Lancaster Holdings Limited v David Stewart Henderson
[2000] NZCA 26
•23 February 2000
| IN THE COURT OF APPEAL OF NEW ZEALAND | CA35/00 |
| BETWEEN | LANCASTER HOLDINGS LIMITED |
| First Appellant |
| AND | DAVID STEWART HENDERSON |
| Second Appellant |
| AND | PETER ABE HULL |
| First Respondent |
| AND | PA HULL ON BEHALF OF THE TRUSTEES OF THE NN HULL TRUST |
| Second Respondent |
| Hearing: | 23 February 2000 |
| Coram: | Tipping J Robertson J Baragwanath J |
| Appearances: | P J Dale for Appellants A E Hinton for Respondent |
| Judgment: | 23 February 2000 |
| JUDGMENT OF THE COURT DELIVERED BY TIPPING J |
This appeal from a decision of Potter J concerns her Honour's refusal to make an order in the nature of a mandatory injunction on an interlocutory basis. That decision was given on 4 February 2000 and the appeal has been expedited because of the urgency of the question at issue.
The first appellant (Lancaster) is a company with expertise in property development. The first respondent, Mr Hull, previously owned land which was acquired by the Housing Corporation in 1976 for state housing purposes. When this land became surplus to the Corporation's requirements, the Crown was obliged in terms of s40 of the Public Works Act 1941 to offer the land back to Mr Hull. After discussions and negotiations lasting some 10 years the ultimate sticking point appears to have been the price at which the land should be offered back to Mr Hull. That issue depended in significant part on the date at which that price should be struck.
On 8 February 1995 Mr Hull entered into an agreement with Lancaster whereby Lancaster would fund the anticipated litigation with the Housing Corporation. It was part of this agreement that Lancaster would become the owner of the land on its acquisition from the Housing Corporation, and Mr Hull would receive a payment, the amount of which depended on the amount which was paid for the land. The second appellant, Mr Henderson, guaranteed the obligations of Lancaster. The immediately relevant provision of this agreement, which came to be called the first agreement, was that Mr Hull would follow Lancaster's reasonable recommendations and would co-operate in respect of negotiations with the Housing Corporation.
A further agreement was entered into between Lancaster and Mr Hull in November 1998. This became known as the second agreement. This agreement also included a formula for the amount Mr Hull was to receive on acquisition by Lancaster of the land, and additionally included an elaboration of Mr Hull's obligation to co-operate in any negotiations. The right to re-purchase was a valuable one, in the light of the current value of the land, which is $15-16m.
The first agreement envisaged a re-purchase price of between $4m and $6m. Later that was revised to $7m . All outstanding issues including the basis upon which the price should be fixed ultimately came before Randerson J. He ordered that the price should be fixed as at 1 February 1983. The consequence of this was that the price in terms of his judgment was likely to be between $1m and $2m. Thus the judgment is an extremely favourable one from the point of view of Lancaster and Mr Hull. The Housing Corporation has appealed. The appeal is pending and due to be heard in this Court in April, hence the urgency of the present issue.
Being of the view that there is a significant risk that the price may be materially increased as a result of a successful appeal by the Housing Corporation, Lancaster has offered to settle the purchase for the sum of $6.25m. This figure of course is still well below the current value of the land but significantly above the price at which the land can be re-purchased pursuant to Randerson J's judgment. Mr Hull has indicated that he will not agree to a settlement on the basis of $6.25m. The crucial issue is whether Mr Hull should be ordered to participate in a settlement on that basis. Potter J ruled that he should not. Lancaster and Mr Henderson have appealed. There is no issue about the Judge's approach to making a mandatory order on an interlocutory basis. Her discussion of the authorities shows that she fully appreciated and applied the relevant principles.
For present purposes it is sufficient to say that Lancaster and Mr Henderson carried the onus of showing that a settlement on the basis now proposed was so obviously a reasonable one that Mr Hull was acting in breach of his contractual obligations in declining to agree. In terms of clause 1.3 of the first agreement, Mr Hull agreed to:
(a) Follow Lancaster's reasonable recommendations with regard to negotiating the agreement with the Housing Corporation, as to both the manner in which such negotiations should be conducted and the terms of the agreement.
(b) At all times co-operate with Lancaster in relation to such negotiations.
Clause 13 of the second agreement is in these terms:
In the event that no settlement offer is accepted by HCNZ before the end of the 4 November 1998 hearing of the Claim, and the matter proceeds to hearing, then in the conduct of the proceeding, or in dealing with any settlement offer to be put to or received from HCNZ which is materially different from the settlement offer or offers contemplated by this Agreement, and when Hull receives recommendations from Lancaster in terms of clause 1.3 of the existing agreement, Hull shall be entitled, when deciding whether or not such recommendations are reasonable, to take into account the quantum of his total consideration due under this agreement, and expectations as to timing of payment.
Some issue arose between the parties as to the inter-relationship between these two provisions. We doubt that the second clause makes a major difference to the proper interpretation of the first. What the second does is to state expressly what was probably implicit in the first clause, that Mr Hull's interests are entitled to be taken into account when one determines what is a reasonable recommendation on Lancaster's part. On that basis the key question for present purposes is whether Lancaster's recommendation, that the parties should settle with the Housing Corporation at $6.25m, is shown to be so clearly reasonable that Mr Hull should be required summarily to accept it. This essentially is the approach which Potter J took when she indicated that what was reasonable was to be judged in the circumstances, having regard to the interests of both parties. She rightly indicated that those circumstances included the existence of Randerson J's judgment and the amount which would be due to Mr Hull as a result of that judgment. That amount is significantly more than if the matter was settled as Lancaster now proposes. The Judge concluded her discussion of the matter by saying:
"[Lancaster and Mr Henderson] are unable to convince me that the potential injustice is such that [Mr Hull] should be required to conclude the settlement with the Housing Corporation on the terms proposed."
She then proceeded to say, and this is a passage upon which Mr Dale placed some emphasis:
"Refusing the grant of an injunction does not preclude the parties from reaching an agreement to settle with the Housing Corporation which factors in the benefits to both parties and the costs and risks associated with the forthcoming appeal."
It is said that those observations were in error because there is nothing to suggest that the Housing Corporation can be persuaded to move down from the present figure of $6.25m. It is possible that the Judge may have overestimated the prospects of settlement, but we do not regard this observation as central to her reasoning. The Judge was required to assess whether the proposed settlement was shown to be reasonable when balancing the interests of both parties. Mr Hull was being asked to accept a significantly lesser figure than what he would have been entitled to under Randerson J's order.
The evidence as to the reasonableness of the proposed settlement is exiguous. There is evidence that Mr David Williams QC has advised Lancaster and Mr Henderson that it would be wise to conclude a settlement with the Housing Corporation in view of the risks inherent in the pending appeal, and the possibility of a further appeal to the Privy Council. The level of settlement which Mr Williams had in mind is not apparent. There is no evidence from Mr Williams himself and no detail of the reasoning upon which his advice was given. He is recorded as having said on a preliminary basis:
"the chances of Mr Hull's success on appeal are about 60% but likely to increase to 75% on further examination."
There are obvious difficulties with the way that advice is framed.
We appreciate that Mr Williams was originally instructed by Mr Hull and there have been difficulties for Lancaster and Mr Henderson in getting access to his views but the onus lay on Lancaster and Mr Henderson to demonstrate that Mr Hull had refused to join in a settlement that was clearly reasonable.
In his submissions Mr Dale argued that the matter should not be looked at solely from the point of view of Mr Hull. We agree with that proposition but this does not alter the onus which lay on Lancaster and Mr Henderson. We agree with Mr Dale that the issue is whether the proposed settlement is proved to be reasonable, taking into account the interests of both parties. Obviously a vital factor in determining whether the settlement is reasonable is the litigation risk. There is really no basis upon which we can assess that. There is, as the Judge herself indicated, no sufficiently cogent evidence on the point. Mr Dale said that the matter couldn't be conclusively determined without hearing argument as to the merits of Randerson J's decision. There was nothing, however, to stop Lancaster and Mr Henderson putting before the Court reasoned evidence from one or more senior counsel demonstrating what in their opinion the litigation risk was; the ultimate question being whether the proposed settlement is so clearly a reasonable one that Mr Hull should be ordered summarily to agree to it. The position is that there is insufficient evidence upon which that conclusion can be drawn.
We agree with the conclusion to which Potter J came. The appellants, Lancaster and Mr Henderson, did not demonstrate, and have not demonstrated in this Court, that the case was sufficiently clear for a mandatory interlocutory injunction to be issued against Mr Hull requiring him to join in the settlement. We have considered the further submissions which Mr Dale made. None of them, however, removes the fundamental problem that there is insufficient evidence to support the conclusion necessarily advanced by Lancaster and Mr Henderson. For these reasons the appeal is dismissed.
The appellants are to pay costs to the respondents in the sum of $3,500 plus all reasonable disbursements, to be fixed if necessary by the Registrar.
Solicitors
Grove Darlow & Partners, Auckland, for Appellants
Rennie Cox & Sparling, Auckland, for Respondents
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