IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2008-409-001071

BETWEEN	ANDREW ROSS LISTER
123 TRUSTEES LIMITED
AS TRUSTEES OF THE LISTER TRUST Plaintiffs

AND	2 HARROGATE STREET LIMITED First Defendant

AND	PAUL MAURICE FOLEY Second Defendant

AND	FOLEY DESIGN LIMITED Third Defendant

AND	PAYNTER INVESTMENTS LIMITED Fourth Defendant

Hearing:	On the papers

Appearances: D Smith for Plaintiffs
O G Paulsen for First Defendant

Judgment:	14 July 2010

JUDGMENT OF HON. JUSTICE FRENCH

Introduction

[1]	The  first  defendant  2  Harrogate  Street  Limited  seeks  to  strike  out  the plaintiffs’ claim against it.   An Associate Judge declined to strike it out and now
2 Harrogate has applied for a review of that decision.

LISTER AND ORS V 2 HARROGATE STREET LIMITED AND ORS HC CHCH CIV-2008-409-001071  14
July 2010

[2]       The review raises the issue of whether a nominee under an agreement for sale and purchase of land can obtain the benefit of the contact, and whether the developer of a motel complex owes a duty of care in tort to subsequent purchasers.

Factual background

[3]       The proceeding concerns a motel complex owned by the plaintiffs in their capacity as trustees of the Lister Trust.

[4]       The purpose-built complex was originally developed by 2 Harrogate.  After construction, the complex was leased for a time and then in June 2002, 2 Harrogate sold the freehold to a purchaser described in the agreement as “Andrew Ross Lister or nominee”.   Mr Lister nominated the plaintiffs to take title to the property on settlement.

[5]       The plaintiffs say the  motel complex  suffers  from a number of building defects which have resulted in water ingress and resulting damage.   They seek to recover the cost of repairs and associated losses from several defendants, including the developer 2 Harrogate.

[6]       The statement of claim pleads two causes of action against 2 Harrogate.

[7]       The first cause of action is in contract, for alleged breach of certain express warranties contained in the sale agreement relating to building requirements.

[8]       The second cause of action is in tort for negligence.  The plaintiffs allege that

2 Harrogate owed a duty to subsequent purchasers of the motel complex to exercise reasonable care in the construction of the building.  2 Harrogate is alleged to have breached that duty by failing to ensure the building was constructed in a proper workmanlike manner and in accordance with the requirements of the building code, and by failing properly to supervise its contractors and other agents.

[9]       As I understand the statement of claim, it is not alleged that 2 Harrogate itself physically carried out any building work as opposed to engaging the services of others.

[10]     2  Harrogate  seeks  to  strike  out  both  claims  on  the  grounds  that  neither disclose any reasonable cause of action.   It contends the contractual claim is unsustainable, there being no contractual relationship between it and the plaintiffs (only between it and Mr Lister), and that no duty of care was owed in tort.

The decision of the Associate Judge

[11]     In dismissing the strike out application, the Associate Judge considered that the contract argument had already been answered in the plaintiffs’ favour by the Court of Appeal in Laidlaw v Parsonage [2010] 1 NZLR 286.  In Laidlaw, the Court of Appeal held that a purchaser’s nominee under an agreement for sale and purchase does, as a result of s 4 of the Contracts (Privity) Act 1982, obtain the benefit of the contract and the right to sue on it.  The Associate Judge found that Laidlaw could not be distinguished and that he was bound by it.

[12]     As regards the tort claim, the Judge referred to the decision of Mt Albert Borough Council v Johnson [1979] 2 NZLR 234 (CA) and held that the duty issue should more appropriately await trial.

[13]     In his decision, the Associate Judge also considered an application from 2

Harrogate to transfer the strike out application to the Court of Appeal under s 64 of the Judicature Act 1908.

[14]     The application was made primarily on the basis that 2 Harrogate wishes to argue that Laidlaw was wrongly decided and should be revisited by the Court of Appeal.

[15]     The Associate Judge however noted that the Supreme Court has declined the unsuccessful party in Laidlaw leave to appeal: see Laidlaw v Parsonage [2010] 1
NZLR 286 at 295.   The Associate Judge also accepted that the law as stated in Laidlaw is “perfectly workable”.  The Judge accordingly declined the application for transfer.

Grounds of review

[16]     On review, counsel for 2 Harrogate contends that:

a)	Laidlaw was wrongly decided and should not be followed.

b)        The duty of care pleaded in the statement of claim is novel and it would not be just fair or reasonable to recognise such a duty having regard to orthodox policy/proximity factors.

Discussion

[17]     In support of his contention that Laidlaw was wrongly decided, Mr Paulsen has filed detailed submissions identifying alleged errors of principle and practical difficulties created by the decision.

[18]     Little purpose would however be served by my traversing them because, like the Associate Judge, I am bound by the decision which cannot be distinguished. Suffice it to say I do not consider Laidlaw was wrongly decided.

[19]     As regards the duty of care, there does not appear to be any direct authority on the issue of whether the developer of a motel complex owes a duty of care in tort to a subsequent purchaser or indeed its immediate purchaser.   The latter would of course have  the  benefit  of  any contractual  remedy,  which  is  why the plaintiffs acknowledge that the tort claim is essentially a “back up” in case its claim in contract fails.

[20]     I pause here to interpolate that while both parties described 2 Harrogate as an owner/builder in their submissions, I consider that strictly speaking the use of that term is not correct, the term being normally reserved for an owner who actually physically undertakes construction themselves.

[21]     It is well established that the jurisdiction to strike out should be exercised sparingly and only in cases where the Court is certain the claim cannot succeed. Striking out is a draconian step.  The Courts are especially slow to strike out claims

of negligence which assert novel duties of care: this in recognition of the factually sensitive  nature  of  the  enquiry  and  what  will  often  be  the  need  for  evidence, including expert evidence and the testing of such evidence in a trial setting: see Attorney-General v Body Corporate 200200 [2007] 1 NZLR 95 at [50] and Couch v Attorney-General [2008] 3 NZLR 725.

[22]     In my view, the Associate Judge was correct to hold that in the circumstances of this case a strike out application was not the appropriate stage for determining the duty issue.

[23]     Like the Associate Judge, I cannot be certain to the required degree that the tort claim is so untenable or so uncertain or clearly bad that it should be precluded from going forward.  I have come to that conclusion for the following reasons:

i)         It is well established that an owner/builder owes a duty of care in tort both to their immediate purchaser and to subsequent purchasers   in   the   case   of   a   residential   dwelling:   see Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA).

ii)        There is also authority that a developer owes a non delegable duty of care in tort to future owners of a home to ensure that proper care and skill are exercised in the building of the house: see Mt Albert Borough Council and Callaghan v Robert Ronayne Ltd (1979) 1 NZCPR 98 (SC).   This duty has been held to apply to a residential dwelling in a unit title development.

iii)       It is debatable whether recognition of the developer’s duty in those cases turned on their special facts as Mr Paulsen argues. But in any event even if it did, whether 2 Harrogate played as active a role in the building process as the developers did in these other cases  is a factual issue that can only properly be determined at trial after hearing all the evidence.

iv)       Whether   the   cases   about   developers   are   distinguishable because they involved residential properties and not motels is undoubtedly  a  highly  arguable  point.  But,   I  cannot  be confident it is a conclusive one.   In saying that I have not overlooked the fact that motels have been specifically considered in Te Mata Properties Ltd v Hastings District Council HC Napier CIV-2004-441-000151, 23 February 2010, Williams J.   However that case is distinguishable because it was solely concerned with the liability of local  authorities. There are arguably different policy factors at play in the case of   developers.   A   developer   is   undoubtedly   in   a   more proximate relationship to a future owner than a local authority.

v)        Even if a motel complex is properly classified as a purely commercial building, the commercial/residential distinction is not automatically determinative.  Arguably, the policy factors operating in cases such as Rolls Royce New Zealand Limited v Carter  Holt  Harvey  Limited  [2005]  1  NZLR  324  are  not present in this case.  The reasoning in Rolls Royce was heavily dependent on the existence of a complex contractual chain, the contents of the relevant contracts which included exclusion clauses and the nature of the defect, all factors which do not appear to be present in this case.

vi)       There  have  been  cases  where  the  builder  of  a  commercial property has been held to owe a duty of care in tort: see Otago Cheese Company Ltd v Nick Stoop Builders Ltd HC Dunedin CP180/89, 18/May 1992, Fraser J.

vii)      The fact that subcontractors involved in the construction of apartments have been held not to owe a duty of care (see Body Corporate No 114424 v Glossop Chan Partnership Architects CP612/93,  3  February  1998,  Potter  J)  cannot  of  itself  be

conclusive  in  relation  to  developers.	Otherwise  Mt  Albert

Borough Council would no longer be good law.

[24]     In my view, the duty issue is a matter that should properly await trial, when the extent of 2 Harrogate’s involvement in the building process and the relevant policy and proximity issues can be fully explored and determined.

[25]     It follows from all of the above that I am satisfied the Associate Judge’s decision was correct and should be upheld.

[26]     As regards costs, my expectation is that the parties will be able to agree on costs. However, in the event that I am required to make a formal order, leave is reserved for the plaintiffs to file submissions, with any submissions in reply from 2
Harrogate to be filed within five working days thereafter.

Apology

[27]     It had been agreed this matter could be dealt with on the papers in order to save time and cost.   However, unfortunately due to an administrative error, the opposite occurred.  Counsel’s submissions were filed away and not brought to my attention for several months.

[28]     That is most regrettable, and I wish to apologise to counsel and the parties for the unacceptable delay in issuing this judgment.

Solicitors:
BentonLaw, Auckland
(Counsel: Advocacy Chambers, Auckland) Cavell Leitch Pringle & Boyle, Christchurch
Cuningham Taylor, Christchurch