Hamilton Ice Arena Ltd v Perry Developments Ltd
[2001] NZCA 308
•10 September 2001
| IN THE COURT OF APPEAL OF NEW ZEALAND | CA251/99 |
| BETWEEN | HAMILTON ICE ARENA LIMITED |
| First Appellant |
| AND | GORDON ALEXANDER SPEIRS, HUGH MICHAEL SPEIRS AND MARIE NOVENE SPEIRS |
| Second Appellants |
| AND | GORDON ALEXANDER SPEIRS AND HIGH MICHAEL SPEIRS |
| Third Appellants |
| AND | PERRY DEVELOPMENTS LIMITED |
| First Respondent |
| AND | PERRY PROPERTIES LIMITED |
| Second Respondent |
| AND | JOHN HAROLD GAUKRODGER AND GRAEME ROBERT FINCH |
| Third Respondents |
| AND | FRANKTON ICE SKATING LIMITED |
| Fourth Respondent |
| Hearing: | 21 and 22 August 2001 |
| Coram: | Tipping J Doogue J William Young J |
| Appearances: | R T Wilson and A J Robinson for Appellants M A MacLennan and N A Moreau for Respondents |
| Judgment: | 10 September 2001 |
| JUDGMENT OF THE COURT DELIVERED BY TIPPING J |
Introduction
The principal issue in this appeal from Penlington J concerns equitable set-off. In January 1993 the first appellant, Hamilton Ice Arena Limited (Hamilton Ice) was in arrears with the rent it owed to the first respondent, Perry Developments Ltd (Perry) in relation to ice skating premises in Hamilton. At the same time Perry owed money to Gordon and Hugh Speirs who were the shareholders and directors of Hamilton Ice. This money was owned for work which the Speirs brothers had done for Perry in relation to a ten pin bowling arena at Panmure in Auckland. Perry re-entered the ice skating premises in Hamilton and forfeited Hamilton Ice’s lease on account of its failure to pay the rent. Hamilton Ice claimed that the re-entry and forfeiture were unlawful because of the claim which its shareholders and directors, the Speirs brothers had against Perry for wages. Its assertion was that this claim constituted an equitable set-off exceeding the arrears of rent and thus extinguishing Hamilton Ice’s liability for rent.
As there was, on this hypothesis, no rent owing, Perry’s conduct in re-entering and forfeiting the lease was, so Hamilton Ice contends, unlawful and amounted to trespass for which damages were payable. Perry denied Hamilton Ice’s ability to set-off the wages which it owed the Speirs brothers. It said that no equitable set-off arose, first because the parties on each side of the claim and cross-claim were not the same, and second because the claims were not sufficiently related to give rise to any rights of equitable set-off. Perry further argued that even if a right of equitable set-off existed, it amounted only to a defence to the claim for rent and gave rise to no cause of action for damages on account of trespass or otherwise. On the view we take of the first two points, the last does not arise and we will therefore say nothing more about it.
Equitable set-off – general principles
Before examining the facts of the present case, we will identify the general principles which apply to equitable set-off. A set-off is a right vested in a defendant facing a money claim by a plaintiff to use its own money claim against the plaintiff to absolve itself wholly or partially from its obligation to the plaintiff. A set-off is different from a counter claim which, if established, gives the defendant a right to an independent judgment against the plaintiff, but no ability to reduce or extinguish the plaintiff’s claim against the defendant. Common law set-off originated in statutes passed early in the 18th century. Essentially the common law right was to set-off mutual liquidated debts. Equity intervened to allow set-off on a wider basis than that available at law. Cross-claims were allowed by way of defence, and the courts of equity would also restrain a plaintiff from proceeding at law if the defendant could show a cross-claim which had the effect of impeaching the plaintiff’s title to make the claim at law. It is helpful to remember this historical origin when examining claims of equitable set-off today.
Equity would intervene only if the defendant in the suit at law could show some cross-claim for a sum of money which, in the eyes of equity, undermined the right of the plaintiff in the suit at law to enforce his legal claim either at all, or to the extent of the cross-claim. Equity always acknowledged the defendant’s right to counter claim but took the view that in some circumstances such right was not sufficient to do justice. The courts of equity would not readily interfere with the proceedings at law and confined themselves to cases where the claim at law and the defendant’s cross-claim were so closely inter-related that it would be unconscionable for the plaintiff to seek judgment at law without bringing the defendant’s cross-claim to account.
The need for such close inter-relationship was and still is underscored by the fact that an equitable set-off extinguishes the plaintiff’s right to judgment, either entirely or pro tanto, according to the amount which the defendant is entitled to set-off. There is a detailed discussion of the principles pertaining to equitable set-off in the judgment of this Court delivered by Somers J in Grant v NZMC Ltd [1989] 1 NZLR 8. His Honour discussed the historical background and referred to a number of cases which have marked the development of this area of the law. It is unnecessary in the present case to say any more about equitable set-off generally, save to note this Court’s statement of principle in Grant’s case at 12:
The defendant may set-off a cross-claim which so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account. The link must be such that the two are in effect interdependent: judgment on one cannot fairly be given without regard to the other; the defendant’s claim calls into question or impeaches the plaintiff’s demand. It is neither necessary, nor decisive, that claim and cross-claim arise out of the same contract.
Penlington J reviewed the authorities and consistently with them said that “the equity claimed must go to the very root of the plaintiff’s claim”. He thereby adopted the way Forbes J put the matter in British Anzani (Felixstowe) Ltd v International Marine Management (U.K.) Ltd [1980] 1 QB 137 at 145.
Identity of parties
The first issue which arises in the present case concerns the fact that the parties are not the same on either side of the cross-claims. Hamilton Ice owed money for rent to Perry, whereas Perry owed money for wages not to Hamilton Ice but to the Speirs brothers. Mr Wilson who appeared for Hamilton Ice in this Court but not below, argued that this non matching of parties was not a fatal difficulty. He contended that in Grant’s case the parties were not the same either. That, however, is not so. Mr and Mrs Grant owed money for rent to NZMC and claimed that NZMC owed them (not their company) money by way of damages for breach of its undertaking to them to provide custom to their company. As Mr MacLennan said for Perry, the authorities seem to proceed on the basis that the need for identity of parties is axiomatic. No case was cited in which the issue had been discussed. Mr MacLennan suggested that this was because the point had always been regarded as self-evident. Penlington J did not have to discuss the identity of parties point discretely because he found that in any event there was no sufficient inter-dependence between the obligations on either side.
Neither party referred to the title Set-Off and Counter-Claim in Halsbury’s Laws of England, 4th edition, Volume 42. There at paragraph 435 the authors say that, subject to stated exceptions, none of which apply in the present case:
a set-off may only be maintained where the claims to be set off against each other exist between the same parties and in the same right.
What Halsbury says was certainly the position at common law under the statutes of set-off as noted in the footnote 2 to paragraph 435. The cases there cited also support the view that the position is the same with equitable set-off. The need for identity of parties is also consistent with the proposition that the cross-claim is regarded in equity has fully or pro tanto extinguishing the plaintiff’s right to judgment on the claim. The concept of extinguishment is difficult if the cross-claim is made by a different party.
The Speirs brothers are of course different parties in law from their company Hamilton Ice. At one point Mr Wilson suggested that the case might be one for lifting the corporate veil and treating Hamilton Ice and the Speirs brothers as one and the same legal entity. That argument was not, however, pressed or supported by authority. That is understandable. The different transactions into which the parties entered were carefully structured with legal advice on both sides. The case falls a long way short of raising circumstances in which it would be appropriate to lift the corporate veil of Hamilton Ice and treat it and the Speirs brothers as being the same person in law. While we would not wish to rule out the possibility that in some unusual circumstance it might be appropriate to allow equitable set-off where there is no identity of parties, any such circumstance (other than one justifying the lifting of the corporate veil) would have to be consistent with the extinguishment rationale. In this case, there being no basis for lifting the corporate veil and equating the Speirs brothers with Hamilton Ice, we are of the view that the lack of identity of parties is in the circumstances fatal to Hamilton Ice’s claim to set-off the money owing by Perry to the Speirs brothers against the money which it owed Perry for rent.
In coming to that view we have borne in mind that the Speirs brothers personally guaranteed Hamilton Ice’s rental obligations. Indeed the guarantee made them principal debtors and treated them as tenants themselves. Counsel suggested that this circumstance should be seen as overcoming any difficulty that might otherwise exist because the parties to the claimed set-off were not the same. The difficulty with this argument is that Perry never sought to claim arrears of rental from the Speirs brothers. If such a claim had been made, their cross-claim for wages would have qualified for equitable set-off, subject to the need to show sufficient inter-dependence.
When the Speirs brothers ultimately rendered an invoice for what Perry owed them, they rendered it in the name of Hamilton Ice and incorporated a purported set-off of the rental monies. There were suggestions during oral argument that this might have amounted to a form of appropriation of the Speirs brothers’ debt to Hamilton Ice or indeed some form of assignment. Neither proposition was investigated at the trial and we do not consider the point can now be raised. Indeed we do not regard either analysis as sound nor do we consider any such analysis could survive the clear intention demonstrated by the contractual documents that some cross-crediting was allowed but not cross-crediting of this type, at least not without Perry’s consent which was emphatically declined.
In case we are wrong in our view that the lack of identity of parties is fatal to Hamilton Ice’s claim and for completeness, we will examine the facts in more detail to decide whether Hamilton Ice’s challenge to the Judge’s view that the two claims did not have the necessary inter-dependence has any validity.
Background circumstances
In about 1986, Hugh and Gordon Speirs established a ten pin bowling centre at their property at 4 Kells Place, Hamilton. They became involved in a price war with a larger bowling centre nearby and closed down after only a few years. Towards the end of 1991, the brothers decided on a change of direction and planned to establish an ice skating arena at the Kells Place premises. They needed approximately $80,000 to fit out the premises, but they did not have any capital. They also wished to rid themselves of the indebtedness incurred in setting up the bowling centre, which was then in excess of $450,000. This was by way of a mortgage and chattel security in favour of Allied Mortgage Nominees Ltd.
To this end the Speirs brothers approached a firm of real estate agents, who effected an introduction to Perry. Extensive negotiations took place between the Chief Executive of Perry, Simon Perry, and Hugh Speirs throughout the latter part of 1991 and early 1992.
The overall plan was that Perry would purchase the land and buildings at Kells Place for $320,000 and the bowling centre plant and equipment for $130,000. Perry for its part then proposed to establish a ten pin bowling centre in Auckland (following a suggestion by the Speirs brothers), and bought a property in Panmure for this purpose. The plant and equipment from the Hamilton sale was to be moved to Auckland and put into the new bowling centre there.
The Speirs brothers asserted to Simon Perry that they were experienced in establishing and operating bowling centres. Simon Perry accepted this assertion. It was accordingly proposed that the Speirs brothers, under a bowling centre management contract would:
[i]refurbish the bowling centre plant and equipment once in Auckland;
[ii]establish the new bowling centre for Perry developments; and
[iii]manage the new centre for a time after it was established.
Perry also expressed a willingness to advance to Hamilton Ice a short-term loan to enable this new Speirs company to establish an ice skating arena at Kells Place.
Formal contracts were executed on 20 March 1992 to give effect to the plan as follows:
[i]An agreement for sale and purchase of Kells Place property for $320,000.
[ii]A lease of the Kells Place property from Perry to Hamilton Ice for an annual rental of $100,000 plus GST, rent payable monthly. The lease was for a term of 12 years and was guaranteed by the Speirs brothers. It also contained a buyback clause, exercisable on 1 May 1993 (but not thereafter), provided the tenant was not in default. The option price was $440,000 plus GST.
[iii]An agreement for sale and purchase of the bowling equipment for $130,000.
[iv]A contract of loan, whereby Perry agreed to lend Hamilton Ice $80,000 for a period of eight months. The loan was repayable at the rate of $10,000 per month commencing on 15 May 1992. The loan was due for repayment on or before 15 December 1992.
[v]Perry also took an array of collateral security: a debenture from Hamilton Ice to Perry over assets, a chattel security from Hamilton Ice and the Speirs brothers personally, and a guarantee and indemnity from the Speirs brothers, Marie Speirs and Hamilton Ice in respect of all the indebtedness of Hamilton Ice.
[vi]Finally, and most importantly for present purposes, there was the bowling centre management contract. In return for the Speirs brothers’ services, Perry was obliged to pay a variable percentage by which the final cost was less than budget, with a minimum payment of $10,000, and a management fee for the first six months of operation. Under the contract, the Speirs brothers would automatically be in default if a number of circumstances occurred, including default on the lease to Hamilton Ice and default on the loan to the same company. On default, Perry had the automatic right either to order the default to be remedied, to renegotiate the fees or to terminate the contract. There was no corresponding provision in favour of the Speirs brothers.
In May 1992, the Speirs brothers opened their ice skating arena. Shortly thereafter there was a change in the contractual arrangements between the parties. A replacement bowling centre management contract was executed on 10 May 1992. Some of the Speirs brothers’ contractual obligations, particularly in relation to new staff recruitment and training and the management of the centre, were now “if required by the principal”. On the other hand, the obligations in relation to the freight, building design, planning, refurbishment, installation and testing of the bowling equipment remained the same. The buy back price was also increased to $600,000, but a deposit of $160,000 from the Speirs brothers was to be recognised on completion of the works, so it essentially remained unchanged. Finally, under the new contract, contract fees were payable during the contract works.
It was originally intended that the setting up of the Panmure centre would commence at the end of May. However, it did not suit either contracting party at that time and commencement went on hold until August. During the winter months the Speirs brothers’ time continued to be absorbed at their new skating arena. Simon Perry decided that there should be a further scaling down of the brothers’ involvement in the new bowling centre development. Having observed them at their skating arena, Simon Perry had formed the view that they did not have the necessary management and communication skills to complete the tasks set out in the May management contract.
Accordingly, Simon Perry proposed that the Speirs brothers would essentially be confined to a refurbishment role and that they would no longer be required to design the building, employ and train staff, open the centre and operate it thereafter. Further lengthy negotiations with a view to the replacement of the May contract then commenced.
By mid September, Perry was becoming anxious that the Speirs brothers had not commenced the refurbishment work. Finally, on 15 September 1992, Gordon Speirs started work at East Tamaki on the refurbishment of the bowling equipment. Hugh Speirs remained in Hamilton working at the ice arena. At this time Simon Perry also expressed dissatisfaction with the condition of some of the bowling equipment which his company had purchased. Two of the twenty pin setters were unusable and required replacement parts. This involved the incurring of further and unexpected expenditure.
On the day that Gordon Speirs started work in Auckland Simon Perry also put forward a replacement ‘Bowling Refurbishment Contract’. It envisaged an opening date for the bowling centre of 1 February and not later than 1 March. Consistently with the March and May contracts, the draft provided that default by Hamilton Ice of more than seven days in respect of the lease and/or the loan agreement would be default by the Speirs brothers under the new contract. The new contractual tasks were:
[i]The refurbishment of the bowling equipment at East Tamaki;
[ii]The construction and installation of lane foundations;
[iii]The installation of the above mentioned equipment along with the allied electrical work;
[iv]The testing of the bowling equipment so that it was sanctioned by the New Zealand Ten Pin Bowling Congress (a prerequisite to the participation of league bowlers at tournaments at the new centre);
[v]The training of bowling centre staff as required by Perry Developments; and
[vi]The repair and maintenance of all bowling equipment as required by Perry Developments.
The draft was not executed, but was referred to the Speirs brothers’ solicitor, Kevin Martin. On 22 September and 2 October, Kevin Martin wrote detailed letters to Perry’s solicitors, Tanner Fitzgerald, setting out proposed terms for the replacement contract.
In the meantime difficulties flared up at East Tamaki when Gordon Speirs threatened to pull out of Auckland. On 1 October a meeting was held, where both sides alleged breaches of the May management contract. Shortly afterwards on 13 October, Tanner Fitzgerald wrote to the Speirs brothers in response to Kevin Martin’s two letters. Perry denied it had breached the May contract and expressed its dissatisfaction with the bowling equipment. The letter also addressed various terms of the replacement contract.
This letter upset the Speirs brothers and Gordon went to Hamilton to visit Simon Perry. Their meeting took place on 19 October and there was a marked conflict of evidence as to what happened and as to what, if anything was agreed. The Speirs brothers asserted that there were two set off agreements reached on that day. They were, first, that the Speirs interests could set off contract fees from the Panmure project against the rent or the buy back at their option; and secondly, that the $30,000 owing under the loan agreement was deemed to be paid up. Perry denied these assertions.
Following the meeting Simon Perry wrote to the Speirs brothers detailing his understanding of the arrangement. That letter did not refer to any set off arrangement in respect of the rent. Nor did the Speirs brothers object to its terms. The letter set out four tasks, three to be completed by 11 December and one by 23 December 1992. It provided that in the interim the loan repayments by Hamilton Ice were to be suspended. If what was called a performance bonus was payable it would be applied alongside the $5000 for the tiles against the $30,000 outstanding on the loan. If the tasks were not completed ‘for any reason’ in a timely manner, then Hamilton Ice would bring the loan payments up to date.
Ultimately by 10 November 1992, after much to-ing and fro-ing, all the essential terms of the refurbishment contract emerged. The last point to be settled concerned the supply of labour. Perry Developments agreed to supply ‘adequate labour’ to ensure that the tasks were completed within the deadlines.
There followed marked dissatisfaction on each side. The Speirs complained about the site conditions and both the adequacy and competency of the labour supplied. They were also critical of the fact that they no longer had control of the project (Perry having employed several other contractors following the reduction in the Speirs brothers’ role in the project). On the other hand, Perry was critical of the quality and timeliness of the Speirs’ work on the refurbishment of the equipment and the lane construction. Simon Perry gave evidence that by the beginning of December it had become ‘increasingly obvious’ that the Speirs would not meet their contractual obligations.
On 21 December 1992, Kevin Martin wrote to Tanner Fitzgerald asserting that the agreed work had been completed and that the performance bonus was payable. The letter went on to complain that Perry had not supplied adequate labour and that any delays were as a result of poor organisation by Perry. It stated that the Speirs brothers were not prepared to continue work past 23 December 1992.
This evoked a strong response from Perry Developments by letter dated 23 December. The letter stated that the Speirs brothers had not completed their contractual tasks, accordingly they were not entitled to the performance bonus, and that leaving before completion would be regarded as a breach of the contract.
Hugh Speirs left the job of his own volition on 31 December. Perry did not recall him. On 8 January 1993 Leonard Lipp, a world expert in bowling centre equipment and machinery, arrived from America. He inspected the works and was not satisfied with much of what he saw. Before he left New Zealand he was invited by Simon Perry to prepare a report, which he did. On 20 January Gordon Speirs left the site of his own volition. Simon Perry asserted that the contract work was not completed, as the bowling machinery had not been made fully functional. Two days later, Gordon Speirs was informed that Perry no longer required him on the job.
Up until the beginning of 1993, the Speirs brothers had not rendered any invoice for the work they had done, either under the May contract or the refurbishment contract. On 7 January 1993 Hamilton Ice sent Perry Developments an invoice detailing the weekly labour of Gordon Speirs from 15 September to 7 January and mileage, totalling $11026.40. This is the invoice referred to in paragraph [11] above. From this sum Hamilton Ice purported to deduct rent due of $9375.30. It requested that its credit be retained until further notice.
Simon Perry responded to this invoice immediately by letter on 12 January in the following terms:
We advise that the above tenant has neglected to pay rental due 1 January 1993 and is in default of its lease of 4 Kells Place, Hamilton.
Your client has apparently credited rental owing against an unrelated invoice, a copy of which is attached.
We will not tolerate actions of this nature and unless rental is paid immediately legal action will be taken.
The following day Kevin Martin wrote to Tanner Fitzgerald:
With respect your client’s approach is a technical one which appears unreasonable to our client. Mr Gordon Speirs hasn’t been paid for work done for your client as far back as September 1992…
Our clients are of the view that your client’s refusal to pay Mr Speirs for his work is blatant and unreasonable and is creating considerable ill-feeling.
If your client has in mind to sue for the rental then our clients will sue for the monies owing….
The application of the slightest amount of common sense would see that a set off along the lines proposed in our clients’ statement to your client is common sense if not strictly legally correct. (Emphasis added).
The inter-relationship of the claims
In support of his argument that the two claims were sufficiently linked to permit equitable set-off, Mr Wilson emphasised the following points. The lease and what came to be called the refurbishment contract had their genesis in the batch of contracts all signed on 20 March 1992. The fact that they were to get payment for their work in Auckland influenced the Speirs brothers in their decision to have their company, Hamilton Ice assume its obligations under the lease. They were relying on the Auckland money to enable the rental payments to be made. Perry knew that non payment of the Auckland wages would make it hard for Hamilton Ice to pay its rent. Perry treated the Speirs brothers and Hamilton Ice as one and the same, knowing that the brothers were the sole shareholders and directors of the company. The various contracts contained express linkages, albeit Mr Wilson acknowledged they did not cover the present issue and their failure to do so could be seen as a two-edged sword. Mr MacLennan argued that these factors, even if fully accepted, were not enough to qualify the case for equitable set-off. We agree.
Although we do not suggest that rental obligations fall into special category, it is instructive to note what the leading texts on Landlord and Tenant say about set-off against rent. We invited counsel to consider these texts overnight, they not having featured in the written submissions.
Woodfall on Landlord and Tenant (2000 edition) states at paragraph 7.114:
A cross-claim may be set-off against a claim for rent, even if it is unliquidated, provided that it arises under the lease itself, or directly from the relation of landlord and tenant, or out of an agreement for lease.
The authorities cited in support of that proposition are the British Anzani case noted above, Melville v Grapelodge Developments (1978) 39 P. & C.R. 179 and Asco Developments v Gordon (1978) 248 E.G. 683.
Hill and Redman on the Law of Landlord and Tenant, Issue 35, states at paragraph 3384:
“However, it is now clear that a tenant has a right to set-off against rent, cross-claims which arise not only out of the same contract as the claim (ie. the lease), but also where the cross-claim arises directly out of the relationship of landlord and tenant or out of an agreement for lease, or otherwise where there is a sufficiently close connection between the transaction giving rise to the cross-claim for the equitable doctrine of set-off to apply.”
It can be seen that Hill and Redman’s formulation is somewhat wider than that of Woodfall in that it includes the passage starting “or otherwise”. The authority given for that addition is the Melville case cited by Woodfall. Additional authorities are Cleghorn v Durrant (1858) 22 JP 419 and Star Rider Ltd v Inntrepreneur Pub Co [1998] 1 EGLR 53. There is also a general reference to The Teno [1977] 2 Lloyd’s Rep 289.
Hill and Redman’s somewhat wider formulation is of course consistent with what was said by this Court in Grant. It is therefore appropriate to adopt that approach which allows a set-off even if the cross-claim does not arise out of the relationship of landlord and tenant, provided there is a “sufficiently close connection” between the two claims – essentially the classic requirement for equitable set-off.
While in this case the Speirs brothers’ claim for wages and Perry’s claim for rent can be seen as related in a general way in that they both arose out of a series of transactions which the parties entered into at the same time, and in their mutual interests, there is not in our judgment such inter-dependence between the claims that it can fairly be said the existence of the wages claim should be regarded as impeaching the claim for rent. While, as was said in Grant, the fact that the claims arise out of different contracts is not decisive, if that is so there must be such a link between the different contracts as to justify their effectively being treated as one. In Grant’s case that was so because the contract represented by the lease was induced by the contract concerning supply of business to the company which was going to take the lease.
The two contracts here – the lease and the refurbishment contract – concerned different premises in different cities. One involved rent, the other wages. They really have no practical or conceptual linkage at all. The fact that the money due to the Speirs brothers was intended by them to be used to discharge Hamilton Ice’s obligations under the lease is by no means sufficient for equitable set-off. In almost all cases of money cross-claims one party can say to the other, if you had paid me I would have been able to pay you. If that were a sufficient justification for set-off, the difference between set-off and counter claim would be blurred almost to the point of extinction. An issue such as the present is in the end one which turns on a combination of analysis and impression. The trial Judge came to the view that the claims were not sufficiently linked. We cannot say he was wrong; indeed we agree with his conclusion. This ground of appeal must therefore fail.
We should add that a further difficulty for Hamilton Ice is the fact that after allowing for the damages awarded to Perry and also for the contractually agreed set-off between “performance bonus” and loan, the set-off is insufficient in amount to extinguish the rental claim. This is a further ground on which its claim and hence its appeal must fail.
The performance bonus (so-called) issue
The next issue concerns the entitlement of the Speirs brothers as second appellants to receive the sum of $25,000 referred to as part of the consideration for their work under the refurbishment contract. Penlington J held that as the brothers had not completed their part of that contract by the time stipulated, they could not recover the sum in question because, as the Judge put it, completion was time dependent. By this the Judge meant that performance on time was an essential ingredient of their entitlement to receive the sum in issue. The Judge also held that the brothers had not completed at all and for this additional reason they could not recover. Furthermore, damages amounting to some $26,000 were awarded against the brothers for failing to complete or completing subject to defects. Thus they lost both what was rather misleadingly referred to as their performance bonus (the sum of $25,000) and suffered damages for substantially the same reasons. It is necessary to determine the legal character of the sum of $25,000, irrespective of what the parties chose to call it in correspondence and during the course of the litigation.
The presently relevant aspect of the refurbishment contract is set out in a letter from Perry to the Speirs brothers dated 19 October 1992. The letter describes the tasks which the brothers were to undertake at the Panmure bowling arena. Then follow the relevant provisions as to time and remuneration:
The above tasks are to be completed in conjunction with other contractors working for Perry Developments Limited. Items 1, 2 and 3 are required to be completed no later than 11 December 1992, and Item 4 no later than 23 December 1992.
Remuneration is agreed as follows:
1$500 per person per week, provided a minimum of 50 hours of work per person is performed
2$25,000 for the above work, plus $5,000 for ceiling tiles, which shall be paid by way of forgiving the next three $10,000 loan payments to be paid by Hamilton Ice Arena Limited.
As Mr MacLennan accepted, there can be no suggestion that time was expressly made essential for the purposes of completion. In spite of counsel’s efforts to persuade us that time was implicitly essential, we are not convinced that this is so. The primary reason for expressing the consideration for the Speirs brothers’ work in the two-fold way which was adopted, seems to have been the possibility that they might face injunction proceedings designed to stop them from completing their part of the refurbishment contract. We can find nothing in the correspondence or in any findings of fact made by the Judge which, either alone or in combination with other matters, implicitly establishes that the sum of $25,000 was not payable if the Speirs brothers failed to complete by 23 December 1992.
Furthermore, on that date Perry required the brothers to continue work, thereby waiving any essentiality there may earlier have been in the previously stipulated completion date. The letter written by Perry’s solicitors to the Speirs’ solicitors of 23 December 1992 clearly indicates that Perry was expecting, indeed requiring, the Speirs brothers to undertake further work so as to complete the contract. The letter went so far as to say that Perry wished to make it quite clear that if either of the brothers walked away from the project prior to completion, Perry would regard that as a breach and would take action accordingly.
The Judge simply stated his conclusion that time was of the essence of the completion date without further elaboration and without addressing himself to the letter just mentioned. We find ourselves unable to agree with his view. Whether on the basis of lack of original essentiality or waiver of essentiality, Perry was not entitled to decline payment of the sum of $25,000 on the basis of non-completion by 23 December 1992.
The other associated question is whether the sum of $25,000 was payable in the light of the Judge’s conclusion that the Speirs brothers’ performance was defective. This circumstance can be viewed either as non completion to the contractual standard or as completion subject to certain defects. Damages were awarded on the basis of completion in a defective manner. In any event, we consider the Speirs brothers are entitled to have the case viewed as one of substantial completion subject to Perry’s right to claim damages for defective performance. That is the conventional approach to this sort of issue in building contract cases in the absence of a breach entitling cancellation. The brothers did not go as far as repudiating; they purported to complete, albeit with certain defects. Even if the case could be viewed as involving repudiation by the Speirs brothers, Perry did not accept such repudiation so as to discharge the contract on that basis. This view of the case accords with ordinary principles and also avoids the consequence inherent in the Judge’s view which is that the brothers effectively suffered and Perry gained twice for essentially the same default. Not only did Perry avoid having to pay the sum of $25,000, it also received an award of damages which coincidentally was of much the same amount.
We consider the Judge was unduly influenced by the fact that the parties called the sum in question a performance bonus. In reality it was no more than a form of consideration for completion without any time essentiality in respect of the date of completion. The Judge referred to Hudson’s Building and Engineering Contracts, 11th edition, 1995 at paragraph 8.072 under the heading “bonus and deduction provisions”. This case is not, however, of the same kind as those to which the author was there referring. There was no suggestion in the present contract that the brothers would get the sum of $25,000 if and only if they completed by 23 December 1992. Furthermore, as noted, the Judge did not address the waiver point. All in all we are satisfied that both justice and the appropriate legal analysis dictate that the Speirs should suffer damages for faulty completion, but not the additional deduction of $25,000 from the contract price. Their appeal must succeed on this point.
It is necessary to address an issue which arises as a result of this conclusion. Hamilton Ice was in default in paying the sum of $30,000 under the loan agreement and a receiver was appointed pursuant to Perry’s debenture. Had the “performance bonus” and the tiles been paid for as contractually required, by set-off against the outstanding monies under the loan agreement and debenture, the receivership could not have been based on the asserted default. The issue therefore arises whether Hamilton Ice should receive damages for Perry’s wrongful appointment of the receiver. Those damages must necessarily be heavily circumscribed because the loss of the business was due to the valid forfeiture of the lease and re-entry. Damages on the receivership front, if payable, should be confined to the receivers’ dealings with chattels and associated matters. Damages are not, however, payable because the arrears of rental justified the appointment of a receiver, even if the monies due under the loan agreement did not. The debenture secured all monies owing by Hamilton Ice to Perry. The Speirs brothers’ success on the performance bonus point does not therefore require any re-opening of the receivership issue. Similarly, as they have succeeded on the performance bonus point, their reliance on the proposition that their liability was limited to the loss of the performance bonus, does not arise.
The Lipp report
This issue arises out of the Judge’s admission of the Lipp report into evidence without the author being called. Mr Wilson abandoned the appeal against that decision which the Judge made under the Evidence Amendment Act 1980 but maintained the appeal against the weight which the Judge gave to the report, which he regarded as substantially supporting Perry’s case in relation to the defects in the Speirs’ workmanship. An appeal of this kind is of its nature difficult for an appellant to mount. But Mr Wilson explained that the Speirs’ essential point derived from the fact that they and their witnesses had not been properly cross-examined on the Lipp report. This happened because the Judge ruled that cross-examination should not be pursued until the admissibility of the report had been determined. That was in the event done only in the final judgment.
We consider both sides have to bear some responsibility for the situation which thereby arose. Counsel for the Speirs at trial (not Mr Wilson) could have pointed out to the Judge the difficulty which the course adopted might cause. The fact that he did not suggests, at least as a possibility, that it was then regarded as tactically sensible to let matters remain in a rather uncertain state. It was after all counsel for the Speirs who objected to the admission of the Lipp report in the first place. He could readily have foreseen the problem which the Judge’s initial ruling preventing cross-examination on the report might cause. It is not appropriate to allow the Speirs brothers to take the point on appeal when it was not taken at trial. In any event the matters to which the report is relevant do not, in our view, justify the expense and further delay of sending the case back to the High Court for re-hearing. We therefore decline to make any order to that or any other effect in relation to the Lipp report.
Fresh evidence
Finally we record that at the hearing we declined to admit further evidence tendered by the Speirs brothers. We did so on the basis that the evidence was not fresh evidence qualifying for admission on appeal. It could and should with reasonable diligence have been presented at the trial.
Summary/formal orders
It follows from the conclusions earlier set out that Hamilton Ice’s appeal in relation to the equitable set-off point fails and is therefore dismissed. The appeal by Gordon and Hugh Speirs in relation to the performance bonus succeeds and is therefore allowed. Perry must pay the Speirs brothers $25,000 under that head. We are not in a position to determine the precise effect of this conclusion on the judgment entered in the High Court which was subsequently varied by consent in return for the withdrawal of the Speirs’ application for a new trial. We therefore remit to the High Court all issues (including the form of judgment, interest and costs) consequential on our allowing the Speirs brothers’ appeal on the $25,000 issue. We trust that the parties will be able to resolve all necessary matters without reference to the High Court. As each side has succeeded in part and failed in part in this Court, there will be no order for costs on the appeal.
Solicitors
Till Henderson King, New Plymouth, for Appellants
Harkness Henry & Co, Hamilton, for Respondents
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