Staite v Kusabs
[2017] NZHC 2299
•22 September 2017
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE ROTORUA-NUI-Ā-KAHU ROHE
CIV 2009-463-888 [2017] NZHC 2299
BETWEEN PETER DANIEL STAITE, JEAN
TANIRAU-CARSTON, DEBORAH PAKAU, LEONIE REI NICHOLLS AND BRUCE ANDERSON BAMBER AS TRUSTEES OF THE WHAOA NO 1
LANDS TRUST AND OTHERS Plaintiffs
AND
ANDREW MARUTUEHU KUSABS, DONALD MAIURANGI BENNETT, JULIAN KUMEROA KEEPA AND WIREMU WAAKA AS TRUSTEES OF THE TUMUNUI LANDS TRUST AND OTHERS
Defendants
Hearing: 18 September 2017 Counsel:
D G Chesterman and J P Koning for Plaintiffs
M S McKechnie and T Kinder for DefendantsJudgment:
22 September 2017
JUDGMENT (NO. 3) OF HEATH J
This judgment was delivered by me on 22 September 2017 at 11.00am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Koning Webster, Tauranga Tim Kinder, Putaruru Counsel:
D Chesterman, Auckland
M McKechnie, Rotorua
STAITE v KUSABS [2017] NZHC 2299 [22 September 2017]
The application
[1] The trustees of the Tumunui Lands Trust (the Tumunui Trust) apply to recall part of a judgment that I gave on 13 March 2017.1 The application is opposed.
Background
[2] The trustees of the Whaoa No 1 Lands Trust (the Whaoa Trust) entered into a lease (the Lease) with the Tumunui Trust in respect of a farm property near Reporoa. Although the Lease was executed in 1994, all parties recognised it was to operate from 13 December 1992.2
[3] In this proceeding, the Whaoa Trust sought relief against the Tumunui Trust on the basis that, due to breaches of fiduciary duties on the part of a common trustee, Mr Edward Moke, the Whaoa Trust had leased the land on materially disadvantageous terms. A separate claim was brought in relation to a Maori Reservation established in 1986, but that part of the claim is not relevant for present purposes.
[4] I heard the claims over 11 sitting days in July and August 2016. Judgment was delivered on 13 March 2017. The background to the dispute is fully set out in that judgment.3 Having found that Mr Moke was in breach of certain fiduciary obligations of loyalty to the Whaoa Trust, and that Tumunui Trust had knowledge of his breach,4 I granted relief in the form of rectification of the Lease.
[5] The purpose of the relief was to ensure that Tumunui Trust did not gain inappropriate benefits from an ability to have rent payments set by taking into account improvements to the land that had been made by earlier lessees, and Whaoa Trust did not suffer any corresponding significant detriment. The problem arose out of the way in which the rent-fixing provision of the Lease had been drafted, which
enabled improvements made to the land made by the prior lessees, Mr Blackler and
1 Staite v Kusabs [2017] NZHC 416.
2 In a second judgment, given on 27 July 2017, I corrected the “operative” date from 1 July 1992 to 13 December 1992 under the slip rule: Staite v Kusabs [2017] NZHC 1758, at paras [4] and [5].
3 See Staite v Kusabs [2017] NZHC 416 at paras [11]–[118].
4 See paras [22] and [23] below.
H Allen Mills Ltd (the Blackler/Mills improvements), to be taken into account. The rental clause stated:
… at a yearly rental calculated on the basis of five dollars per centum of the capital value of the said land according to a special valuation carried out by Valuation New Zealand for the purpose at the expense of the lessee but such rental shall not in any case be less than that payable by the lessee during the expiring term provided always that for the purposes of such valuation there shall be deducted from the said capital value the value of all improvements made on or to the said land by the lessee or its predecessor since the 13th day of December 1961 and during the terms hereof by the lessee and subsisting at the date of valuation …
(Emphasis added)
[6] The amount of rental payable during the period of the Lease was reduced significantly by taking into account the Blackler/Mills improvements. Mr Blackler’s improvements were from 13 December 1961, when the land was in its virgin state.
[7] In order to give effect to my decision, I made an order for rectification of the
Tumunui Lease in these terms:5
[262] On the Tumunui lease claims:
…
I make an order for rectification of the Tumunui lease to remove the words “or its predecessor since the 13th day of December 1961 and” from the Tumunui lease. The effect of that order is to require rental to be fixed in accordance with the formula in the lease but taking into account only improvements to the land made by the Tumunui Trust since the lease commenced, on [13 December 1992]. A consequence of this order is that adjustments will need to be made to the rent fixed for earlier periods.
…
(Footnotes omitted)
5 Staite v Kusabs [2017] NZHC 416, at para [262]. I have inserted the date of commencement of the Lease as corrected on 27 July 2017.
Application for recall
(a) Should the issue be reconsidered?
[8] Tumunui Trust has applied formally for recall, to have the relevant order recast. Whaoa Trust opposes the application. The form in which Tumunui Trust submits the order should be expressed is:
[262](b) I make an order for rectification of the Tumunui lease to remove the words “or its predecessor since the 13th day of December 1961 and” from the Tumunui lease. The effect of that order is to require rental to be fixed in accordance with the formula in the lease but taking into account only improvements to the land made by the Tumunui Trust from the date the Tumunui Trust went into occupation of the land on 1989.
[9] A case management conference was held on 27 July 2017, after the parties had had an opportunity to digest my substantive judgment. During the course of that conference, Mr McKechnie, for the Tumunui Trust, raised a substantive issue likely to have a significant effect on the manner in which the proceeding might be resolved. Mr McKechnie reminded me that the Tumunui Trust went into possession of the leased land some time in 1989, without a formal assignment of the lease (the Mills Lease) then in force. At that stage, H Allen Mills Ltd was the lessee.
[10] Mr McKechnie queried whether I had taken that into account in determining that only improvements made from 13 December 1992 could be used to set continuing rental payments. The point is important because a dairy conversion took place between the date on which the Tumunui Trust went into occupation in 1989 and the date of which the Lease formally commenced, 13 December 1992. If the
1992 date is used, rent is fixed without reference to the value of those improvements.
[11] In submissions filed in opposition to the Tumunui Trust application, Mr Chesterman, for Whaoa Trust, submitted that there was no basis on which the proposed order should be made. He submitted that the circumstances did not fall within the established categories for recall, identified in Wild CJ’s judgment in
Horowhenua County v Nash (No 2).6 His Honour’s formulation of the recall
6 Horowhenua County v Nash (No 2) [1968] NZLR 632 (SC) at 633.
jurisdiction has been accepted subsequently, by both the Court of Appeal and
Supreme Court.7
[12] The three categories for recall identified in Horowhenua County are:
(a) Whether, since the hearing, there has been an amendment to a relevant statute or regulation or a new judicial decision of relevance and high authority;
(b) Whether counsel have failed to direct the Court’s attention to a
legislative provision or authoritative decision of plain relevance; and
(c) Whether for some other very special reason justice requires the judgment to be recalled.
[13] This Court should be circumspect in exercising its recall jurisdiction. In recent times, such applications have become more common. Often, they are used inappropriately by disaffected litigants who are not prepared to accept the consequences of a judgment entered against them. Rather than addressing specifically a particular point that comes within the accepted categories for recall,
they “attempt to reopen substantive matters already decided”.8 As Anderson P
commented in Ngahuia Reihana Whanau Trust v Flight, it “is timely to characterise plainly unmeritorious applications of that sought as an abuse of the Court’s process and to reaffirm the rarity of legal justification for recalling judgments”.9 This application is not of that character.
[14] Neither the first nor the second category of Horowhenua County10 applies in this case. On 27 July 2017, I found that the third did. I was conscious, in making that decision, that it is important to ensure that the recall jurisdiction is not used as a
substitute for the appeal process. A recall application must raise a material issue on
7 For example, see Rainbow Corp Ltd v Ryde Holdings Ltd (1992) 5 PRNZ 493 (CA) at 494–495 and Saxmere Co Ltd v Wool Board Disestablishment Ltd No 2 [2009] NZSC 122, [2010] 1
NZLR 76 at para [2].
8 Nottingham v Real Estate Agents Authority [2017] NZCA 145, at para [11].
9 Ngahuia Reihana Whanau Trust v Flight CA23/03, 26 July 2004 at para [3]; approved in
Nottingham v Real Estate Agents Authority [2017] NZCA 145 at para [10].
10 See para [12] above.
which it would be unjust for the parties to be put to the cost and trouble of appeal, when the issue is one more appropriately addressed by the trial Judge. Such a situation will arise when a Judge acknowledges that he or she overlooked a material factor in reaching a particular decision.11 Recall, in that situation, avoids the risk that an appeal might be allowed on the basis of remission to the trial Judge for reconsideration of the point in issue. In my view, such circumstances constitute a
“very special reason” for recalling the judgment, using the language employed by
Wild CJ in Horowhenua County.
[15] In this case, the order for rectification was made after I had made extensive findings of fact on the fiduciary duty breach. The date was important. It went to the heart of the question of what was the most equitable remedy. It involved an evaluation of the evidence presented to me, as well as application of legal principle.
[16] Although counsel made submissions on the possibility of a rectified lease when closing, they could not focus specifically on any particular terms, in the absence of factual findings that had not been made. That, together with the importance of the issue to Tumunui Trust and the risk that an inequitable result might otherwise have been reached, led me to the view that there are “very special reasons” why this aspect of my judgment should be recalled.
(b) From what date should “improvements” be assessed?
(i) Competing submissions
[17] Mr McKechnie submitted that my attempt to fashion an equitable remedy based on rectification created an unintended injustice to Tumunui Trust. He advanced two submissions:
(a) The most favourable to Tumunui Trust involves substitution of an order that enables Tumunui Trust to take account of all of the prior
Blackler/Mills improvements until such time as the first renewal of
11 See Practitioner Y v Foulkes [2014] NZCA 396, [2014] NZAR 982 at [31]–[34]. See my conclusion on this point, at para [31] below.
the Lease was to take place in December 2011. That was not expressly pleaded in the recall application.
(b)Mr McKechnie’s alternative position was that improvements undertaken by Tumunui Trust during its period of occupation of the leased land (between 1989 and December 1992) should be taken into account in fixing rent. That was the pleaded form of relief sought.12
[18] In support of his contention that Tumunui Trust should have the benefit of the Blackler/Mills improvements until December 2011, Mr McKechnie pointed to evidence that Tumunui Trust had paid $180,000 to H Allen Mills Ltd in April 1989, to acquire its lease. At that stage, the Mills Lease had 12 years to run.13 Without the benefit of the capital value of the Blackler/Mills improvements in fixing rent, it was submitted that Tumunui Trust was prejudiced by paying the sum of $180,000 to H
Allen Mills Ltd.
[19] The alternative submission was based on the premise that, in seeking to “correct” the error in the Lease by excluding the value of the Blackler/Mills improvements, I had inadvertently rested my conclusion on the date on which the new lease was to come into force, 13 December 1992, as opposed to the time at which Tumunui Trust went into occupation of the land and began to pay for capital improvements.14
[20] Mr Chesterman, for the Whaoa Trust, submitted that my conclusion could be justified by reference to surrounding circumstances. They included a rental for the first 10 years of the Lease at a level below market value, Tumunui Trust’s ability to fund much of the early part of the dairy conversion from the harvesting of trees on the property (from which some $110,000 was gained) and the limited value of any
improvements on reversion of the Lease in 2032.
12 See para [8] above.
13 Staite v Kusabs [2017] NZHC 416, at paras [52]–[55].
14 Ibid, at para [77] (set out at para [43] below), in which the critical letter from the solicitors for
Whaoa Trust to its trustees of 16 November 1992 is set out.
(ii) Analysis
[21] Having held that Mr Moke breached his duty of loyalty to Whaoa Trust, it was necessary for me to determine what remedy would be most appropriate. As a declaration was all that could be made in relation to Mr Moke’s liability,15 I considered whether relief was justified against Tumunui Trust.
[22] I found that the trustees of Tumunui Trust had actual knowledge that Mr Moke was acting as an agent for both Whaoa Trust and Tumunui Trust in the negotiations leading up to the Lease.
[23] In making that finding, I relied on the following evidence:16
(a) Mr Moke’s role in relation to the lease consisted of involvement in the Tumunui Trust’s decision-making processes and liaising with trustees of the Whaoa Trust. As such, he was intimately involved in the process of acquiring the lease and the other trustees of Tumunui Trust knew that.
(b)Mr Kusabs (the chairman of Tumunui Trust) and Mr Moke each displayed knowledge of their obligations when a conflict of interest arose, when voting, at a meeting (held on 27 October 1994) of the Tumunui Trust in relation to a separate transaction involving a lease of a property owned by what is called the Whaoa No 2 Trust. Mr Moke abstained because he was a trustee of the Whaoa No 2 Trust, while Mr Kusabs had an association with another person who was interested in leasing that property.
(c) Mr Kusabs gave unchallenged evidence that he knew that Mr Moke was strongly in favour of the Tumunui Trust leasing the Whaoa Trust’s property, and that Mr Moke, as a rangatira of Ngāti Whaoa would have “a degree of influence” within his iwi. That influence
would carry over to his role as chairman of the Whaoa Trust.
15 Ibid, paras [171]–[176].
(d) Mr Kusabs accepted that he was aware, in the period between 1988–
1994 when chairman of the Tumunui Trust, that Mr Moke ought to have stood down from negotiations. Neither Mr Kusabs nor Mr Hyland (Tumunui Trust’s farm consultant, who also attended meetings of the Tumunui Trust) could recall Mr Moke absenting himself while discussions about the Lease were held.
[24] Applying the principles set out in the judgment of the Supreme Court in Fenwick v Naera,17 I took the view that “subject to questions of limitation or laches, any transaction entered into between parties involving a trustee with a conflict of loyalty between the two may, as a matter of discretion, be set aside by the Court, or some alternative (and more appropriate) remedy may be granted”.18
[25] After rejecting limitation defences raised by Tumunui Trust,19 I considered whether a remedy was justified. Relying on evidence from Mr Larmer, a registered valuer with more than 50 years experience in rural valuation and consultancy, who was called to give evidence by Whaoa Trust, I was satisfied “that a term of 20 years for the Tumunui lease would have reflected an expected commercial outcome at the time of negotiation in the 1990s”, but “that an extension of 20 years from 13
December 2012 which resulted in an effective term of 40 years was not an expected
commercial outcome”.20
[26] Mr Avon McLaughlin, a valuer of over 25 years experience called by Tumunui Trust, while disagreeing with evidence from Mr Larmer as to the nature and extent of financial loss caused to Whaoa Trust by those terms, accepted there was no “commercial basis or logic for adopting the rental formula from the Mills’
lease”.21 Mr McLaughlin accepted that had two significant consequences:22
(a) The first was that the Lease was “extraordinarily favourable to
[Tumunui Trust] and extraordinarily onerous to [Whaoa Trust]”; and
17 Fenwick v Naera [2015] NZSC 68, [2016] 1 NZLR 354 at paras [113]–[117] (McGrath,
Glazebrook, O’Regan and Blanchard JJ).
18 Staite v Kusabs [2017] NZHC 614, at para [180].
19 Ibid, at paras [181]–[193].
20 Ibid, at para [200].
21 Ibid, at para [202].
(b)The rental formula, having regard to the term of 40 years conferred by the Lease was “well below market [rent] for a long period”.
[27] When considering what relief should be granted, I made some general observations:23
[203] In considering the nature of a remedy, I take account of the fact that the Tumunui Trust was entitled to rely on a reasonable expectation that either an assignment of the Mills lease or a new lease would be granted in its favour from the time that it went into possession of the No 8 Block in 1989. It is clear that the Tumunui Trust expended considerable money to undertake its dairy farm conversion and its subsequent operation on the leased land.
[204] While difficulties arising from the need to unwind events that have occurred over the last 23 years would not provide an insuperable hurdle to relief, an inappropriate benefit could be obtained by the Whaoa Trust, were such an order to be made without some compensation being awarded in favour of the Tumunui Trust. Compensation could be ordered on the basis that the Whaoa Trust is deemed to have held its interest as a constructive trustee for the Tumunui Trust during the period that the rescinded lease was operative.
(Footnote omitted)
[28] Because of the views expressed by Mr Larmer and Mr McLaughlin as to the uncommercial consequences of the rental formula, I raised with counsel whether the equitable remedy of rectification was more appropriate.24 In my judgment I said:
[209] The possibility that the Tumunui Trust would enter into a new lease arose because the solicitors had expressed concerns about whether the Mills lease was binding and valid. Mr Burton and Mr Chadwick formed a view that they should “scrap” the Mills lease and negotiate a new one. On 16
November 1992, Mr Burton wrote a letter that recorded that the Whaoa Trust and Tumunui Trust had agreed to the new terms. The relevant part of his
letter reads:
2.The initial rental which is yet to be set will be on the formula terms set out on the current lease namely at 5% of the capital value of the land according to a special Government valuation to be obtained (at Tumunui expense) but excluding any capital improvements effected by the lessee.
[210] I am satisfied that the reference to an exclusion of capital improvements effected by the lessee, was intended to refer only to the Tumunui Trust. That follows from the fact that the solicitors were discussing a new lease, rather than an assignment of the Mills lease. The terms of Mr
Burton’s letter evidences a common intention of the parties to that effect, and is also an outward expression of that accord.
…
[212] I find that the trustees of the Whaoa Trust intended to enter into the new lease on the basis of the terms set out in Mr Burton’s letter. That is what had been agreed between the two trusts, as contracting parties. There is no evidence to suggest that this intention changed prior to the final execution of the Tumunui lease. Nevertheless, contrary to that common intention, the Tumunui lease continued to refer to capital improvements since December
1961. The relevant part of the Tumunui lease recorded:
… at a yearly rental calculated on the basis of five dollars per centum of the capital value of the said land according to a special valuation carried out by Valuation New Zealand for the purpose at the expense of the lessee but such rental shall not in any case be less than that payable by the lessee during the expiring term provided always that for the purposes of such valuation there shall be deducted from the said capital value the value of all improvements made on or to the said land by the lessee or its predecessor since the
13th day of December 1961 and during the terms hereof by the lessee and subsisting at the date of valuation …
(Emphasis added)
[29] The basis on which I granted relief in the nature of rectification is set out in my substantive judgment:25
[214] Although Mr Moke was not responsible for this aspect of the transaction, the Tumunui Trust plainly gained an inappropriate benefit from the terms of the lease that enabled improvements to the land undertaken by tenants between 1961 and 1992 to be taken into account in fixing the rent. Necessarily, the amount of the rent payable on review to the Whaoa Trust was likely to be significantly less with that provision in place. I can see no impediment to the grant of equitable relief by way of rectification, so as to cure the economic imbalance that has arisen out of the error. In doing so, I adopt the maxim: “Equity considers as done that which ought to have been done”.
[215] No prejudice arises as against the Tumunui Trust. The relief I shall grant does no more than to remove a benefit that the Tumunui Trust was never intended to receive.
[30] The central thesis underlying my judgment on relief was the need to provide an equitable solution which would not unjustly enrich Whaoa Trust nor unjustly prejudice Tumunui Trust. I chose rectification as the means to achieve that end
because it seemed to me that the parties had acted under a misapprehension in
25 Ibid, at paras [214] and [215].
signing a lease which enabled Tumunui Trust, for a period of some 40 years, to have the benefit of the Blackler/Mills improvements from 1961.
[31] On reviewing my notes, I am satisfied that, in dealing with this issue, I placed considerable emphasis on the letter circulated on 16 November 1992 as establishing the parties’ intentions. In doing so, I used the date of 13 December 1992 as the starting date for assessing the value of improvements. I acknowledge that, in doing so, I overlooked the need to take account of those improvements undertaken by Tumunui Trust from the time it went into occupation of the land in 1989, to the deemed date of commencement of the Lease. As a result, I consider afresh what date should have been chosen in making that rectification order.
[32] Tumunui Trust received, when it went into occupation of the leased land in
1989, a farm that had been developed into a property that could be used as a dry- stock farm. The Trust acquired the property in that state with a view to converting it to a dairy unit. In an arbitral award made on 20 September 2011, the arbitral tribunal (Hon Barry Paterson QC) described the farm property in 1989 as “a run-down sheep and beef property which had been over-grazed and under-fertilized, with low soil fertility and poor low producing pasture species”.26
[33] Whaoa Trust was in receipt of independent legal advice throughout the time the new lease with Tumunui Trust was negotiated. I am satisfied that the rental of
$45,000 per annum for the first 10 years was the result of sound commercial judgement. Whaoa Trust made that decision having been advised by a solicitor with considerable rural conveyancing experience. I am satisfied that this was not a case in which Whaoa Trust was unduly influenced by Mr Moke to provide an un- commercial rental for the first 10 years.
[34] On the basis of figures calculated by the independent valuers since my judgment was delivered on 13 March 2017, a market rent of either $57,000 per
annum (if the start date for improvements is 1989) or $85,000 (if the start date is
26 Whaoa No 1 Lands Trust v Tumunui Lands Trust (Arbitration, 20 September 2011) at para [6].
This award was put into evidence at the substantive hearing. Accordingly, confidentiality has been waived. Some evidence to rebut this finding was adduced at the substantive hearing. However, for present purposes, the description (while, perhaps, a little harsh) is apt to demonstrate the different state of the land in 1989.
December 1992) would have resulted. A sum of $57,000 per annum is not so far removed from one of $45,000 as to evidence an inequality of bargaining power.
[35] Tumunui Trust went into occupation of the leased land after having paid a sum of $180,000 to H Allen Mills Ltd. It appears that that sum was one that Mr Mills was prepared to accept for assigning the Mills lease but, equally, was one supported by farm consultancy advice received by Tumunui Trust. Initially, Mr Mills had asked for $200,000. Following a meeting at his home on 3 April 1989, he agreed to accept the sum of $180,000.
[36] What happened at that meeting was discussed at a meeting of Tumunui Trust held on 4 April 1989, the day after the meeting at Mr Mills’ home. The minutes of that meeting record:
…
Mr Hyland then explained the Tumunui Lands Trust’s position so far as it related to land leased by Mr Allen Mills from the Whaoa No.1 Trust which was available for purchase. The asking price was $200,000 and the Tumunui Lands Trust had considered the purchase as a way of entering into the dairy farming arena. Costings had been done which showed that the leasehold payable to Mr Mills could be recovered over the 23 year term remaining but the goodwill that he would be prepared to offer was $150,000 with a maximum of $180,000.
The purpose of this meeting was discuss with the Whaoa No.1 Trust our intentions and to see if we could get an extension to the lease in the event of our offer being successful. The Trustees of the Whaoa No.1 Trust were comfortable with Tumunui’s participation and would do everything in their power to assist. It was felt that Mr Mills was using all his business cunning to get a higher price than he was entitled to. However, Tumunui Lands Trust felt that it did have a value and our first reaction was $150,000.
[37] Mr Hyland reported that Mr Mills’ earlier intention was to sell the lease to a Mr Bell. That, he said, “had fallen through”. Mr Hyland informed those present that, at the meeting with Mr Mills, Mr Kusabs and Mr Hyland had reached a “handshake” agreement to buy the lease at $180,000, subject to trustees’ approval.
Mr Mills accepted the offer on that basis.27
27 Ibid, at para [54].
[38] In 1989, after Tumunui Trust confirmed that arrangement and paid the sum of
$180,000 to H Allen Mills Ltd, Tumunui Trust went into occupation of the leased land and began to expend considerable money to progress the dairy conversion. In a report dated 23 February 1992 to Tumunui Trust, Mr Hyland stated that the dairy conversion was “now in full swing”.28
[39] By paying a sum of $180,000 to H Allen Mills Ltd, Tumunui Trust thought it was securing a lease of the land from 1989 until 13 December 2011, when the lease came up for renewal. That payment can be seen as an opportunity cost which enabled Tumunui Trust to accelerate profits from the converted dairy farm.
[40] Eventually, a new lease was entered into. That was done because the respective solicitors for Whaoa Trust and Tumunui Trust had reached the view that there were concerns about whether the existing Mills lease was binding and valid. In my judgment of 13 March 2017, I said:29
[75] On 30 November 1990, Mr Burton wrote to the Whaoa Trust explaining that he and Mr Chadwick had had concerns for some time that the Mills lease may not be binding and valid. This appears to be the first suggestion that a legal impediment might exist to the orthodox assignment of the Mills lease to the Tumunui Trust. The solicitors’ concerns rested on the absence of any notation by the Māori Land Court under s 233 of the 1953
Act, or validation on application to the Land Valuation Tribunal. As a result, the lawyers proposed that, after the creation of new titles, a new lease should be prepared. Mr Burton wrote:
Mr Chadwick and the writer are in agreement that from all points it would be desirable to scrap the present lease and the variation once the new title boundary survey plan has been completed, then complete a new lease which can be registered (the present one cannot be registered as it is not in a registerable form) and at the same time then have the lease noted under Section 233 and an application made to the Land Valuation Tribunal for consent.
In other words it would be a waste of our respective clients’ time and money to validate the present lease (which is out of time for validation anyway) and one might as well do the job properly when the new title plan has been completed.
[41] At the time Tumunui Trust went into occupation, the leased land was valued at about $1 million. Tumunui Trust undertook significant development work, to the
28 Ibid, at para [64].
29 Ibid.
extent that the property, as an operating dairy farm, is now worth something in the order of $10 million. Although it is almost impossible to predict what will happen in a period of some 15 years until the Lease ends in December 2032, Whaoa Trust is likely to reclaim an asset worth considerably more to it than when the lease was executed. Tumunui Trust’s efforts in erecting a new dairy shed and fencing, and other improvements, have had a positive effect in producing that increase in value. Although there will be little residual value in the physical improvements at the end of the Lease, the increased value of the land derived (at least in part) from improvements to the quality of the pasture, compensates for that.
[42] On any view, the original arrangement for a 40-year lease was unusual. Neither of the parties to the Lease could have made an informed judgement as to the likely state of the market in 40 years’ time. They must be taken as having agreed their terms on pragmatic and commercial grounds. The only exception is the error that I held was made in recording the date from which improvements to the land could be taken into account for the purpose of fixing rents.
[43] Viewed in that context, it would be inequitable to direct Tumunui Trust to pay rent on the basis that the capital improvements relevant to the rent fixing clause exclude the work that it did between 1989 and December 1992. In my view, the letter from Mr Burton, in which he referred to improvements to the land was intended to refer to those undertaken by Tumunui Trust, whether before or after 13
December 1992, supports that position. Its position was expressed in this way:30
[77] In a letter dated 16 November 1992, Mr Burton recorded that the “respective trustees” of the Whaoa Trust and the Tumunui Trust had agreed the following terms:
1.The initial term will be for 10 years from 13 December 1992 expiring on 12/12/2002.
2.The initial rental which is yet to be set will be on the formula terms set out on the current lease namely at 5% of the capital value of the land according to a special Government valuation to be obtained (at Tumunui expense) but excluding any capital improvements effected by the lessee.
3. In addition to the new term of 10 years commencing on 13
December next, there will be 3 rights of renewal of 10 years each.
30 Ibid, at para [77].
4. The renewal terms of 10 years each from 13 December 2012 and
2022 respectively will each contain provision enabling the lessors to review the rental on the above terms every 3 years. This also means
that the two 10 year terms from 13 December 1992 and from 13
December 2002 will not contain any interim rent review provisions except on the renewal dates themselves.
5.Two months prior to each renewal or review date Tumunui is to supply you with Management Plans for the land. This means at the present moment that Tumunui should be providing you with a Management Plan at this particular time.
6.Two weeks prior to Tumunui’s each annual general meeting, Tumunui is to supply Whaoa No 1 with specified agreed sections of its Annual Report.
(Emphasis added)
[44] Mr Chesterman endeavoured to persuade me that such a result would be inequitable to Whaoa Trust because of the below-market rent that it took for the first
10 years of the new lease and because of the ability of Tumunui Trust to harvest trees to help pay for the improvements during the period of occupation before 12
December 1992. I do not consider those factors are sufficient to overcome the prejudice that would otherwise be suffered by Tumunui Trust.
[45] I do not consider that any adjustment should be made in favour of Tumunui Trust in respect of the $180,000 paid to H Allen Mills Ltd. Without payment of that sum, it would not have had the opportunity to develop the land, as it went on to do.31
It was in negotiations with Whaoa Trust to extend the term of the lease for economic reasons. Tumunui Trust wanted to secure a lease of 40 years’ duration. The parties must have been confident an agreement could be reached. Otherwise, Tumunui Trust would not have undertaken the dairy conversion work.
Result
[46] For those reasons, the application for recall is granted and I make an order substituting the following, for what was previously recorded in para [262](b) of my
judgment of 13 March 2017:
31 See also, para [39] above.
[262](b) On the Tumunui lease claims:
…
I make an order for rectification of the Tumunui lease to remove the words “or its predecessor since the 13th day of December 1961 and” from the Tumunui lease. The effect of that order is to require rental to be fixed in accordance with the formula in the lease but taking into account only improvements to the land made by the Tumunui Trust from the date the Tumunui Trust went into occupation of the land in 1989. A consequence of this order is that adjustments will need to be made to the rent fixed for earlier periods.
…
[47] I reserve questions of costs. They shall be addressed together with those that remain reserved from my substantive judgment, and the case management conference of 27 July 2017.
[48] The Registrar is directed to arrange a telephone conference before me on the first available date after 7 October 2017, so that I can determine how best to progress outstanding issues.
[49] I thank counsel for their assistance.
P R Heath J
Delivered on 22 September 2017 at 11.00am
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