Johnson v Pitts HC Whangarei CP10/01

[2001] NZHC 1187

IN THE HIGH COURT OF NEW ZEALAND
WHANGAREI REGISTRY CP10/01

BETWEEN B JOHNSON and A JOHNSON
Plaintiffs

AND G PITTS & ANOR
Defendants

Hearing: 27 November 2001

Counsel: G J Kohler for Plaintiff
R M Bell for Second Defendant

Judgment: 4 December 2001

JUDGMENT OF MASTER ANNE GAMBRILL

Solicitors:
David Shanahan & Associates, PO Box 1801, Whangarei
Webb Ross Johnson, PO Box 945, Whangarei

[1] I have before me an application for summary judgment brought by the second defendant, a builder. This proceeding was originally filed in the District Court on 19 March 2001 and subsequently following a Branz report and/or steps was transferred to the High Court on 14 June. An amended statement of claim was filed on 6 July bringing proceedings against the architect, builder and Far North District Council.

[2] On 23 July the second defendant, the builder, filed a statement of defence, notice of motion for summary judgment against the plaintiff. Subsequently, based on the 6 July pleading the Council filed an application for summary judgment with an affidavit in support on 20 August and a statement of defence and on 13 August a notice of proceeding for summary judgment was filed by the first defendant, the architect. Counsel for the respective defendants sought to have all summary judgments heard on the same date and are based on s 91 (2) of the Building Act 1991 and the Limitation Act proceedings ie the claims against each client was statute barred.

[3] The hearing was not reached on 24 September, because on 10 September Mr Dale discovered that he believed there may be a potential conflict of interest of his firm with the plaintiffs. At that point Mr Kohler did not have the file but indicated to the Court Mr Watson had carried out remedial work. Counsel said they were seeking factual evidence and they believed despite the pleading the building had never been signed off. He acknowledged that the claims in respect of the first and third defendants were probably statute barred. With this in view I set a hearing date of the 27 November and made timetable orders. Regrettably, the affidavit of Mr Johnson was not filed in the timeframes but was filed on 22 November with a second amended statement of claim subsequently updated at the hearing, because of typing error Mr Watson filed a brief affidavit in reply. The original notice of opposition to the summary judgment did not give in detail the defences relied upon but it merely said that the plaintiffs opposed “on the grounds the causes of action were not statute barred and upon the affidavit evidence”. The Courts have repeatedly said that in summary judgment full details of the proposed opposition should be identified although the second defendant’s counsel acknowledge he is not disadvantaged.

[4] Mr Johnson in his affidavit evidence has identified various matters which I will refer to hereunder. I was told in Court the plaintiff now elected to proceed only against the second defendant and the claims against Pitt and the Far North District Council were struck out as they were statute barred, reserving costs.

[5] There is an unusual situation herein in that the application for summary judgment has been filed by the defendant at the correct time. It appeared implicit that the matter would normally have been determined upon the pleading before the Court at that time and issues that are now raised relating to equitable fraud were not averted to in the plaintiff’s original pleadings upon which the summary judgment application was based.

[6] In the original summary judgment jurisdiction the plaintiffs were in most circumstances obliged to rely on the pleading they issued and served. However, neither the current practice or the rules appear to accommodate the situation which arose herein that the summary judgment applications were all filed by the three defendants and only three working days prior to the hearing, which accords with the requirement for a notice of opposition and affidavit, a new pleading is produced giving limited time for the second defendant to respond. I discussed with counsel this issue because I believe it is relevant as to costs but there is no means of an embargo arising that would prevent the filing of the amended statement of claim as the proceeding has not been set down for trial.

[7] I turn to the second defendant’s application for summary judgment. The original statement of claim filed in the High Court on 6 July, produced this application by the defendant for summary judgment. The plaintiffs owned a property at Russell. They engaged the defendant, a building contractor in Russell, to build a house for them. Certain work was not carried out because of budgetary constraints. The first defendant, the architect, designed the house and prepared the plans and specifications. The Far North District Council received and issued the building permit in March 1990 but at date hereof, have been unable to produce further records. The second defendant says he completed the building work in November 1990 and it appears the plaintiffs moved in around 16 December 1990. The plaintiffs plead they became aware of leaking in the house in various places between 1992 and 1999. The second defendant returned to the site and attempted to rectify the same without success. His work appears to have been voluntary, I am not sure. In October 1999 the plaintiffs had expert advice that there was extensive leaking attributable to a number of faults and they plead the cost of the repairs of those faults. Areas of defective workmanship alleged against the second defendant are in respect of the roof, design and/or construction of the decks, stucco plaster, exterior joinery, building structure, seepage and stormwater drainage with resulting damage. Breaches of the bylaws are also alleged. The two causes of action arise in contract and in tort. The defendant says both causes of action are directed to the second defendant’s defective workmanship during the period of construction up to November 1990. The relief claimed is the same, the costs of repairs plus general damages. Neither cause of action ie in tort or in contract alleges liability for work after the completion of construction in 1990. The entire claimed is denied.

[8] The proceeding herein was issued in the District Court on 19 March 2001 which is more than 10 years from completion of construction. The defendant sought summary judgment on the basis of the limitation issue. It is accepted this is correct in respect of the Council and the architect. The Court is unaware why when the defects were discovered in 1999 the proceedings were not issued at that time which would have brought all parties before the Court without the risk of a limitation defence being raised. The defendants all relied on the Building Act 1991 s 2 and s 91 limitation defence. I set out the relevant sections hereunder:

“Building work means work for or in connection with the construction, alteration, demolition, or removal of a building; and includes sitework:”

“Sitework means work on a building site, including earthworks, preparatory to or associated with the construction, alteration, demolition, or removal of a building:”

“91 Limitation defences

(1) Except to the extent provided in subsection (2) of this section, the provisions of the Limitation Act 1950 apply to civil proceedings against any person where those proceedings arise from -

(a) Any building work associated with the design, construction, alteration, demolition, or removal of any building; or

(b) The exercise of any function under this Act or any previous enactment relating to the construction, alteration, demolition, or removal of that building.

(2) Civil proceedings relating to any building work may not be brought against any person 10 years or more after the date of the act or omission on which the proceedings are based.

(3) For the purposes of subsection (2) of this section if -

(a) Civil proceedings are brought against a territorial authority, a building certifier, or the Authority; and

(b) The proceedings arise out of the issue of a building consent, a building certificate, a code compliance certificate, or an Authority determination-

the date of the act or omission is the date of issue of the consent or certificate or determination.

(4) For the purposes of subsection (2) of this section, if civil proceedings are brought against the Authority and the proceedings arise out of the issue of an accreditation certificate, the date of the act or omission is the date at which the accreditation certificate was relied on.

(4A) For the purposes of subsection (2) of this section, if -

(a) Civil proceedings are brought against any person; and

(b) The proceedings arise out of the issue of an energy work certificate, - the date of the act or omission is the date of the issue of the certificate.

(5) Notwithstanding section 93(1)(a) of this Act, subsection (2) of this section applies to any proceedings commenced after this Part of this Act comes into operation, except proceedings commenced before the 1st day of July 1993.”

[9] Counsel for the second defendant noted that previously the time of discovery was relevant under the Limitation Act which would have been six years. This stood to pose serious problems for those alleged to be responsible, particularly peripheral parties such as Councils, insurers, former property owners. The Court of Appeal recommended to Parliament a new set of cut off dates to override the loosened application of the Limitation Act 1950 see Invercargill City Council v Hamlin [1994] 3 NZLR 517, 518, citing Askin v Knox [1989] 1 NZLR 248 at 225, 256. Counsel analysed and made his submission as to how s 91 works in practice. Ss (1) is a qualified saving. The limitation rules under the 1950 Act apply to civil proceedings against anyone arising from building work subject to ss 2. Ss (2) inserts a new limitation, no proceeding may be brought 10 years or more after the date of the act or omission on which the proceeding is based. This overrides both ordinary limitation rules under s 4 of the Limitation Act and also rules delaying when time starts to run as to discoverability of damage and fraudulent concealment. [Fraudulent concealment will be relevant in relation to the submissions made by the plaintiff’s counsel]. Counsel for the defendant then referred me to two decisions Gabolinsky v Hamilton City Council [1975] 1 NZLR 150 (prior to the Building Act). The limitation defences in that case failed and the Court found the damage began in 1967 and there had been fraudulent concealment under s 28(b) of the Limitation Act. Hamilton City Council v Rogers (Robertson J, HC Hamilton, 23 April 1998). Council built the house the subject of the proceedings in the 1950’s. The house suffered damage from subsidence. The plaintiffs filed in 1996 limitation defences and the Building Act were pleaded. The plaintiff invoked s 28 of the Limitation Act in their reply. The Court held for the Council on the Building Act limitation when the strike out application went on appeal. I quote the key ruling from Robertson J at page 6:

“But Parliament in s 91(2) has in my assessment of the matter, introduced a different measure. As a matter of policy, it has determined that where there are civil proceedings (and the present case is undoubtedly that) which relate to “building work” there is to be a particular limitation regime which is rooted in the date of “the act or omission on which the proceedings are based”. I read that formula as taking the parties back to the factual matter relating to the building work rather than to the legal concepts of when there was a breach of duty.”

[10] He also relied on Price v Sanders Lane & Price (HC Nelson, CP18/98, Doogue J, 19 February 2001) as authority that the discoverability rule does not apply under s 91(2) with time running from the date of the act of the defendant. Counsel argued that on the approach of Robertson J s 91(2) is not cause of action specific. Time runs from the date of the relevant building work no matter what cause of action is pleaded. This provides certainty. Counsel argued the building work in issue was at the latest November 1990 and on that statement of claim the defendant maintains he could obtain summary judgment.

Pleading - first, second and third causes of action

[11] He then addressed the word “pleading”. He accepted the findings in Westpac Banking Corporation v M M Kembla [2001] 2 NZLR 298, para 67 and 68 where the Court of Appeal recognised that neither summary judgment or strike out were appropriate if the plaintiff could save its case by amendment. He said, therefore, the new pleading must be scrutinised to see if it does show a proper cause of action and is not vulnerable to the strike out or summary judgment. The proposed third amended statement of claim broadly repeats the earlier pleading but with some changes.

(a) No date of completion is pleaded. Instead occupation is referred to as having been given and taken on 16 December 1990 but it is said building work continued into 1991. Paragraph 22 gives particulars of Mr Watson the builder returning on site doing remedial work and giving alleged assurances. There is a new cause of action for alleged breach of contract, the breaches being for both original construction and remedial work.

(b) The second cause of action, paragraphs 31 to 33 is in negligence for both alleged breaches of duty of care in the original construction and in remedial work.

(c) The third cause of action is for alleged negligent mis-statements paragraph 34 to 37. The claim is that the plaintiffs relied on the defendants alleged assurances, did not get an independent expert and lost the opportunity to sue within the time under s 91 of the Building Act.

(d) The fourth cause of action alleges breaches of the Fair Trading Act in broad terms. This refers to assurances given in 1998 but no specific dates are given although it seems implicit it was after the date of the filing of the proceeding, the plaintiff would say.

[12] Counsel went on to identify the differences that exist between the original construction work and the attempted repairs. The defendant says the distinction must be made:

(1) The original work was carried out outside the ten year limit. The alleged repair work was within the ten year limit.

(2) The nature of the alleged defective workmanship is different. The original construction work is said to have caused damage. The repairs are pleaded to have been ineffective.

I should note that the second defendant has to rely on the statement of defence put in following the original statement of claim and the builder makes specific identification of works and designs that were not his responsibility and there has been no response to these denials. Thirdly, the original construction outwork was carried out under what appears to be an oral contract. The alleged remedial work was not carried out under any contract but after the alleged completion date in November 1990 and without payment. Counsel argued that the contract did not run on after Watson left the site. The contract is completed even if with defects and substantial remedial work becomes necessary: Halsbury 4th Edition Vol (2) para 365; Westminster City Council v Jarvis & Sons Ltd [1970] 1 All ER 943 (HL). Mr Watson has deposed and his evidence is not challenged that there was no contractual term requiring the contractor to return after substantial completion to carry out remedial work. He says that therefore the contract was completed more than 10 years from the date the cause of action is claimed to have arisen.

The fourth cause of action for breach of contract

[13] This pleading, the defendant says, runs together two causes of action. One for defects in construction work and the other for ineffective remedial work. They are distinct and should be pleaded separately under r 181. The facts are indeed separate and distinct in my view as they relate to (a) the defects in carrying out a contract in accordance with the plans and specifications, (b) the subsequent ineffective, unpaid for remedial work for which there was no contract. The claim for the original construction work is statute barred. The defendant argues it also fails under the Limitation Act 1950 in contract, as the time runs from the date of the breach not from the date of damage. The six year time began running at the latest in December 1990 and expired in December 1996. There can and is no claim in contract for inadequate remedial work.

Negligence causes of action

[14] Paragraphs 31 to 33 combine the two causes of action in one: a claim of breach of duty during original construction and a claim of breach of duty when returning to do remedial work. The defendant’s case is they are distinct:

(a) in time

(b) in the task undertaken

(c) in the defects alleged

(d) the legal results are different

Again the defendant challenges the pleading as failing to comply with rules 181 and 114 of the High Court Rules. He said if the claims are separated, neither is sustainable.

(a) The claim arising out of the original construction

He says the claim in negligence remains statute barred under the Building Act as the relevant date is the act or omission on which the proceeding is based. These all occurred before 16 December 1990 and Mr Johnson accepts in his affidavit evidence that the house was substantially complete by then and that he and his wife moved in, although he maintains there was further work that was needed. There is no specific pleading that work after 1990 was defective and/or the responsibility of Mr Watson. He referred also to the building law as referred to above “a job is complete when the contractor finishes the work required, even if defectively”. He said nothing turns on an alleged lack of final certificate sought from the local authority. Mr Watson may have completed his work but the plaintiff still had to attend to the external painting of the house, see paragraph (6) of the second amended statement of claim. This is also clear from the other pleadings and statements of defence.

(b) The claim in relation to the remedial work

Mr Watson went back, but did not go back under any contractual obligation. Counsel acknowledges that when he did return he was under a duty of care not to cause fresh damage but he did not breach, he says any duty in tort if the job he did was ineffective to repair defects that may be in the house. He distinguished the case relating to tort where a contractor is bound to deliver what is promised in terms of the contract and tort which concerns itself only with the damage done, not with a disappointed expectation. He said the plaintiffs have not identified any remedial work that caused new and fresh losses. This can be verified by the earlier statements of claim which were foundered on the original construction work alone. He says that by pleading of ineffective remedial work it is a stratagem to circumvent the s 91 limitation by running both the original work and the remedial work into one cause of action.

(c) Negligent mis-statements

He accepted that there was disputed facts herein which could not be resolved on this application. The plaintiffs say that they lost the opportunity to sue in time within the limitation under the Building Act. The uncontested facts do not support this claim. The plaintiffs received advice in October 1999 as to the extent of defects. At that time they would have been within the 12 months period where they could have both sued the architect and the Council. The second defendant’s alleged mis-statements did not cause any loss of opportunity to sue and therefore there is no loss attributable to any statements made by the defendant. Counsel notes the pleading of fair trading is general. There seems to be an associated loss of opportunity but no way, he says, the plaintiffs can make the claim for the relief stated in the prayer based on alleged misleading conduct and remedial work. In summary the claims are based on alleged defects in original construction work and are statute barred. There is no arguable cause of action for alleged ineffective repair and contract in negligence, based on the alleged negligent mis-statements.

[15] I turn to the plaintiffs submissions based on the new amended statement of claim. The plaintiffs submission is that the claim against the builder is not statute barred. He accepted that there were three categories of claim. Those arising from the original construction, those relating to the remedial work, those arising out of the statements made and assurances given by Mr Watson during the period 1992 to 1996. He analysed the Limitation Act proceedings and identified that in terms of the Limitation Act the period could commence on the date the contract was breached, not necessarily when the damages occurred: See paragraph 60 Laws of New Zealand. He suggested the Courts have powers to extend the limitation period and said that at issue here in respect of the contract claim, the question arises whether a fraud extension is arguable. From the pleadings and the evidence, it was difficult to discern that this was to be a substantive issue to be argued today, more particularly as it was not referred to in the notice of opposition or identified specifically by statute. He noted there are both statutory s 29 Limitation Act 1950 and equitable grounds for postponing the commencement of the limitation period if a defendant has concealed by fraud a cause of action. He said fraud does not necessarily involve moral turpitude but that the conduct of the defendant is so unconscionable that it would be inequitable to allow him to rely on the limitation period. He accepted there is no fraudulent concealment unless such is a breach of a legal or equitable duty to disclose. It is the plaintiffs’ case that the defendant was aware of the substantial defects, failed to disclose this to the plaintiffs from 1992 to 1998 and/or assured the plaintiffs the defects had been remedied. He relied on his clients’ affidavit evidence. He said that it was a live trial issue that could not be determined in this hearing and therefore the summary judgment application should be dismissed.

[16] He analysed the cases upon which he relied: Applegate v Moss [‘971] 1 QB 406 and Laws of New Zealand para 304, Inca Ltd v Autoscript (NZ) Ltd [1979] 2 NZLR 700, Matai Industries Ltd v Jensen [1989] 1 NZLR 525 at 539

[17] He said that the substantive hearing was the proper place for the Court to determine whether there had been fraud. He acknowledged that he could not rely on s 28 of the Limitation Act. He again addressed the issue of negligence and the limitation period of six year and the non-stop provision in the Building Act. He said the only essential difference from the contractual claim is that in the tort of negligence the Limitation Act period does not commence until damage accrues. On continuing damage, fresh causes of action occur. He did not specifically identify the damage that had occurred except to say the claims are re defective remedial work and therefore were not statute barred. The plaintiff had building expert advice in 1999 and carried out remedial work but the allegation is not specifically pleaded. He also claimed that the concealment gave rise to the right to run a defence of fraudulent concealment in response to the defendant’s assertion of a limitation bar. He said that the limitation period under the Fair Trading Act was three years and the conduct would be complained of in 1998. He said in respect of the original construction work the claim was not statute barred as the plaintiffs says there are grounds for extending the limitation period to be found within the principle of or assertion of constructive fraud thereby requiring the Court to extend the limitation period as imposed by the Building Act 1990.

[18] As to the remedial work whether it should be regarded as properly part of the original contract or something outside the contract as the defendant claims, it matters not. He says the remedial work is within timeframes as follows. Post 1995 within six years, 1991-1995 re negligence claim - within time in any event given fresh accruals of cause of action and recent discovery thereof, pre 1995 postponement of limitation.

[19] He also referred to the mis-statements on which he relied on the general principles as collected in Todd Law of Torts in New Zealand (3rd Edition) paras 4.8.1 to 4.8.6. He says the defendant held himself out as possessing care and skill and the plaintiffs relied upon him.

[20] There is also a pleading in paragraph (34) third amended statement of claim which is a new pleading that the defendant assured the plaintiffs he had remedied the problems. He noted that it appeared there was an oral contract between the parties but that evidence would have to be placed before the Court as to the oral contract. He relied on equitable fraud. He stressed the nature of the arrangement he believed arose between the plaintiff and the defendant as similar to that when a car was taken to a garage for repair. I note no comment was made on the fact that no payment was sought for the repairs as undertaken by the defendant.

[21] In response the second defendant maintained that the Building Act was absolutely clear cut and he relied on the two recent decisions both of Doogue J and Robertson J (supra). He said the attempt to create an extension to the limitation was ingenious and not effective. There could not be reliance on s 28. The submissions as made ignored that s 28 which he maintained is codified for the purposes of limitation: See Laws of New Zealand page 182, para 301. He says there is no room for the equitable jurisdiction alleged in respect of this case. He said that the date of completion could not turn on whether there was a Far North District Council completion certificate and it appeared the defendant’s counsel had not seen the Council officer’s affidavit in respect of the summary judgment, but it appears to bear no particular relevance to this case. He said there had been no maintenance provisions and no retention and the defendant should succeed hereunder.

[22] I am satisfied this matter is suitable for summary judgment and that the defendant is entitled to succeed in his application. I have also noted the recent decision in Stratford v Phillip Shale George (CA 199/00, 21 August 2001) and the statement that equity would follow the law. I am aware that the plaintiffs have tried to invoke equitable provisions herein to circumvent the provisions of the Building Act. I am satisfied that the Building Act applies to this case. I am satisfied that the argument that the work carried out between 1992 and 1998 was voluntary and did not add to the damage and does not create a cause of action against the builder. Therefore, it is appropriate that the causes of action against the second defendant are struck out.

Costs

[23] The hearing took half a day. The costs should be at scale 2B. If there is any dispute herein a memorandum can be filed. The summary judgment application determines the proceeding and there is no reason for any further steps as the first and third defendants are already removed from the proceeding.