SRG Global Remediation Services (NZ) Limited v Body Corporate 197281
[2021] NZHC 1929
•29 July 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-000869
[2021] NZHC 1929
BETWEEN SRG GLOBAL REMEDIATION SERVICES (NZ) LIMITED
ApplicantAND
BODY CORPORATE 197281
First Respondent
MAYNARD MARKS LIMITED
Second RespondentHOBANZ PROJECT ASSIST LIMITED
Third RespondentHELLABY RESOURCE SERVICES LIMITED
Fourth Respondent
On the papers: 16 July 2021 Appearances:
A R Galbraith QC / J Q Wilson / D J Brinkman for the Applicant R J Hollyman QC / W Revell for the Respondents
Judgment:
29 July 2021
JUDGMENT OF ASSOCIATE JUDGE GARDINER
on an application for leave to appeal
This judgment was delivered by me on 29 July 2021 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
SRG GLOBAL REMEDIATION SERVICES (NZ) LTD v BODY CORPORATE 197281 [2021] NZHC 1929 [29 July 2021]
Introduction
[1] SRG Global Remediation Services (NZ) Ltd (SRG) has filed an interlocutory application for leave to appeal my judgment delivered on 14 April 2021.1 Body Corporate 197281 (the Body Corporate) opposes that interlocutory application.
[2]In the judgment I:
(a)entered summary judgment against the Body Corporate for payment of a debt under a construction contract of $2,826,299.65 plus contractual interest on that sum (the Summary Judgment Decision);
(b)granted the Body Corporate’s application for a stay of enforcement of the summary judgment pending resolution of the Body Corporate’s counterclaim, or further order of the Court (the Stay of Enforcement Decision); and
(c)declined SRG’s application for a stay of the Body Corporate’s counterclaim based on the arbitration clause in the construction contract (the Arbitration Clause Decision).
[3] SRG seeks leave to appeal the Stay of Enforcement Decision and the Arbitration Clause Decision. SRG contends that its proposed appeal concerns errors of law that are capable of bona fide and serious argument. It further argues that the errors of law are of general and public importance; and that any delay to the Body Corporate’s counterclaim would not be material and is justified.
[4] SRG sought to be heard on its application. The Body Corporate did not consider an oral hearing to be necessary. I have determined the application on the papers.
1 Hellaby Resource Services Ltd v Body Corporate 197281 [2021] NZHC 554.
[5] The Body Corporate has indicated that it will cross-appeal the Summary Judgment Decision if SRG is granted leave to appeal.2 It does not require leave to do so.
Considerations relevant to determining whether to grant leave
[6] In Greendrake v District Court of New Zealand3 the Court of Appeal agreed with the observation of Fitzgerald J in Fine Wood Upholstery Ltd v Vaughan4 that the requirement for leave to appeal should serve as a “filtering mechanism” to ensure that unmeritorious appeals of interlocutory orders, or appeals of interlocutory orders of no great significance to the parties or, more generally, do not unnecessarily delay the proceedings in which the orders are made. The Court of Appeal noted that Fitzgerald J recognised the following considerations as relevant to an application for leave to appeal:
(a)a high threshold exists;
(b)the applicant must identify an arguable error of law or fact;
(c)the alleged error should be of general or public importance warranting determination, or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;
(d)the circumstances must warrant incurring further delays; and
(e)the ultimate question is whether the interests of justice are served by granting leave.
2 Joint memorandum of counsel dated 21 June 2021.
3 Greendrake v District Court of New Zealand [2020] NZCA 122 at [6]. Applied subsequently in Collier v Ngāti Rehua-Ngāti Wai ki Aotea [2020] NZCA 536 at [14]; and Gong v Commissioner of Police [2020] NZCA 598 at [8]–[9].
4 Fine Wood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13]. Applied in Greenfields Internet Ltd v Rural Networks South Island Ltd [2019] NZHC 645 at [10] and [12].
[7] In Li v Chief Executive of the Ministry of Business, Innovation and Employment (No 2), Palmer J considered the authorities and suggested that leave is likely to be granted if:5
(a)the appeal is not likely to be overtaken by the substantive hearing or cannot otherwise be considered as effectively in a substantive appeal;
(b)the appellant is likely to be prejudiced by postponement to the substantive appeal;
(c)the appeal may be dispositive of the case in law or as a practical matter;
(d)the arguments are capable of bona fide and serious argument;
(e)the issue concerns a decision of enough significance to the parties, or a question of law or general principle of sufficient importance to outweigh the cost and delay of an appeal.
[8] Leave is more difficult to obtain when the appeal involves a challenge to an exercise of discretion. In that situation, the appellant must show that the judge made an error of law or principle, failed to consider a relevant matter or considered an irrelevant matter, or was plainly wrong.6
[9] I will consider each decision separately against these principles, as they involve different considerations.
The Stay of Enforcement Decision
Are there arguable errors of law and fact?
[10]The errors contended by SRG can be summarised as follows:
5 Li v Chief Executive of the Ministry of Business, Innovation and Employment (No 2) [2018] NZHC 1171, [2018] NZAR 1134 at [21]. Applied in Greenfields Internet Ltd v Rural Networks South Island Ltd [2019] NZHC 645 at [11]–[12].
6 Collier v Ngāti Rehua-Ngāti Wai ki Aotea [2020] NZCA 536 at [14].
(a)I erred in finding that the Court’s discretion under r 17.29 to prevent a substantial miscarriage of justice, or the Court’s inherent jurisdiction, permitted me to grant a stay of enforcement of the summary judgment prior to determination of a counterclaim, as such a finding is inconsistent with and frustrates the purpose of s 79 of the Construction Contracts Act 2002 (CCA).
(b)I erred in concluding that the circumstances of the case were not typical of those that the CCA (and s 79 in particular) was designed to address.
(c)When assessing whether a substantial miscarriage of justice would result if the summary judgment were enforced, I erred by:
(i)incorrectly applying a lower threshold than that required by r 17.29;
(ii)not giving enough weight to the shortcomings in the Body Corporate’s evidence of financial hardship, including that a proportion of the debt could be met through MBIE’s financial assistance payment, some unit holders had secured litigation funding for a separate claim against the second defendant, and the Body Corporate had a building warranty insurance policy;
(iii)giving weight to the fact that the appellant is owned by an Australian company and would account to Hellaby for the recovery, and giving insufficient weight to the fact that the appellant is in trade;
(iv)giving no or insufficient weight to the evidence of Maynard Marks and HOBANZ rebutting the allegations of the Body Corporate in its counterclaim, and thereby concluding that the counterclaim is credible.
[11] The Body Corporate submits that the Stay of Enforcement Decision relates to the right to enforce, rather than whether judgment ought to have been entered. It says that different considerations apply on an application for stay of enforcement, and entitlement to a stay is not excluded by the CCA. It contends that the principles covering applications for a stay of enforcement are well-settled and were correctly applied in my decision.
[12] In terms of my application of the test for substantial miscarriage of justice, the Body Corporate submits that I did not apply the lower threshold contended by SRG; and that much of SRG’s submission is simply a repeat of the arguments made at the hearing.
[13] A decision to grant a stay of enforcement is a discretionary decision. In finding that a substantial miscarriage of justice was likely to result, I considered the risk that the Body Corporate would be unable to advance its counterclaim if judgment was enforced against it. I considered other contextual factors, including the sale of TBS and the fact that it was enforcing the debt for Hellaby pursuant to an assignment, the significant sum the unit owners had already paid, the original contract value and the Body Corporate’s evidence that there still existed defects in the building. I arrived at my decision based on all these factors in the round. I do not accept that SRG’s challenges to the weight I gave to different factors ([10](c)(ii)(iii) and (iv) above), or to my assessment that the circumstances were not typical of those contemplated by the “pay now argue later” scheme of the CCA ([10](b) above), present compelling grounds for leave to appeal.
[14] However, there is a question of principle involved, highlighted by SRG at [10](a) above. That is: is the Court permitted to exercise its discretion to stay enforcement of a judgment delivered under the CCA pending determination of a counterclaim by the liable party, if the Court concludes that, in all the circumstances, enforcement would be likely to cause a substantial miscarriage of justice? Or, does the CCA, particularly s 79, prevent the Court from doing so?
[15] My decision was aligned with the submissions the Body Corporate now makes. I did not consider that the Court’s discretion under r 17.29 or pursuant to its inherent
jurisdiction was constrained by the CCA; and I drew the distinction between judgment being entered under the CCA and the right to enforce judgment once given (to which the Stay of Enforcement Decision relates). However, I accept that a contrary argument could be mounted: that to stay enforcement of a judgment until a counterclaim is determined is, in a practical sense, “to give effect to” the counterclaim (which s 79 precludes). On that basis, I find that SRG has identified a potential error of law.
Are the arguable errors of general and public importance?
[16] SRG submits that the stay decision appears to be the only authority granting a stay of enforcement of summary judgment in respect of a CCA debt pending the determination of a counterclaim. SRG contends that the decision (and any appeal from it) will have significant precedential value in establishing the approach that a Court should take when determining stay applications, and that commercial parties (i.e. contractors and principals) are likely to take guidance from the decision.
[17] The Body Corporate submits that the decision does not have the general or public importance contended by SRG as it was based on extraordinary circumstances which are unlikely to be repeated. The Body Corporate contends that the factual circumstances underlying the proceeding confine their effect.
[18] I accept that the potential error identified by SRG has some precedential value, although not to the degree contended. The decision is discretionary, and my finding of a likely substantial miscarriage of justice was based on the factual circumstances present in this case. However, the decision does leave open the door to the Court staying enforcement of judgments for debts arising under the CCA pending determination of a counterclaim by the liable party, where the Court is satisfied that a substantial miscarriage of justice will result if enforcement is not stayed. SRG says that is wrong in principle; and the Court is precluded from doing so by the CCA. I do not agree, but the point is capable of argument and it is a question of some general significance.
Is the delay justified? Where does the justice lie?
[19] The parties’ submissions on delay focus on the potential effect of an appeal on the Body Corporate’s counterclaim. An appeal of the Stay of Enforcement Decision will not delay the Body Corporate’s counterclaim. If leave is granted, the Body Corporate will be incur the cost of arguing the appeal. However, that factor is outweighed by the considerations discussed above, namely the potential error of law and its general significance.
The Arbitration Clause Decision
Are there arguable errors of law and fact?
[20]SRG’s submissions can be summarised as follows:
(a)I erred in my interpretation of the dispute resolution provisions in s 13 of the General Conditions of Contract (NZS3910:2013) in the construction contract between SRG and the Body Corporate, in particular by finding that a principal is free to pursue court proceedings without reference to the contractual disputes provisions after the one month anniversary of the final payment schedule, and therefore concluding that the dispute resolution process had ceased to be operational after that date.
(b)I erred in concluding that an arbitration agreement can be inoperative or incapable of performance on the basis that a pathway to arbitration is available but is nonetheless considered theoretical and not being contemplated by the parties.
[21] The Body Corporate submits that I applied settled law, and that there is no arguable error of law or fact worthy of appeal.
[22] I do not agree that the law is well settled on this point. I was referred to only two decisions of the High Court concerning the question of whether an arbitration agreement in a construction contract is inoperative and incapable of being performed once construction has concluded. One (Minister of Education v PXA) concerned a
different standard form contract and therefore different dispute resolution provisions. The other (Miro Property Holdings Ltd v Fletcher Construction Co Ltd) involved a different set of facts, where a final payment schedule had not been issued. As a result, neither case was on all fours with the situation before me. The obiter comments of the Court of Appeal in Blaine v Evan Jones Construction Ltd were of limited assistance for the reasons stated in my judgment.
[23] I reached my decision based on my interpretation of the dispute resolution provisions in s 13 of the General Conditions of Contract (NZS3910:2013). In doing so, I rejected SRG’s submission that because the dispute resolution process could be “re-enlivened” after the one month anniversary of the final payment schedule by an adjudication determination under the CCA, the arbitration agreement remained operative. I found that such an interpretation was inconsistent with the intention of the parties expressed in the construction contract, namely that the mandatory nature of the contractual dispute resolution process would end one month after the final payment schedule was issued. However, I accept that the contrary view propounded by SRG is capable of serious argument. I find therefore that SRG has identified an arguable error of law.
Are the arguable errors of general and public importance?
[24] SRG submits that NZS3910:2013 is a leading standard form of contract in the construction industry and the proper interpretation of the dispute resolution machinery in s 13 of NZS3910:2013 is of general and public importance. It contends that the decision has significant precedential value, and commercial importance, in terms of the correct approach to s 13 in the circumstances where more than one month has passed since the issuing of the final payment schedule.
[25] The Body Corporate submits that the decision does not have significant precedential value. It argues that I applied settled law and the unique factual circumstances confine the precedential effect.
[26] I accept SRG’s submissions on this point. The law is not settled; in fact, there is a dearth of authority on the subject. My decision involved a finding of principle: that the dispute resolution process in NZS3910:2013 is no longer mandatory after a
certain event (and the existence of a right to adjudication under the CCA does not alter that position). That principle has potentially significant precedential value and commercial importance.
Is the delay justified? Where does the justice lie?
[27] SRG submits that an appeal of my judgment would not materially delay the Body Corporate’s counterclaim; or be overtaken by the counterclaim. It argues that the counterclaim should not in any case continue in the current proceeding, given s 79. Further, the counterclaim is at a very early stage with no substantive steps having been taken since it was filed in September 2020. SRG says that any delay resulting from an appeal would be justified, having regard to the importance of the issues.
[28] The Body Corporate highlights the delay that has plagued this proceeding by the various interlocutory applications filed; and submits that the prospect that another
12 months may be lost while the matter is taken on appeal is a significant countervailing factor. It submits that the interests of justice require that the parties engage in the current proceedings (the counterclaim).
[29] Any delay to determination of the Body Corporate’s counterclaim would be unfortunate and weighs against granting leave. However, it does not necessarily follow that the counterclaim will be delayed by an appeal. SRG would need to successfully obtain a stay of the counterclaim pending the appeal outcome. There are credible arguments against a stay, including that there are other defendants involved and the counterclaim is reasonably complex and at an early stage so is unlikely to overtake the appeal.
[30] To SRG’s point that the counterclaim should not continue in the current proceeding anyway given s 79 of the CCA, that issue is now moot. SRG’s claim to the debt under the construction contract has been decided in the Summary Judgment Decision. The counterclaim continues as an independent proceeding under the same CIV number.7
7 See Hellaby Resource Services Ltd v Body Corporate 197281 [2021] NZHC 1329 at [22].
[31] Overall, I consider that the potential for delay to the Body Corporate’s counterclaim is outweighed by the general importance of the issues raised. The argument made by SRG concerning the dispute resolution provisions in the construction contract is novel, genuinely arguable and worthy of consideration by an appellate court.
Result
[32] SRG has leave under s 56(3) of the Senior Courts Act 2016 to appeal my decision:
(a)granting the Body Corporate’s application for a stay of enforcement of the summary judgment pending resolution of the Body Corporate’s counterclaim, or further order of the Court; and
(b)declining SRG’s application for a stay of the Body Corporate’s counterclaim based on the arbitration clause in the construction contract.
Associate Judge Gardiner
Solicitors:
Farry & Co, Auckland Bell Gully, Auckland
R J Hollyman QC, Auckland A Galbraith QC, Auckland
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