Unite Investment & Management Limited v ACH Consulting Limited
[2019] NZHC 405
•11 March 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-2076
[2019] NZHC 405
BETWEEN UNITE INVESTMENT & MANAGEMENT LIMITED
PlaintiffAND
ACH CONSULTING LIMITED
Defendant
Hearing: 11 March 2019 at 10:00am Appearances:
William McCartney for the Plaintiff Matthew Atkinson for the Defendant
Judgment:
11 March 2019
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Application for further and better particulars Security for costs
Solicitors:
Fee Langstone (Matthew Atkinson), Auckland, for the Defendant/Applicant Carson Fox Legal (Linda Fox), Auckland, for the Plaintiff/Respondent
Copy for:
William McCartney, Auckland, for the Plaintiff
UNITE INVESTMENT & MANAGEMENT LIMITED v ACH CONSULTING LIMITED [2019] NZHC 405
[11 March 2019]
[1] In this professional negligence claim, the defendant seeks further and better particulars of the plaintiff’s amended statement of claim and security for costs.
The amended statement of claim
[2] The plaintiff is a property developer. The defendant is a company of consulting engineers in Auckland. In 2014 the plaintiff began a residential development at Mainston Road, Remuera, Auckland. That involved building nine houses on a single site. The statement of claim pleads that the plaintiff engaged the defendant in November 2014 to provide engineering services for the project. Those services were to include designing the stormwater and drainage systems and preparing stormwater and drainage engineering plans and details for submission to the Auckland Council. The plaintiff alleges that the engineer in the defendant’s company who worked on the job failed to carry out his work properly. There are five alleged heads of defect:
Unit title design
[3] The engineer is said to have designed stormwater and wastewater systems for a unit title development. The plaintiff’s project was a fee simple development, that is, the nine houses were to be on separate lots, whereas the engineer envisaged all nine houses would go on a single lot.
Stormwater drain
[4] The engineer is said to have designed the systems to use an existing drain on the north-west of the site. It is pleaded that an existing drain was shown on old plans as being entirely within the property, but in fact the stormwater drain was outside the boundary and could not be used. The engineer is alleged not to have gone on site to check that the drain was where it was shown on the old plans.
Protected trees
[5] It is alleged that the engineer specified that drains were to be laid under the drip-line of the protected oak trees on the north-west boundary of the site. It was not permissible to lay drains under the drip-lines. The engineer failed to go on site to check whether the drains could be laid where he specified.
Ground levels
[6] It is pleaded that the engineer assumed that the ground levels on site would be the same as shown on Auckland Council geomaps, whereas he should have gone on site to establish actual ground levels.
Fire hydrant
[7] It is said that the engineer specified a fire hydrant on site without checking with the New Zealand Fire Service whether a fire hydrant was necessary. In fact a fire hydrant was not required, and the engineer failed to provide for engineering approval for dispensing with a fire hydrant.
[8] The statement of claim goes on to plead that the plaintiff discovered these design errors in November 2015. It then engaged a firm of cadastral surveyors to correct the errors in the designs, to apply to the Auckland Council to amend consents and to oversee remedial work. Because of the engineer’s unit title error, the error as to the drain in the north-west of the site, the protected trees error and the error over the ground levels, it was necessary to redesign the wastewater system so that each lot would have an individual connection to the public wastewater system. It was necessary to redesign the stormwater system so that each lot would have an individual connection to the public stormwater system. The stormwater retention tank for each house had to be moved from the rear of the house to the front, which entailed more expensive work, and it was necessary to redesign the number and location of stormwater filters, which required locating a stormwater filter in a common access lot. As a result of the engineer’s fire hydrant error, it was necessary to either delete the fire hydrant from the design or produce an engineering approval for the fire hydrant. The plaintiff elected to delete it from the design on the basis that that would be less expensive.
[9] Approval of all design work and remedial work required fresh applications to the Auckland Council. The plaintiff incurred surveyors’ costs of some $39,000 and Auckland Council charged processing fees of over $10,000. The completion of the project was put back from October 2016 to April 2017. That delay meant that it incurred project engineer’s fees of $55,000 and extra costs of public liability and contract works insurance of $18,000. The plaintiff had a bank loan which had to be repaid in July 2017, but because of the delays not all the houses could be sold by that date. This meant that the plaintiff had to obtain replacement finance. It has claimed damages for the costs of the replacement finance. There were two replacement loans
– one resulting in extra costs of $340,000 and another with costs of $330,000. As well there was a brokerage fee of $50,000. All up, the plaintiff claims losses of $884,000. The plaintiff sues the defendant for breach of contract and in negligence. In both cases the engineer is alleged to have failed to carry out the work to the standard required of a reasonably competent engineer.
[10] In its statement of defence, the defendant says that the relevant agreement between the parties was made in July 2015. It denies any negligence or breach of duty on the part of the engineer. It admits that it designed stormwater and wastewater systems for a unit title development, not for a fee simple subdivision. It says that it did so because the plaintiff’s architect advised that the development was to be in unit titles.
[11] As to the north-west stormwater drain, it says that it designed an extension of a public stormwater drain from an existing stormwater pipe located on a neighbouring property to the plaintiff’s property and that design was in accordance with the resource consent granted for the project. As for the stormwater drain, it says that it knew that the drain was not located on the property and that the neighbouring owner, a sports club, gave consent for building the stormwater extension from its site to the plaintiff’s property.
[12] As to the protected trees, the defendant says that the resource consent for the project provided for 35 trees to be removed but it also provided that work could be carried out within the drip-line of 16 protected trees. Although this is not expressly
pleaded, I note that the resource consent provides that any work within the drip-line is to be carried out under the supervision of an arborist.
[13] It says that it obtained information as to ground levels, including existing features and contour information, from the site and drainage plans prepared and provided by the architects for the project. After a site inspection in July 2015, a site- specific survey was commissioned from a third party surveyor for existing stormwater and ground levels within the neighbouring site. It did not rely on the Auckland Council’s geomaps but on information from the site-specific survey.
[14] As to the fire hydrant, it says that a fire hydrant was required as a condition of the resource consent. It otherwise denies any liability.
[15] As well as denying negligence and any breach of contract the defendant advances affirmative defences. It says there was a contractual exclusion for consequential or indirect loss and loss of profits, and pleads a contractual limitation of five times the fee. It says the fee charged was $17,685 so the damages should be limited to $88,425.
Security for costs application
[16] The defendant adduced some evidence, but not very much, in support of the application for security for costs. It relied primarily on the circumstances of the case. In the way of many defendants, it has limited knowledge of the circumstances of the plaintiff. But it notes these matters. The plaintiff is a limited liability company and a property developer. The defendant’s lawyers have searched the register of land titles and have established that the plaintiff is not the registered proprietor of an interest in land in New Zealand. It therefore invites me to find that the plaintiff is no longer trading. It also invites me to infer from the pleadings that there were delays in the development with increased finance costs, and therefore the project cannot have been a financial success for the plaintiff. Given the pleadings as to the loans of $7,920,000 taken out in July 2017, I should infer that it was in a weak financial position. It also criticises the plaintiff for delay in running the proceeding.
[17] The plaintiff has not given any evidence in response to the security for costs application. Its response is simple: it says that the defendant has not met the threshold test of showing that there is reason to believe that it will not be able to pay costs if it should fail at trial.
[18] Counsel referred me to the decision of E Thomas J in New Zealand Kiwifruit Marketing Board v Maheatataka Cool Pack Ltd,1 in which a party faced with an application for security for costs had not responded to requests for information. Thomas J indicated that an absence of response from the party from whom security was sought did not amount to a prima facie case of impecuniosity for a security for costs application. I deal with this case on this basis. The defendant has an onus to establish that there is reason to believe that a plaintiff may not be able to pay security for costs. It is necessary to bear in mind that many defendants have limited knowledge of the means of plaintiffs – a matter that Thomas J recognised in the Kiwifruit Marketing Board case. Given the limited ability to find out about the means of a plaintiff, a defendant is not to be held to too high a standard in establishing whether there is reason to believe. The test is not one of ‘more likely than not’ but simply whether there is ‘reason to believe’.
[19] In this case I am satisfied that there is reason to believe because of these circumstances. Unite Investment and Management Ltd is a property developer which is known to have carried out one project, at Mainston Road, Remuera, Auckland. There is no evidence of it owning any other property. It can be inferred therefore that it is not operating as a property developer at present. It is a common practice of property developers to establish a single venture company to carry out a development. Once the development is completed, any profits from the project are returned to the shareholders and there is little left in the company. It is reasonable to infer that that happened in this case. The development has clearly been completed. There is no reason to suggest that the plaintiff would have any reason for retaining profits within the business instead of returning them to shareholders. I infer from that, that the plaintiff is likely to have limited means. That creates a risk that its means may be limited to paying its own legal costs without meeting other costs of litigation. There
1 New Zealand Kiwifruit Marketing Board v Maheatataka Cool Pack Ltd (1993) 7 PRNZ 209 at 212- 213.
is in my view a reasonable risk that if the defendant succeeds it may find that the plaintiff has nothing with which to meet an order for costs. On those grounds alone, I find reason to believe.
[20] I do not place any weight on the other matters raised by the defendant. I regard them as more equivocal. The fact that funds were borrowed, with resort to tertiary lenders, is not by itself enough to suggest impecuniosity. There is nothing to suggest that the project was not successful, although it may not have been not as profitable for the plaintiff as it might have wished. Equally, delay in the conduct of the proceeding is equivocal also. Nevertheless, I am satisfied that the threshold has been reached. There is no evidence from the defendant to suggest that I should not infer that there is reason to believe that the plaintiff will not be able to pay costs if it fails.
[21] The next matter is the discretionary assessment. That is a matter of weighing competing interests: the plaintiff’s right of access to the court to have its case heard, and on the other hand the interest of the defendant in being protected from obtaining no more than a barren order for costs if it is successful at trial. That requires some assessment of the merits of the case. Clearly, if the plaintiff has a very strong case, and the chances of it being ordered to pay costs will be slight, the case for requiring security will not be strong. Correspondingly, if the plaintiff’s case looks weak, the defendant will be on stronger ground in pressing for protection against a barren order for costs.
[22] The defendant has provided an affidavit by the engineer which addresses the matters on which the defendant has been sued. The plaintiff, on the other hand, has not provided any evidence to show why its case is strong. In submissions, Mr McCartney invited me to assume in favour of the plaintiff that it will be able to prove the allegations in the statement of claim. That might be appropriate in some strike-out applications, but it is different in an application for security for costs. The court needs evidence on which it can assess the merits of the case. Here, I have only the defendant’s account of what happened. In the absence of any countervailing evidence from the plaintiff, the defendant’s evidence is reasonably persuasive.
[23] At the start of the project the plaintiff obtained a land use consent from the Auckland Council. That land use allowed the plaintiff to erect nine dwelling houses on the site at Mainston Road. It was not, however, a subdivision consent. Given the resource consent granted for the project, it was open to the professionals who were working on the development – architects and engineers – to assume that the development would proceed as a development under the Unit Titles Act 2010 rather than as a freehold subdivision. That difference was important for infrastructure such as wastewater and stormwater. For wastewater and stormwater, if there are individual lots, each lot will need to have its separate connection to the public infrastructure, whereas with unit titles the development would only have a single connection to the public infrastructure. Clearly that had important consequences for design of the infrastructure by the engineers. The engineer says that he was not told about any intention to carry out a fee simple development – that is into nine separate lots until October 2015. He had been advised by the architects that it was a unit title development. That seems to provide a satisfactory response to the allegation that his design for a unit title development was flawed.
[24] The engineer answers the complaint as to the existing drain in the north-west of the site. He explains that there was never an existing stormwater drain in the north- west of the site. In submissions, Mr McCartney referred to a plan in evidence, but that was a plan for wastewater drainage, not stormwater drainage. That submission had the effect of, if anything, reinforcing the defendant’s case.
[25] As to building infrastructure under the drip-line of protected trees, the engineer refers to the land use consent that provided that works could be built under the drip- lines of trees so long as it was done under the supervision of an arborist. He says also that a stormwater drainage plan provided by the architects did not show any protected trees in the north-western corner of the subject site. After a site visit in July 2015 they positioned the stormwater drain in that location. He also ensured that there was a site- specific survey by a third party surveyor for the existing stormwater and ground levels within the neighbouring site, and he relied on that to prepare his plans. He did not rely on Auckland Council’s geomaps.
[26] As to the fire hydrant issue, he says that at the outset the defendant prepared a report that advised that under the New Zealand Fire Service Firefighting Code of Practice a fire hydrant had to be installed within 135 metres of the entrance to each dwelling. Later, in November 2016, the engineers obtained dispensation from the New Zealand Fire Service from installing an additional hydrant. He understands that the Fire Service waived that requirement.
[27] To a large extent, that evidence provides answers to the complaints by the property developer that the engineer did not design stormwater drains properly. There seems to be a reasonable case that the project was envisaged as being no more than a development of nine residences on one site, and there was a change later to provide for a subdivision into separate lots. The developer may not have understood the implication of that at the outset, but the engineer may properly say that he cannot be blamed for working according to the brief he was given.
[28] On the merits then, at this preliminary stage of the case, the prospects look good for the defendant in defending the case against it. I emphasise that this is a preliminary assessment only and it has been made after having regard only to the evidence of the defendant, the plaintiff having chosen not to provide any evidence the other way. That factor counts in terms of looking favourably on the defendant’s application for security for costs. There are no other factors that suggest that security ought not to be ordered. I expect that if security were ordered, the plaintiff will find the funds (presumably from shareholders) by way of security to give some protection for the defendant.
[29] The next aspect is the amount of security. The defendant provided a schedule of its costs. It calculated costs under category 2 band B showing generally standard matters. I query the claim for second counsel.
[30] The defendant has claimed disbursements of $25,000 each for two expert witnesses. Those experts’ fees strike me as high. In the circumstances, I assess the likely costs on a category 2 basis as in the order of $55,000, and disbursements as likely to be in the order of $26,000, making a total of $81,000. As the defendant appears to have the stronger case, I fix the security at $60,000. I direct that the security
is to be paid by 10 May 2019. If the security is not paid by then, this proceeding will be stayed. The plaintiff will have until 9 August 2019 in which to provide the security. If it has not provided the security by that date, the defendant will be entitled to apply to strike out the proceeding.
The application for particulars
[31] I shall order the plaintiff to provide particulars. I will specify shortly what those particulars are. The plaintiff will be required to provide those particulars by 12 April 2019.
[32] There is no dispute between the parties as to the principles that apply on applications for particulars. I refer to the familiar authorities: Pricewaterhouse v Fortex Group, Commerce Commission v Qantas Airways Ltd and Body Corporate 74246 v QBE Insurance (International) Ltd.2
[33] For the hearing, Mr Atkinson helpfully provided a schedule setting out the parties’ respective positions on the particulars. The particulars sought go to paragraphs 5, 7, 9 and 18 of the amended statement of claim.
[34] Paragraph 5 pleads the entry into the contract in November 2014 and the engineering services that were provided. The defendant does not accept that it made a contract in November 2014. It says that it was in July 2015. That does not require particulars. There is a contest as to facts, but that can be resolved later. In his written submissions, Mr McCartney said that the relevant contract was the contract of 2014, and that later on instructions were given by the architects to the engineer and the engineer assumed (without checking) that the development was to be a unit title development. The plaintiff now says that it seeks particulars of what oral instructions the architect gave to the engineer.
[35] Paragraph 5 is part of the scene-setting. It pleads the contract between the parties but it does not go into greater detail than that. I do not see the need for it to go
2 Pricewaterhouse v Fortex Group CA179/98, 30 November 1998 at 17-18; Commerce Commission v Qantas Airways Ltd (1992) 5 PRNZ 227 at 230; and Body Corporate 74246 v QBE Insurance (International) Ltd [2015] NZHC 1360.
into any greater detail except for one matter. I encourage the plaintiff to ensure that in its pleading it has adequately covered the scope of work to be carried out by the defendant. That is so that it can make sure that where it alleges negligence by the defendant, the alleged negligence is within the scope of work that the defendant was to carry out. I say that with particular reference to the fire hydrant issue. Other than that, I regard paragraph 5 as adequate and I do not direct any particulars.
[36] Paragraph 7(a) relates to the unit title design. For the hearing, Mr Atkinson sought particulars identifying plans which were said to be not suitable for a fee simple development and to identify the plans with particular notations. However, in discussion Mr Atkinson generally accepted that these particulars were not required because there was a clear understanding between the parties as to what the issues are regarding unit title development design as opposed to development for nine subdivided lots. The defendant says that it did design for a unit title development. It can be expected that whatever plans it produced up until the time of subdivision consent were only for a unit title development. That being the case, it can be expected that any plan that might be referred to by the plaintiff in that period would show a unit title development. As there is no difference between the parties on this, it is unnecessary to require the plaintiff to specify particular plans under that head. I am satisfied that the particulars sought for paragraph 7(a) are not required and I do not order any particulars for this paragraph.
[37] Paragraph 7(b) is directed at the north-western stormwater drain. The parties’ submissions highlighted the issue here. The plaintiff seems to be running its case on the basis of a claim for a wastewater drain - at least in its submissions in the hearing. Requiring plans to be identified can be useful. Often when design errors are alleged, it can be helpful to require the person alleging design errors to specify on what document an error was made and to specify where in that document the error appears. That often has a effect of encouraging the party making the allegations to review further whether they can sustain it. That may work in this case. Accordingly, for paragraph 7(b) I require the plaintiff to specify the plans in which the engineer used an existing drain in the north-west of the site. The plans can be identified by reference to their date, the job number, the plan number, and the version of the plan.
[38] The pleading also refers to old plans showing a drain within the property when the plan in fact went outside the property. The plaintiff should also identify those plans which it refers to in paragraph 7(b)(ii) of its amended statement of claim.
[39] Paragraph 7(c). While the defendant gave notice under r 5.21 of the High Court Rules requesting particulars, it did not seek particulars for paragraph 7(c), and its application for particulars did not refer to paragraph 7(c). For that matter, the application did not specify at all the actual particulars sought in the application. In those circumstances, I do not regard paragraph 7(c) as in issue, and I decline to order any particulars. I note, if anything, that this issue has already been adequately clarified through argument in the hearing. It should not be a difficult matter for the defendants to establish, from their own site inspections, where the oak trees were and where drains were laid in relation to oak trees.
[40]Paragraph 7(d) of the amended statement of claim says:
(1) The engineer … assumed the ground levels on site would be the same as shown on the Auckland Council geomaps rather than going on site to establish the actual ground levels.
(2) The ground levels on site were not the same as shown on the Auckland Council geomaps.
The defendant says that the plaintiff has not stated the relevance of the engineer’s assumption and has not pleaded how the engineer’s assumption gave rise to a loss.
[41] I invite Mr McCartney to consider again the allegations as to ground levels. A possible approach might be to say that the engineer failed to find out the actual ground levels or to apply them (if they were established), rather than to plead as to assumptions made by the engineer. A plea as to actual ground levels may be sufficient without alleging assumptions or references to other maps. The plaintiff is directed to reconsider that part of its pleading.
[42] Mr Atkinson submitted that it was not clear what loss this had caused. Mr McCartney referred to paragraph 10(c) of the statement of claim which referred to the relocation of retention tanks. It would be helpful if the plaintiff were to establish
some linkage between the allegation as to ground levels and the need to relocate retention tanks.
[43] Paragraph 9 pleads that the plaintiff engaged surveyors to correct errors in designs, to make applications to the Auckland Council and to oversee remedial work. The defendant seeks particulars. It wants particulars of any instructions given to the surveyors. But that is getting into too much detail - matters that really go to evidence rather than particulars. However, the plaintiff should specify what applications were made to the Auckland Council because of alleged design errors by the defendant. For example, is it alleged that application for the subdivision consent made in early 2016 was because of the defendant’s design errors? It is also appropriate for the plaintiff to specify which remedial work was carried out and which work was required to correct alleged design errors by the defendant.
[44] Paragraphs 18-20 relate to the pleading of financial losses. The plaintiff has given particulars of refinancing costs. In my view there is an adequate pleading of particular costs that were incurred. It is not necessary to require the plaintiff to go further than that. The defendant will be able to probe those aspects of the claim by requesting discovery to see whether the documents disclosed on discovery do bear out the pleading of refinancing costs set out in paragraph 20. No doubt the plaintiff will also produce the loan agreements with the financiers and other documents showing the losses pleaded. That matter does not require particularisation of pleadings. It will be addressed by discovery once that stage is reached.
Outcome
[45]As I have already stated, those particulars are to be provided by 12 April 2019.
[46]The case will be stayed with effect from 10 May 2019 unless security of
$60,000 is earlier provided.
[47] I direct the Registrar to allocate a case management conference after 10 May 2019. That is on the assumption that security will be provided by then. If it has not been, counsel should advise the court so that the conference can be vacated.
Costs
[48] The defendant seeks costs, because of its success on the security for costs application, and it notes that some particulars were ordered. In opposition, Mr McCartney points to the fact that the particulars required are significantly less than the particulars the defendant sought. While the defendant has not succeeded on everything it sought, it has generally prevailed today. Costs are awarded to the party which is substantially successful. In this case that is the defendant. I award costs to the defendant on a category 2 basis. I trust counsel will be able to agree costs. If they cannot, memoranda may be filed.
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Associate Judge R M Bell
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