College Rifles Rugby Union Football & Sports Club Inc v Minister of Lands
[2015] NZHC 2001
•24 August 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-001206 [2015] NZHC 2001
BETWEEN THE COLLEGE RIFLES RUGBY
UNION FOOTBALL & SPORTS CLUB INC
Plaintiff
AND
THE MINISTER OF LANDS AND THE MINISTRY OF EDUCATION
Defendant
Hearing: 29 April 2015 Appearances:
Prajna Moodley for the Plaintiff
Kenneth Stephen and Heidi Baillie for the DefendantJudgment:
24 August 2015
JUDGMENT OF MOORE J
This judgment was delivered by me on 24 August 2015 at 3:30pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Date:
THE COLLEGE RIFLES RUGBY UNION FOOTBALL & SPORTS CLUB INC v THE MINISTER OF LANDS AND THE MINISTRY OF EDUCATION [2015] NZHC 2001 [24 August 2015]
Contents
Paragraph
Number
Introduction ..............................................................................................................[1] Factual background ...............................................................................................[13] The agreement – its terms and conditions ...........................................................[20] The School Site Lease ............................................................................................[31] Conduct following signing of agreement ..............................................................[33]
Does this Court have jurisdiction to make the declarations sought by
College Rifles?
College Rifles’ claims for relief ............................................................................[41]
Declarations .........................................................................................................[43]
What is the proper interpretation of the agreement?
The legal framework ............................................................................................[50] Parties’ submissions .............................................................................................[55] Discussion and analysis .......................................................................................[58] (a) What is the minimum period under the contract before the
Ministry can terminate? .............................................................................[60]
(b)What date should be treated as the effective lease commencement date?...........................................................................................................[77]
Is the Ministry estopped? ......................................................................................[89] Legal principles....................................................................................................[90] College Rifles’ submissions ..................................................................................[96] Discussion and analysis .....................................................................................[102] Conclusion............................................................................................................. [115]
Introduction
[1] College Rifles Rugby Union Football & Sports Club Incorporated (“College
Rifles”) is a rugby club situated in Remuera, Auckland.
[2] It owns a substantial site of which approximately two thirds is made up of artificial grass covered playing fields, a netball court, club rooms, a gymnasium, car parking and a viewing pavilion. The balance comprises a large area of bare land in the southwest corner (“the School Site”).1
[3] In 1999 College Rifles and the Ministry of Education (“the Ministry”) entered into an agreement under s 17 of the Public Works Act 1981 (“the agreement”). This agreement contemplated the Ministry would lease the School Site for the purpose of building and operating a primary school. The expectation of both parties was that it would likely be a long term arrangement lasting up to 100 years.
[4] The agreement consisted of two parts:
(a) an interim licence2 which would govern the rights and obligations of the parties until the required planning and resource management designations and consents were obtained to build and operate the school on the School Site; and
(b)the School Site Lease which would be executed once the designations and consents had been obtained. This lease would contain the usual lease provisions governing the lessor/lessee terms and conditions including the initial term, rights of renewal, rent reviews, lessee’s and lessor’s covenants, dispute resolution provisions, etc.
[5] Following execution of the agreement the Ministry took no steps to obtain the designations and consents. The need for a new school in the area was reviewed. The
1 The School Site consisted of 5,933 square metres in the southwestern area of the property.
2 The Public Works Act Agreement made reference to a Lease to be granted by College Rifles, but it is clear that this is a reference to the School Site lease which was to start on the lease commencement date. Prior to that date, the relationship between the parties was defined by the licence conferred by the Public Works Act Agreement.
Ministry’s evaluation concluded there was no justification for a new school. It decided not to build one. Despite this, the interim licence continued to regulate the relationship between the parties. Over time, with no progress of any kind being made towards developing the School Site, the Ministry’s decision not to build a school became self-evident to College Rifles. Finally, in 2008, the Ministry formally advised College Rifles in writing it no longer required the School Site and advised it intended to terminate the agreement.
[6] Despite taking no steps to develop the school and confirming this by letter, the parties have both continued to act as though the lease had come into force on the date it was signed in 1999. In particular, College Rifles has exercised its right to review the rent being the licence fee calculated as if the School Site Lease was in operation, on each of the five year anniversaries of the agreement’s execution and the Ministry has paid the new rental at the increased rate set by the reviews.3
[7] However, following the Ministry’s advice of its intention to terminate the lease, a dispute has arisen over the interpretation of the agreement. College Rifles claims the Ministry cannot terminate the agreement before the expiration of the second 20 year term (that is, 40 years from the signing of the agreement which, on
its case, would mean either 2039 or 20414). In contrast, the Ministry says this
interpretation is wrong. It claims the lease can be terminated at the end of the first
20 year term (that is, in November 2019).
[8] College Rifles applies for declarations that its interpretation of the lease in these respects is correct.
[9] College Rifles also applies for a declaration that the lease commencement date, after which the rights of renewal begin to run, did not occur until 30 November
2001 (i.e. two years after the agreement was signed). It thus follows that if College
Rifles’ interpretation is correct, the Ministry must pay the licence fee for a further
3 The most recent review in 2014 is the subject of dispute. The Ministry is paying rent at the new rate until the dispute is determined.
4 The difference in dates depends on College Rifle’s other argument – that the lease commencement date did not occur until 2001.
two years after the expiry of the 20 years of the first term of the lease (i.e. two years after November 2019).
[10] In the alternative College Rifles applies for a declaration that the Ministry is estopped from terminating the agreement, either by cancellation or by failing to renew the agreement at any time in the first 40 years of the term.
[11] There are thus three issues which must be addressed in these proceedings:
(a) Does this Court have jurisdiction to make the declarations sought by
College Rifles?
(b) What is the proper interpretation of the agreement?
(c) Is the Ministry estopped from relying on that interpretation to cancel the agreement before the second term expires?
[12] I shall discuss these issues in turn but before doing so it is necessary to set out the factual background in more detail.
Factual background
[13] In about 1995 the Ministry began to search for available land in the Newmarket, Remuera or Meadowbank area on which it would be suitable to build and operate a primary school. The belief at that time was there was such a need, a view which was subsequently supported by the results of the 1996 Census. Several sites were investigated but the most attractive, for a number of reasons, was the land owned by College Rifles. The total land area owned by College Rifles is in excess of 3.6 hectares and is zoned Open Space 3 in the Auckland City Council’s Operative District Plan (Isthmus Section), being land which is used primarily for organised sports and recreation. The land is accessed from the end of Haast Street, off Remuera Road. There is also access to the east of the property via Hilltop Street.
[14] In late 1996 the Ministry engaged an agent, Mr Port, to commence negotiations with College Rifles with a view to obtaining a heads of agreement to
lease part of College Rifles’ site for a school. This was the area of bare land in the southwest corner, earlier referred to as the School Site. Mr Port’s initial negotiation parameters included a lease term of 20 years with perpetual rights of renewal.
[15] Mr Port approached College Rifles. In a letter addressed to College Rifles, Mr Port proposed a lease of the School Site with a term of 33 years, perpetually renewable, with rent reviews every 11 years and a right to terminate on five years’ notice.5 College Rifles responded by suggesting the lease term should be 20 years, with rent reviewable every five years.
[16] To this suggestion, the Ministry reiterated that a lease with terms of 33 years should be adopted with provision for exclusive and joint lease areas and rent reviews. In his letter to College Rifles, Mr Port specifically recorded that while he was acting as an agent for the Crown, he did not have authority to conclude an agreement. He did, however, observe that in his view the Ministry’s proposal had long term benefits for College Rifles in that it provided a positive income stream for the next 99 years, would establish better club facilities without the need for the club itself to make capital investments, that it permitted the club to continue to operate from its traditional home base and that the activities of the school would be compatible with those of the club and would also carry the potential to provide exposure to the community and a base for club membership. For reasons which are unclear, it seems that negotiations between College Rifles and the Ministry then lost momentum.
[17] Not long afterwards, College Rifles received an approach from Kadimah School, (“Kadimah”) registering its interest in establishing a private school on the School Site. In July 1998 Kadimah provided College Rifles with a draft agreement to lease. The proposed lease was for an initial term of 20 years with rights of renewal in perpetuity. This was later changed to an initial term of 20 years with four rights of renewal of 20 years each. This change appeared to reflect an accommodation of and deference to the wishes of the Club’s membership expressed
at a special general meeting called to discuss Kadimah’s offer.
5 The reason a 33 year term was first offered (despite Mr Port’s initial negotiation parameter of a
20 year term) appears to relate to the standard term for Ministry leases at that time.
[18] After learning of the competing offer, the Ministry approached College Rifles again. There was some mention by the Ministry of the possibility of acquiring the School Site compulsorily and negotiations with the Ministry recommenced. Negotiations with Kadimah were suspended. However, the lease terms negotiated between College Rifles and the Ministry were similar to those of the Kadimah proposal and included an initial term of 20 years with four rights of renewal of 20 years each.
[19] It is plain from a review of the correspondence and records covering the discussions at this time that both parties were proceeding on the basis that a school would, in fact, be built on the site and any lease would continue for much, if not all, of the five possible term renewals.
The agreement – its terms and conditions
[20] Ultimately, the Ministry agreed to lease the School Site from College Rifles on terms which were substantially the same as those contained in Kadimah’s 1998 offer.
[21] On 30 November 1999 College Rifles and the Crown signed the agreement. Set out below are the provisions which are relevant to the present discussion.
[22] Clause 2.1 set out the various interests and licences which College Rifles agreed to grant the Ministry.
“2.GRANT OF THE SPECIFIED ESTATES AND INTERESTS RELATED MATTERS
2.1 The Club will grant the Crown:
(a) A lease of the School Site at the rental and on the terms set out in the School Site Lease;
(b) A licence to use the Sporting Fields on the terms set out in the Sporting Fields Licence;
(c) A licence to use the Carparking Area on the terms set out in the Carparking Area Licence;
(d) An easement of Right of Way over the Access Route and the other easements relating to the provision of
services along or beneath any other defined easement route agreed by the PCG6 on the terms set out in the Right of Way and Services Easement.”
[23] Significantly, clause 2.4 provided for the payment of a licence fee from the possession date to the lease commencement date.7 This fee was equal to what the rental would have been under the School Site Lease. As the name suggests, the interim licence was intended to govern the parties’ relationship in the interregnum between the signing of the agreement and before the School Site Lease came into force. In clause 2.5 it recorded that during this period the parties would be bound by terms of the School Site Lease as if the School Site Lease had been executed.
“2.4In consideration for the Club granting to the Crown vacant possession of the school site and practicable access thereto as provided for in clause 2.6 below on the terms set out in clause 6.1 below the Crown will pay to the Club from the possession date down to the lease commencement date a licence fee equal to the rent and outgoings payable under the school site lease for that period. The licence fee shall be payable six monthly in advance. Any licence fee paid for a period beyond the licence commencement date shall be credited against the rent and outgoings payable under the school site lease.”
(Emphasis added)
[24] Clause 2.5:
“2.5Subject to the Crown’s right to cancel this Agreement pursuant to clause 3.1, the parties shall from the date of expiry of the licence referred to in clause 2.4 above (hereafter called the “Interim Licence”) and until the Crown has executed the school site lease or at the Crown’s option taken steps under the Act by proclamation or declaration to acquire the Crown’s leasehold interest in the school site on the terms contained in the school site lease, be bound by the terms of the school site lease as if the school site lease had been executed or established by declaration or proclamation under the Act (as the case may be).”
(Emphasis added)
[25] The agreement between College Rifles and the Ministry consists of two principal components.
(a) First, there is the interim licence referred to in clause 2.1(a) which was intended to apply until the Ministry obtained the necessary designation and consents to build the proposed school.
(b)Secondly, there is the School Site lease which was to be executed and come into force once the required consents had been granted.
[26] Of particular relevance to the present proceedings is clause 3 which sets out the right of the Crown to cancel the agreement if it was unable to obtain the required designation and consents.
[27] Clause 3 relevantly provides:
“3. DESIGNATION AND CONSENTS – CROWN’S RIGHT TO
CANCEL AGREEMENT
3.1The Crown shall expeditiously take all steps necessary to obtain:
(a) The designation of the School Site, Access Route and Carparking Area for education purposes on terms acceptable to the Crown; and
(b) The statutory and regulatory consents necessary to achieve the deposit of a survey plan with LINZ defining the School Site, Access Route and Carparking Area.
The Crown’s obligation to enter into and execute the School Site Lease and the related licenses shall be subject to it obtaining the requisite designation and consents referred to in paragraphs (a) and (b) above (“Designation and Consents”). If the Crown cannot obtain the Designation and Consents then, subject to compliance by the Crown with the provisions of clause 3.38 the Crown shall be entitled to cancel this agreement by giving three months written notice of cancellation to the Club.
3.2The provisions of clauses 3.1 and 3.3 shall take effect as follows, namely:
(a) The obtaining of the Designation and Consents by the Crown shall be deemed to be conditions subsequence included for the sole benefit of the Crown;
8 Clause 3.3 provides for the Crown to pay certain sums upon cancellation.
(b) Time shall not be of the essence regarding the obtaining of the Designation and Consents;
(c) The Crown shall not be entitled to cancel this agreement unless:
(i) The Crown has exhausted all steps required to obtain the Designation and Consents including appealing any decision of the Environment Court to the High Court unless the Crown’s legal advisers consider there are insufficient grounds for an appeal;
(ii) The Crown has carried out and completed at the Crown’s cost the Phase I Upgrading Work and has obtained a completion certificate for that work.
[…]”
[28] Also relevant is clause 1.1. That clause contains the definitions and interpretations. Of significance is the definition of the Lease Commencement Date. It provides that the commencement date for the School Site Lease is five business days after the Crown’s written advice to the Club that the conditions contained in clause 3.1 relating to the securing of a designation and consents have been satisfied. On this definition, the lease commencement date has not occurred because the Ministry has not taken any steps to apply for a designation or any consents.
[29] As can be seen, clause 3.1 requires the Crown to expeditiously take all necessary steps to obtain a designation for education purposes and the necessary statutory and regulatory consents.
[30] The possession date is defined in clause 1.1 as 1 October 1999.
The School Site Lease
[31] The School Site Lease provides for an annual rental of $135,000 plus GST, payable annually in advance on the first day of October in each year with the first payment being due on 1 October 1999.9 The initial term of the lease is 20 years from
the Commencement Date with four further rights of renewal of 20 years each.10
Provision is also made for five yearly rent reviews during the continuance of the lease or any renewal period.11
[32] Also of particular relevance to the present proceedings is clause 3.0612 which provides as follows:
“3.06 Lessee’s Break Option
The Lessee shall have the right or option exercisable at any time after the expiry of the second 20 year term of this Lease (namely after 40 years from the Commencement Date) to determine this Lease by giving to the Lessor not less than six months prior written notice of termination. The Lessee shall be liable to pay rent and outgoings up to the date of expiry of the Lessee’s notice of termination.”
Conduct following signing of agreement
[33] Although the Crown was required expeditiously to obtain the necessary designations and consents for the School Site and had the right to cancel the agreement if the designations and consents were not obtained,13 it elected not apply for these.
[34] However, from 1 October 1999, the possession date, the Crown commenced paying and has continued to pay the licence fee required under clause 2.4 up until the present. The interim licence pursuant to clauses 2.4 and 2.5 of the agreement has continued to run.
[35] The Ministry has paid the licence fee and College Rifles has instigated a rent review every five years from 1 October 1999. The initial licence fee of $135,000 plus GST per annum was increased to $274,854 plus GST per annum as a result of the 2004 rent review and to $303,458 plus GST per annum in 2009. The latest
licence fee following the 2014 rent review is $658,776 plus GST per annum.
11 Schedule A, item 9.
12 Schedule B, Part III.
[36] The Ministry has also paid operating expenses in lieu of outgoings. Over recent years the operating expenses have increased from $35,295 plus GST in
2009/2010 to $38,072 plus GST in 2013/2014.
[37] Furthermore, the Ministry undertook upgrading works to improve the storm water drainage, relocated training lights, upgraded the sports fields and external toilets, laid surfaces to the School Site, resealed the carparking area, formed and sealed a right of way from Haast Street and demolished an old training shed. This initial work was for the Club’s benefit and is estimated to have cost $277,000.
[38] Meanwhile, the Ministry has not occupied the School Site or built any improvements on the School Site which have prevented College Rifles from continuing to use the School Site for its own purposes. With the Ministry’s agreement, College Rifles and its sub-lessees (a health and fitness club) have had exclusive use of the carpark area without any payment to the Ministry.
[39] The need for a new school in the Remuera/Meadowbank area, as predicted by the Ministry in the mid-1990s, has not materialised. Consequently the Ministry has still taken no steps to obtain a designation or consents for a new school.
[40] On 26 March 2008, the Ministry formally advised College Rifles that it no longer required the School Site for the establishment of the school. College Rifles was advised the Ministry intended to terminate the agreement and the licences upon expiry of the first term.
Does this Court have jurisdiction to make the declarations sought by College
Rifles?
College Rifles’ claims for relief
[41] I turn now to consider the declaratory relief which College Rifles claims.
[42] In its statement of claim College Rifles seeks three declarations:
(a) a declaration as to the terms of the School Site and consequently, the term for which it claims the Ministry is liable to pay the licence fee in clause 2.4 of the agreement;
(b) a declaration that the Ministry is liable to pay the licence fee in clause
2.4 of the agreement for a period of two years in addition to the term of the School Site Lease; and
(c) alternatively, declarations that the Ministry is estopped from claiming it is not bound by the following:
(i)the term of the School Site Lease and term for which the Ministry is liable to pay the licence fee in clause 2.4 of the agreement is 40 years from the date of the agreement; and
(ii)the Ministry is liable to pay the licence fee in clause 2.4 of the agreement for an additional period of two years in addition to the term of the School Site Lease.
Declarations
[43] The Declaratory Judgments Act 1908 (“the Act”) recognises two distinct jurisdictions under which the Court may grant a declaration. The first of these, created by s 3 of the Act, applies where a party seeks a declaration concerning the construction of a statute, deed or other instrument. The second, under the Court’s inherent jurisdiction but recognised by s 2 of the Act, applies in all other situations where a party seeks a declaration of its rights.14 Historically a distinction existed
between these jurisdictions in that declarations under s 3 were brought by
14 Gouriet v Union of Post Office Workers [1978] AC 435 (HL) at 501, see also the comments of Lord Wilberforce at 483; these comments were cited with approval in Gazley v Attorney-General (1995) 8 PRNZ 313 (CA) at 318. The jurisdiction under s 2 has repeatedly been observed to be wider than that under s 3: Johnston v Johnston (1990) 2 PRNZ 323 (HC) at 324, upheld on review in Johnston v Johnston [1991] 2 NZLR 608 (HC) at 616; Re Chase [1989] 1 NZLR 325 (CA) at 333. It has also been equated with the jurisdiction provided by the Civil Procedure Rules in England: Johnston v Johnston (1990) 2 PRNZ 323 (HC) at 323-324.
proceedings on originating summons whereas declarations under s 2 were brought by way of ordinary proceedings.
[44] Regardless of the jurisdictional basis, declarations are a discretionary remedy.15 In the context of proceedings under s 3, courts have frequently observed that declarations are inappropriate in cases requiring the determination of contested facts.16 Courts have also used the discretion to refuse the remedy to avoid addressing purely hypothetical questions17 or giving advisory opinions.18 While there has been some dispute around whether the procedure now set out in Part 18 of the High Court Rules means that concerns about contested facts should now be left
behind,19 there remains a strong consensus that courts should not issue declarations
under s 3 where this would require the determination of contested facts.20 It is an open question whether the same applies to declarations under s 2.21 However for reasons which will become clear later in this judgment, it is not necessary to determine this question in the present proceedings.
[45] College Rifles initially brought the application for a declaration under s 3 of the Act. However, it also seeks a declaration in relation to a claim of estoppel. During the hearing, I raised with counsel my concerns that this relief did not fall within the s 3 jurisdiction and, in any event, appeared to involve the determination of contested facts. I called for further submissions on this issue. Mr Moodley for College Rifles has helpfully referred me to a number of cases where the Court considered making a declaration in relation to a claim in estoppel. I have been particularly assisted by the decision of Wylie J in Miharo Farm Ltd v Allen, where
his Honour was prepared to allow an application for a declaration to proceed under
15 Re Chase [1989] 1 NZLR 325 (CA) at 333.
16 Ambrose v Attorney-General [2012] NZAR 23 (HC) at [33]; Hayes v Parlane [2014] NZHC
2416 at [33]; Mandic v Cornwall Park Trust Board [2011] NZSC 135, [2012] 2 NZLR 194 at
[5]-[8].
17 Re Chase, above n 15, at 333; Gazely v Attorney-General, above n 14, at 318-319; Telecom New Zealand Ltd v Commerce Commission (2005) 3 NZCCLR 40 (HC) at [44]-[46]; Canterbury Regional Council v Attorney-General [2009] NZAR 611 (HC) at [22].
18 Auckland City Council v Taubmans (New Zealand) Ltd [1993] 3 NZLR 361 (HC) at 365;
Canterbury Regional Council v Attorney-General, above n 17, at [22] and [24].
19 Yeoman v Public Trust Ltd [2011] NZFLR 753 (HC) at [62]-[66].
20 Ambrose v Attorney-General, above n 16, at [33]; Hayes v Parlane, above n 16, at [33]; Mandic v Cornwall Park Trust Board, above n 16, at [5]-[8]. However, there is indication that this is no longer the case in the United Kingdom: Lord Woolf and Jeremy Woolf The Declaratory Judgment (4th ed, Sweet & Maxwell, London, 2011) at [3-38].
21 Ambrose v Attorney-General, above n 16, at [35]; Hayes v Parlane, above n 16, at [35].
s 2 of the Act, notwithstanding that it had initially been brought under s 3.22 I intend to adopt a similar approach in this case.
[46] By proceeding under s 2, the Court is entitled to make declarations in relation to a wider range of matters than those set out in s 3 of the Act. Courts have previously noted this jurisdiction is very broad, and should not be read down.23 I am satisfied the present proceeding falls within this jurisdiction because it involves a question as to the present and future rights of the parties. However, the remedy remains discretionary, and it is still necessary to consider whether a declaration should be granted in any event.
[47] I am satisfied that the dispute in the present proceedings is genuine and not merely hypothetical. I am equally satisfied that the declarations sought by College Rifles do not violate the rule against giving advisory opinions. However, it is clear that the declarations sought, both as to the construction of the agreement and as to estoppel, require the Court to determine contested facts. Thus this raises the question of when, if ever, the Court may make such a determination in the course of proceedings seeking a declaration.
[48] For reasons set out more fully later in this judgment, I consider that the declarations sought by College Rifles should not be granted. However, I am satisfied that had the application been successful, I would have granted it, notwithstanding the issues of disputed fact involved. I consider that the restrictions around determining contested facts on a declaratory judgment largely relate to the procedure applicable to applications under s 3. Given that I have had the benefit of receiving oral evidence heard pursuant to r 18.15 of the High Court Rules and given there is a clear advantage and benefit to the parties in resolving the dispute at this time, notwithstanding that no cause of action has yet arisen, I consider it would have been in the interests of justice to grant a declaration.
[49] I now turn to the question of whether the declarations themselves can succeed.
22 Miharo Farm Ltd v Allen [2014] NZHC 2623 at [2]-[3].
23 Re Chase, above n 15, at 333.
What is the proper interpretation of the agreement?
The legal framework
[50] While contractual interpretation has historically focused on assigning meaning to the precise words of a contractual instrument,24 modern contractual interpretation seeks to identify the meaning which that instrument has in its full context.25 To this end, courts have been willing to consider the “factual matrix” in which a contract has been signed in order to elucidate its true meaning.26 While the extent of this factual matrix remains an open question, there can no longer be any doubt that it includes the contract itself, its surrounding circumstances (objectively
viewed and understood) and the subsequent conduct of the parties.27 Furthermore,
there also appears to be a growing consensus that the parties’ prior negotiations may
also be considered to the extent they reflect the objective purpose of the agreement.28
[51] This liberalisation in contractual interpretation has also extended to the question of implied terms. Where previously the courts were constrained to considering a series of different tests for implying a term into a contract, each with strict limitations and firm requirements,29 implication is now regarded as merely one part of the Court’s interpretive toolbox.30 In short, when asked to imply a term into a contract, the Court is invited to ask whether the term is part of what the contract
really means.
[52] For these reasons, the true meaning of an agreement can only be identified in light of the surrounding facts. It is for the parties to persuade the Court that their
preferred meaning is correct.
24 See, for example, Benjamin Developments Ltd v Robt Jones (Pacific) Ltd [1994] 3 NZLR 189 (CA).
25 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912-913; Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] NZLR 444 at [11], [62] and [127].
26 Vector Gas, above n 25, at [5].
27 See especially Vector Gas, above n 25, at [30]-[31]; Gibbon Holdings Ltd v Wholesale
Distributors Ltd [2007] NZSC 37, [2008] 1 NZLR 277 at [52]-[53].
28 Vector Gas, above n 25, at [13] and [22].
29 See, for example BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (PC).
30 Attorney-General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988.
Parties’ submissions
[53] In the present case, Mr Moodley submits the contract, on its proper construction, requires the Ministry to continue to lease the School Site for at least forty years. In support of this submission he relies on the various statements made by the Ministry as to its long term intentions and the long term benefits to College Rifles derived from the lease. He also relies on cl 3.06 of the lease, the so-called “Break Clause”, which gives the Ministry a right to cancel the agreement, on six months notice, after 40 years. As such, Mr Moodley argues it is a term of the agreement, either express or implied, that it will endure for at least forty years before the Ministry is lawfully entitled to terminate it.
[54] Additionally, Mr Moodley submits that the first term of the agreement was not intended to commence immediately, but only after a period of around two years. He arrives at the two year period on the basis this was the time it would have taken for the Ministry to obtain the necessary designation and consents had it acted with appropriate expediency. He thus submits that the lease commencement date should be treated as being 30 November 2001 (i.e. two years after the agreement was signed), and the remaining dates under the contract calculated accordingly.
[55] Conversely, Mr Stephen for the Ministry submits that while it initially intended to occupy the site for most, if not all, of the possible 100 year term, the Ministry did not commit itself to that plan in a binding fashion. He points out that all of the representations were made by agents who did not have the authority to bind the Ministry, a fact which was clearly conveyed to College Rifles. Mr Stephen submits the contractual rights of renewal are just that; rights which allow the Ministry to renew the agreement if it so elects to at the end of the first 20 year term.
[56] In relation to the break clause, cl 3.06, Mr Stephen submits this clause was designed to provide the Ministry with an additional right to cancel during or in the course of the future terms of renewal. It should not be interpreted as creating the only right the Ministry can invoke to cancel. Thus Mr Stephen submits the Ministry has two mechanisms under the agreement which it can exercise to terminate.
(a) The first is to elect not to exercise its right to renew following the expiration of the 20 year term, and every twenty years thereafter.
(b) The second is to terminate at any time after the expiry of the second
20 year term on six month’s notice.
[57] On the issue of the lease commencement date, Mr Stephen accepts that the lease has not formally begun, but submits both parties’ actions have been consistent with a decision to treat the lease as commencing on 30 November 1999.
Discussion and analysis
[58] As such, there are two questions which the Court must address in interpreting the contract.
(a) The first is what is the minimum period under the contract before the
Ministry can terminate?
(b)The second is what date should be treated as the effective lease commencement date.
[59] I shall deal now with each of these questions in turn.
(a) What is the minimum period under the contract before the Ministry can terminate?
[60] As already noted, Mr Moodley advances two principal grounds in support of his claim that the agreement prohibits the Ministry from terminating the agreement any earlier than at the end of the second 20 year term. First, he relies on the representations made by the Ministry and its agents during the negotiations leading up to the signing of the agreement. Secondly, he submits that the effect of the break clause creates a right of cancellation only after 40 years. Taken separately or together, he submits that on its true construction the agreement was never intended to permit the Ministry to end the lease after the expiration of the first 20 years.
[61] I shall deal with each of these submissions in turn.
[62] In support of his submission that the Ministry’s pre-contractual representations demonstrate its intention to be bound for the full 100 year term, Mr Moodley relies on the evidence of Mr Rope, the general manager of College Rifles who was involved in the negotiations between College Rifles and the Ministry. Mr Rope said that not only did the Ministry’s representatives never indicate that the Ministry would occupy the School Site for an initial term only but, during the course of negotiations, the Ministry led College Rifles to believe it would occupy the School Site for the entirety of the lease.
[63] In support of this claim Mr Moodley refers to Mr Port’s letter of 17 June
1988 in which he listed what he believed were the long term benefits to College
Rifles, including the creation of a positive income stream “… for the next 99 years”.
[64] However, the context of that comment and Mr Port’s limited authority is to be found just two paragraphs earlier in the same letter. There he emphasised his role was as an agent for the Crown and he did not have authority to conclude a settlement. In my view these comments must be assessed in the context in which they were made. They were not intended as binding representations of commitment nor could they have been received as such.
[65] Next Mr Moodley refers to other aspects of evidence which he submits are indicia of the Ministry’s intention to be committed for the full 100 year term. He places some reliance on a PowerPoint presentation made to members of College Rifles in June 1999. In particular, he refers to comments recorded on one slide which described the term of the lease as:
(a) Initial term of twenty (20) years.
(b) Subsequent Terms: Four further rights of renewal of twenty (20)
years.
Then, under the heading, “Final Expiry Date” the following is recorded:
(c) If all rights of renewal are exercised the Final Expiry Date shall be one hundred (100) years after the Commencement Date.
[66] I have difficulty accepting this slide amounted to a representation by the Ministry it was committed to occupying the site for more than the first 20 year term of the lease. The slide specifically referred to the initial term of 20 years with four further rights of renewal of 20 years each. Even to an unsophisticated audience, which understandably no one has suggested the members of College Rifles in 1999 were; the meaning of a right of renewal is not a difficult concept to comprehend. As the plain words convey, it is a right to renew; a right which can be exercised at the option of the party which possesses the right; in this case the Ministry. It must have been obvious from the face of the slide that the initial term was for 20 years after which the term could be extended if the Ministry chose to exercise its right to renew. The reference to the final expiry date being 100 years after the commencement date is expressly conditional on all rights of renewal being exercised. It is inconceivable anyone could have been misled by this presentation into believing the Ministry was somehow locked into a 40 year commitment, let alone a 100 year commitment.
[67] Mr Moodley also makes reference to a memorandum, apparently prepared by the Ministry, for its own internal purposes in November 1999, which summarised the main changes to the agreement. Listed as one of the changes was the Crown’s right to cancel the lease at any time after the commencement of the third 20 year term. This was a reference to the break clause which was included in the School Site Lease. For the reasons discussed later in this judgment I do not regard this document as supporting College Rifles’ argument on this point.
[68] Mr Moodley refers to other indicia which he submits demonstrate the parties’ expectation that their contractual relationship would be long term. He points to College Rifles’ purchase of an adjoining property on Hilltop Street apparently to alleviate traffic issues once the school was established and the reconfiguration of the principal sports field driven by the need to construct a retaining wall to accommodate the School Site.
[69] It is plain from this evidence that at the time the parties entered into the agreement and, no doubt, for a period afterwards, both were under the impression the contractual relationship was likely to be an enduring one. However, the evidence reveals it was abundantly clear to College Rifles at all times that the negotiations were subject to contract, a point expressly stated by the Ministry’s agent at a very early point in the negotiations. The negotiations were conducted through an agent with the final binding agreement prepared by the Ministry. In these circumstances College Rifles must have understood it was the final document, in executable form, which would regulate and determine the parties’ future contractual relationship; not the various optimistic and other statements which preceded it.
[70] In any event, I do not consider that the representations made were sufficient to amount to contractual promises. A negotiation of this kind is necessarily an evolving process. Terms and conditions which may have reflected the parties’ sincerely held intentions at an early stage in the negotiations are often amended, added or removed to reflect the fluidity and dynamic quality implicit in contractual negotiations. While the parties may have hoped, indeed expected, their contractual relationship would be an enduring one, this does not prevent the relationship being terminated earlier where the contractual document clearly permits such a course. Again, I am satisfied that the optimistic statements of intention were just that. They do not amount to binding statements of contractual commitment to be bound to a longer term than that expressly provided for in the document which recorded the agreement and which both parties signed.
[71] Next, the agreement expressly provides for 20 year terms. It also expressly reserves to the Ministry the right to elect to renew or not renew the term of the contract. The meaning of this express provision is plain. It flies in the face of common sense the parties, in fact, agreed to a longer term.
[72] Furthermore, College Rifles was represented by professional legal advisors. Senior members of the club were experienced in real estate, property and commercial matters. They were represented by a senior commercial property
solicitor who at the time was a partner of a large Auckland law firm.31 In these circumstances it is inconceivable that College Rifles could have believed the agreement they had with the Ministry meant anything other than that which is plainly conveyed on the face of the documents themselves. Given the availability of this expertise it would have been a simple matter for College Rifles to have asked that the documentation record an initial term of 40 years in the School Site Lease. It did not do so. In that event College Rifles must be taken to have understood that the documents executed specified 20 year terms and there was no guarantee or assurance that the rights of renewal would, in fact be exercised. Indeed, the draft School Site Lease gave the Crown up to three months prior to the expiry of each 20 year term to
decide whether or not to exercise its right of renewal.32 This provision would have
been otiose if the parties had, in fact, separately agreed the Crown would automatically elect to renew.
[73] Finally, I do not consider that the lessee’s break option clause 3.06 demonstrates an intention on the part of the Ministry to renew the contract at the 20 year mark. Clause 3.06, which is described in the School Site Lease as the “Lessee’s Break Option”, provides the Ministry with a particular right of cancellation, exercisable at any time after the expiry of the second 20 year term, namely 40 years from the commencement date. The ability to exercise this right is quite separate from the right of the Ministry not to exercise its right of renewal following the conclusion of the initial 20 year term.
[74] As previously discussed, but for clause 3.06, the Ministry would be prohibited from terminating the lease at any time other than at the end of each 20 year term. The inclusion of clause 3.06 recognises the need to provide College Rifles with some degree of security during the first two terms before the Ministry could exercise its break option at any time. Under this regime College Rifles is guaranteed the initial term of 20 years and, if renewed, one further whole term before
the Ministry was able to terminate the lease during the currency of a term rather than
31 The Chairman of College Rifles at the time of the negotiations with the Ministry was
Mr Peter Thompson, managing director of Barfoot & Thompson Real Estate in Auckland.
32 Clause 4.06 provided that subject to the lessee observing and performing its covenants under the lease and giving the lessor at least three calendar months’ notice, the lessor was required to renew the lease on request.
at its conclusion. That this was plainly the understanding of the Ministry and its agents in November 1999 when the agreement was being negotiated, is apparent from the internal memorandum mentioned earlier in this judgment. The Ministry’s legal officer initially declined to approve the contractual documentation because, on his reading of the lease, it initially appeared to him that the Crown was being locked into a minimum of two 20 year terms. However, Mr Port assuaged this concern when he explained the position in the following way:
“The Crown is not locked into a minimum of 2 x 20 yr terms. Until the designation is complete the Crown may withdraw from the transaction. At the end of the first term of 20 years, it may decline to renew, as it may do at any subsequent 20 year period. What is superior in this deal [as opposed (sic) a normal commercial lease transaction] is that at any time after the second renewal the Crown may terminate upon six months notice until the Lessee’s Break Option clause 3.06.”
[75] I am satisfied that this interpretation must be the correct one. It thus follows I conclude that clause 3.06 is not to be interpreted with the effect the Ministry cannot terminate the lease before the expiration of 40 years.
[76] The term of the lease is expressly stated as including an initial term of 20 years from the Commencement Date and with four further rights of renewal of 20 years each. If the Ministry elected not to renew by giving notice on 26 March 2008 (less than nine years into the first 20 year term) of its intention not to renew, it is entitled to do so at the expiration of the initial term of 20 years following the Commencement Date.
(b) What date should be treated as the effective lease commencement date?
[77] In addition to the School Site Lease, Mr Moodley submits that a period of two further years would have been required before the School Site Lease would have commenced. This is the period which College Rifles estimates the Crown needed in order to obtain the necessary designations and consents. He submits that the initial
20 year term began to run once the period of the interim licence had expired following satisfaction the conditions contained in clause 3.1.
[78] Mr Moodley submits it was the understanding of the parties that a period of two years would be necessary for this process to be completed. He refers to the
evidence of the Ministry’s agent, Mr Port, who advised College Rifles that this was the anticipated timing. Mr Moodley also relies on the evidence of a resource management planner who deposed that the timeframe for obtaining the necessary consents would require a total period of 13 to 17 months with a further six to eight months needed to accommodate any appeals.
[79] Thus Mr Moodley submits that a further period of two years from the date the agreement was executed on 30 November 1999 would have been required by the Ministry to obtain the designation and consents required by clause 3.1 and accordingly College Rifles seeks a declaration in that regard.
[80] Mr Stephen submits that such a declaration would be inconsistent with the terms of the documentation executed by the parties and would serve no useful purpose when the purpose of the interim licence is properly understood. He submits that the interim licence was intended to enable the upgrading work to be completed and cover the period during which the Ministry was attempting to obtain a designation. That, he submits, is shown by the interim licence ending on the lease commencement date, being five business days after the Crown’s written advice to College Rifles that the conditions relating to obtaining the designation and consents had been satisfied. In their negotiations, as reflected in the agreement as executed, the parties did not seek to identify the amount of time required to comply with clause
3.1. Furthermore, clause 3.2 provided time would not be of the essence for obtaining the designation consents. Rather, Mr Stephen submits, the parties entered into an interim licence under which the Crown would pay a licence fee until such time as the designation was obtained.
[81] Whatever is the position, the agreement provided that the 20 year term was to commence when the lease came into effect. This was either when it was executed or five business days after the Ministry advised College Rifles in writing that the conditions relating to the securing of the designation and consents had both been satisfied. Neither of these events has occurred.
[82] At the hearing I raised with counsel the possibility the Ministry may have waived the condition under clause 3 of the agreement thus bringing the lease into
effect. This proposition was strongly rejected by both parties. In particular, Mr Stephen submits that had the lease commenced without obtaining the relevant consents it would have been in breach of the law. Similarly, College Rifles submits that the current agreement was still a licence rather than a lease but with certain terms of the lease imported by implication.
[83] I accept the submission of both parties that the lease has not commenced. Rather, the parties must be taken to have varied their initial contract to include the rent review and renewal clauses contained in the agreement. In doing so, I note it is now increasingly accepted that parties to an agreement may vary their contract without providing fresh consideration especially where there is a practical benefit in doing so.33 However, in the present case, the right to perform rent reviews under the licence must amount to consideration for permitting the renewal period to begin to run.
[84] This, however, does not resolve the question of when the 20 year term commenced. Nothing in the draft School Site Lease provides for an additional period and I accept Mr Stephen’s submission that clause 2.4 cannot be used to arbitrarily add an additional two years to the term of the interim licence.
[85] It is thus necessary to examine the rent reviews undertaken by College Rifles. The timing of these reviews is inextricably connected to the 20 year term and thus it follows both must be regarded as having begun to run at the same time. The first rent review took effect in 2004 which is five years after the agreement was executed. The following review took place in 2009, five years later. The most recent review, which is the subject of dispute, took effect in 2014. It is plain from this chronology that both College Rifles and the Ministry accepted the renewal period commenced immediately upon the signing of the agreement. It did not, as College Rifles contend, begin to run only after the expiry of the two year licence period.
[86] For this reason I am of the view that through their subsequent conduct both parties agreed to treat 30 November 1999 as the lease commencement date and they
have conducted their commercial relationship since then reflecting that agreement
33 Anton’s Trawling Co Ltd v Smith [2003] 2 NZLR 23 (CA).
for the purposes of calculating the subsequent rent review dates and thus the expiry of the first 20 year term.
[87] It follows that the Ministry is at liberty to exercise its election not to renew the agreement at the conclusion of the first term which I determine expires on
30 November 2019.
[88] I thus decline to grant the declaration sought by College Rifles as to the interpretation of the agreement.
Is the Ministry estopped?
[89] In the alternative College Rifles seeks a declaration that the Court should apply the principles of equitable estoppel to prevent the Ministry from electing not to renew the lease after the expiry of the initial 20 year term.
Legal principles
[90] The parties are agreed on the essential elements of estoppel. The party alleging an estoppel must show:34
(a) a belief or expectation has been created or encouraged through some action, representation, or omission to act by the party against whom the estoppel is alleged;
(b)the belief or expectation is being reasonably relied on by the party alleging the estoppel;
(c) detriment would be suffered if the belief or expectation is departed from; and
(d)it would be unconscionable for the party against whom the estoppel is alleged to depart from the belief or expectation.
34 James Every-Palmer “Equitable Estoppel” in Andrew Butler (Ed) Equity and Trusts in
New Zealand (2nd Ed, Thomson Reuters, Wellington, 2009) 601 at 613-614.
[91] The first elements were described by Richardson J in Burbery Mortgage
Finance as:35
“It is well settled that where one party has by words or conduct made to the other a clear and unequivocal promise or assurance intended to affect the relations between them and to be acted on accordingly, then once the other party has taken him at his word and acted on it, the one who gave the promise or assurance is bound by that assurance unless and until he has given the promisee a reasonable opportunity of resuming his position.”
[92] The second element of reasonable reliance is judged by the standards of objective reasonableness in three senses:36
(a) the belief or expectation must have been reasonably held; (b)
it must have been reasonable for the representee to have relied on the belief or expectation; and
(c)
ongoing reliance must also have been reasonable.
[93]
The
representee cannot reasonably hold a belief or expectation in
circumstances where the representee knew or should have known that the person making the representation was not authorised to do so. An estoppel will not arise in those circumstances.37
[94] Reasonable reliance is to be assessed objectively and depends on the circumstances and the nature of the belief. Where the party relying on the belief becomes aware that the other party intends to depart from it, the first party must take reasonable steps to mitigate its position.38
[95] Reasonable reliance is a relevant factor in assessing unconscionability. Changing circumstances may also mean that it is not unconscionable for a promise
not to be kept.39
35 Burbery Mortgage Finance and Savings Limited v Hinds Bank Holdings Limited [1989] 1 NZLR
356 (CA) at 361; Gillies v Keogh [1989] 2 NZLR 327 (CA).
36 Every-Palmer, above n 34, at 614-615.
37 At 614-615.
38 At 615.
39 At 618-621.
College Rifles’ submissions
[96] Mr Moodley submits College Rifles relied on the representations made by the Ministry that the lease would endure for at least 40 years and it did so reasonably. He submits the conduct of the Ministry before and after the execution of the agreement lead to the creation of a belief or expectation on the part of College Rifles that the Ministry would renew the lease after the expiry of the initial term. Mr Moodley submits College Rifles’ expectation of a long term relationship and long term benefits has been relied on by College Rifles to its detriment. College Rifles ceased negotiating with Kadimah and resumed negotiating with the Ministry. He submits College Rifles entered into the agreement influenced by the repeated representations by and on behalf of the Ministry regarding the “long term benefits” to College Rifles. Mr Moodley submits College Rifles will suffer detriment if the Ministry is permitted to depart from the expectation it created because College Rifles will not obtain the full benefit to which it is entitled under the agreement and the School Site Lease, including not obtaining the proper rental to which it is entitled.
[97] Mr Moodley submits that College Rifles has suffered detriment by entering into the agreement with the Ministry after abandoning negotiations with Kadimah. Had those negotiations been completed, he submits, it would have resulted in a lease for the School Site with Kadimah on a long term basis which would have provided real and long term benefits to College Rifles.
[98] Finally, he submits it would be unconscionable for the Ministry to depart from the expectations it created through the various representations it made regarding the long term benefits to College Rifles. He submits that in the course of the negotiations the Ministry “flexed its governmental muscles” by introducing into the negotiations the possibility of compulsorily acquiring the land at a time when College Rifles was undertaking negotiations with Kadimah. He submits that entering into a lease with Kadimah would have had long term benefits to College Rifles because Kadimah was committed to securing a long term occupancy of the School Site evidenced, amongst other things, by the fact that Kadimah proposed a lease in perpetuity.
[99] In support of this submission, Mr Moodley relies on Dowell v Tower Corporation.40 In that case the tenant who negotiated a three year lease was concerned to obtain sufficient security of tenure. The lessor, a large insurance company, through its agents, reassured the tenant by advising it was not the company’s policy to include rights of renewal in a lease but that renewals were “always” given provided the tenant had complied with the terms of the lease. The
effect of this advice was repeated to the lessee’s solicitor who had advised the lessee against entering into the agreement without sufficient confirmation of the renewal. As a consequence of these assurances a lease was entered into. The lessee incurred expenses in fitting new carpets, equipment and undertaking minor alterations. At the end of the term the lessor advised it was not prepared to renew the lease and a notice to quit was issued.
[100] Williamson J was caustic in his criticisms of the lessor’s officers stating that they “deliberately lead [the lessee] to expect that he would be granted a renewal of lease.” He said the plaintiff was entitled to conclude the refusal was a pretence to accord with company policy and the true position was that if the lessee had complied with the other terms of the lease he would automatically be granted a renewal.
Citing the principles regarding equitable estoppel in other cases41 his Honour
concluded the lessor was estopped from refusing a renewal of the lease and he ordered damages to the lessee.
[101] In my view the representations made by the lessor’s agents in Dowell are quite different from the present. In response to a direct question as to whether a renewal would be granted, the lessor in that case was advised the renewal would always be given provided the tenant had complied with the terms of the existing lease. In the present case there has been no express or unequivocal representation as to renewal and, of course, in the present case the agreement expressly reserved the
right to the Ministry to terminate after the expiration of one term.
40 Dowell v Tower Corporation (1991) ANZ ConvR 178 (HC).
41 Burbery Mortgage Finance and Savings Limited above n 35.
Discussion and analysis
[102] In my view there are two primary obstacles to College Rifles’ claim in estoppel. The first is the vagueness and nature of the representations alleged to have created the belief or expectation on the part of College Rifles that notwithstanding the express terms of the agreement, the Ministry would renew the term of the lease following the expiration of the first term. The second difficulty relates to the claim that College Rifles reasonably relied on that representation. This is because any statements of intention made by the Ministry were never intended to have legal force.
[103] As to the alleged representations, Mr Rope claimed that during the negotiations College Rifles was lead to believe by an unnamed person the Ministry would occupy the School Site for the entirety of the lease. College Rifles’ solicitor, Mr Delugar said Mr Port indicated the lease term would fall between 40 and 60 years. Mr Thompson said that College Rifles was told that the Ministry would exercise the rights of renewal available to it under any lease.
[104] Irrespective of the limitations when declarations are sought where the evidence is controversial, for the reasons I have already expressed I cannot accept it is possible to elevate the above comments to the point I am satisfied they amounted to representations or promises of the sort College Rifles claims. It thus follows that even if I was to find the representation or representations were made I am not satisfied they were reasonably capable of being relied on by College Rifles.
[105] Mr Thompson and Mr Delugar also asserted that the right to terminate the lease on the provision of written notice (“the break clause”) was a new matter introduced to the negotiations when it was discussed at the November 1999 presentation. On the evidence this cannot be correct. Earlier iterations of the agreement contained versions of the break clause. The evidence of Mr Stallman, who is employed by the Ministry as its Acting Manager of the National Portfolio Team, was that a break clause is a standard requirement in Ministry leases. By way of example he pointed to the option to break after 15 years being found in clause
3.06 of the standard form long term lease and an option to break after seven years
was found in the draft lease, albeit struck out, which Mr Delugar sent Mr Port on
14 June 1999, five months before the November presentation.
[106] In explaining the reason for including such a clause, Mr Stallman said that given the uncertainty around the level of demand for school places it is important the Ministry possesses a degree of contractual flexibility; pointing out that it would not be desirable to keep a school open purely because of a financial commitment unconnected to a site’s educational relevance or how it contributes to the educational network. The Ministry achieves this flexibility by having relatively short and frequent rights of renewal as well as a break option. As he pointed out, the option to break, which was a feature of the documentation throughout the negotiations, did not indicate a desire to be committed for 100 years; rather it created a particular ability for the Ministry to exit well before that point, and not at the conclusion of a 20 year term, if circumstances changed.
[107] I am satisfied, having regard to all of the evidence, that any statements made by the Ministry’s agents and officers about a long term lease were no more than a reflection of the mutual hope a renewal would be exercised, if warranted in the future. These statements, made in the context of fluid and evolving contractual negotiations, were not clear and unequivocal promises or assurances the lease would be renewed. The comments about a possible 100 year term, which were made in the context of PowerPoint presentations, clearly stated the proposal involved an initial term of 20 years and that a 100 years would only eventuate if “all rights of renewal were exercised”.
[108] As I have discussed earlier in this judgment, College Rifles’ interests were represented by legal experts and by others with extensive experience in commercial property matters.
[109] Further, an estoppel cannot arise where the person asserting a belief knew or should have known that the person making the representation was not authorised to do so. Mr Port made it clear he was not authorised to bind the Crown. This was confirmed by correspondence within the Ministry at the time which recorded that negotiations on both sides were expressly “without prejudice” and “subject to
contract” and that neither party had authority to make any commitments of behalf of
their principal.
[110] I am satisfied that not only were the Ministry’s statements of intention never intended to have legal force but this was also made clear to College Rifles from the language of the final agreement, the terms of which make it plain the Ministry was not committing itself to a 40 year or longer contractual relationship with College Rifles. In these circumstances it is entirely unreasonable for College Rifles to now seek to rely on those statements.
[111] It follows I am not satisfied it would be unconscionable for the Ministry to resile from its earlier statements of hopeful intention. However, even if College Rifles had reasonably relied on the Ministry’s statements of intention I have considerable reservations about the loss which it claims and its failure to mitigate its losses.
[112] The commercial terms of the proposed Kadimah transaction which the Ministry was encouraged to match also included an initial term of 20 years with further rights of renewal of 20 years. College Rifles could have had no more reasonable expectation the rights of renewal would be exercised by Kadimah than by the Ministry. I also note in this regard the evidence of Mr Stallman that Kadimah subsequently expanded its operations on its site in central Auckland. However, by
2010 Kadimah’s roll had declined to the point it applied for, and was accepted, to be integrated into the state school system. This turn of events emphasises both the likelihood Kadimah would not have exercised its right to renew after the first term and the plain need for the school to preserve flexibility in the face of changing demographics and educational demands.
[113] Finally, as to unconscionability, changing circumstances may mean that it is not unconscionable for a promise not to be kept.42 Even if the Ministry had promised to renew the lease, which I do not accept, the educational and demographic
justification for a new school had changed to the extent it would have been an abuse
42 Every-Palmer, above n 34, at 621.
of process for the Minister to attempt to obtain a designation given there was no longer sufficient evidence justifying the need for a new school on the site.
[114] This conclusion arises from Part 8 of the Resource Management Act 1991 which provides for the obtaining of designations. The Minister of Education is a requiring authority under s 166 and thus has the power to give a notice of requirement for public work to the relevant territorial authority, in this case the Auckland Council. A notice of requirement must contain a statement from the Minister confirming the designation for the work is reasonably necessary for achieving the objectives of the Minister of Education. Given the reassessment of the educational needs in the Remuera/Meadowbank area and the conclusion a new school was no longer justified, it seems likely that for the Minister to seek a designation in such circumstances would amount to an abuse of process.
Conclusion
[115] For these reasons I decline to grant the declarations as sought by College
Rifles.
[116] The Ministry, as the successful party, is entitled to costs. The question of costs was not addressed at the hearing. In the circumstances of this case I am of the view that any award of costs should be made on a 2B basis. If the parties are unable to agree as to costs I shall receive memoranda on the issue within 20 working days
of the date of this judgment.
Moore J
Solicitors:
Brookfields Lawyers, Auckland
Crown Law, Wellington
1
6
0