Echoes
of a chaotic financial birth for Clearwater Construction’s apartment
development at Thompson Park in Auckland reverberated when Clearwater’s Michael
Sullivan stared down a High Court claim by property developer Brent Clode to a
payout for supposed intellectual property rights in the development.
Justice Palmer was to comment on the
mutual antipathy between Sullivan and Clode which arose early in the Thompson
Park development. The court was told Mr
Sullivan in conjunction with David Jans purchased a 8.2 hectare Mt Wellington
site in 2006 formerly occupied by Mercury Energy. Two years later, Mr Jans invited engineer and
property developer Mr Clode to do some design work for a block of apartments. Mr Clode was bankrupt at the time. Fees charged at $200 per hour were billed by
his consultancy company. Mr Sullivan
exited the project in 2013, taking the view it was not economic. This left Mr Jans working in conjunction with
Mr Clode. Their company Thompson Park
Holdings arranged short-term funding of $3.65 million. They failed to get development funding from
any major trading bank by the time this initial loan fell due. By now, the short-term loan had been onsold
to Dragon Private Capital Ltd and Dragon issued Property Law Act notices in
June 2014 ready to force a mortgagee sale.
Evidence was given that Mr Clode drafted
a Professional Services Agreement which described himself as the owner of intellectual
property in relation to the Thompson Park development including rights to the
concept, drawings, engineering and methodology.
It was backdated to September 2013.
The agreement was signed by Mr Jans on behalf of their development
company Thompson Park and also on behalf of the original Jans/Sullivan joint
venture. Mr Sullivan knew nothing of the
agreement. Mr Jans said in evidence the
agreement was presented to him by Mr Clode as a means of “running interference”
against Dragon in its planned mortgagee sale.
It could be used as negotiating leverage, arguing the existence of a
contractual claim ahead of Dragon’s recoveries.
In a flurry of negotiations prior to Dragon tiggering a mortgagee sale,
Mr Sullivan re-entered the scene with offers of funding to restart the
project. Surprised by the existence of Mr
Clode’s claimed agreement to ownership of the development’s intellectual
property, but with no time to investigate its validity, Mr Sullivan agreed to a
deal in which Mr Clode would get $450,000 cash in two tranches and ownership of
an apartment in the finished complex.
With that agreed, Mr Sullivan’s family trust paid $5.145 million owed
Dragon and re-entered the project. Mr
Clode was paid the first $150,000 of his promised cash. When he began pushing for the balance, Mr
Sullivan questioned the deal.
Justice Palmer ruled Mr Clode had no
intellectual property rights in Thompson Park.
The work done was paid for on commission. He had no copyright in the drawings. Neither did his consultancy company. It was a misrepresentation for Mr Clode to
bargain with Mr Sullivan for payment in return for intellectual property he did
not own. The back-dated Professional Services
Agreement did not prove ownership.
Justice Palmer ruled the agreement for payment in cash plus an apartment
was void because of the misprepresentation.
Mr Clode was ordered to repay the $150,000 already received.
Clode
v. Sullivan – High Court (8.07.16)
16.107