Westgate Town Centre Ltd v Auckland Council
[2018] NZHC 2489
•21 September 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-000380 [2018] NZHC 2489
BETWEEN WESTGATE TOWN CENTRE LIMITED
First Plaintiff and Counterclaim Defendant
WESTGATE PROPERTIES LIMITED Second Plaintiff
NZRPG MANAGEMENT LIMITED Third Plaintiff
WESTGATE TOWN CENTRE (2017) LIMITED
Fourth Plaintiff
/Contd…
AND
AUCKLAND COUNCIL
First Defendant and Counterclaim PlaintiffAUCKLAND TRANSPORT Second Defendant
Hearing: 14 September 2018 Appearances:
B D Gray QC, A I C Denton and K J Webster for First Plaintiff and Counterclaim Defendant
R B Lange and N M Thompson for First Defendant and
Counterclaim PlaintiffJudgment:
21 September 2018
JUDGMENT OF WYLIE J
This judgment was delivered by Justice Wylie
On 21 September 2018 at 4.00 pm Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar
Date:…………………………
WESTGATE TOWN CENTRE LTD v AUCKLAND COUNCIL [2018] NZHC 2489 [21 September 2018]
/Contd
WESTGATE PROPERTIES (2017
LIMITED Fifth Plaintiff
NZRPG MANAGEMENT (2017) LIMITED
Sixth Plaintiff
Introduction
[1] The first defendant, Auckland Council (the Council), is being sued, along with the second defendant, Auckland Transport, by Westgate Town Centre Ltd (WTCL) and five other plaintiffs for alleged losses said to total not less than $33,000,000.
[2] The Council has filed a statement of defence and brought a counterclaim against WTCL. It seeks summary judgment for a debt said to be due and owing pursuant to an agreement known as Works Development Agreement No 2 (WDA 2), varied by a further agreement as from 31 October 2012 (WDA 2-Variation), in the total sum of $11,855,205.32, together with interest at a default rate as specified in WDA 2.
[3] WTCL opposes the Council’s application for summary judgment. It argues that when WDA 2 and WDA 2-Variation are interpreted in context, there is an arguable defence, and that there is no liability because the Council has itself breached its obligations to develop the Westgate town centre as agreed.
Background
[4] From 1997 onwards, a group of companies, which included some of the plaintiffs or their predecessors and which are jointly known as the New Zealand Retail Property Group (NZRPG), owned and operated a retail centre known as Westgate. It was located to the west of the North-Western motorway and to the south of the then route of SH16 (now known as Fred Taylor Drive).
[5] In 2002, Waitakere City Council, which was the territorial authority then responsible for the area in which the retail centre is situated, approached the NZRPG companies to discuss the development of a new sub-regional town centre. It was proposed that this could be achieved by expanding the existing retail centre onto land surrounding it, and in particular, onto land to the north of Fred Taylor Drive.
[6] In 2004, one of the NZRPG companies and the Waitakere City Council executed a memorandum of understanding which recorded that the parties would seek to work together, and, inter alia, would prepare a town centre concept plan to assist in
redeveloping the existing Westgate retail centre into a vibrant and visually attractive new town centre.
[7] Consistent with the memorandum of understanding, Waitakere City Council proposed changes to its district plan and promulgated a plan change – plan change 15
– intended to advance the new town centre concept. This plan change was adopted. It sought to facilitate the new town centre development and it made provision for roads, amenities and street typologies. It also provided, if practicable, for the relocation or undergrounding of an existing 110 kV high voltage transmission line which passed over part of the land it was anticipated would be developed.
[8] In 2009 and 2010, Waitakere City Council and various companies in the NZRPG entered into a number of further agreements relating to the development of the new town centre.
[9] As at 1 November 2010, Waitakere City Council ceased to exist and all contracts entered into by it with the NZRPG companies were taken over by the Council and/or by Auckland Transport. Thereafter, a number of replacement and further contracts were entered into by the Council with NZRPG companies. One of those agreements was WDA 2. There are in total some 23 contracts between the Council and various NZRPG companies. They were entered into on various dates from July
2004 through until June 2017.
[10] WTCL says that it was agreed that the new town centre would be an expansion of the NZRPG companies’ existing Westgate shopping centre. It was to be a compact, integrated sub-regional town centre developed around a cruciform comprising Maki Street, running north-south, and Fred Taylor Drive, running east-west. The new town centre was to be based on “new urbanism design principles”, characterised by street based developments incorporating high pedestrian amenity, public transport, employment, cultural and recreational facilities, and with high specifications to ensure environmental performance.
[11] WTCL says that the proposed new town centre required the Council and
Auckland Transport to develop roading and infrastructure in appropriate form, to
enable appropriate development. Amongst other things, the new town centre required that the existing overhead 110 kV high voltage transmission line that ran northwards over the land be placed underground. Undergrounding was necessary because of the proposed location and form of the new town centre. WDA 2 was signed to provide for this undergrounding and to apportion the costs of the undergrounding work between WTCL and two other NZRPG companies on the one hand, and the Council on the other. It was entered into on 29 November 2010. The payment provisions were varied as from 31 October 2012 by WDA 2-Variation.
The main proceedings
[12] The statement of claim filed by WTCL and the other plaintiffs is a lengthy and complex document. In essence, the plaintiffs say that the Council and Auckland Transport, in an interrelated suite of contracts that must be construed together and in context, agreed to assist in developing the type and form of the new town centre envisaged.
[13] The NZRPG companies claim in their proceedings that, when the suite of interrelated contracts is properly interpreted, the Council and Auckland Transport agreed to develop the town centre as follows:
(a)Fred Taylor Drive – to transform Fred Taylor Drive from a state highway into a town centre street with high quality materials, traffic calming measures, signalised intersections, pedestrian crossings at strategic access points, on-street parking, active street frontages, and street furniture and planting necessary to achieve integration between the original Westgate retail centre and the new Westgate town centre. There was to be pedestrian and vehicular connectivity both north-south and east-west.
(b)Northside Drive – to construct Northside Drive East, including placing a bridge over SH16 connecting Northside Drive East with Northside Drive West, within a reasonable timeframe, but before the first buildings were available for public use in an area known as Precinct A. The plaintiffs say that the development of Northside Drive was
fundamental to the town centre concept so that Fred Taylor Drive could operate as agreed.
(c)Town square – to develop a town square and surrounding roads to permit the free movement of pedestrians and vehicular traffic around and across it.
(d) Bus interchange – to progress a bus interchange at an agreed location.
(e)Maki Street South – to fund and complete an upgrade to Maki Street South (in the original Westgate retail centre) by the time the first buildings were available for public use in Precinct A.
(f)Undergrounding – to agree with Transpower the undergrounding of the existing high voltage transmission line.
(g)Public buildings – to design and build a library/community centre at the western end of the town square, using reasonable endeavours to have the centre completed at the same time as other buildings around the town square, and to settle a service level agreement for Precinct A.
[14] The NZRPG companies claim that the Council and Auckland Transport have failed to meet these various contractual obligations as follows:
(a)Fred Taylor Drive – has been developed as a four to six lane highway that prioritises high volume traffic flow. It does not encourage integration or vehicular or pedestrian connectivity between areas to its north and south. It does not have active street frontages or on-street parking. The intersections have not been constructed with traffic or speed calming measures. Vehicles are prevented from moving between the original Westgate retail centre and the new town centre, and there are numerous turning restrictions from and onto the road. It continues to have limited access status.
(b)Northside Drive – has not been developed and no bridge has been put in place.
(c)Town square – is difficult to navigate and has traffic measures (for example, planter boxes and signs) such that it accommodates only one lane traffic. Other traffic measures have been put in place in the surrounding streets preventing the free-flow of traffic entering and exiting the town square.
(d) Bus interchange – has not been proposed or developed.
(e)Maki Street South – an upgrade to the required standard has been agreed, but negotiations continue regarding funding for that work. The delay in the upgrade of Maki Street South has contributed to the original Westgate retail centre not being integrated into the new town centre. The original retail centre is suffering from the draw of customers and retailers to the new town centre – something that the Waitakere City Council and the NZRPG companies had agreed to avoid.
(f)Public buildings – the library and community centre are only now under construction and have not been completed.
(g)General – the Council and Auckland Transport have failed to negotiate in good faith. They have not used their best endeavours to resolve a service level agreement for Precinct A.
[15] In their first cause of action, the NZRPG companies say that the Council and Auckland Transport have breached their obligations as set out above. They say that, as a result, the new Westgate town centre is not the compact, integrated sub-regional town centre contracted for and that it is fundamentally dysfunctional. The NZRPG companies assert that they have, as a consequence, suffered and continue to suffer substantial losses, and they claim damages on this basis.
[16] In their second cause of action, the NZRPG companies seek the return of approximately $2,600,000 that they say they have already paid to the Council for the undergrounding of the high voltage transmission line. They seek a declaration that they are not liable to the Council under WDA 2-Variation. They say that, as a matter of “commercial or practical coherence” in the circumstances, the undergrounding was only required if the new town centre was developed as agreed, and that, correctly interpreted, the agreements made payment by the relevant NZRPG companies contingent on that development. They say that the failures of the Council and Auckland Transport have resulted in the town centre not being developed in accordance with the agreements reached, and that the substratum of WDA 2 and the benefit of the undergrounding have been lost. They therefore say that they are not required to contribute to the cost of the undergrounding.
The statement of defence/counterclaim/notice of opposition
[17] The Council and Auckland Transport deny the majority of the allegations and claims made by WTCL and the other plaintiffs. Relevant to the second cause of action, they say that WTCL’s obligation to pay the developer’s portion of the undergrounding costs was not conditional as alleged by the plaintiffs, that WDA 2 required each invoice to be paid in full and in cleared funds without set off on or before the due date for payment, and that WDA 2 contained an “entire agreement” clause.
[18] As noted, the Council has counterclaimed seeking summary judgment against WTCL, relying on WDA 2 and WDA 2-Variation. It asserts that it invoiced one of the NZRPG companies on behalf of WTCL and the other two parties to the agreements, in the sum of $11,855,205.32, being the total sum payable by those entities as at the date of the invoice. They say that the amount owing has not been paid, and that it remains due and payable by WTCL (and the other NZRPG parties). It also claims interest at the default rate as defined in clause 1.1 of WDA 2 – namely the bill rate (also defined) plus 6 per cent per annum.
[19] The other parties to WDA 2 and WDA 2-Variation have been removed from the companies’ register. The Council reserves its rights arising from their removal. In
the counterclaim, it is proceeding against WTCL only as the remaining party to the agreements.
[20] WTCL has not filed a statement of defence to the counterclaim. Rather, its defences to the counterclaim are found in its notice of opposition. It argues as follows:
(a)It is inappropriate to seek to interpret WDA 2 in isolation. WDA 2 and WDA 2-Variation must be interpreted in their context and as part of the suite of contracts for the overall development of the new town centre.
(b)There is a substantial dispute over what the suite of contracts obliged the Council and Auckland Transport to do, and whether the NZRPG companies’ liability for undergrounding costs was dependent upon the Council’s and Auckland Transport’s performance. They argue that contextual evidence, properly tested, needs to be before the Court to enable it to determine these disputes.
(c)It is a term of WDA 2-Variation (either an express, implicit or implied term) that WTCL’s payment obligation was conditional upon both the Council and Auckland Transport complying with their obligations under the other agreements relating to the development of the new Westgate town centre, and that because of their breaches of those agreements, no monies at all are payable pursuant to WDA 2 or WDA
2-Variation.
(d) The Council is estopped from seeking payment under WDA 2 or WDA
2-Variation because of its breaches of the other agreements.
(e)The claims of WTCL and the other plaintiffs against the Council and Auckland Transport give rise to an equitable set-off to the counterclaim against WTCL.
(f)The Court should exercise its judicial discretion against granting summary judgment, or grant a stay of enforcement of any resolution of the claims of all plaintiffs against the Council and Auckland Transport.
Key documents
WDA 2
[21] As noted, WDA 2 is dated 29 November 2010. It is between the Council, NZRPG Management Ltd and Cannuck Holdings Ltd (both NZRPG companies and jointly referred to as the developer).
[22] The background recitals in the agreement refer to the cumulative effect of the related agreements (defined in clause 1.1) and record that, amongst other things, it was expected that the land would be developed during the 2010/2011 construction season and that the roadways would be formed and vested in the Council. The recitals go on to record that:
(a)part of the Albany to Henderson high voltage transmission line ran over the development land, and that to enable its development, the overhead line needed to be replaced with a ducted 100 kV double circuit underground line;
(b)the construction and commissioning of the underground system and the removal of the overhead line was to be undertaken by Transpower, and the costs incurred by Transpower were to be met by the Council and the developer;
(c)some of the costs had already been paid by the parties to the agreement, but most of the cost had yet to be incurred; and
(d)the Council had, at the request of the developer, entered into a line deviation agreement with Transpower, and the Council was to pay for the remaining design work and all physical works required in relation to the undergrounding project.
The agreement then goes on to set out the basis on which the developer was to reimburse the Council for the developer’s portion of the amounts payable to Transpower under the line deviation agreement.
[23] The words “related agreements” were defined in clause 1.1 to mean the infrastructure funding agreement dated 22 February 2010 and the works development/cost sharing agreements. There were three other works development agreements and two cost sharing agreements, all of which were signed on the same day as WDA 2, namely 29 November 2010.
[24] Clause 2 provided as follows:
2. CONDITIONS
This agreement is conditional upon:
2.1each of the Works Development/Cost Sharing Agreements being validly executed by the parties to those documents;
2.2[Westgate Properties Limited] validly executing, and delivering to the Council, the agreement appearing as schedule 4 (with the consent of ANZ National Bank Limited, as mortgagee, endorsed on that agreement, in the space provided for that purpose; and
2.3 [Westgate Properties Limited] validly executing, and delivering to the
Council, the access deed appearing as schedule 5,
and until each of these conditions has been satisfied, nothing in this agreement (apart from this clause 2) will have any effect and any party may terminate this agreement, with immediate effect, by written notice to each other party.
[25] Clause 3 related to the line deviation agreement. It had already been signed by the Waitakere City Council and Transpower. It is dated 29 October 2010. Clause 3 of WDA 2 required the Council to give effect to it.
[26] Clause 4 related to matters financial. It provided as follows:
4. FINANCIAL
4.1 Developer’s Portion: In this agreement, the Developer’s Portion
means, in respect of:
(a) the first $2 million of Project Costs, 0%; and
(a) all other Project Costs, 65% of those Project Costs.
4.2 Invoicing/Payment: The Council will as soon as reasonably possible after being notified by Transpower that any Project Cost is payable by the Council to Transpower under the Line Deviation Agreement, or after being invoiced by Transpower for any Project Cost, invoice the Developer for the Developer’s Portion (where this exceeds 0%) of that Project Cost. Each such invoice:
(a) must be in the form of a tax invoice for GST purposes;
(b)must specify the due date for its payment by the Developer (which must be no earlier than 1 Business Day prior to the due date for payment by the Council to Transpower of the corresponding Project Cost);
(c)is payable by the Developer in full and in cleared funds, without set off, on or before the due date specified under clause 4.2(b).
For the avoidance of doubt, if the Developer considers that the Project Cost is not payable as notified or invoiced by Transpower, this will not relieve the Developer of its obligation to pay the Council for the Developer’s Portion of that Project Cost on the due date specified under clause 4.2(b). In this event, if it is subsequently established that the Council has overpaid Transpower for any Project Cost, the Council will seek a refund from Transpower of the overpaid amount (either in cash, or by an offset, agreed to in writing by Transpower, against other amounts payable by the Council to Transpower) and, on receipt of that refund, will promptly refund to the Developer the Developer’s Portion of that refund.
4.3 Default Interest: If any amount falls overdue for payment under this agreement, the overdue amount will bear default interest from the date on which payment of that amount falls overdue until the date on which payment of the overdue amount is made in full. Default interest will accrue and be calculated on a daily basis (after as well as before judgment) at the Default Rate and will be compounded monthly.
4.4 Payment by Council of Project Costs: The Council will pay to
Transpower (subject to clause 3.1) each Project Cost on the later of:
(a) the next Business Day following receipt by the Council of the
Developer’s Portion of that Project Cost pursuant to clause
4.2;
(b) the due date for payment by the Council to Transpower of that
Project Cost.
4.5 Set Off: If any amount falls overdue for payment by NZRPG and/or Cannuck to the Council under this agreement (time being of the essence) the Council may (at its absolute discretion and by written notice to the Developer) set off any or all of the overdue amount against any amount which is then, or which will become, owing by the Council to NZRPG, Cannuck or to any associated entity of NZRPG or Cannuck.
4.6 Security Sharing: The Developer will use its best endeavours to put in place, by 31 January 2011 (or such later date as the Council nominates by written notice to NZRPG) and at the Developer’s cost in all respects, an arrangement whereby the Council holds either:
(a)a registered, first ranking security interest (securing all of the payment obligations of the Developer to the Council under this agreement) over the Development Land; or
(b)equivalent or better security, satisfactory to the Council at its absolute discretion,
provided that the Developer will be deemed to have provided the security referred to in clause 4.6(a) if the first ranking security charge referred to in that clause is held jointly by the Council and another charge holder (for their respective interests, ranking equally between themselves) and secures not less than $31 million in aggregate. Failure by the Developer to comply with this clause will constitute a material breach by the Developer of this agreement.
[27] Relevantly, there was an entire agreement clause – clause 9.6. It provided as follows:
9.6 Entire Agreement: This agreement records the entire understanding and agreement of the parties relating to the matters dealt with in this agreement. This agreement supersedes all previous understandings or agreements (whether written, oral or both) between the parties relating to these matters, provided that nothing in this agreement is intended to vary, supersede or terminate any of the Related Agreements.
[28] There was also a dispute resolution clause. I was told from the bar that its provisions were implemented, but that the parties could not reach agreement.
30 November 2011 letter
[29] On 30 November 2011, the Chief Executive of the Council, Douglas McKay, sent a letter to Mark Gunton of the NZRPG companies in relation to the Westgate town centre. The letter was sent after various issues had been raised by the NZRPG companies, in particular, in relation to alleged delay. Inter alia, the letter recorded as follows:
…
6) Undergrounding of the overhead transmission lines
Council’s expectation is that NZRPG will honour all of its obligations under the Line Deviation Agreement, including its financial commitments. I am informed that the original budget of $17.8 million has now been revised
significantly downward to about $13 million, which will assist NZRPG as its costs will reduce from about $10.27m to about $7.15m.
7) Earthworks/Construction Cost Savings
…
Mark, you have my assurance that council remains committed to Westgate Town Centre within the context of its overarching NorSGA objectives. Excellent progress has been made in the last month while you have been away in a number of areas and this is due to the considerable resources allocated within council responding to and driving council’s contractual obligations.
I would assure you that the council fully intends to adhere to all relevant agreements and to continue to deal with issues in a timely fashion and continue with the partnership principles that are the basis of the relationship between Council and NZRPG. This is reflected by the two tender tranches that have been let under the WDAs 1 and 4 to the value of $20.8m which will considerably advance the physical works.
….
WDA 2-Variation
[30] WDA 2-Variation is dated 31 October 2012. It is between the Council, Westgate No 3 Ltd (formerly NZRPG Management Ltd), Cannuck Holdings Ltd and Mojave Holdings Ltd. Mojave Holdings Ltd is now WTCL. All three companies are jointly defined as the developer.
[31] The background recitals refer to WDA 2. Inter alia, they record that:
(a)the developer had been granted resource for the Precinct A area, and that resource consents for the development of Precinct B were being processed;
(b)WDA 2 required NZRPG Management Ltd and Cannuck Holdings Ltd to pay to the Council the developer’s portion of the project costs, and set out the amount which had been invoiced as at that date;
(c) this amount remained unpaid, and it was accruing default interest under
WDA 2;
(d)the Council, Cannuck Holdings Ltd and NZRPG Management Ltd had agreed to defer the obligation of Cannuck Holdings Ltd and NZRPG Management Ltd to pay the outstanding developer’s portion until such time as code compliance certificates or certificates of public use under the Building Act 2004 were able to be issued for the development of Precincts A and B, but on the condition that WTCL became jointly and severally liable with Cannuck Holdings Ltd and NZRPG Management Ltd to pay the outstanding developer’s portion; and
(e)the parties agreed that NZRPG Management Ltd and Cannuck Holdings Ltd were to be released from their obligation under clause 4.6 of WDA 2 to provide security to the Council.
[32] New financial provisions were inserted. They read as follows:
4. New Financial Provisions: Clauses 4.1 to 4.6 (inclusive) of WDA 2 are replaced, with effect from the date of this agreement, with the following clauses:
4.1 Payment of Developer’s Portion: The Outstanding Developer’s Portion will be payable by the Developer to the Council as follows:
(a)The Council will, as soon as reasonably possible after issuing any building consent for all or part of the development of Precinct A or Precinct B:
(i)calculate the area of gross floor area which is the subject of that building consent (as a percentage of the Development Area);
(ii)on the issue of building consent, calculate the amount of the Outstanding Developer’s Portion that is payable upon the issue of a Code Compliance Certificate of Public Use, being a percentage (equivalent to the percentage calculated under clause 4.1(a)(i)) of the Outstanding Developer’s Portion;
(iii)calculate interest payable upon the amount calculated under clause 4.1(a)(ii) (at a daily rate equivalent to the Council’s Average Interest Rate plus 1%, for the period from and including 25 October 2012 up to and including the Due Date for that invoice);
(iv) invoice the Developer for the amounts calculated under clauses 4.1(a)(ii) and (iii). Each such invoice:
(A) must be in the form of a tax invoice for
GST purposes;
(B) must specify that the due date for its payment by the Developer (Due Date) is the date of issue by the Council of a code compliance certificate or certificate of public use under the Building Act 2004 in respect of the building consent referred to in this clause;
(C) is payable by the Developer in full and in cleared funds, without set off, on its Due Date;
(b)The Council will have no obligation to issue a code compliance certificate or certificate of public use under the Building Act 2004 in respect of any building work which is the subject of a building consent referred to in this clause until or unless the Developer has paid, or has made arrangements for the contemporaneous payment of, the relevant invoice under clause 4.1(a);
(c)The Council and Developer may, at any time prior to the expiry of 5 years after the date of this agreement, undertake a review of the contractual arrangements herein, for the purpose of determining whether to continue or terminate the deferral arrangement, or enter into a new agreement, in respect of any of the Outstanding Developer’s Portion which has not been invoiced by the Council;
(d)Subject to 4.1(c) above, any of the Outstanding Developer’s Portion which has not been invoiced by the Council within 5 years after the date of this agreement may then be invoiced by the Council (notwithstanding the non-issue of any building consent) together with interest on that amount (at a daily rate equivalent to the Council’s Average Interest Rate plus 1%, for the period from and including 25
October 2012 up to and including the Due Date for that invoice), which will be the date of its receipt by the Developer);
(e)If any amount falls overdue for payment under this agreement, the overdue amount will bear default interest from the relevant Due Date until the date on which payment of the overdue amount is made in full. Default interest will accrue and be calculated on a
daily basis (after as well as before judgment) at the
Default Rate and will be compounded monthly.
4.2 Set Off: If any amount falls overdue for payment by the Developer under this agreement (time being of the essence) the Council may (at its absolute discretion and by written notice to the Developer) set off any or all of the overdue amount against any amount which is then or which will become owing by the Council to Cannuck, NZRPG and/or [WTCL].
Summary judgment - principles
[33] The Council seeks summary judgment under r 12.2(1) of the High Court Rules. That rule states that “[t]he court may give judgment against a defendant if the plaintiff satisfies the court that the 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”.
[34] The general principles applying to summary judgment applications are well known. I adopt the observations of the Court of Appeal in Krukziener v Hanover Finance Ltd:1
[26] The principles are well settled. 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).
[35] In the present case, there are no factual disputes. It is common ground that the
110 kV transmission line has been placed underground, that the Council has paid Transpower for the costs of the undergrounding, that the Council has rendered an invoice to WTCL for the developer’s portion of those costs under clause 4.1(d) of WDA 2-Variation, and that that invoice remains unpaid. The Council, for its part,
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162.
accepts that, for present purposes, it can be assumed that the plaintiffs, or certain of them, have tenable claims for damages against the Council and Auckland Transport.
[36] There was one relatively minor potential dispute, but it comes to nothing. The Outstanding Developer’s Portion is defined in clause 3 of WDA 2-Variation as “$9,162,770.14 excluding GST”. This conflicts with background recital G to WDA
2-Variation which separately defines the Outstanding Developer’s Portion as
“$9,464,256.91 excluding GST”.
[37] The Council’s position is that the reference in clause 3 to $9,162,770.14 is an error and that the correct figure is $9,464,256.91 as recorded in background recital G. It says that the figure in clause 3 did not include accrued interest on the invoiced amounts due up to the date of WDA 2-Variation. WTCL admitted the express terms of WDA 2-Variation in its reply to the Council’s statement of defence, but it denied the Council’s positive allegations relating to this matter. There is, however, no dispute raised by WTCL in its notice of opposition to the quantification of the counterclaim at
$11,855,205.32, and this figure is based on the Outstanding Developer’s Portion being
$9,464,256.91.
[38] I discussed this potential dispute with Mr Gray QC, appearing on behalf of WTCL. He did not take issue with the higher sum claimed by the Council. Rather, he advised that the issue from WTCL’s perspective is liability.
[39] Against this background, I turn to consider the defences raised by WTCL.
Does WTCL have a defence to the Council’s claim?
Context in which to interpret agreements
[40] Mr Gray took me through the background to the various agreements to which members of the NZRPG, the Council and Auckland Transport are parties. He argued that the new town centre is fundamentally dysfunctional and is not the type of town centre agreed. He submitted that there is a clear visible demarcation between the new town centre and the original Westgate retail centre, that the original Westgate retail centre is worse off as a result of the redevelopment, and that the various breaches it is
alleged the Council and Auckland Transport have committed have resulted in a substantial failure of consideration.
[41] Mr Gray further argued that WDA 2 is part of a suite of contracts connected with the entire development. He noted that other agreements entered into between the parties before WDA 2, or at the same time, included the infrastructure funding agreement, the two cost sharing agreements and the three other works development agreements. He argued that it is necessary to interpret all contracts in the context of each, and against their common background. Mr Gray went on to say that undergrounding was nothing more than a component of the contractually agreed new town centre, and that WDA 2 and WDA 2-Variation must be considered as part of the suite of contracts dealing with the overall development. He said that although by mid-
2012, the undergrounding had been completed, the Council and Auckland Transport had not completed other infrastructural obligations undertaken by them, and that the NZRPG companies were then complaining about delay. He submitted that the NZRPG companies were given an assurance by the Council in the 30 November 2011 letter (noted above) that it remained committed to the new town centre development, and that WDA 2 was varied on 31 October 2012 against that background to defer the obligation of the NZRPG companies to contribute to the costs of undergrounding. He argued that the obligation to pay the developer’s portion of the undergrounding costs was thereby linked to the development as a whole, and that this flowed through into the “sunset clause” – clause 4.1(d) in WDA 2-Variation – on which the Council now sues. He argued that, the sunset clause notwithstanding, the obligations created were part of the suite of contracts and that, properly interpreted, the parties cannot have intended that the NZRPG companies would be liable for a portion of the costs of a key aspect of the development if the Council and Auckland Transport have frustrated the development of the new town centre in the form agreed.
[42] Mr Lange, for the Council, noted that there are no express words in WDA 2 or in WDA 2-Variation which suggest that payment by WTCL was conditional in the way now suggested by WTCL. To the contrary, he argued that there are express words that explicitly required payment to be made “in full and in cleared funds, without set off”, on the “Due Date” of the invoice. He observed that there are no words linking WTCL’s payment obligation to performance by the Council and/or by Auckland Transport of
their obligations under any other agreements. He accepted that the parties to WDA 2 were aware of the other agreements they had already entered into, and noted that WDA
2 was conditional upon each of the further works development agreements and cost sharing agreements being validly executed by the parties to those agreements. He submitted that the agreements are related, but not interrelated. He put it to me that, with knowledge of the obligations required to be performed under these other agreements, the parties to WDA 2 and WDA 2-Variation agreed express terms which are inconsistent with payment of the developer’s portion of the costs of undergrounding being conditional on the matters now alleged by WTCL.
[43] In large part, I agree with the submissions advanced by Mr Lange.
[44] I have set out the provisions of WDA 2 above. It is clear that it was entered into because of the proposed redevelopment of the new Westgate town centre, and that it is part of a suite of documents relating to that redevelopment. This is apparent from both the background and operative provisions of WDA 2. However, in my judgment, it is equally apparent from the provisions of WDA 2 that the payment obligations initially imposed on NZRPG Management Ltd and on Cannuck Holdings Ltd under WDA 2 stood independent and alone, conditional only upon the happening of the events specified in clause 2, all of which took place. In short, under WDA 2, the Council was required to give effect to the line deviation agreement with Transpower and to make payment of all amounts payable to Transpower. It did so. NZRPG Management Ltd and Cannuck Holdings Ltd agreed to reimburse the Council for their stipulated portion of those costs when invoiced by the Council. They were to do so in full and in cleared funds, without set off.
[45] Under WDA 2-Variation, the parties to WDA 2 agreed to defer payment by NZRPG Management Ltd and Cannuck Holdings Ltd of the then outstanding developer’s portion that had been invoiced, but was unpaid and accruing default interest, only on the basis that WTCL became jointly and severally liable for the outstanding debt, and that payment would instead be made on the terms set out in WDA 2-Variation. Inter alia, clause 4.1(d) put in place a final payment date of 31
October 2017 for any outstanding balance. There is nothing in WDA 2-Variation to suggest that payment by NZRPG Management Ltd, Cannuck Holdings Ltd and WTCL
was conditional in the way now alleged by WTCL. To the contrary, clause
4.1(a)(iv)(C) explicitly required payment to be made “in full and in cleared funds” and “without set off”, on the “Due Date” of each invoice. Those words are not found in clause 4.1(d), but as I explain below, in my view, they are implicit in that clause as well.
[46] Traditionally, the Courts in New Zealand applied the “plain meaning” rule – if the words of the contract were plain and unambiguous as they stood, they were treated as speaking for themselves and evidence of context was not admitted to show that the parties intended something different.2 More recently, the Courts have become more willing to receive evidence of surrounding circumstances for the purpose of interpreting written contracts.3 Such evidence can sometimes have the effect that what prima facie seems the most obvious meaning of the words used, is displaced by a secondary, less obvious meaning.4 The Courts have held that evidence of the context in which a contract was entered into can be admitted, because it is always possible that what appears to be the plain meaning of the document may, on further examination, turn out not to be.5
[47] This more modern approach was best articulated by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society.6 He said as follows:7
… I do not think that the fundamental change which has overtaken this branch of the law … is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of “legal” interpretation has been discarded. The principles may be summarised as follows:
(1)Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background
2 See generally Matthew Barber “Contents of the Contract” in Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) 177 at [6.3.1].
3 At [6.3.1].
4 At [6.3.1].
5 At [6.3.2].
6 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL).
7 At 912-913.
knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2)The background was famously referred to by Lord Wilberforce as the “matrix of fact,” but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3)The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life …
(4)The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax …
(5) The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had …
(Citations omitted)
[48] This statement of the law was adopted in New Zealand in Boat Park Ltd v Hutchinson.8 It has been relied on in numerous contractual interpretation cases since. Recently, in Firm PI 1 Ltd v Zurich Australian Insurance Ltd, the Supreme Court declined to reconsider the principles of contractual interpretation, and referred again to Lord Hoffmann’s approach as representing the position in New Zealand.9
8 Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA) at 81-82.
9 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60].
[49] It follows that the exercise of interpreting a contractual provision involves identifying what the parties meant through the eyes of a reasonable reader. That meaning is most likely to be gleaned from the language used,10 but the Courts will also look at the contract as a whole and in context, because the words used by the parties must be set in that context. The Courts are prepared to look at the factual matrix, even if the words of the contract seem clear at first sight.11 The context of an agreement will usually operate as a cross-check, but the plain meaning of a provision is provisional, and is always susceptible to being altered by context.12 Pre-contractual negotiations, if they shed an objective light on meaning, can be relevant and admissible, but not if they are simply evidence of subjective intention.13
[50] Despite the expansive approach now taken to contractual interpretation, in the present case, an objective reading of the clear words of WDA 2 and WDA 2-Variation, does not support the argument advanced for WTCL, and I cannot see that further consideration of the overall context could change the position. Indeed, it is difficult to imagine contractual provisions which could be much clearer.
[51] It is apparent from both agreements that the parties were aware of the other agreements then or about to be entered into relating to the proposed development of the Westgate town centre. They are expressly referred to in WDA 2 as “the related agreements”, and WDA 2 is conditional upon each of the other works development agreements and cost sharing agreements being validly executed by the various parties to those agreements. With full knowledge of the obligations required to be performed under those contracts, the parties to WDA 2 and WDA 2-Variation nevertheless agreed express terms which are, in my judgment, inconsistent with payment by the developers of their portion of the costs being conditional in the manner now alleged by WTCL. I refer, in particular, to clause 4.2(c) of WDA 2 and to clause 4.1(a)(iv)(C) of WDA 2-
Variation.
10 Arnold v Britton [2015] UKSC 36, [2015] AC 1619 at [17].
11 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [4] per
Blanchard J, at [22] per Tipping J, at [64] per McGrath J.
12 At [24] per Tipping J.
13 At [20] per Tipping J.
[52] Not only was there a no set off provision against the developer, but clause 4.5 of WDA 2 and clause 4.2 of WDA 2-Variation conferred a discretion in favour of the Council, allowing it to set off any or all of the overdue amount invoiced to the developer against any amount the Council then owed to WTCL or the other parties. The clauses suggest that the parties to WDA 2 and WDA 2-Variation turned their minds to the issue of whether or not there might be circumstances in which the developer could withhold payment of all or any of the monies it was required to pay pursuant to WDA 2 and WDA 2-Variation, and decided that it should not be permitted to do so, notwithstanding that both knew that the Council had assumed obligations under related agreements. The set off provisions are at odds with any suggestion that payment by WTCL and the other parties to the agreements of amounts duly invoiced by the Council pursuant to WDA 2 or WDA 2-Variation was conditional on there being no breaches by the Council of those other agreements.
[53] WDA 2-Variation was entered into when WTCL and other NZRPG companies were complaining about the Council’s delays. Notwithstanding this, the agreement records that the developer’s portion of the undergrounding costs was outstanding and accruing interest. WDA 2-Variation reinforces the provisions of WDA 2 – indeed it constitutes an acknowledgement by WTCL (and the other NZRPG companies) that the debt was then owing, regardless of the assertion now made that the Council and Auckland Transport were in breach of the various obligations said to have been assumed by them. Clause 4.1(a)(iv) in WDA 2-Variation repeated the provisions of clause 4.2(c) of WDA 2. Clause 4.1(d) was new. It provided that any of the outstanding developer’s portion not invoiced within five years after the date of WDA
2-Variation could then be invoiced by the Council, notwithstanding the non-issue of any building consent, together with interest on that amount for the period from 25
October 2012 up to and including the due date for that invoice. In other words, the clause created a drop-dead final payment date of 31 October 2017 for any unpaid balance invoiced by the Council. Clause 4.1(e) provided that any amount overdue for payment under WDA 2-Variation was to bear default interest until the date on which payment was made. These various provisions are inconsistent with the argument now advanced for WTCL.
[54] WTCL says that it entered into WDA 2-Variation because of the letter sent to Mr Gunton by Mr McKay. I have set out the relevant parts of the letter above at [29]. WTCL argued that, in that letter, Mr McKay gave his assurance that the Council remained committed to the development of the new town centre, and that it fully intended to adhere to all the relevant agreements. I do not accept this submission. It is clear from clause 6 of the letter that the Council was expecting that NZRPG would honour all of its obligations under the line deviation agreement, including its financial commitments. The NZRPG parties then signed a detailed agreement varying WDA 2 in part and also affirming it in part. The agreement contained terms which are inconsistent with the argument WTCL now advances.
[55] Clause 9.6 – the entire agreement clause – in WDA 2 is also relevant. This clause is deemed to form part of WDA 2-Variation as well.
[56] A commonly cited explanation for entire agreement clauses is that given by
Lightman J in Inntrepreneur Pub Co (GL) v East Crown Ltd, where he stated:14
The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding, in the course of negotiations, some (chance) remark or statement (often long forgotten or difficult to recall or explain) upon which to found a claim, such as the present, to the existence of a collateral warranty … for such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere …
Generally speaking, an entire agreement clause will take effect according to its terms.15 Entire agreement clauses are not necessarily absolute or conclusive, and s
4(1) and (2) of the Contractual Remedies Act 1979 – now Contract and Commercial Law Act 2017, ss 50-51, identify circumstances where the Court can consider whether representations or conduct outside the contract can be said to constitute a representation or a term of the contract.16
[57] There is in this case no reason to ignore the entire agreement clause. It is consistent with the degree of predictability that commercial parties would seek when
14 Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] 2 Lloyd’s Rep 611 (Ch) at 614.
15 Harris v GTV Holdings Ltd [2016] NZHC 3123 at [26].
16 PAE (New Zealand) Ltd v Brosnahan [2009] NZCA 611, (2010) 9 NZBLC 102,862 at [15].
entering into complex transactions such as those at issue in this case. There is no dispute that all parties were legally represented and that there was no disparity in their respective bargaining strengths. Entire agreement clauses are intended to ensure that a Court is limited to the written terms of the contract for interpretation purposes,17 and I do not consider that there is anything unfair or unreasonable in holding the parties to the terms of their bargain. The terms of clause 9.6 are clear. WDA 2 and WDA 2- Variation record the entire understanding and agreement of the parties relating to the undergrounding of the high voltage transmission line and payment for the works required to achieve that end.
[58] For the reasons I have set out, I am not persuaded that WTCL has an arguable defence that WDA 2 and WDA 2-Variation can only be interpreted in their context and as part of the suite of contracts for the overall development of the new town centre.
Substantial dispute over the obligations in the suite of contracts
[59] I agree with WTCL that there is a substantial dispute over what the suite of contracts obliged the Council and Auckland Transport to do. I accept contextual evidence, properly tested, will need to be put before the Court to enable it to determine those disputes. I do not, however, agree that WTCL’s liability to reimburse the Council for a portion of the undergrounding costs incurred was dependent upon the Council and Auckland Transport performing other contracts in the suite of contracts. I have already set out my reasons for that conclusion above. Again, I do not consider that WTCL has an arguable defence in this regard.
Implicit/Implied term
[60] Mr Gray first argued that the parties to a contract are under an implicit obligation to maintain the existing circumstances of the contract if an arrangement can only take effect by the continuance of those circumstances.18 He referred to Vickery v Waitaki International Ltd.19 This case concerned a contract for the provision of catering and cleaning services to a freezing works for a term of up to eight years. The
17 Harris v GTV Holdings Ltd, above n 15, at [32].
18 Stirling v Maitland (1864) 5 B & S 840 at 852.
19 Vickery v Waitaki International Ltd [1992] 2 NZLR 58 (CA).
Court of Appeal held that, as a matter of construction of the express terms of the contract, it was implicit that the freezing works should remain open, and that by closing the works, the defendant breached the contract.20 Mr Gray also relied on Rod Milner Motors Ltd v Attorney-General.21 In that case, a vehicle importer successfully tendered for an import licence as part of a scheme where the Government had published a document stipulating that import licences would be offered each six months for four years, after which point the import licence regime would be reconsidered. The Government then revised the plan, resulting in the appellant’s licence being less profitable. The plan was not an express term of the contract entered into, but the Court of Appeal held that the Crown had breached a condition of the contract that it would adhere to the original plan.22 It was considered that the plan was the substratum on which the individual tenders relied. As an alternative, the Court was prepared to imply such a term to give business efficacy to the contract.
[61] Mr Gray argued that NZRPG’s position is analogous to that in Vickery and Rod Milner, and that WDA 2 and WDA 2-Variation were entered into on the basis of a contractual commitment, and assurances, made by the Council to develop the town centre in the form agreed. He argued that the town centre development was the substratum upon which NZRPG relied, when it agreed to contribute to the cost of the undergrounding. He put it to me that the basis of the contracts would be destroyed if the Council could change its mind and not perform fundamental aspects of the redevelopment.
[62] In my judgment, Vickery and Rod Milner are not analogous to the present situation, and they can be distinguished. In both, the relevant contract could only take effect if the existing state of affairs continued, and the Court of Appeal either found express terms or was prepared to imply terms requiring the defaulting party not to do anything to bring the represented state of affairs to an end. In the present case, WTCL’s complaints and those of other NZRPG companies are directed to alleged breaches by the Council and Auckland Transport of obligations under other contracts. There is nothing to prevent WTCL and the other plaintiffs from suing the Council and Auckland
20 At 65.
21 Rod Milner Motors Ltd v Attorney-General [1999] 2 NZLR 568 (CA).
22 At 579-580.
Transport under those other contracts. Indeed, they are doing so. Further, the substratum of WDA 2 and WDA 2-Variation is not the development of the new town centre. Both agreements are concerned with the undergrounding of the high voltage transmission line. That has occurred. The Council has kept its part of this particular bargain. All that is in issue is whether or not WTCL should be required to pay the developer’s portion of the costs incurred. The only purpose of the alleged implicit term, in practical terms, is to permit WTCL to avoid, or at least delay, its payment obligation, and this is inconsistent with the terms of both agreements.
[63] Mr Gray went on to argue, in the alternative, that an implied term should be found to the same effect, as it is necessary to give WDA 2 and WDA 2-Variation business efficacy.
[64] One expression of the alleged implied term is contained in the notice of opposition. It is there said to be as follows:
It is an express or implied term of WDA 2 (as amended by variations) that liability under clauses 4.1 and 4.2 of WDA 2 is dependent or conditional upon [the] Council and Auckland Transport complying with [various clauses in other agreements relating to the development of the new Westgate town centre].
An alternative implied term was advanced by Mr Gray in his submissions. He there asserted that the implied term was as follows:
The obligation to pay is contingent upon [the Council’s] performance of its development obligations under the relevant agreements [as particularised in the statement of claim] so that the cost of undergrounding yields the anticipated benefit to NZRPG of the related agreement being performed.
[65] It is trite law that the Courts will sometimes imply terms into contracts to repair intrinsic failures of expression.23 The tests for implying a term have evolved over the years. They were drawn together by the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings.24 The Court there said that, for a term to be implied, first it must be reasonable and equitable; secondly, it must be necessary to give business efficacy to the contract, so that the contract would not be effective without it; thirdly,
23 Barber, above n 2, at [6.4.4].
24 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (PC) at 283.
it must be so obvious that it goes without saying; fourthly, it must be capable of clear expression; fifthly, it must not contradict any express term of the contract.
[66] This test has, until relatively recently, been adopted in New Zealand.
[67] More recently, the Privy Council, per Lord Hoffmann in Attorney General of Belize v Belize Telecom Ltd, stated that the question for the Court when deciding whether to imply a term is:25
[21] … whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean … There is only one question: is that what the instrument, read as a whole against the relevant background would reasonably be understood to mean?
Referring to the BP Refinery criteria, Lord Hoffmann stated that the list there set out is best regarded not as a series of independent tests, each of which must be surmounted, but rather as a collection of different ways in which Judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so.26 Lord Hoffmann also made it clear that the Court has no power to improve upon an instrument which it is called upon to construe, and that it cannot introduce terms to make it fairer or more reasonable.27 It is concerned only to discover what the instrument means.28 He said that the question of implication arises where the contract does not expressly provide for what is to happen when some event occurs, and that the most usual inference in such cases, is that nothing is to happen.29 He stated that it is not enough for a Court to consider that the implied term expresses what it would have been reasonable for the parties to agree to.30 The Court must be satisfied that that is
what the contract actually means.31
25 Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988.
26 At [27].
27 At [16].
28 At [16].
29 At [17].
30 At [22].
31 At [22].
[68] As noted in relevant texts, this new formulation has had a mixed reception, both from the Courts and from commentators.32 Notably, the Supreme Court in the United Kingdom has distanced itself from Belize, noting that interpretation and implication are different processes governed by different rules.33 In New Zealand, the Supreme Court, in one case, has endorsed the Belize approach, but has also regarded the BP Refinery test as remaining relevant.34 It has noted, in another, the divergence in the United Kingdom, but left open the question whether the implication of a term is to be dealt with by applying the same test and perhaps addressed as part of the same process as applies to the interpretation of contractual terms.35
[69] I agree with Mr Lange that it matters not which of the various approaches are taken in this case. All approaches lead to the same result.
[70] In my judgment, there is no need to imply the proposed term suggested by WTCL to give either or both WDA 2 or WDA 2-Variation business efficacy. The suggested term cannot be said to be so obvious that it goes without saying, or that it can be taken for granted. The term is not reasonable and equitable. As pleaded by WTCL, the condition is in absolute terms. Any breach by the Council of any other agreement relating to the development of the new Westgate town centre would result in no payment at all of whatever invoiced amount was otherwise payable pursuant to WDA 2 or WDA 2-Variation. The suggested term would require the Council to establish that it, and Auckland Transport, are not in breach of their obligations under any other Westgate agreement before it could recover payment of the agreed portion of the monies it has already disbursed. There is no proportionality in the proposed term between amounts invoiced under WDA 2 or WDA 2-Variation, and whatever damages might be payable in respect of any breach of another agreement. The slightest breach would remove any liability upon WTCL to make payment to the Council. Further, the proposed implied term would leave WTCL with no obligation
to make the payments required, even if any breach of any other agreement was
32 See, for example, Barber, above n 2, at [6.4.4(b)].
33 Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72, [2016] AC 742 at [26].
34 Nielsen v Dysart Timbers Ltd [2009] NZSC 43, [2009] 3 NZLR 160 at [25] and [62]-[64].
35 Mobil Oil New Zealand Ltd v Development Auckland Ltd [2016] NZSC 89, [2017] 1 NZLR 48 at
[81]. See also Ward Equipment Ltd v Preston [2017] NZCA 444 at [46]-[48] and [84]-[95]; BDM Grange Ltd v Trimex Pty Ltd [2017] NZCA 12 at [67].
subsequently remedied. I agree with Mr Lange that such consequences could not possibly have been the objective commercial intent of the parties.
[71] Importantly, WDA 2 or WDA 2-Variation are effective without the proposed implied term. There are separate and distinct claims available to the relevant NZRPG entities in the event of contractual breaches by the Council or Auckland Transport of any other agreements relating to the development of the new Westgate town centre. It is not necessary to imply a term into WDA 2 or WDA 2-Variation in order to hold the Council accountable for its obligations under those other agreements. As I have already set out, in my judgment, WDA 2 and WDA 2-Variation impose a straightforward and unconditional obligation upon WTCL to reimburse the Council for a proportion of monies paid by the Council to Transpower, leaving WTCL and other related entities free to separately pursue any claims they might have against the Council for breaches of any other agreements. It is a “pay now, argue later” situation, common in construction contracts.36 In my judgment, the proposed implied term would contradict the express terms of WDA 2 and WDA 2-Variation, and the Court should not imply a term simply because one party to a contract later says that it would not have entered into the contract without that term.
[72] Again, I do not consider that WTCL has an arguable defence based on an implicit or implied term.
Estoppel
[73] Mr Gray submitted that it is reasonably arguable that the Council is estopped from demanding payment under clause 4.1(b) of WDA 2-Variation. He asserted that the Council is estopped because the parties entered into WDA 2 and WDA 2-Variation on the underlying assumption that the new town centre would be developed as agreed. He referred to the judgment of the Court of Appeal in National Westminster Finance NZ Ltd v National Bank of NZ Ltd,37 and argued that the underlying assumption of fact
– that the town centre would be developed as agreed – is of sufficient certainty to be
enforceable, that each party expressly or by implication accepted that assumption as
36 Construction Contracts Act 2002.
37 National Westminster Finance Ltd v National Bank of New Zealand Ltd [1996] 1 NZLR 548 (CA)
at 550.
being true for the purposes of the transaction, that it was intended to effect their legal relations, and that WTCL, as the Council knew or intended, acted in reliance upon the assumption to its detriment. He argued that it would be unconscionable to allow the Council to depart from that assumption.
[74] In my judgment, WTCL’s reliance on estoppel by convention is misconceived. First, there needs to be an assumed state of facts or law.38 For the reasons I have set out, I consider that it is plain from the express provisions of WDA 2 and WDA 2- Variation that there was no underlying assumption as asserted by WTCL. Rather, the relevant underlying assumption was that the undergrounding work would be carried out, that the Council would pay for it, that a portion of the costs owing would be reimbursed on invoice by WTCL, and that the invoices would be paid regardless of any issues that might arise between the parties under other contracts, and notwithstanding that these issues might result in separate claims by the NZRPG parties against the Council.
[75] Again, I do not consider that there is an arguable defence in this regard.
Set off
[76] WTCL, in its notice of opposition, suggested that the various claims which were made in the proceedings provided it with an equitable set-off to the Council’s counterclaim. The Council, for its part, submitted that the relevant clauses in WDA 2 and WDA 2-Variation require payment in full without set off, and that WTCL is liable regardless of its breaches of contract.
[77] Mr Gray noted that the no set off provision only appears in clause 4.1(a)(iv)(C) in WDA 2-Variation, and that clause 4.1(d), which provides for the invoicing of any amounts not invoiced within five years, does not contain such provision.
[78] It was common ground that the debt now claimed by the Council was invoiced pursuant to clause 4.1(d) of WDA 2-Variation.
38 Republic of India v India Steamship Co Ltd [1998] AC 878 (HL) at 913.
[79] In my view, a no set off provision in cl 4.1(d) can properly be implied. I have reached that conclusion for the following reasons:
(a)the payment clause in WDA 2 contained a no set off provision – see clause 4.2(c);
(b)the debt created by the NZRPG parties’ default under WDA 2 is acknowledged in WDA 2-Variation – see background recitals F, G and H, the definition of Outstanding Developer’s Portion in clause 3, and clause 4.1; and
(c)clause 4.1 of WDA 2-Variation provided for invoicing following the issue of building consents for all or part of the development of Precincts A and B. Clause 4.1(a)(iv)(C) provided that an invoice for an amount calculated under clauses 4.1(a)(i)(ii) and (iii) was “payable by the Developer in full and in cleared funds, without set off, on its Due Date”. The due date was defined in clause 4.1(a)(iv)(B). Although the words “Due Date” were given an appropriately amended meaning in clause
4.1(d), the use of the capitals as in clause 4.1(a)(iv)(B), indicates that the revised payment regime in clause 4.1 was intended to be read as an integrated whole.
[80] In my judgment, the payment obligation created by clause 4.1(a)(iv)(C) for invoices issued under clause 4.1(a) must sensibly be read as applying to an invoice issued under clause 4.1(d). A “payment in full, in cleared funds, without set off” provision is implicit and there was no need to repeat the words of clause 4.1(a)(iv)(C) in clause 4.1(d). They were of general application to any invoices issued for the outstanding developer’s portion, just as they had been in clause 4.2 of WDA 2 in respect of the whole of the developer’s portion. Further, the separate set off in favour of the Council, clause 4.2 in WDA 2-Variation, repeating clause 4.5 of WDA 2, makes it clear that it was intended that the Council was entitled to receive all payments in full, whether invoiced under clause 4.1(a) or clause 4.1(d).
[81] I agree with Mr Lange that it would make no commercial sense if the full amount of the outstanding developer’s portion, acknowledged as unpaid and accruing default interest, and therefore subject to the set off clause – clause 4.5 of WDA 2 and clause 4.2 of WDA 2-Variation – was only payable subject to set off some five years later in clause 4.1(d). The deferral of the payments already owing under WDA 2 was a concession to WTCL. There is no logical or commercial reason for the no set off requirement to apply only to clause 4.1(a) invoices, and not to a clause 4.1(d) invoice. The purpose of the new payment regime put in place by WDA 2-Variation was to make sure that the developer’s portion was paid at the latest by the drop-dead date in clause
4.1(d). In my judgment, the payment in full, in cleared funds, without set off provision can be properly implied into clause 4.1(d), to spell out what the agreement actually meant.
[82] The principles of equitable set-off were succinctly summarised by the Court of
Appeal in Grant v NZMC Ltd:39
… The defendant may set-off a cross-claim which so affects the plaintiff's claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account. The link must be such that the two are in effect interdependent: judgment on one cannot fairly be given without regard to the other; the defendant's claim calls into question or impeaches the plaintiff's demand. It is neither necessary, nor decisive, that claim and cross- claim arise out of the same contract.
[83] There are a number of difficulties in WTCL’s way in asserting set off:
(a)the no set off provision which I have discussed, provides a complete answer to the alleged defence of equitable set-off. Providing it is done by clear and unequivocal words, parties can contract out of the equitable right to deduct from a payment due;40
(b)WTCL is only one of six plaintiffs, whose claims are combined in the statement of claim. The plaintiffs plead that they have the same ultimate ownership, are related to each other, and that they are to be
39 Grant v NZMC Ltd [1989] 1 NZLR 8 (CA) at 12-13.
40 Grant v NZMC Ltd, above n 39, at 13; Dominion Breweries Ltd v Countrywide Banking Corp Ltd
CA314/91, 18 August 1992 at 4-5; Bromley Industries Ltd v Martin & Judith Fitzsimons Ltd
[2009] NZCA 382, (2009) 19 PRNZ 850 at [46]-[52].
treated as a group for the purposes of the proceeding. There is no proper legal basis for this approach. Each of the plaintiffs is a separate corporate entity; and
(c)in the statement of claim, it is alleged that on or about 30 June 2017, WTCL and other NZRPG companies entered into agreements with new entities, by which the assets of the old NZRPG companies were transferred to the new NZRPG companies, to facilitate a restructure within the NZRPG. In their statement of defence, the Council and Auckland Transport admit that the plaintiffs have included in their initial disclosure copies of three sale and purchase agreements, all dated
30 June 2017, which purport to record the transfer of assets from the original NZRPG companies to the new NZRPG companies. They otherwise assert that they have no knowledge of this aspect of the plaintiffs’ pleading, and they accordingly deny paragraph 2.5. Assuming the pleading is correct, it would seem that WTCL may no longer have a damages claim it could set off against the liability it is under to the Council under WDA 2 and WDA 2-Variation.
[84] In my judgment, the no set off provision can properly be implied into clause
4.1(d). It is clear and unambiguous, and it excludes any set off against payment of the outstanding developer’s proportion by WTCL. For this reason, and for the others I have set out, WTCL has no arguable defence in this regard.
Residual discretion/stay
[85] The residual discretion conferred by r 12.2(1) – the Court “may” give judgment
– is “a discretion of the most residual kind”.41
[86] Nevertheless, WTCL relied on this residual discretion, arguing, in the alternative, that it should be exercised to avoid oppression or injustice to WTCL. He noted that there are no solvency issues here, but argued that entering summary judgment would impose a significant cost on WTCL and on the NZRPG. He noted
41 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 5.
that they would have to use funds sourced at commercial interest rates to satisfy the judgment, pending determination of their own substantive claims. He argued that it would therefore be unjust to enter summary judgment.
[87] I disagree. In my judgment, there can be no suggestion that the entry of summary judgment would cause oppression or injustice to WTCL, particularly having regard to the no set off provision in WDA 2-Variation.
[88] In Dominion Breweries Ltd v Countrywide Banking Corporation Ltd, the Court of Appeal held that to exercise the residual discretion to refuse summary judgment, in the face of a no set off clause, would:42
… defeat the commercial purpose of the [no set off] contractual exclusion, would be out of touch with business realities and would keep Dominion Breweries waiting for payments it was intended it should receive monthly while managing the hotel, whilst protracted proceedings on the counterclaim are litigated.
[89] In Bromley Industries Ltd v Martin & Judith Fitzsimons Ltd, the Court of
Appeal described the principle of Dominion Breweries as follows:43
[64] In the Dominion Breweries case, Countrywide had an arguable case for equitable set-off, but the Court still entered judgment and declined to exercise its discretion to refuse summary judgment. Mr Sissons sought to distinguish that case from the present on the basis the parties had an ongoing relationship that required Dominion Breweries to continue with the management of the hotel. But the case cannot be distinguished on that basis. The principle of the case was that once the Court accepted that the parties had contracted out of the right of set-off, to then use the residual discretion to defeat the application for summary judgment because of the potential claim for set-off would be to frustrate entirely the commercial purpose of the contractual bargain the parties had made. That is precisely the position in this case.
[65] Generally the exercise of the residual discretion not to allow summary judgment will only be invoked in limited cases, such as to avoid oppression or injustice, or where the proceeding involves the actions or possible liability of a third party not before the Court, or if the proceedings are of a particular nature that opportunity should be given to allow discovery, or where the circumstances of the case disclose very unusual features which support a conclusion that the entry of summary judgment would be oppressive or unjust.
[66] In circumstances where the set-off is excluded by an express contractual provision in an agreement between commercial parties, it cannot
42 Dominion Breweries Ltd v Countrywide Banking Corporation Ltd, above n 40, at 5.
be said to be an injustice to give effect to the bargain the parties have made. There was, for example, no evidence before the Associate Judge and there is none before us to suggest that in the event MFL and Lagoon are required to pay they will not be able to pursue their unliquidated claims for damages against Bromley. Further, it can hardly be said to be an injustice to require MFL and Lagoon to pay Bromley for product which they have received and have had the benefit of.
[90] In my view, these comments are apposite in the present case. The no set off provision is clear and unambiguous, and the entry of summary judgment does no more than give effect to the bargain the parties made. The fact that WTCL and the other plaintiffs also make claims against the Council and Auckland Transport is irrelevant. They are free to pursue the Council and Auckland Transport as they see fit. There is no scope for the Court to exercise its residual discretion to decline summary judgment.
[91] In the alternative, it was argued that r 12.2(2) allows the Court to, in effect, stay execution of an award of summary judgment if a defendant has a counterclaim that ought to be tried. It was argued that if the Court is minded to grant summary judgment, execution should be stayed pending determination of NZRPG’s claim
against the Council and Auckland Transport.44
[92] A stay of enforcement rests essentially on whether a substantial miscarriage of justice would be likely to result if the judgment were enforced.45
[93] In my judgment, WTCL falls well short of satisfying the onus on it to show that there is a real and substantial risk that a substantial miscarriage of justice would result if summary judgment on the Council’s counterclaim were to be enforced. There is no evidence to suggest that it faces potential liquidation, or would be unable to meet judgment of the Council’s counterclaim. It simply complains it will have to borrow funds to satisfy the judgment. This does not suggest that there is a real and substantial risk that a substantial miscarriage of justice would result. Moreover, the main proceedings are likely to be lengthy and complex.
44 Roberts’ Family Investments Ltd v Total Fitness Centre (Wellington) Ltd [1989] 1 NZLR 15 (HC).
Conclusion
[94] I am not persuaded that WTCL has an arguable defence to the counterclaim brought by the Council, and in my judgment, it is appropriate to grant summary judgment as sought by the Council. Judgment is granted in favour of the Council, against WTCL, in the sum of $11,855,205.32. Further, the Council is entitled to interest on that sum at the default rate specified in WDA 2 from 1 November 2017 until the date of payment in full.
Costs
[95] The Council is also entitled to its costs and reasonable disbursements.
[96] I note that the parties have already agreed that the costs in this proceeding should be categorised on a category 3 band C basis. If that is accepted, the quantification of costs should be relatively straightforward, and I would trust that the parties would be able to agree.
[97] If there is any dispute, I make the following directions:
(a)The Council is to file a memorandum seeking costs within 10 working days of the date of this judgment;
(b) Any memorandum in reply on behalf of WTCL is to be within a further
10 working days;
I will then deal with the issue of costs on the papers, unless I require the assistance of counsel.
Wylie J
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