Lava Hotel Ltd v Ca'Bella Pacific Construction Ltd [2021] WSSC 74 (15 December 2021)

IN THE SUPREME COURT OF SAMOA
Lava Hotel Limited v Ca’Bella Pacific Construction Limited & Anor [2021] WSSC 74

Case name:	Lava Hotel Limited v Ca’Bella Pacific Construction Limited & Anor
Citation:	[2021] WSSC 74
Decision date:	15 December 2021
Parties:	LAVA HOTEL LIMITED (Plaintiff) v CA’BELLA PACIFIC CONSTRUCTION LIMITED (First Defendant) and TINAI GORDON & ASSOCIATES LIMITED (Second Defendant)
Hearing date(s):	01 November 2021
File number(s):	MISC 213/20
Jurisdiction:	CIVIL
Place of delivery:	Supreme Court of Samoa, Mulinuu
Judge(s):	Justice Lesātele Rapi Vaai
On appeal from:
Order:	(a) Leave to amend statement of claim is refused. (b) Plaintiff is ordered to pay costs of $1,000.
Representation:	T. Lamb for the Plaintiff K. Kruse for the First Defendant C. Vaai for the Second Defendant
Catchwords:	Cost reimbursement contract – breach of contract – unjust enrichment – performance bonds – retention bonds – insurance coverage – insurance bonds – construction contract -
Words and phrases:	“application to amend statement of claim” – “insurance company went into liquidation”
Legislation cited:	Companies Act 2001 s. 222; Supreme Court (Civil Procedure) Rules 1981, r.17.
Cases cited:	Siliato v Board of Trustees of the Methodist Church of Samoa [2004] WSSC 2 (4 February 2004); Whakatane District Council v Bay of Plenty Regional Council (2008) NZHC (14/03/2008); Woodroffe v Mataia [2017] WSCA 5 (31 March 2017).
Summary of decision:

MISC213/20

IN THE SUPREME COURT OF SAMOA
HELD AT MULINUU

BETWEEN:

LAVA HOTEL LIMITED, a duly incorporated company having its registered office at Island Rock Complex, Tufuiopa, Apia, Samoa, and carrying on business as a Hotel

Plaintiff

AND:

CA’BELLA PACIFIC CONSTRUCTION LIMITED, a duly incorporated company having its registered office at Asivai Street, Vaitele, Samoa, and carrying on business as a construction business

First Defendant

AND:

TINAI GORDON & ASSOCIATES LIMITED, a duly incorporated company having its registered office at Apia, Vaimauga Sisifo, Samoa and carrying on business as civil engineers

Second Defendant

Counsel: T. Lamb for the Plaintiff
K. Kruse for the First Defendant
C. Vaai for the Second Defendant

Hearing: 01 November 2021
Decision: 15 December 2021

DECISION

1. The plaintiff has applied for leave to amend its statement of claim. It is opposed by the first defendant. The application needs to be seen in the context of what has eventuated so far.
2. In or about April 2018 the plaintiff and the first defendant entered into a written contract for the first defendant to construct a hotel for the plaintiff. It was a cost reimbursement contract which contained inter alia the methodology for assessing the contractual price for the contractual work provided by the first defendant.
3. The contract named the second defendant as the engineer to the contract. Progress claims submitted by the first defendant during the course of construction work in accordance with the terms of the contract were all submitted to the second defendant who verified and approved the claims for payment. Progress claims numbered 1 to 25 were verified and accepted by the second defendant and were all paid.
4. Construction of the hotel was completed in about April 2020. Claims 26, 27 and 28 submitted by the first defendant for payment were not paid. Neither were they referred to the second defendant for assessment and approval. The plaintiff refused payment of the claims. Numerous correspondences were exchanged between the parties including the second defendant. In essence, the plaintiff contended that as a result of its investigation the progress claims 1 to 25 were paid to the first defendant without full compliance with the contract process resulting in overpayment which is larger than the amount claimed in claims 26 to 28. Secondly, the plaintiff contended that claims 26 to 28 have not been properly reviewed and accepted by the engineer in compliance with the contract process.
5. Pursuant to section 222 Companies Act 2001 the first defendant issued and served on the first plaintiff a statutory demand dated 02^nd November 2020 demanding payment of claims 26 to 28 plus interest for late payment.
6. In response the plaintiff filed a motion dated 12^th November 2020 to set aside the statutory demand pursuant to section 223 Companies Act on the basis:
   • (a) That there is a substantial dispute as to the debt, and
   • (b) That the plaintiff has a counterclaim and set off which is larger than the first defendant’s statutory demand.
7. Extensive affidavits have been filed by the plaintiff and first defendant in support of the two motions.

Statement of claim

8. The plaintiff also filed a statement of claim dated 12^th April 2021. Against the first defendant, the plaintiff claimed breach of contract in a number of instances. It also claimed negligence, alleging breach of a duty of care to carry out its contractual obligations. Unjust enrichment is also alleged. Damages sought against the first defendant amount to $4,907,647.99.
9. As against the second defendant the plaintiff pleaded two causes of action namely breach of contract and negligence. Damages of $4,907,647.99 are also claimed against the second defendant.
10. Both the first and second defendants have filed statements of defences and counterclaims. In response to the counterclaims the plaintiff filed statements of defences.

Statutory Demand proceedings

11. Due to the lockdowns, border closures and because several personnel for the plaintiff required to provide affidavits are resident overseas there was considerable delay in scheduling a timetable to progress the statutory demand proceedings to a hearing. No hearing date has been set at the time this application for leave to amend statement of claim was filed.

Reasons to amend the statement of claim

12. Pursuant to the terms of the contract, the first defendant was required to obtain insurance from an insurer of its choice to cover advance payment bonds, performance bonds and retention bonds. It was the obligation of the plaintiff to reimburse the first defendant for the bonds.
13. The first defendant did obtain insurance bonds from Progressive Insurance.
14. Progressive Insurance was placed into voluntary liquidation on or about 09^th September 2021. By public notice in the Samoa Observer newspaper of the 15^th September 2021 the liquidator advised the creditors of Progressive Insurance that a meeting of creditors will not be necessary as the indicative liabilities of the company materially exceeds the value of its assets such that a distribution to unsecured creditors is at present unnecessary.
15. With the placement of Progressive Insurance into voluntary liquidation, the plaintiff claims that the policies obtained by the first defendant from Progressive Insurance and which the plaintiff was obligated to under the terms of the contract to reimburse and which the plaintiff reimbursed the first defendant through the progress payments are worthless and of nil value because Progressive Insurance was never in a financial position to honour any insurance claim which the plaintiff may have submitted.
16. It is alleged at paragraph 24.2 of the proposal amended statement of claim:
    • 24.2 That as a direct result of Progressive’s inability to honour its own contractual obligations, the contractor’s bond and the retention bonds procured by the first defendant and paid for the plaintiff were always of nil value and therefore worthless.
17. It is the total sum, of $108,808 which the plaintiff paid to the first defendant for the retention and contractor’s bonds which the plaintiff wish to claim through the amendments to its statement of claim.
18. The application is supported by affidavits from Mr. Fruean, the Managing Director of the plaintiff and an affidavit from Mr. Chan Mow a former Director of Progressive Insurance. Mr. Chan Mow deposed that he honestly believed that when the first defendant procured the insurance bonds, Progressive Insurance would never have been able to honour full payment had demand been made of them by the plaintiff. His belief is based on a claim he made with Progressive Insurance after his family wholesale business premises was partially destroyed by fire in 2016 and it was agreed that Progressive Insurance will pay the Chan Mow family company $9,743,644.00. By September 2017 the sum of over $5,000,000 was still owing and Progressive Insurance requested Chan Mow to accept monthly payments of $50,000 which Chan Mow accepted but Progressive Insurance did not honour resulting in Chan Mow issuing legal proceeding to recover the outstanding balance of almost $5,000,000 as at January 2018.
19. Mr. Fruean, deposed that at the time of negotiating the various insurance policies required under the construction contract, Mr. Vaughan Simpson, a director of the first defendant was aggressively pushing for all policies to be placed with Progressive Insurance. Although he conceded that it was the discretion of the first defendant to choose its own insurer, the first defendant should have made its own checks on the solvency and appropriateness of obtaining insurance coverage from Progressive Insurance. The first defendant therefore took the risk of placing insurance coverage with Progressive Insurance.

Objection by the first defendant

20. The first defendant concedes that Progressive Insurance went into liquidation after the statement of claim was filed; it also concedes that the plaintiff is also entitled pursuant to the Supreme Court Rules to amend its claim. However, the first defendant contends that there is no cause of action arising from the liquidation from which the plaintiff is entitled to claim damages.
21. It is contended by the first defendant that the four insurance bonds were procured in 2018, and all the four bonds have during the construction years and after the completion of the construction contract expired at declared points of time in accordance with the terms of the contract. The Advance Payment for instance expired once the value of the bond had been deducted from progress claims over the two year construction period. The Performance Bond expired once the practical completion was achieved on the 27^th April 2020. The first of the two retention bonds also expired on the 27^th April 2020 and the fourth bond, the second retention bond expired on the 18^th May 2021 which is the end of the 12 month defects liability period.
22. No claim against the four bonds was made during the two year construction period and before the end of the 12 month defects liability period after construction.
23. Two affidavit were filed in support of the opposition and to contest the issues raised in the affidavits filed by the plaintiff. It will not be necessary to refer to the contents of the affidavits but to mention only the several relevant factors in the affidavits namely:
    • (a) Progressive Insurance has always been the first defendant’s insurer for its construction contracts obligations.
    • (b) The first defendant did not investigate the financial status and affairs of Progressive Insurance in 2018 when it acquired the four bonds. It was not obligated to do so.
    • (c) Mr. Chan Mow was not involved in the management and administration of Progressive Insurance.

Submissions by the Plaintiff

24. Counsel for the plaintiff labours the point that the first defendant completely ignores the fact that the plaintiff paid $108,808 for worthless bonds. At paragraphs 26 and 27 of his written submissions he emphasises that:
    • (a) There was real value to the plaintiff in having reliable insurance in place should it need to make any valid claim; and
    • (b) The plaintiff has prima facie evidence, through the affidavit of Mr. Chan Mow that from at least October 2017 Progressive Insurance was not in a financial position to honour any insurance bonds issued to the first defendant.
25. The central issue in the application, submitted at paragraph 28(e) of the submissions is:
    • “The solvency of Progressive and when it is most likely to have become insolvent which needs to be established and proven at trial.”
26. Counsel submits that no injustice will be incurred against the first defendant if leave to amend is granted; neither is the plaintiff acting mala fide; nor is the Court being asked to correct an oversight by the plaintiff.

Submissions by the first defendant

27. The first defendant concedes that the elements and events upon which the leave to amend application is grounded arose after the statement of claim was filed. It is also conceded that the application is not seeking to correct a blunder or oversight.
28. But the first defendant contends that the proposed amendment does not and will not resolve the controversy between the plaintiff and the first defendant. The facts upon which the amendment is sought are totally irrelevant to the dispute between the parties. It is the liquidation of Progressive Insurance in September 2021, upon which the amendment is anchored.
29. It is obviously inevitable that the first defendant had no reason to be aware in 2018 when it acquired the four bonds, of the financial status or affairs of Progressive Insurance, nor was the first defendant required under the contract to inquire into the financial affairs of its insurers.
30. In any event, the construction contract was completed in April 2020 and the last of the four bonds expired at the end of the 12 month defect liability period, which was the 18^th Mary 2021.
31. While accepting that the Court is entitled to treat the allegations in the statement of claim as capable of being proved, counsel contends at paragraph 4.15 of her submissions:
    • “4.15 It is not and cannot be in the interests of justice that a party is able to introduce immaterial and irrelevant pleadings, unsupported on any facts, and which fail to assist the Court in answering the real issues in controversy between parties. It is also reasonable to infer from the tenor of the evidence from Lava to support its application that the gratuitous comments, together with knowledge that factually there is no basis for its amendment, suggests bad faith and an attempt to muddy the waters in irrelevancies. It is Ca’Bella’s position that Lava cannot show this Court how it would be in the interests of justice to allow its amendment, when it cannot show any or any reasonable cause of action on the facts adduced, or any loss suffered arising out of those same facts.”

Discussion

32. Both counsels are in agreement as to the principles to be applied in the determination of an application for leave to amend pleadings in the statement of claim. The test is whether or not the amendment is necessary in order to do justice between the plaintiff and the opposite party.^[1] Leave to amend should be granted if the proposed amendment will ensure that the real controversy goes to trial so as to secure the just determination of the proceedings.^[2]
33. Rule 17 Supreme Court (Civil Procedure) Rules 1981 enables a plaintiff at any time before or after trial to amend its statement of claim with leave of the Court.
34. The plaintiff has helpfully provided a draft copy of its proposed amended statement of claim.
35. In compliance with its contractual obligations the first defendant acquired the four bonds from Progressive Insurance which has been its insurer for its construction contract obligations. It was not required of the first defendant to investigate the financial affairs and status of its insurer. Neither can it be established that the first defendant was put on notice in 2018 that Progressive Insurance was in financial difficulties and was likely to go into liquidation in 2021, nor would it be unlikely to honour the bonds if the plaintiff did have the need to make any valid claim.
36. Although the Court proceeds on the assumption that the facts pleaded in the claim are capable of proof, this assumption may however be rebutted where uncontested affidavit evidence establishes that some matter essential to the claim is plainly incapable of proof.^[3]
37. The Chief Executive Officer of the plaintiff deposed in his supporting affidavit at paragraph 14 that once a complete review has been undertaken of the financial affairs of Progressive that there may well be issues of reckless trading arising relating to the financial management of Progressive. In the Court’s view the statement is totally irrelevant to the controversy between the parties. It is contrary to the interests of justice to allow an event which collapsed a third party to play a role in the dispute between the parties particularly when that event has not resulted in any loss or damage to the plaintiff.
38. In any event, as counsel for the first defendant correctly pointed out the amendment and the supporting affidavits do not raise or identify any issues of performance, or defects claim against the first defendant which therefore required Progressive Insurance to make payment on those bonds.

Result

(a) Leave to amend statement of claim is refused.
(b) Plaintiff is ordered to pay costs of $1,000.

JUSTICE VAAI

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^[1] Siliato v Board of Trustees of the Methodist Church of Samoa [2004] WSSC 2 (4 February 2004).
^[2] Whakatane District Council v Bay of Plenty Regional Council (2008) NZHC (14/03/2008)

^[3] Woodroffe v Mataia [2017] WSCA 5 (31 March 2017).