$2m High Court ruling on Commercial Bay contract to improve work practices: Fletcher boss

Fletcher sued Spotless over work at Commercial Bay (centre). Photo / file

A Fletcher Building executive says a High Court ruling has provided clarity about the law and would improve work practices across the construction sector.

Gary Walker, general manager of New Zealand's biggest builder, Fletcher Construction, said the decision in its dispute with Spotless, which found against Fletcher,, had benefits for other businesses.

"The ruling provides clarity and will result in improved practices across the sector. As good practice all commercial managers at Fletcher Construction have received additional training in light of the judgment," Walker said.

Fletcher lost in a multimillion-dollar dispute with Commercial Bay subcontractor, Spotless Facility Services (NZ), a subsidiary of Downer, on Precinct Properties' $1 billion, Auckland commercial and retail tower.

Fletcher was ordered to pay Spotless more than $2m.

Walker said: "This judgment clarifies the requirements of Section 21 of the Construction Contracts Act, in particular that payment schedules must provide reasons for payment deductions on a line by line basis. A Spotless witness stated there was 'wide industry non-compliance' with this requirement. Fletcher Construction agrees.

"In part this is due to the nature of complex construction projects, differences in subcontractor contracts with regards to performance deductions, compressed statutory timeframes to process large volumes of claims in large projects and the lack of clarity in the language of section 21," Walker said after the ruling, released last month.

Justice Gerard van Bohemen said the Fletcher Construction Company sought a declaration that notices by Spotless to suspend its contract in the latter stages of the Commercial Bay project were invalid.

Fletcher had a subcontract with Spotless for mechanical services needed for heating and cooling the 39-level tower to ensure fresh air intake, air quality and ventilation. Before January this year, Spotless had been paid $47.8m but disagreements arose after that about subsequent payments.

Fletcher was liable to pay Spotless $2.06m plus GST, the judge said.

Before the first covid-19 lockdown towards the end of March, Spotless disputed the payment schedule. It accused Fletcher of charging too much in liquidated damages and other charges, meaning it had the right to stop work on the tower.

Fletcher had tried to deduct $3m from Spotless payments due to costs to other subcontractors - Black Interiors and Alaska Construction. But the judge said that wasn't clear enough.

"Because Fletcher did not pay that amount by the due date, Spotless was entitled to serve notice on Fletcher of its intention to suspend the carrying out of work under its subcontract," the judge decided.

"For these reasons, I dismiss Fletcher's application for a declaration that the notice by Spotless of its intention to suspend work and the notice by Spotless of suspension of work were invalid and of no effect," he said.

He further ruled Spotless was entitled to costs and if agreement could not be reached between the parties on this, Spotless must file by August 25 and Fletcher should file documents by September 8.