CUSTOM STREET HOTEL LTD v PLUS CONSTRUCTION NZ LTD [2018] NZCA 36

CUSTOM STREET HOTEL LTD v PLUS CONSTRUCTION NZ LTD [2018] NZCA 36 [7 March 2018]IN THE COURT OF APPEAL OF NEW ZEALANDCA28/2017[2018] NZCA 36BETWEEN CUSTOM STREET HOTEL LIMITEDAppellantAND PLUS CONSTRUCTION NZ LIMITEDFirst RespondentPLUS CONSTRUCTION CO LIMITEDSecond RespondentHearing: 19 October 2017Court: Kós P, Harrison and Clifford JJCounsel: R B Stewart QC, I Rosic and S S McMullan for AppellantA R B Barker QC and J G Walton for RespondentsJudgment: 7 March 2018 at 2 pmJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay the respondents one set of costs for a standardappeal on a band A basis and usual disbursements. We certify for secondcounsel.____________________________________________________________________REASONS OF THE COURT(Given by Kós P)[1] This appeal concerns the meaning of default provisions in a standardconstruction contract called NZS 3910:2003 (the contract). Each side has purportedto cancel the contract, asserting breach by the other. What is to happen in such a case?Background[2] The appellant, Custom Street Hotel Ltd (Custom), owns the formerReserve Bank building at 67 Customs Street East, Auckland (the site). It wished toconvert it into a hotel. On 1 November 2013 it entered a construction contract withthe respondents, Plus Construction NZ Ltd and Plus Construction Co Ltd (collectively,Plus) for $14.45 million plus GST. But problems overwhelmed the project. Plus saysthat was because of Custom's failure to obtain consents. Custom says Plus could stillhave made progress, that it failed to resource the project adequately and that it simplyabandoned the job.[3] In July 2014 Plus stopped work on the site. It advanced three claims, initiallybefore an adjudicator, under the Construction Contracts Act 2002 (CCA). Theadjudicator, Derek Firth, found fault on both sides. In a decision dated15 October 2014 he said "the fault for the shambles does not all lie at the door of Plus".But he also found there was much work Plus could have completed despite the relevantconsents being incomplete. Time was now at large. Plus was entitled to a reasonabletime to complete the work.[4] The last consent required was then obtained in November 2014. The partiesthen discussed making a fresh start. A new programme of works was canvassed.Before these discussions ended, Plus complained about non-payment of some of itsinvoices. On 27 January 2015 it issued a default notice for two outstanding paymentclaims totalling $258,508. Part of that sum had been due since November 2014. Thenotice was issued pursuant to cl 14.3.1(b) of the contract. If the principal's defaultswere not rectified within 10 working days, rights of suspension or termination arose.1The 10-working-day period would expire at midnight on 11 February 2015.1 See below at [16] of this judgment.[5] Before that, on 5 February 2015, the project engineer (the engineer) suspendedwork on the site on the basis of alleged breaches by Plus concerning site safety. Pluswas not operating on the site in any event. But the engineer advised that "all work onsite other than that required to make the site safe is suspended". The suspension wasto remain in place "until we are satisfied that you can provide a safe workingenvironment".[6] At 5.12 pm on 11 February 2015, before the 10-day working period underPlus's default notice expired, Plus sent an email to the engineer purporting to requirehim to suspend the contract works under cl 14.3.3 of the contract.2 The projectengineer, who was overseas at the time, also received a call from a representative ofPlus. The engineer told the representative the contract works were already suspendedfor health and safety reasons, and it was unclear to him how the contract works couldbe further suspended. He said that he would give the matter more consideration thenext day.[7] The following morning, on 12 February 2015, Plus wrote to the engineernoting, incorrectly, his "advice that as the work was already suspended you will notbe issuing a further suspension notice". The email went on to say that Plus wouldtherefore proceed to terminate the contract. A termination notice was attached to anemail shortly sent thereafter.[8] Later the same day Custom paid the amounts outstanding under the defaultnotice of 27 January 2015. It is common ground Custom did not pay within the 10-dayperiod in the default notice. That is, before midnight on 11 February 2015.[9] On 20 February 2015 Custom challenged the validity of Plus's notice oftermination. It also issued a notice of default itself on the basis that Plus had"abandoned the contract" and "persistently, flagrantly or wilfully neglected to carryout [its] obligations under the [c]ontract".2 See below at [16] of this judgment.[10] Plus throughout has maintained that it had validly terminated the contract on12 February 2015. It took no steps to rectify the defaults asserted by Custom in its20 February 2015 notice.[11] On 11 March 2015 Custom purported to terminate the contract for breach onthe premise that Plus had not itself terminated validly. Custom then sought to call ona performance bond.3 That required certification from the engineer.[12] On 16 March 2015 Plus sought an interim injunction to restrain the engineerfrom issuing a certificate under the bond and to restrain Custom from claiming underthat bond.[13] On about 18 March 2015 the parties entered into a settlement agreement inrespect of the injunction proceeding. The agreement records that the parties were indispute as to whether the engineer was entitled to issue a certificate, and Customentitled to make demand under the bond. The parties agreed that those issues wouldbe determined by the engineer. That was despite the fact they were partly questionsof law. If the engineer determined that he was entitled to issue a certificate, he woulddo so, Custom would make demand on the bank that had provided the bond, and theamount paid out would be paid into an escrow account pending the outcome ofarbitration. The parties agreed to refer that dispute to arbitration before theHon Rodney Hansen QC (the arbitrator).[14] On 25 March 2015 the engineer certified that $24,948,392 was properly dueand payable under the contract, this being the projected additional cost of completingthe contract works via another contractor. The following day the engineer issued acertificate under the bond, certifying that the contractor had failed to perform itsobligations under the contract, and failed to rectify its default within the time set outin a default notice, and that "[t]he amount claimed under the bond is properly dueunder the contract". The engineer certified that the bond amount of $3,612,500 waspayable.3 See below at [17] of this judgment.Three contracts[15] Three contracts are at the heart of the questions we have to consider.The contract[16] The contract is the standard NZS 3910:2003. The relevant provisions forpresent purpose are these:7.1 Indemnity7.1.1 Except as otherwise provided in the Contract Documents theContractor shall indemnify the Principal against:(a) Any loss suffered by the Principal which may arise out of, orin consequence of the construction of, or remedying of defectsin the Contract Works;(b) Any liability incurred by the Principal in respect of injuries toPersons or damage to property which may arise out of, or inconsequence of the construction of, or remedying of defectsin the Contract Works;(c) Any Costs the Principal may incur in respect of that loss orliability.14.2 Default by the Contractor14.2.1 The Principal may at its option after giving notice to theContractor either terminate or resume possession of the Site in theevent of:(a) The Contractor failing to execute the Contract Agreementunder 2.7 or the Contractor's bond under 3.1 where requiredby the Contract Documents; or(b) The Contractor subletting the whole or substantially thewhole of the Contract Works without the consent in writing ofthe Principal; or(c) The Engineer certifying in writing to the Principal that in hisor her opinion the Contractor has abandoned the contract or ispersistently, flagrantly or wilfully neglecting to carry out itsobligations under the contract;and the Contractor's default has not been remedied within 10 WorkingDays of receiving the notice.14.2.3 If the Principal elects to resume possession of the Site underthe provisions of 14.2.1 it may:(a) Forthwith expel the Contractor without terminating thecontract or relieving the Contractor from any of its obligationsunder the contract; and(b) Complete and remedy defects in any part of theContract Works remaining to be completed and for thatpurpose may let contracts for such work or employ anyPersons other the Contractor; and(c) Take possession of, use and permit other Persons to useMaterials, Plant, Temporary Works and other things which areon the Site owned by the Contractor and are necessary forcompleting and remedying defects in the Contract Works; and(d) Require the Contractor to arrange within 10 Working Days theassignment to the Principal or its nominee without paymentthe benefit of any agreement for the supply of Materials orexecution of work under the contract.In any such case the Contractor shall not be entitled to any furtherpayment until the completion of the Contract Works.14.2.4 On completion of the Contract Works, any Plant,Temporary Works and surplus Materials of which the Principal hastaken possession shall be handed back to the Contractor. TheEngineer shall enquire into the Cost to the Principal of completing theContract Works and certify accordingly. Should the amount certifiedexceed the Cost to the Principal had the Contract Works beencompleted by the Contractor, the difference between the two amountsshall be certified by the Engineer and paid by the Contractor to thePrincipal. Should the amount certified be less than the Cost to thePrincipal had the Contract Works been completed by the Contractor,the difference between the two amounts shall be paid by the Principalto the Contractor.14.2.5 If the Principal elects to terminate the contract under 14.2.1 itshall give written notice to the Contractor of its election. The contractshall thereupon be terminated. The Principal may thereupon expel theContractor from the Site and may take all or any of the further stepsin 14.2.3(b), (c) and (d), and may claim damages for the Contractor'sbreach of contract. If the Principal completes the Contract Works orarranges for them to be completed then 14.2.4 shall apply, but anyamount payable to the Contractor thereunder shall be subject to anydamages to which the Principal shall be entitled as a result of theContractor's breach. 14.3 Default by the Principal14.3.1 In the event of the Principal:(a) Failing to execute the Contract Agreement under 2.7 or thePrincipal's bond under 3.2 where required by theContract Documents; or(b) Failing to pay the Contractor the amount due under anyPayment Schedule; or(c) Obstructing the issue of any Payment Schedule or anycertificate; or(d) Becoming bankrupt or going into liquidation or having areceiver or statutory manager appointed and the assignee,liquidator, receiver or statutory manger as the case may befailing within 10 Working Days to make arrangementssatisfactory to the Contractor for continued payment ofamounts due under the contract; or(e) Abandoning the contract; or(f) Persistently, flagrantly or wilfully neglecting to carry out itsobligations under the contract;the Contractor may notify the Engineer of the default.14.3.3 If the Principal's default is not remedied within 10Working Days after the giving of such notice under 14.3.1 or 14.3.2the Contractor may require the Engineer to suspend the progress ofthe whole of the Contract Work under 6.7. Following such suspensionthe Contractor shall be entitled without prejudice to any other rightsand remedies to terminate the contract by giving notice in writing tothe Principal....The performance bond[17] On 16 January 2014 ANZ Bank New Zealand Ltd provided Custom with acontractor's performance bond of up to $3,612,500 (being 25 per cent of the contractprice). The bond was payable on receipt of the engineer's certificate, in these terms:2. The Engineer's Certificate shall state, in the Engineer's opinion:(A) That the contractor has failed to perform its obligations under theconstruction contract; and(B) That the contractor has been given notice of the failure and has failedto rectify that failure within the time set out in the notice; and(C) The amount claimed under the Bond is properly due under thecontract.The settlement agreement[18] As noted earlier, the settlement agreement of March 2015 provides a two-stepprocess for determination of the "the Dispute":Plus does not agree that the Engineer is entitled to issue a certificate or that[Custom] is entitled to make a demand on the Bond. The parties to refer tothis as (the 'Dispute').The agreement then provides for the engineer to determine that Dispute by formaldecision pursuant to clause 13.2.4 of the contract.4 Then on receipt of the engineer'sdecision it is "deemed referred to arbitration". Clause 12 of the settlement agreementprovides:12 If the arbitrator's decision is that the Engineer was entitled to issue theCertificate and [Custom] was entitled to make a demand on the Bondfor the amount certified, the arbitrator shall direct the amount certifiedto be paid to [Custom] from funds held by the Escrow firm. If thearbitrator's decision is that the Engineer was not entitled to issue thecertificate and/or [Custom] was not entitled to make a demand on theBond, the arbitrator shall direct the funds held by the Escrow firm tobe paid to Plus.Award[19] The arbitrator found the engineer was not entitled to issue the certificate. Plusvalidly terminated the contract on 12 February 2015 and could not have been in defaultwhen the engineer issued his certificate to that effect on 19 February 2015.Additionally, the engineer wrongly certified $24,948,392 was payable under eithercls 14.2.5 or 7.1.1. Instead, a claim by Custom for additional costs of completing theworks was governed by cl 14.2.4 and could only be determined upon completion ofthe Contract Works.4 The engineer's decision was described above at [14] of this judgment.Judgment[20] Custom obtained leave to appeal to the High Court on five questions of law.5The case came before Gilbert J who dismissed the appeal in its entirety.6 We set outthe reasoning of the Judge later in this judgment when we discuss the questionsreferred for our determination.[21] In a separate decision Gilbert J granted Custom leave to appeal to this Courton four of those five questions of law.7 The questions now before this Court are these:(a) Question 1: Must the nature of Plus' breach be repudiatory before Plusis disentitled from terminating the contract?(b) Question 2: Must Plus validly terminate the contract under cl 14.3.3 of,if applicable, the Contractual Remedies Act 1979?(c) Question 3: Can Custom, on a proper interpretation of cls 14.2.4 and14.2.5, recover the additional cost of completion prior to completingthe contract works?(d) Question 4: Can Custom recover the additional cost of completionwithout first having its claim admitted and determined as to liabilityand quantum?[22] The fifth question determined by Gilbert J, which is not now before this Court,was whether the arbitrator erred in holding Custom could not rely upon the amountsclaimed under the indemnity clause in the contract as amounts "properly due underthe contract". Gilbert J held the arbitrator did not so err.85 Custom Street Hotel Ltd v Plus Construction NZ Ltd [2016] NZHC 1180.6 Custom Street Hotel Ltd v Plus Construction NZ Ltd [2016] NZHC 2011 [HC substantivejudgment].7 Custom Street Hotel Ltd v Plus Construction NZ Ltd [2016] NZHC 2934.8 HC substantive judgment, above n 6, at [60].The appeal[23] The Arbitration Act 1996 governs this Court's jurisdiction. It limits appeals toquestions of law arising from the award.9 Under cl 5(10) of sch 2 to the ArbitrationAct a "question of law":(a) includes an error of law that involves an incorrect interpretation of theapplicable law (whether or not the error appears on the record of thedecision); but(b) does not include any question as to whether—(i) the award or any part of the award was supported by anyevidence or any sufficient or substantial evidence; and(ii) the arbitral tribunal drew the correct factual inferences fromthe relevant primary facts.Questions of evidential adequacy and fact are beyond this Court's remit; the Courtmust accept the factual findings made by the arbitrator.10Question 1: Must the nature of Plus' breach be repudiatory before Plus isdisentitled from terminating the contract?Award and judgment[24] The arbitrator held Plus had not repudiated the contract or evinced an intentionto do so. It was not prevented from relying on Custom's breach to terminate thecontract. The engineer was wrong to certify under cl 2(A) of the bond that Plus hadfailed to perform its obligations under the contract.[25] On appeal Gilbert J held the circumstances disentitling were not limited torepudiation of a contract.11 Breach of an essential term or other serious breachentitling the other party to cancel the contract under s 7 of the Contractual RemediesAct 1979 (CRA) would suffice.12 Custom could only terminate under the terms of thecontract for breaches by Plus if Plus failed to remedy its default within 10 workingdays of receiving notice of the engineer's certificate.13 The engineer's certificate was9 Arbitration Act 1996, sch 2, art 5.10 Carr v Galloway Cook Allan [2014] NZSC 75, [2014] 1 NZLR 792 at [14] per McGrath J.11 HC substantive judgment, above n 66, at [25].12 Now distributed among ss 36–40 of the Contract and Commercial Law Act 2017.13 HC substantive judgment, above n 6, at [26].not issued until 19 February — after Plus' notice purporting to cancel the contract.The alleged breaches by Plus could only justify cancellation prior to the expiry of the10-working-day notice period if they amounted to a repudiation of the contract byPlus. The arbitrator was therefore correct to focus on whether Plus had repudiated thecontract. Having found as a fact Plus did not repudiate, and remained ready andwilling to perform, the arbitrator had not erred.14Submissions[26] Mr Barker QC, for Plus, takes little issue ultimately with the Judge'sreasoning on this question. In short he accepts that an extant, unremedied breach doesnot have to be repudiatory to prevent a party from cancelling. But, relying on thedecision of the Supreme Court in Kumar v Station Properties Ltd, the breach wouldhave to be of an essential term to preclude exercise of a right of cancellation.15Discussion[27] We consider the Judge stated correctly the law delineated by theSupreme Court decisions in Kumar and Ingram v Patcroft Properties Ltd in thispassage of his judgment:16[25] It is clear that the circumstances in which a party may be disentitledfrom cancelling a contract are not limited to those where that party hasrepudiated the contract; a breach of an essential term or other serious breachentitling the other party to cancel the contract under s 7 of theContractual Remedies Act could be sufficient. However, such breach willonly disentitle the party from cancelling the contract where it would otherwisebenefit from its own wrong.[28] The position may be stated thus: Custom was in breach of its paymentobligations to Plus, a breach it only rectified after Plus gave notice of cancellation.After the adjudicator's decision time for performance by Plus was at large. The partieshad not yet resolved the new programme of works by which Plus's further performancemight be assessed. It followed that Plus was not, at the time it gave notice oftermination, itself in breach of an essential term. Accordingly: (1) the question of14 At [26].15 Kumar v Station Properties Ltd [2015] NZSC 34, [2016] 1 NZLR 99.16 HC substantive judgment, above n 6. See also Ingram v Patcroft Properties Ltd [2011] NZSC 49,[2011] 3 NZLR 433 at [40].whether giving notice amounted to taking advantage of its own wrong did not arise;and (2) it could only be disentitled from cancelling if it had repudiated the contract.The arbitrator found as a matter of fact that it had not done so. That factual findingmust be respected on appeal.Conclusion[29] The answer to Question 1 is "no", but in any event Plus had neither repudiatedthe contract nor breached an essential term at the time it gave notice of cancellation.Question 2: Must Plus validly terminate the contract under cl 14.3.3 or, ifapplicable, the Contractual Remedies Act 1979?[30] Question 2 really asks this question: is a suspension of the contract works bythe engineer in response to a default notice a precondition to the contractor's right toterminate under cl 14.3.3? It will be recalled that the engineer had not actuallysuspended works in response to the 27 January default notice issued by Plus. In part,because he had already suspended works for health and safety reasons.For convenience, we set cl 14.3.3 out again:14.3.3 If the Principal's default is not remedied within 10 Working Days afterthe giving of such notice under 14.3.1 or 14.3.2 the Contractor may requirethe Engineer to suspend the progress of the whole of the Contract Work under6.7. Following such suspension the Contractor shall be entitled withoutprejudice to any other rights and remedies to terminate the contract by givingnotice in writing to the Principal.Award and judgment[31] The arbitrator observed that if there was a default left unremedied within the10-working-day limit the contractor was entitled to "require" the engineer to suspendthe whole of the contract works. The engineer must then give effect to thatrequirement. The arbitrator found that a failure by the engineer to take this "purelyformal step" of issuing an instruction to suspend work would not deny the contractorits substantive rights to terminate under cl 14.3.3.[32] Gilbert J came to the same result by a different path. He disagreed with thearbitrator's interpretation of cl 14.3.3. He preferred instead to rely upon s 7 of theCRA, which provided for the cancellation of contracts.17 Clause 14.3.3 did notpreclude the application of s 7. It merely dealt with the manner of exercise of theright of suspension and the consequence of its exercise. The contractor retained theright to terminate even if it had first affirmed the contract by first exercising the rightto require suspension of works. But it was not a prerequisite, and the contractor couldelect to terminate as soon as the 10-working-day period had expired.Submissions[33] Mr Stewart QC, for Custom, submits that notice to suspend and suspensionby the engineer were essential prerequisites for termination under cl 14.3.3. Thewords "[f]ollowing such suspension" must be given effect to, and the clause should beconstrued strictly. The High Court was wrong to rely on the CRA: its availability wasnot pleaded and the question on which leave was given to the High Court was confinedto the validity of termination under cl 14.3.3.Discussion[34] We do not accept Custom's submissions on Question 2 for two reasons.[35] First, we start with the availability of cancellation rights under s 7 of the CRA.This was the basis on which Gilbert J found for Custom on Question 2. Plus's noticeof 27 January 2015 was expressed to be given pursuant to cl 14.3.1(b). Whether Plushad terminated validly was a preliminary issue in the arbitration, affecting the firstpoint of claim: whether Plus was in breach of its obligations, thereby triggering cl 2(A)of the performance bond. We do not read the pleadings, argument or authorities aslimiting justification for cancellation to cl 14.3.3. The question of substance iswhether Plus was entitled to give notice of cancellation, not whether the legal basis itasserted at the time was correct. The law of contract is not much concerned withassertions of law made by laymen. Apart from issues concerning formation ofcontract, it is primarily concerned with the legitimacy of post-contractual acts. Asecondary concern is to hold contracting parties to their word when there has beendetrimental reliance on what was said. That is seldom the case with mere assertions17 HC substantive judgment, above n 6, at [31].of law, and it is not suggested it is the case here. As a matter of common law, rescissionof a contract could be maintained even if the wrong basis therefor had been asserted.18The Supreme Court has recently confirmed that that principle survived enactment ofthe CRA.19[36] We agree with Gilbert J that justification for cancellation under s 7 alsoremained available to Plus, essentially for the reasons given by him.20 While cl 14extends the statutory suspension rights the contractor would have under the CCA, itdid not exclude contractor's rights under the CRA. That construction is consistentwith s 72 of the CCA, and its successor, s 24A.21[37] Secondly, we consider Plus in any event entitled to terminate under cl 14.3.3despite the absence of a suspension notice by the engineer under that clause. We donot construe cl 14.3.3 as establishing a suspension condition precedent to termination.Defaults by the principal qualifying for suspension or termination under cl 14.3.3 allconcern essential terms. We do not think the intention underlying the clause is that acontractor who has notified breach of an essential term, which breach has not beenremedied within the requisite 10 working days, must seek (and achieve) suspensionbefore exercising a right to cancel. Some questions might usefully be posed. What if(as here) the engineer does not act on the notice? What if (as also here) the works arealready suspended (so that the act of suspension is practically immaterial)? Is the 10-day remediation period extended by notice to suspend? If so, how long for? If not, asseems likely, then what purpose is served in any case by requiring a notice ofsuspension which is immediately overtaken, a scintilla of time later, by a second notice— this time of cancellation?[38] We see the purpose of cl 14.3.3 as clear. It creates a right to suspend, after10 working days.22 But it is a right, not a requirement. The construction of cl 14.3.3is informed by the retained right to cancel in the CRA. It makes little sense that a18 Universal Cargo Carriers Corp v Citati [1957] 2 QB 401 (QB); and Pearce v Stevens (1904) 24NZLR 357 (SC).19 Kumar v Station Properties Ltd, above n 15, at [66].20 HC substantive judgment, above n 6, at [32]–[38].21 See also MacIndoe v Mainzeal Group Ltd [1991] 3 NZLR 273 (CA) at 281 per Cooke P.22 The benefit to the contractor being that it is not itself in breach by suspending work in the face ofthe principal's breach. A similar (but narrower) right to suspend exists under s 24A of the CCA.contractor that wishes to exercise that cancellation right must first go through acharade of "suspending" and see its right to cancel mangled or misplaced if theengineer does not perform his or her duty to suspend. As we see it, therefore, cl 14.3.3must be read as creating a right to cancel once the right to suspend exists. And that"following such suspension" must be read accordingly: that the right to cancel istriggered once the right to suspend is triggered. They are not true alternatives, becausethe contractor may suspend first, and then cancel. But it need not seek suspensionbefore cancelling. That is the most logical construction of the contract, consonant withthe reasonable expectations of the contracting parties.Conclusion[39] We conclude that formal suspension of the contract works by the engineer isnot a precondition to the contractor's right to terminate under cl 14.3.3.Question 3: Can Custom, on a proper interpretation of cls 14.2.4 and 14.2.5,recover the additional cost of completion prior to completing the contract works?[40] The arbitrator held any claim for damages based on the additional cost ofcompleting the contract works is governed by cl 14.2.4 and that the quantum could notbe assessed until completion of the contract works.[41] Gilbert J agreed with the arbitrator. As he saw it, cl 14.2.1 conferred twooptions if the contractor failed to remedy a default within the prescribed10-working-day limit: the principal could cancel the contract or resume possession ofthe site.23 Clauses 14.2.3 and 14.2.4 are engaged where the principal elects to resumepossession, while cl 14.2.5 applies where the principal elects to cancel. Clause 14.2.3provides that the contractor is not entitled to further payment until completion of thecontract works. Clause 14.2.4 provides that upon completion of the contract worksany "Plant, Temporary Works and surplus Materials" taken possession of by theprincipal are to be returned to the contractor. The engineer is to enquire into the costto the principal of completing that work and certifies accordingly. If the sum certifiedis greater than the cost would have been had the contractor completed the works, thedifference is to be paid by the contractor to the principal. If less, the principal is to23 HC substantive judgment, above n 66, at [44].pay that difference to the contractor. Where the principal elects to complete thecontract works or arranges another to do so a "wash-up" follows based upon theengineer's enquiry and certification as to costs actually incurred, and that only occursonce the contract works are completed. What cl 14.2.4 does not allow is for thecontractor to claim damages based on an assessment of the projected costs to completethe works.24Submissions[42] Mr Stewart submits that the plain wording of cls 14.2.4 and 14.2.5 do notimport the temporal restriction imposed by the High Court. First, cl 14.2.4 applieswhere the principal cancels and arranges for the contract works to be completed orcompletes the contract work itself. The principal is therefore entitled to the additionalcost of completion when it organises or plans for the contract works to be completed.Secondly, the opening words of cl 14.2.4, which do not provide a temporal restriction,relate only to the principal's obligation to return certain materials to the contractor.Thirdly, the clause requires the engineer "enquire" into the cost to the principal ofcompleting the contract works. "Enquire" suggests the engineer make an assessmentbecause the actual cost is unknown. Fourthly, the enquiry is to be made into the cost"of completing the Contract Works". If the intention was as Gilbert J found, thatwould say "completed". Fifthly, the word "cost" in cl 14.2.4 is defined as including"expense or loss and overhead cost whether on or off the Site" and carries a commonmeaning throughout the contract that is plainly prospective in nature. Therefore,cl 14.2.4 is not, by definition, limited to costs actually incurred.Discussion[43] We set out cls 14.2.3 and 14.2.4 again here for convenience:14.2.3 If the Principal elects to resume possession of the Site under theprovisions of 14.2.1 it may:(a) Forthwith expel the Contractor without terminating the contract orrelieving the Contractor from any of its obligations under the contract;and24 At [48].(b) Complete and remedy defects in any part of the Contract Worksremaining to be completed and for that purpose may let contracts forsuch work or employ any Persons other the Contractor; and(c) Take possession of, use and permit other Persons to use Materials,Plant, Temporary Works and other things which are on the Site ownedby the Contractor and are necessary for completing and remedyingdefects in the Contract Works; and(d) Require the Contractor to arrange within 10 Working Days theassignment to the Principal or its nominee without payment thebenefit of any agreement for the supply of Materials or execution ofwork under the contract.In any such case the Contractor shall not be entitled to any further paymentuntil the completion of the Contract Works.14.2.4 On completion of the Contract Works, any Plant, Temporary Worksand surplus Materials of which the Principal has taken possession shall behanded back to the Contractor. The Engineer shall enquire into the Cost to thePrincipal of completing the Contract Works and certify accordingly. Shouldthe amount certified exceed the Cost to the Principal had the Contract Worksbeen completed by the Contractor, the difference between the two amountsshall be certified by the Engineer and paid by the Contractor to the Principal.Should the amount certified be less than the Cost to the Principal had theContract Works been completed by the Contractor, the difference between thetwo amounts shall be paid by the Principal to the Contractor.[44] We agree with the conclusion reached by Gilbert J on this issue. We can stateour reasons succinctly. Clauses 14.2.3 and 14.2.4 provide a clear temporal sequence.The latter clause applies only if the contract works have been completed. We reachthat view for five reasons.[45] First, it is what clause 14.2.4 itself says. It begins "[o]n completion of theContract Works". Secondly, Custom's submission that those temporal words applyonly to the first sentence would require the clause to be bifurcated, with the firstsentence to be isolated and the balance applicable to a different time period. That isan awkward and unnatural interpretation, unlikely to have been intended in a contractdrafted by and for practical professionals. Thirdly, we agree with Gilbert J thatcl 14.2.4 follows in sequence with cl 14.2.3 and deals with a situation in which theprincipal resumes possession of the site to complete the works. It is, in practical effectat least, part of cl 14.2.3. There is a natural flow through clauses 14.2.3 and 14.2.4 allof which depend on the principal electing to complete the work itself. Clause 14.2.4then provides for a wash-up, ex post completion of the works. Fourthly, the languageused later in the clause anticipates the contract works have been completed, referringto enquiry into "the Cost to the Principal of completing the Contract Work" (whichmust then be certified), and "had the Contract Works been completed by theContractor" rather than "if". The tense of the scheme is in the past; that the work hasbeen done and that definite sums are in issue. Fifthly, cl 14.2.3 states the contractor isnot entitled to any further payment until the completion of the contract works. Giventhe certification process under cl 14.2.4 may lead to a payment being made to thecontractor, that is a further indication the accounting in cl 14.2.4 takes place only oncompletion.Conclusion[46] The answer to Question 3 is "no".Question 4: can Custom recover the additional cost of completion without firsthaving its claim admitted and determined as to liability and quantum?[47] The arbitrator held any claim for the additional cost of alternative performancemust be brought under cl 14.2.4 and, as under Question 3, could only be assessed uponcompletion of the contract works. Gilbert J agreed and relied on the reasons he gavein relation to Question 3.25[48] The corresponding conclusion we reach on Question 3 means it is unnecessarynow to address Question 4.Arbitral costs[49] Custom sought to reopen the award of costs made against it by the arbitrator inthe event it succeeded here. Given the outcome here we need not deal with that point.Result[50] The appeal is dismissed.25 HC substantive judgment, above n 6, at [49]–[52].[51] The appellant must pay the respondents one set of costs for a standard appealon a band A basis and usual disbursements. We certify for second counsel.Solicitors:Gilbert Walker, Auckland for AppellantAlexanderDorrington, Auckland for Respondents