Electrix Ltd v The Fletcher Construction Company Ltd No 2

• Jurisdiction: New Zealand
• Judge: Palmer J
• Judgment Date: 06 May 2020
• Neutral Citation: [2020] NZHC 918
• Court: High Court
• Docket Number: CIV-2018-404-378
• Date: 06 May 2020

Between

Electrix Limited

Plaintiff

and

The Fletcher Construction Company Limited

Defendant

[2020] NZHC 918

Palmer J

CIV-2018-404-378

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA

TĀMAKI MAKAURAU ROHE

Contract — application for additional payment for work provided — counter-claim for return of overpayments — defendant hired the plaintiff to provide electrical services work in a construction project — payments were made on the basis of successive letters of intent — the parties never agreed formally — requirements for a valid contract-New Zealand approach to non-contractual quantum meruit — Fair Trading Act 1986

Appearances:

K M Quinn and S C I Jeffs for the plaintiff

K W Fulton and M N Rathod for the defendant

JUDGMENT NO 2 OF Palmer J

The judgment was delivered by me on Wednesday 6 May 2020 at 11.00am. Pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Contents

Summary	[1]
What happened?	[3]
The initial stages of the Christchurch Justice Precinct project	[3]
The Request for Proposal process	[6]
Electrical design work	[10]
Project management	[14]
Letters of Intent, payments and negotiations	[24]
Final stages of the project	[31]
Trial	[34]
Issue 1: Was there a contract?	[40]
The law about whether a contract exists	[41]
Submissions	[45]
Was a contract formed at the 13 April 2015 meeting?	[47]
Were the letters of intent evidence of a contract?	[59]
Was a contract otherwise agreed?	[65]
Issue 2: Is there liability for the “amount deserved”?	[73]
The law of quantum meruit liability for “the amount deserved”	[73]
Law on what amount is deserved	[88]
Submissions	[94]
Approach to the amount deserved	[96]
Expert evidence	[101]
Reasonable cost of the electrical works	[110]
Issue 3: Do Fletcher Construction's counterclaims succeed?	[124]
Fletcher Construction's Claims	[125]
Electrix's response	[127]
Decision on counterclaims	[128]
Result	[129]

Summary

1 Large construction projects benefit from a head contractor and electrical subcontractor concluding a contract and formulating the detailed design for electrical works before undertaking them. That did not happen in the Christchurch Justice and Emergency Services Precinct project. In October 2014, the Fletcher Construction Company Ltd confirmed Electrix Ltd as its preferred electrical sub-contractor. Fletcher Construction requested and Electrix provided electrical services work. Fletcher Construction paid Electrix $21.6 million (GST excl) for the work, on the basis of successive letters of intent. But the parties never managed to agree formally on a contract and never completed the detailed design of the electrical works. The electrical works suffered from poor management, delays, disruption and constant time pressure. Now, Electrix sues Fletcher Construction for some $7 million plus interest. Fletcher Construction counterclaims, saying it paid Electrix some $7 million too much, whether there was a contract or not. The proceeding was the subject of a four-week trial in October 2019.

2 I find there was no contract between Electrix and Fletcher Construction. The parties did not intend to be immediately bound by essential terms at any point. They expected they would be able to reach agreement on a contract, but they never did. Yet Electrix provided the electrical works services requested by Fletcher Construction. Fletcher Construction must pay the reasonable cost of the services, the “amount deserved” or “quantum meruit”. The New Zealand law of non-contractual quantum meruit is not exclusively tethered to the doctrine of unjust enrichment. Its objectives are not confined only to dispossessing those unjustly enriched but can extend to providing redress for those who have been unjustly impoverished. The market value of the services that could have been used to undertake the works is relevant. But the reasonable cost of the services actually provided is the better starting point, reflecting the market value of the particular inputs used in the provision of those services at the relevant time and in the relevant circumstances. I rely primarily on the evidence of Electrix's expert witness, Mrs Catherine Williams. I find Fletcher Construction must pay Electrix $7,473,207 (GST excl) plus simple interest of five per cent per annum.

What happened?

The initial stages of the Christchurch Justice Precinct project

3 After the Canterbury earthquakes in 2010 and 2011, the government decided to construct a new building in Christchurch to house justice and emergency services: the Christchurch Justice and Emergency Services Precinct building. It was the largest multi-agency government co-location project in New Zealand. It involved five different levels, with different floor plans. It was the first major building to be built and opened in Christchurch after the earthquakes. The Ministry of Justice, a department of the Crown, was the principal for the government.

4 The evidence of Mr Jeff Wilson, Fletcher Construction's Senior Building Services Manager, is that Fletcher Construction originally sought to agree on a price of $18.3 million for the electrical package but the Ministry would not agree. Fletcher Construction and the Ministry agreed on $15,967,000 plus GST as the Guaranteed Maximum Price (GMP) for the electrical works. On 1 August 2014, the Ministry of Justice executed the Head Contract for Fletcher Construction to design and build the Precinct project with an overall GMP of almost $240 million and a practical completion date of 15 December 2016.

5 When the Head Contract was executed, the Ministry's contractors, including for design, were transferred, or “novated”, to Fletcher Construction. The Head Contract provided for that to occur once the detailed design for the Precinct building was 50 per cent developed. The novation stated “the design/coordination process is not complete and is subject to further development to meet the client brief and the construction contract”. 1 In an internal email on 11 August 2014, Mr Wilson considered the electrical design was “not in synch with the Clients brief”, the electrical drawings were only 10 per cent developed and the actual detailed design for the electrical works only 20 per cent developed. 2

The Request for Proposal process

6 On 28 August 2014, Fletcher Construction issued a Request for Proposal (RFP) for the electrical services package. 3 The basis for the RFP was that the documents issued for pricing were “deemed” to have been developed to 50 per cent of the detailed design. It anticipated a 12-week period of Early Contractor Involvement (ECI) that would allow the GMP to be converted to a fixed price lump sum. In a private tender published on 3 September 2014, Fletcher Construction noted the requirement that the successful tenderer enter into a formal subcontract with Fletcher Construction based on Fletcher Construction's standard subcontract agreement. 4

7 On 10 September 2014, Fletcher Construction issued a further notice to the tenderers, enclosing information stating the electrical design was “essentially at 50 per cent detailed design”. 5 Opus International Consultants Ltd (Opus) was preparing the detailed design for the electrical works, with Beca. On 12 September 2014 a tender addendum from Fletcher Construction provided the construction programme. 6 Under cross-examination, Mr Wilson at first gave evidence that Fletcher Construction covered in the mid-bid meeting with tenderers that the detailed design was only at 10 per cent level. However, he withdrew that when referred to the existence of a transcript of an audio-recording of that meeting. 7

8 Electrix was owned by French international company Vinci Energies SA. On 3 October 2014, Electrix submitted its proposal at a price of $16,866,182.99, valid for 30 days. It outlined a proposed scope and price, identified $950,000 of non-exhaustive potential savings through value engineering and indicated the standard FCC terms and conditions were not expected to be an issue. 8 Electrix understood two other compliant bids were received by Fletcher Construction.

9 On 21 October 2014, Fletcher Construction confirmed Electrix as its preferred contractor for the electrical services on the Precinct project. 9 As detailed later in the

judgment, the letter (dated 20 October 2014) envisaged the parties would negotiate a full and formal contract. In the meantime, the letter said it should be accepted as authority to proceed with engagement. This was the first Letter of Intent (LOI). Fletcher Construction sent Electrix its subcontract terms and conditions the same day. 10 On 21 February 2015, Fletcher Construction sent Electrix a copy of its Head Contract. Both parties considered a “value engineering” process would likely get the cost below the proposal price

Electrical design work

10 On 23 October 2014, two days after confirming Electrix as its preferred contractor, Fletcher Construction told Electrix the Ministry was rejecting the detailed design proposals for the electrical works. On 29 October 2014, the Ministry of Justice formally advised Opus of that. Electrix assisted Opus and Beca in revisiting the electrical design.

11 The electrical design work did not go well. Fletcher Construction became frustrated with Beca, considering it was trying to persist with the rejected detailed design. On 11 December 2014, Mr Wilson asked Mr Andrew Werrett of Electrix whether Electrix would be prepared to develop the electrical design. 11 Electrix was not. Minutes of a meeting in February 2015 noted there had been more than 800 design changes since the novation. 12 On 24 May 2015, Fletcher Construction asked Electrix again to take on a formal design role. 13 Electrix considered, but...