YOUSSEF v MAIDEN [2019] NZHC 3471

YOUSSEF v MAIDEN [2019] NZHC 3471 [20 December 2019]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2018-404-2524[2019] NZHC 3471IN THE MATTER OF the Judicial Review Procedure Act 2016AND [ ]IN THE MATTER OF the Construction Contracts Act 2002BETWEEN AHMED AMIN MAHMOUD YOUSSEF (ASTRUSTEE OF THE JAMESSEF TRUST) ANDSTEPHYN ST JAMESApplicantsAND RICHARD LINTON MAIDENFirst RespondentBESPOKE DESIGN AND BUILDLIMITEDSecond RespondentHearing: 1 April 2019Further submissions received 15 and 17 April 2019Appearances: M R Taylor for ApplicantsK R Narayanan for Second RespondentJudgment: 20 December 2019REASONS FOR JUDGMENT OF PETERS JThis judgment was delivered by Justice Peters on 20 December 2019 at 11.00 ampursuant to r 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate: ...................................Introduction[1] The applicants, Mr Ahmed Youssef and Mr Stephyn St James, seek judicialreview of a determination made by the first respondent, Mr Richard Maiden, on15 October 2018 ("determination").[2] Mr Maiden made the determination as adjudicator under the ConstructionContracts Act 2002 ("CCA"), in respect of a dispute between the applicants and thesecond respondent, Bespoke Design Limited ("Bespoke").[3] Mr Maiden abides the decision of the Court. Bespoke denies the applicants'allegations, and opposes the application for review.[4] On 31 October 2019, I issued a results judgment granting the application andquashing the determination.1 These are my reasons.Background[5] The applicants engaged Bespoke to build a house on their site in Mangawhai.The parties entered into the relevant contract on 17 or 18 August 2017 ("contract").Work commenced in the second half of 2017 and the house was expected to becompleted by mid-2018. Differences between the parties arose early in 2018, withmatters coming to a head in a series of letters in April 2018.[6] By email of 3 April 2018, the applicants advised Bespoke they considered it inbreach of contract in several respects and that they would not pay for costs theyconsidered resulted from inefficiencies.[7] On 6 April 2018, Martelli McKegg, acting for Bespoke, notified the applicantsthat Bespoke was suspending work on site with immediate effect.[8] By letter dated 9 April 2018, the applicants, by their counsel Mr Taylor,cancelled (or purported to cancel) the contract, on the basis Bespoke had repudiated1 Youssef v Maiden [2019] NZHC 2815.the contract or committed a fundamental breach of it, and said they would engageanother builder to finish the work.[9] On 11 April 2018, Bespoke rejected the applicants' cancellation, and itselfcancelled the contract.Adjudication[10] On or around 10 August 2018, Bespoke gave the applicants Notice ofAdjudication under the CCA. In its Notice of Claim, setting out what it considered tobe the issues, Bespoke sought:(a) $90,106.42, including GST, it said was owed in respect of unpaidinvoices;(b) interest;(c) lost profit of $61,267.02. Bespoke claimed this sum as the profit itwould have derived had it completed the work.[11] Bespoke then applied to the Royal Institute of Chartered Surveyors ("RICS")to select a person to act as adjudicator of Bespoke's claim. On 17 August 2018, RICSnominated Mr Maiden.[12] On 20 August 2018, the applicants notified Mr Maiden and Bespoke that theywould submit their own claim, and would seek Mr Maiden's appointment asadjudicator in respect of that claim also.[13] On 4 September 2018, the applicants served their Notice of Adjudication andNotice of Claim/Response to Bespoke's Notice of Claim. The applicants soughtdeterminations that Bespoke was not entitled to any of the invoiced sums claimed orto lost profit; that Bespoke's suspension of work on 6 April 2018 had been unlawful;that the applicants' cancellation of the contract on 9 April 2018 was lawful; and thatBespoke was liable in the sum of $142,868.23 on account of the cost of remedial workand $7,800 to the applicants for losses caused by Bespoke's alleged delay.[14] On 10 September 2018, RICS confirmed that Mr Maiden would also act asadjudicator on the applicants' claim. The disputes were then consolidated anddetermined together.2Determination[15] In his determination, Mr Maiden held:(a) the applicants' cancellation on 9 April 2018 was unlawful;(b) Bespoke's cancellation was lawful;(c) each party was indebted to the other but, net, the applicants wererequired to pay Bespoke $125,685.08, GST inclusive, this sumincluding lost profit to Bespoke of $44,728.85.Application for judicial review[16] The applicants then brought this proceeding, seeking judicial review of thedetermination. Bespoke submitted to me, and I accept, that an application for judicialreview has the potential to thwart the purpose of the CCA. In summary, in the firstinstance an adjudicator's determination should be implemented, so that money flowsin accordance with the determination, with arguments about the correctness orotherwise of the determination to be resolved later, in litigation or mediation. I alsoaccept Bespoke's submission that the Court will not lightly intervene even if a groundof review is established. I have borne this in mind in deciding that this is a case inwhich it is necessary to grant relief.3[17] This brings me to a second point, on which Mr Taylor, counsel for theapplicants, relied. Clause 22.5 of the contract provides:22.5 If a dispute is referred to adjudication under the CCA, theadjudicator's ruling shall be final and binding between the parties andneither party shall attempt to resolve the dispute by any other methodexcept for judicial review or enforcement of the adjudicator's ruling.2 Construction Contracts Act 2002, s 40.3 Rees v Firth [2011] NZCA 668, [2012] 1 NZLR 408 at [22] and [27].[18] Given cl 22.5, any general expectation that deficiencies in a determination willbe addressed at a later stage is not open in this case. Mr Taylor submits this wouldfavour granting relief and quashing the determination, if any ground of review weremade out, as it would be the applicants' only remedy. I do not accept this submission.As counsel for Bespoke, Ms Narayanan submitted, a party who chooses to contract onsuch a basis must live with the consequences. So although I have decided to grantrelief, I have not been influenced by cl 22.5 of the contract.Pleadings[19] I turn now to the pleadings. It is fair to say that the applicants have raised manypoints under each cause of action, but they can be summarised as follows.[20] First, there is a claim that Mr Maiden breached statutory duties imposed on aprospective adjudicator. The most significant breach alleged is a failure to disclose aconflict of interest. The applicants also contend Mr Maiden was disqualified fromacting on the ground of "apparent bias".[21] The second and third causes of action concern the process by which Mr Maidendetermined the applicants' cancellation was unlawful. This is a significant issuebecause Bespoke was not entitled to lost profit if the cancellation was lawful.[22] The fourth and fifth causes of action are alleged breaches of natural justice,first as regards Mr Maiden's calculation of lost profit and then by declining theapplicants an opportunity to respond to material in a Bespoke reply.First cause of action: breach of statutory duty[23] Sections 34, 35 and 35A CCA concern the steps to take place immediately afteran adjudicator is nominated. Section 41 is also relevant, and is of continuingapplication.[24] Amongst other things, these provisions require a person nominated asadjudicator to disclose to the parties and the nominating authority "any conflict ofinterest (financial or otherwise)" and thereafter to refrain from acting until the partieshave confirmed their agreement to him or her doing so (ss 34(3) and 41(d)). If theadjudication process is already underway, the adjudicator is required to resign unlessthe parties agree otherwise (s 41(e)).[25] The applicants submit that Mr Maiden had a conflict of interest which he failedto disclose and thus he was precluded from adjudicating the dispute. The applicantsalso submit the facts giving rise to the conflict are such that Mr Maiden wasdisqualified from adjudicating because of the appearance of bias.[26] As quite separate points, the applicants allege that Mr Maiden was ineligibleto adjudicate the dispute because he did not have the requisite expertise to determinethe legal issues raised in the dispute (s 34(1)), and because he did not serve a notice ofacceptance as required by s 35(2).Relevant statutory provisions[27] Sections 34, 35 and 41 CCA provide:34 Eligibility criteria for adjudicators(1) A person is eligible to be an adjudicator if the person meets therequirements relating to qualifications, expertise, and experience asmay be prescribed (if any).(2) A person is not eligible to be an adjudicator in relation to aconstruction contract to which the person is a party.(3) A person—(a) must disclose to the parties to the adjudication and ... theauthorised nominating authority, any conflict of interest(whether financial or otherwise); and(b) must not act as an adjudicator in that dispute unless all of theparties to the adjudication agree.35 Appointment of adjudicator(1) A person requested to act as an adjudicator in accordance with section33 must, within 2 working days of receiving the request, indicatewhether he or she is willing and able to act in that capacity.(2) If the person is willing and able to act as an adjudicator, he or she mustserve a notice of acceptance (a notice of acceptance) on the parties tothe adjudication and the authorised nominating authority.(3) However, if the person has a conflict of interest, he or she must notserve a notice of acceptance under subsection (2) until the parties haveconfirmed (whether orally or in writing) that they agree to the personacting as an adjudicator.[](6) A person is appointed as an adjudicator to determine the dispute onserving a notice of acceptance that complies with section 35A.41 Duties of adjudicatorAn adjudicator must—(a) act independently, impartially, and in a timely manner; and(b) avoid incurring unnecessary expense; and(c) comply with the principles of natural justice; and(d) disclose any conflict of interest to the parties to an adjudication; and(e) if paragraph (d) applies, resign from office unless those parties agreeotherwise.[28] Section 35A, referred to in s 35(6), prescribes the form of the notice ofacceptance required to be served under s 35(2). Mr Maiden did not serve a notice ofacceptance but, had he done so, the form would have required him to state that heaccepted appointment and that he met "the eligibility criteria for adjudicators undersection 34" CCA.Evidence as to the relationship between Martelli McKegg and Mr Maiden[29] The alleged conflict of interest arises because, at the time he was nominated toadjudicate the dispute, Mr Maiden was acting as an expert witness on three "leakybuilding" proceedings for another client of Martelli McKegg, to which I shall refer as"M Ltd". Martelli McKegg were acting for M Ltd in all three proceedings.[30] The facts of the matter were unclear when the point arose at the hearing.Mr Taylor was under the impression there was one piece of litigation in whichMr Maiden was acting as an expert. Given this, I asked for affidavit evidence fromMr Steele, the Martelli McKegg partner responsible for M Ltd's litigation, to clarifythe position. I subsequently received affidavits from Mr Steele and Mr Hardy, theMartelli McKegg partner acting for Bespoke.[31] I invited Mr Maiden to confirm or supplement Mr Steele's and Mr Hardy'saffidavit evidence, but he advised he had nothing to add and would not be filing anaffidavit. I then received further submissions from counsel.[32] What follows is a summary of Mr Steele's and Mr Hardy's affidavit evidence.[33] In February 2016, Mr Steele was acting for M Ltd on a leaky building disputein the High Court concerning "multiple units" in an apartment building in Auckland.Unable to secure the services of his "first choice" of expert witness for M Ltd,Mr Steele suggested Mr Maiden would be a suitable alternative. M Ltd agreed andengaged Mr Maiden. Mr Steele was not in communication with Mr Maiden regardingthe proceeding whilst the adjudication concerning Bespoke was ongoing.[34] In February 2018, so two years later, Mr Steele asked Mr Maiden to act as anexpert for M Ltd in a proceeding concerning an apartment building in Queenstown.Mr Maiden agreed to do so. This proceeding settled at a judicial settlement conferencein the District Court at Invercargill on 29 August 2018, so in the course of theadjudication in the present case. I do not know whether Mr Maiden was present at theconference, but this statement in his email to the parties on 28 August 2018 suggestshe may have been:I would appreciate a swift response to this email as I am travelling toInvercargill this afternoon for a District Court matter tomorrow and will thennot be a position to provide a detailed reply [for some days].[35] In March 2018, M Ltd instructed Martelli McKegg to ask Mr Maiden whetherhe would act as an expert on another High Court proceeding, in respect of anotherapartment building in Auckland. Mr Maiden provided a report to M Ltd on 25 April2018. Mr Steele states his only communications since with Mr Maiden have beenregarding the latter's attendance at various site inspections.[36] Mr Steele states that he and Mr Maiden have never discussed this applicationfor judicial review or the parties to it; M Ltd, not Martelli McKegg, pays Mr Maiden'sfees and has the contractual arrangement with him; Mr Steele has no relationship withMr Maiden outside of the office; Mr Maiden is "one of a limited number of 'propertysurveyor' experts" available to act as an expert witness in a leaky building case; itmade and makes sense for M Ltd to give Mr Maiden repeat instructions because hehas become familiar with its products and processes; Mr Steele has engagedMr Maiden and many others to give expert evidence in leaky building litigation; andMr Steele has also been involved in cases where Mr Maiden has given expert evidenceagainst the client for whom Mr Steele was acting.[37] Turning to Mr Hardy, he did not know Mr Steele had briefed Mr Maiden as anexpert witness for M Ltd. He and Mr Maiden are each members of the Society ofConstruction Law. The Society is relatively close-knit and it would be "virtuallyimpossible to find an Auckland-based adjudicator that you had not met sociallythrough the Society". Mr Hardy has acted in or supervised more than 50 to 60adjudications, and in many has had a prior association with the adjudicator. Forinstance, in some cases, the adjudicator was a partner in the same law firm as Mr Hardy"some 15-25 years earlier".[38] Mr Taylor did not accept Mr Hardy's evidence that it would be difficult, if notimpossible, to identify an adjudicator with whom counsel or the client had not had aprior professional relationship. By way of example, Mr Taylor submitted numerouslawyers are available to act as adjudicators.Conflict of interest[39] The issue I have to decide is whether, as the applicants submit, Mr Maiden hada conflict of interest within the sense of s 34(3)(a) CCA when he was nominated toadjudicate the dispute.[40] The CCA does not define "conflict of interest" and, with respect to counsel,they did not give any assistance on this significant point.[41] I have considered whether the close-knit nature of the construction industry, asreported by Mr Hardy, requires some reading down of the provision, but I do not thinkit does. Section s 34(3) refers to "any conflict of interest (financial or otherwise)" ands 41(d) likewise "any conflict of interest". After disclosure, the person nominatedmust refrain from acting as adjudicator or serving a notice of acceptance, or resign ifhe or she has already embarked on the process unless all parties agree otherwise(ss 34(3)(b), 35(3) and 41(e)). A party who does not agree is not required to say why.The failure to agree is sufficient on its own. These provisions suggest that whatconstitutes a conflict of interest within the sense of these provisions is not to beconfined.Discussion[42] I accept the applicants' submission that Mr Maiden had a conflict of interestwithin s 34(3)(a) which he was required to disclose, that his failure to do so precludedhim from accepting appointment and that his determination must be quashed as aresult.[43] These are my reasons.[44] There would be no objection in principle to Mr Maiden acting as anadjudicator, and at the same time acting as an expert witness for M Ltd in litigation, ifM Ltd was represented by different solicitors. It is the relationship with MartelliMcKegg as M Ltd's legal advisers that gives rise to the issue in this case. AlthoughM Ltd pays Mr Maiden's fees, and has the formal engagement with him, M Ltd firstengaged Mr Maiden on Martelli McKegg's recommendation or suggestion.Moreover, Martelli McKegg approached Mr Maiden subsequently, in respect of thesecond and third matters. So Mr Maiden's engagement and the fees he has earnt, havederived from Martelli McKegg.[45] There are two other matters I take into account, which is not to say the absenceof either would affect the position but they are present in this case. The first is theproceedings concern, or have concerned, three apartment buildings involving manyunits. This is in contrast to, say, one proceeding concerning a single leaky dwelling.The second is that a party, its legal advisers and expert witness(es) invariably developa working relationship as litigation progresses. For instance, they need to confer onthe issues on which the expert's evidence or advice is required, work together on theexpert's brief(s) of evidence, review the evidence in opposition and so on. Mr Steele'sevidence that M Ltd has given, and will continue to give, Mr Maiden repeatinstructions is not a surprise. As Mr Steele says, this is to be expected.[46] These matters combined lead me to conclude that Mr Maiden had a conflict ofinterest within the sense of s 34(3)(a) CCA, which he was bound to disclose but didnot.[47] Lastly, before I leave this topic and go onto the next, I wish to make it clearthat whether a person has a disqualifying conflict of interest, or is disqualified fromacting for some other reason is determined objectively. There is no suggestionwhatsoever that Mr Maiden in fact favoured Bespoke in any way.Apparent bias[48] It is common ground between the parties that an adjudicator might bedisqualified from adjudicating a dispute on the ground of apparent bias. I am satisfiedcounsel are correct in this, given ss 41(a) and (c) CCA, and s 27(1) New Zealand Billof Rights Act 1990, which provides:27 Right to justice(1) Every person has the right to the observance of the principles ofnatural justice by any tribunal or other public authority which has thepower to make a determination in respect of that person's rights,obligations, or interests protected or recognised by law.[49] The applicants contend Mr Maiden was disqualified for the same reasons hehad a conflict of interest. Bespoke does not accept this of course.[50] Ms Narayanan submits that whether Mr Maiden was disqualified is to bedetermined in accordance with the test established Saxmere Co v Wool BoardDisestablishment Co (No 1), so I shall proceed on that basis.4[51] In Saxmere (No 1), the Supreme Court was required to determine whether aJudge of the Court of Appeal had been disqualified from sitting on the case in question,because he and counsel for the Wool Board were longstanding and close friends andhad joint business interests. The Court said that, subject to qualifications relating towaiver or necessity, a Judge is disqualified "if a fair-minded lay observer mightreasonably apprehend that the judge might not bring an impartial mind to the4 Saxmere Co v Wool Board Disestablishment Co (No 1) [2009] NZSC 72, [2010] 1 NZLR 35.resolution of the question the judge is required to decide".5 This assessment is to bemade as follows:[4] ... Two steps are required:(a) First, the identification of what it is said might lead a judge todecide a case other than on its legal and factual merits; and(b) Secondly, there must be "an articulation of the logicalconnection between the matter and the feared deviation fromthe course of deciding the case on its merits".[52] As to the first step, the applicants say Mr Maiden might have failed toadjudicate the dispute solely on its merits because, acting in a different capacity, hehad a relationship with Martelli McKegg who were representing a party to theadjudication, namely Bespoke.[53] As to the second step, the applicants identify the logical connection as a(subconscious) wish by Mr Maiden to maintain, and possibly enhance, his relationshipwith Martelli McKegg and from which he derived income. These matters lead theapplicants to fear Mr Maiden might have subconsciously favoured Bespoke, asMartelli McKegg's client.[54] As I have said, the issue is whether a fair-minded lay observer mightreasonably apprehend the adjudicator might not bring an impartial mind to theresolution of the question the adjudicator is required to decide. This observer isintelligent, objective, neither unduly sensitive or suspicious nor complacent aboutwhat may influence an adjudicator's decision, and not a lawyer but reasonablyinformed about the workings of the adjudication system, and knows the issues in thecase.6[55] As Bespoke submits, in this case, the reasonable observer would have (in noparticular order) the information in the affidavits of Mr Steele and Mr Hardy; knowthat a third-party nominating authority had selected Mr Maiden to adjudicate thedispute; that an adjudicator is required to adjudicate in accordance with s 41 CCA, andtherefore act independently and impartially and comply with the principles of natural5 At [3], [37], [89] and [127].6 At [97]–[98].justice; that an expert witness in litigation proceedings is required to comply with theCode of Conduct for Expert Witnesses and so, amongst other things, has an overridingduty to assist the Court impartially on relevant matters within his or her area ofexpertise; and also not act as an advocate for the party. I also consider the observerwould understand the matters in [45] above .[56] In my view, the fair-minded lay observer would consider the following mattersparticularly significant. First, the nature of the professional relationship that willgenerally exist between a party's legal adviser and expert witness. The second is thatMr Maiden had several instructions from M Ltd, all originating from MartelliMcKegg. The third is that an expert witness is paid for the services and advice he orshe provides. It is to be remembered that it was a disparity in financial contributionsto the Judge's and counsel's joint venture vehicle which caused the Supreme Court torecall its judgment in Saxmere (No 1).7 In recalling its judgment, the Court described$37,125 as "well above the level at which a direct or indirect indebtedness from Judgeto counsel should be regarded as so minimal as to be immaterial, thus giving rise to noconcern".8[57] Unfortunately, I do not have any information from Mr Maiden that might wellbe relevant to this issue. For instance, the income earnt from the expert work forM Ltd (or any other Martelli McKegg client there may be — I do not know) may bede minimis in the scheme of Mr Maiden's professional work. However, on theinformation that I do have, I am satisfied a fair-minded lay observer might reasonablyapprehend Mr Maiden might not have brought an impartial mind to the determination,and that he was disqualified accordingly. In those circumstances, the only propercourse is to quash the determination.Eligibility criteria/notice of acceptance[58] I referred above to the applicants' submission that Mr Maiden was also inbreach of the statutory provisions because he did not meet the eligibility criteriarequired by s 34(1). In particular, the applicants allege Mr Maiden was ineligible as7 Saxmere Co v Wool Board Disestablishment Co (No 2) [2009] NZSC 122, [2010] 1 NZLR.8 At [17].he did not have the required expertise to determine the legal issues that arose. Thereis nothing in this point. The applicants knew Mr Maiden was an expert surveyor whenthey sought his appointment. It is not open to them now to contend Mr Maiden wasineligible because he required legal expertise.[59] Nor does anything turn on Mr Maiden's failure to serve a notice of acceptanceper se. A notice of acceptance informs the parties the adjudicator accepts appointmentand its service sets time running against a claimant (see s 35(6)). In this case, theapplicants knew Mr Maiden had accepted appointment, knew time was running andthey made no objection to the failure to serve.Second and third causes of action: failure to have regard to relevantconsiderations, errors of law and failure to give adequate reasons[60] The issue of the applicants' entitlement to cancel the contract on 9 April 2018was important as it affected Bespoke's entitlement to lost profit, this being asubstantial part of Bespoke's claim.[61] Mr Maiden determined the applicants' cancellation was unlawful, principallybecause he determined Bespoke's suspension of work was not a repudiation of itsobligations under the contract.[62] In their second cause of action, the applicants allege Mr Maiden failed to haveregard to relevant considerations and made errors of law in coming to theseconclusions. In their third cause of action, they allege Mr Maiden failed to giveadequate reasons for his decisions.Relevant correspondence between the parties[63] To address the applicants' case on these matters, it is necessary to refer first tothe relevant correspondence.[64] On 3 April 2018, the applicants advised Bespoke they considered it in breachof contract in several respects, including what they said was Bespoke's refusal toinstall joinery, this being a "client supply" item under the contract. The applicantsasked Bespoke to remedy this and the other specified omissions or defaults. Theapplicants also advised they did:... not intend to pay for labour and hireage (including and not restricted toscaffolding) costs associated with work carried out inefficiently andunproductively.and put Bespoke on notice they would seek to recover "all losses as a result of yourdelay".[65] On 6 April 2018, Martelli McKegg wrote to the applicants on Bespoke'sbehalf, saying:Notice of Suspension of Works - 133 Robert Hastie Drive, MangawhaiHeads[]... you notified Bespoke that you do not intend to pay Bespoke for any furtherlabour and hireage costs it incurs on your behalf that you consider have beencarried out in an inefficient and unproductive matter. This infers a breach ofclause 6.6 of the Contract, which states that [you] will pay Bespoke's invoicesby or on the due date for payment.Bespoke considers that this action effectively precludes it from continuing theBuilding Work and performing its obligations under the Contract. It cannotincur further credit on your behalf with no promise of payment.Unfortunately, due to your actions, Bespoke has no choice but to suspendwork pursuant to clause 19.2 of the building contract.Suspension of works takes effect immediately, and all costs and expensesincurred because of the suspension and (assuming the default is remedied)recommencement of work are chargeable as a variation.[...]Bespoke confirms that it is ready, willing and able to continue its work at theproperty as soon as the issue is remediated.(emphasis in original)[66] On 9 April 2018, Mr Taylor wrote to Martelli McKegg stating that Bespokedid not have grounds to suspend work, that the suspension was unlawful and amountedto a fundamental breach and/or repudiation, and that the applicants cancelled thecontract pursuant to cl 20.2(a) and (c) of the contract and ss 36 and 37 Contract andCommercial Law Act 2017 ("CCLA"). Mr Taylor also advised the applicants wouldengage another builder to complete the work.[67] Nothing turns on cl 20.2(a) and (c) of the contract because they were notemphasised in submissions before me or to Mr Maiden as far as I can ascertain.However, ss 36 and 37 CCLA provide:36 Party may cancel contract if another party repudiates it(1) A party to a contract may cancel the contract if, by words or conduct,another party (B) repudiates the contract by making it clear that Bdoes not intend to—(a) perform B's obligations under the contract; or(b) complete the performance of B's obligations under thecontract.(2) This section is subject to the rest of this subpart.37 Party may cancel contract if induced to enter into it bymisrepresentation or if term is or will be breached(1) A party to a contract may cancel it if—[](b) a term in the contract is breached by another party to thecontract;[](2) If subsection (1) (b) applies, a party may exercise the right tocancel the contract if, and only if,—(a) the parties have expressly or impliedly agreed that theperformance of the term is essential to the cancelling party; or(b) the effect of the breach of the contract is —(i) substantially to reduce the benefit of the contract tothe cancelling party; or(ii) substantially to increase the burden of the cancellingparty under the contract; or(iii) in relation to the cancelling party, to make the benefitor burden of the contract substantially different fromthat represented or contracted for.[][68] On 11 April 2018, Martelli McKegg replied that Bespoke was entitled tosuspend work, denied the suspension constituted a repudiation or a breach of anessential term, cited the applicants' action in engaging another builder as a separateact of repudiation and fundamental breach, and advised that Bespoke elected to cancelthe contract.Discussion[69] In determining whether the applicants were entitled to cancel the contractunder ss 36 or 37 CCLA, it was necessary to decide, first, whether Bespoke was inbreach of contract for failing to install the applicants' joinery; secondly, whetherBespoke was entitled to suspend work; and then, thirdly, and in light of the twoprevious decisions, whether the applicants were entitled to cancel the contract underss 36 or 37 CCLA.[70] As to the joinery, Mr Maiden appears to have accepted Bespoke was bound toinstall the joinery and had failed or refused to do so. However, he also considered theapplicants bore at least some responsibility for this as they had not liaised withBespoke as to the time of installation (see [58] to [63] and [92] of the determination).I do not consider there can be any criticism of Mr Maiden's assessment of this issueand I shall say no more about it.[71] The propriety of the suspension was a more substantial issue. Bespoke's powerto suspend work was contained in cl 19.2 of the contract. Mr Maiden did not refer tocl 19.2, which is a significant omission. Clause 19.2 provides:19.2 If at any time the Owner fails to pay any sum owed to the Builder infull by the due date, or any act, omission or default by the Ownereffectively precludes the Builder from continuing the Building Workor performing or complying with the Builder's obligations under thisContract, then without prejudice to the Builder's other rights andremedies, the Builder may suspend the Building Work immediatelyafter serving on the Owner a written notice specifying the paymentdefault or the act, omission or default upon which the suspension ofthe Building Work is based [72] Accordingly, Bespoke had power to suspend under cl 19.2 only if theapplicants failed to pay a sum owed in full by the due date or if the applicants did anyact (etc) effectively precluding Bespoke from continuing the work or performing itsobligations. In either case Bespoke could only suspend if it had first served noticespecifying the payment default or act (etc) on which the suspension was based.[73] In its notice, Bespoke said it was suspending the work because of theapplicants' advice of 3 April 21018, that they "did not intend to pay Bespoke for anyfurther labour and hireage costs ... you consider have been carried out in an inefficientand unproductive manner". The notice of suspension said this was an act that"effectively precludes [Bespoke] from continuing the Building Work and performingits obligations under the Contract".[74] The applicants' submission to Mr Maiden was that this statement could not bea ground for suspension because they were entitled under cl 6.6 of the contract todispute any invoice if they saw fit. Clause 6.6 provides:6.6 The Owner must pay the invoiced amount in full within 5 WorkingDays of the invoice being delivered or sent to the Owner or such othertime as is stated in Part E of the Schedule. If the Owner does notconsider that all or any part of the invoiced amount is payable, theOwner must, within 5 Working Days after the invoice was deliveredor sent to the Owner:a) reply in writing to the Builder stating the amount that theOwner considers payable (the undisputed amount), andspecifying the reasons why any part of the invoiced amount isdisputed, and the method in which the disputed amount hasbeen calculated; andb) pay the undisputed amount.[75] Accordingly, the applicants' submission to Mr Maiden was that Bespoke hadno valid ground for suspension of the work and so the suspension was unlawful.[76] Similarly, the applicants challenged the statement in Martelli McKegg's letterof 6 April 2018, that Bespoke was "ready, willing and able to continue its work ... assoon as the issue is remediated". The applicants' submission was there was no "issue"to be "remediated" because of the contractual right to which I have just referred, andthus Bespoke's statement was tantamount to requiring the applicants to forego theircontractual right before there would be a resumption of work.[77] In response to these submissions, Bespoke's case was that it was entitled tosuspend for the reason it gave, but if not, a separate ground of suspension existed,namely what Bespoke said was the applicants' failure to pay part or all of two recentinvoices rendered to them. Bespoke also submitted that the very nature of a suspensionis that it is temporary, and that, in addition, it had expressed its readiness to resumework. In those circumstances, Bespoke submitted the suspension was lawful but, inany event, did not entitle the applicants to cancel.Determination of this issue[78] My reading of the determination is that Mr Maiden did not consider theapplicants' 3 April letter gave Bespoke a ground to suspend work. Rather, he said theletter constituted "a shot across the bows for Bespoke" (at [35]) and, at [52], "awarning to Bespoke not to be inefficient or unproductive".[79] This then brought Mr Maiden to the issue of whether Bespoke's suspensionwas lawful. He did not determine the issue expressly, but I think he must be taken tohave accepted it was unlawful, because he turned his attention to whether thesuspension was a repudiation under s 36 CCLA.9 Mr Maiden found it was not.[80] In reaching this conclusion, Mr Maiden:(a) referred to Bespoke's statement that it was ready and willing to proceed(at [39]);(b) said at [56]:Suspension (whether lawful or not) is not an indication that theparty serving the Notice is not going to continue with the work, it isan instrument available to a party to get an issue resolved. Any timelost (on both sides) and associated cost is something that can beresolved later;(c) and said at [84] that Bespoke's suspension:... was a reasonable action. Bespoke were faced with a probable claim... so suspending the work to resolve the issues before the problem9 Mr Maiden did not consider the position under s 37 CCLA.escalated was, in my view, a reasonable approach and not, as claimedby the Owners, a repudiatory act.[81] The statements at [56] and [84] overlook that suspension was not generallyavailable but only permissible for a default etc coming within cl 19.2 of the contract.In addition, Bespoke's statement was not that it was ready, willing and able to continuework. Bespoke had said it was ready and willing to continue, subject to "the issue"being "remediated". I have already referred to the applicants' contention on this pointin [76] above.[82] Aside from these matters, it is not apparent on the face of the determinationthat Mr Maiden had regard to information both parties put before him as to when aparty's actions constitute a repudiation or a breach of an essential term, so as to entitlethe innocent party to cancel. This information included relevant excerpts fromKennedy-Grant on Construction Law, an English text Hudson's Building andEngineering Contracts, and Wesiack v D&R Constructions (Aust) Pty Ltd which theapplicants contended was on "all fours" and which Bespoke distinguished.10 At [90]of the determination, Mr Maiden referred to Kennedy-Grant but not the part whichaddressed when a party might be entitled to cancel.[83] Overall, I am satisfied Mr Maiden's consideration of whether the applicantswere entitled to cancel fell short of what was required. Whilst acknowledging theleeway that must be allowed to an adjudicator, Mr Maiden could not fairly determinethis issue without regard to cl 19.2 and the circumstances in which it confers a powerto suspend; the parties' contractual rights; and the information the parties had providedas to the application of ss 36 and 37 CCLA. Arguments that parties make, particularlyon important issues, must be sufficiently considered and answered in thedetermination.11[84] Given this conclusion, it is unnecessary for me to consider the third cause ofaction and the sufficiency or otherwise of Mr Maiden's reasons.10 Thomas Kennedy-Grant on Construction Law (2nd ed, LexisNexis, Wellington, 2012);Nicholas Dennys, Mark Raeside and Robert Clay (eds) Hudson's Building and EngineeringContracts (12th ed, Sweet & Maxwell, London 2010); Wesiack v D&R Constructions (Aust) PtyLtd [2016] NSWCA 353.11 Canam Construction (1955) Ltd v LaHatte [2010] 1 NZLR 848 (HC) at [59].Fourth cause of action: breach of natural justice — lost profit[85] Having determined that Bespoke was entitled to cancel the contract,Mr Maiden then turned to the quantum of Bespoke's claim for lost profit. Theapplicants allege Mr Maiden breached the principles of natural justice in his resolutionof this claim, and that he also breached s 45 CCA, to which I refer below.[86] In its notice of claim, Bespoke sought an award of lost profit of $61,267.02.Bespoke later explained this sum represented its 10 per cent margin on what itanticipated was the cost of the outstanding work to be completed at the time ofcancellation.[87] In response, the applicants submitted to Mr Maiden that Bespoke's lost profitcould not be calculated for several reasons, including the nature of the contract (costreimbursement plus margin), and the clear possibility the applicants would havereduced the scope of works, as the applicants considered themselves entitled to do.[88] Mr Maiden did not refer to these arguments in the adjudication but nor did heaccept Bespoke's quantum of $61,267.02, considering the sum was "not explained"(at [145]). Rather, Mr Maiden proceeded to make his own calculation of the lost profitBespoke would have earned had it completed the contract. In doing so, and for somereason not apparent to me, Mr Maiden calculated Bespoke would have made a profitof 8.63 per cent on the work he calculated remained outstanding at the time ofcancellation. From this Mr Maiden derived a sum for lost profit of $44,728.85,including GST.[89] Mr Maiden did not refer his calculation to the parties for their consideration.The applicants contend Mr Maiden was obliged to do so as a matter of natural justice.12Had Mr Maiden done so, the applicants submit they would have challenged thecalculation for the reasons referred to in [87] above and also because "margin" is notequivalent to "profit".12 Construction Contracts Act 2002, s 41(c).[90] The applicants also submit that, in making his own calculation as he did,Mr Maiden breached s 45 CCA in that brought his own expert opinion to bear on amatter in issue. Section 45 CCA provides:45 Adjudicator's determination: matters to be consideredIn determining a dispute, an adjudicator must consider only the followingmatters:(a) the provisions of this Act:(b) the provisions of the construction contract to which the disputerelates:(c) the adjudication claim and the claimant's written reply (if any) together with all submissions (including relevant documentation) thathave been made by the claimant:(d) the respondent's response (if any) and the respondent's rejoinder(if any) together with all submissions (including relevantdocumentation) that have been made by the respondent:(e) the report of the experts appointed to advise on specific issues (if any):(f) the results of any inspection carried out by the adjudicator:(g) any other matters that the adjudicator reasonably considers to berelevant.[91] Bespoke's submits that Mr Maiden's calculation was precisely the sort ofmatter an adjudicator is entitled to make, having considered and rejected the claimbefore him.[92] I am not persuaded there was any breach of s 45 CCA. The matter was notfully argued before me but there is some force in the submission for Bespoke to whichI have just referred. More importantly, even if Mr Maiden was required to refer hiscalculation to the parties, I would not grant relief to the applicants on such a matter. IfBespoke was entitled to cancel the contract, it was entitled to a measure of lost profit.That sum may have been less than the sum Mr Maiden calculated, but this is not thesort of issue for which the Court will generally grant relief. It is the type of issue thatthe CCA anticipates will be resolved in the fullness of time and, as I have said, a partywho contracts on the basis the determination is final must live with the consequences.Fifth cause of action: breach of natural justice — rejoinder[93] The applicants contend there was a further breach of natural justice in thefollowing respect.[94] On 1 October 2018, Bespoke filed a rejoinder to a reply filed by the applicants.The applicants contend Bespoke's rejoinder was not confined to addressing matters intheir reply and contained fresh allegations. The applicants requested an opportunityto respond to the rejoinder, which Mr Maiden declined. The applicants contend thiswas a further breach of natural justice.[95] I do not consider there is any merit in this complaint. As far as I can ascertain,none of the so-called fresh allegations are reflected in the determination so nothingturns on the issue.Relief[96] I am satisfied that:(a) Mr Maiden had a conflict of interest which he did not disclose, and wasprecluded from accepting appointment as adjudicator absent disclosureand the parties' agreement;(b) On the evidence before me, Mr Maiden was disqualified fromadjudicating the dispute because a fair-minded lay observer mightreasonably apprehend that he might not bring an impartial mind to theresolution of the dispute; and(c) Mr Maiden failed to take into account relevant matters and made errorsof law in determining that the applicants' cancellation of 9 April 2018was unlawful.[97] I am satisfied the only proper response to these omissions, particularly thosereferred to in (a) and (b), is to quash determination in its entirety.Result[98] I quash the adjudicator's determination of 15 October 2018.Costs[99] I make no order as to costs at present. The parties may submit memoranda ifthey are unable to agree.Peters JSolicitors: Maria Taylor, AucklandMartelli McKegg, AucklandCounsel: M R Taylor, Auckland