IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV-2009-404-3784

UNDER the Judicature Amendment Act 1972 and the Court's inherent power of review

IN THE MATTER OF an application for review

BETWEEN REDHILL DEVELOPMENT (NZ) LIMITED

First Plaintiff

AND SONSRAM DEVELOPMENT HOLDINGS LIMITED

Second Plaintiff

AND ARJUN SAMI

Third Plaintiff

AND ROBERT JOHN GREEN

First Defendant

AND HEB CONTRACTORS LIMITED

Second Defendant

Hearing: 23 July 2009

Appearances: Mr J Miles QC, Mr S Price and Ms J Batchelor Smith for plaintiffs

Mr J Billington QC, Mr D Hughes and Mr M Taylor for defendants

Judgment: 5 August 2009 at 11 am

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JUDGMENT OF LANG J

[on application for judicial review of adjudicator’s determination]

___________________________________

This judgment was delivered by me on 5 August 2009 at 11.00 am, pursuant to Rule

11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

[1] This proceeding raises important issues in relation to adjudication determinations issued pursuant to the Construction Contracts Act 2002 (“the Act”).

[2] In particular, it concerns the scope of an adjudicator’s jurisdiction to make further determinations once he or she has concluded that a developer has lodged a payment schedule outside the time limit prescribed by the Act. It also raises the issue of whether, and to what extent, an adjudicator can hold a landowner who is associated with the developer liable under the Act. In particular, it relates to the liability of an associated landowner who acquires part of the construction site after the contractor has completed construction works on the site.

[3] In order to understand these issues it is necessary to briefly set out the factual background. By and large this is not in dispute.

Factual background

[4] The first plaintiff, Redhill Development (NZ) Limited, is a property developer. The second plaintiff, Sonsram Development Holdings Limited, is Redhill’s sole shareholder. The third plaintiff, Mr Sami, is a director of both Sonsram and Redhill.

[5] Between 2004 and 2008 Redhill was engaged in a substantial project involving the subdivision and development of land situated at Kaipara Road, Papakura. It created 261 individual lots as a result of the subdivision.

[6] In January 2005 Redhill entered into a commercial construction contract with the second defendant, HEB Contractors Limited, under which HEB agreed to carry out earthworks for the proposed development. HEB ultimately completed work under the contract in March 2008.

[7] Two months after it completed work on the project, HEB issued a payment claim under the provisions of both the construction contract and the Act. Under the claim, referred to in this proceeding as Payment Claim 21, HEB sought payment of the sum of $2,191,816. Redhill responded by issuing a payment schedule in which it contended that it owed HEB the sum of just $13,539.

[8] By the time that HEB issued its payment claim Redhill had transferred 61 sections to Sonsram and eight sections to Mr Sami in his capacity as a trustee of two of his siblings’ family trusts. It appears to be common ground that HEB had carried out work on those sections whilst carrying out the construction contract.

[9] HEB took the view that Redhill had failed to issue its payment schedule within the period prescribed by the construction contract and the Act. Redhill disagreed. It maintained that HEB had agreed to an extension of time for Redhill to issue its payment schedule. The relevance of this issue is that s 22(b) of the Act precludes a party who has issued a payment schedule out of time from disputing the amount claimed in the payment claim at that stage. In that event s 23 provides a statutory consequence whereby the amount of the claim becomes a debt due by the developer that the claimant may recover through the courts.

[10] HEB initially sought to force Redhill to pay the amount of its claim by issuing a statutory demand. It then issued proceedings in which it sought summary judgment against Redhill. Redhill responded to both of these initiatives by maintaining that a genuine dispute existed. That dispute related to whether or not HEB had granted Redhill an extension of time within which to issue its payment schedule.

[11] In the face of Redhill’s opposition HEB backed away from using the statutory demand and summary judgment procedures. Instead, it elected to refer the dispute to adjudication under both the construction contract and the Act. The parties appointed the first defendant, Mr Green, as their adjudicator.

[12] In its Notice of Adjudication HEB described the dispute as relating to the issue of whether or not the extension of time had been granted as Redhill alleged. In its claim for relief it sought:

(a) A determination that pursuant to sections 22 and 23(2)(a)(i) of the CCA the claimed amount in the Claimant’s progress payment claim 21 of $2,191,816 (plus GST), is a debt due and payable by the Respondent to the Claimant in full (Part A).

(b) Only in the event that the Adjudicator declines to grant the determination sought in Part A (paragraph 4.1(a) above), the Claimant seeks a determination that the claimed amounts in progress payment claim 21 in the sum of $1,684,154, (or such other sum as the Adjudicator deems fit) is payable by the Respondent to the Claimant in full (Part B).

[13] HEB also sought other relief in its Notice of Adjudication. This included a claim for interest and costs, together with a determination that Sonsram and Mr Sami were jointly and severally liable with Redhill for the payment of the amount that HEB was claiming. It sought the latter determination because of the fact that Sonsram and Mr Sami were deemed to be associates of Redhill under the Act, and they had acquired part of the land on which HEB had carried out the construction works under the contract. In such circumstances s 50 of the Act permits an adjudicator to determine that a landowning associate of the developer is jointly and severally liable with the developer to the contractor.

[14] The adjudicator determined the primary issue in dispute in HEB’s favour. He did not accept that HEB had agreed to provide Redhill with an extension of time within which to issue its payment schedule. As a result, he found that Redhill had issued its payment schedule out of time. Redhill does not challenge that determination in this proceeding. It does, however, challenge other determinations that the adjudicator went on to make.

[15] First, the adjudicator determined that Redhill was liable under ss 22 and 23 of the Act to pay the amount that Redhill claimed in its payment claim in full. This was subject only to a deduction for an amount that HEB accepted it had overclaimed. Secondly, he determined that Sonsram and Mr Sami were liable to pay the same amount because of their status as associates of Redhill who had acquired land that was part of the construction site. Thirdly, the adjudicator issued a charging order that charged the sections owned by Sonsram and Mr Sami with payment of the amount for which he had determined they were liable. Fourthly, he determined that HEB was entitled to interest on the amount of its claim. Finally, he determined the shares in which Redhill and HEB were to meet the costs of the adjudication.

[16] There has never been any dispute that Redhill, Sonsram and Mr Sami are “associated persons” in terms of the Act. Sonsram is an associated person because it owns the shares in Redhill. Mr Sami is an associated person because he is a director of both Redhill and Sonsram.

[17] The plaintiffs maintain, however, that the adjudicator had no jurisdiction under either the Act or the construction contract to make the determinations that he did after he found that HEB had not granted the extension as Redhill claimed. They say that he did not have the power to determine that Redhill was liable under s 22 of the Act because the statute had imposed liability on Redhill. As a result, the adjudicator was precluded from making any determination in relation to that issue. This also meant that he had no jurisdiction to determine that Sonsram and Mr Sami were liable to pay anything to HEB. Sonsram and Mr Sami also contend that they have never owned a “construction site” as that term is defined in the Act.

[18] For these reasons the plaintiffs seek orders quashing the determinations that the adjudicator made.

Scope of judicial review in this context

[19] There is at present some debate regarding the extent to which parties to an adjudicator may challenge an adjudicator’s determination by way of judicial review:

See Willis Trust Company Limited v Green HC AK CIV 2006 404 809 25 May 2006 Harrison J at [20] to [23]: Spark It Up Ltd v Dimac Contractors Ltd HC WLG CIV 2008 485 1706 Dobson J at [19] to [29].

[20] In the present case both counsel agreed that judicial review is potentially available. This is because the plaintiffs’ challenge relates directly to the jurisdiction of the adjudicator to make the orders that he made against the plaintiffs.

The purpose of the Act

[21] The purpose of the Act is succinctly described in s 3, which provides:

3 Purpose

The purpose of this Act is to reform the law relating to construction contracts and, in particular,—

(a) to facilitate regular and timely payments between the parties to a construction contract; and

(b) to provide for the speedy resolution of disputes arising under a construction contract; and

[22] In Marsden Villas Ltd v Wooding Construction Ltd [2007] 1 NZLR 807 Asher J explained that the payments regime promulgated by ss 22 and 23 is designed to ensure that cash flow is maintained for those involved in the construction industry. He said at 811:

[10] The 1999 Law Commission Paper SP3, “Protecting Construction Contractors”, which led to the legislation, stated at para [32] that the Act was to “have as its purpose the ensuring of prompt cash flow to contractors . . .”.

[11] A little earlier in the report at para [31] it was put more graphically:

“The basic intention is that instead of the cash flow being held up for weeks, months and years, pending a final solution, a decision, described as being ‘quick and dirty’ will be given to resolve the cash flow situation, leaving a final determination of financial rights and obligations to be arrived at later.”

[12] In Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at p 716 the House of Lords quoted Lord Denning in the Court below:

“There must be a ‘cash flow’ in the building trade. It is the very lifeblood of the enterprise.” This was quoted with approval by the New Zealand Court of Appeal in George Developments Ltd v Canam Construction Ltd [2006] 1 NZLR 177 at para [41].

[13] In Gilbert-Ash , the House of Lords allowed the appeal against Lord Denning’s decision. Lord Reid commented at p 699 that, in a range of judgments, the English Court of Appeal had come near to laying down a general rule that, not only in cases between an employer and contractor, but also in cases between contractor and sub-contractor, sums due under an architect’s certificate must be paid at once without waiting for determination of claims for set-off. This line of authority was disapproved by the House of Lords, at least as it related to contractor and subcontractor.

[14] The effect of the Act was to strongly confirm that such a regime, which protected and encouraged cash flows, was right for cases between the principal and contractor. The intention was to improve the head contractor’s ability to obtain payment, by setting up a quick and mandatory payment process. In enacting such legislation, the legislature set aside the longestablished conservative contractual approach to construction contracts which emphasised freedom of contract. The history of these cases is described in Hon R Smellie CNZM QC, Progress Payments and Adjudication (2003), paras 1 – 15. The Act has “emphatically vindicat[ed] Lord Denning’s approach” (Smellie, para 31).

[23] The courts have consistently strived to ensure that they interpret the Act in a manner that promotes this concept. In Canam the Court of Appeal said at [41]:

We are satisfied that the necessary analysis must be undertaken with the purpose of the Act in mind. The purpose provision of the Act includes the fact that the Act was “to facilitate regular and timely payments between the parties to a construction contract”.

[24] I propose to bear these comments in mind when considering the manner in which the Act is to be interpreted in relation to the issues that arise in the present case.

The issues

[25] The following issues need to be determined:

1. Did the adjudicator have jurisdiction to determine that Redhill was liable to HEB under ss 22 and 23 of the Act after he concluded that HEB had not granted an extension of time for Redhill to issue its payment schedule?

2. Did the adjudicator have jurisdiction to make orders against Sonsram and Mr Sami?

3. Did the adjudicator err when he determined that Sonsram and Mr Sami should be liable to pay the full amount of HEB’s claim when they had only acquired 69 sections from Redhill?

Did the adjudicator have jurisdiction to determine that Redhill was liable to HEB after he concluded that HEB had not granted an extension of time for Redhill to issue its payment schedule?

The plaintiffs’ argument

[26] In essence, Redhill’s argument on this point is that the adjudicator’s conclusion in relation to the issue of the alleged extension meant that statutory consequences followed. As a result, he was precluded from making his own determination in relation to Redhill’s liability.

[27] This submission relies on the wording of ss 22 and 23 of the Act, which provide:

22 Liability for paying claimed amount

A payer becomes liable to pay the claimed amount on the due date for the progress payment to which the payment claim relates if—

(a) a payee serves a payment claim on a payer; and

(b) the payer does not provide a payment schedule to the payee within—

(i) the time required by the relevant construction contract; or

(ii) if the contract does not provide for the matter, 20 working days after the payment claim is served.

23 Consequences of not paying claimed amount where no payment schedule provided

(1) The consequences specified in subsection (2) apply if the payer—

(a) becomes liable to pay the claimed amount to the payee under section 22 as a consequence of failing to provide a payment schedule to the payee within the time allowed by section 22(b);

and

(b) fails to pay the whole, or any part, of the claimed amount on or before the due date for the progress payment to which the payment claim relates.

(2) The consequences are that the payee—

(a) may recover from the payer, as a debt due to the payee, in any court,—

(i) the unpaid portion of the claimed amount; and

(ii) the actual and reasonable costs of recovery awarded against the payer by that court; and

(b) may serve notice on the payer of the payee's intention to suspend the carrying out of construction work under the construction contract. …(Emphasis added)

[28] Counsel for the plaintiffs contends that, once the adjudicator found that HEB had not granted an extension of time for Redhill to issue its payment schedule, Redhill immediately owed HEB the amount that it claimed in Payment Claim 21. That debt was created by virtue of s 23(2)(a). As a result, the adjudicator did not have the power to determine that Redhill was liable to HEB. That state of affairs had already come about by virtue of the adjudicator’s earlier conclusion. Counsel argues that the adjudicator’s purported determination in relation to Redhill’s liability in respect of the amount claimed in Payment Claim 21 was therefore a nullity.

[29] The plaintiffs also rely on the fact that an adjudicator only possesses the limited jurisdiction vested in him under the Act. In this context s 38(1) provides:

38 Jurisdiction of adjudicators

(1) An adjudicator's jurisdiction in relation to any dispute that has been referred to adjudication is limited to determining—

(a) the matters referred to in sections 48, 49(1)(c), and 50(1)(c); and

(b) any other matters that are of a consequential or ancillary nature necessary to exercise or complete the exercise of the jurisdiction conferred by paragraph (a).

[30] The plaintiffs point out that s 38(1) makes it clear that the jurisdiction of the adjudicator is limited to determining the matters referred to in ss 48, 49(1)(c) and 50(1)(c) of the Act. Of these, only s 48 has any relevance to the present issue. It provides:

48 Adjudicator's determination: substance

(1) If an amount of money under the relevant construction contract is claimed in an adjudication, the adjudicator must determine—

(a) whether or not any of the parties to the adjudication are liable, or will be liable if certain conditions are met, to make a payment under that contract; and

(b) any questions in dispute about the rights and obligations of the parties under that contract.

(2) If no amount of money under the relevant construction contract is claimed in an adjudication, the adjudicator must determine any questions in dispute about the rights and obligations of the parties under that contract.

(3) If an adjudicator determines under subsection (1)(a) that a party to the adjudication is liable, or will be liable if certain conditions are met, to make a payment, the adjudicator—

(a) must also determine—

(i) the amount payable or conditionally payable; and

(ii) the date on which that amount became or becomes payable; and

(b) may determine that the liability of a party to the adjudication to make a payment depends on certain conditions being met.

…

[31] The plaintiffs contend that the wording of s 48 is instructive. The adjudicator only has power under that section to determine whether any of the parties to the adjudication are, or will be, liable to make a payment “under the contract”. They say that the section does not give the adjudicator the power to determine whether a party to the adjudication is liable to make a payment by virtue of the operation of the provisions of the Act rather than under the contract.

[32] The plaintiffs also contend that the words “under the contract” should be construed narrowly, and that they have a much more restrictive meaning than, for example, phrases such as “arising out of the contract” or “in relation to the contract”.

Decision

[33] I deal first with the submission that the phrase “under the contract” should be interpreted narrowly. I agree that the use of this phrase suggests that Parliament intended to restrict the range of disputes that adjudicators could determine under the Act. Disputes may arise out of, or in relation to, a construction contract in numerous ways. It would not be appropriate, however, for many of them to be determined by an adjudicator. Claims for misrepresentation and under the Fair Trading Act 1986 are good examples of this. Parliament clearly intended that those types of claims should remain solely within the jurisdiction of the courts notwithstanding the fact that they might arise out of, or be in relation to, a construction contract.

[34] I do not, however, accept that the words “under the contract” should necessarily be interpreted as narrowly as the plaintiffs suggest. They must be interpreted so as to give effect to the purposes and objects of the Act. If that requires them to be accorded a broad interpretation, then that is the approach that the Court must take.

[35] An appropriate starting point in the present case is to identify the dispute that the adjudicator was required to determine. A dispute is defined by s 5 of the Act as “a dispute or difference that arises under a construction contract”. Section 25(2) provides, as one example of a dispute, “a disagreement between the parties to a construction contract about whether or not an amount is payable under a contract (for example, a progress payment) or the reasons given for non-payment of that amount”.

[36] The dispute that the parties referred to the adjudicator in the present case arose because they disagreed about whether Redhill was required to pay the sum that HEB had claimed in Payment Claim 21. I was advised from the bar that Payment Claim 21 was a claim for a progress payment under the construction contract, even though HEB did not issue it until after the construction works had been completed. In short, HEB sought payment of monies due under the contract and Redhill refused to pay.

[37] Redhill maintained, as a reason for not paying the sum claimed, that it had issued a valid payment schedule. Both parties accepted that the provisions of the contract required Redhill to issue its payment schedule within a prescribed period. That prescribed period was the same as the period prescribed by s 22 of the Act. If Redhill did not do so, s 23 operated to render the debt immediately due and owing. Redhill contended, and HEB denied, that its payment schedule was valid because of the extension of time that HEB had given it.

[38] Section 23 was therefore potentially decisive in terms of whether or not the amount that HEB claimed was immediately due and owing in full. Whether or not s 23 came into play at all depended, however, upon whether HEB had granted an extension of time within which Redhill could validly issue its payment schedule. That issue formed the primary factual dispute that the adjudicator was required to determine. The role that s 23 could potentially play in determining whether the amount of the claim was immediately due and payable does not alter the fact, however, that the dispute essentially related to HEB’s alleged right under the contract to be paid an amount that was allegedly due to it.

[39] This fact means that the fundamental dispute that the adjudicator was required to determine fell squarely within both of the examples contained in s 25(2).

[40] It is also beyond argument that HEB claimed an amount of money as part of the relief or remedy that it sought in its Notice of Adjudication. It sought a determination that the amount that it had claimed in Payment Claim 21 ($2,191,816) was a debt due and payable in full by Redhill.

[41] Further, HEB’s claim was for a sum of money that it alleged was owing under the construction contract. That fact is clear from the manner in which Payment Claim 21 is made up. HEB issued the claim against Redhill pursuant to both the construction contract and the Act. The claim sought payment for work that HEB had done under the construction contract.

[42] I do not consider that the existence and potential operation of ss 22 and 23 altered the fundamental nature of HEB’s claim or the essential issue that the adjudicator was ultimately required to determine. He was required to determine whether any of the parties to the adjudication were liable to make a payment to HEB under the contract. Those parties were Redhill, Sonsram and Mr Sami. For these reasons I have concluded that the adjudicator had the necessary jurisdiction to determine the claim against Redhill under s 48(1)(a) of the Act notwithstanding the fact that his decision meant that s 23 came into play.

[43] Nothing in the Act suggests that I should adopt a different approach to this issue. If anything, the scheme of the Act suggests that an adjudicator must have the power to determine that a party in Redhill’s position is liable to the contractor in circumstances where s 23 applies.

[44] By way of example, s 45 prescribes matters that the adjudicator is required to consider when determining a dispute. Included in these mandatory matters (under s 45(a)) are the provisions of the Act. The adjudicator was therefore required in the present case to consider all three purposes set out in s 3. He was also required to acknowledge the operation of ss 22 and 23. Given the conclusion that he had reached in relation to the issue of the alleged extension, the adjudicator could only achieve the statutory purposes set out in s 3 by giving practical effect to the operation of ss 22 and 23. He could only realistically do that by determining that Redhill was immediately liable to pay HEB the amount that it claimed by virtue of s 23.

[45] In case I am wrong on this point, I consider that the adjudicator’s determination that Redhill was liable to HEB followed as a natural consequence of his earlier conclusion in relation to the primary issue of the alleged extension. The adjudicator has jurisdiction under s 38(2) to determine “any other matters that are of a consequential…nature necessary to exercise or complete the exercise of” the jurisdiction conferred by s 38(1)(a).

[46] Until such time as the adjudicator decided the issue relating to the alleged extension, there was a dispute in relation to Redhill’s liability to pay the amount claimed in the payment claim. Once the adjudicator decided that issue in HEB’s favour, I consider that he was entitled to make such consequential determinations as were necessary to complete the exercise of determining whether Redhill was liable to pay the amount that HEB claimed in its payment claim. These included a determination that Redhill was liable to pay the debt to HEB.

[47] I do not consider that any other conclusion would be consistent with the purposes of the Act. If Redhill’s argument is correct, the adjudicator could go no further once he concluded that Redhill had failed to issue its payment schedule within the prescribed time. The adjudicator could not provide HEB with any direct remedy against Redhill. HEB would be required to return to the courts in order to recover the debt that the statute had created. That would lead to further inevitable delay in HEB obtaining payment from Redhill. That result is hardly consistent with any of the purposes set out in s 3 of the Act.

[48] The plaintiffs’ argument would also mean that HEB had no ability to seek a determination by the adjudicator that Sonsram and Mr Sami were liable as associates of Redhill who had acquired part of the construction site from it. That determination could only be made if the adjudicator first determined that Redhill was liable. Moreover, a landowning associate can only be declared liable in the context of an adjudication instituted under the provisions of the Act. The same remedy cannot be pursued through the courts. It is inconceivable, in my view, that Parliament could have intended a successful party in HEB’s position to be deprived of the ability to obtain such an important remedy. That end result would be completely contrary to all of the purposes set out in s 3.

[49] Finally, I accept HEB’s submission that the plaintiffs’ interpretation does not adequately recognise that s 23(2) provides, as a consequence of any failure by the developer to issue a payment schedule within time, that the claimant may enforce payment of the claim as a debt due in court proceedings. The use of the permissive word “may” rather than the mandatory word “must” is important. It demonstrates that the claimant may select the manner in which it wishes to enforce the debt. That is consistent with the scheme of the Act, which permits the parties to a construction contract to have disputes between them determined in the forum of their choice. It also permits them to use more than one forum simultaneously in respect of the same dispute: s 26.

[50] Redhill’s argument effectively requires the word “may” to be interpreted as “must”. If that is correct, it would be a surprising outcome. It would mean that a successful claimant in HEB’s position has no option but to enforce its claim by means of further court proceedings. I do not see why that should be the case when an adjudicator has the immediate ability to access a range of remedies, some of which are only available in the context of an adjudication. This factor also tells strongly against the interpretation for which Redhill contends.

[51] All of these matters persuade me that the adjudicator had the necessary jurisdiction to determine that Redhill was liable to pay HEB the amount claimed in Payment Claim 21.

Did the adjudicator have jurisdiction to make orders against Sonsram and Mr Sami?

[52] My conclusion in relation to the first issue also disposes of the first of the arguments that Sonsram and Mr Sami advance. That is not, however, the end of their case. They contend that, even if Redhill was liable to pay HEB the full amount that it claimed, the adjudicator had no jurisdiction to order them to pay that amount as well.

[53] The adjudicator determined the issue of liability on the part of Sonsram and Mr Sami by invoking ss 30 and 50 of the Act. They provide as follows:

30 Claimant may seek determination of liability of owner who is not respondent

A claimant may, in the notice of adjudication, seek—

(a) a determination under section 50 that an owner who is not a respondent is jointly and severally liable with the respondent to make a payment to the claimant; and

(b) approval for the issue of a charging order in respect of the construction site.

50 Determination of liability of owner who is not respondent and approval of charging order over construction site owned by that owner

(1) This section applies if—

(a) a claimant has referred to adjudication a dispute about whether an amount is payable by a respondent under a construction contract; and

(b) the claimant has sought, in the notice of adjudication,—

(i) a determination of the owner's liability under section 30(a); and

(ii) approval for the issue of a charging order in respect of the construction site under section 30(b); and

(i) is liable to pay (whether in whole or in part) the amount claimed in the adjudication; and

(ii) is an associate of the owner.

…

[54] The sections must be read in the light of the definitions of “owner” and “construction site” set out in s 5 of the Act. They are as follows:

owner means an owner of a construction site

…

construction site means the land on which the claimant has been carrying out construction work under the relevant construction contract

[55] It can be seen from the wording of the sections that they permit an adjudicator to make orders directly against the owner of a construction site. That can occur even where the developer and the owner are different persons. The adjudicator can only make such orders, however, where the owner is an “associate” of the developer as that term is defined by s 7 of the Act. In the present case there is no dispute that Sonsram and Mr Sami are associates of Redhill for the purposes of the Act. It is also accepted that HEB included within its Notice of Adjudication a determination that Sonsram and Mr Sami were jointly liable with Redhill on the basis that they were associates who owned land on which HEB had carried out construction works.

[56] Sonsram and Mr Sami contend that they are not “owners” under the Act, however, because they do not own a “construction site” as that term is defined by s 5. They base this submission on the fact that, by the time Redhill transferred the sections to Sonsram and Mr Sami, HEB was no longer carrying out work on Redhill’s property. Sonsram and Mr Sami argue that they acquired a “finished product” that bore no resemblance to a construction site. They contend that, by definition, a construction site is a site upon which work is still being carried out.

[57] By combining the definitions in the Act of “owner” and “construction site”, counsel for the plaintiffs submits that an “owner” for present purposes means An owner of [the land on which the claimant has been carrying out construction work under the relevant construction contract].

[58] He also contends that Parliament has chosen to use the phrase “has been carrying out” advisedly. In grammatical terms the phrase is worded in the present perfect continuous tense. It uses the present tense, but with perfect and continuous (or progressive) aspects. Counsel developed this point in his written submissions as follows:

4.17 Whilst tense is a grammatical concept which marks past, present and future time, closely connected to tense is the concept of aspect, which adds a further time perspective. Aspects reflect the way in which the action of a verb is viewed with respect to time, answering questions as to whether the event or state is completed or still in progress. There are two aspects in the English language – the perfect and the progressive (or continuous); the former describes events or states which occur or begin during a previous period of time; the latter describes events or states which are in progress or continuing.

4.18 The present perfect implies a connection between something that happened in the past, and a present time – eg: referring to an action in the past which has a result now, or to events which repeatedly occur up to and including the present time. Even where the situations or events described by the present perfect do not always continue until the time of speaking, they usually imply some connection or relevance to the present time.

4.19 The present perfect can combine with the progressive (continuous) aspect to form the present perfect continuous. This is formed from an auxillary ( have/has ) plus been plus a present participle ( -ing ). As stated in The Grammar Book , the present perfect progressive tense is used to describe a situation or habit that began in the past (recent or distant) and that continues up to the present (and possibly into the future), ie an activity that was in progress until recently or until the time of speaking. The use of tense emphasises that such an activity is ongoing or repeated rather than a single action. It is used to focus on the process, rather than the result, of an activity.

[59] This analysis led to the submission that the phrase “has been carrying out” does not mean that works have been carried out in the past. Had that been Parliament’s intention, it would have used the phrase “has carried out” or “had carried out”. Instead, counsel submitted that the use of the present perfect continuous tense “denotes a connection between the carrying out of the construction works and the time when one is to consider the state of the land (and ultimately, therefore, the state of ownership”. In other words, the section will only apply in situations where the construction works are still being carried out on the land in question. Where, as here, the construction works have finished when the associated owner acquires the land, counsel argued that ss 30 and 50 have no application.

[60] Counsel submitted that this interpretation of the section was consistent with s 50(3), which caps the potential liability of the owner as follows:

(3) The liability of an owner under subsection (2)(a) must not exceed the reasonable value of all of the construction work carried out on the construction site by, or on behalf of, the respondent (including construction work carried out by another party for, or on behalf of, the respondent), less all amounts actually paid by the owner in respect of that work.

He pointed that s 50(3) does not readily apply to Sonsram and Mr Sami. When they acquired their sections from Redhill they did not pay for the construction work. Instead, they paid for the land in its finished state after the subdivision and earthworks had been completed. As a result, they could not qualify for any reduction in the amount that they might be liable to pay under s 50. Counsel contended that this provides further confirmation that Parliament did not intend s 50 to apply in situations where an owner has acquired land from an associate after construction works have been completed.

[61] I agree that Parliament has chosen to word the definition of “construction site” carefully. In doing so, I suspect that it was probably endeavouring to ensure that the objects and purposes of the Act would not be defeated by the type of argument that has arisen in this case. In order to interpret the definition it is therefore necessary to return to those objects and purposes.

[62] One of the principal purposes of the Act is to provide remedies for the recovery of payments under a construction contract: s 3(c). That purpose could easily be defeated if a developer was able to transfer its land to an associate before contractors had been paid in full. I consider that Parliament chose to word the definition in such a way as to minimise the likelihood of contractors being prejudiced by that type of action on the part of developers.

[63] If Parliament had used the words “has carried out” or “had carried out”, a landowning associate could argue that land upon which construction work is still being undertaken does not fall within the definition of “construction site”. If, on the other hand, it had used the words “is carrying out”, it would have been open to such an associate to argue (as it does here) that the section does not apply to land upon which construction works had been completed when the associate acquired the land.

[64] I consider that Parliament has chosen to use the words “has been carrying out” in order to capture both past and present activity on the land. It has selected words that apply both to land upon which construction works have been carried out in the past and to land upon which construction works are still being carried out. I therefore conclude that, if construction works have been, or are being, carried out at any time on land acquired by an associated owner, that land will be a “construction site” in terms of the Act.

[65] Such an interpretation accords not only with the purposes of the Act but also with logic and common sense. If the argument for the plaintiffs is correct, a contractor who carries out construction work on land will be able to invoke ss 30 and 50 in the event that the developer transfers its land to an associate whilst the works are in progress. The position would change radically, however, as soon as the contractor completed work on the project. It would be open to the developer to transfer its land to an associate on the very day that the contractor removed its plant from the property. It is unlikely that the contractor would have submitted its final payment claim by that stage. On the plaintiffs’ interpretation the contractor would no longer have any ability to invoke ss 30 and 50. It could not look to the new owner for payment notwithstanding the fact that the new owner was an associate of the developer.

[66] I do not consider that that is an outcome that Parliament could have intended when it enacted s 50. Parliament must have intended that a contractor should be able to invoke s 50 so as to be able to look to landowning associates of the developer for payment regardless of when those associates acquired their land.

[67] I consider that this interpretation is also consistent, to the extent that they are relevant, with observations made by the Select Committee that considered the Construction Contracts Bill. Counsel for the plaintiffs referred me to the following passage from the Select Committee’s report dated 21 December 2001 at p4:

The claimant should be able to obtain a charging order either where the owner of the site is the debtor or where the owner of the site is related to the debtor and has derived a benefit from the construction work without paying full value for it.

[68] Counsel also referred me to the following extract from the speech made by the Minister of Commerce during Parliamentary debate on the second reading of the Bill: (19 November 2002) 604 NZPD 2062:

I now want to discuss the specific provisions of the bill as reported back, and the major changes recommended by the committee. The most significant change recommended is revision of the nature of the charges against the construction site. The committee has recommended using a charging order, not a statutory land charge, as the mechanism to impose charges over land … The claimant can obtain the charging order, either where the owner of the site owes the money, or where the owner of the site is related to the debtor, and has derived a benefit from the construction work without paying full value for it.

[69] Counsel for the plaintiffs submitted that these passages demonstrate that s 50 is designed to provide a claimant with a remedy in circumstances where the associate has derived a benefit from the construction works without paying full value for it. It also provides a degree of protection for the associate, because the associate is required to do no more than pay full value for the land.

[70] I agree with these comments, but I do not consider that they assist the plaintiffs’ argument in the present case. The passages set out above refer to payment for the work rather than the land. The section continues that distinction. The wording used in the section makes it clear that the associate must actually pay for the work if it is to receive any credit for the payment. I accept that the price that an associate is prepared to pay for land may well be influenced by the work that has been carried out on it. I consider, however, that the concept of payment for land is a fundamentally different concept to payment for work carried out on the land.

[71] During oral argument counsel for the plaintiffs suggested that s 50(3) provided a mechanism by which a landowning associate could receive a credit for the component of the purchase price that related to the work carried out on the land. I do not accept that submission for the simple reason that it does not accord with the plain meaning of the section.

[72] The section provides a cap on the liability of a landowning associate so as to ensure that the associate does not end up paying for more than the reasonable value of the total works carried out on the section. It therefore prescribes the maximum amount for which an associate might be liable. It does not provide a general formula to calculate the amount that an associate should be liable to pay after taking into account the portion of the purchase price that related to the improvements made to the land by the contractor’s work. In the present case s 50(3) would apply to prevent Redhill from being liable for more than approximately $17 million, being the total cost of the construction works that HEB has claimed in respect of construction works that it carried out on Redhill’s land.

[73] In practical terms, this interpretation of s 50(3) would create considerable difficulty in any event. It would require the adjudicator to sift through complex valuation evidence from both parties in order to establish the proportion of the purchase price that related to the construction works. It would operate to substantially increase the length, cost and complexity of adjudications under the Act. I do not consider that Parliament ever intended that s 50(3) would be used in this way.

[74] The interpretation that I have applied may seem harsh when it is applied in situations where, as the plaintiffs claim to be the case here, the associate has paid full value for the land. It is not difficult, however, to discern the legislature’s rationale for enacting s 50. Parliament was obviously concerned to ensure that contractors would be able to have recourse to the land on which the construction works were carried out in the event that the developer sold that land to an associate.

[75] Parliament must be taken to have known that the transfer of property to associates was potentially a significant threat to the integrity of the Act. It would be a simple matter for a developer to structure its arrangements in such a way that land was transferred to an associate for a price that the developer could later argue was full value. That could easily occur even in situations where no money changed hands. Such an arrangement would obviously be to the benefit of the developer, but it would equally obviously be to the detriment of the contractor. I have no doubt that s 50 was enacted in order to minimise this threat.

[76] The message for the developer is clear. Any transfer of land to an associate whilst any amount remains outstanding to a contractor for work carried out on the land is fraught with risk for the associate. Even if the associate pays the developer full value for the land, it risks being held liable for the cost of unpaid works on the land unless it pays the purchase price to the contractor or ensures that the developer does the same.

[77] Alternatively, the associate may discharge its liability by paying the contractor the amount of its claim and recovering it from the developer under s 51 of the Act. That section permits a landowning associate to discharge its liability under s 50 by paying the contractor the amount that the adjudicator has determined the landowner should pay. The associate may then recover that sum from the developer, either as a debt due or by deducting it from any monies that the associate might be liable to pay to the developer in the future.

[78] All of these outcomes are entirely consistent with a central theme of the Act, which is to ensure that the risk and responsibility in respect of unpaid work remains with the developer and its associates rather than the contractor.

[79] For these reasons I reject the plaintiffs’ argument in relation to the interpretation to be given to the term “construction site”. It follows that I am satisfied that the adjudicator correctly concluded that he had the power to make orders under s 50 notwithstanding the fact that Sonsram and Mr Sami acquired their sections from Redhill after HEB had completed the construction works on them.

Did the adjudicator err when he determined that Sonsram and Mr Sami should be liable for the full amount of HEB’s claim when they only acquired 69 sections?

[80] Counsel for Sonsram and Mr Sami also argued that it was wrong in principle for the adjudicator to determine that they were liable for the entire amount that HEB had claimed in Payment Claim 21. They based this submission on the fact that they had only acquired 69 sections. They contended that it was wrong in principle for them to be liable for the whole of Redhill’s debt when the construction works that were the subject of the claim related to all 261 sections within Redhill’s subdivision.

[81] The adjudicator did not discuss this issue in his determination. He did not at any stage canvass the issue of whether he should reduce the amount that Sonsram and Mr Sami were liable to pay to HEB as a consequence of the fact that they only own 69 sections when the payment claim relates to all 261 sections. As a result, I am not sure whether the issue was the subject of submissions by either party during the adjudication.

[82] It is clear, however, that the adjudicator was required to determine that Sonsram and Mr Sami were jointly and severally liable to pay at least part of the monies that he found were owing to HEB under Payment Claim 21. Section 50(2) is couched in mandatory terms. Once an adjudicator finds that the elements in s 50(1) have been established, he or she must determine that the owner is jointly and severally liable with the developer to pay the whole or part of the amount claimed in the adjudication. For that reason the adjudicator clearly had the necessary jurisdiction to make the orders determining that Sonsram and Mr Sami were jointly and severally liable in respect of the whole of Redhill’s debt.

[83] Section 50(2)(a) also gives the adjudicator the power to determine that the owner is liable to pay part (and not the whole) of the monies claimed in the adjudication. This flows from the fact that s 50(2)(a) requires the adjudicator to determine that the owner is jointly and severally liable with the developer to pay the monies claimed ( whether in whole or in part ) . As a result, it would have been open to the adjudicator to determine that Sonsram and Mr Sami were liable to pay HEB less than the full amount that it had claimed in its payment claim.

[84] This is not, however, a general appeal in which the Court proceeds by way of rehearing. I have already concluded that the adjudicator had the power to make the order that he did. For that reason it would not be appropriate, in the context of an application for judicial review, to consider whether the adjudicator ought to have exercised his discretion under s 50(2)(a) to order Sonsram and Mr Sami to pay a lesser sum. That is particularly the case when it is by no means clear that the plaintiffs ever advanced this aspect of their argument before the adjudicator.

[85] This does not leave Sonsram and Mr Sami devoid of any means of redress. They have the right under s 52 of the Act to apply to the District Court for a review of the adjudicator’s determination. The District Court is required by s 54(1)(a) to conduct the review as a hearing de novo of the relevant dispute. By virtue of s 50(1)(b) it has all the powers, duties, functions, and discretions of the adjudicator in making the determination to which the application for review relates.

[86] During the hearing counsel for the plaintiffs advised me that Sonsram and Mr Sami have, in fact, filed an application for review of the adjudicator’s determination in the District Court as a backstop measure. I consider that that is the appropriate forum in which to consider whether Sonsram and Mr Sami should be required to pay a lesser sum than that which Redhill is required to pay.

[87] Without wishing to bind the District Court in the absence of full argument on the point, it seems to me that the argument for Sonsram and Mr Sami may well have some force. It seems somewhat illogical (and possibly unfair) that an associate who only acquires part of a construction site should be required to pay the full amount claimed by the contractor. That is particularly the case when the amount that the contractor is claiming relates to works carried out on the whole of the site and not just on the land that the associate acquires. It is at least arguable that the power under s 50(2)(a) to order an associate to pay a lesser amount was designed to recognise that type of situation.

Result

[88] The application for judicial review of the adjudicator’s determination is dismissed.

Costs

[89] HEB has succeeded and is entitled to an award of costs and disbursements. My initial impression is that, although it was not without complexity, this is probably a category 2 proceeding and that Band B should apply to steps taken in it. Should counsel for the defendants wish to advocate a different approach, a memorandum to that effect (of no more than five pages in length) should be filed and served within 14 days. Memoranda in response and reply should then be filed and served at 14 and seven-day intervals respectively.

Other issues

[90] Originally the hearing before me was designed to deal with interim and interlocutory matters in this proceeding and in a related proceeding under CIV 2009 404 3640. In this proceeding the plaintiffs sought interim orders pending determination of their substantive application for judicial review.

[91] In proceeding CIV 2009 404 3640 the plaintiffs had applied for a stay of execution in respect of orders made by Associate Judge Christiansen. The Associate Judge had made an order appointing an investigator to probe Sonsram’s affairs, and in particular the circumstances in which it came to acquire the sections from Redhill. The plaintiffs sought the stay of execution pending determination of an appeal that they had lodged with the Court of Appeal against the Associate Judge’s decision.

[92] Counsel ultimately elected to forego the preliminary skirmishing in both proceedings and to move directly to the substantive hearing of the present proceeding. For that reason they sought prior to the hearing, and I now make by consent, an order rescinding the orders that the Associate Judge made in CIV 2009 404 3640. Any submissions in relation to costs in that proceeding should be made to the Associate Judge.

Lang J

Solicitors:

Minter Ellison Rudd Watts, Auckland

Kensington Swan, Auckland

Counsel:

Mr J Miles QC

Ms J Batchelor Smith

Mr J Billington QC