IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
CIV-2014-412-001 [2016] NZHC 684
BETWEEN MONTECILLO TRUST
Plaintiff
AND
STEVENSON BROWN LIMITED Defendant
Hearing: 23 and 24 November 2015 Appearances:
D R Tobin and J C McLeod for the Plaintiff
R W Raymond for the DefendantJudgment:
14 April 2016
JUDGMENT OF DAVIDSON J
(with answers to two preliminary questions)
MONTECILLO TRUST v STEVENSON BROWN LIMITED [2016] NZHC 684 [14 April 2016]
Para
INDEX
[1] Introduction
[14] The two (formerly three) preliminary questions
Question (1): Was the model IPENZ/ACENZ SHORT FORM AGREEMENT (the short form agreement) incorporated into the contract between the Plaintiff and the Defendant by reason of a previous course of dealings between the Plaintiff’s agent, Mr Rutter, and the Defendant?
[19] Some observations
[21] The ‘agent to know’
The evidence relevant to Question (1)
[24] The engagement of Mr Rutter by Montecillo
[37] The course of dealing between Mr Rutter and Stevenson Brown
[49] The engagement of Stevenson Brown by Mr Rutter for Montecillo
[64] Discussion – Question (1)
[66] Course of dealing – the knowledge held by Mr Rutter
[88] Should Mr Rutter’s ‘knowledge’ be imputed to Montecillo?
[114] Answer to Question (1)
Question (2): Whether the plaintiff’s claim in negligence was commenced after the period allowed for a cause of action in tort by the Limitation Act 1950?
[115] Introduction
[120] The evidence relevant to Question (2)
[160] Discussion - Question (2)
[165] Montecillo’s observation and understanding of defects and damage before
19 December 2007
[178] Montecillo’s understanding and response to the defects and damage
observed
[212] Montecillo’s doubt as to the cause of the defects and damage observed
[217] Answer to Question (2)
Formal Disposition of Questions for Preliminary Determination
Leave Reserved Addendum Annexures A and B
Introduction
[1] Montecillo Trust (‘Montecillo’) owns, and through a company operates, a rest home and hospital (‘the Home’) for veterans and their families at 63 Bay View Rd, St Kilda, Dunedin.
[2] Construction of the Home began in 2005 and Montecillo took occupation in August 2006. The building has been damaged by settlement which Montecillo alleges was caused by the negligence of the defendant engineering company, Stevenson Brown Ltd (‘Stevenson Brown’), in the design and specification of the foundations, and supervision of their construction.
[3] The name Montecillo derives from premises purchased following public subscription in Otago and Southland for a Red Cross military convalescent home, for those returning from The Great War of 1914-1918. The New Zealand Patriotic and Canteen Funds Board ran Montecillo. The Montecillo Trust was established to acquire the former Home in Mornington, Dunedin, and the trustees later took the decision to build a new Home in Bay View Rd.
[4] Montecillo engaged Mr David Rutter, an architectural designer. He has qualifications in draughting, and is a licensed building practitioner, a status accorded to those considered competent to work on the structure and weather-tightness of residential and small to medium sized apartment buildings. He had carried out redesign and upgrade work for Montecillo and its predecessor at the former Home in Mornington. He was engaged to design the new Home, and to recommend the engagement of other professionals and tradespeople and in some cases to engage them on behalf of Montecillo. He was also variously described in evidence as the project manager, and having a supervisory role, although those descriptions are not expressed in contractual documents before the court. He was described in the contract with the builder, Lund South Ltd, as the “Engineer” but he has no engineering qualification.
[5] The reasons for, and the terms and conditions of Mr Rutter’s engagement, including the scope of his authority as an agent for Montecillo, are evidentially and at law for consideration in this judgment.
[6] Mr Rutter had been professionally involved with the defendant engineers, Stevenson Brown, since that company was incorporated in 2004 by Mr Nicholas Brown and Mr Peter Stevenson. He had not worked with them on any Montecillo project. Montecillo had no previous dealings with Stevenson Brown. It accepted Mr Rutter’s recommendation that Stevenson Brown be engaged to design, and then supervise construction of the foundations for the Home.
[7] Montecillo says that substantial remedial work will be required to rectify the damage caused by settlement of the building. It pleads that Stevenson Brown is in breach of a duty to exercise reasonable care and skill in the design, specifications and supervision of construction of the foundations, in that it failed to carry out sufficient geotechnical investigation of the site, and to properly interpret the results of investigations that it did carry out.
[8] Stevenson Brown admits an implied term that it would exercise reasonable care and skill, but denies liability and raises two defences, reflected in the questions for answer in this judgment.
[9] First, it pleads that Montecillo’s claim filed in this court on
19 December 2013 is statute barred under s 59 of the Limitation Act 2010 and s 4 of the Limitation Act 1950. It says that damage to the building and its possible cause was known or should have been known to Montecillo, as the law addresses knowledge for the purpose of assessing a limitation period in tort, in July 2007 or earlier, thus prior to an earthquake off Fiordland felt in Dunedin on 16 October 2007, but in any event prior to 19 December 2007. The onus in that regard lies on the defendant.
[10] Further, Stevenson Brown pleads that its contract with Montecillo included the IPENZ/ACENZ “Short Form Agreement for Consultant Engagement (Commercial)” which in turn referred to the ‘Short Form Model Conditions of
Engagement (Commercial)’ (‘the model conditions’). IPENZ stands for Institute of Professional Engineers New Zealand, and ACENZ for Association of Consulting and Engineering in New Zealand. The short form agreement and the model conditions are linked documents, referred to collectively as the “SFA” unless differentiated in this judgment.
[11] Mr Rutter engaged Stevenson Brown on behalf of Montecillo in February 2005, to undertake engineering design work. An SFA was not sent by Stevenson Brown to Montecillo, or to Mr Rutter as its agent at that time. Nor was it discussed. Well into Stevenson Brown’s contractual performance an SFA was signed by Mr Brown, dated 22 April 2005, and faxed to Mr Rutter on that date. He did not send it on to Montecillo. It was never signed by or for Montecillo, despite provision for its signature. Montecillo did not know of its existence until 2011, although the model conditions were sent with the Stevenson Brown invoices.
[12] The SFA sent to Mr Rutter on 22 April 2005 is Annexure A to this judgment.
[13] Should they apply, the model conditions for commercial work include two conditions of consequence to this action brought by Montecillo, namely the six year contractual limitation period in clause 8, and the application of clause 7 which, given the fees charged by Stevenson Brown to Montecillo, would limit its liability to
$100,000.00.
The two (formerly three) preliminary questions
[14] On 28 August 2015 Associate Judge Matthews ordered a split trial, given these two defences. Three questions were agreed between the parties but one has fallen away. The two remaining are framed as follows, and renumbered for this judgment:
(1)Was the model IPENZ/ACENZ SHORT FORM AGREEMENT (the short form agreement) incorporated into the contract between the Plaintiff and the Defendant by reason of a previous course of dealings between the Plaintiff ’s agent, Mr Rutter, and the Defendant?
(2)Whether the Plaintiff ’s claim in negligence was commenced after the period allowed for a cause of action in tort by the Limitation Act 1950?
[15] The factual matrix relevant to the limitation period focuses on what was known and understood, or should have been known and understood, by Montecillo regarding damage to the Home before 19 December 2007. That evidence includes a list of defects drawn up in July 2007 by Mr Peter Martin who did maintenance and other work for Montecillo. This is described in the judgment as ‘the July 2007 list’. The list is headed “Building Inspection carried out July 2007”, and as it is central to the limitation question, it is Annexure B to this judgment.
[16] Mr Raymond, counsel for Stevenson Brown, submits that the July 2007 list, with other evidence, establishes that time began to run for the purpose of limitation before July 2007, but otherwise at that time, or before 19 December 2007. The plaintiff, through counsel Mr Tobin and Ms McLeod, submits that Montecillo was not relevantly aware of the possible cause of damage before, at the earliest, January 2008.
[17] The factual matrix is different as to whether the SFA applies to the contract between Montecillo and Stevenson Brown. Montecillo says the SFA is not part of the contract because it was not sent to Mr Rutter or direct to Montecillo until well after the engagement of Stevenson Brown, and when work had already been undertaken by it. Mr Tobin for Montecillo refutes the argument by Mr Raymond that the SFA was incorporated because Mr Rutter knew from his course of dealing with Stevenson Brown that it employed SFAs, with different model conditions for residential (domestic) and commercial work, and would do so in this instance. Mr Raymond submits that Mr Rutter’s knowledge and expectation of this is to be imputed to Montecillo under the construct of “an agent to know”. Such agency is predicated on several considerations including the knowledge held by the agent, whether that knowledge was inherent in the agency, and when in law the knowledge of the agent should be imputed to the principal.
[18] The evidence was in sharp contest on several issues, and was addressed with commendable focus by counsel. The narrative of events means it is convenient to first address the contractual terms.
Question (1): Was the model IPENZ/ACENZ SHORT FORM AGREEMENT (the short form agreement) incorporated into the contract between the Plaintiff and the Defendant by reason of a previous course of dealing between the Plaintiff ’s agent, Mr Rutter and the Defendant?
Some observations
[19] First, the question is framed in this way because the SFA with the model conditions would not otherwise be part of the contract between Montecillo and Stevenson Brown, as it was not sent directly to Montecillo, or to Mr Rutter, until well after the contract was formed, and work had been undertaken. Mr Tobin for Stevenson Brown refers to Chitty on Contracts:1
Time of notice. The conditions must be brought to the notice of the party to be bound before or at the time when the contract is made. If they are not communicated to him until after the contract is concluded, they will be of no effect.
[20] The evidence of the formation and recording of the various contractual relationships between Montecillo, Mr Rutter, and Stevenson Brown, merits the preliminary comment that it demonstrates a remarkably relaxed and informal approach by all of them, for what was a significant project.
The ‘agent to know’
[21] The knowledge of an agent acquired before the agency began, or during its course but outside the scope of the agency, is not in general imputed to the principal. An exception to the general rule may apply if the scope of the agency is that of an
‘agent to know’ in a given case. The expression encompasses what the agent knew
about factors relevant to the contract, what the principal understood the agent knew,
1 HG Beale (ed) Chitty on Contracts (31st ed, Sweet & Maxwell Ltd, London, 2012) vol 1 at
[12-010].
and whether the agent’s knowledge should be imputed so as to bind the principal in
his contractual relationship with a third party.
[22] The principle is reflected in early authority, in the judgment of Lord Halsbury
LC in Blackburn Low & Co v Vigors:2
Some agents so far represent the principal that in all respects their acts and intentions and their knowledge may truly be said to be the acts, intentions, and knowledge of the principal. Other agents may have so limited and narrow an authority both in fact and in the common understanding of their form of employment that it would be quite inaccurate to say that such an agent’s knowledge or intentions are the knowledge or intentions of his principal; and whether his acts are the acts of his principal depends upon the specific authority he has received.
[23] Mr Raymond submits that Mr Rutter knew from his course of dealing with Stevenson Brown that it used the SFA in its contracts, and that he thought it would do so here and be part of the contract with Montecillo. Even though it was sent to him for Montecillo after part performance by Stevenson Brown, the expectation that it would be sent by Stevenson Brown at some stage, as part of its usual practice, is submitted to bind Montecillo on the basis that Mr Rutter was an ‘agent to know’ of this practice.
The evidence relevant to Question (1)
The engagement of Mr Rutter by Montecillo
[24] Mr Rutter was engaged for different purposes by Montecillo. The Minutes of the combined meeting of the Montecillo Trust and the Board of Montecillo Veterans Home & Hospital Ltd on 13 January 2004 read:
Resolution:
Discussion resolved that David T Rutter and Associates be commissioned to Design Plan and Oversee the construction of the new Montecillo Veterans Home and Hospital on terms and conditions approved by M.T.
Moved: J Campbell Seconded: D More CARRIED
2 Blackburn Low & Co v Vigors (1887) 12 App Cas 531 (HL) at 537-538.
[25] There were no terms and conditions discussed, approved, or documented, on the evidence, although Mr Rutter thought there might have been.
[26] Mr David More is a senior Dunedin legal practitioner. He became Chair of Montecillo Trust in 2008 on the retirement of Dame Dorothy Fraser, and has been a trustee since its registration under the Charitable Trusts Act 1957, in January 2002. Mr More said that Mr Rutter was to “…engage sub-consultants for the team of designers to design the Home and then oversee its construction”. He first thought that the Trust would be in contract with Mr Rutter who would sub-contract work to other consultants, but accepted in evidence that Mr Rutter was in contract with Montecillo for his own work, and recommended and as agent arranged contracts with other professions and trades. He recommended Stevenson Brown, and this was accepted by Montecillo. When asked whether the Trust authorised Mr Rutter to engage Stevenson Brown, Mr More answered “not specifically”. He recalls a meeting of trustees when a building contract with Lund South was approved but does not recall any formal discussion between the Trust and Mr Rutter as to “who did what, who was responsible for this, who was responsible for that”.
[27] Mr More said he cannot recall what he knew of the several contracts that were entered for work associated with the new Home but said “…it was probably not very much. It was, there was a fair bit of informal discussion behind the scenes which were not always minuted at boards.”
[28] Mr More’s evidence is qualified by the fact that he did not have direct involvement with Mr Rutter when he was engaged. On other evidence, Dame Dorothy Fraser as Chair, and possibly Mr Daniel as Chief Executive Officer of the Trust, met Mr Rutter and discussed the engagement of Stevenson Brown and others.
[29] I find that Stevenson Brown was approved for engagement, most likely by Dame Dorothy Fraser at least, and that Stevenson Brown invoices were passed to Montecillo and paid. Mr More thinks invoices were approved at management level which “at least” involved Mr Daniel and possibly Dame Dorothy.
[30] Mr More did not accept that Mr Rutter had previously worked for the Trust, nor that the trustees simply left matters to him to deal with as he saw fit. He said that Mr Rutter had worked for the Patriotic and Canteen Funds Board, not Montecillo. Mr More confirmed that his knowledge and expertise was a factor in the decision to engage him. That confirmation did not identify what specific knowledge or expertise influenced the decision to engage him but it included his design credentials for rest homes and hospitals, and his experience with such projects, including his knowledge of professionals and tradespeople he thought suitable to work on the new Home.
[31] Mr Frederick (Fred) Daniel is the Chief Executive Officer of Montecillo and has been involved with the Trust and its predecessor since May 1997. The Patriotic and Canteen Funds Board engaged Mr Rutter twice, first to prepare plans for a hospital wing, which project did not proceed, then to design a 15 bed hospital building at Eglinton Rd, Dunedin, constructed by Naylor Love. Mr Rutter was the “obvious” choice for the trustees when it came to design the new Home because of his satisfactory work in the past, and the fact that he was known to be an accredited designer of aged care facilities. Mr Daniel understood the Trust expected Mr Rutter to assemble and lead a design team, and then supervise construction. Mr Daniel does not recall a discussion about others Mr Rutter proposed be engaged, but he knew of the quantity surveyor.
[32] Mr Daniel was at the meeting of trustees on 13 January 2004 when they resolved to engage Mr Rutter on terms and conditions to be approved. He does not remember any approval. He said that Mr Rutter’s terms and conditions would not have been referred to him, and if they had, then that would have been of moment.
[33] It was put to Mr Daniel that once the costs of the build were ascertained using Mr Rutter’s concept design, Mr Rutter discussed his role with Mr Daniel and Dame Dorothy Fraser. Mr Daniel could recall neither that, nor a list of consultants put forward by Mr Rutter, which included Stevenson Brown. He did not accept that Mr Rutter put forward recommendations which were accepted by Dame Dorothy and him. He does not think he had the authority to do that.
[34] Mr Rutter has over 40 years experience as an architectural designer, and has practised on his own account for most of that time. He was a consultant to Ryman Healthcare for the design of aged care facilities throughout New Zealand, and aged care facilities in Dunedin.
[35] Mr Rutter’s work with the old Montecillo Home began in about 1994 when it was administered by the Patriotic and Canteen Funds Board. When the trustees decided to build the new Home at Bay View Rd his brief was first to produce a design. In the main his instructions came from Mr Daniel and the then Chair, Dame Dorothy Fraser. He thought his engagement stemmed from his earlier work, and his involvement with the aged care industry. He thinks there was a letter from the Trust recording his engagement but he lost his office records in a 2005 flood, “the whole nine yards”, including anything that may have related to Montecillo. There was at best an intent to approve terms and conditions, and some documentation may have existed, but there is no evidence of such from Mr Rutter or Montecillo.
[36] Mr Rutter says he met with Mr Daniel and Dame Dorothy in Mr Daniel’s office, and he recommended various consultants and tradespeople, who included Stevenson Brown. He recalls the instructions that Mr Brown be retained as engineer, and Mr van der Loo as quantity surveyor. Others were discussed by profession only, and not named. Dame Dorothy and Mr Daniel gave approval when required. He says that he had other discussions with Mr Daniel, which he characterised as his saying: “Such and such has put forward this offer, the other guys are these: so we’ll run with these fellows”.
The course of dealing between Mr Rutter and Stevenson Brown
[37] The evidence of the course of dealing between Mr Rutter and Stevenson Brown is central this judgment, given the contention that from that course of dealing Mr Rutter held knowledge which is to be imputed to Montecillo.
[38] Although Stevenson Brown was contracted in February 2005, the SFA was not sent to Mr Rutter by Mr Brown until 22 April 2005. It was not sent on to
Montecillo, not signed by Mr Rutter as agent, not signed by Montecillo, and there is no evidence it was ever agreed to apply when the contract between Montecillo and Stevenson Brown was made. Any relevant knowledge held by Mr Rutter could only derive from his course of dealing with Stevenson Brown on other projects.
[39] Mr Brown, a principal of Stevenson Brown, holds a Bachelor of Engineering (Honours), a Masters of Engineering (Civil) and a Masters of Fire Engineering. He is a member of IPENZ and Stevenson Brown is a member of ACENZ.
[40] Mr Brown understands that the SFA is a standard form used in engineering contracts, and while there are some differences, the forms for commercial and domestic (residential) engagements are similar. Stevenson Brown uses SFAs, and has done since it began business under that name following its incorporation in 2004. The model conditions for domestic (residential) and commercial contracts differ in that the model (residential) conditions do not cap liability, and make no reference to the insurance cover held. Where commercial clients require increased insurance cover, Mr Brown says the increased premium is reflected in the fees charged. The cover may be as much as $5,000,000, and by way of example Mr Brown refers to work undertaken for Otago University, when increased cover was placed. There seems little point in increasing insurance cover if the liability cap does not reflect that.
[41] Mr Brown’s professional relationship with Mr Rutter has been longstanding and amicable, since the mid-1990s. The first mutual engagement between Mr Rutter and Stevenson Brown was for (residential) work. An SFA was provided to Mr Rutter by Stevenson Brown under cover of a letter dated 23 April 2004, which read:
Regarding our engagement to provide you with an engineering consultancy service, we enclose an IPENZ/ACENZ standard form of agreement, which details the conditions of our engagement and sets out the scope and nature of the services we are to provide.
Please have the client sign the form and return it to our office. They should keep the copy for their own records.
Should you have any queries or require any further information please contact the undersigned.
[42] In July 2004, Stevenson Brown was engaged for the structural design of a residential unit development at Goldfield Heights, Queenstown. A letter of
13 July 2004 was sent to Mr Rutter, which read:
Thank-you for engaging us to carry out the structural design for the above residential units. Please find attached industry standard, model IPENZ/ACENZ conditions of engagement for [*’s] information. The extent of our engagement is, we understand, the structural design as outlined on the form.
…
If the conditions of engagement are acceptable, the client should sign the form and return it, keeping a copy for themselves.
[43] There were thus clear statements by Stevenson Brown in these earlier engagements that the client should consider the terms and conditions proposed under the SFA, and if acceptable sign and return it. Whether these communications were sent before or after Stevenson Brown’s work began is not clear. On their face they appear to be in the initial stage of contract formation with the request for client signature and return, and for Goldfield Heights expressed as “if … acceptable”. However, as the evidence clearly demonstrates there was often a disconnect between the beginning of its work and Stevenson Brown sending the SFA to the client. Such was the case with Montecillo.
[44] A commercial contract for a canopy extension at Kaikorai Valley Shell Oil NZ station followed on 20 July 2004. A fee proposal was sent to Mr Rutter, again based on the model IPENZ/ACENZ Conditions of Engagement. Stevenson Brown’s covering letter of 20 July 2004 did not ask that the client sign and return the form, but the fee proposal was couched in the form of an ‘offer’ based on the model conditions, which has the hallmarks of contract formation.
We estimate that our fee for this project will be $900 plus GST (plus or minus 15%). Within this fee we have allowed to:-
·Preliminary structural design to confirm main structural sizes for cost estimates.
·Finalise the structural design and supply details to be included on the architectural drawings.
·Check the structure on the drawings and issue a Producer Statement and a Structural Design Features Report.
· Visit the site once during construction to review ground conditions.
Our fee is offered on the basis of model IPENZ/ACENZ conditions of engagement.
[45] Mr Brown says that Stevenson Brown and Mr Rutter were mutually engaged
16 times before the SFA relating to Montecillo was faxed to Mr Rutter on
22 April 2005 by which time Stevenson Brown had already been at work for two months. The relevant course of dealing here is between the first mutual engagement of Mr Rutter and Stevenson Brown on or about 23 April 2004, and mid February 2005 for Montecillo. By 3 March 2005 Mr Brown thinks 13 SFAs had been sent to Mr Rutter, although some of the files do not have an SFA on them, perhaps because they were small jobs, and may have been overlooked. He says the “usual practice” was to issue SFAs:
I endeavour to send out the Short Form Agreement when asked to quote for a project (which is unusual when we are engaged through Dave Rutter), otherwise after the brief has been established and before, or with, the issue of the PS1 Producer Statements.
[46] He says that because of work pressures and meeting deadlines the SFA often accompanies the first invoice, thus after work has been done, and “I believe that David Rutter knew that Stevenson Brown contracted on the basis of Short Form Agreements from the previous jobs.”
[47] Any relevant course of dealing between Mr Rutter and Stevenson Brown crystallised when Stevenson Brown was engaged in February 2005. Only three of the engagements prior to this point had been for commercial work. Mr Brown’s Montecillo file was opened sometime in the week of 18 February 2005, and by that date he had sent 11 SFAs to Mr Rutter. None of the SFAs before the Court bear a client signature. Mr Brown said none of the SFAs sent to Mr Rutter were ever signed by the clients and returned.
[48] This is an appropriate point to set out, for emphasis, that part of the SFA
which reads:
The Client engages the Consultant to provide the services described above and the Consultant agrees to perform the services for the remuneration provided above. Both parties agree to be bound by the provision of the Short
Form Model Conditions of Engagement (overleaf), including clauses 1 and
7, and any variations noted below. Once signed, this agreement, together with the conditions overleaf and any attachments, will replace all or any
oral agreement previously reached between the parties. (Emphasis added)
The engagement of Stevenson Brown by Mr Rutter for Montecillo
[49] On the evidence, Mr Rutter was instructed to engage Stevenson Brown on behalf of Montecillo. Other than Mr Rutter recommending Stevenson Brown, there is no evidence of any discussion about Stevenson Brown’s terms and conditions, or what Mr Rutter knew of them, either between Montecillo and Mr Rutter, or between Mr Rutter and Stevenson Brown.
[50] Mr Brown says that when he met with Mr Rutter in February 2005 he was given a set of preliminary drawings for the Home and asked to undertake the structural and fire engineering design work. The meeting would have been short and “[Mr Rutter] would have told me to get on with it.” On a drawing, undated, Mr Brown handwrote; “Our fee for fire $1350 plus GST.” He says there was no discussion with Mr Rutter about contractual terms, and he proceeded on the assumption that the SFA would apply as he thought it had for previous engagements with which Mr Rutter was involved. Whether the SFA applied in law to those other contracts is moot if it was not sent until after the contract was formed. This is addressed in the discussion which follows.
[51] The first calculations on Mr Brown’s file are dated 24 February 2005. Nearly two months later, on 22 April 2005, he sent the 12 page fax including the SFA to Mr Rutter. The SFA bears the date 22 April 2005. That fax reflects work undertaken by Stevenson Brown by that date. It included the Producer Statement-PS1-Design (‘PS1’) issued by Stevenson Brown for supply to the Dunedin City Council, which referred to its engagement to provide structural engineering design, and stating that the design had been prepared in accordance with relevant standards.
[52] The Structural Design Features Report (SDFR), also sent with the fax of
22 April 2005, referred to:
Geotechnical Design
This site is on known poor ground in the South Dunedin area. The ground is expected to be sand &/or other imported fill overlying harbour muds. Design is based on 20 kPa under dead load for the serviceability limit state and
50 kPa under factored ultimate loads for the ultimate limit state.
[53] The SFA sent to Mr Rutter with the fax of 22 April 2005 records “Programme for the Services” with the notation “start immediately”. Mr Tobin said that was misleading because work had started in February 2005. Mr Brown said that this was a reference back to when the engagement was accepted. By 22 April 2005 the drawings were almost finished, but Mr Brown wanted to check them in their final iteration.
[54] Mr Rutter did not pass the SFA on to Montecillo then or at any time while Stevenson Brown carried out its professional work in 2005. The model conditions were sent to Montecillo with Stevenson Brown’s invoices. Mr Rutter acknowledged he had no record of sending the SFA to Montecillo other than by email of
15 December 2011, in which he said that all consultants were approved by the
Montecillo Trust prior to engagement based on their respective fee offers.
[55] Stevenson Brown’s first invoice was sent to Montecillo care of Mr Rutter dated 31 May 2005 for $5,275 plus GST, the second on 3 July 2005, for $600 plus GST, and the third on 30 November 2005 for $300 plus GST. The invoices were paid by Montecillo. Mr Brown thinks he was on site several times in 2006 at the request of the foreman for Lund South when he looked at excavations and preparation for the first floor slab. He did not charge for this work. He called in at other times. He was not asked to issue a producer statement (PS1) to sign off the building, nor make a final inspection.
[56] Mr Rutter described his long professional relationship with Mr Brown, reaching back to the latter’s work with Hadley and Robinson. As with other projects, Mr Rutter says he gave concept plans to Mr Brown so that structural design could be undertaken. Their dealings were informal, and he says there was no discussion about contractual terms, because it was normal practice for Stevenson Brown to send an SFA with the PS1 as occurred here, and to refer to the model conditions on its
invoices. As I find, however, there was no universal practice as to how and when SFAs were sent to Mr Rutter for clients, nor were there terms and conditions which universally applied.
[57] Mr Rutter said that the material faxed to him by Mr Brown on 22 April 2005 was sent to Montecillo, but not the SFA which was part of that fax. Mr Rutter said “They were standard terms for engineers and we had no issue with them.” This judgment returns to how Mr Rutter’s “having no issue” bears on his status as an
‘agent to know’, and whether knowledge that Stevenson Brown utilised SFAs with model conditions should be imputed to Montecillo.
[58] Mr Rutter said that most of those who were contracted put forward “a bit of a proposal with some sort of idea of fee structure”. He did not say Stevenson Brown did this for Montecillo as it had done for some other mutual engagements. When asked why Montecillo was not sent the SFA when he received it on 22 April 2005, Mr Rutter’s answer was: “Because there is always one comes with Nick’s [Mr Brown’s] account”. That answer contemplates his understanding that Montecillo would receive the terms and conditions in due course because the invoices would make reference to them. The answer indicates he had no concern as to when Montecillo received the SFA and what it might make of the model conditions which substantially affected its contractual rights, nor what the commonly late receipt might mean at law. It also reflects no recognition or regard for the provision for the client’s signature on the SFA and that:
Once signed, this agreement, together with the conditions overleaf and any attachments, will replace all or any oral agreement previously reached between the parties.
[59] What Mr Rutter thought about the SFA applying to the Montecillo contract was contested. Mr More met Mr Rutter on 7 July 2014 to obtain copies of his file and correspondence. Mr More was then given a copy of the full 12 page fax of
22 April 2005 including the SFA. Mr More said:
… [Mr Rutter said that] it seemed to be the standard practice for the defendant to send a copy of the IPENZ/ACENZ Short Form Agreement with its bill for its completed services. He told me that he took no notice of the Agreement because it was received after the work was done.
At the meeting Mr Rutter also told me that he had not sent a copy of the agreement to the Trust as he did not think it was binding.
[60] When it was put to him by Mr Raymond that he might be mistaken about this, he said that Mr Rutter may have said something to the effect: “I don’t know why he does it”, referring to Mr Brown sending the SFA after the contract had been entered, and he remembers being “agreeably surprised” that Mr Rutter knew of the principles which apply to formation of contract. Mr More acknowledged that at that meeting he said to Mr Rutter that the SFA was not part of the contract. This meeting came long after Mr More first became aware of the SFA, as it was sent to Montecillo by Mr Rutter in 2011 when problems with the foundations were well understood.
[61] Mr Rutter denied making any such statements to Mr More. He believed that the SFA applied to the Montecillo contract. He acknowledges that Mr More said that Mr Brown commenced design work prior to the date the SFA was sent to Mr Rutter on 22 April 2005, and that “he does not have a contract”, but says “I did not respond”, as he saw no point in having a debate with Mr More about this.
[62] Mr Raymond was blunt in cross-examination of Mr More, that he is looking back and his evidence reflects his concern as a barrister, and as a legally qualified member of the trustees, that he “dropped the ball” in not ensuring that litigation got underway in good time. Mr More responded that he has no concerns about his role as a trustee, and latterly Chair, and that the trustees take outside legal advice. When he became aware of the SFA lying across the Trust’s litigation path he had concerns, and he knew he had to be careful. He did not at first turn his mind to Mr Rutter’s agency in contracting on behalf of Montecillo, but his view was that the SFA was not binding on Montecillo because it had not been referred to the Trust, had never been signed by it, and was received by Mr Rutter after Stevenson Brown’s work was already underway.
[63] It was put to Mr More that Mr Rutter was ‘aware’ that Stevenson Brown’s standard or usual terms applied, or would apply, given his course of dealing with Mr Brown, and on that basis he contracted on Montecillo’s behalf. Mr More said:
The agreement requires signature for it to be binding. He should’ve either
sent it to us or signed it on our behalf if he genuinely believed it was part of
his contract. If Mr Rutter genuinely believed that the (IPENZ) agreement was part of Montecillo’s contract with Stevenson Brown, I would’ve expected him, as our agent, either to have sent it to Montecillo with a request that it be signed, or signed it on Montecillo’s behalf as our agent and let Montecillo know that he had done that. It was not signed and it was never sent to Montecillo.
Discussion - Question (1)
[64] The evidence falls for consideration in two parts. The first part is to consider what Mr Rutter knew from his course of dealing with Stevenson Brown. Mr Raymond for Stevenson Brown says that Mr Rutter knew that the SFA was used by it when contracting, and it would apply here.
[65] The second is to determine whether Mr Rutter’s knowledge, whatever that was, should be imputed to Montecillo under the principle of an ‘agent to know’. This involves consideration of his agency for Montecillo, its scope, and whether what would otherwise be ineffective late notice of the SFA to Montecillo, through Mr Rutter or direct, is cured by his ‘knowledge’.
Course of dealing – the knowledge held by Mr Rutter
[66] A course of dealing may establish that the terms of previous transactions will apply to a particular transaction. Terms will not be incorporated into a contract simply because the parties have, on previous occasions, dealt with each other subject to those conditions. They may be incorporated where each party has led the other reasonably to believe that they intended that their rights and liabilities should be ascertained by reference to the terms of a document which has been consistently used by them in previous transactions.
[67] A distinction may be observed immediately between cases involving a settled course of dealing between two parties, and where there is no such course of dealing, but an agent for one party has been involved in a separate course of dealing with the other party.
[68] Examples of a direct course of dealing between two principals include Spurling v Bradshaw,3 where the defendant delivered for storage eight barrels of orange juice and a few days later received a document acknowledging receipt of the barrels and referring on its face to clauses printed on the back. One such clause exempted the plaintiffs from any loss or damage caused by their negligence. The defendant later found the barrels empty. The defendant admitted he had received
similar documents in their previous dealing but had never bothered to read them. He was held bound by the course of dealing and while not an agency case, this illustrates that a course of dealing may provide evidence that the parties will be taken to have agreed that the contract included terms which were consistently part of their contractual relationship.
[69] In Attorney-General v Seven Electrical Ltd,4 clauses exempting liability were set out in invoices issued for eight separate sales of batteries over a month. The Court held that there was implied receipt through the course of dealing. All eight sales were on identical contractual documentation, between the same parties. This too did not involve agency.
[70] Mr Raymond submits that a “course of dealing” is established here, where an offeree, who Mr Raymond says is Mr Rutter, knows that Stevenson Brown intended to contract on the basis of the SFA, as it had been sent by it for other contractual relationships in which they were mutually involved. To have any meaning that assumes the SFA would in principle govern some of those other relationships by the course of dealing. On the evidence that was not expressly agreed by client signature to the SFA when any of those contracts was formed. There may have been other exchanges in writing but such are not in evidence. That suggests that at some undefined point during the course of dealing the SFA was incorporated into a contract under the principle of the ‘agent to know’, so as to govern later contracts. Each contract would however, turn on its own facts, including the scope of
Mr Rutter’s agency.
3 Spurling v Bradshaw [1956] 2 All ER 121, [1956] EWCA Civ 3 (CA).
4 Attorney-General v Seven Electrical Ltd (2004) 8 NZBLC 101,501 (HC).
[71] Had the Montecillo contract been, for example, the third mutual endeavour of Stevenson Brown and Montecillo, then it would be problematical to establish its application to the fourth mutual endeavour given the underlying premise that the parties must have intended that it should. Such mutuality of intent is more tenuous when the relationship is one degree removed, involving as here Mr Rutter as agent. The status of an ‘agent to know’ depends on more than the agent’s knowledge, as discussed further. That aside, this was the fourth mutual commercial contract involving Mr Rutter and Stevenson Brown.
[72] Mr Tobin submits that little weight can be given to the ten engagements for (residential) projects referred to in evidence, which did not include any limit on Stevenson Brown’s liability under the model conditions. Furthermore, the contractual documents sent by Stevenson Brown to Mr Rutter for other clients may well have come at different stages of contract formation and performance, with potentially different effect at law.
[73] Mr Tobin thus submits that the course of dealing was not so settled as Mr Raymond asserts. He submits that on only one occasion was the SFA sent before work began, a distinction drawn in Engineering Dynamics v Norgren Martonair (NZ) Ltd (IMI Norgren Ltd).5 Even if the three prior commercial transactions reflect Stevenson Brown’s practice, such a number did not suffice in Palmerston North Transport Services Ltd v Stanway Contractors Ltd.6 A contract for transport was entered into after three previous dealings. Invoices were issued, and on the reverse of each was an exclusion clause. Heron ACJ implied that a previous course of dealing would have to be robust and clearly made out in cases including exclusion clauses:7
I must say that there was in the defendant’s approach a lack of recognition that exclusion clauses defeat [a] claim for damages that the law would generally recognise and accordingly if they are to be used they must be the subject of agreement between the parties. They are not the God given right of the transport or any other industry.
5 Engineering Dynamics v Norgren Martonair (NZ) Ltd (IMI Norgren Ltd) (1996) 7 TCLR 369 (CA).
6 Palmerston North Transport Services Ltd v Stanway Contractors Ltd HC Palmerston North
AP14/00, 20 October 2000.
7 Palmerston North Transport Services Ltd v Stanway Contractors Ltd, above n 6, at [16].
[74] Mr Raymond says that Mr Rutter knew that Stevenson Brown sent SFAs for (residential) and commercial contracts, but Mr Tobin submits Mr Brown does not assert use in all cases, and in any event the court should recognise that there were only three commercial contracts with the model conditions which limit Stevenson Brown’s liability and insurance obligations.
[75] Mr Tobin says that while Stevenson Brown purported to use the SFA, Mr Rutter had limited knowledge of the company’s contractual practice, which practice differed on the evidence. I turn to the question of what Mr Rutter says he knew, other than Stevenson Brown’s use of the SFA.
[76] Mr Rutter did not say he had read and understood the SFA and its model conditions, merely that he thought that its terms and conditions would apply. He said:
I have been asked what terms of contract applied to Stevenson Brown’s engagement on the Montecillo project. In my view, Stevenson Brown’s IPENZ/ACENZ standard terms of engagement applied. Nick Brown’s practice was to send out his written terms of engagement with his PS1 (producer statement – design) and is what happened on this project and all other projects we undertook for mutual clients. I have dealt with other engineers in Dunedin and only Stevenson Brown would send out the IPENZ/ACENZ short form agreement. Others have not provided an agreement document. So its my belief, from previous experience, that Stevenson Brown’s standard terms of engagement being the IPENZ/ACENZ short form agreement applied to the Montecillo project also.
[77] Mr Rutter’s knowledge did not, on the evidence, extend to the possibility or actuality of negotiated variation to clause 7 of the SFA which limited the liability of Stevenson Brown, and which allowed for increased insurance cover. There is no evidence of consideration by any of Montecillo, Mr Rutter, or Stevenson Brown as to the extent of Stevenson Brown’s insurance cover or capped liability despite the scale of the building project. These important considerations do not seem to have been addressed in any way in the course of dealing between Mr Rutter and Stevenson Brown, nor in this case with Montecillo. This perhaps is not surprising as mutual commercial work had been undertaken only for some 10 months when the Montecillo contract was entered, and only for three commercial contracts.
[78] Mr Rutter knew only what he experienced. That included correspondence on one, or perhaps two occasions from Stevenson Brown asking for signature by the client to acknowledge the terms and conditions which applied to commercial contracts, and that the SFA provided for client signature with an expressly worded statement as to the effect of that.
[79] There is no evidence that he was aware of the import of client signature which expressly triggered the application of the SFA to the contract.
[80] There is no evidence that Mr Rutter knew clients did not sign the SFA, despite the clearly stated import of signature. He should however have known that the SFA sent to him for Montecillo was not signed by it, as he did not send it on.
[81] He knew that Stevenson Brown on most occasions sent the SFA which referred to the model conditions only after part of its work was carried out.
[82] Although there is evidence from Mr More that Mr Rutter told him in 2014 that he knew the SFA was sent too late by Stevenson Brown, I do not find that Mr Rutter was aware of that in 2005. The discussion between Mr Rutter and Mr More on 7 July 2014 has some curious features. For Montecillo its importance lies in the proposition that Mr Rutter knew the SFA did not apply as it was sent too late by Mr Brown. I accept that only in 2011 did Montecillo become aware of the SFA.
[83] I conclude that Mr More must have been earlier aware that Stevenson Brown was engaged, given that its role was important and that it had invoiced Montecillo for its work. Stevenson Brown’s involvement was reflected in correspondence in
2008 when the problems with the building were recognised. While I do not disbelieve Mr More, and it is not decisive of this judgment, his lack of knowledge of Stevenson Brown’s involvement indicates a surprising lack of awareness of a very important matter for the trustees. However, Dame Dorothy Fraser has died, and it would be unsafe to conclude that Mr More’s knowledge of Stevenson Brown, or lack of it, was matched by her knowledge, or that of any of the other trustees.
[84] I find that at the meeting on 7 July 2014, Mr Rutter did tell Mr More that Stevenson Brown’s standard practice was to send the SFA with the invoice. That is what he had come to expect by early 2005 which is the relevant time of inquiry, although it may have been sent at the time a contract was formed on some other occasions, or not at all in others.
[85] I do not find that on 7 July 2014 Mr Rutter volunteered to Mr More that he took no notice of the SFA because it was received after the work was done, as if he understood that conditions such as these must be brought to notice before a contract is formed in order that they be incorporated. By then, 2014, he knew that the conditions, if enforceable, would be of moment to Montecillo. I do not find that he told Mr More that he did not send the SFA to Montecillo because he did not think it was binding. He simply did not send it, despite its obvious significance to Montecillo. I find something was said by Mr More to the effect that it was not binding, and Mr Rutter did not engage further which was understandable as he was in the thick of the narrative as to whether the SFA applied to this contract. By making no, or a limited response to Mr More’s legal proposition, Mr More may have thought he agreed, or understood that proposition. By then, Mr Rutter must have known litigation was underway. There is thus no evidence that in 2005 he realised Stevenson Brown’s lax contractual practice may have meant that the SFA was not part of the contract. By July 2014 I find he was alert to the issue of the SFA being sent after the contract was formed, and that is the context in which he and Mr More spoke on 7 July 2014.
[86] Mr Rutter’s knowledge was thus quite limited. It included a bare expectation that the SFA would be sent some time during the contractual process, usually with the PS1, because that was how it was generally conveyed to other clients of Mr Rutter. His knowledge did not include a detailed awareness or understanding of the contractual terms, nor the express invitation for client signature to activate the SFA. For a course of dealing to bind parties it must establish such a consistent element of that dealing that it must have been intended by each that it should apply to a particular contract. Whatever Mr Rutter’s expectation, it was no more than that Stevenson Brown would at some stage send an SFA, although they did not always do
so. Otherwise he gave no evidence of his knowledge of the detailed conditions or how they were applied in Stevenson Brown’s practice.
[87] It is instructive to consider the course of dealing principal to principal which might have bound Montecillo. Montecillo was involved in a commercial project with Stevenson Brown. If it had been involved in two previous contracts with Stevenson Brown which involved late receipt and an unsigned SFA, that course of dealing would not support a finding of mutual intention that the SFA would apply. That course of dealing cannot be bolstered by knowledge of other contractual practice for residential work, including terms and conditions with no application to Montecillo. I do not consider that the course of dealing here establishes a basis for a finding at law of a practice which reflects a commonly held intent that the SFA and model conditions, in all their force, should apply here.
Should Mr Rutter’s ‘knowledge’ be imputed to Montecillo?
[88] If I am wrong in concluding that the course of dealing was not sufficient to establish without direct evidence a common intent that the SFA applied, only that Mr Rutter assumed and therefore thought that it would be sent by Stevenson Brown at some later stage and he thought it would apply, then I go on to consider whether Mr Rutter’s knowledge should be imputed to Montecillo. It is to a degree counterintuitive to suggest that the principal’s ‘knowledge’ is enhanced by reference to the knowledge of an agent derived from contractual dealings which have limited reference, being largely (residential), to a commercial contract. However, that is the basis for Stevenson Brown’s submission that Mr Rutter’s knowledge binds Montecillo.
[89] Mr Tobin submits Mr Rutter’s knowledge was obtained while acting as agent for other principals, and that such “outside knowledge” is not generally imputed to the principal.8 He refers to Jessett Properties Ltd v UDC Finance Ltd where the
Court of Appeal said:9
8 Blackley Mutual Life Association of Australasia Ltd [1972] NZLR 1038 (CA) at 1049.
9 Jessett Properties Ltd v UDC Finance Ltd [1992] 1 NZLR 138 (CA) at 143.
The general principle that notice given to or knowledge acquired by an agent is imputed to his principal only if the agent was at the time employed on the principal’s behalf is recognised in the texts and the cases … This accords with good sense and justice. Thus if notice is given to an agent in reliance on his ostensible authority to receive it, the principal will be estopped from denying receipt of the notice:
Whichever be the true basis, it is apparent that knowledge acquired before the agency began, or probably even during its currency but outside the scope of the engagement, should not in general be imputed to the principal.
[90] In Taylor v The Yorkshire Insurance Co Ltd,10 Palles CB noted two exceptions: one where the principal “purchases the previously obtained knowledge of the agent” in relation to the particular subject-matter; the other where the agent is “an agent to know”. The exceptions direct attention to the scope of the agent’s authority, and for what purpose and with what knowledge the principal engaged him.
[91] Jessett has been described as the leading case in New Zealand on the limits of when knowledge of an agent may be imputed to a principal.11 It demonstrates the ambit of the ‘agent to know’ doctrine as an exception to the general principle. It applies where the agent has clearly been engaged for the detailed knowledge held by that person about a particular matter or state of affairs, and this knowledge is the very thing for which the principal entered into the agency relationship. In Jessett, the
agent was fixed with in-depth insider knowledge about business arrangements about a property stemming from his previous involvement with that property. It was this very knowledge, necessarily obtained outside the agency relationship, for which the principal procured the agent to negotiate on its behalf. There was:12
…therefore a strong case for concluding that he was an “agent to know”, and indeed that his principals had “purchased” (a word which we think is to be understood broadly) the knowledge which he had. His knowledge of UDC’s interests therefore became that of his principals.
[92] The concept of an ‘agent to know’ was applied in a freighting case to which counsel referred.13 Clauses in a bill of lading restricted the amount that could be
10 Taylor v The Yorkshire Insurance Co Ltd [1913] 2 IR 1 (Exch).
11 Hickman v Turn Wave Ltd [2011] NZCA 100.
12 Jessett Properties Ltd, above n 9, at 144.
13 Brennan International Transport Hong Kong Ltd t/a Brennan International Transport v Blue
Q Corp [2009] NZCCLR 21 (HC).
claimed, and required notice of loss or damage within three days of delivery. A bill of lading is generally taken in law to be evidence of an antecedent contract of carriage and Mr Raymond draws on this. Mr Rutter received the standard terms and conditions of engagement with the PS1. Mr Raymond submits the receipt of the SFA by Mr Rutter was likewise evidence that the contract was entered on those terms even though it was never signed by and for Montecillo. In Brennan, Asher J found that the agent had authority to negotiate bills of lading on the principal’s behalf and said:
[49] The contract negotiated by Mondiale between Brennan and Melric, including and as evidenced by the terms of the bill of lading, was the contract between the principal, Melric, and the other contracting party, Brennan. As was stated in Montgomerie v United Kingdom Steamship Association [1891] 1 QB 370 at 372:
The contract is the contract of the principal, not that of the agent, and prima facie at common law the only person who can sue is the principal and the other person who can be sued is the principal.
As a general rule the principal is bound by the terms of contracts entered into on its behalf within the ostensible authority of the agency agreement.
[50] On the agency principles already referred to, Mondiale’s knowledge and acceptance of the limitation bound Melric, whatever Melric’s knowledge. Even if the clauses were unusual or unreasonable, Mondiale’s agreement to them bound Melric if Mondiale or Melric had notice of them. Even if Melric was inexperienced in shipping (which it does not appear to be on the evidence), it would in any event be bound by what its agent agreed. The only exception to this would be if the term were so unusual as to be out of the agent’s actual or ostensible authority. For the reasons given, I have concluded that they were not unusual or unreasonable.
[93] These passages illustrate the need to consider what Montecillo understood Mr Rutter knew, and whether that knowledge was part of his agency so as to potentially bind Montecillo. I have found that Mr Rutter simply assumed the SFA would be sent by Stevenson Brown in its usual but not universal delivery after the contract was made, midstream or after its work was done. There were some apparent exceptions to this and Mr Rutter should have known that, whatever his general expectation. He did not advert to or say he knew of possible variation of the stipulated insurance cover and increased liability of Stevenson Brown although that would have been of importance to Montecillo. There is no evidence that he knew
that Stevenson Brown had contracted on that negotiated basis in other commercial cases, nor even that he had any specific awareness of the conditions which limited its liability and the insurance cover.
[94] Mr Raymond submits that based on his knowledge of use of the SFA by Stevenson Brown, and that Mr Rutter believed it would be used here, that is an end to it. However, an ‘agent to know’ has that status only if his agency extends to that knowledge.
[95] Mr Raymond says, correctly, that the ‘agent to know’ principle applies where the agent is engaged because of his particular skill or expertise relevant to the contract. He submits that is what occurred here. That in my view requires evidence of the particular skill or knowledge, and that Montecillo knew of that when it engaged Mr Rutter. There is no evidence of Mr Rutter having, or discussing with Montecillo any particular knowledge of Stevenson Brown’s contractual practices, terms and conditions.
[96] Mr Rutter has not given evidence of any discussion with Montecillo of Stevenson Brown’s terms and conditions, nor what he knew of them in his work for Montecillo to advise on, then engage Stevenson Brown. Clause 7 of the model conditions is of considerable consequence to a principal in a large commercial contract, limiting as it does Stevenson Brown’s liability, and stating the insurance cover held. It was not considered in this case by Mr Rutter, who was the only person who could have considered it, given that Montecillo did not know of the SFA.
[97] Montecillo on the evidence took little or no interest in the terms of engagement, either of Mr Rutter, or of Stevenson Brown. It did not know what Mr Rutter knew from his course of dealing. If Mr Rutter was an ‘agent to know’, Montecillo’s failure to acquaint itself with any terms of engagement with Stevenson Brown would be understandable, but then it would not explain its lack of attention to the terms of engagement of Mr Rutter. The ‘agent to know’ principle turns on the relationship and understanding between principal and agent. It is therefore difficult to see how Mr Rutter can be an ‘agent to know’ when, as between himself and Montecillo, the scope of his agency and what he knew of Stevenson Brown’s
contractual practices were never discussed beyond his recommendation that it be engaged.
[98] When Mr Raymond says Mr Rutter “had no issue with them” (the SFA), that is correct to the extent that he identified no issue but it was not on the evidence a reasoned position. He does not say why he had ‘no issue’. Mr Rutter did not say that in having no issue he considered, for example, the application of clause 7 capping liability, or that the SFA was not known to Montecillo for the purpose of making the contract, or that he knew of increased liability and cover being arranged for other work by Stevenson Brown, or that they usually sent the SFA after the contract was made. Mr Rutter simply never thought about the SFA and its implications on this third mutual commercial dealing. It would just “turn up”.
[99] When Mr Raymond says Mr Rutter’s knowledge of Stevenson Brown’s use of standard terms and conditions was acquired from his previous dealings with them and he acquired “or re-acquired” his knowledge while working for Montecillo, that repetition does not enhance the limited knowledge held by Mr Rutter beyond the prospective use of the SFAs.
[100] According to Montecillo, Mr Rutter was retained as an accredited designer of aged care facilities, known to Montecillo and its predecessor. He was not retained because of his knowledge of the contractual terms sought by contractors that he might recommend. He was left to engage Stevenson Brown, which he did simply by contacting Mr Brown. There is no evidence as to what Montecillo understood was the knowledge of Mr Rutter about Stevenson Brown or its contradicted practices, other than his recommendation of them.
[101] Where it applies, as an exception to the general rule that the terms of contract must be agreed before terms are binding, the particular “knowledge” must be the very thing for which the agent was engaged.14 In Jessett that knowledge was information regarding a property and legal relationships which related to it. Mr Rutter was not on the evidence engaged for his knowledge of the particular
contractual terms which would apply to a contract between Montecillo and
14 Jessett Properties Ltd, above n 9.
Stevenson Brown. At the time it engaged Mr Rutter, Montecillo did not even know of Stevenson Brown, let alone the terms on which it might contract.
[102] I have reached the view that Mr Rutter neither ‘knew’ something of sufficient consistency, or detail, about Stevenson Brown’s contractual dealings, including the terms and conditions of the SFA to constitute a course of dealing which the law recognises, nor did Montecillo understand that Mr Rutter had particular knowledge relevant to the terms of contract with Stevenson Brown.
[103] In summary, Mr Rutter was engaged to design the Home, recommend contractors and then engage them on behalf of Montecillo, then ‘supervise’ or
‘project manage’. There was no discussion with Montecillo about Mr Rutter having, or using his specialist knowledge of the terms and conditions with which Stevenson Brown purported to contract. There is no evidence, beyond Mr Rutter’s recommendation, that Montecillo knew about the course of dealing between Stevenson Brown and Mr Rutter, and that the latter’s course of dealing generated a relatively shallow knowledge of Stevenson Brown’s contractual practices, as I have found.
[104] I conclude that Mr Rutter’s knowledge was limited, going only so far as the purported use of the SFA in most contracts. I do not consider that he was an ‘agent to know’, as I also find that Montecillo did not understand Mr Rutter to have any particular knowledge of Stevenson Brown’s practice in commercial contracts.
[105] If those findings are wrong, I address Mr Raymond’s submissions that it was within Mr Rutter’s express authority to conclude a contract with Stevenson Brown on behalf of Montecillo, so that contract included the terms contained in the IPENZ/ACENZ Conditions of Contract (Commercial) because Mr Rutter understood they were its usual terms and would apply here.
[106] Mr Raymond submitted that the terms of the SFA were not unreasonable but that is not an issue before the Court. There is however relevance in standard conditions for a large commercial project being of potential disadvantage to one
party unless negotiated otherwise, but such being part of the contract simply because the agent thought they would apply.
[107] There is no doubt Mr Rutter had the authority to engage Stevenson Brown but it is a step further to find he could tacitly agree to terms and conditions just because he knew that is what Stevenson Brown usually but not universally sought, and as it happens, usually in default of the notice required at law. Further, those terms and conditions were expressly to apply and replace any antecedent agreement only when signed by the principal.
[108] The ‘agent to know’, Mr Rutter, is said here to have made an agreement for Montecillo incorporating the SFA by not expressly agreeing to anything, but being taken to agree because he believed that Stevenson Brown would seek to employ the SFA, even though they would likely try to do so without the notice required by law, and without client signature. There is no evidence that Mr Rutter was aware that the clients did not sign the SFAs sent them, but he knew that Montecillo did not do so as he did not send the SFA to the trustees when eventually it arrived.
[109] Stevenson Brown says Mr Rutter’s knowledge should be imputed to Montecillo, with the effect that a slipshod contractual practice in not giving proper notice of the SFA is saved by the doctrine of the ‘agent to know’. There is no evidence that Mr Rutter had the authority to enter into a contract on behalf of Montecillo which flew in the face of orthodox doctrine that adequate notice must be given of terms and conditions in the formation of contract. An ‘agent to know’ would not usually have authority to engage on terms which would not have bound the principal, as I have found above, unless the principal had agreed to that, expressly or impliedly.
[110] If Mr Rutter had been dealing with Stevenson Brown for the first time, then his agency for Montecillo would not have saved the belated provision of Stevenson Brown’s model conditions. He could have had no knowledge of their usual practice, if usual is taken to mean common but not universal provision of the terms and conditions during performance of the contract. It is paradoxical if this failure by Stevenson Brown to comply with those orthodox contractual principles is said to be
saved only because this is what Mr Rutter had come to expect of Stevenson Brown, observing what was a very casual practice when sending the SFA to him.
[111] Mr Raymond submits that the ‘offeree’, Mr Rutter, should expect to be bound by the SFA. Because Mr Raymond treats Mr Rutter as the offeree, he says that there was and is unequivocal acknowledgment by both parties to the contract that it was subject to the IPENZ/ACENZ SFA. However, Mr Rutter was in law simply the agent for Montecillo when he asked Stevenson Brown to do engineering design work. He was not the offeree. Stevenson Brown had not put a proposition to him for acceptance. At that time of contractual formation it sought no terms under the SFA or otherwise, although later was prepared to incorporate them if the SFA was signed by the client principal. This is a feature of the SFA, in its express reference to the effect of client signature.
[112] An onus lies on those who plead an exclusion clause to show it was properly brought to the notice of the party affected by it: “A party wishing to rely on an exclusion clause bears the onus of demonstrating that the clause formed part of the contract”.15 Here I consider there is an evidential onus on the party seeking to avail itself of an exception to general agency principles, given that notice of a very significant contractual limitation was not given to Montecillo when the contract was
made, nor to its agent. Since communication of the SFA did not satisfy the “notice” requirements for incorporation, it is, evidentially speaking, for Stevenson Brown to show that there is some other reason why this effective presumption that it is not incorporated should be displaced, and here its response is to advance an argument based on the principle of the ‘agent to know’.
[113] Mr Tobin’s succinct submission is that the agent’s expectation will not bind the principal except where he knows what terms and conditions always apply, and his knowledge is within his agency to enter the contract. I conclude that Mr Tobin is correct, and that the knowledge Mr Rutter held was not of an invariable practice of Stevenson Brown, nor of its universal commercial contractual practice. He was not engaged for his knowledge of the terms and conditions which would apply to
Montecillo, and such was not discussed with Montecillo. His agency did not extend
15 Thomas Gault (ed) Gault on Commercial Law (looseleaf ed, Brookers) at [1A.7.02].
to tacitly agreeing to terms which were not otherwise enforceable against Montecillo, by their later notice, or by a relevant course of dealing, if between two principals. Put another way, for Mr Rutter’s knowledge to bind Montecillo, his agency would have to extend in scope to contracting on terms which would not have bound Montecillo as principal if contracting directly with Stevenson Brown, and on terms which it did not know.
Answer to Question (1)
[114] The model IPENZ/ACENZ SHORT FORM AGREEMENT (the short form agreement) was not incorporated into the contract between the plaintiff and the defendant by reason of a previous course of dealing between the plaintiff’s agent, Mr Rutter and the defendant.
Question (2): Whether the plaintiff ’s claim in negligence was commenced after
the period allowed for a cause of action in tort by the Limitation Act 1950?
Introduction
[115] The Limitation Act 2010 relevantly provides:
59 Actions based on acts or omissions before 1 January 2011
(1) This section applies to an action, cause of action, or right of action—
(a) based on an act or omission before 1 January 2011; and
(b) to which the Limitation Act 1950 applied immediately before its repeal.
(2) The action, cause of action, or right of action must, despite the repeal of the Limitation Act 1950 and unless the parties agree otherwise, be dealt with or continue to be dealt with in accordance with the Limitation Act 1950 as in force at the time of its repeal.
[116] Section 4 of The Limitation Act 1950 relevantly provides:
4Limitation of actions of contract and tort, and certain other actions
(1) Except as otherwise provided in this Act … the following actions shall not be brought after the expiration of 6 years from the date on which the cause of action accrued, that is to say,-
actions founded on simple contract or on tort:
…
[117] Given that Montecillo commenced these proceedings on 19 December 2013, the claim will be time barred if the limitation period began to run before
19 December 2007.
[118] In New Zealand, the onus of showing that the claim is time-barred rests on the party asserting it, usually the defendant.16 It is an affirmative defence which must be pleaded and it works not by barring the action but by barring the remedy.
[119] The chronology associated with the limitation issue includes the following events, as an overview:
August 2006: Montecillo took occupation of the new Home.
July 2007: Inspection by Mr Peter Martin who wrote up his ‘July 2007 list’.
17 August 2007: Meeting on site to address Mr Martin’s July
2007 list attended by Mr Martin and Mr Daniel of Montecillo, Mr Rutter, and Mr Forrester from Lund South.
16 October 2007: Earthquake off the coast of Fiordland, after which Montecillo lodges an EQC claim.
19 December 2007: The date six years before this proceeding was commenced.
9 January 2008: Report on damage to the Home, made by
Tonkin & Taylor Ltd for EQC.
14 January 2008: Montecillo receives a copy of the Tonkin & Taylor report dated 9 January 2008.
31 January 2008: Montecillo discusses Tonkin & Taylor report at
Board Meeting.
Early 2008: Lund South begins monitoring levels at the Home under the supervision of Stevenson Brown.
16 Humphrey v Fairweather [1993] 3 NZLR 91 (HC).
Undated but post
7 March 2008:
Notes made by Mr Martin; “Building
Subsidance (sic) Times”.
12 March 2008: Stevenson Brown writes to Montecillo advising that the concrete foundations were adequate for the Home.
17 May 2011: Further report from Tonkin & Taylor for EQC.
2 November 2011: Report from CPG to Montecillo.
19 December 2011: Montecillo notifies Stevenson Brown that it considers it responsible for damage to the Home.
19 December 2013: Proceedings filed.
The evidence relevant to Question (2)
[120] Stevenson Brown asserts that Montecillo knew, or should have known, that defects observed prior to and in July 2007, and up to 19 December 2007, were so bad or so obvious that they should have been recognised as associated with a problem with the foundations which required expert investigation. The use of “defects” and “damage” in this judgment is not definitional. The terms comprehend a range of effects. The important inquiry is into what was observable and what should have been made of that.
[121] All knowledge of defects or damage held by Montecillo and other witnesses up to 19 December 2007 is relevant. This evidence is limited in the number of witnesses before the court and this judgment addresses the submission for Stevenson Brown that there is proper and reliable reference to the observations of unnamed persons referred to in professional reports.
[122] Mr Peter Martin drew up the July 2007 list of defects observed by him nearly a year after Montecillo occupied the Home. It is central to the evidence and is Annexure B to this judgment. Mr Martin thinks he reported to Mr Daniel as Chief Executive of Montecillo, but he was not involved in management meetings. He prepared the July 2007 list to give to the builder Lund South, to fix what he regarded as “maintenance issues”. He wrongly thought that a 12 months defects liability
period applied under the Lund South building contract, when it provided for
13 weeks only. While he was challenged by Mr Raymond regarding that belief, I found Mr Martin to be credible and without guile, and I accept his evidence in this regard.
[123] Mr Martin did not regard the defects he noted in his July 2007 list as “particularly major”. He thought cracks were generally “minor cracking in paint, or where there had been poor stopping of joins in the gib or scotia”. He put this down to the carelessness of tradespeople, or to the drying out of materials since construction. Mr Martin thought the defects had something to do with the temperature at which the Home and hospital were maintained, in a band of 19ºC to 22 ºC.
[124] Mr Martin says that he took Mr Forrester of Lund South around the Home with a copy of his July 2007 list on 17 August 2007. He does not recall Mr Rutter and Mr Daniel being there, but he thinks they would have been, and a further record made by him in 2008 states that Mr Rutter was there. I find on other evidence that they were both present. He said he chased up Lund South, because the July 2007 list had not elicited much response from it. Whether Lund South ever received it is moot.
[125] Mr Martin says the first “major problems” with the Home, as he saw them, followed an earthquake on 16 October 2007 off Fiordland which was felt in Dunedin. He thinks he was told by a staff member that there were cracks around the interior window frames in Rooms 6 and 7. That led him to look outside, and he found the brickwork had cracked in line with the interior. The exterior cracks were not evident before the earthquake and he thought they were the major problem. He was told by a staff member that there was leaking from the spouting outside Rooms 7 and 8 and he found water ponding at the wrong end, at the join of a drainage pipe from an upstairs balcony.
[126] Mr Martin thought these problems were caused by the earthquake: “I thought the building had had a right shakeup and it had settled differently to when it had been built”. He thought the spouting problem was associated with the building having settled or been raised by the earthquake. The rooms with these problems “stick out” from the main building. The spouting runs from the main building to this wing.
Mr Martin thought that the earthquake raised this end of the wing. He reported these problems to management, and a claim was lodged with EQC. He remembers showing the visible damage to an assessor from McLarens Young, and to someone from Tonkin & Taylor Ltd (‘Tonkin & Taylor’).
[127] On 28 January 2008, he showed Mr Rutter and Mr Brown around the building. Someone suggested that site levels should be taken. Mr Martin helped the site foreman from Lund South to take the first set and they were alarmed to find the foundations so far off level. Mr Martin sent a fax to Mr Rutter dated 7 March 2008, which advised that there was visible cracking to the gib lining above the sliding door in the Grove Street dayroom. Mr Martin had become aware of this when he was told by staff that a door in the dayroom would not latch because the frame had moved. He asked that the engineer and Lund South be informed.
[128] Mr Martin prepared a report headed “Building Subsidence Times” sometime after 7 March 2008, because that date appears in its narrative. He described events from his July 2007 inspection followed by the inspection with Mr Forrester of Lund South and Mr Rutter on 17 August 2007. He referred to a comment by Mr Forrester to the effect that there was minor “pulling” of gib board lining around the doorframes to Rooms 6 and 7, and that minor settlement of the building would produce this effect. Mr Martin’s evidence is that he had not seen this when he inspected in July 2007 and under cross-examination he said it had developed since his July inspection. He said it had occurred either after he made his July 2007 list, or he had not noticed it.
[129] Mr Martin was thoroughly tested by Mr Raymond under cross-examination. He was taken through his July 2007 list in detail. Mr Martin recorded that all ensuites had cracks in the scotia (the trim between the ceiling and the wall), and he thought there were 44 rooms affected. The cracks to doorframes in eight ensuites were between the wall lining and the doorframe. Other cracks were associated with joins in the gib, which were cracked slightly. The Room 13 main doorframe was warped, described as having a “huge crack at the top of the door”. Mr Martin said that this was because the doorframe had dried out in a “crooked fashion”. He identified a number of seemingly cosmetic matters, including bad scuffing on the
north wall of the restaurant and poor vinyl sealing in places. Mr Martin said the cracks to the scotia were in the utility rooms or corridors. The Home occupies two floors and the defects were throughout. When he was pressed by Mr Raymond, who put it to him that he was down-playing the seriousness of the damage he observed, he maintained his position that the damage as he saw it in July 2007 was “relatively insignificant”. He said these were cracks, not crevices.
[130] Mr Raymond referred to a report made for Montecillo by CPG New Zealand Ltd (‘CPG’) dated 2 November 2011. That report refers to Mr Martin’s July 2007 list, and Mr Martin agreed that the description of his list by CPG was a fair summary. Mr Raymond put to Mr Martin that CPG’s reference to Mr Martin’s July 2007 list did not just describe cracks in the paintwork and he agreed.
[131] Mr Tobin also took Mr Martin, under re-examination, to the same CPG report for Montecillo, described on the front page as “Superstructure Damage Review”. That report included a review of a second geotechnical report by Tonkin & Taylor for EQC dated 17 May 2011, and includes this reference:
1.0 INTRODUCTION
CPG have been engaged by the Montecillo Trust to review the original structural drawings and ongoing correspondence between the Montecillo Trust, David Rutter (the architectural designer), Stevenson Brown (SBL - the design engineers) and the Earthquake Commission (EQC) in order to ascertain the cause of the superstructure damage at the Montecillo Veterans Home at 63 Bay View Road, Saint Kilda, Dunedin. This included a review of a Tonkin and Taylor (T&T) geotechnical report who were acting on behalf of the EQC.
[189] To this point I consider that if the test for the start of the limitation period assumes expert consideration of the defects evident, as part of due diligence on an hypothetical sale and purchase, then the action would be out of time, as an expert would have recognised the real possibility of structural failure before
19 December 2007. This is shown by the January 2008 report from Tonkin & Taylor. Whether that expert lens is to be applied to reasonable discoverability is in my view determinative of the question for answer in this case.
[190] The test cannot be based on certainty of the underlying problem and its cause, but whether the possible cause should reasonably have been recognised.
[191] Mr Tobin relies on Pullar:26
[13] It is now well established that, where through negligent construction, design, or inspection, damage occurs in a building, its cause being obvious, any cause of action which may exist accrues when the damage becomes manifest.
[192] The Court recognised there may be cases where there is obvious damage but the cause is not immediately apparent:27
[14] Sometimes, of course, damage may manifest itself, but the reason for the damage may not be readily apparent. For instance, there may be cracks, but no one initially appreciates they are anything but normal shrinkage cracks. It is only subsequently that it is realised the cracking has a latent cause, namely defective foundations. In these cases involving a latent cause, the cause of action accrues … when the cracks become so bad, or the defects so obvious, that any reasonable homeowner would call in an expert.
[193] This directs focus on what a reasonable owner would make of what it saw and understood, not what an expert would make of it. Mr Tobin draws on the court’s
discussion of “latent damage”:28
24 Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 72.
25 Murray v Morel & Co Ltd, above n 24, at [42].
26 Pullar v The Secretary of Education, above n 17 (emphasis added).
27 Pullar v The Secretary of Education, above n 17 (emphasis original).
28 Pullar v The Secretary of Education, above n 17.
[15] We are by no means convinced this is a case of “latent damage”. The defects were readily apparent as early as 1997, indeed perhaps late 1996. There was no mystery about what was wrong. Mr Barns wrote to Mr Pullar in October 1997 asking him to fix the leaking windows and other damage to which he referred. We strongly suspect that any cause of action in negligence had accrued by then.
[16] But, even if we are wrong about that, there can be no doubt whatever that a cause of action had definitely accrued by the time of Mr Barnett’s inspection and report of December 1998. We do not need to ask, in Hamlin terms, whether “any reasonable [building] owner” would or should have called in “an expert” by then: the Ministry after all had called one in. The defects were obvious. So was the remedial action required.
[194] Mr Raymond submits Pullar is not a case of latent damage because the defects were readily apparent and there was no mystery as to their cause. However, the principle stated in Pullar is clear, that the test is one step short of what an expert would make of the problem. The test is whether the defects or damage were such as to require expert advice being sought by the building owner acting reasonably in response. Of course, it is implicit that if there was no underlying problem then identified, time would not begin to run. Here the Tonkin & Taylor report of
9 January 2008 would have activated the limitation period, as I have explained.
[195] In Hamlin at first instance, Williams J held that within two years of the plaintiff moving into a property a crack appeared in the masonry veneer and later a crack in the north wall of the kitchen, and doors stuck. There were other cracks in the foundation wall. Only in 1989 was an inspection carried out which identified the foundations as the cause of the problem. The Privy Council’s focus was not on the earlier defects but on the moment when the market value of the house depreciated
“by reason of the defective foundations”.29 Montecillo’s case is that prior to
January 2008 it reasonably held a view through its constituent staff and trustees that
the cracks were “normal shrinkage cracks” of the kind referred to in Pullar.30
[196] In a 2008 article, Professor Rosemary Tobin analysed Hamlin in the following terms:31
The majority of the Court of Appeal agreed that, in the case of a latent building defect where the damage was now recognized as economic loss, the cause of
29 Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC) at 526.
30 Pullar v The Secretary of Education, above n 17 at [14].
31 Rosemary Tobin "Difficulties with the Time Bar: A Discussion of the Limitation Defence and
Actions Based on Negligence" (2008) 14 NZBLQ 273 at 277 (emphasis added).
action accrued when a diligent homeowner would reasonably discover the defect. The Council appealed. The Privy Council agreed that the plaintiff ’s loss occurred when the market value of the house was depreciated by reason of the defective foundations, and not before. Indeed, after Murphy the discoverability test was not really an issue, although the name had by then gained a momentum of its own. If the loss suffered was economic loss, then it was only sustained when the owner of the building became aware that the building was worth less than anticipated.
[197] The Privy Council did not disagree with the Court of Appeal on what party was the principal focus of the test, namely the property owner. The references by the Privy Council in Hamlin and the Court in Pullar to “economic loss” as the point in time at which the limitation period begins were not intended to alter the focus of the test. Rather, they are made to affirm the position adopted in Murphy v Brentwood District Council,32 that the proper basis for the cause of action and damages in these types of cases is economic loss, and not the physical damage to the building per se. The notions of an hypothetical sale and a diligent purchaser are invoked to demonstrate the difference between the types of loss that might be claimed. It is not
intended to have the effect of holding that, at any given time, whether economic loss has occurred by reason of defective foundations (so as to start the limitation period) is to be determined by an hypothetical expert looking at the building at that time.
[198] The issue of latent damage by reason of defective foundations (albeit in the context of the rights of a subsequent purchaser), was discussed in Mt Albert Borough Council v Johnson, which was a pre-Hamlin judgment. In that case, the Court of Appeal summarised the trial Judge’s reasoning as follows:33
…following the English Court of Appeal in Sparham-Souter v Town and Country Developments (Essex) Ltd and Moller J in Gabolinscy v Hamilton City Corporation, [Mahon J] held that the action was not barred. The Judge treated those cases as establishing that the cause of action does not accrue until the damage manifests itself or when a person who then has an interest in the property first discovers the damage or should with reasonable diligence have discovered it. (citations omitted)
[199] Whilst not explicitly referring to the “person who then has an interest in the property” (who was a subsequent purchaser), the Court of Appeal agreed with the
32 Murphy v Brentwood District Council [1991] 1 AC 398 (HL). The position had had its beginnings in New Zealand law since the disparate opinions of the Judges of the Court of Appeal in Bowen v Paramount Builders [1977] 1 NZLR 394 (CA).
33 Mt Albert Borough Council v Johnson [1979] 2 NZLR 234 (CA) at 238 (emphasis added).
approach of the trial judge. In deciding to follow Bowen, and depart from the position reached by the House of Lords in Anns v Merton London Borough Council34 the Court of Appeal considered that:35
Such a cause of action must arise, … either when the damage occurs or when the defect becomes apparent or manifest. The latter appears to be the more reasonable solution.
[200] There is thus early authority, pre-dating Hamlin, which implicitly endorses the test being that of the reasonable property owner. An alternative focus for the test, namely what an expert would have made of the damage, had one been called in at some hypothetical time, is arguably not sound. It cannot be right to hold that it was reasonable for the property owner (a non-expert) to maintain a position that there was no damage which might attract liability, but at the same time hold that because an expert would have thought something different, the property owner should lose out. If the property owner was acting reasonably there would be no obligation to call in an expert.
[201] To say that the limitation period ran from July 2007, because at that point if Tonkin & Taylor were called in the possible cause of the damage would be sufficiently understood, has the same effect of holding that the limitation period began to run in July 2007 because it was not reasonable for Montecillo to adhere to its beliefs as to the cause of damage in July 2007. This cannot be right. If Montecillo could reasonably maintain its beliefs as to the nature and cause of the damage prior to January 2008, it had no obligation to call in an expert in July 2007, or before
19 December 2007.
[202] It is possible that the underlying cause of damage would have been sufficiently known or understood in July 2007 if an expert had investigated at that time. It may be that damage would have been discoverable earlier. If there had been a report that concluded that defective foundations or bearing were reasonably possible to blame at that point, then economic loss would have crystallised then. This too cannot be right. If Montecillo were acting honestly and reasonably in July 2007,
then it must have been acting reasonably in 2006.
34 Anns v Merton London Borough Council [1978] AC 728 (HL).
35 Mt Albert Borough Council v Johnson, above n 33, at 239.
[203] In all the cases, the inquiry seems to return to the person with the relevant property interest. In this case it is Montecillo as the original and continuing property owner. It might be a prospective purchaser, or some other party wanting to establish the cause of action. However, the role of the expert in these different settings is directly referable to the question of what actions were reasonable for the relevant party. The hypothetical prospective purchaser in July 2007 would have seen the damage and probably have called in an expert. If they did not, they may not have been acting reasonably. It does not follow that Montecillo was under the same obligation. The question of what an expert would have made of the damage is only a function of what a particular party was obliged to reasonably do.
[204] To apply the test as involving economic loss discoverable by an expert at some hypothetical point of time is to look at the matter with an arguably unfair degree of hindsight, and to encourage an ultra-cautious practice on the part of property owners, whereby they should call in an expert at the slightest hint of potential trouble. I do not think that the authorities intended this. The reasoning involved in the discussions of economic loss and the development of a “discoverability” test stemmed from a need to preserve a plaintiff’s right to claim where, even though it had been acting reasonably, damage had occurred long beforehand and ordinarily, without the special class of case, the action would have accrued and the limitation period run its course.
[205] On that basis I apply the facts as I have found them, and my assessment of witnesses against the test of the reasonable property owner, responding to what was known by it, or what should have been known. Montecillo says that the defects identified in July 2007 by Mr Martin were reasonably regarded by it as “minor maintenance issues” and the August inspection with Mr Rutter and Mr Forrester reinforced this. That characterisation came into focus again following the October 2007 earthquake. New cracks were observed. Montecillo says it reasonably thought that these were earthquake-related, and defects identified in the July 2007 list were reasonably understood to be consistent with settlement in the ordinary course. Having regard to the new cracking observed around the window frames in Rooms 6 and 7, to external cracking following the earthquake of 16 October 2007, and damage to the nearby Bay View Rd motel in the same seismic event, Mr Tobin
says that the reasonable building owner would assume that the new cracking was caused by the earthquake. The earthquake caused damage which seemed explicable by that event and was not reflective of an underlying problem. I have found that Montecillo for itself reasonably regarded the earthquake as exacerbating damage and defects, and was diverted from recognising the true underlying problem.
[206] The damage or defects observed in July 2007 by Mr Martin seemed to him minor, as they did to Mr Daniel and Mr Rutter when they inspected the building in August 2007. Hindsight must not direct the finding, now that the underlying problem is known, which may or may not be attributable to negligence. Montecillo reasonably presumed that the defects were largely cosmetic, consistent with minor settlement, and usual for this area. Mr Rutter thought the same. They were not recognised as symptomatic of a more serious underlying cause. The defects were those of a kind that a reasonable building owner would assume the builder or subcontractors would fix, subject to the contractual obligation to do so.
[207] This is a large building and the theory of the building “drying out” occurred to Mr Martin, Mr Daniel and Mr Rutter. Mr Rutter was experienced in such projects, and knew of local conditions. Neither when the July 2007 list was made, nor in the August 2007 inspection with Mr Rutter and Mr Forrester was there anything which should reasonably have alerted Montecillo to a deeper, more fundamental problem. The October 2007 earthquake was thought to have exacerbated the defects, and the EQC claim made by Montecillo followed, consistent with that perspective. The EQC claim which was accepted for the nearby Bay View Rd motel was also consistent with that. The October 2007 earthquake was a false lead as it seemed to explain the more serious defects and damage then observed. I find Montecillo reasonably thought this, and in respect made the EQC claim.
[208] I am satisfied that no witness for Montecillo was cognisant of a more serious underlying cause during 2007 and nor reasonably should they have been. The references in the Tonkin & Taylor report of January 2008, and much later by CPG to “other information” derived from residents and staff does not, in my view alter or influence that conclusion. These observations, which are not referable to any individual, are no different to those made by Montecillo employees directly engaged
in looking at the defects in July 2007 and up until the time the proceedings were issued. Nor do they differ from Mr Rutter’s observations. By January 2008, with receipt of the Tonkin & Taylor report, Montecillo was given a clear signal that there was a deeper and more significant cause.
[209] While the subjective perspective of the plaintiff cannot protect it against shutting its eyes to the obvious, the question is whether it did so here, and I find to the contrary. On the test I consider applicable, namely whether it should have recognised the possibility of an underlying cause and called in an expert, I conclude that it reasonably did not advert to such possible cause.
[210] If the test I have applied is wrong, and the test is what an expert would have made by the visible defects and damage before 19 December 2007, the answer would be to the contrary. In any case, the January 2008 report by Tonkin & Taylor is compelling in pointing to the likelihood of structural failure. It was an opinion which must have triggered the limitation period.
[211] I conclude, therefore, that Stevenson Brown has not discharged the onus on it to prove the limitation period began to run before 19 December 2007. Even without that onus, I would have reached the same conclusion.
Montecillo’s doubt as to the cause of the defects and damage observed
[212] The following are observations only regarding Montecillo’s submission that doubt over the true cause of the defects and damage would stay the beginning of the limitation period.
[213] On 14 January 2008, when Montecillo received a copy of the Tonkin
& Taylor report dated 9 January 2008, it made aware of the opinion that “the underlying damage is considered structural, is not earthquake-related, and is likely to be associated with poor foundation design or soft foundation conditions”. In my view, at that date time began to run, and if it was relevant to the question for answer, I would reject Mr Tobin’s submission that this report was not sufficient to put the reasonable building owner on notice.
[214] He is right that it was not until receipt of this report that the bearing of the Home was mentioned as the underlying structural cause of settlement, let alone identified as a design or engineering problem. While Montecillo remained uncertain as to the real reasons for the cracking, reflected in the Board’s consideration of the Tonkin & Taylor report on 31 January 2008, uncertainty does not, in my view stay the limitation clock.
[215] When Mr Tobin says Montecillo was reassured by Mr Brown that the foundations were “conservatively designed and adequate”, this is to read down what Mr Brown said in his letter of 12 March 2008. The identified problem was what lay beneath the foundations, and how the building was influenced by that, referred to in the evidence as the “design philosophy”. While it was intended to buttress Mr Tobin’s submission that doubt does stay the limitation clock, I do not consider it relevant to limitation that the trustees remained in doubt as to the real cause of the problem throughout 2008. Mr Rutter’s remarks at the board meeting of
13 August 2008 went to the heart of what Tonkin & Taylor had reported when he said that an author of the Tonkin & Taylor report was not qualified to reach the conclusions that he did. The conclusions were clear enough, whether right or not.
[216] In summary, “doubt” as to the cause of the observable problem is not in my view the test at law. I would find, if necessary, that in January 2008 Montecillo, as a reasonable building owner, should have recognised the real possibility of a serious structural problem to do with the bearing of the Home in the underground condition. The question on which this judgment is based is whether it should have done so earlier, and in particular before 19 December 2007.
Answer to Question (2): Whether the Plaintiff ’s claim in negligence was commenced after the period allowed for a cause of action in tort by the Limitation Act 1950
[217] The plaintiff ’s claim in negligence was commenced within the time allowed
for a cause of action in tort by the Limitation Act 1950.
Formal Disposition of Questions for Preliminary Determination
(1) The model IPENZ/ACENZ SHORT FORM AGREEMENT (the short form agreement) was not incorporated into the contract between the Plaintiff and the Defendant by reason of a previous course of dealings between the Plaintiff’s agent, Mr Rutter, and the Defendant.
(2) The Plaintiff’s claim in negligence was commenced within the time allowed
for a cause of action in tort by the Limitation Act 1950.
Leave Reserved
Leave is reserved for the parties to revert to the Court for further orders or directions consequential upon this judgment, including costs.
Addendum
This judgment makes no finding whatsoever against Stevenson Brown Ltd. Nothing should be taken as indicating that it was negligent.
…………………………………
Davidson J
Solicitors:
Solomons (Dunedin)
Duncan Cotterill (Christchurch )
Copy to Counsel: DR Tobin ( Dunedin)
R Raymond (Christchurch)
- AGLC
- Montecillo Trust v Stevenson Brown Limited [2016] NZHC 684
- Case
- [2016] NZHC 684
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