Kinleith Continuation LP v Robert Jones 151 Limited
[2021] NZHC 2206
•27 August 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-000498
[2021] NZHC 2206
BETWEEN KINLEITH CONTINUATION LP
Plaintiff
AND
ROBERT JONES 151 LIMITED
Defendant
Hearing: 14 June 2021 Appearances:
B Henry for the Plaintiff
K Francis and S McNae for the Defendant
Judgment:
27 August 2021
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 27 August 2021 at 9.00 a.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Shanahans Law Limited, Auckland Lindsay & Francis, Auckland
KINLEITH CONTINUATION LP v ROBERT JONES 151 LTD [2021] NZHC 2206 [27 August 2021]
Introduction
[1] This case is about whether the parties to a Deed of Assignment of Lease intended to assign the lease; or whether they intended something else.
[2] Robert Jones 151 Ltd (Robert Jones) owns an office building at 151 Queen St, Tāmaki Makaurau. A law firm, Thompson Blackie Biddles (TBB) leased the 29th floor of that building (the premises). TBB decided to move to Commercial Bay. Kinleith Continuation LP (Kinleith), with whom TBB had a professional relationship, agreed to move into the premises TBB was vacating. Kinleith, TBB and Robert Jones signed a Deed of Assignment of Lease for the premises, by which Kinleith assumed TBB’s obligations as lessee to Robert Jones. Then, the relationship between Kinleith and TBB soured. Kinleith sought to terminate the assignment. Robert Jones rejected that termination. Robert Jones then served on Kinleith a statutory demand for two months’ rent it said was due and owing by Kinleith under the Lease and Deed of Assignment of Lease.
[3] Kinleith applies to set aside that statutory demand, as it claims there is a substantial dispute as to whether the sum claimed is due and owing. It claims that the Deed of Assignment does not reflect the common intention of Kinleith and TBB, which was for Kinleith to occupy the premises, with TBB remaining liable to Robert Jones as lessee. It also claims that TBB had a conflict of interest, as the firm was Kinleith’s solicitors. Kinleith says that the Deed should be rectified to reflect what Kinleith and TBB intended. It says that whether Robert Jones shared that intention is irrelevant, as the agreement was between Kinleith and TBB.
[4] To set aside the statutory demand, Kinleith needs to establish that there is arguably a genuine and substantial dispute as to whether the amount claimed in the statutory demand is due and owing. To decide whether Kinleith has done that, I need to consider four issues.
(a)Did Kinleith and TBB share a different intention to that recorded in the Deed of Assignment of Lease?
(b)Is it necessary for Robert Jones to have shared that intention and if so, did it?
(c)Was the arrangement conditional on Kinleith and TBB having an ongoing commercial relationship?
(d)Is a conflict of interest by TBB relevant to the statutory demand and if so, did TBB have a conflict of interest?
[5] There was a further issue raised by Kinleith in its evidence: that Robert Jones was not entitled to recover the unpaid rent from Kinleith because it had reached a settlement with TBB. This contention was not pursued at the hearing. Robert Jones provided evidence that there had been no settlement with TBB in relation to the outstanding rent that it claimed was due and owing by Kinleith and the subject of the statutory demand. The evidence was accepted by Kinleith.
Facts
[6] TBB had been leasing the premises since 11 September 2012, pursuant to a Deed of Lease dated 30 October 2012. Robert Jones was the owner and lessor since 2015. The Lease was varied by a Deed of Rent Review and Variation of Lease dated 6 March 2019. Pursuant to the variation, the annual rent following the completion of refurbishment works (anticipated to be 6 March 2019) was to be $162,960 plus operating expenses and GST. Section 4 of the underlying Lease addresses the control of subletting and assignment. Clause 4.3 requires the lessee to seek the lessor’s written consent to any assignment, and to prove to the satisfaction of the lessor that the proposed assignee is respectable, responsible and solvent. Further, cl 4.3(e) provides that the lessee procure the execution of any assignment in favour of the lessor, to the effect that the ingoing tenant would at all times during the continuance of the term of the lease duly pay rent, but without thereby releasing the lessee from the lessee’s obligations to pay rent. Clause 4.3(e) is qualified by cl 4.7:
Notwithstanding the provisions of clause 4.3(e), in the event that the initial Lessee named in this Lease assigns its right title and interest in this Lease after the third anniversary of the Commencement Date to an entity approved by the Lessor under clause 4.3 (and all other requirements of clause 4.3 have been met), the Lessor agrees that the initial Lessee shall have no further liability
under this Lease as from the effective date of assignment, but without prejudice to the Lessor’s rights in respect of any antecedent breach.
[7] Early 2020, Kinleith became aware that TBB would relocate within the year and sought a potential assignee for the lease.1 Kinleith was interested. On
23 March 2020, Mr Biddles emailed David Henry, Kinleith’s sole partner, and Ms Victoria Sim (General Counsel for Kinleith) with a draft Deed of Assignment of Lease for their review and signature.2
[8] Early April 2020, Mr Biddles, Mr Greg Thompson (also of TBB), Mr Henry and Mr Loveridge (Managing Director of Robert Jones) had a telephone discussion to introduce Mr Henry to Mr Loveridge. Mr Biddles followed up via email on 9 April to communicate that Mr Loveridge “verbally confirmed his comfort and said to send the paperwork.”3 Attached to the email of 9 April was a copy of the Deed of Assignment signed by TBB. Ms Sim replied with the signed Deed of Assignment on 3 June 2020.4 It was executed by Robert Jones on 10 June 2020.5
[9]Relevant terms of the Deed of Assignment included:
ASSIGNOR: Thompson Blackie Biddles Limited ASSIGNEE: Kinleith Continuation LP
…
LANDLORD: Robt. Jones 151 Limited
THE ASSIGNOR assigns to the Assignee all the Assignor’s estate and interest in the Premises and the Lease as set out in the First Schedule.
THE ASSIGNOR, the Assignee and the Landlord agree and acknowledge as set out in the Second Schedule.
…
THE ASSIGNOR, the Assignee, the Landlord…all acknowledge that the Lease expires on the Expiry Date of Current Term set out in the First Schedule and the rent is the Annual Rent set out in the First Schedule.
1 Affidavit of Joseph Wallis Biddles sworn 8 April 2021, at [10]; Affidavit of David Ryan Henry sworn 23 March 2021, at [6].
2 Affidavit of David Ryan Henry sworn 23 March 2021, exhibit A.
3 Affidavit of David Ryan Henry sworn 23 March 2021, exhibit B.
4 Affidavit of David Ryan Henry sworn 23 March 2021, exhibit B.
5 Affidavit of David Ryan Henry sworn 23 March 2021, exhibit C.
THE LANDLORD consents to the assignment but without prejudice to the Landlord’s powers and remedies under the Lease…
…
SECOND SCHEDULE
1.THE Assignee agrees with the Assignor to perform all the provisions in the Lease from the Date of Assignment.
2.THE Assignee indemnifies the Assignor…against all liability arising out of any default by the Assignee in the performance of the provisions of the Lease from the Date of Assignment.
…
4.THE Assignee agrees with the Landlord that the Assignee will perform all the provisions of the Lease from the date of Assignment.
5.THE Assignor acknowledges to the Landlord that the covenants of the
Assignee are not in substitution for and do not alter the liability of the
Assignor under the Lease.
[10] The proposed date of assignment was 7 December 2020.6 On 9 September 2020, Mr Biddles emailed Mr Henry with concerns regarding Kinleith’s ability to pay rent following the assignment date and suggested they consider finding an alternative tenant.7
[11] On 24 November 2020, TBB’s Practice Manager emailed Mr Henry and Ms Sim, confirming the date of assignment to be 7 December 2020, and attaching an invoice for Kinleith’s share of December’s rent payable to TBB.8 TBB was to pay to Robert Jones all of December’s rent upon receipt of that payment from Kinleith.
[12] Mr Biddles had been acting for another one of Mr Henry’s companies, Kinleith Land and Infrastructure Ltd (KL&I) since December 2019.9 By November 2020, KL&I and Mr Henry personally had nearly $100,000 plus GST in fees outstanding with TBB. Accordingly, on 9 November 2020, Mr Thompson emailed Mr Henry to inform him that TBB was no longer able to act for KL&I and Mr Henry personally.10
6 Affidavit of Joseph Wallis Biddles sworn 8 April 2021, exhibit JB-010.
7 Affidavit of Joseph Wallis Biddles sworn 8 April 2021, exhibit JB-020.
8 Affidavit of Joseph Wallis Biddles sworn 8 April 2021, exhibit JB-017.
9 Affidavit of Joseph Wallis Biddles sworn 8 April 2021, at [9].
10 Affidavit of David Ryan Henry sworn 23 March 2021, exhibit D.
[13]Then on 25 November, Ms Sim emailed Mr Biddles:11
In light of Greg’s recent decision to end TBB’s solicitor/client relationship with Kinleith, it is no longer tenable for Kinleith Continuation LP to take an assignment of the lease for Level 29. The decision by Kinleith to take that assignment was premised on the understanding that there would be an ongoing relationship between TBB and Kinleith – the solicitor/client relationship being crucial to this. Unfortunately, that is clearly now not the case. Accordingly, Kinleith Continuation LP gives immediate notice of termination to the deed of assignment.
[14] On 30 November 2020, Robert Jones emailed Kinleith inquiring whether Kinleith intended to repudiate the Deed of Assignment.12 Kinleith did not respond.13
[15] Robert Jones emailed Kinleith the first monthly invoice under the lease on 14 December 2020.14 Kinleith did not respond.15
[16] On 18 January 2021, Robert Jones, by its solicitors, served a PLA notice and letter on Kinleith, advising that Kinleith was in default under the Lease and Deed of Assignment.16
[17] Mr Henry replied to Robert Jones’ solicitors on 26 January, to say that the “proposed assignment” from TBB was lawfully terminated.17 Robert Jones rejected Kinleith’s purported termination by letter dated 27 January.18
[18]On 9 March, Robert Jones served Kinleith with the statutory demand for
$41,881.52, which represents the first two months’ rent which Robert Jones says is due and owing by Kinleith.
[19] Since the commencement of this proceeding, Robert Jones has found a new tenant for the premises and cancelled Kinleith’s lease.19
11 Affidavit of David Ryan Henry sworn 23 March 2021, exhibit E.
12 Affidavit of George Donal Eisdell Moore affirmed 8 April 2021, at exhibit GM-139.
13 Affidavit of George Donal Eisdell Moore affirmed 8 April 2021, at [19].
14 Affidavit of George Donal Eisdell Moore affirmed 8 April 2021, at exhibits GM-140–GM-142.
15 Affidavit of George Donal Eisdell Moore affirmed 8 April 2021 at [19].
16 Affidavit of George Donal Eisdell Moore affirmed 8 April 2021, at exhibit GM-157 and GM-159.
17 Affidavit of George Donal Eisdell Moore affirmed 8 April 2021, at exhibit GM-161.
18 Affidavit of George Donal Eisdell Moore affirmed 8 April 2021, at exhibit GM-163.
19 Affidavit of George Donal Eisdell Moore affirmed 21 May 2021, at [10] and [11].
Legal principles concerning applications to set aside statutory demands
[20] The statutory demand was served on Kinleith under the Limited Partnerships Act 2008 (LPA). The provisions concerning statutory demands in pt 16 of the Companies Act 1993 apply to limited partnerships.20
[21] A court may grant an application to set aside a statutory demand if it is satisfied there is a substantial dispute whether or not the debt is owing or is due (or the debtor company appears to have a counterclaim, set-off or cross-demand which generally is near to, or exceeds, the amount of the claimed debt).21
[22] As the Court of Appeal stated most recently in Confident Trustee Ltd v Garden and Trees Ltd, the general principles are well settled:22
(a)The onus is on the applicant seeking to set aside the statutory demand to show that there is arguably a genuine and substantial dispute as to the existence of the debt. The Court’s task 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 enough. 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 first in ordinary civil proceedings before any statutory demand is issued.
(d)If a counterclaim, cross-demand or set-off is suggested an applicant must establish that this is reasonably arguable in all the circumstances.
(e)It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise, unless such evidence is contrary to the available documents or earlier statements made by the parties.
[23] In another case the Court of Appeal suggested that the threshold for a substantial dispute will be met where the applicant can show a “fairly arguable basis” on which it is not liable for the amount claimed.23 The Court also said, drawing an
20 Limited Partnerships Act 2008, s 92.
21 Companies Act 1993, s 290(4).
22 Confident Trustee Ltd v Garden and Trees Ltd [2017] NZCA 578 at [16]. Affirmed in Mega Project Holding Ltd v Orewa Developments Ltd [2020] NZCA 111 at [4].
23 United Homes (1988) Ltd v Workman [2001] 3 NZLR 447 (CA) at [27], citing Forge Holding (NZ) Ltd v Kearney Finance (NZ) Ltd HC Christchurch M149/95, 20 June 1995.
analogy with other summary procedures such as applications to remove caveats and to oppose summary judgments, that the Court is not required meekly to accept without question whatever unvarnished statements may happen to be made on affidavit. The Court is entitled to act in a more robust and common-sense manner.
Did Kinleith and TBB share a different intention to that recorded in the Deed of Assignment of Lease?
[24] In its application to set aside the statutory demand, Kinleith claimed that the Deed of Assignment of Lease did not reflect the intention of Kinleith as to the agreement between Kinleith and TBB, without specifying what Kinleith’s intention was. In his affidavit filed in support of that application, Mr Henry said that the agreement did not correctly record the agreement Kinleith had reached with TBB. He said:24
I never understood for the agreement to put the Applicant in the position of being the obligor to the Respondent, but rather having an agreement with TBB under which we occupied the premises and did business together. I understood that TBB was at all times remaining the primary obligor to their landlord, and that they had an agreement with the Applicant which provided them a commercial arrangement to recover the cost from us.
[25]Elsewhere in his affidavit he states:25
…[T]he document called the Deed of Assignment of Lease (sent to Kinleith on the 23rd of March 2020) does not fully record my understanding of the transaction I agreed with TBB (on the 2nd of June 2020) and understood when I signed the document being implemented.
Further to that, I would never have leased the premises occupied by TBB from the Respondent at the rental being charged by itself. It would make no commercial sense to simply take this as the primary obligor to the Respondent. The occupying of the premises made commercial sense on the basis of the business agreement I had with TBB.
[26] In his written submission, counsel for Kinleith, Mr (Brian) Henry, submitted that the Deed of Assignment of Lease did not correctly record the agreement Kinleith entered into with TBB. He submitted that Kinleith’s intention was always to enter into an agreement with TBB to jointly occupy the premises as agreed between Kinleith and TBB at a meeting on 2 June 2020.
24 Affidavit of David Henry sworn 23 March 2021, at [14].
25 At [25] and [26].
[27] When pressed at the hearing, Mr (Brian) Henry, clarified that Kinleith claimed that the company and TBB intended that TBB would effectively sublease the premises to Kinleith, with TBB remaining obligated to Robert Jones as lessee under the Lease. Further, that there would be a fee arrangement involving TBB reducing its legal fees for Kinleith and thereby effectively sharing the rental cost. So, Kinleith maintains there is an arguable case for rectification of the Deed of Assignment from an assignment of lease to an agreement that Kinleith would occupy the premises under a sublease arrangement with TBB, with TBB remaining liable to Robert Jones, and Robert Jones consenting to this arrangement.
[28] Rectification is an equitable remedy which entitles a Court to alter the recorded terms of a written contract if those terms do not conform to the common intention of the parties.26 For rectification to be granted, the mistake must be mutual to the contracting parties, and misstate the parties’ common intended agreement.27
[29] As the Court of Appeal said in Davey v Baker, a mistake in the interpretation of an instrument or in the legal consequences of entering into an instrument is regarded as insufficient to ground rectification; rectification is a remedy to ensure the instrument contains the provisions which the parties intended it to contain, and not those which it would have contained had the parties been better informed.28 The remedy of rectification is strictly limited to a clearly established disparity between the words of the document and the intentions of the parties.
[30] In that case, the Court of Appeal held that a party seeking rectification must show that:29
(a)the parties had a common continuing intention, whether or not amounting to an agreement, in respect of the particular matter in the instrument to be rectified;
26 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Brookers, Wellington, 2009) at 29.1.
27 Laws of New Zealand Equity (online ed) at [248].
28 Davey v Baker [2016] NZCA 313, [2016] 3 NZLR 776 at [40], citing Francis Dawson “Rectification of voluntary settlements” (2014) 130 LQR 356 at 359.
29 At [37].
(b)there was an outward expression of accord;
(c)the intention continued at the time of the execution of the instrument sought to be rectified; and
(d)by mistake the instrument did not reflect the common intention.
[31] The requirement for an “outward expression of accord” differs from the test laid down by Tipping J in Westland Savings Bank v Hancock.30 Sitting then in the High Court, his Honour found that there was no need for formal communication of the common intention by each party to the other, or an outward expression of accord, provided it was objectively apparent from the words or actions of each party that each party held and continued to hold an intention on the point in question corresponding with the same intention held by each other party.31 I note Westland Savings Bank because counsel for Kinleith relied upon it, while counsel for Robert Jones emphasised Davey v Baker. In the end, nothing turns on the difference between the authorities here.
[32] The objective evidence Kinleith relies on as demonstrating the purported common intention is an email from Mr Biddles to Mr (David) Henry and Ms Sim on 2 June 2020. Before considering that email, I will review the correspondence that preceded it.
[33] On 23 March 2020 Mr Biddles sent Mr Henry and Ms Sim a draft Deed of Assignment of TBB’s office lease. He said:
As promised and discussed with David, attached for your review and signature is a draft deed of assignment of our office lease.
…
…I haven’t included in the deed of assignment reference to you picking up our soft furniture, desks, board tables, chairs etc as we can simply agree a number which works for you.
30 Westland Savings Bank v Hancock [1987] 2 NZLR 21 (HC).
31 At 30.
Greg Loveridge has followed up re having a virtual meeting with you (although we haven’t named you yet) so as soon as you can return this signed, we will do the same and organise a virtual “sit down.”
[34] On 5 May 2020, Mr Biddles followed up with an email to Ms Sim, asking for an update on her review of the Deed of Assignment.
[35] On 11 May 2020, Ms Sim responded that she had almost finished her review of the lease documentation.
[36] On 14 May 2020, Ms Sim emailed to say that she had completed her review of each lease-related document. She asked Mr Biddles several questions, to which he responded on 20 May 2020.
[37] On 2 June 2020, Mr (David) Henry and Mr Biddles met to discuss the arrangement. Mr Henry deposes that at this meeting they agreed the nature of the arrangement between Kinleith and TBB, which Mr Biddles confirmed in an email later that day:
As discussed with David this morning, when the lease was discussed internally by Kinleith on Friday there was some mention of the balance of the amortised fitout cost which you pick up as part of the lease.
David said on that basis, if we can transfer all of our furniture, etc/full turnkey to you for $0 (being its value as part of this deal) then we are agreed.
I’ve discussed this with the TBB partners. Given the relationship between Kinleith and the firm, we are happy to proceed as above. We appreciate it will make life a lot easier to walk into a turnkey office.
On that basis would you please return the signed deed of assignment, and I’m happy to simply treat this email exchange as confirmation of the transfer of the furniture for nil consideration.
We love that the premises will transfer to a client and that we’ll have an opportunity to continue to visit the space via meetings and the like!
Once we have the signed deed of assignment back I can send this on to Greg Loveridge, which will be the best platform to then open the discussion for some temporary space one floor below.
[38] On 3 June 2020, Ms Sim returned the Deed of Assignment of Lease to TBB, signed by Mr (David) Henry and witnessed by her.
[39] Mr (Brian) Henry, counsel for Kinleith, submits that the nature of the arrangement changed at the meeting on 2 June 2020. The Deed of Assignment prepared earlier no longer reflected the real agreement between the parties. Moreover, the arrangement was made in the context of an ongoing commercial relationship between Kinleith and TBB and an agreement that Kinleith could have the fixtures and fittings at nil consideration. Mr Henry submits that at that point the common intention of the parties was not reflected in the Deed of Assignment, and that TBB should have drawn up a new document.
[40] I find that submission unpersuasive. There is nothing in this email to indicate that there had been a change to what the parties intended, from an assignment of the lease obligations to Kinleith to a sublease-type arrangement, with TBB remaining liable to Robert Jones as lessee under the Lease. The subject of the email was the possibility, apparently discussed between Mr Biddles and Mr Henry that morning, of Kinleith acquiring all TBB’s furniture, etc, for nil consideration. The second paragraph suggests that Mr Henry had asked for that outcome and said that Kinleith would agree to the assignment if TBB would agree to a “turnkey” arrangement.
[41] Mr Biddles’ statement that the email exchange could be treated as confirmation of transfer of the furniture for nil consideration and request that Kinleith return the signed Deed of Assignment, only reinforces that the parties were making a side agreement here about the furniture and fittings in the context of the Deed of Assignment of Lease.
[42] Overall, Kinleith’s proposition that TBB and Kinleith intended a sublease-type arrangement, with TBB remaining liable to Robert Jones as lessee under the Lease, instead of TBB assigning the obligations to Kinleith, strains credibility. Such an arrangement directly contradicts the terms of the Deed of Assignment of Lease they signed and would represent an altogether different deal. The assignment had been discussed between Kinleith and TBB for some months; and Kinleith’s in-house legal counsel had reviewed the document and provided comment. There is no evidence to support the claim that the deal changed so dramatically on 2 June 2020. In response to Mr Biddles’ email of that day, Ms Sim sent Mr Biddles the signed Deed of Assignment of Lease on 3 June 2020, without question, and thanked him for agreeing
to gift the furniture and fitout. On 10 June 2020 Robert Jones returned the signed Deed of Assignment of Lease to Mr Biddles and he provided Kinleith with a copy of the fully executed deed the following day.
[43] The original lease between Robert Jones and TBB for the premises was executed on 30 October 2012. The Deed of Assignment of Lease was executed on 10 June 2020, well after the third anniversary of the commencement of the lease. It follows that on assignment, consistent with cl 4.7 of the Lease and the terms of the Deed of Assignment, TBB was entitled to be released from all responsibilities under the lease (subject to liability for pre-existing breaches).
[44] Mr Henry in his affidavit deposes what he “understood”. He states that he “understood the agreement was between TBB and us, it was only then to be acknowledged by the Respondent”.32 He states that he “never understood for the agreement to put the Applicant in the position of being the obligor to the Respondent… I understood that TBB was at all times remaining the primary obligor to their landlord…”.33 While Mr Henry deposes that he had never signed a lease for commercial premises before,34 I find it difficult to accept that he, an experienced businessman who was assisted on this transaction by an in-house legal counsel, would not understand the difference between an assignment of a lease, and a sublease or co-lease. Or that he would not have read the Deed of Assignment of Lease before signing it.
[45] Even if his understanding was as he has deposed it to be, the Court of Appeal held in Tri-Star Customs and Forwarding Ltd v Denning35 that rectification of a unilateral mistake is not available under New Zealand law.36
[46] Kós J did observe, earlier this year, that it will eventually be necessary to reconsider Tri-Star Customs, as a powerful case has been made by academic critics
32 Affidavit of David Henry sworn 23 March 2021, at [13].
33 At [14].
34 At [13].
35 Tri-Star Customs and Forwarding Ltd v Denning [1999] 1 NZLR 33 (CA).
36 The law at the time being the Contractual Mistakes Act 1977.
for its reconsideration.37 However, that aspect of the appeal failed on the facts. Accordingly, Tri-Star Customs remains binding authority on this Court.
[47] Kinleith has not offered any other evidence, beyond this 2 June 2020 email, to support its claim that the intention of the parties is not reflected in the Deed. Nor does the subsequent correspondence support that claim.38 For example, TBB said, in an email to Kinleith dated 9 September 2020, “[w]hile the assignment is unconditional and consented to by [Robert Jones], given the current cashflow challenges you discussed with Greg, should they not be able to be resolved by the assignment date, it would be in everyone’s interests to acknowledge this now and have an open dialogue about what can be done in the interim to mitigate your and [Robert Jones’] exposure…”.39 That position was not disputed by Kinleith.
[48] On 1 October 2020, when Mr Biddles updated Mr Henry and Ms Sim about the expected date for commencement of TBB’s new lease, Mr Henry’s response was: “Wow. Ahead of schedule! Thanks Joe, great news!”
[49] I also refer to Ms Sim’s email, dated 25 November, and reproduced above at [13], in which she communicated Kinleith’s notice of termination of the Deed of Assignment. This email came after TBB had terminated the solicitor/client relationship with KL&I, and after TBB’s email to Kinleith on 24 November reiterating the date of assignment to be 7 December 2020 and attaching an invoice for Kinleith’s share of the December rent. Mr Henry was copied in to the email. It is notable that neither Ms Sim nor Mr Henry disputed that Kinleith had agreed to an assignment of the lease.
[50] TBB’s response to Ms Sim’s email was to point out that the assignment was unconditional, it could not be terminated and that it was in the process of vacating the premises. Robert Jones reiterated that message to Kinleith in an email dated
37 Kaimai Properties Ltd v Queen Elizabeth the Second National Trust [2021] NZCA 10 at [57]– [58].
38 Kusabs v Staite [2019] NZCA 420, (2019) NZCPR 445 at [66]: Evidence of subsequent conduct is admissible to show that the recorded terms do not reflect the agreed terms. See also Bathurst Resources Ltd v L&M Coal Holding Ltd [2021] NZSC 85 at [84]–[90].
39 Affidavit of Joseph Wallis Biddles sworn 8 April 2021, exhibit JB-020.
30 November 2020, and in an email dated 14 December 2020 attached an invoice for the first rental payment due on 1 January 2021.
[51] Then, in response to a letter from Robert Jones’ solicitors demanding payment of the outstanding January 2021 invoice, David Henry stated that the “proposed assignment from Thompson Blackie Biddles was lawfully terminated.” At no point did Mr Henry suggest that an assignment was not what they intended.
Is it necessary for Robert Jones to have shared that intention and if so, did it?
[52] It is not necessary for me to decide this issue, because I have found that there is no evidence of a common intention between TBB and Kinleith that differed from that recorded in the Deed of Assignment. However, I will briefly comment.
[53] The law is clear that rectification is only available where all parties to an agreement have a common intention contrary to the written terms of the agreement.40 Kinleith does not assert that Robert Jones shared the alleged common intention of Kinleith and TBB. Notably, Mr Moore, for Robert Jones, has deposed that the Deed of Assignment of Lease did reflect his intention.41 But Kinleith argues that Robert Jones was not a party to the agreement. It submits that the agreement was between Kinleith and TBB only; and Robert Jones simply consented to it. As such, it is not necessary for Robert Jones to have shared the common intention of Kinleith and TBB that supports the claim to rectification.
[54] This submission has some appeal. It is consistent with cl 4.3 of the terms of the Deed of Lease, which requires the lessee to seek the lessor’s written “consent” to any assignment. But the reality in this case is that the assignment and the consent were wrapped up in one formal document, executed by all three parties. Consistent with that, the Deed of Assignment of Lease identifies Robert Jones as a party and records matters of agreement between Kinleith, TBB and Robert Jones. For example, TBB as assignor, Kinleith as assignee and Robert Jones as landlord agree to the matters set out in the Second Schedule. This includes at cl 4 that Kinleith “agrees with the
40 Westland Savings Bank v Hancock [1987] 2 NZLR 21 (HC) at 30.
41 Affidavit of George Donal Eisdell Moore affirmed 8 April 2021, at [13].
Landlord that the Assignee will perform all the provisions of the Lease from the date of the Assignment.” And cl 5 is struck out: “the Assignor acknowledges to the Landlord that the covenants of the Assignee are not in substitution for, and do not alter, the liability of the Assignor under the Lease.” Separately, Robert Jones consents to the assignment.
[55] Furthermore, it is difficult to reconcile Kinleith’s submission that Robert Jones’ intention does not matter for rectification purposes, with its submission at the hearing that the Deed was intended to be a consent by Robert Jones to Kinleith moving into the premises, with TBB to remain primary obligor to Robert Jones under the Lease. Consent on those terms is completely at odds with the terms of the written document. I cannot see how the document could be rectified in such a way unless all the parties, including Robert Jones, shared that common understanding.
[56] In any case, as stated, the point is not decisive as I have found that Kinleith and TBB did not share a different intention to that recorded in the Deed of Assignment of Lease.
Was the arrangement conditional on Kinleith and TBB having an ongoing commercial arrangement?
[57] There is evidence to support the contention that Kinleith and TBB expected to continue to work together as solicitor/client after Kinleith took over the premises. But there is no evidence that the assignment of the lease was intended to be conditional on that. The Deed of Assignment of Lease does not make the assignment conditional on Kinleith and TBB having an ongoing relationship. Moreover, TBB’s acknowledgment of Kinleith as a client in the 2 June 2020 email and expression of expectation that TBB would continue to visit the premises for meetings with Kinleith is a long way from establishing, even to an arguable threshold, that the agreement was conditional on their professional relationship continuing.
Is a conflict of interest by TBB relevant to the statutory demand and if so, did TBB have a conflict of interest?
[58] Kinleith submits that the statutory demand should be set aside because TBB had a conflict of interest when negotiating with Kinleith in relation to the Deed of
Assignment of Lease. It states that this conflict of interest arises because Mr Biddles was in a solicitor/client relationship with Kinleith. As such, it was acting for Kinleith in circumstances where TBB’s interests (in securing an assignment of its obligations under the Lease) conflicted with its professional duties to Kinleith.
[59] Mr Biddles rejects this allegation. He deposes that TBB acted for David Henry personally on other matters, and Kinleith’s subsidiary (KL&I), but never Kinleith (being Kinleith Continuation LP). Mr Biddles also says that the Deed of Assignment of Lease was negotiated at arm’s length between TBB and Kinleith’s General Counsel.
[60] In his affidavit in reply, Mr Henry says that the entities are intertwined. Kinleith is the 100 per cent shareholder of KL&I, and he, sole partner of Kinleith, is also a client of TBB.
[61] There is some support for Mr Henry’s position that TBB and Mr Biddles had a professional relationship with Mr Henry and his group, and that to distinguish between the entities, as Mr Biddles does in his affidavit, is to put too fine a point on it. In his email to Mr Henry of 2 June 2020, Mr Biddles did not differentiate between the different Kinleith entities, referring to “the relationship between Kinleith” and noting “… the premises will transfer to a client…”.
[62] However, it is clear from the evidence that Mr Biddles was not acting for Kinleith in relation to the Deed of Assignment of Lease. There is no evidence of him advising Mr Henry on the Deed. All the evidence supports the view that the arrangement was negotiated between TBB and Kinleith at arms’ length. Kinleith was advised by its own in-house General Counsel, Ms Sim. She reviewed the Deed of Assignment of Lease, and after asking several specific legal questions on 14 May 2020, she witnessed Mr Henry signing the deed for Kinleith.
[63] In any case, whether Mr Biddles was conflicted when negotiating the Deed of Assignment of Lease, or breached his professional obligations to Kinleith, is irrelevant to the issue of whether there is a genuine and substantial dispute as to the debt claimed in the statutory demand. That is because the remedies that follow from a proven cause of action for breach of a fiduciary duty, or of the Lawyers and Conveyancers Act 2006,
do not include rectification of the document concerned. The purpose of rectification, as discussed, is to correct the document to reflect the common intention of the parties. If Kinleith considers that Mr Biddles breached professional obligations he owed Kinleith, the appropriate action is a claim or complaint against him. Kinleith’s liability to Robert Jones under the lease is unaffected.
[64] At the hearing Mr Henry submitted that the consequence of Mr Biddles’ (alleged) conflict of interest was that the parties’ agreement was never properly documented. That is, because of the conflict of interest, TBB did not do what it should have done – after the 2 June 2020 meeting when the agreement allegedly changed, it should have prepared a new agreement that properly recorded their common intention So, the purported conflict of interest is advanced not as a reason in and of itself to set aside the statutory demand, but to explain why there is allegedly a difference between what was signed and what the parties intended and thereby supports the claim to rectification.
[65] Even reframed in this way, the submission fails. I have found that there is no evidence of a common intention for an agreement that differs from that which is documented in the Deed of Assignment. The alleged conflict of interest is simply irrelevant to this application.
Result
[66] Kinleith has not reached the threshold of establishing a reasonably arguable case that there is a genuine and substantial dispute about whether the sum claimed in the statutory demand is due and owing.
[67]I order:
(a)the application to set aside the statutory demand is dismissed;
(b)the time for compliance with the statutory demand is extended to 15 working days after the date of delivery of this judgment, after which Robert Jones may apply to put Kinleith in liquidation if it has not paid;
(c)Kinleith will pay Robert Jones its costs and disbursements.
[68] If the parties cannot agree the quantum of costs, they may file submissions of no more than four pages and I will decide the costs on the papers. Robert Jones should file any submissions within 15 working days of this judgment and Kinleith any submissions within 10 working days afterwards.
Associate Judge Gardiner
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