ATTORNEY-GENERAL (COMMISSIONER OF CROWN LANDS) V LITTLE BO PEEP SHEEP COMPANY LIMITED HC INV CIV-2010-412-000134

ATTORNEY-GENERAL (COMMISSIONER OF CROWN LANDS) V LITTLE BO PEEP SHEEP COMPANY LIMITED HC INV CIV-2010-412-000134 5 August 2010IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY CIV-2010-412-000134BETWEEN ATTORNEY-GENERAL (COMMISSIONER OF CROWN LANDS) Appellant AND LITTLE BO PEEP SHEEP COMPANY LIMITED Respondent Hearing: 8 June 2010 Appearances: M T Parker for Crown R S Cunliffe for Respondent Judgment: 5 August 2010RESERVED JUDGMENT OF HON. JUSTICE FRENCH[1] This appeal concerns the interpretation and application of s 19(2)(b) of the Crown Pastoral Land Act 1998, in particular the meaning of the term "exemplary damages". [2] Section 19(2)(b) authorises the District Court to order the lessee of a pastoral lease who has breached the terms of the lease to pay "exemplary damages" not exceeding $50,000. [3] The key issues for determination are: i) Whether the phrase "exemplary damages" is to be accorded its common law meaning so as to require the existence of outrageous conduct/subjective recklessness before an award can be made, or whether, correctly interpreted, the term"exemplary damages" as it appears in s 19(2)(b) is more akin to a fine or penalty. ii) Whether, on the facts, an award of $5000 was an appropriate sum.Factual background[4] The respondent, Little Bo Peep Sheep Company Limited, was the lessee under a pastoral lease of land situated in the Cardrona Valley known as Robrosa. The company acquired the lessee's interest in 2004. [5] The principal shareholders of Little Bo Peep, Mr and Mrs Lee, also owned a block of adjoining land called Waiorau. At one time Waiorau had also been held under a pastoral lease, but had been freeholded by the Lee family in 2002. [6] In addition to pastoral farming, the Lee family was engaged in a number of other businesses on the Waiorau property. These businesses were reliant on a regular supply of snow. In 1998 (at which time Waiorau was still held under the pastoral lease) the Commissioner of Crown Lands granted the Lees consent to create a 14,900m 3 reservoir on Waiorau to hold water for snow-making. It was a condition of the consent that the reservoir facilities should lie completely within the Waiorau pastoral lease. However, in breach of the condition, the reservoir was constructed across the boundary with Robrosa. [7] Over the ensuing years a shortage of natural snow meant that an increasing percentage of the snow for the Waiorau activities needed to be man-made. The reservoir that straddled the Waiorau and Robrosa boundary did not have sufficient capacity to meet the increased demand. Accordingly, the Lee family decided to construct a second, bigger reservoir. [8] Construction of a 90,000m 3 reservoir duly began in early 2005. Unfortunately, the earthworks were undertaken without there being any formal survey or formally prepared engineering plans. The reservoir was only partially constructed when all works ceased. This followed the visit of a Queenstown LakesDistrict Council enforcement officer, and concerns that a resource consent should have been obtained. [9] As a result of the visit, it became apparent that the earthworks were entirely on Robrosa land, and not on Waiorau as Mr Lee claimed had been intended. [10] Despite now realising the earthworks were on Robrosa land, Mr Lee did not however immediately apply to the Commissioner for consent. His explanation for this oversight was that it simply did not cross his mind. He was preoccupied with obtaining a resource consent, and also grappling with the issue of whether a building consent was required. Further, he claimed that he was out of touch with the processes involved in running a pastoral lease, and the need to obtain appropriate consent. [11] Had the company applied to the Commissioner for consent, it is unlikely the Commissioner would have granted it. The reservoir was inconsistent with the pastoral lease. It was not being constructed for the purposes of providing water for stock, but solely to serve commercial activities on the adjoining property. There were other important issues relating to natural ecosystems and landscapes which the Commissioner would also have been required to consider. [12] The Commissioner only found out about the reservoir in September 2005 via media reports when the Queenstown Lakes District Council prosecuted Little Bo Peep for building the reservoir without a building consent. [13] The company finally applied for the Commissioner's consent on 5 October 2005. [14] Section 16(1)(g) of the Crown Pastoral Land Act prohibits a lessee from undertaking an activity affecting or involving or causing disturbance to the soil of pastoral land without the prior written consent of the Commissioner. The section reflects the fact that under a pastoral lease, the lessee has no right to the soil but may only graze the land. Consent is required even if the activity, such as a proposed track or dam, is to be part of the pastoral activities conducted by the lessee. There is noprovision for retrospective consent. Consent must be obtained before work commences. [15] It was common ground that the construction of the reservoir on Robrosa constituted a breach of s 16, and also a breach of the implied terms of Little Bo Peep's lease. [16] The Commissioner initiated these proceedings under the Crown Pastoral Land Act, seeking an order requiring Little Bo Peep to reinstate the land or, in the alternative, to pay an award of exemplary damages. [17] Before the matter came on for hearing, the parties reached a partial settlement. The terms of the settlement were as follows:• The Commissioner accepted it was impracticable to require reinstatement, such was the scale of the excavation.• The Commissioner consented to completion of the reservoir to standards agreed between the parties' respective expert engineers.• The Commissioner agreed to surrender the land on which the reservoir is located from the pastoral lease, and to grant a special lease over it instead, allowing the land to be used for a reservoir.• In consideration of the grant of that lease, Little Bo Peep agreed to pay the Commissioner $10,000 in key money.• The special lease is for a term that expires in June 2026 (to coincide with the expiry of the pastoral lease) at an annual rental of $12,600 plus GST, reviewable at three-yearly intervals.• Little Bo Peep agreed to reimburse the Commissioner for legal costs, expert witness costs and disbursements totalling $70,881.94. [18] The only issue left to be determined by the District Court was whether Little Bo Peep should also pay exemplary damages, and if so, in what amount.The decision of the District Court[19] In his decision, the Judge held that when enacting s 19, the legislature intended the phrase "exemplary damages" should be accorded its common law meaning. The Judge traversed the common law history of exemplary damages, their deterrent and condemnatory functions, and noted that exemplary damages are not intended to compensate the innocent party but to punish a wrongdoer where the wrongdoer's conduct is deserving of punishment. The Judge concluded:[34] In order to qualify for an award of exemplary damages, the defendant's conduct must be not only in breach of (in the present case) statutory obligations but also must be high-handed, irresponsible, or in some other respect outrageous.[20] This formulation of the test was derived from the Supreme Court's 2008 decision in Couch v Attorney-General [2008] 3 NZLR 725 at [11]. The Judge did not have the benefit of the 2010 Couch judgment, which was delivered after his decision: see Couch v Attorney-General [2010] NZSC 27. At the time of his decision, Bottrill v A [2003] 2 NZLR 721 (PC) was still good law, which meant extreme inadvertent negligence (as distinct from subjective recklessness) was capable of qualifying as outrageous conduct for the purposes of an award of exemplary damages. Subsequently in Couch, the Supreme Court overruled Bottrilland held that exemplary damages in negligence cases should be confined to cases where the wrongdoer is subjectively aware of the risk to which their conduct exposes the claimant and acts deliberately or recklessly taking that risk. [21] In this case it was common ground that Little Bo Peep's breach was inadvertent, and in the Judge's assessment the approach of the company to its obligations was best characterised as cavalier. The Judge identified the followingfactors which persuaded him that the conduct of the company was deserving of punishment and that this was an appropriate case for the award of exemplary damages: i) The company should have been aware from Mr Lee's experiences with the first reservoir that consent was required. ii) The breach involved a substantial disturbance to the soil. iii) The reservoir was constructed solely for the benefit of activities on the adjoining land. iv) The company allowed commercial imperatives of the activities on adjoining land to override consideration of its responsibilities under the Act. v) The company failed to take the simple expedient of surveying the land, despite Mr Lee's past experience. vi) The need for general deterrence and the need to maintain standards of compliance. [22] Having decided that an award of exemplary damages was appropriate, the Judge then turned to quantum. On that issue the Judge directed himself in terms ofMcDermott v Wallace [2005] 3 NZLR 661 (CA), taking into account six principles or considerations to arrive at the conclusion that the circumstances called for no more than a modest penalty in the sum of $5000:[38] First, whilst the conduct of the company is deserving of punishment, the company has suffered not insignificant costs and losses as a result of the breach: processing of a recreational permit and land tenure review were deferred; the delay in completion of the works added to the financial losses being experienced on the adjoining land; the company has incurred significant costs; and the company has paid approximately $70,000 to the Commissioner to defray costs and expenses. [39] Secondly, the award should be kept moderate, having regard to the statutory maximum and the gravity of the company's wrongdoing – in this case inadvertent albeit cavalier conduct.[40] Thirdly, the company has been convicted of a breach of the Building Act in relation to the reservoir and ordered to pay costs. [41] Finally, once the company became aware of the need for the Commissioner to consent to the activity, an application was made. The company has acknowledged that it acted wrongfully and has acted co- operatively in seeking to resolve the issues. Whilst the scale of the reservoir is significant and the works confer no benefit on the pastoral lease whatsoever, the reservoir has no adverse impact on the environment. [42] Counsel for the Commissioner sought an award of the maximum amount of exemplary damages having regard to the significant scale and nature of the breach. Whilst the extent of the breach is a factor to be considered the focus, in deciding whether to award exemplary damages and, if so, in what quantum, should be on the nature of the wrongdoing. In this case, the conduct is more properly regarded as cavalier than truly outrageous. The above considerations call for no more than a modest penalty.[23] This decision was delivered in February 2010. In holding that common law principles applied, it appears the Judge was unaware of an earlier decision of another District Court Judge in Commissioner of Crown Lands v Cockburn DC Invercargill CIV-2008-025-000522, 14 December 2009. In Cockburn it was held that the jurisdiction to award exemplary damages did not depend on there being outrageous conduct. Rather, it depended on the existence of a breach which was not capable of being rectified. In the view of the Judge deciding Cockburn, the power to award exemplary damages was therefore breach-based rather than conduct-based.Arguments on appeal[24] On appeal, the Commissioner submits the Judge was wrong to hold that common law principles were applicable. According to the Commissioner, the correct interpretation of s 19 is that the term exemplary damages simply means fine or penalty, and that it is not necessary to establish outrageous conduct or subjective recklessness. Rather, all that is required is to show a breach of the lease terms with quantum depending primarily on the nature and extent of the breach. [25] In support of that interpretation, counsel Mr Parker advanced the following arguments:a) At common law, an award of exemplary damages is additional to compensatory damages, whereas under s 19 there is no issue of compensatory damages. Exemplary damages are the sole financial penalty. b) Parliament has identified the situations in which exemplary damages are available under s 19 by reference to breach. c) The absence of any reference in s 19 to outrageous conduct or subjective recklessness. d) The practical difficulties of proving outrageous conduct in the case of the breach of a pastoral lease. e) The maximum award is specified as $50,000, which is far higher than the $10,000–$15,000 threshold set at common law for exemplary damages. f) If common law principles were intended to be applied, there would have been no need to specify a maximum. [26] As regards quantum, the Commissioner argues that in the context of soil disturbance it is difficult to contemplate a more serious breach than excavating 123,000m 3 of soil to create a reservoir which had no pastoral use and was intended to be part of an adjoining commercial operation. The Commissioner contends that $5000 was grossly inadequate. In his submission, the facts warranted the maximum award possible, ie $50,000, to recognise the magnitude of the breach and the damage to the land. [27] For its part, Little Bo Peep submits the Judge was correct to hold that common law principles applied. However, it contends the Judge erred in his application of those principles. It says that on the facts, neither the Bottrill nor theCouch test was satisfied, and accordingly there should not have been any award of exemplary damages. However, the company has not filed a cross-appeal, andsubmits that otherwise the penalty was appropriate having regard to all the relevant circumstances.Discussion[28] Section 19 states:19 Breaches of statutory or contractual provisions(1) The Commissioner may apply to a District Court for the examination of anything the Commissioner alleges to be a breach of a reviewable instrument committed after the commencement of this Act. (2) If satisfied on application under subsection (1) that the holder of a reviewable instrument has after the commencement of this Act committed a breach, a District Court may— (a) Order the holder— (i) To take actions (specified by the Court) to remedy the breach; or (ii) In default of taking those actions, to pay to the Commissioner exemplary damages (not exceeding $50,000) for the breach; or (b) If, and only if,— (i) It is impossible, impracticable, or otherwise inappropriate to remedy the breach; or (ii) The breach has already been remedied,— (without declaring the instrument forfeit) order the holder to pay to the Commissioner exemplary damages (not exceeding $50,000) for the breach; or (c) Declare the instrument forfeit to Her Majesty, and order the holder to pay to the Commissioner an amount being, as seems appropriate to the Court,— (i) The lower of $50,000 and the likely costs to the Crown of remedying the breach; or (ii) Exemplary damages (not exceeding $50,000) for the breach. (3) The District Court must not make an order under subsection (2)(c) unless satisfied that every person with an interest in the land concerned at the time the application under subsection (1) was made—(a) Has been given notice of the application; and (b) Has an adequate opportunity to appear and be heard in relation to it. (4) Sections 244 to 257 of the Property Law Act 2007 is not available in respect of a forfeiture under subsection (2)(c) of this section. (5) Section 105 of the Land Act 1948 does not apply to a breach of a reviewable instrument committed after the commencement of this Act. (6) In this section, breach, in relation to a reviewable instrument, means an action (or failure or refusal to act) by the holder that is— (a) In contravention of section 100 of the Land Act 1948 or section 15(1) or section 16(1) of this Act, in its application to the land; or (b) In contravention of any provision of or covenant contained in the instrument.[29] As will be readily apparent, s 19 is not particularly well drafted. Its structure is confusing. [30] It appears to provide for an award of exemplary damages in four distinct situations, namely: i) where the lessee has failed to take an action specified by the Court to remedy the breach; ii) where the breach cannot be remedied; iii) where the breach has already been remedied; iv) where the lease is forfeited (in which case the Court has the option of awarding either exemplary damages or the lower of $50,000 and the likely cost of rectifying the breach). [31] I pause here to note that in so far as the reasoning in Cockburn was based on the view that under s 19 exemplary damages can only be awarded when the breach cannot be remedied, it would appear to be incorrect. Section 19 empowers the Court to make an award of damages where the breach has already been remedied, and alsowhere the lease is forfeited, regardless of whether the breach is capable of being rectified. [32] The Crown Pastoral Land Act does not define "exemplary damages", and the phrase is one that has an established common law meaning. [33] Accordingly, the logical starting point must be the general principle of statutory interpretation that words which have an established meaning at common law should ordinarily be construed as having the same meaning in a statute unless there is something in the words or the subject matter of the statute to indicate otherwise. As a general rule, the Courts will not attribute to a statute an intention to alter common law principles or meanings unless such intention is manifested according to the true construction of the statute: see the discussion in Wik Peoples v State of Queensland (1997) 187 CLR 1 (HCA); Burrows & Carter, Statute Law in New Zealand (4th ed, Lexis Nexis, Wellington, 2009). [34] It would have been an easy matter for Parliament to have used the words "fine" or "monetary penalty" if that were what was intended, and the fact those words have not been used has certainly given me serious pause for thought. [35] So too has the fact that, unlike for example s 109 of the Residential Tenancies Act 1986, s 19 does not specify the criteria which are to be taken into account in awarding exemplary damages, nor provide any statement of the basis on which the awards are to be made. [36] However, after careful consideration, I have come to the conclusion that the Crown Pastoral Land Act does manifest an intention to depart from the common law meaning, and that accordingly the District Court Judge erred in requiring (or purporting to require) outrageous conduct. In my view, Parliament did not intend such a high threshold before damages could be awarded. [37] I have come to that conclusion principally because of the nature of pastoral leases, the purpose of s 19 and its delineation of the situations in which an award of damages is to be available. In particular, what has weighed heavily with me is thefact that for the purposes of awarding exemplary damages, s 19(2)(a) and (b) draw a distinction between cases where the breach has already been remedied and cases where the Court orders it to be remedied. In the first case (breach already remedied) s 19 confers jurisdiction to award exemplary damages. Yet, where the breach has not been remedied and the Court makes an order to remedy the breach, there is no jurisdiction to award any damages. Such a distinction does not make sense if exemplary damages has its common law meaning. A lessee who has not remedied the breach is more likely to have been guilty of outrageous conduct than one who has remedied it, not the other way round. The distinction drawn by s 19(2)(a) and (b) only makes sense if the phrase "exemplary damages" is read as meaning a pecuniary penalty, Parliament's intention clearly being that breaches need to be marked by a Court sanction of some kind (either order for action to be taken or payment of a monetary penalty). [38] Or to put it another way, Parliament's clear intention would be frustrated if the very high standard required for exemplary damages at common law were to be applied. It would leave the Commissioner remedy-less under the Act in situations where Parliament clearly intended there to be a remedy. The facts of the present case provide a graphic illustration of that point. Under Couch, it is highly arguable that no award of damages at all should have been made. Yet, it is difficult to imagine a more serious breach in terms of the quantity of earth disturbed. Parliament could not have intended that the Commissioner in such a situation would be bereft of a remedy. [39] I am reinforced in the conclusion I have reached by reference to the Select Committee report which considered the Crown Pastoral Land Bill prior to its enactment. In its report the Committee referred to the provision that was to become s 19, and stated:Breaches of statutory of contractual provisions (clause 15)The Act does not provide satisfactory powers to deal with lessees and licensees who act in breach of the Act or of their lease or licence. Some breaches are criminal offences, making those convicted liable to a fine of up to $400 or imprisonment for up to one year. Other breaches make the holder liable to forfeiture of the lease or licence. However, the Crown has no easy way to make a lessee or licensee remedy such a breach. Clause 15, asintroduced, will enhance the Crown's capacity by enabling the Commissioner to take the lessee or licensee to court and obtain an order to remedy a default, or damages, or forfeiture and damages. Conservation and recreation groups want the financial penalties for breaches of lease conditions increased to a maximum of $200,000 fine and for the public to be able to initiate action to enforce lease conditions. We disagree. Breaching a covenant is a civil, not a criminal offence and the maximum fine level is limited as a result. It would also be inconsistent with the contractual relationship between the lessee and the lessor to allow the public to initiate action to enforce lease conditions. The lessee or licensee and the lessor are the only parties that can be legally aggrieved by a breach of lease or licence conditions.[40] The fact of this being a civil proceeding also explains why Parliament opted to use the word "damages" instead of "fine" or "penalty", the term "exemplary" intended to denote that it is not necessary to show loss. Again, as the facts of this case demonstrate, in the nature of things the Commissioner of Crown Lands is unlikely to suffer a monetary loss as a result of breaches of s 16. The rent for a pastoral lease is assessed as a fixed percentage of the value of the land exclusive of improvements. [41] In coming to this view, I have not overlooked Mr Cunliffe's point that the phrase "exemplary damages" has been used in other statutes such as the Plant Variety Rights Act 1987, and received the common law interpretation: seeWinchester International (NZ) Ltd & Anor v Cropmark Seeds Ltd CA226/04, 5 December 2005. However, ultimately it must all depend on the statutory context. [42] Mr Cunliffe further submitted that the Judge's decision to award damages of only $5000 involved the exercise of a discretion, and accordingly it was not for this Court to say it would have imposed a higher penalty. [43] However, for the reasons I have already traversed, I consider the Judge has made an error of principle. That error has affected the way in which he exercised his discretion, because it resulted in him wrongly placing primary emphasis on the conduct and intentions of the wrongdoer, and treating the nature of the breach as a subsidiary consideration.[44] Appellate intervention is therefore warranted and I am required to look at the matter afresh. [45] In my view the correct approach to the interpretation and application of s 19 is as follows. [46] The only pre-requisites to the exercise of the discretion to award exemplary damages are those contained in s 19 itself. [47] However, even if the pre-requisites are satisfied, the Court still has a residual discretion not to award exemplary damages. That follows from Parliament's use of the word 'may'. [48] In deciding whether to award exemplary damages, and if so in what amount, the Court is entitled to have regard to all the circumstances, including the nature and extent of the breach, as well as the wrongdoer's conduct and intentions. Thus, the fact that in this case the failure to seek consent was not deliberate but inadvertent is a relevant factor. [49] In my view, an award of $5000 was, however, inadequate having regard to the seriousness of the breach in terms of the quantity of earth disturbed and the company's extraordinarily cavalier attitude. As Mr Parker points out, Mr Lee made no inquiry as to the exact location and was content to embark on a substantial construction without ensuring whether it was the Crown's land. Of relevance, too, is the fact that if approval had been sought it is unlikely it would have been granted. Mr Lee did force the Commissioner's hand, even if that was not his intention. Also highly relevant is that the construction of the reservoir had nothing whatsoever to do with pastoral purposes. [50] On the other hand, I do not accept the Commissioner's argument that the maximum penalty should be imposed.[51] Mr Lee did not set out deliberately to defy the Commissioner, knowing consent was required. Further, the actual area of land involved was small, and was not an area of significant environmental value. [52] Another relevant consideration is that the company has already suffered other financial penalties including payment of costs, although that has to be tempered by reference to the fact that the company has also acquired a saleable asset. Mr Cunliffe submitted the fact the company made an early admission should also be taken into account. I accept that in appropriate cases that may well be a consideration, but in this case the matter was originally defended. [53] Having regard to all of the relevant circumstances and weighing up the various factors, I consider an appropriate award would be $25,000.Conclusion[54] The outcome of the appeal is therefore that the award made by the District Court Judge of $5000 is quashed and substituted with an award of exemplary damages for $25,000. [55] The Commissioner sought costs. In the event the parties are unable to agree on costs, I require Mr Parker to file submissions, with Mr Cunliffe having an opportunity to file any submissions in reply ten working days after receipt of the Commissioner's submissions.Solicitors: Crown Law, Wellington MacAlister Todd Phillips, Queenstown