Wellington Developments Limited v Cannon Point Development Limited

[2024] NZHC 1798

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2024-485-384

[2024] NZHC 1798

UNDER

the Construction Contracts Act 2002 and Part 7 of the High Court Rules 2016

IN THE MATTER

of an application for an interim injunction

BETWEEN

WELLINGTON DEVELOPMENTS LIMITED

Applicant

AND

CANNON POINT DEVELOPMENT LIMITED

Respondent

Hearing:	On the papers
Counsel:	J Sumner for the Applicant
Judgment:	4 July 2024

(REDACTED) JUDGMENT OF GORDON J

This judgment was delivered by me on 4 July 2024 at 10 am, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:

Ford Sumner, Wellington

WELLINGTON DEVELOPMENTS LTD v CANNON POINT DEVELOPMENT LTD [2024] NZHC 1798 [4

July 2024]

[1]The Registrar has referred this file to me in my capacity as Duty Judge.

[2]        The applicant, Wellington Developments Ltd (WDL) has made an application dated 2 July 2024 on a without notice basis seeking an interim injunction for retentions totalling $94,131.88 (including GST) to be placed by the respondent, Cannon Point Development Ltd (CPDL), into the trust account of Ford Sumner Lawyers’ Westpac Bank trust account (application).

[3]        The retentions are presently held by CPDL pursuant to a construction contract for civil works.

[4]        WDL says the application seeks to have the status quo maintained, namely that WDL’s retentions are held on trust so as to ensure that the retentions cannot be misapplied or dissipated by CPDL before a determination is made by an adjudicator regarding the release of the retentions.

[5]        WDL’s position is that the retentions should be released in full without set-off due to what it says was the repudiation of the contract between the parties which lead to cancellation of the contract on 12 January 2024. A Notice of Adjudication has been served on CPDL seeking a determination by way of adjudication on this issue.

Background

[6]        WDL has filed a memorandum of counsel dated 2 July 2024 and an affidavit of Guodong Sun, a director of WDL, sworn 2 July 2024 in support of the application. WDL has also filed an undertaking as to damages. Out of an abundance of caution WDL has also filed a draft statement of claim and notice of proceeding. Of relevance to the application, the second cause of action alleges breach of contract by failing to release retentions.

[7]        The background, in summary, is that in late 2021 WDL entered into an informal arrangement with CPDL to carry out bulk earthworks and associated works on CPDL’s development site in Upper Hutt (the Development).

[8]        The contract works were described as Stage 1 and Stage 2 with the stages being carried out sequentially. The Development is still incomplete.

[9]        Mr Sun says as a result of a high degree of trust between him and the developer, Simon Zhang, there was no written contract between WDL and CPDL for Stage 1. Due to the requirements of CPDL’s financiers, a written contract was entered into between WDL and CPDL for Stage 2.

[10]      On 20 September 2022 WDL and CPDL entered into the NZS 3910:2013 form of contract with amendments to undertake the Stage 2 earthworks and civil works for the Development for a sum of $2,844,627.00 (the contract).

[11]      Retentions totalling $81,853.81 plus GST1 (the retentions) were withheld by CPDL from WDL’s contract payments for Stage 2, as security for any defects in WDL’s performance.

[12]      Mr Sun says that by November 2023 WDL was owed substantial sums of money. WDL was aware CPDL was under financial pressure and was or had been in default of its funding. CPDL then took the point that WDL had been overpaid and it refused to make payment of certified amounts to WDL.

[13]      Mr Sun says by January 2024 WDL was still owed substantial amounts and it was clear CPDL was under financial strain. He says at this time they learnt that another contractor had been appointed to take over WDL’s contract works.

[14]      Mr Sun says that they did not receive any notices of default. The only written notice they received notifying them that the contract arrangements were at an end was from the appointed contract administrator, Mr Nand of Vecta Ltd, by way of an email exchange.

[15]      WDL’s position is that this was a repudiation of the contract which means that its retentions are due and owing without deduction and WDL intends to initiate adjudication proceedings seeking the release of the retentions.

1      The GST inclusive amount is $94,131.88.

[16]      On 12 January 2024 WDL’s solicitors issued a letter confirming that the remaining contract for what was described as Stage 2 works was cancelled.

[17]      On 19 March 2024 CPDL pre-emptively served a Notice of Adjudication on WDL and the parties engaged in adjudication before Stuart Robertson (the first adjudication).

[18]      The key issue for determination in the first adjudication was whether WDL had been overpaid by CPDL, and, if so, whether it was required to make any repayment.

[19]      On 31 May 2024 Mr Robertson issued his determination dated 29 May 2024. He determined WDL had not been overpaid by CPDL in the amount of $1,184,370.28 (including GST), as alleged by CPDL. Mr Robertson in fact assessed that WDL had been underpaid by $510,854.95 (including GST).

[20]      Mr Robertson also determined the correct amount of retentions which could be held by CPDL was $81,853.81.

[21]On 4 June 2024, following the first adjudication, WDL wrote to CPDL seeking:

(a)a proposal from CPDL for payment for the amount owing; and

(b)payment of the retentions into its solicitors’ trust account within three working days because of the risk that these would be dissipated.

[22]      On 12 June 2024 CPDL’s solicitors advised that they did not consider it necessary for the retentions to be placed into WDL’s solicitors’ trust account and would not be making a proposal. However, they advised they would seek instructions regarding placing retentions into their trust account.

[23]      On 18 June 2024 WDL requested CPDL’s confirmation that the retentions had been secured in a solicitor’s trust account by 12 pm on 19 June 2024. WDL advised that an interim injunction requiring placement of the retentions into Ford Sumner Lawyers’ trust account would be sought urgently if CPDL did not provide the confirmation sought.

[24]      As earlier noted, WDL’s position is that the effect of the alleged repudiation is that its retentions should be released in full. It is adjudicating under the Construction Contracts Act 2002 (CCA) on this issue. This is the second adjudication. Mr Sun annexes a copy of the Notice of Adjudication to his affidavit.

[25]      Mr Sumner, counsel for WDL, submits that the appropriate course of action is to have the retentions held in an independent lawyer’s trust account until the issue of whether these are due to be released is resolved by adjudication.2

[26]      Mr Sumner notes that the orders sought allow for the retentions to be released if the matter is resolved by an adjudication, arbitration or agreement of the parties. He says that although it is WDL’s intention that the matter be resolved by an adjudication, it has allowed for the matter to be resolved in other forums so that further order of the Court is not required if, for example, the parties agree that the retentions should be released or an expedited arbitration is agreed.

[27]      Mr Sumner further notes that under subparts 2A of the CCA retentions are deemed to be held on a statutory trust. This creates a mandatory trust arrangement from the moment that any moneys are withheld as retentions.

[28]      Regarding WDL’s requests to  ensure  that  the  retentions  were  set  aside  Mr Sumner notes:

(a)On 10 May 2024 CPDL provided evidence that the funds were held in a current business account but there was no evidence of any transaction or records. Mr Sumner submits there is nothing preventing CPDL from transferring money out of this account which is an everyday business account.

(b)The written requests on 4 June 2024 and 18 June 2024 that the retentions be placed in an independent solicitor’s trust account have not been responded to. CPDL has failed and/or refused to do this.

2      Hawkins Ltd v Elizabeth Properties Ltd [2024] NZHC 561.

Interim injunctions – the law

[29]      The law in relation to interim injunctions is well-settled. The Court can grant an interim injunction upon application under r 7.53 of the High Court Rules 2016 (HCR). The Court applies the following tests:

(a)Is there a serious question to be tried?

(b)Where does the balance of convenience lie?

(c)What is the overall justice of the case?

[30]      An interim injunction includes temporary measures to maintain or restore the status quo pending determination of the dispute; or to provide a means to preserve assets out of which a subsequent award may be satisfied.3 The term “status quo” refers to a situation which should be maintained or restored pending determination of the dispute.4

Serious question to be tried?

[31]      Under the NZS 3910 contract it is open for a contractor to cancel for repudiatory breach under the Contract and Commercial Law Act 2017.5

[32]      WDL has an arguable case that the effect of the alleged repudiation and the subsequent termination of the contract is that the retentions must be released to WDL without set-off.

[33]There is accordingly a serious question to be tried.

Balance of convenience

[34]      I accept the balance of convenience favours granting the interim injunction for the following reasons. First, an order will maintain the status quo for the retentions.

3      Safe Kids in Daily Supervision Ltd v McNeill [2012] 1 NZLR (HC).

4 At [26].

5      Customs Street Hotel Ltd v Plus Construction NZ Ltd [2018] 3 NZLR 34.

Second, there should be no harm to CPDL in giving effect to the order as it will simply be transferring funds which it otherwise cannot use for its own purposes from one account to another. Third, if the order is not made there is the potential for harm to WDL if the funds are misapplied or dissipated. There is a basis for this concern given that in accordance with the first arbitration WDL is owed at least $510,854.95 (including GST).

Overall justice

[35]      Mr Sun expresses his significant concerns regarding the financial viability of CPDL. In other words, if the injunction is not granted WDL may not be able to recover its retentions. Mr Sun’s concerns arise from the fact that CPDL was unsuccessful in the first adjudication in claiming an alleged overpayment and since the first adjudication it has been unable to pay WDL the amount assessed by the adjudicator, Mr Robertson, as being underpaid to WDL.

[36]      The application can be viewed on the basis that WDL is the beneficial owner of the retentions. What it is in effect asking is for its own property to be set aside and protected.

[37]I consider the overall justice favours the grant of an interim injunction.

Relief sought on a without notice basis

[38]      WDL relies on r 7.23(2)(a)(i), namely that requiring it to proceed on an on notice basis, would cause undue delay or prejudice to it because it says it will be unable to recover its retentions given its serious concerns that CPDL will misapply or dissipate the retentions.

[39]      Having regard to the background that I have already mentioned, namely CPDL’s underpayment of WDL and its subsequent non-payment of the amount owed, and the failure or refusal of CPDL to place the retentions in an independent solicitor’s trust account, I accept that it is in the interests of justice for the matter to proceed on a without notice basis.

Result/orders

[40]I make the following orders:

(a)That the applicant’s retentions totalling $94,131.88 (including GST) be placed by the respondent, Cannon Point Development Limited (the respondent), into the trust account of Ford Sumner Lawyers Westpac Bank trust account number [redacted] within 24 hours of this order being served on it and held on interest bearing deposit pending:

(i)further order of this Court, an adjudicator or arbitrator; or

(ii)agreement in writing between the parties.

(b)The respondent to pay the costs of and incidental to the application.

[41]      The Court is conscious that CPDL has not been heard in response to the application. Accordingly, I list the application for call in the Judge’s Chambers List at 10 am on Monday 8 July 2024.

Gordon J