Hhr Christchurch Ntl Ltd v Crystal Imports Ltd

• Jurisdiction: New Zealand
• Judge: Wild JJ,Harrison J,White J
• Judgment Date: 02 July 2015
• Neutral Citation: [2015] NZCA 283
• Docket Number: CA734/2013
• Court: Court of Appeal
• Date: 02 July 2015

[2015] NZCA 283

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

Harrison, Wild and White JJ

CA734/2013

Between

HHR Christchurch NTL Limited

Appellant

and

Crystal Imports Limited

First Respondent

Allianz New Zealand Limited

Second Respondent

Counsel:

J B M Smith QC and J L W Wass for Appellant

Z G Kennedy and I Rosic for First Respondent

V S Cress for Second Respondent

JUDGMENT OF THE COURT

• A The appeal is dismissed.

• B The appellant is to pay the first respondent costs for a standard appeal on a band A basis and usual disbursements.

REASONS

Harrison and Wild JJ	[1]
White J	[66]

HARRISON AND Wild JJ

Wild JJ

(Given by Harrison J)

Table of Contents

Introduction [1]

Introduction

1 This appeal against a summary judgment entered in the High Court raises the issues of whether the parties to a contract of material damage insurance unarguably(1) intended that its terms should also insure a third party's interest in a hotel building destroyed in the Christchurch earthquake or (2) are estopped from denying that the third party's interest is insured. 1

Background

2 In 2006 Crystal Imports Ltd (Crystal) acquired a property in central Christchurch on which the four storey Warner's Building was located. The top three floors were used for hotel accommodation known as Warner's Hotel; the ground floor contained a bar known as Warner's Bar. Shortly after acquisition Crystal entered into a long term agreement to lease the land and Warner's Building to AAPC

NZ Pty Ltd (Accor) while retaining occupation of the ground floor. Accor then constructed the Novotel Tower on the balance of the land.

3 Accor operated the Novotel and Warner's Hotel (excluding the bar) as an integrated entity under the Novotel brand. Shortly before the 22 February 2011 earthquake Accor sold the Novotel to HHR Christchurch NTL Ltd, part of the Host Group, and assigned its leasehold title to Warner's Hotel to the same party. In the result Host owned the Novotel; and Crystal retained ownership of the Warner's Building subject to Host's leasehold interest. As Venning J observed in the High Court, in practical terms Crystal only retained outright ownership of Warner's Bar. 2

4 Accor and Crystal initially maintained separate policies of material damage insurance for their respective ownership interests. Crystal insured the Warner's Building with NZI for full reinstatement value of $11.89 million while Accor extended its existing special risks policy for its New Zealand asset portfolio with Allianz to cover its leasehold interest in Warner's Hotel.

5 In March 2009 Accor confirmed to Crystal that Warner's Hotel was covered under its policy for its full value and that the policy noted Crystal's interest as a lessor and interested party. Crystal arranged cover only for Warner's Bar with Lloyds for 2010 and 2011 but did not renew its own insurance with NZI for the Warner's Building.

6 Allianz's policy for the period commencing 1 January 2011 insured Accor's interest in Warner's Hotel for full replacement value. Crystal was noted in the schedule of insured parties as a financier. The policy cover was expressly extended to Host following its acquisition in December 2010 of the Novotel and Warner's Hotel for $38.5 million. On 11 February 2011, just before the Christchurch earthquake, Allianz issued to Host's Australian solicitors a certificate that Crystal's interest was amongst those included under the policy. Host's solicitors forwarded a copy to Crystal.

7 The Warner's Building was substantially damaged in the earthquake and later demolished. Crystal made a claim under the Allianz policy for the cost of reinstating the building. Allianz met Crystal's claim for demolition costs of $260,000 plus GST and consequential losses but declined to pay any further claims because Host disputed Crystal's right to indemnity. Host claims it is solely entitled to the settlement proceeds of a claim for the reinstatement value of Warner's Hotel. While Allianz supports Host's position, it adopts a neutral stance similar to a stakeholder pending determination of the competing claims for indemnity.

8 Crystal successfully sought summary judgment in the High Court on two declaratory claims: first, that its interests as lessor and owner of Warner's Hotel were insured under Allianz's policy; and, second, that Host and Allianz were estopped by the insurance certificate from denying Crystal's interests in the hotel were insured. Host appeals against the entry of summary judgment on both claims.

9 In this respect we record that counsel addressed full argument on both claims. We have assumed that Crystal will be content if it retains summary judgment on either claim. However, like counsel, we shall address both claims fully against the contingency that our assumption is wrong and that the parties' respective positions will be materially affected by our conclusions on each claim.

10 A subsidiary dispute remains outstanding for trial about the nature and value of Crystal's interest and how the proceeds of settlement are to be divided if Crystal is entitled to claim an interest.

Principles

11 It is unnecessary for us to rehearse again at appellate level the applicable principles of contractual interpretation applicable to Crystal's first claim based on Allianz's policy. In short, we must determine whether the plain words of the text of the policy disclose that Host and Allianz — the principal parties to the contract — unarguably agreed to insure Crystal's interests in Warner's Hotel. 3 The question is to be approached objectively by deciding what a reasonable person in possession of the

background facts known to those two parties would have understood was their mutual intention as reflected by the words used. 4 Here the relevant context is found in the agreement to lease and to a lesser extent in correspondence passing between the parties.

12 It is also unnecessary for us to rehearse the principles relating to entry of summary judgment. It is common ground that Venning J correctly required Crystal to prove that there was no arguable basis for Host's assertion that Crystal's interests in Warner's Hotel were not insured under the policy; and that Host and Allianz are unarguably estopped from denying that Crystal's interests were so insured. The question is whether the Judge erred when applying those principles.

Context

13 The agreement to lease entered into between Accor and Crystal in September 2006 provides the contractual framework within which the respective insurance obligations of those parties must be assessed. Accordingly it is the appropriate starting point for our analysis.

14 In particular we note that: (1) the lease was for an initial term of 52 years to expire on 1 September 2059 but if rights of renewal were exercised it would expire on 5 September 2083; (2) a premium of $3.75 million was payable plus an annual rental fixed according to a room occupancy rate formula at about 3.7 per cent of income; (3) Accor's obligation to pay outgoings was limited to rates, utilities, taxes and local body expenses and maintaining full reinstatement insurance for its improvements and public risk cover; and (4) in the event of damage or destruction to the hotel, Crystal was not obliged to repair or reinstate and Accor had no right to call for either result and there were no rights of re-entry or rent abatement.

15 Mr Kennedy for Crystal accepted that the lease did not oblige Accor to insure the company's interests as owner or lessor of Warner's Hotel. Each party was responsible for insuring its separate interests. Both counsel accept that the agreement is akin to a ground lease. Crystal surrendered control of the hotel except

for Warner's Bar and, apart from its entitlement to rent, its interest as owner was of a limited reversionary nature which was unlikely to be of significant value when the final renewed term expired.

16 Venning J recited some of the extensive correspondence between Accor and Crystal, mainly for the purpose of setting the factual narrative. Allianz was not a party to the correspondence but it shows that Accor and Crystal were never in accord about responsibility for insurance arrangements. It appears that for an initial period Crystal arranged its own material damage cover for the Warner's Building with NZI; that Accor refused to meet Crystal's demand to pay a portion of the premium due under that policy; that Accor's view expressed to Crystal was that it was not obliged to insure Crystal's interest; and that from 2009 Accor arranged insurance with Crystal's interest noted as lessor.

17 Venning J concluded from the exchanges of correspondence as follows:

[45] … Both Crystal and Accor acknowledged the ambiguity in the existing lease as to whether Accor was obliged to maintain insurance for Crystal's interest in Warner's Hotel. They took differing views as to Accor's obligations under the lease regarding Crystal's interest. Accor flatly refused to pay insurance premium invoices submitted by Crystal to it. However Accor insured Warner's Hotel. In doing so, Accor and/or its brokers had, at times, noted Crystal as an interested party and communicated that to Crystal.

18 In our judgment the correspondence is material in two other respects. First, it may assist in determining whether Accor and Crystal entered into an agreement collateral to the lease that the former would arrange insurance for the latter's interests in Warner's Hotel. A claim to this effect evolved into one of Mr Kennedy's primary arguments on appeal. However, Crystal has not sought relief against Accor or pleaded a collateral agreement or its breach. If it had taken this step, the company would face difficulties. For example, it would have to show consideration in the nature of an undertaking to contribute towards Accor's premium payments for Warner's Hotel.

19 Second, the...