Fong Sun Development v Minson Fiji Ltd [1998] FJSC 3; CBV0007U.1997S (1 March 1998)

Fiji Islands - Fong Sun Development v Minson Fiji Ltd - Pacific Law Materials

IN THE SUPREME COURT OF FIJI

AT SUVA

ON APPEAL FROM THE FIJI COURT OF APPEAL

CIVIL APPEAL NO. CBV 0007/97
(Fiji Court of Appeal Civil Appeal No. ABU0041/96)

:

FONG SUN DEVELOPMENT
Appellant

AND:

MINSON FIJI LIMITED
Respondent

Coram: The Hon. Sir Timoci Tuivaga, President The Rt. Hon. Lord Cooke of Thorndon
The Hon. Sir Anthony Mason

Hearing: 11 March, 1998
Judgment: March, 1998

Counsel: Mr H.K. Nagin for the Appellant
Mr R.A. Smith for the Respondent

JUDGMENT OF THE COURT

This appeal arises out of a dispute under a building contract. The appeal is brought by the appellant, the building owner, against two interlocutory orders made by Fatiaki J. on 23 August, 1996. On that day, His Lordship made three orders namely:

(1) an order dissolving an ex-parte injunction which effectively prevented the appellant from leasing its premises on which the building had been substantially erected by the respondent contractor;

(2) an order refusing an application by the appellant for a stay of the respondent’s action pending the referral to and determination of the parties’ dispute by arbitration; and

(3) an order for the payment out of court to the respondent of a sum of $115,500 previously paid into court by the appellant.

This appeal is brought against the second and third orders.

History of the contract and the proceedings

It is necessary to give a short account of the building contract and of the proceedings in which these orders were made. The contract was executed by the appellant and the respondent on 10 August 1995. It provided for the construction of a new five level office building on Ratu Mara Road, Samabula. It provided for a completion date namely 13 February 1996 (clause 21; appendix), the issue of interim payment certificates (clause 30) and the deduction from moneys due or to become due under the contract of a sum for liquidated damages in the event of late completion (clause 22), the sum to be calculated at the rate of $15,000 per week (Appendix).

A dispute arose between the parties when interim certificate no. 8 issued on 8 March 1996 for an amount of $222.236.69 from which the appellant deducted the sum of $115,500, claiming an entitlement to do so under clause 22 as liquidated damages for late completion. On 2 April 1996, when the building was almost completed, the respondent determined the contract under clause 26(1)(a) on the ground that the appellant had failed to make payment of the amount due under interim certificate no. 8 and commenced proceedings against the appellant by writ of summons. Apart from the appellant, other parties were named as defendants. They included Mr Naidu, the architect of the building, and Mr Chung, a director of the appellant.

By its amended statement of claim in the proceedings the respondent alleges a history of late payment of amounts due under interim certificates, a failure by the architect to respond to requests by the respondent for reasonable extensions of time for completion and the arbitrary and wrongful deduction of the amount of $115,500 from the amount certified by interim certificate no.8, (the deduction being made or claimed after the plaintiff determined the contract on 2 April 1996). The plaintiff further alleges that the deduction was unlawful because the claim arose out of delays caused by the failure of the architect, with the knowledge of the appellant and Mr Chung to assess the extensions of time sought by the appellant. The case pleaded against the appellant concludes with the allegation that the appellant was in fundamental breach of contract by failing to make payment of the amount due under interim certificate no. 8 with the consequence that the respondent is entitled to remuneration on the basis of a quantum meruit.

The amended statement of claim then goes on to plead a case against the architect of breach of a duty of care to the plaintiff and a case of fraud; a number of breaches of duty and matters of fraud are particularised. It is not relevant for present purposes to give an outline of the case pleaded against the architect. It is enough to say that the amended statement of claim seeks judgment in the sum of $804,820.86 and interest against the appellant, judgment in the sum of $207,001.86 and interest against Mr Chung and damages against them and the architect. Although relief by way of injunction was sought in the original statement of claim, no injunctive relief is sought in the amended statement of claim. This is a matter which has significance for the appeal against the primary judge’s refusal of a stay.

Interlocutory Orders

On 19 April 1996, on an ex parte application by the respondent, Fatiaki J. granted an interim injunction restraining the appellant from dealing in any way with its interests in the property comprised in State Lease No. 1944 and the developments thereon being the subject of the contract. Fatiaki J. granted a further interim injunction restraining the appellant, Mr Chung and the architect from deducting any amount by way of liquidated damages from any moneys due to the respondent under the contract. Fatiaki J. granted a third injunction which is not relevant to this appeal.

On 30 April 1996 the defendants in the action applied to set aside the ex parte injunctions and for a stay of the action pending referral of the dispute to arbitration and determination of it by arbitration. On the same day their defence in the action was signed. It was filed on the following day. On 10 May the appellant applied for an injunction restraining the respondent from hindering or interfering with the appellant, its servants agents and sub-contractors working on the building, the appellant having taken steps to complete the building. The appellant also sought an order that the respondent hand over all keys to the building to the appellant. The appellant’s endeavour to complete the building led to an application by the respondent on 14 May 1996 for leave to issue contempt proceedings against the defendants in the action for working in contravention of one of the ex parte injunctions.

The three interlocutory applications just described came on for hearing before Fatiaki J. on 16 May. They were disposed of, in part at least, by a consent order which adjourned the application for dissolution of the ex parte injunctions and for a stay and the application relating to contempt. Fatiaki J. then made orders, not by way of consent, that the respondent not hinder or interfere with the completion of the building, that the respondent hand over the keys to the building and that the appellant pay into Court the sum of $115,500 being the balance of certificate no. 8. It seems that the order for payment into court was a quid pro quo for the granting of the injunction to enable the appellant to complete the building.

On 14 June 1996, after negotiations for settlement has proved unsuccessful, the adjourned applications and an application by the respondent for payment out of the moneys paid into court came before Fatiaki J. the hearing resulted on 23 August 1996 in a reserved judgment and the making of the orders out of which the present appeal arises.

The judgment of Fatiaki J.

(1) As to the stay

The judge noted that the arbitration clause in the contract was not a Scott v. Avery clause requiring referral to arbitration as a condition precedent to the bringing of an action on the contract and that s.5 of the Arbitration Act (Cap. 38) recognises that the Court has a wide and unfettered discretion whether to grant or refuse a stay of an action pending arbitration.

His Lordship expressed his conclusion in these terms:

"bearing in mind the nature of the reliefs sought by the plaintiff company in its claim which includes injunctions and the stage to which the proceedings and pleadings have already been advanced by the parties, I am satisfied that this court should exercise its discretion by refusing the ........ application for a stay."

His Lordship was in error in thinking that there was a claim for injunctions. His reference to the pleadings was based on the fact that they had been completed, the defendants in the action having filed their defence.

(2) As to the payment out

The judge noted that the payment in was ordered by the court in the exercise of its unfettered discretion to grant the appellant equitable relief enabling completion of the building. His Lordship described the payment in as "a condition" of the injunction sought and stated that it was not a resolution of any particular dispute. His Lordship referred to the absence of evidence to support the calculation of liquidated damages in the amount of $115,500 and concluding by saying that the "balance of justice" was best achieved by dissolving the injunction restraining the appellant from leasing the building and by ordering payment out.

The Court of Appeal

The Court of Appeal, citing the well known speech of Lord Diplock in Garden Cottage Foods Ltd. v. Milk Marketing Board (1983) 2 All ER 770 at 772, considered that the primary judge had exercised his discretion, in relation to both issues, in conformity with principle and that no error of fact on law had been shown to vitiate his exercise of discretion. Their Lordships made the point that the serious legal issues arising on the statement of claim and the circumstance that some of the parties to the action were not parties to the arbitration agreement was a factor to be taken into consideration. The appeal was therefore dismissed.

The speech of Lord Diplock in the Garden Cottage Case was delivered in the context of an appeal dealing with the grant or refusal of relief by way of interlocutory injunction. It is, accordingly, not an authority which is particularly instructive in the different circumstances of this case. The principle governing the review by an appellate court of the exercise of a judicial discretion by a primary judge is, however, not in doubt. For an appeal to succeed it must appear that some error has been made in exercising the discretion. Such an error will appear if the judge acts upon a wrong principle, takes into consideration irrelevant matters, mistakes the facts or fails to take into account material considerations or if the exercise of the discretion is unreasonable or plainly unjust, in which event it can be inferred that there has been a failure properly to exercise the discretion (see, for example, Charles Osenton and Co. v. Johnston (1942) A.C. 173 at 179; Blunt v. Blunt (1943) A.C. 517; House v. The King (1936) 55 CLR 499 at 504-505; Lovell v.Lovell [1950] HCA 52; (1950) 81 CLR 513 at 518-519). This statement of he principle is or may be incomplete to the extent that it omits any reference to the failure by the primary judge to give any or sufficient weight to a material consideration, as to which see the speech of Viscount Simon L.C. in Charles Osenton and Co. v. Johnston at 250. That aspect of review of the exercise of a judicial discretion does not arise here.

(1) As to the stay

In this case, Mr Nagin for the appellant, correctly calls attention to the primary judge’s misapprehension about the claim for injunctive relief as a matter that vitiates the exercise of the discretion. It was one of the two matters on which His Lordship specifically relied to support his exercise of discretion.

Mr Nagin also submits that Fatiaki J. erred in not approaching the matter on the footing that, in those cases, such as building disputes, in which the dispute is of a class which is constantly dealt with by an arbitrator, it should go to arbitration unless sufficient reason to the contrary in shown. Support for that principle is provided by high authority (Heyman v. Darwins Ltd. (1942) A.C. 356) and it has been applied even in a case where nothing but law is to be decided (see Heyman v. Darwins Ltd.; Rowe Bros & Co. Ltd. Crossley Bros Ltd. (1912) 108 LT 11). So, in this respect, also it can be said that the judge’s exercise of discretion was flawed. We should, however, make the comment that the reasons for favouring arbitration over curial determination may not be as strong in Fiji as they are in England. That consideration seems to have influenced the judgments in the courts below.

In the circumstances, it is for this Court itself to exercise the discretion. The starting point is that arbitration was the mode of resolution to which the parties agreed and the dispute between the appellant and the respondent falls within the wide terms of clause 33 of the contract providing for arbitration, a matter not disputed by the appellant. Next clause 33 enables the parties by agreement to select a lawyer as arbitrator, though in default of agreement it is for the President or Vice - President of the Fiji Association of Architects to make an appointment. Of more importance is the fact that the appellant has filed a defence in the action giving rise to issues of fact and law. In this respect, it should be noted that in England, under the relevant statutory provisions, it was a condition of granting a stay that the applicant has taken no step in he proceedings after appearance (see Halsbury’s Laws of England 4th. ed. Vol. 2 para. 563). Some of the issues of fact and law to be determined have been ventilated in the series of interlocutory proceedings which have taken place. The fact that the legal proceedings have advanced so far and that they will enable a determination of all outstanding claims, including those against the architect, leads us to the conclusion that we should not reverse the order refusing a stay.

(b) As to the payment out

The point has already been made that the payment in was ordered as a condition of granting the injunction to the appellant restraining the respondent from interfering with the completion of the building. Likewise, the payment out was associated with the lifting of the injunction restraining the appellant from leasing the premises. So the payment in and the payment out were designed to achieve a fair and equitable outcome, giving significant to advantages to both parties, while enabling the building to be completed.

The payment out, it should be noted, did not entail any determination of rights and liabilities, in particular any determination of the appellant’s right to make the deduction under clause 22. That question awaits determination in the action.

In that respect we should observe that there is a strong argument to the effect that the deduction was not authorised. Clause 22 provides -

"If the Contractor fails to complete the Works by the Date for Completion stated in the Appendix to these Conditions or within any extended time fixed under clause 23 and the Architect certifies in writing that in his opinion the same ought reasonably so to have been completed.........."

then the owner is entitled to deduct a sum for liquidated damages calculated in accordance with the contract. We were told that the architect has not certified in writing that in his opinion the building ought reasonably to have been completed by the date fixed for completion. It is a certainly arguable that the requirement for that certification applies to the date fixed for completion as well as to any extended time. Moreover, it is strongly arguable that the right to deduct arises only in the case of a final certificate.

The circumstance that the validity of the deduction is doubtful is relevant to the propriety of what has occurred. By the machinery of payment in and payment out the amount as been transferred from the appellant to the respondent in circumstances where the appellant’s right to retain the amount was at least questionable and where the appellant secured interlocutory relief that it would not otherwise have secured. As a matter of the exercise of a discretion, if such it was, we can discern no error in it.

It is suggested, however, that the payment out to the respondent went beyond jurisdiction in that such a payment out was only authorised if it followed upon a determination of legal entitlement to the money or of some right and liability which related to the money. We do not consider that the court’s jurisdiction to deal with money paid into court should be understood so narrowly. A court’s jurisdiction to grant interlocutory relief extends to the making of an order for payment of money into court either as a term of granting relief or otherwise. Ordinarily a court would not order payment of money so paid in to a person other than the payer in the absence of a relevant determination of rights relating to the amount in question. The machinery of payment in and out should not ordinarily become a vehicle for transferring compulsorily money from one party to another. There are, however, exceptional cases - and we consider this case to be one of them - in which a payment out to another can be justified on the basis that it forms a necessary element in an appropriate arrangement for regulating on an interlocutory basis the rights and obligations of the parties pending the trial of an action. Accordingly, the primary judge’s exercise of discretion should stand.

In the result we make the following orders:

Orders: Appeal dismissed.

&nbspellapt to pay the resp respondent’s costs of the appeal.

Sir Timoci Tuivaga

Lord Cooke of Thorndon

Sir Anthony Mason

Solicitors:

Sherani and Company, Suva, for the Appellant
Munro Leys and Co., Suva, for the Respondent

CBV0007U.97S