Du Fall v Tauranga Bridge Marina Ltd
[2017] NZHC 3165
•15 December 2017
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2017-470-000140 [2017] NZHC 3165
BETWEEN NEVILLE JOHN DU FALL
First Plaintiff
CHRISTOPHER DENNIS DONALD COLLIER
Second Plaintiff
AND
STUART JAMES NEAVE Third Plaintiff
Contd/…
Hearing: 13 November 2017 Appearances:
D Fraundorfer and T Conder for the Plaintiffs
P Crombie and D Wilsher for the DefendantJudgment:
15 December 2017
JUDGMENT OF WOOLFORD J
This judgment was delivered by me on 15 December 2017 at 4:00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Date:
Solicitors: Holland Beckett Law, Tauranga
Cooney Lees Morgan, Tauranga
DU FALL & ORS v TAURANGA BRIDGE MARINA LTD [2017] NZHC 3165 [15 December 2017]
ALLARD ROBERT HENRY MITCHELL Fourth Plaintiff
WORDSWORTH GROUP HOLDINGS LTD
Fifth Plaintiff
NEIL LOCKHART MAGNUS and GAYE THOMSON MAGNUS
Eighth Plaintiffs
TAURANGA BRIDGE MARINA LTD Defendant
[1] The plaintiffs apply for an interim injunction to prevent the defendant from transferring and selling their berth licences at the Tauranga Bridge marina.
Facts
[2] The six plaintiffs are berth holders in the Tauranga Bridge marina, which is operated by Tauranga Bridge Marina Ltd (TBML). The marina contains 306 berths,
190 of which are owned by TBML.
[3] The plaintiffs and TBML have been involved in a dispute for some years. In
2006 significant damage was caused to the marina by a storm. Expert advice suggested that TBML should build a breakwater outside the marina to protect it from severe wave action. Following a meeting with berth holders, TBML obtained costings for the construction of the new breakwater. A meeting of the berth holders in December 2014 resolved that these costs would be met by way of levies on berth holders.
[4] A small group of berth holders refused to pay the additional levies. TBML applied to the High Court for declarations that the defendants in those proceedings, many of whom are now plaintiffs in these proceedings, were bound by the resolution and therefore obliged to pay their contributions, or alternatively that the berth holders were obliged to pay the contributions as an “operating expense” as defined in the berth licenses. Thomas J held that the resolution was not binding on the defendants, and that the construction costs were capital expenditure not operating expenditure.1 She held that the berth licenses governed the relationship between the berth holders and TBML. That agreement defined “operating expenses” as those relating to “the control, occupation, maintenance and management of the marina”. Thomas J held that this related to the existing marina, not to a new development outside the marina. Accordingly, TBML was not entitled to charge the berth holders additional levies to pay for the new breakwater. As a result of the judgment, TBML deferred the
breakwater project indefinitely.
1 Tauranga Bridge Marina Ltd v Du Fall [2016] NZHC 1747.
[5] Following the judgment, in 2017 the plaintiffs queried further charges levied by TBML ostensibly as operating expenses. They claimed the further charges were not properly levied under the berth licenses, as they were not properly operating expenses. The third plaintiff, Stuart Neave, states in his affidavit dated 22 August
2007 that the disputed payments include those “which relate to a renovation which we say goes beyond what is permitted by way of normal maintenance of the Marina”. The plaintiffs also seek to recover payments that Mr Neave describes as “amounts which we previously paid in levies which were applied to the Project”.
[6] As a result of the disputed charges, the plaintiffs each refused to pay part of the amount levied as operating expenditure for the period of 1 April 2017 to 30 September
2017. Mr Neave explains:
On our own calculations, based on the TBML accounts, around $800,000 has been spent in the last six years on “refurbishments” that do not fall within the definition of operating expenses. We consider that we are entitled to be repaid a pro-rata share of the levies we have paid which have been expended in this way. We also consider that we cannot be required to pay the levies which have been demanded from us which also relate to these expenses, or to penalties for non-payment of the same.
We consider that we are owed considerably more than TBML is currently demanding from us, and that we are not required to pay what is being demanded.
[7] Mr Neave adds in his further affidavit of 24 August 2017 that the plaintiffs also refuse to pay levies to cover TBML’s costs in the previous High Court proceedings. He considers that these relate to capital investment, as they were incurred by TBML in an effort to proceed with the construction of the breakwater. On that basis, Mr Neave states that these are not operating expenses, but capital expenses.
[8] TBML wrote identical letters to each of the plaintiff berth holders on 22 June
2017 informing them that their payment for the balance operating expenses was overdue. The letter said:
We note that your Berthholders account is overdue being the Berth Operating
Expenses covering the six-month period from 1 April 2017 to 30 September
2017 that were due to be paid 31 May 2017.
As per the Terms of the Berth Licence, Clause 4 – Operating Expenses, sub- clause 4.10 refers to non-payment of the operating expenses and that the Berthholder shall pay interest at the Default Rate.
We remind you that non-payment is a breach of your Berth Licence and Directors do not want to have to follow this line of recovery, which could see cancellation of your Berth Licence. Please do not put us in this predicament.
[9] On 2 August 2017, TBML wrote again, stating:
Failure to bring your Berth Operating Fees for [the relevant berth] up to date within fourteen (14) days of receipt of this letter will force us to instruct our solicitor to commence an action to revoke your Berth License.
[10] On 3 August 2017, the plaintiffs filed proceedings in the District Court against TBML with two causes of action, money had and received and unjust enrichment. The plaintiffs did not pay the outstanding charges.
[11] On 21 August 2017, TBML wrote again to advise of the default transfer of the berths:
Because you have failed to pay your proportion of Operating Expenses for a period of three months after payment was due, Tauranga Bridge Marina Limited has transferred the licence to itself, as trustee, pending sale of your interest in the licence. These steps were taken in accordance with clause 17 of the licence. Please see the enclosed document recording the withdrawal of consents provided by clause 2 of the licence and the transfer of the licence to Tauranga Bridge Marina.
Tauranga Bridge Marina will now sell [the relevant berth] and apply any of the proceeds from the sale as follows:
(a) Firstly, to pay the costs of sale.
(b) Secondly, in satisfaction of any of your outstanding debts or liabilities to Tauranga Bridge Marina.
(c) Thirdly, to the Berthholder.
[12] On 24 August 2017, the plaintiffs filed an application for an interim injunction in the High Court to restrain TBML from forfeiting the plaintiffs’ berths pending resolution of the proceeding. The underlying substantive proceeding seeks a declaration that the disputed charges are not operating expenses and a declaration that TBML has waived any right to forfeit the licences without giving notice to the plaintiffs. A third cause of action alleges misleading and deceptive conduct by TBML under the Fair Trading Act 1986.
[13] Since 25 August 2017, the plaintiffs have been permitted to retain and use the berth licences by consent of TBML pending this judgment.
Relevant law
[14] In order to establish that an interim injunction should be granted, the plaintiffs must first satisfy the threshold question, that is whether there is a serious question to be tried.2 Put another way, they must show that the claim is not vexatious or frivolous.3
Ultimately, the issue is whether there is “a tenable resolution of the issues of fact and law on which the plaintiff may be able to succeed at the trial”.4 The Court is then required to assess the overall balance of convenience. This should not be assessed mechanically; an interim injunction is a flexible and discretionary matter.5
[15] The New Zealand courts have stressed that although this two-step framework is useful, the ultimate question is where the overall justice lies. In Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd, Cooke J relevantly stated:6
Marshalling considerations under them is an aid to determining, as regards the grant or refusal of an interim injunction, where overall justice lies. In every case the Judge has finally to stand back and ask himself that question. At this final stage, if he has found the balance of convenience overwhelmingly or very clearly one way – as the Chief Justice did here – it will usually be right to be guided accordingly. But if the other rival considerations are still fairly evenly poised, regard to the relative strengths of the cases of the parties will usually be appropriate. We use the word “usually” deliberately and do not attempt any more precise formula: an interlocutory decision of this kind is essentially discretionary and its solution cannot be governed and is not much simplified by generalities.
Analysis
Serious question to be tried
[16] Clause 17 of the berth licence agreements allows TBML to transfer a berth licence when the berth holder has acted in default. It provides:
If the Berthholder: (a) fails to pay the Berthholder’s Proportion of Operating Expenses or any other monies payable under the licence for a period of three months after payment is due … the Marina Manager may, without being required to give any further notice, withdraw the consents provided by clause
2 American Cyanamid Co v Ethicon Ltd [1075] AC 396 (HL); Klissers Farmhouse Bakeries Ltd v
Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 133.
3 NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90 at [12].
4 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd, above n 2, at 133.
5 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd, above n 2, at 137.
6 At 142.
2 and transfer the licence to the Marina Manager as trustee for the Berthholder pending the sale of the Berthholder’s interest in the Licence.
[17] The plaintiffs submit that the TBML’s purported transfer of the berth licences is not valid. They say first that the charges they refused to pay were not operating expenses, and accordingly that TBML was not entitled to invoke clause 17. Alternatively they say that TBML is estopped from exercising its power of forfeiture without notice due to representations made in its letters to the plaintiffs. They argue that the plaintiffs were led to believe that a process would be followed prior to forfeiture, and so TBML cannot unilaterally invoke clause 17. The plaintiffs say TBML has either waived its right to invoke clause 17, or engaged in misleading and deceptive conduct under the Fair Trading Act 1986.
[18] The basis for the plaintiffs’ claim that the charges do not amount to operating expenses is not entirely clear. The plaintiffs refer to a number of reasons for refusing to pay the charges in full. At some points in the affidavits and submissions it appears that the plaintiffs refuse to pay the current charges on the basis that charges in the past were inappropriate. Given that clauses 4.8 and clause 18 of the berth licence make it clear that berth holders are required to pay operating expenses without any deduction or set off, and that failure to pay operating expenses is a breach going to the essence of the berth holder obligations under the licence, I do not consider that the plaintiffs are entitled to refuse to pay invoices for current operating expenses in full due to concerns over the legality of previous charges. If the plaintiffs believe previous charges were inappropriate they should have brought a claim in respect of those amounts.
[19] However, the plaintiffs further submit that some parts of the invoice relate to costs that amount to capital expenditure rather than operational costs. This includes a challenge to the levies charged to cover legal costs from the previous High Court proceedings concerning the breakwater project. I have some doubts as to the plaintiffs’ likelihood of success in this claim, particularly considering Thomas J’s comments in her costs decision dated 11 November 2016.7 However, I consider there is a serious
question to be tried as to the nature of the costs levied and whether they fall within the
7 Tauranga Bridge Marina Ltd v Du Fall [2016] NZHC 2704.
definition of operating expenses. TBML submits that this is a question of contractual interpretation clear enough for resolution at this stage. It submits that the work to which the plaintiffs object consists of refurbishing two piers that are worn out and require replacement. They submit that this is clearly an appropriate levy under the licences.8 This may be the case. However, I consider that resolution of this issue requires assessment of the considerable factual evidence before the court as to the nature of the work charged for and the structure of levies in addition to interpretation of the berth licences. The New Zealand courts have made it clear that the threshold for a serious question to be tried is low. I consider that the plaintiffs have satisfied that threshold.
[20] On the other hand, I do not consider that there is a serious prospect of the plaintiffs succeeding on their alternative grounds, being waiver or misleading and deceptive conduct. The plaintiffs rely entirely on the statement in the 2 August 2017 letter from TBML that if their levies were not paid in full TBML would “instruct our solicitor to commence an action to revoke your Berth License”. The plaintiffs say that the notion of “an action to revoke” the berth licences implies a process in which the plaintiffs would participate. Effectively, they submit that by referring to “an action”, the defendants were confirming that there would be court proceedings before any further action was taken.
[21] The argument as to waiver is, in my view, misconceived. A party may be taken to have waived a condition of a contract if that party has made a promise that they will not insist upon performance according to the strict letter of the contract. However, here there is no condition that TBML has purported to waive. It certainly cannot be that by their 2 August letter TBML has waived their right to transfer the licence under clause 17 of the berth licence; to the contrary their letter emphasises the opposite position. This argument might, perhaps, be better framed by the plaintiff as a matter of equitable estoppel; that TBML led the plaintiffs to believe that it would not transfer the licence without taking court action and so is estopped from transferring the licence
without doing so. For an argument of estoppel to succeed, however, TBML must be
8 Operating expenses are defined under the Second Schedule of the berth licences, and include “[a]ll costs and expenses of repairs (including structural repairs), dredging, maintenance, renovations, replacements and painting for the Marina”.
responsible for the creation of a belief or expectation on which the plaintiffs have acted in reliance, so that it would be unconscionable for TBML to now resile from it.9 It is fundamental that for an estoppel to arise, the belief or expectation must be reasonable, as must the reliance. I do not consider that any such belief based on the 2 August letter was objectively reasonable, nor do I consider that the plaintiffs have demonstrated reliance. It appears that they intended not to pay the disputed levies regardless of the waiver given their reaction to the 22 June letter.
[22] In the alternative, the plaintiffs claim misleading or deceptive conduct under the Fair Trading Act. For a person’s conduct to be misleading or deceptive, the conduct must be such that “a reasonable person in the claimant’s situation would likely have been misled or deceived”.10 I do not consider that TBML’s statement was misleading or deceptive in the circumstances. Under clause 17 of the berth licences, an agreement which the plaintiffs all possessed, TBML was entitled to transfer the berth licences on default without further consultation. The 2 August letter explicitly referred to clause 17. I am of the view that it would have been clear that in threatening to take further action, TBML was referring to taking action under the contract to transfer the berth licence. Mr Capamagian, for TBML, states in his affidavit dated 20
September 2017 that this was the intention when the letter was drafted. It is not clear what kind of court action TBML could have taken to enforce its contractual right. I do not consider that a reasonable person in the plaintiffs’ shoes would have interpreted the 2 August letter to mean that TBML did not intend to cancel the licences if the plaintiffs did not comply, particularly given the earlier letter of 22 June which stated “non-payment is a breach of your Berth Licence and Directors do not want to have to follow this line of recovery, which could see cancellation of your Berth Licence” with no reference to court action. The consequences of non-payment were clear.
Balance of convenience
[23] Having concluded that the plaintiffs have satisfied the low threshold of demonstrating that there is a serious question to be tried, I turn to the balance of
convenience. In my view this clearly lies with the plaintiffs.
9 Gold Star Insurance Co Ltd v Gaunt [1998] 3 NZLR 80 (CA) at 86.
10 Red Eagle Corp v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].
[24] Given interim relief would simply allow the plaintiffs to maintain their berths at the Marina (several of which are sublet), any loss to the defendant would be purely financial. This would amount to the cost of delaying sale and any levies unpaid in the meantime. This could be remedied by damages. As is required, the applicants for the interlocutory injunction have filed an undertaking that they will comply with any order for damages resulting from the grant of the injunction.11 Moreover, as the plaintiffs submit, any damages would be able to be deducted from the proceeds of sale of the berths.
[25] I do not agree with TBML that an interim injunction would have the practical effect of determining the proceedings in the plaintiffs’ favour. TBML suggests that an injunction would allow the plaintiffs to “have their cake and eat it too” in that if they were unsuccessful in the proceedings they could then pay the charges and prevent forfeiture. But clause 17 of the berth licence entitles TBML to transfer the licence to the marina pending sale once a berth holder has failed to pay their proportion of operating expenses for a period of three months after payment was due. In the instance that the plaintiffs are unsuccessful and a court finds that they failed to pay operating expenses due, TBML will be entitled to proceed under clause 17.
[26] By contrast, if the plaintiffs are not granted interim relief then they will likely irrevocably lose access to their berths and the marina. Immediate forfeiture of the berths would also bring to an end the sublease agreements between some of the plaintiffs and their tenants. Such losses, in particular the loss of the berths themselves, will not be adequately remedied by an award of damages.
Overall justice
[27] I am satisfied that the overall justice of the case justifies the granting of an interim injunction. Although in my view the plaintiffs’ case is not particularly strong, the balance of convenience lies very clearly in favour of injunctive relief. It would be an unjust result if the plaintiffs were to lose their berths now and later succeed. By contrast, I am satisfied that no such injustice to TBML will result from the grant of an
interim injunction.
11 High Court Rules, r 7.53(2).
Conclusion
[28] On that basis, I consider it is appropriate to grant an interim injunction restraining TBML from taking steps to transfer and sell the plaintiffs’ berth licences
pending final determination of this proceeding. Order accordingly.
Woolford J
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