Messenger v Osbourne HC Auckland CIV 2008-404-4377

[2010] NZHC 1634

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2008-404-4377

BETWEEN  GARY JAMES MESSENGER First Plaintiff

ANDGARY JAMES MESSENGER, MICHELLE ELIZABETH MESSENGER AND SW TRUST SERVICES LIMITED (AS TRUSTEES OF THE MESSENGER FAMILY TRUST)

Second Plaintiffs

ANDLESLIE OSBOURNE AND SUSAN LESLEY OSBOURNE

Defendants

ANDCONCEPT REALTY LIMITED Third Party

Hearing:         26 April 2010

Counsel:         H Woodhouse appearance noted and excused for Plaintiff

J Armstrong for Defendants
N Reid for Third Party

Judgment:      20 August 2010 at 11 am

RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON (Third Party’s Strike Out Application)

This judgment was delivered by me on 20 August 2010 at 11 am pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date ..........................

Solicitors:

Grimshaw & Co, PO Box 6646, Auckland

Armstrong Murray, PO Box 33-1028, North Shore City

Kennedys, PO Box 3158, Auckland

MESSENGER AND ANOR V  OSBOURNE AND ANOR HC AK CIV-2008-404-4377  20 August 2010

[1]      The  third  party,  Concept  Realty  Limited,  applies  for  an  order  that  the pleading of the defendants, Mr and Mrs Osbourne, against it be struck out.

[2]        The application is made under r 15.1 of the High Court Rules, pursuant to which the Court may strike out all or part of a pleading if it discloses no reasonably arguable cause of action, is likely to cause prejudice or delay, is frivolous or vexatious, or is otherwise an abuse of the process of the court.   At the hearing counsel also relied on r 4.16 but to identical effect.   I need not consider the rule further.

[3]      The Osbournes’ statement of claim against Concept pleads two causes of action, the first in negligence and the second based on breach of fiduciary duty. Concept contends that the claim should be struck out in its entirety on the grounds that the cause of action in negligence is time-barred by s 4(1) of the Limitation Act

1950 and cannot succeed, and that the remaining cause of action based on breach of fiduciary duty, relying as it does on the same facts, ought properly be treated in the same way.

[4]      The Osbournes oppose Concept’s application.  They accept that if their cause of action in negligence is indeed time-barred the cause of action based on breach of fiduciary  duty  is  similarly  time-barred  by  analogy  by  virtue  of  s  4(9)  of  the Limitation Act, and that their entire claim should be struck out.  However, they do not agree that their cause of action in negligence is time-barred.

[5]      It  is  common  ground  that  whether  the  Osbournes’  cause  of  action  in negligence is time-barred turns on when it “accrued”.   Section 4(1)(a) of the Limitation Act prevents a claim in negligence being brought more than six years from the date on which the cause of action accrued.  Concept contends any cause of action accrued outside this period, in April 2002.  The Osbournes contend it accrued, at the earliest, in October 2007, well within the limitation period.

[6]      The Osbournes’ third party claim arises out of a claim by the first plaintiff, Mr Messenger, against the Osbournes for breach of an agreement for sale and purchase  entered  into  in April  2002  and  is to be viewed  in  that  context.    The agreement provided that Mr Messenger would purchase from the Osbournes a property in Horseshoe Bush Road, Dairy Flat, and the house on that property.  The agreement was the second between the parties.  The first agreement was terminated due to concerns harboured by Mr Messenger as to the construction, and in particular the weathertightness, of the house.  Concept acted as the Osbournes’ real estate agent throughout.

[7]      In his claim Mr Messenger pleads a single cause of action, that the Osbournes breached a warranty given in the agreement for sale and purchase at clause 6.2(5), the relevant parts of which state:

6.2The vendor warrants and undertakes that at the giving and taking of possession:

…

(5)Where the vendor has done or caused or permitted to be done on the property any works for which a permit or building consent was required by law:

(a)       The required permit or consent was obtained; and

(b)      The works were completed in compliance with that permit or consent; and

(c)Where  appropriate,  a  code  compliance  certificate was issued for those works; and

(d)      All  obligations  imposed  under  the  Building  Act

1991 were fully complied with.

[8]      Mr Messenger claims the Osbournes breached the warranty in the following respects: the building works for the construction of the house were not completed in compliance with the relevant consent, a code compliance certificate had not been issued for those works, and all obligations imposed under the Building Act 1991 were not fully complied with.

[9]      Mr Messenger commenced his proceeding against the Osbournes on 11 July

2008, his solicitor having written to them about the alleged breach on 17 October

2007.  In the statement of claim Mr Messenger was named as first plaintiff, and the trustees of the Messenger Family Trust as the second plaintiffs.   I need not refer further to the second plaintiffs.  To all intents and purposes their claim is no longer extant.  This is because in the amended statement of claim filed on 3 September 2009 the only remaining cause of action is one based on breach of warranty brought by Mr Messenger alone.

[10]     On 7 October 2009, the Osbournes filed an amended statement of defence to the amended statement of claim where they plead in effect that:

a)       The sale of the property was on an “as is” basis for a much reduced price than that provided by the original agreement, due to concerns expressed  in  a  subsequent  valuation  as  to  the  quality  of  the construction of the property,  and the plaintiff’s discovery that the property lacked a code compliance certificate.

b)The Osbournes are not liable to Mr Messenger because the agreement was executed pursuant to a facsimile contract clause that limited its terms.   Its terms did not include or purport to incorporate the warranties in question.   Alternatively, if the warranties were indeed incorporated, they were incorporated by mistake on the parts of both the Osbournes and Mr Messenger, with the result that the agreement does not reflect their contractual intent.  The Osbournes seek an order rectifying the agreement to exclude the warranty.

[11]     On the same date, the Osbournes issued a third party notice against Concept. The primary cause of action is that based in negligence.   I will come next to the specific pleadings, including the alleged particulars of negligence and loss (such as they are).  It is sufficient for introductory purposes to note that, in broad terms, the Osbournes  allege  that  in  advising on  and  preparing  the  agreement  for  sale  and purchase (which is based on the ADLS standard form but modified by faxed amendments), Concept was negligent in its performance of a duty of care owed to

them, as a consequence of which they have suffered or will suffer loss.  They say the warranties were not brought to their attention, no advice was given in relation to the warranties or their inclusion or otherwise in the agreement, and that the warranties should not have been incorporated but rather clearly and unambiguously deleted.

The defendants’ pleading against the third party

[12]     The allegations pleaded in the defendant’s statement of claim against the third party, so far as relevant to the question of accrual, are set out below.

[13]     The pleading begins:

1.At all material times [the defendants] were the owners of a property at 447 Horseshoe Road, Dairy Flat (“the property”).

2.        The Third Party was at all material times a licensed real estate agent.

3.In or about December 2001/early 2002 [the defendants] listed [the property] for sale with the Third Party through its employees/contractors/agent Pene and Henry Hazlewood (“the agents”).

4.In or about January 2002 the agents prepared an agreement between the Plaintiff and the Defendants which was executed by them on or about 13 January 2002, that was a conditional agreement to sell the property for $940,000 (“the original agreement”).

[14]     The pleading goes on to allege that the agreement was conditional on Mr Messenger’s solicitor’s approval and Mr Messenger being satisfied with the LIM for the property.  It says, in effect, that the agreement did not proceed because the LIM recorded  that  no  code  compliance  certificate  was  issued  for  the  dwelling,  and because Mr Messenger subsequently obtained a valuation of the property that expressed concerns about the quality of the construction of the dwelling and signs of leakage.  The  pleading  continues  that  after  further  negotiations  between  Mr Messenger and the Osbournes, the parties entered into a second agreement for sale and purchase and that:

9.The  agents  (or  one  of  them)  were  present  during  the  Plaintiff’s valuer’s inspection of the property and were made aware of concerns expressed  by the valuer  about the quality of construction  of the property.

10.The agents (or one of them) were at all material times aware of the fact that no Code Compliance Certificate had issued in respect of the property and of the aforesaid reasons for disapproval of the original agreement provided by the Plaintiff’s solicitor.

11.In or about March/April 2002 the agents were instrumental in further negotiations  between  the  Plaintiff  and  the  Defendants  which  led them  to  entering  into  the  First  Agreement  (as  defined  in  the Plaintiff’s Amended Statement of Claim dated 3 September 2009) on or about 11 April 2002, under which the Plaintiff, inter alia, unconditionally  agreed  to  pay  the  reduced  purchase  price  of

$870,000.00 for the property.

12.The Plaintiff alleges that the …  Agreement included  the vendor warranties  (as  defined  in  the  Plaintiff’s  Amended  Statement  of Claim dated 3 September 2009), which is denied by the Defendants.

13.Alternatively, the Defendants say that if the vendor warranties were incorporated into the … Agreement (which is denied), they are entitled to an order for rectification of the … Agreement to exclude the vendor warranties on the grounds set forth in the defendants’ Amended Statement of Defence.

[15]     The Osbournes’ pleading continues that Concept is liable for the acts or omissions of its agents, that the Osbournes relied on the agents to advise them with regard to the agreement and in relation to its preparation, and that Concept breached a duty of care and/or a fiduciary duty owed them in relation to advice on and preparation of the agreement for sale and purchase in the following respects:

14.4.1 By failing to draw their attention to the vendor warranties and/or to provide [them] with any advice or guidance in relation to the vendor warranties and/or as to the inclusion or otherwise of the vendor warranties in the … Agreement;

14.4.2 By preparing the … Agreement in a form that left it open to the Plaintiff to allege that the vendor warranties were incorporated therein;

14.4.3 If [the Court] finds that the … Agreement incorporated the vendor warrants, by preparing the … Agreement in a form that included the vendor warranties.

[16]     The consequences of the breaches are alleged to be as follows:

15.As a consequence of the Third Party’s/agents’ breach of fiduciary duty and/or negligence as aforesaid the Defendants have suffered and/or will or may suffer loss as follows:

15.1Costs,   disbursements   and   expenses   incurred   in    this proceeding;

15.2Any  Judgment  (including  costs)  given  against  them  in favour of the Plaintiff.

Rule 15.1 of the High Court Rules – relevant principles

[17]     The principles attaching to an application to strike out pleadings under r 15.1 are as set out in Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA) at

267 and endorsed by the Supreme Court in Couch v Attorney-General [2008] NZSC

45, [2008] 3 NZLR 725 at [33]. In summary:

a)        Pleaded facts, whether or not admitted, are assumed to be true;

b)The  cause  of  action  must  be  so  clearly  untenable  that  it  cannot possibly succeed;

c)        The jurisdiction is to be exercised sparingly, and only in clear cases;

d)The  jurisdiction  is  not  excluded  by  the  need  to  decide  difficult questions of law; and

e)        The courts should be slow to strike out a claim in a confused or developing area of law.

[18]     Concept  accepts,  as  it  must,  that  the  Osbournes’  pleading  discloses  a reasonably arguable cause of action.   That is, it discloses a reasonably arguable breach of duty in Concept’s failing to exercise the requisite care in preparing the agreement and advising on its contents.  I refer accordingly to an “assumed breach”. But Concept argues the cause of action is brought out of time.  It seeks an order that it be struck out on that basis.

The Limitation Act and accrual of causes of action

[19]     Section 4(1)(a) of the Limitation Act prevents a claim in negligence being brought more than six years from the date on which the cause of action accrued.  The expiry of the limitation period does not extinguish the cause of action.   A time-

barred cause of action may not be struck out on the ground that no cause of action is disclosed.  Rather, expiry of the limitation period affords an affirmative defence to the action.  It precludes a remedy.

[20]     Where a cause of action is very clearly time-barred it may be struck out as frivolous, vexatious or an abuse of process.  The proper approach in such instances was expressed by Tipping J in Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3

NZLR 721 at [33] in the following terms:

I consider the proper approach … is that in order to succeed in striking out a cause of action as statute-barred, the defendant must satisfy the Court that the plaintiff’s cause of action is so clearly statute-barred that the plaintiff’s claim  can  properly  be  regarded  as  frivolous,  vexatious  or  an  abuse  of process. If the defendant demonstrates that the plaintiff’s proceeding was commenced after the period allowed for the particular cause of action by the Limitation Act, the defendant will be entitled to an order striking out that cause of action unless the plaintiff shows that there is an arguable case for an extension or postponement which would bring the claim back within time.

[21]     Whether the cause of action is time-barred depends, of course, on when it accrued.  As to this, counsel accept the following statement of principle in Thom v Davys Burton [2008] NZSC 65, [2009] 1 NZLR 437 at [38] per Tipping, McGrath and Wilson JJ:

A cause of action in negligence does not exist until there is, first, an act or omission of the defendant which breaches a duty of care owed by the defendant to the plaintiff and, secondly, loss or injury caused by that act or omission suffered by the plaintiff.   The existence of loss or injury is an element without which the cause of action does not exist and accordingly until it occurs time does not run against the plaintiff for limitation purposes.

[22]     In the present case, it is not in dispute that the assumed breach occurred on Concept’s preparation of the agreement or, at the latest, on the Osbournes’ becoming bound by it.  The sole issue for determination is when loss attributable to that breach, without which a cause of action in negligence did not exist, was first suffered by the Osbournes.

[23]     If  loss  was  first  suffered  on,  or  prior  to,  the  parties’  entering  into  the agreement for sale and purchase on 7 April 2002 then counsel for the Osbournes accepts that the cause of action must be said to have accrued on that date and, the Osbournes’ action being clearly time-barred, should be struck out.  That is, counsel

does not advance a case for an extension or postponement which would bring the claim back within time.   If, however, as counsel for the Osbournes contends, loss was not suffered until receipt of Mr Messenger’s solicitor’s letter of 17 October

2007, then the Osbournes’ action is within time and will proceed to trial.

[24]     The issue of when loss was first suffered reduces to the question whether actual and quantifiable loss occurred upon, at the latest, the parties’ becoming bound by the agreement, or whether such loss was contingent, such contingency only being fulfilled later, within the statutory time limit.  To this distinction, Tipping, McGrath and Wilson JJ made the following statement of principle in Davys Burton at [46]:

In summary, a cause of action in tort for negligence does not exist and hence time does not start running for the purposes of the Limitation Act unless and until the plaintiff has suffered some actual and quantifiable loss, harm or damage as a result of the breach of duty involved.   Damage will be contingent, and hence not actual for limitation purposes, if the plaintiff will suffer no damage at all unless and until a contingency is fulfilled.  That will be so if the damage results from the plaintiff being exposed to a liability which is contingent on the occurrence of a future uncertain event.  A good example is where the liability is that of a guarantor and is contingent on a default by the principal debtor, in contrast to the undertaking (as in Gilbert) of a direct and present liability which falls due in the future.  The distinction may well  be  thought  to be  a  fine  one,  but  in  any regime  of  limitation apparently similar cases may fall on opposite sides of the line which divides those which are barred from those which are not.  A reduction in the value of an asset, whether tangible or intangible, constitutes actual damage and exists as soon as the asset becomes less valuable.

[25]     The appellant in that case, Mr Thom, had retained the respondent, solicitors Davys Burton, to prepare and advise on a matrimonial property agreement.  It was alleged they were negligent in their preparation and advice.  The other party to the agreement, Mrs Thom, did not receive independent legal advice and provide certification that the legal effect of the agreement had been explained to her, as required by the Matrimonial Property Act 1976 (since renamed the Property (Relationships) Act 1976).  The agreement, which would have otherwise ensured the house into which the two then moved remained his separate property, was found invalid by the Family Court on these bases, with the practical result that the house was held to comprise divisible relationship property.  Davys Burton applied for an order that Mr Thom’s claim in negligence be struck out on the ground that it was time-barred, the cause of action accruing on the agreement’s improper execution,

and thus outside the limitation period.  Mr Thom submitted loss was contingent on the Family Court disallowing the agreement and that, in the event, such contingency was fulfilled within six years of his commencing the action.

[26]     The  Supreme  Court  rejected  Mr  Thom’s  submission,  granting  Davys Burton’s application to strike out.  Tipping, McGrath and Wilson JJ held at [47], by reference to the principles above, that:

Applying these principles to the present facts, Mr Thom relied on Davys Burton to obtain a legally enforceable prenuptial agreement which would ensure that Ms Lawrence had no claim on the house as matrimonial property. Instead he got a less valuable asset, an agreement that was not legally enforceable. Mr Thom thereby suffered an immediate loss, even though the extent of the resultant damage would not become apparent until some time later. If Mr Thom and Ms Lawrence had not moved into his house, or if they had remained married, significant damage would not have resulted. That does not however detract from the proposition that Mr Thom suffered some loss upon the signing of the agreement. Nicholls LJ’s example in Bell illustrates the point; if Mr Thom had discovered the problem in (say) 1993, he would have incurred legal costs in obtaining a valid agreement, if indeed his new wife would have co-operated.

The parties’ submissions

[27]     Counsel for the Osbournes submitted that Davys Burton is distinguishable on the basis that it involved an agreement wholly defective from its inception.   The matrimonial property agreement never achieved its intended protective purpose. Counsel  submitted  that  here,  by  contrast,  the  agreement  for  sale  and  purchase effected its primary purpose.  Though it arguably contained warranties outside of the contemplation of either party, these warranties may or may not have given rise to liability in the future.  Any liability was wholly contingent.  It was not actual loss for limitation purposes.  Rather, it remained contingent on Mr Messenger’s taking the view, at any time from settlement, if ever, that the warranties were “inaccurate”, and notifying the Osbournes that he considered them in breach.  That did not occur until his solicitor’s letter of 17 October 2007.   It may never have occurred.   Counsel submits this date was the first occasion on which it can be said the Osbournes suffered any actual loss attributable to Concept’s assumed breach.   The cause of action accrued, at the earliest, on this date.   The Osbournes’ claim was brought within six years of this date.  The limitation period has not expired.

[28]     Counsel  for  Concept  submitted  that  Davys  Burton  applies.     Where  a professional adviser drafts an agreement for his or her client that turns out to be defective, time begins to run from the date that the defective agreement is drafted. Actual and quantifiable loss was suffered on the Osbournes’ becoming bound by the agreement for sale and purchase containing the warranties, though their legal implications would not become evident until later.   That they were not sued until later is irrelevant to the question of when their cause of action in negligence accrued.

Discussion

[29]     I agree with counsel for Concept that the decision of the Supreme Court in Davys Burton is directly on point.  Actual and quantifiable loss plainly occurred, at the latest, when the agreement for sale and purchase was signed by and became binding on its parties, because the Osbournes did not get what they should have got. Further damage remained contingent on Mr Messenger’s commencing action on the warranties.  But this further contingency went only to quantum.

[30]     The Osbournes should have got an instrument by which they were afforded an unambiguous entitlement to effect transfer of the property on an “as is” basis. They did not get this.   They got a defective sale and purchase agreement.   The agreement either failed to afford them protection from the standard form warranties, if indeed they were incorporated, or alternatively failed to afford them protection from the argument that the warranties applied, in failing to unambiguously exclude them.   The result was the Osbournes were immediately at least arguably in unavoidable breach of the warranties because the building works for the construction of the house were not completed in compliance with the relevant consent, a code compliance certificate had not been issued for those works, and all obligations imposed under the Building Act were not fully complied with (the practical result of which, it seems, was that the house leaked).  They could have immediately recovered from Concept the costs of having the agreement rectified.

[31]     Concept has demonstrated that the Osbournes’ proceeding was commenced after the period allowed for the particular cause of action by the Limitation Act.  The Osbournes’ cause of action accrued on 7 April 2002.  Section 4(1) of the Limitation

Act provides that no action in negligence shall be brought after the expiration of six years from the date on which the cause of action accrued.  The Osbournes’ action in negligence was brought out of time on 7 October 2009.  Concept is entitled to an order striking out that cause of action unless the Osbournes show that there is an arguable case for an extension or postponement which would bring the claim back within time.   Counsel for the Osbournes has not sought to advance such a case. Concept is entitled, accordingly, to the order sought.   I am satisfied that the Osbournes’ cause of action is so clearly time-barred that it can properly be regarded as an abuse of process of the Court.

[32]     Limitation periods seek to strike a balance between competing policies of finality in civil litigation and justice being done in the individual case.  In this case it operates in favour of the former.  That is not to say that the Osbournes might not yet successfully defend Mr Messenger’s claim on the grounds set out in their amended statement of defence.  That, of course, is a matter for another day and one on which I express no view.

Result

[33]     I order that:

a)        The application for strike out is granted.    The Osbournes’ claims against Concept are struck out accordingly.

b)        Costs should follow the event.  Concept is entitled to costs on a 2B

basis plus disbursements as fixed by the Registrar.

[34]     The case between Mr Messenger and the Osbournes remains for trial.  It is to be allocated a chambers hearing on 22 September 2010 at 2.15 pm for the purpose

of further directions.

Associate Judge Sargisson