BSR Holdings Limited v Solid Hospitality Limited
[2014] NZHC 1118
•28 May 2014
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV-2014-419-57 [2014] NZHC 1118
BETWEEN BSR HOLDINGS LIMITED
Plaintiff
AND
SOLID HOSPITALITY LIMITED Defendant
Hearing: 8 May 2014 Appearances:
P S J Withnall for plaintiff
A M Cook for defendantJudgment:
28 May 2014
JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
This judgment was delivered by me on
28 May 2014 at 4 p.m., pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
BSR HOLDINGS LIMITED v SOLID HOSPITALITY LIMITED [2014] NZHC 1118 [28 May 2014]
Background................................................................................................................. 1
The 2008 agreement ................................................................................................... 8
The sequence of emails 11
Other evidence concerning the 2008 exchange 22
Is the 2008 arrangements an enforceable contract? ............................................. 26
Did the 2008 agreement change the obligation to maintain the listed items?.....31
The obligation to maintain under the lease............................................................ 41
Discussion of the effect of clause 8 …………………………………………….....49
The maintenance fund ............................................................................................. 55
Mistake………………………………………………………………………..……66
Estoppel ..................................................................................................................... 72
Summary of conclusions .......................................................................................... 73
Form of relief ............................................................................................................ 74
Result ......................................................................................................................... 79
Background
[1] The plaintiff seeks summary judgment against the defendant. The brief background to the dispute between the parties is taken from the submissions for the plaintiff but is accepted as being accurate by the defendant.
4.The Plaintiff and the Defendant are parties to a lease of motel premises at 250 Ulster Street, Hamilton known as Aaron Court Motor Inn.
5.In each case they are the successor as lessor (in the case of the Plaintiff) and as lessee (in the case of the Defendant) of the original lessor and lessee. There is no dispute in this regard.
6. The Lease is for a term of 30 years and commenced on 27 September 2004.
7.The Defendant has, as is commonly the case, maintenance obligations under the Lease. The Plaintiff’s claim in this proceeding does not concern those obligations in respect of the premises overall but in three respects in particular:
(a) spas in certain units at the premises, both single and double spas and a single spa in the house;
(b) showers in certain units at the premises; and
(c) 34 heat pumps at the premises.
[2] I shall refer to the chattels above as the “listed items”.
[3] The lease contained a maintenance clause which will be considered in some detail subsequently in this judgment. For present purposes the effect of that provision, clause 8, is that the lessee is obliged to maintain the interior of the motel, fair wear and tear excepted. The lease also contained a provision requiring the lessee to pay an amount calculated as a percentage of the annual rent into a trust account known as the “maintenance account” from which funds could be withdrawn to be used by the lessee in complying with its obligation to maintain the premises under clause 8.
[4] In 2008 it became apparent that quite a number of the listed items are now nearly at or at the end of their service life. That particularly applied to the heat pumps. The parties entered into negotiations in 2008 about the listed items. Those
negotiations centred on who should own the listed items. Both parties had been of the belief that they owned the listed items. In the course of the negotiations, there was also a discussion about the maintenance of items. The question is whether the parties came to a concluded agreement on the ownership of the listed items and whether, assuming the lessee was obliged to maintain them, the lessee could have access to the maintenance fund for that purpose.
[5] The plaintiff says that the lessee has the obligation to maintain the listed items. The position of the lessee is that it does not. Alternatively if it does, the funds held in the maintenance account are available for that purpose. The plaintiff further says that because it could not obtain a satisfactory response from the lessee about these questions, it decided to file an application for summary judgment seeking a declaration to clarify the questions in dispute.
[6] For its part, the defendant says that no agreement in 2008 was entered into because of mistake on its part. It is asserted that the mistake was that it believed that even though it would thenceforth be regarded as the owner of the listed items it was not under any obligation to maintain them. I consider that the controversy between the parties gives rise to the following issues:
(a) Does the defendant have responsibility for maintaining the listed items?
(b)Is the defendant entitled to reimbursement from the maintenance fund in the event it is found to be liable to maintain the listed items.
[7] The first issue breaks down into the following subsidiary issues:
(a) Whatever the position may have been under clause 8 of the contract, did the alleged agreement entered into in 2008 affect the question of who was responsible for maintenance of the listed items? That in turn involves the following sub-issues:
(i) Was a binding contractual agreement entered into in
November 2008?
(ii)If an agreement was entered into, is that nonetheless able to be set aside because of the provisions of the Contractual Mistakes Act?
(iii)Did the agreement contain a specific term relating to maintenance of the specified items?
(iv)If there was no explicit agreement, is the responsibility for maintenance left to be determined by the original terms of the lease, and if so, whose responsibility is maintenance?
The 2008 agreement
[8] It is first necessary to set out the position that each of the parties takes on the question of the alleged 2008 agreement.
[9] The plaintiff asserts that as a result of an exchange of emails between 22
September 2008 and 14 November 2008, the plaintiff and the defendant entered into a binding agreement. The provisions of which, inter alia, are stated at paragraph 9 of the statement of claim:
(a) from 16 November 2008 to 27 September 2010 the annual rental payable to the Defendant under the Lease would increase by $8,000 (plus GST) per annum: ($2,000 (plus GST) per annum less than the reviewed rental sought by the Plaintiff and $3,000 (plus GST) per annum more than the reviewed rental sought by the Defendant) to a rental per annum of $348,000 (plus GST);
(b) no increase in annual rental would be payable by the Defendant for the period 27 September 2008 to 15 November 2008;
(c) the Plaintiff had no interest and/or relinquished any interest in, and the Defendant had all the interest in, including the ownership of, the following items:
(i) the single spas in Units 43-53 (inclusive) at the premises; (ii) the single spa in the hose at the premises;
(iii) the double spas in Units 61-66 (inclusive) at the premises; (iv) the double shower in Unit 54 at the premises;
(v) the single showers in Units 43-53 (inclusive) at the premises; (vi) the single showers in Units 55-66 (inclusive) at the premises; (vii) 34 heat pumps at the premises.
(d) the items, inter alia, pleaded at paragraph 9(c) above would be maintained by and kept by the Defendant in good order and repair.
[10] The response of the defendant is set out at paragraph 9 in the statement of defence which is to the following effect:
a.Any agreement was not limited to the Plaintiff’s penultimate email dated 14 November 2008 but rather includes the exchange of previous emails from 22 September 2008 to 14
November 2008 which provide for the Defendant’s
understanding of what it believed it was agreeing to which was the repair, replacement and maintenance of chattels to
be funded by BSR Holdings Limited or from the
Maintenance fund by Agreement; …
The sequence of emails
[11] I interpolate that the argument before me proceeded on the basis that the “chattels” referred to in the emails set out below were what I have described as the “listed items”.
[12] The sequence of communication between the parties was concerned with a rent review which was then due. The plaintiff had obtained a registered valuer’s opinion concerning the current market rental in regards to the motel premises. That report recommended an increase of $10,000 per annum bringing the rental up to
$350,000 per annum plus GST.
[13] The defendant replied asking if the rental increase could be limited to
$5,000. The plaintiff responded in an email dated 10 October 2008 saying that before it would respond on the question of a reduced rental increase, clarification was sought concerning the ownership of the chattels in the motel which the plaintiff claimed it had purchased “along with the freehold to the land and buildings”. The plaintiff was prompted to clarify the ownership of the listed items because the valuer
had proceeded on the basis that the chattels were ignored in determining the rental payable for the motel. The valuer had believed that the chattels did not belong to the lessor.
[14] The defendant in an email dated 17 October 2008 referred to “[the plaintiff’s] claim to ownership of these chattels” and stated that “we have treated them as ours since being provided with a “Chattel List” from John Farmer in 2006”. The defendant referred to its intention to replace some of the chattels and said that it would now defer making a decision on that until it had clarity about ownership.
[15] The plaintiff’s response 22 October 2008 was to fully enforce its assertion that it owned the chattels. It referred to provisions in its agreement with the vendor but noted that it wanted to settle the matter amicably and sought a proposal from the defendant.
[16] On 5 November 2008, the defendant emailed the plaintiff:
Our greatest concern is not the actual ownership but the implications of ownership in relation to maintenance and replacement both historical and required.
Many require replacement because parts are unobtainable, and if the parts were obtainable you would question the worth of fixing as longevity is not a strong point of the showers and baths.
Quite simply most of them are not “fit for purpose”. …
We would be satisfied with an agreed plan to resolution of these issues to enable us to maintain our standards of service and consequently our ability to trade successfully.
[17] The plaintiff replied on 5 November 2008:
We have considered the comments you have made and your intention in respect to replacement of the chattels. We wonder therefore if the best solution is to agree to them being your chattels. They can then form part of your maintenance program and come under the umbrella of the Maintenance Fund.
[18] The plaintiff also made a proposal regarding the new increased rental and asked for the defendant’s affirmation of this proposal. On 10 November 2008, the defendant replied and made some comments about the need for maintenance and the
sustainability of some of the items in the motel. The defendant referred to the maintenance program for the heat pump units and then said:
This will of course have financial implications from a maintenance perspective. If this can be funded from the maintenance account (which doesn’t provide for maintenance of the lessee’s chattels) I will take responsibility for the planning and implementation of this programme, with your approval.
[19] In this last email, the defendant did not make any express response to the plaintiff’s offer that the defendant should be regarded thenceforth as the owner of the chattels but it is implicit in what the defendant said that the proposal was accepted. That is because the defendant made reference to the listed items being, in his view, lessee’s chattels which are outside the scope of the maintenance fund.
[20] In the following email on 13 November 2008 the plaintiff said:
We confirm the following: -
1.BSR Holdings Ltd has no interest in the chattels referred to in our email of 10 October 2008 and therefore owns no chattels in the complex leased to Southern Hospitality Limited (sic).
2.The aforementioned chattels, along with all other chattels purchased by them at time of acquiring the leasehold, belong to the lessee.
3.The lessor’s property, including any fixtures and fittings, is to be maintained in accordance with the terms detailed in the lease.
4.Our desire is to meet with you and work through a maintenance review program, which will now include chattels, and the source of funding for those expenditure items.
…
[21] In the next email dated 14 November 2008, the defendant said:
Hello Richard, we are happy to confirm our agreement. We look forward to formalising the maintenance schedule.
Other evidence concerning the 2008 exchange
[22] The defendant agreed that there had been an exchange of emails between the parties in 2008 as the plaintiff described. Although the defendant’s affidavit is not clear, I understand that at the time when the emails were exchanged which
constituted the agreement between the parties, the defendant was still under the impression that the lessee owned the chattels. The defendant says that it was mistaken in that behalf and that the plaintiff knew of this mistaken belief:
17.At this point I was unsure of ownership of the chattels. This mistake influenced the agreement. Mr Birch knew that I was incorrect in my understanding of ownership of the chattels. I also did not understand the implications of ownership of the chattels.
[23] The defendant also produced additional emails from 2009 which it considered were relevant to the question of the agreement that the plaintiff alleged the parties had entered into in 2008. A number of the emails which have been referred to are not directly relevant to the question of the alleged agreement entered into in 2008.
[24] One email of central importance was sent from the plaintiff to the defendant on 8 December 2009. In summary the email made the following points. Apparently the email was sent in response to a telephone message that the defendant had left with the plaintiff. The subject of the telephone message was apparently questions of who was going to pay for maintenance of some of the chattels. It appears that around this time problems were being experienced with air conditioning units. There may have been other maintenance related problems as well. The plaintiff in the email said that it thought the parties had settled the question of who was to pay for the maintenance of the chattels when they reached the agreement in 2008. The plaintiff noted that the emails had initially debated the question of who actually owned the chattels. It referred to the fact that the defendant had said that the chattels were on a list (this is the list that the original vendor apparently handed to the defendant when it took over possession of the motel and that:
1.…Presumably you had paid for them. If this is so, then they are your chattels and you are required to repair, maintain and replace the items at your cost. The Maintenance Fund is not available for these functions.
2.If the items were not in fact on your chattels list, then you have not paid anything for them - you are not out of pocket in respect to their acquisition.
3.BSR Directors assessed their relationship with your company, as well as their own understanding of the purchase of the motel freehold. They decided to offer the chattels to you at no cost - so
that, if they were not initially paid for by you, then you are still not out of pocket in acquiring them. Then, you would own the chattels and matters would follow as detailed in [the first paragraph of the email] as to repair, maintenance and replacement.
4.It is usual for the Lessee to own such chattels as they are not fully fixed. This situation better suits the relationships between the parties. If, when you wish to sell the lease, these particular chattels will be a part of your list of items that will be on-sold. The value you get will include some units for which you have paid nothing to John Farmer or to BSR Holdings as well as fair value for replacement items you have acquired.
5.The items form part of the normal rule of Lessee chattels, which is what you expected to happen.
6.The independent valuer in reviewing the rental figure last year did not include these items as lessor chattels because in his view they were not fixed. His view is that the items would be lessee chattels.
…
[25] Against this rather confusing background, it is necessary to note that the position which the defendant now takes is that it believed that it owned the chattels itself when, contrary to that view, the chattels were actually owned by the plaintiff. Assuming that the question of mistake has any relevance to the present dispute between the parties, the most that can be said is that there was uncertainty on the part of both parties about who owned the chattels. Both of them considered that they had a claim to ownership of the chattels and both had some support for their view. I will return to the topic of mistake later in the judgment.
Is the 2008 arrangements an enforceable contract?
[26] Before I express my conclusions on whether the 2008 exchange of emails resulted in a binding contract, I need to make reference to one preliminary point which arises from paragraph 9 of the statement of defence. That paragraph draws specific attention to emails over the entire period between 22 September 2008 to 14
November 2008 which are said to be the basis for “the defendant’s understanding of what it believed it was agreeing to”.
[27] The first point that needs to be made is that the question of what the parties agreed to is a separate matter from the subjective intentions of one of the parties to
the contract. In Vector Gas Limited v Bay of Plenty Energy Limited Tipping J
stated:1
The language used by the parties, appropriately interpreted, is the only source of their intended meaning. As a matter of policy, our law has always required interpretation issues to be addressed on an objective basis. The necessary enquiry therefore concerns what a reasonable and properly informed third party would consider the parties intended the words of their contract to mean. The court embodies that person. …
Although subjective evidence would be relevant if a subjective approach were taken to interpretation issues, the common law has consistently eschewed that approach. The common law focuses strongly on the agreement in its final form as representing the ultimate consensus of the parties. Hence it is regarded as irrelevant how the parties reached that consensus.
[28] Reference is made to the above passages because the contents of paragraph
9 of the statement of defence would indicate that the defendant is suggesting that a different approach ought to be taken to ascertaining the contractual intention that the parties disclose in the emails that they exchanged and which are the foundation of the contract. Specific reference to the defendant’s understanding of the agreement is not relevant to the issue which the Court has to decide.
[29] The reference in paragraph 9 of the statement of defence to the exchange of emails from 22 September 2008 to 14 November 2008 does not throw any additional light on the subject of whether a binding agreement was entered into by the exchange of emails. The earlier emails to which reference has been made established that the context of the discussions did extend to wider matters including the ultimate re-development of the motel site. I am unable to accept that there is anything contained in the exchange of emails as a whole which would indicate that the parties did not intend that the agreement recorded in the penultimate email and accepted by the defendant was other than an agreement to create a binding contractual obligation.
[30] What the parties actually agreed to is discussed below.
1 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [19]-[20] (footnote omitted).
Did the 2008 agreement change the obligation to maintain the listed items?
[31] The main question in the context of this case is whether the agreement which the parties entered into in November 2008 affected the burden of the obligation to maintain.
[32] Regarding the exchange of emails detailed above, it seemed that, initially, the defendant was concerned that it did not actually own the listed items and that it thought it would be better off if it did. However as the negotiations progressed, the focus shifted to the burden of maintenance.
[33] In his email of 5 November 2008, the plaintiff expressed the view that the listed items would be best treated as property of the defendant and then made the comment that the listed items could come under the “umbrella of the Maintenance Fund”.
[34] In the offer contained in the email dated 13 November 2008, the plaintiff was referring to the listed items when it spoke of “the aforementioned chattels” now belonging to the lessee. Further, while the plaintiff’s offer noted that the “lessor’s property, including any fixtures and fittings” was to be maintained in accordance with the lease, it said nothing about the maintenance responsibilities for “the aforementioned chattels”. The offer did say something about chattels generally and that the parties were going to meet to devise a program for the maintenance and the source of funding for the chattels.
[35] The question that next arises is what the parties actually agreed to. The answer seems to be that, firstly, they agreed that the listed items would be jointly acknowledged to be the property of the defendant lessee from that point forward.
[36] Secondly, the exchanged emails, and in particular paragraph 4 of the email
which the plaintiff sent on 13 November 2008 and the defendant’s email on 10
November 2008 showed that the parties understood the need for maintenance to be carried out on the listed items. But the eventual agreement entered into did not contain any express provision about who was to be responsible for carrying out that maintenance and, if the lessee was responsible, whether the lessee would be able to
obtain reimbursement from the maintenance fund. While the defendant raised the question of whether, notwithstanding the change of ownership, the listed items could be maintained out of the maintenance fund (which he noted was not presently permissible), the plaintiff in its reply, when setting out the matters that were agreed upon, did not include the issue of payment out of the maintenance fund to maintain what were now the lessee’s chattels. The plaintiff did however confirm that the lessor’s property was “to be maintained in accordance with the terms detailed in the lease”.
[37] In my view, that is as far as the agreement of the parties can be fairly taken. The question then is whether it is to be implied from the agreement that the acknowledgement of the lessee’s ownership of the listed items imposed on the lessee the burden of maintaining them. If no such agreement can be implied from the exchanges in 2008, then it would seem to be the case that any obligations that the lessee had to maintain could only be those that might arise under the lease.
[38] In attempting to discern the objective intention of the parties a number of points need to be considered. First, the defendant would be entitled to take the chattels with it when it left the property or alternatively invoke clause 12 which dealt with partitions and fittings. While those events were likely to be remote in time, commonsense suggests that being consistent with the new provisions about ownership of the chattels, the lessee should be responsible for their maintenance. On the other hand, the lessor had an interest in requiring the lessee to continue to maintain the listed items irrespective of who owned them. They were integral to the running of the business and were important in maintaining the value of the motel premises. That being so, there is a good argument that the lessee continued to have an obligation to maintain the listed items.
[39] My conclusion is that while the parties came to an enforceable agreement in relation to the ownership of the listed items they did not reach a concluded agreement on the issue of maintenance of them. Nor is such an agreement one that can be implied as a necessary adjunct to the main agreement about ownership. Nor is the position so clear that the Court can say that the parties plainly intended a different arrangement in regard to maintenance from November 2008 onwards.
[40] Therefore, in my view the change of ownership of the listed items did not alter any of the existing provisions for maintenance including those contained in clause 8. I will next consider what, if any, application clause 8 has on the listed items.
The obligation to maintain under the lease
[41] The appropriate point to commence an enquiry into which of the parties had an obligation to maintain the listed items is with an examination of clause 8 of the lease.
[42] Clause 8 provided:
Interior Repairs
That the lessee will at all times during the term hereof keep and maintain the interior of the premises including the lessor’s fixtures and fittings (if any) and all windows, doors, sashes, frame s and locks in the same repair, order and condition as each was at the commencement of the term hereof excepting fair wear and tear and damage by fire (each without the neglect of the lessor) and excepting damage by tempest, earthquake, flood, subsidence of the soil or inevitable accident and excepting any risk against which the lessor is insured by [sic] not consequential damage due to the neglectful act or default of the lessee following upon such tempest, earthquake, flood, subsidence of soil or inevitable accident and will ensure that interior repainting and redecoration are attended to such extent as shall be necessary to maintain the interior condition of the building in their present good order and condition throughout the term of this lease and at the expiration or sooner determination of this lease the lessee will yield up the demised premises including the lessor’s fixtures and fittings (if any) and all windows, doors, sashes, frames and lock in such repair as shall be consistent with the due performance by the lessee to the provisions of this lease. Any renovations or redecoration to the interior of the demised premises required by the lessee or by the provisions of this clause shall be done by and at the costs of the lessee.
[43] It was the submission of the plaintiff that:
10.On the plain and ordinary words of clause 8 the Defendant assumes the obligation to
•keep and maintain the interior of the premises…in the same repair, order and condition as each was at the commencement of the term (27 September 2004);
•at the expiration or sooner determination of the Lease yield up the premises in such repair as is consistent with the
Defendant’s performance of its maintenance obligations under the Lease.
11. The spas, the showers and at the very least that part of the heat pumps inside the motel units are all part of the interior of the premises.
12.Accordingly, from 16 October 2006 the Defendant had an obligation to keep and maintain the spas, showers and heat pumps present at that time in the repair, order and condition they were in as at 27 September 2004.
13.It is apparent that the spas and showers in the studio block were upgraded just prior to and after the Defendant taking possession of the premises on 16 October 2006. Naturally clause 8 applies to these as from the date they were installed.
14.Nor can the Defendant’s failure and refusal since then to maintain and repair these items relieve the Defendant of this obligation, otherwise the Defendant will be the beneficiary of its own breach.
…
[44] The position that the defendant took was stated in the following submission:
21.It is submitted that that the interior of the premises does not include lessee chattels, fixtures or fittings. This is clear from the use of the term “including the lessor’s fixtures and fittings (if any)”. If interior included fixtures and fittings then there would be no need to include the phrase “including the lessor’s fixtures and fittings (if any)”. Therefore it must follow that the clause excludes lessee’s chattels, fixtures and fittings.
[45] The defendant submitted further that:
24.It is respectfully submitted that clause 8 of the lease agreement does not create any obligation that the Defendant maintains and/or repairs any of its own chattels. Therefore the plaintiff’s claim that the defendant has an obligation to do so cannot succeed.
[46] Counsel for the defendant did not attempt an analysis of the underlying logic behind that submission but I understand her to say that in general terms, it would be surprising if contractual arrangements would be construed in a way which confers on Party A an entitlement to require Party B to maintain its own chattels. While that might be so in general terms, the particular relationships which these parties have with each other can justify the view that the proposal is not as
outlandish as it might first seem. There is no doubt that the lessor, as owner of the premises, has an interest in the property being maintained. While in general terms the owner has an interest in the maintenance of fixtures and fittings but circumstances might arise where the owner is unable to carry out needed maintenance. There might be an unwillingness to do so or financial problems which makes maintenance a difficult proposition for the lessee. In such circumstances the acquisition of a contractual right to compel maintenance may be necessary to secure the position of the lessor.
[47] It was part of the defendant’s case that the listed items would have been treated at common law as tenant’s fixtures. Accordingly the defendant would have the right to remove the fixtures at the conclusion of the tenancy.2 The reference to the common law rules was necessitated, Ms Cook submitted, because the present lease was not governed by the Property Law Act 2007. She submitted that the law governing the ability of tenants to remove “tenant’s fixtures” and related matters is now governed by the Act in applicable cases.
[48] Assuming that the submission is correct for present purposes, as I am prepared to do, it does not decide the question which I am required to consider. While the propositions which Ms Cook put forward might govern the position where there has been a termination of the lease and removal of the fixtures, in the factual circumstances of this case that has not occurred. The lease is still on foot and the parties are still functioning as the lessor and lessee of an operational motel. The possibility of removal of the fixtures at the conclusion of the tenancy would not exonerate the lessee from any obligations it had under clause 8 in the meantime.
Discussion of the effect of clause 8
[49] Under clause 8 the lessee has the obligation to maintain the interior “including the lessor’s fittings and fixtures”. The quoted words may have been intended to remove any doubt that the fittings and fixtures form part of the interior. However, they are also apt to remove any doubt that the lessee must maintain items
of property even though they belong not to the lessee but to the lessor and that may
2 Short v Kirkpatrick [1982] 2 NZLR 358 at 362 – 363.
have been the reason for their inclusion. I do not agree with the defendant that the effect of the quoted words is to limit the obligation to maintain the interior only to so much of the interior as is made up of “lessor’s fittings and fixtures”. In my view the words were inserted out of an abundance of caution to make it clear that the expression that preceded it also extended to “lessor’s fittings and fixtures”.
[50] The definitions of “interior” in the Shorter Oxford English Dictionary include “the interior part of something, the inside”. I consider that the word was intended by the parties to have that meaning in the lease document. Clause 8 therefore had the effect of imposing on the lessee an obligation to maintain the interior part or inside of the demised buildings and that the parties intended that there should be included within the ambit of that expression, the lessor’s fittings and fixtures.
[51] On the basis of the interpretation that I would adopt of clause 8, the lessee had an obligation to maintain the listed items, even though acknowledged to be its property, because they are part of the “interior” of the motel. The historical reasons concerning how they came to be part of the interior of the motel including who originally owned them, would on this view of matters be of background interest only. Were it otherwise, it would make it very difficult to achieve the commercial objective of ensuring that the motel as an overall entity was properly maintained. There would be a potential lack of uniformity as to who had the obligation to maintain different parts of the interior.
[52] Requiring the lessee to contribute to maintenance, having regard to the fact that what was being maintained was its own property and having regard to the fact that contributions from the maintenance fund would be available (as I determine in the following section of the judgment), does not seem a harsh or burdensome measure that the lessee would regard as unreasonable.
[53] I consider that there is another argument which supports the approach that I intend to take and that is the term “interior of the premises” used in clause 8 is a wide one. It would not in my view be justified for the Court to read down the expression to exclude from the interior of the building the items which belong to the
lessee. The lessor has an interest in the entire premises being maintained and not just
those items which individually could be traced to the lessor’s ownership.
[54] In my view, the effect of clause 8 is that the listed items were part of the
interior of the building and it was the lessee’s obligation to maintain them.
The maintenance fund
[55] The next matter concerns the entitlement of the defendant to access the maintenance fund.
[56] The operative provision of clause 3 provides:
The Maintenance Fund
That in addition to the rental and all other moneys payable hereunder, the lessee shall pay into a maintenance fund a sum equal to 4 per centum of the annual rental from time to time payable under this lease. …
The said fund in that bank account shall be specifically for the lessee’s maintenance obligations under the lease but excluding repairs or replacements of any of the lessee’s chattels. The lessor acknowledges that the monies paid into the maintenance fund by the lessee from time to time shall only be used in respect of maintenance and other items of upkeep which are the responsibility of the lessee under the terms of this lease. …
[57] The question that then arises is whether the listed items fall into the category of “lessee’s chattels” in which case the lessee would not be entitled to resort to the maintenance fund.
[58] The starting point is to examine the provisions of the lease generally to obtain any guidance from it as to what is intended by the term “lessee’s chattels”.
[59] The lease seems to draw a distinction between fixtures, on the one hand, and chattels on the other. Clause 12 states in part:
Partitions and fittings
That the lessee shall have the right to erect in the demised premises any partitions, fittings, fixtures, interior alteration or additions necessary for the purpose of conducting the lessee’s business other than those of a structural nature ...
[60] The clause also makes provision for the lessor having the right at the expiration of the term or sooner determination of it to acquire the items described above at valuation, or alternatively to be entitled to require the lessee to remove them. In the event that the lessee removes the partitions, fittings, fixtures, interior alterations or additions, the lessee has an obligation to restore the “demised premises to the like state and condition in which the same were” before the erection of the items in question.
[61] Separate treatment is provided in paragraph 14 to chattels. The clause states the following:
Re-purchase of chattels
That on the expiration of the term of this lease or in the event of any prior termination or surrender of this lease the lessor shall have the first option (to be exercised within one month of the date of expiry termination or surrender) of purchasing the chattels used in connection with the motel business conducted on the demised premises at a price to be agreed upon between the lessor and lessee and that should the parties be unable to agree upon such a price the option herein contained shall lapse.
[62] Clause 14 has in contemplation different items of property from those which clause 12 deals with. The different treatment of the items broadly recognises the distinction between fixtures and fittings, on the one hand, and chattels on the other.
[63] It would seem to follow that the same distinction is what underlines the use of the term “the lessee’s chattels” in clause 3. My conclusion is therefore that the listed items are not chattels and therefore not subject to a “carve out” from the provisions of clause 3 which confers on the lessee the right to have recourse to the maintenance fund for maintenance.
[64] I also conclude that for the purposes of clause 3, the fixtures and fittings (those that are owned by the lessee and not the lessor) are not to be treated as the lessee’s “chattels”. That term only applies in my view to items which are in common usage to be described as “chattels” and not to items such as shower units, spas and heat pumps. These items have a degree of annexation to the demised premises and were attached to the premises for purposes of the lessee’s business. I consider the
listed items to be a “trade fixture” which includes “any item that is an essential
feature of the land or building when used for its intended purpose”.3
[65] Because such maintenance comes within the provisions of clause 3, the defendant is entitled to have resort to the maintenance fund.
Mistake
[66] The defendant puts forward a defence to the effect that it entered into the
November 2008 agreement under a mistake.
[67] The defendant’s submission on the question of mistake is difficult to follow. It is stated in the following terms in counsel’s submissions:
46.This is not a mistake as to interpretation but an argument that the Defendant was influenced to enter the agreement due to mistake. The mistake being that the Defendant owned the chattels in dispute. Each category of mistake requires the parties seeking relief to demonstrate that they were influenced by the mistake in their decision to enter the contract. As the Defendant believed that he owned the chattels this influenced them to enter the agreement as he was not aware of the implications of such. The affidavit of Mr Bulman for the Defendant outlines his reason for the belief that the Defendant owned the chattels and how he was influenced by such.
[68] I have already concluded that the contract which the parties entered into while resolving the question of ownership of the listed items did not make any provision in respect of their maintenance. The obligation to maintain rests with the lessee, I have concluded, because of the terms of the lease. The obligation under the lease was assumed without any operative mistake being involved.
[69] Further, the objective circumstances disclosed that there was doubt as to who owned the listed items. That doubt was well justified. The purpose of the agreement was to resolve those doubts. It is quite inconsistent with the purposes of the agreement for the defendant to now contest that the defendant far from being
unclear about the ownership of the listed items had a firm view that it was the owner.
3 Tom Bennion and others New Zealand Land Law (2nd ed, Brookers, Wellington, 2009) at
[8.12.02(5)].
One has only to ask why, if that was the case, did it enter into the agreement that it did.
[70] Therefore, the conclusion must be that there is no credible basis for the defendant to assert that there is a reasonable argument available to it that it was labouring under a mistaken belief.
[71] Further, even if it is assumed that the effect of the contract was as the defendant states and even if the defendant had a mistaken view on that matter, there is no evidence which would lay the foundation for an arguable defence that the plaintiff shared the defendant’s mistake.
Estoppel
[72] Given the conclusion that I have come to as to the effect of clause 8, it is not necessary to express a view on the alternative argument for the plaintiff that statements by the defendant gave rise to an estoppel, the effect of which was to oblige the defendant to maintain the listed items.
Summary of conclusions
[73] I consider that the 2008 agreement did no more than to confirm that it was the lessee who owned the listed items. The agreement did not make any provision for maintenance of those items. However, having regard to the nature of the items, they are apt to be considered part of the interior of the motel and therefore the responsibility falls on the lessee to maintain because of the provisions of clause 8. Further, the lessee would be entitled to have resort to the maintenance fund when maintaining those items which are not to be regarded as “the lessee’s chattels” within the meaning of clause 3 of the lease.
Form of relief
[74] Mr Withnall on behalf of the plaintiff explained to me that the reason why the plaintiff sought a declaration was that it had not been possible for the parties to agree on what the obligations of the lessee were, if any, to maintain the listed items.
Rather than pursuing a remedy in specific performance or a damages claim, it was considered preferable to seek a declaration.
[75] Ms Cook on behalf of the defendant accepted that if her submissions on the question of liability were not accepted, she did not oppose the grant of a declaration.
[76] I intend to grant a declaration and the next issue is concerned with the form of that declaration.
[77] I would not be prepared to issue a declaration in the form in terms of which it is proposed in the statement of claim. That is because I consider that a declaration in that form might expose the defendant to obligations which the lease does not in fact impose upon it. I do not consider, in particular, that it is sufficient to declare that the defendant has an obligation to “keep [the listed items] in good order and repair”. The obligation to maintain is a rather more nuanced one than that. Under clause 8, the lessee is to maintain the interior “in the same repair, order and condition” as it was at the commencement of the lease term and it must have regard to “fair wear and tear”, amongst other matters.
[78] I consider that the appropriate course to take is to issue a declaration in the following terms:
(a) A declaration that it is the obligation of the defendant to maintain the items pleaded in paragraph 9(c) of the statement of claim in accordance with the terms of the lease, including clause 8.
Result
[79] The application for summary judgment is granted. There will be a declaration in the terms set out above.
[80] The parties should confer on the matter of costs and if they are not able to agree are to file memoranda not exceeding five pages on each side within 10 working days of the date of this judgment.
J.P. Doogue
Associate Judge
0
0
1