Cannon Point Development Ltd v Wellington Developments Ltd
[2024] NZHC 3377
•13 November 2024
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2024-485-000384
[2024] NZHC 3377
UNDER the Construction Contracts Act 2002 and the High Court Rules 2016 IN THE MATTER OF
an application to rescind the interlocutory order of Gordon J dated 4 July 2024
BETWEEN
CANNON POINT DEVELOPMENT LIMITED
Applicant
AND
WELLINGTON DEVELOPMENTS LIMITED
Respondent
Hearing: 31 October 2024 Counsel:
J T Wollerman and F N Hallett for Applicant
F B Q Collins and F A Hollingworth for Respondent
Judgment:
13 November 2024
JUDGMENT OF GRAU J
[Application to rescind order of the Court]
The application
[1] On 4 July 2024 Gordon J granted a without notice application by Wellington Developments Ltd (WDL) for retentions totalling $94,131.88 (including GST) to be placed by Cannon Point Development Ltd (CPDL) into the trust account of Ford Sumner Lawyer’s Westpac Bank trust account.1 The retentions were held by CPDL
1 Wellington Developments Ltd v Cannon Point Development Ltd [2024] NZHC 1798 [Decision of Gordon J].
WELLINGTON DEVELOPMENTS LIMITED v CANNON POINT DEVELOPMENT LIMITED [2024] NZHC 3377 [13 November 2024]
pursuant to a construction contract between the parties for civil works that is now the subject of a high level of dispute.
[2] CPDL has applied to rescind Gordon J’s order because it says WDL’s application was inaccurate and omitted relevant facts, breaching the duty of utmost good faith CPDL owed to the Court to make full disclosure. In particular, CPDL says WDL’s allegation that an adjudicator determined CPDL had underpaid WDL by
$510,854.95 was incorrect, as was an allegation CPDL was unable to pay monies it owed to WDL. Nor did WDL make any reference to CPDL’s significant claims against WDL in relation to defects arising from WDL’s work, as it was obliged to do. These inaccuracies and/or omissions are said to have gone to the heart of the application and the basis for granting the order.
[3] CPDL agrees the retentions must be safeguarded, but it says that is best achieved by repayment of the retentions to CPDL who will hold the funds (as it had done before the order was granted) in accordance with its statutory obligations. Otherwise, there is a risk of WDL obtaining the retentions after further adjudication and dissipating them. CPDL says it is WDL, not CPDL, that has solvency issues.
[4] WDL’s position is that it provided the Court with the necessary information to determine its application and CPDL’s application to rescind the order is moot. The money can be in no safer place, and it cannot be released unless agreement is reached, or by further order of a court, an adjudicator, or an arbitrator. The retention monies are being safeguarded until determination of the current second adjudication which is likely to happen before the Christmas holiday period. The retentions are held on trust for WDL; they are WDL’s money. If there are significant defects, as CPL alleges, then CPDL has the ability to adduce evidence and seek such set offs as it can establish. WDL is concerned at the prospect of CPDL retaining the retentions in a general business account with nothing to prevent CPDL using these funds.
The parties and their dispute
[5] WDL is a contracting business specialising in civil construction. CPDL is a property development company. In late 2021, WDL entered into an informal arrangement with CPDL to carry out bulk works on CPDL’s residential development
site in Upper Hutt (the Development). Although there was no contract for Stage 1 of the works, a contract was entered into for Stage 2. CPDL withheld retentions of
$94,131.88 (including GST) from WDL’s contract payments for Stage 2 as security for any defects in WDL’s performance.
[6] By 2024, WDL believed CPDL owed it a substantial sum of money and was also of the view that CPDL was under financial strain. CPDL does not accept it had any financial issues. Nor did CPDL consider it owed any money to WDL. Rather, from mid-2023, CPDL had serious concerns about the adequacy of WDL’s work, including what it says were failures to comply with formal Notice to Contractor documents and project timeframes.
[7] WDL eventually learned another contractor had been appointed to take over its works. WDL’s position is that this was a repudiation by CPDL of the Stage 2 contract, meaning the retentions held under that contract were due and owing to WDL. WDL did not receive any notices of default; it had only received an email from the appointed contract administrator, Mr Nand of Vecta Ltd, notifying WDL that contract arrangements were at an end.
[8] CPDL’s position is that WDL’s delays and defective work resulted in CPDL being required to pay a bond to Upper Hutt City Council (the Council) of $635,345.32, based on an estimate of the costs to rectify defects. CPDL’s view is that WDL had failed to rectify defects, it had no intention of doing so, and was slowly disestablishing itself from the site. The engineer to the contract assessed that WDL had been overpaid, and, with the dispute unresolved, CPDL was forced to make other arrangements to rectify the defects and comply with the bond. It notified WDL that another contractor was moving on site and WDL notified CPDL it cancelled the so-called Stage 2B of the contract.
[9] On 12 January 2024, WDL’s solicitors issued a letter confirming that the contract for remaining works for Stage 2 was cancelled. On 19 March 2024, CPDL pre-emptively served a Notice of Adjudication. The parties then engaged in adjudication under the Construction Contracts Act 2002 (the CCA) before Mr Stuart Robertson (the First Adjudication). The adjudication proceeded only on the
issue of CPDL’s claimed overpayment to WDL. CPDL sought a determination that WDL was liable to refund CPDL $1,184,370.28 (including GST). The adjudicator’s determination, dated 29 May 2024, was that WDL was not liable to refund any payments in respect of the development. In the decision, the adjudicator assessed that, instead, CPDL had underpaid WDL by $510,854.95 (including GST). He also determined that the correct amount of retentions which could be held by CPDL was
$81,853.81 excluding GST ($94,131.88 inclusive).
[10] Following the Adjudication, on 4 June 2024, WDL wrote to CPDL seeking a proposal for payment of the amount it said was owing because of the adjudicator’s determination. WDL also sought payment of the retentions into WDL’s solicitor’s trust account within three working days because of the risk these would be dissipated.
[11] On 12 June 2024, CPDL’s solicitors advised they did not consider it necessary to place the retentions in WDL’s solicitor’s trust account and did not make any payment proposal. They advised they would seek instructions about placing the retentions in CPDL’s solicitors’ trust account. CPDL’s response maintained its position that it did not owe WDL any money, but rather WDL owed it a significant repayment, and the adjudicator’s determination was not a debt due.
[12] The First Adjudication had included an order that both parties contribute in equal share to the adjudicator’s fees and expenses, being $25,416.80 each. CPDL paid both shares. WDL declined to pay its share because it believed it was dwarfed by the amount CPDL had underpaid WDL. In its 12 June letter, CPDL also advised it had, that day, issued a statutory demand for WDL’s unpaid share of the adjudicator’s fee.
[13] On 18 June 2024, WDL requested CPDL’s confirmation by 12 pm on 19 June that the retentions had been secured in a solicitors’ trust account. WDL advised an interim injunction application requiring such action would be sought if CPDL did not provide confirmation.
[14] CPDL filed liquidation proceedings against WDL on the basis of a presumption of insolvency by failing to comply with the statutory demand. WDL opposed the statutory demand but later discontinued its application to set it aside.
[15] WDL has filed an application to restrain advertising of, and stay, the liquidation proceedings. CPDL has filed a notice of opposition to WDL’s application.
[16] Another adjudication between the parties is soon to take place, after WDL served a Notice of Adjudication on CPDL (dated 2 July 2024) to determine whether WDL has been underpaid by at least $510,854.95, whether CPDL repudiated the Stage 2 contract and is liable to release the withheld retentions, and whether WDL is entitled to a charging order over remaining lots in the development that are still available for sale.
Decision of Gordon J
[17] On 2 July 2024, WDL’s application for an interim injunction was made without notice (although served on CPDL on a Pickwick basis). As above, the parties are currently in the process of adjudication under the CCA. WDL’s position was, and remains, that the effect of the alleged repudiation is that the retentions should be released in full. WDL submitted in support of its application that the appropriate course of action was to have the retentions held in an independent lawyers’ trust account until the issue is finally resolved by adjudication.2
[18] The orders sought by WDL allowed the retentions to be released if the matter was resolved by adjudication, arbitration, or agreement of the parties. This would allow the issue to be resolved in another forum without the need for further order of the Court.3 WDL submitted that subpt 2A of the CCA deemed retentions to be held in a statutory trust, creating mandatory trust arrangements.4 Mr Sumner for WDL submitted that WDL’s requests to place the retentions in an independent solicitor’s trust account had not been responded to and, although CPDL provided evidence that funds were held in a current everyday business account, there was nothing preventing CPDL transferring money out of this account.5
2 Decision of Gordon J, above n 1, at [24]–[25].
3 At [26].
4 At [27].
5 At [28].
[19] After setting out the law regarding interim injunctions, Gordon J held that there was a serious issue to be tried. Under the NZS3190:2013 contract, it is open to a contractor to cancel for a repudiatory breach under the Contract and Commercial Law Act 2017. WDL had an arguable case that the effect of the alleged repudiation and subsequent termination is that the retentions must be released without set-off.6
[20] Her Honour also held that the balance of convenience favoured granting the interim orders. First, it maintained the status quo for the retentions. Second, there should be no harm to CPDL in giving effect to the order as it would simply be transferring funds which it otherwise could not use for its own purposes. And third, there was the potential for harm to WDL if the funds were misapplied or dissipated. There was a basis for this concern given that, “in accordance with the first arbitration,
WDL is owed at least $510,854.95”.7
[21] The overall balance of justice also favoured the orders being made. Mr Guodong Sun, a director of WDL, was concerned about WDl’s ability to recover its retentions when about CPDL had been unsuccessful in claiming an overpayment and unable to pay the amount assessed in the First Adjudication.8 Her Honour held that:9
The application can be viewed on the basis that WDL is the beneficial owner of the retentions. What it is in effect asking is for its own property to be set aside and protected.
[22] Justice Gordon was satisfied that it was appropriate for WDL to bring its interim application without notice. CPDL’s underpayment of WDL and its subsequent non-payment, as well as the refusal to place the retentions in an independent solicitor’s trust account, meant it was in the interests of justice for the matter to proceed without notice.10
[23] Orders were made requiring CPDL to place the retentions of $94,131.88 (including GST) into the trust account of Ford Sumner lawyers within 24 hours
6 At [31]–[33].
7 At [34].
8 At [35].
9 At [36].
10 At [39].
pending further order of this Court, or of an adjudicator or arbitrator, or further written agreement by the parties. CPDL was also required to pay costs.11
Relevant law
Interim injunctions
[24] The law in relation to interim injunctions is well-settled. They are made under r 7.53 of the High Court Rules 2016 (the HCR). A three-step test is applied:12
(a)Is there a serious question to be tried?
(b)Where does the balance of convenience lie?
(c)Where does the overall justice lie?
[25] A serious question to be tried is one that is not vexatious or frivolous, and one on which the plaintiff has at least “a tenable basis upon which it might be able to succeed at trial”.13 The relevant question in respect of the balance of convenience is whether refusing the injunction would be harder on a plaintiff who was successful at trial or on the successful defendant if the injunction was granted.14 Matters relevant to this assessment include whether damages would provide adequate compensation at trial, preservation of the status quo, the incompensable disadvantages to either party, and the relative strengths of their cases. Apparent merits of the parties’ cases are relevant both to the balance of convenience and overall justice.15 Overall justice is the ultimate consideration, being “whichever course seems likely to cause the least irremediable prejudice to one party or the other”.16
[26] There are a number of ways for an interim injunction to be varied or rescinded once made. Pursuant to r 7.49 of the HCR, a party affected by an interlocutory order
11 At [40]–[41].
12 Intellihub Ltd v Genesis Energy Ltd [2020] NZCA 344, [2020] NZCCLR 29 at [23]; see Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (HC).
13 Intellihub Ltd v Genesis Energy Ltd, above n 12, at [27].
14 Wellington International Airport Ltd v Air New Zealand Ltd HC Wellington CIV-2007-485-1756, 30 July 2008 at [4].
15 Inguran, LLC v CRV Ltd [2023] NZHC 3692 at [15].
16 Commerce Commission v Viagogo AG [2019] NZCA 472, [2019] 3 NZLR 559 at [30]–[31].
may, instead of appealing it, apply to the Court to vary or rescind the order if that party considers the order is wrong. The Court may vary or rescind the order or decision if satisfied that it is wrong.17 In the case of without notice orders, an application to rescind is a hearing de novo of the original application, with the onus remaining on the party who made the without notice application.18
[27] That said, an attack on the correctness of a decision should generally only be made to a Court on appeal.19 This means that the Court’s jurisdiction for review under r 7.49 will generally only be appropriate in the following circumstances:20
(a)where there was not a full argument at the initial hearing;
(b)if some relevant point of evidence was overlooked;
(c)if there has been a material change in circumstances; or
(d)some other special circumstances have arisen.
[28] If it becomes apparent at a review hearing that an appeal would be more appropriate, the Court may remove the review application to the Court of Appeal under r 7.49(6)(b).
[29] An applicant for a without notice interlocutory order owes the Court a duty of utmost good faith to make full and fair disclosure of all material facts. Rule 7.23(3) requires an applicant making a without notice interlocutory application, of a kind likely to be contested if it were made on-notice, to file a memorandum containing the following information:
(a)the background to the proceeding (including the material facts that relate to the proceeding); and
(b)the grounds on which each order is sought; and
17 High Court Rules 2016 (HCR), r 7.49(6)(a).
18 Kennedy Point Boatharbour Ltd v Barton [2022] NZHC 257, [2022] 2 NZLR 686 at [15].
19 ADM International Sarl v Golden Shine NZ Ltd [2023] NZHC 2694, (2023) 26 PRNZ 311 at [21]; citing Arnerich v Vaco Investments (Lincoln Road) Ltd (in liq) [2018] NZHC 1974 at [38] and [42].
20 Arnerich v Vaco Investments (Lincoln Road) Ltd (in liq), above n 19, at [38].
(c)an explanation of the grounds on which each order is sought without notice; and
(d)all information known to the applicant that is relevant to the application, including any known grounds of opposition or defence that any other party might rely on, or any facts that would support opposition to the application or defence of the proceeding by any other party.
[30] Rule 7.23(4) provides that a failure to disclose the relevant matters in subcl (3) may result in the Court rescinding any orders made. However, the “liberal” approach to rescission of orders holds that even if the Court is satisfied that there is a material non-disclosure in the without notice application, recission is not automatic.21 Instead, the Court has a discretion whether to rescind and should review the merits of the application in light of all the evidence now before the Court. Relevant to the discretion is whether the non-disclosure was innocent (in that the facts were not known to the applicant, or their relevance was not perceived) and whether the orders could properly have been granted had the full facts been disclosed.22
[31] Further giving effect to the obligation of full disclosure, the Court also has the ability to rescind an interlocutory order that has been fraudulently or improperly obtained as per r 7.51. The applicable principles (expressed in respect of the predecessor to r 7.51) are set out in Yang v Ko:23
a)The rule exists to prevent intentional or innocent misuse of the Court’s processes;
b)The focus of the enquiry is the knowledge and conduct of the party that obtained the order in question: orders are fraudulently obtained when there is intentional misuse of Court processes but improperly obtained when there is innocent misuse;
c)A key factor in an enquiry into whether the order was improperly obtained is whether the party obtaining it knowingly ignored a legal obligation, so that it would be contrary to the interests of justice to allow the order to stand;
d)The conduct of the party seeking to rescind the order is relevant only insofar as it affects the knowledge of the party who obtained the order;
21 Leaders Hawkes Bay Ltd v Pienaar [2021] NZHC 1925 at [63].
22 At [63]–[64].
23 Yang v Ko HC Auckland CIV-2005-404-4583, 31 July 2007 at [24].
e)The fact that the order would not have been granted had the alleged impropriety not occurred is a relevant fact in the exercise of the discretion.
[32] The first step in determining an application under r 7.51 is to determine whether there has been fraudulent or improper conduct and whether the order was “obtained” as a consequence of it;24 conduct which does not influence the Court’s decision is outside the rule.25 The onus of proving the improper or fraudulent conduct lies on the person making the allegation.26 Inadvertently misleading material placed before the Court is sufficient to justify rescinding the order on the ground that it was improperly obtained, especially in a without notice application.27 However, the discretion to rescind only sets aside the order, not the application on which it was made. Rule 7.51 permits a “flexible, discretionary response to meet the circumstances of the particular case”, which means it may be open to the Judge to make a fresh order on the original application.28
[33] Notwithstanding the above, the High Court also retains an inherent jurisdiction to review procedural orders which have continuing effect in circumstances where those orders have become unjust.29
Retention under the CCA
[34] Subpart 2A of the CCA provides for a retention regime in respect of parties to construction contracts. Amendments to the CCA were made on 6 October 2023, however, the NZS3910:2013 contract regarding Stage 2 of the Development was entered into by the parties before this date. This means that the earlier version of subpt 2A (inserted by the Construction Contracts Amendment Act 2015) applies in this case. Accordingly, references to the CCA in this decision refer to the version prior to the 2023 amendments.
24 M Yovich & Sons Ltd v Peters [2016] NZHC 1572 at [48].
25 Elvidge v ASB Bank Ltd [2015] NZHC 44 at [134(i)].
26 Spence v Lynch [2015] NZHC 609 at [2].
27 Re Jeffreys, ex p Morgenstern [2014] NZHC 2847 at [40].
28 Elvidge v ASB Bank Ltd, above n 25, at [134(j)].
29 Haylock v Patek [2010] NZCA 289, [2011] 1 NZLR 100 at [39].
[35] Under s 18A of the relevant version of the CCA, retention money is defined as a method of security for the performance of a party’s obligations under the construction contract:
18A Interpretation
In this subpart, unless the context otherwise requires, retention money means an amount withheld by a party to a construction contract (party A) from an amount payable to another party to the contract (party B) as security for the performance of party B’s obligations under the contract.
[36] Section 18C further provided the default trust arrangement for retention money held by “party A” as trustee for the benefit of “party B”:
18C Default arrangement: trust over retention money
(1)All retention money must be held on trust by party A, as trustee, for the benefit of party B.
…
(2)Retention money held on trust may be held in the form of cash or other liquid assets that are readily converted into cash.
(3)A trust over retention money ends when—
(a)the money is paid to party B; or
(b)party B, in writing, agrees to give up any claim to the money; or
(c)the money ceases to be payable to party B under the contract or otherwise by operation of law.
[37] Importantly, the relevant version of subpt 2 expressed that party A must not appropriate any retention money held on trust to a use “other than to remedy defects in the performance of party B’s obligations under the contract”.30 Retention money held on trust by party A however “does not need to be paid into a separate trust account” and “may be commingled with other moneys”.31 Retention money is not available for the payment of any creditor to party A (except party B) and is not liable to be attached or taken in any Court processes at the instance of any creditor of party A (except party B).32 Party A is also required to keep proper accounting records of all
30 Construction Contracts Act 2002 (version as at 1 July 2022), s 18E(1).
31 Section 18E(2).
32 Section 18FA.
retention money and must make them available for inspection by party B at all reasonable times.33
[38] Retention money must be paid when party B has completed the work, performed all of its contractual obligations, remedied any notified defects in the performance of its obligations under the contract, and remedied any defects during any defects liability period specified in the contract. There is some common law authority to suggest that an “innocent party” in an accepted repudiation is able to claim sums due under the contract at the time of the repudiation and the employer has no continued right to retention.34
[39] In the current case, CPDL is party A and WDL is party B. Clause 12.3 of the Stage 2 contract, entered into on 20 September 2022 by the parties, provided that retention monies for the contract works would be withheld from each progress payment. The maximum total retention under the contract was permitted to be
$200,000.
Positions of the parties
CPDL
[40] As indicated, the main issue raised by Mr Wollerman for CPDL is that the injunction application was materially inaccurate and contained omissions of relevant facts, breaching duties of utmost good faith owed to the Court to make full disclosure. Perhaps most significantly, the position of CPDL’s director, Mr Simon Zhang, is that, by mid-2023, CPDL had serious concerns regarding the adequacy of the work undertaken by WDL and its failures to comply with formal Notice to Contractor documents and project timeframes.
[41] Expert evidence provided by Mr Andrew Jackson, who is an “Independent Qualified Person” under the Council’s Code of Practice for Civil Engineering Works, states that “the magnitude and extent of defects associated with the drain laying works
33 Section 18FC.
34 Whitney Town Council v Beam Construction (Cheltenham) Ltd [2011] EWHC 2332 (TCC) at [40(n)].
throughout Stage 2 was remarkable” and that Mr Jackson had “never come across such a consistent poor standard of workmanship in [his] experience”. Issues in relation to wastewater, stormwater, and paving were also identified by Mr Jackson. Mr Andrew Cuttance, who was engaged to rectify defective works, provided evidence of a total of $238,398.77 in remediation costs so far, with further works at an estimate of $27,000 remaining.
[42] Mr Jackson recommended the Council refuse to certify part of the Stage 2 works, due to the extensive defects requiring remediation, unless CPDL could provide a bond of $635,345.32 to the Council so that they could complete the works to standard if CPDL could not do so (the Bond). CPDL says that the estimated cost of the Bond exceeds any alleged claim by WDL to underpayment.
[43] Mr Wollerman submits that WDL failed to rectify its defective works and seemingly had no intention of doing so, given it was slowly disestablishing from the site. Mr Nand had assessed that WDL had been overpaid, despite WDL’s assertions otherwise. CPDL was forced to make other arrangements to rectify the defects and comply with the Bond, which led it to engage a different company in January 2024.
[44] According to Mr Wollerman, it is also relevant that CPDL and WDL have an ongoing dispute regarding WDL’s failure to pay its ordered share of the adjudicator’s fees. As noted, CPDL issued a statutory demand for the unpaid amount and filed liquidation proceedings. Mr Wollerman submits that, given WDL has failed to comply with the statutory demand, it is presumed to be unable to pay its debts.35
[45] Mr Wollerman also says that the First Adjudication did not deal with the issue of whether WDL had been underpaid. Thus, it was incorrect for WDL’s application to say so. This is a particular issue in this case because the assertion that WDL was underpaid was the foundation of WDL’s application, given Gordon J’s conclusion that an unpaid debt raised legitimate concerns about CPDL’s financial viability and the potential for dissipation of funds. In reality, as Mr Robertson noted, the adjudication was “not to determine the level of under-payment to [WDL]” and was “limited to whether (and to what extent) CPDL has overpaid WDL”. Other adjustments (for
35 Per s 287 of the Companies Act 1993.
example regarding defects or variations) were for future adjudication. WDL knew this was the scope of the First Adjudication.
[46] Notwithstanding this knowledge, WDL’s lawyers made a demand for payment. CPDL still maintained that WDL owed it significant sums of money. WDL knew that CPDL did not accept there was a determination of underpayment, or that CPDL owed any money, but CPDL’s position was not made plain in the injunction application. By the time of WDL’s application, CPDL had changed solicitors but WDL did not seek any further response from CPDL before serving the application on a Pickwick basis. After CPDL received the decision of Gordon J, CPDL complied with the order, and subsequently filed the application to rescind it.
[47] Mr Wollerman argues that the omission of any reference to CPDL’s claims in relation to defects is notable and important, as is the omission to mention the Bond. This failure was relevant to WDL’s assertion that CPDL has no claim in set-off and that it was CPDL who had repudiated the contract. Thus, there were relevant defences open to CPDL that WDL did not, but was obliged to, disclose. WDL’s response that any defects alleged are minor or did not exist, or that WDL was discharged from performance of its contractual obligations, is no answer to the omission of significant information in its application.
[48] Mr Wollerman asserts that CPDL has sufficient finance in place and that CPDL will continue to hold retentions on trust until a decision is made regarding release of the retentions. CPDL was entitled to hold the retentions in an account comingled with other monies. The key purpose of withholding the money is to secure performance of WDL’s obligations under the contract or to remedy defects (if CPDL is eventually determined as being entitled to do so). Payment of the retentions does not, however, maintain the status quo. The concern is that, if retentions are released to WDL, WDL will continue to “sidestep” issues of defects, concerns regarding its solvency, and CPDL’s claim that WDL owes it money. Mr Wollerman submits that these are well- founded concerns.
[49] It is submitted that, if the retentions are released to WDL, there is potential harm to CPDL because there is no obligation on WDL to hold them on trust and CPDL
has strong claims to the retention monies. Recovery of retentions may become complex and expensive if WDL is placed in liquidation. However, as above, there would be no harm to WDL if CPDL continues to hold the retentions on trust. This means the interests of justice and balance of convenience require repayment of the retentions.
[50]CPDL seeks that the order be rescinded and that the retention monies of
$94,131.88 currently held in the Ford Sumner trust account be repaid.
WDL
[51] Mr Collins for WDL submits that there is no safer place for the retention money than in a solicitors’ trust account, pending determination of the second adjudication. Given the money would continue to be held on trust for WDL if it was returned to CPDL, CPDL would in any case be restricted as to its use of the retention money. As both parties firmly deny any solvency issues, keeping the retentions in the trust account provides a safeguard against any insolvency issues. Adjudication can take about eight to 12 weeks. This delay is insignificant, and retention in a solicitors’ trust account is advantageous to both parties.
[52] WDL argues that it is clear the contract has come to an end and the legal position is that retentions must therefore be released, regardless of whether the contract has ended as a result of a termination process being followed correctly or because of repudiation and cancellation. Mr Collins submits that it is clearly arguable the purported termination by CPDL was void because there was no prior notice and no specified default given. All that occurred was CPDL notifying WDL that another contractor had taken possession of the site before WDL had the opportunity to complete the contract works.
[53] Mr Collins also objects to the affidavit of Mr Zhang filed on 22 October 2024. He says that leave was not sought to file further evidence, and Mr Zhang’s affidavit contains matters of speculation, opinion, and hearsay that are very serious and could cause harm to WDL, including allegations of insolvency. Mr Collins sought suppression orders in relation to any allegations about WDL’s solvency. I observe here that both parties are contending that the other is facing financial difficulties. This
decision does not call WDL’s (or CPDL’s) solvency into question, therefore no suppression orders are necessary.
Discussion
[54] The first relevant question is whether WDL provided misleading material in its application (such that r 7.51 is engaged), or whether there has otherwise been a relevant point of evidence overlooked (so as to engage r 7.49), and, if so, whether the order was obtained as a consequence. The application was filed in reliance on the affidavit of Mr Sun and a memorandum dated 2 July 2024. I note again the onus is on CPDL under r 7.51 to establish that WDL has somehow misled the Court. However, in respect of r 7.49, the onus remains on WDL to demonstrate that the injunction should be granted.
[55] The First Adjudication determination of Mr Robertson is central to the context of the parties’ positions in respect of interim orders. While it initially appeared to Mr Robertson that matters such as proof of defects, accounting for variations, repudiation, termination, and treatment of retentions needed to be considered, the scope of his determination was “whether CPDL has over-paid WDL, and if so to what extent”. Mr Robertson explained that “All other matters are either not for determination or will be the subject of further adjudications”.
[56] CPDL’s claim had sought a determination of the amount of overpayment “on a re-measure and value of the works performed by WDL”, deducting what it had paid to date.
[57] Mr Robertson concluded that the contract prices for the Stage 1 and Stage 2 works were a combined $3,865,281.00 ($1,020,654.00 for Stage 1, and $2,844,627.00 for Stage 2).
[58] The “contest” was therefore the assessed value of the work completed by WDL. Evidence provided by a Mr Kotsifakis for WDL assessed the value of work at about $4,600,000. For CPDL, Mr Nand provided an assessment of about $3,300,000. This was a difference of $1,300,000, or approximately 40 per cent. The adjudicator was satisfied on the evidence that Stage 1 and Stage 2A were “essentially complete”
and the defects identified all related to Stage 2. It is fair to say the adjudicator was unimpressed with the evidence of Mr Nand for CPDL. As he said, “I have little hesitation preferring the evidence of Mr Kotsifakis over that of Mr Nand” (although subject to some valid concerns CPDL and Mr Nand raised). He gave the benefit of the doubt to CPDL and accepted a reduction of approximately $110,000, with the result that the re-measure value of the works completed by WDL was $5,189,001.25.
[59] The next issue for Mr Robertson to grapple with was how much CPDL had paid WDL to date. CPDL claimed it had paid a total of $4,748,146.20 to WDL. A particular issue was raised by the “unorthodox” agreements and processes during the Stage 1 period, given there were only informal “handshake deal[s]” at that point. For example, part of the payment sum just mentioned included payment in the form of a Toyota ute that CPDL bought for WDL. Mr Robertson also accepted that WDL advanced CPDL $70,000.00 as a loan. Mr Robertson concluded that payments made by CPDL to WDL totalled $4,678,136.30, when accounting for the ute and the loan.
[60] The most important part of the First Adjudication determination is where Mr Robertson addresses the net sum payable to WDL in order to answer the question of whether WDL had been overpaid. I set it out in full:36
Net sum payable
133Assessing whether CPDL overpaid WDL is now relatively straightforward:
$re-measure – $paid = $amount overpaid (if any).
134As confirmed in its Reply, my determination is not to address whether retentions are to be maintained or paid out, no adjustment for defects, no findings on repudiation or termination of the contracts.
135As the parties have not addressed Variations to the level they intend to, WDL confirm this adjudication is not to determine the level of under-payment to it. Accordingly, my determination is limited to whether (and to what extent) CPDL has overpaid WDL.
136This simplifies matters considerably.
137Having made the above determinations, I find CPDL has failed to establish on the balance of probabilities that it has overpaid WDL on
36 Footnotes omitted.
the Development; to the contrary, on the evidence it has underpaid WDL. The calculation results in:
Re-measure Paid Difference $5,189.001.25 $4,678,146.30 -$510,854.95 (Inclusive of GST)
138Even if I had accepted the full deductions asserted by Mr Nand (an additional $135,000.00) and rejected the loan adjustment ($70,000.00), the above would still result in no overpayment by CPDL to WDL.
[61] Having read the First Adjudication decision, I do not consider CPDL is correct to suggest that WDL has misrepresented Mr Robertson’s findings or the scope of his determination. WDL’s application makes it clear that WDL is seeking to proceed to further adjudication alleging repudiation of the contract which, on WDL’s argument, would make the retentions due and owing. Therefore, while the $510,854.95 WDL says is owed to it was relevant context to the injunction application, it was not the basis of it. Read in context, the decision of Gordon J also does not take it to be so. Her Honour discusses an arguable case as to the retentions being released; she does not make a finding about whether the $510,854.95 is a debt WDL would currently be able to enforce or whether it was appropriate for WDL to seek such a payment. What is self-evident, however, is that WDL achieved a significant “win” at the First Adjudication, when CPDL’s claim of an approximately $1.1 million overpayment was comprehensively rejected in favour of an approximately $500,000 underpayment by it to WDL.
[62] I can accept, however, that WDL’s application was less than fulsome in terms of mentioning any potential defences or grounds of opposition that CPDL may have. The memorandum should have set out CPDL’s position that it did not consider it owed WDL any money and had a potential counterclaim for set off tied to its continued assertions that WDL’s work was defective and required remediation. That position is plainly relevant to the issue of whether an interim injunction should be granted over retention money, given the whole point of retention money is that it is held as a security over the performance of WDL’s contractual obligations and can, if there is a failure to discharge those obligations, be used to remediate any defective works.
[63] However, reading the material as a whole, including in particular the supporting affidavit of Mr Sun, I do not consider that it was capable of misleading the very senior Judge, or that some relevant part of the evidence was overlooked. As an example, Mr Sun’s affidavit refers to another affidavit by him, in which he acknowledges that WDL had been formally notified of defects in relation to some of its works and was in the process of undertaking remedial works. The Bond paid to the Council is also mentioned, and a letter from WDL’s lawyers noting that CPDL believes it has a set off claim is also annexed. Of course, WDL is entitled to maintain its position that the defects and remedial works required were minor.
[64] While WDL’s supporting memorandum could have been more forthcoming, I am certain that Gordon J would have decided the injunction application on the basis of the evidence before her. That evidence included the affidavit of Mr Sun which, as I have just explained, references all of the matters that CPDL criticises as not included in the supporting memorandum itself. Accordingly, in my view, CPDL is unable to discharge its onus to show that misleading material (or material containing significant omissions) was provided to the Court.
[65] The onus therefore falls back on WDL to demonstrate that the order could have properly been made.
[66] I agree with Gordon J that there is a serious question to be tried here. Given that, on WDL’s case, WDL was in the process of addressing CPDL’s concerns with its works at the point when it was told another contractor had been engaged, there is certainly an arguable case for wrongful repudiation of the Contract. As Mr Collins submits, it appears no proper contractual termination process was followed, nor was there any specified default. Mr Nand simply emailed WDL to say that another contractor had been engaged and would be on site. Mr Robertson’s conclusion that CPDL underpaid WDL, although not the fundamental reason for the order being granted, is certainly strong evidence in WDL’s favour which is in turn relevant to further adjudication about repudiation. CPDL also has an arguable case as to set off against any underpayment to WDL. In other words, both parties have serious questions to be determined.
[67] The parties fundamentally dispute the nature and extent of any defective works; therefore, the heart of their issues reduces to whether the retention money can legitimately be used by CPDL , or whether it must be paid to WDL in full. Both parties have evidence to support their respective positions that WDL’s works were, or were not, significantly defective. Those competing claims cannot be evaluated in any comprehensive way by this Court at this stage. The evidence of Messrs Jackson and Cuttance supports CPDL’s case that WDL’s work was defective to a high degree. However, the evidence of Mr Bryan Windsor, the director of the contracting company engaged to take over the site from WDL, was that any defective works were minor and there were no “issues of any significance” with WDL’s civil works. Whether or not CPDL is owed the retention money in full is something that must be determined by further dispute resolution processes. This Court dealing with an interim injunction cannot delve into the apparent merits of WDL’s claim beyond being satisfied at a high level that it is arguable.
[68] As to balance of convenience and overall issues of justice, I consider WDL has demonstrated a legitimate (or at least arguable) concern about CPDL’s finances. Mr Sun’s affidavit deposes to representatives from CPDL acknowledging that there were financial constraints on the Development and issues securing further lending. It appears from the First Adjudication decision that the funding of the first stage of the Development was unorthodox, with some of it funded by a loan to CPDL by WDL. Further evidence of CPDL’s financial constraints is also seen in the evidence Mr Zhang himself filed in support of CPDL’s Recission Application. In contrast, CPDL’s concerns about WDL’s finances appear less sound. Technically, a failure to pay a statutory demand of $25,000 may amount to proof of insolvency, but given that WDL is withholding payment on the basis of its position that CPDL owes it more than
$500,000, that is not, in my view, enough to establish WDL is in fact insolvent. Nor are Mr Zhang’s most recently stated concerns. I comment here that CPDL’s position as to WDL’s insolvency appears to be more of a function of an aggressive approach to litigation—indeed both parties appear to be acting in an aggressive manner in their conduct of the dispute.
[69] While CPDL is correct to point out that there is no statutory requirement for the retentions to be set aside in a separate trust account, the balance of convenience
and overall justice to both sides nevertheless would favour keeping this money set aside. CPDL’s issue with the retention money being taken out of his hands is that it does not want WDL to be able to “side step” issues regarding defects with its work. This submission fails to account for the reality of the situation, which is that the retention money is not held by WDL under the order, it is in a lawyer’s trust account. No-one can do anything with it. Neither does it reflect the reality that, if WDL is successful in the second adjudication and the retentions are ordered to be paid to WDL, then WDL would at that point be entitled to the retentions. Of course, if it is CPDL that succeeds at adjudication by establishing that defective work by WDL means CPDL should keep the retentions, then CPDL will be entitled to payment of the retentions. If WDL is successful, but CPDL is dissatisfied with the result, it could then apply for interim orders to prevent payment of the retentions to WDL pending further litigation or an application for judicial review of the adjudicator’s decision.
[70] As noted, it is also the case that parties are raising arguable claims against the other and each is casting aspersions as to the other’s financial position. In this situation, both parties stand to lose if the retentions are misapplied by either party. Ordering the retentions to be set aside maintains the status quo between the parties; that is, retention of the moneys in accordance with the CCA. It allows the issues of repudiation, set off, and defective work to be determined with the security that the retention money has been set aside. Other considerations such as the adequacy of damages and the merits of each parties’ case are neutral in this matter; damages are of course an adequate remedy to a claim regarding under or overpayment, and both parties appear to have an arguable claim.
Result
[71]The application to rescind Gordon J’s order of 4 July 2024 is declined.
Costs
[72] WDL is entitled to costs. WDL has indicated that it seeks increased costs. My preliminary view is that increased costs are not warranted, given my finding that WDL’s application could have provided more fulsome information than it did.
[73] Accordingly, the parties should endeavour to agree as to costs. In the event that costs are not agreed, the parties are to file short memoranda (no more than five pages) within 10 working days of receipt of this decision for determination on the papers.
Grau J
Solicitors:
Ford Sumner Lawyers, Wellington Dalzell Wollerman, Wellington
0
12
0