Construct Interiors NZ Limited v Jones HC Auckland CIV 2010-404-897

[2010] NZHC 1591

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-897

UNDER  the Judicature Amendment Act 1972

IN THE MATTER OF     an application for judicial review

BETWEEN  CONSTRUCT INTERIORS NZ LIMITED Plaintiff

ANDPETER WILLIAM JONES First Defendant

ANDKMB INTERIOR CONTRACTS LTD Second Defendant

Hearing:         29 April 2010

Appearances: P J Davey for Plaintiff

No appearance for First Respondent
M Taylor and A Lee for Second Respondent

Judgment:      23 August 2010

JUDGMENT OF COOPER J

This judgment was delivered by Justice Cooper on

23 August 2010 at 4.30 p.m., pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Solicitors:

Kensington Swan, Private Bag 92101, Auckland 1142

Steindle Williams Legal Ltd, PO Box 47858, Ponsonby, Auckland

Copy to:

P J Davey, PO Box 3320, Shortland Street, Auckland

CONSTRUCT INTERIORS NZ LIMITED V  JONES AND ANOR HC AK CIV-2010-404-897  23 August 2010

[1]      The plaintiff (“CINZ”) has commenced an application for review under the Judicature Amendment Act 1972 against determinations made by the first defendant as an adjudicator under the Construction Contracts Act 2002 (“the Act”).

[2]      CINZ Ltd and the second defendant (“KMB”) were in dispute as to CINZ’s liability to pay invoices issued by KMB in respect of two construction projects involving  the  repair  or  installation  of  ceilings  on  commercial  premises.    One involved the premises of LINZ in Hamilton (“the LINZ Hamilton project”) and the other involved work at Greenlane Hospital (“the IMTS project”).

[3]      The first defendant has properly taken no steps after advising the Court that he will abide its decision.  CINZ alleges that his determinations of the disputes were made in breach of the rules of natural justice, and affected by material errors of fact and law.  KMB refutes those claims.

[4]      KMB’s claims in this Court must be analysed in the context of the materials that were placed before the first defendant as adjudicator, and the procedures that he adopted in dealing with them.

KMB’s claims

[5]      On 14 December 2009 KMB made two adjudication claims under the Act. The first  claim  concerned  money allegedly owing by CINZ in  respect  of  work carried out by KMB on the LINZ Hamilton project.   KMB claimed that it had entered into a contract with CINZ to carry out the work.   The contract price was

$15,500  plus  GST  and  the  works  were  carried  out  between  19 August  and

25 October 2009.  A written contract was signed by the parties on 1 September 2009. KMB submitted its first payment claim to CINZ on 26 August.  That claim was paid by  direct  credit  on  4 September.    A  second  payment  claim  was  submitted  on

11 October and that claim was paid by bank cheque on 10 November.

[6]      KMB submitted a third payment claim for the period between 19 August and

20 October 2009 for the sum of $7,599.38 (including GST).  The claim was served

on 20 November 2009.  However, by e-mail dated 23 November 2009, a director of

CINZ, Mr Percy, wrote to Ms Brayne, a principal of KMB, in the following terms:

I  have  received  your  payment  claims  for  works  undertaken  on  various projects and just received the same via courier.

Please  note  these  should  be  sent  to  your  client  i.e.  Wall  and  Ceiling

Solutions Ltd (attention Stephen Tully) and not Construct Interiors NZ Ltd.

I have forwarded them onto Steve today.

Please adjust your invoicing records accordingly and take formal advice that Construct Interiors will not process these KMB Interior claims as there is no contractual relationship, in this regard, between us.

[7]      In  its  adjudication  claim,  KMB  alleged  that,  there  was     neither  on

23 November nor when the contract had been formed, a company called Wall and Ceiling Solutions Ltd.  That company was not incorporated until 1 December 2009. On its incorporation its directors and shareholders were Mr Percy, Mr Tully and Mr Groves.

[8]      By   Friday   27 November   2009   the   work   had   been   completed.      On

30 November, KMB submitted a further payment claim in the sum of $9,343.13, the balance then allegedly owing.   On that day, Mr Groves, also a director of CINZ, wrote to Ms Brayne in the following terms:

Your payment claim is rejected totally.  Your company has no contractual relationship with ours.   Again, we must insist that you cease any and all communication with our Company.   Your company is providing a “labour only” service to our sub-contractor Wall and Ceiling Solutions Ltd.  As such all communications must be sent to Stephen Tully.…

[9]      KMB sought that the adjudicator determine that the contract was between KMB and CINZ, and not with Wall and Ceiling Solutions Ltd as CINZ asserted.  It also  sought  a  determination  from  the  adjudicator  that  CINZ  was  liable  for  the contract price of $15,500 plus GST, less the amounts previously paid.  The net claim was for $9,343.13 inclusive of GST.

[10]     The second claim was in respect of the installation of suspended ceilings in a building situated at Greenlane Hospital, Auckland.  The parties have referred to that as “the IMTS project”.

[11]     In its adjudication claim in respect of the IMTS project, KMB asserted that it had  made  a  written  offer  to  Mr  Percy  around  6 August  2009  which  had  been accepted by a letter dated 12 August 2009.  The work was to be carried out for the price of $44,000 plus GST.   The work affected an area of 2,030 square metres consisting of ceilings on the ground floor of 890 square metres, the first floor of 200 square metres and the second floor of 940 square metres.  Again, it was asserted that a written contract had been signed by KMB and CINZ on 1 September 2009.  The works had been performed in the period from 13 August to 27 November 2009.  A first payment claim had been submitted and paid in October 2009 and the works continued.  It was alleged that on the instructions of Mr Brayne, work over an area of

750 square metres had in fact been carried out on the first floor.

[12]     KMB alleged that:

The claimant submitted its second payment claim … to the respondent on

20 November   2009   for   the   period   between   14 September   2009   and

20 November 2009.  This payment claim was for completion of 1,750 square metres of the contract works at a total of $34,464.38 (including GST).

[13]     The second payment claim was served on CINZ by courier on 20 November

2009.  Mr Percy’s e-mail of 23 November 2009 (quoted above) was sent in relation to this claim also.  As it had done in the claim relating to the LINZ Hamilton project, KMB asserted that its contract was with CINZ, and relied on the fact that when the contract was entered into Wall and Ceiling Solutions Ltd did not exist.

[14]     A final claim was delivered in respect of works allegedly carried out as a variation to the contract.  It was said that Mr Percy had refused to issue instructions in respect of the variations.   A claim in respect of that work was delivered on

2 December 2009.  By e-mail sent on that day, Mr Groves on behalf of CINZ denied liability in respect of the final claim and repeated the denial of any contractual relationship between CINZ and KMB.

[15]     KMB again sought a determination from the adjudicator that the contract was between KMB and CINZ, and not with Wall and Ceiling Solutions Ltd.  Further, it sought a determination that the sum of $48,348 (including GST) was  owing in respect of the works.  It also alleged that CINZ had wrongly purported to terminate

the contract and sought a determination that CINZ must pay the sum of $1,570 (inclusive of GST) representing lost net profit on the balance of the contract works calculated at a profit of $6 per square metre.

CINZ’s response to the adjudication claims

[16]     CINZ filed responses to both of KMB’s claims.   In relation to the LINZ Hamilton project it asserted that:

The contract was entered into between the Claimant and the Respondent because the Respondent was forming a new company which was initially to be called Ceiling Solutions Limited and was eventually called Wall and Ceiling Solutions Limited.   But at that time the company had not been formed.

[17]     It was alleged that Mr Brayne was to be employed by the new company as its Contracts Manager.  It was also alleged that Mr Brayne agreed at the time that KMB would contract on a labour only basis with Ceiling Solutions, but would take 25 per cent of the profit as he was to be a shareholder in the new company.  However, there was a disagreement as to the rate at which Mr Brayne was charging for his services and the proposed arrangements did not proceed.

[18]     CINZ claimed that on 10 October Wall and Ceiling Solutions Ltd contracted on a labour only basis with KMB to carry out the work on the LINZ Hamilton project at a cost of $11,000.   It was alleged that KMB accepted this and invoiced Ceiling Solutions in accordance with invoices that were attached to the response. CINZ pointed out that a document attached to KMB’s claim as a copy of an invoice addressed to CINZ had in fact originally been addressed to Ceiling Solutions.  CINZ attached another tax invoice issued on 18 October 2009, addressed to Wall and Ceiling Solutions Ltd in respect of another job, showing that Mr Brayne was “well aware with whom he was contracting”.

[19]     CINZ referred to a purchase order that had been issued by Wall and Ceiling Solutions Ltd to  KMB  to carry out the  work  for $11,000 on 10 October 2009. Reference was also made to a business card that had been printed at a time when it was thought that Mr Brayne would be employed by Ceiling Solutions.  The business

card described Mr Brayne as contracts manager for “Ceiling Solutions”.  It gave his e-mail  address  as   [email protected]z.    CINZ  asserted  that  progress payments that had been made to KMB had been made out of the account of Wall and Ceiling Solutions Ltd and had not been paid by CINZ.

[20]     In relation to the IMTS project, similar arguments were raised.   The same background of the formation of a new company was relied on as was Mr Brayne’s prospective  role  as  Contracts  Manager.    However,  in  this  case,  CINZ  actually attached a letter dated 12 August 2009 addressed by it to Ceiling Solutions for the attention of Mr Brayne.  A letter with the same contents, but addressed to KMB had been attached to KMB’s adjudication claims.  In an affidavit that he swore for the purposes of the adjudication on 21 December 2009, Mr Groves, said at paragraph 14:

The contract issued, that Warren [Mr Brayne] picked up for this project was to Ceiling Solutions we realize at the time there was no such Company, we were not concerned as we would just wait until the new Company was formed and they would be able to invoice us then.   Our only outlay was ceiling tiles and grid which North Shore Building Supplies was buying so we had a month before we had to pay that bill and by then the new Company would be formed.   Labour was from KMB which was to be invoiced as agreed to Wall and Ceiling Solutions.

[21]     CINZ’s stance in the adjudication was that there was simply no contract between KMB and CINZ.  It claimed that its contract had in fact been with Wall and Ceiling Solutions Ltd, the company that was subsequently formed.

KMB’s reply

[22]     On  23  December  2009  KMB  filed  a  comprehensive  reply  to  CINZ’s response.     This  consisted  of  submissions  of  counsel,  witness  statements  and affidavits.   The submissions, described as “Claimant’s Points in Reply to the Respondent’s Adjudication Responses” (“the reply”) ran to 78 paragraphs and consisted of statements of fact as well as argument.  In  his affidavit accompanying the reply Mr Brayne said at paragraph 3:

In  reply  to  the  respondent’s  Response  materials  (received  yesterday, Tuesday 22 December) I have worked with my wife (Jennifer Brayne) and director of KMB, and with KMB’s solicitor (Kensington Swan) to prepare a

joint  Reply  in  both  these  adjudications.    Rather  than  repeat  all  of  my evidence in this affidavit, this is to be found in the Reply documents.

Mrs Brayne said exactly the same thing in the affidavit that she swore.

[23]     In relation to the LINZ Hamilton project, KMB noted that in its response to the adjudication claim CINZ had said at paragraph 3 that the contract was entered into between KMB and CINZ at a time when Wall and Ceiling Solutions Ltd had not been formed.  Further, at paragraph 11 of his affidavit, Mr Groves had referred to a meeting on 20 August at which CINZ had agreed to give KMB the contract for labour  and  materials.    As  to  the  IMTS  project,  KMB  pointed  out  that  CINZ’s assertion that the original contract was entered into with “Ceiling Solutions Ltd” cannot have been correct.   There never was a company with that name.   Further, Mrs Brayne  had  signed  the  contracts  prepared  by  CINZ  and  Mr Brayne  had subsequently handed copies back to Mr Percy, who also signed them.  In both cases, the contracts were on the face of it between KMB and CINZ.   They were dated

1 September 2009.

[24]     KMB denied that Mr Brayne had ever been employed by CINZ, nor had he ever  been  offered  a  place  of employment  with  it.    Importantly,  there  was  also reference to the business card on which CINZ relied.   At paragraph 23, the reply dealt with the business card in the following terms:

23       Neither  Mr  nor  Mrs  Brayne  have  ever  seen  the  business  card submitted as Document 1 (ST, para 2, annex ‘A’; DG, annex ‘B’).   It is factually incorrect, leading to the only conclusion that is was fabricated for this adjudication:

aThe business card was created at or shortly after a meeting on 9 July q2009 (DG, para 3).

b         The card records Mr Brayne’s phone number as ‘F 09 835 1872’.

cThis number is Mr and Mrs Brayne’s current (new) phone number, and not the number they had in July 2009 which was 09 832 1682. Refer:

i         Residential   tenancy   agreement   showing   Mr    &   Mrs

Brayne/KMB moving to the new address on 16 September

2009 (JB, annex ‘JB3’); and

ii        Two Telecom Bills where it shows that the phone number for Mr & Mrs Brayne/KMB before 3 September was 09 832

1682 (JB, annex ‘JB4 & 5’).

[25]     One  of  the  witness  statements  on  which  KMB  relied  was  by  Mr Wybo Mulder, an IT support analyst employed by KMB’s solicitors, Kensington Swan.  In the statement Mr Mulder said that he had frequently used Microsoft and Adobe software.  He then referred to the invoices addressed to “Ceiling Solutions” that had been attached to CINZ’s response to the adjudication claim, in particular an invoice dated 11 October 2009 in the sum of $2,430 (including GST) relating to the LINZ Hamilton project.  He said:

5.I have been asked to comment on the ease in which another person could replicate, and then alter, KMB’s documents.  I understand that the document was created in Microsoft Office Word. The formatting of the header (with KMB’s name), footer (with KMB’s address details), title (‘Tax Invoice’), watermark (‘KMB’), and left margin (pattern) use pre set toolbar functions of the software.

6.If the document is emailed as a Word document, then the recipient can simply amend the document.

7.It is also very easy to replicate, and alter, the document using Adobe Photoshop software.  To demonstrate this, I undertook an exercise to replicate KMB’s document, and change it by inserting a new addressee – ‘Peter Jones NZ Limited’.  This exercise took me less than 5 minutes to complete.   Attached as ‘B’ is the document I produced.

The Adjudicator’s determinations

[26]     The first defendant issued his determinations in respect of both claims on

11 January 2010.

[27]     In relation to the LINZ Hamilton project he determined that the contract in question had been between KMB and CINZ;  Wall and Ceiling Solutions Ltd was not and did not later become a party to the contract.   He decided that CINZ had unlawfully repudiated the contract, and was liable to pay KMB the sum of $9,343.13 in respect of the payment claim served on 30 November 2009.  CINZ was also liable to pay KMB the sum of $2,350 as a refund of the full amount paid by KMB as costs

of the adjudication in advance.  In the result, he ordered CINZ to pay KMB the total sum of $11,693.13.

[28]     In respect of the issue as to whether there was a contract between KMB and CINZ, the first defendant stated that he had been provided with a contract document dated 20 August 2009 which had been signed on behalf of CINZ and KMB.  He said also that the affidavit of Mr Groves, filed on behalf of CINZ, had made it clear that one payment had been made by CINZ under the contract.   He noted also that the contract contained a provision that:

[i]t is clearly understood and accepted that upon signing this contract, this contract takes precedence over all other documentation pertaining to this project.  No reference will be made to any other documentation in the event of a dispute.

[29]     He found in the circumstances that that was the contract between the parties. He rejected CINZ’s position that the signed contract had been abandoned by agreement between the parties to be replaced by a new contract between KMB and Wall and Ceiling Solutions Ltd on 10 October 2009.

[30]     At paragraphs 2.5 and 2.7 of the adjudication he said:

2.5The response from CINZ indicated that from its perspective KMB must have fabricated documents and in addition suppressed other documents for the purpose of this adjudication, notably

•the  invoice  dated  11  October  2009  numbered  010004 addressed to CINZ in the copy filed with me in support of the claim on 14 December 2009, but instead was addressed to “Ceiling Solutions” in the copy filed with me by CINZ on

21 December 2009;

•and furthermore KNB suppressed the fact that Mr Brayne had an official position as Contracts Manager with Ceiling Solutions, as evidenced by a business card, a copy of which was filed with me by CINZ.

2.6In view of the serious allegations made by CINZ about impropriety as to documents filed in the adjudication by KMB, I exercised my power under s 42 CCA to allow KMB to reply to those allegations.

2.7KMB filed its reply with me on 23 December 2009.   In essence, KMB says that CINZ itself fabricated documents for the purposes of this adjudication, in particular the business card of Mr Brayne for Ceiling Solutions and the invoicing addressed to Ceiling Solutions.

KMB offered evidence in support of its contentions as to document fabrication by CINZ.

[31]     Also included in his adjudication were the following paragraphs:

4.2CINZ  says  that  order  number  712903  written  by  Mr  Tully  and headed “CWS Project Ref 0003/09” constituted the new contract. “CWS” cannot reasonably be construed as an abbreviation of Wall

& Ceiling Solutions Limited.  I fail to apprehend how a unilaterally issued document, containing no mention of the party later claimed to have issued it, can in itself constitute a contract.

4.3CINZ  says  that  Mr Brayne  was  himself  an  agent  of  Ceiling Solutions, as shown by the business card bearing his name.  Thus, it says,  he  must  have  been  aware  that  Ceiling  Solutions  was  a temporary working name for the entity later incorporated as Wall & Ceiling Solutions Ltd.  I accept as fact the response of the Braynes on behalf of KMB, supported by extraneous evidence, that the card was made by CINZ or its personnel.   I accept as fact also that Mr Brayne not only was never aware of the card, but also was never a part of an organisation called “Ceiling Solutions”.

4.4I find as fact that the unsigned order number 712903 having no reference  to  Wall  &  Ceiling  Solutions  Limited,  but  instead  to “CWS”, was not a contract to which Wall & Ceiling Solutions Limited was a party, far less one to which KMB was a party.

[32]     In relation to the IMTS project, the first defendant determined similarly that the construction contract in question was between KMB and CINZ;  Wall & Ceiling Solutions Ltd was not and did not later become a party.   CINZ was liable to pay KMB  the  sum  of  $48,438  in  respect  of  the  final  payment  claim  served  on

1 December 2009.  He held that CINZ had unlawfully repudiated the contract and was liable to pay KMB the sum of $1,557 as damages for loss of profits.  There was a further order for the payment of $7,250 in refund of the full amount that had been paid by KMB as costs of the adjudication in advance.  CINZ was also liable to pay KMB the sum of $14,840 in reimbursement of KMB’s legal fees and expenses.  The total owing was $72,085.

[33]     As to the issue as to whether there had been a construction contract between KMB and CINZ before works commenced, the first defendant recorded in this case too that he had been provided with a contract document, dated 12 August 2009, that had been signed by representatives of the parties.  Mr Percy had signed on behalf of CINZ.   He noted, however, that CINZ had provided copies of the same contract

document which were identical, except that the copies had been addressed on the front page to Ceiling Solutions at CINZ’s postal address.  One copy had been signed by Mr Percy, but there were no other signatures on the documents.

[34]     At paragraph 2.5 to 2.7 of the determination, the first respondent wrote:

2.5The response from CINZ indicated that from its perspective KMB must have fabricated documents and in addition suppressed other documents for the purpose of this adjudication, notably

•the invoice dated 11 October 2009 addressed to CINZ in the copy filed with me in support of the claim on 14 December

2009, but instead was addressed to “Ceiling Solutions” in the copy filed with me by CINZ on 21 December 2009;

•and furthermore KMB suppressed the fact that Mr Brayne had an official position as Contracts Manager with Ceiling Solutions, as evidenced by a business card, a copy of which was filed with me by CINZ.

2.6In view of the serious allegations made by CINZ about impropriety as to documents filed in the adjudication by KMB, I exercised my power under s 42 CCA to allow KMB to reply to those allegations.

2.7KMB filed its reply with me on 23 December 2009.   In essence, KMB says that CINZ itself fabricated documents for the purposes of this adjudication, in particular the business card of Mr Brayne for Ceiling Solutions and the invoicing addressed to Ceiling Solutions. KMB offered evidence in support of its contentions as to document fabrication by CINZ.

[35]     The first defendant’s reasoning included the following at paragraphs 3.3 to

3.6:

3.3CINZ  says  that  the  unsigned  contract  agreement  with  Ceiling Solutions was the only construction contract that KMB had on this site.  CINZ says that the unsigned contract agreement with Ceiling Solutions  became  a  binding  contract  between  KMB  and  the company Wall & Ceiling Solutions Limited.  KMB was incorporated two or three days after the date of signature of the countersigned contract agreement and in the identical name to that in the document, and thus the document can be classed as a valid pre-incorporation contract.   But no company called “Ceiling Solutions Limited” was incorporated – only Wall & Ceiling Solutions Limited.

3.4A named company cannot unilaterally insert itself into a contract in place of an unincorporated entity with a different name, unless there is a clear and unequivocal agency.  CINZ says that Mr Brayne was himself an agent of Ceiling Solutions, as shown by the business card bearing  his  name.    Thus  he  must  have  been  aware  that  Ceiling

Solutions was a temporary working name for the entity later incorporated as Wall & Ceiling Solutions Limited.  I accept as fact the response of the Braynes on behalf of KMB, supported by extraneous evidence, that the card was made by CINZ or its personnel.  I accept as fact also that Mr Brayne not only was never aware of the card, but also was never a part of an organisation called “Ceiling Solutions”.

3.5I find as fact that the non-countersigned contract agreement was not a contract to which Wall & Ceiling Solutions Limited was a party.

3.6On CINZ’s evidence, there was never a company Ceiling Solutions Limited, nor is there any evidence of a partnership called “Ceiling Solutions”.   On the evidence before me, therefore, the non- countersigned contract agreement must in fact have been what it seems to be – a draft that was not acted upon.

[36]     In deciding that CINZ should meet all of KMB’s costs, the first defendant said at 6.5:

6.5I consider that CINZ’s response was without substantial merit – its base stance was to repudiate a construction contract it put forward and which it signed, twice.  Further, it acted in an improper manner in putting forward documents which on the balance of probabilities were falsified, in its attempts to persuade me to decide in its favour.

Breach of natural justice

[37]     CINZ alleges that the procedures adopted by the adjudicator resulted in a breach of natural justice.  That allegation is founded on the proposition that KMB was allowed to file a reply to CINZ’s response, which contained serious allegations which were influential in the decision making process and to which CINZ was effectively denied an opportunity to address.

[38]     Mr Davey referred to submissions that Mr Robertson (who was then counsel) had made for KMB in the reply that CINZ must have “fabricated” the business card for Mr Brayne for the purposes of the adjudication.  That allegation  had been based on  the  premise  that  Mr Groves  had  implied  at  paragraph  3  of  his  affidavit  of

21 December 2009 that the business card was created at, or shortly after, a meeting on 9 July 2009, whereas the card contained a phone number that was not used by the Braynes until September 2009.

[39]     Mr Davey noted Mr Robertson’s statement that “the most disturbing aspect of these adjudications” were the documents that had been attached to CINZ’s response in respect of the LINZ Hamilton project which he claimed had been altered by changing the party invoiced from CINZ to “Ceiling Solutions”.  Mr Robertson had submitted that the invoices would have been easily made up using standard templates on Microsoft Office Word software, and in that respect he had relied on the opinion of Mr Mulder.

[40]     Mr Davey noted the references to the business card and allegedly fabricated invoices in the first defendant’s decisions and submitted that KMB’s allegations about  the  documents  had  plainly  been  influential.     Given  the  nature  of  the allegations, the first defendant should have allowed CINZ to respond, especially given that the allegations were not signalled as part of the original claim that had been filed.  In this respect, he relied on passages in Re Erebus Royal Commission;

Air New Zealand Limited v Mahon[1] in which Lord Diplock said at 671:

The rules of natural justice that are germane to this appeal can, in their Lordships' view, be reduced to those two that were referred to by the Court of Appeal in England in R v Deputy Industrial Injuries Commissioner, ex parte Moore [1965] 1 QB 456 at pp 488, 490, which was dealing with the exercise of an investigative jurisdiction, though one of a different kind from that which was being undertaken by the Judge inquiring into the Mt Erebus disaster. The first rule is that the person making a finding in the exercise of such a jurisdiction must base his decision upon evidence that has some probative value in the sense described below. The second rule is that he must listen fairly to any relevant evidence conflicting with the finding and any rational argument against the finding that a person represented at the inquiry, whose interests (including in that term career or reputation) may be adversely affected by it, may wish to place before him or would have so wished if he had been aware of the risk of the finding being made.

[1] Re Erebus Royal Commission; Air New Zealand Limited v Mahon [1983] NZLR 662.

[41]     Later on the same page, Lord Diplock said:

The second rule requires that any person represented at the inquiry who will be adversely affected by the decision to make the finding should not be left in the dark as to the risk of the finding being made and thus deprived of any opportunity to adduce additional material of probative value which, had it been  placed  before  the  decision-maker,  might  have  deterred  him  from making the finding even though it cannot be predicated that it would inevitably have had that result.

[42]     With reference to paragraph 2.6 of both determinations, Mr Davey submitted that the first defendant had misapplied his powers under s 42(1)(b) of the Act by giving only KMB the right  to  file a reply.    The  consequence  was  that  he  had effectively allowed KMB to provide further evidence and submissions without CINZ being given an opportunity to respond.  The result was unfairly prejudicial to CINZ. He noted that had such an opportunity been afforded, CINZ could have pointed out that:

a)       Mr Groves’ affidavit filed in the adjudication proceeding had not in fact stated when the business card had been ordered.  In his affidavit sworn in this Court, Mr Groves annexed a tax invoice for the business cards  which  was  dated  30  September  2009,  which  Mr Davey submitted clearly showed that the business cards had not been fabricated for the purpose of the adjudication hearing.

b)Expert evidence could have been arranged to examine the invoices which  had  allegedly been  fabricated  and,  for  the  purposes  of  the present hearing, reliance was placed on an independent computer forensic expert, Mr Brent Whale.   Mr Whale gave evidence that he had  examined  an  e-mail  on  Mr Tully’s  computer  which  emanated from KMB and was dated 5 November 2009.  It had two attachments, being invoices addressed to “Ceiling Solutions”, not “Construct Interiors”.

[43]     Mrs Brayne endeavoured to rebut that evidence.  In paragraphs 32 to 34 of her affidavit sworn in this proceeding she said that:

32At page 247 of Mr Groves’ affidavit he attaches an email sent from KMB to Mr Tully on 5 November 2009.  I confirm, and is evident from this print-out of the email, there are no attachments (the invoices) sent with the email.

33       I admit that the email states: ‘Here are the invoices that were sent to Dedan…’.   However, I accidentally forgot to attach the invoices. This is consistent with, and why I have previously said in evidence that the correct invoices were only delivered to Construct’s Mr Percy and never to Mr Tully.  (Refer to Mr Groves’ affidavit at:

a        page 41, paragraph 3

b        page 72, paragraph 10

c        KMB’s statement of defence, paragraph 18 and 19)

34       The  original  invoices  were  those  delivered  to  Mr  Percy  on  11

October 2009 and were both addressed to ‘Construct Interiors NZ Limited’ as attached at pages 52 and 84 of Mr Groves’ affidavit, not

addressed to Ceiling Solutions.

[44]     Mr Davey made the point that Mrs Brayne’s evidence was in effect a direct challenge to Mr Whale’s evidence.  It was also contrary to the stance that KMB had adopted before the adjudicator, which was to the effect that the documents had been e-mailed in Word format, with the result that CINZ personnel could simply open the documents and alter them.

[45]     In summary, there were matters that CINZ could have raised to rebut KMB’s allegations that false documents had been produced if the opportunity to do so had been afforded to it.

[46]     Mr Taylor  argued  that  there  had  been  no  breach  of  natural  justice.    He submitted that the first defendant had not purported to act under s 42(1)(b) of the Act and requested further written submissions.  Rather, KMB’s right to provide a reply had arisen under s 42(1)(a) and (i) and was expressly recorded in two procedural documents.  They were:

a)        The notice of acceptance of appointment as adjudicator, which set out the procedure to be followed;  and

b)        Procedural orders made by the first defendant on 21 December 2009.

[47]     Mr Taylor submitted that KMB had furnished what was in its terms a strict reply to the responses of CINZ, as had been envisaged by the procedural orders made by the first defendant.   Further, CINZ had not raised  any issue with the adjudication procedure in respect of either the notice of acceptance of appointment as adjudicator or the orders of 21 December.  He submitted that the first defendant had never made an order that further submissions were to be filed under s 42(1)(b) of the Act and neither had such submissions been provided.   He submitted that the procedure  was  analogous  to  that  applicable  on  summary  judgment  applications

whereby the plaintiff has an opportunity to reply to the defendant’s response.   He argued that there could be no breach of natural justice on the basis that there was no opportunity to respond to KMB’s reply.

[48]     Mr Taylor submitted that the purpose of the Act was to promote cash flow in the construction industry and provide for the fast and effective resolution of disputes. He referred to Gill Construction Company Ltd v Butler[2]  in which Mallon J said at [9]:

[2] Gill Construction Company Ltd v Butler [2010] 2 NZLR 229.

A determination under the CCA therefore provides a mechanism by which payment of disputed amounts can be promptly required and enforced, even though the payer is able to separately contest that the payment was owing under the contract between the payer and the payee.  If the payer’s position is upheld in separate proceedings then the payee will be required to pay back the money that he or she received from the payee as a result of the CCA process.  For this reason the CCA has been described as a “pay now, argue later” regime  and  as  giving rise  to  a  “temporary”  debt  (eg.  Laywood  v Holmes Construction [2009] 2 NZLR 243 at [52]). Nevertheless, because it is a debt that may be enforced, it has been held that a statutory demand can be issued in respect of it: Volcanic Investments Limited v Dempsey & Wood Civil Contractors Limited (2005) 18 PRNZ 97.

Discussion

[49]     Both counsel referred to a number of cases in which the proper approach to applications  for  judicial  review  of  decisions  made  under  the  Act  have  been discussed.  The authorities were collected and discussed in Spark It Up Ltd v Dimac Contractors  Ltd  and  Cornish[3]   in  which  Dobson J  rejected  a  contention  that  an application for judicial review of an adjudicator’s determination ought to be limited to only those errors that go to jurisdiction.  He accepted that the position was as set out by Stevens J in Tayler v La Hatte and Anor[4] at [20]:

[3] Spark It Up Ltd v Dimac Contractors Ltd (2009) 19 PRNZ 631.

[4] Tayler v La Hatte and Anor HC Auckland CIV-2007-404-6843, 24 June 2008.

I am satisfied that, in appropriate cases, an application for judicial review of an adjudicator’s determination may be available pursuant to the Judicature Amendment Act.   Whether suitable grounds can be established by an applicant, and whether relief should be granted by the Court in the exercise of its discretion, will depend upon all the circumstances of the particular case.  It will, of course, be necessary for an applicant to demonstrate that the Court should intervene on the basis of a breach of natural justice or fairness,

procedural  errors,  or  other  errors  usually  associated  with  administrative review.

[50]     In Spark It Up Dobson J, in adopting the approach of Stevens J in Tayler, held that the scheme of the Act did not necessarily restrict the grounds on which the Court could entertain applications for judicial review.  He thought that the purpose of the Act, including the efficient and prompt determination of construction disputes, will necessarily reduce the intensity of scrutiny that the Court applies, so that simple errors of fact and law which might justify intervention of the Court in a different setting  would  be  insufficient  to  justify  intervention  by  the  Court.    However, requiring  a  higher  threshold  as  to  error  before  intervening  was  different  from denying that the Court had jurisdiction to consider the grounds of unreasonableness or irrelevant considerations.

[51]   The present case does not involve allegations that the adjudicator acted unreasonably, or took into account irrelevant considerations.  Rather, CINZ asserts breach of natural justice.   Allegations of that nature are plainly able to be made especially where, as in the present case, factual determinations made have effectively impugned the honesty and integrity of the principals of CINZ.  Whether or not the allegations  against  the first  defendant  can  properly be sustained  on  the  facts  is another matter.   But there is no doubt that there is jurisdiction to consider those issues.     The position is really put beyond doubt by s 41(c) of the  Act, which provides expressly that one of the duties of an adjudicator is to comply with the principles of natural justice.

[52]     At this point, it will be appropriate to say a little more about the procedures that were followed.   KMB relies first on the “Notice Of Willingness To Act And Notice Of Acceptance Of Appointment As Adjudicator”.   This document, dated

11 December 2009, was issued by Building Disputes Tribunal (NZ) Limited which is an “authorised nominating authority” under the Act.   Building Disputes Tribunal (NZ) Limited nominated the first respondent as the arbitrator and gave notice on

11 December 2009 of his willingness to act and acceptance of appointment as the adjudicator.   The Notice recorded that it had been “served for and on behalf of the adjudicator, Mr Peter Jones … ”.  There was a section headed “The further conduct of this matter”.  It provided that the parties were required to provide their respective

submissions on the disputed matters “strictly” in accordance with a timetable that was then set out.  The timetable was as follows:

•the claimant must serve on the Adjudicator and every other party to the adjudication its adjudication claim and supporting documents within 5 working days of receipt of this notice (s36(1)); and,

•the respondent may serve on the Adjudicator and the claimant, a written response to the adjudication claim within 5 working days of receipt of the adjudication claim, or within any further time that the parties agree or within any further time that the Adjudicator may allow if the Adjudicator considers that, in the circumstances, the additional time is required to enable the respondent to complete the written response (s37(1))  (It should be noted that the presumption is strongly against an extension of time being granted for service of the written response.   An extension of time will only be granted in exceptional circumstances): and,

•the claimant may serve on the Adjudicator and every other party to the adjudication a written statement strictly in reply to the written response of any other party to the adjudication within 3 working days of receipt of that response (s42(1)(a)&(i)).

[53]     That was followed by advice making the parties aware that there might be no conference, or any other opportunity for a party to present its case beyond what was provided in the claim, the written response, and the reply.

[54]     The Act itself provides only for the adjudication claim (s 36) and a response to the adjudication claim (s 37).  That needs to be borne in mind when construing s 42(1)(b) of the Act.  That section details the powers of the adjudicator.  One of the powers is set out in subs (1)(b), and that provides that an adjudicator may:

request further written submission from the parties to the adjudication, but must give the relevant parties an opportunity to comment on those submissions.

[55]     Given the provisions of ss 36 and 37, I am of the opinion that s 42(1)(b) must envisage that the “further written submissions” are further submissions beyond what is said in the adjudication claim, and in the response to the adjudication claim.

[56]     KMB relies on s 42(1)(a) which is a general power given to adjudicators to conduct the adjudication in any manner that they think fit.  Mr Taylor also referred to s 42(1)(i), which empowers adjudicators to issue “any other reasonable directions

that relate to the conduct of the adjudication”.  Mr Taylor submitted that s 42(1)(a)

and  (i)  would,  together,  authorise  the  procedural  rules  set  out  in  the  notice  of

11 December 2009.  The effect of that was to add a right of reply for KMB.  This meant that KMB could make submissions and, as occurred, lead evidence in relation to what CINZ had said in response to the adjudication claim;  but CINZ would not have any commensurate right to deal with any new matters that arose when KMB exercised that right.

[57]     The alternative proposition, put forward by Mr Davey, is that if the statutory procedure envisaged by ss 36 and 37 is to be supplemented by conferral of a right to make further submissions, then that should be a right given to both parties, and not simply one.  That argument depends on the proper scope of s 42(1)(b).  On analysis, the provision appears to be in two parts.   The first envisages a request by the adjudicator for further written submissions from the parties;  the second envisages giving the relevant parties an opportunity to comment on those submissions. Consequently,  if  the  statutory  process  contemplated  by  ss 36  and  37  is  to  be supplemented,  it  does  appear  that  both  parties  should  have  an  opportunity  to comment on such further submissions as are made under the first part of the subsection.

[58]     While the position advocated by Mr Taylor is arguable, and providing for a reply  by the  claimant  might  be  characterised  as  an  example  of  the  adjudicator conducting the adjudication in such manner as he thinks fit (s 42(1)(a)), or as a “reasonable direction” (s 42(1)(i)), s 42(1)(b) is a specific provision dealing with further written submissions.   If s 42(1)(a) and  (i) can be utilised instead of the making of a request under s 42(1)(b), then the protection afforded by the second part of subs (1)(b) would effectively be set on one side.   There would be no statutory obligation to give the relevant parties “an opportunity to comment” on the further submissions.

[59]     I consider, therefore, that if the procedure envisaged by ss 36 and 37 is to be supplemented by a request for further written submissions there should be such a request under s 42(1)(b), carrying with it an opportunity to comment.

[60]     One objection to that conclusion might be that the process might become open-ended:   if an opportunity were given to comment on written submissions, would that be followed by an opportunity to comment on those comments?  In my view, that would not follow.  The subsection envisages “an opportunity to comment” and that opportunity would not have to be repeated.   The process would be the making of a claim, the provision of a response, followed by one further round of submissions.  It would be the party responding to the claim who had the last word in that  scenario.    While  that  would  not  be  akin  to  what  happens  in  most  Court processes, it is closely analogous to the system envisaged by the Act if no further submissions are sought.   In such a case, the adjudicator would act simply on the adjudication claim and the response.   Consequently, there can be no objection in principle to the process that I have found should be followed.

[61]     Notwithstanding that the notice of 11 December 2009 was purportedly issued on behalf of the first respondent, he in fact acted as if he were not aware of the procedure that had been set out in the notice.

[62]    Mr Taylor attempted to make a distinction between a reply and further submissions  under  s 42(1)(b).    In  the  present  case,  he  submitted  that  what  had occurred was that KMB had furnished a strict reply under the procedural order given by the adjudicator under s 42(1)(a).   He contended that this was not a “written submission” under s 42(1)(b).  I am not persuaded by this argument.  Apart from the reasons I have already given, it seems to me wrong in fact to characterise KMB’s “reply” as not being a further written submission.  It was in writing, and consisted in large part of submission as well as assertions as to relevant facts.   In the circumstances, to the extent that the reply was not purely a submission, it was both that and assertions as to facts.   There were affidavits and witness statements, the latter provided even though no hearing was envisaged.   I see no real difficulty in describing everything that was provided as a “submission”.  The consequence of all these considerations is that CINZ should have had an opportunity to comment on the material provided by KMB in reply, and that did not occur.

[63]     Mr Taylor, however, also relied on the procedural order made by the first respondent  in  an  e-mail  dated  21 December  2009.    The  e-mail  was  sent  after

Ms Sparling, who was acting for CINZ, sought an extension of time for filing its response to the adjudication claims.  It seems from the e-mail that the first defendant was concerned about the likely content of CINZ’s response, since Mr Groves had communicated with him directly making allegations that CINZ had been the victim of fraud at the hands of KMB.   He granted the extension of time that had been sought, but also gave KMB the right to file and serve “its comments on the responses.”  He considered that he was obliged to take this step having regard to the likely content of the responses.   In his e-mail, he said that there would be “no subsequent right of reply”, by which he plainly meant that CINZ would not have a right to respond to KMB’s reply.  He explained the reasons he had made the order in

the adjudications.[5]

[5] Paragraphs 2.5 and 2.6 of both adjudications, quoted above.

[64]     Mr Taylor submitted that CINZ at that point had no statutory right of reply, was on full notice that the first defendant would not be conferring such a right and had taken no issue with it. Since it had not objected at the time to the process that the first defendant had said he would follow, it should not be heard to complain now.

[65]     It will be noted from the terms of the relevant paragraphs in the adjudication that the first defendant considered that he was exercising a power conferred by s 42 of the Act in giving CINZ the right of reply.  However, for the reasons I have already given, I do not consider that there was a statutory right to proceed as he did.  Once the CINZ responses were to hand, the process required a right for further comment to be given to both parties.   In the circumstances I do not consider that CINZ was obliged to protest about the procedure that the first defendant required be followed. Further, the obvious point can be made that at the time the first defendant’s e-mail was sent, CINZ was not to know that it in turn would be the subject of allegations of significant dishonesty.  The consequence of the procedure followed was that KMB had the right to deal with the allegations made by CINZ, but CINZ was not allowed to comment on the serious accusations levelled by KMB.   I consider that was an unsatisfactory outcome.

[66]     While it is no doubt correct, as Mr Taylor submitted, that the Act is intended to provide for a fast and effective disputes resolution process so as to promote

cashflow for work done on projects,[6]  it is clear that the Act requires observance of the principles of natural justice and there will be occasions when the quick resolution of the dispute will need to yield to that consideration.  Where there has been a breach of natural justice and the procedure followed was not authorised by the Act there can be no reason for the Court not to provide a remedy.  Having regard to the seriousness of the allegations in the present case, I consider that there was such a breach.  To adapt  the  language  of  Lord  Diplock  in  the  passage  quoted  at  [41]  above  from

[6] As to that, see the observations of Harrison J in Willis Trust Co Ltd v Green HC Auckland

CIV 2006-404-809, 1 March 2006 at [20].

Re Erebus Royal Commission; Air New Zealand Limited v Mahon,[7]  CINZ were

effectively deprived of the opportunity to adduce additional material of probative value which might have deterred the adjudicator from making the finding that documents had been fabricated.  Not only was this important to the resolution of the substantive issues but it was crucial to the decision that was made as to the costs of the adjudication.

Other matters

[7] Re Erebus Royal Commission, above n 1.

[67]     The plaintiff raised another issue concerning the IMTS project, claiming that the first defendant had made a factual error in determining that CINZ had provided no cogent evidence to deny that KMB had carried out the works detailed in the payment claim served on 1 December 2009.   It was said that that conclusion was incorrect on the basis that while the original quote for the work had included both labour and materials it had subsequently been agreed that KMB would only carry out the labour component of the contract, and materials had never been supplied.  While KMB had claimed in its response that the payment claim did not include materials and  that  it  related  solely to  the  cost  of installation,  since  the  original  quote  of

$45,000 plus GST had included materials, it did not make sense that the price of

$44,000 plus GST would be labour only.

[68]     Mr Davey referred at some length to the relevant affidavit evidence on this issue.  However, this does not seem to me to be the kind of issue appropriately the subject of an application for review of an adjudication under the Act.  An application

for review is not an appeal and unless it can be asserted that there was no evidence for the impugned conclusion it is not appropriate for such an issue to be pursued in this Court.

[69]     Because of the conclusion that I have come to on the natural justice issue it will in any event be appropriate for the adjudications to be set aside and for there to be further proceedings before the adjudicator in accordance with this judgment.  That ought to provide an opportunity for any further relevant submissions on the facts to be made at that point.

Result

[70]     For the reasons I have given the adjudications are set aside as having been made in breach of natural justice.

[71]     The matter is remitted to the adjudicator for such further proceedings as he considers appropriate having regard to the terms of this judgment.

[72]     CINZ  is  entitled  to  its  costs  calculated  in  accordance  with  Category  2

Band B.