Treetops Limited v Allianz New Zealand Limited HC Auckland CIV 2007-404-2430

[2010] NZHC 1563

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2007-404-002430

BETWEEN  TREETOPS LIMITED Plaintiff

ANDALLIANZ NEW ZEALAND LIMITED Defendant

Hearing:         29 March 2010

Appearances: C R Langstone and A Greenstreet for plaintiff

T Greenwood for defendant

Judgment:      6 September 2010 at 2:30pm

JUDGMENT OF ASSOCIATE JUDGE ABBOTT

This judgment was delivered by me on 6 September 2010 at 2:30pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:
Jones Fee, PO Box 1801, Auckland 1140 for plaintiff

Keegan Alexander, PO Box 999, Auckland 1140 for defendant

TREETOPS LIMITED V ALLIANZ NEW ZEALAND LIMITED HC AK CIV 2007-404-002430  6 September

2010

[1] The defendant, Allianz New Zealand Limited (Allianz), has applied to strike out this claim. It contends that the plaintiff, Treetops Limited (Treetops), has unreasonably delayed discovery in this proceeding, prejudicing Allianz’s ability to join other potentially liable parties because of the ten year limitation period under the Building Act 2004.

[2]      Treetops opposes the application, contending that Allianz has had ample opportunity to join further parties.  In particular, it says that Allianz has known since

2001 of the possible involvement and contribution of the particular third party in quantum, and that Allianz too has failed to comply with timetable orders (in regard to joining of third parties).

Background

[3]      At material times Treetops was the developer and owner of a luxury lodge near Rotorua.   Construction of the lodge commenced in or about April 1999. Construction required diversion of a natural stream.   That, in turn, required an assessment of the catchment area for the stream.  That assessment was undertaken by Tonkin & Taylor Limited, Environmental and Engineering Consultants.

[4]      In   or   about   September   2000   Treetops   engaged   On   Site   Landscape Management Limited (On Site) to undertake landscaping work as part of the development of the lodge.  This work involved construction of an overland flow path and ponds so as to take surface water away from the lodge.

[5]      In May 2001 heavy rainfall resulted in flooding and damage to the lodge and surrounding landscaping works.

[6]      Treetops claimed that On Site was negligent in its work on the overland flow path.   It says, amongst other things, that the ponds were set too high to create an adequate overland flow path.   It made demand on On Site on 1 June 2001 for its

losses.  On Site was subsequently put into liquidation (and has now been struck off the Companies Register).  Treetops is pursuing Allianz as On Site’s insurer.

[7]      Treetops filed its claim against Allianz on 4 May 2007, one day short of six years after the flooding and resultant damage.

[8]  It is part of Allianz’s defence that the catchment area of the stream was assessed as part of the diversion scheme.  Allianz says that this was done inadequately, and that that, combined with an inadequate design of that diversion (which failed to take into account the overland water flow), caused the flooding and damage.  Tonkin & Taylor’s assessment of the catchment area was contained in a geotechnical report dated 15 June 1999, which also included the design work for the stream diversion.

[9] It is common ground that the design work (including the catchment assessment) is site work, and therefore building work for the purposes of the Building Act 2004. As a consequence, s 393 of the Building Act 2004 applies and a civil claim in respect of that work cannot be brought later than ten years after the work was undertaken. Allianz did not join Tonkin & Taylor before 15 June 2009 (within the ten year period). It contends that it did not do so because Treetops failed to provide it with a copy of the Tonkin & Taylor reports in time (contrary to obligations under discovery orders made in the proceeding).

History of the discovery orders

[10]     Discovery orders were made at the first case management conference for the proceeding.   Affidavits of documents were to be filed and served by 7 September

2007, and any interlocutory applications by 5 October 2007.  Neither party complied with those directions, although Allianz did file its affidavit of documents on 20

November 2007.  Treetops may have prepared an affidavit of documents at the time but it was  not  filed:  counsel  filed  a  joint memorandum  on  21  November  2007 seeking extension of timetable only for inspection and applications.  In any event a revised timetable was set by consent, requiring the parties to complete inspection by

7 December 2007 and interlocutory applications to be filed and served by 25 January

2008.   At the same time a trial was set for the week of 2 March 2009 and the

proceeding was  listed  for  a  mention  hearing on  29  May 2008  (with  a  view  to allocating a judicial settlement conference if the parties had not arranged a private mediation).

[11]     On 28 May 2008 counsel filed a joint memorandum requesting adjournment of the mention hearing on the basis that the parties were in the process of arranging a private mediation.  They advised the Court that:

“Inspection is yet to be fully completed but the parties are hopeful that further interlocutories are unlikely.”

They added that the parties “would prefer to avoid expensive interlocutories” and to resolve matters between counsel.

[12]     On 5 June 2008 Treetops filed its affidavit of documents.  It had been sworn on 30 May 2008 but appears to have been prepared in November 2007 (that date was typewritten but then crossed out in the attestation clause).

[13]     The next formal step in the proceeding was that Allianz filed an application on 1 December 2008 for an order that Treetops provide further and better discovery. The evidence in support of that application was that Allianz had inspected Treetops’ documents on 9 and 10 June 2008, and that Tonkin & Taylor’s report of 15 June

1999 plus four plans had been discovered, but that earlier reports dated 28 October

1997 and 26 April 1999 (which were referred to in other documents) had not.  The application also referred to documents suggesting that Treetops might also have documents from other parties relating to design work for the overland flood path. Informal discovery of these documents had been requested on 30 June 2008 (and again shortly before the application was filed) but Treetops had not responded.

[14]     It appears that the reason that the discovery requests were not pursued or actioned, and that Allianz did not pursue possible joinder of third parties, was that the parties were in settlement negotiations.

[15]     Allianz advised the Court, in a memorandum filed ahead of the first call of its application for further discovery in December 2008, that it intended to join third parties but was awaiting the further discovery from Treetops in order to do so.   It

added that it had identified the other potentially liable parties, including civil engineering firms, and was considering non-party discovery if Treetops was unable to provide the documents being sought.  Reference was made to the need to obtain expert advice on potential liability.

[16]     Treetops did not oppose Allianz’s application.  On 29 January 2009 the Court made an order that Treetops provide the further discovery by 13 February 2009.  The following day Allianz applied by memorandum for extension of time for joining third parties.

[17]     On 5 February 2009 the trial scheduled to start on 2 March 2009 was vacated (by consent of both parties).  The proceeding was listed for a mention in chambers on 26 March 2009.

[18]     On 25 March 2009 counsel filed a joint memorandum recording that Treetops had made extensive inquiries to locate any further documents (which had taken longer than hoped) and was to complete a supplementary list of documents within a week, and that Treetops was still considering non-party discovery prior to seeking to join  third  parties.     A  further  timetable  was  sought  for  completing  discovery (including any applications for non-party discovery) but Allianz deferred seeking extension  of  time  for  joining  third  parties  until  a  further  case  management conference.  Consent orders were made as sought, including that Treetops file and serve its supplementary affidavit of documents by 1 April 2009, and that any applications for non-party discovery be filed by 14 May 2009 and be listed in a chambers list on 28 May 2009.

[19]     On 1 April 2009 Allianz requested additional formal disclosure of all relevant documents in Treetops’ control and threatened to apply to strike out the claim if it did not provide them.

[20]     On 6 April 2009 Treetops filed and  served  a  supplementary affidavit  of documents.  No further documents from Tonkin & Taylor were discovered.

[21]     On 26 May 2009 Allianz filed an application to strike out Treetops’ claim on the grounds that Treetops had failed to provide all relevant documents notwithstanding repeated directions from the Court, and that its failure to comply with those directions had prejudiced Allianz’s ability to join other potentially liable parties within the ten year limitation period.  It also said that it should not have to pursue these documents from the non-parties.

[22]     On 28 May 2009 the Court made orders by consent that Treetops should file and serve a supplementary affidavit of documents providing discovery of documents from its engineers and designers, including Tonkin & Taylor Limited, by 31 July

2009, and extending the time for filing and service of third party claims to 5 October

2009.   The Court also required Allianz to advise by 5 October 2009 whether it intended to proceed with its strike out application.

[23]     Treetops filed and served a second supplementary affidavit of documents on

31 July 2009 discovering further documents passing between Tonkin & Taylor and

Treetops.

[24]     On 5 October 2009 Allianz advised, by memorandum, that it intended to proceed with its application to strike out, on the grounds that its expert had carried out a further site inspection (on 2 October 2009) and had:

... confirmed his opinion that the engineering firm that provided advice on stormwater reticulation was negligent in failing to correctly assess the size of the catchment area and design a suitable pipe system and/or overland flow path in the area where the flood damage occurred.  The engineering firm’s work was completed more than ten years ago.

Jurisdiction

[25]     Allianz brings it application under r 7.48 of the High Court Rules:

7.48     Enforcement of interlocutory order

(1)       If a party (the party in default) fails to comply with an interlocutory order, a Judge may, subject to any express provision of these rules, make any order that the Judge thinks just.

(2)       The Judge may, for example, order—

(a)that any pleading of the party in default be struck out in whole or in part:

(b)      that judgment be sealed:

(c)      that the proceeding be stayed in whole or in part: (d)        that the party in default be committed:

(e)if any property in dispute is in the possession or control of the party in default, that the property be sequestered:

(f)       that any fund in dispute be paid into court:

(g)      the appointment of a receiver of any property or of any fund in dispute.

(3)An order must not be enforced by committal unless the order has been served personally on the party in default or that party had notice or knowledge of the order within sufficient time for compliance with the order.

[26]     There was no real difference between counsel on the general principles which the Court applies when determining an application under r 7.48 (developed under the previous rr 277, and later, 258):

a)       The first step is to establish whether there has been a failure to comply with an order;

b)The court then has a discretion as to the order to be made.  This can include striking out of the claim of the party in default, whether in whole or in part;

c)       Where there is eventual compliance, an application for enforcement will generally be dismissed with costs to the applicant except in the event of wilful default or serious prejudice to the other party;[1]

d)The courts are reluctant to order that a claim or defence be struck out for non-compliance, rather than dealing with the case on its merits.[2]

[1] Lees Trading Co (NZ) Ltd v Loveday HC Christchurch, CP 70/96, 3 June 1998. 

[2] Hopman v Peka HC Auckland CP 132/94, 24 April 1998; Commonwealth Reserves v Chodar HC Auckland CP 73/SW/00, 18 July 2000 at [25].

[27]     An order to strike out for non-compliance cannot be made to punish the offending party.  In many cases the first step should be an “unless order".[3]

[3] Commonwealth Reserves v Chodar above n2.

[28]     The  overriding  consideration  is  whether  justice  can  be  done  despite  the delay.[4]

Serious prejudice

[4] Lovie v Medical Assurance Society New Zealand Ltd [1992] 2 NZLR 244.

[29]     Counsel for Allianz advanced its case on the basis that Treetops’ failure to comply with discovery orders caused it serious prejudice.

[30]     Counsel for Treetops challenged both whether Treetops had failed to comply any order (essentially because it had  complied, even if belatedly) and  secondly whether any delay in compliance could be said to have caused Allianz’s failure to join Tonkin & Taylor within the ten year time limit.  I will deal briefly with the first point before turning to the substantive issue, the effect of the delay.

The alleged failure

[31]     Counsel for Treetops submitted that Allianz had not established a basis for the exercise of the Court’s discretion because it had not identified the specific order which Treetops was alleged to have breached.

[32]     The complaint made by Allianz is that Treetops did not comply with its obligation to give general discovery until the filing of its second supplementary affidavit on 31 July 2009.

[33]     The jurisdiction under r 7.48 arises as soon as a party fails to comply with an interlocutory order.   Belated compliance does not preclude an application being

brought, although it will obviously be a factor in the exercise of the Court’s discretion.   There may well be cases, and this is one, where it can be argued that belated compliance warrants some further order.  The obvious case would be where an application was filed, on the grounds of the non-compliance, and a costs order is sought following the belated compliance.   However, once a failure to comply is established, I see no reason to limit the Court’s ability to consider the effects of that non-compliance.

[34]     In the present case, Treetops has failed to comply with a series of orders, starting with the original order that it file and serve its affidavit of documents by

7 September  2007.    It  then  failed  to  comply  with  the  further  orders  made  on

29 January 2009 and 25 March 2009 (albeit by a few days).  That is enough to give the Court power under r 7.48 to examine the effects of that non-compliance.  I also find that Treetops did not fully satisfy its obligations to provide general discovery.  It appears from the evidence before the Court that it did not approach its agents or contractors (particularly Tonkin & Taylor and the other designers or engineers engaged on the project) until June 2009 to request all documents available on their files.  I consider that those documents were within Treetops’ power or control, and should have been sought and discovered at the outset.

[35]     I turn now to the critical issue in this matter, namely whether the justice of the case requires an order striking out the claim on the grounds of serious prejudice to Allianz.

[36]     Although Allianz may be prejudiced by the failure to join Tonkin & Taylor before the ten year limitation period expired on 15 June 2009 (or thereabouts) I am not persuaded that that is a matter that is solely attributable to Treetops’ delays in complying with the various discovery orders, so as to warrant striking out of the claim.

[37]     Allianz  had  notice  of  this  claim  (it  was  notified  by  On  Site)  by  about June 2001.  There was correspondence between Treetops and Allianz’s loss adjustor in March 2002.  Tonkin & Taylor were known to have been involved in the design

work at that point.  Allianz, through its loss adjustor, would have been aware of the nature of problem (overland water flow) and hence the need to examine responsibilities for design and construction of the preventative measures. Accordingly, when the claim was eventually filed, it should have been reasonably apparent that there was a need to investigate the role of other parties, and Tonkin & Taylor would have been within contemplation in that respect.

[38]     Counsel for Allianz argued that it was entitled to expect complete discovery from Treetops, and was unable to make a proper analysis of Tonkin & Taylor’s potential liability until it received that complete discovery.  He argued that Allianz should not have had to risk an adverse cost order by joining Tonkin & Taylor ahead of having all relevant information, and that it should not have been forced to incur the costs of non-party discovery.   He submitted that Allianz had no obligation to press Treetops for completion of their discovery.  That was Treetops’ obligation, and it would have to suffer the consequences of failing to comply with it: New Zealand

Industrial Gases Ltd v Andersons Ltd.[5]

[5] New Zealand Industrial Gases Ltd v Andersons Ltd [1970] NZLR 58, 63.

[39]     I am not persuaded that Allianz is entitled to rely on Treetops’ delay in completing its discovery properly as a valid ground for striking out in the circumstances of this case.  It was a matter for Allianz whether to seek contribution from Tonkin & Taylor under a third party notice.  It had notice of Tonkin & Taylor’s involvement in the project almost from the outset.  Even if it did not initially know the detail of that involvement, it had discovery of Tonkin & Taylor’s significant report of 15 June 1999 by June 2008.  It had also obtained further documents from Rotorua District Council as to the problems and Tonkin & Taylor’s involvement by December 2008.  Even if it did not have all of the possible material, it had enough to commence third party proceedings.   I do not understand the evidence of Allianz’s expert to be that the further documents produced in July 2009 substantially changed the understanding of Tonkin & Taylor’s role.  As I understand that information, it simply confirmed the position.

[40]     I do not accept that Allianz can escape this claim in the basis that it should not have had to risk an adverse costs order as a consequence of joining Tonkin & Taylor on limited information.   If it had joined Tonkin & Taylor, and further information emerged which negated any liability and that information should have been discovered by Treetops, it would have been entitled to have sought recovery of those costs from Treetops.

[41]     A similar argument was advanced in support of an application to strike out for want of prosecution in Lovie v Medical Assurance Society New Zealand Ltd.[6]

The Court took a similar view in that case, declining to strike out as the fact that the limitation period had been allowed to slip by without action could not be attributed to the plaintiff’s delay in prosecuting the claim:

The first defendant raised a specific factor of prejudice in that it maintained it had lost its right to claim contribution from NZI as a co-insurer. Specifically, it maintained it had lost its right to establish a claim against NZI for a rateable proportion of qualifying loss or damage.  The defendant had not taken any steps to join NZI in the relatively short time that had elapsed before the proceeding went to sleep.  There was nothing however to prevent the defendant from taking such a step in the ensuing 13 months.  In respect of NZI it was the defendant who stood in the position of claimant.  If any rights  against  NZI expired  six  years after  the date of the fire, that milestone occurred at the very commencement of the 13-month period of delay.  That delay therefore cannot be blamed for the fact that the limitation period was allowed to slip by without action.  To the extent that there will be difficulties in recovery against NZI, I do not see any basis for concluding that they have been increased in more than a minimal way by that period of delay.

[6] Lovie above n4

[42]     It is no answer in my view to say that Allianz had no obligation to force Treetops to complete its discovery.  It had sufficient notice, and facts, on which to take the step of joining Tonkin & Taylor.

Decision

[43]     In the circumstances of this case I do not consider it would be just to strike out Treetops’ claim on the ground that it delayed in complying fully with discovery obligations.    Allianz  had  sufficient  information  to  take  steps  to  join  Tonkin  & Taylor, seeking contribution, before that claim became statute barred.   Allianz’s failure to do so is not sufficiently causally related to Treetops’ delay to justify the draconian step of striking out.

[44]     Allianz’s application is dismissed.

[45]     As the successful party, Treetops is entitled to costs on a 2B basis together with disbursements.

Associate Judge Abbott