Mahon v Edney
[2018] NZHC 1473
•20 June 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-993
[2018] NZHC 1473
BETWEEN NEVILLE CHRISTOPHER MAHON
First Plaintiff
CORONATION ROAD HOLDINGS LIMITED
Second PlaintiffAND
TIMOTHY LAIRD EDNEY
First Defendant
THE STATION AT WAITIRI LIMITED
Second Defendant
Hearing: 14 – 18 May 2018 Counsel:
D J Cooper and A M Glenie for Plaintiffs
D J Chisholm QC and M J W Lenihan for Defendants
Judgment:
20 June 2018
JUDGMENT OF WHATA J
This judgment was delivered by me on 20 June 2018 at 4.00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date: ………………………….
Solicitors: Anderson Creagh Lai Limited, Auckland
Brown Partners, Auckland
MAHON v EDNEY [2018] NZHC 1473 [20 June 2018]
[1] Mr Mahon is a property developer. Mr Edney is a commercial property investor. In January 2016, Mr Mahon’s company, Coronation Road Holdings Ltd (Coronation) assigned its right to purchase five properties in Queenstown to Waiwhakatu Ltd (Waiwhakatu), a company owned by Mr Edney. Mr Mahon claims that the assignment took place on the basis that the properties would be transferred back to him. This never happened. Mr Mahon therefore sues Mr Edney and the present owner of the properties, The Station at Waitiri Ltd (Waitiri), for its return and/or damages.
Background
[2] On 25 June 2015, Coronation entered into an agreement to purchase five properties located on Park Street, Queenstown, from Domicile Developments Ltd. At that time, settlement was to be on 30 November 2015. The purchase price was $5m, with a deposit of $300,000 payable when the agreement became unconditional. Mr Mahon subsequently obtained two extensions, ultimately coming to an agreement that the sale would settle on 27 January 2016, with a deposit to be payable on 19 December 2015.
[3] In mid-October, Mr Mahon sought out Mr Edney for assistance in purchasing the property. This culminated in a meeting in mid- December 2015. Mr Mahon insists that at the meeting in December 2015 a clear agreement was reached in the following terms:
(a)Under the Park Street Sale and Purchase Agreement, he would nominate a special purpose vehicle associated with Mr Edney to settle the transaction on 27 January 2016.
(b)Mr Edney would pay the purchase price and acquire the legal title.
(c)Mr Edney would hold the properties (i.e. warehouse them).
(d)Mr Mahon would exercise an option to purchase the special purpose vehicle holding the Park Street properties by giving notice of the date on which the shares in the vehicle were to be transferred.
(e)In consideration for the warehousing, Mr Edney would receive the purchase price ($5m) plus either:
(i)A sum representing 15 per cent internal rate of return on his investment during the warehousing period, less any rental and, in any event, no less than $200,000; or
(ii)An apartment in the complex he would then purchase at cost.
[4] I will refer to this as the alleged December agreement. This is not accepted by Mr Edney. I return to this issue below.
[5] On 16 December 2015, Mr Tim Johnston, a financial advisor to Mr Edney, sent an email setting out what appears to be a proposed structure for the acquisition of the Park Street properties. This involved setting up a special purpose vehicle with Mr Edney and Mr Lu occupying the directorships. Mr Lu is the brother of Mr Mahon’s partner, Saren Loo. That arrangement, however, was modified and Ms Loo was identified as the person to take up the directorship instead of Mr Lu.
[6] In the intervening period, Mr Mahon continued to develop plans, working with architects and geotechnical consultants. His initial desire to build a retirement village was abandoned. He instead pursued designs in relation to luxury apartments.
[7] There was also correspondence at about this time between Mr Mahon and Mr Thirunavukarasu, a director of Gleneagle Securities Ltd (Gleneagle). In that correspondence, Mr Mahon refers to the Park Street property arrangements, including reference to interest payable to Mr Edney for the acquisition of the property.
[8] In late January 2016, Mr Johnston advised Mr Mahon and Ms Loo that Mr Edney wanted to use a different vehicle for the purposes of the acquisition of the properties, one over which he had sole directorship. Mr Johnston said Mr Edney’s guarantee arrangements required that he exercise sole control of the company making the purchase. That company is identified as Waitiri. Mr Mahon says this caught him by surprise, but he could do nothing about it given the shortness of time to settlement.
[9] On 27 January 2016, deeds of assignment from Coronation to Waiwhakatu and from Waiwhakatu to Waitiri were executed by Mr Mahon, for Coronation, and Ms Loo for Waiwhakatu. The purchase price for the Park Street properties was then paid by Mr Edney’s solicitors and title transferred to Waitiri.
[10] There is correspondence in February, following the acquisition, endeavouring to record understandings as to the basis of the acquisition by Waitiri of the Park Street properties. I return to this correspondence below at [30]. In summary, attempts by Mr Mahon to confirm the basis upon which he would reacquire the properties are noted by him, together with responses by Mr Johnston, on behalf of Mr Edney. The correspondence records a proposal by Mr Mahon for payment of 12 per cent interest and a reasonable fee. Mr Johnston, in response, proposes market valuation, which is not acceptable to Mr Mahon. This culminates in a note from Mr Edney that if Mr Mahon can prove he has the funds, then a price can be agreed.
[11] Discussions on the terms of acquisition then largely fall into abeyance until April 2016, at which point there was a meeting between Mr Mahon and Mr Edney to discuss the Park Street transfers. At that time, Mr Edney proposed that he would acquire an apartment at the Park Street properties at cost as his fee. This discussion is recorded in correspondence to Mr Thirunavukarasu, but it appears that this concept is later rejected by Mr Edney and Mr Mahon.
[12] In May, however, discussions about transfer are retriggered in earnest. This led to a meeting on 28 May 2016. There is no dispute as to what was discussed. However, Mr Mahon claims specific terms of transfer were agreed again, namely:
(a)Mr Edney would transfer the shares in the company owning the Park Street properties to him, with settlement to take place in seven weeks;
(b)Mr Edney would retain the rents which he had received from the Park Street properties up to the date of transfer;
(c)His interests would pay Mr Edney the purchase price together with
$100,000; and
(d)The sum of $200,000 in exchange for a vintage car.
[13]I will refer to this as the alleged May agreement.
[14] Mr Edney does not accept any agreement was reached and, shortly after the meeting, there is email correspondence recording a proposal by Mr Edney that he receive $100,000, together with $350,000 for a vintage car that he proposed to sell to Mr Mahon and/or Ms Loo. Mr Mahon responds that he is happy to pay $100,000 but his interests are not prepared to pay more than $200,000 for the car. There was also a note from Mr Edney to his financial adviser, Mr Johnston, that he wants $350,000 for the car and $100,000 for the property deal. This is followed by an email by Mr Edney to Mr Mahon to record terms of a proposed transaction, namely:
(a)Park Street to be sold on 20 June for $5.1m but conditional on;
(b)Con Lu and Saren Loo buying a vintage car for $350,000 plus GST, with settlement in September.
[15] There is then a further meeting on 6 July 2016 between Mr Mahon and Mr Edney. This is followed by an email from Mr Mahon setting out his views on Park Street and the proposal for settlement in late July for $5.1m, together with a payment of $250,000. All of this comes to nothing in any formal sense. However, Mr Mahon continues to work on the development of the properties, including working with consultants.
[16] In the absence of any progress having been made with the transfer of the properties, Mr Mahon, through his solicitors, caveated the properties in December 2016. The High Court and the Court of Appeal refused the plaintiffs’ applications to maintain the caveats in April and September 2017 respectively.
Evidence
[17] The evidence for the plaintiffs included evidence by Mr Mahon, Ms Saren Loo, Nithan Thirunavukarasu (a financier) and Mr Lance Collings (a valuer). The evidence for the defendants included evidence from Mr Edney, Mr Tim Johnson (a financial
adviser to Mr Edney), Mr Jarvis (a valuer) and Mr Burns (an expert in corporate finance). The competing narratives are set out by Mr Mahon and Mr Edney respectively. Largely supporting roles are played by Ms Loo and Mr Nithan Thirunavukarasu for Mr Mahon. A similar role is played by Mr Johnston for Mr Edney. Mr Burns describes warehousing arrangements and loan offers as they are known to the industry. Mr Burns also acknowledged there was nothing orthodox about the Park Street transactions. The valuers, Messrs Collins and Jarvis, give reconcilable valuation evidence, reflected their joint statement.
The claims and the central factual issues
[18]The plaintiffs identify four alternative causes of action, namely:
(a)Breach of contract by Mr Edney (and his companies) for refusing to arrange for the Park Street properties to be transferred to Mr Mahon in accordance with the December agreement and/or pursuant to the May agreement. Specific performance is sought or, in the alternative, damages based on the difference between the market value of the properties and the price payable under the agreements.
(b)A common intention constructive trust claim that Mr Edney’s interests acquired the Park Street properties pursuant to a common intention, namely that Mr Edney was to sell the SPV holding the Park Street properties to Mr Mahon on payment of specified sums. Mr Edney breached this common intention by refusing to arrange for the Park Street properties to be transferred to Mr Mahon. Proprietary and equitable damages are sought, together with an account for rent and reimbursement of expenses and interest.
(c)A claim in equitable estoppel alleging, in short, Mr Mahon assigned his right to purchase the properties in reliance on a representation made by Mr Edney that he would transfer the SPV holding the Park Street properties to Mr Mahon on specified terms. The plaintiffs claim
Mr Edney has acted inconsistently with this representation. Similar relief is sought in terms of transfer and equitable relief.
(d)Claims based on quantum meruit and money had and received. This claim is confined to expenses paid on behalf of Mr Edney and for work done by Mr Mahon in relation to the properties. Full reimbursement for expenses incurred and other benefits obtained are sought.
[19] It will be seen that the three main causes of actions are premised on the resolution of two central issues of fact:
(a)Did Mr Edney agree or otherwise promise to transfer the Park Street properties to Mr Mahon on specified terms at the December meeting?
(b)Did Mr Edney agree to transfer the Park Street properties to Mr Mahon on specified terms at the May meeting?
[20]Mr Cooper concedes, properly in my view, that the evidence does not support:
(a)specified terms having been agreed in relation to the fee payable under the December agreement; and
(b)the existence of the May agreement.
[21] In any event, I turn to address these issues of fact before addressing the causes of action, as their resolution sets the frame for the assessment of the causes of action. Other issues of fact which, in the result, have not proven important to the outcome are addressed below at [66] for completeness.
Did Mr Edney agree or otherwise promise to transfer the Park Street properties to Mr Mahon on specified terms at the December meeting?
[22] Mr Cooper provided a helpful summary of the key factors he says show that agreement was reached. The following broadly corresponds to his summary:
(a)The two men had a long history of dealings together in relation to property. Their communications were informal, and the agreement reached in December was similarly informal.
(b)Subsequent actions affirmed the existence of the agreement and/or promise to return the Park Street properties to Mr Mahon or his interests:
(i)Immediately following the December meeting, Mr Johnston confirms by email that Mr Edney will pay the deposit and establish an SPV to acquire the properties as informally agreed.
(ii)Mr Edney in fact paid the deposit of $300,000 in December 2015 as informally agreed.
(iii)Mr Edney then incorporated Waiwhakatu to complete the purchase of Park Street, and appointed Mr Mahon’s partner, Saren Loo, as one of its two directors;
(iv)Mr Edney assigned the rights of the property to Waiwhakatu to another company, Waitiri, for corporate financing reasons, not to defeat Mr Mahon’s expectation that he would reacquire the properties.1
(c)To Mr Edney’s knowledge, and with his involvement, Mr Mahon continued to work on the development of the property and to incur substantial costs (for which there was no discussion about reimbursement) but with the expectation that Mr Mahon would become the owner of the properties.
(d)Mr Edney confirmed under cross-examination that he never wanted the properties and purchased them to assist Mr Mahon.
1 Mr Cooper initially closed on the basis that the assignment agreement was a breach of the December agreement, but when pressed preferred to close the plaintiffs’ case on this basis.
(e)Mr Mahon’s communications with Gleneagle Securities are consistent with the arrangement which he says he had entered with Mr Edney. For example, in an email dated 23 January 2016 he said:
If we fund him out within 6 weeks his fee and interest will be worst case $300k
(f)Some of Mr Edney’s communications with Mr Mahon, including those in May, are consistent with an option arrangement having been agreed, though subject to an agreement as to a reasonable fee. For example, Mr Mahon refers to ‘our deal’ in a February email when seeking to reacquire the properties from Mr Edney.
(g)Over the relevant period, Mr Edney did nothing with the properties, leaving it to Mr Mahon to develop them on the basis that he fully expected the properties would be sold back to him or his interests.
(h)Mr Edney accepted that he used the Park Street property settlement negotiations to put pressure on Mr Mahon to address his obligations on other projects he was involved in with Mr Edney.
(i)Mr Edney accepted under cross-examination that much of his evidence is a reconstruction of events, rather than direct recollection. His evidence is therefore unreliable.
Assessment
[23] Mr Mahon assigned his right to purchase the Park Street properties to an SPV controlled by Mr Edney with the expectation, known to Mr Edney, that he would be given a reasonable opportunity to purchase them at a later date. But there was no concluded agreement, promise or representation on specified terms in December to transfer the properties or the SPV to Mr Mahon or his interests. My reasons for this finding now follow.
[24] First, the factors identified by Mr Cooper cogently support an inference that Mr Edney took the assignment of properties knowing that Mr Mahon expected to be
given the opportunity to buy them or the SPV holding them. He admitted as much under cross-examination.
[25] However, the overwhelming inference to be drawn from the evidence, including the correspondence between Mr Mahon and Mr Edney prior to, at the time of, and subsequent to the December meeting, is that a binding undertaking or promise to transfer the properties on specified fixed terms was never given by Mr Edney.2
[26] As Mr Chisholm QC noted for Mr Edney, pre-December communications between Mr Mahon and Mr Edney contradict Mr Mahon’s account that a binding arrangement on specific terms for the return of the properties to Mr Mahon was contemplated. Rather, it is evident that Mr Mahon simply identified the Park Street properties as an investment opportunity. Most notably:
(a)In an email dated 11 October 2015 Mr Mahon said to Mr Edney:
Might be too late on Park St 19th is the day. If you want to jump in buy it and
make the money please do it it’s a very good deal fabulous land bank for you
(b)And further:
The contract is for 5m I’d rather see you buy it and make the money. I’m
happy to nominate you no problem.
(c)Mr Edney responded the same day:
Hi. If I settle it the only buyer I would be interested in would be you when the mining money comes in (soon?).
(d)The following day Mr Mahon sent a copy of the signed agreement to Mr Edney and stated:
…. You will note purchaser is Coronation Road Holdings Limited or nominee as opposed to Coronation Gardens Limited so very separate. So just to clarify matters I’m happy to nominate you or one of your company’s to purchase the property for no consideration. …
2 There was no dispute that this correspondence is relevant to the central issue.
(e)Mr Edney replied:
Hi Neville if it is so good a deal would you like me to loan you the deposit so you can use your skills to on sell the contract.
(f)Mr Mahon responded:
Tim I’m just not in the business of flicking things on. Only if it suits you and your really happy with the asset buy it in your company so you can use your internal facility’s to fund it. I will carry on with the resource consent … If you would like to sell to me in the future great if not I understand.”
[27] Following this general theme, emails sent immediately after the December meeting suggest the specific terms of any transfer back to Mr Mahon were still to be agreed. For example, on 16 December 2015, Mr Johnston noted to Mr Mahon:
I assume Tim will discuss any proposal going forward. I suppose is Tim is funding 100% the transaction he would be dictating terms but I do not think he knows what the opportunity is fully as yet.
[28] Events immediately prior to the acquisition of properties are also inconsistent with agreement on the terms specified by Mr Mahon having been reached in December. The assignments from Mr Mahon to Waiwhakatu and then from Waiwhakatu to Waitiri are, on their face, irreconcilable with a binding agreement to transfer the “properties” to Mr Mahon’s interests on specified terms. Both assignments, signed by Mr Mahon and Ms Loo, include the following clause:
all the Purchaser’s/Assignor’s estate, title and interest in the Agreement shall pass to the Sub-Purchaser/Assignee free from any mortgage or encumbrance or other adverse interest.
[29] Furthermore, even if there was an oral agreement prior to this date, this clause is convincing objective evidence that, by 27 January 2016, the assignment of the “properties” was unfettered.
[30] I accept the assignments do not, per se, preclude an agreement to transfer the SPV assignee to Mr Mahon as the mechanism for the return of the properties. But they are, nevertheless, strong objective evidence that Mr Edney’s interests intended to acquire the properties on an unfettered basis.
[31] Correspondence between Mr Mahon and Mr Edney in February 2016 also strongly suggests an ongoing negotiation of a fee was envisaged rather than an agreement or promise on fixed terms having been made in December. Mr Cooper really had no option but to concede this must be so. There was never any clear statement by Mr Mahon requiring transfer on the specific terms now alleged by him. As broadly detailed by Mr Chisholm in his submissions:
(a)On 5 February 2016, Mr Mahon sought the following from Mr Johnston for the transfer of the properties: “Asked for a pay off figure for Park Street as per our arrangement of a reasonable fee and twelve percent interest rate”.
(b)Mr Johnston responded by suggesting “market valuation for the sites as a warehousing cost.”
(c)Mr Mahon complained “looks like I’ve been tricked will stop work on the site now”.
(d)On 5 February 2016, Mr Edney then had the following text exchange with Mr Mahon:
Mr Edney: You mentioned to TJ about Park St and purchasing on 28 Feb 16 Is that real? Tim
Mr Mahon: Yes it is.
Mr Edney: Please Present a offer
Mr Mahon: No offers ive asked your man for fee and interest rate as per our deal
Mr Edney: He is suggesting market to make it simple.
Mr Edney: Hi could transfer at cost if you gave me a unit in the development Tim.
(e)On 9 February 2016, Mr Edney later confirmed by email:
In regards to Park St either you have the funds to settle on 28 February 2016 or not. If you have you can prove it and we can discuss the price.”
(f)On 9 February 2016, Mr Mahon texted the following to Mr Edney:
You fund the development at friendly rates without delay and you take one of my dis so not the best one for no cost. Works out the same for me as giving equity away to a stranger.
(g)Mr Edney’s response was succinct: “No”.
(h)On 19 February 2016, Mr Edney then inquired by text to Mr Mahon:
Hi now you have lost interest in Park St should I deal with Francis direct? Tim
(i)Mr Mahon replied on 19 February 2016:
That’s not very nice. Working very hard on Park St”
(j)Mr Edney responded:
Sorry for my misunderstanding. How do you want to progress? Tim
(k)Mr Mahon then stated:
No problem I’m back now so Im sure we can sort something out that works for all
[32] The mobile nature of the terms of any transfer back is further indicated by other contemporaneous records, including emails between Mr Mahon and Mr Thirunavukarasu. He mentions a $300,000 fee to Mr Thirunavukarasu.3
[33] Second, Mr Mahon’s references in emails to “our arrangement” and “our deal” coincide with proposals which are not consistent with the pleaded terms of the alleged agreement. He seeks a reasonable fee plus 12 per cent interest, whereas the alleged agreement refers to a 15 per cent internal rate. Mr Mahon said under questioning from me that 12 per cent plus reasonable fee approximated to the 15 per cent internal rate. I do not put much weight on this evidence. It was not raised in evidence in chief and was not seriously suggested to be an explanation for the email proposal. Furthermore, Mr Mahon’s explanation for the equivocal nature of his subsequent correspondence
3 Mr Cooper submitted that this approximates to the 15 per cent internal rate to the end of February, but there was no evidence to support this.
about the terms of any agreement is unconvincing. He said he wanted to maintain a friendly relationship with Mr Edney and, in short, did not want to take a legalistic approach with him. But if fixed terms were agreed or promised in December, there is nothing unfriendly or legalistic about referring to them in subsequent emails or negotiations. Indeed, the record between them clearly shows that he could be both precise and forthright with Mr Edney when he wanted to be. For example, Mr Mahon firmly rejected Mr Edney’s proposal of a unit at cost price. And his comments were at times quite pointed, both in relation to the Park Street properties and other projects, including the “Arena” project.4
[34] Third, while, as Mr Cooper submits, Mr Edney appears to have reconstructed parts of his narrative of events from the record, I prefer Mr Edney’s account as more plausible because it so closely aligns with that record. I also found him to be a convincing witness. He was forthright about the strengths and weaknesses of his narrative in equal measure.
[35] Accordingly, I am not satisfied that an agreement was reached or a promise given to transfer on specified terms at the December meeting. Rather, Mr Edney knew Mr Mahon assigned his rights to purchase the properties in the expectation he would be given a reasonable opportunity to purchase the properties, either directly or via the purchase of a SPV.
Did Mr Edney agree to transfer the Park Street properties to Mr Mahon on specified terms at the May meeting?
[36] As Mr Cooper conceded, the evidence does not support the existence of a concluded sale and purchase agreement in May. Put simply, the existence of a final agreement (formal or informal) on the terms claimed by Mr Mahon is not easily reconcilable with an email from Mr Edney immediately following the May meeting suggesting terms that are materially different from those terms. He said:
Thanks for our discussion today.
4 While negotiations were occurring Mr Edney was pressing Mr Mahon about monies owed in relation to the Arena project, in which one of Mr Edney’s companies leased a hotel to one of Mr Mahon’s companies, and a second of Mr Edney’s companies loaned money to develop the hotel.
Your interests will purchase the Park St company, all shares for $5.1 million plus GST if any on or before the 20 June 2016. I will resign as director. This assumes Park St is in a separate company as planned. The satisfactory purchase of the A&O is a mandatory requirement of this agreement.
Saren and Con will purchase my pride and joy, a 1906 Alldays and Onions for $350,000 plus GST if any plus spare parts and documentation. This purchase will be completed by 28 September 2016 and will be guaranteed by both and tied to the Coronation and Arena loans.
[37] While Mr Mahon immediately responded with a different understanding of what was agreed, the available record does not support a finding, on the balance of probabilities, that an agreement was concluded at the May meeting.
[38] With the benefit of the foregoing findings, I now address each of the claims by Mr Mahon.
Breach of Contract
[39] The gist of the pleaded contract is noted at [3] above. Given its significance, I repeat the key pleading here:
8.On a weekday in mid-December 2015, Mr Mahon met with Mr Edney to discuss the Park St Properties (December 2015 meeting). At the December 2015 meeting, Mr Mahon and Mr Edney entered into an arrangement in respect of the Park St Properties.
Particulars
(a)Mr Mahon would nominate a special purpose vehicle (SPV) owned by Mr Edney to settle the Park St SPA on 27 January 2016;
(b)Mr Edney would pay the purchase price to Domicile on 27 January 2016, and acquire legal title to the Park St Properties;
(c)Mr Edney would then warehouse the Park St Properties on behalf of Mr Mahon for a period;
(d)When Mr Mahon considered he was in a position to do so, he would exercise an option to purchase the SPV by giving notice to Mr Edney requiring him to transfer the Park St Properties to Mr Mahon;
(e)In consideration, Mr Edney would receive $5m (being the original purchase price under the Park St SPA) plus either:
(i)A sum representing a 15% internal rate of return on his investment during the warehousing period (less the rents generated by the Park St Properties during the warehousing period) and in any event no less than $200,000; or
(ii)An apartment in the complex which he would purchase at cost.
[40] In light of my findings at [23], the claim based on the pleaded agreement at (e) must fail. However, Mr Cooper refined the plaintiffs’ claim in closing to simply breach of an informal agreement to warehouse the Park Street properties for Mr Mahon’s interests for a reasonable period and subject to a reasonable fee. This responds to lack of express terms and Mr Chisholm’s submission that Mr Edney would never have agreed to an open-ended warehousing arrangement – a point well made by him.
[41] With respect to Mr Cooper’s careful argument, it is asking too much of the Court to find an enforceable warehousing agreement with implied terms as to both reasonable period and fee. I accept Messrs Edney and Mahon envisaged a brief period to enable Mr Mahon to secure funding to purchase the properties and that any fee would be commercially reasonable in context – the subsequent negotiations support this inference and Mr Edney accepted that it was expected to be a short-term arrangement. But this was an informal arrangement only and I am unable elevate these expectations to implied contractual terms.
[42] First, implied contractual terms as to fee and period (like the allegedly express terms) are not easily reconcilable with the objective evidence of what happened (detailed at [22]-[36] above), including the January assignments, which expressly suggests no fixed terms, actual or implied, were reached for the transfer the properties to Mr Mahon’s interests at some later date. Furthermore, there is nothing in the surrounding correspondence between Mr Mahon and Mr Edney of intention to be bound by implied terms as to “reasonable” period and fee.
[43] Second, Mr Burns cogently makes the point that the fee for, and the period of any warehousing, are key terms, having regard to the risks and costs to parties of such
arrangements. Clarity on these terms, if contractually binding on either party, is to be expected in a commercial property context.5
[44] Third, I am not prepared to impute to Mr Edney an intention to contract on unqualified implied terms as to fee and period. I accept Mr Edney and Mr Mahon enjoyed a relationship of trust at the time of the December meeting; hence Mr Edney was prepared to pay the deposit on the understanding that the properties would be assigned to him. However, the wider contextual evidence suggests that Mr Edney takes care to specify the terms to protect his investments. The assignment agreements again provide objective verification of this. They show that he was not prepared to purchase the properties without clear, unfettered, title being vested in Waitiri. A person who takes this type of care is unlikely to contractually commit to vague yet binding terms for return of the properties to Mr Mahon.
[45] Conversely, if Mr Mahon intended to bind Mr Edney’s interests to warehouse the properties for a specified or reasonable period and to then sell the properties to Mr Mahon’s interests for a specified or reasonable fee, the assignment agreements would have been the time to make it clear, either in the assignment agreements themselves or in immediately contemporaneous correspondence. Vague allusions to “trust” in subsequent correspondence is not a sufficient basis to read down the clear effect of the assignment agreements or create binding implied terms.6
[46] Fourth, applying orthodox threshold tests for implied terms, a term requiring Mr Edney to settle for an unquantified “reasonable fee” within an unqualified “reasonable period” cannot be sensibly implied.7 The unreasonableness of the alleged implied terms is exemplified by the potential quantum of damages for breach of them.
5 Illustrative of this is the requirement for exactitude in formal dealings with property, see Gulf Corporation Ltd v Gulf Harbour Investments Ltd [2006] 1 NZLR 21.
6 Attorney-General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 (PC) at [26]-[27]. Lord Hoffman notes that an implied term cannot contradict what the parties have expressly said.
7 This aspect was not argued at any length. The prospect of an implied term was only raised in closing submissions, without reference to authority. It has been recently suggested that the question of whether to imply a term is a matter of interpretation: that is whether the term to be implied would spell out what the instrument, read against the relevant background, would reasonably be understood to mean. Attorney-General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 (PC) at [21]. This is to be compared to the framework laid out in BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] UKPC 13 at 10. On either approach, a vague implied term overlaying an already informal arrangement, is not tenable.
The plaintiffs’ now claim damages of more than $5m for alleged breach of implied reasonable terms as to period and/or fee, in respect of a transaction where Mr Edney assumed the major transactional risk by paying the purchase price of $5m. Conversely, Mr Mahon took no transactional risk, other than to forego an opportunity that he was not willing to take via alternative, more expensive, funding arrangements. Such a one- sided result could not have been in the contemplation of the parties in December 2015. A much more likely scenario, one which I prefer on the evidence, was recently captured by the Court of Appeal in GTV Holdings Ltd v Harris:8
Astute self-interest may be the reason the parties left the gap in meaning in the contract in the first place.
[47] Fifth, the cases of reasonable notice to terminate relied on by Mr Mahon are not apposite. He refers to Paper Reclaim Ltd v Aotearoa International Ltd9 and The Power Co Ltd v Gore District Council.10 In the former, the Supreme Court affirmed an implied reasonable notice period to terminate an oral contract of 12 months having regard to the full context – a previously exclusive 16-year relationship processing waste paper. The Court considered that this notice of termination period was sufficient for Aotearoa to take stock of its situation, complete ongoing work under the contract and explore opportunities which might exist for it in the waste paper market or other lines of business. The Power Co Ltd case involved an express agreement to supply electricity in perpetuity. The Court of Appeal rejected an implied term as to reasonable notice termination as it was too vague.
[48] By contrast, the present case is not about termination of a long-standing exclusive contract for services or supply, but the period of a warehousing arrangement under which major risks are assumed, particularly by the warehousing party. While not directly applicable, the observations by the Court of Appeal in The Power Co Ltd on the issue of vagueness resonate in this case. The Court noted, in rejecting an implied term as to notice of termination:11
…. it is uncertain to the point of vagueness. There is nothing in the agreement or the surrounding circumstances to give guidance as to what the parties could
8 GTV Holdings Ltd v Harris [2018] NZCA 95 at [29].
9 Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZSC 26, [2007] 3 NZLR 169.
10 The Power Co Ltd v Gore District Council [1997] 1 NZLR 537.
11 At 551-552.
have contemplated in this regard. What is a reasonable lapse of time? 20 years? 50 years? 100 years? If it is some supervening circumstance or set of circumstances rather than mere effluxion of time which triggers the right, such as an inability to generate sufficient power, the life of the assets being used by the board coming to an end, or the effects of inflation, then it is effectively the doctrine of frustration which is being invoked rather than an inquiry into the true construction of the clause. Furthermore, there is nothing in the agreement, or in the surrounding circumstances, from which the terms of any such inferred provision can be spelt out. In short, the agreement means what it says, and there is no cause to graft words on to it which cannot be justified as coming within the well-established principles relating to the implication of contractual terms. The result is not so incredible that the Court must provide some relief and rewrite the agreement under the guise of construing it.
[49] Sixth, in any event, I also agree with Mr Chisholm, there was no clear breach of the implied terms as to “reasonable” period or price now contended for (even assuming for that purpose the alleged December and May agreements are a suitable proxy). In February, Mr Mahon sent a proposal of 12 per cent interest plus reasonable fee. Mr Edney’s financial advisor, Mr Johnston, offered up market valuation. Mr Edney, also later suggests a unit at cost price. Both proposals are rejected by Mr Mahon. Mr Edney then seeks confirmation of readiness to settle by the end of February. No confirmation is forthcoming. In May, Mr Mahon asserted agreement was reached to purchase the properties for $5.1m plus $200,000 for a vintage car. Mr Edney effectively responded with a proposal to sell the properties for $5.45m, comprising $5.1m plus $350,000 for the vintage car. There is nothing obviously unreasonable about Mr Edney’s stance in February or May. Certainly, there was no cogent evidence to suggest that his offers were commercially unreasonable in context12 or that the period of engagement of six months was unreasonable.
[50] Mr Cooper seeks to make something of the vintage car aspect. He says it was a sham for tax purposes. But, if true, Mr Mahon appeared to be happy to be complicit in it. In any event, whether a sham or not (and nothing I say here should suggest that it was a sham) it does not bear on the cogency of the point that the fee position adopted by Mr Edney was not unreasonable.
12 As noted above, if I understand him correctly, Mr Cooper calculated that the $300,000 payable to the end of February, was approximate to the 15 per cent internal rate. Technically, if Mr Cooper’s evidence from the bar is to be accepted, the price demanded in May was less than the warehousing price payable on the terms of the alleged December agreement.
[51] Mr Chisholm also raises an issue with the lack of any formal notification of the alleged “option to purchase” or offer to settle on clear terms. Ordinarily, the Courts will not enforce a property transaction unless the purchaser notifies the vendor he or she is able to settle on agreed terms.13 Mr Mahon did not offer to settle in this formal way. Mr Cooper, however, referred to authorities where the failure to proffer settlement did not absolve the vendor. These authorities dealt with situations where offering to settle would have been futile.14 Mr Edney’s email in February, imploring Mr Mahon to confirm he was ready to fund the purchase, plausibly suggests he was ready and willing to settle on reasonable terms if Mr Mahon was able to do so. By his actions, he was not. It is a further reason to reject the breach of contract claim.
[52]Accordingly, the claim based on breach of contract is dismissed.
Common Purpose Trust
[53] The common purpose trust claim relies on the same pleaded facts as the breach of contract claim and cannot succeed insofar as the common purpose included transfer on specified terms as to fee. However, Mr Cooper contends it remains available to find a lesser common intention, namely, a common intention that Mr Edney’s company would hold the Park Street properties for Mr Mahon under a warehousing arrangement with the fee to be agreed.
[54] The January assignments return to present a major hurdle to this claim. The existence of a binding common intention to warehouse the Park Street properties for Mr Mahon’s interests is literally inconsistent with a clause affirming that the assignment is free of “any adverse interests”. Notably, the key authorities cited by the plaintiffs (discussed below) did not involve an express, unfettered assignment on such clear terms. Furthermore, as noted above, while the assignments per se do not preclude a common intention to transfer the SPV (because the “adverse interest” clause relates to the “properties” not the shares in the SPV), they are, nevertheless, strong objective
13 Bahramitash v Kumar [2005] NZSC 39, [2006] 1 NZLR 577 at [16].
14 Stewart v Davis CA222/95, 27 November 1995; Messenger v Goodman [2012] NZCA 535;
Official Assignee v Kingston Developments Group Ltd [2016] NZCA 415.
evidence that the parties intended the properties to vest in Mr Edney’s interests on an unfettered basis.
[55] A common intention to afford Mr Mahon a reasonable opportunity to purchase the Park Street properties is, however, made out on the facts for the reasons set out at [23]-[34]. It transpires, nevertheless, I am satisfied, that Mr Edney acted in accordance with this common intention. This claim must therefore also fail. To fully explain my reasons, it is necessary to say something about common intention constructive trusts.
[56] As noted by Mr Cooper, the leading authority on common intention constructive trusts remains Avondale Printers.15 The Court of Appeal, in the caveat proceedings, summarised the key facts and effect of that judgment. I cannot improve on that summary:16
[48] The facts of Avondale Printers can be shortly stated. The plaintiff and the defendants were each tenants of land the owner wished to sell. The plaintiff came up with a plan to develop the site but it was the defendants who made an agreement with the owner to purchase the land. Following discussions between the plaintiff and defendants it was agreed that the plaintiff would be nominated as purchaser under the agreement; a deed of nomination was signed and the plaintiff paid the defendants an amount equivalent to the deposit. The plaintiff, however, ran into difficulty with securing finance for the development. It was therefore agreed that the defendants would complete the purchase of the land, but that the plaintiff would have a pre-emptive right to purchase the land at the end of two years with the formula to fix the purchase price to be worked out. The defendants completed the purchase and repaid the deposit to the plaintiff. Later the defendants disputed that any right of pre- emption had been agreed.
[49] Mahon J found that the deed of nomination had amounted to a valid assignment of the defendants' equitable interest in the land to the plaintiff, so that the plaintiff had become the owner in equity of the land. But he also held that the oral re-assignment of that interest by the plaintiff to the defendants was also effective. Mahon J then reviewed a number of authorities in which constructive trusts have been found, identifying as a connecting link between them a finding of fraud on the part of the person consequentially designated by the Court as a constructive trustee.
[50] The Judge also referred to a line of authorities, culminating (at that time) with the decision of the English Court of Appeal in Bannister. Mahon J said the rationale of “all these decisions undoubtedly is that the transferor would not have parted with his interest in the absence of the oral undertaking given by the transferee”. Mahon J considered these authorities applicable to the case before him. He said:
15 Avondale Printers and Stationers Ltd v Haggie [1979] 2 NZLR 124.
16 Mahon v The Station at Waitiri Ltd [2017] NZCA 387 at [48]
“Where property is conveyed or proprietary rights released in consideration of an oral promise by the transferee that the transferor will retain or later acquire a beneficial interest in the property in question, and where retraction of the promise amounts to a fraud upon the transferor, then the transferee will be held a constructive trustee for the benefit of the transferor of either the whole property or of the relevant interest therein.”
[57] For present purposes, I would, however, add the following observation by Mahon J as central to the present case:17
Where the relationship between the parties, or the terms of the oral agreement, or the terms of a common intention not constituting a completed agreement, are such as to show that the owner of the legal title has not committed any fraud in the legal or equitable sense, then the plaintiff must be left to whatever contractual remedy he may have for breach of the oral agreement, if that is enforceable.
[58]And further:18
Fraud in equity will only arise where in all the circumstances it will be dishonest for the legal owner to rely upon the statute, and that result will most commonly occur when in the words of Lord Diplock in Gissing v Gissing “the legal owner has so conducted himself as to induce the other party to act to his own detriment in the reasonable belief that by so acting he was acquiring a beneficial interest in the land”.
[59] Unlike the facts in Avondale Printers, there was, however, no clear “points of agreement” sufficient to establish an equitable interest in land. 19 Furthermore, I am not satisfied Mr Mahon relied on any promises of the kind made in Avondale Printers when assigning the right to purchase. Rather, as noted, he was simply to be afforded a reasonable opportunity to purchase the properties. Consistent with this, Mr Edney did not at any stage purport to deny Mr Mahon a reasonable opportunity to purchase the properties. On the contrary, the evidence is clear. For reasons already expressed at [49], Mr Edney afforded Mr Mahon a genuine, commercially reasonable, opportunity to purchase the properties over a six-month period and most clearly in February and in May.
17 Avondale Printers & Stationers Ltd v Haggie, above n 16, at 163.
18 At 163 – 164 (citing Gissing v Gissing [1971] AC 886; [1970] 2 All ER 780.).
19 At 135 and 158: “Points of agreement in meeting at Otahuhu” were proven, including a right of “first refusal”, deemed to be an option representing an equitable interest in land.
[60] Mr Cooper also relied on Pallant.20 The facts in that case are mercifully short. Two agents, one for the plaintiff and one for the defendant, agreed that only the defendant’s agent would bid on a property which, if successful, would be divided between their clients on terms to be agreed. Harman J found that the defendant could not deny the existence of the agreement. He refused specific performance and, instead, directed the property to be sold with the profits to be shared between the parties. But, critically in that case, the Court found that the agent purchased the properties on behalf of both parties, with terms to be agreed.21 The defendant was therefore clearly obliged, in equity, to recognise the plaintiff’s interest. By contrast, in this case, the best Mr Mahon could expect was a genuine opportunity to negotiate for the purchase of the properties. He was given that opportunity.
[61] For completeness, I have not lost sight of the obstacles identified by the Court of Appeal in the caveat proceedings to a constructive trust claim over the properties when the ‘deal’ concerned shares not property.22 But, with the benefit of the full evidence, I am satisfied the vehicles were simply a means to an end. Had a breach of an agreement or equitable fraud been established, I would have had little difficulty in following the breach or the fraud through the SPV to the properties or to the proceeds of their sale for relief purposes.
[62] Overall then, there was no fraud in equity: it was not dishonest for Mr Edney to seek, over a period of six months, a commercially reasonable price for the Park Street properties that was at or below market valuation and, in fact, proximate to Mr Mahon’s alleged terms.
Estoppel
[63] For the reasons expressed at length above, this claim must also fail. There was no representation as to a specific outcome. There was only a representation to provide, and reliance on, a reasonable opportunity to purchase the properties (or the SPV), which was given.
20 Pallant v Morgan [1953] Ch 43.
21 At 50.
22 Mahon v The Station at Waitiri Ltd, above n 17, at [57].
Quantum Meruit
[64] I am satisfied that Mr Edney encouraged Mr Mahon to continue to work on the properties in the period December 2015 to July 2016, including his design and consenting work, expecting at that time that Mr Mahon would, in some way, be involved in the development of the properties. That expectation failed but Mr Edney, nevertheless, benefited directly and indirectly from that work. Illustrative of this, Mr Edney received copies of Mr Mahon’s designs for a residential village in January 2016, and recently provided a copy of the same designs to a prospective purchaser. It would be unjust, in my view to permit Mr Edney to benefit from Mr Mahon’s efforts in this period, without reimbursing Mr Mahon for his efforts. I am not, however, satisfied Mr Mahon can claim for work done by him in respect of these properties outside of this period because there is nothing to suggest Mr Edney knew about, encouraged, or otherwise benefited from Mr Mahon’s effort outside of that period.
[65] On the evidence available to me, I am presently unable to quantify the sum owing by Mr Edney. But it should include a sum for costs incurred in respect of the property by Mr Mahon in the period, together with compensation on a time and attendance basis. I therefore direct the parties to confer on quantum, and, failing that, I grant leave to the parties to seek further time to be heard on this issue.
Other issues of fact
[66] Other issues of fact raised by the parties, but have not proven determinative include:
(a)Whether Mr Mahon could fund the purchase of the properties?
(b)What is the quantum of loss for the first three causes of action?
[67] The first issue was relevant in two respects. First, Mr Mahon claimed he did settle in January because it was too late for him to raise funds. Second, Mr Chisholm argued that Mr Mahon was never able to buy the properties, so suffered no loss from any breach of contract, common intention or representation. Both contentions fail on
the evidence. I am satisfied that Mr Mahon could have raised funds through Mr Thirunavukarasu at very short notice. Mr Thirunavukarasu gave evidence that, if necessary, Mr Mahon could source finance up to $10m at very short notice through his company Gleneagle because of the substantial level of collateral (more than $15m) held by Gleneagle on behalf of Mr Mahon. He noted, for example, that circa $6m was sourced at short notice for another development in the Queenstown District at about the time of the Park Street negotiations. I found this evidence to be credible given, among other things, the evidence of finance which was obtained on Mr Mahon’s behalf by Mr Thirunavukarasu through the relevant period. I acknowledge that there was evidence of Mr Mahon’s interests struggling on other projects. But, unlike those projects, the Park Street properties provided ample security for financing purposes.
[68] The second issue only arises on a finding of liability on the first three causes of action. But, for completeness, I prefer the evidence of Mr Jarvis. He based his valuation on the correct assumption that the properties were purchased for development purposes. Any loss recoverable by Mr Mahon should accord with that assumption. By contrast, Mr Collings’ valuation is based on individual sale of residential sites. That was never in the contemplation of the parties and is an unreasonable basis for expectation loss arising from a failed short-term warehousing arrangement.
Outcome
[69] The first three causes of action are dismissed. There was never an agreement, representation or common intention to deal with the Park Street properties on specified terms. Rather, there was an informal understanding Mr Mahon was to be afforded an opportunity to purchase the properties or the SPV holding them. Mr Mahon was afforded that opportunity.
[70] The claim in quantum meruit succeeds in principle. I, however, reserve my position on quantum. Quantum is to be discussed between the parties, with leave granted to be heard further on quantum if necessary.
[71] The defendants should have their costs. Subject to any Calderbank offers, I propose costs on a 2B basis, together with disbursements to be fixed by the registrar, less 10 per cent to account for the success on the quantum meruit claim. I certify for two counsel. Submissions, not more than three pages, may be filed. But, if a party unsuccessfully seeks a different outcome, then costs on the cost memoranda will likely follow.
2
5
1