CCPP Properties Limited v Go-Bus Transport Limited

[2015] NZHC 1471

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2014-409-890 [2015] NZHC 1471

BETWEEN

CCPP PROPERTIES LIMITED

Applicant

AND

GO-BUS TRANSPORT LIMITED Respondent

Hearing:	29 June 2015
Appearances:	E Bayley for Applicant M Branch for Respondent
Judgment:	29 June 2015

JUDGMENT OF MANDER J

[1]      Go-Bus  Transport  Limited  (Go-Bus)  were  successful  at  arbitration  in obtaining a declaration that it had the right to terminate a lease of premises owned by the applicant, CCPP Properties Limited (CCPP).

[2]      A clause of the lease provided that Go-Bus had the right to terminate the lease on one month’s notice in the event of certain circumstances.   If an existing resource consent in respect of the leased premises was reviewed and, in Go-Bus’s reasonable opinion, the conditions of the reviewed consent were unreasonable or adversely affected its use of the premises as a bus depot or its access over a right of way attaching to the leased premises, it could terminate the lease.

[3]      The arbitrator held Go-Bus was entitled to hold the opinion the amendment to the consent was unreasonable and adversely affected the use of the premises in the

manner described.

CCPP PROPERTIES LTD v GO-BUS TRANSPORT LTD [2015] NZHC 1471 [29 June 2015]

[4]      CCPP  does  not  challenge  the  arbitrator’s  decision  in  relation  to  that substantive issue, but seeks leave to appeal an ancillary finding by the arbitrator relating to the period within which notice of termination must be given, if it is to be given at all, as a result of that right being triggered.

[5]      CCPP counterclaimed that under the clause in issue, any right to terminate must be exercised immediately, or within a reasonable time.  This was rejected by the arbitrator, who was unwilling to imply a term to that effect.

[6]      In the absence of the parties having agreed or consented to an appeal to this

Court being available, CCPP sought leave to appeal the following questions of law:1

(a)      Whether on a proper construction of cl 49 of the lease, the right to terminate on one month’s notice in writing had to be exercised within a reasonable time after the respondent became aware of the triggering event; and

(b)Whether the respondent, by election/expiry of the reasonable time has lost the right to terminate.

[7]      It is not seriously in dispute that the determination of the question(s) of law could substantially affect the rights of the parties.2    That statutory threshold having been satisfied, the Court must consider whether it should exercise its discretion to grant leave.

[8]      In Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd, the Court of Appeal examined in some detail the approach required by a Court in exercising its discretion as to whether leave should be granted.3  The exercise of the discretion is to be considered in the context of the purpose of the Arbitration Act 1996, namely to

encourage the use of arbitration to resolve disputes between parties.  Where parties

1      Arbitration Act 1996, sch 2, cl 5(1).

2      Schedule 2, cl 5(2).

3      Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA).

have chosen to accept arbitration as a means to resolve their disputes, there is a clear limitation on the involvement of the Court.   It is inappropriate to take a broad approach to the exercise of the discretion, which must be exercised in a disciplined way.4

[9]      The  matter  in  issue  between  the  parties  is  obviously  of  considerable importance to CCPP.  The leased premises are its only real property, and provides its sole source of regular income.  This amounts to an annual rental of $433,550.  CCPP submitted the delay associated with the hearing of any appeal would not be disproportionate to the amount at stake for the parties.  It observed that Go-Bus has continued to operate from the leased premises for more than a year since the review of the resource consent, and there is no evident urgency on the part of Go-Bus to terminate the lease.

[10]     Against that, however, is that the question of law was squarely raised for consideration by the arbitrator, it having been identified in CCPP’s filed pleading. Furthermore, the issue was decided by an experienced legally qualified arbitrator.

[11]     The most important factor for consideration is the strength of the challenge or the nature of the point of law which is sought to be raised on the putative appeal.5

There is an onus on the applicant to demonstrate that it has a strongly arguable case in order to justify leave being granted.  If it is a one-off point and unlikely to occur again, with little precedent value, either generally or in respect of the parties, then, in the absence of very strong indications of error, leave should rarely be given.6

[12]     CCPP’s submission is that on a proper construction of the clause providing a right to Go-Bus to terminate the lease, such right must be exercised within a reasonable time after Go-Bus became aware of the triggering event.  The triggering event  is  identified  as  being  when  Go-Bus  formed  the  reasonable  opinion  the condition of the reviewed resource consent was unreasonable and adversely affected

its use of the premises.

4 At [52].

5 At [54].

6 At [54](1) and [57].

[13]     CCPP’s  argument  is  that  an  implied  term  should  be  read  into  the  lease requiring Go-Bus’s right to terminate to be exercised within a reasonable period. The  arbitrator  recognised  and  considered  the  argument  made  by  CCPP,  but concluded no timeframe was included in the lease.  It was for Go-Bus to determine whether and when it would give notice to terminate.  The arbitrator considered that for him to intervene and read a timeframe into the document would be to add terms which were not contemplated by the parties at the time of the agreement, which he concluded was a carefully considered commercial arrangement.

[14]     CCPP submitted that a party which relies on an express contractual provision for the purpose of termination, is obliged to exercise that right without undue delay and within a reasonable period from when that right accrued.  In the absence of such an implied term, it argued commercially absurd consequences could follow, converting the lease into what would become a month-on-month tenancy subject to Go-Bus’s whim.   This would render the property unmarketable and create an imbalance between landlord and tenant when negotiating rent while the lease remained extant.

[15]     In counterbalance to the submissions made by CCPP, Go-Bus referred to the commercial difficulties it would face if forced to exercise the right of termination when it had no other suitable premises to occupy.   It submitted it must be able to elect not to act on the right to terminate until such time as it is practically in a position to obtain alternative premises.

[16]     The essence of Go-Bus’s opposition was that CCPP’s application rested on the strength of its proposition that, as a matter of law, a Court, in the absence of a period specified in a contract regarding the exercise of a particular right, will imply that such right must be exercised within a reasonable time.  The arbitrator did not accept that proposition and was unable in the circumstances, notwithstanding the arguments made by CCPP, to imply the term contended for into the lease.

[17]     In support of its argument various authorities were referred to by CCPP.  I do not intend to review all the authorities relied upon.   It is not appropriate on an application for leave that I do so in any detail.  I will nonetheless provide a resume of the key cases.

[18]     CCPP placed emphasis on a decision of the Supreme Court of Tasmania, Ross Ambrose Group Pty Ltd v Renkon Pty Ltd.7    In that case, a lease of hotel premises was subject to a restrictive covenant preventing sale of liquor on the land.   The tenant reserved for itself the right to terminate or surrender the lease if the covenant was not removed within two years, or if enforcement of the covenant affected the tenant’s business.  In the circumstances of that case, the Supreme Court of Tasmania

held a term should be implied.  The tenant would need to exercise its right to call upon the landlord to accept a surrender of the lease within a reasonable time after the triggering event.

[19]     In coming to that conclusion, the Supreme Court of Tasmania referred to the New South Wales Court of Appeal decision of Ellmore (Maitland) Pty Ltd v Tull, which observed that where a party to a transaction is provided with a power to exercise a particular right, and no time is specified for its exercise, it will commonly

be implied that the right must be exercised within a reasonable time.8   In general, an

implication of reasonable time when none is expressly provided is to be made, unless there are indications to the contrary.

[20]     The Supreme Court of Tasmania, however, expressly observed that it was “plain enough” that a term will not always be implied in respect of the exercise of an option, noting that sometimes such an implication would be contrary to the intended effect and purpose of the option, as inferred from the construction of the relevant document.

[21]     Other authority was relied upon by CCPP, which rejected the proposition the exercise of rights after a triggering event will remain available indefinitely.9     In

7      Ross Ambrose Group Pty Ltd v Renkon Pty Ltd [1998] TASSC 72..

8      Ellmore (Maitland) Pty Ltd v Tull (1985) 7 BPR 14,305 (NSWCA) at 14,307.

9      Chemco Leasing SpA v Rediffusion [1987] 1 FTLR 201 (CA); Mardorf Peach & Co Ltd v Attica

Sea Carriers Corp of Liberia (The Laconia) [1977] AC 850 (HC) [The Laconia]; Brickwoods

opposition, Go-Bus referred to the English Court of Appeal decision of Nichimen Corporation v Gatoil Overseas Inc, where after reviewing a number of admiralty cases, including The Laconia, a case relied upon by CCPP, rejected any general principle  that  an  implied  term  would  be  inferred.10      The  Court  observed  that decisions which had held that the rights of ship owners to withdraw a vessel from a charterer’s service were to be exercised, if at all, within a reasonable time, did not

establish any general rule to that effect. The English Court of Appeal held that it was a “long step” from the interpretation of such provisions to a general principle of the law of contract, that in any situation where one party is entitled to treat the other party as being in repudiatory breach, that a reasonable time requirement will be implied.

[22]     Clearly, there are cases upon which CCPP can rely to argue that a term should have been implied in the circumstance of this case.   However, the arbitrator was seized of those arguments.   He was unable to accept CCPP’s submission that an implied term relating to a reasonable time period could be inferred into the terms of the lease in the circumstances of this case.

[23]     A feature of the present case which detracts from CCPP’s argument is that the declaratory remedy obtained by Go-Bus is subject to a temporal limitation.  In the absence of CCPP being prepared to acknowledge Go-Bus’s opinion regarding the triggering of its right to terminate, Go-Bus sought declaratory relief to confirm its entitlement to exercise the right.   As the arbitrator expressly observed, if Go-Bus does not exercise its right in a timely fashion, then it runs the risk that circumstances will change.  The arbitrator referred to the possibility of problems with the consent being cured.

[24]   There is, however, also the accumulating effect of Go-Bus’s continued successful operation of its business out of the premises, apparently unaffected by the resource consent change.   That may have implications for whether the arbitrator’s findings would subsequently be confirmed at some later stage when informed by

recent experience over a period of continued operation by Go-Bus.

Ltd v Butler (1970) 21 P & CR 256.

10     Nichimen Corporation v Gatoil Overseas Inc [1987] 2 Lloyd’s Rep 46 (CA) at 54.

[25]     CCPP’s submission that triggering events, giving rise to a right of withdrawal or termination, could not subsequently be cured, and of the right only being lost by expiry of the reasonable time for its exercise, or earlier waiver, is not convincing in the  circumstances  of  this  case.11   The  authorities  relied  upon  by CCPP largely involved breaches of the terms of contracts, or the non-performance of obligations, rather than the objectively assessed view of a party of the present existence of a

certain state of affairs to allow a party to give notice of its intention to terminate the lease.  That state of affairs may change, and with such change the right of Go-Bus to terminate the contract.

[26]     The arbitrator’s decision in relation to the question under review is unlikely to  have  significant  precedent  value.     It  will  have  an  ongoing  effect  on  the commercial relationship between the parties.   Depending perhaps on the timing of any exercise of the termination right, the issue is likely to be revisited

[27]     I do not consider it to be reasonably arguable that, as a general rule, and as a matter of ordinary construction, a term will be implied into every contract to require a right of termination to be exercised within a reasonable period.  Each case is likely to turn on its individual facts and the terms of the particular contract.  The arbitrator engaged in this very issue and concluded in relation to the case before him that, in the circumstances, he could see no basis on which to write into the lease a reasonable time period.   It remained for Go-Bus as to whether and when it gives notice of termination.   At any such time in the future, whether Go-Bus has a contractual entitlement to do so will potentially be open to contest, albeit one informed by the arbitration, but also by Go-Bus’s ongoing ability to continue its operation.

[28]     I have not been brought to the point where I can conclude there is a strongly arguable case available to CCPP that the arbitrator, in respect of the question of law

posed, was in error.  In the absence of any strong indication that the decision-maker

11     Reliance was placed on The Laconia, above n 10, where failure to pay constituted a triggering event which could not be cured by late payment. The right to withdraw remained subject only to the elapse of a reasonable time for the exercise of that election.   Similarly, in Ross Ambrose Group Pty Ltd v Renkon Pty Ltd, above n 7, despite notice of termination being given the month before, amendment of the restricted covenant did not affect the expiry of the reasonable time in which the option to surrender the lease could be exercised.

was wrong, and in the absence of the necessary level of concern regarding the

arbitrator’s approach to the issue, leave is declined.

Solicitors:

Rhodes & Co, Christchurch

Harkness Henry, Hamilton