Griffiths v Akatea Developments Limited HC Auckland CIV-2007-404-3677
[2008] NZHC 2290
•30 April 2008
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2007-404-3677
BETWEEN JOHN LAWRENCE GRIFFITHS Appellant
ANDAKATEA DEVELOPMENTS LIMITED First Respondent
ANDJOHN GARY ADSETT Second Respondent
Hearing: 31 October 2007
Appearances: M S Cole for Appellant
D S McGill for First and Second Respondents
Judgment: 30 April 2008 at 3:00 pm
RESERVED JUDGMENT OF COURTNEY J
This judgment 30 April 2008 at 3:00 pm pursuant to r 540(4) of the High Court Rules.
Registrar / Deputy Registrar
Date……………………….
Solicitors: Shean Singh, P O Box 10018, Dominion Road, Mount Eden
Fax: (09) 630-0650
Duncan Cotterill, P O Box 5326 Wellesley Street, AucklandFax: (09) 309-8275 – D S McGill
Counsel: M S Cole, P O Box 651 Shortland Street, Auckland
Fax: (09) 307-5292
GRIFFITHS V AKATEA DEVELOPMENTS LTD HC AK CIV-2007-404-3677 30 April 2008
Introduction
[1] Prior to 1998 a company controlled by the second respondent, Mr Adsett, ran an eco-recycling business from premises in Akatea Street, Glen Eden. Mr Adsett also had an option to purchase the premises. However, the company went into receivership in late 1997. The appellant, Mr Griffiths, agreed to assist Mr Adsett. He purchased the assets of the business from the receiver, took over the option to purchase the premises and allowed Mr Adsett to continue running the business.
[2] In August 1998 this arrangement was formalised through a deed of lease in favour of Mr Adsett and the sale of the business to a newly incorporated company, Akatea Developments Limited which is the second respondent and controlled by Mr Adsett. However, in February 2005, after a long period of the rent being in arrears, Mr Griffiths levied distress against machinery owned by Akatea and, on the same day re-entered, and terminated the lease.
[3] Akatea and Mr Adsett both sued Mr Griffiths for losses arising out of the distress and re-entry. Akatea succeeded on the basis that Mr Adsett was the tenant and therefore the distraint of its machinery amounted to conversion. Mr Adsett succeeded on the basis that, as a result of the re-entry he was unable to draw income from the company for a period of two years. He also succeeded on a claim for general damages for inconvenience, stress and anxiety.
[4] In relation to Mr Griffiths’ counterclaim for arrears of rental and outgoings said to be owing under the lease, the Judge found that Mr Adsett was the tenant, that the lease had been varied to reduce the rent specified in it and that Mr Griffiths was estopped from enforcing the terms of the lease for the period prior to October 2004. The counterclaim was left on the basis that counsel should either resolve the quantum issues or file memoranda in accordance with these findings.
[5] Mr Griffiths appeals the findings on both the claim and counterclaim, asserting that:
a) There had been an equitable assignment of the lease to Akatea and he was therefore entitled to levy distress against Akatea’s plant and machinery;
b) The lease was not varied so as to reduce the rental;
c) He was not estopped from insisting on the full rental specified in the lease;
d) The Judge’s assessment of damages awarded to Akatea was wrong;
e) Mr Adsett was not entitled to damages at all.
[6] An appeal by way of rehearing is to be conducted in accordance with the recent statements of the Supreme Court in Austin Nichols & Co Inc v Stichting Lodestar1. I must make my own assessment of the merits of the case and, while I may defer to findings made by the District Court Judge, I am not bound to do so and may reach a different view even on factual issues.
Was the lease equitably assigned to Akatea?
[7] Mr Cole, for Mr Griffiths, contended that the lease had been assigned equitably, either by virtue of the agreement between Mr Griffiths and Akatea for the sale and purchase of the business or as a result of Mr Adsett allowing Akatea to occupy the premises and pay the rent. Although Mr Griffiths’ pleadings asserted that the lease had been assigned to Akatea, either legally or equitably, the Judge did not canvass the principles relevant to assignment or consider the evidence that might have supported that possibility.
The principles relating to equitable assignment
[8] The legal assignment of a lease can only be achieved by either the registration of a Memorandum of Transfer (in the case of a registered lease)2 or the execution and delivery of a deed of assignment (in the case of an unregistered lease).
1 [2007] NZSC 103 at [16]
2 s97(1) Land Transfer Act 1952
However, it is possible for a lease to be assigned equitably. The two requirements of equitable assignment are, first, an intention to assign and secondly, an act of assignment. The authors of Dal Pont & Chalmers: Equity and Trusts in Australia3 observe that:
…an assignment requires proof of an intention to transfer a chose in action to the assignee in a manner binding on the assignor, not merely an intention to give a revocable mandate while retaining ownership of the chose in action. The assignment is effective only if the alleged assignor “intends to part with his dominion over the property” [Smith v Perpetual Trustee Co Limited (1910) 11 CLR 148 at 159 per Griffith CJ]. If the evidence denies an intention that the assignment takes immediate (or any) effect, no equitable assignment arises.
[9] In New Zealand the requirements for an equitable assignment were restated by Paterson J in Northland Forestry & Timber Limited & Anor v Tai Tokerau Corporation Limited4, where the sub-lessee had sold its business under an agreement that required it to assign its interest in the sub-lease to the purchaser. The sub-lease permitted assignment with the head lessee’s consent but that consent had never been obtained. On the issue of whether there had been a valid assignment of the sub-lease to the purchaser of the business Paterson J held:
The essential elements of a valid equitable assignment are first, an intention to assign, and secondly, an act of assignment. The terms of the business agreement provided for such assignment and the giving of possession was sufficient to constitute an equitable assignment.
[10] This decision is contrary to the earlier decision in Re Jayar Distributors (in liquidation)5 where the occupation of premises and payment of rent was held not to amount to an assignment. The authors of Hinde McMoreland and Sim - Land Law (1997)6 assert that this is the correct position, citing the decision in Re Jayar. However, in Lal v Round Tower West Limited7 Williams J disagreed with Re Jayar, preferring the approach taken by Paterson J in Northland Forestry & Timber. Williams J held that the lessee who had given up possession of premises and ceased to pay rent had given up his interest in the premises and that the arrangement constituted an equitable assignment of the lease.
3 4th ed 2007
4 (2000) 4 NZ Conv C193, 280
5 (1994) 2 NZ Conv C 191,763
6 paras 5.126 and 5.128
7 (2004) 5 NZ Conv C 193, 947
[11] I, too, think that Re Jayar does not properly reflect the application of the accepted principles. The right of exclusive occupation and the obligation to pay rent are essential aspects of tenancy. The surrender of the right to occupy in favour of another must have the effect of altering the nature of the interest previously held. Whilst the obligation to pay rent endures vis-à-vis the landlord in the event of the sub-lessee defaulting, the agreement by the lessee to allow another to occupy the premises coupled with the assumption by that person of the obligation to pay rent is properly characterised as an act of assignment even in the absence of the landlord’s consent. Therefore the acts of a lessee in giving up possession of the premises in favour of another and allowing another to take over the payment of the rent are capable of constituting acts of assignment.
Circumstances leading to Akatea’s occupation of the premises
[12] The recycling business that was operated from the premises had previously been owned by Bedrock Industries Limited, which was controlled by J G Adsett Holdings Limited. Some of the plant and equipment was owned by Bedrock and some by J G Adsett Holdings Ltd. In 1997 Bedrock went into receivership. Mr Griffiths agreed to assist Mr Adsett to preserve the business. To this end he acquired Bedrock’s assets from the receiver and made them available to Mr Adsett to continue operating the business.
[13] Prior to the receivership J G Adsett Holdings Limited had agreed to purchase the premises. As a result of the receivership it was unable to complete the purchase. Mr Griffiths took an assignment of the sale and purchase agreement, settled the purchase and allowed Mr Adsett to run the business from there.
[14] From early 1998 Mr Adsett ran the business under the name of “Aggregates
& Soils”. Initially, his occupation of the premises and use of the plant and machinery were not subject to any formal agreement. In August 1998 the parties formalised the arrangement. Mr Adsett leased the premises pursuant to a Deed of Lease dated 11 August 1998. Akatea purchased the business (comprising plant and machinery, goodwill and stock) for $127,000 to be paid by 31 December 1998 (though in the event not paid until February 1999).
[15] Although dated 11 August 1998, the Deed of Lease had the commencement date 1 January 1998 and was for a term of two years, with renewal dates of
31 December 1999 and 31 December 2001. The tenant was named as John Gary Adsett or nominee. The use of the premises was described as “crushing of concrete, sale of soil and aggregates and general eco-recycle”. Clause 36.1 of the lease prohibited assignment of the lease without Mr Griffiths’ consent but provided that consent would be given if Mr Adsett, among other things, proved to Mr Griffiths’ satisfaction that the proposed sub-tenant had the financial resources to meet his commitments under the lease.
[16] In correspondence leading up to the lease and the sale and purchase of the business the parties’ solicitors referred to the possibility of Akatea becoming the tenant of the premises through an assignment of the lease. However, the correspondence falls short of evidencing a concluded agreement. In its letter
7 August 1998 Ms Quinn of Duncan Cotterill wrote on behalf of Mr Adsett and
Akatea:
It appears … that ….the tenant should not be J G Adsett personally but Akatea Developments NZ Limited and that company should also be the purchaser of the “business” pursuant to the agreement for sale and purchase prepared by you….
We will require from you on behalf of your client an undertaking that he will approve an assignment of the lease from J G Adsett to Akatea Developments Limited (or another business entity on advice from John Adsett’s accountants) when requested by us. The parties named in the two agreements are in order because they provide for a nominee so Akatea Developments can simply nominate the appropriate party.
(emphasis added)
[17] Mr Griffiths’ attitude to a possible assignment of the lease was recorded in
Mr Singh’s letter 10 August 1998:
Tenant of Akatea has been Mr Adsett since January 1998 and must continue in that vein. Assignment to third parties is agreed to provided they are solvent.
[18] In response Duncan Cotterill advised by its letter 11 August 1998:
John Adsett is shown as the tenant but we have added “or nominee” to indicate that there may be a change once we have discussed the same with
the new Accountant however we envisage an assignment of the lease will be appropriate and we will provide you the appropriate financial details. Of course John Adsett will still remain personally liable in any event.
[19] There was no suggestion that Mr Adsett ever provided details about Akatea’s solvency or made a specific request for Mr Griffiths’ consent to an assignment. While both letters from Duncan Cotterill express a recognition that the lease might be assigned it is clear that no decision was actually made. The letter 11 August
1998, especially, makes this clear because it conveys that the decision is to await discussion with Mr Adsett’s accountant.
Was there an assignment by virtue of the terms of the agreement for sale and purchase of the business?
[20] Mr Cole submitted that the effect of cl 3.4 of the agreement for sale and purchase of the business was to assign the lease in February 1999 when payment of the purchase price for the business was made. Clause 3.4 provided that upon payment of the amount due under the agreement the purchaser was to have an assignment of the lease and was required to tender a Deed of Assignment to the vendor:
3.4 Unless otherwise stipulated in this agreement and subject to the conditions in Clause 9.1 the purchaser is to have an assignment of the lease referred to on the front page of this agreement and upon payment of the balance of the purchase price interest and other monies if any due hereunder is provided in this agreement the vendor shall concurrently hand to the purchaser the Lease (as defined in Clause 1.6 hereof) together with any previous assignment(s) of the Lease and any relevant sub-lease(s) and together with a duly executed Deed of Assignment with the lessor(s) consent thereto endorsed, such Deed of Assignment to be prepared by and at the expense of purchaser, executed by the purchaser and tendered to the vendor or vendor’s solicitor a reasonable time prior to the settlement date.
[21] Although cl 3.4 refers only to cl 9.1 it must also be subject to cl 9.2. Clauses
9.1 and 9.2 provide:
9.1(1) The vendor will deliver to the purchaser or the purchaser’s solicitor a copy of any Lease (as defined in clause 1.6 hereof) of the Premises and any previous assignment(s) of that Lease and any relevant head lease or sub-lease(s).
(2) If not later than the termination of the fifth day after (a) the day on which the vendor makes delivery in terms of (1) of the sub- clause or (b) the date of execution of this contract (whichever is the later) the purchaser gives notice to the vendor or the vendor’s solicitor that the purchaser disapproves of the Lease and/or the vendor’s title thereto this contract shall be void (without need for any cancellation notice) and any deposit shall be refunded to the purchaser and neither party shall have any claim against the other. The purchaser shall have full and complete discretion whether to give notice of disapproval as aforesaid.
(3) If the purchaser does not give notice of disapproval as provided for in paragraph (2) of this sub-clause the purchaser shall be deemed to have accepted the Lease and the vendor’s title thereto in all respects.
9.2Where a lease is to be assigned to the purchaser this contract is subject to a condition that on or before the date for the lessor’s consent set forth on the front page of this agreement the lessor shall at the vendor’s cost consent in writing to the assignment to the purchaser of the vendor’s interest as lessee. The vendor and the purchaser shall use their best endeavours to obtain the lessor’s consent to the assignment and the purchaser if required so to do as a condition of such consent will execute such deed of covenant as may be provided for in the Lease and shall procure the execution of such guarantee(s) as may be required by the Lessor and the Vendor.
[22] Clauses of this type in agreements for the sale and purchase of a business reflect a common commercial imperative; the value of a business frequently depends on the continued availability of the premises from which it operates. It is usual for a prospective purchaser to require the security of the lease before committing to the purchase of the business. Because the lessee is usually the vendor or an associated entity this requirement can be satisfied by an assignment of lease as provided for in cl 3.4. However, the terms of the lease are likely to require the vendor/lessee to obtain the landlord’s consent to an assignment, which accounts for the condition imposed by clause 9.2.
[23] Mr Cole contended that when the purchase price was paid in February 1999
Akatea became entitled to an assignment and also came under an obligation to prepare and supply the necessary deed of assignment. He relied on the equitable maxim “equity regards as done that which ought to be done”, to argue that, as Akatea was required to supply the deed of assignment and submit it to the landlord, it could not now take advantage of its wrongful failure to do so and the lease should be treated as having been assigned.
[24] The authors of Equity and Trusts in New Zealand8, citing Cattell v Native Land Settlement Co9, describe the effect of the maxim as treating a party to an obligation as having fulfilled that obligation and accordingly the subject matter of the obligation being treated in the same manner as to its consequences and incidents
as if the acts contemplated by the parties have been done exactly as they ought to have been. However, the maxim cannot be used to extend obligations beyond those contemplated by the contract10. Whether the maxim had the effect contended for in this case depends on whether cl 3.4 had the effect of conferring the right to an assignment on Akatea.
[25] The task of the Court in interpreting an agreement such as this is to endeavour to ascertain the parties’ intentions from the agreement itself and the factual setting in which it was made11. To this end the Court can consider evidence of objective matters known or contemplated by both parties at the time, though not evidence of previous negotiations or expressions of subjective intent, which in this case means that I do not take account of the correspondence between the solicitors that I referred to earlier.
[26] Looking first at the agreement itself, I note the following significant features in addition to cl 3.4 and 9.1:
a) The description of the business was “concrete crushing, sale of soil and aggregates and general eco-recycle”;
b)The goodwill figure of $2,500 was expressed to be for “…the goodwill of the business including (where applicable) the benefit or the lease of the premises”.
c) Special condition 1 provided that:
1. It is acknowledged by the Purchaser that although the Vendor owns the business, the day to day running of the business has been under the control of John Adsett.
8 Thomson Brookers 2003 para 2.7.6
9 (1895) 13 NZLR 551(CA)
10 De Beers Consolidated Mines Ltd v British South Africa Co [1912] AC 52 (HL).
11 Boat Park v Hutchinson [1999] 2 NZLR 74
d)The space provided for lease details to be inserted was completed with the name of the lessor, commencement date, term, right of renewal and rent. However, that space also provided for “Date for lessor’s consent (cl 9.2)” and the parties had simply written “N/A”.
[27] Viewed together one can readily discern an intention that there would be an assignment of the lease. The business being sold is the one that Mr Adsett had been running from the premises. Although the goodwill figure is modest it shows that Akatea perceived value in being able to occupy the premises with the benefit of a lease. As Akatea’s director, Mr Adsett must have made the decision to pay for that benefit, which suggests an intention on his part that the lease be assigned, although he is not a party to the agreement.
[28] In relation to the space provided for the lease details, Mr McGill referred to the opening words of clause 3.4 “[u]nless otherwise stipulated…” and submitted that “N/A” in this space amounted to a stipulation that an assignment was not to take place. I do not accept that suggestion. If that were the case, there would have been no point in the parties inserting the details of the lease. In doing so the parties signalled that the lease of the premises had some significance to them. In the context of this agreement that significance could only be the anticipated assignment of the lease, since the lease is only referred to in the agreement in relation to assignment.
[29] I am satisfied that the agreement evidenced an intention by both Akatea and Mr Griffiths that Akatea would be entitled to an assignment of the lease under cl 3.4, subject to the condition imposed by cl 9.2 of the landlord giving consent. The fact there was no date provided for the landlord to give consent would normally be resolved by the purchaser requiring consent within a reasonable time and, at the latest, by the date of possession (in this case 31 December 1998). Non-fulfilment of the condition would be covered by cl 8.2 which provided, amongst other things, that the purchaser could waive any condition inserted solely for the benefit of the purchaser.
[30] However, whilst the parties may have intended that the lease be assigned to
Akatea, I am satisfied that it was not effective to do so. This is because the vendor
was not the lessee of the premises. He was the landlord and, as such, had already divested himself of the leasehold interest in the premises. He was, therefore, unable to execute a deed of assignment of the lease; only the tenant, Mr Adsett, could do that and he was not a party to the agreement. Obtaining an executed deed of assignment would have required the consent of both Mr Adsett and Mr Griffiths, in his capacity as landlord. It appears that the parties executed the agreement with its references to assignment of the lease without realising that the vendor, Mr Griffiths, was not in a position to execute a deed of assignment in compliance with cl 3.4 and
9.1.
[31] Further, cl 9.2 clearly envisages the possibility that the landlord would not consent to an assignment of the lease, reflecting the fact that many leases prohibit assignment either altogether or without the landlord’s consent. As a result, supply by the purchaser of a deed of assignment as required by cl 3.4 would not necessarily result in an assignment of the lease. That would depend on the condition imposed by cl 9.2 being satisfied, which would require the landlord to consent. Mr Griffiths’ execution of the sale and purchase agreement cannot be regarded as consent, since consent had to be given in terms of the lease, which required evidence as to Akatea’s solvency. Such evidence was never provided and the mere execution of the Deed of Lease is insufficient to conclude that this condition had been waived. Because Mr Griffiths’ consent was never obtained but the sale proceeded anyway it is reasonable to conclude that Akatea waived the condition imposed by cl 9.2 but never acquired a right to an assignment by virtue of the agreement.
Was an equitable assignment of the lease effected through Akatea occupying the premises and paying the rent?
[32] Mr Cole’s alternative argument was that there had been an equitable assignment as a result of Mr Adsett relinquishing occupation of the premises and Akatea taking over responsibility for the rent.
[33] Mr Adsett’s position in evidence was that he was the tenant of the premises and that the benefit of the lease was never assigned to Akatea. There was, of course, no evidence about Akatea’s position other than that given by Mr Adsett and the questions of occupation and payment of the rent were complicated by Mr Adsett’s
tendency to conflate his interests with those of Akatea when referring to these matters.
[34] Mr Adsett gave evidence that he operated a business known as “J G Adsett trading as Aggregates & Soils” from the premises and paid the rent he believed to be payable under the lease12. However, it is obvious that this business is the one that was the subject of the sale and purchase agreement between Akatea and Mr Griffiths and that after the sale of the business it was Akatea that ran the business from the premises (through Mr Adsett in his capacity as director)13. There was no evidence of any other business that Mr Adsett might have had that would have required him to occupy the premises.
[35] In addition, there is a letter on Akatea’s letterhead 30 November 1999 addressed to Mr Griffiths and signed by Mr Adsett as “manager for Akatea Developments NZ Limited” which Mr Adsett acknowledged in cross-examination he had signed on behalf of Akatea rather than on his own behalf14. The letter said:
Continuation of current lease for a further two years at the same terms and conditions as discussed being acceptable by both parties.
[36] This letter coincides with the first renewal date in the lease of 31 December
1999. The only explanation for Akatea communicating with Mr Griffiths in such terms is that it had an interest in the premises that was recognised by both Mr Adsett and Mr Griffiths.
[37] As to who paid the rent, Mr Adsett said that he paid the rent throughout the term of the lease but also said, somewhat inconsistently, that due to financial set- backs Akatea had not been in a position to keep up the rental payments to Mr Griffiths15. He referred in evidence to a bank statement for the period up to March 1999 showing a payment from a personal account of $3,000 for rent. However, he also produced a bank statement showing an example of rental payment
from Akatea’s account from August 1999. Further, Akatea’s statements of financial
12 Witness statement Gary John Adsett 12 April 2007 paragraphs 10 and 18
13 Witness statement Gary John Adsett 12 April 2007 paragraph 67
14 Notes of evidence 19/18
15 Witness statement Gary John Adsett 12 April 2007 paras 18 and 20
performance showed that in 2002 it paid rental of $41,737 and in 2003 rental of
$35,629. There was no evidence of Mr Adsett actually making rental payments from his personal income during those years and no evidence that the payments being made by Akatea were actually loans to Mr Adsett to enable him to pay the rental himself. If that were the case one would expect them to be recorded as loans in Akatea’s financial statements rather than as rent.
[38] During 2004 there was correspondence between Mr Griffiths and Akatea Developments regarding rental arrears. These letters were tendered as evidence in relation to the dispute over what the agreed rental was but also lend assistance to the question of who was paying the rent. All of the letters from Mr Griffiths were addressed to Akatea.
[39] Of course, at all times Akatea acted through Mr Adsett as its director. However, it cannot be said that the parties treated Akatea as Mr Adsett’s alter ego through inadvertence or ignorance. A review of all the evidence including the initial negotiations over the lease shows that Mr Griffiths and Mr Adsett both had business experience and were aware of the distinction to be drawn between Mr Adsett and the company that controlled it. It was Mr Adsett who must have initiated the incorporation of Akatea and resolved that it would buy the business and pay for the benefit of the lease. It is clear from the correspondence over the lease that both parties had turned their minds to whether Akatea or Mr Adsett should ultimately be the lessee. Mr Adsett was concerned to consult his accountant as to whether this was the appropriate course and Mr Griffiths was concerned about Akatea’s solvency.
[40] The overall impression left by the correspondence is that it was Akatea that was actually paying the rent from at least some time in 1999 and it was Akatea that Mr Griffiths expected to pay the rent. I consider that the evidence shows that Mr Adsett gave over the right to occupy the premises to Akatea and that Akatea took on responsibility for paying the rent. Although the evidence is unclear as to exactly when Akatea took occupation of the premises I think that it is very likely to have been late 1998 or early 1999, given that, under the agreement for the sale and purchase of the business, Akatea was to take possession of the business on
31 December 1998 and did actually make the payments under the agreement in
February 1999.
[41] I also think that it is clear from the evidence that these changes occurred with Mr Griffiths’ acquiescence, even though he had never been asked for and had never formally consented to an assignment. Looking at all of the dealings between Mr Griffiths, Mr Adsett and Akatea from the time the original lease was negotiated and entered into through till early 2005, all of the indications are that the parties viewed Akatea as the tenant. For these reasons I consider that on 19 February 1999, at the latest, there was an equitable assignment of the lease by Mr Adsett to Akatea.
What rights did Mr Griffiths have against Mr Adsett and Akatea as a result of the equitable assignment of the lease?
[42] My conclusion that Mr Adsett had assigned the lease to Akatea gives rise to the question of what rights Mr Griffiths had against Akatea and Mr Adsett respectively in respect of the rental arrears.
[43] In Wholesale Distributors Limited v Gibbons Holdings Limited16 Blanchard J succinctly explained the rules relating to the holding and legal assignment of leasehold interests in land and I gratefully reproduce that explanation:
[10] If A leases premises to B, the relationship between them is one of both privity of estate (B holds that estate from A) and privity of contract (the lease agreement). If B assigns the lease to C, the leasehold estate passes to C who thereafter holds it from A. There is now privity of estate between A and C and consequently there is no longer privity of estate between A and B. But B remains contractually liable to A for the performance of the lessee’s covenants during the remainder of the term of the lease. C’s position vis-à- vis A is different. In the absence of any contract whereby C covenants with A to observe the leasee’s covenants under the lease, there is no privity of contract between them. But, because privity of estate exists between A and C there is an obligation on C, while remaining as current leasee, to observe all of the covenants of the leasee which touch and concern the land. The most burdensome of these are normally the obligations to pay the rent and keep the property in repair. Unless C has entered into a direct contract with A, once C further assigns the lease to D and thus ceases to be the lessee of the premises, C, unlike B, has no liability to A for future breaches of the leasee’s obligation.
16 (2007) 5 ConvC 194, 493
[44] However, under an equitable assignment there is no privity of estate between the lessor and the assignee and consequently a lessor cannot sue an equitable assignee for either the rent or breach of covenant. In Rodenhurst Estates v W H Barnes Ltd 17 , which concerned a claim by a lessor against an equitable assignee for rent, it was said to be an indisputable proposition that:
…a mere equitable assignee as such who has entered into possession and paid rent is not thereby rendered liable upon the covenants of the lease, or amongst other things, for the payment of the rent. No privity of estate is created between himself and the landlord by those facts…
[45] In Rodenhurst the landlord succeeded nonetheless on the basis that the assignee was estopped from denying that it was in fact the lessee:
It is quite clear that an equitable assignee does not become privy to the estate as between himself and the lessor of the lease, and, consequently, a lessor cannot sue an equitable assignee as such for either the rent or breach of covenant. Where, however, the equitable assignee leads the lessor to understand quite definitely that he, the equitable assignee, is more than an equitable assignee and has the term as a legal assignee, then if the landlord acts upon that representation in such a way as to alter his position, you have every constituent of a common law estoppel.
[46] That approach was adopted by the New Zealand Court of Appeal in Bayley Managements Limited v Nauhria Hardware Limited18 where the landlord gave consent to an assignment and the party took possession and paid rent but did not actually execute the Deed of Assignment. However, the Court found that the facts of the case did not support an estoppel; the landlord had done no more than intimate that consent would be forthcoming but had never actually consented to assignment:
Expressed in orthodox estoppel terms, the enquiry must be whether Nauhria, by words or conduct, represented to the partnership that it had taken an assignment of the lease and induced the partnership on reliance on that representation to act to its detriment.
This case is very different from Williams v Heales, for here the lessor’s consent to an assignment was required. Whether that consent was given is important in an assessment of Nauhria’s conduct. The fact that there was no consent would not have prevented an effective assignment as between lessee and assignee…and in the absence of consent the lessor will be hard put to establish an estoppel against the alleged assignee. But as the Rodenhurst case shows, where consent has been given the actions of an alleged assignee in occupation may assume a very different aspect.
17 [1936] 2 All ER
18 CA 131/92 19 August 1993 Casey Hardie-Boys & Bisson JJ
Mr Akel contended that the partnership’s actions showed that it had consented. He referred to its continuing acceptance of rental from Nauhria and indeed of Nauhria’s occupation of the premises, its approval of the “sub- tenancy” to Kelmarvan, and its preparation of the Deed of Assignment. We do not think that consent is to be found in these facts. Rather, the reality is that the partnership did not ever consent. It is plain that there was no expressed consent. Mr Bond’s letter of 8 July was an intimation that consent was likely to be forthcoming but it did not convey consent.
[47] In the present case there was acquiescence but no express consent from Mr Griffiths to the initial assignment to Akatea. However, the acceptance by Mr Griffiths of Akatea’s letter 30 November 1999 confirming the renewal of the lease for a further two years did constitute consent. That letter recorded a discussion between “both parties”. Since it was written on behalf of Akatea the reference to “both parties” can only have meant Akatea and Mr Griffiths. It is difficult to envisage stronger evidence of consent to an assignment than agreement by the landlord to renewal of the lease by the equitable assignee. Mr Griffiths’ acceptance of Akatea’s renewal of the lease was evidence not only of his consent to the assignment but also of a representation by Akatea that it had taken that assignment and that Mr Griffiths was induced to act on that representation.
[48] The significance of Mr Griffiths’ acceptance of the renewal lies in the fact that where, under the terms of the lease, a renewal actually constitutes a new grant the original lessee is relieved of further obligations in relation to payment of rent and performance of other covenants19. In Sina Holdings Limited v Westpac Banking Corporation20 the Court referred to the explanation given in Halsbury’s Laws of England (4th ed) para 467:
467 Rights and obligations of original parties: the landlord
Privity of contract remains between the original landlord and the original tenant even after the assignment of the lease. Consequently, the liability of the original tenant to the original landlord continues notwithstanding that the lease has been assigned and notwithstanding that the original landlord has a remedy against the assignee for the rent and on the covenants running with the land and notwithstanding the surrender of part of the demised premises or a
19 Wholesale Distributors Limited v Gibbons Holdings Limited (2007) 5 ConvC 194,493 per Blanchard J, citing with approval the Court of Appeal decision in Sina Holdings Limited v Westpac Banking Corporation [1996] 1 NZLR 1
20 [1996] 1 NZLR 1, cited with approval in Wholesale Distributors Limited v Gibbons Holdings
Limited
variation in the terms of the lease agreed between the landlord and the assignee in respect of the period for which the assignee holds the term. Where a lease has been assigned and the liquidator or trustee in bankruptcy of the assignee disclaims the lease, the original leasee remains liable to pay the rent throughout the term. The remedy as against the original leasee is founded on privity of contract, the remedy is against the assignee on privity of estate. Where a lease contains an option to renew the lease, the exercise of the option ordinarily involves the creation of a new lease, and as regards the new lease there is no privity of contract between the landlord and the original tenant under the old lease which contained the option to renew; but the right given to a tenant may be simply to extend the term, in which case privity of contract endures between the original parties, even during the extended term. (emphasis added)
[49] Clause 35 of the lease in this case provides that:
If the Tenant has not been in breach of this lease and has given to the Landlord written notice to renew the lease at least three(3) calendar months before the end of the term then the Landlord will at the cost of the Tenant renew the lease for the next further term from the renewal date as follows:
(a)The annual rent shall be agreed upon or failing agreement shall be determined in accordance with cl 2.2 but such annual rent shall not be less than the rent payable during the period of twelve(12) months immediately preceding the renewal date.
(b)Such annual rent shall be subject to review during the further term on the review dates or if no dates are specified then after the lapse of the equivalent periods of time as a provided herein for rent reviews.
(c) The reviewed lease shall otherwise be upon and subject to the covenants and agreements herein expressed and implied except that the term of this lease plus all further terms shall expire on or before the expiry date.
(d)Pending the determination of the renewal rent the Tenant shall pay the rent proposed by the Landlord provided that the rent is substantiated by a registered valuer’s report. Upon determination an appropriate adjustment shall be made.
[50] The reference to renewing the lease and to the “renewed lease”, the provision for rent to be agreed afresh with the default position in the event of the parties being unable to agree being that the rent would be determined in accordance with the existing terms of the lease, all indicate that there was to be a fresh lease rather than an extension of the existing term. As a result, when Akatea, as assignee, exercised the right of renewal contained in the lease Mr Adsett, as the original lessee, ceased to be liable for the payment of rent or the performance of covenants.
[51] Mr Griffiths’ agreement to Akatea’s renewal was undoubtedly to his detriment because it left him without access to Mr Adsett personally for future rent. It follows that Akatea is estopped from denying its status as tenant and that Mr Griffiths was entitled to enforce covenants under the lease against it. Therefore, up until 31 December 1999 (the date of renewal) Mr Griffiths was entitled to enforce the covenants against Mr Adsett alone as the lessee. After that date, however, Mr Adsett was relieved of any ongoing liability under the lease and Mr Griffiths’ only remedies for breaches of covenants under the lease lay against Akatea.
Did Mr Griffiths agree to a lesser rental than that specified by the lease?
Respective contentions and findings of the District Court
[52] The rental specified in the Deed of Lease was $36,000 per annum plus GST payable by $3,000 per month plus GST. The lease also required the tenant to pay the specified outgoings. However, rent was never actually paid at that rate. Mr Griffiths said that this was because he was aware that Akatea was facing difficulties and agreed to defer the full rental until its position improved. But Mr Adsett said that it was because on the day the lease was signed Mr Griffiths’ solicitor, Mr Singh, agreed that the rental would be reduced to $3,000 per month inclusive of GST and outgoings and that figure was subsequently increased by Mr Griffiths to $3,181.48 per month and later to $3,184 per month.
[53] The Judge reviewed the evidence relating to the rent in some detail and concluded that there was an arrangement whereby, at least until October 2004, the agreed rental was inclusive of GST and out-goings21. He characterised this arrangement as a variation of the lease, finding that the invoices sent by Mr Griffiths, dated 3 November 2003 and 28 April 2004, amounted to a sufficient memorandum or note for the purposes of s 2 Contracts Enforcement Act 1956 (now repealed22).
21 at [16](ii)
22 Repealed by s 366(a)Property Law Act 2007 but now see ss 25 and 26 of the Act
[54] Mr Cole challenged the Judge’s acceptance of the discussion described by Mr Adsett. He said it was inherently improbable and not a conclusion that was available on the evidence. However, only Mr Adsett gave evidence. So unless his version of events conflicted with the extraneous evidence or was so improbable that it should not be accepted there was no reason that the Judge (or this Court) should not accept it.
[55] Mr Adsett’s evidence on this point is sufficiently important to warrant setting it out in full. In his brief of evidence he said23:
Throughout the term of the lease between myself and Mr Griffiths, I have paid rent and outgoings in accordance with the amount that I believed was payable. The rent that I believed was payable to Mr Griffiths during the term of the lease, inclusive of GST and outgoings was as follows:
18.1 Between 1 January 1998 and 31 March 1999 - $3,000 per month
18.2 Between 1 April 1999 and 31 March 2000 - $3,181.48 per month
18.3Between 1 April 2000 and 10 April 2000 and 10 February 2005 (the date of termination) - $3,184 per month
Whilst the lease agreement records an annual rental of $36,000 plus GST and outgoings, I believed the above amounts to be payable as a result of discussions held with Mr Griffiths’ solicitor Shean Singh in 1998. Mr Singh advised me that the amount to pay inclusive of GST and outgoings at the commencement of the lease was $3,000 per month. This was advised to me whilst I was with my then solicitor, Heather Quinn of Duncan Cotterill solicitors.
The amounts paid by way of rent, GST and outgoings between 1 April 1999 and 10 February 2005 were at the instruction of Mr Griffiths. Mr Griffiths advised me the amount that should be paid and I duly paid that amount. On some occasions I was not in a position to make the full repayment of rent due each month, hence the varying amounts that appear on the bank statements of Akatea. I did however endeavour to pay the amount that I was instructed by Mr Griffiths to pay during the three periods referred to. On several occasions Mr Griffiths has confirmed to me that the amount payable in the latter period (1 April 2000 to 10 February 2005) was $3,184. On some occasions I paid more than the monthly amount to try and bring rent payments up to date at the request of Mr Griffiths.
23 Witness statement Gary John Adsett 13 April 2007 para 18
And in evidence you point [to] your belief to the discussions you had either with me or with Mr Griffiths?…The day that that lease was signed was in actually Duncan and Cotterill’s office, with Heather Quinn and I made a phone call to you from her phone to you and you explained to me that John Griffiths was away, because I moaned about the price. I said, well, you know – Sheen [sic] I was paying the previous tenant – rather the landlord – up to that point of $1500 plus GST plus outgoings. Now this is all a sudden jump. You know I’m not in a position to do this otherwise Mr Griffiths wouldn’t be doing this. (emphasis added)
[56] Of those present at or party to the discussion, only Mr Adsett gave evidence. Ms Quinn was not called. Mr Singh, did not give evidence and actually appeared for Mr Griffiths at the hearing and cross-examined Mr Adsett about the discussion. There was virtually no challenge to what Mr Adsett said in his evidence. Mr Singh limited his cross-examination on this point to asking why, if the conversation had occurred as Mr Adsett described, it was not referred to in Duncan Cotterill’s
11 August 1998 letter enclosing the executed lease for signature by Mr Griffiths.
[57] Whilst it would be unusual to find a solicitor making representation of this kind (apparently without instructions) directly to the client on the other side of the transaction, in the circumstances of this case I do not regard it as an inherently improbable suggestion. This is because Mr Adsett and Mr Singh already had a friendly relationship; Mr Singh had previously acted for Mr Adsett but declined to act for him on this transaction because of the conflict of interest between Mr Adsett and Mr Griffiths. As a result I regard it as possible that Mr Singh felt sufficiently familiar with both men to take it upon himself to make such a representation. The fact that it was not recorded in Duncan Cotterill’s letter is not indicative either way; had Ms Quinn been told of the representation one would certainly expect her to have referred to it in her letter but she was not called and there is, therefore, no evidence as to whether she knew what Mr Singh had said to Mr Griffiths on the telephone.
[58] Further, Mr Adsett did, in fact, commence paying rent at a lower figure. There is evidence, which I come to later, that Mr Griffiths always maintained in his discussions with Mr Adsett that the rent specified by the lease was payable but Mr Adsett disputed that. Mr Adsett therefore acted consistently with a belief that he
24 Notes of evidence 21/3-9, 25-34; 21/1-3
was only required to pay a lesser amount. For these reasons I think that the evidence did support a finding that Mr Singh represented that Mr Griffiths would accept
$3,000 per month inclusive of outgoings and GST.
[59] However, that representation did not have the effect of varying the terms of the lease. In the evidence that I have referred to and especially the cross- examination of Mr Adsett it is clear that at the time of the discussion the lease had not yet been executed. The gist of Mr Adsett’s evidence was that he was effectively saying to Mr Singh that he could not afford to enter into the lease on those terms and that Mr Singh had therefore agreed that the terms would not be enforced.
[60] Even if the discussion had occurred after the lease had been executed it would not have been enforceable as a variation of the lease since there was no consideration given25. This fact meant that the finding that the agreement had been partly performed was also wrong. Where part performance is contended for the issues are26, first, whether there was a sufficient oral agreement that would have been enforceable but for the Contracts Enforcement Act 1956, secondly, whether there has been part-performance of that agreement by doing something that amounts to a step in the performance of a contractual obligation or exercise of contractual right and when viewed independently of the oral contract was probably done on the footing that a contract relating to the land existed and, thirdly, whether the circumstances in which the part-performance took place makes it unconscionable for the defendant to rely on the Contracts Enforcement Act 1956. Mr Adsett’s argument would founder at the first stage; the absence of consideration meant there was no enforceable oral contract.
[61] I should also mention an issue addressed both by the Judge in his decision and by counsel in this Court, namely whether the arrangement was evidenced in writing for the purposes of s 2 Contracts Enforcement Act 1956. Having accepted Mr Adsett’s evidence that Mr Singh had agreed to the reduction in rent, and (wrongly) characterised the discussion as a variation the Judge went on to consider whether it was evidenced in writing for the purposes of s 2 of the Contracts
25 See NZ Needle Manufacturers v Taylor [1975] 2 NZLR 33, 40
Enforcement Act 1956 27 which provides that a contract to which the section applies is unenforceable unless evidenced in writing and signed by the party to be charged.
[62] However this lease was an unregistered lease for a term of less than three years. As such, it was not required by the Land Transfer Act 1952 to be in writing in order to be effective28. Since s 2 Contracts Enforcement Act 1956 only applied to contracts “required by any enactment” to be in writing and this lease was not a disposition required by any enactment to be made in writing, the question of enforceability under s 2 Contracts Enforcement Act 1956 did not arise.
Was Mr Griffiths estopped from insisting on the rental specified in the lease?
[63] The Judge held29 that Mr Griffiths was estopped from claiming the rental specified in the lease because of the arrangement with Mr Singh until October 2004 when he made his change of position clear. The calculation of outstanding rental was therefore to be made on the basis of rental at the lower rate until October 2004 but in accordance with the lease after November 2004.
[64] The rationale of the doctrine of promissory estoppel is to prevent a party going back on his word when it would be unconscionable to do so30. A party seeking to raise an estoppel must show a clear unambiguous representation or promise, reliance on that promise such that it would be inequitable to allow the promisor to go back on his or her word and detriment as a result of that reliance. However, the promisor may resile from his promise if that can be done without detriment to the promisee31.
[65] I have held that Mr Singh’s representation was made before Mr Adsett executed the lease. Mr Adsett’s evidence (unchallenged except to the limited extent I have referred to) was that he said to Mr Singh:
26 Mahoe Buildings Limited v Fair Investments Limited [1994] 1 NZLR 281 (CA), approving T A Dellaca v PDL Industries Limited [1992] 3 NZLR 88
27 Repealed by s 366(a) Property Law Act 2007 but now see ss 25 and 26 of that Act
28 s 115(5) Land Transfer Act 1952; s 3(3) and Schedule 1 Property Law Act 1952
29 at [32](ii)
30 National Westminster Finance NZ Limited v National Bank of NZ [1996] 1 NZLR 548, 549
31 Hughes v Metropolitan Railway Co (1877) 2 App Cases 439; Emmanuel Ayodeji Ayaji v R T Briscoe (Nigeria) Limited [1964] 3 All ER 556
You know I’m not in a position to do this [pay the amount specified in the lease] otherwise Mr Griffiths wouldn’t be doing this.
[66] I am satisfied from this evidence that, had Mr Adsett believed that Mr Griffiths was going to insist on rent being paid in accordance with the lease he would not have entered into the lease. There was, therefore, a clear and unequivocal representation by Mr Griffiths’ agent that the terms of the lease would not be enforced and reliance by Mr Adsett on the representation to his detriment.
[67] However, it is also clear that, at some point, Mr Griffiths resiled from the representation. He was entitled to do that but only provided that Mr Adsett would not be detrimentally affected. The first issue is when Mr Griffiths conveyed to Mr Adsett that he had resiled from his acceptance of the lower rental. The Judge found that Mr Griffiths did not make that clear to Mr Adsett until he wrote to Akatea in October 2004 and was therefore bound until then by Mr Singh’s representation. However, the evidence shows that Mr Griffiths made it clear much earlier than October 2004 that he wanted the full rental paid.
[68] Mr Griffiths gave unchallenged evidence of discussions with Mr Adsett about catching up with rent32 but said that he had been too busy to put anything in writing to Akatea until his letter 18 October 2004. Mr Griffiths was supported by the evidence of Akatea’s own employee, Ms Hollick. She gave unchallenged evidence that there were ongoing discussions about rental arrears and that in discussions she was privy to Mr Griffiths always maintained that the rent was $36,000 plus GST33. She observed that Mr Adsett always disputed that fact and described it as being “…a claim that was continuous”. She referred to a particular discussion about the arrears being paid off interest free over a period of two years. She thought that this arrangement was related to the renewal of the lease, which would put it in late 1999.
[69] As against this evidence were invoices rendered by Mr Griffiths 3 November
2003 and 28 April 2004 said to be for:
To rental underpaid should be $3,184.00. Paid $3,148 four months x 36
32 See e.g. Notes of evidence 70/23, 71/2
33 Notes of evidence 36/31-37/1
[70] Mr Adsett pointed to these invoices as evidence of Mr Griffiths’ continuing agreement to rental payments of $3,184 per month. However, they need to be looked at against the evidence of both Ms Hollick and also Mr Griffiths’ book- keeper Ms Higgins. The evidence from these two witnesses showed that the invoices were the result of Ms Hollick transposing the figures when paying invoices for
$3,184. The two invoices in question related to the shortfall between $3,148 and
$3,184.
[71] Mr McGill submitted that this supported Mr Adsett’s assertion that the amount normally invoiced for was $3,184. However, Ms Higgins’ evidence was not consistent with that assertion. It was clear from her evidence that she had always understood that the amount specified in the lease was the correct rental ($3,000 plus GST per month) but that the lower figure of $3,184 had been paid over several years with Mr Griffiths and Mr Adsett having “come to agree to disagree”over the amount
that would be paid34.
[72] Although Mr McGill did not challenge Ms Higgins’ evidence in cross- examination he submitted that I should treat it with caution because of her relationship with Mr Griffiths and the fact that her explanation regarding the invoices came at a very late stage in the trial. However, her evidence was consistent with what Ms Hollick said. If Mr Griffiths had agreed to the figure of $3,184 being paid then it is difficult to understand why he would keep on insisting that the amount payable was $36,000 plus GST, which is what Ms Hollick said.
[73] The overall effect of the evidence was that at the latest, in November 1999 when discussions about renewing the lease were on foot, Mr Griffiths made it clear to Mr Adsett that the amount specified under the lease was what was payable. The fact that he did not get around to recording this in writing until mid-2004 does not mean that he had not made his intentions to revert to the terms of the lease clearly known to Mr Adsett. The fact that Mr Adsett continued to dispute that the higher amount should be payable does not detract from that fact.
34 Notes of evidence 58/33-59/1
[74] However, it was not open to Mr Griffiths to resile from the earlier representation until 31 December 1999, being the renewal of the lease by Akatea. Mr Adsett sought the reduction in the first place because he could not afford the rent specified in the lease. It is clear from Ms Hollick’s evidence that there was express discussion at that time the lease was renewed that the reduced rental would no longer be acceptable. With Mr Griffiths making it clear that he would insist on the terms of the lease in the event of a renewal, Akatea had the choice, if it considered that it could not afford the specified rent, not to enter into a fresh lease. Its decision to exercise the right of renewal, recorded in its letter 30 November 1999, was one made in the knowledge that the full rental would be required. Mr Griffiths could therefore resile from the earlier arrangement from 31 December 1999 when the lease was renewed without disadvantaging Mr Adsett. Rental in accordance with the lease was therefore payable from 31 December 1999.
Was Mr Griffiths’ distraint against Akatea’s machinery valid?
[75] Distress, described by the Court of Appeal as a self-help remedy for non- payment of rent35, is provided for by s 3 Distress and Replevin Act 1908 (now repealed36) which provides:
(1) No person shall distrain or levy, for rent due in respect of any messuages or lands, chattels (other than agisted stock) of any person save and except of the person in possession of the premises in respect of which such rent has accrued due.
(2) No person shall distrain or levy for rent on stock not the property of the tenant or person in possession, agisted on the land in respect of which such rent is due, for a greater sum than the amount due for the agistment of such stock on the said land at the time such distress or levy is made.
[76] Mr Griffiths served what he described as a warrant to distrain by nailing it on the door of Akatea’s premises on 10 January 2005. There was no communication between he and Mr Adsett at that time and Mr Adsett denied seeing the document until 10 February 2005. On 10 February 2005 Mr Griffiths went to the premises with transporters and removed two machines.
35 Dovey Enterprises Limited v Guardian Assurance Public Limited [1993] 1 NZLR 540 at 545
36 s 366 Property Law Act 2007
[77] The warrant to distrain was expressed to be in respect of the single amount of “…$143,217.39 being the amount of rent and out-goings due…”. Although cl 28 of the lease did permit distraint for “rent or other monies payable under this lease” s 3(1) Distress and Replevin Act 1908 limited the right of distress to arrears of rent; distraint for outgoings was not permitted. There was no provision in the Act for parties to contract out of that limitation and the Court of Appeal in Dovey Enterprises specifically referred to the right as one to be exercised:
…with care and in compliance with the provisions of the Distress and
Replevin Act.37
[78] The validity of distress purportedly taken in respect of a single figure reflecting outstanding rent and outgoings was considered obiter in Bonnar Gill Limited v B L Morgan Limited (in liquidation)38 where Wilson J considered that if distress had been made for rates alone it would have been illegal, there being no right to distrain for rates owing and where there was distress for one sum that included both rates and rent it could not be treated as two distresses. Distress in that form would be invalid and ineffective. I accept this approach as correct. It follows that Mr Griffiths’ purported distraint was invalid and his seizure of Akatea’s machines a
conversion, notwithstanding that the rent was in arrears.
By purporting to distrain did Mr Griffiths waive his right to re-enter and terminate the lease?
[79] The right to levy distress is a right that arises out of the relationship of landlord and tenant and, as such, is inconsistent with the termination of that relationship. As a result a landlord who elects to distrain will, in doing so, normally waive his or her right to re-enter and terminate the lease. The position was summarised by the Court of Appeal in Dovey Enterprises Limited v Guardian
Assurance Public Limited39 as follows:
Where there is a breach of the terms for lease by non-payment of rent the lessor (subject to the provisions of the lease) may take steps to forfeit the lease or may treat the lease as continuing. They are inconsistent rights and if by statements or conduct the lessor indicated unequivocally to the lessee that one course is or will be adopted, that will be regarded as a binding election
37 p 545
38 [1976] 1 NZLR 493
39 [1993] 1 NZLR 540 at 545 (CA)
resulting in the other being treated as waived or abandoned. If with knowledge of the breach the lessor elects to continue to accept rent or otherwise to treat the lease as continuing the lessor cannot thereafter invoke that breach to terminate the lease. Whether there has been a binding election is a question of fact for the particular case…..
Distress is a self-help remedy for non-payment of rent. It is to be exercised by the landlord with care and in compliance with the provisions of the Distress and Replevin Act 1908. It is a means by which the landlord can recover rent but, because it is right arising out of the relationship of landlord and tenant, distress is inconsistent with termination of the relationship by forfeiture, and levying distress waives forfeiture for the non-payment involved….
[80] The evidence was that Mr Griffiths had served the warrant to distrain on
10 January 2007 but that it was not until 10 February 2007 that he seized the machines belonging to Akatea and about half an hour later affixed a notice of re- entry and termination to the door of the premises.
[81] Mr Cole argued that the distraint occurred on 10 January 2005 rather than
10 February, and any suggestion to the contrary was inconsistent with Mr Adsett’s pleadings. Neither proposition is correct. On the pleadings point, a Judge cannot be bound by a party’s pleadings if the evidence shows a contrary position.
[82] On the question of when distraint is completed I note that in Hard to Find but
Worth the Effort Quality Second Hand Books (Wellington) Limited (in liquidation)40
Miller J appeared to regard distress as not being completed until the goods were either sold or accounted for under the Act. However, I consider that the terms of the Act refer to distress in terms that show that it occurs when the goods are seized. For example, s 10 requires a copy of the warrant to be delivered “at the time of making the distress”. Section 12 states that “[n]o appraisement of any chattels distrained shall be necessary to the validity of any distress or sale thereof”. Further, sale, which is clearly optional under s 18, is provided for in a separate part of the Act from that part dealing with distress.
[83] In the circumstances of this case I find that the distraint occurred when the machinery was seized on 10 February 2007. It was an act that was consistent with the continuation of the lease and therefore constituted a waiver of the right to terminate the lease. The fact that the distraint was invalid does not alter this
40 HC WN CIV 2006-485-2078 26 April 2007
conclusion; the invalidity of the distraint does not affect the quality of the act as an unequivocal election inconsistent with termination.
What was Akatea’s loss?
[84] In the first amended statement of claim Akatea alleged conversion and unlawful distress, arising from Mr Griffiths’ distraint against the machines. Mr Adsett alleged breach of a collateral contract and the Fair Trading Act 1986 arising from Mr Griffiths’ wrongful re-entry and termination of the lease. However, it is clear from my conclusions on liability that only Akatea, as both tenant and owner of the machines had the right to sue.
[85] The first question to determine is the period over which the losses were suffered. The Judge held that the period of wrongful distraint and seizure ran from
10 February to 7 May 200541. But this was inconsistent with Mr Adsett’s evidence
that the machinery was unavailable for only two months42, which Mr McGill accepted.
[86] In relation to the period for which Akatea was excluded from the premises, Mr Adsett alleged that the premises were unavailable from 10 February to 7 May
2005. The evidence was somewhat confused on this aspect but on balance I consider that Akatea was kept out of the premises only until 7 April 2005. It is clear from Mr Adsett’s evidence and the letter from Duncan Cotterill to Mr Singh 19 April
2005, which discusses the terms on which Akatea would go back into possession, that a fresh lease was agreed for the period 7 April to 7 August 2005 with rental being paid for that period.
[87] However, Mr Adsett’s evidence was that the business had been disrupted for some five months. This is as one would expect; it would be reasonable to assume that if Akatea had been out of the premises for a period of two months there would be likely to be a start-up period again. Therefore, the period over which the losses caused by the re-entry and termination could not be fixed solely by reference to the period that Akatea was actually out of the premises.
41 At [24]
42 Brief of evidence Gary John Adsett para 69 and notes of evidence 24/25
[88] Mr Adsett advanced the losses attributable to the distraint and the re-entry on separate bases. He calculated the loss resulting from the seizure of the machines on the basis that, had Akatea retained them it could have hired them out on a contract basis. It put the net loss of income based on that calculation at $76,000 plus GST. In relation to the re-entry and termination Mr Adsett pointed to the comparatively worse turnover and profit results between the 2005 and 2006 financial years as evidence of the loss caused by being excluded from the premises.
[89] I do not consider that assessing Akatea’s loss can properly be done by reference to what income might have been obtained through contracting out the machines that had been seized. Despite Mr Adsett’s assertion that machinery had been out-sourced in previous years he did not produce any documents evidencing such contracts. There was no evidence of forward work booked. Although Akatea called evidence that the rates Mr Adsett had used were reasonable and that there was work available for heavy machines such as these, the evidence does not support Mr Adsett’s claim that Akatea could and would have hired out its machines for 40 hours a week during the period February-April 2005.
[90] The better approach to assessing Akatea’s overall loss is to look at the extent to which its income was affected by being excluded from the premises; that approach necessarily includes losses attributable to the absence of the machines. The thrust of the evidence about Akatea’s losses came from the financial statements for the year to
31 March 2006 produced by its accountant, Ms Nye. Those financial statements showed that between the 2005 and 2006 years there was:
• A drop of $52,349 in turnover
• A drop in gross profit of $94,867
• An increase in the net operating loss of $219,997.
[91] Ms Nye also gave evidence that Akatea’s GST returns for the ten month period to 31 January 2007 showed net turnover for that period of $111,044 which
she said was consistent with the company’s performance in the 2005 year. In comparison, the trading account for the 2006 year showed total revenue of $87,357.
[92] The evidence generally showed that Akatea was not a profitable company. Adding back shareholders’ salaries it had made a moderate profit ($127,000) in the
2003 year but losses in each subsequent year. In years subsequent to 2003 there had been no shareholder drawings, management fees or salaries paid. The Judge took all of these factors into account and concluded that Akatea had incurred a substantial loss arising from the deprivation of the machinery for three months plus the run-on effect of establishing business once the machinery had been returned and concluded that the difference in gross revenue between the 2005 and 2006 years of approximately $50,000 was a reasonable estimate of those losses.
[93] While I would normally expect the better comparison to be the gross surplus from trading, which would recognise the cost associated with the revenue in this case the significant increase in cost of sales appears from the trading account to be due mainly to the difference between the opening and closing stock. As a result I consider that the figure taken by the Judge does fairly represent Akatea’s losses.
[94] Mr Cole submitted that, extrapolated out, the Judge’s assessment of loss reflected income to Akatea that it had never achieved. He referred to the Judge’s assessment of loss as being the equivalent of $25,000 per month in respect of the two months during which Akatea was unable to use its equipment. However it is clear from [28] of the judgment that the Judge was not assessing the loss by reference to a two-month period. He was assessing it on the overall period for which the machinery was absent and the time required to re-establish the business. Whilst I consider it preferable to view the losses caused by the seizure of the machinery as subsumed into the overall losses caused by being excluded from the premises the difference in the two approaches has little practical effect.
[95] Nor do I consider that the fact that Akatea had been trading at a loss precludes it from recovering. It is obvious that Akatea had not made a profit in the years leading up to the unlawful distraint and re-entry. Nor, I am sure, would it have made a profit even if Mr Griffiths had not re-entered. However it is also obvious
from the accounts that Akatea had substantial debt. Its statement of financial position as at 31 March 2006 showed non-current liabilities in the 2005 year of
$263,778 and in the 2006 year of $656,865. These debts were attracting substantial interest (over $50,000). As a result, whilst the difference in turnover between the
2005 and 2006 years might not have been reflected in a profit, it would have been reflected in a smaller loss which would, in turn, have improved the company’s position.
[96] There was no other explanation advanced for the reduction in turnover apart from the disruption to the business caused by the unlawful re-entry and termination. As a result, I agree with the District Court Judge that the figure of $50,000 is a reasonable estimate of Akatea’s losses over the relevant period.
[97] That figure attracts interest at the rate of 7%. I was not addressed on the appropriate date from which interest should run. It would be inappropriate for interest to run from the date of re-entry since no loss would yet have arisen. I allow interest from 1 April 2005, being an approximate mid-point in the period over which loss is assessed.
Was Mr Adsett entitled to damages?
[98] The District Court Judge awarded Mr Adsett $10,000 for loss of income and
$10,000 for stress and inconvenience. Mr Cole submitted that he was not entitled to an award of damages for income lost as a result of the distraint and re-entry because it was Akatea’s business that was affected and Mr Adsett derived his income from the company so that an award of damages was effectively permitting a double recovery. Mr McGill responsibly accepted this.
[99] In relation to the general damages award Mr Cole submitted that there was no basis for such an award. Mr McGill responded that general damages were appropriate in light of Mr Griffiths’ high-handed conduct. However, there was simply no basis on which to award Mr Adsett general damages. Only Akatea suffered any financial loss from Mr Griffiths’ conduct. Mr Adsett has not succeeded against Mr Griffiths on any cause of action.
Counterclaim
[100] The District Court judgment records that a partial judgment was entered against Mr Adsett by consent for $58,526.44 in respect of Mr Griffiths’ counterclaim for rental arrears. However, because the focus of the claim in the District Court related to the plaintiff’s claim rather than the counterclaim, the Judge reserved counsel leave (if they could not settle the matter themselves) to file memoranda relating to the appropriate quantum of the counterclaim based on his findings that Mr Adsett was the tenant and that Mr Griffiths was estopped from claiming rental in accordance with the lease until October 2004.
[101] I have concluded that these findings were wrong and that the counterclaim for rental arrears should be assessed on the basis that Akatea was the tenant and that Mr Griffiths is estopped from claiming the rent specified under the lease up until 31
December 1999. Because there is insufficient evidence before me to make a determination as to what figure would be owing based on those findings I cannot give a final decision on the counterclaim.
[102] Mr Cole invited me to remit the issue of damages to the District Court. However, that seems unnecessary and likely to lead to more delay. Instead, I invite the parties to agree on the quantum of the outstanding rental arrears taking into account the amount actually paid and applying my findings. If agreement cannot be reached by 16 May 2008 then counsel may file memoranda on the point and I will make a final decision on the basis of those memoranda.
[103] I agree with the Judge’s decision that interest throughout the whole period should be payable in terms of the lease. Clause 5 of the lease provided that default in payment of rent or other monies payable under it should attract interest at the default interest rate. The Judge referred to that rate as being 14%. The copy of the Deed of Lease provided to me is unclear and, in fact, appears to be 11%. Counsel will, I am sure, be able to agree on that point.
Summary of findings
Claim by Akatea and Mr Adsett
[104] Having reviewed the evidence I find that:
a) There was an equitable assignment of the lease by Mr Adsett to Akatea, at the latest on 19 February 1999, which is the date from which I treat the assignment as having occurred;
b)As a result of the assignment of the lease to Akatea Mr Griffiths was entitled to recover outstanding amounts from Mr Adsett until 31
December (the date of renewal) and from Akatea after that date;
c) Mr Griffiths, through Mr Singh, represented to Mr Adsett that rental of $3,000 per month including GST and outgoings would be accepted and the terms of the lease not enforced. Mr Griffiths was bound by that representation and estopped from enforcing the terms of the lease until 31 December 1999, that being the date on which he could resile from the representation without detriment to Mr Adsett;
d)Although the lease entitled Mr Griffiths to distrain against Akatea’s machinery for outstanding arrears of rent and outgoings the distraint was invalid because it was purportedly made in respect of a single figure reflecting both rent and outgoings whereas the right to distrain conferred by the Distress and Replevin Act 1908 permitted distraint for rent only;
e) By purporting to distrain Mr Griffiths waived his right to re-enter and terminate the lease on 10 February 2005;
f) Akatea is entitled to losses arising from the unlawful seizure of its machines and wrongful re-entry. The proper measure of those losses is the loss to it as a result of being kept out of its premises. I agree with the District Court Judge’s assessment of $50,000;
g) Akatea is entitled to interest at 7% from 1 April 2005.
Counterclaim
[105] Whilst Mr Griffiths is clearly entitled to judgment for a figure representing the outstanding rental and outgoings arrears it is not possible to identify that figure on the evidence before me. Counsel are to try and agree on the proper quantum based on my findings that:
a) Akatea was the tenant;
b)Mr Griffiths is entitled to rent from Mr Adsett at the rate of $3,000 including GST and outgoings for the period up to 31 December 1999 and from Akatea in accordance with the lease from 31 December
1999 to 10 February 2005;
c) Interest in respect of all arrears is payable in terms of the default interest rate in the lease. Counsel need to agree on that figure, since it is illegible on my copy of the lease;
[106] If counsel cannot reach agreement by 16 May 2008 they may file memoranda as follows:
a) On behalf of Mr Griffiths by 23 May 2008;
b) On behalf of Mr Adsett and Akatea by 30 May 2008;
c) On behalf of Mr Griffiths in reply by 6 June 2008.
Result
[107] The result of these findings is that Mr Griffiths’ appeal:
a) In respect of Akatea is dismissed;
b) In respect of Mr Adsett is allowed;
c) In respect of his counterclaim is allowed.
Costs
[108] Counsel may file memoranda as to costs:
a) On behalf of Mr Griffiths by 23 May 2008.
b) On behalf of Akatea and Mr Adsett by 30 May 2008. c) On behalf of Mr Griffiths in reply by 6 June 2008.
P Courtney J
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