Port Marlborough New Zealand Limited v EcoWorld Aquarium Limited
[2022] NZHC 3016
•17 November 2022
IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WAIHARAKEKE ROHE
CIV-2021-406-000023
[2022] NZHC 3016
BETWEEN ECOWORLD AQUARIUM LIMITED
Plaintiff
AND
PORT MARLBOROUGH NEW ZEALAND LIMITED
Defendant
CIV-2021-406-000029 BETWEEN
PORT MARLBOROUGH NEW ZEALAND LIMITED
Plaintiff
AND
ECOWORLD AQUARIUM LIMITED
First Defendant
AND
JOHN PETER REUHMAN
Second Defendant
Hearing: 19, 20, 21, 22, 23 and 28 September 2022 Appearances:
T D Gee and D P MacKenzie for EcoWorld Aquarium Limited and for J P Reuhman
D J Friar and K J Dobbs for Port Marlborough New Zealand Limited
Second Defendant appears in Person
Judgment:
17 November 2022
JUDGMENT OF GENDALL J
ECOWORLD AQUARIUM LIMITED v PORT MARLBOROUGH NEW ZEALAND LIMITED [2022] NZHC
3016 [17 November 2022]
Table of contents
Introduction [1]
The parties [4]
Port Marlborough New Zealand Ltd [4]
EcoWorld Aquarium Ltd [7]
The factual background [10]
The Lease [14]
Dealings between the parties [20]
The Port’s considerations as to the end of the Lease [30]
EcoWorld’s attempts to recommence negotiations for a new lease [41]
Continuing possession [51]
The parties’ positions in general terms [54]
My conclusion in this case [56]
The proceedings [58]
The 23 proceeding [59]
EcoWorld’s claims [59]
The Port’s position [62]
The 29 proceeding [63]
The Port’s claims [63]
EcoWorld’s position [66]
Issues for determination [68]
Analysis [69]
A contractual 10-year right of renewal? [70]
Analysis [74]
Subsequent communications [88]
Relief under the Property Law Act [96]
Analysis [101]
Section 261 requirements — in particular, did the parties “covenant in writing”? [107]
Discretion for relief under s 264 — should relief be granted under s 264? [116]
Conclusion on relief under the PLA [119]
Specific performance [122]
Equitable estoppel [125]
Principles of equitable estoppel [127]
Belief or expectation created or encouraged in EcoWorld by the Port through a clear and
unequivocal representation [129]
Reasonable reliance on the representation by EcoWorld to its detriment [138]
Unconscionability [151]
Conclusion on equitable estoppel [157]
Conclusion on EcoWorld’s claims [158]
The Port’s claims [159]
Action for the recovery of the Land [160]
Breaches of the Lease [162]
Mr Reuhman’s personal liability [165]
EcoWorld’s affirmative defences [167]
Conclusion on the Port’s claims [169]
Relief [170]
Possession [171]
Damages [178]
Costs [188]
Any other relief [192]
Summary [193]
Result [194]
Orders [196]
Introduction
[1] These proceedings concern land on the Picton foreshore (the Land) owned by Port Marlborough New Zealand Ltd (the Port). The Port leased the land to EcoWorld Aquarium Ltd (EcoWorld) under a lease which expired on 22 July 2021 (the Lease). When the Lease expired on 22 July 2021, EcoWorld refused to vacate the Land. EcoWorld did not close the aquarium it owns and continues still to operate on the Land or to take any steps to rehome the animals in the aquarium.
[2] EcoWorld claims the Port promised EcoWorld a 10-year right of renewal on the existing terms of the Lease. EcoWorld now seeks relief under the Property Law Act 2007 (the PLA) and by way of specific performance for a new 10-year lease on the same terms as the Lease. Failing this, EcoWorld seeks under equitable estoppel to be put in the position it would have been in had the Port acted conscionably, namely, to allow sufficient time to wind down its business in an orderly manner.
[3] In response, the Port claims that the parties never agreed EcoWorld would have a 10-year right of renewal and EcoWorld is now unlawfully in possession of the Land. It seeks an order for immediate possession of the Land as well as damages for the cost of removing the improvements from the Land.
The parties
Port Marlborough New Zealand Ltd
[4] The Port is a port company incorporated under the Port Companies Act 1988. It is responsible for the operation of the Port of Picton and the marinas at Picton, Waikawa and Havelock. It also has a portfolio of commercial leases, which include land, buildings and berths.
[5] The Port is a wholly owned subsidiary of MDC Holdings Ltd, a council-controlled trading organisation 100 per cent owned by the Marlborough District Council (the MDC). However, notwithstanding its ultimate ownership, the Port operates independently from the MDC and is not governed by the MDC but has its own independent board of directors (the Board).
[6]The Port’s principal statutory objective is to be a successful business.1
EcoWorld Aquarium Ltd
[7] EcoWorld has leased the Land from the Port. It owns and operates an aquarium on the Land, which houses a number of marine animals and some land-based animals.
[8] Mr John Reuhman is the sole director and sole shareholder of EcoWorld. He has personally guaranteed EcoWorld’s obligations under the Lease. From the evidence it seems Mr Reuhman has been a director of 35 companies and has held shares in 28 companies.
[9] A café and cinema are also operated from the premises, although it appears a separate entity, Picton Cinemas Ltd, owns and operates the cinema. Mr Reuhman is the sole director and majority shareholder of Picton Cinemas Ltd.
The factual background
[10] It is important in this case to set out in some detail the factual background to these proceedings. That background is extensive, but I will endeavour to broadly summarise it.
[11] Mr Reuhman became involved with the aquarium on the land in 2003, when the aquarium was owned by Sligo Enterprises Ltd (Sligo). The shares in Sligo were owned by David and Darrollyn Taylor, who had built the aquarium “from the ground up”. In August 2001, Mr Taylor entered into a deed of lease for bare land with the Port over the Land, which he assigned to Sligo in September 2003.
[12] In 2003, the Taylors looked to exit their aquarium business. NZIJ, a company in which Mr Reuhman had an interest, bought shares, as did several associates of Mr Reuhman. Mr Reuhman became a director of Sligo in December 2003 and then managing director on 1 February 2004. Then follows a narrative of what the Port argues is questionable conduct on the part of Mr Reuhman, including a High Court
1 Port Companies Act 1988, s 5.
judgment against Mr Reuhman and a personal settlement with the Taylors, which the Port says Mr Reuhman arranged for Sligo to pay.
[13] It seems then that Mr Taylor successfully applied to appoint a liquidator for the business. However, the independent liquidator was then replaced by a receiver, Mr Robert Walker, appointed by Mr Reuhman relying on NZIJ’s secured loan. Two months after Mr Walker’s appointment, he sold the business to EcoWorld (then a newly incorporated company) in consideration for EcoWorld taking over NZIJ’s loan to Sligo. NZIJ was then liquidated and all of its shares in EcoWorld sold to Mr Reuhman personally for a “notional sum”. In cross-examination, Mr Reuhman could not recall whether this notional sum was more or less than one dollar. The effect of all of this, it appears, is that Mr Reuhman personally acquired the aquarium for what was likely to be a nominal amount, although Mr Reuhman for his part says he remained a creditor for some $180,000. These matters, however, are of limited significance to the key issues in this proceeding.
The Lease
[14] In the meantime, the lease between Sligo and the Port remained on foot. The Port had also granted EcoWorld a one-year lease nearby on the Land to establish a little blue penguin colony. On 26 November 2010, the Port set out in a letter to EcoWorld a proposal for the new lease (the Lease) combining the land that was subject to the original lease as well as the land subject to the lease for the penguin colony.
[15] The Lease is dated 17 January 2011 but it commenced on 10 November 2010. It is between the Port as lessor, EcoWorld as lessee, and Mr Reuhman in his personal capacity as guarantor. The Lease is for bare land and not improvements made to the Land (the Improvements).
[16]Key conditions in the Lease included as “specific conditions”:
(a)the term commenced on 1 November 2010;
(b)the “Final Expiry Date” was 22 July 2021;
(c)the “Number of Renewed Terms Available” was “Nil”;
(d)rental was $11,885 per annum (plus GST);
(e)rent was to be reviewed at two-yearly intervals from the commencement of the term; and
(f)the permitted use was the operation of an aquarium and associated ecological facilities.
[17]“General Conditions” in the Lease included:
(a)Clause 1.11 – EcoWorld would reimburse the Port for the reasonable cost of any legal or other expenses incurred because of any default on the part of EcoWorld;
(b)Clause 2.1 – EcoWorld would not use the Land or any Improvements on the Land for any use or activity other than that specified in the Specific Conditions without the written consent of the Port;
(c)Clause 5.1 – EcoWorld would comply with the provisions of all “statutes, regulations, ordinances, bylaws and other laws of any kind (present or future)” affecting the Land or any activity carried on upon the Land, in particular (under cl 5.2) all obligations which arose under the Resource Management Act 1991;
(d)Clause 7.1 – EcoWorld would care for the Land and all Improvements on the Land to a reasonable standard, and in particular keep and maintain all Improvements to a good standard of maintenance and repair and rectify any damage or deterioration without delay;
(e)Clause 8 – EcoWorld would indemnify the Port against all claims or damage or loss resulting from any act or omission in breach of the Lease;
(f)Clause 9 – EcoWorld would institute and maintain public liability, statutory liability and reinstatement insurance;
(g)Clause 10 – the Port was able to undertake such work or take such action as was reasonable and appropriate in the circumstances in consequence of EcoWorld defaulting in any of its obligations under the Lease, and all moneys expended in this was to be reimbursed with interest;
(h)Clause 15 (the future development clause) – while “acknowledg[ing] the need for [EcoWorld] to have security of tenure and also the need for [the Port] to have some degree of flexibility in what is a dynamic port environment”, if the Port required the Land to further develop the port area the Port could terminate the Lease by giving at least three months’ notice in writing;
(i)Clause 19 – “[n]o variation shall be efficacious unless it is in writing and signed by all of the parties”;
(j)Clause 21 – in respect of Improvements made by EcoWorld:
(i)at least three months before the end of the term of the Lease, the Port and EcoWorld would consult with each other to address what should happen in relation to EcoWorld’s Improvements at the end of that term;
(ii)any agreement reached in this respect would be recorded in writing; and
(iii)if no agreement was reached, EcoWorld must remove its Improvements off the Land at the end of that lease term, and leave the Land “clear, clean and tidy”;
(k)Clause 23 – that Mr Reuhman as guarantor guaranteed payment of the rent and the performance by EcoWorld of the covenants in the Lease.
[18] Mr Reuhman confirmed in cross-examination he understood all of the terms throughout.
[19] Before me, counsel for the Port emphasised what is not provided for in the Lease. In particular, he said the Port makes clear there are no contractual provisions providing for any right of renewal.
Dealings between the parties
[20] EcoWorld’s claim that it was entitled to a 10-year right of renewal under the Lease is based on dealings between the parties said to commence from 2015.
[21] On 21 August 2015, Mr Reuhman met with two representatives of the Port, Mr Toby May and Mr Rhys Welbourn.2 It seems that at this meeting Mr Reuhman emphasised the importance to EcoWorld of security of tenure beyond the Lease’s expiry in July 2021 and accordingly he requested a 20-year lease. Mr Welbourn says at that meeting he indicated the Port was open to extending the Lease but only on commercial terms.
[22] Mr Reuhman then forwarded by email a letter to the Port, recording Mr Reuhman’s confirmation that he was “keen to have EcoWorld’s lease renewed for as long a period as possible with rights of renewal.”3
[23] The Port responded substantively on 16 September 2015 (the 16 September 2015 letter). This is the letter on which EcoWorld largely founds its case. It is in this letter that EcoWorld claims the Port agreed to provide it with a right of renewal for a term of 10 years. In this letter, the Port said that, following internal consideration and discussion, it was:
… prepared to offer you [EcoWorld] a further right of renewal for a term of ten years following your current term. This would make the final lease expiry on 22 July 2031.
2 Mr Welbourn is now Chief Executive of the Port but was its Manager of Business Delivery at this time.
3 The email was sent on 31 August 2015 but the letter was dated 22 August 2015.
[24] Mr Reuhman responded on 23 September 2015, saying he needed to discuss matters with his lawyer before proceeding. On 7 December 2015, Mr Reuhman did respond by letter. He confirmed his reply was prepared with the benefit of legal advice. Mr Reuhman advised that EcoWorld had reviewed the Port’s “offer” and had its eye on “identifying changes which might usefully be negotiated”. Mr Reuhman then listed eight aspects of the Lease which he said required attention. These were:
(a)In relation to the Lease term, Mr Reuhman stated:
… the lease term currently expires 22 July 2021. The letter from Port Marlborough of 16 September 2015 offers a right to then renew the Lease term for a further 10 years … adopting that offer, there are effectively, currently, 15 years 9 months available under the Lease …
He then went on to state, “I seek to renegotiate the lease term”, apparently to seek up to a 20-year renewed term.
(b)In relation to rent, Mr Reuhman said, though the rent had remained the same since the Lease commenced in 2010, it was a “significant burden” and “disproportionate” and he would like to see the rent reduced. However, he indicated he was prepared to concede “in order to achieve satisfactory outcomes on other points”.
(c)The permitted use he said was to be amended to capture the cinema and café operations.
(d)Greater flexibility in relation to rent payment dates was requested.
(e)In relation to the future development clause, Mr Reuhman described this as “a significant obstacle”. He suggested it be removed entirely or “softened in one or more ways”, including by an extension of the three- month notice period, requiring the Port to make available a suitable alternative site for EcoWorld, or requiring EcoWorld to purchase the Improvements.
(f)In relation to removal of Improvements, Mr Reuhman requested that the Port be required to acquire the Improvements at the end of the term, or otherwise allow EcoWorld to “simply walk away” from them.
(g)The personal guarantee he requested should be softened.
(h)Finally, he asked that the Lease be converted from a Deed to a Memorandum form to allow it to be registered (for use as a security interest).
[25] In cross-examination, Mr Reuhman confirmed that he was not accepting the Port’s offer, this apparently being on the basis that “we were hoping to get 20 years”. Mr Reuhman also described the situation as “a work in progress” and that the parties were “now in the process of negotiations”.
[26] The Port responded on 3 February 2016. It recorded its concern that EcoWorld had “requested substantial concessions” to the Lease. The Port then engaged with each of the eight points that EcoWorld was wanting to negotiate, stating it was prepared to accept some of these, but not others. In summary:
(a)the Port reiterated that it had “offered a right of renewal of a further 10 year term when the current term expires on 22 July 2021” and stated it was prepared to break the lease term into shorter intervals but was unwilling to extend the term beyond this point (which it had proposed in the September 2015 discussions);
(b)as to the rental, the Port was willing to consider a seasonable split to ease lease payments during difficult times, but it was not prepared to negotiate any rent reductions;
(c)in relation to the future development clause, the Port did not agree with removing the clause as suggested but said it would be willing to extend the notification period from three to 12 months;
(d)the Port was not willing to take on an obligation to purchase the Improvements or to provide an alternative site, and also would not simply allow EcoWorld to walk away from the Improvements at the end of the term; and
(e)the Port was not prepared to soften Mr Reuhman’s personal guarantee terms.
[27] The Port also recorded that any agreed changes to the Lease would need to be recorded by way of variation, pursuant to cl 19.
[28] There followed over several years a series of meetings and discussions, which I broadly summarise here:
(a)On 27 October 2016, Mr Reuhman met Mr Ryan Lock, then the Port’s Property Manager, and Mr Welbourn. According to Mr Lock, the parties were not agreed on the terms of any new lease, and Mr Reuhman was still to respond to the Port’s 3 February 2016 letter.4 The meeting ended on the basis that Mr Reuhman would get back to the Port with his substantive response to that February 2016 letter. This was confirmed in evidence by Mr Welbourn, who said he left with the “clear view that EcoWorld did not accept the terms we had proposed in our letter earlier in the year”. Mr Reuhman confirmed too that matters were not advanced at that meeting and it was “up to us” to come back to the Port.
(b)In November 2016, Mr Reuhman says he met with MDC Councillors Oddie and Taylor, who each told him words to the effect that the Port would never “kick out” EcoWorld. (He repeats his claim that these councillors informed him of the same on three other occasions, in December 2019, January 2020 and June 2020.) Councillor Oddie’s evidence before me refutes this, however. He says in this evidence that
4 At one stage Mr Reuhman appeared to blame the 2016 Kaikōura earthquake for his failure to re- engage with the Port, but as he accepted in cross-examination, that occurred in November of that year, that is after the meeting.
he pointed out to Mr Reuhman that he could not assist in respect of the Lease, as MDC could not interfere in the Port’s business. Councillor Taylor’s evidence was largely to similar effect. She said that she could not recall making that statement and would be very surprised if she had given that assurance, for similar reasons as Councillor Oddie had outlined.
(c)On 25 August 2017, Mr Reuhman emailed Mr Welbourn (copying Mr Lock) proposing “Picton Twilight Food Market” and “Edible Marlborough” events. Mr Welbourn’s evidence is that the Port considered raising the status of the EcoWorld lease negotiations in their email in reply to Mr Reuhman, but decided not to because, as Mr Reuhman had not asked about a new lease, it was firmly in his court if he wished to raise again new lease issues.
(d)On 11 October 2017, Mr Lock provided EcoWorld’s lawyer, Mr Chris Clark, with a copy of the Port’s 3 February 2016 letter and said “As mentioned to [Mr Reuhman] recently, I am keen to progress a meeting with both [Mr Reuhman] and you so we can work through the details”.
(e)On 21 November 2017, Mr Reuhman and Mr Clark met with Mr Lock and Mr Welbourn. Mr Reuhman’s evidence is that at this meeting Mr Clark went through all of the points that EcoWorld wanted changed in the Lease. These included the removal from the lease of the future development clause, which Mr Reuhman agreed was a fundamental issue for EcoWorld. Both Mr Lock and Mr Welbourn in their evidence confirmed that they advised Mr Reuhman and Mr Clark the future development clause would need to remain.
(f)On 22 January 2018, Mr Clark wrote to the Port, recording that “fundamental to EcoWorld’s desire to move forward is the need to have changes made to the existing Lease which place matters on a sounder footing”. The letter went on to list the three “critical”, “essential” and “fundamental” changes that EcoWorld wanted as follows:
(i)that the future development clause be removed, as it “stifles” EcoWorld’s opportunity for development;
(ii)in respect of the term of the Lease, that “the Lease term currently expires in July 2021, and EcoWorld has been offered a 10 year right of renewal through until July 2031. This is an offer which EcoWorld would accept if nothing more were available”; and
(iii)an amendment to the permitted use.
Mr Clark noted these were only “the three most essential points” and although there were “some other supplementary matters” these three points above were the ones EcoWorld regarded as “critical to its future”.
(g)On 19 February 2018, the Port by email responded substantively on a “without prejudice” basis. In respect of the “three most essential points”, Mr Lock noted:
(i)the future development clause could not be removed (though the position may change in the next 18 to 24 months);
(ii)the Port “would agree” to reformat the term of the Lease to four rights of renewal of five years each, “effectively taking the final expiry to 2041”; and
(iii)the Port was “open” to amending the permitted use, but sought clarification as to what it would be amended to.
The email went on to request EcoWorld’s financial report and noted it “would want the rental to be reviewed to a current market rent”. Those financial records however were not produced. Mr Lock also referred in the email to the need to vary the Lease formally.
(h)Mr Clark responded to the Port with a holding letter on 27 February 2018. This noted that Mr Reuhman was gathering some information and a response would be forthcoming in mid-March. Mr Clark wrote again on 30 April 2018, essentially indicating there would be further delay with a substantive response coming “as soon as practicable”. This letter again reiterated that the removal of the future development clause was “the most fundamental issue of all, and one which will affect any development proposal”. It is accepted by all parties that neither Mr Clark nor EcoWorld ever followed up these holding letters to provide a substantive response to the Port’s email of 19 February 2018.
(i)On 7 May 2018, Mr Reuhman met with Mr Welbourn. Their evidence of this meeting differs. Mr Welbourn says he informed Mr Reuhman that the future development clause could not be negotiated while redevelopment plans were still underway. Mr Reuhman’s written evidence was that Mr Welbourn told him there would be no negotiations with respect to the Lease until the Port had firmed up its plans for the particular Picton ferry redevelopment project, which was underway at the time. However, Mr Reuhman accepted in cross-examination that the Port’s 19 February 2018 email did not say that no negotiations could progress, and that this is what Mr Welbourn had actually repeated in the meeting.
(j)In September 2018, Mr Reuhman and Mr Lock met one another by chance. I apprehend there was no change to their respective positions from their encounter.
(k)On 3 September 2020, the Port consulted with EcoWorld about the Port’s Picton Ferry redevelopment project.
(l)On 5 November 2020, Mr Lock and Mr Welbourn met with Mr Reuhman at a local café. The purpose of the meeting it appears, however, was for the Port to catch up with its tenants following the
onset of COVID-19, and not to discuss the Lease. Mr Lock and Mr Welbourn, it appears, confirmed this and told Mr Reuhman they were not there to discuss plans for EcoWorld and Mr Reuhman’s tenancy, which would have to be set up for another time.
(m)On 4 December 2020, Mr Reuhman emailed Mr Lock in respect of the earlier night market proposal. Mr Lock responded that it would need to be held elsewhere as it fell outside the permitted use under the Lease. Mr Reuhman by way of postscript stated “PS. Re Lease Renewal [Mr Clark] is preparing the paperwork prior to arranging a meeting with you.”
[29] There is a significant difference in opinion between the parties as to what may have happened during the three-year period following the Port’s letter of 19 February 2018. EcoWorld describes it as a “three year wait” until the Port had firmed up its plans for redevelopment. The Port however describes it as a “three year hiatus” with “the ball … firmly back in EcoWorld’s court”. I accept the Port’s submission that, although EcoWorld says it was waiting for progress on the removal of the future development clause, this is simply indicative of the fact that to EcoWorld the removal of this clause was critical to reaching an agreement on a new lease. Given the Port’s letter of 19 February 2018, which was never substantively responded to, I accept that throughout the period following that letter the onus — and the opportunity — to advance negotiations rested firmly on EcoWorld’s side. Indeed, the subsequent “holding” letters from February and April 2018 from EcoWorld’s lawyer Mr Clark both acknowledged this was the case.5
The Port’s considerations as to the end of the Lease
[30] In early 2021, it appears the Port’s Senior Leadership Team considered the future of the Land under the Lease. In February 2021, Mr Lock prepared an internal
5 Mr Clark’s 27 February 2018 letter stated, “I anticipate that we will be in a position to come back to you with a substantive response to the queries raised in your email toward mid-March”. And as Mr Clark’s 30 April 2018 letter said, “obviously we have been delayed in providing that response ... at this point a further delay, perhaps through until the end of May, is expected.”
memo. In the context of the envisaged Picton Ferry development project, due to commence potentially within the following six to 12 months, this memo stated:
Although not currently being considered, the EcoWorld lease area would likely be a very useful site for the duration of this project either as a site office, temporary terminal, storage area etc.
[31]The memo presented three options:
(a)Option 1 — “look to renew/renegotiate the lease”;
(b)Option 2 — “issue EcoWorld with a notice that [the Port] require the site for port redevelopment purposes”;
(c)Option 3 — “issue EcoWorld with a notice that we will not be renewing the Lease and it will terminate as at expiry of 22 July 2021 … This would allow utilisation of the site for ferry development activities in the short/medium term.”
[32] Option 3 was subsequently discarded, although ultimately it appears it was selected as a preferred option. The Port’s executive team recorded its decision on the “agreed way forward” in the following way:
1.[The Port] look to exit lease with EcoWorld as it expires on 22 July 2021. This exit is not directly linked to a redevelopment or ferry project, simply the end of the lease term.
[33] On 1 April 2021, the Port’s Senior Leadership Team submitted a paper to the Board in relation to the Lease and the Land (the Board paper). The Board paper proposed that the Port “open up discussions with EcoWorld to negotiate a managed exit of the Lease.” The Board paper proposed the Port come to a confidential agreement with EcoWorld to “soften” EcoWorld’s exit from the Lease. Options for this could including purchasing some Improvements, extending the exit period or via a cash payment.
[34] In relation to the use of the Land, the Board paper referred to a number of alternative options, including:
(a)entering into a new lease with EcoWorld;
(b)establishing a Maritime Heritage and Environment Centre;
(c)using the site for the Waitohi Picton Ferry Redevelopment Project; and
(d)a hospitality option.
[35] The Board paper recommended the above options be rejected. One of the reasons for this was because if the Port was to renew or renegotiate the Lease, first, it would want to seek a market rent that would be significantly more than EcoWorld would be prepared to pay, and secondly, EcoWorld would also be seeking concessions to the Lease that the Port would not be prepared to agree to.
[36] The Board paper did not say that the Port had offered EcoWorld a 10-year right of renewal. As EcoWorld raises, the Board paper also removed the following summary which had appeared in earlier drafts:
The Lease commenced in 2010 and was for an initial term of 11 years expiring 22 July 2021. Over the years, [the Port] and EcoWorld have had various discussions about varying the Lease to provide for further rights of renewal. These discussions have not progressed and the Lease is still due to expire as at 22 July 2021.
[37] The Board paper ultimately recommended that the Board provide for a managed exit from the Lease of up to 12 months and a payment of up to $100,000 to secure an agreement to facilitate this. The Board made its decision at a meeting held on 9 April 2021. The Board agreed with this recommendation. In doing so, the Board considered animal welfare issues and acknowledged that there were “no immediate plans for redevelopment but medium-term options are available (both commercial and community focused)”.
[38] Consequently, on 14 April 2021, Mr Lock called Mr Clark to notify him that the notice of expiry of the Lease would be forthcoming. That call, as I understand it, lasted 13 minutes in duration. The contents of the call are not entirely known. Mr Lock gave evidence, however, (which Mr Reuhman accepted he had no reason to doubt), that at no stage during that phone call, which directly concerned the expiry of
the Lease, did Mr Clark say to Mr Lock that EcoWorld had a right of renewal. Indeed, Mr Reuhman appeared to accept in his evidence that, if EcoWorld thought it had a right to renew, its lawyer would have said so to the Port on that call. EcoWorld elected not to call Mr Clark. The Port invites me to infer from this that Mr Clark’s evidence would only have been unhelpful to EcoWorld’s case. Without necessarily accepting this to be the case, I do acknowledge that an effect of this is that there is no evidence before me to contradict Mr Lock’s account of the call between them (in which Mr Clark did not say anything about a right to renew the Lease).
[39] On 16 April 2021, a letter was sent to the Port from Mr Clark’s firm, Hardy- Jones Clark, EcoWorld’s lawyers. It appears the substance of this letter was prepared
before the call on 14 April 2021. Mr Reuhman agreed in cross-examination that the letter sent by EcoWorld’s lawyers accurately represented EcoWorld’s position at that time. The letter stated that EcoWorld had concerns with the current lease, which was “due to expire on 22 July 2021”. The letter then set out EcoWorld’s “proposal as to the contents of a new lease”, outlining eight points in this respect. These included matters which the Port had previously declined to concede on as well as some entirely new matters. The letter again raised the future development clause and requested that EcoWorld’s obligations in respect of the Improvements at the end of the Lease be softened. It is accepted by all that at no point did the letter refer to a “right of renewal”. Effectively, EcoWorld was simply repeating its position that “it had taken since 2015 and was continuing to seek significantly different terms than were contained in its then existing lease.”6
[40] Also on 16 April 2021, Mr Lock provided to EcoWorld the notice of expiry of the Lease (the Expiry Notice).7 The Expiry Notice confirmed the Lease would expire on the final expiry date (22 July 2021) and that EcoWorld was required to comply with all expiry obligations. The Expiry Notice also sought timely and constructive discussions with EcoWorld with respect to the Improvements, although it also made
6 These were the words used by Associate Judge Paulsen at [11] in his 22 March 2022 judgment in the present proceeding related to discovery issues, EcoWorld v Port Marlborough [2022] NZHC 535.
7 Mr Reuhman’s evidence was that he was on holiday that day. I also acknowledge, however, Mr Lock’s evidence that he had sought unsuccessfully to meet with Mr Reuhman personally to discuss the Expiry Notice rather than simply to send it.
an offer (on a without prejudice basis) to pay EcoWorld $75,000 for the building. The cover email accompanying the Expiry Notice also stated that the Port would be open to assisting with EcoWorld’s transition, including with relocating its wildlife. And indeed Associate Judge Paulsen in his discovery judgment noted at the footnote below also said that in this 16 April 2021 letter:
[10]…Port Marlborough proposed a managed exit, whereby it would release EcoWorld from its obligations to remove and reinstate improvements, upon terms which included the making of a payment to EcoWorld of $75,000.
EcoWorld’s attempts to recommence negotiations for a new lease
[41] Mr Reuhman acknowledged receipt of the Expiry Notice on 20 April 2021 and stated that he would be seeking advice on the matter. EcoWorld then engaged new lawyers. On 30 April 2021, those new lawyers, Macalister Mazengarb, wrote to the Port on behalf of EcoWorld. This letter recorded that the Expiry Notice was a “surprise to Mr Reuhman” as he had been “under the (reasonably-held) belief that negotiations for a new lease were progressing” and that “the outcome of those negotiations was likely to have been a new, long-term tenancy for EcoWorld Aquarium (largely in line with the terms and conditions of the earlier written offer that EcoWorld aquarium had received)”. That letter, however, made no reference to a “right of renewal”.
[42] Mr Reuhman in cross-examination confirmed his view that the new lease was going to incorporate the terms and conditions of both the September 2015 letter and the February 2018 email. Mr Reuhman also accepted in cross-examination that from his perspective, at the time he received the Expiry Notice, a new lease was under negotiation and that nothing had been agreed.
[43] The Port replied on 7 May 2021, agreeing to an extension to consider the without prejudice offer in the Expiry Notice until 21 May 2021. The Port reiterated this offer and said it was open to discussing and agreeing reasonable additional arrangements to assist EcoWorld, including actively assisting with sustainably rehoming or releasing the aquarium marine life.
[44] On 27 May 2021, the Port again wrote to EcoWorld to confirm that EcoWorld had not accepted the offer by the extended deadline the Port had given. It reiterated
its willingness to assist EcoWorld with a smooth exit from the premises, noting that the provisions of the Lease would need to be complied with. Again it repeated its offer to assist with the sustainable homing or release of marine life.
[45] EcoWorld’s lawyers responded directly to the Port on 6 June 2021. In that letter, EcoWorld formally rejected the Port’s offer. The letter went on to record its “primary objective” here was to secure from the Port a new lease, broadly on the terms and conditions suggested in the letter from Hardy-Jones Clark of 16 April 2021 (as opposed to any offers it had “received”, which was the terminology used in the 30 April 2021 letter).
[46]As secondary objectives, relevantly EcoWorld informed the Port that:
(a)it would not be consulting in respect of the Improvements;
(b)it had concerns about the Port’s decision-making in respect of the end of the Lease; and
(c)unless the Port confirmed that it would take the necessary steps to agree on terms and conditions of a new lease for EcoWorld, it would apply to the Court for an order for possession, and use any public relations leverage it could to achieve its objective.
[47] EcoWorld’s view, according to the letter, was that the negotiations had been ongoing and had not concluded, Macalister Mazengarb stating:
Mr Reuhman says that he was in discussion with Port Marlborough about the terms and conditions of the new lease and until recently had every hope, and indeed confidence, that the negotiations would conclude successfully.
[48] The letter then outlined EcoWorld’s “specific proposal” that the Port “urgently reconsiders its decision not to grant EcoWorld the new lease and immediately re- engages, in good faith, in the negotiation process with EcoWorld to agree and conclude a new lease of mutually-agreed durable terms and conditions”. In cross-examination, Mr Reuhman accepted that with this letter, EcoWorld was asking for the negotiation process to recommence.
[49] A series of communications then passed between EcoWorld’s lawyers, Macalister Mazengarb, and the Port. The Port responded on 14 June 2021, stating among other things that it wanted the Improvements to be removed. On 18 June 2021, Macalister Mazengarb replied that a “new lease for 10 years had been all but agreed in 2015” and that “EcoWorld believed it was after that time in a protracted negotiation to finalise the detailed terms of such a new lease”. On 25 June 2021, the Port replied that it had been willing to agree a renewal but that was always subject to the terms of a variation being agreed. In particular, it stated the correspondence had made it “abundantly clear that the parties were never close to reaching agreement on fundamental terms and that qualifications existed”. The Port also objected to several inferences Macalister Mazengarb had reached in its letters that the Port was slaughtering marine life and other species. Rather, the Port noted that it trusted EcoWorld had been making the necessary arrangements for the rehoming of marine life and other species in the aquarium. And, it repeated its offer to assist with this.
[50] The Port also made without prejudice offers to assist. Those without prejudice offers have now been accepted as admissible in these proceedings it seems as a result of being distributed by Mr Reuhman to the media. These offers included a rent-free extension of the Lease for a time, funds to facilitate the rehoming of the animals, contracting a senior EcoWorld staff member at the Port’s cost while animals were rehomed, and the Port waiving EcoWorld’s end-of-lease obligations in respect of removing the Improvements and reinstating the Land. It is clear that all of these offers went beyond the Port’s strict obligations under the Lease. It is also apparent that EcoWorld blankly rejected all of these offers. And, on the question of rehoming the animals and winding down the aquarium, before me Mr Stephen Standley gave expert evidence relating to this. This evidence included his opinion as to the time required for the difficulties with animal relocations. Even accepting this, what is clear to me here is that already the Port has undertaken significant preparatory work to facilitate these arrangements if it necessarily falls to it to do so.
Continuing possession
[51] The Lease ended on 22 July 2021. The day before, 21 July 2021, the Port wrote again to EcoWorld outlining a “proposed way forward” beyond the expiry of its possession from 12.01am on 23 July 2021. The Port stated:
If EcoWorld does not accept this offer then the Lease expires on 22 July 2021
… Port Marlborough expects EcoWorld will vacate the premises including taking the appropriate steps to ensure the welfare and correct care of its marine life and animals which are currently housed on the premises … it offers to assist EcoWorld with that process and contribute towards the associated reasonable costs.
[52] EcoWorld did not, however, vacate the Land. It did not remove the Improvements and did not take steps towards the removal of the animals housed in the aquarium. Rather, EcoWorld has remained in possession and continued to operate its business (and as I understand the position it continues to do so) since that time. The marine life and other animals remain in the aquarium.
[53] The Port’s evidence is that no work can be progressed on future uses of the Land while EcoWorld remains in ongoing possession.
The parties’ positions in general terms
[54] EcoWorld says this is a unique case. It has run an aquarium, it says being one of only three in New Zealand, which operates as a community facility which is very important to the Picton area. It presents itself as a “powerless” lessee with limited flexibility vis-à-vis the lessor, the Port. EcoWorld essentially says that in this case there was a promise to renew the Lease, which in contract or by equity needs to be enforced.
[55] The Port for its part says this is a simple contract case of offer and acceptance. It says there was never any unconditional acceptance and never any agreement reached before the parties. In any case, the Port says, there was no enforceable promise made. The Port claims now that, as the Lease has expired, EcoWorld is in breach of the Lease by continuing to occupy the Land and refusing to remove the Improvements, and the Port is entitled to an order for possession of the Land.
My conclusion in this case
[56] At this point, I need to say that I have little hesitation in reaching my conclusions in this case. For the reasons I set out below, I am of the clear view that EcoWorld’s claims must fail. For those reasons I also consider the Port is entitled in its claims to an order for possession of the Land and the consequential damages it seeks. Appropriate orders will follow.
[57]I now explain that reasoning.
The proceedings
[58] There are two separate proceedings in this case. Under the first (the 23 proceedings), brought by EcoWorld against the Port, EcoWorld seeks to have the Lease renewed for a further 10 years under what it says was a right of renewal the Port promised it in September 2015. It brings its claim under the PLA, the equitable doctrine of specific performance, and the equitable doctrine of estoppel. Under the second (the 29 proceedings), brought by the Port against EcoWorld, the Port seeks first, vacant possession of the land on the basis the Lease has come to an end and EcoWorld has no right to now be on the land, as well as secondly, an order for consequential anticipated damages. The Port also seeks judgment against Mr Reuhman personally with respect to these matters as guarantor under the Lease.
The 23 proceeding
EcoWorld’s claims
[59] EcoWorld claims there was a promise by the Port here of a 10-year right of renewal, which was intended to be relied on, and was relied on. EcoWorld argues the fundamental question at the heart of these proceedings is whether, in all the circumstances, the Port should be held to that promise. It submits that in all the circumstances of this case, equitable principles displace the simple common law position advocated by the Port. EcoWorld says the Port should be held to that promise.
[60]EcoWorld brings its claim under three causes of action:
(a)first, under the PLA, EcoWorld says that in the Port’s letter of 16 September 2015, the Port “covenanted in writing” with EcoWorld to renew the Lease on its expiry, and EcoWorld is therefore entitled to relief under s 264 of the PLA;
(b)second, by way of specific performance, EcoWorld contends it is entitled to an order for specific performance against the Port for a new lease consistent with the alleged right of renewal arising from the 16 September 2015 letter; and
(c)third, under equitable estoppel, EcoWorld says that in the Port’s 16 September 2015 letter and subsequent letters, the Port created in EcoWorld a reasonable expectation that EcoWorld would be granted a renewed lease. EcoWorld says it relied on those representations to its detriment and it would be unconscionable to allow the Port to now resile from that expectation it created.
[61] In terms of relief, EcoWorld now seeks a new 10-year lease with the Port as Lessor on the same terms as the expired Lease.
The Port’s position
[62] The Port says that EcoWorld’s claims are wholly misconceived, for the following general reasons:
(a)there was never any right of renewal agreed or any unequivocal representation by the Port that, even in the absence of an agreement, EcoWorld would still have a right of renewal;
(b)the requirements for relief under s 264 of the PLA are not met, and in any case the Court should decline relief;
(c)specific performance is not a cause of action, and there is no contractual right capable of being specifically performed here in any case; and
(d)in terms of equitable estoppel, there was never any clear and unequivocal representation by the Port that EcoWorld would have a right of renewal.
The 29 proceeding
The Port’s claims
[63]The Port in its proceeding (29) brings two causes of action:
(a)first, an action for the recovery of the Land; and
(b)second, claims for breaches of the Lease in two respects:
(i)breach of an implied term of the Lease which required EcoWorld to yield possession on the expiry of the term; and
(ii)breach of an express term of the Lease, namely cl 21.1(c), which required EcoWorld on expiry of the Lease to remove all Improvements from the Land and leave the Land clear, clean and tidy.
[64]By way of relief, the Port therefore seeks:
(a)an order requiring EcoWorld to give up possession of the Land and immediately vacate it;
(b)damages in respect of the reasonable cost of removing the Improvements from the Land (including any animals housed in those Improvements) plus interest;
(c)costs on a solicitor–client basis; and
(d)such other relief as the Court deems fit.
[65] To the extent that EcoWorld fails to address the above issues, the Port also seeks judgment against Mr Reuhman personally for the same in his capacity as guarantor of EcoWorld’s obligations under the Lease.
EcoWorld’s position
[66] EcoWorld denies the Port’s claims. And, it brings two affirmative defences against the claims:
(a)first, by way of equitable set-off, EcoWorld says that to the extent that either EcoWorld or Mr Reuhman is liable to the Port, the extent of any damages should be reduced to take into account the conduct of the Port in contributing to that loss; and
(b)second, in estoppel, EcoWorld says it has relied upon assurances and representations contained in the Port’s letter of 16 September 2015 and subsequently to its detriment, that it is unconscionable for the Port to now resile from these, and that consequently it should, at a minimum, be put in the position it would have been in had the representations not been made.
[67]The Port for its part denies EcoWorld’s affirmative defences to its claims.
Issues for determination
[68] The two sets of claims, in my view, result in the following issues for determination:
(a)First, was there a contractual 10-year right of renewal?
(b)If not, should the Court nevertheless grant relief to EcoWorld under s 264 of the PLA?
(c)Is EcoWorld entitled to an order for specific performance against the Port for a new lease on the terms of the alleged right of renewal?
(d)If not, should EcoWorld nevertheless be granted relief in equity under the doctrine of estoppel on the basis of representations or assurances made to it by the Port?
(e)Is the Port entitled to an order for possession of the Land?
(f)Has EcoWorld breached the Lease by:
(i)failing to yield possession; and
(ii)failing to remove all Improvements from the Land and to leave the Land clear, clean and tidy?
(g)Is Mr Reuhman personally liable for any failures on the part of EcoWorld?
(h)What relief, if any, ought to be awarded?
Analysis
[69]I now consider each of these issues in turn.
A contractual 10-year right of renewal?
[70] EcoWorld contends that it had a 10-year right of renewal under the Lease. It says tenure was never in doubt and there was “always a 10-year right of renewal on the table”.
[71] Counsel for EcoWorld expresses his submissions on this point in the following way:
… A right of renewal is an uncomplicated matter. It arises in the context of an existing landlord-tenant relationship whose terms are already known to both parties. They are already recorded already. The only matter that changes if the tenant exercises a right of renewal is the expiry date of the lease. The renewal is essentially an open offer by the landlord to the tenant that can be exercised (accepted) by a tenant before a set time (usually the end of the lease or shortly before). Seeking to negotiate new and different terms outside of a right to renew does not affect the right of renewal.
[72] EcoWorld contends this case “is a unique situation which seems is unlikely ever to be repeated”. It points to three aspects of the situation in particular:
(a)first, that the lease is a bare land lease, meaning the lessee invests significant sums of money into improvements which, if not purchased by the lessor, will be lost at the end of the lease;
(b)second, that the future development clause meant there was an ever- present possibility of the Port repossessing the Land on three months’ notice; and
(c)third, that the Lease in this case was for a unique permitted use and that was for an aquarium and associated activities.
[73] EcoWorld therefore maintains the Port’s contractual, common law approach to analysing whether there was a right of renewal here is misguided.
Analysis
[74] What is clear to me here is that EcoWorld’s case founders under this head under several fundamental misconceptions.
[75] Under basic contract principles, the formation of legally binding obligations in a contract amongst other things requires:8
(a)an offer and acceptance (that is, agreement); and
(b)that both parties intend to be immediately legally bound.
[76] In the present case, I am satisfied there has never been any agreement reached between the parties amounting to a 10-year right of renewal to which both parties intended to be legally bound.
8 See for example Wire By Design Ltd (in receivership and in liquidation) v Commercial Factors Ltd [2015] NZHC 985 at [52].
[77] EcoWorld claims first, the Port’s letter of 16 September 2015 gave EcoWorld a right to renew the Lease for 10 years, secondly, EcoWorld was entitled to exercise that right to renew up until the expiry of the Lease, but thirdly, that it did not do so because of the Expiry Notice.
[78] It is undisputed that security of tenure here was highly important to EcoWorld. Indeed, EcoWorld’s responsible actions in seeking security of tenure in 2015, several years before the expiry of the Lease, are readily acknowledged.
[79] However, there are a number of reasons why the 16 September 2015 letter does not amount to an agreement to provide or “grant” EcoWorld a 10-year right of renewal to which the parties intended to be legally bound:
(a)In that letter, the Port said it was “prepared to offer” EcoWorld a further right of renewal for 10 years following the current term. On a restricted interpretation, this meant the Port was prepared to enter into negotiations in relation to a 10-year right of renewal. On an expansive view, this meant the Port would allow EcoWorld to exercise a 10-year right of renewal. Whichever view is taken, however, this amounts at most to an offer of a right to renew.
(b)The Port repeatedly used the word “would” rather than “will”. For example, the letter stated “this would make the final lease expiry on 22 July 2031” and “we would record the proposed right of renewal by way of a variation to your lease”. The first example could be interpreted generously as an expression of the situation if EcoWorld chose to exercise a right of renewal under the terms proposed by the Port. The second example, however, in particular, clearly indicates that this statement was an offer of an option or right to renew the Lease, and that if EcoWorld chose to accept the offer of a 10-year right of renewal option in the Lease, the Port would record this by way of variation, that is in the manner prescribed for any agreed variations by cl 19 of the Lease.
(c)The offer was conditional on other terms being agreed, in particular, amending the rent review mechanism to the greater of CPI or market review. In order to qualify as an offer, it must be capable of being accepted immediately. The letter clearly contained terms that as a factual matter were still very much the subject of discussion and negotiations. Discussions clearly would be ongoing beyond this letter. Thus it was not capable of being accepted immediately. Indeed, M Reuhman said in cross-examination that not only did he never accept the offer, but that it would not have been prudent to accept the offer without negotiating other terms of the Lease.
(d)Any right of renewal would only be effective once the parties entered into a written variation of the Lease. Clause 19 of the Lease required all variations to be in writing. No variation to the Lease would be effective unless it was recorded in writing. Any offer of a right of renewal was therefore clearly conditional on the parties so recording their agreement to vary the Lease in this way in writing.
(e)The letter went on to state, that if EcoWorld was “happy with the proposal”, it should say so and the Port would write up a “draft variation”. Mr Reuhman accepted in cross-examination that he never came back to the Port confirming that he was “happy with the proposal”. Thus there were actions still to be taken with respect to any confirmed right of renewal, and in any case Mr Reuhman never communicated his acceptance of the offer.
[80] EcoWorld, as I understand it, suggests here that says whether the Port promised EcoWorld a right of renewal in the 16 September 2015 letter is “the most important and fundamental question in this case.” However, as I see it, this is incorrect. If there is a single “most important and fundamental question” in this case, it is whether the parties agreed to a right of renewal.
[81] I am satisfied the above factors demonstrate there was no agreement between the parties to which both intended to be legally bound. In terms of an agreement, it is
arguable whether the proposed right of renewal in the 16 September 2015 letter in fact constituted an “offer”, as it was not capable of being accepted immediately (being conditional on further actions and negotiations), except perhaps on a very generous interpretation. Even if it was an offer, however, in any case EcoWorld (via Mr Reuhman) never accepted the offer in the letter.
[82] Instead, Mr Reuhman replied on 7 December 2015 with a counter-offer. It is another basic principle of contract law that a counter-offer is a rejection of the original offer. The counter-offer replaces the original offer and is then itself open for acceptance.9 In the recent case of Inspire Holdings Ltd v JSM Properties Ltd, the document in question was rendered a counter-offer by the deletion of the words “if any”, which meant the previous offer was no longer open for acceptance.10
[83] The 7 December 2015 reply letter, as I see it, was clearly a counter-offer. It contained no fewer than eight aspects of the Lease which EcoWorld wanted changed. It never accepted the Port’s offer of a 10-year right of renewal. By way of counterfactual illustration, in that letter Mr Reuhman might have expressed EcoWorld’s acceptance of the offer in the 16 September 2015 letter of the 10-year right of renewal, and agreed to sign a variation to that effect. The signing of such a variation would likely have constituted an agreed right of renewal. However, he did not do so.
[84] Instead, Mr Reuhman rejected any offer of a 10-year right of renewal in the Port’s 16 September 2015 letter and, as counsel for EcoWorld accepted, “chanced his hand for better terms”. This was confirmed in Mr Reuhman’s own evidence before me, that he viewed matters at this point as a “work in progress” and was still involved in “discussions or negotiations” with a view to obtaining a 20-year term. All in all, I am satisfied EcoWorld never accepted the offer of a 10-year right of renewal, and there was therefore no agreement.
[85] I am also satisfied there was no intention to be legally bound. In a case where the parties agree on a term “subject to a formal contract”, it is generally only when the
9 Jeremy Finn, Stephen Todd and Matthew Barber (eds) Burrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, LexisNexis, 2022) at [3.4.7], citing Hyde v Wrench (1840) 3 Beav 334.
10 Inspire Holdings Ltd v JSM Properties Ltd [2022] NZCA 136 at [32].
formal document is drawn up and executed by both parties that the parties will be held contractually liable.11 I accept this would apply here. In the present case, as noted, the offer was conditional on entering into a formal variation of the Lease, as required under cl 19.
[86] For such a variation to be recorded in writing is also consistent with the statutory and common law position in relation to such leases. Section 24 of the PLA requires contracts for the disposition of land (including a lease for more than one year) to be in writing, and the courts have also found that where a contract is required to be in writing, any variation to it must also be in writing.12
[87] Moreover, the fact, as the Port argues, the offer was made on the basis of and subject to a formal variation being drawn up to record it meant, in contractual terms, that the Port did not have the requisite intention to be legally bound at that point until the variation was executed, notwithstanding the requirements in cl 19 of the Lease and under the PLA. Mr Reuhman also confirmed in cross-examination before me that he knew that any change to the Lease would need to be included in a variation to the Lease to be effective.
Subsequent communications
[88] In submitting that it had a 10-year right of renewal under the Lease and there was “always a 10-year right of renewal on the table”, EcoWorld relies here exclusively on the Port’s letter of 16 September 2015. As I have concluded, that document did not found such a right of renewal. I am also satisfied that no further correspondence between the parties gave EcoWorld a right to renew the lease in the way it now alleges.
[89] In relation to the Port’s February 2016 letter, though the Port reiterated its offer, EcoWorld never responded to this letter, and in any case, EcoWorld’s counter-offer of January 2018 rejected and therefore extinguished this offer.
[90] As to that EcoWorld January 2018 letter, in which Mr Clark on behalf of EcoWorld stated the 10-year right of renewal “is an offer which EcoWorld would
11 Finn, Todd and Barber (eds), above n 9, at [8.2.2(a)].
12 Rattrays Wholesale Ltd v Meredyth-Young & A’Court Ltd [1997] 2 NZLR 363 (HC) at 376–377.
accept if nothing more were available”, I am satisfied it could not be seen as constituting an acceptance of the Port’s September 2015 offer, as:
(a)that offer had already been extinguished by EcoWorld’s 7 December 2015 reply letter, which I have found was a counter-offer;
(b)any acceptance was not unconditional, as it was accepting a position in relation to one of several “critical” points under negotiation and subject to further points being negotiated; and
(c)the parties never entered into a written variation, as required by cl 19 of the Lease and under the PLA.
[91] With respect to Mr Lock’s February 2018 email, I am satisfied this too did not result in any agreed right of renewal, for a number of reasons:
(a)the proposed term is distinct from what is now alleged, as the email offered four rights of renewal of five years each, and not one 10-year right of renewal;
(b)the email was without prejudice and subject to approval by the Port’s senior management;
(c)the offer in this email was never accepted;
(d)any offer was terminated by the Expiry Notice, and in any case the letter of 16 April 2022 from EcoWorld’s lawyers constituted a counter-offer, thereby extinguishing the offer;
(e)the offer was conditional on other matters, including receiving financial statements from EcoWorld, which were not provided; and
(f)any offer was subject to entering into a variation, which never occurred.
[92] I do not accept EcoWorld’s further submission that from February 2018 until the Port had “firmed up” its plans for redevelopment, there was “little point” discussing terms for a new lease. EcoWorld was aware that any changes to the Lease would need to be recorded by way of variation to the Lease. If EcoWorld was waiting to hear from the Port on other matters before it committed to a new lease, it nevertheless could have entered into a variation as to a right of renewal of the Lease (as it now alleges it had from 2015) and pursued further negotiations in respect of other terms.
[93] I am satisfied in all the circumstances here that none of the communications between the parties following the Port’s 16 September 2015 letter gave rise to a 10- year right of renewal under the Lease capable of being exercised by EcoWorld.
[94] Between August 2015 and April 2018, the parties discussed a number of potential changes to the Lease, which included the possibility of a right of renewal. I find however that the parties never reached any agreement to which they intended to be bound by which EcoWorld was granted a right of renewal under the Lease. During this period, as Mr Reuhman himself accepted in cross-examination, the parties were in negotiations as to the terms of the Lease, but no variation to the Lease, and in particular no right of renewal, was ever agreed.
[95] Neither do I accept that any such common law contractual analysis is “misplaced”, as EcoWorld has contended here. As the Port submitted, rightly in my view, there is “no rule of equity that allows the Court to find that there is a binding contract in circumstances where the law of contract says there is none.”
Relief under the Property Law Act
[96] A primary claim from EcoWorld here is for relief under the PLA. I now turn to consider this claim.
[97] Sections 261 and 264 of the PLA together provide for relief against a lessor’s refusal to enter into a renewal of the lease with a lessee. In particular, s 264(1) provides that on an application under s 261, the court may grant relief against the refusal of the lessor to extend or renew the lease. In particular, the court may order the lessor to
extend or renew the lease or enter into a new lease with the lessor and may grant relief on any conditions as to expenses, damages, compensation or any other relevant matters as the court sees fit.13
[98] Section 261(1) is the gateway provision a lessee is required to satisfy in order to make such an application under s 261 for relief under s 264. It applies to a lease (insofar as relevant here) if the following requirements are met:
(a)the lessor has “covenanted in writing” with the lessee that, on the expiry of the lease, the lessor will extend the term of the lease or renew the lease;
(b)that obligation of the lessor is conditional on the lessee giving notice, within a specified time or in a specified manner, of the intention to exercise the right to require a renewal of the lease;
(c)the lessee has failed to give the notice within the specified time or in the specified manner; and
(d)the lessor has refused to renew the lease.
[99] EcoWorld says the key question on this issue here is whether requirement (a) above is met, that is whether in its letter of 16 September 2015 the Port “covenanted in writing” with EcoWorld that, on the expiry of the Lease, the Port would extend the term of the Lease or renew the Lease. EcoWorld contends it did, and it says that if (a) is met, it can navigate the remaining requirements with little difficulty. It accepts that if the Port did covenant in writing with EcoWorld that EcoWorld had a 10-year right of renewal, EcoWorld needed to exercise that promise and did not do so before it was repudiated by the Expiry Notice and thereby made incapable of being exercised. EcoWorld therefore seeks an order under these sections that the Port extend or renew the Lease on the same terms until 22 July 2031.
13 Property Law Act 2007, s 264(2)(b).
[100] In response, the Port maintains that s 261 is not satisfied here, and that even if it was the Court should decline relief under s 264. Specifically, the Port says:
(a)there was no written covenant in the Lease that it would be renewed;
(b)even if a written covenant outside the Lease did qualify for the purposes of s 261, there was no such written covenant outside the Lease in this case;
(c)no particular process was agreed for the renewal or extension of the Lease; and
(d)the factors to be taken into account in considering relief under s 264 of the PLA tell against the granting of relief.
Analysis
[101] Since these provisions codify equitable principles, the Court, in answering this question, ought not to be unduly restrictive in its interpretation. Rather, as Turner P in the Court of Appeal held in Vince Bevan Ltd v Findgard Nominees Ltd (albeit in reference to predecessor legislation) these sections, intended as they are to be a remedial measure, should be “construed as conferring upon the Court a very wide jurisdiction to do equity in relieving against refusals by lessors to renew leases.”14 Later in that case, McCarthy J stated:15
… I agree that we should not view these sections narrowly, neither in the jurisdiction conferred nor in the relief to be granted. The obvious final intention of the Legislature was to place the Court in a position to do what it thinks fit in accordance with the justice of the particular application.
[102] To similar effect, Richardson J in the Court of Appeal held in Weatherall Jewellers Ltd v J Hendry and Son Ltd:16
Clearly the Court has to do justice as between lessor and lessee having regard to all the circumstances of the case and so having regard to the relative prejudice occasioned to the lessor or lessee by the grant or refusal of relief.
14 Vince Bevan Ltd v Findgard Nominees Ltd [1973] 2 NZLR 290 (CA) at 297.
15 At 299.
16 Weatherall Jewellers Ltd v J Hendry and Son Ltd CA 135/83, 11 September 1984 at 8.
[103] It is accepted these provisions are not to be read down, but rather to be given a broad approach having regard to the overall justice in all the circumstances of the particular case.
[104] I accept also that these provisions can exist in the context of a power imbalance inherent in a lessor–lessee relationship, in which the lessor often has substantial power and the lessee is in possession of the land only by the lessor’s consent.
[105] Indeed, I consider this informs a possible legislative intent behind these provisions. They modify the usual rule that specific performance of an option provided for in a lease will not be granted unless all of the specified conditions are met,17 by allowing the Court to intervene where the lessee has failed to meet one or more conditions.18 These sections therefore will aid a lessee with a right of renewal who has failed to comply with a notice or other requirement necessary to execute that right.19
[106] However, what these sections do not do is to create a right of renewal where there is none in the Lease.20 They also do not allow a court a general ability to renew or extend a lease in circumstances which go beyond or outside the legislative gateway in s 261.
Section 261 requirements — in particular, did the parties “covenant in writing”?
[107] It is clear here there was no covenant in writing in the Lease itself that the Lease might be renewed or extended. In terms of renewal rights, the Lease provided these were “nil”. There was no subsequent formal variation changing that position. I am satisfied the parties had not “covenanted in writing” in the Lease itself as to a right to renew the Lease.
17 John Burrows (ed) Land Law (online looseleaf ed, Thomson Reuters, 2022) at [LS13.07(1)].
18 Vince Bevan Ltd v Findgard Nominees Ltd, above n 14, at 299.
19 At 299.
20 Bedford Investments Ltd v Alder & Co Ltd (2006) 7 NZCPR 420.
[108] EcoWorld, however, asks me to accept, for the purposes of determining whether the parties “covenanted in writing” for a lease renewal, that the Port made a binding promise for this outside the Lease itself.
[109] The Port for its part says only a covenant within the Lease itself qualifies under s 261. The following points are made in support of this argument. First, counsel say they have been unable to identify any cases under these sections in which a right of renewal is located elsewhere than in a Lease itself. Further, in its report which led to the PLA, the Law Commission had expressed the view that it was “not necessary” that the lessor’s covenant be in the lease itself, but rather any binding arrangement made between lessor and lessee should fall within the section, no matter where it is found.21 However, Parliament declined to adopt this recommendation. Instead, it included in the PLA a definition of “covenant” as “in relation to a lease … a promise expressed or implied in the lease”.22 And finally, a requirement that the covenant be contained in the lease itself accords first, with the requirement under s 24 of the PLA that all leases (except leases of a short duration) are to be in writing and secondly, it is consistent with the intent of s 261 as providing relief where a lessee has failed to comply with a condition in the lease.
[110] EcoWorld for its part however contends for a more generous interpretation. First, it notes the definition of “covenant” in s 207 of the PLA begins “[u]nless the context otherwise requires”. It says that in a case as here where a liberal construction is warranted, the context allows for a “covenant in writing” to be located somewhere outside the Lease itself, notwithstanding the rest of the definition. EcoWorld also notes that s 261 applies to all leases, including short-term leases, which need not be in writing. It would not make sense to require that a right of renewal be recorded within the Lease itself when the Lease itself is oral. Because a side letter must therefore qualify for the purposes of s 261 of the PLA in respect of short-term leases, there is no suggestion this would not apply also for a longer lease. And, as to general protection for the lessor, the balance is achieved by still requiring that the promise be in writing.
21 Te Aka Matua o te Ture | Law Commission A New Property Law Act (NZLC R29, 1994) at 377.
22 Property Law Act, s 207 definition of “covenant”.
[111] Without making any definitive finding on this point, and despite there seemingly being no case law thus far to this effect, I see some merit in EcoWorld’s argument here. As will become apparent in the following paragraphs, it is not necessary here for me to definitively conclude that a side letter, or document outside the lease itself, would qualify for the purposes of s 261. I will now proceed, however, to consider whether there was any such “covenant in writing” in any documents outside the Lease itself on the provisional assumption that it could so qualify.
[112] Unfortunately for EcoWorld, in all the prevailing circumstances in this case, I do not consider there was any such “covenant in writing” to extend or renew the Lease, even outside the Lease document itself.
[113] It is clear these provisions in the PLA do not create a right to renew in and of themselves. Rather, the Court must be satisfied that the lessor has “actually contractually agreed that the renewal will be granted.”23 As I have found above, the parties never made such a contractual agreement for a right of renewal. The most that could be said is that the Port made EcoWorld an offer — indeed, numerous offers — for a 10-year right of renewal, which, however, EcoWorld never accepted. Also, any such offers were never contractually agreed and recorded by way of a variation to the Lease as required by it.
[114] And, as to relief here, in my view equity also cannot assist EcoWorld. Pointing to the “fundamental principle in equity” that “equity regards as done that which ought to be done”,24 EcoWorld says equity will now demand that the Port enters into a Deed of Variation of the Lease. However, this is another principle designed to achieve fairness in all the circumstances. This principle would be helpful in my view in a case where the parties had in fact reached an agreement between them, intending for it to be legally binding, and merely failed to comply with a technical requirement in recording their agreement. However, it will not serve to create an agreement where there is none, as here.
23 Bedford Investments Ltd v Alder & Co Ltd, above n 20. Although this case was decided under s 120 of the Property Law Act 1952, s 264 of the Property Law Act was not intended to substantively alter the law in this regard: Stylo Medical Services Ltd v Hum Hospitality Ltd [2018] NZHC 642.
24 Andrew Butler Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [2.7.6].
[115] Relief under s 264 is contingent on a lessee meeting the gateway requirements of s 261. In this case I am satisfied the Port never “covenanted in writing” with EcoWorld, either in the Lease itself or in any location outside the Lease, to the effect that, on the expiry of the Lease, it would extend the term of the Lease or renew it. EcoWorld’s claim for relief under the PLA must therefore fail, as I am not satisfied it can meet the requirements in s 261 for relief.
Discretion for relief under s 264 — should relief be granted under s 264?
[116] I have found that EcoWorld cannot fit within the requirements in s 261 for relief under s 264. However, even where the gateway to relief under s 261 is satisfied, relief itself under s 264 remains entirely at the Court’s discretion.25
[117] The courts will consider a number of factors in determining whether to grant relief. The Court summarised these factors in Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd, which I now turn to consider:26
(a)The reasons for the failure to comply with the relevant condition or notice requirement, including whether the failure was inadvertent?
The parties had been negotiating a new lease on-and-off since 2015. I am satisfied EcoWorld was well-aware the Lease would expire on 22 July 2021, yet took no action in preparing for the end of the Lease despite this.
(b)Whether the failure was caused by any action of the lessor?
I am satisfied the Port met its obligations in respect of the Lease, including providing EcoWorld with the required notice at all times. The Port consistently engaged with EcoWorld on the issues it had raised and responded in good time in all respects. I am of the view the Port went
25 Transform Minerals Ltd v Gordon Wright & Sons Ltd (2010) 12 NZCPR 558 at [58].
26 Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd (2005) 7 NZCPR 48 (HC) at [29], applied in respect of the Property Law Act in Saisatnam Ltd v Brandons Trustee Co Ltd [2017] NZHC 538, (2017) 18 NZCPR 215 at 224–225.
above and beyond in order to assist EcoWorld in endeavouring to achieve a new lease.
(c)The lessee’s conduct, including whether it has complied with all of the lease’s conditions and covenants and has been a good lessee?
The Port claims in its proceedings against EcoWorld that EcoWorld has breached its lease in several respects. I consider this in more detail below at [162]–[164]. Beyond this, the Port complains that EcoWorld and Mr Reuhman have deliberately made inflammatory and misleading comments to the wider Picton community and to the media about the current state of affairs and the Port’s actions. These have included accusations of the Port attempting to “slaughter” native animals and “of bullying Mr Reuhman.” These comments are unfortunate to say the least. They do not appear to be substantiated and in any event as I see it there does not appear to be any evidence of poor behaviour on the part of the Port here. Rather, the evidence suggests it has been a careful, accommodating, and patient commercial landlord throughout. And, with respect to the aquarium animals, the evidence is clear that the Port on multiple occasions has offered to assist with their sustainable and effective rehoming in various ways. On this, to its credit, it has engaged with Te Papa Atawhai | the Department of Conservation, the Zoo and Aquarium Association, and other expert bodies to do so.
(d)The prejudice to the lessee if the relief is not granted?
While I accept that for EcoWorld no renewal of the Lease would be “existential” and it will be forced to close or relocate, I note also that EcoWorld has had ample opportunity to seek alternative accommodation and/or to put plans in place for closure.27 I therefore consider the prejudice to EcoWorld is consequently limited.
27 Even just since Note of Expiry of the Lease was given in April 2021, EcoWorld has had 19 months now to make other plans.
(e)The prejudice to the lessor if the relief is granted?
EcoWorld submits that the Port “does not need the land” and that “waiting until July 2031 to get the land back will make not an ounce of difference to it”. It does not, however, lead any evidence to support this claim. On the other hand, the evidence before me in fact appears to suggest that the Port does wish to use the land in the foreseeable future. There are, as the Port has outlined, numerous options available to it with respect to its use of the Land, and the Port states it will be able to progress community consultation regarding the use of the Land once it has certainty as to its possession.
IT does this despite being faced with the Expiry Notice, and what I see as the proceedings by the Port against it for immediate possession.
[149] Therefore, I conclude on all the evidence before me that there was no reliance on the alleged representations here to EcoWorld’s detriment.
[150]I find that EcoWorld also fails to satisfy this element.
Unconscionability
[151] The final consideration in assessing equitable estoppel is whether it would be unconscionable for the Port to now resile from the expectation it is said to have created and which arguably EcoWorld reasonably relied on to its detriment. The element of unconscionability is “the ultimate touchstone”.39 This is largely moot, however, given I have found none of the requirements for an estoppel have so far been made out.
[152] But, in any case, however, I am also satisfied here that there was no unconscionable behaviour on the part of the Port. On all the evidence before me, I conclude that the Port acted appropriately throughout the negotiations between the parties. The arguments EcoWorld raises to suggest unconscionability on the part of the Port largely rehash its arguments in respect of the above elements, and therefore founder against my conclusions that these have not been made out.
[153] As additional evidence of unconscionable behaviour on the part of the Port, however, EcoWorld endeavours to point to what it describes as material non-disclosures in the Board paper. It was largely on the basis of this that the Board then made its decision as to the future use of the Land, that is allowing EcoWorld’s Lease to expire on its terms. However, irrespective of whether there were any such omissions (which I accept on the credible evidence of Mr Lock and Mr Welbourn in any case would have been unintentional), that is a matter of internal governance for the Port, and not a foundation for any unconscionability here vis-à-vis its negotiations with EcoWorld.
39 Nectar Ltd v SPHC Operations (NZ) Ltd HC Tāmaki Makaurau | Auckland CL20/02, 7 May 2003 at [141].
[154] Indeed, I am of the view the Port has gone not only beyond its minimum obligations under the Lease, but also well beyond the expectations usually to be expected from a commercial landlord such as itself. It has made numerous offers to assist EcoWorld in its exit from the Lease, which offers it has then repeated on a number of occasions. On every occasion EcoWorld has rejected these offers to assist.
[155] The only respect in which the Port might possibly be said to have bordered on being somewhat unfair is perhaps in its 16 April 2021 offer of $75,000 for the aquarium, a building which may be worth significantly more than that,40 and then by only providing EcoWorld with two weeks to consider the offer. However, I remind myself that this must be seen against the wider backdrop. The building itself may have been of no use to the Port. And also, by this point, EcoWorld and the Port had been engaged in intermittent negotiations for almost six years. EcoWorld had taken on the Lease in January 2011 knowing it would expire in July 2021, and had no right to renew, and had throughout this entire period (or, at least, as I have found, should have had) the understanding that this had not changed. Moreover, the Lease was for bare land and specifically required EcoWorld to remove any Improvements made to the Land and leave it “clean, clear and tidy” at the end of the Lease. While this might have been somewhat costly and perhaps difficult to comply with, nevertheless this was the basis on which EcoWorld assumed the Lease. Finally, as I have noted, the Port offered to assist EcoWorld with its end-of-lease obligations and extended the deadline for acceptance of its offer to purchase the Improvements which, of course, it was not required to do.
[156] Therefore, I find that the Port has not acted unconscionably here. It was entitled to allow the Lease to run out on its terms. I add too that, in not ultimately providing EcoWorld with the 10 or more year right of renewal it sought, the Port was not in any real way resiling from a clear belief or expectation it is said it had created. It was EcoWorld which, as all parties acknowledge, was acting in such a way to “chance its arm” to negotiate a better deal throughout.
40 I note at this point, however, that Mr Reuhman in trying to argue the Port was simply after a “windfall gain” here did accept, however, in response to questions put to him in cross-examination, that the figure he produced for the value of the building ($2.5 million) was in fact not a valuation of the existing building but rather his “unqualified estimate” based on “what it would cost to demolish the existing building and replace it with a new, modern, equivalent asset”.
Conclusion on equitable estoppel
[157] As will be apparent, I have found that none of the elements required to establish an equitable estoppel have been made out. Consequently I decline to award the relief EcoWorld seeks under this cause of action, even if it was only to add several more additional years of possession, ostensibly to wind up its affairs. In my view, EcoWorld has had considerable opportunity to do so to this point.
Conclusion on EcoWorld’s claims
[158] None of EcoWorld’s claims in this proceeding have been made out to the required standard. All its claims here fail.
The Port’s claims
[159] I turn now to the Port’s claims against EcoWorld, namely an action for recovery of the Land and for breaches of the Lease. I will also consider whether, to the extent EcoWorld is in breach of its obligations, Mr Reuhman is personally liable under his guarantee under the Lease. In doing this I will also address whether EcoWorld’s affirmative defences are any answer to the Port’s claims here.
Action for the recovery of the Land
[160] An action for the recovery of land is an action in tort available to a lessor where a lessee is holding over and the lessor has been unable to effect a peaceable re-entry. To succeed in this action, the Port needs to demonstrate that it has an entitlement to possession and it is being denied that possession by EcoWorld.41
[161] I have found the Lease here expired on its terms on 22 July 2021. EcoWorld ceased to have a right to possess the Land as lessee from that date. However, EcoWorld has remained in possession of the Land and has refused to leave. I am therefore satisfied the Port is entitled to possession of the Land. I will make an order to that effect below.
41 Stephen Todd (ed) The Law of Torts in New Zealand (online ed, Thomson Reuters) at [59.9.3].
Breaches of the Lease
[162] The Port alleges that EcoWorld has breached the Lease including in its failure to comply with the following obligations under the Lease:
(a)first, that there was an implied term of the Lease42 that on its expiry,
EcoWorld would yield vacant possession; and
(b)second, that EcoWorld was required under cl 21 to remove all Improvements from the Land and leave the Land “clean, clear and tidy”.
[163] While the Lease did not specifically state that on its expiry EcoWorld would yield possession, I have no doubt this was what was clearly intended by all involved. The law in New Zealand on the implication of a term in a contract is now well-settled, following the Supreme Court’s unanimous agreement in Bathurst Resources Ltd v L & M Coal Holdings Ltd as to the approach to be taken.43 Under the Lease, at the end of which I note EcoWorld was specifically required to leave the Land “clean, clear and tidy”, EcoWorld was expected to yield vacant possession and to return the bare land to its owner, the Port. I am satisfied such a term is reasonable, and is so obvious as to go without saying. It is capable of clear expression and does not contradict any express term of the Lease and also is strictly necessary to give business efficacy to the Lease.44 EcoWorld is clearly in breach of the Lease in failing to yield up vacant possession.
[164] With respect to the Improvements on the Land, cl 21 of the Lease provides that EcoWorld, as lessee, is required to remove all Improvements from the Land at the end of the Lease and leave the Land “clear, clean and tidy”. EcoWorld has not done so. It is consequently in breach of this provision in the Lease.
42 I put on one side allegations raised here by the Port (but perhaps somewhat tentatively) that EcoWorld had also breached other aspects of its lease, such as its resource consent terms to operate the business and its permitted uses of the premises.
43 Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696.
44 At [116]; and see BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363 at 376; and Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10 [2009], 1 WLR 1988 at [25].
Mr Reuhman’s personal liability
[165] This issue can be disposed of in short order. Clause 23 of the Lease sets out Mr Reuhman’s personal guarantee. In particular, I note that under cl 23.1, Mr Reuhman guaranteed payment of the rent and EcoWorld’s performance of all the covenants in the Lease. Clause 23.2(b) provided that Mr Reuhman may be treated as EcoWorld for all purposes and the Port was under no obligation to take action against EcoWorld before bringing proceedings against Mr Reuhman personally.
[166] I find that Mr Reuhman is personally liable to the Port as guarantor in the Lease for any failures arising under the lease on the part of EcoWorld.
EcoWorld’s affirmative defences
[167] EcoWorld brings two affirmative defences against the Port’s claims (which the Port denies):
(a)First, equitable set-off. EcoWorld says that to the extent that either EcoWorld or Mr Reuhman is liable to the Port, the extent of any damages should be reduced to take into account alleged conduct on the part of the Port in contributing to that loss. This was to include conduct through its representations made in the Port’s letter of 16 September 2015 and its subsequent communications. EcoWorld says that, had it not been for the representations in those communications, EcoWorld would have been able to manage its affairs appropriately, including the taking of steps either to relocate or to wind up its business by at or about the final expiry date in the Lease.
(b)Second, estoppel. EcoWorld says the Port’s letter of 16 September 2015 and its subsequent communications amount to clear and unequivocal assurances by the Port as to EcoWorld’s continued tenure of the Land after the final expiry date in the Lease. It says it has relied upon these to its detriment and as a result has not taken the necessary steps to wind down its business or to relocate the improvements. EcoWorld says it is unconscionable for the Port to now resile from the
expectation it created in its representations and should therefore, at a minimum, be put in the position it would have been in had those representations not been made.
[168] I have dealt with EcoWorld’s arguments on both points earlier. For all the reasons I have described there, I am satisfied the affirmative defences EcoWorld brings are without substance and are no answer to the Port’s claims.
Conclusion on the Port’s claims
[169] I am satisfied the Port has made out both its claims noted above at [159]. I find that to the extent EcoWorld is liable to the Port for any failures on its part, Mr Reuhman is personally liable for the same. I do not consider EcoWorld is able to make out the affirmative defences it raises in response to the Port’s claims.
Relief
[170] Having found that the Port has made out its claims, and is therefore entitled to relief, the question then becomes what relief is appropriate in all the circumstances. The Port specifically seeks the following relief:
(a)an order requiring EcoWorld to give up possession of the Land and immediately vacate it;
(b)damages in respect of the reasonable cost of removing the Improvements from the Land (including any animals housed in those Improvements) plus interest;
(c)costs on a solicitor–client basis; and
(d)such other relief as the Court deems fit.
Possession
[171] An order for possession is appropriate. The question is when that order should take effect.
[172] The Port seeks that possession be effected immediately. Its counsel submits that it would be open to the Court to grant possession with relative immediacy, that is within a number of days or weeks. It considers that four weeks would be reasonable but in any case it should be no more than three months.
[173] EcoWorld for its part maintains that immediate possession would not benefit the Port, as the Port would not continue to receive rent, it would have legal requirements to look after the welfare of the animals in the aquarium, and it would have to take on the wind-down process itself, including the costs of doing so. EcoWorld submits that it should be given time to close down the aquarium and asks for a number of years (two or more) to allow it to do so.
[174] As I see it, immediacy is required in all the circumstances here. I am of the view that the order for possession should take effect in about one month, for the following reasons:
(a)EcoWorld at all times has known (or at least ought to have apprehended) that the Lease would expire in July 2021. It has therefore had ample opportunity to make arrangements for the eventual return of the Land to the Port. I accept EcoWorld should not now be allowed to rely on what seems to be its deliberate failure to plan for what was a clear eventuality to prolong the period of its (unlawful) possession.
(b)At all times the Port has had the right under the Lease (by way of the future development clause) to terminate the Lease and require EcoWorld, for Port development purposes, to return the Land with three months’ notice. There is no reason why EcoWorld, well over a year after the expiry of the Lease on its terms, should now somehow be entitled to a further lengthy period of time to wind down its operations and return the Land as required under the Lease.
(c)EcoWorld received the Expiry Notice in April 2021. It has therefore had 19 months to turn its mind to the winding down of its business and rehoming of its animals.
(d)From undisputed evidence before me, it is clear the Port has made numerous offers to assist EcoWorld in its end-of-lease obligations, including rehoming the aquarium’s animals. The Port advises again that it remains willing to provide that assistance.
(e)The Port is prepared and ready to take on responsibility for the animals and marine life. I acknowledge that EcoWorld has expertise in looking after the animals and marine life housed at the aquarium. However, notwithstanding the looming expiry of its Lease, on the evidence before me it seems it has made no firm arrangements in preparation for their future rehoming. By way of contrast, the Port has engaged with Te Papa Atawhai | the Department of Conservation and the Zoo and Aquarium Association in order to do so. It advises it has the funding required in order to safely rehome the animals. It has also arranged for a previous manager of EcoWorld to assist in this process. Although I accept EcoWorld could safely rehome the animals, I have no doubt the Port would actively and properly carry out the safe and effective rehoming as it has assured the Court it would be able to do if this may be required.
[175] In making any determination in this case, a real concern must be the welfare of the animals housed in the aquarium. Conscious of this, I am confident however that, with the orders I am proposing to make, the animals will be removed safely. If EcoWorld is unable to rehome the animals within the timeframe I have allowed for it to relinquish possession of the premises the Port has maintained throughout that it will be able to handle this responsibility effectively. I am affirmed in this view from detailed assurances to this effect from the Port itself. It appears too that the Port has indeed made preliminary preparations with relevant persons for their assistance in this task in anticipation of such an eventuality. If this eventuality does occur, it is expected the Port will properly and safely carry out this rehoming task. I am satisfied there is no real danger to the welfare of the animals with the orders I am proposing.
[176] I note EcoWorld’s objection to relinquish possession on the basis it says it would cost more for the Port to undertake the necessary processes than it would to do
so itself. Again as I have noted, however, EcoWorld has had a number of years to prepare for this eventuality and it appears it has made very little, if any, preparation for what was an entirely foreseeable eventuality. If it may cost more as a result, this in my view is a consequence of EcoWorld’s actions.
[177] Therefore, an order that EcoWorld relinquish possession of the Land within 20 working days of the date of this decision is to follow.
Damages
[178] As I have found above, the Port is entitled under the Lease to recovery from EcoWorld of the bare land without the Improvements. EcoWorld has failed to date to remove those Improvements.
[179] The Port seeks damages for the cost of removing such Improvements as remain, as well as the costs of removing the marine life and other animals that may remain in the Improvements.
[180]In my view, this is wholly appropriate.
[181] A long established principle, (known as the rule in Joyner v Weeks) provides that where a lease contains a covenant to leave the premises in good repair at the end of the term, and the lessee breaks that covenant, the lessee must pay the lessor “a reasonable and proper amount for putting the premises into the state of repair in which they ought to have been left”.45 The Court of Appeal has found that this rule applies in New Zealand, noting that when a lessee has failed to perform a covenant in a lease, the prima facie measure of damages is ordinarily the cost of having the covenant performed.46 Thus, if a lessee fails to remove or make good improvements at the end of the lease, the lessor is entitled to damages in the amount of the reasonable cost of removing or making good those improvements.47
45 Joyner v Weeks [1891] 2 QB 31 (CA) at 43–44.
46 Maori Trustee v Rogross Farms Ltd [1994] 3 NZLR 410 (CA), citing Joyner v Weeks, above n 45, at 43–44.
47 Maori Trustee v Rogross Farms Ltd, above n 46, citing Joyner v Weeks, above n 45, at 43–44.
[182] As EcoWorld has rightly pointed out, however, the Court of Appeal noted the rule in Joyner v Weeks is not an absolute rule. It also noted though that it will only be displaced where the lessee is able to show that in both the short and long term the lessor will “definitely suffer no loss” or will suffer a loss which “can definitely be assessed as less than the prima facie measure”.48 I do not consider here there is sufficiently cogent evidence before the Court to demonstrate that the losses the Port will suffer in this case are “definitely” less than the cost of removing the Improvements. I therefore do not consider the usual rule that the Port should be entitled to damages in the amount of the cost of removing or making good the Improvements is displaced.
[183] EcoWorld was obliged to remove all Improvements and leave the Land clear and tidy. It has not done so to date. Any damages should therefore be the reasonable costs of removing the Improvements and making good the site.
[184] With respect to the costs of removing the Improvements, EcoWorld attempts to draw a distinction between the aquarium and its animals and stock. However, such a distinction in my view does not hold up. Anything added to the Land is an “improvement”. The aquarium and buildings have clearly been added to the Land. The animals have also been brought onto the land the subject of the Lease. The wording in cl 3.0, which refers to “further constructions or additional improvements”, suggests that improvements need not necessarily be only physical structures. A possible argument exists that, in this context, where the Improvements in question include an aquarium, for present purposes the animals in that aquarium might also in one sense be considered “Improvements” to the Land as well. I leave that argument on one side here, however.
[185] When considering the PLA itself, it is notable this automatically implies into a lease a covenant on termination that the lessee yield up the leased premises in the condition they were in when the term of the lease began.49 It simply would not be possible to remove the aquarium building without also removing the animals and stock. I accept the Port’s submission that for the Land to revert to the condition which
48 At 420.
49 Property Law Act, sch 3 pt 3 cl 13(1)(b).
it was in previously, both the aquarium and its animals and stock must be removed. Any damages for the reasonable cost of removing the Improvements (which includes the aquarium) must therefore include the costs of removing the animals.
[186] And, as I have found above, I do not consider the amount should be reduced by way of equitable set-off.
[187] I therefore find that the Port is entitled to damages in the reasonable amount of the costs of removing any Improvements from the Land, including the aquarium and its stock which remain after the 20 working day period from the date of this judgment has expired. An order to this effect will follow.
Costs
[188] The Port also seeks costs on this proceeding on a solicitor–client basis given the terms of the Lease.
[189] For a party to be entitled to indemnity costs, the right must be plainly and unambiguously stated.50 In Drive Holdings Ltd v Mission Bay Pharmacy Ltd, the Court held that the lessor was entitled to costs assessed on a solicitor–client basis, subject only to reasonableness of the costs charged by the lessor’s solicitors.51 In that case, the lease had provided that “all costs charges and expenses for which the Lessor shall become liable” as a result of the lessee’s breach or default were to be paid by the lessee.
[190] The clause in the present Lease is clear. It is suggested it outlines the costs position in the present case even more directly than that which prevailed in Drive Holdings Ltd v Mission Bay Pharmacy Ltd. In the present case, cl 1.11 of the Lease provides that:
If at any time Port Marlborough shall be obliged to incur legal or other expenses because of any default on the part of the Lessee, then the Lessee
50 Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657 at [189]–[196].
51 Drive Holdings Ltd v Mission Bay Pharmacy Ltd HC Tāmaki Makaurau | Auckland CIV 2005- 404-00829, 27 May 2005, upheld on appeal in Mission Bay Pharmacy Ltd v Drive Holdings Ltd CA 98/05, 29 June 2006 at [61].
shall upon demand reimburse Port Marlborough for the reasonable costs which it has incurred.
[191] I have found that EcoWorld is in breach of its Lease and that it has unlawfully remained in possession of the Land. It is clear the Port has been obliged to incur legal and other expenses as a result. I am therefore satisfied that the Port is entitled under the Lease to be reimbursed by EcoWorld for its reasonable legal costs consequently incurred. This includes those costs on a solicitor–client basis. An order to this effect will follow.
Any other relief
[192] I consider the relief as already described is appropriate here. Any other relief by way of further damages, interest or otherwise, was not the subject of detailed submissions before me. Leave to approach this Court for further clarification on these issues will be reserved.
Summary
[193] In summary, I now set out my answers to each of the questions posed above at [68]:
(a)First, was there a contractual 10-year right of renewal?
No.
(b)If no, should the Court nevertheless grant relief to EcoWorld under s 264 of the PLA?
No.
(c)Is EcoWorld entitled to an order for specific performance against the Port for a new lease on the terms of the alleged right of renewal?
No.
(d)If no, should EcoWorld nevertheless be granted relief in equity under the doctrine of estoppel on the basis of representations made to it by the Port?
No.
(e)Is the Port entitled to an order for possession of the Land?
Yes.
(f)Has EcoWorld breached the Lease by:
(i)failing to yield possession; and
(ii)failing to remove all Improvements from the Land and to leave the Land clear, clean and tidy?
Yes.
(g)Is Mr Reuhman personally liable for any failures under the lease on the part of EcoWorld?
Yes.
(h)What relief, if any, ought to be awarded?
The Port is entitled to relief in terms of the orders made below at [196].
Result
[194] EcoWorld’s claims under its causes of action in the 23 proceedings are unsuccessful. They are dismissed in their entirety.
[195] The Port has succeeded in its claims under its causes of action in the 29 proceedings. The Port is entitled to possession of the Land as well as certain damages as claimed and reimbursement for its costs incurred, in terms of the following orders.
Orders
[196]I make the following orders:
(a)EcoWorld is to relinquish and provide to the Port vacant possession of the Land within 20 working days of the date of this decision.
(b)The Port is entitled to damages against EcoWorld and Mr Reuhman (jointly and severally) in the reasonable amount of the costs of removing any Improvements from the Land that remain after the period noted at [196](a) above, including the aquarium (and making good the site) and including also removal of any animals housed in those improvements that remain at that time.
(c)The Port is entitled under the Lease to be reimbursed by EcoWorld and Mr Reuhman jointly and severally, for the reasonable legal costs and disbursements it has incurred on this proceeding, on a solicitor–client basis, such costs and disbursements to be approved by the registrar.
[197] Leave is reserved to either party to approach the Court on 5 working days’ notice for any further clarification that may be reasonably required on the question of damages and interest thereon, or relating to implementation of any of the orders made in this judgment.
Gendall J
Solicitors:
Toby Gee Barrister and Duncan MacKenzie Barrister for EcoWorld Aquarium Limited Bell Gully for Port Marlborough New Zealand Limited
Copy to Second Defendant
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