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The Supreme Court released its judgment yesterday on Mobil’s appeal of the Court of Appeal’s decision. The Court of Appeal had found Mobil liable for the multi-million dollar job of decontaminating the sites it had occupied at the tank farm in Wynyard Quarter, Auckland.

Mobil had been the last of a succession of oil companies at the tank farm site since 1925. In later years, it had been holding over under agreements to lease it had entered into in 1985. When Mobil vacated in 2011, the subsurface of the land was heavily contaminated and required extensive remediation to meet modern environmental standards for the regeneration of Wynyard Quarter as a residential, retail and commercial development hub.

The 1985 lease arrangements contained an obligation on the tenant to keep and deliver up the land in ‘good order and clean and tidy and free from rubbish, weeds and growth, to the reasonable satisfaction of [the lessor]’ (the ‘clean and tidy clause’).

The High Court had concluded that an interpretation of the clean and tidy clause that required Mobil to fully decontaminate the site was untenable, commercially unrealistic, and not in accordance with the common intention of the parties as at 1985. That decision was, however, overturned by the Court of Appeal which considered Mobil was still subject to liability brought forward under earlier lease arrangements (that preceded the 1985 tenancies). It also considered Mobil should be liable for the condition of the subsurface of the land because Mobil’s activities had extended to the subsurface (for example, creating foundations and burying pipes).

The Supreme Court has, however, issued the final word on the matter. It did not regard the ‘clean and tidy clause’ as imposing an obligation to remediate the subsurface. Such interpretation, in the Court’s view, would be to completely transform the character of the land and would be fundamentally inconsistent with the commercial purpose of the tenancies.

In our current age of heightened awareness of environmental issues, it would be unusual for a lease negotiated today to fail to expressly set out the tenant’s liability for contamination. These issues should, however, be dealt with in lease transactions in clear and unambiguous terms; and particular care is needed in the case of a new lease for an ‘in situ’ tenant to ensure that liability is brought forward.



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