Kiwi Property Holdings Limited v Fletcher Construction Limited [2018] NZHC 1745 (17 July 2018)

Last Updated: 5 September 2018

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-000881 [2018] NZHC 1745

UNDER	the Arbitration Act 1996
IN THE MATTER	of an arbitral award dated 1 March 2018
BETWEEN	KIWI PROPERTY HOLDINGS LIMITED Applicant
AND	FLETCHER CONSTRUCTION COMPANY LIMITED Respondent

Hearing:	12 July 2018
Counsel:	MJF Taylor and AJ McLeod for Applicant KW Fulton for Respondent
Judgment:	17 July 2018

JUDGMENT OF DOWNS J

This judgment was delivered by me on Tuesday, 17 July 2018 at 11 am pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Russell McVeagh, Auckland. Craig Griffin Lord, Auckland. KW Fulton, Auckland.

KIWI PROPERTY HOLDINGS LTD v FLETCHER CONSTRUCTION COMPANY LTD [2018] NZHC 1745 [17 July 2018]

The case

[1] Fletcher Construction Company Ltd (“Fletchers”) strengthened, against earthquake, a building owned by Kiwi Property Holdings Ltd (“Kiwi”). The works were performed under a contract between Fletchers and Kiwi. A key task involved drilling into concrete walls—of the Majestic building in Wellington—and inserting bolts. Existing steel framework was to be avoided. This proved easier said than done. Fletchers repeatedly struck existing steel. And, had to make repairs. The parties disagreed who should bear this cost.

[2] The matter went to arbitration, as required by the contract. Considerable testimony was taken over seven days, including from four experts. The Arbitrator, the Hon Rodney Hansen QC, concluded Kiwi should bear much of the cost because most strikes were not reasonably foreseeable when Fletchers tendered for the contract.¹

[3] Kiwi contends it is “highly arguable” Mr Hansen misapplied the applicable contractual clause, thereby erring in law. It seeks permission to appeal to this Court. Fletchers submits the proposed appeal raises no question of law, and any alleged error is not arguable.

[4] A full Court of the Court of Appeal has emphasised the desirability of a “short judgment” in this context.² This decision respects that exhortation.

Analysis

[5] Central to the proposed appeal are cls 9.5.2 and 9.5.4 of the contract. These permitted price variations, and provide:

If during the contract the Contractor encounters on the site physical conditions which it considers could not reasonably have been foreseen when tendering by an experienced contractor and which will in its opinion substantially increase its costs the Contractor shall as soon as practicable and where possible before the conditions are disturbed notify the Engineer and confirm such notification in writing.

....

¹ Mr Hansen found some strikes were reasonably foreseeable, and Fletchers should bear their cost.

² Gold & Resource Developments (New Zealand) Ltd v Doug Hood Ltd [2000] NZCA 131; [2000] 3 NZLR 318 at [59].

On receipt of such notice from the Contractor, the Engineer shall forthwith investigate the conditions and after discussion with the Contractor shall determine whether or not the conditions are such as the Contractor has notified in terms of 9.5.2. To the extent that the conditions notified could not reasonably have been foreseen by an experienced contractor and will in the Engineer’s opinion substantially increase the Contractor’s costs, the effect of the conditions notified shall be treated as if it was a Variation.

[6] The key phrase is that italicised.

[7] Kiwi seeks to argue Mr Hansen misapplied these. It submits both parties anticipated some steel would be struck, and those strikes that occurred could have been reasonably foreseen when Fletchers tendered for the contract. Approached another way, Kiwi submits the “physical conditions” referred to in cl 9.5.2 constituted existing steel, not undetected existing steel. Consequently, all strikes were reasonably foreseeable.

[8] An appeal from an arbitral award is restricted to a question of law arising out of the award. Distinguishing between a question of law and a question of fact “can be a very difficult exercise”.³ The Canadian Supreme Court has offered this frequently-cited distinction: “questions of law are questions about what the correct legal test is; [and] questions of fact are questions about what actually took place between the parties”.⁴

[9] The same Court has said mixed questions, meaning questions that combine fact and law, “are ... about whether the facts satisfy the legal tests”.⁵ Authority is divided on whether a mixed question qualifies for an appeal in this context.⁶

[10] Doubt attaches to whether Kiwi’s proposed appeal engages a question of law. Clauses 9.5.2 and 9.5.4 constitute legal tests; these permitted price variations when Fletchers encountered on-site physical conditions it could not reasonably have foreseen when tendering. So, whether Fletchers could have reasonably foreseen, when tendering, steel in places it later encountered involves the application of a legal test to

³ Williams & Kawharu on Arbitration, (2^nd ed, LexisNexis, Wellington, 2017) at 18.4.2.

⁴ Canada (Director of Investigation and Research) v Southam Inc [1997] 1 SCR 748 (SCC) at [35].

⁵ As above.

⁶ See the cases cited in Williams & Kawharu on Arbitration, above n 3, at 18.4.3.

fact. Consequently, the proposed question is either one of fact or a mixed question— and if the latter, a fact-heavy one.⁷

[11] At arbitration, Fletchers’ case was it did not expect to find steel where it did, because screening tests appeared to imply the steel framework was symmetrical, or nearly so. Kiwi contended this assumption was incorrect, and Fletchers knew as much. Mr Hansen found, as fact:

(a) Fletchers had assumed the steel framework was symmetrical, based in part on screening tests.

(b) Kiwi too assumed (a).

(c) There was no evidence Fletchers knew (a) was false. Available evidence was to the contrary.

(d) Fletchers believed any repair works (in the event of hitting steel) would entitle it to vary the price. In other words, Fletchers believed Kiwi would bear this cost.

(e) Fletchers hit steel because the frame was not symmetrical, and some associated testing unreliable.

(f) Kiwi had agreed to the associated testing, and to the way in which it had been carried out. (Manner of testing formed part of the contract.)

[12] Irrespective of how Kiwi pleads the proposed appeal, the question is whether encountered steel was reasonably foreseeable on these facts. Prospect of appellate reversal is slim, as factual revision is impermissible in this type of appeal, and Mr Hansen’s factual findings would likely generate the same result. Or, as Fletchers’ submissions observe:⁸

⁷ Cf NH3 Refrigeration Ltd v Refrigeration Engineering Co Ltd [2018] NZHC 316 at [9].

⁸ Emphasis in original.

The Arbitrator has clearly come to the conclusion that based upon the factual findings made (and having made effective credibility findings to be able to reach some of those conclusions) the striking of in situ steel was not reasonably foreseeable in this case. It is not some abstract notion, but one applied and tied up with the facts of the case. The shared assumptions of alignment of the existing steel and agreed effectiveness of the method statement developed out of a history of test scanning and research were key components of the conclusion reached on what was reasonably foreseeable in this case.

[13] Moreover, Kiwi’s argument involves recasting the applicable clauses to a level of abstraction, by asking whether risk of strike was reasonably foreseeable. However, the difficulty with this argument is obvious: strike-risk did not cause delay and cost; actual strikes did. It follows Mr Hansen was almost certainly correct to inquire whether those strikes that did occur were reasonably foreseeable (by an experienced contractor) at the time of tender.

[14] The heavily factual nature of the case offsets the significance that might otherwise attach to the acknowledged prevalence of cls 9.5.2 and 9.5.4 in construction contracts. Contrary to Kiwi’s submission, an appeal would not likely generate material precedent in relation to either. Kiwi’s proposed question is illustrative:

Whether [Fletchers] was entitled to a variation under clause 9.5.2 “accepting the findings in the Arbitrator’s award without embellishment or pleas for inferences as to the additional matters of fact that are justified as a matter of consistency”.

[15] The subject matter of the proposed appeal was central to the arbitration from the outset; Mr Hansen is legally qualified (Kiwi wanted him as arbitrator); and arbitration was to be final and binding.

[16] Only two matters support permission. The issue is important to both parties. And, $3,179,754 is at stake.⁹ But, this figure must be assessed in context: the contract was worth approximately $75 million, and works are now complete.

[17] To summarise, the proposed appeal does not appear to engage a question of law. The question is either one of fact, or mixed and heavily factual. Kiwi’s related argument is at a level of abstraction inconsistent with what occurred. Most

⁹ Plus GST.

considerations tell against leave, including Kiwi’s marginal prospect of appellate success given the facts as found at arbitration. Useful precedent is unlikely to emerge.

Order

[18] Kiwi’s application for permission to appeal is dismissed.

Costs

[19] There is no obvious reason why Fletchers should not have costs. Agreement is encouraged. If this proves impossible, the parties may file and serve memoranda of not more than four pages:

(a) Kiwi by 5 pm, Tuesday 31 July 2018.

(b) Fletchers by 5 pm, Tuesday, 7 August 2018.

...................................

Downs J