Alma Properties No 1 Limited v Cullen HC Hamilton CIV 2003-419-169
[2005] NZHC 1298
•16 March 2005
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV 2003-419-000169
BETWEENALMA PROPERTIES NO. 1 LIMITED AND ALMA PROPERTIES NO. 2 LIMITED
Plaintiffs
ANDANDREW NIGEL CULLEN AND FREDERICK BRUCE LANGRIDGE
Defendants
Hearing: 8-9 March 2005 Appearances: Mr W C Pyke for Plaintiffs
Mr P D Allan for Defendant Judgment: 16 March 2005 at 11.00 a.m.
JUDGMENT OF VENNING J
This judgment was delivered by me on 16 March 2005 at 11.00 a.m. pursuant to Rule 540(4) of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors:Ewan Price, PO Box 21-463, Henderson, Auckland Foley and Hughes, PO Box 6629, Auckland
Copyto: W C Pyke, Hamilton P D Allan, Hamilton
ALMA PROPERTIES NO. 1 LIMITED AND ALMA PROPERTIES NO. 2 LIMITED V ANDREW NIGEL CULLEN AND FREDERICK BRUCE LANGRIDGE HC HAM CIV 2003-419-000169 []
Introduction
[1] The plaintiffs own a commercial property at 12 Alma Street, Hamilton. In November 1997 the plaintiffs and defendants entered an agreement to lease the property. The defendants agreed to lease the property for eight years. The defendants intended to establish and operate a restaurant to be known as the Balcony at the premises.
[2] The lease has now been terminated. The plaintiffs sue the defendants for loss of bargain damages under the agreement to lease. The plaintiffs have settled with the first-named defendant. The second-named defendant, Mr Langridge, counterclaims alleging repudiation by the plaintiffs and/or unlawful distraint.
Background
[3] Mr Langridge is a commercial real estate agent. Mr Cullen, the other named defendant, is a restaurateur.
[4] From July 1997 Mr Prestidge and Mr Wright, directors of the plaintiffs, negotiated with the defendants for the lease of the plaintiffs’ premises at 12 Alma Street.
[5] Although the parties executed an agreement to lease on or about 5 November 1997, and the defendants took possession and operated the Balcony restaurant business from the premises, the final form lease forwarded by the plaintiffs’ solicitors to the defendant on 2 April 1998 was never executed by the defendants.
[6] By early 1999 the defendants were behind in the rental payments due. The parties met on a number of occasions to discuss the position. On 29 July 1999 a meeting was held. It was attended by Mr Prestidge and Mr Wright for the plaintiffs and Mr Langridge for the defendants. Agreement was reached as to a number of
matters. Mr Prestidge prepared minutes following the meeting to record the agreement. The minutes recorded inter alia that:
· the agreed figure due for outstanding rent was $36,984.34;
· the defendants would sell the bar used by the Balcony to the plaintiffs for the agreed sum of $27,079.80 to be credited against arrears;
· the defendants would pay $1200 weekly towards rental;
· late payment penalties to 31 July would be forgiven;
· the defendants would pay all outgoings when due;
· as at 1 October if the defendants met the $1200 per week the outstanding figure due would be $11,916.15.
[7]Mr Prestidge concluded the record of the meeting:
Bruce to recap it is important that the $1200 weekly payments ($1200.00 due today 30/7/99) are made on the dates due and that payment of outgoings to Akarana are made on due dates for this arrangement to work.
Please note at 1 October $11,916.15 will be required to settle this arrangement.
[8] In mid July 1999 Mr Langridge and Mr Cullen had a parting of ways. Mr Cullen left the business. Thereafter Mr Langridge was looking to involve another experienced restaurateur in the business. He had discussions with Mr Michael Clark to that end.
[9] Mr Langridge made the majority of payments of $1200 per week required under the agreement with the plaintiffs. However he missed some payments and some cheques were dishonoured. He failed to keep outgoings up to date. Nor was Mr Langridge able to pay the balance of $11,916.15 due on 1 October.
[10] The plaintiffs were aware of Mr Langridge’s difficulties. On 2 November 1999 Mr Prestidge and Mr Wright met with him again. At the meeting Mr Langridge outlined his proposal for the sale of the business to a new company. The new company’s directors and shareholders were to be Michael Clark and Mr Langridge. The existing lease would be surrendered and a new lease executed. Mr Langridge was also anxious at the time to cap outgoings at $7000 to $8000 per annum. Mr Langridge recorded the proposals in a letter of 9 November 1999.
[11] Despite the proposals, the defendant remained in default under the lease. On 1 December 1999 the plaintiffs’ accounts manager forwarded a schedule to him setting out the balance then due. The schedule recorded that as at 26 November 1999 the outstanding rental due was $15,136.91 and that to bring the payments of
$1200 per week up to date $2,400 was required to be paid as at 3 December 1999. That would have reduced the amount owing to $12,736.91 at that date.
[12] Mr Langridge then paid $1200 on 2 December 1999. That cheque was dishonoured. He subsequently made five further payments during December. However, five weekly payments were due in December 1999. As at the end of December 1999 Mr Langridge was still one payment of $1200 in arrears under the payment arrangement, and the overall rental arrears had increased further.
[13] During December 1999 the plaintiffs’ solicitor also wrote to Mr Langridge. The solicitor acknowledged Mr Langridge’s proposals for restructuring the business but recorded that the existing position was governed by the agreement to lease and that Mr Langridge were personally liable under that agreement. The solicitor’s letter concluded:
When we last heard of the matter there were substantial arrears still remaining under the lease and obviously our clients would not be releasing the existing personal covenants until those arrears were discharged.
[14] Mr Langridge continued to pursue negotiations with Mr Clark regarding the proposed restructuring of the restaurant business. However, he fell further behind in rental arrears. Only one payment was made in January 2000. As at 25 January 2000 the plaintiffs’ accounts manager sent a further schedule noting that:
Reconciliation of rental arrears. Note balance as at today is $14,407.56 but in 6 days February rental will be due: $14,407.56
$6,470.65
$20,878.21
[15]So as at 25 January Mr Langridge was in default of the arrangement to pay
$1200 per week, and was under notice that by early February $20,878.21 would be owing for rental.
[16] At about the same time Mr Langridge ceased trading the Balcony restaurant. Mr Langridge’s evidence is that he ceased trading in order to carry out a refurbishment of the premises for the purposes of the proposed new venture.
[17] On 2 February 2000 Mr Wright was advised there was a gas leak at the property. He went to inspect the property the same day. He saw Ed Turner, an auctioneer, at the property. The defendant’s chattels were stacked up in the premises. Mr Wright was concerned at what he saw and at Mr Turner’s presence.
[18] Mr Wright and Prestidge discussed the matter, took advice and instructed a distraint agent. At the same time they instructed a locksmith to attend the property and change the locks.
[19] The locks were changed. Mr Langridge’s chattels were seized. The plaintiffs later arranged for a security officer to attend the property. Mr Langridge was permitted access to the property until 11 February but thereafter the plaintiffs instructed the security company that no-one was to have access to the property.
[20] The parties’ solicitors then engaged in correspondence. Mr Langridge’s solicitor took the view the plaintiffs had terminated the lease by their actions. The plaintiffs’ solicitor for his part took the position that the plaintiffs had distrained as they were entitled to. No agreement was reached.
[21] However, in early March 2000 Mr Langridge paid $32,752 to the plaintiffs. That sum represented payment of all outstanding rent and outgoings to 31 March
2003. Once that payment was made the plaintiffs made the premises and the defendant’s chattels available to Mr Langridge again.
[22] Mr Langridge never re-opened the restaurant. During 2000 both the plaintiffs and Mr Langridge sought to find other parties to take on the lease of the premises. From the defendant’s point of view Mr Langridge was anxious that an alternate restaurant tenant be found so that he could sell his chattels to the incoming tenant.
[23] Ultimately a Mr Marshall agreed to take the premises from the plaintiffs from 1 August 2000.
[24] On 15 August 2000 the parties met in an attempt to resolve the rental, outgoings and lease issues. The plaintiffs made an offer of settlement which was rejected. No agreement was reached. Mr Langridge was to come back to the plaintiffs with an offer.
[25] On 16 August Mr Langridge wrote to the plaintiffs with an offer to settle the plaintiffs’ rental claims. The plaintiffs replied on 18 August. An issue arises as to whether the parties concluded a settlement at that time.
[26] The parties seek orders from the Court clarifying their respective positions under the agreement to lease. They accept this hearing is to be limited to liability issues.
The plaintiffs’ case as pleaded
[27]The plaintiffs raise three causes of action against the defendant.
[28] First, breach of an essential term as to payment of rent and outgoings followed by cancellation by the act of re-entry on 2 February 2000.
[29] In the second (alternative) cause of action the plaintiffs say the defendant repudiated the agreement to lease by claiming it was terminated after the plaintiffs
re-entered on 2 February and the plaintiffs cancelled it by the re-letting to a third party in August 2000.
[30] The final cause of action (again an alternative) raised by the plaintiffs is breach of an essential term as to payment of rent and outgoings after the defendant was allowed back into possession of the premises followed by cancellation by the plaintiffs re-letting in August.
Defendants’ case
[31] The defendants raise a number of positive defences and counterclaims. The positive defences are:
· in purporting to distrain and re-enter the plaintiffs wrongfully repudiated the agreement to lease;
· (alternatively), the plaintiffs waived their rights to re-enter and determine the lease by their conduct prior to and on 2 February 2000 including carrying out distraint on that day; and
· (alternatively), the plaintiffs are estopped from asserting their purported determination of the lease on 2 February was valid;
· (alternatively), the plaintiffs’ conduct in re-entering on 2 February was unconscionable;
· that the parties concluded a binding settlement of all disputes relating to the lease during or about the end of August 2000;
· (alternatively), the plaintiffs were estopped by their conduct of taking over the on-site chattels from asserting that no settlement was concluded.
[32] In the counterclaim the defendants allege that the plaintiffs wrongfully repudiated or that the distraint was unlawful and the defendants have suffered loss.
[33] The defendants’ pleadings also raised a failure to mitigate and misrepresentation claims against the plaintiffs. Those claims were not pursued by Mr Allan in submission. Mr Allan formally confirmed that the misrepresentation pleading was not pursued. In light of the lack of evidence to support that submission that was a realistic concession. The evidence satisfies me the plaintiffs took reasonable steps to mitigate its losses. They actively sought replacement tenants.
Issues
[34]The issues for the Court are:
(1)Whether the plaintiffs were entitled to either re-enter or distrain on 2 February 2000 because of the defendants’ default under the lease, or had the plaintiffs in some way waived their right to do so or were they estopped, or is there any other principle of law that prevented them from taking such action on 2 February?
(2)Did the plaintiffs re-enter and cancel the lease on 2 February or did their actions amount to distraint of Mr Langridge’s chattels?
(3)What is the nature of the use of the premises by Mr Langridge from 1 April through to 31 July?
(4)Was there an overall settlement between the parties?
(5)What damages might either plaintiffs or Mr Langridge pursue?
Were the plaintiffs entitled to re-enter or distrain as at 2 February 2000?
[35] As at 2 February the defendants owed the plaintiffs $20,878.21 for rental arrears. In addition outgoings were also overdue.
[36] Under the terms of the draft lease executed by the parties attached to the memorandum of agreement to lease the defendants acknowledged:
33. That if and whenever the rent hereby reserved shall be in arrear and unpaid for fourteen (14) days the same may immediately or at any time thereafter be levied by distress.
…
35. That if and whenever the rent hereby reserved or any part thereof shall be in arrear and unpaid for the space of twenty-eight (28) days after any of the days hereinbefore appointed for payment thereof whether the same shall have been legally or formally demanded or not …then it shall be lawful for the Lessor thereupon or at any time thereafter to re-enter upon the premises or any part thereof in the name of the whole and to expel and remove therefrom the Lessee and all other occupiers thereof and to have again repossess and enjoy the same as in its former estate anything herein contained or implied to the contrary notwithstanding but without releasing the Lessee from liability for rent then due or for any antecedent breach of any of the agreements stipulations terms or conditions herein contained or implied.
[37] Both the rights available to the plaintiff landlords in clauses 33 and 35 applied as at 2 February 2000. The rent was in arrears for substantially more than 28 days. The only issue is whether the agreement for payment of $1200 per week or some other factors applied to in some way prevent the plaintiffs from exercising the rights to re-enter or distrain.
[38] The agreement that the plaintiffs would accept $1200 per week from the defendants was made at the meeting of 29 July 1999. However, as a condition of that agreement the balance of $11,916.15 was to be paid on 1 October 1999. Mr Langridge failed to make that payment on 1 October. The plaintiffs did accept further weekly payments of $1200 after 1 October. The high watermark from the defendants’ point of view is the account the plaintiffs’ accounts manager Mr Dent sent Mr Langridge on 1 December noting that as at 3 December a payment of $2400 was required to bring the weekly payment schedule up to date. Mr Allan submitted the plaintiffs had accepted that if the weekly payments were kept up to date the plaintiffs would not take further action. But notably there was no concession the plaintiffs would not exercise their rights under the lease. The account was a statement of arrears, and no more. Further, even if the account could be taken as an acceptance of the $1200 per week arrangement, a cheque for $1200 was dishonoured on 2 December, and with five weekly payments due in December (on 3, 10, 17, 24 and 31) Mr Langridge was not up to date as at the end of December. The position
then worsened during January 2000. Only one payment was recorded for that month, on 14 January. Mr Langridge was in breach of both his obligations under the lease and also the $1200 payment schedule.
[39] While from Mr Langridge’s point of view he may have been working towards introduction of another business partner and restructuring the business, from the plaintiffs’ point of view the amount of rental arrears continued to increase, the
$1200 payments were not met, and Mr Langridge ceased trading from the premises. The plaintiffs were also aware that Mr Cullen, one of the original lessees, and the one with experience as a restaurateur had parted company with Mr Langridge.
[40] Mr Allan submitted that despite the rental arrears the plaintiffs had waived their right to re-enter or to distrain. He referred to a number of matters to support that. First, referring to the agreement recorded in the minutes of the meeting of 29 July he noted it was resolved that failure by the defendant to pay the non-weekly payments would result in an instant meeting and review of the agreement and that no such meeting had taken place. With respect Mr Langridge is unable to rely on that provision. That agreement was to cease as at 1 October. It was to cease at that time and Mr Langridge was to repay the balance due at that time. Mr Langridge failed to do so. There would have been little purpose in a meeting to review the failure to pay weekly instalments of $1200 when Mr Langridge had failed to meet the obligation to pay the $11,916.15.
[41]Next Mr Allan supported his submission as to waiver by reference to the
Laws of Contract at para 3.40:
Waiver may be express or implied from conduct. In either case, it must amount to an unambiguous representation. The representation must arise as the result of a positive and intentional act done by the party granting the concession with knowledge of all the material circumstances …
[42] In the present case there has been no unambiguous action by the plaintiffs to the effect they would not enforce their rights as is required for waiver. There is nothing to support the suggestion that the plaintiffs would not enforce their rights under the agreement.
[43] While the plaintiffs did accept $1200 per week after 1 October, it was always clear and accepted by both parties that Mr Langridge’s liability for rental unpaid accrued, notwithstanding those payments. Mr Langridge was prompted to keep to the arrangement to pay the $1200 in December. The plaintiffs’ solicitor also wrote in December to confirm Mr Langridge’s obligation for rent under the lease.
[44] Mr Allan also referred to the meetings in January 2000 between the defendant and Messrs Prestidge and Wright. Mr Langridge’s evidence was that during January 2000 he and Mr Clark met with Mr Wright at the premises to explain what they intended to do and that having seen the detail of the proposal Mr Wright expressed considerable enthusiasm about it. Mr Langridge said that Mr Wright was aware of and approved the closure later in January 2000. Mr Langridge also gave evidence that on 27 January he met with Mr Prestidge and advised him the restaurant was closed for refurbishment and that he was making arrangements to pay arrears. Mr Wright acknowledged that he met with Mr Clark but no more than that. In the course of his evidence Mr Wright expressed the reservation that these things had been promised for some time. It must be borne in mind that Mr Cullen had departed the scene in mid 1999 and from that period on, some six or seven months, the defendant Mr Langridge had been seeking another partner for the business. In early November Mr Langridge had told the plaintiffs that Mr Clark was to be involved. By late January that had not been finalised. The plaintiffs’ scepticism in those circumstances is perhaps understandable. The fact the plaintiffs were aware that the defendant was seeking to introduce a new partner and the restaurant was to be closed in no way amounts to any unambiguous act by the plaintiffs waiving their rights under the agreement to lease to take steps to recover what was a substantially overdue rental. There was no waiver.
[45] Next, Mr Allan submitted that the plaintiffs were estopped from asserting that they had validly terminated the lease, largely in reliance on the same factual basis. Mr Allan submitted the plaintiffs had led Mr Langridge to believe they supported and approved his plans to bring in a new investor and to refurbish the restaurant. He submitted that at no time during January 2000 did the plaintiffs signal they were going to take a harder or stricter line in relation to outstanding rental.
[46] It can not be said that the plaintiffs proceeded on the basis that they would not enforce their rights under the agreement to lease to recover rental. Again at most it can be said the plaintiffs were aware of Mr Langridge’s plans to restructure the business and introduce a new partner. However, it must be borne in mind that by early February 2000 time Mr Langridge was in default of the arrangement he had made on 29 July 1999. He had failed to pay the balance due on 1 October. He had failed to keep up the $1,200 per week thereafter. He had been advised in writing during December by the plaintiffs’ solicitors that the lease still applied as did his obligations under it. He had been further advised on 25 January by Mr Dent, the plaintiffs’ account manager, that only one payment had been made for January and that over $20,000 would be due for rental as at 1 February. The actions of the plaintiffs and their agents fall well short of supporting an estoppel argument.
[47] Finally, on this point, Mr Allan submitted that the conduct of the plaintiffs in acting as they did on 2 February was unconscionable. While estoppel involves consideration of whether it would be unconscionable for a party to deny that which knowingly or intentionally they have allowed or encouraged another to assume to his detriment, as noted estoppel does not apply in the present case. There is nothing in the plaintiffs’ conduct that is unconscionable in that sense.
[48] The passages referred to by Mr Allan from Equity in Trusts in New Zealand (Butler, ch 20) and the citation from Contractors Bonding Ltd v Snee [1992] 2 NZLR 157 as to unconscionable transactions are not applicable. The Contractors Bonding Ltd case in particular dealt with the situation where the parties obtained benefits or accepted benefits in unconscionable circumstances. The plaintiffs in this case have not accepted benefits in unconscionable circumstances or unconscionably accepted benefits. They have simply asserted their rights under the agreement to lease. The agreement to lease itself was negotiated between the parties over two years prior to the actions that occurred on 2 February. The defendant Mr Langridge is an experienced commercial real estate agent. He would have been be well aware of the nature of the commercial contract he had entered and the obligations he assumed under it.
[49] In short, despite Mr Allan’s submissions, I find there was nothing preventing the plaintiffs exercising their rights under the agreement to lease as at 2 February based on the longstanding and substantial default by Mr Langridge under the terms of the agreement, in particular, in relation to the failure to pay.
The effect of the plaintiffs’ actions on 2 February – re-entry or distraint?
[50] On 2 February the plaintiffs instructed a locksmith and a distraint agent to attend the premises. The distraint agent secured the chattels, prepared an inventory and then removed some of the chattels from the premises. At the same time the locksmith removed the existing locks and replaced them with new locks.
[51] Mr Langridge’s case at the time was that in acting in the way they did the plaintiffs re-entered the premises and determined the lease. Mr Langridge’s solicitor adopted that position in correspondence immediately following the plaintiffs’ actions on 2 February. For their part the plaintiffs through their solicitor took the view that they had done no more than distrain and their actions did not amount to re-entry.
[52] Both parties’ positions have changed in the pleading before the Court. The plaintiffs plead in their first cause of action that they re-entered and cancelled the agreement to lease on 2 February. At the time however, the plaintiffs’ solicitor denied that the actions amounted to re-entry. The defendant’s case now is that the plaintiffs were required to make an election whether to keep the lease on foot and distrain or to terminate the lease. As the actions were inconsistent with each other Mr Allan submitted the plaintiffs had “repudiated the agreement of lease thereby discharging the defendant … from carrying out further performance under the agreement of lease”.
[53] With respect I am unable to accept that as a matter of law that is a correct proposition. Section 7 (2) of the Contractual Remedies Act 1979 provides for repudiation:
Subject to this Act, a party to a contract may cancel it if, by words or conduct, another party repudiates the contract by making it clear that he does
not intend to perform his obligations under it or, as the case may be, to complete such performance.
[54] The statutory provision in s 7 (2) effectively codifies the common law. The party repudiating the contract must make their intention not to perform the contract quite plain to the other party.
[55] That is not the position in the present case. As at 2 February the plaintiffs were entitled to take action under the agreement to lease on the basis of Mr Langridge’s default in payment of rental. If the plaintiffs’ actions amount to re- entry and cancellation then that may have consequences for the plaintiffs as they purported to distrain at the same time. If, however, the plaintiffs’ actions do not amount to re-entry then the distraint would be prima facie lawful. The plaintiffs’ actions must be one or the other. The actions either amount to re-entry and cancellation, or they fell short of re-entry and cancellation. In neither case does the issue of repudiation arise.
[56] The issue is whether the plaintiffs’ actions amount to re-entry and cancellation or not.
[57] As the Court of Appeal observed in Dovey Enterprises Ltd v Guardian Assurance Public Limited [1993] 1 NZLR 540:
Where there is a breach of the terms of a lease by non-payment of rent the lessor (subject to the provisions of the lease) may take steps to forfeit the lease or may treat the lease as continuing. They are inconsistent rights and if by statements or conduct the lessor indicates unequivocally to the lessee that one course is, or will be, adopted that will be regarded as a binding election resulting in the other being treated as waived or abandoned. If with knowledge of the breach the lessor elects to continue to accept rent or otherwise to treat the lease as continuing the lessor cannot thereafter invoke that breach to terminate the lease. Whether there has been a binding election is a question of fact for the particular case. …
Distress is a self help remedy for non-payment of rent. It is to be exercised by a landlord with care and in compliance with the provisions of the Distress and Replevin Act. It is a means by which the landlord can recover rent but, because it is a right arising out of the relationship of landlord and tenant, distress is inconsistent with termination of the relationship by forfeiture and levying distress waives forfeiture for the non-payment of the rent involved. Hill and Redman para 2226 Hinde McMorland & Sim’s Land Law para 5.160, Matthews v Smallwood [1910] 1 Ch 777, 786, Watkins v Lamb (unreported) 1063/81 High Court Registry, 22 April 1987, Smellie J.
[58] In Dovey Enterprises the distress agent entered the premises. He had both a warrant to distrain and notice of termination. Both documents were handed to the tenant. The premises were locked. The Court held that the termination of lease by re-entry was the primary step. The consequential step of distress was unlawful.
[59] The issue of whether the landlord’s acts amount to the re-entry or not in this case requires an objective assessment of the plaintiffs’ intention on 2 February. As Greig J observed in Haddon v PK & CA Bird Motels Limited (1993) 2 NZ ConvC 191, 606:
It is important to remember, however, that intention is a matter to be objectively decided and does not depend solely upon the evidence of the lessor given at some later date in the course of the proceedings. Intention is evinced or evidenced by the nature of the acts in the statements of the lessor in the surrounding circumstances from which the actual intention will be inferred.
[60] In the present case the indicators that the plaintiffs intended to distrain and keep the lease on foot are:
· the instruction of the distraint agent and the distraint process;
· the plaintiffs’ solicitor’s correspondence at the time which rejected Mr Langridge’s solicitor’s contention that the plaintiffs had re-entered and terminated the lease.
· the subsequent acceptance of the money demanded by the plaintiffs and permitting Mr Langridge to leave his chattels on the premises at a later date.
[61]Factors that indicate an intention to re-enter and cancel the lease are:
· the changing of the locks and the refusal to provide a key to Mr Langridge;
· the exclusion of Mr Langridge from the premises;
· the employment of a security guard who was instructed to supervise and regulate access by Mr Langridge until 11 April and not to allow Mr Langridge access after that date.
[62] To assist resolution of the apparent conflict in the plaintiffs’ actions reference can be had to the events leading to the actions on 2 February. During late 1999 in particular the plaintiffs were concerned at the arrears owing under the lease. Mr Langridge had failed to pay the balance due of $11,916.15 on 1 October. He was also behind on the arrangement to pay $1200 a week. Although Mr Langridge had told them that he had a new partner interested in the business, the plaintiffs were conscious that he had suggested that arrangement some time before without anything coming to fruition. Rental continued to accrue unpaid during January. The restaurant was closed. The plaintiffs were considering how to protect their position. The trigger for their action was on 2 February. That day Mr Wright went to the premises to follow up on the gas leak. He found the chattels arranged in a way which suggested to him they were being readied for sale. He also found Mr Turner, the auctioneer present on the premises. The plaintiffs decided to act immediately. From their point of view, at that time the whole purpose for the lease, the restaurant business was closed, Mr Langridge was seriously in arrears of rental and it seemed there was a risk that what chattels were there would be lost. The plaintiffs then elected to shut Mr Langridge out of the premises and to distrain on the chattels.
[63] It is significant that apart from instructing the distraint agent the plaintiffs also instructed a locksmith to change the locks. It was not necessary to change the locks to carry out the distraint. Indeed the distraint agent’s evidence is that when he arrived at the premises the locksmith was already there changing the locks. Mr Langridge’s evidence is that when he arrived at the premises at 5 o’clock the distraint agent was drawing up the list of chattels and the locksmith was in the process of changing the locks on both doors. Once Mr Langridge left he was effectively locked out of the premises because he was not supplied with keys to the new locks. The plaintiffs acted to secure the premises and to shut Mr Langridge out.
[64] It is also significant that the plaintiffs posted a security guard at the premises. The guard was authorised to provide access to Mr Langridge for a limited period, but
was directed not to allow anyone (including Mr Langridge) entry after 5 o’clock on 11 February 2000. That instruction was given to the security guard when Mr Langridge’s position (as communicated by his solicitor) was that the plaintiffs had re-entered and terminated.
[65] In fact Mr Langridge was not permitted full access to the premises until the outstanding rental and outgoings were paid to the satisfaction of the plaintiffs in early March when Mr Langridge paid $32,752.45.
[66] Counsel referred to authorities where it has been held that changing locks does not amount to re-entry and termination. I observe that in at least one of those authorities the tenant had abandoned the premises and the landlord was acting to protect the premises: Miller v Mattin (1993) 2 NZ ConvC 191, 714. The Court has accepted that where the action is for the protection of the premises or the taking of possession is made in the character of a mortgagee rather than landlord it may not amount to re-entry: Haddon (supra). That is not the case here. The plaintiffs wanted to retake the premises and shut out Mr Langridge. Each case must of course turn on its own facts. By February 2000 the plaintiffs had had enough and did not want to continue with Mr Langridge as a tenant. They acted to retake the premises. They mistakenly thought they could distrain on the chattels as well.
[67] The plaintiffs’ actions of instructing a locksmith on 2 February and thereafter during February were inconsistent with the correspondence written on their behalf by the solicitor to the effect that they were simply distraining.
[68]I find that on 2 February the plaintiffs did re-enter and terminate the lease.
[69] In Dovey Enterprises Ltd it was held that where the termination by re-entry was a primary step the consequential step of distress was unlawful. Prima facie the purported distraint in this case was also unlawful.
[70] Mr Pyke submitted that the re-entry and cancellation did not affect the remedies in the contract such as the power to levy distress: s 5 Contractual Remedies Act and that as the agreement to lease did not make exercise of the
remedies under clause 33 of the agreement of the lease on the one hand and clause 35 on the other exclusive of each other, the right of distraint was preserved.
[71] Section 5 of the Contractual Remedies Act preserves remedies that are accrued at the time of cancellation. However, Mr Pyke’s submission is answered by the decision of the Court of Appeal in Dovey Enterprises Limited. In that case counsel for the landlord sought to rely on a clause similar to clause 33 in the present case and an additional clause which provided that re-entry was without prejudice to any remedy of the lessor in respect of antecedent breaches. The lessor submitted that the remedy of distress was preserved. The Court rejected the submission that the clauses in the lease preserved the right of distress after termination as the right of distress of its nature required the relationship of landlord and tenant. The Court of Appeal held that the statutory prohibition in s 3 of the Distress and Replevin Act 1908:
3. Distress only on chattels of tenant or person in possession. Distress on agisted stock – (1) No person shall distrain, or levy, for rent due in respect of any messuages or lands, the chattels (other than agisted stock) of any person save and except of the tenant or person in possession of the premises in respect of which such rent has accrued due
prevailed over the terms of the lease and that s 3 required the existence of a landlord tenant relationship at the time of distress. It followed that distress was prohibited once the relationship was terminated by re-entry.
[72] In my view a similar situation prevails in this case. For the reasons given the lease was terminated by the plaintiffs’ re-entry and cancellation on 2 February. On re-entry by the plaintiffs’ agent, the locksmith, the relationship of landlord and tenant was determined. While the plaintiffs’ existing rights against the defendant are preserved in terms of the plaintiffs’ damages claim by s 5 of the Contractual Remedies Act, as the relationship of landlord/tenant was terminated the statutory prohibition under s 3 of the Distress and Replevin Act specifically prohibits distraint where the relationship no longer exists. Absent that relationship there is a statutory prohibition on the distraint. In the result the plaintiffs’ distraint was unlawful.
Subsequent events
[73] The position in the present case is complicated by the steps the parties took subsequently. There was a stand-off as to the effect of the plaintiffs’ actions on 2 February. The stand-off continued during February. A compromise was only reached on 7 March when Mr Langridge paid $32,752.45 to the plaintiffs. The
$32,752.45 represented rental and outgoings due till 31 March and the costs of the distraint. Thereafter the chattels that had been removed were returned to Mr Langridge. Both parties then sought to find another tenant. Mr Langridge in particular was anxious that the premises continue to be used as a restaurant. He did not intend to operate a restaurant himself, but there was a real advantage to him if the premises were taken over by another restaurant tenant as that would enable him to sell the on-site and also potentially his off-site chattels to the incoming tenant. Both parties took steps towards that end. Mr Langridge’s chattels were in the meantime left on the plaintiffs’ premises. Mr Langridge, however, did not trade again from the premises.
[74] During this period there seems to have been an acknowledgement by Mr Langridge that rental would be paid. On 27 March he wrote to the plaintiffs seeking clarification of:
your position with regard to rental monies for the ensuing months whilst both parties are endeavouring to secure a new tenant. …
[75] On 13 April the plaintiffs’ accounts manager wrote to Mr Langridge referring to the rental and outgoings due for April but also noting that no distraint action would be taken in respect of the overdue amount. A similar position prevailed in May. Mr Langridge did not take issue with the plaintiffs’ demands for rental during this time. During that period he wrote to the plaintiffs concerning the prospect of alternative tenants, but did not deny liability for rental
[76] When the plaintiffs were close to concluding matters with Mr Brian Marshall as an alternative tenant they wrote on 17 July requesting that Mr Langridge surrender the lease and noted:
This will involve settlement of overdue rent and outgoings and an undertaking from the both of you to cover any shortfall. I note that you have previously adopted the view that your lease was terminated; this in fact does not deprive the Lessor of the right to damages arising from the termination of lease. We will require an undertaking that proceeds from the sale of chattels to Marshall and Co will go towards outstanding loss of rent.
[77] Mr Langridge did respond to that letter reiterating his position that the lease was terminated by the re-entry and no surrender was required. He denied any liability for any rental or outgoings. He also indicated he would only be willing to sell his chattels to Mr Marshall on the basis the plaintiffs would waive and release him in writing from any claim they may have.
[78] The plaintiffs did not agree. No agreement was reached on that issue. In the event the plaintiffs concluded an agreement with Mr Marshall for him to take over the premises from 1 August 2000.
[79] It may be that Mr Langridge’s possession of the premises during the period may be categorised as a licence as Mr Pyke suggested in the course of submission. The terms of the licence would have included payment of rent and outgoings at the rate under the agreement to lease 1 April to 31 July. However, it is strictly unnecessary to determine the status of Mr Langridge’s occupation of the premises for that period because for the reasons that follow I have come to the conclusion that Mr Langridge is liable for rental by way of damages from the date of re-entry and cancellation on 2 February in any event.
Settlement
[80] The last major issue is whether the parties concluded a settlement of all outstanding issues under the lease. It is Mr Langridge’s case that a settlement was concluded on the exchange of correspondence in August.
[81] The particular correspondence relied on by Mr Langridge commences on 15 August. On that day the plaintiffs wrote to Mr Langridge recording the result of a meeting at 10.00 a.m. that morning. The letter recorded inter alia:
5. Alma Street Properties Directors proposed on a “without prejudice basis” to release Bruce Langridge and Andrew Cullen from obligations and claims re: rent and outgoings on the basis that settlement reached regarding removal of chattels from property and offer of $10,000.00.
6. Bruce Langridge declined offer of settlement but will come back to the Alma Street Properties Directors with counter-offer.
7. Alma Street Properties reserves its rights, if no settlement reached within 7 days of today’s date, to take action under lease to remedy rent and outgoings arrears.
[82] I observe first there is an issue as to whether the “rent and outgoings” to be resolved was rent and outgoings from 1 April to 31 July or whether it was to be an overall resolution of rent and outgoings for the balance of the term of the lease including the shortfall for April-July. The reference at point 7 to arrears would suggest the first, as the only arrears at the time were the rental to 31 July. However, the reference at point 5 is in more general terms. The position is not clear on the first letter.
[83] The offer that Mr Langridge relies on as the basis of the settlement was contained in his letter of 16 August 2000. That was an offer by him to settle issues. In that letter, Mr Langridge said:
Further to that however I see the situation as follows –
1.Alleged rentals for February/March have been paid.
2.Your claim for loss of alleged rental for 1st April – July 31 equates to approximately $24,000.
3.With regard to the on-site chattels, the value of walk-in chiller, refrigerated kitchen bench, rangehood, dishwasher, various electrical and plumbing and various fitout is in excess of $50,000 even as a good quality, secondhand commodity.
4.If ownership of the on-site chattels etc. is transferred to yourselves, they could in effect, be capitalised into the rental upon reviews, if not from the outset. …
You presently have possession of the on-site chattels and we now have a third party with whom we have both reached agreement. I suggest it is time to consumate (sic) the respective offers and for the parties to move on.
[84] The offer itself is again somewhat ambiguous in that the reference at para 2 is to rental arrears to 31 July. The letter does not expressly refer to an overall
resolution for the future as well although there is an oblique reference to that in the reference to the fact the parties should move on.
[85]The plaintiffs responded by letter of 18 August. The plaintiffs said inter alia:
Thank-you for letter received this morning.
1.We agree. (Never in dispute).
2.Please detail your calculation.
3.Please supply original invoices.
4.Please confirm:
(a) Items detailed in 3 are not included in Agreement with McLeod and Co.
(b) That they are free and unencumbered.
Please also note that outgoings amounts are outstanding totalling $4,538.12.
I am unable to accept Mr Allan’s submission that that letter was an acceptance of the offer contained in Mr Langridge’s letter of 16 August. The plaintiffs’ letter is at most a request for further information concerning the defendant’s offer. There is no commitment or agreement by the plaintiffs that if the information was provided the offer would be accepted. The plaintiffs also referred to the outgoings that were outstanding.
[86] The last letter relied on by Mr Langridge to show an agreement from the exchange of correspondence is Mr Langridge’s next letter of 20 August. In that letter he responded to the plaintiffs’ request for information. He advised that he would confirm what was not included in the McLeod agreement for the sale of off- site chattels and would attempt to locate the original invoices. He confirmed that all chattels and fixtures were unencumbered. However, he made no reference to the outgoings.
[87] The exchange of correspondence Mr Langridge relies on falls well short of establishing a binding agreement that he would be released from all obligations (being rental and outgoings) under the agreement to lease for the future.
[88] Next, Mr Allan referred to discussions the parties had at about that time which he submitted confirmed a settlement. The evidence for Mr Langridge is that after his letter of 20 August:
I then telephoned Mr Wright to confirm that the on site chattels which were to be taken over by the plaintiffs were not included in any sale of the off site chattels to McLeod and Co. I also advised him that I was no longer able to locate the invoices relating to the on site chattels. However, in support of my contention that the on site chattels were worth at least $50,000 I informed Mr Wright that I had managed to locate a copy of the quote which I had received from Burns and Ferrall who had carried out the supply of some of the commercial kitchen equipment and stainless steel fabrication for the leased premises …he requested me to fax this document to him which I duly did. I had gathered from the discussion that if the quotation was in order that would be sufficient for his purposes.
And later:
I heard nothing further from either Messrs Prestidge or Wright and in view of the fact that I had provided what I regarded as satisfactory responses to their few queries raised in their letter of 18 August 2000 I considered that an overall settlement of all outstanding issues had been effected.
[89]In cross-examination on the point Mr Langridge repeated that:
I understood there was agreement between the parties
(emphasis added above)
Mr Pyke then put it to him:
Q. You thought it important to write and ask for a waiver?
A.No I considered my explanation had been sufficient. They wanted me to explain what had been included and not included in the deal with Marshall and McLeod and I told them, I sent them some information pertaining to that. I considered the chattels to be between fifty and eighty thousand dollars and because of their response and my corresponding reply to them I felt that an agreement had been reached.
Q.So despite all that had gone before you were willing to take the risk and not document it?
A. Correct.
[90] Mr Langridge’s evidence does not support a finding there was a binding agreement. The evidence discloses that he understood or assumed a settlement had
been concluded but the basis for his understanding there was a settlement is not established. He may have assumed there was a settlement, but there is no evidence of confirmation or agreement by the plaintiffs to be bound to a settlement. Mr Wright was cross-examined about the phone conversation. He could not recall it, but accepted that he well could have received the Burns and Ferrall quote. The high point of the evidence in cross-examination of Mr Wright for Mr Langridge is:
Q. That would suggest that if you felt the on-site chattels were of some value you would be prepared to consider or in fact to offset it, they were in excess of the rental owing?
A. Yes.
Again, however, that falls a long way short of an agreement by Mr Wright on behalf of the plaintiffs to conclude an overall settlement and to release Mr Langridge from all obligations under the agreement to lease.
[91] Mr Allan then submitted finally that the plaintiffs were estopped from denying a settlement because they had taken and used the on-site chattels belonging to Mr Langridge. The plaintiffs did sell the on-site equipment belonging to the defendant to the incoming tenant. The chattels were sold for $11,250 as recorded in correspondence from the plaintiffs’ accounts manager to Mr Marshall on 6 December 2000.
[92] While the plaintiffs’ action in selling the on-site chattels that belonged to Mr Langridge to the new tenant might support a claim by the defendant in conversion against the plaintiffs it does not amount to an estoppel preventing the plaintiffs from denying a settlement. There was no agreement between the plaintiffs and Mr Langridge as to the value of the on site chattels. There was no agreement to release Mr Langridge from his obligations under the agreement to lease. The plaintiffs’ letter of 15 August recorded that if no settlement was reached within seven days, the plaintiffs reserved their right to take action under the lease. The short point is that no such settlement was reached.
Plaintiffs’ claim for damages
[93] The plaintiffs claim for the shortfall in the rental for the balance of the lease term after crediting Mr Langridge with rental otherwise received by the replacement tenant during the period of the lease. The plaintiffs’ claim is for loss of bargain damages. Loss of bargain damages are only recoverable where there has been repudiation by the tenant or the breach of an essential or fundamental term of the lease: Morris v Robert James Investments Limited [1994] 2 NZLR 275. In the present case the plaintiffs re-entered and cancelled the lease because of the longstanding default in payment of rent. Payment of rent is a fundamental aspect of the tenant’s obligations under the lease. It is the prime obligation. In the present case Mr Langridge was severely in arrears. He had been in arrears for a considerable period of time. He had had a number of opportunities to remedy the default. He had failed to comply with the payment arrangements made on 29 July 1999 that required settlement of arrears by 1 October 1999. He failed to keep to the agreed weekly payments of $1200. At the time the plaintiffs re-entered and cancelled on 2 February 2000 close to four months’ arrears of rental was due. In all the circumstances of this case Mr Langridge’s default was such as to amount to a serious breach of a fundamental term of the lease.
[94]The plaintiffs are entitled to damages for loss of bargain.
Summary of findings
a)The plaintiffs were entitled to re-enter and cancel the lease on 2 February.
b)The plaintiffs re-entered and cancelled the lease on 2 February.
c)The distraint was unlawful. The plaintiffs are liable to the defendant for the damages that flow from such unlawful distraint. The loss is to be calculated on the basis of the plaintiffs’ wrongful conversion of the defendant’s chattels. For the avoidance of doubt I record the
defendant is not able to claim the losses set out at para (a) or (d) of the counterclaim.
d)There was no settlement concluded between the parties in mid August or thereafter. Nor are the plaintiffs estopped from denying such settlement.
e)The plaintiffs are entitled to judgment against Mr Langridge for loss of bargain damages. The damages are to be assessed at a later hearing. In assessing those damages credit is to be given to Mr Langridge for the losses flowing from the unlawful distraint and for the value of his on-site chattels converted to the plaintiffs’ use by the plaintiffs.
Future conduct
[95] The file will be reviewed before me at a teleconference on Monday 18 April 2005 at 9.00 a.m. A date for the damages hearing will be fixed at that conference.
Costs
[96] The plaintiffs have largely succeeded, but their distraint was unlawful. Costs to the plaintiffs on a three quarters of a 2B basis. Order accordingly.
G J Venning J
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