Capital Transport Limited (1999) Limited v Hollywood Industries Limited
[2002] NZCA 328
•18 December 2002
| IN THE COURT OF APPEAL OF NEW ZEALAND | CA 126/02 |
| BETWEEN | CAPITAL TRANSPORT LIMITED (1999) LIMITED |
| Appellant |
| AND | HOLLYWOOD INDUSTRIES LIMITED |
| Respondent |
| Hearing: | 4 December 2002 |
| Coram: | McGrath J Glazebrook J Baragwanath J |
| Appearances: | I R Millard QC for the Appellant J G Fogarty QC for the Respondent |
| Judgment: | 18 December 2002 |
| JUDGMENT OF THE COURT DELIVERED BY GLAZEBROOK J |
This is an appeal against orders made by Master Gendall on 30 May 2002 for specific performance of an agreement to lease and for payment of rent. The orders were made on an application for summary judgment by Hollywood Industries Limited.
Background
On 22 December 1998 an Agreement to Lease was entered into between Capital Transport Limited (the previous name of the appellant company) as lessee, and Lionel Silberry and Sons Limited (Silberry) as lessor. Hollywood purchased the property from Silberry and entered into an assignment agreement with Silberry in respect of Silberry’s rights under the Agreement to Lease on 21 September 2001. Hollywood was registered as proprietor of the land on 31 October 2001.
The agreement concerned the lease of commercial premises at Bell Road South, Lower Hutt for an initial term of five and a half years with two rights of renewal of three years. The initial gross rental was set at $75,000 plus GST per annum. The agreement provides that the rental during the initial period would be reviewed to market every 2.5 years (on 28 February 2002, 31 August 2004 and 31 August 2007) and thereafter every three years. Rental could not, however, be less than the commencement rental of $75,000 per annum plus GST and at the first rent review could not be more than $100,000 gross per annum plus GST.
The Schedule to the Agreement describes the premises starting with a description of the physical locality and address before describing the “area” as follows:
High Stud Warehouse (16,920sqft) more/less
Low Stud Warehouse (1,379sqft) more/less
Offices/Amenities (1,699sqft) more/less
Yard (8,000sqft) more/less
Excluding the yard, those square footages add up to 19,998 square feet.
Clause 6.1 of the Agreement to Lease provides as follows:
The lessee agrees to enter into a full lease agreement. The Lessor and the Lessee shall execute the lease incorporating all reasonable and usual provisions incorporated in ADLS 3rd Edition modified or completed to incorporate the terms of this agreement and clause 46 of the second schedule of lease as set out in 6.4 below.
No Deed of Lease has ever been executed, as the parties were unable to agree its terms. Finally Hollywood commenced an action for specific performance of the requirement to execute a deed of lease and for payment of outstanding rent. Summary judgment was entered for Hollywood as noted above.
In the High Court, Capital opposed the application for summary judgment on four grounds:
[a]Hollywood was not a party to the agreement to lease and the agreement had not been validly assigned;
[b] The agreement to lease had been frustrated;
[c]It did not occupy the premises and so obtained no benefit from the premises and is neither tenant nor statutory tenant of Hollywood; and
[d] There is no rental due or owing to Hollywood by Capital.
The Master’s findings in favour of Hollywood on the first three grounds are not challenged on appeal. Capital now agrees that it must execute a Deed of Lease but not in the form preferred. Capital had three concerns. The first was with the insurance clause (which was resolved just before the hearing of the appeal). The second was that the Deed of Lease did not set out the areas that had been contained in the Agreement to Lease. This too has been resolved as Hollywood has now agreed that the areas will be included in the Deed. The final issue relates to the rent. This issue remains.
Capital asserts that the area of the property subject to the lease is approximately 5% less than the area as recorded in the Agreement to Lease. For the purpose of this hearing Hollywood accepts that the Court must assume that Capital is correct (although it does not accept Capital’s calculations). On the basis of its measurements, Capital claims that the rental for the premises ought to be reduced to $71,133 net per annum. This would obviously have flow on effects throughout the lease, including replacing the $75,000 in the ratchet clause.
Capital first raised the question of abatement of rent with Silberry on 19 January 2001. At that stage it was claiming the rental should be $70,458. The rent reduction now claimed is based on a report from Telfer Young, valuers, dated 31 October 2001.
Capital paid rent at the rate recorded in the Agreement to Lease up to and including the instalment due on 1 September 2001. On 2 November 2001 Capital via its solicitor sent a cheque for $5,044.42 plus GST which took account of the alleged overpayment of rent for the 25 months the lease had run and rental for October and November less the cost of the Telfer Young report. It also enclosed an automatic payment form for the reduced rental commencing 1 December 2001.
It is this dispute over abatement of rent that is referred to in para (d) of Capital’s Notice of Opposition referred to above. It is a somewhat obscure reference (and it understandably appeared so to the Master) but Capital submits that it was well understood by the parties.
The High Court Decision
As indicated above, the Master found against Capital in relation to the first three grounds. In relation to the final ground, concerning rent owing to Hollywood, he noted that the basis for the claim that no rent was owing was unclear but that there was a suggestion by Capital that the area actually leased was less than the area stipulated in the agreement to lease. He held that this claim had little substance and had been raised late, after numerous opportunities for Capital to satisfy themselves as to the area of the premises.
The Master noted that specific performance is a discretionary remedy and held that it was appropriate in this case. He was satisfied that Capital had no arguable defence to the claim to the requisite standard and ordered specific performance of Clause 6.1 of the agreement to lease, that is, the execution of the deed of lease prepared by Hollywood and submitted to Capital. He held that Hollywood was also entitled to summary judgment for outstanding rent in terms of the agreement of lease and adjourned the matter in respect of the issue of quantum.
Submissions
Neither counsel who appeared in this Court had appeared before the court below. In consequence the arguments put to us differed substantially from those put to the Master. It was submitted by Mr Millard QC for Capital that, at the time the summary judgment application was made, there was a genuine dispute between the parties as to whether the premises complied with the description in the Agreement as to area, and a consequent dispute as to whether that difference impacted on the rental for the premises, not only for the first period but more generally both because of the ratchet clause and because the $75,000 and the area would impact on the market rental set in any rent reviews.
The order for specific performance requires the execution of a Deed which confirms the rent as $75,000. In light of the dispute as to area and rental, Mr Millard argued that the order was inappropriate. It was submitted that specific performance ought only to be ordered in a clear case, that is, where what is to be performed corresponds precisely with the contract that is being enforced and that it was premature to order specific performance in this case before full argument on the rent abatement issue.
It was further argued that the fact that Capital has had opportunities to satisfy itself as to lease area, while it may prevent Capital from being able to repudiate the Agreement, cannot mean that Capital must specifically perform the Agreement without a condition as to compensation or abatement of rent.
Mr Millard also referred to the Master’s statement that the claim was raised late, and submitted that the chronology of the matter did not support this finding. While it is true that Capital first learnt of the alleged area discrepancy in January 2000 and it was only raised as an issue at the beginning of the following year that was well before the summary judgment application. It was further submitted that lateness should not otherwise be a disqualifying reason if the defence is a proper one.
For Hollywood, Mr Fogarty QC submitted that the dispute over the alleged misdescription of area of the premises is not advanced as a breach of a term entitling the lessee to cancel the lease and in any event it cannot be seriously argued that the misdescription of the premises was such a material breach as to justify cancellation. There is in this case no doubt as to the identity of the demised premises. In addition the lessee has clearly elected not to cancel the agreement.
Mr Fogarty pointed to the basic principle of contract that a party is not relieved from performance of its obligations by breach by the other party of its obligations, unless and until the contract is brought to an end. Any misdescription of area has nothing to do with the obligation to pay rent at law and therefore, as law follows equity, should not give rise to any equitable remedy either. If there are errors in the description of the areas in the Agreement to Lease, these can only amount to a breach of that agreement which could sound in damages, if loss can be proved.
Mr Fogarty acknowledges that there are cases of equity granting compensation or an abatement of purchase price of land where there has been a misdescription of the subject matter to be conveyed. He has been unable to find, however, and Capital has been unable to point to, a single case involving an abatement of rent. In addition, the cases involving abatement of purchase price are cases where a purchaser is being forced to perform a contract by equity where at law there would have been a right of rescission. In this case Capital has been the tenant for a number of years and wishes to continue in that capacity. It was therefore argued that the correct approach should be to order specific performance recognising that Capital is not foreclosed by such an order from any action for damages for breach of the terms as to area if there is such a breach.
Discussion
The first question is whether the cases where compensation or abatement of purchase price have been granted as a condition of specific performance apply to leases. Mr Fogarty was unable to point to any distinction in principle in this regard between a contract for the purchase of land and a lease. As this is the case, the fact that the parties have not been able to find a case where such remedies have been ordered does not in our view mean that they are unavailable. Questions of equitable set off may also arise.
As to whether such equitable remedies would be granted to Capital in this case we acknowledge the factors set out by Mr Fogarty as being relevant but consider that it was not appropriate for summary judgment for specific performance, an equitable remedy, to have been ordered without the questions of abatement, compensation or equitable set off having been fully argued. In particular, we do not consider it appropriate for an order for summary judgment for specific performance to have been granted in these circumstances where to do so could act to Capital’s disadvantage in the rent review exercise. Mr Fogarty conceded that, when conducting the rent review, the valuers may have regard to the $75,000 initial rent agreed as indicating an initial market rental.
Result and Costs
For the reasons given above the appeal is allowed and the order for specific performance is set aside. Capital is awarded costs of $3,500 plus disbursements to be fixed by the Registrar in the absence of agreement. The High Court costs order is set aside. That court can set costs in the light of this judgment, if the parties are unable to come to agreement.
Solicitors:
Nat Dunning, Wellington for Appellant
Meares Williams, Christchurch for Respondent
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