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High Court of New Zealand Decisions |
Last Updated: 9 November 2012
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
CIV 2012-463-469 [2012] NZHC 2861
UNDER Section 9 of the Law Reform Act 1936
BETWEEN QBE INSURANCE (INTERNATIONAL) LTD AND VERO LIABILITY INSURANCE LTD Applicants
AND MTEC CONSULTANTS LTD First Respondent
AND ROTORUA DISTRICT COUNCIL Second Respondent
AND PIONEER PROPERTY TRUST LTD Third Respondent
AND TRENT DANIEL SWEENEY AND MELANIE GWEN THOMPSON
Fourth Respondent
AND GJMCP LTD Fifth Respondent
AND BAYWIDE CONSTRUCTION LTD Sixth Respondent
AND COFFEY GEOTECHNICS (NZ) LTD Seventh Respondent
Hearing: 2 October 2012
Counsel: N A Till QC and J A Thompson for Applicants Appearance on behalf of First Respondent excused S Thodey for Second Respondent
K J Patterson and R A Morshead for Third Respondent
V A Whitfield for Fourth Respondent
M Lenihan for Fifth Respondent
Appearances on behalf of Sixth and Seventh Respondents excused
Judgment: 31 October 2012
INTERIM JUDGMENT OF HEATH J
This judgment was delivered by me on 31 October 2012 at 3.00pm pursuant to Rule
11.5 of the High Court Rules
Registrar/Deputy Registrar
QBE INSURANCE (INTERNATIONAL) LTD AND VERO LIABILITY INSURANCE LTD V MTEC CONSULTANTS LTD HC ROT CIV 2012-463-469 [31 October 2012]
The application
[1] QBE Insurance (International) Ltd and Vero Liability Insurance Ltd (Vero) (the Insurers) entered into a professional indemnity policy with a company engaged in civil engineering, MTEC Consultants Ltd (MTEC). MTEC provided engineering services to the developer of a residential subdivision near Rotorua, expressing opinions about the suitability of the soil as a foundation for proposed dwellings. The original developer and some purchasers of lots in the subdivision allege that MTEC was negligent in giving those opinions. Some have brought (and others have threatened to bring) proceedings against MTEC. The Insurers have carriage of MTEC’s defence.
[2] MTEC is unlikely to have sufficient resources to meet any successful claims. The Insurers believe that will bring s 9 of the Law Reform Act 1936 (the Act) into play.1 Section 9 is a code, designed to create a charge over the proceeds of a relevant insurance policy and to preserve the monies for the benefit of those who suffer loss as a result of the event that gives rise to the claim.
[3] The Insurers deny MTEC’s liability. However, given a likely multiplicity of claims, they are concerned that the available amount of insurance will not be sufficient to meet all claims, if they were successful. The Insurers have concerns about circumstances in which they might not receive a valid discharge for any amount paid to a claimant.2
[4] The Insurers seek directions requiring all persons who intend to make claims to file proceedings within 14 days of the date of this judgment, so that they may treat with them, in an endeavour to settle all claims. That approach has benefits to both the Insurers and existing claimants. If I were to make an order, the Insurers’ concerns would be assuaged. Equally, those who have issued proceedings (or threatened to do so) would receive the benefit of being able to negotiate with the
Insurers at an earlier time that would, otherwise, be the case.
1 Section 9 is set out in full at para [21] below.
2 Law Reform Act 1936, s 9(6).
[5] The Insurers also seek orders to stay and consolidate the existing proceedings.3
The subdivison
[6] Pioneer Property Trust Ltd (Pioneer) developed the “Oakland” subdivision on
14.13 acres of land, near Ngongotaha. Pioneer engaged MTEC, in 2004, to undertake engineering services in respect of the proposed subdivision. In particular, MTEC was contracted to carry out investigations into the quality of the soil for building purposes.
[7] Pioneer intended to complete the subdivision in four stages. Subdivision consent was given by the Rotorua District Council (the Council) on 13 February
2006. Earthworks for Stage 1 were undertaken between February and November
2006.
[8] After completion of the Stage 1, MTEC provided an “earthworks completion report”, dated 27 November 2006. It expressed the opinion that the land was suitable for a residential development. Earthworks for Stage 2 were then undertaken. After they had been completed, in March 2007, further opinions were issued by MTEC on 20 July and 17 August 2007, in respect of Stage 2. Before those certificates were issued, Pioneer had begun to sell Stage 1 lots.
[9] There were to be 21 lots in Stage 1, 25 in Stage 2 and 39 in Stage 3. A further
12 lots were proposed for Stage 4. At the present time, the Stage 1 and 2 lots have been sold. Some Stage 3 lots are still held by Pioneer. Work has not been started on Stage 4.
[10] Of the Stage 1 lots, a number of owners made applications to the Council for building consents to erect dwellings or garages. In total, 16 dwellings and two
garages have been built under consents issued on those applications.
2012-463-104. Since the hearing, another claim has been issued: Calais Western Ltd v Rotorua
District Council HC Rotorua CIV-2012-463-698.
[11] In or about February 2008, concerns had grown about the existence of “soft soil” at the subdivision. Pioneer commissioned an independent geotechnical assessment from Tonkin and Taylor Ltd. That company opined that the land on which Stages 2 and 3 of the subdivision were to be undertaken was prone to subsidence.
[12] Remedial pre-loading of the lots on Stages 2 and 3 was undertaken before construction of any dwellings. Irrespective of the success (or otherwise) of that work, the problems identified by Tonkin and Taylor remain relevant to the purchasers of Stage 1 lots.
The actual and potential claims
(a) Actual claims
[13] At the time of the hearing, four relevant proceedings had been issued:
(a) The first is brought by Mr Sweeney and Ms Thompson. They are the owners of 66 Western Road, part of Stage 1. The claim relates to alleged property damage caused by subsidence. MTEC, the Council, Pioneer and Baywide Construction Ltd (the builder) have been joined. The Council and Pioneer have made cross claims against MTEC. The current claim is in the vicinity of $360,000.
(b) In the second, Pioneer has claimed against MTEC in relation to losses it may suffer that arise out of Stages 2–4 of the subdivision. Exclusive of interest and costs, this claim is for $4,665,345. A fixture date has been allocated. The hearing is due to commence in Hamilton on 13 April 2013.
(c) The third is brought by GJMPC Ltd, the owner of two Stage 1 properties, at 76 and 80 Western Road. This claim is against the
Council, Pioneer, MTEC, Baywide and Coffey Geotechnics NZ Ltd.4
Damages have not yet been quantified.
(d) A fourth (filed only the week before the hearing of this application) is brought by Calais Western Ltd, the owner of 82 Western Road, against the Council, MTEC and Pioneer.5 Damages have not yet been quantified.
(b) Potential claims
[14] The owners of Stage 1 properties at 48, 52 and 54 Western Road have jointly filed an application with the Department of Building and Housing for a determination against the Council on the question whether code compliance certificates were properly issued. They allege that the construction did not meet relevant Building Code requirements. Cracking has been observed in the houses. MTEC is regarded (in that claim) as a party with an interest in the determination.
[15] In a memorandum filed in the GJMPC proceeding, solicitors representing the plaintiff advised that they had recently received instructions to act on behalf of another Stage 1 purchaser and were then in discussions with two more. Calais Western Ltd (which has now issued proceedings) was one of them.6
[16] While existing claims relate primarily to Stage 1 of the development, the
Insurers are also concerned about the possibility of claims from the remaining 12
Stage 1 owners, 25 Stage 2 owners and 23 Stage 3 owners.7 It is possible that the remediation work carried out in respect of some Stage 2 and Stage 3 lots,8 after discovery of the soft soil issue by Tonkin and Taylor, might minimise claims in respect of those two Stages. It might also create a break in the chain of causation, in
respect of any claim brought on the basis of MTEC’s alleged negligence.
5 Calais Western Ltd v Rotorua District Council HC Rotorua CIV-2012-463-698.
6 See para [13](d) above.
7 The remaining Stage 3 lots continue to be owned by Pioneer and are the subject of that
company’s claims against MTEC.
8 See para [12] above.
The insurance policy
[17] MTEC holds a “claims made or notified” professional indemnity insurance policy with the Insurers for the period from 31 August 2007 to 30 August 2008. Although the particular policy shows MTEC as the “insured”, Preamble A makes it clear that the policy applies to members of the Surveyors Section of the Land Professionals Mutual Society Incorporated. That is the reason why some provisions of the policy speak of “any of them” when referring to the insured.
[18] Replacing definitional terms with reference to the actual parties involved in the current disputes, the operative provisions of cl 1.01 state:
AGREEMENT
1. OPERATIVE CLAUSES
1.01 [The Insurers], each for the proportion as set out against their names in the Schedule, shall subject to the terms, conditions, exclusions and limitations set out in this agreement or hereinafter mentioned or endorsed hereon indemnify [MTEC] against liability for losses arising from claims first made or notified against [MTEC] and notified to the [the Insurers] during the period of insurance specified in the Schedule arising out of civil liability whenever and wherever the same was or may have been committed or omitted or alleged to have been committed or omitted by [MTEC] when performing [its] professional duties (as defined in Clause 4.04) as surveyors or in any allied professions or committed or omitted or alleged to have been committed or omitted in the conduct of any business conducted by [MTEC in its] professional capacity as surveyors or in any allied professions .... .
[19] The indemnity limit under the policy is $5 million. Section 9(7) of the Act makes it clear that that is the maximum amount for which the Insurers could be liable in respect of any charge arising under s 9.
[20] Other relevant terms of the policy are:
AGREEMENT
1. OPERATIVE CLAUSES
...
1.02 The Companies shall in addition to the indemnity granted under Operative Clause 1.01 pay all costs and expenses incurred with their written consent (such consent not to be unreasonably withheld) in defending or settling any claims made under this Policy up to a
maximum sum that does not exceed 100% of the limit of Indemnity as stated in the Schedule or $1,500,000 (whichever is the lesser), provided always that if the Insured has to pay an amount in excess of the amount of indemnity available under this Policy to dispose of a claim then the Companies’ liability for costs and expenses shall be such proportion as the amount of indemnity available to the Insured bears to the amount paid to dispose of the claim.
...
3. CONDITIONS
3.01 The Companies’ liability for any one claim under this policy in respect of any Insured shall not exceed the sum stated in the Schedule as applicable to that insured together with costs and expenses as agreed less the Deductible as provided for in Clause
5.01. Costs and expenses are not to be regarded as claim payments for Limit of Indemnity calculation.
...
4. DEFINITIONS
...
4.02 (1) “claim” shall mean a demand for compensation made by a Third Party against the Insured and shall include the Insured’s costs and expenses incurred with the consent of the Companies
(2) Where an act, error or omission results in more than one claim against the insured, all such claims shall constitute one claim under this Policy provided that this subclause shall not be interpreted in any way to increase the number of claims under this Policy.
...
4.05 The expression “Limit of Indemnity” shall mean the monetary limit for claims for which the policy indemnifies the insured as stated in the Schedule.
...
5. CLAUSES
5.01 Deductible Clause
The insured shall bear the amount of the Deductible specified in the Schedule on any claim made against them and the Companies shall only be liable to indemnify the Insured for any part of the claim which is over and above the Deductible amount except as may be otherwise provided under Extensions 6.03 and 6.04.
It is understood the Deductible shall apply to costs and expenses incurred in the investigation or defence or settlement of any claim during the period of insurance.
However, where the Companies solely for the purpose of protecting the interests of the Companies incur legal expenses, then the Companies irrespective of the provisions of this Clause shall meet such expenses.
...
THE SCHEDULE
...
5. The amount of the Deductible each and every claim: $12,000
...
....
Section 9 of the Act
[21] Section 9 of the Act provides:
9 Amount of liability to be charge on insurance money payable against that liability
(1) If any person (hereinafter in this Part of this Act referred to as the insured) has, whether before or after the passing of this Act, entered into a contract of insurance by which he is indemnified against liability to pay any damages or compensation, the amount of his liability shall, on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance money that is or may become payable in respect of that liability.
(2) If, on the happening of the event giving rise to any claim for damages or compensation as aforesaid, the insured has died insolvent or is bankrupt or, in the case of a corporation, is being wound up, or if any subsequent bankruptcy or winding up of the insured is deemed to have commenced not later than the happening of that event, the provisions of the last preceding subsection shall apply notwithstanding the insolvency, bankruptcy, or winding up of the insured.
(3) Every charge created by this section shall have priority over all other charges affecting the said insurance money, and where the same insurance
money is subject to 2 or more charges by virtue of this Part of this Act those charges shall have priority between themselves in the order of the dates of the events out of which the liability arose, or, if such charges arise out of events happening on the same date, they shall rank equally between themselves.
(4) Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same Court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the Court shall have the same powers, as if the action were against the insured:
Provided that, except where the provisions of subsection (2) of this section apply, no such action shall be commenced in any Court except with the leave of that Court.
(5) Such an action may be brought although judgment has been already recovered against the insured for damages or compensation in respect of the same matter.
(6) Any payment made by an insurer under the contract of insurance without actual notice of the existence of any such charge shall to the extent of that payment be a valid discharge to the insurer, notwithstanding anything in this Part of this Act contained.
(7) No insurer shall be liable under this Part of this Act for any sum beyond the limits fixed by the contract of insurance between himself and the insured.
[22] Section 9 is a difficult provision to construe, particularly in the context of “claims made or notified” policies. I heard no argument on a number of issues of interpretation. For example, no argument was advanced on the question of the “event” to which s 9(1) refers, in the context of a “claims made or notified” policy. Nor was any argument addressed to the timing of relevant “events” for the purposes of the priority provisions of s 9(3). Further, and importantly, there were no contested submissions on whether the words “under the contract of insurance”, in s 9(6), referred solely to a payment made by an Insurer to its insured (the other party to the contract), as opposed to a payment to a third party who has the benefit of a statutory charge, under s 9(1).
[23] Without purporting to identify exhaustively issues arising out of the interpretation of s 9 that may be relevant to this case, I am not prepared to give a final ruling on the way in which s 9(6) should be approached. First, I am conscious
that Lang J’s judgment in Steigrad v BFSL 2007 Ltd9 is the subject of an appeal to the Court of Appeal. The hearing took place on 5 September 2012 and judgment remains reserved. It is quite possible that the Court of Appeal’s decision could impact significantly on the approach to be taken to the interpretation of s 9. Second, the absence of contested argument tells against any attempt to provide a definitive ruling to help those involved in this case; particularly, where a class of potential claimants is known, of whom many are not presently before the Court.
Jurisdictional and discretionary issues
[24] At the hearing, I expressed reservations about the effect of the proposed orders on non-parties; for example, whether any orders could be binding on them and the possibility that they may, in effect, have limitation periods otherwise available to them improperly shortened. Mr Till presented submissions on those and other jurisdictional issues.
[25] Mr Till acknowledged that there was no express statutory basis for the Insurers’ application. He submitted, however, that the Court possessed inherent jurisdiction to make an order, relying on the nature of this Court’s “substantive and procedural” inherent jurisdiction, as discussed by the Supreme Court in Zaoui v Attorney-General.10
[26] Mr Till relied also on r 1.6 of the High Court Rules. It provides that the Court must dispose of a case for which no form of procedure is prescribed by any Act or Rules “as nearly as may be practicable in accordance with the provisions of these rules affecting any similar case” and, if there were no such rules, “in the manner that the Court thinks is best calculated to promote the objective of these rules”.11 The objective of the rules is the “just, speedy and inexpensive”
determination of proceedings.12
9 Steigrad v BFSL 2007 Ltd HC Auckland CIV-2011-404-611, 15 September 2011.
10 Zaoui v Attorney-General [2005] 1 NZLR 577 (SC) at para [36].
11 High Court Rules, r 1.6.
12 Ibid, r 1.2.
[27] Mr Till submitted that while no procedure existed for a case such as this, in many ways the orders sought were analogous to the interpleader rules. He accepted, however, that there is a fundamental difference between that process and what is proposed here; namely, the interpleader procedure is designed to apply where a liability is accepted but the appropriate recipient of a debt, money or chattels is in
dispute.13 In contrast, the directions sought in this case arise in circumstances where
the Insurers do not accept that MTEC is liable, yet seek to force (present) non-parties to issue proceedings within a relatively short time.
[28] While, on the face of it, the Insurers’ application might be seen as designed to benefit themselves only, the other parties to this application all recognise that directions of the type suggested may smooth the way for prompt resolution of the claims made by them.
[29] My concerns revolve around the position of non-parties; in particular:
(a) the extent to which (if at all) it is appropriate for the Court to make a purported binding order on non-parties who have not had the opportunity to be heard.
(b) the possibility that particular owners may not yet have an accrued cause of action.14
(c) the possibility that, well after the time for filing a proceeding may have expired, a non-party to this proceeding might either issue proceedings (on the basis that it is not bound by the order) or apply to set it aside and resurrect the problem that the Insurers are trying to foreclose.
[30] Where claims are brought in personam, only those who have an opportunity to be heard on an application or proceeding can be bound by any orders made in it.15
13 Ibid, r 4.58.
14 Because loss is an essential element of the tort of negligence: Invercargill City Council v Hamlin
[1996] 1 NZLR 513 (PC) at 526.
15 Castrique v Imrie [1861–73] All ER Rep 508 (HL).
In a general proceeding, parties must be joined, either as a plaintiff or a defendant. On an originating application, such as this, a non-party may be ordered to be served, in which case it will (for practical purposes) acquire the status of a party and will be bound by any orders made on the application.
[31] It would be futile to order a non-party to file proceedings within a time that is shorter than the available limitation period. Not only would the order not bind non- parties but to do so is plainly contrary to both the Limitation Act and the long-stop provisions of the Building Act.16 Further, it is wrong in principle to make an order designed to require a non-party to issue proceedings within a specified time when its cause of action may not have accrued. Such an order would wrongly shut out a valid
claim. There is a real risk that such a claim could be struck out, for failing to disclose an existing cause of action.
[32] I am not satisfied that there is jurisdiction to make the orders sought. Even if jurisdiction were to exist, the factors to which I have referred would lead inevitably to a refusal to exercise a discretion to make the orders sought.
Disposition
[33] In my view, the proper approach is to adjourn the present application on the basis of a direction that all owners of lots within the “Oakland” subdivision, other than those presently joined as parties to this application, be served with all papers filed, together with a copy of this judgment. That will enable the remaining owners to determine whether they wish to be heard on this application and to indicate whether a claim against MTEC is likely.
[34] I will direct the Registrar to allocate a hearing date, at which time I can hear further from the existing parties to this application and any (present) non-parties who have taken steps. Counsel can consider at that time, and in light of the further information obtained from those who have been served, whether to advance any
argument on the present application or to seek leave to amend to enable argument
16 The inherent jurisdiction may only be invoked in cases where to do so is not inconsistent with provision of a statute or regulation: see, for example, Donselaar v Mosen [1976] 2 NZLR 191 (CA) at 192.
(perhaps with the benefit of appointment of amicus curiae) to take place on the interpretation issues that may resolve the concerns held by the Insurers.
[35] I am not prepared to deal with the applications for stay and consolidation until after I have heard from counsel at the next hearing. Provisionally, I am of the view that the parties ought to be allowed to progress their litigation at their own pace. I adjourn the stay and consolidation application for further argument at the next hearing.
Result
[36] For the reasons given:
(a) I direct that Stage 1, 2 and 3 landowners who have not yet been served with this proceeding shall be served within 10 working days of the date of delivery of this judgment. Service shall be effected of the application and all supporting and opposing documents, as well as this judgment.
(b) Any notice of opposition (or appearance for ancillary purpose) shall be filed and served within 10 working days after service of the proceeding on present non-parties. Any appearance shall indicate whether the present non-party is likely to bring proceedings based on alleged negligence on the part of MTEC.
(c) The application is adjourned, to be listed for argument before me on the first available date after 1 December 2012.17
(d) Costs are reserved.
P R Heath J
Delivered at 3.00pm on 31 October 2012
Solicitors:
Robertsons, PO Box 2068, Shortland Street, Auckland
MinterEllison, PO Box 3798, Auckland Morgan Coakle, PO Box 11455, Auckland Heaney & Co, PO Box 105391, Auckland
King Gerrard Partners, PO Box 327, Pukekohe
Counsel:
N Till QC, PO Box 252, Christchurch
Michael Lenihan, PO Box 129455, Auckland
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