Northwest Developments Limited v Zhang
[2018] NZHC 298
•1 March 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-936
[2018] NZHC 298
BETWEEN NORTHWEST DEVELOPMENTS LIMITED
PlaintiffAND
CHENG ZHANG, JIN KUK JUNG AND PILL SOON SO
Defendants
Hearing: 27 February 2018 Appearances:
M J Fisher for the Plaintiff (to oppose)
T A Hwang for the Defendants (in support)
Judgment:
1 March 2018
JUDGMENT OF WOODHOUSE J
(Application for joinder of third party)
This judgment was delivered by me on 1 March 2018 at 4:00 p.m. pursuant to r 11.5 of the High Court Rules 1985.
Registrar/Deputy Registrar
……………………………………
Solicitors / Counsel:
Mr M J Fisher and Mr K J Ng, Barristers, Auckland
Mr C Girven (plaintiff’s solicitor), Castle Brown, Solicitors, Auckland
Mr R M Dillon and Ms T A Hwang, Queen City Law, Solicitors, Auckland
NORTHWEST DEVELOPMENTS LTD v ZHANG [2018] NZHC 298 [1 March 2018]
[1] The defendants (Jung) seek leave to join Sanli Homes Ltd and Sanli Group Ltd (Sanli) as third parties. Jung applies, in the alternative, for an order consolidating this proceeding with a proceeding in which Sanli sues Jung for specific performance of an agreement for sale and purchase of land (the Sanli proceeding).1 In the alternative Jung seeks an order for consolidation of this proceeding with the Sanli proceeding. As a further alternative application, Jung seeks an order for stay of the Sanli proceeding.
[2] The formal order sought in Jung’s application is to add Sanli as a second defendant; not the alternative orders referred to above. However, the grounds in support in the application state that Jung wishes “to file a statement of claim against Sanli”, which suggests a third party claim. Jung’s submissions make clear that the principal application by Jung is for leave to issue a third party notice. Leave is required because the notice was not issued within the time limit specified in the rules (as discussed below).
[3] Mr Fisher, for the plaintiff (Northwest), took no issue with the fact that the alternative orders now sought are not expressly sought in the formal application. He addressed the application for leave to issue a third party notice, and the applications for the alternative orders, on their merits. I am satisfied that is the proper approach.
Third party rules
[4] Rules 4.4 and 4.8 of the High Court Rules are the rules of central relevance on this application.
[5]Rule 4.4 relevantly provides as follows:
4.4 Third parties
(1)A defendant may issue a third party notice if the defendant claims any or all of the following:
(a)that the defendant is entitled to a contribution or an indemnity from a person who is not a party to the proceeding (a third party):
1 Sanli Homes Ltd v Jung HC Auckland CIV-2017-404-980.
(b)that the defendant is entitled to relief or a remedy relating to, or connected with, the subject matter of the proceeding from a third party and the relief or remedy is substantially the same as that claimed by the plaintiff against the defendant:
(c)that a question or issue in the proceeding ought to be determined not only between the plaintiff and the defendant but also between—
(i)the plaintiff, the defendant, and the third party; or
(ii)the defendant and the third party; or
(iii)the plaintiff and the third party:
(d)that there is a question or an issue between the defendant and the third party relating to, or connected with, the subject matter of the proceeding that is substantially the same as a question or an issue arising between the plaintiff and the defendant.
(2)A third party notice must be issued within—
(a)10 working days after the expiry of the time for filing the defendant's statement of defence; or
(b)a longer time given by leave of the court.
(3) …
[6] Rule 4.8 makes provision for the Court’s power and discretion on an application for leave, as follows:
4.8 Court's power and discretion
(1)On an application seeking leave to issue a third, fourth, or subsequent party notice, the court must have regard to all relevant circumstances, including delay to the plaintiff.
(2)On the making of an application of that kind, the court may grant or refuse leave or grant leave on just terms.
Northwest’s position
[7] Northwest accepts that paragraph (a) of r 4.4(1) applies. This is because Jung claims that it is entitled to an indemnity from Sanli. Northwest nevertheless opposes leave being granted. It also opposes the alternative orders sought.
[8] Mr Fisher advised that Northwest will, however, consent to an order that this proceeding and the Sanli proceeding be heard together and that evidence called in
relation to each proceeding will be admissible in the other. In support of this submission Mr Fisher referred to the procedure adopted in Water Guard NZ Ltd v Midgen Enterprises Ltd.2
Background facts
[9] Some of the background facts may conveniently be taken from a judgment of Jagose J in an earlier interlocutory application in this proceeding:3
[4] Northwest and Jung are each registered proprietors of neighbouring properties respectively at 81 and 77 Nobilo Road, Kumeu. These properties are part of a larger aggregation of properties known as the Huapai Triangle in Auckland’s Rodney District.
[5] The Huapai Triangle is intended to comprise a Special Housing Area (“SHA”) under the Housing Accords and Special Housing Areas Act 2013. Huapai Triangle landowners at the time entered into the Huapai Triangle Agreement dated 25 November 2013 (the “HTA”). Under the HTA, the landowners would collaboratively seek a private plan change to the Auckland Unitary Plan to accommodate the SHA development.
[6] On 6 May 2015, Northwest agreed to purchase 81 Nobilo Road from its registered proprietors (“Morton”). Pending settlement, Morton would continue to progress the private plan change as agent for Northwest. Settlement took place on 6 October 2016.
[7] In anticipation of (and conditionally on) the private plan change becoming operative, affected landowners, including Morton and Jung, entered into the Huapai Triangle 5 Landowners Infrastructure Agreement dated 23 June 2015 (the “5 Owners Agreement”). Under the 5 Owners Agreement:
(a)the landowners would work cooperatively to design and construct shared infrastructure (roading, water, sewerage, etc) for the development;
(b)easements over each other’s land were granted for access to provide and maintain the infrastructure (but on terms waiving any right to lodge, and prohibiting lodgement of, protective caveats);
(c)costs incurred in provision of the infrastructure were to be reimbursed proportionately between the landowners at a later date (but in any event on or before settlement of any transfer of their particular land);
(d)the rights and obligations of each party were to be assigned to successors in title to run with their respective lands, by
2 Water Guard NZ Ltd v Midgen Enterprises Ltd [2015] NZHC 2227 at [1] and [18].
3 Northwest Developments Ltd v Jung [2017] NZHC 1891.
novation of the Agreement or a new agreement in the same terms; and
(e)each party was obliged to sign all necessary deeds and documents and do everything reasonably required to carry out the Agreement's terms.
[8] There is also a Huapai Triangle 6 Landowners Infrastructure Agreement of indeterminate later date (the “6 Owners Agreement”) between affected landowners, similarly to cooperate and meet the cost of infrastructure for the development, and to run with the lands.
[9] On 6 May 2016, Jung agreed to sell 77 Nobilo Road to Sanlii [sic] Homes Limited (“Sanlii”), to settle on 8 May 2017. The Agreement for Sale and Purchase was unconditional, and contained no provision for Sanlii to succeed to Jung's rights and obligations under the 5 Owners Agreement.
[10] A Deed of Authority dated October 2016 entitled Sanlii to act on Jung's behalf as if it were owner of 77 Nobilo Road, but subject to an indemnity in Jung's favour “for any liability for costs that Jung might incur as owner of the Property and which are incurred as a result of [Sanlii’s] actions”. At least in that capacity, Sanlii participated in ongoing arrangements for provision of the development's infrastructure under the 5 Owners Agreement. Northwest incurred those infrastructure costs, and invoiced Sanlii for the proportionate share to be borne by the registered proprietor of 77 Nobilo Road. Northwest later readdressed those unpaid invoices to Jung.
[11] Sanlii did not formally become party to the 5 Owners Agreement (by novation, or otherwise), or to any new agreement in the same terms. But Sanlii did sign the 6 Owners Agreement – either under the Deed of Authority for Jung, or as successor in title to Jung (for which the 6 Owners Agreement made express provision). (Morton also signed the 6 Owners Agreement, presumably as agent for Northwest.)
[12]A proffered Deed of Novation, substituting Northwest as party to the
5 Owners Agreement in place of Morton, was signed by Morton and Northwest and the other continuing landowners except Jung. The Deed records Sanlii as a party to it and asserts in its recitals Sanlii entered into the 5 Owners Agreement on the basis of its unconditional agreement to purchase Jung's land. But Sanlii did not sign the Deed. And Jung denies liability to pay any proportion of infrastructure costs incurred (possibly, since sale to Sanlii) by Northwest.
[10] The applications determined by Jagose J were one by Northwest for an interim injunction and another by Jung to remove a caveat lodged by Northwest against title to Jung’s land. Northwest sought to restrain Jung from transferring 77 Nobilo Road to Sanli until Jung had complied with its obligations under the 5 Owners Agreement and caused Sanli to enter into a new agreement with the other parties to the 5 Owners Agreement, or executed a deed of novation, which would bind Sanli on the same terms.
An interim injunction was granted on those terms, together with further orders. Jung’s application to remove the caveat was dismissed.4
[11] The Sanli proceeding was issued on 16 May 2017. An application by Sanli for summary judgment has been withdrawn, and the proceeding has not progressed further. There is an order that the Sanli proceeding be case managed with this proceeding.5
Assessment of the third party application
[12] Relevant principles on the application of rr 4.4 and 4.8 were helpfully summarised by Associate Judge Osborne in Westwood Group Holdings Ltd v Rilean Construction (South Island) Ltd as follows:6
(a)The defendant’s claim against the third party must be covered by one of the four grounds set out in r 4.4(1). A defendant may join the third party as of right within the time limit set down in r 4.4(2)(a). An application outside this time limit requires leave of the Court (r 4.4(2)(b)).
(b)Where leave is sought, the Court must consider firstly whether one of the grounds in r 4.4(1) exists and secondly whether to exercise its discretion to join the third party: ANZ Banking Group (NZ) Ltd v Dairy Containers Ltd.
(c)In exercising its discretion, the Court must have regard to all relevant circumstances, including delay to the plaintiff (r 4.8).
(d)The interest of justice between all parties, however, is paramount. While any delay to the plaintiff is regrettable, the attainment of justice by the most efficient means is an overriding consideration: KPMG Peat Marwick v Cory-Wright & Salmon Ltd (in rec and liq).
(e)Where the defendant has not been guilty of unreasonable delay, a factor in favour of exercising the discretion will be whether the defendant could have joined the third party as of right if it had applied within the time limit: ANZ Banking Group (NZ) Ltd v Dairy Containers Ltd.
(f)Equally, unexplained or unacceptable delay by the defendant may result in leave being refused: Meroiti v National Australia Finance Ltd.
4 The formal orders are at [38].
5 Minute of Woolford J in the Sanli proceeding: HC Auckland CIV-2017-404-980, 18 May 2017.
6 Westwood Group Holdings Ltd v Rilean Construction (South Island) Ltd [2013] NZHC 1739 at [15].
(g)In cases of serious delay that risk prejudicing the plaintiff, the court may be prepared to make an order for joinder on conditions designed to preserve the hearing date for the plaintiff's claim against the defendant: Total Air Supply Company Ltd v Total Air Supply Company (2007) Ltd.
(h)Avoiding duplicity of proceedings and preventing the same question being tried with different results militate in favour of allowing the application. The overriding purpose of the third party rules is to enable all the issues to be dealt with in one action: Turpin v Direct Transport Ltd.
(i)There is, however, a need to strike a balance between all the parties’ interests. The extent to which the plaintiff is necessarily involved in the issues between the defendant and the third party is a consideration. Equally, it can be oppressive and unjust to involve a third party in a proceeding where much of the proceeding will not involve that third party.
(j)The Court may have regard to the relative strengths and weaknesses of the parties’ cases, including the case against the proposed third party and the likelihood of recovery: Dairy Containers Ltd v NZI Bank Ltd.
(footnotes omitted)
[13] In respect of that summary of principles, no question arises which requires consideration of the interests of the proposed third party, Sanli. Nor is delay by Jung a material consideration for reasons I will come to.
[14] The principal enquiry arises from Northwest’s opposition on three grounds, as follows:
(a)This proceeding and the Sanli proceeding do not involve the same facts and legal issues.
(b)Northwest has no cause of action against Sanli and “no basis to compel Sanli to do anything”.
(c)Northwest’s proposal that the two proceedings be heard together removes risks of conflicting judgments, duplication of proceedings, or other considerations of that nature, which might otherwise justify joinder.
[15]I am not persuaded by Northwest’s submissions to refuse leave.
[16] The first reason is that the submissions implicitly require that little or no weight be given to the fact that Jung’s application for joinder clearly meets r 4.4(1)(a) – Jung’s claim to an indemnity. That claim is founded on a documented agreement between Jung and Sanli. The Court is required by r 4.8 to consider all relevant circumstances. The entitlement to an indemnity is a relevant circumstance of consequence. It bears in a substantial way on one of the two main claims by Northwest against Jung: that Jung be restrained from transferring title of its land until Jung has paid Northwest a sum of approximately $500,000 plus interest. This is claimed to be Jung’s share of development costs owing under the 5 Owners Agreement and therefore, from Jung’s perspective, in respect of land Jung has already agreed to sell to Sanli with Sanli seeking to enforce that agreement for sale and purchase. Jung claims that the indemnity is in respect of any liability Jung may have for these costs, but Jung further contends that it has no liability for other reasons I will note below.
[17] Northwest, before proceeding with the work, sought authority from other land owners. The authority in respect of 77 Nobilo Road came directly from Sanli to Northwest in the circumstances noted at [10] in the judgment of Jagose J.7 Jung pleads that Northwest commenced the works on Sanli’s authority on the basis that Sanli would be liable for the fees. As also noted by Jagose J at [10], Northwest’s invoices for the work undertaken went to Sanli. They were only redirected to Jung when Sanli failed to pay.
[18] A particular issue identified by Mr Fisher, in support of Northwest’s argument that the two proceedings involve different facts and legal issues, is whether Jung is bound by the acts of Sanli. As I understand it, this is said to be an issue arising solely in Northwest’s proceeding. Viewed solely from Northwest’s perspective, that might be seen as an issue that does not affect Sanli. But if the conclusion is that Jung is not bound by the acts of Sanli then, on the face of it, Sanli is liable to Northwest. The same issue arises in Jung’s draft third party statement of claim against Sanli. Not only are there common issues, but there will also be an entitlement of Northwest to compel
7 Reproduced at [9] above.
Sanli to pay if the Court concludes that Jung is not bound by Sanli’s acts, contrary to the second part of Northwest’s argument (noted above at [14](b)).
[19] Northwest’s submissions, in considerable measure, are submissions that paragraphs (b) to (d) of r 4.4(1) do not apply. In my opinion all three apply and would also have entitled Jung to issue a third party notice as of right had it done so in time. Ms Hwang, for Jung, made submissions to that effect, and I agree with them.
[20] It is unnecessary to consider the pleadings and evidence in relation to each of paragraphs (b) to (d) in r 4.4(1). I will simply note some of the substantial issues that arise, mainly from Jung’s proposed claims against Sanli, its defence to the Northwest claim, and its counterclaims against Northwest:
(a)There is an issue whether the 5 Owners Agreement is still in force. The answer will have major consequences for Sanli as well as for Northwest and Jung, including in relation to the agreement for sale and purchase between Jung and Sanli.
(b)If the 5 Owners Agreement is still in force, there is an issue whether Sanli has effectively bound itself to the obligations to the other owners under that agreement through its knowledge and conduct. Jung alleges, for example: that Sanli had knowledge of the obligations of an owner pursuant to the 5 Owners Agreement before entering into the agreement to buy from Jung; that there were direct dealings relevant to these obligations between Northwest and Sanli before and after Sanli entered into the agreement; and that there were relevant representations by Northwest and by Sanli to Jung before and after the agreement for sale and purchase was entered into.
(c)There is an issue whether the fact that both Sanli and Northwest are parties to the 6 Owners Agreement (apparently not in dispute) constitutes compliance by Jung of its obligations under the 5 Owners Agreement.
(d)There is an issue whether both Northwest and Sanli are in breach of s 9 of the Fair Trading Act 1986, which prohibits conduct in trade that is misleading or deceptive, or likely to mislead or deceive. Jung’s counterclaim against Northwest, issued before this third party application was made, includes a claim against Northwest pursuant to s 9 of the Fair Trading Act founded, at least in part, on allegations relating to dealings between Northwest and Sanli. There is a similar claim by Jung against Sanli, as a counterclaim in the Sanli proceeding and in the draft third party statement of claim against Sanli. There are differences in some of the factual allegations, but there is substantial overlap between the claims. In addition, under s 43(3)(c) of the Fair Trading Act, the Court has wide powers to make an order varying a contract, or a “collateral arrangement”. There is no express limit on the nature of the variation. Without intending to express any view on the scope of this provision, let alone whether it might apply in this case, I am satisfied that it is in the interests of justice that the three parties potentially affected by exercise of that power are all before the Court in a single proceeding. All three are potentially affected because of arguments whether parties have been released from, or have assumed, contractual obligations, and whether parties have lost or acquired contractual rights.
(e)There is an issue as to the legal effect, if any, of a document Jung refers to as the “Two Owners Agreement”. This is a document drafted by Northwest as an intended agreement between Jung, as owner of 77 Nobilo Road, and Northwest as purchaser of 81 Nobilo Road. The two pieces of land are contiguous. The document records agreement to enable a road to be constructed between the property to “allow access to both parties’ land needed for development and residential use”. Jung declined to sign the agreement, when requested to do so by Northwest, and advised Northwest to get Sanli to sign it. Jung has produced a copy of the document apparently signed by Sanli. There is no signature on behalf of Northwest on this document. Issues relating to this document need to be resolved between the three parties in one proceeding
[21] Northwest’s application for an interim injunction against Jung did not require consideration of the application of r 4.4. However, there was sufficient information before Jagose J to identify some of the issues just referred to. He said:8
[27] In my view, there is a serious question to be tried as to the state and meaning of the Agreements controlling relationships between Northwest and Jung in relation to their Huapai Triangle landholdings. There are serious questions for determination at least about whether:
(a)Northwest is entitled to claim benefits from, or enforce obligations against, Jung under the 5 Owners Agreement;
…
(c)Jung has complied with the 5 Owners Agreement in terms of the sale of its land to Sanlii, including whether that compliance is met by the 6 Owners Agreement.
[22] There was a further submission from Mr Fisher that, if there is an order that the proceedings be heard together, but Sanli is not joined to this proceeding as a third party, this will enable Northwest to avoid being involved in interlocutory proceedings of no concern to Northwest and, at trial when appropriate, for counsel for Northwest to seek leave to be absent for those parts of the trial affecting Jung and Sanli only. Considerations of that nature do not come close to altering a conclusion in favour of granting leave arising from the matters discussed to this point. In addition, it is likely that, if Sanli is joined and there are interlocutory applications which do concern Northwest, or parts of the trial which could not affect Northwest, appropriate arrangements can be made as matters proceed.
[23] For these various reasons I am satisfied that, subject to the question of delay, leave should be granted to issue the third party notice and that the alternative of hearing this proceeding and the Sanli proceeding together would not be satisfactory.
[24] Mr Fisher did not submit that delay is a disentitling factor. That was a responsible position to adopt. The delay is adequately explained, and is not unreasonable, particularly given the earlier interlocutory applications in this proceeding and the summary judgment application by Sanli against Jung in the Sanli
8 Northwest Developments Ltd v Jung, above n 3, at [27].
proceeding. Given Northwest’s position, it is unnecessary to expand on this, other than to record that I agree with Ms Hwang’s submissions on the point.
[25] It is also unnecessary to consider the alternative application for consolidation or stay of the Sanli proceeding.
Result
[26]I make the following orders and directions:
(a)The defendants are granting leave to issue a third party notice to Sanli Homes Ltd and Sanli Group Ltd.
(b)A third party notice and the statement of claim required by r 4.11 must be filed within 10 working days of the date of this order.
(c)The documents required to be served under r 4.12 are to be served within 20 working days of the date of this order.
(d)A case management conference for this proceeding and the proceeding in this Registry under CIV-2017-404-980 – Sanli Homes Ltd v Cheng Zhang – is to be allocated on the first available date on or after 25 working days after the date of this order.
(e)The defendants are entitled to costs, on a 2B basis, for preparation for and attendance at the hearing, but not in respect of the preparation and filing of the interlocutory application. Any issue as to quantum is to be determined by the Registrar in the first instance.
Woodhouse J
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