Glanz v JL Management Limited

[2020] NZHC 342

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV 2018-419-0181

[2020] NZHC 342

UNDER

s 94A Judicature Act 1908, s 74A Property Law Act 2007 and the Fair Trading Act 1986

IN THE MATTER

of a building contract

BETWEEN

RUSSELL and ROBYNNE GLANZ

Plaintiffs

AND

JL MANAGEMENT LIMITED

First Defendant

JOHN RICHARD LLOYD

Second Defendant

Hearing

21 August 2019

Appearances:

MJ Matthew for the Plaintiffs

No appearance for the First Defendant Mr Lloyd in person

Judgment:

2 March 2020

JUDGMENT OF ASSOCIATE JUDGE SMITH

This judgment was delivered by me on 2 March 2020 at 3pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors / Counsel:

Rennie Cox, Auckland, J. Cox ([email protected]) Purnell Law, Thames, D. Quinn ([email protected]

Copy to: Mr J. Lloyd

Glanz v JL Management Ltd [2020] NZHC 342 [2 March 2020]

[1]    The plaintiffs apply for summary judgment against the defendants, on the basis of an amended statement of claim dated 11 December 2018. They also apply for summary judgment on a counterclaim filed by the first defendant (JLM). The summary judgment application was not made within the time allowed under the High Court Rules 2016, but on 11 February 2019 I made an order by consent granting the plaintiffs leave to file the application.

[2]    The defendants were initially represented by Mr Damian Quinn, solicitor, but on the eve of the hearing of the summary judgment application Mr Quinn made an application for leave to withdraw. The second defendant, Mr Lloyd, who is the director of JLM, had withdrawn instructions to Mr Quinn on behalf of both defendants, and Mr Lloyd had taken the necessary steps to advise the Court and the plaintiffs that he would be acting for himself in the proceeding.

[3]    I heard from counsel and Mr Lloyd by telephone conference on 20 August 2019, and at the commencement of the hearing on 21 August 2019 I made an order declaring that Mr Quinn was no longer solicitor on record for JLM. The hearing proceeded, with Mr Lloyd representing himself and JLM unrepresented.1

Summary of the dispute

[4]    This is a building dispute. JLM agreed to act as project manager for the plaintiffs, arranging the construction of a luxury residence for them at Tairua. JLM would arrange for and pay the builder and other contractors and suppliers, and it would charge a project management fee for its own services. It would not add any mark-up to the invoices it received from the builder, contractors and suppliers.

[5]    The parties agreed on a fixed price of $1,240,350.58 for the contract, including JLM’s project management fees. For that price, JLM would arrange for the completion of the house to a “closed in, habitable and consented standard”. JLM would send progress payment claims to the plaintiffs on a monthly basis.

1      Under r 7.40(1)(a) of the High Court Rules, the Court may elect to proceed and determine an interlocutory application if a party fails to appear.

[6]    There were extensive variations agreed in the course of the work, and the plaintiffs accept that $429,585.49 was properly claimable by JLM for extras. By mid- 2017 they had paid JLM a total of $1,624,232.84 for the work, including $424,128.49 for extras. They had also paid a sum a little in excess of $5,000 direct to one of JLM’s suppliers.

[7]    There were extensive delays with the building work, caused in substantial part by the variations instructed by the plaintiffs. But the plaintiffs, who reside in South Africa, also became concerned that JLM had been charging them for work that had not been done on the project, or had applied payments made by them on invoices for particular cost items, to other items. They formed the view that JLM had been overcharging them throughout, and that its progress claims had been misleading and deceptive. When they eventually obtained copies of the builder’s, contractors’ and suppliers’ invoices rendered to JLM, they concluded that JLM had charged them

$301,399.86 more than the combined total of (i) the invoices it had received from the builder, contractors and suppliers, and (ii) the project management fees it was entitled to charge.

[8]    The plaintiffs wrote, cancelling the contract on 12 October 2017. The cancellation was rejected by JLM as a wrongful repudiation of the contract, and on 27 October 2017 JLM relied on the alleged repudiation as a ground for cancelling the contract itself.

[9]    At the time the contract came to an end in October 2018, the construction work was far from complete. The plaintiffs estimate that it will cost approximately $475,000 to get the work to practical completion stage. Mr Lloyd puts the figure closer to

$265,000. Both parties acknowledge that assessing the costs to complete is not a matter suitable for determination on a summary judgment application.

[10]   The plaintiffs say, however, that there are parts of their claims against JLM and Mr Lloyd that are relatively simple, and which can be dealt with on a summary judgment application. In short, they say that JLM and Mr Lloyd should be required to refund the $301,399.86 they have paid that JLM was not entitled to charge. They say that JLM is liable for that sum either in breach of contract, or on a claim for recovery

of money paid under a mistake of fact. In addition, they say that JLM, and Mr Lloyd as its director, acted, in trade, in a manner that was misleading or deceptive, contrary to s 9 of the Fair Trading Act 1986 (the FTA), in submitting progress claims that did not fairly reflect work that had been done on the house (or at least was expected to be done within the near future). They say that misleading or deceptive conduct has caused them loss equivalent to the amount overpaid, and that JLM and Mr Lloyd can have no defence to their claims.

[11]   In addition to the $301,399.86, the plaintiffs seek summary judgment for the further sum of $20,000.00, paid by them to JLM after the contract was cancelled. They say the payment was intended to be made direct to a window supplier, but was mistakenly sent to JLM.

[12]   JLM and Mr Lloyd have denied liability. Very broadly, they say that in a fixed price contract such as this, JLM was entitled to make such progress payment claims as it saw fit, having regard (among other things) to its cashflow requirements. What JLM may have been billed by its contractors and suppliers was not the plaintiffs’ concern. They deny that JLM was guilty of unreasonable delays, and deny that the plaintiffs were entitled to cancel the contract on any other basis.

[13]   JLM and Mr Lloyd deny that the plaintiffs have suffered the loss they are claiming, saying that, on the plaintiffs’ own case, JLM must have been holding approximately $209,000 with which it could have paid for most of the estimated

$265,000 required to get the house completed to the contract standard.

[14]   The defendants deny liability for the additional $20,000 mistakenly paid by the plaintiffs after the cancellation. They say JLM paid that sum on to the window supplier, and the money has thus gone to the destination intended by the plaintiffs.

Background

[15]The plaintiffs reside in Cape Town.

[16]   In or about 2004, they acquired a section of land comprising approximately 6,600 square metres at Sailors Grave Road, Tairua, New Zealand (the property). They

intended to move to New Zealand and live on the property, once they had arranged for the construction of a “dream home” on it.

[17]   Mr Lloyd lived near the property, and in 2011 he approached the plaintiffs on behalf of JLM to project manage the design and construction of a “high spec” home on the property. Mr Glanz stated that Mr Lloyd held himself out as being skilled in project management work involving the design and construction of quality houses.

[18]   In the period between 2011 and 2013, JLM provided various project management and design services for the plaintiffs. It engaged and liaised with contractors, and it obtained quotes to build the house on the property. Mrs Glanz prepared initial designs for the house, and an architect was then retained to modify the designs to meet the requirements of the New Zealand Building Code. From time to time JLM issued invoices for the services. The invoices included JLM’s project management fees, and invoices from the various subcontractors.

[19]   The arrangement between the parties was initially informal, but a written contract was entered into by the plaintiffs and JLM on 1 December 2014. By then, the plaintiffs had paid JLM a total of $34,104.50 for project manager’s fees and

$60,212.93 for architects’ and engineering services.

The written contract

[20]   On 1 December 2014 Mr Lloyd sent an email to Mr Glanz attaching six pages of a 56 page proposed contract document. Mr Lloyd said that the remainder of the document dealt with governance matters. He suggested that the parties sign off on the whole contract document in February 2015, when the plaintiffs would be in New Zealand. In the meantime, he asked the plaintiffs to sign, initial and return all of the pages sent to them.

[21]   Mr Lloyd also included a cover letter, which set out the proposed scope of the project. He said the cover letter would form part of the contract, and that it would take precedence over the approved plans and specifications for the house.

[22]   The cover letter was written on JLM letterhead. It stated that the contract would be governed by the New Zealand standard construction contract terms known as NZS 3902:2004.2

[23]On the scope of the contract, Mr Lloyd said in the cover letter that:

… at this stage the contract reflects the work to have the –

House closed in to Habitable and Consented standard building

Underfloor (in concrete), heating to Ensuite and Guest Ensuite and Kitchen Fireplace, block work and Hearth

Polished Concrete Floors to all rooms including Gallery Gas Fire supplied and installed

Front Deck Complete Soffits lined

Ceilings – “A” Grade Plywood Ceiling Insulation included Floor Insulation included

Garage Door installed – Cedar over Metal Frame

Interior Doors installed – Solid Paint Quality allowed for. Timber solid door to be chosen in February

Complete plumbing and Drainage Reticulation

Exposed aggregate Concrete Drive to match existing – Allowance $6,000 Internal Door Hardware Allowance - $500

Fire pit construction and Seating Project Management Fee

[24]   JML proposed that the contract would be a fixed price contract. It would carry out the agreed work, in accordance with the above details and as per the plans and specifications approved for a Building Consent, for the total sum of $1,240,350.88 (GST inclusive).

[25]   The six pages from NZS 3902:2004 included a nomination of the plaintiffs as owner, and of JLM as builder. The start date for the work would be 7 December 2014, and (apart from any time extensions that might be granted) the practical completion

2      The six pages of contract terms that were attached were pages 14 - 19 from NZS 3902:2004.

date would be 12 months from the date on which the building work actually commenced.

[26]   The six pages from NZS 3902:2004 also included section 3G, dealing with payments. Mr Lloyd completed this section by providing for a deposit ($124,035.01), and monthly payment claims at regular times thereafter.

[27]   One of the payment options in section 3G which Mr Lloyd did not select, was an option under which the builder would make progress claims at particular identified stages during the construction work (for example, on substantial completion of the foundations and floor structure, on substantial completion of all wall and roof framing, on completion of the exterior wall claddings and/or veneers, and so on).

[28]   Finally, the contract documents submitted by Mr Lloyd on 1 December 2014 contained a breakdown of the $1,240,340.88 fixed price, divided under the headings “Architect” (an apparent reference to JLM), and “Main Supplier”. The price breakdown detailed the work and materials to be supplied by the Main Supplier (total cost $240,217.43), and by the various subtrades ($902,101.54). The balance of the total fixed price was made up of JLM’s project management fee of $91,871.92, and minor “overheads” totalling $70, and “allowances” of $6,000.

[29]   The plaintiffs signed and initialled the contract documents sent to them by  Mr Lloyd on 1 December 2014, and sent the documents back to Mr Lloyd the same day.

[30]   There is a dispute between the parties over whether the full terms of NZS 3902:2004 formed part of the contract. The defendants say that they did. The plaintiffs say they only ever saw the six pages of NZS 3902:2004 sent to them by Mr Lloyd, and they cannot be contractually bound by terms of which they did not have proper notice.

[31]   There is also a dispute between the parties as to whether payments made by the plaintiffs to JLM for project management work prior to the making of the contract on 1 December 2014 (total paid $34,104.50) were to be credited against the $91,871.92 component of the fixed price that was allowed for JLM project management fees. The

plaintiffs say that was agreed, relying in part on an email Mr Lloyd had sent them on 15 December 2011. Mr Lloyd denies that there was any such agreement.

[32]   In the end, that is not a dispute I need to resolve on this application. In their calculation of the $301,399.86 they claim under the contract, the plaintiffs have, for the purposes of their summary judgment application only, credited JLM with all project management fees invoices rendered by it including the $34,104.50 for pre- contract project management work, $32,466.21 for project management fees (calculated at eight per cent) on work carried out under the contract, and $27,746.72 for project management fees (calculated at seven per cent under a separate agreement between the parties) on agreed extras.

Work under the contract

[33]   As the work on the contract progressed, a significant amount of extra work was agreed and carried out. The total amount billed by JLM for this extra work was

$429,585.49, including the agreed management fee of seven per cent on the total value of the extras (as invoiced to JLM by the relevant subcontractors and/or suppliers). The plaintiffs have paid $424,128.49 (including the seven per cent management fee) for these extras, but they do not challenge the figure of $429,584.49 billed by JLM (at least for summary judgment purposes). The difference between the two figures was explained by Mr Glanz in his second affidavit: a stone mason, whose works JLM had billed to the plaintiffs, had not been paid, and the plaintiffs paid the stone mason direct.

[34]   Including pre-contract invoices, JLM issued monthly payment claims to the plaintiffs up to 29 June 2017, totalling $1,624,232.84 (including GST). The payment claims provided an adjusted total cost, in relation to each of the items which had been listed in the contract. Any item that was said to be outside the scope of the pricing in the original contract was listed and charged separately as an extra.

[35]   In addition to JLM’s pre-contract invoices, there were a total of 23 numbered payment claims issued after 1 December 2014.

[36]The plaintiffs paid all of the amounts billed to them, and they paid the further

$20,000 to JLM by mistake on 15 December 2017, after they had given notice of cancellation of the contract.

The plaintiffs begin to suspect JLM’s payment claims are false

[37]   Mr Glanz said that he and Mrs Glanz understood that the costs itemised in the monthly payment claims were based on the true value of actual invoices or quotes JLM had received, and either paid or intended to pay once funds were received. The total value of any payment claim, including extras, ought to have come to no more than the genuine anticipated cost of the project for the following month. He said that he and Mrs Glanz relied entirely on the accuracy of the amounts included in JLM’s payment plans in determining how much to pay JLM, and when. The plaintiffs were in South Africa, and they could not themselves keep an eye on what work was being done on the property.

[38]   Mr Glanz acknowledged that the contract was a fixed price contract, but he took the view that maximum amounts for each part of the building process had been specified in the contract, as part of the contract price. If there was any overspend on such items, the plaintiffs should not have been required to contribute to it.

[39]   Mr Glanz said that it became apparent to him by about July 2016 that JLM had been claiming expenses in the payment claims which might not yet have been incurred, and/or that JLM was using payments claimed for one purpose to pay other expenses. He said that JLM kept “chopping and changing” values between payment claims.

[40]   Mr Glanz said that he and his wife could not initially verify the true value of expenses actually incurred or paid for by JLM, because JLM did not supply them with copies of the subcontractors’ work and materials invoices referred to in the payment claims. However, the plaintiffs formed the view over time that JLM was exaggerating the completeness of the work, and the extent to which suppliers and subcontractors had been paid. Mr Glanz said that one of the reasons he and Mrs Glanz learned this was that subcontractors and suppliers began contacting the plaintiffs direct with queries regarding late payments.

JLM acknowledges costs overrun

[41]   On 8 February 2017, Mr Lloyd sent an email to the plaintiffs headed “Bad News”. He said that there had been a “large overspend on materials” for the project. On 12 February 2017, he sent a further email, confirming that he and JLM had “got the labour cost right”, but there had been an overrun on the materials in the order of six per cent. Mr Lloyd said that given the cost overrun, he did not have the money to complete the project.

[42]   Despite those problems, work did continue into 2017. But progress slowed considerably.

The plaintiffs’ audit of JLM’s charges

[43]   Mr Glanz said that he made repeated requests for copies of all JLM’s subcontractor and materials invoices. In response to an email sent by the plaintiffs on 3 August 2017, Mr Lloyd acknowledged some errors in the payment claims, and said that he had a list of all invoices. Copies of the invoices were eventually made available via Dropbox on 10 August 2017. On receipt of the invoices, the plaintiffs carried out an audit of the amounts charged.

[44]   Mr Glanz said that the audit revealed that JLM had been overstating the value of the invoices they had received, and the expenses they had to pay, for quite some time. The plaintiffs calculated that, as at 4 September 2017, they had been overcharged by $246,366.95. They sent a copy of the results of their audit to Mr Lloyd that day, saying:

We still have no transparency on where the misappropriated funds have gone as they are clearly not an overspend when the underspend and the overspend have been evened up. It is a simple calculation of monies spent against monies received based on invoices supplied, detailed in recon attached – which clearly is not reflected in your working documents or spreadsheets … this does not give us confidence going forward.

[45]Mr Lloyd replied by email on 1 October 2017, denying any fraudulent activity.

The plaintiffs write cancelling the contract

[46]   The project, which provided for practical completion by 7 December 2015, had not been completed by 12 October 2017. JLM had not then finished the dwelling to a closed in, habitable and consented standard and Mr Glanz said there had been no work carried out on the property since June 2017. He said that Mr Lloyd had stopped working on the project, claiming that the plaintiffs were behind on payments. The plaintiffs considered that they were ahead.

[47]   On 12 October 2017, the solicitors for the plaintiffs gave written notice to JLM cancelling the contract. The letter of cancellation referred to alleged unreasonable delays in completing the project, alleged misappropriation of funds, and alleged dishonesty and misleading and deceptive conduct.

JLM responds, rejecting the cancellation

[48]   On 27 October 2017, the solicitors for JLM and Mr Lloyd wrote rejecting the plaintiffs’ purported cancellation. JLM treated the plaintiffs’ cancellation letter as a wrongful repudiation, and it purported to cancel the contract itself on that basis. The solicitors advised that JLM was itself substantially out-of-pocket under the contract, and it reserved its right to make its own claim against the plaintiffs.

The evidence of Mr Lloyd

[49]   Mr Lloyd said that he has been involved in the engineering industry since the 1970s, and has approximately 40 years’ experience. From 2004 to 2016 he was engaged with the construction of executive-style homes in Tairua. He oversaw the construction of seven such homes during that period, the last of which was the home partly constructed on the property.

[50]   Mr Lloyd said that in the course of the project he developed a personal friendship with the plaintiffs, on one occasion travelling to visit them in South Africa at their expense. With hindsight, he acknowledged that he probably became too close to them, with the result that he delayed or avoided hard conversations about the project as it progressed, and delayed the resolution of many outstanding issues.

The contract terms

[51]   Mr Lloyd said that the contract included all of NZS 3910:2004. He said that on 19 October 2014 he wrote to the plaintiffs describing NZS 3910:2004 as an excellent set of contract terms that would cover all potential opportunities and issues, and that Mr Glanz replied on 21 October 2014 agreeing to its use. Mr Lloyd said that he had a copy of NZS 3910:2004 at the property, and he brought it to the attention of the plaintiffs. He said that he did not know if they took the time to read it.

[52]   Mr Lloyd accepted that the contract was for a fixed price of $1,240,340.88, but he contended that JLM was under no obligation to base its charging on the costs it actually incurred. He said JLM would never have agreed to bear the burden of any prices which exceeded quoted prices while simultaneously giving the plaintiffs the benefit of any prices that turned out to be less than JLM had quoted. He commented that an arrangement of that sort would be “a recipe for disaster”, and that it was virtually inevitable that JLM would have some “wins” and some “losses” in respect of the quoted sums. JLM’s hope was that, overall, the agreed fixed price would enable it to make a reasonable profit.

[53]   Mr Lloyd denied that there was any agreement that the pre-contract project management fees ($34,104.50) were intended to be included within the agreed fixed price. The 1 December 2014 quotation, and all supporting paperwork, contained nothing about any deductions from the quoted sum for pre-contract work.

[54]   Mr Lloyd did acknowledge that the issue of whether pre-contract management fees would be credited to the fixed price contract was raised by Mr Glanz from time to time during the project. He acknowledged that he did not deal with it well, and said:

At times I went along with it although I did not accept it. I thought that I would squarely raise the issue before the end of the contract and object to the plaintiffs’ position but it was never resolved.

JLM’s claims for extras

[55]   Mr Lloyd said that variations were at all times based on estimates, and not on final costs. The correct total for extras was $429,585.49, including the agreed project management fee of seven per cent on all extras.

[56]   However there were a number of major costs that, although paid by the plaintiffs, Mr Lloyd said should have been treated as extras. The first item omitted in this category was a claim made by JLM on 21 September 2016 for $30,378.06, relating to unsuitable materials. A seven per cent management fee on that sum would have been $2,126.46, and if that were added to the $30,378.06 there would have been an additional claim for extras of $32,504.52 to be brought to account in JLM’s favour.

[57]   The second major cost item Mr Lloyd said was wrongly omitted from the plaintiffs’ schedule of extras was an “overspend” claim of $84,688.58. The quantification of the overspend claim was set out in a spreadsheet provided to Mr Glanz in February 2017. Mr Lloyd acknowledged that $3,781.00 out of the $84,688.58 should not have been included, but contended that there was still a legitimate extras claim for the overspend of $80,907.58. Allowing for a management fee of seven per cent on the $80,907.58, the total “overspend” claim would have been $86,570.64.

[58]   Adding those substantial additional extras claims, Mr Lloyd calculated that the total sum payable for extras, including the seven per cent project management fee, should have been $548,661,13.

JLM’s alleged obligation to provide copies of its contractors’/suppliers’ invoices

[59]   In response to Mr Glanz’s concern that JLM did not provide the plaintiffs with copies of its subcontractors’ and suppliers’ invoices, Mr Lloyd said that invoices were itemised and provided for all extras, as the contract proceeded. But JLM had no obligation to provide invoices for the fixed price component of the contract. The contractors’ and suppliers’ invoices for the fixed price component of the work were the property of JLM, and the plaintiffs were not entitled to them. In any event, the payment claims issued by JLM would never have been the same as the pre-contract quotes. The bottom line was always that the project would need to be completed for the agreed fixed sum, plus the costs associated with extras or changes to the scope of the contract.

[60]   Mr Lloyd said that, in making payment claims, he endeavoured to ensure that JLM had sufficient cash flow to make purchases and to proceed with the contract. He said:

That would be based on anticipated upcoming expenditure. Therefore, I necessarily worked on an ‘estimate’ basis and not an ‘actual cost’ basis.

Alleged delays in completing the project

[61]   On the issue of the time for completion, Mr Lloyd referred to the substantial number of variations/extras requested by the plaintiffs. Months were spent dealing with some issues (for example, the supply and installation of stone). Tradesmen needed to be instructed, and they had to work around other tradesmen. And the extras had to be integrated with the initial project. Furthermore, there were complexities about the building’s design, which contained substantial curvature and other non- standard design features. It was a very high spec executive-style home. The fact that the plaintiffs refused to commission construction plans also complicated matters. JLM was told to rely on the Building Consent plans, which did not contain sufficient detail. The result was that JLM was constantly having to find solutions for complex issues (for example, the Building Consent plans did not record where to affix steel to the block construction, in circumstances where any variance had to be less than 1mm).

[62]   Mr Lloyd said that the plaintiffs in fact accepted the rate of progress up until the end of 2016. He produced one email from Mr Glanz, written on 15 September 2015, in which Mr Glanz said “Not to worry about the time it is taking …”

[63]   By 2017, Mr Lloyd accepted that the relationship between the parties had soured. He acknowledged that the plaintiffs had “obviously lost trust in him”. That too had the effect of slowing matters. In addition, issues arose over the availability of the builder and other contractors.

The cancellation of the contract

[64]   Mr Lloyd expressed the view that the plaintiffs were not entitled to cancel the contract, as they purported to do on 12 October 2017. Through their solicitors, the defendants responded to the cancellation letter on 27 October 2017, advising that JLM would treat the plaintiffs’ cancellation letter as a letter of repudiation of the contract, and that the contract was cancelled accordingly. They claimed that JLM was owed money under the contract, and that all rights were reserved.

[65]JLM’s solicitor concluded his letter of 27 October 2017 by stating:

… it seems to me that there is a good argument that your clients have no prospect of recovering any funds because even if there was some type of actionable conduct on the part of [Mr Lloyd] or JLM (which is denied) your clients have not suffered any loss. They are left in possession of a very high value property that has been built to a high standard and is worth substantially more than all of the costs incurred in respect of bringing the property to its present status (including the costs that your clients have not paid yet). As your clients know, a market appraisal was completed by First National of Tairua which suggested the subject property would be worth around $4,300,000.00 on completion …

Allegations of charges for unrelated work

[66]   In response to Mr Glanz’s evidence that certain JLM invoices should be excluded because they did not relate to the subject contract, Mr Lloyd accepted that some, but not all, of the invoices in this category had been correctly excluded from Mr Glanz’s calculations. However, he said that Mr Glanz had made some errors, and relied on some incorrect assumptions.3 He calculated that a total of $10,640.17 had been improperly excluded from Mr Glanz’s calculation of the sum of the invoices rendered to JLM in respect of the contract. Mr Lloyd said that where JLM did wrongly send invoices to the plaintiffs relating to other projects, that was inadvertent. Also, with the exception of the concrete invoice, it would have been obvious that some of the invoices were for unrelated projects.

The plaintiffs have suffered no loss

[67]   Mr Lloyd disagreed that any amount was “overpaid” by the plaintiffs. He referred to the $10,640.17 wrongly deducted by Mr Glanz for work said to be unrelated to the contract, and to other sums said to have been wrongly deducted in Mr Glanz’s calculations.   He calculated that there was a total of $94,364.18 which, even on     Mr Glanz’s methodology (with which Mr Lloyd disagreed) would have to be deducted from the claimed overpayment of $301,699.86. The alleged “overpayment”, even on the plaintiffs’ approach, would therefore be only $207,335.68.

3      Specifically, Mr Lloyd said that Mr Glanz was wrong to exclude all invoices for goods said to have been delivered to Mr Lloyd’s property. Goods for use at the property were often dropped off to Mr Lloyd at his property. Secondly, Mr Glanz wrongly excluded the invoice for concrete. The invoice had an incorrect description, but it did relate to work performed at the property.

[68]Mr Lloyd addressed Mr Glanz’s evidence relating to the estimated cost of

$475,068.78 to complete the project. In Mr Lloyd’s opinion, a reasonable cost for completion would be $265,898.71.

[69]   On Mr Lloyd’s calculations, JLM still had, within the agreed fixed price plus extras that were properly chargeable, approximately $209,907 to spend on the project at the time the contract came to an end. That is not far short of the $265,898.71 which Mr Lloyd considered would be a reasonable estimate of the cost to complete.

[70]Mr Lloyd accepted that the plaintiffs have paid JLM the total sum of

$1,644,232.84, including the $20,000 paid after the contract had been terminated.4 However, he contended that $34,104.50 of that was for pre-contractual expenditure, so that the sum actually paid under the contract was $1,610,128.34. And allowing a total of $548,661.13 for extras/variations, the total price for the contract (fixed price plus variations) would have been $1,789,012.01.5

[71]   The plaintiffs are claiming a total of $776,768.61, being the alleged overpayments of $301,699.86 together with their estimated completion cost of

$475,068.75. Mr Lloyd accepted that $265,000 of the $776,768.61 would have to be paid to another contractor to complete the contract. On that basis, there would be a net recovery for the plaintiffs of $511,768.61 ($776,768.61 minus $265,000) if the defendants were ordered to pay the $776,768.61. If that occurred, Mr Lloyd calculated that the plaintiffs would have succeeded in obtaining the benefit of a construction contract worth $1,789,012.01, for a payment of only $1,098,359.73 (an unjust enrichment at the expense of JLM, of approximately $690,652).

[72]   Even if the plaintiffs are correct, and it will cost approximately $475,000 to finish the project, Mr Lloyd asserted that there would still be no justifiable basis for the plaintiffs’ claim for “overpayments” of $301,699.86. If that sum were repaid to the plaintiffs, it would mean that they had only paid $1,342,532.98 towards a contract

4      He acknowledged receiving the $20,000, saying that he thought it was paid to assist with payment for the windows, which he had requested. The $20,000 was in fact applied towards paying for the windows.

5      The agreed fixed price of $1,240,350.88 plus the $424,128.49 which the plaintiffs accept is the figure for extras.

which, with variations, would (on the plaintiffs’ calculations) be worth $1,664,479.37. On that basis, Mr Lloyd considered that the plaintiffs would be unjustly enriched at the expense of JLM in the difference between the two sums, namely $321,946.39.

The case is not suitable for summary judgment

[73]   Mr Lloyd considered that, even putting JLM’s counterclaim to one side, it would be impossible to fairly consider the merits of the case without a full trial. He referred in support of that view to the following:

(1)The work was carried out under a part-performed fixed price contract. Given the fixed price nature of the contract, he submitted that it is not appropriate to quantify the claim on an “invoice rendered”, and “invoice paid” basis, as the plaintiffs have done.

(2)There is a dispute about the scope of the extras performed, which has a significant bearing on how any alleged loss should be quantified.

(3)Even if the plaintiffs’ method of quantifying their claimed losses were appropriate, which is denied, it contains errors and omissions.

(4)There is a dispute in respect of how much of the fixed price contract was completed which has a significant bearing on how any alleged loss should be quantified.

The pleadings – amended statement of claim, statement of defence and counterclaim by JLM, and the plaintiffs’ reply and statement of defence to counterclaim

[74]   The broad nature of the plaintiffs’ claim has been summarised earlier in this judgment. It is necessary, however, to set out certain terms the plaintiffs say were implied in the contract, and how the plaintiffs say JLM breached the contract. It is also necessary to refer to the alleged breaches of the FTA.

[75]The plaintiffs plead that the contract contained the following implied terms:

[5]       …

5.1The amount to pay which would be specified in the first defendant’s monthly payment claims would not include any amounts over and above the following:

5.1.1The amount required by [JLM] to pay [JLM’s] actual anticipated expenses for materials and labour through to the next monthly payment claim, based on actual invoices or quotes, capped at the maximum values specified in the contract;

5.1.2The amount required by [JLM] to pay for any “extras” requested and approved by the plaintiffs;

5.1.3The amount required to pay the proportion of [JLM’s] project management fees which relates to the payment claim.

5.2[JLM’s] payment claims would not contain any untrue or misleading representations about the cost of the project, or what had been spent on the project, as at the date of the payment claim.

5.3[JLM’s] invoices to the plaintiffs for project management fees which had been issued by JLM prior to the date of the contract were included in, or formed part of, the $91,871.92 project management fee specified for the works in the contract, which was calculated at 8% of the total cost. This term was implied by virtue of written representations which had been made previously by [JLM and Mr Lloyd] in writing, and which were relied on by the plaintiffs when entering into the contract.

[76]The plaintiffs plead the following breaches of contract by JLM:

[JLM’s] conduct, in significantly overstating the cost of the project and the amount required from the plaintiffs, by over $250,000, in not less than 11 successive payment claims, in the period November 2016 to June 2018 and subsequently, as pleaded in paragraph 14 above, was a breach of the implied terms of the contract pleaded in paragraphs 5.2 and 5.3 above which was so serious that it justified immediate cancellation of the contract, on the basis that [JLM’s] overcharging was so significant, and so sustained, that it could only be explained by dishonesty or gross negligence.

As at 12 October 2017 … [JLM] had not yet achieved Practical Completion by 7 December 2015, or within any reasonable time thereafter, taking into account the “extras” which had been agreed to by the plaintiffs, nor had [JLM] finished the dwelling to a “closed in to habitable and consented standard”. No works had been carried out on the property since June 2017 because [JLM and

Mr Lloyd] had refused to carry out any further work, and had claimed that they were not in funds to pay suppliers and contractors.

[77]The plaintiffs say that they were entitled to cancel the contract because:

The effect of [JLM’s] breaches of contract … was to make the burden of the contract, to the plaintiffs, substantially greater than the plaintiffs had contracted for, and to make the benefit of the contract, to [JLM], substantially greater than [JLM] had contracted for …

[JLM] had seriously breached the contract so as to justify cancellation …

[78]   The plaintiffs’ second cause of action, against both defendants, seeks relief under s 94A of the Judicature Act 1908 and its current equivalent s 74A of the Property Law Act 2007 (the PLA). The plaintiffs seek recovery of the total sum of $321,399.86 on this cause of action. They say they made payments totalling that sum by virtue of a mistake of fact and/or law, and they are entitled to recover the sums mistakenly paid.

[79]   The plaintiffs’ third cause of action pleads breach, by both defendants, of s 9 of the FTA (conduct, in trade, that was misleading or deceptive or likely to be misleading or deceptive). They say that, at all material times, Mr Lloyd was the sole director, agent, and “alter ego” of JLM, and he was the sole author of all communications with the plaintiffs on behalf of JLM.

[80]   The plaintiffs say that JLM’s overcharging in the progress payment claims amounted to false and misleading representations by both defendants that JLM was contractually entitled to charge the amounts claimed, and that there was a factual basis for the charges. JLM’s payment claims for subcontractor and materials expenses which it had not incurred were also misleading and deceptive, or were likely to mislead and deceive the plaintiffs as to the expenses JLM had incurred on the project to date and the amounts which, to the knowledge of the defendants, JLM required from the plaintiffs in order to complete the project.

[81]   The plaintiffs say that the defendants’ state of mind and intentions regarding the payment of future expenses were also portrayed in a misleading and deceptive fashion in the payment claims. To the extent that each payment was overstated by the defendants, and from at least the 11th progress payment claim in November 2016, the

defendants knew or ought to have known, at the time each payment claim was made, that they had no intention of incurring expenses up to the value they were claiming.

The statement of defence and counterclaim

[82]   The statement of defence and counterclaim was filed in response to the plaintiffs’ original statement of claim. There has been no amended defence filed in response to the amended statement of claim.

[83]   The defendants admitted that the price schedule sent by Mr Lloyd with the contract documents on 1 December 2015 provided detailed fixed prices for the specifications. They denied the plaintiffs’ allegation that only pages 14-19 of the NZS 3902:2004 formed part of the contract, and they also denied that invoices issued by JLM prior to the contract date for project management fees were intended to be included within the fixed price for project management fees stated in the contract.

[84]   In response to the plaintiffs’ allegations (as originally pleaded) that there were implied terms in the contract, the defendants denied that their monthly payment claims were required to be for actual costs incurred and/or services actually provided under the contract to the date of invoice (and would not be for costs not yet incurred, or services not yet provided). The defendants specifically pleaded:

(i)It was made clear to the plaintiffs that payment claims would be rendered on a basis geared at allowing for cash flow and purchases.

(ii)Cash flow requirements would necessarily vary from month to month depending on the works being undertaken at any particular time.

(iii)In any case, in respect of the fixed price component of the subject contract being $1,240,350.88, the plaintiffs had certainty as to the ultimate cost which was a fixed cost.

[85]The defendants admitted the following implied term alleged by the plaintiffs:

Because the contract was for a fixed price, [JLM] would not be entitled to charge the plaintiffs more, in respect of any item, than the price or value specified for that item in the schedule provided on the second page of the contract.

[86]   The defendants went on to plead that the corollary of that implied term was that the plaintiffs would not be entitled to pay any less, in respect of any item, than the price or value specified for that item in the schedule provided on the second page of the contract.

[87]   Apart from questioning what was meant by the expression “material times”, the defendants admitted that Mr Lloyd personally assumed responsibility for, and exercised control over, the building works on behalf of JLM.

[88]   The defendants denied the alleged overcharging, saying that the plaintiffs’ calculations failed to take into account the fact that, because the contract was for a fixed price of $1,240,350.88, there was no term that payment claims had to correspond with exact third-party supplier costs.

[89]   The defendants denied the grounds pleaded by the plaintiffs as the basis for the cancellation. They specifically denied that JLM had breached the contract, or that the breaches alleged by the plaintiffs were such as to make the burden of the contract substantially greater than the plaintiffs had contracted for, or made the benefit of the contract to JLM substantially greater than JLM had contracted for.

[90]   The defendants generally denied the plaintiffs’ allegations of loss caused by the alleged breaches.

[91]   The defendants pleaded three alternative defences. First, they contended that the plaintiffs have suffered no loss. Secondly, and in the alternative, they pleaded that the plaintiffs’ claimed loss is inflated. Thirdly, they claimed that the plaintiffs seek to unjustly enrich themselves by making the claim they have made.

[92]   The defendants referred to JLM’s “overspend” claim of $85,000 for material and labour procured in respect of variations which has not been paid by the plaintiffs and to “hundreds of additional hours” dealing with matters the plaintiffs had instructed them to attend to. They contended that had spent 480 hours dealing with matters outside the fixed price component of the contract in the first year, and a further 740

hours dealing with matters outside the fixed price component of the contract in the period January 2016 to August 2017 (total 1,220 hours).

[93]   The defendants contended that a reasonable rate to compensate JLM for that work would have been $150 per hour plus GST, making a total of $183,000. Of that sum, the plaintiffs have only paid $5,000 towards the cost of project management of the variations. The defendants contended that they should be entitled to set off the balance of $178,000, together with the $85,000 incurred for materials and labour on variations not paid for by the plaintiffs, against the plaintiffs’ claims.

[94]   JLM claimed the total of those two sums ($263,000) from the plaintiffs by way of counterclaim. It relied on the following clause 12.3 in NZS 3902:2004:

If the value of any Variation is not agreed before the Variation work starts and the owner has agreed that the Variation work can start, then the owner must pay the Builder’s reasonable costs of the Variation.

[95]   In the alternative, JLM claimed to recover the $263,000 from the plaintiffs on a quantum meruit basis.

The plaintiffs’ reply and statement of defence to counterclaim

[96]   The plaintiffs deny that they suffered no loss, or that the losses claimed are inflated. They also deny the defendants’ contention that at the date of cancellation the nearly complete building was worth more than the amount the plaintiffs had paid JLM. They deny that delays with the work exceeded any periods that could reasonably have been attributed to agreed variations.

[97]   The plaintiffs deny the defendants’ claim to have worked 1,220 “additional” hours, and say that they paid all invoices JLM sent to them.

[98]   They deny JLM’s claim for the “overspend” of $85,000. Generally, they say that any additional project management work performed by the defendants as a result of variations ordered by them was included in the seven per cent charge for variations/extras that was invoiced by JLM and paid by the plaintiffs.

[99]   The plaintiffs say that they were entitled to cancel the contract, for the reasons stated in their statement of claim. They deny the defendants’ contention that the plaintiffs would be unjustly enriched if they recovered the amounts they have claimed.

Summary judgment applications – legal principles

[100]Rule 12.2 of the High Court Rules 2016 provides:

12.2 Judgment when there is no defence or when no cause of action can succeed

(1)The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.

(2)The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.

[101]   The proper approach to be taken to an application by a plaintiff for summary judgment was considered by the Court of Appeal in Krukziener v Hanover Finance Ltd, where the Court said:6

The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Young v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).

[102]   The Supreme Court has confirmed that the fact that the Court may be required to determine questions of law, does not preclude summary judgment. In Zurich Australian Insurance Ltd v Cognition Education Ltd, the Court said:7

6      Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].

7      Zurich Australian Insurance Ltd v Cognition Education Ltd [2014] NZSC 188, [2015] 1 NZLR 383 (footnotes omitted).

… in other situations falling within the broad test (that is, the "no arguable defence" test applied on summary judgment), there will be what can properly be described as "disputes" even though they are ultimately capable of being determined by a summary process.

[37] To explain, it has been well established in New Zealand since Pemberton v Chappell that a court can properly determine questions of law on a summary judgment application, and that this includes issues of contractual interpretation. The Court of Appeal has accepted that such a determination may be made even though the question of law is difficult and requires argument (including reference to authority). In International Ore & Fertilizer Corp v East Coast Fertiliser Co Ltd, a case under the old bill writ procedure, Cooke P, by analogy with the summary judgment procedure which had just been introduced in New Zealand, said that where the facts were adequately ascertained and the Court could be confident that the point at issue turned on pure questions of law or interpretation, it should be prepared "to determine, on adequate argument, even difficult legal questions". Similarly, in Jowada Holdings Ltd v Cullen Investments Ltd, McGrath J, delivering the judgment of the Court of Appeal, said that a court should be prepared to grant summary judgment "even if legal arguments must be ruled on to reach the decision".

[103]   The principles applicable to an application for summary judgment by a defendant were discussed by Elias CJ in Wesptac Banking Corp v MM Kembla NZ Limited:8

[61]      The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually summary judgment for a defendant will arise where the defendant can offer evidence which is a complete defence to the plaintiff’s claim.

…

[62]      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 only able to be properly arrived at after a full hearing of the evidence. Summary judgment is suitable for cases where abbreviated procedure and affidavit evidence will sufficiently expose the facts and the legal issues. Although a legal point may be as well decided on summary judgment application as at trial if sufficiently clear (Pemberton v Chappell [1987] 1 NZLR 1), novel or developing points of law may require the context provided by trial to provide the Court with sufficient perspective.

[63]      Except in clear cases, such as a claim upon a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary procedure the sufficiency of the proof of the plaintiff’s claim. That would permit a defendant, perhaps more in

8      Westpac Banking Corp v MM Kembla NZ Limited [2001] 2 NZLR 298, (2000) 14 PRNZ 631 (CA) at [61]-[63].

possession of the facts than the plaintiff (as is not uncommon where a plaintiff is the victim of deceit), to force on the plaintiff’s case prematurely before completion of discovery or other interlocutory steps and before the plaintiff’s evidence can reasonably be assembled.

The Issues

The contract claim against JLM and JLM’s counterclaims

[104]The following issues fall to be decided:

(1)What were the material terms of the contract? Did they include all of NZS 3902:2004?

(2)Is it reasonably arguable for JLM that the plaintiffs did not validly cancel the contract?

(3)If the answer to Issue (2) is “yes”, does JLM have a reasonably arguable defence to the plaintiffs’ breach of contract claims on which summary judgment is sought?

(4)If the answer to Issue (2) is “no”, does JLM have any reasonably arguable defence to the plaintiffs’ breach of contract claims on which summary judgment is sought?

(5)Does JLM have reasonably arguable defences over the quantum of the

$301,399.86 claimed by the plaintiffs under the contract, or by setting off amounts it has pleaded in its affirmative defence?

(6)Is it clear that neither of JLM’s counterclaims can succeed?

(7)If the answer to Issue (6) is “no”:

(i)Should the Court decline to enter judgment for the plaintiffs against JLM on any cause of action on which it would otherwise have been entitled to summary judgment;

(ii)Should the Court stay execution of any judgment entered in the plaintiffs’ favour against JLM?

The mistake and Fair Trading Act claims

[105]The following issues fall to be decided:

(8)Does JLM have any reasonably arguable defence to the plaintiffs’ “payments made by mistake” cause of action?

(9)Do JLM and Mr Lloyd have reasonably arguable defences to the plaintiffs’ claims under the Fair Trading Act?

(10)If and to the extent JLM and/or Mr Lloyd have/has no reasonably arguable defence to the plaintiffs’ claim under the Fair Trading Act, what is the appropriate relief to be awarded?

[106]I will address each issue in turn.

Issue (1): What were the material terms of the contract? Did they include all of NZS 3902:2004?

[107]The contract expressly stated that NZS 3902:2004 was to apply.

[108]   While the plaintiffs had only seen six pages of NZS 3902:2004 when they agreed to JLM’s terms on 1 December 2014, they agreed with his proposal that the parties would sign off on the whole contract document in February 2015, when it was expected the plaintiffs would be in New Zealand.

[109]   Mr Lloyd said in his evidence that he had a copy of NZS 3902:2004 at the property, and that he brought it to the attention of the plaintiffs. He said that he did not know if the plaintiffs took the time to read it.

[110]   In his reply affidavit, Mr Glanz said the plaintiffs never saw an entire copy of NZS 3902:2004 until they saw it annexed as an exhibit to Mr Lloyd’s affidavit in this

proceeding. Mr Glanz said that the full document was never shown to them, never emailed to them, and was not supplied by way of initial disclosure in this proceeding. Mr Glanz went on to suggest that the defendants were seeking to rely on the dispute resolution provisions contained in the full wording of the contract, simply to drag things out and avoid summary judgment.

[111]   Neither party appears to have addressed the issue of whether Mr and Mrs Glanz did come to New Zealand in February 2015, and if they did, whether there was any discussion about NZS 3902:2004. Mr Lloyd has said that he “brought it to the attention of the plaintiffs”, but that is disputed by the plaintiffs.

[112]   I do not think the dispute over whether the plaintiffs had a full copy of NZS 3902:2004 sufficiently drawn to their attention is a matter which is suitable for determination on a summary judgment application. If, for example, the evidence at trial were to establish that the full document was drawn to the attention of Mr and Mrs Glanz at the property but they elected not to read it, I think it is arguable that the Court should regard the plaintiffs as being bound by the full document. Generally speaking, if a party elects not to read contractual terms which are sufficiently brought to its attention, that party will be bound by the terms.9

[113]   For summary judgment purposes, then, I proceed on the basis that the full terms of NZS 3902:2004 may have formed part of the contract.

Issue (2) – Is it reasonably arguable for JLM that the plaintiffs did not validly cancel the contract?

[114]   Section 15 of NZS 3902:2004 dealt with the topic of the right to cancel. Cancellation by the Owner (in this case, the plaintiffs) was governed by section 15.2.1, which provided that the Owner could cancel on a number of grounds. The only one relevant to the plaintiffs’ cancellation in this case provided for cancellation if:

…

(e) The Builder is persistently, flagrantly or wilfully neglecting to carry out the Builder’s obligations under this Contract and the Builder agrees to the

9      BBX Financial Solutions Pty Ltd v Wallace [2011] NZCA 667 at [47]. Referring to L’Estrange v Graucob Ltd [1934] 2 KB 394 at 395.

cancellation of this Contract. If the Builder does not agree, the Owner and the Builder must resolve the Dispute in accordance with Section 16.

[115]   Section 15.2.2 contained a materially identical clause conferring on the Builder the right to cancel in the event of the Owner persistently, flagrantly, or wilfully neglecting to carry out its obligations under the contract.

[116]Section 15.3 then provided:

15.3 What happens on cancellation?

If this Contract is cancelled the Owner or the Builder (as the case may be) must pay to the other the amount the other is entitled to be paid under this Contract up to the date of cancellation and such other amount as is fair and reasonable in the circumstances. If the Owner and the Builder cannot agree on the amount payable they must resolve the Dispute in accordance with Section 16.

[117]   Section 16 of NZS 3902:2004 was the dispute resolution clause. Generally, it provided for dispute resolution by successive steps, beginning with good faith negotiations, and progressing through mediation to arbitration under the Arbitration Act 1996 if no resolution was achieved in the earlier stages.

[118]   It is common ground that the parties did not go through the steps described in s 16.

[119]   In his reply affidavit, Mr Glanz contended that if NZS 3902:2004 applied in full (denied by the plaintiffs), the plaintiffs would have been entitled to cancel in any event because of JLM’s persistent, flagrant or wilful neglect of its obligations under the contract. He referred to the fact that, by the time of the plaintiffs’ October 2017 cancellation, JLM had not done any work on the project in over three months. He noted that Mr Lloyd has not contended otherwise.

[120]   Mr Glanz acknowledged that s 15.2.1(e) required the Builder’s agreement before the Owner could cancel. He sought to meet that apparent difficulty by contending that JLM agreed that the contract was cancelled by giving its own notice of cancellation a few weeks after the plaintiffs’ cancellation notice. He then suggested that the plaintiffs would be entitled to rely on clause 15.3 to recover the amounts they now claim.

[121]   I think it is clearly arguable for JLM that, if NZS 3902:2004 applied in full, the plaintiffs did not comply with s 15.2.1(e): they did not obtain JLM’s consent to the cancellation, and they did not invoke the disputes resolution procedures as set out in s

16. And I think the plaintiffs’ purported cancellation on 12 October 2017 was either valid then or it was not. I do not think Mr Glanz’s suggestion that JLM’s own cancellation on 27 October 2017 provided the necessary “agreement” of the Builder required by s 15.2.1(e).

[122]   I add that if NZS 3902:2004 did not apply, I would not have considered it beyond reasonable argument for JLM, that the plaintiffs affirmed the contract, and thus lost the right to cancel, under s 38 of the CCLA.10 The plaintiffs became aware (in general terms) of the concerns they now raise with JLM’s progress claims, in mid-to- late 2016, but they did not purport to cancel until October 2017. And while there may have been no work done on the project between June and October 2017, the plaintiffs appear to have been prepared to go along with significant delays earlier in the project. In that combination of circumstances, and bearing in mind that there appears to be no substantial complaint about the quality of the work done on the project, the issue of affirmation or no affirmation would not in my view have been suitable for determination on a summary judgment application.

[123]   In those circumstances, and in the light of my answer to Issue (1), the answer to Issue (2) must be “yes” – it is reasonably arguable for JLM that the plaintiffs did not validly cancel the contract.

Issue (3) – If the answer to Issue (2) is “yes”, does JLM have a reasonably arguable defence to the plaintiffs’ breach of contract claims on which summary judgment is sought?

Must there have been a valid cancellation by one of the parties?

[124]   I do not think it could be the case that the contract has not been cancelled at all. If the plaintiffs’ cancellation was invalid for failure to comply with section

10 Contract and Commercial Law Act 2017 s 38 provides:

38 No cancellation if contract is affirmed. A party is not entitled to cancel the contract if, with full knowledge of the repudiation, misrepresentation, or breach, the party has affirmed the contract.

15.2.1(e), that purported cancellation would arguably have been not only a flagrant or wilful neglect to carry out the plaintiffs’ obligations under the contract, but also an express indication of the plaintiffs’ wish to bring the contract to an end. In my view it was open to JLM to accede to that wish, bringing about an effective agreement to cancel. In those circumstances, JLM’s cancellation on 27 October 2017 would have been a valid cancellation under s 15.2.2(d).

[125]   Considering the position if the full version of NZS 3902:2004 (including the cancellation and dispute resolution provisions) did not apply, the contract would also have come to an end by cancellation in October 2017. If the plaintiffs’ cancellation on 12 October 2017 was valid, the contract was brought to an end then. If it was not valid, it must have been a repudiation, in which case JLM’s cancellation on 27 October 2017 would have effectively brought the contract to an end.

[126]   So whether or not the full version of NZS 3902:2004 applied, I think it is clear that the contract was lawfully cancelled in October 2017. The next step is to examine what legal consequences followed the cancellation.

Relevant law relating to the cancellation of a contract

[127]   Section 34 of the Contract and Commercial Law Act 2017 (the CCLA) provides that if a contract expressly provides for a remedy for repudiation or breach of contract, the provisions of the CCLA relating to damages and cancellation and its consequences are to have effect subject to the contractual provision.

[128]Section 42 of the CCLA then provides:

42  Effect of cancellation

(1)When a contract is cancelled, the following provisions apply:

(a)  to the extent that the contract remains unperformed at the time of the cancellation, no party is obliged or entitled to perform it further:

(b)   to the extent that the contract has been performed at the time of the cancellation, no party is, by reason only of the cancellation, divested of any property transferred or money paid under the contract.

(2)This section is subject to the rest of this subpart.

(3)Nothing in this section affects the right of a party to recover damages for a misrepresentation or the repudiation or breach of the contract by another party.

[129]   Section 43 of the CCLA empowers the Court to grant relief following a cancellation. The section materially provides:

43  Power of court to grant relief

(1)   When a contract is cancelled by any party, the court may, if it is just and practicable to do so, make an order or orders granting relief under this section.

(2)  The relief may be granted in the course of any proceeding or on application made for the purpose.

(3)  An order under this section may—

(a)  direct a party to pay to any other party the sum that the court thinks just (subject to section 35):

(b)  direct a party to do or refrain from doing, in relation to any other party, any act or thing that the court thinks just:

(c)  vest the whole or any part of any relevant property in a party:

(d)   direct a party to transfer or assign the whole or any part of any relevant property to any other party:

(e)  direct a party to deliver the whole or any part of the possession of any relevant property to any other party.

…

[130]   In granting relief on a cancellation under s 43, the Court must have regard to the following:11

…

(a)  the terms of the contract; and

(b)  the extent to which any party to the contract was or would have been able to perform it in whole or in part; and

(c)   any expenditure incurred by a party in, or for the purpose of, performing the contract; and

(d)   the value, in the court’s opinion, of any work or services performed by a party in, or for the purpose of, performing the contract; and

(e)   any benefit or advantage obtained by a party because of anything done by another party in, or for the purpose of, performing the contract; and

(f)  any other matters that the court thinks proper.

[131]An application for relief under s 43 may be made by any party to the contract.12

11     Contract and Commercial Law Act 2017, section 45.

12     Contract and Commercial Law Act 2017, s 48(a).

[132]   Section 49 of the CCLA provides that a party to a contract is not prevented by the cancellation of the contract, or by the granting of relief under s 43, from recovering damages for the repudiation or breach of the contract by another party, but the value of any relief granted under s 43 must be taken into account in assessing those damages.

Application of the CCLA in this case

[133]   Whether or not the contract came to an end because it was cancelled by the plaintiffs or by JLM, the plaintiffs were entitled to seek relief under s 43, as parties to the contract. One of the orders the Court may make under s 43 is an order directing a party to pay any other party a sum the Court thinks just.13 In making any such order, the Court is required to have regard to the various matters set out in s 45 of the CCLA.

[134]   I observe immediately that making orders under s 43 of the CCLA will not often be possible on an application for summary judgment, where the Court is unlikely to be able to form a clear view on at least some of the factors to which it is required to have regard to under s 45. However, I think this case is unusual in the following important respects:

(1)For the purposes of their summary judgment application, the plaintiffs have conceded that JLM should be credited with its project management fees calculated at the rate of eight per cent on amounts actually invoiced to it by its contractors and suppliers, plus seven per cent on all extras. Mr Lloyd contended that JLM should be treated as having become entitled to the full contract amount of $91,871.92 for management fees, plus the $34,104.50 it had charged for management fees before the contract was made. If for summary judgment purposes it were assumed that JLM’s claims on those matters are arguable, and a deduction were made from the plaintiffs’ claims to reflect that fact, then, subject only to JLM’s affirmative defences and its counterclaims, to which I return below, JLM would have already got all that it would have been entitled to, by way of project management fees, if the contract had been completed. There would be no possibility that JLM

13     Contract and Commercial Law Act 2017, s 43(a).

would be awarded further project management fees under s 43 if the case went to trial.14

(2)The evidence is clear that, if the project had been allowed to run to completion, JLM would not have made a profit by completing the project at a cost to it that would have been less than the $1,240,350.88 fixed price plus agreed extras. Even on Mr Lloyd’s own project cost to complete of $265,000, JLM would have been out-of-pocket by a sum in excess of $50,000.

(3)There is nothing in the evidence to suggest that JLM might have any actual or contingent liabilities to its contractors or suppliers following the cancellation of the project.

(4)The total amount invoiced to it by JLM’s contractors and suppliers, less credit notes, was $1,228,515.55. Adding the full amount of the project management fees specified in the contract ($91,871.92), the $34,104.50 charged for pre-contract project management fees, and the seven per cent for project management fees included within the $429,128.49 the plaintiffs have paid for extras, JLM would still have received from the plaintiffs in excess of $200,000 more than it would ever earn under the contract, or could ever now be required to pay to its suppliers and contractors (bearing in mind the effect of s 42 of the CCLA is that, following cancellation, neither party was required or entitled to perform the contract any further).

[135]   In those circumstances it would be difficult to conceive of any just basis on which JLM, having been credited with all it would ever be entitled to under the contract, could retain for its own use a sum in excess of $200,000 “overpaid” by the plaintiffs, with no obligation to apply that sum towards the project.

14     JLM’s agreed remuneration did not extend beyond the agreed project management fees. It was not entitled to charge a margin on its suppliers’ and contractors’ invoices.

[136]   Subject to consideration of JLM’s affirmative defences and counterclaims then, I do not think it possible to envisage circumstances where JLM would not be ordered at trial to refund to the plaintiffs at least the shortfall between (i) the combined amount of the project management fees claimable by JLM (including the seven per cent on extras) and the amounts billed to it by its suppliers and contractors, and (ii) the

$1,624,232.84 the plaintiffs have paid to JLM.15

[137]   Looking at the factors to be considered under s 45 of the CCLA, I have already addressed the terms of the contract (s 45(a)), and JLM has already been reimbursed for expenditure incurred by it for the purpose of performing the contract (s 45(c)). The evidence is that JLM had run out of money in February 2017, and that it did not have the resources to complete the contract in any event (s 45(b)). If JLM received the

$91,871.92 allocated for project management fees in the contract, and it received the further seven per cent of the value of the extras by way of additional project management fees, it would have received the full value of the services performed by it under the contract (s 45(d)). Under s 45(e), the plaintiffs have obtained no relevant benefit or advantage because of anything done by JLM for the purpose of performing the contract – they have paid in full for everything JLM has done.

[138]   Of the s 45 considerations, the fundamental one seems to me to be the first consideration, namely the terms of the contract. The reality appears to be that JLM took the commercial risk of entering into a fixed price contract, and got itself into difficulty when contractors’ or suppliers’ costs exceeded its expectations, and/or it was required to spend far more time on project management than it had allowed for in the agreed remuneration for that work.16

[139]   If NZS 3902:2004 did apply in full, the provisions of the CCLA would have to be read subject to section 15.3 of NZS 3902:2004.17 But the result could not be any different. JLM has been paid all that it invoiced up to the date of cancellation, and I do not think JLM could reasonably argue that it would not be “fair and reasonable in

15     Leaving aside, for the moment, the $20,000 paid by the plaintiffs to the window supplier after cancellation.

16     Subject to JLM’s affirmative defences/counterclaims in which it seeks additional remuneration for time spent on project management work.

17     Contract and Commercial Law Act 2017, s 34.

the circumstances” under s 15.3 for it to refund any amounts paid to it by the plaintiffs beyond what it would ever have been entitled to receive under the contract. Section

15.3 of NZS 3902:2004 did provide for the parties to use the dispute resolution procedures of s 16 if they could not agree on the amount to be paid on cancellation, but JLM did not plead that provision in its statement of defence, and has not asked for a stay of the proceeding to have the dispute dealt with under s 16. In those circumstances I am satisfied that JLM has waived any right it might have had to have the amount payable on cancellation, dealt with under the s 16 procedures.

[140]   Subject to considering JLM’s affirmative defences and counterclaims, I conclude that it is not reasonably arguable for JLM that it is not liable to pay the plaintiffs the difference between the amounts invoiced to JLM by its contractors and suppliers (plus JLM’s full claimable project management fees, including on all extras to October 2017), and the $1,624,232.84 paid by the plaintiffs up to October 2017.18 The answer to Issue (3) is therefore “no”, subject to consideration of JLM’s affirmative defences and to the adjustments it claims, which I deal with in my consideration of Issue (5).

Issue (4): If the answer to Issue (2) is “no”, does JLM have any reasonably arguable defence to the plaintiffs’ breach of contract claims on which summary judgment is sought?

[141]In light of my answer to Issue (2), there is no need to answer this Issue.

Issue (5): Does JLM have reasonably arguable defences over the quantum of the

$301,399.86 claimed by the plaintiffs under the contract, or by setting off the amounts it has pleaded in its affirmative defence?

Issue (6): Is it clear that neither of JLM’s counterclaims can succeed?

[142]I will deal with these two issues together.

The affirmative defences and the counterclaims

[143]I address first JLM’s affirmative defences.

18     Again, leaving out for now the $20,000 paid by the plaintiffs after cancellation.

[144]   The first two are related. JLM claims first that the plaintiffs have suffered no loss, and secondly (and in the alternative) that any loss they have suffered has been inflated. The essence of the defence is a pleading that the almost complete building on the land is worth substantially in excess of the total amount paid by the plaintiffs.

[145]   I do not consider these defences are arguable. The usual starting point in considering damages for breach of contract is that each side is to be put as nearly as money will permit in the same position it would have been in if each side had carried out its side of the bargain. That approach does not normally alter if it turns out that one side or the other has made a bad bargain. On the best possible case here, JLM could do no better than being credited with the full amount of the project management fees it would have been entitled to if the project had been completed. If the right to recover all of those project management fees is considered arguable for summary judgment purposes, which I find is the case, and JLM is still left holding a substantial amount of money paid to it by the plaintiffs (that, following cancellation, will never have to be applied to the project), it is not in my view relevant that the plaintiffs might have acquired something that now happens to be worth more than they have paid (if that should turn out to be the case).

[146]   In its third affirmative defence, JLM referred to the hundreds of additional hours it spent dealing with major variations which it said had the effect of “elongating the project”. JLM claimed that it had spent a total of 1,220 hours dealing with such matters and, based on a “reasonable” hourly rate for that time it should be entitled to set off an additional $178,000 against the amount claimed by the plaintiffs by way of project management fees.

[147]   The problem with this argument is that JLM acknowledges that there was an agreement in place that the cost of additional project management work carried out by it would be paid by adding a seven per cent project management fee to the cost of all agreed extras. JLM specifically pleaded this at paragraph 4 of its counterclaim, where it said:

4. The plaintiffs and [JLM] had subsequently agreed that project management fees incurred in respect of variations would be charged at 7% of the cost of the variation.

[148]   JLM went on to plead in its statement of defence and counterclaim that the plaintiffs subsequently “resiled from the agreement”, and that, as a result, it became entitled to rely on s 12.3.3 of NZS 3902:2004.19

[149]   In their statement of defence to counterclaim, the plaintiffs expressly admitted JLM’s pleading at paragraph 4 of its counterclaim, as set out above, and they denied that they had resiled from the agreement to pay for project management work at seven per cent of the value of all agreed extras. They pleaded that JLM never sent them an invoice for the alleged cost of the additional hours now claimed, and that all invoices that were rendered by JLM were paid.

[150]   In the circumstances just described I do not think it is now open to JLM to argue that there was no agreement on the amount it was entitled to receive for project management work associated with variations – it has pleaded that there was such an agreement, and that pleading has been admitted by the plaintiffs. And even if the plaintiffs did “resile” from that agreement (a point on which I do not need to make any finding), I accept Ms Matthews’ submission that any such “resiling” would not have entitled JLM to charge on some other basis: it would only have entitled JLM to receive compensation based on the agreed seven per cent regime.

[151]   For those reasons, I conclude that none of the affirmative defences pleaded by JLM are reasonably arguable.

[152]   JLM’s first counterclaim must fail for the same reasons its third affirmative defence is beyond reasonable argument. The claim is essentially the same as the set- off claimed in the third affirmative defence.

[153]   The second counterclaim, based on alleged quantum meruit, is equally unarguable. There was an agreement on the basis JLM would be remunerated if it was required to carry out additional project management work associated with variations, and it has been paid that remuneration. There is no room for a quantum meruit-based claim.

19 Section 12.3.3 provided: If the value of any variation is not agreed before the variation work starts and the Owner has agreed that the variation work can start, then the Owner must pay the Builder’s reasonable costs of the variation.

[154]I do not consider the counterclaims are capable of being “cured” by amendment

– JLM has accepted the existence of the seven per cent agreement, and it invoiced the plaintiffs throughout on the basis of that agreement. I conclude that the plaintiffs are entitled to summary judgment as sought on JLM’s counterclaims.

JLM’s adjustment claims

[155]   For the purposes of their summary judgment application only, the plaintiffs have conceded that certain invoices issued by JLM which the plaintiffs paid but have since disputed, are or may be capable of reasonable argument for JLM. These include JLM’s 21 September 2016 claim for $30,378.06 for “unsuitable materials”, and the “overspend” claim of $84,688.58 submitted by JLM in February 2017 (less the $3,781 that Mr Lloyd accepted was wrongly included in the “overspend” claim).

[156]   Mr Glanz said in his reply affidavit that the plaintiffs “have allowed all [JLM’s] invoices as part of the amounts properly payable on the project, without disallowing them because they are overspend, and without treating them as extras”. The plaintiffs have also credited JLM (for summary judgment purposes only) with a project management fee on the overspend at eight per cent, not the seven per cent that would have been payable if the work were treated as an extra to the contract.

[157]   Mr Lloyd said in his evidence that the plaintiffs had not allowed in their calculations for invoices received by JLM from Complete Waterproofing Ltd for

$8,050, and from Sifco Fastening Solutions ($9,496.28). The Sifco invoice had not previously been supplied to the plaintiffs, and was accordingly not allowed for in their claim figure of $301,399.86. The plaintiffs accept that the $9,496.28 should be deducted from their claim. Mr Glanz also accepted that the $8,050 had been billed to JLM by Complete Waterproofing Ltd, but he said $2,875 of this sum was paid by the plaintiffs direct to Complete Waterproofing Ltd after the cancellation of the contract. He accepted that the balance of $5,175 should be deducted from the plaintiffs’ claim figure.

[158]   I accept the plaintiffs’ position on the Complete Waterproofing Ltd account. JLM cannot be credited with the $2,875 when the plaintiffs have paid that sum direct to its creditor, relieving JLM of the liability to make that payment.

[159]   The next area where Mr Lloyd sought adjustment related to paid invoices which the plaintiffs considered they should not have had to pay, and which they deducted in their calculation of their $301,399.56 claim figure. Mr Lloyd claimed an adjustment of $10,640.17 in JLM’s favour for these invoices. Mr Glanz accepted that

$3,451.47 of this sum was properly claimable under the contract, but he disputed the balance of $7,188.70. Mr Glanz thus calculated that JLM should be entitled to credits for the items referred to in [157] above and in this paragraph, or summary judgment purposes totalling $18,122.79. Adding eight per cent for project management fees, he arrived at a total “adjustments” figure of $19,572.57.

[160]   The disputed invoices for which Mr Lloyd claimed a credit of $10,640.17 included an amount of $3,608.12 in respect of an invoice that Mr Lloyd had told the plaintiffs was under dispute. A further invoice ($2,748.50) was said to be for concrete not supplied to the property. I am of the view that the disputes over these items are not suitable for determination on a summary judgment application. I find (for summary judgment purposes) that JLM is entitled to the “credit” in the sum of $10,640.17 as sought.

[161]   The total amount that may be arguable for JLM on the adjustments I have so far addressed, then, is Mr Glanz’s total adjustments figure of $19,572.57, plus

$7,188.70 (plus eight per cent thereon), the latter figure being the difference between Mr Lloyd’s adjustment claim of $10,640.17 and the $3,451.47 of that sum that Mr Glanz accepted and included in his “credit” of the total $19,572.57. The total adjustment for these items is $27,336.37.

[162]   The next claimed adjustment was for the $34,104.50 charged by JLM for project management fees before the contract was made on 1 December 2014. The plaintiffs credited JLM with this amount in their computation of their $301,399.86 claim figure, but in case it remains an issue I will briefly express a view on this part of the claim.

[163]   The plaintiffs rely on an email from Mr Lloyd going back to December 2011, contending that this sum should have been treated as a payment on account of the

$91,871.92 JLM was entitled to charge for management fees under the  contract. The

defendants say that “all bets were off” when the plaintiffs wrote on 24 November 2014 saying that they would not proceed further with the contract.20 Mr Lloyd also said that the December 2011 advice he gave was given at a time when the cost of the project was expected to be higher, and JLM’s management fee (which would be calculated at eight per cent of the contract price) was anticipated to be higher than the $91,871.92 figure calculated on the fixed price that was eventually agreed.

[164]   I do not think this is a dispute suitable for resolution on a summary judgment application. The contract itself contains no provision stating that pre-contract management fees of $34,104.50 were to be treated as an advance payment on account of the $91,871.92 specified in the contract, and the plaintiffs did not challenge the wording of the contract in that respect. This is an issue for determination at trial, after the parties have had the benefit of full discovery, and witnesses have been cross examined.

[165]   The plaintiffs next contend that JLM had not earned, and could not have been entitled to, the full $91,871.92 project management fee set out in the contract, when the work was still far from complete on the cancellation date. In their claim computation, they allowed a credit to JLM of the amount actually billed by it for project management fees payable under the contract, namely $32,466.21.21

[166]   The plaintiffs might be right on that, but in circumstances where it is arguable for JLM that the plaintiffs might not have validly cancelled the contract I think it would be dangerous to assume on a summary judgment application that JLM will not recover at trial the maximum sum it would have been entitled to under the contract for project management fees. The difference between the amount of contract project management fees credited by the plaintiffs in their claim computation ($32,466.21) and the amount JLM might have recovered under the contract ($91,871.92), is $59,405.71. That sum should also be deducted from the plaintiffs’ claim figure of $301,399.86 in arriving at

20     The plaintiffs changed their minds and elected to proceed with the contract very shortly thereafter.

21 According to Mr Glanz’s Schedule 4, detailing the invoices supplied by JLM and the progress payments made by the plaintiffs, JLM billed a total of $60,212.93 for project management fees after the contract was made. Of that sum, $27,746.72 was for extras (and has been paid), and

$32,466.21 had been charged on account of the $91,871.92 allocated for project management fees in the contract.

the amount of the judgment to which the plaintiffs are entitled on their contract cause of action against JLM.

[167] Adding the adjustment of $59,405.71 to the adjustments subtotal of $27,336.37 at [161] above, I find that there is a maximum possible set-off for JLM of $86,742.08 against the plaintiffs’ claim of $301,399.86. The plaintiffs are thus entitled to summary judgment against JLM on their contract cause of action, in the sum of $214,657.78.

[168]The answers to Issues (5) and (6) are:

(i)JLM has an arguable defence to the plaintiffs’ breach of contract claim to the extent of $86,742.08, but has no arguable defence to the balance of the contract claim ($214,657.78); and

(ii)It is clear that neither of JLM’s counterclaims can succeed. The plaintiffs are entitled to summary judgment on the counterclaims.

Issue 7: If the answer to Issue (6) is “no”: (i) Should the Court decline to enter judgment for the plaintiffs against JLM on any cause of action on which it would otherwise have been entitled to summary judgment; (ii) Should the Court stay execution of any judgment entered in the plaintiffs’ favour against JLM?

[169]In view of my answer to Issue (6), there is no need to address this issue.

Issue (8): Does JLM have any reasonably arguable defence to the plaintiffs’ “payments made by mistake” cause of action?

[170]   Where someone makes a payment by mistake to the wrong person, and would not otherwise have made the payment, the party making the payment is prima facie entitled to recover the payment from the person receiving it. The position may be different in circumstances where the party receiving the money has received the payment in good faith, or has altered his or her position in reliance on receipt of the money, so that it would not be equitable to require the party to return the payment.22

22     Thomas v Houston Corbett and Company [1969] NZLR 151 (CA); ASB Securities Ltd v Geurts

[2005] 1 NZLR 484 at [42].

Statutory provisions providing relief to recipients of payments made by mistake were enacted in ss 94A and 94B of the Judicature Act 1908. Both sections were preserved in the Property Law Act 2007 (PLA), ss74A and 74B, when the Judicature Act was repealed in March 2017. Sections 74A and 74B of the PLA read;23

74A Recovery of payments made under mistake of law

(1)    If relief in respect of any payment that has been made under mistake is sought in any court (whether in civil proceedings or by way of defence, set- off, counterclaim, or otherwise) and that relief could be granted if the mistake were wholly one of fact, that relief must not be denied by reason only that the mistake is one of law, whether or not it is in any degree also one of fact.

(2)   Nothing in this section enables relief to be given in respect of any payment made at a time when the law required, or allowed, or was commonly understood to require or allow, the payment to be made or enforced, by reason only that the law was subsequently changed or shown not to have been as it was commonly understood to have been at the time of the payment.

74B Payments made under mistake of law or fact not always recoverable

Relief, whether under section 74A or in equity or otherwise, in respect of any payment made under mistake, whether of law or of fact, must be denied wholly or in part if the person from whom relief is sought received the payment in good faith and has so altered his or her position in reliance on the validity of the payment that in the opinion of the court, having regard to all possible implications in respect of other persons, it is inequitable to grant relief, or to grant relief in full, as the case may be.

[171]   In view of my findings that the plaintiffs are entitled to summary judgment on their contract claims against JLM in the sum of $214,657.78, and that it is arguable that JLM may be entitled to retain the balance of the money paid to it by the plaintiffs under the contract, the plaintiffs cannot do any better on their “payment made by mistake” cause of action than they have already achieved in my answer to Issue (5). To the extent JLM might be held entitled at trial to retain $86,742.08 of the payments made by the plaintiffs, the $86,742.08 could not, in my view, be recovered as payments made by mistake – there could be no mistake if the plaintiffs intended to pay what they were liable for, and the Court found that that is what occurred.

23 Property Law Act 2007 ss 74A & 74B.

[172]   In those circumstances, I do not think it necessary or appropriate to enter any judgment to which the plaintiffs might turn out to be entitled on their claim based in mistake, for recovery of payments made under the contract.

[173]   The position is different with the $20,000 paid by the plaintiffs to the window supplier after the contract was cancelled. Section 42 of the CCLA had the effect that neither party was entitled to continue to perform the contract after cancellation. So there could not be any basis in the law of contract for recovery of the $20,000 paid by mistake to JLM after the contract had been cancelled.

[174]   The evidence establishes that the payment was made to JLM by mistake – Mr Glanz’s evidence that he intended to make the payment direct to the window supplier is not challenged by Mr Lloyd, and there would have been no plausible reason for the plaintiffs to have sent the $20,000 to JLM after they had cancelled the contract.

[175]   I am satisfied that the plaintiffs must succeed on their claim for the $20,000, based on their second cause of action. The plaintiffs had no contractual relationship with the window supplier, and it appears that the only reason they paid the window supplier was because JLM had not done so, and the plaintiffs wished to see the window work completed. The effect of their making the payment was thus to discharge a contractual duty owed by JLM to the window supplier.

[176]   I do not understand there to be any suggestion that the windows constituted an extra, or variation, to the contract, for which the plaintiffs had not already made payment: the plaintiffs were entitled under the contract to have the windows supplied and installed without any further payment from them.

[177]   I do not think there could be any argument that it would be inequitable to require JLM to refund the $20,000. If it had not received this money and paid it on to the window supplier, it would have been left with a liability to the window supplier in the same sum – JLM in fact received a windfall to which it was not entitled, and its position will not be worsened if its $20,000 liability to the window supplier is replaced with a $20,000 liability to refund the plaintiffs.

[178]   I find on Issue (8) that JLM has no reasonably arguable defence in respect of the $20,000 paid by the plaintiffs to it after cancellation. The plaintiffs’ remaining claims on this cause of action are to go forward to trial.

Issue (9): Do JLM and Mr Lloyd have reasonably arguable defences to the plaintiffs’ claims under the Fair Trading Act?

Issue (10): If and to the extent JLM and/or Mr Lloyd have/has no reasonably arguable defence to the plaintiffs’ claim under the Fair Trading Act, what is the appropriate relief to be awarded?

[179]I will deal with these two Issues together.

[180]Section 9 of the Fair Trading Act 1986 (the FTA) provides:

9 Misleading and deceptive conduct generally

No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

[181]In Red Eagle Corp Ltd v Ellis the Supreme Court held that:24

The question to be answered in relation s 9 in a case of this kind is accordingly 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 so, a breach of s 9 has been established.

[182]   In this case, the alleged breaches of the FTA are said to have arisen out of the progress claims submitted by JLM. Mr Lloyd is sued as the director and “alter ego” of JLM, and he admits in his defence that, on behalf of JLM, he personally assured responsibility for, and exercised control over, the building works.

[183]   The question of what JLM was entitled to charge for in its progress claims is not entirely free from doubt. One of the options in NZS 3902:2004 would have been to structure the contract on the basis that progress claims could be made when the work reached various “milestones”. But the parties did not select that option. They provided only that JLM could bill on a monthly basis.

24     Red Eagle Corp Ltd v Ellis ]2010] 2 NZLR 492 at [28].

[184]   Mr Lloyd said in his evidence that in making payment claims, he endeavoured to ensure JLM had sufficient cash flow to make purchases and proceed with the contract. He said “that would be based on upcoming expenditure”, and that he necessarily worked on an “estimate” basis and not an actual cost basis.

[185]   In reply, Mr Glanz observed that cash flow would never have been an issue. He said that JLM’s payment claims were so far ahead of the amounts it needed that they would have been sufficient to “cash flow” another construction project with a value of over $200,000.

[186]   Mr Glanz’s Schedule 6 appears to bear that out. From progress claim No.11 issued by JLM in September 2016, the cumulative total of payments made by the plaintiffs, minus the total of suppliers’ and contractors’ invoices to JLM, sometimes exceeded $300,000. It does not appear to have dropped below $270,153.47 (the level in February 2017) between September 2016 and October 2017 when the contract came to an end.

[187]   I did not understand Mr Lloyd to suggest that JLM was entitled to invoice the plaintiffs for amounts it had no intention of applying towards expenditure on the property (for example to meet unrelated cash flow difficulties), and yet that is what appears to have occurred. Mr Lloyd appeared to seek to justify this in part by pointing to the 1,220 “extra” hours of work JLM was said to have carried out on variations, but I think it telling that JLM appears to have made no attempt to claim that sum before the contract was cancelled.

[188]   I am satisfied that the progress claims constituted implied representations by JLM that the amounts claimed had either been spent by JLM on the project or were estimates of amounts JLM reasonably estimated it would have to spend on the project within the next ensuing monthly payment period. I am also satisfied that the representations must have been misleading or deceptive, or likely to mislead or deceive, from at least September 2016 when JLM submitted its progress claim 11. JLM knew that the plaintiffs were in South Africa and would likely rely on the progress payment claims as genuine statements of actual or prospective expenses JLM had or would shortly incur, and that they would make payment accordingly. In my view it

was reasonable for the plaintiffs to rely on those representations in the progress claims, and they must have suffered some loss as a result of JLM’s misleading or deceptive statements.

[189]   I find that JLM has no arguable defence to the following breaches of s 9 of the FTA alleged by the plaintiffs:

(i)JLM’s overcharging in the payment claims from and after progress claim 11 amounted to misleading or deceptive representations by JLM that JLM was contractually entitled to charge the amounts claimed, and that there was a factual basis for such claims. Those representations induced the plaintiffs to pay progress claim 11 and the progress claims submitted by JLM after progress claim 11; and

(ii)JLM misrepresented its state of mind and intentions when it submitted progress claim 11, and all subsequent progress claims, as follows. To the extent each payment claim was overstated, JLM knew at the time it made each progress payment claim that it had no intention of incurring expenses up to the value it was claiming by the time each subsequent payment claim was made. Those misrepresentations induced to the plaintiffs to pay progress claim 11 and the progress claims submitted by JLM after progress claim 11.

[190]   The other breaches of the FTA alleged by the plaintiffs do not appear as clear cut, particularly given the parties’ differing interpretations of the payment provisions of the contract, and precisely what JLM was entitled to charge for in its monthly invoices.25

25 On any interpretation JLM could not have been entitled to render progress payment claims that exceeded by over $200,000 the amounts it had either spent or expected to spend on the contract before the next payment claims.

[191]   Any precise quantification of the plaintiffs’ losses caused by JLM’s misleading or deceptive conduct is impossible at this stage, where we are concerned only with loss caused by reliance on each misleading progress claim. In some cases, the loss might only have been paying for a particular item before the plaintiffs should have been required to pay for it. The right judgment in those circumstances is for liability, with quantum to be decided at trial.

[192]   Mr Lloyd was the directing mind of JLM at all material times, and I am satisfied that he is liable with JLM for the breaches of the FTA I have found were committed by JLM.26

[193]   The result on Issues (9) and (10) then, is that neither JLM nor Mr Lloyd has an arguable defence to the plaintiffs’ claims under the FTA as set out in paragraph [186] above. The appropriate relief to be awarded to the plaintiffs is judgment for liability on those claims, with the questions of quantum on those claims, and liability and quantum on the other alleged breaches of the FTA, to go forward to trial.

Result

(1)Summary judgment is entered for the plaintiffs against JLM in the sum of $214,657.78, in accordance with my determination on Issue (5).

(2)Summary judgment is entered for the plaintiffs against JLM for the further sum of $20,000, in accordance with my determination on Issue (8).

(3)Subject to order (2) above, the plaintiffs’ application for summary judgment on their second cause of action against JLM (payments made by mistake) is refused.

26 In Gilmour v Decision Makers (Waikato) Ltd, [2012] NZHC 298 at [87] Woolford J referred to the decision of the Court of Appeal in Body Corporate 202254 v Taylor [2008] NZCA 317, [2009] 2 NZLR 17 before stating: Taylor makes it clear that an employee may be personally liable under [the FTA] for statements they make in the course of employment and no assumption of responsibility is required. Gloken Holdings Ltd v The CDE Company Ltd [(HC) Hamilton, CP28195, 24 June 1997] is also authority for the proposition that where a person is the manager or director and where the breach of [the FTA] is theirs, they can be considered the “alter ego” of a company and will be personally liable.

(4)Summary judgment is entered for the plaintiffs against both JLM and Mr Lloyd for liability on the claims in the plaintiffs’ cause of action under the FTA, in accordance with paragraph [189] of this judgment. The quantum of the judgment to be entered for the plaintiffs on those claims, and the issues of liability and quantum on the plaintiffs’ other claims under the FTA, are to go forward to trial.

(5)The plaintiffs are entitled to interest on their judgments as above, under the Interest on Money Claims Act 2016. Counsel may submit a memorandum setting out the claim for interest (calculated to the date of this judgment), within 10 working days.

(6)Summary judgment is entered for the plaintiffs on JLM’s counterclaims.

(7)The plaintiffs are entitled to costs against JLM and Mr Lloyd on both their claim and on JLM’s counterclaims. My impression is that those costs should be awarded on a 2B basis, but I did not hear from counsel on that, and Ms Matthew advised in her submissions that the plaintiffs wish to be heard on costs. If the plaintiffs and Mr Lloyd cannot agree on costs, the plaintiffs may file and serve a memorandum setting out their costs claim within 15 working days. Mr Lloyd may file and serve a reply memorandum within a further 10 working days. I will then deal with the issue of costs on the papers.

Associate Judge Smith