Browns Real Estate Limited v Grand Lakes Properties Limited HC Invercargill CIV 2009 425 670
[2010] NZHC 369
•10 March 2010
IN THE HIGH COURT OF NEW ZEALAND
INVERCARGILL REGISTRY
CIV 2009 425 000670
BETWEEN BROWNS REAL ESTATE LIMITED
Applicant
ANDGRAND LAKES PROPERTIES LIMITED Respondent
Hearing: 10 March 2010
Appearances: R A Kennard for Applicant
D M Lester for Respondent
Judgment: 10 March 2010
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
As to application for order setting aside a statutory demand
[1] Browns Real Estate (Browns) seeks a setting aside of Grand Lake Properties
Limited’s (Grand Lakes) statutory demand which was served on 27 November 2009
and claims a sum, including GST, $134,931.00.
[2] Browns was the lessee under a deed of lease entered into in 2006 on retail units in the Sofitel Hotel, Queenstown, and through the assignment of lessee’s interest twice Grand Lakes has been the lessor since October 2009.
[3] The demand is stated to be for money owing pursuant to the lease. The sum demanded represents the balance claimed as at October 2009 after taking into account payments made. I understand the figures to be rent of $155,760.00, less a concession of $6,490.00 representing a 50% reduction of two months; operating expenses $50,226.00; GST $24,937.00; a total of $224,433.00; less paid $89,501.00; with a balance claimed of $134,931 including GST.
BROWNS REAL ESTATE LIMITED V GRAND LAKES PROPERTIES LIMITED HC INV CIV 2009 425
000670 10 March 2010
Grounds of application
[4] Browns says:
(a) It has a counterclaim which exceeds the sum demanded.
(b)Grand Lakes is estopped from insisting on strict compliance with time limits for claims in relation to the lease.
(c) Browns’ purported cancellation of the deed of lease precludes Grand
Lakes from covering unpaid rent.
(d) There is a genuine and substantial dispute as to the quantum of Grand
Lakes’ claim.
(e) Browns is solvent and able to pay its debts.
The principles in relation to the jurisdiction to set aside a statutory demand
[5] The Court’s jurisdiction is contained in s 290 Companies Act, and I refer specifically to the basis on which the Court may grant an application as contained in s 294 which reads:
290 Court may set aside statutory demand
…
(4) The Court may grant an application to set aside a statutory demand if it is satisfied that—
(a) There is a substantial dispute whether or not the debt is owing or
is due; or
(b) The company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the
prescribed amount; or
(c) The demand ought to be set aside on other grounds.
[6] For the purposes of this hearing I adopt as a general approach to the exercise
of this jurisdiction these 5 principles –
· The applicant must show that there is arguably a genuine and substantial dispute
as to the existence of the debt.
· The mere assertion that the debt exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.
· If such material is available the dispute should normally be resolved other than
by means of proceedings in the Court’s Companies Act jurisdiction.
· An applicant must establish that any counterclaim, cross demand or set-off is reasonably arguable in all the circumstances. In relation to this particular case that includes an inquiry as to whether as a matter of contract between the parties a set off or other cross demand is permitted.
· It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.
Does Browns have an arguable basis of cross demand or counterclaim?
[7] To answer that I will consider matters in the following order:
a) Does Browns have an arguable case that that lessor (Grand Lakes’ predecessor in title) itself or by its agent misrepresented the quality and characteristics of the Sofitel retail precinct?
b) If so, did the misrepresentation arguably result in damage to Browns?
c) Is Browns precluded from pursuing a counterclaim or cross demand by the express payment provisions in cl 3.1 of the lease?
d)Do the arbitration and two-year time bar provisions of clause 20 of the lease preclude the counterclaim or cross demand now asserted by Browns?
e) Does a purported cancellation by Browns affect the lessor’s recovery right?
f) If so, does Browns have an arguable claim that Grand Lakes is estopped from asserting the two year time bar?
Does Browns have an arguable case that the lessor (Grand Lakes’ predecessor
in title) itself or by its agent misrepresented the quality and characteristics of the Sofitel retail precinct?
[8] The evidence in this regard is from Mr Newbold the general manager of Browns and he detailed the discussions and negotiations he had over 2006. He says that misrepresentations were made both by directors of the lessor’s predecessor in title and their sales agent as to retailers through the entirety of the complex, the building being fully let to premium retailers with a number of named cornerstone retailers being involved, including upstairs, and upstairs being a fully tenanted arcade with boutique shops and restaurants already leased. Mr Newbold does refer to other statements of alleged misrepresentation. He also refers to a number of tenants who moved in and subsequently left. I put those later matters to one side. Mr Lester did not suggest in the context in which we are dealing with this matters that there were not arguable matters of evidence in this regard.
[9] I find that the applicant’s case is arguable as to misrepresentation.
Did the alleged misrepresentation arguably result in damage to Browns?
[10] Mr Newbold’s evidence also goes into matters of loss which he alleges follow the misrepresentations in a sum substantially exceeding the sums claimed in the statutory demand. Again, Mr Lester did not submit that that evidence was other than arguable evidence in the present context, and I find the applicant’s case as
misrepresentation arguably causing damage in excess of the statutory demand arguable.
Given that there is an arguable case at that level is Browns precluded from pursing any counterclaim or cross demand by the express provisions of the payment clause 3.1 in the lease?
[11] Clause 3.1 of the lease provides:
Payment: The Lessee shall in each year during the Term, pay the Rent and any other money required to be paid by the Lessee pursuant to this Lease, to the Lessor without demand from the Lessor and free of any deduction, withholding, set off or reduction on any account.
[12] Clause 3.1 in my judgment can be described as a traditional no set off rent payment clause designed to deal with the principles recognised by the Court of Appeal in Grant v NZMC Limited [1989] 1 NZLR 8 (CA).
[13] To be considered in the Grant case were the words “free and clear of exchange or any deduction whatsoever”. The Court of Appeal in Grant held that such words did not clearly preclude set off. The words in the present case are obviously and distinctly different to Grant. They may objectively be taken to have been deliberately constructed to avoid the difficulties that the Court of Appeal recognised with construction of the brief words “any deduction” in Grant.
[14] Ms Kennard filed both written submissions in advance of the hearing and spoke to those submissions at the hearing. In relation to this aspect of the case, the written submissions state:
Whilst clause 3.1 of the Lease is worded so as to require payment of the rent “without... set off” rather than merely “without deduction” it is submitted the reasoning in Pacific Forum remains applicable. It is open to your Honour to find that the applicant “appears to have a counterclaim or set off” and that is all that is required under s 290 Companies Act 1993 in order to set aside the
statutory demand.
[15] Ultimately, as the Court of Appeal in Grant recognised, this is a question of the correct construction of the contract and the obligations the parties agreed to.
[16] It is inescapable that in cl 3.1 of this contract there was to be no withholding
of any kind; no deduction; no withholding; no set off; no reduction; and none of those to occur “on any account”. In my judgment, Browns has no arguable case on the wording of this contract to raise a set off or counterclaim as an excuse for not paying rent. It must pay the rent and pursue any available remedies elsewhere or with such other mechanisms as remain available to it. As Mr Lester put it, the regime is “pay first and argue later”. This is not unusual in modern commercial leases, and is consistent with other commercial contracts such as in the construction contracts area.
Do the arbitration and two year time bar provisions of cl 20 of the lease preclude the cross demand or counterclaim now asserted by Browns?
[17] The relevant clauses are:
20 Arbitration
20.1Disputes to be arbitrated: Any dispute which may arise between the parties arising out of, or in connection with, this Lease (“Dispute”) shall be referred to, and finally resolved by arbitration, by a sole arbitrator under the Arbitration Act 1996 (New Zealand).
20.5 Time bar: No arbitral proceedings are to be commenced in respect
of any Dispute unless the written request for the dispute to be referred to arbitration is received by the respondent within two years
of the time when the matter or matters giving rise to the Dispute first
come to the attention of the party seeking to commence the arbitral proceedings.
20.6Second Schedule: Clause 3 and 6 of the second schedule of the Arbitration Act 1996 shall apply to any arbitral proceedings under this Lease. All other clauses in the second schedule shall not apply.
I note in relation to cl 20.6 that only clauses 3 and 6 of the Second Schedule to the Arbitration Act are incorporated into this contract. Other clauses of that schedule are expressly excluded.
[18] Ms Kennard for Browns referred to cl 7 of the Second Schedule in her written submissions but in view of the written submissions filed by Mr Lester did not pursue the proposition that her client could rely on cl 7 for an extension of the time of the time for commencement of arbitration.
[19] By reason of my conclusions in relation to cl 3.1 of the deed it is not necessary for me to reach a conclusion on the effect of cl 20. Had it been necessary I would have favoured Mr Lester’s submissions that the contract between the parties prevents Browns pressing its claim based on misrepresentation. Such a claim arises
in connection with the lease. Contrary to Ms Kennard’s submissions under cl 20.5 it
is my judgment not when the dispute is known to the relevant party but, in terms of the clause, it is when the matter or matters giving rise to the dispute is known to that party. Browns was aware of all the issues it now seeks to pursue by May 2009. Mr Newbold’s evidence is that he first raised those issues which he deposes to in May 2007, the two year time bar therefore operated from May 2009. Even were I wrong with regard to the relevant matters to be in existence in order for the time bar period to be triggered the dispute must have been known, as Mr Lester submitted, at the latest by November 2009. It is Mr Newbold’s evidence that Browns at that time decided to withhold payment given the lack of progress in resolving the issues between the parties. It is inescapable that a dispute existed by November 2009 at the very latest. Given that conclusion and the fact that the proceeding was not commenced for more than 24 months after that time, even on this approach the claim would be statute barred.
[20] I emphasise that these are preliminary conclusions and not expressed as conclusions in this judgment as they necessarily follow my earlier finding in relation
to cl 3.1. If Browns wish to pursue this aspect of their propositions in another jurisdiction that remains open to them.
Does a purported cancellation by Browns affect the lessor’s recovery rights?
[21] On 30 October 2009 Browns’ solicitors sent a letter to Grand Lakes’ solicitors saying that the lease was cancelled immediately for misrepresentation. Assuming rights of cancellation might arguably have existed, which Mr Lester accepts to be the case for the present jurisdiction, the issue is whether the cancellation would have cut across the lessor’s right to payment of accrued rental and operating expenses obligations. Ms Kennard invokes s 8 Contractual Remedies Act 1979, and in particular s 8(3)(a):
8 Rules applying to cancellation
(3) Subject to this Act, when a contract is cancelled the following provisions shall apply:
(a)So far as the contract remains unperformed at the time of the cancellation, no party shall be obliged or entitled to perform it further:
[22] Her submission requires a consideration of whether the obligation to make rental payments had accrued unconditionally before cancellation. That, as Mr Lester submitted, is the basis of the findings by the Court of Appeal in Browns v Langwoods Photo Stores Limited [1991] 1 NZLR 173. Rights which have so accrued are not abrogated by s 8(3)(a), thus in the Browns v Langwoods Photo Stores Limited case the vendor’s right to its deposit had so accrued. Unlike the balance of the contractual consideration it did not depend on a mutual performance such as payment of the balance of the purchase price for transfer of the title. The present case is in the same category as Browns v Langwoods. The lessor had provided the premises and the rent had fallen due. The right had accrued unconditionally.
[23] In the subsequent Court of Appeal decision in Garatt v Ikeda [2002] 1 NZLR
577, the Court again emphasised at [20] the importance of there being no reciprocal obligations outstanding. Tipping J stated (also at [20]) that there must be no impediment by unfulfilled condition or otherwise to the enforcement of the right at the point of cancellation. As Mr Lester submitted, in the present case the lessor’s unimpeded right is even clearer. Not only had possession been given and taken, but cl 3.1 of the contract expressly precluded any objection to full payment by reason of set-off or other identified claims. The purported cancellation in this case does not abrogate the lessor’s accrued rights of rental payment for the tenant’s past occupation.
Was Grand Lakes arguably estopped from insisting on strict compliance with time limits for claims in relation to the lease?
[24] Ms Kennard submits that an estoppel arguably arose in relation to the time bar. She focussed on discussions which occurred after Browns raised issues as to misrepresentation with the then lessor, Espresso Limited. Her core submission in writing was put in this way:
However, even though an ostensible position was taken by the Receivers for Espresso that it did not accept liability for damages for the misrepresentations, they took no steps to enforce that position whatsoever.
In fact, negotiations continued between Receivers and the applicant in respect of a reduced rental. As a consequence the applicant did not initiate arbitration under the Lease.
[25] When pressed by the Court Ms Kennard accepted that the fact of continued negotiations was the essential basis of an implied representation that the rights of the parties under cl 20 to a time bar on plans would not be asserted.
[26] I find that there is nothing in the fact of negotiations between the parties that could establish such a representation on the clear and unequivocal basis required for
an estoppel in equity. The parties pursued discussion and negotiations, but that is entirely consistent with commercial parties seeking to resolve in a commercial way issues between them without reference to what rights each would have against the other if they had to fall back on the strict terms of their contract.
[27] If that were not enough the correspondence between the parties is against the establishment of a clear and unequivocal understanding of the kind asserted by Browns. I refer for instance to the email exchanges which Mr Lester took me to between 20 November 2008 and 28 November 2008. The exchanges commence with the lessor’s receiver’s solicitors setting out the receiver’s position. Twice in the email exchange of 20 November it is made clear that the receivers require certain payments without prejudice to the position of either party. (Attorney-General of Hong Kong v Humphreys Estate (Queen’s Gardens) Ltd [1987] 1 AC 114 (PC) is an example of a case in which the Courts have refused relief on estoppel arguments where the parties were expressly negotiating on a without prejudice basis – in that case also “subject to contract”)
[28] The negotiations through that period led to what appear to be oral discussions
on or about 28 November involving Mr Newbold and representatives of the receivers, following which Mr Newbold sent an email to the receivers headed “Regarding the payment of rent” and recording that his company will make a rent payment next week without prejudice in respect to the past occupation and future
negotiations. The correspondence is inconsistent with the implied representation or estoppel asserted by the applicant.
Is there a genuine and substantial dispute as to the quantum of the Grand
Lakes claim?
[29] The quantum issue raised by Browns relates only to that portion of the demand which represents operating expenses. Browns relied on Mr Newbold’s evidence asserting that he had an arrangement with the lessors whereby Browns was to pay part of the lease rent and no operating expenses.
[30] The argument falls down when one considers the without prejudice correspondence to which I have earlier referred. Both parties were careful to record that arrangements being entered into and payments being made were without prejudice to the legal position of each. Both parties preserved their rights under the lease. I refer again to the culminating email sent by Mr Newbold on 28 November
2008 in which he makes it express that the arrangements are without prejudice in respect of past occupation and future negotiations. All matters were up for resolution but if not finally agreed. The arrangements are by their nature interim only.
Is Browns solvent and able to pay its debts?
[31] Browns in its application asserted that it was able to pay the debts as they fall due.
[32] This assertion was not pursued in the written submissions filed for this hearing. That was not surprising as Browns had filed no proper evidence to support this ground. The only reference made to this ground was contained in three lines at the end of Mr Newbold’s affidavit which stated:
Browns is a solvent company with its assets exceeding its liabilities and it is able to meet its debts as they fall due. More information as to the solvency
of Browns can be provided in due course.
[33] It was for the applicant asserting this ground of opposition to provide proper evidence to the Court. It did not. The evidence as contained in Mr Newbold’s affidavit was mere assertion and so substantially short of constituting proper evidence that the Court should ignore it.
[34] Ms Kennard however did not abandon this ground of opposition. She sought leave to be heard in relation to financial statements of Browns for the year ending 31
March 2009, which she produced. The statements do not purport to be signed or audited. They were not produced under cover of an affidavit verifying their accuracy. I took them in on a provisional basis so Ms Kennard could speak to them. It transpired that the company purports to have moved in cash flow terms from a net deficit in 2008 of $338,000.00 to a net surplus of $493,000.00 in 2009. But against that the balance sheet position of the company has moved from a net deficit position in 2008 of $840,000.00 to still a net deficit position in 2009 of $347,000.00. Mr Lester did not have the opportunity in the circumstances in which the document was handed up to deal with this evidence in any realistic way. I do not formally accept it into evidence, but I note that if I had it would have stood in contradiction to Mr Newbold’s sworn evidence in which he deposed that the applicant has assets exceeding its liabilities. This ground of opposition fails.
Orders
[35] In these circumstances, none of the grounds advanced by the applicant for setting aside the statutory demand is made out. The formal orders of the Court will be as follows:
(a) I dismiss the application.
(b) The time for payment of the demand is extended to 4pm Wednesday
17 March 2010.
(c) In the event the applicant fails to make payment by that time of the sums demanded by the respondent the applicant will be deemed to be
unable to its debts and the respondent may proceed with an
application for winding up.
Costs
[36] I have indicated to counsel a preliminary view that costs must follow the event and should be on a 2B basis, subject to certification of the counsel’s travel costs. Counsel did not suggest that those were inappropriate orders.
[37] I therefore order that the applicant is to pay the respondent’s costs of this proceeding on a 2B basis, together with disbursements to be fixed by the Registrar. I certify for Mr Lester’s reasonable travel costs in relation to the hearing.
[38] I record my gratitude to counsel for the succinctness and clarity of the submissions.
[39] I also record that the applicant is not to take from this judgment any failure
by the Court to recognise that the applicant feels real grievances about the circumstances at the Sofitel when the lease came into existence and the way in which the retail precinct in the hotel operated. This judgment proceeds in accordance with the specific jurisdiction relating to statutory demands and contains no reflection on the substance of those concerns on the part of the applicant.
Solicitors:
AWS Legal, Invercargill
Layburn Hodgins, Christchurch
(Counsel: D M Lester, Christchurch)
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