Construction: Body Corporate 200012 v. Keene

Auckland leaky home owners in an 83 unit Mt Eden development failed in their challenge to a multi-million dollar Construction Contracts Act ‘pay now argue later’ adjudication in favour of construction company Naylor Love.  Justice Brewer ruled adjudications cannot be re-adjudicated.

Described in court documents as Body Corporate 200012, the owners collectively challenged the adjudication process for two separate adjudications where Naylor Love was ruled entitled to a total of $3.8 million for delays, extra remedial work and cost over runs.  Extra work had pushed an anticipated two and a half year contract out by about a further year.

The Construction Contracts Act allows referral of building disputes to an adjudicator.  This provides a rough and ready interim ruling on who owes who how much.  Any amount specified in this ruling has to be paid immediately: the ‘pay now argue later’ principle.  A refund can be chased if a subsequent ruling by an arbitrator or court disagrees with the adjudication.

Being pressed by Naylor Love for $3.8 million, the Body Corporate asked the High Court to review the arbitrators’ rulings.  Judicial review is an appeal about process; not about the merits of an adjudicator’s decision.

Justice Brewer ruled there was no evidence the two adjudicators exceeded their jurisdiction or were in breach of natural justice.  The owners’ complaint was about the interpretation of the Naylor Love contract.  They cannot litigate the adjudicators’ interpretation.  That is for later, when the warring parties go to arbitration.  The court was told an arbitration is scheduled for mid-2018.  Upfront payment of the $3.8 million can be enforced.

Body Corporate 200012 v. Keene – High Court (30.11.17)

18.015

Tax: R. Malu

First ever.  A taxpayer was discharged without conviction after pleading guilty to tax evasion.  Apineru Kerenise Malu completed 220 hours of voluntary community work and saved $6200 towards unpaid tax before being discharged without conviction and ordered to pay another $26,200 by instalments towards tax evaded of $178,000.

Inland Revenue appealed.  This was a very generous sentence, said the Court of Appeal, while dismissing the appeal.  Government legal advisers could find no previous example of a taxpayer being discharged after pleading guilty to tax evasion.             

The Court was told Mr Malu was previously self-employed as a marketing consultant.  He failed to file income tax and GST returns for over four years.  Cultural expectations were the reason, he explained.  On his father’s death in Samoa he assumed the responsibilities of matai for his extended family.  Tax payments were diverted to meet cultural obligations.  He did belatedly file the necessary tax returns.  This crystallised the extent of his default.  It was open to the trial judge to grant a discharge on the evidence before him, the Court of Appeal ruled.  Mr Malu was genuinely remorseful.  He now had employment in the state sector.  He would lose his job and future career prospects if convicted.  He had evidenced a commitment to paying all tax arrears while continuing to support his extended family.

R. v. Malu – Court of Appeal (29.11.17)

18.014

Lease: Precinct Properties v. OMV

Precinct Properties has the go ahead to sue tenant OMV for $258,250 unpaid rent on a Deloitte House lease in central Wellington despite OMV’s claim that temporary closure after the 2016 Kaikoura earthquake justified termination of its lease on grounds the property was ‘untenantable’. 

Oil and gas conglomerate OMV New Zealand Ltd has leased space in Deloitte House on Brandon Street since 2009.  Its current lease runs to November 2020.  Tenants were locked out for four months from November 2016 while potential risks following the Kaikoura earthquake were assessed.  During the lockout, OMV gave notice terminating the lease.  It refused to pay further rent when access was permitted from March 2017, being then committed to a lease of alternative commercial space in central Wellington.

Precinct Properties sued, saying clause 44.3 in its commercial lease is a ‘pay now argue later’ clause.  These clauses protect a landlord’s cashflow while tenants argue for a reduction.  OMV said a ‘pay now argue later’ clause does not apply when the existence of the lease itself is at issue.  This issue has to be sorted out first.  Associate judge Smith ruled the clause applies in any circumstances where there is a dispute between landlord and tenant.  Precinct can sue for its claimed unpaid rent.  Arguments over termination come later.
Precinct Properties v. OMV New Zealand Ltd – High Court (28.11.17)

18.013