The Roman Catholic Bishop of The Diocese of Christchurch v Rfd Investments Ltd ((in Receivership)) ((in Liquidation))

• Jurisdiction: New Zealand
• Judge: Davidson J
• Judgment Date: 28 October 2015
• Neutral Citation: [2015] NZHC 2647
• Docket Number: CIV-2014-409-560
• Court: High Court
• Date: 28 October 2015

BETWEEN

The Roman Catholic Bishop of the Diocese of Christchurch

Plaintiff

and

RFD Investments Limited (In Receivership) (In Liquidation)

Defendant

[2015] NZHC 2647

CIV-2014-409-560

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

Application for a declaration that the plaintiff's leasehold interest had not been extinguished when the land was designated for a public work — the plaintiff Bishop was the registered lessee of a unit title in a building which contained a chapel — the chapel was damaged by the Canterbury earthquakes — before it could be repaired, notice was given of an intention to acquire the property under the Canterbury Earthquake Recovery Act 2011 — a clause in the lease provided that if consents for repair could not be obtained or the lessor could not repair and reinstate the property, the lessor was to pay to the lessee a just and equitable part of the insurance moneys — the receivers argued that the building would not be repaired and the lease was frustrated by the notice of compulsory acquisition or the insurance payout — they said that the plaintiff's interest was limited to the physical confines of the chapel and the plaintiff had no interest for the Crown to acquire — whether the leasehold interest subsisted or was terminated under the lease, or was otherwise frustrated before the Crown acquired the premises — whether the contemplated purpose of the lease was frustrated when the chapel could not be rebuilt — whether designation of itself was sufficient to frustrate a lease.

Appearances:

SM Dwight and JM McMullen for the Plaintiff

SD Munro and JWC Nicholls for the Defendant

JUDGMENT OF Davidson J

Introduction

1 The Holy Cross Chapel was situated in Chancery Lane, Christchurch close to Cathedral Square. It was damaged but not destroyed by the Canterbury earthquakes in 2010 and 2011.

2 The Roman Catholic Bishop of the Diocese of Christchurch was the registered lessee of the unit titles which contained the Chapel, for a term of 999 years. He seeks a declaration that his leasehold interest subsisted until the land and buildings which included the Chapel were compulsorily acquired by the Crown for the new Christchurch Convention Centre.

3 The defendant company, RFD Investments Limited (In Receivership) (In Liquidation) (“RFD”) owned the building which included the Chapel, and the stratum estate in freehold of the Bishop's leasehold interest. The Receivers contend that the Bishop's entire interest was limited to a share of the indemnity insurance that was paid out after notice of compulsory acquisition by the Crown meant the building would not be repaired. RFD says that the lease was frustrated by the notice of compulsory acquisition or the insurance payout, so the Bishop had no interest for the Crown to acquire.

The Bishop's leasehold interest

4 From 1959 a chapel was situated on land owned by the Bishop in freehold on Gloucester Street in Christchurch.

5 In November 1980, the Bishop entered into an agreement with IHL Holdings (“IHL”) under which he would transfer the freehold title into IHL's name in return for the grant of a leasehold interest in a unit title. A new chapel would be built by IHL in Chancery Lane. The leasehold interest would be for a term of 999 years at a nominal rent (one dollar annually).

6 In April 1987 the freehold interest was transferred to IHL's nominees. On 17 August 1988, the Bishop entered into an agreement with the nominees, on the terms described above. The Bishop's interest was held in “Unit A” on Unit Plan No. 52258 as a stratum estate in leasehold, governed by the Unit Titles Act 1972, under Identifiers CB30K/618 and CB30K/620.

7 The new Holy Cross Chapel in Chancery Lane took its place in the ecclesiastical life of the central city, with its near neighbour Christchurch Cathedral.

The Canterbury Earthquakes

8 The Holy Cross Chapel was substantially damaged but not destroyed. After the most destructive of these earthquakes in February 2011 much of central Christchurch was cordoned off, including Chancery Lane.

9 Until 2013, RFD and its insurers contemplated that the Chapel could be repaired, as part of the RFD building. The premises were insured for replacement value in the names of the lessee and lessor, for their respective interests. The sum insured was $7,800,000.00. A letter from CBRE (the property managers for RFD) to the Bishop dated 28 February 2012, said that while a timeframe for repair work had not been set, Cequent Projects Ltd had been employed to oversee the process.

10 RFD by its Receivers, Grant Thornton, commissioned a report on the state of the Chancery Lane premises from Beca Carter Hollings & Ferner Ltd (Beca). That report was published on 23 March 2012. The report regarded the building as “likely to be reasonably repairable”, though this would entail “significant structural or other repair works”.

The Crown's intention to acquire the land

11 The prospect of repair was impacted on 14 August 2012, when the Christchurch Central Development Unit (CCDU) notified RFD of the Crown's intention to acquire the RFD site, including the Holy Cross Chapel. The date of designation was 31 July 2012. The Crown intended the site to form part of the new Christchurch Convention Centre.

12 The letter of 14 August 2012 recorded:

The Crown's intention is to acquire the properties in areas that are needed for the anchor projects. The Minister for Canterbury Earthquake Recovery has the power to compulsorily acquire property. However his preference is for the Crown to purchase property on agreed terms. For this reason, the Crown, acting through CERA and the Crown's Agent (The Property Group Limited) wish to know more about your property.

13 A series of questions were then put to the property owner.

14 Another document issued by CCDU was headed “Central City Tenancies Affected by Property Acquisition by the Crown”, which was prepared before the notice given on 12 August. That recorded that the process included advice of the Crown's intention and “a formal notice of intention to take land will be sent to all affected landowners and anyone with a registered interest in the land in question.”

15 CCDU then set out a number of options for dealing with properties subject to lease including an agreement with the landlord requiring delivery of vacant possession on settlement, so that the landlord would negotiate with the tenants in relation to any leasehold interest. A second course was for the Crown to negotiate purchase subject to any existing lease arrangements and to negotiate direct with tenants. A third was for the Crown to compulsorily acquire all interests in a property, including freehold and leasehold.

16 After the notice of intention to acquire was given in August 2012, correspondence demonstrates that repair was still contemplated and valuations were prepared before formal “Notice of Intention to Take Land for the Implementation of the Christchurch Central Recovery Plan in Canterbury District” was given to the Bishop and RFD, dated 3 December 2012, and signed by Mr Isaacs as Director of CCDU for the Minister for Canterbury Earthquake Recovery.

17 The Notice records:

The Minister for Canterbury Earthquake Recovery proposes to take under the Canterbury Earthquake Recovery Act 2011 your interest in the land described in the Schedule of [sic] this notice.

18 The Schedule to the Notice given to the Bishop referred to the “Lessee as contained in lease 772090.1” and explains the reasons for taking the land. It advised:

• 5. This notice relates to the taking of your interest in the land and not to your right to compensation. Under the Canterbury Earthquake Recovery Act 2011, you are entitled to compensation if your interest in the land is taken. You have the opportunity to make representations as to the nature of the claim for compensation and the amount of compensation payable.

19 An accompanying letter confirmed the Crown's preference to negotiate an Agreement for Sale and Purchase, and service of the Notice did not preclude negotiation. That letter also said that the underlying anchor project:

… for which your land has been designated has a timeframe which necessitates the acquisition of that land reasonably soon. Accordingly, if the Crown is unable to conclude a negotiated agreement with you, it will need to consider compulsorily acquiring your land.

20 So service of the Notice was the first step in the process along with publication of the Minister's intent in The Gazette and The Press. The property would not be compulsorily acquired until the Governor-General by proclamation declared that the land was taken in the name of the Crown.

The Receivers’ response to the Crown's notices

21 Faced with the December 2012 notice, RFD's Receivers gave up pursuing the option to repair the building. This would have insurance and other implications for RFD and the Bishop.

22 On 2 May 2013, lawyers for the Receivers wrote to the Bishop's lawyers. They suggested that Clause 25(iii) of the Memorandum of Lease governed the parties’ relationship. 1 That clause provided:

That if the Lessor shall be unable to obtain the necessary consents and permits referred to in sub-clause (i) of this Clause 25 and shall be unable to repair and reinstate as aforesaid, then and in such a case the Lessor shall pay to the Lessee a just and equitable part of the insurance moneys which have been received by the Lessor such part to be based on the proportion that the floor area of the demised premises bear to the rentable floor area of the whole building.

23 The Receivers’ lawyers took this clause to embody the full extent of the Bishop's leasehold interest, given the Crown's intended acquisition. The only “compensation” which the Bishop would receive for his leasehold interest was limited to a proportion of the insurance moneys RFD received for the building itself, based on indemnity...