Wellington Developments Limited v FMS Construction Limited

[2024] NZHC 27

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

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

CIV-2023-485-000803

[2024] NZHC 27

BETWEEN

WELLINGTON DEVELOPMENTS LIMITED
Applicant

AND

FMS CONSTRUCTION LIMITED

Respondent

Hearing:	24 January 2024
Counsel:	F B Q Collins and F A Hollingworth for Applicant M R C Wolff and A M Cotterill for Respondent
Judgment:	29 January 2024
Reissued:	7 March 2024

JUDGMENT OF LA HOOD J

(Public version with redaction)

An application for interim injunction in the construction contract dispute context

[1]    The applicant, Wellington Developments Ltd (WDL), and the respondent, FMS Construction Ltd (FMS), are parties to a construction contract regarding the redevelopment of a residential subdivision in Porirua (the Contract). WDL are the Contractors providing civil and general contracting services to FMS, a property development company, who are the Principal under the Contract. In place of WDL providing a construction bond securing its performance of the Contract, the parties entered into a specific security deed (the Security Deed) which secured two 20 tonne excavators (the Excavators) valued at approximately $300,000.

WELLINGTON DEVELOPMENTS LTD v FMS CONSTRUCTION LTD [2024] NZHC 27 [29 January 2024]

[2]    The redevelopment project has faced delays, over which the parties are now in dispute. As a result of these delays, on 22 November 2023, FMS purported to terminate the Contract. WDL considered this to be wrongful cancellation constituting a repudiation, and so itself purported to accept the repudiation and cancel the Contract. FMS has since taken steps to enforce the Security Deed by taking possession of one of the Excavators and rendering the other unusable by demobilising it.

[3]    On 18 December 2023, WDL filed the present application seeking an order for an interim injunction to prevent FMS from enforcing the Security Deed by taking possession of the Excavators (the application was later amended to include return of the Excavator already taken and the equipment required to operate the other Excavator). WDL submits that the Security Deed cannot be called upon given what it says was FMS’s wrongful termination of the Contract and, in any event, the parties should complete the dispute resolution process before the Security Deed is enforced. For these reasons, WDL submits an interim measure should be granted to this effect. WDL is also seeking determination of a claim that FMS engaged in misleading and deceptive conduct regarding the tender price and competing bids, but this is not an issue for consideration on this application.

[4]    I conclude below that the application should be granted. I consider there is a reasonable possibility that WDL will succeed on the merits of its claim because there is a reasonable possibility that FMS will be unable to prove that WDL failed to remedy its default under the Contract. I do not consider the commercial and reputational harm to WDL as a result of declining the application would be adequately reparable by an award of damages. I am also satisfied that the harm to WDL substantially outweighs the harm to FMS of having delayed access to the sale proceeds of the Excavators.

How the dispute arose

[5]    Site works began in March 2022. As time went on, delays occurred, the cause of which is in dispute.1 On the basis of these delays, FMS has deducted liquidated damages from WDL’s payment claims since December 2022. As of 20 November

1      For example, WDL says this was due to variations to the Contract and FMS separately commencing other site works.

2023, the deductions for liquidated damages and accrued costs for excess supervision have been calculated by the Engineer to the Contract to be $274,750. There is a dispute about whether there is a proper basis for these deductions.2

[6]    In early 2023, it was agreed that, instead of a standard contractor’s bond, security in the form of a registered interest against the Excavators would be provided. The Security Deed was negotiated at a point in time when the Engineer to the Contract was alleging that WDL was in delays and was threatening to bring in other contractors. At the time of entering the Deed, the combined value of the Excavators was estimated to be approximately $300,000.

[7]    On 30 October 2023, the Engineer to the Contract wrote to FMS certifying that WDL was “persistently, flagrantly or wilfully” neglecting to carry out its obligations under the Contract. As a result, on 3 November 2023, FMS’s solicitors issued WDL with what was purported to be a notice of default under cl 14.2.1(c) of the Contract (the Default Notice). The relevant contractual clauses are discussed further below.

[8]    On 16 November 2023, WDL’s solicitors wrote to FMS’s solicitors advising that WDL believed the Default Notice was invalid because there was no basis on which it could issue. WDL asserted that there were factors outside its control that prevented the progress of the works, and that WDL was also entitled to extensions of time due to variations and other defaults by FMS. FMS was also advised that if it attempted to rely on the Default Notice, WDL would be required to take urgent action, including injunctive action.

[9]    On 22 November 2023, FMS gave notice to WDL that it was terminating the Contract pursuant to cl 14.2.1 (the Notice of Termination).

[10]   On 24 November 2023, WDL responded to the Notice of Termination stating that they considered this to be wrongful cancellation and therefore a repudiation of the Contract. WDL also asserted its belief that the Security Deed could not be enforced. In this letter, WDL sought assurances from FMS that it would not take any action to

2      WDL says that FMS began deducting liquidated damages despite the fact that the Engineer to the Contract had not assessed the impact of contract variations and any time extensions that would be due to WDL as a result.

enforce the Security Deed until all issues had been resolved by arbitration (or by written agreement).

[11]   On 24 November 2023, FMS advised of its intention to take possession of the Excavators on 19 December 2023. The Excavators then had their computer boards removed (demobilising them) and GPS trackers installed by Mr Frank Smith, director of FMS, on 15 December 2023.

[12]   On 29 November 2023, FMS asserted its position that the Contract was validly terminated. FMS also sought confirmation of the location of the Excavators, and that WDL would not sell, lease, dispose of or otherwise deal with the Excavators. The latter was confirmed by WDL on 1 December 2023,3 but WDL did not provide FMS with the location of the Excavators.4

[13]   On 15 December 2023, WDL served a notice of arbitration on FMS. FMS did not respond to this notice.

[14]   One of the Excavators was uplifted on 18 December 2023, which was the same day the application for an interim injunction was filed in the High Court.

[15]   On 21 December 2023, an offer was made by FMS to return the Excavators and release its security over them upon payment by WDL of $230,000 (including GST). It was proposed that the payment be held in a solicitor’s trust account until resolution of the dispute through a truncated arbitration process, to be heard in or before May 2024. This offer was rejected.

The legal principles applicable to interim measures in the context of arbitration

[16]   In essence, WDL seeks an interim measure preventing FMS from enforcing the Security Deed pending completion of the dispute resolution process.

3      Pursuant to cl 6.1(a) it is, in any event, a term of the Security Deed that WDL cannot take such steps without FMS’s written consent.

4      Pursuant to cl 5.1(d), it is a requirement of the Security Deed that WDL advise FMS of the location of the Excavators upon request.

[17]   Clause 13.4 of the Contract provides an agreement to arbitrate. As such, the rules set out in sch 1 of the Arbitration Act 1996 (the Act) apply.5 Under art 9 of sch 1 a party may request, and the court may grant, an interim measure before arbitral proceedings have commenced.6 The ability to grant an interim measure is contained in art 17A, and a court has the same ability as an arbitral tribunal to grant such a measure.7 The power of the court to do so is discretionary.8

[18]Interim measures are defined in the schedule as follows:9

interim measure means a temporary measure (whether or not in the form of an award) by which a party is required, at any time before an award is made in relation to a dispute, to do all or any of the following:

(a)maintain or restore the status quo pending the determination of the dispute:

(b)take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral proceedings:

(c)provide a means of preserving assets out of which a subsequent award may be satisfied:

(d)preserve evidence that may be relevant and material to the resolution of the dispute:

(e)give security for costs

[19]   Article 17B provides guidance as to when an interim measure may be ordered by either a court or an arbitral tribunal:

17B Conditions for granting interim measure

(1)If an interim measure of a kind described in subparagraph (a), (b), or

(c) of the definition of that term in article 17 is requested, the applicant must satisfy the arbitral tribunal that—

(a)harm not adequately reparable by an award of damages is likely to result if the measure is not granted; and

(b)the harm substantially outweighs the harm that is likely to result to the respondent if the measure is granted; and

5      Arbitration Act 1996, s 6(1). It was common ground that the arbitration provisions in the Contract are extant despite the Contract otherwise coming to an end.

6      Schedule 1, art 9(1).

7      Schedule 1, art 9(2).

8      Safe Kids in Daily Supervision Ltd v McNeill [2012] 1 NZLR 714 (HC) at [55] [Safe Kids].

9      Schedule 1, art 17 definition of “interim measure”.

(c)there is a reasonable possibility that the applicant will succeed on the merits of the claim.

(2)If an interim measure of a kind described in subparagraph (d) of the definition of that term in article 17 is requested, the applicant must satisfy the arbitral tribunal of the matters specified in paragraph (1)(a) to (c), but only to the extent that the arbitral tribunal considers appropriate.

(3)If an interim measure of a kind described in subparagraph (e) of the definition of that term in article 17 is requested, the applicant must satisfy the arbitral tribunal that the applicant will be able to pay the costs of the respondent if the applicant is unsuccessful on the merits of the claim.

(4)A determination by the arbitral tribunal on the matter specified in paragraph (1)(c) does not affect its discretion to make any subsequent determination.

[20]   In Safe Kids, Asher J held that a court or arbitral tribunal will “exercise considerable caution before going beyond the considerations specifically set out in art 17B(1)”.10    I agree with that approach.   Each  of the requirements set  out in     art 17B(1)(a)–(c) are considered in turn below.

Is there a reasonable possibility that WDL will succeed on the merits of the claim?

[21]   The most logical approach to WDL’s application is to consider the requirement in art 17B(1)(c) first, being that the applicant must show a “reasonable possibility” they will succeed on the merits of the claim. I agree with Asher J that this requirement is akin to the “serious question to be tried” consideration in the context of interim injunctions.11

The relevant contractual clauses

[22]   WDL and FMS first entered into the Contract on 4 March 2022. The Contract was a ‘standard form’ NZS 3910:2013 contract with some amendments called ‘special conditions’.

10     Safe Kids, above n 8, at [36].

11     Safe Kids, above n 8, at [30].

[23]   Clause 14.2.1 deals with default by the Contractor. As is explained below, it is pursuant to this clause that FMS purported to terminate the Contract. The standard form version of cl 14.2.1 states:12

The Principal may at its option after giving notice to the Contractor either terminate the Contract or resume possession of the Site in the event of:

(a)The Contractor failing to execute the Contract Agreement under 2.6 or provide the Contractor’s Bond under 3.1 where required by the Contract;

(b)The Contractor subletting the whole or substantially the whole of the Contract Works without the consent in writing of the Principal; or

(c)The Engineer certifying in writing to the Principal that in his or her opinion the Contractor has abandoned the Contract or is persistently, flagrantly or wilfully neglecting to carry out its obligations under the Contract,

and the Contractor’s default has not been remedied within 10 Working Days of receiving the notice.

[24]   Dispute resolution procedures are also covered in cl 13 of the Contract, which requires the parties to seek determination of a dispute by the Contract Engineer before a referral to arbitration.13 The applicant’s position is the cancellation of the Contract means the parties are no longer required to comply with the requirement to seek the Engineer’s decision before a referral to arbitration. As the respondent accepts that the matter is now at the point where arbitration is required and available to resolve the dispute,14 there is no need for detailed consideration of compliance with the terms of s 13 in the context of this application.

12 For completeness, I note that the parties also agreed to special conditions providing for additional default events (d)-(e) in cl 14.2.1, but it is only a default under 14.2.1(a)-(c) that meets the definition of “default” in the Security Deed.

13   Under cl 13.2.1, every dispute or difference not specifically precluded under the Contract (and    cl 14.2.1 not being precluded) must be referred to the Contract Engineer. The Engineer is to give their decision regarding the issue in writing. The parties are then able to meet to discuss an amicable resolution, pursuant to cl 13.2.2. Under cl 13.2.4, an Engineer can be asked by either the Principal or the Contractor to give something called a ‘Formal Decision’. The party making the request must state explicitly that they seek a Formal Decision under cl 13.2.4, and the Engineer is required to give their decision within 20 working days. Most relevantly, pursuant to cl 13.4.1, if the Principal or the Contractor is dissatisfied with the Formal Decision under cl 13.2.4 (or no formal decision is given within the time frame provided for in the clause) then either party can, by notice, request that the dispute be referred to arbitration.

14 It was common ground that the arbitration provisions in the Contract  are extant despite  the Contract having come to an end.

[25]   Relevant to this claim is also the default clause set out in the Security Deed, which provides:

7.Default

7.1The Security Interest created by this deed becomes enforceable if the Contractor is in Default and such Default has not been remedied within 10 working days of the Contractor receiving notice to remedy from the Secured Party in accordance with the Construction Contract.

7.2Without prejudice to any other rights the Secured Party may have under this deed or by law, and despite anything to the contrary in this deed, where a default has occurred, the Contractor may not sell, lease, dispose of or otherwise deal with, or permit the sale, lease, disposal of or other dealing with any Secured Property without the Secured Party’s prior written consent.

“Default” is defined in cl 1 of the Security Deed to mean “any event described as a Default in subclauses 14.2.1(a)–(c) and 14.2.2 of the Construction Contract”.

[26]   It is common ground that s 25 of the Construction Contracts Act 2002 applies to the Contract and entitles the parties to proceed to adjudication under that Act. This provision  operates  irrespective  of  any  contractual  agreement  to  arbitrate.  On  15 January 2024, WDL served FMS with a notice of adjudication, seeking a determination on whether the Contract was validly terminated and whether FMS has the right to claim the Excavators. I did not understand FMS to take issue with WDL’s submission  that  this  process  is  likely  to  take  six  to  eight  weeks  to  complete.  I understood it to be common ground that, from the time the adjudicator’s determination is issued, the parties are bound by it until the matter has been determined in another dispute resolution procedure under the Contract, such as arbitration.15

[27]   I therefore accept FMS’s submission that the dispute about possession of the Excavators is unlikely to be resolved by the adjudication process, given it is common ground that the determination only remains final and binding if neither party seeks arbitration. FMS’s position is that it will seek arbitration if the adjudicator’s decision

15 See Construction Contracts Act 2002, ss 26 and 60, and the dispute procedures in s 13 of the Contract. Although it is not entirely clear to me exactly how these provisions interact to reach this result, as it was common ground that they do, I need not consider it futher in the context of an urgent application such as this.

is in WDL’s favour.16 Mr Collins submitted on behalf of WDL that arbitration on the issue of possession of the Excavators would be pointless if the adjudicator’s determination went against WDL; if this was to be the adjudicator’s determination, the Excavators will then be sold by FMS. However, this assumes that in those circumstances WDL will not again seek interim relief under art 17A to prevent a sale of the Excavators pending an arbitral decision.

Is there a reasonable possibility of the claim succeeding?

[28]   The central issue is not whether there has been a default but whether the default “has not been remedied within 10 working days”, as this is required both before the security interest is enforceable under cl 7.1 of Security Deed and before the Contract can be terminated under cl 14.2.1. The default event relied upon by FMS is the Engineer’s certification under 14.2.1(c) that WDL was “persistently, flagrantly or wilfully neglecting to carry out its obligations under the Contract”. Although WDL considers it can challenge this certification in the adjudication or arbitration process,17 it is content to rely on the requirement to remedy the default for the purpose of this application.

[29]    As noted above, given this is an application for interim measures, the Court only has to be satisfied that WDL has a reasonable possibility of success on the merits of its claim. It was common ground that FMS has the burden of proving that the default was not remedied within the 10 working days contemplated by cl 14.2.1.

[30]   On the wording of cl 14.2.1(c), the default that needed to be remedied by WDL in the 10 working day period was WDL “persistently, flagrantly or wilfully neglecting to carry out its obligations”. WDL submits that, given this wording, all it needed to do was show that it was diligently attempting to carry out its obligations. However, I consider it preferable to focus on the actual words used. I am satisfied on the plain words of the clause that a high level of failure is required to prove that WDL did not remedy the default. FMS will have to prove that at the conclusion of the 10 working

16 I also note that FMS intends disputing the adjudicator’s jurisdiction to determine possession of the Excavators on the basis that it is a dispute in respect of the Security Deed and not the Construction Contract. I am not required, nor in a position, to determine this issue.

17 This is, again, an issue I do not need to determine.

day period (between 3 November and 17 November 2023) WDL continued to be persistently, flagrantly or wilfully neglecting to carry out its obligations under the Contract. Therefore, the question for the Court is whether there is a reasonable possibility that the steps WDL took between 3 and 17 November mean FMS cannot prove this high level of failure. It follows that a reasonable possibility that WDL will succeed on the merits of its claim is not a high threshold.

[31]   FMS relies on the following matters on this issue. The Engineer’s certification of 30 October 2023 considered that to “rectify the default” WDL would need to complete all the pending and remedial works within the 10 working day period. Despite the Engineer’s views, the Default Notice of 3 November acknowledged that all the pending and remedial works could not be completed within the 10 working day window, and at paragraph 11(a)–(d) set out the minimum steps FMS considered were required to remedy the default. This included agreeing timetables and scopes to rectify certain items and providing construction documentation FMS had been told was available. FMS’ position is that, there being no evidence that finalised timetables and scopes were agreed or that all the documentation requested had been provided within the 10 working day window, the default was not remedied.

[32]   WDL relied on the evidence contained in the affidavit of Mr Paul dated 18 December 2023 stating that, during the 10 working day period, WDL continuously worked on the site and increased its efforts as best it could. This included having many email exchanges with FMS’s consultants recording the work they were undertaking. Mr Paul points to an example of an email dated 10 November 2023, written in preparation for a “walkover” of the site, which attached a report with photographic evidence of the extent of the works completed against the items listed in the Default Notice. The email also addressed the request for documentation by attaching relevant documents or describing what needed to occur to provide them. Mr Paul also points to  text  message  exchanges  between  WDL  staff  and  WDL’s  site  foreman  on   14 November 2023 with instructions on work to be carried out, and an email from the Engineer dated 21 November 2023 noting progress that was being made and identifying some minor items that needed to be remedied.

[33]   I accept WDL’s submission that FMS’ Notice of Termination does very little to evaluate any of the remedial works engaged in by WDL in the 10 working day period.18 In particular, there is no reference to the Engineer having reviewed the steps taken in the 10 working day period to consider whether he remained of the opinion that WDL continued to be in persistent, flagrant and wilful neglect of its obligations under the Contract. Indeed, the Notice of Termination does not refer to any further consultation with the Engineer regarding the steps taken in the 10 working day period.

[34]   The issue of whether sufficient steps were taken by WDL to remedy the default will require determination in another forum based on all the relevant evidence. I am in no position to make such a decision, but I am satisfied on the evidence before me that there is a reasonable possibility that FMS will be unable to prove that WDL remained in persistent, flagrant or wilful neglect of its obligations at the conclusion of the 10 working day period. I accept WDL’s submission that I am in no position to make a fine assessment of the substance of the work carried out over that period. However, Mr Paul’s evidence about the steps that were being taken, combined with the lack of evidence of evaluation of those steps by FMS or the Engineer at the time, satisfies me that there is a reasonable possibility FMS will not be able to prove the high level of failure required. Accordingly, I consider there is reasonable possibility that WDL will succeed on the merits of its claim.

[35]   FMS’s alternative submission is based on the fact that the Engineer’s certification of a breach of cl 14.2.1(c) included WDL’s failure to provide a certificate of insurance.19 FMS submits that the failure to provide the insurance certificate within the 10 working day period also constituted a failure to remedy the default. Again, however, the default must be persistent, flagrant or wilful. I consider there is a reasonably possibility FMS cannot prove a default in relation to provision of an insurance certificate that meets the high threshold required. In fact, in my view there are real problems with FMS’s position on this issue.

18 I also note that Mr Smith has attached to his affidavit (dated 19 January 2024) a spreadsheet that includes an analysis of the work that was completed during the 10 working day period, but no such spreadsheet was completed prior to the Notice of Termination being issued.

19 Pursuant to cl 8.2.7 of the Contract, the Principal may require the Contractor to produce any  policies regarding insurance.

[36]   The Default Notice did not state that provision of an insurance certificate was required to remedy the default, and the Engineer’s certification referred only to a failure for WDL to provide its public liability insurance certificate, a copy of which was provided to the Engineer on the day the Engineer’s certification was issued (30 October 2023). That insurance certificate contained materially the same wording as the insurance certificate provided a year earlier, and there had been no complaint by FMS about the sufficiency or wording of the earlier certificate. FMS’s solicitors did not appear to be aware of the provision of the insurance certificate on 30 October 2023 when issuing the Default Notice on 3 November 2023 (and it appears neither counsel were aware of it prior to or during the hearing of this application).20 In addition, WDL’s solicitors’ response to the Default Notice confirmed their instructions were that the relevant insurance was in place, and the subsequent Notice of Termination did not rely on the failure to provide an insurance certificate. I do not need to resolve the issues raised in relation to the insurance certificate, but in the circumstances I consider it is unlikely that any of them could have made WDL in persistent, flagrant or wilful neglect of its obligations.

[37]   Finally on the issue of the merits of the claim, I do not accept that this is a case where preventing enforcement of the Security Deed would “cu[t] across the express contractual terms”.21 FMS relied heavily on the proposition that risk of loss of the Excavators was expressly contemplated by the parties’ agreement and to deprive FMS of the Excavators in these circumstances would cut across that agreement. I accept that by providing security over the Excavators, WDL clearly put the Excavators at risk of loss, but actual loss of them through enforcement of the Security Deed is expressly dependent on both a valid default and a failure to remediate. The parties expressly

20 I allowed the admission of further evidence following the hearing,  which  confirmed WDL provided the public liability insurance certificate on 30 October 2023. FMS submits that the certificate provided does not appear to be relevant to the work undertaken as it refers to a public liability policy for “house construction, alteration or renovation”, which is not the nature of work that was being undertaken on the project. WDL submits this is simply a short-hand description of the general nature of the activities to be covered and is not a reflection of the complete policy cover. FMS also says the public liability insurance certificate was not evidence that the full insurance requirements of the Contract were being met. However, I accept WDL’s point that the default relied upon is based on the Engineer’s certification, which related to public liability insurance only.

21 Courts have sometimes been hesitant to grant an interim order with the effect of preventing a party from enforcing a construction bond where to do so would “cu[t] across the express contractual terms and conditions”; Arrow International (NZ) Ltd v NZ Project 29 Ltd [2019] NZHC 1326 at [43].

contemplated that in the absence of proof of failure to remedy the default, enforcement would not be possible.

Is the harm adequately reparable by an award of damages?

[38]   Next, arts 17B(1)(a) and (b) require the court to consider whether the potential harm to WDL would be adequately reparable by an award of damages, and whether the harm to WDL substantially outweighs that toward FMS. These two factors “cover much of the essential traditional balance of convenience considerations” generally considered by the court in interim injunction applications. 22 This requires an analysis of the practical effects of granting the injunction and the financial situation of both parties.23

[39]   The main issue for WDL is that the Excavators are required for projects in January 2024, being a roading project in Lower Hutt and another subdivision in Stokes Valley. Mr Paul’s affidavit evidence is that although WDL has other, smaller excavators in their fleet, these are also ‘fully booked’ for the next three to four months. The cost to hire 20 tonne excavators similar to those currently in dispute would be about $200 an hour, and excavators of this size may not necessarily be available for hire on the dates sought by WDL. In any event, Mr Paul says rental costs would make the projects “economically unfeasible”.

[40]   Another concern for WDL is that the use of the Excavators is required for WDL to price or tender large jobs. Mr Paul explains that, for larger tenders, principals often require WDL to show that they have sufficiently large equipment as part of their tender submission. For these reasons, Mr Paul describes the secured property as his “most valuable excavators”, especially where the “economy has started to tighten and tenders have become more competitive”.

[41]   Mr Paul also deposes to the wider reputational and commercial harm to WDL. This includes harm with suppliers, partners, contracting parties and subcontractors because it would be widely known, or WDL would have to declare it under its

22     Safe Kids, above n 8, at [33].

23     Safe Kids, above n 8, at [33].

contracts, that it no longer has 20 tonne excavators. This could lead to questions and concerns over its financial standing, how it resolves disputes and damage to its industry/trade reputation.

[42]   WDL relies on the decision of LauritzenCool AB v Lady Navigation Inc,24 which concerned an interim injunction pending an arbitration to restrain the defendant from taking its two large ships from the pool of vessels managed by the claimant due to the alleged breach of various duties. The Court granted the interim injunction and held that the potential loss of goodwill, reputation, competitiveness, and marketability meant that damages would be an inadequate remedy if the injunction was refused. FMS submits that this case is distinguishable because the right being is pursuant to a Security Deed. I do not accept this makes the statements of principle in LauritzenCool AB inapplicable.

[43]   In that case, the defendant was the legal owner of the vessels and was seeking to exercise a right to retake control of its property due to alleged breaches of duties. It seems of little moment whether the right to take possession is sourced in a security interest or in ownership. If anything, ownership might suggest a stronger case for possession of the property. Moreover, as noted above, the loss of the Excavators under the Security Deed is expressly dependent on both a default and a failure to remedy the default. I therefore consider it relevant to take into account wider reputational and commercial harm for which damages would not be an adequate remedy. I am satisfied on the evidence of Mr Paul that harm not adequately reparable by an award of damages is likely to result if the interim measure sought is not granted.

Does the harm to WDL substantially outweigh any harm to FMS?

[44]   I am satisfied that the harm to WDL does substantially outweigh any harm to FMS. As noted, WDL has other contracts in which the Excavators are needed. WDL maintains that, absent the Excavators, the contracts will likely be difficult to complete. This in turn exposes WDL to delay costs and liquidated damages on those contracts. In addition, there is the wider reputational and commercial harm referred to above.

24     LauritzenCool AB v Lady Navigation Inc [2005] EWCA Civ 579 (CA), [2005] 1 WLR 3686.

[45]   By contrast, FMS intends selling the Excavators to satisfy the losses it intends claiming in the arbitration. FMS’s willingness to release their security over the Excavators upon payment of a sum of $230,000 is an indication of the level of damages it hopes to recover. The Excavators’ value is a fixed monetary amount that can be met by an award of damages if necessary. In any event, WDL has no intention of (and is precluded under the Security Deed from) selling the Excavators, so FMS’s security will remain intact.

[46]   When pressed about the harm to FMS if it must wait to sell the Excavators following adjudication/arbitration, Mr Wolff relied on the interest FMS will be required to pay and the possibility of diminution in the Excavators’ value (including possible damage to the Excavators). The extent of such harm will depend on the likely delay in resolution of the dispute. Although possible, as noted above, I do not think the dispute is likely to be resolved within six to eight weeks by adjudication. However, in FMS’s 21 December 2023 offer to accept a security payment of $230,000, it considered a truncated arbitration process could be completed by May 2024. On that basis, a six-month timeframe for completion of arbitration appears possible given both parties’ desire for urgent resolution. I do not consider the interest payable or the diminution in the Excavators’ value over such a period to be significant harm. It is also harm that can be readily met by an award of damages. I also consider remote the possibility of significant harm through damage to the Excavators given WDL’s interest in protecting them.

[47]   This conclusion is reinforced by a lack of financial evidence from FMS about the impact the inability to immediately access the sale proceeds of the Excavators will have on its business. This lack of evidence, combined with FMS’ willingness to give up its security over the Excavators in exchange for a $230,000 payment (to which it would not have access until resolution of the dispute), leads to the inference that there will be minimal impact on FMS’ business if it cannot access the sale proceeds immediately.

[48]   WDL has provided an undertaking as to damages and maintains that it is in a financial position to meet damages of $230,000. FMS submits the evidence relied upon by WDL is insufficient to provide confidence that it can meet such a sum in

damages. It disputes as sufficient the provision of an asset list, a cash forecast to November 2024 prepared by WDL’s chartered accountant showing a substantial surplus, and a letter from the accountant stating that based on his review of its financial position (including its financial statements and forecasts) WDL can meet a damages payment of up to $230,000. I accept that more detailed financial information could have been provided and an affidavit from the accountant would have carried more weight than a letter. However, I do not accept FMS’s submission that the failure to provide more detailed evidence compels an inference that any award of damages will not be met.25 The financial evidence before me is to the contrary. Moreover, given  the security will remain over the Excavators and WDL’s interest in ensuring they are kept safe, I do not consider there is a real risk that any award of damages will not be met.

[49]   Ultimately, to grant the application would simply be returning the parties to the status quo as it was before 18 December 2023. If the status quo is not restored, I consider the harm to WDL substantially outweighs the harm to FMS, and that FMS’s harm is more readily addressed by a damages award than the harm faced by WDL.

Conclusion

[50]   For the reasons set out above, I grant WDL’s application for the interim measures sought.

[51]   I note that WDL seeks that the interim measures are in place pending the arbitration decision. Given the possibility that the adjudication process may resolve the dispute, I direct the orders are to be reviewed in a suitable Judge’s Chambers List in approximately 10 weeks, with the parties to file memoranda in advance setting out their positions on the need for continuation of the orders.

[52]   Both parties have sought suppression orders in respect of commercially sensitive information. I direct the parties to file memoranda within five working days indicating any parts of this judgment that require suppression orders and redactions.

25     [Redacted].

[53]    My preliminary view is that the applicant is entitled to costs on a 2B basis. If costs cannot be agreed, the parties are to file and serve memoranda not exceeding four pages within 10 working days, and reply  memoranda  not  exceeding  two  pages five working days thereafter.

La Hood J

Solicitors:

Ford Sumner, Wellington for Applicant Morrison Kent, Wellington for Respondent