Murphys Park Development LP v Green City Developments Limited
[2024] NZHC 3572
•27 November 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-2056
[2024] NZHC 3572
IN THE MATTER of Part 18 of the High Court Rules 2016 and the Declaratory Judgments Act 1908 BETWEEN
MURPHYS PARK DEVELOPMENT LP
Plaintiff / Counterclaim Defendant
AND
GREEN CITY DEVELOPMENTS LIMITED
Defendant / Counterclaim Plaintiff
Hearing: 29 October 2024 – 8 November 2024 Appearances:
E St John, S Maloney and D Liu for the Plaintiff / Counterclaim Defendant
J McBride and E A Gambrill for the Defendant / Counterclaim Plaintiff
Judgment:
27 November 2024
JUDGMENT OF BLANCHARD J
This judgment was delivered by me on 27 November 2024 at 3:30 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
Solicitors: Heritage Law (D Liu), Auckland
Loo & Koo (F L Chan), Auckland
Counsel: E St John, O’Connell Chambers, Auckland
J D McBride, Richmond Chambers, Auckland
MURPHYS PARK DEVELOPMENT LP v GREEN CITY DEVELOPMENTS LTD [2024] NZHC 3572 [27
November 2024]
[1] Murphys Park Development LP (MPD) and Green City Developments Ltd (GCD) are carrying out subdivision developments at adjacent properties in Flat Bush, Auckland.
[2] MPD agreed to sell part of its land to GCD. The sale was carried out by way of a boundary adjustment. The parties refer to the land sold as the boundary adjustment land (BAL).
[3] GCD agreed to on-sell the BAL to a third party, Yuhai Zhou. To complete the on-sale to Mr Zhou, GCD needed to obtain a separate title for the BAL. It could not obtain a separate title until a road and services were connected to the BAL. MPD agreed to carry out on its land and at its cost the work necessary to provide the road and services to the boundary of the BAL. This work is referred to by the parties as the “enabling works”.
[4] MPD was required to use “all reasonable commercial endeavours” to construct the enabling works to the boundary of the BAL by an anticipated completion date. MPD carried out the enabling works, but it took much longer than was expected. As a result, the on-sale to Mr Zhou was delayed. GCD says MPD breached its obligation to use “all reasonable commercial endeavours” causing it to suffer loss of around
$2 million.
[5]There are also disputes involving a total of around $900,000 regarding:
(a)Whether GCD is required to pay MPD further interest on an amount that it was required to pay for earthworks that MPD carried out on its behalf. GCD has paid the cost of the earthworks plus interest, but there is a dispute regarding the interest that is payable.
(b)The amount GCD is required to pay for additional earthworks and roading works MPD carried out on GCD’s behalf. Much of the cost has been paid. However, part of the cost, plus interest, remains unpaid. GCD disputes this amount is payable.
The parties and properties
[6] MPD is the registered proprietor of 125A Murphys Road, Flat Bush, Auckland. GCD is the registered proprietor of 125 Murphys Road.
The BAL sale and on-sale agreements
[7] On 22 May 2016, MPD and GCD entered into an agreement for sale and purchase in relation to the BAL. Under the agreement, MPD agreed to sell the BAL to GCD for $2,316,900 (plus GST, if any). The price GCD paid for the BAL did not necessarily reflect its value. The agreement to sell the BAL to GCD was part of a wider agreement between the two landowners.
[8] The BAL was 2.5669 hectares of land as depicted in the plan attached and marked “A”. 125 and 125A Murphys Road are shown in the plan attached and marked “B”. 125 Murphys Road is on the left and 125A Murphys Road is on the right. The BAL can be seen in between them.
[9] In the agreement MPD also agreed to carry out the enabling works to the boundary of the BAL at its cost. The enabling works were described as “including, roads, services, water main, stormwater, sewer, power, gas, telephone line, internet, etc”. The works had to be completed on or before 1 October 2017.
[10]On 14 July 2016, GCD agreed to on-sell the BAL to Mr Zhou for
$11.25 million. Mr Zhou paid a deposit of $7.3 million on the day the agreement was signed.
[11] Under the agreement between MPD and GCD, settlement was to take place five working days after the BAL received a separate title or the BAL was amalgamated into GCD’s land in one title. As explained below, settlement did not occur until March 2018.
[12] Under the agreement between GCD and Mr Zhou, settlement was to occur 10 working days after the BAL received a separate title or on 31 July 2017, whichever was the later date. As explained below, the on-sale did not settle until April 2024.
The Transpower transmission lines
[13] Transpower overhead transmission lines passed through 125 and 125A Murphys Road. In 2016 MPD and GCD and their neighbouring landowners began discussing negotiating with Transpower to have the transmission lines put underground to improve the value of their properties.
[14] On 30 October 2017, MPD, GCD, and two other landowners, entered into an agreement with Transpower under which the landowners engaged Transpower to carry out detailed design and consenting to underground the lines.
[15] On 15 December 2017, Transpower, MPD, GCD, and the other landowners entered into an agreement for the undergrounding of the lines.
The variation agreement
[16] In November 2016, GCD’s solicitors advised MPD’s solicitors that it was “absolutely critical to the development” of the BAL that the enabling works were completed by 1 October 2017. However, later in the same month, MPD’s solicitors advised that MPD would be unable to complete the enabling works by the agreed deadline.
[17] As a result, the parties began negotiating a variation to the sale and purchase agreement. Negotiations began in November 2016 and did not conclude until December 2017. The agreement went through many versions before it was finalised.
[18] The final version of the variation agreement was signed on 7 December 2017. It did not include a fixed date for completion of the enabling works. Instead, cl 1.1 of the variation agreement provided that:
MPD will use all reasonable commercial endeavours to complete the enabling works to the Property by the anticipated completion date provided for in the schedule marked “Appendix 1” to this agreement.
[19] Appendix 1 of the variation agreement clarified the enabling works that MPD was to provide. It said that MPD would provide road access, wastewater, water, and utilities being electricity, gas, and telecommunications to the boundary of the BAL.
[20] Appendix 1 also indicated the anticipated completion date by which MPD was to use “all reasonable commercial endeavours” to complete the enabling works. It contained an Outline Master Programme dated 4 December 2017 for Stage 5 of MPD’s subdivision development of 125A Murphys Road. The enabling works were to be completed as part of Stage 5 of the development. The Programme showed the Stage 5 physical construction works completing on 20 August 2018.
[21] The Programme went on to provide dates for survey plan certification under s 223 of the Resource Management Act 1991 (RMA) (15 October 2018), certification under s 224(c) of the RMA (12 November 2018), and issue of titles (10 December 2018). But these dates related to MPD’s subdivision of its land, not to the BAL.
[22]Clause 1.1 of the variation agreement also provided that:
MPD will keep GCD informed on progress by way of monthly updates and will advise GCD of any changes to the anticipated completion dates. If required by either party, the parties will promptly meet to discuss any matters under this agreement.
[23] Under cl 1.3 of the variation agreement, if MPD did not complete the enabling works by 30 April 2019, then GCD was entitled to instruct a third-party contractor to complete the enabling works at MPD’s cost. Although the enabling works were not completed until well after 30 April 2019, GCD did not exercise this “step in” right.
[24] Under the BAL sale agreement, settlement could occur either by GCD receiving the BAL with a separate title or by the BAL being amalgamated into GCD’s land in one title. By the time of the variation agreement, it had been decided to proceed with the second option. More specifically, GCD was subdividing its property into four super lots and in cl 1.6 of the variation agreement, the parties agreed that the BAL would be conveyed to GCD by it being amalgamated into the super lot that would be adjacent to the BAL when the subdivision was complete.
[25] Under cl 3 of the variation agreement, the parties provided for what they refer to as the “land swap”. Under the clause, GCD had an option to require the land swap for up to 24 months from the date of the finalisation of the location of the underground
transmission lines by Transpower. If GCD exercised the option, MPD was required to carry out the land swap, which was described in cl 3.1 as follows:
The part of the Property marked as B, C and E on the attached plan marked Appendix 3 (which will be purchased by GCD following settlement under the agreement) will be exchanged with that part of MPD’s land marked as B’, C’ and E’ with nil consideration.
[26] The plan that is referred to in cl 3.1, which was Appendix 3 of the variation agreement, is attached and marked “C”.
[27] The land swap option was included in the variation agreement because the route the underground transmission lines were going to take had changed. Originally the lines were going to run along the northern border of the BAL. However, at some point in 2017, Transpower decided to move the lines 22.5 metres to the south. It was this change that caused GCD to want to do the land swap. The effect of the land swap was to move the northern boundary of the BAL 22.5 metres south so that the lines would again run along the northern boundary of the BAL.
[28] It is not clear from the evidence when Transpower decided to move the underground lines to the south. However, there is evidence that GCD was considering the land swap in mid-2017. This indicates that Transpower made the decision to move the lines before that time.
[29] When the variation agreement was signed on 7 December 2017, the parties had yet to sign the agreement with Transpower that was signed on 15 December 2017. It was for this reason that the variation agreement gave GCD the option to carry out the land swap. As at 7 December 2017, it was highly likely that the Transpower agreement would be signed and the undergrounding of the lines would go ahead, but in the unlikely event this did not occur, there would be no need to do the land swap.
[30] As it turned out, the agreement with Transpower was signed on 15 December 2017 and the land swap went ahead.
[31] Under cl 6 of the variation agreement, if the land swap occurred, GCD was required to apply to the Council, at its own cost, for a subdivision consent to effect the
land swap. Further, MPD was required to use its best commercial endeavours to assist GCD to complete the land swap and to procure a freehold title for the BAL.
[32] In cl 7 MPD agreed to carry out, at GCD’s cost, earthworks for the undergrounding of the lines on the BAL. GCD was required to pay MPD for the cost of the earthworks within 10 working days of GCD obtaining a separate title for the BAL or 10 working days after the earthworks were completed, whichever was the later. If the earthworks finished earlier, GCD was required to pay interest at eight per cent per annum to MPD until GCD obtained separate title for the BAL.
[33] In cl 9 the parties agreed that, if GCD did not make payment to MPD for the cost of the earthworks when it was due, penalty interest at the rate of 15 per cent per annum would be payable by GCD to MPD until such time as payment was made.
[34] The parties had agreed that a road, Vista Estate Boulevard, would be constructed along the boundary between MPD’s land and the BAL. In cl 10 of the variation agreement, GCD agreed to pay for the cost of constructing the half of the road that was on the BAL, referred to in the agreement as area D. It was also agreed that GCD would be responsible for vesting of area D in Auckland Council.
[35] Finally, under cl 10.2 it was agreed that when MPD received an invoice from the contractor for constructing the road, it would invoice GCD for its share of the cost (the share of the costs relating to construction of area D). When this occurred GCD was required to pay the invoice within 10 working days. If payment was not made by that time, penalty interest of 15 per cent per annum would be payable.
Occurrence of the land swap and settlement under the BAL sale agreement
[36] There is no evidence that GCD ever formally elected to exercise the option to carry out the land swap. However, what is not in doubt is that the land swap happened in March 2018.
[37] In February 2018, GCD surveyed the BAL. A survey plan showing the new shape of the BAL after the land swap was deposited on 22 March 2018. On the same
date, a new certificate of title was issued for the GCD super lot that was amalgamated to include the BAL. This certificate of title showed the reshaped BAL.
[38]On 6 April 2018, the sale of the reshaped BAL settled.
The effect of the land swap
[39] The land swap had two important consequences that the parties appear not to have appreciated at the time. First, it resulted in what the parties refer to as “the gap”. The gap arose because the enabling works were supposed to be completed as part of MPD carrying out Stage 5 of its subdivision development, but the resource consent that MPD had for Stage 5 did not take account of the land swap. It was intended that MPD would meet its obligation to carry out the enabling works by constructing a road called Picturesque Drive that would run north to south and connect to the northern boundary of the BAL. The problem was that the Stage 5 resource consent did not include the 22.5 metre extension to Picturesque Drive that was necessary to take the enabling works all the way to the boundary of the BAL after the land swap.
[40] The parties appear to have first become aware of the gap in May 2019. Alastair Turnbull (a civil engineer who is the lead consultant engaged by GCD in relation to development of its land) had been chasing MPD to tell him when the enabling works would be completed. On 21 May 2019 Andrew Hunter (an engineer engaged by MPD) emailed Mr Turnbull the survey plan showing the enabling works. The following day Mr Turnbull emailed him back pointing out the gap and saying it was contrary to what the parties had agreed.
[41] Mr Turnbull suggested as a possible solution to the problem of the gap that MPD apply for a resource consent to extend Picturesque Drive by 22.5 metres. However, the solution that MPD ended up choosing was to carry out Stage 5A of its development. Under Stage 5 MPD subdivided its land into four super lots. Under Stage 5A it further subdivided the super lot adjacent to the BAL into 65 residential lots. It also built further roads and, more importantly for present purposes, extended Picturesque Drive down to the boundary of the BAL thereby eliminating the gap.
[42] The second consequence of the land swap was that it meant that the last stretch of the enabling works had to cross through the area through which the Transpower underground lines were to pass (referred to by the parties as the “Transpower corridor”) and over the top of the live lines. Because of the land swap, completion of the enabling works depended on Transpower first completing its works in the Transpower corridor. Transpower did not finish its work until the end of March 2020. MPD says that, as a result, the sections of the enabling works in the Transpower corridor could not begin until at the earliest March 2020. Further, carrying out construction work on top of live underground lines is a tightly controlled activity. This added a layer of regulatory complexity to the enabling works and caused further delay.
[43] The parties only appear to have realised the effect of the enabling works having to cross the Transpower corridor with the benefit of hindsight. There is no evidence that the parties considered the effect this would have at the time the land swap took place.
Delay in completion of the enabling works
[44] The enabling works were not completed by 20 August 2018. The works remained incomplete throughout 2018 to 2020 and carried on into 2021. I will discuss this in more detail below. It is sufficient for present purposes to say that the physical works were not completed until early August 2021. The as-built plans were certified on 6 August 2021.
Delay in settling the on-sale to Mr Zhou
[45] The delay in completion of the enabling works resulted in delay to GCD in being able to settle the on-sale to Mr Zhou. Under the agreement to on-sell the BAL to Mr Zhou, GCD was required to convey the property to him by way of a separate title. Accordingly, GCD needed to subdivide the BAL from the super lot into which it had been amalgamated. In order to do this, GCD needed the BAL to have a road and services connected to its boundary and these needed to be vested in the Council. This was a condition of its resource consent.
[46] Despite the fact that the physical works were completed in August 2021 and the road and services vested in November 2021, GCD did not obtain a separate title for the BAL until 1 March 2024 and it did not settle the on-sale to Mr Zhou until 8 April 2024. GCD also seeks to hold MPD responsible for this further delay.
[47] GCD points in particular to the fact that the Council refused to issue GCD a certificate under s 224(c) of the RMA because of an issue with Vista Estate Boulevard. GCD needed a s 224(c) certificate to obtain a separate title for the BAL. As I have said, Vista Estate Boulevard was the road that was constructed by MPD along the northern boundary of the BAL. The road straddled the boundary, so it was half on MPD’s land and half on the BAL. The issue arose because MPD only vested the half of the road that was on its side of the boundary. The Council informed GCD that it could not issue GCD with a s 224(c) certificate because the half of the road that was on the BAL had not been vested. GCD did not obtain this certificate until 24 November 2023.
The caveat and $1.5 million held in trust
[48] The variation agreement grants each party the right to lodge a caveat over the other’s land. MPD says that the parties always understood that their respective caveats would be released to allow the other to settle sale of subdivided lots as their developments progressed.
[49] In early 2019, GCD lodged a caveat over MPD’s land. In late 2019, MPD asked GCD to release its caveat to allow MPD to settle three agreements for sale and purchase, but GCD refused.
[50] On 28 April 2020, Associate Judge Bell ordered the release of GCD’s caveat in exchange for MPD paying $1.5 million into trust to secure MPD’s obligation to complete the enabling works.1
1 Murphys Park Development LP v Green City Developments Ltd [2020] NZHC 813, (2020) 21 NZCPR 104.
[51] After the enabling works finished in August 2021, MPD sought the release of the $1.5 million. GCD opposed release. It said the money had to remain to secure its claim for damages for breach of cl 1.1 of the variation agreement.
Transpower corridor earthworks and construction of area D invoices
[52] On 25 February 2019, MPD invoiced GCD $903,547.75 (including GST) for Transpower corridor earthworks. GCD did not pay the invoice.
[53] On 31 July 2021, MPD invoiced GCD a further $550,930.03 for additional earthworks and construction of area D of Vista Estate Boulevard. Again, GCD did not pay the invoice.
[54]On 31 January 2024, GCD paid the $903,547.75, plus interest of $350,000.
[55] It did not and has not paid the further $550,930.03 for additional earthworks and construction of area D.
GCD’s claims
[56] GCD claims that MPD breached cl 1.1 of the variation agreement both by failing to use all reasonable commercial endeavours to complete the enabling works by the anticipated completion date and by failing to keep it informed. It claims that, as a result, it suffered loss of $2.1 million.
Whether MPD failed to use all reasonable commercial endeavours
[57]As explained above, cl 1.1 of the variation agreement provided that:
MPD will use all reasonable commercial endeavours to complete the enabling works to the Property by the anticipated completion date provided for in the schedule marked “Appendix 1” to this agreement.
[58] Two preliminary issues arise. First, the clause says that MPD is to complete the enabling works to “the Property”. The issue is what is meant by “the Property”. In the variation agreement it is defined as “the property … described more fully” in the agreement for sale and purchase of the BAL. The BAL as defined in that
agreement has its original shape, that is, the shape before the land swap. Based on this, MPD submits that it had no obligation to complete the enabling works to the boundary of the BAL before the land swap. It was only required to complete the enabling works to the original boundary.
[59] However, I am not sure this is correct. Looking at the variation agreement as a whole, my impression is that the parties intended that if the land swap occurred, MPD would be required to complete the enabling works to the new boundary. This interpretation is consistent with the parties’ subsequent conduct. MPD did in fact construct the enabling works to the northern boundary.
[60] In any event, I do not think that anything turns on this because MPD accepts that it was contractually obliged to complete the enabling works to the new boundary. It says it was required to do this because of a further variation. It says that, by their conduct, the parties varied the variation agreement to require MPD to complete the enabling works to the new boundary.
[61] The second preliminary issue concerns the anticipated date of completion. Specifically, the question is what date was provided for in Appendix 1. As I have explained, Appendix 1 contained an Outline Master Programme for Stage 5 of MPD’s development of 125A Murphys Road. The enabling works were to be completed as part of the Stage 5 development. The Programme showed the Stage 5 construction work as being due to complete on 20 August 2018. Thus, the anticipated completion date for the enabling works is 20 August 2018.
[62] However, MPD submits that the anticipated completion date was 30 April 2019. As I have explained, this was the date after which GCD had the right under cl 1.3 to “step in” to complete the enabling works itself. MPD can point to the fact that in email correspondence Mr Turnbull referred to a deadline of 30 April 2019.
[63] However, in my view, on a proper interpretation of the variation agreement, Mr Turnbull was mistaken about the deadline. The date under cl 1.1 is the anticipated completion date, whereas the date under cl 1.3 is the date after which GCD can “step in”. The two dates do not need to be the same. The anticipated completion date
can be any date as long as it is before the “step in” date. It is clear that the “step in” date was 30 April 2019, but, for the reasons I have explained, the anticipated completion date was the earlier date of 20 August 2018.
The obligation to use all reasonable commercial endeavours
[64] Whether an endeavours clause is enforceable depends on whether the objective and steps needed to be taken to attain it can be prescribed by the Court.2 Here it is not in dispute this is the case.
[65] MPD and GCD both rely on the following concise summary of the law relating to endeavours clauses, which came from the first instance judgment of Gault J in Focus Construction Interiors Ltd v Spaceworks Design Group Ltd3 and was quoted in full by the Court of Appeal in the same case:4
Agreements can impose “endeavours” obligations of [various] strictness – “best endeavours” and “reasonable endeavours” are but two examples. Of course, such an obligation is not an absolute or unconditional obligation. The nature and extent of such an obligation is necessarily conditioned by what is reasonable in the circumstances, which can include circumstances that may affect the obligor’s business. A reasonable endeavours obligation usually does not require the obligor to sacrifice its own commercial interests, unless the contract specifies that certain steps have to be taken. Also, a “reasonable endeavours” obligation may be contrasted with an “all reasonable endeavours” or a “best endeavours” one in that where a number of reasonable courses of action are available to achieve the desired outcome, the obligation probably only requires a party to take one reasonable course, not all of them. [Counsel for Focus] acknowledged that an obligation to use “reasonable endeavours” is less stringent than one to use “best endeavours”.
[66] I doubt that the inclusion of the word “commercial” in the endeavours clause in this case materially changes the meaning of the clause. In a business setting like this one, reasonable steps would ordinarily mean steps that are reasonable from a commercial point of view.
[67] Importantly, when assessing a claim for alleged breach of an endeavours clause, the Court must ask what steps the defendant might reasonably have taken in
2 Fletcher Challenge Energy Ltd v Electricity Corp of New Zealand Ltd [2002] 2 NZLR 433 (CA) at [115].
3 Focus Construction Interiors Ltd v Spaceworks Design Group Ltd [2019] NZHC 2211 at [36].
4 Focus Construction Interiors Ltd v Spaceworks Design Group Ltd [2020] NZCA 269 at [14].
the circumstances.5 GCD has the burden of proof here. It is incumbent on it to specify the steps that it says that MPD should have taken and to explain how those steps would have speed up the works.
Whether MPD breached the obligation
[68] MPD engaged Dempsey Wood to undertake the Stage 5 civil works. Dempsey Wood undertook the works from December 2017 to February 2019. By late February 2019 the enabling works had reached a sediment control pond on the edge of the Transpower corridor and could go no further until the Transpower works were complete. The enabling works did not in fact complete until August 2021.
[69] This took longer than the Outline Master Programme anticipated but it does not necessarily follow that MPD failed to use all reasonable commercial endeavours to complete the work on time. GCD has the burden of proof, and it has not specified the steps that it says that MPD should have taken and explained how those steps would have speed up the works.
[70] There were two factors that were beyond MPD’s control that slowed the work down. First, there were issues in relation to construction of a wastewater line. On 11 May 2018, the Council-controlled organisation Eke Panuku Development Auckland advised that the works could not begin without its approval. It demanded to review the wastewater plans. This triggered lengthy discussions about the position of the wastewater line. Eke Panuku asked for the wastewater line to be revised to fit its proposed development plans. On 31 May 2018, MPD applied for an engineering plan approval amendment to the wastewater line. Approval was granted by Watercare on 6 June 2018. This delayed the start of the wastewater works by almost six weeks and pushed the start of the works into the wet weather season, causing further delay. Still further delays were caused by the Council approval process for new designs taking longer than expected. Even further delays were caused by having to go deeper than anticipated to install the wastewater line. Then, after the work was completed,
5 Stephen v Scottish Boatowners Mutual Insurance Assoc (The Talisman) [1989] 1 Lloyd’s Rep 535 (HL) at 539.
MPD applied for final approval and a certificate of acceptance on 3 December 2018. Watercare was slow in approving the work. It did not do so until 25 January 2019.
[71] The second factor that slowed the work down related to remediation of a landfill. The landfill contained asbestos, and the contaminated material needed to be removed before the enabling works could proceed. The works were due to start on 27 June 2018, but they were delayed because the asbestos removal control plan was not approved by the Council until 6 July 2018 and by Worksafe New Zealand until 17 July 2018. It was estimated that remediation would require approximately 20,000 cubic metres of contaminated material to be removed and disposed of. The works were tendered on that basis. After the works began, the contractor that carried out the work, Sureway Civil, discovered that the volume of contaminated material was much greater than anticipated. 65,572 cubic metres was removed, over three times more than anticipated. The landfill remediation works were further delayed by wet weather and not completed until January 2019, a delay of six months from the expected completion date. No other work could take place in the vicinity while the decontamination works were underway.
[72] The landfill remediation completed in January 2019. MPD then had to backfill the excavated landfill to comply with Transpower’s designs. That took until 5 March 2019.
[73] Transpower then took possession of the site of the enabling works. It had possession of the site for the next year. It did not hand back possession of the site to MPD until the end of February 2020. This year of delay cannot be attributed to MPD.
[74] On 1 March 2020, MPD’s contractor, MC Civil, took possession of the site and began the last stretch of the enabling works as part of Stage 5A of MPD’s development.
[75] The Stage 5A works had been granted a resource consent in December 2019, the engineering plan approval for Stage 5A was granted in January 2020, and the sediment control pond had been removed in February 2020, so these matters did not delay completion of the enabling works.
[76] The enabling works were deemed “priority works” under the MC Civil contact and were completed ahead of the rest of the Stage 5A works. The contract and the meeting minutes record that progress of the priority works was put ahead of everything else.
[77] It took a further 17 months until the enabling works were completed in August 2021. But again, it does not follow that MPD failed to take all reasonable commercial endeavours. Again, GCD has not specified the steps it says that MPD should have taken or explained how those steps would have speed up the works.
[78] Again, there were a number of factors outside of MPD’s control that slowed the work down. Three months was lost due to weather.
[79] Two months was lost due to COVID-19 Level 4 lockdowns. COVID-19 Level 3 restrictions would also have slowed productivity of work. The effect of COVID-19 would not just have been the Level 4 lockdowns and Level 3 restrictions. The direct impact of the virus, with workers becoming sick and having to isolate, would likely have slowed productivity further.
[80] Finally, much time was also lost due to the need for the enabling works to cross Transpower’s live power cables. In August 2020, MPD’s application to cross the live power cables was denied. Transpower required Northpower and Vector to undertake assessments of the proposed path of the enabling works relative to the live cables. Northpower and Vector undertook assessments in September and October 2020. In November and December 2020, MPD updated its designs based on the outcome of the assessments. However, approval for the last stretch of the enabling works was still delayed because Transpower had not issued as-built plans confirming the location of the underground cables. Transpower did not issue its as-builts until 10 February 2021. MPD was not granted final approval for the last stretch of the enabling works to cross the Transpower cables until March 2021.
[81] In summary, the enabling works took much longer than was expected but GCD has not established that the delay was due to failure by MPD to use all reasonable commercial endeavours. Much of the delay was due to factors that were beyond
MPD’s control. To the extent there was delay that was not caused by matters that were beyond MPD’s control, it was incumbent upon GCD to specify the steps it says that MPD should have taken and explained how those steps would have speed up the works, but it has not done so.
Subsequent events
[82] I have said that, despite the fact that the physical works were completed in August 2021 and Picturesque Drive and the services vested in Council in November 2021, GCD did not obtain a separate title for the BAL until 1 March 2024 and it did not settle the on-sale to Mr Zhou until 8 April 2024. GCD also seeks to hold MPD responsible for this further delay.
[83] However, in my view MPD does not have any liability in relation to events after August 2021. GCD’s claim against MPD is under cl 1.1. The clause is concerned with physical completion of the enabling works. As I have explained, the enabling works were completed by August 2021. Once that position was reached, MPD had no further obligation to GCD under cl 1.1.
[84] I have explained that GCD points in particular to delay that resulted from the fact that MPD only vested the half of Vista Estate Boulevard that was on MPD’s land. However, as I have said, GCD’s claim is under cl 1.1 and this is not an issue that could give rise to a claim under that clause. GCD itself said in its closing submissions that this “issue stemmed not from the completion of the enabling works, but from the construction of Vista Estate Boulevard.” Moreover, the half of Vista Estate Boulevard that was on the BAL and was not vested is area D. Clause 10 of the variation agreement provides that GCD is responsible for vesting area D.
Whether MPD failed to keep GCD informed
[85] As I have explained, cl 1.1 of the variation agreement also provided that “MPD will keep GCD informed on progress by way of monthly updates and will advise GCD of any changes to the anticipated completion dates.”
[86] GCD’s claim focusses on the affect that the land swap had on the Outline Master Programme, specifically that it would mean that the anticipated completion date would no longer be achievable. It says that MPD had an obligation to inform it about this. GCD says that MPD had an obligation to inform it about the affect the land swap would have before the land swap occurred and that it continued to have this obligation after the land swap.
[87] At issue is whether the relevant words in cl 1.1 placed an obligation on MPD to inform GCD regarding the affect the land swap would have on the Programme before the land swap occurred. I do not consider that it did.
[88] The first part of the clause (“MPD will keep GCD informed on progress by way of monthly updates”) required MPD to keep GCD informed about progress to-date, not inform it about the future. The second part of the clause (“MPD… will advise GCD of any changes to the anticipated completion dates”) required MPD to advise GCD about the future, but it refers to “changes” not “potential changes”. It only required MPD to advise GCD about changes to the anticipated completion date that had actually occurred, not about changes that might potentially occur, if certain events transpired. Even though, from the time the variation agreement was signed on 7 December 2017, it was highly likely that the land swap would occur, until it actually occurred on 22 March 2018, it was not a matter that might trigger an obligation on MPD to give advice about a change of the anticipated completion date under cl 1.1. To put this another way, MPD did not have an obligation under cl 1.1 to warn GCD about possible future events, including the land swap, that might affect the anticipated completion date.
[89] After the land swap occurred, the position was different. At that time, the land swap had actually occurred. It was therefore a matter that might trigger an obligation on MPD to give advice about a change of the anticipated completion date. However, this could only be if and when MPD itself realised that the previously advised anticipated completion date was no longer appropriate. MPD could not “anticipate” a change to the completion date unless and until it became aware of the effect that the land swap was likely to have.
[90] In its evidence for trial, MPD said that the land swap “dramatically altered the scope” of the enabling works, made the Outline Master Programme “outdated” and made the anticipated completion date in it “completely unrealistic”. GCD says that MPD breached cl 1.1 by failing to disclose these matters. However, it must be kept in mind that the statements in MPD’s evidence were made looking back with hindsight. With the benefit of hindsight, it is clear that the land swap had a major impact on the anticipated completion date. However, things may well have appeared differently at the time of the land swap.
[91] There is no evidence that at the time either party realised the impact that the land swap would have. It appears that neither party turned their mind to the question.
[92] MPD disputes that it failed to keep GCD informed in breach of cl 1.1. MPD acknowledges that its written communications were “sparse”. But it says that cl 1.1 did not require that it inform GCD in writing and the lack of written updates is because GCD’s representatives were frequently on site. They were invited to and did attend site meetings. Also, Mr Turnbull lived on Murphys Road and had a view from his home of the site of the enabling works. Further, GCD was undertaking works on its neighbouring property within sight of the enabling works. MPD also points to the fact that cl 1.1 of the variation agreement also granted GCD the right to call a meeting with MPD at any point to discuss progress of the enabling works. Yet GCD only availed itself of that right a few times over four years.
[93] A major difficulty with GCD’s claim is that, even if MPD did breach its obligation, GCD has not shown that it would have made any difference to the outcome. GCD submits that the “whole point” of MPD’s obligation to keep it informed was to give the parties an opportunity to negotiate alternatives if problems arose. It says that, had MPD informed it that the land swap had made the Programme obsolete and the anticipated completion date completely unrealistic, the parties would have identified solutions to any delays. However, in my view the evidence does not support this submission.
[94] GCD focusses here on what was referred to at trial as the “chimney proposal”. This was an idea that was introduced for the first time near the end of the trial. It was
not referred to in any of the briefs of evidence or opening submissions. It was introduced as part of Mr Turnbull’s oral evidence. No other witness gave evidence about it, although MPD was given the opportunity to recall Clayton McKenzie (a civil engineer who is the lead consultant engaged by MPD in relation to development of its land) but chose not to do so.
[95] The chimney proposal essentially involved reverting to the original boundary in the area where Picturesque Drive intersected the northern boundary of the BAL. When he was in the witness box, Mr Turnbull used a black marker pen to show what the boundary of the BAL would look like under the chimney proposal. The result is attached and marked “D”.
[96] The benefit of the chimney proposal is that it would have meant that it would not have been necessary to extend Picturesque Drive in order to connect the enabling works to the BAL. But I do not think that the proposal provides the answer GCD is looking for. I say this for two reasons.
[97] First, when the gap was discovered in May 2019, Mr Turnbull did not come up with the chimney proposal. Nor did he come up with the proposal at any other time until near the end of trial. The fact that Mr Turnbull only thought of the proposal years later, with the full benefit of hindsight, casts major doubt on whether he would have thought of it at the time.
[98] Second, the proposal could not have occurred without MPD’s agreement. The variation agreement did not give GCD the right to force the proposal on MPD. MPD would have been quite within its rights to refuse the proposal and simply get on and perform its obligation to use all reasonable commercial endeavours to complete the enabling works.
[99] I would add that, because the proposal emerged so late, it was not subject to the full scrutiny at trial that would normally be the case. For this reason, even if I did not have the other concerns I have mentioned, I would have been reluctant to place much weight on it.
[100] In support of GCD’s submission that MPD had a duty to warn it about the effect of the land swap, GCD places evidence on matters Hao (Raymond) Wang, the sole director of MPD’s general partner, accepted under cross-examination. He accepted that MPD had an obligation to tell GCD that, if it went ahead with the land swap, it was going to change the scope and timeline for the enabling works. He also accepted that he should have told GCD that if it implemented the land swap it would have a significant impact on scope and timeline.
[101] Mr Wang’s acceptance of these points shows that he was a fair witness who was subjected to forceful cross-examination. However, MPD’s legal obligation to GCD is a matter of contractual interpretation of cl 1.1 of the variation agreement. Plainly any views expressed by Mr Wang (looking at matters with hindsight many years later) have no bearing on the proper interpretation of the clause.
[102] In summary, MPD had no obligation to warn GCD about the effect of the land swap before it occurred. After the land swap, MPD was obliged to advise GCD about the effect of the land swap, but only when it itself became aware of the effect it was likely to have. The evidence suggests that it was not aware of the effect until well after the land swap occurred. Although MPD did not formally revise the Programme, it may have met its obligation to inform GCD informally. Even if MPD did breach cl 1.1 by failing to advise MPD regarding the effect of the land swap (after it occurred), the evidence suggests that it would have made no difference to the outcome.
GCD’s damages claim
[103] GCD’s claims have failed, but I will indicate how I would have treated GCD’s damages claim had it been successful.
[104] GCD has two alternative loss claims. Both are based on delay that it says that it suffered in being able to obtain a separate title for the BAL and on sell it to Mr Zhou.
[105] One of the loss claims assumes that MPD caused delay of 1335 days from 5 August 2020 to 1 April 2024. This is the loss GCD says it suffered as a result of MPD failing to use all reasonable commercial endeavours to complete the enabling works. I will call this loss scenario one.
[106] The other loss claim assumes that MPD caused delay of 1797 days from 1 May 2019 to 1 April 2024. This is the loss that GCD says it suffered as a result of MPD failing to inform it about the effect of the land swap, thereby denying it the ability to implement the chimney proposal. I will call this loss scenario two.
[107] 1 April 2024 is one week before the sale to Mr Zhou settled. I therefore assume that 5 August 2020 (in loss scenario one) and 1 May 2019 (in loss scenario two) represent the dates one week before the dates that GCD says that it would have settled the sale had MPD not breached its obligations. It is not clear why one week has been chosen when GCD obtained separate title to the BAL on 1 March 2024 (a month before the sale settled) and, under the on-sale agreement, settlement was to take place 10 working days after a separate title was obtained. However, I will put these matters to one side and focus on the bigger picture.
[108] For the reasons given above, I do not consider that the evidence supports the assumptions that underlie either of GCD’s damages calculations. But, for the purposes of the discussion that follows I will assume that the assumptions are valid.
[109] GCD breaks down its claims into two periods of loss. The reason for this is that GCD drew down a loan for five years in 2016 and it repaid that loan in March 2021. The interest rate on the loan was 12 per cent per annum compounding monthly.
[110] The first period of loss relates to the period before the loan was repaid. GCD says that, had the on-sale been able to settle earlier, it would have immediately reduced its debt using the $3.95 million it would have received from Mr Zhou. This, GCD says, would have resulted in the amount of interest that it paid on the loan being reduced by $327,283 under loss scenario one or $1,076,106 under loss scenario two.
[111] The second period of loss related to the period after the loan was repaid. In this period, GCD calculates its loss on two alternative bases. Both are based on applying interest on the sum of $3.95 million for the whole of the period, which is the same under both loss scenarios. The two interest rates that GCD uses are eight per cent per annum compounding monthly and the rate under the Interest on Money
Claims Act 2016 (IMCA). The first interest rate produces a figure of $982,425 and the second produces a figure of $381,191.
[112] Two issues arise in relation to GCD’s damages claim. First, whether the losses claimed are too remote. Second, if the losses are not too remote, what interest rate should apply to the second period of loss.
Remoteness
[113] It is important to recognise at the outset that GCD’s claim is for interest as damages rather than interest on damages. This distinction was explained by the Court of Appeal in Clarkson v Whangamata Metal Supplies Ltd.6 The Court said when a claim for interest as damages is made:7
What is being claimed is compensation for the deprivation of the use of money. That value of that deprivation is quantified by the interest that could have been earned by investing the money, or avoided by retiring debt. The loss is interest-related, but this is only a factual matter rather than a legal classification of the claim. As Oliver J stated in Bushwall Properties Ltd v Vortex Properties Ltd [1975] 1 WLR 1649 at 1660:
[T]he sum so claimed is not in any relevant sense interest itself; it is the sum payable by way of damages for breach of contract.
[114] The ordinary rules as to remoteness of damages apply to a claim for interest as damages. After quoting the well-known statement from Hadley v Baxendale,8 the Court in Clarkson summarised the law:9
Thus Alderson B articulated two possible grounds (or “limbs”) upon which plaintiffs could stake their claim: (1) loss reasonably considered to arise naturally from the breach of contract; and (2) loss that could reasonably be supposed to have been in the specific contemplation of the parties when they contracted. In Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528 (CA) at 539, Asquith LJ distinguished the two limbs as follows. The first limb is dependent on foreseeability of loss arising from knowledge that is imputed to the parties (because they are assumed to have knowledge of the ordinary course of things). The second limb is dependent upon knowledge that, it can reasonably be supposed, the parties actually possessed of matters outside the ordinary course of things.
6 Clarkson v Whangamata Metal Supplies Ltd [2007] NZCA 590, [2008] 3 NZLR 31 at [22]–[24].
7 At [23].
8 Hadley v Baxendale (1854) 9 Exch 341, 156 ER 145 (CE).
9 Clarkson v Whangamata Metal Supplies Ltd, above n 6, at [26].
[115] It is clear since Clarkson that interest as damages may be claimed under either limb of Hadley v Baxendale.10
[116] MPD argues that the losses claimed by GCD are too remote on two grounds. First, the losses are too remote having regard to MPD’s knowledge at the time the variation agreement was signed. MPD says that to satisfy the requirements of remoteness GCD would need to establish that MPD knew, or should reasonably have foreseen, the on-sale to Mr Zhou, that the on-sale required the issue of a separate title for the BAL, and that completion of the enabling works was a condition of the issue of separate title. MPD accepts that it knew about the on-sale to Mr Zhou, but it does not accept that it knew, or should reasonably have foreseen, that the on-sale could not settle until GCD obtained separate title to the BAL or that separate title depended on the completion of the enabling works.
[117] Second, MPD says that the losses are too remote having regard to the quantum of the losses claimed by GCD. MPD could not have foreseen that the losses GCD suffered would be so large.
[118] In my view the losses are not too remote. I do not accept that MPD needed to know the precise way in which delay in completion of the enabling works would cause MPD loss. It knew that it was important to GCD that the enabling works were completed as soon as possible. As I have explained, in November 2016 GCD’s solicitors said it was “absolutely critical to the development” of the BAL that the enabling works were completed by the then deadline of 1 October 2017. As a developer itself, MPD knew, or ought to have known, of the importance of connecting land that is being developed to roads and services. In general, land cannot be developed and on sold without being connected to roads and services. MPD knew, or ought to have known, that GCD would have obtained loan finance to fund the purchase and development of the land and that it would be using the proceeds of sale to repay the loan finance. MPD knew, or ought to have known, that, once MPD had repaid its loan finance, it would be looking to invest any remaining funds in new ventures.
10 At [25]–[36].
Accordingly, MPD knew, or ought to have known, that delay in completion of the enabling works would likely cause GCD to suffer the claimed losses.11
[119] Further, it does not matter that the losses are larger than MPD might have foreseen. If a category of loss satisfies the principles in Hadley v Baxendale, the full amount of the loss will be claimable, even if the quantum of the loss is greater than could reasonably have been foreseen.12
[120] For these reasons, had I found that MPD breached cl 1.1 of the variation agreement, I would not have found that the losses claimed by GCD were too remote.
The interest rate applicable to the second period of loss
[121] As I have explained, the two alternative interest rates that GCD uses in relation to the second period of loss are eight per cent per annum compounding monthly and the rate under the IMCA.
[122] GCD seeks the higher of these two rates under s 18 of the IMCA. This section permits the Court a discretion to award a higher rate if “special circumstances make it inequitable” to award the standard rate under the IMCA. GCD argues that the higher interest rate should apply because the IMCA rate is very low and inequitable in the circumstances. It says that eight per cent compounding monthly represents a fair commercial rate. It says it acknowledges the time value of money in a real-world business setting. It compensates for inflation and lost investment opportunities. It also aligns with the eight per cent per annum interest rate in cl 7 of the variation agreement (although I note as an important difference that simple interest is payable under cl 7).
[123] MPD’s response is that GCD cannot recover the higher rate because it has not pleaded and proven that it has suffered loss at that rate. Accordingly, MPD submits GCD’s loss “by default falls to be calculated” under the IMCA.
11 In Northwest Developments Ltd v Zhang [2020] NZHC 1151 Gault J held, at [82]–[83], that increased borrowing costs, including in relation to second tier loan funding at higher rates, were losses that arose naturally from delay in the sale of a developer’s lots.
12 Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, LexisNexis, Wellington, 2022) at [21.2.3(d)(iv)].
[124] In my view, the IMCA is not directly relevant here. As I have explained, GCD’s claim is for interest as damages, not interest on damages. The IMCA applies to the latter, but not the former. As the IMCA does not apply, GCD cannot seek a higher rate of interest under s 18.
[125] Further, even if s 18 did apply, this is not a case when the Court should depart from the standard rate. I am sympathetic to the submission that the interest rate in the IMCA is low. However, as I have said, s 18 of the IMCA only permits the Court a discretion to award a higher rate if “special circumstances make it inequitable” to award the standard rate. The authorities suggest that it will not often be appropriate to depart from the standard rate.13 In my view, there is nothing special about the circumstances of this case that distinguishes it from many other commercial cases.
[126] A further consequence of the fact that GCD’s claim is for interest as damages, not interest on damages, is that it must plead and prove its claim for damages based on the interest rate it seeks. This is what the Court of Appeal determined in Clarkson.14
[127] GCD has met the pleading requirement. It has pleaded that it has suffered loss calculated at eight per cent per annum compounding monthly. However, it has not proven that it has suffered loss calculated in this way. To prove that it has suffered such a loss, it would have to have called evidence showing that, had the $3.95 million been available, it would have been able to invest the funds throughout the second loss period at the applicable rate. It has not led any evidence of that kind.
[128] In the absence of any evidence of that kind, I accept MPD’s submission that GCD is limited to a claim under the IMCA. As I have explained, the IMCA is not directly relevant because GCD’s claim is for interest as damages, not interest on damages. However, I accept that the IMCA interest rate can be used as a proxy for the loss that GCD suffered as a result of being deprived of the funds.
13 Mo v Yang [2022] NZCA 573 at [88]–[92], and [95]–[96].
14 Clarkson v Whangamata Metal Supplies Ltd, above n 6, at [29] and [37].
[129] For these reasons, had I found that MPD breached cl 1.1 of the variation agreement, I would have calculated the damages claimed by GCD in the second period of loss using the standard IMCA interest rate.
Entitlement to the $1.5 million held in trust
[130] It follows from my conclusions above that MPD is entitled to a full refund of the $1.5 million that is held on trust.
MPD’s claims
[131]MPD makes two claims.
[132] The first is for further interest of $94,362.11 on the sum of $903,547.75 that GCD was required to pay for the Transpower corridor earthworks that MPD carried out on its behalf.
[133] The second claim is for $550,930.03 that GCD has refused to pay for additional earthworks and construction of area D of Vista Estate Boulevard. MPD seeks to recover this amount plus interest.
Whether MPD is entitled to further interest on the sum of $903,547.75
[134] As explained above, MPD invoiced GCD for $903,547.75 on 25 February 2019. GCD did not pay the invoice until 31 January 2024. When it paid the invoice, it paid the principal plus $350,000 of interest. The interest was calculated using an interest rate of eight per cent per annum. MPD says that interest should have been paid at 15 per cent per annum after 30 September 2022, which is the date that MPD says GCD should have obtained a separate title to the BAL. MPD calculates the interest that is payable (as at 8 November 2024) as $94,362.11.
[135] As I have said, under cl 7 of the variation agreement, GCD was required to pay MPD for the cost of the earthworks within 10 working days of GCD obtaining a separate title for the BAL or 10 working days after the earthworks were completed, whichever was the later. If the earthworks finished earlier, GCD was required to pay interest at eight per cent per annum to MPD until GCD obtained separate title for the
BAL. Further, under cl 9, the parties agreed that if GCD did not make payment to MPD for the cost of the earthworks when it was due, penalty interest at the rate of 15 per cent per annum would be payable by GCD to MPD until such time as payment was made.
[136] MPD says that GCD became liable for interest at 15 per cent per annum after 30 September 2022 because this is the date that MPD says GCD should have obtained a separate title to the BAL. However, the trigger in cl 7 is when GCD obtained a separate title for the BAL, not when it ought to have been able to do so.
[137] It follows that GCD was only required to pay interest at 15 per cent per annum 10 working days after it obtained separate title for the BAL. It did not obtain the separate title until 24 November 2023. It follows that MPD is only entitled to interest at 15 per cent per annum from 7 December 2023.
How much GCD is required to pay of the sum of $550,930.03
[138]In GCD’s evidence for trial, it accepted liability for most of the invoice for
$550,930.03. It now only disputes that it should be liable for $113,956.62. This is the cost of filling in the sediment control pond.
[139] The sediment control pond was created as part of the Transpower earthworks. The earthworks included the landfill remediation works. It was a condition of the resource consent that a sediment control pond be created. It was created by converting an existing farm pond. The reason the farm pond was used was because it was the most efficient and cheapest way to create a sediment control pond. Once the landfill remediation works were complete the sediment control pond was filled in.
[140] The sediment control pond was outside of the Transpower corridor. It was on MPD’s land, in the pathway of Picturesque Drive, close to the BAL.
[141] GCD argues that it should not have to pay for the cost of the sediment control pond being filled in because, as it was in the pathway of Picturesque Drive, MPD was required to fill it to complete the enabling works.
[142] In my view, GCD is required to pay the cost of filling in the sediment control pond. The creation and filling in of the sediment control pond was part of the earthworks that GCD was required to pay for, not the enabling works that MPD was required to pay for. The sediment control pond had already been filled in as part of completion of the earthworks before construction of the relevant part of Picturesque Drive commenced in order to complete the enabling works.
[143]GCD is therefore required to pay the full amount of $550,930.03.
[144] MPD seeks interest at 15 per cent per annum on the whole of the $550,930.03. However, while it is entitled to interest at that rate in relation to the cost of construction of area D under cl 10 of the variation agreement, for the reasons I have explained above, until 7 December 2023 it was only entitled to interest at eight per cent per annum in relation to the earthwork costs. MPD will need to provide an interest calculation that separates the earthwork costs from the costs of construction of area D and calculates the interest on the two amounts separately at the applicable rates.
Result
[145]I dismiss GCD’s claims. I enter judgment for MPD in relation to those claims.
[146] I order that the sum of $1.5 million held on trust, plus any interest that has accrued on it, be paid to MPD.
[147]I uphold MPD’s claim for interest at 15 per cent per annum on the sum of
$903,547.75, but only after 7 December 2023. The amount of interest that is payable will need to be recalculated in light of my conclusion.
[148] I uphold MPD’s claim for $550,930.03 plus interest, but the amount of interest that is payable will need to be recalculated in light of my conclusion that MPD is only entitled to interest at 15 per cent per annum from 7 December 2023 in relation to the cost of constructing area D.
Interest and costs
[149]If the parties cannot agree on interest and costs, I direct that:
(a)MPD is to file and serve a memorandum of no more than five pages within 20 working days of this judgment; and
(b)GCD is to file and serve a memorandum of no more than five pages within a further 10 working days.
[150]I will then deal with interest and costs on the papers.
Blanchard J
“A”
“B”
“C”
“D”
0
6
1