Canterbury Regional Council v King House Removals Southland Limited
[2018] NZHC 873
•1 May 2018
IN THE HIGH COURT OF NEW ZEALAND
CHRISTCHURCH REGISTRY
CIV-2017-409-000239
[2018] NZHC 873
BETWEEN CANTERBURY REGIONAL COUNCIL
Plaintiff
AND
KING HOUSE REMOVALS SOUTHLAND LIMITED
Defendant
Hearing: 21 February 2018 Appearances:
J V Ormsby and I Taylor for Plaintiff A Hitchcock for Defendant
Judgment:
1 May 2018
JUDGMENT OF GENDALL J
Introduction
[1] This proceeding involves an application by the plaintiff, Canterbury Regional Council (the Council) for declaratory relief on the interpretation of rent review provisions in one of the Council’s leases. The defendant, King House Removals Southland Limited (King House) is the lessee under this lease. King House as lessee has occupied the land at issue since about 2002 and uses it to store relocatable houses awaiting relocation. The current lease in question is of 1.0325 hectares of land and was entered into on 4 July 2007 (the lease).
[2]The two issues before the Court are essentially:
(a)What can and cannot be taken into account during a rent review under the lease; and
CANTERBURY REGIONAL COUNCIL v KING HOUSE REMOVALS SOUTHLAND LTD [2018] NZHC 873 [1 May 2018]
(b)Whether a rent review process in 2008 under the lease, which included a rent review arbitration, has been concluded?
[3] Disputes between these parties have dragged on for almost 10 years. Finally, they have resulted in this litigation commenced by the Council in early 2017.
[4] Originally in this proceeding King House, in response to the Council’s claim, pursued a number of counterclaims in rectification and estoppel. In reply the Council, it seems, asserted the Limitation Act 1950 and the doctrine of laches which, it was said, prevented these counterclaims.
[5] Up to recent times, King House has asserted these rectification and estoppel arguments on the basis that it says what was in the lease did not accurately reflect the common intention of the parties. The Council’s position, however, was always that the lease entered into by the parties in 2007 was plain and clear.
[6] Approximately three weeks before the hearing of this matter, King House advised a major change in its position. This was to the effect that it withdrew the rectification and estoppel claims and confirmed that King House would not now proceed with its counterclaims. Further, an Agreed Statement of Facts was filed with this Court which the Council says was strikingly similar to the Draft Agreed Statement of Facts proposed by the Council in early 2017. According to Mr Ormsby, counsel for the Council, these particular matters have led to significant and unnecessary delays and costs being incurred. Mr Ormsby contends this should sound later in costs against King House.
The issues
[7] The issues between the parties, as I have noted above, have narrowed significantly. The expanded questions to be resolved by this Court are:
(a)What is excluded from being taken into account in rent review valuations under the provisions of the lease and, in particular, whether those valuations are to exclude the existence of any improvements or services not on the land itself but available to the site?
(b)Whether the 2008 rent review process, and the rent review arbitration initiated at that time, has been concluded?
Background facts
[8] The Council is the owner and registered proprietor of approximately 35.8 hectares of land situated on Johns Road, Christchurch, between Sawyers Arms Road and McLeans Island Road (the Council land). King House, a company specialising in the relocation of houses, occupied what is now the 1.0325 hectares of the Council land as lessee under lease occupation arrangements originally reached in about 2002.
[9] On 4 July 2007 the Council as lessor and King House as lessee entered into the lease upon specific terms which included:
(a)The lease was initially to be for a term of three years and five months from 1 October 2004.
(b)The annual rental under the lease was initially for the period up to 28 February 2008 to be $18,600 plus GST.
(c)From 1 March 2008, being the first renewal date, the lease was perpetually renewable for terms of 21 years. Rent for the five year period from 1 March 2008 to 28 February 2013 was to be reviewed as at 1 March 2008. The renewals were to provide that the annual rent thereafter was to be reviewed at periodic intervals of five years.
(d)The lease was granted pursuant to s 7(1)(e) of the Public Bodies’ Leases Act 1969 (PBLA) with the provisions of the First Schedule to that Act implied into the lease except as expressly modified.
(e)As to the rent review provision, cl 3.2(c) of the lease is the clause in dispute. It provides:
3.2 The First Schedule to the PBLA shall be read as follows:
…
(c)Under clause 3 of the First Schedule no account shall be taken of the values of the following improvements on the said land:
i.Improvements as defined in section 14(9) of the Public Bodies Leases Act 1969 made after 1 July 1995 by the lessee with the consent in writing of the lessor to or on the demised premises except such as shall have been purchased acquired or paid for by the lessor;
ii.The improvements existing on the demised premises at 1st July 1995.
(f)Clause 3 of the First Schedule of the PBLA referred to above provides:
3.In making the said valuation no account shall be taken of the value of the following improvements on the said land [Specifying, as the lessor thinks fit, the kinds of improvements, whether made during the term or at any other time, which are not to be taken into account in the valuation of the rent.]
[10] And, in terms of the rent payment obligations under the lease, it is useful also to set out in full the provisions of cl 4.4 of the lease:
4.4 If the lessee exercises the right to have the new rent (on a rent review provision) determined by arbitration and furnishes to the lessor not later than the last date for exercising that right a written opinion certified by a registered valuer as to the rental the valuer believes should be payable from the relevant review date then the new rental level pending determination as from the relevant review date shall be an amount half way between the rent notified by the lessor and the rent stated in the lessee’s valuer’s certified opinion. If the lessee does not supply a registered valuer’s certificate then the new rental pending determination shall be at the level set out in the notice given by the lessor to the lessee. Upon determination of the new rent any overpayment shall be applied in payment of the next rental payment and any amount then remaining shall immediately be refunded to the lessee. Any shortfall in payment shall immediately be payable by the lessee.
[11] As I understand the position, in recent years since 1995 land adjacent to the 1.0325 hectares leased land has been the subject of subdivision and development. This has included the installation by others of improvements on that adjacent land, being reticulated mains water, reticulated sewerage and storm water, roading, underground services and other horizontal infrastructure. My understanding also is that these improvements to the adjacent land have been taken to the boundary of the leased land
and are available for connection. King House has not made or paid for any of these post-1995 works, nor has it ever sought the approval of the Council to undertake the works.
[12] The parties have reached an Agreed Statement of Facts here which, in addition to the matters noted above at [11] and other matters, states:
As at 1 July 1995 the following improvement were present on the land:
(a)limited water provided from a well;
(b)limited sewerage serviced by a septic tank;
(c)nearby overhead powerlines on McLeans Island Road; and
(d)nearby overhead telephone lines on McLeans Island Road.
[13] At some point, Kings House gave notice that it wished to renew the lease for a new 21 year term from 1 March 2008. A dispute then arose during the rent review process (to set the rent for the next five year period which was to take place on 1 March 2008).
[14] The dispute centres largely upon a position adopted by King House. This is to the effect that cl 3 of the First Schedule to the PBLA as confirmed in the lease itself excludes consideration for rent review purposes of the development work undertaken on the adjoining land.
[15] The Council refutes this. Its position is simply that the lease does not prevent these development works from being taken into account because the works:
(a)were not undertaken by the lessee; and
(b)did not exist on the land at 1 July 1995.
[16] I turn now to the factual position relating to that 1 March 2008 rent review. From the evidence before the Court, it appears that in May 2008 the Council obtained a valuation report which said a fair annual rental under the lease for the five year term from 1 March 2008 was $125,000 per year (excluding GST).
[17] Then, in about July 2008 the Council wrote to King House to remind it that the lease had expired on 28 February 2008 and that in accordance with the lease provisions, King House was entitled to a 21 year renewal commencing from 1 March 2008. The Council advised King House of the rental valuation it had received. King House was then asked to respond as to whether it wanted a new lease and whether it accepted the rental assessed by the valuation.
[18] In September 2008 a number of communications took place between solicitors acting for King House and the Council. King House said it did not agree with the rental valuation and sought to appoint an arbitrator to resolve the dispute.
[19] On 29 September 2008 the solicitors to King House wrote to the Council advising that King House had obtained its own rental valuation report, Its valuer had fixed a rental valuation of $90,312 per annum (excluding GST) for the 5 year period from 1 March 2008. King House’s lawyers also noted that a figure half way between the two valuations was actually $107,656 (excluding GST) and in the meantime this should comprise the interim rent payable under cl 4.4 of the lease (the details of which I outline at [10] above).
[20] On 1 October 2008 the Council wrote to King House’s solicitors agreeing to that interim rent payment of $107.656 (excluding GST). As I understand the position, that has been the rent paid by King House since that time, as a form of holding pattern pending resolution of the matters the subject of this proceeding.
[21] Subsequently from October 2008 to September 2011 it seems that multiple arbitrators have been appointed and then changed by both parties. Also during this time differing rental valuations have been given by valuers employed by each party. It is Council’s position, however, that no final rental valuation figure or arbitration was ever conclusively agreed upon.
[22] It appears also that in January 2013, as between valuers engaged at the time, a letter was exchanged confirming two different rent valuations for the land, depending on whether the land was regarded as a “serviced” or an “unserviced” site. As I understand the position, these valuations were $93,000 per annum (excluding GST) if
the land was a “serviced” site and $65,000 per annum (excluding GST) if the land was an “unserviced” site. According to the Council, however, this dispute between the parties was never resolved. This matter is also now the subject of the present proceeding.
Issue One – Contractual interpretation of the rent review provision
[23] Turning now to the first question as outlined at [7] above to be considered here, the approach of the courts to contractual interpretation in New Zealand is a well settled one. In summary:
(a)The starting point must be the plain words of the contract in the context of the document as a whole.1
(b)The plain words of the contract are then to be cross-checked against the relevant context in which the contract was entered into and the facts and circumstances known to be operating upon the minds of the parties.2
(c)Background or contextual material can be relevant in that it assists the interpretive task or can logically bear upon it.3
(d)Caution is required where an interpretation would need a Court to substantially re-write a contract as a result of the background matrix and the Court is not to do so lightly.4
[24] This exercise is required to be undertaken on an objective basis. Ultimately, a Court is to step back and consider what a reasonable person would understand the parties intended in light of the plain words of the document and in light of the knowledge then operating on the minds of the parties to the contract.
1 Vector Gas Limited v Bay of Plenty Energy Limited [2001] NZSC 5; Investor’s Compensation Scheme Limited v West Bromich Building Society [1998] 1 WLR 869 (HL).
2 Vector Gas Limited v Bay of Plenty Energy Limited, above n 1 at [19]; Pyne Gould Guinness Limited v Montgomery Watson (NZ) Limited [2001] NZAR 789 (CA) at [29].
3 Burrows Finn and Todd, Law of Contract in New Zealand, 5th ed, Lexis Nexis New Zealand 2016 at 181.
4 Starrenburg v Mortre Holdings Limited [2004] 6 NZCPR 193 (CA).
[25] Turning now to the plain words of the lease, the Council says those plain words are clear and do not lend themselves to alternative interpretations. I agree. The lease stipulates that rental reviews are to be conducted in accordance with the provisions of the PBLA and thus interpretation here requires a consideration of the Act and the words of the lease itself.
[26] Under the lease the rent was to be reviewed at five yearly intervals and on renewal. The mechanism for assessing new rental, for all intents and purposes, is the same whether the matter is an intermediate rent review or a review on a lease renewal.
[27] In either event, the parties can elect registered valuers to make a valuation of what is described as the “fair annual rent”. Clause 3 of Schedule 1 of the PBLA allows the parties to agree on matters to be excluded from consideration in undertaking this rent review. Clause 3.2(c) of the lease records the agreement between the parties in this respect. It provides that the following matters are not to be taken into account on any rent review:
(a)improvements as defined in s 14(9) of the Act made after 1 July 1995 by the lessee with the consent in writing of the lessor to or on the demised premises except such as shall have been purchased, acquired or paid for by the lessor; or
(b)improvements existing on the demised premises as at 1 July 1995.
[28] The Council’s position is that the only matters excluded from being taken into account when undertaking a rent review are the specific items noted in para [27] above. The Council says that every other factor, including development works done by a third party after 1 July 1995, should be taken into account in assessing a fair annual rental. In response, King House says that it has no difficulty with declarations sought here by the Council about improvements made or paid for by any developer after 1 July 1995 and improvements made or paid for by the Council after that date. It says that those declarations can be made by consent as essentially they follow the wording of cl 3.2.(c).
[29] King House says a principal point of difference between the parties here is as to precisely what comprises an “improvement on the land”. King House suggested initially that the declarations sought should make it clear that improvements must be something on the leased land and that services on adjacent land are not improvements as defined in the lease. Thus, King House’s position is that improvements which are not on the leased land itself but are on neighbouring land and simply reticulated to the boundary of the leased land cannot be said to be improvements either on or under the leased land and therefore they should be excluded from consideration on a rent review.
[30] On this aspect, however, King House did go on to acknowledge, first, that these services reticulated to the boundary of the leased land do exist here and, secondly, that on a rent review valuers may or may not consider it appropriate to take these services into account when establishing the appropriate rental for the land, but it is up to them.
[31] Counsel for King House proceeds to note too that there can potentially be a significant difference between the value of an improved or unimproved site for rental purposes, where adjacent services are available up to the boundary of the land in question and can be connected. In my view, however, all these matters must be of relevance and taken into account by valuers in any consideration of a rental valuation for the land.
[32] I am satisfied, too, that in considering precisely what the lease itself does say, the plain words suggest that it is only the matters noted in cl 3.2(c) of the lease which are to be excluded from being taken into account on a rent review. All other facts, including post-1 July 1995 development works done by a third party on adjacent land which could provide some benefit for the leased land, are able to be taken into account.
[33] I reach this conclusion not only when considering the plain words of the lease itself, but also when looking at the contextual background.
[34] In affidavit evidence of Mr Dimbleby which is before the Court, it is clear that it was a third party developer who undertook the development works on the neighbouring property for which King House has obtained significant benefit. These development works being improved access, high pressure water, a reticulated sewer
connection and other infrastructure, arguably provided real benefits to King House, without it providing any consideration for the works themselves.
[35] As I understand it, the company that largely undertook those development works (albeit with some contribution from the Council) was Amherst Properties Limited (AHL). As a Council lessee itself, AHL has obtained benefit by having the development works excluded from rent reviews under its lease. It would be wrong, in my view, to suggest therefore that King House should also obtain the same benefit as AHL in considering rent reviews under its lease.
[36] I understand, too, that this position followed extensive lease negotiations entered into between the Council, AHL and others at the time the development works were undertaken.
[37] In all this, the relevant context in which the neighbouring development works were undertaken and the various leases concluded, in my view, assist the Council in its preferred interpretation of the rent review provisions advanced here.
[38] A further argument advanced by King House here is that the “lessee” as referred to in the rent provisions of the lease should include prior lessees (including the developer who carried out those works in question which now provide services to the land). This interpretation, it seems, is advanced in order that King House can claim the development works as in some sense lessee improvements consented to by the lessor, and therefore excluded from consideration in rent reviews.
[39] Before me, King House did not appear to rely on this argument to any great extent, however. In any event, in my view, it has difficulties in that:
(a)There is no previous lessee of the land which is the subject of the new King House lease. That land, being a new lot described as Lot 16, came into existence when the subdivision plan developed by a neighbouring third party was deposited and King House became the first lessee of Lot 16;
(b)And, in any event, the neighbouring developer has never been a lessee of the land, either under a new or old lease, so that development works which it undertook could never be considered lessee improvements in relation to Lot 16; and
(c)In the new lease the lessee is defined as King House.
[40] Lastly, King House appeared to rely upon the Court of Appeal decision Musson v Canterbury Regional Council5 in support of its argument here.
[41] That case considered whether the hardfill in gravel pits on land leased from the Canterbury Regional Council was an “improvement” for the purposes of a rent calculation. In that case the calculation of rent had to be made in accordance with the First Schedule to the PBLA. As occurred in the present case, a Schedule to the lease in Musson provided that no account should be taken of the values of specified improvements “on the said land”.
[42] The dispute between the parties in Musson was whether the gravel in the pits (which had been there since the 1960s) were “improvements” which would mean they were excluded from the rent review, thus reducing the rent payable by the lessee. One of the last arguments advanced for the Regional Council in that case was that the gravel was not “on” the premises but was “in” it or part of it.
[43] The Court of Appeal, however, disagreed. At [49] of its decision O’Regan J giving the judgment for the Court stated:6
In our view the term “improvements on the land” should be interpreted as applying to anything which is of a nature that it constitutes a betterment of the land concerned which is substantial and permanent. In our view, so long as those improvements have been made on the land, and not on adjoining land, for example, then they should come within cl 3.B for the calculation of rent.
[44] In the case before me, Mr Ormsby for the Council contends that on a closer examination the decision in Musson does not assist either party here. The Council position is that, as King House has conceded that some of the improvements in
5 Musson v Canterbury Regional Council CA35/03, 2 August 2004.
6 Musson v Canterbury Regional Council, above n 5 at [49].
question are not “on the land” but are instead adjacent to the land up to its boundary in any event, they may still be properly taken into account by a valuer. This can occur, the Council says, not because they are improvements “on the land”, but simply because they provide a degree of betterment to the land and therefore they should be taken into account in assessing fair annual rent for the land.
[45] Mr Ormsby for the Council contended that King House had misunderstood the position relating to this aspect. He said this stemmed from an examination of cl 3.2(c) and what is to be excluded from consideration. This clause does not define what is to be included in the assessment of a fair annual rent. Under the provision in the First Schedule, a lessor and lessee may agree to exclude improvements “on the said land” from consideration.
[46] To recap too, King House appears to take issue with the declaration sought by the Council that the following items are to be taken into account in assessing the fair annual rent:
Certain particular improvements, including mains sewerage, mains stormwater, mains water, underground power, underground phone and internet, all other horizontal infrastructure installed on or after 1 July 1995.
[47] This position, as I see it, however, seems to stem from a misinterpretation of a statement made in the Court of Appeal decision in Musson.7 Again, as I note above, this was made in the context of a dispute about whether gravel and gravel pits could be considered “improvements on the land”. The reference to “on the land” necessarily requires that the improvements are not on another piece of land. In contrast to the dispute in the present case, this is about what is excluded from consideration when assessing the fair annual rent in accordance with Schedule 1 of the Act. There is no locational reference that restricts this.
[48] I am satisfied that the Court of Appeal decision in Musson is authority for the proposition that if a lease is to provide that improvements on land existing prior to a certain date are to be excluded from consideration in lease rent reviews then, in order
,7 Musson v Canterbury Regional Council above n 5.
to qualify for exemption under that provision, necessarily they cannot be on adjoining land.
[49] For all these reasons I am satisfied the decision in Musson does not assist King House here.
[50] Put another way, if the decision in Musson is authority for the principle contended for by counsel for King House (i.e. that nothing outside the boundary of the lease can be considered in rent reviews) then all rent reviews would be conducted in a vacuum. These rent reviews would be carried out simply without reference to surrounding facts, such as zoning or land use changes, the improved quality of tenants in the area, improved roading or access to the property, access to connect to infrastructure such as sewerage, stormwater and water mains or any other number of factors usually taken into account. In my view, that simply cannot be the case.
Conclusion on the contractual interpretation of the rent review provision
[51] In conclusion I reach the position that it is clear from both the plain language of the provision and the surrounding context of the lease that the interpretation of the rent review provisions suggested by the Council in its application is the proper interpretation here. I find that the interpretation put forward by counsel for King House before me (which has moved somewhat from its earlier position) is contrary to the plain words of the lease to the extent that it directly contradicts defined terms and seeks to insert further terms despite the background and context to the lease itself.
[52] The application by the Council relating to interpretation of the rent review provision succeeds. The declaration relating to this which is sought in the Council’s pleading is now made with a minor amendment for clarification purposes.
[53]This declaration which is now made is as follows:
(a)The rent under the lease is to be assessed on the basis of the land as it stands at the date of each renewal or rent review:
(i)Including the following improvements:
1. All improvements made or paid for by any developer of the land after and including 1 July 1995;
2. All improvements made or paid for by the Canterbury Regional Council after and including 1 July 1995;
3. Certain particular improvements including mains sewerage, mains stormwater, mains water, underground power, underground phone and internet, and all other horizontal infrastructure installed on or after 1 July 1995 which expert valuers considering the rent can appropriately assess as providing benefit to the land and thus being relevant to the fair annual rent to be determined whether the status of those services is such that they are situated either on the land or outside the land but provide benefit to it.
(ii)Excluding the following improvements:
1. Any improvements that existed prior to 1 July 1995; and
2. Any improvements paid for by King House Removals Southland Limited, with the consent of the Canterbury Regional Council.
Issue 2 – Was the rent review arbitration completed?
[54] Turning now to the second issue noted at para [7](b) above, the Council effectively seeks a declaration that there has been no binding rent review undertaken for the 2008 lease renewal.
[55] The parties accept, and King House acknowledges, that no binding rent review has been undertaken for the 2013 lease renewal. This is a matter which will need to be addressed.
[56] Notwithstanding this, the issue before me relates to the 2008 lease renewal. King House’s position is that there has been a binding rent review undertaken for this 2008 lease renewal. This contradicts the position advanced by the Council.
[57] Clause 3 of the lease deals with renewals, including the review of rent upon renewal and incorporates Schedule 1 of the PBLA. Clause 3.1 specifically provides the rent on renewal will be determined in accordance with Schedule 1 of the Act.
[58] Schedule 1 of the Act provides for a mechanism of renewal and rent review as follows:
(a)Clause 2 – not earlier than nine months or later than three months from the expiry of the term of the lease the lessor shall cause a valuation to be made by a person who the lessor reasonably believes to be competent to make the valuation of what is to be the fair annual rent of the land;
(b)Clause 3 – this allows the parties to exclude certain improvements from review;
(c)Clause 4 – as soon as possible after the valuation has been made the lessor is to give to the lessee notice in writing informing it of the amount of that valuation and requiring the lessee to give notice within two months whether the renewal will be accepted at the rent specified;
(d)Clause 5 – the lessee can give notice that the rent is to be determined by arbitration (there are other options – to accept or decline renewal but these did not occur in 2008 in this case);
(e)Where arbitration is elected the valuation shall be made by two persons as arbitrators (one appointed by the lessor and one by the lessee);
(f)Clause 8 – before commencing the arbitration the arbitrators shall appoint a third person as umpire;
(g)Clause 9 – the decision (whether by agreement or determination by the umpire) shall be binding on the parties;
(h)Clause 10 – the duty of the umpire when referred any question shall be to consider the respective valuations and make an independent valuation, although it must be a valuation between the values of the two arbitrators; and
(i)Clause 12 – the lessee must give notice within two calendar months that it accepts the final assessed valuation.
[59] Clause 4.4 of the lease adds a further provision. This is to the effect that where rent is to be determined by arbitration, then an interim rent is payable by the lessee. This is to be an amount which is half way between the respective valuations.
[60] In the Agreed Statement of Facts which is before the Court, it is noted that the parties agreed to the renewal of the lease with the rental figure to be determined in accordance with the lease provisions.
[61] Before me, the position adopted by the Council was that the 2008 rent review and its process was not completed for a number of reasons:
(a)Several key provisions of the rent review mechanism set out in Schedule 1 of the PBLA were not carried out and therefore it could not be said a valid arbitration was completed. Those matters are:
(i)No umpire was ever appointed by any of the arbitrators that represented the parties throughout this matter. The appointment of an umpire as noted above is a requirement under cl 8 of the lease prior to commencing the arbitration.
(ii)Clause 9 of the lease provides that the arbitrators by agreement or their umpire by determination must provide a valuation of the rent. Clause 12 then goes on to stipulate that the lessee must give notice it accepts the rent within two calendar months. In
the present case the Council says, first, the arbitrators were unable to agree on a rental figure because of the dispute that is the subject of these proceedings and, secondly and importantly, no umpire was appointed or present to make a determination. There has therefore been no decision on a binding rental figure.
(iii)It is because of these matters that King House has been unable to give the notice required under cl 12 of the lease.
(b)In addition to the matters noted above relating to non-compliance with Schedule 1 of the Act, the Council says the conduct of the parties here has clearly indicated that no rent review has ever been properly concluded. The Council says this includes:
(i)Mr Tay, the Council appointed valuer withdrew from the arbitration indicating it was incomplete.
(ii)King House has paid the interim rent of $107,656 from 2008 up to the present time. If the rent review had been completed, as King House now allege, then it would be expected that King House would have given notice under cl 12 and begun to pay the new rental figure. It has not done this. Instead King House has acknowledged the process is incomplete, the Council contends, by paying interim rent under cl 4.4 of the lease.
(iii)The parties have agreed that the lease was renewed in 2008 but this has been specifically subject to the determination of the new rental which has not been concluded.
(c)Finally, the Council raises one last concern. This is to the effect that in any event it alleges that it is not apparent in the purported “agreement” between Mr Tay and King House’s valuer, Mr Cummings, what improvements were and were not taken into account in their different
valuations. There was specific disagreement between the parties, it is said, that was never resolved before Mr Tay withdrew.
[62] In response to these contentions, King House takes an opposing view. It says that a binding rent review for the 2008 lease renewal was undertaken and concluded here.
[63] King House maintains that the two valuers, Mr Tay for the Council and Mr Cummings for King House were arbitrators appointed in accordance with cl 9 of the First Schedule. It is acknowledged however that Mr Tay and Mr Cummings did not appoint an umpire. Notwithstanding this, King House contends that as arbitrators they reached agreement on the levels of rent to be paid from 1 March 2008 based upon whether the land was “serviced” or “unserviced”. These rental figures were $93,000 plus GST per annum as a “serviced” site and $65,000 plus GST per annum as an “unserviced” site.
[64] On this aspect, counsel suggests that King House have accepted the site is “serviced” by virtue of the various services reticulated to the boundary of the site. Counsel says this is a pragmatic view taken by King House which is linked to its decision to abandon its earlier counterclaims. Consequently King House says it accepts and contends that the new rental to be paid for the 1 March 2008 renewal period is $93,000 plus GST per annum.
[65] King House then goes on to submit that, if there has been a breach here of cl 8 of Schedule 1 by the failure of Mr Tay and Mr Cummings to appoint an umpire, this failure is simply de minimus. King House maintains the reality here is that the valuer arbitrators agreed on both figures as a “serviced” and “unserviced” site and there was no need for an umpire to be appointed.
[66] In support of this position, counsel for King House referred me to Robert Jones Investments Ltd v Instrument Supplies Ltd.8 That case involved a situation where two arbitrators on a rent review did not appoint an umpire. There, Doogue J accepted that
8 Robert Jones Investments Ltd v Instrument Supplies Ltd [1991] 1 NZ Conveyancing Cases 190,746.
essentially this was a procedural mishap and any appointment by the valuer arbitrators would have been nothing but a “procedural formality”. I address this decision below.
[67] Lastly, counsel for King House argued that the fact the valuers negotiated by exchanges of email which were said to be on a “without prejudice basis”, although unusual, did not affect the fact that ultimately Mr Tay and Mr Cummings agreed on the rent review figures and communicated a result they were agreed upon.
[68]The issue here essentially comes down to whether or not:
(a)the statutory process for rent review under the PBLA was followed, such that an arbitration award has been made and adopted by King House;
(b)the without prejudice “agreement” said to be reached by Mr Tay and Mr Cummings some five years after the arbitration commenced constitutes a binding award; and
(c)the absence of an umpire means there has been no award?
[69] On these aspects, the most adverse piece of evidence against the Council’s position is the assertion by Mr Tay that the agreement is binding, an assertion it is said he made four years after the alleged “agreement” was reached.
[70] In weighing up all these matters, however, I am of the view that, while the valuers may have reached what they say was an “agreement”, there has been no award in this case. I reach this conclusion taking into account a number of features:
(a)Original valuers, Mr Hallinan and Mr Smith, produced valuation certificates for $90,000 and $125,000. This resulted in the interim rental of $107,656 being paid for some time pursuant to cl 4.4 of the lease.
(b)Clause 8 of Schedule 1 provides that an umpire shall be appointed “before commencing to make the said valuation”. No umpire was appointed.
(c)The specific arbitration agreement provision here requires the appointment of an umpire by the arbitrators (as required by cl 8 of the First Schedule) within 10 working days after both arbitrators are appointed. Provision is made for an umpire appointment by the President of the New Zealand Law Society if the arbitrators could not agree. Upon reference to the umpire, the arbitrators are to provide to the umpire copies of their valuation reports, background evidence and a note of the matters on which their valuations do not agree. None of these matters occurred.
(d)Matters proceeded as the correspondence between Mr Tay and Mr Cumming made clear on a “without prejudice” discussion basis.
(e)The “agreement” referred to a “serviced” rental and an “unserviced” rental basis. I accept this is not an arbitration award as the arbitrators were unable to agree on whether or not the land was a “serviced” site. Correspondence between the valuers stated “the lessees’ advisors are to supply further information as to the reasons why the site is “unserviced”, and if necessary, an arbitration will need to be held to determine which of these two options is correct.”
(f)In any event, under cl 12 of the Schedule, King House has never purported to accept any specific valuation. This indicates that no award has ever been made. King House simply continues to pay the higher interim rental amount.
[71] In addition to all these matters, I am satisfied that the decision in Robert Jones9 noted above can be properly distinguished here. This is on the basis that this case involved both a different statutory and agreement context and the factual position was
9 Robert Jones Investments Ltd v Instrument Supplies Ltd, above n 8.
quite different here, involving, as I have noted, discussions described as “without prejudice”. As a result, the absence of an appointment of an umpire in this case at least cannot be simply deemed a “procedural mishap”. Further, the fact that the parties have not acted upon the so-called agreement of the arbitrators is important given that King House have simply continued to pay the interim rent of $107,656 in the meantime.
[72] For all these reasons I find that there has been no binding rent review undertaken by the parties for the 2008 lease renewal. I conclude that the Council’s application seeking a second declaration relating to this succeeds.
[73]A declaration is now made that:
(a)There has been no binding rent review undertaken for either the 2008 lease renewal or the 2013 rent review under the lease.
(b)Following the release of this decision, the Council and King House must:
(i)Each appoint or confirm the appointment of an arbitrator for the purpose of undertaking the rent review process; and
(ii)Follow the rent review process under the lease and the Public Bodies Leases Act 1969 for determining their rent.
(c)The process at cl (b) above is to be followed for:
(i)The 2008 lease renewal and rent review; and
(ii)The 2013 rent review in the event King House disagrees with the rental assessed for the land at that date by the Council.
(d)The parties will respectively be liable for, or entitled to, the difference between the values set by the above processes and the rent that King
House has been paying to the Council since the expiry of the lease on 28 February 2008.
[74] No question of interest arises at this point given that a final rent determination is still to be reached. That issue can be addressed at that time if it is under dispute then.
Costs
[75] As to costs, the Council has succeeded in this proceeding and is entitled to an award of costs against King House. Council nevertheless have requested that they have an opportunity to make separate submissions on costs.
[76]Costs, therefore, at this point are reserved.
[77] In the event that counsel are unable to agree between themselves on the issue of costs, they may file in this Court (sequentially) memoranda directed to the issue of costs which are to be referred to me and, in the absence of either party indicating they wish to be heard on the question of costs, I will make a decision on costs on the basis of the memoranda filed and all the material then before the Court.
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Gendall J
Solicitors:
Wynn Williams, Christchurch AWS Legal, Invercargill
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