Phoenix Holdings Trust Limited v Raceway Estates Limited
[2015] NZHC 1470
•29 June 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-1445 [2015] NZHC 1470
BETWEEN PHOENIX HOLDINGS TRUST
LIMITED First Plaintiff
WAH HAN CHIN Second Plaintiff
KAMINI JATINKUMAR PATEL Third Plaintiff
KIMPUBEN RAKESHBHAI SONI Fourth Plaintiff
JARIN NIRANG SHAH Fifth Plaintiff
AND
RACEWAY ESTATES LIMITED Defendant
Hearing: 25 June 2015 Appearances:
P M Webb and A C Fuiava for plaintiffs
J Foster for defendantJudgment:
29 June 2015
JUDGMENT OF LANG J
[on application for declaratory relief]
This judgment was delivered by me on 29 June 2015 at 3 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
PHOENIX HOLDINGS TRUST LTD v RACEWAY ESTATES LTD [2015] NZHC 1470 [29 June 2015]
[1] The defendant, Raceway Estates Limited (Raceway), is the developer of a 57 section subdivision in Porchester Road, Takanini. The plaintiffs entered into agreements to purchase ten of the sections in the subdivision.
[2] Once titles to the properties became available, Raceway notified the plaintiffs and the parties prepared for settlement. Raceway’s solicitors forwarded the plaintiffs’ solicitors settlement statements in the usual way. Each of these sought payment of an outgoing described as an infrastructure growth charge (IGC). These claims reflected payments that Raceway had made earlier to a company called Veolia Water Solutions Technologies (New Zealand) Limited (Veolia) in respect of water services to be provided to the sections in the subdivision. Raceway sought payment of the sum of $9954.40 in respect of each section.
[3] The plaintiffs immediately advised Raceway that they objected to making these payments. They also offered to proceed to settlement on the basis that the disputed sums were paid into a trust account pending resolution of the dispute. Raceway rejected this proposal, and told the plaintiffs that it would not complete the sale of the sections unless they paid the full amounts claimed in the settlement statements. The plaintiffs ultimately elected to pay those sums, but without prejudice to their right to recover them from Raceway following settlement.
[4] For reasons that are not clear, the plaintiffs do not seek to recover from Raceway the sums that they paid under protest. Rather, they seek a declaration that the IGC’s did not constitute apportionable outgoings under the sale and purchase agreements that they entered into with Raceway. For that reason this judgment deals only with that issue. It does not deal with the wider issue of whether or not Raceway
should be required to repay those sums.1
Background
The infrastructure growth charges
[5] The sections that the plaintiffs have purchased were situated within what was formerly the Papakura District. In or about 1997, the Papakura District Council entered into a contract with Veolia under which Veolia assumed responsibility for providing water services, including new water connections, to land within that district. The contract permitted Veolia to charge customers for the provision of those services. Veolia has purported to use this power to levy IGC’s in respect of new
water connections in the area formerly comprising the Papakura District.2
[6] After Raceway entered into the agreements with the plaintiffs, it discovered that Veolia had adopted a policy of requiring any property developer undertaking a subdivision of land to enter into an agreement with it relating to the provision of water services to newly subdivided sections. These agreements require the developer to pay Veolia the IGC’s payable in respect of the new sections prior to the point at which Veolia connects the sections to the water supply.
[7] Veolia’s policy has significant consequences for property developers such as Raceway. If a developer fails to pay the charge, Veolia will not provide the Council with the producer statement required by the resource consent granted in respect of the subdivision. Without the producer statement, the developer is unable to obtain a certificate under s 224(c) of the Resource Management Act 1991. Without the s 224 certificate, the developer cannot obtain new titles for the subdivided sections. This means that it cannot complete the sale of sections in the subdivision to purchasers such as the plaintiffs.
[8] Veolia’s policy in respect of IGC’s is different to that applied by the Watercare Services Ltd (Watercare), the other major supplier of water services in the greater Auckland region. Watercare requires the IGC’s to be paid when it connects new sections to the water supply. As a result, IGC’s are generally paid by the purchasers of newly subdivided sections rather than developers. Raceway had never
dealt with Veolia before. It entered into the agreements with the plaintiffs under the mistaken belief that Veolia’s policy in relation to the payment of IGC’s was the same as that of Watercare.
[9] Raceway went to great lengths to persuade Veolia to relax its policy, but Veolia would not budge. Raceway ultimately concluded that it had little choice but to enter into an agreement with Veolia under which it agreed to pay the IGC’s notwithstanding the fact that the water connections were yet to be installed. Had Raceway not done so, it would have been unable to complete the sale of the sections to the plaintiffs. Raceway then sought, successfully as it transpired, to pass the cost of the IGC’s on to the plaintiffs on settlement.
The agreements for sale and purchase
[10] All of the agreements for sale and purchase contain special conditions relating to the completion of the subdivision, but the general terms are those contained in the Eighth and Ninth Editions of the Auckland District Law Society – Real Estate Institute (ADLS-REI) standard form. There is no material difference for present purposes between the two forms.
[11] All of the agreements contain the following clause in the General Terms and
Conditions:3
Settlement
3.6The vendor shall prepare, at the vendor’s own expense, a settlement statement. The vendor shall tender the settlement statement to the purchaser or the purchaser’s lawyer a reasonable time prior to the settlement date.
[12] The agreements also contain the following definition of “settlement
statement”:
(21) “Settlement statement” means a statement showing the purchase price, plus any GST payable by the purchaser in addition to the purchase price, less any deposit or other payments or allowances to be credited to the purchaser, together with apportionments of all incomings and outgoings apportioned at the settlement date.
3 Although some of the clauses are numbered differently.
[13] The agreements also record:
3.7 On the settlement date:
(1) The balance of the purchase price, interest and other moneys, if any, shall be paid by the purchaser in cleared funds or otherwise satisfied as provided in this agreement (credit being given for any amount payable by the vendor under subclause 3.12 or
3.13);
…
[14] The issue in the present case is whether the IGC payments that Raceway made to Veolia fall within the description of outgoings payable by the plaintiffs on settlement in terms of the clauses set out above.
Do the claims for reimbursement of the IGC payments fall within the description of outgoings payable on settlement?
[15] The ADLS-REI standard form agreements do not define the outgoings that will be claimable by the vendor on settlement. In ascertaining the meaning to be given to the term “outgoings” in this context I gratefully adopt the observations made about this topic by the learned authors of Sale of Land.4 They approach the issue on the basis that the right to receive income and the obligation to pay outgoings depend on the right to possession of the land. They observe:
11.07 Apportionment of incomings and outgoings. Once the equitable interest in the land has passed to the purchaser, any capital appreciation or loss falls on that party. But it is possession, or the legal right to it, which carries the right to receipt of any incomings, such as rent or other profits, and also the obligation to pay any outgoings. Hence all incomings and outgoings must be apportioned between the vendor and the purchaser as at the date of possession. This applies whether possession is contemporaneous with transfer of title and final payment or whether it is earlier, as in the case of a long term agreement with the purchaser paying off the purchase price by instalments under the contract while in possession of the land.
[16] The learned authors of Sale of Land also observe that the clauses relating to apportionment of outgoings in the ADLS-REI agreements apply only to apportionable sums, and not to any outgoing not of an apportionable nature.5 In this
context apportionable payments generally relate to periodical payments in respect of
4 DW McMorland Sale of Land (3rd ed, Cathcart Trust, Auckland, 2011).
5 At 460.
a fixed or ascertainable period of time and are regarded as accruing from day to day. Citing the Rulings Manual of the Auckland District Law Society, they go on to say:6
Where the vendor has paid a local authority for capital work to be done, such as sewerage work, and has not provided in the contract for this cost to be apportioned with the purchaser, the vendor must bear the whole of the cost and cannot claim a share from the purchaser.
[17] Applying these principles, I conclude that the IGC payments cannot properly be regarded as outgoings that may be recovered on settlement in terms of the ADLS- REI agreements for sale and purchase. They cannot in any sense be regarded as being periodical payments in respect of a fixed or ascertainable period of time. Rather, they were one-off payments made to enable Raceway to obtain a producer statement that was one of the pre-requisites for new titles to issue. Raceway also made the payments at a time when it was in possession of the land. For those reasons the payments were not apportionable as between Raceway and the plaintiffs. Although they related to water connections that were to be installed in the future, that fact does not affect the character of the payments.
[18] If Raceway had wanted to recover the cost of the IGC’s from the plaintiffs it could have inserted an express term in each agreement requiring the purchaser to reimburse it in respect of that expense. Raceway has apparently now adopted this method in order to achieve that outcome.
Relief
[19] Ms Foster submits that the Court should exercise its discretion not to make the declaration that the plaintiffs seek. She submits that restitutionary principles are relevant to the exercise of the discretion in the present context. She contends that the only reason Raceway made the payments was to ensure that the plaintiffs were able to acquire their sections. Had it not been for Veolia’s uncompromising stance, the plaintiffs or subsequent owners of the sections would have been required to pay the IGC’s when they asked for water connections to be installed. Those parties have received the benefit of the payments that Raceway made because their obligation to
pay the IGC’s has been met. The plaintiffs and subsequent owners will therefore be
6 Auckland District Law Society, Rulings Manual, (2008), 1.4.
unjustly enriched if the Court lends its support to an argument that may prevent
Raceway from recovering the payments it made for their ultimate benefit.
[20] Those factors may or may not become relevant in the event that the plaintiffs subsequently seek to recover the sums they paid to Raceway on settlement. I do not consider, however, that they should be given weight in the present context. The plaintiffs have sought the opinion of the Court regarding the interpretation to be applied in respect of a term used in the agreements for sale and purchase. I consider they are entitled to receive that opinion in declaratory terms.
Result
[21] I make a declaration that the IGC’s cannot be regarded as outgoings in terms of the agreements for sale and purchase between Raceway as vendor and the plaintiffs as purchasers.
Costs
[22] The plaintiffs have succeeded and are entitled to an award of costs on a category 2B basis together with disbursements as fixed by the Registrar.
Lang J
Solicitors/Counsel:
P M Webb, Auckland
Anthony Gore Limited, Auckland
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