Auckland Waterfront Development Agency Ltd v Mobil Oil New Zealand Ltd

• Jurisdiction: New Zealand
• Judge: Ellen France P,Miller J,Harrison J
• Judgment Date: 25 August 2015
• Neutral Citation: [2015] NZCA 390
• Docket Number: CA111/2014
• Court: Court of Appeal
• Date: 25 August 2015

Between

Auckland Waterfront Development Agency Limited

Appellant

and

Mobil Oil New Zealand Limited

Respondent

[2015] NZCA 390

Court:

Ellen France P, Harrison and Miller JJ

CA111/2014

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal against a High Court decision which held that tenancy agreements obliging the tenant to deliver the land in good and clean order did not extend to remediating subsurface contamination — the respondent, and before it other associated companies in its Group, leased reclaimed land on which they built storage for petroleum products and chemicals — the land was heavily contaminated by petroleum products, primarily as a result of the respondent's activities — by 1970 the land was so polluted it required complete remediation — the parties executed new shorter term leases in 1985 which contained clauses requiring the tenant to deliver the land in good and clean order — the appellant sought to recover $10 million for remediation of the land — whether the respondent had assumed the risk of contamination under the pre-1985 leases — whether the obligation to deliver the land clean and tidy extended to the subsurface — whether the clean and tidy clauses obliged the respondent to deliver possession of the land in an uncontaminated condition on termination.

Counsel:

A R Galbraith QC and M C Smith for Appellant

M G Ring QC and P R Rzepecky for Respondent

JUDGMENT OF THE COURT

• A The appeal is allowed.

• B Judgment is entered for the appellant in the sum of $10 million.

• C The respondent is to pay the costs of the appellant for a standard appeal on a band B basis. We certify for second counsel.

REASONS

Ellen France P and Miller J [1]

Harrison J (dissenting) [77]

Ellen France P AND Miller J

(Given by Miller J)

TABLE OF CONTENTS

Introduction	[1]
The reclamation at Freemans Bay	[6]
The land and leases in issue	[11]
The pre-1985 leases	[13]
Contamination of the land	[16]
Knowledge of contamination in 1985	[21]
The future of the terminals as at 1985	[23]
The Wiri pipeline	[23]
Planning schemes	[27]
The 1985 tenancies	[29]
The claim	[36]
Who assumed the risk of contamination under the pre-1985 leases?	[38]
A lessee's or tenant's obligation not to commit or permit waste.	[39]
Liability under the pre-1985 leases	[47]
Liability for contamination under the 1985 tenancies	[55]
Claim of breach of leases	[55]
Claim of breach of implied term	[71]
Decision	[75]

Introduction

1 Mobil Oil New Zealand Ltd, which we will call Mobil NZ, and before it other companies in the Mobil Group occupied reclaimed land at Freemans Bay in the Waitemata Harbour from 1925 until 2011. They built a tank farm and other facilities for the bulk storage of petroleum products and chemicals delivered by ship to the Wynyard Wharf. Other oil companies and industrial uses occupied the balance of the reclamation, through which the Auckland region took its supplies of bulk fuel until the mid-1980s, when the oil companies commissioned a pipeline from the Marsden Point refinery near Whangarei to Wiri in south Auckland.

2 Mobil, which name we will use to describe all the companies involved that were or became part of the Mobil Group, occupied two sites under 50-year leases from the Auckland Harbour Board, which owned the reclamation. The first site, at 164–168 Beaumont St, comprises 1.62 ha and was known to Mobil as the Auckland Special Products Terminal (ASPT). It was used to store bulk chemicals as well as bulk fuels. The second, at 171 Pakenham St, comprises 1.349 ha. It was used to store bulk petroleum products.

3 The land is heavily contaminated by petroleum products, the result primarily of Mobil's activities until about 1970, by which time the land was so polluted as to require complete remediation. Mobil is not responsible for all the damage; some of the original fill was also contaminated, and spillage from other industrial uses on nearby sites has contributed to subsurface contamination.

4 The Auckland Waterfront Development Agency Ltd (AWDA) is a Council-controlled organisation and successor in title to the Auckland Harbour Board. It is developing the land, which is now part of what is known as the Wynyard Quarter, for mixed residential and commercial uses that are sensitive, as the original heavy industrial uses were not, to pollution.

5 AWDA brought this proceeding to recover $10 million, the agreed cost of remediating that part of the contamination caused by Mobil. The claim was brought not in the tort of waste, an action for which would be time-barred, 1 but in contract, under a set of tenancies pursuant to which Mobil NZ most recently occupied the sites. AWDA claims that the tenancies, which were executed in 1985, obliged Mobil NZ to deliver the land in good and clean order, meaning free of contamination other than that associated with the original reclamation, alternatively that the tenancies contain an implied term to the same effect. It failed in the High Court, Katz J finding that on their true construction the tenancies did not reach subsurface contamination. 2 AWDA now brings this appeal.

The reclamation at Freemans Bay

6 Reclamation of land in the Waitemata Harbour began about 1859 with the objective of establishing a commercial port, which required that mudflats be filled to take breastworks and landings out to water deep enough to provide moorings.

Headlands were cut back to provide fill and level ground, and the harbour was dredged to create shipping channels and berthage

7 The land that concerns us forms part of a 67 acre reclamation at Freemans Bay which the Auckland Harbour Board completed between 1905 and 1917. It lies at the southern or city end of what became known as the Western Reclamation. Shipbuilding was prominent among the industries for which it was intended. Others were local building, engineering and timber milling.

8 Fill used for the Freemans Bay reclamation came from various sources. It appears that most of it took the form of sand and shell recovered by suction dredger from the seabed, which required dredging to create deep water berthage. It cannot be assumed that all of this material was clean; the city's sewage was piped directly into the harbour at the time, as was toxic liquid waste from the Auckland Gas Company's works at Freemans Bay. Some of the fill comprised sandstone and earth recovered when a cliff at the end of Beaumont St was removed. Excavation material from building sites was also dumped, along with other waste from the gas works and some refuse.

9 By 1919, oil companies were beginning to express interest in land for bulk oil storage facilities. The Harbour Board's engineer visited such facilities overseas, and in February 1920 the Board and the Auckland City Council sought his opinion as to the suitability of Freemans Bay for such facilities and his advice about draft regulations for supervision of the industry. Public safety considerations influenced the decision to locate the facilities at Freemans Bay, which was already used to store other dangerous goods. In 1925 the Inspector of Dangerous Goods recommended that an application to install bulk tanks be approved, noting that precautions in applicable by-laws included embankments to prevent outflow in case of accident.

10 Bulk oil storage facilities were soon located at Freemans Bay. In many cases the oil companies were the first tenants. A substantial part of the Western Reclamation appears to have been reserved for them by the mid-1930s, and over succeeding decades their facilities were consolidated there.

The land and leases in issue

11 The land comprises five titles, each of which became the subject of a separate tenancy agreement in 1985:

	Tenancy number	Legal description and area
Pakenham St	1	Lot 1 DP144810, CT NA85D/803. 7920 m2
	2	Lot 2 DP144810, CT NA85D/804. 5570 m2
Beaumont St: ASPT	3	Lot 4 DP135460, CT NA79D/771. 1000 m2
	4	Lot 3 DP135460, CT NA79D/770. 4176 m2
	5	Lot 2 DP135460, CT NA79D/769. 1.1063 ha

12 Mobil NZ occupied the sites for many years, from dates between 1952 and 1963, and the lessees preceding it, although separate companies, had at some earlier date become members of the wider Mobil Group's Australian operations. The attached table records the position:

#	Lease Commenced	Tenant	Lease Transferred	Transferee
1	1925	Vacuum Oil Company Pty Limited	1953	Vacuum Oil Company (N.Z.) Limited
2	1951	1953
3 & 4	1938 (2 leases)	1953
5	1927	Atlantic Union Oil Company Pty Limited	1962	Atlantic Union Oil Company NZ Limited

The pre-1985 leases

13 The first lease was granted in 1925 to the Vacuum Oil Company Pty Ltd. It was for a term of fifty years, presumably reflecting the specialised and long-term nature of the proposed use. Another 50-year lease was granted to the Atlantic Union Oil Company Pty Ltd in 1927. As noted, both of these Australian companies later became part of the wider Mobil group. The assignees Vacuum Oil Company (N.Z.) Ltd and Atlantic Union Oil Company NZ Ltd became, presumably by amalgamation, Mobil NZ. Other parts of the sites were leased in subsequent years, notably in 1938. The terms of the later leases varied. It appears that an effort was made to ensure that they expired about the same time, in 1975. In that year the parties entered tenancy agreements expiring in December 1980, and thereafter Mobil held over until the 1985 tenancy agreements were signed.

14 The original 1925 and 1927 leases provided in cl 3 that the lessee would keep and maintain all “buildings structures fixtures and fences” in “good order condition and repair”, and although it was Mobil that built the storage facilities the leases contemplated that they would...