Norsand Limited v The Whangarei District Council HC Wha CIV 2008-488-231

[2008] NZHC 2406

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV 2008-488-231

BETWEEN  NORSAND LIMITED Applicant

ANDTHE WHANGAREI DISTRICT COUNCIL

Respondent

Hearing:         26 May 2008

Appearances: T J Savage for Plaintiff

G Mathias for Defendant

Judgment:      10 July 2008 at 2 pm

JUDGMENT OF ASSOCIATE JUDGE ROBINSON

This judgment was delivered by me on 10 July 2008 at2 pm pursuant to Rule 540(4) of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:           Urlich McNab Kilpatrick, PO Box 633, Whangarei

Thomson Wilson, PO Box 1042, Whangarei

NORSAND LIMITED V THE WHANGAREI DISTRICT COUNCIL HC WHA CIV 2008-488-231  10 July

2008

[1]       The applicant seeks an order that the caveat to protect his claim to an interest under an equitable lease in certain land of the respondent does not lapse. The land which is the subject of the caveat, situated at Fraser Street, Whangarei, is part of the land contained in certificate of title 234266 being Lot 2 deposited plan 367603 (known as the Kaituna block) and is portion of the land which falls to the east of the electricity easement marked “A” on deposited land 357603. The property concerned is more particularly displayed as being Lot 2 on the plan exhibit 1 to the affidavit of Mr Wilkinson the director of the applicant and filed in this matter on 23 May 2008.

[2]      The applicant had lodged caveat 7736554.1 dated 29 February 2008 and registered on 3 March 2008 to protect its claim to an equitable interest to lease the land from the respondent. An application to preserve that caveat was brought on 8

April 2008. Because the caveat had lapsed the applicant brought an application under s 148 of the Land Transfer Act 1952 to authorise the lodging of a second caveat in its place. The  application to authorise registration of a  second  caveat  came  on  for hearing on 28 May 2008 when it was opposed. The purpose of the application was to ensure that the applicant’s claim to an interest in the property would not be defeated pending the hearing and determination after full argument and consideration of all the evidence of the applicant’s claim to a caveatable interest. As the substantive hearing could occur within a reasonable time and consequently there would be very little if any prejudice to the respondent if the application for permission to lodge a second caveat was granted I granted the application and adjourned the proceedings for a defended hearing.

Background

[3]      The applicant Norsand Limited has operated a boatyard and haul-out facility on land owned by the respondent Whangarei District Council since 2004. The boatyard and haul-out facility is held by Norsand under a perpetual lease from the Whangarei District Council and is the land contained in Lot 1 DP 357603 and Lot 6

DP 92455. It is situated on an area known as the Kaituna Block on the Hatea River.

[4]      Since 2006 representatives of the Whangarei District Council have had many meetings with Mr Wilkinson the director of Norsand and Mr D Culham of Culham Engineering Limited concerning the proposed sale or lease of property of the council on the Kaituna Block including property of the council on the northern and western boundaries of property held by Norsand under its existing lease with the council.

[5]      Culham Engineering Limited also occupies land owned by the Whangarei District  Council  on  the  Kaituna  Block.  The  area  of  land  which  the  Whangarei District  Council  intends  to  sell  or  lease  can  be  subdivided  in  two.  Culham engineering has expressed interest in purchasing the larger part being Lot 3. Norsand has been negotiating with the council for the lease in perpetuity of Lot 2. Lot 2 consists of land to the north and west of the property at present leased by Norsand from the council whereas Lot 3 is land to the north and west of Lot 2 and adjoins land at present occupied by Culham Engineering Limited.

[6]      In  August  2006  Mr  Allan  Adcock  the  council’s  community  enterprises manager together with Mr Leo Breen who was then the acting property manager of the council met with Mr Wilkinson with regard to the potential sale or lease of the land in the vicinity of Lot 2 adjacent to the property then leased to Norsand. In the course of that meeting Mr Adcock acknowledges authorising Norsand to occupy the land under negotiation without charge. According to Mr Wilkinson he was told at that meeting he could treat the land concerned “as his own”. This is denied by Mr Adcock.

[7]      Mr Wilkinson also claims that at the meeting in August 2006 he showed Mr Adcock a line which extended north from the western boundary of Lot 1 DP 357603 being part of the land at present leased by Norsand from the council and received a positive response. However, a few days later Mr Wilkinson says he was contacted by Mr  Adcock  who  indicated  he  should  discuss  the  proposed  boundaries  with Mr D Culham and endeavour to reach a new agreement on the boundaries.

[8]      At a meeting of the council held on 17 August 2006, the council adopted the following resolution:

That having considered the request from Norsand Limited, Council agrees to the boundary adjustments as detailed on the plan on Page 40 of this Agenda with the intention of amalgamating the land shaded yellow into the existing Norsand Lease (for a period of 20 years with perpetual rights of renewal and with 5 yearly rental reviews) and that Council delegates to the Chief Executive Officer, authority to finalise the lease terms and conditions (including such payment as is to be determined for the Lessee’s Interest) with regard to this expanded area of the Norsand Lease.

[9]      Mr Wilkinson says that following the meeting in August 2006, he had a number of meetings with Mr Culham in an attempt to settle the boundaries. He also says Mr Adcock brought to his the attention council’s resolution of the meeting of 17

August  2006  with  regard  to  the  lease  of  the  additional  area.  Based  on  that information Norsand commenced development of the land referred to in that resolution. Development by Norsand included: -

a)       development of a metalled site access,

b)        land pre-loading, filling and development of much of the area c)           development of hard stand boat areas

d)       construction of a 3m high bund wall

e)        installation of a 32m x 6m concrete pad and storage containers for use by boat owners.

f)        installation of power supply to the hard stand and storage container areas.

[10]     Mr Wilkinson claims that he and Mr Culham eventually agreed on boundary adjustments.  The  agreed  boundary  adjustments  did  not  provide  for  access  from Fraser Street to the land being acquired by Culham Engineering Limited. Previous boundary adjustments had contained provision for such access. Consequently the land  being  acquired  by  Culham  Engineering  Limited  would  be  landlocked. Mr Wilkinson claimed that this final agreement between himself and Mr Culham as to boundaries is the land Mr Adcock refers to in his report to the council of 23

January 2007 which he recommended should be the land to be leased to Norsand.

[11]     At its meeting on 7 February 2007 the council passed a resolution which contained the following:

Further Amendment

Moved Cr Lieffering/ Seconded Her Worship the Mayor

1.   ..

2.   That previous resolutions relating to the disposal of land known   as   the   Kaituna   Block,   whether   by   sale, subdivision or lease, be rescinded.

3.   That  having  considered  the  request  form  Norsand Limited, Council agrees to the boundary adjustments as detailed on the plan in Attachment One of the Agenda with  the  intention  of  amalgamating  Lot  2  into  the existing Norsand Lease (for a period of 20 years with perpetual rights of renewal and with 5 yearly rental reviews) and that Council delegates to the Chief Executive Officer, authority to finalise the lease terms and conditions (including such payment as is to be determined for the Lessee’s Interest) with regard to this expanded area of the Norsand Lease.

[12]     On 16 October 2007 the solicitors for the council sent drafts of a licence to occupy and agreement to lease to Norsand for its consideration and assessment. The letter accompanying those documents stated:

Re:       Whangarei District Council – Kaituna Block

Council is currently negotiating with a number of parties over the development of the block of land owned by it known as the Kaituna Block which is the block of land immediately to the north and west of the property that your company currently leases from the Council.

Council has entered in negotiations with your company as well as Culham Engineering Limited over the possible subdivision of the Kaituna Block with a view to leasing part thereof to you by a perpetually renewable lease in terms by which you currently lease land from the Council such lease to be amended to the increased area and to provide for a new rental.

Obviously Council’s proposals require the formal confirmation of a number of parties so its dealing with you is interdependent upon all other parties agreeing to the terms offered.

A subdivision consent and the co-operation of a number of other parties is therefore required. In addition the proposals still require the formal approval of Council through its elected members.

Subject therefore to formal resolution of the elected members by Council we now enclose:

1.   Licence authorising your company to occupy the land adjacent to that leased for the current year while Council proceeds with a subdivision of the property; and

2.   Presuming   subdivision   consent   is   granted   a   draft agreement to lease for the additional area to be leased to you on the basis that such is amalgamated with the existing leasehold title such lease to be generally on the same terms and conditions (with a rent increase) as the new lease which has recently been completed.

These documents are forwarded as drafts only at this stage pending first your assessment of the same and secondly consideration and determination by Council to proceed with the overall transactions.

You may wish to arrange an appointment with your solicitor to discuss the enclosed documentation.

We look forward to your response.

[13]     As the council received no reply to that letter, the council’s solicitors advised Norsand by letter dated 15 April 2008 that the offers contained within the earlier letter are withdrawn.

[14]     The draft licence to occupy forwarded to Norsand by the council’s solicitors on 16 October 2007 was for a term of twelve months commencing on 1 January

2007. The annual licence fee was $27,202.10 plus GST.

[15]     The agreement for lease was to be for a term of twenty years commencing on

1 April 2006. Rent review dates were to be every five years. The annual rent was set at $27,202.10 plus GST per annum. The term of the proposed lease was to coincide with the term of the existing lease from the landlord to the tenant of the adjacent property. The area was described at 1.2434 hectares being part Lot 2 DP 357603 as shown as Lot 1 on an attached scheme plan of subdivision reference S8610 rev g prepared by Reyburn & Bryant (1999) Limited.

[16]     Mr Wilkinson says that the draft lease and licence to occupy forwarded on 17

October 2007 was not acceptable because of the following: -

a)       The licence to occupy was for a twelve month period to expire on 31

December 2007. At the time of receipt of that letter, there were only two months to run. Licence payments would be already ten months in arrears and penalty payments were liable.

b)Most of the land subject to the licence to occupy was undeveloped and in no fit state to be occupied or productively used until development work had been carried out.

c)       Clauses 8.4 and 9.1 (d) required the land to be variously “restored to its former condition” and kept in the same “condition as it was at the commencement   of   this   licence”.   These   clauses   appeared   to Mr Wilkinson to effectively prevent the land from being development.

d)       The lease agreement was conditional upon the council’s approval by

30 November 2007 after which it was voidable at council’s option. According to Mr Wilkinson the council’s minute show no record of the council resolving to proceed with the overall transactions.

e)       The lease agreement was subject to agreements with a number of other parties being concluded. Mr Wilkinson’s discussions with Mr Culham found that the conditions were unacceptable.

f)       Mr Wilkinson understands that none of the other inter-dependant agreements were finalised.

[17]     Mr Wilkinson advises that he conveyed his concerns about various aspects of the draft agreements to elected councillors and to council staff members who have visited the site.

[18]     In a letter to the council on 16 January 2008 Mr Wilkinson states:

Norsand currently leases two parcels of land from the WDC. The lease to

Lot 6 DP 92455 (0.93ha) was the block originally leased while Lot 1 DP

357603 (1.215 ha approx.) was subsequently leased to accommodate the expanding boatyard business. This block was mainly low-lying swampy land

that has been developed by Norsand at no cost to the Council.

Norsand  has  subsequently  been  attempting  to  lease  from  Council  an additional area of the Kaituna Block since a development proposal for the Kaituna Block was first put forward by Council in 2002.

In approximately February 2006, at a meeting myself and Council’s Alan Adcock  and  Leo  Breen,  an  additional  area  of  the  Kaituna  Block  was identified by a line drawn on a map that Norsand was interested in acquiring

to accommodate its expansion plans. I subsequently agreed to a lesser area (identified as Lot 2 of a proposed subdivision by boundary adjustment, as shown on the attached plan) in favour of Culham Engineering’s proposal to acquire land for the construction and launching of oil tankers.

Subsequently to the February 2006 (approx) meeting, I was advised by Mr Adcock that Norsand could treat the identified land parcel (proposed Lot 2) as its own, subject to the possible loss of an access way off the end of Fraser Street if the land should be required for subdivision other than by way of boundary adjustment. I have proceeded to develop proposed Lot 2 to accommodate increasing demand for Norsand Boatyard’s services.

Norsand recognises that the Property Focus Group of the previous council strongly recommended that “the property be leased, not sold, to maximize the financial return to ratepayers.” Norsand recognises Council’s policy of leasing land  rather than selling,  but  has  on  occasions  made  an  offer  of purchase when it appeared that council was changing its policy. Norsand’s preference is to lease additional land rather than purchase it, consistent with Council’s general policy.

A  report  to  Council  by  the  Community  Enterprises  Manager  dated  23

January 2007 confirms a resolution adopted by Council on 17 August 2006 as follows:

“On 17 August 2006…The resolution adopted was…’That having considered the request from Norsand Ltd., Council agrees to the boundary adjustments as detailed on the plan on Page 40 of this agenda with the intention of amalgamating the land shaded yellow into the existing Norsand lease…and that Council delegates to the Chief Executive Officer authority to finalise the lease terms and conditions.. with regard to this expanded area of the Norsand lease.”

“A provisional boundary adjustment was agreed between the parties as a priority so that valuations could be prepared.”

Since  that  time  (August  2006),  Norsand  has  consistently  sought  from Council a copy of the amended lease but to date has been unsuccessful. It is understood   that   Council’s   ongoing   and   unresolved   negotiations   with Culhams may be the cause of the delay.

The report to Council by the Community Enterprises Manager dated 23

January 2007 confirms that Norsand had been given approval to develop and use Lot 2:

“Arrangements with Norsand for Lot 2 have been on hold pending finalization of the sale of Lot 3, as there will be only one opportunity to complete the required boundary adjustments. In the meantime, permission has been given to Norsand to begin preliminary earthworks (which consist mainly of pre-loading), and storing of yachts on hard stands on what will become their extended site. As soon as possible, a new leaser document will be prepared, with the ground rental based on recent valuations for their existing site”

Recommendation

“That previous resolutions relating to the disposal of land known as the

Kaituna Block…be rescinded.”

“That having considered the request from Norsand Ltd, Council agrees to the boundary adjustments as detailed on the plan in Attachment One of this agenda with the intention of amalgamating Lot 2 into the existing Norsand lease…and that Council delegates to the Chief Executive Officer, authority to finalise the lease terms and conditions..with regard to this expanded area of the Norsand lease.”

Other parts of the resolution related to the disposal of land to Culhams.

It is understood that Council adopted this resolution at a meeting held on 7

February 2007, which in regard to Norsand, was fundamentally unchanged from the August 2006 resolution.

Subsequently, an extra-ordinary meeting of Council on 15 march 2007 resolved:

“That previous resolutions relating to the disposal of land known as the Kaituna Block be rescinded.”

For the third time, previous resolutions were rescinded through no apparent fault of Norsand which has continuously sought to finalise the amended lease conditions.

On the basis of previous assurances and resolutions by Council, Norsand has continued to develop the proposed Lot 2. Development work undertaken includes:

-         development of metalled site access

-         land pre-loading, filling and development of much of the area

-         development of hard stand boat areas

-         construction of a 3m high bund wall

-installation of a 32m x 6m concrete pad and storage containers for use by boat owners

-installation of power supply to the hard stand and storage container areas

Norsand has also sought to increase the area over and above the area designated in Lot 2. At a meeting with CEO Mark Simpson and the then Mayor Pamela Peters on 18 September 2007 (held ‘without prejudice’), it was  noted  that  “Council  wishes  to  see  an  outcome  acceptable  to  both Culhams and Norsand” (Mark Simpson). Mr Simpson also suggested that “dividing the property along the route of the power lines might be acceptable to Norsand, with the properties either being sold or leased.” I agreed that would  be  an  acceptable  outcome.  Mr  Simpson  would  “recommend  to Council that the powerlines should be the dividing line.”

Norsand subsequently agreed to relinquish the northern portion of the land to the east of the powerlines in favour of Culhams but wishes to retain whole of the area previously identified as proposed Lot 2.

The only recent consultation that has taken place with Norsand has been advice given to me that Norsand stands to lose a part of the area off the northern end of Fraser Street on which I have already undertaken significant development work, on the basis of past assurances, and which is important to development plans for Norsand. The stated objective of this is to provide access from Fraser Street to the proposed Culham area, despite Culhams already  having  access  through  the  adjoining  Lot  5  DP  92455  that  they already lease from Council.

The proposal to now reduce the allocated area of proposed Lt 2 in favour of granting more land to Culhams is unreasonable given:-

-repeated past assurances given to Norsand and resolutions approved by Council

-        development work that Norsand has undertaken

-development plans by Norsand to accommodate increasing demand for the services that the boatyard provides, with consequent benefits to other Whangarei marine-related businesses.

Norsand remains committed to leasing, or purchasing, the property defined by the previously proposed Lot 2 boundaries consistent with Council’s past directions to the CEO. I request that Council have regard to previous undertakings given to Norsand when considering any future proposal regarding the disposal of land known as the Kaituna Block.

The Case for Applicant

[19]     The applicant contends that the council has entered into an agreement to lease the additional property being Lot 2 in terms of the council’s resolution at its meeting on 7 February 2007. In terms of that resolution it is contended that Norsand has obtained a lease for a period of twenty years with perpetual rights of renewal and five yearly rent reviews. Council delegated to its Chief Executive Officer authority to finalise the lease terms and conditions including such payment as is to be determined for the lessee’s interest.

[20]     It  is  acknowledged  on  behalf  of  Norsand  that  some  of  the  terms  and conditions of the lease have not been fixed. In particular the amount to be paid for the lessee’s interest is not specified. However, it is submitted, based on decisions such  as  Fletcher  Challenge  Energy  Limited  v  Electricity  Corporation  of  New Zealand Limited [2002] 2 NZLR 433 that provided there is an intention to be bound

the court will do its best to find a means of  giving effect  to  that  intention  by determining if possible the outstanding matters.

[21]     It is emphasised on behalf of Norsand that the resolution of the council of 7

February 2008 relied upon as evidencing a lease of the property to Norsand refers to the lessee’s interest being determined. That indicates, according to counsel for Norsand, an intended mechanism in place, namely valuation, to determine the value of the lessee’s interest if any.

[22]     It is further submitted that as Norsand has entered into possession of the property on the  basis  of  the  agreement  for  lease,  such  lease  is  enforceable not withstanding that the lease is not in writing. In this respect counsel relies upon the decision of Walsh v Lonsdale (1882) 21 ChD 9.

[23]     It is further submitted that the minutes of council’s meeting of 7 February

2007 authorising its Chief Executive Officer to lease the property to Norsand is sufficient evidence of a contract in writing to satisfy the provisions of the Contracts Enforcement Act 1956. In the alternative, counsel for Norsand relies upon the doctrine  of  part  performance  in  that  based  on  the  alleged  agreement  to  lease, Norsand has entered into possession of the property and effected considerable work to the property. It is estimated by Norsand the value of the work it has effected to the property amounts to $150,000. It is further submitted that based on the principles set forth in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, the council is estopped from denying that there is an enforceable agreement to lease.

Case for Respondents

[24]     It is submitted on behalf of the respondent that no binding agreement for lease has been completed. In particular, it is pointed out that there has been no agreement on the property to be included in the lease, the value of the lessee’s interest, the commencement date and the rental.

[25]     It is further submitted on behalf of the council that the offer for a licence and lease contained in the letter from the council’s solicitors to Norsand of 17 October

2007 was never accepted and has been withdrawn.

[26]     It is further submitted that a lease of the land claimed by Norsand which deprives the remaining Lot of access to Fraser Street results in the remaining Lot being landlocked. Consequently, pursuant to s 106(1) Resource Management Act

1998, the consent authority may refuse to grant consent to the subdivision. It was further  submitted  that  there  was  no  contract  in  writing  that  complied  with  the Contract Enforcements Act 1956 and based on the decision of Glendene Developments Ltd v  Wellington  City  Council  (1986) 6 NZAR 81, the council’s resolution relating to negotiating a lease with Norsand did not have contractual force.

[27]     It was also submitted that before the doctrine of part performance can apply there must be a concluded and otherwise enforceable contract.

Decision

[28]     As held by the Court of Appeal in Sims v Lowe [1988] 1 NZLR 656, an order for the removal of a caveat will not be made unless it is patently clear that the caveat cannot be maintained. If Norsand has a reasonably arguable case to an interest in the property under an agreement to lease, then it would not be appropriate to discharge its caveat. An inquiry into the material matters can only be appropriately undertaken in proceedings to determine the validity of the agreement to lease.

[29]     In the present case whether Norsand relies upon the doctrine in Walsh v Lonsdale or the doctrine of part performance, it can only succeed in preventing an order  removing  its  caveat  if  it  can  establish  an  arguable  case  that  it  has  an enforceable agreement to lease with the council.

[30]     Counsel for Norsand concedes that all the terms of the lease have not been settled. In particular, there is no agreement as to the amount to be paid for the lessee’s interest, the rent, or the property to be included in the lease. It is clear that the parties have been in negotiations intending to culminate in a lease of property to

Norsand.   The issue is whether Norsand can establish an arguable case that the negotiations resulted in an agreement to lease.  As held by the Court of Appeal in Fletcher Challenge  Energy,  the  pre-requisites  to  formation of a contract  are an intention to be immediately bound and an agreement expressed or implied or the means of forming an agreement on every term legally essential to the formation of the contract.

[31]     In  support  of  its  claim  to  a  concluded  agreement  to  lease,  counsel  for Norsand place considerable reliance on counsel’s resolution of 7 February 2007. That resolution was in a confidential minute which in this respect is similar to internal documentation referred to by the Court of Appeal in Fletcher Challenge Energy at para [79] of the judgment of the majority, Blanchard J stated:

As we have indicated, however, we consider that little weight should be placed on internal documentation, which reflected the understanding or misunderstanding of a particular person at a particular time, or even how that person wished to portray the position to others in the organisation or in ECNZ’s case to its shareholding Minister.

[32]     What must   be relevant is the information conveyed by the negotiators on behalf of the Council to Norsand.   That information includes the letter from the Council solicitors of 17 October 2007.  That letter makes it plain that the Council considered it a pre-requisite for there to be binding agreements with both Norsand and Culham Engineering Limited.  The letter also sets out in considerable detail the terms and conditions acceptable to the Council for the lease of premises to Norsand.

[33]     Those terms and conditions were not acceptable to Norsand.  Consequently, it is hard to conclude that there has been an agreement negotiated between the parties for the lease of the premises.

[34]     It must follow therefore that as there is no agreement to lease, there can be no agreement for the Court to apply the doctrine of part performance or to apply the principles set forth in Walsh v Lonsdale.

[35]     It follows therefore that Norsand has not established an arguable case for an interest in the property under an agreement for lease and the application by Norsand

for the caveat not to lapse and for permission to lodge a second caveat must be dismissed.

[36]     In the course of submissions to me, counsel for Norsand referred to the case of Waltons Stores (Interstate) Ltd v Maher.  In that case, however, it was not argued that there was a binding contract.   The Court held Waltons Stores (Interstate) Ltd liable to pay damages to Maher not for breach of contract but to relieve the unconscionable position which had arisen through Maher’s reliance on the understanding induced by Waltons that a contract would be signed. Consequently, although Norsand Limited has not established an arguable case to an interest in the property under an agreement to lease, it may have a good claim against the Council for damages to relieve the unconscionable position which has arisen through Norsand’s reliance on the understanding induced by the Council’s representatives that a contract would be signed.

[37]     In summary, therefore, the application for an order that the caveat not lapse and for an order authorising a second caveat is dismissed.  The respondent is entitled

to costs on a 2B basis with disbursements as fixed by the Registrar.

Associate Judge Robinson