Kevin O'Connor & Associates Limited v Reeve
[2017] NZHC 1749
•26 July 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2017-404-516 [2017] NZHC 1749
BETWEEN KEVIN OʼCONNOR & ASSOCIATES
LIMITED Plaintiff
AND
CHRISTOPHER JAMES REEVE Defendant
Hearing: 26 July 2017 Appearances:
G M Richards for the Plaintiff
D G Chesterman for the DefendantJudgment:
26 July 2017
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Solicitors:
Andrea J Craven, Palmerston North, for the Plaintiff
Gillespie Young Watson, Lower Hutt, for the Defendant
Copy for:
Gareth M Richards, Wellington, for the Plaintiff
Damian G Chesterman, Auckland, for the Defendant
KEVIN OʼCONNOR & ASSOCIATES LIMITED v REEVE [2017] NZHC 1749 [26 July 2017]
[1] In 2016 Kevin O’Connor & Associates Ltd, a Palmerston North engineering consultancy, carried out design and related engineering work for a proposed transport depot to be built on a site at 8-10 Barnes Street, Seaview, Lower Hutt. It sues Mr Reeve for payment. The original amount of the claim was $342,298.54. The defendant has made some payments. Counsel agree that the outstanding balance claimed is $225,586.05. Kevin O’Connor & Associates Ltd has applied for summary judgment.
[2] Two main points are taken in opposition:
(a) Kevin O’Connor & Associates Ltd should not have sued Mr Reeve personally, but should have sued him as trustee of the Matariki Trust.
(b)Kevin O’Connor & Associates Ltd was instructed to stop work in August 2016 but, despite that instruction, carried on working and has charged for work carried on after that date, until it stopped work on
7 November 2016.
The people in this proceeding
[3] Kevin O’Connor & Associates Ltd, as I have said, is an engineering consultancy based in Palmerston North. Mr Kevin O’Connor is its director. His executive assistant is Ms Rachel Findon. In the past, Kevin O’Connor & Associates Ltd has carried out engineering work for Peter Baker Transport Ltd, a significant logistics company. Mr Reeve owns the property at Barnes Street, Seaview, Lower Hutt as trustee of the Matariki Trust. He is based in Auckland but has a property manager in Wellington who looks after his properties in that city. She is Ms Emma Parsons, trading under the style Parker Properties.
Background
[4] Peter Baker Transport Ltd was facing the expiry of the lease for its
Wellington depot in July 2017. It considered its current site was too small and was
looking for a larger site. It has a property manager who works for it on contract – Mr Kelvin Hartwell. He was given the job of looking for an alternative site for a depot for Peter Baker Transport in Wellington. He found the property in Barnes Street, which is apparently about 10 hectare in size, flat and undeveloped.
[5] Mr Hartwell contacted Mr Reeve during 2015. There were discussions and negotiations between Peter Baker Transport and Mr Reeve as to the possible use of the Barnes Street site. A number of proposals were considered: a joint venture between both Mr Reeve and Peter Baker Transport, a development funded by Mr Reeve with a lease to Peter Baker Transport, and a ground lease to Peter Baker Transport with it undertaking the development itself. Ultimately the discussions in
2015 and 2016 came to nothing, but they are the background to the contract in this case.
[6] There is evidence from Mr Reeve showing an agreement to share costs between Peter Baker Transport and himself on a 50/50 basis while preparatory and investigative work was carried out. To begin this work Mr Hartwell contacted Kevin O’Connor & Associates Ltd as engineers he had used in the past and found competent for projects similar to those proposed here.
[7] Mr O’Connor prepared a contract which he sent to Mr Hartwell. At the time, Mr Reeve was overseas. Mr Hartwell forwarded the contract to Mr Reeve. Mr Reeve authorised Mr Hartwell to sign the contract on his behalf. It is not in dispute that Mr Reeve became contractually bound to Kevin O’Connor & Associates Ltd by Mr Hartwell signing the contract as agent for Mr Reeve. When he emailed his authority to Mr Hartwell, Mr Reeve said:
… we agree that this can be curtailed if we don’t proceed …
With those words, Mr Reeve believed that he was authorising only investigative works and that it would be possible bring the contract with Kevin O’Connor & Associates Ltd to a halt at an early stage if required. While that email was forwarded to Kevin O’Connor & Associates Ltd, they were not advised of Mr Reeve’s subjective views as to the scope of the contract.
[8] The agreement was dated 28 April 2016 but was not in fact made until 2 May
2016. The written contract is a standard form contract used by consultants for work on projects such as the one in this case. The contract is called “Conditions of Contract for Consultancy Services” and was prepared by an industry group which appears to include the New Zealand Transport Agency, the Association of Consulting Engineers and the Institute of Professional Engineers of New Zealand. The parties to the contract are Mr Reeve as the client and Kevin O’Connor & Associates Ltd as the consultant. Mr Hartwell has signed the contract as “Project Manager on behalf of Chris Reeve”. Mr Hartwell is also shown in the contract as the “client’s representative”. Under cl 4.1 of the contract the client’s representative has authority to give the consultant instructions on the client’s behalf, and may monitor, review, approve, accept, reject or confirm any part or all of the services. There is provision for the client to change their representative; and the client is required to inform the consultant in writing. The contract provides that the client may order variations to the services. Clause 11.1 provides for termination of the agreement, including this:
The client may terminate this agreement at any time, or under the provisions of cl 12.4, by written notice to the consultant. As soon as this notice is received the consultant shall stop the services.
[9] Under the contract there is a fixed price of $426,500 plus GST. There are qualifications to that price. There are exclusions, such as for geotechnical and contamination engineering, shop drawings are excluded, as is work during the maintenance period.
[10] The contract sets out the scope of work in four stages:
(a) Stage 1 covers applying for resource consent, preliminary design with outline specifications suitable for pricing, for architecture, structure, civil (siteworks), electrical, mechanical, and also sourcing pricing from builders.
(b)Stage 2 deals with detailed design suitable for council consent and tendering for architecture, structure, civil (siteworks), electrical and mechanical.
(c) Stage 3 is liaison with the local authority to gain consent, providing for a building consent application, tendering the work and related documentation, finalising pricing, assessing tenders and recommendations.
(d)Stage 4 is the construction phase, including observation with monthly site meetings.
The work was for a 9,200 square metre warehouse building, with associated siteworks. The contract provides for payment and for paying contract interest at the overdraft rate for Kevin O’Connor & Associates Ltd.
[11] The work under the contract was not carried through to completion. Kevin O’Connor & Associates Ltd says that it stopped work on 7 November 2016 after it had received a notice from Mr Hartwell to put the work on hold. Mr O’Connor describes the work carried out in paragraph 26 of his reply affidavit as follows:
(a) project management, including management of the consultant team; (b) resource consent planning and provision of resource consents;
(c) land surveying; travelling to Wellington and conducting site surveys. (d) sourcing landscaping plans;
(e) architectural design and documentation including the specifications and contract documents;
(f) mechanical design and documentation; (g) electrical design and documentation; (h) structural design and documents;
(i) civil design and documentation;
(j) co-ordination with the architect, structural engineer, civil engineer, surveyor, mechanical and electrical engineers;
(k) sourcing prices from and co-ordinating a geotechnical engineer, environmental and fire engineers, as consultants contracted directly to Mr Reeve;
(l) running project meetings;
(m) liaison with Mr Hartwell as client’s representative;
(n) liaison with the client about right-of-way construction details;
(o) liaison with the Hutt City Council on planning issues and contamination issues;
(p) starting structural steel shop detailing plans (but this aspect was not charged to the client).
[12] In that same reply affidavit he describes the building as an 8,780 square metre warehouse with an office block of 220 square metres on a 1.7 hectare site. He says that at that stage the design and documentation work was completed and the documents were ready to be lodged for a building consent. The work carried out was approximately 70 per cent of the total quoted fee. While providing services directly itself, Kevin O’Connor & Associates Ltd also engaged other consultants, architects, electrical and mechanical engineers. Kevin O’Connor & Associates Ltd has paid those sub-consultants even though it has not been paid by Mr Reeve until very recently. Mr O’Connor adds that work still to be completed under the contract was compiling the contract documents, sourcing tenders, selecting contractors and the services associated with the actual construction. That work clearly goes far beyond what Mr Reeve had in mind as preliminary investigative works.
[13] Kevin O’Connor & Associates Ltd submitted a number of invoices. The first one was on 30 June 2016 and the last one on 21 December 2016. The last one covered the work carried out up until 7 November 2016. The total value of those invoices was $342,298.50.
[14] On Mr Reeve’s side, there is a complaint that those invoices were not submitted to him or Ms Parsons in a timely fashion. The invoices show that they were posted to “Matariki Trust, P O Box 12 732, Penrose, Auckland 1642”. Both Mr Hartwell and Ms Parsons requested the invoice be made out to the Matariki Trust but the Penrose address is nothing to do with Mr Reeve – that is the postal address for Mr Hartwell, at Peter Baker Transport Ltd. For better or worse, Mr Hartwell does not seem to have passed the invoices on to Mr Reeve or to Ms Parsons in a timely fashion. It appears that he only disclosed the full amount of the invoices in November 2016.
[15] Another odd feature is that Kevin O’Connor & Associates Ltd did not press for payment until late in 2016, seemingly unworried about invoices being sent out and remaining unpaid over a significant period. Some may consider that there could have been better credit control management.
The Matariki Trust
[16] Mr Reeve is a trustee of the Matariki Trust. He objects to being sued personally, and says that he should have been sued as a trustee of the Matariki Trust. He says that the Matariki Trust owns the land in Barnes Street. He acknowledges that he is the sole trustee of the Trust but he says that the land is held entirely within the trust. He has not so far adduced any independent evidence as to the existence of the trust. He has not, for example, proved the trust deed or shown any financial statements for the trust. All the same, it is arguable for him that as registered proprietor of land he holds it on trust.
[17] The Trust is not an entity that the law can treat as a person that will incur liabilities. Trustees, not trusts, enter into contracts. When a trustee incurs a liability for the purpose of a trust, the trustee is generally personally liable under the contract unless there are express provisions in the contract relieving the trustee of personal liability. I take as an example the decision of the New South Wales Court of Appeal in Helvetic Investment Corporation Pty Ltd v Knight.1 The case is relevant as being an example of a trustee who gave a guarantee under a contract to provide consulting services. If a party to a contract is simply described as a trustee of a particular trust,
that is not enough by itself to relieve the trustee of personal liability under the contract.
[18] In this case Mr Reeve is named as the client under the contract. There is no evidence that Kevin O’Connor & Associates Ltd was advised before the contract that they would be dealing with Mr Reeve as a trustee. He contracted personally with Kevin O’Connor & Associates Ltd to pay for the services provided under the agreement. Kevin O’Connor & Associates Ltd is entitled to sue Mr Reeve as the client named under the contract, whether or not Mr Reeve is a trustee. Regardless of
his trusteeship, Kevin O’Connor & Associates Ltd is entitled to look to him personally for payment. Trusteeship may be relevant at a later stage.
[19] If Mr Reeve incurred the debt for the purpose of the Matariki Trust, he is likely to have a right of indemnity.2 That right of indemnity gives him an equitable charge or lien over trust assets. That is a property interest that prevails over the interests of beneficiaries in the trust assets. The trust aspect may also go to the remedies of Kevin O’Connor & Associates Ltd as a judgment creditor. A debt judgment against Mr Reeve cannot be enforced by levying execution on trust assets
by common law processes, such as a sale order under Part 17 of the High Court Rules. Instead, equity provides a remedy by way of subrogation under which a trust creditor may step into the shoes of the trustee and use the trustee’s right of exoneration to obtain an order for payment of the debt out of trust assets.
[20] These considerations, however, are not relevant at this stage. The enquiry here is simply whether Mr Reeve is liable under the contract. For that, it does not matter whether he is sued in his own name or he is also described as a trustee of the Matariki Trust.
[21] As I have described, Kevin O’Connor & Associates Ltd’s invoices show that they were made out to Matariki Trust. That was apparently done at the requests of both Mr Hartwell and Ms Parsons. It was submitted that that made a difference. In my view it does not. It is not a variation of the contract. No doubt it was convenient for Mr Reeve, as trustee, to receive invoices made out to Matariki Trust so that for accounting purposes it was possible to distinguish between liabilities incurred as a trustee and his personal liabilities. But that makes no difference to the fact that Kevin O’Connor & Associates Ltd has correctly sued Mr Reeve as the liable client under the contract. At this stage, questions of trusteeship are irrelevant to his liability to the plaintiff. Equally, I do not regard the request to send invoices to Matariki Trust as involving any variation of the contract.
The instruction to stop work in early August 2016
[22] Mr Reeve says that his property manager, Ms Parsons, gave notice to Kevin O’Connor & Associates Ltd in early August 2016 to stop work. At this point, it is relevant to refer the basis on which the court decides summary judgment applications.
[23] Mr Richards cited the standard authority frequently cited on plaintiffs’ applications for summary judgment: Krukziener v Hanover Finance Ltd.3 He cited in particular the court’s reference to the decision of the Privy Council in Eng Mee Yong v Letchumanan:4
The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable. The Court may take a robust and realistic approach where the facts warrant it.
[24] On the other hand, Mr Chesterman referred to a dictum in the Court of
Appeal’s decision in Corbett v National Mutual Finance Ltd:5
Affidavit evidence on oath should not be rejected as wholly lacking in credibility unless it is quite absurd or unless there is overwhelming evidence making that conclusion inevitable.
[25] Mr Reeve gives background evidence to explain the decision to terminate. He explains that while he had been overseas when the contract was signed, he returned to work on 16 July 2016. He met with Mr Hartwell on 22 July 2016. He describes negotiations with a view to how Peter Baker Transport and he could proceed further. He says that on 3 August 2016 he gave a reply to Mr Hartwell and has put the emails in evidence. He says that the effect of his email was that he withdrew as developer. He would no longer fund and undertake the development himself because he considered that the rental proposed by Peter Baker Transport was
too low. He was still prepared to entertain the idea of Matariki being granted a
3 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162.
4 Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC).
5 Corbett v National Mutual Finance Ltd (1992) 5 PRNZ 386 (CA) at 391.
ground lease and leaving the development to Peter Baker Transport. He told
Ms Parsons that the project was at an end, apparently on or about 3 August 2016.
[26] Ms Parsons’ affidavit says:
26.Not long after – I can’t recall the date, but it was after I knew the project had been cancelled – Rachel telephoned me. I remember our conversation because Rachel mentioned that I had not replied to their 1 August email.
27.I reminded Rachel that all that had been required was preliminary works. I said that Harrison Grierson had not been engaged to do any civil works but had just done some site surveys for me to help me plot the internal road, to allow me to fill in tenancies around the proposed PBT site should that deal have gone ahead.
28.On the same phone call, I told Rachel that the project had been cancelled. So why was KOA still working on it? I told Rachel that nothing further was happening with the PBT project so KOA shouldn’t be doing any more work on the project.
29. Rachel seems surprised by this news. I said that she should speak to
Chris or Kelvin, and she said she would do that.
“Chris” refers to Mr Reeve. “Rachel” is Ms Findon, the executive assistant at Kevin
O’Connor & Associates Ltd.
[27] Ms Findon has sworn an affidavit in response. She rejects the evidence of Ms Parsons. To rebut Ms Parsons’ evidence, Kevin O’Connor & Associates Ltd has gone through its landline records to trace outward calls from its landline to Ms Parsons. It has found only one phone call between 1 August and 5 August 2016. That was made at 2:31pm on 2 August 2016. That is before Mr Reeve decided to abandon the project. A contemporaneous email indicates that the 2 August telephone call was between a draughtsman and Ms Parsons, not Ms Findon.
[28] Ms Findon also says that if a client or representative of a client said that Kevin O’Connor & Associates Ltd was to stop work, that would be unusual and she would remember it. If she had received such a phone call she would have requested it be put in writing and she would have spoken to Mr O’Connor about it. As further rebuttal, she refers to further documents which indicate ongoing contact between Kevin O’Connor & Associates Ltd and Ms Parsons after early August 2016. These,
for example, indicate arrangements made by a draughtsman to go on site for survey purposes.
[29] There is email correspondence from Ms Parsons forwarding survey plans in regard to a right-of-way, and related documents. Ms Findon has also submitted Kevin O’Connor & Associates Ltd’s internal project meeting notes, some of which date from after August 2016, which refer to some dealings with Ms Parsons. The project meeting notes also include notes of a meeting in late July 2016, before any notice given by Ms Parsons. The project is given a consistent number throughout –
115543.
[30] For Mr Reeve, it was submitted that any work carried out by Kevin O’Connor & Associates Ltd after early August 2016 was strictly on behalf of Peter Baker Transport. From the time of Ms Parsons’ telephone call, Mr Reeve no longer had any interest in the development himself, and any development work was strictly on behalf of Peter Baker Transport alone. The various records which Ms Findon relies on are consistent with the work being carried out solely for Peter Baker Transport and not on Mr Reeve’s behalf.
[31] Given those arguments I cannot make an Eng Mee Yong v Letchumanan finding against Mr Reeve. The matter is not so clear-cut that I can say for summary judgment purposes that Ms Parsons did not give notice terminating the contract in early August 2016. Kevin O’Connor & Associates Ltd has provided evidence only of landline calls. I accept that cell phones are frequently used these days. At the same time, I would have expected Ms Parson as an experienced property manager to have recorded in writing the fact that she had terminated a contract, and to have confirmed that in writing to the other side. That is a glaring weakness in the case for Mr Reeve. But while it is a weakness, I cannot say that the case is hopeless.
[32] This contest as to whether a notice terminating the contract was given orally brings into focus cl 11 of the terms of contract which requires that any notice terminating the contract is to be given in writing. The purpose of requiring such notices to be given in writing is clear, once the dispute in this case is considered. It is wasteful for parties to contracts such as this to spend large amounts of time, with
the associated delays and expenses, resolving disputes as to whether something was communicated orally or not. The stipulation for a notice to be given in writing is to allow for certainty, so that both sides have a clear record of what is being communicated so that they can establish their position with regard to it. The problem with giving oral communications is that they may be misunderstood or they may be forgotten. The absence of records makes later attempts to describe what was said hazardous and uncertain. It is because of those risks of uncertainty that the contract sensibly provides that notice is to be given in writing. It would also be expected that any notice terminating the contract would be through the lines of communication established under the contract – that is, through the client representative.
[33] Because of the uncertainty whether notice was given or not that I find that Mr Reeve should be held to the termination provisions in cl 11. If he wanted to terminate, he was required to give notice in writing. He could, of course, try to give notice orally. If that notice was accepted, all well and good. But the risk was taken, that if the notice did not carry through, was not understood, was not accepted, or was not acted on, he had nothing to fall back on. It is for those reasons that I find that it is not arguable for Mr Reeve that the contract was terminated under cl 11 in early August 2016.
[34] Mr Chesterman submitted that it was open to the parties to agree an oral variation to the contract. As a matter of law, that may be correct but there is no evidence to support that submission for this case. Ms Parson’s evidence does not suggest that she proposed to Ms Findon an oral variation to the contract, and that Ms Findon agreed to accept that an oral variation to the effect that oral notice of termination could be given instead of written notice under cl 11. That part is not seriously arguable.
[35] Instead, on 7 November 2016 Mr Hartwell, the client representative, did give written notice and Kevin O’Connor & Associates Ltd recognised that as a termination notice and stopped work. It was entitled to charge for the work up until then.
Outcome
[36] I find that neither of the two points raised by Mr Reeve is seriously arguable. Kevin O’Connor & Associates Ltd is entitled to charge for all the work on its invoices. There was a mild complaint from Mr Reeve that he had not been kept informed while the work was being carried out. I am satisfied with the narration of the work – especially that given by Mr O’Connor in his reply affidavit as to the extent of the work. The fact that Mr Reeve, no doubt having received advice, made a substantial payment to cover the work he considered due up until 3 August 2016 indicates a recognition of the value of that work.
[37] I find that Mr Reeve is liable. He will no doubt wish to take the matter up with Peter Baker Transport Ltd, given the agreement he describes to share costs equally. He has not defended the proceeding on the basis that he can seek a 50/50 split with Peter Baker Transport Ltd, because that company is not a party to the contract with Kevin O’Connor & Associates Ltd. That arrangement lies outside the scope of the matters to be considered on Kevin O’Connor’s claim for payment under the fixed contract with Mr Reeve.
[38] Kevin O’Connor & Associates Ltd also sought judgment for contract interest rates. It has not, however, provided any evidence as to contract interest rates. Instead, I give judgment under s 87 of the Judicature Act 1908, while reserving the right to Kevin O’Connor & Associates Ltd to pursue a claim for contract interest rates if it still wishes to pursue that aspect.
[39] I give judgment as follows:
(a) Kevin O’Connor & Associates Ltd has judgment against Mr Reeve for
$225,586.05.
(b)I award interest to Kevin O’Connor & Associates Ltd at five per cent per annum. The start date for interest is 7 November 2016 being the date of termination. I fix that date because Mr Reeve did not receive
his invoices until after that date. Interest will run on the unpaid amount of the invoices.
(c) Kevin O’Connor & Associates Ltd seeks costs, including increased costs. As the successful party it is entitled to costs, but I see no basis for giving increased costs under r 14.6 of the High Court Rules. While Mr Reeve has been unsuccessful, there is nothing in the conduct of the defence that warrants increased costs. If counsel cannot agree costs, memoranda may be filed.
(d)I reserve leave to Kevin O’Connor & Associates Ltd to continue the proceeding solely in respect of its claim for contractual interest. If it wishes to continue that aspect, it should file and serve an amended statement of claim and seek a first case management conference for further directions.
……………………………………
Associate Judge R M Bell
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