Kunicich v E Kunicich & Son Limited HC Auckland CIV 2008-488-174
[2008] NZHC 2558
•4 September 2008
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2008-488-174
IN THE MATTER OF s 145A Land Transfer Act 1952
BETWEEN LAURA JANE KUNICICH Applicant
ANDE KUNICICH & SON LIMITED Respondent
Hearing: 12 August 2008
Appearances: R C Mark for Plaintiff
C R Pidgeon QC for Defendant
Judgment: 4 September 2008 at 3 pm
JUDGMENT OF ASSOCIATE JUDGE ROBINSON
This judgment was delivered by me on 4 September 2008 at 3 pm, Pursuant to Rule 540(4) of the High Court Rules
Registrar/Deputy Registrar
Date……
Solicitors: R C Mark, PO Box 172, Kerikeri
C R Pidgeon QC, PO Box 105924, Auckland
LAURA JANE KUNICICH V E KUNICICH & SON LIMITED HC AK CIV 2008-488-174 4 September 2008
[1] The plaintiff seeks orders under s 145A Land Transfer Act 1952 preserving two caveats she has lodged against the title to the defendant’s land at Spains Road, Awanui. One caveat is to protect the plaintiff’s claim to an interest in the property under a lease agreement dated 24 November 2005 signed by the plaintiff as lessee and by or on behalf of the defendant as lessor for the period 1 December 2005 until
30 November 2010 and the second claiming an interest by virtue of an option to purchase the land for the set price of $250,000 plus GST contained in that agreement to lease.
[2] The plaintiff married Owen Keith Kunicich on 2 April 2005. Mr Kunicich is the sole shareholder and sole director of the defendant. The defendant owns farm land at Awanui which includes a runoff consisting of 36.8719 hectares situated at Spains Road which is the property subject to these caveats.
[3] When they married the Plaintiff acknowledged that Mr Kunicich’s interest in the defendant company was his separate property. Mr Kunicich is the sole director and shareholder of the defendant’s company.
[4] On 24 November 2005, the Plaintiff and Mr Kunicich signed a written lease agreement with option to purchase in the following form:
1)This agreement runs from the 1st of December 2005 until the 30th of November 2010 at which time the lessee has the option to purchase the land if it has not been purchased prior by the lessee for the set price of $250,000 + GST.
2) The lease price will be set at $3,000 p/a +GST
3)The lessee will upgrade the fences, paddocks, maintain the water lines, upgrade the drainage system, will put new pasture down and put lime and manure on when sees fit.
4) The lessee will pay all rates as from the date of take over.
Signed by
Mr Owen Keith Kunicich “The lessor” Signed by
Mrs Laura Jane Kunicich “The Lessee”
[5] The plaintiff says she had discussed with Mr Kunicich her plans to develop the run off which is the property referred to in the above lease agreement and option to purchase. She had recently set up a company called “Winvic Limited”. She claims the parties had agreed she should have a lease agreement drawn up with an option to purchase. On 24 November 2005 she presented the lease agreement and option to purchase to Mr Kunicich for him to sign. She says he read the document out loud, signed it and dated it.
[6] Mr Kunicich for his part disputes this evidence. He claims that the lease agreement with option to purchase was produced by the plaintiff to him whilst he was concentrating on the television. He says when she asked him to sign the document she told him it was to enable her to use the property in question for farming. He acknowledges agreeing to the plaintiff using the run off for farming but denies there was any suggestion of an option to purchase. He claims to have signed the document whilst watching television and was not given a chance to read the document.
[7] He acknowledges discussing with the plaintiff her proposal to use the property concerned. He says that he was happy for her to do so at a rental of $3,000 per annum. There was never any mention of rates. It is accepted that the plaintiff did farm the property. It is also acknowledged that she paid a rental of $3,375 per annum to the defendant.
[8] In early 2006 the plaintiff instructed her solicitors to arrange for a formal lease and option to purchase to be prepared for execution by the defendant. In that correspondence attempts were made without success to negotiate the details of the lease of the property between the plaintiff and the defendant. The solicitors for the defendant, although acknowledging an agreement to lease, emphatically disputed any alleged agreement for the plaintiff to have an option to purchase the property.
[9] The rental payments received by the defendant were paid by the plaintiff’s company Winvic Limited. Winvic Limited at one stage lodged a caveat claiming an interest in the property pursuant to the agreement for lease and option to purchase.
That caveat has been withdrawn and the caveats which are the subject of these proceedings were lodged in its place.
[10] In January 2008 the solicitors for the defendant returned a cheque issued by Winvic Limited for $3,375 by way of rental. In returning that cheque the solicitors advised Winvic Limited that, although there was no lease in favour of that company for the property described as being at Kunicich Road, Winvic Limited could continue to use the land until the existing crops had been harvested. Vacant possession of the land would then be required and such vacant possession should be provided no later than March 2008.
[11] The defendant claims to have an arguable case for interests in the land under the agreement to lease and option to purchase. It is claimed on her behalf that although Mr Kunicich signed the agreement he did so as director and sole shareholder of the defendant company. It is further submitted that the defendant company ratified the agreement by accepting rent and allowing the plaintiff to enter into possession of the property and farm the property.
[12] It is submitted on behalf of the defendant that the agreement for lease and option to purchase is not with the defendant but with Mr Kunicich. It is further submitted that the defendant has not ratified the arrangement.
[13] To justify an order preserving the caveat, the plaintiff who is the caveator must show she has a reasonably arguable case in claiming the interest in the land. If she can establish a reasonably arguable case to an interest in the land under the agreement to lease and option to purchase, the caveats should not be discharged. An enquiry into the material matters can only appropriately be undertaken in proceedings directed to the validity of the agreement to lease and option to purchase, Sims v Lowe [1988] 1 NZLR 656.
[14] There can be no doubt that an agreement to lease creates a beneficial interest in land which will support a caveat. Similarly, an option to purchase granted by the lessor to the lessee in an agreement to lease, will create an equitable interest which can be the basis of a caveat to protect the lessee’s interest, Water v Auckland City
Council HC AK M1033/98 20 October 1998, Morland v Hales & ors & Sumerville
(1910) 30 NZLR 201 and Bevin v Smith [1994] 3 NZLR 648.
[15] Furthermore, where a person is in possession of property, pursuant to an agreement to lease in circumstances where the Court would order specific performance of that agreement, the parties to that agreement should be treated as between themselves as if the agreed lease had been granted, Walsh v Lonsdale 21
Ch D 9(CA). The lessee in such circumstances has an equitable interest in the land which may be protected by a caveat.
[16] Counsel for the defendant did not contest the claim that an option to purchase and an agreement to lease would support a caveat. The defence was that the defendant had not entered into an agreement to lease or option to purchase with the plaintiff. The agreement which was signed by the plaintiff on 24 November 2005 was with Mr Kunicich and not with the defendant. As the defendant had not signed the agreement, the defendant could not be bound by it.
[17] The plaintiff relied on s 180(1)(b)(c) the Companies Act 1993 claiming the agreement in this case was entered into by Mr Kunicich on behalf of the defendant with the express or implied authority of the defendant. The plaintiff also contends that in any event the defendant has either expressly or impliedly ratified the agreement.
[18] It was pointed out that Mr Kunicich as sole director and sole shareholder of the defendant, clearly had authority to enter into an agreement on behalf of the defendant to lease the land and grant an option for purchase of the land. Furthermore, the defendant had ratified the agreement by allowing the plaintiff into possession of the land, accepting payment of rent from her, and authorising a solicitor to negotiate the terms of a formal lease.
[19] The evidence establishes that when the plaintiff prepared the documents signed by the plaintiff and Mr Kunicich on 24 November 2005, she knew the land referred to in that agreement was owned by the defendant. The schedule to the
Property Relationship Agreement she entered into with Mr Kunicich specifies that
Mr Kunicich separate property includes:
Financial Assets & other property
Company shares in E Kunicich & Son Limited including ownership of the farm (Certificates of Title NÄ 42A/1257 & NÄ 646/157), stock and plant,
2001 Ford courier, David Brown tractor 990 and other chattels (held in the Company name), Jimmy being the sole shareholder and Director of the Company.
[20] The plaintiff says Mr Kunicich made all the decisions concerning the farm which is understandable as he was the sole shareholder and director of the defendant.
[21] Mr Kunicich disputes the plaintiff’s evidence as to the signing of the agreement on 24 November 2005. I cannot in the context of these proceedings, resolve that dispute. I am however satisfied that the plaintiff has an arguable case to her claim that Mr Kunicich read the agreement before he signed it. Whilst Mr Kunicich claims he never intended the defendant to be bound by the agreement, and in particular, the agreement conferring an option to purchase the land on the plaintiff, it is arguable that when regard is had to the surrounding circumstances, Mr Kunicich was entering into the agreement on behalf of the defendant.
[22] Both parties knew that the property was owned by the defendant and not Mr Kunicich. It is entirely appropriate when interpreting the agreement to have regard to the background or matrix of facts when the agreement was signed. See Investors Compensation Scheme Ltd v West Brunswick Building Society [1998] 1 WLR 896 at pages 912-913.
[23] Thus it is at least arguable that when Mr Kunicich entered into the agreement, he did so on behalf of the defendant. Consequently, pursuant to s 180(1)(b) Companies Act 1993, the agreement is binding on the defendant.
[24] In any event, it could be argued that the defendant has ratified the agreement of 24 November 2005. As it is expressed in Bowstead and Reynolds on Agency 18th Edition, 2006 in article 17, paragraph 2-070:
(1) Ratification may be express or by conduct.
(2)An express ratification is a clear manifestation by one on whose behalf an authorised act has been done that he treats the act as authorised and becomes a party to the transaction in question. It need not be communicated to the third party or the agent.
(3)Ratification will be implied whenever the conduct of the person in whose name or on whose behalf the act or transaction is done or entered into is such as to amount to clear evidence that he adopts or recognises such act or transaction and may be implied from the mere acquiescence or inactivity of the principal.
(4)The adoption of part of a transaction operates as a ratification of the whole.
(5)It is not necessary that the ratification of a written contract should be in writing, but the execution of a deed can only be ratified by deed.
[25] The above summary of the law relating to ratification has been recently approved by the Court of Appeal in Clark v Libra Developments Ltd [2007] 2 NZLR
709 at 735. The evidence of acts by the defendant adopting the agreement includes the following:
a) The defendant permitted the plaintiff to enter into possession of the property concerned.
b) The defendant accepted rent from the plaintiff.
c) If the evidence of the plaintiff is accepted, the defendant has permitted the plaintiff to develop the property. According to the plaintiff, the development included rebuilding a barn, upgrading the fences, improving the paddocks and improving the drainage system.
[26] There is therefore significant evidence upon which it could be concluded that the defendant ratified the agreement to lease the property to the plaintiff. However, that agreement also included an option to purchase. It could be argued that the extent of improvements made by the plaintiff to the property exceeded improvements normally made by lessees and consequently, were effected by the plaintiff on the basis that she had an option to purchase. In any event, it is well established that the adoption of part a transaction operates as a ratification of the whole transaction. In Bowstead and Reynolds on Agency, article 17 rule 4, paragraph 2.079, the learned authors state:
Rule (4) The principal cannot adopt the favourable parts of a transaction and disaffirm the rest: he cannot approbate and reprobate, for this would enable him to effect a transaction into which the third party had never intended to enter. He must therefore adopt or reject the transaction in toto.
[27] Consequently, I am satisfied that the evidence adduced by the plaintiff establishes an arguable case in support of her claim to an interest in the land under both the agreement to lease and the option to purchase contained in the agreement. The defendant’s conduct in permitting the plaintiff to enter into possession of the land, accepting rent from her and instructing its solicitors to negotiate the terms of a formal lease support the plaintiff’s claim that Mr Kunicich entered into the agreement on behalf of the defendant and that the defendant has ratified the agreement.
[28] The plaintiff is therefore entitled to an order that the caveats she has lodged do not lapse. However, such order must be on the condition that the plaintiff bring proceedings to establish her claims to a leasehold interest and option to purchase. Counsel for the plaintiff indicated at the hearing that such an application could be commenced within a month. Accordingly therefore it is a condition of the orders preserving the caveats that the plaintiff within six weeks of the date of the delivery of this decision, commence proceedings for orders enforcing her claim to a leasehold interest in the property and to the option to purchase. Leave is reserved to the defendant to bring these proceedings on for hearing so that the orders preserving the plaintiff’s caveats can be discharged should the plaintiff be in breach of the condition relating to the bringing of proceedings to enforce her claims or should the plaintiff not pursue her claim with due diligence.
[29] As the plaintiff has been successful, it is appropriate that the defendant pay the plaintiff’s costs assessed on a 2B basis with disbursements as fixed by the
registrar.
Associate Judge Robinson
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