LAKEWOOD PLAZA LTD PARTNERSHIP v DOWNEY CONSTRUCTION LTD [2022] NZHC 3286

LAKEWOOD PLAZA LTD PARTNERSHIP v DOWNEY CONSTRUCTION LTD [2022] NZHC 3286 [8December 2022]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2022-404-001236[2022] NZHC 3286IN THE MATTER of the Arbitration Act 1996BETWEEN LAKEWOOD PLAZA LIMITEDPARTNERSHIPApplicantAND DOWNEY CONSTRUCTION LIMITEDRespondentHearing: 29 November 2022Appearances: D Bigio KC and F B Collins for ApplicantC Walker KC for DefendantJudgment: 8 December 2022JUDGMENT OF VENNING JAPPLICATION FOR LEAVE TO APPEALThis judgment was delivered by me on 8 December 2022 at 11.30 am, pursuant to Rule 11.5 of theHigh Court Rules.Registrar/Deputy RegistrarDateSolicitors: Gibson Sheat, WellingtonNorris Ward McKinnon, HamiltonCounsel: D Bigio KC, AucklandC Walker KC, Auckland[1] Lakewood Plaza Limited Partnership (Lakewood) seeks leave to appeal aninterim Award dated 22 April 2022 (the Award) of the Hon Rhys Harrison KC (theArbitrator) on questions of law. Downey Construction Limited (Downey) opposes thegrant of leave.[2] Lakewood has also applied to set aside the Award in reliance on cl 34 of sch 1of the Arbitration Act 1996 (the Act). Counsel have however previously obtaineddirections by consent from the Court that the application for leave to appeal is to beheard first and that the application for setting aside is to be heard subsequently (and,if leave is granted, at the same time as the substantive appeal on the questions of law).[3] Lakewood has also, after this fixture for the leave application was allocated,filed an application for reassessment of the costs and expenses fixed by the Arbitratorin the final award. Counsel agree that the application for reassessment of costs andexpenses should be treated in the same way as the application to set aside the award.As a result, the only matter before the Court for determination is the application forleave to appeal on questions of law.Background[4] I take the background from the Arbitrator's summary as follows:8. Mr Downey is a qualified quantity surveyor who in 1995 formed hisown construction business in Hamilton before going into residentialdevelopment projects. Mr Clarke's background is in residentialinvestment, and property management and development. He alsooperated his business interests in the Waikato.9. The first project undertaken jointly by Messrs Downey and Clarkewas a 72 studio complex in McKenzie Road, Mangere, followed bytwo studio complexes in Papatoetoe, a 99 studio complex in MangereEast, and a 119 apartment complex in Hall Avenue, Mangere Bridge.While the legal entities and structures varied between these projects,they reflected the joint nature of the parties' enterprises and theirmodus operandi of purpose building apartments to lease to rentalcompanies, such as subsidiaries of LJ Hooker, which would in turnsublease them for accommodation. On completion of thedevelopment, the joint enterprise would sell the underlying freeholdinterest in the property to a third party.10. Mr Walker summarised the common elements of the projects in thisway:(a) Formation of a joint vehicle – a company, a partnership or alimited partnership – to develop and manage the project, withMr Downey taking the lead role.(b) A contract between the development entity and Mr Downey'scompany to construct the building.(c) Project funding primarily from third parties, with theconstruction contract pricing approved by an independentquantity surveyor in order to satisfy the financiers' lendingrequirements.(d) Mr Clarke or his associated entities taking the lead on themarketing and sales of the residential units.(e) Equal distribution of the profit through the joint vehicle afterpaying the costs of development, including all constructioncosts.Lakewood11. Against that background, the legal interests selected by the parties forthe Lakewood development, which was of the same residentialapartment type as the earlier projects but on a larger scale, were:(a) [Downey Construction Limited (Downey or DCL)] which hadbeen incorporated on 1 June 1995 and owned by Mr Downeyand NWN Trustees 100 Limited (which is associated with MrDowney). He is the sole director. Its function was to act asbuilding contractor for the development.(b) Duval Developments Limited (Duval), owned by DuvalGroup NZ Limited. Its shares are held by Charlotte Clarke,Mr Clarke's wife, and Karapiro Corporate Trustees Limited,in which Mr and Mrs Clarke are the shareholders. Mr Clarkeand a lawyer, Owen Culliney, are Duval's directors. Itsfunction was to develop the design concept and promotemarketing and sale of the apartments(c) Steelgrave Investments Ltd, in which Paul Bary, his wife anda trustee are the shareholders. Mrs Clarke is Mr Bary's niece.Steelgrave was to participate as a passive investor.(d) Lakewood Plaza Limited Partnership, formed on 30September 2014, the shares being held as to 40% by each ofDowney Management Limited (DML), which has the sameownership and directorship structure as DCL, and 40% toDuval. Steelgrave holds the remaining 20%. The limitedpartnership was to be the ownership vehicle.(e) Lakewood General Partner Limited, incorporated earlier on27 March 2014, as the general partner with the members ofthe limited partnership holding the shares in proportion totheir interests in that entity. Its directors are Messrs Downey,Kristen Holland (who is Duval's nominee), and Bary. Itsfunction was to manage the business of the generalpartnership. Mr Holland is a well-qualified and experiencedquantity surveyor who commenced work with Duval inOctober 2018 as its development and construction director.14. Consistently with their previous joint ventures, the partners agreed tointroduce minimal capital to the Lakewood project. Funding was fromthird party lenders - Industrial and Commercial Bank of China (NZ)Ltd (ICBC) and Varde Ltd which agreed to advance $39.250m and$20m respectively. The partnership's capital contributions were$500,000 from Steelgrave and $250,000 from DML. As Duval wasunable to contribute capital, it was agreed that its contribution was tobe through project management services.15. Mr Walker observes that this model offered the potential benefit of agood return for minimal outlay. Each project faced the same risk –that the limited capital plus the agreed third party funding may proveinsufficient, either temporarily because of negative cashflow orpermanently due to a loss on the project. In the event that funds wereexhausted, the members of the limited partnership would have tointroduce extra capital or refinance. However, if they were unable toachieve that result, one partner would have to carry the costs untilfunds became available from any surplus to repay the lender.Formation and Implementation of Lakewood Construction Contract17. On 31 March 2017 Downey contracted with Lakewood to construct a17 storey, 151 residential apartment building with two basement levelcarpark and amenities at 8 Lakewood Court, Manukau. The designwas later amended to incorporate a podium level of commercialspaces. The contract was on the standard NZS 3910:2013 form asmodified by the Special Conditions in Schedule 1 and Schedule 2. Insummary, it provided for (a) a lump sum price of $44.396 m; (b) DCLto give a performance bond of $2m; (c) possession of the site to DCLon 19 June 2017; (d) a completion date of 18 months fromcommencing work; (e) liquidated damages fixed at $5,375 perworking day; and (f) a defects notification period of three months.18. The contract appointed Michael Casey of Kingstons, quantitysurveyors, or his nominee as the Engineer. The general conditionsobliged DCL and the Engineer each to notify the other in writing assoon as they became aware of any matter which was likely tomaterially alter the contract price or delay completion of the contractworks; if DCL failed to notify the Engineer of a matter which it oughtreasonably to have done so, any variation arising out of it should bevalued as if notification had been given and might reasonably haveresulted in its impact being avoided and reduced. Lakewood wasobliged to ensure that there was an engineer at all times.19. The parties had started planning for the Lakewood project some yearsearlier. A Downey entity purchased the land in June 2013. AucklandCouncil granted DCL a resource consent on 12 March 2014. Over thenext three years the parties incorporated all the participating legalentities in the structure to govern the building project which was to bein three construction stages. On 8 December 2016 Auckland Councilissued what is described as the Stage 1 building consent, enablingdemolition of the existing building, earthworks, and construction ofthe substructure and superstructure.20. As with their previous projects, the parties did not open the Lakewoodconstruction contract for competitive tenders. Mr Bigio described thisprocess as "non-traditional". Downey submitted its tender based ondesign drawings by an architectural firm, Archimedia (described asbeing "for construction" for Stages 1 and 2, and "for consent" forStage 3 on the premise that it was by then at least 90% designed).Cameron Puckey, DCL's commercial manager, who is also a well-qualified and experienced quantity surveyor, gave evidence that heundertook a full measure of quantities and obtained subcontractor andmaterial tenders for each building element when assessing theconstruction costs on Archimedia's drawings. Kingston Partnersindependently assessed the tender and price and submitted a fullreport to the prospective lenders for funding purposes. Mr Clarkeunderstood that Kingston's report expressed its satisfaction that DCLhad properly priced the project. The firm also prepared drawdownreports to the lenders progressively during the course of the project.21. Downey's tender was submitted on 31 March 2017 and forms part ofthe formal contract. According to Mr Downey, but disputed by MrClarke, DCL's tender price was fixed on the same basis as was usedin the previous projects where the contractor was to receive its actual,reasonable costs of construction. To the extent that the price paidunder the contract, including a 4% margin, exceeded DCL's actualcosts, the balance would be returned to the partnership. Equally, tothe extent that the price being paid under the contract did not captureall of DCL's actual costs, the difference would be paid before thepartners took their shares. The partnership's accountant, at the end ofeach project, assembled all of the costs, including DCL's costs,allowing the difference between total costs and price received fromsales as the partnership profit to be divided in the agreed proportions.22. DCL's lump sum tender price included direct overheads ("Preliminary& General"), which were estimates of actual costs. Kingston hadreported on this item as an estimate of 10% - an approximation ofcosts rather than a percentage share or uplift. On Mr Downey'sevidence, a margin is normally added to cover indirect overheads, riskand profit. DCL included a margin of 4% on direct costs includingoverheads. If the contract was at an arm's length, DCL would notconsider charging a margin less than 8%.23. This issue featured prominently in the evidence of Messrs Downeyand Clarke and in Mr Walker's opening. However, in closing MrWalker accepted that with DCL's withdrawal of its second cause ofaction, to which I shall return, the issue was now moot.Construction Phase Delays24. Downey commenced construction work on 19 June 2017 inaccordance with the Stage 1 building consent. The Stage 2 buildingconsent for fitout and services was issued on 7 December 2017; itsterms are not in dispute. Stage 3 will be the subject of furtherconsideration. The expected completion date was 18 January 2019,just over 18 months away. In fact, the works were not completed until5 October 2020, a delay of some 20 months.25. DCL attributes the major delays in completion, leading to its claimsfor variations or extensions of time, to four major factors: [1]Additional groundworks required; [2] a major redesign of the façadeincluding fire protection and fresh air ventilation; [3] an extensiveredesign of the podium; and [4] the consequences of COVID-19lockdowns. I shall summarise each separately.[5] As the Arbitrator recorded, practical completion under the contract was notachieved until 5 October 2020. Prior to that, on 31 July 2020, the engineer to thecontract, Mr Casey, had confirmed Downey was responsible at that point for 246 daysof delay.1 As a result, Lakewood deducted liquidated damages of $1,322,250. On 22September 2020, Downey claimed for variations, extensions of time for the full periodof delay (435 working days), time related costs and interest, which amounted to a totalclaim of $13,145,323.01.[6] In the award the Arbitrator noted that, in closing, Mr Walker KC had recast andreduced Downey's claim to a total of $9.687 million made up of:(a) $3,987,838 for the base costs of 70 individual variations;(b) $492,613 for preliminary and general and associated base costs onthose variations;(c) $3,652,922 for time related and P&G thickening costs; and(d) $1,563,576 for interest.1 The document is dated 21 August 2020.[7] Lakewood disputed liability and raised an affirmative defence based on latenotification and prejudice. It counterclaimed for $596,725 to recover variationpayments which it alleged were incorrectly certified or agreed.The Award[8] In the Award the Arbitrator concluded, inter alia:(a) Downey should be granted an extension of time of 50 working days tobe taken into account against the existing delay of 243 working daysfor the period from 31 July 2019 to 31 July 2020 for which an extensionhad not been granted;(b) that Downey's net claim for time related costs of $1,531,576 wassustainable for 50/243rds of its existing quantification to represent theextent to which the extension claim was allowed; and(c) Lakewood was liable to pay Downey's claim for thickening costs of$1,414,319 (described as the additional overhead costs associated withthe approved variations).[9] The Arbitrator then went on to make a series of consequential declarations:(a) reducing Lakewood's entitlement to liquidated damages;(b) quashing the call of the bond or setting the call aside pending theparties' recalculation and settlement of the respective entitlements interms of the Award;(c) directing Lakewood to repay $200,000 retentions to Downey; and(d) confirming Downey's entitlement to an award of interest on arecalculated amount according to the terms of the Award.[10] Costs were reserved.2The grounds for leave to appeal[11] In its application for leave, Lakewood set out the following grounds ofchallenge to the award:(a) the Arbitrator was wrong in law to determine that Downey was entitledto an extension of time of 50 working days;(b) the Arbitrator erred in determining that Downey was entitled topayment in full for the base costs of 70 variations;(c) the Arbitrator erred in determining that Downey was entitled to theamount of $1,414,319 for P&G thickening; and(d) the Arbitrator erred in determining that Downey was entitled to therelease and payment of $200,000 in retention moneys.[12] In his written submissions for Lakewood, Mr Bigio KC refined the issues as:(a) Issue One: Did the Arbitrator err in awarding Downey an extensionof time of 50 working days when there was no cogent evidence thatthat there had been any causative delay to the completion date causedby design changes to the podium?(b) Issue Two: Whether the Arbitrator erred in awarding Downey theamount of approximately $1.8m in variations which are based onevents or circumstances that arose prior to 6 December 2018 withoutregard to:a. whether there was in fact any contractual entitlement; andb. an admission by Mr Downey that it had no further variationclaims, beyond what had already been claimed and paid, priorto the date.(c) Issue Three: Did the Arbitrator err in awarding Downey the amountof $1,414,319 in 'P&G thickening' when he failed to undertake theassessment required under the Contract?2 Costs and expenses were subsequently fixed in the final Award.[13] Mr Bigio KC did not pursue the fourth ground for leave in submissions (notedat [12](d) above) before the Court. I need not consider that further.Jurisdiction[14] The jurisdiction under the Act for appeals from arbitration awards isdeliberately constrained. Clause 5 of the Second Schedule to the Act applies to thepresent application. Lakewood may only appeal on a question of law and with leaveof the Court.[15] Clause 5(2) confirms the Court must not grant leave (the threshold point)unless it considers that:having regard to all the circumstances, the determination of the question oflaw concerned could substantially affect the rights of 1 or more of the parties.[16] If the threshold is satisfied, the full Court of the Court of Appeal in Gold andResource Developments (NZ) Ltd v Doug Hood Ltd identified the followingconsiderations that the Court should then take into account when deciding whether ornot to grant leave:3• The strength of the challenge/nature of point of law• How the question arose before the arbitrator• The qualifications of the arbitrator• The importance of the dispute to the parties• The amount of money involved• The delay in going through the Courts• Whether the contract provides for the arbitral award to be final andbinding3 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA).• Whether the dispute is international or domestic.[17] Importantly, any appeal under cl 5 is limited to questions of law. In Gold andResource Developments, the Court of Appeal noted:[55] While not expressing a final view, we see some force in the argumentthat whether there was any evidence to support a particular finding of factmade by the arbitrator is not a question of law in the context of the 1996 Act.In Edwards (Inspector of Taxes) v Bairstow [1956] AC 14 at p 29 ViscountSimonds said that findings of fact made by a tribunal could be set aside by aCourt if it appeared that the tribunal had acted without any evidence, or upona view of the facts which could not reasonably be entertained. The authors ofMustill and Boyd, Commercial Arbitration assert at pp 592 – 593 and 596 thatthis principle cannot be applied to the review of arbitral decisions. To do so,they say, would be to broaden the basis on which arbitral awards can beappealed on questions of law. This would be contrary to the general principlethat the arbitrator is master of the facts (now to be found in this country inart 19(2) of the First Schedule to the 1996 Act) and to the specific aims of thelegislation, which include the promotion of finality in arbitral awards and thelimiting of judicial intervention. See also David Williams QC, Arbitration andDispute Resolution [2000] NZ Law Review 61 at pp 77 – 78, citing Russellon Arbitration (21st ed, 1997) para 8-057.[18] The Act was subsequently amended by s 9 of the Arbitration Amendment Act2007 by the introduction of cl 5(10) to sch 2. Clause 5(10) provides:Clause 5 of Schedule 2 is amended by adding the following subclause:(10) For the purposes of this clause, question of law—(a) includes an error of law that involves an incorrectinterpretation of the applicable law (whether or not the errorappears on the record of the decision); but(b) does not include any question as to whether—(i) the award or any part of the award was supported byany evidence or any sufficient or substantialevidence; and(ii) the arbitral tribunal drew the correct factualinferences from the relevant primary facts.[19] To support the proposed amendment of cl 5(10)(b), the Law Commissionreferred to the following statement by Lord Mustill in Pupuke Service Station Ltd vCaltex Oil NZ Ltd:4Where the criticism is that an arbitrator has made an error of fact, it is analmost invariable rule that the Court will not interfere. Subject to the mostlimited exceptions, the findings of fact by the arbitrator are impregnable,however flawed they may be.[20] The authors of Williams & Kawharu on Arbitration note:5Clause 5(10)(b) was added to cl 5 by the Arbitration Amendment Act 2007 toresolve uncertainty which had arisen in a series of cases on whether the secondand third categories identified in Wotherspoon were available grounds forappeal against an arbitral award With these categories now expresslyexcluded from cl 5, only a conventional legal question remains as the solebasis for an appeal. For the purpose of an appeal, therefore, the facts areassumed to have been correctly stated by the tribunal in its award. Questions of fact dressed up as questions of law are impermissible. [21] As to the approach to granting leave, the Court of Appeal confirmed in Goldand Resource Developments (NZ) Ltd that when considering the strength of thechallenge, if it is a one-off point without precedent value either generally or to theparties on another occasion then, unless there are very strong indications of error, leaveshould rarely be given. Even in other cases (which may have some precedent value)the Court will be looking for a strongly arguable case for leave to be granted.[22] Finally, I note that in Gold and Resource Developments the Court helpfullynoted as to process:6[58] If the Judge decides to grant leave, reasons should ordinarily not begiven. It is undesirable that the Judge who is to hear the substantive argumentshould be embarrassed or influenced by the existence of written reasons.[59] If leave is not granted, the Judge should deliver a short judgment forthe benefit of the parties indicating, where necessary, whether the matter inissue is considered to be one-off, and why the case did not meet the requiredstandard. A detailed analysis of the alleged error of law is not required.4 Pupuke Service Station Ltd v Caltex Oil NZ Ltd Appeal No 63/94, 16 November 1995 reported asan appendix to Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd, above n 3, at 339,cited in Law Commission Improving the Arbitration Act 1996 (NZLC R83, 2003) at [123].5 David AR Williams Williams & Kawharu on Arbitration (2nd ed, LexisNexis, Wellington, 2017)at [18.4.2] (footnotes omitted).6 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd, above n 3.Threshold issue — Could determination of the questions of law proposed byLakewood substantially affect the rights of one or both of the parties?[23] Lakewood submits the financial effect of awarding an extension of time of 50working days is substantial. It resulted in a reduction of Lakewood's liquidateddamages' claim of $268,750 and Lakewood was ordered to pay time related costs toDowney in the sum of $353,603. Further, Lakewood was ordered to pay Downey asum equivalent to 50/243rds of its time for time related cost constituting part ofvariation 110 totalling $315,139.09 together with interest.[24] Next, the allowed variations of approximately $1,800,000 were significant.Lakewood was also ordered to pay P&G thickening of $1,414,319.[25] I accept that determination of the proposed questions of law (if they areproperly assessed as such) could substantially affect the financial position and thus therights of the parties.[26] I then turn to the matters identified by the Court of Appeal that the Court mustconsider when determining whether to exercise its discretion.The strength of the challenges[27] The first issue is whether it is strongly arguable that the Arbitrator erred in lawas suggested by Lakewood.The extension issue[28] Mr Bigio submitted the Arbitrator's analysis at [150] and [151] of the Awardin which he concluded the Lakewood initiated podium redesign had a consequentialeffect on Downey's completion of the work was wrong in law as:(a) his assessment was wrongly premised on the proposition the referenceto a "fair entitlement" permits a notional estimate to achieve what hemay have considered to be "job site justice"; and(b) putting aside the critical path methodology was a fundamentaldeparture from the contractual provisions which required an assessmentof the knock on effect to the completion date.[29] The relevant paragraphs of the Award were:150. In closing Mr Walker postulated that while Mr Walton's analysis isneither perfect nor ideal, and has apparent limitations, the contractualthreshold of a '...fair entitlement..." does not require proof to a highforensic standard. I agree. However, it does require an evidentialfoundation falling generally within the realm of reliability on whichthe fairness threshold can be evaluated. Downey did not discharge thatonus here. It follows that I reject Mr Walker's associated submissionthat Lakewood bore an onus of advancing an alternative analysis. Itwas DCL which was obliged to prove its claim; I agree with Mr Bigiothat Lakewood carried no affirmative burden of disproving it.151. Nevertheless, I repeat that this is quintessentially a factual inquiry.Downey's expert evidence has not carried the day. But, putting asidethe critical path methodology, I am satisfied from all the relevantevidence that the Lakewood initiated podium redesign did in fact havea consequential adverse effect on Downey's completion of the podiumfitout work. Like Mr Walton, Ms Simnor acknowledges the reality thatvariation works can be disruptive and increase the time for completionof construction. On the other hand, she draws attention to statementsmade in DCL's July, September and October 2019 reports referring toreglazing work, rain damage and elevation problems which caused atwo or three week delay in fitout work on the upper levels.[30] Mr Bigio noted the Arbitrator's reference to a "fair entitlement" and referredto the Arbitrator's earlier reference to an "unfettered discretion of whether to award anextension of time". He submitted that an entitlement to an extension of time is not anunfettered discretion or based on a fair entitlement. It must be an objective and logicbased exercise having regard to the critical path of the project and an event relied onfor an extension must be shown to have caused a "knock on effect" to the due date forcompletion.[31] Mr Bigio submitted that missing from the Arbitrator's analysis was the fact thatan extension of time can only be assessed by whether an event actually caused a"knock on effect" to the completion date. He submitted that, contrary to the authorityof John Barker Construction Ltd v London Portland Hotel Ltd,7 which required a7 John Barker Construction Limited v London Portman Hotel Limited (1996) 83 BLR 31.logical analysis of the impact of the changes on the programme the Arbitrator hadeffectively made an impressionistic assessment of the time taken by relevant events.Putting aside the critical path methodology was a fundamental departure from thecontractual provisions which required an assessment of the knock on effect to thecompletion date.[32] Further, despite concluding that Downey had not discharged its onus inestablishing the evidential foundation the Arbitrator had erred by going on to awardan extension of 50 days.[33] Mr Bigio argued the Arbitrator had erred by focusing on design changes to thepodium and by treating the podium (commercial space) redesign changes as events inisolation to the rest of the project without regard to other ongoing culpable delays byDowney. He had ultimately made an assessment without cogent evidence of what, ifany, causal effect it had on the completion date.[34] Mr Walker's first point in response was that Lakewood's criticism that therewas no cogent or probative evidence overlooked the clear wording of cl 10(b) of sch 2to the Act which excludes from a question of law any question whether the award wassupported by any or any sufficient or substantial evidence. The point was clearly afactual one rather than a question of law.[35] Next, he made the point the premise of the challenge was incorrect. While theArbitrator had accepted Downey had failed to discharge its evidential burden ofproving its claim, that was in relation to the full extension sought of 435 working days.The Arbitrator was nevertheless satisfied from all the relevant evidence that theLakewood initiated podium redesign did in fact have a consequential adverse effecton Downey's completion of the podium fit-out work. For that reason he had allowedthe 50 working days' extension.Analysis — the extension issue[36] While the Arbitrator referred to an "unfettered discretion" that was in thecontext of his reference to cl 10.3.1 of the General Conditions which provided for anextension if the Contractor is "fairly entitled to the extension" by reason of one ormore of the qualifying factors.8 The Arbitrator was not suggesting the discretionshould be exercised in an unprincipled way or without regard to the evidence.[37] I consider Mr Bigio's reliance on the Arbitrator's comments at [151] of theaward where he referred to putting aside the critical path methodology as beingoverstated. The Arbitrator was quite clear about the importance of the critical pathmethodology. He discussed it at [128] through to [133] of the Award before thenconsidering the four time windows identified by Mr Walton. The Arbitrator rejectedthe first three but then concluded an allowance of 50 working days was appropriate inrelation to window 4. The Arbitrator took into account the contract constructionprogramme allowed 99 working days for the podium fitout. Mr Walton's window 4evidence was unchallenged that the process took 243 working delays, a delay of 144.The Arbitrator also accepted Mr Walton's evidence of 13 major variations to the fitoutworks necessitated by the podium redesign, ranging from revised ventilation andextract designs to vents added to kitchen cabinetry. He accepted the cumulative effectwould have been materially disruptive to completion of the construction programmewhich by implication must have affected the critical path.9 The Arbitrator thenconcluded a modest allowance of 50 working days as appropriate to recognise theimpact of the variations on the time taken. That was not so much an "impressionisticassessment" of the time taken by the relevant events but rather was a factual findingof the appropriate allowance on the basis of the evidence.[38] I do not consider Lakewood to have an arguable case the Arbitrator made anerror of law in the way he assessed Downey's fair entitlement to the extension of timeunder general conditions, cl 10.3.1 of the contract.The variations[39] Next, Lakewood submits the Arbitrator erred in awarding Downey the amountof approximately $1.8 million in variations based on events or circumstances thatarose prior to 6 December 2018. Mr Bigio submitted that the Arbitrator erred as hedid not undertake any assessment of Downey's contractual entitlement to the claimed8 Award, above [1], at [128]9 At [152].variations and ignored Mr Downey's concession in cross-examination there were nooutstanding variations prior to refinancing in December 2018.[40] Clause 9.1.1 of the General Conditions of Contract provided:The Engineer may order any Variations to the Contract Works within the scopeof the Contract that:(a) Increase or decrease the quantity of any work;(b) Omit any work;(c) Change the character or quality of any Material or work;(d) Require additional work to be done; or(e) Change the level, line, position, or dimensions of any part of theContract Works.[41] Mr Bigio submitted that, to be entitled to a variation Downey had todemonstrate it was entitled to the variation under cl 9.1.1 or, where something was notordered by the engineer to the contract and where Downey considered it a variation, ithad to give notice of that in accordance with cl 9.2.3. On this basis he argued that theArbitrator erred in law in failing to undertake an assessment under the contract as towhether the variations claimed for work that pre-dated December 2018 actuallyqualified as variations.[42] Mr Walker noted that, during the course of the arbitration senior counsel forLakewood had advised that Lakewood did not really dispute that the work in questionwas additional had been done and that the cost claimed in respect of it had beenincurred. Nor was it in dispute that the works in question were not in the originalscope of work. The defence had been that Downey was contractually responsible forthe design and consents so the differences could not constitute variations. TheArbitrator considered that submission but rejected it. It followed the items werevariations under cl 9.1.1.[43] To support the argument that Mr Downey had made a concession there wereno outstanding variations, the particularly relevant concluding passage in the evidenceMr Bigio relied on was:Q. Mr Downey, I'm trying to be as precise as possible and I want to talkabout the actual and not the theoretical. All that existed in December2018 was the theoretical possibility that you would be makingvariation claims in the future; isn't that right?A. Correct.[44] Mr Walker submitted that the background to the financing of the contractexplained why Downey did not submit its variation in December 2018. Further, hesubmitted that on the evidence of the transcript read as a whole there was noconcession but that, in any event, whether there was a concession or not was a questionof fact rather than law.Analysis — variations[45] The theme of Lakewood's defence on this point was that the parties hadeffectively settled entitlements in respect of variations prior to 6 December 2018.However, the Arbitrator rejected that.10 It was open to him to do so.[46] The Arbitrator was then left with Mr White's analysis of the variations which,subject to the issue of whether Lakewood was prejudiced by the lateness of the claim(discussed below) were properly claimable by Downey under cl 9.1.1.[47] Next, Mr Downey's "concession" must be read with his earlier evidence whenhe discussed the reason why the variations were not submitted by December 2018. Atp 57, line 11, the following exchange took place:Q. Sorry, I may not have phrased my question elegantly. What underpinsthe approach in this letter, is that the Limited Partnership or Mr Clarkeand his interests don't accept that the costs that Downey Constructionhave incurred are necessarily claimable under the Contract asvariations; don't you agree?A. No, I don't agree with that. I think he knows they're variations at thisstage and he certainly mentions there that, you know, you need to fundthe project until you are able to submit the variations. He knew thatwe couldn't submit them at the time because the LP had no cash.[48] The Arbitrator was alive to the issue. He identified it:10 At [110].90. By way of background, Downey's position is that on 6 December2018 Lakewood's existing funding facility did not allow DCLsufficient leeway to claim and receive payment in full of its claim of$1.135m or thereabouts. Any payment claim, if made, with anappropriate payment schedule, was likely to trigger capitalcontribution obligations from the limited partnership in accordancewith the facility. Downey pleads the existence of what is said to be aClaims Understanding that DCL would withhold payment claims forvariations and other matters, giving rise to an entitlement to additionalpayment and where necessary an extension of time on theunderstanding that these claims would be submitted at the end of theproject when funding was available.[49] While Lakewood did not accept that position, ultimately the Arbitratoraccepted Downey's position:93. What then is the relevant factual context? By early December 2018Lakewood's funding lines were nearly exhausted. The partnership'sexisting mezzanine loan facility with Varde was onerously expensive.It was negotiating with Clearwater Partners Ltd to refinance that debt.At the same time Downey was suffering delays and incurringsubstantial costs related to both the extra groundworks and the façaderedesign. Mr Downey knew that DCL's claims for the associated costswere going to challenge Lakewood's contingency limit in thefinancing facility for construction overruns. Underlying Mr Downey'sfinancing concerns was his knowledge that Mr Clarke and his interestswere not in a position to contribute further capital to the project if thefinanciers withdrew. On the other hand, Mr Holland knew thatDowney was being stretched by the Engineer's limitation onPreliminary & General claims; that as a result the company washaving to bear all costs associated with the project delays andvariations; and that it wanted a prompt agreement on those issues bythe parties' joint direction to Mr Casey.[50] The Arbitrator rejected Lakewood's argument that on 6 December 2018Downey had agreed to accept a payment in full settlement of its existing or futurevariation claims. He then went on to note that it was common ground that Downeywas late in providing its variation claims after 6 December 2018 but that there was notime bar on submitting variation claims. He identified the ultimate issue was whetherLakewood had suffered prejudice as a result of the delay.[51] The Arbitrator concluded that Lakewood had not been prejudiced and therevised claim for its base costs for the 70 variation claims, fixed by reference to MrWhite's expert evaluation, was fair and reasonable. They are factual findings that wereopen to the Arbitrator. The claim for the variations was not precluded by any waiverby Mr Downey.[52] Again Lakewood fails to make out an arguable case the Arbitrator erred inconcluding that the items claimed for variations were properly claimed.The P&G thickening claim[53] Lakewood says the Arbitrator erred in law by:(a) misdirecting himself as to the contractual test by simply accepting allof Downey's costs claimed for P&G thickening costs as fair andreasonable under cl 9.3.9; and(b) the Arbitrator did not apply or assess a reasonable percentage despitethat being an express requirement of the contract.[54] Lakewood argues that, having identified a detailed regime for value andvariations the Arbitrator failed to apply that regime. Downey could not explain thebasis of the cost claimed or explain why some of the amounts claimed under P&Gthickening were for periods before any variations arose. Mr Bigio noted P&Gthickening was not a term under the contract.[55] Mr Bigio submitted that cl 9.3.9 applied and that the Arbitrator had not used areasonable percentage when fixing the P&G overheads:9.3.9 For On-site Overheads, where the Special Conditions state that theprices and rates in the Schedule of Prices are exclusive of On-siteOverheads or where 9.3.7 applies, there shall be added to the BaseValue a percentage to cover all On-site Overheads (except thosecovered under 9.3.11, 9.3.14, and 9.3.15). This percentage shall bedetermined as follows:(a) Subject to 9.3.12, where the Special Conditions or Scheduleof Prices nominate a percentage for On-site Overheads, thepercentage so nominated shall be used; or(b) Where no percentage is nominated, a reasonable percentageshall be used; and(c) To the extent the prices or rates in the Schedule of Pricesinclude allowance for On-site Overheads, no percentage shallbe added.[56] Mr Bigio drew the Court's attention to the original pricing for the job.Preliminary and Generals were assessed at $3.86 million. The total price was $42.6million, so the P&G's originally represented approximately nine per cent of the costof the job. Lakewood's case is that if the original P&G represented about nine percent of the price it was disproportionate to allow the increased claim which was closeto 33⅓ per cent.[57] Mr Walker submitted the point Lakewood now takes that because the Arbitratoraccepted the claim costs as being fair and reasonable and did not apply or assess areasonable percentage to the base value as required by cl 9.3.9(b) was not a point madeat the hearing itself. Downey had quantified the additional P&G costs globally invariation 110 rather than ascribing a particular type and quantum to each variation.[58] Mr Walker submitted the alleged errors only raise questions of fact rather thanlaw. Even though the alleged error had been reformulated in submissions Downeyhad led evidence of its claims in respect of additional P&G costs through both MrPuckey and its expert Mr White. Mr White went through each of the costs undervariation 110, including the time related or thickening costs. It was open to theArbitrator to accept that evidence. Whether the Arbitrator had sufficient evidence forhis finding the variations entailed $1,414,319 in thickening and P&G costs was aquestion of fact. If Lakewood wanted to know what percentage the $1,414, 319represented of the net costs of the variations awarded whether globally or individuallyit could divide the former by the latter.Analysis — P&G thickening[59] I agree with Mr Walker's point that Lakewood's approach on this issue assumesthat there was a proportionality between the original work and the varied work. Butthe evidence was this was a project that was essentially extended by 50 per cent whichrequired a substantial amount of additional work. More to the point, the constructionwas altered in such a way it was highly causative of increased costs. Those werematters of evidence for assessment by the Arbitrator.[60] What constituted a reasonable percentage would have required considerationof the additional items of P&G claimed. Otherwise to fix a percentage without regardto those items would have been arbitrary. The Arbitrator effectively reviewed theevidence of the additional P&G claims and concluded the items claimed werereasonably claimed. While he did not express them in a percentage, he could have.The Arbitrator's approach was a practical one. I consider it to have been open to him.[61] The terms of special condition 9.3.9 do not assist Lakewood's argument that areasonable percentage had to be expressly identified.[62] Special condition 9.3.9 provided:(b) The prices and rates in the Schedule of Prices are exclusive of On-siteOverheads and the allowance for On-site Overheads to be added inaccordance with 9.3.9 is(i) Agreed percentagewhich was then noted as:Preliminary and general costs on variations are to be assessed and agreed withthe Contract Admin QS / Engineer to the contract (%).[63] Notably, the special condition provided for the P&G costs on the variations tobe assessed (and agreed). It is a question of fact whether the amount assessed by theArbitrator for the P&G costs on the variation was ultimately a reasonable percentage.[64] The Arbitrator worked out the individual variations globally under variation110. As Mr Walker submitted, it would be a relatively simple matter to work out whatpercentage of the variations that global amount represented. If the individual amountsclaimed were themselves reasonable then it is difficult to see how the resultantpercentage, whatever it was, could be said to be unreasonable, or, put another way, tobe so unreasonable as to amount to an error of law.[65] I do not consider Lakewood to have a strongly arguable case for error of lawon this point.Other relevant factorsHow the question arose[66] The issues Lakewood now raises are issues which were directly the subject ofarbitration, namely the claims for extensions, variations and increased P&G costs.Generally, if the proposed questions are the very reason for the arbitration (as they arein this case) that will weigh against leave.The qualifications of the Arbitrator[67] Where the Arbitrator is legally qualified (here a retired Judge of the SeniorCourts) it is more difficult to obtain leave on a question of law.11Importance of the dispute and the amount of money involved[68] These factors run together in the present case. I accept that there are importantfinancial consequences to both parties.Whether the contract provides for the arbitral award to be final and binding[69] The submission to Arbitration provides it will be final and binding.12 Thatunderscores the need for scrutiny as to whether the proposed questions of law arestrongly arguable.Precedential value[70] Despite Mr Bigio's submissions I consider the points raised to be theapplication of general principles to the facts of this particular case and not to raise anyparticular issues of construction of the relevant contractual provisions.Delay[71] Mr Walker made the point that if leave were granted it would be some monthsbefore the appeal would be heard. In the meantime, there are a number of other issues11 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd, above n 3, at [54].12 At cl 1.1 of the Agreement to Arbitrate.between the parties. For example, oppression proceedings have already been issuedrelating to the way the business has been conducted. Also Duval Developments Ltdhas now sought to liquidate both the company and the partnership.Summary/result[72] I do not consider Lakewood to have made out it has strongly arguable questionsof law which this Court should consider. Taken overall, the remaining generalconsiderations do not support the grant of leave.[73] For the above reasons the application for leave to appeal the Award isdismissed.Costs[74] The respondent is entitled to costs on a 2B basis to be fixed by the Registrar.__________________________Venning J