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Body Corporate 325261 v McDonough [2014] NZHC 1152 (28 May 2014)

Last Updated: 24 July 2014


IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY



CIV 2011-404-008000 [2014] NZHC 1152

IN THE MATTER
known as C-Vu Apartments
BETWEEN
BODY CORPORATE 325261
First Plaintiff

RODNEY WILLIAM COOKE AND OTHERS
Second Plaintiffs
AND
JAY MCDONOUGH First Defendant
Continued over/...


Hearing:
On the papers
Appearances:
S Mills QC/B O'Callahan, Sixth and Seventh
Defendants/Applicants
G J Kohler QC and C Baker for the Plaintiffs/Respondents
Judgment:
28 May 2014




JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN







This judgment was delivered by me on

28.05.14 at 4:30pm, pursuant to

Rule 11.5 of the High Court Rules.



Registrar/Deputy Registrar

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











BODY CORPORATE 325261 & ORS v J MCDONOUGH & ORS [2014] NZHC 1152 [28 May 2014]

MAUNGA REI NZ LIMITED Second Defendant

AUCKLAND COUNCIL Third Defendant

GARY BICKERTON Fourth Defendant

RACHEL VENABLES Fifth Defendant

STEPHEN MITCHELL ENGINEERS LIMITED

Sixth Defendant

STEPHEN ROBERT MITCHELL Seventh Defendant

MACDONALD BARNETT PARTNERS LIMITED

Eighth Defendant

MICHAEL SIMPSON Ninth Defendant

JAY MCDONOUGH First Defendant

[1] This judgment deals with the sixth and seventh defendants’ application for the recall of my judgment dated 3 March 2014 which dismissed the sixth and seventh defendants’ applications for strike out.

The recall application

[2] It claims that my judgment failed to determine issues which were put to me, including:

(a) failing to determine the act or omission and the date of that act or omission for the purpose of s 393(2) of the Building Act 2004;

(b) misapprehending the submissions of counsel;

(c) not addressing the affidavit of Murray Jacobs; and

(d) concluding there would be no relevant damage until cracking occurred.

[3] The application then identifies a number of elements of the judgment which it is claimed incorrectly described the submissions made on behalf of the sixth and seventh defendants on the strike out application. Claims include:

(a) that the defendants’ case was mischaracterised as one identifying their structural plans as being so defective that anyone could have seen those defects;

(b) that I recorded the evidence as having submitted that the focus of the pleadings shifted from column floor diagrams to shear wall connections and their capacity to transfer earthquake forces;

(c) that I misstated the significance of the producer statement provided by the defendants;

(d) that I incorrectly recorded the defendants’ submissions as being that defects should have been discovered by the Council at the time the drawings were submitted for approval and consent.

(e) that I omitted to address the evidence contained in a further affidavit of a Mr Jacobs or to give any consideration to submissions made in relation thereto; and

(f) that I have misapprehended counsels’ submissions because I conflated “damage relevant to observing weather tightness defects with those relevant to observing alleged seismic capacity defects”.

Hearing upon the recall application

[4] Initially the hearing scheduled for 28 April 2014 was vacated because both senior counsel could not be present on that date.

[5] I then arranged for a telephone conference to speak to counsel regarding the possibility of my dealing with the matter on the basis of submissions filed by counsel. Although at the telephone conference only Mr Kohler could be contacted, I was advised that both sides would agree to the matter being dealt with by my consideration of counsels’ written submissions.

Recall principles

[6] Applications for recall are made under r 11.9 which provides:

11.9 Recalling judgment

A judge may recall a judgment given orally or in writing at any time before a formal record of it is drawn up and sealed.

[7] The judgment of Wild CJ in Horowhenua County Council v Nash (No.2)1 is regarded as authoritative on the discretion to recall a judgment:




1 [1968] NZLR 632 (SC) at 632.

Generally speaking, a judgment once delivered must stand for better or worse subject, of course, to appeal. Were it otherwise there would be great inconvenience and uncertainty. There are, I think, three categories of cases in which a judgment not perfected may be recalled – first, where since the hearing there has been an amendment to a relevant statute or regulation or a new judicial decision of relevance and high authority; secondly, where counsel have failed to direct the Court’s attention to a legislative provision or authoritative decision of plain relevance; and thirdly, where for some other very special reason justice requires that the judgment be recalled.

A new authoritative decision

[8] The defendants rely on Westland District Council v York & Alpine Glacier Motel Limited2 as a new authoritative decision of relevance to the matters to be determined in the strike out application.

[9] That case concerned an application to strikeout a claim against the Westland District Council for the negligent preparation of a LIM. The LIM failed to disclose that the motel the applicants had purchased was located close to the Alpine Fault. The Court of Appeal held that an error of that type fell within the type of area discussed by the Supreme Court in Marlborough District Council v Altimarloch

Joint Venture Limited3. The Court of Appeal held that when a LIM is negligently

prepared, the loss occurs when the LIM is provided, not at a later date when any defect might be reasonably discovered.

[10] The defendants argue that this case supports their argument that the structural design flaws were a patent, rather than a latent defect. They submit that because the defects were related to structural rather than weather tightness flaws the test for when loss occurred should be when negligent act occurred not when it was reasonably discoverable. Westland does support this argument, but only by analogy. It suggests that when a purchaser relies on a LIM when purchasing a property the loss occurs immediately because the purchaser pays more than the property is worth. In this case, the argument advanced by the defendants is that the plans they prepared are like LIMs because as soon as the plan has been provided the purchasers are

getting a defective asset.



2 [2014] NZCA 59.

3 [2012] NZSC 11.

[11] It may be considered that Westland disapproves of the High Court decision in Bayliss v Central Hawkes Bay District Council4 which I relied on in my judgment. It does appear that Altimarloch and Westland stand for the proposition that negligently prepared LIMs result in immediate rather than latent loss, which is different from the conclusion in Bayliss.

[12] In my assessment it is questionable whether the provision of building designs is sufficiently similar to the provision of a LIM to be covered by these cases. I do not think that Westland necessitates the recall of my decision.

A very special reason justifying recall

[13] I have earlier at paragraph [2] herein referred to a number of errors the defendants’ claim they have been identified in my judgment.

Identifying the relevant act or omission for the purposes of s 393(2)

[14] Addressing the submissions for the defendants that I failed to determine what the relevant act or omission was or when it occurred, and whether it occurred more than 10 years before the additional plaintiffs were joined, my view is these issues were either dealt with fully or otherwise are not issues that could be determined on the strike out application.

[15] In addressing the defendants’ submissions under the Building Act it is clear that my conclusions at [35] and [82] need revisiting. Obviously issues about whether a defect is latent are not relevant to the determination of whether the claim is barred by the Building Act. This means that my discussion of Hamlin5 and Sunset

Terraces6 is not directly on point when it comes to the Building Act. Sunset Terraces

addresses when a cause of action accrues when there are subsequent purchases. The statement in my judgment that time runs anew is correct as far as the Limitation Act is concerned, but it does not affect the operation of the 10 year longstop provision in

the Building Act.

4 [2010] NZHC 275; [2011] 11 NZCPR 843.

5 Invercargill City Council v Hamlin [1996] 1NZLR 513 (PC).

6 North Shore City Council v Body Corporate 188529 [2011] 2 NZLR 289 (SC).

[16] Although I did not directly address when the relevant act or omission occurred, it is my view that this could not have been done in this case as the Court will need to hear evidence on the point.

[17] In relation to the new pleadings my conclusion was that whether the changes in the eighth and ninth amended statements of claim was sufficient to amount to a new cause of action were matters that were more appropriate to deal with at trial.

Discussion of claims of misapprehending the submissions of counsel

[18] In paragraph [3] herein I have referred to the specific ‘misapprehensions’ that

the defendants’ submit could justify a recall.

Characterisation of defectiveness of structural plans

[19] Regarding concern that the structural plans were characterised as being so defective anyone could have noticed that, the defendants say it was their submission that to the extent the plaintiffs argue there were any defects in the building, those must be reflected in the building consent drawings and if those are defects then they would have been apparent to any reasonable and prudent structural engineer.

[20] With respect I consider the judgment appreciated this submission as in para

[62] I stated:

Nor do the defendants suggest that anyone other than an expert could have formed an opinion as to the adequacy of the engineers’ drawings.

Reference to changes of the pleadings

[21] The defendants take issue with my description of the focus of the pleadings changing to shear wall connections and their capacity to transfer earthquake forces. In my judgment that overview of matters insufficiently addresses the full text of para [40] which seems to capture the spirit of the defendants’ submission that the focus of proceedings had shifted from weather tightness to structural engineering. It may be that the last sentence of para [40] is slightly incorrect in the specific structural

engineering defects it mentions. It appears that the 8th and 9th ASOC focussed

mostly on column reinforcement, the other structural engineering defects being added later. In the context of my decision, I do not think that this substantially changes the outcome. The fact remains, the emphasis in pleadings had changed and new types of structural defects were being pleaded.

Reference to documents relied on for issue of building consent

[22] The defendants have expressed concern about my description and apparent conclusion that the building consent would not have been granted as would not the engineers’ Producer Statement redesign and Code Compliance, without the engineers’ Producer Statement for construction.

[23] It was clear by my statement that it had been my intention to adopt the submission of counsel for the plaintiffs who submitted:

It is uncontested that the building consent would not have been granted without an engineers’ Producer Statement redesign and the Code Compliance Certificate would not have issued without the engineers Producer Statement Reconstruction.

[24] I do not think any potential typographical errors in my judgment affect the outcome in any material way.

Whether the Council should have discovered the drawing defects

[25] The defendants object to the statement at para [79] that the “defect should have been discovered by the Council at the time the drawings were submitted for approval and consent”.

[26] The engineers claim this argument never formed part of their submission. Instead, they claim that their strike out application was based on the cause of action accruing when the drawings were provided because that was when the defective product was provided. They claim that it does not matter whether the Council should have discovered the defects.

[27] However, and has earlier been noted, the defendants have argued that a reasonable and prudent structural engineer could have observed the defects. The

distinction appears to be that if it could be expected that the Council should have discovered the defect that might allow for a defence based on reasonable discovery. Instead, the defendants’ submission emphasises that reasonable discoverability does not matter and that the fact that the defect could have been discovered by a reasonable prudent engineer goes to the defect being apparent on the face of the plans, rather than being hidden.

[28] While it may be a mischaracterisation of the defendants’ submission to say that the Council should have discovered the defects, I do not think that this statement materially affects the outcome. If I had replaced Council with “reasonable prudent structural engineer” then the sentence would match the submissions for the defendants. Either way, I determined that this case was one which reasonable discoverability applied to; and that the defendants concern in this regard is just another indirect way of challenging that conclusion.

Discussion of claims of a failure to refer to the evidence of Mr Murray Jacobs in his affidavit dated 16 December 2013 and misunderstandings resulting from this

[29] This second affidavit of Mr Murray Jacobs essentially sets out the reasons why he believes that the ninth ASOC created additional difficulties by pleading defects of a different kind than those contained in earlier statements of claim.

[30] At para [72] of my judgment I stated:

What is not clear from the evidence is to what extent some of the real particulars provided by the 8th and 9th ASOC’s are distinct from those which were previously pleaded.

[31] The defendants claim Mr Jacobs’ second affidavit gave evidence about this very fact. It is correct that his affidavit gives evidence that the new pleadings required additional work on his part as they were of a different type. But, it is important to emphasise the distinction between a new particular that might create new work for an engineer and whether a new particular amounts to a new cause of action. As I noted in my judgment this is a matter of fact and degree. Further, given the robust nature of strike out it is appropriate to leave that argument to a substantive hearing.

My conclusions at paragraph [85] that the defendants’ arguments were not sustainable because there was no observable damage until physical cracking occurred

[32] On reflection I agree that the structural defects that are the subject of the strike out application appeared to only relate to earthquake strength rather than weather tightness. These defects would not reveal themselves until an earthquake occurred.

[33] The problem that this raises is how the reasonable discoverability test might apply in cases where the defect will remain hidden until an earthquake occurs. On balance, I think that the fact that structural design flaws might not reveal themselves until an earthquake occurs is not a reason to not apply the reasonable discoverability test to claims of this kind. It in all likelihood means that the 10 year longstop provision will be more directly relevant to claims for earthquake related structural defects as no prudent purchaser would have noted the defects.

[34] Furthermore, whilst the references to cracking might not be appropriate generally for cases about structural engineering defects, the fact is that in this case the cracking that occurred as a result of weather tightness issues caused the other defects discovered. In this case, cracking was the event that precipitated discovery.

Conclusions

[35] Of grounds advanced by the engineers the only one that I consider has any merit is the submission that I failed to address what the relevant act or omission was for the purposes of the 10 year longstop provision. I think my judgment made it clear what my concerns were in that regard; that it may have been that the relevant act or omission occurred later than when the defendants contend. As canvassed in my judgment, the engineers’ involvement continued into the construction process. Even if there was no significant change in the design of the drawings over time, the continued presentation of the same (or similar) drawings may amount to fresh acts that could give rise to a new 10 year period.

[36] Also, the application for recall is of a strikeout decision. This has two important consequences. First, the facts should be taken as pleaded by the plaintiffs and this may strengthen the argument that the relevant act or omission occurred later. Secondly, claims of my failure to determine the date of the action or omission is only relevant to the recently added plaintiffs and not to the new pleadings, and I have discretion as to whether strike out. It does not seem there would be much additional cost in defending very similar, if not identical claims, from the later plaintiffs. The defendants will be able to run their Building Act defence again in the full hearing in relation to these plaintiffs.

[37] The claim to exclude the later plaintiffs depended on when the relevant act or omission occurred. The defendants say that act on which these proceedings are based is on the presentation of the consent drawings, and that any drawings after this date were merely copies.

[38] The difficulty with the defendants’ submission and the reason why I am not prepared to recall my decision, is that the argument that any drawings after 12 June

2002 are not relevant acts or omissions for the purposes of a negligence claim must either be based on the argument that the engineers owed no duties to the plaintiffs in respect of these drawings, or that those drawings are not causative of the loss suffered by the plaintiffs.

[39] I find the argument that they did not owe a duty untenable, and they appear not to have run that argument. In terms of the argument about causation, I think that is properly a question to be determined at trial. It may be for instance that the initial drawings are responsible for some of the loss suffered, but the fact that those drawings were resubmitted at later dates might also be regarded as a cause of the plaintiffs’ loss.

[40] The evidence that is relevant to the determination of when the act or omission occurred is the design drawings, particularly those attached to the affidavit of Mr Wilson. Those drawings appear to show revisions occurring until 2003. That means that the relevant act or omission could have occurred within the 10 year longstop limitation period as the latest plaintiffs were joined in December 2012. However,

and as I trust I have made adequately clear in my judgment and elsewhere here, that it is difficult to presently determine an exact date. Respectfully I agree with the submission of counsel for the plaintiffs on the strike out application:

5.6 Self-evidently the ongoing redrafts and revisions in the plans added to or changed the design in some fashion on each occasion. To determine what the change was and what affect that had will require a detailed plan by plan examination. That is a factual issue for trial. Once the facts are ascertained the experts can opine as to the relevance of the specific change.

Result

[41] The application for recall is refused. [42] Costs are reserved.




Associate Judge Christiansen


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