Oyster Management Ltd v Msc Consulting Group Ltd

JurisdictionNew Zealand
CourtHigh Court
JudgeBREWER J
Judgment Date30 April 2019
Neutral Citation[2019] NZHC 913
Docket NumberCIV-2018-404-2021
Date30 April 2019

[2019] NZHC 913

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KOTI MATUA O AOTEAROA TAMAKI MAKAURAU ROHE

CIV-2018-404-2021

Between
Oyster Management Ltd
First Plaintiff
Corinthian Trustees Ltd
Second Plaintiff
and
Msc Consulting Group Ltd
Defendant
Counsel:

N F Flanagan and D R Green for Plaintiffs (in opposition)

R M Flinn and N J Cannon for Defendant (Applicant)

Tort — negligent misstatement — limitation — proximity — foreseeability — Building Act 2004

The Court held that Oyster's reliance on the Report was not sufficiently unforeseeable to negate any possibility of a duty at this stage. Commercial buildings were bought and sold, earthquake resilience was an important factor, reports on earthquake resilience would have obvious interest to prospective purchasers as well as to prospective and existing tenants. However, many of the features affecting foreseeability also go to the more substantive proximity enquiry.

As to proximity, the Court was not satisfied the proposed duty could be fully rejected on the evidence. The questions of the purpose for which the report was prepared, who could be expected to rely on it and the extent of that reliance were factual in nature. So were the details of Oyster's actual reliance. A trial was necessary.

There were factual issues regarding whether Oyster could reasonably rely on the report without independent enquiry. Oyster had done nothing to confirm its correctness. The limitation clause was ambiguous. Strike-out on the negligent misstatement cause of action was not appropriate.

The courts approached claims based on a continuing duty of care on the basis that a limitation period would run from the point at which the work clearly concluded. There was a difference between a continuing duty and a separate duty arising on revisiting work. The only way for Oyster to avoid being defeated by the limitation period was if they had a tenable argument that the issuing of the reports had not functioned as a separate commission, but as a continuation of the earlier structural engineering work. The evidence suggested MSC was commissioned for the reports on the basis of having done the initial work. However, there was no suggestion the documentation relating to the earlier work anticipated future reports. Any precedent for treating a report of the nature of second report as a continuation of the earlier work sufficient to avoid the time-bar. It was clear the work to which the longstop in s393(2) BA related was completed. The reports were not a continuation of the work but arose from fresh events (the earthquakes). The argument that the second report served to continue the duty of care MSC was under when undertaking its engineering work for limitation purposes was not sufficiently strong to avoid strike-out.

MSC's application for strike-out against Oyster's first cause of action was declined. Oyster's claim in negligence was struck out on the basis of s393(2) BA.

JUDGMENT OF BREWER J

This judgment was delivered by me on 30 April 2019 at 11:00 am pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

Introduction
1

The defendant (MSC) applies for strike out of, or summary judgment on, the plaintiffs' causes of action.

2

The plaintiffs plead loss arising from negligent misstatement by MSC in a report on the ability of a commercial building to withstand earthquakes. The plaintiffs plead they bought the building in reliance on the report. Alternatively, the plaintiffs bring their claim in negligence.

3

MSC makes its applications:

  • (a) against the negligent misstatement claim on the basis it did not owe the plaintiffs a duty of care; and

  • (b) against the negligence claim on the basis it is time-barred by s 393(2) of the Building Act 2004.

Strike-out/Summary judgment
4

The threshold for a claim to be struck out is high. The principles are: 1

  • (a) Pleaded facts, whether or not admitted, are presumed to be true. This does not extend to pleaded allegations which are entirely speculative and lacking in foundation.

  • (b) The causes of action must be so clearly untenable that they cannot possibly succeed.

  • (c) The jurisdiction to strike out is to be exercised sparingly, and only in clear cases where the Court is satisfied it has the requisite material to make a decision.

  • (d) The jurisdiction is not excluded by an application raising difficult questions of law and requiring extensive argument.

5

The Supreme Court cautions against striking out claims positing novel duties of care prematurely. 2 Justice Elias described the question on strike-out as limited to “whether the circumstances relied upon by the plaintiff are capable of giving rise to a duty of care.” 3

6

The approach to summary judgment is similar. The applicant bears the onus of showing that none of the causes of action against them can succeed. 4 Summary judgment is appropriate only for cases where the issues can be decided on the affidavits alone. 5 It is not appropriate where there are disputed issues of material fact.

7

Given duties of care are closely bound to the factual contexts in which they arise, strike-out and summary judgment will be appropriate only if the causes of action are plainly hopeless.

Relevant facts
8

The first plaintiff, Oyster Management Ltd (Oyster), manages a property ownership scheme. The second plaintiff, Corinthian Trustees Ltd (Corinthian), holds the assets of that scheme as a custodian company. The assets include the building which is the subject of the plaintiffs' claim.

9

In 2003–2004 MSC was engaged as a consulting structural engineer to assist in designing and observing construction of a commercial building situated in Auckland (the building).

10

In 2012, following the Canterbury earthquakes, many commercial building owners began obtaining seismic assessments of their buildings to assure themselves and their buildings' occupants that the buildings were sufficiently earthquake-safe.

11

In 2012 the building was owned by Corinthian Drive Investments Ltd, a member of the Smales Farm Group, and managed by Smales Farm Management (Smales Farm).

12

Smales Farm commissioned MSC to undertake a seismic assessment of the building. MSC explains this was for the purpose of assuring tenants of the safety of the building and assisting with tenanting it (or keeping it tenanted). Oyster submits that MSC was chosen because it had carried out the original structural engineering work for the building's construction.

13

The relevant metric of earthquake resilience or expected seismic performance is the New Building Standard (NBS) rating. According to the affidavit evidence, most commercial buildings require an 80 per cent or “A” NBS rating to attract commercial tenants.

14

On 17 May 2012 MSC provided an Initial Structural Evaluation Report (IEP) for the building to Smales Farm. It contained a limitation clause:

The findings contained in this report are for the sole use of Smales Farm management. The information contained within is not intended for use by other parties without prior permission of MSC Consulting Group Ltd.

15

The IEP assessed the building as having a 72 per cent NBS rating.

16

Smales Farm asked MSC to carry out a further Detailed Engineering Evaluation Report (DEE) on the building. This was provided on 10 September 2012. Clause 2.5 sets out limitations. For the most part the clause declines to guarantee that all potential features have been identified and qualifies that certain assessments have not been undertaken. It concludes that:

This report is of defined scope and is for reliance by Smales Farm Management and only for this commission. MSC should be consulted where any question regarding the interpretation or completeness of our inspection and reporting arises.

17

Clause 2.1 defines the scope of the work as “to establish the seismic risk and vulnerability of the existing 6 level building”.

18

The DEE assessed the building as having an NBS rating of up to 87 per cent.

19

MSC submits that while preparing the IEP and DEE it was not aware of any process of selling the building or preparing it for sale.

20

The plaintiffs submit the DEE was used to assure tenants and prospective tenants that the building was safe. For example, in July 2014 Smales Farm provided the DEE to ANZ Bank, following which ANZ entered into a lease for the greater part of the building.

21

In October 2014 Oyster entered into a sale and purchase agreement for the building. Oyster pleads that, during due diligence, Smales Farm provided Oyster with a copy of the DEE, which Oyster relied on to determine the building was safe for occupation by commercial tenants.

22

On 27 November 2014, Oyster informed MSC it had purchased the building, and sought MSC's consent to include the DEE in an investment statement and prospectus for the building. MSC denied the request.

23

Oyster did not include the DEE in its prospectus but did mention that a DEE report assessed the building as having an 87 per cent NBS rating. The prospectus clarified that the DEE was not prepared for Oyster and therefore was not attached.

24

Oyster submits it relied on the DEE for assurance that the building was safe for occupation by commercial tenants before purchasing the building and in its capacity as manager of the building on an ongoing basis. Oyster pleads it would not have purchased the building had the DEE not provided such a positive rating.

25

In April 2017 ANZ engaged another engineering firm, Beca Ltd, to carry out a high-level review of the IEP and DEE reports. Oyster pleads that Beca questioned several key assumptions in MSC's work and was then commissioned by ANZ for a more detailed assessment, which resulted in a report dated 28 June 2017. Beca assessed the building as having an NBS rating below 20 per cent. Buildings with NBS ratings below 34 per cent are considered earthquake-prone. ANZ vacated the building.

26

MSC...

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