NZSKI LTD v DIRECTOR-GENERAL OF CONSERVATION [2014] NZHC 3245

NZSKI LTD v DIRECTOR-GENERAL OF CONSERVATION [2014] NZHC 3245 [16 December 2014]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2014-485-9681[2014] NZHC 3245UNDER THE Arbitration Act 1996IN THE MATTER OF an application pursuant to cl 4 ofSchedule 2 of the Arbitration Act 1996BETWEEN NZSKI LIMITEDApplicantAND DIRECTOR-GENERAL OFCONSERVATIONRespondentHearing: 13 October 2014Counsel: N R W Davidson QC and B M Russell for PlaintiffK G Stephen and J S Andrew for DefendantJudgment: 16 December 2014RESERVED JUDGMENT OF MACKENZIE JI direct that the delivery time of this judgment is3 pm on the 16th day of December 2014.Solicitors: Lane Neave Lawyers, Christchurch, for PlaintiffCrown Law, Wellington, for RespondentIntroduction[1] The applicant (NZSki) operates the Remarkables ski area near Queenstown, on land owned by the Crown as a recreation reserve under the Reserves Act 1977 and leased to NZSki for a term of 33 years from 1 March 1989 with rights of renewal. The rent is reviewable at 11-year intervals. A difference between the parties as to the rent which should apply for the 11 year period commencing 1 March 2011 has been referred to arbitration. The arbitrator will be required to determine the percentage rate of average gross revenue from the Remarkables ski area which should be used to fix the annual rent. The rights which NZSki has beyond the expiry of the lease may be relevant to fixing that percentage. The arbitrator will need to take into account the nature and extent of NZSki's rights oftenure after the expiry of the present term of the lease on 28 February 2022.[2] The parties have agreed to the determination of a preliminary point of law by this Court pursuant to cl 4(1)(b) of sch 2 of the Arbitration Act 1996. The question posed is:Whether as a matter of law:(i) the rights of renewal granted by the lease between the parties dated 30 August 1993 (Lease) may be exercised at the election of the lessee for a further term of 33 years from 1 March 2022 as an extension of the Lease; or(ii) if the answer to (i) is that there is no right of renewal as an extension of the Lease from 1 March 2022, is Part 3B of theConservation Act 1987 ("the concession regime") of noapplication given section 17O(3)(b) of the Conservation Act?The lease and the legislation[3] The deed of lease, dated 30 August 1993, is made between Her Majesty the Queen as lessor and The Mount Cook Group Ltd as lessee. The interest of the lessee has been assigned to NZSki. The preamble to the lease records that the lessor is registered as the proprietor of an estate for a recreation reserve subject to the Reserves Act in the leased land, and that the lease is granted pursuant to the provisions of s 54(1)(a) of that Act. The lease provides that the lessee is to use the land solely for purposes consistent with buildings and facilities erected to servepatrons of a public ski field and sightseers. The term of the lease, and rights of renewal, are contained in cl 1 which provides:1 TERM 33 years dating from 1 March 1989, with rights of renewal for further terms of 33 years if the terms and conditions of the lease have been complied with and if the facilities have been properly constructed, developed, maintained and controlled, that there is sufficient need for them and that some other recreational use should not have priority in the public interest.[4] Non-renewal is addressed in cl 26i which provides:26i. That if the lease shall be terminated in accordance with Clause 24 hereof or if the Lessee shall elect not to accept any renewal of this lease or shall surrender this lease then where the Lessor is of the opinion that the said land shall again be leased the Lessor shall cause a valuation to be made of the improvements that are then on the said land and as soon as possible thereafter shall publicly offer the said land for lease for the purposes set out in Clause 2 above weighted with the value of improvements belonging to the outgoing Lessee.[5] The lease was granted in 1993. Section 54(1)(a) of the Reserves Act, which gives power to grant leases in a recreation reserve, then provided:(1) With the prior consent of the Minister, the administering body, in the case of a recreation reserve that is vested in the administering body, may from time to time, in the exercise of its functions under section 40 of this Act, and the Minister, in the case of any other recreation reserve, may from time to time, to the extent necessary to give effect to the principles set out in section 17 of this Act,—(a) lease to any person, body, voluntary organisation, or society (whether incorporated or not) any area set apart under section 53(1)(h) of this Act for baths, a camping ground, a parking or mooring place, or other facilities for public recreation or enjoyment. The lease—(i) may require the lessee to construct, develop, control, and manage the baths, camping ground, parking or mooring place, or other facilities for public recreation or enjoyment, or may require the lessee to control and manage those provided by the administering body; and(ii) shall be subject to the further provisions set out in Schedule 1 to this Act relating to leases of recreation reserves issued pursuant to this paragraph:[6] Schedule 1 to the Reserves Act, to which the lease was subject by virtue of s 54(1)(a)(ii), provided, so far as relevant to the term of the lease and renewal, as follows:Term Not exceeding 33 yearsRenewal May include a provision that further similar terms may be granted if the terms and conditions of the lease have been complied with and if the lessor is satisfied that the baths, camping grounds, parking places, or other facilities, as the case may be, have been properly constructed, developed, maintained, and controlled, and that there is sufficient need for them, and that some other recreational use should not have priority in the public interest[7] There have been subsequent changes to s 54(1)(a). That section now provides:(1) With the prior consent of the Minister, the administering body, in the case of a recreation reserve that is vested in the administering body, may from time to time, in the exercise of its functions under section40, to the extent necessary to give effect to the principles set out in section 17 —(a) lease to any person, body, voluntary organisation, or society (whether incorporated or not) any area set apart under section 53(1)(h) for baths, a camping ground, a parking or mooring place, or other facilities for public recreation or enjoyment. The lease—(i) may require the lessee to construct, develop, control, and manage the baths, camping ground, parking or mooring place, or other facilities for public recreation or enjoyment, or may require the lessee to control and manage those provided by the administering body; and(ii) shall be subject to the further provisions set out in Schedule 1 relating to leases of recreation reserves issued pursuant to this paragraph:[8] A significant difference between s 54 as it stood in 1993 and s 54 now is that the power of the Minister to grant a lease under s 54(1) has been removed. The power to grant a lease under s 54 is now limited to the administering body of a recreational reserve. The relevant powers of the Minister in respect of a recreation reserve are now contained in s 59A(1), which provides:The Minister may, in accordance with Part 3B of the Conservation Act 1987, grant a concession in respect of any reserve vested in the Crown, including any reserve controlled or managed by an administering body under any of sections 28, 29, 30, 35, and 36 of this Act; and the said Part 3B shall apply as if references in that Part to a conservation area were references to such a reserve and with any other necessary modifications.[9] Those changes were made in 1996 by ss 8 and 11 of the Reserves Amendment Act 1996. The effect of the changes is that the power of the Minister to grant a lease, under the Reserves Act, was replaced by a power to grant a concession under pt 3B of the Conservation Act 1987. If the 1996 changes apply to the renewal of this lease, then, when the present term expires in 2022, the Minister will have no power under s 54 to grant a renewal. The lease will have to be replaced by a concession under the Conservation Act.[10] There is a saving provision in the 1996 amendment for leases granted before the change was made. Section 21(2) of the Reserves Amendment Act 1996 provides:Except as provided in section 17W of the Conservation Act 1987, section59A of the principal Act (as so inserted) does not affect any lease, licence, permit, or easement granted before the commencement of that section, but that section shall apply to every renewal of such a lease, licence, permit, or easement.The issue on question (i)[11] The issue on question (i) is whether, if at all, s 59A of the Reserves Act will apply to the lease on its renewal in 2022. It is common ground that the section does not apply during the present term, by virtue of s 21(2) of the 1996 Amendment Act.1The Crown contends that s 59A will apply, under the final words of s 21(2). NZSki submits that it will not. It submits that its lease is renewable by extension, and that a renewal by extension is legally distinct from a renewal which is in the nature of a new contract. It submits that the final words of s 21(2) catch a renewal in the nature of a new contract, but not a renewal by extension. It therefore contends that the saving provision in s 21(2) will continue to apply to the renewed lease.1 Section 17W of the Conservation Act 1987 does not apply to the present lease.Discussion on question (i)[12] The question whether the exercise of an option to renew a lease involves the creation of a new lease, or an extension of the term of the existing lease, has been discussed in a number of cases where there has been an assignment by the lessee during the original term of the lease. If the renewal constitutes a new contract between the assignee and the lessor, there will be no privity of contract between the lessor and the original lessee, and that original lessee will have no liability under the lease for the renewed term. If, however, there is an extension of the term of the existing lease, privity of contract between the original parties will continue.[13] I was referred by counsel to New Zealand authority, on that principle.2 It is not necessary for me to discuss the cases, or the English authorities. The principle which emerges from them is set out in Halsbury's Laws of England as follows:3Where a lease contains an option to renew the lease the exercise of the option ordinarily involves the creation of a new lease, and as regards the new lease there is no privity of contract between the landlord and the original tenant under the old lease which contained the option to renew; but the right given to a tenant may be simply to extend the term, in which case privity of contract endures between the original parties, even during the extended term.[14] The essential question in applying that principle is whether cl 1 of this lease will, on renewal, create a new lease, or an extension of the existing lease. The answer to that question depends on the proper construction of this lease. That requires the interpretation of cl 1, in the context of the lease as a whole, and against the background of the statutory provisions under which it was granted.[15] This lease does not contain the usual type of machinery provisions about giving notices in respect of the renewal. The usual considerations of certainty and clarity of contract make such provisions desirable. Also, the renewal provision in sch 1 of the Reserves Act requires the lessor to be satisfied that the facilities are still needed, and that some other recreational use should not have priority in the public interest. A contractual provision was needed between the parties to this lease to give2 W E Wagener Ltd v Photo Engravers Ltd [1984] 1 NZLR 412 (CA); Mayhew v Robt Jones Investments Ltd CA23/91, 20 May 1992; Powell v Tinline Properties Ltd [2002] 1 NZLR 568 (HC). See also Otehei Bay Holdings Ltd v Fullers Bay of Islands Ltd [2011] NZCA 300, [2011] 3 NZLR 449.3 Halsbury's Laws of England (4th ed reissue, 2006) vol 27(1) Landlord and Tenant at [556].effect to that statutory restriction on renewal. There is none. There is no clause in the lease which addresses how the lessor is to notify its satisfaction on these points, so that "further similar terms" can be granted. The lease does not, apart from cl 1 and cl 26i, address the issue of renewal. It does not contain the sort of provisions which are usually included to address the mechanics of how a right of renewal is to be exercised.[16] There is a possible explanation for that notable omission. NZSki adduced affidavit evidence from Mr Mouat, a solicitor who worked for some 36 years with the Department of Lands and Survey, and its successor, Landcorp Ltd. Those entities administered the Crown's land holdings under a number of Acts, including the Land Act 1948, the National Parks Act 1980, and the Reserves Act, prior to the structural reforms which saw the administration of those Acts transferred, in the case of the Reserves Act to the Department of Conservation. His evidence is that the Department of Lands and Survey had for a long time used printed forms for leases and licences under the Land Act, and that leases of reserves and national park land followed the same form. Mr Mouat was responsible for drafting Reserve Act leases. He says that the present lease is in the form and content reflective of leases prepared by him. He says:Tenures, paradoxically called leases in perpetuity (or perpetual leases), are created by statute as part of special statutory regimes governing lands of the Crown. The most common form is the Renewable Lease and Pastoral Lease under the Land Act 1948. The Reserves Act and the National Parks Act also provided for terms of 33 years and renewals of further similar terms.Section 63 Land Act 1948 provides that a renewable Lease is for " a termof 33 years with perpetual rights of renewal for the same term "[17] It seems from that statement that the rights of renewal under the Land Act and the Reserves Act were seen as sufficiently similar that the same contractual provisions could be used for leases under both acts. I do not consider it was appropriate to use a form of lease prepared for use under the Land Act 1948, for leases under the Reserves Act. The provisions of the acts are too different to allow that. Renewable leases under the Land Act are provided for in s 63 which, as relevant, provides:(1) A renewable lease under this Act shall be a lease for a term of 33 years with a perpetual right of renewal for the same term, and,except where otherwise provided in this Act, with a right of acquiring the fee simple in accordance with the provisions of Part 7:(4) The owner of a renewable lease shall have a right at the expiration of the said term of 33 years to a renewal of the said lease for a further term of 33 years, subject in all respects to the same conditions and provisions as the original lease, including the right of renewal, save that the rent shall be determined at the first and at each subsequent renewal and for the second and third periods of 11 years of the term of each renewal lease in the manner provided in Part 8.[18] Those renewal provisions are very different from the Reserves Act provisions. Under s 63(4) of the Land Act the owner of a renewal lease has a right to a renewal of the lease. Under sch 1 of the Reserves Act, the lease may include a provision that similar terms may be granted if the prescribed conditions are satisfied. Those different renewal provisions need to be implemented by different contractual terms. The reference in cl 1 of this lease to "rights of renewal for further terms of33 years", appropriate for a Land Act lease, is not an appropriate way of providing that further similar terms may be granted if the terms and conditions of the lease have been compiled with, and if the lessor is satisfied with the facilities and the need for them, and that some other recreational use should not have priority in the public interest. A contractual term to that effect should be expressed in quite different terms from those contained in cl 1 of this lease.[19] The exact nature of the renewal right is critical in determining, in accordance with the principle relied on by NZSki as set out at [12], whether the renewal will create a new lease, or an extension of the term of the existing lease. Because of the lack of congruity between the terms of the contract contained in the lease, and the terms of the statute under which the lease was entered into by the Crown, I approach the interpretation of the lease in two ways. First, I consider the provisions of the lease itself, without reference to the statutory powers under which it was granted. Second, I consider the provisions of the lease in the light of those statutory provisions.[20] If the lease is interpreted having regard only to the lease itself, considered in its commercial context, without reference to the statutory powers under which it was granted, the only relevant provisions are cl 1 and cl 26i. Applying those two clauses,I consider that the lease provides for the grant of a new lease, not an extension of the existing term.[21] Clause 1, in referring to a right of renewal, suggests that the renewal will be effected by the lessee giving notice of its exercise of that right. However, that does not address the conditions in the latter part of cl 1. Those conditions, especially the requirements that there be a continued need for the facilities and no higher priority use for the reserve, mean that the lessee does not have an unqualified right simply to extend the term. The words "rights of renewal for further terms of 33 years" do not, even if read in isolation, show any intention to displace the ordinary consequence that the exercise of the right of renewal will involve the creation of a new lease. When read together with stated conditions which must be met before the right of renewal will be available, cl 1 leads to the conclusion that this is not a right simply to extend the term of the existing lease.[22] Clause 26i refers to the possibility that the lessee "shall elect not to accept any renewal of this lease". That wording suggests that the renewal process wouldinvolve an offer of renewal by the lessor, and acceptance of that offer by the lessee. That sequence of offer and acceptance would, having regard to the statement of principle in Halsbury set out at [13], and the authorities on which that statement is based, involve the ordinary consequence of a renewal, namely the creation of a new lease.[23] When the lease is interpreted against the background of the legislation pursuant to which it was granted, it is even more clear that the renewal process will lead to a new lease, not an extension of the existing lease. The lease must, if the wording will allow it, be interpreted in a way that is consistent with the statutorypower to include in the lease "a provision that further similar terms may be granted ". When cl 1 is read in this way, the "the rights of renewal" referred to must beunderstood to mean the granting of a similar term by the lessor, pursuant to a contractual obligation to offer such a term to the lessee. That contractual obligation is subject to the conditions in sch 1. The reference in cl 26i, to an election not to accept a renewal of the lease, is consistent with the statutory provision, which contemplates an offer by the lessor of a similar term if the lessor is satisfied on thematters provided for in sch 1. Accordingly, when the lease is interpreted in the light of the statutory powers under which it was granted, it is clear that a renewal of the lease will result from an offer of renewal by the lessor that is accepted by the lessee. That involves the creation of a new lease, not a simple extension of the term.[24] There is no mechanism for the lessor to indicate its satisfaction on the sch 1 preconditions to the grant of a new lease. The lease does not address machinery provisions, such as the giving of notice and the timeframe within which the offer of renewal must be made and accepted. Those lacunae cannot, in the light of the terms of the lease itself, and the statute, lead to the proposition for which counsel for NZSki contends, namely that if the conditions are met, the lessee is entitled to extensions of the same lease.[25] I add that I have, in interpreting the contract, borne in mind the commercial context, namely that the lease was granted to allow the development of a ski field, requiring a very significant capital investment. Security of tenure on a long term basis is an important commercial consideration. However, that consideration cannot result in an interpretation which is not consistent with the terms in which the contract is expressed, or with the legislation under which it was granted.[26] Mr Davidson also submits that the construction contended for by the Crown should not be upheld, because of an established principle in interpreting statutes that the Courts will not adopt a construction that takes away existing property rights more than the Act and its proper purpose require. The short answer to that submission is that the construction for which the Crown contends, which is consistent with the conclusion I have reached, does not take away property rights of the lessee. Rather, the rights for which the lessee contends are rights which the Crown did not grant, and did not have power under the Reserves Act to grant.[27] I accordingly answer the first question no.The issue on question (ii)[28] Section 17O of the Conservation Act 1987 provides as relevant:(2) Except as provided in subsection (3) or subsection (4), no activity shall be carried out in a conservation area unless authorised by a concession.(3) A concession is not required in respect of—(a) any mining activity authorised under the Crown Minerals Act 1991 (including the transitional provisions of that Act); or(b) any activity that is otherwise authorised by or under this Act or any Act specified in Schedule 1; or(c) any action or event necessary for the purposes of saving or protecting life or health, or preventing serious damage to property or avoiding an actual or likely adverse effect on the environment; or(d) any activity that is carried out by the Minister or Director- General in the exercise of his or her functions, duties, or powers under this Act or any other Act.[29] The second question involves the exception in s 17O(3)(b), namely that a concession is not required in respect of any activity that is otherwise authorised by or under (inter alia) the Reserves Act. Mr Davidson submits that s 54(1) specifically authorises a lease in respect of a recreation reserve and that a concession is therefore not required.Discussion on question (ii)[30] That submission must fail, having regard to my conclusions on the first question. I have held that a renewal of the lease in 2022 would, on the proper interpretation of the lease, involve the creation of a new lease, not an extension of the existing lease. Under s 54 as it now stands, the Minister will have no power to grant a new lease by way of renewal. The Minister's power to grant leases unders 54 was removed in 1996. If NZSki's rights to use the area are to continue beyondthe expiry of the present lease, that can only be by way of a concession under s 59A. Its rights will not, after the expiry of the present term, be authorised under s 54. Section 17O(3) cannot apply, and a concession under s 59A will be necessary under s 17O(2).[31] I accordingly answer the second question no. As that answer involves a double negative, I say for clarity that the answer is that s 17O(3)(b) of the Conservation Act 1987 does not have the effect of avoiding the operation of s 17O(2) in this case.Result[32] I answer both questions 'no'.[33] Costs are reserved. The parties may submit memoranda."A D MacKenzie J"