PRECINCT PROPERTIES HOLDINGS LIMITED v OMV NEW ZEALAND LIMITED [2018] NZHC 1939 [15 October 2018]

PRECINCT PROPERTIES HOLDINGS LIMITED v OMV NEW ZEALAND LIMITED [2018] NZHC 1939[15 October 2018]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2017-485-476[2018] NZHC 1939BETWEEN PRECINCT PROPERTIES HOLDINGSLIMITEDPlaintiffAND OMV NEW ZEALAND LIMITEDDefendantHearing: 17 September 2018Appearances: Mr Richard Gordon for plaintiffMr Jonathan Orpin-Dowell for defendantJudgment: 15 October 2018JUDGMENT OF ASSOCIATE JUDGE JOHNSTONIssue[1] Ultimately, the issue for determination in this case will be whether a leasebetween the plaintiff, Precinct Properties Holdings Ltd as landlord, and the defendant,OMV New Zealand Ltd as tenant, of premises in Deloitte House in the CBD inWellington remained in force as at 13 March 2017, and therefore whether Precinct isentitled to charge OMV rent from that date.[2] The issue before me is whether Precinct can establish that OMV has no defenceto Precinct's claim for rent from that date totalling over $1 million.Background[3] On 16 February 2007, Precinct and OMV entered into a lease whereby Precinctagreed to lease and OMV agreed to take on lease the premises already referred to.[4] The initial term of the lease commenced on 1 December 2005 in respect of onepart of the premises and 1 January 2007 in respect of another. Although, the lease wasoriginally due to expire on 30 November 2014, the parties entered into three deedsvarying aspects of it and extending its term, so that, immediately prior to the Kaikouraearthquake on 14 November 2016, both parties were committed to a lease of premiseson the 9th and 10th levels of the building (together with carparks) until30 November 2020.[5] The clause in the lease around which much of the argument pivots is cl 26 ofthe Second Schedule. It is headed "Total Destruction", although that is misleadingbecause the total destruction of the building is not the only circumstance in which it istriggered. It provides:26 IF the premises or any portion of the building of which the premisesmay form part shall be destroyed or damaged:(a) as to render the premises untenantable then the term shall atonce terminate; or(b) in the reasonable opinion of the Landlord as to requiredemolition or reconstruction, then the Landlord may withinthree (3) months of the date of damage or destruction give theTenant one (1) months written notice to terminate and a fairproportion of the rent and outgoings shall cease to be payableaccording to the nature and extent of the damage.Any termination pursuant to this clause shall be without prejudice tothe rights of either party against the other.[6] Some obvious features of this clause are that:(a) it is capable of being triggered by damage to or the destruction of anypart of the building;(b) it deals with two different situations — the first being where suchdamage or destruction renders the premises being leased untenantableand the second being where it results in the landlord reasonablyconcluding that the building or the premises require very major work;(c) in the first of those circumstances, the lease terminates without the needfor either party to give notice of termination or anything else. In thesecond, the landlord is entitled to terminate early, but there arerestrictions around the circumstances in which it may do so, and theconsequences of it doing so.[7] It is common ground that the 14 November 2016 Kaikoura earthquake causeddamage to the building. OMV is contending that the lease came to an end as a result.It is therefore the first of the two situations described above that is in issue here.[8] The parties are at odds on the issue of whether the damage rendered thepremises untenantable. Precinct contends that it did not. OMV says that it did.[9] Immediately following the Kaikoura earthquake, Precinct emailed its tenants,including OMV, saying that the civil defence authorities were advising people to keepout of the CBD so it could not arrange an inspection of Deloitte House to establish theextent of any damage or whether its tenants could return.[10] On 10 March 2017, Precinct emailed its tenants saying that the ground to 13thlevels of Deloitte House would be available for reoccupation from 13 March 2017.[11] Precinct accepts that OMV was effectively prevented from occupying itspremises between 14 November 2016 and 13 March 2017, a period of four months.Pursuant to cl 27 of the Second Schedule to the lease — which deals with "PartialDestruction" — Precinct has credited OMV with the amount of the rental that wouldhave been payable for that four-month period. However, it seeks to recover rentalfrom that point on. It applies for summary judgment.[12] Counsel were in agreement as to the principles that apply to such anapplication. The leading case is the Court of Appeal's judgment in Krukziener vHanover Finance Ltd.1 In short, Precinct has the burden of establishing that OMV hasno defence to its claim. Accordingly, as already said, the issue for determination atthis stage of the proceeding is whether, on the evidence, Precinct can establish thatthere is no tenable argument that the premises leased by it to OMV were rendereduntenantable by the Kaikoura earthquake, and that there are no other bases — raised1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162.by OMV — upon which OMV might credibly contend that the rent claimed is notpayable.[13] That summary of the background is an oversimplification. Events before,during and after the period over which Precinct accepts OMV was unable to occupythe premises featured in the arguments advanced on the parties' behalves, and arerelevant to the resolution of Precinct's application.[14] I am indebted to counsel who both developed detailed chronologies on whichI have relied in identifying the key events, as follows:[14.1] As already said, the parties entered into the lease on 16 February2007;[14.2] On 13 August 2011, Precinct told OMV that Deloitte House had beenassessed by its engineering advisers, Holmes Consulting Group, andthat it was 100 per cent of New Building Standard (NBS), whichmeans that its susceptibility to earthquake damage was at the levelrequired of a new building and categorised as "low risk";[14.3] On 12 June 2012, the parties entered into a Deed of Variation andRenewal of Lease and Rent Review. Pursuant to this, the leasecontinued, with Precinct granting OMV two new rights of renewal forterms of three years commencing on 1 December 2014 and 1December 2017, and OMV exercised the first right of renewal inadvance, thus committing itself to the lease until 30 November 2017;[14.4] On 22 August 2013, Precinct informed OMV that, following theChristchurch earthquakes in 2010 and 2011, Holmes had provided itwith a detailed structural assessment of Deloitte House and confirmedit was of 100 per cent of NBS;[14.5] During May 2014, Precinct provided OMV with a copy of a reportprepared by Holmes as to the performance of Deloitte House in theSeddon and Lake Grassmere earthquakes of mid-2013. This reportconcluded that damage sustained by the building as a result of thoseearthquakes had not significantly reduced its susceptibility and thatthe NBS rating remained at 100 per cent;[14.6] On 27 November 2015, the parties entered into a Deed of PartialSurrender, Variation and Renewal of Lease. Pursuant to this, OMVexercised its final right of renewal, thereby committing itself to thelease until 30 November 2020;[14.7] In the early hours of 14 November 2016, the Kaikoura earthquakeoccurred;[14.8] At 4.52 am that day, Precinct sent the email referred to at [9] above;[14.9] Between 6.15 am and 3.39 pm that day, Precinct emailed its tenantson three further occasions. Essentially it informed them that it wasarranging for Holmes to assess Deloitte House to determine itspost-earthquake condition. In the meantime, the tenants wereinformed that there had been some damage to the building and thataccess was restricted;[14.10] On 16 November 2016, Precinct emailed its tenants advising themthat, following Holmes' initial assessment, there would beaccompanied access only to Deloitte House;[14.11] On 17 November 2016, Precinct emailed its tenants to inform themthat on Holmes' advice Deloitte House was closed, even foraccompanied access, until further notice.[14.12] In the period leading up to 19 December 2016, there was ongoingcorrespondence between Precinct and OMV relating to the steps beingtaken by Holmes in terms of the more detailed assessment ofDeloitte House and access;[14.13] On 19 December 2016, Precinct emailed its tenants informing themthat Holmes had completed their Targeted Damage Evaluation (TDE)of Deloitte House, that they had identified structural vulnerabilities inareas of the building and advised that the NBS rating was less than100 per cent and most likely in the order of 40 to 60 per cent. Precinctwent on to say that in light of this it had requested Holmes to preparea Detailed Seismic Assessment (DSA) of the building, which wouldnot only clarify the NBS rating but also the scope of structural upgradeworks required so as to improve that rating. The email contained awarning that if indeed the building's NBS rating was at the levelindicated then Precinct would want to discuss with occupiersproposed strengthening work;[14.14] Between 19 December 2016 and 27 January 2017, there was ongoingcorrespondence between the parties in which Precinct kept OMVup-to-date with the work being carried out by Holmes;[14.15] On 27 January 2017, a meeting took place between representatives ofthe parties. The affidavit evidence highlights differences betweenthem as to exactly what transpired at this meeting. But, on any view,there was discussion about the prospect of Precinct carrying outstrengthening work to the building and the possibility of that takingsome time and being disruptive;[14.16] On 2 February 2017, OMV emailed Precinct purporting to terminatethe lease in reliance on cl 26(a). The email and attached "Notice ofTermination of Lease" made specific reference to the 27 January 2017meeting and to Precinct's advice of its intention to undertakestrengthening work, saying that the expectation was that this wouldtake two years and that OMV would be required to vacate the leasedpremises for an extended period of time. The Notice of Terminationof Lease also noted OMV's concern about the decreased NBS rating,although there was no mention of previous representations, or anyallegation of misrepresentation;[14.17] On 3 February 2017, Precinct emailed OMV denying that thepremises were untenantable and saying that there was no basis fortermination. This email went on to say that immediate work wasbeing carried out and that Precinct expected shortly to inform tenantswhen they could reoccupy their premises;[14.18] On 8 February 2017 OMV's Mr Matiu Park accessed Deloitte House.He reported seeing sloping floors that he said were not sloping priorto the Kaikoura earthquake;[14.19] On 13 February 2017, Precinct emailed its tenants advising them thatHolmes' TDE report had been completed and provided to theWellington City Council and that this confirmed that the ground to13th levels of the building could be reoccupied. It went on to say thatthere were continuing issues with levels 14 to 16 in respect of whichrepair work was required. This email also confirmed Holmes' earlierindication that the NBS rating of 100 per cent was not correct and thatthe rating was likely to be in the 40 to 60 per cent category;[14.20] On 23 February 2017, OMV signed a heads of agreement for the leaseof new premises;[14.21] From 28 February 2017, the parties' solicitors became involved andthe correspondence from this point focussed attention on theinterpretation of the lease;[14.22] On 3 March 2017, Holmes' DSA report was issued. This confirmedthat the building's NBS rating was between 36–60 per cent, whichwould classify Deloitte House as an "earthquake-risk building". It iscommon ground that Precinct has never provided OMV with a fullcopy of the report. It has provided the executive summary. Thisdescribes the particular areas of the building that Holmes focussed onas negatively affecting the NBS rating. It confirms that Holmes wereinvestigating the strengthening of critical components of the buildingand recommending that this process continue;[14.23] On 10 March 2017, Precinct advised OMV that unrestricted access tothe ground to 13th levels of Deloitte House would be available from13 March 2017;[14.24] On 25 May 2017, OMV signed a lease for its new premises;[14.25] On 8 June 2017, Precinct commenced this proceeding and applied forsummary judgment;[14.26] Between 3 and 5 July 2017, OMV's engineer, Mr Peter Wrona ofThornton Tomasett, inspected the premises and publicly accessibleparts of the building. However, he was not given access to inspectother areas;[14.27] On 17 August 2017, Precinct issued its annual report. This wrotedown the value of Deloitte House from $46.3 million to $20.2 millionand reclassified it as a development property;[14.28] On 3 August 2018, Mr Wrona again inspected Deloitte House toreview the allegedly sloping floors. His advice was that the slopes arefive times greater than acceptable under New Zealand constructionstandards, but his evidence is inconclusive as to whether or not that isconnected in any way with the Kaikoura earthquake;[14.29] On 20 August 2018, Precinct sold Deloitte House to Prime PropertiesLtd for $10.2m.The competing arguments[15] The primary argument advanced on Precinct's behalf by Mr Gordon could notbe more straightforward.[16] He submitted that the core issue was whether "the lease is still on foot".[17] Given the factual background, and in particular the terms of OMV's12 February 2017 purported cancellation of the lease, Mr Gordon's argument thenfocussed on cl 26(a) and the proper interpretation of the term "untenantable".[18] As he submitted, there is little authority on the meaning of that term –surprisingly, because the clause is a feature of the REINZ/ADLS standard form lease,which is probably the most prevalent form of lease for commercial premises in thecountry.[19] Mr Gordon identified four relevant authorities: DFC New Zealand Ltd vSamson Corporation Ltd,2 Russell v Robinson,3 GP 96 Ltd v FM Custodians4 andNew Lynn Compliance Centre Ltd v Birdwood Custodians Ltd.5[20] In DFC New Zealand Ltd v Samson Corporation Ltd, the meaning of the termtenantability arose in the context of a six-year lease with four and a half years to runand repairs having taken ten weeks to investigate and complete. At first instance,Robertson J observed that there had been no reported consideration as to the meaningof tenantability. His Honour was satisfied that the word "untenantable" meant nothingmore than unable to be used and enjoyed by the tenant. His Honour continued:6Within that general catalogue of cl 26, sub cl (a) involves some degree ofpermanence. In other words, something which is merely transitory ortemporary will not make a building untenantable. However, where there is asubstantial interference with the tenant's ability to enjoy, use and operate,particularly when one is talking about commercial premises, then you have"untenantability".[21] Robertson J concluded in that case that it was more probable than not that thepremises had been rendered untenantable.2 DFC New Zealand Ltd v Samson Corporation Ltd (1994) 142 ANZ ConvR 216 (CA).3 Russell v Robinson [2011] 2 NZLR 424 (HC).4 GP 96 Ltd v FM Custodians (2011) 12 NZCPR 489 (HC).5 New Lynn Compliance Centre Ltd v Birdwood Custodians Ltd (2011) 12 NZCPR 730 (HC).6 DFC New Zealand Ltd v Samson Corporation Ltd (1993) 136 ANZ ConvR 481 (HC) at 483.[22] The Court of Appeal, while accepting the test proposed by Robertson J, reacheda different conclusion on the evidence:7There appears to have been some delay in effecting the reinstatement of thepremises, but the assessor called for [the defendant] considered that it wouldhave taken a maximum of three weeks [to complete] from starting date.Viewing this evidence as a whole in the context of a lease for a six year term,we think it establishes damage of a "merely transitory or temporary nature",which would be insufficient to satisfy the description "untenantable". It wouldjustify a temporary abatement of rent under cl 26(c) of the lease pending thecompletion of reinstatement. On this ground also we, with respect, disagreewith the conclusion reached by the Judge.[23] In Russell v Robinson, a fire had damaged leased premises on the first day of afour-year term. Reinstatement took ten months. At first instance, the District CourtJudge had concluded that this had rendered the premises untenantable because it hadinvolved more than a "transitory or temporary" interruption. On appeal to this Court,Priestly J said:[26] for the purposes of cl 26.1(a), the word "untenantable" is anobjective state to be determined on the specific relevant facts.Certainly the focus of the inquiry must be whether the premises arecapable of being tenanted by the lessee, who in terms of a lease wentinto the premises for a specific purpose and for a specific term [27] But that understandable focus on the use of leased premises by atenant does not permit an objective assessment of the adjective"untenantable" to be watered down or coloured by the subjectivepreference of either landlord or tenant Although, undoubtedly, oneof the major functions of the clause is to release a tenant from leaseobligations to a landlord, that is not the clause's only purpose [29] The evidence before the Judge demonstrated graphically that theleased first floor premises had been seriously damaged by fire. Tenmonths of the agreed four-year lease term were needed to repair thestructural and internal damage. Regardless of the appellants' desire tohold on to the premises, at the stage that the respondents terminatedthe lease on 8 November 2007, the premises can only be described asuntenantable. They were not capable of being used for the tenants'purposes or indeed the purposes of the lease.[24] GP 96 Ltd v FM Custodians involved the purported termination of a lease of ahotel following the February 2011 Canterbury earthquake, which had caused some7 DFC New Zealand Ltd v Samson Corporation Ltd, above n 2, at 219.structural and architectural damage to the building. On the landlord's application,Chisholm J determined that the premises had not become untenantable, saying:[31] The inquiry is whether any portion of the building was so damagedas to render the premises untenantable. In other words, the focus ison the damage to the building and the implications in terms oftenantability. It is an objective test which reflects that the clause is forthe benefit of both parties. Before the building can be untenantablethere needs to be some degree of permanence and something that ismerely transitory or temporary will not be enough. All relevant factsneed to be taken into account including the purpose of the lease, theduration of the lease, the extent of the damage, and estimated time forrepairs before occupancy can be resumed. If the building is rendereduntenantable the lease will automatically terminate.[25] Finally, Mr Gordon referred me to New Lynn Compliance Centre v BirdwoodCustodians Ltd, which he described as "representing something of an outlier". Hissubmission was that in that case Ellis J had adopted an approach that was significantlydifferent from those adopted in the earlier cases, because her Honour approached theissue of "untenantability" from a subjective perspective.[26] The relevant parts of her Honour's judgment are the following:[36] in my view an important distinction to be drawn between cl 26.1(a)and (b). It seems to me that subclause (a) exists for the benefit of the tenant.Tenantability is the fundamental prerequisite to a continued tenancy from alessee's perspective, not from a lessors's. Thus where the leased premises arerendered "untenantable" by damage or destruction then the tenant is entitledto terminate the tenancy immediately and is prima facie not liable for anyfurther rent. It might be expected that a state of untenantability will often beevidenced by the fact that the tenant ceases to occupy the premises concerned.[37] There is support for my view that untenantability under the lease is tobe judged from the lessee's perspective when the consequences of the oppositeconclusion (namely that untenantability is wholly objective state,determinable by the lessor) are considered.[41 It follows that I do not consider that, following damage to a leasedpremises, cl 26.1(a) can be properly interpreted as affording a landlord thechoice about whether to terminate the lease on notice or not. The only"choice" involved relates to the decision made by the tenant about whether,following damage to the leased premises, those premises remain tenantableand he or she can remain in occupation. It might well be expected that thatchoice would be exercised reasonably. But if, following significant damageto the premises, a tenant perversely chooses to stay on (and therefore tocontinue to pay some or all of the rent) then the landlord nonetheless retains achoice to terminate on notice under cl 26.1(b) if he is of the (reasonable)opinion that demolition or reconstruction is required.[27] This decision seems to have been influenced by its particular facts, whichraised issues concerning the collection of chattels by a tenant after the landlordterminated the lease following a fire. Several of the observations made in theparagraphs quoted above do indeed appear to be contrary to the position reached inthe other cases to which I have referred, in particular that cl 26(a) calls for an objectiveassessment, is for the benefit of both landlord and tenant, and that termination occurswithout the need for either party to exercise a choice. Her Honour does not appear tohave been referred to those earlier authorities. In any case, it is not necessary for meto dwell on these inconsistencies as I am bound by the Court of Appeal's decision inDFC New Zealand Ltd v Samson Corporation Ltd.[28] Mr Gordon's primary submission was that in the context of a lease concludedin February 2007 and which, as at 14 November 2016, still had a further four years torun, an interruption in occupation of four months fell well short of the test articulatedin DFC New Zealand Ltd v Samson Corporation Ltd. He categorised this interruptionas falling into the transitory or temporary category, or, in other words, that it did notconstitute a substantial interference with the tenant's entitlements under the lease. Hesubmitted that any other conclusion would be inconsistent with the Court of Appeal'sjudgment in DFC New Zealand Ltd v Samson Corporation Ltd.[29] For OMV, Mr Orpin-Dowell did not focus to any great extent on whether aninterruption of four months would, in and of itself, be sufficient to justify a finding ofuntenantability.[30] However, he submitted that it was open to OMV to contend that there were realissues for trial concerning:(a) tenantability; and(b) whether OMV had effectively cancelled the lease formisrepresentation.[31] With respect to tenantability, Mr Orpin-Dowell submitted that the issue wasnot simply one of duration. His submission was that this case raised an aspect oftenantability that was not in issue in any of the decided cases namely the integrity ofthe building. He argued that if the result of the Kaikoura earthquake was that thestructural integrity of the building was comprised, then that was capable of amountingto untenantability, depending, of course, on the extent to which the building wascompromised. He contended that, notwithstanding the conclusion Precinct and itsengineers had apparently reached that the building was sound, a real issue remainedin relation to that. He pointed to the information that Precinct had not provided toOMV and that was not before the Court, most particularly Holmes' full DSA report of3 March 2017, and to OMV's evidence that its own engineers had not been given afree hand in terms of inspecting of the building, which had resulted in them concludingthat there may be genuine issues relating to the building's integrity.[32] On those bases, Mr Orpin-Dowell submitted that the evidence was notconclusive, so that there remained a real issue as to the building's integrity. Hesubmitted that until such time as that issue for trial was properly resolved OMV wasentitled to maintain that it had an argument that cl 26(a) applied and that the leasecame to an end following the Kaikoura earthquake.[33] Turning to misrepresentation, Mr Orpin-Dowell pointed to the representationsreferred to in the chronology as to the NBS rating of Deloitte House (on 13 August2011; 22 August 2013; and May 2014 in particular) and evidence that OMV reliedupon those representations in renewing and extending the lease. He submitted that ifthose representations and OMV's reliance on them could be established at trial, thenOMV would have a strong argument that, in terms of s 37(1)(a) and (2) of the Contractand Commercial Law Act 2017, it was entitled to cancel the lease as at 2 February2017 when it purported to do so.[34] Both of these arguments are directed at the same conclusion: that, as at13 March 2017, there was no lease in existence.[35] In response, Mr Gordon submitted that whilst Precinct may not have providedOMV (or other tenants) with all information it had received relating to the integrity ofDeloitte House, it had furnished them with the essential material and he contended thatthe TDE report produced by Holmes in particular was decisive.[36] He invited me to put to one side the evidence of OMV staff with no relevantqualifications as to concerns they had about the building, and I accept that it isappropriate to do so. Insofar as OMV's engineering evidence was concerned,Mr Gordon submitted that it was weak because OMV's engineering advisers had nothad the same opportunities as Holmes to investigate and report on the building'sintegrity. That too I accept, although this rather supports OMV's case that it has nothad an uninhibited opportunity to reach its own assessment as to the building'sstructural integrity.[37] In the end, Mr Gordon invited me to conclude that Precinct's evidence wasconclusive as to the integrity of the building.[38] Focussing on the issue concerning the building's NBS rating, Mr Gordonsubmitted that NBS rating is not a proxy for tenantability. As he submitted, there areany number of properties in the Wellington CBD that are rated at less than 100 per centNBS and yet are tenantable. He cautioned me against being beguiled by this argumentand treating anything other than a 100 per cent rating as equating to untenantability.[39] Turning to the misrepresentation issue, Mr Gordon reminded me that in theiremail of 2 February 2017 OMV had not purported to cancel the contract formisrepresentation and indeed had only raised this issue in a direct way at least sometime after the purported cancellation.[40] Finally, in relation to both arguments, Mr Gordon emphasised that the lawrelating to leases places the payment of rent in a special category. In this lease, thematerial clauses are cls 31.1 and 31.2. In effect they say that the landlord is entitledto insist that the tenant pays rent, irrespective of any dispute or claim. On that basis,Mr Gordon's submission was that even if one or other of the arguments advancedagainst Precinct by OMV in this case had merit, Precinct is entitled to insist that OMV"pay first and argue later".[41] On those bases, Mr Gordon submitted that Precinct is entitled to summaryjudgment for the outstanding rent.Discussion[42] In my judgement, Precinct has not established that OMV has no arguabledefence to its claim.[43] I do not need to reach a final conclusion as to Precinct's primary argument thatin the context of this case OMV's inability to access the leased premises for a periodof four months is not, in and of itself, sufficient to render the premises untenantable,though I am inclined to the view that it is a strong one.[44] But, as already outlined, that is not the only issue.[45] I accept the submission made by Mr Orpin-Dowell on OMV's behalf that thereare bases upon which it may contend that by 13 March 2017 the lease had come to anend.[46] Insofar as the argument based on untenantability is concerned, in my view, theconcept of untenantability includes premises that do not meet a minimum structuralintegrity requirement. Quite what that minimum requirement is, it is not necessary forme to decide, and nor would it be appropriate to do so on a summary basis on affidavitevidence. Although Precinct asserted in its notification of 10 March 2017 that thebuilding and the premises were sound, as OMV submits, it did so against thebackground of not providing full disclosure of the information available to it to OMVand without permitting OMV's engineers to carry out a comprehensive inspection ofthe building. Having elected to approach matters in that way, in my view, Precinctcannot now contend that OMV must accept its conclusion.[47] It follows that there remains an issue as to the structural integrity ofDeloitte House and the premises leased by Precinct to OMV.[48] I have reached no conclusions about this. It may well be that Precinct is correctand that Deloitte House is quite sound. All I have concluded is that, as matters stand,the issue remains a live one. It can only be resolved at trial after full disclosure andwith the parties' engineering evidence being properly tested.[49] Turning to the misrepresentation defence, although Mr Gordon is correct to saythat OMV's notice of termination dated 2 February 2017 did not raisemisrepresentation as a basis for termination, the law is very clear that a party thatcancels a contract on one basis and subsequently discovers that there had been asecond ground for termination is entitled to rely on that ground.8[50] On the affidavit evidence at least, there is no doubt that Precinct represented toOMV that Deloitte House had an NBS rating of 100 per cent. Nor is there any doubton Precinct's evidence that since the Kaikoura earthquake Precinct's engineers haveindicated that the building in fact has a substantially lower rating. On the evidence, itis not clear to me whether the original assessment was wrong or whether thereclassification has been necessary as a result of the impact of the Kaikouraearthquake. Precinct's evidence suggests the former. OMV's concern is the latter.Again, this issue requires a more careful assessment than is possible on affidavitevidence in the context of summary judgment proceedings.[51] I accept the submission made on OMV's behalf by Mr Orpin-Dowell that it isopen to OMV to contend that those representations were relied on by it in agreeing torenew and extend the lease, and that they are sufficiently central to the rights andobligations of the parties under that lease that a breach of the representation entitledOMV to cancel.[52] On both of those bases, it appears to me to be open to OMV to contend that asat 13 March 2017 the lease was no longer "on foot" as Mr Gordon put it. If thatargument were to be successful, then the arguments advanced by Mr Gordon relatingto obligations to pay rent do not come into play.8 Kumar v Station Properties Ltd [2015] NZSC34, [2016] 1 NZLR 99 at [65]–[66] and [123].Arbitration[53] For the sake of completeness, I note that OMV is not prevented from raisingthe two defences I have focussed on in this decision at trial by the arbitration clause inthe lease — cl 44.1.[54] This issue was the subject of an earlier interlocutory dispute between theparties, which was ultimately determined by the Court of Appeal.9 The Court ofAppeal upheld the decision of this Court to refuse a stay of proceedings on the basisthat cl 44.3 of the lease allowed Precinct to bring proceedings for the recovery of rent.Although a dispute over the proper interpretation of the lease, such as arises in thiscase, would usually be a suitable issue for arbitration, giving proper effect to the rentclaims exception necessitates allowing those issues to be ventilated in court. TheCourt of Appeal put the point in these terms:[27] OMV may still contend that the lease has been terminated as adefence to Precinct's claim for unpaid rent. The pleading of such a defencedoes not amount to a pleading of "deduction or set-off".[29] In summary, cl 44.3 operates as an exception to cl 44.1 and permitsclaims for unpaid rent to be litigated. To the extent that a tenant believes ithas a defence to such a claim (by which we mean a defence that some or allof the rent is not payable, for reasons other than the existence of a cross-claimin the nature of a set-off) that defence can be pleaded and ventilated in thecontext of such litigation. But claims for set-off and counter-claims relatingto alleged breaches of the lease or misrepresentations by the landlord woldnot, in our view, qualify. Those are properly matters for arbitration under cl44.1.Conclusion[55] Precinct has failed to establish that OMV has no arguable defence to its claimfor rent.[56] Accordingly, I dismiss Precinct's summary judgment application.9 OMV New Zealand Ltd v Precinct Properties Holdings Ltd [2018] NZCA 240. See also PrecinctProperties Holdings Ltd v OMV New Zealand Ltd [2017] NZHC 2926.[57] I did not hear the parties on costs and I reserve them. If counsel are unable toresolve any costs issues that arise at this stage, as I would expect them to be able todo, then the parties may come back to me by memorandum and I will deal with themon the papers.[58] I direct the Registrar to set this matter down for a case management conferenceas soon as conveniently possible so that a trial date can be set and pre-trial directionsmade.Associate Judge JohnstonSolicitors:Izard Weston Lawyers, WellingtonMinterEllisonRuddWatts, Wellington