Goertzen v All Traffic Management Services Limited

[2016] NZHC 2162

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

CIV-2015-454-68 [2016] NZHC 2162

IN THE MATTER OF

an appeal under s 72 of the District Courts

Act 1947

BETWEEN

JASON GOERTZEN AND LINDA OSBORNE

Appellants

AND

ALL TRAFFIC MANAGEMENT SERVICES LIMITED AND HAIMONA LEEF

Respondents

Hearing:

31 May 2016

(Heard at Wellington)

Counsel:

PSJ Withnall for Appellants
M Freeman for Respondent

Judgment:

13 September 2016

Reissued:

14 September 2016

JUDGMENT OF ELLIS J

I direct that the delivery time of this judgment is

3.45 pm on the 13th day of September 2016

GOERTZEN v ALL TRAFFIC MANAGEMENT SERVICES LIMITED [2016] NZHC 2162 [13 September

2016]

[1]      The trustees of the Jason Goertzen and Linda Osborne Family Trust, (the Trustees) own industrial premises at 9 Broken Hill Road, Porirua.1   On 23 July 2011 they entered into a lease of part of those premises with All Traffic Management Services Ltd (ATMS).  The commencement date in the lease was 1 September 2011. But ATMS did not move into the premises on that day, or subsequently.  Nor did the company ever pay any rent.   But the Trustees’ claim for unpaid rent and interest

failed in the District Court because the Judge found that the lease had been surrendered by operation of law. This appeal is the result.

The facts found in the District Court and Judge Atkins’ judgment

[2]      The trial before the late Judge Atkins QC took place on 2 October 2014, although it seems that further submissions were filed subsequently.   In any event, His Honour released his lengthy (180 paragraph) judgment on 21 May 2015.  In it, he canvassed the evidence, the submissions of the parties and the relevant law at some length.  He made a number of credibility findings against Mr Goertzen and in

favour of Mr Leef.2

[3]      No issue is taken with any of the Judge’s factual (or credibility) findings on appeal and the narrative which follows is based on his judgment.

The facts

[4]      The premises at 9 Broken Hill Road were in two parts.   The rear of the building was occupied by a scaffolding company and is not relevant to this litigation. The other part of the premises comprised an office, workshop and yard space.

[5]      Prior to the parties’ entry into the lease the front premises were used in their entirety  by  Levin   Bobcats   Ltd   (LB),   a  company  owned   and   operated   by

Mr Goertzen, although it seems there was no formal lease with the Trustees in place.

1      The Trustees are the two appellants, Jason Goertzen and Linda Osborne and a third (corporate) trustee, Todd Whitehouse Trustees Limited.   Mr Withnall advised that the corporate trustee should also have been named as a party to the proceedings and the appeal.

2      Goertzen v All Traffic Management Services Ltd [2015] NZDC 4163.

[6]      In the first half of 2011 LB (which was apparently trading under the name of another company owned by Mr Goertzen, Core Infrastructure Ltd) had entered a contract with the Wellington City Council for the installation of a water-main on Waterloo Quay.  LB contracted with ATMS to perform the traffic management aspect of that work.  Haimona and Terina Leef are the directors and shareholders of ATMS.

[7]      The lease arrangement entered into on 23 July 2011 related to part of the front area of the Broken Hill Road premises. The arrangement was that:

(a)       LB would move out of, and ATMS would then occupy, part of the office space,

(b)      there would be shared amenities and facilities, and

(c)       the  yard  and  workshop  areas  would  be  divided  between  LB  and

ATMS.

[8]      The lease had a three year term with annual rental of $36,000.   Mr Leef formally guaranteed the lease.

[9]      Sometime in August 2011, and in the course of a conversation about other matters (the Waterloo Quay project) Mr Leef told Mr Goertzen that ATMS did not wish to lease the premises because they were no longer “suitable”.  In his evidence at trial he said that this was because ATMS’ business had recently expanded and the premises were too small, although nothing turns on his reasons.  Mr Leef also said that Mr Goertzen expressed no particular consternation about that advice and that he merely responded by saying something like “sweet as” and then wanted to keep talking about other things.

[10]     Mr Goertzen said that, at this point, some work had been done to ready the premises for occupation by ATMS, although not much was, in fact, required.   He said that although the Trustees had agreed to put up a mesh fence dividing the part of the premises that was the subject of the lease and the rest, this never happened, because of the discussion with Mr Leef.

[11]     As I have said, ATMS did not move into the premises on 1 September or subsequently.   Unsurprisingly, a key was neither sought nor tendered.   The Judge found that the Trustees took no issue with this at the time and no demands for rent were initially made.   ATMS entered a new lease elsewhere which commenced in about October 2011.

[12]     LB continued to use the entire front premises as it had before.3   Vehicles and equipment were located in the courtyard and workshop areas while Mr Goertzen and his staff used all of the office space.4

[13]     ATMS and LB continued to work together on the Waterloo Quay project but that was coming to an end by the end of 2011.  At about that time an issue arose between them about payment of ATMS by LB for the work it had done.  Mr Leef accepted in his evidence that it was at about the same time Mr Goertzen started mentioning the matter of rent to him.

[14]     Mr Goertzen always acknowledged that payment for ATMS’ services was due but said he was awaiting payments from LB’s creditors.   Prompted both by LB’s continued default and Mr Goertzen raising the rent issue, ATMS engaged a debt collector in March 2012.   It was this action which appears to have provoked the Trustees to make more formal demands for the rent.  A series of backdated monthly invoices were prepared and sent to ATMS.  It seems that, before then, Mr Goertzen had hoped that he would be able to offset the debt LB owed to ATMS against the rent that he said was owed by ATMS to the Trustees.

[15]     A formal demand for rent arrears was issued in September 2011 but was not met.  The Trustees filed debt proceedings for the arrears, interest, and outgoings for the period 1 September 2010 to 30 April 2012.5   The premises were leased to a third

party as from 1 June 2012 and notice was given that the lease was cancelled.

3      In my view it does not matter whether LB moved back in or never moved out.

4      This continued until July 2012 when a new tenant was found.

5      The total amount claimed was $69,000 in rent (incl GST) with interest at 15 per cent per annum, which (as at 1 October 2014) totalled $29,576.

The Judge’s decision

[16]     Having  found  the  facts  generally as  I have  set  out  above,  Judge Atkins considered the law relating to implied surrender.   He referred in particular to the decision in Wildeboer v Carter6  where Penlington J had referred to the following statement from Woodfall’s Law of Landlord and Tenant:7

There is no legal distinction between a surrender by operation of law and an implied surrender. The term surrender by operation of law is applied to cases where the owner of a particular estate has been a party to some act the validity of which he is afterwards estopped from disputing, and which would not be valid if his particular estate had continued to exist. There the law treats the doing of such an act as constituting a surrender. A surrender by operation of law does not depend on the intention of the parties, it takes place independently, even in spite of intentions. The foundation of the doctrine is estoppel. There is no estoppel by mere verbal agreement; there must be in addition to such agreement some act done which is inconsistent with the continuance of the lease.

[17]     Judge Atkins then noted Penlington J’s further observations that:

(a)      the onus is on the tenant to prove that the landlord has accepted that the lease has been surrendered;

(b)the   conduct   of   the   parties   must   unequivocally  amount   to   an acceptance that the tenancy has ended. There must either be relinquishment of possession and its acceptance by the landlord, or other conduct consistent only with cesser of the tenancy;

(c)      whether there has been a surrender by operation of law is an inference to be drawn from all the facts, it being a matter of fact and degree; and

(d)if after the tenant has quitted the premises, the landlord re-lets them to another tenant who goes into occupation, a surrender is effected from the time of re-letting unless the landlord gives notice to the tenant that

the re-letting is on his account.

6      Wildeboer v Carter (1995) 3 NZ ConvC 192,022 (HC)

7      Kim Lewison (ed) Woodfall’s Law of Landlord and Tenant (looseleaf ed, Thomson/Sweet & Maxwell) at [17.018].

[18]     After referring to dicta to similar effect in Benjamin v Wareham Associates

(NZ) Ltd8 the Judge then stated:9

…    This  formulation  must  be  modified  if  the  lessee  was  not  yet  in possession.   It would be, in my view, sufficient if the lessee while not in possession had a right to possession which the lessee relinquishes or surrenders.

[19]     The Judge then applied the legal principles he had enunciated to the facts he had found.  His Honour’s conclusions were expressed as follows:10

…  Mr Leef’s account of what took place in the conversation between he and Mr Goertzen is an account which I accepted, despite some inconsistency in the language ascribed to Mr Leef when he advised Mr Goertzen that he did not wish to continue with the lease.   The inconsistencies to which I have referred are not of such significance as to suggest to me that Mr Leef should not be accepted as a witness to the truth.  This view is strengthened by the consideration that no invoices were prepared until All Traffic threatened to initiate proceedings against Levin Bobcats and this view is further strengthened  by  the  fact  that  legal  proceedings  were  not  initiated  until months  after  that.    Mr Huria’s  evidence,  supported  to  some  extent  by Mr Goertzen, satisfied me that Levin Bobcats had either remained in or had returned to use the part of the premises intended to be leased to All Traffic shortly after 1 September.  The Trust permitting this is an act inconsistent with any rights which All Traffic may have had under the lease.  The fact that the Trust permitted this amounts to conduct by the Trust which indicated acceptance of All Traffic’s position with respect to the lease, as does the Trust failing to seek rent until All Traffic initiated proceedings against Levin Bobcats. Accordingly, there was a surrender by agreement between Mr Leef and Mr Goertzen. The agreement was, as Mr Withnall submitted, brief in the terms  used  by  Mr Leef  to  describe  it  but  was  amply  confirmed  by  the premises not being made fully ready and by the action of permitting Levin Bobcats to occupy the premises which were the subject of the lease, there being no suggestion that any rent which would have been payable by Levin Bobcats  would  be  held  to  the  account  of All  Traffic,  all  of  this  being confirmed by the subsequent attempt to generate false invoices.  It was also confirmed by the failure of the Trust to make any demand for rent until after proceedings had been threatened by All Traffic Management against Levin Bobcats.    Accordingly,  there  was  the  verbal  agreement  attested  to  by Mr Leef, and acts done by the Trust which were inconsistent with the lease coming into operation, all of these taken together amounting to surrender by operation of law.

[20]     This rather lengthy paragraph can usefully be distilled into the following three essential propositions:

8      Benjamin v Wareham Associates (NZ) Ltd (1990) 1 NZ ConvC 190,638 (HC).

9      Goertzen v All Traffic Management Services Ltd, above n 2, at [152].

10 At [178].

(a)      there was a verbal agreement between Mr Leef and Mr Goertzen as to the surrender of the lease immediately prior to 1 September 2011;

(b)the  Trustees’ act  of  permitting  LB  to  remain  on  or  return  to  the demised premises was an act inconsistent with the continuation of the lease; and

(c)      the failure to issue timely rent invoices and the subsequent attempt to generate “false” ones supported the conclusion that there had been an implied surrender of the lease.

Approach on appeal

[21]     The principles governing general appeals are as set out in Austin, Nichols & Co Inc v Stichting Lodestar:11

[16]      Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion is an assessment of fact and degree and entails a value judgment. If the appellate court’s opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ. In such circumstances it is an error for the High Court to defer to the lower Court’s assessment of the acceptability and weight to be accorded to the evidence, rather than forming its own opinion.

[22]     Thus the onus is on the appellants to show that the judgment is wrong in some relevant way.   But if the Court is so persuaded then it can enter its own judgment  without  deference to  the trial  judge  other than the customary caution arising from the fact that he or she has had the advantage, in terms of credibility issues, of seeing and hearing the witnesses.

Discussion

[23]     At the outset, I record that I have been unable to find any surrender case in which the tenant had not entered into possession of the demised premises prior to the alleged surrender.  The proposition that a lessor would be content to give up a formal three  year  lease  before  it  had  commenced  with  no  thought  of  compensation

whatsoever  is  unlikely.    It  suggests  (at  the  very  least)  that ATMS  might  have considerable difficulty in meeting the already high threshold which it must cross in order for the Court to hold that the lease was indeed impliedly surrendered.

[24]     That said, however, no issue was taken by the parties with Judge Atkins’ finding that surrender was possible in a case such as the present and I therefore proceed on the same basis as the learned Judge.

[25]     In terms of the facts, the starting point here is that there is no dispute that:

(a)      the Trustees and ATMS entered into a valid and binding Deed of Lease and Mr Leef executed a valid and binding guarantee of ATMS’ obligations under it;

(b)before the lease commenced, and in the context of a conversation about other matters (the Waterloo Quay contract), Mr Leef advised Mr Goertzen that ATMS did not wish to take up the lease;

(c)      Mr Goertzen’s immediate response appears to have been a relaxed one, although there is a dispute about the meaning and weight that can be placed on the phrase “sweet as”; and

(d)ATMS unequivocally “abandoned” the demised premises by never taking possession of them, never paying rent and taking a lease elsewhere.

[26]     It seems to me that the critical question is whether the Trustees’ conduct here was so inconsistent with the continuation of the lease that it could only be justified as lawful  on  the  basis  that  they had  accepted  ATMS’  implied  offer  to  give  back possession, and had taken possession of the premises beneficially for themselves.12

In answering that question the subjective intentions of the parties are irrelevant.

What matters is that there should not be found to have been an implied surrender

unless what the lessor has done in response to the tenant’s departure is consistent

only with treating it as a surrender of the term.

[27]     As noted earlier, there were three essential components to Judge Atkins’ conclusion that there had been an implied surrender here.  The most important was his view that the Trustees’ act of permitting LB to remain on or return to the demised premises on or after 1 September 2011 was an act inconsistent with the continuation of the lease.  But this was supported (in the Judge’s view) by:

(a)       the   existence    of   a    verbal   agreement    between   Mr   Leef   and

Mr Goertzen as to the surrender of the lease immediately prior to

1 September 2011; and

(b)the Trustees’ failure to issue timely rent invoices and the subsequent attempt to generate “false” ones.

[28]     I accept that the Court is able to consider the cumulative effect of the acts relied upon.   The totality of a landlord’s conduct can amount to an unequivocal acceptance of possession even though each individual act might itself be less so.13

But regardless of whether the matters to which I have just referred are taken separately or together, I agree with Mr Withnall that they do not constitute or amount to the type of unequivocal conduct required for a surrender.   I set out my reasons below.

[29]     First, at the time the lease was entered, and at the time Mr Leef advised Mr Goertzen that ATMS wished to abandon it, the premises were occupied by LB. Although LB and the Trust are legal distinct entities they are closely associated. There was no evidence that LB had ever paid rent to the Trust.  In addition, under the lease with ATMS, LB was to continue using or occupying part of the premises; even had ATMS moved in to the premises, LB was not required to move out completely.

The lease itself did not require the Trustees physically to delineate between the two

13     See for example Artworld Financial Corporation v Safaryan [2009] EWCA Civ 303 at [29] and

[30].

parts of the premises (although the proposed boundaries were clear from the plan accompanying the lease).14

[30]     So it seems to me that the fact that LB continued to use and occupy the whole front premises after 1 September 2011, just as it had before, does not materially advance matters.   There was no evidence that, following Mr Leef’s advice, some new lease or other arrangement was entered into between the Trustees and LB. Rather, the maintenance of the status quo ante is entirely explicable in light of Mr Leef’s clear advice.   And given how easily and quickly ATMS’ tenancy could have been accommodated, LB remaining put cannot fairly be regarded as antithetical to ATMS’s rights, had the company chosen later to exercise them.  The suggestion that Mr Goertzen should have gone to the trouble of completing whatever minimal work  was  required  to  make  the  premises  ready  for  ATMS,  or  moving  LB’s operations to a smaller part of the premises, when he knew that ATMS was never going to move in makes no sense.  So I am unable to accept that permitting things simply to stay as they were, unequivocally evidences the Trustees’ acceptance of the

reversion.15

[31]     Secondly, there is the matter of the verbal “agreement”.   I simply cannot accept that any store can be placed in Mr Goertzen’s apparently relaxed response to Mr Leef’s advice about ATMS’ wishes in the context of a conversation about other matters.  As I have said the proposition that he would so happily forgo three years’ rent is startling.  Moreover he was but one of three Trustees.  He had trustee duties which, on any analysis, could not have meant that ATMS’ new position was “sweet as”.  And even if what Mr Goertzen said can be said to have reflected his own view of the matter, the subjective intentions of the parties go nowhere in the absence of

the required unequivocal act.

14     There is no indication that Judge Atkins rejected Mr Goertzen’s evidence that it was a quick and straightforward matter to erect the proposed mesh barrier.

15     The authorities make it clear that not every instance of use of the premises by the landlord for his own benefit will necessarily amount to a  retaking of possession.   The position is  not dissimilar to that in the seminal surrender case of Oastler, above n 12, where the occupancy of the abandoned premises by workmen engaged by the plaintiff in his saddlery business was held not to be an unequivocal act of surrender.

[32]     Thirdly,  the  supportive  weight  placed  by  Judge  Atkins  on  the  Trustees’ “failure” to demand rent from ATMS for a number of months was not in my view warranted.   As a factual matter, that omission must be seen in the context of the ongoing relationship between the parties in relation to the Waterloo Quay project and the “give and take” that Mr Goertzen seems to have expected in the course of it. The tenor of his evidence on this issue was that he had hoped that he would be able to set-off the debt that LB owed ATMS against the rent owed by ATMS to the

Trustees.16    Mr Leef agreed in his evidence that Mr Goertzen had started making

noises about the rent by the end of 2011.  But it seems that it was only when ATMS got in a debt collector that the penny dropped for Mr Goertzen and he realised that he would have to pursue the rent separately.

[33]     And even without a tenable factual explanation for the delay in this case, I do not think that a failure by a landlord to make immediate demand for rent under an abandoned lease can (without more) be viewed as evidence supporting acceptance of the abandonment.   In that respect the decision of the English Court of Appeal in Bellcourt  Estates  Limited  v  Adesina  is  instructive.17     There,  the  tenant  had abandoned the demised premises very soon after the lease had begun.  She had never

paid any rent.  The landlord accepted that he knew that she had left the premises but said he had been “too busy” to do anything about it.  He simply left the premises as they were for over a year and made no demand for any rent during that time.

[34]     The first instance judge had held that there had been a surrender of the lease by operation of law.  That decision was overturned by the Court of Appeal, one of whose members (Lord Justice Peter Gibson) said:18

I cannot see anything in the present facts amounting to such unequivocal conduct on the part of the landlord. … [I]n my judgment the facts relied on, being omissions on the part of the landlord, do not amount to unequivocal conduct by the landlord accepting any surrender. No authority has been shown  to us in  which  mere inaction is  enough.  Griffiths LJ  in  Preston Borough Council v Fairclough (1982) 8 HLR 70, at page 73, does say that:

16     I do not consider that Mr Goertzen’s frank evidence on this point (which was to the effect that he knew that LB and the Trust were separate entities and so there could be no legal off-set, but did not care “so long as I had money in my pocket”) justifies the inference drawn by the Judge that Mr Goertzen had little regard for the law.

17     Bellcourt Estates Limited v Adesina [2005] EWCA Civ 208.

18     At [32]-[33].

"If it could be shown that a tenant had left owing a very substantial sum of money and had been absent for a substantial time, then an application by the landlord under Order 24 might well be sufficient for a court to regard the tenancy as surrendered by operation of law

..."

To the extent that that tentative suggestion is based on the failure by the landlord to assert his rights for a substantial time, it is one about which, with all respect to Griffiths LJ, I would have serious reservations. In my judgment mere inaction would not be unequivocal conduct by the landlord. …

[35]     I respectfully agree.   I do not consider that the Trustees’ initial failure to

demand rent carries any weight here.

Conclusion

[36]     For the reasons I have given I consider the learned District Court Judge was wrong to find that there had been a surrender by operation of law here.  Whether regarded separately or collectively the matters relied on by him as supporting that conclusion do not constitute an unequivocal act by the Trustees that is inconsistent with the continuation of the lease.

[37]     The appeal is allowed and the judgment in the District Court is quashed. Judgment is to be entered for the Trustees on their claim.  Counsel are to agree and

submit memoranda as to the precise form of appropriate formal orders.

Solicitors:           Paul Withnall, Barrister, Wellington for Appellants

“Rebecca Ellis J”

Thomas Dewar Sziranyi Letts, Lower Hutt for Respondents