Finnigan, Tinos Trustee Ltd and Carytids Trustee Ltd v Auckland Council

• Jurisdiction: New Zealand
• Judge: Bell
• Judgment Date: 18 June 2014
• Neutral Citation: [2014] NZHC 1390
• Docket Number: CIV-2013-404-4991
• Court: High Court
• Date: 18 June 2014

Between

Anita Maria Finnigan, Tinos Trustee Limited And Carytids Trustee Limited

Plaintiffs

and

Auckland Council

First Defendant

[2014] NZHC 1390

CIV-2013-404-4991

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Application for strikeout by second defendant architect — plaintiffs claimed in negligence in respect of design of house which proved to be a leaky building — plaintiffs said that there was insufficient details in the plans to allow the house to be constructed free of defects and for the Council to assess the consent application — construction costs had amounted to over $1 million and repairs had totalled $650,000 — parties had reached a settlement in 2006 on an application by the architect for summary judgment for amounts it claimed it was owed which was expressed to be in full and final settlement of all issues between the parties, not limited to all allegations of negligence and breach of contract — whether the proceedings were barred by the s2006 agreement.

Appearances:

D K Wilson for Plaintiffs

No appearance for First Defendant J M Keating for Second Defendant

ORAL JUDGMENT OF ASSOCIATE JUDGE Bell

Bell

1 This leaky-building case concerns a house built at 38 View Road, Waiheke Island. The plaintiffs, the trustees of the Irini Trust, are the owners of the property. The Irini Trust is a sub-trust of the Tinos Trust, which owned the property at the time of construction. Anita Finnigan is one of the trustees of both trusts. She is the plaintiff who dealt with the second defendant.

2 The second defendant is the architect that designed the house. It has applied to strike out and for summary judgment on the grounds that it has already entered into an agreement with the plaintiffs in full and final settlement of their claim.

What the case is about

3 The trustees of the Tinos Trust had the house built at View Road between 2004 and 2006. Ms Finnigan engaged the architect to design the house, apparently in 2003. The architect carried out the design work and applied for a building consent in early 2004. It was a major job. Construction costs are said to have come to about $1m. The architect's fee was for approximately $100,000. When extras were added on, it was ultimately paid about $115,000.

4 In 2009 the owners found that the house had water-ingress problems. They instructed a building consultant, Mr Medricky, to inspect the building. He reported that the defects required repair. That repair work has now been carried out. The cost of the repairs, including GST, is said to come to $651,066. The plaintiffs have sued for the recovery of these repair costs plus general damages. The defendants are the Auckland Council and the architect.

5 The claim against the architect is for negligence in its design work. Specifically, it is alleged that there was inadequate detail. There was insufficient detail for the council to assess the application for building consent adequately and for the builder to put up a house that was free of defects, weathertight, and which met reasonable standards of construction. The details were so lacking that the building did not comply with the Building Code and was not weathertight and suitable for residential use.

6 The statement of claim contains, as a first schedule, an extensive pleading of defects in the house. A second schedule sets out alleged deficiencies in the design documentation and specifications of the architect. That schedule reinforces the primary pleading that the deficiencies in design were a lack of sufficient information and detail.

The settlement agreement

7 The settlement agreement the architect relies on arose out of an earlier proceeding. In 2005 the architect sued Ms Finnigan in the District Court at Auckland for outstanding fees. It appears that while Ms Finnigan had paid the initial agreed fee, the architect claimed for extras for additional work. It applied for summary judgment. This was before the changes to the District Courts Rules in 2009. It was the kind of summary judgment application that may be made under the High Court Rules, although the amount was clearly within the jurisdiction of the District Court.

8 Ms Finnigan opposed the summary judgment application. For this hearing the parties have not provided the pleadings in the District Court but they have put in evidence copies of affidavits by Ms Finnigan and her builder, Mr Campbell; Mr Fearon, director of the second defendant; and the project architect, Mr Atcheson. They have also put the settlement agreement in evidence. That was a letter dated 10 May 2006 signed by counsel on both sides that recorded the terms of settlement. The relevant parts of the letter are:

Further to our various discussions, we confirm settlement of the proceedings on the following basis:

1 In full and final settlement of all issues as between the parties, howsoever arising including but not limited to all allegations of negligence and breach of contract, the defendant has made against the plaintiff the defendant will pay to the plaintiff by 1:00pm today the sum of $10,000 to the trust account of John Ewart, Solicitor, and the defendant will pay a further sum of $4,000 upon delivery of certain drawings which are described in more detail below.

[Paragraphs 2 and 3 of the letter deal with delivery of drawings and payment of the sum of $4,000.]4 Upon payment above, the proceedings will be discontinued.

9 The architect relies on that agreement to say that Ms Finnigan and the trustees of the Irini Trust are barred from suing it for the alleged defects in design leading to the water-ingress problems which are the subject of this proceeding.

10 I record one matter which is not in dispute. In the District Court the architect sued only Ms Finnigan. The architect did not sue the other trustees of the Tinos Trust or the Irini Trust. However, it seems to be common ground that that agreement binds not only Ms Finnigan personally but also the trustees of the Tinos Trust, the owners of the property at View Road at that time, and the trustees of the Irini Trust (as sub-trustees and current owners of the property). No point was taken as to Ms Finnigan's authority to bind not only herself but also the other trustees.

11 The plaintiffs say that the agreement of 10 May 2006 did not settle the claims now made in this proceeding which, they say, were not known at that time. It is necessary therefore to consider these matters:

• (a) What does the agreement of 10 May 2006 mean?

• (b) On its true construction, does it apply to the claims made in this proceeding?

Interpretation of the agreement

12 The architect says that the agreement operates as a general release. It says first, as a matter of the plain meaning of the words, and second, when the agreement is read in its context, it is released from all liability for the plaintiffs' claim.

13 Counsel have referred to a number of authorities which deal with the interpretation of a settlement agreement containing a general release. The two more significant cases are the Court of Appeal's decision in Tag Pacific Ltd v The Habitat Group Ltd 1 and the House of Lords' decision in

Bank of Credit and Commerce International SA v Ali. 2 Counsel agreed that there is not any significant difference of approach between the Court of Appeal in Tag Pacific and the majority in Bank of Credit and Commerce International SA v Ali. I take the following extract from Tag Pacific as setting out the applicable principles. Tipping J said: 3

It is not always helpful to focus on so-called rules of construction. Certainly they are not to be elevated into principles of law. The ultimate objective is always to ascertain the intention of the parties from the words they have used, interpreted in the light of the objective circumstances known to them at the time. The general rule said to govern this case represents no more than a reflection of the inherent probabilities, ie that people are unlikely to intend to release a claim of which they are unaware at the time. But it is always possible for parties to do so, and such an intention will be found if clearly demonstrated by the words used. This we consider to be the correct modern approach to the construction of documents such as releases and, indeed, all contractual documents. It is not inconsistent with the various authorities to which we were referred, which included London & South Western Railway Co v Blackmore (1870) LR 4 HL 610 at 623 per Lord Westbury) and Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112 at 129 per Dixon CJ, Fullagar, Kitto and Taylor JJ. The summary to be found in Chitty on Contracts (Vol 1, General Principles (27th ed, 1994) paras 22–003 to 22–005 is to the same effect…

Although each case will turn on the words used in their factual setting, the actual decisions in Grant and in Blackmore show that an intention to release an unknown claim is not lightly to be inferred, even when apparently very general words have been used. This accords with commercial common sense. To that extent it may be helpful to speak of a rule of construction, provided it is remembered always that everything turns on the words used interpreted in their factual setting.

14 The speeches of the majority in Bank of Credit and Commerce International SA v Ali are to similar effect, in particular the speeches of Lord Bingham 4 and Lord Nicholls 5 emphasising the importance of context.

15 Other cases were also cited. I apply the principles above, while bearing in mind that the terms and circumstances of agreements were different in other cases. Therefore, while other cases are of assistance in seeing how the principles are applied, they are not directly applicable to the circumstances of this case. In particular, Nixon v Richardson is about the dissolution of a partnership. 6 That is a

different matter, both because the agreement used different words from the present one (it referred to “all claims”)...