Street and Cook Construction Company Ltd v Cambridge Terraces Ltd
[2023] NZHC 1673
•30 June 2023
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2022-409-613
[2023] NZHC 1673
BETWEEN STREET AND COOK CONSTRUCTION COMPANY LTD
CreditorAND
CAMBRIDGE TERRACES LTD
Debtor
CIV-2023-409-18 BETWEEN
CAMBRIDGE TERRACES LTD
PlaintiffAND
STREET AND COOK CONSTRUCTION COMPANY LTD
Defendant
Hearing: 28 March 2023 Counsel:
G M Brodie and B M Saegers for Street and Cook Construction A D Marsh for Cambridge Terraces
Judgment:
30 June 2023
JUDGMENT OF BREWER J
This judgment was delivered by me on 30 June 2023 at 4 pm pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors:
B M Saegers (Christchurch) for Street and Cook Construction Company Ltd Kearneys (Christchurch) for Cambridge Terraces Ltd
STREET AND COOK CONSTRUCTION COMPANY LTD v CAMBRIDGE TERRACES LTD [2023] NZHC 1673 [30 June 2023]
Introduction
[1] Street and Cook Construction Company Ltd (SCC) and Cambridge Terraces Ltd (CTL) are embroiled in a dispute about the performance of a construction contract. SCC built an apartment complex for CTL.
[2]The dispute is subject to the Construction Contracts Act 2002 (the Act).
[3] On 27 July 2022, an adjudicator made a determination in SCC’s favour in the sum of $485,542.50 plus interest at the rate of $135.37 per day from 28 July 2022. The determination was entered as a judgment in the District Court on 13 September 2022 and was transferred to this Court on 22 December 2022.
[4] SCC took prompt steps to collect the judgment sum. It obtained a freezing order against a related company of CTL in respect of two of the apartments in the complex and it commenced liquidation proceedings against CTL. These matters were resolved when CTL paid $500,000 into a solicitors’ trust account (the Kearneys fund) on an undertaking.
[5] For its part, CTL referred numerous matters relating to SCC’s performance of the construction contract to the engineer for formal decisions.1 In the period 23 August 2021 to 28 September 2022 the engineer made a number of formal decisions in favour of CTL. The sum of the monies covered by the formal decisions is $463,019.59.
[6]SCC obtained an interim charging order against the Kearneys fund.
[7]CTL commenced summary judgment proceedings against SCC.
[8]This Judgment determines two applications:
(a)SCC’s application for orders making the interim charging order absolute and directing that the Kearneys fund be paid to it.
(b)CTL’s application for summary judgment in which it seeks:
1 As provided for by cl 13.2.4 of the construction contract.
(i)A declaration that the formal decisions are final and binding on the parties pursuant to clause 13.2.4 of the contract.
(ii)Alternatively, a declaration that until such time as an arbitrator makes an award, pursuant to the formal decisions the plaintiff has a set-off to any sums claimed by the defendant in the sum of $463,019.59, and that after such an award is made, a set-off to the extent as determined by the arbitrator.
Issue
[9] The determinative issue in these proceedings is whether the Kearneys fund can be the subject of a final charging order. If it can be, then SCC is entitled to succeed. If it cannot be, then CTL’s application must be determined on its merits.
The parties’ arguments
[10] It is not really disputed that due to the operation of ss 22 and 23 of the Act,2 SCC’s proceedings to recover the monies provided for in its judgment against CTL is covered by s 79 of the Act:
In any proceedings for the recovery of a debt under section 23 …, the court must not give effect to any counterclaim, set-off, or cross-demand raised by any party to those proceedings other than a set-off of a liquidated amount if—
(a)judgment has been entered for that amount; or
(b)there is not in fact any dispute between the parties in relation to the claim for that amount.
[11] The situation, therefore, is that SCC has a judgment debt against CTL for the amount of the adjudicator’s determination. It can be enforced in this Court against CTL. The Kearneys fund is CTL’s fund. It is held pursuant to an undertaking dated 17 October 2022:
2 In Mr Marsh’s written submissions he argues that s 23 does not apply because SCC has decided not to pursue the arbitration and, therefore, there is “not in fact any dispute”. During the hearing, Mr Marsh did not seriously advance written submissions on the application of s 23. I think it clear that ss 22 and 23 do in fact apply and, therefore, the primary dispute was limited to applicability of s 79.
I undertake to hold the sum of $500,000 in my trust account in the name of Cambridge Terraces Limited until the further order of the court, or the decision of an arbitrator or the agreement of the parties.
[12] SCC has an interim charging order against the Kearneys fund, submits that there is no reason why the order should not be made final, and asks that the Court use its inherent jurisdiction to direct the fund be paid to it.
[13] Before I go further, I will address the Court’s jurisdiction to direct payment of the Kearneys fund to SCC.
[14] The High Court does not have a specific garnishee procedure (unlike the District Court).3 Enforcement of a judgment or order is covered by Part 17 of the Rules. A charging order is one of seven4 enforcement methods:5
A charging order charges the estate, right, title, or interest of the liable party in the property described in the order with payment of the amount for which the entitled party may obtain or has obtained judgment.
[15] The problem for SCC is that a charging order is not a method of directly enforcing a judgment.6 It preserves or holds property to enable some other order to be obtained, such as a sale order.7 But none of the other orders really work where the interest charged is a sum of money held in a solicitor’s trust account.
[16] In my view, where the rules provide for a remedy (a charging order) but no clearly appropriate means of gaining the benefit of it, then it is appropriate to use the Court’s inherent jurisdiction to fill the lacunae.8
[17] If I find that the Kearneys fund is available to be paid to SCC then I will grant its application to have the interim charging order made final and I will direct that the Kearneys fund be paid to SCC.
3 District Court Act 2016, s 180.
4 High Court Rules 2016, r 17.3.
5 Rule 17.40(1).
6 Jessica Gorman and others McGechan on Procedure (online ed, Brookers) at [HR17.40.03(3)], citing Gate v Sun Alliance Insurance Ltd (1996) 9 PRNZ 568 (HC) at 572.
7 See r 17.60.
8 See, for example, De Alwis v Chean HC Auckland CIV-2007-404-5357, 31 March 2010 at [31]– [34]. Justice Wylie invoked inherent jurisdiction to make similar orders.
[18] I come now to CTL’s case as to why the Kearneys fund is not available to be paid to SCC but, rather, its application for summary judgment should be granted.
[19] CTL submits that the Kearneys fund is not “due or accruing to” CTL. It is held on an undertaking pending the resolution of the substantive disputes between the parties. The fund should not have been the subject of the interim charge and cannot be the subject of a final charging order.
[20] CTL points to the negotiations between the parties which led to the establishment of the Kearneys fund and the formulation of the undertaking upon which it is now held.
[21] There have been several undertakings pertaining to the Kearneys fund. The first undertaking, dated 14 September 2022, was:
I undertake that the sum of $465,910.61 of the net sale proceeds of Units 1 and 4, 243 Cambridge Terrace, Christchurch by BBH Services Limited will be held on trust for Street and Cook Construction Company Limited and Cambridge Terraces Limited pending resolution of the disputes between Street and Cook Construction Company Limited and Cambridge Terraces Limited, a Court Order, or otherwise as agreed between Street and Cook Construction Company Limited and Cambridge Terraces Limited.
[22] Subsequently, the parties agreed that $500,000 would be transferred into an account in the name of CTL so that the freezing order could be discharged. On 14 October 2022, the undertaking given was:
I undertake to hold the sum of $500,000 in my trust account in the name of Cambridge Terraces Limited pursuant to the varied freezing order dated 16 September 2022.
[23] This form of undertaking was emailed by Mr Marsh to Mr Brodie on 14 October 2022 with the following text:
Hi Geoff,
I am advised that the funds held by Kearneys on trust are now held in the name of Cambridge Terraces Limited.
Amanda Rigg of Kearneys has provided the attached undertaking. Do you wish to have this changed now that the freezing order is to lapse? That said, we could potentially continue to simply hold it in accordance with those terms even though it has lapsed.
[24]Mr Brodie replied, shortly afterwards:
Andrew,
The best thing would be for the undertaking to be to hold the fund until the further order of the court or the decision of an arbitrator or the agreement of the parties. The freezing order can then lapse at 5.00 pm today.
[25] This led to the current undertaking given on 17 October 2022 and set out at [11]. I repeat it for ease of reference:
I undertake to hold the sum of $500,000 in my trust account in the name of Cambridge Terraces Limited until the further order of the court, or the decision of an arbitrator or the agreement of the parties.
[26] Mr Marsh refers me to the affidavit of Mr Mackinnon (a director of CTL) sworn on 26 January 2023 in which he deposes:9
In addition, the intention of the undertaking was that the amount of
$500,000.00 would be held on trust pending the final resolution of the disputes between the parties. It has always been clear to the applicant that the sums held on trust are held pending the ultimate resolution of the disputes between the parties. That has always been my sole concern and the intention behind the undertaking.
[27] Mr Marsh also points to the fact that by the time the undertaking of 17 October 2022 was given the parties had agreed to go to mediation on the disputes arising from the construction contract. CTL expected the Kearneys fund to be held until the conclusion of the mediation. However, after the undertaking was given, SCC said it could not attend the mediation at the scheduled time.
[28] Mr Brodie for SCC submits that there is no evidence that SCC ever agreed that the Kearneys fund was not available to it to satisfy its final judgment. To the contrary, SCC at all times pursued its remedies. The wording of the undertaking specifically refers to a Court order.
[29] In my view, although CTL may well have wanted the Kearneys fund to be held until the engineers’ formal decisions were finally arbitrated, that is not what the undertaking says. The Kearneys fund came into existence because CTL had to
9 At 15.
demonstrate solvency if it was to oppose successfully SCC’s application to put it into liquidation. Then, it became held in CTL’s name because CTL wanted SCC to discharge its freezing order to permit the sale of the two apartments. SCC was aggressively pursuing the collection of its judgment debt and the freezing order was part of that process. SCC stipulated, and CTL accepted, the wording of the undertaking. At no time did SCC accept that the Kearneys fund was not available to it to satisfy its judgment debt.
[30] I find also that CTL’s application for summary judgment cannot succeed. The first declaration sought is that the engineers’ formal decisions are final and binding on the parties pursuant to clause 13.2.4 of the contract. But cl 13.2.4 provides that a formal decision becomes final and binding only if it is not disputed (through notice of mediation pursuant to cl 13.3 or arbitration pursuant to cl 13.4). Here, on 21 November 2022, SCC gave a valid notice under cl 13.4 requiring arbitration of the engineers’ formal decisions. CTL’s submission is that SCC has stated its intention not to pursue the arbitration.
[31] As CTL’s own pleading makes clear, SCC has not abandoned the arbitration process:10
12.By written notification dated 9 December 2022 the defendant through its Counsel stated that it had “no wish or need to bring an arbitration claim so long as payment is made”. The defendant further stated that its position was that “Cambridge will have to pursue the arbitration if it wishes to”.
13.By subsequent email dated 16 December 2022, the defendant through its Counsel stated that it would only pursue arbitration if its client was not successful in securing payment pursuant to a judgment of the court.
[32] SCC’s position, as disclosed by the correspondence, is that it does not accept the engineers’ formal decisions but that if it succeeds in enforcing its judgment debt in full then it will be for CTL to make the running on the arbitration. So far as SCC is concerned, the arbitration process is still “live”.
10 Statement of claim, dated 26 January 2023.
[33] The alternative declaration sought is that until such time as an arbitrator makes an award, pursuant to the formal decisions CTL has a set-off to the sums claimed by SCC in the sum of $463,019.59, and that after the award a set-off to the extent determined by the arbitrator.
[34] As a result of my factual finding, namely that the arbitration has not been abandoned by SCC, and my contractual interpretation that the engineers’ formal decisions are not final and binding, there is no set-off. Section 79 of the Act applies and there is no applicable exception. CTL’s claim for set-off cannot succeed.
Decision
[35] SCC’s application for an order that the interim charging order made on 20 December 2022 be made a final charging order is granted.
[36] I make an order that Amanda Rigg, pursuant to her undertaking of 17 October 2022, pay to Street and Cook Construction Company Ltd from the Kearneys fund the sum of $484,552.57 together with interest at the rate of $135.37 per day calculated from 28 July 2022.
[37]CTL’s application for summary judgment is dismissed.
[38] SCC is entitled to costs. It is to file its memorandum by 4 August 2023. CTL is to respond by 1 September 2023.
Brewer J
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