Concrete Structures (NZ) Limited v Inframax Construction Limited HC Hamilton CIV 2010-419-385

[2011] NZHC 272

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV 2010-419-385

BETWEEN  CONCRETE STRUCTURES (NZ) LIMITED

Plaintiff

ANDINFRAMAX CONSTRUCTION LIMITED

Defendant

Hearing:         On the papers

Counsel:         KA Badcock for plaintiff

MD Talbot for defendant

Judgment:      30 March 2011 at 10:00 AM

JUDGMENT OF FAIRE J

Solicitors:           Lance Lawson, PO Box 2279, Rotorua

McCaw Lewis Chapman, PO Box 9348, Hamilton 3240

CONCRETE STRUCTURES (NZ) LTD V INFRAMAX CONSTRUCTION LTD HC HAM CIV 2010-419-385

30 March 2011

[1]      On  16 August  2010  I  was  advised  that  the  amount  for  which  summary judgment was sought had been paid on 25 July 2010.  Counsel for the plaintiff and defendant invited me to strike out the proceeding and to reserve costs.

[2]      Accordingly, on 16 August 2010 I ordered that the proceeding be struck out. I ordered that costs be reserved and directed that if counsel could not agree memoranda and affidavits should be filed and served at 14-day intervals in support, opposition and reply.

[3]      The plaintiff filed a memorandum seeking costs on 7 February 2011 together with an affidavit by Mr AG Peterson, the financial controller of the plaintiff.  The plaintiff sought costs on an actual and reasonable basis in the sum of $31,374.01. These costs include costs associated with an adjudication which was commenced under the Construction Contracts Act 2002.

[4]      The defendant accepts that the plaintiff is entitled to its actual and reasonable costs of preparation in respect of the court proceeding.  The defendant submits that those costs should not cover matters which were the subject of the adjudication process.

[5]      The plaintiff and the defendant are parties to a construction contract.   On

18 December 2009 the plaintiff submitted its sixteenth progress payment claim.  On

15 February 2010 the defendant provided to the plaintiff a payment schedule in response to that progress payment claim.  In short, it asserted that the plaintiff had been overpaid.  No payment was made to the plaintiff in relation to the plaintiff’s progress payment claim.  The plaintiff commenced a summary judgment proceeding against the defendant in relation to the progress payment claim.   The defendant commenced an adjudication proceeding by serving a notice of adjudication on the plaintiff.   The defendant asserted that the payment schedule it had provided on

15 February 2010 was compliant with s 21 and sought reimbursement of the amount it calculated as having been overpaid in that schedule.  On 11 June 2010 the plaintiff served its own notice of adjudication on the defendant referring the unpaid progress payment  claim,  which  was  the  subject  of  a  summary  judgment  proceedings  to

adjudication.  The result was that both the progress payment claim and the alleged overpayment claim were placed before the adjudicator.

[6]      The defendant opposed the summary judgment application.  It claimed that it had provided a payment schedule and that in that schedule no amount was due to the plaintiff.

[7]      On 22 July 2010 the adjudicator determined that the defendant’s payment schedule in response to progress claim 16 was invalid and accordingly ordered the defendant to pay the plaintiff the total amount sought in the progress payment claim. This the defendant did on 25 July 2010.

[8]      The defendant says that the plaintiff’s entitlement to actual and reasonable costs are limited to the actual and reasonable costs incurred in the court proceeding. That limits the claim, the defendant says, to a sum of $8,188.38.

[9]      The issued raised in counsel’s memoranda is as to whether costs incurred by a plaintiff in respect of an adjudication should be awarded in respect of the court proceedings that were issued.

[10]     The Construction Contracts Act 2002, s 23 sets out the consequences of not paying the claimed amount when no payment schedule is provided.   Section 23 provides:

23Consequences of not paying claimed amount where no payment schedule provided

(1)     The consequences specified in subsection (2) apply if the payer—

(a)       becomes liable to pay the claimed amount to the payee under section 22 as a consequence of failing to provide a payment schedule to the payee within the time allowed by section 22(b); and

(b)       fails to pay the whole, or any part, of the claimed amount on or before the due date for the progress payment to which the payment claim relates.

(2)     The consequences are that the payee—

(a)      may recover from the payer, as a debt due to the payee, in any court,—

(i)     the unpaid portion of the claimed amount; and

(ii)     the actual and reasonable costs of recovery awarded against the payer by that court; and

(b)      may serve notice on the payer of the payee's intention to suspend the carrying out of construction work under the construction contract.

(3)     A notice referred to in subsection (2)(b) must state—

(a)      the ground or grounds on which the proposed suspension is based; and

(b)      that the notice is given under this Act.

(4)     In any proceedings for the recovery of a debt under this section, the court must not enter judgment in favour of the payee unless it is satisfied that the circumstances referred to in subsection (1) exist.

[11]     The Construction Contracts Act 2002, Part 3 deals with the adjudication of disputes by an adjudicator.  Part 3 sets up the procedure for such referral.  Section 26 provides that nothing in Part 3 prevents parties to a construction contract from submitting a dispute to another dispute resolution procedure, for example, to a court or tribunal or to mediation.   The only fetter on that is that the adjudicator must terminate the adjudication if, before he determines the dispute, the dispute is determined under another dispute resolution procedure.   Section 56, which is contained in Part 3, deals with costs on adjudication proceedings.   Section 56 provides:

56     Costs of adjudication proceedings

(1)     An adjudicator may determine that costs and expenses must be met by any of the parties to the adjudication (whether those parties are or are not, on the whole, successful in the adjudication) if the adjudicator considers that the party has caused those costs and expenses to be incurred unnecessarily by—

(a)     bad faith on the part of that party; or

(b)     allegations or objections by that party that are without substantial merit. (2)      If the adjudicator does not make a determination under subsection (1), the

parties to the adjudication must meet their own costs and expenses.

(3)     An agreement about how the costs and expenses in adjudication proceedings are to be apportioned (including an agreement that a party is to indemnify another party in relation to those costs and expenses) is not binding on the parties to the adjudication if that agreement was made before the dispute arose.

[12]     Mr Talbot, in my view, correctly submitted that:

(a)      The  two  processes,  that  is,  court  processes  under  Part  2  and adjudication under Part 3, stand alone.  Each has their own purpose and scheme.  Each has their own costs regime to be administered;

(b)In the operation of the Construction Contracts Act 2002, s 27(2) there is a statutory limit on the extent to which a court can act on an adjudicator’s finding, none of which applies in this case.

[13]     If the costs of the adjudication process were to be ordered by the court, then the court would be usurping the jurisdiction given to the adjudicator pursuant to the Construction  Contracts  Act 2002,  s 57.     Whilst  it  is  acknowledged  that  the adjudicator’s  jurisdiction  is  limited  to  cases  of  bad  faith  or  to  allegations  or objections that are taken without substance, the statutory regime makes it plain that unless those circumstances are found to be present by the operation of the Construction Contracts Act 2002, s 56(2), the parties to the adjudication must meet their own costs and expenses.  In view of that position, it would be quite wrong to allow those costs by the backdoor, so to speak, as being legitimate costs that could be ordered pursuant to the Construction Contracts Act 2002, s 23(2).

[14]     I conclude, therefore, that the plaintiff’s claim for costs is limited to the sum of $8,188.38.  I order that the defendant pay that sum to the plaintiff by way of costs.

[15]     The defendant’s  memorandum  sought  costs  in  the event  that  its  position proved successful in relation to the argument amount costs.  I make no such order. The matter raised was one of principle that required determination.  The matter has been resolved based on the papers and, in the circumstances I see no need to reduce the actual order for costs that I have awarded in favour of the plaintiff.   For that reason there will be no deduction made in respect of the order for payments of costs

that relate to the court proceedings.

JA Faire J