Shundi Customs Limited v Green
[2024] NZHC 3345
•11 November 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-2147 [2024] NZHC 3345
UNDER the Judicial Review Procedure Act 2016 IN THE MATTER
of an interlocutory application for interim orders
BETWEEN
SHUNDI CUSTOMS LIMITED
Applicant
AND
ROBERT JOHN GREEN
First Respondent
CHINA CONSTRUCTION NEW ZEALAND LIMITED
Second Respondent
Continued …
Hearing: 24 October 2024 Appearances:
S M Hunter KC, B J Ward and S C Trevella for Applicant in CIV-2024-404-2147
G Christie and D S Newport for Respondent in CIV-2024-404-2147 and CIV-2024-404-2237
S M Hunter KC, B J Ward and S C Trevella for Applicant in CIV-2024-404-2237
Judgment:
11 November 2024
JUDGMENT OF BLANCHARD J
This judgment was delivered by me on Monday, 11 November 2024 at 4:00 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
SHUNDI CUSTOMS LIMITED v GREEN [2024] NZHC 3345 [11 November 2024]
Continued …
CIV-2024-404-2237
BETWEEN SHUNDI CUSTOMS LIMITED
Applicant
AND
CHINA CONSTRUCTION NEW ZEALAND LIMITED
Second Respondent
[1] Shundi Customs Ltd (Shundi) applies under s 15 of the Judicial Review Procedure Act 2016 (JRPA) for interim orders pending judicial review of a determination by John Green dated 2 August 2024 and also under s 290 of the Companies Act 1993 to set aside a statutory demand issued by China Construction New Zealand Ltd (CCNZ) on 23 August 2024. The determination was made by Mr Green as an adjudicator under the Construction Contracts Act 2002 (CCA). It was made in respect of a construction contract between Shundi and CCNZ related to construction of the Seascape development in Auckland central. In the determination, the adjudicator ordered Shundi to pay CCNZ approximately $33 million. CCNZ issued the statutory demand in order to recover this sum.
The Seascape project
[2] The Seascape project is being undertaken in a city block located on Customs Street East between Gore Street and Fort Street, Auckland. The project includes the construction of a 187-metre-high residential building, which when completed will be New Zealand’s tallest residential building. The main tower will offer 221 apartments. The project also includes the development of two associated buildings in the same city block. Once completed, the overall project will include dining, retail and a hotel.
The parties
[3] Shundi is the owner and developer of Seascape. It was incorporated in 2014 and is part of Shundi Group, a multi-national organisation headquartered in China.
[4] CCNZ is the contractor for the development. It was incorporated in 2015 and is a wholly-owned subsidiary of China Construction Eighth Engineering Division Corp Ltd (CCEED), which is registered in Shanghai. CCNZ and CCEED are part of a group headed by China State Construction Engineering Corp Ltd (CSCEC).
The contract
[5] On 5 September 2017, Shundi and CCNZ entered into the construction contract for the project. The contract incorporates NZS3916:2013 general conditions of contract, modified by special conditions set out in schedules.
[6] NZS3916:2013 contains design and build conditions, but the design component was removed prior to execution. CCNZ was not responsible for design.
[7] The design was incomplete when the contract was entered, and no building consents had been obtained. As a result, the contract provides for a progressive lump sum contract price. It provides a regime for converting the contract from a cost plus margin contract into a fixed price lump sum contract. This is contained in sch 19 of the contract. However, despite the parties agreeing on a process for converting to a fixed price lump sum, this has not occurred. The result has been that the contract has effectively proceeded on a cost plus margin basis.
[8] The contract provides for liquidated damages of $25,000 per day, subject to a three-month grace period and a cap of $10 million.
Status of the project
[9] The contract provided for the work to start in 2017. The due date for completion (DDC) of the project is 4 January 2021. Shortly after the contract was signed, the date was amended by agreement to 6 July 2021.
[10] Delay and extension of time (EOT) claims have been a recurring feature of the project. Prior to the determination, the DDC was in September 2022. But the works are still on-going. The superstructure and building envelope are not yet complete. Based on information from CCNZ, completion is likely to occur in June 2026, although this was before CCNZ ceased work on the project, as discussed below. Based on the EOTs awarded in the determination, the DDC is April 2024, so on any view the works are significantly behind schedule.
[11] CCNZ has made over 150 EOT claims to date. Three of these were the subject of the determination. In these three claims CCNZ sought an extension of time of a total of 1,597 working days. Shundi rejected those three claims.
[12]CCNZ has been paid over $300 million on the project to date.
[13]Shundi made deductions from CCNZ’s payment claims under cls 12.2.4 and
12.2.5 of the general conditions. These clauses allow the principal to instruct the engineer to make deductions from the contractor’s payment claims.
[14] There were two kinds of deductions made in this way. Both related to delay. First, deductions were made for costs associated with delay that CCNZ had claimed but Shundi considered it was not entitled to recover due to a “Disallowed Costs” provision in cl 5(k) of pt A of sch 19 of the contract. Second, deductions were made for liquidated damages that Shundi considered were payable to it under the contract.
The determination
[15] On 20 March 2024, CCNZ issued a notice of adjudication under the CCA. CCNZ sought, among other things, to challenge the deductions that had been made for Disallowed Costs and liquidated damages, and to challenge the decisions refusing to permit the extensions of time sought in the three EOTs, although the claim was limited to 404 working days.
[16]The 2 August 2024 determination included the following conclusions:
(a)CCNZ was entitled to an extension of time of 404 working days from the DDC due to the EOT claims. In reaching this conclusion, the adjudicator found that the parties had varied the notice requirements to allow for EOT claims to be provided late under a “3-step agreement”. As a result, even if CCNZ’s EOT claims were issued outside the time prescribed by the contract, as alleged by Shundi, they were in time and valid.
(b)Shundi’s instructions to the engineer to make the deductions for time-related costs as Disallowed Costs were invalid because:
(i)as a matter of interpretation of cl 5(k) of pt A of sch 19 of the contract, Shundi is only entitled to claim time-related costs during a period of “actual delay”, after the DDC and before practical completion (PC); and
(ii)because of the finding that CCNZ was entitled to an extension of time of 404 working days, the DDC had been pushed out and had yet to pass at the time Shundi instructed the deductions for time-related costs. Accordingly, Shundi’s deductions were not valid as they did not relate to costs arising during a period of delay.
(c)In any event, Shundi’s calculation of the delay on the project, and therefore its estimate for time-related costs, was based on evidence that the adjudicator did not accept.
(d)Shundi is entitled to deduct liquidated damages for delay from the DDC. However, because the EOT claims were valid, there was no delay as the DDC had not yet been reached and Shundi’s deductions for liquidated damages were therefore premature and invalid.
(e)CCNZ was entitled to costs in relation to the adjudication because Shundi’s objections to CCNZ’s EOT claims and claims for deductions were without substantial merit and caused CCNZ to incur unnecessary costs.
[17] In total, Shundi was required to pay to CCNZ $33,019,696 within two working days of the determination. This comprises time-related costs of $24,364,953 (plus GST), liquidated damages of $4 million and costs of $1 million. Interest is also payable.
[18] In addition, the adjudicator approved the issuance of a charging order in respect of the site under s 49 of the CCA.
Events after the determination
[19] On 8 August 2024, CCNZ issued Shundi a notice of intention to suspend construction work under s 59(2)(b) of the CCA on the basis that Shundi had not paid the sums required under the determination.
[20] On 21 August 2024, CCNZ issued Shundi a notice of suspension of construction work under s 24A of the CCA on the basis that Shundi had failed to pay the sums required under the determination within five working days of the notice being served.
[21] On the same date, 21 August 2024, Shundi issued a notice of default under cl 14.2.1(d) of the contract requiring CCNZ to provide a parent company guarantee (PCG) from CCEED within 10 working days of the notice. The PCG was required to be provided at the commencement of the project and Shundi had previously chased CCNZ many times over the years to provide it to them.
[22] On 23 August 2024, CCNZ served on Shundi a statutory demand in respect of the amount awarded in the determination and an application in the District Court to have the determination entered as a judgment, both dated 22 August 2024.
[23] On 27 August 2024, CCNZ wrote to China Construction Bank (a lender on the project) advising that it considered Shundi had repudiated the contract and that Shundi’s notice of default in respect of CCNZ’s failure to issue a PCG indicated Shundi did not intend to perform the contract. It also gave the bank notice under a tripartite deed between Shundi, CCNZ and the bank that, unless the amount awarded in the determination was paid within five working days, CCNZ may terminate the contract with Shundi.
[24] However, on 29 August 2024, CCNZ gave an undertaking to the Court that, pending orders of the Court following a full hearing on Shundi’s application for interim relief, it would not take further steps to advance its statutory demand or application to enter the adjudication determination as a judgment, and it would not take any further steps to cancel the contract on the basis of the outstanding payment.
[25] As a result of the undertaking, the application to enter the determination as a judgment is currently on hold. However, once judgment has been entered, Shundi’s liability will not be limited to the sum of $33,019,696 that it was ordered to pay by the adjudicator. As a consequence of s 59A of the CCA, the adjudicator’s findings as to the parties’ rights and obligations under the contract are enforceable by CCNZ once
the determination is entered as a judgment. Despite the determination, Shundi continued to instruct the engineer to make deductions in the period from after the adjudication until CCNZ suspended work, thereby increasing the amount that Shundi will be required to pay when judgment is entered.
[26] On 3 September 2024, CCNZ provided the PCG from CCEED. Although the PCG was only provided to Shundi on 3 September, it was actually executed by CCEED much earlier, on 26 November 2021. It is not clear why it was not provided to Shundi at that time. As discussed below, Shundi has concerns regarding its enforceability.
[27] The parties have referred their dispute to arbitration. At the time of the hearing before me, the parties were conferring on the appointment of an arbitrator, so there was not yet a timetable for the arbitration.
[28] The Court has still to schedule a hearing in relation to Shundi’s substantive application for judicial review. The parties’ expectation is that a hearing will not take place until next year.
The law
[29] Judicial review of determinations under the CCA is not limited (as in other comparable contexts) to jurisdictional errors.1 However, given the scheme and purpose of the CCA, judicial review will be available as a means to challenge an adjudicator’s determination only rarely.2 In Rees v Firth, the Court of Appeal put it this way:3
[27] The courts must be vigilant to ensure that judicial review of adjudicators’ determinations does not cut across the scheme of the CCA and undermine its objectives. But this does not mean that judicial review should be limited to instances of “jurisdictional error”. In principle, any ground of judicial review may be raised, but an applicant must demonstrate that the court should intervene in the particular circumstances, and that will not be easy given the purpose and scheme of the CCA. Indeed, we consider that it will be very difficult to satisfy a court that intervention is necessary. As an example, given that an important purpose of the CCA is to provide a mechanism to
1 Rees v Firth [2011] NZCA 668, [2012] 1 NZLR 408 at [21]–[22].
2 At [18]–[31].
3 At [27].
enable money flows to be maintained on the basis of preliminary and non- binding assessments of the merits, it is unlikely that errors of fact by adjudicators will give rise to successful applications for judicial review. In the great majority of cases where an adjudicator’s determination is to be challenged, the appropriate course will be for the parties to submit the merits of the dispute to binding resolution through arbitration or litigation (or, or course, to go to mediation).
[30] Having recorded the Court of Appeal’s view, in Body Corporate 200012 v Keane QC Brewer J said:4
It would require a genuine excess of jurisdiction by the adjudicator…, a serious breach of natural justice, or some apparent and significant error of law to persuade me to intervene.
[31] While interim relief is available under s 15 of the JRPA,5 in Rees the Court of Appeal indicated that, in light of the “pay now, argue later” philosophy of the CCA, it “seems to us unlikely” that a court would be prepared to grant interim relief in the context of judicial review proceedings challenging an adjudicator’s determination as to payment.6 For the same reason, the Court has said that it “would likely be a rare and exceptional case” where the Court would set aside a statutory demand issued to recover an amount that a party has been ordered to pay by an adjudicator on the basis that the determination is subject to an application for judicial review.7
[32] However, it has been recognised that the “pay now, argue later” philosophy should not always prevail. In Concrete Structures (NZ) Ltd v Palmer Courtney J stated:8
[17] It cannot have escaped Parliament’s notice that one party’s position might be irretrievably prejudiced by the time a judicial review application had been determined. It is unlikely that it intended to preclude interim relief where one party faced this danger. In the balancing exercise between the rights of the party with a favourable adjudication to be paid immediately and the rights of the party claiming a breach of natural justice the significant factor must surely be the impact if the strict rights under the CCA prevailed. If the effect would be to permanently prejudice the other party so as to render its application for judicial review worthless, regardless of the outcome, then I
4 Body Corporate 200012 v Keane QC [2017] NZHC 2953, [2018] NZAR 120 at [17].
5 Rees v Firth, above n 1, at [25]; and Concrete Structures (NZ) Ltd v Palmer [2006] NZAR 513 (HC) at [9]–[20] in regard to the predecessor provision to s 15 (s 8 of the Judicature Amendment Act 1972).
6 At [25].
7 Target Painters & Decorators Ltd v Omid Construction Management Group Ltd [2019] NZHC 2544 at [45].
8 Concrete Structures (NZ) Ltd v Palmer, above n 5.
cannot think that it was the intention. I do not consider that, as a matter of statutory interpretation, the [CCA] has the effect of ousting s 8 [of the Judicature Amendment Act 1972].
[33] This passage has been cited in a series of judgments of the High Court.9 That line of authority recognises that the Court might need to intervene when a party that has been ordered to make a payment under a determination has applied for judicial review of the determination and the financial position of the payee is such that, if the payer is later successful in setting aside the adjudication, it will not be able to recover the payment.10
[34] Two factors have been recognised as relevant to the Court’s decision on whether to intervene. These are the strength of the payer’s arguments in favour of judicial review and the level of risk of non-repayment by the payee.11
[35] In Kariiti Ltd v Donovan Drainage & Earthmoving Ltd, Associate Judge Bell suggested that, in general, relief should be allowed when the payer has a “good arguable case” to overturn the determination and there is a “high degree of likelihood” that the payment will not be recoverable from the payee.12 However, the Associate Judge went on to suggest that the two factors are interdependent. The strength of the payer’s arguments may impact on the level of risk of non-repayment that the payer needs to demonstrate. The level of risk of non-repayment may impact on how strong the payer’s arguments for overturning the determination will need to be.13
[36] The approach suggested in Kariiti has been applied by the High Court in subsequent cases,14 although in Triple Connection Ltd v Concept Builders Queenstown
9 Yun Corp Ltd v YQT Ltd HC Auckland CIV-2009-404-7656, 26 February 2010 at [29]; Kariiti Ltd v Donovan Drainage & Earthmoving Ltd HC Whangarei CIV-2010-488-613, 19 November 2010 at [7]; and Bussell Construction Ltd v Manchester Industrial Holdings Ltd [2015] NZHC 858 at [29].
10 Concrete Structures (NZ) Ltd v Palmer, above n 5, at [17]; Yun Corp Ltd v YQT Ltd, above n 9, at [29]–[34]; Kariiti Ltd v Donovan Drainage & Earthmoving Ltd, above n 9, at [6]–[10]; C&R Property Development Ltd v MR Civil Ltd [2020] NZHC 1470, (2020) 25 PRNZ 358 at [20]; and Triple Connection Ltd v Concept Builders Queenstown Ltd [2024] NZHC 1049 at [22]–[28].
11 Kariiti Ltd v Donovan Drainage & Earthmoving Ltd, above n 9, at [17]; C&R Property Development Ltd v MR Civil Ltd, above n 10, at [20]; and Triple Connection Ltd v Concept Builders Queenstown Ltd, above n 10, at [22]–[28].
12 Kariiti Ltd v Donovan Drainage & Earthmoving Ltd, above n 9, at [17].
13 At [18] and [19].14 C&R Property Development Ltd v MR Civil Ltd, above n 10, at [20]; and Triple Connection Ltd v Concept Builders Queenstown Ltd, above n 10, at [22]–[28].
Ltd it was suggested that the standard of a “good arguable case” may not be high enough.15
[37] My understanding is that both parties agree that the Kariiti approach is the correct one. I take broadly the same view but add the following points of clarification.
[38] As I have said, in Triple Connection Ltd it was suggested that the “good arguable case” standard applied in Kariiti may not be high enough. I respectfully suggest that that standard does not need to be any higher. However, in practice it is likely to be challenging to meet the standard because of the inherent difficulty discussed above of challenging an adjudicator’s determination by way of judicial review.
[39] The “good arguable case” standard is familiar as the standard that is used in relation to freezing orders. It has been thought to be a slightly more stringent standard than the “serious question to be tried” standard that applies in relation to interim injunctions. However, recently the Court of Appeal of England and Wales concluded that there is no difference between the two tests and that the “serious question to be tried” test should apply in both situations.16
[40] This is an application for interim orders under the JRPA, not an application for an interim injunction. In applications for interim orders under the JPRA, the courts have varied widely when dictating the strength of case that the application is required to demonstrate17 and, in general, they do not apply the “serious question to be tried” standard.18 However, the application in the present case is more similar to an application for an interim injunction than a typical application for interim orders under the JRPA.
[41] Taking all the above into account, I have decided that in a case like this one the “serious question to be tried” standard should apply.
15 At [37].
16 Isabel Dos Santos v Unitel SA [2024] EWCA Civ 1109 at [106].
17 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [JR15.05(1)].
18 Parents of Courtney v Principal [2021] NZHC 2075 at [24]–[26]. But see Bailey v Auckland Council [2022] NZHC 2632, (2022) 23 NZCPR 739 at [126].
[42] The likelihood of repayment is relevant to the question of whether there will be irretrievable prejudice to the payer. However, it may not be enough to simply consider prejudice to the payer. Before deciding to grant relief in favour of the payer, the Court should also have regard to any prejudice that the payee may suffer as a result.
The strength of Shundi’s case
[43] Shundi advances three arguments as to why the determination should be set aside. First, the adjudicator was wrong to rely on the 3-step agreement. Second, the adjudicator erred in his interpretation of cl 5(k) of pt A of sch 19. Third, the adjudicator was wrong to disregard its expert evidence on delay.
The 3-step agreement
[44] Shundi argues that the adjudicator accepted that CCNZ’s EOT claims were late and prima facie invalid. However, he found the notice requirements had been waived because of the 3-step agreement, which was recorded in an email exchange. Shundi submits that this was wrong because it was not what CCNZ argued nor what the parties agreed.
[45] Under the contract, EOT claims had to be made within 20 working days. Shundi said that all of CCNZ’s claims were submitted outside the 20-working-day window and were therefore invalid. CCNZ argued that, on a proper interpretation of the relevant clause, the claims were made within time. This argument turned on what needed to occur for the 20-working-day period to start running.
[46] In the determination, the adjudicator summarised the parties’ respective positions on this issue. He then discussed what he considered to be the correct interpretation. In doing so, he indicated that Shundi’s interpretation was correct. Shundi says this suggests he would have found in its favour had it not been for the 3-step agreement. However, he did not go as far as saying that CCNZ’s claims would otherwise have been out of time.
[47] His discussion of the 3-step agreement was relatively brief. He said that he was satisfied that the parties varied the notice provisions pursuant to what he referred
to as the “3-step global agreement of 19 November 2021.” On the basis of this agreement, he concluded that the EOT claims were not time-barred. Here, in full, is what he said:19
[328] … for present purposes in relation to the instant EOT claims, I am satisfied that the parties varied the notice requirements pursuant to the 3-step global agreement of 19 November 2021, whereby the parties agreed among other things, an “updated practical completion date” of 25 July 2023 based on
5.5 Working-Day weeks and EOTs approved between 5 January and 19 November 2021 (Step 1 and Step 2), and that [CCNZ’s] additional “imminent” EOT claims … that were not formalised and discussed in reaching agreement on Step 2, would be “formalised…as soon as possible to the Engineer” by [CCNZ] if it wanted them to be considered (Step 3).
[329] The parties proceeded on that agreed basis. [CCNZ] submitted its EOT claims in due course. The Engineer accepted, assessed and certified [CCNZ’s] EOT claims… Having made those representations, having acted in accordance with that agreement and having deliberately eschewed strict application of the contractual terms as to notice and form in relation to those EOT claims, a convention was adopted and the parties are bound by their agreement. In the circumstances, I am satisfied that the EOT claims are neither time-barred nor defective as to form.
[48] The 3-step agreement was not referred to in the notice of claim for the adjudication. However, that is not surprising or of concern. The notice of claim merely initiates the adjudication. The document that specifies the nature or grounds of the dispute is the adjudication claim, not the notice of claim.20
[49] The 3-step agreement is referred to in the adjudication claim, although only briefly. After summarising the dispute and setting out the background and a timeline of events, the adjudication claim discusses each of the three disputed EOTs in turn. The 3-step agreement is referred to in the course of discussing the first EOT. The claim explains that several notices were given in relation to this claim. The first was a notice of 20 August 2020. This was reissued on 25 August 2020. The claim states that the reissued notice was provided within the 20-working-day period. The claim then goes on to refer to a notice of 3 December 2021. It is not suggested that this notice was within the 20-working-day period. Instead, it is said that it was issued in
19 Emphasis original and footnote omitted.
20 Alaska Construction + Interiors Auckland Ltd v LaHatte [2020] NZHC 1056 at [34]–[35].
accordance with what is referred to as the “3-step global agreement”. Specifically, this is what is said:
[13.8] On 3 December 2021 [CCNZ] issued a further notice … claiming extension of time as a result of building consent delays. This notice was submitted as part of an agreed approach between [CCNZ] and Shundi leading to a mutually agreed revised practical completion date of 25 July 2023, which is the 3-step global agreement between Shundi and [CCNZ] to come up with an agreed updated practical completion date.
[50] This paragraph is the only one in the claim that refers to the 3-step agreement. But it includes a footnote which provides a reference to a paragraph in a witness statement of Vladimir Milinovic (the main witness of fact for CCNZ). This paragraph contains essentially the same information as the relevant paragraph of the claim. It explains that on 3 December 2021 a further notice was issued and it was issued in accordance with the “3-step global agreement”.
[51] This paragraph of Mr Milinovic’s witness statement refers to an earlier paragraph which is said to explain the 3-step agreement. That paragraph appears in a section of his statement that discusses the contract programme. The section begins by referring to the original contract programme dated 24 August 2017 and then discusses various updated versions of the programme. The 3-step agreement is discussed in a paragraph that relates to the 14 March 2022 version of the programme. It says:
… This programme also summarised the recent global agreement between Shundi and [CCNZ], which was a process whereby Shundi and [CCNZ] were trying to establish an updated practical completion date. Stage 1 was agreement of the calculation of the number of working days per week, in order to calculate the practical completion date. Based on the agreed working days per week, a practical completion date of 29 May 2023 was calculated. Stage 2 was agreement that the awarded EOTs were to be added to the above practical completion date, with a new practical completion date of 25 July 2023. Finally, stage 3 was agreement that further EOTs could be added later. This was recorded in additional detail in email exchanges between myself and Shundi.
[52] The final sentence in the passage quoted above had a footnote which gave the reference to the email exchange. As I will explain, Shundi says that the email chain was incomplete.
[53] The 3-step agreement was not referred to in any other documents in the adjudication. It was not referred to by Shundi at all. Shundi did not refer to the 3-step agreement in its response to the adjudication claim or its witness statements. Nor was it referred to in CCNZ’s reply or Shundi’s rejoinder.
[54] Shundi argues that the adjudicator’s reliance on the 3-step agreement was both an error of law and a significant breach of natural justice. It says that it was an error of law because the adjudicator adjudicated on an issue which did not arise from the complaints put before him.21 It says that the validity of the 3-step agreement was simply not in issue in the determination.
[55] Shundi says it was a significant breach of natural justice because it did not get an opportunity to make submissions or provide evidence about the 3-step agreement. It points out that it noted in its submissions that the adjudicator could request further submissions on any points which required further detail. It says that, if it had been given the opportunity, it would have given evidence that the alleged 3-step agreement was simply an email chain that contained a proposal that was incomplete and never agreed. Shundi would have produced emails showing that the chain relied on by CCNZ was incomplete and that Shundi repeatedly said later that the proposal was not yet agreed. Shundi says the emails also show that, even if the proposal had been agreed, it did not waive or modify the EOT time-bars as the adjudicator held it did. Shundi has provided an affidavit from a project manager, Jin Liu, who says that his understanding is that the 3-step agreement was never concluded and that it was not intended to vary the contract. This affidavit annexes what Shundi says is the full email chain.
[56] Shundi says further that, if the matter had been raised, it would have made the legal submission that the alleged variation was invalid as it did not comply with the requirements for waiver in the contract.
[57] Shundi places particular reliance on the following statement in CCNZ’s reply submissions:
21 University of Auckland v International Education Appeal Authority HC Auckland CIV-2006-485- 63, 21 December 2006, at [71], [79] and [117].
[CCNZ] does not dispute that the time bar is enforceable. [CCNZ] is not seeking to have the [a]djudicator depart from the ordinary meaning of the words in the Contract…
Shundi says this made it clear that CCNZ did not seek to put into issue the applicability of the notification provisions.
[58] CCNZ’s response is that there was no error of law or breach of natural justice because the 3-step agreement was put in issue by the reference to it in the adjudication claim. It says Shundi had ample opportunity to respond but chose not to do so. It says that what Shundi wants to do is put in evidence and make arguments (which CCNZ does not accept would change the outcome) that it did not put in at the time.
[59] CCNZ says that the passage quoted above from its reply, which states that CCNZ does not dispute the time bar is enforceable, needs to be seen in context. The paragraph from which the passage comes relates to interpretation of the time bar clause. The quoted passage was a statement that CCNZ was not denying the clause is a time bar. When looked at in context, it is clear that it was not a statement disowning any reliance on the 3-step agreement.
[60] Finally, CCNZ does not accept that the adjudicator accepted that the EOT claims were late and prima facie invalid. It does not accept that the adjudicator concluded that, had it not been for the 3-step agreement, the claims would have been invalid. It says the adjudicator made no such finding. In order to do so, the adjudicator would have needed to assess when the EOTs were notified. No such assessment was undertaken. The adjudicator did not need to carry out this assessment because he had decided that the notice requirements had been varied by the 3-step agreement. The adjudicator provided his view on the contractual interpretation of the notice clause simply (as the adjudicator himself put it) “to provide clarity on the EOT notification process for the parties going forward”.
[61] We are only at the interim relief stage. The hearing before me was a short one considering the complexity of the evidence and the issues in play. It is therefore unnecessary and inappropriate for me to reach any final conclusions regarding the
strength of Shundi’s arguments. My comments below should not be regarded as representing a final view.
[62] It is certainly the case that the 3-step agreement was not prominent in the documents filed by the parties for the adjudication. However, that does not necessarily mean that it was not put in issue. If a point is considered important, from the point of view of advocacy, a party may well want to discuss it at length and refer to it repeatedly to ensure the point is not overlooked and is given careful consideration by the decisionmaker. However, that is not necessary to merely put the point in issue. That can be achieved by one short reference to the point.
[63] As I have explained, the 3-step agreement was expressly relied on in the adjudication claim in relation to the first of the three EOTs. Accordingly, even though the agreement was only referred to briefly, it is difficult to argue that it was not put in issue by CCNZ in relation to the first EOT. Further, it is referred to as a “global” agreement and the description of it in the claim and Mr Milinovic’s statement is such that, although it was not expressly referred to in relation to the second and third EOTs, it could reasonably be inferred that it was also relevant to them.
[64] If the 3-step agreement was put at issue in the claim and Shundi was on notice that was the case, it does not matter that none of the subsequent documents filed by the parties in the adjudication referred to the agreement. In particular, it does not matter that CCNZ did not refer to the agreement in its reply. While it might have wanted to refer to the agreement again as a matter of advocacy, it did not need to refer to it again to ensure that it was in issue.
[65] As I have explained, Shundi relies on the passage in CCNZ’s reply quoted above to suggest that CCNZ was not seeking to put into issue the validity of the notification provisions. However, CCNZ’s retort is that Shundi has taken the passage out of context. Having read the relevant section of the reply, my view is that CCNZ is right about this.
[66] I have set out the matters that Shundi says it would have relied upon had it been on notice that the 3-step agreement was at issue. CCNZ has not responded to these
matters, but it was not required to do so. If Shundi was on notice that the 3-step agreement was in issue, there was no breach of natural justice and it is too late for it to rely on the matters it now raises.
[67] Nevertheless, as Shundi places particular emphasis on the full email chain, I have reviewed it to see what I can glean. Without knowing the detail of what was occurring at the time, it is not all that easy to understand, but I will briefly describe my initial view.
[68] As I have explained, Mr Liu says that his understanding was that the 3-step agreement was never concluded and that it was not intended to vary the contract. He, and Shundi, suggest that the full email chain supports this view. However, after reviewing the emails, my initial impression is that the situation may not be as clear as Mr Liu’s evidence suggests. The emails of 17 to 19 November 2021 between Mr Liu and Mr Milinovic (which were attached to Mr Milinovic’s statement and were therefore before the adjudicator) read as if an agreement has been reached and confirmed by both parties. The later emails, being Harrison Shao’s email of 19 November 2021 and Mr Milinovic’s emails of 23 to 24 November 2021 (which were not before the adjudicator), may complicate the picture. This is particularly because Mr Shao’s email says, “we suggest we sort out part 3 first before anything becomes official like Jin have written in his email [of earlier in the day setting out the terms of the 3-stage agreement].” However, if a legally binding agreement had already been reached, it may not matter that Mr Shao wished to backtrack.
[69] For these reasons, my view at this stage is that this ground of judicial review has a low prospect of success.
Clause 5(k)
[70] As I have explained, the contract has proceeded on a cost plus margin basis. CCNZ has made claims to recover its costs plus a margin. Because the project has been delayed, CCNZ has additional time-related costs. CCNZ passed on the additional time-related costs to Shundi in its payment claims. Shundi responded by instructing the engineer to make the deductions for time-related costs of $24 million as Disallowed Costs under cl 5(k) of pt A of sch 19 of the contract. The figure of
$24 million apparently includes not only time-related costs that CCNZ has actually claimed but also time-related costs that Shundi considers CCNZ will claim in future. The adjudicator determined that this instruction was invalid and Shundi must pay the
$24 million to CCNZ. However, Shundi submits that the adjudicator erred in his interpretation of cl 5(k).
[71] Clause 5 provides that, “Notwithstanding anything to the contrary in the Contract, the Contractor is not at any time entitled to be compensated for any Disallowed Cost.” The definition of Disallowed Cost, includes (at sub-cl (k)), “a cost associated with delay, but excluding delay cost to the extent recoverable by the Contractor under clause 9 or 10.3.7 of the Contract.” Under cls 9 and 10.3.7, CCNZ is entitled to claim compensation for time-related costs where EOTs are granted due to variations or default by Shundi.
[72] CCNZ’s position before the adjudicator was that cl 5(k) merely confirms the usual regime in relation to time-related costs. It does not change the position that applies under the general conditions. Once the DDC has passed the contractor cannot claim time-related costs. The contractor cannot recover time-related costs between the DDC and PC. However, the DDC must be updated to take into account valid EOTs granted due to variations or default by the principal. Thus, it is only once the DDC updated in this way has passed that the contractor cannot recover time-related costs. Until the updated DDC passes, the contractor is entitled to recover its time-related costs. As the updated DDC has not passed, Shundi was not entitled to make any deductions.
[73] In contrast, Shundi’s position before the adjudicator was that cl 5(k) means that CCNZ is entitled to be compensated for time-related costs when an EOT is awarded for a variation or Shundi’s default, but, if the project is subject to delay, it is not otherwise entitled to be compensated for time-related costs. It emphasised the words “not at any time” in cl 5. As the current contract programme shows that the project is subject to considerable delay, the general position is that CCNZ cannot recover any time-related costs. The exception is in relation to time-related costs in connection with EOTs awarded for variations or Shundi’s default. But when the deductions were made, there had been no such EOTs. Therefore, its deductions were valid.
[74] The adjudicator came down in favour of CCNZ’s interpretation. There was no delay because the updated DDC had not passed. Therefore, Shundi’s deductions were invalid.
[75] Shundi submits that the adjudicator’s interpretation is not the natural reading of the clause. It also says that it in effect reads “costs associated with delay” as “costs associated with delay that arise after the DDC”, and that this cannot be correct because the interpretation produces an illogical inconsistency within the clause itself. On the adjudicator’s interpretation, “delay” has two different definitions within the same clause. In the first half of the clause, “cost associated with delay” refers to time-related costs associated with delay after the DDC, whereas, in the second half of the clause, “delay cost” refers to time-related costs associated with delay to the extent those costs are recoverable by CCNZ under the award of an EOT to the DDC (which can occur at any time before or after the DDC). This, Shundi says, is contrary to the principle of interpretation that words are interpreted in light of the company they keep.
[76] Shundi submits that the interpretation also means that the exception for “delay costs” that remain claimable by CCNZ as a carve-out from the clause is wider than the “costs associated with delay” deductible by Shundi which are the subject of the clause. This in effect allows the exception to swallow the prohibition and violates the maxim that exceptions are not to swamp the rule to which they relate.22
[77] Shundi says that, in addition to being illogical, this cannot have been what the parties intended. First, the interpretation results in a “lopsided outcome”. It means, Shundi says, “CCNZ can claim, and Shundi is required to pay, delay related costs to CCNZ along the way but Shundi cannot deduct delay related costs along the way where CCNZ causes that delay.” This does not make commercial sense and unfairly interprets cl 5(k) strictly against Shundi. Second, the interpretation would undermine the purpose of the Disallowed Cost regime, which exists so that CCNZ does not receive payments (such as for time-related costs) which it is not entitled to receive.
22 See Genesis Power Ltd v Greenpeace New Zealand Inc [2007] NZCA 569, [2008] 1 NZLR 803 at [43(d)].
[78] CCNZ supports the adjudicator’s interpretation. It says that the adjudicator’s decision was based on the only logical interpretation of the clauses open to him and that the interpretation is consistent with normal construction industry logic, with which the adjudicator is very familiar.
[79] CCNZ submits that Shundi’s criticisms are misplaced. It submits that Shundi is putting too much emphasis on the words “not at any time”. It points out that those words appear in the first part of cl 5 (before the sub-paragraphs begin). They therefore relate not only to sub-cl (k) but also to the matters in ten other sub-cls, and none of the other matters are time-related.
[80] CCNZ also says that the adjudicator’s interpretation does not require “delay” to have two different definitions. There is a single standard meaning, which is the time between the updated DDC and PC. CCNZ says that cl 5(k) could equally be read as providing that CCNZ is not at any time entitled to be compensated for any “cost associated with [the period between DDC and PC], but excluding [the period between the DDC and PC] … to the extent recoverable by the Contractor under clause 9 or
10.3.7 of the Contract”.
[81] It follows that CCNZ also rejects the argument that the adjudicator’s interpretation makes the exception wider than the rule.
[82] CCNZ says that Shundi’s argument that a lopsided outcome results from the adjudication misrepresents what CCNZ is claiming and what Shundi is required to pay based on the adjudicator’s interpretation. As I have said, Shundi says the interpretation means “CCNZ can claim, and Shundi is required to pay, delay related costs to CCNZ along the way but Shundi cannot deduct delay related costs along the way where CCNZ causes that delay.” But CCNZ says that what it would be claiming “along the way” would be “delay related costs” only on Shundi’s incorrect interpretation of what delay is.
[83] Finally, CCNZ says that the adjudicator’s interpretation does not undermine the Disallowed Cost regime. It says that the regime is “mundane and confirmative”.
It is clear the parties did not intend anything “revolutionary”. Clause 5(k) does no more than to confirm the usual regime in relation to time-related costs.
[84] I am not sure that Shundi is right that the adjudicator’s interpretation necessarily introduces an illogical inconsistency into cl 5(k) or that it results in the exceptions swallowing the rule. Under cl 10.3.1 of the general conditions, variations and default by the principal are only two out of seven bases on which an EOT can be claimed. The other grounds are inclement weather, industrial action, loss or damage to the contract works or material, natural disaster, and other circumstances not reasonably foreseeable. For the purpose of determining whether time-related costs can be claimed, the DDC is only updated for valid EOTs arising from variations and default by the principal. It is not updated for valid EOTs arising from any of the other five circumstances. If cl 5(k) works in the way the adjudicator decided, the “rule” would relate to the whole period between the original DDC and the DDC updated for EOTs arising from all seven of the bases, whereas the “exceptions” would relate only to the period between the original DDC and the DDC updated for EOTs arising from variation or default by the principal.
[85] I also have a concern regarding the uncertainty that Shundi’s interpretation may introduce into the contract. Under the adjudicator’s interpretation it is clear when time-related costs can and cannot be claimed. If the DDC updated for EOTs based on variations or default by Shundi has not yet passed then time-related costs can be claimed, whereas if it has passed they cannot be claimed. However, under Shundi’s interpretation, whether time-related costs can be claimed has to be determined using forecasting. The current contract programme might show that the project is delayed, but this is based on forecasting. The forecast could be wrong. Also, the contractor might accelerate so that the forecasted delay never actually eventuates.
[86] In addition, as I have said, the figure of $24 million deducted by Shundi apparently includes not only time-related costs that CCNZ has actually claimed but also time-related costs that it considers CCNZ will claim in future. Assuming this is correct, it is hard to see how it can be justified. Costs can only be disallowed if they have actually been claimed, not if they merely might in future be claimed.
[87] Moreover, even on Shundi’s interpretation, some of the deductions were invalid. Under the exception in cl 5(k), CCNZ was entitled to claim time-related costs in relation to the EOTs relating to variations and default by Shundi that the adjudicator has determined were valid.
[88] Despite the above points, I accept that there is a serious question to be tried in relation to cl 5(k). Shundi’s interpretation of the clause is available on an ordinary reading of the words. The clause is a special condition. It was the product of negotiation by the parties. It is possible that the parties intended to depart from the usual regime in relation to time-related costs. It is also possible that Shundi is right that the adjudicator’s interpretation produces a lopsided result that the parties cannot have intended. A fuller review of the facts and evidence is required to reach a final view.
Expert evidence on delay
[89] Shundi challenges the adjudicator’s rejection of the evidence on delay of its planning expert, Gerard King. The adjudicator concluded that Mr King’s approach was “non-sensical”. He said that Mr King’s “lack of realism” made his evidence “effectively valueless”. He instead adopted the evidence of CCNZ’s expert, Christopher Gould.
[90] The evidence related to the critical path. Mr King considered that the critical path was on the structure to Level 55 and not through the façade, and from there it moved to the internal finishes and did not stay on the façade. In contrast, Mr Gould considered that the critical path was through the installation of the façade.
[91] Shundi’s concern is that a misunderstanding about Mr King’s evidence led the adjudicator to dismiss Mr King’s evidence. This in turn led him to adopt Mr Gould’s delay analysis, rather than engaging with the substantive points of difference between the two experts.
[92] The adjudicator said that Mr King had concluded that the critical path “has not only never been through the installation of the façade but never will be on the Project (or any other high-rise project)”. However, this was not Mr King’s evidence. In
Mr King’s report in reply to Mr Gould’s evidence, he said that it was not his position that the critical path would never be through the installation of the façade on the project or any other high-rise construction project. He also clarified that in his experience, “(almost without exception) … the critical path runs through the structure, followed by the façade and internal finishes on the last three or four floors of the building.”
[93] I see several difficulties with this ground of judicial review. First, it is generally unlikely that errors of fact by adjudicators will give rise to successful applications for judicial review.23
[94] Second, the adjudicator clearly understood Mr King’s overall position. He summarised it correctly in the determination.
[95] Third, it does not appear to me to be correct that the adjudicator rejected Mr King’s evidence solely due to a misunderstanding. In the course of discussing the evidence over seven pages of the determination the adjudicator also relied on various other matters in reaching his decision, including the following:
(a)Prior to the adjudication, the parties had been in agreement that the critical path runs through the structure, then moves to the façade and then to the internal fitout. (Shundi says that the adjudicator’s view that Mr King’s analysis was inconsistent with a prior agreement between the parties is not supported by the documents. It says that the adjudicator took a statement from another planning expert who provided evidence for Shundi (Tim Williams) out of context and used that out of context statement to support the alleged agreement. However, CCNZ disputes these points and I have real doubts whether the Court should be getting into them in the context of a judicial review of a determination of an adjudicator under the CCA.)
(b)The adjudicator considered that this was what would be expected in any high-rise construction.
23 Rees v Firth, above n 1, at [27].
(c)The adjudicator considered that Mr King’s position could not logically be correct.
(d)The adjudicator considered that Mr King’s analysis was inconsistent with what actually occurred on site.
(e)Mr Gould had used what the adjudicator considered to be the conventional approach used by most delay experts of a “As-Planned v As-Built windows Analysis”, whereas Mr King adopted a “retrospective analysis”.
[96] The adjudicator may also have been influenced by evidence that he summarised in the determination in which Mr Gould suggests that Mr King made crucial errors in how he applied filters in the relevant programming software and these errors led him to an incorrect conclusion.
[97] For these reasons, my view at this stage is that this ground of judicial review has a low prospect of success.
Prejudice to Shundi — risk of non-repayment
[98] I have explained that CCNZ is owned by CCEED and is part of a group headed by CSCEC. It is common ground that CCEED and CSCEC have the wherewithal to make the repayment. There is no real doubt about this. According to CSCEC’s 2023 annual report, it is the largest investment and construction conglomerate in the world. It is the 13th largest Fortune Global 500 company in the world and the fourth largest Fortune China Company. CCEED is a division of the core construction business of CSCEC. The annual report for CSCEC includes figures for CCEED. It is recorded as having assets of $73 billion, net assets of $19 billion, registered capital of $3.4 billion and net profit of $2.9 billion.
[99] Despite this, Shundi considers that there is a significant non-repayment risk. CCNZ’s financial statements for the year ended 31 March 2022 show net assets of only $4.3 million. They also record that its going concern status depends on continued financial support from its parent. Thus, it would only be able to make the repayment
if CCEED and CSCEC stand behind it and Shundi is concerned that they may not. Shundi says that CCNZ appears to be winding down its operations and, other than Seascape, it has no other projects ongoing or in the pipeline. It also points to the fact that CCNZ delayed provision of the PCG for years.
[100] Although CCNZ delayed providing the PCG, it has now done so. It says that this deals with Shundi’s concerns about repayment because it gives Shundi the ability to recover the repayment from CCEED.
[101] However, Shundi continues to be concerned. Specifically, it is concerned because the PCG has not been registered with the State Administration of Foreign Exchange (SAFE) in China. Shundi has obtained an affidavit from a Chinese lawyer, Xiaobin Zhang. No similar affidavit was obtained by CCNZ, so Mr Zhang’s evidence is unchallenged. He says that, while a PCG that has not been registered is still legally binding, in practice a Chinese bank will refuse to make a payment out of China under an unregistered guarantee.
[102] The PCG needed to be countersigned by Shundi before it could be registered. The date on which the countersigned PCG was returned to CCNZ is not clear to me from the evidence, but it was some time last month before the hearing. By way of memorandum dated 6 November 2024, CCNZ advised that it submitted the PCG to SAFE for registration on 31 October 2024. However, it has not yet been accepted for registration.
[103] Mr Zhang says that he has real doubt whether SAFE will accept the PCG for registration. This is particularly because of the significant time between the date of the construction contract (5 September 2017), the date the PCG was executed (26 November 2021), and the date of submission of the PCG for registration (31 October 2024). He says that under Chinese law a PCG must be submitted for registration with SAFE within 15 working days of execution. Here, he says, the attempt to register will be well outside 15 working days. Further, Mr Zhang says that SAFE may still accept the PCG for registration, but it will need to be satisfied that liability under the PCG had not already been triggered at the time it was executed. This is because, under Chinese law, a guarantee should not be given if the parties knew
or should have known at the time of execution that liability will definitely arise under it. This would be a basis for SAFE to reject registration. The late registration means this is likely to be an area of particular focus for SAFE.
[104] CCNZ’s responses to Mr Zhang’s evidence are as follows. First, its expectation is that the PCG will be accepted for registration soon. Its position is that the 15-working-day period for submitting the PCG for registration only started to run when the PCG was countersigned by Shundi last month.
[105] Second, CCNZ has provided the PCG in the form that was required under the contract. Under the contract, it was also required to provide a legal opinion that the PCG has been duly executed and is legally binding and enforceable. As it has also done this, it has met all the requirements in relation to the PCG in the contract. There is no requirement that it has the PCG registered. This is a new requirement that Shundi has only raised since the PCG was provided. It is unreasonable for Shundi to expect to be put in a better position than the one it accepted in the contract.
[106] Third, Mr Zhang’s evidence confirms that the PCG is legally binding. Non-registration with SAFE only affects payment by banks out of China. CCEED is a large global business that operates in multiple jurisdictions. Non-registration does not affect payment by or enforcement against CCEED in the other jurisdictions in which it operates.
[107] Fourth, the fact that CCEED has provided the PCG demonstrates its support for CCNZ. If it was not committed to supporting CCNZ, it would not have provided the PCG. There is an air of unreality about Shundi’s suggestion that a business of CCEED’s scale has provided a PCG but will refuse to support its New Zealand business.
[108] CCNZ is correct that the contract says nothing about registration. However, what I am required to consider is whether, as things stand right now, there is a risk of non-repayment. What the contract says is not relevant to this issue.
[109] I do not think that CCNZ’s submission that Shundi could enforce against CCEED in the other jurisdictions it operates in is reasonable. CCNZ’s own evidence suggests that, as one would expect, CCEED operates in other jurisdictions through subsidiaries. As the subsidiaries are separate legal entities, Shundi could not take enforcement steps against them using the PCG.
[110] It occurs to me that because non-registration of the PCG only affects banks making payments out of China, it may not prevent payment being made within China. The liability under the PCG could conceivably be discharged by a payment to Shundi in China. It would then be for Shundi to work out how to get the funds to New Zealand. Looking at the position this way, lack of registration may not be an issue. However, the difficulty is that this possibility is not addressed by either of the parties in their evidence or submissions. In the circumstances, I am reluctant to place much weight on this possibility.
[111] From time-to-time, large and successful companies do withdraw their support for subsidiaries. They do so because it makes financial sense. Here the project is troubled and the relationship between the parties has completely broken down. Also, the amount to be repaid will be a very large sum. CCEED could very well consider that it makes financial sense not to fund the repayment if it can avoid doing so.
[112] For these reasons, I accept that, as things appear now, the risk of non-repayment is high. However, this will no longer be the case if the PCG is registered with SAFE and, as I have explained, CCNZ expects this to occur soon.
Prejudice to CCNZ
[113] CCNZ submits that it will suffer serious prejudice if interim relief is granted. However, it will suffer little or no prejudice if the relief is only for a short period until the PCG is registered.
Conclusion
[114] Taking all the above matters into account, my decision is that I should grant the interim relief sought but only until the PCG is registered.
[115] I decline to set aside the statutory demand. But, due to my conclusion on interim relief, CCNZ is prohibited from taking any steps to advance the statutory demand until registration of the PCG.
Result
[116] I make an order prohibiting CCNZ from taking any further action consequent on the determination or bringing or continuing any proceedings in connection with the determination pending registration of the PCG with SAFE.
[117]Otherwise, the application is dismissed.
[118]If the parties cannot agree on costs, I direct that:
(a)CCNZ is to file a memorandum within 20 working days; and
(b)Shundi is to file a memorandum within a further 10 working days.
[119]I will then determine costs on the papers.
Blanchard J
Solicitors:Dentons Kensington Swan (D S Newport, B Cash and G Christie), Auckland, for China Construction
Bell Gully (B Ward), Auckland
Counsel: S M Hunter KC, Auckland
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