D K and C S Campbell v Napier City Council [1999] NZCA 295; [2000] 1 NZLR 392 (8 December 1999)

Last Updated: 29 November 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA99/99

	BETWEEN	D K AND C S CAMPBELL
		Appellants

	AND	NAPIER CITY COUNCIL
		Respondent

Hearing:	30 November 1999
Coram:	Henry J Thomas J Keith J
Appearances:	R J Bell for the Appellants M B Lawson and S L Johnston for the Respondent
Judgment:	8 December 1999

JUDGMENT OF THE COURT DELIVERED BY HENRY J

[1] This appeal has as its origin an arbitration which was the subject of an interim award delivered by the umpire on 15 April 1997. The respondent Council commenced proceedings in the High Court seeking three alternative forms of relief - setting aside the interim award, requiring a case to be stated for decision by the High Court, and removal of the umpire. The parties then consented to the stating of a case in an agreed form. The applications for the other alternative forms of relief also initially sought by the Council were withdrawn at the same time. The case stated, dated 18 November 1998, is in the following form:

This is a Case Stated by William Jens Harvey as umpire in an Arbitration between Napier City Council as Lessor and DK & CS Campbell as Lessee. The case is stated by consent pursuant to section 11 of the Arbitration Amendment Act 1938. The case involves a question of law arising from the interpretation of provisions of the lease between the parties.

BACKGROUND

1. Napier City Council is the owner in fee simple of all that parcel of land containing 991 square metres being Lot 4 on Deposited Plan 10199 and being more particularly described on Certificate of Title E3/10 (“the land”). Annexed hereto and marked “A” is a copy of Certificate of Title E3/10.
   
2. Donald Keith Campbell and Christine Susan Campbell are the lessees of the land under and by virtue of lease 406784.1 (“the lease”). Annexed hereto and marked “B” is a copy of the lease.
   
3. Pursuant to clause 38 of the lease, the Lessee has the option of purchasing the fee simple of the land comprised in the lease at a price to be determined by valuation pursuant to clause 38(c) of the lease.
   
4. By letter dated 10 February 1992 (exhibit “C”) the Lessees gave notice that they wished to exercise the right of freeholding. A dispute arose as to the means of valuation.
   
5. The issue for the determination by the Court in this Case Stated is:
   

When valuing the land for the purposes of clause 38 of the Lease-

(a) Should the price of the fee-simple determined by

valuation take into account the Lessee’s interest

pursuant to the Lease; or

(b) Should the price of the fee-simple determined by

valuation take no account of the interest of the Lessee

pursuant to the Lease.

[2] In a judgment delivered on 15 April 1999, Heron J answered the first question in the negative, and the second in the affirmative.

The procedure

[3] For the appellants Mr Bell first submitted that as at November 1998 the arbitration was governed by the provisions of the Arbitration Act 1996 and not the 1908 Act or the 1938 Amendment Act. Accordingly, he contended, the Court had no jurisdiction to entertain the case stated, which is not a procedure available under the 1996 Act. A similar challenge was made in the High Court and rejected by Heron J, who adopted a sensible and pragmatic approach. He said:

There was a belated attempt to argue the applicability of the Arbitration Act 1996, but as the parties had agreed to resolve the matters between them by stating a case, I decline to do other than to decide the case as stated. I decline to embark on a discussion as to whether these proceedings should be brought pursuant to the Arbitration Act 1996. In the end, it seems to me that there remains a discrete question of law which has to be decided by the Court, and it is now not open to go behind the consent that was signed. If I am wrong in this view, then separate proceedings no doubt could be contemplated, but at the end of the day it seems to me, the legal question has to be answered, and by its answer, will determine the outcome of this and other cases. Such a procedure must be in the overall interests of all parties.

[4] We agree. The umpire stated the questions of law by direction of the High Court. That direction has not been the subject of any challenge and therefore stands. There is a further reason for rejecting the submission. Accepting for present purposes that the 1996 Act, having come into force on 1 July 1997, applies by virtue of s19(5) (T.H. Barnes & Co Ltd v. Minister of Inland Revenue [1998] 2 NZLR 463), we consider that clause 5(1)(b) of the Second Schedule to the Act is relevant. It provides:

5. Appeals on questions of law - (1) Notwithstanding anything in articles 5 or 34 of the First Schedule, any party may appeal to the High Court on any question of law arising out of an award-
...
(b) With the consent of every other party given after the making of that award; or

[5] The consent to the case stated would also appear to overcome the time bar referred to in article 34(3) of the First Schedule. It is unlikely the legislation envisaged the Court would be prohibited from determining questions of law which the parties agreed required determination.

Further evidence

[6] Mr Bell sought leave to adduce further evidence. The evidence related to a different lease also under which the Council was lessor. It contained an option to purchase clause in favour of the lessee in terms similar to that now in question. The lease was the subject of variation agreed to between the parties, included in which was a substitution of the option clause by one which made express reference to the valuation as being “after excluding any lessee’s interest in the land”. We decline to admit this further evidence. No possible basis for its admissibility as evidence relevant to the construction of this lease exists. It cannot form part of the surrounding circumstances, and it would be entirely inappropriate to embark upon a consideration of the reasons which lay behind that particular variation.

The issue of construction

[7] The lease is for a term of 21 years with perpetual rights of renewal requiring rental reviews on each of those occasions. The lessee’s right to purchase the freehold is contained in clause 38 of the lease, which provides:

The Lessee shall have the option of purchasing the fee simple (subject as hereinafter appears) of the land comprised in this Lease at any time during the continuance of the said term or on (but not after) the expiration thereof upon and subject to the following terms and conditions:

(a) The Lessee shall give to the Lessor notice in writing signed by the Lessee that the Lessee exercises the option to purchase the land comprised in this Lease such notice to be delivered to the offices of the Lessor. Such notice must be given by a date not later than three months prior to the expiration of the term hereby created, time being of the essence of the contract in this respect.

(b) Immediately upon the delivery by the Lessee of the notice mentioned in the preceding sub-clause the Lessor shall be bound to sell and the Lessee shall be bound to purchase the fee simple of the land comprised in this Lease at the price to be determined by valuation as hereinafter provided and on the terms hereinafter set forth such sale and purchase to take effect and be completed on the first half-yearly date for the payment of rent under this lease occurring on or after the expiration of three calendar months from the delivery by the Lessee of the notice mentioned in the preceding subclause hereof (hereinafter referred to as “the date for completion”.).

(c) A valuation shall be made of the land comprised in this Lease exclusive of the improvements thereon as defined by Clause 32 hereof such valuation to be made and completed and the award published by a date not later than one month prior to the date for completion.

(d) The valuation provided for by the preceding subclause hereof shall be made by two valuers or their umpire to be appointed in manner provided by Clauses 14, 15, 16, 17 and 18 hereof and all the provisions of the said clause shall (mutatis mutandis) apply -

(e) Within fourteen days after the making and publishing of the said award the Lessee shall submit to the Lessor for perusal a draft Memorandum of Transfer of the fee simple of the land comprised in this Lease And within seven days after the draft Memorandum of Transfer shall have been returned approved the Lessee shall submit to the Lessor an engrossment thereof for execution -

(f) The said Memorandum of Transfer shall contain a fencing covenant on the part of the purchaser in the same terms (mutatis mutandis) as that set out in Clause 8 hereof on the part of the Lessee -

(g) The Lessee shall not be entitled to give the notice provided in subclause (a) of this clause unless it is at the time of giving such notice not in default in payment of rent under this Lease -

(h) If the interest of the Lessee in the land comprised in this Lease is subject to a registered mortgage or encumbrance at the time of giving the notice specified in subclause (a) of this Clause the Lessee shall procure and deliver to the said Lessor contemporaneously with the said notice the consents of all registered mortgagees and encumbrancees to the giving of such notice and in the event of such consents not being obtained and delivered as aforesaid this said notice shall be void and of none effect -

(i) On the giving of the notice specified in subclause (a) hereof the term hereby created shall be deemed to cease and determine as from the date for completion -

(j) On the date for completion the Lessee shall pay in addition to the purchase price ascertained by valuation as aforesaid all rent owing hereunder up to the date for completion and all rates owing in respect of the land -

(k) If the interest of the Lessee in the said land shall be subject to any registered mortgage or encumbrance at the date for completion of the purchase of the fee simple or any unregistered mortgage or encumbrance of which the Lessor has had notice the Lessor shall be entitled (but without creating any rights in any mortgagee or encumbrancee against the Lessor by virtue of this Clause) to require to be satisfied that the mortgagee or encumbrancee has been given substituted security over the fee simple in the said land or that the mortgagee or encumbrancee does not desire such security -

(l) The whole purchase price of the fee simple of the said land together with the moneys payable by virtue of subclause (j) hereof shall be payable in one sum in cash on the date for completion aforesaid contemporaneously with the execution and delivery of the Memorandum of Transfer -

(m) If the Lessee shall make default in settlement of the sale and purchase on the date for completion as aforesaid then without prejudice to the other rights and remedies of the Lessor hereunder the Lessee shall in lieu of rent previously payable as from the date for completion pay to the Lessor interest at the rate of twelve dollars per centum per annum on the purchase money payable until the date of payment of such purchase money or until an effective rescission of the contract of sale has been made -

(n) If the Lessee shall make default in settlement of the sale and purchase on the date for completion as aforesaid and such default shall continue for fourteen days then (subject however to the provisions of Section 118 of “The Property Law Act 1952”) the Lessor shall be entitled by notice in writing to the Lessee to rescind the agreement for sale and purchase and to sell the fee simple of the said land by public auction or by public tender or by private contract on terms of ten dollars per centum deposit and the balance applied firstly in payment of the legal and other costs of and in connection with the sale or any abortive sale secondly in payment to the Lessor of the moneys default whereof has been made by the Lessee thirdly in payment to any mortgagee or encumbrancee and any surplus shall be payable to the Lessee. If and so often as any purchaser on any resale shall make default in completion of his purchase the Lessor shall be entitled again to resell as above provided. Any deficiency resulting on any such sale or resale shall be recoverable by the Lessor from the Lessee as and for liquidated damages -

(o) Contemporaneously with the execution and delivery of the said Memorandum of Transfer the Lessee will execute a registerable surrender of this Lease and will obtain the written consent of all encumbrancees and mortgagees thereto such surrender to be prepared and completed and such consents to be obtained at the expense of the Lessee. If the Lessee shall fail neglect or refuse to execute such surrender the said Lessor shall forthwith or at any time thereafter without notice to the Lessee be at liberty to re-enter upon the said land and determine this Lease and to register a re-entry against the title and all costs and expenses incurred in so doing shall be payable by and recoverable from the Lessee as liquidated damages -

(p) The provisions of this Clause 38 shall not be included in any renewal of the Lease granted pursuant to the right of renewal hereinbefore contained -

(q) Contemporaneously with the execution and delivery of the said Memorandum of Transfer the Lessee will enter into a Deed of Covenant with the Lessor whereby the Lessee undertakes to be bound by and to comply with the provisions of Clauses 35, 36 and 37 hereof with a further provisions authorising the Lessor to pull down remove or alter any work erected or being in contravention of any of the foregoing provisions and to recover from the Lessee all expenses incurred by the Lessor in connection with such pulling down removal or alteration and that on any sale or lease of the said land it will obtain from its purchaser or lessee a like Deed of Covenant with the Lessor hereunder and so on through every successive sale lease or sublease such Deed of Covenant to be prepared by the Solicitors for the Lessor hereunder at the expense of the Lessee hereunder or other person primarily liable to procure the same.

[8] The lessee therefore has the option to purchase the fee simple of the land comprised in the lease. That the subject of the purchase is “the land comprised in the lease” is repeated in subclause 5(a), (b) and (e). The price is to be determined by valuation (subclause (c)), which must also be of “the land comprised in the lease” but exclusive of defined improvements. The land comprised in the lease is set out at the commencement of the document as being:

an estate in fee-simple, subject, however, to such encumbrances, liens, and interests as are notified by memorandum underwritten or endorsed hereon, in the piece of land situated in the City of Napier containing nine hundred and ninety-one square metres (991m²) be the same a little more or less, being Lot 4 on Deposited Plan 10199 being part Ahuriri Lagoon and being all of the land in Certificate of Title E3/10

Subject To

1. Sewage Easement in Gross granted by Transfer 161165

2. Fencing Covenant in Transfer 16166

[9] It is that land which is leased to the lessee. It would be a nonsense to say either that the land comprised in the lease, or that the land described above is subject to, or encumbered by, the lease which is being granted by the very document. What is being demised is the right of user on the terms set out of a defined piece of land which is subject only to the two encumbrances noted in the above extract.
[10] Mr Bell’s argument that the option to purchase was no more than the lessor’s interest in the land subject to the lease, and that a “merger” would result upon completion of the option cannot be sustained. It requires reading the words “the land comprised in the lease” as “the lessor’s interest in the land comprised in the lease”. That addition to the plain words is not only unjustified, it is inconsistent with the whole purpose and intendment of clause 38, as is made clear by reading its provisions as a whole. Under subclause (h) if the consent of all registered mortgagees and encumbrances is not delivered contemporaneously with the notice exercising the option, the notice becomes void. Under subclause (i) the term of the lease ceases as from the date of completion of the purchase. Under subclause (k) the lessor may require to be satisfied that encumbrances registered against the lessee's interest at the date of completion will be given substituted security if desired. Under subclause (o) the lessee is obliged to execute and deliver (to the lessor) with the memorandum of transfer to be executed by the lessor a registrable surrender of the lease. Failure to do so gives the lessor the right of re-entry and the recovery of associated expenses. The obligation to surrender is on its own highly significant. A lease is determined by surrender when the tenant yields up the estate to the immediate landlord, and on acceptance by the landlord the lease is extinguished (Butterworth’s Land Law in New Zealand, Hinde McMorland & Sim (1997) Ch.5.178). Under s129(1) of the Land Transfer Act 1952 surrender may be effected by endorsement on the lease duly signed and attested by all necessary parties and when noted on the register vests the estate and interest of the lessee in the person entitled to the reversion. That is precisely the procedure clause 38 envisages. The lessee’s interest comes to an end, and the fee simple is then transferred to him.
[11] The whole structure and content of clause 38 demonstrates the unsoundness of the appellants’ argument. Many of its provisions are inexplicable if all that is to happen is a purchase of the land subject to the lease. The clear meaning of the clause is that the lessee, if wishing to purchase, must surrender the lease. On surrender he will receive title to the freehold estate which then exists, but subject to having complied with all his clause 38 obligations including payment of the value of that freehold. There is nothing in Mr Bell’s point that the valuation date is shortly before termination of the lease. Once the notice has been given the lessee’s rights of possession in perpetuity which previously existed cease. In practical terms, the value of the leasehold interest disappears. It has been traded for the exercise of the right to purchase the fee simple estate.
[12] Mr Bell also sought to rely on s120 of the Property Law Act 1952, which gives a lessee the right to seek relief from a refusal by a lessor to assure the reversion. He cited three authorities to the effect that where a lease contained a right of purchase of “the demised premises”, “the lands hereinbefore described”, “the freehold of the land”, s120 was available to the lessee. The present issue did not arise and was not considered in any of those cases, and they are of no present assistance. Section 120 includes a lease under which a lessor has covenanted “to assure the lessor’s reversion expectant on the lease”. It is unnecessary to determine whether it would be applicable to this lease, but that could well be the case. The reversion expectant on the lease is the right to possession on termination of the grant, and so would appear to cover the present situation. That the right here is more comprehensive because it extends to the fee simple estate would appear not to take the covenant outside s120.

Question of law and the onus of proof

[13] Mr Bell raised two other matters which we consider for the sake of completeness. He contended that the umpire had been asked to decide a specific question of law, which was therefore not amenable to review under the 1908 legislation (GUS Properties Ltd v Tower Corporation [1992] 2 NZLR 678). Apart from the fact that the appellants consented to the procedure and the point was not pursued before Heron J, either of which should be determinative against the appellants, the principle could not apply to this arbitration. The umpire was required to value the land comprised in the lease. As part of that exercise, having taken legal advice he made an interim determination on a question of construction preparatory to fixing a valuation. The question of law arose incidentally to his valuation, and was not the specific subject of the reference to him. The second matter concerns the approach to be taken by the Court on reviewing an arbitration award when the question of law is a question of interpretation. It was submitted that the correct approach requires the Court to interfere for such an error of law only if satisfied the conclusion reached was not one which the arbitrator could legitimately have reached. The basis for the submission was an observation of Williams J in Auckland City Council v SEG Holdings Limited (CP435/95 Auckland Registry, 7 May 1996), which in turn had its origin in Auckland Regional Authority v Codelfa Construction Ltd [1981] 2 NZLR 300. We do not think the proposition contended for can be justified. Under the old legislation an error of interpretation incidental to an award and which was material to it justified setting the award aside. Thorp J in Codelfa accepted that was so, and it was also the approach accepted by this Court in Manukau City Council v Fencible Court Howick Ltd [1991] 3 NZLR 410. Under the 1996 Act, where an appeal on any question of law comes to the Court either by way of consent of the parties or by leave of the Court itself, it can be expected that it will be determined in the ordinary way. Under either procedure it is difficult to see how the concept of an “onus” could sensibly arise.

Conclusion

[14] We are in no doubt the question posed by the Case Stated was correctly answered by Heron J. Neither is there any cause to interfere with the Judge’s orders as to costs in the High Court. The appeal is therefore dismissed. The respondent Council is entitled to costs in the sum of $5000, together with disbursements including reasonable travelling and accommodation expenses for one counsel, to be approved if necessary by the Registrar.

Solicitors
Bisson Moss, Napier, for the Appellants
Willis Toomey Robinson, Napier, for the Respondent