Max Fortuna 3 Ltd v Kitchener Trust Investments Ltd
[2024] NZHC 3458
•20 November 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-000837
[2024] NZHC 3458
UNDER the Arbitration Act 1996 IN THE MATTER
of an appeal against Arbitration Tribunal’s award
BETWEEN
MAX FORTUNA 3 LTD
First Appellant
JI HO RYU
Second AppellantAND
KITCHENER TRUST INVESTMENTS LTD
Respondent
Hearing: 22 August 2024
(Further submissions filed: 6 September 2024)
Counsel:
S Kang for Appellants
J Carlyon and R C B Kendall for Respondent
Judgment:
20 November 2024
JUDGMENT OF BREWER J
This judgment was delivered by me on 20 November 2024 at 10 am pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Fairbrother Family Law (Napier) for Appellants Meredith Connell (Auckland) for Respondent
MAX FORTUNA 3 LTD v KITCHENER TRUST INVESTMENTS LTD [2024] NZHC 3458 [20 November 2024]
Introduction
[1] On 17 January 2024, Mr Royden Hindle (the Arbitral Tribunal) gave a partial award in favour of Kitchener Trust Investments Ltd (the landlord). The issue was whether Infrastructure Growth Charges (IGCs), imposed by Watercare Services Ltd (Watercare) on the landlord in response to the use of water by Max Fortuna 3 Ltd (the tenant), as tenant of the landlord’s property, should be paid by the tenant. The Arbitral Tribunal ruled that they should be paid by the tenant.
[2] The tenant obtained leave to appeal (with the consent of the landlord) on a question of law:
Whether the Arbitration Tribunal made an error of law holding that Watercare’s Infrastructure Growth Charge (IGC) was a levy/outgoing under the parties’ Agreement to Lease and Deed of Lease that the first plaintiff Max Fortuna 3 Ltd as lessee is liable to contribute $60,100 plus GST towards it (performance of which has been guaranteed by the second plaintiff, Mr Ryu).
[3] During the hearing on 22 August 2024, Mr Kang, for the tenant, made an oral application to extend the question of law. This was a surprise for counsel for the landlord, who opposed the application. In my Minute of 22 August 2024, I granted Mr Kang’s application and gave my reasons. I amended the question of law to read:1
Whether the Arbitration Tribunal made an error or errors of law in holding that Watercare is a local or territorial authority and that its Infrastructure Growth Charge (IGC) was a levy/outgoing under the parties’ Agreement to Lease and Deed of Lease that the first plaintiff Max Fortuna 3 Ltd as lessee is liable to contribute $60,100 plus GST towards it (performance of which has been guaranteed by the second plaintiff, Mr Ryu).
[4] I gave counsel for the landlord the opportunity to have a further oral hearing or to file written submissions. Counsel chose the latter course.
[5] In addition to the tenant’s appeal, leave was granted to the landlord to bring a cross-appeal. The question of law is:
1 I commented further in [14] of my Minute: “It should go without saying that changing the scope of the appeal on the morning of the appeal with the consequence of delay is likely to be taken into account, adversely to the appellants, when costs are ordered.”; Max Fortuna 3 Ltd v Kitchener Trust Investments Ltd HC Auckland CIV-2024-404-000837, 22 August 2024 (Minute of Brewer J).
Whether the Arbitral Tribunal made an error of law in determining that an Infrastructure Growth Charge (IGC) is not an outgoing payable by a [tenant] under the second category of outgoings in the ADLS Deed of Lease (sixth Edition, 2012 (4)). That category being: “charges for water, gas, electricity, telecommunications and other utilities or services, or line charges”.
The Arbitral Award
[6] I adopt the Arbitral Tribunal’s account of the background (and leave in interpolations of comment which are relevant to the appeal):
[11]Aside from assessment of the volume of water consumed by the tenant, the facts are not the subject of any real dispute.
[12]The subject property is at 164 Great South Road, Manurewa (the ‘property’). It comprises six commercial units, one of which is leased to the tenant (the ‘premises’). The other businesses conducted by tenants at the property are:
(a)a legal firm;
(b)a surveying company;
(c)a travel and tourism business;
(d)a barber; and
(e)a hairdresser.
[13]Mr Ryu is the director of the tenant. He appeared at the hearing to represent the tenant. He has also guaranteed the obligations of the tenant under both the documents referred to below.
[14]The tenant first occupied the premises under an agreement to lease dated 16 January 2018 (the ‘agreement to lease’). It has operated the business of a laundromat at the premises since.
[15]In August 2018 the tenant applied for a resource consent to install a groundwater bore at the property. The application was ultimately withdrawn, but the landlord says the initiative shows that the tenant was looking for an alternative water supply to limit or avoid Watercare charges that it knew would apply.
[16]At the time, the owner of the property was Kermani Properties Limited. Kitchener Trust Investments Limited purchased the property from Kermani Properties Limited on 8 August 2019, and so became the landlord.
[17]Not long afterwards, in October 2019, it received an IGC assessment from Watercare. I take the following explanation from Mr Delmont’s evidence:
The IGC is a charge imposed by Watercare to fund Watercare’s growth related capital investment costs. Where a commercial property increases (or expects to increase) its demand on the network, Watercare levies IGCs in accordance with the level of increased demand. The extent of any water use is measured in development unit equivalents (DUE), with IGCs being charged on a per DUE basis. Where the DUEs used by a property exceed the permitted baseline (typically 1 DUE) the property incurs IGCs on a per DUE basis. Unsurprisingly, this is a particular issue with laundromats, which use significant amounts of water well in excess of anything that a typical commercial premise would use. Watercare publishes specific guidance about the IGC charges for laundromats.
[18]In March 2020 Watercare charged the landlord $72,120.00 excluding GST in respect of IGC’s.
[19]The parties (i.e., the landlord and the tenant) met and corresponded about the issue as to which of them was liable for the charge. The tenant did not accept that it was responsible. It refused, and continues to refuse, to reimburse the landlord for it.
[20]In August 2021 Watercare advised that it had re-assessed liability for IGCs having regard to the actual measured use of water. The assessment was for the year ended June 2021. That resulted in additional charges of $61,600.00 excluding GST. The total is thus
$133,720.00 plus GST.
[21]The issue concerning the IGC’s notwithstanding, on 21 December 2021 the parties entered the Deed of Lease pursuant to which the tenant currently occupies the premises (the ‘lease’).2
[22]Relevant provisions of the lease include the following:
(a)the annual net rental (i.e., before OPEX) is $56,572.50 excluding GST;
(b)the tenant’s proportion of outgoings (‘OPEX’) are estimated at $10,917.50 per annum;
(c)the permitted business use is given as ‘Retail’. There is no suggestion that the laundromat business operated by the tenant is not within the scope of that activity;
(d)the lease is for an initial term of eight years with two rights of renewal each for 3 years (i.e., with a final expiry date of 28 February 2032);
(e)the tenant is required to:
2 There are a few differences between the agreement to lease and the Deed of lease. I do not regard any of them as making any difference to the outcome of the issues I am asked to decide. Unless it is necessary to refer specifically to the agreement to lease, I refer to the Deed of lease and will call it simply ‘the lease’.
“… pay the outgoings properly and reasonably incurred in respect of the property which are specified in the First Schedule. Where any outgoing is not separately assessed or levied in respect of the premises then the Tenant shall pay such proportion of it as specified in the First Schedule or if no proportion is specified then such fair proportion as shall be agreed or failing agreement determined by arbitration. Any such amounts shall be paid without deduction or set off.”3
(f)there is a list of 13 different categories of outgoings the First Schedule to the lease. Of particular relevance here, the list:
(i)excludes reference to a $2,000.00 limit in item (5) relating to insurance excess;4
(ii)includes “(1) Rates or levies payable to any local or territorial authority.”; and
(iii)includes “(2) Charges for water, gas, electricity, telecommunications and other utilities or services, including line charges”.5
(g)clause 3.5 provides:
The outgoings shall be payable on demand or if required by the Landlord by monthly instalments on each rent payment date of a reasonable amount as the Landlord shall determine calculated on an annual basis. Where any outgoing has not been taken into account in determining the monthly instalments that shall be payable on demand.
(h)clause 3.6 provides:
After the 31st March in each year of the term or other date in each year as the Landlord may specify, and after the end of the term, the Landlord shall supply to the Tenant reasonable details of the actual outgoings for the year or period then ended. Any overpayment shall be credited or refunded to the Tenant and any deficiency shall be payable to the Landlord on demand.
(i)there is an indemnity provision in clause 48.1:
The Tenant will indemnity the Landlord, and keep the Landlord indemnified from and against all actions, claims, demands, costs, damages and expenses for which the landlord shall be or may become liable in respect of any loss, damage
3 This combines clause 3.1 of the standard form and the amendments at item 1 under the heading “Second Schedule” in the Third Schedule (“Further Terms”) of the Deed. It is slightly different from the comparable provisions of the agreement to lease but the differences do not matter here.
4 As in the special conditions. I also see that the special conditions have deleted clause 3.7 of the standard from. I note these things only because they show that the parties turned their minds to the list of outgoings, and the relevant provisions of the standard form, before the lease was signed.
5 As particularised in the list of outgoings listed in the First Schedule of the ADLS form attached to the 2018 lease. There are a total of 13 different items in the list.
or accident of whatsoever nature or kind or howsoever sustained or occasioned and caused or contributed to by any wilful or negligent act or omission on the part of the Tenant or the employees, agents or invitees of the Tenant EXCEPT where such indemnity shall breach the provisions of the Property Law Act 2007.
(j)where the tenant defaults in payment of any moneys payable then it is required to pay default interest at a rate of 14% per annum (clause 5.1 and the First Schedule);
(k)the tenant is obliged to pay the landlord’s legal costs as between lawyer and client of and incidental to the enforcement of the landlord’s rights, remedies and powers under the lease (clause 6.1, as amended by the special conditions);
(l)Mr Ryu has guaranteed the obligations of the tenant.
[23]Ms Carlyon described the lease as being a ‘net lease’. The idea is that under the lease all costs related to the premises are to be reimbursed to the landlord, so that the rent received by the landlord is net of all outgoings attributable to the premises.
[24]The landlord attributes the fact that it has been charged IGC’s by Watercare to the tenant’s water consumption in operating its laundromat business at the premises.
[25]I note Mr Delmont’s evidence that the Watercare invoice for the additional IGC’s assessed in August 2021 was delayed for a period by Covid. In the meantime, he embarked on discussions with Watercare about the IGC’s:
“Kitchener owned another property in Glen Eden that had also been a laundromat, but was no longer used as one. Accordingly, the Glen Eden property had a 10 DUE baseline. I had understood that the unused DUEs could be transferred and my intention had been to sell the unused DUEs to another laundromat business. However, because Kitchener had to pay the IGC at the Property, I instead transferred from the Glen Eden property to the Property in part payment of the IGC. Ultimately, the IGC for the property was paid by transfer of 9 Dues from Glen Eden and a further payment of $24,040 (excluding GST) which we agreed would be paid in monthly instalments over 12 months.”
[26]I will return to this aspect below. However, it demonstrates that, once an IGC is paid, the resulting entitlement to access the water network is in the nature of a right in the landlord’s hands. It can be transferred to apply at a different property. Whether it can be transferred by a landlord to a tenant is less clear. I note that the possibility of the landlord selling the benefit of the IGC’s to the tenant has been discussed between the parties. The tenant’s position is that a lessee cannot own the right to access the public water network that is conferred by payment of IGC’s.
[27]Before turning to the substantive issues, I make two observations:
(a)at least in part, the tenant’s case asks me to accept that, when it entered into the deed of lease, it did so knowing that its laundromat business would incur charges because of its water use amounting to something in the order of $180,000.00 plus GST,6 while at the same time believing that the landlord would willingly pick up the whole of that tab - despite the fact that annual rental (on what was meant to be a net lease) was only $56,572.50 plus GST. Even accepting that the IGC’s are one off charges,7 and the lease had an eight-year minimum term (excluding renewals), it is a difficult proposition to accept;
(b)the second arises out a submission made for the tenant about the discussions that took place between the agreement to lease, and the signing of the deed of lease. It was suggested that, in effect, that gave rise to an opportunity to ‘negotiate’ what was to happen about the IGC’s; and that the landlord’s failure to do so now prevents it (the landlord) from requiring the tenant to meet the cost of the IGC’s. I deal with the issue of which party might have raised or pursued the IGC’s below, but there is in any event a more substantial obstacle to this part of the tenant’s argument. While it is true that a few changes were introduced before the deed of lease was signed, they were agreed. If they had not been, the parties were already bound by the agreement to lease. The tenant was obliged by that document to sign the deed of lease.
(some footnotes omitted)
[7] The first issue considered by the Arbitral Tribunal was whether Watercare is a local or territorial authority:
[35]The lease entitles the landlord to recover a fair proportion of the outgoings listed in the First Schedule to the lease from the tenant.
[36]Item (1) in the list is “Rates or levies payable to any local or territorial authority.”
[37]The first issue is whether Watercare (which, as noted, is a legal entity that is distinct from the Council) comes within the meaning of the words ‘local or territorial authority’ in the lease.
[38]Access to the public water network in the area under the governance of the Council is managed by the Council through Watercare. I note:
6 At 2021 rates, and allowing a 1 DUE baseline, 3,500 kilolitres would have resulted in close to 15 DUEs or $180,300.00 excluding GST. I recognise that lower rates for DUE’s applied in 2018, but the point remains. I add that (a) 3,500 kilolitres per annum was the volume estimated by the tenant in its application to sink the bore; and (b) the application was received by Council on 20 August 2018, which was a year before Kitchener Trust Investments Limited bought the property and became landlord.
7 If water use remains within the entitlement charged for, that is.
(a)Watercare is a Council Controlled Organisation (a ‘CCO’). CCO’s are provided for in Part 5 of the Local Government Act 2002 and have, amongst their principal objectives, the achievement the objectives of their shareholders19 (which, in Watercare’s case, is the Council);
(b)Watercare’s role is to discharge the Council’s responsibility for the public water network:8
We provide water and wastewater services to 1.7 million people in the Auckland region. In Papakura, we provide bulk services to Veolia Water, which manages the local community’s network and retail services. Our testing facilities, Watercare Laboratory Services, monitor and test drinking water and wastewater for over a third of New Zealand’s population.
(c)it operates under the Water Supply and Wastewater Network Bylaw 2015. Again, the Watercare website says that:
“This bylaw serves as a legally binding mechanism that enables us to protect our water supply and wastewater network assets. It replaces Auckland’s eight previous water supply and wastewater bylaws, standardising regulation across the region.”
(d)clause 6 of the Water Supply and Wastewater Network Bylaw 2015 provides that no-one may connect to, or disconnect from, the water supply network or the wastewater network without Watercare’s approval – and that Watercare has power to impose conditions for doing so (including the imposition of charges);
(e)Watercare is accountable to the Council under the Council’s CCO Accountability Policy;9
(f)It has the rights and obligations in respect of water supply and wastewater services for Auckland as are set out in Part 5 of the Local Government (Auckland Council) Act 2009.
[39]Watercare is owned by Council. It discharges an essential Council function under empowering bylaws promulgated by Council. It is accountable to Council for doing so.10 It may be a separate legal entity, but I have no doubt that it ‘stands in the shoes’11 of Council for all practical purposes.
8 Watercare “Resident Homepage” < Council “Council-controlled organisations’ (CCO) Accountability Policy and Statement of Expectations” < is more that could be added: I agree with all the points in the analysis at paragraphs 3 to 17 of the submissions for the landlord that were filed after the hearing on 4 December 2023.
11 To borrow a phrase from Moncrief-Spittle & Anor v Regional Facilities Auckland Limited [2021] NZCA 142, [2021] 2 NZLR 795 at [50].
[40]I consider that Watercare falls within the meaning of the words ‘local or territorial authority’ in item (1) of the categories of outgoings listed in the First Schedule to the lease.
[8] This conclusion is challenged in the tenant’s extended ground of appeal.
[9] The second issue considered by the Arbitral Tribunal was whether IGCs are a levy.
[10]Having consulted dictionaries and having noted:
[43] The IGC’s are not amenable to negotiation, whether as to liability, or threshold, or amount. They are, in the nature of an assessment, fee or contribution that is payable to a governmental organisation. They are imposed on property owners under circumstances that are regulated by Watercare.
the Arbitral Tribunal concluded:
[48]I conclude that:
(a)the IGC’s at issue in this case are in the nature of levies payable to a local authority;
(b)they therefore fall within item (1) in the list of outgoings set out in the First schedule to the lease;
(c)it follows that the tenant is liable to pay a fair proportion of the IGC’s incurred by the landlord.
[11] This conclusion is also challenged in the tenant’s extended ground of appeal.
[12]The third issue addressed was whether IGCs are a charge for water.
[13]The Arbitral Tribunal decided that IGCs are not charges for water:
[50]If item (2) in the categories of outgoings listed in the First Schedule to the lease (i.e., “charges for water, gas, electricity, telecommunications and other utilities or services, including line charges”) had been the only relevant category, I would not have upheld the argument for the landlord because:
(a)all the elements listed are for consumables, but the IGCs are not ‘consumable’ in the same way as (for example) a periodic charge for water passing from the public network into a property and out to wastewater. While liability for the charges depends on the volume of water used according to the number of applicable DUE’s, the charges are not for water but for the right to access the public water network. They are ‘one-off’
charges for an asset that the holder can then transfer from one property to another;
(b)I do not see that the reference to line charges assists the landlord. It may be true that in the cases of electricity, gas and telecommunications (for example) there are costs for the use of infrastructure, but they are costs that are repeated on a periodic (usually monthly) basis, nonetheless. Payment of line charges in one period does not mean that they will not be payable again, or that the payer has any right to access the infrastructure in a later period without having to pay for line charges for the later period;
(c)nor do I think the argument that the lease is a net lease is sufficient to justify a conclusion that IGC’s are amongst the kind of outgoings contemplated by the words “… charges for water, gas, electricity, telecommunications and other utilities or services, including line charges”. I certainly accept that the intention behind a net lease would be relevant if there were an ambiguity to be resolved. But the starting point is that a landlord can only look to recover an outgoing from a tenant under the ADLS standard from if its right to do so is set out in the lease. That is no doubt the reason why the list in the First Schedule contains thirteen different elements. I do not see the right to access the water network that is obtained on payment of the IGC’s as being a charge for water.
[14] This conclusion is challenged by the landlord on cross-appeal.
The tenant’s appeal
[15] Mr Kang made oral submissions on his contention that the Arbitral Tribunal erred in holding that Watercare is a local or territorial authority.
[16] Mr Kang points to definitions in s 5 of the Local Government Act 2002 (the Act). Local authority “means a regional council or territorial authority”. Territorial authority “means a city council or a district council named in Part 2 of Schedule 2”. The submission is that Watercare is not within either of those definitions, and is a fundamentally different corporate entity since it is not captured within the purpose of local government (as set out in s 10 of the Act), namely to enable democratic local decision-making and action by, and on behalf of, communities.
[17] I respectfully agree with the Arbitral Tribunal for the reasons he gave. The reference in the lease to “local or territorial authority” does not exclude wholly-owned
corporate bodies which are vehicles used by local or territorial authorities to perform mandated functions. That would be a far too literal interpretation.
[18] Mr Kang’s written submissions focus on the issue of whether the Arbitral Tribunal erred in holding that IGCs are in the nature of levies.
[19] Mr Kang submits, as a preliminary point, that the Arbitral Tribunal erred in applying the 2021 lease as the operative lease. He points out that both IGCs were assessed during the currency of the 2018 lease. Since “background knowledge” of parties entering a contract can be relevant to the proper construction of the contract, it is the 2018 lease which must be construed.
[20] In Mr Kang’s submission, this means that the Arbitral Tribunal was wrong to take into account the fact that during the currency of the 2018 lease the appellant applied for permission to drill a water bore for the purpose of gaining a water supply for its laundry business.
[21] In my view, this is a point of academic interest only. Both the 2018 and 2021 leases have the same requirement for the tenant to pay “levies”. The issue of overriding significance is whether IGCs are levies.
[22] Mr Kang submits that IGCs are not “specified” as an outgoing required to be paid. Further, he submits that a levy connotes a non-refundable and non-transferable payment. An IGC can, in some circumstances, be transferred. The landlord transferred the benefit of an IGC payment made in respect of another of his commercial properties to the subject property. And, Mr Kang submits:
Furthermore, IGCs are arguably (and should be) refundable. As currently there is no direct legislation governing Watercare’s policy regarding IGCs, it remains as a contract with landlords. However, s 354 of the Water Services Entitles Act 2022 (which has been repealed for political reasons) once introduced a system in which IGCs-equivalent was to be refunded when no longer in use. Judicial recourses, including a review by the High Court, may well be appropriate if Watercare should refuse to refund the IGCs when the lease is terminated in this case.
[23] Finally, Mr Kang submits there is no compelling reason to read IGCs into the payable outgoings. The interpretation is not needed to give the lease business efficacy.
[24]I agree with the Arbitral Tribunal’s reasons and its conclusions.
[25] At the risk of being repetitive, Watercare is effectively a territorial authority. It charges customers for their use of water. The charges increase as water use increases. At a certain volume of use, IGCs are imposed on top of standard water charges. The payment of IGCs is neither optional nor negotiable. I agree with the submission by counsel for the landlord:
12Although the Tribunal dismissed the IGCs as rates, Kitchener submits that the terms “rates or levies” are more appropriately read together. The two terms make it clear that the particular class of outgoings is intended to capture all fees relating to the property that are imposed by a regional or territorial authority. At a minimum, the inclusion of both rates and levies makes it clear that levies are intended to capture any fees imposed by the relevant authority in respect of the property that are not captured by rates. Here, the IGCs are a non-negotiable fee imposed by Watercare on the property owner. As the Tribunal said, they are clearly a levy falling within the specified outgoings.
[26] I do not consider that a right to transfer or sell an IGC would necessarily deprive it of its character as a levy. It is the requirement, the non-optional nature of it, and the non-negotiable assessment of it, by a territorial authority which make it a levy. In any event, there is no evidence in this case that a person required to pay an IGC has a right to make payment by transferring the benefit of an IGC paid on another property, or to sell the benefit of a paid IGC. The evidence is that Watercare permitted the landlord to transfer the benefit of its existing IGC in this case, not that the landlord had a right to do so.
[27]It follows that the tenant’s appeal does not succeed.
The landlord’s cross-appeal
[28] The landlord’s case is that the Arbitral Tribunal erred in deciding that an IGC is not a charge for water and, therefore, not payable by the tenant as an outgoing. The landlord says IGCs are outgoings or, alternatively, that they are charges for a utility or service.
[29] Technically, because of my finding on the tenant’s appeal, the cross-appeal is moot. I will address it for completeness and against the possibility that a further court might be called on to consider these issues.
[30] The landlord submits that there is no question that IGCs were levied based on the tenant’s use of water in its laundromat business. The landlord submits:
31Kitchener says that the IGC charges are a Utility Outgoing because they are a charge “for water” and/or “utilities or services”:
(a)The IGCs are incurred as a result of, and in proportion to, Max Fortuna’s water use;
(b)The IGCs are directly tied to access to water services. Failure to pay the charge results in Watercare denying access to water. If Max Fortuna’s water use increases, further IGCs will be levied;
(c)“Utilities” are infrastructure services, such as power, telecommunications and water. The IGC is a charge for access to and the use of Auckland’s water infrastructure services. It is difficult to see how that cannot be regarded as a charge for utilities or services; and
(d)The extent of the IGCs is a matter that is wholly within the control of Max Fortuna. Kitchener cannot control or circumscribe its water use and consequent IGCs. It would be inconsistent with the Lease generally and the Utility Outgoings more specifically if charges for water infrastructure charges were distinguished from other utility charges, such that Max Fortuna was able to accrue significant liabilities through its business activities that had to be met and paid for by Kitchener.
[31] The landlord submits the Arbitral Tribunal erred in holding that utility outgoings are “consumables”. The outgoings specifically include “line charges”, which are charges related to infrastructure costs.
[32] The landlord submits also that the Arbitral Tribunal erred in holding that utility outgoings, unlike IGCs, are characterised by periodic charging. The landlord submits:
38However, that is not a distinction that is drawn from the terms of the Lease. The Lease does not determine whether items are an outgoing by reference to the method of charging for those outgoings. Outgoings under the Lease are determined by reference to the particular item or service they relate to. In this case, that is water and/or water utilities or services. In Kitchener’s submission, the Tribunal erred by assessing
the outgoings by reference to the method of charging or payment for those utilities. Instead, it ought to have considered what the charge related to and whether that fell within the Utility Outgoings. For the reasons set out at paragraph 28 above, Kitchener says that the IGC plainly falls within the Utility Outgoings – they are a charge for access to Auckland’s water services.
39There is nothing in the Lease to support the proposition that outgoings, or at least the Utility Outgoings, are somehow limited to costs charged on a periodic basis. Max Fortuna is required to pay “the outgoings properly and reasonably incurred in respect of the property” and outgoings may be payable “on demand”. It is relatively common for outgoings to include ‘one off’ charges that are not repeated on a periodic basis (e.g. repair costs). That is recognised by the Lease allowing for outgoings to be paid on demand – that recognises and allows for outgoings that may not be consistent or periodic, but particular charges incurred during the course of the tenancy. The clear intent of the Lease is that all costs incurred by, and resulting from, Max Fortuna’s use of the Property will be met by Max Fortuna.
[33] The tenant supports the Arbitral Tribunal’s analysis and conclusion.
[34] In my view, if IGCs are not payments in the nature of levies, then they are water charges. They are assessed and charged directly on water consumption. If they are not paid, water will not be supplied. I do not think it matters whether they are charged periodically as opposed to every time the base consumption level which triggered the previous assessment is exceeded.
[35] Nor do I think it matters that an IGC is related to infrastructure capacity rather than consumables. That is just a matter of visibility or transparency. If the Arbitral Tribunal is correct, had Watercare built infrastructure costs into its periodic water charges, then they would be payable as water charges.
[36] I agree with the landlord that the lease is a net lease. The landlord is entitled to its rent clear of outgoings incurred because of the tenant’s use of the premises. The structure of the lease requires the outgoings attributable to the tenant’s use to be specified. The generic term “water charges” need not be read restrictively. IGCs are charges for the tenant’s water use. The tenant knew IGCs would be levied. So did the landlord. There is no reason of policy, or interpretation, to exclude IGCs from water charges.
[37]The cross-appeal will be allowed.
Decision
[38]The tenant’s appeal is dismissed.
[39]The landlord’s cross-appeal is allowed.
[40] I note the Arbitral Tribunal made its final award on 4 June 2024. Given my findings on this appeal and cross-appeal, I do not discern a need for ancillary orders as set out in paragraph 4 of the landlord’s Application for Leave to Appeal dated 24 May 2024. However, I reserve leave to the landlord to file a memorandum by 19 December 2024 in the event I have overlooked something.
[41] Costs are to be addressed by memoranda. The landlord’s memorandum is to be filed by 19 December 2024; the tenant’s memorandum by 24 January 2025.
Brewer J
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