MTM Funds Management Limited v Force Holdings Limited

IN THE COURT OF APPEAL OF NEW ZEALAND

CA204/00

BETWEEN	MTM FUNDS MANAGEMENT LIMITED
Appellant

AND	FORCE HOLDINGS LIMITED
First Respondent

AND	FORCE CORPORATION LIMITED
Second Respondent

Hearing:	26 October 2000
Coram:	Richardson P Thomas J McGrath J
Appearances:	G P Curry and R A Harrington for Appellant R Harrison QC and S Grant for Respondents
Judgment:	26 October 2000

JUDGMENT OF THE COURT DELIVERED BY MCGRATH J

This appeal concerns a contract dispute and the process by which it is to be resolved. It is against a judgment delivered by Robertson J (CP23-SD00 12 September 2000) granting an application pursuant to Rule 418 for an order that the question of whether plans and specifications form part of a contract between the parties be determined prior to trial of other issues in the proceeding.
The appellant’s associates contracted with the defendants, and a company associated with them, for the construction of the Force Entertainment Centre and the acquisition of ownership of the centre which is to be a large entertainment complex at Queen Street, Auckland, comprising theatres and other facilities. The terms of the contract are set out in an agreement called the Share Purchase and Loan Deed (relating to Force Entertainment Centre Limited). The scheme of the contractual arrangements is that, following completion of the project, the interests associated with the appellant will purchase shares in the company owning the centre, thereby acquiring beneficial ownership.
Under the contract it was stipulated that the date for practical completion was to be 30 December 1999. The essence of the dispute is whether the centre had reached the stage of practical completion, in terms of the contract, as at that date. The appellant says it has not and the respondents take the opposite view.
The contract stipulates a definition for practical completion. It is the latter of two dates. The first date is that on which the architect issues a certificate of practical completion of the contract works, and the second is the date on which construction and development of specified aspects of the works are complete.
Schedule 6 of the deed sets out the procedure for determining the date of practical completion.   References to “the Buyer” are to the appellant and to “the Seller” are to the first respondent.   Schedule 6 is in the following terms:
Practical Completion Date
1.The Practical Completion Date will be determined under this schedule 6.
2.For the purpose of this schedule 6 the Buyer may appoint an architect (Buyer’s Architect).
3.At least 10 Business Days before the date on which the Seller anticipates that Practical Completion will occur, the Seller must procure Force’s Architect to:
(a)   determine on each Business Day following that date whether Practical Completion has occurred; and
(b)   on the date on which Force’s Architect determines that Practical Completion has occurred, provide to the Seller a written certificate (Original Certificate) in favour of both the Buyer and the Seller which certifies that Practical Completion has occurred for the purposes of and as defined under this deed.
4.The Seller must:
(a)   procure Force’s Architect to notify the Trustee before Force’s Architect commences inspection of the Centre to determine whether Practical Completion has occurred; and
(b)   permit the Buyer’s Architect to accompany Force’s Architect throughout the inspection by Force’s Architect of the Centre undertaken to determine whether Practical Completion has occurred (including without limitation inspection of outstanding defects).
5.Within two Business Days of the date of receipt of the Original Certificate, the Seller must provide the Buyer with a copy of the Original Certificate.
6.Subject to paragraph 10 the Original Certificate will be:
(a)   final and binding on all parties:
(b)   determinative of the Practical Completion Date under this deed.
7.On receipt of a copy of the Original Certificate, the Buyer may procure the Buyer’s Architect to determine whether Practical Completion has occurred for the purposes of and as defined under this deed.
8.At any time within five Business Days of receipt by the Buyer of the Original Certificate, the Buyer may dispute the Practical Completion Date as set out in the Original Certificate by notice of that dispute to the Seller.
9.If the Seller receives a notice of dispute under paragraph 8 within five Business Days of the date that the Buyer receives the Original Certificate, then within two Business Days of receipt of that notice both the Seller and Buyer together must:
(a)   request the president of the New Zealand Institute of Architects to nominate an independent and appropriately qualified and experienced professional architect to determine the Practical Completion Date; and
(b)   engage and instruct the architect nominated under paragraph (a) to:
(i)determine the Practical Completion Date for the purpose of and as defined under this deed; and
(ii) within five Business Days of the date of engagement, provide to both the Seller and the Buyer a written certificate of the   Practical Completion Date.
10.A determination by an architect engaged by the Seller and the Buyer under paragraph 9 will be:
(a)   final and binding on all the parties:
(b)   determinative of the Practical Completion Date for the purposes of this deed.
11.The Buyer and the Company each must pay 50% of the costs and expenses of an architect engaged under paragraph 9.
It is common ground that on 30 December 1999 the first and second respondents sent by facsimile to the appellant a document described as the “copy of original certificate of practical completion”. The parties are in dispute however as to whether that certificate complies with the requirements of Schedule 6. In the Statement of Claim in proceedings it issued on 28 January 2000 the appellant contends, in the first cause of action, that the architect who signed the certificate, in the manner he proceeded, had failed to comply with the specified contract procedures. In the second cause of action it is said that the architect proceeded on the basis of the wrong plans and, for that reason, and because of its qualified and limited terms, the certificate was not a certificate of the kind contemplated and required by the contract. There is a pleading in factual terms, in the third cause of action, that the centre had not reached the stage of practical completion as at 30 December 1999. The fourth cause of action asserts the defendants are in breach of warranties under the contract in that the centre has not been constructed in terms of the contract plans and specifications (fourth cause of action).
The contractual significance of whether the practical completion had been correctly certified to have taken place on 30 December 1999, is that if it were not, the appellant is able to cancel the contract for purchase of shares and to acquire the Centre on a different value related basis.
Prior to the issue of these proceedings a Notice of Dispute under paragraph 8 of Schedule 6 had been submitted on behalf of the appellant disputing the Certificate as to the practical completion date in terms of the contract provision in Clause 8 of Schedule 6. That triggered obligations on both parties under clause 9. In terms of these obligations the parties proceeded to ask the President of the New Zealand Institute of Architects to nominate an independent architect to determine the practical completion date of the centre. There is no general provision for arbitration of all disputes under the contract and in later issuing the proceedings in the High Court the appellant’s position has been that it is raising wider issues, largely of a legal character, which go beyond those submitted under the contract to the dispute resolution provisions in Schedule 6.
The respondents then sought an order from the High Court staying the appellant’s proceedings. That order was granted in terms by Cartwright J initially in a judgment delivered on 24 May 2000 and later by consent, on 15 August in corrected terms, to stay only the third cause of action (CPNo.23-SD00). That judgment effectively precluded the litigation from proceeding in respect of the factually based challenge to the date of practical completion. Cartwright J gave her essential reason in para 20 of her judgment:
I am satisfied that the procedures set out in Schedule 6 should continue. The parties negotiated what was to them undoubtedly an efficient process by which a Practical Completion Date for the complex could be identified. A method for resolving disputes was included and that process is now well underway with the co-operation of both parties.
Prior to the delivery of the amendment judgment of Cartwright J the respondents had applied under Rule 418 to the High Court for the separate determination, prior to the trial, of which whether the date of practical completion was to be assessed were the contract plans and specifications and in particular whether they were those known as their V Set. Differences between the parties on what were the contract plans were impeding progress of their joint engagement and instruction of the nominated architect who would resolve the dispute over whether practical completion had been achieved as at the contract date. The defendants sought to have this issue, which was integral to all of those in the High Court proceedings, as well as the independent Architect’s process, determined by the Court as a preliminary question.
Robertson J granted the application.   In essence he reasoned:
[a]The purpose of Rule 418 was to enable expedition of practical completion by limiting the scope of trial.
[b]A crux issue in both the Court proceedings and the contract dispute resolution process, was which were the relevant contract plans.
[c]Unless the Rule 418 procedure were adopted and the contract plans identified the Architect would have to “take a stab” at which plans were involved and certify on the basis of that assessment. Inevitably one party would then challenge the certificate on the basis that he had proceeded on the wrong plans.
[d]In these circumstances the Court should determine now which were the correct plans under the Rule 418 procedure.
[e]That process on the face of it should not inconvenience the appellant as plaintiff, who would be free to proceed with the 1st, 2nd and 3rd causes of action if the certificate was upheld by the Architect.
[f]If on the other hand it were not upheld the appellant would have a decision in its favour without all the cost and delay associated with a full trial.
[g]On any view of the matter the best available starting point was an authoritative determination of which were the contract plans.
In support of his client’s appeal to this Court Mr Curry essentially pressed the advantages of a single, clear, clean procedure determining all the continuing outstanding issues within one hearing. That, he said, could only be by the High Court hearing together all the continuing issues in the litigation. The third cause of action had been stayed and it was not sought to resurrect that. Depending on the outcome some matters of fact might then be left to the independent architect to resolve under the Schedule 6 procedure.
In relation to the judgment of Robertson J Mr Curry argued that Rule 418 was unlikely to accelerate resolution of the issues between the parties and could well delay it. He was critical of the Judge treating the expedition of the architect’s determination procedure as a consideration which influenced him in the exercise of discretion. Mr Curry cited authorities in support of his argument which focussed on the purpose of Rule 418 as being more concerned with the expedition of the trial process. He said that chronologically and logically the single procedure made more sense and he disagreed with Mr Harrison’s concern that a single procedure would result in a lengthy trial that could not take place until well into next year. On the other hand the Rule 418 hearing could be held before the end of this year.
This was an unusual contract in that the parties had stipulated a dispute resolution mechanism, in relation to the practical completion date, which involved the certificate of an independent architect, while leaving open the possibility of litigation to resolve broader questions affecting practical completion. In that context Robertson J was clearly entitled to look at the totality of the disputes to be resolved and their processes, rather than focussing on how to expedite resolution of those matters which would go to trial. He took the view that the best starting point available for progressing resolution of the total dispute was an authoritative determination of whether and when practical completion occurred. That would he thought be facilitated by allowing the Rule418 application.
We accept that there are risks with applying the Rule 418 procedure that in the end there is no saving in time and only duplication of resources. In this case however initial determination by the Court of which were the contract plans seems to be an orderly way to proceed. It addresses what, chronologically, is the first aspect of the dispute by clarifying the terms of the contract at the outset. That issue seems discrete from other subsequent issues but fundamental to determination of them all. Resolution of it will remove an impediment holding up the functioning of the dispute resolution mechanism agreed on by the parties for resolving issues concerning the date of practical completion. This in itself is desirable in principle. Indeed this is a responsibility that will become more difficult for the independent architect to perform the longer it is delayed.
In addition the issues raised in the litigation, even without the third cause of action are of a kind which tend to factual complexity and lengthy trial hearings. The Judge saw good prospects that the overall scope of the issues to be determined by the architect and in the litigation so far as that is necessary, would be limited by addressing the contract plan issue first.
The Judge’s decision was the exercise of the discretion given by Rule 418. It was based on a pragmatic assessment of the likely consequences depending on the outcome of the Court’s decision on the preliminary question. We have no doubt the decision was open to the Judge. Indeed we agree with it.
Accordingly we dismiss the appeal. The respondents are entitled to costs of $5000 together with disbursements for travel and accommodation for two counsel, to be fixed if necessary by the Registrar.

Solicitors

Russell McVeagh McKenzie Bartleet & Co. Auckland, for Appellant
Burton & Co. Auckland, for Respondents

[2000] NZCA 305

26 October 2000