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

KIWI PROPERTY HOLDINGS LTD v FLETCHER CONSTRUCTION COMPANY LTD [2018] NZHC 1745[17 July 2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2018-404-000881[2018] NZHC 1745UNDER the Arbitration Act 1996IN THE MATTER of an arbitral award dated 1 March 2018BETWEEN KIWI PROPERTY HOLDINGS LIMITEDApplicantAND FLETCHER CONSTRUCTIONCOMPANY LIMITEDRespondentHearing: 12 July 2018Counsel: MJF Taylor and AJ McLeod for ApplicantKW Fulton for RespondentJudgment: 17 July 2018JUDGMENT OF DOWNS JThis judgment was delivered by me on Tuesday, 17 July 2018 at 11 ampursuant to r 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors/Counsel:Russell McVeagh, Auckland.Craig Griffin Lord, Auckland.KW Fulton, Auckland.The case[1] Fletcher Construction Company Ltd ("Fletchers") strengthened, againstearthquake, a building owned by Kiwi Property Holdings Ltd ("Kiwi"). The workswere performed under a contract between Fletchers and Kiwi. A key task involveddrilling into concrete walls—of the Majestic building in Wellington—and insertingbolts. Existing steel framework was to be avoided. This proved easier said than done.Fletchers repeatedly struck existing steel. And, had to make repairs. The partiesdisagreed who should bear this cost.[2] The matter went to arbitration, as required by the contract. Considerabletestimony was taken over seven days, including from four experts. The Arbitrator, theHon Rodney Hansen QC, concluded Kiwi should bear much of the cost because moststrikes were not reasonably foreseeable when Fletchers tendered for the contract.1[3] Kiwi contends it is "highly arguable" Mr Hansen misapplied the applicablecontractual 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 erroris not arguable.[4] A full Court of the Court of Appeal has emphasised the desirability of a "shortjudgment" 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. Thesepermitted price variations, and provide:If during the contract the Contractor encounters on the site physical conditionswhich it considers could not reasonably have been foreseen when tenderingby an experienced contractor and which will in its opinion substantiallyincrease its costs the Contractor shall as soon as practicable and wherepossible before the conditions are disturbed notify the Engineer and confirmsuch 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] 3 NZLR 318 at [59].On receipt of such notice from the Contractor, the Engineer shall forthwithinvestigate the conditions and after discussion with the Contractor shalldetermine whether or not the conditions are such as the Contractor has notifiedin terms of 9.5.2. To the extent that the conditions notified could notreasonably have been foreseen by an experienced contractor and will in theEngineer's opinion substantially increase the Contractor's costs, the effect ofthe 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 partiesanticipated some steel would be struck, and those strikes that occurred could have beenreasonably foreseen when Fletchers tendered for the contract. Approached anotherway, Kiwi submits the "physical conditions" referred to in cl 9.5.2 constituted existingsteel, not undetected existing steel. Consequently, all strikes were reasonablyforeseeable.[8] An appeal from an arbitral award is restricted to a question of law arising outof the award. Distinguishing between a question of law and a question of fact "can bea very difficult exercise".3 The Canadian Supreme Court has offered thisfrequently-cited distinction: "questions of law are questions about what the correctlegal test is; [and] questions of fact are questions about what actually took placebetween the parties".4[9] The same Court has said mixed questions, meaning questions that combine factand law, "are about whether the facts satisfy the legal tests".5 Authority is dividedon 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 whenFletchers encountered on-site physical conditions it could not reasonably haveforeseen when tendering. So, whether Fletchers could have reasonably foreseen, whentendering, steel in places it later encountered involves the application of a legal test to3 Williams & Kawharu on Arbitration, (2nd 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, ornearly 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 inpart on screening tests.(b) Kiwi too assumed (a).(c) There was no evidence Fletchers knew (a) was false. Availableevidence was to the contrary.(d) Fletchers believed any repair works (in the event of hitting steel) wouldentitle it to vary the price. In other words, Fletchers believed Kiwiwould bear this cost.(e) Fletchers hit steel because the frame was not symmetrical, and someassociated testing unreliable.(f) Kiwi had agreed to the associated testing, and to the way in which ithad been carried out. (Manner of testing formed part of the contract.)[12] Irrespective of how Kiwi pleads the proposed appeal, the question is whetherencountered steel was reasonably foreseeable on these facts. Prospect of appellatereversal is slim, as factual revision is impermissible in this type of appeal, andMr Hansen's factual findings would likely generate the same result. Or, as Fletchers'submissions observe:87 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 factualfindings made (and having made effective credibility findings to be able to reachsome of those conclusions) the striking of in situ steel was not reasonablyforeseeable in this case. It is not some abstract notion, but one applied and tiedup with the facts of the case. The shared assumptions of alignment of the existingsteel and agreed effectiveness of the method statement developed out of a historyof test scanning and research were key components of the conclusion reached onwhat was reasonably foreseeable in this case.[13] Moreover, Kiwi's argument involves recasting the applicable clauses to a levelof 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 inquirewhether those strikes that did occur were reasonably foreseeable (by an experiencedcontractor) at the time of tender.[14] The heavily factual nature of the case offsets the significance that mightotherwise attach to the acknowledged prevalence of cls 9.5.2 and 9.5.4 in constructioncontracts. Contrary to Kiwi's submission, an appeal would not likely generate materialprecedent in relation to either. Kiwi's proposed question is illustrative:Whether [Fletchers] was entitled to a variation under clause 9.5.2 "acceptingthe findings in the Arbitrator's award without embellishment or pleas forinferences as to the additional matters of fact that are justified as a matter ofconsistency".[15] The subject matter of the proposed appeal was central to the arbitration fromthe outset; Mr Hansen is legally qualified (Kiwi wanted him as arbitrator); andarbitration 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 contractwas worth approximately $75 million, and works are now complete.[17] To summarise, the proposed appeal does not appear to engage a question oflaw. The question is either one of fact, or mixed and heavily factual. Kiwi's relatedargument is at a level of abstraction inconsistent with what occurred. Most9 Plus GST.considerations tell against leave, including Kiwi's marginal prospect of appellatesuccess 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. Agreementis encouraged. If this proves impossible, the parties may file and serve memoranda ofnot more than four pages:(a) Kiwi by 5 pm, Tuesday 31 July 2018.(b) Fletchers by 5 pm, Tuesday, 7 August 2018...Downs J