Roscoe v W.D.A. Builders Limited HC Auckland CIV 2011-404-001933
[2011] NZHC 1751
•5 December 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2011-404-001933
BETWEEN DAVID ROSCOE AND SUZANNE FIONA HOBBS Plaintiffs/Respondents
ANDW.D.A. BUILDERS LIMITED First Defendant/Applicant
ANDWAYNE DAVID ALEXANDER Second Defendant/Applicant
ANDJASON GIBSON ARCHITECTS LIMITED
Third Defendant
ANDJASON PAUL GIBSON Fourth Defendant
ANDAUCKLAND CITY Fifth Defendant
Hearing: 1 December 2011
Counsel: J A Dean for the Plaintiffs/Respondents
P D Sills for the First and Second Defendants/Applicants
J Stafford for the Third and Fourth Defendants
Judgment: 5 December 2011
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
05.12.11 at 4:30pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors/Counsel:
J A Dean, John Dean Law Office, Wellington – [email protected]
P D Sills, Barrister, Auckland – [email protected] / [email protected]
J Stafford, Duncan Cotterill, Auckland – [email protected] / [email protected]
A Campbell, Heaney & Co, Auckland – [email protected]
DAVID ROSCOE AND SUZANNE FIONA HOBBS V W.D.A. BUILDERS LIMITED HC AK CIV 2011-404-
001933 5 December 2011
[1] The first and second defendants have applied for an order for security for costs against the plaintiffs. That application is supported by the third and fourth defendants who also apply for security.
The plaintiffs’ proceeding
[2] The defendants’ claim relates to the construction of a dwelling at Milford, Auckland. They purchased the property in March 2002.
[3] The first defendant (WDA) carries on its business as builders. The second defendant (Mr Alexander) is the director of WDA. WDA was engaged by the plaintiffs on 15 May 2006 to build a residential home on the property.
[4] The third defendant (JGA) is a company of architects. JGA was engaged by the plaintiffs on 21 April 2005 to provide architectural services in respect of the building. The fourth defendant (Mr Gibson) is a director of JGA.
[5] The fifth defendant is the Auckland Council (the Council). The Council issued the building consent for the construction of the building, carried out inspections of the building work and issued a code compliance certificate. The plaintiffs say that practical completion under the Construction Contract was delayed from June 2007 to November 2007, and the building was constructed with defects.
[6] The plaintiffs’ claim against:
(a) WDA and JGA for breach of their respective contracts and for negligence;
(b) Mr Alexander and Mr Gibson and the Council for negligence.
[7] As at August 2009 the total cost of remedial works was estimated to be
$212,288 (including GST).
[8] The plaintiffs claim the following losses:
(a) The loss of an expected profit on the sale of the property of $1.2m at about August 2007; and
(b)The sum of $2,879,000 being monies outstanding to ANZ National Bank Limited on a loan that was secured against the property, following a mortgagee sale of the property in 2010.
[9] The plaintiffs also claim $48,000 for general damages for stress and anxiety, interest and costs.
Application for security for costs
[10] The defendants seek orders that:
(a) The plaintiffs give security for costs for a sum that the Court considers sufficient by paying that sum into Court; and
(b) The proceeding is stayed until the sum is paid or the security given.
[11] The Council initially supported the application, but by memorandum dated 25
October 2011 it advised it had agreed with the plaintiffs to withdraw its support for the application.
Legal principles
[12] The discretion of the Court is unfettered and should not be restricted by constructing principles from the facts of previous cases [1].
[1] A S McLachlan Limited v MEL Network Limited (2002) 16 PRNZ 747 (CA).
[13] The following factors are, however, regularly regarded as relevant in dealing with applications for security for costs:
(a) Balancing the interests of the plaintiff and the defendant;
(b) Merits of the plaintiffs’ claim;
(c) Whether the plaintiff’s impecuniosity has been caused by the defendant’s action, for the purpose of which inquiry persuasive evidence in support of that claim is required.
Considerations
[14] Security can be ordered even when a plaintiff is unable to meet an adverse award of costs and even though that may prevent a plaintiff from pursuing a claim. But, in that situation security should be ordered only after careful consideration of the case and an assessment of chances of success.
[15] There is no dispute that the plaintiffs will not be able to pay the defendants’ costs if they are unsuccessful in this proceeding. Advice from the plaintiffs’ solicitor confirms this. In their notice of opposition to the security application the plaintiffs state they have no funds other than those needed for day to day living costs, and that they would be unable to provide security if ordered to do so. The plaintiffs’ solicitor also advises that the plaintiffs are not supported by a grant of legal aid.
[16] The defendants state the claims against them have little if any prospects of success because:
(a) Even if the Construction Contract was breached or there was negligence those breaches or the defendants’ actions could not have caused the losses claimed by the plaintiffs;
(b) The evidence currently available supports the applicants’ defences that
they have not breached either their contracts, or any duties of care.
[17] In this case the loss claimed is not the cost of repairs estimated as at August
2009. Rather it comprises two elements namely the loss of an expected profit, and the sum still owing to the mortgagee after the sale of the property two and a half years later.
[18] It is clear that the plaintiffs claim is for the loss of a chance to sell the property before May 2008 when they say the previously buoyant market started to
retreat. Also and at that time the plaintiffs were due to repay loans of approximately
$4.2m to ANZ National Bank.
[19] The first and second defendants assert there are no particulars of alleged breaches of contract and in addition the plaintiffs do not plead any causative link between unspecified breaches and the losses claimed.
[20] As against the third and fourth defendants the plaintiffs claim there was a failure:
(a) To ensure the contract works were completed within 12 months; (b) To give proper directions to the contractor;
(c) To ensure the contract works were completed in accordance with the New Zealand Building Code, the Building Regulations 1992, the Building Consent and the Plans and Specifications; and
(d) To verify that practical completion had been achieved.
[21] It is clear in respect of all defendants that they claim they were not responsible for delays in the completion of the contract works.
[22] The plaintiffs say they lost the chance to sell the property before May 2008 because:
(a) The practical completion date was delayed to 7 November 2007; and
(b) Defects in the building deterred prospective purchasers.
[23] The defendants say that if there were delays and/or alleged defects (which are denied) those did not cause loss to the extent of $4,079,000 claimed.
[24] The defendants say that:
(a) Overall practical completion was achieved on 7 November 2007 and the delay of approximately three months did not cause the loss of a chance of sale before May 2008; that the property was in fact listed with an agent on 31 August 2007; and two offers to purchase were received before May 2008; that the plaintiffs cancelled an agreement for purchase at $4.7m because they were concerned the purchaser was not genuine; and an offer of just over $3m early in 2008 was rejected.
(b)It is clear from the evidence that practical completion was actually achieved by 31 August 2007, just two weeks late and that the delay in achieving overall practical completion on 7 November 2007 was entirely due to the plaintiffs’ issues with their separate contractors.
[25] JDA and Mr Gibson aver that the plaintiffs have not provided evidence or particulars to support an allegation of a failure to give proper directions to WDA, nor how this alleged failure caused the losses alleged; that assessor’s reports obtained by the plaintiffs did not identify JGA or Mr Gibson as being appropriate parties to the claim. JDA says its issue of a Practical Completion Certificate in respect of the dwelling was not and nor was it intended to be certification that the dwelling had been constructed in accordance with the New Zealand Building Code. Such certification was the domain of the Council.
[26] WDA and Mr Alexander say that even if defects were found to exist and found to be their responsibility the claim against them has failed because those defects did not cause any loss of chance to sell the property before May 2008; that there is no evidence of prospective purchasers being deterred because of any defects; rather that available evidence indicates that any defects that may have existed were not apparent prior to May 2008; that the plaintiffs pleaded that until they received an assessment dated 3 October 2008 they did not know about weather tightness issues, defects to the contractual works, and defective workmanship; that recent claims on behalf of the plaintiffs that they knew of serious defaults by December 2007 was inconsistent with the conduct of the plaintiffs at that time; and that until 2011 the plaintiffs sole complaint was that there had been a delay in practical completion.
[27] The plaintiffs’ estimate of a property value of $5m was based upon a valuation carried out in November 2006, on the basis of JGA’s initial design. The applicants say that numerous variations to the design were made by the plaintiffs during the construction process in which were likely to have reduced the value of the property.
Conclusions
[28] The plaintiffs assert their current financial position is a direct result of the acts and omissions of the defendants. They say that because of delays and because of defects their opportunity to sell their property was affected and that this caused loss to them. But, really there is little reliable evidence to support these claims.
[29] Understandably the pleadings were somewhat vague in their claims of a connection between delays and defects on the one hand and negligence and contractual breaches on the other.
[30] The plaintiffs do not have expert reports which support the claims. That is not denied. The plaintiffs say they continue to source evidence but are hampered by a lack of funding to obtain this.
[31] On 2 October 2007 the building work completed by WDA was passed by the
Council and by 17 October 2007 all items on a defects list had been attend to. On 20
November 2007 the Council issued a code compliance certificate.
[32] On 23 January 2008 the plaintiffs’ solicitors notified WDA of their claim to retain the contractor’s bond because they said practical completion was delayed by 5
– 6 months.
[33] In August 2008 the plaintiffs engaged House Assessments Limited who, by their report dated 3 October 2008 identified weather tightness issues.
[34] 0n 6 April 2009 the plaintiffs filed a claim with the Weathertight Homes
Tribunal and on 28 August 2009 Ortus International Group Limited estimated costs
for remedial works, based on an assessor’s report, to be $212,288 including GST. On 31 August 2009 the assessor’s report finds the building is non compliant.
[35] On 30 March 2010 the ANZ National Bank sold the property by mortgagee sale for $2,175,000.
[36] On 23 March 2011 the plaintiffs notified WDA and Mr Alexander of weather tightness issues with the property.
[37] The claim is framed as one of a loss of chance. The plaintiffs’ evidence is that as at August 2009 the home was non-compliant for want of repairs needed for which a cost of $212,000 was estimated.
[38] The difficulties for the plaintiffs would be to convince a court there is a case for recovery of damages in excess of $4m, because:
(a) Weather tightness issues appear to have had no bearing at all upon efforts undertaken to sell the property between August 2007 and May
2008;
(b)Until March 2011 no claim had been notified at all in connection with weather tightness issues.
[39] In issue for the plaintiffs will be to ‘construct’ their claim around defects issues which impacted upon a ‘loss of chance’ to effect a sale by May 2008 – a date which the plaintiffs acknowledge was important in their purpose to achieve a success for their venture.
[40] The evidence confirms that the plaintiffs owed their bank $3.8m in about August 2007, $4m early in 2008 and over $5m by 30 March 2010. As at May 2008 their mortgage payments were approximately $30,000 per month.
[41] An early sale was critical to the success of the venture but not until more than two years later did the plaintiffs advance defects as opposed to delays in support of their claim.
[42] This assessment by the Court is intended only to identify some significant issues ahead for the plaintiffs to address.
[43] Usually in dealing with interlocutory applications which invite an assessment of a plaintiff’s case the Court is prepared to accept a plaintiff’s pleading claims as provable. But, in appropriate cases the Court should be cautious before assuming the plaintiffs’ case is provable.
[44] In this case the plaintiffs are short of proof with their loss of chance claim. Implicitly they acknowledge that fact. They need funding in order to obtain further expert input. There are building defects, but there is not any evidence of connection between these and the losses claimed. The plaintiffs will need that evidence.
[45] The plaintiffs are clearly impecunious. They are not experienced developers. One describes himself as a student the other a part time gym instructor. Their notice of opposition to the security for costs application describes them as having no funds other than those they need for day to day living costs. It can be inferred the plaintiffs are insolvent – indeed their indebtedness is likely significantly in excess of the shortfall of about $2.9m owed to the ANZ National Bank following the property mortgagee sale.
[46] I invited counsel to advise me how this proceeding was being funded when, as the Court was advised, the plaintiffs were not in receipt of legal aid. In my discussion with counsel I formed the conclusion that the plaintiffs were likely to receive little at all even if their claim was totally successful. Therefore, only the plaintiffs’ creditors were likely to benefit in the outcome.
Summary
[47] In their respective cases for and against the grant of security the defendants and the plaintiffs have both extensively addressed the merits of the plaintiffs claim. The plaintiffs claim is based on a loss of chance. Its evidence that there were delays caused by breaches of contract and due to negligence, is at best equivocal. The defendants’ evidence is that contractual obligations were completed in a more or less
timely fashion. On the other hand there is as yet a lack of evidence supporting the plaintiffs' claims that contractual delay was the reason for their failure to effect a prompt on-sale of their property.
[48] The plaintiffs’ claim so far as it relies upon building defects appears to present significant evidential hurdles for the plaintiffs – as the plaintiffs appear to acknowledge. There is a lack of evidence that weather tightness issues had significance at all over that period to May 2008 during which the plaintiffs marketed their property for sale.
[49] The plaintiffs are impecunious but in my overall assessment their claim is not strong at this time and it is at this time the Court should make its assessment of the merits of the plaintiffs’ case. The Court should not speculate on evidence becoming available that will assist the plaintiffs.
[50] The Court should always be cautious about imposing security when that will affect a plaintiff ’s ability to prosecute a claim. However, in this case the plaintiffs appear to be insolvent. It is inferred the plaintiff’s debts are very significant and that the likely beneficiaries of any successful claim will be creditors only.
[51] In the blend of considerations identified by this summary I consider it appropriate to order security in a significant sum and upon an interim basis. Security shall be ordered to cover costs to the point in time when trial preparation is to begin. Before then the Court would anticipate an undertaking of the usual discovery obligations, but as well in cases of this kind there is a likelihood of there being discovery, joinder and interrogatory issues arising.
[52] In my view, pre trial matters are likely to consume much more of the first and second defendants’ time and costs, than they would the third and fourth defendants’. Hence, the reason for the different levels of security ordered, and in the outcome of this application, the difference in costs awarded.
Decision
[53] There is an order that the plaintiffs provide security for the first and second defendants’ costs in the sum of $17,500 by payment of that sum into Court or by the provision of security to the satisfaction of the Registrar.
[54] There is an order that the plaintiffs provide security for the third and fourth defendants’ costs in the sum of $10,000 by payment of that sum into Court or by the provision of security to the satisfaction of the Registrar.
[55] That security in the sums aforesaid shall meet the plaintiffs’ obligations for costs save for any security the Court may hereafter impose in connection with trial and trial preparation, for which purpose leave is reserved to the first – fourth defendants to file a further application for security for costs.
[56] The plaintiffs shall upon this application pay the first and second defendants’
costs on a 2B basis, and the third and fourth defendants’ costs on a 2A basis.
[57] The proceeding is to be stayed until the security sum is paid or the security is given, and until the costs awarded herein have been paid.
Associate Judge Christiansen
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