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After much trial and error located the problem.
It would seem that when patching non-global zones, Solaris 10 sets up a "live upgrade environment" in which various directories are mounted over temporary "lu" mount points. Sorry, no longer have a screen dump. When patchadd was failing the zone was left in a state of "mounted" - (rectified by running zoneadm -z zonename unmount). While in this mounted state, I could zlogin and run an ldd on patchadd (ldd `which patchadd`). This resulted in libcrypto.so.0.9.7 pointing to "file not found".
The cause of this was due to Openssh & Openssl being installed over the standard distribution. Copied libcrypto.so.0.9.7 from /usr/sfw/lib to /usr/lib and problem went away