JCS Cost Management Ltd v QBE Insurance (International) Ltd

• Jurisdiction: New Zealand
• Judge: Miller J,Courtney,Clifford JJ
• Judgment Date: 25 November 2015
• Neutral Citation: [2015] NZCA 524
• Docket Number: CA698/2014
• Court: Court of Appeal
• Date: 25 November 2015

Between

JCS Cost Management Ltd

First Appellant

and

Stephen Roy Johnston

Second Appellant

and

QBE Insurance (International) Ltd

Respondent

[2015] NZCA 524

Court:

Miller, Courtney and Clifford JJ

CA698/2014

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal against a High Court (HC) decision which granted the respondent's summary judgment application that the appellants were not entitled to insurance cover — the respondent had insured the first appellant and its director (the second appellant) for legal costs of defending claims brought in connection with their professional business as quantity surveyors and project managers — the appellants had been joined as joint tortfeasors by a council in a leaky building claim brought against it by a client of the first appellant — the claim arose after the second appellant attended an open home with the client, who then purchased the house — the second appellant had gone to the open home in the expectation that the first appellant might project-manage any upgrade to the house — the claim against the appellant failed on the basis that the second appellant had not given any advice as to the weathertightness of the property — the respondent then declined cover for legal costs as it said that they were not incurred in connection with the second appellant's business of quantity surveying and project management — whether the matter was suitable for summary judgment — whether the claim alleged civil liability “by any act, error, omission or conduct” that occurred in connection with quantity surveying or project management.

Counsel:

I J Thain for Appellants

PJ Napier for Respondent

JUDGMENT OF THE COURT

• A The appeal is dismissed.

• B The respondent will have costs in this Court for a standard appeal on a band A basis with usual disbursements.

REASONS

Miller J (dissenting)	[1]
Courtney and Clifford JJ	[41]

Miller J (dissenting)

Table of Contents

Summary judgment principles	[6]
The policy language	[8]
The Council's claim against the insureds	[13]
The insureds' claim against QBE	[19]
The decision below	[22]
Has QBE shown that the insureds' claim cannot succeed?	[23]
Result	[39]

1 QBE Insurance (International) Ltd insured JCS Cost Management Ltd and its director, Stephen Johnston, for, among other things, the legal costs of defending a claim brought in connection with their professional business as quantity surveyors and project managers.

2 In March 2009 Mr Johnston attended an open home at 18 O'Neills Avenue, Takapuna, with an existing client, Linda Johnson. He says that he did so in the expectation that JCS might project-manage any upgrade to the house should Mrs Johnson and her husband buy it. He had done similar work for them in the past. The Johnsons did buy the property through their family trust, and in due course JCS did manage renovations on the house.

3 However, the home proved to be a leaky building. The Johnsons sued the Auckland Council, which joined Mr Johnston, pleading that the Johnsons bought the house in reliance upon his advice that it appeared to be watertight. The claim failed at trial, Woodhouse J finding that Mr Johnston did not give any such advice. 1 His legal costs, net of recovery from the Council in the High Court and the policy excess, were $52,950.50. 2

4 Mr Johnston claimed the defence costs from QBE, which declined cover, alleging that the costs were incurred in connection not with his quantity surveying

and project management business but rather with a claim that Mr Johnston had given pre-purchase advice as a building appraiser

5 JCS and Mr Johnston brought a claim for damages in the High Court. QBE sought summary judgment and won. 3 JCS and Mr Johnston now appeal. The issue is whether it is arguable that the claim alleged civil liability “by any act, error, omission or conduct” that occurred in connection with quantity surveying or project management.

Summary judgment principles

6 I begin by noting that the authorities establish that summary judgment — for either party — is inappropriate where material facts are disputed or not proved by the affidavits, or where for some other reason a final determination properly requires a full hearing of the evidence. 4 This does not mean that the Court must accept uncritically evidence that is inherently lacking in credibility. 5

7 This appeal addresses a defendant's summary judgment application, about which this Court added in Westpac Banking Corporation v M M Kembla NZ Limited that only in a clear case should the Court decide by summary process that none of the plaintiff's claims can succeed: it must bear in mind that the defendant may hold more of the facts, and it should not make its decision by balancing the evidence finely as it might do at trial. 6

The policy language

8 The policy contained two insuring clauses, one containing a primary indemnity for civil liability and the other a costs extension for costs and expenses:

QBE shall indemnify the Insured for any Valid Claim subject to the terms of this Policy.

In addition, QBE shall pay Costs and Expenses incurred with the written consent of QBE in the defence or settlement of any Valid Claim, up to the Limit of Indemnity or $1M, whichever is the lesser.

9 Both insuring clauses provided cover for a “Valid Claim”. That term was defined, relevantly, as any Claim made and notified during the period of insurance and:

…alleging Civil Liability by any act, error, omission or conduct that occurred subsequent to the Retroactive Date in connection with the Insured's Professional Business Practice.

10 “Claim” was defined to mean:

Legal proceedings instituted and served on the Insured claiming damages; or

Any allegation of wrongdoing by the Insured for which the Insured is legally liable, together with a demand for damages; or

Any threat or intimation that legal proceedings will be issued against the Insured.

11 “Professional Business Practice” was defined as the Insured's business of quantity surveyor and project manager, and “Project Manager” was further defined to mean the provision of consultancy, certification or project co-ordination services for construction or development projects where the services were rendered for remuneration and the services fell within the Insured's Professional Business Practice:

The term “Project Manager” means the provision of consultancy, certification or project coordination services for construction or development projects where:

• • those services are rendered for remuneration; and

• • the services fall within the insured's Professional Business Practice.

The last limb of the second of these definitions is circular, but nothing turns on that.

12 “Costs and expenses” were defined as:

• 3.1 all necessary and reasonable legal costs, disbursements, witness costs, assessor costs or expert costs incurred by QBE solely in investigating, defending or settling any Valid Claim;

• 3.2 all necessary and reasonable expenses (other than loss of earnings or profits) that are incurred by the insured with the prior written consent of QBE solely in assisting QBE or its solicitors in the investigation, defence or settlement of any such Valid Claim;

• 3.3 any interest accruing after the date of entry of judgment against the insured and until the date QBE pays, tenders or deposits in court the judgment sum or such part of that judgment sum as is required to satisfy QBE's liability to the Insured in terms of the Limit of Indemnity.

The Council's claim against the insureds

13 As noted, Mr Johnston was joined as a third party by the Auckland Council on the basis that he was “a consultant on property matters”. The third party claim contained the following allegations:

In or about late March 2009 the plaintiffs [the Johnsons] engaged the third party for the purpose of obtaining advice as to the condition of the house.

In March 2009 the third party provided oral advice on the condition of the property to the plaintiffs.

In reliance upon the advice the plaintiffs proceeded to purchase the property and on 28 April 2009 the plaintiffs became the registered owners of the house.

14 Mr Johnston denied these allegations. His position was that he attended the open home because he wanted to secure any ongoing project management work if the Johnsons bought the property and he did not give any advice about its condition.

15 Counsel agree that the policy did not extend to pre-purchase advice, given as a building appraiser, on the property's condition. However, it is not quite correct to suggest, as I understood Mr Napier to do, that Mr Johnston was sued in that capacity only, quite independent of his profession as a quantity surveyor and project manager. The pleadings certainly alleged that Mr Johnston was engaged to provide advice on the condition of the house and that as a matter of fact the plaintiffs relied upon his advice to buy the property. But they did not specify in what professional capacity he was engaged or preclude the possibility that he was there to advise on the likely cost of renovations and assessed the property's present condition as an incident of that activity.

16 In her evidence-in-chief, which was exchanged before trial, Mrs Johnson, upon whom the Council relied to make out its third party claim, said that she wanted Mr Johnston's opinion on whether there were any problems with the house and wanted to discuss any work that the Johnsons might do. She also acknowledged that he had looked at other properties to ascertain whether they were sound and suitable for renovations. She conceded in evidence that no arrangement had been made for payment of a fee and she did not expect to pay anything. So her account was generally consistent with Mr Johnston's claim that he was there in connection with his business, looking for future work.

17 The Council's position evolved...