Dunroamin Nurseries Limited v Zealandia Horticulture Limited

[2013] NZHC 1074

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV-2011-463-744 [2013] NZHC 1074

BETWEEN  DUNROAMIN NURSERIES LIMITED Plaintiff

ANDZEALANDIA HORTICULTURE LIMITED

First Defendant

ANDGRAHAM CAMPBELL WINDROSS Second Defendant

ANDVINCENT JOHN WYLAARS Third Defendant

Hearing:         29 April - 2 May 2013 (Heard at Hamilton)

Counsel:         TJG Allan for Plaintiff

G K Riach for Defendants

Judgment:      13 May 2013

In accordance with r 11.5 I direct that the delivery time of this judgment is 4.30pm on the 13th day of May 2013.

RESERVED JUDGMENT OF MACKENZIE J

Table of contents

Introduction  [1] Background  [2] The facts in more detail  [6] Section 24 and part performance  [26]

(a)      The approach  [26]

(b)      Was there a contract?  [28] (c)      Has there been part performance?  [43] (d)      Is it unconscionable for Zealandia to rely on s 24?  [48] The other causes of action  [55]

Result  [57]

DUNROAMIN NURSERIES LTD V ZEALANDIA HORTICULTURE LTD HC ROT CIV-2011-463-744 [13

May 2013]

Introduction

[1]      This is a claim by the plaintiff (Dunroamin) for specific performance by the first defendant (Zealandia) of a contract for the lease of a distribution facility on Dunroamin’s property.  Dunroamin alleges that an unsigned contract to lease was entered into in 2008 and that the contract is enforceable under the doctrine of part performance.    It  pleads,  in  the  alternative,  claims  based  on  estoppel  and  on misleading and deceptive conduct under the Fair Trading Act 1986.

Background

[2]      The background, which is not contentious, can be briefly stated.  Dunroamin is  a  family  nursery  business  conducted  by  Mr and  Mrs Gilmour  in  Rotorua. Zealandia is a specialist wholesale grower of annuals houseplants and commercial seedlings operating from a number of sites around New Zealand.  It is the product of a merger in 2007 between Mt Wellington Nurseries Ltd and Jornas Ltd.   Mt Wellington Nurseries Ltd had a bedding plant operation in Auckland and Levin, and was  run  by  the  second  defendant  Mr Windross.     Jornas  Ltd  was  based  in Christchurch and was run by the third defendant Mr Wylaars, and members of his family.

[3]      Mr and Mrs Gilmour,  Mr Windross  and  Mr Wylaars  knew  each  other  for many years through their involvement in a growers’ group of nurserymen.   That association between them led, in about 2007, to an informal arrangement whereby Zealandia used a modified greenhouse on Dunroamin’s property as a dispatch depot for seedlings and bedding plants for delivery to customers in the central North Island.  There was no formal lease.  Zealandia paid $100 per week for the use of the building.  Mr and Mrs Gilmour provided services to Zealandia in arranging transport and delivery to customers.   Zealandia paid for these services as invoiced by Dunroamin.

[4]      This arrangement was beneficial to both parties.  It grew in size and led to other business associations between the parties.  The distribution business grew, to the extent that the parties identified the need for a larger and more suitable depot.

Dunroamin had three quite old plastic greenhouses next to the building being used as the distribution depot.  Those greenhouses were used by Dunroamin to grow lettuces hydroponically.  A proposal was developed to demolish those and build a purpose built distribution depot on that site.  This proposal was developed and implemented over several months from about February 2008.  The depot was completed and Zealandia commenced operations from it in late August 2008.  No formal lease was ever signed.

[5]      Zealandia  occupied  the  depot,  and  Mr and Mrs Gilmour  continued  their involvement with the distribution of Zealandia’s products from that site, until about August 2011.    A  dispute  about  the  terms  upon  which  Zealandia  occupied  the distribution depot came to a head when Zealandia asserted that it occupied the premises on a month by month basis, and gave notice.  The previously harmonious and mutually beneficial business arrangements between the parties broke down and these proceedings were issued.

The facts in more detail

[6]      With that description of the uncontentious background, it is now necessary to address events in more detail, in areas where there is a contest between the parties. In the discussion which follows, I concentrate on those aspects of the narrative which are directly relevant to the claims in this proceeding.  There were, as I have mentioned, other business associations between the parties.   The souring of relationships from the dispute over the terms of occupation of the depot has led to some disputation over other aspects of the business relationship.  The plaintiff claims that the alleged lease is part of a larger business arrangement.  I heard a good deal of evidence about those wider arrangements.  It is not necessary for me to address that evidence in detail.  I consider that the only relevant exchanges between the parties are those which relate directly to the terms of occupation of the distribution depot. The case is to be decided by reference to that aspect of the relationship.

[7]      The proposal that a larger, purpose-built depot be built was first specifically discussed   at   a   meeting   between   Mr and Mrs Gilmour   and   Mr Windross   at Mr Windross’ home on 2 February 2008.  Mr Gilmour said that the proposal was put

forward by Mr Windross.  Mr Windross said that Mr and Mrs Gilmour proposed the construction of a larger building.  Nothing turns on who initiated the proposal, and I need not resolve the conflict on this point.  Detail was not discussed at that meeting. In particular, there was no specific discussion as to the terms on which Zealandia might  lease  the  proposed  facility.     Mr Windross  said  that  he  indicated  to Mr and Mrs Gilmour that Zealandia would be willing to pay a higher rental for a larger building to allow Dunroamin to recoup the building’s construction cost.  He said the terms of this arrangement were left to be agreed at a later date.

[8]      It  is  clear from  the  evidence that  the discussion  at  that  first  meeting  in February 2008 was at a very general level and no specific terms were discussed or agreed.  The proposal was progressed following that meeting in the spirit of trust and cooperation which then existed between the parties.  The discussions at this meeting did not lead to a concluded agreement on any aspect of the proposal.

[9]      The  next  face  to  face  discussion  on  the  proposal  was  at  a  meeting  on

9 April 2008  at  Mr and Mrs Gilmour’s  home  with  Mr Windross  and  Mr Wylaars. The  type  of  building  which  was  needed  was  discussed.    Messrs  Windross  and Wylaars explained to Mr and Mrs Gilmour the features that the building would need to have.  Mr Gilmour’s evidence was that Messrs Windross and Wylaars said that if they could reach agreement on an appropriate building, Zealandia would lease it for a period of ten years with a right of renewal of five years.   Messrs Windross and Wylaars both deny that was said.  Again, I need not resolve that conflict.  Whatever was said about the terms of any lease at that meeting, it is clear that no agreement was reached.   Nor did the discussions reach a point where an offer was made by either side.  The proposal was still at a very early stage.  At that meeting, the parties also discussed the possibility of their setting up a hydroponic lettuce growing operation on the site which Zealandia had recently acquired at Napier, to be run by Mr and Mrs Gilmour.  That would replace the hydroponic lettuce growing operation in the greenhouses which would be demolished to make way for the proposed new building.

[10]     Following  the April  meeting,  Mr Gilmour  progressed  matters  on  several fronts.    First,  he  obtained  a  number  of  quotations  from  a  number  of  potential

suppliers for a building.   Mr Windross also obtained one quotation, and sent it to Mr Gilmour.  Second, Mr Gilmour telephoned his solicitor, Mr Hughes, on 16 April to discuss a proposed lease.   Mr Hughes’ file note of that discussion shows that Mr Gilmour was considering two options.  The first was that Dunroamin would lease the land only and the lessee would build the depot.  The second was that Dunroamin would build and lease the building.  Mr Gilmour’s indication at that stage was that the building proposed, a Kiwispan type building of some 265 square metres, would cost about $60,000 to build.

[11]     Third, Mr Gilmour discussed the proposal with his bank manager, Mr Owen, because Dunroamin would need to borrow to finance the building.

[12]     Fourth,  Mr Gilmour  consulted  a  valuer,  Mr Gillespie,  on  29 April.    He showed Mr Gillespie plans which he had obtained from Kiwispan for the building and explained the proposal and roughly how much the building would cost to build. Mr Gillespie gave him a verbal indication that a likely annual rental figure for what was proposed would be in the region of $35,000 to $37,000 per annum.  Mr Gilmour in evidence said that he then telephoned Mr Windross and advised him what the valuer had said.  He said that Mr Windross was comfortable with that level of rental. Mr Windross did not mention any such conversation with Mr Gilmour in his written brief of evidence.  In supplementary evidence in chief, when Mr Gilmour’s evidence was put to him, he said that he did not recall that conversation.  Under cross- examination, Mr Windross accepted Mr Gilmour’s evidence about that conversation. I find that Mr Gilmour did advise that level of rental, and that Mr Windross did not demur.  No firm offer of a rental figure was made or accepted in that conversation.

[13]     Messrs Windross and Wylaars said in their prepared briefs of evidence that they both visited the Dunroamin property again on 3 May 2008. They both accepted, in   supplementary   evidence   in   chief,   that   Mr Gilmour’s   evidence   that   only Mr Windross visited on that occasion was correct.  The details of the proposal were not discussed during that visit.  There is some difference between the evidence of Mr Gilmour and Mr Windross, as to the extent of preparatory work which had been carried out on the site at the time of that visit.  I need not resolve the detail.  It is common ground that some preparatory site work had been done.   Mr Gilmour’s

evidence was that the plastic greenhouses were demolished in May.  The lettuce growing business was listed for sale with a broker on 12 May.

[14]     On 27 May 2008, Mr Gilmour went to see Mr Hughes and instructed him to prepare a draft lease.  His file note records the matters discussed.  The fact that Zealandia would be the lessee was recorded.  Dunroamin would build and lease, thus confirming that the second option discussed at the meeting of 9 April would be proceeded with.   Mr Hughes’ note records Mr Gillespie’s advice of the estimated rental  of  $35,000  to  $37,000  per  annum.    It  also  records  an  instruction  from Mr Gilmour  that  the  rent  would  be  $30,000  so  long  as  Zealandia  employed Mr Gilmour, otherwise there would be a rent review.  Brief details of how the draft lease was to deal with some ancillary matters such as rates, insurance, the use of power and water, maintenance, and vehicle crossings were recorded.  The note records that Mr Hughes’ instructions from Mr Gilmour were that the term of the lease was to be ten years with two yearly rent reviews and a five year right of renewal.  The lease was to commence when the building was ready.  That was noted to  be June  or July.   A commencement  date  of  1 August 2008  was  recorded  by Mr Hughes.

[15]     Mr Gilmour arranged with Mr Hughes for the draft lease to be available in time for a meeting at his home in Rotorua with Messrs Windross and Wylaars on Monday, 9 June 2008.   Mr Hughes’ records showed that Mr Gilmour collected it before that meeting, on either 6 or 9 June.  Messrs Windross and Wylaars came to the Gilmour’s home, had dinner, stayed overnight and left early the following morning, on  10  June.    Mr Gilmour’s  evidence  was  that  there  was  about  nine  hours  of discussion.    Both  Mr Windross  and  Mr Wylaars  said  that  the  time  would  have included a meal and socialising.   I find that there was sufficient time spent in discussion to enable the proposal to be fully discussed.  Mr Gilmour had with him at the meeting the quotes and plans for six prospective buildings.  He also had the draft lease which Mr Hughes had prepared.  That was on the Auckland Law Society form of Deed of Lease and contained provisions consistent with Mr Hughes’ file note of his instructions from Mr Gilmour.  Mr Gilmour’s evidence is that at the meeting he offered, and Messrs Windross and Wylaars accepted, a discount on the market rate from $37,000 per annum to $30,000 per annum on the basis of Zealandia employing

him and Mrs Gilmour in the operation.  He says that Messrs Windross and Wylaars agreed  to  lease the Kiwispan  building once constructed for an  annual  rental  of

$30,000 plus GST and operating costs, for ten years with biannual rent reviews. They said that they wanted the structure up and completed before spring.

[16]     Mr Windross’ evidence in chief in his prepared brief was that he did not recall seeing a draft Deed of Lease at that meeting.  He said that there was no discussion about rental on 9 and 10 June, and that he had agreed a figure of $2,500 a month with  Mr Gilmour  in  an  earlier  telephone  discussion.    In  cross-examination,  he accepted that there was a Deed of Lease on the table in the course of that meeting but says that it was not discussed and that he had no interest in talking about a lease. Mr Wylaars did not in his prepared brief mention whether the draft lease was tabled at the meeting on 9 June.   He said that there was no discussion about leasing the building at that meeting.  He accepted that the draft Deed of Lease could have been tabled at that meeting but said that Mr Gilmour did not refer to it.  The statement of defence admits the allegation that the lease was tabled at that meeting.  It is common ground that Messrs Windross and Wylaars were not given a copy of the Deed of Lease  which  Mr Hughes  had  prepared,  to  take  away  following  the  meeting  on

9 June.

[17]     There was a further meeting about the new depot at Mr Windross’ home in Auckland  on  8 August 2008.     Mr and Mrs Gilmour  and  Messrs  Windross  and Wylaars were present.  The Deed of Lease was given to Mr Wylaars at that meeting. That  is  not  disputed.    It  is  admitted in  the statement  of defence.    Mr Wylaars’ evidence is that he did not look at the lease agreement.  It was left sitting on the file and forgotten about.

[18]     The building was finished in mid-August and Zealandia occupied and began using the building from 25 August 2008.   Dunroamin sent an invoice to Zealandia dated 31 August which included an item of $2,500 for “rent (new facility in use)”. Subsequently, invoices were sent monthly for the rent, and for other services which Dunroamin was supplying to Zealandia.

[19]     There was some further correspondence concerning the lease.  In November

2008  Mr and Mrs Gilmour  emailed  Messrs  Windross  and  Wylaars  referring  to previous discussions and said:

After talking with you both in Napier recently, we have since discussed the various issues and would like you to consider the following:

1.        Deed of Lease to be completed and to include [at your suggestion

Vince] the following expenses,

Rental	$2500.00
Phone/fax/b/b/, powe[r]	$250.00
W/M Bin Hirea[ge]	$63.00
Station[e]ry Average	$100.00
Insurance Building	$50.00
Rates	$33.00
Incidentals	$50.00

Therefore,  monthly  rental  including  related  expenses  would  be

$3046.00 plus G.S.T.

[20]     Mr Gilmour’s evidence is that on 22 December 2008 Mr Wylaars came to stay with Mr and Mrs Gilmour, and on that visit commented that he had forgotten to bring the lease with him.  I accept that evidence.  In his written brief of evidence, Mr Wylaars acknowledged that he did forget to retrieve the Deed of Lease and deal with it on the odd occasion that he travelled to Rotorua and met with the Gilmours. Mr Wylaars said he had also forgotten to bring the lease when he came to stay with the Gilmours on 11 February 2009.

[21]     On 15 September 2009 Mr Wylaars sent an email to Mr and Mrs Gilmour in which he said:

I have also been checking the files and unfortunately I have lost the copy of the lease agreement that you provide[d] us, can you please send me a copy so that I can get it ratified by our solicitor.

[22]     Mr and Mrs Gilmour  sent  a  copy.    Mr Wylaars  emailed  them  again  on

7 October 2009 and said:

I am in Auckland tomorrow for the day, have the lease agreement with me and will check it out with Graham.

[23]    The use of the building by Zealandia, and the payment of rental and other expenses of the distribution operation, continued until mid-2011, when the current

dispute   over   the   terms   of   occupation   came   to   a   head.      In   June 2011, Mr and Mrs Gilmour wrote to Zealandia in these terms:

Recently we have been advised by our Bank that our business is undergoing an audit process.  There is nothing untoward in this; however our Bank has asked for a copy of the executed lease between our two companies.  As you know, you have not returned the lease.  You have been sent two leases, both on identical terms. You informed us that you mislaid the first lease. We now enclose a further copy (now the 3rd  copy) for signing by yourselves. Hopefully you will not mislay this one!

Reference  is  made  to  previous  emails  back  in  2008  and  15 Sept 2009 between yourselves and ourselves referring to this lease agreement.   All terms remain the same as the original 1st copy of the lease.

We would appreciate your attention to this as soon as possible to satisfy our Bank’s requirements and your tenant obligations.   Both Dianne and I are keen  to  complete  the  formalities,  notwithstanding  your  continued compliance with the lease terms.  It is simply a matter of getting all the paperwork in order and the Bank’s request has prompted us to focus on tidying up the loose ends.

[24]     That  letter  prompted  this  response,  by  email  dated  6 July  2011  from

Mr Wylaars:

Further to your forwarded copy of the lease agreement, sorry I have not got back to you earlier but been flat out with earthquake issues.

I have looked into it and correspondence around the lease, I do recall you presenting the lease to us sometime ago but not the content of the lease.  I have now had advi[c]e which is not to enter into this agreement the bases of

1.The zoning for the site is Rural A and truck parking and distribution is not a permitted use.

2.        The ten year term was to[o] long.

3.The clause relating to the rental being subject to you being employed or contracting to Zealandia is unacceptable.

On the bases of this we have been renting the property on a month by month bas[i]s and as the depot at this point in time is no further use to us we therefore advise notification of the termination of the lease.

[25]     Mr and Mrs Gilmour reacted with surprise to that email.  They sent a reply contesting Zealandia’s ability to cancel the lease.   That elicited a response from Mr Wylaars dated 1 September 2011 in which he said:

1.We have of course known that you were seeking to enter into a lease containing certain terms, but we have never accepted those terms

and had been delaying responding to you because we wanted to see how things were working out and thus be in a position to negotiate terms which would have been acceptable to both parties.  I do not know what correspondence you are referring to that is inconsistent with that.  We do not accept that by continuing to pay rent Zealandia Horticulture Limited is fixed with a document which has been proffered by you but never signed and contained terms which we were never going to agree to.

2.As it turns out, and with the way our business has developed we now see no future in retaining occupancy of the Hamurana Road property and for that reason are seeking to terminate the tenancy.

3.I accept that in my email to you of 6 July 2011, I may not have effected a valid termination because a termination date was not mentioned.  Accordingly, notice is now given that the tenancy will terminate on 31 October 2011.

4.Notwithstanding that termination and in order to give you ample opportunity to re-let the property, Zealandia Horticulture Limited is prepared  to  continue  making  payments  to  you  at  the  rate  of

$2,500.00 per month until such time as your property is re-let, or until and for the month ending 30 September 2012, whichever is the

earlier.

5.This proposal is made without prejudice and is made in the hope that it will avoid us being involved in what, realistically, could become a protracted argument with you which might end up needing to be litigated, but we should made it clear that we in no way resile from the position that Zealandia’s tenancy of your property has been on the basis of a statutory monthly tenancy.

Please advise me whether you accept this offer as being in full and final settlement of any issues between us.

Section 24 and part performance

(a)      The approach

[26]     The contract which the plaintiff seeks to enforce is a lease of land.   It is subject to s 24 of the Property Law Act 2007, under which it is not enforceable unless it is in writing signed by the party against whom the contract is sought to be enforced.    It is  common ground that  there is  no such signature.   To  avoid the operation of s 24, the plaintiff relies on s 26, which preserves the operation of the law relating to part performance.

[27]    The approach to be adopted in a part performance case is described in TA Dellaca v PDL Industries Ltd.1    In a statement endorsed by the Court of Appeal in Mahoe Buildings Ltd v Fair Investments Ltd and Fleming v Beevers,2  Tipping J said:3

Against the background of the authorities and learned writings which I have traversed  and  for  the  reasons  given  I  am  of  the  view  that  in  a  part performance case the Court must consider three points which I would frame as follows:

1.Was  there  a  sufficient  oral  agreement  such  as  would  have  been enforceable but for the Act?

2.Has there been part performance of that oral agreement by the doing of something which:

(a)       clearly amounts to a step in the performance of a contractual obligation or the exercise of a contractual right under the oral contract; and

(b)       when viewed independently of the oral contract was, on the probabilities, done on the footing that a contract relating to the land and such as that alleged was in existence.

3.Do the circumstances in which that part performance took place make it unconscionable (fraudulent in equity) for the defendant to rely on the Act?

(b)      Was there a contract?

[28]     The first question is whether there is a contract which would, but for s 24, be enforceable.   Tipping J formulated the question as being whether there was “a sufficient oral agreement”.  I consider the term “oral agreement” in that formulation is intended to encompass a wider range of contract than merely a contract entered into by words not in writing.  The question is whether there is a contract entered into by any means which would be valid at common law but which does not meet the requirements of s 24.

[29]     The discussions between the parties prior to the meeting on 9 June 2008 did not  go  further  than  preliminary  negotiations.    Mr Gilmour’s  evidence  was  that

1      TA Dellaca v PDL Industries Ltd [1992] 3 NZLR 88 (HC).

2      Mahoe Buildings Ltd v Fair Investments Ltd [1994] 1 NZLR 281 (CA); Fleming v Beevers

[1994] 1 NZLR 385 (CA).

3      TA Dellaca v PDL Industries Ltd, above n 1, at 109.

Mr Windross proposed a term of ten years with a right of renewal.   Mr Windross’ evidence  was  that  he  indicated  to  Mr Gilmour  in  February 2008  that  Zealandia would be willing to pay a higher rental for a larger building to allow Dunroamin to recoup the building’s construction cost.  He said that the terms of this arrangement were left to be agreed at a later date.  Whichever of those versions is correct, it is clear that any discussions as to the term of the lease on 8 February was preliminary and did not result in either an agreement, or an offer capable of acceptance.  The meeting  on  9 April 2008  also  did  not  take  the  matter  as  far  as  a  contract. Mr Gilmour’s evidence was that Messrs Windross and Wylaars said that if they could reach agreement on an appropriate structure and constructed it, Zealandia would lease for a period of ten years and a five year right of renewal.  I consider that, on the balance of probabilities, a lease term of ten years, and possibly a five year right of renewal, was mentioned at that meeting.  It is not however necessary for me to make a  specific  factual  finding  on  that  issue.    Even  if  Mr Gilmour’s  evidence  was accepted, then his evidence, as I have described it, makes it clear that there was no concluded agreement or formal offer at the meeting on 9 April.

[30]     At the meeting on 9 June, the draft lease which Mr Gilmour had had prepared by  Mr Hughes  was  on  the  table.    I  prefer  Mr Gilmour’s  evidence  that  it  was discussed, to Mr Windross and Mr Wylaars’ evidence that it was not.  Mr Gilmour had instructed his solicitor to prepare the lease and he had it available by the time of the meeting.  The statement of defence admits it was tabled.  Both Messrs Windross and Wylaars acknowledged only that it was possible that a lease was produced at the meeting.  In the light of the admission in the statement of defence, I consider that their evidence plays down the extent to which the lease was referred to or discussed, to the extent that I do not find their evidence on this point credible.  There is an air of unreality in the proposition that the lease, which had been specifically obtained in time for, and was produced at, the meeting, was not discussed at all.

[31]     It is common ground that a copy of the lease was not taken away by the two Zealandia directors.  If the discussion had reached the stage where, analysed in terms of  the  contractual  process  of  offer  and  acceptance,  Mr and Mrs Gilmour  as  the Dunroamin representatives had made an offer in terms of the lease at the meeting, then  it  seems  unlikely  that  no  copy  would  have  been  given  to  the  Zealandia

representatives.  They would have needed a copy to enable them to consider it so as to convey their acceptance or rejection of that offer.  I find that the evidence does not establish an offer by Dunroamin to enter into a lease on the terms of the prepared document, at that meeting.

[32]     At the meeting on 8 August, a copy of the lease was given to Mr Wylaars. Mr Gilmour’s prepared brief suggested that Messrs Windross and Wylaars said at that meeting that they were happy with the terms in the Deed of Lease, in particular the rental term of ten years with biennial rent reviews and a single right of renewal for five years.  In cross-examination he agreed that the discussion about the right of renewal had been at an earlier meeting, and he did not intend in his brief to suggest that this was discussed at the meeting on 8 August.  Messrs Windross and Wylaars both denied that they had agreed on the terms of the lease.   I find that no oral contract was entered into at the meeting on 8 August.  I find that, in handing over the copy of the lease document in the course of that meeting, in the light of the previous discussion, Dunroamin made a formal offer to Zealandia to enter into a lease of the then partly constructed building, on the terms contained in the lease document prepared by Mr Hughes.

[33]     There was no oral acceptance or rejection of that offer, either at the meeting on  8 August  or  subsequently.    Oral  acceptance  is  not  the  only  way  in  which acceptance can be conveyed.  Acceptance by a party of an offer made by the other party may be inferred from the totality of their conduct.4    Zealandia entered into possession of the premises on 25 August.  It did so in circumstances where Zealandia had made no offer to Dunroamin of the terms on which it was prepared to contract, nor had it given any indication, by words or conduct, that the terms offered by Dunroamin, in the lease prepared by Mr Hughes, were not acceptable.  Silence is not

acceptance,  but  conduct  accompanied  by  silence  may  be.    Zealandia’s  conduct cannot be interpreted in any other way than as an acceptance of Dunroamin’s offer.

[34]     Mr Windross and Mr Wylaars were both firm in their evidence that they did not intend to enter into a lease on that basis.  But it is clear, from their evidence as

well as that of Mr Gilmour, that they never conveyed that to Mr Gilmour.   The

4      Brogden v Metropolitan Railway Co [1877] 2 App Cas 666 (HL).

question  whether  Zealandia’s  conduct  constitutes  an  acceptance  of  Dunroamin’s

offer is to be determined by the objective appearance of the conduct of the parties.5

The first question is whether a reasonable bystander would consider Zealandia to have assented to the terms proposed by Dunroamin.6    I consider that a reasonable bystander would clearly have answered that question in the affirmative.   That objective test is subject to the qualification that Dunroamin must have believed that Zealandia was assenting to the terms which had been proposed by it.7   Mr Gilmour’s evidence, and the correspondence, establishes that Dunroamin did have that belief.

[35]     There is no evidence of any other actual mutual intention of the parties.  The conduct of both parties, in giving and taking possession, is not consistent with any legal relationship between the parties other than that of lessor and lessee.  Zealandia had not offered terms on which it was willing to enter into a lease.   Dunroamin’s conduct in allowing Zealandia into possession therefore cannot be construed as its acceptance of an offer by Zealandia, because there was no such offer.  The only possible analysis is that Zealandia accepted the terms which had been offered by Dunroamin. Those were the only terms which were ever proffered.

[36]     Zealandia contends that there is not sufficient certainty in the offer made by Dunroamin as to the premises let.  Certainty as to the extent of the premises is required by the general principle that any agreement which is to have contractual force must be in terms which define the obligations with a sufficient degree of certainty.8   It is also required by the specific requirement that, in a lease, the spatial extent of the premises must be clearly identifiable.  The certainty of terms required does not mean that those terms be clear beyond argument.   The fact that there is room for dispute over the terms of a contract does not lead to the conclusion that the

contract fails to meet the requirement for certainty of terms.

5      Smith v Hughes (1871) LR 6 QB 597 at 607; Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd [1981] 2 NZLR 385 (CA) at 388; Airways Corporation of New Zealand Ltd v Geyserland Airways Ltd [1996] 1 NZLR 116 (HC) at 124-126.

6      Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [19], applied, by analogy, to contract formation as well as to contract interpretation.

7      DW McLauchlan “Actual consensus ad idem in contract – unnecessary but surely sufficient?”

[1995] NZLJ 45.

8      Wellington City Council v Body Corporate 51702 (Wellington) [2002] 3 NZLR 486 (CA) at [30].

[37]     The  premises  were  described  in  the  Deed  of  Lease  as  “that  part  of  the landlord’s property at 403 Hamurana Road, Rotorua including driveway and parking areas, loading bay, newly constructed building and plastic house”.  Mr Riach submits that there may be uncertainty in that there is a driveway adjacent to the new building which serves Mr and Mrs Gilmour’s house.   I do not accept that submission.   I consider that it is possible to identify from the photographs produced a sufficiently clearly defined and separate area of the plaintiff’s property subject to the lease.   I consider that it is clear that the driveway to the house is not included in the lease. The driveway referred to in the lease comprises the separate entrances from Hamurana Road used by trucks loading and unloading in the new building.

[38]     The lease prepared by Mr Hughes contained provision for guarantees from each  of  the  four  directors  of  Zealandia:    Messrs  Windross  and  Wylaars,  and Mr Wylaars’ two  brothers.    This  had  not  been  discussed  with  Mr Gilmour,  but Mr Hughes added it as he considered it an appropriate provision.  Those guarantees have not been provided.  I must consider the effect of that on the contract which I have held was entered into between Dunroamin and Zealandia.

[39]     There is insufficient evidence to establish that any of the four directors have agreed to give a guarantee.  Two of the directors have not been directly involved. Mr Windross and Mr Wylaars, in their dealings with Mr and Mrs Gilmour, have been acting in their capacity as directors of Zealandia, not in their personal capacities. The enforceability of the guarantee is not directly in issue in this proceeding. However, I need to address the possibility that the absence of agreement by at least some  of  the  directors  to  give  the  personal  guarantees  may  vitiate  the  contract between Dunroamin and Zealandia.   I conclude that it does not.   The guarantees would  constitute  separate  contracts  between  each  guarantor  and  Dunroamin. Because the guarantees were not in place, it would have been open to Dunroamin to decline to allow Zealandia into possession until the guarantees had been obtained.  It did not do so.  That failure means that Dunroamin does not have the benefit of guarantees of performance of Zealandia’s obligations.   It does not affect the enforceability of the contract between Dunroamin and Zealandia.   The absence of contracts of guarantee does not affect the validity of the contract between Dunroamin and Zealandia.

[40]     I accordingly find that there was an offer by Dunroamin, made not later than

8 August 2008, to lease the new building to Zealandia on the terms contained in the lease prepared by Mr Hughes.  That offer was accepted by the conduct of Zealandia in entering into possession of the premises on 25 August 2008.

[41]     I have reached that conclusion by a traditional offer and acceptance analysis of the process of contract formation.   There are cases which depart from that approach.  They consider whether the totality of the dealings between the parties should be regarded as having resulted in a contract coming into existence.9    I have not found it difficult to apply the traditional approach here.  If I had adopted the alternative approach, I would likewise have reached the conclusion that the totality of the dealings must be regarded as having resulted in a contract on the terms of the

lease.

[42]     I accordingly answer the first question in Dellaca in the affirmative.

(c)      Has there been part performance?

[43]     The second question is  whether there has been part performance of that contract by the doing of something which clearly amounts to a step in the performance of the contractual obligation or the exercise of contractual right under the contract which, when viewed independently of the contract, was, on the probabilities,  done  on  the  footing  that  a  contract  such  as  that  alleged  was  in existence. The part performance must be an act by the plaintiff.

[44]     Dunroamin  allowed  Zealandia  to  enter into  possession  and  allowed  it  to remain in possession for a period of over two years.  Dunroamin submitted invoices for the rent, which were paid by Zealandia.   Those actions by Dunroamin are consistent only with the existence of a contract.

[45]     They  are  not  consistent  with  Zealandia  being  in  occupation  under  some different contract, for the reasons given in dealing with question 1.  There is no other

9      See for example Boulder Consolidated Ltd v Tangaere [1980] 1 NZLR 560 (CA) at 563 and

Meates v Attorney-General [1983] NZLR 308 (CA) at 377.

potential contract pursuant to which Zealandia could have taken possession.   The only possible basis upon which Zealandia could have occupied the building was as a tenant under a lease.  As I have held, there was no offer by Zealandia to take a lease on any other terms.  At most, there is evidence of a subjective, but uncommunicated, intention that Zealandia would lease the premises for a term sufficient to enable Dunroamin  to  recover  its  costs.    As  I  have  held,  there  was  no  such  offer. Dunroamin’s actions in allowing Zealandia into possession could not be interpreted as acceptance by Dunroamin of an offer by Zealandia to lease the building on some other terms.

[46]     For these reasons, Dunroamin’s action in allowing Zealandia into possession clearly amounts to a step in the performance of a contractual obligation under the offer which it had made in putting forward the Deed of Lease, and, which Zealandia accepted by going into possession.   Dunroamin’s recovery of rent from Zealandia clearly amounts to the exercise of a contractual right under that contract.   When these actions are viewed independently of that contract, both of these actions were, on the probabilities, done on the footing that a contract relating to the land such as that alleged was in existence.

[47]     I answer the second question in Dellaca in the affirmative.

(d)      Is it unconscionable for Zealandia to rely on s 24?

[48]     The  third  question  is  whether  the  circumstances  in  which  that  part performance took place make it unconscionable for the defendant to rely on s 24 of the Property Law Act.

[49]     It is clear on the evidence that Mr and Mrs Gilmour had reposed considerable trust in Zealandia, in particular Mr Windross and Mr Wylaars.  They had restricted their ability to carry on the hydroponic lettuce growing business by demolishing the greenhouses.  They had carried out earthworks.  They had entered into a contract to erect a building and had erected it.  They had borrowed money to finance the building.  All these steps had been taken before Dunroamin had any contractual certainty as to its position with Zealandia.   Dunroamin had also taken other steps,

such  as  selling  the  lettuce  growing  business  to  Zealandia,  the  transfer  of  that business  to  Zealandia’s  Napier  site,  and  the  management  by  Mrs Gilmour  in particular of that business, which, though not directly a consequence of the proposed lease arrangement, were closely connected with it.  Dunroamin had done all of this because Mr and Mrs Gilmour trusted Messrs Windross and Wylaars.  It was put to Mr Gilmour in cross-examination that Mr Windross particularly has something of a reputation as being a man of his word and operating on a hand shake.  He was asked if he found that fair and described it as “very fair”.  He confirmed that he trusted both men having known them for some considerable period of time.

[50]     These actions by Dunroamin before it had certainty as to its contractual position left it exposed if Zealandia had not, by its conduct in going into possession, agreed to the terms of the lease.  It is not necessary for me to consider what remedy, if any, Dunroamin might have had if Zealandia had backed away at the last minute before a lease contract was in place.   Zealandia did not do that.  To have done so would have been unconscionable.   The evidence of Mr Windross and Mr Wylaars recognises that it would have been unconscionable for them to have walked away before they were contractually bound.  It would be equally unconscionable for them to invoke s 24 after the contract had been entered into, because it was unsigned.

[51]     Mr Riach submits that it is not unconscionable for Zealandia to adopt the position it has because the lease has been in force for several years and rental has been paid sufficient to recoup Dunroamin’s costs.  I have held that the evidence does not establish any offer by Zealandia to enter into a contract on that basis.  Zealandia did not at any stage, either in negotiations or in submissions by its counsel at trial, quantify what term it considered would be needed to recoup Dunroamin’s costs.  It would clearly not be sufficient to fix, as the term, the period over which rent at the agreed rate equals building costs.  Dunroamin would also incur other expenses and outgoings which it would need to recover.  Some allowance for the use of the land would be needed.  Finance costs would have to be taken into account. An element of profit would also be usual.

[52]     It is not necessary for me to consider whether, while the lease was in force and up to the point when it was repudiated by Zealandia, the arrangement has been

profitable to Dunroamin.  The question is not whether it is now unconscionable for Zealandia to rely on s 24 of the Act, but whether the circumstances in which part performance  took  place  make  it  unconscionable  for  it  so  to  rely.     Those circumstances make it clearly unconscionable for Zealandia to rely on the Act.

[53]     Further, if circumstances after the part performance are relevant to whether it is unconscionable for Zealandia to rely on s 24 of the Act, it is not sufficient to consider only whether the arrangement has lasted long enough to be profitable to Dunroamin.  It is also necessary to consider Zealandia’s conduct after it entered into possession.   The actions of Mr Wylaars, in particular, in that period add to the unconscionability of Zealandia’s position.   His communications conveyed the impression that there was no issue over the lease, merely tardiness or forgetfulness on his part.  That would need to be taken into account, along with the matters relied on   by   Mr Riach,   in   assessing   whether   reliance   on   s 24   would   now   be unconscionable.

[54]     I answer the third question in Dellaca in the affirmative.

The other causes of action

[55]     Those  answers  mean  that  the  first  cause  of  action  must  succeed.    That decision makes it unnecessary for me to consider the causes of action based on estoppel and the Fair Trading Act.   I can deal with those very shortly.   Had I concluded that there was not a sufficient contract apart from the requirements of s 24, or had I concluded that there had not been part performance of that contract, I do not consider that a remedy would have been available under the doctrine of estoppel.  Estoppel, as pleaded here, could not give rise to a cause of action.  If there was no binding contract, then the defendant could not be estopped from denying the existence of a binding contract.

[56]     The Fair Trading Act cause of action requires  the plaintiff to  prove that Mr Windross or Mr Wylaars engaged in misleading and deceptive conduct.  I have discussed their conduct, to the extent that that is necessary, in dealing with the cause of action in contract.  Because it is not necessary to go further, it is preferable that I

do not make a finding as to whether that conduct is misleading or deceptive in terms of the Fair Trading Act.

Result

[57]     The plaintiff’s claim succeeds.  There will be an order that the first defendant execute and specifically perform the Deed of Lease.

[58]     The plaintiff also seeks judgment for rental and operating expenses from

30 June 2011 until the end of the term of the lease.   That relief is inherent in the order for specific performance.  I do not consider that judgment for any specific sum of money is required, or appropriate, at this stage.  I reserve leave to the plaintiff to apply further if necessary.

[59]     As to costs, cl 6 of the Deed of Lease provides that the tenant shall pay the landlord’s legal costs (as between solicitor and client) of and incidental to the enforcement of the lease.  My preliminary view is that cl 6 makes this an appropriate case for an award of indemnity costs under r 14.6(4)(e) of the High Court Rules. Leave is reserved to the parties to file memoranda if costs cannot be agreed in the light of this indication.

“A D MacKenzie J”

Solicitors:         Grove Darlow & Partners, Auckland for Plaintiff

Harmans Lawyers, Christchurch, for Defendants.