Pacific Independent Insurance Limited v Webber HC Auckland CIV 2009-404-4168

[2010] NZHC 2106

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-4168

AND BETWEEN            PACIFIC INDEPENDENT INSURANCE LIMITED

Plaintiff

ANDKATHRYN LOUISE WEBBER First Defendant

ANDWARREN MILLER Second Defendant

ANDGUI XIN LI Third Defendant

ANDNORTH SHORE CITY COUNCIL Fourth Defendant

ANDGONZALO ALARCON Fifth Defendant

ANDB & G PLASTERERS LIMITED Sixth Defendant

ANDWILLIAM JOHN KATHAGEN Seventh Defendant

ANDMINERAL PLASTER TECHNOLOGIES LIMITED

Eighth Defendant

Hearing:         28 October 2010

Appearances: Mr D J Powell for plaintiff

Mr M Cavanagh for fourth defendant
Mr A Maclean for seventh and eighth defendants

Judgment:      24 November 2010 at 10.30 am

JUDGMENT OF LANG J

[on application by seventh and eighth defendants for summary judgment against plaintiff and fourth defendant and/or for orders setting aside

cross notices by fourth defendant]

PACIFIC INDEPENDENT INSURANCE LTD V WEBBER AND ORS HC AK CIV-2009-404-4168  24

November 2010

This judgment was delivered by me on 24 November 2010 at 3.30 pm, pursuant to Rule

11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:

Grimshaw & Co, Auckland

Heaney & Co, Auckland
Kidd Tattersfield Maclean, Auckland

[1]      The plaintiff is the current owner of a dwelling situated at 18 Joy Street, Albany.   Like many buildings in this country, the plaintiff’s property contains building defects that have led to water ingress and damage to the property.  These will require substantial work to rectify.

[2]      The plaintiff did not own the property when the dwelling was built.  It only acquired the property in December 2004.  It now seeks, however, to recover the costs of repairing the property from those who advised it at the time that it purchased the property, and from those who were involved when the property was built.  Falling within the latter category is the fourth defendant, the North Shore City Council.  The Council issued a building consent authorising the construction of the property, and it carried out inspections at regular intervals during the construction process.

[3]      The defendants also include the seventh and eighth defendants, Mr Kathagen and Mineral Plaster Technologies Limited.  Mr Kathagen is the managing director of Mineral Plaster Technologies.   Mineral Plaster Technologies was responsible for supplying the coating powder that the fifth defendant, Mr Alarcon, applied when the fibre coated the cladding affixed to the exterior of the dwelling.   It was also responsible for inspecting the coating that Mr Alarcon applied to the cladding, and for issuing a producer statement in respect of that work.

[4]      The  Council  has  issued  cross-notices  against  Mr  Kathagen  and  Mineral Plaster Technologies seeking contribution and/or indemnity from them in respect of any liability that it might be found to have to the plaintiff.

[5]      Mr Kathagen and Mineral Plaster Technologies contend that the claims by the plaintiff and the Council cannot succeed.  For that reason, they have applied for summary judgment against them.  In the alternative, they have applied for an order setting aside the Council’s cross-notices.

[6]      Before considering the discrete issues that the present applications raise, it is necessary to describe briefly the claims that Mr Kathagen and Mineral Plaster Technologies face, the relevant principles to be applied in determining the present

applications and the arguments that Mr Kathagen and Mineral Plaster Technologies advance in relation to the present applications.

The claims

The plaintiff’s claims

[7]      The plaintiff alleges that, in or about January 2003, Mr Kathagen inspected the fibre-coat system that Mr Alarcon had applied to the cladding of the dwelling. Subsequently,  on  18  December  2003,  Mineral  Plaster  Technologies  issued  a producer statement that Mr Kathagen signed as managing director of Mineral Plaster Technologies.  The statement of claim avers that the producer statement:

1.Guaranteed that for a period of 15 years the material components of the system would perform and meet clauses B1, B2, E2 and E3 of the Building Code; and

2.Confirmed that the products and system had been inspected and found to have been correctly prepared and applied in strict accordance with the relevant written instructions.

[8]      The plaintiff’s claim against Mr Kathagen is grounded in negligence.   It contends that Mr Kathagen owed it a duty to exercise reasonable care and skill in performing the inspection  that  led  to the producer statement  and  in  issuing the producer statement.  It alleges that Mr Kathagen breached that duty when he failed to notice defects in the construction of the dwelling during his inspection, and when he worded the producer statement as he did notwithstanding the existence of those defects.  The plaintiff also alleges that, as a result of Mr Kathagen’s breaches, it will suffer losses in the form of the repair work that will be necessary to rectify the defects.

[9]      The plaintiff alleges that Mineral Plaster Technologies is also vicariously liable to it in negligence, because Mr Kathagen performed the coating inspection

work and prepared the producer statement in his capacity as an employee of Mineral

Plaster Technologies.

The Council’s cross-claims

[10]   The Council’s cross-claims against Mr Kathagen and Mineral Plaster Technologies are grounded in both negligence and in a claim for contribution as a joint tortfeasor in terms of s 17 of the Law Reform Act 1936.

[11]     The negligence claim alleges that both Mr Kathagen and Mineral Plaster Technologies owed a duty of care to the Council to ensure that any inspections that they carried out adequately identified whether the coating products and systems had been correctly prepared and applied in strict accordance with relevant written instructions, the building code and the Building Act 1991.  That duty also required them to ensure the accuracy of any statement that they made as to whether the products and systems had been correctly prepared and applied in strict accordance with the relevant written instructions.

[12]     The Council alleges that, in breach of those duties, Mr Kathagen and Mineral Plaster Technologies failed to identify, during their inspections, whether the products and systems had been correctly applied in strict accordance with the relevant written instructions, and that they failed to carry out adequate enquiries before issuing the producer’s statement.   It also contends that the producer statement was inaccurate because the products and systems had not been correctly prepared and applied in strict accordance with the relevant written instructions.   As a result, the Council alleges that it is entitled to judgment against Mr Kathagen  and Mineral Plaster Technologies in respect of any amount that the Court may require it to pay to the plaintiff.

[13]     The claim under s 17 of the Law Reform Act 1936 seeks an order requiring Mr Kathagen and Mineral Plaster Technologies to contribute as joint tortfeasors to any liability that the Council may be found to have to the plaintiff.

Relevant principles

The applications for summary judgment

[14]     There is no dispute regarding the principles to be applied in relation to the applications  for  summary  judgment.    They  are  now  well  established  through decisions of the Court of Appeal such as Pemberton v Chappell [1987] 1 NZLR 1 (CA); Grant v New Zealand Motor Corporation Ltd [1989] 1 NZLR 8 (CA) and Westpac Banking Corporation v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).

[15]     In determining the applications for summary judgment the Court is required to apply the following general principles:

a)      Mr Kathagen and Mineral Plaster Technologies must establish that they have a complete answer to all of the claims that the plaintiff and the Council bring against them.   It is not possible to enter summary judgment in respect of some of the claims, leaving the balance to be determined at trial.

b)It is generally not possible to determine disputed issues of fact based on affidavit evidence alone, particularly when issues of credibility arise. Issues of law, on the other hand, may be determined on an application for summary judgment even if they are of a complex nature.

c)      Although the Court should adopt a robust approach, summary judgment may nevertheless be inappropriate where the ultimate determination turns on a judgment that can only properly be reached after a full hearing of all the evidence.

The application for an order setting aside the cross-notices

[16]     In this context, the Court should proceed as if the application was for an order striking out the Council’s claim.  The factual matters pleaded in the Council’s cross- claim must be treated as being correct, and affidavit evidence may only be used

where it relates to matters that are undisputed: Attorney-General v McVeagh [1995]

1 NZLR 558 at 566 (CA). The jurisdiction should be exercised sparingly, and only where the Court has all of the requisite material before it to determine that the causes of action are so untenable that they cannot possibly succeed: Attorney-General v Prince and Gardiner [1998] 1 NZLR 262 at 267 (CA).

The  applications  for  summary  judgment  in  relation  to  the  claims  by  the plaintiff

Mr Kathagen’s application for summary judgment against the plaintiff

[17]     Mr Kathagen advances his application for summary judgment on four bases. These are:

(a)     He was not the person who carried out the inspection of the plaintiff’s property.

(b)In signing the producer statement, he did not become personally liable to the plaintiff or to any other party.

(c)     The claim against him cannot succeed because, in order to establish a duty of care, the plaintiff will need to establish that it relied upon the actions  and/or  statements  of  Mr  Kathagen  when  it  acquired  the property.  The plaintiff cannot establish that element, so no duty of care can arise.

(d)     The  absence  of  reliance  also  means  that  any  negligence  by  Mr

Kathagen and/or the company did not cause any loss to the plaintiff.

(a)      Mr Kathagen was not the person who inspected the plaintiff’s property

[18]     The producer statement that Mr Kathagen signed expressly referred to the fact that Mineral Plaster Technologies had inspected the work.  It did not, however, say that Mr Kathagen had carried out that inspection.  The plaintiff relies upon the

fact that Mr Kathagen signed the letter as confirming that he was also the person who had carried out the inspection. Mr Kathagen denies that that is the case.

[19]     In an affidavit sworn in support of his application, Mr Kathagen deposes:

4.      I did not inspect the cladding as alleged by the plaintiff at paragraphs

15 (d)(i) and 80 of the statement of claim.  While the company does carry  out  inspections  of  its  plaster  for  the  purpose  of  issuing  a producer statement, as the Managing Director of the company I do not carry out such inspections.  After I was served with these proceedings I drove to Albany to view the property.  As a result I am certain that I had never visited the property on any previous occasion.

5.In answer to paragraph 15(d)(i) therefore I deny that I inspected the property in 2003.  Likewise in answer to paragraph 80 I deny that I was a contractor or that I was responsible for inspecting the property.

6.In paragraph 81 of the statement of claim the plaintiff alleges that I failed  to  exercise  reasonable  care  because  I  failed  to  notice  the “coating defects” during the inspection.   Aside from the fact that I never inspected the property, the allegation that it would have been possible to see the “coating defects: during an inspection of the plaster is incorrect in any event.

7.The reason for this is that the “coating defects” as defined in the statement of claim concern the condition of the building underneath the plaster and as such  cannot be seen  once the  plaster has  been applied.

[20]     If this evidence is correct, it provides a complete defence to the plaintiff’s claim to the extent that it is based upon Mr Kathagen’s failure to notice the defects during the course of the inspection.  If somebody other than Mr Kathagen carried out the inspection, Mr Kathagen cannot be personally liable for defects that the other person failed to notice.

[21]     The issue is whether Mr Kathagen’s assertion is sufficient to permit him to obtain summary judgment when the plaintiff maintains its claim that Mr Kathagen carried  out  the  inspection.    Ordinarily,  a  disputed  issue  of  fact  can  only  be determined at trial.   It would not be capable of resolution using the summary judgment procedure.

[22]     In the present case the parties have completed discovery and inspection of each other’s documents.  It appears that that process has not assisted the plaintiff or the Council to locate any evidence regarding the identity of the person who carried

out the inspection on Mineral Plaster Technologies’ behalf.   That is an unusual outcome.  One would ordinarily expect there to be some record of the inspection, and that this would reveal the identity of the person who carried it out. At present, therefore, there is no independent evidence to support either Mr Kathagen’s assertion or that made by the plaintiff and the Council.

[23]   Little is known, however, about the manner in which Mineral Plaster Technologies operates.    Mr Kathagen could have been far more expansive in the evidence that he has placed before the Court regarding that issue.     Although he asserts that he does not carry out inspections himself, he has not said who was responsible for that task or how the company organises inspections generally. Both of those facts ought to be within his knowledge, particularly given the fact that he signed a letter confirming that an inspection of the plaintiff’s property had been conducted.  Presumably he would not have taken that step unless he knew that an inspection had taken place.

[24]     I take the view that, in the absence of further evidence on the point, it remains open to the trial Judge to reject Mr Kathagen’s assertion that he did not carry out the inspection.   At the very least, the plaintiff should be able to cross-examine Mr Kathagen regarding the truth of his assertion.  I therefore consider that it would not be appropriate to enter summary judgment in favour of Mr Kathagen at this stage on this basis.

[25]     It is also still relatively early in the piece. A trial date has not yet been allocated.   The trial is unlikely to be held before late 2011.   Entry of summary judgment in favour of Mr Kathagen at this point would finally determine the issue of whether or not Mr Kathagen carried out the inspection.   As a result, the plaintiff would be unable to revive its claim against him if it discovered evidence confirming that  he  was,  in  fact,  the  person  who  carried  out  the  inspection.    The  entry of summary judgment on this basis therefore has the potential to create injustice for the plaintiff.

(b)      Mr  Kathagen  signed  the  producer  statement  as  Managing  Director  of

Mineral Plaster Technologies and not in his personal capacity

[26]     Mr Kathagen’s second argument raises far more complex issues.  His claim that he only signed the producer statement in his capacity as an officer of Mineral Plaster Technologies undoubtedly has superficial attraction.   The form expressly records that Mr Kathagen signed the statement “for and on behalf of Mineral Plaster Technologies”.   This suggests that he did not sign the statement in his personal capacity,  and  that  he  was  not  thereby  assuming  any  personal  responsibility  in relation to it.

[27]     In “leaky building” cases, however, the extent to which those who physically carry out acts giving rise to liability, are entitled to rely upon a corporate structure as a shield is yet to be finally determined.   As matters currently stand, liability may depend upon the actual function that the defendant has carried out: See eg Body Corporate 199384 v Neilsen HC Auckland CIV 2004-404-3989, 3 December 2008 at [41] and Boyd v McGregor HC Auckland CIV 2009-404-5332, 17 February 2010 at [51].

[28]     I consider that the circumstances of the present case are similar to those in Body Corporate 202254 v Taylor [2009] 2 NZLR 17 (CA), where William Young P and Arnold J said:

[97]     In  the  end,  the  answer  to  the  questions  associated  with  the negligence claim will have to be very fact-specific.   Because we do not know the exact detail of the role and conduct of Mr Taylor, we are required to deal with this case in a frustratingly abstract context.  Further, an analysis of the relevant policy considerations will necessarily be more complete if it occurs in the context of factual findings, which the trial Judge will be in a position to make.  And, as foreshadowed in the passage we have cited from Prince, there is also more scope at trial than there is in this Court on a strike- out appeal for evaluation of the competing policy considerations.

[98]      In those circumstances, we are of the view that the negligence claim against Mr Taylor should not be struck out.

[29]     I take a similar view.  Mr Kathagen may ultimately prevail in relation to this particular argument.   The Court may accept that he signed the producer statement purely in his capacity as Managing Director of Mineral Plaster Technologies, and

that any liability rests with the company and not with him.   In that  event, the plaintiff’s claim will fail, and it will be required to meet Mr Kathagen’s costs.

[30]     I do not consider, however, that it would be appropriate to finally determine the issue of Mr Kathagen’s liability in this context by way of summary judgment. That issue should be determined at trial, when all of the circumstances surrounding Mr Kathagen’s role in critical events can be properly explored and considered in the light of the principles that apply at that time.

(c)      Was it reasonably foreseeable that subsequent purchasers would rely upon the information contained in the producer statement?

[31]     Counsel for Mr Kathagen points out that the parties have now completed discovery, inspection and the administration of interrogatories.  As a result, the Court can be reasonably confident that all of the material supporting the plaintiff’s claims is now available.

[32]     He submits that it is now evident that the plaintiff will not be able to prove that, even if he was the person who prepared the producer statement, Mr Kathagen could reasonably have foreseen that subsequent purchasers would place reliance upon it.   As a result, Mr Kathagen could not owe a duty of care to subsequent purchasers such as the plaintiff.

[33]     The test to be applied in determining whether a duty of care exists is that confirmed by the Court of Appeal in Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) at [58]. There the Court said:

[58] Should there be a duty of care in a case such as this? The ultimate question when deciding whether a duty of care should be recognised in New Zealand is whether, in the light of all the circumstances of the case, it is just and reasonable that such a duty be imposed. The focus is on two broad fields of inquiry but these provide only a framework rather than a straightjacket. The first area of inquiry is as to the degree of proximity or relationship between the parties. The second is whether there are other wider policy considerations that tend to negative or restrict or strengthen the existence of a duty in the particular class of case. At this second stage, the Court’s inquiry is concerned with the effect of the recognition of a duty on other legal   duties   and,   more   generally,   on   society.   See   South   Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations

Ltd [1992] 2 NZLR 282, at pp 293-294 (Cooke P), pp 305-306 (Richardson J), pp 312 (Casey J), pp 316-318 (Hardie Boys J) and Attorney-General v Carter at paras [22] and [30].

[34]     In Attorney-General v Carter [2003] 2 NZLR 160 (CA), the Court of Appeal said at [22]:

Whether it is fair, just and reasonable to hold that a duty of care is owed by defendant   to   plaintiff   in   a   situation   not   covered   by   authority   is conventionally addressed in terms of proximity and policy: see for example Price Waterhouse v Kwan at p 41, para [6], and of course South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd [1992] 2 NZLR 282. Generally speaking, proximity is concerned with the nature of the relationship between the parties whereas policy is concerned with the wider legal and other issues involved in deciding for or against a duty of care. In cases of negligent mis-statement, the proximity inquiry generally focuses on the interdependent concepts of assumption of responsibility and foreseeable and reasonable reliance.

[35]     Any liability on the part of the defendants in the present case is likely to arise out of the negligent performance of services.  Failure to take care in carrying out the inspection is likely to have led to the producer statement containing incorrect information.  In this context, the following passage from Rolls-Royce is relevant:

[98] The assumption of responsibility and reliance concepts have also been used where the allegation is that services were negligently performed. This is understandable as negligent misstatements and services may tend to merge. For example, a negligent audit report is produced through the negligent performance of audit services - see for example Price Waterhouse v Kwan, at p 43. Insofar as the disappointed beneficiary cases are concerned, the test has been used, without the requirement of reliance: Gartside v Sheffield, Young & Ellis [1983] NZLR 37, 47. As discussed above at para [83], the assumption of responsibility concept has also been suggested as an explanation for the finding of liability in Junior Books.

[99] Assumption of responsibility for a statement or a task does not usually entail a voluntary assumption of legal responsibility to a plaintiff, except in cases where the defendant is found to have undertaken to exercise reasonable care in circumstances which are analogous to, but short of, contract, and it is foreseeable that the plaintiff will rely on that undertaking. If that is the case then, subject to any countervailing policy factors, a duty of care will arise. In other cases, the law will deem the defendant to have assumed responsibility where it is fair, just and reasonable to do so: Attorney-General v Carter, pp

168-169 (paras [23]-[27]). Whether it is fair, just and reasonable to deem an assumption  of  responsibility  and  then  a  duty  of  care  will  depend  on  a

combination of factors, including the assumption of responsibility for the task, any vulnerability of the plaintiff, any special skill of the defendant, the

need for deterrence and promotion of professional standards, lack of alternative means of protection and so on – that is, essentially the matters

discussed above at paras [58] – [65]. Wider policy factors will also need to be taken into account.

[36]     In the present case, the plaintiff and Mr Kathagen were never in a contractual relationship.  Any contractual relationship was presumably between Mineral Plaster Technologies and the person who originally engaged it to carry out the inspection and provide the producer statement.   On the information currently available, that person is likely to be the original owner of the dwelling, Mr Li.  Counsel advised me from the bar that Mr Li is believed to have also used the surname Qin.  The producer statement was issued to a person named “Jeff Qin”.  If Mr Li is Mr Qin, it is likely that he engaged Mineral Plaster Technologies to carry out the inspection and to provide the producer statement.

[37]     The absence of a contractual relationship does not prevent a duty of care arising, but it may mean that the Court will be less ready to find that there is sufficient proximity between the plaintiff and the defendant to justify imposing a duty of care.  Another complicating factor for the plaintiff here is the fact that it does not allege that Mineral Plaster Technologies was physically responsible for creating the defects in the building work.  It alleges instead that Mineral Plaster Technologies ought to have discovered those defects and made their presence known in the producer statement.

[38]     There   can   be   no   suggestion   that   Mr   Kathagen   voluntarily   assumed responsibility towards the plaintiff.  He had no dealings with the plaintiff at all, and had ceased to have any involvement with the property by the time the plaintiff acquired it.  The issue is therefore whether the law will deem Mr Kathagen to have assumed responsibility not only to Mr Li but also to subsequent purchasers of the property.

[39]     In  Attorney-General  v  Carter  [2003] 2 NZLR 160 the Court of Appeal explained this concept as follows:

[26] In most cases, however, there will be no voluntary assumption of responsibility. The law will, however, deem the defendant to have assumed responsibility and find proximity accordingly if, when making the statement in question, the defendant foresees or ought to foresee that the plaintiff will reasonably place reliance on what is said. Whether it is reasonable for the

plaintiff to place reliance on what the defendant says will depend on the purpose for which the statement is made and the purpose for which the plaintiff relies on it. If a statement is made for a particular purpose, it will not usually be reasonable for the plaintiff to rely on it for another purpose. Similarly, if the statement is made to and for the benefit of a particular person or class of persons, and the plaintiff is not that person or within that class, it will not usually be reasonable for the plaintiff to place reliance on it so as to oblige the defendant to assume responsibility for carelessness in its making.

[40]     Here it appears that the producer statement was prepared for the developer, who was also the original owner of the dwelling.  I do not consider that there is any basis to conclude that Mr Kathagen foresaw, or ought to have foreseen, that subsequent purchasers might also reasonably place reliance upon it.

[41]     The absence of any contractual relationship between the plaintiff and Mr Kathagen and the fact that the inspection and producer statement did not create the damage to the dwelling are also important factors in the present case.   Territorial authorities  are  not  in  a  contractual  relationship  with  the  original  or  subsequent owners of a dwelling, and they are not responsible for creating physical defects in a building.  That has not prevented the courts from imposing a duty of care upon them, because the community has an expectation that they will carry out their statutory functions to a particular standard.  They are required to be satisfied on reasonable grounds that a building consent should issue, they must take reasonable steps in carrying out inspections and they must be satisfied on reasonable grounds that code compliance should be certified: Body Corporate 188529 v North Shore City Council [2008] 3 NZLR 479 (HC) at [221].

[42]     That duty extends to intending purchasers of the property. Successive owners have  “no  rational  choice”  but  to  make  decisions  on  the  basis  that  territorial authorities have properly inspected building work that is ultimately hidden from view when the dwelling is completed: North Shore City Council v Body Corporate

188529 [2010] 3 NZLR 486 (CA)at [77].

[43]     The community does not rely in the same way upon the issuer of a producer statement.  The person to whom the statement is addressed may rely upon it for a particular purpose, and the Council may rely upon it in deciding whether to issue a code compliance certificate.   That is not a factor in the present case, because the

Council has never issued a code compliance certificate in respect of the plaintiff’s dwelling.   The community at large, however, does not rely upon the issuer of a producer  statement  in  the  same  way that  it  is  forced  to  rely  upon  a  territorial authority to carry out its statutory functions.

[44]     For these reasons I do not consider that the relationship between the plaintiff and Mr Kathagen is sufficiently proximate that a duty of care can arise.

(d)      Is the absence of actual reliance fatal to the issue of causation?

[45]     In North Shore City Heath J said:

[233]    No person who breaches a duty of care can be held liable for loss suffered by another unless his or her own conduct was a cause of that loss. Yet  that  basic  proposition  has  “a  deceptive  simplicity”.    Ultimately,  a judicial value judgment is required to determine whether a factual finding of a nexus between act or omission and loss translates into a legal responsibility for a defendant to compensate a plaintiff.  In Johnson v Watson, the Court of Appeal  held  that  a  causal  nexus  was  required  between  substantial  and material cause and the loss suffered (see also Price Waterhouse v Kwan).  In that context, “substantial” means more than trivial or de minimis.  “Material” means that the alleged cause “must have had a real influence on the occurrence of the loss or damage” in issue.

[46]     In  answer to interrogatories administered on behalf of Mr Kathagen,  the plaintiff has confirmed that when it purchased the property it had no knowledge of any role that Mr Kathagen and Mineral Plaster Technologies might have played in relation to the construction of the dwelling.  In particular, the plaintiff was not aware that Mineral Plaster Technologies had supplied the coating powder that Mr Alarcon used when he coated the cladding, or that somebody from Mineral Plaster Technologies had inspected that work.  It has also confirmed that it had never seen the producer statement before it bought the property.

[47]     In the absence of presumed general reliance or community expectation, the plaintiff must show that it relied upon Mr Kathagen’s allegedly negligent acts and/or statements when it acquired the property.  The need for actual reliance in this context was discussed in Boyd Knight v Purdue [1999] 2 NZLR 278 (CA). That case involved a claim against auditors who had prepared a report for inclusion in a prospectus issued to persons who were considering the investment of funds with a

company.  The report stated that the company’s financial statements gave a true and fair  view  of  the  company’s  affairs.    The  auditors  were  sued  in  negligence  by investors who had taken up shares in the company.   The Court of Appeal said at [57]:

A broader approach is permissible where it is proved or, as here, admitted that if the accounts had been accurate no prospectus would have been issued and no investment could then have been made — in other words, that "but for" the inaccuracy there could have been no loss to a new investor. But even in such circumstances the limited scope of the duty of care must be remembered. In such a case there must at least be a reliance on the basic features of the financial statements — the results they show (profit level, balance of shareholders' funds and, perhaps, the current assets/liability ratio). There must be evidence that these features were considered by the plaintiff and, taken as a whole, relied upon. The investor must prove that he or she paid attention to the content of the financial statements and noted these basic features — that it was not simply a case of glancing at the accounts, but in reality failing to consider them and, instead, relying in a general way on the fact that the investment offer was being made pursuant to a prospectus and that the Regulations put some safeguards in place.

[48]     The issue of reliance also arose in North Shore City.  In that case one of the defendants sued by the unit owners in a leaky building was a designer who had inspected five of the units in the complex and provided a certificate of practical completion to the developer’s solicitors.  The certificate was required to enable funds to be released to the developer.  The unit owners alleged inter alia that the designer had  breached  a  duty to  exercise  reasonable  care  in  inspecting  the  units  and  in providing the certificate of practical completion.   The breach was alleged to have arisen from the designer’s failure to identify and correct deficiencies in the plans, specifications, workmanship and construction methods employed on behalf of the developer.   As a result, the plaintiffs alleged that the designer had issued his certificate of practical completion negligently.

[49]     Only one  of  the  unit  owners,  a  Mr  Devlin,  had  received  a  copy of  the designer’s certificate of completion before he completed the purchase of his unit. The claim against the designer failed at first instance for the following reasons:

[552] Mr Devlin does not say, in explicit terms, that he relied upon the practical completion certificate to complete his acquisition of the unit. I hold that the proximity between Mr Devlin and the designer was insufficient to give rise to a duty and, in any event, that any loss suffered would be too remote to be claimable.

[553] Unlike the Council’s obligations to inspect and to certify code compliance, there can be no community expectation on a designer to certify practical completion. Thus, it is necessary to prove actual reliance in order to establish that any loss has been suffered as a result of negligence of the designer in these circumstances.

[554] Accordingly, the claims against the designer based on negligent preparation of certificates of practical completion fail. It is unnecessary for me to determine whether the certificates were or were not prepared and signed negligently.

[50]     When the case went to the Court of Appeal, the Judge’s finding in relation to the claim by Mr Devlin was reversed on the facts.  The Court held that Mr Devlin had shown he relied upon the certificate when he acquired his unit: North Shore City Council v Body Corporate 188529 [2010] 3 NZLR 486 (CA) at [127], [203] and [219].

[51]     Here, there can be no dispute about the issue of actual reliance.  The plaintiff did not rely in any way upon Mr Kathagen’s inspection or the producer statement when it acquired the property.  For that reason there is no causal nexus between Mr Kathagen’s allegedly negligent acts and any loss that the plaintiff may have suffered.

[52]     As a result, I have concluded that summary judgment should be entered in favour of Mr Kathagen on this basis as well.

Mineral Plaster Technologies’ application for summary judgment against the plaintiff

[53]     The  statement  of  claim  alleges  that  Mineral  Plaster  Technologies  is vicariously liable to the plaintiff for the acts and omissions of Mr Kathagen.   My conclusion that summary judgment should be entered in favour of Mr Kathagen means that the claim against Mineral Plaster Technologies cannot succeed either.

[54]     For that reason I will only deal briefly with the alternative argument by Mineral Plaster Technologies.  This is to the effect that it could not have discovered the defects through the inspection that it carried out.   That assertion is now contradicted  by  evidence  that  the  plaintiff  has  adduced  in  opposition  to  the application for summary judgment.  This comes from Mr Simon Paykel, a registered

building surveyor and building consultant who has considerable experience in investigating building failures.  His evidence is to the effect that the inspection that Mineral Plaster Technologies undertook ought to have revealed many of the defects that are the subject of the plaintiff’s claim against Mr Kathagen and Mineral Plaster Technologies.

[55]     It is not necessary to traverse Mr Paykel’s evidence.   It is sufficient to say that it provides the plaintiff with a credible evidential base to challenge Mr Kathagen’s assertions.   It is not possible to resolve a factual dispute of that type within the context of an application for summary judgment.

The cross-claims by the Council

[56]     My conclusion in relation to the claims against Mr Kathagen and Mineral

Plaster Technologies means that the Council’s cross-claims fall away.

[57]     In case I am wrong on that point, I deal briefly with the argument for Mr

Kathagen and Mineral Plaster Technologies in relation to the cross-claims.

[58]     Mr Kathagen and Mineral Plaster Technologies contend that the cross-notices should be set aside to the extent that they include claims in negligence.  They point out that proof of damage is an essential element in any claim for negligence.   As matters currently stand, the Council has not suffered any damage because it has not yet been held liable to the plaintiff.  That will not occur until such time as the Court finally determines the plaintiff’s claim against the Council.   For this reason, Mr Kathagen and Mineral Plaster Technologies contend that the Council’s claim in negligence is premature, and that the cross-notices should be set aside in part.

[59]     The answer to this submission is that the Court would not have determined the Council’s cross-claims against the seventh and eighth defendants until such time as it had determined the plaintiff’s claim against the Council.  If the plaintiff did not succeed in establishing liability on the part of the Council, the Court would not need to go on to consider and determine the cross-claims.   If, however, the Court upheld the plaintiff’s claim against the Council, the Council would suffer damage at that

point.  The damage would be the economic loss that the Council incurred when it was held liable to the plaintiff.   The Court would then proceed to consider the Council’s cross-claims in negligence having regard to that fact.

[60]     I therefore do not consider the cross-claims to be defective in the manner that the plaintiff contends.  Any other conclusion would also result in the Council being required to await the outcome of the plaintiff’s claim against it before commencing a separate  proceeding  against  Mr  Kathagen  and  Mineral  Plaster  Technologies grounded in negligence. That would hardly be a desirable outcome for either party.

Result

[61]     I grant leave to Mr Kathagen and Mineral Plaster Technologies to apply for summary judgment, and I enter summary judgment in their favour against the plaintiff.

Costs

[62]    Mr Kathagen and Mineral Plaster Technologies are entitled to costs and disbursements  against  the  plaintiff  and  the  Council  in  respect  of  the  entire proceeding.      Costs are to be fixed on a category 2B basis, together with disbursements as fixed by the Registrar.

Next event

[63]     The next event in this proceeding is a mention in the Chambers List on

24 November 2010 at 2.15 pm.

Lang J