Northlake Investments Ltd v Wanaka Medical Centre Ltd

[2019] NZHC 3443

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE

CIV-2018-059-000088

[2019] NZHC 3443

BETWEEN

NORTHLAKE INVESTMENTS LIMITED

Plaintiff

AND

WANAKA MEDICAL CENTRE LIMITED

Defendant

Hearing:	29 October – 1 November, 4, 5 November 2019
Appearances:	J W A Johnson and G D Simms for Plaintiff M H L Morrison and J A Zwi for Defendant
Judgment:	19 December 2019

JUDGMENT OF OSBORNE J

This judgment was delivered by me on  at

pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

NORTHLAKE INVESTMENTS LIMITED v WANAKA MEDICAL CENTRE LIMITED [2019] NZHC 3443
[19 December 2019]

Introduction................................................................................................................................................... [1]

Dealings between the parties

Initial discussions..................................................................................................................................... [4]

Meeting in mid-August 2016 between Mr Meehan and Dr McLeod............................................... [5]
The Heads of Agreement of 29 September 2016............................................................................... [10]

Planning and design discussions to 19 October 2016..................................................................... [22]

Collaboration and consultation on design and planning of the building.................................... [38]

Northlake/The Skin Studio negotiations............................................................................................ [49]

Northlake provides proposed commercial terms to WMCL............................................................ [55]

Northlake’s information and proposals on 22 September 2017..................................................... [59]
Northlake’s proposals to other tenants............................................................................................... [65]

WMCL’s reaction to Northlake’s 22 September 2017 proposal..................................................... [67]

Northlake’s information and proposals on 27 November 2017..................................................... [72]

The intentions of the parties until November 2017.......................................................................... [78]

Any expectations of the parties in relation to reimbursement........................................................ [84]
The meeting on 28 November 2017.................................................................................................... [92]

True ultimatum or bluff/negotiating ploy?...................................................................................... [101]

A “clash of cultures”?........................................................................................................................ [108]
The possibility of pursuing discussion with Mr Bretherton.......................................................... [109]

Opportunity for WMCL to advise Northlake of its rental expectations...................................... [111]

The numbers are re-cast...................................................................................................................... [117]
The thinking of Dr McLeod and Dr Feeney.................................................................................... [123]

A “very useful and positive meeting”............................................................................................... [133]

WMCL takes advice on Northlake’s terms....................................................................................... [135]

WMCL’s decision at its 13 December 2017 board meeting.......................................................... [141]

WMCL’s withdrawal from negotiation............................................................................................ [144]

WMCL’s and Northlake’s subsequent actions................................................................................ [155]

First cause of action – breach of contract (HoA)

Northlake’s pleading........................................................................................................................... [157]

WMCL’s defence.................................................................................................................................. [158]

Northlake’s position at trial............................................................................................................... [159]

Second cause of action – breach of contract (HoA)

Northlake’s pleading........................................................................................................................... [163]

WMCL’s defence.................................................................................................................................. [167]

Discussion – co-operation on design............................................................................................... [168]
Discussion – co-operation (good faith in negotiation of terms).................................................. [171]

Third cause of action – estoppel.......................................................................................................... [182]

Northlake’s pleadings......................................................................................................................... [182]
WMCL’s pleading................................................................................................................................ [185]

Discussion – the abandoning of intention in December 2017  [186]

Discussion – the parties’ “representations”................................................................................... [192]

Fourth cause of action – quantum meruit....................................................................................... [206]

Northlake’s pleading........................................................................................................................... [207]

WMCL’s pleading................................................................................................................................ [208]
The law relied upon by Northlake.................................................................................................... [209]

The law relied upon by WMCL.......................................................................................................... [219]

Submissions for Northlake on the facts - discussion..................................................................... [220]

Submissions for WMCL on the facts................................................................................................. [228]

Quantum meruit in inconclusive negotiation cases – the law  [229]

A...... Request for or free acceptance of services (as a substitute for enrichment or benefit) [235] B       Risk allocation – agreement expressly “subject to contract”............................................................... [236]

CExtent of risk undertaken by plaintiff (expressly or impliedly)......................................... [241]

DWhether such services would normally be given free of charge....................................... [243]

EAcceleration of the project...................................................................................................... [244]

FAccelerated performance of anticipated contract or work towards obtaining and performing the contract? [246]

G“Fault”/abandonment of project for unrelated reasons.................................................... [248]

HThe justice of relief................................................................................................................... [257]

Application of the law......................................................................................................................... [260]

Outcome on application of law......................................................................................................... [266]

Costs............................................................................................................................................................ [268]

Orders......................................................................................................................................................... [270]

Introduction

[1]                   Northlake Investments Ltd (Northlake) is part of a property development structure known as the Winton Group established by Chris Meehan. Mr Meehan, as well as being a director of Northlake, has been and remains its Chief Executive Officer. Northlake has been engaged in an eponymous development in Wanaka.

[2]                   The defendant, Wanaka Medical Centre Ltd (WMCL) is a medical practice established in the Cardrona Valley near Wanaka.

[3]                   Northlake planned a residential and commercial development. Its plans involved a hub-based approach with a medical practice as an anchor for other health- related services referred to by Northlake as the “Healthcare Hub”.

Dealings between the parties

Initial discussions

[4]                   Discussions began between Northlake and WMCL in early May 2016. Central in those discussions were Marc Bretherton, Northlake’s “General Manager Wanaka”, responsible for all aspects of the Northlake development, and Dr Andrew McLeod of WMCL. Doctors in another medical practice, Aspiring Medical Centre Ltd, had also expressed interest in taking space at Northlake, but would have preferred to be a buyer of land rather than a tenant. By August, Mr Bretherton had settled upon WMCL as Northlake’s preferred potential tenant.

Meeting in mid-August 2016 between Mr Meehan and Dr McLeod

[5]                   The only evidence in relation to that meeting was given by Dr McLeod who said:

13.In mid-August 2016, I met with the CEO and director of NIL, Chris Meehan at his property in Arrowtown. I had prepared quite thoroughly for this meeting and was ready with the proposal for WMCL. At the meeting, I presented the proposal that WMCL wanted to lease the space to run a 9 to 5 urban GP practice. Mr Meehan told me that NIL was looking to let the medical tenancy rather than sell it, so leasing to WMCL was more attractive than AMCL's purchase proposal.

14.At the meeting, Mr Meehan and I discussed how WMCL might help NIL both in promoting the development and in assisting with the design of the proposed medical centre. I said that WMCL would be happy to do this but that in return it would expect a soft rent, at the very least initially, for the following reasons:

14.1First, because WMCL would be giving NIL the valuable benefit of our considerable experience and knowhow in the requirements of a general medical practice and particularly in designing and building a new practice;

14.2Second, because a medical practice would be an attraction to other potential tenants in the Village Centre and to purchasers in the wider residential development; and

14.3Third, because WMCL would be taking a risk as to what patient numbers the new development would generate, and when. For example, if the Northlake residential lots ended up being sold to holidaymakers, rather than permanent residents, these people could not enrol as patients.

14.4Fourth, there was also uncertainty as to when the residential development would be complete and a 'soft rent' at least initially, would reduce the risk through the early years of the development.

15.Mr Meehan acknowledged the points I made as to WMCL needing a soft rent but said we could sort these details out later when it came to discussing and agreeing the commercial terms.

[6]                   Mr Meehan was not called to give evidence for Northlake with the result that there was no oral evidence to contradict Dr McLeod’s evidence of the content of their mid-August discussion. There is nothing elsewhere in the record to indicate that Dr McLeod’s recollection of that meeting was mistaken or misrepresented. It was not suggested to Dr McLeod in cross-examination that any aspect of his evidence in relation to the mid-August meeting was incorrect. It makes practical sense that Dr McLeod would have been concerned to seek a “soft rent” for the initial period of any tenancy, upon the basis of the various matters which he stated he raised with Mr Meehan.

[7]                   I find Dr McLeod’s evidence in relation to that meeting to be a reliable narrative of the meeting.

[8]                   It was agreed that the parties would move to having a heads of agreement, which Mr Bretherton was to have prepared, having regard to bullet points provided by Dr McLeod on 11 August 2016.

[9]                   WMCL had recent experience of having its own medical centre in the Cardrona Valley designed and built. The Cardrona Valley premises are substantially larger than those it envisaged at Northlake. The discussions between Northlake and WMCL leading to the agreement in the Heads of Agreement (HoA) to collaborate and consult in the design and planning of the building were against the background that WMCL had significant knowledge to bring to the design and planning process. Northlake’s own selected architects had not previously designed a medical centre.

The Heads of Agreement of 29 September 2016

[10]               Mr Bretherton prepared a heads of agreement. He thinks it was by reference to a precedent provided by Northlake’s solicitors, Bell Gully. Mr Bretherton provided his draft HoA to one of the Winton Group’s in-house counsel, Deanna Clark, on 14 September 2016 for her review. (The Winton Group employs a number of in-house counsel).

[11]               The terms of Mr Bretherton’s draft HoA are set out in the Schedule. (I exclude from Schedule A the document of “proposed tenancy terms” which was not populated with any detail).

[12]               On 19 September 2016 Ms Clark emailed to Mr Bretherton amendments to his draft HoA, in the form of a marked-up further draft. Ms Clark’s amended draft HoA (excluding her schedule) is set out in Schedule B.1

[13]               Ms Clark’s amendments (relevant to the issues which arose in this proceeding) included:

(a)the addition of “Subject to Contract” in the heading of the document;

1      Ms Clark’s marked-up draft HoA highlighted amendments in colours, those colours are not reproduced in this judgment.

(b)the addition of “subject always to a formal agreement to lease and development being entered into” (third bullet point); and

(c)the addition of a concluding clause under a heading “Form of Agreement to Lease/Lease” which stated that the HoA was not a legally binding document.

[14]               On 19 September 2016 Mr  Bretherton  emailed  Ms  Clark’s  draft  HoA to Dr McLeod for his “review/comment”.

[15]               Dr McLeod provided written comments on 22 September 2016. He observed that the substance of the HoA reflected the intentions as WMCL understood them. He identified things WMCL would like to see in the agreement, being:

(a)A reference to the ADLS lease document (this being a reference to the Deed of Lease) as the future lease document.

(b)The ability to sublet space (with a physiotherapy practice in particular in mind).

(c)WMCL’s desire to have the option on a lease until December 2016 given that WMCL wanted some exclusivity.

[16]               On 23 September 2016 Mr Bretherton replied to Dr McLeod, attaching a further-amended version of the HoA. Mr Bretherton explained that the further amendments somewhat “tightened up” the draft HoA. In particular, he had included:

(a)Reference to the ADLS form of lease as the likely basis of the lease.

(b)Express provision for subleasing.

(c)And the comment: “I have drafted in exclusivity until 31 March 2017. We will be sufficiently advanced with design, and will need to have lease agreed well before by then.”

[17]               The “exclusivity” provision, under the heading “Northlake Investments will:” reads: “Provide WMC with an exclusive option to lease until 31 March 2017”.

[18]               Dr McLeod immediately notified Mr Bretherton that he should proceed to the “full version” of the HoA.

[19]               Mr Bretherton arranged execution by Northlake of the finalised version of the HoA. The HoA was signed for Northlake by Sarah Maguire, a solicitor with Cruickshank Pryde (one of the law firms providing legal services to Northlake). Execution of  the  document  was  beyond  Mr  Bretherton’s  delegated  authority. Mr Bretherton then forwarded the HoA to Dr McLeod for execution. Dr McLeod executed it for WMCL on 29 September 2016.

[20]The HoA, as executed, is set out in Schedule C.

[21]               In the meantime, Northlake had entered into separate discussions with Ian Jurczyluk of Wanacare Pharmacy Ltd (Wanacare) as a further potential tenant in the Healthcare Hub. Northlake and Wanacare signed an HoA dated 11 October 2016, in the same form as the WMCL HoA (with necessary modification). Northlake continued thereafter to use the same-worded HoA for other prospective tenants. For instance the same form of HoAs were entered into between Northlake and The Fit Collective Ltd (a gymnasium operator) in March 2017; and between Northlake and The Skin Studio in August 2017 (see below at [49] – [54].

Planning and design discussions to 19 October 2016

[22]               Following execution of the HoA, Northlake commenced detailed design of the Healthcare Hub. It involved a number of consultants including, as project manager, Michael Breuker of Resource Co-ordination Partnership Ltd (RCP) and, as architect, James Wallace of Studio Pacific Architecture (SPA). Northlake’s consultants had direct discussions with WMCL concerning the Healthcare Hub development.

[23]               Mr Breuker of RCP was to co-ordinate discussions and planning for Northlake. He did so against the background of a briefing document drawn up by the architect, Mr Wallace, who had in turn met in September 2016 at the Cardrona Valley Medical

Centre both Dr McLeod (of WMCL) and Ian Jurczyluk (of Wanacare Pharmacy). Northlake’s discussion with WMCL came to focus on the possible of a 400 m2 tenancy for WMCL.

[24]               Mr Breuker organised a meeting of the “project team,” WMCL staff and Mr Jurczyluk, to take place on 19 October 2016. Before the meeting he circulated a “project team strategy meeting agenda” which had six headings (introduction/project overview; design; consultant engagement; budget/cost; programme; general/any other business).

[25]               Northlake for its budgeting and costing purposes had engaged Tony Tudor of Rider Levett Bucknall Otago Ltd (RLB) (quantity surveyors). Mr Breuker’s agenda provided under “budget/cost” that Mr Tudor was to discuss at the meeting:

(a)Current market rates for commercial development.

(b)Initial thoughts on cost and budget (given aspirations and design ideas presented).

(c)Other factors to be aware of.

[26]               The meeting took place on 19 October 2016. Mr Breuker produced a six page Minute of the meeting.

[27]               Those attending were Mr Bretherton (for Northlake); Dr Julian Pettit and    Dr Mark Feeney with Jan Gillespie (for WMCL); Mr Jurczyluk (of Wanacare); Mr Breuker and Ant Beale (of RCP); Mr Wallace (of SPA) and Mr Tudor (of RLB). Dr McLeod was out of town and did not attend. The Minutes were distributed immediately afterwards to all who attended and to Dr McLeod and Mr Meehan.

[28]               The Minutes recorded that the initial concept for the floor plan of WMCL’s space was 400 m2.

[29]               Dr Feeney gave evidence, which I accept, that at the 19 October 2016 meeting there was a lot of discussion by the Northlake personnel about costs and the importance of keeping costs under control.

[30]               Dr Pettit asked when commercial terms would be available and said that WMCL would need those before anything concrete could be agreed.

[31]Under “BUDGET/COST” the Minutes record:

High Level Budget

to be provided for meeting on 02/11/16. Costs will be able to be sharpened as the design is clarified beginning with provision of information [relating to concept design]…

[32]               The Minutes recorded that the provision of a high level budget was for action by Mr Tudor.

[33]               Following the meeting, and against the background of the general costing discussions, the WMCL personnel reviewed  their  thinking  about  premises  size. Dr Feeney emailed Mr Wallace (of SPA) on 26 October 2016. He referred to the previous week’s meeting and commented (above a sketch of a possible floor plan):

A bit like Marc [Bretherton] we felt we may have to reduce the overall size and we are wondering if you could give us the option of 350 m2 & 400 m2.

[34]               Northlake assembled its second project team strategy meeting on 17 November 2016. WMCL personnel and Mr Jurczyluk were again invited to attend, the last time the WMCL personnel and Mr Jurczyluk attended such a meeting. Dr Meehan attended as did Jan Gillespie, WMCL’s practice manager. One agenda item (of many) was the floor plan for the medical centre in the Healthcare Hub (the floor plans for the pharmacy and a further potential tenancy being separate items). Other items, under “BUDGET/COST” included “Cost Concerns” and “Projected Rents”.

[35]               Shortly before the meeting, Mr Tudor had completed a paper which he called an “Order of Cost Estimate” for the “Northlake Health Precinct”. The estimate was based on a building of 900 m2. Mr Tudor recorded the estimated net cost (that is, exclusive of GST) as $5,200,000. Mr Tudor, in the paper, did not identify land cost as

a cost to be recovered in his “Cost Estimate”. The evidence, while a little unclear, indicated that Mr Tudor’s estimate was at least tabled at the meeting.

[36]               The minutes kept by Mr Breuker record that the floorplan for the medical centre had been revised from the initial concept to allow in reduction in overall size of 50 m², with changes to the staff and toilet areas as well as reductions to the number of consulting and treatment areas. Further feedback was to be sought on those matters.

[37]               A significant portion of the meeting was taken up with discussions regarding the estimates and costs. Dr Feeney described Mr Meehan as taking at the meeting “a very firm stance on costs”. I accept Dr Feeney’s evidence which is consistent with the minutes kept. Mr Meehan emphasised to everyone in the room that costs needed to be managed firmly as they would be passed on to the tenants. There was discussion of the need to refine the design both as to materials and construction methodology in order to keep costs down. Mr Meehan emphasised that Northlake wanted to achieve a high quality build but within a budget that allowed rentals to be palatable to tenants. Mr Meehan indicated that Northlake was wanting a 5 per cent return on investment. Dr Feeney recalls, and I accept, that the Northlake personnel indicated that they were not ready to present specific commercial terms to each tenant with the result that discussions with tenants regarding rents would be held outside the forum of the project team meetings.

Collaboration and consultation on design and planning of the building

[38]               As envisaged by the parties, after the initial two meetings on 19 October and 17 November 2016 which involved WMCL’s personnel, Northlake’s project team conducted its various design meetings over the ensuing year in the absence of WMCL personnel. Members of that team consulted with WMCL in between times as to needs and plans but did not involve WMCL in the meetings themselves or the decisions taken at those meetings. The decisions were Northlake’s.

[39]               Northlake also maintained (on an Excel spreadsheet) a breakdown of costings as the design and planning progressed. This enabled Northlake’s team from time to time to be aware of (forecast) increasing costs and the extent to which costs appeared to be increasing beyond what Northlake might consider satisfactory. Northlake’s

concerns over its costings arose at an early point following the project team meeting with WMCL (on 17 November 2016). Northlake did not make the spreadsheet information available to WMCL.

[40]               On 24 November 2016 Mr Bretherton reported to Mr Meehan by email with a “first cut for your initial review”. Mr Bretherton commented: “It’s fairly simple at present and the numbers look horrible. Working with design and QS to drive costs out of it”.

[41]               Apart from the initial general discussion about likely costs at the 17 November 2016 meeting (which led to the reduction of the originally conceived 400 m2 concept to 350 m2), WMCL were not brought into subsequent costs discussions (such as Mr Bretherton’s 24 November 2016 email). WMCL was not to learn of Northlake’s summarised costs of development until when Northlake sent WMCL (incorrect) costings together with proposed commercial terms 10 months later on 22 September 2017. In the meantime, Northlake’s team in Wanaka had sought in various ways to tackle the level of budgeted costs. As an example, Lauren Christie, Project Manager of the Northlake development (aware that Northlake’s costs were tracking “over-budget” in early-April 2017), required every member of the project team to bring at least two cost-reduction ideas to the next project team meeting. While discussions of that nature continued within the project team, they were not shared with WMCL.

[42] WMCL awaited receipt from Northlake of the proposed commercial terms which would then enable the parties to try to negotiate in order to establish acceptable terms of lease. On a number of occasions (referred to at [55] below) Northlake advised WMCL that it expected soon to be able to provide draft commercial terms for consideration. The subsequent delays in Mr Bretherton’s doing that were caused at least partly by changes in personnel at Northlake and, in Mr Bretherton’s evidence, the performance of at least one of Northlake’s personnel.

[43]               Northlake’s CEO, Mr Meehan, had little or no direct role in the project’s progress after his attendance at the second meeting on 17 November 2016 when Northlake’s expectation of a 5 per cent return on investment was discussed together

with potential reduction of WMCL’s proposed floor area to 350 m2 as a means of producing a sustainable rent for WMCL. The evidence indicates that after 17 November 2016 Mr Meehan generally left the progress of the project at Northlake to Mr Bretherton and his team (until a forceful intervention on 4 September 2017).

[44]               Unknown to WMCL, Mr Meehan became more directly involved in the project again on 4 September 2017. The Northlake team were at the point of presenting letters to prospective tenants setting out projected costings and proposed commercial terms. It appears at that point Mr Meehan responded to a “Northlake Village Centre revised feasibility [report] dated 4 September 2017”, provided by Jane George of Northlake.2 Mr Meehan’s email communication reads:

Between you all, I have more than $1m/ann of management cost, which you will appreciate is considerably more than the rent to come out of these buildings. Never mind the additional consultant cost that comes with it.

Between you, I expect to receive information in coherent, accurate and easy to understand form. I am honestly yet to receive this in all of the numerous phone meetings we have had on this project. For all the time and money that has gone into this project thus far, I am more than a bit miffed that you guys have not yet agreed commercial terms with the tenants, and in most cases, still haven’t even worked out what the hell those commercial terms should be.

It is certainly not my job to get involved in the minutia to do this for you.

Get this sorted out please once and for all so we can go forward with this project with some certainty.

If the next package of information is not accurate, complete and coherent, you have my assurance that I will completely lose it. The letters to the tenants need to be well thought through, understandable and straight to the point.

I look forward to seeing this. Chris.

[45]               By that point (4 September 2017) Northlake had submitted a resource consent application to the Queenstown Lakes District Council, expected to receive consent by December and was planning to start building on site before Christmas 2017.

[46]               Following Mr Meehan’s intervention, Ms George who  had  substantially been managing the Healthcare Hub design process for Northlake abruptly left the

2      The 4 September 2017 report in question does not appear to have been produced in evidence.

organisation. Mr Bretherton deferred a meeting which had been planned to take place with WMCL in early September, explaining to WMCL that he needed to become involved in the project management again and to “come up to speed”.

[47]               Mr Bretherton began to draft letters to WMCL and other prospective Healthcare Hub tenants. Each letter was to contain a summary of budget costings and a schedule setting out the principal terms proposed by Northlake. Mr Bretherton finalised and sent such correspondence to each of the prospective tenants, including WMCL and Wanacare on 22 September 2017.

[48]I return to Northlake’s 22 September 2017 proposals from [59] below.

Northlake/The Skin Studio negotiations

[49]               Dr Feeney, a doctor at WMCL who (with two other doctors) also became a director of WMCL on 11 October 2016 (and attended both the September and October 2016 meetings), had in another capacity a discrete involvement with Northlake in the period which is the subject of this proceeding.

[50]               Dr Feeney is the sole director of The Skin Studio Ltd, a specialty appearance medicine clinic. The Skin Studio is a tenant alongside WMCL in the Cardrona Valley premises.

[51]               In April and May 2017 Dr Feeney (while actively involved on behalf of WMCL in relation to the planning for WMCL’s intended Northlake premises) entered into discussions with Mr Bretherton about tenancies for The Skin Studio and two other healthcare professionals (an audiologist and a skin cancer doctor).

[52]               Dr Feeney and Mr Bretherton met on 2 June 2017 to discuss The Skin Studio’s interest. Dr Feeney gave evidence that the two discussed what the rent might look like and that Mr Bretherton said he expected it to be about $300 per square metre per year. Later in his evidence Dr Feeney stated that Mr Bretherton had indicated to him that the upper range of rent would be “in the 300’s per square metre”. This reference to “in the 300’s per square metre” is consistent with an email report made by Mr Bretherton at the time in which he referred to his discussion as having mentioned the

same range. Dr Feeney subsequently had discussions with Ms George as to fitout and design options for The Skin Studio. Ms George then sent a draft HoA to Dr Feeney for consideration – it was in materially identical terms to that which WMCL had received from Northlake and signed. Dr Feeney recalled the discussions previously had between WMCL and Northlake as to the nature of the HoA and was happy to sign the HoA, on that basis.

[53]               Dr Feeney, who impressed as a careful man, returned the signed HoA to Ms George by email, on 14 August 2017 stating:

I have signed the heads of agreement and returned this to you in order to keep things moving forwards. As we previously discussed my understanding is that this is non binding and there is no break fee at this stage as we have not discussed figures as yet. We were also going to review the plans as it was not clear how the back corridor would affect the tenancy proposed.

Have you heard back from Brian Wills yet?

[54]               Ms George replied by email. She stated: “I can confirm that the agreement is non-binding and is to show intent between the parties”.

Northlake provides proposed commercial terms to WMCL

[55]               Following the execution of the HoA, Northlake gave WMCL a series of indications of imminent provision of proposed commercial terms which Northlake did not subsequently achieve:

(a)On 30 November 2016, an email  statement  by  Mr  Bretherton  to Drs McLeod and Feeney that he aimed to have some commercial terms through to them for discussion based on costs to develop/fit out the medical practice within “[the] next few days”.

(b)On 31 January 2017, Mr Bretherton by email advised both Dr McLeod and Mr Jurczyluk that the Northlake team had doubled in size, that Northlake was focused on pricing the builds, and he hoped to be back to Dr McLeod and Mr Jurczyluk with commercial terms for discussion “in the next short while”.

(c)On 22 June 2017 Mr Bretherton had received from WMCL’s solicitor, Andrew Lovelock, comments on draft lease documentation provided by Northlake for WMCL’s review. Mr Lovelock had observed that it was difficult to provide comments on the draft lease documents in the absence of commercial terms, so he was reserving his ability to comment once that information became available. Mr Bretherton responded to that email almost five weeks later on 26 July 2017, stating to Mr Lovelock that he anticipated being “in a position to discuss $/m2 and other terms with all tenants (including your client) directly from next week.”

(d)On 5 September 2017 Mr Lovelock emailed to Mr Bretherton a copy of their earlier email exchange (including Mr Bretherton’s 26 July 2017 email statement that he would be in a position to discuss terms with all tenants the following week) – Mr Lovelock enquired of Mr Bretherton whether there was any further update regarding the commercial terms. The email record in evidence indicates that Mr Bretherton simply forwarded Mr Lovelock’s email to Ms George – I infer that it was being left within Northlake to Ms George to bring together the documentation by which Northlake would put proposed commercial terms to tenants.

[56]               It was not until 22 September 2017 that Mr Bretherton finally provided “a summary of draft commercial terms” for consideration by WMCL (at the same time as providing parallel information to other prospective Healthcare Hub tenants). And then Northlake caused another delay. Dr McLeod on 26 September 2017 requested from Mr Bretherton the detailed costings to understand the per square metre build cost. Mr Bretherton responded that he was getting the breakdown prepared and “will revert”. Over the following two months, WMCL awaited both the detailed breakdown from Mr Bretherton and his arranging of a meeting to discuss the lease. Mr Bretherton on 27 November 2018 sent a letter with amended costing details and amended rent proposals.

[57]               In his evidence, Mr Bretherton explained the gap between his “getting a breakdown prepared” email to Dr McLeod on 27 September 2017 and the amended

details and proposals presented on 27 November 2017. He said that the gap was caused by Ms George’s no longer working for Winton (Northlake’s parent) with the consequence that he needed some time to understand how Ms George had approached some aspects of the project. While Mr Bretherton’s letter changed total figures used (lowering  the  total  development  costs  and  increasing  the   total   fitout   costs) Mr Bretherton did not with his 27 November 2017 letter provide the breakdown of detailed costings of the build cost which he had on 27 September 2017 told Dr McLeod he was preparing.

[58]               In cross-examination Mr Bretherton explained that the September/November delay occurred because the figures presented in the 22 September 2017 letter had on further analysis proved to be incorrect. Mr Bretherton stated in evidence that he was confident that the “re-cast” cost figures contained in the 27 November 2017 letter were accurate. When Mr Morrison, for WMCL, put to him an observation that Northlake had nevertheless calculated its damages claim by reference to the $338,309.21 figure flowing from the  September  proposals  (rather  than  the  November  proposals),  Mr Bretherton was unable to explain why Northlake in its claim in this proceeding had used the September figures rather than Northlake’s amended (lower) November figures.

Northlake’s information and proposals on 22 September 2017

[59]               According to Northlake’s letter of 22 September 2017 to WMCL, the basic details of Northlake’s claimed development costs were:

Total base build development cost	$5,301,635
Total base land costs (based on valuation)	$1,200,000
Total development costs	$6,501,635

[60]               The letter also stated that the fitout cost of the interior of WMCL’s tenancy area was $323,663.

[61]               The letter then set out Northlake’s requirement for rental. Mr Bretherton stated that a 6 per cent return on the cost of development of the Healthcare Hub would be considered a minimum return for any commercial development. He then provided this calculation:

Tenancy 1 [for WMCL] as 36% of the building $1,916,055 Tenancy 1 as 36% of site   $428,457

@ 6% requisite rate of return  $140,671 (= annual rental)

[62]               Mr Bretherton went on to propose an amortisation of fitout costs over a 15 year lease term, which he recorded would increase the total annual net rent for WMCL to

$170,879. He then referred to other rental requirements including $11,250 per annum for 15 car parks and a pro-rata share of operating expenses (opex) estimated at $30 per square metre.

[63]               Northlake’s proposed rental was accordingly $182,129 per annum, plus GST and opex. That amounted to $546.93 per square metre, assuming Northlake’s calculation of the floor plate at 333 m2 was accurate.

[64]               Mr Bretherton attached to the 22 September 2017 letter a schedule setting out what he referred to as the “principal commercial terms” (Schedule D to this judgment).

Northlake’s proposals to other tenants

[65]               Northlake sent similar proposals to other prospective Healthcare Hub tenants around the same time as the 22 November 2017 proposal to WMCL. That included to Ian Jurczyluk (Wanacare Pharmacy) and Anke Staufenberg (Your Physio Ltd). In each case, Mr Bretherton in his letter proposed a 6 per cent return on development costs, together with a proposal for amortisation of fitout-costs.

[66]               Two other prospective tenants, being Dr Feeney wearing his The Skin Studio hat and Kimberley Parry (The Fit Collective Ltd), received in September letters of a similar nature to Northlake’s 22 September 2017 letter to WMCL. Each decided that

the September 2017 proposals were not tenable for their businesses, the rent being too expensive. Both gave reasoned evidence, which I accept, as to their decisions being unrelated to anything to do with WMCL. Neither Ms Parry nor Dr Feeney (wearing his The Skin Studio hat) received a subsequently amended offer from Northlake, whether around the time of the 27 November 2017 letter to WMCL or otherwise.

WMCL’s reaction to Northlake’s 22 September 2017 proposal

[67]               The WMCL personnel who gave evidence in relation to the dealings with Northlake were Drs McLeod and Feeney. Dr McLeod stated that although he was glad to finally have the commercial terms so that he could discuss them with his fellow directors, it was immediately clear that the rent was a lot higher than WMCL had anticipated. He noted the following terms of the proposal as particularly surprising and seeming very landlord-friendly:

(a)Rent was to be determined on the basis of a 6 per cent return for the landlord, being a 20 per cent increase from the 5 per cent return which Mr Meehan had referred to as his expectation at the 17 November 2016 meeting.

(b)The annual rent of $170,879 itself was very high, being about $513 per square metre for 330 m2 premises, plus GST and opex. This was significantly higher than the $283 per square metre that WMCL was paying at Cardrona Valley.

(c)The cost for car parks was additional to the proposed rent, and added a further $11,250 plus GST bringing the overall total rent to $182,129 per annum.

[68]               Dr McLeod accepted in cross-examination that the comparison involved in his second point of concern (at [67(b)] above) was not an “apples for apples” comparison as the Cardrona Valley $283 per square metre did not involve a payment for fitout (the tenant having paid up-front for its fitout.

[69]               For his part, Dr Feeney described his reaction to the commercial terms put to both WMCL and himself (wearing his The Skin Studio hat) as one of “surprise and incredulity”. He referred in particular to a surprise at the amount of the total rent proposed for The Skin Studio (approximately $507 per square metre, plus car park charges) and he was surprised at the 10-year lease period for The Skin Studio and the commercial terms provided for rent reviews.

[70]               Both Dr McLeod and Dr Feeney explained that the funding arrangements for medical practices such as WMCL, as administered by the Ministry of Health, mean that such a medical practice has a relatively fixed income stream which rendered Northlake’s offer in their view not financially viable. Dr McLeod explained that, while he did not have a particular level of profitability in mind for any operation established by WMCL at Northlake, he did want to be confident that any such operation would be profitable or “pay its way”.

[71]               At this point Dr McLeod on 26 September 2017 requested from Mr Bretherton Northlake’s detailed costings. There were no further Northlake/WMCL discussions while WMCL awaited those costings.

Northlake’s information and proposals on 27 November 2017

[72]In a 27 November 2017 letter to WMCL, Northlake set out its reworked figures

for total development costs as follows:
Total base build development cost	$4,867,481
Land cost (based on valuation)	$1,200,000
Total development costs	$6,067,481

[73]               Northlake presented a reworked figure of $547,361 for fit-out, Mr Bretherton explained that that figure (much higher than the $323,663 stated by Northlake on 22 September 2017) had “emerged as detailed design has evolved”. How the fit-out design had within a two month period evolved to such an extent (a $223,698 or 69 per cent increase) Mr Bretherton did not explain. Northlake appears to have had only one

design team meeting in that period. The minutes for that meeting do not refer to any particular activity reflecting an “evolving design of WMCL’s fitout”. I infer that at least for the most part, Mr Bretherton was having to amend figures previously incorrectly calculated or stated in the 22 September 2017 details.

[74]               Northlake in its 27 November figures again stipulated a 6 per cent return on the development costs calculated as follows:

Tenancy 1 as 36% of the building  $1,764,312

Tenancy 1 as 36% of land area  $429,652

@ 6% requisite rate of return  $131,638 (= annual rental)

[75]               Mr Bretherton recorded that Northlake had included (in relation to fitout costs) a “10% tender saving in anticipation of final contract pricing”, on which Northlake would carry the risk, reducing the total fit-out cost to $491,445. Northlake again proposed that fitout costs be amortised over a 15 year lease term with a finance cost of 5 per cent.

[76]               Northlake accordingly proposed a total annual rent of $177,506 per annum plus GST and operating expenses.

[77]               While, at first blush, the reduction of Northlake’s restated figure for total development costs (reduced from September to November) was advantageous to WMCL, the substantial increase in the stated fit-out costs meant that Northlake’s proposed total on 27 November 2017, $177,506 per annum, represented a reduction of just 2.5 per cent from the September figure ($182,129 per annum).

The intentions of the parties until November 2017

[78]               The initial intention of the parties was clear on the evidence and common ground in the way counsel for each party cross-examined the other’s witnesses. The personnel involved at both the Northlake and WMCL ends of discussions had set out when entering into the HoA in September 2016 and proceeded at every point up to

WMCL’s receipt of Northlake’s commercial terms on 22 September 2017 with the intention of entering a lease with one another, subject to commercial terms acceptable to each party being identified and agreed.

[79]               That intention (on the part of WMCL) was reflected in a letter of WMCL to Queenstown Lakes District Council on 17 December 2016 written in support of Northlake’s consent application, in which WMCL recorded its intention to operate a fully functioning general practice at Northlake.

[80]               I find that the firmness of WMCL’s intention may have softened when WMCL received Northlake’s proposed commercial terms in September 2017. Dr Feeney, who I found to be a careful and thoughtful witness, capable of the balanced assessment of any proposal, found the level of Northlake’s offer to his The Skin Studio beyond credulity. He regarded the terms offered to WMCL similarly. Dr Feeney’s reaction, wearing his The Skin Studio hat, was to not proceed further with the option to lease under the HoA. Wearing his WMCL hat, Dr Feeney with other directors for WMCL involved, awaited the outcome of WMCL’s request for the underlying lease figures.

[81]               The next item for the WMCL directors to consider came in the form of the Northlake 27 November 2017 letter, by which the slightly reduced rental proposal was made. I find on the evidence that for a second time the firmness of WMCL’s intention to enter a lease softened.  The extent of detailed costing information provided by   Mr Bretherton with his letter (a single table of costs compiled by Northlake’s builder) was understandably viewed by Dr McLeod as “a limited amount of costing information”. It was received with Northlake’s proposal on the eve of a meeting which the parties had scheduled for the purpose of discussing Northlake’s commercial terms.

[82]               I am satisfied that both Dr McLeod and Dr Feeney attended the scheduled meeting on 28 November 2017 with a continuing intention to have WMCL enter into a lease provided acceptable terms could be agreed. This was notwithstanding that they viewed Northlake’s proposed rental as unsustainable and unreasonably high.

[83]               I am equally satisfied that the Northlake personnel  who  had  until  that  point been centrally involved in the progress of design (Mr Bretherton and latterly

Mr Palmer) went to the meeting with the same intention. But at that point it became apparent that neither Mr Bretherton nor Mr Palmer had control over Northlake’s ultimate decision upon and commitment to lease terms. That control lay with Mr Meehan. As Mr Meehan did not give evidence, I am not in a position to reliably reach conclusions as to the detail of Mr Meehan’s intentions going into the meeting, and exactly what he had in mind as to the shape of any negotiation. That said, the evidence of the witnesses who attended the meeting on 28 November clearly establishes the manner of Mr Meehan’s approach to achieving what he wanted for Northlake in any lease.

Any expectations of the parties in relation to reimbursement

[84]               It is Northlake’s case, as pleaded in its fourth cause of action, that it expected to be reimbursed for its services through WMCL’s leasing of commercial premises at Northlake. Northlake pleaded that WMCL knew or ought to have known of that expectation.3

[85]               Mr Bretherton did not in his briefed evidence speak of WMCL’s “expectation” as to reimbursement, save to refer to discussions as to future rental such as it being on “a percentage cost of the building and fitout” or involving a “return on investment”. It is common ground between Northlake’s and WMCL’s witnesses that that was what the parties expected – namely that if a lease eventuated the rental would be calculated by reference to a return on investment.

[86]               Mr Meehan was, on the evidence adduced, the directing mind and will of Northlake – Mr Bretherton, for instance, did not have delegated authority to sign the HoA, nor did he later have any apparent authority when it came to the November 2017 discussion. As Mr Meehan was not called as a witness, I cannot find that through him Northlake had a particular expectation beyond the expectation that if a lease were to be entered into, the rental would be calculated as a return on investment. I have no evidence as to Northlake’s expectation of any reimbursement in the event of inconclusive negotiations.

3      This phrasing following that of the Court of Appeal in Morning Star (St Lukes Garden Apartments) Ltd v Canam Construction Ltd CA 90/05, 8 August 2006 at [50]: “… the defendant knows (or ought to know) that the plaintiff expects to be reimbursed for those services”.

[87]               One established way of Northlake’s creating not only an expectation of reimbursement of expenses but a right to such reimbursement would have been to include break fee provision in the HoA. Evidence was given of a complex agreement of that nature which Northlake provided for in another HoA involving a percentage break fee in the HoA between Northlake and a national grocery chain relating to proposed premises at Northlake. Such a provision may be contrasted with what Northlake agreed with Dr Feeney (wearing his The Skin Studio hat) in executing the HoA of August 2017 (above at [49] – [54]), when Dr Feeney recorded: “As we previously discussed my understanding is that this is non binding and there is no break fee at this stage as we have not discussed figures yet” to which Ms George responded: “I can confirm that the agreement is non binding and is to show intent between the parties”.

[88]               Mr Johnson re-examined Mr Bretherton in relation to the grocery chain HoA and the The Skin Studio HoA, asking why he had not put a break fee arrangement into this (WMCL) HoA, Mr Bretherton responded:

A. The best I can say,  Sir,  it wasn’t considered at the time.  The  – the  heads of agreement I mean, there was, it hasn’t come up in these proceedings at all and perhaps I’m going too far in response to your question but at the same time we were engaged on a very similar basis with the childcare operator across the road, on the block we talked about earlier, identical documentation, same architect, same project fee, sorry, project team. Those discussions, negotiations, went as we intended and the building is now built, operational in every respect. Look it just wasn’t anticipated at the time, Sir, and if we had our time again I’m sure we’d do just that.

Q.   You would put a break fee clause in?

A. Yes.

[89]               Dr Feeney concluded his briefed evidence-in-chief with a response to Northlake’s claim for reimbursement:

With regard to NIL’s claims in this proceeding, I want to say finally that if NIL had ever suggested that WMCL should be liable to NIL if we did not take up the Heads of Agreement lease option I would have been astonished. If anything, it is NIL who has obtained the benefit of WMCL’s input. We shared our experience and intellectual property regarding the requirements for a functional and cost-effective GP design and fit-out. We worked hard with NIL to try and make the tenancy work. It is a pity that the terms of a lease were never agreed, but that was always a possibility under the Heads of Agreement.

[90]               Dr Feeney was not cross-examined on this evidence. It is in keeping with the common view of himself and Northlake’s Ms George, as recorded in their August 2017 email exchange concerning the parallel HoA for the Skin Clinic. I accept Dr Feeney’s evidence. In particular, I accept his evidence when he stated that he would have been astonished if Northlake had ever suggested that WMCL would be liable to Northlake if WMCL did not exercise its option.

[91]               Northlake has not established that it had an expectation of being reimbursed for its expenditure in relation to the Healthcare Hub project in the event of inconclusive negotiations. Even had it adduced some evidence of such an expectation on its part, it has not established that WMCL knew or ought to have known that it had such expectations.

The meeting on 28 November 2017

[92]               It is common ground that the meeting on 28 November 2017 began with a simple explanation by the WMCL personnel that WMCL could not afford the proposed rent. They referred to how much WMCL was paying per square metre for its Cardrona Valley premises.

[93]               From that point of the meeting Mr Meehan took control of the discussion on Northlake’s part, to the effective exclusion of Mr Bretherton and Mr Palmer. Both Dr McLeod and Dr Feeney took it from the manner and content of Mr Meehan’s contributions thereafter that Mr Meehan was in charge of Northlake’s position and that it was he alone who would make Northlake’s decisions on the proposed WMCL lease. On the evidence, including Mr Bretherton’s that was clearly so.

[94]               Dr Feeney described Mr Meehan’s conduct at the meeting: “It was very clear to us that Mr Meehan called the shots … he was the boss and the boss had spoken”.

and also:

He was a man that was very, appeared very decisive and his team listened to him. …as Wanaka Medical we took him at face value, and we believed he wanted a straight answer.

[95]               In response to the WMCL indication that Northlake’s requirement of a package involving a 6 per cent return on investment created an unsustainable level of rent, Mr Meehan made it clear that Northlake required a 6 per cent return on investment. He stated unequivocally that Northlake was non-negotiable on the 6 per cent figure. He stated that, with resource consent about to be received and Northlake wanting to proceed with a building contract in relation to a number of buildings at the same time, he required a very quick agreement on lease terms. Mr Bretherton recalls a specific statement that Northlake needed to have an agreement to lease in place “within two weeks” (with onsite construction to then start in February 2018). Dr Feeney recalls a demand by Mr Meehan that WMCL accept the rent within seven days or “he will build townhouses”. Dr McLeod’s evidence was to similar effect, stating that he recalled Mr Meehan saying that Northlake “would make much more money building townhouses on the site anyway”. Dr McLeod recalled Mr Meehan saying that he (Mr Meehan) “needed a decision from WMCL within one week or the deal was off”.

[96]               Both Dr McLeod and Dr Feeney viewed Mr Meehan’s discussion as being an ultimatum. Dr McLeod observed that Mr Bretherton did not subsequently invite WMCL to further negotiate the rent or other commercial terms, which did not surprise Dr McLeod as it would have undermined what he viewed as the clear ultimatum which Mr Meehan had delivered.

[97]               In the meeting, Mr Meehan then came up with an alternative approach. He suggested that the doctors instead reduce the proposed area of the tenancy, with the balance to be freed up for Northlake to lease to someone else.

[98]               Mr Johnson cross-examined Dr Feeney about Mr Meehan’s coming up with this other proposal, seen in this exchange:

Q. And as a result of taking it on board [WMCL’S position], Mr Meehan came up with another proposal?

A.       He did.

Q.       Which was the reduced size of the tenancy?

A. Yes, if I recount exactly what happened in that meeting if I may, Mr Meehan stood up. He lifted a marker pen off the table and drew a line approximately half the plans approximately and put the pen down and

sat down and said, “How would that suit you?” That’s exactly how that unfolded.

[99]               At that point it was agreed that the meeting would end, Mr Palmer would produce updated rental calculations based on a reduced tenancy area of 250 m2, and the WMCL directors would further consider the terms on offer.

[100]           Mr Meehan’s approach at the meeting had introduced into the relationship between Northlake and WMCL a very different tone and approach to that which had previously flowed from Northlake personnel. Dr McLeod, a person not inexperienced in matters of commerce and not as a witness displaying a delicate or nervous disposition, described a feeling of having been “bruised” by the meeting. That reaction was not at all surprising in light of the approach Mr Meehan had adopted at the meeting. And, in the absence of evidence from Mr Meehan, I have no basis to conclude that Mr Meehan did not intend to cause such a response in the doctors. I conclude it was, on his part, a deliberate strategy to try to procure the lease terms he wanted.

True ultimatum or bluff/negotiating ploy?

[101]           Significant parts of Mr Johnson’s cross-examination of Drs McLeod and Feeney contained the suggestion that the doctors should have treated Mr Meehan’s express statement of “non-negotiability” as a bluff or negotiating ploy, to which they ought to have responded with a counter-offer (perhaps based on a 5 per cent return on investment).

[102]           Although the point was extensively pursued for Northlake in both cross- examination and submissions, it is a proposition devoid of merit. Mr Meehan had unambiguously stated his position. Drs McLeod and Feeney, clearly people of integrity, accepted Mr Meehan at his word. Mr Meehan had stated he was not prepared to negotiate his required 6 per cent per square metre return on investment. It would be wrong both in law and in equity if the Court were to seek to in some way hold WMCL to account for failing to pursue a negotiation on the central aspect of a rent calculation (the per square metre return on investment) when the other party had expressly ruled out any such negotiation.

[103]           Furthermore, the point of Mr Johnson’s cross-examination could aspire to validity only if Mr Meehan was indeed prepared to negotiate below his 6 per cent return on investment figure despite saying unequivocally that he was not. There is no basis in the evidence for the Court to find that Mr Meehan would have negotiated down from the 6 per cent return. The extent of his apparent outrage with his own staff when learning in September 2017 of the extent of costs that had been incurred suggests that he may well have seen this significant commercial enterprise (WMCL) as the best vehicle through which to achieve what Mr Bretherton described in his evidence as “a dream outcome”. To the extent Mr Bretherton indicated in his evidence a willingness to negotiate towards a 5 per cent figure it does not assist Northlake – Mr Meehan did not appear as a witness to say what he would have done, let alone be tested in cross- examination on his intention and precise strategy. From September 2017, if not before, it was clearly Mr Meehan who was making the commercial decisions – “calling the shots” as Dr Feeney put it – for Northlake, and not Mr Bretherton.

[104]           I have not overlooked evidence given by Mr Bretherton in which he speculated as to exactly what figure of recovery Mr Meehan may have been determined to obtain. Having explained that he (Mr Bretherton) adopted the 6 per cent return on investment calculation (and not a 5 per cent figure) because that was Mr Meehan’s decision and Mr Bretherton was carrying out his instructions, Mr Bretherton commented: “It could be that Mr Meehan coming in at 6 per cent was creating a buffer for negotiation”.

[105]           Elsewhere (in his evidence-in-chief), Mr Bretherton stated that Northlake’s “bottom line would have been 5% return on costs”. But there was no basis for that, effectively stand-alone, statement – it was not stated to be based on any discussed change of position, after the 28 November meeting. It is inconsistent with the stated firmness of Mr Meehan’s requirements, and it cannot be reconciled with Mr Bretherton’s other evidence which indicated that Mr Bretherton could but speculate on what Mr Meehan’s ultimate position on the 6 per cent return figure would have been.

[106]           The short point is that Mr Bretherton, from his own knowledge, did not know and does not know whether Mr Meehan was firm in his intention to require a 6 per cent return. Mr Bretherton’s speculation as to what Mr Meehan may have been

intending counts for nothing. And, more importantly, Drs McLeod and Feeney, who had no reason to doubt Mr Meehan, took him at his word.

[107]WMCL is beyond criticism for doing so.

A “clash of cultures”?

[108]           Mr Johnson suggested to Dr Feeney that the 28 November 2017 meeting had involved a “clash of cultures”. After Dr Feeney had had Mr Johnson clarify that he was talking of professional cultures, Dr Feeney accepted that such may be an accurate description of what occurred on 28 November 2017. That said, I do not find the “clash of cultures” to be a necessary or particularly helpful characterisation. What happened at the meeting was quite simply that someone who adopted an aggressive negotiating style brought both verbal and non-verbal aggression to the discussion. Whether that is viewed in terms of creating a cultural divide or otherwise, the material fact is that Mr Meehan’s message was delivered in such a manner as to be believed by the doctors

–  they understood they had to accept the 6 per cent return on investment (on whatever floor space area WMCL might take) or “the deal would be off”.

The possibility of pursuing discussion with Mr Bretherton

[109] An alternative approach which WMCL might have adopted towards negotiation, notwithstanding Mr Meehan’s ultimatum at the 28 November 2017 meeting, was explored by Mr Johnson in his cross-examination of Dr Feeney. It would have involved the doctors talking directly to Mr Bretherton. Mr Johnson asked Dr Feeney in the exchange to which I have partly referred at [94] above:

Q. … if you had concerns about Mr Meehan’s  position  and  his  ultimatums, why didn’t you talk to Mr Bretherton?

A.It was very clear to us that Mr Meehan called the shots.  He was the  CEO and ultimately he made the decisions, so when the boss had spoken we assumed that was a decision and we viewed his staff to a certain extent as being under him, they weren’t colleagues, he was the boss and the boss had spoken. It’s a very simplistic answer, but very honest answer.

[110]           I accept Dr Feeney’s evidence in this regard – his answer was plainly honest and makes sense. Nothing in Mr Meehan’s conduct on 28 November 2017 would have

suggested to the doctors that an approach behind Mr Meehan’s back would be productive, or in WMCL’s best longer-term interests.

Opportunity for WMCL to advise Northlake of its rental expectations

[111]           It is common ground that through the design and planning period of the medical centre for the Healthcare Hub, WMCL did not state to Northlake its rental expectations.

[112]           In his closing submissions in relation to the estoppel cause of action (but not in relation to the other causes including quantum meruit), Mr Johnson made a submission of unconscionability arising from WMCL’s “silence”. I focus here on Mr Johnson’s submission and the facts relating to that situation.

[113]Mr Johnson submitted:4

Unconscionability

162 In the circumstances, it would unconscionable [sic] to allow Wanaka Medical to resile from the expectation that it created and encourage, [sic] in particular because:

(a)Wanaka Medical could have given an indication at an early stage as to its expectations around build costs and rent but it chose not to do so.

(b)Wanaka Medical remained silent and did not raise any issues about cost or other concerns during the lengthy and details [sic] design process. This was both its general approach (as described by Dr McLeod) and also its approach when specific opportunities to comment were provided (such as in November 2016 and July/August 2017).

(c)Wanaka Medical walked away without even attempting to negotiate or counteroffer in response to the terms proposed by Northlake.

[114]           On the evidence, it is clear that the expectation of both parties was that it was for Northlake in the first instance to come up with proposed commercial terms – a step which was repeatedly delayed by Northlake beyond Northlake’s initially signalled November 2016 target (above [55]). During the many months which followed,

4      Footnote omitted.

WMCL understandably awaited Northlake’s proposed terms. It was open to Northlake at any time, if it considered WMCL’s view of what WMCL could afford would assist it, to ask WMCL for such an indication. Northlake did not do so.

[115]           The proposition (Mr Johnson’s submission at his paragraph 162(b) above at [13]) that WMCL did not raise issues about cost or other concerns during the lengthy and detailed design process does not advance Northlake’s case. WMCL did not know where Northlake had got to with its costings until September 2017. Throughout that period Northlake kept its changing spreadsheet calculations to itself, despite internal views indicating that costings were looking “horrible” or otherwise problematic.

[116]           WMCL is not to be criticised for failing to answer an unasked question about its rental expectation in the November 2016 to September 2017 period when Northlake was holding to itself its own recorded calculations indicating a costing problem.

The numbers are re-cast

[117]A meeting of the parties was scheduled for 11 December 2017.

[118]           Immediately following the 28 November 2017 meeting, Mr Palmer undertook an exercise in “re-casting the numbers”, based on a reduced tenancy area of 250 m2 (reduced from the 335 m2 which WMCL and Northlake had been working on for months as WMCL’s desired and planned tenancy space). In keeping with Mr Meehan’s stated requirement, Mr Palmer reworked the figures based on a 6 per cent return on investment.

[119]           Mr Palmer forwarded his re-cast numbers to WMCL at 5.24 pm that evening (28 November 2017).

[120]           On the same evening (at 9 pm) Dr McLeod by email acknowledged receipt of Mr Palmer’s re-cast numbers and recorded:

It felt like a very useful and positive meeting. We are taking this to our team this week and will get back to you with any questions prior to our next scheduled meet.

[121]           At 9.12 pm on the same evening, Dr McLeod also reported by email to the WMCL directors who had not attended the meeting with Northlake.

[122]Dr McLeod recorded:

FYI Mark, Jan and I met with Marc Bretherton, Chris Meehan and their new ops manager Simon Palmer this morning.

It initially looked like being a very short meeting. US “we cant afford that rent”

THEM “we have cut the price as far as we can go”

Chris says they can sell the site for units at a much higher price than they will get for a medical centre. (We have been told the resource consent requires a medical centre so this may be a little disingenius [sic] but truth of this needs to be checked)

We reiterated we can't simply increase our fees to pay for extra rent and shared our current rent.

This stopped them somewhat.

Chris very cleverly suggested cutting down area and creating a new tenancy between med centre and pharmacy which he can lease to someone else.

The attached plan shows cutting down ~ 1/3 of area (essentially removing triage and sterilisation and acute areas and circulation space.

With some rejigging we would like to explore how this would work as a simple GP space (conventional urban GP rooms only.)

This has advantage of maximising the income earning spaces and keeping efficient with space.

Worth a careful look at least.

I will forward costings to Tony Dawson for him to look over but Northlake team very adamant the situation has changed (ie much more expensive) since Wanacare was built.

Chris trying to put pressure on by saying he wants a decision so can either proceed and get a build schedule of stop and redesign for units to sell.

Look at plans thin [sic] over how rooms might work and we will discuss at length and in depth over next 10 days

AM

The thinking of Dr McLeod and Dr Feeney

[123]           Dr McLeod stated in evidence that he left the 28 November meeting disappointed that WMCL could not have a constructive negotiation. He added that he was also now a bit nervous about the type of landlord/tenant relationship WMCL might experience if a lease was agreed. He viewed Mr Meehan’s ultimatum as having left WMCL with only three options and a one week deadline within which to choose:

(a)to accept the full floor plan, accepting Northlake’s full square meterage rental rate;

(b)to take a reduced floor plan, accepting Northlake’s full square meterage rental rate; or

(c)to reject both options, leaving Northlake to use the space for other more profitable use such as building townhouses.

[124]           When Dr McLeod received later that evening Mr Palmer’s re-cast numbers based on a 250 m2 floor plan, he found that the per square metre cost to WMCL would on the re-cast numbers actually increase to $548 per square metre.

[125]           Through the evidence of Dr McLeod and Dr Feeney, it is clear that each considered the proposals that Northlake had provided (being the 22 September 2017 terms and Mr Palmer’s re-cast numbers of 28 November 2017). They planned, in accordance with WMCL’s constitution, to take the matter of the lease from Northlake to the WMCL board at a meeting which became scheduled for 13 December 2017.

[126]           Concerns which they identified with the commercial terms proposed by Northlake included:

(a)The 6 per cent return on investment, which they understood to be non- negotiable.

(b)The consequential per square metre dollar rate, which Dr McLeod in particular did not find acceptable as it greatly exceeded the rate paid by WMCL at its Cardrona Valley premises.

(c)The $367,630 figure for fitout which Dr McLeod in particular viewed as beyond what was acceptable having regard to the fitout costs at Cardrona Valley.

(d)The inability of WMCL to pass on high rent costs to patients by reason of WMCL’s relatively fixed income stream.

(e)The need to sacrifice income-generating spaces if the reduced (225 m2) area were leased.

(f)The 15-year initial term of the lease.

(g)The absence of any concession from Northlake in the nature of a “soft rent” entry.

(h)A ratchet clause precluding any drop in rental.

[127]           Those matters of varying levels of concern to Dr McLeod and Dr Feeney related specifically to the proposed terms of lease, including particularly matters relating to rental.

[128]           In addition, it was the evidence of both Dr McLeod and Dr Feeney that they had come, through the events of November, to reflect on whether they wished to be in a long-term relationship as tenant with this particular landlord.

[129]           In his cross-examination of Dr Feeney, Mr Johnson raised the matter in this way:

Q.So in terms of Wanaka Medical’s withdrawal from the arrangement, is it also fair to say that it was driven not just by commercial issues?

A.       Yes, there would be a degree of truth to that, yes.

Q.Is it probably fair to say that one of the larger factors was, after that   28 November meeting, a lack of desire to be a tenant of Mr Meehan?

A.       Yes.

Q.       And how big a factor was that?

A.I can’t give you a figure in terms of a percentage to equate that answer, but looking forward we were looking at signing up a lease of up to 15 years and looking ahead at that lease there was a feeling of lack of control of pricing in the future and there would have to be a feeling of lack of trust on a future landlord, and yes, that did influence our decision.

Q.       And that all came out of this meeting of 28 November?

A.       It, mainly, yes. Yes, that would be a fair perception.

[130]           Dr McLeod gave similar evidence as to his concerns in relation to a future relationship involving Mr Meehan.

[131]           Dr McLeod explained that in addition, looking backwards at the performance of Northlake more generally, he now had concerns as to Northlake’s repeated failure to deliver on signalled tasks, particularly the numerous, unfulfilled timelines for delivery of costings and commercial terms for WMCL to consider.

[132]           I am satisfied on the evidence of both Dr McLeod and Dr Feeney (Mr Johnson did not in cross-examination put it otherwise) that they had each come to have genuine concerns about the style and future performance of Northlake (and in particular Mr Meehan) in the lessor/lessee relationship. While Mr Johnson suggested to witnesses through his cross-examination that such were other than “commercial considerations”, the matter of Northlake’s performance and approach plainly involved commercial considerations. Whether a particular landlord shapes up as a landlord with whom a prospective long-term tenant can confidently anticipate a satisfactory working relationship is a matter that any tenant will reasonably consider as part of its decision whether or not it should enter a particular lease. WMCL was in December 2017 entitled to bring into consideration its up-to-date, informed view of Mr Meehan and Northlake.

A “very useful and positive meeting”

[133]           In cross-examination of both Dr McLeod and Dr Feeney, Mr Johnson seized upon Dr McLeod’s email to Mr Palmer following the 28 November meeting (above at [120]), in which Dr McLeod referred to it as “a very useful and positive meeting”. Mr Johnson’s proposition was that that observation is inconsistent with the evidence which the two doctors have given as to their views of the meeting. Dr Feeney accepted that the statement did not accord with his view. Dr McLeod explained that he had deliberately chosen to describe the meeting in those terms, notwithstanding the true nature of the meeting, because he wished to keep open any possibility that WMCL might yet take a lease. He saw (as he was a few days later to record in a note for the WMCL board) a number of risks for WMCL, if WMCL did not take the lease. In short, he did not want to introduce a negative note to negotiations which may yet have had to take place (depending on the decision of WMCL’s board on Northlake’s terms).

[134]           While some of the detail relating to the 28 November meeting varies between the evidence of Northlake’s witnesses and WMCL’s witnesses, there was little (and no material) dispute as to the general nature of Mr Meehan’s conduct in the meeting including his “take it or leave it” approach. It is clear that the way in which Dr McLeod described the meeting in his email to Mr Palmer was overly courteous and hid the true impression of Dr McLeod and Dr Feeney.

WMCL takes advice on Northlake’s terms

[135]           Dr McLeod arranged for WMCL to receive advice from two quarters. The first was a quantity surveyor, Tony Dawson, with whom Dr McLeod had previously worked on the Cardrona Valley project. On (Sunday) 3 December 2017, Mr Dawson provided his comments on the build cost and Northlake’s 6 per cent rate of return. Mr Dawson had done what he described as “some rough numbers based on the 250 m2 fitout” for which he came up with “about $290k as opposed to their $367k”. Turning to the base rent, he made comments, before concluding:

In summary, its [sic] not a bad offer. My suggestion would be

1.Push the ROI to 5% or 5.5%

2.I’d like to meet with their contractor to review the tenany [sic] fit out cost to reduce them down

3.Question is do you pay for the fitout now or amortise over 15yrs

[136]           Secondly, Dr McLeod sought advice from Jason Hopper of Vector Consulting, who had provided business advice to WMCL in the past. Mr Hopper was asked to attend the WMCL directors’ meeting scheduled for 13 December 2017.

[137]           In the meantime Dr Feeney and Mr Bretherton agreed to push back the planned Northlake/WMCL meeting until after the WMCL board meeting.

[138]           On 11 December, Dr Feeney emailed Mr Bretherton to suggest that the further meeting be scheduled for 15 December 2017. He continued: “We are still struggling to make the numbers work for our business, however as mentioned meeting with the team to have one final run through all the figures”.

[139]           Before the WMCL board meeting, Dr McLeod also sought information on rental rates per square metre in the Wanaka area from three sources (an architect, a developer and a builder). Dr McLeod then prepared a two page paper for the board. On the first page he set out an analysis of Northlake’s proposed rental based on the 335 m2 and the 225 m2 floor areas. He summarised additional comments received from Mr Dawson:

Fit out costs a bit high

Price per square m on high side of what he would expect Cook bros builders will struggle to complete work on time NB the Ratchet clause where lease cost can never go down The land lords reputation

[140]           On the second page of his note Dr McLeod summarised the information received from his sources on per square metre rates. He then set out (in a paragraph which has been redacted) legal advice he had received regarding the HoA. He then summarised what had been said by Mr Meehan at the 28 November 2017 meeting, including the fact that Mr Meehan had not offered any option for negotiation on the 6 per cent rate of return. Dr McLeod then noted his understanding of the position currently taken by other prospective tenants. Finally he ended his paper with a list of six risks, four benefits, and two (further) considerations.

WMCL’s decision at its 13 December 2017 board meeting

[141]           WMCL’s board meeting in the evening on 13 December 2017 was attended by all five of its directors, together with Mr Hopper and Ms Gillespie.

[142]Dr Feeney in his evidence described the meeting thus:

37.      …

Though I had already formed the provisional view that Mr Meehan’s ultimatum did not present a commercially viable option for WMCL, this was a very important decision for the practice, so we wanted some external advice. At the meeting, we all discussed whether it was realistic for WMCL to proceed with either the original or reduced floor plan.

38.At our board meeting, we resolved not to take the proposed tenancy   in the Village Centre. Neither the full or reduced floor plans worked for WMCL and, given the practice’s revenue ceiling, it was simply not possible to proceed with the per square metre rate that NIL had said was non-negotiable.

[143]           In his evidence, Dr McLeod referred in more detail to the issue of WMCL’s revenue ceiling, stating:

76.… a standard GP practice like WMCL has a relatively fixed income stream. The only way to reliably increase income is to increase the number of patients enrolled and seen by a doctor. This meant that the reduced floorplan option did not really solve anything – it meant the satellite practice would have less consulting rooms and so less patients could be seen. Therefore there were no efficiencies to be gained by taking the reduced floor plan proposed by NIL at the November meeting. It was also not an option to increase our consulting fees any more than the allowed 1.5 per cent per year.

77.Ultimately, we unanimously agreed that neither option was feasible. It was moved to tell NIL that we would not be proceeding with our option to lease and we would withdraw from the Heads of Agreement.

[251]           In Regalian, where negotiations for the intended contract failed over the issue of price, Rattee J identified this as one of three reasons which led to the plaintiffs’ failing to establish their claim in restitution.

[252]           In a decision of the Supreme Court of New South Wales in Sabemo Pty Ltd v North Sydney Municipal Council,47 Sheppard J found a plaintiff entitled to restitutionary relief where the defendant had abandoned the intended project in order to pursue a different project.48 His Honour applied the decision in William Lacey as a case in which the reason the intended contract did not come about was that the defendant decided not to proceed with the project, but sold the building instead. Sheppard J recognised a right of compensation arose where:49

…the other party unilaterally decides to abandon the project, not for any reason associated with bona fide disagreement concerning the terms of the contract to be entered into, but for reasons which, however valid, pertain only to his own position and do not relate at all to that of the other party.

[253]           The decision of Eichelbaum J in Dickson Elliott is also in this category of case. The fact that the defendant made a unilateral decision not to proceed was one of the five elements found by the Court to entitle the plaintiff to quasi-contractual relief.50

46     Regalian Properties, above n 27, at 226 – 227, citing Sabemo Pty Ltd v North Sydney Municipal Council [1977] 2 NSWLR 880 (SC) at 900 – 903.

47     At 226-227, citing Sabemo, above n 46.

48     Sabemo, above n 46.

49     Sabemo Pty Ltd, above n 46, at 903.

50     Dickson Elliott, above n 8, at 613.

The defendant, instead of developing the site on which the plaintiff had been working, had decided to proceed instead with development on an alternative site.51

[254]           The New Zealand Court of Appeal’s decision in Morning Star fits into this same group of cases. The Court explained the relevance of Morning Star’s unilateral decision thus:52

Here, however, sufficient sales were obtained. Morning Star decided not to proceed with Canam for its own reasons. While Morning Star may not have been contractually obliged to grant the main construction contract to Canam, the fact that it did not award Canam the contract for reasons other than an insufficiency of sales means that Canam could legitimately have a reasonable expectation of payment. Mr Morgenstern seems to have had the same expectation because he confirmed that Canam would be paid.

[255]           The use of the term “fault” in some discussions appears to have caused concern amongst at least some commentators as to the importation of the concept of fault into cases involving quantum meruit claims.53 In my consideration of this case, I find the term “fault” inapt and potentially distracting. In each of the cases to which I have referred – Morning Star, Dickson Elliott, William Lacey, Countrywide Communications, Regalian, and British Steel Corporation – the court is proceeding not on the basis of “fault” in some pejorative sense but rather by reference to the fact that the intended contract was not successfully negotiated arose not because of a disagreement over terms but because of a decision of the defendant simply to pursue a different project and/or to abandon the intended project.54

[256]           As analysis of the Court of Appeal’s decision in Morning Star indicates, (although it may be semantically appropriate in some such situations to describe the termination at the engagement as being due to the “fault” of the defendant), the basis upon which the Court imposes liability is that the plaintiff in such situations “could legitimately have a reasonable expectation of payment”.55

51     Dickson Elliott, above n 8, at 610.

52     Morning Star, above n 3, at [36].

53     See, for instance, Goff and Jones The Law of Unjust Enrichment (9th ed, Sweet & Maxwell, London, 2016) at [16-12] – [16-15].

54     Above at [235]-[241].

55     Morning Star, above n 3, at [36].

HThe justice of relief

[257]           Although the inconclusive negotiation cases frequently involve no actual enrichment or benefit passing to the defendant, there has been a strong link in the judicial analysis of those cases to concepts of unjust enrichment. It is a feature of the case law that liability on a quantum meruit basis is often expressly imposed because the court finds that it would be unjust for the defendant not to make payment for the services provided by the plaintiff. Absent a finding of injustice, relief is not available.

[258]           I have referred above at [241] to the judgment of Mr Nicholas Strauss QC in Countywide Communications as containing a helpful analysis of the inconclusive negotiation cases. The Deputy Judge referred to an article by Professor McKendrick, “Work Done in Anticipation of a Contract which Does not Materialise”.56 The writer there identified the requirement that, for a restitutionary claim to succeed, any enrichment must have been unjust.57 Professor Carter, in his essay on “Ineffective Transactions”, spoke of unconscionability as “the context of any restitutionary claim”.58

[259]           Mr Nicholas Strauss QC, in Countrywide Communications, referred to different factual situations which arise in this context, particularly the differences between cases involving a true enrichment of the defendant as against those where such an obligation will be imposed only if justice requires it or, which the Deputy Judge observed comes to much the same thing, where it would be unconscionable for the plaintiff not to be recompensed where the work done in anticipation of a contract which did not materialise has not benefitted the plaintiff.59 The Deputy Judge explained the impossibility of formulating a clear general principle which satisfactorily governs all such factual situations. He continued:60

Perhaps, in the absence of any recognition in English law of a general duty of good faith in contractual negotiations, this is not surprising. Much of the

56  Ewan McKendrick “Work  Done in Anticipation of a Contract Which Does Not Materialise” in  WR Cornish and others (eds) Restitution: Past, Present and Future: Essays in Honour of Gareth Jones (Hart Publishing, Oxford, 1998) 163.

57 At 171-172.

58     JW Carter “Ineffective Transactions” in PD Finn (ed) Essays on Restitution (Lawbook Company, Sydney, 1990) 206 at 211–212.

59     Countrywide Communications, above n 27, at 31.

60     At 31.

difficulty is caused by attempting to categorise as an unjust enrichment of the defendant, for which an action in restitution is available, what is really a loss unfairly sustained by the plaintiff. There is a lot to be said for a broad principle enabling either to be recompensed, but no such principle is clearly established in English law. Undoubtedly the court may impose an obligation to pay for benefits resulting from services performed in the course of a contract which is expected to, but does not, come into existence. This is so, even though, in all cases, the defendant is ex hypothesi free to withdraw from the proposed contract, whether the negotiations were expressly made “subject to contract” or not. Undoubtedly, such an obligation will be imposed only if justice requires it or, which comes to much the same thing, f [sic] it would be unconscionable for the plaintiff not to be recompensed.

Application of the law

[260]           I have found that, throughout the period of collaboration by the parties on the design and planning of the medical centre, both parties intended (upon the basis set out in the HoA) to progress design and to agree commercial terms subject to the matter set out in the HoA. But I have found in terms of the HoA that neither party was obliged to proceed to execute a lease unless commercial terms identified by the parties were acceptable to each.

[261]           The parties did not in the HoA expressly state an expectation that Northlake would (or would not) receive reimbursement for “services” if they did not eventually enter into the intended lease. There is no indication in the HoA that either party had an expectation that Northlake would receive reimbursement in such event. Northlake’s personnel, including Mr Bretherton, were aware of break-fee clauses and, while inserting them in at least one other Northlake HoA, did not stipulate for such a clause (whether in the WMCL HoA or The Skin Studio HoA). The circumstances point strongly against any expectation of reimbursement held by Northlake let alone any appreciation on the part of the intended lessees that Northlake might have such an expectation. Equally there was no indication in the HoA that WMCL should receive reimbursement for its time and knowledge of medical centre requirements provided in the course of design of the medical centre.

[262]           To the extent that Mr Bretherton’s evidence covered matters of Northlake’s expectations, his evidence was focussed on an understanding of “commitment” to lease the medical centre, a term he appears to regard interchangeably with the expression “agreement in principle”.

[263]           If it was an understanding or expectation on the part of Mr Bretherton that WMCL, as the design project proceeded, had some “commitment” to lease the intended premises at Northlake, then it was not a “commitment” in the legal sense. WMCL was entitled to find offered terms acceptable or unacceptable and either to enter the lease or to not enter the lease.

[264]           As it is, on the evidence I have concluded that Northlake has not established that it expected to be reimbursed for the design and planning services irrespective of whether an actual benefit accrued to WMCL.

[265]           Against that background, I turn to examine the factors which I have identified as those considered in relation to quantum meruit claims (above at headings A – H (adopting the same lettering)):

(a)Northlake, as plaintiff, has established that this is a case of the nature described by the Court of Appeal in Morning Star: “…where the defendant asks the plaintiff to provide certain services, or freely accepts services provided by the plaintiff…”.61

(b)When the reimbursement of expenses forms the claim of the plaintiff, as here, it weighs heavily against the plaintiff’s claim that the plaintiff stipulated for the arrangements under the HoA to be “subject to contract”. The parties were at careful pains, through the numerous provisions of their HoA which were clearly intended to prevent mutual financial commitments coming into existence, to allocate risk in the event of inconclusive negotiations. This was not (unlike the “imprecisely drafted and ambiguous document” in Morning Star) an HoA which left uncertain whether Northlake’s return would come through the rental.

(c)This is not a case (of the kind envisaged by Mr Nicholas Strauss QC in Countrywide Communications, where the defendant has, despite the terms of the HoA, given some kind of assurance or indication that it

61     Morning Star, above n 3, at [50].

would only do so in certain circumstances. At the very highest, Northlake’s case would be that, once it presented commercial terms to WMCL which were acceptable to WMCL, then at that point some expectation of reimbursement might have arisen. But, on the facts as I have found them, the reason WMCL did not exercise its option was because the terms proposed by Mr Meehan of Northlake (and in particular the non-negotiable 6 per cent return on investment) were unacceptable. Nothing WMCL had said or done could have led Northlake reasonably to conclude that it was not at risk in relation to its expenses in that situation. Mr Bretherton’s evidence indicates that he thought the risk became lower as co-operation on design proceeded but not that he thought that Northlake was no longer at risk.

(d)The question of whether the work performed and arranged by Northlake in relation to the design and planning of the medical centre would “normally be given free of charge”, on the evidence adduced, is not readily answered in this judgment. Northlake elected to call no evidence on the extent to which developers, particularly developers seeking to attract a key tenant, might normally absorb some of the expenses incurred in this case by Northlake. These were nevertheless not expenses which Northlake might be expected to normally carry out “gratuitously”. At least some of the expenses to be incurred by Northlake were expenses which these two parties anticipated would be recoverable through the lease rental.

(e)In terms of the “acceleration of the project”, there was no evidence to suggest that the rate of Northlake’s progress on the design of the Healthcare Hub was affected by any request or pressure of WMCL to accelerate such work (ahead of a particular date).

(f)The intended contract in this case was an agreement to lease whereby Northlake would lease a purpose-built medical centre to WMCL. For that reason, the expenditure which Northlake here seeks to recover was (in terms of the distinction drawn by the Court in Regalian):

“…expenditure made for the purpose of enabling [Northlake] to obtain and perform the expected contract”. The work undertaken by Northlake did not constitute a commencement of the contract work itself. The facts in Villages of New Zealand provide an example of a case in which the plaintiff’s services were not simply “in preparation for” an anticipated contract.62 The plaintiff, a provider of residential care disability services provided continued care for elderly residents while a new contract was being negotiated. The services provided – residential care – were the very services which were intended to be provided under the new contract (undoubtedly with a backdating as and when finalised).

(g)The anticipated contract in this case did not materialise because WMCL, for reasons which I have found it genuinely held, could not accept the terms proposed by Northlake, one of which was stated by Northlake to be non-negotiable. WMCL’s decision not to exercise its option to lease arose by reason of WMCL’s bona fide assessment of the proffered lease terms, an outcome which was within the parties’ rights under the HoA. It did not come about for reasons unassociated with the proposed lease itself.

(h)I have not found anything in the conduct of WMCL in relation to the dealings between the parties or WMCL’s subsequent stance to constitute unconscionable conduct or such as would render unjust a denial of relief to Northlake.

Outcome on application of law

[266]           Having regard to the terms of the HoA and the dealings between the parties, I find that Northlake in its dealings with WMCL accepted the risk that the parties ultimately might not identify terms of lease acceptable to both and that the intended lease might not eventuate, leaving each party to absorb the management costs and

62 Villages of New Zealand above n 6.  The plaintiff first succeeding on a claim in promissory  estoppel as the defendant had made an unequivocal representation that the plaintiff would be paid for its services (see [50] of the judgment).

disbursements it may have incurred in working towards a lease. I have further found that WMCL withdrew from negotiations and exercised its right not to exercise its option for bona fide reasons associated with the lease itself rather than on account of any other consideration. Finally, Northlake has not established that it would be unconscionable or would produce an unjust outcome if Northlake is not reimbursed for its expenses.

[267]           In these circumstances, I find Northlake not to be entitled to any relief on a quantum meruit basis.

Costs

[268]Costs must follow the event.

[269]           There will be an order that the plaintiff pay the defendant’s costs and disbursements but with quantum to be determined on the papers by reference to memoranda filed.

Orders

[270]I order that:

(a)judgment is entered for the defendant;

(b)the plaintiff is to pay to the defendant its costs and disbursements; and

(c)the quantum of costs and disbursements is reserved, with submissions to be filed (five page limit) with appendices for scale costs calculations and disbursement calculations, defendant to file and serve first and plaintiff to file and serve within five working days thereafter.

Osborne J

Solicitors:

Wynn Williams, Auckland Morrison Mallett, Auckland

SCHEDULE A

CBll0

l.   Operate as a fully functioning General Practice offering the following services:

a.     Catering to casual and emergency patients but without onsite access to X-rays

b.     Treatment of usual general practice accidents and injuries, including suturing of wounds

c.   Independent clinics including (but not limited to) skin cancer diagnosis and treatment, travel medicine, aviation medicine, Diabetes and respitory care

2.     Offer a fully integrated patient service with the existing practice at Cardrona Valley Road

3.     Operate from [commencement date] from at least 9am —    five days per week

4.     Operate from the commencement date with a minimu      doctors, one nurse and one receptionist on site

5.     Seek to grow to full capacity, anticipated as bei specialist staff] within [two] years of the co

ment

nurses, administrative,

6.     Be Cornerstone accredited and maintain Southern Cross for General Practice pr    es

ity to a stan           Ie to be accredited by

7.     Be entitled to sub-lease additional space    ”n the medical centre f      e commencement

date until such a point as the WMC is opera    t full      ity

8.     Offer full support for any re      consent or o          val process that    be required to facilitate development of  Centre at      ake

The parties further agr

•   Jointly promo	hlake	a view to		cting other commercial operators, especially
those in medical	te	” ” es, into		Northlake Village Centre
•  he N uding fai      ing c		e ssociate	t a	e Wanaka Medical Centre at Northlake vertising and promotion, shared use of logos

existing bra      sign      d by other eans

•II discussions     ther      ation including commercial terms relating to the

proj      e wider dev     ent, t   xisting and proposed medical practice confidential at all time

SCHEDULE B

CBl22

Northlake Investments willy

l. Develop a desiRn and construct a single level modem building suitable for housing a medical clinic and associated para-medical professions.

2.Consult with WMC  and Rive proger reRard to any representations made by WMC with respect to the the      design of the building,-{and in particular shall pive repard to the  operational and                 spatial configuration requirements necessary for a medical practices

Wanaka Medical Centre will:

l.Operate as a fully functioning General Practice offering the following services:

a. Catering to casual and emergency patients but without onsite access to X-rays;

b.     Treatment of usual general practice accidents and injuries, including suturing of    wounds;

c.     Independent clinics including (but not limited to) skin cancer diz gnosis and

treatment, travel medicine, aviation medicine, Diabetes and respitory care.

2.Offer a fully integrated patient serrtce with the existing practice at Cardrona Valley Road.

3.Operate from [commencement date] fts+n-durine the minimum hours ofaMeast 9am — Spm Monday to Frida  _

4.Operate from the r:‹xnmencement date with a minimum of two doctors, one nurse and one receptionist on site.

5.     Seek to grow to full capacity. anticipated as being [P doctors, nurses, administrative,                    specialist staff] within [two] years of the commencement date.

6.Be Cornerstone accredited and maintain the facility to a standard able to be accredited by

Southern Crass for General Practice pracedu

7.     Be entitled to sub-lease additional space within the medical centre from the commencement                     date until such a point as the WMC is operating at full capacity.

8.Ofier full support for any resourcx• consent or other approval process that may be required

to faciEtate development of the Vñ e Centre at Northlake.

The parties further agree to:

•Jointly promote the Northlake development with a view to attracting other commercial operators,    i  h e    hasis  n  erators  nv  I ed min              medical or related disciplines, into the Northlake Village Centre.

•Jointly market the Northlake development and the Wanaka Medical Centre at Northlake including fairly sharing costs associated with advertising and promotion, shared use of logos and existing branding, signage and by other means.

CB123

eKeep all discussions and other information including commercial terms relating to the project, the wuJe+-NonhIake development, the existing and proposed medical practice confidential at all times.

Form of Agreement to Lease/Lease

This heads of agreement is not a legally binding document, however, the Landlord and Tenant agree to execute the agreement to lease and lease in the Landlord’s standard form with amendments to reflect the terms set out herein and in the Schedule

For and on behalf of

Dulv authorised sienatorv

For and on behalf of

1  1 Limited

Dulv authorised sienatorv

SCHEDULE C

CB18l

Wanaka Medical Centre witl:

11.Operate as a fully functioning General Practice offering the following services:

a, Catering to casual and emergency patients but without onsite access to X-rays;

b. Treatment of usual general practice accidents and Injuries, including suturing of wounds;

C, Independent clinics including (but not l\mlted to) skln cancer diagnosis and treatment, travel mediclne, aviation medicine, Diabetes and respitory care.

12.Offer a fully integrated patient service with the existing practice at Cardrona Valley Road.

13.Operate from the 2017 commencement date during the minimum hours of 9am — Spm Monday to Friday.

14, Operate from the commencement date with a minimum of Mo doctors, one nurse and one receptionist on sita.

15.Seek to grow to full capacity end excIus1veIy occupy the premises withln two years of the commencement date.

16.Be Cornerstone accredited and maintain the facility to a standard able to be accredited by Southern Cross for General Practice procedures.

17.Be entitled to sub-lease additional space whfiln the medical centre from the commencement date until such a point as the WMC is operating at full capacity (subject to certain requirements being met by the tenant and the sub-tenant)

18, Offerfull support for any resource consent or other approval process that may be required to facilitate development of the Village Centre at Northl8k9.

The parties further agree to:

19, Jointly promote the Northlake development with a view to attracting other commercia] operators, with emphasis on operators Involved in medical or related disciplines, into the Northlake Village Centre.

20.Jolntly markat the Northlaka development and the Wanaka Medical Centre at Northlake including fairly sharing costs associated with advertising and promotion, shared use of logos and existing branding, signage and by other means.

21.Keep all discussions 8nd other information Including commerdal terms relating to the project, the Northlake development, the existing and proposed medical practice confidential at all times.

Form of Agreement to cease/Lease

22.This heads of agreement Is not a legally binding document, however, the Landlord and Tenant agree to execute the agreement to lease and lease In the Landlord’s standard form (likely to be based on the ADLS form of leese) with amendments to reflect the terms set out herein and on commercial terms to be agreed between the part(es. Such agreement is conditional on the Landlord obtaining board epproval and any other local authority or regulatory approvals that may be required.

CB18]

For and on behalf of
Northlake investments Limited

For and on behalf of

Wanaka Medical Centre limited

Dated

SCHEDULE D

CB27 g

hem	Reference	Descrlption
”renart's Share of Operafing Expenses:	The proport[on th9t the Rentable Area of like Premises represents oyor the total Renlable Area of the Building. CPI adjusted eve iy year with a Mai1‹et Reviaw eveTy 5 years and on renewal. The Annual nent shall not be less than II e AnrsJa1 Rent payable immediately pFior to the relevant Market Review
14.		Annual Rent Market Review Datee:
1S.	Annual Rent Adjustment Detss (Fixed increase) :	3o November
Minimum Amount ef Public Risk Insui'ance:	10,000,000.
17.	Permi0ed Use of Pmnises:	0/tedical Cortaulrirtg & Aaaociated Para-medical 'Support Services
Default Rate:	A rate that is 1dF above the Landlord’s principal banlrer’s commemial lending rate ai the time of default.
19.	Retfecoration intervais:	Redecoration during the farm of the lease agreement will be the resp¢›risitiililr of tha tenant.
ZO.	Bank Guarantee Sum'	An amount eqUal tO 12 months Annual Gross Rent plus GSM from lime fa tiiTie, being initially $182,129