Clode v Oliphant
[2018] NZHC 1442
•15 June 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-647
[2018] NZHC 1442
BETWEEN BRENT DOUGLAS CLODE
Applicant
AND
DAVID JAMES OLIPHANT
First Respondent
AUBURN DEVELOPMENT LIMITED
Second RespondentRAILSIDE INVESTMENT LIMITED
Third Respondent
Hearing: 1 June 2018 Appearances:
Applicant in person
A W Johnson for Respondent
Judgment:
15 June 2018
JUDGMENT OF PALMER J
This judgment is delivered by me on 15 June 2018 at 3.30 pm pursuant to r 11.5 of the High Court Rules.
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Registrar / Deputy Registrar
Solicitors:
Martelli McKegg, Auckland
Copy to:
Applicant
CLODE v OLIPHANT [2018] NZHC 1442 [15 June 2018]
Summary
[1] In March 2018, Mr Brent Clode and Mr David Oliphant reached an agreement as to Mr Clode’s involvement in a large property development in Takapuna, Auckland (the Agreement). Mr Clode is not involved with the development to the extent he considers the Agreement provides. He seeks a mandatory interim order that the respondents perform their obligations under the Agreement. Mr Oliphant gives evidence the head contractor, consultant, project manager and quantity surveyor involved in the development will not deal with Mr Clode and there is a significant risk the lender will put the project into receivership if an injunction is granted.
[2] The legal test for granting a mandatory interim injunction, or an injunction with the effect of final orders, is the same as that for a conventional injunction but is likely to be more difficult to meet in practice. I decline this application. There may be a live issue of the legal interpretation of Mr Clode’s rights under the Agreement. But I am not persuaded damages would be insufficient to remedy any breaches. I consider Mr Clode has alternative means of seeking resolution of his disputes under the Agreement. So I consider the balance of convenience favours Mr Oliphant. The inconvenience to Mr Clode of not having a mandatory order, that he has some greater involvement in directing the project, is less than the inconvenience to the respondents of its potential impact on the financing and operation of the development.
What happened?
The parties and the Development
[3] Mr Oliphant, the first respondent, is the sole shareholder and director of two companies, the second and third respondents. Auburn Development Ltd (ADL), the second respondent, owns the Sargeson Apartment development on Anzac Street, Takapuna, Auckland. Railside Investment Ltd (RIL), the third respondent, owns a property development site at 402 Lake Road, Takapuna. The parties agreed both properties, together, could be called “the Development”. I am told it is one of the largest property developments on the North Shore of Auckland.
Dispute and Agreement
[4] Mr Clode says he devised the Development and invited Mr Oliphant to be his 50 per cent business partner responsible for raising unfinanced capital. Mr Clode says he was an unregistered 50 per cent shareholder in the second and third respondents. He says, until 22 December 2017 he had total control of the Development, for which he was remunerated at $3,000 per week. After that, he says Mr Oliphant curtailed his involvement and remuneration. On 14 February 2018, Mr Clode filed proceedings to have the share register corrected.
[5] Mr Oliphant disputes aspects of Mr Clode’s account. He adds that the lenders of Development expressly required that Mr Clode not have any equitable interest in the project, due to his questionable reputation in the property development industry. He provides details. He states his view that any reference to Mr Clode’s involvement in a project will have a negative impact on its commercial viability. He says Mr Clode accordingly never held full control of the Lake Road development Nevertheless, Mr Oliphant says he considered Mr Clode’s experience on the operational side useful. He says Mr Clode’s involvement prior to 22 December 2017 was as a contracted service provider.
[6] Whether or not Mr Clode’s claims are true, it is agreed that on 14 March 2018, Mr Clode, Mr Oliphant and the two companies entered into an agreement (the Agreement). Under the Agreement, Mr Oliphant remains the sole director and shareholder of ADL and RIL and Mr Clode discontinued his proceedings. In consideration of his contribution to the Development, cl 3 provides Mr Clode is entitled to 50 per cent of its net profit once it is completed. Under cl 4, Mr Oliphant granted to Mr Clode the option to convert that 50 per cent profit share into a 50 per cent shareholding and a directorship of ADL and RIL, but only after a lending facility has been fully repaid and its securities released. Clause 8 of the Agreement provides:
David and Brent will meet on a weekly basis on an equal footing to review and direct all aspects of the Development, including sales of apartments, marketing strategies, construction issues and funding matters. Any other issues which arise between meetings and require urgent action shall be dealt with by telephone or email. The parties shall record their decisions and discussions in relation to the Development. The directions agreed by David and Brent shall be implemented by David and the Development Manager.
Brent shall not have any direct contact with any other consultants, financiers, real estate agents or contractors to the Project.
[7] Clause 10 of the Agreement provides Mr Clode and Mr Oliphant will at all times act in good faith toward each other. If they are unable to agree upon a significant issue relating to the Development within a reasonable period they will refer the matter to Mr Simon Jones of Foley Hughes Lawyers “for determination or guidance”.
Further dispute
[8] Mr Clode claims cl 8 means Mr Oliphant was required to treat him on an equal footing as a director of the two companies, to reach agreement with him and to direct jointly all aspects of the development. But, he claims, Mr Oliphant has stonewalled him by withholding information about the Development. He gives examples of information requests he has made to which he says he has received no or only partial responses. He claims Mr Oliphant and Mr Alistair Taylor have continued to direct all aspects of the Development without reference to Mr Clode. He says they have no experience in developments of this scale and their unilateral decision-making is damaging the projects’ viability daily.
[9] By email of 3 April 2018 Mr Clode put Mr Oliphant on notice of his alleged breach of the Agreement, requested full disclosure of the affairs of the companies, and advised he would be applying for an injunction to stop Mr Oliphant and Mr Taylor from issuing instructions in the Development without his consent unless various of his demands were met. Mr Clode says he has received no reply.
[10] The respondents deny they are in breach of the Agreement or that they have stonewalled Mr Clode. They question whether he is entitled to the information he requested and note he is not a director. Mr Oliphant says he has the expertise to direct the Development. He says an injunction will cause such significant losses to the Development that he would doubt its commercial viability. The companies would be in breach of finance agreements.
[11] Mr Oliphant says PA View Opportunity VII Ltd, the lender, has told him that if Mr Clode were to be seen to be involved in the Development it reserves the right to
appoint a receiver. In a letter of 27 April 2018 to Mr Oliphant, lawyers for PA View Opportunity VII Ltd, state:
2.1 The Lender has been made aware of a threat to seek an injunction by Brent Clode (Clode) to restrain David Oliphant (as the sole director of the Borrower) from undertaking his duties as director in respect to any matter relating to The Sargeson development without Clode’s agreement.
2.2 This is a matter of real concern to the Finance Parties.
2.3 Any application for interim relief along the lines described in paragraph
2.1 would, in the view of the Finance Parties, seriously jeopardise the Borrower’s ability to comply with its obligations under the Finance Documents and to complete The Sargeson development in the manner contemplated by the Finance Documents.
2.4 As you are aware from our letter dated 14 March 2018, continuing breaches or Events of Default under the [Senior Facility Agreement] have occurred and are subsisting. These entitle the Security Trustee to appoint one or more receivers in respect of any of the Borrower’s property which is subject to a security interest in favour of the Security Trustee.
2.5 The purpose of this letter is to put the Borrower and its director on notice that if Clode makes any application for interim relief in respect of the management or operation of the business of the Borrower, then the Finance Parties consider they will have no option but to appoint receivers to the Borrower. As you will appreciate, this is likely to risk adverse publicity to the Borrower and The Sargeson development, and a potential diminution in value of the development and other assets of the Borrower.
[12] Mr Oliphant is concerned this would increase the costs of the development, delay its completion and create a negative market perception which will impact 70 sales. He says it would also put the companies in breach of contract with the construction company and expose them to penalty costs. He also says:
(a)CMP Construction Ltd (CMP), the head contractor to the Sargeson development, has advised it will cease to perform its contractual obligations if Mr Clode is involved.
(b)The head consultant, Mr Taylor of Blackwater Consulting Ltd, will cease to provide his services to the development if Mr Clode is involved. Mr Taylor provides an affidavit to that effect, including his views of the likely deleterious effects on the project, and substantial
consequential loss, of Mr Clode restraining the respondents from authorising payments or making decisions.
(c)Mr Hughes and Mr Tracy, the project managers from Kingstons Project Management Ltd appointed by the lender and CMP, have refused to work with Mr Clode.
(d)Mr John Giles, the quantity surveyor from Cuesko Ltd who is engineer to the development appointed by the lender the CMP, refuses to deal with Mr Clode.
[13] Mr Oliphant says he and ADL are personally liable for penalty interest to the lender of $500,000 per month if there are delays. He doubts the adequacy of Mr Clode’s undertaking as to damages given Mr Clode refused to disclose his complete financial history in previous proceedings last year,1 he was declared bankrupt in 2009 and his company, Synergy Management Ltd was struck off the Companies Register on 15 March 2018.
These proceedings
[14] On 12 April 2018, Mr Clode launched these proceedings, for breach of the Agreement in failing to provide full disclosure of the affairs of the companies, not allowing him to co-direct all aspects of the development on an equal footing, and causing Mr Clode significant loss in his share of the net proceeds from the development. He originally sought an interim injunction restraining Mr Oliphant from taking any further steps or issuing further instructions in the Development without Mr Clode’s agreement.
[15] On being told that would cause the lender to put the development into receivership, Mr Clode amended what he was seeking on 11 May 2018. He now seeks a mandatory injunction ordering the respondents to perform their obligations contained in the Agreement, in particular cl 8.
1 Sullivan v Clode [2017] NZHC 1973 at [17–[23].
[16] At the outset of the hearing, Mr Johnson, for the respondents, objected to Mr Clode’s second affidavit of 16 May 2018 being read. It was filed late, despite explicit directions by the Court. I indicated I would determine the objection in the course of delivering judgment. The affidavit was not filed very much later than it was due and there was no prejudice to the respondents or the Court. I have taken the affidavit into account.
[17] In addition, Mr Clode subpoenaed Mr Simon Jones to appear and give evidence at the hearing, despite there being no orders as to cross-examination. Mr Clode’s object was to demonstrate the lender is aware of the Agreement. Mr Johnson objected that there was nothing in the respondents’ evidence to the contrary so Mr Jones’ evidence would not reply to anything. I ruled out any such evidence and excused Mr Jones. In any case, Mr Clode attests to the same point in his second affidavit in reply.
Law of interim mandatory injunctions
[18] Rule 7.53 of the High Court Rules 2016 entitles a party to a proceeding to apply for an interlocutory injunction. Under r 7.54, the applicant must file a signed undertaking to comply with any order for the payment of damages to compensate the other party for any damage sustained through the injunction.
[19] As Arnold J summarised for the Court of Appeal in NZ Tax Refunds v Brooks Homes Ltd:2
The applicant must first establish that there is a serious question to be tried or, put another way, that the claim is not vexatious or frivolous. Next, the balance of convenience must be considered. This requires consideration of the impact on the parties of the granting of, and the refusal to grant, an order. Finally, an assessment of the overall justice of the position is required as a check.
[20]Or, as Asher J summarised in Cabco Group Ltd v Bartlett:3
The approach to interim injunction applications in New Zealand is now well settled. The Court first considers whether there is a serious question to be tried in respect of any of the causes of action pleaded or available to the plaintiff. The Court then goes on to consider whether the balance of convenience is in favour of the granting of an injunction, or against it. In considering the balance
2 NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12] (footnotes omitted).
3 Cabco Group Ltd v Bartlett (2009) 6 NZELR 500 (HC) at [30].
of convenience the Court will pay particular attention to the question of whether damages would be an adequate remedy. If damages would be an adequate remedy for the plaintiff, it will generally follow that the balance of convenience does not require any interim intervention by the Court. Finally, after considering matters under these heads the Court will on overview consider where the justice of the case lies.
[21] An interim injunction is usually granted for the purpose of preserving the status quo pending trial of the substantive proceeding. An injunction usually restrains its subject from doing something. An application for an interim mandatory injunction, requiring a party to do something they would not otherwise do as sought here, does not usually accord with that purpose. Eichelbaum CJ described mandatory injunctions as “relatively uncommon” and interim mandatory injunctions as “rare indeed”.4 But that is not to say the legal test is different. It is not. As Williams J, in a statement approved by the Court of Appeal, stated in Pilkington v Fidelity Life Assurance Co Ltd:5
The essential principle therefore is that interim mandatory injunctions will be subjected to the same test as interim prohibitory injunctions but in the case of interim mandatory injunctions, it will be a rare set of facts indeed that will withstand the scrutiny of that test.
[22] This approach is consistent with the decision of the Court of Appeal of England and Wales in Zockoll Group Ltd v Mercury Communications,6 which clarified the earlier approach still sometimes cited by New Zealand authorities.7
[23] Similarly relevant to assessment of the balance of convenience, is the effect of interim orders in finally disposing of proceedings. But, again, this does not change the legal test. It simply makes success less likely on the facts, as the Court of Appeal made clear in McKay Electrical (Whangarei) Ltd v Hinton.8
4 Soft-Tech International Pty Ltd v Ball (1990) 3 PRNZ 683 (HC) at 684.
5 Pilkington v Fidelity Life Assurance Co Ltd HC Wellington CIV-2007-485-2270, 14 April 2010 at [18], which relied on Telecom Corp of New Zealand Ltd v Clear Communications Ltd (1997) 6 NZBLC 102,325, and was approved by the Court of Appeal in Fidelity Life Assurance Co Ltd v Pilkington [2010] NZCA 424 at [26].
6 Zockoll Group Ltd v Mercury Communications Ltd at [1998] FSR 354 (EWCA) at 364–366, citing Nottingham Building Society v Eurodynamics Systems [1993] FSR 468 (Ch) at 474 and Films Rover Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670 (EWCA) at 680.
7 Locabail International Finance Ltd v Agroexport [1986] 1 WLR 657 (EWCA) at 664, which itself cited Shepherd Homes Ltd v Sandham [1971] Ch 340 (Ch) at 351.
8 McKay Electrical (Whangarei) Ltd v Hinton [1996] 1 ERNZ 501 (CA) at 507, citing NWL Ltd v Woods [1979] 1 WLR 1294 (HL) at 1306. This was approved in Wilfred v Gan [2013] NZCA 457 at [21].
Submissions
[24] Mr Clode submits the injunction would not harm the Development’s prospects of success. He submits he has the right under the Agreement to access information and be involved in decision-making on an equal footing; this is not happening which is causing loss and harm to the Development. He seeks to mitigate his losses by bringing these proceedings. He submits there is a serious question to be tried. Mr Clode says his involvement will not delay the Development as he will have no contact with those who object to his involvement. He says the lender has not followed through on its threat to put the Development into receivership if he applied for an injunction. He says the Development will be completed by Christmas 2018 and a substantive fixture will likely not occur until the following year, by which stage he would have no practical chance of success. Mr Clode acknowledges he ruffles feathers but he says he is not the devil incarnate, though I do not think that was alleged.
[25] Mr Johnson submits that, if Mr Clode succeeds in obtaining an interim injunction, it is unlikely the matter will proceed to trial as the Development is likely to be finalised before any trial occurs. He submits the respondents’ position is that they are not in breach of the Agreement but also submits it is not clear what the Agreement means, so an injunction to observe it would require the parties to return to court for clarification. He says the injunction sought is effectively an order of specific performance. He submits Mr Clode has been provided with the information he seeks and Mr Clode’s refusal to use the dispute resolution mechanisms in the Agreement demonstrates his own lack of good faith. Mr Johnson submits the balance of convenience heavily favours the respondents and questions the substantiation of Mr Clode’s undertaking as to damages.
Should there be interim orders here?
Is there a serious question to be tried?
[26] I consider there is a serious question to be tried here in the substantive proceeding, if Mr Clode wishes to pursue it. Clause 8 of the Agreement provides Mr Clode and Mr Oliphant “will meet on a weekly basis on an equal footing to review and direct all aspects of the Development”. Other issues which require urgent action
“shall be dealt with by telephone or email”. There is force in Mr Clode’s submissions that clause requires him to have input into the direction of the project and to have some level of information to enable that. Mr Johnson acknowledged as much in argument. It is also clear that he is not to have direct contact with others involved in the Development. Mr Oliphant has provided evidence that he has provided Mr Clode with at least some of the information requested. But not all of it. And it seems likely that Mr Clode has been frozen out of a significant decision-making role. So there may be a live issue of the legal interpretation of Mr Clode’s rights under the Agreement.
Balance of convenience
[27] I consider the most important factor to weighing the balance of convenience is the evidence of the potential negative consequences for the respondents of an injunction having the effect of involving Mr Clode in the direction of the development. The evidence is that he has become seriously unpopular in the property development industry. He is correct the lender has not yet put the Development into receivership just because an injunction has been sought, as threatened. But I consider there is a serious risk it will do so if the injunction sought is issued. An injunction putting Mr Clode at the centre of the direction of this project is likely to cause inconvenience, cost, delay and potentially serious financial loss to the respondents.
[28] As to the risks of refusing the application, I can understand the frustration Mr Clode feels about not being involved in the direction of the operational side of the development. But it has yet to be demonstrated that would damage the project itself. He says it would not. But he would say that. The evidence currently before me suggests the opposite.
[29] If Mr Clode’s concerns are borne out, he will need to be able to point to particular losses suffered in order to succeed at trial. If he can, then his losses should be able to be compensable by damages. Perhaps it may be difficult for him to demonstrate what difference his involvement would make. But, to the extent that raises a question about the adequacy of damages, it also raises a question about his likelihood of his success. That factor is not enough to outweigh what I consider to be the clear inconvenience to the respondents of the injunction being granted. The
injunction sought being mandatory rather than prohibitive, and the risk it may be a final order, simply reinforces that.
[30] Furthermore, Mr Clode has alternative means of seeking resolution of his disputes under cl 10 of the Agreement. He has not initiated that. He says he did not think it would be effective. He thought “the nonsense would stop if I had to go to the High Court”. That is not always a reasonable expectation. Neither do I have confidence in Mr Clode’s undertaking as to damages. If the Development fails, a concern which he and Mr Oliphant share, his profit from it may not be a source of funds. He does not personally hold a bank account and his company, Synergy Management Ltd, is no more. Worryingly, Mr Clode did not provide evidence in reply to Mr Oliphant’s evidence on these points.
[31] Finally, I note Mr Clode is seeking a mandatory injunction that would have the effect of requiring the respondents to abide by a legal obligation they have assumed under the Agreement. That has the advantage for his application that it does not add much to the respondents’ existing obligations, and preserves the status quo. But, as I said in Western Work Boats Ltd v Kelly in respect of a previous application for a similar sort of injunction, “there’s not much point in requiring something that is already required”.9 And here, as opposed to in that case, the respondents do not (currently) argue they are not bound by the Agreement. They argue they are not breaching the Agreement now. So the injunction sought may achieve little in any case.
[32] I consider the overall justice of the case favours there being no mandatory interim injunction.
Result
[33]I decline the application for an interim mandatory injunction.
Palmer J
9 Western Work Boats Ltd v Kelly [2016] NZHC 2577 at [24].
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