CAZNA AVENUE NOMINEES LTD v THE UNIVERSITY OF AUCKLAND [2014] NZHC 303

CAZNA AVENUE NOMINEES LTD v THE UNIVERSITY OF AUCKLAND [2014] NZHC 303 [27 February 2014]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV 2012-404-005209[2014] NZHC 303BETWEEN CAZNA AVENUE NOMINEESLIMITEDPlaintiffAND THE UNIVERSITY OF AUCKLANDDefendantHearing: 25–27 November 2013 (final submissions received on 20January 2014Appearances: R J Hollyman and A J Holmes for PlaintiffD J Neutze and J Jeffries for DefendantJudgment: 27 February 2014 at 11.30am(RESERVED) JUDGMENT OF ANDREWS JThis judgment is delivered by me on 27 February 2014 at 11.30ampursuant to r 11.5 of the High Court Rules......................................................Registrar / Deputy RegistrarSolicitors:Knight Coldicutt, AucklandBrookfields, AucklandContentsIntroduction .......................................................................................................... [1]Background factsThe Deed of Lease .................................................................................................. [3]The sale of the property to Cazna .......................................................................... [6]Expiry of the lease .................................................................................................. [9]Does Cazna have standing to enforce the reinstatement obligations? ........... [15]Assignment under cl 15 of the sale agreement and s 130 of the Property Law Act 1952......................................................................................... [17](a) Was there an absolute assignment? ......................................................... [20](b) Was written notice of the assignment given to the University? ............... [30](c) Conclusion as to whether the reinstatement obligations were assigned to Cazna under cl 15 of the sale agreement ............................. [33]Equitable assignment ........................................................................................... [35]Did Cazna require the University to reinstate the property?......................... [38]Was Cazna required to provide notice of the requirement to reinstate within a reasonable time before the lease expired? ......................................... [41]Does the University need to plead an implied term? ........................................... [43]Should the University be given leave to amend its statement of defence? ........... [45]Should a "reasonable time" term be implied?..................................................... [48]What did Cazna require the University to do? ................................................ [54]Was the work Cazna required the University to do within the terms of the lease?.......................................................................................................... [60](a) The partitions ............................................................................................ [61](b) Carpet ........................................................................................................ [63](c) Painting ..................................................................................................... [65](d) Betterment? ............................................................................................... [67](e) Conclusion as to whether reinstatement work was within the terms of the lease ....................................................................................... [69]What is the appropriate measure of damages? ............................................... [70]Quantum ............................................................................................................. [77]Interest................................................................................................................. [81]Result ................................................................................................................... [86]Introduction[1] The plaintiff, Cazna Avenue Nominees Ltd ("Cazna") has sued the Universityof Auckland ("the University") claiming damages following the termination of the University's lease of the building at 55 Anzac Avenue, Auckland ("the property").Cazna claims that the University has breached the lease agreement by not removing all fixtures and failing to reinstate the property. The University claims that it has not breached the lease agreement. It further claims that, in any event, Cazna has no right under the lease to enforce the terms of the lease and to sue the University.[2] The following issues must be determined:(a) Does Cazna have standing to enforce the terms of the lease by requiring the University to reinstate the property?(b) In the event that Cazna can require the University to reinstate:(i) Did Cazna require the University to reinstate?(ii) What was the University required to do?(iii) Did the University fail to do what it was required to do?(c) If Cazna establishes that the University has breached the lease agreement:(i) What is the appropriate measure of damages?(ii) What quantum of damages must the University pay? and(iii) Is Cazna entitled to receive interest on the judgment sum, and if so, for what period?Background factsThe Deed of Lease[3] On 30 June 2000, the University entered into an agreement to lease the first to fourth floors of the property from New Bay Holdings Ltd ("New Bay"). Under the Deed of Lease ("the lease") between New Bay and the University, signed by the parties on 11 December 2000, the University leased the property for a term of six years commencing on 1 September 2000, with a right to renew the lease for two further terms of three years.[4] The lease set out the University's obligations relating to what it, as tenant, had to do once the lease ended. Of relevance to this proceeding are the obligations relating to reinstating the property, at cls 10.1, 21, 22.1, and 33 ("the reinstatement obligations"):10.1 The tenant shall (subject to any maintenance covenant by the Landlord) in a proper and workmanlike manner and to the reasonable requirements(a) Maintain the premisesKeep and maintain the interior of the premises including the Landlord'sfixtures and fittings in the same clean order repair and condition as they were in at the commencement of this Lease and will at the end or termination of the term quietly yield up the same in the like clean order repair and condition. In each case the Tenant shall not be liable for fair wear and tear arising from reasonable use or damage by fire, earthquake, flood, storm, Act of God, inevitable accident or any risk against which the Landlord is insured unless the insurance monies are rendered irrecoverable in consequence of any act or default of the Tenant or the Tenant's agents, employees,contractors or invitees ......(c) PaintingPaint and decorate those parts of the interior of the premises which have previously been painted and decorated when the same reasonably require repainting and redecoration.(d) Floor coveringsKeep all floor coverings in the premises clean and replace all worn or damaged floor coverings with floor coverings of a similar quality when reasonably required by the Landlord.(e) Make good defectsMake good any damage to the property caused by improper, careless or abnormal use by the Tenant or those for whom the Tenant is responsible.21 SignageThe Tenant shall not affix paint or exhibit or commit to be affixed painted or exhibited any name, sign, name-plate, signboard or advertisement of any description on or to the exterior of the building or appurtenances thereof without the prior approval in writing of the Landlord bus such approval shall not be unreasonably or arbitrarily withheld in respect of signage describingthe Tenant's business. If approved the signage shall be approved in asubstantial and proper manner so as not to cause damage to the building or any person and the tenant shall at the end or sooner determination of the term remove the signage and make good any damage occasioned thereby....22.1 Additions and alterationsThe Tenant shall neither make nor allow to be made any alterations or additions to any part of the premises without first procuring to the Landlord on every occasion, plans and specifications and obtain the written consent of the Landlord (Not to be unreasonably or arbitrarily withheld) for that purpose. If the Landlord shall authorise any alterations or additions theTenant will at the Tenant's own expense if required by the Landlord at theend of the term reinstate the premises.......33 Removal of fixturesThe Tenant not being in breach may at any time for and will if required by the Landlord at the end or earlier termination of the term remove all theTenant's fixtures and fittings and make good at the Tenant's own expenseany resulting damage and if not removed within seven (7) days of theLandlord's request ownership of the Tenant's fixtures and fittings passes tothe Landlord.[5] With the consent of New Bay, the University fitted out the property specifically for use as an educational facility, catering for teaching in education and music. The fit-out included numerous non-commercial elements, such as a terraced lecture theatre, small sound studios, rubberised linoleum flooring, sound-proof walls and glazed panels, and sound theatres. There were also several features, designed primarily for academic teaching.The sale of the property to Cazna[6] In May 2006 the University decided not to renew the lease and approached New Bay to see if New Bay was interested in purchasing components of the University's fit-out. New Bay rejected this offer. However the University and New Bay agreed to extend the lease on a month-by-month basis. During this period, the University was made aware that New Bay was looking to sell the property.[7] On 5 October 2006, New Bay entered into an agreement for sale and purchase of the property with Solomon Properties Ltd and/or nominee ("the sale agreement"). By a deed of nomination dated 31 October 2006, Solomon Properties Ltd nominated Cazna as the purchaser under the sale agreement. Following the payment of the deposit, the sale then became unconditional on the same day.[8] The terms of the sale agreement included, at cl 15, a provision relating to theUniversity's reinstatement obligations:15 University of Auckland ("University")15.1 The parties acknowledge that the University's lease will terminate on 30 November 2006. As soon as practicable after this agreement has been entered into, the Vendor will provide to the Purchaser full and accuratecopies of the University's lease, together with copies of all relevant deedsand any material correspondence.15.2 The Vendor authorises the Purchaser to negotiate with the Universityin relation to the University's obligations to reinstate and to redecorate the premises prior to termination of the lease and in relation to the University'sfit out and any other termination issues arising under the University lease.15.3 The Vendor will not enter into any agreement with the University in relation to the matters referred to in clause 15.2 unless this agreement shall be terminated.15.4 At any time after this agreement becomes unconditional and the Purchaser has paid the deposit to the Vendor, the Purchaser may enter into an agreement with the University in relation to the matters referred to in cl 15.2Expiry of the lease[9] On 18 October 2006 Mr Krukziener (director of both Solomon Properties andCazna) met with Mr Jackson, Business Services Manager of the University's Property Services Department. Mr Krukziener's evidence was that they discussedthe University's reinstatement obligations. He said that Mr Jackson accepted that the University had an obligation to reinstate, and acknowledged that the question wasmore as to how much reinstatement would cost. Mr Jackson's evidence was that hehad no recollection of the meeting, but had no reason to doubt Mr Krukziener'sevidence. There was a further discussion between Mr Jackson and Mr Krukziener concerning reinstatement obligations at some point in mid to late October 2006.[10] On 20 October 2006, the University wrote to New Bay, confirming that it would terminate the lease on 30 November 2006, and enquiring as to New Bay's expectations as to the University's reinstatement obligations. The University did not receive a reply.[11] Cazna engaged Rider Hunt Terotech (Quantity Surveyors), a firm typically used by both Cazna and the University for such purposes, to assess the work required, and cost of reinstatement. Rider Hunt inspected the property on 1 November 2006, and in a report provided in November 2006, Rider Hunt estimated the cost of reinstatement/redecoration in accordance with the lease agreement at $411,000 plus GST.[12] On 14 November 2006, New Bay advised the University that the sale to Cazna was unconditional. The University responded on 15 November 2006 advising that it was aware that the sale was unconditional and seeking clarification of its reinstatement obligations. New Bay replied by email on 15 November 2006, saying that, pursuant to the sale agreement, the building had been sold to Cazna and NewBay had "assigned the rights to negotiate the make-good provisions to the purchaser"and the University had to discuss the reinstatement obligations with Cazna.[13] On 17 November 2006, the University advised Cazna that it intended only to clean the leased property. On 27 November 2006 Cazna's solicitors provided the University with a copy of the sale agreement. In a separate letter of the same date,Cazna's solicitors provided the University with a copy of the Rider Hunt report andset out the reinstatement obligations under the lease. Negotiations between the parties did not result in any agreement as to the University's reinstatementobligations before the lease terminated on 30 November 2006. In a letter dated 1December 2006, the University's solicitors told Cazna's solicitors that the Universityhad not been required by New Bay to carry out reinstatement prior to the termination of the lease, and that the University had no reinstatement obligation to Cazna.[14] The sale of the property from New Bay to Cazna was settled on 22 January 2007, and in March 2007 Cazna entered into agreements to sell each of the floors to third parties.Does Cazna have standing to enforce the reinstatement obligations?[15] For Cazna, Mr Hollyman submitted that it has standing to enforce the reinstatement obligations by virtue of the assignment of the sale agreement, under s 130 of the Property Law Act 1952 or in equity, or under s 122 of the Property Law Act. For the University, Mr Neutze submitted that Cazna has no standing to enforce the reinstatement obligations.[16] The central issue is whether New Bay assigned the reinstatement obligations to Cazna, as purchasers. If the reinstatement obligations were assigned, then Cazna can seek to enforce them against the University. I therefore turn to consider whetherthe University's reinstatement obligations were assigned to Cazna.Assignment under cl 15 of the sale agreement and s 130 of the Property Law Act 1952[17] Cazna's principal argument was that the reinstatement obligations wereassigned to it pursuant to cl 15 of the sale agreement and s 130(1) of the Property Law Act. Clause 15 of the sale agreement is set out at [8], above. Section 130(1) of the Property Law Act provides:Any absolute assignment by way of writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal or equitable thing in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim that debt or thing in action, shall be and be deemed to have been effectual in law (subject to all equities that would have been entitled to priority over the right of the assignee if this Act had not been passed) to pass and transfer the legal or equitable right to that debt or thing in action from the date of the notice, and all legal or equitable and other remedies for the same, and the power to give a good discharge for the same, without the concurrence of the assignor.[18] Four elements are required for an effective assignment:(a) The assignment must be absolute (that is. unconditional and not by way of a charge);(b) The assignment must be in writing and signed by the assignor;(c) The reinstatement obligations must be a "debt or other legal or equitable thing in action"; and(d) Written notice of the assignment must be given to the person who owes the reinstatement obligations.[19] In this case, the dispute was as to whether elements (a) and (d) were satisfied; that is, whether there was an absolute assignment from New Bay to Cazna, and whether written notice was given to the University.(a) Was there an absolute assignment?[20] Mr Hollyman submitted that cl 15 of the sale agreement provided an absolute assignment of the reinstatement obligations from New Bay to Cazna, upon the sale agreement becoming unconditional. Mr Neutze submitted that there was no absolute assignment, as it was conditional on agreement being reached with the University. He submitted that cl 15 did not assign the right to enforce the lease, but simply gave Cazna the right to negotiate and enter into an agreement with the University, akin toan "agreement to agree".[21] Mr Neutze further submitted that cl 15.4 did not assign the reinstatement obligations, but merely provided a mandate to allow the parties to enter into a mutual agreement. He submitted that because there had been no agreement between the University and Cazna, New Bay (as landlord) was the only party who had the ability to require the University to perform the reinstatement obligations.[22] Determining whether the assignment was absolute or merely a mandate depends on the interpretation of cl 15. In Investors Compensation Scheme Ltd v West Bromwich Building Society Lord Hoffmann stated that:1... interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were in at the time of the contract.[23] This statement was endorsed by the Supreme Court in Vector Gas v Bay ofPlenty Energy.2 The Supreme Court held that the starting point to ascertain the meaning of words is to give the language used in the contract its natural and ordinary meaning.3 However, this meaning then must be checked against the contractual context.4 Extrinsic material may also be referred to in some circumstances, where there is ambiguity.[24] Clause 15 must be read as a whole as it is evident from cl 15.4, which refers to cl 15.2, that the clauses are interrelated. Clause 15.2 authorises Cazna to negotiate with the University in relation to the reinstatement obligations before the sale and purchase agreement became unconditional; something that Cazna would otherwise be unable to do. This is made clear in cl 15.3, which provides that prior to the sale agreement becoming unconditional, or unless the sale agreement was terminated, New Bay would not enter into any agreement with the University regarding the reinstatement obligations. This clause restricts New Bay's legal rights to enforce thereinstatement obligations, and protects the ability to negotiate set in cl 15.2. Finally, cl 15.4 provides that once the sale agreement becomes unconditional and the deposit has been paid, Cazna could enter into an agreement with the University regarding the reinstatement obligations.[25] Mr Neutze submitted that the word "agreement" in cl 15.4 means that the University would have to agree to Cazna's demands regarding reinstatement. Hecharacterised these two clauses as allowing "an agreement to agree". However, this1 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912.2 Vector Gas v Bay of Plenty Energy [2010] NZSC 5, [2010] 2 NZLR 444 (SC) at [4] and [11] per Blanchard J, at [19] per Tipping J, at [61] and [78] per McGrath J, and at [127] per Wilson J,3 Vector Gas, above n 2, at [4] per Blanchard J and at [61] per McGrath J.4 Vector Gas, above n 2, at [4] per Blanchard J and at [24] per Tipping J.submission ignores the use of "agreement" in cl 15.3. Clearly New Bay, prior to the sale becoming unconditional, had the ability to seek to enforce the reinstatement obligations regardless of whether the University agreed. Under the scheme of cl 15, following the sale becoming unconditional, Cazna has the same ability that New Bay had, to not just agree to agree, but to enforce the reinstatement obligations.[26] Mr Neutze submitted that if there were any ambiguity, cl 15 should be construed contra proferentum against Cazna, as the drafters of the sale agreement. I do not accept that submission. For the reasons stated above, I do not accept that there is any ambiguity in cl 15. Even if there were, the principle of contra proferentum is as between two parties to a contract. The University is a third party to the sale and purchase agreement and as such cannot rely on this principle.[27] Clause 15.4 is significant for the purposes of assigning the reinstatement obligations. Once the deposit was paid and the sale agreement became unconditional, then Cazna alone had the ability to enforce the reinstatement obligations. The absoluteness of this is reinforced by cl 15.3, preventing New Bay from enforcing the obligations, and by the fact that cl 15.4 only became operative once the deposit was paid and the sale agreement became unconditional. At that time, while possession had not transferred to Cazna (and New Bay was still the landlord), the contract became binding and Cazna was bound to proceed with the purchase.[28] Mr Neutze advanced a submission that the sale agreement left matters unspecified and terms to be decided by negotiation, and cannot therefore form a binding contract. This submission endeavours to locate ambiguity in cl 15.2 and would only apply if the sale agreement were between Cazna and the University. This is clearly not the case. Cazna agreed with New Bay that Cazna would be authorised to negotiate with the University and that, following the sale agreement becoming unconditional, Cazna could enforce the reinstatement obligations. Clause 15.2 does not constitute an agreement to negotiate with the University.[29] For these reasons I conclude that cl 15 amounted to an absolute transfer of the reinstatement obligations to Cazna once the sale agreement was unconditional, which was on 31 October 2006.(b) Was written notice of the assignment given to the University?[30] Mr Neutze also submitted that the requirement that the assignor give written notice of the assignment has not been complied with. Mr Hollyman submitted that notice was given on multiple occasions, in particular in New Bay's email toMr Jackson on 15 November 2006,5 through solicitors' correspondence, and when the University's solicitors were provided with a copy of the sale and purchaseagreement on 27 November 2006.[31] In Beach v Rheochem Pty Ltd, Paterson J held that an email can constitute"notice of the assignment".6 There is no express requirement for notice of the assignment to be signed.7 New Bay's email of 15 November 2006 stated that:... in the agreement, we have assigned the rights to negotiate the make-good provisions to the purchaser. I hope that the present situation which has arisen, can be solved by friendly communication between the purchaser & your good self (we (new Bay Investments) have asked to be kept informed as a third party through our solicitors).[32] This email was in response to an email from Mr Jackson (for the University) to New Bay, seeking confirmation that Mr Krukziener (Cazna) had purchased the property and could require the University to undertake the make good obligations within the lease. In context, this email provides written notice of the assignment. I note that the University received further written notice of the assignment on 27 November 2006 when it was provided with a copy of the sale agreement. I am satisfied that written notice of the assignment was given by New Bay to the University.5 Referred to at [12], above.6 Beach v Rheochem Pty Ltd HC Auckland AP12/03, 15 July 2003 at [20]–[21].7 At [21].(c) Conclusion as to whether the reinstatement obligations were assigned to Cazna under cl 15 of the sale agreement[33] The dispute focussed on the elements of an absolute assignment, and written notice from the assignor. I am satisfied that all four elements of an assignment under s 130 of the Property Law Act are met. Upon the sale agreement becoming unconditional, the transfer of the reinstatement obligations was absolute. The reinstatement obligations are a chose in action, and the sale agreement was in writing and signed by the assignor. The University was given written notice of the assignment on 15 November 2006, when New Bay emailed the University informing the University of the assignment.[34] Accordingly, there was an assignment of the reinstatement obligations under s 130 of the Property Law Act. Because of the assignment, Cazna has standing to bring proceedings to enforce the reinstatement obligations under the lease. In the light of that conclusion, it is not necessary to address Cazna's alternative argument,that there was an equitable assignment, in any detail. However, for the sake of completeness, I will briefly canvass the argument below.Equitable assignment[35] Mr Hollyman submitted in the alternative that if cl 15 of the sale agreement did not amount to an assignment under s 130 of the Property Law Act, there was an assignment in equity, as the assignor (New Bay) intended the assigned rights to become the property of the assignor (Cazna). He submitted that the requisite intention is all that is required for an assignment in equity.8[36] Mr Hollyman further submitted that, an equitable assignment of the reinstatement obligations is proved by New Bay's conduct, as shown in its correspondence. In addition to the written notice given by New Bay on 15 November 2006, Mr Hollyman submitted that the evidence of oral and written communications proves that New Bay understood that it had assigned the reinstatement obligations, notice was given, and that the University understood this.8 Citing Laws of New Zealand Equity at [62] and Magee v UDC Finance [1983] NZLR 438 (CA) at 442.He submitted that this satisfied the requirements in William Brandt's Sons & Co vDunlop Rubber Co Ltd for the University to have understood that the reinstatement obligations had been assigned to Cazna.9[37] This submission was contested by Mr Neutze, on the same grounds as he contested the assignment under cl 15 of the sale agreement: namely, that any assignment was only of a right to negotiate, or enter into an agreement, and that there was no assignment of the reinstatement obligations. For the reasons set out at [20] to [29], above, I reject Mr Neutze's submissions. I accept Mr Hollyman'ssubmission that, if there was no effective assignment under cl 15 of the sale agreement and s 130(1) of the Property Law Act, there was an assignment in equity.Did Cazna require the University to reinstate the property?[38] Mr Hollyman submitted that Cazna had given the University notice of the requirement to reinstate on several occasions: first on 18 October 2006 at MrKrukziener's meeting with Mr Jackson and in further discussions between MrKrukziener and Mr Jackson between 20 October and 15 November 2006,10 then in the email from New Bay to the University on 15 November 2006.11 However, each of those communications predates the assignment of the reinstatement obligations.[39] As noted above, at [24], cl 15 of the sale agreement must be read as a whole. It provides that the ability to require reinstatement, rather than negotiate, only arises once the reinstatement obligations have been assigned, and notice of the assignment given to the University. I have found at [33], above, that this occurred on 15 November 2006. Emails and correspondence before that date cannot amount to Cazna requiring the University to reinstate.[40] Mr Hollyman further submitted that that the reinstatement obligations wereset out in the letter from Cazna's solicitors of 27 November 2006.12 I conclude that this letter was notice to the University that Cazna, having been assigned the reinstatement rights, required the University to fulfil its reinstatement obligations.9 William Brandt's Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 (HL) at 462.10 See [9], above.11 See [12], above.12 See [13], above.Was Cazna required to provide notice of the requirement to reinstate within a reasonable time before the lease expired?[41] Mr Neutze submitted for the University that a term should be implied into cls 10.1(e), 22.1 and 33 of the lease,13 requiring a reasonable period of notice of the requirement to reinstate, before expiry of the lease. He submitted that the impliedterm should be to the effect that "such a landlord's requirement must be clearlycommunicated to the tenant sufficiently in advance of the expiry of the term to allowthe replacement, reinstatement or removal to occur by the expiry of the term". Forconvenience, I refer to the proposed implied term as the "reasonable time" term. MrNeutze submitted that that providing notice to reinstate on 27 November 2006, three days before the lease expired, was not reasonable notice. In the circumstances, he submitted, Cazna failed to comply with the implied term.[42] This argument on behalf of the University was advanced in Mr Neutze's reply submissions. It had not been pleaded in the University's statement of defence, oradvanced in its opening submissions. For Cazna, Mr Hollyman objected to the issue being advanced, and submitted that such a term should not be implied. I must, therefore, address whether the University needed to plead an implied term and if so, whether leave should be given to the University to amend its pleading at this late stage. If the implied term is able to be raised, then it is necessary to decide whether it should be implied to form part of the lease.Does the University need to plead an implied term?[43] Mr Neutze submitted that it was not necessary for the University to plead an implied term, but sought leave to amend the statement of defence, if required. Mr Hollyman submitted that an implied term needed to be pleaded.14 He submitted that the implied term was a new defence, and therefore should have been pleaded. Against that, Mr Neutze submitted that the issue of an implied term arises on the admissions and denials in the existing pleadings, and that in this case, the existence13 Set out at [4], above.14 Citing Manukau Golf Club v Shoye Venture Ltd [2012] NZCA 254, (2012) 21 PRNZ235 (CA).of an implied term as to a reasonable time period must be determined in order toresolve Cazna's claim.15[44] I have concluded that the University must seek leave to amend its pleadings.The University's statement of defence simply provides that the University was never required by the landlord to reinstate, or to remove tenant's fixtures and fittings undercls 22 or 33 of the lease. The University further pleaded that there was no breach of cls 10 or 21. The University argued that Cazna could not require the University to reinstate, so that the University was never required to reinstate. The assertion of a"reasonable time" implied term is a new defence, raised after pleadings have closed,and as such, requires leave to amend.16Should the University be given leave to amend its statement of defence?[45] In deciding whether to grant leave, a court must consider whether the amendment is necessary to ensure that the real controversy between the parties is determined at trial.17 In this case, the University must establish that the amendment is in the interests of justice, will not significantly prejudice Cazna, and will not cause significant delay. Mr Neutze submitted that no prejudice can arise, because thedetermination whether a "reasonable time" term should be implied is a matter ofinterpreting the lease, and would not be assisted by evidence or cross-examination.He further submitted that the University's delay in not seeking leave until replysubmissions is excused by the fact that it did not consider it necessary to seek leave, but has done so out of prudence. Finally, he submitted that there is merit in the amendment.[46] Mr Hollyman submitted that Cazna would be prejudiced by the University being given leave to amend because of the lateness of the amendment, further evidence would have been adduced if the amendment had been made earlier, and Cazna was unable to address the issue in detail in its closing submissions. He alsosubmitted that there is no merit in the assertion of a "reasonable time" implied term,15 Citing Feltex v Nielsen Property Management Ltd [1974] 2 NZLR 292 (SC).16 High Court Rules r 7.7.17 Shanton Apparel Ltd v Thornton Hall Manufacturing Ltd [1989] 3 NZLR 304 (CA) at 309.as such a term is inconsistent with the terms of the lease, business efficacy does not require it, and it is not so obvious that it goes without saying.[47] The fact that the argument as to an implied term has been raised at this very late stage is of concern. However, the issues are whether an amendment is in the interests of justice, will not cause significant prejudice to Cazna, and will not causesignificant delay. I have concluded that the issue as to whether a "reasonable time"term should be implied is a matter of contractual interpretation, and does not dependon witnesses' evidence. Further, it goes to the real controversy between the parties:Cazna's ability to enforce the reinstatement obligations. Cazna has had theopportunity to file further submissions, and no significant delay has been caused. I have concluded that Cazna has not been caused significant prejudice, and that it is in the interests of justice to give the University leave to amend its statement of defence.Should a "reasonable time" term be implied?[48] The five-part test for an implying a term into a contract is set out in the judgment of the Privy Council in BP Refinery (Westernport) Ltd v Shire of Hastings,18 as adopted in New Zealand in Devonport Borough Council v Robbins.19The test set out in BP Refinery is that the term sought to be implied must be reasonable and equitable, must be necessary to give business efficacy to the contract,must be so obvious that it "goes without saying", must be capable of clearexpression, and must not contradict any express term of the contract. More recently, the Privy Council in Attorney-General of Belize v Belize Telecom stated that whenimplying terms "there is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean"?20The Privy Council's decision in Belize Telecom has been referred to positively in New Zealand by the Supreme Court in Dysart Timbers Ltd v Nielsen,21 and by the Court of Appeal in Hickman v Turn and Wave Ltd.2218 BP Refinery (Westernport) Ltd v Shire of Hastings (1977) 16 ALR 363 (PC)19 Devonport Borough Council v Robbins [1979] 1 NZLR 1 (CA).20 Attorney-General of Belize v Belize Telecom [2009] UKPC 10, [20090] 1 WLR 1988 at [21].21 Dysart Timbers Ltd v Nielsen [2009] NZSC 43, [20009] 3 NZLR 160 at 168, fn 12.22 Hickman v Turn and Wave Ltd [2011] NZCA 100 at [245] (decision overturned on other grounds: Hickman v Turn and Wave Ltd [2012] NZSC 72, [2013] 1 NZLR 741 (SC)).[49] It is appropriate to look first at the lease as a whole, and to consider whether it provides for the present situation, and whether the proposed implied term contradicts any express provision. If the lease itself provides for the present case, then there is no need to imply a term. Further, if the proposed implied term contradicts an express term, then the term cannot be implied.[50] The clauses setting out the reinstatement obligations provide that the University must do certain things if required to by the landlord (or, in this case, anassignee) at the end of the lease. The tenant must "make good any damage to the tothe property ..." (cl 10.1(e)), must "if required by the Landlord at the end of the term reinstate the premises" (cl 221.), and must "if required by the Landlord at the end or earlier termination of the term remove all the Tenant's fixtures and fittings and makegood at the Tenant's own expense any resulting damage..." (cl 33). It has beensuggested that the term "if required by the landlord at the end or earlier termination of the term" is unclear as to whether it relates to the timing of the landlord's requirement, or of the work, but if it refers to the landlord's requirement, then theremust be some leeway either side of the final day of the lease.23[51] Clause 38 of the lease provides that the landlord can permit the tenant to hold over occupation of the property. While Cazna could not permit the University to hold over (because the sale agreement assigned only the reinstatement obligations) the sale agreement (being after the lease agreement) does not determine interpretation of the lease. Clause 38 is relevant when considering the University'sobligations, as it could continue in possession of the property if permitted by thelandlord. Thus if the landlord's delay in requiring reinstatement meant that thetenant could not reinstate before the lease expired, then this should be taken into account when considering damages for failing to reinstate, or in permitting the tenant to remain in lawful occupation.24 I conclude that the holding over provision23 See Ish Fraser, David Grinlinton and Jacqui Sibbald "Commercial leases" (NZLS Seminar,April-May 2008) at 59-59.24 It may be noted that s 266(1) of the Property Law Act 2007 (which does not apply to the presentcase) provides that lessees' fixtures may be removed during a "reasonable period after the lessee ceases to be in lawful possession of the premises", while s 266(4) provides that a lessee who has ceased to be in lawful possession of premises is entitled to have "reasonable and necessary"access to the premises during the "reasonable period" referred to in subs (2) for the purposes ofexercising a right to remove a fixture, and carrying out any duty to make good any damage caused.provides a mechanism for reinstatement obligations to be met after the term of thelease ends. Thus, it is not necessary to imply a "reasonable time" term. Nor can itbe said that the lease, read as a whole against the relevant background, wouldreasonably be understood as requiring a "reasonable time" term to be implied.[52] Further, to imply such a term would, in my view, cause uncertainty, and impede the business efficacy of the reinstatement obligations. Obviously, the"reasonable time" term proposed by the University does not provide a specific time.As Mr Neutze submitted, what is a "reasonable time" would vary according to therequired reinstatement. This introduces significant uncertainty into the lease. It wassubmitted for the University that Cazna's failure to give notice within a "reasonabletime" means that there is no obligation on the University to reinstate. If the University's submission were to be accepted, that would reduce commercialcertainty as to reinstatement obligations, and very likely lead to litigation as to whether notice of reinstatement requirements was given within a "reasonable time". This points against a conclusion that a "reasonable time" term must be implied toensure business efficacy.[53] For the reasons set out above, I reject the University's submission that a"reasonable time" term should be implied. It follows that I conclude that theUniversity was given valid notice to reinstate, and that the University was required to reinstate.What did Cazna require the University to do?[54] The next issue to consider is what was the University required to reinstate, and to what degree?[55] Mr Hollyman submitted that the obligation to "reinstate" means to re-establish the former position; that is, a complete removal of the University's fit out.However, he also submitted that Cazna did not require this: rather, the University was required to do all the things listed in the Rider Hunt report. That was, he submitted, to remove the partitions it had put up, to replace the carpet, and to paint and make good the damage that would result from removing the partitions.[56] Mr Neutze submitted that under cls 22 and 33 of the lease, Cazna was required to communicate its requirements for reinstatement. He submitted that there are three different categories of reinstatement requirements in the lease: first, thosewhich do not include the landlord to "require" something to be done and are absolute (for example, the obligation to "make good any damage to the property" incl 10.1(e)). Secondly, there is the category where the tenant is required to dosomething when "reasonably required" by the landlord (for example, the obligation to replace carpet "when reasonably required by the landlord" in cl 10(1)(d)). Thethird category is what the tenant is obliged to do "if required by the landlord" (the obligations in cl 22.1 to reinstate "if required by the landlord" and cl 33 "if required by the landlord ... remove ... fixtures and fittings and make good").[57] Mr Neutze submitted that Cazna did not communicate the requirement to replace carpet until immediately before the lease expired, thus depriving the University of any opportunity to comply with it. He submitted that Cazna was required to specify precisely what was required to be removed and made good, before the end of the lease.[58] On the evidence, Mr Neutze submitted, there was no requirement from thelandlord to remove any part of the University's fit out. To the extent that Cazna hadauthority under cl 15 of the sale agreement (which the University continued to deny), he submitted that Cazna never gave sufficiently clear advice as to what reinstatementwas required. He submitted that the letter of 27 November 2006 from Cazna'ssolicitors did not amount to a requirement that the University carry out the work set out in the Rider Hunt report, and it would, in any event, have been impossible for the University to carry out the work in the three days that remained before the lease expired on 30 November 2006.[59] I have concluded that the contents of the Rider Hunt report, coupled with the covering letter from Cazna's solicitors, set out what Cazna required the University todo. The work required by Cazna is as set out at [55], above.Was the work Cazna required the University to do within the terms of the lease?[60] I turn to consider whether that work was within the reinstatement obligations under the lease, by considering the contentious issues individually.(a) The partitions[61] Mr Neutze submitted for the University that it was not required to removepartitions, claiming that they had become "landlord's fixtures" and thereforegoverned by cl 22.1 and not part of the obligations under cl 33 of the lease. Indeed he submitted that had the University removed them, it would have been in breach of the lease for having done so.[62] I do not accept this submission. First, even if the partitions had becomelandlord's fixtures, they were still alterations carried out by the University, and theUniversity has now been required to remove them, as is provided in cl 22.1. Secondly, the better view is that the partitions are tenant's fixtures, so are covered bythe obligation in cl 33, and Cazna is entitled to require their removal.25(b) Carpet[63] Replacement of the carpet may be required by Cazna under cl 10.1(d) (which expressly provides that the University is required to replace floor coverings when reasonably required by the landlord), by cl 22.1 (requiring reinstatement when required by the landlord), and by cl 33 (under the requirement to make good damageresulting from the removal of tenant's fixtures). Mr Neutze submitted that it cannotbe "reasonable" to require the University to replace the carpet (under cl 10.1(d)), as it was in a better condition at the end of the lease than the carpet that was there at the start of the term. However, that submission must fail, as cl 10.1(d) makes no reference to the initial condition of the carpet. The question is whether it is reasonable to require replacement when the carpet at the start of the lease had some areas of damage, and carpet is damaged by the removal of partitions.25 See Short v Kirkpatrick [1982] 2 NZLR 358 (HC) at 362 and Tom Bennion and others New Zealand Land Law (2nd ed, Brookers, Wellington, 2009).[64] Mr Neutze also submitted that replacement of the carpet could not be required under cl 22.1, as there was no carpet under the partitions in place at the start of the lease. Thus, it was submitted, if the reinstatement obligation requires the University to put the carpet back in the condition it was in at the start of the lease, it does not require the University to replace carpet underneath the partitions. That may be arguable, but I have concluded that the make good provision in cl 33 requires the University to replace the carpet, as removal of the partitions will result in damage caused by the installation of the partitions becoming visible. For the same reason,reinstatement of carpet under the partitions can be seen to be "reasonable" for thepurposes of cl 10.1(d).(c) Painting[65] Mr Hollyman submitted that the University accepted that repainting is reasonably required by Cazna, but this was denied by Mr Neutze in his reply submissions. Mr Neutze qualified this, however, by submitting that much would depend on whether the Court determined that the partitions had to be removed.[66] In the light of my conclusion that the University can be required to remove the partitions,26 it follows that repainting is part of the make good obligations under cl 33 (or cl 22.1).(d) Betterment?[67] Nr Neutze submitted that much of the work set out above, in particular the replacement of the floor coverings, is betterment. However, the fact that the carpet in the property was not in good condition at the start of the University's lease doesnot mean that replacing it will therefore be betterment. That will be determined by looking at the contract between the parties, and its effect. As Dobson J said inNapier City Council v Cityscape New Zealand Ltd, the bargain reflected in the lease provides for what might otherwise be seen as betterment.2726 See above at [62].27 Napier City Council v Cityscape New Zealand Ltd [2013] NZHC 600 at [24].[68] In the present case, the landlord entered into the lease contract on the basis that it could require reinstatement and require the University to remove partitions. The University chose to enter into the lease which provided the landlord with this right. Once the partitions are removed, the carpet is required to be replaced. While this may result in better carpet than was there previously, that is part of the bargain struck by the University when entering into the lease. I reject the submission that the work required to be done constituted betterment.(e) Conclusion as to whether reinstatement work was within the terms of the lease[69] Accordingly, I find that all of the reinstatement work required by theUniversity is reinstatement was within the terms of the lease. The University'sfailure to undertake the work is a breach of the lease.What is the appropriate measure of damages?[70] The next issue to determine is the appropriate measure of damages. Mr Hollyman submitted that the measure of damages should be the diminution invalue of the property, resulting from the University's failure to reinstate. Hesubmitted that the diminution in value is $880,000, being the difference between the price the property was sold for and a valuation of what it would have sold for, had it been properly reinstated. In the alternative, Mr Hollyman claims damages of $336,658 being (he submitted) the quantum of reinstatement costs based on a joint statement of the quantity surveyors who gave evidence for Cazna and the University.[71] Mr Neutze submitted that diminution of value is not the appropriate measure of damages, and that if damages are awarded for reinstatement costs, a deduction must be made to reflect betterment. He submitted that the deduction should be of at least 50 per cent. Mr Neutze also raised issues as to some of the individual cost items.[72] Both counsel accepted that when a lessee fails to reinstate on the termination of a lease, the general rule is that the measure of damages is the cost ofreinstatement.28 In Maori Trustee v Rogross Farms Ltd, the Court of Appeal addressed the application of the rule in New Zealand.29 The Court concluded that the rule is prima facie applicable unless the lessee can show that the lessor's actualloss of value is less that the cost of reinstatement.30[73] Mr Hollyman submitted, however, that the rule should not apply in the present case, and that Cazna is entitled to recover its loss by way of diminution of value, because that represents the loss which Cazna did in fact suffer. He submitted that Cazna did not carry out the reinstatement work; it sold the property. In the circumstances, he submitted (whilst acknowledging that it may be unusual for the diminution in value to exceed the cost of repairs), diminution in value is the appropriate measure of damages, unless it can be shown that the cost of repairs is an appropriate limit on damages, on the basis that the failure to carry out the repairs amounts to a failure to mitigate.[74] Mr Hollyman's submission turns the Joyner v Weeks and Maori Trustee v Rogross Farms prima facie rule its head, and is inconsistent with the principle set out in Joyner v Weeks, that damages should be calculated at the end of the lease, when the cause of action came into existence. In his reply submissions, Mr Neutze referred to the judgment of Potter J in Puhinui Farms Ltd v I H Wedding & Sons Ltd.31 In that case, by some calculations, the diminution of value was greater than the cost of reinstatement. Her Honour referred to Maori Trustee v Rogross Farmsand noted that the prima facie rule would be applied unless the lessee could show by sufficiently cogent evidence that in both the short and long term the lessor would definitely suffer a loss which could definitely be assessed as less than the prima facie measure.32 In Puhinui Farms, Potter J held that the evidence put forward in supportof the claim for diminution in value, was speculative, and failed "by a good margin" to show that the Puhinui's loss could "definitely be assessed at less than the prima28 See Joyner v Weeks [1891] 2 QB 31 (CA).29 Maori Trustee v Rogross Farms Ltd [1994] 3 NZLR 410 (CA).30 At 420.31 Puhinui Farms Ltd v I H Wedding & Sons Ltd HC Auckland CIV 2006-404-771, 15 February 2008.32 At [126].facie measurement", and ordered damages in accordance with agreed reinstatementcosts.33[75] In this case, the evidence and calculations of diminution in value are also speculative. Mr McGowan, a valuer, gave evidence for Cazna that if the University had carried out the works set out in the Rider Hunt report (at a cost of approximately $400,000), the value of the property would have increased by $880,000. Ms McGowan's valuation included provision for refurbishment of the lobby. However, the purchaser of three of the floors in the property gave evidence that after spending $750,000 on refurbishment and upgrade, the profit achieved was in theorder of $300,000. That evidence does not support Cazna's claim that the value of the property would have increased by $880,000 as a result of reinstatement.[76] I conclude that the proper measure of damages is the cost of reinstatement.Quantum[77] The Court was provided with a joint statement by quantity surveyors (Ms Knight and Mr Price) as to reinstatement costs. Once the issue as to betterment (in relation to carpet replacement) is resolved,34 there is little difference betweenthem. Ms Knight's calculation is recorded on the joint statement as being $336,658,but that appears to be an arithmetical error, as the total of the figures set out by Ms Knight is $333,379. Mr Price's calculation, when floor coverings are included, is$302,482, a difference of $30,897.[78] The major difference lies in the allowance made for on-costs (sundries, preliminary and general, margin, and contingency costs), for carpet replacementother than "patch reinstatement". Ms Knight allowed $23,647 by applying apercentage to the base labour and material rate. Mr Price made no such allowance, because (it was submitted) the University would have contracted carpet replacement directly to a flooring company, rather than through the main contractor for the other works. This was, Mr Price said, a common practice where a client has in-house33 At [169]-[170].34 See [67]-[68], above.property management expertise, but accepted that carpeting could also be dealt with by the head contractor.[79] When Mr Price's evidence was put to Ms Knight in cross examination, sheresponded that the course followed in her estimate was to allow for the on-costs, because the quantity surveyor does not know how the required work is going to be procured by the client, whereas Mr Price assumed that there would be a direct contract. In re-examination she said that it would be reasonable for a head contractor to procure and supervise carpet laying.[80] I am not persuaded that Ms Knight was wrong to allow for on-costs inrelation to carpet laying. Accordingly, I accept Ms Knight's calculation ofreinstatement costs, of $333,379.Interest[81] Clause 5 of the lease provides that default interest is payable if the University"defaults in payment of the rent or other moneys payable". The default interest rate is set out in the First Schedule to the lease, as "5 percent above the overdraft rate as charged by the landlord's usual trading bank". In a consent memorandum of counsel dated 3 December 2013 it is stated that the "arranged overdraft rate" charged by Cazna's bank (Westpac) has been 8.45 percent since 11 March 2011.[82] Mr Hollyman submitted that default interest should be awarded in this case. He referred to the judgment of Panckhurst J in Jansen Ltd v Petra Holdings Ltd, in which his Honour dismissed an appeal against an award of default interest on a claim for reinstatement costs.35 However, I accept Mr Neutze's submission that Caznacannot claim default interest, as Cazna never became the "landlord" under the leaseand (in contrast to the reinstatement obligations) the right to claim default interest was not assigned to Cazna.[83] I have concluded that it is appropriate to award interest pursuant to s 87 of the Judicature Act 1908, at 5 per cent per annum. Mr Neutze submitted that interest35 Jansen Ltd v Petra Holdings Ltd [2013] NZHC 30.should only be awarded from the date this proceeding was issued, on 4 September 2012. This was, he submitted, because Cazna had delayed in issuing proceedings, without justification. Mr Hollyman submitted that to deprive a plaintiff from entitlement to interest for the full period since the cause of action arose, the delaymust be "exceptional".36 Mr Hollyman submitted that the delay in this case was not"exceptional", and that the University had deliberately avoided its obligations fromthe date it ought to have performed them. He also noted that the University had had the use of the money otherwise required to meet its reinstatement obligation during the period of delay.37[84] Mr Krukziener explained the delay in issuing proceedings, in answer to questions in cross examination, by saying that he was busy on a number of fronts, and only had limited time and resources to apply to the claim against the University. He said that having been rebuffed by the University as to its reinstatement obligations, he knew it would be necessary to go fully into trial mode. A bundle ofcorrespondence produced to the Court shows that on 17 August 2007 Cazna'ssolicitors sent the University's solicitors a notice to appoint an arbitrator, under the Arbitration Act 1996. In a letter dated 7 September 2007, the University's solicitors rejected Cazna's right to arbitrate. Mr Krukziener accepted that there were nodealings between the parties after that date, until this proceeding was issued.[85] Is the delay before the proceeding was issued exceptional, such that Cazna is not entitled to interest for the full period? I have concluded that there should be some reduction in the period for which interest must be paid, but I do not accept that it should be paid only from the date the proceeding was issued. In light of the fact that the University has had the use of the money it would otherwise have had to pay to meet its reinstatement obligations, the appropriate reduction is to order that interest is to run for a period of three years before the proceeding was issued, that is, from 7 September 2009.36 See Equiticorp Industries Group Ltd (In Statutory Management) v R (No 51) [1996] 3 NZLR 690 (HC).37 See Claymore Services Ltd v Nautilus Properties Ltd [2007] EWHC 805 (TCC).Result[86] The University is ordered to pay Cazna reinstatement costs of $333,379, together with interest pursuant to s 98 of the Judicature Act at 5 per cent per annum from 7 September 2009.[87] I reserve costs. If the parties are unable to agree on costs then memoranda may be submitted: that for Cazna within 21 days of the date of this judgment, and that for the University within a further 14 days. I anticipate that costs will then be decided on the papers, unless counsel agree that an oral hearing is required.________________________Andrews J