EVEREST AND BORNER V ROBIN SCHWASS CONSTRUCTION LIMITED (IN RECEIVERSHIP AND LIQUIDATION) HC WN CIV-2005-485-849 [2005] NZHC 70 (28 September 2005)

IN THE HIGH COURT OF NEW ZEALAND

WELLINGTON REGISTRY

CIV-2005-485-849

BETWEEN JON EVEREST AND HEIDI BORNER

Plaintiffs

AND ROBIN SCHWASS CONSTRUCTION

LIMITED (IN RECEIVERSHIP AND

LIQUIDATION)

First Defendant

AND CHRISTOPHER ROBIN SCHWASS

Second Defendant

AND QBE INSURANCE (INTERNATIONAL)

LIMITED

Third Defendant

AND VERO LIABILITY INSURANCE

LIMITED

Fourth Defendant

AND MASTERBUILD SERVICES LIMITED

Fifth Defendant

AND AHI ROOFING LIMITED

Sixth Defendant

Hearing: 7 September 2005

Appearances: D. Parker for Plaintiffs

A. Hazelton for Second Defendant

Judgment: 28 September 2005 at 4.30pm

JUDGMENT OF ASSOCIATE JUDGE D I GENDALL

EVEREST AND BORNER V ROBIN SCHWASS CONSTRUCTION

LIMITED (IN RECEIVERSHIP AND

LIQUIDATION) HC WN CIV-2005-485-849 28 September 2005

Introduction

[1] This is an application by the second defendant for summary judgment to be

entered against the plaintiff in this proceeding. The application is opposed by

the plaintiff.

Background facts

[2] The second defendant is one of four directors of the first defendant company, Robin Schwass Construction Limited which was incorporated on 19 March 1996.

[3] The first defendant went into liquidation and receivership on 14 June 2004.

[4] Since early 2001 the plaintiffs have been the owners of a residential property

at 17 Meadowcroft Grove, Johnsonville. They have issued the present proceedings

against the first defendant company as vendor and builder of the dwelling at that

property; the second defendant as a director and shareholder of the first defendant

company; QBE Insurance as the insurer of Nationwide Building Certifiers, a

building certification company that inspected the building work, the third defendant;

Vero Liability Insurance Limited, the fourth defendant, also an insurer of the

building certification company; a masterbuild guarantee company, Masterbuild

Services Limited as fifth defendant and AHI Roofing Limited, the sixth defendant as

the manufacturer of the roof of the dwelling.

[5] The claim is essentially a leaky building claim the plaintiff claims water is

penetrating the roof, walls and sub-floor of the house causing damage. The plaintiffs

have made a claim to the Weathertight Homes Resolutions Services which has

been accepted.

[6] A Weathertight Homes Resolutions Services assessor has undertaken a

weathertightness assessment of the dwelling and produced a report. According to

the plaintiff, the cost of remedial work as outlined in that report is estimated to be

$258,343.30 plus GST.

Counsels' arguments and my decision

[7] The claim against the second defendant is essentially that as an experienced

master builder and the project manager director of the first defendant he was

negligent, in that he owed the plaintiffs a duty of care to supervise and oversee the

building operations which he breached causing them loss.

[8] Rule 136(2) High Court Rules, which was added by amendment to the Rules

in 1998, enables a defendant to apply for summary judgment against a plaintiff.

[9] Rule 136(2) states:

(2) The Court may give judgment against a plaintiff if the defendant

satisfies the Court that none of the causes of action in the plaintiff's

statement of claim can succeed.

[10] The Court of Appeal has considered this new power in a number of

cases including Westpac Banking Corporation v M M Kembla New Zealand Limited

[2001] 2 NZLR 298 ; Bernard v Space 2000 Limited [2001] 15 PRNZ 338 ;

Attorney-General v Jones [2001] 15 PRNZ (CA) also considered at [2003] UKPC 48 ; [2004] 1NZLR 433 by the Privy Council.

[11] The starting point in considering any such applications must be the assumption that a plaintiff has the right to have its claim determined following a fair hearing by the Court Attorney-General v Jones. In that case the Privy Council in its decision at page 440 said:

... summary judgment should not be given for the defendant unless he shows

on the balance of probabilities that none of the plaintiff's claims can

succeed. That is an exacting test, and rightly so since it is a serious thing to

stop a plaintiff bringing his claim to trial unless it is quite clearly hopeless.

[12] Where the defendant applies for summary judgment it will have the

significant burden of establishing that none of the plaintiff's causes of action can

succeed. In other words the defendant must be able to undermine the plaintiff's

entire claim. Furthermore, the Court should only give judgment against the plaintiff

where the defendant has a clear answer to the plaintiff which cannot be contradicted

Westpac Banking Corporation v M M Kembla New Zealand Limited.

[13] It is clear that to succeed a defendant has the burden of showing

that none of a plaintiff's causes of action can succeed. It is not enough that the claims have

weaknesses.

[14] As the Privy Council stated in Jones v Attorney-General at page 439:

It cannot be doubted that, properly used, Rule 136(2) can save both time and

cost by permitting claims with no hope of success to be summarily dismissed

at an early stage. But rarely, if ever, will the procedure be appropriate where

the outcome of the action may depend on disputed issues of fact, and

reliance on the rule in an inappropriate case may serve to increase both the

length and the cost of proceedings.

[15] Here, as I have noted, the cause of action pleaded against the second

defendant is that he was negligent, in that he owed the plaintiffs a duty of care,

which he breached, causing them loss.

[16] In the specific causes of action pleaded against the second defendant,

in their Statement of Claim at paragraphs 41, 42, 43, 44 and 45 the plaintiffs plead:

41. At all material times Mr Schwass was the director and one of the

shareholders of RSCL.

42. Mr Schwass personally undertook and oversaw the construction

work at the dwelling.

43. Mr Schwass had control of and responsibility for the development

and for all decisions in the course of construction such as method of

construction and materials used and including whether or not to

follow or depart from the design and specifications.

44. As the builder of the dwelling Mr Schwass owed the plaintiffs a duty

to exercise all due and proper care in undertaking the building work

to complete the building work in a proper and workmanlike manner.

45. Further Mr Schwass as builder owed the plaintiffs a duty to:

(a) Undertake his work with due care and skill in a proper and

workmanlike manner.

(b) Use appropriate materials of good quality.

be fit for the purpose for which they were required namely for

human habitation.

(d) To ensure that the building work complied with the requirements of the New Zealand Building Code, current New Zealand Codes of Practice and Wellington City Council's specific requirements.

(e) To properly supervise the work of any servants, agents or

subcontractors engaged by Mr Schwass or RSCL.

[17] There is no argument that in appropriate circumstances a director or employee of a company may come under a personal duty, breach of which may entail personal responsibility Trevor Ivory v Anderson [1992] 2 NZLR 517 , Cooke P, page 520, and Morton v Douglas Homes [1984] 2 NZLR 548.

[18] In the present case, the grounds for the second defendant's summary judgment application are essentially that the plaintiffs are unable to establish a duty of care on the part of the second defendant here, and that being the case, any questions of standard

of care and loss are irrelevant.

[19] The second defendant does acknowledge that he and the other three directors,

all of whom had shareholdings in the first defendant company, were involved in the

day to day running of the company.

[20] The first defendant company's own labour force was said to be thirty staff. It

had at least 9-10 construction jobs on the go at any one time.

[21] There is no dispute that the second defendant is an experienced master

builder, nor that he was the only director with building experience. The other three

directors were all qualified quantity surveyors. They worked principally in the office

of the first defendant.

[22] The second defendant at paragraph 11 of his 28 July 2005 affidavit filed in

this proceeding states:

My responsibilities can be generally defined as finding new work,

relationship management with consultants and contractors, and to see that

the job got done. I was the "mobile director".

[23] The property at 17 Meadowcroft Grove was developed by the first defendant

company as a spec house. At paragraph 14 of his affidavit the second defendant

notes that labour-only contractors were used for this project. He says that the use of

labour-only contractors was rare for the company.

[24] The second defendant goes on to depose at paragraph 15 of his affidavit that

each of the generally 10-15 building project sites which the company was engaged in

at any one time was managed by a site foreman who was to co-ordinate the carpentry

work with the other trades and ensure quality control. As to this, however, there

have been no affidavits provided to the Court from any of the labour-only

contractors who were said to be designated as site foreman for the Meadowcroft

Grove job the subject of this proceeding.

[25] For the Meadowcroft Grove house, the first defendant company's own

employees undertook the foundation work. Thereafter the company contracted with

PJ Builders on a labour-only basis to build the house with other trades contracted

directly by the first defendant. This included contracts with Climax Building

Services to complete cladding works and with other trades such as painting, roofing

and plumbing.

[26] The first defendant company's own employees finished the downstairs

interior, however.

[27] The first defendant company ordered and paid for all materials required for

the building of the house. It seems likely that the second defendant was the person

involved in purchase of these materials on behalf of the first defendant. From his

own affidavit it is clear that he assumed responsibility for the security of the

materials on site.

[28] As to these aspects, the second defendant generally expands on his role in his

28 July 2005 affidavit, and in particular at paragraph 25 he states:

25. I did not personally undertake nor oversee construction of the

dwelling at 17 Meadowcroft Grove. It was my job to check all 10-

15 projects that RSCL was working on at least once a week. I think

I would have spent an average half an hour at the Meadowcroft site a

week. Part of my job was to ensure that workmen were on site,

materials were not stolen and the work was done. Therefore my

visits needed to be unpredictable...For the few jobs that we had that were labour only, I would be checking that they were actually on

site. If they were not on site, I would give Warwick at the office a

call and he would find out where they were. If materials were

needed while I was on site, I would call Kim or Richard and ask

them to order whatever was required by the team.

26. When I was on site I also paid the builders and checked what stage

the works were at...

[29] Significantly, from these comments at paragraphs 25 and 26 of his affidavit,

the second defendant acknowledges checking all the company projects at least once a

week and paying the builders when he was on site, and he confirms that for at least

half an hour a week he was on this particular site at Meadowcroft Grove. As I see it,

this is consistent with his role as overall project manager. He clearly took

responsibility for both ensuring that workmen were on site, bearing in mind that this

was a labour-only contract, and checking progress of the works.

[30] Again at paragraph 27 of his affidavit the second defendant confirms:

If there was something obviously wrong with the building work, I would

bring it to the attention of the foreman, but I never told anyone on site how

to do their jobs.

[31] In paragraph 16 of his affidavit the second defendant says he began to hand

over jobs to Mr Ron de Wit in early 2001. From the material before the Court,

however, I am satisfied this particular project clearly remained the responsibility of

the second defendant until at least late February 2001, as he personally dealt with the

James Hardie site inspection and 27 February 2001 report at that time, and possibly

until July 2003 when the Nationwide Building Certifier's Report identifying further

problems was received.

[32] As to the James Hardie Report dated 27 February 2001, the plaintiffs contend

that the second defendant received this report from James Hardie as cladding

manufacturer and it identified serious concerns with the cladding, specifically the

absence of control joints and inadequate ground clearances.

The plaintiffs say that the second defendant himself met on site with representatives to discuss this report, but then he did nothing to adequately address the concerns raised in the report. The plaintiffs' argument continues that this in itself gives rise to a personal

duty of care Morton v Douglas Homes.

[33] It is clear that the second defendant has been a registered master builder for

many years. He was awarded life membership of the Master Builders Federation in

around 2001.

[34] These factors (factors which were essential for the first defendant company to

itself register as a master builder) and the fact that the second defendant was the

only experienced builder director of the first defendant and actively involved in the

company's many construction projects on a daily basis, in my view are significant.

[35] Although the second defendant contends that as part of their contract PJ

Builders, the labour-only contractors, were also hired to be the "site foreman" and in

charge of site co-ordination at the Meadowcroft Grove job, the material currently

before the Court, in my view supports the argument that it was the second defendant

who was the project manager here and as such it was he who had overall

responsibility for managing and supervising construction of the dwelling.

[36] Indeed, this is to some extent confirmed in the affidavit of Mr Ron de Wit

dated 28 July 2005 filed in this proceeding at paragraph 3 where he states:

In 2001 I started taking over some of Robin Schwass' roles in the company

and by about September/October 2001 I had more or less taken over his role

as project manager. Robin still did the banking and some other bits and pieces.

(emphasis added)

[37] And significantly, in the affidavit of Mr Bruce Richardson, the Manager of

Master Builder Services Limited dated 31 August 2005 filed herein at paragraphs 30

and 31 he states:

30. Whether the supervisory role that RSCL (the first defendant) and a

member of its management was required to perform was performed

to an adequate standard is not a matter on which MBS (Masterbuild

Services Limited) can comment at this stage. However, it is a

requirement of and consistent with the Federation and MBS's Rules

and expectations that a RMB (Registered Master Builder) take

responsibility for the active management, supervision and co-

ordination of the building process and any remedial work to ensure

that a property is completed in accordance with the relevant building

laws, regulations and standards.

31. Where the RMB is a corporate, the above responsibility should be

discharged by a senior and experienced building practitioner in the

management, such as Mr Schwass.

From a review of the affidavits filed in support of Mr Schwass' application for summary judgment, Mr Schwass appears to have been the only individual

at RSCL that performed this role in relation to the construction

of the property.

(emphasis added)

[38] Bearing in mind all these factors, I am satisfied that the plaintiff has put

before this Court sufficient material to show a real link between the second

defendant as project manager and supervisor for the Meadowcroft Grove building

contract to suggest that the second defendant owed a duty of care to purchasers of

the dwelling, and the plaintiffs in particular.

[39] I say that mindful that the application before me is a summary judgment

application by the second defendant, and as such he has the significant burden here

of establishing that none of the plaintiffs' causes of action can succeed.

[40] Here there are a range of evidential matters which no doubt will be the

subject of dispute at trial. As the Privy Council noted in Attorney-General v Jones, it

is rare, if ever, that this R.136(2) defendant's summary judgment procedure is

appropriate where the outcome of the action may depend on disputed issues of fact.

[41] I am satisfied that that is the case here.

[42] And in any event, I note that any enquiry as to whether a duty of care is owed

in circumstances such as the present requires a thorough analysis of the facts of the

individual case, facts which are strongly contested here.

[43] In my view, recent authorities relating to strike out and defended summary

judgment applications by defendant directors of companies in circumstances

not altogether dissimilar to the present would provide some support for the view that the

present case is unsuitable for summary judgment.

[44] By way of example, in Body Corporate No. 187947 and Anor v EP Maddren

& Sons Limited and Others (HC AK, CIV-2004-404-1149, 13 May 2005) which was

also a leaky building case, Hansen J dismissed applications by the director of a

developer building company for strike out and defendant's summary judgment upon

the grounds that a duty of care by the director could apply there and that the

matter needed to go to trial to test the disputed evidence.

[45] In Carter v Auckland City Council, Bawden and Others (HC AK,

CIV-2004-404-2192, 14 October 2004) Associate Judge Christiansen refused a summary

judgment application by a defendant director of a building company in similar

circumstances, albeit where the director was described as having "hands on

involvement", again requiring that the matter be fully tested at trial.

[46] In Banfield v Johnson (1994) 7 NZCLC 260/496 Thorp J refused a Rule 186

strike out application by the managing director of a building company, again in

similar circumstances to the present.

[47] Against this, counsel for the second defendant referred at length to Drillien v

Tubberty and Others (Unreported HC AK, CIV-2004-404-2873, 15 February 2005,

Associate Judge Faire). In that case, which the second defendant claimed was an

almost identical factual situation to the present, the Court found that the special

circumstances required to impose a duty of care upon a director in negligence cases

involving his/her company were not present. There was no direct personal

involvement by the defendant director to such an extent to establish a duty of care,

and therefore the director's summary judgment application succeeded.

[48] As I see it, these authorities simply suggest that in situations of building or

development companies where a director has some involvement in the operation or

management of projects, an intense factual enquiry is required to determine whether

a personal duty of care in negligence should attach to a director defendant. The fact

that the conclusion in the Drillien case was the opposite of that in either Maddren,

Carter, or Banfield may be seen in my view as helping to reinforce the conclusion

that these types of action are generally unsuitable for summary judgment.

[49] As Associate Judge Christiansen said in Carter (at paragraph 17):

[17] An enquiry into whether personal liability has been assumed requires

all the circumstances to be looked at: Banfield v Johnson (1994) 7 NZCLC

260 , 496. ... But in his judgment, Thorp J noted:

The matter is so much fact specific and dependent upon the degree

of such matters as proximity and control and other factors which

may lead to the imputation of assumption of liability.

Conclusion

[50] For the second defendant to succeed here, it is not enough that the plaintiffs'

claims may have weaknesses. As I see it, the facts and matters pleaded at paragraphs

41 to 48 of the plaintiffs' Statement of Claim, supported to the extent which they are

by the affidavit evidence which has been filed to date, provide a foundation for an

argument that the second defendant's actions here involved an assumption of

responsibility sufficient to give rise to a possible personal liability.

As I see it, the affidavits filed on behalf of the second defendant here, rather than providing an answer to the plaintiffs' case, at least in part suggests that the second defendant

played a major part in assuming control and responsibility for the building work

on site. The allegations are that the second defendant assisted to supervise and monitor

on-site activity, the co-ordinating of subcontractors, ordering of materials, and

liaising with consultants, material suppliers and certifiers. The plaintiffs claim also

that the second defendant received a report from the cladding manufacturer James

Hardie identifying concerns and did nothing to adequately address those concerns.

The plaintiffs claim, furthermore, is that the second defendant assumed personal

responsibility for control of and liability for work undertaken in relation to defects

in the dwelling reported by the plaintiffs, including those items outlined in

the report from Nationwide Building Certifiers dated 22 July 2003.

[51] Whether these claims ultimately may prove to be weak or not, the

circumstances noted above seem to me to clearly suggest an assumption of

responsibility on the part of the second defendant sufficient potentially to found

some personal liability on his part.

[52] In conclusion, I am satisfied that the second defendant has been unable to

discharge the onus upon him of satisfying the Court that the plaintiffs' causes of

action against him in negligence cannot succeed.

[53] This intensely factual enquiry needs the benefit of a full consideration and

testing of all evidence at trial.

[54] As I see it, the plaintiffs here have done sufficient to show that the Court

ultimately at trial may find that a personal duty should be imposed upon the second

defendant under the current circumstances consistent with the principles outlined

in Trevor Ivory and Morton v Douglas Homes and subsequent decisions.

[55] That said, the second defendant's application for summary judgment is

dismissed.

Costs

[56] As to costs, before me counsel requested that these be reserved for further

submissions.

[57] Costs are reserved at this stage.

[58] If there is an issue as to costs, counsel for both parties are directed to file

memoranda as to costs within 28 days of the date of this judgment, and in the

absence of a request from either counsel to be heard personally on this question, I

will decide the issue of costs based upon the material filed.

Associate Judge D I Gendall

Delivered at 4.30pm on 28 September 2005.

Solicitors: Parker & Associates, Wellington for Plaintiffs

Hazelton Law, Wellington for Second Defendant

Copy also to: McElroys, Auckland for Third Defendant

J. Swan, P.O. Box 92055, Auckland for Fourth Defendant

Bell Gully, Wellington for Fifth Defendant

Meredith Connell, Auckland for Sixth Defendant