Gregory Retail Limited v Featherston 2009 Limited

[2015] NZHC 145

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2014-485-11291 [2015] NZHC 145

UNDER	Section 290 of The Companies Act 1993
IN THE MATTER OF	An application to set aside a statutory demand
BETWEEN	GREGORY RETAIL LIMITED Applicant
AND	FEATHERSTON 2009 LIMITED Respondent

Hearing:	5 February 2015
Counsel:	M R Taylor for Applicant P Barrett for Respondent
Judgment:	11 February 2015

JUDGMENT OF ASSOCIATE JUDGE SMITH

[1]      The applicant (Gregory) applies to set aside a statutory demand issued by the respondent  (Featherston)  on  29  September 2014,  for the sum  of $16,100.   The demand was issued for rent allegedly owing for the months of July and August 2014, in respect of commercial premises at 187 Featherston Street, Wellington.

Background

[2]      Gregory carries on business as a supplier of women’s fashion garments.   It operates twelve retail stores around New Zealand.   Featherston is a commercial property investor, which owns and leases premises in the building at 187 Featherston Street.     Featherston’s  parent  company,  Green  Newman  Holdings  Ltd  (Green

Newman) manages Featherston’s properties.

GREGORY RETAIL LIMITED v FEATHERSTON 2009 LIMITED [2015] NZHC 145 [11 February 2015]

[3]      On 29 July 2013, Gregory entered into an Agreement to Lease part of the ground floor premises at the Featherston Street property (the premises).   The Agreement to Lease provided for a commencement date of 1 July 2014, and rent was to be paid monthly, in advance, from the commencement date.  The parties agreed to be bound by the provisions contained in a proposed Deed of Lease, as if the lease had been duly executed.

[4]      The  agreement   required   Gregory  to   pay  the  first   two   months’  rent immediately.   That  payment  was  made soon  after the Agreement  to  Lease was signed.

[5]      The agreement also provided that certain works would be undertaken by Featherston prior to commencement date, and that Gregory was entitled to be reimbursed for the amount it would spend on light fittings (as part of the fit-out it would undertake prior to the commencement of trading at the premises), up to a maximum amount of $12,500 plus GST.   The parties agreed that Gregory could undertake the fit-out contemporaneously with the work Featherston would carry out, though Featherston’s work would take priority.

[6]      As the premises were not expected to be ready for occupation for almost a year after the signing of the Agreement to Lease, the parties entered into a temporary arrangement under which Gregory leased another part of the building (Tenancy 3) between 1 October 2013 and 30 June 2014.  The intention was that Gregory would move into the premises on 1 July 2014 and begin trading from the premises as soon as practicable thereafter.

[7]      There were delays in completing the work carried out by Featherston, and the premises were not ready for occupation by Gregory on the 1 July 2014 commencement  date.     The  temporary  lease  of  Tenancy  3  was  extended  to

31 July 2014 to accommodate that delay.

[8]      Featherston provided possession of the premises on 15 August 2014, although Gregory says that the works to be completed  by Featherston had still not been completed by that date.

[9]      The delays resulted in an exchange of emails between July and September

2014, between Mr Ormond of Gregory and Mr McGarry of Featherston.  Gregory says that, by emails dated 8 and 9 September 2014, the parties made a binding agreement that Gregory’s liability for rent for the premises would commence from

1 September 2014.   On that basis, no payment of rent would have to be made by Gregory until 1 November 2014, as the first two months’ rent had been paid by Gregory at the time of the signing of the Agreement to Lease in July 2013.

[10]     Featherston says that that is not what was agreed at all.  On its construction of the   emails,   Gregory   was   conceding   that   it   would   start   paying   rent   from

1 September 2014, as required by the Agreement to Lease.  It says that, on that basis, the parties agreed to allow certain extra costs which had been incurred in the fit-out and landlord works to lie where they fell.   By email dated 10 September 2014, Featherston   demanded   the   rent   payment   which   it   contends   was   due   on

1 September 2014.

[11]     Gregory refused to pay the rent demanded by Featherston, and Featherston subsequently issued the statutory demand for the rent instalment it says fell due on 1

September 2014.

[12]     Gregory submits that the dispute over the date it became liable for rent is a substantial and genuine dispute, sufficient to entitle it to have the statutory demand set aside.

[13]     In case that argument is unsuccessful, Gregory submits in the alternative that it has a set-off or counterclaim against Featherston, which also provides a sufficient basis for the statutory demand to be set aside.

[14]   Gregory relies on the following arguments in support of its claimed counterclaim and/or set-off.

[15]     First, it says that Featherston withheld payment of the $12,500 plus GST due to Gregory by way of contribution to Gregory’s expenditure on the light fittings. Featherston advised Gregory that the payment for the light fittings would not be

made  until  the  rent  demanded  was  received.     The  $12,500  plus  GST  was subsequently paid (on 4 November 2014), but Gregory says that sum was still due and owing to it on 29 September 2014 when Featherston issued its statutory demand.

[16]     Secondly, Gregory says that it has a claim for damages for breach of the Agreement to Lease, arising out of Featherston’s failure to provide possession of the premises on the 1 July 2014 commencement date.  These damages are said to exceed the sum now demanded by Featherston.

[17]     Gregory contends that the delays in completing the landlord’s works resulted from various factors, including a decision by Green Newman that the building contractor should prioritise another project.  There were particular delays over the construction of a new floor at the premises, for which Gregory says Featherston was responsible.

[18]     In  response to  Gregory’s argument over the light fittings reimbursement, Featherston says that Gregory had failed to provide it with appropriate evidence of its expenditure on the light fittings by the date the statutory demand was issued.

[19]     As to the claim for damages for delay in making the premises available to Gregory,  Featherston  points  to  the  fact  that  Gregory  was  given  occupation  of Tenancy 3 until 31 July 2014, and alleges that Gregory never intended to open its store at the premises until 1 August 2014.  Gregory was able to open its store only two weeks after that date.   Featherston also argues that the parties effectively had joint possession of the premises from an earlier point, while they were both carrying out work at the premises.

[20]    As an additional basis for rejecting Gregory’s counterclaims or set-offs, Featherston points to a “no deduction or set-off” provision in the form of Deed of Lease, which Gregory was required to sign.  While accepting that a landlord is not entitled to withhold payment of undisputed sums payable by it to the tenant and at the same time pursue unpaid rent by way of statutory demand, Featherston says that Gregory’s damages claims were disputed.

[21]     The “no deductions or set-off” clause appears as cl 1.1 of the agreed form of

Deed of Lease.

The Tenant shall pay the annual rent by equal monthly payments in advance (or as varied pursuant to any rent review) on the rent payment dates.  The first monthly payments (together with rent calculated on a daily basis for any period from the commencement date of the term to the first rent payment date) shall be payable on the first rent payment date.  All rent shall be paid without any deductions or set-off by direct payment to the landlord or as the landlord may direct. (Emphasis added).

[22]     This clause did not appear in the Agreement to Lease, and the Deed of Lease has not  yet been signed by the parties.   But cl 4.3 of the Agreement to Lease provided:

4.3Notwithstanding that the Lease may not have been executed, the parties shall be bound by the terms, covenants, and provisions contained in this agreement and in the Lease as if the Lease had been duly executed.

[23]     The form of Deed of Lease was not produced by either party in the first round of affidavits which were filed.   It was only produced with an affidavit sworn by Mr McGarry on 30 January 2015.  Mr Taylor initially objected to the late filing of this affidavit, but the possibility of Featherston providing a late supplementary affidavit  had  been  adverted  to  in  a  joint  memorandum  of  counsel  filed  on  24

November 2014, and Mr Taylor had included submissions directed to the effect of the “no deductions or set-off” clause in his written submissions filed in advance of the hearing.   In the circumstances, the late filing of the affidavit did not prejudice Gregory, and I directed that it would be received and considered.

Applications to strike-out statutory demands – general principles

[24]     Section 289(1) of the Companies Act 1993 (the Act) provides that a creditor may make a statutory demand in respect of a debt owing to it by a company.  The demand must be made in writing, and the amount of the debt must not be less than the  “prescribed  amount”  (presently $1,000).    Failure  to  satisfy the  demand  (by payment or by one of the other means set out in s 289(2)(d) of the Act) within 15 working days after service may result in the debtor being deemed “unable to pay its

debts”1, and provide a basis for the creditor to apply to the Court for a liquidation order.2

[25]     If the creditor’s claim is disputed, the company may apply for an order under s 290 of the Act, setting aside the statutory demand.  That is what Gregory has done in this case.

[26]     Section 290(4) of the Act provides as follows:

The court may grant an application to set aside a statutory demand if it is satisfied that –

(a)       There is a substantial dispute whether or not the debt is owing or is due; or

(b)       The  company  appears  to  have  a  counterclaim,  set-off,  or  cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less that the prescribed amount; or

(c)       The demand ought to be set aside on other grounds.

[27]   The principles the Court applies in hearing such applications are well established: 3

(a)      The applicant must show there is arguably a genuine and substantial dispute as to the existence of the debt.  The task for the Court is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.

(b)The mere assertion that a dispute exists is not sufficient.  Evidential material, short of proof, is required to support the claim that the debt is disputed.

(c)      If such material is available, the dispute should normally be resolved other than by means of proceedings in the Companies Court.

1      Section 287(a).

2      Section 241(4)(a).

3      Brookers Companies and Securities Law, Volume 1, at [CA 290.02(1)], referred to in Greys

Avenue Investments Ltd v Harbour Construction Ltd HC Auckland CIV-2009-404-002026, 12
June 2009 at [8].

(d)An applicant must establish that any counterclaim or cross-demand is reasonably arguable in all the circumstances.  The obligation is not to prove the actual claim…

(e)      It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.

[28]     However, a conflict in the evidence on its own does not necessarily mean that a setting-aside application cannot succeed.   The Court is not required to accept uncritically any or every disputed fact.4

The issues

[29]     The following issues arise from the parties’ submissions:

(1)Has Gregory shown that there is a genuine and substantial dispute over whether the debt is owing, based on agreement between the parties  that Gregory’s liability for rent would not commence until 1

September 2014?

(2)If not, has Gregory shown that there is a genuine and substantial dispute that it has a set-off or counterclaim against Featherston, equal to or greater than the sum claimed in the statutory demand, based on either or both of:

(i)Featherston having been under an obligation when it issued the statutory demand to pay Gregory the $12,500 plus GST for light fittings; or

(ii)      Featherston  having  breached  the  Agreement  to  Lease  by

failing    to    make    the   premises    available    for    Gregory’s

occupation on 1 July 2014?

4      Eng Mee Yong v Letchuman [1980] AC 331 at 341, applied in the context of a setting aside application in Freemont Design & Construction Ltd v W Stevenson & Sons Ltd, HC Auckland CIV-2005-404-4807, 20 April 2006 at [8].

(3)If Gregory has shown that there is a genuine and substantial dispute on   either   or   both   of   those   grounds,   is   Gregory’s   set-off   or counterclaim nevertheless defeated by the “no deductions or set-off” clause in the Deed of Lease?

Issue 1: Was there an agreement that Gregory’s liability for rent would not commence until 1 September 2014?

[30]     Gregory’s argument is that there was an agreement to vary the Agreement to Lease, which had the effect of granting it a “rent holiday” for the period 1 July 2014 to 31 August 2014.   The variation agreement is said to have been completed in emails passing between Mr Ormond of Gregory and Mr McGarry of Featherston on

8 and 9 September 2014.

[31]     These two emails were the culmination of a chain of emails which passed between the parties between 1 August 2014, (when Ms Weston of Green Newman sent an invoice to Gregory for rent from 1 September 2014), and 9 September 2014.

[32]     Mr Ormond replied to Ms Weston’s rent demand on 25 August 2014, stating that Gregory had sent an invoice for $14,375.01 for reimbursement for the amount it had spent on lighting, and inquiring when that would be paid.  Ms Weston replied the same day advising that she had been “advised to pay this when we have received your 1st September rent”.

[33]     Mr Ormond replied immediately, maintaining that the rent for September and October had already been paid (a reference to the two months’ rent paid when the Agreement to Lease was signed over a year earlier).  Later the same day, Ms Weston responded by email, contending that the lease commenced on 1 July 2014, and that the two months’ rent paid in 2013 only covered the months of July and August 2014.

[34]     Mr Ormond sent a further email on 25 August 2014.  In it, he alleged delays on the part of Green Newman in the completion of remedial site works, which should have been completed prior to the lease commencement date.  He stated that, as of 1 August 2014, Gregory had not been able to take possession of the site, as the works on the floor had not been completed (and were still unfinished on 25 August

2014).  The result was that Gregory had been unable to occupy the premises until mid-August 2014.

[35]     Mr Ormond took the stance that the delays in getting into the premises were the fault of Featherston  and/or Green  Newman; in any event, Gregory was not responsible.   He concluded this email by expressing the wish that common sense would prevail, and that he would not need to get Gregory’s lawyers involved.

[36]     In a further email dated 29 August 2014, Mr Ormond reiterated Gregory’s stance that delays in providing access to the premises were Featherston’s responsibility.  He stated that when it received the invoice for the September rent, Gregory took the view that Featherston was nominating 1 September 2014 as the date for the commencement of the lease.  Mr Ormond said that he was now unclear as to whether or not that was Featherston’s position, and that he wanted to have clarity   on   the   point.      He   contended   that   Green   Newman   owed   Gregory approximately one month’s rent for Featherston’s contribution to Gregory’s lighting expenditure, and that Gregory should have three months’ rent credited to its account (the  two  months’  rent  paid  in  2013,  plus  the  further  amount  for  the  lighting expenses), “whatever the lease start date is nominated to be”.

[37]     Mr Ormond concluded by stating that if the start date for the lease was

1 September 2014, there would be no need for the parties to involve their solicitors.

[38]     Mr Ormond sent yet another email to Ms Weston on 29 August 2014.  In this email,  Mr Ormond  asserted  that  rent  could  not  be  charged  to  Gregory  until occupancy had been granted, and that did not happen until mid-August 2014.   He stated that Gregory accepted that the start date for rent was 1 September 2014, and that if that position was accepted by Featherston, there would be no need for further discussion.  However, if that was not accepted, Mr Ormond stated that there would need to be an agreed start date for the Lease, and that the start date could not be before mid-August.

[39]     Mr Ormond’s   29  August   emails   were   passed   on   by  Ms   Weston   to

Mr McGarry for reply, and Mr McGarry sent a detailed email to Mr Ormond on 4

September 2014.   In it, he set out Featherston’s position on the question of responsibility for the delays in making the premises available, referring in particular to delays encountered with the laying of a new floor at the premises (Mr McGarry asserted that the single biggest reason the floor was delayed was Gregory’s decision to inlay a large marble feature into the floor).  He asserted that Green Newman had incurred considerable costs over and above what was agreed to in the Agreement to Lease, in an effort to help Mr Ormond “realise the Gregory vision”.  He considered that Gregory was the sole cause of the delays in the fit-out, and therefore the work on the floor being delayed.  He concluded that Gregory had no claim to a rent rebate or reduction.

[40]     Mr Ormond sent a detailed reply on 8 September 2014. This is the first of the two emails which is said to constitute an agreement to vary the Agreement to Lease. In the email, Mr Ormond traversed a number of issues associated with the remedial work  and  fit-out  at  the  premises,  and  set  out  details  of  particular  events  he considered relevant to the delay issue, running from 27 March 2014.  He noted that Gregory was not given access to the premises until 13 August 2014, and at that stage, work on the floor was still not finished.

[41]     In the email, Mr Ormond said:

As a result I have taken the view that the best way forward was that rent should  begin  on  September  1st   and  I  would  just  wear  the  costs  I  have incurred.

[42]     Mr Ormond concluded his 8 September 2014 email with the following:

Shaun [i.e. Mr McGarry] this is the communication trail regarding the floor and access to the site by Gregory.   In truth the above summary of communication is practically all the communication that happened between us.  Shaun delays happen.  I did not cause them.  I co operated fully with you.   I believe you have been motivated to get the best outcome in this project.  I repeat my position is we have this part of the project completed.  I have suggested we set the date of September 1st as the starting date for rent. We accept the costs incurred and we move on.  Ian [Ormond].

[43]     Mr McGarry replied by email on 9 September 2014. The first sentence read:

All things considered I am happy with your suggestion for rent to begin

September 1st.

[44]     Mr McGarry went on to express some regret that events had not proceeded more smoothly getting the store to open, and on behalf of his company he wished Mr Ormond and the Gregory team all the best.

[45]     On September 10 2014, Mr McGarry sent a further email.  He stated, “Now it has been agreed that rent should start on 1 September I attach our invoice and look forward to receiving your now overdue rent payment”.  He attached an invoice for

$16,100.  The invoice stated “Rent is due in monthly instalments payable montly in

advance – commencing 1 September 2014”.

My conclusion on the variation of rent issue

[46]     I accept Gregory’s submissions on this issue.

[47]     The question is whether Mr Ormond’s reference to the word “rent” in two

sentences in his 8 September 2014 email, read with Mr McGarry’s statement in his

9 September 2014 email “All things considered I am happy with your suggestion for rent to begin September 1st”, were references to Gregory’s liability to pay rent, or to the date on which it was to commence paying monthly rent instalments.

[48]     In   all   of   the   email   communications   between   1   August   2014   and

4 September 2014, it was clear that Gregory considered it had no responsibility for rent payments in respect of the months of July and August 2014 (or at least for July, and the period in August 2014 before it was able to occupy the premises).   For example,  in  an  email  sent  to  Featherston/Green  Newman  on  25  August  2014, Mr Ormond had said that he had assumed (from  Green Newman correspondence) that Green Newman was accepting that it had caused the major disruption in cost and

was “commencing the occupancy as at September 1st”.  And in his first email dated

29 August 2014, Mr Ormond had said that Gregory had taken the view that when it received the invoice for the September rent, Green Newman/Featherston was nominating 1 September 2014 “as the date of the commencement of the lease”.  In his second email, sent a few minutes later, Mr Ormond made it clear that, in his view, “rent cannot be charged to Gregory until occupancy is granted”.  He pointed out that occupancy was only granted in mid-August, and went on to say “Gregory

accepts the start date for Rent as September 1st”.

[49]     The background to the two emails of 8 and 9 September 2014, then, is that there  was  an  unresolved  dispute  between  the  parties  over  the  delays  in  the completion of remedial works at the premises, and consequently over responsibility for the rent for the period in July and August 2014 when Gregory was unable to occupy the premises.  In my view, the plain meaning of the expression “the starting date for rent” used by Mr Ormond in his 8 September 2014 email was the date on which Gregory would assume liability to pay rent for the premises.  The main issue in the prior correspondence had been over responsibility for the delays, and whether the commencement date of the lease should be delayed.   In that context, the expression “the starting date for rent” is more sensibly read as meaning the date from which Gregory would assume liability for the rent.

[50]     I note also that Mr Ormond said near the end of his 8 September 2014 email: “I have suggested we set the date of September 1st  as the starting date for rent” (emphasis added).  The italicised words imply that Mr Ormond was referring back to a position put by Gregory earlier in the correspondence.   If that is so, the only sensible reading of the sentence is that he was suggesting that the commencement date of the Lease be treated as 1 September 2014.

[51]     Looking at the other relevant sentence in Mr Ormond’s 8 September 2014 email – “As a result I have taken the view that the best way forward was that the rent should begin on September 1st and I would just wear the costs I have incurred” – the opening words (“As a result I have taken”…) again appear to be referring back to the stance taken by Gregory in its earlier communications on the delay/commencement question.

[52]     Mr McGarry’s response on 9 September 2014 – “All things considered I am happy with your suggestion for rent to begin on September 1st” – can only sensibly be read as an acceptance of Gregory’s proposal that the dispute would be settled on the basis that Gregory would assume liability for the rent from 1 September 2014.  I accept Mr Taylor’s submission that the use of the opening words “All things considered” suggests that Mr McGarry had taken on board the various arguments made by Mr Ormond, and was accepting a particular suggestion by Mr Ormond which  would  resolve  the  dispute.    The  language  used  by  Mr McGarry  in  this

sentence is not, on an objective reading, consistent with an intention to reject Gregory’s various arguments over responsibility for the delays and insist on strict adherence to the commencement date provided for in the Agreement to Lease.

[53]     Mr McGarry’s 10 September 2014 email came too late to affect the situation. What is relevant is not Mr McGarry’s subjective view of what had been agreed, but how a hypothetical objective observer, with knowledge of the relevant background and  the  events  leading  up  to  the  agreement  concluded  in  the  emails  of  8  and

9 September, would have understood those emails.  For reasons already stated, the best objective reading of those two emails is that an agreement was reached under which   Gregory’s   liability   for   rent   would   begin   in   September   2014.     The

10 September email came too late to affect that interpretation.

[54]     At the hearing, Mr Barrett submitted that there had been no “meeting of minds” on the issue “liability date or payment commencement date”.  He submitted that Mr McGarry had been focused on cashflow, rather than liability for the rent, whereas Mr Ormond appears to have been focused on the dispute over delays and when the lease (and with it the responsibility for rent) should commence.  Mr Barrett referred in his submissions to the case possibly being appropriate for the application of the Contractual Mistakes Act.  But if that were so, the case could hardly have been appropriate for the issue of a statutory demand to recover an undisputed debt.

[55]     I conclude that Gregory has established that there is a genuine and substantial dispute over whether the emails of 8 and 9 September 2014 sufficiently establish an agreed  variation  of the Agreement  of  Lease,  under which  the  Lease  would  not commence until 1 September 2014 and Gregory would have no responsibility for rent in respect of any period before that date.

[56]     In those circumstances, the statutory demand must be set aside, and I make an order accordingly.  There is no need to consider the various arguments advanced by counsel on the issues numbered 2 and 3 in paragraph [29] above.

[57]     Gregory, having succeeded in its application, it is entitled to costs, which I

award on a scale 2B basis, together with disbursements as fixed by the Registrar.

Associate Judge Smith

Solicitors:

Johnston Lawrence, Wellington for Respondent