WELLINGTON CITY COUNCIL Appellant. COLIN JAMES DALLAS Respondent. French, Winkelmann and Asher JJ

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1 IN THE COURT OF APPEAL OF NEW ZEALAND CA148/2014 [2015] NZCA 126 BETWEEN AND WELLINGTON CITY COUNCIL Appellant COLIN JAMES DALLAS Respondent Court: Counsel: French, Winkelmann and Asher JJ D J Heaney QC and A K Hough for Appellant D A Laurenson QC and J D Haig for Respondent Judgment: (On the papers) 21 April 2015 at 10 am FINAL JUDGMENT OF THE COURT A B C The judgment in the High Court is set aside. Judgment for the appellant is entered in the amount of $273,000 plus interest. The respondent must pay the appellant s costs for a standard appeal on a band A basis with usual disbursements. D The parties are to provide further submissions in connection with High Court costs, and the repayment of costs already paid, in accordance with [22] of this judgment. REASONS OF THE COURT (Given by Winkelmann J) WELLINGTON CITY COUNCIL V DALLAS CA148/2014 [2015] NZCA 126 [21 April 2015]

2 Background [1] On 19 December 2014, we issued an interim judgment in this appeal which concerns the Wellington City Council s (the Council s) claim for compensation from Mr Dallas under s 43 of the Fair Trading Act 1986 (the Act). 1 Mr Dallas is the former managing director of a company that was involved in carrying out remedial work on what turned out to be a leaky home. The losses suffered were quantified by a settlement that the Council entered into with the plaintiff home owners less contributions received from third parties. The Council unsuccessfully sought compensation or contribution from Mr Dallas under a number of heads, but confined its appeal to a claim for losses suffered as a result of relying on misrepresentations made by Mr Dallas. [2] In the High Court, Mallon J described the basis of the Council s admissions of liability as follows: 2 [The Council] says that it was a tortfeasor liable to the plaintiffs because it admitted liability in its statement of defence. In that statement of defence [the Council] admits that it owed the plaintiffs a duty to be satisfied on reasonable grounds that a building consent should be issued, to take reasonable steps in carrying out inspections, and to be satisfied on reasonable grounds that code compliance should be certified. [The Council] also admits that it breached its duties by failing to detect the lack of kick outs or diverters to the ends of apron flashings or other means of diverting water away from the cladding at the dwelling. [The Council] admits that this breach caused water ingress and required repairs including a complete reclad. [3] The basis of the Council s claim against Mr Dallas under the Act was described as follows: 3 [100] [The Council s] pleading under this head relies on the same representations that are pleaded in the first two causes of action. [The Council] says these were misrepresentations, that [the Council] was misled by them, that it was reasonable it was misled by them, that it issued the CCC relying on them, and that it suffered loss (the settlement paid to the plaintiffs less the contributions from the other parties) as a result. [101] In written submissions, [the Council] particularised the misleading conduct as being: Wellington City Council v Dallas [2014] NZCA 631. Derwin v Wellington City Council [2014] NZHC 341 at [42]. (Footnotes omitted.) Ibid.

3 (a) (b) (c) (d) Mr Dallas' advice that kick outs had been installed when they were not; Mr Dallas' advice that the dwelling complied with the Building Act and Code when it did not; Mr Dallas' advice that the problems with the dwelling were the result of hundred year storms when they were not; and Mr Dallas' advice that structural integrity, and durability has not been impaired, nor has there been any signs that would indicate that this is likely to cause concern in the future, when he had not performed adequate investigations to make such a statement. [4] We upheld the Council s appeal, holding that the Judge erred in not finding Mr Dallas in breach of s 9 of the Act. 4 We were satisfied that Mr Dallas conduct in stating in a letter to Council that the kick outs had been completed was a breach of s 9 of the Act. We were also satisfied that Mr Dallas conduct contributed to the loss ultimately suffered by the Council. [5] When addressing the compensation that Mr Dallas should be ordered to pay, we noted that although the Council and Mr Dallas were in agreement that the lack of kick outs was sufficient on its own to require a total reclad, they were also in agreement that there were other defects which allowed water to enter the structure of the house. We therefore sought submissions on whether the issue of compensation should be determined solely on the basis of the Council and Mr Dallas respective contributions to the kick out problem as a cause of the total loss to the property or whether the apportionment should take into account other defects for which Mr Dallas was not responsible. Submissions [6] In those additional submissions, Mr Dallas argues that the other defects which contributed to the damage to the property ought to be taken into account to reduce the compensation Mr Dallas is ordered to pay well below the 50 per cent sought by the Council. 4 Ibid.

4 [7] Mr Dallas says that it is clear that without the kick out defect the entire loss to the property would still have been caused by any of the other more significant defects. The Council s own witness, Mr Paykel, identified seven defects, and agreed with the Weathertight Home Resolution Services assessor s analysis that only 10 per cent of the total damage was caused by roof flashings. The lack of kick outs is one of two or more defects collectively referred to as the roof flashing defects. If all defects were considered, Mr Dallas argues, any one of them would have required a complete reclad. This is because changes to the Building Code do not allow face-fixed cladding systems. Mr Dallas argues from this that when assessing his contribution, we should take into account that the entire loss to the property would have been suffered even if Mr Dallas had not made the kick out statement, and even if kick outs had been fitted. It would be unjust to ignore these other defects when assessing his contribution. [8] Mr Dallas further says that the Council s case against him was based on alleged misrepresentations that caused loss or damage in four main areas: window defects, parapet defects, general assurances as to weathertightness and roof flashings. He submits that it is inconsistent with the way the Council s case was run at trial or on appeal to now only consider the kick out defect. [9] As to the level of contribution, Mr Dallas says that since the roof flashing defects included both the absence of kick outs and at least one other defect identified by Mallon J (poorly fitted folds leaving gaps), 5 only five per cent of the residual damage should be attributed to the kick out defect. He says five per cent is a reasonable starting point for assessing his contribution as there is no more precise evidence available. The Council settled unilaterally on the basis that the plaintiffs entire loss was caused by the lack of kick outs to the ends of apron flashings. Mr Dallas says it would be unjust for that admission to bind him and restrict the Court s enquiry as to apportionment and loss. [10] The Council submits that the short answer to the Court s question is that it has never admitted liability for any of the other defects, nor has it been found liable for such defects. Mr Dallas could have contested the basis on which the Council 5 At [9(f)].

5 admitted liability or sought to establish greater liability on the Council s part, but he did not. This means that the Council s loss can only be seen as flowing from its liability in relation to the kick out defect. That defect is therefore the only one that is relevant to the apportionment of loss. Analysis [11] As we noted in our interim judgment, in terms of s 43(1) and (2) of the Act the Court has a discretion as to whether or not to grant relief, and if so what orders are appropriate in respect of a proven breach of s 9. The exercise of the power to make an order for payment under s 43 is a matter of doing justice to the parties in the circumstances of the particular case and in terms of the policy of the Act. 6 [12] In addressing this issue, it is necessary to consider how the case was argued and dealt with in the High Court. We have reviewed the High Court materials for this purpose. It is clear from these that the Council case was brought on the basis that it had admitted it was liable to the plaintiffs in respect of its failure to detect the lack of kick outs. We have read the submissions filed for Mr Dallas in the High Court. Those confirm that Mr Dallas defence did not attack the basis of the Council s admission and settlement but rather focused on whether Mr Dallas had any responsibility for the Council s admitted fault. His defence was essentially three-pronged as follows: (a) Mr Dallas was at all times acting as managing director of Kingdom without personal responsibility for design, construction or supervision. (b) If Mr Dallas had control or assumed responsibility for any matter, that matter was carried out diligently and, in respect of statements made, honestly and correctly. 6 Goldsbro v Walker [1993] 1 NZLR 394 (CA) at 404. See Wellington City Council v Dallas, above n 1, at [50].

6 (c) The Council did not or ought not to have relied on any statements, acts or omissions undertaken by Mr Dallas that are proved to be made in his personal capacity. [13] A review of the evidence further confirms that Mr Dallas defence did not involve the contention that the Council had any additional liability to the plaintiffs beyond that in relation to the kick outs, nor that the Council had paid too much in respect of that defect. It is true that Mr Paykel gave evidence for the Council in connection with other defects but this evidence focused on the contribution of those defects to the leak damage and not upon the Council s legal liability for that damage. It was accepted by Mr Dallas and the Council that there were several defects which caused the leaking. 7 The Judge found that no one defect caused damage different from another. 8 [14] It is for this reason that when Mallon J came to address the issue of contribution she said: 9 Whether [the Council] and Mr Dallas were tortfeasors liable for the same damage does not arise on the view I have taken in respect of Mr Dallas liability. However, had it been necessary to reach a view on this, the expert evidence is that there were a number of key defects which necessitated the repairs. The evidence so far as I was directed to it by counsel does not suggest that any one defect caused damage different from another. I would therefore have found that, if Mr Dallas [was] personally liable in respect of his actions in relation to the kick outs and/or the windows, he would have been liable to the plaintiffs for the same damages as that for which [the Council] was liable. [15] It was open to Mr Dallas to contest the Council s admission of liability, including the admission as to the quantum of that liability. He could have sought to establish the Council was liable on an alternative or additional basis or that the kick out defect did not require a full recladding. If he had established that, he could have argued that he had no responsibility for the other causes of damage and loss. Mr Dallas did not attempt any of those things. He cannot do so on appeal because there are no findings as to the legal liability for the other defects. Moreover, to allow such an argument would prejudice the Council. If it had been on notice that this Derwin v Wellington City Council, above n 2, at [9]. At [56]. At [56].

7 argument was part of Mr Dallas defence, we have no doubt the Council would have shaped its case in the High Court to respond to the argument. [16] Mr Dallas submission that the Council s case against him at trial was broader carries no weight in this regard. It does not matter that the Council might have alleged that he caused it loss in a number of ways. What matters is that he did not seek to establish that the Council was liable to the plaintiffs for defects other than the kick out defect. Without any findings of that nature, it is impossible for us to conclude what causative effect, if any, the other claims against the Council had on its ultimate loss. [17] Mr Dallas relied upon a decision of this Court in BVR Ltd v Otaki Tyre and Service Centre Ltd (in liq) as authority for the proposition that an appellant s acceptance of liability did not mean that causation was not an issue to be considered. 10 We do not consider that case assists him. The facts in that case were very particular and very different to the present case. Moreover, the argument considered on appeal had been advanced in the Court below. [18] Counsel have also filed additional submissions in connection with the general issue of apportionment. We did not seek submissions on that point and do not therefore address them. [19] In our interim judgment, we expressed the view that, subject to the issue regarding other causes of the damage to the property, the Council and Mr Dallas should bear the loss caused by the kick out defect equally, that is 50/50. We now confirm that view for the reasons set out in the interim judgment. Result [20] Judgment for the Council in the sum of $273,000 is entered against Mr Dallas, together with interest on that sum from the date of the High Court trial until judgment. 10 BVR Ltd v Otaki Tyre and Service Centre Ltd (in liq) [2008] NZCA 575.

8 [21] The Council seeks costs on the appeal. It is entitled to and is granted costs for a standard appeal on a band A basis with usual disbursements. [22] The Council also seeks costs in the High Court and an order that Mr Dallas repay costs already paid by it, plus interest from the date of payment until the date of repayment. The parties are to file submissions in connection with High Court costs and the repayment of costs already paid in accordance with the following timetable: (a) Council s submissions within 10 working days of the date of this judgment. (b) Mr Dallas submissions within five working days of receipt of Council s submissions. Solicitors: Heaney & Partners, Auckland for Appellant Macalister Mazengarb, Wellington for Respondent

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