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)
17.044