The Judicial Committee of the Privy Council Decisions

Valentines Properties Limited & Anor v. Huntco Corporation Ltd & Anor (New Zealand) [2001] UKPC 14 (29 March 2001)

ADVANCE COPY

Privy Council Appeal No. 38 of 2000

(1) Valentines Properties Limited and

(2) Valentines Restaurant and Bar

(NZ) Limited Appellants

v.

(1) Huntco Corporation Limited and (2) Steeple Transport Holdings (1993) Limited Respondents

FROM

THE COURT OF APPEAL OF NEW ZEALAND

REASONS FOR THE REPORT OF THE LORDS OF THE JUDICIAL COMMITTEE OF THE PRIVY COUNCIL OF

1st February 2000, delivered the 29th March 2001.

Present at the hearing:-

Lord Nicholls of Birkenhead

Lord Steyn

Lord Hoffmann

Lord Millett

Dame Sian Elias

[Delivered by Lord Nicholls of Birkenhead]

1. On 1st February 2001 their Lordships announced that they would humbly advise Her Majesty that this appeal should be allowed and that they would give their reasons later. This they now do. The appeal raises a point of interpretation of an agreement relating to the development of a piece of land owned by the respondents at Paremata, near Wellington. On 2nd December 1996 the developers, as it will be convenient to describe the respondents, entered into a written contract with the appellants for the construction of a restaurant building on this site. The appellants ('Valentines') are two companies in the Valentines group of companies. Valentines run the Valentines chain of restaurants in Australia. Under the agreement the developers were to be responsible for the erection of the building, which would then be leased to Valentines for use as a franchised family restaurant.
2. The agreement was expressed to be conditional on the fulfilment of three conditions. The question at issue on this appeal concerns the proper interpretation of one of these conditions, set out in clause 16.2. of the agreement. Valentines' case is that this condition was not satisfied and that they were entitled to decline to proceed further with the agreement. The developers dispute Valentines' interpretation of clause 16.2. The developers say that Valentines' refusal to proceed was a wrongful repudiation of the agreement. They brought proceedings for the enforcement of the agreement or damages for breach. The trial judge, Wild J, upheld the contentions of the developers and awarded them damages, costs and disbursements totalling NZ$629,068.34 The Court of Appeal, by a majority, dismissed Valentines' appeal. Valentines then appealed to their Lordships' Board.

The agreement

3. The agreement is a professionally - drawn document. The developers undertook to use their best endeavours to ensure that the building works, described as 'the Lessor's work', were commenced without delay, once the plans had been approved by Valentines, and that the works would be completed within six months from the date when the agreement became unconditional. Fitting out, described as 'the Lessee's work', was to be the responsibility of Valentines. The developers were responsible for obtaining all necessary resource management consents, save in relation to matters affecting the Lessee's work. The developers agreed to grant, and Valentines agreed to take, a lease of the property for a term of ten years from the date of practical completion.
4. The final clause in the agreement, clause 16, was headed 'Conditions'. It provided that 'This Agreement is conditional upon the following'. Clause 16.1 prescribed, as the first of three conditions, the obtaining by the developers of all necessary local body consents in respect of the Lessor's work on terms and conditions entirely satisfactory to the developers. That condition was satisfied. The third condition concerned the making by the developers of an unconditional building contract relating to the Lessor's work. Nothing turns on this third condition. The second condition is the one which gave rise to the dispute. The condition in clause 16.2 reads:-

"[Valentines] approving the conditions imposed by the Local Authority incidental to the granting of all resource management approvals and consents necessary in respect of the Lessor's works ([Valentines'] approval as aforesaid not to be unreasonably withheld) within five working days of receipt of particulars of the conditions imposed by the Local Authority as aforesaid."

5. After setting out the three conditions clause 16 ended with the words:-

"AND if any of the foregoing conditions shall not be fulfilled and satisfied then this Agreement shall be at an end."

6. Clause 16.2 related to conditions attached to resource management consents. An application for a resource consent for a controlled activity may proceed by one of two routes. It may proceed as an application which requires to be notified widely, as set out in section 93 of the Resource Management Act 1991. Or it may proceed as an application which does not need to be notified in this way, as provided in section 94. The latter route tends to be more expeditious. The non-notified procedure has the further advantage of affording an applicant a summary way of resolving any objection he may have to an authority's decision, including any objection he may have to conditions imposed by the authority when granting consent. Under section 357 the applicant has the right to make a written objection to the authority within 15 days after he was notified of the decision. The authority may extend this period. If the authority decides to uphold the objection in whole or in part, that decision is substituted for the part of the earlier decision to which the objection relates. In the ordinary course, this summary and relatively informal objection procedure is much speedier and cheaper than an appeal to the Environment Court. The section 357 procedure may also be available where the application was notified, but this is, in short, only when the application was unopposed: see section 357(2), as amended by section 161(2) of the Resources Management Amendment Act 1993.

The history

7. In September 1996 the developers lodged with Porirua City Council a detailed application for resource consent for the construction of a Valentines restaurant on the developers' land. The architect employed by the developers for this project was Mr K S Wilson, a Wellington architect who had been responsible for designing and obtaining consent for several Valentines restaurants in New Zealand. In the middle of 1997, while the application was still awaiting the council's decision, Valentines reviewed the project. An opportunity had arisen for Valentines to acquire some of the Sizzler chain of restaurants in Australia. With their personnel and financial resources stretched, Valentines looked to see if they could extricate themselves from the Paremata contract. They took steps to get the project either rolling or terminated.
8. To this end, on 7th July 1997 Valentines' solicitors wrote a letter to the developers' solicitors in which they purported to give notice making time of the essence for obtaining resource management consent. They stated that 4th August was the deadline. The developers' solicitors declined to accept the legal validity of this deadline. But they assured Valentines' solicitors they would do their best to meet it, and that they might be able to do so unless the council required the application to be notified. In passing, it is be noted that, as was common ground between the parties, the letter of 7th July is of no legal relevance to the issues arising on this appeal.
9. On 4th August the council stated that it would deal with the application on a non-notified basis. Two weeks later, on 19th August, the council wrote to Mr Wilson advising him that resource consent was granted, subject to fourteen conditions. Of these, four are relevant for the purposes of this appeal. Condition 6 was that no light source from any floodlighting should be visible to motorists on the nearby state highway. Condition 8 provided that all lighting, other than minimum security lighting, should be turned off within 30 minutes after closing time. Condition 9 restricted the hours of opening of the restaurant to 7 am - 11 pm on Monday to Saturday, and 7 am - 10 pm on Sunday. Condition 12 provided that all external neon and other illuminated signs should be turned off at least 30 minutes prior to closing.
10. On the following day, 20th August, the developers' solicitors sent Valentines' solicitors a copy of the council's letter, and sought confirmation of Valentines' approval of the conditions of the consent 'as provided in clause 16.2 of the Agreement'. On 22nd August Valentines' solicitors responded in a letter giving reasons why conditions 6, 8, 9 and 12 were not acceptable to Valentines and stating that, accordingly, Valentines could not approve the consent. On 25th August the developers' solicitors replied. They declined to accept Valentines' refusal to approve the conditions. They reminded Valentines' solicitors that Valentines' approval could not be unreasonably withheld. Valentines' solicitors stood by their clients' objections. Events continued to move quickly. By 28th August five working days had passed since Valentines had received notification of the council's consent and the conditions attached. On that day Valentines' solicitors wrote the letter which brought matters to a head. They said: "Condition 16.2 has not been satisfied. The above agreement is now at an end."
11. Meanwhile, on 27th August the developers' solicitors and Mr Wilson met officers of the council. They drew the council's attention to the four conditions to which Valentines had objected and discussed the possibility of amending them. On the following day, 28th August, which was the same day as Valentines' solicitors wrote their 'all is over' letter, the developers' solicitors wrote to the council setting out a proposed re-formulation of these conditions. The council responded promptly. On the next day, 29th August, the council sent Mr Wilson a fresh resource consent, incorporating the amendments put forward by the developers' solicitors. These amendments met the points on which Valentines had expressed concern. For instance, and importantly, the permitted opening hours were extended to 1 am from Monday to Saturday and to midnight on Sunday. Mr Wilson sent this amended consent, at once, to Valentines' solicitors. Their response was that their clients did not wish to revive the contract.

The decisions of the judge and the Court of Appeal

12. Wild J held that the agreement had not come to an end by 28th August when Valentines' solicitors wrote their letter asserting that the agreement had ended. Clause 16.2 did not 'bite' until the parties were faced with 'the final imposition' of unacceptable conditions. The parties did not intend to bar themselves from utilising either the objection procedure or the appeal procedure. 'Imposed' in clause 16.2 meant finally or unappealably imposed. The Judge dismissed a claim brought by the developers under the Fair Trading Act 1986.
13. In dismissing Valentines' appeal, Keith and Gallen JJ adopted an interpretation of clause 16.2 similar to but, in one respect, narrower than that of the Judge. They noted that the critical question is whether the period of five working days fixed by clause 16.2 began to run from the receipt of the council's decision of 19th August 1997 or from receipt of the decision taken on 29th August. Differing from the Judge, they held that clause 16.2 did not include the stage of an appeal to the Environment Court. The clause speaks of 'conditions imposed by the Local Authority'. But they agreed with Wild J that the parties must be taken to have contemplated following through the application procedure to the end of its council stage. Only then has the council truly 'imposed' the conditions. Before their Lordships the developers sought to uphold this interpretation of clause 16.2.
14. Paterson J disagreed. He could not read into clause 16.2 an obligation on Valentines to consider for approval more than one set of conditions, particularly when the second set of conditions was imposed in a decision made after the five-day period referred to in clause 16.2 had expired.

The interpretation of clause 16.2

15. Their Lordships respectfully prefer the view of Paterson J. The word 'imposed' in clause 16.2 cannot bear the weight which Wild J and the majority in the Court of Appeal seek to give it.
16. Their Lordships consider first the commercial purpose of clause 16.2 and its strict five-day time limit. As a general proposition, a meaning which furthers the purpose of a contractual provision is to be preferred to a meaning which would frustrate its purpose. That is axiomatic. The purpose of clause 16.1 and 16.2 is clear. When the agreement was signed the necessary resource consent had still to be obtained. The parties did not know what conditions the authority might impose. That was a matter beyond the control of either party. Hence, the developers' commitment to build, and Valentines' commitment to take a lease, were made conditional upon the conditions attached to the consent being satisfactory to both parties. So far as clause 16.2 was concerned, if Valentines approved the conditions within five working days after being notified of them, then the agreement was to proceed. If Valentines did not give their approval, then at the end of that period the agreement would end automatically, unless Valentines had acted unreasonably in withholding their approval. The purpose of stipulating the short period of five days must have been to ensure that both parties knew where they stood without any delay. Valentines were to have a few days to consider the conditions, but no more. They had to make up their minds quickly. The specific time limit was intended to achieve certainty, and speedily so.
17. It is against this background, and having in mind the statutory framework regarding resource consents, that the phrase 'the conditions imposed by the Local Authority' in clause 16.2 is to be read. On its face this phrase is no more than a straightforward reference to the conditions attached by the local authority when granting the resource consent necessary for carrying out the Lessor's work. Section 105 of the 1991 Act provides that when granting consent a consent authority 'may impose conditions'. The wording of the phrase in clause 16.2 merely reflects this statutory language. The word 'imposed' does not, on its face, carry any other connotation.
18. Is there here a context which shows that the parties should be taken to have intended a different meaning? Their Lordships think not. Indeed, the guidance given by the context confirms that the parties cannot be taken to have intended that clause 16.2 should bear the meaning for which the developers contend. Clearly, the consent given by the council on 19th August, and the conditions attached to that consent, fell within clause 16.2. On 20th August it was open to Valentines to have approved those conditions and thereby made the contract unconditional. But, according to the developers, the converse was not true. If the developers' interpretation were correct, it would mean that, at the end of a five-day period within which Valentines could have made the agreement unconditional, finality would not have been achieved. It would mean that, for an open-ended period, Valentines would be bound to wait while the developers decided whether to lodge and pursue objections. The developers alone had standing to take this course. Obtaining a decision from the council on these objections might take some time. Although the council is under a statutory obligation to consider objections as soon as possible, there is no fixed time within which a decision must be given. Negotiations with the council could be protracted. If the objections resulted in a decision with amended conditions, Valentines would then be obliged to consider them. Valentines could decline to approve them only if they had reasonable grounds for doing so. If the conditions were unacceptable, Valentines would still not be assured of finality. It would be open to the developers to repeat the whole process again, by lodging objections to the amended conditions, and so on. An interpretation of clause 16.2 having these consequences, with the potential delays and uncertainties they involve, would defeat the purpose which the five-day time limit was intended to achieve.
19. It may be that the developers, if they considered that the conditions initially imposed by the Local Authority were unlikely to be acceptable, could have attempted, informally or by use of the objection procedure, to persuade the authority to amend them before sending particulars to Valentines in accordance with clause 16.2. Their Lordships do not need to decide this point, because the developers did not wait. They sent the original conditions to Valentines as the conditions which they had to approve within five working days. In those circumstances their Lordships do not think it is open to the developers to say that other conditions might have been obtainable.
20. Their Lordships recognise that the feature which looms large on any overall view of the case is that, in the events which happened, a revised resource consent, free from the objectionable conditions, was obtained within a day or two of the expiry of the five-day time limit. But this feature cannot affect the proper interpretation of the clause, nor ought this to influence the court's conclusion. Inherent in a time limit is the notion that the parties are drawing a line. Once the line is crossed, a miss is as good as a mile. The rigour of this principle is softened when the parties are taken to have intended otherwise. Then, in the legal jargon, time is not regarded as 'of the essence'. Failing a contrary indication, the law assumes that stipulations as to time are not of the essence in certain common form situations, such as the date for completion of a contract for the sale of land. But that is not this case. The law makes no such assumption regarding a date fixed by a conditional contract as the date by which the condition is to be fulfilled. In the absence of contrary indication, the date so fixed must be strictly adhered to, and the time allowed is not to be extended by reference to equitable principles: see, for instance, the decision of the Board in Aberfoyle Plantations Ltd v Cheng [1960] AC 115, 125. In the present case a contrary intention is not to be found in the language of the agreement, nor can it be inferred from the context. The developers, rightly in their Lordships' view, did not contend otherwise.
21. Mr Rennie QC, appearing for the developers, submitted that the parties could not have intended that the conditions initially imposed by a resource consent would always be definitive. The statutory provision for a right of objection and re-consideration of decisions on non-notified applications is demonstrative of a single continuing process on the part of the local authority. Consistently with this, section 357(8) provides that the decision of a consent authority upholding an objection 'shall substitute for that part of earlier decision to which the objection relates'. Their Lordships cannot agree with the conclusion which the developers seek to draw from this characterisation of the section 357 procedure as a single continuing process. The conditions initially imposed by the local authority are definitive, legally effective conditions attached to the consent unless, as a result of steps taken subsequently by the applicant and a decision subsequently made by the authority, these conditions are subsequently amended. Their Lordships have already stated why the parties cannot be taken to have intended that clause 16.2, with its tight time limit of five days, should include within its embrace an open-ended, time-unlimited amendment procedure taking place subsequent to the grant of a consent.

Unreasonable withholding of consent

22. This conclusion makes it necessary to consider a further issue. Clause 16.2 provided that Valentines' approval of resource consent conditions was not to be unreasonably withheld. When a person is under an obligation not to withhold approval unreasonably, and he does withhold approval unreasonably, he is treated as having given that which he could not properly withhold. The developers contend that is the position here. They contend that, in any event, Valentines' withholding of approval to conditions 6, 8, 9 and 12 was unreasonable.
23. In the course of giving evidence at the trial Mr Cox, a director of the developers, accepted that Valentines' concern over the restriction on opening hours was reasonable. He said that all the items raised by Valentines would have been raised by the developers had they been restaurant operators. Mr Wilson's evidence was that he was not surprised that Valentines objected. Despite this, Wild J held that Valentines had withheld their approval unreasonably. He said that this was so, for six reasons given by Mr Rennie. So it is necessary now to consider these six reasons.
24. The first reason was that Valentines' withholding of approval to the four objectionable conditions was unreasonable because there existed statutory rights of objection capable of rectifying the matter. The second reason made the same point regarding the existence of statutory rights of appeal. These two reasons are misconceived. Their Lordships can readily appreciate the Judge's view that, looking at the whole history, Valentines acted unreasonably in standing on their strict contractual rights. But unreasonableness in that regard is nothing to the point as far as clause 16.2 is concerned. The obligation not to withhold approval unreasonably is directed at the content of any conditions imposed. The primary purpose of clause 16.2 was to protect Valentines against the imposition of conditions which would restrict or adversely affect their running of the proposed restaurant business. The reasonableness of withholding approval is thus to be judged by the impact the conditions would have on Valentines' business activities on the site. The alternative approach would have the remarkable result that Valentines ought to have approved the conditions at a time when there could be no guarantee that an objection to the conditions would be upheld by the local authority or, on appeal, by the Environment Court.
25. The third reason related to condition 6. Valentines accepted that their concern regarding condition 6 was groundless.
26. The fourth and fifth reasons were that the matters comprised in conditions 8, 9 and 12 related solely to Valentines' 'own contractual responsibilities and operational requirements', and that Valentines had taken no steps 'to meet its obligations under the development agreement to obtain consents and licences, whether by making substantive application itself or by participating in the consent process the developers undertook'. Here also the reasons are misconceived. These reasons proceed on a mistaken assumption regarding the effect of clause 16.2. Conditions 8, 9 and 12 restricted, to an unacceptable extent, the use which Valentines could make of the building to be constructed by the developers. These restrictions fell four-square within the scope of the protection intended to be afforded to Valentines by clause 16.2. Clause 16.2 applied to all conditions attached by the local authority to a resource consent necessary for carrying out the Lessor's work. Nor were Valentines under a contractual obligation to ensure that the conditions attached to the consent for carrying out the Lessor's work would be in a form which was acceptable to them. Under the agreement it was the developers who were responsible for obtaining the resource management consent necessary for the Lessor's work. The conduct of the application for this consent was in the hands of the developers.
27. The sixth reason was that none of the objections raised by Valentines had previously been made known by Valentines to the developers as requirements, much less as requirements that Valentines expected the developers to meet. But the reality was that the imposition of conditions 8, 9 and 12 took everyone by surprise. It was for this reason that the matters raised by these conditions had not been addressed in the application for resource consent or by either party in their dealings with the council. Moreover, Mr Wilson, who acted for the developers in making the application to the local authority, was thoroughly familiar with Valentines' requirements for their restaurants.
28. Their Lordships consider, therefore, that Valentines' withholding of approval to conditions 8, 9 and 12 cannot be regarded as unreasonable.
29. For these reasons their Lordships have humbly advised Her Majesty that the Order of the Court of Appeal of 6th March 2000 and paragraphs 1 and 2 of the Order of Wild J of 22nd February 1999 should be set aside and the action dismissed. The developers must pay Valentines' costs incurred before their Lordships' Board and in both courts below.