16 May 2017

Contract: Smith & Davies v. Auckland City

After waste management contractor Smith & Davies walked away one year into a five-year contract, Auckland Council was justified in recovering a $400,000 premium paid to a rival firm taking over the job at very short notice.  This despite the Council failing to give proper notice before terminating Smith & Davies’ contract.  
Waste Management NZ took over operation of the City’s Waitakere waste transfer station in May 2015 when contractor Smith & Davies Ltd walked off the job.  The High Court was told Smith & Davies had recently been awarded a five year seventy million dollar contract to clear rubbish daily from the transfer station.  Waste Management was the underbidder; not getting the contract despite coming in at a slightly lower price.
Evidence was given of turmoil amongst investors within the corporate group which included Smith & Davies.  Andrew Chalmers, Zane Cleaver, Graham MacKinnon and Robert Grove held equal shareholdings in the group. Smith & Davies as one subsidiary held the waste management contract, other subsidiaries were liable for costs of leasing heavy equipment used on site.  Failed attempts to transfer the waste management contract to a separate company controlled by Messrs MacKinnon and Grove triggered repossession of the heavy equipment.  Plant operations came to a standstill.
Auckland City moved swiftly, getting Waste Management NZ to provide cover.  Smith & Davies sued.  Justice Fogarty ruled Auckland City was in breach of contract by calling in Waste Management immediately.  The Council did not act in good faith.  The contract required ten days’ notice to Smith & Davies.  Contractor Smith & Davies was also in breach of its good faith obligations, he said.  Directors failed to engage with Council until nearly a week after the crisis loomed.
Justice Fogarty said Smith & Davies had no right to assume Council would approve any assignment of the Waitakere contract to MacKinnon’s and Grove’s new company.  Councils have legal and public health obligations in awarding contracts for essential services like rubbish removal.    
Smith & Davies Ltd v. Auckland Council – High Court (16.05.17)

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