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New Zealand Fire Sprinkler Protection Limited v AFS Total Fire Protection Limited [2016] NZHC 690 (14 April 2016)

Last Updated: 4 May 2016


IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY



CIV-2015-404-1564 [2016] NZHC 690

IN THE MATTER
of an application for judicial review of an
adjudicator's determination under the
Construction Contracts Act 2002
BETWEEN
NEW ZEALAND FIRE SPRINKLER PROTECTION LIMITED
Plaintiff
AND
AFS TOTAL FIRE PROTECTION LIMITED
First Defendant
KEITH BLIND Second Defendant



Hearing:
(on the papers)
Counsel:
N Tabb for the Plaintiff
A King and N Gillies for the First Defendant
M Holland and R Conner for the Second Defendant
Judgment:
14 April 2016




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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