In the first of a two part series, we discuss the recent High Court decision of Richina Pacific Limited v AAI Limited (formerly Vero Insurance Limited)  NZHC 1686.
In the case, the Court considered whether a practical completion certificate had been issued for the whole of a contract works, with an agreement for deferred work – or whether the certificate related only to a separable portion.
Samson Corporation Ltd (‘Samson’) had contracted Mainzeal Property & Construction Ltd (‘Mainzeal’) for the construction of five commercial buildings, including an automated robotic car parking facility. Mainzeal’s parent company, Richina Pacific Limited, had provided an unconditional guarantee to Vero Insurance (now AAI Ltd) for a performance bond of $2 million.
The question of practical completion was necessary to determine if Samson could claim the $2 million bond when Mainzeal had failed to complete the robotic car parking facility. Under the contract between Samson and Mainzeal, the bond was null and void if Mainzeal had fulfilled all its obligations prior to commencement of the defects liability period. The defects liability period was to commence at the date of practical completion of the contract works, or of a separable portion.
While Samson had issued a practical completion certificate before its claim for the $2 million bond, the certificate clearly stated that practical completion was granted except for the work on the car parking facility. Samson argued that the certificate was for a separable portion, and work on the car parking facility was an obligation not yet fulfilled. Richina claimed that the remaining work on the car parking facility had been agreed to as deferred work, and the defects liability period had commenced. Richina also submitted that Samson had prejudicially acted outside the terms of the contract, discharging any liability for the bond.
The Court accepted on the evidence that Mainzeal and Samson had treated the certificate as a partial certificate, and agreed to exclude the car parking facility from practical completion. The lack of provision in the original contract for a separable portion did not sway the Court in Richina’s favour. On the facts, the Court found that there was no prejudicial conduct discharging the parties from the bond.
While Richina was not party to the construction contract, the Court held that Richina had a direct interest in the performance bond, and as such, had standing to dispute Samson’s claim. The Court held that Vero had to pay the $2 million bond.