The Cornwall Park Trust Board Inc. v Chen

• Jurisdiction: New Zealand
• Judge: Randerson J
• Judgment Date: 14 March 2016
• Neutral Citation: [2016] NZCA 65
• Docket Number: CA645/2014
• Court: Court of Appeal
• Date: 14 March 2016

Between

The Cornwall Park Trust Board Inc

Appellant

and

Yong Xin Chen

Respondent

[2016] NZCA 65

Court:

Ellen France P, Randerson and Stevens JJ

CA645/2014

IN THE COURT OF APPEAL OF NEW ZEALAND

Appeal against a High Court decision which held an insurance settlement could not be reopened — the parties had agreed that the respondent's payment was made in final settlement — the appellant alleged that when they settled, both parties were mistaken about the measure of entitlement — the appellant owned a building which suffered successive damage in three Canterbury earthquakes — no substantial repairs were undertaken and the building was order to be demolished — the appellant settled all its claims with the respondent for $1,050,000 — that sum was the appellant's own estimate of the building's pre-earthquake market value, which the parties took to be the correct measure of indemnity value — whether the settlement should be set aside under s6 Contractual Mistakes Act 1977 (relief may be granted where mistake by one party was known to opposing party or is common or mutual) — whether the settlement assigned the risk of mistake to the appellant under s6(1)(c) CMA (contract expressly or by implication makes provision for the risk of mistakes) — whether there had been a substantially unequal exchange of values — whether the appellant was entitled under the policy to market value or depreciated replacement cost on destruction.

Counsel:

M G Ring QC and J G H Hannan for Appellant

R J Hollyman, J A Wickes and T F Cleary for Respondent

JUDGMENT OF THE COURT

A The application for leave to adduce further evidence on appeal is granted. B The appeal is allowed.

C The respondent is liable to pay the upset rent from the date of expiry of the lease until she vacated the property.

D The cross-appeal is dismissed.

E The respondent must pay the appellant costs for a standard appeal on a band A basis with usual disbursements. We certify for two counsel.

F Costs in the High Court are to be fixed in that Court.

REASONS OF THE COURT

(Given by Randerson J)

Table of Contents

	Para No
Introduction	[1]
The terms of the lease	[13]
The interpretation of clause 13(t)	[23]
The Judge's approach	[23]
Counsel's arguments	[32]
Our assessment	[35]
Is the Board estopped from claiming the upset rent?	[61]
Did the Judge correctly identify Mrs Chen's repair obligations under the lease and the quantum of damages?	[68]
The Judge's findings	[70]
Mrs Chen's submissions	[77]
The Property Law Act 1952 issues	[79]
The scope of the repair obligations under the lease	[90]
The alleged failure of the Board to prove its case because there was no evidence of the condition of the property in 1988	[91]
The status of the rule in Joyner v Weeks and the proper measure of damages	[97]
Did the Judge wrongly allow the Board to recover the cost of certain items?	[102]
Was the Judge right to reject Mrs Chen's defence of waiver or estoppel in relation to the Board's claim for repair costs?	[107]
Result	[110]

Introduction

1 The appellant Board owns and administers Cornwall Park in Auckland. For many years it has leased adjoining land to provide income to maintain the park for the benefit of the public.

2 The form of lease utilised by the Board is known as a Glasgow lease. Key features of the lease are:

• (a) It is a ground lease only.

• (b) The term is for 21 years.

• (c) The ground rent is fixed at the commencement of the term and remains payable at the same rate throughout the 21 year term.

• (d) The lease is perpetually renewable so long as the lessee complies with the terms of the lease and is willing to pay the new ground rent established at the expiry of the 21 year term. (The new rent is described in the lease at issue as the “upset rent”.)

• (e) If the lessee does not renew or the lease is not taken up by a purchaser at auction, any improvements on the land revert to the Board without compensation to the lessee.

3 The lease at issue in this appeal relates to a property at 21 Maungakiekie Avenue. It commenced on 30 March 1988 and expired on 29 March 2009. The ground rent fixed in 1988 was $8,300 per annum. A single dwelling was erected on the property in the 1920s or 1930s.

4 The respondent Mrs Chen purchased the leasehold interest in the land and the dwelling in November 2005 for $450,000. After the expiry of the lease, she remained in possession until November 2011. During that time, the upset rent for the next 21 year period was established by the processes under the lease to be $73,750 per annum. There is no challenge to the amount so established or to the underlying valuations.

5 Mrs Chen did not give notice to renew the lease. An auction of the lease was then held but no bids were received. In accordance with the terms of the lease, the improvements have reverted to the Board without compensation to Mrs Chen. The Board has since carried out repairs to the property and has rented it to a third party at approximately two-thirds of the upset rent.

6 The Board brought proceedings in the High Court against Mrs Chen to recover:

• (a) Ground rent of $173,323.64 at the upset rent of $73,750 per annum during the period she was in possession of the property after the expiry of the lease; and

• (b) Costs incurred by the Board in remedying alleged breaches by Mrs Chen of the repair covenants in the lease.

7 In support of the claim for ground rent, the Board relies on cl 13(t) of the lease:

(t) The Lessee shall whilst and so long after the expiration of the term hereby granted as they retain possession of the said land pending the granting of a new lease as aforesaid pay to the Lessors for the period during which [they] retain such possession a rental calculated upon the basis of the upset rent as valued and fixed in manner aforesaid.

8 In the High Court, Ellis J rejected the Board's claim. 1 She accepted Mrs Chen's argument that, properly construed, Mrs Chen's liability to pay the upset rent under cl 13(t) was dependent upon the grant to her of a new lease. 2 As this had not occurred and, in the absence of a successful third party bidder at auction, she was not liable to pay the upset rent during the period she was in possession. The Board appeals against that finding.

9 The second limb of Mrs Chen's argument in the High Court was that, even if the Court supported the Board's interpretation of cl 13(t), the Board was estopped by its conduct from claiming the upset rent. The Judge did not find it necessary to reach a firm conclusion on this point but said she would have found Mrs Chen had not changed her position in reliance on any representation of the Board. 3

10 Ellis J found in favour of the Board on its claim for repair costs. 4 In doing so, she rejected Mrs Chen's defence that she had not breached any terms of the lease; that the Board had waived any claim for repair costs or was estopped from recovering them; and that its claims were excessive. 5 In her cross-appeal, Mrs Chen

challenges these findings and also raises some new arguments not developed in the High Court. We will refer to these in more detail below

11 The broad issues are:

• (a) Whether the Judge correctly interpreted cl 13(t) of the lease.

• (b) If the Board's interpretation is correct, is the Board estopped from claiming the upset rent?

• (c) Did the Judge correctly identify Mrs Chen's repair obligations under the lease and the quantum of damages?

• (d) Was the Judge right to reject Mrs Chen's defence of waiver or estoppel?

12 The parties agreed that some additional evidence should be adduced on appeal. We are satisfied that is appropriate and order accordingly. 6

The terms of the lease

13 Ellis J helpfully appended a copy of the full terms of the lease to her judgment. For present purposes, we need refer only to some of them. The right of renewal is provided for in cl 13(a):

(a) On the expiration by effluxion of time of the term hereby granted and thereafter at the expiration of each succeeding term to be granted to the Lessee or to the purchaser at any auction under the provisions hereinafter contained the outgoing Lessee shall have the right to obtain in accordance with the provisions hereinafter contained a new lease of the land hereby leased at a rent to be determined upon the basis of the valuation to be made in accordance with the said provisions for the term of twenty-one years computed from the expiration of the expiring term and subject to the same covenants and provisions as this lease as may be applicable to such new lease.

14 Clauses 13(b)–(g) set out a process for determining the gross value of the fee simple of the land and of all substantial improvements of a permanent character. For valuation purposes, the lessor and lessee nominate their arbitrators and an umpire.

15 The upset rent for the new term is to be:

… equal to five pounds per centum on the gross value of the land after deducting therefrom the value of the substantial improvements of a permanent character as fixed by the respective valuations as foresaid.

(cl 13(h))

16 Once the decision of the arbitrators (or of the umpire if necessary) has been made, the lessee is required to give notice to the lessor stating whether they desire to renew the lease. The notice may be given after expiration of the term of the lease so long as the lessee remains in possession of the land (cl 13(i)).

17 Clause 13(j) applies where the lessee gives notice to renew:

(j) Any such notice by the Lessee of their desire to have a new lease shall be deemed to constitute a contract between the Lessors (sic) and the Lessee for the granting and acceptance of a new lease at the rent fixed and determined upon the basis aforesaid and for the term and subject to such of the covenants and provisions as are herein...