Custom Street Hotel Limited v Plus Construction NZ Limited

[2016] NZHC 2934

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-000219 [2016] NZHC 2934

UNDER

the Arbitration Act 1996

IN THE MATTER OF

an application for leave to appeal under
cl 5(5) of Schedule 2 to the Arbitration Act
1996

BETWEEN

CUSTOM STREET HOTEL LIMITED Plaintiff

AND

PLUS CONSTRUCTION NZ LIMITED First Defendant

PLUS CONSTRUCTION CO LIMITED Second Defendant

Hearing:	6 December 2016
Appearances:	R B Stewart QC and I Rosic for Plaintiff A R B Barker for Defendants
Judgment:	8 December 2016

JUDGMENT OF GILBERT J

This judgment is delivered by me on 8 December 2016 at 11.30 am pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

Counsel/Solicitor:

R B Stewart QC, Auckland

Gilbert Walker, Auckland

ARB Barker, Barrister, Auckland

CUSTOM STREET HOTEL LTD v PLUS CONSTRUCTION NZ LTD & ANOR [2016] NZHC 2934 [8 December 2016]

[1]      Custom Street Hotel Ltd (Custom Street) claims the sum of $3.6125 million pursuant to a performance bond arranged by Plus Construction (Plus) to assure performance of its obligations as the contractor under a construction contract for the redevelopment of the Reserve Bank building on Customs Street, Auckland into a

15 storey  hotel.    Payment  under  the  bond  is  contingent  on  the  engineer  to  the contract  stating  that,  in  his  opinion,  the  contractor  has  failed  to  perform  its obligations under the contract and the amount claimed under the bond is properly due under the contract.  The engineer issued the certificate and the parties agreed to refer to arbitration the question of whether the engineer was correct to do so.

[2]      The Hon. Rodney Hansen QC was appointed as sole arbitrator.  In an award dated 17 November 2015, he determined that the engineer was not entitled to issue the  certificate  because  Plus  had  not  failed  to  perform  its  obligations  under  the contract  and  no  amount  was  due  by  Plus  under  the  contract.    Accordingly, Custom Street had no right to claim under the bond.

[3]      On 2 June 2016, Palmer J gave leave to appeal to this Court on five questions of law:1

(a)      Did the arbitrator err in holding that the defendants’ breach must be repudiatory in nature before the defendants would be disentitled from terminating?

(b)Did the arbitrator correctly construe cl 14.3.3 of the contract and err in holding that the defendants terminated in accordance with cl 14.3.3?

(c)      Did the arbitrator correctly construe cl 14.2.4 of the contract and err in holding that the difference, between a certified cost to complete the contract works and the cost to Custom Street had the contract works been  completed  by  Plus,  could  not  be  “properly  due  under  the

contract” until the contract works have been completed?

1      Custom Street Hotel Ltd v Plus Construction NZ Ltd [2016] NZHC 1180.

(d)Did the arbitrator err in holding that the damages claimed by Custom Street for breach of contract cannot be “properly due under the contract” until Custom Street’s claim is admitted or determined as to liability and quantum?

(e)      Did the arbitrator err in holding that Custom Street cannot rely upon the amounts claimed under the indemnity clause in the contract as amounts “properly due under the contract”?

[4]      I dismissed the appeal in a judgment delivered on 29 August 2016, finding that the arbitrator did not err in his conclusion on any of these five questions.2

[5]      Custom Street now seeks leave pursuant to cl 5(5) of sch 2 of the Arbitration

Act 1996 to appeal to the Court of Appeal on the first four of these questions of law.

[6]      The test for leave under cl 5(5) was confirmed by the Court of Appeal in

Downer Construction v Silverfield Developments:3

… the primary focus is on whether the question of law is worthy of consideration.   We cannot do better than Randerson J’s summary of the position in Cooper at para [12]:

(a)    The appeal must raise some question of law … capable of bona fide and  serious argument in a  case involving some interest, public or private, of sufficient importance to outweigh the cost and delay of the further appeal.

(b)   Upon a second appeal, the Court of Appeal is not engaged in the general correction of error.  Its primary function is then to clarify the law and to determine whether it has been properly construed and applied by the Court below.

(c)    Not  every  alleged  error  law  is  of  such  importance  either generally or to the parties as to justify further pursuit of litigation that has been twice considered and ruled upon by a Court.

[7]      Mr  Barker  submits  that  leave  should  be  declined  because  the  proposed questions of law are not capable of bona fide and serious argument.  I do not accept this submission.  Justice Palmer concluded that all questions were seriously arguable

when  granting  leave  to  appeal  to  this  Court.    As  to  question  (a),  I  accepted

2      Custom Street Hotel Ltd v Plus Construction NZ Ltd [2016] NZHC 2011.

3      Downer Construction v Silverfield Developments [2007] NZCA 355, [2008] 2 NZLR 591 at [33]

citing Cooper v Symes (2001) 15 PRNZ 166 (HC).

Custom Street’s  submission  that  the  circumstances  in  which  a  party  may  be disentitled from cancelling a contract are not limited to those where that party has repudiated the contract but that the arbitrator was correct in confining his attention to this issue on the facts of this case.   Question (b) concerns the interpretation of cl 14.3.3 of the New Zealand Standard Conditions of Contract for Building and Civil Engineering Construction, NZS3910:2003.   The proper interpretation of this clause was strongly contested in argument and is not without difficulty.  It appears that this provision has not previously been considered by the Courts.  I reached the same conclusion as the arbitrator but by a different route.  Questions (c) and (d) also raise questions of interpretation of this standard form contract that are capable of bona fide and serious argument and have not previously been considered.

[8]      The standard conditions of contract at issue in this case are widely used in the construction industry in New Zealand.   The proposed appeal therefore has wider consequence than the current dispute between the parties. The private interest is also significant  given  the  amount  in  issue,  in  excess  of  $3.6  million.     Unless Custom Street prevails on appeal and is able to enforce the bond, it has no realistic prospect of recovery from Plus because it is a Korean company with no known assets in New Zealand.

[9]      For these reasons, I conclude that the questions of law raised by the proposed appeal are worthy of consideration by the Court of Appeal and that the cost and delay of a further appeal are justified.

Result

[10]     The application for leave to appeal to the Court of Appeal is granted.  The approved  questions  of  law  for  which  leave  is  given  were  agreed  by  counsel following the hearing and are as follows:

(a)       Whether Plus’ breach had to be repudiatory in nature before Plus

would be disentitled from terminating the contract.

(b)Whether Plus validly terminated the contract under cl 14.3.3 or, if applicable, the Contractual Remedies Act 1979.

(c)      Whether, on a proper interpretation of clauses 14.2.4 and 14.2.5 of the contract, Custom Street can recover the additional cost of completion prior to completing the contract works.

(d)Whether Custom Street can recover the additional cost of completion without first having its claim admitted or determined as to liability

and quantum.

M A Gilbert