CANTERBURY REGIONAL COUNCIL v KING HOUSE REMOVALS SOUTHLAND LTD [2018] NZHC 873

CANTERBURY REGIONAL COUNCIL v KING HOUSE REMOVALS SOUTHLAND LTD [2018] NZHC 873[1 May 2018]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV-2017-409-000239[2018] NZHC 873BETWEEN CANTERBURY REGIONAL COUNCILPlaintiffAND KING HOUSE REMOVALS SOUTHLANDLIMITEDDefendantHearing: 21 February 2018Appearances: J V Ormsby and I Taylor for PlaintiffA Hitchcock for DefendantJudgment: 1 May 2018JUDGMENT OF GENDALL JIntroduction[1] This proceeding involves an application by the plaintiff, Canterbury RegionalCouncil (the Council) for declaratory relief on the interpretation of rent reviewprovisions in one of the Council's leases. The defendant, King House RemovalsSouthland Limited (King House) is the lessee under this lease. King House as lesseehas occupied the land at issue since about 2002 and uses it to store relocatable housesawaiting relocation. The current lease in question is of 1.0325 hectares of land andwas entered into on 4 July 2007 (the lease).[2] The two issues before the Court are essentially:(a) What can and cannot be taken into account during a rent review underthe lease; and(b) Whether a rent review process in 2008 under the lease, which includeda rent review arbitration, has been concluded?[3] Disputes between these parties have dragged on for almost 10 years. Finally,they have resulted in this litigation commenced by the Council in early 2017.[4] Originally in this proceeding King House, in response to the Council's claim,pursued a number of counterclaims in rectification and estoppel. In reply the Council,it seems, asserted the Limitation Act 1950 and the doctrine of laches which, it wassaid, prevented these counterclaims.[5] Up to recent times, King House has asserted these rectification and estoppelarguments on the basis that it says what was in the lease did not accurately reflect thecommon intention of the parties. The Council's position, however, was always thatthe lease entered into by the parties in 2007 was plain and clear.[6] Approximately three weeks before the hearing of this matter, King Houseadvised a major change in its position. This was to the effect that it withdrew therectification and estoppel claims and confirmed that King House would not nowproceed with its counterclaims. Further, an Agreed Statement of Facts was filed withthis Court which the Council says was strikingly similar to the Draft Agreed Statementof Facts proposed by the Council in early 2017. According to Mr Ormsby, counsel forthe Council, these particular matters have led to significant and unnecessary delaysand costs being incurred. Mr Ormsby contends this should sound later in costs againstKing House.The issues[7] The issues between the parties, as I have noted above, have narrowedsignificantly. The expanded questions to be resolved by this Court are:(a) What is excluded from being taken into account in rent reviewvaluations under the provisions of the lease and, in particular, whetherthose valuations are to exclude the existence of any improvements orservices not on the land itself but available to the site?(b) Whether the 2008 rent review process, and the rent review arbitrationinitiated at that time, has been concluded?Background facts[8] The Council is the owner and registered proprietor of approximately 35.8hectares of land situated on Johns Road, Christchurch, between Sawyers Arms Roadand McLeans Island Road (the Council land). King House, a company specialising inthe relocation of houses, occupied what is now the 1.0325 hectares of the Council landas lessee under lease occupation arrangements originally reached in about 2002.[9] On 4 July 2007 the Council as lessor and King House as lessee entered into thelease upon specific terms which included:(a) The lease was initially to be for a term of three years and five monthsfrom 1 October 2004.(b) The annual rental under the lease was initially for the period up to28 February 2008 to be $18,600 plus GST.(c) From 1 March 2008, being the first renewal date, the lease wasperpetually renewable for terms of 21 years. Rent for the five yearperiod from 1 March 2008 to 28 February 2013 was to be reviewed asat 1 March 2008. The renewals were to provide that the annual rentthereafter was to be reviewed at periodic intervals of five years.(d) The lease was granted pursuant to s 7(1)(e) of the Public Bodies' LeasesAct 1969 (PBLA) with the provisions of the First Schedule to that Actimplied into the lease except as expressly modified.(e) As to the rent review provision, cl 3.2(c) of the lease is the clause indispute. It provides:3.2 The First Schedule to the PBLA shall be read as follows:(c) Under clause 3 of the First Schedule no account shallbe taken of the values of the following improvementson the said land:i. Improvements as defined in section 14(9) of thePublic Bodies Leases Act 1969 made after 1 July1995 by the lessee with the consent in writing of thelessor to or on the demised premises except such asshall have been purchased acquired or paid for by thelessor;ii. The improvements existing on the demised premisesat 1st July 1995.(f) Clause 3 of the First Schedule of the PBLA referred to above provides:3. In making the said valuation no account shall be taken of thevalue of the following improvements on the said land[Specifying, as the lessor thinks fit, the kinds ofimprovements, whether made during the term or at any othertime, which are not to be taken into account in the valuationof the rent.][10] And, in terms of the rent payment obligations under the lease, it is useful alsoto set out in full the provisions of cl 4.4 of the lease:4.4 If the lessee exercises the right to have the new rent (on a rent reviewprovision) determined by arbitration and furnishes to the lessor notlater than the last date for exercising that right a written opinioncertified by a registered valuer as to the rental the valuer believesshould be payable from the relevant review date then the new rentallevel pending determination as from the relevant review date shall bean amount half way between the rent notified by the lessor and therent stated in the lessee's valuer's certified opinion. If the lessee doesnot supply a registered valuer's certificate then the new rental pendingdetermination shall be at the level set out in the notice given by thelessor to the lessee. Upon determination of the new rent anyoverpayment shall be applied in payment of the next rental paymentand any amount then remaining shall immediately be refunded to thelessee. Any shortfall in payment shall immediately be payable by thelessee.[11] As I understand the position, in recent years since 1995 land adjacent to the1.0325 hectares leased land has been the subject of subdivision and development. Thishas included the installation by others of improvements on that adjacent land, beingreticulated mains water, reticulated sewerage and storm water, roading, undergroundservices and other horizontal infrastructure. My understanding also is that theseimprovements to the adjacent land have been taken to the boundary of the leased landand are available for connection. King House has not made or paid for any of thesepost-1995 works, nor has it ever sought the approval of the Council to undertake theworks.[12] The parties have reached an Agreed Statement of Facts here which, in additionto the matters noted above at [11] and other matters, states:As at 1 July 1995 the following improvement were present on the land:(a) limited water provided from a well;(b) limited sewerage serviced by a septic tank;(c) nearby overhead powerlines on McLeans Island Road; and(d) nearby overhead telephone lines on McLeans Island Road.[13] At some point, Kings House gave notice that it wished to renew the lease for anew 21 year term from 1 March 2008. A dispute then arose during the rent reviewprocess (to set the rent for the next five year period which was to take place on 1 March2008).[14] The dispute centres largely upon a position adopted by King House. This is tothe effect that cl 3 of the First Schedule to the PBLA as confirmed in the lease itselfexcludes consideration for rent review purposes of the development work undertakenon the adjoining land.[15] The Council refutes this. Its position is simply that the lease does not preventthese development works from being taken into account because the works:(a) were not undertaken by the lessee; and(b) did not exist on the land at 1 July 1995.[16] I turn now to the factual position relating to that 1 March 2008 rent review.From the evidence before the Court, it appears that in May 2008 the Council obtaineda valuation report which said a fair annual rental under the lease for the five year termfrom 1 March 2008 was $125,000 per year (excluding GST).[17] Then, in about July 2008 the Council wrote to King House to remind it that thelease had expired on 28 February 2008 and that in accordance with the leaseprovisions, King House was entitled to a 21 year renewal commencing from 1 March2008. The Council advised King House of the rental valuation it had received.King House was then asked to respond as to whether it wanted a new lease andwhether it accepted the rental assessed by the valuation.[18] In September 2008 a number of communications took place between solicitorsacting for King House and the Council. King House said it did not agree with therental valuation and sought to appoint an arbitrator to resolve the dispute.[19] On 29 September 2008 the solicitors to King House wrote to the Counciladvising that King House had obtained its own rental valuation report, Its valuer hadfixed a rental valuation of $90,312 per annum (excluding GST) for the 5 year periodfrom 1 March 2008. King House's lawyers also noted that a figure half way betweenthe two valuations was actually $107,656 (excluding GST) and in the meantime thisshould comprise the interim rent payable under cl 4.4 of the lease (the details of whichI outline at [10] above).[20] On 1 October 2008 the Council wrote to King House's solicitors agreeing tothat interim rent payment of $107.656 (excluding GST). As I understand the position,that has been the rent paid by King House since that time, as a form of holding patternpending resolution of the matters the subject of this proceeding.[21] Subsequently from October 2008 to September 2011 it seems that multiplearbitrators have been appointed and then changed by both parties. Also during thistime differing rental valuations have been given by valuers employed by each party.It is Council's position, however, that no final rental valuation figure or arbitration wasever conclusively agreed upon.[22] It appears also that in January 2013, as between valuers engaged at the time, aletter was exchanged confirming two different rent valuations for the land, dependingon whether the land was regarded as a "serviced" or an "unserviced" site. As Iunderstand the position, these valuations were $93,000 per annum (excluding GST) ifthe land was a "serviced" site and $65,000 per annum (excluding GST) if the land wasan "unserviced" site. According to the Council, however, this dispute between theparties was never resolved. This matter is also now the subject of the presentproceeding.Issue One – Contractual interpretation of the rent review provision[23] Turning now to the first question as outlined at [7] above to be considered here,the approach of the courts to contractual interpretation in New Zealand is a well settledone. In summary:(a) The starting point must be the plain words of the contract in the contextof the document as a whole.1(b) The plain words of the contract are then to be cross-checked against therelevant context in which the contract was entered into and the factsand circumstances known to be operating upon the minds of theparties.2(c) Background or contextual material can be relevant in that it assists theinterpretive task or can logically bear upon it.3(d) Caution is required where an interpretation would need a Court tosubstantially re-write a contract as a result of the background matrixand the Court is not to do so lightly.4[24] This exercise is required to be undertaken on an objective basis. Ultimately, aCourt is to step back and consider what a reasonable person would understand theparties intended in light of the plain words of the document and in light of theknowledge then operating on the minds of the parties to the contract.1 Vector Gas Limited v Bay of Plenty Energy Limited [2001] NZSC 5; Investor's CompensationScheme Limited v West Bromich Building Society [1998] 1 WLR 869 (HL).2 Vector Gas Limited v Bay of Plenty Energy Limited, above n 1 at [19]; Pyne Gould GuinnessLimited v Montgomery Watson (NZ) Limited [2001] NZAR 789 (CA) at [29].3 Burrows Finn and Todd, Law of Contract in New Zealand, 5th ed, Lexis Nexis New Zealand 2016at 181.4 Starrenburg v Mortre Holdings Limited [2004] 6 NZCPR 193 (CA).[25] Turning now to the plain words of the lease, the Council says those plain wordsare clear and do not lend themselves to alternative interpretations. I agree. The leasestipulates that rental reviews are to be conducted in accordance with the provisions ofthe PBLA and thus interpretation here requires a consideration of the Act and thewords of the lease itself.[26] Under the lease the rent was to be reviewed at five yearly intervals and onrenewal. The mechanism for assessing new rental, for all intents and purposes, is thesame whether the matter is an intermediate rent review or a review on a lease renewal.[27] In either event, the parties can elect registered valuers to make a valuation ofwhat is described as the "fair annual rent". Clause 3 of Schedule 1 of the PBLA allowsthe parties to agree on matters to be excluded from consideration in undertaking thisrent review. Clause 3.2(c) of the lease records the agreement between the parties inthis respect. It provides that the following matters are not to be taken into account onany rent review:(a) improvements as defined in s 14(9) of the Act made after 1 July 1995by the lessee with the consent in writing of the lessor to or on thedemised premises except such as shall have been purchased, acquiredor paid for by the lessor; or(b) improvements existing on the demised premises as at 1 July 1995.[28] The Council's position is that the only matters excluded from being taken intoaccount when undertaking a rent review are the specific items noted in para [27] above.The Council says that every other factor, including development works done by a thirdparty after 1 July 1995, should be taken into account in assessing a fair annual rental.In response, King House says that it has no difficulty with declarations sought here bythe Council about improvements made or paid for by any developer after 1 July 1995and improvements made or paid for by the Council after that date. It says that thosedeclarations can be made by consent as essentially they follow the wording ofcl 3.2.(c).[29] King House says a principal point of difference between the parties here is asto precisely what comprises an "improvement on the land". King House suggestedinitially that the declarations sought should make it clear that improvements must besomething on the leased land and that services on adjacent land are not improvementsas defined in the lease. Thus, King House's position is that improvements which arenot on the leased land itself but are on neighbouring land and simply reticulated to theboundary of the leased land cannot be said to be improvements either on or under theleased land and therefore they should be excluded from consideration on a rent review.[30] On this aspect, however, King House did go on to acknowledge, first, that theseservices reticulated to the boundary of the leased land do exist here and, secondly, thaton a rent review valuers may or may not consider it appropriate to take these servicesinto account when establishing the appropriate rental for the land, but it is up to them.[31] Counsel for King House proceeds to note too that there can potentially be asignificant difference between the value of an improved or unimproved site for rentalpurposes, where adjacent services are available up to the boundary of the land inquestion and can be connected. In my view, however, all these matters must be ofrelevance and taken into account by valuers in any consideration of a rental valuationfor the land.[32] I am satisfied, too, that in considering precisely what the lease itself does say,the plain words suggest that it is only the matters noted in cl 3.2(c) of the lease whichare to be excluded from being taken into account on a rent review. All other facts,including post-1 July 1995 development works done by a third party on adjacent landwhich could provide some benefit for the leased land, are able to be taken into account.[33] I reach this conclusion not only when considering the plain words of the leaseitself, but also when looking at the contextual background.[34] In affidavit evidence of Mr Dimbleby which is before the Court, it is clear thatit was a third party developer who undertook the development works on theneighbouring property for which King House has obtained significant benefit. Thesedevelopment works being improved access, high pressure water, a reticulated sewerconnection and other infrastructure, arguably provided real benefits to King House,without it providing any consideration for the works themselves.[35] As I understand it, the company that largely undertook those developmentworks (albeit with some contribution from the Council) was Amherst PropertiesLimited (AHL). As a Council lessee itself, AHL has obtained benefit by having thedevelopment works excluded from rent reviews under its lease. It would be wrong, inmy view, to suggest therefore that King House should also obtain the same benefit asAHL in considering rent reviews under its lease.[36] I understand, too, that this position followed extensive lease negotiationsentered into between the Council, AHL and others at the time the development workswere undertaken.[37] In all this, the relevant context in which the neighbouring development workswere undertaken and the various leases concluded, in my view, assist the Council inits preferred interpretation of the rent review provisions advanced here.[38] A further argument advanced by King House here is that the "lessee" asreferred to in the rent provisions of the lease should include prior lessees (includingthe developer who carried out those works in question which now provide services tothe land). This interpretation, it seems, is advanced in order that King House can claimthe development works as in some sense lessee improvements consented to by thelessor, and therefore excluded from consideration in rent reviews.[39] Before me, King House did not appear to rely on this argument to any greatextent, however. In any event, in my view, it has difficulties in that:(a) There is no previous lessee of the land which is the subject of the newKing House lease. That land, being a new lot described as Lot 16,came into existence when the subdivision plan developed by aneighbouring third party was deposited and King House became thefirst lessee of Lot 16;(b) And, in any event, the neighbouring developer has never been a lesseeof the land, either under a new or old lease, so that development workswhich it undertook could never be considered lessee improvements inrelation to Lot 16; and(c) In the new lease the lessee is defined as King House.[40] Lastly, King House appeared to rely upon the Court of Appeal decision Mussonv Canterbury Regional Council5 in support of its argument here.[41] That case considered whether the hardfill in gravel pits on land leased from theCanterbury Regional Council was an "improvement" for the purposes of a rentcalculation. In that case the calculation of rent had to be made in accordance with theFirst Schedule to the PBLA. As occurred in the present case, a Schedule to the leasein Musson provided that no account should be taken of the values of specifiedimprovements "on the said land".[42] The dispute between the parties in Musson was whether the gravel in the pits(which had been there since the 1960s) were "improvements" which would mean theywere excluded from the rent review, thus reducing the rent payable by the lessee. Oneof the last arguments advanced for the Regional Council in that case was that the gravelwas not "on" the premises but was "in" it or part of it.[43] The Court of Appeal, however, disagreed. At [49] of its decision O'Regan Jgiving the judgment for the Court stated:6In our view the term "improvements on the land" should be interpreted asapplying to anything which is of a nature that it constitutes a betterment of theland concerned which is substantial and permanent. In our view, so long asthose improvements have been made on the land, and not on adjoining land,for example, then they should come within cl 3.B for the calculation of rent.[44] In the case before me, Mr Ormsby for the Council contends that on a closerexamination the decision in Musson does not assist either party here. The Councilposition is that, as King House has conceded that some of the improvements in5 Musson v Canterbury Regional Council CA35/03, 2 August 2004.6 Musson v Canterbury Regional Council, above n 5 at [49].question are not "on the land" but are instead adjacent to the land up to its boundaryin any event, they may still be properly taken into account by a valuer. This can occur,the Council says, not because they are improvements "on the land", but simply becausethey provide a degree of betterment to the land and therefore they should be taken intoaccount in assessing fair annual rent for the land.[45] Mr Ormsby for the Council contended that King House had misunderstood theposition relating to this aspect. He said this stemmed from an examination of cl 3.2(c)and what is to be excluded from consideration. This clause does not define what is tobe included in the assessment of a fair annual rent. Under the provision in the FirstSchedule, a lessor and lessee may agree to exclude improvements "on the said land"from consideration.[46] To recap too, King House appears to take issue with the declaration sought bythe Council that the following items are to be taken into account in assessing the fairannual rent:Certain particular improvements, including mains sewerage, mainsstormwater, mains water, underground power, underground phone andinternet, all other horizontal infrastructure installed on or after 1 July 1995.[47] This position, as I see it, however, seems to stem from a misinterpretation of astatement made in the Court of Appeal decision in Musson.7 Again, as I note above,this was made in the context of a dispute about whether gravel and gravel pits couldbe considered "improvements on the land". The reference to "on the land" necessarilyrequires that the improvements are not on another piece of land. In contrast to thedispute in the present case, this is about what is excluded from consideration whenassessing the fair annual rent in accordance with Schedule 1 of the Act. There is nolocational reference that restricts this.[48] I am satisfied that the Court of Appeal decision in Musson is authority for theproposition that if a lease is to provide that improvements on land existing prior to acertain date are to be excluded from consideration in lease rent reviews then, in order,7 Musson v Canterbury Regional Council above n 5.to qualify for exemption under that provision, necessarily they cannot be on adjoiningland.[49] For all these reasons I am satisfied the decision in Musson does not assistKing House here.[50] Put another way, if the decision in Musson is authority for the principlecontended for by counsel for King House (i.e. that nothing outside the boundary of thelease can be considered in rent reviews) then all rent reviews would be conducted in avacuum. These rent reviews would be carried out simply without reference tosurrounding facts, such as zoning or land use changes, the improved quality of tenantsin the area, improved roading or access to the property, access to connect toinfrastructure such as sewerage, stormwater and water mains or any other number offactors usually taken into account. In my view, that simply cannot be the case.Conclusion on the contractual interpretation of the rent review provision[51] In conclusion I reach the position that it is clear from both the plain languageof the provision and the surrounding context of the lease that the interpretation of therent review provisions suggested by the Council in its application is the properinterpretation here. I find that the interpretation put forward by counsel for KingHouse before me (which has moved somewhat from its earlier position) is contrary tothe plain words of the lease to the extent that it directly contradicts defined terms andseeks to insert further terms despite the background and context to the lease itself.[52] The application by the Council relating to interpretation of the rent reviewprovision succeeds. The declaration relating to this which is sought in the Council'spleading is now made with a minor amendment for clarification purposes.[53] This declaration which is now made is as follows:(a) The rent under the lease is to be assessed on the basis of the land as itstands at the date of each renewal or rent review:(i) Including the following improvements:1. All improvements made or paid for by any developer of theland after and including 1 July 1995;2. All improvements made or paid for by the CanterburyRegional Council after and including 1 July 1995;3. Certain particular improvements including mains sewerage,mains stormwater, mains water, underground power,underground phone and internet, and all other horizontalinfrastructure installed on or after 1 July 1995 which expertvaluers considering the rent can appropriately assess asproviding benefit to the land and thus being relevant to thefair annual rent to be determined whether the status of thoseservices is such that they are situated either on the land oroutside the land but provide benefit to it.(ii) Excluding the following improvements:1. Any improvements that existed prior to 1 July 1995; and2. Any improvements paid for by King House RemovalsSouthland Limited, with the consent of the CanterburyRegional Council.Issue 2 – Was the rent review arbitration completed?[54] Turning now to the second issue noted at para [7](b) above, the Councileffectively seeks a declaration that there has been no binding rent review undertakenfor the 2008 lease renewal.[55] The parties accept, and King House acknowledges, that no binding rent reviewhas been undertaken for the 2013 lease renewal. This is a matter which will need tobe addressed.[56] Notwithstanding this, the issue before me relates to the 2008 lease renewal.King House's position is that there has been a binding rent review undertaken for this2008 lease renewal. This contradicts the position advanced by the Council.[57] Clause 3 of the lease deals with renewals, including the review of rent uponrenewal and incorporates Schedule 1 of the PBLA. Clause 3.1 specifically providesthe rent on renewal will be determined in accordance with Schedule 1 of the Act.[58] Schedule 1 of the Act provides for a mechanism of renewal and rent review asfollows:(a) Clause 2 – not earlier than nine months or later than three months fromthe expiry of the term of the lease the lessor shall cause a valuation tobe made by a person who the lessor reasonably believes to be competentto make the valuation of what is to be the fair annual rent of the land;(b) Clause 3 – this allows the parties to exclude certain improvements fromreview;(c) Clause 4 – as soon as possible after the valuation has been made thelessor is to give to the lessee notice in writing informing it of the amountof that valuation and requiring the lessee to give notice within twomonths whether the renewal will be accepted at the rent specified;(d) Clause 5 – the lessee can give notice that the rent is to be determinedby arbitration (there are other options – to accept or decline renewal butthese did not occur in 2008 in this case);(e) Where arbitration is elected the valuation shall be made by two personsas arbitrators (one appointed by the lessor and one by the lessee);(f) Clause 8 – before commencing the arbitration the arbitrators shallappoint a third person as umpire;(g) Clause 9 – the decision (whether by agreement or determination by theumpire) shall be binding on the parties;(h) Clause 10 – the duty of the umpire when referred any question shall beto consider the respective valuations and make an independentvaluation, although it must be a valuation between the values of the twoarbitrators; and(i) Clause 12 – the lessee must give notice within two calendar months thatit accepts the final assessed valuation.[59] Clause 4.4 of the lease adds a further provision. This is to the effect that whererent is to be determined by arbitration, then an interim rent is payable by the lessee.This is to be an amount which is half way between the respective valuations.[60] In the Agreed Statement of Facts which is before the Court, it is noted that theparties agreed to the renewal of the lease with the rental figure to be determined inaccordance with the lease provisions.[61] Before me, the position adopted by the Council was that the 2008 rent reviewand its process was not completed for a number of reasons:(a) Several key provisions of the rent review mechanism set out inSchedule 1 of the PBLA were not carried out and therefore it could notbe said a valid arbitration was completed. Those matters are:(i) No umpire was ever appointed by any of the arbitrators thatrepresented the parties throughout this matter. The appointmentof an umpire as noted above is a requirement under cl 8 of thelease prior to commencing the arbitration.(ii) Clause 9 of the lease provides that the arbitrators by agreementor their umpire by determination must provide a valuation of therent. Clause 12 then goes on to stipulate that the lessee mustgive notice it accepts the rent within two calendar months. Inthe present case the Council says, first, the arbitrators wereunable to agree on a rental figure because of the dispute that isthe subject of these proceedings and, secondly and importantly,no umpire was appointed or present to make a determination.There has therefore been no decision on a binding rental figure.(iii) It is because of these matters that King House has been unableto give the notice required under cl 12 of the lease.(b) In addition to the matters noted above relating to non-compliance withSchedule 1 of the Act, the Council says the conduct of the parties herehas clearly indicated that no rent review has ever been properlyconcluded. The Council says this includes:(i) Mr Tay, the Council appointed valuer withdrew from thearbitration indicating it was incomplete.(ii) King House has paid the interim rent of $107,656 from 2008 upto the present time. If the rent review had been completed, asKing House now allege, then it would be expected that KingHouse would have given notice under cl 12 and begun to paythe new rental figure. It has not done this. Instead King Househas acknowledged the process is incomplete, the Councilcontends, by paying interim rent under cl 4.4 of the lease.(iii) The parties have agreed that the lease was renewed in 2008 butthis has been specifically subject to the determination of the newrental which has not been concluded.(c) Finally, the Council raises one last concern. This is to the effect that inany event it alleges that it is not apparent in the purported "agreement"between Mr Tay and King House's valuer, Mr Cummings, whatimprovements were and were not taken into account in their differentvaluations. There was specific disagreement between the parties, it issaid, that was never resolved before Mr Tay withdrew.[62] In response to these contentions, King House takes an opposing view. It saysthat a binding rent review for the 2008 lease renewal was undertaken and concludedhere.[63] King House maintains that the two valuers, Mr Tay for the Council andMr Cummings for King House were arbitrators appointed in accordance with cl 9 ofthe First Schedule. It is acknowledged however that Mr Tay and Mr Cummings didnot appoint an umpire. Notwithstanding this, King House contends that as arbitratorsthey reached agreement on the levels of rent to be paid from 1 March 2008 based uponwhether the land was "serviced" or "unserviced". These rental figures were $93,000plus GST per annum as a "serviced" site and $65,000 plus GST per annum as an"unserviced" site.[64] On this aspect, counsel suggests that King House have accepted the site is"serviced" by virtue of the various services reticulated to the boundary of the site.Counsel says this is a pragmatic view taken by King House which is linked to itsdecision to abandon its earlier counterclaims. Consequently King House says itaccepts and contends that the new rental to be paid for the 1 March 2008 renewalperiod is $93,000 plus GST per annum.[65] King House then goes on to submit that, if there has been a breach here of cl 8of Schedule 1 by the failure of Mr Tay and Mr Cummings to appoint an umpire, thisfailure is simply de minimus. King House maintains the reality here is that the valuerarbitrators agreed on both figures as a "serviced" and "unserviced" site and there wasno need for an umpire to be appointed.[66] In support of this position, counsel for King House referred me to Robert JonesInvestments Ltd v Instrument Supplies Ltd.8 That case involved a situation where twoarbitrators on a rent review did not appoint an umpire. There, Doogue J accepted that8 Robert Jones Investments Ltd v Instrument Supplies Ltd [1991] 1 NZ Conveyancing Cases190,746.essentially this was a procedural mishap and any appointment by the valuer arbitratorswould have been nothing but a "procedural formality". I address this decision below.[67] Lastly, counsel for King House argued that the fact the valuers negotiated byexchanges of email which were said to be on a "without prejudice basis", althoughunusual, did not affect the fact that ultimately Mr Tay and Mr Cummings agreed onthe rent review figures and communicated a result they were agreed upon.[68] The issue here essentially comes down to whether or not:(a) the statutory process for rent review under the PBLA was followed,such that an arbitration award has been made and adopted by KingHouse;(b) the without prejudice "agreement" said to be reached by Mr Tay andMr Cummings some five years after the arbitration commencedconstitutes a binding award; and(c) the absence of an umpire means there has been no award?[69] On these aspects, the most adverse piece of evidence against the Council'sposition is the assertion by Mr Tay that the agreement is binding, an assertion it is saidhe made four years after the alleged "agreement" was reached.[70] In weighing up all these matters, however, I am of the view that, while thevaluers may have reached what they say was an "agreement", there has been no awardin this case. I reach this conclusion taking into account a number of features:(a) Original valuers, Mr Hallinan and Mr Smith, produced valuationcertificates for $90,000 and $125,000. This resulted in the interimrental of $107,656 being paid for some time pursuant to cl 4.4 of thelease.(b) Clause 8 of Schedule 1 provides that an umpire shall be appointed"before commencing to make the said valuation". No umpire wasappointed.(c) The specific arbitration agreement provision here requires theappointment of an umpire by the arbitrators (as required by cl 8 of theFirst Schedule) within 10 working days after both arbitrators areappointed. Provision is made for an umpire appointment by thePresident of the New Zealand Law Society if the arbitrators could notagree. Upon reference to the umpire, the arbitrators are to provide tothe umpire copies of their valuation reports, background evidence anda note of the matters on which their valuations do not agree. None ofthese matters occurred.(d) Matters proceeded as the correspondence between Mr Tay andMr Cumming made clear on a "without prejudice" discussion basis.(e) The "agreement" referred to a "serviced" rental and an "unserviced"rental basis. I accept this is not an arbitration award as the arbitratorswere unable to agree on whether or not the land was a "serviced" site.Correspondence between the valuers stated "the lessees' advisors are tosupply further information as to the reasons why the site is"unserviced", and if necessary, an arbitration will need to be held todetermine which of these two options is correct."(f) In any event, under cl 12 of the Schedule, King House has neverpurported to accept any specific valuation. This indicates that no awardhas ever been made. King House simply continues to pay the higherinterim rental amount.[71] In addition to all these matters, I am satisfied that the decision in Robert Jones9noted above can be properly distinguished here. This is on the basis that this caseinvolved both a different statutory and agreement context and the factual position was9 Robert Jones Investments Ltd v Instrument Supplies Ltd, above n 8.quite different here, involving, as I have noted, discussions described as "withoutprejudice". As a result, the absence of an appointment of an umpire in this case atleast cannot be simply deemed a "procedural mishap". Further, the fact that the partieshave not acted upon the so-called agreement of the arbitrators is important given thatKing House have simply continued to pay the interim rent of $107,656 in themeantime.[72] For all these reasons I find that there has been no binding rent reviewundertaken by the parties for the 2008 lease renewal. I conclude that the Council'sapplication seeking a second declaration relating to this succeeds.[73] A declaration is now made that:(a) There has been no binding rent review undertaken for either the 2008lease renewal or the 2013 rent review under the lease.(b) Following the release of this decision, the Council and King Housemust:(i) Each appoint or confirm the appointment of an arbitrator for thepurpose of undertaking the rent review process; and(ii) Follow the rent review process under the lease and the PublicBodies Leases Act 1969 for determining their rent.(c) The process at cl (b) above is to be followed for:(i) The 2008 lease renewal and rent review; and(ii) The 2013 rent review in the event King House disagrees withthe rental assessed for the land at that date by the Council.(d) The parties will respectively be liable for, or entitled to, the differencebetween the values set by the above processes and the rent that KingHouse has been paying to the Council since the expiry of the lease on28 February 2008.[74] No question of interest arises at this point given that a final rent determinationis still to be reached. That issue can be addressed at that time if it is under disputethen.Costs[75] As to costs, the Council has succeeded in this proceeding and is entitled to anaward of costs against King House. Council nevertheless have requested that theyhave an opportunity to make separate submissions on costs.[76] Costs, therefore, at this point are reserved.[77] In the event that counsel are unable to agree between themselves on the issueof costs, they may file in this Court (sequentially) memoranda directed to the issue ofcosts which are to be referred to me and, in the absence of either party indicating theywish to be heard on the question of costs, I will make a decision on costs on the basisof the memoranda filed and all the material then before the Court....................................................Gendall JSolicitors:Wynn Williams, ChristchurchAWS Legal, Invercargill