OYSTER MANAGEMENT LTD v MSC CONSULTING GROUP LTD [2019] NZHC 913 [30 April 2019]

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA

TĀMAKI MAKAURAU ROHE

CIV-2018-404-2021

[2019] NZHC 913

BETWEEN

OYSTER MANAGEMENT LTD

First Plaintiff

CORINTHIAN TRUSTEES LTD

Second Plaintiff

AND

MSC CONSULTING GROUP LTD

Defendant

Hearing:

21 February 2019

Counsel:

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

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

Judgment:

30 April 2019

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 Solicitors: Meredith Connell (Auckland) for Plaintiffs Wotton Kearney (Wellington) for Defendant

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.

1 Carter Holt Harvey Ltd v Minister of Education [2015] NZCA 321, (2015) 14 TCLR 106 at [9];

citing Attorney General v Prince & Gardner [1998] 1 NZLR 262 (CA) at 267–268.

(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.

2 Carter Holt Harvey Ltd v Minister of Education (CA) at [13]; citing Couch v Attorney-General

[2008] NZSC 45, [2008] 3 NZLR 725 at [33], per Elias CJ dissenting. 3 Couch v Attorney-General at [2] per Elias CJ dissenting. 4 High Court Rules 2016, r 12.2(2). 5 Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) at [58].

[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 accepted the building had a critical structural weakness, and on 13 June

2017 revised its NBS rating to 23 per cent. Oyster submits that an independent

engineer has confirmed the accuracy of Beca’s conclusions.

[27] Oyster pleads that MSC’s initial consulting work as a structural engineer, and

subsequent work in preparing the IEP and DEE were negligent.

[28] Oyster pleads that, as a result of MSC’s negligence and negligent

misstatements, it has suffered and/or will suffer the following loss:

(a) the cost of carrying out strengthening works to achieve an NBS rating

of at least 80 per cent;

(b) loss of rent by virtue of tenants leaving the building;

(c) the cost of liaising with tenants regarding the seismic resilience of the

building; and

(d) the cost of inspecting the building to ascertain the extent of the

problems particularised in its statement of claim as causing the poor

seismic performance.

[29] Oyster submits that its primary form of loss has involved having the building

empty while it performs immediate work necessary to raise the earthquake rating of

the building.

Negligent misstatement

[30] Negligent misstatement is a sub-species of negligence governed by its own

jurisprudence as well as negligence law generally. The elements of negligent

misstatement were set out by the Court of Appeal in Carter Holt Harvey Ltd v Minister

of Education:6

6 Carter Holt Harvey Ltd v Minister of Education (CA), above n 1, at [112]; accepted by the

Supreme Court in Carter Holt Harvey Ltd v Minister of Education [2016] NZSC 95, [2017] 1

NZLR 78.

(a) a false or misleading statement;

(b) made in circumstances where a duty of care is owed to the plaintiff;

(c) reasonable reliance on the statement by the plaintiff; and

(d) resulting loss to the plaintiff.

[31] The application for strike-out or summary judgment is brought on the basis

that the particular facts of this case are incapable of supporting a duty of care.

[32] The finding of a duty of care requires an exercise of contextual judgment,

rather than the application of a constrained formula.7 Generally the courts first look

to the relationship of the parties, in terms of foreseeability of harm and proximity of

relationship, before considering extrinsic policy factors which may inform whether

imposing a duty is fair, just and reasonable.8

[33] Regarding the first limb, foreseeability is generally treated as a screening

mechanism, with proximity as the more substantive inquiry.9 In a negligent

misstatement context proximity has been described as a party’s actual or deemed

assumption of responsibility for others’ reliance on their statements.10 The Supreme

Court in Carter Holt Harvey adopted the following list of features which generally

establish the proximity wing of a duty of care:11

a) the advice is required for a purpose, that is made known (at least

inferentially) to the adviser;

b) the adviser knows (at least inferentially) that the advice will be

communicated to the advisee specifically or as a member of an

ascertainable class;

c) the adviser knows (at least inferentially) that the advice is likely to be

acted upon without independent inquiry, and

7 See South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations

Ltd [1992] 2 NZLR 282 (CA) at 295. 8 North Shore City Council v Attorney-General [2012] NZSC 49, [2012] 3 NZLR 341 [The Grange]

at [152]–[158]. 9 At [157]–[158]. 10 Attorney-General v Carter [2003] 2 NZLR 160 (CA) at [26]. 11 Carter Holt Harvey Ltd v Minister of Education (SC), above n 6, at [80].

d) the advisee does act on the advice to its detriment.

[34] If there is sufficient proximity, the Court then looks to the policy implications

of a duty. Policy is highly contextual and involves a range of considerations but

follows along relatively consistent principles. Todd summarises the undergirding

principles of negligence policy analyses in four propositions:12

(1) A duty to take care should not interfere inappropriately with the

autonomy of the defendant in deciding whether to act.

(2) The existence or extent of any duty that is imposed on the defendant

should represent a proportionate burden of liability in respect of the

wrongdoing in question.

(3) It should be appropriate for the courts to recognise a duty to protect a

person in the position of the plaintiff.

(4) The proposed duty should operate coherently in the working of the

legal system as a whole.

[35] These factors generally apply to misstatements as well as negligence

simpliciter. Given the potential reach of a single statement, the courts are careful to

limit the scope of the tort.13

Submissions

[36] MSC’s application for strike-out focusses primarily on the first limb of the duty

of care analysis: foreseeability and proximity.

[37] MSC submits the plaintiffs’ proposed duty fails in terms of foreseeability on

the basis that the two seismic resilience reports were provided to Smales Farm in 2012,

two years prior to the sale occurring, at a time when it had no notice of and could not

foresee the sale. MSC submits the reports were specifically focussed on assessing the

building’s seismic resilience and not the building’s overall structural design, and any

use of the DEE beyond this purpose or unsupported by independent enquiry was

unforeseeable.

12 Stephen Todd (ed) The Law of Torts in New Zealand (7th ed, Thomson Reuters, Wellington, 2016)

at 5.4. 13 See Carter Holt Harvey Ltd v Minister of Education (CA), above n 1, at [115].

[38] MSC further submits it had no knowledge that Smales Farm would make the

DEE available to prospective purchasers without its consent. It submits it would likely

have withheld that consent, as evinced by its refusal of Oyster’s request to use the

DEE in its investment prospectus.

[39] The plaintiffs respond that commercial properties are routinely bought and

sold, making the sale of the property foreseeable. However, even if MSC did not

foresee the sale, the plaintiffs frame Oyster’s reliance on the report for the expectable

purpose of discharging the earthquake safety portion of its health and safety

obligations. The plaintiffs submit Oyster relied on the report as a member of a

foreseeable class, as the property manager of the building. Further, they submit that

reports like the DEE are widely accepted as being shared with prospective tenants for

the purpose of tenanting buildings, and therefore the report being circulated and relied

upon by third parties was foreseeable.

The purpose for which the report was prepared and the class of people who could be

expected to rely on it

[40] MSC contends Oyster relied on the report for commercial due diligence

purposes, to assess whether purchasing the building was a good investment decision.

The submissions frame Oyster’s reliance as that of a prospective purchaser, which was

not a class of person MSC could have foreseen relying on “an outdated report prepared

for a separate party and for a different purpose” before making a significant

commercial purchase.

[41] Conversely, the plaintiffs characterise Oyster as relying on the report for the

eminently foreseeable purpose of reassuring itself as to the earthquake resilience of

the building. This reliance occurred while belonging to a foreseeable class of

prospective owners of the building.

[42] The plaintiffs support these submissions by pointing to the affidavits of Daniel

Henderson, who was General Manager and Executive Director of Smales Farm when

it commissioned the reports from MSC, and Mark Schiele, Oyster Property Group’s

Chief Executive.

[43] Mr Henderson says in his affidavit that it is “widely understood across the

property industry, including by engineering firms, that seismic resilience reports are

obtained for the purpose of complying with a landlord’s obligations and/or to satisfy

existing or prospective tenants that buildings are safe to be tenanted.” He describes

this use as a common practice following the Christchurch earthquakes, and says

seismic reports are “regularly obtained” for the purpose of demonstrating earthquake

safety to prospective tenants.

[44] Mr Schiele explains that he “needed to see a report such as the DEE in part as

we expected we would need to show it to existing or potential tenants if we acquired

the building.” He explains that, in his experience, “it is not uncommon for a DEE or

similar report to be provided to tenants or prospective purchasers as part of the

tenanting or sale process, nor for it to be relied upon as we and tenants did.”

[45] MSC submits its position is supported by considering its liability profile. If a

duty were imposed its liability for Oyster’s purchasing decision would be

disproportionate relative to the liability it would have to Smales Farm as the previous

owner, which would only be for costs arising from the failure to detect defects sooner,

while strengthening work would remain the responsibility of Smales Farm due to the

time-bar. The defendants respond by noting that the maximum potential liability

scenario in either instance would be the building collapsing due to an earthquake, with

MSC partly responsible for damage and potential injury or loss of life due to providing

erroneous assurance as to its resilience.

Whether Oyster could be expected to rely on the DEE without independent enquiry

[46] Submissions for MSC emphasise it could not have known that prospective

purchasers would rely on its advice without further enquiry. MSC submits it would

expect any sophisticated purchaser of a significant commercial property to confirm

earthquake resilience by engaging its own surveyors and engineers, or MSC directly.

It supports this argument by describing the DEE as “outdated” by the time of Oyster’s

reliance. Finally, MSC points to the DEE’s limitation clause as clearly indicating it

did not intend for the advice to be relied on by third parties or for purposes outside the

prescribed one.

[47] The plaintiffs contend Oyster’s reliance without further enquiry was

expectable and reasonable. Oyster points to affidavit evidence that there had been no

material change in relevant assessment standards after Oyster took over the building,

which renders its continued reliance reasonable and foreseeable enough to ground

proximity. Further, they cite Mr Schiele’s explanation that “MSC was a reputable

engineering company and we saw no reason to question the report or the rating, nor to

duplicate it by commissioning our own one.” They note that Smales Farm would

likely have been entitled to rely on the report without MSC raising objections, and that

Smales Farm provided the report to Oyster without expressing any restrictions, caveats

or conditions of its own.

[48] The plaintiffs also dispute the relevance of a purchaser’s relative level of

“sophistication”, citing the Supreme Court’s resistance to considering vulnerability or

distinguishing between commercial and non-commercial owners in a negligence

simpliciter context in Body Corporate No 207624 v North Shore City Council (Spencer

on Byron).14

The limitation clause

[49] MSC submits the effect of the DEE’s limitation clause is to exclude any

possibility of there being sufficient proximity between the parties to ground a duty of

care. Various cases were submitted as analogous in which courts upheld limitation

clauses as operating to disclaim responsibility and avoid a duty of care, even when

those clauses are not made known to the plaintiff.15

[50] The plaintiffs submit the DEE’s limitation clause is not fatal to their claim.

Oyster draws attention to the differences between the DEE and IEP clauses, which are

as follows:

14 Body Corporate No 207624 v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR 297

[Spencer on Byron] at [197]–[199]. 15 Steel v Spence Consultants Ltd [2017] NZHC 398, (2017) 18 NZCPR 540; and McKinlay Hendry

Ltd v Tonkin & Taylor Ltd CA81/04, 9 December 2005.

The IEP Limitation

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.

The DEE Limitation

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 the interpretation or completeness of our inspection and

reporting arises.

[51] The plaintiffs submit the DEE clause (the clause actually in issue) is plainly

less restrictive than the IEP clause. They submit the DEE clause does not expressly

exclude reliance by third parties (or even require consent for disclosure), instead

merely identifying who the DEE was prepared for and expressly limiting its purpose

to “this commission.” At the hearing before me, MSC interpreted “this commission”

as the specific retainer with Smales Farm. Conversely, the plaintiffs argued for a

broader reading of “commission” as the purpose and function of the report

(establishing seismic resiliency and vulnerability). They argue the DEE was to be

provided to tenants, and MSC inevitably contemplated this type of disclosure,

therefore the clause should be read as limiting the purposes for which the DEE can be

relied on, but not excluding reliance by parties outside Smales Farm.

[52] The plaintiffs submit that “it is at least arguable” the limitation clause does not

exclude reliance of the type in question. They submit the interpretation advocated by

MSC would prevent even the building owner at the time of the DEE’s provision from

relying upon it (as Smales Farm was merely the manager), despite having ultimately

paid for the report and being financially responsible for any repairs it recommended.

[53] In the alternative, the plaintiffs submit the serious safety ramifications of

earthquake resilience reports make this the sort of case suggested by the Court of

Appeal’s obiter in Frost & Sutcliffe v Tuiara that an express but “artificial and

improper” contractual limitation of liability might still not prevent a professional being

liable in tort.16

16 Frost & Sutcliffe v Tuiara [2004] 1 NZLR 8782 (CA) at [12].

Policy

[54] MSC submits the plaintiffs’ position is commercially unrealistic, and imposing

a duty on professionals to any third party who receives their advice exposes them to

indeterminate, or at least disproportionate, liability. Further it submits this liability

cannot be reasonably insured against, which cuts against the alignment of contractual

liability with insurance programmes.

[55] MSC also emphasises the importance of giving effect to contractual

disclaimers. It points to the Court of Appeal’s decision regarding a duty of care for

negligence simpliciter in Rolls-Royce, in which the Court stated that “commercial

parties are normally entitled to expect that the risk allocation they have negotiated (and

paid for) will not be disturbed by the Courts. It is also to be expected that commercial

parties are looking after their own interests…”.17 MSC further submits that imposing

a duty here would encourage commercial parties to “free-load” by gaining the benefit

of advice prepared for others rather than paying to commission their own.

[56] The plaintiffs focus their submissions on the concordance of the proposed duty

with the statutory health and safety regime under the Building Act 2004 and the

important health and safety dimensions of earthquake resilience assessment. In

particular they point to the relationship between the NBS rating system and the Act’s

earthquake requirements framework.18 They submit a duty relating to earthquake

resistance reports is consistent with negligence authorities supporting duties of care

owed by builders to subsequent owners generally.

[57] The plaintiffs cite Carter Holt Harvey, in which the Supreme Court considered

that a defendant not having a direct duty under the Act (as a manufacturer of building

parts rather than a builder itself) did not prevent the Act’s requirements from informing

its duty of care.19 Further, the plaintiffs submit the Supreme Court has imposed duties

17 Rolls-Royce v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) at [118]. 18 See Building Act 2004, s 122(1); Building (Specified Systems, Change the Use, and Earthquake-

prone Buildings) Regulations 2005, reg 7; and the useful summary in University of Canterbury v

Insurance Council of New Zealand Inc [2014] NZSC 193, [2015] 1 NZLR 261 at [20]. 19 Carter Holt Harvey Ltd v Minister of Education (SC), above n 6, at [38]–[40].

of care to give substantive effect to the purposes and provisions of the Building Act in

the past.20

[58] The plaintiffs further submit a duty of care to subsequent owners is not

disproportionate.21 They contend a duty that formal engineering assessment of seismic

risk will not be done negligently, and not escape sanction where negligent, is in line

with “community standards and expectations” similar to duties of care on local

authorities and builders to ensure compliance with bylaws grounding claims in

negligence simpliciter.22

[59] The plaintiffs reject any analogy to Rolls-Royce or other “contractual matrix”

cases cited by MSC, noting such cases turn on factual specifics, and that the cited cases

lack the health and safety dimensions of the present misstatement.

Analysis

[60] To grant strike-out or summary judgment on the negligent misstatement cause

of action I must be satisfied that the cause of action cannot succeed because the facts

cannot ground a duty of care.

[61] On the evidence before me, I do not think Oyster’s reliance on the DEE is

sufficiently unforeseeable to negate any possibility of a duty at this stage. Commercial

buildings are bought and sold, earthquake resilience is an important factor, reports on

earthquake resilience will 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.

[62] As to proximity, I am not satisfied the proposed duty can be fully rejected on

the evidence before me. A trial is necessary. The questions of the purpose for which

the DEE was prepared, who could be expected to rely on it and the extent of that

20 Carter Holt Harvey Ltd v Minister of Education (SC); Spencer on Byron, above n 14; and The

Grange, above n 8. 21 See Minister of Education v Econicorp Holdings Ltd [2011] NZCA 450, [2012] 1 NZLR 36 at

[55]. 22 Invercargill City Council v Hamlin [1996] 1 NZLR 513 (PC) at 521; cited in Minister of Education

v H Construction [2018] NZHC 871 at [29].

reliance are factual in nature. So are the details of Oyster’s actual reliance. The

answers to these questions will be informed by the party’s practices, wider industry

practice and the specifics of the situation.

[63] It is significant that Oyster claims as purchaser and as owner. Foreseeability

and proximity might more readily be found for the latter capacity than the former.

[64] Putting aside the limitation clause, there are factual issues regarding whether

Oyster could reasonably rely on the DEE without independent enquiry. The DEE was

only two years old when shared with Oyster as part of the purchase negotiations and

carried no indicia of being outdated or incorrect. Nonetheless, Oyster did nothing to

confirm its correctness despite seismic resilience evidently being important to the

building’s commercial function. Whether Oyster’s failure to make its own enquiries

was reasonable or inferentially known from MSC’s perspective would depend on

wider context around industry practice and Oyster’s managerial decision-making.

[65] The limitation clause is itself ambiguous. The clause positively states that the

DEE is for reliance “for this commission” and by a specific party other than Oyster,

but does not clarify what that commission was, nor explicitly disclaim reliance by

other parties. While the plaintiffs did not have access to the IEP during the relevant

period, it is possible MSC acted deliberately in providing a much wider disclaimer for

the IEP than the DEE, which would go to proximity. While the authorities provided

by MSC reflect the courts’ tendency to uphold disclaimers against misstatement

claims, those cases involved disclaimers more specific than cl 2.5 of the DEE.

[66] Similarly, the intended, and taken, meanings in the clause of “defined scope”

and “for reliance by Smales Farm Management” cannot be resolved on the material

before me, but might have a bearing on the effect of the clause.

[67] The key assessments necessary to resolve these issues cannot be made on the

affidavits I have seen. There are disputes as to facts and the parties’ decision-making

which should be tested against further evidence and by cross-examination.

[68] Given the proposed duty is somewhat novel, the relevant policy considerations

cannot be sufficiently assessed on affidavits alone.

[69] I do not consider strike-out on the negligent misstatement cause of action

appropriate and will refuse the plaintiff’s application on this head accordingly.

Negligence

[70] The plaintiffs’ second cause of action is in negligence. They submit that at all

material times MSC owed them a duty of care to carry out its structural engineering

work on the Building in a manner consistent with good professional engineering

practice and to take reasonable care to prevent damage to them as subsequent owners.

[71] The basis MSC submits for strike-out is that any claim relating to the work in

question is time-barred by s 393(2) of the Building Act 2004. That section bars civil

proceedings relating to building work if those proceedings are brought after 10 or more

years from the date of the act or omission on which the proceedings are based. The

design work was completed “no later than 2004”, meaning the long-stop limitation

period expired no later than 2014, before the present claim was brought.

[72] The plaintiffs submit that the negligent IEP and DEE reports were a

“continuation” of the earlier work and made within the longstop period, effectively

extending the point from which the Act’s 10-year limitation period began to run.

[73] MSC counters that limitation runs from acts or omissions, and subsequent

conduct cannot bring otherwise time-barred conduct within time. The 2012 reports

can ground negligent misstatement actions in themselves, but do not extend the

limitation period regarding separate work completed well prior to the current

proceedings.

[74] The plaintiffs cite previous statements by this Court that “it must be taken as

arguable for summary judgment purposes that time did not run for so long as the

builder or developer was under a continuing duty of care to remedy defects”.23 The

23 Kerr v South Wairarapa District Council HC Wellington CIV-2010-035-156, 9 December 2011

per Miller J at [20]; citing Johnson v Watson [2003] 1 NZLR 626 (CA) at [27].

Court continued, describing it as “arguable that [the] duty continues until the final

inspection is completed, and perhaps even until the development is completed by the

issue of a code compliance certificate, on the principle that the duty continues so long

as the defendant retains the practical ability to remedy its breach”.24

[75] The plaintiffs submit that MSC was arguably under a continuing duty on the

basis that it was revisiting its earlier structural engineering work when preparing the

reports. It was chosen to provide the two reports due to having done the earlier work.

As such, MSC had an opportunity to remedy its earlier breaches.

[76] The plaintiffs repeat their earlier argument that the courts caution against

striking out duties of care without hearing all the facts of a case. The plaintiffs cite

O’Callaghan v Drummond, in which this Court declined to order separate

determination of limitation defences to a claim involving a duty of care for negligent

building work, despite acknowledging limitation defences can normally be determined

summarily.25 The plaintiffs in that case proposed a novel continuing duty to take care

not to erect a non-Code-compliant dwelling which did not end on completion of

construction, but continued to the point of a Code Compliance Certificate being issued.

While doubtful such an argument could succeed, the Court accepted it was “certainly

tenable” sufficient to warrant declining the application. The plaintiffs submit there is

a sufficient chance a court would find a duty in negligence on the facts in this case,

despite the limitation period, to make strike-out inappropriate.

[77] Finally, the plaintiffs note MSC has faced similar claims in the past, pointing

to Judge v Dempsey, in which the Court declined to grant summary judgment on the

basis of a time-bar because at least one claim that was not time-barred was arguable

on the facts.26

24 Kerr v South Wairarapa District Council at [2] (citations omitted). 25 O’Callaghan v Drummond HC Christchurch CIV-2007-409-1441, 21 October 2008 per French J

at [17]. 26 Judge v Dempsey [2014] NZHC 2864.

Analysis

[78] The courts approach claims based on a continuing duty of care on the basis that

a limitation period will run from the point at which the work clearly concluded. This

Court in Nelson v Mace, discussing the longstop in s 393(2), considered that:27

… the contention for a continuing duty of care principle that should endure

beyond the date when relevant building work was completed, threatens to

undermine the policy of the 10 year longstop limitation provision. When a

Court can be satisfied that building work was completed by a certain date then

the 10 year longstop provision begins from that time. The principle of a

continuing duty of care best serves some purpose in instances where the Court

cannot, as is often the case, upon summary judgment applications, fix with

certainty a date for completion of the work that is relevant in a plaintiff’s claim

of building defects.

[79] There is a difference between a continuing duty and a separate duty arising on

revisiting work. Associate Judge Bell in Wigglesworth v Auckland Council held that:28

… The relevant acts or omissions of a contractor that might give rise to

liability are those which are performed by the contractor in the course of

carrying out certain tasks on site. When the contractor completes the relevant

tasks, whether he carries out the work adequately or not, he has effectively

“completed” the particular task and from that time onwards he is then “off

duty” or “off task”. It is when a contractor goes “off duty” or “off task” that

it is the latest point from which time would begin to run against that particular

contractor.

[80] The only way for the plaintiffs to avoid being defeated by the limitation period

is if they have a tenable argument that the issuing of the reports did not function as a

separate commission, but as a continuation of the earlier structural engineering work.

[81] The affidavits do suggest MSC was commissioned for the reports on the basis

of having done the initial work. The “scope of work” outlined in the IEP includes

“review[ing] structural information available in our records”, and the DEE was

proposed to include reviews of existing structural drawings and calculations held by

MSC.

27 Nelson v Mace [2012] NZHC 37 at [120]. 28 Wigglesworth v Auckland Council [2012] NZHC 1194 at [29].

[82] However, there is no suggestion the documentation relating to the earlier work

anticipated future reports. The genesis of the IEP and the DEE was the Christchurch

earthquakes.

[83] I accept the Courts have gone as far as to deny strike-out or summary judgment

on a time-bar basis against a proposed duty continuing up to the point of a Code

Compliance Certificate being issued.29 The parties have not provided, nor have I

independently found, any precedent for treating a report of the nature of the DEE as a

continuation of the earlier work sufficient to avoid the time-bar. To the contrary, it is

clear the work to which the longstop in s 393(2) relates was completed. The reports

were not a continuation of the work but arose from fresh events (the earthquakes).

[84] I do not consider the argument that the DEE served to continue the duty of care

MSC was under when undertaking its engineering work for limitation purposes is

sufficiently strong to avoid strike-out. I will make orders accordingly.

Result

[85] I make the following orders:

(a) The defendant’s application for strike-out against the plaintiffs’ first

cause of action is declined.

(b) The plaintiff’s claim in negligence is struck out on the basis of s 393(2)

of the Building Act 2004.

[86] There is no need to address summary judgment separately.

Costs

[87] I will receive memoranda on costs by 31 May 2019. They are to be no longer

than four pages.

________________________________ Brewer J

29 See O’Callaghan v Drummond, above n 25.