Hellaby Resource Services Ltd v Body Corporate 197281
[2021] NZHC 1329
•8 June 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-000869
[2021] NZHC 1329
BETWEEN HELLABY RESOURCE SERVICES LIMITED
First Plaintiff / Fourth Counterclaim Defendant
SRG GLOBAL REMEDIATION SERVICES (NZ) LIMITED
Second Plaintiff / First Counterclaim DefendantAND
BODY CORPORATE 197281
Defendant / Counterclaim Plaintiff
MAYNARD MARKS LIMITED
Second Counterclaim DefendantHOBANZ PROJECT ASSIST LIMITED
Third Counterclaim Defendant
Hearing: 8 March 2021 Appearances:
R J Hollyman QC and N G Lawrence for the Counterclaim Plaintiff
P Hunt and T W Clark for the Second Counterclaim Defendant C Laband and R Tosh for the Third Counterclaim Defendant
Judgment:
8 June 2021
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 8 June 2021 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
HELLABY RESOURCE SERVICES LTD v BODY CORPORATE 197281 [2021] NZHC 1329 [8 June 2021]
Introduction
[1] This proceeding concerns weathertightness remediation works undertaken on a multi-unit complex under a construction contract. The proceedings were commenced by the construction company pursuing the principal, the Body Corporate of the complex, for unpaid amounts said to be due under the construction contract. The Body Corporate counterclaimed against the construction company, the engineer to the contract and an advisory body involved in the project.
[2] The engineer and the advisory body now apply to strike out the counterclaim against them. They argue that the relief sought in the counterclaim is not related to or connected with the original claim by the plaintiff. The Body Corporate opposes the application.
Background
[3] TBS Remcon Ltd (TBS),1 a construction company, undertook weathertightness remediation work for Body Corporate 197281 (the Body Corporate) on a 99-unit apartment complex at 68 Mountain Road, Panmure, Auckland (the Complex). TBS and the Body Corporate entered into a construction contract on around 14 November 2014 (the Construction Contract) governed by the Construction Contracts Act 2002 (the CCA).
[4] Maynard Marks, building and construction consultants and engineers, carried out early investigative, design and planning work for the Body Corporate, and was the Engineer to the Construction Contract. HOBANZ Consulting Ltd (now HOBANZ Project Assist Ltd) and its predecessor Lighthouse NZ Ltd (together, HPAL) provided the Body Corporate with advice prior to and throughout the project.
[5] The remediation work began in around November 2014. As work progressed, TBS identified further defects. Costs escalated. To control costs, in June 2018 the Body Corporate and TBS agreed a fixed price to complete the remediation works, of
1 TBS changed its name to SRG Global Remediation Services (NZ) Ltd on 24 November 2020. For the purposes of this judgment, I have referred to the company as TBS throughout.
$35 million excluding GST. That agreement was documented in a Deed of Variation (the Variation Agreement).
[6] The first block of the Complex was completed in December 2016; the final block on 22 June 2018. Maynard Marks issued practical completion certificates and end of defects liability certificates as each phase of the works was finished. Auckland Council issued code compliance certificates (CCCs) for each phase.2
[7] The Body Corporate paid TBS a total of $32,188,700.35 of the agreed contract price. It refused to pay the balance of $2,826,299.65 (the Unpaid Balance), claiming that despite the CCCs, certain areas of work remain incomplete, defective, and/or non- compliant with the Building Code and building consents.
[8] By amended statement of claim dated 3 August 2020, TBS sought orders that the Body Corporate pay the Unpaid Balance. In an interlocutory application of the same date, TBS applied for summary judgment. TBS maintained that the Unpaid Balance plus the costs of enforcement were recoverable as a statutory debt, against which no counterclaim could be raised under the CCA.
[9] On 1 September 2020, the Body Corporate filed a statement of defence and counterclaim against TBS, Maynard Marks, and HPAL. The Body Corporate opposed the application for summary judgment, saying that it had an arguable defence and/or that the Court should exercise its discretion to decline summary judgment to avoid oppression or injustice to the Body Corporate. If the Court decided to order summary judgment, the Body Corporate sought a stay of enforcement pending resolution of the Body Corporate’s counterclaim, as enforcement would result in a substantial miscarriage of justice.
[10] On 18 September 2020, TBS applied to stay the counterclaim the Body Corporate had raised against it, saying that it needed to be pursued separately, through arbitration pursuant to the Construction Contract.
The Body Corporate’s counterclaim
2 Affidavit of Antony Clune sworn 7 August 2019 at AC-124 to AC-138.
Against TBS
[11] The Body Corporate’s counterclaim against TBS involves five causes of action: breach of contract, negligence, money had and received, and breach of s 35 of the Contract and Commercial Law Act 2017. The Body Corporate claims that the repair works are incomplete and/or defective; that TBS did not provide adequate information about the costs of the remediation works or to justify variations to the Construction Contract; and that TBS induced the Body Corporate to enter into the original Construction Contract and subsequent Variation Agreement by representing that it would complete the repair works with the necessary quality, care and skill required and for the prices stated in those documents.
[12] The Body Corporate claims the costs of remedying the allegedly defective and incomplete work, or orders for specific performance requiring TBS to do so.3 The Body Corporate also claims consequential losses its members are said to have suffered/will suffer, such as lost rent, alternative accommodation costs, and relocation and storage costs.
Against Maynard Marks
[13] The Body Corporate pleads three causes of action against Maynard Marks. The first is for breach of their agreement for Maynard Marks to provide design, procurement and implementation services. The Body Corporate claims that Maynard Marks failed to identify certain defects (the further defects identified once work began); failed to properly advise the Body Corporate about the most economical option (demolishing and rebuilding the Complex); failed to advise the Body Corporate that it was not in its best interests to agree to a costs-plus-agreed-margin approach to variations to the Construction Contract; continually approved variation orders and requests by TBS when it knew (or should have known) that the information to justify the requests was insufficient and the variations would lead to cost escalation; failed to properly supervise the repair works; and certified the work as complete in accordance
3 The cost of fixing the Remaining Defects is currently unknown without further invasive testing, but it is presently estimated to be $5,235,910 plus GST: affidavit of Melanie Jayne Norris sworn 11 September 2020 at [8].
with the building consents and plans, when the repair work was incomplete and/or defective.
[14] The second cause of action against Maynard Marks in negligence involves similar claims, with the addition of allegations concerning failures by Maynard Marks in relation to its 2010 investigation and report to the Body Corporate. Its third cause of action is for breach of s 9 of the Fair Trading Act 1986.
[15] The Body Corporate claims the costs of remedying the defective and/or incomplete work, or orders for specific performance requiring Maynard Marks to do everything and meet all costs necessary to complete the repair work to the required standards. In relation to the second and third causes of action, it claims in the alternative an inquiry into its losses because of the lost opportunity to demolish and replace the Complex, and damages accordingly.
Against HPAL
[16] The Body Corporate pleads three causes of action against HPAL: breach of contract, negligent misstatement and breach of s 9 of the Fair Trading Act 1986. These causes of action focus on alleged failures of HPAL when advising the Body Corporate to proceed with the repair works, enter into the original Construction Contract and subsequent Variation Agreement, to accept and pay for variations, and to pay the full amount under the Variation Agreement.
[17] The Body Corporate seeks an inquiry into the losses because of these alleged breaches in terms of the lost opportunity to demolish and replace the Complex, or, in the alternative, the costs of remedying the defective and/or incomplete work.
The present applications
[18] Maynard Marks and HPAL each apply under r 5.57(6)(c) to strike out the Body Corporate’s counterclaim against them, because the relief sought in the counterclaim is not related to or connected with the original subject matter of the
proceeding.4 The applicants maintain that the original subject matter of the proceeding is a straightforward claim by TBS for a debt due under a construction contract between TBS and the Body Corporate. Maynard Marks and HPAL assert that the Body Corporate’s causes of action against them are concerned with separate and distinct contractual obligations, duties of care and statutory duties.
[19] The applicants also submit that the primary relief sought by the Body Corporate in its counterclaim against them is the alleged lost opportunity to demolish and rebuild the property. This relief is not related to, or connected with, the original subject matter of the proceeding, namely a contractual debt due to TBS under a construction contract governed by the CCA.
Discussion
[20] Since the applicants’ interlocutory applications to strike out were heard on 8 March 2021, I delivered my judgment on the three interlocutory applications filed as between TBS and the Body Corporate, heard on 16 November 2020. In a reserved judgment delivered on 14 April 2021 I ordered that:5
(a)summary judgment be entered against the Body Corporate on TBS’s claim contained in its amended statement of claim dated 3 August 2020;
(b)enforcement of the order for summary judgment and associated costs be stayed until the Body Corporate’s counterclaim dated 1 September 2020 was determined, or until further order of the Court;
(c)TBS’s interlocutory application to stay the Body Corporate’s counterclaim against it was dismissed.
4 Notice of interlocutory application by second counterclaim defendant (Maynard Marks) to strike out counterclaim plaintiff’s counterclaim, dated 15 October 2020; and notice of interlocutory application by third counterclaim defendant (HPAL) to strike out counterclaim plaintiff’s claim, dated 23 October 2020.
5 Hellaby Resource Services Ltd v Body Corporate 197281 [2021] NZHC 554. By interlocutory application filed 12 May 2021, TBS has sought leave to appeal this judgment. That application is opposed by the Body Corporate. By interlocutory application filed 27 May 2021 the Body Corporate has sought leave to cross-appeal. No decision has been made on the parties’ applications for leave at the date of this judgment.
[21] With that, the original claim by TBS against the Body Corporate for the debt arising out of the Construction Contract, contained in TBS’s amended statement of claim dated 3 August 2020, is determined. The Body Corporate’s counterclaim against TBS has not been determined. In my decision, I concluded that the counterclaim could not be raised against TBS’s claim for recovery of a debt arising out of the Construction Contact, because of s 79 of the CCA.
[22] Therefore, the status of the proceeding is that the original claim by TBS against the Body Corporate has been determined and falls away. The Body Corporate’s counterclaim against TBS, Maynard Marks and HPAL in its statement of defence and counterclaim dated 1 September 2020 remains on foot and will progress independently of the original claim. It goes without saying that a counterclaim is an independent proceeding that continues to exist independently of the proceeding of the plaintiff, even where that proceeding is stayed, discontinued or dismissed, or in this case determined (without the counterclaim against the plaintiff also being determined).6
[23] With this, the present applications to strike out the counterclaim against Maynard Marks and HPAL have become moot. There is no original proceeding from which the counterclaim might be decoupled. It has become unnecessary for me to determine whether to exercise the Court’s discretion under r 5.57(6) to strike out the counterclaim against Maynard Marks and HPAL.
[24] There is no question of the counterclaim being a nullity for infringing r 5.57(1), if indeed it ever did. Rule 1.5(1) makes it clear that a failure to comply with the rules is an irregularity and does not nullify a proceeding or step taken in a proceeding.
[25] In recognition of the submissions of counsel, I make the following observations about the merits of the applications. Maynard Marks and HPAL had a credible argument that the relief sought in the counterclaim against them was not related to or connected with the original subject matter of the proceeding, namely the claim by TBS against the Body Corporate. I accept that that claim is a comparatively straightforward claim for a debt owing under a construction contract, against which the CCA says no counterclaim can be raised. The claims against Maynard Marks and HPAL are of a
6 High Court Rules 2016, rr 5.59 and 5.58.
different character and complexity. Therefore, a technical application of r 5.57 might lead to the conclusion that the Body Corporate’s counterclaim against Maynard Marks and HPAL should be pursued separately from TBS’s claim against the Body Corporate.
[26] However, the purpose of the High Court Rules and the restriction in r 5.57(1) and (6)(c) needs to be kept firmly in mind. As Cooke J said in Koanga Institute Inc v Kotare Community Land Trust Board:7
Moreover, as a more general point, the High Court Rules should be applied in accordance with the objective of the rules set out in r 1.2 — “to secure the just, speedy, and inexpensive determination of any proceeding or interlocutory application”. The rules are a means to an end. There are frequently alternative pathways available within the rules to regulate the procedural course of a proceeding. Rather than applying those rules in a technical manner, the Court should endeavour to apply them to achieve that objective. For example, here the argument that the counterclaimants are not parties in a way contemplated by r 5.57 could simply be addressed by joining them as parties under r 4.56.8 What is more important is the requirement in r 5.57(1) and (6)(c) that the counterclaim is related or connected to the original subject matter of the proceeding — that is an important question for deciding whether the matter should be addressed in that proceeding. So the real question is what is the best approach for managing the disputes that are subject to the rules. It is in that spirit that I address these points.
[27] Against the backdrop of the overarching objective of the Rules, the restriction in r 5.57(1) and 6(c) is designed to avoid counterclaim defendants becoming entangled in a dispute between the plaintiff and defendant (and counterclaim plaintiff), when the issues between the counterclaim plaintiff and the counterclaim defendants have no real connection to that dispute. In a case highlighted by the applicants, Telecom New Zealand Ltd v Clear Communications Ltd, Fisher J said (discussing the predecessor to r 5.57):9
7 Koanga Institute Inc v Kotare Community Land Trust Board [2021] NZHC 169 at [16].
8 See r 4.56(1)(b).
9 Telecom New Zealand Ltd v Clear Communications Ltd HC Auckland CL20/97, 5 February 1998 at 4.
The reason for the limitation under R 150 is not difficult to conceive. It is one thing to allow the original parties to attempt to resolve all matters which may be in dispute between them. It is another to place upon a non-party the burden of having to participate in proceedings in which that party had no original interest. The fresh party should not be embroiled in a dispute the outcome of which would not affect that party.
[28] Counsel for Maynard Marks and HPAL submitted that the counterclaim defendants would be prejudiced if all the issues between them, the defendant/counterclaim plaintiff, and the plaintiffs were dealt with in the one proceeding. They argued that the proceeding would be unnecessarily complex and inefficient, adding cost and delay.
[29] This argument loses considerable potency when the original claim as between the plaintiff and the defendant is, as the applicants themselves emphasise, a relatively simple debt recovery claim. It is difficult to conceive how the more complex counterclaim against Maynard Marks and HPAL would be materially complicated or delayed through its connection to that original claim (had it not been determined by summary judgment).
[30] Further, there is undoubtedly a real connection between the counterclaim against TBS, and the counterclaim against Maynard Marks and HPAL. I acknowledge that the focus of r 5.57 is on a connection with the plaintiff’s claim against the defendant, but, in the spirit of r 1.2, it would be a mistake to ignore the Body Corporate’s counterclaim against TBS. Although the causes of action differ, the counterclaims against TBS, Maynard Marks and HPAL all concern allegations of failings in relation to the remediation works on the Complex: either before, at the investigation, costing and planning phase; or during, in terms of the conduct or supervision of the works. At its simplest, the Body Corporate’s complaint is that the cost of the works was permitted to spiral out of control; and at the end of the project it has been left with defective and incomplete work. TBS, Maynard Marks and HPAL each had different roles in the project, but there is a compelling argument that the question of whether any or all of them are responsible for this alleged outcome, should be determined through the one proceeding. Whether the works are indeed incomplete
or defective will need to be established for both the counterclaim against TBS and against Maynard Marks. Questions around variations to the Construction Contract and how the cost escalated as it did are relevant to the Body Corporate’s claims against all the counterclaim defendants. If the practical outcome of striking out the counterclaim against Maynard Marks and HPAL would be two separate counterclaims proceeding through the Court in relation to the one remediation project (one against TBS and one against Maynard Marks and HPAL), I would have serious reservations about whether that would achieve the just, speedy and inexpensive determination of the proceedings.
Result
[31] The interlocutory application by the second counterclaim defendant, Maynard Marks, to strike out the counterclaim of the counterclaim plaintiff, the Body Corporate, is dismissed.
[32] The interlocutory application by the third counterclaim defendant, HPAL, to strike out the counterclaim of the counterclaim plaintiff, is dismissed.
[33] As the unsuccessful parties, the applicants will pay the Body Corporate’s costs. If the parties cannot agree quantum, they may file memoranda of not more than four pages for a decision on the papers. The Body Corporate is to file any memorandum within 20 working days; the applicants within 15 working days after that.
[34] The Registry will allocate a case management conference at the earliest opportunity. The parties are directed to confer to agree timetable directions for the progression of the proceeding and to file a joint memorandum not later than two working days before the conference. Any areas of disagreement are to be identified in the memorandum.
Associate Judge Gardiner
Solicitors:
Farry & Co, Auckland Bell Gully, Auckland
R J Hollyman QC, Auckland
3
2
0