CUSTOM STREET HOTEL LTD v PLUS CONSTRUCTION NZ LTD & ANOR [2016] NZHC 2934 [8 December 2016]

CUSTOM STREET HOTEL LTD v PLUS CONSTRUCTION NZ LTD & ANOR [2016] NZHC 2934 [8 December 2016]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2016-404-000219[2016] NZHC 2934UNDER the Arbitration Act 1996IN THE MATTER OF an application for leave to appeal undercl 5(5) of Schedule 2 to the Arbitration Act1996BETWEEN CUSTOM STREET HOTEL LIMITEDPlaintiffAND PLUS CONSTRUCTION NZ LIMITEDFirst DefendantPLUS CONSTRUCTION CO LIMITEDSecond DefendantHearing: 6 December 2016Appearances: R B Stewart QC and I Rosic for PlaintiffA R B Barker for DefendantsJudgment: 8 December 2016JUDGMENT OF GILBERT JThis judgment is delivered by me on 8 December 2016 at 11.30 ampursuant to r 11.5 of the High Court Rules......................................................Registrar / Deputy RegistrarCounsel/Solicitor:R B Stewart QC, AucklandGilbert Walker, AucklandARB Barker, Barrister, Auckland[1] Custom Street Hotel Ltd (Custom Street) claims the sum of $3.6125 million pursuant to a performance bond arranged by Plus Construction (Plus) to assure performance of its obligations as the contractor under a construction contract for the redevelopment of the Reserve Bank building on Customs Street, Auckland into a 15 storey hotel. Payment under the bond is contingent on the engineer to the contract stating that, in his opinion, the contractor has failed to perform its obligations under the contract and the amount claimed under the bond is properly due under the contract. The engineer issued the certificate and the parties agreed to refer to arbitration the question of whether the engineer was correct to do so.[2] The Hon. Rodney Hansen QC was appointed as sole arbitrator. In an award dated 17 November 2015, he determined that the engineer was not entitled to issue the certificate because Plus had not failed to perform its obligations under the contract and no amount was due by Plus under the contract. Accordingly, Custom Street had no right to claim under the bond.[3] On 2 June 2016, Palmer J gave leave to appeal to this Court on five questions of law:1(a) Did the arbitrator err in holding that the defendants' breach must be repudiatory in nature before the defendants would be disentitled from terminating?(b) Did the arbitrator correctly construe cl 14.3.3 of the contract and err in holding that the defendants terminated in accordance with cl 14.3.3?(c) Did the arbitrator correctly construe cl 14.2.4 of the contract and err in holding that the difference, between a certified cost to complete the contract works and the cost to Custom Street had the contract worksbeen completed by Plus, could not be "properly due under thecontract" until the contract works have been completed?1 Custom Street Hotel Ltd v Plus Construction NZ Ltd [2016] NZHC 1180.(d) Did the arbitrator err in holding that the damages claimed by CustomStreet for breach of contract cannot be "properly due under the contract" until Custom Street's claim is admitted or determined as to liability and quantum?(e) Did the arbitrator err in holding that Custom Street cannot rely upon the amounts claimed under the indemnity clause in the contract asamounts "properly due under the contract"?[4] I dismissed the appeal in a judgment delivered on 29 August 2016, finding that the arbitrator did not err in his conclusion on any of these five questions.2[5] Custom Street now seeks leave pursuant to cl 5(5) of sch 2 of the Arbitration Act 1996 to appeal to the Court of Appeal on the first four of these questions of law.[6] The test for leave under cl 5(5) was confirmed by the Court of Appeal inDowner Construction v Silverfield Developments:3 the primary focus is on whether the question of law is worthy ofconsideration. We cannot do better than Randerson J's summary of theposition in Cooper at para [12]:(a) The appeal must raise some question of law capable of bonafide and serious argument in a case involving some interest, public or private, of sufficient importance to outweigh the cost and delay of the further appeal.(b) Upon a second appeal, the Court of Appeal is not engaged in the general correction of error. Its primary function is then to clarify the law and to determine whether it has been properly construed and applied by the Court below.(c) Not every alleged error law is of such importance either generally or to the parties as to justify further pursuit of litigation that has been twice considered and ruled upon by a Court.[7] Mr Barker submits that leave should be declined because the proposed questions of law are not capable of bona fide and serious argument. I do not accept this submission. Justice Palmer concluded that all questions were seriously arguable when granting leave to appeal to this Court. As to question (a), I accepted2 Custom Street Hotel Ltd v Plus Construction NZ Ltd [2016] NZHC 2011.3 Downer Construction v Silverfield Developments [2007] NZCA 355, [2008] 2 NZLR 591 at [33] citing Cooper v Symes (2001) 15 PRNZ 166 (HC).Custom Street's submission that the circumstances in which a party may bedisentitled from cancelling a contract are not limited to those where that party has repudiated the contract but that the arbitrator was correct in confining his attention to this issue on the facts of this case. Question (b) concerns the interpretation of cl 14.3.3 of the New Zealand Standard Conditions of Contract for Building and Civil Engineering Construction, NZS3910:2003. The proper interpretation of this clause was strongly contested in argument and is not without difficulty. It appears that this provision has not previously been considered by the Courts. I reached the same conclusion as the arbitrator but by a different route. Questions (c) and (d) also raise questions of interpretation of this standard form contract that are capable of bona fide and serious argument and have not previously been considered.[8] The standard conditions of contract at issue in this case are widely used in the construction industry in New Zealand. The proposed appeal therefore has wider consequence than the current dispute between the parties. The private interest is also significant given the amount in issue, in excess of $3.6 million. Unless Custom Street prevails on appeal and is able to enforce the bond, it has no realistic prospect of recovery from Plus because it is a Korean company with no known assets in New Zealand.[9] For these reasons, I conclude that the questions of law raised by the proposed appeal are worthy of consideration by the Court of Appeal and that the cost and delay of a further appeal are justified.Result[10] The application for leave to appeal to the Court of Appeal is granted. The approved questions of law for which leave is given were agreed by counsel following the hearing and are as follows:(a) Whether Plus' breach had to be repudiatory in nature before Pluswould be disentitled from terminating the contract.(b) Whether Plus validly terminated the contract under cl 14.3.3 or, if applicable, the Contractual Remedies Act 1979.(c) Whether, on a proper interpretation of clauses 14.2.4 and 14.2.5 of the contract, Custom Street can recover the additional cost of completion prior to completing the contract works.(d) Whether Custom Street can recover the additional cost of completion without first having its claim admitted or determined as to liability and quantum._________________________M A Gilbert