Dominion Constructors Limited v ACN 643 927 469 Pty Ltd
[2023] NZHC 2425
•25 September 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-1314
[2023] NZHC 2425
BETWEEN DOMINION CONSTRUCTORS LIMITED
Plaintiff/Respondent
AND
A.C.N. 643 927 469 PTY LTD Defendant/Applicant
Hearing: 1 May 2023 Appearances:
G Blanchard KC and J Alexander for the Plaintiff/Respondent S Foote KC and M Kersey for the Defendant/Applicant
Judgment:
25 September 2023
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 25 September 2023 at 11 am pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Glenie Legal Limited, Auckland Russell McVeagh, Auckland
DOMINION CONSTRUCTORS LTD v A.C.N. 643 927 469 PTY LTD [2023] NZHC 2425 [25 September 2023]
Table of Contents
Introduction [1]
Summary judgment by defendant [9]
Issues [15]
Factual background [17]
First cause of action — cl 6(iv) of the Direct Payment Letter [29]
Contractual interpretation principles [30]
Relevant clauses of Direct Payment Letter [33]
Qualitas’ interpretation [37]
Dominion’s interpretation [45]
Is Dominion’s interpretation untenable? [52] Second cause of action — failure to appoint Stuart Mitchell [98] Third and fourth causes of action — misrepresentation under the Contract and Commercial Law Act 2017 and breach of cl 6(i) of the Direct Payment Letter
[109]
Fifth cause of action — misleading and deceptive conduct under the FTA [111]
Principles applying to determining liability for misleading or deceptive conduct
[112]
Misleading or deceptive conduct? [114]
Reliance and loss? [140]
Post-hearing strike-out application [145]
Result [147]
Costs [148]
Introduction
[1] Dominion Constructors Ltd (Dominion) has filed proceedings against ACN 634 927 469 Pty Ltd (Qualitas) seeking payment for amounts allegedly owing in respect of the construction of the Union Green apartments (Project).
[2] Qualitas was a financier for the Project, having agreed to replace the original mezzanine financier part way through. As part of these arrangements, Qualitas entered into a facility agreement with the developer of the apartments, West Village Capital Partners Ltd (West Village). In addition, Qualitas entered into a direct payment letter with West Village and Dominion, the construction company for the Project (Direct Payment Letter).
[3] The Direct Payment Letter provided for payment directly from Qualitas to Dominion in the circumstances set out. As explained in evidence for Qualitas, this is a common arrangement providing the construction contractor with confidence they will be paid directly, rather than relying on the developer to pass on funds. The letter
included clauses for making payments, for giving notice including of payment delays or where a payment would not be made (where it otherwise would have been) and for determining the quantum owing after certain notices were given.
[4] The Project achieved practical completion in approximately May 2021. Prior to this time, issues had arisen in respect of amounts owing. Dominion and West Village attended a mediation in December 2020 and reached a settlement agreement but Qualitas declined to approve the settlement as required. Dominion therefore filed adjudication claims. Determinations were issued against West Village in September 2021 for approximately $12.4 million and $2.3 million (noting these amounts overlap). Qualitas and West Village dispute the underlying liability but that is not relevant to this application.
[5] Shortly after the adjudication determinations were issued, West Village went into receivership and liquidation.
[6] Dominion filed these proceedings in August 2022 seeking payment from Qualitas under the Direct Payment Letter. The amount sought is approximately
$5.8 million (excluding GST and interest) and is referred to in the statement of claim as the “Amount Payable” (Amount Payable). This amount includes the $2.3 million determined in the second adjudication and approximately $3.5 million from the first adjudication.
[7] Qualitas filed its statement of defence in September 2022 together with this application for summary judgment. Qualitas says there is a fundamental problem with Dominion’s claim because the loan facility has come to an end yet Dominion still claims Qualitas, as the financier, has to pay.
[8] Following the filing of Qualitas’ defence, Dominion filed an amended statement of claim, adding a further cause of action, pursuant to the Fair Trading Act 1986 (FTA). This cause of action is pleaded in the alternative and alleges that Qualitas’ failure to advise that there was insufficient funding amounted to misleading and deceptive conduct. Qualitas submits that there was no such obligation and that
the FTA claim, like the claims under the Direct Payment Letter, is untenable and ought not to be allowed to proceed.
Summary judgment by defendant
[9] Rule 12.2(2) of the High Court Rules 2016 provides that the Court may give judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the statement of claim can succeed. This is in contrast to an application for summary judgment by a plaintiff where the Court may grant summary judgment in respect of a single cause of action in the plaintiff’s statement of claim (or even part of a cause of action).1
[10] In Stephens v Barron the Court of Appeal summarised the longstanding authority on defendant summary judgment, Westpac Banking Corp v M M Kembla New Zealand Ltd,2 and confirmed that a defendant seeking summary judgment has a considerable burden to discharge:3
(a)The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually this will arise where the defendant can offer evidence which is a complete defence to the plaintiff’s claim.
(b)An application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment able to be properly arrived at only after a full hearing of the evidence.
(c)The Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment is not to be arrived at on a fine balance of the available evidence as would be appropriate at a trial.
(d)The residual discretion of the Court to refuse summary judgment would be properly invoked to avoid the oppression which would otherwise result if an application by a defendant for summary judgment would pre-empt a plaintiff exercising the right to amend the pleadings.
(e)Summary judgment should not be applied for unless the substantive merits of the case are clear and capable of summary disposal.
1 High Court Rules 2016, r 12.2(1).
2 Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).
3 Stephens v Barron [2014] NZCA 82 at [9] (footnotes omitted).
[11] Whilst there is a considerable burden for the defendant, the Court is not bound in summary judgment proceedings to accept every statement in evidence. There may be cases where the Court can be satisfied that a party’s statements as to matters of fact are baseless.4 In Attorney-General v Rakiura Holdings Ltd, Greig J held that:5
… the Judge is not bound “to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be”.
[12] In addition, the Court has been careful to ensure that the purpose of the summary judgment procedure is not frustrated by “plainly contrived factual conflicts”6 or by a party “raising hypothetical possibilities in vague terms unsupported by any positive assertions or corroborative documentation.”7
[13] This application involves the interpretation of the Direct Payment Letter and so requires the application of the principles of contractual interpretation. The courts have previously held that questions of contractual interpretation may not be adequately addressed in summary judgment applications, Katz J commenting in Ferrer-Aza v Nzone Race Management Ltd for example:8
… it is well established that factual matrix evidence is relevant (indeed sometimes critically so) to the contractual interpretation exercise. As a result, questions of contractual interpretation may not be able to be adequately addressed in a summary judgment context, particularly where there is either insufficient contextual evidence before the Court, or it is necessary to resolve disputes regarding the matrix of fact.
[14] Furthermore, the Court of Appeal has observed that summary judgment is unusual where breaches of the FTA are alleged because such claims almost inevitably raise questions of fact that are unsuitable for determination at the summary judgment stage:9
4 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 4.
5 Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC) at 14; citing Eng Mee Yong v Letchumanan [1980] AC 331 at 341.
6 Westpac New Zealand Ltd v Neumegen & Co (2008) 10 NZCPR 56 (HC) at 63.
7 S H Lock (NZ) Ltd v Oremland HC Auckland CP641/86, 19 August 1986 at 11.
8 Ferrer-Aza v Nzone Race Management Ltd [2016] NZHC 885 at [44].
9 Luxottica Retail New Zealand Ltd v Specsavers New Zealand Ltd [2012] NZCA 357 at [51].
Although the threshold issue of whether the material in question is capable of breaching the Fair Trading Act is a question of law for the Judge, it will often be difficult to divorce that question from the issue of whether there has been a breach in fact in all the circumstances. It would be relatively unusual to find that a plaintiff’s claims cannot succeed where issues of judgment are involved and where the evidence is incomplete and has not been tested at trial.
Issues
[15] The overriding question for the Court is whether the defendant has established on the balance of probabilities that none of Dominion’s causes of action can succeed.
[16] Counsel approached the application by working through each of the causes of action. I start by setting out the factual background and then adopt the same approach.
Factual background
[17] The developer, West Village, initially contracted with Ebert Construction Ltd (Ebert) to complete the Project. Ebert went into receivership on or around 31 July 2018 and liquidation on 3 October 2018. Dominion agreed to step in and entered into a construction contract with West Village on 17 December 2018 (Construction Contact). The Construction Contract provided for West Village to pay Dominion $52,416,682 (plus GST) (or such greater or lesser sum as may become payable under the Construction Contract).
[18] West Village’s original funders were ANZ Bank New Zealand Ltd (ANZ) and a mezzanine financier comprising various entities associated with Twenty Twenty Property Partners Ltd (Twenty Twenty). In July 2019, Qualitas purchased Twenty Twenty’s position as mezzanine financier.
[19] As part of the assignment of Twenty Twenty’s position to Qualitas, a development facility was made available to West Village by Qualitas (Development Facility) contained in a facility agreement dated 29 July 2019 (Facility Agreement).
[20] In addition, on 25 July 2019, Dominion, Qualitas and West Village entered into the Direct Payment Letter. Counsel for Qualitas describes the Direct Payment Letter as recording the basis upon which Qualitas was to make funds available to West Village under the Development Facility. This was to assist with the payments
due by West Village to Dominion, and in particular for such funds to be paid directly by Qualitas to Dominion on behalf of West Village subject to certain conditions being met.
[21] It is not in dispute between the parties that Dominion was not made fully aware of the arrangements between ANZ (described as the senior lender), West Village and Qualitas. Dominion says it has only become aware of these arrangements through these proceedings and Qualitas’ initial disclosure and evidence.
[22] Dominion achieved practical completion of the Project in approximately May 2021. Dominion’s evidence is that in 2020 it began to express concerns to West Village and Qualitas regarding payment for its work and funding for it. Dominion says that it was led to believe these could be resolved through mediation, rather than adjudication, and that it was placed under pressure in late 2020 and early 2021 by Qualitas to complete the work.
[23] West Village and Dominion attended a mediation in December 2020. A settlement agreement was reached and signed on behalf of West Village and Dominion, subject to approval by ANZ and Qualitas. Qualitas declined to approve the settlement agreement.
[24] In mid-2021, Dominion commenced two adjudication proceedings. The adjudicators’ determinations were issued on 3 and 10 September 2021 awarding Dominion $12,456,620.28 (including GST) and $2,311,934.00 (plus GST, fees and interest) respectively. The amount ordered in the second adjudication comprises part of the amount ordered in the first adjudication.
[25] In the first adjudication, the adjudicator held that West Village had not issued a valid payment schedule as required by the Construction Contracts Act 2022 in response to Dominion’s payment claim. West Village was therefore held liable for the whole amount of Dominion’s payment claim in issue in accordance with the Construction Contracts Act.
[26] Qualitas disputes the underlying liability in both determinations and says West Village does as well but says whether they are owing or not in whole or in part is not relevant to the outcome of this summary judgment application.
[27] West Village did not pay the amounts ordered in the adjudications and on 14 September 2021 West Village was placed in receivership and liquidation.
[28] Dominion says that when preparing its claim in this proceeding, Dominion reviewed the adjudications and determined that $5,828,088.47 (excluding GST and interest) is properly payable under the Construction Contract. This sum includes the whole of the 10 September 2021 adjudication amount of $2,311,934.00 with the balance of $3,516,154.47 from the 3 September 2021 adjudication. The total of approximately $5.8 million (excluding GST and interest) is referred to in the claim as the Amount Payable.
First cause of action — cl 6(iv) of the Direct Payment Letter
[29] Dominion’s first cause of action alleges that the Amount Payable, $5.8 million, is owed by West Village to Dominion under the Construction Contract so it is payable by Qualitas under cl 6(iv) of the Direct Payment Letter. For Qualitas’ summary judgment application to succeed, Qualitas needs to establish that this claim is untenable on the balance of probabilities. This will depend on the interpretation of the Direct Payment Letter. I briefly set out the principles that apply.
Contractual interpretation principles
[30] When interpreting a contract, a court is required to adopt an objective approach to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”.10
10 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912 per Lord Hoffmann; cited in Firm PI 1 Ltd v Zurich Australian Insurance Ltd t/a Zurich New Zealand [2014] NZSC 147, [2015] 1 NZLR 432 at [60]; and endorsed in Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696 at [43].
[31] The interpretive exercise needs to take place within the overall context, with the focus “on interpreting the document rather than the particular words.” However, the text remains of central importance and the ordinary and natural meaning will be a powerful indicator of what the parties meant.11
[32] If pre-contractual negotiations shed objective light on meaning they can be relevant and admissible. This means evidence of a party’s subjective intent is not likely to be admissible if it was not communicated before the contract was formed. However, evidence of a common mutual understanding will be admissible.12 Evidence of post-contractual conduct is admissible in the same way, if it tends to prove anything relevant to the objective approach to interpretation.13
Relevant clauses of Direct Payment Letter
[33] I set out below the main clauses in the Direct Payment Letter that are relevant in full because the clauses are difficult to consider in isolation. I insert the abbreviations for the parties as defined above to assist with understanding:14
1 The purpose of this letter is to record the basis on which each entity listed in the Appendix [Qualitas] is to make funds available to [West Village] to assist with the payments due by [West Village] to [Dominion] for the completion of the Project, and in particular for such funds to be paid directly by [Qualitas] to [Dominion] on behalf of [West Village]. This letter does not:
(i)create any liability or obligation on the part of [Qualitas] to [Dominion] to pay (except as provided for in paragraph 6(iv) below) or perform [West Village’s] liabilities or obligations under the Construction Contract; or
(ii)with the exception of the acknowledgements and undertakings provided by [Dominion] below, amend the terms of the Construction Contract or impose any additional obligations or affect any rights of [Dominion] that are otherwise contained in the Construction Contract.
2 It is confirmed that [Qualitas] has approved a [Development Facility] to enable [West Village] to complete the Project. The Allocated Sum (as
11 Firm PI 1 Ltd v Zurich Australian Insurance Ltd t/a Zurich New Zealand, above n 10, at [63].
12 At [75]–[76].
13 At [84]-[90].
14 I note that the paragraphs in the Direct Payment Letter are variously referred to as paragraphs or clauses. I refer to the paragraphs of the Direct Payment Letter itself as clauses and the paragraphs of the Acknowledgements and Undertakings of Dominion and West Village attached to the Direct Payment Letter as paragraphs.
defined in clause 14 below) of the Development Facility has been allocated for the purpose of [West Village] making payments under the Construction Contract. Subject to paragraph 6 below [Qualitas] agrees that the Allocated Sum will:
(i)not be reduced as a consequence of [West Village] having to meet any increases in any other cost provision of the Project; and
(ii)be solely for the purpose of [West Village] making payments to [Dominion] under the Construction Contract and not to meet any liability to any other creditor.
3 The provisions of this letter coming into effect and the availability of the Development Facility are subject to [Qualitas] having confirmed in writing to [West Village] and [Dominion] that all of [Qualitas’] initial preconditions to the increase and extension of the Development Facility have been satisfied or waived.
4 [Qualitas] has appointed Stuart Mitchell of Kingston Partners (QS) to certify (Certification) payments to be made pursuant to the Facility Agreement (as defined below) in respect of costs properly incurred under the Construction Contract up to the date of the Certification on a cost-to- complete basis. Such certification will identify the amount payable to [Dominion] by [West Village] under the Construction Contract (Progress Payment Drawdowns), and any retentions that are being withheld in accordance with the terms of the Construction Contract (Retentions Drawdowns). [Qualitas] has also appointed Iain McIntyre of DCF Management Limited as the engineer for the Project.
5 All drawdowns under the Development Facility (including without limitation, Progress Payment Drawdowns and Retention Drawdowns) will be subject to [Qualitas]:
(i)not having withdrawn the Development Facility through notice in writing to [West Village] as a result of a default by [West Village] or any other party under the terms of the [Facility Agreement] (a Facility Agreement Default);
(ii)being satisfied in its sole discretion that the Facility Agreement and [Qualitas’] securities remain in place and are enforceable in accordance with their respective terms;
(iii)being satisfied acting reasonably with the QS’ Certification for the particular drawdown, both as to substance and form; and
(iv)being satisfied acting reasonably that the conditions precedent for the particular drawdown have been satisfied.
6 [Qualitas] agrees with [Dominion]:
(i)that in the event that [Dominion] gives written notice to [Qualitas] of any delays on the part of the QS, [Qualitas] will
use reasonable endeavours to ensure that the QS issues its Certifications in a timely manner;
(ii)to give written notice to [Dominion] as soon as it is reasonably possible (and in any event within three business days of [Qualitas] becoming aware thereof) of any default by [West Village] under the Facility Agreement as a result of which there is likely to be a delay in the payment being made by [Qualitas] in terms of this letter;
(iii)to give written notice to [Dominion] (Withheld Payment Notice) at the same time as it gives notice to [West Village] in the event that, as a consequence of [Qualitas] withdrawing the Development Facility in accordance with paragraph 5(i) or the provisions of any of paragraphs 5(ii), 5(iii) or 5(iv) not having been satisfied, [Qualitas] determines not to make a payment which would otherwise be made to [Dominion] in terms of this letter;
(iv)that subject to (but without limiting clause 7 where a Withheld Payment Notice has been issued):
(a) a Withheld Payment Notice not having been issued; or
(b) in the event of a Withheld Payment Notice having been issued, the circumstances giving rise to the issue of such notice having been resolved to the satisfaction of Qualitas; and
(c) in each case, Qualitas not withdrawing the Development Facility in accordance with paragraph 5(i) and being satisfied as outlined in paragraphs 5(ii), 5(iii) or 5(iv) (inclusive) above,
[Qualitas] will pay:
(d) the Progress Payment Drawdowns directly into the bank account of [Dominion] as advised to [Qualitas] by [Dominion] in writing; and
(e) the Retentions Drawdowns into a trust account advised to [Qualitas] by [Dominion] and [West Village] in writing.
7 If [Qualitas] issues a Withheld Payment Notice [Dominion] may within 14 days of the date of receipt by [Dominion] of the Withheld Payment Notice (time being of the essence) request the QS to prepare a Certification as at the date the Withheld Payment Notice was issued, and upon receipt by [Qualitas] of the Certification in form and substance satisfactory to [Qualitas] (acting reasonably), [Qualitas] will pay, as a drawdown under the Development Facility, the lesser of the balance of the undrawn Allocated Sum (which for the avoidance of doubt, is less payments made by [Qualitas] under the terms of this letter or from drawings under the Development Facility paid to Dominion) and the amount certified for payment in the Certification inclusive of retentions but after deducting any amount referred to in the final sentence of this paragraph 7 (Certified Amount) into the bank accounts referred to in 6(iv)(d) and (e) above, following which [Qualitas] will have no further
obligations to [Dominion] under this letter. For the avoidance of doubt, the Certified Amount must be restricted to amounts properly payable under the Construction Contract up to the date of the Withheld Payment Notice on a cost-to-complete basis. For the avoidance of doubt, the maximum liability of [Qualitas] to [Dominion] from time to time under this letter shall be capped at the undrawn Allocated Sum (which for the avoidance of doubt is less payments made by [Qualitas] under the terms of this letter or from drawings under the Development facility paid to Dominion).
The Certified Amount will be reduced by any cost, loss, expense, claim, damages or liability properly incurred or suffered by [West Village] as a result of a breach by [Dominion] under or in connection with the Construction Contract.
[34]I adopt the defined terms contained within the Direct Payment Letter.
[35] The Allocated Sum referred to in cls 2 and 7 above was not defined, as cl 14 of the Direct Payment Letter was deleted by Qualitas prior to execution.
[36] I now set out in broad summary the respective interpretations of the parties as to the obligation of Qualitas to pay Dominion pursuant to cl 6(iv) before considering those interpretations in more detail as it is useful to have a general understanding at the outset.
Qualitas’ interpretation
[37] Qualitas submits cl 6(iv) does not oblige Qualitas to pay where the Development Facility has expired and is exhausted, as Qualitas says is the position here. Qualitas says that this is a fundamental problem for Dominion with the first cause of action because before Qualitas is obliged to make payment under cl 6(iv), (assuming it has not withdrawn the Facility which Qualitas says it has not) Qualitas is required to be satisfied that the matters set out in cl 5(ii), (iii) and (iv) of the Direct Payment Letter are met. Qualitas says these conditions have not been, and cannot now be, met. These are referred to by Qualitas as conditions precedent for payment.
[38] For Qualitas to be satisfied in terms of cl 5(iii), Qualitas says Mr Mitchell would have to certify the Amount Payable. But in Qualitas’ submission there was and is no practical point in Mr Mitchell undertaking a Certification because the Facility has expired fully utilised and so Qualitas cannot be obliged to appoint Mr Mitchell to
do so. Without such Certification, Qualitas cannot be satisfied that cl 5(iii) is met so there can be no obligation to pay Dominion pursuant to cl 6(iv).
[39] Qualitas says that it is undisputed that the amount claimed by Dominion, referred to as the Amount Payable, (or its contingent parts) has never been:
(a)the subject of a Withheld Payment Notice; or
(b)certified by Stuart Mitchell as per cl 4 of the Direct Payment Letter; or
(c)the subject of a drawdown request by West Village.
[40]Qualitas says it is also not disputed by Dominion that:
(a)the maximum amount available to be drawn by West Village under the Development Facility at the time the Direct Payment Letter was issued was $9,985,000 less an amount of $1,360,000 to fund a bond, being
$8,625,000; and
(b)the amount drawn by West Village from Qualitas (and which Qualitas paid to Dominion on behalf of West Village) exceeds $9,985,000;
(c)the Development Facility was fully utilised by West Village; and
(d)the Development Facility expired on 30 June 2021.
[41] Qualitas says that it has explained in its affidavits filed in support and it has not been disputed by Dominion, that Dominion has been paid all amounts certified as payable by Mr Mitchell, a sum which in aggregate totals more than the amount of the Development Facility as at the date of the Direct Payment Letter (the Development Facility was increased prior to its expiry). Qualitas’ evidence is that the Facility was fully exhausted on 2 June 2021 and expired on 30 June 2021. On any view, Qualitas says its maximum liability to Dominion has therefore been met.
[42] In Qualitas’ submission, Dominion’s claim relies on an obligation to extend the amount and term of the Development Facility to meet any payments that may be certified. Qualitas says such an obligation simply does not exist in the Direct Payment Letter. In support of this, Qualitas points to cl 7 of the letter which Qualitas says makes it clear that the Allocated Sum may not cover all certified payments: where a Withheld Payment Notice is issued, Qualitas is only bound to pay the lesser of the balance of the Allocated Sum and the amount certified for payment.
[43] Qualitas further points to the fact that cl 7 provides that “… the maximum liability of Qualitas to Dominion from time to time under this letter shall be capped at the undrawn Allocated Sum.”
[44] Although the Allocated Sum was not defined in the Direct Payment Letter, Qualitas submits it cannot logically be a sum greater than the limit of the Development Facility. Qualitas says this is because cl 2 refers to the “Allocated Sum … of the Development Facility” so that it must be part of the Facility, a subset of it, not a separate autonomous amount which is not limited to, or could exceed, the amount of the Facility. Qualitas says the Development Facility has now expired and been fully exhausted so there can be no further amount owing.
Dominion’s interpretation
[45] Dominion submits that the effect of Qualitas deleting the definition of Allocated Sum is that the liability of Qualitas under the Direct Payment Letter is not limited to a particular sum but that Qualitas is instead obliged to pay amounts properly due under the Construction Contract.
[46] Because Qualitas did not issue a Withheld Payment Notice, Dominion says Qualitas is obliged to pay the Amount Payable, as its component parts have been determined as payable in the adjudications and the adjudications are binding until a court or arbitrator decides differently.
[47] Dominion says its interpretation does not lead to an uncapped liability and is not commercially unreasonable, contrary to Qualitas’ submission. The obligation of Qualitas to pay is simply capped at the amount that is properly payable under the
Construction Contract. Dominion says this interpretation is consistent with the fact that Qualitas was an equity investor as revealed to Dominion through the documents disclosed in this proceeding and as accepted by Peter Lawlor, the Director - Real Estate for Qualitas in his affidavit.
[48] Dominion submits this interpretation is consistent with Dominion’s understanding of the Direct Payment Letter when it was executed, as shown in Dominion’s evidence in support, and the state of the project at the time Dominion entered into the Direct Payment Letter. Dominion says it took over a distressed project following Ebert’s liquidation and there were still a number of uncertainties (including unknown defects) that Dominion was discovering.
[49] Furthermore, Dominion says Qualitas had the protection of cl 5 of the Direct Payment Letter. If the Development Facility expired or was exhausted, Qualitas had the option of refusing to advance further funds under cl 5 but in that case had to provide a Withheld Payment Notice under cl 6(iii). The Withheld Payment Notice would mean that Qualitas had no further liability to pay Dominion under cl 6(iv) although importantly Qualitas would have to pay for work done up to that point under cl 7. Dominion says Qualitas could have used the power under cl 5 but chose not to do so because it wanted Dominion to complete the Project.
[50] Dominion submits it is no answer for Qualitas to say Dominion took the risk that it would not be paid by signing the Direct Payment Letter with the Allocated Sum not defined and no knowledge of the amount of the Development Facility because the obligations under the letter do not turn on the expiry of the original term, or the exhaustion of the Development Facility. In the event of either, Qualitas was able to extend or make further advances, which is exactly what happened.
[51] Counsel for Dominion says that the arrangements between ANZ, West Village and Qualitas disclosed as a result of this application have revealed that all of the upside associated with the Project was to go to Qualitas rather than West Village and the only party who stood to gain or lose was Qualitas. Dominion submits that this is clear from a number of unusual terms in the contracts between West Village and Qualitas,
including high interest rates, a $36 million exit fee payable by West Village and a clause limiting West Village’s liability to Qualitas.
Is Dominion’s interpretation untenable?
[52] Working through the terms of the Direct Payment Letter, cl 1(i) provides that Qualitas does not have any liability or obligation to pay Dominion except as provided for in cl 6(iv).
[53] Where no Withheld Payment Notice is issued (as is the case here) cl 6(iv)(c) provides that subject to “Qualitas not withdrawing the Development Facility in accordance with paragraph 5(i) and Qualitas being satisfied as outlined in paragraphs 5(ii), 5(iii) or 5(iv) inclusive, above” then Qualitas will pay the Progress Payment Drawdowns directly to Dominion and the Retentions Drawdowns into an agreed trust account.
[54] Qualitas agrees that it did not withdraw the Development Facility so cl 5(i) can be disregarded. Qualitas however says there was no drawdown request in respect of the amount claimed in Dominion’s first cause of action, the Amount Payable, prior to exhaustion or expiry of the Development Facility and so there is now no practical point in requesting Certification of the Amount Payable by Mr Mitchell so Qualitas cannot be obliged to do so. Because there is no Certification, Qualitas says it cannot therefore be satisfied with certification as required by cl 5(iii) and accordingly the conditions precedent for the drawdown cannot be satisfied as required by cl 5(iv). No amount can therefore be payable under cl 6(iv).
[55]There are a number of difficulties with this submission.
[56] Firstly, Qualitas’s evidence that the Facility was exhausted on 2 June 2021 and expired on 30 June 2021 is not accepted by Dominion. Dominion was not privy to the correspondence between Qualitas and West Village and says it needs discovery to establish exactly what the position was. Mr Lawlor from Qualitas has attached a letter to his affidavit purportedly evidencing expiry but it raises more questions than it answers. It records that as at the date of the letter, 1 June 2021, Qualitas offered to extend the termination date of the Facility Agreement to 30 June 2021 “and thereafter
on a month-by-month basis upon delivery in our sole discretion of a written extension notice.”
[57] In addition to the proposed extension of the termination date, the 1 June 2021 letter offers to amend the definition of the Facility Limit “to enable the Borrower to draw such further amounts under the Document solely to enable the Borrower to complete the Development.”
[58] Mr Lawlor’s evidence is that as at 2 June 2021, the “Facility Limit” under the Development Facility had been fully utilised. However it had only been extended by
$1,250,000 the previous day and there does not appear to be any other evidence corroborating that it was not extended further.
[59] In addition, Qualitas’ reference to the Development Facility having “expired” appears to be a reference to the termination date in the facility having passed. The termination date is the date on which West Village was required to repay all amounts outstanding according to cl 3 of the General Terms of the Facility Agreement. Presumably Qualitas is referring to the fact that the termination date has passed when it refers to the Facility expiring. I discuss in further detail below the effect of the termination date being reached which does not appear to equate with expiry of the Facility Agreement itself.
[60] In my view, questions remain as to whether the Facility expired on 30 June 2021 or was exhausted on 2 June 2021 so the underlying premises for Qualitas’ submissions in relation to the first cause of action are not necessarily established.
[61] In any event, there appears to be a clear argument that even if the Development Facility had expired or was exhausted these are not necessarily grounds for avoiding payment under cl 6(iv) of the Direct Payment Letter. It is clear that even where the Facility has been withdrawn (cl 5 (i)) or the Facility Agreement or Qualitas’ securities no longer remain in place (cl 5 (ii)), that Qualitas is still obliged to pay under cl 7. The obligation under the Direct Payment Letter to pay may also therefore continue once the facility has expired.
[62] The obligation to pay under cl 7 arises when a Withheld Payment Notice has been issued. The requirement to issue such a notice is provided for by cl 6(iii) when, either as a consequence of the Facility being withdrawn in accordance with cl 5(i) or the other conditions precedent in cl 5 not being satisfied (cls 5(ii), (iii) and (iv)), Qualitas determines not to make a payment to Dominion which would otherwise be made under the Direct Payment Letter. Therefore, even if the Development Facility has been withdrawn or is no longer in place, Qualitas is still required to issue a Withheld Payment Notice (and potentially pay Dominion pursuant to cl 7). It does not therefore follow that simply because the Facility has expired or is exhausted there can be no obligation to pay as Qualitas submits.
[63] Once a Withheld Payment Notice has been issued, cl 7 requires the QS appointed by Qualitas to prepare a Certification of the amount payable up to the date of the Withheld Payment Notice. A “Certification” is described in cl 4 as certification of “payments to be made pursuant to the Facility Agreement… in respect of costs properly incurred under the Construction Contract up to the date of the Certification on a cost-to-complete basis”. Clause 4 goes on to say that such Certification will identify the amount payable to the Contractor by the Borrower under the Construction Contract. Once Certification is completed, cl 7 requires Qualitas to pay:
…the lesser of the balance of the undrawn Allocated Sum (which for the avoidance of doubt, is less payments made by [Qualitas] under the terms of this letter or from drawings under the Development Facility paid to the contractor) and the amount certified for payment in the Certification.
[64] Clause 7 further provides that once Dominion is paid under cl 7, Qualitas has no further obligations to Dominion under the Direct Payment Letter.
[65] Finally cl 7 states that for the avoidance of doubt, the Certified Amount must be restricted to amounts properly payable under the Construction Contract up to the date of the Withheld Payment Notice on a cost-to-complete basis.
[66] Qualitas submits that the Development Facility must not have expired for amounts to be payable under cl 7 because cl 7 states that Qualitas will pay “as a drawdown under the Development Facility.” However, because the circumstances in which a Withheld Payment Notice is required to be issued include where the
Development Facility has been withdrawn or the Facility Agreement is no longer in place, there would appear to be a clear argument that the reference to the amount being paid “as a drawdown under the Development Facility” operates as a deeming provision. This interpretation is supported by the bracketed phrase after the reference to undrawn Allocated Sum in cl 7, referring to both amounts paid under the Direct Payment Letter or drawings under the Development Facility. At the end of the first paragraph in cl 7 it again repeats these two as alternatives, using the word “or”, suggesting that amounts could still be payable under the Direct Payment Letter when they are not payable under the Development Facility.
[67] In addition, there are acknowledgements and undertakings by both Dominion and West Village attached to the Direct Payment Letter that support the position that Qualitas may still be obliged to pay under the Direct Payment Letter even where the Development Facility has expired or been fully utilised. The acknowledgments were not referred to by counsel in submission but in paragraph [5] of West Village’s Acknowledgement and Authorisation (West Village’s Acknowledgements) West Village agrees to provide an indemnity extending to all amounts paid by Qualitas under the Direct Payment Letter and further agrees that amounts due under the indemnity are secured by the securities granted by West Village to Qualitas. Qualitas appears therefore to be protected not just in respect of amounts paid under the Development Facility but also further amounts only paid under the Direct Payment Letter, such as where the Development Facility is withdrawn or perhaps fully utilised.
[68] Paragraph [6] of West Village’s Acknowledgements appears to provide further support as it records that Qualitas is, subject to the terms of the Facility Agreement, entitled to maintain all of the securities held by Qualitas from West Village and related parties, with Qualitas not obliged to release those securities “(including in circumstances where the Borrower or any other person has repaid the Development Facility)” until the earlier of:
(a)payment having been made pursuant to cl 6(v) [sic] (presumably cl 7) of the Direct Payment Letter following the issue of a Withheld Payment Notice; and
(b)Dominion having confirmed to Qualitas that Qualitas has no further obligation to Dominion under the Direct Payment Letter and Qualitas being satisfied in its absolute discretion that is the case.
[69] Qualitas is therefore able to continue to hold the securities pursuant to the Direct Payment Letter even if the Facility Agreement has expired and even if the amounts owing by West Village have been repaid.
[70] I agree with Dominion that such an interpretation would not mean that Qualitas is obliged to extend the amount and term of the Development Facility to meet any payment claims. This is because Qualitas has the protection of cl 5 of the Direct Payment Letter which provides the ability to refuse to advance further funds if any of the situations in that clause arise. Qualitas’ submissions focussed on the pointlessness of seeking certification where the Facility had expired or was exhausted (cl 5(iii)) but presumably the fact that the facility had expired or was exhausted would mean cl 5(iv), the conditions precedent for the particular drawdown, could not be satisfied.
[71] As referred to above, cl 6(iii) of the Direct Payment Letter requires Qualitas to give a Withheld Payment Notice to Dominion at the same time as it gives notice to West Village in the event that, as a consequence of withdrawing the facility in accordance with cl 5(i), or cl 5(ii), (iii) or (iv) not having been satisfied, Qualitas determines not to make a payment which would otherwise be made to Dominion in terms of the Direct Payment Letter.
[72] Qualitas submits no such notice was required to be issued because the Amount Payable, as claimed in the statement of claim, is not a payment that would otherwise have been made to Dominion by Qualitas. But this submission appears to be circular.
[73] If the reason the payment would not have been made is one of the reasons set out in cl 5 then a Withheld Payment Notice must be required to be issued, because those are exactly the circumstances set out for the issue of such a notice in cl 6(iii). So there appears to be an argument that if the reason the payment would not otherwise be made is because the Development Facility has expired or is exhausted, which would appear to fall within cl 5(iv), then a Withheld Payment Notice needs to be issued.
[74] The reason the payment would not otherwise be made cannot be because the claim is not certifiable because the Amount Payable comprises amounts that have been found to be properly payable under the Construction Contract in adjudications and, until overturned by a court or arbitrator, an adjudication is binding.15 Qualitas did not give any other reason for why these amounts would not be payable. Effectively therefore it appears that on one interpretation, where amounts have been determined as being payable under the Construction Contract (as they have here in the adjudications) either a Withheld Payment Notice is required to be issued or payment is required to be made under cl 6(iv).
[75] Dominion submits that it is obvious why Qualitas did not issue a Withheld Payment Notice earlier; it wanted Dominion to keep going with construction of the Project and to complete it.
[76] If a Withheld Payment Notice is issued then whether Qualitas is required to pay Dominion in accordance with cl 7 will depend on the impact of the deletion of the definition of Allocated Sum. This is because the amount Qualitas would be required to pay is the difference between the undrawn Allocated Sum and the amount certified.
[77] Qualitas submits the only logical interpretation is that the Allocated Sum would at a maximum be the limit of the Development Facility.
[78] Counsel for Dominion questions how the amount of the Development Facility can have a bearing on the interpretation of the Direct Payment Letter when this amount was only within one party’s knowledge, referring to the classic principle of contractual interpretation that it is to ascertain the meaning to “a reasonable person having all the background knowledge which would reasonably have been available to the parties”.16
[79] Dominion says that Qualitas is asking the Court to find that there is an Allocated Sum despite its deletion by Qualitas and that it was a figure which Dominion
15 Construction Contracts Act 2002, ss 58-60 and 73; and Body Corporate 200012 v Keene QC
[2017] NZHC 2953, [2018] NZAR 120 at [81]-[83].
16 Investors Compensation Scheme v West Bromwich Building Society, above n 10, as accepted in
Bathurst Resources Ltd v L & M Coal Holdings Ltd, above n 10, at [62].
was not aware of, and which Dominion was never able to be provided with. Dominion says that is not commercially sensible.
[80] I agree with Dominion’s submission that it would have been simple to include the amount of the Development Facility as the Allocated Sum if that was what was intended. This may have created problems however as allocated sums are included to give comfort to a contractor that a certain amount will be available solely for that contractor of the total available under the facility between developer and financier. But if the only logical interpretation where it has been deleted is that the Allocated Sum must at a maximum be the limit of the Development Facility, which contractor has priority for that amount? And why would the number not increase if the Development Facility was extended, as it was in this case? Furthermore, if it is interpreted as being the limit of the facility then the notice mechanisms in the letter do not appear to operate in the way intended.
[81] I do not accept therefore that the only logical interpretation is that the Allocated Sum must still be interpreted as a certain figure in circumstances where the definition has been deleted or that it can only logically be no more than the limit of the Development Facility. If the Direct Payment Letter was interpreted without an Allocated Sum, Qualitas would not be required to pay more than what was properly payable under the Construction Contract and it would be protected by its ability to issue a Withheld Payment Notice when the limit of the Development Facility was reached.
[82] Counsel for Qualitas emphasised that when the Direct Payment Letter was entered into, Dominion was already obliged to complete construction under the Construction Contract entered into with West Village in December 2018. However, the terms of the Direct Payment Letter and Dominion’s Acknowledgement and Undertakings attached varied the terms of the Construction Contract agreed as expressly recorded in cl 1(ii) of the Direct Payment Letter.
[83] Counsel for Qualitas further cautioned against interpreting the Direct Payment Letter as an exercise in fairness. I agree that is not the task of contractual interpretation, but I do not consider that it is appropriate, particularly given the deletion
of the definition of Allocated Sum, to interpret the Direct Payment Letter and the obligations it creates without the full context in which it was agreed and in which it operated being before the Court. As the Court of Appeal held in Stephens v Barron, summary judgment will be inappropriate “where ultimate determination turns on a judgment able to be properly arrived at only after a full hearing of the evidence.”17
[84] In my view there is clearly an argument that Dominion’s interpretation is correct and the ultimate determination of that question requires a full hearing.
[85] How the Direct Payment Letter ought to be interpreted following the deletion of the definition of Allocated Sum may further impact on whether there were defaults while the Development Facility was operating, including as a result of which Qualitas ought to have issued a Withheld Payment Notice, or other breaches of obligation.
[86] Dominion submits that even if Qualitas is correct and there is no obligation to certify amounts claimed following expiry, Dominion does not accept that a drawdown request was not made prior to expiry. This is contrary to Qualitas’ submission that it is undisputed that the Amount Payable has never been the subject of a drawdown request.
[87] Mr Blanchard for Dominion submits that perhaps drawdown requests were not in the precise form required but cls 5(iii) and 5(iv) require Qualitas to act reasonably and this may mean that Qualitas could not reject a drawdown request that may have been more informal. Prior to this proceeding, Dominion was not aware of the Certification process set out in the Facility Agreement and nor was it privy to correspondence between West Village and Qualitas. Counsel for Dominion submits as an example that West Village’s request to Qualitas to approve the settlement payment of $3.8 million agreed at the mediation may amount to a drawdown request and there may be correspondence between West Village and Qualitas that shows this before 30 June 2021 as that amount was agreed in December 2020. I agree that discovery is required to determine the correct position.
17 Stephens v Barron, above n 3, at [9(b)].
[88] Furthermore, Dominion submits the Amount Payable is made up of amounts that have previously been the subject of payment claims. Mr Lawlor accepts in his evidence that the sums included in the Amounts Payable were identified in the last drawdown report, Drawdown 55, but says they were never certified for payment and consequently West Village has never sought to draw down the Development Facility to meet them. Dominion challenges the failure to certify these amounts on the basis that the engineer to the contract did not act fairly and independently. In any event, whilst those claims may not have been certified at the time, they have now been determined by an adjudicator to be payable. West Village has challenged one of the adjudications by way of judicial review but not the $2.3 million adjudication.
[89] The Direct Payment Letter does not expressly refer to how to manage the review upwards or downwards of an amount found to have been incorrectly certified following adjudication, arbitration or court proceedings. If an Allocated Sum had been included in the letter and that sum had not been fully drawn then it appears there is an argument that the reviewed amount would be payable as an amount properly incurred under the Construction Contract. Where there is no Allocated Sum, it will depend on the interpretation of the Direct Payment Letter and whether the limit of the Development Facility provides a cap. I have found above that there is a tenable argument that the limit does not provide a cap. This is therefore a question for the substantive hearing as reviewed amounts may be payable in place of the original rejection even if the Facility Agreement has expired and expiry does provide a basis for not paying because they relate to amounts incorrectly certified prior to expiry.
[90] Once the Direct Payment Letter is interpreted the Court may need to consider whether drawdown requests have been made or whether there has been default under the Development Facility requiring notice at an earlier stage. I refer in this regard, for example, to a letter from Qualitas on 19 March 2021, in response to a letter from Dominion on 16 March 2021 referring to Qualitas’ obligations to notify in cls 6(ii) and (iii), to which Qualitas said:
No obligation to notify was triggered. In any event, the obligation to notify under clauses 6(ii) and 6(iii) applies only to defaults which are likely to affect payments to the Contractor under the [Direct Payment Letter]. Once the allocated sum was exhausted, there was no question of any defaults having an effect.
[91] Whether this is correct obviously depends on whether the Allocated Sum ought to be interpreted as the limit of the original facility as Qualitas contends or whether the references to “Allocated Sum” should be deleted from the Direct Payment Letter as Dominion submits, essentially because no figure can appropriately be assigned to it. As I have held above, these are not matters that can be determined at this summary stage.
[92] One final point to note in relation to the first cause of action is that the obligation to pay under cl 1 of the Direct Payment Letter does not say it is subject to cl 7; it only refers to cl 6(iv). However, paragraph 4 of Dominion’s Acknowledgement and Undertakings attached to the Direct Payment Letter records that Dominion:
4.…acknowledges that [Qualitas] (except as provided in paragraphs 6(iv) and 7 of the Payments Letter) shall have no liability or obligation to [Dominion] to pay or perform [West Village’s] liabilities or obligations under the Construction Contract…
(emphasis added)
[93] Dominion’s Acknowledgements further include at [8] that Dominion agrees that if West Village is subject to any insolvency proceeding that would otherwise entitle Dominion to suspend work under, or terminate, the Construction Contract (including as a result of enforcement by Qualitas) (Insolvency Event), that Dominion will continue to perform its obligations under the Construction Contract for as long as all payments due by West Village to Dominion under the Construction Contract continue to be paid with an “Adjusted Clause 7 Process” set out for “IE payments” including for work undertaken after the Insolvency Event. Neither cl 1(i) of the Direct Payment Letter or [4] of Dominion’s Acknowledgements expressly refer to [8] of the same acknowledgements but it would appear Qualitas would have an obligation to pay under [8] as well.
[94] If cl 1(i) of the Direct Payment Letter is not subject to cl 7 or to [8] of Dominion’s Acknowledgements, it would mean that the payment mechanisms carefully set out in cl 7 and [8] are ineffective as any obligation to pay would be cancelled or at least contradicted by cl 1. This does not appear to be a workable interpretation.
[95] Counsel for Qualitas submits that the issues with cl 7 may be moot as cl 7 is not relied on by Dominion in its pleading. However, as recorded in Stephens v Barron, if there is a tenable argument available for the plaintiff, even if not expressly pleaded, it is proper for the Court to invoke its residual discretion to refuse summary judgment if the plaintiff would otherwise be prevented from exercising its right to amend its pleading.
[96] I emphasise that I consider that the interpretation of cl 6(iv) put forward by Dominion is tenable so it is not a matter of the pleading being required to be amended before the claim can progress. However further amendment may be appropriate following discovery if Dominion wishes to rely on breaches of obligations owing by Qualitas under the Direct Payment Letter, other than non-payment under cl 6(iv) and in respect of Mr Mitchell.
[97] Qualitas has not therefore established that Dominion will be unable to succeed in its first cause of action.
Second cause of action — failure to appoint Stuart Mitchell
[98] In its second cause of action, Dominion pleads that Qualitas breached cl 4 of the Direct Payment Letter by failing to appoint Mr Mitchell as the QS or alternatively ensure that he properly fulfilled his functions. Either way, Dominion alleges the breach resulted in a failure to certify the Amount Payable which would then have been payable by Qualitas under cl 6(iv). Dominion relies on an email from Mr Mitchell to Mr Paul O’Brien of Dominion dated 14 September 2021, confirming that his appointment on the project was “via ANZ, whilst we copied Qualitas on our drawdown reports, at no stage were we appointed by them”.
[99] Earlier in the same email chain, on 13 September 2021, Mr Mitchell advised Mr O’Brien that:
Just for your information I haven’t had an ongoing role in the project since ANZ were repaid some months prior.
[100] Mr Lawlor for Qualitas says that he does not agree that Mr Mitchell was not appointed by Qualitas but his evidence in relation to his appointment is then carefully worded, saying:
From the time of the A & R Facility Agreement until its expiry on 30 June 2021, Mr Mitchell performed the role as ANZ’s and the Lender’s quantity surveyor.
[101] Qualitas submits that even if not formally appointed, Mr Mitchell was in substance fulfilling the role contemplated by cl 4 of the Direct Payment Letter.
[102] Mr Lawlor refers in his affidavit to a number of drawdown reports which record that they were prepared for ANZ and Qualitas.
[103] The last drawdown report prepared by Mr Mitchell was dated 20 May 2021 and records that it was in respect of the payment claim issued on 30 April 2021. That report was the final report prepared before repayment of ANZ. It is not clear from the evidence what happened after that date. The adjudication decision dated 3 September 2021 was in respect of the payment claim issued by Dominion on 30 June 2021 claiming $12,456,620.28 including GST. This claim was made on the day that Qualitas says the Development Facility expired. The adjudicator found West Village liable for the whole of this amount on the basis that the payment schedule issued in response did not meet the requirements of s 21(3) of the Construction Contracts Act and was thus invalid. If a payment claim was also issued on 30 May 2021 then Qualitas may be in breach for not having the claim certified as that would have been prior to expiry of the Facility.
[104] Mr Lawlor’s evidence for Qualitas is that the issuing of any payment claim by Dominion led to the preparation of a “progress payment recommendation” by West Village’s quantity surveyors. This was then provided to the engineer to the contract and copied to Kingstons (Mr Mitchell’s QS firm), West Village and Dominion. The engineer would then provide a payment schedule responding to the payment claim certifying the amounts which the engineer considered were properly due and payable.
[105] Mr Lawlor’s evidence further explains that separately to the engineer providing a payment schedule, West Village would provide Kingstons, Qualitas and ANZ with
its drawdown schedule for a particular month pursuant to a “Drawing Notice”. The drawdown schedule would set out the details of West Village’s entire costs for that period (including both construction and other development costs) needing funding from drawdowns under the Qualitas and ANZ Facilities. Mr Lawlor’s evidence is that following review, preparation of a drawdown report, the issue of a cost-to-complete certificate and other recommendations by Mr Mitchell, West Village “would then issue a ‘Drawing Notice’ under the Development Facility”.
[106] Counsel for Dominion questions this process, particularly the inconsistency in a “Drawing Notice” being issued by West Village prior to Mr Mitchell preparing the drawdown report and then apparently afterwards as well. Dominion was not privy to any of this process and says it does not know what drawdown requests were made or whether they included any amounts included in the Amount Payable.
[107] I record that Mr Lawlor does accept that sums included in the Amount Payable were identified in the last drawdown report, Drawdown 55, but Dominion does not know the steps taken in respect of those amounts or how those amounts were treated.
[108] I am satisfied that the extent to which Mr Mitchell was validly certifying payments is disputed and is not clear on the evidence filed. These factual disputes render these issues unsuitable for resolution on a summary basis. Discovery and further evidence, including from Mr Mitchell, is required before determining these issues.
Third and fourth causes of action — misrepresentation under the Contract and Commercial Law Act 2017 and breach of cl 6(i) of the Direct Payment Letter
[109] These claims are closely related to the second cause of action. The third cause of action alleges that Qualitas represented to Dominion that it had appointed Mr Mitchell as the QS under cl 4 of the Direct Payment Letter, and that this was a misrepresentation as Mr Mitchell was never actually appointed. The fourth cause of action alleges that, in the event that Mr Mitchell was appointed under cl 4 (which is denied), then Qualitas is liable for damages for failing to ensure that Mr Mitchell carried out his Certifications in a timely manner in breach of cl 6(i) of the Direct Payment Letter.
[110] These claims depend on whether Mr Mitchell was appointed, as required under the Direct Payment Letter, and whether Qualitas can rely on the expiry or exhaustion of the Facility Agreement as a reason for not requiring Mr Mitchell to certify payment claims. As stated above, these issues are unable to be determined in this summary judgment application. In addition, the facts in terms of what payments Mr Mitchell was asked to certify and when are disputed and would need to be determined which cannot be done on the basis of the evidence filed. As a result, Qualitas is unable to establish that the third and fourth causes of action are clearly untenable.
Fifth cause of action — misleading and deceptive conduct under the FTA
[111] Dominion’s fifth cause of action alleges that Qualitas’ failure to advise that there was insufficient funding to ensure it would be paid amounts to misleading and deceptive conduct in breach of s 9 of the FTA. This cause of action is pleaded in the alternative and so is only relied on if Qualitas is not obliged to pay under the Direct Payment Letter.
Principles applying to determining liability for misleading or deceptive conduct
[112] In Red Eagle Corp Ltd v Ellis, the Supreme Court set out a two-stage approach for determining liability for misleading or deceptive conduct under ss 9 and 43 of the FTA:18
(a)First, the Court must ask whether a reasonable person in the claimant’s situation — that is, with the characteristics known to the defendant or of which the defendant ought to have been aware — would likely have been misled or deceived. If yes, a breach of s 9 is established. It is not necessary under s 9 to prove that the defendant’s conduct actually misled or deceived the particular plaintiff or anyone else.19
(b)Second, if a breach of s 9 is established, the Court must assess whether it is proved that the claimant has suffered loss or damage by the conduct
18 Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492.
19 At [28].
of the defendant.20 The Court must first ask itself whether the particular claimant was actually misled or deceived by the defendant’s conduct, and if the Court takes that view, it must then ask whether the defendant’s conduct in breach of s 9 was an operating cause of the claimant’s loss or damage. It does not have to be the sole cause, but it must be an effective cause.
[113] The Supreme Court recognised that another “operating cause” of loss or damage may be the claimant’s own conduct in failing to take reasonable care to look after its own interests but held that the fact that the claimant may have contributed to its loss does not disqualify a claim. The Supreme Court instead said that the question for the Court is “whether the claimant’s carelessness, if there were any, should be regarded as the sole or a contributory cause of the loss.”21
Misleading or deceptive conduct?
[114] Dominion acknowledges that there is no express statement in the correspondence that precisely mirrors the representation pleaded in the amended statement of claim “that sufficient funding was available to enable West Village to meet its obligations to Dominion under the Construction Contract”.22 However, Dominion’s case is that the correspondence, taken as a whole, and together with Qualitas’ oral statements and conduct in the period from July 2019 onwards, was likely to convey that meaning to Dominion.
[115] The relevant background, in Dominion’s submission, includes meetings in July 2019 where Qualitas said it would partner with Dominion to complete the Project.
[116]The particular emails which Dominion relies on include:
(a)An email on 19 September 2019, where Mr Lawlor stated that “[Dominion] should be able to take comfort from the capital position of ANZ and Qualitas (a $3bn funds management business, with the
20 Red Eagle Corp Ltd v Ellis, above n 18, at [29].
21 At [30].
22 Amended Statement of Claim dated 15 December 2022 at [63].
specific fund investing in Union Green being a $300m unlevered equity fund)”. Mr Lawlor went on to emphasise “the consequences on the Qualitas investment for failure to pay by the Principal” and “the fact that ANZ are funding the project on a cost to complete basis – including all payments under the construction contract”.
(b)An email on 24 September 2019, where Mr Lawlor stated that “the fact that both the ANZ and ourselves are funding the project on a cost to complete basis should give you the comfort you need?!”.
(c)An email on 26 September 2019, where Mr Lawlor referred to “the project budget being fully funded on the basis of the funding arrangements in place” together with references to Qualitas’ “track record in ensuring creditors are paid as and when they fall due”; “the reputational damage to Qualitas if [it] were not to settle bills on time”; and the nature of Qualitas’ investment which was “(effectively equity risk) in the project and the requirement for a smooth completion of the project to ensure repayment of that investment”.
[117] In addition, Dominion’s evidence is that there were other meetings at the relevant time. These are supported by contemporaneous documents showing Qualitas representatives organising site visits. Mr Hall states in his second affidavit for Dominion:
The clear impression that I was left with after these meetings, supported by the correspondence ... was that there would be sufficient funding in place for Dominion to be paid in full for its work under the Construction Contract.
[118] Dominion also relies on the letter of comfort provided by Qualitas to Dominion in October 2019 which stated:
Kingston Partners Limited (the project quantity surveyor) has certified in its report dated 18 September 2019 that following the recommended drawdown, the principal remaining to be drawn under the ANZ Facility is sufficient to cover the Principal’s payment obligations to the Contractor under the Construction Contract (provided the payment obligations do not exceed the current cost-to-complete budget for the Project).
[119] Qualitas correctly submits that the letter of comfort does not make any representation as to the funding that Qualitas would provide.
[120] In Dominion’s submission, however, the letter indicated that ANZ alone, without any funding from Qualitas, would be providing sufficient funds to meet the then current cost-to-complete. Dominion’s position is that this meant Qualitas was there to pay any further amounts if the cost-to-complete increased, with Mr Russell stating in his second affidavit:
…The Qualitas facility would then be available to cover any amounts payable to Dominion under the Construction Contract which were not covered by the ANZ Facility. As I have said, Dominion was still learning about the Project and was not in control of the design. Qualitas was well aware of that. There was therefore a likelihood that the amounts payable under the Construction Contract would increase. If such cost increases occurred and the ANZ facility did not cover them, then I understood that Qualitas would fund them.
[121] Dominion submits that the context in which the letter of comfort was issued is relevant as the letter of comfort was provided to persuade Dominion to accept Qualitas’ suggested amendments to the bond arrangements which were in place at that time. Dominion says that had the bond remained in place, Dominion would be
$1.3 million better off.
[122] Taken together with everything that came before it, Dominion says the letter of comfort provides further support for its claim that Qualitas represented sufficient funding was in place.
[123] Dominion submits that it is clear by reference to the Drawdown Reports by Kingstons that have now been made available in the context of this application, that the funding situation changed in approximately February 2020. The key report, in Dominion’s submission, Drawdown Report 40 (dated 23 February 2020), stated that the remaining unallocated contingency value (1.5 per cent of the construction cost-to- complete) was below what would be considered a reasonable level to complete the Project, and that this would be left to ANZ, Qualitas and West Village to sort out. Dominion refers to several further examples from the Drawdown Reports which it says indicate serious issues around the funding of the Project throughout 2020 and early 2021. Dominion submits that it is only through these proceedings that Dominion
received the Drawdown Reports, enabling it to amend its statement of claim to add the fifth cause of action and that the discovery process is likely to reveal further evidence in relation to the funding and certification situation.
[124] Dominion agrees that Mr Lawlor (or any other representative of Qualitas) did not explicitly say that sufficient funding was available from ANZ or Qualitas to enable West Village to meet its obligations to Dominion under the Construction Contract “whatever those might ultimately be”, nor is Dominion claiming that the FTA provides Dominion with an effective guarantee under which Qualitas would be liable in any circumstances to pay whatever costs turned out to be payable. Dominion’s submission instead is that it was highly misleading and deceptive for Qualitas to stay silent when it had become apparent that insufficient funds were available; all Qualitas needed to do to avoid liability under the FTA was to warn Dominion that the position had changed. It did not do so despite knowing that Dominion was continuing to do work that it would not be paid for. In Dominion’s submission, Qualitas’ misleading and deceptive conduct included allowing the mediation to proceed despite it apparently being clear at that point that there was insufficient funding for any settlement sum.
[125] Qualitas responds that allegations of misleading conduct ought to be approached sceptically in the context of two well-resourced commercial entities familiar with the legal structures of large commercial building projects and represented by corporate counsel who have negotiated and concluded sophisticated contractual arrangements (for example, the Direct Payment Letter and Side Deed). Those parties must be taken to know the extent and nature of their rights and obligations.
[126]Qualitas further submits a sceptical approach is warranted by:
(a)these allegations only being included after Qualitas’ statement of defence and application for summary judgment were filed;
(b)the correspondence listed in paragraph 31 of the amended claim does no more (on any objective view) than offer an assurance that there is sufficient funding from ANZ to meet the budgeted cost-to-complete the Project at that time; and
(c)further allegations in the second affidavit of Mr Hall dated 21 March 2023, but not pleaded in Dominion's amended statement of claim, that “Qualitas” assured him that Dominion would be “ok” in respect of getting paid in full are insufficiently particular to be reasonably relied on by a commercial party such as Dominion, and in any event are vague as to meaning and as to when and by whom they were made.
[127] Qualitas maintains it did not have a ‘duty to warn’ Dominion if there was insufficient funding, but Dominion says that this does not address the fact that a failure to correct a representation which ceases to be true is capable of being a misrepresentation, referring to the Court of Appeal’s decision in Official Assignee v Kingston Developments Group Ltd.23 Although that decision was not made in the context of an FTA claim, Dominion submits that similar principles ought to apply here as Dominion says its expectation was that if the funding situation changed, Qualitas would inform them.
[128] Qualitas submits in response that an allegation of misleading silence requires a reasonable expectation that, in context, something ought to have been said to correct an otherwise misleading impression. Qualitas says that Dominion was well aware from at least the point of signing the Direct Payment Letter that it was not privy to confidential information including the price Qualitas paid to Twenty Twenty and the terms of the Development Facility, including the amount of the facility and termination date. Qualitas further relies on its obligations of confidentiality to its client West Village and says it is not entitled, let alone obliged, to pass on such information to Dominion. Qualitas’ position is that Dominion’s Construction Contract was with West Village and it was West Village who had the obligation to meet Dominion’s costs. Qualitas says the issue of sufficiency of funds to complete the project was a matter for Dominion to address with West Village and its directors, not Qualitas.
[129] There are difficulties with Qualitas’ submissions. The first is that there are issues in terms of the contractual arrangements arising from the failure to define the Allocated Sum, or to remove references to it in the Direct Payment Letter. Despite the
23 Official Assignee v Kingston Developments Group Ltd [2016] NZCA 415, (2016) 17 NZCPR 531 at [114]–[128].
parties being sophisticated commercial parties, the contractual position does not therefore appear to be clear.
[130] More importantly, the Direct Payment Letter itself, to which Qualitas was a party, appears to have included obligations on Qualitas to notify likely delays in payment or an insufficiency of funds in certain circumstances and for Dominion to continue working even if West Village was insolvent. As discussed above, Qualitas clearly had the ability under the Direct Payment Letter to stop ongoing payments if there were insufficient funds to pay Dominion by issuing a Withheld Payment Notice. It is not therefore correct to say that the issue of sufficiency of funds was a matter between West Village and Dominion but not Qualitas. Whether an obligation to notify arose under the Direct Payment Letter in these circumstances is still to be determined. The FTA claim is pleaded in the alternative and so may not require consideration if the Direct Payment Letter is interpreted as including such an obligation. However, even if not, the terms of the Direct Payment Letter are likely to be relevant context in considering the FTA claim.
[131] Furthermore, as Dominion submits, although the letter of comfort refers only to funding by ANZ and not by Qualitas, it appears arguable that it would have provided comfort to Dominion given that the letter confirmed that sufficient funding was available to meet the current budgeted cost-to-complete from ANZ alone.
[132] Mr Lawlor deposes in his second affidavit that the Qualitas facility had already been committed except for limited contingency amounts at the time the letter of comfort was issued. This is not something Dominion says it was aware of at the time. This appears to be supported by the correspondence leading up to the issue of the letter of comfort. It is worth considering some of this correspondence as it helps to understand the context in which the letter of comfort was issued.
[133] The letter of comfort was issued because Qualitas wanted to vary the construction contract in terms of the requirements for a bond as referred to above. Dominion agreed to the proposed variation “subject to securing West Village’s payment obligations to Dominion under the final payment schedule (post completion)”. Dominion said a letter of comfort from Qualitas “noting the
[cost-to-complete] budget and credit available to the Principal” would be sufficient and Mr Lawlor responded:
Subject to the principal’s consent we can seek to provide you with copies of the financing arrangements which demonstrate the current project budget (incl contingency) are fully provisioned for. As you would be aware, the ANZ would not recommence their funding unless the project budget is full funded by their capital which Kingstons have confirmed in their latest PCG report.
[134] Dominion repeated its request for a letter of comfort and Mr Lawlor then suggested, again subject to West Village’s consent, that Qualitas could provide a letter of comfort setting out:
·The project budget as assessed by Kingstons
·Description of the senior and mezzanine funding arrangements, which will outline in line with the QS reporting that the Project Budget is fully funded.
It will set out the factual basis on which the project is funded and reliance will extend on this element only.
[135] Suggested wording was then exchanged and agreed, with Dominion asking for and receiving confirmation of the cost-to-complete budget. Next Dominion appears to have sent the executed form of agreed variation in respect of the bond in advance of receiving the signed letter of comfort from Qualitas, on Qualitas’ undertaking to provide it. Mr Lawlor then advised that Qualitas’ directors required two amendments to the letter of comfort and asked Dominion to advise whether either posed concern. Dominion did not respond initially and Qualitas sent through an executed version with the amendments made. Dominion then responded saying that they were not satisfied with the wording of the amended letter, that it was not what Dominion had agreed and “suggests that Qualitas may be aware of circumstances that jeopardise the ongoing funding of the project”. Dominion further pointed out that the amendment to the second clause did not make sense and asked for a signed copy of the letter agreed. After Dominion followed up for the letter agreed, Mr Lawlor from Qualitas replied:
As part of the drawdown process this month, I will seek to wrap both the ANZ and the Principal into the confirmation letter, given you are seeking for our Directors to confirm on behalf of both these entities (ie as to continued compliance etc). I assume this will be satisfactory to you?
[136] Dominion’s evidence is that a copy of the confirmation letter proposed was never provided.
[137] A question arises as to whether the above correspondence correctly represents the position if the Qualitas facility was fully committed (except for limited contingencies) at the time the letter of comfort was issued, as Mr Lawlor now says. Furthermore, it appears surprising that Mr Lawlor says in his second affidavit that he does not accept that Qualitas had any obligation to engage with Dominion in relation to West Village’s funding given the correspondence referred to above, in addition to the notice obligations under the Direct Payment Letter.
[138] As recorded above, summary judgment is often inappropriate in respect of claims under the FTA.24 This is particularly so in the present case where the Direct Payment Letter is not able to be interpreted in the context of a summary judgment application and the Direct Payment Letter (properly interpreted) provides relevant context for the FTA claim.
[139] Dominion’s claim also relies in part on oral representations and the correspondence and actions taken in respect of the Direct Payment Letter and the letter of comfort are not fully before the Court. Although there is some contemporaneous documentation available, discovery and further evidence are clearly necessary including potentially cross-examination at trial.
Reliance and loss?
[140] In addition, Qualitas seeks summary judgment on the fifth cause of action on the basis that even if there were misrepresentations or misleading silence (which Qualitas denies) Dominion has not shown any reliance and/or loss. As set out in Red Eagle Corp Ltd v Ellis, loss or damage suffered by the claimant by the conduct of the defendant is the second step in determining liability under the FTA.25
[141] Dominion has provided some evidence of both reliance and loss, and I accept its submission that discovery may provide further evidence of this. Dominion’s
24 Luxottica Retail New Zealand Ltd v Specsavers New Zealand Ltd, above n 9.
25 Red Eagle Corp Ltd v Ellis, above n 18, at [29].
evidence is that it would have acted differently if it knew there was insufficient funding to ensure it would be paid for its work, with Dominion providing examples of legal and commercial options that were available to Dominion.
[142] For the purposes of this summary judgment application, it is not necessary to engage in a detailed analysis of these options. I accept that it is arguable that a failure by Qualitas to advise Dominion of the funding situation may mean that Dominion lost the opportunity to take steps to prevent the subsequent costs it incurred in completing the Project.
[143] In my view discovery is necessary in order for Dominion’s FTA claim to be fully determined.
[144] I am not therefore satisfied, to the standard required for defendant summary judgment, that Dominion’s fifth cause of action cannot succeed.
Post-hearing strike-out application
[145] Following the hearing, a memorandum was filed on behalf of the defendant acknowledging that the Court may only give summary judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action can succeed. Counsel for Qualitas asked that if the position was reached that one or more of the causes of action are tenable while others are not, that the causes of action that are not tenable are struck out (as summary judgment of Qualitas’ defence would not then be available). Dominion filed a memorandum in response opposing this request and recording that it would have approached its submissions (and potentially its evidence) differently if Qualitas’ application had included an application for strike out.
[146] I have reached the view that all five causes of action are tenable on the basis of the evidence filed in this application. There is therefore no need to determine the defendant’s request.
Result
[147]The application by the defendant for summary judgment is declined.
Costs
[148] I did not hear from the parties on costs. The usual position in a plaintiff’s summary judgment application is that costs are reserved in accordance with the principle in NZI Bank v Philpott.26 The position on a defendant’s unsuccessful application is not however settled.27 For the assistance of counsel I indicate my preliminary view that this was not an appropriate case for a summary judgment application by the defendant and so costs ought to be awarded now in favour of the plaintiff. I ask the parties to confer and only if costs cannot be agreed to file memoranda, on behalf of the plaintiff within 25 working days and the defendant within a further 10 working days.
Associate Judge Sussock
26 NZI Bank v Philpott [1990] 2 NZLR 403 (CA).
27 McGechan on Procedure (Thomson Reuters, online ed) at [HR 14.8.05].
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