Rongotai Investments Limited v Baylock
[2023] NZHC 2599
•18 September 2023
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2022-485-807
[2023] NZHC 2599
BETWEEN RONGOTAI INVESTMENTS LIMITED
Plaintiff
AND
ROGER MAX BLAYLOCK and
YVONNA MARIA KEREKES as trustees of the Blaylock and Kerekes Family Trust
First DefendantsBUNNINGS LIMITED
Second DefendantNZ CASH FLOW CONTROL LIMITED
Third Defendant
Hearing: 13 July 2023 Appearances:
T Mijatov, C O’Fee and S Brennan for Plaintiff
K Sullivan for First Defendants and Third Defendant R Lange and H Harwood for Second Defendant
Judgment:
18 September 2023
JUDGMENT OF ASSOCIATE JUDGE SKELTON
[1] Before me are applications by the first, second and third defendants for summary judgment and/or strike out in respect of the plaintiff’s claims against them in the proceeding.
Background
[2] The plaintiff, Rongotai Investments Ltd (Rongotai) owns freehold properties situated in Rongotai, Wellington.
RONGOTAI INVESTMENTS LIMITED v BLAYLOCK [2023] NZHC 2599 [18 September 2023]
[3] Rongotai leases five properties to the second defendant, Bunnings Ltd (Bunnings) and one property to the third defendant, NZ Cash Flow Control Ltd (NZCFC), under ground leases which are perpetually renewing every 21 years known as a “Glasgow lease”. Rongotai also leased a property to the first defendants, Roger Blaylock and Yvonna Maria Kerekes (Blaylock Interests) under a Glasgow lease, but a third party purchased the freehold estate in the property in April 2021 and the Blaylock Interests surrendered their interest in the lease at that time.
[4] Each of the subject leases includes a clause dealing with yearly rental in the following terms:
Yearly Rental
3.The said yearly rental shall be determined as follows: —
a)For the first period of seven years of the term hereby created the yearly rental shall be the sum specified in the “Rental” panel on the front page of this lease.
b)For the next period of seven years and for each succeeding period of seven years thereafter during the currency of this lease and of any new lease granted in pursuance of these presents the yearly rental shall be a sum equal to five dollars per centum of the Government Valuation of the said land hereby leased in force on the first day of January of the year in which the particular period of seven years shall commence
AND the Lessor shall prior to the commencement of each seven year period notify the Lessee in writing of the yearly rental that shall be payable by the Lessee during that seven year period.
[5] One of the leases to Bunnings refers to “Rating Valuation” rather than “Government Valuation”. However, it is agreed between the parties that the two terms are synonymous, and nothing turns on the point.
[6] For a number of rent-review periods, Rongotai notified the defendants of the rental that was payable in accordance with the Government Valuation notified at the time and the defendants paid that rent.
[7] However, Rongotai and/or the defendants, lodged objections to the Government Valuations for the ratings periods in 2007, 2012, and 2015 under the Ratings Valuations Act 1998.
[8] The Land Valuation Tribunal determined the rateable values for the properties in respect of the 2007, 2012 and 2015 rating periods in a series of decisions in 2019 and 2020.
[9] Rongotai appealed each of those decisions to the Land Valuation Court. The defendants variously cross-appealed the Land Valuation Tribunal decisions.
[10] The Land Valuation Court (Cull J sitting with a valuer) determined the appeals for the 2007, 2012 and 2015 rating periods in a series of decisions issued on 19 July 2022.1 The Court allowed the appeals and found that the Land Valuation Tribunal had erred in its determinations. The decisions of the Land Valuation Tribunal were set aside, being substituted with new, higher valuations for the properties.
[11] Accordingly, for the purposes of this proceeding, the outcome of the objection process is that the Government Valuations for the relevant properties for the relevant rating periods are higher than the Government Valuations which were used to set the rental for the relevant rent-review periods.
[12] Rongotai issued notices of backdated rent adjustments to each of the defendants based on recalculations of the rental owing as a result of the outcome of the objection process.
[13] In summary, Rongotai claims the following amounts for backdated rent against the defendants:
(a)Bunnings leases: $823,920.56;
(b)NZCFC lease: $184,345;
1 Rongotai Investments Ltd v Wellington City Council [2022] NZHC 1665 [2007 Land Valuation Court judgment]; Rongotai Investments Ltd v Wellington City Council [2022] NZHC 1666 [2012 Land Valuation Court judgment]; and Rongotai Investments Ltd v Wellington City Council [2022] NZHC 1667 [2015 Land Valuation Court judgment]. An application for leave to appeal these decisions was declined – Wellington International Airport Ltd v Rongotai Investments Limited [2022] NZHC 3556 [Leave judgment]. A further application for special leave to appeal was also declined – Wellington International Airport Ltd, NZ Cash Flow Control Ltd, 2468 Ltd & Roger Blaylock & Yvonne Kerekes v Wellington City Council [2023] NZCA 336.
(c)Blaylock Interests lease: $300,276.07.
[14]Each of the defendants has refused to pay the additional rental claimed.
[15] Rongotai issued proceedings against the defendants on 19 December 2022 claiming the backdated rental set out above. Rongotai’s statement of claim includes four causes of action. The first three causes of action against the Blaylock Interests, Bunnings and NZCFC respectively turn on whether the leases (and in particular cl 3 of the leases) provide for the recovery of backdated rent where the Government Valuation is subsequently increased through the objection process.
[16] The fourth cause of action is only against the Blaylock Interests. That claim is also for the backdated rental but is based on breach of an alleged agreement between the Blaylock Interests and Rongotai entered into on or about 29 April 2021.
Legal principles – summary judgment and strike out
[17]Rule 12.2 of the High Court Rules 2016 provides that:
(2)The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[18] In Stephens v Barron, the Court of Appeal summarised the long-standing Court of Appeal authority on defendants seeking summary judgment, Westpac Banking Corp v NM Kembla New Zealand Ltd,2 as follows:3
[9] ….This Court’s decision in Westpac Banking Corp v M M Kembla New Zealand Ltd makes it clear that a defendant seeking summary judgment has a considerable burden to discharge. Elias CJ delivering the judgment of the Court, made the following points:
(a)The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually this will arise where the defendant can offer evidence which is a complete defence to the plaintiff’s claim.
(b)An application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need
2 Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).
3 Stephens v Barron [2014] NZCA 82 at [9] (footnotes omitted).
to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment able to be properly arrived at only after a full hearing of the evidence.
(c)The Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment is not to be arrived at on a fine balance of the available evidence as would be appropriate at a trial.
(d)The residual discretion of the Court to refuse summary judgment would be properly invoked to avoid the oppression that would otherwise result if an application by a defendant for summary judgment would pre-empt a plaintiff exercising the right to amend the pleadings.
(e)Summary judgment should not be applied for unless the substantive merits of the case are clear and capable of summary disposal.
[19] Summary judgment “…should not be given for the defendant unless [the defendant] shows on the balance of probabilities that none of the plaintiff’s claims can succeed. That is an exacting test, and rightly so since it is a serious thing to stop a plaintiff bringing his claim to trial unless it is quite clearly hopeless”.4
[20] An application for summary judgment is similar to a striking out application in that the defendant has to show that the plaintiff cannot succeed. The difference between the two types of application is that an application for summary judgment allows for affidavit evidence to be provided. It will therefore be possible to obtain judgment on the basis of material other than that contained in the pleadings.5 The Court of Appeal has noted that the two types of application are not necessarily interchangeable. If the dispute is essentially a legal question, striking out is likely to be the appropriate course of action.6
[21] As a general rule, the Court in determining summary judgment applications will refrain from attempting to resolve genuine conflicts of evidence or to assess the credibility of the parties’ statements in their affidavits. However, as noted by the Court of Appeal in Krukziener v Hanover Finance Ltd:7
4 Jones v Attorney-General [2003] UKPC 48, [2004] 1 NZLR 433 at [10].
5 Jessica Gorman and others McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR 12.2.07(1)].
6 Body Corporate 207624 v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR 297 at [4].
7 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at [26].
[26] …The court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as, for example, where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable … . In the end the court’s assessment of evidence is a matter of judgment. The court may take a robust and realistic approach where the facts warrant it … .
[22] Further, summary judgment may be given where the interpretation of a contract is an issue. In Jowada Holdings Ltd v Cullen Investments Ltd, the Court of Appeal stated:8
[29] This present appeal is concerned with a contract based claim in circumstances where both parties seek to rely on evidence of circumstances said to form part of the relevant context in which the contract is to be interpreted. Their evidence is in conflict. That, however, does not preclude the Court from giving summary judgment in a contract claim if it is satisfied that resolution of the factual matters in dispute is not necessary to provide the Court with such contextual background as is necessary to resolve the claim. This is simply an application of the principle that where, despite differences on factual matters, the lack of a tenable defence to a cause of action is plain on the material before the Court, and the Court is sure on that point, summary judgment will normally be entered. In such circumstances there is no reason why a contract should not be interpreted and applied in summary judgment proceedings…
[23]Further, in Tegal Foods Ltd v Neal, the Court stated:9
[40] I have noted Mr Thompson’s submission that unless a contractual interpretation advanced by a party is clearly without merit, the Court should be extremely cautious about resolving disputes about interpretation by way of summary judgment, particularly when the words of the contract do not clearly support one meaning over another. However, I consider that submission is not consistent with the observations of the Court of Appeal in Jowada Holdings that there is no reason why a contract should not be interpreted and applied in summary judgment proceedings where the lack of a tenable defence is plain on the material before the Court, and the Court is sure on that point. … The key question is not whether there is an issue of contractual interpretation but whether the Court is left with any real doubt or uncertainty about whether the defendant has a defence.
[24] Rule 12.2(2) provides that the defendant must satisfy the Court that none of the causes of action in the plaintiff’s statement of claim can succeed. However, in the context of the present case, an individual defendant should be able to obtain summary
8 Jowada Holdings Ltd v Cullen Investments Ltd CA 248/02, 5 June 2003 at [29].
9 Tegal Foods Ltd v Neal [2018] NZHC 1921 at [40] (footnotes omitted).
judgment if it is able to establish on the balance of probabilities that none of the plaintiff’s causes of action against it can succeed.
[25] With regard to the defendants’ applications for strike out, r 15.1 of the High Court Rules relevantly provides that:
15.1 Dismissing or staying all or part of proceeding
(1)The court may strike out all or part of a pleading if it—
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
…
[26] McGechan on Procedure summarises the established criteria for striking out on the basis of no reasonably arguable cause of action as follows:10
The established criteria for striking out was summarised by the Court of Appeal in
A-G v Prince [1998] 1 NZLR 262, (1997) 16 FRNZ 258, [1998] NZFLR 145 (CA) at267, and endorsed by the Supreme Court in Couch v A-G [2008] NZSC 45 at [33], per Elias CJ and Anderson J:
(a)Pleaded facts, whether or not admitted, are assumed to be true. This does not extend to pleaded allegations which are entirely speculative and without foundation.
(b)The cause of action or defence must be clearly untenable. In Couch Elias CJ and Anderson J, at [33], said: “It is inappropriate to strike out a claim summarily unless the court can be certain that it cannot succeed.”
(c)The jurisdiction is to be exercised sparingly, and only in clear cases. This reflects the Court’s reluctance to terminate a claim or defence short of trial.
(d)The jurisdiction is not excluded by the need to decide difficult questions of law, requiring extensive argument.
(e)The court should be particularly slow to strike out a claim in any developing area of law… .
[27] The plaintiff refers to the following passages in Marshall Futures Ltd v Marshall:11
10 McGechan on Procedure, above n 5, at [HR15.1.02].
11 Marshall Futures Ltd v Marshall [1992] 1 NZLR 316 (HC) at 322–323.
… the Court should only strike out a statement of claim in a clear and obvious case in circumstances where there was no reasonable prospect of the plaintiff showing a viable cause of action by appropriate amendment.
…
… the Court must be satisfied that it has the requisite materials and the necessary assistance from the parties to reach a definite and certain conclusion that the claim cannot succeed before it should be struck out.
Principles of contractual interpretation
[28] The parties agree that the interpretation of cl 3 of each of the leases is central to Rongotai’s underlying claim and to the defendants’ applications for summary judgment and/or strike out.
[29] The approach to contractual interpretation in New Zealand was confirmed by the Supreme Court in Bathurst Resources Ltd v L&M Coal Holdings Ltd.12
[30] The Supreme Court confirmed that the decision in Firm PI 1 Ltd v Zurich Australian Insurance Ltd13 can be regarded as settling the general approach to contractual interpretation. The Supreme Court referred to the following paragraphs from the judgment in Firm PI 1 Ltd:14
[60] … the proper approach is an objective one, the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. This objective meaning is taken to be that which the parties intended. While there is no conceptual limit on what can be regarded as “background”, it has to be background that a reasonable person would regard as relevant. Accordingly, the context provided by the contract as a whole and any relevant background informs meaning.
…
[63] While context is a necessary element of the interpretative process and the focus is on interpreting the document rather than particular words, the text remains centrally important. If the language at issue, construed in the context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other than the most obvious
12 Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696.
13 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432.
14 At [60] and [63].
one and may also assist in determining the meaning intended in cases of ambiguity or uncertainty.
[31]The Supreme Court stated further that:15
[46] The objective approach as articulated in Firm PI is one grounded in the policy objectives identified above: the desirability of providing the certainty needed to facilitate the efficient conduct of commerce; of holding people to the bargains they make; and of supporting access to justice through the efficient and just conduct of proceedings. Giving primacy to the written words of the agreement accords with the policy of providing commercial certainty. It also recognises that since the written contract contains the words the parties chose to record their agreement, the language used to do so has to be important. But by allowing a contextual reading of those words, the Firm PI approach recognises both that words have to be read in context and that the promotion of commercial certainty should not be allowed to defeat what the parties actually meant by the words in which they recorded their agreement. The objective approach to this contextual assessment is a legal construct designed as the best way of reliably determining the true agreement as recorded in the words of the contract. It rejects the parties’ subjective evidence of intent as irrelevant to what both parties meant and as generally unreliable. Rather, the court (embodying the reasonable person) assesses the evidence reasonably available to both (or all) of the parties at the point of contract which could bear upon the meaning of those words. Overall, this is a test which best supports the aim of the efficient and just conduct of proceedings.
[32] Also of relevance to the issues raised in this case is the guidance provided by the Supreme Court in Bathurst on the admissibility of extrinsic evidence in the form of subsequent conduct. The Supreme Court provided the following guidance:16
[89] … We agree with Tipping J that the approach to the admissibility of subsequent conduct should be the same as the approach to the admissibility of prior negotiations. Applying the provisions of the Evidence Act, the court must ask itself whether the subsequent conduct tends to prove anything relevant to the objective approach to interpretation. Subsequent conduct need not necessarily be mutual, but non-mutual conduct is more likely to be relevant to a claim of estoppel. Further, in assessing the relevance of subsequent conduct, it must not be forgotten that the court is interpreting the contract as at the time it was made.
[90] To the extent that evidence of subsequent conduct may cross the relevance threshold (which we suggest will not be often), s 8 is likely to come into particular play. Care will be needed to assess the probative value of that evidence. For example, conduct that occurs post-dispute is very unlikely to be admissible. By then, the parties will have retreated into their respective corners, and their conduct may well be self-serving. Its admission is likely to add time and cost, especially in light of the inevitable calling of rebuttal evidence. Another example of problematic evidence is where the subsequent
15 Bathurst Resources Ltd v L&M Coal Holdings Ltd, above n 12, at [46].
16 At [89]-[90].
conduct is that of executives of corporate parties to the contract who had no involvement with negotiating the contract and no knowledge of its background. Such evidence will not be probative if their actions do not represent the views of the relevant corporate party at the time the contract was formed.
Parties’ positions on the interpretation of clause 3
[33] The defendants’ submit that the ordinary and natural meaning of the language used in cl 3, construed in the context of each lease viewed as a whole, is that the rental to apply throughout each seven-year period is to be fixed at a sum to be determined prior to the commencement of that seven-year period by calculating five per cent of whatever Government Valuation (GV) is in force on 1 January of the year in which that seven-year period commences.
[34] The defendants contend that a subsequent alteration of the GV might become applicable to a future rent review occurring after the date of the alteration, but can have no retrospective impact on the existing yearly rental that has already been set for the relevant seven-year period. The defendants say that the plain words of cl 3 mean that the yearly rental for each seven-year period is “fixed and immutable” once notified by the lessor based on the GV in force on 1 January of the year in which the seven-year period commences.
[35]Rongotai’s response to this position in summary is that:
(a)it is plainly arguable that a reasonable and properly informed third party having all the background knowledge reasonably available to the parties would consider that the rental payable under each lease is based on the correct GV, and not simply the valuation notified by the notification date;
(b)Rongotai’s interpretation of cl 3 is the commercially sensible interpretation;
(c)the interpretation of the lease provisions requires consideration of the parties’ conduct in undertaking their contractual obligations after the leases were entered into, and this conduct is contested between the
parties in the affidavit evidence, so there is a material conflict of evidence that cannot be determined summarily.
[36] Rongotai says that the use of the words “Government Valuation” means that the parties must be taken to have understood that the rent review process was subject to the well-known statutorily-prescribed objection procedures under the Rating Valuations Act. Rongotai says that s 39 of the Ratings Valuations Act expressly provides that the corrected valuation applies retrospectively. Therefore, the parties must be taken as having understood that the GV could change and that the ultimate settled GV would be taken, as a matter of law, as applying retrospectively.
[37] Rongotai submits that this retrospective approach fits comfortably with the case law in commercial lease disputes. In CH Bailey Ltd v Memorial Enterprises Ltd,17 the English Court of Appeal interpreted a rent-review clause which provided that increased rent, when ascertained “shall be substituted from such date”, that date being identified as 21 September 1969. The Court concluded that the rent, although ascertained later, was appropriately substituted as at 21 September 1969 and required to be paid from the earlier date, even though “this means it operates retrospectively”.18 The Court stated:19
It was said: suppose the landlords did not apply for the rent revision for months or years after the date when they became entitled to it. Would this operate unfairly on the tenant? In most cases it would not do so. The tenant has benefited because he has not had to pay the increased rent, and meanwhile he has had the use of the money, or, if he would have had to borrow it, he has not had to pay interest on it.
[38] Rongotai also submits that the legal effect of the High Court’s decisions altering the GVs is that, as a matter of law, the values “in force” at the time the yearly rent was notified for each period under each lease were the corrected values even though they were only identified or ascertained later.
[39] Rongotai submits that the requirement that it give tenants notice of the yearly rent payable in advance of each seven-year period does not render “time of the
17 CH Bailey Ltd v Memorial Enterprises Ltd [1974] 1 WLR 728 (CA).
18 At 732.
19 At 732.
essence” for the purposes of identifying the quantum of the rent to be paid. Relying on United Scientific Holdings Ltd v Burnley Borough Council,20 Rongotai submits that time is not generally “of the essence of the contact”, including in rent review clauses, except where it is inequitable not to treat the failure of one party to comply exactly with the stipulation as relieving the other party from the duty to perform his obligations under the contract. The plaintiff says that it gave notices under cl 3 as required. Therefore, no inequity arises. The fact that the quantum is subsequently being corrected does not invalidate the notice given, or mean that the rental quantum in the notice must continue to apply.
[40] Finally, the plaintiff contends that there is nothing in the lease, including the requirement to give notice in cl 3(b) which expressly precludes a “wash-up” in the event the GV is altered at a point after the yearly rent becomes payable.
[41] Alternatively, Rongotai contends that the implication of “correct” into cl 3 is necessary to give business efficacy to the leases. In this regard the plaintiff relies on the following section from Bathurst:21
[116] To conclude, the principal points that govern the implication of terms are as follows:
(a)The legal test for the implication of a term is a standard of strict necessity, a high hurdle to overcome.
(b)The starting point is the words of the contract. If a contract does not provide for an eventuality, the usual inference is that no contractual provision was made for it.
(c)While the task of implication only begins when the court finds that the text of the contract does not provide for the eventuality, the implication of a term is nevertheless part of the construction of the written contract as whole. An unexpressed term can only be implied if the court finds that the term would spell out what the contract, read against the relevant background, must be understood to mean.
(d)As with the task of interpreting a contract, the inquiry for the court when considering the implication of a term is an objective inquiry – it is the understanding of the notional reasonable person with all of the background knowledge reasonably available to the parties at the time of the contract
20 United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, [1977] 2 WLR 806 (HL) at 811-812.
21 Bathurst Resources Ltd v L&M Coal Holdings Ltd, above n 12, at [116(f)].
that is the focus of the assessment. The court is tasked with the role of constructing the understanding of that reasonable person.
(e)Thus, the implication of a term does not depend upon proof of the parties’ actual intentions, nor does it require the court to speculate on how the actual parties would have wanted the contract to regulate the eventuality if confronted with it prior to contracting.
(f)The BP Refinery conditions are a useful tool to test whether the proposed implied term is strictly necessary to spell out what the contract, read against the relevant background must be understood to mean. Whilst conditions (4) and (5) must always be met before a term will be implied, conditions (1)-
(3) can be viewed as analytical tools which overlap and are not cumulative. The business efficacy and the “so obvious that ‘it goes without saying’” conditions are both ways, useful in their own right, of testing whether the implication of a term is strictly necessary to give effect to what the contract, objectively interpreted by the court, must be understood to mean.
[42]The defendants take issue with all these arguments.
[43] First, the defendants submit that cl 3 could not be clearer that the rent for each seven-year period is to be fixed and notified by reference to the existing GV “in force” on 1 January of the relevant starting year.
[44] Secondly, they submit that the provisions of the Rating Valuations Act are of no relevance to the correct interpretation of cl 3. They submit that those provisions have relevance for rating purposes only, not rental calculation and payment which is a purely contractual matter. They say that while cl 3 happens to refer to the GV in force on 1 January of the year in which each seven-year period commences, the rental determination mechanism created by cl 3 is otherwise entirely distinct and separate from whatever might occur for rating purposes.22
22 The defendants contrast cl 3 with the separate obligation to pay rates imposed on the lessees pursuant to cl 2 of the leases. Under that clause, the defendants are liable for any additional rates that might be levied following any alteration of the Government Valuation. However, the defendants say that is quite separate to the obligation to pay rent pursuant to cl 1 (as determined pursuant to cl 3).
[45] Thirdly, the defendants say that CH Bailey Ltd and United Scientific Holdings Ltd relied on by the plaintiff can be distinguished because both those cases involved rental setting provisions that were materially different to cl 3. In particular, those cases involved provisions which required that the new rental be determined by arbitration in the event that the parties could not agree, with the result that determination after the date when new rental became payable, and retrospective payment of that new rental, was an expected consequence. They say that in contrast, the intent of cl 3 was that the rental would be determined with certainty and finality prior to the commencement of each seven-year period. No dispute resolution mechanism was provided for, and no provision was included that the rental should later be adjusted (either up or down) if the GV in force on the date specified in cl 3 should ever be altered at some later date.
Subsequent conduct
[46] Rongotai has identified evidence of the parties’ post-lease conduct which it contends is relevant to and supports its interpretation of cl 3 of the lease. This includes:
(a)Extracts from documents filed in court (joint memoranda and an agreed statement of facts) which created the impression that the defendants accepted that the determination of GV would affect the rental paid under the leases for the relevant rating periods;
(b)extracts from several decisions of the Land Valuation Tribunal and the High Court which indicate that the defendants gave the Tribunal and the Court that impression;
(c)documents in relation to the approach taken by other tenants subject to the same lease terms, including Wellington International Airport Ltd which accepted that it was obliged by the terms of its leases to pay backdated rent; and
(d)the fact that the defendants brought (or supported) applications to appeal the High Court decisions relating to the 2007, 2012 and 2015
rating years, and applied for special leave to appeal to the Court of Appeal.
[47] Rongotai submits that the evidence proffered is relevant because it tends to show that the parties had a common understanding over a considerable period of time that the interpretation relied on by Rongotai is the correct one, and that the parties made representations to the Tribunal and to the High Court to that effect. The plaintiff submits that the evidence provided tends to suggest that the defendants’ argument in the present application is opportunistic and only raised now that the GVs have been determined against them.23
[48] The defendants acknowledge that subsequent conduct can on occasions assist a contractual interpretation, but say it is unlikely to often be relevant and, in particular will not be probative if the conduct is of persons who did not represent the relevant corporate party at the time that the contract was formed. The defendants say that is the position in this case.
[49] The defendants say that in any event, the subsequent conduct relied upon by Rongotai does not support its interpretation. They say that the extracts from the joint memoranda and the agreed statement of facts relied on by Rongotai do not suggest that the outcome of the objections to the GVs would have any retrospective effect on rental already paid or fixed. They say that the extracts provide no more than a high-level explanation of the fact that there was a relationship between the setting of ground rental under the subject leases and the GVs of the leased properties.
[50] The defendants also say that there were good commercial reasons for them to object to the relevant GVs (and to defend Rongotai’s objections) which have nothing to do with any suggestion of retrospective adjustment of rental.
[51] The defendants submit that if there is a need to consider subsequent conduct then the only evidence of any significance is an earlier memorandum dated 10 July 2014 filed solely on behalf of Rongotai. They say that some paragraphs of
23 In this regard, Rongotai refer to Moore v IAG New Zealand Ltd [2019] NZHC 1549 at [23]-[24].
this memorandum indicate that the plaintiff did not consider that retrospective adjustment was permitted under the leases.
Discussion – first three causes of action
[52] In my view, Rongotai has a tenable argument that the parties are to be taken to have intended that the GV used to set the rental for each seven-year period would be the correct GV. In other words, there is a tenable argument that a reasonable person having all the background knowledge reasonably available at the time the leases were entered into would consider that the rental payable is to be based on the correct GV, not simply the valuation notified prior to the commencement of the relevant seven- year periods.
[53] As submitted by Mr Mijatov, for the plaintiff, a contrary interpretation could lead to commercial absurdity. For example, what if the initial GV notified at the applicable time under cl 3 was mistakenly $1 or $100m. Mr Mijatov says that the parties cannot have intended that such a valuation would apply. The defendants say that this would be an obvious mistake which would be promptly corrected. They refer to s 46 of the Legislation Act 2019 which provides as follows:
46 Power to do things may be exercised to correct errors
(1)The power to do anything may be exercised to correct an error or omission in a previous exercise of the power.
(2)Subsection (1) applies even though the power is not generally capable of being exercised more than once.
[54] However, as submitted by Mr Mijatov, this is a general power and it not clear that any mistake would be promptly corrected under this provision as opposed to pursuant to the specific objection procedure under the Rating Valuations Act.
[55] Even if the example used is that the notified GV is significantly higher or lower than the correct GV (rather than an obvious mistake) it seems to me to be arguable that the reasonable person having all the background knowledge would consider that, if that notified GV is adjusted under the statutory process, then the adjusted GV would apply for the relevant period.
[56] The defendants’ contrary argument is that the parties intended that the rent would be determined with certainty and finality prior to the commencement of each seven-year period. But it seems to me that there is a tenable argument that this is not the objective meaning of the clause because the rental could then be based on an incorrect GV which could result in a significant over-payment or under-payment of rental over the seven-year period, without any recourse for either party.
[57] Further, the defendants’ position is that the GV “in force” on 1 January of the commencement year can only be the GV which is referred to in the notice from the lessor prior to the commencement of that seven-year period. However, although there were limited submissions on this point, I consider there is a tenable argument that the legal effect of the Court’s decisions adjusting the GVs for the properties is that the adjusted GVs are to be treated as being the correct values from the outset. In other words, as a matter of law, the values “in force” at the time the yearly rent was notified for each period under each lease were the adjusted values even though they were only identified later.
[58] Alternatively, in my view, Rongotai has a tenable argument that there should be an implied term to the effect that the “Government Valuation” referred to in cl 3 is the correct GV. The proposed implied term would be capable of clear expression, and it is not apparent that it would contradict any express term of cl 3. It is also arguable that the implied term would be necessary to give business efficacy to the contract and is “so obvious that ‘it goes without saying’” because otherwise the rental for a seven-year period could be based on an incorrect GV with the consequences referred to above.
[59] Further, I do not consider that an interpretation of cl 3 such that it has retrospective effect poses any problems. Such an interpretation would be supported by CH Bailey Ltd.24 In that case it was noted that there was no unfairness because the tenant had not had to pay the increased rent during the relevant period and therefore had the use of the money. Mr Lange, for Bunnings, submitted that in the present case the defendants have been paying increased rental throughout, so there has been no
24 CH Bailey Ltd v Memorial Enterprises Ltd, above n 17.
benefit. However, there must still be some benefit as the defendants have paid rental based on the incorrect GVs for the relevant periods rather than the higher amounts calculated on the basis of the adjusted (correct) GVs.
[60] Mr Sullivan, for the Blaycock Interests, raised the issue of whether the defendants will be able to recover the increased rent from their tenants. However, it is not clear to me that the arrangements as between the respective defendants and their tenants should be determinative of the proper interpretation of cl 3 of the leases, and the issue of recovery of backdated rental from tenants does not alter my view that Rongotai has a tenable argument for its interpretation.
[61] Rongotai has also submitted that there may be subsequent conduct evidence which is relevant to the interpretation of cl 3. As discussed above, I have already reached the view that Rongotai has a tenable argument for its interpretation of cl 3 without taking this material into account. In the circumstances, I consider that assessment of the relevance and probative value of this material under ss 7 and 8 of the Evidence Act 2006 should appropriately be undertaken in the context of a trial and not on this summary judgment/strike out application. Based on the affidavits filed by the parties, if some of this material is found to be admissible then there may be conflicts of evidence which will require cross-examination of witnesses.
Conclusion - first three causes of action
[62] I consider that Rongotai has a tenable argument for its interpretation of cl 3 of the leases. Further, to the extent that evidence of subsequent conduct is admissible, there may be conflicts of evidence that require a full hearing of the evidence including cross examination.
[63] With regard to defendants’ applications for summary judgment, for the reasons set out above, I have reached the view that the defendants have not discharged the onus of establishing on the balance of probabilities that Rongotai cannot succeed on its first three causes of action which turn on the interpretation of cl 3.
[64] With regard to the defendants’ applications for strike out, for the reasons set out above, I do not consider that the defendants have established that the first three causes of action disclose no reasonably arguable cause of action. I do not consider that it has been established that the first three causes of action are clearly untenable.
Fourth cause of action against Blaylock Interests – breach of contract
[65] This cause of action does not turn on the interpretation of cl 3. Rather, Rongotai alleges that there was an agreement (undertaking) between it and the Blaylock Interests that rent would be paid under the relevant lease for the period 1 January 2016 to 30 April 2021 based on the GV for the 2015 rating valuation period as determined by final judgment of the Court.
[66] Rongotai says that there has now been a final judgment of the Court in relation to the valuation appeal process. I note that the applications for leave to appeal and for special leave have been declined.25
[67] Rongotai alleges that the agreement was entered into by way of written correspondence between the parties’ respective solicitors, on or about 29 April 2021, as part of the negotiation of a settlement for the surrender of the Blaylock Interest’s lease. The relevant email exchange between the solicitors is included in the affidavit evidence. The final parts of the exchange are as follows:
(a)Rongotai’s solicitor states:
…
Our client provided details of the updated values at Wellington City Council and has issued invoices consistent with these values to your client. It is our view that the adjusted rent is payable.
We note your advice that your client has substantial assets and is happy to pay the difference once final judgment is issued. Our client is also prepared to settle on this basis and will undertake the same should the final outcome not be in its favour.
25 Leave judgment, above n 1; and Wellington International Airport Ltd, NZ Cash Flow Control Ltd, 2468 Ltd & Roger Blaylock & Yvonne Kerekes v Wellington City Council, above n 1.
Our client will settle on that basis if we both exchange our respective clients simple undertaking as part of the settlement process.
We still require your undertaking as to rates and water rates.
(b)The Blaylock Interest’s solicitor responds:
…
My client undertakes accordingly.
(c)Rongotai’s solicitor responds:
…
Thank you for your client undertaking as to rent once appeal process completed. Our client also undertakes accordingly as to this.
Can you please now forward your undertaking as to rates and water rates as this seems to the only outstanding item.
[68] Mr Sullivan submits that there should be summary judgment and/or strike out in relation to this cause of action because there has been no waiver of rights under the lease by the Blaylock Interests with regard to the adjusted GVs and backdated rental demanded by Rongotai, and/or the Blaylock Interests are not estopped from relying on those rights. He submits there can be no argument mounted by Rongotai that there was either an unequivocal representation by the Blaylock Interests or that, even if there was, it was relied on by Rongotai to its detriment.
[69] Mr Sullivan also submits that the parties did not reach an agreement, and both parties were clearly wanting to keep their legal options open.
[70] Rongotai submits that the fourth cause of action is clearly pleaded on the basis of breach of contract based on the exchange between the parties’ respective solicitors. Rongotai submits that the agreement is independent of the lease between the parties. Rongotai says that the claim is not based on waiver or estoppel because it does not
accept that the Blaylock Interests have any relevant contractual right not to pay backdated rent which could be waived.
[71] Having reviewed the relevant affidavit evidence and the email exchange between the solicitors, I consider that Rongotai has a tenable argument that the exchange gave rise to a separate agreement between the parties on the terms pleaded. Further, it seems to me that this issue can only be properly determined after a full hearing of the evidence including evidence from the solicitors as to the exchange between them on 29 April 2021, and any other communications between them and/or the parties which may be relevant to the issue.
[72] In the circumstances, with regard to the application for summary judgment, I do not consider that Blaylock Interests have discharged the onus on them of proving on the balance of probabilities that Rongotai cannot succeed on this cause of action. Further, with regard to the application for strike out, I do not consider that the Blaylock Interests have established that there is no reasonably arguable cause of action, that is, that the cause of action is clearly untenable.
Result
[73] For the reasons set out above, the applications by the first, second and third defendants for summary judgment and/or strike out of the first, second, third and fourth causes of action in Rongotai’s statement of claim are dismissed.
[74] As to costs, my preliminary view is that costs should be reserved at this stage pending substantive determination of the issues.26 If any party disagrees with that approach, then that party may file a memorandum, with any memoranda in response from other parties to be filed within a further ten working days. Costs will then be determined on the papers.
[75] The matter is to be listed in the next available Associate Judge’s chambers list for a case management conference. The parties are to file a joint memorandum or
26 See Schmidt v Registrar-General of Land [2015] NZHC 2438.
separate memoranda three working days in advance of that conference covering all relevant matters in sch 5 to the High Court Rules.
Associate Judge Skelton
Solicitors:
Duncan Cotterill, Wellington for Plaintiff
Hughes Robertson, Wellington for First Defendants Simpson Grierson, Wellington for Second Defendant United Legal, Auckland for Third Defendant
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