Orion New Zealand Limited v Earl P Smith Limited

[2013] NZHC 1411

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2013-409-000512 [2013] NZHC 1411

BETWEEN  ORION NEW ZEALAND LIMITED Plaintiff

ANDEARL P SMITH LIMITED Defendant

Hearing:                   28 May 2013 (by telephone) Appearances:        A Sherlock for Plaintiff/Respondent

A R Armstrong for Defendant/Applicant

Judgment:                13 June 2013

JUDGMENT OF ASSOCIATE JUDGE OSBORNE [as to joinder of a defendant]

Introduction

[1]      This is an application by the only defendant (“Smith”) in the proceeding for an order joining a second defendant. The plaintiff (“Orion”) opposes the application.

Background

[2]      Orion is the owner/operator of the electricity distribution network in central Canterbury.  It operates for itself a telephone network.  In May 2008, it was having a switchboard moved.  The proposed second defendant (Spectrum Lighting & Sound Ltd – “Spectrum”) was the electrical contractor dealing with the switchboard switch. The surrounding wall was cut into and repaired and sanded.  Damage was caused to equipment through the dust caused by the sanding.

[3]      Orion is suing the present sole defendant, Earl P Smith Ltd (“Smith”), which was a building contractor used by Orion on a standing basis.  Earl Smith, Smith’s

director, deposes that Smith is fully employed carrying out small building work for

ORION NEW ZEALAND LIMITED v EARL P SMITH LIMITED [2013] NZHC 1411 [13 June 2013]

Orion.  It carried out the builder’s work associated with the alteration and sanded the repaired area.

[4]      Orion sues in contract and in tort.  It alleges that Smith breached an (implied) duty to use reasonable care to avoid damage to Orion’s property.  Orion pleads that Smith was expressly told to leave a trowel finish and that Orion stressed to Smith the need to avoid creating dust.

[5]      Orion has not sued its electrical contractor, Spectrum.

Why Earl P Smith wants Spectrum joined

The evidence suggesting Spectrum has a responsibility for the damage

[6]      Earl Smith explained in his affidavit in support of this application why Smith wants Spectrum to be joined as a defendant:

The claim against EPS arises from work carried out by it in Orion’s building at 218 Manchester Street, Christchurch in May 2008.   The work was undertaken in the server room which contained electrical/electronic equipment.     Orion  alleges  that  the  equipment  was  contaminated  and damaged by dust generated by sanding undertaken by me in May 2008. Orion alleges breach of contract and negligence.  Essentially the allegation against EPS is that either or both Mr Neville Digby of Orion or Mr Christopher White of Spectrum told me that I was not to sand my plastering work and that I went ahead and sanded it anyway.

EPS’s case is that it was not made aware by either Mr Digby or Mr White that my plastering work should not be sanded.  I sanded my plastering work because that was part of completing the work that I had been asked to do to a proper standard.   I took reasonable care when carrying out the sanding to avoid damage to the equipment in the room.

There is no dispute that Orion instructed Spectrum to install a new switchboard in the server room.   That involved moving the existing switchboard to the other side of the wall where it was situated.  That took it out of the server room and into the roof space on the other side of the wall. There is also no dispute that Spectrum asked EPS to assist it with moving the original switchboard and making good the wall.

[7]      Summarising what Mr Smith has said, it is Smith’s case that, contrary to Orion’s pleading, Smith was not expressly told to leave a trowel finish or to not sand the plastering work.   Smith wishes to establish that Spectrum was either partly or wholly liable to Orion for the damage which occurred.

[8]      Earl Smith relies on documents which have been made available through discovery.    Some of the documents  are  relatively old  (from  the time when  the damage occurred in May 2008) and some came into being much more recently (from when Orion’s insurer was obtaining statements from relevant personnel last year (September and October 2012).

[9]      The documents include a “sequence of events” provided by Orion to its insurer in May 2008, a first report by the loss adjuster dated 30 May 2008, and several statements taken from personnel in September/October 2012.

[10]     For Smith, Mr Armstrong submits that there are a number of matters in the plaintiff’s own documents which may assist the Smith case as to having received no briefing as to precautions to be taken to prevent dust contamination of equipment.

[11]     Mr Armstrong, for example, contrasts the statement of Neville Digby (the plaintiff’s project manager at the time) with the statement of Christopher White.  Mr White is a former employee, but still a director and shareholder of Spectrum.  He happens now to be an employee of Orion.  Mr White carried out the electrical work in May 2008.  Mr Digby states that it was either he or Mr White (then of Spectrum) who told Mr Smith that the wall “does not have to look pretty”.  Mr White states that it was Mr Digby who spoke those words.   Further, while the Statement of Claim alleges that Smith knew that Orion expected the plaster work would be left with a trowel finish, neither Mr Digby’s nor Mr White’s statement refers to any discussion of a trowel finish.  Furthermore, when Mr Digby explains why the statement that the wall “did not need to look pretty” was made, he relates it not to a dust issue but rather to a simple lack of need, because the area was going to be covered by a larger switchboard. He records –

The reason why this [did not need to look pretty] was said was because the restoration  was  just  for  fire  rating  purposes.     A  new,  much  larger switchboard, was going to cover the affected area.

[12]     The sequence of events provided by the plaintiff to its insurer immediately following the incident, in May 2008, is also potentially significant.  It records that then (at the outset) –

Earl Smith said he was never asked not to sand.  Chris White said he never told him not to sand but believed that Earl understood that dust levels were to be kept to a minimum due to the fire equipment in the room and the careful conditions they had worked under on the (sic) 13 May 2008.  Chris had also told Earl that new switchboard was going on the wall and so the area did not have to be finished to a high standard.

[13]     Accordingly, on the “sequence of events” as created by Orion itself in May

2008,  there  was  not  a  suggestion  that  anything  had  been  expressly said  to  the defendant either as to not sanding or as to the risk of dust contamination.

[14]     Orion’s loss adjuster concluded in his report of 30 May 2008 (exactly two weeks after the incident) that –

It appears that the electrician and builder have completely misjudged the effect of air movement from the fans within the equipment, and the Insured has suggested the vacuum cleaner filter was inadequate and actually distributed the finer dust rather than collecting it... The Insured has stated that they had not given any consideration to dust being generated, and they did not expect a sanded finish.  It appears that because of the minor nature of the work it was not specified in any detail, but was done through verbal instructions as the job progressed.

[15]     Mr Armstrong  finally refers  to  an  email  from  Mr Digby concerning  the “computer room issue” on 20 May 2008.   The document is headed “Sequence of Events” and it would appear likely that this was a contribution to the “Sequence of Events” which Orion was about to provide to its insurer.  Mr Digby records –

Late last week a building contractor replaced jib board in the room and

allegedly was told to “plaster stop” it but do not sand it.

He decided it needed sanding and allegedly asked a staff member in the room if it was safe to do so, he was told if he covered things nearby it would be ok, it appears that the staff member was a Connetics staff member, not Orion.

(No source is given for the alleged direction to not sand).

[16]     As Mr Digby in his written statement four years later is saying that either he or Mr White “definitely” stated that the finished wall “did not need to look pretty”, Mr Armstrong observes that Mr Digby’s use of the word “allegedly” must cast doubt on whether Mr Digby heard for himself any such statement.

[17]     For completeness I note that Mr Sherlock, for Orion in opposition, observed from the bar that Mr Digby will explain that he used the word “allegedly” simply because he was trying to present matters a neutrally as possible.   That is an explanation to be assessed at trial.   When the Court is considering in a summary context whether there is reasonable material on which to have further defendant joined,  the  applicant  is  entitled  to  rely on  the  collective  impact  of  the  various records, including this email.

[18]     The collective impact of Orion’s own records and of Mr Smith’s affidavit evidence is to indicate the perfectly arguable proposition that Spectrum had at lease some (if not full) responsibility for the fact that dust was allowed to be created in the server room.  That situation alone is a powerful reason favouring Smith’s application to join Spectrum.

An insurance complication

[19]     It is common ground that both Orion and Spectrum are insured by the same insurer.   Mr Armstrong submits that the Court can reasonably conclude, given the available evidence to which I have referred, that Orion (at the choice of its insurer) has made a tactical decision not to join Spectrum (insured by the same insurer).  Mr Armstrong submits that that tactical decision may have been reinforced by the fact that Mr White, the relevant employee of Spectrum at the time, is now employed directly by the plaintiff.   I do not have sufficient material before me to  accept Mr Armstrong’s  invitation  to  conclude  that  Orion’s  non-joinder  of  Spectrum  is tactical rather than based on a lack of belief that there is a valid claim against Spectrum. There is a possibility that the decision was at least partly tactical.

[20]     Brendan Kearney, the General Manager Corporate Services of  Orion  has sworn an affidavit in which he deposes –

Orion has also received independent legal advice in light of that evidence [of Mr Digby and Mr White].  That legal advice is privileged, but based on the evidence and the advice, Orion considers that Spectrum has no liability for the losses which Orion has suffered and that the sole defendant is EPS.

[21]     This passage of evidence was the subject of a discussion between the Court and Mr Sherlock during the hearing.   Mr Sherlock explains the reference to the

content  of  otherwise  privileged  material  by  the  need  to  counter  the  “tactical decision” allegation of the defendant.   But what the plaintiff has essentially done through Mr Kearney is to refer to the substance and content of the legal advice (albeit in summary form).   What Mr Kearney is telling the Court is that the legal advice was to the effect that there is no liability on the part of Spectrum.   The decision to include that information in Mr Kearney’s affidavit raises issues as to waiver of privilege which must be left for either agreement between the parties or for Court direction.  But in the present context, Orion’s decision to refer to the content of legal advice without exhibiting the legal advice in question in order to show that it says exactly what is claimed, leaves the Court in the position of not being confident as to what weight, if any, to attach to Mr Kearney’s statement.

[22]     For these reasons, I conclude that there remains some possibility (but not at this point a strong possibility) that there has been some tactical decision making involved in relation to the plaintiff’s non-joinder of Spectrum.

Orion’s response on the facts

[23]     Mr Sherlock, for Orion, did not seek to suggest that there was complete consistency between the various documents produced by Orion.  Nor did he suggest that the evidence produced on  this application  supports some  allegations in the statement of claim, such as that –

The  defendant  knew  that  the  reinstatement  of  wall  was  for  fire-rating purposes and further knew that the plaintiff expected the plaster work would be left with a trowel finish; …

and there was an “agreement to have a trowel finish”.

[24]     Mr Sherlock submitted that it was appropriate for Orion to approach its case, and for the Court to consider the question of joinder, in the light of evidence of Mr Digby in particular.  Mr Digby identifies a meeting he had which involved at least Mr White and Mr Smith on 13 May 2008, before the work was carried out.  While there is no reference in his statement specifically to a “trowel finish” or to “not sanding the plaster”, Mr Digby’s September 2012 statement records that he stressed the need to mitigate dust in the server room and that there was an agreement that Mr

White would be vacuuming any dust created by the cutting process by holding a nozzle from the vacuum cleaner to the wall where Earl Smith was cutting.  It was in this meeting that Mr Digby says there was a discussion as to “not need[ing] to look pretty”.

[25]     There is a dispute between Mr Smith on the one hand and Mr Digby and Mr White on the other as to whether this meeting early on 13 May 2008 involved the three of them.  Orion has gone so far as to produce security system records to show that each of the three was recorded entering and leaving the room around the same time.  This is not the context for resolution of exactly who was at a meeting at a particular time.  That is precisely why the documentary records of Orion, on which Mr Armstrong places some reliance, might be considered to assist the Court more in relation to the present application.

[26]     Moving beyond what the documents themselves indicate, Mr Sherlock put an emphasis in Orion’s opposition upon a view that:

The evidence of Orion’s own witnesses does not point to any liability on the part of Spectrum.

Mr Sherlock says more specifically that if the evidence of Mr Digby were to be accepted at the trial, both as to the fact and content of the 13 May 2008 meeting, there would be no room for a valid claim by Orion against Spectrum.  Mr Sherlock went on to submit that Orion’s evidence does not support a claim against Spectrum as an alternative to its claim against Smith.

[27]     Mr Sherlock then concluded his submissions by reference to the approach the Court  takes  on  applications  by  defendants  for  joinder  of  additional  defendants against the wishes of the plaintiff.

The jurisdiction to join a defendant

[28]     The defendant invokes r 4.56 High Court Rules which relevantly provides:

4.56     Striking out and adding parties

(1)      A Judge may, at any stage of a proceeding, order that—

(a)      …

(b)      the name of a person be added as a plaintiff or defendant because—

(i)       the person ought to have been joined; or

(ii)      the  person's  presence  before  the  court  may  be necessary to adjudicate on and settle all questions involved in the proceeding.

(2)      An order does not require an application and may be made on terms the court considers just.

(3)      Despite subclause (1)(b), no  person may be  added as a  plaintiff without that person's consent.

[29]     I approach r 4.56 with the following considerations in mind: (a)        The jurisdiction is inherently discretionary.

(b)Once the threshold within the jurisdiction exists (whether under limb (1)(b)(i) or (1)(b)(ii)) the usual practice of the Court will be to prefer the procedure which is most likely to be more convenient and to lead to the more efficient and expeditious disposition of the proceeding.1

(c)      Where a defendant seeks joinder of a defendant against the plaintiff ’s wishes, the plaintiff’s consent is not required.  There is something in the nature of a prima facie presumption that a plaintiff may sue the defendant it chooses.2      The plaintiff’s wishes are a relevant consideration in exercise of the discretion, but are not decisive.  The plaintiff’s possible liability for additional costs is a factor relevant to the discretion.3

(d)      A plaintiff ’s wishes may, in the Court’s discretion, be considered less

significant where a plaintiff sues one of a number of co-contractors.  I

adopt  the  following  passage  from  McGechan  on  Procedure  as

1      Duff v Communicado Ltd (1995) 8 PRNZ 605 (HC) at 607 (the observation being in relation to a case on the Commercial List but having relevance to any commercial litigation).

2      Paccar Inc v Four Ways Trucking Inc [1995] 2 NZLR 492 (HC) at 493.

3      Mainzeal Corporation Ltd v Contractors Bonding Ltd (1989) 2 PRNZ 47 (HC) at 49-50.

accurately   reflecting   the   Court’s   approach   in   relation   to   co- contractors:4

In such cases, the Court will generally exercise a discretion in favour of joining the remaining co-contractors as defendants, even though third party proceedings would be possible. The rule was first laid down in absolute terms, and not as a matter of discretion, in Pilley v Robinson (1887) 20 QBD 155. It was recast as a matter of discretion generally to be exercised in favour of an order for joinder in Wilson and Son v Balcarres Brook Shipping Co [1893] 1 QB 422 (CA). Where a defendant applying shows reasonable grounds for belief in the existence of the joint contract, in the absence of special circumstances, prima facie the right to an order exists, but the order will be made without prejudice to the question of joint contract at trial, and will be upon terms as to costs if the outsider is wrongly joined. Frequently the defendant will be able to join the outsiders concerned as third parties under r 4.4, resolving difficulties. Such would be much more usual in practice.

(e)      The fact that the plaintiff’s approach or the plaintiff’s evidence may ultimately be such as to enable the proposed defendant to obtain entry of judgment against the plaintiff in its favour, or non-suit at trial, does not of itself render inappropriate a joinder where the defendant has

satisfied one of the threshold tests under r 4.56(1)(b).5

Discussion

[30]     The central issue in this proceeding is who, if anyone, was responsible to the plaintiff for the fact that the damage caused by dust occurred.

[31]     Orion,  by  its  pleading,  has  adopted  the  view  that  Smith  is  entirely responsible.  Smith takes the view, based on a very different view of the facts and the critical discussions which occurred, that Spectrum is wholly or partly responsible.

[32]     Mr Sherlock’s submissions were to the effect that joinder should not occur where the plaintiff’s view of the facts does not reasonably establish a case against the

4      McGechan on Procedure, HR 4.56.12.

5      Technic Bitumen Pacific Ltd v Shell New Zealand Ltd HC Wellington, CP 192/99, 31 August

2000 in which the Court upheld on review the decision of Master Thomson ordering joinder of a second defendant against the wishes of the plaintiff.  See, in particular, the discussion of Wild J at [17] in which his Honour recognised that the plaintiff might decline to amend its statement of claim so  as  to  encompass allegations against the  new defendant, thereby leaving the  new defendant able to obtain entry of judgment in its favour.

proposed  defendant.     Contrary  to  such  suggestion,  the  threshold  test  under r 4.56(b)(ii) is whether the presence of Spectrum may be necessary to adjudicate on and settle all questions involved in the proceeding.  Mr Sherlock’s approach would have more merit if the test under that limb required that the proposed defendant’s presence will be necessary.  But that is not the test.

[33]     This is not a case in which a job went wrong for a plaintiff when there was only one person involved in the job for the plaintiff.   The work to move the switchboard and to make good the server room was a job shared between Spectrum and Smith.  Both had contracts with Orion which encompassed the work in question. Both therefore had contractual liability for their responsibility if they did something wrong.  Orion sues Smith for concurrent liability in negligence.  If Spectrum, as well as Smith, is found to have been negligent, the Court’s jurisdiction under the Law Reform Act 1936 to apportion responsibility between joint tortfeasors will arise.

[34]     While third party proceedings would be available to Smith, Mr Armstrong submitted that there is a close analogy in this case with the co-contractor cases referred to in the passage I have cited from McGechan on Procedure.   The two contractors  (electrical  and  building)  were  working  alongside  one  another  and working  with  one  another  on  the  server  room  project,  apparently  pursuant  to standing contracts rather than one-off contracts.  Spectrum also appears to have had a degree of authority insofar as Orion’s case assumes that Smith would from time-to- time be instructed by Spectrum as to how to do the building job.

[35]     The  authors  of  McGechan  on  Procedure,  in  the  passage  Mr Armstrong invokes, cite two English decisions.  Mr Armstrong did not refer me to the judgment of Associate Judge Doogue in Perpetual Trust Ltd v Mainzeal Property & Construction Ltd6  in which Associate Judge Doogue referred to, but distinguished English cases in which co-contractors had been ordered joined as defendants.  His Honour noted that the English cases were:7

… cases where parties have entered into a joint obligation.   The line of authority descended from the rule that required that those sued on a joint

6      Perpetual Trust Ltd v Mainzeal Property & Construction Ltd [2012] NZHC 223.

7 At [41].

obligation (for example, a debt that they all jointly engaged for), had all to be sued as defendants in the same litigation.  It does not provide any useful guidance in cases arising from the circumstance that disparate parties who happen to contract on the same construction job later wish to claim that they have a statutory right of contribution from those other parties as joint tortfeasors.

[36]     Associate Judge Doogue concluded that the case before him was not the type of unusual case such as in Mainzeal Corporation Ltd v Contractors Bonding Ltd.8

His Honour observed that that case had proceeded on the basis that the former

defendant’s case depended on the latter defendant’s presence.9

[37]     I respectfully adopt Associate Judge Doogue’s conclusion.

[38]     What distinguishes this case is the unusual combination of circumstances whereby a very specific job was essentially shared by two contractors, with one appearing to have something in the nature of an agency role for the employer. Spectrum, as the electrical contractor, would have had particular expertise and experience in relation to the potential for damage to the network from any dust created in the course of the work of either contractor. The employer’s contemporary documents indicate that the employer’s investigations revealed that both contractors bore a responsibility for what had gone wrong with the contractual work.

[39]     The determination of the facts is ultimately a  matter for trial.   There is nevertheless sufficient evidence in the material produced by Orion to indicate that, despite the decisions taken not to sue Spectrum, it would have an argument that Spectrum let it down in a way which breached either contractual or tortious responsibility.  Orion’s own “sequence of events” which records that Mr Smith said he was never asked not to sand and that Mr White accepted that he had never told him not to sand suggests a failure by Spectrum to identify the specific requirement and to do so in a way which related to the risk of dust contamination damage to the switchboard.   A conclusion of Orion’s loss adjuster (that it appeared that the electrician and builder had completely misjudged the effect of air movement from

the fans within the equipment) is a conclusion that, at this preliminary stage and on

8      Mainzeal Corporation Ltd v Contractors Bonding Ltd, above n 3.

9      Perpetual Trust Ltd v Mainzeal Property & Construction Ltd, above n 6, at [42], citing Mainzeal

Corporation Ltd v Contractors Bonding Ltd, above n 3, at 51.

the documents produced, would appear to be potentially available at a trial.  If such a finding is made at trial, an order as to contribution may follow.

[40]     To the extent that a plaintiff has a legitimate concern as to an exposure to costs on the application of a joined defendant, Mr Armstrong correctly notes that the Court’s discretion to arrange costs as between defendants, such as under a Sanderson order.10

[41]     If Spectrum is joined, there will not only be a time specified for Orion’s amended claim against Spectrum (if Orion adopts that course), but the joinder will also entitle Smith to file a cross-claim against Spectrum.

[42]     The benefit and efficiency of this course for Smith is obvious.  If the Court at trial finds Smith and Spectrum both responsible to some extent, Smith will as a co- defendant not have the same risk of a cumbersome recourse against Spectrum.   It may not have to first meet an entire liability to Orion and then have a difficulty of proceeding separately and later for contribution or indemnity from a third party.

[43]     Mr Sherlock placed substantial emphasis upon the real possibility that Orion will not have the evidence to succeed against Spectrum at the conclusion of  Orion’s case.  There may then be a non-suit.  But, as the outcome in the judgment of Wild J in the Technic Bitumen Pacific Ltd v Shell New Zealand Ltd case indicates, the potential failure of the plaintiff’s case against the proposed defendant for that or

similar reasons is not definitive .11    For the important purpose of assessing matters

such as contribution between the defendants, the proposed defendant would remain in the litigation by reason of the cross-claim which the existing defendant will have filed.

[44]     In the exercise of the discretion it is appropriate that the Court also has regard to the possibility that at least some aspect of Orion’s decision to not pursue Spectrum may have arisen for strategic reasons.  These might relate to the fact that Orion and

Spectrum have the same insurer.   They may relate to the fact that Mr White who

10     Named after Sanderson v Blythe Theatre Co [1903] 2 KB 533 (CA); see also Brown v Heathcote

County Council (No.2) [1982] 2 NZLR 618 (HC) at 627.

11     Technic Bitumen Pacific Ltd v Shell New Zealand Ltd, above n 5.

undertook the Spectrum work remains both a director and shareholder of Spectrum, but is now an employee of Orion.   In these circumstances, I do not consider it appropriate to attach the same weight to Orion’s choice of defendant as I would in a case not having such features.

[45]     I have considered the judgment of Barker J in Paccar Inc v Four Ways Trucking Inc,12 an oral judgment in a case which the Court found that the applicant defendant had not displaced the prima facie presumption that the plaintiffs could sue who the plaintiffs wished.  Amongst other considerations, the Court noted the clear increase of time for litigation that would be involved in joining eight additional defendants; the lack of any evidence that the plaintiffs could adduce any proof

against the additional defendants; and the fact that the discovered documents gave no support to the applicant defendant’s theory of the facts.  Those features are all very different to the features of this case.

[46]     I find  that  this  is  a clear case in  which  the threshold  in  r 4.56(b)(ii) is established and in which the Court should override the wishes of the plaintiff in the selection of defendants.

Order

[47]     I order:

(a)       Spectrum  Lighting  &  Sound  Ltd  is  joined  as  a  defendant  in  this proceeding;

(b)The plaintiff is to pay the defendant, Earl P Smith Ltd, the costs of this application on a 2B basis together with disbursements to be fixed

by the Registrar.

Solicitors:

Hesketh Henry, Auckland for Plaintiff

Young Hunter, Christchurch for Defendant

Associate Judge Osborne

12     Paccar Inc v Four Ways Trucking Inc, above n 2.