Having agreed collaboration with a neighbouring developer to complete infrastructure works for a Special Housing Area development in west Auckland, Cheng Zhang, Jin Jung and Pill So could not avoid payment simply by selling their interest in the project. The three were ordered to pay over $4.1 million damages to neighbour Northwest Developments, controlled by David Sun.
Subdivision of the 65 hectare Huapai Triangle in west Auckland has been underway since 2013. Mr Zhang together with Mr Jung and wife Ms So were owners of a seven hectare block in one corner of the Triangle. In June 2015, neighbours joined forces in what was described as the ‘Five Owners Agreement’ spelling out shared liability for costs of roading, water reticulation and sewage to be installed for the benefit of both groups of investors. This after the collapse of an earlier agreement which stalled with arguments over the placement of roads and services across the subdivision.
The High Court was told Northwest Developments Ltd, controlled by David Sun, bought out one group of the ‘Five Owners’ investors; Zhang, Jung and So later sold their interest in Huapai Triangle to Sanli Group. Sanli denied liability for any share of infrastructure costs; it had never signed the Five Owners Agreement.
Zhang, Jung and So were ordered to pay. They sold their land to Sanli Group in an unconditional sale, remaining liable to honour the Five Owners Agreement they had signed previously. Damages were calculated in excess of $4.1 million: their share of infrastructure costs ($1.17 million); interest for late payment ($1.65 million); and damages for extra financing costs incurred by Northwest ($1.34 million).
Zhang, Jung and So said a twenty per cent interest rate for late payment written into the Five Owners Agreement was an unenforceable penalty. Twenty per cent was not disproportionate, Justice Gault ruled. It reflected the level of risk in property development plus the need for projects to be progressed and expenditure recovered as quickly as possible. Liability for penalty interest was reciprocal; Zhang, Jung and So could equally have claimed interest at that rate if they had completed the agreed infrastructure work at their cost and similarly had to wait for reimbursement.
Northwest Developments Ltd v. Zhang – High Court (28.05.20)
20.093