Mobil Oil New Zealand Ltd v Development Auckland Ltd (Formerly Auckland Waterfront Development Agency Ltd)

JurisdictionNew Zealand
CourtSupreme Court
JudgeWilliam Young J
Judgment Date20 July 2016
Neutral Citation[2016] NZSC 89
Docket NumberSC 107/2015
Date20 July 2016

[2016] NZSC 89

IN THE SUPREME COURT OF NEW ZEALAND

court:

Elias CJ, William Young, Glazebrook, Arnold and O'Regan JJ

SC 107/2015

BETWEEN
Mobil Oil New Zealand Limited
Appellant
and
Development Auckland Limited (Formerly Auckland Waterfront Development Agency Limited)
Respondent
counsel

M G Ring QC and J P Greenwood for Appellant

A R Galbraith QC and M C Smith for Respondent

Appeal against a Court of Appeal (CA) decision which found that a clean and tidy condition in a lease agreement did reach subsurface contamination, and awarded $10 million to the respondent for cost of remediation — the CA overturned the decision of the High Court (HC) — the appellant had leased land which was used for bulk storage of oil and the land became contaminated — under the lease agreements, the appellant was required to deliver up, the properties “in good order and clean and tidy” — during the tenancies the condition was expressed in terms which required the appellant to “keep” the land in that condition — the initial leases were with Australian companies that subsequently became part of the Mobil group — the leases were taken over by New Zealand Mobil companies — under a 1985 lease agreement the appellant succeeded to the liabilities of the NZ companies but not those of the Australian companies — the land had become contaminated to the point of requiring complete remediation in the 1970s — whether the clean and tidy condition required remediation of the land — if not, whether a term requiring remediation should be implied.

The issues were: whether the clean and tidy condition required remediation of the land and if not, whether a term requiring remediation should be implied.

Held: The clean and tidy condition had applied throughout the tenancies and not just on termination. During the tenancies the condition was expressed in terms which required Mobil to “keep” the land in that condition. “Keep” did not signify an obligation to effect transformative change. The short term nature of the tenancies counted against an interpretation of the clean and tidy condition so as to impose new and substantial remediation obligations. The use of the word “keep” showed that the obligations under it were applicable from the start of the tenancies until their termination. That caused no problem as the condition was confined to the external appearance of the land. A construction of “good order” and “clean and tidy” as requiring remediation of the land was fundamentally inconsistent with the commercial purpose of the tenancies.

Mobil's obligation to deliver up to the Harbour Board such improvements as remained at termination of the tenancies in good and tenantable repair, indicated that the parties had not envisaged that compliance with the clean and tidy condition would require removal of all improvements, and suggested that the clean and tidy condition was not envisaged as extending to the subsurface of the land. The natural and ordinary meaning of the words used in the clean and tidy condition, (“keep”, “good order” and “clean and tidy”) and when viewed in their totality, were not easily susceptible to an interpretation which would require Mobil to transform the character of the land.

The implied term sought would require Mobil to remediate contamination which occurred prior to the entering into of the contracts and at times when, under the contracts then in force, there was no remediation obligation. The obligation would extend to contamination caused by Mobil's Australian predecessors despite Mobil having no legal responsibility for their actions.

The term contended for was not of a general kind which the courts could legitimately treat as implied as a matter of law into long term leases of land for industrial purposes. Mobil had no liability for the actions of its Australian predecessors. The contamination was an incident (necessary/reasonable or otherwise) of a use which the Harbour Board had authorised under the leases and tenancy agreements. The agreements in place at the time the main contamination occurred had not required remediation and remediation would not have been required if the land had continued to be used for bulk storage of oil and similar heavy industrial purposes. It was not necessary to imply the term to give business efficacy to the tenancy agreements. The agreements were effective without it. The proposed implied term would impose obligations which went beyond and contradicted the clean and tidy condition.

The appeal was allowed. The CA decision was reversed and the HC decision was restored.

  • A The appeal is allowed, the judgment of the Court of Appeal is reversed and the judgment of Katz J (including the costs orders made by her) is restored.

  • B Mobil is entitled to costs in respect of the appeal to the Court of Appeal to be fixed by that Court and to costs of $25,000 and reasonable disbursements in respect of the appeal to this Court.

JUDGMENT OF THE COURT
REASONS

(Given by William Young J)

Table of Contents

Para No.

The appeal

[1]

The occupation of the land by Mobil and its Australian predecessors

[8]

The contractual arrangements prior to the 1985 tenancy agreements

[17]

The context in which the 1985 tenancy agreements were negotiated

[22]

Likely future uses of the land as envisaged in 1985

[22]

Knowledge of contamination

[24]

The liability, if any, of Mobil as at 1985

[27]

The 1985 tenancy agreements

[32]

The judgment of Katz J

[39]

The judgment of the Court of Appeal

[45]

Our approach to the case

[54]

A breach of the clean and tidy condition?

[56]

Some general comments

[56]

The overall scheme of the 1985 tenancy agreements

[63]

The authorities

[68]

Drawing the threads together

[75]

Should a term requiring remediation be implied?

[76]

Disposition

[85]

The appeal
1

From the mid-1920s until 2005, properties in Pakenham Street and Beaumont Street, Freemans Bay, Auckland were used for the bulk storage of oil and associated purposes including distribution of oil and petrol (bulk oil storage). The land in question had been reclaimed from Waitemata Harbour by the Auckland Harbour Board in the early years of the last century. The initial use of the land for bulk oil storage was pursuant to leases from the Auckland Harbour Board to Vacuum Oil Co Pty Ltd and Atlantic Union Oil Co Pty Ltd. They were Australian companies and later became part of the Mobil Australia group. In the 1950s and 1960s the leases were taken over by similarly named New Zealand registered companies that were subsequently amalgamated to form the appellant, which accordingly succeeded to their liabilities. In contradistinction, the appellant has not succeeded to the liabilities of the Australian Vacuum and Atlantic Union Oil companies. In recognition of this distinction, we will refer to the New Zealand predecessor companies and the appellant collectively as “Mobil” and to the Australian Vacuum and Atlantic Union companies as “Mobil's Australian predecessors”. The Harbour Board was the lessor under all relevant leases. These leases were replaced by tenancy agreements in 1975 and 1985 between the Harbour Board and Mobil.

2

The Harbour Board was later disestablished. Its initial successor was Ports of Auckland Ltd (Ports of Auckland). At the time the litigation commenced and until after the Court of Appeal decision, Auckland Waterfront Development Agency Ltd stood in the shoes of the Harbour Board. That company has since changed its name to Development Auckland Ltd 1 (Development Auckland) and we will refer to it in these reasons by its current name.

3

The Pakenham and Beaumont Street sites are in the Wynyard Quarter area which is now being developed for mixed commercial and residential uses. These sites are heavily contaminated and, if they are to be so developed, must be substantially remediated — an exercise involving removal of soil to a depth of 3.5 m across both sites (approximately 2.5 ha) — and its replacement with clean material. This contamination mainly resulted from leakage and spillage of petroleum products associated with the activities of Mobil and its Australian predecessors although there are other contributing causes, in particular the nature of the fill used in the original reclamation and spillage of contaminants on adjoining sites.

4

Under the original leases and the tenancy agreements entered into in 1975, Mobil was required to surrender to the lessor the improvements which it and its Australian predecessors had placed on the sites. The tenancy agreements which are primarily in issue in this appeal were entered into in 1985. The agreements provided, in different ways, for the removal by Mobil of the improvements from the land and, pursuant to what we will call “the clean and tidy condition”, for Mobil during the tenancies to keep, and at their end to return the land, in “good order and clean and tidy”. 2

5

The tenancies came to an end in 2011.

6

In the High Court, Development Auckland contended that Mobil had been obliged to remediate the land so as to remove all contamination (other than that caused by the original fill) at the expiration of the tenancies. Development Auckland relied on two bases for this obligation; first, the clean and tidy condition; and secondly, in the alternative, an implied term. We have already explained what such a remediation exercise would involve. The cost to Mobil of such an exercise would

have been in the order of $50 million. The actual claim, however, was for only $10 million. This figure represents the incremental cost to Development Auckland of remediating the land as part of its own development work compared to what that development work would have cost if Mobil had remediated the land itself.
7

These claims failed in the High Court, with Katz J: 3

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