Williams v van Loghem Investments Ltd

[2012] NZHC 829

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2008-404-5241 [2012] NZHC 829

BETWEEN  PAUL KEVIN WILLIAMS AND VICTORIA CATHERINE WILLIAMS PlaintiffS

ANDVAN LOGHEM INVESTMENTS LTD First Defendant

ANDPHILIP NOEL VAN LOGHEM Second Defendant

ANDNORTH SHORE CITY COUNCIL Third Defendant

ANDDONALD STEWART TRADING AS DON CONSTRUCTION

Fourth Defendant

ANDBRENDON GORDON ARCHITECTURE LIMITED

Fifth Defendant

ANDDEREK CLIFTON SALTMARSH TRADING AS CLIFTON PLASTERING Sixth Defendant

Hearing:         30 March 2012

Appearances: S J Tee for Applicant, Derek Clifton Saltmarsh

A M E Parlane for Respondent

Judgment:      30 March 2012

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:

Morton Tee & Co, P O Box 331-133 Takapuna 0740, for  Sixth Defendant (D C Saltmarsh) Email:   [email protected]

Copy for:

Angela Parlane, P O Box 1846 Auckland 1140, for First Defendant (van Loghem Investments Ltd) Email:   [email protected]

Case Officer:

Email:   [email protected]

WILLIAMS AND WILLIAMS V VAN LOGHEM INVESTMENTS LTD HC AK CIV-2008-404-5241 [30

March 2012]

[1]      This is an application to set aside a judgment.  The judgment is one given by Andrews J on 13 April 2011 on a formal proof under r 15.12(3) of the High Court Rules.  She gave judgment for the respondent, van Loghem Investments Ltd against the applicant, Derek Clifton Saltmarsh, for $436,561.40 made up of a judgment sum of $380,000.00, interest of $43,025.40 and costs of $13,563.00.

[2]      Mr Saltmarsh filed this application to set aside on 7 December 2011, after the respondent had taken bankruptcy proceedings against him.

[3]      This  was  leaky  building  litigation.    The  leaky  building  was  a  house  at

10 Frieston  Road,  Milford,  Auckland.    Van  Loghem  Investments  Ltd  was  the developer who built the house in 2001.  It sold the house to the plaintiffs, Mr and Mrs Williams, in 2002.   In 2008, the plaintiffs began this proceeding against van Loghem Investments Ltd, suing on clause 6.3(5) - the warranty as to compliance with the Building Code in the standard  Auckland District Law Society and New Zealand Real Estate Institute agreement for sale and purchase.

[4]      Initially van Loghem Investments Ltd was the only defendant.  It joined third parties: the North Shore City Council, the local authority, Mr Donald Stewart, the building contractor, Brendon Gordon Architecture Ltd, the architect and Mr Saltmarsh.  Mr Saltmarsh was the director of a plastering company.  The plastering company has since been struck off the Companies Register.

[5]      Mr Saltmarsh was named as fourth third party.  Later, the plaintiffs had all the third parties added as defendants to the proceeding.  In addition they sued Mr van Loghem personally as director of the development company.   Mr Saltmarsh then became sixth defendant.  For convenience, I refer to Mr Saltmarsh as “the applicant” as the person applying to set aside judgment.  I refer to van Loghem Investments Ltd as “the respondent” to that application.

[6]      In its statement of claim against the third parties, van Loghem Investments Ltd claimed against Mr Saltmarsh as a concurrent tortfeasor under s 17 of the Law Reform Act 1936 and claimed indemnity or contribution.   Mr Saltmarsh was served with the initial third party proceeding on 8 December 2009.  As a defendant he was served again on 3 February 2010.  He took no steps in the proceeding.  One of the other parties, Mr Stewart, the building contractor, also took no steps.

[7]      The remaining parties went to mediation.  The amount of the plaintiffs’ claim

was $569,046.212.   At the mediation the plaintiffs agreed to accept the sum of

$475,000 in full and final settlement.  The other parties - that is, the North Shore City Council, the architect, van Loghem Investments Ltd and Mr van Loghem - agreed to pay that sum with unequal contributions.  I do not know the amounts that the other parties agreed to contribute, but van Loghem Investment Limited’s contribution to the settlement was $380,000.00.  Under the settlement, van Loghem Investments Ltd reserved its rights to proceed against Mr Donald Stewart and against Mr Saltmarsh.

[8]      Associate Judge  Faire  directed that  van  Loghem  Investments  Ltd  should amend its pleadings to reflect the settlement that had been entered into.   The respondent amended its statement of claim against Mr Stewart and Mr Saltmarsh. Mr Saltmarsh was served with the fresh pleading on 10 February 2011.  At the same time he was also given a letter from van Loghem’s lawyer advising that there was to be a formal proof hearing on 13 April 2011.  Mr Stewart was also served.  He filed a statement of defence to the new pleading.   Van Loghem Investments Ltd’s claim against Mr Stewart is continuing as a defended claim for contribution under the Law Reform Act 1936.

[9]      However, Mr Saltmarsh took no steps.  He did not appear at the formal proof hearing.  Andrews J gave judgment against him by default for the full amount of

$380,000  which  van  Loghem  Investments  Ltd  had  agreed  to  pay  under  the settlement.     Interest  was  also  awarded  from  the  date  when  the  third  party proceedings were served on Mr Saltmarsh and costs were fixed as well.  It will be necessary to come back to the judgment of Andrews J to consider the way in which she dealt with the case as a claim for contribution by one tortfeasor against another.

[10]     After judgment was obtained, the lawyer for van Loghem Investments Ltd wrote to Mr Saltmarsh  on 20 May 2011  advising him of the judgment. Again, Mr Saltmarsh took no steps.  He was served with a bankruptcy notice based on the judgment.   And again he took no steps.   It was only after the application for his adjudication in bankruptcy had been called twice in the High Court that he made the present application.   The application for his adjudication in bankruptcy has been stood over until this application has been heard.

[11]     In the formal proof hearing before Andrews J, van Loghem Investments Ltd relied on an affidavit by Neill Alvey, a building surveyor.  He had been instructed by the plaintiffs, Mr and Mrs Williams, to provide them with advice and a report to assist in their claim against van Loghem Investments Ltd.   Mr Alvey’s evidence contains very full annexures setting out what seems to be a very thorough investigation of the claim.  Part of his report shows that he analysed the defects and then considered which of various participants in the building project were factually responsible for those defects.  The people he considered might be responsible were the architect, the local authority, the builder, the plasterer, the membrane applicator, the developer and the handrail installer.

[12]     Included in his report is a schedule where he has gone through the defects and indicated whether any of the participants could be responsible for particular defects.  He has given a tick where he has shown that that particular participant has factual responsibility.   By “factual responsibility” I mean that in some way the actions  or  inactions  of  that  participant  have  caused  the  loss.    In  his  affidavit Mr Alvey said that the plasterer and the builder were responsible for 100 per cent of the losses suffered by the plaintiffs.  I accept that in giving that evidence Mr Alvey was meaning to tell the court that for all of the defects which gave rise to the claims for damages, the plasterer and the builder were responsible.  That is, there were no defects for which they did not carry some responsibility in a factual sense.

The approach under r 15.13

[13]     The application to set aside the judgment is made under r 15.13 of the High

Court Rules:

15.13Any judgment obtained by default 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.

[14]     In applications under r 15.13 it is normal to establish whether the judgment was obtained regularly or irregularly.  If the judgment was not regularly obtained, the standard approach is for the judgment to be set aside ex debito justitiae.  In saying that, I also record Ms Parlane’s submission that there have been cases where the courts have upheld a judgment, even though it was obtained irregularly.  However, the general approach is for a judgment to be set aside because obtaining a judgment irregularly is of itself a miscarriage of justice.  On the other hand, if the judgment was regularly obtained, the approach taken by the Court of Appeal in its decisions in

Paterson v Wellington Free Kindergarten Association Inc[1] and Russell v Cox[2]  is

[1] Paterson v Wellington Free Kindergarten Association Inc [1966] NZLR 975 at 983.

[2] Russell v Cox [1983] NZLR 654.

followed.  In Paterson v Wellington Free Kindergarten Association Inc, McCarthy J

said:[3]

[3] Paterson v Wellington Free Kindergarten Association Inc, above n 1, at 983.

In approaching an application to set aside a judgment which complies with the rule, the Court is not limited in the considerations to which it may have regard, but three have long been considered of dominant importance.  This was accepted by the Chief Justice in the Court below and by all counsel in this Court.   They are, 1. That the defendant has a substantial ground of defence;  2. That the delay is reasonably explained;  3. That the plaintiff will not suffer irreparable injury if the judgment is set aside:  ...  But, whilst it appears from these cases that delay, if reasonably explained, and if it does not create irreparable injury, is not of itself good reason for refusing to set aside, we do not doubt that where the delay is substantial, as it is here, the Court can more readily conclude that injury would be caused.

In Russell v Cox, the court cited that passage and went on to say:[4]

We think that in the light of Evans v Bartlam[5] the passage to which reference has just been made should be read as doing no more than emphasising three matter which, as a matter of common sense and practice, the Court will generally regard as of importance in deciding whether it is just to set aside a judgment.  But it should not be regarded as laying down a general rule that an application to set aside a judgment must satisfy these conditions as a necessary prerequisite to the exercise of the discretion;  it should be taken as doing no more than highlight factors which on any application to set aside a judgment may generally be regarded as relevant to an inquiry which will determine where the justice of the case will lie.

[4] Russell v Cox, above n 2, at 659 lines 30-38.

[5] Evans v Bartlam [1937] AC 473; [1937] 2 All ER 646.

[15]     It is also worth considering the nature of judgments by default.   The High Court Rules allow for judgments to be given by default.  That occurs when judgment is given in favour of one party in the absence of another party who might otherwise oppose judgment being given.  Judgment can be given by default under the rules if an opposing party has been served, has had the opportunity to file a statement of defence, a notice of opposition or an appearance protesting jurisdiction or to take other steps in opposition but does not do so.  One party is entitled to obtain judgment by default in the absence of opposition from a party who has been duly served.  The fact that a judgment has been obtained by default does not by itself mean that there has been a miscarriage of justice.

[16]     A feature of a judgment by default, especially in a formal proof case, is that the court has received evidence and submissions from one party only.  It may happen that if an opposing party had been heard the court might give a different judgment as a result of evidence or submissions from the opposing party.  If the result would have been  no  different  -  that  is,  if  the  opposing  party had  appeared  and  the  court’s judgment would have been no different from the default judgment - then any application to set aside is largely a futile exercise because the result would have been no different in any event.  It is the possibility of a different judgment being given, that is, the default judgment differing from one where the court has heard from both parties, that opens up the possibility of an argument that there may have been a miscarriage of justice.

[17]     The fact that there might be a different result if the opposing party had taken steps in time to oppose judgment is not by itself determinative that there has been a miscarriage of justice, but simply one factor going into the consideration.

[18]     The matters  identified in the Court of Appeal  judgments show that it  is relevant to consider the circumstances in which the opposing party did not take steps to  oppose  judgment  being  given.   As  one  example,  a  party  wishing  to  oppose judgment being entered against him who can reasonably explain their failure to take steps in time, might have an argument that there has been a miscarriage of justice because they did not have the opportunity to defend in time, even though they always intended to.   That situation may be different from another case where a

person who has been given a reasonable opportunity to take steps and then cannot give a reasonable explanation for not taking steps in time.  The rules of court require that a person to be served be given due notice by way of a notice of proceeding that a failure to take steps can result in the case being heard in their absence. A person who has been served with proceedings and takes no steps, even though they have had the opportunity to do so, may be taken to know that judgment may be given against them in their absence.

[19]     A person who elects not to take any steps after having been duly served may be considered to be “courting risk”.  He has taken the risk that if the case is heard the court’s decision may be different from that which would flow from his taking part in the proceeding and his giving evidence and submissions as to the court’s decision.

Was the judgment regularly obtained?

[20]     The applicant submitted that judgment was not regularly obtained because the amount awarded to the respondent for interest was excessive.  The argument was that the respondent should only recover interest on the sum of $380,000 from the date of payment, whereas the court awarded interest from the date of service of the third party proceeding on the applicant.

[21]     At  this  stage,  I  am  considering  only  whether  judgment  was  regularly obtained.  In O’Shannessy v Dasun Hair Designers Ltd, Greig J said:[6]

The  authorities  are  plain  that  where  a  default  judgment  is  irregularly obtained the defendant is entitled ex debito justitiae to a setting aside.  It is to be noted further that it is an irregularity in obtaining the judgment rather than irregularity in the judgment itself.

[6] O’Shannessy v Dasun Hair Designers Ltd [1980] 2 NZLR 652 at 654.

[22]     The matter that the applicant has identified is an arguable irregularity in the judgment itself.   There is nothing that points to any irregularity in the process by which  the  respondent  obtained  judgment  against  the  applicant.     If  anything, Mr Saltmarsh was given ample notice, having been served in 2009 with one set of proceedings (showing a contribution claim made against him), again served in 2010

with fresh proceedings (showing that he was being sued directly in tort), and again in

2011 when he was served with a pleading showing that he was facing a contribution claim for up to $380,000.00.  He was expressly given notice of the date of hearing of the formal proof.   There can be no complaint at all that he was given very clear notice that judgment would be sought, and he was given the opportunity to take steps up to 13 April 2011.

[23]     I find that judgment was regularly obtained and the manner by which the judgment was obtained does not give any grounds to set aside the judgment.

Even if judgment was regularly obtained, was there a miscarriage of justice?

[24]      I consider the three factors identified by the Court of Appeal in Paterson v

Wellington Free Kindergarten Association Inc and Russell v Cox.

Does Mr Saltburn have a substantial ground of defence?

[25]     Mr  Saltmarsh  refers  to  three  matters,  although  the  third  is  the  one  that requires the more serious consideration:

(a)       that the amount of interest that was awarded was excessive;

(b)that Mr Saltmarsh does not carry any personal responsibility for the defects suffered by the plaintiffs and cannot be sued in tort;  and

(c)       that, even if he is liable in tort, his liability for contribution as a concurrent tortfeasor has not been correctly assessed.

[26]     On the award of  interest, the respondent volunteered that the amount  of interest was excessive.  Ms Parlane said that interest should run for a reduced period and only begin to run from the time when van Loghem Investments Ltd paid the sum of  $380,000  to  the  plaintiffs.    She  had  calculated  that  amount  of  interest  at

$11,718.30. She accepted that the judgment should be adjusted by deducting the excess interest awarded.   There is power to vary a judgment on a setting-aside application.    Given  that  concession,  the amount  of the judgment  is  reduced  on

account of the interest.   My calculation of the amount it is to be reduced by is

$31,307.10.  Subject to correction, I calculate the judgment sum to be $405,254.30.

[27]     On the second point, whether Mr Saltmarsh has personal responsibility as opposed to any liability of his company Clifton Plastering Ltd, I refer to his affidavit. He says that he did not personally assume a duty of care towards the plaintiffs and he therefore cannot be sued in negligence.   His affidavit tends to downplay his role. However, I accept that on the basis of his own evidence that he attended on site and, as director of Clifton Plastering Ltd, he engaged staff who had to answer to him.  He says that his role was simply that of arranging work and materials on site.  He would have the court accept that he did not have any part to play in the work quality issues or supervision.   Quite frankly I find this unconvincing.  He has not raised anything to such a level that I could take seriously his allegations that he does not carry any personal responsibility.

[28]     I accept Ms Parlane’s submission that cases such as Body Corporate 202254 v Taylor[7]  show that people in the position of Mr Saltmarsh may be found to owe a duty of care even though they hold office as director of a sub-contractor rather than being self-employed sub-contractors.  Admittedly the Court of Appeal indicated that it was a question of fact in each case but there is sufficient here for me to remain unconvinced by Mr Saltmarsh’s protestations that he has no personal responsibility in this case.

[7] Body Corporate 202254 v S F Taylor [2009] 2 NZLR 17.

[29]     The final aspect of the substantial grounds of defence is the one to which Mr Tee gave most attention.   The focus of his submission was that in her formal proof judgment, Andrews J had held that Mr Saltmarsh should pay 100 per cent of the amount which van Loghem Investments Ltd had agreed to pay in settlement. The judgment suggests that she took into account the evidence of Mr Alvey that both the builder and the plasterer were 100 per cent responsible for the building defects which  were  the  subject  of  the  claim  by  the  plaintiffs.    The  argument  for  Mr Saltmarsh is that that showed a misunderstanding of the evidence of Mr Alvey.  As I understand  the  argument,  Mr Alvey was  simply  doing  what  an  expert  building

surveyor would do in giving expert evidence on building defects.  He was giving his

factual findings as to the extent of the defects for which a particular participant on a building project was factually responsible, that is, whether their actions or inactions caused particular defects.  Mr Tee’s submission was that Mr Alvey’s evidence cannot be read as ascribing relative responsibility for determining apportionment of liability for a contribution claim under s 17 of the Law Reform Act 1936.

[30]     I accept that if the applicant had taken part in the proceeding, and had been given the opportunity to adduce evidence and make submissions, he would have presented a case that in apportioning responsibility for the purpose of a contribution claim he would not have been held 100 per cent responsible.  He has a reasonable case that the court would more likely have apportioned liability so that he would not have carried 100 per cent responsibility and that van Loghem Investments Ltd and Mr Stewart, the builder, would also carry some liability.  Had Mr Saltmarsh taken steps ahead of any mediation, there would also have been apportionment with the architect and the local authority.

[31]     He has an argument that it is an unusual finding in a contribution claim, under which van Loghem Investments Ltd has its own liability as a concurrent tortfeasor, that it should not carry any responsibility at all, and that the liability lies entirely with the director of the plastering company instead.  He has an argument that on a re-hearing he would be able to present evidence and submissions that would result in a different judgment from that given by Andrews J on the formal proof hearing.  I accept that there would be, arguably, a different result on a re-hearing of this case and there would also have been a different result if he had defended the case at the outset.

[32]     I move to the other factors.

Is the delay reasonably explained?

[33]     The applicant does not offer any excuse for not taking steps earlier.  He says that he accepts the default on his part in not defending or taking steps in relation to the proceeding.  He does not try to justify his failure to take steps earlier, and he does

not offer any excuse for it. Again, I note that he had ample opportunity to defend the proceedings against him.

[34]     His is not the case of a person who always intended to defend the claim and then, perhaps by some accident or mismanagement, failed to file a defence in time. Two years passed between the time when he was first served with the documents and when he applied to set the judgment aside.  He was given repeated reminders that judgment could be given against him when he was served with further documents in February 2010 and in February 2011.  It is quite clear, in my judgment, that he has chosen a deliberate course of not defending the proceeding.

[35]     As someone served with proceedings, he had a choice.  He could oppose the proceeding or he could elect not to.  If he elected to oppose the proceeding, he had to take steps in time.  His steps had to comply with the court rules, but he would then have the opportunity to present arguments in opposition to people seeking relief against him.  His participation in the process would mean that the case would not be disposed of without his being given a proper opportunity to put his side of the case.

[36]     The matter is otherwise, if he elected not to defend the proceeding.  The case could still run to judgment but he would not have the opportunity under the Rules to present arguments and evidence why judgment should not be given against him or as to the terms of a judgment.    A person who chooses not to defend the proceeding cannot complain if the judgment that is given against him is different from the judgment that might have been given against him if he had chosen to oppose the claim against him, had taken part in the court process and had presented evidence and arguments in opposition.  The fact that a judgment given against him is different from a judgment that might have been given at a defended hearing does not mean that there has necessarily been a miscarriage of justice.

Will the plaintiff suffer irreparable injury if the judgment is set aside?

[37]     Under this head, Mr Saltmarsh says that there is no prejudice to van Loghem Investments Ltd if he is given the opportunity to argue the question of contribution. His case is that that issue is going to a hearing involving Mr Stewart, and there is no

inconvenience to van Loghem in now involving Saltmarsh as well as Mr Stewart in that exercise.

[38]     I do not accept that the question of irreparable injury can be looked at so narrowly.  It is important to look at the nature of this case and the way that it has been conducted.  This was leaky home litigation involving multiple parties.  Where there are multiple parties it is common for the proceedings to be resolved with those alleged to be responsible making a contribution on a “without prejudice” basis to settle the claim made by the afflicted owners of the leaky building.  It is common that  both  plaintiffs,  and  those  they sue,  find  it  more  convenient  to  resolve  the proceedings than go to the cost and incur the delays and the uncertainty in taking the matters to a lengthy defended hearing.

[39]     Resolution by settlement is a standard occurrence.  Those who take part in resolution by settlement are the plaintiffs and those who actively defend the claim. Those who are served but do not take any part in the process are not drawn into the settlement negotiations.  That means that in the settlement process, contributions to settlement come only from those who actively defend the proceeding.  Those who do not defend the proceeding take a more risky course.  Their approach seems to be that if they do not become involved in the process the matter may be resolved without them being invited to contribute, and they may hope to escape making any contribution at all.  It is a low profile policy, but it is a high risk one.

[40]     If Mr Saltmarsh had chosen at the outset to defend the claims against him he would have been drawn into the settlement process and he would have been involved in settlement discussions.   It is more than likely that he would have made some contribution towards the settlement.  By not taking part in the proceeding he elected out of that process.  He took the risk of the consequences in not taking part.

[41]     Because there has been a settlement with the plaintiffs, that matter cannot now be re-opened.  The settlement negotiations ran on the basis that Mr Stewart and Mr van Loghem were not there and were not willing to make any contribution to settlement.   The load, the contribution to the total settlement, had to be spread amongst  only  those  taking  part.    Van  Loghem  Investments  Ltd  has  probably

contributed more than it might otherwise have had to contribute to get a settlement figure which would be acceptable to all parties.

[42]     There is now a prejudice to van Loghem Investments Ltd because it is now being asked to deal with the matter on the basis that Mr Saltmarsh would like to have had a say in the settlement negotiations when it elected not to. The short point is that the settlement is now an historic fact which cannot be changed.  To that extent there has been irreparable injury to van Loghem because it has committed itself to that settlement and it cannot now change that fact of settlement.

[43]     I accept part of the submissions of the respondent that there will be other prejudice to it if judgment were to be set aside.  Van Loghem Investments Ltd has made a significant investment in this litigation in the sense that it has  engaged lawyers, it has invested time and effort in trying to resolve this claim, and it has committed  itself  to  a  very  significant  settlement  to  try  and  dispose  of  this proceeding.  Having made that significant investment, it would cause hardship to it if it were now required to embark on further litigation which would involve traversing matters which it had hoped to put to rest in its settlement.

[44]     I also accept that there are other people who have been involved in litigation over the plaintiffs’ property and who would have been pleased to put the matter behind them.  There are the other experts.  There are the other parties.  In effect there is a significant public value in the finality of the settlement of this litigation.  The applicant here is coming along belatedly and wants to destroy the value of that finality  by  asking  for  a  second  chance  to  look  at  the  case  again.    I  accept, accordingly, that there is quite a serious and significant prejudice to van Loghem Investments Ltd and other people in allowing this matter to be re-opened.

[45]     Has there been a miscarriage of justice?

[46]     Overall, I do not accept that there is or might have been a miscarriage of justice.   Mr Saltmarsh took a calculated course of adopting a low profile by not taking any steps in the proceeding, even though he had been served repeatedly and had been told of the formal proof hearing where liability was to be determined.

I suspect that he hoped to avoid liability by taking such a low profile course, but he was taking a calculated risk.  He was hoping that the matter would not catch up with him later if he took no steps.  He would have appreciated that if he had taken steps it is more than likely that he would be required to contribute to a settlement, and he would have wanted to avoid that.  The risk he took is that, by not taking part in the proceeding, judgment would be given against him and the terms of the judgment might be terms which were different from those that would have been given if he had chosen to take an active part in the proceeding.   Having adopted that course, and taking that risk, he cannot complain that there has been a miscarriage of justice because the result was different from that which would have been given if he had actively defended the case.

[47]     In those circumstances there is no miscarriage of justice.  On the contrary.  I consider that there would be a miscarriage of justice if I were now to allow him to come along, belatedly, and re-argue the extent of his liability.  Accordingly, I vary the judgment to the sum of $405,354.30, but otherwise dismiss the application.

[48]     I reserve leave to the parties to check my arithmetic.  If I have made an error in calculation they may file memoranda seeking corrections.

[49]     I award costs to the respondent on a 2B basis.  I see no reason for making any adjustments upwards or downwards.  I record that the case required half a day for hearing.  I trust that the parties will be able to confer and agree on costs, but if there are any issues they may file memoranda.

........................................

R M Bell

Associate Judge