PCL INDUSTRIES LTD v P H VAN DEN BRINK LTD [2003] NZCA 153 (17 July 2003)

IN THE COURT OF APPEAL OF NEW ZEALAND

CA196/02

BETWEEN PCL INDUSTRIES LTD

Appellant

AND P H VAN DEN BRINK LTD

Respondent

Hearing: 15 July 2003

Coram: Tipping J

Fisher J

Heath J

Appearances: P T Finnigan and J K Guthrie for Appellant

J O Upton QC and M J McCartney for Respondent

Judgment: 17 July 2003

JUDGMENT OF THE COURT DELIVERED BY TIPPING J

[1]	This appeal from Rodney Hansen J concerns the interpretation of leases entered into between the appellant as lessee and the respondent as lessor.The Judge construed the provisions in issue contrary to the interests of the appellant.It has appealed.The Judge also held that if the true meaning of the contested provisions were as the appellant contended, the lease should be rectified to accord with the meaning asserted by the respondent.This was because, as the Judge held, both parties had a continuing common intention which enured to the point of execution that the provisions in question should reflect what the respondent considered to be their effect.In view of our conclusion on the interpretation issue we have no need to consider the rectification issue.
[2]	Mr Finnigan, for the appellant, did his best to demonstrate that the Judge’s interpretation was wrong.Having given the matter careful consideration we are satisfied that the Judge was correct.As we agree with the Judge’s interpretation and cannot materially improve on the way he expressed his reasons, we do not propose to deliver an extensive judgment.It is, however, appropriate for us to express our views very briefly on the crucial point.
[3]	For reasons that need not be traversed, the respondent agreed to accept a very concessionary rent, described by the Judge as a peppercorn rent, for the initial term.As the relevant provisions in the leases are to the same effect, we will refer only to those relating to Popes Road.Clause 36.1(f) of that lease stipulated that the annual rent could be reviewed by the respondent as landlord in the manner outlined in clause 48, as from the effective date of commencement of any assignment or sublease.Clause 36.4 provided for an extended concept of assignment whereby, if there was a change in the effective management or control of the lessee company, such was deemed to be an assignment of the lease.The Judge found, and this is not in contention, that there was such a change as at 31 January 2001.
[4]	In terms of clause 36.1(f), this deemed assignment entitled the respondent landlord to review the annual rent in the manner outlined in clause 48.The relevant provisions of clause 48, for present purposes, are subclauses (b) and (c) which are to the following effect.

(b) Should the first right of renewal be exercised then as from 30^th October 2003 the base rent for all the land buildings and other improvements (excluding the two residential dwellings) shall be $227,920.00 per annum plus GST payable calendar monthly in advance from 30^th October 2003.

(c) At each subsequent rent review date the base rent for all the land buildings and other improvements (excluding the two residential dwellings) shall be increased by a figure equivalent to the Consumer Price Index (All Groups) inflation rate (or its statutory replacement or equivalent) as last published by the government department or other body having responsibility therefore before that review date, being the aggregate of that inflation rate figure for the two year period prior to that last publication.The base rent as increased each two years will become the base rent to be increased in the same manner at each two yearly interval thereafter.

[5]	The respondent says that on the deemed assignment it was entitled, in accordance with clause 36.1(f), to review the rent in the manner provided for in subclause (b), ie. to the sum of $227,920 per annum plus GST.Mr Finnigan’s argument for the appellant is that as subclause (b) refers only to a renewal and not to an assignment, it does not apply.Counsel for the appellant accepts that subclause (c) might apply but that would only allow an increase on an indexed basis from a rent that was at a peppercorn level and would make no commercial sense.
[6]	When one reads the relevant provisions of clauses 36 and 48 together, it is plain beyond argument that the concessionary rent was not intended to apply following a change in the effective management and control of the lessee company.Upon the occurrence of that event the landlord was given the right to review the rent in the manner outlined in clause 48.The increased rent resulting was clearly intended to apply as from the effective date of the deemed assignment.That date must prevail over the date referred to in clause 48(b), for the focus of the latter date was on the ordinary expiry, without assignment, of the concessionary period.The reference in clause 36.1(f) to the rent being reviewed in the manner outlined in clause 48 is, in its plain terms, a reference to manner not time.To make commercial sense of the two clauses, which are clearly designed to operate together in a realistic way, the manner referred to in clause 36.1(f) can only be a reference to clause 48(b).The fact that its terms are drafted in relation to renewal does not prevent its manner of application being invoked, as clause 36.1(f) envisages, in the case of an assignment whether actual or deemed.
[7]	There are two other clear pointers in the same direction.Clause 48(b) is clearly focused on the first occasion the rent falls for review.Clause 48(c) is focused on subsequent occasions.As things have transpired, the first occasion was an occasion of assignment, not renewal.The effect of clause 36.1(f) is that if assignment is the first trigger for a rent review, clause 48(b) takes effect.Similarly clause 48(c) in its reference to base rent must be construed as a reference back to the expression “base rent” found in clause 48(b) which is therefore designed to operate before clause 48(c).For that reason also, as well as that pertaining to the words “first” and “subsequent”, clause 48(b) must be regarded as prescribing the manner in which the rent may be reviewed when an assignment is the event which first triggers such a review.
[8]	The effect of the appellant’s argument, if it were correct, would be that the concessionary rent (even if slightly increased by the indexing formula) would enure well after the change in the effective management and control of the lessee company, a consequence which the combination of clauses 36.1(f) and 36(4) is clearly designed to avoid.The lease can only be sensibly read as giving the lessor the right to receive the commercially appropriate base rent if there was a deemed assignment during the period when the concessionary rent was otherwise running.
[9]	The appellant's alternative argument was that an assignment could not trigger a rent review until after 30 October 2003.The argument rested on the premise that the timing stipulation in clause 48(b) overrode the timing stipulation in clause 36.1(f). We can find no warrant for that approach.Clause 36.1(f) governs the timing of rent reviews consequent on assignment.For the purposes of determining a rent review on assignment, clause 48 is invoked solely for the purpose of determining the manner, as distinct from the timing, of the review.
[10]	The appeal is therefore dismissed, essentially for the reasons given by Rodney Hansen J, which we respectfully adopt and have summarised with slight amplification.The appellant must pay the respondent costs in the sum of $5000.00 plus disbursements including the reasonable accommodation and travel expenses of both counsel, to be fixed if necessary by the Registrar.

Solicitors:

Anderson Lloyd Caudwell, Dunedin for Appellant

Fleming Foster Palmer, Auckland for Respondent