Self-Realization Mediation and Health Centre Charitable Trust (New Zealand) v IAG New Zealand Limited
[2018] NZHC 2077
•14 August 2018
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2016-409-000816
[2018] NZHC 2077
BETWEEN SELF-REALIZATION MEDITATION AND HEALING CENTRE CHARITABLE
TRUST (NEW ZEALAND)
PlaintiffAND
IAG NEW ZEALAND LIMITED
Defendant
AND
H CONSTRUCTION NORTH ISLAND LIMITED (FORMERLY HAWKINS
CONSTRUCTION LIMITED)
First third partyAND
ORANGE H MANAGEMENT LIMITED (FORMERLY HAWKINS MANAGEMENT LIMITED)
Second third party
AND
BRENCHLEY DEVELOPMENTS LIMITED
Third third party
AND
BUILDING ONWARD LIMITED
Fourth third party
AND
HI TECH BUILDING SYSTEMS LIMITED
Fifth third party
AND
ORANGE H GROUP LIMITED (FORMERLY HAWKINS GROUP LIMITED)
Sixth third party
Hearing: 7 August 2018 Appearances:
R C Harris and S D McIntyre for Fourth third party
P F Whiteside QC and T P McDonnell for Fifth third party O Collette-Moxon for Defendant
(Counsel for other parties excused)
SELF-REALIZATION MEDITATION AND HEALING CENTRE CHARITABLE TRUST (NEW ZEALAND) v IAG NEW ZEALAND LIMITED [2018] NZHC 2077 [14 August 2018]
Judgment: 14 August 2018
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
on application to set aside third party notices
Introduction
[1] Two third-parties apply for orders setting aside third party notices.1 The defendant, which issued the third party notices, opposes the application.
[2] Either of the opposing parties, if unsuccessful in this interlocutory proceeding, stands to suffer a measure of financial cost, wastage or duplication of time, and inconvenience.
[3] The determination of the application must meet the interests of justice and will turn heavily upon a weighting of the respective parties’ interests against the background of the substantive proceeding as it is pleaded and the substantive issues which the Court will have to determine if there is a trial.
Plaintiff’s claim against defendant
The nature of the claim
[4] The plaintiff owned two adjacent properties in Christchurch (one with a Sawyers Arms Road address, the other with a Highsted Road address). Assets at the property were insured with IAG for loss or damage caused by earthquake.
[5]The properties suffered loss and damage in three earthquakes in 2010/2011.
[6] In September 2016, the plaintiff commenced this proceeding against IAG. An amended statement of claim (“the statement of claim”) shortly afterwards which included some particulars of damage (below at [8]).
1 Pursuant to r 4.16 High Court Rules.
[7] In the statement of claim, the plaintiff alleges one cause of action, for breach of contract. The plaintiff alleges that the defendant failed to agree to reinstate the property or to pay indemnity value. The plaintiff seeks orders either that IAG specifically performs its duties under the policy or a declaration that the property suffered earthquake damage in the three identified earthquakes (as identified by the plaintiff’s engineer) and that the scope of works to repair the damage is as advised by the plaintiff’s engineer.
[8]The statement of claim identifies the alleged loss and damage in one paragraph:
On or about 4 September 2010, 22 February 2011 and 13 June 2011 earthquakes occurred and the property suffered loss and damage (“the damage”).
PARTICULARS
The damage to the house, as identified by the plaintiff at the time of filing is as follows:
(a)Vertical cracking running through the foundation under the dining room; significant horizontal shear cracking/debonding along the teaching room foundation.
(b)Creaking to the first floor; bowed/out of plumb walls;
(c)Damage to exterior cladding including cracking between repaired sheet joints to rear section, step and vertical cracking to masonry walls and veneer;
(d)Damage to interior wall and ceiling linings including cracking and bulging to ground/first floor junction, cracking around the hearth;
(e)Damage to room including sagging;
(f)Damage to windows and doors that are now difficult to open/close;
(g)Damage to fences that have rotated; significant undulation to asphalted section of driveway; significant cracking to masonry wall; differentially settled retaining wall.
[9] Subsequently, the plaintiff (in response to a notice from IAG) further particularised the damage suffered on each of the properties stating:
1.1 The damage is as follows:
100 Highsted Road, Bishopdale
–Vertical cracking through foundation in dining room; significant horizontal shear cracking along north western face of yoga room foundation;
– Creaking to the first floor south-eastern bedroom;
– Bowed walls and out of plumb;
– Mortar cracking;
– Lateral movement of down pipe;
– Diagonal cracking to plasterboard;
– Vertical cracking to wall lining under meditation room window;
– Separation to wall joinery;
– Shearing of pain at internal wall corners;
– Sagging of lower portion of roof over garage;
– Water damage to first floor bedroom 7;
– Rotation of boundary fences along southern edge;
– Racking of cupboard doors in yoga room;
– Cracking to junction between external paving and chimney foundation;
– Separation between skirting board and wall;
– Significant bowing of driveway fence.
233a Sawyers Arms Road, Bishopdale
– Damage to flooring in lounge room, hallway and water closet;
– Cracking to foundation;
– Bowed walls; out of plumb;
– Damaged interior wall and ceiling linings;
– Cracking to brickwork mortar;
– Damaged roof tiles;
– Damaged windows and doors;
– Rotated section of fence;
– Ground undulation.
[10] The plaintiff further stated that all the earthquake damage identified remained to be reinstated.
IAG’s statement of defence
[11] IAG denies that it has breached its obligations under the policy and it says further that:
aBrenchley Developments Limited scoped and carried out repairs to the earthquake damage at the properties under the Policy in 2011 and 2012;
bThe defendant has paid a total of $504,646.66 to the plaintiff and to third parties on the plaintiff’s behalf in relation to repair works arising from earthquake damage to the properties;
cThe plaintiff has received $76,162.89 in cash settlements from the defendant in relation to repair works arising from earthquake damage to the Properties.
dThe Policy does not indemnify the plaintiff for defective building work and to the extent that the claim is for such work, the defendant is not liable for the cost of remediating or rebuilding same as undertaken by the plaintiff and/or its contractors.
[12] In short, IAG asserts that it has paid for Scope repairs and that any liability for defective repairs lies with others.
IAG’s third party claims
[13]IAG has issued claims against six third parties.
[14] Three of the third parties were within the Hawkins Group of companies which had a relationship with IAG under the Rebuild Solution Master Agreement of October 2010. Each of the sued Hawkins companies is now in liquidation. Accordingly, those three claims are stayed.2
[15] The other three third parties joined by IAG are all builders. The plaintiff entered into building agreements with them successively.
[16] Under a heading “first repairs”, IAG alleges that Brenchley Developments Ltd (Brenchley) undertook repairs from early 2012 on both Highsted Road (costed at
$131,400) and Sawyers Arms Road (costed at $34,090).
[17] Under a heading “second repairs”, IAG alleges that Building Onward Ltd (“Onward”) from around April 2014 undertook repairs at both Highsted Road (costed at $172,716.15) and Sawyers Arms Road (costed at $31,161.20).
[18] Under a heading “third repairs”, IAG pleads that Onward was replaced with Hi Tech Building Systems Ltd (“Hi Tech”) from about June 2015, pursuant to a scope of works initially costed at $33,047.05 (but finally costed at $73,047.05).
Restated position of plaintiff
[19] In a letter to Onward’s solicitors in August 2018, Mr Hooker for the plaintiff restated the plaintiff’s pleaded position:
·We can confirm that plaintiff’s position is that the work carried out by the proposed fourth, fifth and sixth defendants does not form the basis or any part of the claim by the plaintiffs against the defendants.
2 Section 248(1)(c) Companies Act 1993.
·The basis of the plaintiff’s claim against the defendant is that the work carried out and paid for by the defendant does not meet the policy standard.
·We reiterate that the plaintiff is not pleading that the repairs were defective.
Development of IAG’s third party claims
IAG’s characterisation of the plaintiff ’s pleading of damage
[20] In its original statement of claim against the third parties, IAG pleaded that the plaintiff had alleged (through its amended statement of claim and its further particulars) that the plaintiff’s properties “have the following damage”, thereafter duplicating the details of damage set out in the plaintiff’s particulars.3 IAG’s pleading was exactly repeated in its amended statement of claim.
[21]IAG’s pleading materially misstates what the plaintiff had alleged (at [8] and
[9] above). The plaintiff’s allegations are specifically of the damage caused by three identified earthquakes in 2010 and 2011. The plaintiff does not allege that the properties still have the pleaded damage (emphasis added).
IAG’s cause of action
[22] In its initial statement of claim, IAG pursued relief in three parallel causes of action against each builder:
(a)equitable contribution or indemnity for breach of the owner/building contract;
(b)contribution or indemnity for liability incurred as a joint tortfeasor breaching a duty of care to the owner;
(c)contribution or indemnity pursuant to a special condition in the owner/builder building contract which imposed obligations on the
3 Emphasis added.
builder in favour of IAG (with enforcement sought in reliance on the Contracts Privity Act 1982).
[23] After Onward filed these applications, IAG filed an amended statement of claim. The claims for contribution were abandoned (implicitly in recognition that they were flawed). In the amended statement of claim, IAG pursues relief under three causes of action:
(a)a declaration that each builder is liable (for breach of contract) to the plaintiff for an amount to be particularised before trial;
(b)a declaration that each builder is liable (for negligence) to the plaintiff for an amount to be particularised before trial;
(c)(contractual) indemnity for breaches of a special condition in the owner/builder building contract in favour of IAG (with enforcement pursuant to ss 12 and 17 Contract and Commercial Law Act 2017).
Looking behind the plaintiff’s pleaded case
The pleadings
[24] The plaintiff by its pleadings has avoided making any allegation in its claim against IAG that repairs effected by the builders were substandard or defective. The plaintiff does not assert a claim for the cost of remediating substandard or defective work. The plaintiff instead bases its claim on the obligation of IAG to reinstate the properties or pay indemnity value, which it says IAG has breached. It is common ground that the plaintiff, when pursuing the various repair arrangements which were embarked upon, did not enter into any contractual discharge of IAG from its obligations under the policy.
The evidence of damage behind the plaintiff ’s claims
[25] A deponent for IAG, Matthew Gorinski (a project manager), has exhibited two reports of Terra Consultants, a firm of structural engineers. The reports were obtained by the plaintiff. One relates to Sawyers Arms Road and was released on 31 August
2016. The second relates to Highsted Road and was released on 16 January 2017. Each is entitled “Structural Damage Assessment Report” and is based on inspections conducted on both properties on 16 and 18 August 2016. Those inspections post-date the repair work undertaken on the two properties and pre-date the plaintiff’s pleaded identification of damage (provided in its particulars of damage reproduced at [9] above).
[26] There is a close relationship between what is particularised as damage in the plaintiff’s further particulars and the damage as assessed in the two Terra Consultants’ reports. It appears likely that the plaintiff’s particulars are based on those reports.
IAG’s substantive case
The claim against the builders
[27] IAG joined the various builders as third parties in order to avoid the risk of having a judgment relating to the costs of remediation entered against it in a situation where the present cost of remediation may have resulted at least in part from builders performing defective repairs or omitting to effect repairs for which they have been paid. Given the way in which the plaintiff pleads its claim (without reference to the existence or possibility of defective or omitted repair work), IAG observes that an issue for trial will be whether IAG’s obligation extends to indemnifying defective work by a builder carried out under a contract with the plaintiff.
[28] For IAG, Mr Collette-Moxon introduced what he submitted is the need for a single trial in the following way:
The plaintiff asserts against IAG that the standard of repair set out in the policy was not met. It does this on the basis of alleged substandard workmanship and building defects; from the expert reports, the houses are unlikely to fall short of the policy standard for any other reasons. So the repair work done by the third parties is directly and predominantly the subject of the factual enquiry before the court.
As is usual in construction cases, the crux is what is wrong with each building and who caused it. These questions are intensely factual and give rise to allegations plaintiff-defendant and defendant-third party with a high degree of commonality. As such, they are not amenable to separate trials.
The claim for Highsted Road (against Onward)
[29] IAG’s case, as further particularised, is that Onward breached its contract with the plaintiff by undertaking defective work and by not completing other work. It particularised that work as including:
(a)Hairline cracks at corner of skylight frame in Mahasaya room at 100 Highsted Road;
(b)Separation of the interior lining of the healing/waiting room at 100 Highsted Road;
(c)Minor separation at column and wall in the healing/waiting room at 100 Highsted Road;
(d)0.5mm separation of skirting in the healing/waiting room at 100 Highsted Road;
(e)Dips in the replaced driveway by the front entrance of 100 Highsted Road;
(f)Repaired internal linings had separations between the skirting and wall joint, and ceiling and wall joint throughout the houses at the Properties.
[30] IAG expressly bases its particulars on evidence of Ruchika Kaur, a structural engineer employed by Thornton Tomasetti. Ms Kaur inspected the two properties in March 2017. She produced a schedule of 36 items of earthquake-related structural and non-structural defects or unrepaired damage at Highsted Road, of which in her opinion, the most significant omission from the scope of work prepared by the Hawkins companies was that the building slab and foundation of Highsted Road required relevelling. (On the plaintiff’s case as at present pleaded, there is not an allegation that the slab and foundations are out of level). Ms Kaur’s schedule identified in relation to Highsted Road’s eight areas of defective workmanship and ten areas of what she describes as “unrepaired earthquake damage”. Nineteen areas were not ascribed any damage category.
[31] Ms Kaur concluded that the Hawkins companies, Brenchley and Onward had each carried out repair work at both properties which had poor workmanship. She concluded that the Hawkins companies were involved in 30 instances; Brenchley in eight instances and Onward in four instances. There was overlap on all four items on
which Ms Kaur listed Onward as a relevant party – Ms Kaur identified in all four cases Hawkins, Brenchley and Onward.
[32] For IAG, Mr Gorinski then undertook an estimation of the likely costs to rectify Onward’s defective and substandard workmanship, estimating the cost at $66,529.02 (including GST) for Highsted Road.
[33] Mr Collette-Moxon submits that in the context of this setting aside application, the Court should have its primary focus (as on a strike out application) on the cases pleaded against the defendant and the third parties. He emphasises that there is detailed development of evidence to come.
[34] To the extent the Court is in a position to consider evidence which may potentially be called, Mr Collette-Moxon invites the Court to focus on the Terra Consultants’ reports. Although those reports have clearly been used in the preparation of the plaintiff’s particulars as to earthquake damage (and not of substandard workmanship), there are repeated instances in the reports where the builders’ workmanship is criticised or questioned. Examples include:
…the existing crack repairs do not appear to penetrate the full depth of the observed cracking and as such has not structurally repaired the cracked section of the foundation to an as when new condition.
Popping of nail heads [on first floor deck] was also noted this will lead to failure of the waterproofing.
Terra did note some mortar cracking [in the exterior cladding] and poorly performed repairs.
Substandard exterior cladding repair using non suitable materials…
Poorly completed ceiling repairs were noted on the first floor, different finishes were clearly visible.
This wall has been repaired utilising caulking. Terra notes that this is not an adequate repair method.
The repaired section of the masonry retaining wall have not been finished to match the existing.
[35] The declaration sought by the plaintiff, if granted, would require IAG to repair the damage identified by the plaintiff’s engineer (Terra Consultants) in accordance
with Terra Consultants’ scope of works. That being the case, IAG’s obligation would include repair of defective work if established on the evidence.
The claim for Highsted Road (against Hi Tech)
[36] IAG asserts also that Hi Tech breached its contract with the plaintiff by undertaking defective work and by not completing other work. IAG has not further particularised allegations of defective or incomplete work on the part of Hi Tech.
[37]In her report on Highsted Road, Ms Kaur records:
Hi Tech Building Systems Limited performed work on the first floor deck and lounge ceiling among other work, which from my visual observations appeared satisfactory. However, the plaintiffs’ expert Terra Consultants have noted issues with the work completed by Hi-Tech. They note that no consent documentation was filed for the first floor deck rebuild. I did not find a consent application or the pre application meeting minutes in the documents available to us.
[38] Mr Gorinski then reviewed Ms Kaur’s evidence, the expert reports from Terra Consultants and other information. (He refers in his report also to his “own observations” but as there is no evidence that he visited the site I discount that). Mr Gorinski nevertheless deposes that on the basis of the material he identifies he has estimated the likely cost to rectify all allegations of defective and substandard workmanship against Hi Tech (before margins) to be $38,276.62 (excluding GST). Of that total, $6,434.63 relates to lounge and first floor balcony issues which may be related directly to Hi Tech’s contracted work. The remaining $31,841.99 is for what Mr Gorinksi identifies as “assumed value of foundation and associated repairs”. Mr Gorinski’s ascribing of this cost to Hi Tech appears to relate back to an opinion expressed by Ms Kaur that the scope of work prepared by the Hawkins’ companies did not allow for the relevelling of the slab and foundations and restoration of wall verticality. Mr Gorinski does not explain in his report why he attributes this omission to Hi Tech when the work was not included in its contract with the plaintiff.
[39] In his submissions for IAG, Mr Collette-Moxon referred to pleaded obligations which Onward and Hi Tech had assumed under their respective building contracts with the plaintiff. In Mr Collette-Moxon’s oral submissions, Onward and Hi Tech had design obligations in their contracts with the plaintiff. He invokes clauses in the Hi
Tech contract which required Hi Tech to engage such design, engineering and other services as were required to obtain consents and approvals and to carry out the contract works in accordance with all laws and legal requirements. Mr Collette-Moxon did not refer me to a parallel clause in Onward’s contract.
[40] On the basis of the pleadings (particularly the plaintiff’s pleading and particulars which do not refer to an out-of-level foundation as damage) and the evidence, the claim which IAG suggests the plaintiff might have had (for breach of a design responsibility on the part of the builders) is not part of the plaintiff’s case. Rather, what Mr Collette-Moxon indicates is that IAG wishes to advance, as part of its case, the proposition that the plaintiff would be entitled (if it chose) to assert the breach of a design obligation.
[41] In a related argument, Mr Collette-Moxon submits that in those areas where the builder omitted to effect contracted repairs at all, IAG would have the right to have those brought into account in relation to the assessment of any recoverable amount of money. The proposition is that the plaintiff is entitled to recover any sum of money which it pays to a builder on account of a contracted item of work which the builder does not perform. If IAG were ordered (in terms of the plaintiff’s primary prayer for relief) to specifically perform its duty of reinstatement of the property, and did so, Mr Collette-Moxon submits that IAG would be entitled by right of subrogation to enforce the plaintiff’s entitlement to reimbursement of any excessive payment to the builder.
The claim for Sawyers Arms Road (against Onward only)
[42] I need not analyse in detail IAG’s contentions concerning the Sawyers Arms Road property. Out of the combined evidence of Ms Kaur and Mr Gorinski, the highest it is put for IAG is that the total cost to rectify all of the allegations of defective and substandard workmanship on the Sawyers Arms Road property is $5,882.52 (including GST). Mr Gorinski identifies that as a potential claim against Onward only (not Hi Tech).
[43] As a stand-alone item of claimed damage (or even as an added item of claimed damage), the amount of that claim could never justify the involvement of the builder in question as a third party in the claim pursued by the building owner against its
insurer in High Court proceedings of some complexity. I disregard for the purposes of the present application, matters relating to Sawyers Arms Road.
IAG’s reliance on contractual provisions for its benefit
[44] IAG has pleaded as its third cause of action against both Onward and Hi Tech special conditions requiring the builder to deal with (amongst others) IAG in good faith and to not damage IAG’s business. IAG initially pleaded the former Contracts (Privity) Act 1982 provisions but in its amended claim pleads ss 12 and 17 Contract and Commercial Law Act 2017.
[45] Mr Whiteside QC described IAG’s reliance on this provision as a “make- weight” argument. In the sense that it appears to add little, if anything, to the causes of action in contract and tort, that may be a fair description. IAG has not pleaded any particulars of bad faith as it would have if it was relying on such an allegation. Instead, it has pleaded that IAG is entitled to indemnity if (which IAG denies) the plaintiff’s allegations of damage and loss are correct. It is those allegations in the first and second causes of action on which this judgment focuses.
Applications to set aside the third party notices
The applications
[46] Onward and Hi Tech, both on 21 May 2018, filed their applications for orders setting aside the third party notices issued to them by its notice. Onward expressly recognised (as must be the case) that any order setting aside the notices would be without prejudice to the right of IAG to pursue a claim against the third party in an independent proceeding.
[47]The grounds of the respective applications were:
Onward
a.The pleadings and further particulars are not particular enough for the fourth third party to determine or to answer the case against it. It would be appropriate for any loss in relation to the alleged defects to be crystallised in the current proceeding and to then be pursued in a separate proceeding.
b.There is an absence of any complaint by the plaintiff as to the work done by Building Onward and it would therefore be counter to the interests of justice for the plaintiff to have to respond to any evidence of Building Onward.
c.The addition of the Fourth Third Party to these proceedings would needlessly prolong the proceedings. Delays will be caused by the likely addition of experts and requisite expert conferral and reporting. The length of trial will also be extended.
d.It is out of all proportion to the extent of the particularised defects for Building Onward to be involved throughout the length of this process, and to sit idly by while issues between the plaintiff and the defendant, and potentially the defendant and its third party project managers, are determined.
e.Securing a just, speedy and inexpensive determination of the proceeding would not be advanced with Building Onward remaining as a Third Party.
Hi Tech
(a)The works carried out by the Fifth Third Party under its building contract with the Plaintiff dated 9 June 2015 was completed in accordance with that contract and has not been the subject of any allegation of defective workmanship from the Plaintiff.
(b)The alleged earthquake damage the Plaintiff alleges remains to be reinstated was not the subject of the works carried out by the Fifth Third Party under the building contract dated 9 June 2015.
(c)If the Plaintiff had any complaint about defective work under the building contract dated 9 June 2015, that could have been resolved in a far more efficient and cost effective manner under the disputes provisions in that contract.
Onward’s evidence
[48] For Onward, Ms Harris emphasised as relevant a number of matters referred to in the evidence filed and, in particular, the affidavit of Nicholas O’Neill, sole director and shareholder of Onward.
[49]Mr O’Neill deposed:
(a)IAG engaged Onward to undertake construction works left undone by Brenchley.
(b)During construction, Onward had significant difficulties gaining access to both properties as the plaintiff would often refuse access.
(c)Onward stopped work around August 2014 upon the basis that Onward could not complete the works due to the plaintiff’s refusing it access.
(d)Ms Kaur (in her evidence for IAG) failed to distinguish between the work undertaken by Brenchley and Onward respectively.
(e)The plaintiff never raised any issue as to the level of Onward’s workmanship – Mr O’Neill exhibited an email from the plaintiff dated 1 May 2014 stating:
The workmanship is great. Nicholas [O’Neill] is doing a good job.
(f)Onward, after it concluded its work, attended to defects in accordance with the maintenance provisions of the contract and did not receive a further defect list.
(g)The contract contained a mandatory mediation process and an optional arbitration process which the plaintiff did not pursue.
Hi Tech’s evidence
[50] The evidence in support of Hi Tech’s application was provided by Justin Kent, Hi Tech’s Contracts Manager. Mr Kent’s evidence included that:
(a)He was introduced to the task of completing some remaining building work on the plaintiff’s properties by loss adjusters for whom he had completed many difficult earthquake repair projects.
(b)The main work for Hi Tech was at Highsted Road with only some mortar work (labour cost of $682 plus GST) to be completed at Sawyers Arms Road.
(c)Hi Tech completed its work in terms of the scope of works in its building contract.
(d)The plaintiff’s proprietor raised two issues as to specific items close to or upon the completion of Hi Tech’s work, which Hi Tech attended to. The proprietor raised a further allegation as to damage to tiles which Hi Tech did not accept.
(e)Apart from the damaged tiles issue, the plaintiff never raised any issue with Hi Tech about the quality of its workmanship or a failure to carry out any required work.
(f)Nor did the plaintiff invoke any of the dispute procedures under the building contract.
(g)A building consent in relation to work on the deck was not obtained because after a Council pre-application meeting, it was determined that consent was not required.
[51] In the course of his submissions, Mr Whiteside for Hi Tech focussed on evidence of Ms Kaur. He noted particularly that when she summarised in her schedule the structural and non-structural defects, and the identification of the “relevant party involved”, not one of her identified defects was attributed to Hi Tech. This, Mr Whiteside noted, was consistent with Ms Kaur’s narrative evidence that from her visual observations Hi Tech’s work on the first floor deck and lounge ceiling among other work appeared satisfactory. When she refers to the lack of a consent application or pre-application meeting minutes, she does not directly assert that a consent was in fact required. Ms Kaur refers to conclusions reached in the Terra Consultants’ reports which do not differentiate between the work of the various builders. Nor does Ms Kaur seek to differentiate Hi Tech’s work other than through her comment that it appeared (from her visual observations) satisfactory.
Arbitration provisions
[52] The notice of application of Hi Tech included a ground that any issues which the plaintiff had over defective work could have been resolved in a far more efficient cost-effective manner by utilising the disputes provisions in that contract. The application did not contain an assertion that Hi Tech would have been entitled to a stay of any civil proceeding brought against it by the plaintiff. Nevertheless, in his submissions, Mr Whiteside, by reference to the 1958 decision in Haddow v New Zealand Insurance Company Ltd, submitted that Hi Tech’s entitlement to have any workmanship dispute determined by arbitration was fatal to IAG’s third party notice.4
[53] I note that the plaintiff in fact had an opportunity to assert any such entitlement when IAG had to apply for leave to issue the third party notice against Hi Tech. IAG, rather than opposing such course, consented to it. On that basis alone, this basis of objection advanced through argument rather than in the application must fail.
[54] I therefore do not deal with alternative submissions of Mr Collette-Moxon in which he submitted that Haddow should not be regarded as authoritative in relation to the Arbitration Act 1996, whose related provisions are materially different.
Setting aside a third party notice
The jurisdiction to set aside a third party notice
[55] The Court’s jurisdiction to set aside a third party notice arises under r 4.16(3) which provides:
(3)In either case, the court may—
(a)set the third party notice aside and dismiss the defendant’s statement of claim against the third party—
(i)on the merits; or
(ii)without prejudice to the right of the defendant to pursue that claim against the third party in an independent proceeding; or
(b)give other directions.
4 Haddow v New Zealand Insurance Company Ltd [1958] NZLR 704.
[56] I adopt my observations as to the general functions of third party proceedings as identified in TSB Bank Limited v Burgess.5
[36] In approaching the jurisdiction in relation to third party-proceedings, the most important background is the general functions of third party proceedings. Those functions were identified by Scrutton LJ in Barclays Bank Ltd v Tom:6
(a)To safeguard against differing results, and to ensure that the third party is bound by the decision between the plaintiff and the defendant. If instead separate proceedings are taken, the Court hearing the second action is not bound by the decision in the first action;
(b)To ensure the question between the defendant and the third party is decided as soon as possible after the decision between the plaintiff and the defendant; and
(c)To save the expense of two trials. A party commencing separate proceedings unnecessarily where an additional claim could have been used may be penalised in costs.
[57] I also adopt from TSB Bank Limited v Burgess the distinction between applications to strike out pleadings and applications for orders setting aside third party notices.7
[37] It is sometimes observed that orders setting aside third party notices are granted on the same principles as applications to strike out pleadings under r 15.1 High Court Rules.8 That observation is correct in relation to a significant proportion of orders setting aside third party notices. But the statement is incomplete in that it does not recognise the broader considerations, such as convenience and overall justice, which may separately justify an order setting aside a third party notice.
[58] In TSB Bank Limited v Burgess, I gathered together from the authorities 13 principles which inform the exercise of the jurisdiction in this area, which may be summarised as being:9
(a)The Court has a wide discretion to set aside third party notices.
5 TSB Bank Limited v Burgess [2013] NZHC 1228, at [36].
6 Barclays Bank Ltd v Tom [1923] 1 KB 221 (CA) at 224.
7 TSB Bank Limited v Burgess, above n 5, at [37].
8 For instance, see McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR4.16.01].
9 TSB Bank Limited v Burgess, above n 5, at [38].
(b)Analysis of the merits of an application conveniently commences with the criteria (in relation to the issuing of a third party notice) set out in r 4.4(1) High Court Rules…
(c)Where the application is based on one or more of the grounds for dismissing a pleading under r 15.1 High Court Rules, the application to set aside the third party notice will be considered on the same principles as apply under that rule.
(d)Where the third party claim is based on the r 4.4(1)(a) ground that the defendant is entitled to a contribution or indemnity from the third party, the concepts of contribution or indemnity are those as traditionally understood to arise between co-obligors such as joint debtors, co-sureties, and joint tort-feasors under the Law Reform Act 1936.
(e)Where the third party claim is based on the r 4.4(1)(b) ground that the relief claimed from the third party is connected with the subject matter of the proceeding and is substantially the same as that claimed by the plaintiff against the defendant, important considerations in determining whether the relief falls within such categories are: the degree of factual overlap; whether the joinder of the third party will determine the ultimate imposition of financial burden.
(f)The test of “substantially the same relief or remedy” is not merely met by the defendant including a claim for damages which is equal to the claim by the plaintiff against the defendant. Nor when the defendant pursues a form of relief, such as specific performance, which is identical to that claimed by the plaintiff against the defendant. There must also be a similarity of facts whereby the third party claim is intended to determine whether the defendant or the third party should ultimately bear the plaintiff’s loss.
(g)Where the third party notice is based on a common question or issue under r 4.4(1)(c) or questions or issues under r 4.4(1)(d) which are substantially the same as between plaintiff and defendant on the one hand and defendant and third party on the other hand, the Court will consider the extent to which the claims are independent or are interrelated.
(h)The justification of a third party notice under any one of the heads of r 4.4(1), such as there being a common issue or question, is closely related to the desirability of comprehensively dealing with Mammoet Shipping B V Compter but such considerations may have to yield to others including the weighing of the convenience to the parties, including in relation to matters such as unreasonable delay.
(i)The Court may in the balancing consider in most cases the strength of the defendant’s case, both in defending the plaintiff’s claim and in pursuing the third party claim. This may not be so where the setting aside application is made on a strike out basis. On such an application, the third party claim should not be set aside unless it is clear beyond doubt that it cannot succeed.
(j)The weighing of the convenience to the parties will involve considerations such as whether the third party will, if the third party notice is sustained, be idly involved in a trial involving issues as between the plaintiff and defendant, and vice versa.
(k)The weighing of the convenience to the parties will include considerations of any delay to the plaintiff - this is an express consideration arising under r 4.8(1) when the Court is considering an application for leave to issue a third party notice…
(l)The Court should be forward-looking when considering delay to the plaintiff. What matters is the prospect of future delay.
(m)When all the circumstances of a proposed third party joinder have been taken into account, the overriding consideration is the interests of justice. In KPMG Peat Marwick v Cory-Wright & Salmon Ltd (in Rec) the Court of Appeal said:
The interests of justice between all parties must be paramount … if there is delay it will be regrettable … but the attainment of justice by the most efficient means has to be the overriding consideration.
Discussion of principles
[59] Counsel for Onwards and Hi Tech referred to the principles identified in TSB Bank Limited v Burgess and put emphasis upon some in particular. Mr Collette- Moxon, for IAG, did not take issue with those principles. He referred in more detail to Robin v IAG New Zealand Ltd.10 The thrust of his submission is captured in a paragraph of his written synopsis where he stated:
Similar factors were considered by the High Court in the recent interlocutory decision Robin v IAG New Zealand Limited… While in the context of an application to join further defendants, not third parties, it has persuasive value for the third party regime. It illustrates the lengths to which it may be appropriate for a court to go to ensure all necessary parties are joined into one proceeding. With reference to “the wider interests of pragmatism”, the Court said “it is in the interests of justice that the proposed defendants be present to deal with all relevant issues, to represent their own interests and to avoid a multiplicity of hearings”. A similar determination earlier in the judgement was that a particular factor (inconvenience to the plaintiff in that case) “does not outweigh the benefit of having all necessary parties before the Court and preventing the need for a possible second trial later”.
(footnotes omitted).
[60] In Robin v IAG New Zealand Ltd, the plaintiff/house owner sued IAG as her insurer of earthquake damage. IAG, as here, joined the Hawkins companies. IAG
10 Robin v IAG New Zealand Ltd [2018] NZHC 1464.
also sought orders joining as defendants other entities which had carried out work on the plaintiff’s property pursuant to contracts with her. On review, the Court made an order joining the three defendants. It appears that the key issue in Robin was a choice between joining the additional parties as either defendants or third parties.11 What distinguishes Robin from the present case is that in Robin, the plaintiff’s case was not against the insurer alone. Ms Robin was also suing (as a second defendant) Canterbury Reconstruction Ltd (CRL), as the party appointed by Hawkins to carry out and manage the house repairs. Ms Robin alleged against CRL a breach of the duty of care to ensure that repairs were carried out to a good standard of workmanship.
[61]Gendall J explained the significance of Ms Robin’s claim against CRL:12
[37]Ms Robin suggested that the repairers themselves were not necessarily negligent or their work defective and noted she is suing IAG rather than pursuing those repairers. However, that is not her entire case. She is also suing CRL in tort for breaching its duty of care to carry out the repair of the house to a good standard of workmanship so that all earthquake damage was properly repaired. While IAG’s obligation under the policy standard is fundamentally different from the tortious obligations owed by the proposed defendants, those obligations are similar to the tortious obligations CRL owes Ms Robin. Ms Robin’s submissions overlook this important point.
[62] For their part, both Mr Whiteside and Ms Harris here put the emphasis of their submissions upon the plaintiff’s case as pleaded and upon the weighing of convenience to the parties. In my identification of principles in TSB Bank Limited v Burgess, as principle (j), I referred to the Court’s concern to avoid having a joined party “idly involved in a trial”. Counsel referred to the source of that approach, namely the judgment of McGechan J in Mammoet Shipping BV v Compter, where his Honour observed:13
One hearing can in the end gain little if, the third party joined must sit idly through issues as between plaintiffs and defendants in which it is little involved, and vice versa as regards the plaintiff.
11 In Robin v IAG New Zealand Ltd [2018] NZHC 204, the Associate Judge declined the application to join the additional parties as defendants. On review in Robin v IAG New Zealand Ltd [2018] NZHC 1464 at [59], the Court noted that the plaintiff had not contested in any real way that joinder as third parties would have been appropriate.
12 Robin v IAG New Zealand Ltd, above n 10, at [37].
13 Mammoet Shipping BV v Compter HC Whangarei CP13/86, 6 July 1987 at [16].
[63] Counsel for the third parties emphasised also the concern which the Court will have in the closely related situation where the main allegations in the case indicate that the third party’s involvement is peripheral. In Turner v First Fifteen Holdings Ltd, Barker J set aside a third party notice because the test for joinder was not made out (the defendant architects owing to the plaintiff’s duties which were different to and governed by different contracts to those of the intended third party). Barker J would also have set aside the third party notice upon a weighing of a convenience to the parties:14
I add that there is a wide discretion in the Court to set aside third party notices in r 160. Even if the notice could have been sustained under r 75, I should have been minded to set it aside. I note that the engineer's involvement is somewhat peripheral to the main allegations against the architects. It is not sufficient for the architects to assert that breaches alleged against them are really the responsibility of the engineer, for the architects cannot be held liable in the substantive trial for breaches not their own.
Thus, the architects could only ever look to the engineer as a third party to the extent that the plaintiffs allege against them a failure to supervise the engineer. Yet an examination of the pleadings reveals that at no point do the plaintiffs specifically allege against the architects a failure to supervise the engineer. Most of the numerous claims against the architects involve direct allegations of faulty design work by them or else a failure to supervise the builders. Of the 17 claims against the architects, only three at most are sufficiently broadly worded to possibly encompass a failure to supervise the engineer.
The account rendered to the plaintiffs by the engineer amounts to only
$2,425.50, whereas the builders' tender to the plaintiffs was $365,925 subject to price escalation and exclusive of GST; the architects’ fee was 10 per cent of the building contract price. The engineer was a very minor player in the whole scenario. I should need to be satisfied that any potential liability of the engineer to the architects was central to a resolution of the issues in this case before it would be appropriate to involve the engineer in what will undoubtedly be complex and time-consuming litigation.
Discussion
[64] A significant feature of this earthquake litigation is that the plaintiff chooses to sue only its insurer and thereby to enforce its rights under its contract of insurance. The plaintiff has chosen not to sue for defects which have arisen in the context of building repairs undertaken pursuant to contracts between builders and the plaintiff.
14 Turner v First Fifteen Holdings Ltd (1991) 3 PRNZ 145 at 149-150.
[65] Mr Collette-Moxon’s careful analysis of the Terra Consultants’ reports obtained by the plaintiff indicates that while there may have been significant defects in work undertaken by one or more of the builders, the plaintiff does not seek damages for any such defects (or omissions to complete contracted work). Analysis of Ms Kaur’s detailed list of defects and unrepaired earthquake damage indicates that predominantly the relevant parties involved were either the Hawkins companies alone or the Hawkins companies and Brenchley together. As counsel for the third parties identified in the course of their submissions, very few of the allegations, if any, are against Onward, or Hi Tech or both. The related analysis of Mr Gorinski, with his project management expertise, has to be treated with care. Mr Gorinski, unlike Ms Kaur, did not visit the site and inspect the work. Yet it is he who reaches some “assumptions” as to work required in relation to the third party’s alleged substandard workmanship and the cost of putting that right. His evidence is in tension with that of Ms Kaur – Mr Gorinski concluded that Hi Tech caused the plaintiff financial damage whereas on Ms Kaur’s visual observations, Hi Tech’s work “appeared satisfactory”.
[66] In the way the plaintiff has brought this proceeding, it is focused on the contractual responsibilities of IAG as the insurer. IAG, through joining the Hawkins companies and Brenchley will have the opportunity through the one proceeding to obtain any relevant findings and judgment that arise from the work undertaken by the entities which Ms Kaur’s evidence suggests were most centrally involved in any repair deficits. The Court recognises that an order striking out the third party claims against Onward and Hi Tech will expose IAG to a degree of the risk identified by Scrutton LJ in Barclays Bank Ltd v Tom.15 To be weighed against that risk, however, is the risk that two builders, whose role even on Mr Gorinski’s figures appears to have been modest, will be drawn into all the interlocutory issues, briefing of experts and costs of trial which are associated with earthquake claims which involve repair methodology and the scoping and costing of remediation. This is a case where there is a grave risk to the third parties that they would sit idly by while the plaintiff’s pleaded claim takes up the preponderance of preparation and trial time.
15 Barclays Bank Ltd v Tom, above n 6.
[67] This is not a case where a relevant limitations period looms as a difficulty for IAG. If, through the judgment in this proceeding. IAG is of the view that a claim remains as against Onward, Hi Tech or both, there will be the opportunity to pursue that in a manner which is focused on alleged shortcomings of either builder. Mr Collette-Moxon, in his submissions, emphasised that IAG, in the event it makes payment of repair costs to the plaintiff, will acquire through subrogation the rights of the plaintiff as against the builders.
[68] Some delay may ensue to IAG. But the Court of Appeal’s observations in KPMG Peat Marwick v Cory Wright and Salmon Ltd (in Rec) are appropriately to be repeated:16
The interests of justice between all parties must be paramount … if there is delay it will be regrettable … but the attainment of justice by the most efficient means has to be the overriding consideration.
Outcome
[69]The applications of Onward and Hi Tech will be granted.
[70] Costs must follow the event. I anticipate that counsel will agree that they should be on a 2B basis and without a certificate for second counsel. In the event there is disagreement on the fixing of costs and disbursements, the following timetable will apply:
(a)Costs memoranda to be limited to four pages;
(b)Applicants for costs to file and serve their memoranda within five working days;
(c)Respondent on costs application to file and serve their memoranda within five working days;
(d)Court to then determine the costs applications on the papers;
16 KPMG Peat Marwick v Cory Wright and Salmon Ltd (in rec) (1994) 7 PRNZ 549.
(e)In the event that no memoranda is filed as to costs, there will be no order as to costs.
Orders
[71]I order:
(a)The third party notices issued to Building Onward Ltd and Hi Tech Building Systems Ltd are set aside;
(b)Costs and disbursements are reserved.
Associate Judge Osborne
Solicitors:
Joynt Andrews, Christchurch
Counsel: P F Whiteside QC, Christchurch Rhodes & Co, Christchurch
Duncan Cotterill, Auckland
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