TERRACON INDUSTRIES LIMITED AND BODY CORPORATE 462460
[2024] NZHC 2707
•19 September 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-003009 [2024] NZHC 2707
UNDER Section 290 of the Companies Act 1993 IN THE MATTER OF
an application to set aside a statutory demand
BETWEEN
TERRACON INDUSTRIES LIMITED
Applicant
AND
BODY CORPORATE 462460
First Respondent
JEETESH MISTRY and USHA MISTRY and OTHERS
Second Respondents
CIV-2020-404-001235 BETWEEN
BODY CORPORATE 462460 (“NIKAU APARTMENTS”)
First Plaintiff
JEETESH MISTRY and USHA MISTRY
and OTHERS Second Plaintiffs
(continued overpage)
Hearing: 10 June 2024 Appearances:
K L Wendt for Applicant
A K Hough for Respondents
Judgment:
19 September 2024
JUDGMENT OF VAN BOHEMEN J
This judgment was delivered by me on 19 September 2024 at 11 am pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………..
TERRACON INDUSTRIES LTD v BODY CORPORATE 462460 [2024] NZHC 2707 [19 September 2024]
AND AUCKLAND COUNCIL
First Defendant
PRODESIGNERS ARCHITECTS LIMITED
Second Defendant
TERRACON INDUSTRIES LIMITED
Third Defendant
Counsel/Solicitors:
K L Wendt, Auckland Powle & Hodson, Auckland
Grimshaw & Co Lawyers, Auckland
[1] By application dated 22 March 2024, Terracon Industries Ltd (Terracon) applies to set aside the default judgment I issued on 14 November 2023 following a formal proof hearing on 13 November 2023.1 In the Default Judgment, I ordered Terracon to pay Body Corporate 462420 (the Body Corporate) and individual owners of units in the residential apartment complex at 136 Stancombe Road, Flat Bush, known as the Nikau Apartments, (together, the plaintiffs), the sum of $5,067,108.69 in damages and associated costs (the Judgment Sum) for remediating weathertightness-related defects in the Nikau Apartments.2
[2] By application dated 14 December 2023, Terracon also applies to set aside the statutory demand made by the plaintiffs on 1 December 2023 for payment of the Judgment Sum.
[3] Terracon says there was a significant procedural irregularity in the proceeding because the plaintiffs did not serve on Terracon amended statements of claim that quantified and significantly increased the amounts claimed against it and that this, of itself, warrants the setting aside of the Default Judgment.
[4] Terracon also says there would be a miscarriage of justice if the Default Judgment were allowed to stand. It says it has substantial defences to the plaintiffs’ claims. In particular, Terracon says:
(a)many of the allegations of the work that caused the defects are for work not within Terracon’s scope of works and concern elements of broader weathertightness systems that were either design issues in which Terracon had no involvement or were within the responsibilities of other trades;
(b)it disputes some of the alleged works are actionable defects; and
(c)the plaintiffs have failed to identify other building defects that may be causing or contributing to weathertightness damage.
1 Body Corporate 462460 v Terracon Industries Ltd [2023] NZHC 3203 [Default Judgment].
2 At [56].
[5] The plaintiffs oppose Terracon’s applications. They say Terracon has no credible or reasonable explanation for ignoring the plaintiffs’ original statement of claim (OSOC), notice of proceeding and original disclosure. They deny there was any procedural irregularity and say they acted in accordance with the High Court Rules 2016 in not serving documents on Terracon after Terracon failed to file a defence or provide an address for service. The plaintiffs also say that, in any event, the plaintiffs’ amended statements of claim did not materially change the nature or quantum of the claim against Terracon.
[6] The plaintiffs also say that the evidence filed by Terracon in support of the applications does no more than suggest that a lesser judgment sum may have been entered if Terracon had defended the plaintiffs’ claim. They say the evidence discloses no substantial defence to liability and that the plaintiffs’ experts consider that Terracon would still be liable for the amounts claimed.
Relevant background
[7] On 27 July 2020, the plaintiffs filed proceedings in the High Court against three defendants. The OSOC named the Body Corporate as the first plaintiff; the individual unit owners of the Nikau Apartments as second plaintiffs; Auckland Council as first defendant; ProDesigners Architects Ltd (ProDesigners) as second defendant; and Terracon as third defendant.
[8] MJZ Investment Ltd, the party that undertook the development of the Nikau Apartments, and which contracted with Terracon and others involved in the development, was not a party to the proceeding.
[9] The essence of the claim was that the Nikau Apartments had been built with certain defects, which were identified as Defects A, B, C, D, E and F in sch 3 to the OSOC (the Defects). The Defects were alleged to have caused damage, including moisture ingress through the exterior envelope of the building resulting in decay of the internal structure and other components of the building, and the need to replace passive fire protection elements in the building (the Damage). The OSOC stated that the cost of remedying the Defects was then estimated to be $3,148,181 plus GST but that this was to be updated prior to trial to reflect current market costs.
[10] In the OSOC, the primary relief sought by the plaintiffs against the defendants was:
(a)Auckland Council: the cost of remedial works to repair all the Defects;
(b)ProDesigners: the cost of remedial works to repair Defects C and F; and
(c)Terracon: the cost of remedial works to repair Defects A, B and E.
[11] In an affidavit sworn on 6 August 2020, Patrick Henshall, a processor server, said he served the OSOC, the notice of proceeding and the plaintiffs’ initial disclosure by personal delivery on 4 August 2020 to James Bell Accounting Ltd, Chartered Accountants at an address in Newmarket which was the registered office of Terracon.
[12] The notice of proceeding notified the defendants that they must file a statement of defence within 25 working days of the date of service of the notice and stated:
If you do not, the plaintiff may at once proceed to judgment on the plaintiff’s claim, and judgment might be given in your absence.
[13] Terracon does not dispute that it was served with the OSOC and notice of proceeding. Nor does it dispute that Terracon did not file a statement of defence or provide an address for service. In an affidavit affirmed on 14 December 2023 and filed in support of the application to set aside the statutory demand, Nigel Campbell, the director and shareholder of Terracon, says he recalled receiving documents that referred to the Nikau Apartments. Mr Campbell says he googled “Nikau Apartments” and the search results were for apartments on Waiheke Island. He says that, because Terracon had not done any work on Waiheke, he assumed the documents did not apply to it and discarded the documents.
[14] On 29 March 2021, Auckland Council filed a notice of cross-claim and statement of cross-claim against ProDesigners and Terracon in which it sought judgment against those parties in the amount of any judgment entered against it or contributions in such amounts as the Court considered just. It appears that the Auckland Council’s cross-claim was not served on Terracon.
[15] On 21 June 2021, the plaintiffs filed an amended statement of claim (ASOC1). ASOC1 named Auckland Council, ProDesigners and Terracon as first, second and third defendants and Fire Designs Ltd and Peter Dunkin, fire engineer, as fourth and fifth defendants. ASOC1 stated that the cost of remedying the Defects was then estimated to be $3,839,651 plus GST, to be updated prior to trial to reflect current market costs.
[16] The primary relief sought against Auckland Council, ProDesigners and Terracon was essentially as claimed in the OSOC. The primary relief sought against Fire Designs and Mr Dunkin was the cost of remedial works to repair Defect D.
[17]The plaintiffs did not serve ASOC1 on Terracon.
[18] On 5 August 2022, ProDesigners filed a cross-claim against Auckland Council, Fire Designs and Mr Dunkin seeking, if ProDesigners was found liable to the plaintiffs, an equitable contribution to the extent of a full indemnity from each of the other defendants. It appears that Terracon was not served with ProDesigners’ cross- claim.
[19] On 21 November 2022, the plaintiffs filed a second amended statement of claim (ASOC2). ASOC2 named the same five defendants named in ASOC1. ASOC2 stated that the cost of remedying the Defects was $6,986,121 plus GST.
[20] The primary relief sought against the defendants was as described in ASOC1, except that specific figures were given for the costs of the remedial works to remedy the Defects as described more fully below. With respect to Terracon, the estimated costs for remedying Defects A, B and E was alleged to be $4,868,409 plus GST.
[21]The plaintiffs did not serve ASOC2 on Terracon.
[22] The plaintiffs, Auckland Council, ProDesigners, Fire Designs and Mr Dunkin settled their claims and cross-claims against each other, leaving Terracon the only defendant. It appears that the Auckland Council and ProDesigners withdrew their cross-claims against Terracon.
[23] On 14 November 2023, after a formal proof hearing on 13 November 2023, I issued the Default Judgment in which I ordered Terracon to pay the plaintiffs the Judgment Sum, which comprised the amounts I held to be recoverable for:3
(a) Repair costs for Defects A, B and E: $4,868,409.00 (b) Consultantcosts:
$135,179.11
(c) Body Corporate management costs:
$36,445.42
(d) Interest on costs todate:
$13,930.16
(e) Costs of theproceeding:
$13,145.00
Relevant pleadings
Original statement of claim
[24] The OSOC pleaded separate causes of action in negligence against Auckland Council, ProDesigners and Terracon.
[25] With respect to Auckland Council, the plaintiffs sought judgment for the costs of the Remedial Works required as set out at sch 3, then estimated to be $3,148,181 plus GST but to be updated prior to trial to reflect current market costs; consultant costs for investigating and reporting on the Defects and Damage caused and the scope of remedial work necessary to fix the building; the second plaintiffs’ consequential losses; general damages claimed by the second plaintiffs; interest and costs.
[26] With respect to ProDesigners, the plaintiffs sought judgment for the costs of remedying Defects C and F as set out at sch 3 as an estimated cost; consultant costs for investigating and reporting on the Defects and Damage caused and the scope of remedial work necessary to fix those problems; the second plaintiffs’ consequential losses; general damages claimed by the second plaintiffs; interest and costs.
[27] With respect to Terracon, the plaintiffs sought judgment for the costs of remedying Defects A, B and E as set out at sch 3 as an estimated cost; consultant costs for investigating and reporting on the Defects and Damage caused and the scope of
3 At [56].
remedial work necessary to fix those problems; the second plaintiffs’ consequential losses; general damages claimed by the second plaintiffs; interest and costs.
[28]In sch 3, the Defects were described as:
AWater entry through the planter boxesand adjacent courtyards resulting in damage.
BPoor installation of membrane roof resulting in water ingress.
CThere is no provision for expansion or differential movement between the aluminium louvres and concrete.
DIncorrect installation of passive fire components/elements resulting in compromised fire rated systems.
EWaterproofing to balcony decks does not comply with consented plans, is incomplete and is allowing water entry.
FInstallation of curtain wall allows water entry.
[29] Schedule 3 contained no breakdown of the estimated costs of remedying the individual Defects. Schedule 5 contained no figures for consequential losses. Schedule 6 contained specified amounts claimed by each of the unit owners in general damages which totalled $645,000.
First amended statement of claim
[30] ASOC1 pleaded separate causes of action in negligence against all five defendants. The primary relief sought from Auckland Council, ProDesigners and Terracon was described in essentially the same terms as in the OSOC, except that the relief sought against Auckland Council for the cost of the Remedial Works was amended to $3,839,651 plus GST, to be updated prior to trial to reflect current market costs. As noted above, the plaintiffs claimed the costs of repairing Defect D from Fire Designs and Mr Dunkin.
[31] The plaintiffs also claimed from all defendants: consultant costs, the second plaintiffs’ consequential losses to be particularised at sch 5; general damages for each of the second plaintiffs as listed in sch 6; interest and costs.
[32] Schedule 3 again contained no estimates of the costs of remedying any of the individual Defects. Schedule 5 again contained no figures for consequential losses. Schedule 6 contained specified amounts claimed by each of the unit owners as general damages which again totalled $645,000.
Second amended statement of claim
[33] ASOC2 pleaded separate causes of action in negligence against all five defendants. The primary relief sought against the individual defendants was:
(a)Auckland Council: judgment for the cost of the Remedial Works required to the building as set out in sch 3, then estimated to be
$6,986,121 plus GST;
(b)ProDesigners: judgment for the cost of the Remedial Works required to rectify Defects A, C and D, bullet point 7, as identified in sch 3, then estimated to be $456,425, $70,246 and $1,375,507 respectively plus GST;
(c)Terracon: judgment for the cost of the Remedial Works required to rectify Defects A, B and E as set out in sch 3, then estimated to be
$4,868,409 plus GST;
(d)Fire Designs: judgment for the cost of the Remedial Works required to rectify Defect D, bullet point 7, as set out in sch 3, then estimated to be
$1,375,507 plus GST; and
(e)Mr Dunkin: judgment for the cost of the Remedial Works required to rectify Defect D, bullet point 7, in sch 3, then estimated to be
$1,375,507 plus GST.
[34]Against all five defendants, the plaintiffs also sought:
(a)judgment for the consultant costs set out in sch 7;
(b)judgment for the second plaintiffs’ consequential losses as particularised at sch 5;
(c)general damages for each of the second plaintiffs as listed in sch 6; and
(d)interest and costs.
[35] Schedule 5 contained specified amounts claimed by each of the Unit owners for consequential losses, which totalled $679,835.54.
[36] Schedule 6 contained specified amounts claimed by each of the unit owners for general damages, which totalled $700,000.
[37]Schedule 7 contained:
(a)itemised consultant costs totalling $430,273.69; and
(b)itemised additional body corporate management costs totalling
$27,266.48.
Relevant High Court Rules
[38]Rules 5.31, 5.32 and 5.33 of the High Court Rules provide:
5.31Specifying relief sought
(1)The relief claimed must be stated specifically, either by itself or in the alternative.
(2)Despite subclause (1), it is not necessary to ask for general or other relief but the court may, if it thinks just, grant any other relief to which the plaintiff is entitled, even though that relief has not been specifically claimed and there is no claim for general or other relief.
5.32Amount of money claim
A statement of claim seeking the recovery of a sum of money must state the amount as precisely as possible.
5.33Special damages
A plaintiff seeking to recover special damages must state their nature, particulars, and amount in the statement of claim.
[39]Rule 6.20 provides:
6.20 Failure to give address for service
A party to a contentious proceeding who has not given an address for service is not entitled to be served with notice of any step in the proceeding or with copies of any further documents filed in the proceeding or to address the court.
[40]Rules 15.9 and 15.10 relevantly provide:
15.9Formal proof for other claims
(1)This rule applies if, or to the extent that, the defendant does not file a statement of defence within the number of working days required by the notice of proceeding, and the plaintiff seeks judgment by default for other than a liquidated demand.
(2)The proceeding must be listed for formal proof and no notice is required to be given to the defendant.
(3)After a proceeding is listed for a formal proof hearing, no statement of defence may be filed without the leave of a Judge granted on the ground that there will or may be a miscarriage of justice if judgment by default is entered, and on such terms as to time or otherwise as the Judge thinks just.
…
15.10Judgment may be set aside or varied
Any judgment obtained by default under rule 15.7, 15.8, or 15.9 may be set aside or varied by the court on such terms as it thinks just, if it appears to the court that there has been, or may have been, a miscarriage of justice.
Questions for determination
[41]The questions for determination are:
(a)Was the Default Judgment irregularly obtained?
(b)If so, should the Default Judgment be set aside without enquiry into the substantive merits of the plaintiffs’ claims?
(c)If regard is to be had to the substantive merits of the plaintiffs’ claims, has there been, or may there have been, a miscarriage of justice such that the Default Judgment should be set aside?
Was the Default Judgment irregularly obtained?
[42] In their submissions on this question, Ms Wendt, counsel for Terracon, and Mr Hough, counsel for the plaintiffs, refer to passages in decisions of the Court of Appeal and the High Court that discuss the circumstances in which a judgment obtained by default might be set aside on the grounds that it was irregularly obtained. For present purposes, it is sufficient to note the following.
[43] First, it was accepted by Penlington J in Richmond v Heskett Holdings Ltd that a default judgment given after a formal proof hearing had been irregularly obtained because the statement of claim had not given notice to the defendant of the amount claimed by the plaintiffs.4 The statement of claim had alleged that the plaintiffs had suffered financial loss, being the difference between the actual market value of the property at issue on the date of sale (the lower figure) and the price paid by the plaintiffs (the upper figure), and that this amount would be specified in a valuation to be provided before the proceeding was heard by the Court. No further pleadings were served on the relevant defendant before judgment was given.
[44] Penlington J held that the then equivalent of r 5.32 was applicable. He noted that it had become accepted practice in pleading in New Zealand that a statement of claim may be filed and served with a pleading to the effect that the amounts would be notified after discovery or particularised before trial or that there will be an inquiry into damages. However, where a plaintiff proceeded alone, as in that case, it was required to prove the cause of action and, at the hearing, was entitled to such relief as claimed in the statement of claim and incidental thereto but could not go beyond the pleadings.5 The Judge noted that, even if the defendant knew the lower figure, being the amount for which the property was sold, it had no notice of the upper figure or the difference between the two values. The Judge concluded that the plaintiffs had obtained a judgment in circumstances that went beyond their pleadings, so he was bound to hold that the judgment had been irregularly obtained and the defendant was entitled to have it set aside ex debito justitiae.6
4 Richmond v Heskett Holdings Ltd (1995) 8 PRNZ 533 (HC) at 536.
5 At 536.
6 At 536.
[45] Secondly, in Xiao v Department of Internal Affairs, the Court of Appeal observed that Penlington J’s statement in Richmond — that a plaintiff seeking judgment by default was entitled to such relief as is claimed in its statement of claim and incidental thereto but could not go beyond his pleadings — was uncontroversial. However, the Court considered that the case before it was not comparable to Richmond because it concerned a claim for a pecuniary penalty under the Anti-Money Laundering and Countering Finance and Terrorism Act 2009, which could only be imposed by a Judge after assessing the evidence.7
[46] In Xiao, it was submitted that claims for pecuniary penalties required additional procedural protections over and above those provided in the High Court Rules for general civil proceedings. In considering that submission, the Court of Appeal had regard to the relationship with rr 15.9 and 15.10 and also to r 6.20 and stated:
[44] Rules 15.9 and 15.10 therefore operate in tandem to provide an effective procedure that caters fairly for the interests of both parties. Plaintiffs are provided with a mechanism for proving claims where a defendant has failed to take any step to defend the claim. Defendants have the protection to being able to apply to set aside or vary the judgment in the event of a miscarriage of justice. We consider that this regime provides adequate protection and do not see any need to require service of evidence and submissions relating to penalty prior to a formal proof hearing. To the contrary, adding a requirement for the service of further documents before a plaintiff can proceed to judgment would simply increase the cost to the plaintiff and cause further delay, especially where service is difficult (for example where a defendant has goneoverseas). Moreover, such a requirement would also conflict with r 6.20 which sets out that a party who does not provide an address for service does not have an entitlement to be served with further documents.
[47] However, the Court did not say that r 6.20 relieved a plaintiff from compliance with the requirements of other rules in the High Court Rules. To the contrary, the Court noted that there are specific requirements in relation to the pleading of the relief sought and referenced, in particular, the requirements of rr 5.32 and 5.33.8
[48] Thirdly, in EA v Rennie Cox Lawyers, the Court of Appeal noted that the Courts have long treated irregularly obtained judgments as distinct from judgments that had been regularly obtained and noted that irregularly obtained judgments have almost
7 Xiao v Department of Internal Affairs [2019] NZCA 326, [2019] 3 NZLR 622 at [49].
8 At [49].
always been set aside without enquiry into the substantive merits of the dispute.9 It also observed that, if the Court is satisfied there has been a miscarriage of justice, it has the power and the duty to remedy it.10 After reviewing relevant decisions in New Zealand (not including Richmond) and in England and Wales, the Court observed:
[20] In summary, where a judgment has been irregularly obtained, there will almost always be a miscarriage of justice such that the judgment should be set aside without considering the merits. However, that is not an inflexible rule that must be applied in every case, regardless of the circumstances. There may be cases where the irregularity in obtaining the judgment was so minor and inconsequential that it could not have caused prejudice and there is no arguable defence. If the Court can safely conclude that there is no risk of a miscarriage of justice, it might properly decline to set aside the judgment.
[49] In Xiao, the Court of Appeal cited the above paragraph in support of its observation that even an irregularly obtained judgment will not inevitably be set aside.11
[50] Fourthly, in Korea Deposit Insurance Corporation v Huh, when dismissing an application to set aside a default judgment on the ground that an amended statement of claim had not been served on the defendant, Whata J accepted that a failure to serve an amended statement of claim may mean a judgment was irregularly obtained.12 However, the Judge went on to state:13
However, amendments to a statement of claim that do not materially change the nature or quantum of the claim do not demand further service of the pleadings on a defendant. Provided that the defendant has been properly put on notice of the nature of the claim and the quantum in issue, and they take no steps to defend the claim, they cannot readily complain if judgment is issued in respect of that claim, even if minor amendments were subsequently made to the pleadings.
[51] Whata J also accepted, however, that the additional amount claimed in the amended statement of claim raised the prospect of irregularity but he was satisfied that failure to serve the amended pleading on the defendant did not give rise to any miscarriage, provided the default judgment sum was reduced by the amount of the
9 EA v Rennie Cox Lawyers [2018] NZCA 33, [2018] 3 NZLR 202 at [11].
10 At [18].
11 Xiao v Department of Internal Affairs, above n 7, at [51].
12 Korea Deposit Insurance Corporation v Huh [2023] NZHC 2197 at [34].
13 At [35].
increase.14 Whata J also said he did not consider that r 6.20 conclusively assisted the plaintiff, noting:15
While r 6.20 appears to apply generally, (and I make no definitive ruling about this) a material change to a statement of claim may bring into question whether the claim is fresh so that r 6.20 is entirely inapposite. However, I leave the resolution of that issue for a case where it is required.
Discussion
[52] It is apparent that Terracon was never served with a statement of claim that set out the amount of the relief being sought by the plaintiffs against Terracon. Terracon was served only with the OSOC. From the OSOC, Terracon could know that the plaintiffs were seeking judgment against three defendants for the costs of remedying all six of the Defects set out on sch 3, the total cost of which was then estimated to be
$3,148,181 plus GST, but which was to be updated prior to trial. Terracon could also know that the plaintiffs were seeking from it the costs of remedying Defects A, B and
E. But, because there was no breakdown of the estimated total for remedying all six of the Defects, Terracon could not know how much of the estimated total cost might be attributed to Defects A, B and E. Because no amounts were given for consultant costs or the second plaintiffs’ consequential losses, Terracon also could not know the amounts for which it might be held liable under those elements of the plaintiffs’ claim. Nor could it know that it might be held liable for additional body corporate management costs, the claim for which was not pleaded until ASOC2.
[53] All these amounts — the costs for remediating Defects A, B and E, the consultants’ costs, the additional body corporate management costs and the claims for consequential losses — were only finally quantified when ASOC2 was filed but not served on Terracon.
[54] In accordance with Penlington J’s decision in Richmond, and endorsed by the Court of Appeal in Xiao, therefore, the plaintiffs can only recover against Terracon what was pleaded in the OSOC. But the OSOC did not comply with rr 5.32 and 5.33. It did not state as precisely as possible the amount of money being sought. It did not
14 At [38]–[39].
15 At [40].
state the particulars and amounts being sought for consultant costs or the second plaintiffs’ consequential losses. In addition, in not serving ASOC2 on Terracon, the plaintiffs failed to comply with the undertakings given in the OSOC to quantify the amounts of those claims before the hearing.
[55] The plaintiffs seek to avoid those difficulties by saying they were not required to serve ASOC2 on Terracon because of r 6.20 and that the claim in ASOC2 did not materially change the nature or quantum of the claim against Terracon. However, r 6.20 is cast in terms of a defendant’s entitlement to receive documents. It does not absolve a plaintiff of responsibility for compliance with other rules that must be met in order to proceed with a valid claim. In addition, even if the nature of the claim against Terracon did not change materially between the OSOC and ASOC2, there was no knowable quantum in the OSOC for three of the elements for which the plaintiffs sought recovery in ASOC2 and obtained judgment in the Default Judgment: the costs of remedying Defects A, B and E; the consultants’ costs and the additional body corporate management costs. (In the event, the plaintiffs did not pursue, at least against Terracon, their claims for consequential losses and general damages.)
[56] Furthermore, because there was no breakdown in the OSOC of the costs of remediating Defects A, B and E, this is not a case where the plaintiffs might have limited their recovery to the amount of their original pleading, as Whata J held was possible in Korea Deposit Insurance, even if the plaintiffs might have been willing to forego recovery of the increase in the costs of remediating Defects A, B and E between the OSOC and ASOC2 and their claims for consultants’ costs and the additional body corporate management costs. For completeness, I also note that this case is not comparable with the situation considered by Edwards J in Body Corporate 406198 v Argon Construction Ltd, which was one of the authorities on which Mr Hough sought to rely.16
[57] For these reasons, I am satisfied that the Default Judgment was irregularly obtained.
16 Body Corporate 406198 v Argon Construction Ltd [2022] NZHC 2218. The question at issue was whether the plaintiffs should have been permitted, prior to the substantive hearing, to file a ninth amended statement of claim in which the claim against one of the defendants, which was taking an active part in the proceeding, would be expanded.
Should the Default Judgment be set aside without enquiry into the substantive merits of the plaintiffs’ claims?
[58] I am also satisfied that, in accordance with the general position re-stated by the Court of Appeal in Rennie Cox Lawyers,17 this is a case where the irregularly obtained judgment should be set aside without enquiry into the substantive merits of the dispute, as occurred in Richmond.
[59] This is not a case where it can fairly be said that the irregularity obtaining the Default Judgment was so minor and inconsequential that it could not have caused prejudice and there was no arguable defence. In the Default Judgment, the plaintiffs secured judgment for substantial amounts that were not known to Terracon. That is clearly a miscarriage of justice, irrespective of the merits of the plaintiffs’ claims and irrespective of the circumstances that led to Terracon not filing a defence or address for service. In addition, I make the following points.
[60] First, this was not a case where there was any difficulty in serving Terracon. The plaintiffs knew that Terracon’s registered office was the office of a chartered accountant and that service of the OSOC had been personally effected by Mr Henshall. The plaintiffs must have been aware, therefore, that service of any further pleadings was likely to be successful. They must also have been aware, or could easily have discovered by making reasonable enquiry, that Terracon was still active and engaged in the construction industry. Yet they chose to proceed with a considerably increased claim against Terracon, without notifying Terracon that the overall claim for the costs of remedying the Defects had more than doubled and without ever notifying Terracon of any of the amounts they were seeking from it.
[61] Secondly, the claims against Terracon were both substantial and overlapped entirely with the claims against Auckland Council. There were also the cross-claims from Auckland Council and ProDesigners, of which Terracon was apparently unaware. Because Terracon was not served with the cross-claims or ASOC2, it was unable to participate in settlement discussions that resulted in the plaintiffs settling their claims in a manner that left the plaintiffs seeking and obtaining from Terracon:
17 EA v Rennie Cox Lawyers, above n 9, at [20].
(a)70 per cent of the total cost of the Remedial Works as stated in ASOC2;
(b)31 per cent of the consultant costs as set out in sch 7 to ASOC2; and
(c)additional body corporate management costs for an amount greater than the total set out in sch 7 to ASOC2.
[62] Those figures alone and the process by which they were arrived at raise a question as to whether the claims for damages have been apportioned fairly among the defendants, notwithstanding the assurance I was given at the formal proof hearing that no issue of double recovery arose.18
[63] For these reasons, I am satisfied that, even without enquiring into the substantive merits of the plaintiffs’ claims, there has been, or may have been, a miscarriage of justice such that the Default Judgment must be set aside.
If regard is had to the substantive merits of the plaintiffs’ claims, has there been a miscarriage of justice such that the Default Judgment should be set aside?
[64] Because of the conclusion I have reached above, it is not necessary for me to address this question, which usually arises when the Court has held that there has been no procedural irregularity. In addition, because the questions of whether Terracon is liable for any or all of Defects A, B and E and, if so, the extent of that liability will have to be addressed at a resumed hearing, I do not consider it useful or appropriate to engage in a detailed analysis of the evidence and submissions that have been filed on these matters. It is appropriate to record, however, that the matters raised by Terracon satisfy me that there may well have been a miscarriage of justice in Terracon being fixed with primary liability for remedying the Defects associated with water ingress issues, even if there had been no procedural irregularity.
[65] As Ms Wendt notes, in cases where there has been no procedural irregularity, it is usual to consider the factors identified by the Court of Appeal in Paterson v Wellington Free Kindergarten Association Inc comprising whether: the defendant has a substantial ground of defence; the delay is reasonably explained; and the plaintiff
18 Default Judgment, above n 1, at [42].
will not suffer irreparable injury if the judgment is set aside.19 However, as the Court of Appeal clarified in Russell v Cox, those are matters that the Court will generally regard as of importance in deciding whether it is just to set aside a judgment.20 There is not, however, a general rule that an application to set aside a judgment must satisfy those conditions before the discretion to set aside will be exercised. The relative importance of the factors will vary from case to case.21
[66] For present purposes, it is sufficient to have regard to the first and arguably most important of those factors; that the Terracon has a substantial ground of defence.
[67] As set out at [27] of the Default Judgment, the building defects relating to the planter boxes and adjacent courtyards in relation to Defect A were that:
(a)the sloped concrete capping was not installed to the top of the planter boxes;
(b)the installation of the planter membrane did not follow the consented plans;
(c)the top of the membrane upstand had varying height finishes, with some terminating below the plastered finish;
(d)the membrane upstand had extensively debonded from the wall so that water was able to enter behind the membrane;
(e)incomplete sections of membrane meant the planter wall was not waterproofed;
(f)the planter box soil protection system was not installed as required by the Nuralite membrane system;
19 Paterson v Wellington Free Kindergarten Association Inc [1966] NZLR 975 (CA) at 983.
20 Russell v Cox [1983] NZLR 654 (CA) at 659.
21 At 659.
(g)the drainage outlets in the planter boxes were not installed in accordance with consented plans;
(h)the membrane in the courtyards was incorrectly dressed into the outlets, causing water entry; and
(i)the chased flashing terminating Unit GA’s courtyard membrane was butt jointed with no soakers at the joints and the membrane upstand could not adhere to the aggregate tilt panel wall surface.
[68] It is now apparent from Terracon’s quotes, which contained the scope and terms of its work, and which were not in evidence at the formal proof hearing, that Terracon’s involvement in the Nikau Apartments was limited to the matters set out in the quotes and did not embrace many of the matters identified in the above defects.
[69] In particular, and as set out in Mr Campbell’s affidavit sworn on 14 December 2023 in support of the application to set aside the plaintiffs’ statutory demand, it appears from Terracon’s quotes dated 5 December 2012, 10 July 2013 and 11 November 2013, that the work which Terracon was contracted to undertake was to apply waterproofing membrane to areas identified on specified plans and excluded work relating to a number of the defects listed at [27] of the Default Judgment. In particular, Terracon’s work did not include:
(a)block work and plastering, including capping;
(b)chase work and termination bar work;
(c)installation of planter protection;
(d)installation of planter barrier protection systems;
(e)installation of ring clamps; or
(f)the chase flashing work for the courtyard membranes.
[70] The plaintiffs’ witnesses do not dispute Mr Campbell’s description of Terracon’s scope of works. Adam Woolgar, a chartered and registered building surveyor who was engaged to investigate problems with the Nikau Apartments, says that, on the assumption that Mr Campbell has correctly recorded the scope of Terracon’s engagement, he formed the preliminary view that, “Terracon remains liable for a significant portion of the alleged defects claimed against it” and that his view remained that, “the repair advised and costed in the Substantive Proceeding would nevertheless be necessitated by the defects with Terracon’s work even if Terracon is not responsible for the works that Mr Campbell says is outside the scope.”
[71] Mr Woolgar goes on to observe that Terracon issued a producer statement (the Producer Statement) which confirmed that the roof deck and planter membranes complied with the Building Code, the manufacturer’s specifications and technical literature requirements. He offers the opinion that, if Mr Campbell was not confirming compliance of the whole system, that should have been made clear in the Producer Statement and that, without such qualification, “the Council was entitled to rely on the Producer Statement as confirmation of compliance for the whole system.”
[72] Even taking Mr Woolgar’s words at face value and putting aside the point that it is for the Court and not Mr Woolgar to determine liability, it is apparent that there is a real question as to whether Terracon has any responsibility for a number of the defects identified at [27] of the Default Judgment and which formed the basis of my conclusion that the planter boxes and courtyards as constructed did not comply with the Building Code and that Terracon was responsible for the poor and incomplete installation of the waterproof membrane in the planter boxes and courtyards.22 That is, the evidence appears to establish that Terracon did not carry out elements of the work that was held to have caused the damage for which it was held liable under the default judgment. There must be a real question, therefore, as to whether Terracon should have been held liable for the whole amount for which judgment was entered in the Default Judgment.
22 Default Judgment, above n 1, at [28]–[30].
[73] Mr Woolgar’s attempt to cover over this problem by reference to the Producer Statement is not persuasive, either by reference to the terms of the Producer Statement itself or recent decisions of this Court.
[74] In the Producer Statement, Terracon does not confirm that the entire system involving the installation of the roof, deck and planter membranes complied with the Building Code, the manufacturer’s specifications and technical literature requirements. Rather, the Statement confirmed that:
(a)the substrate was suitable for the application of the Nuralite Nuraply membrane;
(b)the waterproof membrane had been applied in accordance with the manufacturer’s specifications and technical requirements; and
(c)all work had been carried out in accordance with the building consent and complied with cls B2 and E2 of the Building Code.
[75] It is inherent in the last point that the work referred to is work undertaken by the party making the Producer Statement. Terracon cannot be taken by that statement to have warranted that work carried out by other trades and over which Terracon had no authority, control or experience was carried out in accordance with the building consent and complied with the Building Code. As Walker J held in Body Corporate 366567 v Auckland Council in relation to a similar argument, a party making a producer statement assumes responsibility only for work identified in the statement, construed objectively and reasonably, and does not include work performed by trades that came before the installation.23 The same must apply to work performed by trades that came after the installation.
[76] I am in no position to assess the extent to which the claim against Terracon might be reduced if the matters which were outside the scope of Terracon’s work are removed from the claim. There is no itemisation of the costs of remedying the individual defects that made up Defect A. There is no allocation of the total costs
23 Body Corporate 366567 v Auckland Council [2024] NZHC 32 at [1076].
claimed against Terracon for Defects A, B and E respectively. But it is plain that a serious question has been raised by Terracon about its liability for the costs claimed with respect to Defect A and that question has not been credibly answered by the plaintiffs.
[77] For these reasons, I am satisfied that Terracon has a strongly arguable defence to at least a part of the case against it and that it would be a miscarriage of justice if the Default Judgment were allowed to stand, regardless of my finding of procedural irregularity.
[78] For completeness, I also note that, with reference to the second factor identified in Paterson, while Mr Campbell was foolhardy to disregard the OSOC and the notice of proceeding on the basis of a cursory Google search, I am satisfied his explanation was credible and genuine and that Terracon’s failure to file a defence or an address for service was not an attempt to avoid liability for the claim.
Result
[79]The application to set aside the Default Judgment is granted.
[80]The Default Judgment issued on 14 November 2023 is set aside.
[81] Because the Default Judgment is set aside, the plaintiffs’ statutory demand cannot proceed.
Costs
[82]As the successful party, Terracon is entitled to costs on a 2B basis.
[83] If the parties are unable to agree costs, Terracon may file a memorandum of no more than four pages by 10 October 2024. The plaintiffs may file a memorandum in reply of no more than four pages by 24 October 2024.
G J van Bohemen J
5
1