Body Corporate 312431 v Auckland Council [2013] NZHC 1062 (10 May 2013)

Last Updated: 18 June 2013

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-007039 [2013] NZHC 1062

BETWEEN BODY CORPORATE 312431

First Plaintiff

AND QUNG YU & ORS Second Plaintiff

AND AUCKLAND COUNCIL First Defendant

AND JAMES HARDIE NEW ZEALAND LIMITED

_{Second Defendant}

_{.../Continued}

Hearing: 7 and 10 May 2013

Appearances: No appearance for Plaintiffs

D J Heaney QC and C Goode for First Defendant

G J Christie for Third Defendant

P Hunt and T Clark for Second and Third Party

O V Collette-Moxon for Fifth Third Party

Judgment: 10 May 2013

JUDGMENT OF VENNING J APPLICATION FOR REVIEW

APPLICATION FOR LEAVE TO ISSUE THIRD PARTY NOTICE

_{APPLICATION FOR LEAVE UNDER S 9 LAW REFORM ACT 1936}

This judgment was delivered by me on 10 May 2013 at 5.00 pm, pursuant to Rule 11.5 of the High

_{Court Rules.}

Registrar/Deputy Registrar

Date...............

Solicitors: Grimshaw & Co, PO Box 6646, Auckland 1141

Heaney & Co, Solicitors, PO Box 105391, Auckland 1143

Simpson Grierson, Private Bag 92518, Auckland 1141

McElroys, PO Box 835, Auckland 1140

Chapman Tripp, PO Box 2206, Auckland 1140

Brookfields, PO Box 240, Auckland 1140

DLA Phillips Fox, PO Box 160, Auckland 1140

Counsel: T J Herbert, PO Box 3320, Shortland Street, Auckland 1140

BODY CORPORATE 312431 V AUCKLAND COUNCIL HC AK CIV-2009-404-007039 [10 May 2013]

AND CLEARWATER CONSTRUCTION LIMITED

Third Defendant

AND NORMANBY ROAD LIMITED (IN LIQUIDATION)

Fifth Defendant

AND QBE INSURANCE (INTERNATIONAL) LIMITED

First Third Party

AND VERO INSURANCE NEW ZEALAND LTD

Second Third Party

AND KEN TANNER Third Third Party

AND ANDREW ANDERSON Fourth Third Party

AND IAG NEW ZEALAND LIMITED Fifth Third Party

Introduction

[1] There are three applications before the Court.

[2] The second third party, Vero Insurance New Zealand Limited (Vero) applies to review the decision of Associate Judge Doogue on 14 February 2013 to grant leave under s 9 of the Law Reform Act 1936 (the Act) to the first defendant Auckland Council (the Council) to commence third party proceedings against Vero.

[3] The third defendant, Clearwater Construction Limited (Clearwater) applies for leave to issue a third party notice to join Vero.

[4] Finally, the Council applies for leave under s 9 of the Act to join IAG as a sixth third party.

[5] The plaintiffs are the body corporate and individual owners of a building known as Normanby Mews. The plaintiffs claim Normanby Mews is a leaky building. They sue the Council as first defendant, James Hardie New Zealand Limited, who manufactured, supplied and installed the Harditex cladding and Clearwater, the builder involved in and responsible for the construction of Normanby Mews. The plaintiffs also sued Normanby Road Ltd, formerly called Redwood Group Ltd (Redwood), a company related to Clearwater as the developer and/or project manager. Redwood has been placed in liquidation and struck off the register. There is also a further related company, Redwood Group No 9 Ltd, (RG9). The Council sought to join Vero as insurer of RG9.

[6] The case is set for fixture on 15 July 2013 for 10 weeks.

Vero’s application

[7] A number of third parties have been joined to the proceeding, including a number of insurers. Relevantly for present purposes the Council applied on 17

December 2012 for leave to issue third party proceedings against Vero pursuant to s 9 of the Act on the basis that Vero was the insurer of both RG9 and Clearwater.

[8] The application was made on notice. Vero filed a notice of opposition to the application supported by an affidavit. However, the application was determined by Associate Judge Doogue at a conference on 14 February in the absence of Vero. At the Judge’s direction attendance at the conference was restricted to the existing parties. The Judge took the view that Vero (and the other proposed additional parties) were not entitled to be heard and could seek dismissal if they were wrongly joined. After hearing counsel for the applicant, the Judge was satisfied that it was appropriate to make the orders and made them accordingly.

[9] Vero then brought the current application to review the decision.

[10] Prior to the hearing of the application for review, Clearwater has itself applied for leave to issue a third party notice against Vero. Clearwater’s claim is not dependent on leave being granted under the Act. It is a direct third party claim, although leave is required given that the time for filing a third party notice as of right has passed: r 4.4(2)(b).

[11] Counsel for relevant parties, including Vero, agree that in the event leave is granted to Clearwater to issue its third party notice, Vero will not pursue the review insofar as it relates to the insurance cover by Clearwater. The review would then be limited to Vero’s joinder in relation to the claim against RG9.

[12] On the face of the documentation before the Court it appears that at all material times Vero provided Clearwater with public liability and contract works insurance. If Clearwater is liable to the plaintiffs, issues will arise between Clearwater and Vero whether cover is available under the policies. It is appropriate that the leave sought be granted so that all issues can be dealt with at trial.

[13] Leave is granted accordingly to Clearwater to issue a third party notice against Vero. I record that, in the circumstances, Mr Hunt withdrew the application for review insofar as it related to Clearwater. Costs are to lie where they fall on the application for review in relation to Clearwater and also on the application by Clearwater for leave to issue the third party notice.

The approach to the application for review as regards RG9

[14] The decision subject to review was not made following a defended hearing. This review proceeds as a full hearing: r 2.3(5)(a). In any event I am satisfied that there is jurisdiction for review because the Judge proceeded to hear and determine the application for leave in the absence of Vero, despite the fact the application had initially been made on notice. I agree with Mr Hunt’s submission that there is a distinction between an application for leave to issue a third party notice (where leave is required because the notice is not issued within time), which does not require the

proposed third party to be heard, and an application for leave to join pursuant to the particular provisions of s 9(4) of the Act. I agree with the reasoning and conclusion of Ellis J in Body Corporate No 195843 v North Shore City Council [The Grange] that the insurer is entitled to be heard on such an application:[1]

[31] Next, it seems that it was thought that an insurance company would be heard on any application for leave. That was also Mr Weston’s position before me. Notwithstanding submissions by Mr Grimshaw and Mr Heaney to the effect that, by analogy with applications for joinder of a defendant under the High Court Rules, no such rights to notice or to be heard exist, I consider that Mr Weston’s position is correct. As well as being consistent with the evidence as to parliamentary intent it is consistent with the conclusions I have reached as to the content of the leave requirement itself.

[15] For those reasons, I consider the matter afresh.

The requirements for leave under s 9(4) Insurance Law Reform Act

[16] As both counsel accepted, a party seeking leave under s 9(4) of the Act must demonstrate that:

(a) there is a prima facie claim against the insured (conceded by Vero for present purposes);

(b) that the insured had a prima facie claim under the policy of insurance

(this point is in issue); and

(c) that the insured is not a perfectly good common law defendant

(conceded by Vero for present purposes).[2]

For present purposes, Mr Hunt also conceded that RG9 played a role in the construction of Normanby Mews. There is some confusion as to the roles played by Redwood and RG9 in the development. Whether they were the developer or project manager cannot be resolved on this application, although there is documentation to

_{suggest RG9 was the developer.}

[17] The only issue for determination is whether RG9 has a prima facie claim under the public liability policy of insurance issued by Vero. Mr Heaney conceded that the Council only relied on the public liability policy and did not pursue any claim for relief under the contract works policy.

The competing contentions

[18] Mr Hunt submitted that RG9 did not have a prima facie claim under the public liability policy with Vero because it was not covered by the policy relating to the period between February 2002 and February 2003 and that, while it was covered for the period from February 2003 to February 2004, a leaky building exclusion applied to the defects alleged in this case during that particular period so that the public liability policy did not respond. The expiry notice relating to the insurance cover under the public liability policy in issue confirmed that on renewal after 25

February 2003, inter alia:

This risk specifically excludes loss relating to Building Defects and Mould. Please read the full Building Defects and Mould Exclusion (C) wording at the end of this document.

[19] Mr Hunt did not pursue the argument that the cover was excluded by defective work and product repair or replacement exclusions, accepting that such issues could not be determined at this particular stage.

[20] Mr Heaney submitted that, although RG9 was not expressly referred to in the insurance documentation for the period from February 2002 to February 2003 it was a principal for the purposes of that policy because of the policy wording and as a consequence was entitled to cover.

[21] The issue falls to be determined by interpretation of the policy wording and the documents issued by Vero and the broker for the relevant period, February 2002 to February 2003.

[22] The certificate of currency for the public liability policy number BSP3073442 dated 22 February 2002 records the insured as Sullivan & Haddon Group Ltd and notes other interested parties as Clearwater Construction, Stelemedia, Speedfloor Holdings Ltd and Dixon Haddon Structural Steel. The period of cover is recorded as from 25 February 2002 to 25 February 2003. The policy was issued subject to Vero’s broadform liability policy wording.

[23] There is also a second certificate of currency for the public liability insurance relating to the same policy number, BSP3073442, noting the insured as Clearwater Construction. No other interested parties were referred to. Mr Orsler, a claims consultant at Vero, has confirmed the two documents are certificates of currency for the S & H Group as a whole and Clearwater in particular in respect of the public liability policy. Mr Hunt made the obvious submission that RG9 was not referred to as either the insured nor as an interested party to the insurance in either certificate.

[24] Mr Hunt also noted that the expiry notice relating to the policy cover for the period ending 25 February 2003 referred to the insured as DHC Project Management Ltd and, while it listed a number of additional insured and subsidiary companies, RG9 was not one of those named as an additional insured or a subsidiary company. He contrasted that with the position of the renewal for the public liability policy from 25 February 2003 which recorded that the insured was:

Clearwater Construction Ltd and Redwood Group No. 9 Ltd as joint insured as Principal.

[25] Mr Hunt made the point that RG9 was expressly named as joint insured for the period from 25 February 2003 and that, if the parties had intended that to be the position for the 2002-2003 year, it would have been a simple matter to have added RG9 in for that year.

[26] It may be that RG9 was not named in the 2002-03 policy because the arrangement between RG9 and Clearwater confirming Clearwater was to construct the development for RG9 was not formalised until May 2002. On 31 May 2002

Clearwater as contractor and RG9 as principal apparently concluded a contract agreement under the NZS3910:1998 form providing for Clearwater to design and build the works described in the contract documents for RG9. In exchange RG9 agreed to pay Clearwater $5,472,455.09, together with GST.

[27] Whatever the reason, however, the position remains that RG9 was not expressly named as an insured or interested party in the 2002/03 policy and can only have a claim against Vero in relation to that policy if otherwise the wording of the policy provides cover for it. Mr Heaney submitted that cover under the policy extended to the principal of the named insured Clearwater, and, in the present case, RG9 as Clearwater’s principal was covered by the policy.

[28] The relevant wording of the broadform liability policy is:

“Persons insured” means:

• The Policyholder named in the Schedule, any subsidiary company (whether or not in existence at the commencement of this Policy Section) or any other organisation under the control of the Policyholder over which it exercises management control, that is domiciled in New Zealand;

• any partner, shareholder, director, executive officer of the Policyholder or any employee but only for liability in respect of which the Policyholder would have been entitled to indemnity under this Section if the claim had been made against the Policyholder;

• the officers, committees and members of the Policyholder’s own canteen, social sports and child care facilities or welfare organisations, first aid, fire and ambulance services and pension fund management and administrative committees in their respective capacities as such;

• any principal of any of the persons insured, in respect of the liability of such principal arising out of the performance by such person insured of any contract or agreement for the carrying out of work or services in connection with the business, but only to the extent required by such contract or agreement; or

• any partner director or senior executive of the Policyholder in respect of private work undertaken by any employee for such partner director or senior executive, and any such employee whilst undertaking such work.

[29] It is the fourth bullet point which is particularly relevant. Mr Heaney argued that RG9 was a principal of Clearwater, a person insured, in respect of relevant liability. In common usage, a party commissioning a building contract is referred to as the principal, as in this case. Indeed, the NZS standard form contract uses that very wording in the present case in the contract between Clearwater and RG9. Mr Hunt, however, submitted that in the context of the clause, the principal referred to should be interpreted as consistent with the dictionary definition of “principal”, namely denoting persons occupying a principal position or rank, a person having the highest authority in an organisation, institution or group; a chief, head, ruler, governor, master; master or mistress of a household.

[30] I do not consider it necessary to read down the meaning of “principal” as it is used in that clause in the way submitted by Mr Hunt. The circumstances in which a principal having the characteristics of the definition is likely to require cover is provided for by the second bullet point of the definition of persons insured, namely a director, executive officer or any employee of the policyholder.

[31] The issue is whether the cover extends to RG9 as a principal of Clearwater by the wording of the particular clause. In the present case, inserting the parties into the wording of the clause it would read:

Persons insured means .. RG9, in respect of the liability of RG9 arising out of the performance by Clearwater of any contract or agreement for the carrying out of work or services in connection with building work, but only to the extent required by such contract or agreement.

Mr Hunt suggested that RG9 could not have any liability for Clearwater’s defective work. However, for present purposes I accept that, as Clearwater’s principal RG9 as developer could have a duty to take care to see the proper skill and care was exercised in the building work, which duty could not be avoided by delegation to the independent contractor Clearwater. RG9 could be liable even though it had not

_{created the defect in the flats and was not personally at fault: Mount Albert Borough}

_{Council v Johnson and BC188273 v Leuschke.}[3]

_{An issue may arise for the parties to}

consider in that it appears the plaintiff only sued Normanby Mews which was formerly Redwood, and not RG9.

[32] However, returning to the present application, on the face of the introductory words of the clause, RG9 would be entitled to cover. The remaining issue is the qualifier to the cover, namely that RG9 is only covered to the extent required by such contract or agreement between it and Clearwater. In relation to that, I note that the

15th Schedule to the contract agreement between the parties records:

4. The Contractor [Clearwater] indemnifies the Principal [RG9] in respect of all direct losses incurred by the Principal [RG9] that may be occasioned by or arise out to [sic] any defect in the weathertightness of the building envelope.

And:

7. The Contractor [Clearwater] further indemnifies and holds the Principal [RG9] harmless from and against any costs, claims, liabilities, or expenses which the Principal [RG9] may incur or for which the Principal [RG9] may become liable arising from any failure by the Contractor [Clearwater] to promptly rectify any defects notified to it under this guarantee.

[33] On its face, the contract between Clearwater and RG9 requires Clearwater to indemnify RG9. As such the requirements of the clause in Vero’s broadform policy wording are met. RG9 as a principal of Clearwater comes within the definition of persons insured in the policy. Such a finding is also consistent with the use of principal when referring to RG9 in Vero’s own certificate of currency for 2003.

[34] For those reasons I accept that, for the purposes of the application for leave to join, RG9 has a prima facie claim for cover under the relevant policy of insurance for the period between 23 February 2002 and 23 February 2003. On Dr Wakeling’s evidence it is at least arguable that some of the weathertight deficiencies would have been present between 7 November 2002 and November 2003. Subject to the evidence at trial any liability RG9 may have in respect of the weathertight defects that are held to exist may be covered under the policy issued by Vero that was operative between February 2002 and February 2003.

The application by the Council to join IAG New Zealand Ltd

[35] As noted, the Council applies to join IAG New Zealand Ltd (IAG) in respect of Redwood. IAG is already a fifth third party as insurer of RG9. The application was called before the Court on 7 May 2013 with the other applications but at Mr Collette-Moxon’s request it was adjourned to enable him to prepare full submissions in opposition to the application. I have now heard from both Ms Goode for the Council and Mr Collette-Moxon for IAG on the application.

[36] The application for leave under s 9 of the Act is pursued on the grounds that at material times IAG insured Redwood, which was the developer and/or project manager. The plaintiffs have alleged that Redwood’s building work was defective and seeks damages. Redwood is not a good common law defendant and is not in a position to meet the claim and pay damages. (Like RG9 it is in liquidation and struck off the register).

[37] IAG does not, for present purposes at least, challenge that its policy of insurance provided indemnity to Redwood for liability if it was a good common law defendant and the insured damage occurred during the period of cover.

[38] For present purposes the applicant satisfies the Court that there is a prima facie case against Redwood, that Redwood has a prima facie claim under the policy of insurance with IAG and that Redwood is not a perfectly good common law defendant.

[39] IAG’s opposition to the application is premised on the prejudice to it if leave is granted to join it at this very late stage in the proceeding. IAG says:

(a) there will be insufficient time for it consider the allegations against it and take such real interlocutory steps as may be required to ready for the hearing including briefing expert and other evidence and generally preparing for trial;

(b) apart from leave under s 9(4) of the Act, leave is required in terms of the Rules and has not been sought; and

(c) it may be prejudiced in that it cannot issue cross-claims against other parties.

[40] I agree with Mr Collette-Moxon’s submission that, as well as applying for leave under the Act, the Council was required to seek leave to bring its application for joinder under the High Court Rules. While it may be arguable that, given the requirement for leave under s 9 of the Act, the general provisions under r 4.4 which apply where leave is required because a third party notice is not issued within time may not apply, leave is in any event required under r 7.7 because the close of pleadings date has passed.

[41] Leave is required to take a step once the close of pleadings date has passed because by that date it is expected the interlocutory processes of the case will be concluded. The party seeking an amendment or, as in this case, seeking to join a party after that date must show it is in the interests of justice, will not cause a

significant prejudice to the party affected and will not cause significant delay.[4]

[42] Ms Goode accepted the close of pleadings date would have been 15 April

2013. The application to join was not made until 24 April 2013. In the course of submission Ms Goode made an oral application for leave.

[43] As the criteria for joinder under s 9(4) of the Act are prima facie established, the issue on this application is whether it is in the interests of justice to grant leave and particularly whether, if leave was granted, IAG would be unfairly and unreasonably prejudiced.

_{[44] In relation to those considerations the following factors are relevant:}

(a) the proceedings have been on foot since October 2009. An amended statement of claim joining Normanby Road Ltd (Redwood) was filed

8 July 2010;

(b) it appears from Ms Hann’s (the Council’s claim manager) affidavit in support of the application that IAG was aware of the claim against the Redwood Group of Companies but declined to cover Redwood Group generally in relation to the claim in August 2011;

(c) Ms Hann was made aware of that correspondence with the broker at some stage between the end of August 2011 and October 2012. The Council delayed in making this application until April 2013;

(d) IAG is already party to these proceedings. It was joined on 14

February 2013 as insurer of RG9;

(e) an advice of completion of construction form was provided to the

Council on 5 June 2003. The 10 year longstop period may expire 5

June 2013.

[45] Mr Collette-Moxon argued forcefully that, if joined, IAG will have insufficient time to do any of the following: seek particulars of the basis of the claim against it in respect of Redwood, carry out discovery and inspection, undertake usual interlocutories and issue cross-claims, bearing in mind the 10 year longstop provisions of the Building Act 1991. He also noted that IAG will face difficulties with obtaining evidence from its now insolvent insured, briefing expert evidence and otherwise preparing adequately for trial. In relation to the particulars Mr Collette- Moxon noted the confusion between the roles of Redwood and RG9 within the broader Redwood Group.

[46] I acknowledge the points Mr Collette-Moxon makes but, in my judgment, they are met in this case by the following factors:

(a) IAG has been aware of the claim against its insured Redwood Group (be it Redwood or RG9) and the possible claim on it under its insurance policies with the Redwood Group since at least mid 2011. It chose not to indemnify the Redwood Group for the reasons set out in the broker’s letter. However it has been aware of the claims against the Group and the possibility of either a direct claim or a claim under s 9 of the Act since that time at least;

(b) IAG is already a party to the proceedings in relation to its insurance of

RG9 in any event;

(c) Redwood was named as a party to the proceeding and filed a defence before it was placed into liquidation and then struck off. The exact role of Redwood as opposed to RG9 can only be determined at trial. That has always been the position;

(d) the difficulties IAG will face in obtaining evidence from Redwood and its directors and officers are exactly the same difficulties it will face in relation to the RG9 claim. No additional prejudice arises;

(e) IAG has been on express notice of a claim against its insured, at least in respect of RG9, since the application to join it was made in January

2013. It has had ample time to appoint an expert to deal with the issues arising out of the building claim;

(f) while I accept the time frame is tight, IAG is still within time to issue cross-claims to other parties to the proceeding.

[47] Mr Collette-Moxon suggested that if IAG was joined then it would be necessary for IAG to seek to vacate the current fixture. That is not a matter that this Court can determine at this stage. Any such application would have to be determined on its merits at that particular time in light of the further information that the parties might provide to the Court.

[48] On balance I consider it proper to grant leave in this case, particularly because IAG has been on notice of the potential claim against its insured (the Redwood Group) for some time, and is already a party to the proceeding in respect of RG9. The difficulties it points out are largely difficulties that it already faces in respect of defence of that existing claim. As noted, the reality is that the roles Redwood and RG9 played in the construction of Normanby Mews will only be determined at a hearing. If Redwood is found liable but RG9 is not, it would be somewhat arbitrary for IAG to avoid liability because the Council chose to seek leave under s 9 in respect of the wrong party in the first instance.

[49] I accept, however, the criticism of the Council’s delay in application for joinder. That is a matter that can be reflected when considering costs.

Result/orders

[50] Clearwater’s application for leave to join Vero as a third party is granted.

[51] Vero’s application to review Associate Judge Doogue’s decision of 14

February 2003 insofar as it related to the leave sought by Clearwater to join Vero is withdrawn.

[52] There is no order for costs in relation to the above applications.

[53] The application to review Associate Judge Doogue’s decision of 14 February

2003 insofar as it relates to the order granting the Council leave to join Vero under s 9 of the Act relating to RG9 is dismissed.

[54] Costs should follow the event on that aspect of the application. The Council is to have costs on a 2B basis for one counsel.

[55] The Council is granted leave to apply to join IAG as sixth third party and its application to join IAG under s 9 of the Act is also granted.

[56] There is no order for costs on that application and I also reserve IAG’s position in relation to the additional costs it may be put to in being required to prepare at short notice.

[57] In its capacity as fifth third party, IAG is granted the following leave:

(a) leave to file and serve an amended statement of defence within 14 days;

(b) leave to file and serve an amended statement of cross-claims within

14 days;

(c) leave to apply by memorandum directed to the trial Judge and for any further orders that may be necessary.

[58] In its capacity as sixth third party, IAG is granted leave to file a statement of defence, any other interlocutory and cross-claim, all within 21 days or such further

_{time as the Court may permit on application by memorandum.}

Venning J

---

[1] _{Body Corporate No 195843 v North Shore City Council [The Grange] 2011 2 NZLR 222 at 31.}
[2] Chow v Thomson HC Auckland CIV-2009-404-4765, 15 March 2012.

[3] Mount Albert Borough Council v Johnson [1979] 2 NZLR 234 (CA); and BC188273 v Leuschke

HC Auckland CIV-2004-404-0003, 28 September 2007.

[4] Elders Pastoral v Marr [1987] NZCA 18; (1987) 2 PRNZ 383 (CA) 385.