Fletcher Building 14-week court case against subcontractors begins in High Court over convention centre fire

Fletcher Building’s litigation against subcontractors it blames for 2019’s New Zealand International Convention Centre fire began yesterday in what is anticipated to be a 14-week case.

Justice Kiri Tahana is hearing the substantive case where The Fletcher Construction Company (FCC) is suing Xam and others in the High Court at Auckland.

The contractors are MPM Waterproofing Services and JEL Waterproofing and part of the case hinges on professional indemnity insurance. The contractors deny liability.

MPM changed its name to Xam last March.

FCC is alleging that the fire was caused by MPM and/or JEL.

Jack Hodder, KC, heads Fletcher’s legal team. Xam is represented by Helen Macfarlane with others and JEL by Aaron Sherriff with others.

While that case is running, new research has emerged after Friday’s announcement of another big court case.

An analysis of SkyCity Entertainment Group’s $330 million legal claim against Fletcher over the NZ International Convention Centre (NZICC) has forecast that the litigation may not be successful.

Andy Bowley and Paul Laxton Koraua’s analysis yesterday was headed Firing up legal proceedings: "We assume SkyCity is unsuccessful in its claim,” that said.

On Friday, SkyCity said it had filed legal proceedings against Fletcher Building and The Fletcher Construction Company seeking damages for losses incurred due to ongoing delays to the NZICC.

SkyCity and Fletcher made NZX announcements on the litigation.

Smoke pours from the NZ International Convention Centre in October 2019. Photo / Dean Purcell

The ForBar analysts said a liquidated damages clause in the original building works contract outlined the penalty for late delivery.

These clauses typically include a cap, generally a percentage of the total project cost, which Fletcher Building has already paid to SkyCity, they said.

SkyCity’s claim for $330m represents the uncapped liquidated damages amount.

“This figure exceeds both the capped amount and SkyCity’s own estimate of actual costs incurred, which it recorded as a $74m contingent asset in 1H25, though will likely increase by FY25.

Battling the blaze back in 2019.

“For SkyCity to receive either the uncapped amount or compensation beyond the capped value, it would need to prove that Fletcher Building was grossly negligent in fulfilling its contractual obligations.

“If SkyCity cannot establish gross negligence, we understand no further payments would be made by Fletcher Building unless a separate settlement is reached. We assume SkyCity is unsuccessful in its claim.”

The law on liquidated damages provided a mechanism to cap potential liability and allocate risk in construction contracts.

They typically involve a daily liquidated damages rate multiplied by the number of delay days, and are capped as a percentage of total project cost to limit the contractor’s exposure, ForBar said.

Smoke poured through the city when the NZICC caught fire. Photo / Dean Purcell

The prevailing law states that liquidated damages, regardless of how far they diverge from actual costs, are a binding and exhaustive remedy.

“This prevents further claims for general damages unless the contractor is grossly negligent, and/or has shown persistent, flagrant, or wilful neglect in carrying out obligations under the contract,” they noted.

Jarden analysts Adrian Allbon and Mark Seddon also noted Fletcher’s strong defence under the contract.

Fletcher Building responded on Friday, saying it has already paid significant liquidated damages to SkyCity for the delays in delivering the NZICC in accordance with the building works contract, they noted.

“Accordingly, Fletcher Building says it will vigorously defend itself against the SkyCity claim for further liquidated damages beyond the capped amount provided for in the building works contract,” they said.

Firefighters on the NZICC in 2019.

Like the ForBar analysts, they examined a cap on costs and how far claims could run.

“Our desktop analysis of the public references to the building works contract suggests SkyCity’s claim against Fletcher is potentially founded on the basis that if SkyCity can prove negligence, then the liquidated damages cap which has already been exhausted and paid by Fletcher no longer applies as a maximum.

“If successful on this basis, then the additional liquidated damages being sought by SkyCity could potentially extend to other SkyCity group costs and/or loss of profits incurred as a result of the NZICC delay.”

On SkyCity’s negligence point and proof of that, the Jarden analysts said it would be interesting to follow the process where Fletcher continued to pursue recoveries under its own NZICC third party liability insurance policy of more than $100m.

Fletcher is bringing its own legal action against its roofing membrane subcontractors for the fire.

The Jarden analysts noted Fletcher saying that while it has good grounds to recover material amounts under the third party liability policy and the court action, it had not recognised any recoveries at this time in its own accounts.

Anne Gibson has been the Herald‘s property editor for 25 years, written books and covered property extensively here and overseas.