Vero Liability Insurance Ltd v Symphony Group Ltd
[2008] NZCA 419
•23 October 2008
IN THE COURT OF APPEAL OF NEW ZEALAND
CA132/08
[2008] NZCA 419BETWEENVERO LIABILITY INSURANCE LTD
Appellant
ANDSYMPHONY GROUP LTD, SYMPHONY PROJECTS LTD, WAIMARIE MANAGEMENT LTD AND GLANVILLE INVESTMENTS LTD
Respondents
Hearing:18 September 2008
Court:Arnold, Potter and Harrison JJ
Counsel:S M Hunter for Appellant
J G Miles QC and SA Grant for Respondents
Judgment:23 October 2008 at 10.30 am
JUDGMENT OF THE COURT
AVero’s appeal against the decision of the High Court at Auckland on 3 March 2008 is allowed.
BSymphony’s third party notice and statement of claim against Vero dated 22 December 2006 are struck out.
CSymphony must pay Vero costs for a standard appeal on a band A basis and usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Harrison J)
Introduction
[1] Vero Liability Insurance Ltd appeals against a decision of Associate Judge Robinson, dismissing its application to strike out a claim against it by Symphony Group Ltd and associated companies (by way of a third party notice) or alternatively to enter summary judgment: HC AK CIV 2004-404-5225 3 March 2008.
[2] The issues raised on this appeal are, first, whether or not Symphony’s third party claim against Vero under a policy of indemnity insurance discloses an arguable cause of action and, second, if so, whether or not an exclusion clause applies in any event.
Jurisdiction
[3] Although no party raised it, there is a preliminary issue as to this Court’s jurisdiction. It arises because, in the one application and on the same grounds, Vero applied to strike out Symphony’s claim against it and, in the alternative, for summary judgment on the claim. Inevitably, the Associate Judge dealt with both aspects together. This creates a difficulty for us. Associate Judges’ decisions on strike applications are not appealable to this Court but are dealt with on review by the High Court, whereas their decisions on summary judgment applications are appealable to this Court (ss 26J and 26P of the Judicature Act 1908 and rr 61C, 61D and 251(1) and (2) of the High Court Rules). On the face of it, then, we have no jurisdiction in relation to the Associate Judge’s decision on the strike out application: see New Zealand Defence Force v Berryman [2008] NZCA 392 at [4].
[4] However, as we have said, the underlying grounds of the summary judgment and strike out applications were identical and the Associate Judge dealt with them together. We are properly seized of the appeal against his refusal to grant summary judgment. On that appeal we “may give any judgment and make any order which ought to have been given or made, and may make any further or other orders that the case may require” (r 48(4) of the Court of Appeal (Civil) Rules 2005). In these circumstances, and because no party has taken any issue about it, we propose to address the Associate Judge’s refusal to strike out as well. (Further, we are, of course, able to exercise any of the powers of a High Court judge (s 57(4) of the Judicature Act), although that is not a particularly satisfactory course: see Talyancich v Index Developments Ltd [1992] 3 NZLR 28 at 37 (CA); Young v Police [2007] NZAR 92 at [16] – [17] (CA)).
Background
[5] Symphony purchased a property at Farnham Street, Parnell, Auckland in 1994, which it then redeveloped into a residential complex in 1995 by converting the pre-existing warehouse structure into a four level apartment block. Body Corporate No. 169791 represents the owners of 41 residential units or apartments who allege that the complex suffers from numerous defects, causing extensive moisture ingress into the cladding, timber framing, plasterboard linings, flooring, party fence walls and party protection walls. As a result the owners claim that it is necessary either to carry out extensive remedial works or to demolish and rebuild the complex.
[6] The Body Corporate issued its proceeding in the High Court in September 2004 against four defendants including the Auckland City Council and Symphony. The Body Corporate alleges that Symphony owed and breached a duty to the owners to exercise care to ensure the apartments were constructed to a proper and workmanlike standard. It claims judgment for damages of either $14.92m for remedial work or $18.77m for demolition and rebuilding. Symphony denies liability on a number of grounds including that the claim is time-barred because all causes of action arose more than six years before the proceeding was commenced.
[7] The Body Corporate requested Symphony to carry out remedial work in May 2003 to stop water leakage which was occurring in certain units and areas. The common area walkways were a major source of water ingress. Symphony agreed, without prejudice to its rights, to remove and replace the concrete paving and waterproofing membrane which comprised the common walkway areas. A subcontractor engaged by Symphony for this purpose in May and June 2003 laid new waterproofing where necessary and then new screed and concrete over the existing membrane in November 2003.
[8] Some unit owners were dissatisfied with the surface finish of the re-laid concrete. Symphony engaged Onyx Group Ltd to water-blast the concrete surface by using high pressure hoses to expose the aggregate. Onyx completed this work in December 2003 at a cost of just under $15,000. Symphony alleges that Onyx failed to properly protect the membrane and jointing seals from damage; and that some subsequent water leakage at the complex resulted from Onyx’s negligence or breach of contract.
[9] In the meantime Symphony had entered into a contract of commercial general liability insurance with Vero for a term from 1 July 2002 to 1 July 2003. The operative clause obliged the insurer to:
… indemnify [Symphony] for all amounts which [Symphony] shall become legally liable to pay as compensation in respect of … Property Damage … caused by an Occurrence happening within the policy territory during the Period of Insurance and arising from the Business of [Symphony].
[10] The policy defined “Property Damage” as:
… physical injury to or destruction of tangible property, which occurs during the Period of Insurance.
[11] The parties renewed the policy for another year from 1 July 2003, but subject to a new exclusion, described as a “Wet Buildings Exclusion” from liability:
… in respect of Property Damage which is directly or indirectly caused or contributed to or arises from:
1. moisture or water or the penetration of external moisture or water; or
…
3.the failure of any building or structure to comply with or perform to the requirements of any building code or to meet the level of performance, quality, fitness or durability of its intended purpose.
[12] In December 2006 Symphony joined a range of third parties to the proceeding including Onyx and Vero. Symphony claims that Vero has wrongfully refused to indemnify it under the policy, and is accordingly in breach of contract, and that it will suffer loss if required to pay the Body Corporate damages that are properly attributable to Onyx’s water-blasting work in late 2003. Symphony seeks an order that Vero indemnify it “in respect of any damages … [Symphony] may be ordered to pay to [the Body Corporate]”. Among Vero’s affirmative defences are that the Body Corporate is not making any claim arising from or relating to the water-blasting work carried out by Onyx, so that any liability on the part of Symphony does not fall for indemnity under the insuring clause of the policy.
[13] An expert report prepared for the Body Corporate in June 2004 concluded that the original waterproofing system designed and installed by Symphony in 1995 was defective; that the remedial work undertaken by Symphony in 2003 was also defective in both design and execution, and was only a continuation of what had already occurred; that the water-blasting accelerated deterioration that would have occurred in any event; and that the water-blasting would have had no adverse effect if the remedial work had been carried out properly. According to the report, the underlying cause of the defects, going back to 1995, is in the design or construction of the original membrane.
High Court
[14] Vero applied to the High Court for orders in the alternative, first, striking out Symphony’s claim on the ground that it failed to disclose a cause of action because the Body Corporate did not make a claim against the company for any damage allegedly caused by Onyx’s water-blasting activities and, second, for summary judgment on the ground that Symphony’s claim was defeated by the exclusion clause.
[15] In a reserved decision delivered on 3 March 2008 Associate Judge Robinson dismissed Vero’s first argument on the grounds that:
(1)At trial a court might possibly find that Symphony committed a breach of duty in 1995 when the apartments were constructed and again in 2003 as the party legally liable for the negligence of its subcontractor, Onyx, in carrying out its instructions and causing further leaking even though the Body Corporate had not as at the date of hearing (9 October 2007) brought a claim against Symphony arising out of the remedial work (at [37]). If so, there would arguably be two concurrent causes of the Body Corporate’s losses (at [38]). In that event Symphony would also have a valid claim against Vero under the policy which would apply to Onyx’s remedial work and be entitled to a contribution or indemnity under r 75(1)(a) of the High Court Rules. Alternatively, Symphony would be entitled to relief or a remedy relating to or connected with the subject matter of the proceeding and substantially the same as the relief or remedy claimed by the Body Corporate against Symphony, being the costs of either remedying the defect or demolishing and rebuilding under r 75(1)(b) (at [41]);
(2)Alternatively, there was a question or issue in the proceeding which should properly be determined not only as between the Body Corporate and Symphony but also as between those parties and Vero: r 75(1)(c) (at [42]). That was because there was a risk of inconsistent findings in separate proceedings (at [44]).
[16] Associate Judge Robinson, apparently accepting for the purposes of argument that the water damage exclusion applied, declined summary judgment because s 11 Insurance Law Reform Act 1977 may apply (effectively to negate the exclusion), subject to hearing and considering evidence (at [25]-[27]).
Decision
(1) Third Party Claim
[17] The first issue is whether or not Symphony’s statement of claim discloses an arguable cause (or causes) of action against Vero. A defendant’s right to join a third party in a proceeding is governed by r 75, which materially provides:
(1) Where in any proceeding a defendant claims against any person not already a party to the proceeding (hereinafter referred to as the third party)—
(a)That the defendant is entitled to contribution or indemnity; or
(b)That the defendant is entitled to any relief or remedy relating to or connected with the subject-matter of the proceeding and substantially the same as some relief or remedy claimed by the plaintiff against him; or
(c)That any question or issue in the proceeding should properly be determined not only as between the plaintiff and the defendant but also as between the plaintiff, the defendant, and the third party or between any or either of them; or
(d)That any question or issue relating to or connected with the subject-matter of the proceeding is substantially the same as some question or issue arising between the plaintiff and the defendant and should properly be determined as aforesaid,—
then the defendant may, within 14 days after the expiration of the time for filing his statement of defence or thereafter with leave of the Court, issue a notice to that effect (hereinafter referred to as a third party notice) to the third party in manner provided by rules 154 to 162.
[18] In support of the judgment in the High Court, Mr Julian Miles QC for Symphony relies on all four grounds with principal emphasis on the first two. We shall address each argument in the same order.
(a) Indemnity
[19] By reference to r 75(1)(a), Mr Miles accepts the submission made by Mr Stephen Hunter for Vero that the Body Corporate’s claim as pleaded is limited to a right of recovery for breaches of a duty owed when the complex was originally constructed in 1995. The Body Corporate does not claim that Symphony is liable for loss or damage suffered in consequence of the 2003 remedial works. The operative clause of the policy limits Vero’s obligation to indemnify to Symphony’s liability for property damage caused by an event occurring between 1 July 2002 and 1 July 2004. On its face, the Body Corporate’s originating claim arising from an event in 1995, well before the policy’s inception, does not entitle Symphony to indemnity.
[20] Mr Miles advances two arguments in answer. First, he submits that the Court cannot dismiss the possibility of the Body Corporate amending its pleading specifically to include a cause of action arising out of the 2003 remedial work. He relies by analogy on the line of authority that novel claims in negligence will not be struck out if there is a reasonable possibility that an arguable claim may be formulated later: see Couch v Attorney-General [2008] NZSC 45 per Tipping J at [123]:
It is a commonplace of the strike-out jurisdiction that the Court will consider not only the basis upon which the claim is presently pleaded but also any other basis upon which the claim might be pleaded.
[21] In Couch the Court was concerned with the prospect of a saving amendment to the plaintiff’s statement of claim in the face of the defendant’s application to strike out. That situation is analogous to the relationship existing in a discrete claim between a defendant and third party.
[22] The question here is of a fundamentally different nature. The Body Corporate’s statement of claim against Symphony does not plead a cause of action relating to the remedial work in 2003, the only event which might possibly constitute an insured contingency giving rise to a right of indemnity under the insurance policy. As a consequence Symphony cannot be held liable to the Body Corporate for any work carried out in 2003 and so does not presently have an arguable cause of action against Vero. Its notice cannot be saved by the possibility of the later introduction of an additional claim by the Body Corporate based on facts and allegations that are not presently pleaded.
[23] Second, Mr Miles relies on the submission accepted by Associate Judge Robinson that at trial a court might find Symphony committed a breach of duty in 1995 when the apartments were constructed and again in 2003 as the party legally liable for the performance of its subcontractor. On that basis there would arguably be two concurrent causes of the Body Corporate’s losses, and Symphony would be entitled to indemnity for that share of the loss attributable to Onyx’s water-blasting work.
[24] We accept the well-settled principle that a party may be liable for loss or damage caused by the concurrence of two or more breaches of one party’s duties. In Johnson v Watson [2003] 1 NZLR 626 (CA), upon which Mr Miles relies, property owners issued a proceeding against a builder alleging liability for defective workmanship, first, when constructing a building and, second, when returning over the next eight years to carry out prevention work on leaks. The Court of Appeal held that on the pleadings the builder owed the owners a duty of care each time he returned to effect prevention work, and the fact that the original work was causative of the total damage did not exclude the prevention work from operating as an additional or concurrent cause of part of the damage. Thus, while the plaintiffs’ claims arising from the original work were barred by s 91(2) of the Building Act 1991, the claims based upon the prevention work were the subject of a separate cause of action and thus within time.
[25] In Johnson v Watson the plaintiffs expressly pleaded the original and preventive work as discrete events giving rise to separate causes of action, requiring a finding on each issue. That distinguishing feature is absent here. As we have said, the Body Corporate does not plead a cause of action against Symphony based on the 2003 remedial work. Since its pleaded case is confined to what occurred in 1995, subsequent events are irrelevant.
[26] But perhaps more importantly, on the Body Corporate’s case, Symphony cannot have an interest in proving that any component of the remedial work undertaken in 2003 including Onyx’s work was defective; such a result would only undermine the essence of its defence of breach at any time, and there would be no purpose in raising it as a discrete question against Vero where the consequences are immaterial to the result of the primary claim.
[27] The trial judge would not be required to find whether the 2003 remedial work was a cause of loss or damage, whether originating or concurrent. There would be no lis for determination. His or her inquiry would be limited to the Body Corporate’s allegations of causative breach in about 1995.
[28] In our judgment Symphony cannot properly raise an entitlement to indemnity to support its third party claim under r 75(1)(a).
(b)Relief
[29] In reliance on r 75(1)(b), Mr Miles submits that Symphony is entitled to pursue in the Body Corporate’s proceeding what he termed a wasted expense claim against Onyx, giving rise to a right of indemnity under the policy. Mr Miles refers to the itemised schedule of the Body Corporate’s claim. He identifies certain items, which are estimated to cost more than $500,000 to repair, which he says are attributable to Onyx’s defective workmanship; more specifically, he says the Body Corporate’s claim would be reduced by $500,000 but for Onyx’s negligence causing Symphony to lose the benefit of work earlier undertaken by the principal remedial subcontractor in 2003. He describes this as a claim for property damage under the policy quantified by the amount of wasted expenditure.
[30] We do not accept this argument, which is a distinct modification of Symphony’s original assertion of a right to indemnity against its total liability to the Body Corporate. We think it unlikely that a wasted expenditure claim of the type described by Mr Miles would give rise to a valid claim under the policy. But we do not need to determine that question.
[31] Rule 75(1)(b) combines two essential elements. The first is that the relief or remedy claimable by Symphony, that is the damages of about $500,000, “relat[es] to or [is] connected with the subject-matter of the proceeding”. The subject-matter of the Body Corporate’s proceeding is a claim for Symphony’s alleged breaches of duty in 1995. The subject-matter of the proceeding is not related to or connected with the remedial work carried out in 2003.
[32] The second element of R75(1)(b) is that the relief or remedy must be ‘substantially the same as some relief or remedy claimed by [the Body Corporate]’. This requirement introduces an inquiry of fact and degree. The phrase “substantially the same” is governing. The Body Corporate claims the remedy of damages of between $14.92m and $18.77m being the cost of rectifying or replacing the original work in 1995. At best on Mr Miles’ argument Symphony can claim from Vero a small portion of this amount, presently calculated at less than 5 per cent, for the consequences of Onyx’s allegedly defective workmanship. The remedy claimed by the Body Corporate against Symphony, and by Symphony against Vero, could never be described as “substantially the same”.
[33] In our judgment r 75(1)(b) is designed to ensure proportionality between the originating and third party proceedings. One party should not be joined into litigation between others where its interest is relatively inconsequential, whether in terms of the underlying issues of liability or the amount of the claim. That is the reason why the questions (Daly v Ranchhod [1968] NZLR 609 per Turner J at 613):
… which can properly be made the subject of a third party notice are fundamental ultimate issues going to the root of causes of action … [where] … [i]t is proper to seek to bind [the third party] as to the broad issue of liability as between the plaintiff and the defendant.
[34] Vero’s third party notice cannot be sustained under r 75(1)(b).
(c) Common Issues
[35] In reliance on r 75(1)(c), Mr Miles submits that a question or issue in the proceeding should be determined not only between the Body Corporate and Symphony, but as between the Body Corporate, Symphony and Vero. Here, he submits, the common issue between all three parties is the cause of damage to the units. The question or issue of whether Symphony was negligent in constructing the units in 1995 and whether this caused leakage again resulting in further damage, or whether the cause was Onyx’s conduct, needs to be properly determined between all three parties.
[36] We cannot accept this submission. The starting point under r 75(1)(c) is to identify the relevant “question or issue in the proceeding”; that is, the originating proceeding between the Body Corporate and Symphony. At the risk of repeating the obvious, the question or issue between those two parties is whether or not the former can recover from the latter for the financial consequences of defective workmanship in 1995. That issue does not and could not arise between Symphony and Vero under a policy of indemnity for the consequences of an occurrence in 2003. There is no question or issue raised in the originating proceeding which might properly be determined as between the two primary parties and Vero or between any or either of Symphony and Vero.
[37] Symphony cannot rely on r 75(1)(c) to sustain its third party claim.
(d) Substantial Connection
[38] Finally, in reliance on r 75(1)(d), Mr Miles submits that the question for determination between the Body Corporate and Symphony is essentially whether Symphony was negligent in construction of the units, which is uncontroversial. He submits, however, that there is a risk of Symphony being found not liable for the original design or construction but for the damage caused by Onyx’s water-blasting. We agree with Mr Hunter that, for the reasons already given, the risk does not exist because the Body Corporate does not make such a claim.
(2) Exclusion Clause
[39] Both counsel addressed detailed argument on the second issue of the construction of the exclusion clause and the application of s 11 of the Insurance Law Reform Act 1977. However, it is unnecessary for us to consider these questions given our primary conclusion on the first issue of the third party notice. We would add, though, that we would have been reluctant to determine the scope and effect of the clause in the absence of primary evidence, such as might have been given if the Court had earlier ordered formulation of a question or questions for trial, informed by evidence of a limited nature: see r 418 of the High Court Rules. The reason is that on one view of the provision (a view which Mr Hunter supported in oral argument) its scope is much wider than simply excluding liability for damage resulting from “leaky building syndrome”, although presumably that syndrome was the reason for including the exclusion.
Result
[40] Symphony’s statement of claim does not disclose an arguable cause of action against Vero on any of the four grounds provided by r 75(1). Vero’s appeal against the decision of the High Court is allowed and Symphony’s third party notice and statement of claim against Vero, dated 22 December 2006, are struck out.
[41] Costs follow the event. Symphony must pay Vero costs for a standard appeal on a band A basis and usual disbursements.
Postscript
[42] Since preparing this judgment we have received a memorandum from Mr Miles advising that on 7 October 2008, at a hearing in the High Court at Auckland of an application to review Associate Judge Robinson’s dismissal of Symphony’s application to strike out the proceeding on limitation grounds, senior counsel for the Body Corporate advised Cooper J that the Body Corporate intended to amend its statement of claim to add an additional cause of action based on the laying of the new membrane in 2003. We must, however, determine this appeal on the basis of the factual allegations made in the current pleadings, and judgment is given accordingly.
Solicitors:
Gilbert Walker, Auckland, for Appellant
Claymore Law, Auckland, for Respondents
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