JCS Cost Management Limited v Johnston

[2014] NZHC 2718

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-004-000330 [2014] NZHC 2718

BETWEEN

JCS COST MANAGEMENT LIMITED

First Plaintiff

STEPHEN ROY JOHNSTON Second Plaintiff

AND

QBE INSURANCE (INTERNATIONAL) LIMITED

Defendant

Hearing:	28 October 2014
Appearances:	I J Thain and C D Herbert for Plaintiffs P J Napier and A Hyde for Defendant
Judgment:	3 November 2014

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

This judgment was delivered by me at 4.00 pm on 3 November 2014 pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

DLA Phillips Fox, Auckland.
Keegan Alexander, Auckland.

JCS COST MANAGEMENT LTD & JOHNSTON v QBE INSURANCE (INTERNATIONAL) LTD [2014] NZHC 2718 [3 November 2014]

[1]      In October 2011 the plaintiff (JCS) entered a contract of insurance with the defendant (QBE) by which QBE agreed to provide professional indemnity insurance to JCS and to its director, the second plaintiff, Mr S R Johnston.

[2]      Shortly after that, JCS sought indemnity under the policy in relation to a claim brought against Mr Johnston as third party in proceedings by the Johnson No.

2  Family Trust  (the  Johnson  Family Trust)  against Auckland  City Council  (the Council).  The trust sought damages in relation to the condition of a house it had bought,  which  had  been  damaged  by  water  ingress.     The  Council  claimed contribution or indemnity from Mr Johnston, maintaining that he provided advice to the Johnson Family Trust on the condition of the house before the trust bought it.

[3]      The claim against Mr Johnston was dismissed at trial and he was awarded costs.  The fees he incurred exceeded the sum he received from the Council.  In this proceeding  he  seeks  to  recover  the  difference  under  his  professional  indemnity policy, less the policy excess of $10,000.   JCS and Mr Johnston also claim compensation for damage to the business of JCS, and general damages.

[4]      QBE says that Mr Johnston’s claim is not a valid claim, as defined in the policy.  Valid claims are those alleging civil liability by any act, error or omission in connection with an insured’s professional business practice, in this case as a quantity surveyor and project manager.  The claim by the Council, QBE says, did not allege civil liability in these terms.  Rather, it alleged that he was engaged by the trust to provide advice on the condition of the house, that he did so, and in reliance on that advice the trustees bought the property.  QBE says these actions were not taken in connection with the insured’s professional business practice as defined.

[5]      QBE applies for summary judgment.   Rule 12.2 of the High Court Rules provides that the Court may give summary judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff’s statement of claim can succeed.

[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 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.

[7]      The issue before the Court on this application is whether the claim against Mr Johnston alleged civil liability for conduct in connection with his professional business practice as a quantity surveyor and project manager.

The insurance proposal and policy

[8]      The policy was issued after JCS completed a proposal for cover.   In the proposal the nature of the business in respect of which cover was sought was described as “quantity surveying/project management. construction.”

[9]      The policy which was issued on acceptance of the proposal provides in clause

15:

“Valid Claim” means

Any Claim:

15.1     first made against the insured during the Period of Insurance; and

15.2     notified  in  writing  by  the  Insured  to  QBE  during  the  Period  of

Insurance; and

15.3alleging civil liability by any act, error, omission or conduct that occurred subsequent to the Retroactive Date in connection with the Insured’s Professional Business Practice.

[10]     The term “Professional Business Practice” is defined in the policy schedule as “Quantity Surveyor and Project Manager”.

[11]     The claim by the Council against Mr Johnston as third party is contained in a statement of claim dated 23 September 2011.  In that claim Mr Johnston is described as a “Pre-Purchase Inspector” in the heading, and in the text of the document as a consultant on building matters.  In that statement of claim it is alleged:

12.  In or about late March 2009 the plaintiffs engaged the third party for the purpose of obtaining advice as to the condition of the house.

13.  In March 2009 the third party provided oral advice on the condition of the property to the plaintiffs (the advice).

[12]     After  pleading  various  defects  in  the  house  the  Council  then  said  that Mr Johnston owed a duty of care to the Johnson Family Trust in certain terms, and that he breached that duty by failing to carry out an adequate inspection of the house and  failing to  identify the listed  defects.    On that  basis  the Council  claimed  a contribution from Mr Johnston under s 17(1)(c) of the Law Reform Act 1936.

Discussion

[13]     QBE says this is not a claim in connection with Mr Johnston’s professional business practice, as defined.  Even though it was, in the event, found at trial that Mr Johnston did not give that advice to the plaintiffs, it is the claim that he had done so that he seeks insurance cover for under his policy.

[14]     For  Mr  Johnston,  Mr  Thain  says  that  the  allegation  against  him  in  the statement of claim is not, on its own, the “claim” for the purposes of the definition of “valid claim” in paragraph 15.3 of the policy.  He says that regard must be had to what Mr Johnston in fact did.  He says that would be the interpretation which would be placed on the policy by an objective third party, in accordance with the principle

in Vector Gas Ltd v Bay of Plenty Energy Ltd.2   He says “the precise niceties” of how

a party chooses to describe the conduct in respect of which insurance cover is claimed cannot be the sole factor directing whether the claim comes within the definition of valid claim in the policy.  Rather, the Court must look at the conduct

which led to the claim, and establish by that means the true nature of the claim made against the insured.  Once that is established, the next step is to determine whether that is a valid claim in terms of clause 15.3 of the policy.

[15]     At the trial of the proceeding by the Johnson Family Trust, Mrs Johnson gave evidence of the events which took place on the day it was alleged that Mr Johnston gave  the  advice  in  question.    It  is  not  necessary  to  summarise  Mrs  Johnson’s evidence.  It is discussed in detail in the judgment.  Mrs Johnson contended that she sought  Mr Johnston’s  advice on  whether the house was  sound  and  suitable for renovation.

[16]     Mr Johnston says that he attended the house at an open day, not to conduct a pre-purchase building inspection or to look for structural, weather-tightness or any other construction problems or issues, but to be a sounding board for Mrs Johnson’s ideas about what could be done with the house by way of refurbishment or renovation.   He went with the intention of securing for JCS any ongoing project management work which would arise from renovation work undertaken, if the house was in fact bought.

[17]     Based on this evidence, Mr Thain submits that what Mr Johnston said on the day was said “in connection with” his professional business practice as a project manager and quantity surveyor.  As the claim made by the Council was based on what was said on the day, a “valid claim” in terms of clause 15.3 has been made.

[18]     Mr  Thain  developed  this  argument  by  examining  the  meaning  of  “in connection with” in insurance contracts.

[19]     First, Mr Thain says that while this phrase is used in clause 15, in clause 6 of the automatic extensions to the policy, cover is provided for unintentional infringements of certain intellectual property rights “arising directly from” the insured’s professional business practice, a phrase which implies a closer nexus than “in connection with”, so it is not necessary to show that the claim by the Council arose from work as a project manager.

[20]     In Dustin v Weathertight Homes Resolution Service,3 the learned Judge said:4

It is well recognised that the phrase “… in connection with …” has a very wide meaning and requires merely a relationship between one thing and another: Drayton & Ors v Martin & Ors (1996) 9 ANZ Insurance Cases 61-

322 at 76,597.

[21]     In Drayton,5 the Federal Court of Australia cited with approval6 the following passage from Our Town FM Pty Ltd v Australian Broadcasting Tribunal:7

The words “in connection with” have a wide connotation, requiring merely a relationship between one thing and another.  They do not necessarily require a causal relationship between the two things: see Commissioner for Superannuation v Miller (1985) 8 FCR 153 at 154, 160, 163. They may be used to describe a relationship with a contemplated future event: see Koppen v Commissioner for Community Relations (1986) 11 FCR 360, at 364; Johnson v Johnson [1952] P.47 at 50-51.

[22]     Thus, Mr Thain argues, the evidence shows that what Mr Johnston said was in connection with prospective new work for his business of project management and  quantity  surveying,  and  the  claim  brought  against  him  by  the  Council  is therefore within the definition of “valid claim” in clause 15.3.

[23]     In my opinion, that is not correct.  I accept Mr Napier’s submission that the claim referred to in clause 15.3 is the actual claim of the party which seeks to recover a loss from the insured, in this case the Council, and is not derived from contentions given in evidence for the Johnson Family Trust.   Although no representative of the Council was present at the time of the conversation relied on by the Council in its third party claim against Mr Johnston, and it relied on the evidence of Mrs Johnson which was in fact given against it in the principal claim of the trust against the Council, the claim the Council made against Mr Johnston (as pleaded in the statement of claim) was not altered to reflect more accurately the evidence of

what occurred.  It remained on the same terms throughout.

3      Dustin v Weathertight Homes Resolution Service HC Auckland CIV-2006-404-276, 25 May

2006 per Courtenay J.

4 At [31].

5      Drayton v Martin (1996) 9 ANZ Ins Cas 61-322, (1996) 137 ALR 145 (FCA).

6      At 76,597, 172.

7      Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465, 77 ALR 577 at

479-480, 591-592.

[24]     Therefore, whilst at a trial of the present case Mr Johnston might establish that  what  he said  at  the inspection  of the property was  in  connection  with  his intended future services as a project manager and quantity surveyor, that does not alter the nature of the claim which was made against him by the Council in respect of which he seeks to establish cover under the policy.

[25]     The term “project manager” is defined in an endorsement to the policy as meaning the provision of consultancy, certification or project coordination services for construction  or development  projects,  where those  services  are rendered  for remuneration and the services fall within the insured’s professional practice – which, of course, is in fact practice as a project manager and quantity surveyor.   The definition is therefore circular.   Nonetheless, it plainly relates to the provision of consultancy certification or project coordination services for construction or development projects.  The allegation by the Council is not within these terms, and I find it is that claim which must be within the definition of valid claim for there to be insurance cover.  I am not persuaded that the evidence given at trial, which, as I have said, might establish a connection between the advice given and the professional business practice defined in the policy, can be taken into account to redefine the claim made by the Council.  As Mr Napier says, the insurer is only called upon to respond to the claim the Council itself made.

Outcome

[26]     I enter summary judgment for the defendant.

[27]     The defendant is entitled to costs on a 2B basis plus disbursements fixed by the Registrar.

J G Matthews

Associate Judge