Berry v Dryfoot Holdings Ltd

[2013] NZHC 2817

IN THE HIGH COURT OF NEW ZEALAND WHANGANUI REGISTRY

CIV-2013-483-45 [2013] NZHC 2817

BETWEEN  RAYMOND BRUCE BERRY Plaintiff

ANDDRYFOOT HOLDINGS LTD Defendant

Hearing:                   23 October 2013

Appearances:           J Gilbert and E J Unsworth for Plaintiff

J H Waugh for Defendant

Judgment:                23 October 2013

ORAL JUDGMENT OF ASSOCIATE JUDGE BELL

Solicitors:

Horsley Christie, Whanganui, for Plaintiff

Barltrop Graham (Lloyd Evans), Feilding, for Defendant

Counsel:

J H Waugh, Barrister, Whanganui

BERRY v DRYFOOT HOLDINGS LTD [2013] NZHC 2817 [23 October 2013]

[1]      Raymond Bruce Berry owns two blocks of farmland at Raetihi.   They are called Tods block and Chucks block.  In 2008 Mr Berry leased the blocks to Dryfoot Holdings Ltd under separate leases.  At that time Dryfoot Holdings Ltd ran a dairy farm close by Mr Berry’s blocks.  In 2009 Dryfoot Holdings Ltd ceased farming both blocks.

[2]      Mr Berry is now suing Dryfoot Holdings Ltd for losses. These losses are said to be for: a shortfall in rent when it re-let the blocks, unpaid rates falling due both before and after Dryfoot Holdings Ltd ceased occupation, grazing part of Tods block after Dryfoot ceased occupation, and the cost of repairs to a hay-shed.   The total claim is for $55,600.87.  Mr Berry has applied for summary judgment.

[3]      Mr Berry’s case is that the leases of both blocks remained in full force and effect until their expiry dates at the end of the dairy season in 2011.  The defendant, on the other hand, says that it ceased possession of the premises when the leases were surrendered in 2009.

A preliminary point

[4]      The amount of Mr Berry’s claim is some $55,000.  That sum is well within the civil jurisdiction of the District Court.   The District Court Rules now allow a plaintiff to seek summary judgment.  I queried why this proceeding had been brought in this court.   Mr Unsworth explained that in his experience summary judgment applications in the District Court do not operate smoothly and counsel prefer to bring summary judgment applications in this court.   Mr Waugh responded that plaintiffs sometimes see tactical advantages in applying for summary judgment in this court even though the sum is within the jurisdiction of the District Court.

[5]      For my part, a proceeding such as this seems to be readily amenable to a determination in the District Court.   It seems unnecessary for Mr Berry to have brought this proceeding in this court.

Summary judgment principles

[6]      Mr Waugh reminded me of the principles for summary judgment.  He cited from Krukziener v Hanover Finance:1

The principles are well settled.   The question on a summary judgment application is whether the defendant has no defence to the claim; that is, there is no real question to be tried.  The court must be left without any real doubt or uncertainty...  The onus is on the plaintiff and where its evidence is sufficient to show there is no defence the defendant will have to respond if the application is to be defeated...   The court will not normally resolve material conflicts of evidence or assess the credibility of deponents but it need not accept uncritically evidence that is inherently lacking in credibility as, for example, where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent were inherently improbable.   In the end, the court’s assessment of evidence is a matter of judgment.   The court may take a robust and realistic approach where the facts warrant it...

[7]      When the court hears a summary judgment application, it needs to decide whether the matter can be decided on the evidence available.   In considering the case, it may find for the plaintiff where, on the material available, it is satisfied that there is no substance to the defences raised by the defendant.  However, if the court comes to the view that the matter cannot be decided on the material available in the summary judgment application, and that it is appropriate case for the matter to go to a  full  hearing,  for  example,  for  the  parties  to  be  cross-examined  to  resolve differences of fact or because interlocutory steps are required -such as discovery or interrogatories - so that the issues can be properly examined and investigated, the court will decline summary judgment.

The leases

[8]      There is no dispute as to the leases the parties entered into.  The parties used the FarmWise Deed of Lease for Rural Land, filled in blanks for the variables, and made some tailor-made alterations within the documents.  Both leases were entered into on 24 June 2008.  The lease for the Tod block ran from 11 May 2008 to 31 May

2011; the lease for Chucks block ran from 11 July 2008 to 31 May 2011.  The leases

defined the use that the land was to be put to.  As mentioned, Dryfoot runs a dairy

1      Krukziener v Hanover Finance [2008] NZCA 187, [2010] NZAR 307.

farm.  The blocks were to be used for dairy farming, dairy grazing, supplements and cropping.

[9]      Mr Berry’s main grievance is found in paragraphs 11 to 15 of the statement of claim and is repeated in paragraphs 12 to 16 of his first affidavit:

11        In or about June 2009 the Defendant indicated that it was having trouble meeting its lease payments, that a default was likely, and invited the Plaintiff to consider some alternatives to avoid that happening.

12Given  the  Defendant’s  proposed  repudiation  of  the  leases  the Plaintiff indicated that he would do what was possible to re-lease the blocks to reduce the Defendant’s rental obligations.

13       The Plaintiff was able to re-lease parts of both blocks during the

term of the Defendant’s lease.

14These re-leasing arrangements by the Plaintiff were communicated to the Defendant either direct or through the Defendant’s farm consultant, Peter Feickert.

15It was always the expectation of the Plaintiff that if he suffered any loss as a result the Defendant’s breach of the leases that he would be able to recover such loss as compensation from the Defendant

[10]     Mr Berry gave a new lease of Tods block to a Gavin Rowe.   There is a dispute on the facts whether Mr Rowe took possession of Tods block on 1 September

2009 or 1 October 2009.   Dryfoot contends for the earlier date.   Mr Berry and Mr Rowe (in an unsworn statement) say it was the later date.  I cannot resolve that difference of fact in the evidence.   Chucks block was leased to a John Austin. Dryfoot was required to remove all its stock from Chucks block during September

2009. The change in possession seems to have been on or about 18 September 2009.

Mr Berry’s repudiation claim

[11]     What  is  in  contention  is  how  these  changes  are  to  be  characterised. Mr Berry’s case is that Dryfoot repudiated the leases, but the leases remained in full force and effect until the end of the 2011 dairying season.  When it leased out the properties again, the rent it obtained was less than the rent payable by Dryfoot, and he was entitled to recover the shortfall in rent as well as unpaid rates for the entire terms of both leases.

[12]     The case for Dryfoot is that the parties, by consent, surrendered the leases upon Mr Berry finding new tenants.  Its case is that by reason of the surrender, its obligations expired on surrender and it cannot be liable under the leases after the dates of surrender.

[13]     By way of an aside, I note that the question of cancellation of the leases for breach does not arise.  If there were to be cancellation for breach, Mr Berry would have had to follow the formalities set out in the Property Law Act 2007 which was in force at the time the parties entered into the leases.2    There is no question of cancellation.  Instead, the matter for decision is whether there was surrender or not.

[14]     Mr Berry’s case relies on the concept of repudiation.  The reason why can be seen in clause 11.7 of each lease:

11.7     Compensation for breach

(a)       In  the  event  the  Tenant’s  conduct  (whether  acts  or  omissions) constitutes a repudiation of the Lease (or of the Tenant’s obligations under this Lease) or constitutes a breach of any Lease covenants the Tenant will compensate the Landlord for the loss or damage suffered by reason of the repudiation or breach.

(b)       The Landlord will be entitled to recover damages against the Tenant in respect of repudiation or breach of covenant for the damage suffered by the Landlord during the whole of the term.

(c)       The Landlord’s entitlement to recover damages will not be affected

or limited by any of the following:

(i)       the Tenant abandoning or vacating the Land;

(ii)      the Landlord electing to re-enter or to terminate the Lease; (iii)      the Landlord accepting the Tenant’s repudiation; and

(iv)     the parties’ conduct constituting a surrender by operation of

law.

(Emphasis added)

[15]     On its face, that clause seems to provide that if there has been a repudiation of a lease by a tenant, then the landlord has a claim for compensation.  However, it is

2      Property Law Act 2007, Part 4 Subpart 6.

necessary to consider the nature of the repudiation more fully to see that repudiation alone does not give rise to a claim for damages.

[16]     S 7(2) of the Contractual Remedies Act says:

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.

The Law of Contract in New Zealand says that that codifies what was previously the common law.3   It cites the dictum of Lord Blackburn in Mersey Steel & Iron Co Ltd v Naylor Benzon & Co:4

Where there is a contract to be performed in the future, if one of the parties has said to the other in effect “If you go on and perform your side of the contract I will not perform mine”.  That in effect, amounts to saying “I will not perform the contract”.  In that case the other party may say, “You have given me distinct notice that you will not perform the contract. I will not wait until you have broken it. I will treat you as having put an end to the contract and if necessary I will sue you for damages, but at all events I will not go on with the contract.”

[17]     That dictum recognises, as do ss 7 and 8 of the Contractual Remedies Act, that where the innocent party terminates the contract at common law for repudiation, or cancels the contract under the Contractual Remedies Act, there may be a right to claim damages for any losses that the innocent party has suffered.  Those losses can include claims for prospective losses such as loss of profits.  But, as I have already indicated, this is not a cancellation case.  We have instead an unaccepted repudiation because Mr Berry’s case is that both leases remained in full force and effect.  Again,

The Law of Contract in New Zealand5 is of assistance:

If the contract is repudiated, the innocent party may cancel.  However, he or she is not obliged to do so, as we shall discuss in more detail later.  He or she may opt to keep the contract on foot.  The innocent party is then said not to have “accepted” the repudiation.   In that case the innocent party cannot recover damages for breach of contract in respect of that repudiation.   By leaving the contract open, the innocent party is giving the other the opportunity of changing his or her mind and performing the contract.

3 The Law of Contract in New Zealand (4th edition) Burrows Finn and Todd at 18.2.1. page 698.

4      Mersey Steel & Iron Co Ltd v Naylor Benzon & Co (1884) 9 App Cas 434.

5      The Law of Contract in New Zealand at 18.2.1(e), page 708.

[18]     The text goes on to point out that a repudiation of a contract might justify an award of a decree of specific performance, and that, in the light of Ingram v Patcroft Properties Ltd6 a repudiation may relieve the innocent party from tendering performance if that would be pointless.  But those qualifications do not apply in this case.

[19]     Because Mr Berry is saying that the lease remained in full force and effect, that means that he did not accept Dryfoot’s alleged repudiation.  Rather than rely on repudiation, Mr Berry has to rely on breaches of the leases by Dryfoot.  To establish whether Dryfoot committed any relevant breaches of the leases it will be necessary to determine whether the terms of the lease were in full force and effect at the times of the alleged breaches.

[20]     I come back to the reference to repudiation in clause 11.7.  From what I have said, the general common law and the Contractual Remedies Act do not recognise a right to sue for damage for an unaccepted repudiation of a contract.  In a similar way, I read the reference to a right to claim for compensation in the event of repudiation as  applying  when  a  tenant  has  repudiated  the  lease  and  the  landlord  has  then accepted that repudiation.  An attempt to sue on a repudiation which is unaccepted, and when there are no relevant breaches of contract, does not give rise to a claim that the law recognises.  I do not consider that clause 11.7 should be read as conferring such a right.

[21]     There is also the question whether the conduct of Dryfoot does in fact amount to repudiation as it is understood both by the common law and by s 7(2) of the Contractual Remedies Act.   Section 7(2) requires that the repudiating party must make it clear that he does not intend to perform his obligations under the contract or to complete performance.  In Mersey Steel & Iron Co Ltd v Naylor Benzon & Co, Lord Selbourne said:

You must look at the actual circumstances of the case in order to see whether the one party to the contract is relieved from its future performance by the conduct of the other; you must examine what that conduct is so as to see whether it amounts to a renunciation, to an absolute refusal to perform the contract.

6      Ingram v Patcroft Properties Ltd [2011] 3 NZLR 433.

The Law of Contract in New Zealand notes that repudiation is a serious matter, not to be lightly found or inferred.7

[22]     In this case, the evidence  for summary judgment purposes falls short of showing that intention on the part of Dryfoot Holdings Ltd. The evidence shows that Dryfoot approached Mr Berry with a view to seeing whether the arrangements for the leases could in some way be adjusted or re-negotiated.  By way of background, Mr Melvin Burling, the father of Dryfoot’s director, Graeme Burling, was suffering a terminal illness; there was a financial downturn and Dryfoot had put its farm on the market.    Dryfoot’s  evidence  is  consistent  with  it  approaching  Mr  Berry  to  see whether some other arrangements could be worked out.  I do not regard the evidence as  showing  an  intention  to  disregard  the  leases  in  their  entirety.    Rather,  it  is consistent with a tenant approaching the landlord when the tenant was facing what seemed to be difficult circumstances, and seeing whether alternative arranegments could be worked out.   If I were to hold that such an approach by a tenant to a landlord were to amount to a repudiation of a lease, that would in my view stand in the way of parties to leases seeing if they can negotiate new arrangements, notwithstanding that they have binding arrangements between them.   I regard the evidence of Dryfoot as implicitly recognising that there were binding leases in place, that it was bound by the leases, but that it was looking for a way to negotiate some alternative arrangements.

[23]     Mr  Burling  gave  evidence  about  a  meeting  held  on  31  July  2009  at Himatangi.   Those attending the meeting were himself, his father, Dryfoot’s farm consultant, Peter Feickert, Mr Berry and Mr Berry’s father, Bruce Berry.

The meeting was called to discuss the fact that my father (who had been farming the area that this dispute is with regards to) had been diagnosed with terminal motor neurone disease, the financial downturn, the fact that we had to put the farm on the market, and how these matters combined were likely to affect Dryfoot and Berry’s operations.

[24]     Mr Bruce Berry was present because Dryfoot had also leased land from him. Paragraph 10 of Mr Burling’s affidavit says:

7      The Law of Contract in New Zealand at 700, citing Ross Smyth & Co Ltd v Bailey, Son & Co

[1940] 3 All ER 60 (HL) at 71.

10.After significant discussion, Dryfoot’s understanding at the end of the meeting was that if Raymond and Bruce Berry were able to find new tenants for the blocks, leases would be terminated.

[25]     At this stage I cannot dismiss Mr Burling’s account out of hand.  Mr Berry contends  that  Dryfoot,  to  a  certain  extent,  acted  unilaterally.    There  is  a  clash between the evidence of Mr Burling on the one hand and Mr Berry on the other. This difference between them is not the kind of difference that can be dismissed

under the approach of Lord Diplock in Eng Mee Yong v Letchumanan.8    I cannot

resolve the conflict in the evidence in this summary judgment application.

[26]     Mr Burling’s affidavit describes steps taken to find replacement tenants.  To a degree there appears to have been some co-operation with the parties with regard to finding replacement tenants.  Mr Peter Feickert, the farm consultant, was involved in communications between the parties.  There were also attempts by each side to set conditions for the leases to be brought to an end.

[27]     Mr Gilbert points out that Mr Berry set conditions which were not agreed to. It appears that the re-leasing, that is, the granting of new leases by Mr Berry, went ahead.

[28]     It is necessary to express some caution about the way that each side has expressed  themselves   with  regard  to  that   meeting  and  to   their  subsequent negotiations. Each of them is, to a certain extent, stating what they subjectively believed.  As Mr Waugh pointed out, the court needs to assess objectively whether any agreement was reached and what that agreement was.  The court refers to what a reasonable man would understand the parties had agreed to and whether they had agreed to anything rather than to what the parties subjectively believed the effect of the arrangements were.

[29]     At the meeting on 21 July 2009 neither side took a contemporaneous note of what had been discussed.  Each side is now relying on their own memory of what happened.  Such a matter does not lend itself readily to determination in a summary

judgment application.   It is a matter where a hearing with witnesses giving their

8      Eng Mee Yong v Letchumanan s/o Velayutham [1980] 1 AC 331 (PC) at 341.

evidence in person subject to cross-examination is going to elicit what the true position was, which person can be believed and which cannot.

[30]     Similarly, I regard the correspondence that later passed, as not casting much significant light on determining exactly what the parties did agree.   Each side has been able to point to passages that suited their side of the case and do not help the other side.

Surrender

[31]     The legal question is this:   did Dryfoot’s leases of Tods block and Chucks block come to an end when replacement tenants were found?   Or did the leases continue notwithstanding that new leases were granted?

[32]     For Dryfoot, Mr Waugh puts the argument on the basis of surrender.   For Mr Berry, Mr Gilbert says that surrender is not an adequate description of what happened because the ingredients for an agreement were not established.   In the absence  of  any  agreement,  the  leases  to  Dryfoot  must  be  considered  to  have remained in full force and effect.

[33]     Mr Waugh summarised the law as to “surrender”.  He quoted Halsbury:9

Delivery by the tenant to the landlord and his acceptance of possession effect a surrender by operation of law.  The surrender in this case depends upon the agreement by the landlord and the tenant that the term is to cease and, upon the change in possession in pursuance of the agreement, the change of possession is essential.

He also cited McGechan J in Benjamin v Wareham Associates NZ Ltd:10

Surrender by operation of law takes place through delivery of possession by the lessees and acceptance of possession by the lessor with intention on both sides thereby to determine the lease. The process often is said to be based on reciprocal estoppels by representation, whether by words or conduct...There is no need for express words of surrender but conduct must take place in a context of mutual intention.  An intention by a lessee alone to surrender the lease is not sufficient.   Return of keys by a lessee is not sufficient in itself. There must be associated conduct on behalf of the lessor in relation to

9      Halsburys Laws of England (4th ed) vol 27 at 527.

10     Benjamin v Wareham Associate NZ Ltd [1990] 1 NZCC 190,638 at 190,642.

receipt of keys, establishing acceptance that the lessor’s consent is at an end. Questions of fact, and within that degree, inevitably arise.

Mr Waugh also referred to Speight J in Ven-lu-ree Rodney Ltd v Wakelin11 that what must be shown is that:

the lessor has knowingly accepted on his own behalf substituted tenants, thereby conceding surrender.

[34]     It is important to recognise that surrender can occur not only by words, as when both parties reduce an agreement to writing, but also occur by conduct.  That after all is what is understood as surrender implied by law.

[35]     I am unable to conclude unequivocally that there has not been a surrender in this case.  I appreciate, for Mr Berry, that there is an argument to the effect that he was presented with a fait accompli and he had no choice but to go on with what the tenant had sprung upon him. At a full hearing, he may be proved right on that point. But at present that is not completely clear to me.

[36]     Mr Waugh was able to point to documents that were consistent with Mr Berry recognising that the lease had come to an end when the new leases to Rowe and Austin were granted.  An invoice that Mr Berry had sent to Dryfoot in April 2010 charged for rates only up until the end of September 2009, and not for rates falling due afterwards.  Similarly, an email that Mr Berry sent to Mr Burling on 4 May 2010 included this statement:

Part of the condition of letting the lease go on Tods block was that some repairs were to be done to broken fences, yards etc.

His statement that it was part of the condition of letting the lease go seems to be an implicit recognition that the lease did come to an end.  Faced with matters like that, I cannot conclude on a summary judgment application that Dryfoot does not have a defence based on surrender.

[37]     Accordingly, for Dryfoot it is arguable that there was a surrender of both leases with the lease of one block coming to an end on 1 September 2009 and the

11     Ven-Lu-Ree Rodney Ltd v Wakelin HC Auckland HC 178/93, 9 May 1994.

other lease  coming  to  an  end  on  about  18  September 2009  when  Dryfoot  was required to remove its stock from Chucks block so as to allow the new tenant to take possession.12

Claims available to Mr Berry

[38]     As it is arguable that the leases came to an end then, Mr Berry may sue for breaches of covenants under the leases that occurred while the leases were in force. That allows Mr Berry to sue for rates that had fallen due up until the dates of termination by surrender.  It enables Mr Berry to sue for a failure to carry out repair obligations under the lease, including the right to ensure the buildings were in a good condition on the surrender of the lease.   Mr Berry also has the right to sue independently of the leases for grazing of part of the Tod block after the surrender. I comment that to the extent that he is making a claim for grazing of Tods block after the surrender, it may be evidence (not necessarily conclusive) that he had reverted to his status as the person entitled to control and possession of the block as he was able to grant grazing over the block to Dryfoot.

[39]     The rates that had fallen due at 30 September 2009 amounted to $1,553.57 for one block, and $1,835.90 for the second block.  There was also an undisputed claim for grazing heifers amounting to $2,457.30.  Those sums total $5,846.77.13  As something of a quibble, Mr Waugh also takes the point that the surrenders took place, arguably, before 30 September 2009.

[40]     Against those sums, Dryfoot contends that it has a set-off because it overpaid rent.   It says the amount of the overpayments (it paid rent in advance before the surrenders took effect) is $6,806.76.   Mr Waugh takes the point that when those matters are taken against each other there is a credit to Dryfoot of $970.93.  On that basis, Dryfoot has an arguable set-off which can be taken into account against its

liability for the grazing and for the rates.

12    Although I did not refer to this when I gave judgment in the hearing and it is not essential to my decision, I accept the submission of Mr Waugh that Mr Berry did not adequately prove the alleged losses for the shortfall in rent under the replacement leases.  The point was covered in argument.  Mr Berry did not put the replacement leases in evidence or prove what payments were made under them.

13     See plaintiff ’s statement 210708 of 26/4/10.

[41]     There remains the claim for damage not repaired to the hay-shed.  Mr Berry has claimed $300 for that.   That is because he made an insurance claim for the damage and was paid out for most of that claim but for an excess of $300.00.   I explored with Mr Gilbert whether granting judgment for that $300.00 might jeopardise his client’s position with his underwriter.  Mr Gilbert was not bothered by that point.  Rather than tie the matter up with the niceties of whether Mr Berry is going to jeopardise his relations with his insurer, I will find for him for that $300.00. Mr Waugh put up a quibble on the $300.00 by contending that there were other possible causes.  Under clause 8.1 of the lease the tenant is required to put buildings into a good condition.   It is not qualified by questions of fair wear and tear.  The undisputed evidence is that the hay-shed did require repair and it was not done by Dryfoot.  Mr Berry is entitled to recover the $300.00 for that.  That would reduce the credit to Dryfoot by $300.00 to $670.93.

[42]     The position now reached is that Mr Berry has not shown that he is bound to succeed in the light of all the defences put up by Dryfoot Holdings Ltd.  I dismiss the application for summary judgment.

Further conduct of proceeding

[43]     I adjourn this matter until the next summary judgment list on 13 December

2013.  That is to allow the parties to make discovery.  I do not expect the parties to undertake full-blown discovery.   It will be adequate for them to make informal discovery.    I  expect  counsel  to  confer  with  each  other  to  ensure  that  there  is discovery sufficient for their purposes.   If they cannot agree, I will give further directions as to discovery on 13 December if they are required.   If there are no matters outstanding then, I intend to use my powers under s 46 to transfer this matter to the District Court at Whanganui so that the matter can be taken to a hearing under the District Court Rules.

Costs

[44]     As the matter is to be moved to the District Court, costs ought to be resolved in this court before it is transferred to the District Court and this court will loses its

jurisdiction  to  award costs.    Normally it  might  be appropriate to  reserve costs. However, I regard this as one case where it should have been apparent to the plaintiff at the outset that there would be contested issues of fact, particularly with regard to the negotiations and arrangements for the leases to be changed in September 2009. Because so much turned on what was discussed between the parties, I do not regard this as ever having been suitable for summary judgment.  Accordingly, I award the defendant costs on a 2B basis.  As the defendant did not have any choice over the matter having been brought in this court, costs will be on the High Court scale rather than on the District Court scale.

...........................................

Associate Judge R M Bell