Service Painting & Building Co Pty Limited v Pacific International Hotel Management School Limited
[2017] NZHC 850
•2 May 2017
IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY
CIV-2016-443-72 [2017] NZHC 850
BETWEEN SERVICE PAINTING & BUILDING CO
PTY LIMITED Plaintiff
AND
PACIFIC INTERNATIONAL HOTEL MANAGEMENT SCHOOL LIMITED Defendant
Hearing: 1 December 2016 J A W Wass and T Mijatov for the plaintiff
F King and J Churchman for the defendantJudgment:
2 May 2017
JUDGMENT OF ASSOCIATE JUDGE SMITH
TABLE OF CONTENTS
The parties and the application 1 The 2003 contract
4
The 2009 contract
11
Performance under the 2009 contract —SPB’s position
20
Performance under the 2009 contract — the School’s position
36
Further evidence
46
The School’s notice of opposition and statement of defence
54
Summary judgment applications — applicable principals
63
Discussion and conclusions
66
Fundamental breach and cl 3 66 Affirmation 82 What sums had accrued due to SPB when the 2009 contract was cancelled? 89 Can SPB recover any sums which had not accrued due by the date of cancellation? 95 The School’s claim to s 9 relief 99
SERVICE PAINTING & BUILDING CO PTY LIMITED v PACIFIC INTERNATIONAL HOTEL MANAGEMENT SCHOOL LIMITED [2017] NZHC 850 [2 May 2017]
Did SPB breach an implied term of the 2009 contract to complete maintenance painting over the
Christmas period? 105 The School’s claims to abatement of the contract price, or set-off 110 The amounts claimed by SPB 128
Orders 136
The parties and the application
[1] This is an application for summary judgment in which the plaintiff (SPB) claims the sum of $140,618.77 together with interest and costs from the defendant (the School).
[2] SPB is a company incorporated under the laws of New South Wales. It is wholly owned by a company called Higgins Coatings Pty Ltd (Higgins) which is incorporated in Victoria, Australia. Higgins acquired SPB on 12 April 2012.
[3] The School, as its name suggests, carries on business as a hotel management training school, with its registered office and principal premises in New Plymouth.
The 2003 contract
[4] On 26 May 2003 the School engaged SPB to paint the School premises in New Plymouth. The parties entered into a written contract (the 2003 contract) under which SPB would provide painting services over the course of twelve years, from
2004 to 2015.
[5] The 2003 contract was entered into before Higgins acquired SPB. At the time, Mr Peter Connor managed SPB, and it was he who negotiated the terms of the
2003 contract. Mr Connor has since retired, and is said to be not available to give evidence for SPB. (The principal evidence in support of the summary judgment application was given by Mr Rowan Galbraith, who is General Manager of SPB and also General Manager (Australia and New Zealand) of Higgins. Mr Galbraith says that his knowledge of facts which predate Higgins’ acquisition of SPB is based on his discussions with other employees, and a review of SPB’s records.)
[6] The 2003 contract provided that SPB would repaint the School in year one (2004). According to Mr Galbraith, the work carried out in year one would be worth approximately 70 to 80 percent of the total value of the work to be carried out under the 2003 contract ($660,000 plus GST). SPB was required to repaint the School again in year seven, when a further 17 to 25 percent of the total value of the work would be completed. In each of the intervening years, SPB was required to carry out maintenance paintwork.
[7] The 2003 contact did not require the School to pay anything close to 70 or 80 per cent of the total cost of $660,000 plus GST immediately after SPB completed the year one work. Instead, payments were to be made in equal annual instalments of
$55,000 plus GST, spread over the 12 year contract term. The amount paid by the School in the first years of the contract would accordingly be well below the value of the work completed by SPB in those early years. In that sense, the work was “front- loaded”, while the payment amounts remained level throughout the course of the
2003 contract.
[8] There was a variation to the 2003 contract made in June 2004, but it is common ground that the variation does not affect the issues now before the court.
[9] The 2003 contract contained detailed provisions covering standards, materials, and workmanship.
[10] The following clause of the 2003 contract governed the circumstances in which the contract could be cancelled.
TERMINATION OR REDUCTION
1.This Agreement may be terminated by either party without cause on one (1) months written notice.
2.Notwithstanding any other term of this Agreement, the performance by the Contractor of its obligations will be reviewed by the parties
30 days after commencement at which time either party may
terminate without cause on seven (7) days written notice provided such notice is served no later than seven (7) days after that review.
3.Without prejudice to any other right or remedy which the Client may have against the Contractor for breach or non-observance of this Agreement, the Client may terminate this Agreement immediately by
notice in writing if any of the following occur (each of which will be a fundamental breach of this Agreement): —
a.the Contractor has a receiver or administrative receiver appointed to it or over any part of its winding up (otherwise than for the purpose of a bona fide scheme of solvent amalgamation or reconstruction) or a court competent jurisdiction makes an order to that effect or if the Contractor enters into any voluntary arrangement with its creditors or becomes subject to an administrative order;
b.the contractor is guilty of any serious and wilful misconduct, in the provision of the Contractor Services;
c.the Contractor refuses or neglects to comply with any reasonable lawful order or direction given by the Client relating to the provision of the Contract Services or any normal business activity and fails to remedy that breach within 14 days of notice;
d. the Contractor breaches its obligations;
e.the Contractor has breached any other term of this Agreement and has not, within 14 days of receipt by it of notice from the Client specifying the breach, remedied the breach to the Client’s satisfaction;
f. the Contractor is convicted of any criminal offence;
g. if any of the Specified Personnel becomes incapacitated by accident, illness, mental stress or otherwise from performing his or her duties in relation to this Agreement and the Contractor is unable to provide a replacement acceptable to the Client within a reasonable period; or
h.in the reasonable opinion of the Client any of the Specified Personnel is providing an unsatisfactory level of service and the Contractor is unable to provide an acceptable replacement within a reasonable period.
4. Upon receipt of notice of termination the Contractor shall:
a. stop work as specified in the notice;
b.take all available steps to minimise loss resulting from that termination and to protect the Client Material and the Contract Material; and
c.continue work on any part of the Contract Service not affected by the notice.
5.In the event of partial termination the Client’s liability to pay fees under breakdown costs shown at year of service or in the absence of agreement to the contrary, abate proportionately to the reduction in the Contract Services.
6.The Client shall not be liable to pay compensation in an amount which would, in addition to any amounts paid or due, or becoming due, to the Contractor under this Agreement. The Contractor shall not be entitled to compensation for loss or prospective profits.
The 2009 contract
[11] The parties entered into a fresh written agreement on 6 April 2009 (the 2009 contract). There is a dispute between the parties over the reason for the 2009 contract — SPB says that the School was struggling to meet payments under the
2003 agreement, but that is denied by the School. The School says that the 2009 contract was only a variation of the 2003 contract, necessary to reflect a new payment schedule on which the parties had agreed.
[12] The 2009 agreement contained a detailed specification for the painting of the School, together with a section dealing with the extent of the work to be carried out. The section of the 2003 contract headed “Termination Or Reduction” (reproduced at [10] above) was repeated in the 2009 contract.
[13] The 2009 contract provided for the repainting of the School’s New Plymouth premises in 2009 (the year corresponding to year seven under the 2003 contract) and for SPB to carry out maintenance painting work in the ensuing years.
[14] A schedule of work attached to the 2009 contract set out various amounts to be paid by the School over the life of the 2009 contract. First, it was to pay a figure of $236,802 as “Existing Agreement termination cost”. It was also to pay the sum of
$64,000 in respect of the repainting in 2009 (year one of the 2009 contract), and a further $28,800 for maintenance painting work to be carried out in each of the ensuing six years to 2015. The sum of $28,800 was said to represent payment to SPB for eighty hours of painting maintenance work in each of the six years to 2015, at $60 per hour. If any other work was required in a given year, that additional work was to be quoted and paid for as a one-off contract.
[15] As with the 2003 contract, the 2009 contract provided for payment of the costs to be spread over a number of years. A schedule attached to the 2009 contract set out the manner in which the “Existing Agreement termination cost” of $236,802
was to be paid. The School was to pay $30,000 in January in each of the first two years (ie in January 2009 and January 2010), and $44,150.50 in each of the months January 2011, January 2012, January 2013, and January 2014. An explanatory note beneath this schedule of payments stated that:
This is effectively terminating the existing Agreement and offering a payment schedule over six years with lower payments in the next couple of years. No further work is included.
[16] The costs of the 2009 repaint and the subsequent maintenance work were to be paid as follows. In each of the first two years (in January 2009 and January 2010) the School was required to pay $5,000 (in addition to the sums of $30,000 payable in each of those years in reduction of the Existing Agreement termination costs). After year two, the payments for the 2009 repaint and the subsequent maintenance work were to increase to $16,600 per annum, making a total of $93,000 payable over seven years (again, in addition to the $44,150.50 in those years in respect of the Existing Agreement termination cost).
[17] The total of all payments to be made under the 2009 contract was $329,602 plus GST.
[18] Apart from the first year, the annual amounts payable were also subject to any increases in the consumer price index (fixed in accordance with New Zealand Government annual determinations), with a maximum cost of no more than three percent per annum.
[19] In his affidavit for SPB, Mr Galbraith says that the figure of $236,802 for “Existing Agreement termination cost” represented the value of work completed by SPB under the 2003 contract which, as at the date of the 2009 contract, had not yet been billed.
Performance under the 2009 contract —SPB’s position
[20] The principal affidavit filed in support of the application was that of
Mr Galbraith. Mr Galbraith says that SPB completed the first year’s work under the
2009 contract in January 2009, about three months before the 2009 agreement was in
fact signed. On 15 January 2009 SPB invoiced the School for the sum of $39,375, being the $30,000 in respect of the Existing Agreement termination cost and $5,000 in respect of the 2009 repaint, plus GST. That sum was paid on 18 January 2010.
[21] An invoice for $40,125, which included SPB’s charges for the second year’s
work, was sent on 29 January 2010. It was paid by the School on 18 April 2011.
[22] SPB hired an independent contractor to carry out the year three (2011) work. The work was completed, and SPB invoiced the School for the various payments due in year three, on 1 April 2011. Again, this invoice was paid by the School (on
14 March 2012).
[23] SPB hired a different independent contractor, Mr McCullough, to perform the year four work. Mr McCullough carried out the work in January 2012, and on
17 August 2012 SPB sent an invoice to the School for $74,125.55 (which included
GST and a CPI adjustment).
[24] It appears that signs of trouble in the relationship had begun to emerge at or about this time. Mr Galbraith has given evidence of certain communications between the parties from around August 2012 into February 2013, although much of this evidence appears to be hearsay: he did not himself participate in the discussions in this period. In any event, there appears to have been at least a temporary resolution of the difficulties: the School did eventually pay SPB’s invoice for the year four payments (on 12 September 2013).
[25] No maintenance work was carried out by SPB in 2013 or 2014, and the School did not make any of the payments which were to be made under the 2009 contract in years five and six. Mr Galbraith sent an email to Mr McCallum at the School on 16 December 2014 asking Mr McCallum to contact him urgently to arrange a revised schedule of payments.
[26] On 13 January 2015, Mr Galbraith says that he received an email from the
School attaching a letter that the School said it had sent it to SPB on 6 December
2013, terminating the 2009 contract. The accompanying email alleged that SPB had
failed to carry out the work arranged in 2012, and that the School had been unable to contact SPB to organise work for 2013.
[27] Mr Galbraith asserts that the School’s letter of 6 December 2013 was not received by SPB until a copy was supplied with the email from the School which Mr Galbraith received on 13 January 2015.
[28] The letter from the School dated 6 December 2013 contained the following:
I write to inform you that for 2½ painting years we have had no response in terms of your obligations within the painting contract between [the School and SPB]. Some two years and six months ago we had a representative who agreed the previous year painting actually not only required total rework, but required the removal of the crew from [the School] for use of drugs and involving one of our cleaning staff who abandoned her position and a replacement painter was hired by you locally but was found a number of times asleep in his car.
Your representative and myself negotiated that he would credit 160 hours of maintenance painting, to which he also assured us that there would be works organised for the 2012 holiday break. We have since endeavoured to contact your organisation over time to which there has been no response.
With no work organised for the 2013-2014 year you have not fulfilled a number of clauses in your contract and therefore the contract becomes null and void.
[29] SPB did not accept that there had been any valid termination of the 2009 contract by the School in December 2013. On 16 January 2015 it gave the School one month’s notice to terminate the 2009 contract. The relevant email stated that SPB had not received the letter from the School dated 6 December 2013, and that SPB had tried on numerous occasions to discuss the completion of SPB’s service obligations.
[30] SPB followed up with an invoice on 12 February 2015 claiming the sum of
$117,005.90, which was said to be the balance then owing under the 2009 contract. The School did not make payment, and SPB commenced the present proceeding, claiming the sum of $140,618.77.
[31] SPB’s contention is that it validly terminated the 2009 contract on
16 January 2015, and on termination the School was obliged to pay the balance of
the debt owing under the 2003 contract (ie the unpaid balance of the “Existing Agreement termination cost” payable under the 2009 contract), together with the difference between the value of new work completed by SPB under the 2009 contract and the amount paid by the School for that new work.
[32] The School accepts that it has paid a total of $226,524,18 to SPB in the period from 2009 to 2012, and it is common ground that that amount represents the total payable by the School in the first four years of the operation of the 2009 contract, including GST and CPI adjustments). It is also common ground that the School has refused to make any further payment.
[33] The second affidavit in support was an affidavit of Mr David Quigg, a partner in the firm of solicitors acting for SPB. He produced copies of a letter sent to Mr McCallum on 12 February 2015 seeking payment of the $117,005.90, and subsequent correspondence which passed between the parties’ solicitors.
[34] Generally, the School maintained its denial of liability in this correspondence, contending that it had paid SPB $127,722.40 since mid-2011 and SPB had performed no work in that period in return. The School’s solicitors referred to a counterclaim the School had for allegedly substandard painting carried out in 2010.
[35] On 12 June 2015 the School’s solicitors put forward a formula for calculating the additional costs the School would incur in remedying the paintwork, as it had “effectively [been] without a paint job for five years from the beginning of 2010 when the last proper paint job was done”.
Performance under the 2009 contract — the School’s position
[36] The School provided one affidavit in opposition, that of its director Mr McCallum. He says that the School was entitled to terminate the 2009 contract if the quality of SPB’s work was not up to professional standards, and that it validly did so.
[37] Mr McCallum challenges significant parts of the affidavit evidence given by
Mr Galbraith, primarily on the basis of Mr Galbraith’s lack of personal involvement
in the negotiation of the two contracts. He then sets out certain views on the meaning of the “Termination or Reduction” clauses in the contracts, which he says were expressed by Mr Connor, the person who negotiated both contracts on behalf of SPB.
[38] Mr McCallum asserts that it was “sacrosanct” under both contracts that the services would be completed by SPB over the Christmas period in each year, when students would be absent from the School. That was a practical issue, concerned with both the ease of movement for painting and the safety of those in areas where painting work would to be carried out. SPB did carry out its work over the Christmas holiday period in the first few years of the operation of the 2009 contract, but Mr McCallum says that from 2012 SPB did not provide contractors who could work over the Christmas period.
[39] Mr McCallum takes issue with Mr Galbraith’s contention that the first year of the 2009 contract (when the School was repainted) accounted for seventy to eighty percent of the total value of the work to be carried out under the 2009 contract. While that may have been so in terms of actual labour and material costs, the value of the year one works was considerably less than seventy to eighty per cent if regard is had to the fact that ongoing painting services had to be provided by SPB in order to maintain the value of the initial painting work (otherwise the significant outlay in year one would be almost worthless in subsequent years). Mr McCallum contends that the high value of the year one work was effectively agreed to be paid for in subsequent years, to ensure SPB continued to maintain the painted surfaces (and thereby maintain the value of the early painting work).
[40] Mr McCallum says that there were workmanship issues going back before Christmas of 2010/2011 which resurfaced over the 2010/2011 Christmas period. He states that the work of certain contractors provided by SPB was well below the standard of professional tradesmen, and even further below the specific requirements as to work quality contained in the 2009 contract.
[41] Mr McCallum produced a collection of photographs said to have been taken a matter of months after SPB completed their work on the School building in 2012.
The photographs are said to illustrate poor standards of painting and aluminium joinery in two particular areas, and poor painting standards in three further areas. He contends that it is clear from the photographs that:
1. Preparatory work was not done.
2. Undercoats were not used.
3. Improper paint types were used.
4. Finishes were of low quality.
5. Paint was used as a “patch” to complete work that should have been
filled and sanded.
[42] Mr McCallum attached to his affidavit a schedule listing the following further faults:
1. No paint was applied to the edge of the door frame facing the showers.
This meant that water could ingress behind the layer of paint. It also looks unfinished from shower.
2. There was no paint to the edge/outside of the toilet door frames.
3. Gaps between the trims on the vanities and the wall were not filled.
4. Several wall patches are un-sanded, un-primed and there are runs and bubbles in the paintwork.
5. Several surfaces, including aluminium doors, appear to have been painted with the incorrect type of paint, which flaked and deteriorated within a short time of the work being completed.
6. Paint spatter on light switches/fittings has not been removed.
7. Paint spatter on capping bead of the shower has not been removed.
8. Paint on the condensation channel of aluminium window frames has not been tidied or removed.
[43] Contrary to Mr Galbraith’s assertion that he has no reason to doubt the quality of the done by the sub-contractors, Mr McCallum says that there were persistent problems with the sub-contractors provided by SPB. He refers to a letter dated 25 July 2008, which he had written to Mr Connor at SPB, setting out concerns over the quality of some of the painting work at that stage.
[44] Mr McCallum listed a number of specific concerns over unprofessional standards said to have been displayed by some of the subcontractors (sleeping in a car at the School property, failing to apply undercoats or sealers on certain surfaces (resulting in the surfaces flaking within a matter of months), and drug use on the premises). Overall, he contends that from the Christmas period of 2010/2011 the repainting and maintenance work was constantly carried out to a standard well below that required by the 2009 contract.
[45] Mr McCallum denies that the School’s inability to pay SPB was the reason that discussions did not occur between the parties to resolve the issues. He also denies that there was ever any agreement between the parties on alternative dates for the carrying out of the work (ie for the work to be done at a time other than over the Christmas holiday period), or that the School delayed until February 2013 before it advised that it would not allow SPB to carry out the work in a “non-holiday” period. He says that the parties had been in discussions for months about the availability (and vacancy) of the School’s premises.
Further evidence
[46] There were two reply affidavits filed for SPB.
[47] The first was that of Mr Glenn Richards, a senior business development manager at Higgins Coatings Pty Ltd. His affidavit relates to a meeting he had with Mr McCallum in the week of 18 February 2013.
[48] Mr Richards says that when he arranged to meet Mr McCallum, the School had not made any suggestion that SPB’s work was faulty – the reason for the meeting was to arrange the service due for that year, and follow up on the unpaid invoice SPB had issued in August 2012. Mr Richards says that during the meeting Mr McCallum identified some minor incidents of poor workmanship that could easily be corrected. Mr McCallum did not explain when the work in question had been done. Mr Richards says that he wanted to arrange for the outstanding 80 hours of maintenance work to be completed, and that he sought to have this done in the
2013/2014 period. It was for Mr McCallum to choose exactly when that work was
to be done. Mr Richards says that they discussed focussing on exterior work, because students had returned to the School.
[49] After the meeting Mr Richards says that he arranged with a local painter, Greg Brown, to do the work that Mr McCallum was to identify. He confirmed that arrangement in an email sent to Mr McCallum on 28 February 2013. Mr Richards says that Mr McCallum replied two weeks later, indicating that he had identified some paint work that could be done, and suggesting that a costing would be necessary. It appears that this was not done, and neither party pursued the matter.
[50] The second affidavit in reply was that of Mr Galbraith. Mr Galbraith denies that there was any requirement that maintenance painting work done after the 2009 repaint be carried out during Christmas holidays, as the work required in the later years only involved sectional repainting, and maintenance could quite easily be performed during term times. Exterior painting, at least, could be done around students.
[51] Mr Galbraith says that the 2009 repaint work involved almost twice as much work as the remaining years combined. In most cases it would retain value through the life of the contract.
[52] Mr Galbraith rejects the School’s allegations of faulty workmanship. He says that between 2009 and 2013, the School never told SPB that it considered SPB’s work substandard. The only issue Mr Galbraith recalls having been raised related to the conduct of one painter, who was removed from the site. He says that there was never any suggestion that the work itself was faulty.
[53] In response to the photographs Mr McCallum produced, Mr Galbraith notes that Mr McCallum does not say which parts of the building the photographs show. He says that most of the issues are either “minor” or “cosmetic”, and whether or not they were due to workmanship or wear and tear, they would be simple to fix.
The School’s notice of opposition and statement of defence
[54] The defendant’s case is that the ongoing maintenance painting services were an integral part of the consideration for the 2009 contract. The ongoing maintenance was required to preserve and protect expensive buildings from degradation and corrosion.
[55] The School pleads a number of affirmative defences.
[56] First, it relies on a provision in clause 3 of the section of the 2009 contract dealing with “Termination Or Reduction”. That provision empowered an innocent party to cancel where a “fundamental breach” had occurred. The School’s contention is that it became entitled to cancel the contract under that provision, and that it did so “from the Christmas period 2010-2011”.
[57] In the alternative, the School seeks relief under s 9 of the Contractual Remedies Act 1979 (the CRA), on the basis that SPB breached the 2009 contract by failing to provide painting services to a professional standard since the Christmas period of 2010-2011. It says that it is entitled to seek relief under s 9 as a result of the loss suffered by it as a result of those breaches.
[58] The School’s second defence is that there was an implied term, in both the
2003 and 2009 contracts, that the painting services could only be provided over the Christmas holiday period, when the School’s premises were free from students. It pleads that SPB failed to provide painting services over the Christmas period since
2012, in breach of the 2009 contract.
[59] The School’s third defence is equitable set-off, or common law abatement. It says that the 2009 contract expressly provided for abatement of the amount payable in the event of SPB’s painting services being terminated. It repeats the pleading that the painting services were not provided to a professional standard from the Christmas period of 2010/2011, and says that it did not receive the benefit or security of having painting services carried out by SPB over the remainder of the 2009 contract.
[60] More generally, the School says that there are a number of matters requiring further factual investigation by the court, and for that reason the dispute is not suitable for resolution on a summary judgment application. It says that the intention to contract in the 2003 and 2009 contracts is fundamental, and further evidence (and possibly interrogatories) will be required, particularly given Mr Galbraith’s limited ability to give evidence for SPB (he not having been personally involved in the making of either the 2003 contract or the 2009 contract).
[61] The School also raises a factual dispute over the date the 2009 contract was cancelled. Was it cancelled by the School’s letter of 6 December 2013 (at or about that date), or not until SPB wrote cancelling the 2009 contract in January 2015?
[62] Finally, the School contends that expert evidence will be required from a quantity surveyor to show the extent of the School’s loss caused by SPB’s breaches of contract in carrying out poor quality paintwork. That expert evidence will be relevant to both liability and the quantum of SPB’s claim, and also to the School’s various defences.
Summary judgment applications — applicable principals
[63] Rule 12.2(1) of the High Court Rules provides:
Judgment when there is no defence or when no cause of action can succeed
(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[64] The court’s approach was summarised by the Court of Appeal in Krukziener v
Hanover Finance Ltd as follows:1
The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim: that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].
defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example, where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341. In the end the court’s assessment of the evidence is a matter of judgment. The court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ
84 (CA).
[65] If the party applying for summary judgment satisfies the court that the only issue to be tried is one about the amount claimed, the court may give judgment on the issue of liability, and direct a trial of the issue of amount — r 12.3.
Discussion and conclusions
Fundamental breach and cl 3
[66] I will address first the School’s argument based on “fundamental breach” by SPB. Mr King submits that SPB committed fundamental breaches of the 2009 contract in not performing its ongoing maintenance payment services, and that under the doctrine of “fundamental breach” the effect was to extinguish liability for the School to pay any moneys allegedly owed to SPB. He referred to a number of decisions of the House of Lords in support of his argument, the last of which was
Photo Production v Securicor.2 In that case the House of Lords affirmed that
fundamental breach was a rule of construction and not a rule of law, and that when a contract is discharged by breach the injured party is absolved from future performance and may bring an action for damages.3 Mr King acknowledges that the doctrine of fundamental breach has “effectively disappeared from British jurisprudence”, but submits that parties are still free to import the notion into their contracts if they wish to do so, under s 5 of the CRA. If they do, Mr King submits that the effect is that the guilty party cannot rely on its rights under the contract, including any right to recover money which, but for the breach, that party would
have enjoyed.
2 Photo Production Ltd v Securior Transport Ltd [1980] 1 All ER 556 (HL).
3 Referring to the earlier decision in Heyman v Darwins Ltd [1942] 1 All ER 337 (HL).
[67] Mr King identifies the “fundamental breaches” in this case as SPB’s failure
to:
(a) provide ongoing maintenance services, and
(b) provide ongoing maintenance services to an acceptable standard, as
outlined in the “specifications” section of the 2009 contract.
[68] These alleged failures are said to constitute breaches of cls 3d and/or 3h of the “Termination or Reduction” clause in the 2009 contract,4 which breaches are deemed by the introductory paragraph of cl 3 to be “fundamental breaches”.
[69] Mr Wass submits that the concept of fundamental breach was developed before the advent of effective consumer protection legislation as a means of evading unfair exclusion clauses, and it has now been supplanted by rules of construction and by the provisions of the CRA. On the construction question, he submits that cl 3 of the 2009 contract is subject to cls 5 and 6, and that, if the School was correct in its submission, any breach by SPB, however trivial, would amount to a repudiation by SPB, immediately extinguishing all rights and obligations.
[70] I agree with Mr Wass on this point.
[71] The meaning to be given to the words “fundamental breach” where they occur in cl 3 is purely a matter of construction of the 2009 contract. In construing the contract, the court is required to take an objective approach, with the aim of ascertaining the meaning the contract document would convey to a reasonable person having all the background knowledge that would reasonably have been available to the parties at the time of contracting. Context is a “necessary element”, but the text “remains centrally important”, so that if the text has an ordinary and
natural meaning then that will be a powerful indicator of the parties’ meaning.5
4 Reproduced at para [10] of this judgment.
5 Firm PI Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147; [2015] 1 NZLR 432 at [60]
and [63].
[72] Applying that approach, I do not think the expression “fundamental breach” could have had the meaning, and in particular the consequences, for which Mr King contends. Clause 6 of the 2009 contract clearly contemplated that in the event of cancellation there might be some amounts paid or due, or “becoming due”, to SPB. Clause 6 is not expressly restricted in its operation to “no-fault” cancellations effected under cls 1 or 2 of the “Termination or Reduction” clause, and I do not think it was intended to be so restricted. The reality of the situation is that SPB had agreed to extended payment terms, over a number of years, for work it had already carried out. It would have made no commercial sense for it to have put its entitlement to payment for that work in jeopardy by agreeing that a (possibly minor) breach would entitle the School to withhold payment. In my view the argument that a “fundamental breach” (as that expression was used in the Termination or Reduction clause) would result in SPB receiving nothing for the work it had already done is inconsistent with cl 6 of the “Termination or Reduction” provisions, and is accordingly unsustainable.
[73] I do not accept Mr King’s submission that the value of the year one repaint (and of the original painting work done under the 2003 contract) was tied to the competent completion of the ongoing annual maintenance painting work, so that if that work was not done by SPB the value of the original painting job would be substantially reduced. Either side was entitled to cancel the 2009 contract on giving one month’s prior notice, and there was nothing in the 2009 contract which expressly linked SPB’s entitlement to be paid the Existing Agreement termination cost and for the repaint work carried out in 2009, to SPB carrying out the maintenance work each year. If such linkage had been intended it would surely have been covered by appropriate wording in the 2009 contract. There is no such wording.
[74] Any “linkage” of the kind contended for by Mr King would presumably have applied regardless of which side cancelled, but that would make no commercial sense – why would SPB have allowed the School to escape liability for the Existing Agreement termination cost and the agreed value of the 2009 repainting work, by cancelling the 2009 contract (possibly immediately after the 2009 repainting work had been done)?
[75] In my view both sides understood perfectly well that paintwork does not last for ever, and that there would be gradual deterioration. They agreed that ongoing maintenance would be required before the next repaint, but recognised that that might be carried out by a third party (in the event of either of them electing to cancel). The ongoing maintenance work could be carried out by anyone, and if SPB did not do it the School was entitled to serve a notice requiring it to do so. Payment of the Existing Agreement termination cost, and for the 2009 repainting work, would remain the School’s responsibility (including after cancellation, as payments “becoming due” under cl 6 of the Termination or Reduction section of the 2009 contract).
[76] In my view, the words “fundamental breach” where they were used in cl 3 were intended to do no more than reinforce, or underline, the parties’ intention that if one of the events listed at cl 3a–h occurred, the innocent party would have the right to bring the 2009 contract to an end by serving an appropriate termination notice under cl 3.
[77] There are other difficulties standing in the way of Mr King’s fundamental breach argument. The particular alleged breaches relied upon by the School are breaches of subclauses 3d and 3h. Clause 3d simply provides that a termination notice can be sent immediately where “the Contractor breaches its obligations”. Clause 3h allows the Contractor a reasonable period to remedy defaults of the kind referred to in the subclause. No reference is made by the School to cl 3e, which provides for termination by the School where the Contractor “has breached any other term of this Agreement”, and has not remedied the breach within 14 days of its receipt of a notice from the School requiring it to do so. The School does not suggest that it gave any notice giving SPB the chance to remedy the alleged failure to comply – it says that no such notice was necessary because it was entitled to invoke cl 3d.
[78] It is difficult to see how cl 3d can be reconciled with cl 3e. On a literal reading, any breach of a term of the 2009 contract by SPB would amount to a breach of “its obligations” (cl 3d), leaving no scope for the operation of the words “the
contractor has breached any other term of this Agreement” in cl 3e. I do not think that could be right.
[79] In the recent UK Supreme Court decision of Wood v Capita Insurance Services Ltd, the Court emphasised that a greater emphasis on the factual matrix may be required where an agreement is drafted with informality, brevity or the absence of skilled professional assistance.6 The Court may give weight to the implications of rival meanings by reaching a view as to which construction is more consistent with business common sense.7
[80] Clearly a construction is to be preferred which (i) does not render cl 3e and its “notice to remedy” provisions otiose, and (ii) makes some commercial sense. As to the latter, I agree with Mr Wass that it is highly improbable that commercial parties such as these would have intended that the School could send a termination notice, without any prior warning, for any breach by SPB of its obligations, no matter how minor, and that the parties would have intended such a breach to be “fundamental” (so that SPB would not be entitled to recover any moneys which might have fallen due for payment to it under the 2009 contract). The improbability of the parties having intended such a result is consistent with cl 3b, which does permit termination without service of a prior “notice to remedy”, but only in circumstances where the Contractor has been guilty of “serious and wilful misconduct” in the provision of the Contractor Services.
[81] It is not strictly necessary for me to make any finding on how cls 3d and 3e are to be reconciled. It is enough on this part of the case for me to find, as I do, that the use of the expression “fundamental breach” in cl 3 was not intended to preclude SPB from receiving sums which had accrued due to it on the cancellation of the 2009 contract. However I consider it more likely than not that cl 3d was included in the
2009 contract in error, and the parties’ intention was that 14 days’ notice was required if the School wished to cancel on the grounds it identified. No such notice having been given, the purported cancellation by the School on 6 December 2013
would not have been valid.
6 Wood v Capita Insurance Services Ltd [2017] UKSC 24 at [13].
7 At [11].
Affirmation
[82] If I am wrong in that, and the School did have a right to terminate immediately for breach of either cl 3d or cl 3h, it appears in any event that that right may have been lost by the time the School purported to cancel the 2009 contract on
6 December 2013.
[83] Section 7(5) of the CRA provides:
A party shall not be entitled to cancel the contract, if, with full knowledge of
the repudiation … or breach, he has affirmed the contract.
[84] If there was an unsatisfactory level of performance by SPB staff or contractors going back to any time before January of 2012 (when SPB completed the year four work) that state of affairs must have been known to the School. Indeed, Mr McCallum’s evidence is that it was. But the School elected to proceed with the year four work. In so doing it affirmed the 2009 contract and lost the right to cancel on account of alleged breaches by SPB in carrying out work before the year four work was undertaken.
[85] As for the period after the completion of the year four work, over a year passed without the School taking any step to terminate. Mr McCallum met with Mr Richards in February 2013 and they discussed a time for completing the year five work. Mr Richards says that while Mr McCallum identified some minor incidents of poor workmanship, they could easily be corrected. He says that he and Mr McCallum discussed focussing on the exterior work (as the students had returned to school).
[86] Mr Richards says that he arranged for a local painter to correct the defects identified by Mr McCallum. He emailed Mr McCallum on 28 February 2013 confirming that arrangement, and Mr McCallum replied indicating that he had identified some paint work that could be done. Mr McCallum suggested that a costing would be necessary before the work could proceed, but apparently the parties did not follow through on the discussions.
[87] The School paid for the year three work in March 2012, and it paid for the year four work in September 2013.
[88] While delay alone does not amount to affirmation, delay in conjunction with other circumstances may do so.8 In this case, the various steps taken by the school after the year four work was completed, including paying for the year three work and the year four work, and identifying paint work to be completed in 2013,9 do not appear to me to be consistent with any election by the School to treat the 2009 contract as being at an end.
What sums had accrued due to SPB when the 2009 contract was cancelled?
[89] Section 8(3) of the CRA provides:
8 Rules applying to cancellation
…
(3) Subject to this Act, when a contract is cancelled the following provisions shall apply:
(a) so far as the contract remains unperformed at the time of the cancellation, no party shall be obliged or entitled to perform it further:
(b) so far as the contract has been performed at the time of the cancellation, no party shall, by reason only of the cancellation, be divested of any property transferred or money paid pursuant to the contract.
[90] In Garratt v Ikeda10 the Court of Appeal held that s 8(3)(a) does not have the
effect of divesting unconditionally accrued rights. “Unconditionally” in the context
was held to mean:
8 John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (5th ed, Lexis Nexis, Wellington, 2016) at [18.3.2] citing New Zealand Tenancy Bonds v Mooney [1986]
1 NZLR 280 (CA).
9 In an email to Mr McCallum dated 28 February 2013, Mr Richards referred to his meeting with Mr McCallum the previous week and recorded: “We discussed painting external areas which [local painter Greg Brown] is happy to do …” Mr McCallum replied on 12 March 2013 saying: “We have identified outside painting that you would need to see to enable a costing, let me know when you are coming down.”
10 Garratt v Ikeda [2002] 1 NZLR 577 (CA).
(i)that there is no impediment, by way of unfulfilled condition or otherwise, to the enforcement at the time of cancellation; and
(ii)that enforcement is not subject to any reciprocal obligation owed by the party seeking to enforce the right.
[91] The year five instalment of $44,150 payable on account of the Existing Agreement termination cost clearly fell due for payment before the 2009 contract was cancelled, whenever that occurred. Payment was due in January 2013, and neither party suggests that the 2009 contract had been cancelled by then. $11,800 (plus GST and any CPI adjustment) was also due then on account of the year one (2009) repainting work.
[92] Mr King submits that SPB’s rights to payment under the 2009 contract did not unconditionally accrue; they were subject to the ongoing maintenance requirements of the contract. I do not accept that submission. In my view there was no condition (unfulfilled or otherwise) attaching to the School’s obligation to pay the
$44,150 and at least part of the $16,600 due in January 2013 (the $11,800 payable in respect of the 2009 repaint). And there was no other impediment to SPB enforcing its claim to those sums (and GST and CPI adjustments thereon) after January 2013.
[93] Nor in my view was there any “reciprocal obligation” on SPB which would have precluded it from suing for recovery of those sums after January 2013. SPB did have an obligation at that time in respect of the maintenance work which was due to be carried out in January 2013, but in my view that obligation was not a “reciprocal” obligation – the School remained liable to pay for the Existing Agreement termination cost and the 2009 repaint work irrespective of SPB’s compliance with its (separate) annual maintenance work obligations. The fact that payment for each annual instalment of the amount payable for the 2009 repaint was to be made with payment of the $4,800 annual maintenance fee, did not in my view create any relevant condition or reciprocal obligation. Applying Garratt v Ikeda, then, the instalments due in January 2013 in respect of the Existing Agreement termination costs and the 2009 repaint were debts which had accrued unconditionally before cancellation. They are recoverable accordingly, subject only to any set-off or
similar relief to which the School might be entitled under s 9 of the CRA on the basis that it would be unjust to permit SPB full recovery.
[94] The final $44,150 plus GST and CPI adjustment payable for the Existing Agreement termination cost fell due in January 2014. By then, the School says it had sent its 6 December 2013 email purporting to cancel the 2009 contract. It is not possible to make any finding in a summary judgment application such as this as to whether SPB did or did not receive the email. If it did not, there is an unexplained gap in the evidence as to what transpired in January 2014. Did SPB attempt to carry out any maintenance painting work in 2013 or in 2014? If it did not, it may be that both sides effectively accepted that the 2009 contract was at an end, at or shortly after the time the School sent its “cancellation” letter on 6 December 2013. That would be an issue for trial (if a trial is necessary).
Can SPB recover any sums which had not accrued due by the date of cancellation?
[95] If the 2009 contract was cancelled by mutual consent before the last instalment of the Existing Agreement termination costs (and the January 2014 instalment payable in respect of the January 2009 repaint work) fell due for payment, s 8(3)(a) of the CRA and Garratt v Ikeda might be thought to apply: the rights to payment of those sums would not have unconditionally accrued as at the cancellation date, and s 8(3)(a) would preclude recovery in a debt recovery proceeding such as the present. But in the circumstances of this case I do not think s 8(3)(a) does provide a barrier to recovery, even if the 2009 contract was cancelled before the relevant instalments fell due for payment in January 2014. Section 5 of the CRA provides:
5 Remedy provided in contract
If a contract expressly provides for a remedy in respect of misrepresentation or repudiation or breach of contract or makes express provision for any of the other matters to which sections 6 to 10 relate, those sections shall have effect subject to that provision.
[96] Section 5 of the CRA effectively permits contracting parties to “write their own rules” which will apply in lieu of ss 6 to 10 of the CRA. That includes any contractual provisions which might modify s 8(3) of the CRA. In my view, cl 6 in
the “Termination or Reduction” section of the 2009 contract does have that effect. The clause was clearly intended to apply on cancellation, and it refers not only to “amounts paid or due”, but to amounts “becoming due”. While the clause has not been well drafted, I think the intention is tolerably clear if the clause is read with “which would,” in the second line, deleted.
[97] If the clause is read in that way, it is clear that the clause required the School to pay any unpaid amounts which had fallen due for payment before the cancellation date. Such payments are clearly caught by the expression “… any amounts … due”, in the second line. If that is right, and the expression “becoming due” (which follows shortly after in the subclause) is to have any meaning at all, I think it can only be a reference to payments falling due in the future ie after the date of cancellation. That construction makes perfect sense in this case, where no further work had to be done by SPB to “earn” the Existing Agreement termination costs or the $64,000 payable in respect of the 2009 repaint work, but payment of parts of those amounts might not fall due until after the 2009 contract had been cancelled.
[98] For those reasons I conclude that SPB is entitled to recover the unpaid balances of the sums payable for the Existing Agreement termination costs and the
2009 repaint work, subject only to any set-off or s 9 CRA adjustment to which the
School might be entitled.
The School’s claim to s 9 relief
[99] Section 9 of the CRA materially provides:
9 Power of court to grant relief
(1) When a contract is cancelled by any party, the court, in any proceedings or on application made for the purpose, may from time to time if it is just and practicable to do so, make an order or orders granting relief under this section.
(2) An order under this section may—
(a) vest in any party to the proceedings, or direct any such party to transfer or assign to any other such party or to deliver to him the possession of, the whole or any part of any real or personal property that was the subject of the contract or was the whole or part of the consideration for it:
(b) subject to section 6, direct any party to the proceedings to pay to any other such party such sum as the court thinks just:
(c) direct any party to the proceedings to do or refrain from doing in relation to any other party any act or thing as the court thinks just.
(3) Any such order, or any provision of it, may be made upon and subject to such terms and conditions as the court thinks fit, not being in any case a term or condition that would have the effect of preventing a claim for damages by any party.
(4) In considering whether to make an order under this section, and in considering the terms of any order it proposes to make, the court shall have regard to—
(a) the terms of the contract; and
(b) the extent to which any party to the contract was or would have been able to perform it in whole or in part; and
(c) any expenditure incurred by a party in or for the purpose of the performance of the contract; and
(d) the value, in its opinion, of any work or services performed by a party in or for the purpose of the performance of the contract; and
(e) any benefit or advantage obtained by a party by reason of anything done by another party in or for the purpose of the performance of the contract; and
(f) such other matters as it thinks proper.
…
(7) An application for an order under this section may be made by—
(a) any party to the contract; or …
[100] Mr King submits that if the School’s fundamental breach argument is not reasonably arguable, then the School has an arguable case for relief upon contract cancellation under s 9 of the CRA. He refers to Smith v Wickham Developments in support of the proposition that the court may grant relief under s 9 of the CRA in the course of exercising its summary judgment jurisdiction.11
[101] Mr King also refers to Newmans Tours Ltd v Ranier Investments Ltd in support of the proposition that the court may consider under s 9 any fault on the part
of the plaintiff in failing to mitigate its loss, or any benefit received by the plaintiff, where the plaintiff sues following a contract cancellation.12
[102] Mr King submits that SPB’s rights to payment under the 2009 contract did not unconditionally accrue – they were subject to the ongoing maintenance requirements of the contract. I have already rejected that argument. In my view there was no such linkage between (i) SPB’s entitlement to recover the Existing Agreement termination costs, and the amount payable for the 2009 repaint work, in accordance with the payments timetable provided for in the 2009 contract, and (ii) the contract provisions relating to the ongoing maintenance work.
[103] Mr King also submits that SPB is entitled to relief under s 9 of the CRA in the event that Garratt v Ikeda is applied, given that the School has been left without competent ongoing maintenance painting services. I do not accept Mr King’s submission that the School has been “unjustly [left] without ongoing maintenance painting services since mid-2011”. The submission overlooks the fact that SPB was entitled to cancel the 2009 contract whenever it chose to do so, by giving one month’s notice of termination. The School had no guarantee that SPB would provide ongoing maintenance services for the full seven year period over which payments were to be made under the 2009 contract.
[104] However I accept that the School does have an arguable claim to relief under s 9 in respect of the allegedly poorly performed maintenance work, and perhaps also in respect of SPB’s failure to perform any maintenance work in 2013. I will return to that later when I discuss the School’s claims to price abatement and/or set-off.
Did SPB breach an implied term of the 2009 contract to complete maintenance painting over the Christmas period?
[105] Mr King submits that there was an implied term of the 2009 contract that maintenance painting of the School’s building would be carried out over the Christmas holiday period each year. The Christmas holiday period was the only time in which the painting could be carried out, because the students were away and the building was vacant at that time.
[106] It may be that there was such an implied term. I note, for example, that under cl 3c of the Termination or Reduction section of the 2009 contract the School was able to give “lawful directions” to SPB relating to the provision of the Contract Services, or any normal business activity. That express provision in the 2009 contract, together with the obvious convenience of having painting work carried out in the absence of the students, arguably supports the implied term for which the School contends. I also accept that it is arguable for the School that SPB breached any such implied term when it failed to arrange for the maintenance painting work to be carried out over the Christmas holiday period of 2012/2013.
[107] However I do not consider that the School has produced evidence of any significant loss arising from any such breach of an implied term. First, the implied term could only have affected the non-performance of the year five maintenance work, over the 2012/2013 holiday period. It is clear from Mr Richards’ evidence that attempts were made by SPB to catch up on this work in February 2013, but it is not clear why that did not occur. More important, however, is the fact that the School has failed to produce any evidence showing that the non-performance of the ongoing maintenance work which (arguably) should have been performed in the 2012/2013
Christmas holiday period actually caused any loss. For example, if there had been deterioration in the paintwork in the course of 2012, the costs of remediating that deterioration would be the result of ordinary wear and tear to that point in time – while failure to carry out the maintenance work over the 2012/2013 holiday period might have caused some exacerbation of any such natural deterioration, there is no evidence of loss of that kind having occurred.
[108] I take into account also that the School has had over four years to assess what losses (if any) might have flowed from failure to comply with the alleged implied term. In my view it was obliged in those circumstances to put forward at least some arguable factual foundation for any claim that breach of the alleged implied term caused it loss.
[109] As far as the 2013/2014 and 2014/2015 summer holiday periods are concerned, I do not think there could be any claim that a breach of the alleged implied term caused any loss. First, the School’s own case is that it cancelled the
2009 contract by its email of 6 December 2013. Whether or not the email was sent, and whether or not it was effective to cancel the 2009 contract if it was sent, I think the letter clearly shows that the School’s intention at the time was that it would be taking over responsibility for the ongoing maintenance work.
The School’s claims to abatement of the contract price, or set-off
[110] Mr King again makes arguments based on alleged linkage between SPB’s obligations to carry out the annual painting maintenance work, and its entitlement to recover the Existing Agreement termination cost and the $64,000 payable in respect of the 2009 repaint. I have already determined that there was no such “linkage”, primarily on the basis that any such linkage would be incompatible with the right of either party to terminate the 2009 contract on giving one month’s notice.
[111] Mr King submits, on the authority of Main Industries Ltd v Don Forbes Construction Ltd,13 that abatement is available as a common law remedy. He submits that abatement is particularly relevant to the provision of work and labour which reduces in value on account of a breach of contract.
[112] Mr King further submits (based on cl 5 in the Termination or Reduction section of the 2009 contract) that in the event of “total termination” of the contract there would be a total abatement of the contract price (inclusive of the Existing Agreement termination cost). I do not accept that submission.
[113] The heading of the “Termination or Reduction” section of the 2009 contract, with its reference to “reduction”, and cl 4c beneath that heading, together make it plain that the parties had in mind that there could be a “cancellation” of some part or parts of the Contract Services, while other parts of the Contract Services would remain to be performed. It was this situation which was intended to be covered by the expression “partial termination” used in the first line of cl 5.
[114] That interpretation is confirmed by the reference near the end of cl 5 to the
relevant abatement being proportionate to “the reduction in the Contract Services”.
13 Main Industries Ltd v Don Forbes Construction Ltd (1989) PRNZ 176 (HC).
In my judgment, cl 5 was not intended to apply at all in the case of a “termination”
of the 2009 contract (as opposed to a “reduction” in the services provided under the
2009 contract).
[115] Mr Wass submits that there can be no claim for abatement in the price paid by the School in respect of the works carried out in years three and four of the 2009 contract: the invoices for that work were paid without complaint, and there is nothing to abate. I accept that proposition as far as it goes, but I think it is at least arguable for the School that it would be entitled to set off against the amounts now claimed by SPB any loss suffered as a result of allegedly poor quality workmanship by SPB in carrying out the ongoing maintenance work in the 2010/2011 and
2011/2012 summer holiday periods. Alternatively, some reduction might be made to the amount SPB would otherwise be entitled to recover, under s 9 of the CRA, to ensure a just outcome following the eventual cancellation of the 2009 contract (which occurred at latest when SPB sent its cancellation notice in January 2015).
[116] Mr McCallum referred in his evidence to various alleged defects in the work carried out, and he produced photographs which he says were taken after SPB completed its maintenance work in early 2012. There are allegations of failure to use undercoats, preparatory work not being done, improper paint types used, and low quality finishes. A number of other criticisms made by Mr McCallum are referred to at paragraph 39 of this judgment.
[117] Some support is provided for Mr McCallum’s criticisms in the evidence of Mr Richards, who accepted that there were “some minor incidents of poor workmanship”. While Mr Richards says that those incidents could easily have been corrected, I do not think it is possible or appropriate on a summary judgment application such as this to attempt to quantify any losses the School may have suffered as a result of poor workmanship by SPB or its contractors.
[118] In a statement of defence filed for the School, the School seeks to set off a claim for “restitutionary damages” of (at least) $23,085. The basis of the claim for restitution damages of $23,085 was set out in the letter from the School’s solicitors dated 12 June 2015. The solicitors advised that the School had received advice that
the additional costs of bringing the paint job back up to standard, over and above what the School would have spent anyway, could be calculated on the following
basis:
Year ended
Additional Cost
Percentage*
January 2011
NIL
January 2012
3%
January 2013
5%
January 2014
10%
January 2015
20%
Total additional cost
38%
*Additonal cost of bringing paint job back up to standard, over and above what would have been charged on an annual basis.
[119] The School calculated that the “annual cost” of the paint job that should have been carried out was $60,750 ($44,150 each year in respect of the Existing Agreement termination cost, plus $16,600 payable each year (after year two) in respect of work carried out under the 2009 contract). The figure of $23,085 represents 38% of the School’s claimed “annual cost” of $60,750.
[120] SPB argues that the sum the School has claimed of $23,085 does not reflect any orthodox method of calculating damages. It assumes that the School was entitled to leave any defects unremedied until at least January 2015, despite claiming that the defects were visible in 2012. There is no evidence that the School has taken any steps to mitigate any loss arising from the alleged defects.
[121] I do not accept the School’s approach. The obvious measure of any loss would be the cost to the School of bringing the paintwork up to the standard it would have been in if maintenance work had been carried out by SPB in each of years three, four and five (ie in January 2011, 2012, and 2013), in accordance with the
2009 contract. In respect of 2014 and 2015, the School had itself assumed responsibility for the maintenance work.
[122] It was for the School to produce at least some evidence of that cost — it was not in my view good enough for it to say that this is a matter for evidence of a quantity surveyor, to be given at trial.
[123] It is impossible on the evidence before me to quantify the precise extent of any loss the School has (arguably) suffered, but I think it is reasonably arguable that it has suffered some loss. I think the only proof of evidence of loss I have to work with is the contention made by the School in its letter of 6 December 2013 that Mr McCallum negotiated with a representative of SPB for the School to be given a credit of 160 hours of maintenance painting, and that Mr McCallum was given an assurance that work would be organised for the 2012 holiday break. SPB has not provided any direct and admissible evidence from its relevant representative that no such agreement was reached, and assurance given, so for the purposes of this application I must proceed on the basis that the School’s contention on this point is arguable. On that basis, I will assume that in the course of 2012 the School considered that a credit of 160 hours of maintenance painting (worth $9,600 plus GST at the contract rate of $60 per hour) would be sufficient to put right the defects in the maintenance painting work which it had by then identified.
[124] In addition I accept that it is arguable that some loss would have been suffered as a result of the fact that SPB did not carry out any maintenance painting over the 2012/2013 holiday period. On the evidence, the School appears to have done little to mitigate any loss caused by this alleged breach: it appears that at least some exterior maintenance work could have been done during 2013, but neither party followed up on the February/March 2013 communications between Mr McCallum and Mr Richards. And of course the School did not pay anything for year five (2013) maintenance work.
[125] On the other hand, I accept that if the School had engaged some other contractor to do the year five maintenance work at short notice, it would probably have had to pay more than it would have been obliged to pay if SPB had done the
work under the 2009 contract. Weighing the considerations as best I can, I conclude that any claim the School might have in respect of the failure to carry out the
2012/2013 maintenance work could not exceed $2400 plus GST, being one half of the cost which the School would have paid to SPB for the work under the 2009 contract.
[126] On a best case basis for the School, then, any damages it might be entitled to would not exceed $9,600 plus GST in respect of the year three and four maintenance work, and $2,400 plus GST in respect of the uncompleted year five work. The total set-off on that basis is $13,800 (including GST).
[127] In those circumstances the proper course is to enter judgment for SPB for the balance of the Existing Agreement termination cost and the balance of the $64,000 payable in respect of the 2009 repaint, plus GST, minus the $13,800 set-off which I allow to the School. The balance of SPB’s claims are to go forward to trial. In addition, SPB should have interest on the net figure payable, and costs.
The amounts claimed by SPB
[128] SPB’s claims are divided between its claim for the balance of the Existing Agreement termination costs and its claim for the balance of the $64,000 payable in respect of the 2009 repaint work.
[129] It claims $107,811.55 in respect of the Existing Agreement termination cost, made up as follows:
$44,150.50 for the 2013 instalment
$44,150.50 for the 2014 instalment
CPI adjustment of 6.17% GST of 15%
[130] I accept the claims of $44,150.50 for each of the years 2013 and 2014. There is no evidence of the CPI index adjustment figures, so I am unable to enter summary judgment for that claimed adjustment. The GST claim is allowed (I note that the
2009 contract referred to a GST rate of 12.5%, but that appears to have been an error which both sides have acknowledged: the amounts invoiced in years one to four appear to have included GST at 15%, and those invoices were accepted by the School). The amount payable in respect of the Existing Agreement termination cost is accordingly $101,546.15.
[131] In respect of the new work carried out under the 2009 contract, SPB says that its entitlement was $78,400, made up as follows:
$64,000 for the 2009 repaint work
$4,800 for the 2010 maintenance work
$4,800 for the 2011 maintenance work
$4,800 for the 2012 maintenance work
[132] The School has paid a total of $51,529.87 on account of that $78,400, leaving a balance claimed of $26,870.13. SPB says that GST of 15% and a CPI adjustment of 6.17% must be added to the $26,870.13, giving a balance payable for the new work of $32,807.22.
[133] I accept that the claim should be allowed on that basis, with the exception of the claim for the CPI adjustment, which is not supported by evidence. The amount payable is $26,870.13 plus GST at 15 per cent — total $30,900.65.
[134] The total of the amounts at paras [130], and [133] above is $132,446.80. From that I deduct the arguable set of figure of $13,800 referred to in paragraph [127] above, giving a net figure for which the judgment will be awarded of
$118,646.80.
[135] In addition, SPB is entitled to interest at the rate of 5% per annum under the Judicature Act 1987. That interest will run from 29 October 2015 (the date one month after SPB appears to have notified the School of the revised quantum of its claim) down to the date of this judgment.
Orders
[136] I make the following orders:
(a) judgment is entered for SPB in the sum of $118,646.80, together with interest on that sum at the rate of five per cent per annum calculated from 29 October 2015 down to the date of this judgment.
(b) to the extent that SPB’s claims exceed that figure, the claims are to
proceed to trial.
SPB, having been substantially successful on the summary judgment application, is entitled to costs. Costs are awarded to SPB at 80% of costs on a 2B basis. In addition, SPB is awarded all of its disbursements, as fixed by the Registrar.
Associate Judge Smith
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