Target Painters & Decorators Limited v Fehl
[2019] NZHC 3237
•11 December 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1968
[2019] NZHC 3237
BETWEEN TARGET PAINTERS & DECORATORS LIMITED
Applicant
AND
PETER JOHN FEHL
First Respondent
OMID CONSTRUCTION MANAGEMENT GROUP LIMITED
Second Respondent
Hearing: 5 December 2019 Counsel:
M R T Colthart for Applicant
No appearance for First Respondent J D McBride for Second Respondent
Judgment:
11 December 2019
JUDGMENT OF WHATA J
This judgment was delivered by me on 11 December 2019 at 11.00 am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date: ………………………….
Solicitors: Rainey Law, Auckland
Greenwood Roche, Auckland
TARGET PAINTERS & DECORATORS LIMITED v FEHL [2019] NZHC 3237 [11 December 2019]
[1] The applicant, Target Painters & Decorators Limited (Target) seeks to judicially review a decision of an adjudicator on a construction dispute. The adjudicator found in favour of the second respondent, Omid Construction Management Group Limited (Omid), in the sum of $75,129.41. Target claims that the adjudication is flawed because the procedure for commencing the adjudication did not comply with the statutory process for doing so. Omid does not accept that the adjudication process was flawed or wrongly commenced. Furthermore, Omid contends:
(a)the issue has already been determined by the High Court as part of a statutory demand process in respect of the adjudication sum; and
(b)Target is estopped by its conduct from raising jurisdictional complaint because a representative of Target advised the adjudicator at the commencement of the adjudication process that it was happy to proceed.
Background
[2] Both Target and Omid are companies carrying on business as painting contractors. In about March 2018, Target and Omid entered into a contract whereby Omid agreed to undertake certain painting and gib-stopping work as a sub-contractor to Target on three residential apartment development projects:
(a)Soma Apartments, 10-12 McKelvy Street, Grey Lynn;
(b)Lake Pupuke Apartments, 8 Lake Pupuke Drive, Takapuna; and
(c)Library Lane Apartments, 2 Library Lane, Albany.
[3] The contract was entered into by way of verbal agreement made between the managing director of Target, Mr Sid Cheah, on behalf of Target, and the manager of Omid, Mr Omid Rajabi.
[4] The contract was a construction contract, as defined in s 5 of the Construction Contracts Act 2002 (CCA). Between March 2018 and August 2018, or thereabouts, Omid provided the services to the applicant under the contract. Target claims that in or about December 2018, disputes arose between Target and Omid relating to:
(a)amounts Omid claimed were due and owing under the contract;
(b)defects alleged by Target in services carried out by Omid; and
(c)other issues.
[5] Omid denies this. Omid says the only issue between it and Target was Target’s refusal to pay its invoices.
[6] On or about 25 January 2019, Omid served a notice of adjudication in relation to the disputes under the CCA (the notice of adjudication) on Target. This sets out the background to Omid’s claim. The first respondent, Mr Peter John Fehl, also served a document purporting to be a notice of acceptance as an adjudicator (the notice of acceptance) on Target and on Omid. That notice states (among other things):
Acceptance of appointment as adjudicator
I Peter John Fehl accept appointment as adjudicator under section 35 of the Construction Contracts Act 2002 to determine a dispute between Omid Construction Management Group Limited and Target Painters and Decorators Limited, subject to Security of Costs being paid before this acceptance is effective.
…
For the claimant
You, Omid Construction Management Group Limited, must within 5 working days of the Security for Payment being paid in full refer the dispute to the adjudicator by serving a written adjudication claim on the adjudicator…
…
Important: The 5-working day period for providing the adjudication claim has already commenced. If you do not know how to write an adjudication claim, you should consult a lawyer immediately.
(emphasis in original)
[7] Thomas Paul Tootill, Operation Manager of Target responded to that email. He advised the adjudicator, Mr Fehl, that Target would be disputing the claim. But he did not hear anything else on the matter for several months. He thought it had gone away, as did the Mr Cheah. However, Mr Cheah spoke to a quantity surveyor, Mr Richard Littlewood, around May or June 2019, and asked him to draft an adjudication claim against Omid. He said Mr Littlewood prepared a two-page draft notice of adjudication, which is dated 5 June 2019 (the draft notice).
[8] Mr Fehl then sent another email on 26 June 2019 in which he said that he had received Omid’s deposit for security for costs. He also set out time periods within which Omid had to file and serve its claim (Wednesday 3 July 2019) and stated that Target could file its written response five days after receiving the claim. At this time Mr Cheah and Mr Tootill were overseas, so Mr Littlewood was asked to respond which he did on 26 June 2019, wherein he advised that Target had not received an adjudication notice and that Target would prefer to have until 31 July 2019 to respond. Mr Fehl emailed Omid and its solicitors, asking whether it would consent to an extension to 7 August 2019. Omid responded opposing the extension and confirming that a notice of adjudication had been served on Friday, 25 January 2019.
[9]Mr Littlewood responded on 27 June 2019. His email concluded:
I would like to see the Adjudication on Notice and hard copies of the bundle of documents but my wife and I do not get back into NZ until 31 July. The extension would be the fair option but if the adjudicator, as you suggest, feels he has enough documentation to arrive at a determination I am happy to proceed.
[10]Mr Fehl then replied the same day, stating:
As Mr Littlewood has not pushed for an extension for submission of the respondent’s response I confirm that this is to be provided within five working days of receipt of the claimant’s claim.
[11] Mr Littlewood then sent a further email on 28 June 2019 noting that he has no computer nor had he seen the documents from Omid, but that Target’s:
Notice of Adjudication in essence will contain the majority of the response and if you are happy to use this as our response we are happy to run along with it”.
[12] Mr Fehl issued an adjudicator’s determination (the determination) on 25 July 2019. He decided that Target was liable to pay Omid the sum of $75,129.41, including GST within five days of receipt of the determination. Omid issued a statutory demand the following day.
Statutory demand proceedings
[13] Target applied to set aside the statutory demand in this Court on the basis that the adjudicator’s decision, upon which the demand was based, was disputed and subject to these review proceedings. Associate Judge Andrews declined the application. Relevantly, he observed:1
[47] I find that it is clearly and genuinely arguable that the adjudicator exceeded his jurisdiction (acted unlawfully) in amending the prescribed form (2A of the Notice of Acceptance) and suspended the time period for filing an adjudication claim (s 36) to provide that his acceptance was conditional upon the question of security for costs being paid. The error was compounded, arguably, by contradictions in the Notice of Acceptance actually issued, namely the emboldened wording (not amended by the adjudicator) stating that the five-day working period for providing the adjudication claim “has already commenced”.
[48] It is clearly arguable that the Notice of Acceptance was issued contrary to s 35A (“must be in the form prescribed”) and that the five-day period for the adjudication claim to be filed (s 36) cannot be varied either by the agreement of the parties, or by the adjudicator, or by any other means.
[49] In amending the provisions of the prescribed form in the manner he did, the adjudicator acted, arguably, in breach of ss 35A and 36.
[50] I accept the argument of Mr Holmes that under s 35 there is no time limit imposed on an adjudicator as to when he or she must serve a Notice of Acceptance, having indicated, within two days of receiving a request, whether he or she is willing and able to act as an adjudicator (s 35(1)). However, once having elected to serve a Notice of Acceptance, it is clear that the Notice of Acceptance must comply (as s 35A states) with the form prescribed in the Regulations. However, that was not done in this case.
[14]Having identified an arguable error, the Judge then observed:
1 Target Painters & Decorators Ltd v Omid Construction Management Group Ltd [2019] NZHC 2544.
[52] … However, to succeed on judicial review in this case, Target will need to establish that any error of law was material and that, as a matter of discretion, the Court should make an order quashing the determination. In my view the fundamental problem for Target in this case is that it has not produced a sufficient evidential foundation to establish that either of those two matters is genuinely triable for the purposes of satisfying s 290 of the Companies Act.
[53] I accept the submission of Mr Holmes that Target has provided no real evidence as to what its position is on the merits of the dispute underlying the adjudication and/or how the alleged error of law has in any way prejudiced Target (except that it does not like the result and makes the bare assertion that it is wrong). Target participated in the adjudication process, it filed its own draft adjudication claim before the adjudicator setting out its position and indicated, despite the refusal of an adjournment by the adjudicator, that it did not object to the process proceeding on the basis of the submission that it had filed. There is no evidence that the arguable error of law prevented Target from either having its say or that it was precluded from advancing certain critical arguments to the adjudicator.
[54] I thus reject the contention of Mr Colthart that the flawed process of the adjudicator foreclosed important matters from being addressed in the adjudication. There is no evidence to support that assertion, and it was incumbent on Target [to] produce such evidence. To the extent Target is suggesting that the refusal of an adjournment resulted in prejudice, such claim has no merit. There is no challenge to the refusal to grant an amendment in the judicial review proceedings and the adjournment was, in any event, accepted by Mr Littlewood on behalf of Target.
[15]The Judge also noted:
[58] On the evidence before me, I find that the arguable error of law is an abstract one with no real consequence and falls well short of demonstrating some real and substantial countervailing prejudice such that, despite the statutory injunction in s 60 of the CCA, the statutory demand should be set aside. The high threshold of a rare and exceptional case has not been made out.
Statutory frame
[16] Target identifies several alleged problems with the adjudication process, but its primary claim is that the acceptance notice was not in the prescribed form per s 35A(1) of the CCA which states:
35A Notice of acceptance
(1)A notice of acceptance must be in the form (if any) prescribed in regulations made under this Act.
(2)A notice of acceptance that fails to confirm that the adjudicator meets the eligibility criteria for adjudicators under section 34 has no effect.
[17] This is supported by the Construction Contracts Regulations 2003, which provide at reg 5A as follows:
5AInformation that must be set out in adjudicator’s notice of acceptance
The information that, in accordance with section 35A of the Act, is required to be set out in an adjudicator’s notice of acceptance must be in form 2A.
[18] Section 35A of the CCA was inserted as part of a wider scheme of amendments introduced in 2015. One such amendment states:
35 Appointment of adjudicator
(1)A person requested to act as an adjudicator in accordance with section 33 must, within 2 working days of receiving the request, indicate whether he or she is willing and able to act in that capacity.
(2)If the person is willing and able to act as an adjudicator, he or she must serve a notice of acceptance (a notice of acceptance) on the parties to the adjudication and, as the case may be, the nominating body or the authorised nominating authority.
(3)However, if the person has a conflict of interest, he or she must not serve a notice of acceptance under subsection (2) until the parties have confirmed (whether orally or in writing) that they agree to the person acting as an adjudicator.
(4)[Repealed]
(5)[Repealed]
(6)A person is appointed as an adjudicator to determine the dispute on serving a notice of acceptance that complies with section 35A.
[19] As Mr Colthart contended, ss 35 and 35A use mandatory language. The adjudicator must serve a notice in the prescribed form.
[20] The notice of acceptance then triggers the timeframes for the service of the claim, that is five working days from the notice of acceptance. It is therefore a key step in a process designed to “provide for the speedy resolution of disputes arising under the construction contract”.2
2 Construction Contracts Act, s 3.
Principles of judicial review in CCA cases
[21] In Rees v Firth, the Court of Appeal addressed the role of judicial review in CCA cases. The Court said:3
[22] We are satisfied that the CCA as a whole does not require that judicial review be limited to instances of what might be classified as jurisdictional error. In our view, to hold that the availability of judicial review is limited in that way invites unproductive and diversionary debate about whether a particular error is or is not “jurisdictional”. The key point, we think, is that the statutory context is such that a person who does not accept an adjudicator’s determination should litigate, arbitrate or mediate the underlying dispute, rather than seeking relief by way of judicial review of the determination. Such relief will be available only rarely.
[22]And further:
[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 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, of course, to go to mediation).
[23]And further, in terms of discretion:4
This Court has said that, although public law remedies are discretionary, there must be “extremely strong reasons” to decline to grant relief where a public decision-maker is shown to have erred in the exercise of his or her powers. That approach has been criticised as being insufficiently nuanced, although the Court seems to have had in mind situations where it could be shown that there was substantial prejudice to the claimant. In any event, given the discretionary nature of public law remedies, it may be that a more nuanced approach is necessary in the generality of cases. But in the present context, a requirement to show “extremely strong reasons” to deny relief would substantially undermine the CCA’s purpose and scheme. In most — indeed, almost all — cases involving construction contracts it will be preferable for parties to resolve disputes over contractual rights and liabilities by mediation,
3 Rees v Firth [2011] NZCA 668, [2012] 1 NZLR 408.
4 At [48] (citations omitted).
arbitration or litigation, given the non-binding nature of an adjudicator’s determination on such matters, rather than by resorting to judicial review. The courts should be careful not to act so as to encourage parties to construction contracts to take judicial review proceedings rather than utilising other more appropriate alternatives.
An immaterial error
[24] Mr Colthart submits that the acceptance notice should not have referred to Mr Fehl’s security for costs. This, he contends, is not simply a technical error because the entire scheme was modified to remove this very practice. Thus, he says, the acceptance notice was void and the adjudication process derailed at that point. He also says that the consequent delay in commencing the adjudication process totally wrongfooted Target, who were not able to properly respond when notice of adjudication was in fact received in June 2019.
[25] As Associate Judge Andrew noted, the acceptance notice was flawed. It should not have referred to or been conditional on Mr Fehl’s security for costs. This breached the prescriptive requirement at s 35A (1) of the CCA.
[26] It also appears inconsistent with the rationale behind s 35A(1), namely, to stop the practice of making acceptance conditional on a deposit. A reviewable error has therefore been identified. I also accept that the error was evident on the face of the acceptance notice, so it might be said to fall outside the usual assumption that the exercise of a statutory power is valid until set aside by a Court of law.5
[27] But it is an error without any substance in this case. It is abundantly clear that Target:
(a)was aware of Omid’s claim from January 2019;
(b)prepared its own claim prior to the adjudication with the assistance of a suitably qualified quantity surveyor;
(c)was given the requisite notice of the adjudication commencing;
5 See AJ Burr & Co Ltd v Blenheim Borough Council [1980] 2 NZLR 1 (CA) at 4.
(d)sought but did not insist on an adjournment – on the contrary its representative indicated Target was “happy” to go ahead;
(e)filed the draft claim in response to Omid’s claim for consideration by Mr Fehl; and
(f)the draft claim was considered (though it may be that some information did not reach Mr Fehl).
[28] Therefore, there is simply no hint of procedural or substantive unfairness. Conversely, there are strong reasons not to exercise the powers of review even had I identified a material error. The CCA process is purpose-built for speedy resolution. It is a “pay now argue later” regime.6 Omid was, however, hamstrung by the adjudicator’s insistence on advance payment of $5,000. While I am prepared to accept that, in the absence of cross-examination, Messrs Tootill and Cheah had thought the claim had gone away, Target got the benefit of the consequential delay – it did not have to “pay now”.
[29] Furthermore, as Mr Colthart accepted, the adjudicator’s decision does not affect Target’s ability to lodge its own claim which, subject to statutory limitation, may be lodged at any time. When confronted with the fact that Target can still have its day in Court, Mr Colthart explained that Target did not want to have to pay now and recover what it is owed later because it was concerned about Omid’s solvency (or lack thereof). But that concern has little resonance in a context where the impugned adjudication is substantively fair, and the scheme of the Act is “pay now and argue later”.
[30] I am also fortified in reaching this view by the fact that Parliament has expressly provided for when a notice is of “no effect”, that is when the notice fails to confirm that the adjudicator meets the eligibility criteria for adjudicators under s 34. That direction is not applicable in this case.
6 Manchester Securities Ltd v Body Corporate 172108 [2019] NZCA 408 at [25].
[31] In the result, the error was not a material error and even if it was, relief should be declined.
[32] For completeness, Target also complains that the adjudicator was not chosen in accordance with the process laid out by the CCA. While that might be so, like the previous error, any purported irregularity did not convert into any unfairness to Target that might properly engage this Court’s power of review.
[33] Given where I have got to, I see no need to examine the affirmative defences based on issue estoppel.
Outcome
[34]The application is dismissed.
Costs
[35] The first and second respondent are entitled to their costs. I am minded to award costs on a 50 per cent increased basis because this proceeding was evidently deployed to defeat the statutory demand by a side route. However, I have not heard from the parties about this. Submissions, no longer than five pages in length, may be filed if agreement cannot be reached on quantum.
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