Blain and Another v Evan Jones Construction Ltd

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeO'Regan
Judgment Date19 Dec 2013
Neutral Citation[2013] NZCA 680
Docket NumberCA272/2013

[2013] NZCA 680

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

O'Regan P, Stevens and Miller JJ

CA272/2013

Between
Andrew Scott Blain And Kevin O'Connor & Associates Limited
First Applicants
Carter Holt Harvey Limited
Second Applicant
Lht Design Limited
Third Applicant
and
Evan Jones Construction Limited
Respondent
Counsel:

J N Bierre and D J MacRae for Applicants G M Brodie for Respondent

Application for review of the High Court's (“HC”) decision to set aside a third party notice — applicants and third party had been involved in construction of council's aquatic centre — council was suing applicants in tort for negligence and under the Fair Trading Act 1986 for misleading and deceptive conduct — applicants said respondent should be joined as it would be a concurrent tortfeasor based on alleged breaches of its duty of care — whether it was arguable that the law recognised a cause of action in negligence against the builder of a commercial building whether the terms of the contract were consistent with respondent owing a duty of care in tort — whether the disputes procedure in the Construction Contracts Act 2002 meant that the obligations were to be governed exclusively by contract, and a concurrent duty in tort should not be imposed.

The issues were: whether it was arguable that the law recognised a cause of action in negligence against the builder of a commercial building; whether the terms of the contract between the Council and EJCL were consistent with EJCL owing a duty of care in tort to the Council; and whether the Construction Contracts Act 2002 was relevant to the existence of a duty of care in tort owed by EJCL to the Council.

Held: The AJ had relied on Auckland Christian Mandarin Church Trust Board v Canam Construction (1955) Ltd. This decision was of the view that Invercargill City Council v Hamlin had been “limited to domestic buildings”. The Supreme Court's decision in Body Corporate No 207624 v North Shore City Council (Spencer on Byron) had since ruled that there was no distinction between residential and commercial properties in Hamlin and therefore the authority on which the AJ had been relying was called into question. Although the reasoning of Spencer on Byron was limited to local authorities, its rejection of the residential/commercial distinction meant that, even in the context of a builder/owner dispute, this area of the law had to now be regarded as unsettled, notwithstanding that there were strong policy arguments against recognising a duty of care in circumstances such as these.

The AJ approached the question of whether a duty in tort was inconsistent with the terms of the contract on the basis that the indemnity was the only remedy available to the Council against EJCL under the contract. The indemnity did not exclude the Council having a remedy against EJCL in damages for breach of contract. The presence of an indemnity did not detract from the Council's other legal rights and remedies.

In any event the indemnity clause was expressed in very wide terms. Even having regard to the exclusions, EJCL's duty of care in tort would not impose a greater liability than it had under the contractual indemnity. The AJ misconstrued the scope of EJCL's potential liability in negligence. He considered that in tort EJCL could be liable to the Council if it acted unreasonably “even if it was acting on instructions from the engineer”. However, the third party claims against EJCL were for its own negligent conduct, not for the acts or omissions of the engineer.

It was arguable that the contractual duty to perform the work in a tradesman-like manner was coextensive with a duty to exercise reasonable skill and care in tort. There were no exclusions or limitations in the contract on EJCL's obligation to act in a tradesman-like manner, so imposition of such a duty would not allow the Council to escape any contractual limitation on liability nor impose a quality standard exceeding that which was required under the contract.

The dispute resolution provision in the contract was exclusive only during the construction period and did not prevent the Council from suing EJCL for breach of contract after the end of the construction period. It might have some bearing on the ultimate outcome, if EJCL was found to owe a duty of care to the Council, to the extent that an opportunity to remedy a breach at low cost during construction might have been lost.

The CCA set out a process for having already existing substantive rights determined and was not a factor for or against the imposition of a duty of care. The dispute resolution procedure did not foreclose orthodox court action as determinative. The CCA was not relevant to the determination of the rights and obligations of parties after the building was completed.

Appeal allowed. Order setting aside third party notices quashed.

JUDGMENT OF THE COURT
  • A The application for review of the Associate Judge's decision is allowed.

  • B The order setting aside the third party notices issued by the applicants is quashed and the third party notices are reinstated.

  • C The costs order made by the Associate Judge is quashed. In the absence of agreement, costs should be redetermined by the Associate Judge in light of this judgment.

  • D The respondent must pay costs to the applicants calculated on the same basis as for a standard appeal to this Court on a band A basis plus usual disbursements. For the avoidance of doubt only one set of costs and disbursements is payable. We certify for two counsel.

REASONS OF THE COURT

(Given by O'Regan P)

Introduction
1

In this judgment, we deal with an application under s 26P of the Judicature Act 1908 and r 2.3 of the High Court Rules to review a decision of Associate Judge Matthews. 1 The application was transferred to this Court for hearing under s 64 of the Judicature Act by Fogarty J. 2 The case therefore involves this Court exercising the High Court's jurisdiction under s 26P, under which the High Court is required to review the decision to which the application for a review relates and “make such order as may be just”. 3 Under r 2.3(4) of the High Court Rules, the review proceeds as a rehearing of the proceedings to which the decision under review relates.

Background
2

The decision under review was an interlocutory application made by the respondent, Evan Jones Construction Ltd (EJCL) to have third party notices issued by the applicants set aside.

3

The underlying High Court proceeding is an action commenced by the Grey District Council (the Council) against the applicants for damages arising out of their respective roles in relation to the construction of an aquatic centre in Greymouth.

4

The Council entered into a construction contract with EJCL (the third party in the High Court proceeding) for the construction of the aquatic centre. The Council also entered into a design and construction administration contract with the third

applicant (the fifth defendant in the High Court), LHT Design Ltd (LHT). LHT trades as LHT Engineering Solutions, and is an engineering consultancy.
5

LHT engaged the first applicants, (the first and second defendants respectively in the High Court), Mr Blain and Kevin O'Connor & Associates Ltd (KOA) to provide an independent review of part of the design work for the aquatic centre. KOA is a firm of consulting engineers, and Mr Blain is an engineer employed by KOA. The Council alleges that Mr Blain issued a producer statement and signed it on behalf of KOA, which then supplied it to the Council.

6

The Council sued Mr Blain and KOA in tort, alleging that they owed the Council a duty of care and were negligent, and breached that duty of care by issuing the producer statement because documents in the schedule to that statement were not wholly complaint with the relevant provisions of the building code. In the alternative, they sued Mr Blain and KOA under the Fair Trading Act 1986 for misleading and deceptive conduct.

7

The Council also sued LHT in tort, under the Fair Trading Act and for breach of the design and construction administration contract.

8

The second applicant (and fourth defendant in the High Court), Carter Holt Harvey Ltd (CHH), was the supplier of laminated veneer lumber (LVL) used for the beams supporting the roof of the main building of the aquatic centre. CHH supplied the LVL to a timber laminating company which in turn supplied them to the Council. The Council sued CHH for negligent misstatement in relation to the instructions relating to the installation and use of the LVL beams, or alternatively for misleading and deceptive conduct under the Fair Trading Act.

9

The Council also sued the architects for the aquatic centre (the architect was the third defendant in the High Court), but has now discontinued proceedings against the architect.

10

The essential problem with the aquatic centre that has led to the litigation was described by the Associate Judge as follows:

[2] The Council says that the LVL rafters have a deflection which is outside the recommended deflection levels in the building code, that the design of the roof structure allowed for the use of untreated LVL rafters and purlins which has had negative consequences for their structural integrity, and that at a point where aluminium-coated steel fixings have been installed with the use of galvanised steel nails, the nails have started to oxidise and corrode. The Council says it has suffered loss and damage yet to be quantified, for remedial work replacing the LVL rafters and purlins, and the galvanised nails. The damages will include professional fees and the cost of consequential repairs to the building.

11

The Council did not sue EJCL.

Third party notices
12

Each of the applicants joined EJCL as a third party to the High Court proceedings by issuing third party notices under r 4.4. They allege that EJCL owed the Council a duty of care to exercise reasonable skill, care and diligence...

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