Home | Databases | WorldLII | Search | Feedback High Court of New Zealand

HI Build Limited (formerly Home Builders BOP Ltd) v Forman [2018] NZHC 1320 (6 June 2018)

Last Updated: 20 June 2018

JUDGMENT OF WOOLFORD J

This judgment was delivered by me on Wednesday, 6 June 2018 at 4:00 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors: Holland Beckett Law, Tauranga

Harris Tate, Tauranga

Counsel: J Delaney, Tauranga

HI BUILD LIMITED (formerly HOME BUILDERS BOP LTD) v FORMAN [2018] NZHC 1320 [6 June 2018]

Introduction

[1] The appellant, Hi Build Limited (“HBL”), and the respondents, Nigel Forman and Clare Turner as trustees of the NK Forman Family Trust (“the trustees”), submitted a dispute to arbitration. Essentially, the trustees said they were overcharged by HBL in relation to construction work undertaken by HBL. The arbitrator largely found for the trustees, leaving quantum to be determined between the parties.

[2] On 31 October 2017, Brewer J granted HBL leave to appeal the arbitrator’s award on a single question: did the arbitrator err in concluding that claims in relation to payment claims 1 to 9 were brought within time?¹ The term “payment claim” is defined in the Construction Act 2002. I use that term and invoice interchangeably. HBL argues on appeal, as it did in the arbitration, that the trustees’ claim in relation to payment claims 1 to 9 was not brought in time.

[3] The question on appeal gives rise to four interrelated issues. First, should the trustees’ claim in the arbitration be characterised as being for breach of contract or money had and received? Second, what limitation period applies to the claim? Third, when did time begin to run? Fourth, was the trustees’ claim brought in time? This judgment determines these issues, and accordingly, the appeal.

Facts

[4] HBL completed construction work for the trustees between April 2009 and December 2010 pursuant to a written construction contract. The work consisted of renovating trust property, namely a house in Tauranga.

[5] The contract provided that payment for the work was to occur on a “charge-up basis”. Specifically, the key contractual terms regarding payment were:

(a) The final contract price would be “as expended” – the total amount of all invoiced claims.

¹ Home Builder BOP Ltd v Forman [2017] NZHC 2155.

(b) The hourly charge-out rate for work [interpreted to be work undertaken directly by HBL’s director, Stuart Wood] would be $38.00 per hour excluding GST.

(c) The rate for travel would be $0.60 per kilometre and $38.00 per hour, both excluding GST, for Stuart Wood only.

(d) Materials, builders’ labour and subtrades would be charged at cost plus 9 per cent, including GST. The arbitrator found that the exact GST treatment would depend on how HBL was charged. Further, HBL would pass on any trade discounts to the trustees. HBL would also, on request, make copies of trade suppliers’ and subcontractors’ invoices available to the trustees.

(e) HBL would invoice the trustees monthly. All payments were due within seven working days. HBL was entitled to suspend work, after following proper procedure, where the trustees failed to pay any invoiced amount in full by the date due for the payment.

[6] Over the course of its work, HBL invoiced the trustees for $917,522.25 in total, across 21 payment claims, of which the trustees paid $887,783.29.

[7] Mr Forman raised concerns about overcharging throughout the work. He says that HBL told him, in response, to keep track of any credit claims because they could resolve it later.

[8] The parties’ relationship eventually broke down. HBL ceased work in December 2010. After some correspondence in early 2011, there was then no contact between the parties for some years. In 2015, the trustees raised concerns regarding overcharging/overpayments. A series of discussions followed.

[9] By letter dated 17 December 2015, HBL advised the trustees it intended to commence summary judgment proceedings if payment in the amount of $94,476.48,
which included interest, was not made by 11 January 2016. This related to unpaid invoices.

[10] On or about 18 December 2015, the trustees commenced proceedings against HBL for breach of contract in the District Court. The trustees advised HBL of its claim on that date but not that it had filed proceedings, apparently to not “de-rail mediation discussions”.

[11] A mediation meeting was held on 4 February 2016. The matter was not settled.

[12] HBL, by letter dated 9 February 2016, told the trustees that it considered the District Court did not have jurisdiction in this matter because of the arbitration clause. Clearly, at this point HBL had become aware of the District Court proceedings. The arbitration clause in the contract provides:

75 Subject to clause 74, either party may, by written notice to the other party, ask that the dispute be referred to arbitration. Such notice shall specify the matter or matters at issue and give detailed particulars of the Dispute. If both agree then the Arbitration shall be by a single arbitrator and in accordance with the Arbitration Act 1996.

[13] The trustees gave notice of their intention to arbitrate by email on 9 February 2016. HBL, on 11 February 2016, agreed to arbitration, while maintaining its position that the trustees’ claim as far as it related to payment claims 1 to 9 was out of time.

[14] Around March 2016, HBL applied for summary judgment in the District Court in relation to unpaid invoices. These documents were served on the trustees on 19 May 2016. The trustees then, in response, served their statement of claim for breach of contract on HBL on 20 May 2016.

[15] The District Court proceedings were then stayed, by consent, pending arbitration.

Arbitration

[16] The parties appointed Derek Firth MNZM as the sole arbitrator on or about 1 November 2016. Mr Firth is a barrister and experienced arbitrator, with particular experience in construction disputes.

[17] In arbitration, the trustees pursued their claim that HBL overcharged. They claimed HBL overcharged them by $133,477.69 and that they overpaid $103,745.73. HBL counterclaimed it was owed $34,739.84 in unpaid invoices. Eventually, the amount claimed by the trustees was reduced to $97,609.57, and the counterclaim to
$29,212.69.

[18] The dates of payment claims 1 to 9, as per the invoices, are:

[19] Some further details about the trustees’ claim are necessary. They claimed, in essence, that they were overcharged in the following ways:

(a) The invoices contained errors and inaccuracies. As a result of the errors and inaccuracies, the trustees were overcharged $46,924.99.

(b) The trustees were charged for builders’ labour at a rate of $38.00 per hour plus 9 per cent plus GST where they should have been charged at cost plus 9 per cent, with GST treatment depending on the way HBL was billed. On this basis, the trustees claimed they were overcharged by $87,710.94.
(c) The trustees were charged for Stuart Wood’s labour at a rate of $38.00 per hour plus 9 per cent plus GST, where they should have been charged at $38.00 per hour plus GST.

[20] HBL maintained throughout the arbitration that it was entitled to charge the trustees as it did. At most, it considered it overcharged the trustees by around $500.00.

[21] Mr Firth made an interim award on 10 May 2017. While he did not expressly address the basis of the claim or when the contract was breached, his key findings can be summarised in four points. First, all of Stuart Wood’s time (whether for working or travelling) was to be charged at a fixed rate of $38.00 per hour plus GST but it did not attract the nine per cent margin. Second, the cost of builders’ labour was to be charged at actual cost plus nine per cent, with GST treatment depending on how HBL was charged. Third, the trustees were entitled to see reasonable proof of what was paid and the basis on which it was calculated. The trustees did not have to pay for any work not supported by an invoice. Fourth, the trustees were entitled to the benefit of all credits received by HBL.

[22] Mr Firth further determined that HBL was entitled to the amount it claimed was unpaid, subject to the extent that the trustees’ claim succeeded.

[23] As regards the limitation issue, the arbitrator held that time did not begin to run in relation to any payment claim until HBL ceased work. It followed that the trustees’ entire claim was brought in time. Mr Firth said:

I am well aware of the principles relating to the time when a cause of action accrues and the identification of that time from when all relevant material is available, but that is not an argument I have ever heard having been applied to periodic payments during a construction contract. Many construction contracts last for many years and it has been accepted around the world in domestic and international arbitrations that limitation periods do not commence to run until the end of the contract.

Otherwise there would be havoc on large projects outlasting the limitation period.

Accordingly, all the claims are within time.

Issue one: are the claims in contract or money had and received?

[24] The trustees’ claim was either for breach of contract or for money had and received. The arbitrator did not expressly address the basis of the claim. It is necessary to determine it now because the legal basis of the claim potentially impacts which limitation period applies and when time started to run.

[25] Brewer J, in his leave judgment, proceeded on the basis the claim was for money had and received as he considered “an overpayment of a contract is not a breach of contract”.² However, I note Brewer J specifically said he had not seen the way in which the case was put before the arbitrator. Counsel for the trustees also advise that the nature of the cause of action was not addressed by HBL and it was not discussed in the hearing before Brewer J.

[26] HBL has now adopted Brewer J’s approach. It says where a claimant voluntarily paid money to a defendant but would not have done so absent a mistake of fact made by the claimant, the claim must be in money had and received.

[27] The trustees, on the other hand, claim HBL breached the contract by overcharging them. And that the arbitrator upheld this claim.

[28] I consider the trustees’ claim was for breach of contract for three reasons. First, the facts support a claim for breach of contract. A failure to perform a contractual obligation amounts to a breach of contract. I adopt following statement from the learned authors of Treitel – The Law of Contract:³

A breach of contract is committed when a party without lawful excuse fails or refuses to perform what is due from him under the contract, or performs defectively or incapacitates himself from performing.

[29] In the present case, HBL was under a contractual obligation to charge and invoice the trustees in accordance with the terms outlined above at [5].

² Home Builder BOP Ltd v Forman [2017] NZHC 2155.

3. Edwin Peel (ed) Treitel — The Law of Contract (14th ed, Sweet & Maxwell, London, 2015) at [17-049].

[30] While it was not contained in the written contract, I am also satisfied that the parties agreed, subsequent to the written contract, to conduct a “wash up” exercise to resolve any overcharging or invoicing errors at the end of the contract. That agreement formed part of the contract between the parties. I am satisfied by Mr Forman’s evidence:

(a) He explains that when he raised issues about overcharging with HBL, which he did almost every month, he was told to keep track of credit claims because they could be “sorted” later. Mr Forman states that he had “agreed with Stuart that [they] would do a final wash up at the end of the bill” and that when he raised issues with HBL “Stuart ... would promise to look into credits and ... deal with them in future”.

(b) Mr Wood does not accept they agreed to engage in a wash up exercise but Mr Forman refers to an email dated 2 November 2010 in which Mr Wood mentioned dealing “at one time with credits due, invoicing errors and short payments”.

(c) Accordingly, Mr Forman kept a record of the overcharges “in the belief that these would be reconciled at a later date”.

(d) On occasion – for example in relation to payment claim 3 – Mr Forman raised issues with HBL and invoices were adjusted and reissued.

(e) Mr Forman ceased making payments near the end of the contract because he considered that by that stage he was substantially in credit and that this would be accounted for in the wash up exercise.

(f) Mr Forman gave HBL a summary of his credit claims in December 2010 in an attempt to complete the wash up exercise.

(g) HBL wrote to Mr Forman on 19 February 2011. Clearly, it did not consider that significant overcharging had occurred. It stated the account was approximately $40,000.00 in arrears. However,
significantly, HBL acknowledged there were “some credits to approve and some minor invoice items to check”. Aside from this, HBL did not specifically address the credit claims Mr Forman had sent.

(h) Mr Forman followed up twice in March 2011. HBL did not respond.

[31] This was not a case of simple overpayment. The trustees overpaid because HBL overcharged them. This case is therefore, in my view, best characterised as one of breach of contract through overcharging. But that overcharging was not crystallised until the parties failed to conduct the wash up exercise at the end of the contract.

[32] Second, the claim was specifically pleaded as being for a breach of contract before the arbitrator. For example, the statement of claim says:

As a consequence of the above breaches of the contract, the claimant was substantially overcharged for the works and seeks recovery of the overpayment.

...

The respondent charged more than he was contractually entitled to do, so the claimant is entitled to recover the overcharges as a breach of contract.

...

The respondent failed to seek enforcement of its statutory right under the Construction Contracts Act regime for Payment Claims 1-10. However, this does not mean that the claimant’s action for breach of contract is similarly limited.

[33] Third, while the trustees might have been able to make out a claim for money had and received, in my view, that does not mean they could not claim for breach of contract. They simply had an alternative claim for money had and received, as was the case in Air New Zealand Ltd v Newfoundworld Site 2 (Hotel) Ltd.⁴ I am not satisfied that they pursued such an alternative claim.

⁴ Air New Zealand Ltd v Newfoundworld Site 2 (Hotel) Ltd [2017] NZHC 1131 at [84].

Issue two: what limitation period applies to the claims?

[34] The parties agree that the six year limitation period under s 4(1)(a) of the Limitation Act 1950 applies, regardless of the nature of the claim. That sub-section applies to “actions founded on simple contract or on tort”.

[35] There appears to be some debate as to whether a claim for money had and received is an action founded on “simple contract”. Given my conclusion on the first issue, it is unnecessary to engage in that debate. The six year limitation period in s 4(1)(a) applies.

Issue three: when did time begin to run?

[36] Next, I need to determine when time began to run. On the trustees’ case, time began to run either when the contract was concluded or when there was a “net overpayment”. Either results in the claims being brought in time.

[37] On the other hand, HBL says each claim for overpayment accrued on the day overpayment was made. On this approach, the trustees’ claim as regards payment claims 1 to 9 was not brought in time and is accordingly time-barred.

[38] Time begins to run when a cause of action accrues. A cause of action accrues when every fact exists which the plaintiff would need to prove to establish its case.⁵ Halsbury’s Laws of England explains:⁶

Apart from any special provision, a cause of action normally accrues when there is in existence a person who can sue and another who can be sued, and when there are present all the facts which are material to be proved to entitle the claimant to succeed.

⁵ Williams v Attorney-General [1990] NZCA 20; [1990] 1 NZLR 646 (CA) at 678.

⁶ Halsbury’s Laws of England (5th ed, 2016) vol 68 Limitation Periods at [920].

[39] In a case for breach of contract, the cause of action is complete upon breach, without the need for actual loss or damage.⁷ Keating on Construction Contracts⁸ and Kennedy-Grant and Weatherall on Construction Law confirm this principle.⁹

[40] In my view, the contract in the present case was breached when the overcharging and inaccurate invoicing was not corrected through a wash up exercise. That exercise should have been conducted when HBL ceased work, or within a reasonable period from that time. It was not. As a result, the breaches crystallised in December 2010 at the earliest. I do not consider it was, objectively, the parties’ intention that the contract should have been regarded as breached through invoicing errors before that time.

Issue four: were the claims brought in time?

[41] As explained above, the earliest date at which the contract was breached was December 2010 when HBL ceased work. The trustees had six years from that date to bring their claim.

[42] There is disagreement between the parties as to when time ceased to run. HBL says time ran until the trustees gave notice of their intention to arbitrate on 9 February 2016. The trustees, on the other hand, say that time stopped running on 18 December 2015 when they filed a claim in the District Court.

[43] This disagreement is immaterial given the conclusions I have reached on issues one to three. Both dates contended for were within six years from the earliest breach date, when HBL ceased work in December 2010. All the claims were brought in time.

Conclusion

[44] The appeal is dismissed.

7. Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA) at 536 and Gedye v South [2010] NZCA 207, [2010] 3 NZLR 271 at [44].
8. Stephen Furst and Vivian Ramsey Keating on Construction Contracts (10th ed, Sweet & Maxwell, London, 2016) at [16-025].
9. Tómas Kennedy-Grant and Michael Weatherall Kennedy-Grant and Weatherall on Construction Law: The Underlying Law — Contract, Torts and Legislation (LexisNexis, Wellington, 2017) at [55,360].

[45] It is now for the parties to determine quantum in accordance with Mr Firth’s award. If they are unable to do so, they should return to Mr Firth in accordance with the procedure outlined on page 8 of his interim award.

[46] I see no reason to depart from the fundamental principle that costs should follow the event. My assessment is that 2B costs are appropriate. If the parties cannot agree, I will receive memoranda of no more than three pages by 30 June 2018 following which I will make a decision on the papers.









Woolford J