Precinct Properties Holdings Limited v OMV New Zealand Limited

[2018] NZHC 1939

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2017-485-476

[2018] NZHC 1939

BETWEEN

PRECINCT PROPERTIES HOLDINGS LIMITED
Plaintiff

AND

OMV NEW ZEALAND LIMITED

Defendant

Hearing:

17 September 2018

Appearances:

Mr Richard Gordon for plaintiff

Mr Jonathan Orpin-Dowell for defendant

Judgment:

15 October 2018

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

Issue

[1]    Ultimately, the issue for determination in this case will be whether a lease between the plaintiff, Precinct Properties Holdings Ltd as landlord, and the defendant, OMV New Zealand Ltd as tenant, of premises in Deloitte House in the CBD in Wellington remained in force as at 13 March 2017, and therefore whether Precinct is entitled to charge OMV rent from that date.

[2]    The issue before me is whether Precinct can establish that OMV has no defence to Precinct’s claim for rent from that date totalling over $1 million.

Background

[3]    On 16 February 2007, Precinct and OMV entered into a lease whereby Precinct agreed to lease and OMV agreed to take on lease the premises already referred to.

PRECINCT PROPERTIES HOLDINGS LIMITED v OMV NEW ZEALAND LIMITED [2018] NZHC 1939

[15 October 2018]

[4]    The initial term of the lease commenced on 1 December 2005 in respect of one part of the premises and 1 January 2007 in respect of another. Although, the lease was originally due to expire on 30 November 2014, the parties entered into three deeds varying aspects of it and extending its term, so that, immediately prior to the Kaikoura earthquake on 14 November 2016, both parties were committed to a lease of premises on  the  9th  and  10th  levels  of  the  building  (together  with  carparks)   until      30 November 2020.

[5]    The clause in the lease around which much of the argument pivots is cl 26 of the Second Schedule. It is headed “Total Destruction”, although that is misleading because the total destruction of the building is not the only circumstance in which it is triggered. It provides:

26IF the premises or any portion of the building of which the premises may form part shall be destroyed or damaged:

(a)as to render the premises untenantable then the term shall at once terminate; or

(b)in the reasonable opinion of the Landlord as to require demolition or reconstruction, then the Landlord may within three (3) months of the date of damage or destruction give the Tenant one (1) months written notice to terminate and a fair proportion of the rent and outgoings shall cease to be payable according to the nature and extent of the damage.

Any termination pursuant to this clause shall be without prejudice to the rights of either party against the other.

[6]Some obvious features of this clause are that:

(a)it is capable of being triggered by damage to or the destruction of any part of the building;

(b)it deals with two different situations — the first being where such damage or destruction renders the premises being leased untenantable and the second being where it results in the landlord reasonably concluding that the building or the premises require very major work;

(c)in the first of those circumstances, the lease terminates without the need for either party to give notice of termination or anything else. In the

second, the landlord is entitled to terminate early, but there are restrictions around the circumstances in which it may do so, and the consequences of it doing so.

[7]    It is common ground that the 14 November 2016 Kaikoura earthquake caused damage to the building. OMV is contending that the lease came to an end as a result. It is therefore the first of the two situations described above that is in issue here.

[8]    The parties are at odds on the issue of whether the damage rendered the premises untenantable. Precinct contends that it did not. OMV says that it did.

[9]    Immediately following the Kaikoura earthquake, Precinct emailed its tenants, including OMV, saying that the civil defence authorities were advising people to keep out of the CBD so it could not arrange an inspection of Deloitte House to establish the extent of any damage or whether its tenants could return.

[10]   On 10 March 2017, Precinct emailed its tenants saying that the ground to 13th levels of Deloitte House would be available for reoccupation from 13 March 2017.

[11]   Precinct accepts that OMV was effectively prevented from occupying its premises between 14 November 2016 and 13 March 2017, a period of four months. Pursuant to cl 27 of the Second Schedule to the lease — which deals with “Partial Destruction” — Precinct has credited OMV with the amount of the rental that would have been payable for that four-month period. However, it seeks to recover rental from that point on. It applies for summary judgment.

[12]   Counsel were in agreement as to the principles that apply to such an application. The leading case is the Court of Appeal’s judgment in Krukziener v Hanover Finance Ltd.1 In short, Precinct has the burden of establishing that OMV has no defence to its claim. Accordingly, as already said, the issue for determination at this stage of the proceeding is whether, on the evidence, Precinct can establish that there is no tenable argument that the premises leased by it to OMV were rendered untenantable by the Kaikoura earthquake, and that there are no other bases — raised

1      Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162.

by OMV — upon which OMV might credibly contend that the rent claimed is not payable.

[13]   That summary of the background is an oversimplification. Events before, during and after the period over which Precinct accepts OMV was unable to occupy the premises featured in the arguments advanced on the parties’ behalves, and are relevant to the resolution of Precinct’s application.

[14]   I am indebted to counsel who both developed detailed chronologies on which I have relied in identifying the key events, as follows:

[14.1] As already said, the parties entered into the lease on 16 February  2007;

[14.2] On 13 August 2011, Precinct told OMV that Deloitte House had been assessed by its engineering advisers, Holmes Consulting Group, and that it was 100 per cent of New Building Standard (NBS), which means that its susceptibility to earthquake damage was at the level required of a new building and categorised as “low risk”;

[14.3] On 12 June 2012, the parties entered into a Deed of Variation and Renewal of Lease and Rent Review. Pursuant to this, the lease continued, with Precinct granting OMV two new rights of renewal for terms of three years commencing on 1 December 2014 and 1 December 2017, and OMV exercised the first right of renewal in advance, thus committing itself to the lease until 30 November 2017;

[14.4] On 22 August 2013, Precinct informed OMV that, following the Christchurch earthquakes in 2010 and 2011, Holmes had provided it with a detailed structural assessment of Deloitte House and confirmed it was of 100 per cent of NBS;

[14.5] During May 2014, Precinct provided OMV with a copy of a report prepared by Holmes as to the performance of Deloitte House in the

Seddon and Lake Grassmere earthquakes of mid-2013. This report concluded that damage sustained by the building as a result of those earthquakes had not significantly reduced its susceptibility and that the NBS rating remained at 100 per cent;

[14.6] On 27 November 2015, the parties entered into a Deed of Partial Surrender, Variation and Renewal of Lease. Pursuant to this, OMV exercised its final right of renewal, thereby committing itself to the lease until 30 November 2020;

[14.7] In the early hours of 14 November 2016, the Kaikoura earthquake occurred;

[14.8] At 4.52 am that day, Precinct sent the email referred to at [9] above;

[14.9]Between 6.15 am and 3.39 pm that day, Precinct emailed its tenants  on three further occasions. Essentially it informed them that it was arranging for Holmes to assess Deloitte House to determine its post-earthquake condition. In the meantime, the tenants were informed that there had been some damage to the building and that access was restricted;

[14.10] On 16 November 2016, Precinct emailed its tenants advising them that, following Holmes’ initial assessment, there would be accompanied access only to Deloitte House;

[14.11] On 17 November 2016, Precinct emailed its tenants to inform them that on Holmes’ advice Deloitte House was closed, even for accompanied access, until further notice.

[14.12] In the period leading up to 19 December 2016, there was ongoing correspondence between Precinct and OMV relating to the steps being taken by Holmes in terms of the more detailed assessment of Deloitte House and access;

[14.13] On 19 December 2016, Precinct emailed its tenants informing them that Holmes had completed their Targeted Damage Evaluation (TDE) of Deloitte House, that they had identified structural vulnerabilities in areas of the building and advised that the NBS rating was less than 100 per cent and most likely in the order of 40 to 60 per cent. Precinct went on to say that in light of this it had requested Holmes to prepare a Detailed Seismic Assessment (DSA) of the building, which would not only clarify the NBS rating but also the scope of structural upgrade works required so as to improve that rating. The email contained a warning that if indeed the building’s NBS rating was at the level indicated then Precinct would want to discuss with occupiers proposed strengthening work;

[14.14] Between 19 December 2016 and 27 January 2017, there was ongoing correspondence between the parties in which Precinct kept OMV up-to-date with the work being carried out by Holmes;

[14.15] On 27 January 2017, a meeting took place between representatives of the parties. The affidavit evidence highlights differences between them as to exactly what transpired at this meeting. But, on any view, there was discussion about the prospect of Precinct carrying out strengthening work to the building and the possibility of that taking some time and being disruptive;

[14.16] On 2 February 2017, OMV emailed Precinct purporting to terminate the lease in reliance on cl 26(a). The email and attached “Notice of Termination of Lease” made specific reference to the 27 January 2017 meeting and to Precinct’s advice of its intention to undertake strengthening work, saying that the expectation was that this would take two years and that OMV would be required to vacate the leased premises for an extended period of time. The Notice of Termination of Lease also noted OMV’s concern about the decreased NBS rating, although there was no mention of previous representations, or any allegation of misrepresentation;

[14.17] On 3 February 2017, Precinct emailed OMV denying that the premises were untenantable and saying that there was no basis for termination. This email went on to say that immediate work was being carried out and that Precinct expected shortly to inform tenants when they could reoccupy their premises;

[14.18] On 8 February 2017 OMV’s Mr Matiu Park accessed Deloitte House. He reported seeing sloping floors that he said were not sloping prior to the Kaikoura earthquake;

[14.19] On 13 February 2017, Precinct emailed its tenants advising them that Holmes’ TDE report had been completed and provided to the Wellington City Council and that this confirmed that the ground to 13th levels of the building could be reoccupied. It went on to say that there were continuing issues with levels 14 to 16 in respect of which repair work was required. This email also confirmed Holmes’ earlier indication that the NBS rating of 100 per cent was not correct and that the rating was likely to be in the 40 to 60 per cent category;

[14.20]On 23 February 2017, OMV signed a heads of agreement for the lease of new premises;

[14.21] From 28 February 2017, the parties’ solicitors became involved and the correspondence from this point focussed attention on the interpretation of the lease;

[14.22] On 3 March 2017, Holmes’ DSA report was issued. This confirmed that the building’s NBS rating was between 36–60 per cent, which would classify Deloitte House as an “earthquake-risk building”. It is common ground that Precinct has never provided OMV with a full copy of the report. It has provided the executive summary. This describes the particular areas of the building that Holmes focussed on as negatively affecting the NBS rating. It confirms that Holmes were

investigating the strengthening of critical components of the building and recommending that this process continue;

[14.23] On 10 March 2017, Precinct advised OMV that unrestricted access to the ground to 13th levels of Deloitte House would be available from 13 March 2017;

[14.24] On 25 May 2017, OMV signed a lease for its new premises;

[14.25] On 8 June 2017, Precinct commenced this proceeding and applied for summary judgment;

[14.26] Between 3 and 5 July 2017, OMV’s engineer, Mr Peter Wrona of Thornton Tomasett, inspected the premises and publicly accessible parts of the building. However, he was not given access to inspect other areas;

[14.27] On 17 August 2017, Precinct issued its annual report. This wrote down the value of Deloitte House from $46.3 million to $20.2 million and reclassified it as a development property;

[14.28] On 3 August 2018, Mr Wrona again inspected Deloitte House to review the allegedly sloping floors. His advice was that the slopes are five times greater than acceptable under New Zealand construction standards, but his evidence is inconclusive as to whether or not that is connected in any way with the Kaikoura earthquake;

[14.29] On 20 August 2018, Precinct sold Deloitte House to Prime Properties Ltd for $10.2m.

The competing arguments

[15]   The primary argument advanced on Precinct’s behalf by Mr Gordon could not be more straightforward.

[16]He submitted that the core issue was whether “the lease is still on foot”.

[17]   Given  the  factual  background,  and  in  particular  the  terms  of  OMV’s  12 February 2017 purported cancellation of the lease, Mr Gordon’s argument then focussed on cl 26(a) and the proper interpretation of the term “untenantable”.

[18]   As he submitted, there is little authority on the meaning of that term – surprisingly, because the clause is a feature of the REINZ/ADLS standard form lease, which is probably the most prevalent form of lease for commercial premises in the country.

[19]   Mr Gordon identified four relevant authorities: DFC New Zealand Ltd v Samson Corporation Ltd,2 Russell v Robinson,3 GP 96 Ltd v FM Custodians4 and New Lynn Compliance Centre Ltd v Birdwood Custodians Ltd.5

[20]   In DFC New Zealand Ltd v Samson Corporation Ltd, the meaning of the term tenantability arose in the context of a six-year lease with four and a half years to run and repairs having taken ten weeks to investigate and complete. At first instance, Robertson J observed that there had been no reported consideration as to the meaning of tenantability. His Honour was satisfied that the word “untenantable” meant nothing more than unable to be used and enjoyed by the tenant. His Honour continued:6

Within that general catalogue of cl 26, sub cl (a) involves some degree of permanence. In other words, something which is merely transitory or temporary will not make a building untenantable. However, where there is a substantial interference with the tenant’s ability to enjoy, use and operate, particularly when one is talking about commercial premises, then you have “untenantability”.

[21]   Robertson J concluded in that case that it was more probable than not that the premises had been rendered untenantable.

2      DFC New Zealand Ltd v Samson Corporation Ltd (1994) 142 ANZ ConvR 216 (CA).

3      Russell v Robinson [2011] 2 NZLR 424 (HC).

4      GP 96 Ltd v FM Custodians (2011) 12 NZCPR 489 (HC).

5      New Lynn Compliance Centre Ltd v Birdwood Custodians Ltd (2011) 12 NZCPR 730 (HC).

6      DFC New Zealand Ltd v Samson Corporation Ltd (1993) 136 ANZ ConvR 481 (HC) at 483.

[22]   The Court of Appeal, while accepting the test proposed by Robertson J, reached a different conclusion on the evidence:7

There appears to have been some delay in effecting the reinstatement of the premises, but the assessor called for [the defendant] considered that it would have taken a maximum of three weeks [to complete] from starting date. Viewing this evidence as a whole in the context of a lease for a six year term, we think it establishes damage of a “merely transitory or temporary nature”, which would be insufficient to satisfy the description “untenantable”. It would justify a temporary abatement of rent under cl 26(c) of the lease pending the completion of reinstatement. On this ground also we, with respect, disagree with the conclusion reached by the Judge.

[23]   In Russell v Robinson, a fire had damaged leased premises on the first day of a four-year term. Reinstatement took ten months. At first instance, the District Court Judge had concluded that this had rendered the premises untenantable because it had involved more than a “transitory or temporary” interruption. On appeal to this Court, Priestly J said:

[26]… for the purposes of cl 26.1(a), the word “untenantable” is an objective state to be determined on the specific relevant facts. Certainly the focus of the inquiry must be whether the premises are capable of being tenanted by the lessee, who in terms of a lease went into the premises for a specific purpose and for a specific term …

[27]But that understandable focus on the use of leased premises by a tenant does not permit an objective assessment of the adjective “untenantable” to be watered down or coloured by the subjective preference of either landlord or tenant … Although, undoubtedly, one of the major functions of the clause is to release a tenant from lease obligations to a landlord, that is not the clause’s only purpose …

…

[29] The evidence before the Judge demonstrated  graphically  that  the leased first floor premises had been seriously damaged by fire. Ten months of the agreed four-year lease term were needed to repair the structural and internal damage. Regardless of the appellants’ desire to hold on to the premises, at the stage that the respondents terminated the lease on 8 November 2007, the premises can only be described as untenantable. They were not capable of being used for the tenants’ purposes or indeed the purposes of the lease.

[24]   GP 96 Ltd v FM Custodians involved the purported termination of a lease of a hotel following the February 2011 Canterbury earthquake, which had caused some

7      DFC New Zealand Ltd v Samson Corporation Ltd, above n 2, at 219.

structural and architectural damage to the building. On the landlord’s application, Chisholm J determined that the premises had not become untenantable, saying:

[31]… The inquiry is whether any portion of the building was so damaged as to render the premises untenantable. In other words, the focus is on the damage to the building and the implications in terms of tenantability. It is an objective test which reflects that the clause is for the benefit of both parties. Before the building can be untenantable there needs to be some degree of permanence and something that is merely transitory or temporary will not be enough. All relevant facts need to be taken into account including the purpose of the lease, the duration of the lease, the extent of the damage, and estimated time for repairs before occupancy can be resumed. If the building is rendered untenantable the lease will automatically terminate.

[25]   Finally, Mr Gordon referred me to New Lynn Compliance Centre v Birdwood Custodians Ltd, which he described as “representing something of an outlier”. His submission was that in that case Ellis J had adopted an approach that was significantly different from those adopted in the earlier cases, because her Honour approached the issue of “untenantability” from a subjective perspective.

[26]The relevant parts of her Honour’s judgment are the following:

[36]      … in my view an important distinction to be drawn between cl 26.1(a) and (b). It seems to me that subclause (a) exists for the benefit of the tenant. Tenantability is the fundamental prerequisite to a continued tenancy from a lessee’s perspective, not from a lessors’s. Thus where the leased premises are rendered “untenantable” by damage or destruction then the tenant is entitled to terminate the tenancy immediately and is prima facie not liable for any further rent. It might be expected that a state of untenantability will often be evidenced by the fact that the tenant ceases to occupy the premises concerned.

[37]      There is support for my view that untenantability under the lease is to be judged from the lessee’s perspective when the consequences of the opposite conclusion (namely that untenantability is wholly objective state, determinable by the lessor) are considered.

…

[41 It follows that I do not consider that, following damage to a leased premises, cl 26.1(a) can be properly interpreted as affording a landlord the choice about whether to terminate the lease on notice or not. The only “choice” involved relates to the decision made by the tenant about whether, following damage to the leased premises, those premises remain tenantable and he or she can remain in occupation. It might well be expected that that choice would be exercised reasonably. But if, following significant damage to the premises, a tenant perversely chooses to stay on (and therefore to continue to pay some or all of the rent) then the landlord nonetheless retains a

choice to terminate on notice under cl 26.1(b) if he is of the (reasonable) opinion that demolition or reconstruction is required.

[27]   This decision seems to have been influenced by its particular facts, which raised issues concerning the collection of chattels by a tenant after the landlord terminated the lease following a fire. Several of the observations made in the paragraphs quoted above do indeed appear to be contrary to the position reached in the other cases to which I have referred, in particular that cl 26(a) calls for an objective assessment, is for the benefit of both landlord and tenant, and that termination occurs without the need for either party to exercise a choice. Her Honour does not appear to have been referred to those earlier authorities. In any case, it is not necessary for me to dwell on these inconsistencies as I am bound by the Court of Appeal’s decision in DFC New Zealand Ltd v Samson Corporation Ltd.

[28]   Mr Gordon’s primary submission was that in the context of a lease concluded in February 2007 and which, as at 14 November 2016, still had a further four years to run, an interruption in occupation of four months fell well short of the test articulated in DFC New Zealand Ltd v Samson Corporation Ltd. He categorised this interruption as falling into the transitory or temporary category, or, in other words, that it did not constitute a substantial interference with the tenant’s entitlements under the lease. He submitted that any other conclusion would be inconsistent with the Court of Appeal’s judgment in DFC New Zealand Ltd v Samson Corporation Ltd.

[29]   For OMV, Mr Orpin-Dowell did not focus to any great extent on whether an interruption of four months would, in and of itself, be sufficient to justify a finding of untenantability.

[30]   However, he submitted that it was open to OMV to contend that there were real issues for trial concerning:

(a)tenantability; and

(b)whether     OMV     had     effectively     cancelled     the     lease     for misrepresentation.

[31]   With respect to tenantability, Mr Orpin-Dowell submitted that the issue was not simply one of duration. His submission was that this case raised an aspect of tenantability that was not in issue in any of the decided cases namely the integrity of the building. He argued that if the result of the Kaikoura earthquake was that the structural integrity of the building was comprised, then that was capable of amounting to untenantability, depending, of course, on the extent to which the building was compromised. He contended that, notwithstanding the conclusion Precinct and its engineers had apparently reached that the building was sound, a real issue remained in relation to that. He pointed to the information that Precinct had not provided to OMV and that was not before the Court, most particularly Holmes’ full DSA report of 3 March 2017, and to OMV’s evidence that its own engineers had not been given a free hand in terms of inspecting of the building, which had resulted in them concluding that there may be genuine issues relating to the building’s integrity.

[32]   On those bases, Mr Orpin-Dowell submitted that the evidence was not conclusive, so that there remained a real issue as to the building’s integrity. He submitted that until such time as that issue for trial was properly resolved OMV was entitled to maintain that it had an argument that cl 26(a) applied and that the lease came to an end following the Kaikoura earthquake.

[33]   Turning to misrepresentation, Mr Orpin-Dowell pointed to the representations referred to in the chronology as to the NBS rating of Deloitte House (on 13 August 2011; 22 August 2013; and May 2014 in particular) and evidence that OMV relied upon those representations in renewing and extending the lease. He submitted that if those representations and OMV’s reliance on them could be established at trial, then OMV would have a strong argument that, in terms of s 37(1)(a) and (2) of the Contract and Commercial Law Act 2017, it was entitled to cancel the lease as at 2 February 2017 when it purported to do so.

[34]   Both of these arguments are  directed  at the  same  conclusion:  that, as  at  13 March 2017, there was no lease in existence.

[35]   In response, Mr Gordon submitted that whilst Precinct may not have provided OMV (or other tenants) with all information it had received relating to the integrity of

Deloitte House, it had furnished them with the essential material and he contended that the TDE report produced by Holmes in particular was decisive.

[36]   He invited me to put to one side the evidence of OMV staff with no relevant qualifications as to concerns they had about the building, and I accept that it is appropriate to do so.  Insofar  as  OMV’s  engineering  evidence  was  concerned,  Mr Gordon submitted that it was weak because OMV’s engineering advisers had not had the same opportunities as Holmes to investigate and report on the building’s integrity. That too I accept, although this rather supports OMV’s case that it has not had an uninhibited opportunity to reach its own assessment as to the building’s structural integrity.

[37]   In the end, Mr Gordon invited me to conclude that Precinct’s evidence was conclusive as to the integrity of the building.

[38]   Focussing on the issue concerning the building’s NBS rating, Mr Gordon submitted that NBS rating is not a proxy for tenantability. As he submitted, there are any number of properties in the Wellington CBD that are rated at less than 100 per cent NBS and yet are tenantable. He cautioned me against being beguiled by this argument and treating anything other than a 100 per cent rating as equating to untenantability.

[39]   Turning to the misrepresentation issue, Mr Gordon reminded me that in their email of 2 February 2017 OMV had not purported to cancel the contract for misrepresentation and indeed had only raised this issue in a direct way at least some time after the purported cancellation.

[40]   Finally, in relation to both arguments, Mr Gordon emphasised that the law relating to leases places the payment of rent in a special category. In this lease, the material clauses are cls 31.1 and 31.2. In effect they say that the landlord is entitled to insist that the tenant pays rent, irrespective of any dispute or claim. On that basis, Mr Gordon’s submission was that even if one or other of the arguments advanced against Precinct by OMV in this case had merit, Precinct is entitled to insist that OMV “pay first and argue later”.

[41]   On those bases, Mr Gordon submitted that Precinct is entitled to summary judgment for the outstanding rent.

Discussion

[42]   In my judgement, Precinct has not established that OMV has no arguable defence to its claim.

[43]   I do not need to reach a final conclusion as to Precinct’s primary argument that in the context of this case OMV’s inability to access the leased premises for a period of four months is not, in and of itself, sufficient to render the premises untenantable, though I am inclined to the view that it is a strong one.

[44]But, as already outlined, that is not the only issue.

[45]   I accept the submission made by Mr Orpin-Dowell on OMV’s behalf that there are bases upon which it may contend that by 13 March 2017 the lease had come to an end.

[46]   Insofar as the argument based on untenantability is concerned, in my view, the concept of untenantability includes premises that do not meet a minimum structural integrity requirement. Quite what that minimum requirement is, it is not necessary for me to decide, and nor would it be appropriate to do so on a summary basis on affidavit evidence. Although Precinct asserted in its notification of 10 March 2017 that the building and the premises were sound, as OMV submits, it did so against the background of not providing full disclosure of the information available to it to OMV and without permitting OMV’s engineers to carry out a comprehensive inspection of the building. Having elected to approach matters in that way, in my view, Precinct cannot now contend that OMV must accept its conclusion.

[47]   It follows that there remains an issue as to the structural  integrity  of  Deloitte House and the premises leased by Precinct to OMV.

[48]   I have reached no conclusions about this. It may well be that Precinct is correct and that Deloitte House is quite sound. All I have concluded is that, as matters stand,

the issue remains a live one. It can only be resolved at trial after full disclosure and with the parties’ engineering evidence being properly tested.

[49]   Turning to the misrepresentation defence, although Mr Gordon is correct to say that OMV’s notice of termination dated 2 February 2017 did not raise misrepresentation as a basis for termination, the law is very clear that a party that cancels a contract on one basis and subsequently discovers that there had been a second ground for termination is entitled to rely on that ground.8

[50]   On the affidavit evidence at least, there is no doubt that Precinct represented to OMV that Deloitte House had an NBS rating of 100 per cent. Nor is there any doubt on Precinct’s evidence that since the Kaikoura earthquake Precinct’s engineers have indicated that the building in fact has a substantially lower rating. On the evidence, it is not clear to me whether the original assessment was wrong or whether the reclassification has been necessary as a result of the impact of the Kaikoura earthquake. Precinct’s evidence suggests the former. OMV’s concern is the latter. Again, this issue requires a more careful assessment than is possible on affidavit evidence in the context of summary judgment proceedings.

[51]   I accept the submission made on OMV’s behalf by Mr Orpin-Dowell that it is open to OMV to contend that those representations were relied on by it in agreeing to renew and extend the lease, and that they are sufficiently central to the rights and obligations of the parties under that lease that a breach of the representation entitled OMV to cancel.

[52]   On both of those bases, it appears to me to be open to OMV to contend that as at 13 March 2017 the lease was no longer “on foot” as Mr Gordon put it. If that argument were to be successful, then the arguments advanced by Mr Gordon relating to obligations to pay rent do not come into play.

8      Kumar v Station Properties Ltd [2015] NZSC34, [2016] 1 NZLR 99 at [65]–[66] and [123].

Arbitration

[53]   For the sake of completeness, I note that OMV is not prevented from raising the two defences I have focussed on in this decision at trial by the arbitration clause in the lease — cl 44.1.

[54]   This issue was the subject of an earlier interlocutory dispute between the parties, which was ultimately determined by the Court of Appeal.9 The Court of Appeal upheld the decision of this Court to refuse a stay of proceedings on the basis that cl 44.3 of the lease allowed Precinct to bring proceedings for the recovery of rent. Although a dispute over the proper interpretation of the lease, such as arises in this case, would usually be a suitable issue for arbitration, giving proper effect to the rent claims exception necessitates allowing those issues to be ventilated in court. The Court of Appeal put the point in these terms:

[27] … OMV may still contend that the lease has been terminated as a defence to Precinct’s claim for unpaid rent. The pleading of such a defence does not amount to a pleading of “deduction or set-off”.

…

[29] In summary, cl 44.3 operates as an exception to cl 44.1 and permits claims for unpaid rent to be litigated. To the extent that a tenant believes it has a defence to such a claim (by which we mean a defence that some or all of the rent is not payable, for reasons other than the existence of a cross-claim in the nature of a set-off) that defence can be pleaded and ventilated in the context of such litigation. But claims for set-off and counter-claims relating to alleged breaches of the lease or misrepresentations by the landlord wold not, in our view, qualify. Those are properly matters for arbitration under cl 44.1.

Conclusion

[55]   Precinct has failed to establish that OMV has no arguable defence to its claim for rent.

[56]Accordingly, I dismiss Precinct’s summary judgment application.

9      OMV New Zealand Ltd v Precinct Properties Holdings Ltd [2018] NZCA 240. See also Precinct Properties Holdings Ltd v OMV New Zealand Ltd [2017] NZHC 2926.

[57]   I did not hear the parties on costs and I reserve them. If counsel are unable to resolve any costs issues that arise at this stage, as I would expect them to be able to do, then the parties may come back to me by memorandum and I will deal with them on the papers.

[58]   I direct the Registrar to set this matter down for a case management conference as soon as conveniently possible so that a trial date can be set and pre-trial directions made.

Associate Judge Johnston

Solicitors:

Izard Weston Lawyers, Wellington MinterEllisonRuddWatts, Wellington