Fris Company Limited (Formerly the Northern Clinic Medical and Surgical Centre Limited) v Kingston HC Auckland CIV 2006-404-968

[2011] NZHC 515

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2006-404-968

BETWEEN  FRIS COMPANY LIMITED (FORMERLY THE NORTHERN CLINIC MEDICAL AND SURGICAL CENTRE LIMITED) Plaintiff

ANDPETER STANLEY KINGSTON (DISCONTINUED)

First Defendant

ANDKINGSTON PARTNERS LIMITED (DISCONTINUED)

Second Defendant

ANDBRENT FRANCIS HULENA Third Defendant

ANDROGER JOHN THORBURN (DISCONTINUED) Defendant

ANDROGER THORBURN CONSULTING ENGINEER LIMITED (FORMERLY THORBURN CONSULTANTS LIMITED) (DISCONTINUED)

Fifth Defendant

ANDMATTHEW VESEY (T/A CLADRITE DEVELOPMENTS)

Sixth Defendant

ANDJ & R SLECHT LIMITED (DISCONTINUED) Seventh Defendant

ANDNORTH SHORE CITY COUNCIL (STRUCK OUT)

Eighth Defendant

Hearing:         5 and 8 April 2011

Counsel:         CT Gudsell QC, AJ Thorn and M Brown for plaintiff

JN Bierre and AJL Wedekind for third defendant

FRIS COMPANY LIMITED (FORMERLY THE NORTHERN CLINIC MEDICAL AND SURGICAL CENTRE LIMITED) V KINGSTON HC AK CIV 2006-404-968 24 May 2011

Judgment:      24 May 2011 at 11:00 AM

JUDGMENT OF FAIRE J

Solicitors:         Adina Thorn Lawyers, PO Box 1753, Auckland 1141

Morgan Coakle, PO Box 114, Auckland 1140
McElroys, PO Box 835, Auckland 1140

The application

[1]      The third defendant applies by an amended application dated 1 October 2010 for orders:

(a)       Striking  out  or  dismissing  the  plaintiff’s  claim  against  the  third

defendant;

(b)      For leave to apply for summary judgment against the plaintiff; and

(c)       Summary judgment against the plaintiff.

[2]      The relevant statement of claim is the document entitled Second amended statement of claim, dated 16 September 2010.   It contains three causes of action against the third defendant. They are:

(a)       Breach of duty of care to the plaintiff in negligence, paragraphs 38 to

41;

(b)      Breach  of  duty  of  care  owed  to  Goodall  ABL  Construction  Ltd

(hereinafter referred to as ―Goodall‖), paragraphs 42 to 47; and

(c)       Goodall’s right to contribution from the third defendant, paragraphs

81 to 83.

[3]      Mr  Gudsell  advised  that  there  was  no  opposition  to  the  striking  out  of paragraphs 81, 82 and 83, and the prayer for relief as those parts of the statement of claim apply to the third defendant.  These paragraphs require no further analysis.

The grounds in support of the application in relation to the remaining causes of action

[4]      The  third  defendant  seeks  either  the  striking  out  of  the  cause  of  action alleging  breach  of  duty  of  care  owed  to  the  plaintiff,  paragraphs  38  to  41;  or summary judgment in respect of that cause of action.  That cause of action is the one remaining cause of action between the plaintiff and the third defendant.  The third defendant claims in respect of this cause of action that:

(a)       The  plaintiff  engaged  Goodall,  not  Mr  Hulena,  and  accordingly

Mr Hulena does not owe a duty of care to the plaintiff in tort; and

(b)As the plaintiff is the owner of a commercial building not intended for habitation, the plaintiff cannot recover from the third defendant in tort for economic loss.

[5]      In relation to the cause of action covered by paragraphs 42 to 47, which is a cause of action acquired by the plaintiff by virtue of an assignment from Goodall, the third defendant seeks summary judgment and says that this assigned cause of action cannot succeed because:

(a)      The  assignment  extinguishes  the  plaintiff’s  rights  against  Goodall such that Goodall cannot incur liability to the plaintiff; and therefore Hulena cannot become liable to Goodall;

(b)      The plaintiff has no genuine commercial interest in the assignment;

and

(c)      Claims by Goodall against the third defendant are time-barred under the Building Act 1991 and under Hulena’s contract of engagement with Goodall.

Background

[6]      The plaintiff, formerly The Northern Clinic Medical and Surgical Centre Ltd, entered into a turnkey construction contract on 24 February 1999 with Goodall to construct a medical centre.  The contract was a fixed price, lump sum, design and building construction contract. The consideration was just over $3.1 million.

[7]      Goodall engaged Mr Hulena, the third defendant, to provide architectural services.  The terms of that engagement are set out in a letter of 27 November 1998 and are subject to a standard form agreement used by the architectural profession. Under that agreement the third defendant’s liability to Goodall in contract and tort is subject to both a monetary limit and a time limit.  Under the agreement Mr Hulena was required to provide preliminary design working drawings to the stage where a permit could be sought; and was then to provide detailed working drawings and a specification, and undertake partial administration.

[8]      The centre was constructed following the issuance of a building consent in

June 1999 and largely completed by January 2000.

[9]      The plaintiff pleads that it discovered defects in the building in 2005.  The local  authority,  the  North  Shore  City  Council,  declined  to  issue  a  Code  of Compliance Certificate and notified defects relating to the plaster insulclad cladding. The Department of Building and Housing issued a determination dated 19 July 2005.

[10]     Goodall   went   into   voluntary   liquidation   on   1 March   2000.      It   has continuously been in liquidation since that date.  Mr Hulena and his employees had

ceased work in relation to the centre in late October 1999, and issued practical completion certificates in October 1999.

[11]     On 28 February 2006 the plaintiff brought proceedings against a number of parties who were either subcontractors or consultants involved in the original construction  and  design.    Apart  from  the  claims  against  the  applicator  of  the insulclad cladding system, Mr Vesey, the sixth defendant, and the third defendant, claims against all of the defendants have either been discontinued or struck out.

[12]     The sixth defendant applied to strike out the claim against him and also sought  summary  judgment.    His  applications  were  heard  on  29 February  2008. Judgment was delivered in respect of that application on 3 December 2008.   Keane J entered summary judgment in the sixth defendant’s favour in respect of the three pleaded causes of action against him. The judgment was sealed on 29 June 2009.

[13]     The  plaintiff’s  solicitors  entered  into  negotiation  with  the  liquidators  of Goodall.  A proposal was advanced.  It was based on the premise that if the various subcontractors’ denial of liability was proven to be correct, the plaintiff would be forced to pursue a legal claim against Goodall, unless Goodall’s rights against the subcontractors  could  be  assigned  to  the  plaintiff  so  that  it  could  enforce  them directly.  The liquidators were attracted to the proposal and applied, on 9 July 2009, for directions under s 284 of the Companies Act 1993.   The Court  granted the application.  Following the Court’s order, the liquidators of Goodall entered into a deed of assignment, dated 24 July 2009, with the plaintiff.  The operative clause in the deed of assignment records:

The Assignor (Goodall) wishes to settle its alleged liability to the Assignee (Fris) regarding the repair costs or otherwise under or in relation to the construction contract by assigning to the Assignee (Fris) all rights of action pertaining to the medical centre it may have against any and all of the subcontractors and any other person associated with the design, construction and certification of the medical centre. (―Other relative parties‖) which rights of action include (but are not limited to):

Any direct cause of action in contract and/or in tort; and

Any right of indemnity and/or contribution as a concurrent tortfeasor

(―rights of action‖) …

The Assignee agrees that in consideration of the assignment recorded below:

(a)       it will not seek to recover the amount of a repair costs or any other amount whatsoever from the Assignor in the liquidation or otherwise from any person associated with the Assignor (including the Assignor’s liquidators); and

(b)       it will not seek leave to bring proceedings against the Assignor in relation to the construction contract or the repair costs; and

(c)       other  than  proving the  amount  of  the Assignor’s  liability to  the Assignee for the purpose of pursuing the rights of action against the subcontracts and any other relevant parties will not sue the Assignor in  respect  to  the Assignor’s  alleged  liability  to  the Assignee  in respect of the medical centre.

[14]     On 10 August 2009 an amended statement of claim, which relied on the deed of assignment, was filed.

[15]     In May 2010 the plaintiff filed a proof of debt in the Goodall liquidation for

$2,150,905.

[16]     The remaining relevant parts of the statement of claim that pertain to the third defendant are contained in paragraphs 38 to 41 and 42 to 47 and for completeness sake is now set out in this judgment as follows:

38.The plaintiff repeats the foregoing and says that at all material times Hulena owed the plaintiff a duty to exercise reasonable care and skill in performing the Architectural Services (―the Architect’s Duty‖).

39.It is fair, just and reasonable to impose this duty of care in the following relevant facts and circumstances:

(a)       There is a sufficient relationship of proximity between the plaintiff and Hulena to warrant the imposition of a duty of care in that:

i)         Hulena carried out the Architectural Services and the Northern Medical Centre was accordingly constructed in accordance with the Plans and Specifications;

ii)        It is reasonably foreseeable that the plaintiff would suffer loss as a result of any failure by Hulena to exercise reasonable skill and care in carrying out the Architectural Services, being:

1.A loss of amenity in the Northern Medical Centre and associated economic loss resulting from the need to repair the Defects and the Damage in order to restore that amenity; and

2.The  loss  of  safety  and  health  for  the occupants of the Northern Medical Centre and associated economic loss resulting from the need to repair the Defects and the Damage in order to ensure the future safety and health of the occupants.

iii)       The plaintiff is a member of a class of persons and entities which:

1.Generally rely on designers such as Hulena to exercise reasonable care and skill in carrying out their services; and

2.Are vulnerable to the risk of loss arising from a failure of designers such as Hulena to exercise reasonable skill and care in performing their services.

iv)       The imposition of such a duty of care would not:

1.Place undue restrictions on the freedom of action of designers such as Hulena; or

2.Place     an     undue     burden     of     legal responsibility on such designers.

v)        Unlike  the  plaintiffs  Hulena  is  in  a  position  to protect himself from the consequences of its failure to exercise reasonable skill and care by effecting appropriate insurance;

vi)       The  loss  in  this  case  is  economic  loss  which  is closely associated with physical damage;

vii)      There is a high degree of analogy with cases in which similar duties are already established;

viii)      The Defects affect (or have the potential to affect if not remedied) the health and safety of occupants of the Northern Medical Centre, including hospital patients and as such are dangerous defects and to merely defects of quality;

ix)       The   statutory   framework   created   by   the   Act supports the imposition of such a duty of care.

(b)       Policy considerations support the imposition of this duty of care in particular:

i)       The promotion of professional standards and accountability;

ii)        The duty is for the benefit of a limited class of persons (being purchasers of property designed by Hulena) for a limited time (up to 10 years from the date of the act or omission giving rise to the breach of  duty),  which  means  that  no  issue  of indeterminacy arises;

iii)       The availability of a remedy in tort is necessary to ameliorate the consequences of the unavailability of other common law or statutory remedies.

40.      Hulena has breached the Architect’s Duty by:

(a)       Failing to include in the Plans and Specifications any or any adequate design details to enable the escape of excessive amounts of moisture so that building materials and the structural integrity of the building would not be damaged including details for:

i)        Vertical control joints all across the cladding;

ii)        Horizontal control joints between the Insulclad and the tilt slabs.

(b)       Failing to design a building that was weathertight in that the design and construction of the cladding, windows and doors is such that excessive moisture has entered the building and been unable to escape causing the structural steel on the first floor   and   the   lightweight   steel   framing   to   corrode threatening the structural integrity of the building, such design defects specifically including:

i)         Absence  of  details  for  horizontal  control  joints between the Insulclad and the ground floor tilt slabs to allow for movement and drainage and prevent moisture ingress:

ii)        Absence of details for positioning of air seals at the junctions of window jambs, sills and heads and the Insulclad;

iii)       Absence  of  any  adequate  details  for  flashings  at window heads, jambs and sills and accordingly silicone has been used in place of flashings;

iv)       Providing confusing details for window heads and sills that are incompatible with the manufacturer’s insulclad detail for flashings;

v)        Failing to provide effective design detail for vertical control joints over the surface of the exterior cladding.

(c)       Failing to include in the design a suitable drainage system to enable egress of accumulated water/moisture from the horizontal joint of the Insulclad proprietary system;

(d)       Failing to include  in the design  of the  exterior  cladding system vertical and horizontal control joints at strategic points;

(e)       Failing to include in the Plans and Specifications sufficient detail of flashings, air seals and sealants for windows and doors at both levels including a failure to provide any details for flashings on the first floor door sills;

(f)        Providing  a  poor  design  of  the  tops  of  the  architectural bracket features causing ponding;

(g)       Failing on inspection of the Construction Work to identify and/or require rectification of plastering over joints between ground floor tilt slabs resulting in cracks, the breakdown of plaster and cementious deposits;

(h)       Failing to exercise reasonable skill and care in preparing the Plans and Specifications so as to ensure that they were sufficient to ensure that the provisions of the Building Code would be met if the Construction Work was properly completed in accordance with the Plans and Specifications;

(i)        Issuing     the     Practical     Completion     Certificates     in circumstances where there were no reasonable grounds for doing so due to the existence of the Defects.

41.As  a  result  of  Hulena’s  specified  negligence  the  plaintiff  has suffered the Damage and has been required to carry out the Repairs and has suffered the Loss.

THE PLAINTIFF CLAIMS AGAINST THE THIRD DEFENDANT:

A.        Judgment for the Loss in the amount of $1,451,038.16;

B.        Interest  on  all  special  damages  pursuant  to  section  87  of  the

Judicature Act 1908 at the prescribed rate of 7.5% per annum up to

30 June 2008 and at 8.4% per annum thereafter; C.         Costs.

…

42.The plaintiff repeats the foregoing and says that Goodall carried out the Construction Work and is primarily liable to the plaintiff for the full Admitted Loss under the terms of the Head Contract and in tort.

43.At all material times Hulena owed Goodall a duty of care to carry out the Architectural Services with reasonable care and skill.

44.It is fair, just and reasonable to impose this duty of care in the following relevant facts and circumstances:

(a)       There  is  a  sufficient  relationship  of  proximity  between Goodall and Hulena to warrant the imposition of a duty of care in that:

i)         Hulena   carried   out   the   Architectural   Services pursuant  to  a  contract  with  Goodall,  being  the Hulena Agreement;

ii)        At all reasonable times Goodall relied on Hulena’s

expertise;

iii)       It  is  reasonably  foreseeable  that  Goodall  would suffer loss as a result of any failure by Hulena to exercise reasonable skill and care in carrying out the Architectural Services.

45.Hulena has breached the duty of care owed to Goodall as pleaded in paragraph 43 above.

46.      As a result of Hulena’s specified negligence, Goodall has suffered

the Admitted Loss.

47.      The plaintiff as the assignee of Goodall’s Rights of Action against

Hulena is entitled to advance this claim for damages against Hulena.

THE PLAINTIFF CLAIMS AGAINST THE THIRD DEFENDANT:

A.        Judgment for the Admitted Loss in the amount of $1,105,488.69;

B.        Interest  on  all  special  damages  pursuant  to  section  87  of  the

Judicature Act 1908 at the prescribed rate of 7.5% per annum up to

30 June 2008 and at 8.4% per annum thereafter. C.         Costs.

The court’s approach to strike out applications

[17]     Rule 15.1 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.

(2)     If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.

(3)     Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.

(4)     This rule does not affect the court's inherent jurisdiction.

[18]     The general  principles  to  be applied  in  a strike out  application  are well known.  They were confirmed in Attorney-General v Prince and Gardner where the Court of Appeal said:1

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).

[19]     The  principles  referred  to  above  were  endorsed  in  Couch  v  Attorney- General.2

[20]     The court can have regard to evidence put forward either in opposition or support of the application provided it does not contradict that which is pleaded in the statement of claim: Attorney-General v McVeagh.3

[21]     Caution is required, particularly where the case involves allegations of duties of  care  in  novel  situations.    That  has  to  be measured  against  the  position  that

1      Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA) at 267.

2      Couch v Attorney-General [2008] NZSC 45; [2008] 3 NZLR 725.

3      Attorney-General v McVeagh [1995] 1 NZLR 558 (CA) at 566.

defendants  should  not  be  subjected  to  substantial  costs  by  defending  untenable claims: Queenstown Lakes District Council v Charterhall Trustees Ltd.4

[22]     Because the inquiry in this case involves limitation issues, it is appropriate that I set out the approach to strike out applications where these matters are raised.

[23]     Matai Industries Ltd v Jensen,5 referring to the decision of the English Court of Appeal in Ronex Properties Ltd v John Laing Construction Ltd & Ors,6 observed in summary:

(a)      That a defendant could never apply to strike out a claim against him as disclosing no reasonable cause of action merely because he might have a good limitation defence;

(b)A defendant who believes he has a good limitation defence may, however, either plead the defence and seek trial of the defence as a preliminary issue or, in a clear case, apply to strike out the plaintiff’s claim on the grounds that it is frivolous, vexatious and an abuse of process;

(c)       The onus is on the defendant to show that the plaintiff’s claim is

statute-barred;

(d)      Evidence can be tendered by affidavit; and

e)       The court should be slow to strike out a claim or cause of action altogether in limine; but against that, if the position is quite clear, the defendant should not be vexed by having to go to full trial when the

answer is obvious and inevitable.

4      Queenstown Lakes  District  Council v  Charterhall Trustees Ltd  [2009] NZCA 374; [2009]

3 NZLR 786 at 790.

5      Matai Industries Ltd v Jensen [1989] 1 NZLR 525 (HC) at 531.

6      Ronex Properties Ltd v John Laing Construction Ltd & Ors [1983] QB 398.

[24]     This position7 was endorsed by the Supreme Court in Murray v Morel & Co

Ltd.8

The court’s approach to a summary judgment application by a defendant

[25]     Rule 12.2(2) of the High Court Rules requires that the defendant satisfy the court that none of the causes of action in the plaintiff’s statement of claim can succeed.

[26]     Westpac Banking Corporation v MM Kembla (NZ) Ltd noted the following when dealing with r 136(2), the predecessor of r 12.2(2):9

[58]      The applications for summary judgment were made under R 136(2) of the High Court Rules which permits the Court to give judgment against the plaintiff ―if the defendant satisfies the Court that none of the  causes  of  action  in  the  plaintiff's  statement  of  claim  can succeed‖.

[59]     Since R 136(2) permits summary judgment only where a defendant satisfies the Court that the plaintiff cannot succeed on any of its causes of action, the procedure is not directly equivalent to the plaintiff's summary judgment provided by R 136(1). …

[60]      R 136(2) [the present r 12.2(2)] permits a defendant who has a clear answer to the plaintiff which cannot be contradicted to put up the evidence which constitutes the answer so that the proceedings can be summarily dismissed. …

[61]      The   defendant   has   the   onus   of   proving   on   the   balance   of probabilities that the plaintiff cannot succeed. Usually summary judgment for a defendant will arise where the defendant can offer evidence which is a complete defence to the plaintiff's claim. Examples, cited in McGechan on Procedure at HR 136.09A, are where the wrong party has proceeded or where the claim is clearly met by qualified privilege.

[62]      Application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment only able to be properly arrived at after a full hearing of the evidence. Summary judgment is suitable for cases

7      Matai Industries Ltd v Jensen, above n 5.

8      Murray v Morel & Co Ltd [2007] NZSC 27; [2007] 3 NZLR 721 at [33].

9      Westpac Banking Corporation v MM Kembla (NZ) Ltd [2001] 2 NZLR 298 (CA) at [58]-[64].

where abbreviated procedure and affidavit evidence will sufficiently expose the facts and the legal issues. Although a legal point may be as well decided on summary judgment application as at trial if sufficiently clear (Pemberton v Chappell [1987] 1 NZLR 1), novel or developing points of law may require the context provided by trial to provide the Court with sufficient perspective.

[63]      Except in clear cases, such as a claim upon a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary procedure the sufficiency of the proof of the plaintiff's claim. That would permit a defendant, perhaps more  in  possession  of  the  facts  than  the  plaintiff  (as  is  not uncommon where a plaintiff is the victim of deceit), to force on the plaintiff's case prematurely before completion of discovery or other interlocutory steps and before the plaintiff's evidence can reasonably be assembled.

[64]      The defendant bears the onus of satisfying the Court that none of the claims can succeed. It is not necessary for the plaintiff to put up evidence at all although, if the defendant supplies evidence which would satisfy the Court that the claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own. Even then it is perhaps unhelpful to describe the effect as one where an onus is transferred. At the end of the day, the Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment made by the Court on interlocutory application is not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial.

[27]     These passages were approved by the Privy Council in Jones v Attorney- General.10

Application for leave to bring summary judgment

[28]     The   third   defendant   requires   leave   to   bring   its   summary   judgment application.  High Court Rule 12.4(3) provides that an application by a defendant for summary judgment may be made either at the time the statement of defence is served on the plaintiff or later with the leave of the court.

[29]     No guidance is provided in the rules as to the granting of leave. A defendant, however, will usually be required to apply as soon as the possibility of summary judgment becomes apparent.  There are no limits to the exercise of the discretion.  If the court  forms the view that a defendant had  a clear and unarguable case for

summary judgment, and if the plaintiff is not prejudiced by the delay and the delay

10     Jones v Attorney-General [2004] 1 NZLR 433 (PC) at 437.

was not significant in terms of timing,  then all parties involved benefit from a summary examination of the case.  In the case before me, necessarily there is a need to look at the merits of the application: Skeggs v Guest.11

The strike out/summary judgment application in respect of the first cause of action (paragraphs 38 to 41) and the prayer for relief

[30]     The plaintiff’s statement of claim, paragraphs 38 to 41, is the only remaining direct cause of action advanced by the plaintiff against the third defendant.  I have set out the full text of these sections earlier in this judgment.   In summary, the plaintiff alleges:

(a)       The third defendant was engaged by Goodall to carry out various architectural services;

(b)The third defendant owed the plaintiff a duty to exercise reasonable skill and care in carrying out the architectural services;

(c)       The third defendant breached that duty; and

(d)      The third defendant caused the plaintiff reasonably foreseeable loss. [31]     The third defendant denies that:

(a)       Any duty of care exists in tort in favour of the plaintiff; and

(b)      The plaintiff has any claim against him for economic loss.

[32]     The  cause  of  action  is  similar  to  that  which  Keane  J  dealt  with  in  his judgment of 3 December 2008, in determining the sixth defendant’s application for summary judgment against the plaintiff.  Keane J ruled that Mr Vesey, and another subcontractor, were not directly liable to the plaintiff in either tort or contract.  The

plaintiff accepts Keane J’s analysis; but submits that there are significant factual

11     Skeggs v Guest HC Dunedin CP6/99, 13 September 1999, Master Venning.

differences between the position of the third defendant as an architect and the sixth defendant, who was the cladding contractor.

[33]     Counsel for both parties have framed their submissions within the accepted general approach to establishing a duty of care.  That requires a focus on  two broad fields of inquiry.  The first is as to the degree of proximity or relationship between the parties.  The second is whether there are other wider policy considerations that tend to negative, or restrict, or strengthen the existence of a duty: Rolls Royce NZ Ltd

v Carter Holt Harvey Ltd.12

[34]     The focus then is on the first of the two broad fields of inquiry, namely the degree of proximity or relationship between the parties.

[35]     The plaintiff relies, by analogy, between:

(a)       an architect’s responsibility to a residential home-owner;

(b)the nexus between Dr Fris and Mr Hulena and his employee, coupled with Mr Hulena’s extensive specialist role during construction;

(c)       the absence of any alternative remedies; and

(d)the  various  background  statutory  and  contractual  provisions  that buttress a duty of care.

[36]     For Mr Hulena it was submitted that no case has recognised a duty of care owed to building owners by an architect engaged by the contractor.  In addition, it was submitted that there are difficulties with claims for economic damage to commercial properties.  On the question of proximity, it was submitted on behalf of Mr Hulena that as an architect he had a limited role in the construction, which was not modified  by any collateral  warranty.   There was  never  a  contractual  nexus between the plaintiff and Mr Hulena.   It was submitted that commercial certainty

was a primary policy reason for not holding a duty of care in this situation.  It was

12     Rolls Royce NZ Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) at [58].

noted on Mr Hulena’s behalf that whilst it was submitted he is not liable to the plaintiff in tort, he is nevertheless contractually accountable to Goodall and subject to civil liability and professional discipline.   However, it was submitted that the plaintiff’s lack of remedies is a consequence of Goodall’s insolvency, which is a feature of any commercial sector and part of the risk undertaken by a person carrying out a property development.

[37]     In my view there are no factual differences which justify a different result to that which was arrived at by Keane J when he analysed the liability of Mr Vesey.  I am not satisfied that the facts disclose a sufficiently proximate relationship.   The strongest distinction between the positions of Mr Hulena and Mr Vesey arises from the fact there was some contact between Mr Hulena and with one of the officers of the plaintiff.  In addition, Mr Hulena issued practical completion certificates which would usually be issued by an engineer and which, by contract, were required to be issued by Mr Kingston.  However, the practical completion certificates were directed to Goodall, not to the plaintiff.   I accept Mr Bierre’s submission that the fact that Mr Hulena would have consulted with one of the officers of the plaintiff would not ordinarily be sufficient to impose a duty of care.  That simply recognises that some contact  is  needed  to  ensure  that  the  development  proceeds  and  the  various

contractual responsibilities of the parties are carried through to fruition.13    There is

nothing in the material placed before me to suggest that Mr Hulena undertook any responsibility to the plaintiff for the tasks that he was carrying out in this particular development.

[38]     I conclude therefore in all other respects I find the reasoning of Keane J applicable to the position of Mr Hulena.  As Keane J found, because this is a clear case  where summary judgment  should  be issued  it  is  appropriate that  leave  be

granted.

13 Ibid, at [90].

Is the Goodall cause of action for breach of a duty of care owed by Mr Hulena to Goodall barred by s 4 of the Limitation Act 1950?

[39]     At issue in this ground is whether s 4 of the Limitation Act 1950 applies to the cause of action pleaded, having regard particularly to the fact that this is raised in a strike out application.  I have referred in [23] and [24] to the approach which the court adopts to this position.

[40]     Section  4  of  the  Limitation Act  1950  provides  that  actions  shall  not  be brought after the expiration of six years from the date on which the cause of action accrued, where the cause of action is in tort.

[41]     For the purposes of this application only the third defendant accepts that it is arguable that as between (1) Fris Co Ltd and Goodall; and (2) Hulena and Goodall there was a duty of care owed in tort to exercise reasonable care in or while carrying out the contract; though there is no duty in tort to take reasonable care to perform a

contract: Rolls Royce NZ Ltd v Carter Holt Harvey Ltd.14

[42]     For the purpose of this application, the third defendant does not rely on Auckland Christian Mandarin Church Trust Board v Canam Construction (1995) Ltd.15    That authority held that, in a commercial context, parties to a construction contract have rights against each other in contract only; rather than concurrently in tort.   I have received supplementary submissions on that point; however, as no reliance has been placed on that decision and as nothing directly turns on this point, I do not intend to analyse the nature of concurrent liability.

[43]     Goodall’s liability in negligence to the plaintiff, however, arises from its own negligence and not that of its negligent subcontractors.   That is because it is not liable to other parties for the negligence of its subcontractors: Cashfield House Ltd v

David & Heather Sinclair Ltd.16

14 Ibid, at [66].

15     Auckland Christian  Mandarin  Church Trust  Board  v  Canam  Construction (1995)  Ltd  HC Auckland CIV 2008-404-8526, 25 June 2010.

16     Cashfield House Ltd v David & Heather Sinclair Ltd [1995] 1 NZLR 452 (HC).

[44]     For clarity’s sake, it is important to record that this case does not involve any question of a claim for contribution made by Goodall pursuant to s 17 of the Law Reform Act  1936.    That  this  has  expressly  been  abandoned  by  the  plaintiff  is understandable having regard to the judgment of Keane J.

[45]    The key determination for the purposes of the limitation inquiry is the identification of the point at which Goodall’s cause of action against Mr Hulena accrued.  This depends on the approach taken to the date at which the relevant loss was suffered, from which the six-year limitation period will run.

[46]     I note at the outset that, as the plaintiff is effectively stepping into the shoes of Goodall and seeks recovery based on Goodall’s rights as assigned to it, any loss suffered by the plaintiff itself is relevant only to the extent that Goodall could be made to answer for that loss, and thereby suffer a loss itself.

[47]     It is well-established that the loss requirement of a negligence claim can be made out where the claimant incurs a liability due to the act or omission of the tortfeasor.   So, in Davys Burton v Thom17  the Supreme Court held that Mr Thom suffered loss from the time of the execution of a pre-nuptial agreement, although the full effect and quantification of that loss would not then be ascertainable.   Similarly, in Gilbert v Shanahan Partners,18 Mr Gilbert’s loss in respect of his cause of action against his solicitors arose at the time he signed a guarantee of a company’s lease.  It was not deferred until such time as the lessor defaulted under the lease.

[48]     Goodall’s liability to the plaintiff (being the relevant loss or damage for the purposes of the cause of action in negligence against Mr Hulena) is founded on Mr Hulena’s  negligent  conduct.   This  liability may have been  either tortious  or contractual in nature, or both.  Concurrent liability under tort and contract is possible unless the imposition of a tortious duty would undermine or be contrary to the

existing contractual relationship.19    As the facts before me clearly allege breach of

contract on the part of Goodall (due to Mr Hulena’s performance of architectural

17     Davys Burton v Thom [2008] NZSC 65; [2009] 1 NZLR 437.

18     Gilbert v Shanahan Partners [1998] 3 NZLR 528 (CA).

19     See  the  discussion  in  Burrows,  Finn  and  Todd  Contract  Law  in  New  Zealand  (3rd  ed, LexisNexis, Wellington, 2007) at 2.3.5.

duties), it is not necessary to determine whether a concurrent tortious duty was also in existence.  I am satisfied that Goodall, if it is liable at all, incurred a contractual liability brought about by Mr Hulena’s acts and which constituted a loss for the purpose of the negligence claim.

[49]     The issue then becomes: at what point in time did Goodall incur this liability for the purposes of the limitation period?  Does the limitation period run from the date at  which  the negligent  work  was  undertaken  by Mr  Hulena (the  orthodox approach), or does it run from the time at which the resulting damage could first have been reasonably discovered by the plaintiff?  The latter construction views the damage to the plaintiff’s property (the foundation of Goodall’s liability) as constituting economic loss, being the diminution in value of the buildings resulting from building defects.  This approach has been the one taken in the ―leaky home‖

line of cases: see Invercargill City Council v Hamlin.20

[50]     The facts before me call for an application of the former approach.  As the leaky homes cases represent a significant departure from orthodoxy and have subsequently been confined to their facts,21      I must carefully analyse the appropriateness of their application.  Here, I consider that the relationship between Goodall and Hulena displaces their underlying logic.  The leaky homes cases dealt with the indirect relationship between a home owner and the local council.  This may be contrasted with the facts before me.  By virtue of the assignment, the plaintiff is effectively suing as though it were Goodall, such that it has adopted Goodall’s direct contractual and tortious nexus to Hulena.  Thus, the present situation is essentially a straightforward action by a contractor against a sub-contractor, being similar to the leaky homes cases in subject matter only.  Most of the discussion in Hamlin and the subsequent cases concerned the extension of liability to an increasingly wide class, causing the local council to act as de facto insurers; considerations related to the

Building  Act;  and  the  unique  relationship  between  potentially  vulnerable  New

20     See Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA); [1996] 1 NZLR 513 (PC).

21     See, eg, Te Mata Properties Ltd v Hastings District Council [2008] NZCA 446; [2009] 1 NZLR

460; Three Meade Street Ltd v Rotorua District Council [2005] 1 NZLR 504 (HC); Queenstown
Lakes District Council v Charterhall Trustees Ltd [2009] NZCA 374; [2009] 3 NZLR 786.

Zealand homeowners and the local council.22    These concerns are irrelevant to the contractual relationship in this case.

[51]     Even if I did not consider that the contractual relationship displaced the leaky homes cases, two further considerations support my decision to distinguish their principles.   First, due to the legal and policy reasons listed in the paragraph above, Hamlin reasoning does not usually extend to commercial buildings, such as the present property.23   The second, related, factor is that as there is no council involvement, this is not the relationship typical of leaky home cases; which was a crucial driving factor behind the reasonable discoverability doctrine.

[52]     Therefore, I conclude that the relevant time from which the cause of action accrued was when the loss to Goodall was occasioned.    This arose contemporaneously with the damage to the building caused by Mr Hulena’s alleged negligence.   The defective work occurred prior to March 2000 and that is when Goodall became liable under its contractual obligations to the plaintiff. Therefore, as the cause of action accrued from that point, the plaintiff’s claim is time-barred pursuant to s 4 of the Limitation Act 1950.

[53]     I consider the alternative grounds advanced in support of striking out the statement of claim although strictly speaking it is unnecessary to do so.

The contractual limitation

[54]     The third defendant relies on an additional and alternative limitation basis which he says bars any recovery which Goodall has against him in either contract or tort.

[55]     Mr Hulena annexes to his affidavit the letters of engagement which record the terms of his engagement with Goodall.  In his letter of 27 November 1998 there is a

paragraph which provides:

22     See, eg, Queenstown Lakes District Council v Charterhall Trustees Ltd, ibid.

23     See cases listed, above n 21.

Our professional service and fees follow guidelines set down by the New Zealand  Institute  of  Architects  in  ―the  NZIA Agreement  of  Architects Services – Long Form AAAS2 1996‖.

Mr Hulena annexes a copy of the NZIA agreement which, by clause 13.2 provides:

The architect is not liable (in contract, tort or otherwise) to the client for any claim, damage, liability, loss or expense incurred by the client arising either of this agreement, or the project, except those the client notifies the architect of in writing within six years after the date of this agreement.  If the client brings an action or proceeding or arbitration against the architect for any claim, damage, loss, liability or expense, then that action, proceeding or arbitration must be brought within six years after the date of this agreement.

[56]     Mr Hulena’s letter of 27 November 1998 makes provision for Goodall to sign an acceptance.  No such signature appears on any document placed before the court. Nevertheless, there is some confirmation that Mr Hulena proceeded with Goodall based   on   the   27 November   1998   correspondence.      In   fact,   the   plaintiff’s administrator, Ms JM Fris, refers to that letter in her affidavit and the fact that Goodall had confirmed Mr Hulena’s fees for the staged project.  No point is taken in the notice of opposition.

[57]     In summary the position is that no claim was brought within six years of the date of Mr Hulena’s engagement by Goodall.   Indeed, the statement of claim was filed until 10 August 2009.  The letter clearly refers to claims in contract and tort. Nothing has been placed before me on Goodall’s behalf to indicate that the letter incorporating the agreement was not the accepted terms and conditions of employment of Mr Hulena.  Accordingly, I conclude that the there is a contractual bar to any claim which Goodall has against Mr Hulena which quite independently of the other matters analysed in this judgment bars the assigned cause of action against Mr Hulena being barred.

[58]     I consider the alternative grounds advanced in support of striking out the statement of claim, although strictly speaking it is unnecessary to do so.

Does  the  deed  of  assignment  extinguish  all  of  the  plaintiff ’s  rights  to  pursue

Goodall?

[59]     The third defendant submits that the assignment extinguishes the plaintiff’s

rights against Goodall because:

(a)      The  assignment  was  put  in  place  to  get  around  the  judgment  of Keane J and its summary judgment in favour of the sixth defendant against the plaintiff;

(b)The assignment was executed more than six years after Goodall went into liquidation and at a time when the plaintiff had not proved in the liquidation  of  Goodall  as  a  creditor  and  when  the  liquidators  of Goodall had already made an interim distribution and the plaintiff had not sought leave to commence a proceeding against Goodall;

(c)      The assignment itself provides in the clauses 1(a) to (c) that it would not:

(i)       Attempt to recover its losses from Goodall or is liquidators;

(ii)Seek leave to bring proceedings against Goodall and sue for the amount due;

(d)The  actions  of  the  plaintiff  and  the  liquidators  of  Goodall  were consistent with the plaintiff’s rights against Goodall having been extinguished.   The plaintiff had belatedly sought confirmation from the liquidators that its claim was approved in the liquidation of Goodall; and

(e)      No evidence was adduced to show that the liquidators had accepted any claim on behalf of the plaintiff.

[60]     To that summary, however, one must take into account clause 6 of the deed of assignment which provides:

For  the  avoidance  of  doubt,  it  is  the  intention  of  the  parties  that  the Assignor’s rights of action against all defendants in the Proceeding should be preserved and to the extent that recovery is made against any of the defendants, then the funds so recovered shall be the sole property of the Assignee.

[61]     This ground can be answered quite simply.   On a plain construction of the deed of assignment the plaintiff’s causes of action against Goodall are preserved for the purpose of taking an assignment of any rights which Goodall has against the third defendant.   The liability is kept alive strictly for that purpose.   It does not matter that the amount of recovery is limited to the amount of any recovery made against the third defendant. The liability still exists.

[62]     Accordingly, I do not consider that this ground would support the striking out of the claim made against the third defendant.

Can the plaintiff show that it has a genuine commercial interest in the assignment?

[63]     A bare right to litigate cannot be assigned.  However, an assignee who can show that he has a genuine commercial interest in the enforcement of another’s claim may take an assignment of the cause of action, provided the assignment does not infringe the law of champerty.24     Counsel referred to some examples.   Cases where an assignee has been held to have a legitimate commercial interest in taking the assignment of a cause of action include:

(a)      When an assignee took an assignment of a debenture and also took an assignment of the assignor’s cause of action in tort: First City Corporation v Downsview Nominees Ltd;25

(b)Where a plaintiff received a payment in settlement of its claim from the first defendant and where the first defendant took an assignment of the plaintiff’s cause of action against the second defendant on the basis that the first defendant indemnified the plaintiff from any claim

by the second  defendant  for  costs  made by the second  defendant

24     Laws of New Zealand Choses in action at [18].

25     First City Corporation Ltd v Downsview Nominees Ltd [1989] 3 NZLR 710 (HC).

against the plaintiff:

26 and

(c)      Where a plaintiff building owner settled a claim with a local authority in consideration for the local authority taking an assignment of the plaintiff’s causes of action against the remaining defendant: Auckland City Council as Assignee of Body Corporate 16113 v Auckland City Council.27

[64]     The starting point for this examination is the principal speech of Lord Roskill in Trendtex Trading Corporation v Credit Suisse where his Lordship said an assignment would not be struck down ―if the assignee had a genuine commercial interest in taking the assignment and in enforcing it for his own benefit‖.28

It is important that a consideration of the totality of the transaction be undertaken.

[65]     The assignment in this case is clearly designed to avoid unnecessary and prolonged steps in a series of litigation designed to recover from the ultimate alleged wrongdoer damages suffered by the plaintiff.  I therefore conclude (for the purposes of a strike out application) that the plaintiff has a genuine commercial interest in taking the assignment so that it has the possibility of recovering, for its own benefit, damage which it  sustained in the first place;  and which it would claim against Goodall who, in turn, would claim against the third defendant.

[66]     Accordingly, I reject this basis for the striking out of the claim.

Did the plaintiff require leave pursuant to r 7.77(4) in respect of its pursuit of the assigned cause of action?

[67]     Rule 7.77(4), which was in existence at the time the amended pleading was filed, provides as follows:

26     

[1985] 3 All ER 499.

27     Auckland City Council as Assignee of Body Corporate 16113 v Auckland City Council [2008]

1 NZLR 838 (HC).

28     Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 703.

7.77   Filing of amended pleading

(1)     A party may before trial file an amended pleading and serve a copy of it on the other party or parties.

(2)     An amended pleading may introduce, as an alternative or otherwise,—

(a)     relief in respect of a fresh cause of action, which is not statute barred; or

…

(3)     An amended pleading may introduce a fresh cause of action whether or not that cause of action has arisen since the filing of the statement of claim.

(4)     If a cause of action has arisen since the filing of the statement of claim, it may be added only by leave of the court. If leave is granted, the amended pleading must be treated, for the purposes of the law of limitation defences, as having been [filed] on the date of the filing of the application for leave to introduce that cause of action.

(5)     Subclause (4) overrides subclause (1).

[68]     I have included in brackets amendments made to the rules subsequent to the filing of the amended statement of claim.  The provisions in brackets in subrule (2)

―relief in respect of‖ were introduced by r 18 of the High Court Amendment Rules (No  2)  2010,  SR/2010  394  together  with  the  change  bracketed  in  subrule  (4). Neither amendment is significant for the purposes of the instant inquiry.

[69]     Counsel submitted that an element of the cause of action against Mr Hulena is the assignment of that cause of action to the plaintiff.  Because that assignment did not take place until 24 July 2009, and because the proceedings were filed originally on 28 February 2006, it was submitted that leave to file the amended pleading was required.

[70]     Counsel further submitted that leave would not and cannot now be granted or would be futile if granted.  That is because r 7.77(4) provides that, for the purposes of the law of limitation defences, the amended pleading is treated as having been served on the date of the filing of the application for leave to introduce the cause of action which accrued after the filing of the initial proceeding or statement of claim. It was submitted that the plaintiff’s cause of action against the third defendant is

accordingly now time-barred by s 393 of the Building Act 2004. Section 393(2)

provides that:

[N]o relief may be granted in respect of civil proceedings relating to building work if those proceedings are brought against a person after 10 years or more from the date of the act or omission on which the proceedings are based.   It is common ground that Mr Hulena had completed all work in relation to the building by March 2000.

[71]     Mr Gudsell submitted that the assignment itself is not an element of the cause of action.  It is simply the document that gives the plaintiff standing to advance the cause. All that the plaintiff does is to act on Goodall’s rights by virtue of the deed of assignment. The cause of action remains that of Goodall.

[72]     Mr Gudsell advanced two alternative grounds.  He submitted that leave was not  required  because  the  Court  had  granted  consent  when  it  considered  the liquidators’ application for directions pursuant to s 284 of the Companies Act 1993, to which I have made reference at [13] of this judgment.  Further, he submitted that an alternative approach was to apply r 1.9.   For reasons that will be clear in my analysis of the principal opposition, it is not necessary to deal with either of these matters.

[73]     In Williams v Attorney-General Richardson J said:29

A cause of action accrues when every fact exists which it would be necessary for the plaintiff to prove in order to support its right to the judgment of the Court.

[74]     The  cause  of  action  that  is  advanced  in  this  case  is  in  negligence. Richardson J   helpfully   summarised   the   elements   of   a   cause   of   action   for negligence:30

The elements of a cause of action for negligence are the existence of a duty of care, breach of that duty, material injury to the interests of the plaintiff, a proximate causal link between the defendant’s conduct and the resulting injury and the absence of disqualifying conduct on the part of the plaintiff.

29     Williams v Attorney-General [1990] 1 NZLR 646 (CA) at 678. See also Invercargill City

Council v Hamlin, above n 20.

30     Williams v Attorney-General, ibid, at 678.

[75]     The issue to be determined is the effect of the assignment on the pleaded cause of action.   While neither counsel specifically employ this phraseology, the matter turns on whether the assignment had the effect of creating a fresh cause of action arising since the filing of the statement of claim under r 7.77(4).

[76]     In Steens Bros Ltd v Youth Hostels Assn of NZ Inc, the Court of Appeal considered  what  constituted a fresh  cause of action  sufficient  to  necessitate the amendment of pleading.  It said:31

The test of whether amended pleadings raise a new cause of action for the purposes of the Rules as to amendment is well settled.  In Smith v Wilkins and Davies Construction Limited (1958) NZLR 958, 961 McCarthy J put the matter in this way –

―The  issue is, I think, put as clearly as anywhere in the words of Lord Wright MR in Marshall v London Passenger Transport Board [1963] 3 All ER 83, as being whether the new pleading involves ―a departure, a new head of claim or a new cause of action … In other words, is it something essentially different from that which was pleaded earlier? Such a change in character may be brought about, in my view, by alterations in matters of law or of fact, or both. Alterations of fact could possibly be so vital and important as by themselves to set up a new head of claim. On the other hand, more often alterations of fact do not affect the essence of the case brought against the defendant … In each case it must, I consider, be a question of degree.‖

[77]     Further  guidance can  be found in  the judgment  of Scholl  J  in  Harris  v

Raggatt, also cited by the Court of Appeal in Steens: 32

If we say that the law is that the plaintiff cannot be allowed, after the period of limitations has run, to set up a new cause of action, we use the term in a special sense as meaning a ―new case‖  varying so substantially from what has previously been set up that it would involve investigations of matters of fact or questions of law, or both, different from what have already been raised and of which no fair warning has been given, so that it would be unfair and unjust to the defendant to put him in peril of a judgment founded on the new matter.  Certainly, if there is set up a ―new case‖  on the facts, upon which is based a new claim upon a new and different legal basis – a new cause of action in that sense – leave will ordinarily be refused.

It is then a matter of comparing the allegations in the new pleadings with what has previously been alleged, recognising that questions of degree are involved.

31     Steens Bros Ltd v Youth Hostels Assn of NZ Inc CA3/86, 17 April 1988 at 4.

32     Harris v Raggatt (1965) VR 779 at 785.

[78]     The application of the above tests to the present case is straightforward.

[79]     All of the above elements pertain to Goodall’s position.  All elements existed before the filing of the original statement of claim in this proceeding.   Where an assignment occurs, the assignee of the right of action cannot and does not sue for damages in their own right.   They can only recover if they can establish that the

original party is entitled to recover and has suffered loss.33

[80]     Therefore, it is clear that the assignee does no more than sue on the pre- existing rights of the assignor.  The bare fact of assignment does not, in this case at least, establish a ―new case‖ on a different legal basis.  The defendant is certainly not imperilled or prejudiced by virtue of the assignment: he is still made to answer for the identical liabilities that could have been enforced against him by the assignor, had the assignment not taken place.

[81]     Therefore, while the assignment alters the nature of these proceedings, it does so in a procedural, rather than substantive, manner.  When I consider the background matters referred to at [6] to [16] of this judgment, it is self-evident that all of the elements of the cause of action that Goodall may have against Mr Hulena were present before the filing of the original statement of claim on 28 February 2006. Accordingly, I conclude that leave was not required pursuant to r 7.77(4) in respect of the amended statement of claim which first relied upon the assignment.

Conclusion

[82]     None of the causes of action pleaded in the second amended statement of claim dated 16 September 2010 can succeed.  This conclusion justifies the striking out of the statement of claim and also the entry of judgment against the plaintiff pursuant to r 12.2.

[83]     I order accordingly.

33     Western Wagon and Property Co v West [1892] 1 Ch 271.

Costs

[84]     Counsel requested that I reserve costs to give an opportunity for agreement to be reached.   Accordingly, costs are reserved.   In the event that the parties cannot agree, memoranda in support, opposition and reply seeking costs shall be filed and served at seven-day intervals.