Keith Bullock Contracting Limited v Genesis Residential Limited
[2024] NZHC 105
•7 February 2024
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2023-485-125
[2024] NZHC 105
BETWEEN KEITH BULLOCK CONTRACTING LIMITED
Plaintiff/Applicant
AND
GENESIS RESIDENTIAL LIMITED
Defendant/Respondent
Hearing: On the papers Appearances:
J T Wollerman and D A Fry for Plaintiff/Applicant J Long and L Hebden for Defendant/Respondent
Judgment:
7 February 2024
JUDGMENT OF ASSOCIATE JUDGE SKELTON
[Leave to appeal]
[1] Genesis Residential Ltd (GRL) engaged Keith Bullock Contracting Ltd (KBC) under a construction contract to carry out bulk earthworks at a residential development in Lower Hutt. Issues arose between the parties. GRL sought to cancel the contract. KBC has commenced proceedings against GRL seeking to recover amounts allegedly owed to KBC under the contract and damages for GRL’s alleged repudiation of the contract.
[2] KBC applied for summary judgment on 14 March 2023 in respect of the first, second, third and fourth causes of action in its statement of claim. These causes of action relate to payment claims and an invoice for retentions issued for work undertaken under the contract.
KEITH BULLOCK CONTRACTING LIMITED v GENESIS RESIDENTIAL LIMITED [2024] NZHC 105
[7 February 2024]
[3] In my judgment dated 16 October 2023 (the Judgment), I dismissed KBC’s application for summary judgment in respect of all those causes of action for the reasons set out therein.1
[4] KBC now seeks leave to appeal the dismissal of summary judgment in respect of two of the four causes of action under s 56(3) of the Senior Courts Act 2016. Section 56 provides that interlocutory judgments may only be appealed with leave from this Court or special leave from the Court of Appeal.
[5] A summary of the background to the claims is set out at [3]–[9] of the Judgment. My discussion of GRL’s alleged termination of the contract for delay and the conflicts of evidence in this regard is set out at [17]–[26] of the Judgment.
Legal principles for leave to appeal
[6] The principles are well settled. The leading case is the Court of Appeal’s judgment in Greendrake v The District Court of New Zealand, where, citing Finewood Upholstery Ltd v Vaughan,2 Brown and Gilbert JJ articulated the principles as follows:3
(a)a high threshold exists;
(b)the applicant must identify an arguable error of law or fact;
(c)the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;
(d)the circumstances must warrant incurring further delay; and
(e)the ultimate question is whether the interests of justice are served by granting leave.
[7] In Ngai Te Hapu Inc v Bay of Plenty Regional Council, the Court of Appeal observed that:4
1 Keith Bullock Contracting Ltd v Genesis Residential Ltd [2023] NZHC 2887 [the Judgment].
2 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].
3 Greendrake v The District Court of New Zealand [2020] NZCA 122 at [6]; and Stockman v Health and Disability Commissioner [2022] NZCA 122 at [13].
4 Ngai Te Hapu Inc v Bay of Plenty Regional Council [2018] NZCA 291 at [17].
[17] … leave to appeal [an interlocutory decision] should only be granted where the significance or implications of an arguable error of fact or law, either for the particular case or for the applicant or as a matter of precedent, warrants the further delay which the appeal process would involve.
[8] These principles invite a brief judgment dealing with any application for leave. As stated in Finewood Upholstery Ltd v Vaughan, the leave process is intended to operate as a filter to ensure that only matters that are properly the subject of appeal proceed.5 The objective is to avoid wasting scarce resources, without compromising the interests of justice.6
Has KBC identified arguable errors of law or fact?
[9] The starting point is r 12.2(1) of the High Court Rules 2016 (HCR) which 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.
[10] The onus is on the plaintiff to satisfy the Court that the defendant has no defence.7 In Towers v R & W Hellaby Ltd, Thorp J said that the critical question will generally be whether the Court is satisfied that the plaintiff’s case is unanswerable, and the Court will not reach that conclusion if it can see an arguable defence. 8
[11] The plaintiff sought summary judgment in respect of the following causes of action in its statement of claim dated 14 March 2023:9
(a)the first cause of action, being a claim for breach of contract in respect of payment claim 14 issued on 4 October 2022 in the sum of
$110,277.35 including GST;
(b)the second cause of action, being a claim for breach of contract in respect of a retentions invoice dated 4 October 2022 in the sum of
$43,870.26 including GST;
5 Finewood Upholstery Ltd v Vaughn, above n 2, at [13].
6 Swanwick v Bostock [2023] NZHC 2683 at [7].
7 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307, at [26]–[27].
8 Towers v R & W Hellaby Ltd (1987) 3 NZCLC 100,064 (HC), at 7.
9 The Judgment, above n 1, at [14]. This was clarified at the hearing.
(c)the third cause of action, being a claim for breach of contract in respect of payment claim 15 issued on 4 November 2024 in the sum of
$95,218.18 including GST;
(d)the fourth cause of action, being a claim for a debt due pursuant to s 24 of the Construction Contracts Act 2022 … in the sum of
$773,758.11 including GST, in respect of payment claim 16 issued on 25 November 2022.
[12] KBC seeks leave to appeal the dismissal of summary judgment only in respect of the first cause of action and the fourth cause of action.
First cause of action – payment claim 14
[13] Before dealing with the first cause of action in the Judgment, I determined the third cause of action in respect of payment claim 15. It is necessary to review my finding on the third cause of action, as this informed the decision to dismiss summary judgment for the first cause of action.
[14] The third cause of action was a claim for breach of contract rather than a claim for a debt due under the Construction Contracts Act 2002 (CCA). I found that GRL had a reasonably arguable defence of equitable set-off in respect of the third cause of action.10 In making this determination, I referred to the leading cases on equitable set off in the context of summary judgment: Pemberton v Chappell and Grant v NZMC Ltd,11 and relevant commentary in McGechan on Procedure.12
[15] The factual basis for this finding was that GRL contends it was entitled to terminate the construction contract for delay under cl 5 of the special conditions which also entitles GRL to “recover liquidated damages and any losses suffered” as a result of KBC’s breach. I found that GRL had put forward evidence with a sufficient degree of credibility to support its position that it validly terminated the contract for delay under cl 5. It is arguable GRL has suffered substantial damages as a result of KBC’s delays in completing the works which exceed the total amount claimed by GRL for outstanding payment claims and the retentions invoice. I considered it was clear that
10 The Judgment at [27]–[40].
11 Pemberton v Chappell [1987] 1 NZLR 1, (1986) 1 PRNZ 180 (CA); and Grant v NZMC [1989] 1 NZLR 8 (CA) at 11–13.
12 Jessica Gorman and others McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR12.9.09].
the requirement in the authorities for “interdependence” between the claims was satisfied to the standard required in the context of summary judgment. GRL’s claim for damages for delay by KBC in completing the contract works, including the work which is the subject of the relevant payment claims, calls into question or impeaches the contractual claim for payment for the work.13
[16] My determination that GRL has a reasonably arguable defence of equitable set-off in respect of the third cause of action for payment claim 15 is not challenged by KBC in its application for leave to appeal.
[17] Turning to the first cause of action in respect of payment claim 14, this is also a claim for breach of contract in respect of work undertaken by KBC during the period of alleged delay prior to the alleged termination. GRL accepted that an obligation to pay payment claim 14 had accrued unconditionally prior to the alleged termination on 4 November 2022. GRL specifically raised set-off as a defence in relation to the second cause of action for breach of contract (retentions invoice).14 Counsel for GRL also discussed set-off in his written submissions on breach of contract in relation to KBC’s third, fourth and fifth causes of action. However, GRL did not specifically raise this defence in relation to the first cause of action.
[18] GRL did not concede that summary judgment should be entered for the first cause of action. It contended that the Court should exercise its residual discretion not to enter summary judgment. It argued that, ultimately, under cls 14.2.4–14.2.5 of the contract, any amount payable to KBC for payment claim 14 would need to be calculated subject to adjustment for any liquidated damages and other losses suffered by GRL as a result of KBC’s breach.
[19] I found it was not necessary to consider whether the residual discretion should be exercised in relation to payment claim 14. That was because, for the same reasons
13 See, for example, M L Paynter Ltd v Ben Candy Investments Ltd [1987] 1 NZLR 257, which is cited in the commentary in McGechan on Procedure, above n 12 at [HR12.9.09]. See generally Julian Bailey Construction Law: Vol II (3rd ed, London Publishing Partnership, 2020), at [6.408], where the author expresses the view that, under most construction contracts, a party will be able to avail itself of a transaction [equitable] set-off against a contractual claim arising out of any breach of the contract by the party asserting the claim (emphasis original).
14 I found that GRL has a reasonably arguable defence of set-off to the second cause of action — see the Judgment, above n 1, at [56].
as set out at [14] and [15] above, I considered that GRL had a reasonably arguable defence of equitable set-off in respect of the first cause of action.15 KBC contends that I was wrong to make this determination.
[20] First, KBC submits the defence was not specifically raised by GRL in relation to the first cause of action and was unsubstantiated.16
[21] However, as stated by the Court of Appeal in Haines v Carter, the summary judgment rules are not a “procedural straitjacket.”17 While a defendant should identify its defences and give appropriate particulars, “[c]ommon sense, flexibility and a sense of justice are required”.18 In this case, even though GRL did not specifically raise set-off as a defence to the first cause of action, I considered that GRL had sufficiently raised the defence within the context of its overall defence to the application for summary judgment, and it had specifically submitted that any amount payable for payment claim 14 would be subject to adjustment for delay damages and other losses suffered by GRL.
[22] Further, I considered that the defence was sufficiently substantiated by the evidence put forward by GRL to support its position that it validly terminated the contract under cl 5, and that it has suffered substantial damages as a result of KBC’s delays in completing the works which exceed the total amount claimed by GRL for outstanding payment claims and the retentions invoice.
[23] Second, KBC contends that the necessary “interdependence” between payment claim 14 and GRL’s claim for damages for delay was not established.19 However, as discussed at [15], I considered it was clear that the requirement of interdependence was met to the standard required in the context of summary judgment. GRL is putting forward a claim for damages for delay in completing the works including the works which are the subject of the relevant payment claims.
15 The Judgment, above n 1, at [41]–[46].
16 KBC refers to Haines v Carter [2001] 2 NZLR 167 (CA) at [97] as authority for this submission.
17 Haines v Carter, above n 16, at [97].
18 At [97].
19 Grant v NZMC Ltd, above n 11, at 13.
[24] Having found that the defence was available to GRL in respect of the third cause of action (which is not challenged by KBC), I was satisfied that the defence was reasonably arguable in respect of the first cause of action for payment claim 14 which is also a claim for work done during the period of alleged delay.
[25] I am not satisfied that KBC has identified any arguable error of law or fact in relation to my dismissal of the claim for summary judgment in respect of the first cause of action.
Fourth cause of action — s 24 CCA
[26] This cause of action relates to payment claim 16 issued on 25 November 2022. This payment claim was issued under the CCA. GRL issued a payment schedule on 19 December 2022. KBC claims that it is entitled to payment of the scheduled amount of $773,758.11, including GST, as a debt due under s 24 of the CCA.
[27] GRL contended that if the contract was validly terminated on 4 November 2022 (an issue which can only be determined at trial), then KBC was no longer entitled to serve a payment claim under the contract (even in respect of work carried out prior to the alleged termination). Therefore, KBC could no longer serve a valid payment claim under s 20(1)(a) of the CCA. Mr Long, for GRL, submitted that the CCA is not intended to provide an entirely independent statutory process for claiming payment for construction work divorced from any underlying contractual entitlement to payment. On the basis of the Court of Appeal’s decision in Demasol Ltd v South Pacific Industrial Ltd, I found that if GRL wished to contend that KBC was not entitled to serve a payment claim on 25 November 2022 after the alleged termination of the contract, that was a point that it could and should have taken by way of response in its payment schedule. 20 I also found that payment claim 16 was a valid payment claim in accordance with s 20 of the CCA.
20 See the Judgment, above n 1, at [66]–[69], citing Demasol Ltd v South Pacific Industrial Ltd [2022] NZCA 480 [Demasol]. See also Dem Home Ltd v New Gate Ltd [2023] NZHC 2709 at [60]–[68].
[28] However, in drafting the Judgment, I identified a difficulty with KBC’s claim for summary judgment in terms of the requirements under s 24 of the CCA. This section provides that:
24 Consequences of not paying scheduled amount in manner indicated by payment schedule
The consequences specified in subsection (2) apply if—
(a)a payee serves a payment claim on a payer; and
(b)the payer provides a payment schedule to the payee within the time allowed by section 22(b); and
(c)the payment schedule indicates a scheduled amount that the payer proposes to pay to the payee; and
(d)the payer fails to pay the whole, or any part, of the scheduled amount on or before the due date for the payment to which the payment claim relates.
…
(4) In any proceedings for the recovery of a debt under this section, the court must not enter judgment in favour of the payee unless it is satisfied that the circumstances referred to in subsection (1) exist.
(emphasis added)
[29] In this case, there is an issue as to whether the payment schedule in response to payment claim 16 was served by GRL within the time allowed by s 22(b) of the CCA. Section 22 provides that a payer becomes liable to pay the claimed amount on the due date for payment to which the payment claim relates if a payee serves a payment on a payer, and:
(b)the payer does not provide a payment schedule to the payee within—
(i)the time required by the relevant construction contract; or
(ii)if the contract does not provide for the matter, 20 working days after the payment claim is served.
[30] The contract between GRL and KBC states that the payment schedule is to be provided no later than 12 working days after the payment claim was served. GRL served the payment schedule in response to payment claim 16 on 19 December 2022,
which was 16 working days after payment claim 16 was served. This issue was not raised by either party in written or oral submissions.
[31] In the Judgment, I raised the possibility of an argument that, if the contract was validly terminated on 4 November 2022, then the contract may no longer provide for a time by which the payment schedule was to be served. In that case, s 22(b)(ii) would apply, allowing the payment schedule to be served within 20 working days.21 However, I recognised that determination of this question of law could not result in summary judgment being entered for KBC on its fourth cause of action. If the outcome was that the contract continues to provide for the time for provision of a payment schedule under s 22(b)(i) after a valid termination, then I could not grant summary judgment because GRL provided the payment schedule outside the time required in the contract. If I found that, in the event of a valid termination, the contract no longer provides for the time by which the payment schedule is to be served, and therefore s 22(b)(ii) applies, I would still have to determine whether the contract had been validly terminated to be satisfied that the circumstances in ss 24(1)(b) and 22(b)(ii) existed. Due to material conflicts of evidence identified in the Judgment, I found that the validity of the alleged termination can only be properly determined at trial.22 Therefore, I did not consider it was necessary to determine the question of law I had postulated and to seek submissions from the parties on this issue.
[32] Accordingly, in the particular circumstances of this case, I was not satisfied that the circumstances in s 24(1)(b) of the CCA existed and, pursuant to s 24(4) of the CCA, I was unable to enter summary judgment in favour of KBC on the fourth cause of action. I was not satisfied that GRL had no defence to the fourth cause of action.
[33] KBC contends that there is an arguable error of law or fact in this regard on several bases.
[34] First, KBC contends that I erred in failing to make a determination on the matter of law that I raised in the Judgment at [77], and in finding that the issue of
21 The Judgment, above n 1, at [77].
22 At [77].
whether the contract has been validly terminated by GRL was relevant to determining GRL’s liability for the fourth cause of action. However, as discussed above, I did not consider it was necessary to determine the question of law. I did not consider that determination of the question of law could have resulted in summary judgment being entered for KBC on its fourth cause of action. Either the contract continues to apply and GRL provided the payment schedule outside the relevant contractual period, or it is necessary to determine the validity of the alleged termination to be satisfied that s 22(b)(ii) applied.
[35] Second, KBC contends there is an “issue of fairness” because whether payment schedule 16 had been served “in time” was not an issue that KBC was asked to address at the hearing. KBC now submits that it “accepted” that payment schedule 16 was valid and therefore sought summary judgment for the scheduled amount under s 24 of the CCA. It seems to me that it was primarily for KBC, as the applicant bearing the onus, to satisfy the Court that the elements of its fourth cause of action based on s 24 of the CCA were made out, and that GRL did not have any defence. If KBC recognised that the payment schedule was not served within the time provided in the contract, but decided to accept that it was valid, then that should have been raised in written or oral submissions. In the event, neither party raised the issue in written or oral submissions. Further, I do not consider that the issue would be resolved even if KBC “accepted” that the payment schedule was provided within the relevant time. Section 24(4) of the CCA makes it clear that the Court must not enter judgment in favour of the payee unless it is satisfied that the circumstances referred to in subs 24(1) exist, including whether the payment schedule was provided within the time allowed by s 22(b). I was not so satisfied for the reasons set out above.
[36] Third, KBC contends that, even if summary judgment could not be granted in respect of the fourth cause of action under s 24 of the CCA because the payment schedule was not provided with the time allowed by s 22(b), summary judgment should have been granted for the full amount of payment claim 16 in the sum of
$1,222,978.47 (incl GST) under s 23 of the CCA. However, I do not consider that argument is correct in this case for the following reasons:
(a)First, r 12.2 of the HCR provides that Court may give judgment against the defendant if the plaintiff satisfies the Court the defendant has no defence to a cause of action or to a particular part of any such cause of action in the statement of claim. In this case, counsel for KBC clarified at the hearing that KBC sought summary judgment in respect of the first, second, third and fourth causes of action in its statement of claim. KBC has pleaded a fifth cause of action in its statement of claim which claims the full amount of payment claim 16 (being $1,222,978.47 including GST) on the basis of breach of contract, but did not pursue summary judgment for that cause of action and the full amount of payment claim 16 at the hearing.
(b)Second, even if I had considered the fifth cause of action, the pleading is for breach of contract, not a claim for a debt due under s 23 of the CCA. As counsel for GRL submitted, an application for summary judgment must proceed on the statement of claim as pleaded.23 There was no basis to treat the fifth cause of action as an action for a debt due under s 23 of the CCA and thereby award summary judgment for the full amount of payment claim 16.
[37] Accordingly, I am not satisfied that KBC has identified an arguable error of law or fact in relation to my dismissal of its claim for summary judgment in respect of its fourth cause of action under s 24 of the CCA.
General or public importance
[38] With regard to the first cause of action, as discussed above, I am not satisfied that KBC has identified an arguable error of law or fact. Even if I am wrong in this regard, I do not consider the issues raised by KBC regarding my determination that GRL has an arguable defence of equitable set-off raise matters of general or public
23 Wang v Y & P New Zealand Ltd [2016] NZHC 3173 at [24]–[26]. An applicant for summary judgment may amend its pleading — Cegami Investments Ltd v AMP Financial Corporation (NZ) Ltd [1990] 2 NZLR 308 at 314. However, even though GRL raised the issue of KBC’s fifth cause of action being pleaded as a claim for breach of contract rather than a claim for a debt due under the CCA in written and oral submissions, KBC did not seek to amend its statement of claim prior to or at the hearing.
importance or precedential value warranting leave to appeal. It seems to me that the issues are largely confined to the facts of this case.
[39] With regard to the fourth cause of action, KBC contends that the Judgment has, in effect, allowed a payer to avoid the strict ‘pay now argue later’ regime of the CCA through its own default, by either not providing a payment schedule or not paying the scheduled amount in response to a valid payment claim. KBC contends that the Judgment gives rise to important policy implications for the CCA regime and the protection that the CCA provides to contractors and cashflow, meaning any appellate determination will have precedential value.
[40] I am not satisfied that KBC has identified an arguable error of law or fact regarding my dismissal of its application for summary judgment in respect of the fourth cause of action. However, I accept that the issues may not be viewed as straightforward. If it were found that I have made an error of law or fact, then it seems to me that issues of general importance and precedential value would arise in relation to the effect of termination on the payment regimes under NZS 3910:2013 and the CCA, and the application of the Court of Appeal’s decision in Demasol.24
Importance to applicant
[41] KBC submits that the amounts claimed in payment claims 14 and 16 are significant and non-payment has resulted in considerable strain on its cashflow. The issue under this head is whether the issues are of such importance to KBC as to outweigh the lack of any general or precedential value.
[42] The claim under the first cause of action is for the sum of $110,277.35 including GST. While I accept that this is a significant amount for KBC, I do not consider that it outweighs the lack of any general or precedential value.
[43]The claim under the fourth cause of action is for the higher amount of
$774,758.11 including GST and therefore of more significance in relation to KBC’s cashflow. However, I have already reached the view that the issues that may arise on
24 See [27] above.
appeal in relation to this cause of action are of general importance and precedential value.
Delay
[44] It seems to me that some delay to the determination of the substantive proceedings is likely to result from the granting of leave in this case. That counts against the granting of leave in relation to the first cause of action. However, regarding the fourth cause of action, I consider that any delay is outweighed by the general importance and precedential value of the issues that may arise on appeal and the quantum of the claim.
Interests of justice
[45] On the basis of the other considerations above, I consider that it is in the interests of justice that leave to appeal be granted in respect of the dismissal of summary judgment for KBC’s fourth cause of action.
Result
[46] For the reasons set out above, I find that leave to appeal should be granted in respect of the dismissal of summary judgment for KBC’s fourth cause of action; but leave to appeal is declined in respect of the dismissal of summary judgment for the first cause of action.
[47] My preliminary view is that KBC is entitled to costs on a 2B basis, but that costs should be reduced under r 14.7 of the HCR because KBC has been unsuccessful in obtaining leave to appeal in relation to the first cause of action. The parties should endeavour to agree on costs. However, if agreement cannot be reached then memoranda may be filed (not exceeding three pages, excluding costs schedules) and costs will be determined on the papers.
Associate Judge Skelton
Solicitors:
Dalzell Wollerman, Wellington for Applicant Collins & May, Lower Hutt for Respondent
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