Clearmont (Queenstown) Limited v Redwood Group Limited
[2021] NZHC 3562
•20 December 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2021-404-001006
[2021] NZHC 3562
BETWEEN CLEARMONT (QUEENSTOWN) LIMITED
First PlaintiffAND
QUEENSTOWN GATEWAY (5M) LIMITED
Second Plaintiff
AND
REDWOOD GROUP LIMITED
Defendant
Hearing: 16 December 2021 Appearances:
P G Skelton QC and S A Rankin for the Plaintiffs J W A Johnson and J R Halligan for the Defendant
Judgment:
20 December 2021
JUDGMENT OF VAN BOHEMEN J
This judgment was delivered by me on 20 December 2021 at 2.30pm Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
Solicitors/Counsel:
Harmos Horton Lusk, Auckland Bankside Chambers, Auckland Wynn Williams, Auckland
CLEARMONT (QUEENSTOWN) LIMITED v REDWOOD GROUP LIMITED [2021] NZHC 3562 [20
December 2021]
Introduction
[1]The defendant, Redwood Group Ltd, has applied for orders:
(a)to adjourn a half day fixture set down for 11 February 2022 to hear the proceeding filed by the first and second plaintiffs, Clearmont (Queenstown) Ltd and Queenstown Gateway (5M) Ltd, under pt 19 of the High Court Rules 2016 regarding the interpretation of a clause in a settlement agreement between the plaintiffs and the defendant; and
(b)to consolidate that proceeding with a proceeding the defendant has just filed under pt 18 of the High Court Rules seeking rectification and specific performance of the agreement.
[2] The plaintiffs oppose the defendant’s application which was heard at the Duty Judge List on 16 December 2021.
Procedural background
[3] In June 2019, the plaintiffs and the defendant entered into a settlement agreement (the Settlement Agreement) for the resolution of proceedings commenced in 2017, 2018 and 2019 in relation to disputes concerning a retail, commercial and industrial development in Queenstown known as the Five Mile Project.
[4] On 27 May 2021, the plaintiffs applied for leave to commence by way of originating application a proceeding seeking a declaration as to the proper interpretation of cl 1.4 of the Settlement Agreement.
[5] By joint memorandum dated 17 June 2021 signed by or on behalf of senior counsel acting for the plaintiffs and for the defendant, the defendant informed the Court that the plaintiffs’ application was not opposed and that the defendant consented to the proceeding being commenced by originating application.
[6]On 17 June 2021, Lang J granted leave.
[7] On 17 September 2021, the plaintiffs filed their originating application, together with an affidavit in support. The following day, 18 September 2021, the parties filed a joint memorandum signed by or on behalf of senior counsel for the plaintiffs and for the defendant proposing timetable orders for the proceeding.
[8]The application set out cl 1.4 as follows:
1.4 Tax Uplift: If RGL secures a binding ruling from the Inland Revenue Department (following consultation with BDO) on structure and the form of the application, and with such ruling in a form acceptable to each of RGL and QG5ML, each acting reasonably) to the effect that all of the properties in the Five Mile Project are held on capital account (i.e. no tax is payable on sale of any property), such ruling obtained within 2 years of the date of this Agreement, then upon provision of that binding ruling to QG5ML, Clearmont will pay to VSW an amount equal to the sum of $1,638,950. Such amount will be an additional amount payable for the purchase of the second beneficial interest.
[9] The application stated that a dispute had arisen between the parties as to the proper interpretation and application of the clause. It then stated:
Particulars
(i)The First and Second Plaintiff and the Defendant are agreed that clause 1.4 contains a two-year timeframe to obtain a binding ruling from the Inland Revenue Department.
(ii)The First and Second Plaintiffs assert that the clause requires a binding ruling from the Inland Revenue Department that all relevant properties were held on capital account as at the date of settlement, being 1 June 2019. This meant there was to be no tax payable should the relevant properties have been sold as at the date of settlement or immediately thereafter.
(iii)The Defendant assert that the clause allows for a binding ruling that the properties are now or will be held on capital account as at an unspecified date in the future.
[10] The application also stated that the plaintiffs had agreed to extend the date for obtaining the binding ruling from the Inland Revenue Department (IRD) referred to in cl 1.4 until three months after the High Court had delivered its judgment on the proper interpretation and application of cl 1.4.
[11] On 18 October 2021, Wylie J made timetable directions in accordance with the joint memorandum of that date. The directions included an order that a half-day fixture be allocated for this matter in the first available date in the new year.
[12] In accordance with that order, the proceeding has been set down for a half-day hearing on 11 February 2022.
Application by the defendant
[13] By notice of application dated 8 December 2021 filed by counsel for the defendant, who are different counsel from counsel acting for the defendant earlier in the year, the defendant applied to adjourn the hearing of the pt 19 application and to consolidate the present proceeding with a proceeding the defendant is bringing against the plaintiffs under pt 18 of the High Court Rules seeking rectification of the Agreement.
[14] The application also stated that a half day fixture would not be sufficient and that a hearing of two or three days would be required. It also stated that a hearing date on 11 February 2022 would not allow sufficient time for pleadings and evidence to be filed in advance.
[15] An affidavit in support of the application affirmed by Samuel Macintosh, a solicitor acting for the defendant, described the defendant’s unsuccessful efforts to persuade the plaintiffs to agree to the adjournment of the fixture on 11 February 2022 and the consolidation of the two proceedings, and exhibited relevant correspondence.
[16] By notice dated 14 December 2021, the plaintiffs opposed the defendant’s application.
[17] On 16 December 2021, prior to the commencement of the Duty Judge List, the defendant filed and served a notice of proceeding and a statement of claim for the signalled pt 18 proceeding.
[18] The statement of claim seeks rectification of cl 1.4 in accordance with the asserted common intention of the parties as set out in the statement of claim and specific performance of the clause as rectified to reflect that common intention.
Submissions for the defendant
[19] Mr Johnson, counsel for the defendant, says the defendant’s position is that the interpretation of cl 1.4 which the plaintiffs seek is not consistent with the common intention of the parties at the time the Settlement Agreement was entered into. The defendant says the clause was intended to deal with the risk that the plaintiffs would be tainted by association with the defendant. Because the defendant is a property developer, that would have tax consequences if properties subject to the Settlement Agreement were sold within a certain period of their acquisition. The common understanding of the parties was that the majority of the properties in the Five Mile Project would be held on a long-term basis to maximise the prospects of not paying tax on any sale, although it was accepted that the plaintiffs would sell some of the properties to fund payments under the Settlement Agreement. The defendant says the common intention of the parties in cl 1.4 was to set up a mechanism to try to ensure that properties not sold in the short term would not be subject to tax when later sold.
[20] Mr Johnson says it is necessary to adduce evidence of the parties’ objective intentions based on the background known at the time the Settlement Agreement was entered into. This is likely to include evidence of reports dating back to 2013. It will take more than half a day to consider that evidence which the defendant considers should be before the Court even in the plaintiffs’ pt 19 proceeding.
[21] Mr Johnson acknowledges that, following a change of counsel, the defendant had changed its approach. However, that does not take away from the fact that there is a genuine dispute about whether cl 1.4 reflects the common intention of the parties and whether the clause should be rectified as the defendant says. Mr Johnson submits that the proposed consolidation of the two proceedings meets the criteria for consolidation in r 10.12 of the High Court Rules. The two proceedings involve the same parties, common issues of fact and law and rights to relief claimed in respect of
the same clause of the Settlement Agreement. He says it would be efficient and in the interests of justice for the two proceedings to be heard together.
[22] Mr Johnson says there would not be undue prejudice to the plaintiffs because they have already agreed to extend the date for obtaining the binding ruling from the IRD envisaged in cl 1.4 until three months after the High Court has delivered its judgment. Even if the hearing in February 2022 were to go ahead, and allowing for judgment writing time, that would push implementation of the Settlement Agreement out past mid-2022.
Submissions for the plaintiffs
[23] Mr Skelton QC, counsel for the plaintiffs, emphasises that the pt 19 proceeding had been filed by the plaintiffs in consultation with the defendant who had consented to the timetable directions made by Wylie J and the setting down of a fixture at the first available date in 2022. Against that background, there was no reasonable basis for the defendant to seek to delay the hearing in February 2022 for the purposes of consolidation with a proceeding that had only been filed the morning of the hearing.
[24] Mr Skelton submits that r 10.12 of the High Court Rules confers a very wide discretion on the Court on whether to order consolidation. Despite the matters pointed to by Mr Johnson, this is not an obvious case for consolidation, even leaving aside the fact that, in the plaintiffs’ view, the defendant’s claim for rectification cannot succeed. Mr Skelton notes that the defendant had made its application for consolidation only after failing to persuade the plaintiffs not to proceed with the previously agreed approach to seeking a declaration as to the proper interpretation of cl 1.4, as the exhibits to Mr Macintosh’s affidavit showed.
[25] Mr Skelton says the defendant will suffer no prejudice if the previously agreed hearing on 11 February 2022 goes ahead. The interpretation of cl 1.4 is a discrete question and a necessary prelude to consideration of any application for rectification. If the defendant is successful in persuading the Court that its interpretation is correct, there will be no need for rectification. However, if the Court accepts the plaintiffs’ interpretation, it will be open to the defendant to apply for rectification.
[26] By contrast, consolidation of the two proceedings into a three-day hearing at some unknown future date would cause real prejudice to the plaintiffs. The plaintiffs agreed to extend the date for obtaining the binding ruling from the IRD until three months after the High Court had delivered judgment on a hearing expected to be held in early 2022. Given the pressure on the Court’s schedule, any judgment in the proposed consolidated proceedings could be a considerable further time away.
Analysis
[27]Rule 10.12 of the High Court Rules provides:
The court may order that 2 or more proceedings be consolidated on terms it thinks just, or may order them to be tried at the same time or one immediately after another, or may order any of them to be stayed until after the determination of any other of them, if the court is satisfied —
(a)that some common question of law or fact arises in both or all of them; or
(b)that the rights to relief claimed therein are in respect of or arise out of—
(i)the same event; or
(ii)the same transaction; or
(iii)the same event and the same transaction; or
(iv)the same series of events; or
(v)the same series of transactions; or
(vi)the same series of events and the same series of transactions; or
(c)that for some reason it is desirable to make an order under this rule.
[28] As Mr Johnson says, there is a basis for consolidation of the two proceedings in terms of the criteria in the rule. The two proceedings will consider common issues of fact as to the circumstances that applied at the time the Settlement Agreement was concluded and, in that regard, the intentions of the parties. There are also common issues of fact and law as to the correct interpretation of cl 1.4. Both proceedings seek relief in relation to the same transaction, the same agreement and the same clause in that agreement.
[29] However, it is not automatic that a Court will order consolidation just because the criteria are met. As Mr Skelton says, it has been recognised that r 10.12 confers a
very wide discretion on the Court. Indeed, in Regan v Gill, the Court of Appeal observed that it was difficult to conceive of a wider procedural discretion.1
[30] While the two proceedings will address common issues, it is not axiomatic that applications for the construction of a contract and for the rectification of a contract should be heard together. As Lord Wilberforce observed in Prenn v Simmonds, concurrent consideration of applications for construction and rectification can have the consequence that a mass of evidence as to the parties’ subjective intentions is admitted in evidence for the purposes of rectification that would not usually be admissible on construction.2 In addition, and as happened in Prenn v Simmonds, the admission of that evidence can prove to be unnecessary if the application on construction is successful.
[31] As Mr Johnson observed, the approach to the admissibility of evidence of the intentions of the parties has moved on since Prenn v Simmonds, as illustrated by the Supreme Court’s decision in Bathurst Resources Ltd v L & M Coal Holdings Ltd.3 In that decision the Supreme Court confirmed that evidence tending to objectively prove what parties intended the words to mean is admissible to assist with the interpretation of the text of a contract.4 It also said this approach was fair, being the approach most consistent with holding parties to their true bargain, and avoided unjustified litigation expense by excluding as irrelevant purely subjective evidence that was not reasonably available to the other contracting parties.5
[32] At the same time, the Supreme Court recognised a distinction between that approach, which promotes certainty by leaving the text of the contract central to the task of interpretation, and a claim in rectification.6 As the Supreme Court saw it, the line between interpretation and rectification was adequately preserved, notwithstanding admission of extrinsic evidence in relation to the former, by the
1 Regan v Gill [2011] NZCA 607 at [10].
2 Prenn v Simmonds [1971] 1 WLR 1381 (HL) at 1383.
3 Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85.
4 At [76].
5 At [77].
6 At [78].
application of the provisions of the Evidence Act 2006 when deciding questions of admissibility.7
[33] While Mr Johnson said the defendant’s intention is only to adduce evidence to show the parties’ objective intentions, there is a stark contract between the estimate of the plaintiffs, who consider a half day sufficient to hear the pt 19 interpretation proceeding, and that of the defendant who now says that half a day is not enough even for the pt 19 proceeding and that two to three days will be required to hear the consolidated proceedings.
[34] Whatever the merits of Mr Johnson’s estimate, the facts are that senior counsel for the plaintiffs and for the defendant, both of whom dealt for a number of years with the disputes that led to the Settlement Agreement, came to Court by agreement to obtain an urgent fixture to resolve what they agreed was an issue of interpretation. It is of note that the defendant’s counsel joined in filing a consent memorandum seeking timetable directions for an urgent fixture the day after the filing of the substantive application which particularised the nature of the differences in interpretation between the parties.
[35] In response to the request in the memorandum for the first available date in the new year, a fixture very early in 2022 was set down.
[36] Given that history, I am satisfied that the February 2022 fixture should be maintained. I am also satisfied this is not a case where there is a serious risk that the pt 19 application will be adjourned part heard if the February fixture is maintained. I also consider that the defendant will not be prejudiced and that it is not contrary to the interests of justice to require the defendant to adhere to the timetable it joined in seeking. If the defendant considers that the outcome of the pt 19 proceeding does not reflect the common intention of the parties, it can still pursue its claim for rectification.
[37] By contrast, I accept that the plaintiffs would be prejudiced by consolidating the proceedings and adjourning the February 2022 fixture. Simply put, an adjournment would be likely to add another year to proceedings.
7 At [80].
[38] Whatever cl 1.4 was intended to mean, the two-year time-frame for obtaining the IRD is clear. The plaintiffs have already granted an indulgence to the defendant by extending the period for obtaining the ruling from 1 June 2021 to an uncertain date in 2022. To adjourn the February 2022 fixture and consolidate the two proceedings would mean that a hearing in 2022 would be unlikely, especially if a three-day fixture is required. That is the consequence of the pressure on the Court schedule because of this year’s COVID-19 lockdown.
[39] For these reasons, I do not consider consolidation of the proceedings to be an efficient use of the Court’s resources or in the interests of justice.
Result
[40] I dismiss the defendant’s application to adjourn the hearing of the pt 19 proceeding set down for hearing on 11 February 2022 and to consolidate that proceeding with the defendant’s pt 18 proceeding filed on 16 December 2021.
Costs
[41]The plaintiffs are entitled to costs on the defendant’s application on a 2B basis.
G J van Bohemen J
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