Yield Asset Management Limited v Windsor Park Leasing Limited
[2016] NZHC 2178
•14 September 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-419-355 [2016] NZHC 2178
BETWEEN YIELD ASSET MANAGEMENT
LIMITED Plaintiff
AND
WINDSOR PARK LEASING LIMITED Defendant
Hearing: On the papers Counsel:
M M Edwards and N P Tetzlaff for Plaintiff
P J Morgan QC for DefendantJudgment:
14 September 2016
JUDGMENT OF WHATA J
This judgment was delivered by me on 14 September 2016 at 4.00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………………….
Solicitors: Gaze Burt, Auckland
Lewis Law, Hamilton
YIELD ASSET MANAGEMENT LTD v WINDSOR PARK LEASING LTD [2016] NZHC 2178 [14 September
2016]
[1] This is a costs judgment.
[2] Yield Asset Management Limited (Yield) is a property management company. Windsor Park Leasing Limited (Windsor) owns properties on Stanley Street. In about November 2011, Yield was assigned the management contract for the Stanley Street properties. In April 2014, Windsor sent a notice of termination to Yield. Yield did not accept that the notice was valid. It claimed management fees to September 2014, being the end date of the management agreement. Windsor claimed that the agreement was properly terminated and also raised an affirmative defence, based on breach of fiduciary duty, claiming that Yield attempted to take a secret profit from a real estate agent.
[3] At the hearing it became tolerably clear that Yield had not been entirely transparent with Windsor about its dealings with a real estate agent. There was evidence that Yield told Windsor that a real estate agent had an entitlement to a fee on the leasing of its property while at the same time telling the agent that it had no or a partial entitlement only. Yield was in the process of negotiating a split fee with the agent when Windsor terminated the management agreement. The effect of a split fee, if carried to fruition without Windsor’s approval, would have been that Yield may have received a secret profit to which it was not entitled. After discussion with Counsel about this evidence, Yield discontinued the proceedings.
[4] Windsor now claims indemnity costs on the basis that Yield’s claims never had any prospect of success given the clear evidence of an attempt to obtain a secret profit.
Legal frame
[5] Both parties agree that Yield is liable for costs. The key issue is quantum. It is also common ground that indemnity costs may be awarded where the trial is not completed and the claim lacked any merit. As Kós J put it in N-Tech Ltd v Abooth
Ltd:1
1 N-Tech Ltd v Abooth Ltd [2012] NZHC 1167 at [108].
It follows from these authorities that increased or indemnity costs may be awarded on the basis of lack of merit, in a case where the trial is not completed, only where the lack of merit is both obvious and incontrovertible. So clearly so that there is no reasonable possibility that the Court might form a different view with the benefit of all the evidence and closing submissions. No difficult or detailed speculation is involved. The claim is and was so flawed that nothing in the evidence and submissions to follow could save it – and the plaintiff has acted unreasonably in bringing or continuing the claim. It is, thus, stated, a double hurdle. The first, assesses the claim; the second, the claimant’s conduct.
Background
[6] Given the claim for indemnity costs, some history is needed.
The plaintiff ’s claim
[7] The plaintiff’s claim rested on the following key allegations.
[8] In September 2011, Windsor entered into an undated written property asset management agreement (the PAMA) with Murchison Group Limited. Murchison Group Limited was the original manager under the PAMA. The PAMA provides for the property management of the commercial properties located at 60 and 70 Stanley Street, Parnell, Auckland (the properties). The PAMA commenced on 1 October
2011 and expired on 30 September 2014. On 9 November 2012, Windsor assigned the PAMA from Murchison Group Limited to Yield.
[9] Material terms of the PAMA included a monthly management fee of $5000 plus GST and leasing fees at 100% of Yield’s standard fees where no fee is payable to another party. Where a fee is payable to another party, Yield is entitled to 30% of their standard fee. This is reflected in cl 5.2 of the PAMA, which states:
5.2Transactional Fees: The Principal will also pay the Manager Transactional Fees as referred to in Parts C, D and E of Schedule 3 in circumstances where the Manager has during the term of this Agreement provided general advice or materials and/or conveyancing services in respect of the Properties and, following receipt of such advice, materials or services the Principal has entered into an unconditional Lease or Leases or a sale and purchase agreement in respect of one or both of the Properties.
The Transactional Fees detailed in Parts D and E of Schedule 3 are to be payable within 10 (ten) Business Days after the date that the
respective Lease or sale and purchase agreement has been declared unconditional, provided that the Manager has first given the Principal an invoice for the relevant Transactional Fee.
[10] Part D of Schedule 3 then records:
Leases to New Occupants
1)In respect of tenants introduced to the Principal with whom an unconditional agreement is entered into for any vacant space within one or both of the Properties, a fee equivalent to 30% of the fees paid to any external parties (eg real estate agents) will be payable by the Principal to the Manager.
2)In respect of the unconditional leasing of any vacant space within one or both of the Properties to a new tenant where no fee is payable to any other party, a fee equivalent to 100% of the Manager’s standard ‘Scale of Fees & Charges’ (copy attached at Schedule 4).
3)In respect of the unconditional leasing of any vacant space within one of both of the Properties to any Occupant of one of both of the Properties (whether direct tenants or sub-tenants) and where no fee is payable to any other external party, a fee equivalent to 50% of the Manager’s standard ‘Scale of Fees & Charges’ (copy attached Schedule 4).
[11] In May 2014 Windsor purported to terminate the PAMA with immediate effect.
[12] Yield alleged two breaches of the PAMA:
(a) At the time of termination, Yield was owed a leasing fee of
$195,444.72 for leasing Windsor’s Stanley Street property to the New Zealand Racing Board (NZRB), being a 100% fee in accordance with Yield’s standard fees; and
(b) Yield was owed $5,109.27 management fee per month for the months
June–September 2014.
The defences
[13] Windsor’s defence rested on the following basic propositions:
(a) Yield did not secure the NZRB as the tenant and so was not entitled to a full leasing fee. Rather a leasing fee was payable to Jones Lang LaSalle (JLL) who introduced the NZRB to Windsor.
(b) Windsor validly terminated the leasing agreement.
(c) Yield sought to obtain a secret profit in breach of the PAMA and its fiduciary duty to Windsor. Yield had sought to negotiate a split leasing fee with JLL without notice to Windsor.
Assessment
[14] The defence claim based on secret profit was strong, but it was not incontrovertible.
[15] The central issues were:
(a) Whether Yield, not JLL, secured NZRB as a tenant; and
(b)Whether Yield attempted to reach an agreement with JLL about a split fee without notice to Windsor.
[16] Mr Steve Williams, director and shareholder of Yield, gave evidence. He did not stand up well to close scrutiny in several respects. His evidence about the role he played in securing NZRB did not marry with the available record. JLL had an active role in securing NZRB as a tenant. He also conceded that that he had been “economical with the truth” about whether JLL had executed an agency agreement. The significance of this is that the agency agreement provided the legal basis for a fee payable to JLL in addition to a fee to Yield. This meant Mr Williams could indicate to Windsor that the full fee plus 30% was payable. But as JLL had not in fact executed an agency agreement in advance of the tenancy, Yield was in a superior negotiating position with JLL in terms of a reduced fee.
[17] Cross-examination also revealed that Mr Williams did not tell Windsor at a meeting to discuss the fee arrangements on 14 January 2014 about that agreement in
principle had been reached with JLL on 6 January 2014 to split the leasing fee 60/40. If carried into effect, Yield would have effectively obtained a 70% fee, instead of a
30% fee. Subsequent evidence from Mr Kean, who provided administrative assistance to Yield and attended some of the negotiations with JLL, said that Mr Williams had told Mr Lamb of JLL that he wanted the negotiations be kept confidential.
[18] Balanced against this, Mr Williams maintained that he had always told Mr Lamb that any agreement reached would require approval from Windsor. Mr Kean corroborated this testimony. As Mr Lamb was still to give evidence, the extent to which Mr Williams conveyed to him the requirement for approval by Windsor had not been fully tested. Furthermore, Mr Williams appears to have believed that he played the primary role in securing the NZRB and that he was entitled to the 100% fee. He also appears to have reasoned that if JLL was entitled to a fee, then Windsor was always liable for the full leasing fee plus 30% to Yield. It therefore remained arguable on the evidence as it stood that no final agreement had been reached with JLL; that Mr Williams had always intended to table a final proposal once all terms had been settled between Yield and JLL; and that Windsor was never going to be worse off.
[19] Conversely, it might be said that Windsor benefited from Yield’s removal because it avoided the 30% payable to Yield. It then appeared happy to engage Mr Kean to continue to provide the management services previously provided by Yield (even though Mr Kean was involved in the “secret” negotiations with JLL). In saying this I mean no criticism of Windsor’s witnesses, who on the evidence, sought to do the right thing throughout. They were vindicated in the result. But it cannot be said that Yield had no proper basis whatsoever for complaint.
[20] Overall, therefore, while Yield’s claim was seriously damaged after cross- examination, the defence case was not incontrovertible.
[21] A residual issue is whether there should be an uplift given the apparent weaknesses of the plaintiff’s claim. In this regard, Yield’s claim based on 100% leasing fee was weak. There was simply too much clear evidence indicating JLL’s
role in securing the NZRB tenancy. But Yield’s claim in relation to a 30% fee was at least arguable, as was the claim to the management fee for early termination. Given this, it is not necessary or appropriate to inquire further into the merits.2
[22] In those circumstances, I make an order for scale 2B costs plus disbursements in favour of the defendant. I make no award of costs on the application for costs.
2 North Shore City Council v Local Government Commission (1995) 9 PRNZ 182 (HC); McIlroy v
The New Zealand Act Party HC Wellington CIV-2003-485-174, 16 December 2005.
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