Domet Investments Limited v Zone Law Limited [2016] NZHC 1584 (12 July 2016)

High Court of New Zealand

[Index] [Search] [Download] [Help]

---

Domet Investments Limited v Zone Law Limited [2016] NZHC 1584 (12 July 2016)

Last Updated: 17 August 2016

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2016-485-000492 [2016] NZHC 1584

BETWEEN	DOMET INVESTMENTS LIMITED Plaintiff
AND	ZONE LAW LIMITED Defendant

Hearing:	11 July 2016
Counsel:	C Heaton and J L Mills for Plaintiff T G Stapleton QC and J P Greenwood for Defendant
Judgment:	12 July 2016

_{JUDGMENT OF WILLIAMS J}

Introduction

[1] The plaintiff, Domet, owns a 14 storey office building on Willis Street. The defendant, Zone Law, occupies the top floor. The plaintiff has undertaken a major programme of seismic strengthening in the building to ensure that it achieves a minimum New Building Standard (NBS) level of 67 per cent. All work on the lower

13 floors is now complete but Domet and Zone Law have been unable to reach agreement on the terms of access to the 14^th floor in order for the plaintiff’s contractors to carry out the necessary strengthening work on that floor. Work was to begin 11 July 2016. The plaintiff now seeks a mandatory interim injunction to allow it to access the floor and carry out the necessary work.

[2] It is common ground that although the application is labelled interim, if orders are made as sought they will be dispositive of the substantive proceeding.

[3] The plaintiff formally applies without notice but the defendant was notified on a Pickwick basis, filed evidence and appeared in opposition.

DOMET INVESTMENTS LIMITED v ZONE LAW LIMITED [2016] NZHC 1584 [12 July 2016]

Background

[4] In the brief time available to me to deal with this matter, it is possible only to give a broad summary of the background. The plaintiff owns Kordia House on Willis Street. It is fully tenanted, with the defendant occupying the 14^th floor. The defendant has a nine year lease with further rights of renewal until 2028.

[5] The plaintiff has, since the beginning of 2014, been arranging for the design and implementation of seismic strengthening of the entire building. That strengthening work is almost complete. Only the top floor remains. Both parties agree that the strengthening work is a good thing but they cannot agree on terms of access for the plaintiff ’s constructions.

[6] The background to the strengthening work is this. Original advice by engineers carried out in accordance with what is called an Initial Evaluation Procedure (IEP) gave the building an NBS score of 88 per cent. This made it “low risk” in terms of earthquake vulnerability. Mr Hunter, a director of the defendant, swore an affidavit. He deposed to the fact that the 88 per cent NBS rating “was instrumental in the defendant entering into the Agreement to Lease and agreeing to an initial term of nine years from 3 January 2013” rather than the usual 3 x 3 x 3 format. He said:

The building was marketed during 2012 as having a seismic rating of 88 per cent. We made it clear to the agent marketing the property that rating was essential to us and we relied on the representation that the building met that standard. This was because the Christchurch earthquakes (September 2010 and February 2011) had recently occurred and we were mindful of the need to secure premises that would not need extensive strengthening work.

[7] In September 2013 a Detailed Engineering Evaluation (DEE) was undertaken. This looked more closely at the building. It was found that the IEP was overly optimistic. In fact the building achieved an NBS score of less than 67 per cent. This made it a “medium risk” building in terms of earthquake vulnerability. This triggered the work currently being undertaken on the building.

[8] The remaining 13 floors are all tenanted and all tenants have agreed on terms for access in order for the strengthening work to be undertaken. Only the 14^th floor

remains. The plaintiff says the defendant is the only tenant for which access has been in any way a difficult issue.

[9] The parties have been in disagreement over various matters in the past, during the course of the tenancy. Some issues relate to the seismic strengthening work. Most do not. There was past disagreement over water ingress and delay in the plaintiff resolving that issue. There was the defendant said, significant delay in completion of fit out. It seems that initial investigation work was in fact carried out

on the 14^th floor in September/October 2015. Some internal walls, a ceiling and

some toilets were removed for this purpose. Work then stopped well before the current dispute arose. The defendant complains that the floor remains in that unsatisfactory condition though the investigative work stopped 12 months ago. This has meant the defendant and its clients have had to use toilet facilities on the floor below and have been generally inconvenienced.

[10] Various of these disputes led to the defendant withholding rent and opex. The relationship between the parties might be described as disputatious from that point. The knock on effect is that resolution of access for seismic strengthening is now more fraught than it might otherwise be.

[11] Early correspondence between lawyers over access shows that from an early stage both sides intermingled prior disputes with the access question. Further lawyers’ letters were exchanged specifically on the strengthening issue on 17, 19 and

25 May 2016. Within limits, the lawyers tried to be conciliatory, but it is clear that the plaintiff felt the defendant was being unreasonably prickly over the terms of access and using the discussions as an opportunity to leverage irrelevant collateral advantages. The defendant, by contract, felt that given the plaintiff’s poor performance in other respects, it was justified in requiring far more detail than was being offered over the proposed programme of strengthening work and its timeframe. The defendant did not want to be saddled with premises that looked like a construction site for an indefinite period because the plaintiff and/or its contractor were disorganised.

[12] There was then a meeting between lawyers and principals on 15 June 2016 and the plaintiff prepared a heads of agreement following that. In broad terms the draft heads of agreement:

(a) identified a work plan and timelines (the detail was added in an attached Gant chart);

(b) confirmed the plaintiff would at its cost arrange for temporary accommodation for the defendant’s files;

(c) PABX unit and telephone outlets would be relocated with sundry furniture removed;

(d) a formula was proposed for compensation in the event that through the plaintiff or it’s contractor’s fault, proposed timeframes were exceeded by seven working days;

(e) the landlord would install a shower in the male toilets as settlement for all prior compensation issues of any kind between the parties; and

(f) the defendant would pay all rent and OPEX outstanding.

[13] The defendant provided a counter heads of agreement. It repeated much of the detail of the first draft but provided in addition ( and in rough summary):

(a) that all work would be carried out outside office hours; (b) that security would be provided at the site;

(c) that in addition to a shower, a lockable internal room in the male toilets would be provided;

(d) that the work would be carried out in strict order area by area with no overlap (for the most part) between areas;

(e) that the plaintiff would, at its cost, arrange for moving all material to and from temporary or other storerooms;

(f) a particular plan compiled by the defendant would be complied with, with respect to the relocation of the PABX unit and telephone outlets;

(g) any extra cleaning made necessary by the work would be carried out

at the landlord’s expense;

(h) any failure to meet works’ timeframes (four weeks overall) would lead to a rental reduction in respect of the tighter particular areas involved and after 20 working days a 60 per cent annual gross rent abatement until the works have been completed;

(i) there would be an entitlement to liquidated damages for any loss cost or harm to the defendant arising from interference in its communications or computer systems; and

(j) in relation to other prior claims a four month rent holiday was proposed alone with no rent increase until January 2020 and all legal costs paid by the plaintiff.

[14] Not surprisingly, the parties were unable to bridge the apparent gap between their two perspectives.

[15] The plaintiff’s contractors were to commence work yesterday. It says if it cannot commence work immediately it will incur daily penalty rates from its contractors (no details are provided) and increased insurance premiums – $600 per month.

[16] The plaintiff’s consulting engineer, Mr Preston, filed an affidavit. It related to building safety issues pending completion of the work. He deposed that:

Until the steel brackets on Level 14 are removed and replaced, the building does not have full integrity. In the worst case scenario, if there were to be a significant seismic event, then while the seismic strengthening works remain

in complete there is a greater potential for physical damage and even injury and loss of life than there will be once the building is fully complete and can be signed off as 67 per cent NBS.

[17] The defendant’s expert, Mr Johnstone, filed an affidavit in reply. He says

(essentially) that that is not correct. He said:

If anything, only the precast panel elements at Level 14 may be more vulnerable than their upgraded counterparts at the lower levels. Their effect on the building as a whole will not be significant.

The orders sought

[18] The plaintiff says it essentially wants access to the 14^th floor for its contractors on reasonable terms and conditions. The plaintiff says such a requirement is implied in the lease. The plaintiff proposes a comprehensive order setting out what it considers to be such reasonable terms. The proposed order follows the substance of the plaintiff’s original draft heads of agreement except that it does not address any issues of compensation in relation to the work, or to other matters in respect of which the parties may be in dispute. Instead, cl 3 of the draft order provides:

The plaintiff has undertaken that it will abide by any order that the Court may make in respect of damages which:

(a) are sustained by the defendant by reason of the making of the interim orders sought by the plaintiff; and

(b) the plaintiff, in the opinion of the Court, ought to pay.

[19] There is, in addition, no provision for a shower in the male toilet.

Standard

[20] There was no real debate between the parties as to the test that must be applied to the provision of interim relief, even when it is mandatory in nature. The applicant must show that there is a serious question to be tried and that the balance

_{of convenience favours the grant of interim relief.}¹ _{There is ample authority for the}

¹ Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] NZCA 70; [1985] 2 NZLR 129 (CA) at 142.

proposition that mandatory interim relief ought to be granted only in “special circumstances”.² McGechan authoritatively summarises the position as follows:

A mandatory injunction ought to be granted on an interlocutory application only in special circumstances, and then only in clear cases either where the court thinks that the matter ought to be decided immediately or where the injunction is directed at a simple and summary act. ... Moreover, before granting a mandatory interlocutory injunction the court has to feel a high degree of assurance that at the trial it would appear that the injunction had rightly been granted, that being a different and higher standard than is required for a prohibitory injunction.

[21] Eichelbaum CJ in the Soft-Tech case³ is often quoted in this context:

Mandatory injunctions are relatively uncommon, interim mandatory injunctions are rare indeed, and interim mandatory injunctions having the effect of a final order and involving the payment of a sum of money which normally would be described as a debt, in my experience are completely novel.

[22] For myself I am attracted to the formulation proposed by Fisher J in Telecom New Zealand Ltd v Clear Communications Ltd.⁴ In that case he opined that the test is always as set out in the Klissers decision whether the injunction is mandatory or prohibitory. He said:

I do not think that those tests are affected by the question whether the proposed injunction is prohibitory or mandatory. It is just that when the tests are applied, the potential for injustice to a defendant will often be increased by requiring him or her positively to act rather than passively to desist ... As Hammond J put it in Faumui v AFS (New Zealand) Ltd, ... an interlocutory injunction is normally brought to preserve the status quo pending a final decision, a mandatory interlocutory injunction is likely to be more intrusive and to disturb the status quo.

[23] The courts naturally therefore will take a closer look at arguability and balance of convenience where an interim application will require the defendant/respondent to do something positive the effect of which will be dispositive

_{of the entire proceeding. This is the approach I propose to take.}

² R A McGechan (ed) McGechan on Procedure (online looseleaf ed, Thomson Reuters) at

_[7.53.23].

³ _{Soft-Tech International Pty Ltd v Ball (1990) 3 PRNZ 683 (HC).}

⁴ Telecom New Zealand Ltd v Clear Communications Ltd HC Auckland CL20/97, 18 July 1997 at

17.

Serious question to be tried

[24] The plaintiff’s argument is that it is an implied term of the lease that the landlord should be permitted on reasonable notice to enter the tenant’s premises for a reasonable period to carry out earthquake strengthening works to the building. The plaintiff points to cl 15 of the lease (it is in the 2008 Fifth Edition of the ADLS Deed of Lease) which permits the landlord to enter the premises to carry out repairs. The plaintiff does not argue that the seismic upgrade is a repair but does say that seismic upgrade is so analogous to repair that it could be said to “go without saying” that this form of access on reasonable terms ought also to be permitted.

[25] The defendant says there is no serious question to be tried in this respect. The joint (but erroneous) belief of the parties that the building was an 88 per cent NBS low earthquake risk meant they could not have had in contemplation the prospect of earthquake strengthening work on the building. Moreover, the defendant argued that the lengthy negotiations leading up to the filing of proceedings meant that the plaintiff implicitly accepted that it had no implied right of access under the lease. The defendant argued that the true analysis on the facts is that the plaintiff’s failure to meet the 88 per cent NBS creates a cause of action in the defendant not the other way around.

[26] Clause 15 of the lease provides:

The tenant shall permit the landlord and the landlord’s employees and contractors at all reasonable times to enter the premises to carry out repairs to the premises or adjacent premises and to install, inspect, repair, renew or replace any services where the same are not the responsibility of the tenant all such repairs, inspections and work to be carried out with the least possible inconvenience to the tenant.

[27] The context of the lease document makes it clear that repairs can be structural. Clause 21.1(a) provides that:

The tenant shall not be required to make any structural repairs, alterations or additions ... except where required by reason of the particular nature of the business carried on by the tenant ...

[28] Structural repairs are defined in cl 45.1 as meaning “a repair, alteration or

addition to the structure or fabric of the building but excluding building services”.

[29] So a repair for which access must be made available under cl 15 can be highly intrusive. But repair is something that is carried out on another thing that is broken, worn or damaged. The New Shorter Oxford English Dictionary⁵ provides that repair means “the action or process of restoring something to unimpaired condition by replacing or fixing worn or damaged parts”. An upgrade that makes a building (or any other thing for that matter) better than it was as built or designed is not a repair. The plaintiff was correct not to rely on cl 15.

[30] So, can it be seriously argued that reasonable access for seismic strengthening is an implied term of this lease? The test for implying such terms is as found in BP Refinery (Western Port) Pty Ltd v Shire of Hastings.⁶ There are five requirements:

(1) The term to be implied must be reasonable and equitable. (2) It must be necessary to give business efficacy to the lease. (3) It must be so obvious that “it goes without saying”.

(4) It must be capable of clear expression.

(5) It must not contradict any express term of the contract.

[31] That test was affirmed in the New Zealand context in Devonport Borough Council v Robbins.⁷ Interestingly, that case involved a willingness on the part of the Court of Appeal to adopt a very broad form of implied term (a duty on the part of the borough council to act fairly and reasonably towards another with whom the borough have contracted) but I will come back to that.

[32] Was an obligation to provide access for earthquake strengthening so obviously in the contemplation of the parties at the time the lease was negotiated that that could go without saying? Although at the time of the lease agreement both

_{parties assumed the building was far more earthquake resilient than it actually was.}

⁵ _{The New Shorter Oxford English Dictionary (4}^th _{ed, Clarendon Press, Oxford).}

⁶ _{BP Refinery (Western Port) Pty Ltd v Shire of Hastings [1910] ArgusLawRp 71; (1977) 16 ALR 363 (PC).}

⁷ Devonport Borough Council v Robbins [1979] 1 NZLR 1 (CA).

But it does not follow that they could not have contemplated the prospect of earthquake strengthening on the building. If an objective bystander had said to the parties at the time of the negotiation, “What if the IED analysis turns out to be wrong, would the landlord have a right of reasonable access to upgrade the building to a higher earthquake resistance standard?” it must, I think, be seriously arguable that the answer to that question would have been “yes”. After all the defendant underscored how important earthquake resilience was at the time of the agreement in light of the fact that the Christchurch earthquakes were still in recent memory. It was why the defendant sought a longer lease term according to Mr Stapleton.

[33] The difficulty the plaintiff faces is that the term it seeks to imply is not just reasonable access in general terms, but specific access arrangements it says are reasonable. As Cooke J said in the Devonport case, “reasonable” is an inherently elastic concept. In fact Richardson J in a separate concurring judgment, took the time to spell out what reasonable might mean in the context of that case. He did this because he was uncomfortable with leaving the matter on the basis of an implied term that was itself capable of multiple meanings. In my view, the correct approach at this interim stage is to ask whether it is seriously arguable that the detailed access prescription proposed in the plaintiff’s draft orders would have gone without saying at the time of the lease negotiation. That is a far more difficult proposition for the plaintiff to advance. I pose the question that way because in reality the parties are fighting over the terms and conditions of access not over access itself. They have different views of what is reasonable. That is the real debate here. Had the objective bystander asked the parties at the negotiation stage “And what would the terms of such access be?” there would have been a great deal of contention, I suspect, around both timing and compensation for inconvenience and so forth. In short contention over the very issues that the parties are in disagreement about now.

[34] Bearing in mind the heightened standard that must be met in light of the dispositive effect of any interim mandatory order at this stage, I am not prepared to say that I feel “a high degree of assurance” that access on the terms proposed by the plaintiff is very likely to be the result following a substantive trial of the issues.

[35] I find that stage one of the Klissers test, in the particular context of this case, is not made out. I would add that I have come to this view with some reluctance. I have considerable sympathy for the circumstances the plaintiff finds itself in in this case. It must feel that the defendant is opportunistically taking advantage of the situation. Despite that sympathy, I do not feel able to bridge the gap between reasonable access as an abstract idea, and the detailed orders actually being sought.

Balance of convenience

[36] There is contention around whether a failure to complete this work as soon as possible puts the whole building (and all of its occupants) at greater risk in the event of an earthquake or whether it is only the 14^th floor that is at greater risk. I agree with the defendant that either way, the risk is significant for the plaintiff. After all it owns the 14^th floor, even if the defendant is its tenant. Other tenants are also entitled to the peace of mind of knowing that they occupy a building with an NBS rating above 67 per cent. Finally, the plaintiff does have its contractors sitting on the sideline and waiting for the go-ahead to complete their work, the parties having tried for some months to resolve the differences between them. These factors favour the plaintiff to some extent, but it must always be remembered that an order made now would end the proceeding. I am not quite so sure that the balance of convenience so favours the plaintiff that it would have been entitled to the orders it sought, if the first stage had gone in its favour.

[37] Overall I consider that the plaintiff’s case is not so strong that dispositive orders can be made now on an interim basis. I am comforted in that view by the fact that a space has opened for a two day fixture on 2 August 2016 at which matters may be finally resolved between these parties one way or the other. The issues in play in this proceeding are in my view relatively straight forward: discovery is very limited if required at all and the same is true in terms of cross-examination. Two days ought to be ample. The plaintiff may not be entitled to interim mandatory relief, but it is entitled to a speedy hearing given the circumstances in which it finds itself. Mr Stapleton, for the defendant, readily accepted as much in his submissions.

Conclusion

[38] The application for interim relief is dismissed. Costs are reserved and will be dealt with following resolution of the substantive application. The substantive matter is set down to be heard on 2 August 2016 for two days. I will convene a judicial conference of the parties (this can be by telephone or in person) on Thursday or Friday of this week so that such directions as may be required can be made in

_{contemplation of trial.}

_{Williams J}

Solicitors:

Morrison Kent, Wellington for Plaintiff

Greenwood Roche, Wellington for Defendant