courts Rules is in a similar form to r 15.1(1) of the High Court Rules, but “embarrassment” has been added to paragraph (b) and paragraph (c) has been omitted.

[38]     As can be seen, the power to strike out under r 15.1(1) arises in a range of circumstances. The power may be exercised not only where no reasonable cause of action or defence is disclosed by the  pleading, but it  can  also  be  used  where  the pleading is likely to cause prejudice or delay (as where the pleading is unnecessarily

prolix  as in Hill v Hunt David[2]) contains scandalous or irrelevant matter  (Van der

[2] Hill v Hunt David (1884) 26 Ch D 470.

Kaap v Attorney-General[3]) or contains purely evidentiary, unintelligible or irrelevant material.[4] There is, in addition, the frivolous  and  vexatious  ground  (no  longer applicable in the District Court), and abuse of the process of the Court.  Collectively, these provisions enable the Court to respond to inappropriate  proceedings  or pleadings in a manner which advances the interests of justice and meets the overall objective of the High Court Rules set out in r 1.2:

[3] Van der Kaap v Attorney-General (1996) 10 PRNZ 162.

[4] See the cases referred to in McGechan on Procedure, para 15.1.03.

The  objective  of  these  rules  is  to  secure  the  just,  speedy,  and  inexpensive determination of any proceedings or interlocutory application.

[39]     It  may  be  observed  that  s 112  the  Act  does  not  use  any  of  the  language contained  in  r 15.1  of  the  Rules.  That  gives  rise  to  the  possibility  that  its  broad reference  to  the  power  being  exercised  if  the  Tribunal  considers  it  “fair  and appropriate in  all the circumstances”  was intended to enable the Tribunal to range more widely than would be the case if it were a Court applying the High Court Rules or District Court Rules.

[40]     Burns & Others v Argon Construction Ltd & Others[5]was an appeal against a decision of the Tribunal to strike out a claim under the Act.   At [17], Asher J said that the general principles relating to strike out applications in the High Court and District Courts “can be applied”.  He continued:

[5] Burns  & Others v  Argon  Construction  Ltd  & Others HC  Auckland  CIV-2008-404-7316, 18  May 2009.

… There may be circumstances where a party chooses to rely solely on the “fair and appropriate” ground in s 112.  That has not been the position taken by any of the parties in relation to this application.  They have conducted the argument on strike out lines.  I have no doubt that if an application should be struck out following an application of strike out principles, it will follow that it is “fair and appropriate” to strike out the relevant party.  In Kay v Dickson Lonergan Limited  & Ors HC AK  CIV-2005-483-2001 31 May 2006, Ellen France J, in an application under the 2002 Weathertight Homes Act, which contained an equivalent provision to s 112 (at s 34), the application to strike out  was  considered  in  accordance  with  accepted  strike  out  principles. I intend to proceed on this basis.

[41]     Auckland City Council v Unit Owners in Stonemason Apartment 27 Falcon Street, Parnell & Others[6]was another appeal against an order made by the Tribunal under s 112 of the Act.  Andrews J held at [23] that it is appropriate that the test to be applied to striking out a person as a party to adjudication proceedings under the Act should be the same as that applicable to strike outs under the High Court and District Court Rules.  As she observed, the effect of striking out a person as a party under the Act will be that a claim against that person cannot be pursued in the Tribunal.  The effect  of  a  striking  out  under  the  High  Court  or  District  Court  Rules  is  the  same. Having  referred  also  to  a  decision  of  the  Tribunal  in  Cousins  v  Plaster  Systems Limited[7]and  to  the  decision  of  Ellen  France J  in  Kay  v  Dickson  Lanergan  Ltd[8] Andrews J said at [30]:

[6] Auckland  City  Council  v  Unit  Owners  in  Stonemason  Apartment  27  Falcon  Street,  Parnell  & Others, above n 1.

[7] Cousins v Plaster Systems Limited, Weathertight Homes Tribunal TRI-2008-107 Procedural Order 3, 23 January 2009.

[8] Kay v Dickson Lanergan Ltd HC Auckland CIV-2005-483-201, 31 May 2006.

[30]     It can be accepted that the Tribunal’s power to strike out parties to

an  adjudication  proceeding  is  akin  to  that  of  the  High  Court  and  District

Courts, although arguably somewhat broader.   Decisions under s 112 have not conclusively established whether it is wider in its scope. In the present case, despite setting out factors to be considered (consistent with applying a “wider  scope” of a power to strike out) the Tribunal’s  decision  in  fact addresses only the question whether there is a tenable claim (expressed as a “viable  claim”  in  para  12). Thus,  even  if  the  broader  interpretation  were appropriate, the likelihood of success would remain the determinative factor. Accordingly, it is not necessary  to  express  any  conclusive  view  as  to  the scope of the test to be applied by the Tribunal.

[42]     Notwithstanding those observations, in   the   case   before   her   Andrews J

decided the appeal on the basis that the Tribunal had incorrectly stated the law when

it held that a party opposing an application for removal on the basis of disputed facts

must produce or point to some cogent evidence in support of their opposition.   She held (at [32]) that the appropriate approach was to assume that the facts pleaded in the statement of claim are correct and that the relevant authorities did not support a proposition that the party opposing an application under s 112 must produce or point

to “cogent evidence”, or indeed any evidence, to support their opposition.

[43]     I do not consider that the language of s 112 indicates that Parliament intended claims before the Tribunal to be struck out in circumstances where the same claim would not have been struck out in the ordinary Courts. It is to be noted that the provisions  of  the  Act  in  a  case  such  as  the  present  apply  only when a claim is brought under the Act in respect of a dwellinghouse and an application for adjudication may only be made in respect of an “eligible claim”, that is, one that has

been evaluated under s 48  or  s 49  as  meeting  the  eligibility  criteria.[9] There  is

[9] Sections 9 and 10.

nothing to oblige a person to bring a claim under the Act although it may be assumed that  the  streamlined  procedures  that  it  contains  may  well  encourage  persons  with claims in relation to leaky buildings to do so.  A claimant initiates the adjudication of the claim by applying to the Tribunal in writing to have the claim adjudicated and

serving a copy of that application on the other parties to the adjudication.[10]

[10] Section 62(1).

[44] The owner of a dwellinghouse may not apply for adjudication if the subject matter of the claim is already the subject of an arbitration that has commenced or proceedings that have been initiated by the claimant in proceedings in a Court or a Disputes Tribunal, or under s 177 of the Building Act 2004.[11]   However, proceedings relating to a claim that have been commenced in the District or High Court may be transferred, by order of a Judge of the relevant Court, to adjudication under the Act. Such an order may be made if the parties to the proceedings agree or the  Judge making the order believes that the transfer is in the best interests of justice.[12]

[11] Section 69(5). Section 177 of the Building Act concerns applications to the Chief Executive under that Act.

[12] Section 120.

[45]     Consequently,   while   use   of   the   Act’s   provisions   by   claimants   is not mandatory it  is  possible  that  a  claim  commenced  in  the  ordinary  Courts  might become subject to adjudication under the Act. In the  circumstances it seems inherently unlikely that the legislature intended that different strike out rules should apply according to which jurisdiction had been invoked.

[46]     That conclusion is not contrary to the  purpose  of  the  Act,  on  which

Ms Stafford relied.  Section 3 provides:

3        Purpose of this Act

The purpose of this Act is to provide owners of dwellinghouses that are leaky buildings with access to speedy, flexible, and cost-effective procedures for assessment and resolution of claims relating to those buildings.

[47]     While there is no reference to ensuring the just resolution of claims, plainly that  must  be  taken  as a given. Given  that  there  would  be  nothing  to  prevent the claimants in the present case from advancing their claim  against BCCL and Mr Hailstone in the ordinary Courts, an interpretation of s 112   which   places claimants and respondents in the same position as they would be in both jurisdictions

is more consonant with the purpose of the Act than one which would contemplate broader strike out powers being exercised by the Tribunal. A more frequent resort to strike out powers could only be contrary to the objective of providing cost effective procedures for the resolution of claims relating to leaky buildings. Moreover, dealing with applications under s 112 on a broader basis must inherently involve the risk that some meritorious claims will be foreclosed at the interlocutory stage.

[48]     Ms Stafford referred to the judgment of Harrison J in Auckland City Council

v  WHRS  &  Dennerly.[13] That was a decision on an application  for  review  of  a decision made by the Tribunal under the Weathertight Homes Resolution Services Act  2002, the predecessor of the present Act. The Tribunal had dismissed an application made by the Council to add five other parties to a claim to which it had

[13] Auckland City Council v  WHRS &  Dennerly  HC  Auckland  CIV-2004-404-4407,  28  September

2004 at [28].

been named  as the only respondent.   Consequently, the case turned on s 33 of the

2002 Act which was the predecessor and equivalent to what is now s 111 of the 2006

Act.  At [28] Harrison J said:

[28]     A proposition that one or more of the other parties involved in the project   may   have   owed   and   breached   duties   to   the   Dennerlys   was insufficient to justify joinder.  Council was bound to point the adjudicator to tenable evidence both of breach by the architects and of a causative link to the estimated costs of remedial work.  A cursory evaluation of the assessor’s report indicates that less than 50% of the remedial expense might possibly be attributable  to architectural  negligence.   Council’s  failure to  satisfy any of the statutory criteria through an analytical and reasoned argument before the adjudicator was fatal.

[49]     It  appears  that  those  words  have  influenced  the  Tribunal  to  hold  that  in considering  removal  of  a  party  under  s 112  of  the  Act  there  must  be  “tenable evidence”  from  the  claimant  of  a  party’s  alleged  breach  of  duty,  together  with evidence  of  a  causative  link  to  the  estimated  costs  of  remedial  work  required. Certainly,  that  was  what  the  Tribunal  said  in  Cousins  v  Plaster  Systems  Ltd  and Others,[14] at [13]. And, in the present case, the Tribunal appears to have taken the same approach when it set out (at [37]) the range of factors to be considered in removal applications, including “the nature and quality of the evidence as to the liability for the leaks in the building, that is the ‘tenability’ tests”. This approach was purportedly based on Auckland City Council v WHRS & Dennerly,[15]  as well as observations  made  by Asher J  in  Kells v  Auckland  City  Council  & Others[16]  that a number of the Act’s provisions illustrate that the approach to the joinder of parties under it is different to that in civil proceedings.  It is this process of reasoning which led the Tribunal to look closely at Mr Hailstone’s affidavit in support of the s 112 application.  Ms Stafford submitted that it was legitimate for the Tribunal to take that approach and to be influenced by the lack of any evidence from the appellants.

[14] Cousins v Plaster Systems Ltd and Others, above n 7.

[15] Auckland City council v WHRS & Dennerly, above n 13.

[16] Kells v Auckland City Council & Others CIV-2008-404-1812, 30 May 2008, at [33].

[50]     However, an application for joinder under s 111 of the Act is different from

an application to strike out under s 112 and I do not consider that  Harrison J’s decision  in  Auckland  City  Council  v  WHRS  &  Dennerly  held  or  suggested  to  the

contrary.   In the High Court it is recognised that there may be differences between

the approach required  to  strike  out  applications  and  joinder  applications.[17] On  a joinder application under the Act, the Tribunal has  to  decide  whether  or not the person sought to be joined ought to be bound by, or have the benefit of, an order of

[17] Kirkland v Jaco’s Timber Co. Ltd HC Dunedin CP45/97, 1 May 1998

the Tribunal, that his or her interests are affected by the proceedings or that for any other  reason  it  is  desirable  that  the  person  should  be  joined  as  a  respondent. Different considerations apply under s 112 where the question before the Tribunal is whether a person should be struck out as a party.

[51]     In my view, s 112 is not intended to give the Tribunal a wider jurisdiction to strike out claims than possessed by the High and District Courts.  Where it is sought

to  remove  respondents  on  the  basis  that  there  is  no  reasonably  arguable  cause  of action against them, I consider that the Tribunal should apply the same approach as that applied by the High and District Courts.  That means that there is no duty on the claimant to adduce evidence directed to that question, because the question must be answered on the basis that the pleaded facts are correct.

[52]     In Couch v Attorney-General,[18]  Elias CJ  delivering the judgment of herself and Anderson J said at [33]:

[18] Couch v Attorney-General [2008] 3 NZLR 725

[33]     It  is inappropriate to strike out a claim summarily unless the court can  be  certain  that  it  cannot  succeed.   The  case  must  be  “so  certainly  or clearly bad” that it should be precluded from going forward.

[footnotes omitted]

[53]     Reference can also be made to  what  was  said  in  the  Court  of  Appeal  in

Attorney-General v Prince and Gardner.[19] In a well-known passage  at  267

[19] Attorney-General v Prince and Gardner [1998] 1 NZLR 262.

Richardson P, delivering the judgment of himself, Thomas and Keith JJ said:

A striking-out application proceeds on the assumption that the facts pleaded

in the statement of claim are true. That is so even although they are not or may not be admitted. It is well settled that before the Court may strike out proceedings  the  causes  of  action  must be so clearly untenable that they cannot possibly succeed (R Lucas & Son (Nelson Mail) Ltd v O'Brien [1978]

2 NZLR 289 at pp 294 – 295; Takaro  Properties  Ltd  (in  receivership)  v

Rowling [1978] 2 NZLR 314 at pp 316 – 317); the jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied it

.

has the requisite material (Gartside v Sheffield, Young & Ellis [1983] NZLR

37  at  p  45;  Electricity  Corporation  Ltd  v  Geotherm  Energy  Ltd  [1992]

2 NZLR 641); but the fact that applications to strike out raise difficult questions of law, and require extensive argument does not exclude jurisdiction (Gartside v Sheffield, Young & Ellis).

[54]     I consider that the same rules should apply in dealing with applications to strike out respondents under s 112 of the Act. In the present case, that gives rise to the difficulty from the appellant’s perspective that, as Ms Stafford pointed out, the facts on which the appellants now seek to rely are not those pleaded in the statement

of  claim. Indeed  the  statement  of  claim  contains  pleadings  which  it  appears  the appellants  now  acknowledge  are  incorrect:                  in  particular,  the  allegation  that  the report was prepared for their predecessors in title when it is plain from other material placed before the Tribunal and this Court, that the report was in fact prepared for the appellants, or at least for Mr Fenton.

[55]     Further, while a general allegation of breach of duty of care is pleaded in the statement of claim (failure to identify all or any of the defects affecting the dwelling) against both BCCL and Mr Hailstone, the cause of action based on what Mr Hailstone is claimed to have  said  about  the  cost of repairs appears not  in  the statement of claim but in Mr Holland’s memoranda of 22 May and 21 August 2009.

It is only from those memoranda that the appellant’s full claim can be ascertained.

[56]     Mr Holland attempted to justify this by suggesting that procedures adopted

by  the  Tribunal  are  informal  in  nature  and  that  a  strict  view  is  not  taken  about pleadings.  There is a certain irony about that stance, given the appellants’ insistence that the Tribunal should strictly mimic the approach of the High Court to strike out applications, and assume  that  the  content  of  the  statement of claim is correct. However, even where the pleadings are inadequate, the  Court  generally  allows amendment  to  ensure  that  parties  are  not  deprived  of  their  right  to  pursue  claims because of inadequacies  in the pleadings that are able to be overcome. I consider that a similar approach should be taken here, and I observe that the Tribunal itself did not confine its consideration of the matter to what had been formally pleaded but considered all of the matters that had been put forward in the materials submitted to it by the appellants.

[57]         It would not be appropriate to determine the present appeal on the basis that the appellants must be strictly confined to what they have pleaded in the statement of claim as it currently stands. Rather, I consider that the matter should be assessed on the assumption that the statement of claim can be appropriately amended to include matters such as those set out in Mr Holland’s memorandum of 22 May 2009, which I have quoted in [13] above. If the statement of  claim  were  to be amended in that way, it would follow on  the approach of the Supreme Court in Couch v  Attorney-General[20]and of the Court of Appeal in Attorney-General v Prince and Gardner[21] that it should  be  assumed  for  present  purposes  that  the  appellants’  allegations  are correct.

[20] Couch v Attorney-General, above n 18.

[21] Attorney-General v Prince and Gardner, above n 19.

[58]     The  consequence  of  that  approach  is  that  it  was  not  appropriate  for the Tribunal to decide that the  appellants’  position  was  untenable  on  the  basis  of Mr Hailstone’s  affidavit. Certainly that  affidavit,  if  accepted  as  true,  would  mean that there were considerable hurdles which the appellants would have to overcome in order to  establish a claim against either  BCCL or Mr Hailstone.   But much would turn on the content of the discussion between Mr Fenton and Mr Hailstone the detail of which, at present, Mr Hailstone does not recall. The appellants’ assertion that there was some discussion about cost may not be entirely without substance having regard to the wording of clause 17 of the agreement for sale and purchase, and the draft form of that clause. The differences between Mr Hailstone and Mr Fenton as to what in fact took place cannot properly be determined at a preliminary stage without the proper inquiry, which would occur at a substantive hearing.

[59]     The broader question of whether the report was negligently prepared is also inherently one that should only be decided after all the relevant evidence is available.

At  first  glance  there  may  well  be  merit  in  Ms Stafford’s  observations  about  the limited  nature  of  the  exercise  the  respondents  were  asked  to  undertake  for  the purpose  of  preparing  the  report,  and  the  implications  of  that  for  liability.   Again, Mr Hailstone’s evidence, if accepted, may mean that the appellants cannot succeed.

But those issues will need to be explored at a substantive hearing and are inherently

unsuitable for determination under s 112.  In my opinion, s 112 should not be treated

as if it were a power to give summary judgment to respondents, which is effectively what happened here.

Result

[60]     For the reasons I have given the appeal is allowed and the orders made in the Tribunal’s Procedural Order No.8 insofar as they affect BCCL and Mr Hailstone are reversed under s 95(1)(a) of the Act.

[61]         Under s 95(1)(b), this Court, in determining any appeal, may exercise any of the powers that could have been exercised by the Tribunal in relation to the claim. Such   powers   include   the   power,   under   s 73(1)(i),   to   do   something   that   may reasonably be required to enable effective and complete determination of questions that  have  arisen  and  the  power,  under  s 73(1)(l),  to  issue  any  other  reasonable directions relating to the conduct of the proceedings.

[62]     Under  those  powers  there  is  a  further  procedural  direction  that  should  be made:  the appellants must within 15 working days of the delivery of this judgment file an amended statement of claim that properly reflects the allegations it intends to pursue again BCCL and Mr Hailstone.

[63]     In effect, the Court has  granted an indulgence to the appellants in allowing the  appeal  while  their  pleading  remains  in  its  present  unsatisfactory  form.   If  the amended pleading is not filed it will be for the Tribunal to decide what further order might be appropriate.  I consider that were the claim to persist in its present form that might justify a conclusion that the pleading was likely to cause prejudice and that it could be struck out on that ground.  That of course is an issue which will be for the Tribunal to decide if the issue arises.

[64]     The appellants have succeeded on the appeal, but they have done so on the basis  of  a  pleading  which  is  seriously  deficient.                 In  the  circumstances,  I  do  not consider that it will be appropriate for there to be an award of costs.  Costs should lie where they fall.