Blog Post: Two Good Judgments for our Time

May 8, 2020

Director Stephen Franks blogged on two recent judgments from the High Court - the decisions in Christiansen v Director General of Health, and Electrix Ltd v The Fletcher Construction Company Ltd (No. 2).

"Everyone will have heard about the welcome judgment of Walker J on 4 May in Christiansen v DG of Health. But it is still worth reading. Just to see an instance of judicial protection against callous exploitation of special emergency power.

It is chilling too, being reminded of the credulity of the world’s chattering classes, deeply impressed by political exhortations to be kind. The respondent Director General has almost every day recently recited the “be kind” mantra of the PM, his de facto Minister. But clearly from the facts disclosed in the case the Ministry has treated the instruction for what it has proved to be – an empty political slogan. The Ministry seems to have been under neither constitutionally intended democratic supervision, nor confident and diligent political leadership. A competent Minister at the top would have intervened to apply the experience of a career outside politics. A half way competent and well lead Ministerial staff (including the office of the Prime Minister) would have recognised the signs of high-handed indifference in the correspondence. They would have invited a Prime Minister with  intellectual confidence to inject  common sense to what was plainly a bureaucratic lockstep. And that is before anyone even talks about “kindness”.

We’ve elected politicians without enough prior life tests and career leadership experience  to exercise democratic control. Without authoritative experienced oversight, some official cultures will inevitably become immune to their own convenient cruelty. “Be kind” means nothing without the leadership diligence that makes it practical, everyday, and integrated among all the other demands of hard decision-making.

Cases like this should encourage judges to intervene more in official second-guessing. I’m aware of the risks of judicial activism. But rubber stamp judging would be a worse danger.

I will blog separately on the just concluded High Court hearing of COLFO v The Minister of Police, where the court heard about Police engagement in lawmaking, and Ministerial exercise of dangerously wide powers conferred by Parliament in a state of high emergency excitement.  

But for another warming example of good judging to make the law straightforward, read Electrix Ltd v The Fletcher Construction Company Ltd (no 2) [2020] NZHC 918. This judgment by Matthew Palmer J was delivered today (6 May).

Despite being long, it reaches an admirably simple conclusion. It applies and clarifies a rule that is precisely what I think business people would expect.

I’d summarise it to a client as – “If you can’t agree a contract, but start work nevertheless and carry on while trying to agree, if you don’t reach agreement the courts will enforce what they decide would have been the fair price. “

The judgment applies the law of contract and the law of “quantum meruit” to a dispute between a head contractor and an electrical subcontractor.  The summary at the beginning of the judgment read:

Large construction projects benefit from a head contractor and electrical subcontractor concluding a contract and formulating the detailed design for electrical works before undertaking them. That did not happen in the Christchurch Justice and Emergency Services Precinct project. In October 2014, the Fletcher Construction Company Ltd confirmed Electrix Ltd as its preferred electrical sub-contractor. Fletcher Construction requested and Electrix provided electrical services work. Fletcher Construction paid Electrix $21.6 million (GST excl) for the work, on the basis of successive letters of intent. But the parties never managed to agree formally on a contract and never completed the detailed design of the electrical works. The electrical works suffered from poor management, delays, disruption and constant time pressure. Now, Electrix sues Fletcher Construction for some $7 million plus interest. Fletcher Construction counterclaims, saying it paid Electrix some $7 million too much, whether there was a contract or not. The proceeding was the subject of a four-week trial in October 2019.

I find there was no contract between Electrix and Fletcher Construction. The parties did not intend to be immediately bound by essential terms at any point. They expected they would be able to reach agreement on a contract, but they never did. Yet Electrix provided the electrical works services requested by Fletcher Construction. Fletcher Construction must pay the reasonable cost of the services, the “amount deserved” or “quantum meruit”. The New Zealand law of non-contractual quantum meruit is not exclusively tethered to the doctrine of unjust enrichment. Its objectives are not confined only to dispossessing those unjustly enriched but can extend to providing redress for those who have been unjustly impoverished. The market value of the services that could have been used to undertake the works is relevant. But the reasonable cost of the services actually provided is the better starting point, reflecting the market value of the particular inputs used in the provision of those services at the relevant time and in the relevant circumstances. I rely primarily on the evidence of Electrix’s expert witness, Mrs Catherine Williams. I find Fletcher Construction must pay Electrix $7,473,207 (GST excl) plus simple interest of five per cent per annum.”

I think the judgment shows the benefits judging with deep understanding of economics and incentives, as well as the basic purpose of common law judging. That is not to “be kind” or to rearrange outcomes to conform to your virtuous assessment of what the parties ought to have agreed. That can often be close to what they deserve, and when there is no contract the parties have effectively invited the court to decide on what each deserves.

But the key and most difficult job of judges is not to decide who ought to win from the  unfortunates before them.  it is to extract and apply general principles that allow other people, in future,  to understand from the precedent, how the law will treat them in similar circumstances.

To read more from Stephen visit his blog

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