Grande Meadow Developments Ltd v Clark Road Developments Ltd [2018] NZHC 1394 (13 June 2018)

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-376
[2018] NZHC 1394

BETWEEN

GRANDE MEADOW DEVELOPMENTS LTD
First Applicant

NEW ZEALAND GENERAL REAL ESTATE LTD
Second Applicant

KINGSTONE PROPERTY LTD
Third Applicant

AND

CLARK ROAD DEVELOPMENTS LTD
Respondent

Hearing:
30 April 2018

Appearances:
J D McBride for the Applicants
J A Knight and C Fan for the Respondent

Judgment:
13 June 2018

JUDGMENT NO 2 OF PALMER J
This judgment is delivered by me on 13 June 2018 at 3.00 pm pursuant to r 11.5 of the High Court Rules.
Registrar / Deputy Registrar

Solicitors/Counsel:

J D McBride, Barrister, Auckland Burton Partners, Auckland Simpson Grierson, Auckland

GRANDE MEADOW DEVELOPMENTS LTD v CLARK ROAD DEVELOPMENTS LTD NO 2 [2018] NZHC 1394 [13 June 2018]

Summary

[1] The parties are in dispute over the construction of common infrastructure in a property development at Hobsonville. At arbitration, the applicants will seek specific performance of the contract. In the meantime, they seek an order for interim measures under the Arbitration Act 1996, preventing the respondent from applying for title over its development. I decline to grant the application. I am not satisfied the harm to the applicants, which is not easily pinned down, would substantially outweigh the harm likely to result to the respondent from the order. Indeed, the order may increase the risks about which the applicants are concerned. Neither have the applicants satisfied me any harm to them would not be adequately compensable by damages.

What happened?

[2] The applicants and respondent are involved in a property development by way of subdivision at the Scott Point Special Housing Area at Hobsonville, Auckland. The respondent, Clark Road Developments Ltd (Clark Road) owns a property down the hill from the properties owned by the applicants. Common infrastructure for all properties in the development is to be built.

[3] On 5 August 2015 the five sets of landowners, or their predecessors, and their joint company, Clark Road Landowners Group Ltd (CRLG), signed a Development Cooperation Agreement (DCA). Four of the landowners are parties to this proceeding. The land of the other owner is separate from the rest of the properties. The DCA envisaged they would go on to form individual companies to carry out common infrastructure works under a series of Infrastructure Cost Sharing Agreements (ICSAs). Clause 2.3 of the DCA provides:

The Owners must enter into separate ICSAs for each item of infrastructure from which those Owners’ developments benefit as determined and as required by [CRLG]. The terms of each ICSA will be more or less as described in the draft ICSA attached in Schedule 3 but modified to suit each item of Infrastucture as required by [CRLG] and as agreed by the Owners who will be parties to that ICSA. All relevant parties shall act reasonably and promptly in the negotiation and documentation of an ICSA.

[4] A draft ICSA, with more tightly binding provisions, was attached to the DCA. Under it a separate nominee company, formed for the purpose, would collate
information from owners, liaise with relevant parties to design, build the relevant item of infrastructure and negotiate and enter into the contracts to do so. Schedule 1 to the DCA identifies 16 specific items of infrastructure that require ICSAs, including a pump station, wastewater lines, a rising main, stormwater lines and culverts and a new road, currently named Midgley Road, under which a number of stormwater and wastewater lines pass. It also identifies the relevant owners for each item. If an owner sells their land, a deed of covenant is required so the new owner would be subject to the same obligations under the DCA and any applicable ICSA.

[5] However, there has been little progress in agreeing ICSAs. Clarke Road says at least one has been agreed. But in late 2015, Clark Road entered its own arrangements with Rohit Civil & Infrastructure Ltd to build common infrastructure on its property. Trying to negotiate the ICSAs has been fraught. In an email of 27 April 2016, Clark Road advised the other parties: of its intention that ICSAs be signed by 6 May 2016; it was planning to stage its development; and it could not guarantee the delivery date of its second stage if the ICSAs were not signed by then, for financial reasons. In a meeting on 17 May 2016, Grand Meadows’ response was a “final position” requiring further protection against potential delays or failure to complete the later stages which led to inclusive negotiation over providing progress payments in return for no staging.

[6] On 12 November 2015, Auckland Council had granted CRLG a variation to the District Plan and associated resource consents to rezone and develop the properties. On 20 October 2017, Clark Road obtained an amended resource consent from Auckland Council allowing the subdivision to be undertaken in stages. Clark Road is now proceeding on the basis its subdivision will be completed in three stages.

[7] There have been disputes during much of this period. In 2017, Clark Road unsuccessfully initiated interlocutory proceedings over payment, for which increased costs were awarded against them. Although the applicants did not know it, Clark Road was also engaged in litigation in 2017 with Rohits Civil and Infrastructure Ltd.

Since 8 January 2018, Clark Road has been contracting with Traffic Systems Ltd to build infrastructure.

[8] The applicants say Clark Road is financially distressed, is attempting to sell the property and refinance the development and the applicants have grave concerns about whether Clark Road has the resources to complete all of its three stages of the development. Clark Road disputes this and says these allegations, in Mr Cen’s reply affidavit, were made too late for them to respond in evidence. Clark Road says the applicants are refusing to make any arrangements or give undertakings as to payment of their share of the infrastructure costs.

[9] The applicants now say the respondent has breached its obligations under the DCA, by refusing to use the DCA’s contractual machinery for selecting a contractor to provide the common infrastructure. Alternative dispute resolution has been invoked by way of two notices of dispute. The first, dated 25 July 2016, concerns the respondent’s direct engagement of the contractor and alleged failure to negotiate an ICSA reasonably and in good faith. The second, dated 6 March 2018, concerns the respondent’s decision to stage its development and alleged refusal to cooperate and answer questions. Arbitration is envisaged. Settlement is being attempted.

[10] Pending the outcome of arbitration or settlement, the applicants apply for an order for interim measures restraining the respondent from giving effect to its amended subdivision consent which allows completion of the development in stages. The proposed order would do that by restraining the respondent from applying to the Auckland Council for a certificate for its amended resource consent, under s 224(c) of the Resource Management Act 1991 (RMA). That certificate is required for the Registrar-General of Lands to deposit a survey plan which would allow Clark Road’s subdivision to be progressed under s 11 of the RMA. The proposed order would last until the outstanding ICSAs are agreed or the parties agree otherwise, or until further order of the Court. The applicants are seeking specific performance of the contract. The applicants are concerned that, if the respondent’s infrastructure is completed in stages, their own infrastructure will not be able to connect with it.

[11] On 16 April 2018, I granted an “interim interim” order restraining the respondent from applying to the Auckland Council for a certificate. I stated that decision was “heavily influenced” by the timeframe in which it applied: until determination of this application. Now I have to decide whether to grant the order for interim measures for the full period for which they are sought. Mr McBride considers that period may last until the end of August or September 2019, three to four months after mediation of the second dispute is scheduled.

Law of interim measures

[12] Arbitrators commonly have exclusive jurisdiction over disputes governed by arbitration. However, cl 9.5 of the DCA here entitles the parties to issue court proceedings for “urgent interlocutory relief” in respect of a dispute. This is consistent with the provision for interim measures under art 9 and ch 4A, sch 1 to the Arbitration Act 1996, which incorporates into New Zealand law the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration 1985, as redrafted in 2006. Article 9 provides that the High Court has the same powers as arbitral tribunals to grant interim measures under art 17A of ch 4A, and that arts 17A and 17B apply subject to necessary modifications. Article 17 defines “interim measure” to mean, relevantly:

interim measure means a temporary measure (whether or not in the form of an award) by which a party is required, at any time before an award is made in relation to a dispute, to do all or any of the following:

(a) maintain or restore the status quo pending the determination of the dispute:

(b) take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral proceedings:

(c) provide a means of preserving assets out of which a subsequent award may be satisfied:

[13] In the authoritative judgment Safe Kids in Daily Supervision Ltd v McNeill, Asher J found the phrase “maintain or restore the status quo” must be approached “in the same flexible way in which it is approached in interim injunction cases”. The phrase is used “in the sense of maintenance or restoration of a state of affairs either past or present” and a past status quo need not be exactly recoverable. The purpose of the reference to the status quo is “not intended to create a restrictive threshold requirement” but “to identify the holding and temporary nature of interim orders”.

[14] Articles 17A and 17B provide for the power and conditions for granting measures. Relevantly, art 17B(1) provides:

(1) If an interim measure of a kind described in subparagraph (a), (b), or

(c) of the definition of that term in article 17 is requested, the applicant must satisfy the arbitral tribunal that—

(a) harm not adequately reparable by an award of damages is likely to result if the measure is not granted; and

(b) the harm substantially outweighs the harm that is likely to result to the respondent if the measure is granted; and

(c) there is a reasonable possibility that the applicant will succeed on the merits of the claim.

[15] Asher J’s analysis of the principles underlying the grant of interim measures, described by the leading text as “impressive analysis”, includes the following points:

(a) The Court will consider the grant of interim measures “on the basis that they should complement and facilitate the arbitration”.

(b) The power to grant interim measures is discretionary.

(c) The three preconditions in art 17B(1) are mandatory but not exclusive of other considerations.

  1. David A R Williams and Amokura Kawharu Williams and Kawharu on Arbitration (2nd ed, Wellington, LexisNexis, 2017) at 257.

(d) It may be convenient to examine whether there is a serious question to be tried, or a reasonable possibility of success, first.

(e) It may then be convenient to consider the essential traditional balance of convenience considerations, analysed by courts in interim injunction applications, much of which are covered by arts 17B(1)(a) and (b).

(f) Whether the harm is adequately reparable by an award of damages is a fundamental consideration.

(g) Whether the harm complained of by the applicant will substantially outweigh the harm to the respondent of the measures being granted is also fundamental and involves an analysis of its practical effects including the financial situation of both parties.

(h) The full range of considerations that apply to interim injunctions do not necessarily apply to interim measures, such as the public interest and consequences to third parties.

Submissions

[16] Mr McBride, for the applicants, submits:

(a) There is a reasonable prospect the applicants will succeed at arbitration given Clark Road’s actions breach its obligations under art 2.3, including the obligation to act reasonably and promptly.

(b) The harm is not adequately reparable by an award of damages. Clark Road failing to complete the development due to a lack of funding would be disastrous for the applicants. The applicants want the DCA honoured and they want the benefit of the protective clauses in the draft

ICSA, including the step-in rights in its attached draft power of attorney. That could lead to the contractual obligations on Traffic Systems Ltd to complete the development being renegotiated and the applicants would have to devise a “Plan B” for connecting their infrastructure. The fact the applicants are seeking specific performance at arbitration should colour my approach to whether damages are an adequate remedy. The possibility of recovering the cost from Clark Road in these circumstances would be slim.

(c) There is no evidence of harm that would arise to Clark Road from being required to comply with the terms of the DCA and complete all of the common infrastructure before seeking its s 224(c) certificates. The three stages of Clark Road’s development are largely proceeding in parallel, with stage three being scheduled for completion under the contract only 39 days after stage one is completed.

[17] Ms Knight, for Clark Road, submits:

(a) Clark Road’s decision to stage its development is not a breach of any term of the DCA or even the draft ICSA. She submits the parties all acknowledged in November 2015 that Clark Road directly engaging a contractor would be a variation to the arrangements contemplated in the draft ICSA, and would be subject to agreement on price. She says the applicants did not then give notice of an objection, as agreed.

(b) Neither does the staging of the development cause the applicants harm. Xigo Ltd, the applicants’ project manager, assessed the costs attributed to the relevant ICSAs as fair and reasonable. There is no evidence of delay or any actual detriment to the applicants’ interests. Mr Cen’s evidence in reply, of concerns about Clark Road advertising the development for sale and looking to refinance its loan, is not evidence of significant financial pressure. If it was, that would not justify delaying Clark Road’s completion of its development in stages. Staging the development can be expected to enable Clark Road to repay
some of its funding through sales of properties in its development, though there is no evidence of those. A delay of 39 working days is approximately eight weeks.

(c) If the interim measure is granted, Clark Road will suffer harm, primarily in the form of delay, compounded by the applicants’ refusal to pay any part of the shared infrastructure costs, which would outweigh any harm to the applicants from the measure not being granted. There is no evidence the applicants would suffer harm from unspecified financial risks. The protections in the draft ICSA would not protect from such risks. If such risks were to materialise, the impact would only be monetary, and compensable by damages. The contractual arrangements sought by the applicants are not now capable of specific performance.

Should interim measures be granted here?

[18] There is some question as to whether the interim measures sought here are really orders “to maintain or restore the status quo”. The measures would prevent Clark Road from doing something it can currently do, unless it agrees to ICSAs to which it has not yet agreed. On the other hand, the applicants say Clark Road is contractually obliged to agree to ICSAs so that could be said, flexibly, to represent the contractual status quo. And the chapter on interim measures in Williams and Kawharu on Arbitration notes a party may seek an order “that the opposing party refrain from a course of action pending resolution of the dispute”. I proceed on the basis the measure sought is an interim measure under art 17.

[19] It is not clear to me the applicants will necessarily succeed at arbitration. In relation to the first dispute, regarding the failure to enter ICSAs, cl 2.3 of the DCA has the air of an agreement to agree about it and the terms of the draft ICSA would not bind the parties unless agreed upon. But it does seem clear the clause provides for the parties to cooperate, reasonably and promptly, in negotiating ICSAs. The information before me does not suggest that has happened. In relation to the second dispute, it is not easy to discern a contractual requirement that Clark Road not stage its development but, again, there seems to be more chance of establishing it has refused to cooperate as required. I proceed on the basis there is a reasonable prospect the applicants will succeed at arbitration.

[20] As to the balance of convenience, there is no real evidence of delay or cost overruns having yet occurred in the construction of the common infrastructure. Neither is there evidence before me of any practical problems with the construction of the common infrastructure or risks of such problems.

[21] Indeed, it is difficult to pin down the harm the applicants will suffer if I do not grant the order. Mr McBride raises the prospect of financial failure of Clark Road leading to failure to complete the development leading to the applicants being exposed without the benefit of the ICSA protective provisions and having to devise a Plan B for connecting their infrastructure. He emphasises contractual protections against failure of Clark Road that would be available in the terms of the draft ICSA. But the unspecified evidence of Mr Cen’s fear of these risks is too speculative a basis on which to found an assessment of significant harm to the applicants. I have no evidence of the financial situation of Clark Road. I agree with Mr McBride attempts to sell and refinance may be warning signs. But that is not evidence of collapse within the relevant period. And the provisions in the draft ICSA have not been agreed to apply in relation to the common infrastructure.

[22] If the worst happens, there is no evidence of exactly what losses would necessarily ensue for the applicants. Even if they do have to devise alternative infrastructure connections I do not know whether that would be more or less expensive than what they could expect under the contractual arrangements properly interpreted. If there are to be losses, and they can be quantified, then by definition they could be compensable by an award of damages. The applicants have not satisfied me the harm to them is not adequately reparable by an award of damages.

[23] Furthermore, granting the order sought may increase the risks about which the applicants are concerned. Clark Road would be delayed in completing its staged development. Although there is no direct evidence, it is a natural inference that
delaying completion of a property development can be expected to have financial implications. Given this, the application has more of a flavour of a commercial lever than a legal protection. I do not consider the harm to the applicants substantially outweighs the harm that is likely to result to the respondent if the order is granted.

[24] Mr McBride submits the applicants’ pursuit of specific performance should flavour my consideration of the adequacy of damages. But the historical basis of the availability of specific performance as an equitable remedy is the inadequacy of damages. So the same underlying considerations are already built into the test for interim measures in art 17B(1)(a). That makes it is difficult to see how seeking specific performance might make a difference to the result of an application for an interim order for interim measures. In any case, I do not consider it makes a difference to the result in the circumstances here.

Result

[25] I decline to grant the order for interim measures sought.

………………………….

Palmer J