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Gibson v Kupe Trustees Company Limited [2020] NZHC 1100 (25
May 2020)
Last Updated: 28 May 2020

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2732
[2020] NZHC 1100
UNDER
Clause 5(1)(A) of Schedule 2 of the Arbitration
Act 1996
IN THE MATTER
of an appeal of a final award dated 20 November
2019
BETWEEN
IAN GIBSON, DIANA PETRIE, PAUL
MERKEL, STEPHEN ROGERS and
CHRISTOPHER GEORGE BOYCE
First appellants
AND
DIANA RHYS PETRIE and W R TRUSTEES
LIMITED
Second appellants
AND
KUPE TRUSTEES COMPANY LIMITED and
KUPE TRUSTEE COMPANY NO. 2 LIMITED
Respondents
Hearing:
21 May 2020
Appearances:
T J Rainey and G R Grant for the first and second appellants G
P Blanchard QC and A Lenard for the respondents
Date of judgment:
25 May 2020
JUDGMENT OF JAGOSE J

This judgment was delivered by me on 25 May 2020 at 11.00am.
Pursuant to Rule 11.5 of the High Court Rules

 .............................. Registrar/Deputy Registrar
Counsel/Solicitors:
Greg Blanchard QC, Auckland Ana Lenard Barrister, Auckland
Timothy Rainey Barrister, Auckland Rainey Law, Auckland

GIBSON v KUPE TRUSTEES COMPANY LTD [2020] NZHC 1100 [25 May 2020]
[1] On this appeal, of questions of law arising from the arbitral award of the Honourable Rodney
Hansen QC dated 20 November 2019 (the “award”), the applicants contend the arbitrator erred in
law in concluding they are liable to pay the respondents’ expenses incurred in remedying
weathertightness issues at a downtown Auckland building. The building (“Scene One”)
comprises 134 residential apartments and eight commercial units over its sixteen floors.
Background
[2] For the purposes of the arbitration, the parties formally agreed:
1. The applicants have legal and/or beneficial interests in sub-leases of apartments in Scene One located
at 2 Beach Road, Auckland as:
• (a) sub-lessees or co-sub-lessees of apartments;
• (b) trustees or co-trustees of trusts that are sub-lessees of apartments; and/or
• (c) beneficiaries of trusts that are sub-lessees of apartments.
2. Scene One was built on land owned by Ngati Whatua O Orakei Maori Trust Board.
3. On 26 September 2003 the Ngati Whatua granted a 150 year lease to Oriental Limited (the “Head
Lease”) with a term commencing on 2 August 1996.
4. The leasehold estate was subsequently transferred to Scene No. 1 Limited on 4 October 2004.
5. At a time when Scene One was still under construction but close to completion, Scene No. 1 Limited
effected a leasehold subdivision of the apartments and commercial units by granting subleases to
itself.
6. The terms contained in lease memorandum 2004/4165 were incorporated into each of the subleases.
7. Before Scene One was completed, some, perhaps most, of the residential apartments were sold to
individuals on terms contained in an Agreement for Sale and Purchase of Leasehold Real
Estate/Construction of Apartment.
8. On or about 20 June 2006 the respondents (“Kupe”) became the Lessee under the Head Lease and
Lessor under the Subleases.
9. Between 2012 and 2014 Kupe discovered that there were weathertightness issues, which upon further
investigation by expert consultants, were found to have arisen wholly or partially from defects in the
original design and construction of the Scene One building (“defects”).

 10.As a result of the defects, the Scene One building did not comply in certain respects with the
provisions of the New Zealand Building Code when originally constructed.
11.Kupe has incurred costs to investigate the defects and to conduct interim repairs.
12.Kupe has charged each of the sub-lessees an “Apartment Share” of the costs of the interim repairs and
the costs of investigating the defects as “Operating Expenses” under the subleases.
13.Kupe and the sub-lessees have commenced High Court proceedings against Auckland Council to
recover the estimated $35m cost of repairing the defects and damage.
14.Kupe has charged each of the sub-lessees an Apartment Share of the costs of the litigation as
“Operating Expenses” under the sub-leases.
[3] The template sublease provides the sub-lessees will pay Kupe specified operating expenses,
including “all and any costs and expenses properly incurred by [Kupe]”. The sublease also
commits Kupe to “keep in good order, repair and condition” the parts of buildings not the
responsibility of any sub-lessee, and “[t]o manage and maintain” those parts “in good working
order (subject to fair wear and tear)”. (Sub-lessees are “to keep and maintain in good order,
condition and repair the interior” of each apartment or commercial unit.)
[4] Kupe’s recoverable operating expenses expressly include “any moneys expended by [Kupe]
in the performance of its obligations under any Head Lease”. Under the Head Lease, Kupe is to:
... keep and maintain the Land and any Improvements in good order, repair and condition having regard to
their condition at the Commencement Date or, in respect of Improvements, at the time the Improvements
were carried out.
“Improvements” is defined to mean “any buildings, structures, erections, or other items
whatsoever on the Land”, including any fixtures and fittings contained in them. Kupe also is
required to:
... comply with all statutes, ordinances, regulations and bylaws affecting or relating to the Land or any
Improvements, or to the use or occupation of the Land or the Improvements, and shall also comply with the
provisions of any licences, requisitions, notices or orders, made or given by any Authority
notwithstanding they may be Ngati Whatua’s obligations as landowner.
[5] At the arbitration, claimed a ‘test case’,1 the sub-lessees sought declarations Kupe’s expenses
in repairing the defects, including litigation expenses to recover such, were not ‘Operating
Expenses’ recoverable from sub-lessees. Kupe counterclaimed for declarations specified costs
were so recoverable, and on a proposed recovery in advance/subsequent reconciliation
mechanism.
[6] The sub-lessees argued the sublease – not subject to the Residential Tenancies Act 1986
(RTA), then as leases of dwelling houses – is to import the implied covenants in sections 116A to
116M of the Property Law Act 1952 (PLA), and in particular s 116H’s warranty of habitability
and covenant to repair implied on the part of a lessor.2 Inferentially, the expenses of such
compliance are for Kupe to bear without recourse to sub-lessees.

 [7] The arbitrator disagreed, considering “ss 116A–116H of the PLA do not apply”. Neither may
the RTA, by parity of reasoning from the RTA’s exclusion of comparable leases.3 Even if they
did, Kupe’s expenses remained recoverable from the sub-lessees, if properly incurred, without
any express contractual obligation to sub- lessees to undertake the works (and the arbitrator
considered Kupe’s express contractual obligations did not in any event exclude works to address
latent or inherent defects).4 Nor could a term for Kupe’s exclusive liability for the expenses be
implied.5
[8] The sub-lessees appeal those determinations each and all as wrong in law, essentially (I
apprehend) in a rerun of their arguments to the arbitrator. At hearing of the appeal before me, the
sub-lessees’ counsel, Tim Rainey, agreed the appeal was to be considered in terms of the subjects
of his written submission, rather than in terms of the express points on appeal. Thus the issues on
appeal are if the arbitrator erred in law in determining costs and expenses incurred by Kupe in
repairing latent building
1. The better characterisation may be ‘lead case’, for the reason stated by Lord Mustill in Giles v
Thompson [1993] UKHL 2, [1994] 1 AC 142 at 155: “... because there is no agreement, formal or
otherwise, that the parties to other disputes will be bound by the outcome of the appeals”.
2. Section 45(1)(b) of the Residential Tenancies Act 1986 similarly requires a landlord to “provide and
maintain the premises in a reasonable state of repair having regard to the age and character of the
premises and the period during which the premises are likely to remain habitable and available for
residential purposes”.
3. Arbitral award of the Honourable Rodney Hansen QC dated 20 November 2019 (the “award”), at para
34.
4 At

paras 50–59 and 68.

5 At

paras 63–64.
defects or on related litigation are “Operating Expenses” for the purposes of the sublease.

Approach to appeal
[9] The sublease provides disputes relating to it, its provisions or construction, or the parties’
duties or liabilities “shall be referred to the arbitration of one arbitrator in accordance with the
Arbitration Act 1996”.6 Section 6 of that Act has default effect to apply its Schedule 2’s
provisions, allowing at clause 5(1) “any party may appeal to the High Court on a question of law
arising out of an award”. Appeals from an arbitrator’s award to this Court are conducted by way
of rehearing,7 in which the sub-lessees bear the onus of satisfying me I should differ from the
arbitrator’s decision.8 I only am justified in interfering with that decision if I consider the
decision is wrong – in other words, the arbitrator erred.9 On determining the appeal, I may
confirm, vary, or set aside the award, or remit it to the arbitrator for reconsideration.10
Applicable law
—contract construction
[10] There is no dispute the sublease is to be construed in accordance with ordinary contract
construction principle, which is an objective exercise to determine:11

 ... what a reasonable and properly informed third party would consider the parties intended the words of their
contract to mean[,] ... aware of the commercial or other context in which the contract was made and of all the
facts and circumstances known to and likely to be operating on the parties’ minds.

6. The parties also are subject to a specific arbitration agreement dated 30 May 2019, submitting the
particular dispute to the arbitrator for his “final and binding” award, subject to appeal “on any
question of law arising out of an award”.
7 High

Court Rules 2016, r 26.13.

8. Mr Rainey argues “[t]here is no onus on the appellants”. That is wrong: Manukau City Council v
Fencible Court Howick Ltd [1991] 3 NZLR 410 (CA) at 412.
9 Austin,

Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [13].

10 Arbitration Act
11 Vector

1996, sch 2, cl 5(4).

Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [19].

That is, ‘known to and likely to have been operating on all parties’ minds’;12 there is a “need to
maintain the key distinction between the parties’ objectively apparent consensus and subjective
individual intentions”.13
[11] The starting point is the language of the sublease itself, interpreted in the context of the
sublease as a whole:14
While context is a necessary element of the interpretive process and the focus is on interpreting the document
rather than particular words, the text remains centrally important. If the language at issue, construed in the
context of the contract as a whole, has an ordinary and natural meaning, that will be a powerful, albeit not
conclusive, indicator of what the parties meant. But the wider context may point to some interpretation other
than the most obvious one and may also assist in determining the meaning intended in cases of ambiguity or
uncertainty.
[12] Cautions against using relevant background “to read the contract in a different way than the
language might suggest” are legion, the tension being between unavoidable contractual
disadvantage and avoidable commercial absurdity:15
... where contractual language, viewed in the context of the whole contract, has an ordinary and natural
meaning, a conclusion that it produces a commercially absurd result should be reached only in the most
obvious and extreme of cases.
—implication of terms, in principle

 [13] So far as implied terms are concerned, “the correct approach to the issue of implication is
currently uncertain”.16 The uncertainty is:17
... whether the implication of a term is to be dealt with by applying the same test and, perhaps, addressed as
part of the same process as for the interpretation of existing contractual terms.

12.Firm PI 1 Ltd v Zurich Australian Insurance [2014] NZSC 147, [2015] 1 NZLR 432 at [66] per
McGrath, Glazebrook and Arnold JJ.
13.New Zealand Air Line Pilotsʼ Association Inc v Air New Zealand Ltd [2017] NZSC 111, [2017] 1
NZLR 948 at [86] per Arnold, O’Regan and Ellen France JJ.
14.Firm PI 1 Ltd v Zurich Australian Insurance, above n 12, at [63] per McGrath, Glazebrook and
Arnold JJ (internal footnotes omitted).
15.At [88]–[93] (internal footnotes omitted). See also Suzanne Robertson QC “Making sense of
commercial common sense” (2018) 49 VUWLR 279.
16.Ward Equipment Ltd v Preston [2017] NZCA 444, [2018] NZCCLR 15 at [46] citing Mobil Oil New
Zealand Ltd v Development Auckland Ltd [2016] NZSC 89, [2017] 1 NZLR 48 at [81].
17.Ward Equipment Ltd v Preston, above n 16, at [46] citing Attorney-General of Belize v Belize Telecom
Ltd [2009] UKPC 10, [2009] 1 WLR 1988.
[14] The uncertainty is resolved in the United Kingdom,18 in favour of a return towards the
orthodox position set out in BP Refinery (Westernport) Pty Ltd, which established the following
conditions for implication of terms in a contract:19
(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so
that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes
without saying”;
(4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.
Discussion
[15] Sch A, cl 2 of the sublease provides:
OPERATING EXPENSES
Upon demand in writing by the Lessor or its agents to pay to the Lessor or a person nominated by it the
following operating expenses, being:
(a) The whole of the costs and expenses properly incurred by the Lessor in respect of the
Apartment, Carpark and Locker Area, and in particular but without limitation, the cost of
providing services to the Apartment either through the Lessor or a manager.
(b) An Apartment Share of all and any costs and expenses properly incurred by the Lessor,
including but not limited to any costs and expenses incurred pursuant to clauses 12, 13, 15, 16
and 32 in respect of the Land, Any building on the Land, Apartment Shell or Common Areas or
where the Lessor is unable to specifically allocate expenses then the Lessee shall pay an
Apartment Share of such expenses as the Lessor shall fairly and reasonably allocate to the Land,
Any building on the Land, Apartment Shell or Common Areas.
(c) The whole of the cost of any repairs or work to any part of Any building on the Land,

 Common Areas, Apartment Shell including but not limited to landscaping, the electrical and
plumbing equipment, drains or other amenities serving it or in respect of any part of the Land if
the repairs or work are necessary or required as a result of fair wear and tear and/or any wilful or
negligent act of the Lessee or the Lessee's servants, agents or invitees or any person being the
occupier of the Apartment.
(d) The cost of legal or other services arising from or relating to any default under this Lease or
the enforcement or exercise or attempted enforcement or exercise of any of the Lessor’s rights
and remedies under this Lease (including costs as between solicitor and client).
(e) Such costs and expenses as the Lessor may reasonably charge to the Lessee from time to time
in respect of the Land, Any Building on the Land
18.Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72,
[2016] AC 742.
19.At [18] citing BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire
of Hastings (1977) 52 ALJR 20 (PC) at 26.
or the Apartment which includes property management and administration fees.
[16] The award declines to make the declarations sought by the sub-lessees. The arbitrator instead
declares specified costs – of interim repair; investigating defects for the purposes of litigation;
conducting litigation; and repairs required to rectify defects
– “are operating costs and recoverable by [Kupe] from the [sub-lessees] under the sublease”.20
His reason was:21
... [T]he obligation imposed on the sublessee to pay costs and expenses properly incurred includes but is not
limited to those incurred pursuant to the specified clauses in the sublease. The obligation is not confined to
those costs and expenses that the Lessor is obliged to incur. If they are properly incurred, they are
recoverable.
[17] In that respect, the questions of law raised by the sub-lessees on this appeal largely are not
directly questions of law ‘arising out of an award’. The arbitrator is clear: irrespective of Kupe’s
(express or implied) obligations under the sublease, any “properly incurred” costs and expenses
are recoverable as “Operating Expenses” under the sublease. The sub-lessees do not dispute the
impugned costs are ‘properly incurred’ by Kupe. If the arbitrator erred in the ways contended by
the sub-lessees, those errors would and could not have made a difference to his decision.22
Except as I address below, I therefore do not engage with them.
[18] The exception is the sub-lessees’ contention the sublease is subject to an implied term only
costs and expenses incurred as obligations by Kupe under the sublease are “Operating Expenses”
recoverable under the sublease. Mr Rainey argues implication of terms “is best approached by
way of interpretation of the words used”.
[19] As is clear from the sublease’s Sch A, cl 2(b), the relevant ‘operating expenses’ here are “all
and any costs and expenses properly incurred by the Lessor”. Nothing in the natural and ordinary
meaning of those words offers limitation, as argued by the
20 Award,
21 At

above n 3, at paras 74–75.

para 50.

 22 Manukau

City Council v Fencible Court Howick Ltd, above n 8, at 412: “There should be no assumption
that an error in expounding the meaning of the contract was or may have been material. The onus should be
the other way. In my opinion, the Court should not set aside an arbitral award on the ground of error of law
unless satisfied affirmatively that the error made a difference to the decision or at least probably did so”. See
also Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] NZCA 131; [2000] 3 NZLR 318
(CA) at [43].
sub-lessees, to costs and expenses properly incurred by Kupe under the sublease. “Properly” does
not carry that meaning – ‘properly incurred’ is a phrase commonly used in relation to
indemnification of costs and expenses:23
In the case of a contract it must in the end be a matter of determining what recovery is expressly or impliedly
intended. In principle, anything less than a full indemnity for costs properly incurred must leave the
indemnitee with part of the liability for which the indemnifier is prima facie responsible .... In the absence of
a contrary indication it is not to be assumed that the parties intended such a result.
In its classical chancery expression, it means “reasonably as well as honestly incurred”.24 It is to
entitle indemnitees “to be paid back all that they have had to pay out”.25 By ‘properly’ is meant
“necessarily incurred in the interests of the [parties] and reasonable in extent”.26 It does not carry
the additional limitation argued for by the sub-lessees.
[20] Neither does anything else in the context of the sublease require ‘properly’ to carry that
limitation. In particular, the sub-lessees’ argument certain of Kupe’s obligations under the
sublease do not extend to remedying inherent defects is not responsive to the broader definition
of “operating expenses”.
[21] Nor can I see anything in the wider context that calls for a different interpretation. There is
no dispute the inherent defects require to be remedied. The dispute really is if Kupe or the sublessees ought to bear those remedial costs and expenses. The sub-lessees’ wider contextual
argument Kupe should bear them alone, effectively as inheritor of its predecessor developer’s
failure to construct a compliant building,27 does not provide any interpretative necessity for the
limitation claimed by the sub-lessees:28
... commercial common-sense is not to be invoked retrospectively. The mere fact that a contractual
arrangement, if interpreted according to its natural
23.Beecher v Mills [1993] MCLR 19 (CA) at 25, citing Simpson and Miller v British Industries Trust Ltd
(1923) 39 TLR 286 at 289.
24 Re

Beddoe, Downes v Cottam [1893] 1 Ch 547 (CA) at 562.

25.Butterfield v Public Trust [2017] NZCA 367 at [20], citing Re Grimthorpe [1958] Ch 615 (Ch) at 623.
See also Turner v Hancock (1882) 20 Ch D 303 at 305.
26 Butterfield

v Public Trust (above, n 25) at [21], citing New Zealand Māori Council v Foulkes

[2015] NZHC 489 at [31].
27 See

agreed fact 5 at [2] above.

 28.Arnold v Britton [2015] UKSC 36, [2015] AC 1619 at [19] per Lord Neuberger SCJ (with whom Lord
Sumption and Lord Hughes SCJJ agreed).
language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from
the natural language.
The resolution sought by the sub-lessees does not arise from any particular interpretation of the
sublease, but from the facts remedial work requires to be done and has a cost. Nothing – let alone
anything “obvious and extreme” – has “gone wrong” with the contractual language.29 There is
nothing in the factual matrix requiring the words objectively to be construed as favouring or
prejudicing one or other party.
[22] Had I to address the question of implication as part of contractual interpretation, then I
would see no basis for the limitation sought by the sub-lessees, for all the reasons I have outlined
above as illustrating nothing had ‘gone wrong’ with the contractual language.
[23] Neither is the proposed limitation reasonable or equitable. To the contrary, it is to leave Kupe
with the cost of remedying the property, while leased long-term to the sub-lessees at a rental
based on its foundation ground rent. The sublease has complete business efficacy without the
proposed limitation: the sub-lease’s effectiveness is exactly from what the sub-lessees seek relief.
Thus the proposed limitation is not obvious. Even if capable of clear expression (perhaps by
adding “in performance of its obligations under this Lease” to the end of Sch A, cl 2(b)’s first
phrase),30 it contradicts the express terms at least of that very provision sub-lessees are to pay “all
and any costs and expenses properly incurred by [Kupe]”. The sub-lessees’ proposed limitation to
“properly incurred” cannot be implied.
Result
[24] I confirm the award. The appeal is dismissed.

29 Firm

PI 1, above n 12, at [88] and [93] per Arnold, O’Regan and Ellen France JJ.

30 No

formulation was proposed, Mr Rainey contending “the question of whether a term can or should be
implied into a written contract is best approached by way of interpretation of the words used rather than,
conceptually, by the addition of words to the contract”.
Costs
[25] Unless earlier agreed between the parties, costs are reserved for determination on short
memoranda of no more than five pages – annexing a single-page table setting out any contended
allowable steps, time allocation, and daily recovery rate – to be filed and served by Kupe within
ten working days of the date of this judgment, with any response and reply to be filed within five
working day intervals after service.

 —Jagose J

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