Blakeman v General Distributors Limited
[2014] NZHC 2169
•9 September 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-1322 [2014] NZHC 2169
UNDER The Declaratory Judgments Act 1908 IN THE MATTER OF
a Deed of Sublease
IN THE MATTER OF
an Application for summary judgment
BETWEEN
IAN THOMAS HAMILTON BLAKEMAN AND CRAIG MAURICE JOHNSTON
Plaintiffs
AND
GENERAL DISTRIBUTORS LIMITED Defendant
Hearing: 26 August 2014 Counsel:
N S Gedye QC and R C Mark for the Plaintiffs
M R Crotty and M Eastwick-Field for DefendantJudgment:
9 September 2014
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The plaintiffs are the two trustees of the Blakeman Trust. For convenient reference, I will refer to them collectively in this judgment as “the Trust”.
[2] In December 1994 the Trust took a lease of some land in Paihia. The intention was to build a supermarket on the land, and the Trust duly set about developing the land for that purpose. On 1 September 2003 the Trust entered into a sublease with the defendant (GDL), and GDL now operates a Countdown supermarket on the land.
[3] The Trust’s head lease is due to expire on 6 December 2014. It gives the headlessor an option on expiry – it can either give notice in writing to the Trust one
month before expiry that it wishes to purchase the improvements or, if it does not
IAN THOMAS HAMILTON BLAKEMAN AND CRAIG MAURICE JOHNSTON v GENERAL DISTRIBUTORS LIMITED [2014] NZHC 2169 [9 September 2014]
give that notice, it is required to grant the Trust a new lease. The effect of that provision is that the Trust may not know until 6 November 2014 whether it will have any further rights as lessee of the land after 6 December 2014.
[4] The sublease given by the Trust to GDL was for a term of 10 years commencing 27 August 2001. There was one right of renewal, for a term of approximately two years and eleven months, and that right was exercised by GDL. The sublease provides for a final expiry date of 1 August 2014.
[5] GDL wishes to continue to operate the supermarket on the land. Clearly it will not be able to do that if the Trust is not granted a renewal of the headlease (or a new headlease) in December 2014, or if the Trust does not purchase the land. But if one of those situations does arise, GDL says that it is entitled to a right of first refusal on a new sublease of the land (or a new lease if the Trust has bought the land). It relies on a clause in the sublease which it says requires the Trust to offer it a new sublease (or new lease) in those circumstances.
[6] The clause in the sublease on which GDL relies is cl 2.4. Briefly, the clause provides that if the Trust has purchased the freehold of the land, or if it is granted a new headlease or the renewal of the headlease, then, if GDL is not in breach of the sublease and gives six months’ notice in writing, the Trust will offer GDL a new sublease (or lease as the case may be).
[7] The six months’ notice which GDL had to give the Trust under cl 2.4 had to be given at least six calendar months prior to the expiry of the renewed term of the sublease on 1 August 2014. The notice had to advise GDL’s “desire to take a new lease or sublease of the premises”.
[8] GDL sent such a notice, in time, on 20 January 2014. There is no issue over the form of the notice, but the Trust says that no circumstances had then arisen which entitled GDL to give the notice.
[9] The Trust says that GDL had no right to give notice under cl 2.4 at a time
when none of the “trigger events” for the cl 2.4 right of first refusal had occurred: on
20 January 2014, when GDL sent its notice, the Trust had not purchased the freehold or been granted a new or renewed head lease. The Trust also says that it cannot be obliged to offer GDL a right of first refusal on a new lease or sublease after 1 August
2014, when the sublease came to an end.
[10] The Trust applies for declarations that GDL has not validly exercised any rights under cl 2.4, and that GDL has no extant rights under that clause. The Trust also asks for a declaration that it is entitled to immediate vacant possession of the land.
[11] GDL says that it was entitled to give notice under cl 2.4 when it did, notwithstanding that no trigger event had by then occurred. It then says that the effect of it giving the notice was that if it was still unknown on 1 August 2014 whether the Trust would purchase the freehold or be granted a new or renewed head lease, the sublease would remain on foot, on the existing terms, until
6 December 2014.
[12] The Trust believes that GDL has no defence to its claims, and it applies for summary judgment. That procedure is appropriate only in clear cases, where it is apparent from the affidavits and the parties’ submissions that the defendant has no reasonably arguable defence. It is not usually appropriate for determination of disputed issues of fact,1 or where the determination of a disputed issue requires
consideration of all of the evidence, which will only be available at trial.2
The sublease
[13] Clause 2.3 provided for one right of renewal on expiry of the original term on
27 August 2011. The right was for a period of two years 338 days, “to the intent that
1 High Court Rules, r 12.2(1); Pemberton v Chappell [1987] 1 NZLR 1 (CA).
2 See E & E Developments Ltd v Housing New Zealand Ltd & Anor [2012] NZCA 7, for an instance of the Court of Appeal concluding that an issue over the interpretation of certain provisions in a lease was unsuitable for determination on a summary judgment application, as the background evidence surrounding the making of the contract was too sparse. The Court of Appeal considered that the trial court, hearing all of the evidence, would be in a better position to determine which of the competing interpretation arguments made better sense.
the sublease shall finally expire, if the right of renewal is exercised on 1 August
2014.”3 As noted above, the renewal right was exercised by GDL. [14] Clause 2.4 provides:
Right of First Refusal to New Lease
If the Sub-Lessor has purchased the freehold of the Land or if the Sub- Lessor is granted a new Head Lease or a renewal of the Head Lease then if the Sub-Lessee is not in breach of this Sub-Lease and shall give notice in writing to the Sub-Lessor at least six calendar months prior to the expiry of the renewed term of this Sub-Lease on 1 August 2014 of the Sub-Lessee’s desire to take a new lease or sub-lease of the Premises, then (provided the Land is utilised for retail) the Sub-Lessor will offer to the Sub-Lessee a new lease or sub-lease of the Premises for the term and at the rental and upon such other terms and conditions as shall be stipulated by the Sub-Lessor by notice in writing to the Sub-Lessee. If the Sub-Lessee shall not have accepted the Sub-Lessor’s terms conditions and rental in writing within 30 days after receipt of the Sub-Lessor’s notice the Sub-Lessor shall be at liberty to lease or sub-lease the Premises to any other person upon the same terms and conditions upon which the same were previously offered to the Sub-Lessee. The Sub-Lessor shall not be entitled to lease or sub-lease the Land to any other person on any conditions other than those specified in the first mentioned notice without first giving to the Sub-Lessee a further notice in writing specifying the terms and conditions pertaining to the proposed lease or sub-lease whereupon the provisions of this clause shall apply mutatis mutandis to any alteration of the conditions specified in any such further notice or notices.
AND in the event of the Sub-Lessee exercising its right to lease or sub-lease as aforesaid the Sub-Lessor will do all such things, obtain all such consents and execute all such deeds and documents as shall be necessary to enable it to grant a new lease or sub-lease to the Sub-Lessee.
[15] Clause 12.18 of the sublease provides that the provisions of the head lease are deemed to be incorporated in the sublease as if set out in full, and as if the Trust and GDL were respectively the head lessor and the head lessee under the head lease. In the event of inconsistency, the provisions of the sublease are to prevail over the provisions of the head lease.
[16] Clause 1.3 of the sublease contains an “entire agreement” clause, in the
following terms:
Merger of Implied Terms
3 Sublease, cl 2.3 and First Schedule, Item 6.
Except as may be provided in a written agreement to lease or otherwise specified herein this document embodies the entire understanding and the whole agreement between the parties and any previous representations warranties arrangements and statements whether expressed or implied with reference to the subject matter of this Lease are merged herein.
The head lease
[17] The head lease commenced on 7 December 1994.
[18] The Trust has a right of first refusal to purchase the land if at any time during the term the head lessor desires to sell. But the Trust does not have anything in the nature of a right, or option, to purchase.
[19] Under cl 3(i), the head lessor has the right to purchase all the improvements on the land at the end of the term. If it wishes to do that, it must give notice in writing to the Trust at least one calendar month (time being of the essence) before
6 December 2014. In the event that the head lessor does not signify its intention to purchase the improvements in accordance with the clause, the head lessor will be obliged to grant to the Trust a new lease on the same terms and conditions as those contained in the head lease.
The issues to be determined
(1) Was GDL entitled to give notice under cl 2.4 before 1 February 2014,
when no cl 2.4 “trigger event” had occurred by that date?
(2)On the true interpretation of the sublease, is the final expiry date “1 August 2014” in Item 6 of the First Schedule to be read (as GDL submits):
1 August 2014 other than where notice has been given under cl 2.4. and the parties do not know by 1 August 2014 whether or not the Trust will purchase the freehold or be granted a renewed head lease, in which case the expiry date will be 6 December 2014.
(3) Alternatively, is the sublease to be read, again in accordance with
GDL’s submission, as including the following implied term:
If GDL has given notice under cl 2.4 but the parties do not know by
1 August 2014 whether or not the Trust will purchase the freehold or be granted a new or renewed headlease, the Trust is required to allow
GDL to hold the sublease over on existing terms until
6 December 2014.
(4) Is the Trust entitled to immediate possession of the land?
Issues 1 and 2: Was GDL entitled to give notice under cl 2.4 before
1 February 2014, when no cl 2.4 “trigger event” had occurred by that date? Is the final expiry date in Item 6 of the First Schedule to be read as GDL contends?
[20] It will be convenient to deal with these two issues together.
[21] As a preliminary matter, I note that it is common ground that none of the trigger events (acquisition of the land by the Trust, or the granting of a renewed head lease to the Trust) had occurred before 1 February 2014.
Interpretation of written contracts – general principles
[22] As the Court of Appeal noted in Trustees Executors Ltd v QBE Insurance (International) Ltd,4 the approach to contractual interpretation in New Zealand is based on principles set out in Investors Compensation Scheme Ltd v West Bromwich Building Society,5 as applied by the New Zealand Court of Appeal in Boat Park Ltd v Hutchinson.6 The principles were later reviewed by the Supreme Court in Vector Gas v Bay of Plenty Energy Ltd.7
[23] In Trustees Executors Ltd, the Court of Appeal derived the following interpretation principles from Vector Gas:8
(a) The language the parties have used must be read in the context of the document as a whole and the surrounding circumstances.
4 Trustees Executors Ltd v QBE Insurance (International) Ltd [2010] NZCA 608.
5 Investors Compensations Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HC).
6 Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA).
7 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5; [2010] 2 NZLR 444.
8 Trustees Executors Ltd v QBE Insurance (International) Ltd, above n 4, at [32].
(b)The wider background and circumstances in which the contract was made should always be considered: there is no need for any ambiguity or other interpretive difficulty for the Court to take background circumstances into account.
(c) Evidence of background circumstances is not admissible if it does no more than tend to prove what individual parties subjectively intended or understood their words to mean, or to prove what a party’s negotiating stance might have been at a particular time.
(d)While it usually makes sense to start with the words of the contract, and then move to the context of the contract before considering the wider background and circumstances, there is no presumption in favour of ordinary meaning. A meaning which on its face (and devoid of any external context) is plain and unambiguous, may not ultimately be what the parties intended when considered against all relevant circumstances.
[24] To that summary, I think the following may be added. The essential exercise is to ascertain the meaning which the document would convey to a reasonable person having all the background knowledge available to the parties in the situation in which they were at the time of making the contract. While the plain meaning of a contractual provision may be departed from, the plain meaning must be such that the parties cannot sensibly be taken to have agreed to it: something must have gone
wrong with the language.9 The Court may consider the reasonableness of results
when choosing between rival interpretations, however caution is needed if a construction contended for would amount to a substantial re-writing of the contract. For example, if parties have chosen in their contract specific criteria to satisfy their commercial objective, it is not for the Courts to substitute different criteria, not stated in the contract, on the grounds that the different criteria would satisfy the
commercial objective equally well or better.10
9 Burrows, Finn and Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington,
2012), at [6.22].
10 Yoshimoto v Canterbury Gold International Ltd [2002] UKPC 40; [2004] 1 NZLR 1.
The parties’ submissions
The Trust
[25] The Trust says that cl 2.4 was only intended to operate should the Trust and the head lessor have entered into renewal or purchase arrangements on or before
1 Feburary 2014. Mr Gedye QC for the Trust submitted that GDL could not give notice just in case one of the trigger event conditions might happen to be satisfied at some future time: that interpretation would be lacking in certainty, and would be unenforceable. The purported notice of 20 January 2014 was therefore invalid. No valid notice having been given in accordance with cl 2.4, GDL can have no extant rights under the subclause.
[26] Mr Gedye submitted that the wording of the sublease as it affects final expiry is clear and unambiguous: GDL’s rights did not extend beyond 1 August 2014. He pointed to the fundamental nature of commencement and expiry dates in leases, as they go to the definition of the extent of the lessee’s interest in the land. Unless an expiry date is ambiguous, it is not amenable to interference by the Court under the
guise of contract interpretation. 11
[27] Mr Gedye emphasised that both parties knew that the sublease would expire
(at the latest) on 1 August 2014 and the head lease would expire on
6 December 2014. They were aware of that disconnection in the two expiry dates, yet GDL did not require any term in the sublease to bridge the gap. They were also both aware that the Trust had no right to purchase the land from the head lessor, nor any right to call for a renewal of the head lease. In Mr Gedye’s submission, the lack of any purchase right held by the Trust at expiry of the head lease shows that cl 2.4 was not linked specifically with or limited to events occurring between the head lessor and the Trust in December 2014.
[28] Mr Gedye submitted that GDL could not succeed unless it established that the parties intended that GDL should enjoy the cl 2.4 right following expiry of the lease, and despite the non-satisfaction of the cl 2.4 conditions. In his submission, it is not
possible to hold that such an intention existed, given that a reasonable and credible
11 Citing Yoshimoto v Canterbury Gold International Ltd, above n 10.
alternative intention is ascertainable which is consistent with the express words of the sublease. That credible alternative solution is that the Trust deliberately decided to preserve for itself all options prior to the expiry of the head lease, and in particular the option not to be bound to offer any further sublease to GDL once the sublease had expired. The Trust wanted to have freedom of choice at the end of the sublease. If all of the prescribed conditions in cl 2.4 had been fulfilled by 1 February 2014, the clause could have operated quite satisfactorily: it gave GDL rights only during the stated term of the sublease, and subject to giving six months’ notice.
GDL
[29] For GDL, Mr Crotty pointed out that one of the cl 2.4 trigger events is the Trust being granted a renewal of the head lease. Neither party would have contemplated any renewal of the head lease being granted before the end of the head lease term on 6 December 2014 (or possibly on 6 November 2014 in the event of the head lessor not having given notice by that date of its desire to purchase the improvements). In those circumstances the reference to head lease renewal as a trigger event in cl 2.4 would be redundant if the Trust’s interpretation were correct. An interpretation which gives effect to all of the words used in cl 2.4, including the reference to a renewal of the head lease, is to be preferred.
[30] Mr Crotty submitted that the requirement to give six months’ notice before the expiry of the sublease term on 1 August 2014 was intended only to give the Trust certainty on the question of whether GDL would want a new lease or sublease if the other requirements of cl 2.4 were met. The time for assessing whether GDL has a right of first refusal under cl 2.4 is at the time the sublease comes to an end.
[31] In support of the latter submission, Mr Crotty pointed to the requirement in cl
2.4 that GDL should not be in breach of the sublease. It could not have been the intention of the parties that the Trust would be obliged to offer GDL a new lease or sublease in circumstances where GDL may have been in breach of the sublease after
1 February 2014 and before the sublease expired.
[32] On the meaning of the 1 August final expiry date, Mr Crotty submitted that, in the absence of any express reference in the sublease to a specific period during
which the Trust was obliged to offer a new lease or sublease to GDL, the Trust’s obligations under cl 2.4 continue for so long as the sublease remains on foot. The key issue, then, is when the sublease comes to an end.
[33] GDL says that the Court’s task is to give effect to the parties’ commercial intentions, and that in the circumstances which have arisen, the intention to grant valuable rights to GDL under cl 2.4 can only be given effect if the sublease does not expire on 1 August 2014. If the final expiry date of the sublease is read as being extended in the manner for which GDL contends, the later expiry date will allow time for the parties to ascertain whether the Trust is to be granted a new or renewed head lease (which will be known by 6 November 2014 at latest). And if the Trust is to be granted a new or renewed head lease, and is therefore obliged to offer a new sublease to GDL, the extended sublease final expiry date allows for the 30 day period under cl 2.4 for GDL to accept or decline the Trust’s offer.
[34] GDL relies on Technix Group Ltd v Fitzroy Engineering Group Ltd for the proposition that the Court should not be constrained in its ability to give effect to the parties’ (objective) commercial intention by the words used in the sublease.12
Discussion and conclusion
[35] I accept Mr Gedye’s submission that the final expiry date as set out in the sublease is clear and unambiguous: absent any agreed holding over, the sublease was to come to an end on 1 August 2014.
[36] The sublease was a significant commercial transaction, and it appears that particular attention was given to the selection of the final expiry date. In item 6, First Schedule to the sublease, the term of the right of renewal was expressed as being “three (3) years 338 days… TO THE INTENT that the sublease shall finally
expire, if the right of renewal is exercised on 1 August 2014.”13
12 Technix Group Ltd v Fitzroy Engineering Group Ltd [2011] NZCA 17.
13 The parties accept that the reference to “three (3)” years is an error, and should read “two (2)”
years.
[37] While a clause providing for a right of renewal for a three year period might have been unremarkable, adopting a period as precise as two years and 338 days can only have served to highlight the provision, and the fact that the final expiry date was being “brought forward” to 1 August 2014.
[38] The parties were also aware when they signed the sublease that the head lease would expire on 6 December 2014, and that it was entirely possible that the Trust would not know by the date of final expiry of the sublease if its tenure of the land would continue beyond 6 December (under a renewed head lease). Notwithstanding that knowledge, the parties made no provision in the sublease for GDL to continue in occupation after 1 August 2014 until it was known whether the head lessor would
grant a renewal of the head lease. (The “holding over” clause in the sublease14
cannot be pressed into service in support of GDL’s argument, because it required the
agreement of both parties, and the Trust has not agreed to any holding over.15)
[39] The “disconnection” between the two expiry dates, and the absence of any holding over entitlement for GDL (if the parties intended that cl 2.4 could still be in play at the expiry of the sublease if a trigger event had not occurred by then), would have been obvious to the parties when they signed the sublease. It would have been equally obvious that there would need to be some provision made for GDL to remain in possession after 1 August 2014 until it was known whether it would be granted a new lease or sublease by the Trust: it would not have made commercial sense for GDL to be required to vacate the premises immediately on 1 August 2014 (and
remove its partitions, additions and signage within one month after that date)16 while
there remained a possibility that it would be entitled to return to occupy the premises a few months later.
14 Clause 2.2.
15 Nor is there any apparent linkage between the three months’ notice to terminate which the clause requires, and the disconnection between the 1 August 2014 final expiry date of the sublease and the 6 December 2014 expiry date of the head lease. If it had been intended that the “holding over” clause would be used to cover the interim period between 1 August and 6 December 2014, when would the Trust give notice if a trigger event could happen as late as November or
December 2014? It could not be after 6 September 2014, because three months’ notice had to be
given, and the Trust had no entitlement under the head lease to allow GDL to remain in possession beyond the expiry of the head lease term. And there would be little point in any notice being issued before the Trust knew whether the head lessor would grant a renewal of the head lease, which might not be until 6 November 2014).
16 Sublease, cl 5.8
[40] The absence of any express provision for GDL to “hold over” after
1 August 2014 until it became clear whether or not there would be a renewal of the head lease, suggests one of two things – either the parties intended that there should be some sort of holding over, but omitted to make provision for that right in the sublease, or the parties did not intend there to be any right of first refusal under cl 2.4 after the sublease expired on 1 August 2014. Subject to considering the wording of cl 2.4 itself, the very obviousness of the issue, coupled with the absence of any express holding over provision, might be thought to suggest the latter intention.
[41] A second important aspect of the factual matrix, is that both parties knew that GDL would be operating a supermarket on the land. The nature of such an operation was aptly described by Mr Walker, the General Manager, Property, for GDL’s parent company, in the following terms:
[12] A supermarket is a complex operation involving a huge number of staff, contractors and suppliers. A significant amount of money is involved in fitting out new supermarket premises (or upgrading existing fit out), vacating supermarket premises and/or transferring supermarket operations to alternative sites. There is also a huge amount of associated disruption for our employees, contractors and suppliers and, in a town like Paihia where the majority of residents and tourists shop at Countdown, to the community in general. Securing certainty of tenure is therefore of crucial importance for GDL.
[42] It might be thought that anyone running such a business would be unlikely to enter into a lease or sublease on terms which might require it to vacate the premises on only one month’s prior notice (as would be the case if GDL’s interpretation of cl
2.4 were correct and the head lessor elected on 6 November 2014 to purchase the improvements and thereby bring the head lease to an end one month later).
[43] It seems to me that those are the relevant background matters, against which cl 2.4 is to be construed. Mr Crotty did raise the possibility that further background material which could assist the Court in interpreting the sublease might become available at trial, but he was unable to point to any particular aspect of the background which might shed further light on the interpretation questions. In those circumstances I am not disposed to take the course adopted by the Court of Appeal in
E & E Developments,17 and allow the interpretation issue to stand over to trial. This is not a situation where further relevant material might become available to GDL on discovery: to be relevant to the interpretation issues, any background, or matrix, evidence would have to be concerned with matters known to both parties when the contract was made.18
[44] Turning to cl 2.4 itself, it seems to me that the critical question is what “then” means in the second line of the clause. If the word was intended to be construed in a temporal sense, so that the events referred to before the word appears in the clause had to have happened before the events referred to immediately after the word, the Trust must succeed: on that interpretation, no notice could be given by GDL unless a trigger event had occurred before the notice was sent. The alternative interpretation would appear to require “then” being read as “and”, so that all of the requirements set out in the first five lines of cl 2.4 would be read as necessary prerequisites to GDL’s entitlement to be offered a sublease under the clause, but (apart from the giving of notice by the sublessee) none would have to occur before any other. That alternative interpretation would have allowed GDL to issue its notice of desire to take a new lease or sublease, as it did, before either party knew whether the Trust would be in a position to grant a new lease or sublease.
[45] It seems to me that the temporal interpretation of “then” is the correct one. The use of the structure “If…then if…” tends to suggest that the draftsperson was going through particular steps, the first of which had to be in place before one moved to the next. I think that impression is reinforced by the use of the words “and shall give notice…” in the third line of the clause. If the parties had intended that a trigger event might occur after the giving of the notice, one would have expected the draftsperson to have used the expression “…and shall have given notice…”.
[46] GDL says that the reference to renewal as a trigger event points against that construction of cl 2.4, because the parties knew that it was likely that renewal would not occur until late 2014, after the final expiry date of the sublease. That may have
been the perceived likelihood when the sublease was signed, but I do not think it
17 E & E Developments Ltd v Housing New Zealand Ltd & Anor, above n 2.
18 Yandina Investments Ltd v ANZ National Bank Ltd [2013] NZCA 469 at [54].
provides any answer to the interpretation issue when considered in the context of the final expiry date of 1 August 2014 being repeated in cl 2.4 itself, and the possibility that the Trust might have secured a renewal of the head lease before
1 February 2014, or might have purchased the land by that date.
[47] Different tenses are used in cl 2.4 when referring to the two trigger events - “has purchased” in respect of the acquisition of the freehold by the Trust, and “is granted” in respect of the grant of a new or renewed head lease. But I do not think that can be read as a pointer to a construction under which a renewal of the head lease in November or December 2014 could constitute a valid trigger event. The words “has purchased” seem more apt to describe an event which has occurred before the sublessee’s notice is sent, or at least before the expiry of the sublease, and it is not apparent why any different interpretation should be adopted if the particular trigger event happens to be head lease renewal.
[48] GDL then submits that the requirement in cl 2.4 that it not be in breach of the sublease is consistent with the various cl 2.4 prerequisites for the offer of a new lease or sublease (apart from the giving of the sublessee’s notice of desire) being assessed at the end of the sublease term. But the words “is not in breach of this sub-lease” appear in cl 2.4 immediately before the words “and shall give notice in writing to the sub-lessor at least 6 calendar months prior to the expiry of the renewed term of this sub-lease on 1 August 2014”, and in my view the juxtaposition of the two requirements within the clause suggests that “not being in breach” was only intended to be a prerequisite to GDL’s entitlement to issue the notice.
[49] And if a trigger event could occur at any time before 1 August 2014, with the notice which GDL was required to serve before 1 February 2014 serving merely as preliminary advice of its position if a trigger event should occur after that date, it would have to be accepted that GDL intended to contract on the basis that it might not know until (say) late July 2014 whether or not it would have any right of occupation beyond 1 August 2014. I think that interpretation would produce a result that would flout commercial common sense.
[50] In the end, while the drafting of cl 2.4 is clearly imperfect, I think the better view is that either trigger event (purchase of the freehold or granting of a head lease renewal) had to have occurred before GDL issued its notice of desire under cl 2.4.
[51] It seems to me that that interpretation is consistent with the commercial reality of this situation. Both parties needed to know where they stood well before the final expiry of the sublease on 1 August 2014, and the interpretation which I adopt recognises that commercial reality. If no trigger event had occurred by
1 February 2014, GDL knew that it had six months to relocate its supermarket. And if a trigger event had occurred by 1 February 2014, there would be a reasonable period for the parties to work through the “offer with pre-emptive rights” process described in the latter part of cl 2.4, before the sublease came to an end.
[52] GDL says that the Court’s overriding task is to give effect to the parties’ commercial intentions, and that the Court should not be constrained in its ability to do that by the words used in the sublease. It further submits that the “valuable rights” conferred on it by cl 2.4 can only be given effect if the sublease did not expire on 1 August 2014. But in this case the plain meaning of the expiry provisions was that the sublease would finally expire on 1 August 2014, and I do not think it is possible to say that “something must have gone wrong with the language” used in the sublease. A perfectly workable interpretation of cl 2.4 is available which does not require the alteration or qualification of a provision of the sublease as important as its final expiry date.
[53] Finally, the Technix case does not assist GDL. That was a case in which the Court of Appeal decided that the ordinary meaning of particular words used in a lease had to be modified to accord with the meaning the parties intended their words to bear, and to result in an interpretation which did not flout commercial common sense. That is not the situation here; I am satisfied that the interpretation which I have adopted conforms with both the parties’ intentions and commercial common sense.
[54] For the reasons which I have set out I am satisfied that a reasonable person, having the background knowledge available to the parties at the time they entered
into the sublease, would conclude that any cl 2.4 trigger event had to occur before 1
February 2014, and that the sublease would come to an end, in accordance with its clear terms, on 1 August 2014. I accordingly conclude that GDL was not entitled to issue the notice of desire to take a new lease or sublease that it issued on 20 January
2014. That conclusion is sufficient to dispose of the matter in the Trust’s favour, as GDL can have no extant rights under cl 2.4 in the absence of a valid notice of desire to take a new lease or sublease.
Issue 3: an implied term?
[55] GDL submits that the following term should be implied in the sublease:
If GDL has given notice under cl 2.4 but the parties do not know by 1
August 2014 whether or not the Trust will purchase the freehold or be granted a new or renewed head lease, the Trust is required to allow GDL to
hold the sublease over on existing terms until 6 December 2014.
[56] In BP Refinery (Westernport) Pty Ltd v Shire of Hastings, Simon L J stated the following conditions (which may overlap) for the courts to imply a term in a contract. 19 The term:
(a) Must be reasonable and equitable
(b)Must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it
(c) It must be so obvious that “it goes without saying”
(d) It must be capable of clear expression
(e) It must not contradict any express term of the contract.
[57] In Attorney General of Belize & Ors v Belize Telecom Ltd & Anor, the Privy Council considered that list to be best regarded not as a series of independent tests, but as a collection of different ways in which judges have tried to express the central
idea that the proposed implied term must spell out what the contract actually means,
19 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-283.
or in which they have explained why they did not think that it did so.20 The Court has no power to improve upon the contract, but is concerned only to discover what it means as a whole. In every case in which it is said that some provision ought to be implied into a contract, the question is whether such a provision would spell out in express words what the contract, read against the relevant background, would reasonably be understood to mean. It is not necessary that the need for the implied term should be immediately apparent, as the need not infrequently arises when the draftsperson has omitted to make express provision sought for some event because he or she has not fully thought through the contingencies which might arise.
[58] Whether one applies the five BP Refinery conditions or the broader approach adopted in Attorney General of Belize, there is no basis for the implication of the term which GDL proposes in this case. Adopting the broader approach in Attorney General of Belize, it seems to me that the proposed term would spell out something quite different from what the relevant parts of the sublease actually mean. And applying the BP Refinery conditions, the proposed term is neither necessary to give business efficacy to the contract nor so obvious that “it goes without saying”. I accept the Trust’s submission that the provision for the final expiry of the sublease was a fundamental term, going to the very definition of GDL’s interest in the land. That provision being clear and unambiguous there is no basis for the implication of the term which GDL proposes.
[59] There are also practical difficulties with the implied term that GDL proposes. If the Trust were required to allow GDL to hold the sublease over on existing terms until 6 December 2014, how would the provision in cl 5.8 of the sublease (sublessee allowed a period of up to one month following expiry to remove partitions, signs, alterations, or additions installed by it) be accommodated? If the head lessor elected on 6 November 2014 to acquire the improvements and terminate the head lease, the Trust would be unable to give GDL the required time after 6 December to carry out
the removal work.
20 Attorney General of Belize & Ors v Belize Telecom Ltd & Anor [2009] UKPC 10; [2009] 1 WLR
1988 at 1995.
[60] But that is detail. In the end, the argument for an implied term fails because the proposed implied term does not accord with the parties’ intention as it appears from the language used in the sublease, construed against the background circumstances.
Issue 4: is the Trust entitled to immediate possession?
[61] In light of my findings on issues 1-3, the answer must be “yes”. The lease finally expired on 1 August 2014, and there has been no agreement on holding over. And the period of up to one month for removal of partitions, signs, and additions installed by GDL has now expired.
Orders
[62] I make the following declarations:
(a) GDL has not validly exercised any rights pursuant to cl 2.4 of the sublease.
(b) GDL has no extant rights under cl 2.4 of the sublease.
(c) The Trust is entitled to immediate vacant possession of the property which is the subject of the sublease.
[63] The Trust is entitled to costs on a 2B basis, plus disbursements as fixed by the registrar.
Solicitors:
R C Mark, Kerikeri for plaintiffs
Russell McVeagh, Wellington for defendant
Associate Judge Smith
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