Goldsmith v Carter HC Tauranga CIV 2010-470-281

[2010] NZHC 2307

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2010-470-281

BETWEEN  EDWARD JAMES GOLDSMITH AND NOELINE TAURUA AS TRUSTEES OF THE G & T FAMILY TRUST

Appellants

AND  IAN KENNETH CARTER, HTT 2003

LIMITED AND KPMG FINANCIAL SERVICES LIMITED AS TRUSTEES OF THE RIVERGLEN FAMILY TRUST

First Respondents

ANDIAN K CARTER LIMITED Second Respondent

ANDIAN KENNETH CARTER Third Respondent

Hearing:         17 June 2010

(Heard at Hamilton)

Appearances: P J Wright for Appellants

M S McKechnie for Respondents

Judgment:      21 December 2010

JUDGMENT OF COOPER J

This judgment was delivered by Justice Cooper on

21 December 2010 at 3.00 p.m., pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Solicitors:

Burton & Co., PO Box 8889, Symonds Street, Auckland

McKechnie Quirke & Lewis, PO Box 242, Rotorua
Copy to:
P Wright, PO Box 4338, Shortland Street, Auckland

M S McKechnie, PO Box 1227, Rotorua

GOLDSMITH AND ORS V CARTER AND ORS HC TAU CIV-2010-470-281  21 December 2010

Introduction

[1]      On  30  August  2004  the  first  respondents  (“Riverglen”)  entered  into  an agreement to sell land situated on the beachfront at Pukehina to “Edward Goldsmith or Nominee”.  The appellants (“G and T”) became the nominated purchasers.

[2]      The agreement was in the standard form (seventh edition) approved for the sale and purchase of real estate by the Real Estate Institute of New Zealand and by the Auckland District Law Society.  It stated the address of the property to be sold as

707 Pukehina Parade and gave as the legal description “an undivided half share in fee simple of Lot 573 DPS 11365 contained in Certificate of Title SA7B/1213”.

[3]      A deposit of $10,000 was required to be paid on execution of the agreement, and the provisions for payment of the balance of the purchase price reflected the fact that the parties intended that two apartments would be constructed on the property. The sum of $90,000 was required to be paid on the issuing of a building consent for the apartments.  The balance of $480,000 had to be paid on the date of settlement, said  to  be  22  November  2004,  or  such  earlier  date  as  might  be  agreed.    The possession date was stated by reference to the date of practical completion of apartment A.

[4]      There were a number of “special conditions of sale”.  They dealt in particular with the provisions that were to apply to the construction of the apartments.  Clause

14 stated that the vendor and purchaser had entered into the agreement on the basis that they would “join together in the construction of two apartments on the land”. Clause 15 provided that the purchaser would construct the apartment identified on plans annexed as apartment A and that the vendor would construct the apartment identified  on  the  plans  as  apartment  B.    It  was  provided  that  the  vendor  and purchaser would construct their respective apartments by engaging Ian K Carter Ltd (“the second respondent”) “as their respective agent to undertake the management of the construction project”.

[5]      Clause  16  contained  additional  provisions  in  relation  to  “the Purchaser’s apartment” (apartment A on the plans attached to the agreement).  It was provided that the vendor would cause the second respondent to arrange the construction of the

apartment in a good and workmanlike manner.   It was provided that the cost of construction would be $516,000 including GST and that the purchaser would pay that price to the second respondent as agent for the purchaser by way of progress payments that were set out in attachment F.[1]

[1] Clauses in the agreement refer both to “I K Carter Ltd”, and “Ian K Carter Ltd”.  It appears that there was only one company, and the references should all have been to the second respondent. Nothing turns on this.

[6]      HTT 2003 Ltd and KPMG Financial Services Ltd were referred to in clause

17 of the special conditions of sale where it was recorded that they had entered the agreement as trustees of the Riverglen Family Trust and that their liability was limited to the assets of the trust.   Clause 20 provided that the purchaser would acquire an undivided one-half share of the fee simple of the property together with rights of exclusive and common use in respect of separately marked parts of the property.

[7]      Riverglen engaged a construction company to build the apartments under the supervision of Mr Carter, the principal of the second respondent.   That company, Alfa Homes Ltd, fell behind with the project, was responsible for various defects in the work carried out.   Eventually, it abandoned the project and was placed in liquidation.   The apartments were left unfinished and without a code compliance certificate.  The parties were unable to agree as to who should bear the cost of fixing and completing the works.  They attempted to reach an agreement on the terms of what G and T allege was a variation of the original agreement and a sum of $70,000 was paid by G and T to Riverglen to be applied to the works.  However, Riverglen maintained  that  the  payment  was  simply  a  progress  payment  due  under  the agreement and denied that there had been any variation.

[8]      Mr Carter completed the vendor’s apartment and occupies it, but has not been able to obtain a code compliance certificate because apartment A remains unfinished.

[9]      G and T commenced a proceeding in the District Court.   In the amended statement of claim they sought specific performance of the agreement claiming that its terms obliged Riverglen to complete apartment A.  They sought that Riverglen refund the sum of $70,000 and damages in the sum of $124,819.21.   Riverglen

counterclaimed, asserting a breach by G and T of implied terms of the agreement. The implied terms were that, if it became necessary to cancel the building contract, then G and T and Riverglen would cooperate to appoint a building contractor to complete the apartments and that G and T would be liable for any additional cost of completing apartment A, and Riverglen would be liable for any additional cost of completing apartment B

[10]     In her judgment delivered on 11 February 2010 Judge Maze ordered G and T and Riverglen to do such acts and take such steps as are necessary to complete the building of the apartments and the exterior of the building.  She directed that the cost of the necessary work was in the first instance to be met by G and T.  She directed that there be a taking of accounts between those parties upon completion of the work and the issue of a code compliance certificate.  From that judgment the appellants now appeal.

[11]     G and T did not file a notice of appeal until after the hearing in this Court, and I should record how that situation came about.  They had sought leave to appeal out of time, and Lang J granted leave on 19 May 2010.  Attached to the application for leave was a draft notice of appeal.  Evidently through an oversight, the formal step of actually filing the appeal to replace the draft version had not been taken by the time the matter came on for hearing.   In the absence of opposition from Mr McKechnie, I allowed  G and T until 24 June to file an appeal which was to be in a form that reflected the arguments that Mr Wright had in fact advanced.  I reserved leave  for  Mr  McKechnie  to  make  further  submissions  if  the  notice  departed materially from those arguments.   Mr McKechnie evidently accepted that the document filed did reflect Mr Wright’s argument, as no further submissions were filed.  I am also of that view.

[12]     The relief sought in the appeal is:

1.        An  order  by  way  of  specific  performance  that  the  respondents perform the contract and/or the variation so as to complete the building;

2.        In the alternative if specific performance is denied an order that the case be returned to the District Court for consideration of matters arising as a result with the appellant reserving its right to seek damages.

The District Court judgment

[13]     The principal determinations of the Judge were that the contract between the parties constituted a joint venture insofar as the construction of the apartments was concerned and that as a consequence “mutual obligations of good faith apply”[2].  She considered that the agreement made a plain distinction between the land and the development of the two apartments on it.  She noted that, under the agreement both parties were to “join together” in the construction of the apartments, but each was to

fund the building of a distinct apartment.  She said, at [10] that on a plain reading:

This was an agreement for the sale and purchase of an undivided half share of a block of land, and a further development agreement to work together to each build an apartment conforming to the plans and specifications.

[2] At [28].

[14]     She  considered  that  after  executing  the  agreement  the  parties  had  acted generally in accordance with that interpretation.

[15]     She noted that the agreement was silent on obligations of the parties in the event  that  performance  of  the  development  agreement  was  adversely  affected through the fault of a third party, in this case by the inability of Alfa to complete the building.  She did not consider that it was an option for the parties to do nothing, because there was an incomplete building which lacked, and could not obtain, a code compliance certificate.  At [20] she said:

The development agreement obliged both parties to “work together” to construct the apartments;  it could be unjust and unfair to permit one party to cause a loss to both by virtue of its failure to “work together” with the other party.

[16]     She noted that the development agreement also did not provide for what was to happen in the event that, through no fault of either party, the actions of a third party might have the consequence that the cost of performance to G and T might exceed the $516,000 cost of constructing apartment A.   In such a situation, she

considered that the parties were obliged to work with each other to complete the construction of the building containing the two apartments.  At [22] she said:

Mr McKechnie submits that this was in effect a joint venture.  I accept his submissions about the definition of a joint venture, and consider that as a matter of law the development agreement was indeed a joint venture.  It was not pleaded as such but it was not necessary.   The principal issue was pleaded squarely, and there is no disadvantage to G and T from it being raised at this stage as a matter of law.  It was in any event raised in opening. I do not accept Mr Catran’s arguments that this was not a joint venture. Each party was dependent on the other, each had identified an opportunity which called for sharing, and they were jointly setting up the project;  as a result each party has a duty not to act against the interests of the other.

[17]     The Judge dealt with the question of whether there had a been a variation of the agreement at [23] – [26].  The discussion included reference to the payment of

$70,000 which it appears Mr Goldsmith had asserted had been paid to complete the exterior of the building.  The Judge rejected that contention, finding that the payment had been made by G and T as a scheduled progress payment (payment (d)) due under the agreement, and related to work that had already been completed.  In discussing that issue, the Judge observed that in their letter of 29 August 2006, G and T’s solicitors recorded that the payment had been made, with the right reserved to claim back the cost of remedial work and damages for delay and additional costs.

[18]     As to the alleged variation of the agreement, the Judge noted that it was based in part on the same letter.  The letter recorded that G and T would complete work on the interior of apartment A, reserving for later determination issues concerning remedial costs and damages.   She referred to the letter as proposing a variation which in part depended on Alfa Homes Ltd completing its obligations.

[19]     She did, however, accept that the parties had agreed that after the payment of the $70,000 was made G and T would finish the interior of apartment A while Riverglen finished the exterior with a financial adjustment, if required, after that occurred.  She said however, that:[3]

That agreement has broken down.   G and T did not finish the interior of apartment  A.     The  parties  now  remain  bound  by  the  terms  of  the development agreement, to co-operate and work together to build the two apartments. That has not occurred.

[3] At [26].

[20]     The Judge granted the relief to which I have already referred above.  The key reasoning which apparently led her to do so was her conclusion[4]  that because there was a joint venture mutual obligations of good faith applied, together with what she said at [29] of the judgment, which was in the following terms:

[4] At [28].

In the beginning the trustees of Riverglen owned a highly desirable section but lacked the resources to develop a home for Mr Carter thereon.  A scheme developed whereby, by the sale of a half share of the land (which could not be  subdivided),  funds  could  be  created  for  the  development.    It  was necessary and desirable there be some symmetry and compatibility between what was built upon the undivided two half shares.   The G and T Family Trust saw an opportunity to acquire a share in a highly desirable waterfront property and wanted to acquire that property share sufficiently that they were prepared to co-operate in the development venture.   There has however developed an imbalance.  While G and T had the resources to withstand the ill-fortune of the failure of the builder, Riverglen did not.  Now neither party can make progress in completing the development.  G and T have a greater ability to withstand the period of impasse.  In short G and T has nothing to lose, but everything to gain.  Riverglen however may have to sell its share if it cannot complete the development.  It cannot get code compliance without G and T’s co-operation.  Accordingly it cannot complete the development. There will be few potential buyers at actual market value with the property as it presently is, an undivided half share in land with a building incapable of code compliance, and no prospects of co-operation from the co-owner.  The parties  must  be  held  to  their  original  agreement  (the  joint  venture development agreement), as it would be unconscionable to do otherwise.  I note in particular the unfortunate and uncompromising tone of some correspondence  from Mr  Goldsmith  (eg  letter  9/11/06  and  19/3/07).    It would  be  to  permit  “exploitative  conduct  which  subverts  the  original purpose for which the contract was made”.  Accordingly there is not only the express obligation under the agreement to join together in the development agreement, there must be an implied term of the development agreement that they will co-operate with each other to achieve the originally intended aim. They must share in any loss or extra cost in pursuing that aim.  They have an obligation to continue to supply the resources to achieve that aim, and in the event they cannot equally meet those resources they must work together to realise their assets.

The grounds of appeal

[21]     G and T contend that the Judge erred in concluding there was a joint venture. Mr Wright noted that the agreement contained no reference to there being a joint venture and that there was no express provision regarding co-operation in relation to the construction of the apartments, nor provision for sharing of profit or further contributions.   The payments to be made by G and T were precisely set out in

schedules attached to the agreement.   Mr Wright submitted that this was an arms length transaction pursuant to which Riverglen wished to sell an undivided half share in the property it already owned and an apartment built on the land.   Riverglen’s intention was to make a profit on the construction contract or at least to recover income from it sufficient to minimise its own financial input to the construction. The sums to be paid by G and T both for the undivided half share in the land and for the apartment were fixed in the agreement and, consequently, there was no room for the importation of obligations relating to a joint venture.

[22]     Mr  Wright  noted that  Riverglen  had  entered  into  the contract  with  Alfa Homes Ltd for construction of the two apartments and that it was Alfa’s failure to perform under the construction contract which had given rise to the litigation.  Alfa’s failure to perform simply resulted in a breach by Riverglen of its obligations under clause  16.0(a)  of  the  agreement.    There  was  nothing  in  the  circumstances  that justified a conclusion that the parties were in a joint venture or that necessitated the implication of the onerous duties to which the District Court had held G and T were subject.

[23]     Mr Wright submitted that there was no proper basis for the implication of the terms referred to at [29] of the judgment.   He also argued that the District Court Judge erred in implying terms that there was to be a taking of accounts and that the parties should share in any losses arising from completion of apartment A.

[24]     Mr Wright also raised as a discrete issue the fact that there had been no pleading that the parties were joint venturers.  He submitted that under r 136 of the District Courts Rules 1992, the allegation that the parties were in a joint venture relationship should have been expressly pleaded as an affirmative defence.

[25]     Mr McKechnie submitted that the Judge had been right to conclude that there was both an agreement for the sale and purchase of land and a contract to commit to a venture to construct apartment A.  The latter was correctly characterised as a joint venture;  as had been recognised in Chirnside v Fay[5] a joint venture can arise where parties who have proceeded to a point pursuant to an agreement or understanding are

dependent on each other to make progress towards a common objective.  Here, the joint venture arose both from the terms of the agreement and as a result of the way in which the parties subsequently conducted themselves.   Mr McKechnie argued that where some unexpected event occurs for which the parties have made no express provision the obligation to work together is stronger.  In the present case the failure of Alfa Homes Ltd was such an event, and the written agreement between the parties had not addressed what would happen in those circumstances.

[5] Chirnside v Fay [2007] 1 NZLR 433.

[26]     To  the  extent  that  the  Judge  had  implied  terms  into  the  agreement, Mr McKechnie argued that the terms were necessary to make the agreement work and plainly corresponded with the intention of the parties as set out in the agreement.

Discussion

[27]     The Judge’s conclusion that there was a joint venture was based substantially on the provisions of the agreement under the heading “Special Conditions of Sale”. Clauses 14 to 16 provided:

SPECIAL CONDITIONS OF SALE

14.0The Vendor and the Purchaser enter this agreement on the basis that: (a)     The  Vendor  and  the  Purchaser  will  join  together  in  the

construction of two apartments on the land.

(b)The Vendor will on or before the settlement date arrange the deposit   of   a   covenant   plan   in   the   form  annexed   as

attachment E.

(c)The Vendor will arrange the registration of encumbrances against the property title, those encumbrances being in the

form annexed as attachment D.

(d)The Vendor will arrange for the issue of a separate title for two undivided half share interests in the fee simple of the

property.

(e)The Purchaser acknowledges that where possible these title steps will be completed prior to the date for settlement or that any documents not registered to give effect to the terms of this provision by the date for settlement will be handed to the Purchaser in registrable form at settlement.

(f)       The  date  for  settlement  pursuant  to  the  terms  of  this agreement  shall  be  the  22nd   of  November  2004  or  such earlier date as the Vendor and Purchaser may agree upon.

15.0In relation to the apartments to be constructed on the property the following is agreed:

(a)       The Purchaser will construct the apartment identified in the plans annexed as apartment A;  and

(b)       The Vendor will construct the apartment identified in the plans annexed as apartment B;  and

(c)The Vendor and Purchaser will construct their respective apartments  by  engaging  Ian  K  Carter  Limited  as  the

respective agent to undertake the management of the construction project.

16.0     In relation to the Purchaser’s apartment the following shall apply:

(a)The Vendor will cause Ian K Carter Limited to arrange the construction of the apartment in a good and workmanlike

manner and in accordance with the plans and specifications

attached  as  attachment  A  and  in  accordance  with  the

Resource Consent and all Local and Central Government requirements  applicable  to  the  construction  of  the apartments.

(b)The construction cost of Apartment A (being constructed by the Purchaser) is the sum of $516,000 including GST and the

Purchaser  will  pay  that  construction  cost  to  I  K  Carter

Limited as agent for the Purchaser by way of progress payments more particularly set out in Attachment F.   Ian

Kenneth Carter covenants to ensure that any payments made

by our[sic] on behalf of the Purchaser to I K Carter Ltd are used solely for the purpose of paying the contractor and the cost and expenses of the building and Ian Carter personally indemnifies the Purchaser against any loss or damage arising from any breach of this obligation.

(c)the Purchaser acknowledges that the Vendor of the land, Riverglen  Family  Trust  will  be  under  no  obligation  to transfer the title to the land to the Purchaser unless and until the Purchaser has paid the final payment to be paid on 22

November 2004 as is set out in clause (b) of the balance of the purchase price on the front page of the Agreement.

(d)      Where the Purchaser signs this agreement with provision for

a nominee, or as agent for an undisclosed principal, or on behalf of a company to be formed, the Purchaser shall at all

times remain liable for all obligations on the part of the

Purchaser hereunder.

(e)      The Vendor and Purchaser for their respective rights and

Interests  will  cause  I  K  Carter  Limited  to  keep  the apartments insured comprehensively during the construction

of the apartments.

(f)In the event of any dispute arising between the parties hereto as to the meaning or effect of this agreement or as to any matter or thing arising from this agreement the same shall be settled in the manner provided by the Arbitration Act 1996 or any Act or Acts passed in amendment or substitution for the same and for such purpose this clause shall be deemed a sufficient submission to that process.

(g)       In the event that the Purchaser should for any reason default in the Purchaser’s obligations to meet any payment specified in Attachment F, then

(i)        I K Carter Limited may suspend construction of the

Purchaser’s apartment, or

(ii)      may charge such penalties as may be appropriate to rectify the consequences of such default.

[28]     It is also relevant to note that clause 18.0 provided that both the vendor and the purchaser would do all such acts and things that might be required to register encumbrances and issue separate titles over the property which was the subject of the agreement.    Clause  19  referred  to  various  attachments,  including  attachment  F, which was a schedule of progress payments for land and construction costs.

[29]     Clauses 20.0 and 21.0 provided:

20.0The Purchaser will acquire an undivided one half share of the fee simple of the property together with the exclusive use of the area marked yellow on attachment C and the right in common to use the area marked green on that plan.

21.0Notwithstanding anything else to the contrary herein contained the Vendor agrees that no construction contracts are signed unless and until:

(a)      The  Purchaser  has  obtained  a  sale  agreement  on  the

Purchaser’s existing property at 13 Pukehina Parade; and

(b)      The Vendor and Purchaser agree to do so.

[30]     Clause 24 made the agreement conditional on the grant of a building consent for the construction of the apartments by 22 November 2004.

[31]     Of these provisions the Judge was particularly influenced by clauses 14.0(a) and 15.0(a).  As can be seen, under the former it was provided that the vendor and purchaser would “join together in the construction” of the two apartments and under the latter the purchaser was to construct apartment A.   Clause 15.0(c) provided however that the vendor and purchaser would construct their respective apartments “by engaging Ian K Carter Ltd as the respective agent to undertake the management of the construction project”.   There was evidence that this manner of structuring fulfilment of the parties’ obligations was adopted for taxation purposes.

[32]     Mr McKechnie submitted that both provisions tell strongly against G and T’s proposition that they had simply entered into an agreement to buy land and an apartment for a fixed price, and had no obligation beyond paying the purchase price. I consider there is force in Mr McKechnie’s submission notwithstanding the fact that,  as  Mr Wright  pointed  out,  under  clause  16.0(a)  of  the  agreement  it  was provided that the vendor would cause the second respondent to arrange the construction of apartment A.  Clause 16.0(b), immediately following, commenced:

The construction cost of Apartment A (being constructed by the Purchaser) is  the  sum of  $516,000 including GST  and  the  Purchaser  will  pay that construction cost to I K Carter Ltd as agent for the Purchaser by way of progress payments more particularly set out in attachment F.

This wording is clearly designed to be consistent with the provisions of clause 15.0 so that although the agreement provided the mechanism by which the construction was to be brought about (broadly, the vendor making the necessary arrangements) in terms of the agreement it was G and T that were responsible for constructing apartment A.  That was the plain effect of clause 15.0(a) and it is entirely consistent with clause 14.0(a), which in context must be seen as providing for the construction of apartments A and B by respectively the vendor and purchaser.

[33]     Nor does it matter in terms of the proper contractual analysis that under clause 14.0(b) to (d) it was for the vendor to arrange for the deposit of a covenant plan, for the registration of encumbrances and for the issue of separate title for the two undivided half share interests in the fee simple.  The fact that the vendor had those obligations does not detract from the plain meaning of clause 15.0

[34]     In the circumstances, it cannot be correct to describe the arrangements as being simply purchase by G and T of a house for a fixed price in addition to the acquisition of the undivided half share in the fee simple.  G and T had the obligation to construct apartment A, albeit that the agreement also provided for how that obligation would be fulfilled, and also provided for the price that G and T were to pay.  It should perhaps be emphasised at this point that G and T’s obligations were to Riverglen;  the second and third respondents, although referred to in clauses 15.0 and

16.0, were not parties to the agreement and are not to be treated as if they were one and the same as Riverglen.   G and T assumed an obligation to Riverglen to build apartment A and Riverglen’s obligation was to construct apartment B and to cause a third party (the second respondent) to arrange the construction of apartment A.  Even though Riverglen had the latter obligation it is clear from clause 15.0(c) that the second respondent was to be G and T’s agent in respect of the management of the construction of apartment A.   Reading all of these provisions together I do not consider that there is any difficulty in concluding that the parties were in a relationship that can be described as a joint venture.

[35]     Although the Judge found support for that proposition in the conduct of the parties following execution of the agreement, and Mr McKechnie referred to additional aspects of their conduct which he submitted further justified the Judge’s conclusion, I do not think it necessary or appropriate to go down that path.  While conduct of the parties after execution of an agreement can now be considered as part of ascertaining the intention of the parties at the time the agreement was made, there

are limits on the kind of evidence that can properly be considered [6] and the principal

issue here is not the meaning of particular words but the nature of the overall relationship between the parties.  I consider that the nature of the relationship was clear in the present case, taking into account the basic structure of the agreement and the context, namely the acquisition by both parties of an undivided half share of the property and the erection on it of one building containing two apartments intended to be owned by them.  This was, it seems to me, obviously a case where the agreement was in relation to a joint venture and where the parties would need to co-operate to reach a common objective.  That is why they agreed in the terms of clause 14.0(a).

[6] See Gibbons Holdings Ltd v Wholesale Distributors Ltd [2008] 1 NZLR 277 (SC) at [52] , where Tipping J said that extrinsic evidence must relate to the meaning intended by both parties, and at [73], where Anderson J made a similar observation. It is also helpful to note Anderson J’s reference to evidence of post-contract conduct in situations “where the conduct of the parties logically suggests that they had a mutual understanding of the terms which is inconsistent with ordinary linguistic use”. There is nothing of that nature here.

[36]   However, the important question that then must be addressed is   what consequence should flow from that conclusion.  Here it is necessary to bear in mind what was said by Blanchard J writing for a unanimous Court in Paper Reclaim Ltd v Aotearoa International Ltd[7] at [31]:

[7] Paper Reclaim Ltd v Aotearoa International Ltd [2007] 3 NZLR 169.

…  To style  a  contractual relationship  as  a joint  venture  may be  apt  to distract. It is a term to be applied with caution.  When parties have formed a contract the correct approach is first to decide exactly what they have agreed upon.  Only then should the Court consider whether any particular aspect of their agreement gives rise to a relationship which can properly be characterised as fiduciary, imposing an obligation of loyalty on one or both parties, which supplements the express or implied contractual terms.   It is not enough to attract an obligation of loyalty that one party may have given up more than the other in entering into the contract or that the contract may be more advantageous for one party than for the other.  Nor is a relationship fiduciary in nature merely because the parties may be depending upon one another to perform the contract in its terms.   That would be true of many commercial contracts which require cooperation.   A fiduciary relationship will be found when one party is entitled to repose and does repose trust and

confidence in the other.  The existence of an agreement, express or implied, to act on behalf of another and thus to put the interests of the other before one’s own is a frequent manifestation of a situation in which fiduciary obligations are owed.   Partners are the classic example of parties in that situation.  Their position is different from that of parties to a contract who may have to cooperate but are doing so for their separate advantages.

(Footnote omitted.)

[37]     So, too, it was said in Amaltal Corporation Ltd v Maruha Corporation[8]at [20], that the characterisation of a commercial arrangement as a joint venture can be unhelpful as a guide to whether the parties owe each other fiduciary obligations.

[8] Amaltal Corporation Ltd v Maruha Corporation [2007] 3 NZLR 192.

[38]     In  the  present  case,  although  the  relationship  of  the  parties  can  be characterised as a joint venture, I do not consider that it can properly be described as essentially fiduciary in nature.   It was not what has been referred to as a “general fiduciary relationship”.[9]    While the parties had entered into a commercial contract which required co-operation, it could not be said that the nature of their relationship was one which obliged either to put the interests of the other first or meet any other kind of fiduciary obligation arising out of the relationship itself.  I consider that it would only be if there were a general fiduciary relationship that G and T could have

had  the  positive  kind  of  duty,  which  the  Judge  held  existed,  to  act  to  protect Riverglen in the circumstances that arose, and share any loss resulting from the builder’s failure to perform.

[9] Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41(HCA), at 97 per Mason J.

[39]     It  was  no  doubt  the  case  that  neither  could  act  so  as  to  prevent  the achievement of the objectives of the joint venture, but that is a very different proposition to holding, as the Judge did, on the basis of the relationship of the parties, that G and T must now be obliged to take the necessary steps to complete building its  apartment  and  the exterior  of  the building at  their  cost  in  the first instance and subject to a final taking of accounts.  The Judge held that “there must be an implied term that the parties would co-operate with each other to achieve the originally intended aim” and that “[t]hey must share in any loss or extra cost in

pursuing that aim”[10] on the basis of the general relationship;  she could not have held

that it was based on the terms of the contract, because an implied term to that effect would be contrary to the clear words of clause 16 whereby Riverglen was obliged to cause the second respondent to arrange the construction of G and T’s apartment for the stipulated price of $516,000 (including GST), the price to be paid by way of progress payments set out in the attachment to the agreement.

[10] At [29] of her judgment, quoted at [18] above.

[40]     The difficulty with implying a term on the basis of the general relationship of the parties as joint venturers is that, where there is a contract, any fiduciary relationship must be one involving obligations that reflect what is actually provided for in the contract.  As was said by Mason J in Hospital Products Ltd v United States

Surgical Corporation:[11]

The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.

[11] Hospital Products Ltd, above n 9.

[41]     Mr McKechnie relied on a passage in Chirnside v Fay[12]  in which Tipping J

[12] Chirnside v Fay, note 4 above, at [91].

said:

A joint venture will come into being once the parties have proceeded to the point where, pursuant to their arrangement or understanding, they are depending on each other to make progress towards the common objective. Each party is then proceeding on the basis that he or she is acting in the interests of all or both parties involved in the arrangement or understanding. A relationship of trust and confidence thereby arises;  each party is entitled to expect from the others loyalty to the joint cause, loose as the formalities of the joint venture may still be.

[42]     This passage is not of assistance in the present situation.   It was part of Tipping J’s  general  observations  on  joint  ventures  and  written,  as  the  language reflects, with reference to the point at which there is no contract between the joint venture parties[13].  Where there is a contract, the terms of the contract apply to govern the obligations of the parties.   There may be situations where those contractual obligations can be supplemented by the imposition of additional obligations which

are fiduciary in nature, but such obligations must be compatible with the terms of the contract.[14]

[13] Tipping J dealt with the position that applies after a contract has been formed at [93].

[14] See for example Counties Manukau Pacific Trust v Manukau City Council [2009] 2 NZLR 260

[43]     It can readily be accepted here that, as the Judge found, it was necessary for the parties to cooperate to achieve the objectives that both had.  They each assumed an  obligation  to  construct  the  respective  apartments  that  each  were  to  own. However, the agreement stipulated how that obligation had to be carried out. Riverglen was to cause the second respondent to arrange the construction of G and T’s apartment (clause 16.0 (a)) and G and T was obliged to pay $516,000 (inclusive of  GST)  to  the  second  respondent  in  accordance  with  the  progress  payments schedule.  I do not consider that there is room in the agreement for an implied term that G and T would pay a greater sum in the circumstances that have now arisen,

essentially as a result of the failure of the builder that was contracted by Riverglen.[15]

In my view such a term could not be implied on the basis of the relationship between the parties.

[15] Mr McKechnie placed weight on the fact that Mr Goldsmith was aware of the identity of the builder and made various suggestions to Mr Carter as to the terms appropriate for the construction contract.

However, G and T were not parties to the construction contract, and under the terms of the agreement

it was plainly the responsibility of Riverglen to cause the second respondent to arrange for the construction of apartment A.  In fact, Riverglen itself entered into the contract with Alfa Homes Ltd.

[44]     Apart from the law about fiduciaries, the other source of a possible implied term would be the ordinary contract principles pursuant to which a term may be implied where that is necessary for business efficacy.  But once again, that cannot be done where the proposed implied term would be contrary to the written terms on which the parties have agreed.  Also, the fact that the position that has arisen makes the agreement more onerous for Riverglen does not of course mean that a term has to be implied, nor that there is something “exploitative” (the term used by the Judge at [29]) in G and T’s current stance.

[45]     For the various reasons I have addressed I do not consider that the Judge was right to hold that G and T must supply additional resources to achieve the joint objective (if necessary, realising assets to do so), meet the costs of carrying out the works pending a taking of accounts, or share in losses that might arise from completion of apartment A.   I consider that G and T’s contract with Riverglen

entitled it to acquire apartment A at a cost of $516,000 (including GST), and, as between Riverglen and G and T, Riverglen assumed the risk of the failure of the builder to perform by virtue of clause 16.0(a) and (b).

[46]     These conclusions make it unnecessary for me to consider the complaint that G and T make that the existence of a joint venture was not specifically referred to on the pleadings, and I express no view on that issue.

Relief

[47]     I have earlier set out the relief that G and T seek should they be successful on the appeal.  It includes the possibility of an order requiring specific performance of the contract and/or the variation so as to complete the building.  Mr Wright referred ti the Judge’s finding at [26] that there had been an agreement that G and T would finish the interior  of  apartment  A  while Riverglen  finished  the exterior,  with  a financial adjustment, if required, after that occurred.

[48]     Mr McKechnie submitted that there had never been an effective variation of the contract.  He submitted that the judgment, properly construed, was that there had not been an agreed variation, that it had been discussed, but never put into effect.  I was not referred to any letter other than that of 29 August 2006 in relation to the alleged variation.   However, the Judge did find[16]  that it was clear the parties had agreed that G and T would finish the interior of apartment A.  She noted that G and T had not done that and she evidently considered that, in those circumstances, the original agreement came back into effect so as to bind the parties to work together to

build the two apartments.  It is unclear to me how that could occur as a matter of law.

[16] At [26].

[49]     My difficulty is that the letter of 29 August 2006 begins by referring to letters and faxes that had been exchanged between the parties on 25 and 28 August to which I have not been referred, and do not appear to form part of the bundle of documents.  Consequently, I am not in a position to decide whether or not there was an agreed variation as G and T now assert.  The possibility is that the Judge intended

to hold that there was, but then that makes it difficult to understand how she could also state that the subsequent failure of the parties to comply with the terms of the variation meant that the variation somehow ceased to be effective.

[50]     It is also unclear to me whether or not specific performance (whether of the original or varied agreement) would be a practical remedy in the circumstances that have arisen.  It is unclear for example, whether the respondents could comply with such an order given their financial circumstances.  There is also an issue about the extent to which an order for specific performance might require a degree of supervision which would make it inappropriate.

[51]     I should record that I am not persuaded that the Judge was incorrect in her conclusion that the $70,000 payment that had been made was progress payment (d) under the agreement.  It appears that the payment was made ahead of time, in terms of the agreement, but as the Judge noted,[17] the payment meant that G and T had paid a total of $320,000 for work which was valued at $344,667.   The fact that it is a progress payment, however, is not decisive on the variation issue, because the exchange of promises about what each party was going to do might have been sufficient consideration for the variation to be effective.

[17] At [25].

[52]     However,  having  regard  to  what  I  have  said  in  relation  to  specific performance, I consider the appropriate course to follow is to refer the matter back to the District Court for further consideration in the light of this judgment.   That is essentially the second alternative form of relief sought in the notice of appeal.   I would  not,  however,  exclude  specific  performance  from  the  remedies  that  the District Court is able to consider.

Result

[53]     In the result, I allow the appeal.  The orders made in the District Court are set aside.

[54]     The  matter  is  remitted  to  the  District  Court  for  further  proceedings  in accordance with this judgment.

[55]     The appellants are entitled to costs calculated on a category 2 band B basis.