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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2008-404-003214 UNDER the Declaratory Judgments Act 1908

BETWEEN

COUNTIES MANUKAU PACIFIC TRUST Plaintiff MANUKAU CITY COUNCIL Defendant

AND

Hearing:

15 and 28 October 2008

Appearances: P T Cavanagh QC and L A O'Gorman for Plaintiff DAT Hollings QC, I J Thain and G F Weir for Defendant Judgment: 2 March 2009 JUDGMENT OF COOPER J
This judgment was delivered by Justice Cooper on 2 March 2009 at 4.30 p.m., pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar Date:

Solicitors: Buddle Findlay, PO Box 1433, Auckland 1140 DLA Phillips Fox, PO Box 160, Auckland 1140 Copies to: P T Cavanagh QC, PO Box 4338, Auckland D Hollings QC, Bankside Chambers, Level 22, Lumley Centre, 88 Shortland Street, Auckland 1140

COUNTIES MANUKAU PACIFIC TRUST V MANUKAU CITY COUNCIL HC AK CIV 2008-404-003214 2 March 2009

Introduction

[1]

The Counties Manukau Pacific Trust (the Trust) is a charitable trust In co-operation with the

established pursuant to a deed dated 26 July 2000.

Manukau City Council (the Council) which made the land available and also made a substantial grant to the Trust, the Trust has raised the necessary funds and developed an events centre known as TelstraClear Pacific near the Manukau City Centre. [2] Regrettably, the parties have reached an impasse on what should happen with

respect to land adjacent to the development which was sold by the Council to a developer subject to terms which obliged the developer to ensure that its development was compatible with the Trusts development. Under the terms of the Councils contract with the developer there was provision for the Council to buy the adjacent land back if the developer did not proceed within an agreed time-frame. The Council has exercised its right of re-purchase. [3] The Trust now asserts that the Council owes it various fiduciary obligations

in respect of the adjacent land. In particular, the Trust claims that the Council must account to it for the net sale proceeds when it re-sells the adjacent land, and that it must act so as to maximise those proceeds. Further, it claims that the Council must ensure that on any re-sale the new purchaser becomes bound by agreed conditions ensuring compatible development such as those which applied on the original sale. [4] The Council denies that it has the fiduciary obligations for which the Trust

contends. The Trust has commenced the present proceeding in which it seeks declarations against the Council in relation to the alleged fiduciary duties. The parties have co-operated for the purposes of the proceeding and there are no significant issues between them on primary questions of fact. The relevant facts were set out in affidavits sworn, on behalf of the Trust, by Richard Jeffery, who has been the Trusts Chief Executive Officer since 2000 and, on behalf of the Council, by Christopher Loughlin, employed by the Council between April 2002 and October 2004 as its Manager Strategic Property and Planning.

Background

[5]

The objects of the Trust stated in the deed were to establish, operate and

administer a multi-purpose complex in the Counties Manukau area to provide for the cultural, community and recreational needs of the community, and the public generally. Another object of the Trust was to support clubs, societies and other organisations with similar functions. [6] Although the deed did not define the expression multi-purpose complex,

pursuant to clause 3.2 the complex was to provide indoor and outdoor facilities for any one or more of a list of activities. That list comprised: a) The performing and visual arts and other cultural and community activities; b) The exhibition and display of arts and crafts that reflect the significant ethnic diversity of the Counties Manukau community; c) d) e) f) Festivals, exhibitions, fairs and shows; Local, national and international sporting events; Headquarters for sporting and cultural organisations; Any other Charitable Purpose that would benefit the Counties Manukau Community. [7] The Trust was incorporated under the Charitable Trusts Act 1957 on

2 October 2000. On 15 May 2001 it entered into an agreement between Manukau City Council and Project Pacific Ltd. The agreement recorded the terms and

conditions on which the Council would provide assistance to the Trust for Project Pacific and dealt with related arrangements. [8] Project Pacific Ltd was a company, originally formed as Counties Manukau

Pacific Trust Ltd, prior to the incorporation of the Trust. The company had the role

of undertaking preliminary investigations into the completion of what had become known as Project Pacific (or the Project). Once the Trust commenced its

activities the company ceased to operate. In the agreement of 15 May 2001 (which the parties referred to as the Umbrella Agreement) Project Pacific was defined by reference to everything required to be undertaken or performed by the Trust to carry out and complete the Minimum Development. That was another term

defined in the Umbrella Agreement, the parties envisaging that the multi-purpose complex would be completed in stages. [9] Stage One of the multi-purpose complex, which was an indoor multi-purpose It is now in use, and known as the

facility was completed by April 2005.

TelstraClear Pacific Events Centre, situated adjacent to the Manukau City Centre. [10] The Umbrella Agreement recorded terms on which the Council agreed to

assist the Trust to establish the multi-purpose complex on part of a landholding owned by the Council bounded by the southern motorway, the off-ramp from the motorway leading into the Manukau City Centre and Great South Road. Part of the land was zoned public open space and held as recreation reserve, with the balance being zoned for commercial or business uses. The agreement referred to the

Council-owned land as the Great South Road site. It comprised some 25 hectares. [11] Under clause 2.3 of the Umbrella Agreement, the Council agreed to In

guarantee bank borrowings by the Trust up to a maximum of $1 million.

exchange, the Trust agreed to discharge debts of the company relating to the preliminary investigation of Project Pacific and meet ongoing costs during the Projects start-up phase. The Trust undertook to seek sponsorship, grants or loans sufficient to meet the cost of carrying out and completing the first stage of the development. If the Trust was successful in obtaining funding which, in the opinion of the Council and the Trust was sufficient to meet the cost of carrying out and completing the first stage of the Project, then, subject to a number of other conditions, the Umbrella Agreement provided for the sale of part of the Councils Great South Road site referred to in the Umbrella Agreement as the Residue Land. The Residue Land was defined as the balance of the Great South Road site excluding the Multi-purpose Complex Land.

[12]

The proceeds of the sale of that land were to be paid by the Council to the

Trust as the Project Pacific Grant. The Project Pacific Grant was defined as meaning the Grant for the amount provided in clause 5.2 to be made by the Council to the Trust for Project Pacific. In addition, clause 5.2 of the Umbrella Agreement provided:
The Project Pacific Grant is an amount equal to the net sale proceeds of the Residue Land established by deducting from the gross sale price (less GST) of the Residue Land (whether the Residue Land is sold in one parcel or subdivided and sold in several parcels) all costs (less GST) incurred by Council directly or indirectly in connection with Project Pacific and the sale of the Residue Land.

[13]

Attached to the Umbrella Agreement was a multi-purpose complex lease.

The Umbrella Agreement provided that the multi-purpose complex lease would commence on the date that the Umbrella Agreement became unconditional (clause 8.1). Under clause 8.3 of the Umbrella Agreement, from the date on which the Umbrella Agreement became unconditional, the parties were to be bound by the terms of the multi-purpose complex lease. Pursuant to the lease, the Council leased to the Trust the land on which the multi-purpose complex was to be developed and maintained for an additional term of 33 years with rights of renewal for two further 33 year terms. A peppercorn rental was to apply during the first 20 years with rental reviews based on the lands status as a recreation reserve and without taking into account improvements made by the lessee (the first rent review), but on the basis of the zoning of adjacent land at the time of the second rent review. [14] There were subsequent variations to the Umbrella Agreement on 15 August

2002 and 2 November 2004. As a result of the latter, clause 5.2 of the agreement was amended by deleting the words with Project Pacific and after the words in connection with in the last line of the definition. The clause as amended read:
The Project Pacific Grant is an amount equal to the net sale proceeds of the Residue Land established by deducting from the gross sale price (less GST) of the Residue Land (whether the Residue Land is sold in one parcel or subdivided and sold in several parcels) all costs (less GST) incurred by Council directly or indirectly in connection with the sale of the Residue Land.

[15]

Clause 6 of the Umbrella Agreement contained provisions governing the sale

of the Residue Land. The clause read as follows:


6. 6.1 6.2 (a) (b) (c) SALE OF THE RESIDUE LAND The parties shall confer and agree the method of marketing the Residue Land in order to achieve the best sale price. The Trust acknowledges and accepts that any agreement for the sale of the whole or part of the Residue Land shall: be for a price that is equal to or greater than the value of the Residue Land as certified by a registered valuer; be conditional (amongst any other conditions) upon this agreement becoming unconditional in all respects; include such terms and conditions as Council and the Trust think fit either to limit or exclude uses by purchasers that detract from Project Pacific; or to provide for specific uses that are compatible with Project Pacific; include any other terms or conditions required to give full effect to the spirit and intent of this agreement. The Council and the Trust will confer and agree the final form of the land covenants to be registered against the title or titles to issue for the Residue Land compelling the purchasers and their successors to comply with the compatible use provisions referred to in clause 6.2(c).

(d) 6.3

[16]

In June 2001, the Council made provision in its annual plan for the

2001/2002 financial year of the sum of $10 million in anticipation of the required payment of the Project Pacific Grant. During the balance of 2001 the Trust worked at raising the money required to complete the first stage of Project Pacific. In addition, consideration was given to the possibility of an underwriting arrangement in respect of the part of the development site to be sold for commercial development. The objective was to enable the Trust to borrow immediately sufficient funding to complete the first stage of the development, thereby facilitating the Umbrella Agreement becoming unconditional at an early stage. An Underwriting Agreement was in fact entered into by the Council, the Trust and Esquire Group Ltd, under which the company undertook to purchase the Residue Land for an amount stated in the agreement, less an underwriting fee.

[17]

By the beginning of 2002 the Trust had not raised sufficient money to make

the Umbrella Agreement unconditional, and it approached the Council for further funding. It sought an immediate Grant of $150,000 to ensure that the Trust

continued to operate, and a further Grant of $8.74 million over the following three years, as well as an annual operating subsidy of $385,000 per annum payable until completion of the Project. On 28 February 2002 the Council resolved to include the request in its draft annual plan to be published for public consultation. In his affidavit, Mr Loughlin referred to intense public debate about the request for further funding, noting that as a consequence of the consultation on the draft annual plan, there had been 183 newspaper articles regarding the proposed development. The issue was raised that the Council had previously promised the public that the extent of its contribution to the Project would be a grant from the sale of the Residue Land and that there would be no cost to the ratepayers. According to Mr Loughlin, 62.5 per cent of the submissions received on the annual plan opposed any further funding for the Trust. [18] Nevertheless, at the meeting of 26 June 2002, a majority of the Council voted

to provide further funding to the Trust subject to the parties signing a funding agreement. The Council agreed to provide the full amount of funding that had been requested, save that it committed to the requested $385,000 annual operating grant for an initial period of only three years. [19] On 31 July 2002, the parties entered into a Funding Deed which included,

amongst other things, terms about the annual operating grant, and the budget for Stage One of the development. The Deed recorded that the Council had resolved to provide further financial support to the Project in the expectation that Stage One would be completed generally in accordance with a design presented by the Trust to the Council for consideration at the meeting of 26 June 2002. For its part, the Trust undertook to use its best endeavours to complete Stage One, operate in accordance with the budget which was attached to the Deed and avoid any significant excess capital or operating expenditure. [20] Clause 9 of the Funding Deed provided for the establishment of a Project

Control Group for the completion of Stage One, to meet on a monthly basis. The

Council was given the right to appoint a representative to the Project Control Group, who would be entitled to receive notice of and attend all of its meetings, and to receive and inspect all material provided to the Group. Clause 10 obliged the Trust to prepare a strategic plan outlining proposals for its operation and assets over a ten year period from 1 July 2002, and to update the plan in each financial year. For its part, the Council undertook to supply to the Trust a statement of the long-term objectives and outcomes that the Council considered desirable for the Project by 30 November in each year. The parties undertook to meet and resolve any

divergence of views regarding the objectives and outcomes of the Trust, so as to arrive at an agreed policy to be included in the strategic plan. The Trust undertook then to make the strategic plan available to the Council for its approval before adoption by the Trust. The Council agreed that it would not unreasonably withhold or delay its approval. [21] There was provision also for the trustees to deliver to the Council a draft

statement of trustee intent for each financial year, no later than 28 February preceding the commencement of the financial year. A process was set out for the Council to make comments on the statement of intent, and the Trust was obliged to consider those comments before finalising the statement. Clause 12 obliged the Trust to prepare a business plan for the management of the Trust and the Trust assets for each financial year either concurrently with or immediately following the updating of the strategic plan for that year. [22] Under clause 13 of the Funding Deed, the Trust agreed to obtain the

Councils written consent before incurring liabilities exceeding an amount equivalent to 20 per cent of the value of the Trusts assets, including any existing liabilities. Clause 14 provided for the Trust to provide the Council with financial statements within 90 days of the end of each financial year. The Funding Deed was conditional on all of the conditions of the Umbrella Agreement, and the Underwriting Agreement being satisfied or waived to the Councils reasonable satisfaction. On 8 April 2003 the parties entered into a first variation to the Funding Deed, which redefined the first stage of the development.

[23]

As contemplated by clause 6.1 of the Umbrella Agreement, during February

and April 2003 the Council and the Trust discussed and agreed on the tender process to be followed for the sale of the Residue Land. The agreed terms and conditions for sale were set out in a document entitled Terms and Conditions of Tender for the Purchase of Land Adjacent to TelstraClear Pacific at Great South Road, Manukau City (the terms and conditions of tender). The form and content of the tender documents were negotiated and agreed between the Council and the Trust. Included in the terms and conditions of tender was clause 5.8, which was in the following terms:
5.8 Council and the Trust to Approve Master Plan

The Purchaser must submit for the approval of the Council and the Trust, a Master Plan for its development of the Property in accordance with its proposal under clause 4 of the Tender Form. The Purchaser must do this as soon as practicable after the Contract is formed, before the Purchaser applies for any resource or building consent it requires to implement its proposal, and before it undertakes any work to implement its proposal. (a) (b) The Master Plan will contain the detail of how the Purchaser will implement its proposal. The Council and the Trust will not unreasonably delay or withhold their approval to a Master Plan as long as it is in accordance with the Purchasers proposal under clause 4 of the Tender Form. The Purchaser will undertake and complete its proposal in the manner stated in the Master Plan, as approved by the Purchaser and the Trust. The Purchaser must not vary the Master Plan without the prior written approval of the Council and the Trust. The Purchasers obligations under this clause and the previous clause are for the benefit of the Trust as well as the Council, and either is entitled to enforce them.

(c)

(d) (e)

[24]

Clause 5.9 of the terms and conditions of tender lies at the heart of the

dispute between the parties. Its terms were as follows:


5.9 (a) Councils right to Repurchase Land Under all Contracts, the Purchaser will Grant to the Council an option: (i) to repurchase the whole of the Property if the Purchaser has not substantially completed each stage of the proposed

development within 18 months after the date for completion of that stage stated in the Contract; or (ii) to repurchase any part of the Property the Purchaser wishes to sell, before the Purchaser has substantially completed the stage of the proposed development to be completed on that part of the Property.

(b)

The Council will be entitled to exercise its right under clause 5.8(1)(i) by giving notice in writing to the Purchaser at any time between 18 months and 24 months after the date for completion of the stage of the proposed development stated in the Contract. The Councils right lapses as soon as the stage is substantially complete, but arises again if a subsequent stage is not complete within 18 months after the date for completion of that stage. The council will be entitled to exercise its right under clause 5.8(a)(ii) by giving notice in writing to the Purchaser at any time within 2 months of when the Purchaser gives the Council notice in writing that it wishes to sell all or part of the Property. The Purchasers notice must clearly identify the part of the Property it wishes to sell and how far the proposed development has progressed on that part. Settlement of the re-purchase will be one month after the date the Council gives its notice under clause 5.8(b) or clause 5.8(c). The General Terms of Sale of the then most current edition of the REINZ/ADLS Agreement for the Sale and Purchase of Real Estate will apply to the re-purchase. Council will pay the Purchaser for the Property, or part of the Property the purchase price the Purchaser paid the Council under the Contract, without any additional amount or other compensation for any improvements the Purchaser may have undertaken to the Property. The Council and the Purchaser will use the rates per square metre for each part of the Property stated in the Contract to calculate the re-purchase price, if the Council is re-purchasing only part of the Property. If the Council does not exercise its right under clause 5.8(a)(ii), the Purchaser will be entitled to sell the part of the Property in question to any person within 12 months of the date the Purchaser give the Council notice under clause 5.8(c). However, the person to whom the Purchaser sells the Property must before they take title, enter into a deed with the Council under which they agree: (i) To be bound by this clause as it relates to the area of the Property they are buying and the part of the proposed development that relates to that area; To complete the part of the proposed development intended for that part of the Property within 18 months of anticipated date for completion of that stage stated in the Contract.

(c)

(d)

(e)

(f)

(ii)

[25]

Eldamos Investments Ltd (Eldamos), the property developing arm of The

Warehouse Group, was the successful tenderer. The Council accepted its tender by letter dated 19 May 2003. Eldamos had agreed to purchase the Residue Land for the sum of $13,150,000 (plus GST). In accordance with clause 5.8 of the terms and conditions of tender, Eldamos also became bound to undertake and complete the proposal for the development of the Residue Land in accordance with the Master Plan approved by the Council and the Trust. The terms and conditions of tender were incorporated into the agreement for sale of the land and subsequent references to them are in the context that they became contractual terms. [26] The terms of clause 5.9 of the terms and conditions of tender were reflected

by the obligations recorded in a memorandum of encumbrance dated 8 January 2004 in which Eldamos, as the encumbrancer, granted to the Council an option:
a. to repurchase the whole of the Land if the Encumbrancer has not substantially completed each stage of the Development within 18 months after the date for completion of that stage stated in the Contract; or to repurchase any part of the Land the Encumbrancer wishes to sell, before the Encumbrancer has substantially completed the stage of the Development to be completed on that part of the Land.

b.

[27]

By another provision of the encumbrance, Eldamos undertook to complete

the development using its best endeavours to complete substantially each stage within 18 months of the anticipated date for completion of that stage stated in the contract. [28] On 1 December 2004 the Council and Eldamos agreed to vary the required Pursuant to the

completion dates for the development on the Residue Land.

variation, the development was to proceed in full with completion dates varying between 30 April 2005 and 31 December 2008. However, by March 2007 the Trust was concerned that Eldamos would not comply with its obligations as to both the nature of the development or the dates by which the stages were to be completed. By letter dated 22 March 2007 the Trusts solicitors wrote to the Council recording those concerns and also noting that a purported master plan that had been received depicting the proposed Eldamos development was, in the Trusts view, well short of

the Master Plan required by the sale contract as well as having been received significantly late. [29] Eldamos accepted that it would not complete the development by the agreed

completion dates and, in compliance with clause 5.9 of the terms and conditions of tender agreed to sell the Residue Land back to the Council. [30] On 30 August 2007, the Trusts solicitors wrote to the Councils solicitors in

terms which included the following:


The Trust advises that consistent with its entitlement to the land under the documentation between Manukau City Council and itself, it has arranged the necessary finance and will be in a position to settle the purchase direct with Eldamos as the Purchasers nominee.

[31]

This was apparently the Trusts first written assertion that it had an

entitlement to the land, a proposition that the Council has consistently rejected. Otherwise, the wording of that letter anticipated the terms of the agreement for sale and purchase between Eldamos as vendor and Manukau City Council or Nominee as purchaser, which was formally executed on 28 September 2007. The purchase price stipulated in the agreement was $10,955,294, i.e. less than the amount for which Eldamos had purchased the land from the Council. This reflected the fact that in 2004, Eldamos had decided to on-sell part of the land to another company. On that occasion, the Council had waived the buy-back option and the company to which the land had been sold convenanted to, and subsequently did, complete its part of the proposed development within the required timeframe. [32] Pursuant to the subsequent re-purchase agreement, the balance of the Residue

Land was transferred back to the City Council on 29 November 2007. The purchase price was adjusted rateably by deducting the value of the land sold by Eldamos, on the basis of the rate per square metre for which Eldamos had originally acquired the Residue Land (see clause 5.9(e) of the terms and conditions of tender). Subsequently, the Council has given consideration to selling the land that it has repurchased to a third party.

[33] terms:

On 2 April 2008, the Trusts solicitors wrote to the Council in the following

Counties Manukau Pacific Trust former Eldamos land The Trust has instructed me to write to you to express the Trusts disappointment and concern that the Council is still debating whether the Council holds the former Eldamos land subject to an express trust in favour of the Trust. The Trustees rely upon the opinion of Paul Cavanagh QC of 17 September 2007 which is unequivocal in its conclusion that such a trust exists. The Trust has provided a copy of that opinion to the Council. The Trustees advise that should the Council decide to continue to debate the existence or otherwise of the express trust rather than accepting its existence and the resulting obligations on the Council, this will be resisted by the Trust. The Trustees consider they are obliged to take action to protect the Trusts rights as beneficiary under the express trust, and advise they will do so. The Trustees regret having to communicate with the Council in this manner. They are very aware that Stage 1 of TelstraClear Pacific proceeded because of the Councils support by way of the Project Pacific Grant and other monetary assistance. However, to date only Stage 1 of TelstraClear Pacific has been established and the Trustees consider it is imperative that their intention to proceed to complete TelstraClear Pacific by undertaking Stage 2 not be inhibited.

[34]

I was not referred to a reply to that letter. However, it is plain that the

Council disagrees that it is subject to any ongoing obligation enforceable by the Trust in respect of the land that it has re-purchased. [35] The Trust alleges that the current value of the remaining Residue Land is

significantly greater than the original price which Eldamos paid and which applied (reduced rateably) when the Council exercised its buy-back right. In its statement of defence, the Council accepts that the value of the land may well be more than the amount for which the Council purchased it back from Eldamos.

The Trusts claims

[36]

At paragraph 32 of the statement of claim, the Trust alleges that pursuant to

the provisions of the Umbrella Agreement, the Underwriting Agreement, the

Funding Deed, the sale documents and the memorandum of encumbrance, the Council owed it the following fiduciary duties:
(a) Sale proceeds held on trust: to hold any net sale proceeds of the Residue Land on trust as falling within the Project Pacific Grant and therefore beneficially payable to the Trust; and Sale process: to act in the Trusts best interests in undertaking any sale of the Residue Land so as to: (i) Best price: achieve the best sale price and thereby maximise the net sale proceeds payable to the Trust under the Project Pacific Grant; Compatible use: exclude uses by the purchasers or their successors that would detract from Project Pacific, or provide for specific uses by the purchasers or their successors that are compatible with Project Pacific; Timeliness: consistent with the obligation referred to in 32(b)(ii), to ensure that the Residue Land was developed in a timely way for a use compatible with Project Pacific; Land covenants: achieve land covenants registered against the title or titles compelling the purchasers or their successors to comply with the excluded detracting uses or specified compatible uses referred to in paragraph 32(b)(ii) above;

(b)

(ii)

(iii)

(iv)

(c)

Consultation: in undertaking any sale of the Residue Land, to confer and agree with the Trust about the method of marketing the Residue Land in order to achieve the outcomes referred to in paragraph 32(a) above.

The reference in paragraph (c) to paragraph 32(a) above is apparently a drafting error. As I understand it, the Trusts argument was that there should be a new round of consultation on the matters referred to in paragraph 32(b), not paragraph 32(a). [37] Next, the Trust alleges that in undertaking the pleaded fiduciary duties, the

Council had a duty not to profit personally from the Residue Land, including any sale of it, and the way in which it dealt with the net sale proceeds. A further duty alleged is that the Council was obliged not to allow its interests to conflict with the interests of the Trust. [38] It is then claimed that the fiduciary duty applied to any subsequent sale or use

of the Residue Land or any part of it following the exercise by the Council of the

buy-back option. The particulars given of that allegation are set out in paragraphs 34(a) to (d) of the statement of claim as follows:
(a) The words net sale proceeds of the Residue Land in clauses 5.2 and 5.3 encompass any sale of the Residue Land (or any part of it) by the defendant; Clause 6.2 expressly applies to any agreement for the sale of the whole or part of the Residue Land; Clause 6.3 expressly applies to the purchasers and their successors, thereby encompassing one or more purchasers and their successors; The buy-back option was put in place to ensure that the sale to Eldamos would achieve compliance with the fiduciary duties referred to in paragraph 32 above, or that the defendant would be in a position to satisfy those obligations in any subsequent sale of the remaining Residue Land.

(b) (c)

(d)

[39]

An alternative contention, pleaded in paragraph 35 of the statement of claim

is that there is an implied term that the fiduciary duties would also apply to any subsequent sale of the Residue Land or part of it following the exercise of the buyback option by the Council. Further, it is asserted in paragraph 35.2 that:
to give full effect to the spirit and intent of the Umbrella Agreement (as provided for in clause 6(d) of Umbrella Agreement), the Umbrella Agreement should be construed so as to include terms and conditions that the fiduciary duties referred to in paragraph 32 above would also apply to any subsequent sale of the Residue Land (or any part of it) following the exercise of the buy-back option by the defendant.

[40]

Particulars of these allegations are then set out:


(a) Such obligations are obvious given the purpose and effect of the express clauses of the Umbrella Agreement, the Underwriting Agreement, the Funding Deed, the sale documents and the memorandum of encumbrance; and Failure to imply those terms would be in conflict with the no profit and no conflict rules of a fiduciary; and The buy-back option was put in place to ensure that the sale to Eldamos would achieve compliance with the fiduciary duties referred to in paragraph 32 above, or that the defendant would be in a position to satisfy those obligations in a subsequent sale of the remaining Residue Land.

(b) (c)

[41]

On the basis of these allegations, the Trust seeks:

(a)

A declaration that the fiduciary duties referred to in paragraph 30 of the statement of claim apply to any subsequent sale of the Residue Land (or any part of it) following the exercise of the buy-back option by the defendant; and Accordingly, a declaration that any further net proceeds from the sale of the relevant land to any subsequent purchaser is beneficially payable to the Trust under the Project Pacific Grant; and Further, a declaration that the defendant is obliged to confer with the Trust about the method of marketing the relevant land, and that in undertaking that sale process the defendant is obliged to act in the Trusts best interests in seeking to achieve the outcomes in paragraph 32(b) of the statement of claim; and Costs.

(b)

(c)

(d)

[42]

By its statement of defence, the Council denies that it is subject to either the

fiduciary duties claimed, or that it is affixed with any Trust obliging it to act in accordance with the obligations alleged by the Trust.

Express or implied fiduciary duties

The Trusts argument

[43]

Mr Cavanagh QC, counsel for the Trust, relied on the decisions of the

Supreme Court in Chirnside v Fay [2007] 1 NZLR 433 (SC) and Amaltal Corporation ltd v Maruha corporation [2007] 3 NZLR 192 (SC) to contend that the Trust and the Council were in a fiduciary relationship so that each was entitled to repose trust and confidence in the other, and to rely on the other not to act in a way which was contrary to the first partys interests. [44] He referred also to Keech v Sandford (1726) 25 ER 223 and the dictum of

Lord King LC that it was a rule that should be strictly pursued, and not in the least relaxed, that a trustee of a tenancy who obtains a renewal of the lease for himself holds the interest in the renewed lease as part of the trust estate. Mr Cavanagh submitted that the rule should be applied by analogy in the present case, where the Council had exercised the buy-back option as a fiduciary, arguing that a fiduciary must account for personal benefit or gain.

[45]

Mr Cavanagh further argued that the Council and the Trust were joint

venturers, depending on each other to make progress towards a common objective (Chirnside v Fay at [91]). He contended that the various agreements entered into by the parties, but in particular the Umbrella Agreement established that the parties were in a joint venture. This was because they had both agreed to work towards defined common objectives to advance Project Pacific. Clauses 5.2 and 5.3 of the Umbrella Agreement were so worded as to capture not only the initial sale of the Residue Land but also any subsequent sale by the Council following an exercise of the buy-back option. Nor did any other express terms of any of the agreements enable a distinction to be drawn between the initial and any subsequent sale of the Residue Land. The wording of the provisions was such that the land retained its status as Residue Land after exercise of the buy-back option. Similarly, the net sale proceeds which, under clause 5.2 of the Umbrella Agreement, were to constitute the Project Pacific Grant, would include proceeds of the second sale of the Residue Land by the Council. In that eventuality Mr Cavanagh accepted that the Trust would have to account for the moneys that it had already received by payment of the initial Project Pacific Grant. But it would be entitled to any increased amount for which the Residue Land had been sold on the second occasion. [46] Mr Cavanagh also pointed to clause 6.2 of the Umbrella Agreement with its

reference to any agreement for the sale of the Residue Land, and clause 6.3 which refers to the purchasers and their successors complying with the compatible use provisions required by clause 6.2(c). He argued that the wording of these clauses anticipated the possibility of there being more than one purchase of the Residue Land, and a number of agreements for sale and purchase of it. [47] Next, he mentioned clause 5.3 of the Umbrella Agreement which provided

that the Project Pacific Grant should be paid upon completion of the sale of the Residue Land. He argued that because the Residue Land had come back into possession of the Council by virtue of its exercise of the buy-back option, the sale of the Residue Land had not been completed. The Council had once again become the owner of the Residue Land and was subject to the express obligations of the agreements which continued to apply to it. Further, there was no express provision that the Umbrella Agreement would be terminated upon the exercise of the buy-back

option. The position was simply that the parties were returned to the position in which they had been prior to the initial sale of the land, with the Council having an obligation to find a suitable new purchaser, maximising the price to be paid, and reaching agreement with the Trust on similar terms such as those that had originally been agreed as to compatible development and use pursuant to clause 6.2(c) of the Umbrella Agreement. [48] Many of these arguments came close to asserting that the Council was

contractually obliged by the terms of the Umbrella Agreement to re-sell the land, accounting to the Trust for the proceeds by paying a new Project Pacific Grant. Yet the Trust did not plead its case based on contract, nor did Mr Cavanagh purport to submit that the obligation arose directly from the terms of the Agreement, or that it could be said to arise as an implied term of it. Rather, as I apprehend it, the argument was that by virtue of the contractual terms referred to the Council had effectively assumed an obligation to act in the interests of the Trust as well as its own, recognising the shared objects of both. Consequently, there was a fiduciary duty to comply with those terms for a second time subsequent to the buy-back. [49] In that context, it was the Trusts argument that the provision for the buy-

back option in the Umbrella Agreement was consistent with the objective of both the Council and the Trust to maximise the proceeds of sale, in accordance with clause 6.1 of the Agreement. This, because the Council would only exercise its option if the cost of re-purchasing the land was less than its market value at the time (or likely future value) and the Council could therefore count on making a profit by exercising the option. Mr Cavanagh submitted that the very existence of the buy-back

provision supported the Trusts position, since it was the price to be obtained on the sale of the Residue Land that was to constitute the Pacific Project Grant, and both parties had effectively agreed to maximise the proceeds of sale for that purpose. [50] The Trust argued, on the basis of clause 6.2(c) of the Umbrella Agreement,

amongst other considerations, that the parties had the common objective of ensuring that any development on the Residue land was compatible with Project Pacific. The importance of this objective on an ongoing basis was underlined by the requirements of clause 6.3 (purchasers and their successors to register covenants to ensure

compliance with the compatible use provisions). In this context, Mr Cavanagh also relied on clause 2.3 of the Underwriting Agreement in which the parties recorded a number of common understandings. Among them (clause 2.3(c)) was that:
land covenants will be completed to ensure all developmentsare compatible with the hotel proposed to be constructed by the Underwriter on the Hotel Site and the Multipurpose Complex to be constructed on the balance of the Great South Road Site, by the Trust.

[51]

Mr Cavanagh submitted that given these contractual terms the Council should

not be free to resell the Residue Land so as to allow it to be developed and used in a manner incompatible with the Trusts development. He argued that the Trusts reliance on the Council to ensure the compatible development of the adjacent land was fundamental to the relationship between the parties and that the Councils obligation was fiduciary in nature. [52] Another strand of the Trusts argument based (albeit indirectly) on

contractual terms emphasised the Trusts concern that the development of the Residue Land should occur on a timely basis, enabling the Trust to benefit from additional business that would result. Thus, from an early stage, it had been seen as desirable for an hotel to be erected on the land adjacent to Project Pacific, and that was regarded as one of the keys to the success of the Project as a conference venue. The Council was also concerned that the development of the Residue Land should occur swiftly, for similar reasons. It wished to maximise the benefits to the

ratepayers and see an early return on its substantial investment in the Project. According to Mr Loughlin (paragraph 54):
Timely development on the site was also very important for Council. Council had itself land-banked the site since the 1980s and it would not have benefited the redevelopment of the City centre to have that land continuing to sit vacant.

[53]

It was against the background of this kind of consideration that clause 5.7 of

the terms and conditions of tender had required that the purchaser undertake to complete each stage of the development proposal within a stated timeframe, and that obligation was to be secured by an encumbrance registered against the title to the land. As has been seen, on the sale to Eldamos the encumbrance provided for the buy-back option to be exercisable by the Council if the development intended by

Eldamos was not substantially completed within 18 months of the stipulated date for completion . [54] Mr Cavanagh argued that such requirements were a reflection of clauses 6.1

(an agreed method of marketing to ensure the best sale price is obtained) and 6.2(c) (making provision for specific uses compatible with Project Pacific) of the Umbrella Agreement. The buy-back had a role to play not only in ensuring that the best sale price was achieved (whether on the initial sale or subsequently) but also in terms of the timely development of the Residue Land. On the Trusts argument, to allow the Council to resell the Residue Land on its own terms, without making any stipulation as to the timeframe within which its redevelopment was to occur would undermine the intent of the parties as reflected in clause 6.2(c) of the Umbrella Agreement. [55] Mr Cavanagh argued that the Trust was entitled to loyalty from the Council

in respect of the implementation of these provisions on any re-sale of the Residue Land and that the Council could not now reasonably contend that it was entitled to disregard the interests of the Trust or to act inconsistently with those interests on a re-sale. A similar argument was based on the agreed provisions of the terms and conditions of tender, in particular clause 5.8, whereby both the Council and the Trust were to approve the Master Plan for the development of the Residue Land. Once approved, the Plan could not be varied without the approval of both. It is to be noted in this respect that clause 5.8(e) provided that:
The Purchasers obligations under this clause and the previous clause [the obligation to complete the development] are for the benefit of the Trust as well as the Council, and either is entitled to enforce them.

[56]

Equally, counsel contended that the Council had an ongoing duty to comply

with clause 6.1 of the Umbrella Agreement, with the consequent need for further consultation about the marketing of the land so as to achieve the best sale price. [57] In the event that the Court held that none of the contractual provisions gave

rise to the fiduciary duties alleged, the Trust argued that the duties should nevertheless be held to exist by implication from the circumstances. Here reliance was placed on the judgment of Banchard and Tipping JJ in Chirnside v Fay [2007] 1 NZLR 433 (SC), at [82], where they addressed an argument that the test for whether

a fiduciary duty arose was whether the alleged fiduciary had agreed to act for or on behalf of the other partys interests. Their Honours said:
Counsels proposed test is not a correct statement of the law on this point. It has a strong contractual flavour which does not properly reflect the approach of equity. This contractual flavour was heightened by Mr Whitesides further submission that the necessary undertaking or agreement had to be express and could not be implied. The simple answer to this submission is that equity imposes an obligation to eschew self-interest when the circumstances require. The obligation does not only arise when expressly undertaken. To hold otherwise would be to confine the powers of equity to situations akin to express trusteeship and would emasculate the breadth of equitys traditional reach by its use of concepts such as constructive trusteeship and its imposition of fiduciary obligations. Indeed, it will be recalled that in Kuys Lord Wilberforce spoke of cases of trust express or implied. He thereby recognised that fiduciary duties need not be expressly undertaken.

[58]

Mr Cavanagh also pointed to a passage at [85] of the judgment:


At the very least the undertaking [to act for or on behalf of another] can be implicit from the circumstances, and the true principle, in our view, resides in the idea that the circumstances must be such that one party is entitled to repose and does repose trust and confidence in the other. The existence of an agreement or undertaking is no more than a frequent manifestation of such a circumstance.

[59]

The Trust relied again in this context on the various contractual provisions

already discussed, as well as referring to the requirement in clause 6.2(d) of the Umbrella Agreement that the sale of the Residue Land should be on terms that give full effect to the spirit and intent of the agreement. In addition, Mr Cavanagh referred to the shared intent of both parties that the Residue Land would be developed in a way complementary to the purposes of the Trust to maximise the proceeds of sale to ensure the success of Project Pacific; the need for the Trust to agree on terms and conditions for the marketing programme; the contracts entered into in relation to the sale of the Residue Land, its subdivision and development and the general nature of the arrangements between the parties. In context, the buy-back option could only be characterised as a provision inserted in the agreement so as to ensure the overall objectives of the parties. [60] That being the case, it was implicit that the exercise of the option should

result in any further sale of the land being subject to terms and conditions that would further the original objectives of the parties. If the Council alone retained the benefit

of the increased market value on a re-sale, it would be profiting from its Trusteeship. On the other hand, the Council would not be detrimentally affected should the amount obtained on re-sale of the Residue Land be increased beyond what was obtained in the agreement with Eldamos.

The Councils response

[61]

Ms Hollings QC, for the Council, argued that the Councils contractual

obligations with respect to the sale of the Residue Land and the making of the Grant to the Trust had been discharged by the performance of those obligations. She pointed to the express terms of the Umbrella Agreement referring to the sale of the Residue Land (clauses 4.1, 5.1(a), and 5.3) references to the net sale proceeds (clause 5.2) and the best sale price in clause 6.1. [62] As to payment of the Grant, Ms Hollings pointed to references in the

agreement to the Project Pacific Grant in clauses 4.1, 4.1(a), 5.1(b), 5.2, 5.3, 5.4 and in the definition of Project Pacific Grant itself, in clause 1.1:
Project Pacific Grant means the Grant for the amount provided in clause 5.2

[63]

Then she referred to clause 5.2 (in its original form) in its entirety. She

argued that although the clause contemplated subdivision of the Residue Land before sale, it did not envisage successive sales of the same land. [64] She further argued that clause 4.1(a) showed that the parties intended that the

Councils obligations would apply in respect of only one sale and one Grant. Under clause 4.1(a) the sale of the land, the payment of the Grant and the grant of the lease were all conditional upon the Trust obtaining, from other sources, funding which when added to the Grant would be sufficient (in the opinion of the Council, the Trust and the Trusts architect and quantity surveyor) to carry out Stage One of the development. Ms Hollings argued that if a re-sale consequent on the exercise of the buy-back were also to be taken into account the mechanism in clause 4.1(a) for ascertaining whether the funding was sufficient would become unworkable.

[65]

These arguments based on the text of the Umbrella Agreement were bolstered

by reference to the background facts. In that respect, Ms Hollings underlined that when the parties entered into the Umbrella Agreement in 2001 the buy-back option had not even been discussed. The option was not incorporated in the Umbrella Agreement itself, but was included only in the special conditions of sale approved by the Council for the sale of the Residue Land to Eldamos in 2003. At the time the Umbrella Agreement was executed by the parties, the Council had approved special conditions of sale which were expected to apply and these did not include any buyback clause. Then, contrary to what counsel described as the normal practice of the parties whereby matters agreed between them were carefully documented, the Umbrella Agreement was never amended so as to provide terms which would be applicable to any subsequent re-sale of the land by the Council. This meant, for example, that there was no agreement about what might happen if there were to be a fall in the value of the Residue Land after the Council had bought it back. Counsel also referred to the need that would have arisen, had the Trust been successful in raising all the necessary funding for Stages One and Two of the Project in the community, to address any right of the Trust to a capital gain on the re-sale. The idea that the Trust should simply be able to use such money for its own purposes was said to be contrary to the intentions of the parties. [66] Counsel referred in addition to the fact that the terms and conditions of tender

had referred at (clause 5.9) to the Councils right to re-purchase without any suggestion that the right was to be exercised on behalf of the Trust. [67] Ms Hollings also noted the provisions of clause 5.3 of the Umbrella

Agreement, which provided for payment of the Grant upon completion of the sale of the Residue Land. She pointed out that once the land had been sold to Eldamos, the Grant was in fact paid by the Council. Then, she submitted it was significant that in the variation to the Umbrella Agreement, executed in November 2004, the parties had recorded that the sale of the Residue Land has since been settled. Plainly, that document was executed well after the buy-back option had been included in the terms of sale.

[68]

In summary, the Councils obligations to sell the Residue Land, together with

any preliminary consultation with the Trust that was required before that step took place (so as to agree the terms and conditions upon which the land was sold) had been fulfilled. So also had the Councils obligation to pay the Grant. These

obligations had been discharged by performance and it could not be said that the Council had an obligation to re-perform them. [69] Ms Hollings argued next that there was no general fiduciary relationship

between the parties. It was unnecessary for her to deal with such a relationship based on agency or partnership, because the Trust specifically disavowed that its relationship with the Council could be properly characterised in either way. As to the suggestion that there was a joint venture, Ms Hollings referred to Paper Reclaim Ltd v Aotearoa International Ltd [2007] 3 NZLR 169 and Amaltal Corporation v Maruha Corporation [2007] 3 NZLR 192 and submitted that a relationship may be described as a joint venture without giving rise to particular fiduciary obligations. Moreover, in the present case, the Council was entitled to rely on clause 11.1 of the Umbrella Agreement:
Nothing expressed or implied in this Agreement shall constitute either party as the partner, agent, employee or officer of, or as a joint venturer with, the other party and neither party shall make any contrary representation to any other person.

[70]

Counsel also referred to and relied on clause 11.2 of the Umbrella

Agreement, which provided as follows:


Entire Arrangement This Agreement records the entire arrangement between the parties relating to the matters dealt with in this agreement, and supersedes all previous arrangements, whether written, oral or both, relating to such matters.

[71]

Ms Hollings acknowledged that the exclusion of a general fiduciary

relationship did not rule out the possibility of there being more limited particular fiduciary obligations, but submitted nevertheless that none arose on the present facts. She noted that with respect to the sale of the Residue Land the Council had been able to evaluate tenders by reference not just to price, but also to the Councils own strategic, financial, civic, social and planning objectives. Ms Hollings argued also

that the obligation in clause 6.2(c) requiring compatibility of uses showed that maximisation of the price obtained for the land was not the overriding consideration and that, properly construed, the Umbrella Agreement did not contain any obligation on the Council to maximise that price. Ms Hollings also pointed out that clause 6.2(c) did not refer solely to the exclusion of incompatible uses, but also to limiting them. Consequently, at least some incompatibility with the Trusts development arising from developments on the Residue Land was within the contemplation of the parties. On the other hand, Ms Hollings pointed out that given the interest of the Council in the success of the Trusts objective, there was no conflict likely to arise between the Council and the Trust in any event. [72] Turning to the buy-back option clause itself, Ms Hollings emphasised that it

was contained in the contractual documents between the Council and Eldamos, and not in any agreement between the Trust and the Council. She submitted that there was no evidential basis for the submission advanced on behalf of the Trust that the parties had agreed to include the buy-back option as a mechanism which, if triggered and exercised, would result to their joint benefit in an even better price being achieved than on the initial sale. [73] Further, Ms Hollings underlined that in the terms and conditions of tender,

the obligation of the purchaser to complete the development, and to submit its proposal for the approval of the Council and the Trust were expressly stated (clause 5.8(e)) to be obligations for the benefit of both the Trust and the Council, and subject to enforcement by either of them. By contrast, the immediately following clause, containing the buy-back option, was not expressed to be for the benefit of the Trust. Counsel submitted that this feature of the drafting underlined the fact that the buyback provision had been inserted for the benefit of the Council alone. [74] Ms Hollings also submitted that the fact that the clause provided for the Trust

to enforce the Purchasers obligations under clauses 5.7 and 5.8 was inconsistent with the Trusts stance that it was entitled to repose trust in the Council. [75] Even if the Court were to decide that some aspects of the relationship

between the parties were such that the Council owed fiduciary obligations,

Ms Hollings pointed out that the Council had owned the land long before the Trust was incorporated. It now owned the land because it had exercised the buy-back option using its own money for that purpose. It was not a case in which property had been acquired by the Council as a fiduciary and by virtue of its position as a fiduciary. [76] A further issue raised by Ms Hollings concerned the fact that the Council, on

the evidence, had never committed to the funding of Stage Two of the Project. Stage One had been funded out of the Grant already made by the Council. If the Trusts argument were to succeed, it would effectively be free to decide how the funds were used without any reference to the Council concerning the use to which any further grant would be put. That submission was based on evidence by Mr Loughlin that at its meeting of 26 June 2002, the Council had requested that the Trust carry out a review of the viability of Stage Two of the development and present that to the Council for its consideration before any further commitment would be made by the Council for the development of Stage Two. [77] For these various reasons, Ms Hollings submitted that none of the

declarations sought by the Trust should be made. In the event that the Court was not disposed to accede to the Councils argument in its entirety, she contended that the only fiduciary duty that could arise would be in relation to ensuring that in relation to any use of the Residue Land, once re-sold, would be compatible with the Trusts development. In that respect, she argued that the Council had not breached and was not in conflict with such a duty. A conflict was in fact unlikely to arise because of the Councils own interests in ensuring that the Trusts development succeeds. Further, she argued that the Council would in any event have an obligation to consider compatibility arising out of its duties to consult and comply with consultation provisions under the Local Government Act, as well as the encumbrance to which the Residue Land remained subject. The duty could not include an obligation to provide the proceeds of re-sale to the Trust because that would be contrary to the agreement and would enable the Trust to obtain a benefit in the absence of the clearly intended controls to which the original Grant had been subject.

Discussion

[78]

In Paper Reclaim Ltd v Aotearoa International Ltd [2007] 3 NZLR 169

Blanchard J, writing for the Court, said at [31]:


To style a contractual relationship as a joint venture may be apt to distract. It is a term to be applied with caution. When parties have formed a contract the correct approach is first to decide exactly what they have agreed upon. Only then should the Court consider whether any particular aspect of their agreement gives rise to a relationship which can properly be characterised as fiduciary, imposing an obligation of loyalty on one or both parties, which supplements the express or implied contractual terms.

[79]

Later in that paragraph, Blanchard J observed:


Nor is a relationship fiduciary in nature merely because the parties may be depending upon one another to perform the contract in its terms. That would be true of many commercial contracts which require co-operation. A fiduciary relationship will be found when one party is entitled to repose and does repose trust and confidence in the other. The existence of an agreement, express or implied, to act on behalf of another and thus to put the interests of the other before ones own is a frequent manifestation of a situation in which fiduciary obligations are owed. Partners are the classic example of parties in that situation. Their position is different from that of parties to a contract who may have to co-operate but are doing so for their separate advantages.

[80]

In Chirnside v Fay [2006] 1 NZLR 433 Tipping J, giving the reasons for

judgment of both himself and Blanchard J observed, at [93]


joint ventures, like partnerships, can generally be brought to an end by appropriate notice. The previous joint venturers must, however, still act equitably towards each other in the steps necessary to bring the affairs of the joint venture to a conclusion which is fair to all concerned. The further the joint venture has progressed the more complex those obligations may be. Once the venture becomes contractual the contract will normally govern what is to happen on the termination of the venture or the withdrawal of a party from it. In the absence of contractual regulation, equitable principles will supply the solution.

[81]

In presenting the Trusts submissions in reply, Ms OGorman made it clear

that the Trusts reliance on cases involving joint ventures was merely to illustrate that fiduciary duties may arise where there is a common objective. Here, the

argument that there was such a common objective arose on the terms of the Umbrella Agreement itself.

[82]

That clarification was useful and avoids issues that might have arisen were

the Trust to have asserted directly that the parties were in a joint venture. The difficulties standing in the way of that assertion were manifest in view of the wording of clause 11.1, which I have set out earlier. [83] The extracts from Paper Reclaim Ltd and Chirnside v Fay quoted above

show that where the parties are in a contractual relationship the terms of the contract must be the first consideration in ascertaining what their obligations are. In the case of the obligations which the parties assumed under the Umbrella Agreement, it is plain that there was here a common objective which may broadly be described as the successful achievement of the development of the land leased by the Council to the Trust for the purposes of Project Pacific. A subsidiary, but no less real common objective was that of ensuring the compatible development of the Residue Land. [84] It was recorded, as Recital E to the Umbrella Agreement, that the Council

had agreed to assist the Trust to establish a multi-purpose complex on the land which was to be leased to the Trust. Apart from that provision there was no express provision of the Umbrella Agreement by which the Council undertook to facilitate the achievement of the objectives. Nevertheless that was clearly the intention of the parties. [85] Clause 6.1 of the Umbrella Agreement states that the parties shall confer and

agree the method of marketing the Residue Land in order to achieve the best sale price. There is some merit in Ms Hollings submission that the best sale price was all along qualified by the obligation amongst other things to include limitations or exclusions as to the use to which the Residue Land could be put by any purchaser. It seems implicit that such arrangement at least theoretically could have reduced the price that might otherwise have been obtained for the land had it been sold free of restriction. To that extent, economic considerations were made subordinate to the key land use objectives of the parties. [86] However, that fact does not suggest that the Council was free to pursue or

prefer its own interests to those of the Trust under the Agreement. In my view, the contrary is the case. The fact that the best sale price was always going to be one

which recognised the implications of the compatible use provisions simply underlines the importance of the success of the Project and the important role that development of the adjacent Residue Land might have in that regard. [87] In the circumstances, the obligation shared by both parties to confer, and

agree the method of marketing the Residue Land, in order to achieve the best sale price, were obligations central to the agreement. The loose language of the clause (it is in fact an agreement to agree) does not detract from that proposition. Rather, it suggests that in respect of the sale of the Residue Land, and the fulfilment of the conditions leading up to its sale and payment of the Grant, the Trust was entitled to repose trust and confidence in the Council and rely on its loyal performance of the obligations so that the common objectives would be achieved. In terms of [31] of Paper Reclaim Ltd, set out above, the parties here were not simply contractors obliged to co-operate for their separate advantages. In fact, on the central aspects of the arrangements I consider that there was no real distinction between the objectives of both parties. As was said by Tipping J in Chirnside v Fay, at [91], a relationship of trust and confidence can arise where parties are depending on each other to make progress towards the common objective. Further:
Each party is then proceeding on the basis that he or she is acting in the interests of all or both parties involved in the arrangement or understanding. A relationship of trust and confidence thereby arises; each party is entitled to expect from the others loyalty to the joint cause, loose as the formalities of the joint venture may still be.

[88]

As the latter part of that passage shows, Tipping J was there discussing

circumstances where a joint venture has arisen at a pre-contractual stage. However, I see no reason why a similar approach should not be taken on the basis of contractual terms, provided that to do so is not contrary to the terms of the contract. Such course may, indeed, be necessary where what appears to be a key contractual obligation, such as clause 6.1, is couched in language that might make it difficult to enforce. To determine that a fiduciary duty arises to comply with the evident common objectives of the parties is not to reach a conclusion contrary to the terms of the contract; in fact the reverse is true.

[89]

I do not consider that that conclusion is rendered unavailable by clause 11.1

of the Umbrella Agreement. That provision has been quoted earlier. It seems to focus on the label that should be put on the relationship between the parties. As the Supreme Court observed in Amaltal Corporation v Marua Corporation [2007] 3 NZLR 192 at [20] (echoing Paper Reclaim Ltd at [31]) the label of joint venture can be unhelpful as a guide to whether the parties owe fiduciary obligations to each other and however the overall relationship is described, some of the obligations assumed by the parties may attract fiduciary obligations. [90] It is correct, as Ms Hollings submitted, that the parties apparently did not

contemplate that it might be necessary for the Council to buy the land back when the Umbrella Agreement was executed in May 2001. It was only in the terms and conditions of tender, which were later incorporated into the agreement with Eldamos, that provision was made for the Council buy-back. The fact that there was no provision in those terms to the effect that the Councils right was enforceable by the Trust, is explicable on the basis that it would not have been contemplated by the parties at the time that the Trust would be in a position to fund the repurchase of the Residue Land. The fact that it made an offer to purchase the land in its solicitors letter of 30 August 2007 does not alter the position. [91] Nor do I consider that a conclusion that the Council remains subject to

fiduciary duties in respect of the common objectives would be contrary to clause 11.2 of the Umbrella Agreement which has also earlier been set out. As

Ms OGorman pointed out for the Trust, the agreement is only entire in respect of matters dealt with in the agreement. If a matter has not been dealt with in the agreement, fiduciary duties may arise in relation to them, to supplement the agreement, unless it can be said that that conclusion would be contrary to some express or implied contractual term. The rule is that stated by Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 97:
The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.

[92]

Although Mason Js judgment was a minority one, it was regarded as

authoritative by the Supreme Court in Amaltal Corporation (at [21]). I do not consider that any inconsistency with the terms of the Umbrella Agreement would arise from holding that the Council had a fiduciary obligation in respect of the advancement of the common objectives that I have identified. Such a conclusion derives support from other features of the arrangements between the parties, including the very concessionary nature of the multi-purpose complex lease, the provision of the Grant by the Council and the joint obligations assumed under clause 6. [93] However, I consider Ms Hollings was correct to submit that the Council has

discharged its contractual obligations in respect of the initial sale of the Residue Land. On the evidence, the parties conferred and agreed on the method of marketing that land in order to achieve the best sale price. There was provision, by virtue of the terms and conditions of tender, of a kind which complied with the compatibility provisions in clause 6.2(c). Further, the Council paid the Grant in accordance with clause 4.1 of the agreement, the conditions set out in that clause having been met. [94] I do not consider that the singular references to the sale, the sale price,

and the Grant in the Umbrella Agreement are decisive. However, I accept that that drafting is consistent with the Trusts argument. Of more importance are

considerations arising from the nature of the overall arrangements entered into by the parties, as recorded in the Umbrella Agreement, and the absence of any provision in it for making a top up or further payment in the event of a re-sale of the Residue Land. That in turn reflects the fact that the buy-back provision was not a feature of the Umbrella Agreement and only arose when the terms and conditions of tender were drafted. The Umbrella Agreement itself was never amended to make provision for the buy-back. [95] When clause 5.9 of the terms and conditions of tender is read in context, I

consider that it is significant that there is no provision to the effect that the right is one which is enforceable by the Trust. By contrast, those provisions obliging the purchaser to complete (clause 5.7) and to submit a master plan for the approval of

the Council and the Trust (clause 5.8) were subject, as has been seen, to a provision which provided that either the Council or the Trust was entitled to enforce them. [96] I consider it likely that if the parties had intended an obligation on the

Council to make a further grant, that would have been included by means of a variation to the Umbrella Agreement, as happened from time to time in respect of matters apparently of less significance. That could have been attended to at the time of the sale to Eldamos when the provision was made for the buy-back. Added to these considerations, there is no suggestion in the Umbrella Agreement that the Trust would have ongoing resort to the Council for funding by means of any further payment, derived from whatever source. Indeed, a number of provisions in the agreement indicate a degree of cost consciousness on the Councils part which perhaps reflects the controversy in the public realm about the wisdom of its commitment to the Project. [97] In this respect, I mention clause 2.3 of the Umbrella Agreement (limiting the

extent of the Councils guarantee of borrowings by the Trust (clause 2.3); stipulations that money raised by the Trust should be applied first in retiring a debt which had been incurred by Project Pacific Ltd (clause 2.4(a)); and the provisions of clause 4.1 making the payment of the Grant conditional on the Trust raising sufficient money to satisfy the Council that the Project was financially viable in addition to the sums likely to be made available by the sale of the Residue Land. [98] It is to be noted that in the second variation of the Umbrella Agreement,

dated 2 November 2004 the recitals simply record that the sale of the Residue Land had been settled. As has been seen, the Agreement provided for an amendment to clause 5.2 by which the words Project Pacific and were removed from the last line of the provision. There was no wider change such as might have been made had the parties then contemplated that the Trust would be entitled to further money from the Council as a consequence of exercise of the buy-back option in the terms and conditions of tender. [99] Ms OGorman submitted that the fact that the clause, as varied, still referred

to a process by which the amount of the Grant could be calculated rather than

referring to what by then had actually been received from Eldamos as the purchase price is consistent with there being a further grant at some future stage. However, I doubt that has the significance which she asserted. It was more likely simply the result of a drafting decision to confine the changes from the original agreement to the substantive alterations agreed by the parties. In this case the desire was to remove reference to the costs of the Project as an item able to be deducted in calculating the Grant. The change to the wording did all that was necessary, and the balance of the wording was simply left intact. [100] Neither does it matter that the overall relationship between the parties may not be a joint venture; there may still be particular aspects of the agreement of the parties which give rise to fiduciary obligations. Such a proposition was described as well settled by the Supreme Court in Amaltal at [21], referring to the decision of the Privy Council in New Zealand Netherlands Society Oranje Inc v Kuys [1973] 2 NZLR 163 at 166 and referring also to the judgment of Mason J, which I have earlier mentioned, in Hospital Products Ltd v United States Surgical Corporation. In the latter, Mason J observed at 98:
[The plaintiffs] capacity to make decisions and take action in some matters by reference to its own interests is inconsistent with the existence of a general fiduciary relationship. However, it does not exclude the existence of a more limited fiduciary relationship for it is well settled that a person may be a fiduciary in some activities but not in others

[101] I consider that the present is such a case. I have earlier described what I regard as the common objectives of the parties. With respect to those common objectives, I have concluded that the Council had fiduciary duties. In the

circumstances, where such duties apply, it does not matter that a particular obligation was previously contained in a contractual provision which has been performed. I refer in this respect to what was said by Blanchard and Tipping JJ in Chirnside v Fay at [93]:
Once the venture becomes contractual the contract will normally govern what is to happen on the termination of the venture or the withdrawal of a party from it. In the absence of contractual regulation, equitable principles will supply the solution.

[102] The contract here is silent about what should happen given a re-sale of the Residue Land. However, it is clear that some of the obligations that the Council has already performed were intended to result in a continuing state of affairs. I am referring here in particular to the obligations contained in clauses 6.2(c) and 6.3. With respect to those obligations, it ought not to be an answer that the Council has performed them in the circumstances that it has now bought back the land to which the obligations related. A situation where one party has performed its contractual obligations but those obligations were designed to bring about a state of affairs which would continue to exist to the mutual benefit of both parties seems to me very apt to attract an ongoing fiduciary obligation. In the contractual setting, whilst it may be true that a party has performed its contractual obligations, the value of that performance might be greatly reduced if, regarding itself as discharged from those contractual duties, it then took action which was inimical to the achievement of the joint objectives of the parties. [103] That is the situation here, with respect to the obligation that the Council assumed to ensure that, on the sale of the Residue Land, any development of it would be compatible with the development of Project Pacific, and exclude or limit uses by purchasers that detracted from it. While I accept that there is presently no indication that the Council intends to embark on a course contrary to the shared objectives, the position for which it has argued would entitle it to do so. countenance that would potentially defeat the joint objectives of the parties. [104] This conclusion is underlined by the fact that the parties provided for an encumbrance to be registered on the title to the Residue Land, ensuring that the compatibility provisions were complied with. Ms Hollings pointed to the fact that the encumbrance was still there. However, since the Council currently owns the land, if its argument on this part of the case were accepted, it would be free to remove the encumbrance. The Trust was not a party to it, and the duties assumed by Eldamos as the encumbrancer were only to the Council. [105] It is apt to refer again in this setting to what was said by the Supreme Court in Amaltal at [21]: To

It is well settled that, even in a commercial relationship of a generally nonfiduciary kind, there may be aspects which engage fiduciary obligations of loyalty. That is because in the nature of that particular aspect of the relationship one party is entitled to rely upon the other, not just for adherence to contractual arrangements between them, but also for loyal performance of some function which the latter has either agreed to perform for the other or for both or has, perhaps less formally, even by conduct, assumed.

[106] In my view, the notion of loyal performance can appropriately embrace maintenance of the position brought about by the prior performance of a contractual obligation, even if in that passage the Supreme Court may not have been contemplating a case such as the present. Here I consider that it is appropriate to require ongoing recognition by the Council of the state of affairs that the aspects of clause 6 to which I have referred were designed to ensure. It would be disloyal for the Council, in future, to act in a manner that was contrary to the objectives sought when it performed its contractual obligations under the Umbrella Agreement. [107] Putting the matter in that way also points to the resolution of the other principal issue on which the parties disagree. As discussed, it was the Trusts argument that one of the fiduciary duties owed by the Council to the Trust was to hold any net sale proceeds of the sale of Residue Land on trust as falling within the Project Pacific Grant and therefore beneficially payable to the Trust. Linked to that was a further obligation to maximise the Trusts interests when undertaking the re-sale of the Residue Land, so as to ensure that the proceeds of sale were maximised. The second of these duties would obviously not arise if the Council did not have the first. [108] I do not consider that the Council has the first of those fiduciary duties. I say that, for a number of reasons. First, although they are not conclusive, I accept Ms Hollings submissions based upon the text of the Umbrella Agreement itself. The textual pointers include not only the singular references to the sale, and the sale price, but also the absence of any provision for the buy-back option itself, or what should be the consequences of its exercise by the Council. [109] Second, and of more consequence, are considerations arising from the nature of the contractual obligations that the Council assumed. Under the Umbrella

Agreement, the Councils obligation was to provide the Grant to the Trust in accordance with clause 5.3. It was to be paid to the Trust upon completion of the sale of the Residue Land (clause 5.3). Those events have plainly occurred. The Trust has received the Grant and that has enabled it to complete Stage One of the Project. [110] Unlike the position that applies in the case of the compatible use provisions (and those provisions which are related to them) it cannot be said that requiring the Council to account to the Trust for any greater amount that it achieves on the re-sale of the land (compared with the price obtained from Eldamos) would be in accordance with any obligation of loyalty. It needs to be remembered that not only has the Council paid the Grant, but it has now had to outlay the equivalent amount (adjusted rateably for the reduced area) for the re-purchase of the Residue Land. It has assumed all the risks consequent upon that process. There is in the

circumstances nothing unjust about allowing the Council to retain what greater purchase price it might achieve as a consequence, and to apply the proceeds of sale for its own purposes. [111] Nor can it be said that allowing that to occur would be contrary to the joint objectives of the parties. The Trusts argument to the contrary has an unattractive element of circularity. It is only if the objectives of the parties are defined as being, from the outset, that the Trust should benefit from any increased purchase price obtained on a re-sale that its argument can be sustained. Yet the Trust is in effect seeking to secure a benefit that might never have arisen. If Eldamos had complied with the deadlines to which it was subject, with the result that the buy-back never occurred, the Trust could not have advanced its present argument. In the

circumstances, I do not see how the Court could conclude that by retaining for its own use the proceeds of re-sale, the Council would be acting in any way to the detriment of the achievement of the joint objectives of the parties as expressed in the contractual arrangements between them. [112] Further, retention by the Council of the proceeds of the re-sale would not detract in any way from the consequences of the Councils previous performance of its obligations under the Umbrella Agreement. This is the key distinction between

the obligations which the Trust seeks to assert in relation to use of the proceeds of resale, and those which relate to compatible use. Allowing the Council to retain the proceeds does not in fact, or potentially, defeat anything achieved to this point. Allowing the Council a free hand in respect of the use of the Residue Land would be in a different category. [113] It is worth referring in this context to the Privy Councils decision in Clark Boyce v Mouat [1993] 3 NZLR 641. Lord Jauncey of Tullechettle delivered the judgment of the Privy Council. He discussed, at 648, the fiduciary duties of

solicitors to clients, giving as one instance where such a duty arose cases where a solicitor acts for a client in a matter in which the solicitor has a personal interest. The solicitor is obliged in those circumstances to disclose the personal interest and, in the case of failure to do so, the transaction is likely to be set aside at the instance of the client. [114] Later at 648, Lord Jauncey observed:
Another case of breach is where a solicitor acts for both parties to a transaction without disclosing this to one of them or where having disclosed it he fails, unbeknown to one party, to disclose to that party material facts relative to the other party of which he is aware. A fiduciary duty concerns disclosure of material facts in a situation where the fiduciary has either a personal interest in the matter to which the facts are material or acts for another party who has such an interest. It cannot be prayed in aid to enlarge the scope of contractual duties. Thus, there being no contractual duty on Mr Boyce to advise Mrs Mouat on the wisdom of entering into the transaction, she cannot claim that he nevertheless owed her a fiduciary duty to give that advice.

[115] Those observations related in particular to the fiduciary duty of disclosure. However, they encapsulate a principle that can be of more general application. In essence, acceptance of the Trusts contentions as to the proceeds of re-sale would result in a significant enlargement of the contractual duties assumed by the Council. That would be unfair. [116] Analysing the situation in this way underlines the difference between the alleged duty in relation to use of the proceeds of re-sale and the duty which I have accepted in relation to compatible use of the Residue Land. The former would be

new;

the latter, simply a requirement that the Council not resile from the

consequences of the contractual obligations that it initially assumed. [117] For these reasons, I would hold that the Council does not have the fiduciary obligations concerning use of the money obtained on the re-sale of the Residue Land for which the Trust contended.

Constructive Trust

[118] The Trusts argument for a constructive trust was based on the assertion that it would be inequitable for the Council to retain the proceeds of re-sale for its own use. Mr Cavanagh referred in his argument on this part of the case to a decision of Fogarty J in Orongomai Reserve Ltd v Cashmere Lakes Reserve Ltd & Another (HC CH CIV 2005-409-2171, 28 February 2008). In that case, Fogarty J said at [20]:
the Court must judge whether the particular facts found make it inequitable for the defendant to act in a particular way, so that relief should be granted to restrain that conduct or remedy the consequences of it.

[119] Fogarty J also referred to Banner Homes Group Plc v Luff Developments Ltd [2000] Ch. 372 in which Chadwick LJ referred to the Pallant v Morgan equity. In Pallant v Morgan [1953] Ch. 43 the defendant sought to keep for himself property which the plaintiff trusted him to buy for both. It was held that the defendant was not entitled to retain the property as that would amount to a fraud on his part having regard to the agreement that had been reached prior to an auction of the land. Harman J held that the land had been bought on behalf of both the plaintiff and the defendant and was subsequently to be held by the defendant on trust for himself and the plaintiff jointly. In Banner Homes, Chadwick LJ said, at 400:
The Pallant v Morgan equity does not seek to give effect to the parties bargain, still less to make for them some bargain which they have not themselves made, as the cases to which I have referred make clear. The equity is invoked where the defendant has acquired property in circumstances where it would be inequitable to allow him to treat it as his own; and where, because it would be inequitable to allow him to treat the property as his own, it is necessary to impose on him the obligations of a trustee in relation to it.

[120] The pleaded cause of action based on constructive trust is based on the same facts as the cause of action alleging fiduciary duty. Paragraph 36 of the statement of claim asserts:
In the circumstances, it is unconscionable or contrary to fundamental equitable principles for the defendant to hold the remaining Residue Land purely for the defendants benefit. Particulars (a) (b) Unless remedied, the defendant as a fiduciary would make improper profit from its fiduciary position. Unless remedied, the defendant would be unjustly enriched.

[121] The relief that is then sought is as follows:


WHEREFORE THE PLAINTIFF CLAIMS (a) A declaration that the [sic] any subsequent sale of the Residue Land (or any part of it) following the exercise of the buy-back option by the defendant is subject to a constructive trust in favour of the Trust; and Accordingly, a declaration that any further net proceeds from the sale of the Residue Land to any subsequent purchaser is [sic] beneficially payable to the Trust; and Further, a declaration that the defendant is obliged to confer with the Trust about the method of marketing the Residue Land, and that in undertaking that sale process the defendant is obliged to act in the Trusts best interests in seeking to achieve the outcomes in paragraph 32(b) of the statement of claim; and Costs.

(b)

(c)

(d)

[122] Notwithstanding the potential breadth of the particulars set out in paragraph 36(b) of the statement of claim, Mr Cavanagh conceded in argument that the only way that a constructive trust could be held to arise in the present circumstances would be as a consequence of breach of fiduciary duty. The Trust asserted that the Council had made it plain that unless restrained, it would make an improper profit from its fiduciary position and the Council would be unjustly enriched. [123] I have already rejected the notion that the Council would be unjustly enriched if it were allowed to retain for its own use the proceeds of re-sale of the Residue Land. For the rest, the Trusts arguments under this cause of action were effectively

identical to the reasons advanced in support of its claims based on fiduciary duty. To adopt the language of Chadwick LJ in Banner Homes, I consider that acceding to the Trusts contention on the proceeds of re-sale would be to make a bargain for the parties which they themselves did not make. [124] It was not suggested that any considerations should apply in respect of this cause of action that did not ariseunder the first cause. For that reason, it does not need to be discussed further.

Summary

[125] For the reasons I have given, I hold that the Council has a fiduciary obligation to ensure that on re-sale, there is compliance with the relevant provisions of clause 6 of the Umbrella Agreement. [126] I reject the Trusts claim for a declaration that any further net proceeds from the sale of the Residue Land to a subsequent purchaser is beneficially payable to the Trust. [127] Putting these conclusions into the context of the prayers for relief in the statement of claim I would be prepared to declare that the Council has the fiduciary duties referred to in paragraphs 32(b)(ii), (iii) and (iv), and (c) but on the basis that the reference in (c) to paragraph 32(a) should be to 32(b), and 32(b)(i) should be excluded. I would not be prepared to grant any of the other relief sought by the Trust. [128] There will be a declaration accordingly. If there is any disagreement as to the terms of the appropriate declaration the parties have leave to apply. [129] In the result, each party has succeeded in part. I doubt whether it is appropriate in the circumstances for there to be any award of costs. However, if either of the parties seeks an order for costs, I will receive a memorandum to that effect within fifteen working days. The party or parties against whom costs are sought may respond within fifteen working days after that.