Rooney Earthmoving Limited v Infinity Farms Limited
[2022] NZHC 2078
•19 August 2022
IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE
CIV-2022-412-67
[2022] NZHC 2078
BETWEEN ROONEY EARTHMOVING LIMITED
Applicant
AND
INFINITY FARMS LIMITED
First Respondent
JOHN GEOFFREY WALTON
Second Respondent
Hearing: 3 August 2022 Appearances:
J D McBride and Y Wen for Applicant
S D Munro and C M O’Brien for First Respondent
No Appearance for Second Respondent – Abides decision of the CourtJudgment:
19 August 2022
JUDGMENT OF EATON J
This judgment was delivered by me on 19 August 2022 at 4 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
ROONEY EARTHMOVING LTD v INFINITY FARMS LTD [2022] NZHC 2078 [19 August 2022]
Introduction
[1] In February 2018 Rooney Earthmoving Ltd (REL) contracted with Infinity Farms Ltd (IFL) to design, consent, and construct four irrigation ponds at the property known as Foveran Deer Park in the Hakataramea Valley. All works other than the survey, design and construction of the water intake and fish screen were completed by mid-September 2018. That work was completed in March 2020 and REL left the site on or about 25 March 2020.
[2] In January 2021, IFL filled the ponds for the first time only to discover the ponds were leaking. In January 2022, IFL alleged the design and construction of the ponds by REL was defective. REL denied the allegation. On 1 April 2022, IFL gave notice to REL under cl 13.2.1 of the Conditions of Contract for Building and Civil Engineering Construction NZS 3915:2005 (NZS3915) of a referral of the dispute to an expert for determination.
[3] On 16 May 2022, the Arbitrators’ and Mediators’ Institute of New Zealand Inc (AMINZ) erroneously appointed Auckland barrister (and experienced arbitrator), John Walton, as an arbitrator. Mr Walton confirmed his willingness to act either as an arbitrator or an expert. REL were agreeable to Mr Walton acting as an arbitrator but not as an expert. Mr Walton’s position was that IFL had invoked the expert determination procedure in the Conditions of Contract and gave notice of his willingness to proceed. IFL accepted the conditions of Mr Walton’s appointment and seeks to proceed to expert determination.
[4] REL challenges the availability and validity of the expert determination process by way of originating application. It seeks an order restraining IFL from proceeding with the expert determination before Mr Walton or, alternatively, permanently staying the expert determination. Mr Walton abides the decision of this Court.
Background facts
[5] REL specialises in large civil works, earthmoving, irrigation schemes, pipe and cable laying, cartage and transportation. It employs approximately 400 staff. It has
constructed hundreds of water storage ponds in the central South Island. IFL owns the Foveran Deer Park which comprises approximately 2,654 ha. It operates as a large scale deer stud operation, together with cattle and merino sheep farming.
[6] The construction contract between the parties incorporated NZS3915. The scope of the work (works) originally set out in the construction contract included the survey and design of the ponds; the stripping of topsoil and all necessary earthworks to construct the ponds; the construction of a natural liner on all internal batters and floor using stockpiled material; the lining of the inside batters with a 150 mm layer of appropriately sized stone wave protection material; the construction of an intake spillway, three transfer spillways between ponds and an overflow spillway from pond four; the surveying and design of the water intake; the construction of a fish screen; the construction of a supply race to link the intake to the storage ponds; and the lining of the supply race.
[7] Methodology engaged by REL was consistent with that used in other storage ponds REL had constructed.
[8] REL’s area manager, Andrew Rae, has deposed that in mid-2019 he verbally agreed with Paul Croft, director of IFL, to modify the contract works and remove the items relating to the survey, design and construction of the water intake and fish screen. Mr Croft deposed this allegation is false and says that whilst he had a discussion with Mr Rae about a variation of the contract, there was no agreement to modify the contract works. Mr Rae maintains that as a result of the variation in the contract, the contract works had been completed in September 2018 and REL submitted a final progress claim (as Mr Rae describes it) in October 2018. He acknowledges that REL did in fact complete the water intake between November 2019 and March 2020 but says this was not part of the contract works and was unrelated to the construction of the ponds. The final invoice issued by REL to IFL was dated April 2020.
[9] In his evidence, Mr Rae says that prior to the completion of the final design for the ponds, he explained “to Infinity” (he does not identify an individual) that the ponds needed to be filled with water to prevent desiccation and resulting cracking in the earth
liner system. Mr Croft strongly disputes that evidence. He says that at no point did Mr Rae or any other representative of REL communicate to him or any other Infinity personnel that the ponds needed to be filled to prevent cracking.
[10] The ponds were not filled until January 2021. Mr Croft explains the delay in filling the ponds as a consequence of delays arising in obtaining approval from ECAN for the design and construction of the fish screen. Approval was not given until 30 August 2019, and construction was not completed until March 2020. Mr Croft says that because the ponds are filled with water taken from a stream that is dry for much of the year, the ponds could only be filled following a particular rainfall event. That event did not arise until early January 2021. Within a week of the ponds being filled, IFL discovered the ponds were leaking. Mr Croft then contacted Mr Rae, who said it was not unexpected for leakage when the ponds are first filled. Mr Rae advised that once the ponds had been filled a couple of times, the sediments in the water would improve the seepage to acceptable levels.
[11] The next event that allowed the ponds to be refilled was not until June 2021. Again, the ponds failed to hold water. A meeting was convened between representatives of the parties on 18 October 2021. In the meantime, IFL had engaged Tonkin + Taylor to undertake a geotechnical investigation and water loss assessment. Tonkin + Taylor concluded the water loss was a result of deficiencies in the design and construction of the liner system.
Referral to expert determination
[12] On 1 April 2022, IFL’s solicitors gave written notice under cl 13.2.1 of NZS3915 to refer the dispute to an expert for determination.
[13] IFL nominated two named engineers as having sufficient expertise to determine the dispute.
[14] REL did not accept the referral to expert determination. Indeed, unhelpfully, it did not respond at all to the notice. Mr Rae says he understood that commercial negotiations concerning a remedial solution were ongoing.
[15] On 5 May 2022, IFL’s solicitors emailed AMINZ and advised that the parties had been unable to reach agreement on the appointment of an expert and requested AMINZ to appoint an expert on the parties’ behalf. The email recorded the allegation of negligent design and/or construction giving rise to liability in contract and/or negligence. The email specified that “given the nature of the project/dispute, Infinity considers the matter would be best heard by an expert with industry specific experience such as someone with an engineering/water infrastructure background”.
[16] On 16 May 2022, AMINZ responded and confirmed the appointment of Mr John Walton as an arbitrator to determine the dispute. Mr Walton immediately responded to the parties, noting his appointment as an arbitrator and not an expert as requested, but indicated his willingness to “assist either way”. IFL’s solicitors responded, confirming the intention to refer the dispute for expert determination and not arbitration and recorded its objection to “the capacity in which you have formally been appointed”. Confirmation was sought that Mr Walton was willing and able to act as an expert and issue a determination accordingly. Mr Walton confirmed his willingness to do so.
[17] On 18 May 2022, IFL’s solicitors recorded in an email to Mr Walton that they had confirmed with AMINZ that his appointment as an arbitrator was “in error” and that IFL was comfortable to proceed on the basis he had been appointed as an expert. Oddly, no evidence has been offered beyond this email to explain why AMINZ appointed Mr Walton as an arbitrator. There is no record of AMINZ appointing Mr Walton as an expert.
[18] On 31 May 2022, REL’s solicitors wrote to Mr Walton advising it was happy to accept his appointment as an arbitrator, outside of the resolution provisions of NZS3915, but did not accept his appointment as an expert. IFL was not prepared to proceed directly to arbitration and invited Mr Walton to provide a preliminary determination as to the validity of his appointment and jurisdiction as an expert.
[19] On 14 June 2022, Mr Walton issued a memorandum concluding that IFL had appropriately invoked the expert determination procedure, and confirmed he was willing to act on certain conditions. REL maintained its position that there was no
jurisdiction for the dispute to be determined by expert determination. IFL advised Mr Walton that it accepted the conditions of his appointment and intended to proceed to expert determination.
[20] REL sought injunctive relief on a Pickwick basis to restrain Mr Walton from proceeding with the expert determination. The parties sensibly reached agreement to put the expert determination off without the need for formal court orders. Leave was granted to REL to proceed by way of originating application with the current proceeding.
[21] For the reasons set out below, I grant the application restraining the first respondent from proceeding with an expert determination before the second respondent.
Expert determination – general principles
[22] The Courts have not previously had the opportunity to consider NZS3915 in the current context. To that extent, it is acknowledged the issues in dispute are not settled. Nevertheless, there are recognised general principles that apply.
[23] It is for this Court to determine the jurisdiction of the expert. In Barclays Bank Plc v Nylon Capital LLP (Barclays), the English Court of Appeal found that where a dispute arises as to the jurisdiction of an expert, the Court is the final decision-maker as to whether the expert has jurisdiction, notwithstanding a clause purporting to confer that jurisdiction on the expert in a manner that is final and binding.1
[24] In Barclays it was submitted that an expert determination clause should be treated no differently to an arbitration clause and a generous construction given as to the jurisdiction of an expert. The Court, in Barclays, summarised the law on arbitration clauses. It referred to Fiona Trust and Holding Corp v Privalov, where it was established that an approach to the construction of an arbitration clause of drawing a fine distinction between words such as “arising under” or “in relation to” a contract
1 Barclays Bank PLC v Nylon Capital LLP [2011] EWCA Civ 826, [2012] 1 All ER (Comm) 912 at [23].
should no longer be made.2 Rather Fiona Trust made it clear the construction of an arbitration clause should start on the assumption that the parties were likely to have intended that any dispute arising out of the relationship into which they had entered should be decided by the same tribunal. The Court in Barclays approved the speech of Lord Mustill in Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd to the effect that where parties have made an agreement for a particular form of dispute resolution, they should be held to that agreement.3
[25] Thomas LJ in Barclays did not accept the same approach was appropriate to an expert determination clause as that taken to an arbitration clause. He observed that the rationale for the approach taken in the Fiona Trust case was that parties should normally be taken as sensible businesspersons who have chosen one process for the resolution of their disputes. He observed that in contradistinction, expert determination clauses generally presuppose that the parties intended certain types of dispute to be resolved by expert determination and others by the Court (or if there is an arbitration clause, by arbitrators). Consequently, the rationale of the Fiona Trust case does not apply to an expert determination clause.4
[26] Thomas LJ concluded there was, therefore, no presumption in favour of a wide and generous interpretation to the jurisdiction of an expert conferred by an expert determination clause.5 Rather:6
The simple question is whether the dispute which has arisen between the parties is within the jurisdiction of the expert conferred by the expert determination clause or is not within it and is therefore within the jurisdiction of the English court. It is a question of construction with no presumption either way.
[27] In considering the processes to be adopted for determination, the Court of Appeal in Barclay found there was no procedural code for expert determination and that the activities of the expert are subject to little control by the Court. 7 Unless the
2 Fiona Trust and Holding Corp v Privalov [2007] UKHL 40, [2007] 4 All ER 951.
3 Barclays Bank PLC, above n 1, at [26], citing Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334 at 353.
4 Barclays Bank Plc, above n 1, at [28]. See Fiona Trust and Holding Corp v Privalov, above n 2.
5 Barclays Bank Plc, above n 1, at [28].
6 At [28].
7 At [37].
parties specify a procedure, the expert is to determine how to proceed.8 This led Thomas LJ to conclude that if the parties have chosen a particular process and the dispute falls within the jurisdiction of the expert, then the parties must be held to that process, whatever view might be taken as to the appropriateness of the procedure for the matters submitted to the expert.9
[28] As was recognised by the Supreme Court of Victoria in Glenvill Projects Pty Ltd v North Melbourne Pty Ltd the decision to refer disputes for determination by an expert will usually arise because the parties desire a particular body of expert experience, learning, skill and judgment to be applied to the resolution of the defined issues which may arise in the course of the contractual relationship.10 In doing so, the parties engage in a process that is expeditious, cost-effective and has an appropriate measure of finality. There is an expectation the expert will have a reservoir of personal knowledge and experience, and some familiarity with the dispute to be determined.11
[29] Mr McBride referred to the decision of Palmer J in the Supreme Court of New South Wales in Kanivah Holdings Pty Ltd v Holdsworth Properties Pty Ltd as to the purpose of an expert determination clause.12 The Court found the purpose is:13
… to avoid lengthy and expensive litigation in which the parties deploy troops of competing valuers to argue what is, in the end, a matter of opinion founded upon professional experience and judgment. Where parties to a commercial agreement have agreed to resolve a dispute by reference to an expert valuer in this way, the Court should, as a matter of general principle, be slow indeed to construe the contract in such a way as to facilitate a full-blown valuation case because one of the parties is dissatisfied with the result.
[30] In Archers Road Trust Co Ltd v JMR Business Ltd, Edwards J considered a defended application for an order staying High Court proceedings in favour of a reference to expert determination.14 The agreement between the parties contained a dispute resolution clause that provided for a dispute arising out of, or in connection with, the agreement to be referred to a suitably qualified independent expert. The
8 At [37].
9 At [38].
10 Glenvill Projects Pty Ltd v North Melbourne Pty Ltd [2013] VSC 717, at [56].
11 Zeke Services Pty Ltd v Traffic Technologies Ltd [2005] QSC 135, [2005] 2 Qd R 563 at [27].
12 Kanivah Holdings Pty Ltd v Holdsworth Properties Pty Ltd [2001] NSWSC 405.
13 At [113].
14 Archers Road Trust Co Ltd v JMR Business Ltd [2016] NZHC 2987.
contract provided that the expert determination was final and binding upon the parties. It provided that the expert was to act as an expert and not as an arbitrator. It did not include a time limitation for the expert to issue a determination. One of the grounds on which the application was opposed was that the dispute fell outside the expert determination clause.
[31] Edwards J referenced the informal, speedy and cost-effective nature of the expert determination process, particularly for disputes of a technical or specialist character.15 The Judge noted that experts appointed to resolve disputes are called upon to apply their own knowledge and expertise. The Judge emphasised the absence of a right to hear or call witnesses (if such rights are not provided for in the agreement), the absence of judicial oversight and the determination’s binding nature.
[32] As found by Edwards J, the lack of any appeal right is brought into sharp focus when the determination of a dispute is founded on questions of law. Ultimately, the Judge concluded that the range of factual issues, the need for evidence to be called, and the questions of law engaged made the claims “ill suited to expert determination.”16
[33] The proper starting point is that the parties have agreed to refer contractual disputes to an expert for determination. As was observed by Associate Judge Johnson in Peryer Construction WGTN Ltd v Cathie, in considering s 13 of NZS3915: 17
It seems to me that the words used by the parties in clause 13 signal very clearly that their intention was that any dispute arising from or connected with the contract was to be dealt with pursuant to this comprehensive submission to dispute resolution, which escalates disputes from expert determination through to binding arbitration. I am satisfied that the parties agreed that is the proper mechanism for the resolution of their disputes and that the Court should hold them to their agreement. In the context of cl 13.1.2, the term “shall” was plainly intended to be mandatory. It is true that cl 13.2.1 uses the permissive term “may”, but that merely indicates that a party is free to elect whether or not to raise a dispute. Should he, she or it elect to do so, the only available avenue is through the submission to dispute resolution.
And further:18
15 At [50].
16 Archers Road Trust Co Ltd v JMR Business Ltd, above n 14, at [56].
17 Peryer Construction WGTN Ltd v Cathie [2019] NZHC 2881 at [24].
18 At [26].
For those reasons, my conclusion is that, subject to the aforementioned difficulties, the Court should not subvert the parties’ clear contractual commitments by assuming responsibility for the resolution of the current dispute.
[34] The same view was expressed by Duffy J in EXAPL Ltd v Pact Group (NZ) Ltd where the parties took contrary positions as to whether a dispute fell within the terms of an agreement which provided for disputes to be determined by an expert, or whether it raised legal issues of contractual interpretation that fell within the jurisdiction of the Court.19 Duffy J found the parties had chosen to submit their disputes to an independent expert and should not be allowed to resile from that position.
Issues
[35]The following issues require determination:
(a)Is the appointment of Mr Walton as expert valid?
(b)Does Mr Walton have the requisite expertise?
(c)Does the dispute arise out of the contract?
(d)Was Mr Walton appointed during the carrying out of the contract works?
Was Mr Walton’s appointment as an expert valid?
[36] The starting point in considering the validity of Mr Walton’s appointment are the Conditions of Contract, which relevantly provide:
Appointment and determination of Expert
13.2.1 Either party may, by notice in writing, refer any dispute or difference to the Expert.
13.2.2 The Expert shall be a suitably qualified independent person appointed by agreement of the parties. The Expert may be appointed before work commences under the contract, or at any time during the carrying out of the Contract Works. The Expert may be appointed generally for all disputes that
19 EXAPL Ltd v Pact Group (NZ) Ltd HC Auckland CIV-2011-404-5919, 12 December 2011 at [2].
may arise or specifically for any particular dispute. If the Expert becomes unable or unwilling to act the parties may agree on another Expert to take his or her place.
13.2.3 It is the intention of the parties that the Expert should be a person who can be available as required within a relatively short time, and who will, after obtaining and considering such documents and information as he or she considers relevant, arrive at a decision fairly and impartially and without undue delay.
13.2.4 If the parties are unable to agree on an appointment within five Days after a request in writing from either of them to the other, then either party may by notice in writing to the Arbitrators’ and Mediators’ Institute of New Zealand (Inc.) request the President of the Institute to appoint the Expert. A copy of any such request shall be delivered to the other party on the same day that it is delivered to the Institute.
13.2.5 Each party will bear its own Costs in respect of any determination by the Expert, and shall pay one half of the Expert’s costs.
13.2.6 Unless otherwise agreed between the parties the Expert shall notify the parties of his or her decision within 15 Working Days of receipt by the Expert of notice of the dispute or difference.
13.2.7 The determination of the Expert shall, unless otherwise agreed, be in writing and where requested by either the Principal or the Contractor shall give reasons for the decision. It will be final and binding subject to 13.3 and 13.4.
[37] Clause 13.2.4 provides for a party to “request” the President of AMINZ appoint an expert but does not provide, as must surely be intended, for the President to appoint an expert to determine the dispute.
[38] IFL invoked cl 13.2.1. When REL did not respond, IFL invoked cl 13.2.4 and requested that AMINZ appoint an expert. AMINZ then appointed Mr Walton as an arbitrator in this dispute. The AMINZ letter of appointment records the appointment of Mr Walton was made:
After consultation with the AMINZ Appointments Advisory Panel and consideration of the nature of the dispute and any requests of the parties…
[39] The appointment of Mr Walton as an arbitrator was clearly an error. IFL had expressly requested AMINZ to appoint an expert to determine the dispute. The contract did not provide for referral directly to an arbitrator.
[40] Whilst Mr Walton has indicated his willingness to act either as an arbitrator or an expert, the respondent has not offered any direct evidence that AMINZ have appointed Mr Walton as an expert to determine the dispute. Mr Munro points to an email sent from IFL’s solicitor to Mr Walton dated 18 May 2022 that records:
We have confirmed with AMINZ that the reference to your appointment as arbitrator was in error. We are therefore comfortable to proceed on the basis that you have been appointed by the Panel as the Expert to oversee this dispute.
[41] IFL have failed to produce any evidence as to the confirmation referred to within that email. Rather, Mr Munro invites the Court to find that IFL has met its contractual obligation to make a request of AMINZ to appoint an expert and that AMINZ has appropriately considered that request and formally appointed Mr Walton as an expert.
[42] Mr Munro is unable to explain how AMINZ fell into error and how that error has been rectified by a valid process. Mr Munro described the AMINZ error as irrelevant. I disagree. I am not prepared to find that AMINZ turned its mind to whether Mr Walton is an appropriate expert for this particular dispute. I do not regard the unexplained processes of AMINZ as a simple procedural irregularity. Instead, these factors, crucially the lack of any evidence that AMINZ made an informed decision to appoint Mr Walton as an expert, invalidates the appointment of Mr Walton in that role”.
[43] I am not satisfied that Mr Walton has been validly appointed by AMINZ as an expert. On that ground alone, the applicant is entitled to an order restraining the first respondent from pursuing the expert determination by the second respondent.
[44] However, of itself, this finding of invalidity does not significantly advance matters. It would be open to IFL to simply re-engage in the cl 13.2.1 referral to AMINZ. I, therefore, deal with the other issues raised by way of observation.
Does Mr Walton have the requisite expertise?
[45] NZS3915 defines “Expert” as “the Expert experienced in building or construction…”. Whilst Mr McBride responsibly acknowledges that Mr Walton has
considerable experience as a construction law expert and arbitrator/mediator, he submits this does not necessarily qualify him as an expert. Mr McBride points to the IFL notice of referral to expert determination naming two geotechnical engineers as potential experts and the IFL email to AMINZ requesting the appointment of an expert “with industry specific experience such as someone with an engineering/water infrastructure background”. Mr McBride submits that Mr Walton’s field of expertise falls outside that specified by IFL.
[46] Mr McBride contends that Mr Walton’s lack of technical qualifications or experience disqualifies him from acting as an expert who could independently investigate and determine the causes of the alleged leaking of the irrigation ponds. He points to Mr Walton’s suggestion he may need to appoint a further technical expert to assist him to determine the technical issues as incongruous and defeating the purpose of expert determination. He further refers to Mr Walton’s proposal that he intends to call for submissions, and his invitation to counsel to agree a procedure that will enable the parties to present their cases. Mr McBride submits the processes proposed by Mr Walton indicate he is unable to reach his own views on the matters in dispute based on his own knowledge and without acting in a quasi-judicial manner. This, it is submitted, demonstrates Mr Walton is not an expert in the field of this dispute.
[47] Mr Munro refers to Mr Walton’s statement that he has the relevant expertise to determine this dispute. He refers to Mr Walton’s wealth of experience in dealing with construction disputes and submits that experience has afforded Mr Walton a robust knowledge and understanding of the construction industry and a familiarity with the general conditions of contract and of design and construction concepts and processes.
[48] As regards Mr Walton’s proposal to engage technical assistance and to invite the parties to make submissions or otherwise settle on a process for resolution of the dispute, Mr Munro submits there is no contractual limitation on the role or power of the expert in s 13 which prevents the expert from acting judicially.
[49] In my view, the parties contracted to rely on the judgment of AMINZ to nominate the appropriate expert to determine this dispute. Subject to the validity of the appointment process, I do not think it open to a party to challenge the decision-
making of AMINZ, provided AMINZ has considered the nature of the dispute and any particular requests made by the parties. In that event, it is my view the parties are contractually bound to proceed to the expert determination by the expert AMINZ nominates.
[50] I do not accept the “quasi-arbitration” processes proposed by Mr Walton disqualifies him as an expert to undertake an expert determination. Mr Munro referred to the decision of the Supreme Court of Queensland in Northbuild Constructions Pty Ltd v Discovery Beach Project Pty Ltd as authority for the proposition that the critical question is whether the governing agreement obliges the expert to proceed in a particular way.20 In Northbuild Constructions Pty Ltd, the Court considered whether a process of adjudication under a building contract by persons appointed by the parties as experts under a dispute resolution clause in the contract became a process of arbitration as a result of an agreed change in the procedures required to be followed by the experts. The critical procedural change was the conferral on the experts of the right to hear expert evidence and to permit cross-examination. The contract in question included a clause which expressly confirmed “the expert will not act as arbitrator”.21
[51]Muir JA for the majority observed:22
[27] The fundamental difference between arbitration and expert determination is the approach which the adjudicator is obliged to take to the proceedings. It is only if the adjudicator is obliged by the governing agreements to act in a judicial way that the proceedings can involve “arbitration”. It is not enough that the adjudicator chooses to proceed in a particular way – the critical question is whether the governing agreements oblige the adjudicator to proceed in that way.
[28] The characterisation of a particular dispute resolution process as one of expert determination or arbitration must be undertaken by reference to the intention of the parties as manifested in the governing agreements, which provide the basis for resolving all fundamental questions concerning the proceedings.
20 Northbuild Constructions Pty Ltd v Discovery Beach Project Pty Ltd [2008] QCA 160.
21 At [3].
22 At [27] and [28] (emphasis original).
[52] The majority ultimately decided the experts were not acting as quasi-arbitrators and that:23
The right to permit cross-examination is no more inconsistent with the experts’ right to make the determination on the basis of “The Experts’ own expertise” and as experts not arbitrators than is the obligation of the experts under r 2 to entertain written submissions from the parties.
[53] In a dissenting judgment, Atkinson J referred to the clause providing that the expert would not act as an arbitrator, as a limit on the powers of the expert. Atkinson J expressed the view that without such a limit there would be no contractual reason why the appointed expert could not act in the way in which an arbitrator does.24
[54] The English Court of Appeal in Barclays found the process for the determination of disputes is up to the experts: 25
…there is no procedural code for expert determination, in contra distinction to arbitration. The activities of an expert are subject to little control by the Court, save as to jurisdiction or departure from the mandate given. If the parties specify the procedure, the expert determines how he will proceed; it is rare for what might be perceived as procedural unfairness in an arbitration to give rise to a ground for challenge to the procedure adopted by an expert.
[55] That passage was cited by the Court of Appeal in Waterfront Properties (2009) Ltd v Lighter Quay Residents’ Society Inc.26 The NZS3915 does not impose any limitations on the process an expert might reach in determining a dispute.
[56] I agree with Mr Munro that the parties have contracted to allow an expert to engage in a process as that person sees fit. That is of course, subject to the very real constraint on the process imposed by the requirement to notify the outcome of the determination within 15 working days of receipt by the expert of notice of the dispute. It is not appropriate for this Court to impose a procedural code on a validly appointed expert and I do not accept that to propose a process that might reflect a more formal procedure will negate expert status.
23 At [100].
24 At [114].
25 Barclays Bank PLC v Nylon Capital LLP, above n 1, at [37].
26 Waterfront Properties (2009) Ltd v Lighter Quay Residents’ Society Inc [2015] NZCA 62, [2015] NZAR 492 at [32].
[57] I do not accept the process proposed by Mr Walton disqualifies him as having the requisite expertise to engage in an expert determination.
Jurisdiction – does the dispute concern the contract?
[58] Mr McBride says the respondent’s claim falls outside the scope of the expert determination clause. He submits this is a claim in negligence, albeit with a duty of care said to arise out of the contract and contends the s 13 expert determination process ought not apply to an action in tort. The applicants argue the respondent’s claim must be determined either by a referral to arbitration (by consent — as proposed by the applicant) or by ordinary proceedings in this Court.
[59]Clause 13.1.2 of NZS3915 relevantly provides:
13.1.2 Every dispute or difference concerning the contract which is not precluded by the provisions of 12.4, 12.6 or 13.1.1 shall be dealt with under the following provisions of this Section. For the purposes of Section 13, the words “dispute or difference” shall include every question which by these conditions is to be agreed between the Principal and the Contractor, and on which they have been unable to agree.
[60] The referral for expert determination under 13.2.1 described the issues for determination as including:
(a)whether REL is responsible for the liner failure due to a design failure;
(b)whether REL is responsible for the liner failure due to inadequate liner construction and/or installation; and
(c)whether REL is obliged to remedy the defects.
[61] As best I can understand the respondent’s claim, it will allege negligence against the applicant and, in particular, a breach of the duty of care owed by the applicant to the respondent in the design and construction of the irrigation ponds. Mr Munro submits that such a claim is a dispute or difference concerning the contract.
[62] Mr McBride further submits the negligence claim will require the determination of factual disputes, both as to whether the applicant advised the
respondent of the necessity to fill the ponds promptly and, I anticipate, significant expert dispute as to the design and construction of the ponds and the cause of leaking. The dispute will require determination of a claim of negligence and, likely, a claim of contributory negligence. It is difficult to conceive how a dispute of such significance and complexity could be resolved without witnesses being called by the parties, cross- examination of factual and expert witnesses and legal submissions by counsel.
[63] Whilst these are matters that an experienced arbitrator, such as Mr Walton, would no doubt be sufficiently qualified and experienced to determine, the same cannot be said of an expert who must determine the dispute within 15 working days.
[64] I have upheld Mr Munro’s submission that an expert is free to engage in whatever process they see fit, and that process might engage, as indeed Mr Walton has proposed, expert assistance, the calling of witnesses and the receiving of submissions on behalf of the parties. However, that does not shift my sense this dispute is far from a good fit for expert determination.
[65] Whilst I do not need to determine this jurisdictional question to resolve this application, I tend to the view that an allegation of negligence arising from contractual liability falls within 13.1.2 as a dispute concerning the contract.
Jurisdiction - was the expert appointed during the carrying out of the Contract Works?
[66] Pursuant to cl 13.2.2, an expert may be appointed before work commences under the contract, or at any time during the carrying out of the contract works. I accept Mr McBride’s submission that “may” must mean “only” because there is no contractual ability to appoint an expert after the works have been carried out.
[67] The notice of referral of a dispute for expert determination was dated 1 April 2022. The referral to AMINZ to appoint an expert was dated 5 May 2022. The (invalid) appointment of Mr Walton was dated 16 May 2022.
[68] This raises the question — was the expert appointed during the carrying out of the contract works?
[69] The applicant says the contract works ended in September 2018 when work on the ponds was complete. It submits that, in light of the factual dispute as to whether the water intake works were the subject of a contract variation, the time frame for expert referral expired, at the very latest, shortly after REL vacated the work site in March 2020.
[70] Mr Munro submits the contract remains on foot today. He submits that because the ponds do not hold water, the contract works are incomplete. The delays in the expert referral process are reasonably explained as the consequence, as Mr Croft deposes, of IFL not learning of the defects until attempts were made to fill the ponds. In support of the submission that the contract remains on foot, Mr Munro relies on the following factors:
(a)IFL has withheld payment of three REL invoices;
(b)IFL is still holding retentions; and
(c)no certificate of practical completion has been issued.
[71] The meaning of an enactment must be ascertained from its text and in the light of its purpose.27 “Contract Works” is defined in cl 1.2 of the NZS3915 as “the works including Temporary Works to be executed in accordance with the contract”.
[72] The text of cl 13.2.2 does not refer to “completion” of the works or to other contractual processes including the issuing of a practical completion certificate. The words “during the carrying out of the Contract Works” implies the works are in the process of being carried out.
[73] I accept the text of cl 13.2.2 does not determine the issue. It is necessary to consider the purpose of the expert determination process and how that purpose informs any constraint on the timing of an expert appointment.
27 Legislation Act 2019, s 10(1).
[74]I have considered the essential purpose of this dispute resolution process at
[28] and [31]. Expert determination is intended to provide a speedy, comparatively informal and cost-effective mechanism to resolve more technical disputes between contracting parties. Those efficiencies are achieved through appointment of an independent third party to adjudicate in a field in which that adjudicator is an expert and has immediately to hand their own store of knowledge, skills and/or experience. The utility of the process is the avoidance of delays in the contract works whilst a dispute is determined.
[75] The concepts of simplicity, informality and speedy resolution do not sit comfortably with the invocation of an expert determination process many months, let alone years, after the physical contract works have been undertaken and the contractor has vacated the site. The 15 working day time limit from referral to the expert until a decision signals a degree of urgency that is consistent with a dispute resolution process taking place during the period of construction.
[76] The essential purpose of the dispute resolution process must be at the forefront of the determination as to whether the purported expert appointment was valid.
[77] That the delays might be reasonably explained does not assist the respondent. An inquiry as to the reasonableness of an explanation for a delay in making an appointment of an expert would not ordinarily inform whether the expert appointment was made during the carrying out of the contract works.
[78] The Courts have not considered the question of the temporal constraints of the expert determination process in NZS3915. The Court of Appeal in Blain v Evan Jones Construction Ltd 28 considered the dispute resolution procedure in s 13 of NZS3910. The NZS3910 dispute resolution process mandates the appointment of an engineer to determine disputes. An engineer is appointed prior to works commencing. Those conditions do not incorporate a clause equivalent to cl 13.2.2 in NZS3915 requiring the appointment of the engineer during the carrying out of contract works. It requires every dispute to be referred to the engineer not later than one month after the provision
28 Blain v Evan Jones Construction Ltd [2013] NZCA 680.
of the Final Payment Schedule. O’Regan P in Blain described s 13 as an exclusive process only during the construction period.29
[79] In Hellaby Resources Services Ltd v Body Corporate 197281, Associate Judge Gardiner found the NZS3910 dispute resolution process was intended to deal with everyday disputes and differences that arise while construction is underway and that the window for referral to an engineer closes on the expiry of the one month period specified.30 Associate Judge Gardiner considered an application for leave to appeal Hellaby Resources Services Ltd in SRG Global Remediation Services (NZ) Ltd v Body Corporate 197281.31 It was found the question of when a dispute resolution clause ends in a construction contract is far from settled.32 Associate Judge Gardiner described the argument advanced by SRG Global that the dispute resolution provisions in s 13 of NZS3910 could be pursued after the issuing of the final payment schedule as novel, genuinely arguable and worthy of consideration by an appellate court.
[80] I agree the issue of temporal constraint is not settled. I also agree with the observations that the dispute resolution process is intended to deal with disputes that arise while a contract is underway.
[81] IFL maintain the contract with REL remains underway, on foot, or incomplete, and therefore the appointment of an expert in mid-2022 is an appointment made during the carrying out of the contract works.
[82] Mr Munro refers to Miro Property Holdings Ltd v The Fletcher Construction Company Ltd where this Court held the construction contract in question was still on foot, given the final payment claim had not been issued and the final payment had not been made.33 The Court concluded it would be wrong to suggest that the arbitration
29 At [61].
30 Hellaby Resources Services Ltd v Body Corporate 197281 [2021] NZHC 554 at [140].
31 SRG Global Remediation Services (NZ) Ltd v Body Corporate 197281 [2021] NZHC 1929.
32 At [26].
33 Miro Property Holdings Ltd v The Fletcher Construction Company Ltd HC Wellington CIV-2010- 485-2540, 31 May 2011.
agreement in the contract was “inoperative” or “incapable of being performed” simply because of delays on the part of the parties.34
[83] Miro Property was concerned with an arbitration clause and not an expert determination clause. There is an important distinction between those two dispute resolution processes. The level of urgency that is essential to the expert determination process does not apply to an arbitration.
[84] Mr Munro submits the contract remains on foot because it has not been signed off as complete due to the ponds leaking. He contends IFL is entitled to seek an expert determination as to whether, inter alia, the applicant is obliged to remedy the defects. On securing that ruling, if the applicant refused to remedy the defects, the respondent could then exercise its contractual right to termination. Pursuant to cl 14.2.1(c), the principal may, after giving notice to the contractor, either terminate the contract or resume possession of the site in the event of:
(c) The Expert certifying in writing to the Principal on the application of the Principal, and with a copy to the Contractor, that in his or her opinion the Contractor has abandoned the contract or is persistently, flagrantly or wilfully neglecting to carry out its obligation under the contract; and the Contractor’s default has not been remedied within 10 working days of receiving the notice.
[85] Under cl 14.2.5 if the principal elects to terminate under cl 14.2.1, the principal may expel the contractor and may itself complete the contract works or arrange for them to be completed. Mr Munro submits cl 14.2.1(c) contemplates an expert being appointed (pursuant to cl 13.2.4) at a time the contractor has abandoned the contract or is persistently, flagrantly, or wilfully neglecting to carry out its obligations under the contract. He submits this supports a finding an expert can be appointed after the contractor has left the site. He submits this argument is further supported by reference to s 11 of the contract.
[86] Section 11 relates to defects liability. Pursuant to cl 11.1.1, the period of defects liability for the contract works commences on the date of practical completion of the contract works and is specified to be a period of three months unless otherwise stated, and no longer than 12 months. Clause 11.3 provides that when the contractor
34 At [49].
believes the contract works qualify for the issue of a defects liability certificate, the contractor shall give the principal a provisional defects liability certificate confirming the period of defects liability has expired and that there are not outstanding omissions or defects.
[87] REL has not issued a provisional defects liability certificate. Neither has a provisional certificate of practical completion been issued by REL pursuant to cl 10.4.2. Pursuant to cl 10.4.1, practical completion is that stage in the execution of the work under the contract when the contract works are complete except for minor omissions and minor defects which do not prevent the contract works from being used for their intended purpose.
[88] Put shortly, Mr Munro argues that until a certificate of practical completion is issued, the contract works are incomplete. Or remain on foot. He submits the words, “during the carrying out of Contract work” in cl 13.2.2 should read as “until the Contract Works are complete” or “until a certificate of practical completion is issued”.
[89] In my view, the first respondent adopts a strained interpretation of cl 13.2.2 and not one that reflects the essential purpose of the expert determination process or the language of cl 13.2.2.
[90] I do not accept that the absence of a final invoice and certificate of practical completion, the withholding of payment of invoices, or the holding of retentions are relevant to the determination of the temporal validity of the expert appointment. There is no direct correlation between the carrying out of contract works and remuneration. Those factors, whilst engaging technical contractual formalities, do not inform whether a dispute in relation to works that are being carried out by the contractor can be referred to an expert for determination.
[91] In my view, the phrase “carrying out Contract Works” implies the contractor is on site and engaging in physical works. This is consistent with both the tightly described timeframes (15 working days) to make a decision under cl 13.2.6 and the prohibition under cl 13.5.1 disentitling a contractor to suspend the execution of the
contract works during the dispute. Both clauses point to the objective of swift resolution of a dispute and the avoidance of delays in the contract works.
[92] The defining point is when REL vacated the worksite, with the agreement of IFL, having undertaken the scope of works as contracted. That occurred in March 2020 and at a time when, I find, the parties understood the contract works were completed satisfactorily. That a dispute arose subsequently, many months later, cannot lead to a finding that in the intervening two-year period the contract works were ongoing.
[93] I accept the submission made by Mr McBride that the expert determination process is intended to deal with everyday disputes and differences that arise between the principal and the contractor while the works are being carried out. Once the parties act in a manner consistent with an understanding that the works have been completed and, in my view, that is clearly established by the act of the contractor vacating the worksite and handing the premises back to the principal without a dispute being raised within a reasonable period. What is reasonable will be a fact specific enquiry, but I agree with the applicant that to invoke an expert determination some four years after the parties have understood the contractor to have completed the relevant works and over two years after they vacated the site does not fall within a reasonable period.
[94] Whilst the Court is sympathetic to the first respondent’s desire to embark on a swift resolution of the dispute in order to avoid further delays in a proposed sale of the subject property, I find Mr Walton’s purported appointment was not made during the carrying out of the contract works. In my view, those works ended either in September 2018 on completion of the ponds or, subject to determination of the variation of contract dispute at a full trial, when the water intake work was completed in March 2020. It follows that by the time this dispute arose, the jurisdiction to engage in the expert determination process had well and truly passed.
Conclusion
[95] The appointment of Mr Walton as an expert under s 13 of NZS3915 was invalid. The appointment process prescribed by cl 13.2.4 was not followed. Further,
the purported appointment of Mr Walton as an expert was in breach of cl 13.2.2 as it was not made during the carrying out of the contract works.
Outcome
[96] I grant the application and make an order restraining the first respondent, IFL, from proceeding with an expert determination before the second respondent, Mr Walton, in relation to the defects said to arise from REL’s construction of the ponds.
Observations
[97] This judgment does not deprive the first respondent of a remedy. The applicant is agreeable that this dispute be referred to Mr Walton as an arbitrator in a formal arbitration. If agreement is not reached to refer the matter to arbitration, the dispute may be appropriately resolved in court.
Costs
[98] Costs are reserved. Any application for costs is to be made by memorandum filed and served within 10 working days of the date of this judgment, with any submission in response to be filed within five working days thereafter.
...................................................
Eaton J
Solicitors:
Morrison Mallett, Auckland Anderson Lloyd, Christchurch
Copy to:
Josh McBride, Barrister, Auckland
2
11
0