St Johns College Trust Board v General Distributors Limited HC Auckland CIV-2011-404-001106 [2011] NZHC 1188 (4 October 2011)

Last Updated: 22 October 2011

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV-2011-404-001106}

UNDER The Declaratory Judgments Act

BETWEEN ST JOHNS COLLEGE TRUST BOARD Plaintiff

AND GENERAL DISTRIBUTORS LIMITED Defendant

Hearing: 5 August 2011

Appearances: Mr B Morley for plaintiff

Mr Crotty for defendant

Judgment: 4 October 2011 at 3:00 PM

_{JUDGMENT OF ASSOCIATE JUDGE DOOGUE}

This judgment was delivered by me on

04.10.11 at 3 pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date...............

Counsel:

Hesketh Henry, Private Bag 92093, Auckland – [e-mail]

_{Russell McVeagh, P O Box 8, Auckland -} [e-mail]

ST JOHNS COLLEGE TRUST BOARD V GENERAL DISTRIBUTORS LIMITED HC AK CIV-2011-404-

001106 4 October 2011

Background

[1] The defendant has sought and obtained permission pursuant to the Resource Management Act 1991 (the RMA) to build a supermarket on the three lots. An appeal has been filed against that determination by the plaintiff. The outlines of the proposal are reasonably clear. The structure of the supermarket premises will be constructed on Lots 632 and 633 which the defendant owns. A carpark will be built partially on lots owned by the defendant and on Lot 634 which is owned by the plaintiff. The commercial buildings presently located on Lot 634 will be demolished.

[2] Over the years contaminants have been deposited on the defendant’s properties, Lots 632 and 633. In part, this had already occurred before the defendant acquired them. Contaminants result from the carrying on of activities in the past which included manufacturing aerosols. Chemicals were left behind as a legacy of those activities. They are potentially injurious to humans, I understand. Those contaminants have been carried by groundwater across the boundary to the subsoil under Lot 634. Lots 632 and 633 are themselves also contaminated underground. It is proposed that contaminated areas will be excavated and the contaminated spoil dumped on Lot 634. As part of the application for resource consent, the lessee submitted a proposal that involves demolition of the two warehouse buildings on Lot

634 and retention of their concrete floors. The development plan involves depositing approximately 2,600 cubic metres of contaminated soil onto Lot 634. The contaminated material that is to be brought onto the site will be placed on the concrete floors. It will have an underlying impervious seal below it which will be installed before the contaminated material is deposited on the site. The fill will be covered on top by a concrete layer. The effect will be that the spoil will be contained within a sealed container. On top of the fill will be the surface of the car park and a trundler park.

[3] The overall objective is to move the contaminated soil away from that part of the land on which the supermarket structure will be located (Lots 632 and 633) onto Lot 634 where the car park is proposed to be located. There is apparently greater

room for tolerance of the existence of such chemicals where the land use is a car park.

[4] The plaintiff asserts that placing such contaminated soil on its land will breach covenants in the lease as I detail further on in this judgment. I shall say something additional about the evidence of the alleged injurious affection of the land below.

[5] In these proceedings, the lessor seeks declarations that carrying out the proposal will result in breaches to clauses 5 and 6 of the lease. Specifically, this comes about because the plan is to demolish two warehouse-type buildings situated on Lot 634. The specific clauses of the lease which are under consideration will be set out when I come to discuss their contents later on in this judgment. Secondly, the lessor alleges that the lessee will also be in breach of the covenant requiring it to maintain Lot 634 in good repair and order, if it deposits the fill on Lot 634.

Is summary judgment appropriate?

[6] The dispute which this part of the case involves is one of contractual interpretation. One of the matters that the Court has to determine is whether it is prevented from embarking upon considering the meaning of the relevant provisions of the contract because there are disputes of fact between the parties.

[7] I refer to the remarks of Goff LJ in European Asian Bank AG v Punjab & Sind Bank (No 2):[1]

Moreover, at least since Cow v Casey [1949] 1 KB 474, this court has made it plain that it will not hesitate, in an appropriate case, to decide questions of law under RSC, Ord 14, even if the question of law is at first blush of some complexity and therefore takes ―a little longer to understand.‖ It may offend against the whole purpose of Order 14 not to decide a case which raises a clear-cut issue, when full argument has been addressed to the court, and the only result of not deciding it will be that the case will go for trial and the argument will be rehearsed all over again before a judge, with the possibility of yet another appeal (see Verrall v Great Yarmouth Borough Council [1981] 1 QB 202 [at] 215, 218, per Lord Denning MR and Roskill LJ). The policy of Order 14 is to prevent delay in cases where there is no defence ...

[8] In my view, the Court should also be guided by the following statement of principle in the decision of Jowada Holdings Ltd v Cullen Investments Ltd:[2]

This present appeal is concerned with a contract based claim in circumstances where both parties seek to rely on evidence of circumstances said to form part of the relevant context in which the contract is to be interpreted. Their evidence is in conflict. That, however, does not preclude the Court from giving summary judgment in a contract claim if it is satisfied that resolution of the factual matters in dispute is not necessary to provide the Court with such contextual background as is necessary to resolve the claim. This is simply an application of the principle that where, despite differences on factual matters, the lack of a tenable defence to a cause of action is plain on the material before the Court, and the Court is sure on that point, summary judgment will normally be entered. In such circumstances there is no reason why a contract should not be interpreted and applied in summary judgment proceedings: Pemberton v Chappell at pp 4 and 8 CA; Haines v Carter [2001] 2 NZLR 167, para 128 CA.

[9] In relation to the demolition of buildings, the relevant facts would seem to be that:

a) the lease is perpetually renewable; and

2. under the development proposal, the existing buildings would be removed and may not be replaced for many years.
   

[10] Otherwise, in relation to this point, there is no relevant factual dispute between the parties concerning the buildings that would prevent the Court from considering this matter on a summary judgment basis.

[11] In relation to the proposed placement of contaminated soil, however, there are some aspects of the facts — particularly in matters of valuation — which need to also be considered which I will revert to below.

Is declaratory judgment appropriate?

[12] It was the defendant’s submission that the case was not one that was suited to

the declaratory judgment procedure. Mr Crotty referred me to the traditional

reluctance of the Court to embark upon the resolution of hypothetical questions in declaratory judgment proceedings.

[13] Counsel for the defendant, Mr Crotty, submitted that the Court will not issue a declaratory judgment in circumstances where the facts are not sufficiently certain because that would involve the Court giving a ruling which is based upon hypothetical facts which may never occur.

[14] Mr Crotty referred me to the Court of Appeal decision in New Zealand

Insurance Co Ltd v Prudential Assurance Co Ltd.[3]

[15] In that case, the parties sought a ruling from the Court on whether certain events which occurred in a house were subject to the right of indemnity that the house occupier/owner had against the insurance company on the grounds that the liability was one which arose under the Occupiers’ Liability Act 1962. The Court of Appeal considered that the issue of whether the actions of the occupier that had caused the damage to the visitor were the type of actions which were covered by the Act was a question of mixed fact and law. The Court would have had to make findings of fact and that could not suitably be carried out in the circumstances of the case where the application was for a declaratory judgment.

[16] The question of what will happen to the sites when they are developed was very much to the fore of the argument that took place before me. It was Mr Crotty’s contention that the facts of the case were insufficiently known and that in those circumstances the Court ought not issue a declaratory judgment. Mr Crotty stressed that the judgment granting the resource management consent was under appeal. He further submitted that it was not known exactly how much soil might have to be excavated from the northern two lots. Estimates that have been offered range from

_{1,900 cubic metres}[4] _{to 2,600 cubic metres.}[5]

[17] As I see it the enquiry that I need to make is not whether all of the facts at the present time can be ascertained but whether there are sufficient facts to provide the necessary degree of certainty so that there is an adequate factual framework within which to determine the legal questions.

[18] I conclude that while there may be an appeal pending which may result in some changes to the conditions on which planning permission was granted for the construction of the complex, such alterations to the conditions of the permission are unlikely to change to the extent that the broad outlines of the proposed construction will change.

[19] In regard to the facts, the lessee does not suggest that there was a serious possibility that the two existing structures situated on Lot 634 would not be demolished were the development to go ahead. Further, there is no serious dispute that once the two buildings have been demolished they will not be replaced by like structures. In their place will be a sealed supermarket car park and some ancillary structures such as shopping trundler parks.

[20] Mr Morley, while accepting that Courts were reluctant to make declaratory orders in such cases, did not accept that the present case contravened that policy and submitted that what the Court was being asked to do here was not to consider a hypothetical issue.

[21] There is no doubt that the jurisdiction to grant declaratory judgments involves a substantial degree of discretion.[6]

[22] The following statement of the position appears in Halsbury:

Declarations will not generally be granted if they relate to hypothetical or academic issues. Thus, for example, the courts have refused to grant a declaration in relation to the compatibility of legislation with European Union law where that legislation had already been repealed. The courts will not generally grant purely advisory declarations as to what the law is where there is no live issue to be resolved between the parties. Declarations will not be granted in relation to proceedings in Parliament. In addition, the general principles governing the refusal of relief in relation to claims for the

prerogative remedies in judicial review apply to the grant of declarations when sought in public law matters.[7]

[23] The reasons why Courts are reluctant to embark upon this type of enquiry was stated in the case of Gazley v Attorney-General,[8] where the Court said that it was not the function of the Courts ―to advise parties as to what would be their rights under a hypothetical state of facts‖. But the Court also said that if the applicant’s rights were being subject to actual or threatened interference, the Court could entertain relief by way of declaration.[9] Lord Diplock’s statements in Gouriet v Union of Post Office Workers[10] also support this conclusion:

... [F]or the court to have jurisdiction to declare any legal right it must be one which is claimed by one of the parties as enforceable against an adverse party to the litigation, either as a subsisting right or as one which may come into existence in the future conditionally on the happening of an event.

... It is clearly established that [the plaintiff] need not [have a subsisting cause of action or a right to some other relief]. Relief in the form of a declaration of right is generally superfluous for a plaintiff who has a subsisting cause of action. It is when an infringement of the plaintiff’s rights in the future is threatened or when, unaccompanied by threats, there is a dispute between parties as to what their respective rights will be if something happens in the future, that the jurisdiction to make declarations of right can be most usefully invoked. But the jurisdiction of the court is not to declare the law generally or to give advisory opinions; it is confined to declaring contested legal rights, subsisting or future, of the parties represented in the litigation before it and not those of anyone else.

[24] I do not read those remarks as being confined to the public law context of judicial review proceedings which brought the parties before the Court in Gouriet.

[25] The question to be answered in this part of the case is not hypothetical. The defendant has entered into major commitments, incurred considerable expenditure and progressed to an advanced stage the property acquisitions and procedural consents which will be necessary for them to proceed with the supermarket development. It is not suggested that the main features of the development are not by now settled. There do not seem to be any contingent issues yet to be the subject of decisions before the form of the development will be known. It is most unlikely

_{that, having taken all the steps that it has which have committed it to a development}

of the kind which was set out in the evidence placed before the Court, the defendant will abandon or deviate materially from the development. It is therefore clear that, if it is able to, the defendant will proceed with demolition of the existing buildings and construction of a car park in their place. I therefore see no reason why the Court ought on discretionary grounds to decline to issue a declaratory judgment of the kind which the plaintiff seeks.

The proposal to remove the two structures on Lot 634

[26] Mr Morley, counsel for the plaintiff, said that in overview the plaintiff‖s grounds for seeking a declaration under this part of the claim were that the demolition and removal of, without replacing, the buildings situated on Lot 634 is in breach of the lease.

[27] The grounds of opposition to the application in regard to the buildings was summarised by defendants counsel, Mr Crotty, in his submissions:

GDL has a right under the Lease to demolish the existing buildings. The plaintiff’s reversionary interest in the Land is protected by the clause 5 obligation to ensure the minimum building standards of any buildings from time to time erected on the Land. As the existing buildings have no value, there will be no effect on the Trust Board’s reversionary interest if these existing buildings are demolished.

[28] There are two main provisions of the lease which the plaintiff asserts are engaged in the present litigation. They are clauses 5 and 6 which provide:

5. The Lessee may at any time during the term of this lease extend or replace the buildings now existing or hereafter erected on the said land by erecting such other building or buildings as are permitted to be erected thereon under the by-laws and town planning rules of the Auckland City Council then in force in strict compliance with plans and specifications previously submitted to and approved by the Lessor in writing (such approval not to be unreasonably or arbitrarily withheld or delayed) and the plans and specifications shall, before submission to the Lessor for such approval, have been approved by the Auckland City Council for the issue of a building consent.

6. The Lessee will during the said term keep and maintain and at the end or sooner determination thereof yield and deliver up the said land and all buildings fences hedges gates drains and sewers now or hereafter erected constructed or being

upon bounding or under the same in good clean and substantial order condition and repair.

(Emphasis added.)

[29] Mr Crotty submitted that it would be permissible for the lessee to demolish the structures provided they were replaced by the time that the lease came to an end, if it did.

[30] Mr Morley said that this submission overlooked the fact that the existence of buildings on the leasehold land provided a form of security for the performance of the obligations of the lessee, including the payment of rent, which were owed to the reversionary interest holder, the plaintiff. The plaintiff submitted that it would be contrary to the obligation under cl 6 of the lease to deliver up the land and buildings at the end of the term. While the lessee has the right to remove the structures that were on the property at the commencement of the lease, that right is accompanied by an obligation to replace the buildings with other buildings to which the plaintiff has given its approval. It was no substitute for this interest that the defendant might be under an obligation to replace the buildings at some future point in time. On the defendant’s approach, and because of the perpetually renewable character of the lease, the obligation to replace the buildings might not accrue for many years.

[31] The submissions made it clear that the parties were in dispute as to whether the buildings were included in the scope of the ―premises‖ which the plaintiff leased to the defendant. The plaintiff’s case rests on the proposition that the existing buildings on the land are fixtures on the land and are therefore part of the land itself.[11] Mr Crotty agreed that a lease of freehold land includes the fixtures on the land unless a contrary intention was shown by the terms of the lease. He argued that such a contrary intention was disclosed in the circumstances of the present case. He drew attention to the fact that the lease was a ground lease and that in calculating the

rental, no account was to be taken of the value of the buildings or other improvements on the land. He noted that the description of the premises referred

_{only to a ―fee simple‖ estate in land without any reference to buildings and that}

throughout the demised property was referred to as ―the said piece of Land‖ and there were other such references which excluded reference to buildings or improvements.

[32] Mr Morley said no contrary intention was disclosed in the lease as Mr Crotty had submitted. The reason why rent was calculated without reference to any buildings constructed on the property was that if there were any present, the lessee would have paid for their erection and to include their value in the rent fixing process would be to give the lessor a ―double dip‖. Further, there was no need to include any reference to the buildings because they were ―axiomatically part of the

land‖ as stated in Hinde, McMorland & Sim[12] and in Body Corporate 95035 v

Chang.[13]

[33] Mr Morley submitted that while the termination of the lease might occur, if at all, only in the distant future, that should not detract from the fact the lessor’s right of reversion existed now.

[34] Mr Crotty referred to evidence that showed that in practical terms, the development proposal which the defendant was advancing in regard to the property was financially viable but that the continuation of the leasing of the two existing buildings sited on the property was not. Mr Morley noted that the thrust of Mr Gamby’s evidence was that the existing buildings might not add value to the land when the land is assessed for its future development potential. He said that it was clear, though, that the existing buildings have a value because they are being leased and are generating a rental stream.

[35] For the defendant it was submitted that the purpose of clause 5 was no more than to ensure that in the event that replacement buildings were erected on the land, they would comply with the relevant bylaws and district scheme provisions.

[36] It is correct that clause 5 does make reference to the approval of the city council being obtained before the plans are submitted to the lessor for consent. This

would not seem to mean simply that the only issue is whether the plans qualify for a building consent and comply with the planning rules. Otherwise the contract would have said so. That is, it would have imposed only a requirement that any replacement buildings must be consented to by the council. However, clause 5 makes provision both for that to happen and for the plans thereafter to be submitted to the lessor for its approval. In exercising the power of giving or withholding approval of the plans, the lessor is not restricted to a consideration of whether the council has previously approved the plans or not.

[37] The defendant submits, in summary, that the lease in this case is a ground lease and that the only interest which the plaintiff has in the property is in land and that it has no interest in the buildings erected on the land.

[38] GDL’s Notice of Opposition raises the following points:

The demolition and removal of the Buildings without replacing them does not breach the Lease:

(i) The Lease is a bare ground lease and does not provide any rights to the Plaintiff in respect of buildings on Lot 634 during the term of the Lease.

(ii) Clause 5 does not require replacement of any demolished buildings

before the expiry of the term; ...

[39] Mr Crotty made the following submission:

2.2 ... The authors of Hinde McMorland & Sim Land Law in New

Zealand provide at 11.005(b):

(b) What is included in the ―premises‖?

The spatial extent of the demised premises must be clearly identifiable. As a lease creates an estate in land the physical subject-matter of the demise may be as extensive as the reversionary estate out of which it is carved, save that the grant must be for a lesser term. Thus a lease of freehold land may, unless a contrary intention is shown by the terms of the lease, extend cujus est solum ejus est usque ad coelum et ad inferos, include all fixtures on the land, and be subject to the doctrine of accretion and erosion, although the lessee’s use of the land will be limited by the doctrine of waste.

2.3 Although there are buildings on the Land and the Lease makes incidental reference to them, the parties clearly intended the Lease to be a lease of the Land only:

(a) The Lease is a ground lease: in determining the fair annual rental no account shall be taken of the value of the value of any buildings or other improvements on the Land (Lease, clause 1, page 5 annexure schedule).

(b) The description of the demised premises in the Lease refers to the estate or interests in the Land in the certificate of title NA50B/125 which is described as a ―fee simple‖ estate in Land without reference to any buildings.

(c) The words ―the said piece of Land‖ appear throughout the Lease as a shorthand way of referring to the ―premises‖ including: clause 4, clause 5 ―erected on the said Land‖, clause 6 ―deliver up the said Land‖, clause 7 ―upon the said Land‖, clause 11 ―between the Land hereby demised and any adjoining Land to the property‖.

(d) References to the buildings on the Land are only made in relation to specific obligations incidental to occupation of the Land

2.4 If the parties had intended there to be an obligation to retain the existing buildings then that would have been explicit, and clause 5 would not have been included in the Lease.

[40] A further point which Mr Crotty made was the fact that in a case such as this where the lease is a lease in perpetuity, it may be a long time before the lessor is able to retake possession pursuant to its reversion — if indeed it ever does.

[41] Both parties made submissions on the question of what effect on the financial interests of the lessor the clearance of the buildings might have.

Discussion

[42] The first question is whether there are factual disputes which need to be resolved before the Court can carry out the requisite interpretation of the contract having regard to the factual context in which it was entered into.

[43] At least some of the facts which bear on the question of interpretation of the building replacement provisions in the lease are not controversial.

[44] The fact that under this ground lease it is the lessee who would pay the cost of construction of the buildings does not mean that the lessor does not have an interest in those buildings remaining in existence or comparable replacements being erected. The fact that the parties structured their bargain so that it resulted in the lessee paying for the buildings no doubt reflected the give and take arising from the advantages and detriments that each party would receive under the lease.

[45] Under the agreement entered into, the parties both accepted that the defendant was to maintain the buildings and at the conclusion of the lease to hand back both land and buildings to the lessor. While the defendant had an entitlement to replace the buildings, it could only do so subject to the control of the plaintiff whose consent was required, although such consent was not to be withheld unreasonably. Whether all of this means that the plaintiff has an existing property right in the buildings or whether it has only a contractual entitlement to enforce provisions of the contract so as to result in the buildings or approved substitutes being handed back to it at the conclusion of the lease, does not, with respect, seem to be important. The plaintiff is seeking a declaration that the proposed actions of the defendant would breach the contractual obligations which it had entered into. The exact classification of the rights which the plaintiff acquired under the lease agreement is not a matter which needs to be determined in the proceedings. The only question is whether the rights are subject to threatened breach.

[46] What the explicit words of the lease provide for is clear enough. The lessee may ―extend‖ or ―replace‖ the buildings. Both of those words contemplate the continued existence of buildings on the site. I come to that view because ―replace‖ has a composite meaning connoting the removal of what was there and the provision of another in substitution thereof. The lease therefore authorises the lessee only to embark upon a process which includes both steps. I view this as being a strong indication that they were intended to take place at the same time. The term ―replace‖ does not necessarily require simultaneous replacement. At the other end of the scale, were buildings to be demolished, in which event was followed by a hiatus of, say, thirty years or more, it would be unlikely that anyone observing construction of new buildings would be expected to remark that ―they are replacing the buildings‖ that were formerly on the site.

[47] The defendant’s position is though that I can ignore the usual meaning that a reasonable reader of those words would take from them and to invest them with a different meaning because considerations of context require the Court to do so. That would require a conclusion that this case falls into the category of case where, in the words of the Supreme Court in Vector Gas Ltd v Bay of Plenty Energy Ltd:[14]

Plain and unambiguous ordinary meanings can be displaced by context and background although, as is also emphasised in Chartbrook, there must be a strong case to persuade the court something has gone wrong with the contractual language.

[48] Mr Crotty pointed to the consideration that in fixing the leasehold value of the premises, the value of the buildings was to be ignored. But as Mr Morley has pointed out, this is simply recognition of the fact that because it was the lessee who funded the provision of the buildings, it would be a type of double recovery if, when it came to fixing the rent to which the lessor was to receive, the value of buildings which the other party paid for were taken into account.

[49] Mr Morley submitted that the obligation of the lessor to replace the buildings was in the nature of the security for performance of the lessor’s obligations including the payment of rent. At a factual level, that argument would seem to have in mind the situation that would arise if the plaintiff, as a claimant for unpaid rent at some point in the future, having re-entered under the lease would find itself in a better position if there were comparable buildings to the present ones standing on the property than if the site were vacant.

[50] On the other hand, in 2005 when the lease was renewed, clearance of buildings from commercial land so that they were available for uses other than those requiring the presence of buildings was probably not unknown. The provision of car parking (whether for an enterprise such as the defendant’s supermarket or some other business) was a common use of commercial land. Other examples could include outdoor display centres, fast-food drive-throughs, service station forecourts and commercial car parks. While the lessor might derive a greater level of comfort from

_{having buildings and structures erected on the site which would probably add value}

to the site, such concerns would not have influenced a party in the position of the defendant.

[51] It is not clear to me whether the plaintiff knew about the proposed use of its land as part of the defendant’s proposed supermarket development at the time when the lease was renewed in 2005. That would seem to be unlikely given that it was only in December 2009 when Progressive Enterprises Ltd applied for resource consent for the supermarket. On the other hand, Ms Fowler who is the plaintiff’s property asset manager, has deposed that it was not until August 2010 that she received an e-mail from Progressive which set out the ―intended strategy to develop Lots 632, 633 and 634‖.

[52] It may be that the premises would have more value if they continued to be available as a car parking space ancillary to the neighbouring supermarket. There may be no other neighbouring area which is suitable for that purpose and the scarcity value of car parks, coupled with the necessity for the supermarket to provide car parking, may mean there was a premium on the value of the land as a car park. The Court does not have sufficient information before it to resolve that question.

[53] If one asks the question of what the contractual or commercial purpose of the provision was, it would seem that the objective of the ―extend or replace‖ obligation might well be to ensure that at the point when the lease came to an end, structures of equivalent value or structures that would have the same rental potential to those that had previously stood on the lessor’s land would be provided by, and at the cost of, the lessee. It is possible that the intention of the parties might have included both objectives, namely, both providing security while the lease continued and assuring the position of the lessor at the point where the lease would come to an end.

[54] Retention of the buildings during the currency of the lease might better serve the interests of the lessor but such considerations may well have had an adverse effect on the interests of the lessee. If throughout the life of the lease it had to retain the buildings, no matter how unsuitable they might be for the purposes of the lessee, the result could be to deprive the lessee of the opportunity to put the site to alternative commercially desirable uses for the property.

[55] If the approach that I have outlined in the previous paragraph is correct, that means that the combined effect of the two clauses, 5 and 6, is to require that if the lessee elects to retain the existing buildings they must be properly maintained and handed back in good order and repair at the conclusion of the lease. If on the other hand the lessee elects to replace the buildings, such buildings as are constructed will attract the same covenants. That is to say from the point where they are constructed they must be properly maintained and they must be handed over at the conclusion of the lease in good order and repair.

Conclusion on demolition of buildings

[56] I consider that the following factors favour the interpretation contended for by the lessor.

[57] First, clause 5 entitles the lessee to extend or replace buildings. There was no explicit right granted by the terms of the lease to demolish the buildings so that the property can be either used or developed as a vacant site. The alternative meaning which the lessee attributes to clause 5 would permit rebuilding to occur decades after the clearance of the buildings which is not consistent with that term ―replace‖. Other than the right to do so necessarily implied in the word ―replace‖, there is no right to demolish the buildings or clear the land.

[58] Second, it seems likely that at the time the lease was entered into, the parties assumed that land would be as a site for buildings which would be rented out. It would be assumed on that basis that the site was more valuable with buildings on it than if there were no extant buildings. As well, having lettable buildings on the site would mean that if the lease were to be terminated, the disruption to a rental stream would be minimal when compared with the position if the lessor had to replace the buildings.

[59] In my view it cannot avail the defendant to argue that because over the years since the lease was entered into land uses have changed, so today conversion of the site to use as a car park would be more economic than persisting with rental buildings. The Court was not entitled to depart from the meaning which the

contractual language otherwise conveys because to do so might result in a more profitable use of the land.

[60] It is not spelt out in the contract what scale and quality of replacement building the parties had in mind, other than that they had to qualify for consent of the city council and had to be the subject of approval (which could not be unreasonably withheld) of the lessor.

[61] If the meaning that it advances is adopted, it can be said with some certainty that what the lessee proposes to construct on Lot 634 as envisaged by the development plans, which it has commissioned and which are the basis for planning approval, could not sensibly be described as constituting a replacement or extension of the existing buildings. That is to say, the construction of hard paving and trundler bays are generically quite different from the commercial rental space which the present buildings provide.

[62] Third, that the lessor has an interest in there being buildings on the property is to be inferred from the fact that the lessee has the obligation to keep the buildings insured. The lessee is required to, under cl 7:

... at all times during the said term keep insured to their full insurable value

all buildings for the time being erected upon the said land ....

Further, cl 7 provided that the insurance proceeds would have to be applied to replacing the buildings if they were destroyed. If there were no obligation to ensure that there were buildings on the property, the lessor would be in the same or even worse position than it would be if there were buildings and they were not insured. Second, the lessee is required to paint the buildings every fifth year. This further corroborates the lessor’s interest in the structures on the property. Maintaining the state of repair of those structures should avoid the expense of deferred maintenance having to be met and will also tend to maintain the value of the buildings.

[63] If the defendant breached covenants of the leases but proved unable to provide the required compensation for those breaches, the plaintiff would still have some protection in the form of extant properly maintained buildings on the site. The

plaintiff’s position would be less secure if instead of having possession of buildings on termination, the lessor would only have the lesser protection of the lessee’s covenants to put back buildings which have been demolished at an indeterminate future date. The contractual provisions entitle the lessor to the benefit of the value of the buildings on the early termination.

[64] The continued existence or the prompt replacement of buildings that were taken down is therefore a matter of considerable importance. If the protection of the position of the lessor is the paramount consideration, it would be wrong to assume that the parties when entering their lease had in mind that replacement of the buildings at the end of the term would suffice. That would not provide much protection in the event of an early termination if the lessee had not by that point replaced any buildings.

[65] Furthermore, cl 17 states that if the lease is not renewed at its conclusion:

or if it is determined by forfeiture, re-entry, or otherwise, all buildings ... shall absolutely revert to the lessor free from any payment or compensation whatever.

[66] The value of this covenant will be obvious. While not so described, it does as Mr Morley submits, provide a type of security for the performance of the covenants under the lease. The provision makes clear that by whatever means the lessee departs from the site, it is the lessor and not the lessee which is to have the benefit of the value of the buildings. That consequence would follow from the fact that the lessee is not entitled to any compensation for the value of the buildings left behind.

[67] Extension of the buildings which is also expressly permitted by the terms of cl 5 is consistent with such an approach. Broadly speaking, the carrying out in a competent way of extensions to a building has the potential to increase its value.

[68] It follows from the view I have taken of the lease that demolition of the buildings to clear the way for the car park would involve a breach of the lease.

[69] The issue is whether the provisions of cl 5 of the lease authorises the defendant to demolish the structures presently located on Lot 634 in circumstances

where the land will indefinitely remain as a cleared site without any replacement structure on it. There has been full argument. There is no material contest about the facts which the plaintiff relies on. I consider that the defendant does not have any arguable defence that should be reserved for consideration at trial. I accordingly grant judgment on the terms which the plaintiff seeks in the claim for a declaration concerning this part of the issues between the parties.

The proposal to place contaminated soil on Lot 634

[70] The plaintiff submitted that bringing contaminated soil which had been excavated from the adjoining sites onto Lot 634 would breach cl 6.

[71] The plaintiff did not assert that the proposed importation of contaminated material would have a negative effect on the value of Lot 634.

[72] I have already set out cl 6 of the lease above. The obligation of the lessee under that provision in regard to the land, is to keep and maintain it in good clean and substantial order condition and repair.

[73] Given that the obligation under cl 6 is to maintain and yield up the land ―in good clean and substantial order condition and repair,‖ it might be thought that the plaintiff was on strong ground in suggesting that the importation onto the property of contaminated material cannot be anything but an action which is in breach of the condition.

[74] The defendant, on the other hand says that the proposed placement of contaminated material on Lot 634 does not breach the Lease because:

i. GDL is maintaining Lot 634 in good clean and substantial order condition and repair;

ii. Lot 634 was, prior to the commencement of the Lease, and is, already a contaminated site and there is a history of contamination occurring in the area, including on Lot 634;

iii. The material is proposed to be placed on Lot 634 pursuant to resource consent which is an effective and appropriate treatment of the material; and

iv. The proposed remediation technique may not affect the value of Lot

634 or the Trust Board’s reversionary interest in Lot 634.

[75] The defendant further says that the points set out at ii. and iii. above are factual matters not suitable for summary judgment.

The argument that GDL is maintaining Lot 634 in good clean and substantial order condition and repair

[76] I do not consider that the use to which the defendant is presently placing the land is an argument which substantially negates the plaintiff’s claim that in the near future the defendant intends to commence a course of action which will breach its obligations to maintain the property in good clean and substantial order condition and repair.

[77] It is possible to view this ground of argument, though, as being essentially grounded on the point that the Court will not grant declaratory judgments in circumstances where to do so would be to pronounce upon the validity of a hypothetical course of action. I have already dealt with that point earlier in my judgment.

The argument that Lot 634 was already a contaminated site

[78] I do not accept that this argument contains a valid ground for declining to grant the declaration which is sought. It cannot have been the intention of the parties that, because the property had already suffered some contamination, the lease should be construed to mean that regardless of the presence of cl 6, the defendant is able to deal with the land in a way that will increase the degree to which the land is already contaminated by chemical residues.

[79] An interpretation of that kind does not logically follow from the assumption that both parties must have known at the time when they entered into the lease that Lot 634 already suffered from some contamination. It cannot be supposed that the plaintiff would rationally countenance such an inference. For it to agree to an indefinite additional degradation of its property in these circumstances makes no sense and I would reject it.

The argument that the proposed placing of material is pursuant to a resource consent

[80] It is correct that the relevant territorial authority has given consent to the depositing of contaminated soil on Lot 634 as part of the development of the three sites. The effect of this decision is that the authority has determined that, after balancing the various interests that it is required to take into account, it would not be inconsistent with the principles under the RMA and the district plan to grant leave.

[81] Mr Morley said that GDL argues the contaminated material it proposes to bring to and deposit on Lot 634 is pursuant to resource consent and that approach is an effective and appropriate treatment of the contaminated material. It is submitted for the plaintiff that whether or not resource consent has been obtained is irrelevant to whether GDL’s proposal would breach the covenants in the Lease.

[82] He developed the additional arguments in support of this main submission. Without going into all of those arguments in any detail, I broadly agree with Mr Morley’s approach. I consider that the defendant’s arguments do acknowledge, as they should, that the issues that arise under the RMA involve the harmonisation of interests different to those which arise where the dispute is one between the parties as to their respective property rights, whether arising under a contract or otherwise.

[83] Putting it another way, while having consent under the RMA and the rules and bylaws made under it is a necessary precondition to proceeding with this plan, it is not on its own sufficient. Putting into effect the defendant’s scheme of development must also accommodate the private interests of the lessor of the property. It is this latter aspect to which the summary judgment proceedings relate and those issues are not to be resolved by adopting rulings given by authorities which are called upon to decide quite different questions.

Discussion of remaining matters

[84] The defendant provided expert valuation evidence from Mr Gamby. He considered the various options available to the defendant when dealing with the contaminated material on the other two lots. The essence of that evidence was that the proposed deposit of contaminated material to be covered by a sealed layer would

not, under the existing regulatory regime, lead to the imposition of any restrictions or controls on the use of the land. That being so, no negative effect on the value of the land would result from the deposit of the material.

[85] Mr Gamby also canvassed possible adverse media attention about risk to human health which might be associated with the laying down of the contaminated material on Lot 634. It was his opinion that such media attention was unlikely.

[86] Mr Gamby took the view that the net effect of the proposed earthworks involving the importation of contaminated material onto Lot 634 would have no overall net adverse effect, that site, like Lots 632 and 633, already being a contaminated one. His evidence was to the effect that non-visible types of contamination such as the buried contaminated soil in this case are unlikely to attract public attention.

[87] The plaintiff did not seek to establish that proceeding with the proposed remediation of Lots 632 and 633 would have any adverse effect on the value of Lot

634. Rather, Mr Morley’s contention was that the possible effects on valuation were

irrelevant to the question of whether the actions of the defendant might contravene cl

6 of the lease.

[88] My conclusion on this part of the argument is as follows. The use of the terminology ―keep and maintain‖ does not permit the defendant to argue that while it might temporarily cause contamination of the property, no breach would be involved so long as that adverse effect was remediated at the end of the lease and before the lessor’s reversionary interest took effect.

[89] As a question of evidence, it may be questioned whether matters are quite as straightforward as Mr Gamby suggests when he says that the laying of the contaminated material would not restrict the future use of the property. The fact that the regulatory authority apparently would not approve the construction of the building housing the supermarket above a layer of contaminated material would seem to point to a different conclusion. While it might be possible for Lot 634 to continue to function as an open-air carpark notwithstanding the presence of the

contaminated material, it may in the future result in restrictions on the enclosed buildings being erected on the land. However, that raises questions of fact which cannot be satisfactorily resolved on a summary judgment basis.

[90] I think it is important to keep in mind that the plaintiff is seeking a declaration about whether a given action would or would not amount to a breach of the lease. Answering that question does not require the Court to embark upon the further question of whether the breach might result in a loss being incurred by the plaintiff.

[91] The final matter that I mention is that it is possible that the containment strategy which is going to be adopted for the contaminated material may neutralise its noxious effects and that as a result the sealed layer of material which will be left on the land will be indistinguishable in its effects from any other type of conventional fill. The Court does not have enough information to determine whether such a possibility is so untenable that it may be eliminated from further consideration at the summary judgment stage.

Conclusion on placement of contaminated soil

[92] The plaintiff seeks a declaration that the importation of the proposed contaminated fill on to Lot 634 will constitute a breach of a condition requiring the lessee to maintain the land in good clean and substantial order. Applying that term in some circumstances would be relatively straightforward. It would not seem to be difficult to determine in a given case whether the buildings on the property are in a good state of repair, for example. In some circumstances, the condition of the land, as opposed to the buildings, could also readily be described as being in breach of the covenant. For example, if rubbish is brought onto the property to be left where it is visible on the land surface of the property, it would be reasonably clear that the covenant had been breached. There could be little argument that the dumping of contaminating chemicals on the surface of the property would be a breach of the covenant. Whether the presence on the property of a layer of fill which is concealed below the surface and which is contained by a system of sealing would result in the land no longer being described as being in clean condition or good and substantial order is not so straightforward.

[93] My overall conclusion, is that although it is possible that the presence of the contaminated layer on Lot 634 may have a negative impact upon the permitted uses of the property in the future, it is impossible to resolve that question on a summary judgment basis. For that reason, to the extent that the application seeks a declaration that the placing of the material would breach cl 6, it must be dismissed and I so order.

Result

[94] Accordingly, I make the declaration sought by the plaintiff that the demolition and removal of, without promptly replacing, the buildings situated on Lot

634 is in breach of cl 5 of the lease.

[95] I decline to make, at this summary judgment stage, the declaration sought that bringing and/or depositing any contaminated soil, waste and/or other material with the consent of GDL onto Lot 634 is in breach of cl 6 of the Lease.

[96] Parties are to confer on the issue of costs and if they are unable to resolve that issue by agreement I shall give further directions.

J.P. Doogue

Associate Judge

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[1] European Asian Bank AG v Punjab and Sind Bank (No 2) [1983] 1 WLR 642 (CA) at 654.

[2] Jowada Holdings Ltd v Cullen Investments Ltd CA248/02, 5 June 2003 at [29].
[3] _{New Zealand Insurance Co Ltd v Prudential Assurance Co Ltd [1976] 1 NZLR 84 (CA).}
[4] In the Tonkin & Taylor Remediation Action Plan report of Februrary 2010, annexed as exhibit _{H to Gerard Bird’s affidavit.}

[5] In the plaintiff ’s submissions.

[6] Peters v Davison [1999] 2 NZLR 164 (CA).
[7] _{Halsbury Laws of England, 4}th _{Edition, Vol 61, ―Judicial Review‖, paragraph 719}
[8] _{Gazley v Attorney-General (1995) 8 PRNZ 313 (CA).}
[9] _{Ibid, at 318–319.}
[10] Gouriet v Union of Post Office Workers [1977] UKHL 5; [1978] AC 435 (HL) at 501.

[11] See Auckland City Council v Ports of Auckland Ltd [2000] 3 NZLR 614 (CA); Lockwood

Buildings Ltd v Trustbank Canterbury Ltd [1995] 1 NZLR 22 (CA).

[12] Hinde McMorland & Sim Land Law in New Zealand Leasehold Estates (online ed) at _[11.005(b)].

[13] Body Corporate 95035 v Chang [2011] 3 NZLR 132 (HC) at [46]–[48].

[14] Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444, at [66] per McGrath J.