Tainui Development Limited v Bella's Trustee Limited HC Hamilton CIV 2009-414-1582
[2010] NZHC 1165
•24 June 2010
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV 2009-414-001582
BETWEEN TAINUI DEVELOPMENT LIMITED Plaintiff
ANDBELLA'S TRUSTEE LIMITED First Defendant
ANDACUITY TRUSTEE LIMITED Second Defendant
ANDJONATHON LINDSAY SPENCER Third Defendant
ANDSTEVEN JOHN DOUGLAS HAWKINS Fourth Defendant
ANDBOAT HARBOUR VENTURE LIMITED Fifth Defendant
Hearing: 22 June 2010
Counsel: SJP Ladd and HDL Steele for Plaintiff
PJ Davey for Defendant
Judgment: 24 June 2010 at 9:30am
RESERVED JUDGMENT OF JUDGE FAIRE [on application for summary judgment]
TAINUI DEVELOPMENTS LTD V BELLA'S TRUSTEE LTD AND ORS HC HAM CIV 2009-414-001582
24 June 2010
Solicitors: Bell Gully, PO Box 4199, Auckland for plaintiff
Steindle Williams Legal, PO Box 47 858, Ponsonby for defendant
The application
[1] The plaintiff applies for summary judgment. It seeks:
a) An order for specific performance requiring the defendants to co- operate and do all things within their power to facilitate and complete the orderly sale of the joint venture or its assets in accordance with clause 17(d) and in particular orders to:
i) Sign resolutions for the sale of the joint venture or its assets;
ii)Sign a real estate agency agreement with Jones Lang Lasalle to sell the property;
iii)Contribute to the costs of marketing the property in accordance with the joint venturers’ prescribed equities;
iv)Instruct the fifth defendant to take all actions necessary in connection with the sale of the property;
b) A declaration that the first and second defendants’ payment of
$177,245.64 to the joint venture is a capital contribution as defined in clause 1(d) of the agreement;
c) A declaration that the priorities for distribution of all available funds and earnings of the joint venture set out in clause 11(b) of the agreement apply to repayment of the first and second defendants’ capital contributions of $177,245.64; and
d) Costs.
The opposition
[2] The defendants oppose the making of orders:
a) Requiring them to contribute to the costs of marketing the property in accordance with the joint venturers’ prescribed equities;
b)Instructing the fifth defendant to undertake all actions necessary in connection with the sale of the property;
c) That a declaration be made that their payments of $177,245.64 to the joint venture be as a capital contribution as defined in clause 1(d) of the agreement; and
d)That a declaration that the priorities for distribution of all available funds and earnings of the joint venture set out in clause 11(b) of the agreement apply to repayment of the first and second defendants’ capital contribution of $177,245.64.
[3] The opposition was modified slightly by Mr Davey in his submissions. He advised, as is confirmed in the affidavits, that the first and second defendants do not oppose the sale of the subject property and are willing to:
a) Sign a resolution of the management committee for the sale of the joint venture; and
b)Sign a real estate agency agreement with Jones Lang LaSalle to market the property for sale.
Background
[4] This proceeding concerns a 230 hectare property located on the north western shores of Lake Taupo. In February 2007 the company associated with Mr Spencer, the third defendant, and Mr Hawkins, the fourth defendant, became the registered owner of the property. A proposal for development of high quality residential villas, and clubhouse facilities surrounding an international standard eighteen hole golf course on the property was put together. The plaintiff decided to participate in the
development. The parties agreed to establish an unincorporated joint venture. That is known as the Boat Harbour Joint Venture. It then purchased the property from the company associated with Mr Spencer and Mr Hawkin. It used a nominee, Boat Harbour Ventures Limited, the fifth defendant, for that purpose. In early March
2008 the parties signed the joint venture agreement. The parties to the joint venture agreement are the plaintiff and the defendants.
[5] The joint venturers are the plaintiff and the first and second defendants. The third defendant is the guarantor of the first defendant’s obligations. The fourth defendant is the guarantor of the second defendant’s obligations. As I have mentioned, the fifth defendant is the nominee vehicle by which the property which was acquired was held. Its constitution provides for a director appointed by the plaintiff and a director appointed by the first and second defendants. The shareholders are also the plaintiff and first and second defendants.
[6] The price paid by the fifth defendant for the purchase of the property was
$9,800,000. The plaintiff contributed $6,552,000. The first and second defendants each contributed $1,924,000. The excess of $600,000 was retained as working capital for the joint venture.
[7] The joint venture agreement gives the plaintiff priority for recovery of its equity, plus an amount equal to a pre-tax return on its capital of 12 per cent per annum, compounding annually from the date of the making of its capital contributions, ahead of the defendants’ capital in respect of distributions of all available funds and earnings of the joint venture.
[8] The capital contributions of the parties then expressed as a percentage at the time of purchase were the plaintiff (63 per cent) and each of the first and second defendants (18.5 per cent), altogether 37 per cent.
[9] Between March 2008 and October 2008 the joint venture took various steps to develop the property. In October 2008 it required further funds. The plaintiff contributed a further $301,796.63. The first and second defendants together, collectively, contributed a further $177,245.64. The contributions were on the same
percentage basis as the contributions made at the time of the initial purchase of the property.
[10] It is common ground that by late 2008 it had become clear that with the rapid deterioration of the domestic and global economies, and a high risk to achieve resource consent for the project, the continuation of the development was not commercially feasible and presented too high an investment risk.
[11] The fourth defendant obtained, on behalf of the joint venture, a valuation from registered valuers Jones Lang LaSalle. The valuers valued the property at
$3,000,000 plus GST.
[12] The first, second, third and fourth defendants acknowledge that a sale of the property is unlikely to result in any return to the first and second defendants in respect of their initial investment. That is because of the priority accorded to the plaintiff’s capital under the joint venture agreement.
Issues raised by this application
[13] Mr Davey summarised the issues correctly, in my view, as follows:
a) Whether an order should be made for the first and second defendants to instruct the fifth defendant to undertake all actions necessary in connection with the sale of the property;
b)Whether the terms of the joint venture agreement require that the first and second defendants to contribute to the marketing costs of the sale of the property; and
c) Whether a declaration should be made that the sum of $177,245.64 be treated as a capital contribution under the terms of the joint venture agreement.
The court’s approach to a plaintiff’s summary judgment application
[14] Rule 12.2 of the High Court Rules requires that a plaintiff satisfy the court that a defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action. The rule permits the entry of judgment in respect of part of a claim, as was made clear by the amendment introduced by r 5 of the High Court Amendment Rules 2009 (SR 2009/75). The obligations imposed by the rule have been examined by a number of authorities.
[15] The correct approach to an application for summary judgment by a plaintiff was recently summarised by the Court of Appeal in Krukzeiner v Hanover Finance Ltd1 where the court said:
The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11
PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
[16] Relief by way of a degree of specific performance may be granted by the court in a summary judgment application. The position was discussed in Discount Liquor Blenheim Road Ltd v Malstrom Holdings Ltd.2 Likewise, the court may grant
a declaration in a summary judgment application: Towers v R & W Hellaby Ltd.3
Whilst there is jurisdiction to give both remedies, a matter the court will have to determine is whether the particular facts of the case justify either remedy.
Should an order for sale of the subject property be made?
[17] The joint venture agreement, by clause 17(d) provides:
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at 26.
2 Discount Liquor Blenheim Road Ltd v Malstrom Holdings Ltd HC Christchurch, CP 66/01
10 October 2001 at [52]-[57].
Termination – If the Joint Venturers resolve unanimously not to proceed with the development of the Property then the Joint Venture will be sold as a going concern or, failing that, the assets of the Joint Venture shall be disposed of by the Management Committee at their best realisable value on arm’s length terms (including by way of sale to any Joint Venturer or any Affiliate of a Joint Venturer) and the net proceeds applied towards the discharge of the debts and liabilities of the Joint Venture (including the Capital Contributions in accordance with clause 11). Any surplus shall be distributed to and any deficiency shall be met by the Joint Venturers in the proportion to their respective Prescribed Equity at the date of dissolution. The Joint Venturers will cooperate and do all things within their power to facilitate and complete the orderly sale of the Joint Venture or its assets.
[18] The principal parties agree that the subject property must be sold. I expressed the court’s disappointment that it has taken the issue of the proceeding to establish the clear and unequivocal agreement of the parties on that position. However, what is now clear is that there is agreement for sale and that, accordingly, clause 17(d) applies.
[19] Once the agreement to sell is found to exist then the plaintiff and the first and second defendants, as the joint venturers are contractually bound to cooperate and do all things within their power to facilitate and complete the orderly sale of the joint venture or its assets.
[20] Having regard to the way ownership of the assets was acquired, the implementation of clause 17(d) requires the plaintiff and the first and second defendants, in their capacity as shareholders and directors of the fifth defendant, pursuant to its constitution, to carry into effect the obligation to cooperate and do all things within their power to facilitate the complete and orderly sale of the joint venture and its assets, which include the fifth defendant performing that roll as the legal owner of the property as trustee for the parties.
[21] In the course of counsel’s submissions I drew attention to the obvious conclusion. I gave counsel the opportunity to consider with me the form of order that could be made at this stage.
[22] Although the form of order is not made on a consent basis, I am satisfied that
I have covered the matters that were raised by counsel. Accordingly, the order for
3 Towers v R & W Hellaby Ltd (1987) 3 NZCLC 100,064.
sale will provide for the making of an order that a decree of specific performance do issue which requires the plaintiff and the first to fifth defendants to cooperate and do all things within their power to facilitate and complete the orderly sale of the subject property and any joint venture assets.
[23] Because the precise steps to implement the order for specific performance were not specifically addressed in the papers before me, I reserve leave to the parties to seek further orders or directions in the event that there is no agreement on the method of sale, including the appropriate marketing to be undertaken. I record that counsel may find some assistance in orders that are made by the court when dealing with orders for sale of property owned by co-owners pursuant to the Property Law Act 2007, s 339. A check mechanism as to the reasonableness of the arrangements for sale might also be found by considering those judgments of the court which deal with the exercise of the power of sale by a mortgagee pursuant to the Property Law Act 2007, s 176. I make these comments in the hope that they are helpful to the parties when they meet to determine the appropriate arrangements for sale of the property.
[24] The above disposes of the first of the issues which I have recorded in [13] of this judgment.
Contribution to the marketing costs of the sale of the subject property
[25] The answer to this question, likewise, can be found in clause 17(d) of the joint venture agreement.
[26] The evidence before me indicates that the joint venture currently has a surplus of funds available to it. Those funds can be applied for the purpose of marketing the property.
[27] Although Mr Spencer, in prior communications, indicated a refusal to agree to the use of the joint venture funds for marketing the property for sale, Mr Davey, his counsel, indicated that that opposition no longer applied.
[28] It is not appropriate for me to make any specific order in this judgment because, as yet, there is no deficiency. There is accordingly no need to order further contributions from the joint venturers for the purposes of covering the marketing costs of the sale of the property. That, however, is the only reason why I do not make an order in relation to this matter. Clearly, if there were no funds held by the joint venture and reasonable costs were proved to be needed to be expended to effect a sale of the subject property, an order at that time would be justified by virtue of clause 17(d) of the joint venture agreement.
Should a declaration be made that $177,245.64 be treated as a capital contribution under the terms of the joint venture agreement?
[29] As recorded in the background summary in this judgment, this figure was contributed by the first and second defendants at the same time as a sum of
$301,796.63 was contributed by the plaintiff in October 2008.
[30] The starting point for an examination as to the status of these payments is the joint venture agreement itself.
[31] Under the interpretations and definitions provisions of that agreement, clause 1, capital contributions means:
in relation to a Joint Venturer all amount of capital contributed by that Joint Venturer to the Joint Venture as approved by the Management Committee, including, without limitation, the payments to be made under clauses 8(a) and (b).
[32] The reference to clause 8(b) can be ignored because it related to the potential purchase of another block which did not proceed. Clause 8(a) of the joint venture agreement provides:
Purchase of Otutira Station and Capital Contributions: On or before
7 March 2008 the following contributions shall be made to the Joint Venture which shall be used to complete the purchase of Otutira Station and to provide up to $600,000.00 of working capital:
TDL $6,552,000.00
Acuity $1,924,000.00
Bellas $1,924,000.00
The Joint Venturer contributions in respect of working capital shall only be used with the prior written approval of TDL and on the incurrence of the relevant costs and receipt by the Joint Venture of bona fide invoices in respect of the relevant costs.
[33] The joint venture agreement also provides for other funding provided by the joint venturers. That is clause 8(d) which provides:
Where the funding requirements provided for in sub clauses (a) and (b) above are insufficient to meet the requirements of the Joint Venture then one or more of the Joint Venturers may elect to make a further contribution or contributions to the Joint Venture, but shall be under no obligation to do so. As a matter of general policy, the Joint Venture will seek to rely on funding provided by Joint Venturers to the minimum extent necessary and where Joint Venturer funding is provided, the Joint Venture will as soon as is commercially and practically possible, seek to procure repayment of that funding. Any reference in this agreement to a Capital Contribution shall not be deemed to refer to a contribution advanced in accordance with this clause
8(d).
[34] Clause 11 deals with profits and losses. The relevant parts, for the purposes of this judgment, are those contained in clauses 11(a) and (b) which provide as follows:
11 PROFITS AND LOSSES
a)Subject to paragraphs b) and (c) below, distributions of all available funds and earnings of the Joint Venture (taking into account future working capital and capital expenditure requirements of the Joint Venture) will be allocated and paid to the Joint Venturers in proportion to their Prescribed Equities, with such distributions being made from time to time as determined by the Management Committee. No demand can be made by a Joint Venturer for repayment of its Capital Contribution, except where payment can be made without materially affecting the financial viability of the Joint Venture.
b)The distributions of all available funds and earnings of the Joint Venture will be paid to the Joint Venturers in the following priority:
i)TDL will be paid all such funds and earnings until it has received in full an amount equal to the aggregate of (A) its Capital Contributions, and (B) an amount equal to a pre-tax return on its Capital Contributions of 12.0% pa, compounding annually, from the date of making its Capital Contributions to
payment of those Capital Contributions in full; and thereafter
ii) Acuity and Bella will be each paid all such funds and earnings pro rata to their Prescribed Equities until they have each received in full an amount equal to the aggregate of (A) their Capital Contributions, and (B) an amount equal to a pre-tax return on their Capital Contributions of 12.)0% pa, compounding annually, from the date of making their Capital Contributions to payment of those Capital Contributions in full; and thereafter
iii) funds and earnings shall be paid o the Joint
Venturers in proportion to their Prescribed Equities.
[35] I have already referred to the termination provision, clause 17(d). It is appropriate, however, to emphasise that that requires the net proceeds of sale of the joint venture to be applied towards the discharge of the debts and liabilities of the joint venture, including the capital contributions in accordance with clause 11. When one considers the clauses to which I have made reference, advances made by a joint venturer which do not fit within the definition of capital contributions must be paid before the distribution of capital as provided in clause 11 applies. That has an important consequence in this case. If the October 2008 payments are not capital contributions, they must be paid from the net proceeds of sale before the capital contributions are distributed in accordance with clause 11. If, on the other hand, they are capital contributions, the result is that the plaintiff is entitled to payment of its initial contribution of $6,552,000 plus the 12 per cent per annum capitalised interest plus $301,796.63 before any payment is due to the first and second defendants.
[36] The October payments were not initial contributions. If they are to have the designation of capital contributions, they must be a contribution which is “approved by the management committee” by virtue of the definition clause to which I have made reference.
[37] Counsel took me to a series of minutes of meetings where reference to these payments is made. There is, in those minutes, reference to working capital, a comprehensive working capital finance plan, and whether there would be a
commitment by the first and second defendants to a contribution if the plaintiff made one.
[38] I was also provided with an affidavit by SA Connell. He is a chartered accountant and was appointed as the financial controller for the joint venture. Two sets of accounts were prepared by him for the period ended 31 March 2009. There was provided to the court the two balance sheets only. In the first the payments were treated as capital. In the second and revised balance sheet, the payments were treated as advances “from joint venturers pursuant to clause 8(d) of the joint venture agreement”. He said that the first draft balance sheet was prepared before he considered the joint venture agreement itself. When he considered the joint venture agreement and, in particular, clause 8(d), he determined that the correct accounting treatment of the payments that were made was to treat them as advances from the joint venturers. He draws attention to the fact that there is no precise minute which defines the payments as capital contributions.
[39] My conclusion is that this question should not be determined on a summary examination of the case. It is something that should be determined at trial. I am reinforced in that view when I look at the lack of logic behind treating these contributions as capital contributions from the defendants’ perspective.
[40] One can readily understand that the defendants were anxious to obtain the plaintiff’s investment as the principal financial contributory to the joint venture at the time it was established. That would be a justification for granting the special priority rights that are accorded by clause 11 of the joint venture agreement.
[41] However, once the plaintiff is committed to the joint venture and, in particular, taking account of clause 8(d) of the joint venture agreement, on the material placed before me, I can see no reason why the defendants would concede priority in respect of their further payments. Perhaps more importantly, I can see no further reason why the plaintiff’s priority should be increased by its payment. That follows from the fact that under clause 8(d) a joint venturer is under no obligation to make further capital contributions. In addition, one would have thought that if further capital contributions were going to be made, there would need to have been
some negotiation between the parties as to their respective equity position in the joint venture as a result of the additional contributions. That would seem to be the logic behind requiring approval of the further capital contributions by the management committee.
[42] What my examination of the facts disclose, however, is that it is plainly not appropriate to come to any final conclusion on this issue on the summary judgment application. It is appropriately a matter for trial. I certainly cannot exclude the possibility that the defendants have a defence based on the proposition that their October 2008 payment was not a capital contribution. That then is sufficient to answer the third issue, which I recorded in [13] of this judgment.
The future of this proceeding
[43] The conclusion that I have reached indicates that neither the plaintiff nor the defendants, for that matter, have been successful entirely with the positions which they initially advanced. In addition, there will be a need for a trial on the question of the treatment of the October 2008 payments. One hopes that the parties will be able to agree on the appropriate method of sale, as earlier recorded in this judgment. In the orders that I make I reserve leave in case further supervision and direction of the specific performance order is required.
Costs
[44] Following on the comments made in the preceding paragraph, this is a case, in my view, where the approach where there has been a refusal in whole or in part to award summary judgment is for costs to be reserved in line with NZI Bank Ltd v Philpott.4 Having said that, I record that this application involved a ½-day hearing. Category 2 is the appropriate category for the proceeding. The steps relating to my judgment, in my view, are Band B steps. These comments, I hope, are of assistance when the question of costs is ultimately determined in this proceeding.
4 NZI Bank Ltd v Philpott [1990] 2 NZLR 403 CA.
Orders
[45] I order as follows:
a) A decree of specific performance is made which requires the plaintiff and the first to fifth defendants to cooperate and do all things within their power to facilitate and complete the orderly sale of the subject property and any joint venture assets;
b)Leave is reserved to the parties to seek further orders or directions to implement the decree of specific performance;
c) The proceeding is adjourned to a case management conference at
9:30am on 14 September 2010. Its specific purpose is to determine:
i)Whether directions relating to the sale of the subject property are required; and
ii)What further orders or directions are required in relation to that part of the proceeding that requires to be determined at trial.
Counsel shall file and serve memoranda dealing with these matters two working days before the conference;
d) Costs in relation to this application are reserved.
JA Faire
Associate Judge
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