Bridgeway Projects Limited v Waikoro Limited HC Auckland CIV 2011-404-004196

[2011] NZHC 1301

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-004196

UNDER  the Declaratory Judgments Act 1908

BETWEEN  BRIDGEWAY PROJECTS LIMITED Applicant

ANDWAIKORO LIMITED Respondent

Hearing:         27 October 2011

Counsel:         M C Brugeyroux for the Applicant

D Smith for the Respondent

Judgment:      27 October 2011

ORAL JUDGMENT OF WYLIE J

Distribution:

MC Brugeyroux:  [email protected]

D Smith: [email protected]

BRIDGEWAY PROJECTS LIMITED V WAIKORO LIMITED HC AK CIV 2011-404-004196 27 October

2011

[1]      On 8 July 2011, the applicant, Bridgeway Projects Limited (“Bridgeway”), filed an originating application for declaratory orders that the following sums be released to it:

(a)       $250,000  retentions  held  in  the  trust  account  of  its  solicitors, Morgan Coakle; and

(b)      interest  accrued  on  the  $250,000  while  the  money  was  held  in

Morgan Coakle’s trust account.

The application was accompanied by an affidavit from a Mr Webster, who is the sole director of Bridgeway.

[2]      The respondent, Waikoro Limited (“Waikoro”), filed a notice of opposition and an affidavit   by Mr Hennah, a property manager employed by that company.

[3]      Mr Webster subsequently filed an affidavit in reply.

Background

[4]      The background to this matter is relatively straightforward.    Bridgeway owned a property at 101 Customs Street East, Auckland.  In or around April 2008, it entered into an agreement for sale and purchase to sell the property for $15.5 million to Waikoro.  As part of the sale, Bridgeway warranted a list of payments and  operating  expenses  (“OPEX”)  for  the  property which  was  annexed  to  the agreement for sale and purchase.

[5]      Prior to settlement, Mr Webster provided Bridgeway’s solicitors with details of the OPEX payable by each tenant and the OPEX actually paid by each tenant. Based on this information, a settlement statement was prepared and forwarded to Waikoro’s solicitors.

[6]      There was a dispute between the parties.   Waikoro requested an OPEX reconciliation on a tenant by tenant basis.  Mr Webster, for his part, claimed that such an OPEX reconciliation had already been provided via Bridgeway’s solicitors.

[7]      After  further  discussions  and  negotiations  between  the  parties, Waikoro agreed to settle the purchase on the basis that $250,000 would be held in Bridgeway’s solicitor’s trust account “as surety” pending both the OPEX reconciliation  and  confirmation  of  representations  as  to  rental  received  for the property.

[8]      Waikoro’s  solicitor  sent  a  letter  dated  13  May  2008  to  Bridgeway’s solicitors.   It recorded that settlement was to occur and that various undertakings were to be given.  Relevantly, it included the following clause:

From the settlement sum Morgan Coakle will hold in their trust account until agreement between both parties for distribution and release or order of the Court as to the distribution and release, the sum of $250,000 which will be in trust as surety for the purchaser:

§Opex  payments  made  by  tenants  and  Opex  payments  made  by landlord prior to settlement.

§The  accuracy  of  representations  as  to  rental  (including  carpark rental) made by the vendor in the agreement for sale and purchase and settlement statement and as subsequently recorded in this letter and in the vendor’s bank statements attached to Morgan Coakle letter of 2 May 2008.

[9]      The agreement for sale and purchase was settled on 14 May 2008.

[10]     Bridgeway  then  provided  Waikoro  with  further  details  of  the  OPEX expenses.   Waikoro however queried whether or not the detail provided was sufficient.  Bridgeway instructed its accountants to analyse the OPEX information. They  did  so.     Waikoro  did  not  accept  the  reconciliation  that  Bridgeway’s accountants provided.   The dispute went backwards and forwards between the parties’ respective solicitors.  In brief, Bridgeway was asserting that it had provided all necessary detail to enable the OPEX expenses to be reconciled.  Waikoro was denying that the information was sufficient.

[11]     When the parties were unable to settle the dispute, Bridgeway filed the originating application noted above.   The matter was allocated a hearing date of

27 October 2011.

[12]     Mr Smith, appearing on behalf of Waikoro, filed submissions in advance of the hearing on 25 October 2011.  Inter alia, those submissions argued that there was no legal basis for the application under the Declaratory Judgments Act 1908.  He submitted that Bridgeway was not seeking a declaration as to the construction or validity of the agreement between the parties at all, and that rather, it was seeking the enforcement of the agreement.   He submitted that the enforcement of the agreement turned on disputed issues of fact, and that this dispute could not be appropriately dealt with in the course of an application under s 3 of the Declaratory Judgments Act.

[13]     The day following the exchange of Mr Smith’s submissions, Bridgeway, through its solicitors, filed an amended application for a declaration.  That amended application did not seek orders requiring payment of the monies retained.  Rather, it sought orders relating to the meaning of the undertaking recorded above.

[14]     Waikoro  did  not  oppose  the  filing  of  the  amended  application  and  the hearing commenced this morning on the basis of the amended application.

[15]     In the course of discussions with counsel, it quickly became clear that there was in fact no dispute between the parties as to the construction of the undertaking recorded in the letter of 13 May 2008.   Waikoro accepted that the proper construction of the undertaking recorded in the letter is as is set out in [1](a)(i) to (f) of the amended application for a declaration.  Bridgeway accepted that it could not go further today and, in particular, that it could not use the declaration proceedings to obtain payment of the $250,000 retained in Morgan Coakle’s trust  account. Mrs Brugeyroux on Bridgeway’s behalf accepted that there was a factual dispute as to whether or not the terms of the undertaking have been met.  She also accepted that this factual dispute can only properly be resolved in the course of proceedings issued for that purpose, or in the course of other proceedings which have already

been commenced by Waikoro against Bridgeway in relation to other matters arising under the sale and purchase agreement under proceedings CIV 2011-404-005989.

[16]     Accordingly, and by consent, I grant a declaration that:

(a)       the requirement in the letter from Nigel Wilson, solicitor, dated

13 May 2008 that the sum of $250,000 (“the retention”) “be held on trust as surety for the purchaser of: OPEX payments made by tenants and OPEX payments made by landlord prior to settlement” requires Bridgeway to provide Waikoro with the following:

i.         confirmation of the total amount it collected in OPEX from the tenants prior to settlement of Customs Street (for the period 1 April 2007 to 16 March 2008); and

ii.         confirmation of the total amount it expended on OPEX

during the same period

(“the reconciliation”)

(b)       If the reconciliation shows that all of the OPEX collected from the tenants prior to settlement was expended by Bridgeway on OPEX prior to settlement, Bridgeway is entitled to all of the retention.

(c)       If the reconciliation shows that any portion of the OPEX collected from the tenants prior to settlement on OPEX prior to settlement was  not  expected  by  Bridgeway,  Bridgeway  is  to  account  to Waikoro for the unexpended sum, which is to be paid to Waikoro from the retention.

(d)      Waikoro is only entitled to a portion of the retention if the amount

Bridgeway collected in OPEX during the period 1 April 2007 to

16 March 2008 is greater than the amount it spent on OPEX.

(e)       It is an implied term of the undertaking that:

i.        On receipt of the reconciliation, the parties would agree to the release of the retention as per the parties’ respective entitlements to the same; and

ii.        consent  to  the  release  of  the  retention  would  not  be arbitrarily withheld.

(f)       The interest accrued on the retention should follow the retention.

Costs

[17]     I have discussed the issues of costs with the parties.  Both accept that it is appropriate to reserve the issue of costs until the matter comes before the Court for

further determination.

Wylie J