Waikato District Council v Singh
[2015] NZHC 2233
•16 September 2015
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV-2014-419-348 [2015] NZHC 2233
IN THE MATTER of an application for an order for
possession of land under s 244 of the
Property Law Act 2007BETWEEN
WAIKATO DISTRICT COUNCIL Applicant
AND
CHUHAR SINGH AND AMRO SINGH Respondents
Hearing: 24, 25, 26 August 2015 Appearances:
P Moodley for Applicant
D J Taylor for RespondentsJudgment:
16 September 2015
JUDGMENT OF WHATA J
This judgment was delivered by me on 16 September 2015 at 4:00pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors: Brookfields, Auckland
Kellaways, Hamilton
Counsel: D J Taylor, Hamilton
WAIKATO DISTRICT COUNCIL v SINGH [2015] NZHC 2233 [16 September 2015]
Introduction
[1] The Waikato District Council (the Council) applies for an order of possession of land, cancellation of lease and payment of all moneys due under the lease in respect of the land at Waingaro Hot Springs, Waingaro. The land is leased by the respondents, Chuhar Singh and Amro Singh.
[2] The Council claims that the Singhs have defaulted on covenants as to maintenance, repair and use of land. The Singhs oppose the orders sought. The Singhs also apply for relief from cancellation.
[3] Helpfully the parties agreed in closing the issues that must be resolved namely:
(a) Was there at the time of the issue of the Property Law Act 2007 (PLA)
notice a breach of any of clauses 6.1, 6.2 and 7.3 of the lease?
(b)Whether the reference to arbitration in the lease clause 12.4 means that the parties are bound to refer the dispute to arbitration.
(c) Whether the PLA notice adequately informed the respondents of the nature and extent of the breach complained about.
(d)If the notice was adequate, has a “period that is reasonable in the circumstances” expired at any of the following times:
(i) The period specified in the notice;
(ii)The date the application for an order for possession of the land comprised in the lease was made to the court; or
(iii) At the time when the order is made.
(e) What breaches (if any) are still extant at the time of the hearing?
(f) Was there a waiver by the applicant of the claim to possession of the hot pools by the acceptance of rent following the meeting of the 5th of September 2014?
(g)If there are breaches which have not been remedied at the time of the hearing, are they sufficiently material to justify the making of an order for cancellation?
(h)Whether if cancellation is available, the respondents should be granted relief from cancellation.
(i)If the court determines that the respondents should be granted the discretionary remedy of relief against cancellation or proposed cancellation what, if any, terms should be imposed?
Background
The lease
[4] Mr and Mrs Singh operate a geothermal pool complex known as the Waingaro Hot Springs on land leased from the Council. The complex is operated as a hot pool comprising a camp ground, geothermally heated swimming pools, spa pools, ancillary facilities, hydro slide, bumper boat and picnic grounds. These are referred to as “Waingaro Springs”. Mr and Mrs Singh first became the lessees of the land in June 1993 by way of assignment of lease number 624709 and consideration of $1,325,000 inclusive for plant and chattels. The land is currently leased to the Singhs by memorandum of lease dated 13 August 2001 and registered number
5238090.3 (South Auckland Registry).
[5] The lease provides a term of lease of 33 years with an annual rent of
$9,933.20 per annum plus GST. Most relevant to this proceeding the lease includes the following covenants:
Lessee to Keep Improvements in Good Repair
6.1 The Lessee shall during the Term of this Lease keep all
improvements situated on the Land, including the Lessee’s
Improvements in good repair and condition, fit for the Permitted Use and to a high standard, which shall be not less than the standard at which public authorities in New Zealand are required to maintain hot thermal swimming baths complexes and ancillary facilities and amenities and camping grounds, all for use by the public. Written advice from the Lessor to the Lessee from time to time as to the content and detail of such standards, the Lessor acting reasonably, shall be definitive of such standards.
6.2Without limiting or affecting the generality of the obligations contained in clause 6.1 the Lessee shall at the Lessee’s expense:
(d) make good any damage to any part of the Lessee’s Improvements howsoever caused, and make good any damage to any part of the Land caused by the Lessee or persons under the control of the Lessee:
(f) renew and replace the Lessee’s Improvements (or such part or parts which require replacement from time to time) when the same reasonably require;
(g) comply with all statutes, laws, bylaws, regulations or requirements in force or applicable from time to time and any notices or orders which may be given by any Authority in respect of the Land and the Lessee’s Improvements;
Permitted Use
7.1The Lessee shall only use the Land and the Lessee’s Improvements in accordance with and subject to the provisions of the Reserves Act for the Permitted Use. Without limiting the generality of the Permitted Use, it includes:
(a) a hot (thermal) public swimming baths complex; (b) camping ground;
(c) all other activities necessary for an ancillary to the sustainable undertaking of the foregoing uses.
Public Use
7.2In the undertaking of the Permitted Use the Lessee shall make provision for public use of the Land subject to such reasonable terms and conditions as the Lessee shall require, subject to the approval of the Lessor including with respect to entry charges, from time to time.
Requirements of Use of the Land by Lessee
7.3 The Lessee shall:
…
Health and Safety In Employment Act
(d) Not permit anything on or about the Land which may be or become a breach of any duty imposed on any person by the Health and Safety in Employment Act 1992.
Acts, Bylaws Etc
(e) Comply in all respects with all Acts, bylaws, regulations, rules and requisitions relating to the use of the Land by the Lessee.
Best Management Practice
(f) Comply in all respects with all best management practice standards and requirements (being standards, requirements and management practices applicable to hot thermal swimming baths complexes and ancillary facilities and amenities and camping grounds, for public use in New Zealand)) with respect to the Permitted Use advised in writing by the Lessor to the Lessee from time to time which shall include but not be limited to water quality management with respect to all water bodies situated on the Land, pool supervision and pool usage.
…
Drinking Water
(h) Ensure the provision of a good and sufficient water supply of good drinking water approved by the Authority or other responsible agency.
…
Agreement to Complete Works
(j) For the avoidance of doubt, the various works and obligations to be undertaken and performed as set out and described in Schedules 1, 2 and 3 annexed to the “Agreement to Complete Works” bearing date between the Lessor and Lessee which relate to the use of the Land and the Lessee’s Improvements shall constitute obligations of the Lessee under this clause 7.3.
Arbitration
12.4If any dispute or difference arises between the parties in connection with or arising out of the Lease such dispute or difference shall be referred to the arbitration of a single arbitrator if the parties can agree upon one or, failing agreement, at the request of either party by the President of the Auckland District Law Society, in accordance with the Arbitration Act 1996 or any amendment or re-enactment for the time being in force. The parties agree to co-operate to complete such arbitration with all due expedition.
Pool Safety
[6] There were two deaths by drowning at the Waingaro Springs, in 1996 and in
2002. A Coroner’s report on the latter recommended that the lease of the complex be made subject to the Singh’s obtaining Pool Safe accreditation. While the lease was not amended to expressly require Pool Safe accreditation, it appears Mr Singh was Pool Safe approved until February 2012. On 3 February 2012 NZRA removed Waingaro Springs from the Pool Safe Scheme. A report from NZRA identified various non-compliances with Pool Safe standards, including the lack of qualified life guards.
Discussions about sale
[7] In 2013 Mr Singh approached Mr Bruce Airey, the then property manager for the Council about the sale of the complex to the Council. A report was also obtained by Mr Airey from Property Group about a lessee’s interest valuation prepared by Telfer Young. The report concludes that the valuation appeared sound. It appears that discussions about purchase were not further advanced by the Council.
Review of operations
[8] In about August 2013 the Council commissioned a report from AECOM, a firm of professional technical consultants to enable the Council to assess the performance of Mr and Mrs Singh as lessees and to:
i) Assess the current condition of the buildings and facilities.
ii)Identify the risks to Council should the breaches not be rectified.
iii)Give Council an idea of likely costs involved in bringing the site up to a compliant standard in the event that Council were to purchase or assume control of the site.
iv)Assist Council to identify the budget required to mitigate/rectify any immediate Health and Safety issues.
v)Assist Council to identify options and cost implications to bring the site up to a minimum standard, or where the building or facility is at or nearing the end of its economic life to replace (like for like) as new. It is likely that when a decision
has been made as to whether Council will purchase or assume control of the site, redevelopment options and anticipated revenue returns will be the subject of a separate comprehensive report and budget bid to Council.
[9] The report was completed in November. It concluded:
The assessments have identified the Waingaro Hot Springs has had minimal maintenance and repairs to the existing buildings and facilities for some time. As a result there are a number of identified structures that have failed and are recommended to be closed or removed for replacement as they are significant Health & Safety risks to the public using those facilities.
The report also identifies concerns with the temperature and possible contamination issues with the supply of water to the pools from the geothermal bore. This includes the non-compliance of treatment and monitoring under the pools standard NZS5826:2010. These concerns relate to the way the water supply is directly supplied from the bore without being treated and the water may be contaminated as a result of sporadic flooding from the Waingaro River into the bore.
In addition, Opus have advised us insufficient procedures and no operational manuals are identified as concerns for the safe operation of the pools, and the pool filters, chlorine dosing and control equipment that treat the pool water are in need of replacement which Opus advise are not appropriate for use for a public pool.
Included in this report are a budget cost estimates to assist Council with what possible expenditure would be required to bring the site up to a minimum compliant standard or alternatively estimated cost for full redevelopment of the site.
Building Act 2004 Notice
[10] On 19 December 2013, a notice under s 124 of the Building Act 2004 was served on Mr and Mrs Singh. The notice states that the following buildings situated on the property are deemed to be dangerous:
(a) Hot water bore pump shed (Asset 4 – see photos attached). (b) Reception Kiosk (Asset 5 – see photos attached).
(c) Hydro slide and Hydro slide speed slide (Asset 7 & 8 – see photos attached).
(d) Pump Room (Asset 9 – see photos attached).
(e) Main Pool (Asset 11 – see photos attached).
(f) Staff accommodation, changing room and takeaway building (Asset
16 – see photos attached).
(g) Pool filters enclosure (Asset 18 – see photos attached). (h) Utilities Block (Asset 21 – see photos attached).
(i) Female toilet / kitchen utility (Asset 29 – see photos attached). (j) Access driveway (Element A – see photos attached).
(k) Access steps to Cabins (Element B – see photos attached).
(l) Steps to powered campsites (Element C – see photos attached). (m) Swing (Element D – see photos attached).
(n) Slide (Element E – see photos attached).
(o) Concrete Steps (Element J – see photos attached).
[11] Mr Singh states that the photos were not included in the evidence. Mr Koppers, the building inspector who prepared the notice, cannot recall whether they were included, but considers it is highly unlikely that they would have been left out. Ms Smart, a property officer for the Council, also recalls discussing the photos with Mr Singh shortly after the notice was served. She says that the requirements of the notice were fully explained to Mr Singh.
Notice of Cancellation
[12] The Council served a notice of intention to cancel the lease on 9 January
2014. A copy of the AECOM report was attached to the notice. It included a detailed breakdown of the matters (items (a) – (o)) that needed repair and or
replacement. The report also identifies four category of works in terms of the lease
covenants. The relevant table states:
Appendix Reference Breaches
(lease clauses)
Remedies Compensation A – Geothermal &
Groundwater Supply (Tonkin and Taylor Limited)
Clause 6.1
Clause 6.2(f) Clause 6.2(g) Clause 7.3(f)
Refer Appendix A for
details
$110,000
Refer Appendix E –
Item 40 (186, 187)B – Drinking Water
Supply Compliance (Opus International Consultants Limited)
Clause 6.1
Clause 6.2(g) Clause 7.3(h)
Compliance with
Drinking – Water Standards for New Zealand (revised 2008)
$25,000
Refer Appendix E –
Item 38 (185)C – Swimming Pool
Water Quality Risk Management Assessment (Opus International Consultants Limited)
Clause 6.1
Clause 6.1(f) Clause 6.1(g) Clause 7.3(d) Clause 7.3(e) Clause 7.3(f) Clause 7.3(g)
Refer Appendix C for
details
$605,000
Refer Appendix E –
Item 38 (175 – 184)D – Existing Building
And Facilities Condition Assessment (AECOM New Zealand Limited)
Clause 6.1
Clause 6.2(f) Clause 6.2(g) Clause 7.3(d) Clause 7.3(e) Clause 7.3(f)
Refer Appendix D for
details
$425,000
Refer Appendix E – Items 1 – 36 and as further detailed in Appendix E
$925,000
Over all project costs as detailed in Appendix E, items 41 – 45 and as further detailed in Appendix E
Total: $2,090,000.00
Building application consent process
[13] Attempts at organising a meeting between the Council and the Singhs proved fruitless until 24 March 2014. At that meeting it was agreed that the Singhs should have the opportunity to have the AECOM report reviewed. Mr Mitchell, a structural engineer, was then retained by the Singhs to peer review the AECOM report in April.
[14] By correspondence on 20 May 2014, Mr Taylor, solicitor on behalf of the Singhs, challenged the AECOM report. A copy of the certificate of competence, a quality plan and a pool risk management plan was attached to the letter. The letter requested an update to be done by AECOM. The Council responded on 23 May
2014. The Council noted that Mr and Mrs Singh had committed to obtain and provide a peer review report to the Council by 5 May 2014. The letter also noted
that Council had agreed to delay enforcement notice until 12 May 2014. The
Council requested that the report from Mr Mitchell be provided no later than
28 May 2014.
[15] The review was, in any event, completed and a report provided to the Council on 28 May 2008. The report provided a detailed review of the items identified by the AECOM report as needing attention, including with recommendations as to the works required to achieve compliance with the lease, together with a budget estimate for the works. His estimate as to the cost of the works was in the order of $600,000, as compared to the AECOM estimate of $2,000,000.
[16] The Council did not agree with some of the assumptions made by the report as to the requisite standards to be achieved and on 10 June 2014 sought a works schedule and the timing of the works which the Singhs are required to carry out in order to meet the requirements of the PLA notice. This triggered a detailed response from Mr Taylor setting out their position on the Building Act notice and the PLA notice on 24 June 2014.
[17] At about this time Mr Mitchell began to actively engage with the Council and in particular Mr Koppers. On 16 July he sent drawings designed to address what he considered to be the most significant parts of the complex requiring attention, namely:
(a) the pump shed;
(b) the ramp to the facilities room; and
(c) the deck located at the bottom of the two slides.
[18] On 22 July 2014 the Council noted that works were being undertaken on the land notwithstanding the Building Act notice to stop works and on 22 July 2014
Mr Singh was served with a stop work notice.
[19] Mr Mitchell sent a letter dated 23 July 2014 (though it appears without notice of the stop work notice) which included a schedule of proposed works in order of
priority, with “Priority 1” works to be completed within the next four weeks. He sought a meeting with the Council to discuss the proposed schedule. Mr Koppers responded on 24 July noting that the stop work notice had been served and that the Council was taking steps to re-enter the property. The Council also responded through their solicitors on 25 July to Mr Taylor noting among other things that the Council is aware that the Singhs have commenced some works without a building consent and that they should be aware that unconsented works cannot be retrospectively consented. Mr Taylor replied on 28 July 2014, enclosing Mr Mitchell’s proposed schedule of works. The Council did not respond to the letter, but Mr Koppers wrote to Mr Mitchell noting that the documentation received by them on 28 July from Mr Mitchell will be returned to him and any structures identified in the AECOM report must not be used until the works are completed in accordance with any approved Building Consent. There is then a further letter from Mr Mitchell dated 30 July referring to the dangerous items covered by his “Building Consent Application” submitted on 18 July. A meeting is sought to ensure that the Council staff are in agreement that the documents listed in the letter include items for renovation, repair and replacement.
[20] It appears that a meeting could not be arranged about the proposed schedule of works until 5 September. At this meeting it was emphasised to Mr Mitchell that the application needed to be in the correct form and that all of the outstanding works had to be addressed in the one building consent application. An application to undertake the works was then lodged on 8 October 2014 and consent was issued on
9 November 2014.
Rental payments
[21] Mr and Mrs Singh did not pay the rent due on 24 February 2014 in the sum of
$11,270. However, following the September meeting the rent owing was paid by them. Mr Singh said that he withheld the payment pending resolution of building issues, but after the September meeting he thought matters had basically been resolved so paid the outstanding rent.
Code compliance process
[22] Over the next six to eight months Mr Mitchell set about completing the requisite repairs. The process for obtaining code of compliance was, in short, unnecessarily protracted. On 6 May 2015 Mr Mitchell delivered to the Council his engineer’s completion report for repairs of dangerous structures. He followed this up with an email on 22 May 2015 with a question as to what further information is required. This is met with the response from Mr Koppers on 3 June 2015: “in summary a final code of compliance is to be called for”. A further request is met with the same response on 12 June 2015. In response to a further request on 30 June
2015, Mr Koppers repeats his advice that a final code compliance certificate “is to be
called for”. It transpires that this meant that a formal application was required.
[23] A site inspection was undertaken on 6 August 2015. Three matters were identified as needing to be addressed.
Agreed repairs / enhancements required
[24] Mr Mitchell provided expert evidence on behalf of the Singhs. Messrs Peter Cochrane (environmental scientist), Colin Jacobson (engineer), and Mr Graham (environmental scientist) provided expert evidence on behalf of the Council. All of them are experienced and suitably qualified to give evidence on the matters addressed in their respective briefs of evidence.
[25] Helpfully a joint statement of experts was tabled at the commencement of the hearing. Schedule B was provided to the experts for their comment. It is a 17 page document which essentially summarises the repair items listed in the AECOM condition assessment report. The statement is divided into two parts. The first part deals with structural items. The second part deals with pool management. As to the first part, the experts agreed that it would be simpler and far more efficient to list only the repair items which they believe still need to be addressed rather than comment on every item in the list. The report refers to asset numbers 3, 4, 5, 6.1 and
6.2, 6.4, 9, 16, 18, J, 32.3, 32.4, 32.7, 32.15.
[26] In the result, the experts agreed that all of the above matters require and are capable of repair or replacement within a two to three month period.
[27] Three key items are referred to in the second part. The experts agree that each of the matters can be dealt with adequately and again over a two to three month period. A matter of particular concern relates to the entry of hot (geothermal) water directly into the pools without prior chlorination. Two risks are emphasised namely:
(a) The first is that bathers may have contact with geothermal water which has not been chlorinated, risking bather exposure to the organism Nagleria fowlerei, an amoeba that can cause the serious illness amoebic meningitis.
(b) The second is that bathers may be exposed to water of up to
56 degrees Celsius which risks scalding.
Argument
[28] Mr Moodley emphasised the following key points for the Council:
(a) The AECOM report identified clear breaches of the covenants to maintain the lessees improvements and to meet best practice;
(b) After 18 months, significant breaches still have not been remedied;
(c) As at the commencement of the proceedings the Singhs owed
$11,270 in rent and $4,198.12 in rates.
(d)The period given in the notice, 60 workings days, is the usual period for such notice and in any event the Council did not commence proceedings for over seven months.
(e) As to relief, some of the breaches, particularly relating to pool safety are longstanding and systemic – the failure to maintain Pool Safe
accreditation is illustrative. Given the potentially fatal consequences of failure, cancellation of the lease is proportionate.
[29] Mr Taylor responded (in short):
(a) The Singhs accept that maintenance and repair was required and have diligently embarked on a process of achieving implementing the necessary works.
(b)The period within which to comply with the notice was unreasonably short given the nature of the works required.
(c) The AECOM report and therefore the PLA notice is manifestly deficient:
(i) A blunderbuss approach is taken to the repair requirements.
(ii)It does not identify the lessees’ maintenance obligation and does not identify the condition of the premises at the commencement of the lease for the purpose of assessing what is required to satisfy the maintenance provisions.
(iii)The AECOM report relates to buildings (the pump house) which are not part of the lease premises and therefore not subject to PLA procedure.
(iv)Technical aspects of the AECOM report are flawed, for example the failure to address the fundamental problem relating to flood risk, which in turn meant that additional time was required to address it.
(d)The Council waived the right to possession on receipt of the rent after service of the PLA notice.
[30] As to relief Mr Taylor submits:
(a) The breach was not deliberately committed; (b) There was no history of outstanding notices;
(c) Most maintenance requirements were satisfied before Christmas; (d) The delay in completing the works is attributable in large part to:
(i)The lack of clarity as to what was in fact necessary (in contrast to the approach taken in McConnell v McCormick1);
(ii) The requirement to undertake a thorough review of the
AECOM report;
(iii)The unhelpful approach taken by the Council to the repair process – including: the failure to proactively process the applications for building consent and certificate of compliance, and the failure to make the experts available for discussion – which likely would have enabled the works to be completed with six months of the notice.
(e) There is no lasting damage; and
(f) The effects of cancellation will be devastating to the Singhs.
Jurisdiction
[31] Section 246 of the PLA provides:
246 Cancellation of lease for breach of other covenants
(1) A lessor may exercise a right to cancel a lease because of a breach of a covenant or condition of the lease (except the covenant to pay rent) only if—
1 McConnell v McCormick [1929] NZLR 560 (SC).
(a) the lessor has served on the lessee a notice of intention to cancel the lease; and
(b) at the expiry of a period that is reasonable in the circumstances, the breach has not been remedied.
(2) The notice required by subsection (1)(a) must adequately inform the recipient of all of the following matters:
(a) the nature and extent of the breach complained about:
(b) if the lessor considers that the breach is capable of being remedied by the lessee doing or stopping from doing a particular thing, or by the lessee paying reasonable compensation, or both,—
(i) the thing that the lessee must do or stop doing; or
(ii) the amount of compensation that the lessor considers reasonable; and
(c) the consequence that, if the breach is not remedied at the expiry of a period that is reasonable in the circumstances, the lessor may seek to cancel the lease in accordance with section 244:
(d) the effect of section 247(1) and (2):
(e) the right, under section 253, to apply to a court for relief against cancellation of the lease, and the advisability of seeking legal advice on the exercise of that right.
Assessment
Was there a breach of clauses 6.1, 6.2 and 7.3?
[32] Mr Taylor referred to the AECOM table of alleged breaches (repeated at [12] above). He submits that there were no actionable breaches in terms of Parts A, B and C of the table. He accepts that there were breaches in terms of Part D dealing with repair and maintenance of the lessor’s improvements.
[33] I agree that there were no actionable breaches in terms of Parts A and B. Part A relates to the pump house which is not located on the lease land and therefore is not subject to clauses 6.1, 6.2 and 7.3 which specifically relate to the lessor’s improvements on the “Land”. Nor is the “pump house” referred to in any of the schedules relating to works that had to be completed by the Singhs as part of the agreement to lease. Mr Moodley quite properly conceded this point, though he also
emphasised that the leasehold use depends on the proper functioning of the pump house. I agree with this observation, and it may be that an obligation to maintain the pump house can be implied. But whether that is so was not argued, and I am in any event concerned only with the breaches alleged in the notice of cancellation.
[34] Part B relates to drinking water standards. Mr Graham’s evidence was that the drinking water standards were satisfactory. Accordingly there was no breach in this respect.
[35] Part C relates to pool management. The relevant clause is 7.3(f). Given its significance I repeat it here:
Best Management Practice
(f) Comply in all respects with all best management practice standards and requirements (being standards, requirements and management practices applicable to hot thermal swimming baths complexes and ancillary facilities and amenities and camping grounds, for public use in New Zealand)) with respect to the Permitted Use advised in writing by the Lessor to the Lessee from time to time which shall include but not be limited to water quality management with respect to all water bodies situated on the Land, pool supervision and pool usage.
[36] I do not accept Mr Taylor’s point that the standard referred to in clause 7.3(f) must refer to the 2000 standard (which the Singhs did comply with), not the 2010 standard relied on in the AECOM report. He submits that the Council only sought compliance with the 2000 standard in writing. But, as Mr Moodley observed, the
2010 standard expressly superceded the 2000 standard. It was not therefore necessary for the Council to advise the Singhs that they must conform to the 2010 standard, because it had replaced the 2000 standard. Furthermore, in a context where the matters of public safety are engaged, the parties to the lease must have expected that the lessee would conform to the most up-to-date version of the relevant operational standard.
[37] I note with some concern a related argument that the Singhs were not obliged to obtain Pool Safe accreditation as the Council did not advise the Singhs to obtain it “in writing”. But this submission belies the facts, including:
(a) the two swimming pool fatalities;
(b) the Coroner’s recommendation that Pool Safe accreditation be
obtained;
(c) the active involvement of the Council in assisting the Singh’s to
obtain it; and
(d) that the Singhs in fact obtained and held Pool Safe accreditation until
February 2012.
[38] In reality, the Singhs must have known that Pool Safe accreditation was required by the Council in terms of best management practice for the purpose of clause 7.3(f).
[39] Given the foregoing, I find that the Singhs also breached clause 7.3(f) in terms of the pool management non-compliances identified in the joint statement of experts – see [25] – [27] above.
[40] As to Part D, the joint expert statement identifies the various outstanding repairs and works required to comply with clauses 6.1 and 6.2. It is unnecessary to repeat them here as the Singhs accept that items (b) – (o) set out in the AECOM report (see [10]) needed to be addressed and they also accept that the works specified in the joint statement must also be completed.
Arbitration Act 1996
[41] Mr Taylor’s submits that clause 12.4 enabled the parties to refer the present dispute to arbitration and that clause 8 of the Arbitration Act confers jurisdiction on this Court to stay the present proceeding if one of the parties elected to go to arbitration. He maintained that there is no clash of statutory regimes, because the arbitrator possesses all the powers of the High Court, including in respect of cancellation. Mr Moodley did not actively engage on this issue, as neither party elected to go to arbitration. He did however express reservations about a party circumventing the PLA process by referral to arbitration.
[42] Surprisingly, the interface between the two regimes does not appear to be the subject of considered evaluation. But as neither party sought to have this matter resolved by way of arbitration, I do not consider that it is necessary or appropriate for me to resolve this point.
Adequate notice and reasonableness of notice period?
[43] I have joined the issues of adequacy of notice and reasonableness of the notice period together because the sheer breadth of the matters raised in the notice meant that a 60 working day period to comply was manifestly inadequate. But the detailed enumeration of matters to be addressed did not per se invalidate the notice.2
It was, as discussed with Mr Taylor, a blunderbuss approach and the AECOM estimate for the required works in the order of $2,000,000 was excessive. Mr Taylor also complained that the notice must have included a number of matters that were not required, given that the cost of the works to date is only $450,000. But the various matters raised by the report needed to be addressed and were legitimately raised. I also consider that AECOM report was reasonably clear to a suitably qualified person as to what was required. In this regard, the report provided a schedule of cross references to the relevant parts of the lease engaged by the notice and Mr Mitchell was able to identify all the relevant items that needed to be addressed in order of priority – refer [19].
[44] By contrast, the expectation that the more than 190 line items identified by the AECOM report could be completed within 60 working days was unreasonable. I agree with Mr Taylor’s contentions that given the breadth of the report, sufficient time was needed to:
(a) Peer review the AECOM report;
(b) Obtain design solutions and prepare an application for consent; and
(c) Undertake the works.
2 See McConnell v McCormick, above n 1 at 565 – 567.
[45] Mr Jacobsen noted that a team of contractors could complete the works within six months. It is not clear to me that this included the design and consenting phase. The experience in this case, detailed at [13] – [23], strongly suggests that it does not. For my part, given the scale of works involved, six months was a minimum period to complete the works and a nine month period would have been a reasonable notice period. The notice was therefore deficient insofar as it sought a remedy within 60 working days.
[46] I accept, however, Mr Moodley’s submission that in terms of s 246(2)(c), a reasonable period has now elapsed in order to remedy the breaches. In reality, the Singhs have not complied with the requirements of the lease in multiple respects, including in relation to building maintenance and pool operational safety and have not remedied their non-compliance in the 18 months since the notice was first issued. As I will explain below in terms of relief from cancellation, part of the reason for the inordinate delay must sit with the Council and the way it has approached the repair process. I also accept Mr Taylor’s observation that the majority of the physical works were completed by December 2014. But the Singhs were obliged to and should have been able to remedy all of their defaults by the time of the hearing of this matter. Most relevantly, the Singhs’ first received notice of the key deficiencies by way of the Building Act notice in December 2013, but Mr Mitchell was not retained to undertake the peer review until March 2014. The building consent process is then marked by several periods of inactivity. While some of that is understandable, the Singhs carried the burden of discharging their obligations under the lease and in my view had to take the lead in terms of securing compliance. It is not sufficient to complain about Council processes and what might seem an unduly bureaucratic approach to consenting. The duty to expeditiously remedy the breaches rested with the Singhs through-out.
[47] I am therefore satisfied that while the notice period was inadequate, a sufficient period has elapsed since the notice of cancellation in order to remedy the defaults.
What breaches were extant at hearing?
[48] Mr Taylor concedes that the following matters remained extant as at the date of the hearing:
(a) Item 3 Asset 3 – unit motel block. (b) Item 3 Asset 5 – reception kiosk. (c) Asset 6.1 and 6.2 – spa pools.
(d) Asset 6.4 – spa pools cut batter stabilisation. (e) Asset 9 – hydro slide pump room.
(f) Asset 18 – pool filter enclosure. (g) Asset 32 – timber steps.
[49] Mr Taylor did not accept that ongoing breaches in relation Asset 3 Item 4 – the hot water bore, Asset 16 – staff accommodation and takeaway, or Asset J – concrete steps to caravan park. These matters have either been repaired or require a repair not recorded in the AECOM report.
[50] Mr Moodley agreed with this summary, but noted that the water quality and pool management issues also remained to be fixed.
[51] As can be seen a substantial amount of remedial works are still to be completed.
Waiver?
[52] Mr Taylor submits that the Council induced Mr Singh into believing that it would exercise its right to apply for an order for possession on payment of the
outstanding rent in September.3 I accept that Mr Singh thought that the key issues between him and the Council had been resolved following the meeting of September
2015 – refer [21]. But the evidence fell well short of showing on the balance of probabilities that the Council’s officers induced Mr Singh into believing that the Council would seek an order for possession. Indeed there is scant evidence to suggest that such a representation was made by them.
Order to cancel?
[53] Section 248(2) of the PLA states that “The court may make an order sought by the application if satisfied that, at the time the order is made, a period that is reasonable in the circumstances has expired and the breach has not been remedied.” Mr Taylor contends that the word “may” connotes a discretionary power and that I should not exercise it given the full circumstances of this case.
[54] The argument on this was sparse. While s 248(2) ostensibly confers a discretion, when a lessor has satisfied all the relevant criteria for possession, it would seem concordant with the scheme of the PLA to grant an order of possession unless the lessee can establish a proper basis for grant from relief based on the settled principles. In any event, I prefer to proceed on that basis.
Relief?
[55] The Court’s discretion under s 253 PLA to grant relief from cancellation is wide but not unfettered. There must be a clearly unjust factor demanding relief. The observations of Hammond J in Studio X v Mobil Oil New Zealand Ltd provide a helpful frame for assessment and involving, in general terms, assessment of the
following factors:4
(a) The nature, form and gravity of the breach (though breach of an essential term is not by itself a disqualifying reason).
3 Property Law Act 2007, s 250 provides that acceptance of rent does not operate as a waiver, “unless the lessor, in accepting rent, causes the lessee reasonably to believe that the lessor no longer intends to exercise the right to apply for possession of… the land.”
4 Studio X Ltd v Mobil Oil New Zealand Ltd [1996] 2 NZLR 697 (HC) at 701.
(b) The conduct of the tenant.
(c) The conduct of the landlord.
(d) The ability of the tenant to remedy the breach or breaches.
(e) Proportionality or fairness as between the parties – the outcome should not be disproportionate to the breach or the loss suffered.
[56] I propose to address each of these matters before reaching a final view on whether the lease must be cancelled. I note also that if the repairs are undertaken by the date of hearing the court will be more inclined to grant relief from cancellation.5
Gravity of breach
[57] The gravity of the breaches is serious, affecting the safe operation of the facility which was clearly a matter of significance to the Council as lessor. In this regard, I accept that the clauses of the lease requiring repair and best management practice were not incidental, but primary objects of the bargain.6 This is a strong factor in favour of cancellation.
Conduct of the tenant
[58] The Singhs have however taken significant steps to remedy their breach, even though as I have said they should have completed the requisite repairs by the time of the hearing. They have expended more than $450,000 to comply with the notice of cancellation. The experts agree that the balance of the works required to achieve
compliance can be achieved within a relatively short period of time.
5 T Bennion, D Brown, R Thoman, E Toomey New Zealand Land Law (2nd ed, Thomson Reuters, Wellington, 2009) at 656.
6 As noted recently by the Court of Appeal in Greenshell New Zealand Ltd (in rec) v Kennedy Bay Mussel Company (NZ) Ltd [2015] NZCA 374 at [62], the paradigm case for relief is “where the primary object of the bargain is to secure a stated result” which can be effectively attained when
the matter comes before the court”.
Conduct of the lessor
[59] The conduct of the Council has not been exemplary. First, the Council had undertaken inspections of the property in the years leading up to the cancellation notice but had not notified the Singhs of any concerns about the state of the property. Second, the Council took blunderbuss approach to the non-compliances and some of the items were not essential. Third, the approach taken by the Council to the remedial process was unduly cumbersome. The refusal to take a staged approach whereby the most serious compliances could be dealt with first while other remedial requirements were assessed was unhelpful. Mr Koppers is to be commended for the care with which he approached the consenting process, but his insistence on a single application for all works was unduly pedantic and ultimately caused unnecessary delay in terms of the repair process.
[60] For completeness, I reject any suggestion that the Council had an improper motive for the notice of cancellation. The steps taken by the Council were designed to achieve a secure a safe pool complex. The potential for acquisition was not the driving force behind the notice, though it may have formed an initial reason for the investigation into the operation of the complex.
Ability to repair
[61] The Singhs are able to undertake the physical repairs, so there is no residual concern in this regard. But the Singhs must demonstrate the capability to operate the pool complex in accordance with best management practice. For my part this must accord with the Coroner’s recommendation that the Singhs obtain and maintain Pool Safe accreditation.
Proportionality
[62] In my view, given the steps taken by the Singhs to remedy the breach I am in no doubt that cancellation would be entirely disproportionate to the breaches. While the relevant clauses secure primary objectives, the Council should have been more active over time to bring their concerns to the Singhs attention. Moreover, the requisite repairs are only a few months away, and no danger is presented to the
public until they are complete and the complex re-opens. The safety objective of the lease covenants will then have been attained.
[63] I accept however Mr Moodley’s suggestion that a similar approach to that
taken in Strong v Hurunui Hotel (2004) Ltd is appropriate here,7 namely:
(a) The Singhs shall have completed all the requisite physical works within 60 working days of obtaining any required building consent.
(b)The Singhs shall have approved by Mr Graham or other suitably qualified expert, a pool operational plan that conforms to the NZS
5826:2010 standard prior to the reopening of the facility to the public.
(c) In the meantime, the Singhs must continue to pay rental and all other outgoings under the lease and to comply with all obligations as tenant under the lease.
Outcome
[64] The application for relief from cancellation is granted subject to the conditions specified at [63]. I reserve leave to the parties to provide further submissions on the precise wording of the proposed conditions within five working days. I anticipate agreement as to their content and form.
[65] Submissions on costs may be filed if necessary, no longer than three pages.
Whata J
7 Strong v Hurunui Hotel (2004) Ltd [2015] NZHC 1261.
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