Camelot Court Motel Ltd v Anderson

[2012] NZHC 153

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2011-419-21 [2012] NZHC 153

BETWEEN  CAMELOT COURT MOTEL LIMITED Plaintiff

ANDWARREN BRUCE ANDERSON AND MARGARET ELLEN ANDERSON Defendants

Hearing:         8 February 2012

Appearances: E J Hudson for Plaintiff

P D Allan for Defendants

Judgment:      15 February 2012 at 4:00 PM

JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on

15 February 2012 at 4:00pm

pursuant to Rule 11.5 of the High Court Rules

……………………………………………..

Registrar/Deputy Registrar

Solicitors:

Niemand Peebles Hoult (K L Hoult), P O Box 1028 Hamilton 3240, for Plaintiff

Email:   [email protected]

Kellaways, P O Box 19 379 Hamilton 3244, for Defendants

Email:   [email protected]

Copy for:

E J Hudson, P O Box 19252, Hamilton 3244

Email:   [email protected]

Peter D Allan, 26 Thackeray Street, Hamilton 3204

Email:   [email protected]

CAMELOT COURT MOTEL LIMITED V WARREN BRUCE ANDERSON AND MARGARET ELLEN ANDERSON HC HAM CIV-2011-419-21 15 February 2012

Introduction

[1]      Mr and Mrs Anderson are the lessees of the Camelot Court Motel in Ulster Street, Hamilton.  The plaintiff is their landlord.  Part of the motel premises are, in turn, leased from Tainui Corporation Ltd under a perpetually renewable lease (the head lease).  Under the motel lease, the Andersons not only pay rent to the plaintiff, but they also separately pay the plaintiff the ground rent under the head lease.   Until May 2007, the ground rent was $14,060 plus GST per annum.    That had been the ground rent since 31 May 1986.  In December 2006 the rent under the motel lease came up for review.  On 28 February 2007, the plaintiff gave Mr and Mrs Anderson notice under the lease that the new rent for the motel would be set at $364,580.36 per annum  excluding  GST.    That  was  an  increase  over  the  current  annual  rent  of

$285,000 excluding GST. The motel lease rent review provisions allowed the defendants  to  give notice objecting to  the proposed  new rent,  but  Mr and  Mrs Anderson did not do so. The head lease fell for renewal in May 2007. A new ground rental was negotiated with Tainui Corporation Ltd.   The new ground rental was

$108,000 plus GST per annum, payable from 1 June 2007.   The Andersons acknowledge that the new ground rent of $108,000 plus GST per annum is a reasonable ground rental.  However, since 1 June 2007 they have continued to pay the  plaintiff  for  ground  rent  at  the  old  rate  of  $14,060  plus  GST  per  annum (a monthly rate  of $1318.12  including  GST).   Their  objection  is  that  when  the amounts they pay for ground rent are taken into account, along with the increased motel rent of $364,580.36 excluding GST and other charges, the total they pay for the premises is more than a fair market rental.  The matter for decision is whether their objection gives them grounds in law not to pay the new ground rent.

[2]      The plaintiff has sued them for the shortfall in the ground rent payments.  It also claims interest, damages and its legal costs in negotiating the new ground rental. The plaintiff has applied for summary judgment.

[3]      Mr and Mrs Anderson raise these defences:

(a)      They say that the motel lease expired on 30 May 2007 and no new memorandum of lease has been entered into since then.  They have continued in occupation by way of holding over and have continued to pay rent at the rate fixed in the rent review of December 2006. They have also continued to pay the head lease at the rate payable up until

30 May 2007. They are not required to pay more;

(b)They say that the rent review of December 2006 ought to have taken into account the likely increase in the ground rent, and that the rent fixed in February 2007 failed to take that into account.  They rely on the ―proper construction‖ of the motel lease or on an implied term of the motel lease;

(c)      They are entitled to claim relief under the Contractual Mistakes Act for the rent review in February 2007;

(d)They are entitled to relief for the rent review of 2006-7 as an unconscionable bargain; and

(e)      The plaintiff has been unjustly enriched. The last two defences were not included in the notice of opposition, but were raised in the Andersons’ written submissions.

The head lease

[4]      The parts of the motel premises at 231 Ulster Street, Hamilton, which are subject to the head leases are in identifiers SA738/263, SA47C/84 and SA738/264. These cover about four-fifths of the motel premises.  The original head lessor was the Waikato Hospital Board, but there were later changes in ownership of the reversion to Her Majesty the Queen, then the Tainui Maori Trust Board, and on or about 14 March 2007, Tainui Corporation Ltd.   The head leases are perpetually renewable leases under the Public Bodies Leases Act 1969.   The rent under the leases is payable by 12 equal monthly payments in advance.  By a memorandum of extension and variation of lease of 12 May 1986, the term of the lease was renewed

until  31  May  2007.     Camelot  Court  Motel  Ltd  became  registered  lessee  on

30 November 1990.

[5]      On the expiry of the head leases on 31 May 2007, there was a common expectation on the part of Tainui Corporation Ltd and Camelot Court Motel Ltd that the leases would be renewed, subject to a new rent being fixed.   The head leases provided that if the lessee wished to renew the leases, it had to give written notice between twelve and six months before the head lease expired.  Camelot Court Motel Ltd did not give notice until May 2007, and that was oral.  Tainui Corporation Ltd did not take the point about late notice and accepted that the lease would be renewed. In fixing the new ground rent, Tainui Corporation Ltd initially dealt directly with the Andersons, but later dealt with Camelot Court Motel Ltd.   Mrs Boe of Camelot Court  Motel  Ltd  kept  the  Andersons  informed  of  the  negotiations.     Tainui Corporation  Ltd  and  Camelot  Court  Motel  Ltd  agreed  on  an  annual  rental  of

$108,000 plus GST per annum for the three head leases.  New head leases have since been signed but were not registered until February 2011. The sum of $108,000 was a compromise  figure.    The Andersons  had  obtained  a  report  from  a  valuer  who proposed a rent of $106,000 plus GST per annum.  The Tainui Corporation Ltd had initially proposed a higher figure of $118,500 plus GST per annum.  Camelot Court Motel Ltd has paid the new rent even though it has not been fully reimbursed by the Andersons.  The Andersons do not take issue with the sum of $108,000 plus GST per annum as an appropriate ground rent for the three head leases.

The motel lease

[6]      The motel lease between Camelot Court Motel Ltd and the Andersons is dated 9 December 2002.   The document is a memorandum of lease, rather than a deed of lease, and there is provision for it to be certified correct under the Land Transfer Act 1952.   It has the information required under s 115(2) of that Act. Registration  under  that Act  was  clearly contemplated.    The  motel  premises  are defined to include the three leasehold properties the subject of the head leases, and an additional freehold lot.   The commencement date of the lease is 12 December

2002.    As  originally  prepared,  the  lease  provided  that  the  term  was  25  years.

However, those typewritten words were struck out and instead the words ―expiring

on 30 May 2007‖  were put in.  That day is one day short of the term of the head leases.   The handwritten alteration was clearly made to prevent this sub-lease becoming an assignment of the head lease, under the law as it stood before the Property Law Act 2007 came into effect on 1 January 2008.1

[7]     The handwritten alteration to the term of the lease is explained by correspondence attached to the affidavit of Mr Anderson.  LINZ had not accepted the motel lease for registration because the term of the sub-lease was longer than the terms of the original head leases. The lawyers for both sides conferred and agreed on the handwritten amendment, following which the leases were successfully presented for registration.

[8]      Clause 2.7.2 of the lease says:

2.7.2    Term and Right of Extension:

2.7.2.1The Lessor has leasehold title of the part of the premises by virtue of Head Leases.

2.7.2.1The Lessee takes the premises on such terms as are required to achieve, for the Lessee, tenure of the premises for a period of 25 years from the lease Commencement Date.  This lease shall not operate as an assignment of the Head Leases or any of them or part of them.

2.7.2.3The    term    of    this    lease    shall    commence    on    the Commencement Date and, notwithstanding other provisions of this lease, expire  1 day before the expiry date of the respective Head Leases.   This lease shall be automatically extended without further documentation from the Commencement  Date  of  the  next  term  of  the  respective Head Leases until a date 25 years from the Commencement Date of this lease.

2.7.2.4The Lessor shall hold the premises on trust for the Lessee on that last day of the current term of each respective Head Lease.

2.7.2.5The Lessor shall give all notices and do all acts, matters and things necessary to extend head leases and each of them for further terms to ensure the Lessee has a lease of the premises for the period provided in this lease.

1 G W Hinde ―Leasehold Interests‖ in Hinde McMorland and Sim Land Law in New Zealand

(looseleaf ed, LexisNexis) at [11.211].

[9]      The rent is payable monthly in advance.   In addition, the lessee is to pay outgoings on the property, including charges for telephone, gas, electricity, water and rubbish disposal, rates, taxes and insurance.  Under clause 1.4, the lessees must also pay the lessor all rents, costs and charges of any kind payable by the lessor to the head lessors under the head leases and must comply with the terms of the head leases.   The lessees must indemnify the lessor against all costs, claims, damages, expenses, acts and proceedings free of breach of covenant or otherwise under the head leases occasioned by any breach of the lessee of any covenants in the lease.

[10]     Under clause 1.11, the lessee also pays seven per cent of the annual rent into a maintenance account.

[11]     Under clause 1.19, the lessee is required to pay the lessor interest on any rental or other monies owing which are 14 days overdue at a rate that is five per cent above the lessor’s bank’s overdraft rate that prevails from time to time.  The interest is compounded with monthly rests and is recoverable as rent in arrears.

[12]     Under clause 3.7, rent is reviewable every two years from the commencement date.  The lessor begins the review by giving written notice to the lessee specifying the rent the lessor considers to be the current market rent as at the review date (3.7.1.1).

[13]     Under 3.7.1.2, the lessee may give written notice to the lessor within 14 days of receipt of the lessor’s notice disputing that the proposed new annual rent is the current rent, but there is a ratchet provision that the new rental not be less than the rent payable before the review date.

[14]     Under 3.7.1.3, if the lessee fails to give notice, time being of the essence, the lessee is deemed to have accepted the annual rent specified in the lessor’s notice and the annual rent so determined or accepted will be the annual rent from the review date.

[15]     Under clause 3.7.1.5, pending the determination of a new rent, the lessee pays the  rent  specified  in  the  lessor’s  notice,  if  the  rent  in  the  lessor’s  notice  is substantiated by a registered valuer’s report obtained at the sole cost of the lessor.

[16]     Under 3.7.2 there are provisions for resolving rent if the parties are unable to agree.    The  procedures  include  time  for  negotiation,  the  parties  giving  notice requiring the matter to go to arbitration or for determination by valuers acting as experts.

[17]     Clause 3.7.3 says:

That in determining the current market rental of the premises the following shall apply:

3.7.3.1The value of any goodwill attributable to the lessee’s business (but not to the site), any deleterious condition to the premises if such condition results from any breach of this lease by the lessee, the value of the lessee’s fixtures and fittings in the premises, any increased rent payable pursuant to clause 3.2.1, and any effect on rent or the fact that the lessee has been in occupation of the premises shall be disregarded; and

3.7.3.2It shall be accepted that a motel, restaurant, bar, and conference facility is the highest and best use of the premises.

...

3.7.3.4The lessee shall, immediately upon giving the lessee’s notice to the lessor,  give  to  the  lessor  all  business  accounts  for  the  business carried on at or from the premises for a period not less than two years prior to the review date, such accounts to include turnover figures, expenses, occupancy rates, GST and taxation returns.

[18]     Clause 3.16.1 provides that :

The lessee shall pay the lessor’s solicitors reasonable costs of and incidental to the preparation of the documentation relating to any extension, variation, surrender or renewal of the lease and the lessor’s legal costs (as between solicitor and client) of and incidental to the enforcement or attempted enforcement of the lessor’s rights or remedies under the lease.

[19]     There was a rent review at the end of 2004.  According to Mr Anderson, the plaintiff  proposed  setting  the  new  rent  at  $385,000  plus  GST  per  annum. Mr Anderson counter-offered $285,000 plus GST per annum and that was accepted. That took effect from 12 February 2005.

Rent Review: December 2006

[20]     The plaintiff sent the defendants an email on 8 December 2006 giving notice that the rent was to be reviewed on 12 December 2006.  For the plaintiff, Mrs Boe requested information to be made available.  The defendants replied, proposing that the  existing  rent  remain  unchanged  and  declined  to  provide  the  information requested.   Correspondence followed, which resulted in the defendants providing financial information for the plaintiff.

[21]     On 18 February 2007, Mrs Boe wrote to the Andersons giving proposals for a new rent.   These were calculated by reference to a percentage of the Andersons turnover. The Andersons did not reply.

[22]     On about 28 February 2007, Mrs Boe sent an email to the Andersons giving notice under clause 3.7.1.1 that the annual rental would be set at $364,580.36 plus GST. Time for the Andersons to reply ran from that date.

[23]     On 6 March 2007, the Andersons sent an email to Mrs Boe.  This was within the 14 day period under clause 3.7.1.2 of the lease although the Andersons’ letter suggested they were under the impression they had missed a seven day time limit. The Andersons’ letter raises points of the sort that a tenant might raise in response to a landlord’s proposed rent review, but the letter begins:

―We  must acknowledge the new lease amount of $364,580.36 as per your

fax.‖

[24]     The new rent was fixed at that amount.  The Andersons started paying rent at that rate and also paid an amount that was back-dated to 12 December 2006.  The parties’ correspondence put in evidence does not show that either party raised a potential  increase  in  ground  rent  as  a  relevant  consideration  in  fixing  the  rent. Neither side referred to valuation advice they had received fixing the rent.  There is no evidence that either side had taken valuation advice in fixing the rent.

The plaintiff ’s case

[25]     The plaintiff’s case is that under clause 2.7.2.3 of the lease, the lease did not come to an end on 30 May 2007 but on the head lease being renewed, the motel lease was automatically extended without having to be documented.  The terms of the extended lease were the same as the terms of the lease before the extension.  It includes the terms for the Andersons to pay Camelot Court the amount of the ground rent.  The Andersons are required to pay the amount of the rent under the renewed head leases at the rates negotiated between it and Tainui Corporation Ltd. Accordingly, its claim for payment of unpaid ground rent is valid and enforceable.

Andersons’ first defence – expiry of motel lease

[26]     The Andersons say that the motel lease expired on 30 May 2007 and has not been renewed or extended.  While they are in occupation as lessees, they are holding over after the lease expired.   They are tenants at will.   They say that under that tenancy, they should pay a fair market rent rather than the rent under the motel lease and the ground rent under the head leases.   Their case is that they have paid and continue to pay that fair market rent.

[27]     If the Andersons’ argument is right, they will be in a vulnerable position with Camelot Court Motel Ltd.  Their lease was intended to run for twenty-five years, but if there is a tenancy at will under s 105 of the Property Law Act 1952,2 they may be required to leave on one month’s notice in writing.

[28]     The Andersons’ argument focussed on the term of the lease at law.  As the lease was for more than three years,3  there would be a valid lease at law only if it were registered under the Land Transfer Act.  As it was a sublease, it could not run for longer than the head lease. It expired on 30 May 2007.  If the lease were to be extended beyond that date, the parties would have to register a variation under s 116

of the Land Transfer Act:

2 Under s 2 of the Property Law Act 2007, s 210 does not apply as that Act did not come into force until 1 January 2008.

3 Land Transfer Act 1952, s 115.

116   Variation of lease

(1)      A lease variation instrument is required for the purpose of varying, in respect of any lease registered under this Act,—

(a)      the term of the lease by way of extension; or

(b)      the covenants, conditions, and restrictions contained in the lease...

The  automatic  extension  provision  of  clause  2.7.2.3  of  the  motel  lease  was ineffective to extend the lease at law.  Further conveyancing was required and that had not been done.

[29]     The Andersons’ argument is correct, as far as it goes.   Clause 2.7.2.3 is ineffective at law to extend the lease beyond 30 May 2007.  The difficulty is that the automatic extension is meant to operate with effect from the commencement date of the next term of the head lease, 1 June 2007. Somehow the extension is meant to leapfrog over 31 May 2007, although the motel lease had expired the day before. The effect of the gap at 31 May 2007 is that one lease came to an end on 30 May

2007 and another started on 1 June 2007.   That is highlighted by clause 2.7.2.4, under which Camelot Court Motel Ltd holds the premises on trust for the Andersons on 30 May 2007.  That clause would not be necessary if there were a true extension of the motel lease.

[30]     However, the Andersons’ argument ignores the effect of the lease provisions at equity.  Equity looks on that as done which ought to be done.  The parties clearly provided that the motel lease would continue after renewal of the head leases. Camelot Court Motel Ltd had undertaken in clause 2.7.2.5 to do all things necessary to extend the head leases to ensure that the Andersons have a lease of the premises for twenty-five years.   The Andersons could rely on those provisions to prevent Camelot Court Motel Ltd evicting them after 30 May 2007 on the alleged ground that the motel lease had expired.  The Andersons could require the conveyancing to be carried out at their cost to give them a registered lease with effect from the commencement date of the renewed head leases.  Camelot Court Motel Ltd correctly

submitted that this is case where Walsh v Lonsdale4  applies.   There, Sir George

Jessell MR said:5

There is an agreement for a lease under which possession has been given. Now since the Judicature Act the possession is held under the agreement. There are not two estates as there were formerly, one estate at common law by reason of the payment of the rent from year to year, and an estate in equity under the agreement. There is only one Court, and the equity rules prevail in it. The tenant holds under an agreement for a lease. He holds, therefore, under the same terms in equity as if a lease had been granted, it being a case in which both parties admit that relief is capable of being given by specific performance. That being so, he cannot complain of the exercise by the landlord of the same rights as the landlord would have had if a lease had been granted. On the other hand, he is protected in the same way as if a lease had been granted; he cannot be turned out by six months' notice as a tenant from year to year. He has a right to say, "I have a lease in equity, and you can only re-enter if I have committed such a breach of covenant as would if a lease had been granted have entitled you to re-enter according to the terms of a proper proviso for re-entry." That being so, it appears to me that being a lessee in equity he cannot complain of the exercise of the right of distress merely because the actual parchment has not been signed and sealed.

[31]     Under this approach, equity will give effect to the provisions of the lease.  As the lease was clearly intended to run on after renewal of the head leases, equity will not treat it as terminated as at 30 May 2007.  The Andersons have not held over.  The parties were entitled to hold each other to the covenants under the lease after 30 May

2007.  Camelot Court Motel Ltd is entitled to payments for ground rent falling due after 30 May 2007.

[32]     The second part of the Andersons’ expiry argument was that while holding over they should pay only a fair market rental.   For that they relied on Dean & Church of Christ Canterbury v Whitbread.6    In that case, the tenant had held over, while the parties negotiated the amount of a new rent, if the lease were to be renewed.  The tenant paid rent at the rate under the expired lease. When they could not reach agreement, the tenant moved out.  The landlord sued for a rent in excess of what the tenant had been paying and succeeded.  The Court held that whether the

terms of the former tenancy apply is a matter of evidence, not of law.

4 Walsh v Lonsdale (1882) 21 Ch D 9 (CA).

5 Ibid, at 14-15.

6 Dean & Church of Christ Canterbury v Whitbread (1995) 72 P & CR 9 (Ch D).

[33]     If a tenant holds over and there is nothing to show a different understanding, the tenant will be considered to hold on the terms of the former tenancy.   In Braidwood v Dunn Stout CJ said:7

It was said by Lord Mansfield that holding over by consent is a tacit renovation of the contract: Right v Darby... See also Dougal v McCarthy ... In Smith's Leading Cases it is said: "Where the party so occupying pays rent according to the terms of the agreement, either past or future, and thereby becomes tenant from year to year, the inference is irresistible, in the absence of anything to show a different understanding, that the parties intend the occupation to continue upon such of the terms of the agreement as are not inconsistent with such tenancy.‖

Feltex New  Zealand  Ltd  v Nielsen Property  Management  Ltd8   and  Macaulay  v

Wesley College Trust Board9 are to similar effect.

[34]     In this case there is no evidence to suggest that if the Andersons were holding over after 30 May 2007, the terms of their tenancy at will were any different from the motel lease.  In particular they were required to pay Camelot Court Motel Ltd the amounts of the rent under the head leases, as they might be fixed from time to time. The holding over argument does not relieve them from paying the full amounts of the ground rent.

Andersons’ second defence – contract interpretation

[35]     The Andersons’ second defence is that the motel lease requires that on any rent  review  the  amount  of  the  ground  rent,  including  any  foreseeable  increase, should be taken into account in fixing the new rent.  This was said to be part of the lease on its proper construction or a term to that effect should be implied.  In support, an experienced registered valuer deposed that in fixing the current market rental for the December 2006 review, the parties should have made an estimate of the probable new ground rent and should have taken that into account in determining the current market rent to be paid under the review.  That matter is really a question of fact.  As a matter of valuation, outgoings on the premises payable by the lessee are a relevant

consideration when fixing the rent payable by the lessee on a rent review.  The rent

7 Braidwood v Dunn [1917] 269 at 272

8 Feltex New Zealand Ltd v Nielsen Property Management Ltd [1974] 2 NZLR 292 at 293.

9 Macaulay v Wesley College Trust Board (1999) 8 NZCPR 194.

review provisions allow for disputes under a rent review to be referred to arbitration or by valuers acting only as experts to fix the current market rent.  Under such an arbitration or determination by experts, the ground rent payable by the sublessee will be taken into account.  Because it will be taken into account when independent third parties fix the rent, the parties may also take it into account at earlier stages, as when the lessor first gives notice of a proposed rent under clause 3.7.1.1, or when the parties negotiate a new rent after the lessee disputes the lessor’s notice.  But the fact that the ground rent will arise as a relevant consideration on a determination by independent experts or an arbitrator and may be taken into account by the parties, does not mean that the motel lease has to be construed as requiring it to be taken into account.   There are no express words in the motel lease to that effect.   It is not necessary to imply them – the lease is workable without them.

[36]     During the hearing, the Andersons accepted that the construction argument was not directed at allowing the court to review the December 2006 rent review on its merits.  Instead, the construction argument was being run as a preliminary step to the defence relying on the Contractual Mistakes Act 1977.   As errors in the interpretation of a contract are not relevant mistakes under that Act,10  there is no harm to the Andersons’ case if their argument as to the relevance of the ground rent in fixing the motel rent is treated as a matter of fact rather than as a matter going to the meaning of the motel lease.  The result is that the argument as to construction of the  motel  lease  and  implied  terms  is  not  a  stand-alone  defence,  but  is  to  be

considered as part of the defence under the Contractual Mistakes Act.

Third defence – Contractual Mistakes Act

[37]     The Andersons say that they made a mistake at the time of the December

2006 rent review so as to give them a right to claim relief under the Contractual

Mistakes Act.   For Camelot Court Motel Ltd, Mrs Boe had written to them on

18 February 2007 setting out a case for applying a rental based on a percentage of turnover and giving indicative figures.   On 28 February 2007, she wrote again,

giving notice under clause 3.7.1.1.  Mr Anderson says:

10 Contractual Mistakes Act 1977, s 6(2)(a).

My wife and I were influenced in accepting and agreeing to the revised rental of $364,580.36 plus GST per annum as a result of a mistaken belief that it was one of the acceptable industry bases to set the current market rental by reference to a percentage of approximately 35% of gross turnover of the motel even though the Plaintiff was not the freehold owner of the whole of the land upon which the Camelot Court Motel is situated.   The further mistake we made was that in setting the new rental we had not taken account of the fact that the Head Lease rental was likely to increase significantly (in fact it was seven fold) in a matter of a few months.  But for our mistakes we would not have agreed to a new rental of approximately

$365,000 plus GST per annum.   We were influenced by our mistakes in agreeing to such new rental.

[38]     Mr Anderson also suggests that Mrs Boe shared the same mistake as to the acceptable  industry  basis.    Mrs  Boe  denies  that  she  shared  that  mistake.    Her evidence is that when she gave notice that the rent would be $364,580, she took into account that the head leases would be due for renewal in May 2007 and the rent would most likely significantly increase.  In reply, the Andersons say that in that case Mrs Boe must have known of the Andersons’ mistake.

[39]     The court can give relief under the Contractual Mistakes Act only if the person claiming relief has entered into a contract.  So the applicable contract must be identified.  It cannot be the motel lease, because the alleged mistake occurred under the December 2006 rent review after the lease had been in force for some years. The alleged mistakes cannot have influenced either of the parties to enter into the motel lease.  The Andersons say that the relevant contract was the fixing of the rent under the December 2006 rent review.  Camelot Court Motel Ltd denies that there was any agreement fixing the rent.  It says that it set the new rent unilaterally when it gave its notice of 28 February 2007 under clause 3.7.1.1, and the Andersons did not give a notice under clause 3.7.1.2 disputing the rent.  Its case is that the Andersons simply acquiesced and paid the new rent as fixed.  On the other hand, the Andersons say that their letter of 7 March 2007 is their acceptance of the rent proposed by Mrs Boe and that acceptance resulted in a contract, which can be the subject of an application under the Contractual Mistakes Act.  The difference between the parties turns on the Andersons’ letter of 7 March 2007: is it an acceptance concluding a contract or simply acquiescence in Camelot Court Motel’s unilateral rent-fixing? The first paragraph of the letter runs:

We must acknowledge the new lease amount of $364,580.36 as per your fax. Unfortunately for us we were occupied on a matter outside the Motel & missed the 7 day clause.  However there are a few relevant points we would still like to bring to your attention.

[40]     The letter outlines a number of matters that could be material to fixing the rent, including:

MANZ recommends 28%-32% of turnover as fair rental, you expect 35%.

[41]     The Andersons were under the impression that they were out of time for disputing the rent proposed by Mrs Boe.  The letter shows that if they were within time they would have disputed it.   They acquiesced in the new rent because they believed that they had no choice, but they did not agree with it.   There was no agreement between the parties to fix the new rent at the figure proposed by Mrs Boe. In the absence of an agreement, the Andersons cannot apply for relief under the Contractual Mistakes Act.

[42]     In case I am wrong on that point, I consider whether the Andersons have an arguable claim for relief under the Act, if the parties are held to have agreed on the new rent.  It is necessary to consider the mistakes described by the Andersons.  The first mistake is their belief that it was one of the acceptable industry bases to set the current market rental by reference to a percentage of approximately 35% of gross turnover of the motel even though Camelot Court Motel Ltd leased most of the motel premises.  That describes their belief as to a matter of fact. However, that belief by itself was not material to their decision to agree to the new rent.  Under s 6(1)(a)(i) of the Contractual Mistakes Act, a unilateral mistake must be material to the party seeking relief. The requirement that a mistake be material is not expressly stated in s 6(1)(a)(ii) and (iii), but it is clear that an immaterial mistake under those provisions could not give a basis for seeking relief under the Act.

[43]     The Andersons continued to pay Camelot Court Motel the ground rent at the rate in force at December 2006.  Their position has always been that they have not objected  to  paying  that  original  ground  rent.  Their  objection  is  to  paying  the increased ground rent. Even though they say that they were mistaken as to applying a given percentage of turnover when the premises were under head leases for which

they paid the ground rent, they do not say that they were mistaken as to the premises being under head leases or that they had to pay the ground rent at the rates in force at that time.  They were still prepared to continue paying the current ground rent and to accept the new rent under the motel lease, notwithstanding their mistake.

[44]     While the first mistake by itself is not enough to give a claim for relief, the Andersons’  real  complaint  is  apparent  when  the  second  alleged  mistake  is considered.  The second mistake is that they did not take account of the fact that the head lease rents were likely to increase significantly in a matter of a few months.  It is this failure to take account of the likely ground rent increase that is at the heart of their mistake complaint.   The question here is whether this omission is a mistake under the Contractual Mistakes Act. Case law under the Act has drawn a distinction between a mistaken belief as to a given matter and an omission to consider the

matter at all.  In New Zealand Refining Co Ltd v Attorney-General McKay J said:11

The arbitrator took the view that there could not be a common mistake as to a matter to which the parties did not even turn their minds. As he said,

―mistake  means something more than an omission. It connotes a positive

belief on a matter wrongly held, rather than the complete failure to consider that matter at all‖. He referred to the judgment of Prichard J in Ware v Johnson [1984] 2 NZLR 518 at p 540 where he said:

―But there does exist the requirement that both parties be `influenced' by the mistake. In my view this means no more than that both parties must necessarily have mistakenly accepted in their minds the existence of some fact which affects to a material degree the worth of the consideration given by one of the parties. That construction gives effect to the requirement that both parties be influenced by the mistake and is consistent with what Lord Thankerton said in Bell v Lever Bros Ltd [1932] AC 161 when he stressed that a mistake as to a fundamental quality is of no effect unless it relates to

`something which both parties must necessarily have accepted in their minds as an essential and integral element of the subject matter', bearing in mind that `essentiality' is no longer the necessary ingredient.‖

The claimed error of law was that the arbitrator had not addressed the correct question. Mr Galbraith submitted that the mistake was not about the impact of GST, as this was something which neither party had in contemplation. The mistake was that both parties agreed an amount to be paid by the Crown which both believed was a payment to NZRC for the support of the refinery. If GST is payable, then that payment is not to the appellant for the support of its refinery, but instead is in part a payment charged to the Crown. He submitted that this mistake was common to both parties. ...

11 New Zealand Refining Co Ltd v Attorney-General (1993) 15 NZTC at 10, 38 (CA).

I do not think the arbitrator has misunderstood the argument, or that he has made any error of law in the way in which he has dealt with it.

[45]     In Ladstone Holdings Ltd v Leonora Holdings Ltd Potter J said:12

[81] The New Zealand Refining Co case has been the subject of academic criticism (see McLauchlan and Rickett, ―Mistake and Ignorance under the New Zealand Contractual Mistakes Act 1977‖  (1995) 8 JCL 193) on the basis that if a mistake within the meaning of the Act requires a wrongly held positive belief on a matter, and does not include the complete failure to consider  the  matter,  many  situations  commonly  considered  to  involve mistake would fall outside the ambit of the Act.

[82]   However,   in   its   ordinary   meaning   the   term   mistake   implies

―a misconception about the meaning in something; a thing incorrectly done

or thought; an error of judgment‖ (New Shorter Oxford English Dictionary). Where a party or parties have not turned their minds to the matter in issue it cannot be said that they have misconceived it or indeed formed any belief or conception about it. They are neither correct nor mistaken.

[83] This approach is reinforced by the requirement in s 6(1)(a)(ii) of the Contractual  Mistakes  Act  that  the  parties  alleging  the  mistake  were influenced in the decision to enter into the contract by the mistake.

[84]  In Ware v Johnson ... (referred to by Greig J in the  New Zealand

Refining Co case), Prichard J  stated at p 540 that the requirement of s

6(1)(c)(ii) in a case of common mistake means that:

―. . . both parties must necessarily have mistakenly accepted in their minds the existence of some fact which affects to a material degree the worth of the consideration given by one of the parties.‖

[85] It is difficult to accept that a party can be influenced in its decision to enter into a contract by a matter to which it has not turned its mind at all. Thus, even if it were accepted that a mistake could arise out of complete ignorance of a matter or aspect of a matter, the requirement for the so-called mistake to have influenced the party to enter the contract will not be met.

[46]     That distinction applies here.  The error the Andersons rely on is their failure to take into account the imminent increase in ground rent. That is an omission to consider a matter and is not a mistake under the Contractual Mistakes Act.  It does not matter whether the Andersons claim a unilateral mistake or a common mistake:

either way the error they describe is not within the Act.

12 Ladstone Holdings Ltd v Leonora Holdings Ltd [2006] 1 NZLR 211 at 228.

Fourth defence – unconscionable bargain

[47]     In Gustav & Co Ltd v Macfield Ltd,13  Arnold J set out non-exhaustively principles applied in claims of unconscionable dealing.  His summary is also suitable for this case.  He said:14

1         Equity will intervene to relieve a party from the rigours of the common law in respect of an unconscionable bargain.

2         This equitable jurisdiction is not intended to relieve parties from ―hard‖ bargains or to save the foolish from their foolishness. Rather, the jurisdiction operates to protect those who enter into bargains when they are under a significant disability or disadvantage from exploitation.

3         A qualifying disability or disadvantage does not arise simply from an inequality of bargaining power. Rather, it is a condition or characteristic  which  significantly  diminishes  a  party's  ability  to assess his or her best interests. It is an open-ended concept. Characteristics that are likely to constitute a qualifying disability or disadvantage are ignorance, lack of education, illness, age, mental or physical infirmity, stress or anxiety, but other characteristics may also qualify depending upon the circumstances of the case.

4         If one party is under a qualifying disability or disadvantage (the weaker party), the focus shifts to the conduct of the other party (the  stronger  party).  The  essential  question  is  whether  in  the particular circumstances it is unconscionable to permit the stronger party to take the benefit of the bargain.

5         Before  a  finding  of  unconscionability  will  be  made,  the stronger party must know of the weaker party's disability or disadvantage and must ―take advantage of‖ that disability or disadvantage.

6         The requisite knowledge may be that of the principal or an agent, and may be actual or constructive. Factors associated with the substance of a transaction (for example, a marked imbalance in consideration) or the way in which a transaction was concluded (for example, the failure of one party to receive independent advice in relation to a significant transaction) may lead to a finding that the stronger party had constructive knowledge. So, in the particular circumstances the stronger party may be put on enquiry, and in the absence of such enquiry, may be treated as if he or she knew of the disability or disadvantage.

13 Gustav & Co Ltd v Macfield Ltd [2007] NZCA 205. On appeal the Supreme Court differed on a later aspect of the Court of Appeal’s judgment, the question of timing, but not on these principles: Gustav & Co Ltd v Macfield Ltd [2008] 2 NZLR 735.

14 Gustav & Co Ltd v Macfield Ltd [2007] NZCA 205 at [30].

7        ―Taking advantage of‖ (or victimisation) in this context encompasses both the active extraction and the passive acceptance of a  benefit.  Accordingly,  as  Tipping J  said  in  Bowkett  at  457,  an unconscionable victimisation will occur where there are:

―… circumstances which are either known or which ought to be known to the stronger party in which he has an obligation in equity to say to the weaker party: no, I cannot in all good conscience  accept  the  benefit  of  this transaction  in these circumstances   either   at   all   or   unless   you   have   full independent advice.‖

8         If these conditions are met, the burden falls on the stronger party to show that the transaction was a fair and reasonable one and should therefore be upheld.

[31]    While factors such as a marked imbalance in consideration or procedural impropriety are generally present in unconscionability cases, neither is a prerequisite for relief. However, if there is no significant imbalance in consideration or if the weaker party received full independent advice it is unlikely that any issue of unconscionability will arise.

[48]     There is nothing in this case that requires that the Andersons should have a full hearing on the issue of unconscionable dealing.  There is no evidence that the Andersons were under any significant disability or disadvantage in assessing their own interests.  In particular, while they may have omitted to consider the effect of a likely imminent increase in ground rent, that is at worst a slip in judgment.  Mrs Boe dealt with them in an open way, giving them clear notice that the rent was to be reviewed, and asked them for information on which to assess the new rent.   The Andersons gave the information.  Mrs Boe gave her reasons for her assessment of the new rent. The Andersons had ample opportunity to obtain advice, including from a property valuer.  In proposing a new rent, Mrs Boe may have been advocating for an optimal outcome, but she is not the first and will not be the last lessor to take that approach.  There is no element of victimisation in the way Camelot Court Motel Ltd went about the rent review. The Andersons’ failure to dispute the proposed rent does not of itself give them grounds to revisit the fixing of the rent.

Fifth defence – unjust enrichment

[49]     This was raised as an invitation to the court to reassess the rent the Andersons pay on the grounds that the return Camelot Court Motel Ltd was receiving from the

premises was excessive.  No authority was cited for allowing such an inquiry and

I know of none.

Conclusion

[50]     In a summary judgment application, the plaintiff must satisfy the court that the defendant does not have an arguable defence to a cause of action in a statement of claim.  In this case, it has shown that the Andersons do not have a defence to its claims for the short-paid ground rent that has fallen due since 1 June 2007.   It provided a schedule showing a calculation of the underpaid ground rent totalling

$505,129.03. The Andersons did not challenge that calculation.

[51]     The plaintiff has not shown any basis for claiming damages for non-payment by the Andersons.   It has not shown what amounts of interest are payable under clause 1.19.1 of the motel lease.  It has not shown that the Andersons are required to pay it anything for its legal costs in settling the new ground rent.

[52]     I make these orders:

(a)       The plaintiff recovers judgment against the defendants for the sum of

$505,129.03;

(b)The plaintiff recovers costs against the defendants.  If the parties are unable to agree costs, they may file memoranda.   The plaintiffs’ memorandum is to be filed within ten working days of the date of this decision, the defendants’ within a further five working days; and

(c)      The case is to be given a case management conference for directions to be given for those parts of the case on which I have not found for the plaintiff, such as its claims for costs, damages and interest.

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

R M Bell

Associate Judge