MELVIEW V PENINSULA ROAD LIMITED HC AK CIV-2009-404-006755

MELVIEW V PENINSULA ROAD LIMITED HC AK CIV-2009-404-006755 15 October 2009IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2009-404-006755BETWEEN MELVIEW (KAWARAU FALLS STATION) INVESTMENTS LIMITED (IN RECEIVERSHIP) AND MELVIEW (KAWARAU FALLS STATION) DEVELOPMENTS LIMITED (IN RECEIVERSHIP) Plaintiffs AND PENINSULA ROAD LIMITED Defendant Hearing: 14 October 2009 6:40-8:15pm 15 October 2009 3:45- Counsel: Stephen Price and Kate Healy for Plaintiffs John Billington QC and Daniel Hughes for Plaintiffs Judgment: 15 October 2009[ORAL] JUDGMENT OF HUGH WILLIAMS J.Application for an interim injunction Application granted – on terms.__________________________________________________________________Solicitors:Kensington Swan, Private Bag 92101 Auckland 1142 Email: daniel.hughes@kensingtonswan.com Minter Ellison Rudd Watts, P O Box 3798 Shortland Street, Auckland 1140 Email: stephen.price@minterellison.co.nz kate.healy@minterellison.co.nzCopy for:John Billington QC, P O Box 4338 Shortland Street, Auckland 1140 Email: jb@shortlandchambers.co.nz Indra.Gamage@justice.govt.nzIntroduction[1] This judgment deals with an application for an interim injunction brought on an urgent basis by the plaintiffs, Melview (Kawarau Falls Station) Investments Limited (In Receivership) and Melview (Kawarau Falls Station) Developments Limited (In Receivership) against Peninsula Road Limited. [2] The application was filed late in the afternoon of 14 October 2009 and heard during the evening. [3] Judgment was adjourned overnight, for delivery on the afternoon of Thursday 15 October 2009 Mr Billington QC, senior counsel for the defendant, having advised that his client would do nothing in the meantime to implement its threat to ban access to its property which is the subject of the injunction application.Orientation and Ownership[4] Kawarau Falls Investments is the owner of one part of a large development currently under construction on the shores of the Frankton Arm of Lake Wakatipu. A copy of the plan and aerial photograph of the development will be annexed as part of this judgment. On the plan, the part of the development owned by Kawarau Falls Investments is that within the line and is known by the parties as "Stage 1". On the aerial photograph, looking approximately south-west, Stage 1 is also outlined. The balance of the development shown both on the plan and the aerial photograph are what the parties call "Stages 2 and 3". That land is owned by the defendant, Peninsula Road. [5] As will appear during the course of the judgment, it is of some importance to note that the main entry shown on the plan on the bottom left hand side (and obviously on the top right of the photograph) is intended in due course to become the main entry to the whole complex or such part of it as is developed. [6] It is also of some importance to note that the area to the right margin of the plan and the left margin of the photograph is access from the site to State Highway 6 ("SH6") and is currently the means of ingress and egress from the whole site.[7] The injunction arises because in a letter from Peninsula's solicitors, dated 12 October 2009, after discussing some terms on which access over Stages 2 and 3 to Stage 1 might be permitted, the letter continued that if those terms were not agreed to by the receivers of Kawarau Falls Investments and Developments then all access over Peninsula's land, particularly that coming from SH6 access to the area being worked, should cease at 8:00am on Thursday, 15 October 2009. It was an attempt to forestall that which led to the commencement of these proceedings. [8] What the plaintiffs seek is an injunction preventing Peninsula from "taking any steps to interfere with or prevent existing access and use by the plaintiffs and their agents and contractors" over Stages 2 and 3 in order to access Stage 1. [9] It is of some importance as a prelude to this judgment to note that Peninsula is ultimately owned through a corporate tree by a Mr McKenna who is its sole director of Peninsula. Kawarau Falls Investments and Kawarau Falls Developments are also, through a corporate tree, entirely owned by Mr McKenna and he is their sole director although, of course, his powers are limited by reason of the receivership of the plaintiffs which occurred, in both instances, on 26 May 2009. For clarity, Kawarau Falls Investments is the owner of Stage 1. Kawarau Falls Developments is the contracting entity in overall charge of the implementation of the development of the land.Law[10] In the usual way, applications for interim injunctions need to be determined in terms of the overall justice of the case paying traditional account to where the balance of convenience lies, what is the status quo, whether there is a serious question to be tried and, fourthly, whether damages would be an adequate remedy (Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 140. [11] In this case, Mr Billington submitted that what the plaintiffs are seeking is a mandatory positive injunction. He drew attention to authorities that courts are more cautious about granting injunctions where positive action is required as a result thanones simply restraining defendants from taking action. The authorities are sufficiently collected in McGechan on Procedure para HR7.53.25 pp 1-854-855. [12] As observed to Mr Billington during argument, however, it is a little difficult to characterize what the plaintiffs seek in this case as a positive injunction. The nearest that can be said on that score is that the plaintiffs seek an injunction to restrain the defendant from preventing them continuing with their access.Status Quo and Balance of Convenience[13] Turning first to the status quo and the balance of convenience (which can be considered together) the history of the whole of this site is that initially, as can be seen from the plan and photograph, it was entirely to be developed with apartments and other facilities. [14] Originally Peninsula was the owner of the whole of the land and was to undertake the whole of the development and by about July 2006 Peninsula was in fact the registered proprietor of Stages 1, 2 and 3 as they are now known. [15] It was a very large development and obviously a complicated one. In its capacity as developer of the entire site at the time, Peninsula entered into a number of agreements – underwrite agreements, pre-sale agreements and the like. It sought and obtained a resource management consent from the Queenstown Lakes District Council as a single site, and it entered into contracts with engineers, with civil constructors, insurance contracts and the like. It appears from the evidence that work started on the site in about early 2007. [16] However, as time passed, Peninsula found it was unable to fund development of the entire site and, as a result, a decision was undertaken to split the development, thus making it more capable of being financed. It was at that time that a subdivision was undertaken, the plaintiff companies were incorporated and Kawarau Falls Investments became the registered proprietor of Stage 1.[17] That part of the development was funded by borrowings from the Bank of Scotland International, while Stage 2 and 3 were mortgaged to Fortress Credit Corporation (Australia) Pty Limited. The development then proceeded for Stage 1. Then and since very little has been done in relation to Stages 2 and 3. As can be seen from the photograph and Stage 1 is the only part of the site currently under active development. [18] When the subdivision was undertaken and the registered proprietorship changed, it is of note that there was no one contractual document between the parties to this litigation assigning their respective rights and obligations. Kawarau Falls Investments took an assignment from Peninsula of the benefit and burden of the pre- sale and underwrite agreements it had entered into. But there was no formal document which set out the parties' respective rights. [19] The evidence is clear that both before division between the registered proprietorships took place, and since, the whole site has been treated – at least by the contractors and others- as one site. [20] As a result, at this stage of development the debarring by Peninsula of access over its land to Stage 1 will undeniably have a very considerable and inconvenient impact on Kawarau Falls Investments and Developments. The evidence shows, for instance, that Fulton Hogan, one of the main contractors, has meeting-rooms on Stages 2 and 3. There is storage on Stage 2 and 3 of equipment and materials for the sites. There is apparently a toilet block on Stages 2 and 3. There is a site office. A wheel-wash for trucks servicing the site is there. And some of the 550 workers on the site use much of Stages 2 and 3 for parking. In addition, there is a canteen or café which is currently on Stages 2 and 3. In addition to the matters already mentioned, it would seem from the evidence the plaintiffs are likely to have to move a tower crane which is currently on Stages 2 and 3. There is also a temporary sewerage pump station and ablution blocks which are on Stages 2 and 3. [21] Some infrastructure has been installed although the precise location was not given in evidence. Thus there is piping, some of which appears to pass throughStages 2 and 3, cabling, some transformers for electricity which are bulky though moveable, electricity reticulation generally, and telecommunications and media. [22] Notably, Transit New Zealand approved SH6 access as the only access to the site, but only up until May 2008. Mr Cotton of Insignis, one of the contractors, makes the point that if the "main entry" has to be used then he says the road flowing from the Peninsula Road access is relatively steep with sharp corners and is only partially constructed. Some parts of that road are currently one-way as they are adjacent to construction works. If the Peninsula Road access had to be used instead of the SH6 entry point, this would involve running large trucks down a steep half- completed road with sharp corners. [23] It should be noted at this point, as put forward by Mr Billington, that the resource management consents for the site of 28 July 2008 say:Cl 8(l) Prior to the commencement of any construction activity on the site the consent-holder shall complete the construction of the entrance to the site from Peninsula Road and all works within the legal width of Peninsula Road.[24] It appears that condition of the consent was not complied with by any party, either before or after the division of responsibility earlier mentioned. But that would be largely an issue between the consent-holder and the Queenstown Lakes District Council. It seems they have taken no enforcement proceedings to date. So if SH6 access is debarred to the plaintiffs the access to the site through the "main entry" will be restricted, possibly unsafe, and certainly not fully finished - even though it is ultimately to become the permanent entry to the site. [25] In addition, changing the access from SH6 now would, according to the evidence, be likely to entail delays in a project which has already been delayed. Delays always mean additional costs. [26] There are also concerns raised by deponents on the safety score and in particular pedestrian access to the site for the workers. If the injunction is not made then the workers will have to use the Promenade Walkway along the lake front. That will create particular difficulties, especially with the imminent construction of the Wakatipu Steps.[27] The affidavit of Mr Holmes, project director of Hawkins Construction, one of the main contractors on site, contains a table which provides graphic confirmation of the inconvenience that will arise if the injunction is not granted. [28] When one is considering the balance of convenience, there is really no contest at all. In fact Mr Billington did not argue greatly on that score. The SH6 access has been used throughout the construction. There is no evidence, as yet, from Peninsula – in fact there really was not time for it when the matter was argued on aPickwick basis. [29] What is proposed is that access carry on as it has throughout the life of the development. If access is debarred from SH6, it will undoubtedly have a most inconvenient result as far as the plaintiffs are concerned. So not making an injunction in the terms sought would be profoundly inconvenient for Kawarau Falls Investments and Developments. [30] But, still, the situation is that land owned by one company is being used by the occupiers and the owners of an adjacent piece of land owned by a completely different company and developed by another, and there is no agreement between them as to their respective rights and responsibilities.Serious Question to be Tried? (1) Implied term[31] As a result of that Mr Price, leading counsel for the plaintiffs, submitted and the plaintiffs pleaded that this was a case where there was an implied term in the arrangements between the parties which should entitle the plaintiffs to succeed. [32] That impacts on whether there is a serious question to be tried. There are two aspects to that. The second will be discussed later. [33] Whether or not there is an implied term in the arrangement between the parties, of course, depends on satisfaction of the well-known tests set out inDevonport Borough Council v Robbins [1979] 1 NZLR 1, 23 where the joint judgment of the President and Quilliam J said:In our opinion, a term must have been implied in this contract that there would be reasonable co-operation and discussion between the parties. The object of the contract being to achieve a common goal, it is inconceivable that they could rightly keep each other at arm's length. This may be treated, as Mr Wallace would treat it, as an application of the principle stated in the well-known words of Lord Blackburn in Mackay v Dick (1881) 6 App Cas 251, 263:"I think I may safely say, as a general rule, that where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect. What is the part of each must depend on circumstances."Equally it may be treated as implicit in this particular contract. All the conditions listed in the majority judgment delivered by Lord Simon of Glaisdale in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363, 376; 52 ALJR 20, 26, are satisfied by an implied term of reasonable co-operation and discussion. It is reasonable and equitable; necessary to the business efficacy of the contract, so that the contract would not be effective without it; so obvious that it goes without saying; capable of clear expression; and does not contradict any express term of the contract. It accords also with the test adopted in the minority judgment of Lord Wilberforce and Lord Morris of Borth-y-Gest in that case (ibid, 384; 30), in that it is necessary to make the agreement work and corresponds with the evident intention of the parties underlying the agreement.[34] As to the tests appearing in that passage, whether or not an implied term will be reasonable and equitable is an overall consideration to be postponed to the end of the matter. And in this case there is no question that there can be satisfaction with item (5), that is to say the implied term is capable of clear expression. [35] When the remaining requirements for an implied term are considered, however, the plaintiffs strike difficulties. [36] The sixth requirement is that the implied term should not contradict an express term of the contract. [37] There is no contract. There are no express terms therefore the implied term pleaded cannot possibly contradict the contract. The plaintiffs are unable to succeed on a contractual basis.[38] The implied term is pleaded in the statement of claim as being an "Implementation Agreement". That - in the sense that it implies there was something in writing or even some oral agreement between the parties - is a misnomer. The suggestion is that because of the way in which the assignments were undertaken and responsibilities apportioned in terms of the pre-sale and underwrite agreements, that there is an implied term that access would be permitted throughout the development from SH6. It is pleaded that because that was the only means of access and because there are buildings and the like on Stages 2 and 3 and the resource consent was for the entire site, then that means there can be an implied term such as that for which the plaintiffs contend. That cannot amount to an agreement. [39] However, the next criterion is whether an implied term is necessary for business efficacy. [40] The answer must be that it is not necessary. It is undoubtedly convenient but there is other access – intended to be the permanent access - at the "main entry" even though it is not in a readily useable state at the moment. [41] The next question is whether the contract is effective without the term being implied. There is no contract. So the plaintiffs are unable to comply in that regard. [42] Finally, the question is whether the proposed implied term is so obvious it goes without saying. [43] At the time the subdivision was undertaken and the registered proprietorships altered, there was no receivership in prospect for the plaintiffs. If at the time of that reconfiguration the parties had asked what would happen if one of the new parties went into receivership, the answer is almost certain that would have been rejected as an improbable result. It is unlikely there would have been agreement. The implied term pleaded was accordingly not so obvious it went without saying. [44] Accordingly, in the Court's view the plaintiffs are unable to make out a legal case for the implication of the term which they seek.(2) Factual[45] The next question is whether there is a serious question to be tried. Legally, as held, on the evidence currently available, the answer is no. Factually, there are two aspects to that. [46] Why is Peninsula taking this step? Is it just to maximize its income? Is it because it wishes to regularize the position? Is it to enable its mortgagee to leverage an exit from its involvement with this site? [47] The only evidence to date is a Fortress letter appended to a letter from Peninsula's solicitors dated 2 October 2009. In the Fortress letter dated 30 September 2009 it refers to an earlier letter from Mr McKenna - which is not in evidence - but it notes the use of Peninsula's land by the plaintiffs and by their contractors, and it says:We remind you of PRL's various obligations to Fortress pursuant to the facility agreement, GSA and mortgage, along with your personal guarantee to Fortress and, more generally, your fiduciary obligations to PRL as a director. Having regard to these obligations and PRL's current default under the facility agreement it is incumbent on you to maximize all possible income streams available to PRL. It is also clearly your contractual obligation to ensure that the value of the secured land is not detrimentally affected. In our view allowing [the plaintiffs] to continue the use of PRL's land in this manner is a breach of both PRL's and your obligations outlined above.[48] The letter goes on to offer further suggestions as to why the present position is undesirable, but those might appropriately be described as possibly contrived. Fortress does not appear to be a mortgagee in possession but it may be short of funds as it did offer to sell its $41m facility for $16m to the Bank of Scotland in July of this year. [49] Obviously a great deal more will come out once discovery is undertaken between these parties but for the present the action taken by Peninsula would appear to be as a consequence of Fortress's concerns set out in its letter of 30 September, and their concerns seem to be more to safeguard their position financially rather than to regularize the position as far as these parties are concerned.[50] The second factual aspect of whether there is a serious question to be tried is: why is Mr McKenna taking this action on behalf of Peninsula? [51] As mentioned at the outset, he is Peninsula's sole director and he is also the sole director of each of the plaintiffs. True, because the plaintiffs are in receivership his powers are limited, but he remains in office - as in fact the receivers of the plaintiffs pointed out to him in a letter of 5 October 2009 - he retains obligations and rights as a director and it is clear that he could take steps, presumably in concert with the receivers, to safeguard Kawarau Falls Investments and Developments' position and oppose Peninsula's actions (see Companies and Securities Law vol.2 para RA6.22 pp449-453). [52] There is, as yet, no evidence from the defendant how Mr McKenna can reconcile the actions his company, Peninsula, is taking against the interests of his companies, the plaintiffs, remains to be seen. That aspect clearly impinges on whether there is a serious question to be tried.Result[53] Ultimately, when it comes to the result, it will obviously be a major inconvenience to the plaintiffs, to their contractors and to their workers for access through SH6 to Stage 1 to be denied particularly when access has been granted for a lengthy period. [54] On the other hand, as observed, at the present time the plaintiffs and their contractors and workmen have had free access – free, in both the financial and the logistical sense – throughout the life of this project and have been using Peninsula's land to do that. [55] In the circumstances, there seems to be every right for Peninsula as the landowner to take steps to prevent the use of its land by others, just as any landowner may do. Accordingly, despite the inconvenience to the plaintiffs if there is no injunction granted, it is not an inconvenience which is anything other than temporary.[56] What has been decided therefore, is that an injunction will be granted to the plaintiffs in the terms set out in the application but with the injunction to expire on30 October 2009 unless extended on that date. In that regard there will be a conference with counsel at 9:00am on 30 October 2009. [57] In the meantime, if there are particular difficulties for Peninsula arising out of the making of an injunction – and there is no evidence from them at the moment – they are to have liberty to apply. [58] Mr Billington advised that Fortress will wish to be heard at some stage of this proceeding. If they do, they of course can give evidence on Peninsula's behalf or apply for joinder. [59] It should be observed to the parties that the fortnight window given by the granting of the injunction is to give them an opportunity to agree on access and the terms of access or to undertake a removal from the site of the various aspects of the development earlier summarized. [60] The parties should also realize that an extension of the injunction is less likely in respect of items that are movable such as containers used as offices and the like, but an extension is more likely to be granted for infrastructure which cannot be shifted or can only be shifted with difficulty. That would cover such matters as telecommunications, media cabling, power, sewerage. sewerage facilities and the like. [61] The parties should also realize that an injunction will not be granted which would throw the parties into breach of any of the easements which have been registered against the titles to the whole of the land or throw the parties into breach of the consents granted under the Resource Management Act. [62] Costs reserved..................................................................HUGH WILLIAMS J.15 October 2009