IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-Ā-TARA ROHE CIV [2018] NZHC 24

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1 IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-Ā-TARA ROHE CIV [2018] NZHC 24 BETWEEN AND CAPITAL AND COAST DISTRICT HEALTH BOARD Plaintiff BECA CARTER HOLLINGS & FERNER LIMITED First Defendant BRUCE RAYMOND NEWTON Second Defendant THE FLETCHER CONSTRUCTION COMPANY LIMITED Third Defendant ANGUS WILLIAM SMITH Fourth Defendant ROGER PETER BELBIN Fifth Defendant CRANE ENFIELD METALS PTY. LIMITED trading as CRANE COPPER TUBE Sixth Defendant CRANE GROUP LIMITED Seventh Defendant CRANE DISTRIBUTION LIMITED Eighth Defendant IPLEX PIPELINES AUSTRALIA PTY. LIMITED Ninth Defendant CREVET LIMITED Tenth Defendant CAPITAL AND COAST DISTRICT HEALTH BOARD v BECA CARTER HOLLINGS & FERNER LIMITED [2018] NZHC 24 [26 January 2018]

2 CREVET PIPELINES PTY. LIMITED Eleventh Defendant KEY PLASTICS PTY LIMITED Twelfth Defendant KINGSTON BRIDGE ENGINEERING PTY LIMITED Thirteenth Defendant NORTHERN IRON AND BRASS FOUNDRY PTY LIMITED Fourteenth Defendant AUSTRAL BRONZE CRANE COPPER LIMITED Fifteenth Defendant HUDSON BUILDING SUPPLIES PTY LIMITED Sixteenth Defendant Hearing: 17 October 2016 and 3 April 2017 Counsel: I J Thain and E B Sweet for the Plaintiff D J Neutze for the First Defendant K W Fulton for the Third, Fourth and Sixth Defendants Judgment: 26 January 2018 JUDGMENT OF ASSOCIATE JUDGE SMITH Introduction... [1] Background... [4] CCH s allegations against FCC, Mr Smith, CEM and Beca... [18] FCC [18] Mr Smith [21] CEM [22] Beca [23] The Statements of Defence... [26] FCC [28]

3 Mr Smith [29] CEM [29] Beca [31] CCH s claims against other defendants... [32] The application for summary judgment or strike-out... [34] CCH s opposition... [40] The position of Beca... [45] Summary judgment applications by defendants general principles... [51] Legal principles applicable on a defendant s strike-out application... [55] The issues to be determined... [57] Applications by Mr Smith [57] Applications by CEM [57](3) Applications by FCC [57](7) Seventh to sixteenth defendants [57](9) Mr Smith s evidence and submissions [62] Submissions for CCH on issues 1 and 2 [68] Discussion and conclusions on issues 1 and 2 [71] The manufacturing standard [84] Evidence in support of the application [87] CCH s evidence in opposition [96] The August 2016 reply evidence [103] Beca s evidence [115] Further affidavits from CCH [129] Second round of affidavits in reply from the applicants [132] Submissions for CEM [145] Submissions for CCH [154] Submissions for Beca [161] Discussion and conclusions [164] Submissions for CEM [180] Submissions for CCH [186] Submissions for Beca [189] Discussion and conclusions [191] FCC required to give guarantee by provisions of head contract [208] CCH s claim on the guarantee [217] Submissions for FCC [224] Submissions for CCH [229] Mr Fulton s reply submissions for FCC [232] Discussion and conclusion on the guarantee cause of action [234] Did FCC owe a duty of care to CCH? applicable legal principles [254] The contractual matrix [264] Submissions for FCC [274] Submissions for CCH [288] Submissions for Beca [289] Discussion and conclusions on the FCC duty of care issue [291] The allegations of breach [319] The commissioning allegations [321] Submissions for FCC [330] Submissions for CCH [335] Submissions for Beca [340] Reply submission for FCC on the commissioning issue [342]

4 Discussion and conclusions on the breach of duty issue [343] Issue (9): How should the Court deal with CCH s claims against the seventh to sixteenth defendants?... [343] Result... [368] Introduction [1] The third, fourth, and sixth defendants (collectively the applicants ) apply for summary judgment on the claims made against them. In the alternative, they ask for orders striking the claims out. [2] If they are successful with the summary judgment applications, the third defendant (FCC) and the sixth defendant (CEM) also seek orders striking out a crossclaim made against them by the first defendant (Beca). [3] The other application before the Court is an application by CEM for orders dismissing the claims by the plaintiff (CCH) against the seventh to sixteenth defendants. CEM says that those defendants were improperly joined in the proceeding, and that CCH s claims against them cannot succeed. Background [4] CCH is a District Health Board. It owns and operates the Wellington Regional Hospital. [5] In or about December 2005, work began on a new (six-level) main building at the hospital site in Newtown (the main building). A tender process was followed for the work, with CCH issuing detailed documentation. The successful tenderer was FCC. [6] The project was a major one, worth in excess of $140 million. There were over three hundred pages of contract documents, which included the General Conditions of Contract NZS 3910:2003 (the General Conditions), supplemented and amended by Special Conditions of Contract, specifications and plans, and certain correspondence between the parties.

5 [7] Construction on the project commenced in early December 2005, and the project was completed in or around December [8] The fourth defendant, Mr Angus Smith (Mr Smith), was at the time of the construction work, the construction manager for FCC in Wellington. [9] The project included the design and installation of new copper piping for hot and cold water services throughout the main building. Beca designed and reviewed the hot and cold water system, including the preparation of specifications for the material to be used in the construction of the system and its installation. [10] Beca was also engaged by CCH to carry out construction monitoring, initially to level 4 but, from November 2006, to level 5. Level 5 is the most intensive level of monitoring Beca would undertake, and it required daily on-site presence by Beca. 1 [11] The head contract between FCC and CCH included provisions for the supply and installation of the copper piping, but that particular part of the head contract was carried out by a sub-contractor, a joint venture between Aquaheat Industries Ltd and the Hastie Group, under a sub-contract dated 2 May For convenience, I will refer to this sub-contractor as Aquaheat. The appointment of Aquaheat was expressly approved by CCH. [12] Problems have arisen with the copper water pipes in the main building. The pipes have developed pin hole type leaks, which are sufficiently serious that CCH says that the whole system now has to be replaced. [13] In its statement of claim dated 22 April 2016 (the statement of claim), CCH says that the copper pipes are exhibiting early failure through pitting, corrosion 1 The relevant Guideline on the Briefing and Engagement for Consulting Engineering Services required Beca to: maintain personnel on the site to constantly review work procedures, materials of construction and components for compliance with the requirements of the plans and specification and review completed work prior to enclosure or on completion as appropriate.

6 impingement attack, and internal corrosion. The statement of claim identifies the following alleged defects in the copper pipes: (1) leaks; (2) changes in cross-section and subsequent water turbulence resulting in gas bubbles forming in the water; (3) systemic presence of pitting; (4) pitting that is getting progressively worse; (5) the presence of deleterious film; (6) tubercles and malachite on the inside surface of the pipes; (7) extensive longitudinal deposits and artefacts on the inside of the pipes; (8) axial die lines on internal pipe surfaces; and (9) internal burrs on T joints. [14] The copper piping was manufactured in Australia by CEM. [15] At the time it manufactured the copper pipes, CEM had no connection with FCC, but it now shares a common ownership structure with FCC. [16] CCH alleges in the statement of claim that there were defects in both the design and the construction of the hot and cold water system in the main building. It pleads a total of eight separate alleged design defects (e.g. Copper Pipe is concealed in walls and ducts ) which it describes as the Maintainability Defects. It also refers to an alleged Impingement Defect (gas bubbles forming in the water being carried through the pipes created by turbulence and changes in pressure, temperature and cross-section) as a design defect.

7 [17] While CCH does make a general allegation of negligence against FCC in respect of the design defects, it is accepted that design aspects of the project were generally the responsibility of Beca. CCH s allegations against FCC, Mr Smith, CEM and Beca FCC [18] CCH pleads two causes of action against FCC. First, CCH alleges that FCC owed it a duty of care in carrying out the construction work. It says that FCC breached its duty of care in a number of respects, and that the breaches have caused it loss. [19] The second cause of action against FCC alleges breach of a guarantee given by FCC. CCH says that the head contract provided for FCC to provide a blanket guarantee in the form of Schedule 13 to the General Conditions covering, inter-alia, hot and cold plumbing systems. CCH alleges that the terms of the blanket guarantee required FCC to guarantee the workmanship, goods, services or materials used in the course of the work, including guarantees that the materials used in the works would be those required by the contract documents, and that all materials would be new and of good quality. [20] CCH pleads that, in breach of the guarantee, the hot and cold water system had the defects referred to at [13] of this judgment. Mr Smith [21] CCH alleges that Mr Smith was negligent in that he failed to exercise reasonable care and skill in issuing a Producer Statement for the construction work. Contrary to the Producer Statement (signed by Mr Smith), CCH contends that the copper pipes do not comply with the Building Act or Building Code, do not comply with a New Zealand standard, NZS3501: 1976 (the Standard), and are subject to the defects and the design defects. CCH says that it was reasonable for it to rely on the Producer Statement, and that it did rely on it.

8 CEM [22] CCH pleads one cause of action against CEM. It alleges that CEM owed it (as an end user of the copper pipes) a duty of care to manufacture the copper pipes with reasonable care and skill and in accordance with the Standard. It claims that, in breach of those duties, CEM manufactured and/or supplied the copper pipes with the defects. Beca [23] CCH s first cause of action against Beca is for negligence in carrying out its functions under its contract with CCH. Beca is said to have failed to exercise reasonable care and skill before issuing Producer Statements in respect of the works, including the copper pipes. It is also alleged to have failed to make reasonable enquiries to confirm that the copper pipes complied with the project specifications, the Standard, the Building Act and the Building Code. [24] CCH also alleges negligence by Beca in the design of the work, referring to the so-called impingement defects and the Maintainability Defects. It says that the copper pipes were not fit for purpose. [25] A third cause of action against Beca alleges breach of indemnity under the contract between CCH and Beca. The Statements of Defence FCC [26] FCC denies that it owed any duty of care in tort to CCH. And if any duty is held to have been owed, it denies that it was guilty of any breach. [27] As for the guarantee claim, FCC says that the form set out in Schedule 13 was varied, limiting the guarantee to weathertightness. Specialist services (such as the services involved in manufacturing the copper piping) were deleted from the scope of FCC s obligations under the guarantee, and were instead the subject of direct obligations between CCH and Aquaheat. In addition, FCC says that the guarantee was limited to a two year period, which has long expired.

9 Mr Smith [28] FCC and Mr Smith say that Mr Smith did not assume any personal responsibility or liability to CCH when he signed the Producer Statement. The Producer Statement was a document required to be issued by FCC under the head contract, and it required no particular skill or qualification of the person signing. FCC and Mr Smith deny that the Producer Statement was relied upon by CCH to establish compliance with the head contract. They further say that issuing the Producer Statement was incapable of causing loss to CCH, and did not in fact cause it loss. CEM [29] In the statement of defence, CEM admits manufacturing the copper piping, and says that it was supplied through other companies to a New Zealand distributor, Crane Distribution NZ Ltd. The copper pipes were then supplied to Aquaheat. [30] CEM denies that it owed any duty of care to CCH, and it denies the allegations of breach. It says that none of the alleged defects are capable of being manufacturing defects, save for the potential for deleterious film presence. CEM then says that its manufacturing processes could not have produced such films, which in any event would not have been detectable in Any such film, if it exists, is the result of water chemistry and composition. Beca [31] Beca generally denies the allegations against it. CCH s claims against other defendants [32] I am not concerned in this judgment with CCH s claims against the second defendant, Mr Newton (an employee of Beca who signed three Producer Statements). Nor am I concerned with CCH s claims against the fifth defendant, Mr Belbin, who was employed by Aquaheat and who also signed a Producer Statement. [33] As for the seventh to sixteenth defendants, the statement of claim alleges that all were involved in the manufacture and/or supply of the copper piping used in the

10 main building. But none of them have been served, and CCH asks for leave to discontinue its claims against them. 2 However CEM does not consent to the proceeding being discontinued against those parties. It says that the appropriate course is for the Court to dismiss or strike out CCH s claims against those parties. The application for summary judgment or strike-out [34] The applicants have each applied for summary judgment on the claims made against them. In the alternative, they ask for orders striking out CCH s claims against them. [35] FCC contends that it did not owe CCH any duty of care as alleged. It says that the tort claim against it is, in effect, a claim that it owed a duty in tort to comply with the head contract obligations. As such, it is unsustainable. And even if a duty of care was owed, there are no grounds available to CCH to establish that FCC breached the duty. It says that the negligence claim against it cannot possibly succeed. [36] As for the claim on the guarantee, FCC says that the guarantee does not apply to the claims, and in any event the guarantee expired long before the proceeding was issued. [37] Mr Smith says that the Producer Statement he signed was a document required by the head contract between CCH and FCC, and was to be issued by the head contractor (not by an individual person). No special qualifications were called for or required of the person signing the Producer Statement. [38] Mr Smith also says there is no arguable basis that he was guilty of any lack of care in signing the Producer Statement, and that CCH did not rely on the Producer Statement in any event. The Producer Statement had no status under the Building Act 2004, and CCH did receive a Code Compliance Certificate. It was the Wellington City Council, not CCH, who may have relied on the Producer Statement, and there is no allegation that the Code Compliance Certificate has been revoked, or that any other detrimental action has been taken by the Council. 2 Where a plaintiff wishes to discontinue against one of several defendants, the plaintiff must obtain the consent of the other defendants or the leave of the Court High Court Rules, r 15.20(4).

11 [39] CEM denies that it owed any duty of care to CCH. But even if it did, it says that CCH cannot establish any breach of duty. It says that only two of the alleged defects could have arisen at the manufacturing stage (alleged deleterious film and axial die lines), but neither could have resulted in the problems with the pipes. CCH s opposition [40] CCH contends that its claims against each of the applicants are reasonably arguable. Specifically, it contends that it is reasonably arguable that each of the applicants owed it a duty of care (whether a duty was in fact owed is a matter to be determined on examination of all of the evidence at trial). [41] As for its claim against FCC on the guarantee, CCH says that there is a substantive factual dispute as to whether the guarantee alleged by it in the statement of claim was agreed to be provided, and that if the guarantee was provided as alleged it is at least arguable that it would apply in the current circumstances and would not have expired. [42] In respect of the claim against Mr Smith, CCH says that the issue of whether or not he assumed personal responsibility for the Producer Statement cannot be determined in the absence of an examination of all of the evidence. Similarly, the question of whether he failed to exercise reasonable care in making the Producer Statement cannot be determined without an examination of all of the evidence. CCH says further that it is at least arguable that it relied on the Producer Statement in allowing the construction project to proceed to certification of practical completion, and in accepting the completed building. [43] With respect to its claim against CEM, CCH says that it is reasonably arguable that manufacturing defects (including leaving deleterious film on the inside surface of the copper pipes, and causing axial die marks to remain on the inside surface of copper pipes) caused or contributed to the failure of the pipes. Mr Thain also made a submission at the hearing that CCH would be entitled to make a claim (not yet formulated) against CEM under the Consumer Guarantees Act 1993.

12 [44] Insofar as the application asks for orders for summary judgment or striking out in favour of the seventh to sixteenth defendants, CCH points out that there is no application by those parties for such orders. It also says that the orders are unnecessary, because it will discontinue against any of those parties if it is established that they did not manufacture or supply the pipes. The position of Beca [45] Very shortly before the October 2016 hearing of the applications by the applicants for summary judgment or strike-out, Beca filed a cross-claim against FCC and CEM claiming contribution or indemnity under s 17 of the Law Reform Act 1936 (in the event that it should be found liable to CCH). Beca did not file any formal notice of opposition to the application by the applicants, but Mr Neutze appeared at the October 2016 hearing and confirmed that Beca s cross-claim is in part reliant on a contention that FCC and CEM did owe duties of care to CCH. As that same duty of care was denied by FCC and CEM, it was apparent that there could be a risk of conflicting judgments if FCC or CEM were to succeed with their summary judgment application against CCH on the basis that they did not owe CCH a duty of care, but different evidence on Beca s cross-claim later established that such a duty was owed. [46] In the event, the one day allocated for the hearing on 17 October 2016 proved to be insufficient, and I allowed Mr Fulton time to file written submissions in reply. I also allowed further time to FCC and CEM to consider their position, to see whether they wished to apply to strike-out the cross-claim filed by Beca. I directed that any application by FCC or CEM to strike-out Beca s cross-claim was to be filed and served by 26 October [47] On 25 October 2016, FCC and CEM applied for orders that, in the event of them obtaining summary judgment dismissing CCH s claims against them, Beca s cross-claim would be struck out. [48] I subsequently convened a telephone conference, and received memoranda from counsel. Mr Fulton submitted that Beca was effectively seeking an extension of time to file notice of opposition to the applicants summary judgment application, and to file evidence and make submissions in opposition to that application. In reply, Mr

13 Neutze submitted that there would or could be significant prejudice to Beca if it were not allowed to be heard in opposition to the applicants applications. All parties accepted that if Beca were now allowed to oppose the applicants application the only prejudice to the applicants would be in terms of time and cost. That prejudice could be removed, or substantially mitigated, by an award of costs if that was appropriate. [49] On 19 December 2016 I granted leave to Beca to file a notice of opposition to the applicants application. I gave timetable directions for the filing of the notice of opposition, supporting affidavits and submissions by Beca, and made provision for CCH and the applicants to file affidavits and submissions in reply. [50] Further affidavits and written submissions were then filed by all parties. I heard further oral argument from counsel on 3 April Summary judgment applications by defendants general principles [51] Rule 12.2(2) of the High Court Rules provides: 12.2 Judgment when there is no defence or when no cause of action can succeed (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. [52] Summary judgment for a defendant will not be appropriate where it is possible for the plaintiff to amend its claim so as to remedy the defects relied upon by the defendant. Secondly, summary judgment should be used by a defendant only where the defendant has a clear answer to the plaintiff which cannot be contradicted. 3 Thirdly, the Court will not normally resolve conflicts between experts in a summary judgment context. 4 3 Westpac Banking Corporation v M M Kembla NZ Ltd, [2001] 2 NZLR 298 (CA); Attorney-General v Jones [2004] 1 NZLR 433 (PC). 4 MacLean v Stewart (1997) 11 PRNZ 66 (CA).

14 [53] In Westpac Banking Corporation v M M Kembla NZ Ltd, the Court of Appeal observed: 5 It is not necessary for the plaintiff [responding to a defendant s summary judgment application] to put up evidence at all although, if the defendant supplies evidence which would satisfy the Court that the claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own. [54] In Krukziener v Hanover Finance Ltd, the Court of Appeal said: 6 The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341. In the end the Court s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA). Legal principles applicable on a defendant s strike-out application [55] Rule 15.1 of the High Court Rules provides that the Court may strike out all or part of a pleading if it discloses no reasonably arguable cause of action, or case appropriate to the nature of a pleading, or is likely to cause prejudice or delay. [56] The following principles have been established by the Supreme Court: 7 (1) the jurisdiction to strike out a cause of action is one which is exercised rarely and only where the cause of action is clearly untenable (i.e. has no prospect of success); (2) a strike-out application proceeds on the basis that the facts pleaded against the applicant are true; 5 Westpac Banking Corporation v M M Kembla NZ Ltd, above n 3, at [64]. 6 Krukziener v Hanover Finance [2008] NZCA 187, [2010] NZAR 307 at [26]. 7 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725.

15 (3) the Court should be particularly slow to strike out a claim in any developing area of the law, particularly where a duty of care is alleged in a new situation; (4) developments in negligence need to be based on proved rather than hypothetical facts; and (5) if a pleading may be saved by amendment, that amendment should be allowed. 8 The issues to be determined [57] The following issues fall to be determined: Applications by Mr Smith (1) Has Mr Smith shown that it is clear that the claim against him cannot succeed, so that an order for summary judgment in his favour is appropriate? (2) If not, and assuming the facts pleaded by CCH against Mr Smith are true, has he shown that, as a matter of law, the claims against him are so untenable that they should be struck out? Applications by CEM (3) Has CEM shown that it is clear that it did not owe any duty of care to CCH, such that it is entitled to summary judgment on the claims against it (and to an order striking out Beca s cross-claim against it)? (4) If the answer to Issue (3) is no, has CEM shown that it is clear that it did not breach any duty of care it may have owed to CCH, and that it is entitled to summary judgment (and an order striking out Beca s cross-claim) on that account? 8 Kupenga v Registrar-General of Lands HC Auckland A1523/84, 4 February 1986.

16 (5) [If neither of Issues (3) and (4) is answered yes ], assuming the facts pleaded by CCH against CEM are true, has CEM shown that, as a matter of law, the claims against it are so untenable that they should be struck out? (6) Has CEM shown that it is clear that CCH could have no claim against it under the Consumer Guarantees Act 1993? Applications by FCC (7) Has FCC shown that, as a matter of law, the claims against it are so untenable that they should be struck out? (8) Has FCC shown that the facts are such that it is clear that neither of the causes of action against it can succeed, so that orders for summary judgment in its favour on CCH s claim, and an order striking out Beca s cross-claim against it, are appropriate? Seventh to sixteenth defendants (9) How should the Court deal with CCH s claims against the seventh to sixteenth defendants? [58] I will address the issues in the order set out above. Issue (1) Has Mr Smith shown that it is clear that the claim against him cannot succeed, so that an order for summary judgment in his favour is appropriate? Issue (2) If not, and assuming the facts pleaded by CCH against Mr Smith are true, has he shown that, as a matter of law, the claims against him are so untenable that they should be struck out? [59] It will be convenient to deal with these two issues together. [60] The Producer Statement signed by Mr Smith was in the following terms:

17 PRODUCER STATEMENT BUILDING CONSTRUCTION PS3 ISSUED BY TO: Fletcher Construction Capital Coast District Health Board IN RESPECT OF: Wellington Regional Hospital NRH Building Consent No. SR AT: Main Building, Riddiford Street, Newtown, Wellington Lot 1 DP 6013 City of Wellington I, Angus William Smith, a duly authorised representative of Fletcher Construction believe on reasonable grounds that Fletcher Construction has built the works in accordance with the plans, specifications and instructions of the principal in accordance with the contract. [Signature of Mr Smith] 5/3/09. Signature of Authorised Agent on Behalf of Date [61] The claim against Mr Smith is in the tort of negligent mis-statement. Mr Smith s evidence and submissions [62] In his evidence, Mr Smith stated that he holds a New Zealand Certificate in Building, but does not hold any professional qualifications. He has extensive construction knowledge and experience. He was in charge of managing the construction delivery side of things for the main building construction work, and initially he was the project director (before another FCC employee took on that role). He attended regular monthly management meetings during the course of the construction work, but he was not involved in day-to-day site attendances, and did not physically carry out any construction work or inspections. [63] Mr Smith said that within FCC Wellington any Producer Statements, for any job, had to be signed by the Construction Manager. In this case, providing the Producer Statement in question was an obligation imposed on FCC by cl (a) of the General Conditions of the head contract. The form of the Producer Statement was

18 set out in the sixth schedule to the General Conditions, and the form provided that the Producer Statement was to be Issued By the head contractor. [64] Mr Smith stated that, through its representatives on the site, CCH knew that Mr Smith did not carry out a hands on role throughout the course of the work: he carried out a management role only. [65] Mr Smith also stated that, before he signed the Producer Statement, he was aware of the rigorous checking and verification process which had taken place, including testing and commissioning work carried out by sub-trades who themselves provided Producer Statements to FCC. He was also aware that the copper piping system had been pressure and flush tested, and that the commissioning process had involved CCH as well as other parties. He said that he was aware that Beca had been monitoring the build, and that it had signed off on the commissioning results. [66] Mr Smith s evidence on these matters was not challenged in any material way in the affidavits filed by CCH and Beca. [67] In his submissions, Mr Fulton submitted that Mr Smith did not assume responsibility to CCH for the Producer Statement, and that it was not relied on in any detrimental way by CCH. Submissions for CCH on issues 1 and 2 [68] For CCH, Mr Thain submits that the Producer Statement was on its face a statement written by Mr Smith personally. It was expressed in the first person, and it set out Mr Smith s belief. Whether or not Mr Smith believed that he was assuming personal responsibility for the correctness of the Producer Statement is not the point. Assumption of responsibility is not voluntary but deemed. 9 Mr Thain further submits that it is not correct to say that the head contract required FCC to issue the Producer Statement: FCC was only required to provide the Producer Statement (as opposed to making the statement itself). 9 Citing Attorney-General v Carter [2003] 2 NZLR 160 (CA) at [22]-[32].

19 [69] In response to Mr Smith s evidence that he was not hands on on the project throughout, Mr Thain points out that Mr Smith was FCC s construction manager, and was in charge of the construction work for FCC. [70] On the question of breach of any duty Mr Smith may be held to have owed, Mr Thain submits that at this stage the Court only has broad assertions about Mr Smith s claimed performance of the duty, and it is not yet possible to determine whether what he has said about the care taken in signing the Producer Statement is correct. Mr Thain submits that the cause of action against Mr Smith is arguable, and that his application for summary judgment should be dismissed. Discussion and conclusions on issues 1 and 2 [71] In Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd, the Court of Appeal noted that, where negligent mis-statement is at issue, the normal proximity enquiry which is required when the Court considers whether it would be fair, just and reasonable to impose a duty of care on the defendant, generally focuses on the interdependent concepts of assumption of responsibility by a person with special skill, and foreseeable and reasonable reliance by the plaintiff. 10 [72] The Court of Appeal also observed in Rolls-Royce that assumption of responsibility for a statement or task does not usually entail voluntary assumption of legal responsibility to a plaintiff, except in cases where the defendant is found to have undertaken to exercise reasonable care in circumstances which are analogous to, but short of, contract, and it is foreseeable that the plaintiff will rely on that undertaking. If those circumstances are present then, subject to any countervailing policy factors, a duty of care will arise. In other cases, the law will deem the defendant to have assumed responsibility where it is fair, just and reasonable to do so (citing Attorney-General v Carter at [23]-[27]). Whether it is fair, just and reasonable to deem an assumption of responsibility, and then a duty of care, will depend on a combination of factors, including the assumption of responsibility for the task, any vulnerability of the plaintiff, any special skill of the defendant, the need for deterrence and promotion of 10 Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) at [97], citing Attorney-General v Carter, above n 9, at 168, [22].

20 professional standards, lack of alternative means of protection and so on. Wider policy factors will also need to be taken into account. 11 [73] In Trevor Ivory v Anderson, the Court of Appeal noted, in the context of a negligent mis-statement case, that the test as to whether an officer or servant of a company is liable for acts carried out by him or her in the name of the company is whether the officer or servant has assumed a duty of care to the recipient of the advice, whether actual or imputed. Liability was said to depend on the facts on the degree of implicit assumption of personal responsibility, and on a balancing of policy considerations. 12 [74] In Body Corporate v Taylor, 13 the Court of Appeal accepted that there must be assumption of responsibility, whether actual or imputed, for personal liability to arise in the case of a director or employee. William Young P, delivering the joint judgment of himself and Arnold J, noted that the Courts have been very reluctant to confer rights to sue in negligence which are inconsistent with (perhaps just in the sense of going beyond) the rights for which plaintiffs have bargained. As well, to be successful a plaintiff will usually have to show an assumption of personal responsibility by the defendant to the plaintiff which is akin to acceptance of a contractual obligation. 14 [75] In North Shore City Council v Wightman, McKenzie J considered that, at least in negligent mis-statement cases, it is not enough to establish only that the employee has carried out the work for which the employer has assumed responsibility. What must be shown are circumstances on which the claimant could reasonably rely as an assumption of personal responsibility by the employee who performed the services on behalf of the employer At [99]. 12 Trevor Ivory v Anderson [1992] 2 NZLR 517 (CA). 13 Body Corporate v Taylor [2008] NZCA 317, [2009] 2 NZLR At [16]. 15 North Shore City Council v Wightman HC Auckland CIV , 30 November 2010 at [28]. (A decision to which I referred in Weaver v HML Nominees Ltd and Ors [2014] NZHC 2073).

21 [76] I am satisfied in this case that there is nothing which would justify a finding that Mr Smith assumed personal responsibility to CCH when he signed the Producer Statement. First, the Producer Statement was stated to be issued by Fletcher Construction, and Mr Smith clearly signed the document as Agent on behalf of. Further, the contractual obligation to provide the Producer Statement was not imposed on Mr Smith personally, but on FCC. [77] If CCH had expected FCC s construction manager to assume personal responsibility for the Producer Statement, to the point where Mr Smith would be taking on something akin to (but short of) a contractual responsibility, one would have expected to see some express provision in the head contract to that effect. No such provision was included. [78] Apart from the wording of the Producer Statement, CCH would have known through its site representatives and agents that Mr Smith did not attend to the construction work or inspections himself, and that he had no particular expertise in the manufacture or installation of copper piping systems. CCH was certainly not in a vulnerable position vis-a-vis Mr Smith; indeed, it would have had greater expert resources available to it, particularly by way of the monitoring of the project work carried out by Beca. All that occurred in this case is that Mr Smith, to the knowledge of CCH, signed a document on behalf of his employer which the employer was required by the head contract to provide. [79] This was a very complex and substantial building contract, entered into between large and experienced commercial parties, with CCH advised by one of New Zealand s leading engineering firms. In those circumstances, CCH could not have reasonably believed that Mr Smith had elected to assume personal responsibility when he signed the Producer Statement. The very idea has an air of unreality about it. Nor are there any reasons for the Court to conclude that Mr Smith should be deemed to have assumed such a responsibility. The circumstances were not in my view analogous to, but short of, contract, at least as far as Mr Smith was concerned. It would not be fair, just, or reasonable to impose a duty of care on Mr Smith in circumstances such as these, where sophisticated commercial parties have negotiated a detailed and complex commercial contract covering all aspects of the project, and

22 CCH could not have been expecting to receive from FCC a Producer Statement for which one of FCC s employees had assumed personal liability. That was not what CCH had bargained for. [80] I conclude that CCH s claim that Mr Smith owed it a duty of care when he signed the Producer Statement clearly cannot succeed. [81] This is not a situation where there is any realistic prospect that further evidence may be produced by CCH at trial which might affect the duty of care issue as far as Mr Smith is concerned. That being so, the correct course is to enter summary judgment in Mr Smith s favour on the claims against him. [82] On that basis, there is no need to consider Mr Smith s strike-out application. Issue (3) Has CEM shown that it is clear that it did not owe any duty of care to CCH, such that it is entitled to summary judgment on the claims against it (and to an order striking out Beca s cross-claim against it)? Issue (4) If the answer to Issue (3) is no, has CEM shown that it is clear that it did not breach any duty of care it may have owed to CCH, and that it is entitled to summary judgment (and an order striking out Beca s cross-claim) on that account? [83] It will be convenient to deal with these two issues together. The manufacturing standard [84] The manufacture of the pipes was governed by the Standard. Clause 5.1 of the Standard provided: 5.1 The tubes shall be straight, round, clean, smooth, free from harmful defects and free from deleterious films in the bore.

23 [85] Under the Standard, all tubes which were said to be Standard-compliant were required to be marked with NZS 3501 (or the letter S stamped on the pipes), 16 the appropriate table number, and the manufacturer s name or identification mark. [86] There is no definition of deleterious film in the Standard. Evidence in support of the application [87] In support of the application, the applicants relied on affidavits from Mr Phil Nichols, a metallurgist at the University of Wollongong in Australia with some 15 years industry experience in the manufacture of copper piping, and Dr Jonathan Smith, a New Zealand metallurgist specialising in materials consulting, including corrosion prevention services. [88] Neither Mr Nichols nor Dr Smith had visited the site and inspected the pipes when they swore their June 2016 affidavits. [89] Mr Nichols noted that, as a broad proposition, problems with copper piping typically arise from the chemical composition of the water it is very unusual for problems with the pipes to arise from manufacturing issues. That view was shared by Dr Smith. In his first affidavit sworn on 29 June 2016 Dr Smith expressed the view that the primary cause of failure of the copper piping was the chemistry of the water. [90] Only two of the alleged design and manufacturing defects are manufacturing defects. First, CCH alleges that the presence of deleterious film on the insides of the pipe surfaces has contributed to the corrosion and leaking problems. Both Mr Nichols and Dr Smith discounted this as a potential contributor to the problems. [91] Mr Nichols said that, over the last 20 years, manufacturing processes have developed to the point where such film defects are largely now only theoretical problems. 16 Mr Jenkins, a witness for CCH, noted that an S mark indicates compliance with a manufacturing system of supervised control and testing, which has been designed to ensure general compliance. However, this does not provide an assurance that a particular piece of copper pipe fully complies with the Standard.

24 [92] While the expression deleterious film is not defined in the Standard, in Mr Nichols opinion the Standard could only have been referring to carbonaceous films. But modern manufacturing techniques (including, to Mr Nichols knowledge, the techniques adopted by CEM) have evolved processes to ensure that carbonaceous films are not present (primarily achieved by using clean-burning synthetic lubricants that do not leave behind any harmful carbon-based residue). Mr Nichols said that his most recent inquiries of CEM confirmed that no carbonaceous films had been detected in its routine testing, and he expressed confidence that no such film would have been present at the manufacture of the pipes in issue in this case. But even if film of that sort had been present, it would have entirely lost any causative properties (i.e. causative of corrosion) on installation. [93] Dr Smith noted in his first affidavit that the presence of deleterious film most commonly arises after installation, as a by-product of water flowing through the system and adverse water chemistry. It is not normally a manufacturing issue. It is possible for deleterious film to be left by the manufacturing process, but quality control systems used by manufacturers could be expected to detect any such issues. Further, if the film is still present after many years use, a problem with the water chemistry is indicated, not a problem with the pipes themselves. [94] The second alleged defect which Mr Nichols and Dr Smith identified as one which CCH might be relying on as a defect in the manufacture of the pipes, was the presence on the inside surfaces of the pipes of axial die lines. These were described by Mr Nichols as tiny lines on the inside surfaces of the pipes which are a normal product of the drawing process used in the manufacture of the pipes. He said that the drawing process can leave very minor draw lines (axial die lines), usually with a maximum depth of no more than 0.02 millimetres. They are normally not visible to the naked eye. In Mr Nichols view, they are not defects for the purposes of cl 5.1 of the Standard, and they would have had no influence on the reported corrosion of the pipes. [95] Dr Smith agreed that axial die lines are normal, and have never been classified as manufacturing defects. He also noted that axial die lines tend to be microscopic features.

25 CCH s evidence in opposition [96] Affidavits were provided for CCH for the first hearing by Mr Simon Cox, a metallurgist and forensic consultant from South Australia, and Mr Stephen Jenkins, a consulting engineer. Both had attended the site on a number of occasions, and Mr Cox collected some samples for testing from both the hot and cold water systems. He also obtained a piece of piping supplied by CEM which had not been installed (sample 15). [97] Mr Cox examined the internal surface of sample 15, and found evidence of pitting corrosion, notwithstanding that sample 15 had not been exposed to water at the hospital. He also noted visible axial die lines on the internal surface of the pipe. [98] Mr Cox also looked at a section of replacement piping supplied by another manufacturer (sample 74). The internal surface of the replacement pipe was smooth, and uniformly coated with a tan-coloured oxide layer. Mr Cox saw no evidence of corrosion or axial die lines. [99] Mr Cox concluded that the axial die lines must have been present when the pipes were installed. He referred to laps and folds along the axial die lines, and expressed the opinion that they would have acted as initiation sites for pitting and corrosion in both hot and cold water systems. [100] Mr Cox considered that the internal surface of the pipes supplied by CEM had been contaminated with a substance which was aggressive to copper, such as hydrochloric acid. He suggested that a possible source of this contaminant might have been the pickling solution used by copper pipe manufacturers in the manufacturing process. He expressed the opinion that there were manufacturing defects in the pipes, in the form of both axial die lines and a deleterious substance. In combination, these had caused the corrosion. [101] In his affidavit, Mr Jenkins said that he had observed leaks in the piping system in both the hot and cold systems. He referred to two possible failure mechanisms in such cases: first, pitting corrosion, and secondly erosion corrosion, or flow accelerated corrosion. Mr Jenkins noted that the axial die lines were visible to the naked eye, and corrosion was occurring along the axial die lines. He added that in his

26 experience the axial die lines in this case were unusual he did not recall seeing axial die lines visible to the naked eye before. [102] On the allegation of deleterious film on the internal surfaces of the pipes, Mr Jenkins expressed the view that this issue is not limited to carbonaceous films, as Mr Nichols suggested (although carbonaceous films are the most prevalent cause of pitting). Mr Jenkins suggested that the presence of harmful film in the pipes may have been attributable to the pickling process used in the manufacture. He referred to his experience with electroplating processes, noting that the pickling process used in that context involves the use of hydrochloric acid. He suggested that a cause of the pitting might have been a failure to properly flush the pipes after the use of the hydrochloric acid in the manufacturing process. The pickling process could leave spots on the inside of the pipe, where there would be a high concentration of chloride ions. That would qualify as a harmful defect in terms of the Standard. The August 2016 reply evidence [103] Mr David Crowe, an engineer who had been general manager, engineering and business development, for the Crane Metals Group, which included CEM, provided an affidavit in reply. Mr Crowe said that CEM had a longstanding process for the manufacture of copper tubing, and that it used specialist testing procedures. He stated that CEM did not use a pickling process, and did not use hydrochloric acid, when it made the pipes. If there was any presence of hydrochloric acid or chlorine in the pipes, it must have come from the water (if a used pipe) or the storage conditions (if unused). [104] On the axial die lines, Mr Crowe said the manufacturing process will leave some level of axial lines, but this would not be a defect in the product unless it was of such significance as to compromise mechanical strength. He also noted that in the early 1990s CEM had been approved for S mark accreditation by an independent party. [105] Mr Nichols also confirmed in a reply affidavit that, to his knowledge, CEM never used hydrochloric acid in its manufacturing processes at the relevant time. He expressed the view that any presence of chlorine in the pipes had to have come from

27 the site conditions themselves, and likely the storage conditions. The presence of chlorine does not provide any proof of a manufacturing issue. [106] In his reply affidavit, Dr Smith challenged the analyses of Mr Cox and Mr Jenkins as flawed. He noted that Mr Jenkins is not a metallurgist, and suggested that he does not have significant manufacturing knowledge and experience. To the extent that there may have been a film on the inside surfaces of the CEM pipes, Dr Smith said that there is nothing wrong with having a passive oxide film on the insides of the pipes. Indeed, it is critical to providing corrosion protection to the tubes. [107] Dr Smith referred in his reply affidavit to a purchase he had made of sample CEM copper pipes and Kembla pipes. Both had fine axial die lines on both the exterior and interior surfaces. The interior axial die lines were visible when the pipe was cut open, but you would not have noticed them looking only at the end of the pipe. [108] Dr Smith expressed the view that high levels of chlorine could only have come at or after installation, from exposure to the water. He referred to under-saturated water having a tendency not to form coatings of protective copper carbonate on the pipes, and a propensity to induce corrosion. He said that the majority of water supplied from the various Wellington regional water sites would have been under-saturated water. [109] Dr Smith challenged the conclusions of Mr Cox and Mr Jenkins, expressing the view that it was inappropriate to suggest that this is one of the rare cases where pitting/corrosion in copper pipes has not been caused by the water, without a clear basis for that opinion. Without a foundation in the facts, Dr Smith suggested that the evidence of Mr Cox and Mr Jenkins was no more than an unproved hypothesis. [110] Dr Smith noted that the scope of the work Mr Cox said he had undertaken was very limited, and was not adequate given the breadth of the issues in this case. What was required was: (1) a comprehensive water analysis;

28 (2) microbiological testing of the water, and swabbing of bore samples; (3) testing copper samples to determine chemical composition, hardness, and mechanical properties; (4) micro-section and metallographic presentation to identify the form of corrosion and the corrosion mechanisms; and (5) an EDS analysis of the corrosion product cross-section to identify the chemical composition through the cross-section. [111] As for the presence of residual chlorine, Dr Smith suggested that it is likely to have arisen from the handling or storage of the product it could not have been caused by the manufacture, and could not have been present at the time of installation. [112] Dr Smith disputed that the die lines on the pipe samples, photographs of which were produced by Mr Cox with his affidavit, would have been visible to the naked eye. He described them as so minor they are irrelevant in terms of the causation failure of the copper tubes. [113] Dr Smith also challenged Mr Cox s evidence about the laps and folds along the die line acting as initiation sites for pitting corrosion. If a pipe is corroding for other reasons, the fact that the pipe has axial die lines means only that the corrosion and the axial die lines happen to co-exist it does not mean that the axial die lines have caused the corrosion. Dr Smith said that only one of Mr Cox s photographs showed the die lines, and it was highly magnified (and not even from an installed sample). Other photographs taken by Mr Cox did not show the die lines. [114] Dr Smith noted that neither Mr Cox nor Mr Jenkins had referred to any relevant academic research. He said that he would simply discount any axial die lines if he saw them.