Mandic v The Cornwall Park Trust Board (Inc.)

• Jurisdiction: New Zealand
• Judge: Elias CJ,Blanchard,Tipping,McGrath,William Young JJ
• Judgment Date: 11 November 2011
• Neutral Citation: [2011] NZSC 135
• Docket Number: SC 4/2011
• Court: Supreme Court
• Date: 11 November 2011

BETWEEN

Lisa Marie Colleen Mandic And Stephen Neil Dohnt

Appellants

and

The Cornwall Park Trust Board (Inc)

Respondent

[2011] NZSC 135

Court:

Elias CJ, Blanchard, Tipping, McGrath and William Young JJ

SC 4/2011

IN THE SUPREME COURT OF NEW ZEALAND

Appeal from Court of Appeal's dismissal of appellants' appeal concerning valuation under a lease renewal — appellants held perpetually renewable 21 year leases (Glasgow leases) — correct approach of valuing gross value of fee simple and substantial improvements as provided for in the lease — whether improvements were to be valued on an added—value basis — whether assessment of gross value was constrained by use restrictions under lease — whether the required valuations were constrained by the state of the land as occupied by improvements.

Counsel:

E St John and K M Quinn for Appellants

M E Casey QC, J K MacRae and A F Buchanan forRespondent

• A The appeal is dismissed.

• B The appellants are to pay the respondent costs of $15,000 and reasonable disbursements in connection with this appeal, as fixed by the Registrar if necessary.

JUDGMENT OF THE COURT

REASONS

	Para No
Elias CJ	[1]
Blanchard, Tipping, McGrath and William Young JJ	[24]

1 The appeal concerns the correct application of the rent-setting provision on renewal at 21-year intervals of a perpetual lease first granted by the Cornwall Park Trust Board as lessor in 1910. The lease restricts use of the land contained in the lease to a single dwelling, unless the lessor waives the restriction at the request of the lessee. 1 Upon expiry of each 21-year term the lessee has the right to accept a renewed lease on the same covenants and provisions and on the basis of an annual rental of five per cent “on the gross value of the land after deducting therefrom the value of the substantial improvements of a permanent character”. 2 The gross value of the land and the value of the permanent improvements are as established by separate valuers for the parties and an umpire, according to the method specified in cl 13(b) of the lease agreement:

(b) … two separate valuations shall be made namely a valuation of the then gross value of the fee simple of the land then included in the lease and also a valuation of all substantial improvements of a permanent character made or acquired by the Lessee and then in existence on the land.

2 The lessees applied to the High Court for declarations that the effect of cl 13 of the lease is to arrive at a residual value for the land (to which the annual rental of five per cent applies) either as actually occupied by existing improvements on the land or on the basis of its use for a single dwelling. The lessor contended, rather, that the residual value specified by cl 13 is the unimproved value of the bare land according to its highest and best use, unconstrained by either existing development on the land or by the restriction on its use contained in the lease (although the restrictions in the lease had been taken into account by its valuers in previous rental reviews). Courtney J in the High Court found in favour of the lessor. 3 The Court of Appeal dismissed an appeal by the lessees. 4 On further appeal to this Court, the lessees argue that the residual value specified in cl 13 must take into account the existing development on the land and the restriction on its use contained in the lease. They also criticise the methodology adopted by the valuers for the lessor, which they say wrongly attempts a valuation of the land as if unimproved, rather than following the approach required by the lease of deducting the value of improvements from the gross value of the land to reach the residual value on which rent is set.

3 I have had the advantage of reading in draft the reasons of William Young J. I agree with his conclusions that the appeal does not turn on the approach taken to valuation, if the prescribed formula is fulfilled. I agree also with William Young J's conclusions that existing development of each site does not constrain the gross value of the fee simple or the residual value reached when the value of improvements is deducted from the gross value. I differ from the reasons given by the other members of the Court, however, in taking the view that the restriction on the use of the land contained in the lease is a relevant consideration in fixing the gross value of the fee simple of the land and the residual value reached after deduction of the value of improvements. The agreement between the parties to the lease that use of the land is restricted to a single dwelling is the context in which the rent-setting provisions are to be interpreted. I do not agree that the reasoning in Cox v Public Trustee 5 suggests that such restriction is properly to be treated as irrelevant to the valuation. I explain why I reach these conclusions in what follows.

4 First, however, it is necessary to express disagreement with views expressed in the Court of Appeal about the jurisdiction under the Declaratory Judgments Act 1908. 6 Although its observations were not, in the end, material to the outcome there and do not affect the appeal to this Court, they may create difficulties in application of the Act in future cases if not corrected.

The jurisdiction under the Declaratory Judgments Act 1908

5 The case came before the High Court on application by the lessees for declaratory judgment under s 3 of the Declaratory Judgments Act. The lessor, while opposing the interpretation contended for by the lessees, did not object to the form of the proceedings in the High Court or in the Court of Appeal. Despite that, and although it dealt with the substantive points of interpretation, the Court of Appeal prefaced its determination with observations about the scope of the jurisdiction under the Declaratory Judgements Act, suggesting that it was one of “limited availability”. 7 The Court of Appeal considered that an applicant for declaratory judgment would

normally have to “establish the existence of a genuine dispute or a lis” and overcome the “threshold” of being able to point to “an actual controversy between the parties which cannot be more appropriately determined in another forum, such as by arbitration”. 8 Its subsequent separate discussion of discretion indicates that the Court was not simply emphasising the discretionary nature of the jurisdiction 9 or that application for declaratory order is inappropriate when there are questions of fact to be determined (as is implicit in the terms of s 3). Rather, it seems to have been suggesting a narrower jurisdiction than is suggested by the language of s 3 of the Declaratory Judgments Act

6 The only threshold prescribed by s 3 is that the person applying:

… has done or desires to do any act the validity, legality, or effect of which depends on the construction or validity of any statute, or any regulation made by the Governor-General in Council under statutory authority, or any bylaw made by a local authority, or any deed, will, or document of title, or any agreement made or evidenced by writing, or any memorandum or articles of association of any company or body corporate, or any instrument prescribing the powers of any company or body corporate; or … claims to have acquired any right under any such statute, regulation, bylaw, deed, will, document of title, agreement, memorandum, articles, or instrument, or to be in any other manner interested in the construction or validity thereof …

7 Where that threshold requirement is met (as it is in the present case of dispute about the meaning of a lease agreement):

… such person may apply to the High Court by originating summons … for a declaratory order determining any question as to the construction or validity or such statute, regulation, bylaw, deed, will, document of title, agreement, memorandum, articles, or instrument, or of any part thereof.

8 Declaratory judgments are available to make “binding declarations of right” whether or not “any consequential relief is or could be claimed”. 10 The effect of a declaratory order is to the same effect “as the like declaration in a judgment in an action”. It is binding “on the person making the application and on all persons on whom the summons has been served, and on all other persons who would have been bound by the said declaration if the proceedings wherein the declaration is made had

been an action”. 11 A declaratory judgment may be given “by way of anticipation with respect to any act not yet done or any event which has not yet happened”. 12 The High Court may direct service of the summons on such persons as it thinks fit, to ensure that any person affected has notice and may take part in the determination. 13

9 The jurisdiction under the Declaratory Judgments Act enables anyone whose conduct or rights depend on the effect or meaning of an instrument, including an agreement, to obtain an authoritative ruling. In New Zealand, questions concerning the interpretation of rental review provisions of leases have often been addressed under the provisions of the Declaratory Judgments Act, as is illustrated by The Drapery and General Importing Co of New Zealand (Ltd) v The Mayor of Wellington. 14 Access to the jurisdiction does not depend on there being an existing dispute. Nor is it necessary that there be a lis. It is desirable to express this disagreement with the reasons of the Court of Appeal although, in the event, the approach it adopted is not material to the determination of the appeal.

Approach to valuation

10 The residual value of the land to which the rental formula applies is obtained by deducting from the then gross value of the fee simple the value of the “substantial improvements of a permanent character”, as cl 13(h) of the lease provides. As the word “improvements” indicates, the calculation is of value added to the land, assessed at the date of valuation. It is only...