Hotel had defects, McKenna claimed

Defects in construction of Wellington's $100 million Holiday Inn were part of the basis of defence by developer Nigel McKenna.

Lawyers argued he was entitled to defer payments being demanded by Fletcher on the basis of an oral agreement with the builder and because there were defects in the work.

McKenna complained about plumbing and hot water issues at the hotel. These issues came to light when the Herald was handed a copy of a judicial body's decision in favour of Fletcher.

John Walton, an adjudicator in the Building Disputes Tribunal, ruled in favour of Fletcher in his decision issued on February 16. He also ordered McKenna to pay more than $80,000 in interest costs.

That decision was presented to Judge Philippa Cunningham in the Auckland District Court when Fletcher sought and won enforcement of the tribunal's order for payment.

Walton's decision said the dispute between Fletcher and Melview dated back to February 2005 when the two parties entered into a contract for construction of the hotel. The project was virtually finished in early 2007 so by November 13 that year, Fletcher issued a claim for final payment.

But Melview disputed this and eight months of negotiation ensued.

"The parties agreed on a final amount sum of $46,500,000 plus GST, leaving a balance to be paid by Melview of $1,993,992 plus GST," Walton wrote.

Fletcher felt it was entitled to a certain sum under the contract but McKenna "wanted flexibility on the timing of payment".

The first amount was paid. Fletcher got $503,480.50 on August 30 last year. The day the second instalment was due, McKenna called Greg Pritchard, Fletcher's Auckland manager, and advised that he would be unable to make that next amount. No further payments were made by McKenna.

McKenna argued that he was entitled to defer payments because of an oral agreement with Fletcher and due to "defects in the work", Walton noted.

Fletcher disputed this and issued a statutory demand for $1,540,441.50 but McKenna applied to have that demand set aside. The matter was due to go to the High Court at Auckland in March but didn't go ahead as scheduled.

In the case before the tribunal, McKenna's lawyers - Stuart Robertson and Kelly Wilshire of Kensington Swan - argued the refusal to pay the balance of the instalments was an act of default but not a dispute. The act therefore did not apply.

But Walton said he had little sympathy with this because the Construction Contracts Act provided for the speedy resolution of disputes "and there can be no argument that the contract for the construction of the Holiday Inn is a construction contract".

Walton said the oral agreement struck with Fletcher gave McKenna time to pay off the amount: "The respondent was allowed to make the payment by instalments over some months rather than within the time period in the contract. Mr McKenna gave a personal guarantee and certain other assurances in relation to interest, costs and the consequences of default were spelled out in some detail.

"I find it curious that Mr McKenna (an experienced businessman and developer by his own account) would sign a deed which contained a personal guarantee and obligations for payment which were at odds with his understanding of the actual agreement."

Walton ruled that Melview Featherston Street must pay Fletcher $1,770,284.88 including GST. This includes:

$1,490,441.50 plus GST as the amount identified in the final payment schedule for the hotel's construction.

* $83,538.19 interest on the amount outstanding.

* $10,000 including GST in costs.