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High Court of New Zealand Decisions |
Last Updated: 4 May 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-1564 [2016] NZHC 690
IN THE MATTER
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of an application for judicial review of an
adjudicator's determination under the
Construction Contracts Act 2002
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BETWEEN
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NEW ZEALAND FIRE SPRINKLER PROTECTION LIMITED
Plaintiff
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AND
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AFS TOTAL FIRE PROTECTION LIMITED
First Defendant
KEITH BLIND Second Defendant
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Hearing:
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(on the papers)
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Counsel:
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N Tabb for the Plaintiff
A King and N Gillies for the First Defendant
M Holland and R Conner for the Second Defendant
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Judgment:
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14 April 2016
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JUDGMENT OF WOODHOUSE J
This judgment was delivered by me on 14 April 2016 at 3:00 p.m. pursuant to r 11.5 of the High Court Rules 1985.
Registrar/Deputy Registrar
..........................................
Solicitors:
Ms N Tabb, Solicitor, North Harbour
Ms A King and Mr N Gillies, Hesketh Henry, Solicitors, Auckland
Mr M Howard and Ms R Conner, Hazelton Law, Solicitors, Wellington
NEW ZEALAND FIRE SPRINKLER PROTECTION LTD v AFS TOTAL FIRE PROTECTION LTD [2016] NZHC 690 [14 April 2016]
[1] The plaintiff (NZ Fire) seeks judicial review of an adjudication
decision under the Construction Contracts Act 2002 (the
Act) by the second
defendant, Mr Blind. The first defendant (AFS) was the claimant in that
adjudication.
[2] The defendants indicated that they would not defend the claim and
would abide by the Court’s decision, but they wished
to be heard on costs.
The substantive claim has proceeded by way of formal proof. Costs are to be
determined on written submissions.
[3] I am satisfied from the evidence that NZ Fire is entitled
to have the adjudication decision set aside and to
costs against AFS. My
reasons follow.
Factual background
[4] NZ Fire installs fire sprinkler protection systems. AFS designs
fire protection systems. In May 2014 AFS contracted the
services of NZ Fire
for a number of projects. The first payment was made to NZ Fire in May without
issue. From June to August 2014
there were no payments to NZ Fire for work
which was, on the evidence, completed as requested. By the end of August, AFS
owed NZ
Fire a total of $144,527.40.
[5] There followed a number of unsuccessful attempts between the parties to resolve NZ Fire’s claim. Eventually NZ Fire stopped work and engaged a debt collection agency to recover the debt. AFS’s response to NZ Fire’s claim was that it had complete discretion whether to certify NZ Fire’s work and that if it chose not to certify it, then it did not have to be paid for. AFS also took the position that if NZ Fire did not complete a whole job then AFS could deduct a sum equal to the cost of finishing the job. NZ Fire maintained that invoices were only submitted for work actually done; it did not charge for work that had not been completed. At a meeting between AFS and the agent from the debt collection agency, AFS said it believed it only owed $5,000 because of its discretion in refusing to certify NZ Fire’s work and also for deducted amounts for further installation work to complete the whole job at some of the properties.
[6] The parties were unable to settle the dispute. A statutory demand
by NZ Fire was then served on AFS. The statutory demand
was not complied with,
there was no application by AFS to have it set aside, and liquidation
proceedings were filed in December 2014.
A settlement was then reached. AFS
agreed to pay the full sum, but in four instalments. In due course the full
sum was paid and
the liquidation proceeding was discontinued.
[7] In March 2015 AFS purported to appoint Mr Blind as adjudicator
under the Act for a claim by AFS against NZ Fire. This was
in respect of the
work completed by NZ Fire and for which AFS had made the payments in accordance
with the settlement agreement.
AFS emailed an adjudication notice to NZ
Fire and the representative from the debt collection agency. Both recipients
were
surprised to receive the notice given the settlement and discontinuance of
the liquidation proceeding. The responsible director
of NZ Fire was overseas at
this time, and was unable to deal with the adjudication notice in full. As a
consequence, no substantive
response to the notice was given by NZ Fire to the
adjudicator. AFS and Mr Blind were aware that the responsible director was
overseas
and had sought more time.
[8] On 22 May 2015 Mr Blind issued a decision ordering NZ Fire to pay
AFS
$107,314. The decision recorded that the work completed was not up to the
standard required, the work had not been completed to schedule,
and AFS’s
schedule had suffered as a consequence. Mr Blind also noted that NZ Fire had
left a site without providing the required
notice.
Grounds for review
[9] NZ Fire maintains that there were a number of procedural and
substantive errors through to Mr Blind’s decision. The
grounds for review
may be considered under four main headings.
Appointment of the adjudicator
[10] AFS contended that Mr Blind was not correctly appointed under ss 33-35 of the Act: AFS did not seek approval from NZ Fire for Mr Blind to act as adjudicator; no notice of acceptance was served on NZ Fire confirming that Mr Blind met the
eligibility criteria for appointment; and there was no evidence of the date
on which he accepted the position. NZ Fire also contended
that Mr Blind had a
conflict of interest which he did not disclose. This was because he had been a
director of companies in which
AFS was a shareholder.
Natural justice
[11] NZ Fire contended that the process adopted by the adjudicator did
not satisfy the requirements of natural justice under s
41 of the Act: there was
no timetable for the parties to provide information; AFS’s supporting
documents were not sent to NZ
Fire; and Mr Blind knew that NZ Fire wanted to
provide information but the responsible director was overseas, yet he continued
with
the adjudication in his absence. In short, there was no proper opportunity
for NZ Fire effectively to respond and present its case.
Absence of reasons
[12] NZ Fire contended that there were no adequate reasons for the
decision. The stated reasons were effectively conclusions.
In addition, the
amount to be paid included a sum claimed by AFS for legal costs on the
liquidation proceeding and there was no
explanation as to how NZ Fire could be
liable. Given the absence of reasons, and in light of the evidence on this
application, NZ
Fire further contended that it is likely that there were
mistakes of fact, including that NZ Fire had been paid for work that had
not
been completed, and that AFS had good reasons to withhold payment on the basis
that it needed to approve or certify the work.
Lack of jurisdiction
[13] NZ Fire contended there was no jurisdiction because there was no
dispute.
Scope of judicial review
[14] The extent to which judicial review is available to challenge an
adjudicator’s
decision under the Act was considered by the Court of Appeal in Rees
v Firth.1 The
1 Rees v Firth [2011] NZCA 668.
Court held that the grounds for review were not limited to jurisdictional
error, but there are constraints. The Court said:
[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).
[15] What may be described as the reasonably high threshold for
review on grounds in addition to jurisdictional error
is met in this case.
The unchallenged evidence for NZ Fire enables the application for review to be
granted consistently with the
principles stated in Rees v Firth on the
grounds advanced by NZ Fire.
Evaluation
[16] Under s 33(1)(a) of the Act AFS was required to seek agreement of
the parties on the appointment of an adjudicator. This
was not done. NZ Fire
was only notified by email that an adjudicator had already been
appointed.
[17] Under s 35(3) of the Act, Mr Blind had a duty to disclose any
conflict of interest. Mr Blind should have disclosed the fact
that he had been
a director of the companies in which AFS was a shareholder.
[18] I am satisfied that NZ Fire was not given proper notice of
AFS’s claim and
was not given any proper opportunity to be heard.
[19] There were no adequate reasons for the decision. The lack of reasons in the circumstances provides grounds to set aside the decision. The inclusion in the award
of a sum for AFS’s costs on the liquidation was an error of law because
there was no liability. And AFS’s claim for costs
was an abuse of process
given the settlement.
[20] Jurisdiction is directly governed by s 38 of the Act, as
follows:
38 Jurisdiction of adjudicators
(1) An adjudicator's jurisdiction in relation to any dispute that has
been referred to adjudication is limited to determining—
(a) the matters referred to in sections 48, 49(1)(c), and 50(1)(c);
and
(b) any other matters that are of a consequential or ancillary nature
necessary to exercise or complete the exercise of the
jurisdiction conferred by
paragraph (a).
(2) However, the parties to an adjudication may, at any time, by
written agreement, extend the jurisdiction of an adjudicator
to determine any
matters in addition to those mentioned in subsection (1).
[21] The admissible evidence establishes that there was no dispute
requiring adjudication. The dispute alleged by AFS arose directly
out of its
contract with NZ Fire. Following the first payment by AFS to NZ Fire, AFS had
withheld payments for an extended period
and raised various issues in respect of
the work done by NZ Fire. Although the agreement reached for payment of the sum
claimed
by NZ Fire did not expressly record settlement of all issues between the
parties pursuant to the contract, I am satisfied on the
uncontested evidence of
NZ Fire that that was the effect of the settlement. In any event, quite apart
from the terms of the settlement
of NZ Fire’s claim and the liquidation
proceeding, the purported invocation of the adjudication procedure by AFS
following
the settlement and the discontinuance of the liquidation proceeding
was an abuse of process.
[22] For these reasons the adjudicator’s decision should be set
aside.
Costs
[23] NZ Fire sought costs against both defendants on a 2B basis plus disbursements.
[24] Submissions on costs for AFS relied, in part, on assertions of fact
made in a memorandum from counsel. In a minute I advised
counsel for AFS that,
if AFS sought to rely on assertions of fact in its opposition to a costs order,
and those assertions were not
properly before the Court as admissible evidence,
they would not be taken into account. No affidavit evidence was filed.
Having
considered the submissions for AFS, other than those dependent on
assertions of fact not founded on admissible evidence, I am not
persuaded that
costs should lie where they fall, as was submitted for AFS. Nor am I persuaded
by AFS’s alternative submissions
that, if NZ Fire is entitled to costs,
they should be met by Mr Blind only, or that costs should be reduced. NZ Fire
has succeeded
against AFS. NZ Fire has succeeded on grounds involving material
fault on the part of AFS. The primary principle on costs, subject
to the
Court’s overriding discretion, is that costs follow the event. The
primary principle justifies an order for costs
against AFS, with the amount of
those costs being unexceptionable. There is no basis for the discretion to be
exercised in a different
way.
[25] The costs claim against Mr Blind is in a different category.
Counsel for Mr Blind submitted that, pursuant to s 70 of the
Act, Mr Blind
should not be liable for any costs. Section 70 provides, in relevant summary,
that an adjudicator is not under any
civil liability unless the adjudicator acts
in bad faith. There is no evidence justifying a conclusion that Mr Blind acted
in bad
faith. I am satisfied that there should be no order for costs against
Mr Blind.
Result
[26] The second defendant’s decision is set aside
[27] The plaintiff is entitled to costs against the first defendant on a 2B basis together with reasonable disbursements. Any dispute as to quantification, or as to
reasonable disbursements, is to be determined by the Registrar in the
first instance.
Woodhouse J
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