In June, the High Court awarded exemplary damages against a lessee who had breached the terms of its pastoral lease, but what are “exemplary damages”?
The case involved a company owned by John and Mary Lee. The company was the lessee under a pastoral lease of land in Cardrona Valley. Next door was a freehold property (“Waiorau”) owned by John and Mary Lee, on which they operated snow related businesses. John and Mary stared building a reservoir to provide water for use in snow making for the businesses on Waiorau, but work stopped after the Council advised that a consent was required. It was also discovered that the earthworks were located entirely on the pastoral lease land rather than on Waiorau, as John and Mary had intended.
The Commissioner of Crown Lands also became involved, as the work amounted to a breach of the lease unless the Commissioner’s prior written approval was given. The Crown Pastoral Land Act 1998 (“Act”) prohibits the soil of pastoral lease land being disturbed without the prior written consent of the Commissioner. This is because under a pastoral lease, the lessee only has a right to graze the land. Consent is required even if the activity, such as a proposed track or dam, is to be part of the pastoral activities carried out by the lessee.
As it was not practical to reinstate the land because of the scale of the excavation, the Commissioner agreed to a partial out of court settlement which allowed the reservoir to be completed to agreed standards, but the lessee had to pay a large amount of costs to the Commissioner, and additional rent.
The Commissioner also asked the Court to order the lessee to pay exemplary damages. Under section 19(2)(b) of the Act, a lessee under a pastoral lease who has breached the terms of the lease may have to pay “exemplary damages”, not exceeding $50,000.00.
Under the general law, exemplary damages are given when someone has acted outrageously or recklessly.
The Lees argued that they had not acted outrageously or recklessly, so exemplary damages should not be given.
The Court decided that the normal requirement for outrageous conduct or recklessness was not required under section 19 of the Act. Rather, all that is required is to show there has been a breach of lease - there is no need to go further and prove that there has been outrageous or reckless behaviour.
However, the Court still has an ability not to award exemplary damages.
In deciding whether or not to award exemplary damages, and what amount, the Court will look at all the circumstances, including the nature and extent of the breach, as well the lessee’s conduct and intentions.
In this case, the quantity of earth which was moved and the lessee’s “cavalier attitude” meant that the breach was serious. The lessee did not try to locate the boundaries before starting work. Also, if the lessee had asked the Commissioner for approval, it was unlikely to have been granted. Lastly, the construction of the reservoir had nothing to do with pastoral purposes.
On the other hand, the breach was not deliberate, and the actual area of land involved was small, and was not an area of significant environmental value.
The lessee had also suffered other financial penalties e.g. payment of a substantial amount of costs.
The maximum award under the Act is $50,000.00 which is much higher than the $10,000.00 - $15,000.00 threshold previously set by the Courts for exemplary damages. After considering the above factors, the Court set the exemplary damages at $25,000.00.