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

[2011] NZHC 514

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, 8 and 18 April 2011

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

RJ Scott for sixth 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 sixth defendant applies by an amended application dated 22 March 2011 for orders:

(a)      Setting  aside  an  order  made  by  this  Court  on  18 August  2009 rejoining the sixth defendant to this proceeding;

(b)Striking out the pleadings against the sixth defendant contained in the amended statement of claim dated 16 September 2010 and wrongly entitled Second amended statement of claim; and

(c)      Striking out the cross-claim by the third defendant against the sixth defendant dated 21 April 2008.

[2]      No  opposition  is  entered  in  respect  of  the  application  to  strike  out  the statement of cross-claim by the third defendant against the sixth defendant dated

21 April 2008.  For that reason, orders will accordingly be made at the conclusion of this judgment.

[3]      The relevant statement of claim is the document entitled Second amended statement of claim dated 16 September 2010.   Mr Gudsell advised there was no opposition to the striking out of paragraphs 81 to 83 and the prayer for relief, as

those parts of the statement of claim apply to the sixth defendant.  Accordingly, an order to that effect will appear at the conclusion of this judgment.

Background

[4]      The plaintiff, formerly The Northern Clinic Medical and Surgical Centre Ltd, entered into a turnkey construction contract on 24 February 1999 with Goodall ABL Construction Ltd (hereafter referred to as ―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.

[5]      Goodall subcontracted the work relating to the application of an ―insulclad‖

cladding system to Mr Vesey, the sixth defendant.

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

June 1999 and largely completed by January 2000.

[7]      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.

[8]      When the building was  nearing completion, Goodall went into voluntary liquidation on 1 March 2000.  It has continuously been in liquidation since that date. Mr Vesey and his employees had ceased to work in the centre by February 2000.

[9]      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 Mr Vesey and the architect, BF Hulena, the claims against all of the defendants have either been discontinued or struck out.

[10]     Mr Vesey  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  by  Keane J. Summary judgment was entered in Mr Vesey’s favour in respect of the three pleaded causes of action against him. The judgment was sealed on 29 June 2009.

[11]     Keane J found that the causes of action in contract and under the Contracts (Privity) Act 1982 pleaded against Mr Vesey failed.1    In addition, he found that a claim in tort failed because no duty of care was owed by Mr Vesey, a subcontractor, in favour of the plaintiff for economic loss arising from the building defects to that building. An appeal was lodged against that decision but was later abandoned.

[12]     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 the rights 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

1      The Northern Clinic Medical and Surgical Centre Ltd v Kingston  HC Auckland CIV 2006-404-

968, 3 December 2008.

(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.

[13]     On 10 August 2009 an amended statement of claim, which relied on the deed of assignment, was filed.   The parties still involved in the proceeding, except the sixth defendant, filed a joint memorandum to the Court.   As a result, Stevens J ordered the rejoining of Mr Vesey on 18 August 2009.

[14]     The statement of claim at the time contained additional causes of action against Mr Vesey, which I need not detail because they are no longer pursued.

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

$2,150,905.

[16]     The current statement of claim has one cause of action that remains after the orders that I indicated, at [3] of this judgment would be made.

[17]    The remaining relevant parts of the statement of claim are contained in paragraphs 67 to 71.  I set them out for completeness’ sake.

67.The plaintiff repeats the foregoing and says that at all material times Vesey owed Goodall a duty of care to carry out the Plastering/Cladding Work with reasonable care and skill.

68.It is fair, just and reasonable to impose this duty of care in that there is a sufficient relationship of proximity between Vesey and Goodall to warrant the imposition of a duty of care in that:

(a)       Vesey carried out the Plastering/Cladding Work pursuant to a contract with Goodall, being the Vesey Sub-Contract;

(b)       It was reasonably foreseeable that Goodall would suffer loss as a result of any failure by Vesey to exercise reasonable skill and care in carrying out the Plastering/Cladding work.

69.In breach of the alleged duty of care which Vesey owed to Goodall, Vesey failed to exercise reasonable skill and care in carrying out the Plastering/Cladding work in that Vesey failed to:

(a)       Ensure that the plaster was mixed and the mesh applied correctly so that it bonded correctly and did not crack;

(b)       Ensure that the plaster was applied to the correct thickness; (c)     Allow for vertical and horizontal control joins at appropriate

areas according to the manufacturer’s instructions and good

trade practice;

(d)       Ensure the installation of any or adequate flashings and/or seals to window and door sills and jambs to prevent ingress of water into the building;

(e)       Ensure  construction  and  application  of  a  weathertight exterior cladding; and

(f)        Avoid  plastering  over  joints  between  building  materials contrary to good trade practice.

70.As a result of Vesey’s specified negligence, Goodall has suffered loss comprising the amount of its liability to the plaintiff, in the amount of the Admitted Loss.

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

Vesey is entitled to advance this claim for damages.

The Court’s approach to strike out applications

[18]     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.

[19]     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:2

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).

[20]     The  principles  referred  to  above  were  endorsed  in  Couch  v  Attorney- General.3

[21]     The court can have regard to evidence either put forward 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.4

[22]     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 defendants  should  not  be  subjected  to  substantial  costs  by  defending  untenable claims: Queenstown Lakes District Council v Charterhall Trustees Ltd.5

[23]     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.

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

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

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

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

3 NZLR 786 at 790.

[24]     In Matai Industries Ltd v Jensen6 the decision of the English Court of Appeal in Ronex Properties Ltd v John Laing Construction Ltd & Ors7  was referred to.  In summary it was observed:

(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.

[25]     This position was endorsed by the Supreme Court in Murray v Morel & Co

Ltd.8

[26]     I now consider each ground advanced by the sixth defendant in support of the application to strike out the cause of action against it.

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

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

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

Should the order rejoining Mr Vesey be set aside?

[27]     Ms  Scott  submitted  that  the  judgment  delivered  by  Keane J  against  the plaintiff made the court functus officio.   That is to say, its role in relation to this proceeding and these particular parties ceased.   She submitted that the Court does not have the power to make any further orders against the party that has obtained a judgment or order in its favour.  There are limited exceptions to that principle that do not arise for the purposes of the present analysis.   The proposition advanced by Ms Scott is well supported by authority: R v Cross, R v Nakhla (No 2), Bognuda v Hawke’s Bay Newspapers Ltd, Rakich v Wrightson NMA Ltd, Allan Scott Wines & Estate Holdings Ltd v Lloyd, R v Holt and Redcliffe Forestry Venture Ltd v The

Commissioner of Inland Revenue.9

[28]     However, none of the cases advanced by Ms Scott deal with the particular position that is before me.  The reason for the rejoinder in this case was to enable the determination of the cause of action of Goodall against Mr Vesey.   The plaintiff submits that the present cause of action simply arises by virtue of the assignment of the cause of action that it took from Goodall.  It is apparent, when looked at in this light, that there has been no determination of the cause of action between Goodall and Mr Vesey by this court.  Further, I cannot see any matter of principle that would suggest that because the plaintiff has taken an assignment of the Goodall cause of action, its position in advancing the Goodall cause of action is effectively estopped by  the  judgment  of  Keane J.    Neither  Ms  Scott  nor  Mr Gudsell  could  find  an authority to this effect.

[29]     The principle that a trial court is functus officio once its decision has been finally recorded or overtaken by the processes in superior courts is related to the principle of finality in litigation: Redcliffe Forestry Venture Ltd v The Commissioner

of Inland Revenue.10

9      R v Cross [1973] 2 All ER 920 (CA) at 922; R v Nakhla (No 2) [1974] 1 NZLR 453 (CA) at 457; Bognuda v Hawke’s Bay Newspapers Ltd  [1963] NZLR 501 (CA) at [25]-[40]; Rackich v Wrightson NMA Ltd HC Whangarei B25/89, 29 August 1989 at 5; Allan  Scott  Wines  &  Estate Holdings Ltd v Lloyd 18 PRNZ 199 (HC) at [30]-[37]; R v Holt  [2008] NZCA 388; [2009]

1 NZLR 325 (CA) at [48]-[56]; Redcliffe Forestry Venture Ltd v The Commissioner of Inland

Revenue [2010] 24 NZTC 23,991 (HC).

10     Redcliffe Forestry Venture Ltd v The Commissioner of Inland Revenue, ibid at [12].

[30]     Assistance in this analysis is gained by considering the plea of estoppel per rem judicatam.  The rule is that where a final judicial decision has been pronounced by a New Zealand judicial tribunal of competent jurisdiction over the parties to and the subject matter of the litigation, any party or privy to that litigation is estopped in any subsequent litigation from disputing or questioning the decision on the merits, as

against any other party or privy thereto.11

[31]     The  determination  of  Keane  J  was  a  determination  of  causes  of  action between the plaintiff and Mr Vesey.  There was no determination of a cause of action involving Goodall.  Goodall in fact was not a party to the litigation at all.  What is now being pursued by the plaintiff are Goodall’s alleged rights.   There is, in this case, no question that Mr Vesey is being vexed twice for the same matter; he simply is not.  The policy reason behind the rule would suggest that it cannot apply to the plaintiff pursuing a cause of action that it acquires by assignment.  Accordingly, I conclude that the court was not functus officio when it made the order rejoining Mr Vesey.  It cannot therefore be said that that order is a nullity.

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

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

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,

11     Shiels v Blakeley [1986] 2 NZLR 262 (CA) at 266.

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).

[33]     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.

[34]     Ms Scott submitted that an element of the cause of action against Mr Vesey 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, she submitted that leave to file the amended pleading was required.

[35] Ms Scott 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. She submitted that the plaintiff’s cause of action against the sixth 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 Vesey  had  completed  all  work  in  relation  to  the building by March 2010.

[36]     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.

[37]     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 [12] of this judgment.  Further, he submitted that an alternative approach was to apply r 1.9.  For reasons that will be clear as I analyse the  principal  opposition  to  the  second  ground  advanced  by Ms  Scott,  it  is  not necessary to deal with either of these matters.

[38]     In Williams v Attorney-General Richardson J said:12

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.

See also Invercargill City Council v Hamlin.13

[39]     The  cause  of  action  which  is  advanced  in  this  case  is  in  negligence. Richardson J   helpfully   summarised   the   elements   of   a   cause   of   action   for negligence:14

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.

[40]     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).

[41]     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:15

12     Williams v Attorney-General [1990] 1 NZLR 646 (CA) at 678.

13     Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA) at 536.

14     Williams v Attorney-General, above n 12, at 678.

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.‖

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

Raggatt, also cited by the Court of Appeal in Steens: 16

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.

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

[44]     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.17

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

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

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

[45]     Therefore, it is clear that the assignee does no more than to 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.

[46]     Therefore, while the assignment alters the nature of these proceedings, it does so in a procedural, rather than substantive, manner.   When I consider the matters referred to under the heading Background in this judgment it is self-evident that all of the elements of the cause of action that Goodall may have against Mr Vesey 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.

Is the Goodall cause of action for breach of a duty of care owed by Mr Vesey to

Goodall barred by s 4 of the Limitation Act 1950?

[47]     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 [24] and [25] to the approach which the court adopts to this position.

[48]     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.

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

contract: Rolls Royce NZ Ltd v Carter Holt Harvey Ltd.18

18     Rolls Royce NZ Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) at 342.

[50]     For the purpose of this application, the sixth defendant does not rely on Auckland Christian Mandarin Church Trust Board v Canam Construction (1995) Ltd.19    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.

[51]     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.20

[52]     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  has  expressly  been  abandoned  by  the  plaintiff  and  is understandable having regard to the judgment of Keane J.

[53]    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 Vesey accrued.  This depends on the approach taken to the date at which the relevant loss was suffered, as it is from this point that the six-year limitation period will run.

[54]     At the outset, I note 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.

[55]     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 Thom21  the Supreme Court held that Mr Thom

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

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

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

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,22 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.

[56]     Goodall’s liability to the plaintiff (being the relevant loss or damage for the purposes of the cause of action in negligence against Mr Vesey) is founded on Mr Vesey’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 that existed between the plaintiff and Goodall.23   As the facts before me clearly allege facts which amount to a breach of contract on the part of Goodall (due to Mr Vesey’s fixing of the cladding), 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 under the terms of its arrangement with the plaintiff that was brought about  by Mr Vesey’s acts, and which constituted a loss for the purpose of the negligence claim.

[57]     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 Vesey, 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.24

[58]     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

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

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

24     See Invercargill City Council v Hamlin, above n 13.

subsequently been confined to their facts,25      I must carefully analyse the appropriateness of their application.  Here, I consider that the relationship between Goodall and Vesey 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 Vesey.  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 Zealand homeowners and the local council.26 These concerns are irrelevant to the contractual relationship in this case.

[59]     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.27     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.

[60]     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 Vesey’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.

25     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.

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

27     See cases listed, above n 25.

[61]     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?

[62]     The sixth 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.

[63]     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.

[64]     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 sixth 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 sixth defendant. The liability still exists.

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

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

[66]     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.28     Counsel referred to some examples.   Cases where an assignee has been held to have an 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;29

(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

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

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

basis that the first defendant indemnified the plaintiff from any claim by the second  defendant  for  costs  made by the second  defendant against the plaintiff:

30

(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.31

[67]     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‖.32     It is important that a consideration of the totality of the transaction be undertaken.

[68]     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 certainly 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 sixth defendant.

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

[70]     I conclude therefore that the sixth defendant is entitled to an order striking out the cause of action against it on the grounds that the claim is barred by s 4 of the

Limitation Act 1950.

30     

[1985] 3 All ER 499.

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

1 NZLR 838 (HC).

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

Orders

[71]     I order:

(a)       Striking out all of the pleading against the sixth defendant contained in the amended statement of claim dated 16 September 2010;

(b)Striking out the cross-claim by the third against the sixth defendant dated 21 April 2008.

Costs

[72]     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.