Chamko Holdings Limited v Ecco Pacific Limited
[2015] NZHC 1186
•29 May 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2015-404-000248 [2015] NZHC 1186
BETWEEN CHAMKO HOLDINGS LIMITED
Plaintiff
AND
ECCO PACIFIC LIMITED Defendant
Hearing: 27 May 2015 Appearances:
S McAnally for the Plaintiff
M Pascariu and H L Fung for the DefendantJudgment:
29 May 2015
JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
This judgment was delivered by me on
29.05.15 at 4:30pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
CHAMKO HOLDINGS LIMITED v ECCO PACIFIC LIMITED [2015] NZHC 1186 [29 May 2015]
Background
[1] The plaintiff (Chamko) leased premises to the defendant (Ecco) pursuant to terms of a lease dated 26 April 2010. Terms of lease included:
(a) The lease term was for four years commencing 1 June 2010 with the right of renewal on 1 June 2014 for a further term of four years.
(b)Any right of renewal would be exercised by the giving of three calendar months notice before the end of the initial term.
(c) Ecco would pay Chamko rent of $130,000 plus GST per annum, subject to review on 1 June 2012, 1 June 2014 and 1 June 2016.
[2] The rental payable under the lease fell due for review on 1 June 2012. On 25
June 2012 the parties entered into a deed by which it was agreed annual payments would increase to $136,500 plus GST.
[3] The lease came up for renewal on 1 June 2014. At that time rental payable was also subject to review.
[4] The parties’ lease was due to expire on 31 May 2014. Issues upon Chamko’s summary judgment application focus upon an email received on 21 May 2014 from Ms Tao of Legend Corporation (Ecco’s parent company) to Mr Kirkpatrick the shareholder/director of Chamko and employed by Chamko as its property manager.
[5] Ms Tao’s letter to Mr Kirkpatrick notes:
I am writing to you in relation to the above premises. I understand that the rent renewal is scheduled on 1/6/14. Could I please have the rental review letter to advise our bank to update the monthly payment? I will also need this information to update our budget for FY15.
Thank you for your help in advance. Best regards,
Jenny Tao
Senior Accountant
…
[6] Half an hour after receipt of Ms Tao’s email Mr Kirkpatrick said his office emailed her a copy of Chamko’s standard renewal/rental review letter, a market rental valuation document prepared, he said, on the assumption that there would be a lease renewal, and Chamko’s standard form deed of rent review and renewal of lease. In fact it appears no document copies were sent because Ms Tao responded asking for those. She requested detail regarding the “new rental amount” and also advised that Mr Dowe was Ecco’s director.
[7] Ms Tao’s email provides the foundation of Chamko’s claim that Ecco’s lease
was renewed from 1 June 2014.
[8] It is Chamko’s case that because the existing lease was due to expire on 31
May 2014 Ms Tao, a senior accountant employed by Ecco’s parent company emailed Chamko noting that the “rent renewal” was due and requested a “review letter” for the purposes of “their bank” in circumstances, reasonably construed, which provided notice of Ecco’s wish to renew the lease; that Mr Kirkpatrick’s response the same day provided acceptance of Ecco’s offer of a renewal such that the only issue then extant was the amount of the rental payable from 1 June 2014.
[9] Chamko’s position is that the previous lease contractual arrangement was renewed for a further four years. Chamko says it did then order its affairs accordingly and did not look for a new tenant as it would have done if Ecco had continued renting the premises on a monthly basis; that it had no reason to believe Ecco considered itself to be occupying on nothing more than a month to month basis.
[10] The main issue for consideration concerns Chamko’s claim that the lease was renewed for a further period and therefore Ecco’s occupation thereafter did not devolve to the position of being a monthly tenant whereby that occupation would be terminated by either landlord or tenant giving appropriate notice.
[11] The Court’s primary purpose shall be to examine competing claims about whether Ms Tao’s email of 21 May 2014 ought to be construed as notice of Ecco’s intention to renew the lease and in that regard whether Ms Tao was acting with the actual or apparent authority to bind Ecco to a lease for a further four year term and/or
whether her email constituted the requisite notice required under clause 33.1 of the lease.
Legal principles
[12] There is no dispute regarding these. Applications for summary judgment are about whether a defendant has no defence to a claim and in respect of which a court should have no reasonable doubt or uncertainty. A plaintiff must provide sufficient evidence to show the absence of a defence.
The lease
[13] Clause 33.1 provides:
If the tenant has given to the landlord written notice to renew the lease at least 3 calendar months before the end of the term… then the landlord will grant a new lease for a further term from the renewal date as follows:
(a) If the renewal date is a rent review date the annual rent shall be agreed upon or failing agreement shall be determined in accordance with clauses 2.1 and 2.2…
(b) The landlord as a condition of granting a new lease shall be entitled to have the new lease guaranteed by any guarantor who is guaranteed this lease on behalf of the tenant who has given notice…
The plaintiff ’s case
[14] The primary issue is whether notice of renewal of lease was provided by Ms Tao’s email. If it was then the next question is whether Ms Tao had the authority to bind Ecco to a lease renewal for four years.
[15] The next issue concerns whether the existence of a new lease complies with the statutory requirement for it to be in writing but even if it was not whether there was a sufficient performance in part to confirm its existence. Finally and in the alternative Chamko says it has acted sufficiently in compliance with its reasonable belief of the existence of the lease renewal such that it would be inequitable for Ecco to claim it is not bound by the promises it has made in that respect.
Whether three months notice of renewal was required
[16] Mr McAnally for the plaintiff comments that if, as the plaintiff says, there was notice of renewal given, it is clear such is not provided three months prior to the end of the existing term, as clause 33 provides. Mr McAnally comments that no concern should arise from this because he says Chamko was within its rights to waive compliance with that aspect of the clause and did so.
[17] Whether the email provided notice of renewal Mr Kirkpatrick deposes that Ms Tao’s request for a rental review letter was a clear indication of an offer for lease renewal because, as he says, there would be no rent review if the lease was not renewed and that in the absence of any suggestion that Ecco intended to occupy the premises on any other basis, “we made what I think is the obvious assumption that the right to renew was being exercised”.
Did Ms Tao have authority to bind Ecco to the lease?
[18] Ecco’s position is Ms Tao had no ostensible authority to bind it; and that there was no representation to Chamko that she had that authority.
[19] Mr McAnally urges the court to adopt an objective viewpoint. He submits it would be misleading to construe the question as one about whether or not Ms Tao had the authority of Ecco to commit it to a renewal of lease but, rather, whether she had its authority to send the email that, from an objective point of view, had that effect.
[20] Mr McAnally submits, in the alternative, if she did not have actual authority then she had apparent authority in her office as senior accountant, employed by Ecco’s parent company, and that it was reasonable for Chamko to believe therefore that she did have the requisite authority.
[21] Mr McAnally submits Ms Tao’s emails clearly indicated an expression of authority vested with Ms Tao such that she could properly have been considered an authorised representative (in addition to any director, general manager or solicitor) in
a manner contemplated by clause 43.4 of the parties’ lease. This Mr McAnally submits is confirmed by the email from Ms Tao dated 18 July 2014 wherein she noted:
Eco Pacific made a loss last year we simply cannot afford the rent increases you have suggested. Should you insist on pushing the increase of rent, we may end up looking for alternative premises.
Objective analysis
[22] Mr McAnally urges upon the Court for its purpose of an objective analysis of
Ms Tao’s email, that the Court should bear in mind:
(a) The parties lease was due to expire and a right of renewal for a further four years was available.
(b) It appears the parties have had a good landlord/tenant relationship.
(c) As the lease made clear the third rent review (also then due) would only have been undertaken if the lease was renewed from 1 June
2014.
(d)Ecco had the right to renew the lease which Chamko says was exercised through Ms Tao’s email and because Chamko took no issue regarding the late notice of an intention to renew, and likewise there was no issue regarding the availability of a guarantor.
[23] Mr McAnally submits that in the circumstances the reasonable recipient of that email must have taken it as a clear and unequivocal exercise of the right of renewal.
[24] Further, he submits that view is endorsed by subsequent events including:
(a) Chamko’s immediate dispatch of its deed of rent review and renewal
of lease.
(b)By email dated 2 June 2014 Ms Tao confirmed an independent rent review was to be carried out that week.
(c) She further advised that Mr Matson was no longer a director of Ecco and was therefore unable to provide a personal guarantee and that the deed would need to be amended accordingly.
(d)Until 6 August 2014 when Chamko’s market rental valuation was available, Ecco continued to pay rent and nor was there any mention meanwhile of a monthly tenancy arrangement.
To be binding the lease must be in writing
[25] Addressing the requirement in s 24(1) of the Property Law Act 2007 that requires a contract for the disposition of land including a lease (other than a short term lease) to be in writing, Mr McAnally submits that the terms of the new lease are indeed in writing because they comprise the terms of the original lease (as required by clause 33.1(b)), and the notice of renewal (Ms Tao’s email). To the extent that any of those requirements have not been met, Chamko says it has already sufficiently part performed its obligations by:
(a) Permitting Ecco to remain in possession. (b) Not seeking other tenants.
(c) Arranging a valuation to obtain a new rental figure.
Availability of promissory estoppel
[26] If however there is not an enforceable agreement then Mr McAnally submits Ecco is estopped from denying the renewal because Ms Tao’s email was a clear and unequivocal promise for assurance that was intended to effect legal relations between the parties and was acted upon accordingly; that detriment has occurred as a result of that reliance and therefore it would be unconscionable to permit Chamko to resile from the promise it made. Chamko says it not only incurred the expense of a
valuation obtained for rent review purposes but it also forfeited the opportunity to look for an alternative tenant.
Considerations
[27] There is no doubt Mr Kirkpatrick interpreted Ms Tao’s letter as a request for a renewal of the lease. It may not be sufficient however to rely upon that letter as evidence of a binding offer even though, as it appears, the parties enjoyed a trouble free relationship as landlord and tenant. The letter came from a senior accountant of the parent company. It did not it seems provide a commitment so much as it did request that important financial information be provided.
[28] Also Ms Tao had no apparent or ostensible authority to bind Ecco to a four year lease much less does it appear that she did purport to commit Ecco to do so.
[29] Mr Kirkpatrick deposes that about half an hour after receiving Ms Tao’s email he was able to send to her an email copy of the standard renewal – rent review letter. In fact it appears that those documents, copies of which were attached to Mr Kirkpatrick’s affidavit, were intended for Mr Matson in his capacity as a director of Ecco – albeit that he had already by then relinquished that position.
[30] Mr Kirkpatrick’s affidavit evidence suggests, indeed clearly suggests, that Chamko’s standard renewal/rent review letter was sent in response to Ms Tao’s email. This could not be so for clearly those documents had been prepared before Ms Tao’s email was received. Mr Kirkpatrick’s evidence does indicate however Chamko’s hope that there would be a lease renewal and that Chamko was prepared for the receipt of such indication.
[31] It is clear Ms Tao’s email fulfilled Mr Kirkpatrick’s expectations. The Court is less than certain that it should have. Chamko’s case rests very much upon its belief that rental review information would not have been required except for the purpose of renewing the lease.
[32] That may have been a reasonable expectation but in the Court’s view that does not make it commercially acceptable and in that regard there is a sufficient degree of question about Mr Kirkpatrick’s analysis.
[33] Also, claims that Ms Tao’s email could bind Ecco ignore the fact that:
(a) All documentation relating to the original lease was executed by Mr
Matson as a director.
(b) Chamko never dealt with Ms Tao prior to 21 May 2014.
(c) Ms Tao’s sign off position, and email address indicated the email was
sent on behalf of the parent company.
[34] Clearly Chamko’s documents sent on 21 May 2014 were prepared for the purposes of formal execution, on the understanding, it would appear that execution of those documents would provide a binding agreement for renewal of lease.
[35] In that background of matters, the Court cannot, certainly upon a summary judgment application, accept there is compelling evidence of a lease renewal agreement contained by Ms Tao’s email and in the ‘response’ provided by the documents sent within half an hour later.
[36] Mr Kirkpatrick’s claims about what Chamko did in reliance upon Ms Tao’s email requires analysis by reference to Ms Tao’s email. An interpretative exercise is required. That enquiry concerns what a reasonable and properly informed third party would consider the words to mean. As Mr Pascariu submits the Court embodies that person and must be aware of the commercial or other context in which the contract was made and all the facts and circumstances known to and likely to be operating in
the parties’ minds.1
1 Vector Gas v Bay of Plenty Energy [2010] NZSC 5 at [5], [19] and [57].
[37] The meaning of the email must be objectively assessed and in the relevant context. There had been no communications between the parties about a lease renewal leading up to that email. That context included:
(a) The lease was expiring on 31 May 2014.
(b)To exercise its right of renewal Ecco was required to give notice before 1 March 2014.
(c) The rent review was due 1 June 2014.
(d)Ecco was obliged to engage in the rent review process whether it renewed the lease or remained in occupation under a periodic tenancy after the expiry of the lease.
[38] Ms Tao said she understood a rent review was scheduled. She requested a rent review letter. She did not refer to the lease renewal. She did not say Ecco intended to renew the lease. She requested a rent review letter for accounting purposes. She was an accountant.
[39] In the Court’s view a reasonable person may not have taken Ms Tao’s request for a rent review letter as a clear and unequivocal indication of Ecco’s intention to renew the lease.
[40] Further, even if the email could be interpreted as a notice of renewal it failed to comply with clause 43.4 of the lease which provided that any notice under the lease was valid only if given by a director, general manager, solicitor or other authorised representative. It will be a matter for further evidence whether in all the circumstances Chamko ought to have considered whether Ms Tao had sufficient evidence to bind Ecco to a four year term lease.
[41] Chamko’s claims that by permitting Ecco to remain in occupation and by it not seeking other tenants and by it arranging for a valuation to obtain a new rental figure, those were acts in part performance and provide proof the parties were agreed upon a lease renewal.
[42] The Court is not compelled by claims to accept that part performance has been provided. In the Court’s view those acts are entirely consistent with Ecco remaining in possession under the holding over provision of the lease and the parties negotiating a new lease agreement.
[43] Regarding claims of promissory estoppel, it is Ecco’s position it never made a representation or engaged in any conduct which could reasonably have led Chamko to believe it intended to renew the lease. The Court accepts Mr Pascariu’s assessment by his submission that Chamko’s dispatch of the draft deed was consistent with it setting the rent review process in motion and inviting Ecco to renew the lease and that Ecco did nothing to correct this belief if it was mistaken. Also the rent review process was applicable not only to the renewal of the lease but also under a periodic tenancy.
[44] In the Court’s view the parties’ subsequent conduct is not necessarily consistent with the renewal of the lease but must also suggest Ecco remained in occupation under a periodic tenancy while endeavouring to negotiate better commercial terms for a new lease. Ecco remained in occupation from 1 June 2014 to 31 January 2015 paying rent at the rate under the expired lease and in accordance with the holding over provision. As Mr Pascariu observes had the lease been renewed then pending the determination of the rent review Ecco would have been obliged to pay interim rent in accordance with clauses 2.3 and 2.4 which provided for payment in terms calculated by reference to the reports of registered valuers.
[45] The arrangement of an independent rent review by Ecco and the obtaining of a new market rental valuation by Chamko were equally part of the process of engaging the rent review process in an attempt to negotiate the terms of a new lease.
[46] Despite Chamko’s repeated requests Ecco never signed the draft deed sent for
execution.
[47] As Mr Pascariu notes Chamko argued that Ecco never mentioned the periodic tenancy until it gave the notice of termination but that by the same token Chamko never mentioned that it considered that the lease had been renewed; indeed that the
correspondence between the parties from June to August 2014 refers only to the
“rent review”.
Result
[48] As earlier noted Chamko’s summary judgment application is about providing sufficient proof of its claim that Ecco has no satisfactory defence available to it. In the Court’s view Chamko has fallen short in this regard. A lot of reliance has been placed upon the wording of an email from a person whose authority to bind it to a lease renewal must, commercially and sensibly, have given cause for question. Also the clear wording did not engage the process of lease renewal. It is not sufficient as is claimed for Chamko that rental review necessarily engaged lease renewal because the lease provided for the availability of a periodic tenancy in absence of a lease renewal.
[49] In essence that view of matters is sufficient to dispose of the summary judgment application. However the Court also comments:
(a) It is questionable whether sufficient authority to bind a company can be considered is vested in a senior accountant whose purpose of enquiry is for the provision of financial records.
(b)Even if subsequent correspondence from Ms Tao suggested a strong purpose in Ecco’s manoeuvrings it should be questionable whether that position was being adopted by Ms Tao with the authority of Ecco.
(c) Clearly if it is in question whether Ms Tao had authority even if her email constituted notice of renewal then there must be a question about whether Ecco is without the availability of a defence to Chamko’s claims.
(d) However read it seems to the Court Ms Tao’s email does not provide
clear and unequivocal notice of an intention to renew the lease.
(e) It is not an inappropriate perspective of the events that the circumstances and the related contemporaneous correspondence necessarily suggested Chamko should have taken Ms Tao’s email as notice of renewal rather than as of confirmation of a rent review.
(f) Claims in relation to appropriate assumptions to be drawn from subsequent conduct fail if there is some doubt about whether there is a contract at all because in this case if there was no renewal of the lease then the Court is dealing with a situation where the default periodic tenancy process lies.
(g)It is Chamko’s position that Ecco believed and acted upon the basis that it was bound to a lease renewal and that subsequent events were focussed upon the process for determining the rental to be paid. A number of factors might suggest otherwise including:
(i)As early as 18 July 2014 an email from Ms Tao indicated that the lack of an agreement regarding rental payable might end the parties lease arrangement.
(ii) Mr Kirkpatrick’s response did not directly claim a renewal of
lease existed.
(h)Equally available to claims of a rent renewal agreement are claims no rental renewal agreement was reached because a rental sum could not be agreed upon.
(i) Claims of promissory estoppel need to be considered against Ms Tao’s
18 July email indicating that in the absence of an agreed rental Ecco may seek alternative premises i.e. it would not renew its lease.
Judgment
[50] The application for summary judgment is dismissed.
[51] Costs shall be fixed on a 2B basis and shall be payable by the plaintiff to the defendant. If counsel cannot agree upon those then the Court will consider the memoranda of counsel filed in that regard and make a decision upon those papers.
Other
[52] The Registry is to schedule a first case management conference.
Associate Judge Christiansen
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