Tauranga Bridge Marina Ltd v Du Fall
[2016] NZHC 1747
•29 July 2016
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2015-470-188 [2016] NZHC 1747
UNDER the Declaratory Judgments Act 1908 BETWEEN
TAURANGA BRIDGE MARINA LTD Plaintiff
AND
NEVILLE JOHN DU FALL, JANET LOUISE DU FALL AND RUSSELL FREDERICK DU FALL as trustees of N.J Du Fall Family Trust
First Defendants
AND
CHRISTOPHER DENNIS DONALD COLLIER AND CA TRUSTEES (2012) LTD as trustees of Chris Collier Family Trust
Second Defendants
CONTINUED OVERLEAF
Hearing: 11 July 2016 Appearances:
A Hopkinson for the Plaintiff
N J Russell and S I Jones for the DefendantsJudgment:
29 July 2016
JUDGMENT OF THOMAS J
This judgment was delivered by me on 29 July 2016 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date:………………………….
TAURANGA BRIDGE MARINA LTD v DU FALL, DU FALL AND DU FALL & ORS [2016] NZHC 1747 [29
July 2016]
AND RUSSELL JOHN LEVY
Third Defendant
AND
STUART JAMES NEAVE Fourth Defendant
AND
STUART JAMES NEAVE AND SUE CELS
Fifth Defendants
AND
ALLARD ROBERT HENRY MITCHELL AND CLAYTON ROBERT HENRY MITCHELL as trustees of Bob Mitchell Sixth Defendants
AND
COLIN GRAHAM Seventh Defendant
Introduction
[1] This case involves the proposed construction of a breakwater at a marina in Mount Maunganui, Tauranga (the breakwater). The plaintiff, Tauranga Bridge Marina Limited (Tauranga Bridge), owns and manages the marina, which was developed pursuant to a statutory scheme under the Securities Act 1978. It claims that the defendants, who each own licences to berths at the marina, have wrongly refused to make contributions toward the costs of construction of the breakwater, in contravention of an extraordinary resolution passed on 15 December 2014 by the berth licence holders (the Resolution).
Facts
[2] The marina contains 496 berths, of which 306 are subject to berth licences (licences). The remainder of the berths are owned and operated by Tauranga Bridge. The licences give the right to berth a nominated vessel in the holder’s berth at the marina and to use the marina’s structures and facilities.
[3] The marina was created in 1996 pursuant to a scheme under the Securities Act 1978 (the Scheme). Securities were offered to the public under the Scheme pursuant to the following:
(a) The Securities Act 1978 and Securities Regulations 1983.
(b) Tauranga Bridge’s Prospectus dated April 1996 (the Prospectus).
(c) The Securities Act (Tauranga Bridge Marina Limited) Exemption
Notice 1996.
(d) The Fundholding Deed dated 10 May 1996.
(e) The Tauranga Bridge Marina Management Trust Deed dated 10 May
1996 (the Management Deed).
[4] The Fundholding Deed was entered into between Tauranga Bridge as issuer of the securities offered to the public and the Public Trust as the fundholder. Tauranga Bridge funded the construction of the marina from monies received as subscriptions for preference shares. Monies paid by applicants for the preference shares were held on trust by the Public Trust under the terms of the Fundholding Deed. The preference shares were redeemed for licences on completion of construction of the marina. Although the marina and its assets were to remain the property of Tauranga Bridge during and after construction, the assets were subject to a charge in favour of the trust, which continues for the duration of the Management Deed.
[5] The Management Deed was entered into between Tauranga Bridge, as issuer of the securities and manager of the marina, and the Public Trust. Pursuant to the Management Deed, Tauranga Bridge provided covenants and entered into obligations better to secure the interests of the licence holders. The Management Deed created a trust with the Public Trust as trustee to hold the Trust Fund (discussed in further detail below) for Tauranga Bridge and the licence holders for their respective rights and interests. The Management Deed also governed the ongoing management of the marina.
[6] All of the defendants’ licences were purchased from previous licence holders rather than being granted on redemption of preference shares.
[7] In June 2006, a severe northerly storm resulted in damage to the marina structure and vessels berthed in the marina. After obtaining engineering advice, Tauranga Bridge proposed to construct the breakwater. The estimated cost of constructing the breakwater was $4,700,000 at the time of the Resolution.
[8] Tauranga Bridge originally intended to seek contributions for the cost of the breakwater as an operating expense under the licences, which require licence holders to pay operating expenses to Tauranga Bridge. However, after consulting with the Public Trust, Tauranga Bridge decided to seek contributions under an extraordinary resolution of licence holders pursuant to the Management Deed. Tauranga Bridge then made the following proposal regarding construction of the breakwater.
(a) Tauranga Bridge would pay 40 per cent of the cost to reflect its ownership of 40 per cent of the berths at the marina.
(b)The remaining 60 per cent would be funded by contributions from licence holders.
(c) Each licence holder’s contribution would be determined by the size
of their berth.
(d)Licence holders would be required to pay their contributions in two instalments.
[9] A special general meeting was held on 15 December 2014 to consider the proposal. Licence holders were notified of the meeting in accordance with the Management Deed. At least three of the defendants were present. 162 votes were cast including proxy votes, of which 124 votes were in favour of the proposal. The Public Trust and auditors from an accounting firm were present to ensure the accuracy of the vote. As 77 per cent of the votes were in favour, the Resolution was passed and Tauranga Bridge claims that it became binding on licence holders pursuant to the Management Deed.
[10] The first instalment has been paid by all licence holders except for the defendants, and by Tauranga Bridge in respect of the unlicensed berths. The seventh defendant has since paid the first instalment.
The pleadings
[11] Tauranga Bridge seeks a declaration under the Declaratory Judgments Act that the defendants are bound by the Resolution and therefore obliged to pay contributions to the cost of construction of the breakwater, as levied by Tauranga Bridge, and a declaration that the defendants are estopped from denying they are bound by the Management Deed and the Resolution. In the alternative, the plaintiff seeks a declaration that the defendants must pay the relevant contributions on the basis they are an operating expense as defined in the licences.
[12] The defendants say they are not parties to, and therefore not bound by, the
Management Deed and, in any event, the breakwater is not required.
[13] The defendants also say that the breakwater contributions do not amount to operating expenses and have never been characterised as such by the plaintiff. The defendants raise the affirmative defence of estoppel. The first defendants also filed an appearance under protest to jurisdiction, as they have filed a claim in the Disputes Tribunal.
[14] The defendants dispute the legitimacy of the meeting which resulted in the Resolution. They say there was no opportunity to engage in the wording of the Resolution, and there were voting and procedural irregularities.
[15] The defendants say that the Court should exercise its discretion not to make a declaration in any event, because:
(a) It is impractical for the defendants to avoid paying the contributions because of the difficulties they will face in selling their licences;
(b)The marina’s resource consent expires in less than 15 years and it is not practical to expend large sums of money on it;
(c) The cost of the breakwater is rising and there is an unknown cost ceiling;
(d)The design of the breakwater has been changed significantly without the licence-holders’ input;
(e) There have been no insurance ramifications from the absence of the breakwater and there is no evidence there will be, despite Tauranga Bridge’s claims; and
(f) Tauranga Bridge’s overall behaviour militates against relief being
granted in its favour.
Issues
[16] The plaintiff seeks relief in the form of declarations. The Declaratory Judgments Act 1908 allows the High Court to make binding declarations of right, including in relation to the construction or validity of any deed, or any agreement made or evidenced by writing.1 The Court must first determine whether the matter in respect of which a declaration is sought falls within the scope of the Act and, secondly, whether the case is an appropriate one for the exercise of the Court's discretion to make a declaration.2
[17] There is no dispute in this case as to whether the matter in respect of which a declaration is sought falls within the scope of the Act. The issues to be determined are:
(1)Does this Court have jurisdiction to deal with the claim against the first defendants?
(2) Is the Resolution binding on the defendants?
(3)Is the cost of construction of the breakwater an operating expense under the licences?
(4)Depending on the answer to those questions, are there any valid estoppel arguments and how should any discretion be exercised?
[18] A consideration of questions 2 and 3 necessarily involves an analysis of the
Scheme.
Does the Court have jurisdiction to deal with the claim against the first defendants?
[19] In November 2015, Neville Du Fall, the first named first defendant, filed a claim in the Disputes Tribunal seeking an order from the Tribunal that he was not
liable to pay the amount levied against him by Tauranga Bridge for the breakwater.
1 Declaratory Judgments Act 1908, ss 2 and 3.
2 Carrington v Carrington [2014] NZHC 869, (2014) 22 PRNZ 43 at [21].
At that time the amount levied was the first instalment of $1,753.66 which was 15 per cent of the contribution.
[20] The first defendants therefore say there is no jurisdiction to hear this claim because of the pre-existing claim in the Disputes Tribunal.
[21] Tauranga Bridge submits that, as the Disputes Tribunal claim only relates to the first stage of contributions, the High Court is not prevented from making a declaration that the first defendants are liable for the second stage of contributions or from making declarations relating to the other defendants.
[22] The claim in the Disputes Tribunal was filed on 6 November 2015, and was served on Tauranga Bridge on 3 December 2015. The High Court claim was filed on
14 December 2015. The proceedings were lodged in the Tribunal first. Tauranga Bridge applied for the claim to be transferred to the District Court, and then consolidated with this High Court proceeding. The Disputes Tribunal refused to do so but adjourned the claim until the outcome of this decision is available.
[23] Section 17 of the Disputes Tribunals Act 1988 relevantly provides:
17 Exclusion of other jurisdictions
(1) Where a claim is lodged with a Tribunal, or transferred to a Tribunal under section 24(3) or (4) or section 37, and the claim is within the Tribunal’s jurisdiction, the issues in dispute in that claim (whether as shown in the initial claim or as emerging in the course of the hearing) shall not be the subject of proceedings between the same parties in any other court or tribunal unless—
(a) any order is made under section 34(1)(e) or under subsection (2)
or subsection (3) of section 36 or under section 53(1)(b); or
(b) the proceedings before that other court or tribunal were commenced before the claim was lodged with or transferred to the Tribunal; or
(c) the claim before the Tribunal is withdrawn, abandoned, or struck out.
[24] Section 17 prohibits the High Court from hearing a dispute on the “issues in dispute in that claim” between the same parties where a claim is lodged with the Tribunal. As noted above, the claim was clearly lodged with the Tribunal before the
High Court claim commenced. Further, despite Tauranga Bridge’s assertion that this Court might consider whether Mr Du Fall is liable for subsequent instalments, determination of that point will turn on the same issues determined in respect of the first instalment.
[25] I am satisfied that the Disputes Tribunal has jurisdiction over the first defendants’ claim and the High Court is precluded by s 17 of the Disputes Tribunal Act from considering the claims of Tauranga Bridge in relation to the first defendants.
[26] This does not prevent a consideration of the claims in relation to the other defendants. In any event, any declaration will bind the Disputes Tribunal. As was said in Mandic v The Cornwall Park Trust Board by Elias J:3
The effect of a declaratory order is to the same effect “as the like declaration in a judgment in an action”. It is binding “on the person making the application and on all persons on whom the summons has been served, and on all other persons who would have been bound by the said declaration if the proceedings wherein the declaration is made had been an action”.
The Scheme
[27] Before addressing directly the two ways in which Tauranga Bridge claims it is entitled to raise the levy for the cost of the breakwater, it is necessary to outline in some detail the genesis of the Scheme and the various documents involved.
Prospectus
[28] The Prospectus, dated 30 April 1996, was issued by Tauranga Bridge as issuer and filed and registered with the Companies Office. Relevantly, the Prospectus addressed the question of “how the offer works” in the following terms:
The preference shares which you purchase are called a “redeemable preference share”. This means that your share will be redeemed by Tauranga Bridge Marina, and then cancelled. This will occur only upon completion of the construction of the marina (by which time you will have paid all your instalments) at which stage your preference share will be redeemed by the issue of a licence which will entitle you to use and enjoy a particular berth in
3 Mandic v The Cornwall Park Trust Board (Inc) [2011] NZSC 135, [2012] 2 NZLR 194 at [8], the majority concurring at [82].
the marina. From the date of issue of the licence, the holder will be required to make certain additional payments to Tauranga Bridge Marina to fund the operating expenses as well as periodic refurbishment of the marina.
[29] The Prospectus then described Scheme as follows:
For all purposes of the Securities Act 1978, the scheme to which this offer relates is the issue by Tauranga Bridge Marina, in redemption for berth entitlement shares initially taken up by subscribers, of marina berth licences giving holders participatory rights to the use and enjoyment of their designated berths and the marina assets provided for berthholders by Tauranga Bridge Marina.
[30] The way in which subscribers to the Scheme would eventually be issued with licences was explained as follows:
Berth Entitlement shares
Berth licences will be made available to subscribers through the issue by Tauranga Bridge Marina, in accordance with its constitution, of redeemable preference shares called entitlement shares. Each marina berth entitlement share will be linked to a specified marina berth, as allocated in accordance with the subscriber’s application following the issue becoming unconditional. The total number of entitlement shares that will be issued by Tauranga Bridge Marina will not exceed the total number of berths available in the development. The final numbers of berths and berth mix, and therefore final numbers of entitlement shares to be offered, will be generally in accordance with the marina plan shown on page 1.
Allotment following acceptance
Upon any application for an entitlement share being accepted, the subscriber will be issued the appropriate entitlement share, and must pay the full price for the share progressively (as detailed in the payment terms on pages 6 and
7. Each entitlement share will be issued for a total price which varies depending on the size and location of the berth to which the entitlement
share relates.
Redemption for Berth licences
No later than 14 days after the practical or sectional completion of the marina development, as certified by the certifying consultant, Tauranga Bridge Marina will notify completion to the holders of entitlement shares and stipulate a date which will be no later than 30 days after the date of the notice, for the redemption of the shares. All entitlement shares will be redeemed (subject in each case to payment in full for the entitlement shares having been made at the time) by the issue of the corresponding marina berth licence, matching each entitlement share.
[31] The Management Deed was described in the Prospectus as follows:
Tauranga Bridge Marina Management Trust Deed
To ensure the ongoing management of the marina subsequent to the completion of construction and the issue of berths licences, Tauranga Bridge Marina has entered into a Deed of Trust with the Public Trustee known as the Tauranga Bridge Marina Management Trust Deed.
The Tauranga Bridge Marina Management Trust Deed sets out the general management rules for the ongoing management of the marina and in particular provides for the transfer of licences, management of the marina, rules governing resolution of disputes and problems, management fees, surplus assets account, operating expenses account, refurbishment account, retirement and removal of the manager, annual meetings of licence holders, and other provisions to ensure the ongoing proper and efficient management of the marina for the term of the berth licences. The first registered charge over the assets of Tauranga Bridge Marina continues for the period of this Deed to secure the continuing obligation of Tauranga Bridge Marina in its capacity as The Manager.
[32] The form of the proposed licences was attached to the Prospectus. The Prospectus noted that the licences were to run from the redemption date and last approximately 33 years, given the resource consent would last until 31 March 2030 and Tauranga Bridge could not guarantee an extension. Reference was made to operating expense payments and a refurbishment fund described as intended to cover “repairs, renovations, replacements and maintenance of a substantial but infrequent nature”.
Exemption Notice
[33] The Securities Commission issued an exemption notice pursuant to the Securities Act 1978 exempting Tauranga Bridge from compliance with certain provisions of the Securities Act and Regulations. Of the particular relevance to the way in which the plaintiff presented its case are the following definitions:
“Scheme” means the scheme for the ownership of rights and interests in the development to be undertaken by the company at Tauranga and known as the “Tauranga Bridge Marina”:
“Specified equity securities” means redeemable preference shares in respect
of the scheme:
“Specified participatory securities” means participatory securities in respect
of the scheme that are issued on redemption of specified equity securities.
Fundholding Deed
[34] The Fundholding Deed was of particular importance at the time of establishment of the Scheme because, as trustee, the Public Trust held the subscription monies received for the redeemable preference shares on trust until the offer made under the Prospectus became unconditional. The Fundholding Deed had yet another definition of the Scheme being:
“Scheme” means the scheme for the establishment, maintenance and operation of a marina at the Tauranga Bridge, Tauranga and the offer of Licences to members of the public.
[35] The issue of preference shares was dealt with in cl 11 of the Deed as follows:
Upon allotment of the Preference Shares in accordance with the terms and conditions of the issue as set out in the Prospectus, the Issuer shall issue share certificates in respect of such Preference Shares in accordance with the Securities Act 1978, to be held by the Fundholder on behalf of the Issuer until the Fundholder shall have received from the Issuer a certificate to the effect that all money payable in respect of the issue price for the Preference Shares which the particular share certificate represents has been received by the Issuer. Upon receipt from the Issuer of a certificate to that effect, the Fundholder shall release as soon as practicable the share certificate to the relevant Applicant.
[36] Although the charge over the assets continued, the trust created by the
Fundholding Deed was only to last until either:
(a) all money was returned to unsuccessful applicants and all other applicants, if the minimum level of subscription was not reached; or
(b) licences had been issued to applicants.
Management Deed
[37] The Management Deed remains operative. Its purpose is described as being “to better secure the interests of the licence holders”. The Scheme is defined in the same terms as in the Fundholding Deed.
[38] The Management Deed records the creation of a trust to hold the Trust Fund (the assets comprising the Surplus Assets Account and Refurbishment Account). Pursuant to cl 2.1:
… The trustee agrees to hold the Trust Fund on trust for the Issuer and the Licence Holders for their respective rights and interests and to act in the interests of the Issuer and Licence Holders, upon the terms and conditions set out in this Deed.
[39] The Management Deed then records the licence holders’ interest in the Trust
Fund as follows:
Licence Holder’s interest in the Trust Fund: Licence Holders are interested in the Trust Fund for their respective rights to use and enjoy the Marina in accordance with the terms of their Licence. Other than the rights contained in their respective Licences, Licence Holders shall have no right, title or interest in the Trust Fund and in particular but without limitation, they shall not be entitled to receive any profits, licence fees or other income deriving from the Marina or the Scheme.
[40] Clause 4.4 of the Deed signals the possibility of a future marina extension by adding further berths, which requires prior consultation by Tauranga Bridge with licence holders.
[41] Pursuant to cl 5.1 of the Deed, Tauranga Bridge covenants with the trustee that, upon practical completion of the marina, it would issue the licences to those holding preference shares in accordance with the terms and conditions of the offer and as consideration for the redemption of the preference shares.
[42] The Management Deed contains provisions as to Tauranga Bridge’s management of the marina, which requires it to do all things reasonably necessary or desirable for the efficient and proper operation of the marina to ensure that licence holders receive the full benefit of their rights and interests under licences. Specific powers are set out, including to execute all contracts and do all things reasonably necessary to ensure the marina is properly maintained.
[43] Pursuant to cl 8.3, Tauranga Bridge relevantly covenants with the trustee as follows:
Manager’s Covenants: The Issuer covenants with the Trustee (with the intent that the benefit of such covenants shall enure not only for the Trustee but for each of the Licence Holders jointly and severally) that the Issuer shall use its best endeavours to carry out and conduct the management of the Marina in a proper and efficient manner. Without limiting the generality of the previous sentence, the Issuer covenants that it will:
(a) use its best endeavours and skill to carry out its duties and obligations under this Deed in a proper and efficient manner, and in particular will ensure that at all times the Marina is maintained and operated to the highest standard compatible with a similar marina;
…
(d) not pay out or invest or apply any money received on account of the Operating Expenses, for any purpose other than the maintenance or operation of the Marina except to invest any such monies in such investments as the Issuer shall with the prior written approval of the Trustee select;
(e) supply to the Licence Holders, in general meeting, such oral or written information relating to the affairs of the Scheme which any Licence Holder has given it reasonable notice to supply;
…
(k) keep all parts of the Marina which shall be of a repairable nature in proper repair, order and condition and maintain the same in reasonable working order and efficiency and not pull down, remove or injure any part of the same (except in the ordinary course of business or pursuant to any lawful requirement or except with any other reasonable justification) without restoring or replacing the same and will permit the Trustee and any person authorised by it in writing (but without imposing on the Trustee any obligation so to do) to enter upon and inspect the Marina or any part of it and to view the state of repair and condition thereof and give all reasonable facilities for the purpose.
(l) cause to be kept insured with a reputable insurer for the full insurable value all parts of the Marina which may be of an insurable nature against fire and any other risks usually insured against including (without limiting the generality of the foregoing) storm and tempest, and marina fire and at all times pay or cause to be paid the premiums and other sums of money payable for all the above purposes and will not do or permit or suffer to be done any act or thing which may prejudice or vitiate any such insurance;
…
[44] The Management Deed provides for a Surplus Assets Account to be opened contemporaneously with the issue of the licences and maintained at a minimum sum of $100,000, or greater as the trustee might specify. The purpose of the account is to
provide funds to meet the costs necessary for the operation of the Scheme in the event Tauranga Bridge fails to comply with its covenants.
[45] Tauranga Bridge is also to establish and operate an Operating Expenses Account into which all operating expenses received from licence holders are to be deposited, and a Refurbishment Account into which Tauranga Bridge is to deposit all refurbishment contributions received from the licence holders under the licences.
[46] The Management Deed contains covenants by the Public Trust in respect of the assets of the accounts, and other obligations including provisions relating to the holding of money received by the trustee. Tauranga Bridge also undertakes obligations in relation to accounting records and the production of annual accounts and audits.
[47] Section 10 of the Management Deed deals with meetings of licence holders and requires Tauranga Bridge to summon a meeting of licence holders each year for the purpose of considering the audited accounts of the Refurbishment Account and Operating Expenses Account, as well as any other accounts required for the purposes of the Scheme, and to transact any other business relating to the Scheme.
[48] The Public Trust, or not less than 20 per cent of the licence holders, are entitled to request Tauranga Bridge to summon a meeting of licence holders “for the purpose of the licence holders giving to the Trustee their opinions or directions in relation to the exercise of the Trustee’s powers”.
[49] Clause 16, entitled “Amendments to the Trust Deed” sets out the “Permitted Amendments” to the Deed at cl 16.1, which provides that the trustee and Issuer can at any time alter the deed if such alteration (relevantly):
…
(f) [is] necessary or desirable for the more convenient, economical or advantageous working management or administration of the Scheme; or
(g) is approved by an Extraordinary Resolution of Licence Holders.
[50] Clause 16.2 of the Management Deed then provides as follows:
Powers of Extraordinary Resolution: Without limiting the rights, powers and discretions conferred on the Trustee by the provisions of this Deed (and without altering the Issuer’s beneficial interest in the Trust Fund except with the Issuer’s consent) a meeting of Licence Holders shall have the power, exercisable by Extraordinary Resolution to, amongst other things:
(a) sanction either unconditionally or upon any conditions the release of the Trustee from the performance of any of its obligations under this Deed;
(b) sanction the exchange of Licences for shares, debentures or other obligations of any company;
(c) sanction, assent to, release or waive any breach or the performance by the Issuer or the Trustee of any of its obligations under this Deed;
(d) assent to any alteration of or addition to the provisions contained in this Deed and to authorise the Trustee to concur in and execute any supplemental trust deed embodying such alteration or addition;
(e) sanction the merger or amalgamation of the Scheme with any other scheme or company whether managed by the Issuer or not; and
(f) sanction any alteration, release, modification, waiver, variation or compromise or any arrangement in respect of the rights of Licence Holders against the Issuer however such rights shall have arisen.
[51] Clause 18.1 then provides:
Existing and Supplemental Deeds: The terms and conditions of this Deed shall be binding on the Trustee and the Issuer and each Licence Holder and the terms and conditions of any supplemental deed relating to the Trust shall be binding on all Licence Holders of the Trust and all persons claiming through them respectively and as if each such Licence Holder had been party to this Deed.
[52] The schedule to the Management Deed sets out the rules for meetings of licence holders. Extraordinary resolutions require 75 per cent of votes in favour in order to pass. Resolutions passed at a meeting, be they ordinary or extraordinary, are stated to be binding upon all licence holders and the Issuer whether present or not.
Deed of modification
[53] After the passing of the Resolution, a Deed of Modification of the Management Deed was entered into between Tauranga Bridge and the Public Trust. The definition of the marina is deemed deleted from the Management Deed and
substituted with a definition specifically including the breakwater. The breakwater is defined as a breakwater constructed on the northern border of the marina.
[54] The definition of the Trust Fund is amended to include reference to a “Northern Breakwater Account” to receive the breakwater contribution charges, defined as not to exceed $4,700,000 plus GST unless any additional amounts are approved by extraordinary resolution.
[55] The deed then sets out provisions governing the construction of the breakwater to be undertaken by Tauranga Bridge as manager. Tauranga Bridge is entitled to determine the contribution charges payable by each licence holder and the deed purports to impose an obligation on licence holders to pay that amount. The trustee then enters into obligations to operate the breakwater account and to make withdrawals from it to pay for construction of the breakwater.
Licences
[56] Licences are entered into between Tauranga Bridge as marina manager and each licensee. The licences commence with the following:
Introduction
Pursuant to the rights attaching to the Redeemable Preference Share held by the Berthholder a licence to use, occupy and enjoy the Berth in the Marina upon the following terms and conditions.
[57] The grant of the licence in cl 2.1 is as follows:
In consideration of the redemption of the Redeemable Preference Share held by the Berthholder and in further consideration of the Berthholder adopting the obligations imposed on the Berthholder by this licence, the Marina Manager hereby grants, to the Berthholder only, except as authorised by the Marina Manager in the case of a transfer of sublicensing, the rights to: (a) berth the Nominated Vessel in the Berth, such Nominated Vessel being personally and beneficially owned (as to not less than a one quarter share) by the Berthholder; (b) use the Structures and Facilities; and (c) navigate vessels within the Navigation Area
[58] Pursuant to cl 4.1 of the licence, a licensee must pay its proportion of operating expenses which are defined in cl 1 as:
“Operating expenses” means the total of all rates, taxes, costs and expenses incurred by the Marina Manager or for which the Marina Manager is or may prospectively become liable in respect of the Marina, and includes, without limitation, any additional amount or amounts which the Marina Manager properly and reasonably determines are appropriate to be set aside in relation to the control, operation, occupation, maintenance and management of the Marina (but excluding costs and expenses which are the direct responsibility of the Berthholder in the Marina) and in particular but without limiting the generality of the foregoing includes the rates, taxes, costs and expenses specified in the second schedule.
[59] The Second Schedule then provides that operating expenses relevantly include:
(11) All extraordinary costs not normally associated with, or contemplated by the parties as management or operational costs being costs which are not incurred in the normal course of the control, operation, occupation, maintenance and management of the Marina but nevertheless incurred by the Marina Manager in respect of the Marina.
…
(14) The sum of 10% of the total of all the expenses referred to in paragraphs 1-13 for a refurbishment fee. This will cover repairs, maintenance, renovations and matters of a substantial but infrequent or irregular nature in respect of the marina.
[60] 15 per cent of all the various costs included in operating expenses are
Tauranga Bridge’s profit margin.
[61] A licence can be transferred, subject to it first being offered to Tauranga
Bridge. A fee of 2.5 per cent of the transfer price must be paid to Tauranga Bridge.
[62] Tauranga Bridge must insure the marina structures and utilise any insurance money to repair or reinstate any damage. If there is insufficient insurance money to repair or reinstate, then Tauranga Bridge can either proceed with the repair by meeting the costs of any excess or terminate the licence.
[63] Notably, there is no reference in the licences to the Management Deed.
Is the Resolution binding on the defendants?
Submissions
[64] Mr Hopkinson, appearing for Tauranga Bridge, notes that the Scheme is referred to in the Management Deed as meaning the scheme for ongoing maintenance and management of the marina, and that cl 5.1 of the Management Deed provides that the licences would be issued subject to the terms and conditions of the deed as consideration for the redemption of the preference shares. He points to other clauses which provide for the obligations of the marina manager to the licence holders, and corresponding obligations on the licence holders. Specifically, cl 18 also provides that the terms and conditions of the Management Deed and any supplemental deeds are to be binding on all licence holders.
[65] Mr Hopkinson draws an analogy between the Scheme and the way retirement villages are often structured, in that a licence holder is not merely a licensee but also a participant in the scheme. Accordingly, a licence holder’s rights and obligations are derived not only from the licence but also from the other documents establishing the Scheme, such as the Management Deed. Tauranga Bridge position is that the licences and the Management Deed are explicitly linked.
[66] Furthermore, Mr Hopkinson notes that the defendants have previously participated in the Scheme and have exercised the rights afforded to them under the Management Deed. He submits that the defendants cannot be entitled to invoke their rights under the Management Deed and then later deny that they are bound by it or any resolutions passed in accordance with it. He says that, having participated in the Scheme, they are effectively estopped from denying the existence of the Scheme.
[67] Mr Russell, for the defendants, says that the Scheme was effectively cancelled when the shares were redeemed, and that this is recorded in the Prospectus. References to redeemable preference shares in the introduction to the licences are therefore not relevant. He says that the licence holders are therefore only bound by the licences, and that, insofar as there are any references in those to the Scheme, it is because they are physical licences which have been transferred from the original owner.
[68] The defendants’ position overall is that they are not bound by the Management Deed, and that consequently the Resolution passed under it is not binding on them. Mr Russell says they were not made aware of the Scheme and the licences themselves make no reference to being bound by the Management Deed. Mr Russell points out that cl 16 of the Management Deed allows the Public Trust and Tauranga Bridge to alter the Management Deed without the licence holders’ consent.
[69] There is therefore, in Mr Russell’s submission, nothing in the terms of the Management Deed which permits a majority of the licence holders to compel the wider group to pay any costs outside of the operating expenses and other costs incorporated in the licences. The Management Deed was not intended to create another mechanism for levying licence holders, he says.
[70] Mr Russell submits that the defendants are not ‘estopped’ from arguing that they are not bound by the Management Deed simply because they participated in meetings called under it, as it does not have any bearing on whether they intended to be bound by it when purchasing their licences. He says that s 4 of the Contracts (Privity) Act 1982 also prohibits the plaintiff’s suing to enforce obligations in a deed to which the defendants are not party.
Does the Scheme contemplate a development in the nature of the breakwater?
[71] Pursuant to the Scheme, people purchased redeemable preference shares from Tauranga Bridge, the money from which was used to fund the marina’s construction. On completion of the marina, each share was redeemed for a licence. Tauranga Bridge says that each licence is a participatory security and the defendants continue to be bound by the Scheme.
[72] The first question, therefore, involves a consideration of the nature and breadth of the Scheme. As referred to above, the Scheme has been described in slightly different ways in various documents. None of the definitions contemplate any development in the nature of the breakwater.
[73] The Management Deed signals the possibility of future marina extensions, being the addition of further berths within the existing marina boundary, but there are no other provisions concerning developments. The marina manager’s covenants, although not an exhaustive list, are limited to matters relating to the maintenance and operation of the marina rather than redevelopment.
[74] The fact that the Management Deed specifically anticipates marina extensions but does not deal with any new developments suggests that the parties to the Management Deed turned their minds to future works but decided to incorporate provisions dealing with further berths only. This is consistent with the term of the licences and absence of any rights of renewal. The resource consent for the marina expires in 2030 and, as noted in the Prospectus, there is no guarantee it will be renewed. This supports the conclusion that the Management Deed does not contemplate the prospect of new developments and therefore that the creation of the breakwater would not fall within the provisions of the Management Deed in any event. There is also an issue as to whether the breakwater would fall within the definition of the marina in the Management Deed. It is not clear to me whether the breakwater would be constructed within the existing marina or outside of it. The Amending Deed describes it as being “on the border”.
[75] The Resolution was made under the auspices of section 16 of the Management Deed which provides for “amendments to the Trust Deed” and lists particular circumstances in which extraordinary resolutions can be passed, as outlined above. It is not immediately apparent that the context of the clause would cover the terms of the Resolution. Although the list of matters which can be resolved by extraordinary resolution is not exclusive, there is a strong argument that, given the nature of the other matters listed, it would not include a development in the nature of the breakwater. This interpretation is supported by the tenor of the Management Deed generally and the specific funds established pursuant to it.
Are licensees bound by the Management Deed?
[76] The argument for the plaintiff is that it was intended that licence holders were bound by the Management Deed, whereby licence holders have a say in the ongoing
management of the marina and that, without that interpretation, there would be no way for the marina to function. The plaintiff relies on the fact of the Scheme as somehow having the effect of binding licence holders into the Management Deed although they are not parties to it.
[77] The licences contain no reference to the Management Deed. The only reference to the Scheme in the licences is the reference in the introduction which states that the licensee obtains a licence “pursuant to the rights attaching to the redeemable preference share held by the berthholder”. However, once a licence was issued, the corresponding preference share was redeemed or cancelled, and there are now no redeemable preference shares in existence. No licence holder would ever have held both a licence and a preference share at the same time.
[78] Simply because the Management Deed purports to bind licensees into the terms of the Management Deed, does not mean that the deed is of that effect. There is nothing in the documents to which I have referred which means that the mere fact that the marina was constructed pursuant to the Scheme binds licence holders to the Management Deed when they are not party to it and may not even have notice of it. The fact of the Scheme does not somehow overcome the principles of privity of contract.
[79] Privity of contract, at common law, meant that a third party such as the defendants, could not be bound by the terms of a contract to which they were not a party.4 The Contracts (Privity) Act codified that, while changing the common law rule to allow a third party to a contract, on whom that contract confers a benefit, to sue for that benefit.5 This means that the defendants are able to take advantage of the rights conferred on them in the Management Deed (such as engaging in meetings, voting etc) despite the fact that they are not bound by it.
[80] The argument is even more persuasive in the case of the defendants who were not holders of redeemable preference shares but transferees of the licences. They
were not alerted to the provisions of the Management Deed at the time of their
4 Laws of New Zealand Privity of Contract (online looseleaf edition, LexisNexis) at [260].
5 Contracts (Privity) Act 1982, s 4.
purchases and the mere fact of it being registered at the Companies Office does not somehow bind them to its provisions.
[81] The fact some of the defendants have previously relied on and invoked the provisions of the deed by initiating and attending meetings is not a bar to their raising objections to the levy. The meetings under the Management Deed are for the benefit of licence holders and in particular for the purpose of approving the various accounts. As stated, the Management Deed’s purpose is to secure the interests of the licence holders. The Management Deed can be read consistently with the licences without the need for licensees to be bound by it.
[82] Arguably, the defendants’ participation might create some form of estoppel by representation. The defendants could be said to have represented that they would abide by the terms of the deed, and the plaintiff relied on this in engaging in the process of obtaining the Resolution. However, this has not been expressly pleaded.
Any such representation must be unambiguous,6 and the level of clarity around the
quality and assurances which gave rise to the expectation will influence whether expectation-based relief is appropriate.7 Even had it been pleaded, it would not have succeeded on the facts.
[83] The frustration felt by the other licence holders is understandable. The Resolution was passed. Tauranga Bridge and all other licence holders have paid the first instalment. However, for the reasons set out, I am not satisfied that, even if the Scheme contemplated a development in the nature of the breakwater and an extraordinary resolution was capable of incorporating a decision to build and pay for it, that licensees are bound by the Management Deed and therefore the Resolution
passed pursuant to it.
6 Laws of New Zealand Estoppel (online looseleaf edition, LexisNexis) at [46].
7 Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at
[114].
Is the cost of construction of the breakwater an operating expense?
[84] Tauranga Bridge advances an alternative argument, seeking a declaration that the defendants and all other licence holders are obliged to contribute to the cost of the breakwater as an operating expense in accordance with their licences.
[85] Tauranga Bridge did not originally take this approach following advice from its accountants and the Public Trust. However, the Inland Revenue Department subsequently advised Tauranga Bridge that it considered the contributions would constitute operating expenses as defined in the licences.
[86] The defendants say that the contribution toward the breakwater is not within the definition of an operating expense, as that term is only intended to cover the costs of maintaining the existing marina, not making fundamental changes to it. They rely on the fact that the plaintiff itself has previously been unclear as to whether the contributions sought would fall within the definition of operating expenses.
[87] The defendants stress that there has been no expert evidence put before the licence holders to the effect that the breakwater is essential for the future safe operation of the marina.
[88] In advancing their interpretation of “operating expense”, the defendants rely on Black’s Law Dictionary and dicta in Commissioner of Inland Revenue v Lyttelton Port Co Ltd.8 The defendants also rely on the context provided by the definition in the licence, and the Management Deed.
[89] The question is one of contractual interpretation, following the standard principles set out by the Supreme Court in Vector Gas Ltd v Bay of Plenty Energy
Ltd and Firm PI 1 Ltd v Zurich Australian Insurance Ltd.9 In summary, the meaning
8 Commissioner of Inland Revenue v Lyttelton Port Co Ltd CA185/96, 25 June 1997.
9 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444; Firm PI 1 Ltd v
Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432.
of words is ascertained in their documentary, factual and commercial context by ascertaining:10
… (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of [the contract], (iii) the overall purpose of the clause and the [contract], (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions. …
[90] The normal meaning of an operating expense is, as the defendants say, an expense relating to running a business.11 The term implies the day-to-day expenses of the company, rather than long-term projects. The defendants point to the Lyttelton Port decision in which the Court cited from an Australian case, Mount Isa Mines, as follows:12
Expenditure on repairs to structures and plant for the purpose of maintenance only is classified as expenditure on maintenance or upkeep and is chargeable to revenue account. But expenditure which goes beyond repair and results in the improvement of structure or plant and makes it more advantageous is capital expenditure. Likewise, as in the case of expenditure on the improvement of an asset, expenditure on the acquisition of an asset or on the removal of a disadvantageous asset, generally speaking, will constitute capital expenditure. On the other hand, it may be that, in some circumstances, expenditure on land, even the acquisition of land, for example, where it is acquired as a consumable, will constitute an operating expense. So, in Johns-Manville Canada Inc v R (1985) 21 DLR (4th) 210, the Supreme Court of Canada held that the cost of acquiring land adjacent to an open pit mine for the purpose of enlarging the sloping sides of the pit as it became deeper in the course of the taxpayer's mining operations was an operating and not a capital expense. Similarly, where demolition is undertaken in the course of the day-to-day conduct of a business, the cost of it will be a revenue expense.
[91] The issue in Lyttelton Port was whether the cost of demolition of port infrastructure constituted an operating expense or capital expenditure. Although that case is of some general relevance as to the difference between operating expenses and capital expenditure, it concerned the interpretation of tax legislation. In this case, the definition of operating expenses is set out in the licences and the issue must
be determined by interpreting the licences.
10 Air New Zealand Ltd v New Zealand Air Line Pilots’ Association Inc [2016] NZCA 131, [2016]
2 NZLR 829 at [35], citing with approval Lord Neuberger in Arnold v Britton [2015] UKSC 36, [2015] AC 1619 at [15].
11 Black’s Law Dictionary (8th ed, Thomson West, United States, 2004).
12 CIR v Lyttelton Port Co CA185/96, 25 June 1997, citing Mount Isa Mines Ltd v Federal
Commissioner of Taxation (1992) 24 ATR 261 (HCA) at 266.
[92] The definition of Operating Expenses in cl 1 of the berth licence is set out in full above but relevantly:
… includes, without limitation, any additional amount or amounts which the Marina Manager properly and reasonably determines are appropriate to be set aside in relation to the control, operation, occupation, maintenance and management of the Marina (but excluding costs and expenses which are the direct responsibility of the Berthholder in the Marina) and in particular but without limiting the generality of the foregoing includes the rates, taxes, costs and expenses specified in the second schedule.
[93] The relevant provisions of Second Schedule are:
(11) All extraordinary costs not normally associated with, or contemplated by the parties as management or operational costs being costs which are not incurred in the normal course of the control, operation, occupation, maintenance and management of the Marina but nevertheless incurred by the Marina Manager in respect of the Marina.
…
(14) The sum of 10% of the total of all the expenses referred to in paragraphs 1-13 for a refurbishment fee. This will cover repairs, maintenance, renovations and matters of a substantial but infrequent or irregular nature in respect of the marina.
[94] The definition of operating expenses governs the “particular” matters specified in the second schedule. This means that the items listed in the second schedule need to be read consistently with the broader definition in cl 1.
[95] The plaintiff submits that the Second Schedule’s reference to “all extraordinary costs not normally associated with or contemplated by the parties as management or operational costs” allows the claiming of the costs of the breakwater, as it allows costs outside solely management costs. The logical extension of the plaintiff’s argument is that Tauranga Bridge could incur any costs and then recover them under that provision. Mr Hopkinson maintained that would not happen because Tauranga Bridge is accountable to the licence holders under the Management Deed. That, however, would be after the event only, that is, once the cost had been incurred.
[96] I agree with the defendants that cl 11 of the Second Schedule is concerned with irregular or unusual costs associated with the operation and management of the
marina, rather than expenditure on which the marina manager has deliberately decided in order to improve or change the marina. The words “incurred by the marina manager”, have the connotation of being unforeseeable but necessary costs placed on the manager. This is distinct from a deliberately incurred expense to better the marina as a whole.
[97] Extraordinary costs are described as being outside those incurred in the normal course of the control, operation, occupation, maintenance and management of the marina but nevertheless incurred by the marina manager in respect of the marina. The difference is between those costs normally incurred and those extraordinarily incurred, both however still being incurred in respect of the control operation, occupation, maintenance and management of the marina as opposed to development of it.
[98] The control, operation, occupation, maintenance and management of the marina involves the status quo rather than new developments.
[99] This is consistent with the context of the licences, which make no provision for works of a developmental nature. The only items of such nature are major refurbishments which are specifically addressed in cl 5 and specifically included as an operating expense in paragraph 14 of the second schedule.
[100] The refurbishment fund is described as follows:
… the Berthholder shall pay the Marina Manager a refurbishment contribution to be payable in advance at such a rate as the Marina Manager shall reasonably determine in respect of each 6 month period of the Term as being adequate to cover prospective repairs, renovations, replacements and matters of a substantial but infrequent or irregular nature in respect of the Marina. The sum to be levelled each year from the purposes referred to in this subclause (excluding the Marina Manager’s fee) shall be determined by the Manager and the Public Trustee. The refurbishment contribution will be payable in two equal instalments on the 1st of April and the 1st of October.
[101] The refurbishment fund is also focussed on the status quo and preservation of it, rather than on new developments.
[102] Pursuant to cl 8.3(d) of the Management Deed, Tauranga Bridge covenants with the Public Trust to use its best endeavours to carry out and conduct the management of the marina in a proper and efficient manner and not to apply any money received on account of operating expenses “for any purpose other than the maintenance or operation of the marina except to invest any such money”.
[103] This restriction on the use of the Operating Expense Account in the Management Deed demonstrates that the operating expenses were not intended to cover new developments. Furthermore, Tauranga Bridge cannot, in fact, use the Operating Expense Account for any purpose other than maintenance or operation of the marina, in any event. That means that if the cost were collected under the auspices of operating expenses, Tauranga Bridge would not be able to use that money for construction of the breakwater. The Management Deed established separate accounts for operating expenses and refurbishment sums, this distinction adding to the context of what is intended to come within operating expenses.
[104] I agree with the defendants’ submission that the lack of evidence around the need for the breakwater is important context. If, for example, the expert evidence was that construction of the breakwater was essential for the future operation and insurability of the marina, then Tauranga Bridge would be in a different position as to the necessity of the breakwater, and arguments as to frustration of the licences could be mounted. However, it is not at that stage.
[105] For these reasons, I am satisfied that the cost of construction of the breakwater is not an operating expense under the terms of the licences.
[106] Given this conclusion, I have not considered the defendants’ argument in the alternative that Tauranga Bridge is estopped from arguing that the levy for the breakwater could be obtained as an operating expense.
Result
[107] For the reasons given, I decline to make the declaration.
[108] If the defendants seek costs and the parties cannot agree, the defendants are to file and serve a memorandum within 28 days with any response 14 days thereafter.
Costs will be decided on the papers.
Thomas J
Solicitors:
Cooney Les Morgan, Tauranga. Chen Palmer, Wellington.
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