MASONRY DESIGN SOLUTIONS LIMITED V MURAKAMI HC AK CIV-2011-404-5284

MASONRY DESIGN SOLUTIONS LIMITED V MURAKAMI HC AK CIV-2011-404-5284 [29 June 2012]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2011-404-5284[2012] NZHC 1530BETWEEN MASONRY DESIGN SOLUTIONSLIMITEDPlaintiffAND HIROTO MURAKAMI AND FMTRUSTEES 405 LIMITEDDefendantsHearing: 14-15 May 2012Counsel: G C Jenkin for PlaintiffC M Fisher for DefendantsJudgment: 29 June 2012RESERVED JUDGMENT OF ELLIS JThis judgment was delivered by me on 29 June 2012at 5 pm, pursuant to r 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors: Bruce Dell Law, PO Box 14 224, Panmure, AucklandFortune Manning, PO Box 4139, AucklandCounsel: G C Jenkin, PO Box 2256, Auckland[1] Masonry Design Solutions Limited (MDS) is an architectural design company. The business is owned and operated by Mark Wilson and his wife, Linda. This judgment relates to a contractual dispute between MDS and the defendants in their capacity as the trustees of Kiwi Queen New Zealand Trust (the Trust). The Trust was established in 2007 for the benefit of Nobuyoshi Seki and members of his family. Mr Seki lives in Japan where, as I understand it, he is the author of a considerable number of academic works. He is, by all accounts, a very busy man.[2] Hiroto Murakami (one of the two trustees) is Japanese, but lives in New Zealand, and works as a real estate agent on the North Shore. Mr Murakami was frank in his admission that Mr Seki controlled the Trust and that, as a trustee, he (Mr Murakami) only acted in accordance with Mr Seki's directions and with his approval. Mr Murakami said that his principal role in relation to Mr Seki was to act as his translator when required and to sign documents on behalf of the Trust.[3] The other trustee, FM Trustees 405 Limited, is a trustee company establishedby Mr Seki's New Zealand solicitors, Fortune Manning. In these proceedings Mr Murakami was authorised to speak on behalf of FM Trustees 405 Limited.1[4] The Trust owns several properties in and around Auckland, including one situated at 47 Sunnyside Rd, Coatesville. Although there is presently a house situated on that property, it seems that in 2009 Mr Seki wished to demolish that house and build a new, luxury, home on the site. It was to that end that Mr Murakami met Mr Wilson in early February 2009 and introduced him to Mr Seki. Mr Wilson had designed other houses in the area that Mr Seki liked.[5] Sometime in April 2009, Mr Murakami invited Mr Wilson to travel to Tokyo to meet with Mr Seki to discuss the design and construction of the new house. The meeting in Tokyo eventually took place on 29 July 2009 at the offices of Mr Seki. Mr Seki and his personal assistant were there, as was Mr Murakami who translated for Mr Seki at the meeting.1 There was no suggestion that FM Trustees 405 Limited was not aware of the events that have led tothese proceedings.[6] What transpired at this meeting is of central importance to the present proceeding. The parties are agreed that Mr Wilson and Mr Seki (through Mr Murakami) discussed the design brief. The notes taken by Mr Wilson in that respect on his standard design brief form were in evidence before me. They disclose (and it is not in dispute) that Mr Seki told Mr Wilson, through Mr Murakami, that he was interested in building an extremely substantial house. The house was subsequently referred to by Mr Murakami as a "dream house" and Mr Wilson'sevidence was that Mr Seki had told him to "make it the best house of your lifetime".As to the details:(a) on the cover page of the design brief, Mr Wilson noted that the estimated house size was approximately 800 square meters, that the budget was $5,000 per square metre, that the style of the house was tobe "Spanish" and the start date was to be "now". There were also notes on the cover page which stated "don't be restricted by budget"and "Monday 28 September to present concept. 10.30 am47 Sunnyside";(b) notwithstanding the estimated size of the house recorded on the front page, the notes on the pages that follow show that the specifications conveyed by Mr Seki to Mr Wilson would result in a house that was considerably larger than 800 square metres. By way of example, the notes record that the design was to include:(i) a cabana;(ii) five bedrooms (all of which, bar one, had room for a super king bed);(iii) very large living, kitchen and recreational areas;(iv) an underground wine cellar with a tasting table;(v) a separate space comprising separate living and kitchen areas, three further bedrooms, bathroom and separate toilet for the person who would be the caretaker of the property; and(vi) a garage with space for a minimum of four, and possibly six, cars which was to be like "a car showroom" with glass viewing areas.[7] The pleadings disclose that the parties are agreed that at the Tokyo meeting an oral contract was entered into between Mr Wilson and Mr Murakami/Mr Seki relating to the "concept" phase of the building project. That phase involved the preparation of three alternative, preliminary, design (concept) drawings and a scale model of what Mr Wilson considered to be the best of the three designs. A full landscape design was also to be provided.[8] Mr Wilson says that he took a copy of the standard MDS customer agreement with him to the meeting in Tokyo. His evidence in that respect is corroborated by an email sent by Mr Wilson to his wife Linda asking her to send him a reformatted copy of the agreement so that he could print it from his laptop in Japan. Linda Wilson emailed back the reformatted version.[9] For his part, Mr Murakami was unsure whether the agreement had been presented by Mr Wilson in Tokyo or at a subsequent meeting that took place on 28 September 2009 in New Zealand. As I have said, Mr Wilson's evidence in thisrespect is somewhat supported by the documentary (email) evidence and also by common sense. It is in my view logical that he would have taken his company'sstandard terms of engagement to a meeting that he had travelled across the world to attend and the object of which was to brief him on a potentially substantial design project. Moreover, Mr Wilson had recorded in section B of the draft agreement (which related to the scope and anticipated timeline of the project) that the concept was to be presented on 26 September 2009. That note would make no sense if the agreement was not presented until 28 September.[10] The draft agreement (which related not only to the concept stage of the project but also to subsequent stages) was divided into a number of distinct parts.[11] Section C of the draft agreement listed all the possible services that could be provided by MDS under the agreement. These are grouped according to the different stages. Each stage comprises a number of specified steps beside each of which there is an empty box which was to be ticked (or not) according to the client's needs. Stage 2 is entitled "Concept" and under it there are a number of steps and tick boxes, including consultation with the territorial/building consent authorities, analysis of site conditions, preparation of concept design drawings and reporting to the client on the design and related constraints.[12] Section D sets out the applicable fees for MDS's services. While some of these remained blank (those relating to the later stages of the project), boxes relating to pre-design services, concept, working drawings, and documentation had percentage figures filled in. The relevant percentage figure for the concept stage was stated to be two percent.[13] The definition section of the agreement stated that "percentage fees" were:... calculated by multiplying the adjusted cost of the contract works by the percentage fee rate agreed between MDS and the client. If the final cost has not yet been determined, the most recent estimate of the completed cost of the contract works (as approved by the client) must be used to calculate fees due.[14] The "cost of the contract works" is defined as:The cost of everything designed, selected or laid out by MDS the sub- consultants and the separate consultants co-ordinated by MDS and carried out by the contractor as stated in the contract made between the client and the contractor.[15] Mr Wilson says that the meeting in Tokyo lasted for over four hours (with a break for lunch) and that, after discussing the details of the proposed brief, he went through the standard agreement in some detail with Mr Murakami, who translated his words for Mr Seki. He says that, as indicated in the draft agreement, he advisedMr Murakami that the cost of the "concept" phase of the project would be two per cent of the total estimated project cost and that this would be payable regardless ofwhether the project proceeded. Mr Wilson's evidence was that a percentage fee was standard in the architectural design industry for "concept" work, although he said that the actual percentage selected might differ between jobs. The defendants called no evidence to contradict this.[16] Mr Wilson said that the only input from Mr Seki during this part of the meeting related to the first page of the draft agreement. He said that Mr Seki ripped the front page off the draft and gave it to his assistant to shred. He said that Mr Seki did this because the first page had referred to Mr Seki by name as the contracting party. Mr Seki was adamant that the contract was to be between MDS and the Trust.[17] Mr Wilson said that after going carefully through the draft agreement with Mr Murakami and Mr Seki, Mr Seki advised that he wished to have the agreement translated and that he (Mr Wilson) left the agreement with Mr Seki, minus the front page. At the end of the meeting Mr Wilson said they all shook hands and he was told to proceed with the concept stage. Mr Wilson said that he explained to Mr Seki that he would require a deposit and that Mr Murakami said that he would arrange it.[18] As I have already noted, Mr Murakami was vague as to whether the agreement was discussed at all at the Tokyo meeting which, according to him, lasted only 30 minutes. Mr Murakami was also adamant that no two per cent fee was discussed. Rather, he said (initially, at any rate) that a price of $35,000 (or approximately $35,000) was discussed and agreed upon for the concept design phase. Mr Murakami did recall that (at whichever meeting the agreement was produced by Mr Wilson) Mr Seki was adamant that he, not the Trust, be named as the party to it and that Mr Seki wished for it to be translated. He denied that a copy of the agreement was left with him for that purpose either in Tokyo or subsequently.[19] Mr Wilson said that he later changed the front page of the draft agreement by inserting the name Kiwi Queen New Zealand Trust for Mr Seki. He said that he gave a copy of the amended agreement to Mr Murakami at a meeting after they returned to New Zealand. Mr Murakami also denied that this had occurred.[20] Following his return to New Zealand, Mr Wilson's firm began work on the three design concepts, the model and the landscaping plan for the Coatesville property. He said a lot of the work was carried out by subcontractors (for example the landscape designer) engaged by him at his cost. On 5 August 2009, Mr Wilson sent an email to Mr Murakami which stated:Hi HirotoI hope things are still going well for you in Tokyo.I am getting started on the concept plans for Mr Seki.We would normally get a minimum deposit of $10,000 for a concept. Given that we are doing three, it would normally be $30,000. The cost of the model is going to be about $15,000 because of its size. Also, we have a bill for the survey plan of around $4,000.In order for us to complete the work ready for Mr Seki on September 28, could you please arrange to have funds transferred to our account. We would appreciate receiving around $35,000NZD which is around $15,000 less than set out above but will be enough to cover our costs in the meantime.[21] On 6 August 2009, Mr Murakami responded to Mr Wilson's email. He said:Thank you for your email.So, let me reconfirm.One paper plan costs $10,000NZD, therefore, three plans cost $30,000NZD.And one model costs $15,000NZD.Also, the survey which you have done already costs $4,000NZD. Is my understanding right?One paper plan is just a big paper, just like survey sheet?Please let me know because I need to explain to him.[22] Mr Wilson responded to Mr Murakami on the same day, saying:Each concept will consist of three pages, the size of the survey plan.This means we will be supplying a total of nine pages with the three concepts.With regard to the model, it will be about three times the size of the ones we usually do due to the size of the home.This will be presented in a glass case.The total value of each of these is considerably more so but we are just asking for a deposit to cover some of our costs initially.I hope that is all clear.[23] Payment was not immediately forthcoming and on 16 August 2009 Mr Wilson emailed Mr Murakami again saying:Can you please advise where we are at with regards the deposit for the job at 47 Sunnyside Road, I now have three of us working full-time on these designs to ensure we have them ready for Mr Seki for when Mr Seki arrives. I would appreciate you coming back to me.[24] Mr Murakami responded the following day advising that he would arrange to make payment upon his return to Auckland. On 4 September 2009, the $35,000 was paid to Mr Wilson.[25] As planned, on 28 September 2009, there was a meeting between Mr Seki, Mr Murakami and Mr Wilson. Also at the meeting was Mr Seki's PA (Miss Otju)and a number of other people involved on MDS's side. The concept plans and the landscape design were presented to Mr Seki over a period of three hours. It is not disputed that Mr Seki was very pleased with the designs or that during the meeting Mr Seki asked Mr Wilson to make some alterations to the designs for both the house and the landscaping. In particular, he said he wanted a bigger house with an upper floor and balcony connecting the two main bedrooms. He asked the landscape designer to make some changes to her plan and to provide more details. This is all confirmed by the email sent the following day by Mr Murakami to Mr Wilson which said:It was very very nice planning what you have prepared.Mr Seki and Koji and myself, all were surprised and it was more than expected.Looking forward to seeing you again tomorrow.By the way, Mr Seki wants to have 4 another paper plannings (normal paper 1 is fine) for landscape, first floor and second floor.And if you can revise (add) what we have discussed, that is better.If you cannot, yesterday's planning is fine.[26] I note at this point that the designs based on the brief given to Mr Wilson in Tokyo had resulted in houses that would be in excess of 2,000 square metres in size.[27] There was a further meeting on 30 September 2009 where Mr Wilson presented the model and the amended plans to Messrs Seki and Murakami. Mr Wilson said that at that meeting he gave a general estimate of total construction costs, as well as costs for furniture and fittings but that there was an agreement to meet again the following Friday to discuss costs more formally. He said that Mr Seki indicated at the meeting that he wanted to start construction as soon as possible.[28] On Friday 2 October 2009 there was another meeting between Mr Wilson, Mr Murakami and Mr Seki at another of Mr Seki's properties, in Arkles Bay, on the Whangaparaoa Peninsula. Mr Wilson said that he spent about an hour with Mr Seki going over the cost estimates which he said resulted in a total project value of $10.8 million which, in turn, yielded fees for the concept stage of approximately $210,000.2[29] Mr Wilson said that Mr Seki expressed no concern about the costs estimate and that he continued to express his satisfaction with everything that was presented to him. An email sent by Mr Murakami to Mr Wilson on 5 October 2009 confirmed that Mr Seki was happy with the plans but it also contained a hint of the trouble to come. It stated:Thank you very much for coming to meet with us on Friday.After you left, I have almost three hour discussion with him.As you know, he is very much glad for your plan.But before he signs the agreement to go ahead with this plan, he wants to seriously consider about it including discussing with his father. The one of the most important reason for his to build the dream house is that he wants to show to his father.2 Just prior to the hearing before me, Mr Wilson located a copy of the actual cost estimates that he said was presented to Mr Seki at the 2 October meeting. These totalled approximately $10.6 million.Mr Murakami said he had never seen these before and Mr Khan objected to their production.However in light of the conclusions I reach in this judgment it is in Mr Murakami's interests for thisdocument to form the basis for the judgment debt.What he needs to think about is because at present situation, he can only come to NZ for three weeks in one year.I will let you know as soon as I hear from him.[30] From this point onwards matters became more difficult. On or shortly after 10 December 2009, Mr Wilson presented Mr Murakami a tax invoice for the remainder of his costs to date, which amounted to $43,862.50. His evidence was that he held back invoicing the remainder of the two per cent pending formal advice that Mr Seki wished to proceed. In an email sent to Mr Murakami the following week, he asked Mr Murakami to organise payment of the $43,862.50 and said:As you are aware, this is not the total value of the work as would normally charge 2% of the build cost for the concept plan, however this will cover our costs until the project starts.[31] But on 15 January 2010 Mr Wilson received an email from Mr Murakami which said that he had met with Mr Seki and another of his employees, Mr Sakamoto, in Tokyo and that "their understanding is no more fee payable toyou".[32] Nonetheless, on 1 March 2010 Mr Sakamoto sent an email to Mr Wilson saying Mr Seki was satisfied with the plans but that he might want the size of the house to be reduced and that Mr Seki's father did not at that stage want the existinghouse at Sunnyside Rd to be demolished. Then he said:We of course would like to keep a good relationship with you, so I appreciate if you charge the below [ie the $43,862.50] when we start the project, because it is a part of concept fee of 2%.[33] Mr Wilson said that he then telephoned Mr Murakami and told him that thecontents of Mr Sakamoto's email were not acceptable and that it needed to be madeclear that the fees were payable upon invoicing.[34] In a further email of 3 April 2010, Mr Murakami gave the impression that Mr Seki still wanted to "go ahead with his dream house" but wanted it to be smaller house. He implied that a Mr Sato, who "is responsible for controlling all the money", was being difficult.[35] Mr Wilson's subsequent attempts to progress matters with Mr Murakami boreno fruit. In September 2010 he learned Mr Seki was in Auckland and tried to arrange a meeting, but Mr Seki declined. A meeting with Mr Murakami and Mr Sakamoto was arranged for 3 October 2010 at the Stamford Plaza. Mr Murakami said that Mr Seki did not have time to attend. At the meeting Mr Wilson handed Mr Murakami an invoice for the balance of the two per cent concept fee, namely $129,375 (including GST).3 The $43,862.50 that had been previously invoiced remained outstanding. Mr Wilson brought a translator, Mr Nagamune, to the meeting. He recorded the meeting and later prepared a transcript of what was said. There was no challenge to the accuracy of the record.[36] Mr Wilson explained that the $35,000 paid so far did not cover even half of the costs actually incurred. Mr Murakami explained to Mr Sakamoto that the"concept fee agreed is 2% deposit and 10% after project starts". Mr Wilson said that the rest of the two per cent was due now, not when Mr Seki decided whether he wished to proceed. He referred to the meeting in Tokyo. He said:Remember in July I shook hands with Mr Seki. He told me to design best house in my lifetime and said money was no problem. He asked me for the document and what fees are (2%). We went through contract that Hiroto translates. He said he was happy and we shook hands. I agreed to have plans finished by 26 September.[37] Mr Murakami then indicated that their concern was whether the costs were reasonable. Mr Wilson said he wanted to meet with Mr Seki because Mr Sakamoto had not been involved in the Tokyo meeting. Mr Murakami said Mr Seki was very busy. Mr Murakami said he did not want to give Mr Seki the second invoice because it might upset him, but Mr Sakamoto disagreed. He said:It is expensive but I will explain to him about the situation. So he won't be upset at all. Don't worry about it.[38] After a further brief exchange, Mr Sakamoto said:So, we are too short for the initial deposit. I will explain to Mr Seki and if the 2% is reasonable as you [Mr Murakami] said, we will pay. For the3 The invoice appears to be dated 10 February 2010 but this was presumably due to an American styleof dating by his computer.project continuing, I don't know. We are not sure about project will keepgoing or not.[39] Mr Wilson then said that the two per cent had been agreed and reiterated that that the reasonableness of the agreed fee had never previously been raised as an issue. The meeting ended without any real resolution, although Mr Sakamoto repeated that he would explain the two invoices to Mr Seki and Mr Murakami said that he would try to set up a meeting.[40] On 13 November 2010, Mr Wilson received an email from Mr Sakamotowhich attached "our formal reply as our company though" which stated:Dear Mark WilsonWe always appreciate your business.First of all, it was a request from Company (Trust) Level. It was not the request from individually Takashi Asai.In this case, He cannot make his own decision to answer your request.So we had meeting on your demand with all members of the board and advisors. It reached the conclusion with a not appropriate payment more than this because of the payment of consideration as it is.In the feature [sic], we would like to work with you for our new built project. But at this point, it was not proven by firm contract. We cannot pay you.It would be greatly appreciated if you could understand our circumstances....Takashi Asai Yashuro Sakamoto[41] The identity and relevance of Takasho Asai are not clear to me.[42] Nothing more eventuated until the present proceedings were filed.Discussion[43] It is accepted by the defendants that they entered into an agreement with the plaintiff in relation to the "concept" phase of the potential building of a substantialhome at 47 Sunnyside Rd for Mr Seki. The parties are also not in dispute that theterms of the contract were agreed orally during the meeting in Tokyo on 29 July 2009 when Mr Wilson met with Messrs Seki and Murakami. That is, in any event, plainly so on the evidence.[44] The work agreed to be done at that meeting included, in particular, the preparation of three concept plans on the basis of specifications received from Mr Seki, a model and detailed landscape design. There is no dispute that the work was done or that Mr Seki was anything but very pleased with it.[45] The only issue in dispute is what payment was to be made by the defendants for this work. The plaintiff says it was two per cent of the estimated value of the project, regardless of whether the project went ahead. Because of the size and specifications of the house discussed that amounts to approximately $200,000. By contrast, the defendants say it was $35,000 (or "approximately" $35,000).[46] On the balance of probabilities, and on the evidence before me, I am satisfied that it was the two per cent figure that was agreed to be paid. I set out my reasons (in no particular order) below.[47] First, it is inherently improbable that Mr Wilson would have named a price which (as it transpired) did not even cover half the actual cost of doing the work. I accept that Mr Wilson was experienced in his field and would have had a good sense at the outset of the amount of work that would be involved and the likely cost of it, before adding any margin. I also accept his uncontested evidence that percentage fees for this type of work are the norm in this field.[48] For the reasons I have already given, I also accept Mr Wilson's evidence thatthe draft contract, which stated that the concept fee was two per cent payable regardless of whether the project as a whole went ahead, was explained by him to Messrs Murakami and Seki in Tokyo and was left with them after the meeting.[49] Secondly, the only evidence that supports Mr Murakami's contention that the(approximately) $35,000 was the contract sum rather than a deposit was the August 2009 email exchange about a deposit being payable in that amount. In particular:(a) Mr Wilson's 5 August 2009 email makes it very clear that the $35,000 payment requested was a deposit and would only be enough to coverthe plaintiff's costs "in the meantime";(b) Even though Mr Murakami's reply the following day evidences someconfusion on his part, Mr Wilson then clearly reiterated his position that the $35,000 was a deposit to cover initial costs and that the totalvalue of the plans and model would be "considerably more".[50] Moreover it is reasonable to assume that, as an experienced real estate agent, Mr Murakami, understood perfectly well that a "deposit" represents a (small) partpayment of the total price made at the time of, or just after, entry into an agreement.[51] It is also in my view significant that during 2009 and 2010 neither Mr Murakami, nor anyone else associated with Mr Seki who dealt with Mr Wilson, ever resisted the payment of either the further $44,000 or the full two per cent figure on the basis that a different or lower amount had been agreed. For example:(a) In response to Mr Wilson seeking payment of his further costs of around $44,000 in December 2009, Mr Murakami says that he has advocated to Messrs Seki and Saikamoto that the payment be made;(b) In Mr Sakamoto's email of 1 March 2010 he simply seeks that Mr Wilson's request for payment of the $44,000 be deferred and paid at the time when the two per cent concept fee is paid;(c) Even at the meeting at the Stamford Plaza, and subsequently when it started to become clear that Mr Murakami/Mr Seki would not pay, the reason given was not that only a lesser amount was contractually owing. Rather, collateral issues were raised as reasons for non- payment, such as:(i) Mr Seki wanting a smaller house;(ii) Mr Seki deciding not to proceed with the build at all;(iii) the reasonableness of the amount sought; and(iv) the (un)enforceability of the contract.[52] Similarly, there is no evidence that the idea that the two per cent was payable only at the commencement of the build was ever directly raised. The most that can be said in that respect is that that idea might have been implicit in the advice that Mr Seki was having second thoughts about going ahead.[53] My findings on the evidence necessarily suggest that I did not find Mr Murakami to be a wholly credible witness. But I record that I do not consider him to have been dishonest. There were certain key matters about which he was vague, and it is difficult to escape the conclusion that he is very much in the sway of Mr Seki. It seems to me that, for whatever reason, Mr Seki simply went cold on the idea of building his dream house and that Mr Murakami was left holding the baby. It is, perhaps, understandable that Mr Seki regarded it as unreasonable to have to pay the agreed price for the concept plans once he had decided that the construction was not going ahead. But, as I have said, neither he nor his two mouthpieces (Messrs Murakami and Sakamoto) ever denied that the two per cent was payable until these proceedings were in prospect.[54] Although it is also tempting to assume that either Mr Seki or Mr Murakami (or both) did not understand what Mr Wilson told them about the way in which the amount payable for the concept phase was to be determined, I am doubtful that that is so. They are both experienced businessmen and, as I have said, I accept Mr Wilson's evidence that he left a copy of the draft written agreement with them in Tokyo. If they subsequently had any concerns about its contents, they could have raised them but, again, they did not do so. That said, however, I do not discount the possibility of cultural difference playing some role in the difficulties that have arisen.[55] In any event, and on the basis of my analysis above, I consider that the defendants (as the trustees of the Kiwi Queen New Zealand Trust) are obliged to pay to the plaintiff the remainder of the two percent fee agreed in Tokyo on 29 July 2009.The relevant estimate of the cost of works was that which was communicated to Messrs Seki and Murakami at the meeting held in New Zealand on 2 October 2011.[56] The plaintiff is accordingly entitled to judgment in the sum of $173,237.50 (being the balance of the fee owing) plus interest at the relevant Judicature Act 1908 rates calculated from 14 February 2010. They are also entitled to the costs of these proceedings on a 2B basis.______________________________Rebecca Ellis J