New Core Properties Limited v Ganellen Construction Limited [2014] NZHC 3128 (10 December 2014)

Last Updated: 17 February 2015

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV2014-404-001608 [2014] NZHC 3128

BETWEEN	NEW CORE PROPERTIES LIMITED Plaintiff
AND	GANELLEN CONSTRUCTION LIMITED Defendant

Hearing:	17 November 2014 and On the papers
Appearances:	R J Hooker for the Plaintiff R G Smedley for the Defendant
Judgment:	10 December 2014

_{JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN}

This judgment was delivered by me on

10.12.14 at 4:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

_{Date...............}

NEW CORE PROPERTIES LIMITED v GANELLEN CONSTRUCTION LIMITED [2014] NZHC 3128 [10

December 2014]

Hearing

[1] This matter was only partly heard when the hearing concluded after 6:00pm and when it was clear that further time would be required to hear the reply submissions on behalf of the plaintiff. At that time the hearing was adjourned and counsel were requested to submit final submissions in writing.

[2] Those submissions have now been received.

Background

[3] The plaintiff, New Core Properties Limited (New Core) owned central city commercial property which, following the Christchurch earthquake, it wished to develop. Discussions were entered into with the defendant Ganellen Construction Limited (Ganellen) a building contractor.

[4] In issue between the parties is whether a contract was concluded. Ganellen says there was a concluded Contract. On 8 May 2014 it, by its solicitor issued a notice of default and later on 28 May 2014 issued a notice of cancellation. It has made demand upon New Core for payment of damages in the sum of $2,939,309.

[5] Ganellen’s position is that the parties entered into a Contract or otherwise agreed to the resolution of any disputes by arbitration.

[6] New Core denies any contract was concluded. By its proceeding filed on 30

June 2014 New Core seeks an order declaring the parties did not enter into a Contract for the construction of a commercial building. It also seeks an order declaring it has not agreed to arbitrate on any dispute between the parties.

[7] Ganellen has in response filed an appearance under protest to jurisdiction. Its position is that New Core and Ganellen are parties to a Contract agreement (the Contract) that was executed and dated 2 May 2014; and that the general conditions of the Contract are NZS 3910-2003 (3910) which provides that contractual disputes or differences are to be dealt with by the dispute resolution provisions of the Contract.

[8] In response to Ganellen’s protest, New Core has filed an application to dismiss the appearance under protest to jurisdiction. It is that application which is for consideration by this Court at this time.

[9] If the Court agrees the appearance under protest should be dismissed then it will be because New Core has satisfied the Court that the parties did not conclude a construction Contract on 2 May 2014 or at any other time and therefore the arbitration agreement contained within the terms of the construction Contract cannot exist. It follows that if the Court was of the view the Contract agreement did exist then the Court should find that the arbitration agreement exists also. If the Court determines there is a Contract then it should stay New Core’s proceedings and refer the parties back to arbitration, an arbitration which Ganellen submits has already commenced.

[10] Ganellen says this Court should strike out New Core’s proceeding under Rule

15.1 of the High Court Rules, or by use of its inherent jurisdiction, on the basis that

New Core’s cause of action cannot by any possibility be maintained.

Issues

[11] It is not in issue that the Contract, if it existed, contains an agreement to arbitrate. Rather, it is New Core’s position that although contractual terms were negotiated a Contract was not concluded and therefore did not come into existence.

[12] In issue is a document dated 2 May 2014. It records that Ganellen shall construct, complete, deliver and maintain the works and that New Core would pay Ganellen $18,142,400. The signature page refers to the Contract documents comprising, as well, a Contract agreement, and special conditions of Contract and general conditions of Contract which incorporated the general conditions of Contract under 3910.

[13] The Contract was signed by Jun Sil Ahn (Mr Ahn) as director of New Core.

[14] Mr Ahn signed the Contract on 2 May 2014 at the offices of New Core’s

solicitors, Jackson Russell.

[15] There is a difference of view between the parties regarding the significance of that document. Evidence on behalf of New Core indicates Mr Ahn may not have understood its purpose.

[16] Ganellen’s position is that the document dated 2 May 2014 is evidence to

show that a contract containing an arbitration agreement exists because clause 2.7 of

3910 provides:

Unless and until the contract agreement is executed by the parties, the tender or other offer and its acceptance between the contract and principal shall, together with other documents intended to form part of the contract, constitute a contract between them.

[17] However, if the Court did not accept the document dated 2 May 2014 as evidence of the Contract, Ganellen submits sufficient other evidence can be found in the offer of Ganellen and the acceptance of New Core communicated by the parties’ respective agents on 1 March 2014.

[18] An examination of various communications made on that date would be required. On behalf of New Core it is submitted that those communications contained no meeting of minds, or that there was insufficient certainty about essential terms. In addition there are some suggestions that the evidence provided in that regard for this Court by Mr Doig, the commercial director of Ganellen, ought to be viewed with caution.

[19] Also there will be some discussion about what was sufficient in terms of communications made, for a contract to have formed. It is clear from clause 2.7 of

3910 that emails may constitute evidence of a contract even before the formal contract document was signed. Indeed, clause 2.7.3 of 3910 provides that “failure by either party to execute the contract agreement within the time provided shall be a default under Section 14”. In short the failure to execute the contract is a default of that contract. Therefore for Ganellen it is submitted that even if New Core had failed

to execute the Contract, that would not have changed the fact that the parties were already bound by it if the existence of same is clearly evidenced.

[20] The case on behalf of Ganellen relies in part on an email from New Core’s solicitor to Ganellen’s Mr Doig on 29 April which enclosed the construction Contract which was said to have been approved by New Core. That email noted that Ganellen’s solicitors would prepare the construction Contract for signing and in that regard noted Mr Ahn and his wife would be travelling abroad on 6 May 2014.

[21] Ganellen says that following execution of the document on 2 May 2014 by Mr Ahn a copy of the duly executed document was delivered to Ganellen by New Core’s agent Mr Lee on 8 May 2014.

[22] The Court will review claims by Ganellen that a contract was earlier agreed when its tender price was accepted on 1 March 2014. Then the Court will review the evidence relating to claims of a contract executed on 2 May 2014.

[23] In conclusion there will also be brief discussion about whether in any event it is appropriate for an arbitrator to have jurisdiction to rule on the existence of a contract. In that regard it is submitted for New Core that the Court’s jurisdiction is ousted by arbitration only if it is satisfied that a Contract was entered into. That proposition is not accepted by Ganellen. Counsel for Ganellen submits Article 8 of the Arbitration Act 1996 provides that a Court shall, in a proceeding brought in a matter which is subject to an arbitration agreement, and if a party requests, stay those proceedings and refer the parties to arbitration unless it finds the agreement is null and void, inoperative, or incapable of being performed.

Requirements of a Contract agreement

[24] There must be a “meeting of minds” that is an acceptance of terms proposed

by an offer or counter offer. As Gresson J in Reporoa Stores Ltd v Trevloar said:¹

A reply constituting the acceptance of an offer must be read with the offer; to bring about a binding contract the offer and the reply accepting must be of

¹ [1958] NZLR 117 at 177.

and in respect of precisely the same terms. The offeree must unreservedly assent to the exact terms proposed by the offeror. If, while purporting to accept the offer as a whole, he introduces a new term which the offeror has not had the chance of examining, he is in fact making a counter-offer. Was the offer accepted or not? If there was anything equivocal in the notice exercising the option, no binding contract could result.

The tender contract – 1 March 2014

[25] Ganellen claims that a contract was entered into when its tender was accepted by New Core. New Core submits that any acceptance was subject to certain other works being included. Also it is the evidence of Mr Ahn that at the relevant time the negotiation was limited to price and was not concerned with the terms or scope of work.

[26] By the written authority of New Core a Mr Marshall and a Mr Lee were authorised to communicate on its behalf. Mr and Mrs Ahn are Korean nationals and their English language capabilities were limited.

[27] Mr Doig deposes that in about July 2013 Ganellen and New Core entered into a memorandum of understanding to ensure good faith, contact and consultation and for the purpose of identifying respective obligations pre contract. Later Mr Doig prepared a tender proposal which was submitted to New Core via Mr Marshall and Mr Lee on 28 February 2014 at 5:58pm.

[28] It referred to a tender sum of $18,368,218 (excluding GST) and noted the Contract was to be a modified version of 3910 before modifications being mutually agreed before entering into the Contract. Mr Doig says many of the modifications had already been negotiated beforehand.

[29] At 6:17pm 28 February Mr Lee emailed Mr Doig to say the Ahns wanted to reduce that cost to an equivalent of $3,450 per m².

[30] On 1 March 2014 at 4:29pm Mr Doig emailed Mr Marshall with a revised tender offer of $18,242,068 (ex GST). It noted the tender sum was conditional upon execution of a New Zealand standard main construction contract under acceptable

terms to both. The revised tender noted it was provided in accordance with the terms and conditions noted in the tender proposal submitted the previous day.

[31] At 5:42pm on 1 March 2014 Mr Marshall responded with a counter-offer:

Mr and Mrs Ahn have said they will agree and sent confirmation that they will go ahead with the construction if the price is $18,142,400. Can you please speak to the directors and let us know today. Jun (Mr Lee) is waiting with the Ahns now”.

[32] Mr Doig says he then discussed the counter-offer with Ganellen’s directors and then responded to Mr Marshall at 5:57pm on 1 March 2014 with an email which stated that he had:

Been authorised to confirm the tender sum of $18,142,400 (excluding GST) as noted below, in accordance with terms and conditions of our original tender submission.

[33] At 6:17pm on 1 March 2015 Mr Lee replied stating:

We are here to confirm on behalf of director (Jun Sil Ahn), New Core Properties Ltd of $181,142,400 [sic] (exc GST) which is a fixed sum contract based on the original architectural drawings and external works including landscape, security gates and fences.

Thank you for business and we are looking forward to working with you on this project as a main contractor.

Congratulation and thanks for all your hard work.

[34] The email clearly contained a typographical error in the contract sum noted.

[35] Mr Hooker submits Mr Lee’s email was not an unequivocal acceptance because it introduced the term ‘fixed price Contract’ and because it included “external works including landscapes, security gates and fences etc.”.

[36] Mr Ahn deposed that he had no intention of entering into a contract with this exchange of emails. He deposed that it was a negotiation only about price.

[37] Mr Hooker submits Mr Doig’s 1 March 5:57pm email was not an unconditional acceptance of New Core’s counter-offer; that it was in fact a counter- offer by Ganellen because Mr Doig introduced new terms and conditions which did

not form part of its conditional offer made at 4:29pm or in New Core’s counter-offer made a 5:42pm.

Considerations

[38] New Core says the only term agreed was the price; that Ganellen’s email of

5:57pm recorded all modifications were to be mutually agreed before entering into the Contract. It follows submits Mr Hooker that there was no intention at that point in time to enter into a contract. Besides, Mr Ahn said he had no intention of entering into a contract as at that time it was only concerned about price.

[39] The prerequisites to formation of a contract are, inter alia an intention to be immediately bound, and agreement expressly or by implication on every term which was legally essential to the formation of the bargain.²

[40] In the Court’s view a contract was agreed as at 5:57pm on 1 March 2014.

[41] The Court agrees with Mr Smedley’s assessment that the 6:17pm email is an acceptance accompanied by a clarification (not new terms) that the Contract “is a fixed lump sum contract based on the original drawings and external works including landscapes, security gates and fences and etc.”.

[42] Nor does the Court accept the emails concern a negotiation of price only. Can it be said that price was agreed when the scope of works was not. It does not make sense.

[43] Further, it is clear from the Contract signed on 2 May 2014 that the 3910 general conditions of contract were not altered.

Contract of 2 May 2014

[44] On 5 March 2014 Mr Doig emailed New Core’s solicitor Mr Davies-Colley

_{attaching copies of the initial tender submission and “the emails containing the}

² Fletcher Challenge Energy Ltd v Electricity Corporation of NZ Ltd [2001] NZCA 289; [2002] 2 NZLR 433.

revised tender offer, counter-offer and acceptance that had been exchanged on 1

March 2014...”

[45] Subsequently there was an exchange of emails during which Mr Doig says minor details were negotiated but none essential to the Contract that had been entered into. No evidence has been provided by Mr Davies-Colley challenging Mr Doig’s account of these things. Nor is there challenge to Mr Doig’s account that until 29 April 2014 that negotiations resulted in clarification but no changes of significance.

[46] On 29 April Mr Davies-Colley emailed Mr Doig a copy of the construction

Contract for execution by Ganellen. He wrote:

...Further to our recent conversation, please see attached the construction contract and agreement for consultant services which have been approved by our client.

We note your earlier advice that you will prepare the construction contract... Once that is done, please sign both the construction contract and the consultancy agreement, then courier them to us for signing...

[47] On 30 April 2014 Mr Doig emailed Mr Lee that the Contract agreement duly executed by Ganellen would be couriered to Mr Davies-Colley for execution by New Core.

[48] The clear and acceptable evidence is that Mr Ahn signed the Contract agreement at the offices of his solicitors Jackson Russell on 2 May 2014. Indeed, and subsequently, Mr Lee provided Mr Doig with a copy of the signed contract. On

8 May Mr Lee informed Mr Doig that the Ahns did not intend to proceed with the Contract. Ganellen then issued a notice of default and subsequently on 26 May gave notice cancelling the Contract.

[49] In support of submissions that there was no concluded agreement, Mr Hooker has submitted that no acceptance of the Contract had been communicated by the Ahns, New Core or its solicitor Mr Davies-Colley.

[50] Mr Hooker relies on the text Law of Contract in New Zealand 4^th ed. Mr

Hooker refers to Chapter 3.4:

3.4 Communication of acceptance

Even if the offeree has made up his or her mind to a final acceptance, the agreement is not yet complete. The normal position is that there must be an external manifestation of assent, some words spoken or act done by the offeree or by his or her authorised agent which the law can regard as the communication of the acceptance of the offeror. And insufficiently communicated assent is not effective as an acceptance.

[51] Mr Hooker refers to Mr Ahn’s evidence that he went to his solicitor’s office on 2 May and there received advice about the Contract. Mr Ahn does not say he signed it. Mr Hooker submits that what took place in the office is legally privileged. He says there is no evidence that there was any communication to Ganellen that the Contract had been accepted. Mr Doig does not claim there was communication of acceptance by New Core’s solicitors. He did telephone Mr Ahn on 5 May and asked to confirm the Contract had been signed. He asked for a copy of the Contract.

[52] Mr Davies-Colley has sworn an affidavit. He refers to his office receiving a telephone message from Mr Doig saying that Mr Doig had understood the Contract had been signed and executed. Mr Davies-Collier responded by email advising Mr Doig that Jackson Russell did not have instructions to confirm the Contract was accepted.

[53] Regarding advice being received by Mr Doig from Mr Lee that the Contract was signed and witnessed Mr Hooker submits the Court ought to be wary about accepting the quality of that evidence because it contained hearsay. Further it is suggested Mr Lee did not have authority at that time to provide any information in that regard. Mr Hooker submits there may be good reason to challenge the authenticity of the email from Mr Lee to Mr Doig suggesting Mr Doig should check his mobile phone messages. The reason for this submits Mr Hooker is because of the formatting of the emails that had been printed and attached to Mr Doig’s affidavit.

Considerations

[54] Unquestionably communicated acceptance is required for there to be a binding Contract between the parties.

[55] The Court has already accepted Ganellen’s position that the offer and the communicated acceptance that constitutes the Contract between the parties was contained within email correspondence on and before 1 March 2014.

[56] Ganellen’s backup position is that evidence of a Contract can be found also in the email of New Core’s solicitor agents on 29 April 2014 which attached the final revised construction contract and the agreement for consultant services. That letter by its terms and because of its request that Ganellen’s solicitors should prepare the documents ‘for signing’ contained New Core’s offer.

[57] Ganellen says its acceptance was communicated by Mr Doig on 30 April

2014 in an email to which he attached executed copies of the Contract agreement –

which contained an arbitration clause.

[58] Ganellen’s position is that communication of the fact that New Core had executed the Contract was not required but that execution was communicated to him when Mr Marshall told Mr Doig on 2 May 2014 that Mr Ahn had executed the Contract and also when Mr Lee on 3 May 2014 told Mr Doig (in a telephone message) that Mr Ahn had signed the Contract.

[59] A copy of that document which Mr Doig refers to having received was, he says, given to him by Mr Lee on 8 May 2014.

[60] Critical to New Core’s case is its claim that acceptance of the Contract was not communicated to Ganellen. But, that position ignores the communication made by Mr Lee and Mr Marshall on New Core’s behalf.

[61] Subsequent conduct does assist the Court in adopting the position that the Contract came into existence when signed by Mr Ahn, even if it had not come into existence earlier. In Fletcher Challenge Energy Limited³ Blanchard J for the

_{majority held:}

³ Supra.

It is permissible when considering contract formation... to look at subsequent conduct of the parties towards one another, including what they have said to each other after the date of the alleged contract.

[62] In this case there is evidence of correspondence between solicitors subsequently to show that the existence of a Contract has really only been challenged since New Core’s statement of claim was filed in early July 2014.

[63] On 28 May 2014 New Core’s solicitors wrote to Ganellen’s solicitors by email noting they were instructed to accept service of notices and correspondence pursuant to the Contract. They also advised that from that time Mr Lee [and Mr Marshall] were no longer authorised to act as agent for New Core or Mr and Mrs Ahn.

[64] At all times prior it is clear Mr Lee and Mr Marshall were appointed as New Core’s representatives each having the authority to exercise any of New Core’s powers or duties. Indeed Ganellen was instructed to communicate directly with Mr Lee and Mr Marshall.

[65] On 9 June 2014 New Core’s new solicitors wrote stating that they understood Ganellen had cancelled the Contract and that had been done on the basis of an illegal repudiation of Contract. The lawyer requested information for the basis on which Ganellen’s lawyers considered Ganellen was entitled to cancel the Contract. They asked whether Ganellen had cancelled the Contract at common law or under the terms of the Contract. The lawyer suggested Ganellen had terminated any right to arbitration because of its cancellation of the Contract. Further, the lawyers purported to give notice under clause 13.3.2 of the Contract. They invited a response to the proposal for mediation in accordance with the Contract.

[66] The unchallenged evidence of Mr Doig is that only on 23 June 2014 was it suggested for the first time that there was no Contract.

[67] The Court agrees with Mr Smedley’s submission that it would be incredible

that if New Core genuinely believed it had not accepted the Contract that it would

have instructed its solicitors to correspond in the manner they did. Only latterly has it been suggested that the Contract had not been accepted or executed.

[68] In the Court’s view Mr Davies-Colley’s 29 April email and its acceptance is

clear evidence of consensus of the parties having been reached on all essential terms.

[69] Mrs Ahn has provided evidence suggesting there were changes in the Contract which Mr Doig has exhibited as having been provided to him by Mr Lee, and the copy which Ms Ahn has. Indeed there are some changes although it appears they are not of consequence. Also the copy Ms Ahn has exhibited was not signed. It is reasonable to assume that it was a draft of that which was concluded and executed on 2 May 2014.

Conclusions

[70] An enforceable Contract and arbitration agreement exists between the parties. [71] This matter was brought to the Court upon the application to dismiss

Ganellen’s appearance under protest to jurisdiction.

[72] Two options are available to the Court. One of those is to stay the plaintiff’s proceeding and to refer the parties back to the arbitration proceeding which has already been initiated by Ganellen. The other option is to strike out the proceeding because the only relief sought by it is for orders declaring there is neither a contract nor an arbitration agreement, and requesting the issue of an injunction to restrain the appointment of the arbitrator who has already been appointed.

[73] In the Court’s view the proceeding should merely be stayed at this time. Further the Court directs the parties refer their issues back to the arbitration proceeding.

Judgment

[74] The application to dismiss the protest to jurisdiction is dismissed.

[75] There is an order referring the parties back to the arbitration proceeding that has been initiated.

[76] Costs are reserved. Submissions on behalf of New Core are to be filed and served no later than 10 working days after the submissions of Ganellen have been filed and served. A decision on the papers will follow. The Court certifies hearing

_{time of 1.25 days.}

Associate Judge Christiansen