Khouri v Auckland City Council HC Auckland CIV 2005-404-7324
[2007] NZHC 1634
•16 February 2007
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2005-404-7324
BETWEEN JOHN DAVID KHOURI, ANNE ELIZABETH KHOURI AND PHILIP MICHAEL KHOURI AS TRUSTEES OF THE ANJO KHOURI TRUST
Plaintiffs
AND AUCKLAND CITY COUNCIL First Defendant
AND PAUL ANDRE VAN RIXEL Second Defendant
AND FRANK TREVES Third Defendant
AND TAI LILA Third Party
Hearing: 13 February 2007
Counsel: P Grimshaw and A Greenstreet for plaintiffs
W McCartney for second defendant
Judgment: 16 February 2007 at 1700
JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for summary judgment]
Solicitors: Grimshaw & Co, PO Box 6646, Auckland for plaintiffs
Carson & Co, PO Box 37 403, Parnell for second defendant
KHOURI & ORS V AUCKLAND CITY COUNCIL AND ORS HC AK CIV 2005-404-7324 16 February 2007
[1] The second defendant applies for summary judgment against the plaintiffs.
[2] The plaintiffs are the owners of 2/97 Te Kawa Road, One Tree Hill, Auckland. That is a residential home. The title involves a cross-lease. The plaintiffs sue the first defendant, which is the territorial authority and which had responsibility for the maintenance and enforcement of building standards within the district, the second defendant, who the plaintiff alleges was a former proprietor and the developer of the property, and the third defendant, who it is alleged was the builder who constructed the dwelling on the property.
[3] Following the filing of the application for summary judgment, the plaintiffs filed an amended statement of claim on 20 September 2006. That document pleads:
(a) A first cause of action in negligence against the first defendant;
(b) A second cause of action alleging negligent misstatement against the first defendant;
(c) A first cause of action against the second defendant alleging that he is the developer and was negligent;
(d) A second cause against the second defendant alleging that he was the head-contractor and was negligent;
(e) A third cause of action against the second defendant alleging that he was the project manager and negligent and was negligent;
(f) A further cause of action against the third defendant alleging that he was the builder.
The claims alleges that the property suffers from numerous defects which are estimated to require at least $200,000 to remedy. The defects are alleged to have arisen from the negligence of the parties referred to in the previous paragraph.
[4] The second defendant alleges that he:
a) was not a developer;
b) was not the head contractor;
c) could not be described as a project manager who owed any duty of care to the plaintiffs in this case.
[5] The application, as originally framed, sought leave to make an application for summary judgment. Mr Grimshaw, for the purposes of the application, had earlier acknowledged that that leave was not opposed and accordingly the matter proceeded on the basis that I analyse the application for summary judgment itself.
The Court’s approach to summary judgment by defendants
[6] The Court of Appeal has given guidance as to the approach which is to be adopted when the Court considers entering summary judgment on a defendant’s application against a plaintiff pursuant to r 136(2) of the High Court Rules. That was given in Westpac Banking Corporation v MM Kembla (NZ) Ltd [2001] 2 NZLR
298 at [58]-[64] and Bernard v Space 2000 Ltd (2001) 15 PRNZ 338.
[7] In Westpac Banking Corporation v MM Kembla (NZ) Ltd the Court said:
[58] The applications for summary judgment were made under R 136(2) of the High Court Rules which permits the Court to give judgment against the plaintiff “if the defendant satisfies the Court that none of the causes of action in the plaintiff's statement of claim can succeed”.
[59] Since R 136(2) permits summary judgment only where a defendant satisfies the Court that the plaintiff cannot succeed on any of its causes of action, the procedure is not directly equivalent to the plaintiff's summary judgment provided by R 136(1).
[60] Where a claim is untenable on the pleadings as a matter of law, it will not usually be necessary to have recourse to the summary judgment procedure because a defendant can apply to strike out the claim under R 186. Rather R 136(2) permits a defendant who has a clear answer to the plaintiff which cannot be contradicted to put up the evidence which constitutes the answer so that the proceedings can be summarily dismissed. The difference between an application to strike out the claim and summary judgment is that strike-out is usually determined on the pleadings alone whereas summary judgment requires evidence. Summary judgment is a judgment between the parties on the dispute which operates as issue estoppel, whereas if a pleading is struck out as untenable as a matter of law the plaintiff is not precluded from bringing a further properly constituted claim.
[61] The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually summary judgment for a defendant will arise where the defendant can offer evidence which is a complete defence to the plaintiff's claim. Examples, cited in McGechan on Procedure at HR 136.09A, are where the wrong party has proceeded or where the claim is clearly met by qualified privilege.
[62] Application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment only able to be properly arrived at after a full hearing of the evidence. Summary judgment is suitable for cases where abbreviated procedure and affidavit evidence will sufficiently expose the facts and the legal issues. Although a legal point may be as well decided on summary judgment application as at trial if sufficiently clear (Pemberton v Chappell [1987] 1 NZLR 1), novel or developing points of law may require the context provided by trial to provide the Court with sufficient perspective.
[63] Except in clear cases, such as a claim upon a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary procedure the sufficiency of the proof of the plaintiff's claim. That would permit a defendant, perhaps more in possession of the facts than the plaintiff (as is not uncommon where a plaintiff is the victim of deceit), to force on the plaintiff's case prematurely before completion of discovery or other interlocutory steps and before the plaintiff's evidence can reasonably be assembled.
[64] The defendant bears the onus of satisfying the Court that none of the claims can succeed. It is not necessary for the plaintiff to put up evidence at all although, if the defendant supplies evidence which would satisfy the Court that the claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own. Even then it is perhaps unhelpful to describe the effect as one where an onus is transferred. At the end of the day, the Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment made by the Court on interlocutory application is not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial.
[8] This passage was cited with approval by the Privy Council in Jones v
Attorney-General [2004] 1 NZLR 433 at 437.
[9] It is necessary to emphasise, in this case, that the inquiry involved requires a consideration of material facts so that, in this case, it is necessary for the defendant to establish that a proper determination can be made on what the Court of Appeal referred to as the:
abbreviated procedure and affidavit evidence.
[10] The plaintiffs oppose the application and assert in essence that they have an arguable case in respect of the three causes of action pleaded. They submit that the defendant’s claim that he was not a developer, head contractor or project manager can only really be tested at trial and after cross-examination.
Background
[11] The factual background is set out in the amended statement of claim dated
20 September 2006, in two affidavits affirmed by the second defendant, two affidavits affirmed by the first-named plaintiff and one affidavit sworn by the third defendant.
[12] The subject property is at 2/97 Te Kawa Road, One Tree Hill, Auckland. The historic search of the relevant title shows that CT 56A/957 was first registered in the names of DC and JM Painter on 30 May 1990. The Painters commenced the cross- lease process. As at 4 July 1991 they are shown on the title to hold a half-share in a composite Certificate of Title by way of an interest in fee simple and a lease in favour of themselves in respect of Flat Plan 1, Plan 144352. The remaining half- share is next shown as having been transferred to PG Tonks on 18 July 1991.
[13] The second defendant entered into a sale and purchase contract with PG Tonks to buy Mr Tonks’s interest in the property on 28 February 1995. At that time there was a completed dwelling, being the property owned by the Painters and a building site behind it available for a further residential dwelling. It appears that, at the time of purchase, all steps that could be taken prior to completion of the building on the building site had in fact been taken so that there could be, if required, a transfer to a purchaser. The Auckland City Council granted Mr Tonks’s application to build a second dwelling on the cross-lease site on 28 September 1994 and confirmed the position by letter dated 29 September 1994.
[14] The second defendant contacted a Mr Bill Ward. Mr Bill Ward was instructed to draw the plans and specifications for a house on the building site.
Mr Ward engaged consulting engineers to do the engineering calculations. The second defendant took the plans, specifications and engineer’s certificate to the first defendant. He applied for a building consent. The building consent was issued on
29 September 1995. The building consent form records that an application may only be made for a building consent by the owner of the land or by a purchaser. The form makes provision for the entry of various sub-trades. None, however, are included in the copy application which was provided to the Court.
[15] The second defendant later employed the third defendant to be the builder. In addition, he employed Tai Lila to be the person who would install and fit the Harditex cladding system. That was the exterior cladding system for the second defendant’s proposed dwelling. The second defendant says that he was introduced to the builder, Mr Treves, and the cladding-fitter whilst all were working on a building site. The second defendant’s involvement on that building site was to complete the electrical work.
[16] The second defendant says he employed a contractor, whose name he cannot recall, to lay the foundations. The third defendant’s, the builder, work apparently did not commence until after Christmas 1995.
[17] There is a conflict as to precisely what supervision of the building work then followed. The second defendant is an electrician. His primary means of employment is electrical work. He claims that he only visited the building site once or twice a week to see how progress was being achieved. He said that he liaised with the third defendant by telephone. He said that the sub-trades or subcontractors, as he refers to them in his affidavit as, namely, the plumber, the painter, the roofer, the tiler and the carpet layer and kitchen installer, were people he found and employed. He said that he did not supervise them in anyway. So far as when they were due to start work was concerned, he relied on advice given by the third defendant. He claims that he did not have any involvement with council building inspectors and that that was handled by the third defendant. He said that his only physical involvement in the house construction was to do the wiring.
[18] The third defendant, who is a carpenter, said that he spoke with the second defendant while both were on a building site and working together in 1995. He described his recollection of how the building work progressed in the following paragraphs:
3.Van Rixel told me that he had a project in Greenlane, and he asked whether I would like to quote for the builder’s work on a new house, on a labour only basis. I told van Rixel that I was interested. Van Rixel told me that if his project was successful then he was looking to develop several new houses, and he suggested that if I gave a sharp price, there would probably be further work for me in the future.
4.I submitted a written quote, but I have not kept a copy. The quote was accepted and van Rixel prepared a contract for me to sign, and a copy is attached as “A”. I had no dealings with the architect or any other consultants at this stage. All of my dealings were with van Rixel.
5.I did not contract any of the trades, and I had nothing to do with the invoicing between the subcontractors and van Rixel. I was not responsible for supervising any of the other sub-trades, although I had to work in with some of them, particularly the plumber, roofer, and van Rixel, who did his own electrical work.
6.When I started the job, the concrete foundation slab was already poured. I had nothing to do with that. As far as I am aware, that work was also contracted directly by van Rixel.
7.Van Rixel was responsible for supplying all of the materials from his building supplier, Carters. I would discuss what was required with van Rixel, and he arranged the purchases.
[19] The third defendant said that once the carpentering work was completed, the second defendant fell behind in making payments and, as a result, he walked off the job. At that stage, door locks were ready to be fitted. He said he had nothing to do with the carpet layer, the tiler or other finishing trades. He then added:
The job was managed by van Rixel so that it progressed okay and van Rixel seemed to keep his finger on things.
[20] He then said that he did not write any cheques for anything to do with the van Rixel building. He said that he had nothing to do with the building inspector’s inspection on 28 June 1996 and he had nothing to do with the code of compliance inspection on 20 March 1997.
[21] Paragraphs [17] to [20] of this judgment cover the disagreement as to the actual involvement in the building of the subject house. I will return to these matters when I consider the authorities.
[22] The second defendant says that he moved in to occupy the house when it was completed in about June or July 1996. He says that in April 1997 his partner, Tanya, found a property that they liked in Royal Oak and they then decided to move there together. He said that he put the house on the market. It was sold by auction on
27 April. The plaintiffs purchased the property at the auction. He said that because he intended to live indefinitely in the property he did not get around to doing any landscaping and, in particular, had not sought a code of compliance certificate. When the decision to sell was made he said that he rushed around buying plants and trees and generally finishing the landscaping and then sought a code of compliance certificate from the council. That certificate was issued on 29 April 1997.
[23] He next said that after the auction he learned that the title was not in order and that a new title was required. Surveyors were instructed. The process was put in place to obtain the appropriate title. That was finally issued on 15 August 1997. It was followed by settlement of the sale which took place on 13 October 1997. The agreement signed directly following the auction provided for possession and settlement to occur on 25 July 1997. In fact, because of the lack of an appropriate title actual settlement occurred on or about 13 October 1997 and about that time, according to the settlement letter, the keys to the premises were handed to the plaintiffs. Settlement of the purchase was completed on the plaintiffs’ behalf by Mr Philip Khouri, one of the plaintiffs, who is a barrister and solicitor.
[24] Another plaintiff, Mr JD Khouri, affirmed an affidavit in opposition. Much of the matters referred to in that affidavit cannot be material in respect of which Mr Khouri has direct knowledge of and is therefore unhelpful in the determination of this application. He does, however, say that when he inspected the house before purchasing it at auction he noted that there were no paintings or personal effects attached to the interior walls of the property. He said that indicated to him that it was not a house that was lived in but was in fact to be sold as new. He said the real estate brochure which was used for the marketing of the property presented the
property as a brand new house. He then referred to uncertainty on the day of the auction as to whether the matter could proceed because of problems with the code of compliance certificate. He then commented upon the delay in settlement because of the lack of appropriate title.
[25] Mr JD Khouri affirmed a second affidavit on 1 February 2007 and shortly before the fixture. Its purpose was to provide the Court with rebuttal evidence in relation to the second defendant’s denial that he was a developer. In that affirmation he traces through property transactions that the second defendant has been involved in. Unfortunately, it contains errors in relation to the facts alleged. Those errors are self-evident when the documents, which are produced, are considered. The second defendant filed and served an affidavit in reply commenting and explaining specifically his part in the property transactions that were identified by Mr JD Khouri. The object of this evidence is apparently to see if there is a pattern of operation on the second defendant’s part which might assist on the issue of whether he is a developer or not.
[26] From this additional material I make the following summary:
a) The second defendant and PJ Devane purchased 8 Vause Street, Ellerslie. The transfer to them was registered in the Land Transfer Office on 10 July 1989. It is a residential house property. The second defendant says Mr Devane and he were friends and they decided to purchase this property as a cheap house with the object of living in it and avoiding paying rent. At the time the second defendant was in his
20s. Because the property was suitable for cross-leasing they commenced that process and effected a sale of the bare portion of the land in 1990. The proceeds were used to reduce their mortgage. The actual development, in the form of the placing of a relocatable house on the bare land was carried out by the purchaser. What the second defendant and PJ Devane retained, namely the front house, was sold by them in 1993;
b) In May 1995 the second defendant settled the purchase in his own name of a bare piece of land at 97 Te Kawa Road, One Tree Hill. The purchase price was $115,000. The vendor was Mr Tonks. Paragraphs [13] to [24] of this judgment set out the various steps taken in relation to the subject property culminating in the settlement of its sale by the second defendant on 13 October 1997;
c) On 26 April 2002 the second defendant became the registered proprietor of 7 Heywood Crescent, Epsom. He described the acquisition of that property as being an acquisition with his partner, Tanya, and himself. He said it involved bare land for which $360,000 was paid. He said that Tanya and himself had just had their first child and they were keen to live in the Grammar zone for schooling purposes. They borrowed to finance the purchase and construction of a house on the site both from a Bank and from parents. Construction was said to have started in June 2002 and they moved into the house in April 2003. He said, further, that the construction costs were about
$400,000 and as a result of his partner, Tanya, and he making a decision that she would stay at home as a full-time mother they could not satisfy the commitments on all the loans and they therefore decided to sell the property in October 2004;
d)On 29 July 2004 a company in which the second defendant is involved, van Rixel Investments Limited, became the registered proprietor of a property at 24 Grotto Street, Te Papa. The second defendant says that his partner, Tanya, and he acquired this property through the company as an investment rental property. He said that they were advised by their lawyers and accountants to set up a LAQC company for the purpose of buying it. He said that borrowings represented 100% of the purchase price and they are required to top up the rent received from the property to meet interest payments. The company continues to own the property at 25 Grotto Street, Te Papa;
e) The second defendant took a transfer of a property at 7 Heywood Crescent, Epsom on 30 March 2005. The second defendant says that it was purchased after the Heywood Crescent property was sold. He lived in it with his partner and whilst they were living there they had their second child. It was eventually sold on 16 January 2007 and the second defendant says that after costs he made a net loss in relation to the purchase and sale of this property. He gives reasons for the sale of the property which relate to family matters and need not be recorded;
f) At the present time the only property which the second defendant has an interest in, and that is only by his company, is the Grotto Street property;
g)Although the material placed before me does not give all facts and figures it is apparent that none of the transactions evidence substantial profit.
The authorities
[27] I now record a brief examination of the authorities to which counsel referred. This exercise is necessary so that a determination can be made as to whether the second defendant has established, in terms of the required onus, that none of the plaintiffs’ causes of action in the plaintiffs’ statement of claim can succeed. The inquiry requires a consideration in terms of the guidance given by the Court of Appeal in Westpac Banking Corporation v MM Kembla (NZ) Ltd and which I have set out in [7] of this judgment.
[28] In Bowen & Anor v Paramount Builders (Hamilton) Ltd & Anor [1977]
1 NZLR 394 the Court of Appeal considered the liability of a building company. Paramount Builders (Hamilton) Limited had contracted to build a two-unit dwelling house for Mr and Mrs McKay. The McKay’s sold the property to the Bowens. Shortly after the sale substantial subsidence occurred causing considerable damage to the dwelling. The important points of principle which the Court of Appeal confirmed and which are particularly relevant to this case are as follows:
a) A builder is liable for the negligent creation of a hidden defect which is a source of danger to third persons whom he ought reasonably to foresee as likely to suffer damage;
b) Contractors, architects and engineers are all subject to a duty to use reasonable care to prevent damage to persons whom they should reasonably expect to be affected by their work; and
c) The Court of Appeal specifically recorded that it was not considering the case of an owner-builder selling a house after completion where he had erected it for sale on his own land.
[29] In yet another subsidence case, Mt Albert Borough Council v Johnson [1979]
2 NZLR 234 the Court of Appeal had to specifically consider the liability of a development company which had been granted a building permit by the local authority to erect a block of flats. The building work was carried out by a partnership which had been employed by the development company. Progressive subsidence of the building occurred because the foundations were not adequate. A subsequent purchaser, who had suffered economic loss as a result, sued. The important points of principle, which the Court of Appeal confirmed and which are relevant to this case, are as follows:
a) A developer has a duty of care to see that proper care and skill was exercised in the building of the flats in that case and that duty could not be avoided by delegating it to an independent contractor; and
b) The developer’s primary interest is a business one. It has buildings put up which are intended to house people for many years and it makes extensive and abiding changes in the landscape. The Court made it clear that it was not dealing with the case of a landowner who had built a house for his own occupation initially.
[30] In Body Corporate 187820 & Ors v Auckland City Council & Ors HC AK Civ 2004-404-7508 26 September 2005 Associate Judge Doogue looked at the
specific question of why developers have been found liable, to see, in essence, what makes a particular party a developer with a view to seeing whether the party being sued in the case before him owed the duty concerned. He reached, essentially, two conclusions, namely, that that status would arise where:
i) There was direct involvement or control on the building process, for example, by way of planning supervision or directing the work; and
ii) That the company was in the business of constructing dwellings for other people for profit.
[31] The allegations made in the three causes of action against the second defendant, in essence, allege that he had control of the building work that was being carried out. There is a direct conflict in the evidence before me relating specifically to what precisely the second defendant did and what the third defendant, builder, did in relation to the subject property.
[32] In my view, when I apply the test prescribed by r 136(2) and the guidance given in Westpac Banking Corporation v MM Kembla (NZ) Ltd and the authorities that I have referred to, I cannot conclude that the causes of action which have been pleaded against this second defendant cannot succeed. In summary my reasons are:
a) It is not appropriate in a borderline case to settle the precise limits of liability that arise from the general propositions that have been referred to in the cases to which I have made reference;
b) The Court of Appeal has already signalled a need to proceed with caution in these cases: Bowen v Paramount Buildings Ltd at 405;
c) The Court of Appeal has noted, in each of the cases it has decided, that it was not specifically determining the policy question of whether a duty of care extends to the vendor who acts, in essence, as the
building organiser where a hidden defect is created which results in damage;
d) There has, in this case, been no detailed examination of:
i) the specific instructions given to the sub-trades;
ii) how and when payments were effected and, for example, whether the second defendant used his business as the vehicle for that; and
iii) what the position was in respect of GST
to list just some of the considerations that well help in determining what the ultimate intention of the second defendant was when the building was erected and whether he had any direct involvement in the matters which are specifically alleged to have caused the loss. In short, there is a need to establish material facts. The summary judgment process simply does not permit of that inquiry. In this respect, unlike the case before Associate Judge Doogue, I cannot make any precise determination on what control was exercised by the second defendant over the building site. What is apparent is that the only party who could profit from the project was the second defendant himself;
e) Counsel did not attempt an examination, on a general principle basis, as to whether a duty of care should be recognised in the factual situation which was placed before me. No attempt was made, for example to apply the process of inquiry, which is referred to in the Court of Appeal decision in Rolls Royce NZ Ltd v Carter Holt Harvey Ltd (2004) 17 PRNZ 197; and
f) This is not one of those clear cases where it can be said that it is reasonable to expect the plaintiff to immediately be able to prove the
claim so that failure to do so would justify the entry of summary
judgment.
Conclusion
[33] I conclude that this is not an appropriate case to enter summary judgment for the second defendant. The matter must proceed to trial. Accordingly, I decline the application.
Costs
[34] At counsel’s request I reserve the question of costs and invite them to confer on the matter. If they cannot agree memoranda in support, opposition and reply shall be filed at seven-day intervals and the file is then to be referred to me for a decision
on costs.
JA Faire
Associate Judge
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