Kusabs v Staite

• Jurisdiction: New Zealand
• Judge: Brown J
• Judgment Date: 09 September 2019
• Neutral Citation: [2019] NZCA 420
• Court: Court of Appeal
• Docket Number: CA652/2017
• Date: 09 September 2019

Between

Andrew Marutuehu Kusabs and Ors as Trustees of the Tumunui Lands Trust

Appellants

and

Peter Daniel Staite and Ors as Trustees of the Whaoa No 1 Lands Trust

Respondents

[2019] NZCA 420

Court:

Cooper, Brown and Williams JJ

CA652/2017

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Contract, Lease — rectification of lease — trustee of both trusts involved in negotiation of the lease — breach of fiduciary duty — whether more appropriate remedy was termination of the lease

Counsel:

M S McKechnie and A F S Vane for Appellants

D G Chesterman, J P Koning and R P Nolan for Respondents

• A The appeal is allowed.

• B The order for rectification of the Tumunui Lease is set aside.

• C There is no order for costs. If the Tumunui Trust wishes to revisit the issue of costs below, then that should be addressed in the High Court.

JUDGMENT OF THE COURT

Table of Contents

	Para No
Introduction	[1]
Relevant facts	[6]
The Blackler leases	[8]
The Mills lease	[11]
Proposed assignment of Mills lease to the Tumunui Trust	[14]
The Tumunui Lease	[21]
The first rent review	[26]
High Court judgment	[31]
The recall judgment	[47]
Scope of appeal	[55]
Parties' submissions	[59]
The Tumunui Trust's submissions	[59]
The Whaoa Trust's submissions	[62]
Rectification: relevant principles	[66]
Discussion	[69]
The pleadings	[70]
The Judge's initiative	[71]
Mr Bamber	[74]
Mr Edwards	[76]
Mr Kusabs	[84]
Evaluation of the witnesses' evidence	[87]
The Davys Burton letter of 16 November 1992	[90]
Subsequent conduct	[101]
Conclusion	[111]
Mr Moke	[113]
Costs	[119]
Result	[120]

REASONS OF THE COURT

(Given by Brown J)

Introduction

1 The respondents, who are the trustees of an ahu whenua trust (the Whaoa Trust), own Māori freehold land at Reporoa comprising approximately 529 hectares known since 1982 as Rotomahana Parekarangi No 8 Block (the No 8 Block). On 16 February 1994 the Whaoa Trust executed a lease of the land in favour of another ahu whenua trust, the trustees of which are the appellants (the Tumunui Trust).

2 The lease (the Tumunui Lease) which, subject to rights of renewal, may run to 2032 provided for the payment of rent calculated as follows:

… at a yearly rental calculated on the basis of five dollars per centum of the capital value of the said land according to a special valuation carried out by Valuation New Zealand for the purpose at the expense of the lessee … provided always that for the purposes of such valuation there shall be deducted from the said capital value the value of all improvements made on or to the said land by the lessee or its predecessor since the 13th day of December 1961 and during the terms hereof by the lessee and subsisting at the date of valuation …

3 In a proceeding commenced in 2009 the Whaoa Trust sought rescission of the Tumunui Lease, contending that the involvement of Mr Edward Moke in its negotiation, who was a trustee of both trusts, was a breach of Mr Moke's fiduciary duty of loyalty to the Whaoa Trust of which the Tumunui Trust had knowledge. The Whaoa Trust alleged that the terms of the lease were favourable to the Tumunui Trust and unfavourable to the Whaoa Trust both by reason of the duration of the lease and the rental (calculated in the manner referred to above) being significantly below market value.

4 Heath J in the High Court accepted that Mr Moke breached his fiduciary duty of loyalty to the Whaoa Trust by acting on both sides of the Tumunui Lease transaction and that his involvement had provided material assistance to the Tumunui Trust in the lease negotiations. However the Judge made a positive finding that Mr Moke was not responsible for what the Judge considered to be an error in the drafting of the rental provision. The Judge declined to order rescission of the lease but instead made an order for rectification of the lease to remove the words “or its predecessor since the 13 ^th day of December 1961 and” (the primary judgment). 1

5 The Tumunui Trust appeals the order for rectification. It further contends that Mr Moke's breach of fiduciary duty was not of such a character as to justify either rescission or rectification of the Tumunui Lease. The Whaoa Trust did not cross-appeal.

Relevant facts

6 The Whaoa Trust's claim raised a number of issues unrelated to the Tumunui Lease. The factual review in the High Court judgment was correspondingly extensive but the analysis below is confined to the facts material to the scope of the appeal.

7 The No 8 Block, located on State Highway 5 near Reporoa in the Central North Island, was formed as a result of a series of partition orders made by the Māori Land Court. Its original Māori land appellation was Rotomahana Parekarangi 3A3A3B2B2B. On 16 April 1956 the Māori Land Court partitioned the block to create 3A3A3B2B2B No 1 (comprising 174 hectares of native bush) and 3A3A3B2B2B No 2 (comprising 355 hectares mostly in pasture).

The Blackler leases

8 At that time the Māori Trustee was responsible for the administration of both the No 1 and No 2 Blocks. On 21 November 1962, with effect from 13 December 1961, the Māori Trustee leased both blocks to Mr John Blackler (the Blackler leases). One lease was for a term of 10 years with no right of renewal while the other lease was for 11 years with a right of renewal for a further 10 years. The rental for the renewed term was to be calculated as five per cent of the capital valuation less the value of improvements effected by the lessee during the lease as ascertained by a special Government valuation.

9 By December 1963 Mr Blackler had fallen into arrears of rent and rates. He was also alleged to have breached other covenants of the leases. The assembled owners resolved to transfer the Blackler leases to H Allen Mills Ltd and to vary the rental and the term. That resolution was confirmed by the Māori Land Court on 25 March 1964. H Allen Mills Ltd then acquired the Blackler leases.

10 On 19 May 1982 the Māori Land Court re-amalgamated the No 1 and No 2 Blocks and named the reconstructed block Rotomahana Parekarangi No 8 Block. The Court then vested the block in seven founding trustees under s 438 of the Maori Affairs Act 1953. 2 Mr Edward Moke was appointed by the Court as one of the trustees. The trust would be known as the Whaoa Trust. In November 1987 Mr Moke was elected chairman of the Trust.

The Mills lease

11 On 18 October 1985 the Whaoa Trust and H Allen Mills & Son Ltd executed a lease (the Mills lease) in respect of the No 8 Block for a period of 21 years commencing on 13 December 1982. The rent for the first ten years was $22,000.00 per annum. For the next 11 years the following formula applied:

(b) For and during the next eleven (11) years of the said term a yearly rent calculated on the basis of five (5) dollars per centum of the capital value of the said land according to a special Government Valuation of the said land to be made at the expense of the Lessee as in the last month of the last of the said first ten (10) years or a yearly rent equal to the rental first hereinbefore mentioned whatever shall be the greater PROVIDED ALWAYS that for the purposes of such calculation there shall be deducted from the said capital value the value of all improvements made on or to the said land since the 13th day of December 1961 and during the term hereof by the Lessee and subsisting at the date of valuation[.]

The Mills lease also provided for a right of renewal of a further eight years with the rent to be calculated in accordance with a similar formula to that for the preceding 11 years.

12 On 8 December 1986 the Tumunui Trust was constituted by an order of the Māori Land Court under s 438 of the Maori Affairs Act. 3 The Court appointed Mr Edward Moke a founding trustee. He had disclosed to the Court that he was also a trustee of the Whaoa Trust. He remained a trustee of both trusts until his death in 2003.

13 H Allen Mills & Son Ltd continued to farm the land comprised in the Mills lease until 1989. On 2 February 1989 representatives of the Whaoa Trust met with Mr Mills who had indicated a desire to wind up his farming operation due to age.

Around that time Mr Mills began to engage in discussions about the possible sale of the Mills lease

Proposed assignment of Mills lease to the Tumunui Trust

14 During 1988 the Tumunui Trust contemplated the acquisition of farm land near Reporoa. In late March or early April 1989 a meeting was held attended by trustees of both the Whaoa Trust and the Tumunui Trust to explore the possibility that the Tumunui Trust might acquire the Mills lease. Mr Moke was present although the undated minute of the meeting refers only to his membership of the Whaoa Trust. The minutes of the meeting stated: 4

…

Mr Hyland then explained the Tumunui Lands Trust's position so far as it related to land leased by Mr Allen Mills from the Whaoa No. 1 Trust which was available for purchase. The asking price was $200,000 and the Tumunui Lands Trust had considered the purchase as a way of entering into the dairy farming arena. Costings had been done which showed that the leasehold payable to Mr Mills could be recovered over the 23 year term remaining but the goodwill that we would be prepared to offer was $150,000 with a maximum of $180,000.

The purpose of this meeting was [to] discuss with the Whaoa No. 1 Trust our intentions and to see if we could get an extension to the lease in the event of our offer being successful. The Trustees of the Whaoa No. 1 Trust were comfortable with Tumunui's participation and would do everything in their power to assist. It was felt that Mr Mills was using all his business cunning to get a higher price than he was entitled to....