Antipodean Supermarkets Limited v Charter Hall Retail Management Limited HC Auckland CIV 2010-404-3765

[2010] NZHC 1598

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-3765

BETWEEN  ANTIPODEAN SUPERMARKETS LIMITED

Plaintiff

ANDCHARTER HALL RETAIL MANAGEMENT LIMITED First Defendant

ANDPERPETUAL LIMITED Second Defendant

Hearing:         13 August 2010

Counsel:         MA Gilbert SC for Plaintiff

W Akel and GN Allen for Defendants

Judgment:      26 August 2010

JUDGMENT OF RODNEY HANSEN J

This judgment was delivered by me on 26 August 2010 at 11.00 a.m., pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………………….

Solicitors:           Gilbert Walker, P O Box 1595, Shortland Street, Auckland 1140 for Plaintiff

Simpson Grierson, Private Bag 92518, Auckland 1141 for Defendant

ANTIPODEAN SUPERMARKETS LIMITED V CHARTER HALL RETAIL MANAGEMENT LIMITED AND ANOR HC AK CIV-2010-404-3765  26 August 2010

Introduction

[1]      The plaintiff (Antipodean) and the defendants are parties to a deed which regulates the basis on which they hold as tenants-in-common and manage a portfolio of commercial properties in New Zealand.  As a result of a change in the legal and beneficial ownership of shares in the first defendant, Antipodean had the option of acquiring  the  defendants’  interest  in  the  properties  at  a  price  to  be  fixed  in accordance with a valuation formula in the deed.  It has exercised that option.

[2]      There is disagreement as to the way in which the valuation should be carried out.    Antipodean  seeks  a  declaration  giving  effect  to  its  interpretation  of  the applicable contractual provisions.  The defendants say that the differences between the parties are a valuation issue and ask that the claim be struck out.  Alternatively, if the issue is justiciable, the defendants seek a declaration supporting their interpretation of the deed.

Further background

[3]      The   first   defendant   was   formerly   named   Macquarie   Countrywide Management Limited.   It was a party to the deed in its capacity as trustee of the Macquarie Countrywide (NZ) Trust (Macquarie Trust).   The second defendant (Perpetual) was custodian for the Macquarie Trust.   I will henceforth refer to the defendants together as the Macquarie Trust.

[4]      In  March  2010  the  Charter  Hall  Group  assumed  effective  control  of Macquarie Countrywide Management Limited.   Under the deed neither party was entitled to dispose of its interest in the properties without the other party’s express written consent (save in limited circumstances that do not apply).  A change in the legal or beneficial ownership of a party’s shares was deemed to be a disposal for the purpose of the deed.   Antipodean did not consent to the change of control.   This constituted an admitted breach of the deed entitling Antipodean to give notice terminating the deed.  It duly gave notice of termination.

[5]      As  the  terminating  party,  Antipodean  exercised  the  option  it  had  under cl 15.2 of the deed requiring Macquarie Trust to sell it “all (but not part) of its Interest in the Properties”.  Clause 15.2, which also provided for the way in which the price should be fixed, reads:

Consequences of Termination: Within twenty (20) Business Days after termination of this Deed under clause 15.1 the Terminating Party may serve notice on the Other Party requiring it to sell to the Terminating Party all (but not part) of its Interest in the Properties.  The purchase price for the Other Party’s Interest in the Properties will be at a value to be agreed or failing agreement at a fair value determined by an independent person to be nominated by the President for the time being of the Valuers Institute of New Zealand.

[6]      “Interest in the Properties” is defined in cl 1.1 of the deed as follows:

Interest(s) in the Properties means concerning each Party all that Party’s interests in the properties, all that Party’s rights or obligations under this Deed and all claims that Party has or may have against the other Party.

[7]      Antipodean contends that the fair value of Macquarie Trust’s “Interest in the Properties” requires an assessment of the fair value of their half interest in the portfolio of properties as a whole and subject to the terms and conditions of the deed.

[8]      Macquarie  Trust’s  position  is  that  the  fair  value  of  its  “Interest  in  the Properties” is  to  be assessed  by valuing each  of  the  properties  in  the  portfolio individually and dividing the sum of their values by two.

Interpretation of valuation provisions

[9]      Although argument initially focussed on cl 15.2 of the deed, it became clear in the course of the hearing that the critical differences between the parties have more to do with their respective interpretations of “Interest in the Properties”.

[10]     There is no disagreement that cl 15.2 requires a fair value to be determined or what is meant by fair value.[1]   It is the composition of the property to be valued that is in dispute.  Antipodean says it is Macquarie Trust’s “Interest in the Properties” as

defined in the deed of co-ownership, valued as a whole and subject to its rights and obligations under the deed.   Macquarie Trust says it is its half interest in the real estate co-owned by the parties, which should be valued by simply aggregating and then halving the fair value of each property in the portfolio.

[1] Both counsel referred me to the judgment of the Court of Appeal in Re James Davern Ltd (1996) PRNZ 456 at 459.  Mr Akel also relied on the definition in 4.3 of the Australia and New Zealand Valuation and Property Standards 2009.

[11]     I begin with the definition of “Interest in the Properties” which, by cl 15.2, is what is being bought and sold and valued.   Three separate property interests are identified:

a)        Interests in the properties.

b)        Rights or obligations under the deed. c)           Claims against the other party.

[12]     “Properties”  is  separately  defined  in  the  deed  as  the  properties  listed  in schedules  to the  deed  and  any property subsequently acquired.    They comprise mainly estates in fee simple but include one leasehold estate and one stratum title.

[13]     Mr Akel’s position is that the only property interest which is relevant to the assessment of fair value is the first.   He submitted that “the rights or obligations under the deed” are neutral and are of no consequence as far as a fair value is concerned and that claims against the other party can be ignored as there is no suggestion that either party has a claim against the other.

[14]     I am not persuaded that the second and third interests referred to in the definition can be disposed of so easily.   Rights and obligations are not neutral.   I cannot assume that neither party has a claim against the other.  In my view, both are interests to which the valuer must be asked to ascribe a value under cl 15.2.  I agree with Mr Gilbert that there is no justification for ignoring parts of the agreement that define what must be valued.  The parties must have intended that the whole of the definition of “Interest in the Properties” would be given effect; no parts of it can be

regarded as mere surplusage.[2]    Whether the identified interests have a value is an issue for the valuer; it can have no bearing on the interpretation of the deed.

[2] “The construction of a document as a whole necessarily involves giving effect to each part of it in relation to all other parts of it.   Accordingly, as a corollary of the principle that a contract must be construed as a whole, effect must be given to each part of the document. This in  turn  means that,  in  general, each part  of  the  document is  taken to  have  been deliberately inserted, having regard to all other parts of the document, with the result that there is a presumption against redundant words (usually called surplusage)”: Kim Lewison The Interpretation of Contracts (4th ed, Sweet & Maxwell, London, 2007) at 248.

[15]     I  also  agree  with  Mr  Gilbert  that  what  is  fundamentally  in  issue  is  the distinction between the value of a co-ownership interest and the value of the underlying assets.  The parties do not simply have interests as tenants-in-common in each of the properties in the portfolio.   The proprietary rights of the parties are subject to the terms of the deed.   The interest which Antipodean has the right to acquire, and which must be valued for the purpose, is the interest of the Macquarie Trust under the deed.  That is not equivalent to its interest as a tenant-in-common in the assets owned and managed by the parties under the deed.

[16]   Mr Akel submitted that the interpretation advocated by Antipodean is inconsistent with other provisions of the deed and contrary to the ideal, expressed in cl 20 of the deed, that the intention of the parties was that the deed “will operate between them with fairness and without detriment to any of their interests”.  It was implicit, and at times explicit, in his argument that the defendants would be unfairly disadvantaged by a valuation carried out strictly on the terms set out in the deed.  He said:

An assessment of the defendants’ interest in the “Portfolio of Properties” does not equate with the fair value of the defendants’ actual interest in the individual Properties.

[17]     There is nothing before me which would enable me to reach any conclusion as to where the competing approaches to valuation might lead.   But, even if there were, it could have no bearing on the interpretation exercise I am asked to carry out. The parties must be presumed to intend what they agreed.

[18]     What they agreed provided for quite different bases for the disposal of their interests depending on the events which triggered disposal.  A voluntary decision to

sell brought pre-emptive provisions into play.   Any party wishing to transfer or otherwise dispose of “all of its Interests in the Properties” could give a transfer notice specifying the price and terms on which it was prepared to sell its interest. The other party could purchase the interest at the price and on the terms stipulated in the transfer notice.   Otherwise, the proposing transferor could sell its interest to a third party at a price not less than, and on terms and conditions no better than, those set out in the transfer notice.

[19]     Any sale to a third party would be subject to the restrictions in cl 12 which include a requirement that only the whole of the interest held by the proposed transferor could be sold.  The express written consent of the other party is required for any disposal which could only be made to a third party who would agree to become bound by the terms of the deed.  In the result, both parties would have an unfettered discretion to reject any replacement co-owner.  Any party wishing to exit could do so only with consent and by disposing of its entire “Interest in the Properties” to a third party prepared to be bound by the terms of the deed.  The non- exiting party had the opportunity to buy the exiting party’s Interest in the Properties at the price at which a third party prepared to be bound by the terms of the lease would pay or any lesser price stipulated by the proposed transferor.

[20]     The deed provided for termination by agreement, for breach, in cases of deadlock and where one party acquired the Interest in the Properties held by the other.     The  consequences  of  termination  varied  according  to  the  basis  for termination.  If the parties terminated the deed by agreement or there was a deadlock, there could be a sale of the assets and the division of the net proceeds.  If the deed were terminated for breach, the innocent party could either require the other party to sell (as has occurred) or the assets would be sold and the net proceeds divided.

[21]     Whether or not these outcomes are fair or unfair is not the issue.  They were agreed.   There is no inconsistency or incompatibility between them.   They do not lead  to  absurdity.     On  the  contrary,  all  appear  to  conform  to  conventional commercial objectives.  The scheme of the deed is consistent with an interpretation which gives effect to all elements of the definition of “Interest in the Properties”.

[22]     Mr Akel further argued that, as Antipodean had given notice terminating the deed, the only rights and obligations surviving would have negligible impact for valuation purposes.   This submission prompted Mr Gilbert to seek a further declaration specifying the rights and obligations to which the valuer should be required to ascribe a value under cl 15.2.  He submitted that, for this purpose, the rights and obligations are those which applied immediately prior to termination.

[23]     In order to consider this aspect of the argument, it is necessary to set out clauses 14 and 15 of the deed in full:

14       TERM AND TERMINATION

14.1Term:  This Deed will have effect from the Commencement Date and will remain in effect (subject to termination rights specified in this Deed) until the earlier of the following events:

(a)      Agreed Termination:  an agreement on termination by the

Parties;

(b)Disposal of Interest:  the Interest in the Properties held by one Party has been disposed of to the other Party; or

(c)      Deadlock:  clause 22.5 applies.

14.2Obligations to Survive:   Notwithstanding the termination of this Deed or that either Party may cease to hold any Interest in the Properties either Party will continue to be bound to observe and perform this Deed’s provisions which expressly or by implication survive termination or cessation including without limitation the provisions of clause 19 (confidentiality).

14.3Final Distribution:  On termination of this Deed all the assets will be sold and the proceeds, after sale and payment of all expenses and amounts owing will be distributed between the Parties according to their Percentage Interest.

15.      TERMINATION

15.1General:  Notwithstanding the provisions in clause 14 either Party (Terminating Party) may, in addition to all other rights available to it, terminate this Deed by not less than twenty (20) Business Days written  notice  to  the  other  party  (Other  Party)  on  any  of  the following events happening:

(a)       Breach:   if the Other Party materially breaches or fails to perform any of its obligations under this Deed and fails to remedy the breach within twenty (20) Business Days, or such longer period as may reasonably be required in the circumstances but not more than sixty (60) Business Days,

after  receiving  written  notice  requiring  the  breach  to  be remedied; or

(b)Insolvency, etc:  if an Insolvency Event occurs concerning the Other Party or a company which is a Related Company of the Other Party,

but, notwithstanding the above, either Party may, in addition to all other rights available to it, terminate this Deed by not less than five (5) Business Days written notice to the other party on any breach by the other Party of the disposal provisions in clause 12 and this Deed will terminate on expiry of that notice if the breach is not remedied prior to expiry of that notice.

15.2Consequences of Termination:  Within twenty (20) Business Days after termination of this Deed under clause 15.1 the Terminating Party may serve notice on the Other Party requiring it to sell to the Terminating Party all (but not part) of its Interest in the Properties. The purchase price for the Other Party’s Interest in the Properties will be at a value to be agreed or failing agreement at a fair value determined by an independent person to be nominated by the President for the time being of the Valuers Institute of New Zealand.

15.3Party’s Obligations on Termination:  On termination of this Deed by a Terminating Party, under clause 15.1 the Other Party:

(a)       Documents, Leases, Financial Records and Confidential Material:  will immediately return or ensure the return of all documents, leases, data, projections, forecasts, accounts, financial statements or records in whatever form, about the Business.

(b)Intellectual  Property,  etc:    will  immediately  return  or ensure the return of any designs, drawings, manufacturing instructions,   trade   secrets,   know-how   and   intellectual property rights in respect of the Properties;

(c)       No  Disclosure:     will  not  disclose  to  any  person  any information in its possession, custody or control, about the Business; and

(d)No Holding Out:  will not, at any time after it has ceased to hold any Interest in the Properties, promote or cause to allow itself or any company associated with it to be promoted as being associated with the Properties.

15.4Obligations to Survive:   Termination of this Deed will not affect the Parties’ rights and obligations which are intended to survive the termination.  The termination will be without prejudice to, and will not be deemed a waiver of, any claims which either Party may have against the other Party for any breach or other failure to comply with any term or condition of this Deed before the termination date.

[24]     There is agreement that the deed has been terminated under cl 15.1.   As a result, the deed will have ceased to remain in effect.  The provisions of cl 14.1 which would otherwise operate are expressly made subject to termination rights specified in the deed and cl 15.1 itself applies “Notwithstanding the provisions in clause 14...”.

[25]     On termination the obligations in cl 15.3 are immediately triggered.  These are obviously among the rights and obligations which survive termination under cl

15.4.  They will also include the rights and obligations in cl 15.2 itself.  Clause 14.2, which is not incompatible with cl 15.3, gives further guidance, specifying that extensive confidentiality obligations set out in cl 19 shall also survive.  By necessary implication, any rights and obligations which are not intended to survive termination will be extinguished.

[26]     It would appear to follow that the rights and obligations to be valued under cl 15.2 will be only those rights and obligations which survive termination.  Notice under cl 15.2 is given after the deed has been terminated under cl 15.1.   Once the deed has been terminated, the parties are bound only by those rights and obligations under the deed which survive termination.  There is no logical reason why rights and obligations which have been extinguished on termination should be treated as surviving for the purpose of valuation.

[27]     Mr Akel’s submission on this point succeeds.  I make no finding, however, on  his  further  argument  that  the  surviving  rights  and  obligations  will  have  a negligible impact for valuation purposes.  That is not an issue of interpretation.  It is a matter for the valuer.

Declarations

[28]     Antipodean is entitled to declarations.  There clearly is a justiciable issue as to  the  correct  interpretation  of  cl  15.2  and  the  definition  of  “Interest  in  the Properties”.  Macquarie Trust’s application to strike out must fail.

[29]     At the conclusion of the hearing I granted Mr Gilbert leave to amend the terms of the declaration sought by Antipodean to conform to the terms of the deed.

The relief pleaded, as set out in [7] above did not accurately reflect the relevant provisions of the deed.

[30]     The rights and obligations referred to in the definition of “Interest in the Properties”  are  those  that  survived  termination.    I  will  not  attempt  to  specify precisely what those rights and obligations are as argument before me was directed to the general question of whether, for present purposes, they were the rights and obligations which existed immediately prior to termination or those which survived it.

Relief

[31]     I make declarations:

a)       The purchase price of the defendants’ “Interest in the Properties” is the fair value of the defendants’ interest in the properties (as defined in the deed), their rights or obligations under the deed and all claims they have or may have against the plaintiff.

b)The  rights  or  obligations  referred  to  in  (a)  are  those  rights  or obligations which survived termination.

[32]     The plaintiff is entitled to costs.   If the parties are unable to agree, I will consider memoranda, filed by the plaintiff within 14 days and the defendants within a further 14 days.