Body Corporate 160361 (Fleetwood Apartments) v BC 2004 Ltd and BC 2009 Ltd

• Jurisdiction: New Zealand
• Judge: Fogarty J
• Judgment Date: 04 July 2014
• Neutral Citation: [2014] NZHC 1514
• Docket Number: CIV-2011-404-4890
• Court: High Court
• Date: 04 July 2014

Between

Body Corporate 160361 (Fleetwood Apartments)

First Plaintiff

Body Corporate 160362

Second Plaintiff

F H Yeung & Ors

Third Plaintiffs

and

BC 2004 Limited and BC 2009 Limited

First Defendants

Andrew Property Services Limited

Second Defendant

Auckland Council

Third Defendant

PBS Distributors Limited

First Third Party

Façade Design Services Limited

Second Third Party

Ronald Charles Hanley

Third Third Party

John Lukaszewicz

Fourth Third Party

[2014] NZHC 1514

CIV-2011-404-4890

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Application by third defendant council to file an amended cross-claim against the first and second defendants — council relied on an assignment to it of the plaintiff's causes of action against the first and second defendants in leaky building litigation — plaintiff and council had reached a settlement whereby council agreed to pay plaintiff $1.5m and received the assignment of the causes of action — council would recover the $1.5 million payment out of the judgment proceeds — resulted in council being potentially liable for a greatly reduced sum — second defendant opposed filing of claim — whether the assignment was champerous and therefore void because the council's commercial interest justification did not exist prior to the litigation interest — whether a common law assignment of the causes of action to one of the tortfeasors defeated s17 Law Reform Act 1936 (proceedings against, and contribution between, joint and several tortfeasors) — whether New Zealand should align itself with the Australian common law authorities prohibiting the assignment.

Counsel:

MC Josephson and M Gibson for Plaintiffs

MJW Lenihan for First Defendants

JD McBride, DA Cowan and JPM Wood for Second Defendant

SA Thodey and KM Parker for Third Defendant

J Keating for Second and Third Third Parties

This judgment was delivered by me on 3 July 2014 at 4.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:

JUDGMENT OF Fogarty J

Fogarty J

Table of Contents

Introduction	[1]
The issue resolved in this judgment — whether the assignment is void as against public policy	[21]
Champerty	[22]
The Trendtex test for void against public policy	[26]
The issues and their resolution in Trendtex	[34]
Leading cases following Trendtex	[41]
Brownton Limited v Edward Moore Inbucom	[41]
Brownton followed in New Zealand in Beresford Street	[48]
Citibank, the Australian case inconsistent with Brownton and Beresford Street	[51]
Is section 17 of the Law Reform Act sufficiently flexible to handle the presence of a common law assignment of the causes of action to one of the tortfeasors, without defeating the purpose of the legislation?	[66]
Examples developed by counsel	[70]
Rebalancing for solvency — applying the just and equitable test	[92]
Rebalancing in the UK	[95]
Can this statutory process apply alongside an assignment of the plaintiff's entitlements to a tortfeasor?	[101]
Dual role of assignee	[101]
Assignee tortfeasor controls quantum being sought	[108]
Section 17 decision may not in fact allocate the judgment between solvent tortfeasors upon a just and equitable footing	[110]
The trial will proceed with the assignee necessarily contending for a sum in damages, exceeding the settlement sum as that has reduced the loss .	[111]
The assignee has an incentive to pursue argument at trial, designed to increase contribution of other defendants .	[112]
Conclusion	[115]
Alignment of New Zealand and Australian common law policy on assignments of causes of action	[121]
Conclusion	[143]
Costs	[151]

Introduction

1 The plaintiffs in these proceedings are the owners of 40 apartments located within a development known as “Fleetwood Apartments” in the Auckland CBD. The first defendants, commonly known as “the Babbage Companies”, are a multi-disciplinary building consultancy that has operated throughout New Zealand for over 75 years.

2 In 2003, the plaintiffs engaged Babbage to investigate suspected leaky building syndrome in the apartments. Then between 2004 and 2006 they engaged Babbage to design and supervise remedial works that form the subject matter of these proceedings.

3 The second defendant, Andrews Property Services Limited (APS), is a construction company that has operated in New Zealand for nearly 25 years and continues in business.

4 The third defendant, the Council, was responsible for regulation of the building works.

5 These proceedings were set down for trial, but shortly before the trial date settlement agreement was reached between the plaintiffs and the Auckland Council but not with APS, who refused to settle. 1

6 Under the settlement agreement, the Council pays the plaintiffs the sum of $1.5m. It admits that it is liable to pay the claimants this sum. The claimants agree that they are not entitled to any further payment or recovery from the Council except as provided in this agreement. The settlement contains an assignment of the plaintiffs' causes of action:

Assignment

• 5 In exchange for the payment of the settlement sum the claimants hereby unconditionally and irrevocably assign to the Council the

  claimants' entitlement to recover damages against BC 2004 Limited and BC 2009 Limited and Andrew Property Services Limited.

• 6 It is agreed the Council will not profit from this assignment and:

  • (i) The claimants will receive the first $200,000 (GST inclusive if any) of any recovery (in cash) that the Council secures from any of the other defendants to the claim; and

  • (ii) The Council will receive the next $1.5m (GST inclusive if any) of any recovery (in cash) and a further sum reflecting the costs incurred by it in pursuing the assignment as from 21 May 2014. The Council further agrees to take reasonable steps to provide such documents as the plaintiffs require to evidence those costs; and

  • (iii) The claimants will receive any amount in excess of the referred to in (i) and (ii) above recovered (in cash).

7 The sum of $1.5m is less than half the amount being sued for in the current statement of claim.

8 Ms Thodey, for the Council, agreed that the effect of the assignments is to reduce significantly the likely contribution otherwise payable by the Council following a judgment were the judgment to proceed, and to be around $3m. The flow of funds would be:

• (a) The first $200,000 to the plaintiffs;

• (b) $1.5m to the Council to reimburse its payment to the plaintiffs;

• (c) All the Auckland Council's costs on a solicitor/client basis, leaving the balance over to the assignor;

• (d) The net cost of the litigation to the Council would be just $200,000.

9 The Council as the local authority, as a tortfeasor, would usually expect to contribute approximately 20 per cent of the $3m, 2 subject to upward adjustment should the other concurrent tortfeasors not be solvent for their assessed contribution. So the assignment delivers a much lower net cost of the litigation. On the example

above it is a net cost of $200,000 to be compared with otherwise a likely liability of at least $600,000 and probably considerably more. This is without taking into account the application of s 17 of the Law Reform Act 1936

10 The current statement of claim pursues claims against Babbage in contract, and in breach of the Consumer Guarantees Act 1993, and in breach of Building Act warranties under the Building Act 2004. The fourth cause of action against Babbage is in negligence. The fifth cause of action is in breach of the Fair Trading Act 1986.

11 The claim against APS is for a breach of contract. The second cause is for breach of the Consumer Guarantees Act. The third cause is for the breach of Building Act warranties. The fourth cause is in negligence and the fifth cause is for breach of the Fair Trading Act.

12 The claim by the plaintiffs against the Council is in negligence. The relief sought against all these causes of action is the same:

(a) The cost of rectification work	$1,964,500.25
(b) Losses on sale of three units	$475,000.00
(c) General damages for the consequences of depression, anxiety, distress, inconvenience and loss of enjoyment of the properties caused to the unit holders, currently assessed at $20,000 per person in round terms-$400,000-$5,000	$400,000.00 to $500,000.00

13 Following the settlement, the Auckland Council — still described as the third defendant — sought leave to file an amended cross-claim in order to take advantage of the assignment in the settlement. The grounds on which the order is sought are:

• (a) that leave is required as the date for pleadings have closed;

• (b) the amendments are required to bring the real issues in dispute between the parties before this Court; and

• (c) that no prejudice will be suffered by any parties as a result of the proposed amendments.

14 The intituling of the proposed “Amendment statement of cross-claim by third defendant against first and second defendants” still records the plaintiffs as before but inserts the phrase “(as assignors)”. The Auckland Council is still identified as the third defendant but after its name is added “(as assignee)”.

15 This cross-claim amends the losses but not significantly. The cost of remediation is reduced to $1,652,574.67. Interest of $59,172.99 is sought with leave to update the sum. Consequential losses of loss of rental and cleaning costs of $255,748.98 are sought, with provision for some adjustment. Losses in respect of the three units are pursued still at the sum of $475,000 and the general damages, a cause to the third plaintiffs for depression, anxiety etc, are the sum of $745,000. Also in general damages there is a further claim of $386,564.71 being various named plaintiffs who have lost the...