Solicitors sued in negligence attempt to issue third party notice against the builder?

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Timothy Bates of Auckland law firm Legal Vision.

Facts

The trust owned a property with a homestead in Queenstown. Davenports was a professional trustee for the trust and was its solicitor.

The homestead suffered extensive fire damage in the course of renovation by the builders.

The insurer of the homestead, NZI, had a policy containing an exclusion for construction works. Relying on this exclusion, NZI declined the insurance claim that the trustees made in respect of the fire damage. The declinature was upheld by the High Court.

The trustees, therefore, commenced a proceeding whereby they sued the solicitors in contract and tort for breach of their professional obligations by failing to ensure that there was adequate insurance in place to cover the risks of construction.

The trust suffered loss in that the trust property was not insured against fire during construction and was, therefore, not insured for the ensuing losses.

The cost of rebuilding the homestead was $1.73 million but, on top of that, the trust sued for the cost expended in issuing proceedings against NZI, seeking cover under the policy. These costs amounted to $164,000.

The solicitor’s claim as against the builder

Davenports brought a third party claim as against the builder on the basis that the builder was responsible for the fire, and that it was entitled to a contribution from the builder on the basis that the builder’s negligence also caused the loss that the Trust claimed against Davenports (the joint tortfeasor principle — section 17 of the Law Reform Act 1936).

Alternatively, it was claimed that the builder was liable in equity, as the builders had a liability to the Trust that is co-ordinate with the liability of Davenports, in that any amount paid by the builders to the Trust as damages operated to reduce the damages payable by Davenports.

Materially, section 17(1) of the Law Reform Act 1936 states:

(1) Where damage is suffered by any person as a result of a tort . . .

(c) Any tortfeasor liable in respect of that damage may recover contribution from any other tortfeasor who is, or would if sued in time, have been liable in respect of the same damage, whether as joint tortfeasor or otherwise . . .”

The meaning of the words ‘liable in respect of the same damage’

The High Court, following the House of Lords in the Royal Brompton NHS Trust v Hammond decision, ruled that a narrow approach/interpretation ought to be given to these words, rather than an expansive interpretation.

The High Court went on to rule that the damage suffered by the trustees at the hands of Davenports was the inability to claim insurance for their destroyed homestead.

The damage caused by the negligence of the builders was the destruction of the homestead by fire.

The High Court concluded that Davenports and the builder were not liable in respect of the same damage.

Accordingly, Davenports could not claim contribution from the builder via its third party notice.

The claim for equitable contribution from the builder also failed on the same basis.

Ultimately, contribution under section 17 of in equity is based on the same notion that two parties are liable for the “same damage” or “same loss”.
It cannot be said that equity widens the scope of the test upon which an order for contribution will be deemed appropriate. In other words, a claim for contribution which fails under section 17 cannot succeed in equity.

Note: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision or Building Today to anyone who relies on the information contained in this article.