Jade Residential Limited v Paul

[2019] NZHC 1484

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV-2018-441-29

[2019] NZHC 1484

BETWEEN

JADE RESIDENTIAL LIMITED

Applicant

AND

MURRAY PAUL AND MAREE PAUL

Respondents

Hearing:

9 May 2019

Appearances:

M Lawson for Applicant

K A Lomas for Respondent

Judgment:

27 June 2019

JUDGMENT OF GRICE J

[1]                 Jade Residential Limited (Jade) seeks leave to appeal to the Court of Appeal from the decision in Paul v Jade Residential Limited.1 That was an appeal from a decision of the District Court.2 Therefore an appeal to the Court of Appeal is a second appeal for which leave is required.

Background

[2]The background facts were set out in my original decision as follows:3

[1]        In the District Court, Jade Residential Limited (the original plaintiff and the respondent here) obtained judgment against Mr and Mrs Paul (the original defendants and the appellants in this court) for a sum to be fixed at a subsequent hearing.

[2]        The judgment concerned work Jade had done in the construction of the Pauls’ house in Havelock North. The house was finally completed after

1      Paul v Jade Residential Limited [2019] NZHC 304.

2      Jade Residential Limited v Paul [2018] NZDC 5673.

3      Paul v Jade Residential Limited, above n 1 (footnotes omitted).

JADE RESIDENTIAL LIMITED v PAUL [2019] NZHC 1484 [27 June 2019]

the Pauls purported to cancel the construction contract with Jade. The cancellation was precipitated by Jade ceasing to work on the job before the house was completed. Jade did so because the Pauls had not paid two milestone payments which Jade said were due.

[3]        Jade made a claim for payment of the two milestone payments. The Pauls lodged a counterclaim for damages for the cost they had incurred to complete the house.

[4]Both parties now appeal against the District Court decision.

[3]I summarised the District Court’s findings as follows:4

(a)The Pauls could not lawfully cancel the contract because they had refused to go to dispute resolution and the contract contained a clause requiring the parties to go to mediation in the event of a dispute.

(b)Jade had not completed the contractual milestones. These were called the “closed-in” milestone and “lined” milestone. The milestones required completion before specified payments were due for each milestone.

(c)Failure to complete the milestones meant that there was no obligation on the Pauls to meet any progress payment at the time the accounts were rendered by The Judge found that while the Pauls unlawfully cancelled the contract, Jade was not “without fault”.

[6] Jade could not rely on the contractual milestone payments of $134,513 and $57,576—the amounts contained in the statement of claim—as the milestones had not been completed. The Judge concluded the most appropriate outcome would be for the Pauls to pay Jade for the actual work done, rather than the milestones. The Judge was of the view that Jade had not established exactly how much was owing to it for the work done. However, no evidence was before the Court that allowed calculation of cost of the actual work done.

[4]                 The District Court Judge also made directions allowing Jade to provide further evidence as to quantum. It was contemplated that evidence would be the subject of a response by the Pauls and a further hearing.

[5]                 The main ground of the Pauls’ appeal from the District Court decision was that the Judge had erred when he found the dispute resolution clause in the contract estopped the Pauls from cancelling the contract until after mediation had been completed.

4      At [5]–[6] (footnotes omitted).

[6]                 On that point the High Court found the District Court had erred and the dispute resolution clause did not prevent the Pauls from cancelling the contract before attending a mediation. The High Court also dealt with and dismissed other grounds of appeal concerning the Judge allowing further evidence to be called on quantum.

[7]                 Jade had cross appealed the District Court’s finding that the two milestones (the closed in and lined milestones) were not completed as well as the effect of the Pauls entering into possession of the property in terms of cl 14 of the contract. I found the Judge was correct in his findings that the two milestones had not been completed and therefore payment on them was not due. I found that the Pauls had properly cancelled the contract due to repudiation by Jade. I also dismissed the cross-appeal related to the effect of the Pauls entering into possession of the property and the Judge’s failure to consider cl 14 of the contract.

Leave application

[8]                 The appeal as filed generally relates only to the finding of the High Court that the Pauls had lawfully cancelled the contract based on repudiation by                  Jade raised a further issue in its submissions filed a few days before the hearing of the leave application. This related to cancellation based on breach of an essential term or that time had been made of the essence.

[10]              At the hearing Mr Lawson, for Jade, raised other matters in the course of argument. In particular he said the Pauls could not cancel the contract while they were in the course of negotiations with Jade trying to resolve the dispute. Jade further said the Pauls breached their good faith obligations by cancelling the contract.

[11]              Mr Lomas for the Pauls objected to Jade relying on grounds for leave not pleaded but only introduced in submissions. The introduced grounds were that I was wrong finding valid cancellation based on breach of an essential term or where time had been made of the essence, as well as the subsequent matters raised in oral argument I have referred to above.

Standard of leave to appeal

[12]Section 60 of the Senior Courts Act 2016 relevantly provides:

(1)The decision of the High Court on appeal from the District Court, the Family Court, or the Youth Court is final unless a party, on application, obtains leave to appeal against the decision to the Court of Appeal.

(2)An application under subsection (1) for leave to appeal to the Court of Appeal must be made to the High Court or, if the High Court refuses leave, to the Court of Appeal.

[13]              The following considerations are relevant to whether leave should be granted for a second appeal was set down by the Court of Appeal in Waller v Hider:5

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

(b)It is not every alleged error of law that is of such importance to justify further litigation which has already been considered twice; and

(c)The scarce time and resources of the Court of Appeal are not to be wasted, nor should additional expense for an unsuccessful client be incurred without reasonable hope of success.

[14]The Court of Appeal has subsequently affirmed these principles.6

[15]              Leave to appeal is more likely to be granted where the decisions of the High Court and the lower Court are in conflict.7

[16]              In Williams v Scott, Faire J stated that the High Court needs to identify the questions on which it grants leave,8 noting that the Court of Appeal disapproves of

5      Waller v Hider [1998] 1 NZLR 412 (CA) at 413.

6      Snee v Snee (1999) 13 PRNZ 609, [2000] NZFLR 120 (CA); JEF v TLR (2012) 29 FRNZ 612

(CA); and Simon v Wright [2014] NZCA 199.

7      Riddell v Porteous (1996) 10 PRNZ 64 (HC).

8      Williams v Scott [2014] NZHC 3385 at [20] relying on GFM v JAM [2013] NZCA 660, [2014] NZFLR 418 at [19].

attempts, by way of a second appeal, “to air, for the third time, every issue between the parties, no matter how trivial”.9

Ground one: time was not made of the essence

[17]              As noted above, in the course of the oral submissions Mr Lawson raised a number of issues which were not raised as grounds in the application for leave.

[18]              The argument that time was not made of the essence was put forward in the submissions filed shortly before the appeal was heard. Mr Lomas objected to the late introduction of this ground. He dealt with the substance of the ground briefly in his submissions but reserved the position that leave should not be granted as this ground was not raised in the leave application.

[19]              In any event, in my view this ground is without merit and may be dealt with shortly. Jade submits that the High Court found that the contract had been validly cancelled by the Pauls based on a delay in construction by Jade10 following time being made of the essence, cancellation being based on a breach of an essential term.

[20]              While both the District Court and the High Court found that time had been made of the essence,11 the High Court did not allow the appeal on the basis that there had been a valid cancellation based on breach for delay or of the continuous work requirement term in the contract. The High Court judgment rather found the contract was repudiated by Jade and validly cancelled by the Pauls on 13 April 2016.12

[21]              Therefore, this ground must fail. First because this was not a ground raised in the leave application and no leave was sought for it to be included as a ground, and secondly on the basis it has no merit as the decision in the High Court did not find that the contract had been cancelled for breach of a term.

9      GFM v JAM, above n 8, at [22].

10     Or a breach of the “continuous work” requirement under the contract.

11     Jade Residential Limited v Paul, above n 2, at [4]; Paul v Jade Residential Limited, above n 1, at

[40] and [60].

12     Paul v Jade Residential Limited, above n 1, at [68].

Ground two: Repudiation

[22]Leave is sought on the ground that the High Court decision:

(a)substantially lowered the threshold to be met before an inference may be drawn that a party no longer intends to perform its obligations under the contract and has therefore repudiated the contract; and

(b)erred in finding a party cannot be held to have repudiated a contract when they are seeking to rely on the contract’s terms.

Lower threshold

[23]              Jade argues that the High Court judgment substantially lowers the threshold for an inference to be drawn that a party no longer intends to perform its obligation under the contract and, therefore, has repudiated it.

[24]              Jade says it had been merely expressing a view of the contract’s meaning. Its view was that it should have been be paid the milestone payments before it was required to perform its obligations to continue construction under the contract.

[25]              Kumar v Station Properties Ltd was relied upon by both parties.13 In that case the Supreme Court said:

[63] On this point, it is necessary to return to the fundamental question  under s 7(2), namely, whether an inference can reasonably be drawn in the circumstances that the relevant party no longer intends to perform its obligations under the contract. This fact-based assessment must be made against the background that the threshold is a high one and that disputes about the meaning of contracts or the nature of the obligations they impose are commonplace. The mere fact that a party vigorously espouses a view of a contract’s meaning that is ultimately shown or accepted to have been wrong does not mean that the party is thereby manifesting an intention not to perform its obligations under the contract. If it is clear that the party accepts that it is bound by the contract, whatever meaning it is ultimately determined to have, the party should not be held to have repudiated the contract. By contrast, if a party persistently refuses to perform unless the other party accepts additional onerous terms inconsistent with the contract or on the mistaken view that there was never an enforceable contract, the party may well be found to have repudiated the contract. In such circumstances, the stance adopted amounts

13     Kumar v Station Properties Ltd [2015] NZSC 34, [2016] 1 NZLR 99 (footnotes omitted).

to a refusal to accept any obligation to complete the contract in accordance with its terms.

[26]The High Court recognised that the standard set by Kumar was a high one:14

[62] Repudiation is not  a conclusion adopted  lightly and the  “evidence must show an unequivocal intention not to perform the contract”. This is an objective test and it does not matter if the party can meet their obligations as long as a reasonable party in the shoes of the innocent party would find it clear that the party will not perform.

[27]              The High Court applied the law set out in Kumar to the facts before it. It did not purport to apply a different test or otherwise contest the principles set out in Kumar. The Court did not find that the mere existence of a dispute gave rise to the right to cancel due to repudiation. Had Jade simply said it did not agree with the terms of the contract and that a variation was required but continued to perform the contract, no repudiation would have occurred.

[28]              The issue arose, in terms of repudiation, when Jade insisted that the milestone payments be paid to it before it would continue construction. There may have been a dispute about who should pay the extra costs involved in achieving the “closed in” milestone, but Jade were bound to continue work on the contract and could not demand that the Pauls met Jade’s payment demand for milestone payments.

[29]              Jade was entitled to seek mediation under the mediation clause in the contract, but it additionally, wrongly, refused to perform the contract until it was paid the milestone payments which were not due.

[30]There is no merit to this ground of appeal.

Relying on contract’s terms

[31]              Mr Lawson said Jade’s refusal to return to the site and resume construction was justified as the Pauls had not paid the two milestone invoices rendered by Jade for the completion of two “milestones” in the construction process. The Pauls said the milestones had not been completed and, therefore, in terms of the contract, payment

14     Paul v Jade Residential Limited, above n 1, at [62] (footnotes omitted).

was not due on the invoices. The District Court found, and the High Court upheld on appeal, that the milestones were not completed and therefore the payments were not due to               What was at issue was whether Jade could require payment for amounts not due before continuing to perform the contract. To make this point, Mr Lawson cited the following portion of Kumar v Station Properties Ltd:15

[63] … The mere fact that a party vigorously espouses a view  of  a contract’s meaning that is ultimately shown or accepted to have been wrong does not mean that the party is thereby manifesting an intention not to perform its obligations under the contract. If it is clear that the party accepts that it is bound by the contract, whatever meaning it is ultimately determined to have, the party should not be held to have repudiated the contract. By contrast, if a party persistently refuses to perform unless the other party accepts additional onerous terms inconsistent with the contract or on the mistaken view that there was never an enforceable contract, the party may well be found to have repudiated the contract. In such circumstances, the stance adopted amounts to a refusal to accept any obligation to complete the contract in accordance with its terms.

[33]              Jade submitted that it was merely “vigorously espousing” a view of the contract’s meaning and, whether that was ultimately shown or accepted to have been wrong, Jade was not manifesting an intention not to perform its obligations under the contract. In the circumstances, therefore, Jade submits the Pauls could not cancel the contract for repudiation.

[34]              Mr Lawson took me through his argument by careful reference to the exchange of emails between the parties that occurred some two weeks before the Pauls gave notice of cancellation. That notice followed notice given to Jade a week earlier requiring Jade to return to work on the site noting that the Pauls would view the failure to continue construction as (among other things) repudiation so giving them a right to cancel.

[35]              Mr Lawson argued that it was apparent from that earlier exchange of emails that Jade would have settled on payment for a lesser amount for the “closed in” milestone payment. However, Jade had demanded the full amount for the milestone payment. Mr Lawson said Jade would have allowed a credit for the exterior

15     Kumar v Station Properties Ltd, above n 13 (footnotes omitted).

plastering, which it is common ground had not been carried out when the milestone invoice was issued but was required to be completed before the milestone was achieved. Mr Lawson said the fact that Jade would have accepted a lesser amount was supported by an amended invoice Jade said it had issued. Apart from anything else, there was considerable doubt about in fact whether the Pauls ever received this invoice. The District Court Judge found that Jade did not present the amended invoice for a lesser amount than the full milestone payment to the Pauls when Jade said it had done so at a meeting on 15 March 2016.16 Mr Lawson suggested it might have been sent by email on another date, however that is a factual matter that should have been advanced at first instance.

[36]              The clear position is that Jade accepted the milestone payment was not due under the contract as the required milestone work had not been completed and there was no contractual provision allowing Jade to demand payment for a discounted amount.

[37]              In my view Jade’s argument that the Pauls were then prevented from cancelling the contract, because there was a dispute and the parties had been earlier negotiating in an attempt to resolve it, does not support the application for leave to appeal.

[38]              This submission is a variation on the argument argued before and decided by this Court on appeal that as the parties had engaged the contractual dispute resolution clause the Pauls were prevented from cancelling. The High Court has already held that the dispute resolution clause did not prevent cancellation. That finding is not challenged in this leave to appeal application.

[39]              Mr Lawson, in the course of argument, accepted that the dispute resolution clause did not act as a bar to cancellation of the contract because of its particular wording. He said, however, that the District Court Judge had really intended to find that the Pauls were barred from cancelling because the dispute resolution process was in train. In other words, the Pauls were prevented from cancellation as they continued to rely on the contractual terms by negotiating.

16     Jade Residential Limited v Paul, above n 2, at [25]–[26].

[40]              This argument was aimed at the “closed in” milestone demand for payment by Jade. However, the milestone payment was not due and there was no provision in the contract for any payment to Jade until the “closed in” milestone had been completed. It was not completed so the milestone invoice was not payable.

[41]              I also note that this argument is similar to the affirmation ground which I deal with below.

[42]In any case, this point is not made out as a ground for leave to appeal.

Conclusion

[43]              In summary, the parties were entitled to attempt to negotiate a resolution but that did not prevent the Pauls from subsequently giving notice requiring Jade to continue to perform the contract and cancelling the contract for repudiation by Jade. Jade had shown a persistent refusal to perform the contract unless the Pauls paid the milestones payments which were clearly not due and owing under the contract. The Pauls were entitled to give notice cancelling the contract based on repudiation. They did so. This was the basis of the High Court decision on appeal.17

[44]              Jade was not merely “vigorously espousing” a view of the meaning of the contracts. It was refusing to perform the contract or return to the site to continue construction, unless it was paid the amounts in the milestone invoices. The payments were not due. Jade tried to negotiate with the Pauls for payment of lesser amounts, but agreement was not reached. Jade attempted to impose additional payment terms on the Pauls inconsistent with the contract. In the face of a notice to return to work, Jade refused to continue construction and so repudiated the contract. This is an application to the facts of the principles in Kumar v Station Properties Ltd.18

[45]There is no merit in this ground for leave.

17     Paul v Jade Residential Limited, above n 1, at [67]–[68].

18     Kumar v Station Properties Ltd, above n 13.

Ground three: Affirmation

[46]              Mr Lawson says, if there was a repudiation, the Pauls affirmed the contract. This presumably occurred following Jade walking off the site and refusing to continue construction until the two milestone payments were made by the Pauls.

[47]              Affirmation should be pleaded as an affirmative defence. It was not pleaded here. Affirmative defences must be raised where “matters of defence … do not arise in themselves from admissions or denials of the plaintiff’s allegations”.19

[48]              In Manukau Golf Club v Shoye Venture Ltd the Court of Appeal said with reference to affirmative defences:20

A defence that relies on material outside the admission and denial of the facts alleged by a plaintiff in a statement of claim is known as an affirmative defence.21

[49]              Section 38 of the Contract Commercial Law Act 2017 (CCLA) provides as follows:

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.

[50]              Jade says that this provision means it does not have to plead affirmation. However, while s 38 specifically provides that a party cannot cancel a contract for breach where that party has knowingly affirmed contract, it does not mean that affirmation does not need to be pleaded as an affirmative defence. The reason for the requirement to plead affirmation is that it puts the other party on notice. The issue can then be properly responded to and dealt with at trial.

19 McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR5.48.01].

20 Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZCA 154, (2012) 21 PRNZ 235 at [21]. The substantive point was noted, without comment, by the Supreme Court in a decision overturning the Court of Appeal’s decision not to award costs without giving reasons in Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [11].

21 McGechan on Procedure, above n 19, at [HR5.48.15(1)].

[51]              Affirmation of contract is an affirmative defence and in this case it was not pleaded. It was not dealt with at trial or on appeal. It cannot now be raised in an attempt to reargue the case.

[52]              In any case, this ground fails on its merits. Mr Lawson argues that Mr Paul in his evidence-in-chief had said that he had not put “delays at issue” and did not rely on Jade’s delays as grounds to terminate the contract.  It  appears from the context of  Mr Paul’s comments in the Notes of Evidence that he was referring to earlier delays by Jade not the delay caused by Jade walking off the job and refusing to return.

[53]              I also note the statements of Mr Paul are not inconsistent with the findings of this Court.22 The grounds for repudiation were not based on the earlier delays by Jade in performing the contract but rather the persistent failure of Jade to continue construction following notice requiring it to do so given in April 2016. Therefore, the negotiations between the parties which took place in an attempt to get Jade back to the site did not amount to affirmation. First, because there was no specific affirmation of the contract by the Pauls during the negotiations and, secondly, because the negotiations had taken place earlier in time. The evidence does not support an argument based on affirmation.

[54]              Accordingly leave is refused on this ground. First because it was not pleaded nor argued before either the District Court or the High Court and secondly because there is no merit in the ground.

Ground four: Contract Commercial Law Act 2017

[55]              In his application for leave to appeal, but not in his written submissions, Mr Lawson argued leave should be granted to analyse whether ss 36–38 of the CCLA differed from the Contractual Remedies Act 1979. The meaning of that ground of appeal was not clear on its face. In his oral submissions Mr Lawson indicated that he was pre-empting a possible argument that there was some difference between the relevant provisions.

22     Paul v Jade Residential Limited, above n 1, at [60]–[66].

[56]              Mr Lomas clarified that he was not seeking to rely on the difference in wording between the two pieces  of  legislation.  However,  in  an  abundance  of  caution,  Mr Lomas noted that s 3 of the CCLA states as its purpose as to “re-enact” and update in “accessible form, certain legislation relating – to contracts”. Mr Lomas said the restatement was merely a revision of the act. The purpose was not to change the effect of the law except as expressly provided.23 Mr Lomas clarified that in his view there had not been any relevant amendments affecting the matters that are in issue in this case.

[57]I agree with Mr Lomas that there is no merit in this ground.

Conclusion

[58]              I conclude that none of the grounds relied upon for leave to appeal to the Court of Appeal meet the required threshold of raising a serious argument involving some interest, public or private, of sufficient importance to outweigh the costs and delay of a further appeal.

[59]              Mr Lawson said the interpretation of the construction contract was of wider importance as the Platinum Builder franchise (of which Jade is a member) uses the same construction contract. Therefore, the points are of importance for interpretation of that contract not only to Jade but to the other franchise holders.

[60]              However, the issues in this case were peculiar to the particular facts leading up to repudiation. This matter is fact specific and the points for which leave is sought do not raise a general issue of interpretation of contract. The meaning of the milestone provisions was concurrently determined both in the District Court and the High Court. No ground of appeal is based on those determinations. Similarly leave is not sought on the effect of the dispute resolution clause.

[61]The application for leave to appeal is declined.

23     Contract and Commercial Law Act, s 4.

Costs

[62]              I note that Mr Lawson asked that costs not be determined without further submissions.

[63]              I also note that construction contract was entered into in 2015. The events giving rise to these proceedings occurred in April 2016. The District Court has yet to hear the further evidence in relation to quantum.

[64]              The respondent will file and serve a memorandum as to costs on or before seven days of the date of delivery of this judgment.

[65]The applicant will file a response within a further three days.

[66]              The respondent will file and serve a memorandum in reply on or before a further three days.

[67]              If in the meantime counsel are able to agree on costs a joint memorandum may be filed if orders are needed.

Grice J