Reed Roading Limited v Higgins Contractors Limited
[2023] NZHC 3463
•30 November 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-2687
[2023] NZHC 3463
BETWEEN REED ROADING LIMITED
Applicant
AND
HIGGINS CONTRACTORS LIMITED
Respondent
Hearing: 28 November 2023 Appearances:
S Davies-Colley for Applicant
I Rosic and Z A Brentnall for Respondent
Judgment:
30 November 2023
JUDGMENT [REDACTED] OF VENNING J INTERIM INJUNCTION
This judgment was delivered by me on 30 November 2023 at 3.00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors/Counsel:
WRMK Lawyers, Whangarei Gilbert Walker, Auckland
REED ROADING LTD v HIGGINS CONTRACTORS LTD [2023] NZHC 3463 [30 November 2023]
[1] Reed Roading Limited (Reed) seeks an interim injunction requiring Higgins Contracting Limited (Higgins) to perform its obligations under a confidentiality and exclusivity agreement dated 25 November 2022 (the Exclusivity Agreement).
[2] The application was initially filed on a without notice basis on 10 November 2023. Whata J directed it be heard on notice. Following a brief hearing before Whata J on 13 November 2023 the parties were able to agree an undertaking until the application could be heard as a matter of urgency. Higgins agreed to the following undertaking:
[Higgins] undertakes not to enter into any contract relating to the earthworks that are the subject of the [Exclusivity Agreement] between [Higgins] and [Reed] dated 25 November 2022 before 5pm on 28 November 2023.
[3] At the conclusion of the hearing before me Ms Rosic confirmed the undertaking would be extended to 5.00 pm, 30 November 2023.
Background
[4] Murray Reed is the sole director of Reed. He and his wife Lyn are the shareholders. Mr Reed has been working in construction and earthmoving since he bought his first digger at 22, over 30 years ago. Reed has been in existence since 2007.
[5] Higgins is a civil and road construction company. It is part of the Fletcher group of companies.
[6] Reed has two contracts with Higgins relating to two separate projects. In November 20balanc22 Higgins appointed Reed as subcontractor to provide the earthworks portion of a business project Higgins was running in Tauranga, (the Rangiuru Project). At around the same time, on 25 November 2022, Reed signed the Exclusivity Agreement with Higgins in relation to Higgins’ bid to be the head contractor on a proposed wind farm project at Kaiwaikawe (the Wind Farm) to be built for Mercury New Zealand Limited (Mercury). Reed was to price the earthworks’ aspect of the project. As yet, Higgins has not been awarded the contract under that Wind Farm. Apparently Mercury’s Board is [yet] to make a decision [REDACTED] whether the Wind Farm project will proceed.
[7] Issues developed between Higgins and Reed on the Rangiuru project in relation to Reed’s performance of the contract, and particularly Mr Reed’s actions. In August 2023, Mr Reed was banned from that site although Reed has challenged that direction under the Construction Contracts Act 2002 and the matter is subject to an adjudication at present.
[8] On 6 October 2023, Higgins gave notice that it was exercising its right to terminate the Exclusivity Agreement under clause 4(a)(vi) of that agreement.
[9] Reed challenged Higgins’ notice of termination. On 11 October 2023, through Fletcher Building Limited, Higgins provided the following further details of the reasons it exercised its rights of termination under cl 4(a)(vi):
a.The [Wind Farm] works will be carried out on a working farm. Higgins and its subcontractors must accommodate the requirements of the farmers in terms of access and movements around the farm.
b.Mercury has high expectations around health and safety;
c.Delivery and meeting deadlines are critical for Mercury. Although Mercury will insist on liquidated damages for late completion, the consequences of delay for Mercury are far greater than the recovery of liquidated damages from Higgins.
d.Our contract with Mercury will be a fixed lump sum with no opportunity for variations. While [Reed] accepted this at tender stage, following receipt of inflated and unsubstantiated variations from [Reed] on the [Rangiruru] project Higgins has reason to believe this will be a source of dispute going further.
e.Mercury is a critical client for Higgins with 2 projects due to start in January valued at approximately [REDACTED] and with the prospect of entering negotiations directly for another project estimated at [REDACTED], dependent on our performance and approach at Kaiwera and the [Wind Farm]. In light of [Reed] and Mr Reed’s recent conduct and performance, Higgins is unwilling to put that relationship at risk by engaging your client to undertake works on the [Wind Farm].
The application for injunction
[10]Reed seeks orders that Higgins:
(a)not terminate the Exclusivity Agreement; and
(b)provide to Reed without delay all project information held by it which it may need to consider in terms of the proposed form of subcontract; and
(c)provide to Reed a proposed form of subcontract for the Wind Farm and negotiate its terms in good faith with the mutual purpose of achieving a signed subcontract.
[11]Reed says that:
(a)there is a serious question to be tried in that:
(i)Higgins has not acted in good faith in purporting to terminate the agreement;
(ii)the grounds upon which Higgins has based its decision to terminate are untrue, unreasonable and do not prevent Reed from performing the relevant works. Reed is ready, willing and able to perform those works;
(iii)the decision to exclude Mr Reed from the Rangiuru site is being challenged. It is itself unlawful and likely to be overturned; and
(iv)the exclusion of Mr Reed from the site is not relevant to the question of Reed’s ability to perform the Wind Farm Project.
(b)The balance of convenience favours the granting of the injunction as:
(i)Reed is a small contractor which has invested significant time and funds in supporting Higgins’ tender for the Wind Farm;
(ii)preliminary works on the Wind Farm are due to start imminently and if the purported cancellation is allowed to stand it will impact on Reed’s preparation;
(iii)the contract contains liability limitations which, if enforceable, will leave Reed with significant losses.
(iv)Higgins is a large company with ample resources;
(v)if the injunction is not granted Higgins will attempt to subcontract the works to another subcontractor; and
(vi)there will be no loss to Higgins in granting the injunction. It would be required to work with Reed on the basis that was intended from inception.
(c)The overall justice of the position favours the grant of injunction because:
(i)if not granted then Higgins will, as a result of breaches receive the benefit of the Wind Farm contract;
(ii)if not granted Reed will suffer losses which may be excluded (limited) by a contractual limitations clause;
(iii)if granted Higgins will suffer no loss; and
(iv)it is unconscionable that Higgins be allowed to breach a contractual duty of good faith to Reed’s detriment.
Higgins’ response
[12]Higgins opposes the orders on the basis:
(a)There is no serious question to be tried as Reed has no real prospect of demonstrating:
(i)Higgins’ belief that Reed would not be able to perform the Wind Farm project in accordance with Mercury’s requirements was unreasonable; or
(ii)that Higgins failed to act in good faith in terminating the Exclusivity Agreement.
(b)Further, if the orders were granted Higgins would suffer harm for which damages would not be an adequate remedy:
(i)Higgins would be forced to negotiate and subcontract with Reed on the Wind Farm project in circumstances in which it does not believe Reed can perform the works to the required standard, and with whom its relationship has broken down;
(ii)Higgins would be at risk of missing out on the Wind Farm project or having its scope reduced;
(iii)the relationship between Higgins and its largest private sector customer, Mercury, risks being irreparably harmed; and
(iv)Higgins’ reputation in the market and its relationships with third parties risk being harmed.
(c)Third parties are likely to suffer harm.
(d)Damages are an adequate remedy for any loss Reed may suffer.
(e)The status quo is that the Exclusivity Agreement has been terminated.
(f)The overall justice points against the orders.
Evidence
[13] The application for injunction is supported by affidavits of Mr Reed and Ben Tomason. Mr Tomason is the managing director of Scope Projects Ltd (Scope) and has been involved in assisting Reed with the Rangiuru project since mid-August 2023.
[14] Higgins has filed affidavits by Anthony (Tony) Redican, Damon Norden, Shane Wallace and Donovin King. Mr Redican is the construction manager for the Rangiuru project. Mr Norden is the northern area manager for Higgins and provides strategic leadership and management of Higgins’ northern area operations. Shane Wallace is a site superintendent for Higgins and was involved in the bulldozer incident.
Donovin King is a pre-contracts manager for Higgins involved in the Wind Farm project.
[15]Both Mr Reed and Mr Tomason have filed affidavits in reply.
Principles
[16] The parties are generally agreed on the principles to apply on applications for interim injunctions. The principles were recently restated by the Court of Appeal in NZ Tax Refunds Ltd v Brooks Homes Ltd:1
The applicant must first establish that there is a serious question to be tried or, put another way, that the claim is not vexatious or frivolous. Next, the balance of convenience must be considered. This requires consideration of the impact on the parties of the granting of, and the refusal to grant, an order. Finally, an assessment of the overall justice of the position is required as a check.
[17] In the present case it is relevant that the injunction sought is a mandatory injunction. If granted, it will have a substantive effect rather than protecting an interim position. It will require Higgins to negotiate a subcontract with and then work with Reed on the Wind Farm project if the project proceeds and Higgins is appointed lead contractor. As such, the Court is required to take a more robust approach to the assessment of the merits of Reed’s case.2
[18] In Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd, Lord Mustill put it this way: 3
[It] is true that mandatory interlocutory relief may be granted even where it substantially overlaps the final relief claimed in the action; and I also accept that it is possible for the court at the pre-trial stage of a dispute arising under a construction contract to order the defendant to continue with performance of the works. But the court should approach the making of such an order with the
1 NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90 at [12].
2 Ross v MediaWorks Holdings Ltd [2020] NZHC 2574 at [31]; New Zealand Olympic & Commonwealth Games Association Inc v Telecom NZ Ltd (1996) 7 TCLR 167 (HC); Northern (except Gisborne) Road Transport Motor and Horse Drivers and their Assistants IUOW v Kawau Island Ferries Ltd [1974] 2 NZLR 617 (CA) at 621; NZ Baking Trades Employees’ IUOW v General Foods Corp (NZ) Ltd [1985] 2 NZLR 110 (CA), the judgments of Cooke J at 118, and Richardson J; and McKay Electrical (Whangarei) Ltd v Hinton [1996] 1 ERNZ 501 (CA); and Wilfred v Gan [2013] NZCA 457 at [21].
3 Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334 (HL) at 367.
utmost caution, and should be prepared to act only when the balance of advantage plainly favours the grant of relief.
[19] Given the orders sought, Reed is also required to show that it would have a real prospect of establishing at trial that specific performance of the Exclusivity Agreement would be ordered.4 The practical position with the timing of the Wind Farm project is, however, that any substantive hearing will at the earliest be months away and after the project has commenced. The outcome of this injunction application will effectively determine the matter, at least as far as Reed’s involvement in the Wind Farm project is concerned.
Serious question to be tried
[20] Both parties rely on the provisions of the Exclusivity Agreement. The relevant clauses of the Exclusivity Agreement are:
1. Responsibilities
(a) In order to have the greatest possible chance of being selected as the preferred proponent for the Project, the Parties agree to:
(i)use all commercially reasonable endeavours both collectively and individually; and
(ii)commit such resources to an Integrated collaborative team as are reasonably necessary,
to submit a market leading proposal.
(b) Save as set out in clause 2 of this Agreement, no Party shall be obliged to:
(i)act in a way that prevents that Party from securing a reasonably acceptable commercial return from the Project; or
(ii)act contrary to their general commercial interests.
2. Exclusivity
(a) Subject to clause 2(b),5 the Parties agree that they, their related entities and personnel will:
(i)act in good faith and work exclusively together in relation to all matters connected or related to this Agreement and the Project; …
4 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1195 at [9]; and Sharma v Air New Zealand Ltd [2020] NZHC 230.
5 Clause 2(b) is not relevant to this matter.
…
4. Term and Termination
(a) This Agreement commences on the date It is executed and will continue until the earlier of the following:
(i)the execution of a binding [subcontract] agreement between the Parties as detailed in clause 6;
…
(vi) termination by HCL in the event that it reasonably believes that Party X will not be able to perform the X Works in compliance with the Client's requirements due to factors including, but not limited to, a breach of clause 1(a)(i), X’s inability to adequately resource or make available the necessary personnel for the performance of the X Works.
5. Liability
(a) Subject to clause 5(c),6 no Party will be liable to the other Party for any loss of revenue, loss of profit, business interruption or loss of opportunity or for any indirect or consequential cost, expense, loss or damages suffered or incurred by the other Party arising under or in connection with this Agreement.
(b) Subject to clause 5(c), to the maximum extent permitted by law, the maximum aggregate liability of a Party to the other Party under this Agreement for claims, damages, liabilities, losses, or expenses (whether under contract, statute, tort, or otherwise) is limited to NZD$100,000.
[21] Although no statement of claim has been filed Reed’s case is that Higgins breached its duty to act in good faith under the Exclusivity Agreement by purporting to terminate it. It says Higgins could not have had a reasonable belief Reed would not be able to perform its obligations in relation to the Wind Farm project.
[22] Higgins says it was acting in good faith and believed that Reed would not be able to perform the Wind Farm project works in compliance with Mercury’s requirements so that it was entitled to terminate to protect its general commercial interests. It made that decision based on its experience with Reed on the Rangiuru project. Also, the parties’ relationship has broken down. There is a lack of trust and a disputes-oriented mentality between them.
6 Clause 5(c) has no relevance to this matter.
[23] Mr Davies-Colley referred to the case of Vero Insurance New Zealand Ltd v Fleet Insurance & Risk Management Ltd to support Reed’s argument that Higgins had not acted in accordance with its obligation of good faith under the Exclusivity Agreement.7 In Vero Insurance Asher J referred to the three core principles of good faith in commercial contracts identified by Sir Anthony Mason as:8
(a)both parties being loyal or faithful to the agreed common purpose which underlies the contract and acting consistently with this agreed purpose in the justified expectation of the other party;
(b)compliance with standards of reasonable conduct, e.g. exercising contractual discretions in a predictable way which aligns with the common intentions and purpose of the contract (not relying on extraneous factors to exercise a contractual discretion); and
(c)compliance with honest standards of conduct, i.e. not acting in bad faith.
[24] Mr Davies-Colley submitted Higgins had not acted reasonably and in good faith to the agreed common purpose as it had not sought to explore alternative ways to resolve the issues between the parties, and had not raised its concerns regarding Reed’s ability to carry out the Wind Farm project before terminating it. He also submitted Mr Redican’s conflicting statements were evidence of bad faith on the part of Higgins.
[25] The interpretation and application of an obligation of good faith in a commercial contract will depend on the circumstances of the particular contract, as
7 Vero Insurance New Zealand Ltd v Fleet Insurance & Risk Management Ltd HC Auckland CIV- 2007-404-1438, 21 May 2007.
8 At [45], citing Sir Anthony Mason, “Contract and its Relationship with Equitable Standards in the Doctrine of Good Faith” The Cambridge Lectures (8 July 1993), cited in Burger King Corp. v Hungry Jack’s Pty Ltd [2001] NSWCA 187 at [171]; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 at 367 and Hughes Aircraft Systems International v Air Services Australia (1997) 146 ALR 1 at 37, discussed further in “Contract, Good Faith and Equitable Standards in Fair Dealing” (2000) 116 LQR 66.
noted by the Court of Appeal in Wellington City Council v Body Corporate 51709 (Wellington).9
[26]In Symphony Group Ltd v Pacific Heritage (Auckland) Development Ltd,
Paterson J referred to the following passage from Mogridge v Clapp:10
“If good faith had a general meaning or meanings of its own — that is, if it were either unequivocal or unambiguous — there would seldom be occasions to derive a meaning for it from an opposite; its specific uses would almost be readily and immediately understood. But good faith is not that kind of doctrine. In contract law, taken as a whole, good faith is an ‘excluder’. It is a phrase without general meaning (or meanings) of its own and serves to exclude a wide range of heterogeneous forms of bad faith.”
[27] In Topline International Ltd v Cellular Improvements Ltd the Court referred to Thomas J’s observation in Bobux Marketing Ltd v Raynor Marketing Ltd:11
[44] … Good faith is required to ensure that the requisite communication, co-operation and predictable performance occurs for the advantage of both parties. In short, the obligation seeks to hold the parties to the promise implicit in a continuing, relational commercial transaction.
before concluding that on the facts of the particular contract before it:
[102] … the obligation to act in good faith in cl 3.1 of the present contract adds little to the parties' general contractual obligations.
[28] Having regard to the above authorities, in my judgment the obligation to act in good faith under cl 2(a) of the Exclusivity Agreement meant that, if Higgins was to rely on cl 4(a)(vi) to terminate the Exclusivity Agreement, it had to do so by reference to and reliance on the particular requirements of the clause, rather than acting just because they did not like Mr Reed or if it considered it could get a cheaper price from another subcontractor, for instance.
[29] Higgins says its decision to terminate the Exclusivity Agreement was made as a result of its experience with Reed during the Rangiuru project which led it to believe
9 Wellington City Council v Body Corporate 51702 (Wellington) [2002] 3 NZLR 486.
10 Symphony Group Ltd v Pacific Heritage (Auckland) Development Ltd HC Auckland CP362/98, 17 August 1998, citing Mogridge v Clapp [1892] 3 Ch 382 (CA).
11 Topline International Ltd v Cellular Improvements Ltd HC Auckland CP144-SW02, 17 March 2003, citing Bobux Marketing Ltd v Raynor Marketing Ltd CA245/00, 3 October 2001.
Reed would not be able to perform the work required on the Wind Farm project in compliance with Mercury’s requirements.
[30] The trigger point (but not the first example of the issue) to the breakdown in the parties’ relationship was the bulldozer incident at the Rangiuru site on 8 August 2023.
The bulldozer incident
[31] Mr Wallace’s evidence is that on the morning of 8 August 2023 Mr Reed said he wanted to work in an area in which CB Civil (another subcontractor) was working. CB Civil needed to finish their work in that area and then move their equipment, including a container, to another area. CB Civil needed help to move the container. Reed offered one of their excavators to help do that.
[32] There was however a mechanical issue involving Reed’s gear which meant CB Civil’s gear could not be moved immediately. At some stage in the morning Mr Reed became angry with how long things were taking. Mr Wallace’s evidence is that around
9.00 am Mr Reed drove his car up to where the CB Civil site supervisor and he were standing. He shouted aggressively about CB Civil not moving its equipment, including the container. He said that if they “didn’t f**king move it” he would do it himself with his bulldozer. Mr Wallace said he asked Mr Reed to calm down and said it would be moved soon. Mr Reed responded “if you don’t believe me just watch me”. He then drove off in his car but shortly reappeared driving the bulldozer.
[33] Mr Wallace considered that Mr Reed drove the bulldozer pushing material towards him and the CB Civil site supervisor. He said they had to jump out of the way. He said Mr Reed drove the bulldozer very close to them in breach of the rule that machinery must not be driven within five metres of people on site. He considered Mr Reed’s actions were obviously designed to scare them. Once Mr Reed stopped, Mr Wallace approached him and at that stage Mr Reed opened the cab, shouting at the CB Civil site supervisor who was with Mr Wallace, calling him a “f**king liar” and a “f**king d**khead”. Mr Reed said his excavator had been waiting to move the container and CB Civil was “f**king him over”. Mr Wallace told Mr Reed to calm down, that he was being unreasonable and that the excavator had had a mechanical
issue. There was then an argument between Mr Reed and Mr Wallace as to whether Mr Wallace was standing in the exclusion zone. Later Mr Reed complained to Mr Redican about the time taken by CB Civil to move its equipment. Apart from Mr Wallace the two CB Civil workers involved in the incident, Callum Glover and Dene Rowland have provided statements about the incident. Their statements are essentially consistent with Mr Wallace’s evidence.
[34] Mr Reed takes a different view. He agrees he was frustrated with CB Civil, that he told them to hurry up and accepts he probably did use a few swear words. But he says he told them he was going to start work at the southern end of the pad, about 120 m away. His passes in the bulldozer were about 50 m long, which stopped about 70 m short of the CB Civil container. After about 10 to 15 minutes a CB Civil ute drove up and parked in the zone where he was working ahead of him and slightly to the right. He says he stayed at least five metres away but the CB Civil worker climbed out of the ute and he was then shocked to see Mr Wallace approaching the bulldozer on foot from behind in his blind spot on the right. He was about two metres away. As soon as he saw him he stopped the bulldozer and opened his cab door. He then had a heated exchange with Mr Wallace. He carried on working after they left.
[35] Following the bulldozer incident on 8 August Mr Redican emailed Mrs Reed requesting a meeting with her and Mr Reed at 9.30 am to discuss Mr Reed’s behaviour and conduct on site. There then followed a meeting on Thursday, 10 August attended by Mr Redican, Higgins’ health and safety officer, and Mr and Mrs Reed and Mason Reed, Mr Reed’s son and Reed’s other principal machinery operator. Without advising Mr Redican, Mr Reed recorded the meeting. He has produced a transcript of that meeting.
[36] Higgins says the transcript is not complete. But in any event, it confirms that Mr Reed accepted there was a confrontation at the site on 8 August and also that Mr Reed threatened that Reed would walk off the site. Reed did not attend the site on Friday, 11 August.
[37] Mr Redican then sent an email on Sunday, 13 August, advising that after the meeting Higgins had received additional witness statements regarding Mr Reed’s
threatening and aggressive behaviour towards CB Civil workers and Higgins’ superintendent, Shane Wallace. Mr Redican advised that until a full investigation had been completed Mr Reed would not be able to work on the Rangiuru project.
[38] Reed began to remove gear from the site. Then, on 17 August, Mr Redican wrote to Reed advising that Higgins had fully investigated the incident and confirming that, as a result, Higgins was no longer able to accept Mr Reed’s personal presence on the Rangiuru project. Higgins sought a response by end of business, Friday 18 August, to confirm ongoing work arrangements and asked Reed to nominate another contractor’s representative to replace Mr Reed.
[39] Reed’s lawyers then wrote on 21 August 2023 giving notice of dispute and confirming that Reed refused to return to site. That was met by a letter from Higgins of 25 August 2023 confirming that from Higgins’ point of view Reed’s disestablishment from the site on Tuesday, 15 August 2023 amounted to a repudiation of the subcontract and a default under the contract. It gave notice that if Reed failed to return to the site by 28 August 2023 Higgins would terminate the subcontract.
[40] The parties continued to negotiate and ultimately Reed returned to the site on 1 September but without Mr Reed. Following this incident Reed involved Mr Tomason of Scope to assist the general contract management and to support Reed with its claims and the administration aspect of the contract at Rangiuru.
[41] I record that Mr Davies-Colley noted that one of the CB Civil contractors apparently recorded a video of the bulldozer incident on his cell phone. He suggested the Court should draw an inference from the fact that had not been produced. Ms Rosic confirmed the video was available if the Court wanted to view it. I do not consider it necessary or appropriate to do so. It is not this Court’s role on this application to determine exactly what happened in relation to that incident. That is for the adjudicator and the consequences of it are for the adjudicator. It is sufficient for present purposes that there was an incident involving Mr Reed and that was serious enough to lead to the consequences referred to.
[42] Apart from that bulldozer incident, I note that Mr Norden’s evidence is that previously, even as early as March 2023 a number of issues had arisen regarding Reed’s performance of the Rangiuru contract. Mr Norden’s evidence is that Reed carried out different work to that planned and did not follow the works programme. Reed also repeatedly threatened to walk off the site (which it actually did in August). Also, there were earlier complaints that Mr Reed intimidated and bullied Higgins and other contractors’ staff. Mr Norden produced an email of 18 May 2023 from Richard Levitt, the Rangiuru project manager. Mr Levitt detailed issues with Reed and Mr Reed in particular and at that time recommended a negotiated termination of the subcontract.
[43]Further, in his letter of 17 August to Reed Mr Redican noted:
·Similar incidents have previously occurred with Murray yelling, using abusive and threatening languages towards the team, including telling Jared Bones he [would] ‘smash him’, that staff were f**ck-wits, and belittling junior members,
·After talking to the Team and other contractors, the feedback by many was that they did not feel safe with Murray on site, and do not want to work alongside him.
·There are concerns that Murray’s ongoing actions and conduct may potentially cause injury and create an unsafe work environment including affecting the team’s overall mental health and wellbeing.
…
We do not consider Murray’s actions to be reasonable or acceptable; they are in conflict with our values, and they breach both a) the reasonably accepted customer, community and industry standards, and b) the Contractual H&S Warranties.
…
[44] Both Mr Redican and Mr Norden gave a number of other examples of the issues with Reed’s performance of the Rangiuru contract. In their affidavits in reply, Mr Reid and Mr Tomason respond to those issues.
[45] In his first affidavit Mr Tomason purported to give evidence about the issues raised by Higgins and gave his opinion as to whether they raised reasonable grounds to consider Reed would not deliver the Wind Farm project professionally and in accordance with Mercury’s requirements. With respect to Mr Tomason, he is
obviously not independent. He was employed by Reed to assist it with the Rangiuru contract, and at a late stage in that contract. Aspects of his evidence, both in his original and reply affidavit, are in the nature of submissions. His observations are of limited assistance. As noted, Mr Tomason was only involved late in the piece and his attendance on site has been very limited (approximately four occasions). Higgins accepts that since Mr Tomason became involved the administration and paperwork aspects of the contract have improved, but there remain issues with the on-site management and work.
[46] It is not possible or indeed appropriate for the Court to try and resolve the conflicts between the parties’ evidence about the various issues raised. For present purposes I note that even on Mr Reed’s evidence it is clear that the parties have experienced issues and conflict during the Rangiuru project arising from the way Reed has carried out its subcontract work.
[47] Against that background I turn to the points Higgins relies on to demonstrate it was acting reasonably and in good faith in terminating the Exclusivity Agreement.
[48] Ms Rosic confirmed that Higgins primarily relied on Reed’s inability to perform the works in compliance with Mercury’s requirements including its inability to comply with health and safety standards. Although she referred to the difficulty posed by the fact the works would be carried out on a working farm she did not pursue that. That was a realistic concession. On its own, I would not place too much weight on that issue.
Performance issues – deadlines critical for Mercury
[49] Ms Rosic submitted that Higgins was justified in terminating the Exclusivity Agreement as its experience with Reed on the Rangiuru project confirmed to it that Reed would not be able to meet Mercury’s requirements for the project. Mr Norden’s evidence confirms that the scope of the Wind Farm project will be more extensive than the Rangiuru contract. The Wind Farm project will require significantly more earthworks to be completed at a greater rate of productivity than Reed has been required to achieve for the Rangiuru project. Mercury expects [REDACTED] earthworks to be completed [REDACTED], which is at a rate of approximately twice
that of the work at Rangiuru. Given Reed’s performance at the Rangiuru project Mr Norden has considerable doubts that Reed would be able to lift its performance and maintain it for that sustained period of 16 months to achieve that outcome.
[50] Further, the pressure on the contractors on the Wind Farm project including Reed would be much greater than the pressure on the current Rangiuru project. Any delay, in any aspect, including the earthworks, will result in delays to subsequent works and the project completion date, which will lead to additional financial pressure on the contractors. The Rangiuru project is a measure and value contract as opposed to a lump sum project. The Wind Farm project will be a lump sum project. The additional financial pressure of such a contract is likely to exacerbate the problems Higgins have encountered with Reed, namely the repeated threats to walk off the site, actually walking off the site, carrying out work without regard for the project priorities, and ignoring the need to co-ordinate the works. Higgins’ evidence is that Reed agrees to work at planning meetings then carries out different work. There was also a general failure to provide methodology and work sequencing plans. This is particularly relevant as Mr Norden considers the Wind Farm project will need to be undertaken on at least two fronts with strict adherence to the works programme. Reed does not, in his opinion, have the capacity or skills (even with Mr Tomason’s involvement) to handle that.
[51] Mr Davies-Colley noted that cl 4(a)(vi) enabled termination only in the event that Higgins reasonably believed Reed would not be able to perform the works. He also noted that the example in cl 4(a)(vi) was an inability to adequately resource or make available the necessary personnel for the performance of the works. He submitted that the interpretation of the clause must be informed by that example and that Reed had the wherewithal to carry out the work. It had committed itself to purchasing machinery for the project and had, or could arrange, the necessary contractors. It was able to perform the works.
[52] Reed says it could arrange up to 18 additional individual drivers and machine operators for the Wind Farm project and further it would be assisted by Mr Tomason of Scope with management of the contract. Next, Mr Reed says the Wind Farm project will not involve shifting large volumes of material. He refers to his discussion with
Mr King in March 2023 when he suggested Reed could perform the earthworks faster than actually programmed for.
[53] Mr Davies-Colley also noted that since Mr Tomason had been brought into the Rangiuru project things had gone, at least according to Mr Redican, relatively smoothly since then.
[54] It is relevant that Reed is, as Higgins notes, a small business controlled by Mr Reed. Mr Reed is the sole director. Mr Reed and his son, Mason Reed, are the primary machinery operators. The bulk of the work force is made of individual contractors who rely heavily on the Reeds and Mr Reed in particular for direction. Mr Redican says two of Reed’s workers left the job at Rangiuru after falling out with Mr Reed.
[55] An important part of the relevant clause, cl 4(a)(vi), is the need for Reed to perform the works “in compliance with the client’s requirements”. In this case, on the evidence, Mercury’s requirements include but extend beyond the actual construction works the subject of the contract. In other words, in the course of performing the work, the contracting party, such as Reed, must comply with Mercury’s requirements as to how the work is to be carried out. Mr Norden noted Mercury’s requirement that contractors must collaborate and contribute to a team effort. Given his experience with Reed he does not believe that would be achievable. On the evidence Higgins has reason to doubt that Reed would comply with the works in accordance with Mercury’s requirements.
[56] On the basis of Mr Norden’s and Mr Redican’s evidence there is reason to doubt whether Reed would be able to carry out the extensive earthworks in the Wind Farm project within time and to budget. I acknowledge Mr Reed takes a different view but nevertheless, the issue for present purposes is whether Higgins could reasonably take that view. On the evidence, I consider Higgins could reasonably have held that view when it issued the notice of termination.
[57] I do not consider the issues of concern to Higgins have been addressed by the involvement of Mr Tomason. Mr Tomason is not physically on site. He has only
visited the site approximately four times. While the administrative aspect in terms of documentation has improved, the evidence is that the on-site issues remain.
Mercury’s expectations around health and safety
[58] Next, Ms Rosic submitted that Higgins also reasonably considered Reed would not be able to meet Higgins’ and Mercury’s health and safety requirements in relation to the Wind Farm project.
[59] Mr Norden attached copies of Mercury’s Health and Safety requirements, which confirmed that:
· Allowing work to continue when it is unsafe to do so is unacceptable to Mercury;
· Mercury has the right to suspend the works immediately, where it is not satisfied that all practicable steps have been taken to ensure the health and safety of workers;
· Should an incident occur Mercury requires a full investigation to be carried out to identify the root causes;
· Mercury has zero tolerance for reckless conduct or violation of its health and safety policy and procedures; and
· Any breach will result in contractual remedies being applied.
[60] Mr Reed’s response is that he is committed to health and safety and Reed has strict compliance and documentation requirements. But there is evidence that Reed has been involved in a number of health and safety incidents, apart from the bulldozer incident on 8 August.
[61] On the evidence before the Court (which is untested by cross-examination but which includes the correspondence and the transcript of the 10 August meeting), Mr Reed comes across as a strong willed person who, when he considers he is right and
others are wrong, will let them know in no uncertain terms. He will also act in what he considers to be the best interests of Reed and in what he perceives the most effective way to get the job done. Such an attitude poses risks for health and safety requirements, which Mercury has made very clear are a major concern for it.
[62] Next, although Reed denies it, I note that in relation to an earlier contract on the Puhoi to Warkworth motorway project in which Reed was involved, an issue arose in relation to health and safety. The lead contractor suspended works as it considered Reed to have failed to comply with health and safety requirements. While the incident could be explained, the suspension was due in part to Reed’s failure to complete an incident report in time. The adjudicator rejected Reed’s claim for standby costs and accepted that in the circumstances they were a subcontractor risk.
[63] Mr Davies-Colley suggested that Mr Reed had said he would not physically attend the site if that was the issue. However, Mr Reed’s evidence does not actually support that submission. Mr Reed says:12
The current plan for my role on site would only be as an experienced operator and I wouldn’t have anything to do with the project management or day-to- day operation of the job. However the project does mean so much to [Reed] that, if the adjudication claim is not successful, [Reed] would accept that I not to perform a site role and simply provide off-site guidance and problem solving.
[64] It is apparent from that statement that Mr Reed considers that if the current adjudication on the separate Rangiuru project goes in his favour then he will be able to be on site for the Wind Farm. As Ms Rosic pointed out, it may be Mr Reed could succeed at the adjudication on a technicality and if so he would likely insist at being on site.
[65] To address that issue, Mr Davies-Colley suggested that if necessary, Mr Reed would agree not to attend the site of the Wind Farm project. But the issues in relation to health and safety are not limited solely to Mr Reed. Such issues effectively are led from the top down. Mr Reed’s performance speaks of a culture within the company which is of concern. Also, without Mr Reed in a machine, there would be more risks
12 Mr Reed’s affidavit in reply, at para 31(b).
to the timeliness of the project. As noted, the principal machine operators are Mr Reed and his son Mason.
[66] Higgins’ concern as to the above issues is exacerbated by the state of the parties’ relationship. On the evidence and on its submissions before the Court Reed apparently considers that Higgins has acted dishonestly and in bad faith, and has manufactured reasons to attempt to cancel the Exclusivity Agreement. Further, Reed has led evidence that it considers Higgins has withheld payments to place pressure on it. Reed obviously has issues with Higgins.
[67] Mr Davies-Colley also submitted Mr Redican had acted in bad faith and that could be attributed to Higgins. He noted that Mr Redican had said Reed’s work was “second to none” at the 10 August meeting and continued to make positive comments about Reed on site after that but has said something different in his affidavit. Mr Redican’s explanation is that Higgins needed Reed to complete the Rangiuru project (it is due for completion next month). Reed had threatened to abandon the contract on a number of occasions and had repeated that at the 10 August meeting. It had, for a time, walked off the job. Even accepting that Mr Redican may not have believed the truthfulness of the positive statements he made in relation to the Rangiuru project, particularly after Mr Tomason’s involvement, I do not consider that to be directly relevant to the issue of whether Higgins has breached its duty of good faith under the Exclusivity Agreement which is a quite separate contract. Mr Redican was dealing with the need to complete the Rangiuru project. The evidence and facts relied on by Higgins to terminate the Agreement are documented and do not rely solely on Mr Redican’s evidence in any event.
[68] Looking at the current situation overall, at present the parties are embroiled in an adjudication as to whether Mr Reed might return to the Rangiuru site. They are involved in this litigation. The tone of the correspondence between the parties is antagonistic. Mr Reed has apparently seen fit to secretly record meetings without advising Higgins personnel that he intended to record the meeting.
[69] Against that background it is perhaps understandable why Higgins would have little faith in the suggestion that the parties would be able to negotiate a subcontract in
good faith and work co-operatively after that to deliver the Wind Farm project as required by Mercury.
[70] While the Court cannot resolve the disputed factual issues, on the evidence before the Court, Reed faces a number of significant hurdles in establishing that Higgins acted unreasonably or in bad faith in terminating the Exclusivity Agreement. The evidence supports a finding that both parties entered the Exclusivity Agreement in good faith and worked towards the provision of a quote but that the subsequent events with the Rangiuru project have led to Higgins to believe Reed will not be able to perform the Wind Farm project to Mercury’s requirements.
[71] On the evidence, I accept that Higgins has reason to consider that Reed will not be able to work in a collaborative way to complete the work on time and to budget, particularly if Mr Reed was not able to work on the site and further, that it has reason to consider Reed will not comply with Mercury’s health and safety requirements.
[72] In summary, Reed’s case that Higgins has acted unreasonably or in bad faith in terminating the Exclusivity Agreement is a difficult one. While it cannot be said to be frivolous or vexatious, if the appropriate test was a prima facie case, I consider Reed would not meet it. Importantly, on the evidence currently before the Court, I do not consider there is a real prospect that Reed would be able to set aside the termination and obtain an order for specific performance of the Exclusivity Agreement at trial.
Adequacy of damages
[73] On the evidence, the subcontract could be in the region of [REDACTED] with a profit margin to Reed of between five per cent and 10 per cent of that. On that basis Reed could expect to make a profit of approximately [REDACTED]. While Higgins would be able to pay damages, if the limitation clause applies, then $100,000 would not be adequate compensation.
[74] In Finewood Fitzgerald J considered the impact of a limitation on liability clause on the consideration of the adequacy of damages. Fitzgerald J held that, even if as a result of the limitation clause the threshold is passed, namely that damages would not be an adequate remedy or there is a risk that damages in excess of the
contractual limitation would be incurred, it merely opened the door to the exercise of the Court’s discretion and consideration of the balance of convenience. That approach is consistent with the approach of Lord Diplock in American Cyanamid Co v Ethicon Ltd and the Court of Appeal of England and Wales in AB v CD.13 Applying it to this case, I accept that damages will not be an adequate remedy to Reed, but the Court must then go on to consider the balance of convenience generally.
[75] However, before leaving that issue, I observe that, while liability is limited by cl 5(b) to $100,000 “whether under contract, statute tort or otherwise” it may be arguable that that clause would not apply if Reed ultimately succeeded in its claim that Higgins had acted in bad faith. If Higgins is found to have acted in bad faith by terminating (repudiating) the Exclusivity Agreement then the Court may take the view that, properly interpreted, the limitation clause does not exclude losses incurred following actions in bad faith.14
Balance of convenience
[76] In general terms, the Court stands back and considers “which course will carry the least risk of doing a permanent injustice to either party”.15 However, in the present case the nature of the relief sought, as a mandatory injunction is also relevant to the issue of the balance of convenience.
[77] The effect of the interim injunction order as sought would be to force Higgins to negotiate and then enter a subcontract agreement with Reed, a party that it has completely lost faith in and who it also believes will not be able to complete the subcontract in compliance with Mercury’s requirements. The major points remaining for negotiation of such a contract, even based on a standard form subcontract as contemplated by cl 6 of the Exclusivity Agreement, would include the ultimate price, the terms and quantum of performance bond, and a term that Mr Reed not attend site. Obviously there is major scope for disagreement on those issues and even further litigation.
13 American Cyanamid Co v Ethicon Ltd [1975] AC 396, [1975] All ER 504 (HL); and AB v CD
[2014] EWCA 229 at [30].
14 Tercon Contractors Ltd v British Colombia (Transportation and Highways) 2010 SCC 4, [2010] 1 SCR 69.
15 Auckland International Airport Ltd v Air New Zealand Ltd (2006) 3 NZCCLR 382.
[78] Mr Davies-Colley submitted that Higgins’ concerns about the likelihood of ongoing issues was melodramatic. He relied on the following passage of the judgment of Coetzee J in the South African decision of Ranch International Pipelines (Transvaal) (Pty) Ltd v LMG Construction (City) (Pty) Ltd:16
I wonder if this so-called difficulty is not grossly over-emphasised. Is it not imaginary rather than real? I could not find a case on record where such a difficulty actually arose in practice and which had to be dealt with by the Court after an order to perform a building contract had been made. Why should there be any difficulty? What is the need of supervision anyway? Does the Court ever supervise the execution of its judgments? Surely not. The judgment does not replace the contract.
[79] However, there are a number of other cases which recognise the difficulty of the Court being required to supervise a contract. In Co-Operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd Lord Hoffman discussed the cases which confirmed the need for the particulars of the mandatory order to be definitely ascertained.17 Next, while it is correct that a subcontract in the standard terms would provide its own remedies for dispute resolution, the contract sought to be enforced by Reed at present is the Exclusivity Agreement. It has no such dispute resolution provisions. An injunctive order as sought by Reed would require the parties to negotiate the terms of the subcontract apart from and in addition to the standard terms. Given the relationship between the parties that would be fraught in the present case. It seems inevitable there would be further issues that would arise which would likely see the parties back before this Court.
[80] Reed seeks to rely on the decision of this Court in Rau Paenga Ltd v CPB Contractors Ltd.18 But that was quite a different case. The parties were midway through the contract when CPB issued a notice as the first step to suspending or terminating the contract. Importantly, the injunction was granted under arts 9 and 17 of the Arbitration Act 1996 to prevent termination of the contract before the parties had pursued the dispute resolution process which the contract provided for. Indeed, as that case shows, even where there are dispute resolution provisions in the standard
16 Ranch International Pipelines (Transvaal) (Pty) Ltd v LMG Construction (City) (Pty) Ltd 1984 (3) SA 861.
17 Co-Operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1997] 3 All ER 297, at 303– 304.
18 Rau Paenga Ltd v CPB Contractors Ltd [2023] NZHC 2974.
contract, there may need to be resort to the Court to support those dispute resolution provisions if the relationship between the parties has broken down.
[81] I accept on the basis of Mr Norden’s evidence that there is a risk that the relationship between Higgins and its largest private sector client, Mercury, could be harmed in the event of disruption on the Wind Farm project and that could, in turn, impact on Higgins’ position as preferred contractor for other major projects with Mercury.
[82] Mercury is Higgins’ largest private sector customer in terms of size and construction spend. It has plans to undertake a major programme of wind farm construction. The Wind Farm project will be one of the first for Higgins to be involved in. Poor performance on that contract because of issues with Reed will affect the project completion and Higgins’ reputation with Mercury. It would jeopardise the likelihood of Higgins’ appointment to future contracts.
[83] The importance of the relationship with Mercury is confirmed by Higgins’ acknowledgement that it is likely to suffer financial loss in meeting the Wind Farm contract if it engages a different subcontractor for the earthworks, but it is prepared to do so to maintain the relationship with Mercury.
[84] There is also the possibility of harm to third parties. [REDACTED]. Higgins’ staff and contractors may be affected by Reed’s actions. However, I accept Mr Davies- Colley’s submission that the third party considerations are not a major factor in this case.
[85] In the event the injunction was granted, and Higgins ultimately succeeded and it was found it had not been obliged to deal with Reed, the losses that Higgins might suffer would be very difficult to calculate. Further, there is a real risk Reed would not be able to pay. Mr Reed refers to Reed’s stretched financial position in his evidence.
[86] I turn to consider the factors that favour Reed on the balance of convenience point. Mr Davies-Colley referred to a number of heads of damage. The first has already been considered. Mr Reed estimates loss of profits of at least approximately
[REDACTED], based on Higgin’s evidence of the subcontract price. On the issue of the limitation, the fact that the restriction in question was agreed may, depending on the circumstances of the case, be a relevant consideration as may the scale of any shortfall and the degree of risk of it occurring.19
[87] Next, Mr Reed refers to the time Reed has spent and the machinery it has purchased for the Wind Farm project. Under the Exclusivity Agreement both parties have spent time working towards the ultimate aim. That was contemplated by the agreement. As discussed with counsel, the Court can place little weight on the fact Reed has apparently committed to the purchase of additional machinery, given that no binding head contract has yet been finalised and may not be finalised. The Exclusivity Agreement expressly recognises there may ultimately be no contract or subcontract (cl 4.1(a)(i)). There is no guarantee in the Exclusivity Agreement that Higgins would be the preferred head contractor or at what price. Whether Mercury will go ahead with the project will only be determined by the Mercury Board [REDACTED]. If Reed purchased machinery on the assumption Mercury would proceed with the contract and Higgins would be the head contractor, then that was a commercial decision it made, but it must bear the risk of it.
[88] Both Higgins and Reed refer to reputational damage. To an extent, and subject to the point about the potential damage to Higgins’ relationship with Mercury, the reputational issues cancel each other out.
[89] Mr Davies-Colley also referred to this as a David v Goliath case. I do not consider that to be relevant. Both parties are commercial entities and the issue is the interpretation of the parties’ obligations under a commercial contract.
[90] The balance of convenience does not favour granting a mandatory injunction as sought. Without the limitation clause, damages would be an adequate remedy and there would be no prospect of the Court granting an injunction. This is not a case where the balance plainly favours the grant of relief. Even with the limitation clause, I consider the balance of convenience favours Higgins’ position.
19 Finewood Upholstery Ltd v Vaughan, above n 4, at [58]. See also AB v CD [2014] 3 All ER 667.
Overall justice
[91] For the above reasons, I do not consider Reed’s case against Higgins for breach of the Exclusivity Agreement to be a strong one. The prospect of forcing a party such as Higgins to negotiate and ultimately conclude a contract with Reed and then to work together over the following 16–18 months is fraught with difficulty given the state of their relationship.
[92] The issue is not just with Mr Reed, it is with Reed generally. It would be unrealistic to expect the parties to be able to maintain a co-operative and effective working relationship throughout the negotiation of the subcontract and then the subsequent performance of the contract. The same issue that was of concern to the Court in Savvy Vineyards, namely that the injunction would “consign the … parties to a chronic continuation of their unhappy relationship”,20 applies to the present situation. While as Mr Davies-Colley submitted, that was a different type of case, the principle is still applicable. Even if the issues in relation to negotiating a subcontract could be overcome, performance of the Wind Farm project would require the parties to confer on a regular, likely daily basis, and to co-operate to ensure timely performance in accordance with Mercury’s requirements and standards. On the evidence, that is not a realistic expectation.
[93] The interests of justice do not support requiring the parties, whose relationship has broken down to the extent it has, to commit to such an unsatisfactory outcome.
Result
[94]For the above reason the application for interim injunction is declined.
[95]Higgins is released from its undertaking.
20 Savvy Vineyards 3784 Ltd v ARCK Ltd [2014] NZHC 1822 at [40].
Costs
[96]Costs to Higgins on a 2B basis.
Venning J
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