BANKS AND BANKS v GREY DISTRICT COUNCIL [2015] NZCA 417

BANKS AND BANKS v GREY DISTRICT COUNCIL [2015] NZCA 417 [8 September 2015]IN THE COURT OF APPEAL OF NEW ZEALANDCA460/2013CA667/2013[2015] NZCA 417BETWEEN DOUGLAS BANKS AND CHRISTINESANDRA BANKSAppellantsAND GREY DISTRICT COUNCILRespondentHearing: 23 July 2015Court: Ellen France P, White and Winkelmann JJCounsel: Appellants in personJ Shackleton and J Pannett for RespondentJudgment: 8 September 2015 at 10 amJUDGMENT OF THE COURTA The application for leave to adduce further evidence is allowed in part.B The application for further discovery is declined.C The appeal is dismissed.D The appellants must pay the respondent one set of costs for the consolidated appeal on a band A basis, with certification for second counsel.E The appellants must also pay the respondent one set of costs for their unsuccessful review application, to be calculated as if for an application for leave to appeal, on a band A basis plus usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Winkelmann J)Table of ContentsPara NoRelevant background [4]The power to lease [11]Appellants' arguments [14]High Court judgment [20]Grounds of appeal [24]Preliminary matter [27]Are the Banks bound by the terms of the 2000 lease? [29]Was the 1937 lease perpetually renewable? [41]Are any of the leases illegal contracts? [52]Was the correct valuation methodology applied? [64]Are the Banks entitled to the additional discovery they seek? [65]Did the Judge err in fixing costs? [75]Costs [78]Result [84][1] The appellants, Mr and Mrs Banks, are registered proprietors of a ground lease of residential property in Blaketown, Greymouth. The lessor is the respondent, Grey District Council. In 2007 the Banks stopped paying the rent under their lease in full, so in 2012 the Council applied for orders cancelling the lease for non-payment of rent and requiring the Banks to pay the arrears. The Banks opposed the orders sought. They advanced a number of arguments in support of their contention that they are not bound by the terms of the existing lease, and in particular that they are not bound by the provision allowing for seven-yearly rent reviews and the valuation methodology employed by the Council in setting the new rent.[2] In the High Court Fogarty J found that Mr and Mrs Banks were bound by the terms of their lease, and so were liable for payment of the arrears.1[3] The Banks have now paid the arrears but appeal the judgment. They also appeal a later award of costs against them.21 Grey District Council v Banks [2013] NZHC 1485 [Substantive judgment].2 Grey District Council v Banks [2013] NZHC 2304 [Costs judgment].Relevant background[4] The land that Mr and Mrs Banks lease from the Council was part of a block of land initially vested in the Greymouth Harbour Board in the early part of last century. This was not coastal land and as it was not required for the operations of the Harbour Board at that time it was used for a residential subdivision, with each of the subdivision householders granted ground leases.[5] The first lease for the land the subject of this dispute was granted for a term of 21 years from 1916 with a provision that it would be offered for sale by public auction at the end of that term. In 1929 the 1916 lease was transferred to Mr Banks'grandfather, Mr Ellery. The Harbour Board again leased the land to Mr Ellery in1937 and it is this lease which forms the foundation stone of the Banks' argument.[6] Although the 1937 lease was for a term of 21 years, it was extended in 1958 until 1979. In 1979 a new form of lease was agreed between Mr Ellery and the Harbour Board. Although the lease carried over many of the clauses from the 1937 lease, for the first time it provided for rent reviews during the term of the lease —every seven years.[7] Mr Ellery died in 1981 and the 1979 lease was inherited by his daughter,Joyce Banks, who is the appellant Mr Banks' mother. The lease was then transferredthat same year to Mr and Mrs Banks, by way of registered Memorandum of Transfer. In 1989 the Council was constituted and all of the assets of the Harbour Board transferred to it.3 The 1979 lease's term expired in 2000, but a new lease was notsigned by the Council and the Banks until 2006 (the 2000 lease). The Banks remained in possession of their house on the site in the intervening period. The delay in finalising the lease was due to a dispute that arose between the Council and the Banks in relation to the appropriate rent for the property.[8] Agreement was eventually reached to the extent that the parties were able to settle upon a new form of lease. The evidence is that the lease was vigorously negotiated by the Banks, and that they chose to sign the 2000 lease rather than take3 The Council was constituted under the Local Government (West Coast Region) Reorganisation Order 1989.up an alternative offer of a lease based on historical lease terms. The 2000 lease is again for a period of 21 years but with perpetual rights of renewal for further 21-year terms. Like the 1979 lease, it provides for seven-yearly rent reviews.[9] The rent payable by Mr and Mrs Banks under the 2000 lease came up for review again on 1 November 2007. At that point the Council advised Mr and Mrs Banks that the reviewed rent had been valued at $3,260 per annum, a substantial increase on the previous rent. The Council asked Mr and Mrs Banks to advise them whether they accepted the renewal of lease at that rate, whether they required the rent to be determined by arbitration or whether they did not want to renew the lease and would therefore vacate the property. Mr and Mrs Banks chose none of these options, but refused to pay rent at the new rate.[10] By July 2011 the rent outstanding for Mr and Mrs Banks had increased to $10,580. Because of their failure to remedy their continuing breach, the Council issued a notice under the Property Law Act 2007.4 Mr and Mrs Banks did not pay the arrears in response to this notice so the Council filed the originating application for the cancellation of the lease.The power to lease[11] It is useful at this point to set out the relevant legislative provisions under which the Harbour Board entered into the early leases. The Harbour Board was acting pursuant to s 5 of the Public Bodies Leases Act 1908 (the 1908 Act) when it entered into the 1937 lease. Section 5 of that Act was the empowering provision for the grant of leases by leasing authorities and provided:55. When a leasing authority has power to let any land, it may let the same under the provisions of this Act on any of the tenancies or leases following: —(a.) A tenancy at will:(b.) A tenancy terminable by the leasing authority at any time by six months' notice, or any shorter notice:4 The Council had issued a notice in 2008 formally notifying the Banks of the breach but had not acted on that notice.5 Section 138 of the Harbours Act 1923 provided that the Harbour Board was a leasing authority for the purposes of the 1908 Act.(c.) A tenancy for any term not exceeding fifty years, without right of renewal:(d.) A tenancy with a right of renewal for one or more terms, at a rent to be determined in the original lease, but so that the aggregate duration of the original and of the renewed terms shall not exceed fifty years:(e.) A tenancy for any term not exceeding twenty-one years, with a perpetual right of renewal for the same or any shorter term, at a rent to be determined by valuation, in accordance with the provisions of the First Schedule hereto:(f.) A tenancy for any term not exceeding twenty-one years, with a provision in accordance with the Second Schedule hereto that on the expiration of the term a new lease for the same or any shorter term shall be offered for sale by auction, and so on from time to time in perpetuity:(g.) A tenancy for any term not exceeding twenty-one years, with a provision in accordance with the First and Second Schedules hereto that on the expiration of the term the lessee shall have an option either to accept a renewed lease in accordance with the First Schedule hereto, or to have a new lease offered for sale by auction in accordance with the Second Schedule hereto, and so on from time to time in perpetuity:(h.) A tenancy in accordance with the provisions of any of the three last preceding paragraphs, save that the right of renewal or of having a new lease offered for sale by auction is limited in duration in such manner as the leasing authority thinks fit, in lieu of being perpetual.[12] The 1979 lease was entered into by the Harbour Board under the provisionsof the Public Bodies' Leases Act 1969 (the 1969 Act).6 Section 7 of that Act (as it was in 1979) provided:7. Powers of leasing authority to grant leases —(1) Where a leasing authority has power to let any land, it maylet the land under the provisions of this Act on any of thefollowing tenancies or leases:(a) A tenancy at will:(b) A tenancy determinable by the leasing authority at any time by 6 months' notice, or any shorter notice:6 Section 144 of the Harbours Act 1950 provided that the Harbour Board was a leasing authority for the purposes of the 1969 Act.(c) A tenancy for any term not exceeding 99 years, without right of renewal:(d) A tenancy with a right of renewal for one or more terms, the rent for the renewed terms to be determined by valuation in accordance with the provisions of the First Schedule to this Act, but so that the aggregate duration of the original and of the renewed terms shall not exceed 50 years:(e) A tenancy for any term not exceeding 21 years, with a perpetual right of renewal for the same or any shorter period, at a rent to be determined by valuation in accordance with the provisions of the First Schedule to this Act:(f) A tenancy for any term not exceeding 21 years, with a provision in accordance with the Second Schedule to this Act that on the expiration of the term a new lease for the same or any shorter term shall be offered for sale by auction, and so on from time to time in perpetuity:(g) A tenancy for any term not exceeding 21 years, with a provision that on the expiration of the term the lessee shall have an option either to accept a renewal lease in accordance with the First Schedule to this Act or to have a new lease offered for sale by auction in accordance with the Second Schedule to this Act, and so on from time to time in perpetuity:(h) A tenancy in accordance with paragraph (e) or paragraph (f) or paragraph (g) of this subsection, save that the right of renewal or of having a new lease offered for sale by auction is limited in duration in such manner as the leasing authority thinks fit, instead of being perpetual.(2) For the purposes of the Rating Act 1967, a tenancy granted under paragraph (b) of subsection (1) of this section for a term of not less than 12 months shall be deemed to be a tenancy for a term certain of not less than 12 months, notwithstanding that it is terminable pursuant to the provisions of that paragraph.[13] The Banks put at issue the statutory provision the Council was acting under when it granted the 2000 lease. We address this point below.Appellants' arguments[14] In resisting the Council's claims for the increased rent set under the 2000 lease's rent review provisions, the Banks face the obvious difficulty that they took atransfer of a registered lease which had seven-yearly rent review periods, and then in 2006 signed a new lease, backdated to 2000, also containing seven-yearly rent reviews.[15] The Banks' argument in this Court largely rehearses the argumentsconsidered and rejected in the High Court by Fogarty J.[16] They say that the 1979 and 2000 leases should have been documented as renewals of the 1937 lease, because when read in the context of the 1908 Act, the 1937 lease is properly construed as a perpetually renewable lease. As the 1937 lease was perpetually renewable, the Banks argue that this meant that Mr Ellery had a right to renew his lease on the same terms and conditions as existed in the 1937 lease. The 1937 lease did not provide for seven-yearly rent reviews and provided for rent to be set at the rate of 3.5 per cent of the unimproved land value, whereas the Council now utilises a rate of 4 per cent of land value. When Mr Ellery entered into the 1979 lease, he was then wrongly deprived both of a perpetually renewable lease, and of the right to have no rent reviews during the 21-year period. They argue that the only possible explanation for his giving away the right to such a favourable lease was that he did not understand that was what he was doing: he was either actively misled by the Harbour Board or the extent of his rights under the 1937 lease were not explained to him.[17] As Mr Ellery's successors in title, the Banks say they should have the benefitof the lease he was entitled to. Their 2000 lease should be rectified to reflect the terms of the 1937 lease, removing the seven-yearly rent review provision, and including the more favourable rent review methodology.[18] The Banks have alternative arguments. They argue that the terms of the 1937, 1979 and 2000 leases were not binding on them because they were eitherillegal contracts, or entered into beyond the Harbour Board's, and later the Council's,authority.[19] Finally, the Banks say that whatever the terms of the 1937 and subsequent leases, a notation which appears on the Land Transfer Act register that the 1979 leasewas a "lease in Renewal of Lease 3249 [1937 lease]" is conclusive evidence thatthere was a right of renewal in the 1937 lease. The 1979 lease was therefore a renewal of the 1937 lease and so on the same terms and conditions. They further rely on the notation on the Certificate of Title following the execution of the 2000lease that it was a "lease in renewal of Lease 58138 [1979 lease] Term 21 years fromand including 1st November 2000 (Right of Renewal)." This, they say, makes clearthat the current terms are those from the 1937 lease.High Court judgment[20] In the High Court Fogarty J noted that an obstacle in the way of the Banks'case was that the 1979 lease, in which the seven-yearly rent review was first introduced by the Council, was signed by the lessee, Mr Ellery.7 Moreover the 1981 assignment of that lease was signed by Mr and Mrs Banks, and so too was the 2006 lease which took effect from 2000.[21] The Judge rejected the Banks' argument that Mr Ellery had not had his rightsunder the 1937 lease explained to him when he entered into the 1979 lease. He said the argument was contrary to the longstanding principle that a person who has signed a document must be treated as having read and understood it.8 The only way in which Mr and Mrs Banks could obtain relief from the terms of their lease in relianceupon Mr Ellery's rights was if the Harbour Board had misrepresented the content ofthe new lease to Mr Ellery. The Judge found that the Banks had not discharged the evidential burden of proving on the balance of probabilities that there had been any misrepresentation, let alone deceit, and therefore their argument that the inclusion in the 1979 lease of a seven-yearly rent review clause was unenforceable, must fail.9[22] The Judge then addressed the argument advanced by the Banks that the leases were illegal contracts because the various leasing authorities did not have the power to grant those leases under either the 1908 or 1969 Acts.7 Substantive judgment, above n 1, at [30].8 At [34].9 At [46].[23] The Judge said that there was a reasonable argument that the various leases were made within the powers given to the Harbour Board and then the Council under the 1908 and 1969 Acts.10 But in any case, even if these were illegal contracts, s 7 of the Illegal Contracts Act 1970 gives the Court a very wide discretion whether or not to grant relief. He was satisfied that were he to decide that the leases prior to the 2000 lease were illegal (which he said he did not), there were no significant considerations in favour of Mr and Mrs Banks to release them from the terms they signed up to in 1981 and again in 2006.11Grounds of appeal[24] This appeal is brought on the basis that the Judge erred in finding that:(a) There was no evidence that Mr Ellery had been deceived or misled into entering into the 1979 lease;(b) The 1937 lease was not perpetually renewable so Mr Ellery was not entitled to a renewal of that lease on its existing terms in 1979; and(c) Even if the Harbour Board did not have the power to enter into the 1937 and 1979 leases, Mr and Mrs Banks were not entitled to relief under the Illegal Contracts Act.[25] The Banks applied in this Court for additional discovery to assist them with their appeal. We heard that application at the commencement of the appeal hearing, and deal with it in the course of this judgment.[26] We have found it convenient to address the issues arising on this appeal as follows:(a) Are the Banks' bound by the terms of the 2000 lease?(b) Was the 1937 lease perpetually renewable?10 At [60].11 At [71].(c) Are any of the leases illegal contracts?(d) Was the correct valuation methodology applied?(e) Are the Banks entitled to the additional discovery they seek?(f) Did the Judge err in fixing costs?Preliminary matter[27] The Banks applied for leave to file further evidence. That application was opposed by the Council on the basis that the material consisted of irrelevant court minutes and judgments, and of evidence that had either not been referred to in the High Court or that had been ruled inadmissible. At the hearing the Council withdrew its opposition to the admissibility of one item only, the 2002 affidavit of Mr Pretorius, filed in earlier proceedings. We have referred to the content of that affidavit in the course of this judgment and accordingly allow the application in respect of that affidavit.[28] We have not found it necessary to refer to any of the material objected to as itis irrelevant to the issues in this proceeding. We therefore decline the Banks'application in respect of the balance of the documents on the grounds that the evidence is neither cogent nor fresh.12Are the Banks bound by the terms of the 2000 lease?[29] As earlier noted, the Banks must show good cause why they should not be bound by the terms of the 2000 lease. If they are bound by the terms of that lease, then that is dispositive of the appeal.[30] We did not hear argument as to whether the assignment of the lease entitles the Banks to pursue claims on behalf of the now deceased Mr Ellery that he was12 Court of Appeal (Civil) Rules 2005, r 45; Rae v International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR (CA) at 192; R v Bain [2004] 1 NZLR 638 (CA) at [22]. Aotearoa International Ltd v Paper Reclaim Ltd [2006] NZSC 59, [2007] 2 NZLR 1 at [6], n 1; Erceg v Balenia Ltd [2008] NZCA 535 at [15].misled into entering into the 1979 lease. Nor did we hear argument as to the implications of the provisions of the Limitation Act 1950. Although these issues may well create additional difficulties for the Banks, the appeal can be resolved without reference to them.[31] As Fogarty J held, the general principle is that a person who has signed a document is to be treated as having read and understood the document.13 We also agree with the Judge that there is no principle of law casting an obligation upon the Harbour Board to explain any differences between the old lease and the new one. As he said:14 the law presumes that the lessees will make it their responsibility, aided if necessary by professional advice, to read the terms offered to them and to decide whether or not to sign the renewal or, to use a neutral term, replacement lease.[32] The Banks must prove that Mr Ellery entered into the lease in reliance upon a misrepresentation. Mr Ellery raised no complaint during his lifetime and we agree with Fogarty J that the Banks have not discharged the evidential burden upon them of proving a misrepresentation by the Harbour Board to Mr Ellery.[33] The Banks' alternative argument is that they are not bound by the terms of the2000 lease because it is tainted by the illegality of earlier leases. We address the arguments about illegality later in this judgment. But even if they were correct that there was some illegality affecting the earlier leases, we are satisfied that Mr and Mrs Banks would not be entitled to relief under the provisions of the Illegal Contracts Act. The Banks were aware of the terms of the 1979 lease when they took an assignment of it, and so can hardly complain of those terms now. Moreover, the 2000 lease was a fresh lease they negotiated with the Council. They were aware of its terms when they entered into it. As Fogarty J held, even if there was illegality affecting earlier leases, there is no case for the exercise of the discretion to grant relief in favour of the Banks.1513 HG Beale (ed) Chitty on Contracts (31st ed, Sweet & Maxwell, London, 2012) vol 1 at [12-002].14 Substantive judgment, above n 1, at [36].15 At [71].[34] The final basis the Banks advance to support their contention that they are not bound by the terms of the 2000 lease is that entries on the Land Transfer Act register narrate that the 1979 and 2000 leases are each renewals of the previous lease. The Banks say that is an entry on the register and so binds the Council. Tracing back through these renewals they reach the 1937 lease, which they say is perpetually renewable and has no seven-year rent review.[35] The Banks rely upon the provisions of s 117 of the Land Transfer Act 1952 which provides:117 Bringing down encumbrances on registration of new lease(1) Where upon the registration of a lease—(a) the Registrar is satisfied that—(i) it is in renewal of or in substitution for a leasepreviously registered; and(ii) the lessee is the person registered as the proprietorof the prior lease at the time of the registration ofthe new lease or at the time of the expiry orsurrender of the prior lease, whichever is the earlier,or the personal representative of that person; and(b) the lessee or the registered proprietor of any encumbrance orlien or interest to which the prior lease was subject at thetime of its expiry or surrender or the personal representativeof the registered proprietor so requests,—the Registrar shall state in the memorial of the new lease that it is inrenewal of the prior lease or in substitution for the prior lease, as thecase may be.(2) In every such case the new lease shall be deemed to be subject to allencumbrances, liens, and interests to which the prior lease is subjectat the time of the registration of the new lease or at the time of theexpiry or surrender of the prior lease, whichever is the earlier.(3) For the purposes of the foregoing provisions of this section, allreferences in any Act or in any agreement, deed, instrument, notice,or other document whatsoever to the prior lease or to the estate ofthe lessee thereunder shall, unless inconsistent with the context orwith the provisions of this section, be deemed to be references to thenew lease or to the estate of the lessee thereunder, as the case maybe.(4) Upon the registration of a new lease in any case to which subsection(1) applies, the Registrar shall record on the new lease allencumbrances, liens, and interests to which it is deemed to besubject as aforesaid in the order of their registered priority.(5) The provisions of this section are in addition to and not inderogation of the provisions of section 114 of the Land Act 1948, section 36 of the State Advances Corporation Act 1936, and any other enactment.[36] We note that in the case of the 1979 and 2000 leases the entry was made on the register at the request of the lessee, as evidenced by the endorsement on each of those leases. The purpose of s 117 is to ensure that the leasehold interest of an existing lessee who has either renewed their lease or has received a further lease in substitution, remains subject to existing encumbrances such as mortgages. This removes the costly process of re-documenting security each time there is a renewal or substitution of a lease.[37] Again there is nothing in s 117 which assists the Banks because such a notation on the register cannot transform the nature of the registered interest. Section 41(1) of the Land Transfer Act provides that when an instrument such as a lease is registered, the estate or interest created is: subject to the covenants, conditions, and contingencies set forth andspecified in the instrument or by this Act declared to be implied in instruments of a like nature.[38] To similar effect is s 10(3) of the Land Transfer (Computer Registers and Electronic Lodgement) Amendment Act 2002 which provides:A reference in the computer interest register to the instrument creating the interest to which the register relates takes effect as if the instrument were fully set out in the register.[39] Registered leases therefore take effect as if set out in full in the register. The 1979 lease which the Banks acquired and the 2000 lease each provide for seven-yearly rent reviews. Given the terms of the leases, and these legislative provisions, the reference to a renewal of lease contained in the certificate of title is best understood as acknowledging that it is the same lessees who have the benefit of the new lease.[40] It follows that the Judge was right to find that the Banks are bound by the terms of the 2000 lease. Although that is dispositive of the appeal, we deal briefly with the other points raised by the Banks.Was the 1937 lease perpetually renewable?[41] The Banks' argument that the 1937 lease is perpetually renewable faces the difficulty that the provisions of the lease itself do not support such a reading.[42] Clause 11 of the 1937 lease provided that no later than six months prior to: the expiration of the term hereby granted the Board shall decide whether it will or will not lease the said land again as from the expiration of the said term.The rest of cl 11 provided for the valuation methodology which was to be followed to provide compensation for the improvements on the land if the Board decided not to extend the term, and the valuation methodology to fix the rental should the Board decide to offer a renewal.[43] Clause 12 sets out the procedures to be followed if the Board decided to offer the lease to the lessee from the expiration of the existing lease term. It required the lessee to give notice to the Board as to whether the lessee wished to have a renewed lease of land at the new rental. If the lessee gave notice that they did wish to renew, then cl 12(c) provided that this constituted a contract between the Board and the lessee for the granting and acceptance of a renewed lease for 21 years at the new rental, but otherwise on existing terms and conditions.[44] The Banks construct an argument to meet the difficulty the contractual terms create for them as follows. The 1937 lease utilised much of the valuation methodology set out in the First Schedule to the 1908 Act, and so this must be a lease under s 5(e) of that Act because the First Schedule terms only apply to perpetually renewable leases granted under the provisions of s 5(e) or 5(g) of the 1908 Act. This is not a s 5(g) lease because s 5(g) leases include provision for sale by auction at the end of the term, so it must be a s 5(e) lease. As such, all of theterms of the First Schedule are therefore implied, including cl 1 of that Schedule, which provides for a perpetual right of renewal of the lease.[45] To add support to this argument they point out that the Council has in the past described the leases in this subdivision as perpetually renewable, and some of the language of the 1937 lease supports this conclusion. On a number of occasions the lease refers to the new term of lease, if offered and accepted, as a renewal.16[46] On a plain reading of the text of the lease, the 1937 lease falls within theprovisions of s 5(c) of the 1908 Act, a "tenancy for any term not exceeding fifty years, without right of renewal", rather than s 5(e). The expression "perpetual right of renewal" in s 5(e) of the 1908 Act can only sensibly be read as a contractual right in the lessee to require a further term. That is the nature of the right provided for in cl 1 of the First Schedule which provides:On the expiration by effluxion of time of the term hereby granted, the lessee shall have a right to obtain, in accordance with the provisions hereinaftercontained, a renewed lease of the land hereby demised, subject to thesame covenants and provisions as this lease, including this present provisionfor the renewal thereof. [47] Here the cl 11 right is for the Harbour Board to decide whether or not to offer a new lease on the existing terms and conditions. That is not a right of renewal for the purposes of the 1908 Act. Nor can the right in cl 12 be a right of renewal in that sense as the lessee had no contractual right to insist upon a new lease unless the Harbour Board offered one. The provisions of the lease are therefore inconsistentwith Mr Ellery having a "right" to renew the lease in the sense that expression isused in the 1908 Act.[48] As to the Banks' other arguments, although the lease uses the language of"renewal" this is when addressing the procedures to be followed if theHarbour Board decided to offer a further term. The use in the lease document of some of the clauses from the First Schedule also cannot convert it into a s 5(e) lease. The Harbour Board was free to use whatever precedent it chose for the lease, so long as it acted within its powers in granting it.16 See for example, cl 12(c) and 12(e).[49] The Banks also refer to an affidavit sworn by the Council Chief Executive, Mr Pretorius, in 2002, in the context of earlier litigation with the Banks in connection with the appropriate rental for their property. In that affidavit he said:Essentially all the residential leases held by the Council, managed in terms of the Public Bodies Leases Act 1969 are subject to perpetual renewal, pursuant to 21 year terms, with rent reviews every seven years.[50] What Mr Pretorius thought at that time is not relevant as it does not assist in construing the terms of the lease. That is an exercise in contractual interpretation, and the post-formation views of someone employed by an entity which was not one of the original contracting parties cannot assist. The issue of possible admissibility of the subsequent conduct of the parties therefore does not arise.17[51] To conclude on this point, we are satisfied that the 1937 lease was not perpetually renewable.18Are any of the leases illegal contracts?[52] The Banks argue that the 1937 lease was intended to be a lease for 21 years but with a perpetual right of renewal under the 1908 Act. As such it should have had all of the clauses of the First Schedule to the 1908 Act incorporated into its terms. It did not and so the lease was in contravention of the statute, is an illegal contract, and is therefore void. This argument also applies to the 1979 lease, entered into by the Harbour Board under the provisions of the 1969 Act. Although the 2000 lease is perpetually renewable, the Banks nevertheless argue that the earlier illegality also taints the 2000 lease and so it too is void.[53] As we have outlined above, the 1937 lease falls within the provisions of s 5(c) of the 1908. It follows from our findings that the 1979 lease falls within the terms of s 7(1)(c) of the 1969 Act. This argument does not assist the Banks with their appeal.17 John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand(4th ed, LexisNexis, Wellington, 2012) at [6.2.2](h).18 We observe that even had we found the 1937 lease to be perpetually renewable, there is no evidence that the 2000 lease did not reflect the common intention of the parties. There could therefore be no rectification of the 2000 lease to reflect the terms of the 1937 lease.[54] The Banks alternative argument is that if the 1937 and 1979 leases are not perpetually renewable, they are unlawful because they incorporated some of the clauses from the First Schedule of the 1908 and 1969 Acts respectively, clauses which are only for use in perpetually renewable (s 5(1)(e)) leases.[55] There is nothing in the 1908 and 1969 Acts and there is no principle of law which would prevent the Harbour Board from utilising some of the language from the First Schedule in the 1937 and 1979 leases. This argument also has no merit.[56] The Banks also challenge the statutory basis for the Council to enter into the leases under the 1969 Act, following the coming into force of the Local Government Act 2002.[57] We agree that the Council was not acting under the provisions of the 1969 Act when it granted the lease to the Banks in 2006. Although the lease was expressed to regulate the leasing relationship between the parties from 2000, the power of the Council to enter into the lease must be determined as at the date of execution, which was in 2006.[58] Section 303 of the Local Government Act 2002 provides that:303 Public Bodies Leases Act 1969(1) Every territorial authority and regional council ceases, as from thecommencement of this section, to be a leasing authority for thepurposes of the Public Bodies Leases Act 1969.(2) Despite subsection (1) and section 262, nothing in this Act limits the application of the Public Bodies Leases Act 1969 with respect to—(a) any lease or tenancy granted by a territorial authority orregional council before the commencement of this sectionand current at the commencement of this section; or(b) any lease or tenancy granted after the commencement of thissection in renewal of a lease or tenancy to which the Public Bodies Leases Act 1969 applies.The commencement date of the Act for the purposes of s 303 was 1 July 2003.[59] The Banks' 2000 lease was a new lease, not a continuing lease (s 303(2)(a))or a renewal of a lease (s 303(2)(b)). Therefore the Council had to look elsewhere for its powers to lease than the 1969 Act. The Council has broad powers, sometimes referred to as powers of general competence, to perform its role as a local authority, derived from s 12 of the Local Government Act.19 These powers extend to the power to lease.[60] We note that the 2000 lease does make reference to the 1969 Act. The rent valuation provisions from the First Schedule are incorporated by reference with some amendments. Although it is not clear why the Council chose to incorporate those provisions, it was free to use the text of the provisions in the lease documentation. Even if the Council believed it was acting under the 1969 Act, it was not, but nevertheless had the power to enter into the lease.[61] The Banks also attack the validity of the 2000 lease on the basis that it was entered into by the Council in breach of s 18(2) of the 1969 Act. However the Council was not acting under the provisions of the 1969 Act when it entered into the 2000 lease. Even if it were, we do not consider that provision would help the Banks with their argument. Section 18(2) provides:It shall not be lawful for any leasing authority (except pursuant to the right to grant a renewable lease, or otherwise pursuant to the express provisions of this Act) to enter into any contract to grant a lease under this Act which is not to be executed and to take effect in possession within 6 months after the making of the contract.[62] This section addresses an entirely different fact situation to the present. It prohibits a leasing authority from agreeing to grant a lease under the Act that will not be executed and take effect until at least six months into the future. There was no agreement here to lease the property to the Banks in the future. The parties were negotiating over the terms of a lease, while the Banks remained in possession. When executed, the lease was effective immediately, and not at some point in the future.[63] We make one final comment before leaving this ground of appeal. Even if the Banks had made out any of their arguments that the leases were in breach of19 Local Government Act 2002, s 12.various statutory provisions, or entered into without statutory authority, it does not follow automatically that the lease would be an illegal contract.20 However, given the findings set out above, we have not had to resolve this issue.Was the correct valuation methodology applied?[64] The Banks' argument is that the 1937 lease provided for the land rentalvaluation to be set at 3.5 per cent of the unimproved land value and that should be the rate applied because they are entitled to the benefit of the terms of the 1937 lease. We have already held that the Banks are not entitled to the benefit of the 1937 lease. In any case, the 1937 lease did not stipulate that the rent should be calculated on the basis of 3.5 per cent of the unimproved land value, but rather that on renewal it beset by a valuation of the "rack rent of the said land as if no improvements existed". The 2000 lease requires valuation by reference to the "fair annual rent of the land".21There is then, as the Council submits, no pre-existing rate that could be reinstated into the lease, even if the Banks had been successful in reviving the terms of the 1937 lease for their own benefit.Are the Banks entitled to the additional discovery they seek?[65] We heard argument on an application for discovery made in this Court by theBanks. The Banks seek disclosure of an internal Council report entitled "BlaketownLeases — A Way Forward" and dated 10 August 2009. This report was prepared by the Council's Chief Executive Officer in relation to the Council's legal standingunder the Blaketown leases for the purpose of presenting to a meeting of the Council. Part of the report narrated the content of the legal advice received.[66] The minutes of the meeting record that the public was excluded from the meeting during discussion of the report. The reason for excluding the public wasrecorded in the minutes as "Good reason to withhold exists under s 7(2)(a) and 7(2)(i)", references to s 7 of the Local Government Official Information andMeetings Act 1987 (LGOIMA). Those subsections list as reasons for withholding20 See ss 3 and 5 of the Illegal Contract Act 1970, and discussion in Burrows, Finn and Todd, above n 17, at [13.5]. However, a contract entered into beyond a statutory body's powers will bevoid.21 Modick RC Ltd v Mahoney [1992] 1 NZLR 150 (CA) at 155.documents the need to protect the privacy of persons (s 7(2)(a)) and the need to enable any local authority holding information to carry on negotiations, without prejudice or disadvantage (s 7(2)(i)).[67] The report was not explicitly referred to in the list of documents provided by the Council for the High Court hearing. The Council says that it fell within the categories of documents it described in general terms and in respect of which it asserted both legal advice and litigation privilege under the provisions of ss 54 and 56 of the Evidence Act 2006 respectively.[68] Mr and Mrs Banks became aware of the nature of the document after the hearing in the High Court. They contend the document is relevant as it summarises the legal advice the Council has received in respect of the very issues the subject of this litigation, or something close to them. They say that it should have been disclosed to them through the discovery process as the Council had waived its privilege in it by failing to assert that privilege when the document was tabled before Council. They say the Council failed to assert privilege as it failed to mention the LGOIMA provision which lists privilege as a ground to refuse disclosure, s 7(2)(g).[69] The Banks requested a copy under LGOIMA and when that was declined, complained to the Ombudsman. Ultimately, through that process the Council agreed to release a redacted copy. Although the report released was heavily redacted, the"Suggested Recommendation" section remained and included the recommendation:Council takes note that our legal position is probably in the clear but that there are a number of grounds upon which an awkward challenge can be brought. A lack of knowledge and understanding of what actually happenedmay be a threat to Council's position.[70] The Banks rely on the release of the redacted copy as evidencing a further waiver by the Council of its right to maintain a claim to privilege under ss 54 or 56 of the Evidence Act. They say the Council has disclosed part of the report which refers to the substance of the legal advice. The Banks therefore apply for discovery of a copy of the report without redaction.[71] We have concluded that the application for discovery of the report should be declined. There are two reasons for this decision. First, the redacted portion of the document is not relevant to the issues for determination on this appeal. The legal advice the Council received in 2009 cannot assist in determining the legal effect of documents and actions concluded years or even decades earlier. Secondly, even if relevant the Council has a privilege in respect of the documents. The Council is entitled to assert both legal advice privilege and litigation privilege in respect of the report. Although we have not inspected the document, and were not requested to doso, it is common ground that the minutes record the Chief Executive's summary oflegal advice the Council received in respect of prospective claims arising out of the Blaketown leases. It is also clear from an earlier part of the report that the Council was by then anticipating litigation with the Banks in respect of the outstanding rent.In the light of the Banks' ongoing refusal to pay the increased rent, it was reasonablefor the Council to do so. The report refers to the Banks' latest "challenge" and thatCouncil staff would be prepared to participate in finding a lasting solution to thedispute on a "without prejudice" basis.[72] Nor do we consider that privilege has been waived. Section 65 of the Evidence Act provides that a person who has privilege can waive it in several ways. The Banks invoke the ground set out in s 65(2):A person who has privilege waives the privilege if that person voluntarily discloses any significant part of the privileged document in circumstances that are inconsistent with a claim of confidentiality.[73] There has been no disclosure of any significant part of the privileged portion of the document. The Council has continued to keep confidential that part of the document which records the advice received. The brief recommendation which refers to an aspect of the advice is not, we consider, disclosure of a significant part of the advice, as it contains none of the detail of that advice. The Council has throughout maintained confidentiality. It excluded the public from the meeting when the report was discussed, it resisted disclosure of the document to the Banks when they requested it under LGOIMA and finally resolved the issue with the Ombudsman on the basis that it would redact (and thereby keep confidential) the part of the report that detailed the advice received.[74] A failure to refer to the relevant provision of LGOIMA relating to legal professional privilege is also not inconsistent with maintaining that privilege. The provisions that were listed were included as reasons for excluding the public from that part of the meeting so that the content of the advice was kept confidential, a position entirely consistent with a claim to privilege.Did the Judge err in fixing costs?[75] Fogarty J fixed costs in the High Court on a standard 2B basis, withcertification for second counsel. He declined the Council's arguments for a 2Ccategorisation for discovery and its application for a 10 per cent uplift overall on costs on the grounds that the Banks contributed unnecessarily to the time and expense of the proceedings.22 The Banks opposed any award of costs, because they defended the action in the interests of other lessees and because any award would seriously impact upon their ability to retain their home. The Judge rejected the notion that this was a test case and said that there was no basis upon which he couldtake the Banks' financial situation into account in the award of costs.23[76] The principal ground upon which the Banks appeal the award of costs is thatthe Judge was wrong to find in the Council's favour. They also repeat the argumentsthey made before the Judge, and say that they never sought to take legal proceedings, and would have preferred to negotiate a resolution with the Council. They should not, therefore, have to pay costs.[77] The Banks have had no more success with their arguments on appeal than they had before Fogarty J. The Judge was correct in his observation that this was nota test case and, as he said, the Banks' financial situation is not relevant to the issue ofcosts in the circumstances of this case.24 The Banks chose to defend the proceedings. By doing so, they imposed the cost of pursuing the proceedings (and then defending this appeal) on the Council. Having been unsuccessful at each step,they must pay the Council's costs in accordance with usual cost principles.22 Costs judgment, above n 2, at [48]–[50].23 At [51].24 See Andrew Beck and others McGechan on Procedure (online looseleaf ed, Brookers) at [HCRPt14.17](1); Birkdale Service Station Ltd v Commissioner of Inland Revenue[2001] 1 NZLR 293 (CA) at [81] and [85].Costs[78] The Council seeks an award of costs in this Court on a band A basis, with certification for second Counsel. As costs should follow the event, we so order.[79] The Council also seeks that costs be fixed on a band A basis in respect of two interlocutory applications by the Banks. The background to these applications is a minute of Stevens J directing that the Banks' appeals in respect of the substantivejudgment and the issue of costs be heard together, and that the consolidated case on appeal should be filed by the Council.25[80] The Banks applied to review Stevens J's direction that the appeals be heardtogether and also applied for leave to file additional evidence. The application for review was dismissed by this Court on 26 September 2014.26 The Council is entitled to costs on that application. Costs should be calculated as if for an application for leave to appeal on a band A basis, plus standard disbursements.[81] The Banks' application for leave to file further evidence followed on from Stevens J's direction that the case on appeal for both appeals should be the case filedby the Council. It is apparent from the record that the Council provided the case on appeal because the case earlier filed by the Banks had been non-compliant.27 Beforedirecting that the Council's case constitute the record for the appeal, Stevens Jrequired the Council to confer with the Banks what further material they wished included.28 They did not identify any and accordingly Stevens J directed that theappeals would be conducted using the Council's case on appeal.29 The Banks then applied for leave to file further evidence.[82] The application was heard at the same time as the application for review ofStevens J's order directing the appeals be heard together.30 This Court observed that25 Banks v Grey District Council CA460/2015 and CA667/2015, 13 May 2014 [Minute of Stevens J].26 Banks v Grey District Council [2014] NZCA 470 [Review of Stevens J's direction].27 Review of Stevens J's direction, at [12].28 Banks v Grey District Council CA460/2015 and CA667/2015, 7 April 2014, at [3]–[4].29 Minute of Stevens J, above n 25.30 Review of Stevens J's directions, above n 27.the admissibility and relevance of the contested material was questionable but considered that the application should be dealt with at the same time as the appeal.31[83] As noted above, with the exception of one affidavit we have declined theBanks' application. Nevertheless, we do not consider that any additional award ofcosts is required in relation to this application to adduce new evidence. The Council is adequately compensated on that application by orders for costs on the application for review and the appeal.Result[84] The application for leave to adduce further evidence is allowed in part.[85] The application for further discovery is declined.[86] The appeal is dismissed.[87] The appellants must pay the respondent one set of costs for the consolidated appeal on a band A basis, with certification for second counsel. The appellants must also pay the respondent one set of costs for their unsuccessful review application, to be calculated as if for an application for leave to appeal on a band A basis plus standard disbursements.Solicitors:Simpson Grierson, Wellington for Respondent31 At [20].