Cunningham v Butterfield
[2012] NZHC 614
•3 April 2012
IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY
CIV2011-476-000400 [2012] NZHC 614
BETWEEN NEVILLE JOHN CUNNINGHAM Plaintiff
ANDJOSEPH GORDON BUTTERFIELD & ORS
Defendants
Hearing: 13, 14, 15 & 17 February 2012 (Heard at Christchurch)
Counsel: N Till QC and WNP van Vuuren for Plaintiff
P Whiteside for Defendants
Judgment: 3 April 2012
JUDGMENT OF WHATA J
[1] Neville Cunningham runs a big game hunting trophy business on the Station Trophy Block of Mt Cook Station. Donald “Mt Cook” Burnett owned Mt Cook station until his death in July 2010. Mr Burnett’s trustees believe that Mr Cunningham breached his lease to occupy Mt Cook Station by failing to remove stock from all paddocks except Station Trophy Block. Notice of intention to cancel the lease and then a notice to re-enter and cancel were served on Mr Cunningham. The validity of these notices is challenged by him. Mr Cunningham said that he did remove the stock as required by a settlement deed entered into by him and the trustees. Finally, he says that, in any event breach of deed did not confer a right on the trustees to cancel the lease in relation to Station Trophy Block as the alleged breach does not concern that block. He says that the notice of intention to cancel was fundamentally flawed because it wrongly refers to two leases and does not properly particularise the alleged defaults.
[2] The factual disputes between the parties are many and varied. But the essence of the case concerns whether Mr Cunningham failed to remove the stock as
CUNNINGHAM V BUTTERFIELD & ORS HC TIM CIV 2011-476-000400 [3 April 2012]
required by the settlement deed. If so, I must then consider whether the trustees have the power to cancel the lease over the Station Trophy Block and whether they have exercised the power to give the notice of cancellation validly. If I get that far, I must consider whether there should be relief from cancellation.
Background
[3] A deed of agreement executed by the parties in December 2010 (“Settlement Deed”) is the focal point of this litigation. But that deed purports to resolve a dispute relating to prior agreements between Mr Cunningham and Mr Burnett concerning Mt Cook Station and the adjacent parcel of land, known as Cox’s Downs. To make sense of the Settlement Deed it is necessary to describe the preceding agreements and the events leading up to the Settlement Deed.
The first lease1
[4] Mt Cook Station is a hill country station of some 500 hectares, spanning river flats, flat paddocks, hill country and mountain terrain. In 2004 Mr Cunningham entered into a 12 month agreement to lease Mt Cook Station from Mr Burnett. The lease contemplates completion of deer fencing of Joe’s Paddock and Cow Paddock. Initially a stock limit of 200 elk was imposed, to be carried through the winter. Rental was set at $12,000 plus GST per annum.
[5] Mr Cunningham was allowed to bring hunters onto the property for trophy shooting purposes. He had to keep the property clean and tidy and not alter the property without Mr Burnett’s prior approval. If hinds were placed on the property in springtime, in addition to the stags, a pro rata rental was to be negotiated. The agreement had an informal quality, so it provided for a more formal arrangement if required, and if so then it was to be prepared at Mr Cunningham’s expense.
The second lease2
[6] The first lease was followed by a second lease to run for three years from
1 November 2005 to 31 October 2008. Two rights of renewal were envisaged, with a total duration of ten years. This lease divided the station into two areas, A and B. A comprised Station Block. B comprised Downs, Joe’s, and Bill’s Paddocks. The lease recorded that area A or Station Block was already deer fenced and that area B would be deer fenced in the spring of 2005 and summer of 2006. A new boundary fence was expected to be erected by the Department of Corrections as part of the tenure review.
[7] The second lease contained essentially similar terms to the first lease with the following notable exception, namely, that there was no reference to provision of hinds. This lease had an equally informal quality and again provision was made for a more formal arrangement at Mr Cunningham’s expense.
The third lease3
[8] A third agreement was entered into for a lease of part of a property known as Cox’s Downs. This land covered about 1,300 hectares, of easier terrain, largely covered in wilding pines. It comprised blocks running from south to north named Clay Cliffs, Manuka, Ribbonwood, Glendun, Lochviner and Craig-Dhu. The last two blocks, however, were not included as part of this lease. The initial period of the agreement was two years from 1 November 2006 to 31 October 2008. Subject to successful tenure review, two rights of renewal were also granted, covering nine years in all. Only grazing of deer and other approved animals as well as specified activities were permitted. Under this agreement any damage to buildings, fences etc, had to be repaired to the satisfaction of the lessor. The lease also allowed Mr Cunningham to bring hunters onto the property for trophy shooting purposes.
Like the other leases, provision for more formal arrangement was included.
2 Refer agreed bundle of documents at 6
[9] Added to this legal mix is a letter from Mr Burnett with no addressee, dated
11 October 2007. It advised that:
... after Tenure Review of Mt Cook Station is successfully completed I intend to draw up a long term lease of Mt Cook and Cox’s Downs on terms yet to be agreed in favour of the Cunningham family and this acknowledges the work they have put into the property already.4
[10] It is suggested by Mr Butterfield that this letter was sent to Mr Cunningham’s bank, presumably to assist Mr Cunningham with obtaining finance. No other explanation is provided for the letter.
The variation of the leases
[11] The general tenure of the leasing arrangements was then changed by a variation of leases dated 13 April 2010.5 Mr Burnett wanted to pursue merino sheep farming of the Mt Cook paddocks excluding Station Trophy Block. The variation had a formal structure absent from the preceding documentation. The parties recorded that they:
... have agreed to vary some of the terms and conditions of both Leases, but without prejudice to their respective rights under the existing Leases and not in substitution for or replacement/waiver, of any of their rights under those Leases.
[12] Relevant to this case the parties agreed among other things:
This agreement is to run from 22 March 2010 to 31 October 2015. ...
The only area of Mt Cook Station to be leased by NJC is the Station Trophy Block. This block is to be used for trophy shooting purposes only. No cattle or black sheep are permitted on the block.
...
NJC will be permitted to bring hunters onto the Station Trophy
Block for trophy shooting purposes only.
There are to be no cattle or deer grazed bordering the Station Trophy block.
4 Refer agreed bundle of documents at 10.
NJC may have access over the Mount Cook station paddocks for delivery of animals to the Station Trophy block by prior arrangement with DMCB and on giving reasonable notice of his wish to do so. This is to be once a year, in approximately February.
NJC may also, once a year in approximately July or August, bring any unshot animals out of the Station Trophy block and over the shady (back facing) of Bill’s down to the cattle yards to be loaded out. This loading out is also to be by prior arrangement with DMCB on reasonable notice. If this route is unavailable due to extreme adverse conditions beyond NJC’s reasonable control then an alternate route approved by DMCB may be used by arrangement with DMCB. The use of the cattleshed for load out of animals is to be at NJC’s sole risk.
NJC is to use his best endeavours to destock the Mount Cook Station paddocks to be relinquished to DMCB as soon as possible. If the stock cannot be removed from the property they will be removed into the Station Trophy block as soon as possible and taken off the property as soon as possible in spring.
...
Mount Cook paddocks “The Downs”, “Bill’s 1 & 2”, Joe’s, “Sandy’s”, “Von Haasts”, “Enclosure” and “Cow Paddock”: it is agreed that NJC will relinquish these paddocks, as DMCB is embarking on a wilding control programme in these areas. DMCB will lock the entrance gates.
...
Access for trophy hunters will cease through Mt Cook Station paddocks and resume across the scrub paddock from Bridge Gate to Summer Hill Gate up Tasman Flat to McLeod’s Gate into the Station Trophy block. During DMCB lambing (in approximately November
& December), access through DMCB’s bridge to Summer Hill section will temporarily transfer to the alternative DOC (public access) route.
[13] Mr Cunningham (NJC) was also granted permission to form a narrow track connecting the upper part of Station Trophy Block to the upper track in that block, with the new track being more or less parallel to the Downs fence. In so doing Mr Cunningham was provided access to and across the Station Trophy Block. The agreement then dealt with the Cox’s Downs property by acknowledging the need for fencing of Craig-Dhu, Lochinver and Altandun. A process was provided for assessing fencing needs, location of fencing lines, responsibility for fencing and payment for the fencing. On this, the agreement contemplated that if a 50/50 contribution could not be obtained from DOC (Department of Conservation),
Mr Cunningham would bear the costs until November 2010, except for payments of
$20,000 on 1 June and 1 July 2010. These newly fenced areas were to form part of the area leased under the 2006 Heads of Agreement.
[14] This variation agreement otherwise contemplated that Mr Cunningham and his workmen would vacate the Mt Cook Station (except Station Trophy Block) and instead occupy Cox’s Downs.6
[15] Below is a copy of an aerial usefully provided by the parties (by consent)
which provides an overview of the affected blocks and relevant key areas.
Events leading up to the Settlement Deed
[16] Troubles began soon after the variation agreement was executed. In a letter dated 13 June 2010 the trustees’ lawyers complained that Mr Cunningham had started erecting fences without first obtaining agreement for the fence line or budget.7 The letter also complained that Mr Cunningham was still grazing the
Mt Cook Station blocks and that his gear was still in the Mt Cook Station sheds. Mr Cunningham replied in an email dated 23 June 2010 (a copy of which I have not seen), to the effect that a budget had been provided. The trustees’ solicitors responded in a letter dated 9 July repeating that no agreement was reached for the fences, that no payment would be made for this fencing, and that the fencing must
stop.8 Unsurprisingly no further fencing was then undertaken. In July Mr Burnett
passed away. At about this time electricity supply for lighting purposes to Cox’s Downs was cut off, apparently because Mr Burnett had removed a unique fuse which could not be found for several months.
[17] In August 2010 Mr Cunningham then moved 150 hinds back onto Mt Cook Station blocks, he says because he could not keep them on the unfenced Craig-Dhu Block. Plainly this was an unsatisfactory state of affairs, culminating in mediation on 20 December 2010. The mediation addressed several issues relating to the management of both stations, including:
(a) Removal of stock from Mt Cook; (b) Fencing of the Craig-Dhu Block;
(c) Security fencing around the deer barn; and
(d) Access to Station Trophy Block.
The Settlement Deed
[18] The Settlement Deed recorded an agreement reached by the parties at the December mediation. The deed recorded an agreement by the trustees (in summary) to among other things:
(a) Pay Mr Cunningham $43,000 plus GST in reimbursement of fencing costs, to be paid by 23 December 2010.9
(b)Contribute up to $10,000 to materials towards a security fence around the deer shed:
The line of the fence is to be agreed between Neville and
Peter Clarke. Neville is to erect this fence.10
(c) Pay Mr Cunningham $5 per metre for the fencing and contribute 400 posts and 20 coils of deer netting to fence one side of the easement up to the boundary between Craig-Dhu Block and Braemar Station. The fence line was subject to agreement between Neville, Peter Clarke and DOC.
[19] Most relevantly, Mr Cunningham agreed to:11
6.Neville will de-stock the Mt. Cook Station paddocks (other than Station Trophy Block) of 150 hinds & their fawns by 7 March 2011 provided that the Trustees pay $8,000.00 plus GST (on presentation of an invoice) towards the reinstatement of the elk shed to a state in which it can be used for the handling of deer. Peter Clarke and Neville are to agree on what work is required for this purpose.
[20] The parties also agreed that:
(a) Any money claimed as owing by Mr Cunningham in respect of grazing and by the trustees in respect of electricity was included in the payment of $43,000; and
(b)They would enter into further discussions at a time and a place to be agreed in relation to the exit of Mr Cunningham from Clay Cliffs and Manuka Block, and in relation to access to Station Trophy Block and whether access could be agreed via the back face (Jollie River side).
Events leading up to the notice of cancellation and notice of re-entry
[21] If anything the specificity of the Settlement Deed exacerbated rather than resolved the underlying tensions. I will not burden this judgment with a review of
the varied and numerous claims and counterclaims made by the parties through their counsel in the period leading up to the notices of cancellation and re-entry. It suffices to say that the parties were still locked into disputes about whether or not Mr Cunningham had removed stock, the line of the fencing and who was to pay for it, and Mr Cunningham’s access to Station Trophy Block.
[22] To complete the chronology, however, the trustees sent a notice to remove stock under clause 6 of the settlement agreement to Mr Cunningham on 14 March
2011. That notice recorded that Mr Cunningham had removed only 75 of 150 deer from Mt Cook Station paddocks and that the remaining animals had not been pushed back into Station Trophy Block. It referred to a “short term” plan in place “agreed by [Mr Cunningham] and [Mr Bisset] for the removal of the remaining deer.” The trustees then recorded that they were prepared to allow him to remove the deer under this plan. The notice then concluded with the following:12
This is notice to you under clause 6 of the Settlement Agreement that any deer remaining on the Station paddocks after the plan to remove deer expires must be removed from the Station paddocks within 30 days of the date of this notice.
[23] The respective solicitors then engaged in a flurry of correspondence without achieving much. A notice of intention to cancel lease was issued on 2 May 2011, apparently received by the plaintiff on 10 May 2011. The notice of intention to cancel the lease described the lease as including the agreements to lease both stations, the deed of variation of lease dated 13 April 2010 and the settlement agreement dated 20 December 2010.
[24] The notice described default in the following terms: 13
a.not removing stock from all Mount Cook Station paddocks except the Station Trophy Block, in breach of the Settlement Agreement dated 20 December 2011;
b.releasing further animals onto the Mount Cook Station paddocks not leased by you, and allowing or failing to prevent hunters discharging their firearms on an area of Mount Cook Station other than the Station Trophy Block in breach of the Heads of Agreement dated
13 April 2010 and the Settlement Agreement of 20 December 2010.
12 Refer agreed bundle of documents at 80.
[25] The action required to remedy default:
(a) Included the removal of all of Mr Cunningham’s stock from all areas of Mt Cook Station other than Station Trophy Block. Mr Cunningham was required to remedy the default by Friday, 3 June
2011; and
(b)In relation to default b, the notice said that the breach was not capable of being remedied and that Mr Cunningham was required to pay compensation to the lessor of $5,000 also by Friday, 3 June 2011.
[26] There was then further unproductive correspondence between the parties, with the trustees ultimately issuing a notice of re-entry and cancellation of lease on
19 June 2011.14
[27] That notice referred only to those areas of the property known as Mt Cook Station, Braemar/Mt Cook Station Road leased to Mr Cunningham. The notice purported to cancel that lease for the reason that Mr Cunningham failed to remedy the defaults specified in the previous notice and to pay the sum of $5,000. It then purported to cancel the lease created by the agreement to lease dated 1 November
2005.
[28] Proceedings were then filed by Mr Cunningham on 5 August 2011, together with an application for an interim injunction. An interim injunction was granted by French J but on the basis that all stock were to be removed from the Mt Cook paddocks by 4 November 2011.15 Initially the trustees were concerned that this was not achieved. Mr Butterfield helpfully indicated that this was not an ongoing issue
for the trustees.
14 Refer agreed bundle of documents at 84
Issues
[29] With the benefit of helpful argument from counsel, the following key issues require determination:
(a) Whether Mr Cunningham breached clause 6 of the Settlement Deed;
(b)If Mr Cunningham has breached clause 6 of the Settlement Deed, were the trustees entitled to cancel the Mt Cook Station lease?
(c) If the trustees were entitled to cancel the lease, should
Mr Cunningham be entitled to relief from cancellation?
[30] Counsel have also helpfully agreed the primary factual issues in dispute, together with the factual issues on relief against forfeiture. I commend counsel for their assistance.
Breach of clause 6?
[31] Mr Till QC contends:
(a) Mr Bisset accepted under cross-examination that 150 hinds had been removed by Mr Cunningham;
(b)Any remaining breach was caused by poor fencing of the Station Trophy Block boundary which was the responsibility of the trustees, or joint responsibility of both Mr Cunningham and the trustees;
(c) Mr Bisset improperly interfered with Mr Cunningham’s ability to
remove the deer and other animals;
(d) The period to remove the animals included a period to implement the
“short term plan”;
(e) In any event, the obligation to remove was a reasonable endeavours obligation only.
[32] Under clause 6 Mr Cunningham was obliged to destock Mt Cook Station paddocks other than Station Trophy Block of 150 hinds and their fawns by 7 March
2011. I am satisfied that Mr Cunningham breached this clause. While it is difficult to be precise about the number of hinds that Mr Cunningham removed by 7 March
2011, Mr Cunningham accepts that he can only account for 130 animals being removed by that date.16 We also have the evidence of Mr Bisset that only 75 hinds were removed prior to this date, though as Mr Till points out he accepted that a further 75 hinds were removed sometime after that date. The short point, however, is that on all of the evidence, 150 hinds were not accounted for and removed from the site by 7 March 2011. There is then the evidence of Mr Clarke who said he encountered at least 83 deer on Mt Cook Station as late as 28 June 2011.17 There was also the further evidence of Mr Bisset that 40 red hinds were in fact removed as late as 9 June 2011 and that there were still 90 animals in the paddocks in September
2011.18
[33] I accept that there must be some doubt both as to the exact number of hinds not removed and whether the animals remaining on site after 7 March 2011 were Mr Cunningham’s. Nevertheless, I am satisfied that it is more likely than not that at least some of the animals sighted were hinds and their fawns and that the majority of the animals belonged to Mr Cunningham. I am fortified in this view based on the documentation supplied by the plaintiff attached to an email dated 3 June 2011 which records that:
40 hinds + 4 Elk have been removed Tuesday/Wednesday/Thursday this week. Helicopter and men used. 8 fallow deer trapped in cow paddock to be removed tonight, provided deer comply. Neville heading back up today.
[34] Self evidently, if all of the hinds had been removed in accordance with clause
6, and kept out of the paddocks, there would have been no need to remove 40 hinds.
16 Transcript at 113
17 Refer Brief of Evidence of Peter Clark at [13].
18 Refer Brief of Evidence of Ross McLeod Bisset at [28].
Fencing obligation
[35] Considerable energy was devoted by the parties to explaining the presence of the hinds and other animals after 7 March 2011. Mr Till contended that the stock found on the site after that date can be explained by the poor fencing between Station Block and the balance of the Mt Cook Station paddock. He then contends that the fencing was either the lessor’s responsibility and/or the joint responsibility of the parties. On that basis he says Mr Cunningham has a defence to the apparent breach, if any, of the requirement to destock the Mt Cook paddocks.
[36] This aspect was raised before French J who accepted that responsibility for the fence may impact on the question of Mr Cunningham’s liability for breach. She also observed that the matrix of facts is likely to be highly important.
[37] In my view this issue can be dealt with succinctly. Clause 6 imposes a positive obligation on Mr Cunningham to remove 150 hinds and fawns by 7 March
2011. Whatever rights Mr Cunningham held in respect of the Mt Cook paddocks, whether they relate to stock or fencing, he compromised those rights by agreeing to destock the Mt Cook Station paddocks (other than Station Trophy Block) of 150 hinds and their fawns by 7 March 2011.
[38] There is no reason to read down this obligation so that liability for breach can be avoided by virtue of the fact that the fence along Station paddock was in a state of disrepair. The parties were well aware of the status quo prior to the Settlement Deed. If Mr Cunningham did not consider that the Station Trophy Block fencing was appropriate for the containment of deer then he should not have made an unequivocal commitment to destock by 7 March 2011. That he may have overlooked the state of the fencing at the time that he signed the deed was his error, not the trustees. Moreover, nothing in the background facts suggests that the obligation to destock was qualified by the capacity of Station Trophy Block to hold the hinds. That clause would be utterly undermined by a fencing obligation on the part of the trustees to keep the stock out. The overt purpose of clause 6 was to have the stock removed by Mr Cunningham by 7 March. A more commercially sensible construction, and one I prefer, is that Mr Cunningham accepted an unqualified duty
to destock so as to settle all claims against him. Initially if he chose to use Station Trophy Block as a conduit for their removal, then he still had to ensure that he kept that stock out of the Mt Cook Station paddocks.
Interference
[39] There are then complaints by Mr Cunningham that Mr Bisset interfered with his attempts to remove stock. He referred to an occasion when Mr Bisset’s dog spooked some of the deer into escaping from a fenced paddock. While that may be so, Mr Cunningham cannot seriously complain when, because of his earlier failure to remove stock, he comes into conflict with the lawful occupants of Mt Cook Station. Nothing in the conduct described to me suggests that Mr Bisset went out of his way to thwart the removal of the stock. Any interference was a natural consequence of conflict between two different operations occupying the same station.
Short term plan
[40] Mr Till contended that any notice period for the purposes of removal of stock in a period to account for the “short term” plan referred to in the notice to remove stock. The effect of that, according to Mr Till, is that any 30 day notice period must be additional to the period allowed for by the short term plan. In my view that involves a misconstruction of the notice to remove stock. None of the witnesses could provide any particulars as to the content of the short term plan. But having regard to the surrounding facts, I consider that the reference to a short term plan was simply confirmation that the trustees were prepared to allow Mr Cunningham back onto the affected areas to give effect to a short term plan for removal. That was an indulgence afforded by the trustees. They were not required to provide that under the Deed. There is nothing to suggest that a greater concession was in mind and indeed that would be contrary to the notice itself. On that basis, I see nothing in the argument that any notice had to include a period for the short term plan and then a further 30 days’ notice.
Reasonable endeavours
[41] Finally, Mr Till submitted that the obligation to destock was a reasonable endeavours obligation only. With respect, there is nothing in the language of clause
6 to suggest that it is a best endeavours clause. While undoubtedly the stocking of deer is a difficult business, Mr Cunningham is an experienced deer farmer. It can be reasonably assumed that he understood what was required in terms of compliance with clause 6. Plainly also the trustees were seeking to secure clarity around the timing of removal of the stock given the experience that they had had with Mr Cunningham and his unilateral decision to move stock back onto the paddocks in July 2010. Finally, and contrary to Mr Till’s submission, the use of the term “reasonable endeavours” in the variation of lease does not assist Mr Cunningham. Rather, it suggests that the parties had moved away from a “reasonable endeavours” approach in the Settlement Deed given the far more prescriptive phraseology of clause 6.
[42] Given the above, therefore, I find that Mr Cunningham breached clause 6 of the Settlement Deed by failing to destock 150 hinds and their fawns by 7 March
2011. I further find that that breach was ongoing and extended beyond the 30 days specified in the notice to remove stock, dated 14 March 2011.
[43] For the sake of clarity I record that I am not satisfied that Mr Cunningham had failed to remove the 150 hinds by 3 June 2011. The evidence is simply not sufficiently clear that the number of hinds left on the property was other than negligible.
Other animals
[44] To this point I have focussed my analysis on the removal of 150 hinds and their fawns by 7 March. In relation to the other animals I adopt with respect the reasoning of French J on the proper construction of the scope of clause 6.19 In
particular, I adopt without qualification French J’s observation at paragraph [47]:
19 Paragraphs [43] – [48]
[47] It is also not tenable in my view to suggest that Mr Cunningham’s de-stocking obligation is limited to the 150 hinds. I accept the primary focus of the settlement agreement was the 150 hinds. However, as at the date of the settlement agreement there were also stags and other species belonging to Mr Cunningham such as tahr and chamois still on the relinquished paddocks. Mr Cunningham had a legal obligation at general law to remove his stock from land that was no longer leased to him and it is in my view most unlikely that the parties intended anything other than a complete clearance. Significantly, Mr Cunningham’s own lawyer, writing in May
2011, described Mr Cunningham’s obligation as being “to remove off the Mt
Cook Station paddocks any animals owned by him”. (emphasis added)
[45] What I will say, and what is clear, is that there were a number of other animals still on the property as at 4 June 2011 and therefore Mr Cunningham failed to comply with the notice of cancellation by the requisite date.
[46] Mr Till raises issues about the notice, which I will deal with later in this judgment. For present purposes, I simply observe that I am satisfied that there has been a material breach of clause 6 by Mr Cunningham.
[47] I note for completeness that Mr Whiteside submitted that the second default, namely, the releasing of further animals onto Mt Cook Station and the allowing and failing to prevent hunters discharging their firearms on the station, is no longer relied upon as a basis for cancelling the lease.
Were the trustees entitled to cancel the Station Trophy Block lease?
[48] Mr Whiteside submits that the obligation to remove the stock was a covenant attaching to the Mt Cook Station lease as varied by the Variation of Lease and the Settlement Agreement. He says that this covenant was a term of the remaining Station Trophy Block leasehold. Mr Till submits that the variation of lease terminated the lease of the Mt Cook Station paddocks, except the Station Trophy block. Therefore there could be no covenant to remove stock in respect of those paddocks. He says any remedy for any ongoing use of the paddocks by Mr Cunningham lies in trespass or for breach of the Settlement Deed.
[49] Subsequent to the hearing I invited the parties to submit on the doctrine of surrender and grant of lease, referring to a discussion on that topic in Halsbury’s
Laws of England (4th ed, reissue, 2006) vol 27(1) Landlord and Tenant at [634].20
That commentary states:
634. Surrender by grant of new lease to tenant.
A surrender by operation of law takes place when the tenant takes a new lease from the landlord to commence during the term of the old lease, even though the new lease is for a shorter term than the residue of the old term. This surrender is founded upon estoppels, and take place without regard to the intention of the parties. The landlord has no power to grant the new lease except upon the footing that the old lease is surrendered; and the tenant, being a party to the grant of the new lease, is stopped from denying the surrender. ...
[50] Mr Whiteside contends that the doctrine of surrender has no application here. He refers to clause 2 of the Variation. That states that the variation is “without prejudice” and “not in substitution ... of any rights under the Leases”. He also says
that the nature of the changes does not fall into the class of applicable cases.21 He
20 See also para 635
635. Variation of terms of lease
Where the terms of the relationship between the landlord and the tenant are altered by agreement, it is necessary to decide whether the alteration amounts to the creation of a new tenancy upon the altered terms, and thus of necessity the surrender by operation of law of the previous tenancy, or whether the alteration merely continues the previous tenancy in a varied form. Certain agreed alterations necessarily involve the surrender of the previous tenancy and its replacement by a new tenancy. The only way in which new land may be added to the demised premises is by the process of surrender by operation of law of the old lease and the grant of a new lease to include both the old and the new premises. Equally the duration of a lease can be extended only by the surrender of the existing lease and its replacement by a new lease for the longer term. As a matter of law the parties can achieve this intention only by the fiction of a surrender and regrant.
Other agreed alterations do not necessarily involve a surrender and regrant. If the parties wish, they may increase the rent payable under a tenancy without creating a new tenancy; and the old tenancy continues at the increased rent. The rent may be reduced in the same way. Other minor variations may be effected without a surrender and regrant. Where the agreement between the parties does not affect the terms of an existing tenancy, there is no reason to imply a surrender and regrant. Where, however, the parties intend that their altered relationship is to amount to a new tenancy, there will be a surrender of the previous tenancy.
21 Citing Wholesale Distributors Ltd v Gibbons Holdings Ltd [2007] NZSC 37 at [12] per
Blanchard J.
says that the term of the estate remained the same (i.e. to November 2015). He makes the point that the doctrine was developed in the context of assignment.22
[51] Mr Till contends that the changes squarely fall into the category of case invoking the doctrine, including a change in the term (from two rights of renewal of three years each to a continuous period of lease of just over five years). He also refers to an addition of a pen outside the new block and that the new arrangements involved a substantial reduction in the leased areas.
[52] In my view, the changed terms of the previous leases could only have been achieved by the fiction surrender and regrant. Indeed the changes directly contradict clause 2 and render it meaningless. In respect of the Cox’s Downs lease, the addition of the new paddocks inevitably involved a surrender of the previous lease and regrant encompassing those paddocks. In respect of the Mt Cook Station lease, the relinquishment of the Mt Cook station paddocks and the inclusion of alternative rights of access and egress also inevitably involved a surrender and regrant. I also accept that the term was changed. The lessee was now bound through to October
2015, instead of having a discretionary right to renew after three years. Those alterations fundamentally changed the underlying interests in land, such that neither party could deny the existence of the new terms or rely on the old – whether in land law or contract. I appreciate that this case does not neatly fit into the previous examples of surrender. There is authority that the doctrine had limited and rare application.23 But the changes were fundamental to the relationship of lessor and lessee and of a similar kind to those in the authorities.
[53] The immediate implications of this are:
(a) Mr Cunningham had no leasehold right to occupy the Mt Cook
Station paddocks (except Station Trophy Block) after the execution of the Variation, there being no ongoing lease of those areas.
22 A distinction I adopted in Niagara Sawmilling Company Limited Ltd v Carter Holt Harvey
Limited [2012] NZHC 441 at [36]
23 Refer Adams v Touchtwo (2011) 11 NZCPR 579 at [53].
(b)The Variation did however grant limited rights of occupancy, access and egress across Mt Cook Station paddocks as necessary to remove Mr Cunningham’s stock, for delivery of animals, and to take out shot animals.
[54] I accept therefore Mr Till’s submission that, on its face, an action for failure to remove stock lies in trespass as the right to occupy the Mt Cook Station paddocks was at an end. But in my view the residual question still remains as to whether the condition to remove stock from the Mt Cook Station paddocks also attached to the new lease of Station Trophy Block. (I exclude the potential for covenant attaching to the Cox’s Downs leasehold as the leasehold areas were treated separately throughout).
[55] My initial view was that it should not be treated as such because:
(a) The parties relinquished the leasehold estate in relation to the
Mt Cook station paddocks.
(b)The removal requirement is not directly or obviously attached to the ongoing occupation of Station Trophy Block. Indeed the term has nothing to do with occupancy of the leasehold estate. It is more obviously attached to the relinquishment of the balance of the Mt Cook Station paddocks. If anything, the condition is a term dealing with the exit from the previous lease rather than a condition of the new tenancy.
(c) The removal condition is a “best endeavours” clause. This is hardly a sound basis for a condition of the new lease giving rise to cancellation. If the parties had intended to make removal a binding condition attaching to the lease of the Station Trophy Block with associated rights of cancellation, then one might have expected clear enforceable terms.
[56] Be that as it may, the clause requiring removal is included in the Variation
Agreement. The Variation Agreement is on its face a lease or an agreement to lease
– it plainly purports to define a new basis for the purpose of lease of lands. By definition, a condition forming part of a lease or agreement to lease can give rise to a right to cancel under the Property Law Act 2007 (“PLA”).24 The PLA provides no express exception for the unhappily drafted “best endeavours” conditions, or for conditions that do not obviously relate to the demised estate.
[57] In addition, the trustees sue on a Settlement Deed that required Mr Cunningham to exit by 7 March 2011. That Deed compromised whatever pre- existing claims the parties had. This also had the effect of bringing clarity to what the parties meant by “best endeavours” and what was necessary to remedy an ongoing breach of the variation terms. The date was fixed by mutual agreement. This adds further validity to the conclusion that an actionable basis for cancellation arose as a consequence of the December 2010 Settlement Deed. Nor does the Settlement Deed make sense as a stand-alone agreement. It is tied to the operations under the variation and thus the new leases.
[58] On that basis, with some reluctance, I find that the trustees had a right to cancel for breach of the removal clause, as clarified by the Settlement Deed. Having said that, my analysis of what occurred is relevant in my view to the question of relief.
[59] For completeness I see no prejudice in allowing Mr Till to amend his claim to reflect the operation of the doctrine of surrender and re-grant. Mr Till has maintained throughout that there was nothing to cancel, because Mr Cunningham relinquished his leasehold rights to the Mt Cook paddocks. He has always said that the remedy against Mr Cunningham lies in trespass. The frame for this argument is that, in reality, the parties relinquished their rights under the previous lease. Mr Whiteside has always denied such relinquishment occurred. The underlying lis in substance addressed the same issues arising from the application of the surrender doctrine. Accordingly I allow the amendments. As it happens, the right to cancel has been
affirmed in any event.
24 Refer s 246 PLA.
Invalidity of the notice(s)
[60] Before I turn to relief, I address the various claims about the invalidity of the notices. Mr Till contends that the notices were invalid because:
(a) The notice of Intention to Cancel was invalid for prematurity given that the short term plan had not expired;
(b) The alleged breaches were not breaches of the new Mt Cook lease; (c) The alleged breaches are not sufficiently particularised;
(d) The alleged breaches include breaches of the Cox’s Downs lease;
(e) The demand for $5000 for breach of 1(b) was flawed as the demand related to breach of 1(a);
(f) The notice threatened cancellation of the Cox’s Downs lease, when that was never properly available to the trustees.
[61] I have addressed the issues relating to the reference to “short term plan” at [40]. For the reasons I give there I see nothing in this point. I have also resolved (albeit reluctantly) that the failure to remove stock was a breach of the new Mt Cook lease. Nor do I see or agree that the breaches are not sufficiently particularised. Mr Cunningham must have been well aware of the issues confronting him, and in particular his failure to remove stock in a timely fashion. Any lack of particularity is overwhelmed by the rather obvious fact that Mr Cunningham had failed, on his own admission, to remove the stock within the requisite time. I am not so sanguine about the allegations including breaches of the Cox’s Downs lease and a threat to cancel the Cox’s Downs lease. It might be said that by including references to the Cox’s Downs lease, the trustees were acting in an oppressive manner beyond the proper scope of a notice under s 246(1) of the PLA. Balanced against that, there is nothing in the evidence to suggest that the trustees were intending to act in an oppressive manner or that Mr Cunningham had an eggshell type constitution. In reality, the said threats in relation to Cox’s Downs lease did not have the desired effect. I am not
prepared to strike down the notices on that basis. The misdescription of the breach relating to the demand for $5,000 is so de minimis as to not, in my view, form a proper basis for striking down the notices. Accordingly, while I accept that the notices were defective in some respects, I do not consider that those defects were sufficient for me to find that those notices were invalid and therefore of no effect.
Relief
[62] There is no dispute about my jurisdiction to grant relief under s 253 of the Property Law Act 2007. I have a wide discretion.25 The leading case is Studio X Limited v Mobil Oil New Zealand Limited.26 In that case Hammond J sets out factors to guide the exercise of discretion. In combination, application of the factors assists in reaching a result that is proportionate.
[63] Helpfully the parties have been able to agree on the primary relevant issues in the exercise of the discretion in this case under the following six headings:
(a) Whether the alleged breaches of lease leading to the defendants’
forfeiture were deliberately committed.
(b)Whether the plaintiff has demonstrated a willingness to fulfil his obligations under the lease in the future if relief against forfeiture is granted.
(c) Compliance with the requirement to remove stock pursuant to paragraph [92](i) of the High Court judgment of 7 October 2011.
(d)Whether the plaintiff’s alleged breaches of lease leading to the defendants’ forfeiture were gross and caused lasting damage to the defendants.
(e) The conduct of the defendants.
25 Refer Hyman v Rose [1912] AC 623; McIvor v Donald [1984] 2 NZLR 487 at 494 (in relation to s 118 PLA 1952)
26 Studio X Limited v Mobil Oil New Zealand Limited [1996] 2 NZLR 697 (HC)
(f) Proportionality between the damage sustained and advantage to the defendants for the loss to the plaintiff.
Deliberate?
[64] There was undoubtedly an element of deliberateness in the conduct of the plaintiff. He intentionally moved stock back onto the property even though he knew that he was under an obligation to destock. Until the latter part of last year his actions to remove stock could be described as haphazard. Balanced against this I weigh the following factors. Mr Cunningham’s original obligation was a “best endeavours” obligation. This contemplates a level of latitude to be afforded to Mr Cunningham. Indeed, at least initially that latitude was afforded to him. There was no overt objection to him returning his stock to the Mt Cook Station paddocks. I also need to set his deliberateness within the wider frame of a relationship spanning many years and in a context in which Mr Cunningham appears to have compromised his position at the request of the lessor. There was then also the evidence that the removal of stock is a difficult task in particularly difficult terrain. This in part explains the haphazard nature of the stock removal. While none of this provides a complete excuse to Mr Cunningham for his breaches, it does not place his conduct at the most egregious end of the scale.
Willingness to fulfil obligations
[65] A unique feature of this case is that the removal of stock from the Mt Cook Station paddocks has little to do with the operation of Station Trophy Block. As I have observed above, I consider that this obligation had more to do with the relinquishment of the previous lease than the ongoing obligations under the current lease. I also consider that the previous non compliance arose out of particular circumstances of the requirement to remove in very difficult circumstances, and in fairness to Mr Cunningham, against a backdrop where he had not, at least in the early part of the non compliance, established suitable grazing areas in the new Cox’s Downs paddocks. Mr Whiteside raises concerns about Mr Cunningham’s current attitude towards the defendants, and in particular to Mr Bisset. While plainly there are difficulties, it was not a one-sided display of stubbornness. The failure on the
part of the lessors to rectify the failure to supply electricity is not reasonably explained. The failure of the trustees to engage in meaningful dialogue around, for example, alternative access to Station Trophy Block, does not cast them in a favourable light. I should record here that I appreciate, however, the frustrations that must have been felt by the trustees. Their stubbornness must be seen in that context. Nevertheless, a balanced picture is needed in terms of understanding the conduct by Mr Cunningham towards Mr Bisset and the lessors.
[66] There is then the concern that Mr Cunningham cannot keep to his bargain. The remainder of the bargain insofar as concerns Station Trophy Block is, with respect, relatively confined. I suspect that there may be ongoing issues regarding fencing obligations, but apart from that there is no obligation of the kind that has given rise to this dispute. With the stock now removed, there is no further need for the trustees to be diverted by this issue. I would further note, that if relief is granted, should Mr Cunningham’s stock find themselves back on the Mt Cook Station paddocks, then any further largesse of this Court will be very limited.
[67] Finally, Mr Bisset, the Mt Cook Station farm manager, conceded that he did not foresee any problem in relation to Station Trophy Block if the rules were clear. Mr Whiteside contended that only the trustees were in a position to make that comment. I do not agree. Mr Bisset is “on the ground”. His is the best evidence of practical difficulties. His concession confirms my view that the ongoing operation of Station Trophy Block ought not to give rise to the type of issues that have perplexed the parties to this point. I would also add that prior to this dispute, Mr Cunningham appeared to be able to carry out his duties in a way that satisfied Mr Burnett. It is also in his best interests to maintain his leasehold interest.
Compliance with High Court judgment of 7 October 2011
[68] It may be that Mr Cunningham had not fully succeeded in removing stock by the required date in the High Court judgment. But it is quite plain to me that Mr Cunningham put in a very significant effort to meet the terms of that judgment. It is also now the evidence of the trustees that he has finally succeeded in achieving
the objective of destocking. On that basis, whatever breach there was, was not of the kind to invoke the negative disposition of this Court to the question of relief.
Gross and lasting damage to the defendants
[69] While again I appreciate the trustees’ frustration, there was no evidence before me of any significant or lasting damage to the operations of the trustees or Mr Bisset as to the consequence of the failure to remove stock. It is plain to me that both the Mt Cook Station and Cox’s Downs are beset with issues relating to wilding pines. Those issues, in my view, persist irrespective of Mr Cunningham’s conduct. The trustees and Mr Bisset’s aspirations regarding a sheep farm and ongoing wilding pine removal may have been inhibited by all of this, but I do not see any lasting effect in that regard.
Conduct of the defendants
[70] I accept Mr Whiteside’s submission that Mr Butterfield fairly acknowledged proportionate responsibility for the dispute which has arisen and that the lion’s share of the fault lies with Mr Cunningham. I was also impressed by Mr Bisset and the honest way in which he delivered his evidence and I have no reason to suspect that he, while frustrated by Mr Cunningham, has acted in any underhand way. Nor, as Mr Whiteside suggests, do I put any significance on the evidence relating to discussions that occurred a year or more ago. Plainly there are different points of view, plainly there are frustrations, and both parties have demonstrated obstinacy. But the actions of the defendants in my view were not the primary cause of the problem and that is a factor favourable to them.
Proportionality
[71] It is quite plain to me that Station Trophy Block is an integral part of the plaintiff’s overall operations. I am satisfied that the Cox’s Downs property plays at most a supporting role to the Station Trophy Block, being the prime block for tourism based hunting. I do not accept Mr Whiteside’s submission that Mr Cunningham can simply continue his operations on the Cox’s Downs property.
While it is a tired cliché, Station Trophy Block is the jewel in Mr Cunningham’s crown. The loss of that lease would have a very significant impact, and ultimately in my view a disproportionate one on Mr Cunningham.
A final comment
[72] The genesis of this dispute in my view rests, at least initially, with poorly conceived contractual arrangements. The obligations of the parties are ambiguous at best and lack sufficient detail, particularly in terms of key matters such as critical paths and costings. In short, the contractual relations did not provide a coherent template for the future operations of the leasehold interests. Failure, for example, to clearly provide a critical path forward for the establishment of the Cox’s Downs paddocks and a critical path forward for the removal of stock from the Mt Cook Station, inevitably led to the difficulties first confronted by Mr Cunningham and then confronted by the trustees (in the form of Mr Cunningham’s difficulties about removal of stock in a timely fashion). In my view both parties must accept some blame for the lack of clarity, and it is a further reason why it would be disproportionate in the circumstances to refuse relief to Mr Cunningham. I should repeat, however, that Mr Cunningham has received all of the indulgence that he is entitled to even given those background facts.
[73] On that basis I make an order granting relief from forfeiture as sought by the plaintiff.
Other relief
[74] The parties have not addressed me on the conditions upon which I might grant relief from forfeiture. In my view, given the nature of the breach, this might be a case where relief from forfeiture might be granted in tandem with an award of damages. Having said that, I am not encouraging any elongation of this dispute.
The parties would do well to consider reaching agreement on this aspect and on the question of costs. In this regard I grant leave to the parties to file submissions on other relief and costs within 14 days with seven days for replies.
Solicitors:
Petrie Mayman Clark, Timaru, for Plaintiff
Timpany Walton, Timaru, for Defendants
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