Nicholls v Victoria University of Wellington

IN THE COURT OF APPEAL OF NEW ZEALAND

CA62/01

BETWEEN	REX NICHOLLS AND MICHAEL ROBERT CAMP
Appellants

AND	VICTORIA UNIVERSITY OF WELLINGTON
Respondent

Hearing:	7 November 2001
Coram:	Gault J Blanchard J Tipping J
Appearances:	W M Wilson QC and N M Gaffaney for Appellants J E Hodder and H C McQueen for Respondent
Judgment:	14 November 2001

JUDGMENT OF THE COURT DELIVERED BY BLANCHARD J

Between 1962 and 1982 the Victoria University of Wellington acquired the leasehold estates in some eight residential properties in Clermont Terrace, Kelburn, under the Public Works Acts 1928 and 1981. There had been seven different lessees or groups of lessees. The leases were for periods of 21 years and were perpetually renewable. In 1974 the University acquired the fee simple of the eight properties from the Board of the Wellington Methodist Charitable and Educational Endowments (the Trust Board). The Trust Board had apparently approached the University offering to sell its reversionary interest.
All the leases were then merged into the fee simple and new certificates of title were issued for an unencumbered fee simple interest vested in the University.
Last year the University decided that it no longer required any of the land. It has a power of sale under s192 of the Education Act 1987 subject to the consent, which was duly given, of the chief executive of the Ministry of Education.
The University took advice from a firm of property consultants concerning, inter alia, its obligations under s40 of the Public Works Act 1981:
40      Disposal to former owner of land not required for public work
(1)       Where any land held under this or any other Act or in any other manner for any public work—
(a)       Is no longer required for that public work; and
(b)       Is not required for any other public work; and
(c)       Is not required for any exchange under section 105 of this Act—
The chief executive of the department within the meaning of section 2 of the Survey Act 1986 or local authority, as the case may be, shall endeavour to sell the land in accordance with subsection (2) of this section, if that subsection is applicable to that land.
(2)       Except as provided in subsection (4) of this section, the chief executive of the department within the meaning of section 2 of the Survey Act 1986 or local authority, unless—
(a)       He or it considers that it would be impracticable, unreasonable, or unfair to do so; or
(b)       There has been a significant change in the character of the land for the purposes of, or in connection with, the public work for which it was acquired or is held—
shall offer to sell the land by private contract to the person from whom it was acquired or to the successor of that person—
(c)       At the current market value of the land as determined by a valuation carried out by a registered valuer; or
(d)      If the chief executive of the department within the meaning of section 2 of the Survey Act 1986 or local authority considers it reasonable to do so, at any lesser price.
(2A)     If the chief executive of the department within the meaning of section 2 of the Survey Act 1986 or local authority and the offeree are unable to agree on a price following an offer made under subsection (2) of this section, the parties may agree that the price be determined by the Land Valuation Tribunal.
(3)     Subsection (2) of this section shall not apply to land acquired after the 31st day of January 1982 and before the date of commencement of the Public Works Amendment Act (No 2) 1987 for a public work that was not an essential work.
(4)       Where the chief executive of the department within the meaning of section 2 of the Survey Act 1986 or local authority believes on reasonable grounds that, because of the size, shape, or situation of the land he or it could not expect to sell the land to any person who did not own land adjacent to the land to be sold, the land may be sold to an owner of adjacent land at a price negotiated between the parties.
(5)       For the purposes of this section, the term successor, in relation to any person, means the person who would have been entitled to the land under the will or intestacy of that person had he owned the land at the date of his death; and, in any case where part of a person’s land was acquired or taken, includes the successor in title of that person.

Section 40 applies to the University because the definition of “local authority” includes the Council of any university within the meaning of the Universities Act 1961.

The University was advised that no offer back was required because, in terms of subs(2)(a), it would be unreasonable and impracticable to do so. The report of the consultants referred to the merger of the leases. It also stated, incorrectly, that the University was restricted in granting new leases by the provisions of the Public Bodies Leases Act 1969. In fact, counsel are agreed, that Act does not apply in the circumstances of this case. The consultants also placed some reliance on the fact that the University had acquired the fee simple at the instigation of the Trust Board.
The Council of the University decided to call tenders for the land both in separate lots and in one block. Tenders were to close on 12 December 2000.
The appellants, Mr Nicholls and Mr Camp, are the owners of residences on the other side of Clermont Terrace opposite a part of the subject land. When they heard of the University’s proposal to sell and the calling of tenders they were concerned that the land might pass into the hands of a property developer who would under the district plan be able to build a large number of units. There would be an increase in traffic passing their houses. Because part of the land is higher than the Nicholls/Camp properties, their privacy might be affected.
The appellants took the position that the University was obliged to take steps to locate the lessees from whom it had originally purchased or their successors and to re-create the 21 year perpetually renewable leases and offer them back to those persons. They also considered that the University was obliged to offer back the reversion upon those new leases to the Trust Board. Mr Wilson QC, appearing for the appellants, has explained that his clients were of the view that it was very likely that one or more of the lessees would wish to re-acquire a leasehold interest in order to hold it themselves, rather than, as so often happens with land offered back under s40, passing it on immediately at a profit to a developer. If one or more of the original lessees or their successors reacted in this way, the prospect of a large development opposite the Nicholls/Camp properties would recede.
The appellants made an approach to the University through its solicitor, setting out their views. A letter from the appellants’ solicitor on 8 December refers to a meeting the previous day at which representatives of the University:
…agreed that the University would come back to Messrs Camp and Nicholls to discuss the matter further after the closure of tenders and before any tender for the vacant land was accepted.

The “vacant land” was two undeveloped sites which are part of the land in question.

The letter further stated that Messrs Camp and Nicholls had indicated that they would make a conditional tender for the vacant land “so as to be part of the tender process”.
On 11 December the University’s solicitor confirmed the contents of that letter, saying that they would “be honoured by the University, assuming your clients make a tender submission as indicated”.
The appellants did put in a tender for the vacant land. However, on 21 December, before any meeting had occurred, the University’s solicitor advised Mr Camp that the University considered the Nicholls/Camp tender to be “well short of the mark” and that the University was “dealing with preferred bidders”. The next day the University entered into an agreement to sell all the land to a developer, with settlement due on 31 March 2001.
The appellants commenced a proceeding against the University in the High Court at Wellington. Their statement of claim contained three causes of action, with two of which we are not presently concerned. They relate to an allegation that the appellants are adjacent owners in terms of s42 of the Public Works Act and an allegation of lack of consultation with the appellants by the University. The third cause of action concerned the University’s alleged obligation to offer the land back to the former owners of the individual leasehold estates under s40 and sought a declaration that the University was obliged to do so.
The matter came on for hearing before Ellis J on 13 March. He delivered a reserved judgment on 15 March, dealing with the matter with some urgency because of the pending completion of the sale and purchase.
The Judge recorded that it had been agreed that the University had made no efforts to trace or approach the previous lessees or the Trust Board. He said it had not been contended that it was impossible or impracticable to trace at least some of the previous owners or successors. It would have been possible for the University to re-create leases to replace those that merged with the freehold. It could have offered the equivalent of the old leaseholds to the previous lessees or the successors and the reversion back to the Board or its successor. Clearly the Judge considered that the University was obliged to take this course unless, in terms of subs(2), the Council could reasonably consider that it would be impracticable, unreasonable, or unfair to do so. The Judge said that there was much to be said for Mr Wilson’s submission that the Council had not been properly directed as to the decisions it had made in that respect.
However, the Judge then turned to the exercise of the discretion whether or not to grant relief to the appellants. He noted their claim that their amenities would suffer if high density housing proceeded on the land but said that the amenities of the area were controlled by planning ordinances. He thought that, on the information available to him, it was very unlikely indeed that, if the University approached the matter correctly, the land would be offered back. He considered also that if the matter reached the stage of a proposal to sell under the powers contained in s42, the University had a discretion under that section, and that Messrs Nicholls and Camp could not be in a better position than they were in when the property went out to tender.
He then referred to the undertaking given by the University’s solicitor, saying that in his view its purpose was to allow the appellants to try to negotiate a purchase of the vacant lots after tenders had revealed the market. But they had not come to Court saying they would match the successful tender, which was very much higher. It was plain to Ellis J on the valuation evidence that “to sell the land piecemeal would devalue the land left if the plaintiffs purchased two lots only”.
In the view of Ellis J, their rights depended on the alleged breach of undertaking. He appreciated that they were seeking to preserve amenities for their residential properties and so damages were an inadequate remedy for them. On the other hand, the University stood to lose “a very great deal” if the sale fell through. He mentioned the public interest in ensuring the University should comply with s40, noting the incorrect advice given to the University about the Public Bodies Leases Act. It had been reasonable for officers of the University and its Council to rely on the advice they had obtained from experts. There had been no suggestion of high-handedness or bad faith.
For these reasons, the Judge refused a declaration. But he said that it was still open to Messrs Nicholls and Camp to sue the University for damages. Because of the view he had taken about the University’s procedures “and the admitted breach of undertaking”, he was not prepared to make an award of costs.
There was an immediate appeal to this Court but it was unable to accommodate an urgent hearing prior to the settlement date. Settlement duly took place with the developer on 30 March.
The only matter which we have now been asked to consider on this appeal is whether the Judge was wrong to refuse the appellants a declaration that the University was acting in breach of s40 in failing to go through the offer back procedure involving the leasehold interests and the reversionary estate. Mr Wilson advised that it was important to have this question determined because his clients were contemplating bringing a proceeding for damages for the loss of amenities which they allege they have suffered because of the failure to comply with s40.
Mr Wilson also expressed his clients’ concern about the Judge’s conclusion that it was unlikely that the land would have been offered back even if the University had approached the matter correctly. However, Mr Hodder, appearing for the University, accepted that, in the context in which the Judge made this remark, no issue estoppel would arise preventing the appellants from contending to the contrary in any further proceeding. For his part, Mr Wilson accepted that the University was free to dispute questions relating to the undertaking.
We can state quite shortly why in our opinion it was not necessary for the University to offer the land back to the former leaseholders and the Trust Board. In the first place, as Mr Wilson accepted, there can be no question of any requirement to offer the present fee simple estates in the individual portions of the block to the former lessees, nor of offering the present fee simple estate, unburdened by leases, to the Trust Board. For that would be to offer an estate or interest considerably exceeding that which each of them had sold to the University.
What Mr Wilson did contend was that it was necessary for the University to offer back newly created leases equivalent in their terms (but with a current market rental) to those which had been acquired. In our opinion, however, to require this would be to require something which the words of s40 do not contemplate and which would be beyond the evident policy of the section. The opening words of subs(1), to which all subsequent references to “land” in the section are related, refer to “any land held…for any public work”. “Land” includes an estate or interest in land (s2). Therefore it includes a leasehold. But at the end of last year the University did not hold any leasehold estate or interest in the land and had not done so since 1982 when the former leases were extinguished by merger into the fee simple estate. For all purposes, they ceased at that time to exist. Henceforth the land “held” for a public work consisted of the fee simple estate only.
Nor, in our view, could it have been the legislative intent that an interest which has disappeared, and is no longer held, must artificially be re-created, necessarily from a new commencement date and at a rental which has not been fixed under or pursuant to the old leases and is merely an attempt to approximate a current rent for a renewed 21 year Glasgow lease. The statute appears to presuppose the continued existence of the estate or interest which was taken. We qualify this view only to the extent that the position might well be different, and re-creation might be required, if the process of extinguishment of a lease had actually been undertaken in anticipation of disposal of the land and for the very purpose of defeating the operation of s40. But there is nothing to suggest that would have been in the mind of the University in 1982.
Even if we had taken a different view on this point and had considered that s40 applied, we would nevertheless have concluded in the circumstances of this case that the Council of the University could very reasonably have concluded at the time when, at the end of last year, they were making the decision to call for tenders that it would be “impracticable, unreasonable, or unfair” for the University to have to re-create leasehold interests and then offer to sell them and the reversionary estate to the former owners. We say this not because there would appear to be any extraordinary expense involved in the re-creation exercise or in the tracing of the former owners or their successors, but because the artificial exercise which would be required would be so obviously and highly destructive of the value of the asset. The drafters of s40 no doubt contemplated that the fetter imposed on the department or local authority would in some instances reduce the amount which could be realised for the land being offered back. It must have been considered by those responsible for the section, when it was introduced in the 1981 legislation, that some degree of depreciation in asset value might be tolerable in the interest of providing an opportunity for land no longer needed for a public work to be restored to those from whom it had been compulsorily required. (We note, though, that it may often be very difficult to determine whether there was really any element of compulsion or, instead, merely a use of a convenient procedure to the mutual satisfaction of both parties, as in the case of the acquisition from the Trust Board.) But we are in no doubt that Parliament would not have intended requiring a department or local authority to go through the artificial process we have described in order to create a new estate or interest in land, where that would necessarily involve a very considerable reduction in the value of a publicly held asset.
We do not have before us valuation evidence comparing the likely result of offering back the new leasehold interests and the reversionary estate with what has been able to be achieved under an open sale by tender but, as Mr Wilson realistically accepted, the aggregate of the sums likely to be realised if that had been done would certainly be much less. The real value of this land is as a development site. A purchaser of the leasehold interests would presumably pay the value of the improvements. It is not obvious whether any significant amount would also be paid for the leasehold interests in the land itself since the newly granted leases would require payment of a current market rental which had just been fixed. What is very clear, however, is that it is most unlikely that a sale of the reversionary estate would realise a sufficient sum to come anywhere close to bridging the gap between what might be realised from sales of leases and the amount obtainable on open tender for the unencumbered land. It is notorious that there is a fairly limited market for any land burdened with a Glasgow (renewable) lease, particularly one where the rental would be adjustable only after each 21 year period. (On the basis of Mr Wilson’s argument, the University would not be able to ask for more regular rent reviews because the acquired leases did not provide for them except upon each 21 yearly renewal.) Since the hearing counsel in a joint memorandum have referred us to passages in the valuation evidence which are supportive of this view.
Even if what would be required of the University, had s40 had applied, could not be regarded as “impracticable”, in our view it could certainly have been considered by the University to be “unreasonable” or “unfair”, both to itself and to the tax-paying public.
The appellants are not entitled to the declaration they seek. Their appeal is dismissed with costs to the respondent of $5,000. The appellants must also pay the respondent’s reasonable disbursements, to be fixed if necessary by the Registrar.

Solicitors:

Simpson Grierson, Wellington, for Appellants
Chapman Tripp Sheffield Young, Wellington, Respondent

[2001] NZCA 319

14 November 2001