Property developer Tony Gapes was ordered to pay $286,200 damages to civil engineers Dempsey Wood after his Springpark development in Auckland collapsed. It was a breach of the Fair Trading Act to say there was funding available for ongoing work when in fact there wasn’t.
Gapes Redwood Group started its Mt Wellington residential project in 2014 after achieving pre-sales of some $60 million from homeowners buying off the plan. Within a year, delays and cost overruns had the development in serious trouble. Initial funders put the project into receivership. A replacement thirty million dollar financing facility from Singapore-based Koi Structured Credit saw the project re-started.
Dempsey Wood Civil Ltd had a $5.3 million Springpark contract for civil works, later increased by some two million dollars for approved variations. The High Court was told Dempsey was very pro-active in getting progress payments. Koi Credit’s funds were held in a lawyer’s trust account, released monthly against contractors’ invoices. Dempsey was in the habit of threatening to ‘down tools’ unless scheduled payments were received on time.
The Koi Credit facility expired in October 2015. Never the less it ran on, while Mr Gapes searched desperately for replacement finance. Against this background, Dempsey sought confirmation it would be paid for further work if it stayed on the job. Dempsey was unaware Koi had issued a Property Law Act notice to protect its position should refinancing be unsuccessful and it became necessary to sell the unfinished development.
In mid-November, Mr Gapes forwarded an email to Dempsey Wood confirming funds from Koi were held by lawyers in a dedicated project account ‘earmarked for civils and consultants.’ Within weeks, Koi appointed receivers. Pre-sale agreements were cancelled, making sale of the unfinished project more attractive since a new financier could re-sell the proposed terraced homes and apartments to new buyers at a higher price. Koi Credit sold the unfinished project to Wilshire Group for $25 million, leaving Koi with a loss. Meanwhile, funds in the lawyer’s Springpark project account earmarked for contractors were returned to Koi Credit.
The likelihood of ongoing funding being available to contractors was quite different from that conveyed by Mr Gapes’ November email, Justice Fitzgerald said. While Mr Gapes may have been optimistic that Koi would continue to support the project until refinancing was complete, there was no firm commitment from Koi Credit. Without Mr Gapes’ assurance that funding was safe, Dempsey Wood would have walked off the job. It invoiced $314,600 for work done between the date of Mr Gapes’ assurance and the date work stopped three weeks later on receivership. Dempsey Wood was awarded damages of $286,200 for Mr Gapes misleading statement. Damages were calculated on costs incurred by Dempsey Wood; its invoiced price less its profit margin.
Dempsey Wood Civil Ltd v. Gapes – High Court (10.09.21)
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