Minister of Education v Warren and Mahoney Architects Limited
[2015] NZHC 2724
•5 November 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-409-114 [2015] NZHC 2724
IN THE MATTER OF ALBANY JUNIOR HIGH SCHOOL BETWEEN
MINISTER OF EDUCATION First Plaintiff
SECRETARY FOR EDUCATION Second Plaintiff
BOARD OF TRUSTEES OF THE ALBANY JUNIOR HIGH SCHOOL Third Plaintiff
AND
WARREN AND MAHONEY ARCHITECTS LIMITED Defendant
AUCKLAND COUNCIL First Third Party
METIND LIMITED Second Third Party
FREDDIE ANTONIO ALARCON Third Third Party
FRAMERITE INSTALLATIONS LIMITED
Fourth Third Party
BECA CARTER HOLLINGS and
FERNER LIMITED Fifth Third Party
BROOKFIELD MULTIPLEX CONSTRUCTION (NZ) LIMITED First Fourth Party
FACADE DESIGN SERVICES Second Fourth Party
MINISTER OF EDUCATION v WARREN AND MAHONEY ARCHITECTS LIMITED [2015] NZHC 2724 [5
November 2015]
RONALD CHARLES HANLEY Third Fourth Party
AQUASTOP LIMITED Fourth Fourth Party
STRUCTURE DESIGN LIMITED Fifth Fourth Party
ABACUS ENGINEERING LIMITED Sixth Fourth Party
MICHAEL DOUGLAS LAKE Seventh Fourth Party
Hearing: 4 June 2015 Appearances:
P R Rzepecky and A J Wedekind for Warren and Mahoney
S Price and M Cross for Auckland CouncilJudgment:
5 November 2015
JUDGMENT OF ASSOCIATE JUDGE R M BELL
This judgment was delivered by me on 5 November 2015 at 4:30pm
pursuant to Rule 11.5 of the High Court Rules
……………………………………………………
Registrar/Deputy Registrar
Solicitors/Counsel:
Meredith Connell, Auckland, for Plaintiffs
Morgan Coakle, Auckland, for Warren and Mahoney, DefendantMinterEllisonRuddWatts, Auckland, for First Third Party
Grimshaw & Co, Auckland, for Second Third Party
Gary Pollak & Co Ltd, Auckland, for Third Third PartyBrookfields, Auckland, for Fifth Third Party
Buddle Findlay, Auckland, for First Fourth Party
Kennedys, Auckland, for Second and Third Fourth PartiesSkinner Law, Auckland, for Fourth Fourth Party
Gilbert Walker, Auckland, for Fifth Fourth Party
Rainey Collins, Auckland, for Sixth and Seventh Fourth Parties
Counsel:
Philip R Rzepecky, Barrister, Auckland, for Defendant
Johann S Strauss, Barrister, Auckland, for Third Third Party
Matthew Taylor, Barrister, Auckland, for Fourth Third Party
John Morrison, Barrister, Wellington, for Sixth and Seventh Fourth Parties
[1] Leaky building litigation is complex and demanding. But from a judge’s point of view, managing leaky school litigation is not burdensome. The Ministry of Education is invariably interested in resolving claims without taking proceedings through to a full hearing in court. Many defendants are keen to settle. Often they are established players, who have an interest in doing more business with the ministry. For the ministry, litigation tends to be a fall-back while it negotiates settlement out of court. Conscious of the 10-year time limit under s 392 of the Building Act 2004, the ministry issues its proceedings within time, but rather than move to the formal interlocutory steps, it will exchange information informally with the other parties as settlement is explored. Often there are agreed directions staying proceedings pending negotiations. Opposed interlocutory applications are the exception, not the rule.
[2] This is one of the exceptions. The contest is not between the ministry and the sole defendant, the architect, Warren and Mahoney Architects Ltd, but between Warren and Mahoney and the Auckland Council, the first third party. The council’s procedural point is that Warren and Mahoney delayed for five months in serving it, a breach of the requirement under r 5.72 of the High Court Rules to serve a proceeding as soon as practicable. Arguing that the delay has prejudiced it, it applies to set aside the claim against it.
[3] These questions arise:
(a) Did Warren and Mahoney breach r 5.72?
(b) Under which rules should the breach of r 5.72 be considered? (c) Is the council barred under r 1.5(4)?
(d) How should the court exercise the discretion under r 1.5(2)? (e) Did the delay prejudice the council?
(f) What is the significance of Warren and Mahoney’s ability to start a
fresh proceeding?
[4] The proceeding concerns the Albany Junior High School within the district of the former North Shore City Council. In 2003-2004, five buildings were designed and constructed for the school: Kiwi block, Ruru block, Mako Mako block, (now called Whanau A, Whanau B and Whanau C), the performing arts block and the gymnasium. In 2008 another building, the Tui block, was designed and built. Building consents were issued for the first buildings in March 2004 and for the Tui block in March 2008.
[5] Warren and Mahoney Architects Ltd was the architect. Beca Carter Hollings Carter and Ferner Ltd, consulting engineers, did the project management. Brookfield Multiplex Construction (NZ) Ltd, the head contractor, is now in liquidation, but leave under s 248(1) of the Companies Act 1993 has been given to continue the claim against it.
[6] As the territorial authority under the Building Act, the North Shore City Council issued building consents and code compliance certificates. The Auckland Council, its successor, is sued in respect of alleged liabilities in inspecting building work and issuing code compliance certificates.
[7] The school buildings are said to have been damaged because of defects in design and construction leading to water ingress. The ministry sues. The plaintiffs are the Minister of Education, the Secretary of Education and the school’s board of trustees. In their statement of claim of 4 March 2014, the only defendant was Warren and Mahoney. As the company has its registered office in Christchurch, the ministry filed the proceeding in the Christchurch High Court, notwithstanding that the case had closer connections with Auckland and material parts of its cause of action arose here. The ministry’s claim against Warren and Mahoney is for negligence in failing to exercise reasonable skill and care in the design, inspection, observation and supervision of the building works, failing to ensure that the works were weathertight, fit for their purpose and reasonably endurable, and failing to ensure that the building works met appropriate building standards.
[8] In its statement of claim, the ministry estimates that the costs of investigating and remedying the defects and damage are not less than $5,794,604.02 plus GST.
The bulk is for the Whanau A, B and C blocks, with only $136,789 for the Tui block and $550,000 for the gymnasium and performing arts block.
[9] When served, Warren and Mahoney did not file a statement of defence. Instead, the ministry and Warren and Mahoney agreed to put the proceeding on hold while they explored whether it was possible to resolve matters without running up further legal costs. The ministry provided copies of its experts’ reports. That was with a view to allowing experts to meet and to explore resolution. Enquiries were made to establish whether there was any direct contractual relationship between the ministry and Warren and Mahoney. Those arrangements are not unusual in leaky school proceedings.
[10] Warren and Mahoney was aware that it would be in its interests to look to other parties. It was conscious of the 10 year limit under s 392 of the Building Act. The ministry itself had cut it fine. It filed its proceeding the day before the 10th anniversary of the issue of the first building consent for the Whanau A block.
[11] Warren and Mahoney could have joined other parties to the Christchurch proceeding by making them third parties. It had not yet filed a statement of defence. To join others as third parties it believed that it would first need to file its own statement of defence. Because it seemed that the proceeding was likely to be resolved by discussion and negotiation, and the proceeding was a fall-back for the ministry, Warren and Mahoney’s lawyers thought that it would be more convenient to issue a separate contribution proceeding under s 17 of the Law Reform Act 1936, rather than join others as third parties in the ministry’s proceeding.
[12] Warren and Mahoney began a new proceeding in the High Court at Auckland. The five defendants it sued were the Auckland Council (as successor to the North Shore City Council); Metind Ltd (formerly known as Metalcraft Industries Ltd), a roofing manufacturer and installer; Mr F A Alarcon, a company director sued in respect of waterproofing services; Framerite Installations Ltd, a joinery manufacturer and installer; and Beca Carter Hollings and Ferner Ltd, sued as project manager. Its statement of claim against these defendants repeated the ministry’s pleading of
building defects in the Christchurch proceeding. Warren and Mahoney sought contribution from each defendant under s 17(1)(c) of the Law Reform Act 1936.
[13] Warren and Mahoney did not initially serve the defendants. It still wanted to see if it could resolve matters directly with the ministry without involving other parties. It had started the contribution proceeding on 22 August 2014 out of concern for the 10-year time bar under s 392 of the Building Act. It hoped that if matters could be resolved with the ministry the contribution proceeding could be discontinued without serving the defendants.
[14] Warren and Mahoney explains that it made a number of enquiries, with further information exchanged among the ministry, the architects and Beca Carter. It was apparently established that the architect was a sub-consultant, with Beca Carter the ministry’s head consultant. Warren and Mahoney says that by the end of 2014 it became apparent that the ministry’s claim would not be resolved quickly and it arranged for service of the contribution proceedings after the Christmas break. It did not serve the council until 21 January 2015.
[15] The Auckland Council filed a statement of defence on 26 February 2015 recording that it had been served on 21 January. It filed a cross claim against Beca Carter on 3 March. It joined Brookfield Multiplex Constructions (New Zealand) Ltd as a first third party on 18 March 2015, having obtained leave to sue the company in liquidation. It filed a cross claim against Mr Alarcon on 20 March. In early April it joined six further third parties: Façade Design Services Ltd, Ronald Charles Hanley, Aquastop Ltd, Structure Design Ltd, Abacus Engineering Ltd and Michael Douglas Lake.
[16] On 16 April 2015, the council filed this application. It relies on delay by Warren and Mahoney in serving it. It alleges that the delay was inordinate and unjustified and that it has been seriously prejudiced. For that part of its case it relies on rr 1.5, 15.1 and 15.2. It also alleges that the statement of claim does not comply with r 5.26 because of insufficient particulars.
[17] In March, Associate Judge Osborne transferred the ministry’s proceeding to Auckland. At a case management conference on 17 April 2015 I consolidated the ministry’s proceeding and Warren and Mahoney’s contribution proceeding. I gave directions for better particulars. A number of parties were concerned at inadequate particulars in the ministry’s claim. Warren and Mahoney’s statement of claim could only repeat the general allegations in the ministry’s pleading.
Did Warren and Mahoney breach r 5.72?
Rule 5.72 says:
5.72 Prompt service required
(1) The statement of claim and notice of proceeding must be served—
(a) as soon as practicable after they are filed; or
(b) when directions as to service are sought, as soon as practicable after the directions have been given.
(2) Unless service is effected within 12 months after the day on which the statement of claim and notice of proceeding are filed or within such further time as the court may allow, the proceeding must be treated as having been discontinued by the plaintiff against any defendant or other person directed to be served who has not been served.
[18] The time between filing the proceeding and service on the council is over four months, even after taking into account the Christmas break. The council has offices in the centre of Auckland which are open on all working days. Warren and Mahoney accepts that it could have served the council within days of filing the proceeding.
[19] “As soon as practicable” in r 5.72(1)(a) envisages that there may be difficulties in service: defendants may be hard to locate, they may have shifted address, they may be evading service, or they may be overseas. But none of those difficulties arise here. Warren and Mahoney says, however, that it had good reason not to serve the council straightaway. It wanted to avoid involving the council while it tried to resolve matters with the ministry. That argument assumes that, aside from practical considerations, service can be deferred for other good reasons. I see no
reason for introducing such a gloss to the rule. “Practicable” goes to whether service is feasible, but not to wider considerations such as Warren and Mahoney raise here. If it had been intended that the rule would allow other considerations to apply, the rule would have said so.
[20] I accordingly find that Warren and Mahoney Ltd did not serve the proceeding as soon as practicable and accordingly breached r 5.72.
Under which rules should the breach of r 5.72 be considered?
[21] In Re Imperial Gardens Apartments, Body Corporate 348047 v Auckland Council, Faire J pointed out that r 5.72(2) does not modify any mandatory requirement imposed by r 5.72(1).1 While it provides a consequence if the proceeding is not served within 12 months, it does not endorse or approve of an ability to serve within 12 months without consequences.
[22] In its application, the Council relies on rr 1.5, 15.1 and 15.2 as well as the inherent jurisdiction of the court. In my judgment, the applicable provision is r 1.5.
Rule 15.1
[23] Rule 15.1 allows the court to strike out all or part of a pleading if it does not disclose a 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. The rule is concerned with the content of a pleading, not with the time of service. If the content of a pleading is sound, it cannot be struck out under r 15.1 because of a delay in service.
Rule 15.2
[24] Under r 15.2 the court may dismiss or stay a proceeding if a plaintiff has failed to prosecute all or part of its proceeding to trial and judgment. In the
circumstances of this case, there is no basis for dismissing the proceeding under
1 Re Imperial Gardens Apartments, Body Corporate 348047 v Auckland Council [2014] NZHC
2971.
r 15.2. In Lovie v Medical Assurance Society of New Zealand Ltd, Eichelbaum CJ
said:2
Turning to the principles applicable to the substantive issue, the applicant must show that the plaintiff has been guilty of inordinate delay, that such delay is inexcusable, and that it has seriously prejudiced the defendant. Although these considerations are not necessarily exclusive, and at the end one must always stand back and have regard to the interests of justice, in this country, ever since New Zealand Industrial Gases Ltd v Andersons Ltd [[1970] NZLR 58] it has been accepted that if the application is to be successful, the applicant must commence by proving the three factors listed.
[25] Applications under r 15.2 are rare these days. That is because under modern rules for case management, the court effectively supervises the interlocutory stages of a case, with the result that any delays are identified and addressed in a timely way, without the need for applications under r 15.2. The rule survives from the days before case management.
[26] Warren and Mahoney delayed in serving the Auckland Council and that delay was a failure to prosecute under r 15.2. It was not, however, inordinate delay. In Allen v Sir Alfred McAlpine & Sons Ltd Salmon LJ said:3
It would be highly undesirable and indeed impossible to attempt to lay down a tariff – so many years or more on one side of the line and a lesser period on the other. What is or is not inordinate delay must depend upon the facts of each particular case. These vary infinitely from case to case, but inordinate delay should not be too difficult to recognise when it occurs.
[27] That was one of the founding cases on dismissal for want of prosecution. The facts in those appeals contrast strongly with the present case as they exemplify real tardiness.
[28] The council does not allege pre-commencement delay. After all Warren and Mahoney could not begin a contribution claim before it was sued. The lapse between the start of the ministry’s proceeding and Warren & Mahoney’s proceeding would not count as delay. If it had applied to join the council as a third party in the
ministry’s proceeding, and Warren and Mahoney’s proceeding leave under
2 Lovie v Medical Assurance Society of New Zealand Ltd [1992] 2 NZLR 244 (HC) at 248
3 Allen v Sir Alfred McAlpine & Sons Ltd [1968] 2 QB 229 (CA) 260 at 268.
r 4.4(2)(b) would have been given readily, in keeping with usual practice in leaky building proceedings.4
[29] I am not aware of any cases under r 15.2 where delay of less than 12 months has been held to be inordinate. None were cited. There is guidance from the way cases were run before the case management rules introduced in 2003.5 Under rules in force from 1993 to 2003, leave was required to take a step in a proceeding if no steps had been taken for 12 months.6 Decisions under that rule made it clear that it was not to be used as a shortcut to dismiss a proceeding for want of prosecution. The rule and decisions under the rule show that delay for less than a year was not generally considered inordinate.7 In Re Imperial Gardens Apartments, Body Corporate 348047 v Auckland Council, Faire J did not consider that a delay of ten months was inordinate.8
[30] The circumstances of this case do not make the delay inordinate. While r
5.72 requires the notice of proceeding and statement of claim to be served as soon as practicable, the lapse of about four months in service is not so long as to make the delay inordinate.
[31] The council tried to characterise Warren and Mahoney’s delay as intentional and contumelious. While the delay was not justifiable, it arose from an honest mistake in judgment, a belief that it would be more efficient not to file a statement of defence in the ministry’s proceeding and to defer service of this proceeding while resolution with the ministry was explored. In Lovie Eichelbaum CJ said:9
I am not aware of any case in which the expression "contumelious" has been analysed for present purposes. Of various dictionary meanings, most closely in point are those on the lines of insulting or offensively contemptuous treatment. As a matter of semantics it may be argued that Lord Diplock had in mind conduct which was intentional (as distinct from accidental), that its
4 A third party notice must be issued within 10 working days after the time for a defendant to file a statement of defence has expired, but under the rule, the court may give longer time.
5 High Court Amendment Rules 2003.
6 High Court Rules 1985, r 426A inserted by High Court Amendment Rules (No 2) 1992, r 9; and substituted by High Court Amendment Rules 2003, r 7.
7 McEvoy v Dallison [1997] 3 NZLR 11 (CA); New Zealand Kiwifruit Marketing Board v Waikato Valley Co-Operative Dairies Ltd (1997) 10 PRNZ 431 (CA); Commerce Commission v Giltrap City Ltd (1997) 11 PRNZ 573 (CA); and Elvidge v ASB Bank Ltd [2015] NZHC 44 at [105].
8 Re Imperial Gardens Apartments, above n 1, at [46].
9 Lovie, above n 2, at 255.
effect was contumelious, and that it was unnecessary that the contumely was intended as such, but I prefer the view that the offence must be inflicted intentionally. More than unintentionally offensive conduct is required.
The plaintiffs' counsel has frankly explained the reasons for the 13-month hiatus. They do not excuse the delay; but on my interpretation the conduct falls short of deserving the epithet contumelious.
[32] On that approach, the delay was not contumelious.
[33] Because Warren and Mahoney’s delay in service was not inordinate, the Council cannot succeed under r 15.2. It is accordingly unnecessary at this stage to address the question of serious prejudice. It also arises under r 1.5 and will be addressed there.
Rule 1.5
[34] That leaves r 1.5:
1.5 Non-compliance with rules
(1) A failure to comply with the requirements of these rules—
(a) must be treated as an irregularity; and
(b) does not nullify—
(i) the proceeding; or
(ii) any step taken in the proceeding; or
(iii) any document, judgment, or order in the proceeding. (2) Subject to subclauses (3) and (4), the court may, on the ground that
there has been a failure to which subclause (1) applies, and on any
terms as to costs or otherwise that it thinks just,—
(a) set aside, either wholly or in part,—
(i) the proceeding in which the failure occurred; or
(ii) any step taken in the proceeding in which the failure occurred; or
(iii) any document, judgment, or order in the proceeding in which the failure occurred; or
(b) exercise its powers under these rules to allow any amendments to be made and to make any order dealing with the proceeding generally as it thinks just.
(3) The court must not wholly set aside any proceeding or the originating process by which the proceeding was begun on the ground that the proceeding was required by the rules to be begun by an originating process other than the one employed.
(4) The court must not set aside any proceeding or any step taken in a proceeding or any document, judgment, or order in any proceeding on the ground of a failure to which subclause (1) applies on the application of a party unless the application is made within a reasonable time and before the party applying has taken any fresh step after becoming aware of the irregularity.
[35] The delay in service in breach of r 5.72 was a failure to comply under r 1.5(1). That non-compliance does not nullify the proceeding unless the court makes an order under r 1.5(2). The power to make orders under r 1.5(2) is subject to the limitation under r 1.5(4).
Is the Council barred under r 1.5(4)?
[36] Warren and Mahoney submits that the Auckland Council cannot apply to set aside the proceeding under r 1.5(2) because the Auckland Council was aware of the irregularity in delay in service from the outset and it did not apply within a reasonable time. It refers to all the steps taken by the council referred to in [15] above, and notes that while the council was served in January 2015, it did not apply to set aside until 16 April, nearly three months later.
[37] The council was aware of the irregularity in the delay in service. It made a point of it by expressly referring to the date of service on the front page of its statement of defence.
[38] In response, the council says that the bar under 1.5(4) does not apply, because it reserved its rights. When it filed its statement of defence, it said in a covering letter to Warren and Mahoney’s lawyers:
The defence is filed and served without prejudice to our client’s:
…
(b) right under r 5.72 of the High Court Rules for prompt service of the claim.
[39] Every time it filed a document or served another party, it made corresponding statements in covering letters. Further, in a letter of 19 March 2015 the council’s lawyers took Warren and Mahoney’s lawyers to task for an inadequate explanation for the delay in service and said:
We expressly reserve our client’s position including to seek costs from your
client …
That can also be taken as a reservation of rights in respect of the delay in service.
[40] The clear purpose of sub-rule (4) is to ensure that alleged non-compliance with the rules is addressed promptly. It prevents parties taking points belatedly, once the proceedings have progressed beyond the act of alleged non-compliance. It serves a purpose wider than the interests of the parties in securing the just, speedy and inexpensive determination of a proceeding, the objective under r 1.2. Rule 1.5(4) is a deemed waiver provision. If a party does not take the appropriate steps in time, it will be treated as having waived the irregularity. But the rule gives only one way to avoid the waiver: by filing an application within a reasonable time and before taking other steps.
[41] The council says that because it reserved its rights, it did not waive the non- compliance with r 5.72. That ignores the text of r 1.5(4). Filing and serving documents on a “without prejudice” basis or while reserving rights does not amount to filing a setting-aside application under r 1.5(2). It is equivocal. “Without prejudice” and “reserving rights” do no more than announce that a party may at a later stage adopt a certain position, and steps being taken now are not a waiver of that position. They may accordingly postpone the time when a party decides whether to pursue the reserved step or position. Rule 1.5(4) does not, however, allow such deferral. Unless the other parties consented, the council had to apply to set aside the proceeding before taking any other steps. It could not leave to a later date its decision whether to apply to set aside. It cannot escape that by purporting to reserve its position or by filing documents on a “without prejudice” basis. Because it took other steps in the proceeding (all the steps in [15] above), after it was aware of the irregularity, the council is barred under r 1.5(4) from applying to set aside Warren and Mahoney’s proceeding.
[42] As to Warren and Mahoney’s submission that the council had applied outside the reasonable time allowed under r 1.5(4): even if that period is less than an inordinate time under r 15.2, I do not consider that the council’s application is outside the reasonable time limit. It was made soon enough after service. It is only the fact that it took steps while knowing about the irregularity that counts against the council.
Inherent jurisdiction
[43] The council also referred to the inherent jurisdiction as a basis for setting aside the proceeding. Rule 1.5 covers the effects of non-compliance with the High Court Rules. To the extent that the inherent jurisdiction could be invoked, it should not be applied so as to bring about a result inconsistent with the rule.
How should the court exercise the discretion under r 1.5(2)?
[44] The point reached so far is that the council’s dismissal application cannot succeed because of the bar under r 1.5(4) of the High Court Rules. What follows is in the alternative, in case I have erred in my decisions under rr 15.2 and 1.5(4).
[45] The council’s argument was that in the circumstances of this case, a decision under r 15(2) would lead to one of two parties suffering. If the proceeding were not struck out, it stood to be adversely affected. It also accepted that Warren and Mahoney would suffer if its claim were set aside. It said that as the innocent party, it should not have to bear the consequences of Warren and Mahoney’s non-compliance. They should fall on Warren and Mahoney, the party in breach. That argument is simplistic. All the circumstances are to be considered. But it does show that a relevant consideration is the council’s claim to have been prejudiced.
[46] In Metroinvest Anstalt v Commercial Union Assurance Co Ltd, the English
Court of Appeal considered a rule in terms very similar to r 1.5.10 Cumming-Bruce
LJ said:11
10 Metroinvest Anstalt v Commercial Union Assurance Co Ltd [1985] 1 WLR 513 (CA). Rules of the Supreme Court (UK), Ord 2, r 1.
11 At 520 and 521.
In my view it is plain that on the ordinary language of Ord 2, r 1 where there is a failure to comply with the rules, what has been done or left undone remains irregular until the court takes action either to kill the particular proceeding or to cure it, to adopt the language of Mr Lindsay. It is wrong to construe this rule as saying that something that is done which fails to comply with the rules is not to be treated as irregular until the opposite party successfully applies to the court to set the proceedings aside.
…
I would say that in most cases the way in which the court exercises its powers under Ord 2, r 1(2) is likely to depend upon whether it appears that the opposite party has suffered prejudice as a direct consequence of the particular irregularity, that is to say, the particular failure to comply with the rules. But I would construe Ord 2, r 1(2) as being so framed as to give the court the widest possible power in order to do justice.
Slade LJ said:12
Once a party to litigation has been guilty of a failure of the nature mentioned in Ord 2, r 1(1) which has not been waived by the other party, the court, in my opinion, has a general discretion under paragraph (2) to make such consequential orders dealing with the proceedings generally as it thinks fit, as Stephenson L.J., in the Leal case [1984] 1 W.L.R. 874, 882D, expressly recognised.
Of course, this is a discretion which must be exercised judicially. I would readily accept that the irregularity in the present case is of a nature which the court could and should have rectified, so long as it could have done so without injustice to the defendants: Compare, for example, Harkness v. Bell's Asbestos and Engineering Ltd.[1967] 2 Q.B. 729, 736, per Lord Denning MR. Furthermore, I accept that prejudice or lack of prejudice to the other party to the litigation is clearly a highly relevant matter in considering the interests of justice; it may be the all-important one.
[47] That has been followed in New Zealand.13
Did the delay prejudice the council?
[48] The question of serious prejudice to the defendant is one of the matters to be considered under r 15.2, as set out in Lovie v Medical Assurance Society of New Zealand Ltd.14 Further, prejudice is also relevant to an application under r 1.5(2). A
harmless failure to follow the rules may not warrant setting aside. A failure to
12 Metroinvest, above n 10, at 523.
13 Zaza v Becket (1998) 12 PRNZ 415 (HC).
14 Lovie, above n 2.
comply which results in prejudice to another party may provide a basis for setting aside.
[49] The council identifies three heads of prejudice: (a) It did not have access to the school site; (b) It has not had adequate particulars; and
(c) It has lost the opportunity to join further parties to the proceeding from whom it would also wish to claim relief.
[50] The school site is under the control of the plaintiffs. Once served, the council could have asked the Ministry to make arrangements for it to visit the school site. It demanded that Warren and Mahoney provide access. Warren and Mahoney’s lawyers passed that on to the ministry’s lawyers. I understand that arrangements have now been made to allow the council and other parties to the proceeding to inspect the school. Its ability to defend the proceeding has not suffered because it did not have access to the site before it was served.
[51] Similarly, lack of particulars in the statement of claim of Warren and Mahoney Ltd has not prejudiced the council in its defence. I gave directions for adequate particulars on 17 April. Complaints of inadequate particulars can be addressed with further case management. The alleged lack of particulars in Warren and Mahoney’s statement of claim, which repeats allegations in the ministry’s pleading, is not relevant to the council’s complaint as to delay in service.
[52] The council’s third head of prejudice is more significant. It alleges that it lost the opportunity to join other parties. It says that it has been prejudiced in its ability to claim relief from others involved in the design and construction of Albany Junior High School, because claims against them have become time-barred under s 392 of the Building Act. The 10-year limit runs from the acts or omissions which give rise to liability rather than from the occurrence of damage. By way of illustration, the council says that between 22 August 2004 (10 years before the Warren and Mahoney
proceeding was started) and 21 January 2005 (10 years before it was served) it received a number of producer statements from contractors and sub-contractors. The issue of incorrect producer statements is arguably an act or omission giving rise to liability. The time to sue some parties responsible for those producer statements expired while Warren and Mahoney delayed in service.
[53] It is not part of the Auckland Council’s case that it suffered prejudice because Warren and Mahoney did not issue the proceeding until 22 August 2014. It accepts that it cannot complain about delay in service where claims against potential third parties had expired before Warren and Mahoney began this proceeding. Equally, it does not complain of prejudice to the extent that it has been able to join other parties after it was served.
[54] For this decision, I assume that the loss of an ability to join other parties, with a view to reducing the council’s net liability under any award to Warren and Mahoney, is an available head of prejudice. In Snelling v Christchurch City Council, French J said:15
As for the loss of the right to seek contribution from a co-defendant or respondent, I accept that this too is a matter which has been held capable of amounting to undue or serious prejudice for the purposes of the strike out rule.
[55] On the other hand, in Auckland Council v Weathertight Homes Tribunal, Ellis J pointed out that French J’s statement was obiter. She said:16
And while I accept that there is, at least, contingent prejudice to the Council in its inability to join other respondents with whom it might ultimately be able to share the load, it is only a chance that has been lost; the prejudice is necessarily inchoate. Importantly, the Council has not said that its ability to defend the claim against it by the Callaghans has been impeded by the delay. There are, accordingly, no fair trial issues strictly so called. It would in my view be wrong in principle for the Council to escape its liability entirely simply because the others who are also potentially liable for the same loss cannot now be held to account.
15 Snelling v Christchurch City Council HC Christchurch CIV-2010-439-2344, 9 August 2011 at
[71] (footnote omitted).
16 Auckland Council v Weathertight Homes Tribunal [2013] NZHC 3274 at [30].
[56] On the facts in that case, she held that the inability to seek contribution was beside the point.17 Her judgment nevertheless recognised the possibility of prejudice from inability to seek contribution from other tortfeasors, although she doubted that it would ordinarily amount to serious prejudice so as to warrant dismissal for want of prosecution.18 Her doubts go more to the weight to be given to the prejudice.
[57] To work out the question of prejudice, it is helpful to understand the council’s position in the proceeding generally. The ministry has sued only one defendant, Warren and Mahoney. The ministry has claimed for all the estimated costs of repairing damage to the school buildings. The claim against Warren and Mahoney is
for solidary liability.19 If Warren and Mahoney is found liable to the ministry for all
the costs of repair, it is no defence to the ministry’s claim that others involved in the design and construction of the school buildings also breached their obligations to the ministry. Under tort solidary liability rules, Warren and Mahoney will be required to pay the full measure of damages, even if others may have had greater responsibility for causing the same damage. As the ministry has not sued it, the council is not at risk of solidary liability.
Has the council lost the opportunity to claim contribution?
[58] Warren and Mahoney’s claim against the council is for contribution under s 17(1)(c) of the Law Reform Act 1936 on the grounds that both Warren and Mahoney and the council were tortfeasors who caused the same damage. In a contribution claim under s 17, where both tortfeasors are found liable for the same damage, the person required to make a contribution under s 17 may be ordered to pay an amount “such as may be found by the court to be just and equitable having
regard to the extent of that person’s responsibility for the damage”.20 The court is
accordingly required to assess the extent of that person’s responsibility in proportion to the relative responsibility of all the tortfeasors who caused the same damage.
Causative potency and relative blameworthiness are assessed. The award is very
17 Auckland Council v Weathertight Homes Tribunal above n 16 at [33].
18 At [31].
19 See the Law Commission Apportionment of Civil Liability (NZLC R47, 1998), cited in Auckland
Council v Weathertight Homes Tribunal, above n 17, at [28].
20 Law Reform Act 1936, s 17(2).
much a factual assessment. As an example, in Mt Albert Borough Council v Johnson,21 the local authority was found to be one-fifth responsible on an apportionment under s 17(2).
[59] Because an award under s 17(2) of the Law Reform Act 1936 fixes the council’s proportionate responsibility vis-à-vis other tortfeasors, there is no point in the council attempting to join other third parties into the proceeding on the basis that the council has a further claim against those other tortfeasors for contribution under s 17. Because the council is not under solidary liability, it cannot make a contribution claim against other tortfeasors to require them to share its particular liability. Any award Warren and Mahoney may obtain against the council will fix the amount for which the council is proportionately liable vis-à-vis other tortfeasors. The council will therefore not be able to claim against other tortfeasors for further contribution. An award under s 17(2) against the council does not give the council a contribution claim against other tortfeasors.
[60] As an aside, this position does not arise in proceedings under the Weathertight Homes Resolution Services Act 2006. All those facing claims under that act are respondents, whether they are cited by the claimants at the outset or added later under s 111 on the application of other respondents. All respondents, including those joined by other respondents, may be held liable to the claimants and accordingly all have solidary liability. In Body Corporate 85978 v Wellington
CityCouncil the court said:22
Certainly conceptually, the joinder of further claimants increases the size of the claims, whereas joinder of additional respondents introduces the prospect of spreading the same extent of liability between a greater number of liable parties.
Has the council lost the opportunity to make other claims?
[61] A contribution award under s 17(2) fixes a tortfeasor’s proportionate liability
as against all other tortfeasors generally. There is a further question whether a tortfeasor may be able to claim against another because the other breached a
21 Mt Albert Borough Council v Johnson [1979] 2 NZLR 234 (CA).
22 Body Corporate 85978 v Wellington City Council [2013] NZHC 2852 at [43].
particular duty owed to the tortfeasor. Where one tortfeasor has incurred liability to a plaintiff arising out of a breach of contract by another tortfeasor, a contribution award under s 17(2) does not bar a claim against the other tortfeasor for breach of contract.23 Potentially a damages award for breach of contract may indemnify the tortfeasor for its proportionate liability to the plaintiff. The reason for this is that whereas a tortfeasor may incur liability to a plaintiff for breach of a duty owed to
that plaintiff, that breach of duty does not give a defence to a claim for breach of contract against another tortfeasor.24
[62] The council does not assert claims for breach of contract against other tortfeasors, but in addition to its contribution claims it says that it can sue some others involved in the design and construction of the school buildings for faulty producer statements on which it relied when it issued code compliance certificates. Its pleadings against other parties include causes of action for negligent misstatement and misleading conduct under s 9 of the Fair Trading Act 1986. No doubt it would wish to make similar claims against those it says it has not been able to join. At a stage in the proceeding where the parties’ cases can be assessed only on the pleadings, it is arguable for the council that claims for negligent misstatement or misleading conduct under the Fair Trading Act are not barred by a contribution award under s 17(2). The reasoning in the case of a claim for breach of contract against another tortfeasor may also apply to these claims. When inspecting buildings and issuing code compliance certificates, the council owes a duty of care to the building owner, but it does not owe any such duty to contractors working on the
site.25 The council may plausibly argue that contractors providing producer
statements or equivalent information to satisfy the council that it may issue a code compliance certificate assume responsibility to it under Hedley Byrne & Co Ltd v Heller & Partners Ltd for the accuracy of the information provided.26 Extending
the principle in the breach of contract cases to the tort cause of action is acceptable,
23 Sims v Foster Wheeler Ltd [1966] 1 WLR 769 (CA), Southland Harbour Board v Vella [1974] 1
NZLR 526 (CA) at 529.
24 Mowbray v Merryweather [1895] 2 QB 640 (CA).
25 Anns v Merton London Borough Council [1978] AC 728 (HL) at 758; J W Harris & Son Ltd v Demolition & Roading Contractors (NZ) Ltd [1979] 2 NZLR 166 (SC) at 178; and Three Meade Street Ltd v Rotorua District Council [2005] 1 NZLR 504 (HC) at [54].
26 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] 2 AC 465 (HL).
given that there is a common element of assumption of responsibility.27 There is no reason for treating a claim under s 9 of the Fair Trading Act more restrictively.
[63] While the council cannot have a contribution claim against other tortfeasors under s 17(2) of the Law Reform Act, it is arguably prejudiced to the extent that it lost the opportunity to join other parties for claims of negligent misstatement or misleading conduct under the Fair Trading Act because those claims became time- barred under s 392 of the Building Act, while Warren and Mahoney delayed in serving the council.
How serious is that prejudice?
[64] The council listed 16 producer statements the North Shore City Council received from ten contractors and subcontractors between August 2004 and 22
February 2005. It claimed prejudice because it could not sue the contractors and subcontractors who gave those statements. It did not identify the particular causes of action against those contractors, but going by its pleadings against other parties, I take it that it would allege negligent misstatement and misleading conduct under the Fair Trading Act.
[65] It also alleged that it had suffered prejudice through not being able to sue those who had not issued producer statements, but that cannot be right. Those claims could not be for breach of a particular duty, but only for contribution, and in the circumstances of this case, the council does not have a contribution claim against contractors.
[66] Many of those contractors and subcontractors are already parties: Framerite Installations Ltd, Façade Design Services Ltd, Structure Design Ltd, Brookfield Multiplex Constructions (NZ) Ltd and Aquastop Ltd. Warren and Mahoney sued Framerite; the council joined the others. It has therefore not lost the opportunity to sue those parties. Of the others, PBS Contracting Ltd has been in liquidation since
23 August 2013; Waterproofing Services Ltd went into liquidation on 4 June 2010 and was removed from the register on 20 March 2014; Warren and Mahoney is suing
its director, Mr Alarcon; and Caves Ltd was struck off the register on 7 July 2011.28
Those others could not have been sued, even if Warren and Mahoney had served the council promptly. That leaves Jay Cee Welding Ltd, a structural steelwork erector, Meridian Construction Ltd, who did timber framing, and Astor Construction Ltd, another framing contractor. Only those three are not in liquidation, and remain on the Companies Register. At present there is no information that they are insolvent and uninsured. The council’s prejudice argument is reduced to a claim that it has lost the opportunity to sue those three subcontractors.
[67] Warren and Mahoney submitted that no relevant defects were alleged in respect of the work of these three companies. I put that to one side. At this stage where defects and damage are still being identified, it would not be safe to hold that against the council. The council cannot be expected to have complete knowledge of the causes of defects at this stage of the case. There are however other matters that go to the extent of prejudice.
[68] In claims against those subcontractors for breach of a particular duty, the council could only recover damages for any liability it has incurred resulting from the subcontractors’ particular breaches of duty to the council. So a claim against a timber framing contractor would not cover any council liability for defects in steelwork. In short, in its lost claims against these three companies, the council could not hope to obtain a complete indemnity for any contribution award against it.
[69] Moreover, the lost opportunity to sue those companies may not matter if the council is able to recover from others also responsible for the same damage. In the circumstances of large building contracts involving a number of contractors, it is unlikely that just one contractor was responsible for a particular class of defects. In those circumstances, the lost opportunity becomes significant only if others responsible are not worth suing.
[70] Warren and Mahoney has already joined the major players. Although in liquidation, Brookfield Multiplex Constructions (NZ) Ltd is understood to have
insurance cover. The prospect of not being able to recover from other parties seems remote.
[71] In these circumstances, it is hard to see that the council has been seriously prejudiced in not being able to sue Jay Cee Welding Ltd, Meridian Construction Ltd and Astor Construction Ltd for negligent misstatement and breach of the Fair Trading Act. The complaint of prejudice is more theoretical than real. For an application to dismiss for want of prosecution, the prejudice is not serious.
The Birkett v James point
[72] Warren and Mahoney submits that if the court were to strike out its proceeding for delay in service, it could begin a fresh proceeding. Indeed, out of caution, it did start a new proceeding under CIV-2015-404-1742 to preserve its position. It filed it in time to avoid being caught by the 10-year limitation under s 392 of the Building Act. The council complains that that is an abuse of process, but there is authority to permit the start of a fresh proceeding in these
circumstances.29 A plaintiff whose proceeding is struck out for non-compliance with
a procedural rule is free to begin again, so long as the limitation period has not expired. Birkett v James is authority upholding the right of a plaintiff to start afresh inside the limitation period. Lord Diplock said:30
… I am of opinion that the fact that the limitation period has not yet expired must always be a matter of great weight in determining whether to exercise the discretion to dismiss an action for want of prosecution where no question of contumelio+us default on the part of the plaintiff is involved; and in cases where it is likely that if the action were dismissed the plaintiff would avail himself of his legal right to issue a fresh writ the non-expiry of the limitation period is generally a conclusive reason for not dismissing the action that is already pending.
He also made the point that the new proceeding may cause greater prejudice to the defendant than leaving the current one running:31
Upon issuing his new writ the plaintiff would have the benefit of additional time for repeating such procedural steps as he had already completed before
29 Driver v Raymond Donnelly & Co HC Christchurch CP 31/95, 22 July 1999 at [61]. The plaintiff in Birkett v James did the same.
30 Birkett v James [1978] AC 297 (HL) at 322.
31 At 320.
the action was dismissed. This can only aggravate; it can never mitigate the prejudice to the defendant from delay.
[73] While that was a decision on dismissal for failure to prosecute, I regard the principle as also applicable to applications under r 1.5(2). If the council has been prejudiced by Warren and Mahoney’s delay in not serving the proceeding until January 2015, it stands to suffer greater prejudice under the new one issued in July. In that proceeding, it may not be able to join those it has added as parties in this one.
[74] Warren and Mahoney’s ability to start afresh is a conclusive reason for not setting aside its claim against the council.
Outcome
[75] The council has not made out a case for dismissal for delay under r 15.2. The delay in service was not inordinate. The alleged prejudice is not serious. The application also fails because Warren and Mahoney can start again.
[76] As for setting aside under r 1.5, the application must fail because of the bar under r 1.5(4). Besides, the council fails on the merits. In applications under r 15.2 it is established that the governing consideration is whether justice can be done despite the delay. That applies in this case too. Again the prejudice is not so serious as to require Warren and Mahoney’s claim against the council to be set aside. Moreover, making the order the council seeks stands to cause it greater hardship because of Warren and Mahoney’s right to begin a fresh proceeding.
[77] Accordingly I make these orders:
(a) Warren and Mahoney may continue with its proceeding against the council, notwithstanding the delay in service; and
(b) The council’s application is dismissed.
[78] I invite the parties to confer on costs. If they cannot agree, memoranda may be filed. In that case, I will decide costs on the papers.
…………………………………
Associate Judge R M Bell
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