Lawrence Riverside Ltd v CP Holdings Ltd HC Auckland CIV 2007-404

[2010] NZHC 996

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2006-404-004739

BETWEEN  LAWRENCE RIVERSIDE LIMITED First Plaintiff

ANDBRIAN RICHARD LAWRENCE AND BRIGIT HANNELORE LAWRENCE Second Plaintiffs

ANDCP HOLDINGS LIMITED First Defendant

ANDCAPITAL HOSPITALITY HOLDINGS LTD

Second Defendant

ANDBRIAN RICHARD LAWRENCE AND BRIGIT HANNELORE LAWRENCE Counterclaim Defendants

Hearing:         12 February 2010

Appearances: G A Keene for the Plaintiffs

I F Williams for the Defendants

Judgment:      15 February 2010

[ORAL] JUDGMENT OF WYLIE J

Solicitors/Counsel:

Simpson Dowsett Mackie, P O Box 27 240, Mt Roskill, Auckland
Penney Patel Law, P O Box 26 344, Epsom, Auckland

G A Keene, 45B Epsom Avenue, Epsom, Auckland

I F Williams, P O Box 4338, Auckland

LAWRENCE RIVERSIDE LIMITED AND ANOR V CP HOLDINGS LIMITED AND ORS HC AK CIV

2006-404-004739  15 February 2010

[1]      The plaintiffs have filed an interlocutory application seeking leave to file a second amended statement of claim and an amended statement of defence to the defendants’ counterclaim.   The application has been filed on a without prejudice basis to the plaintiffs’ submissions that leave is not required.

[2]      The defendants oppose the filing of the amended documents. [3]       The application raises two issues.

a)        Is leave to file the amended pleadings required?

b)        If leave is required, should it be granted?

Background

[4]      These proceedings have been outstanding for some time.  They were filed in

August 2006.

[5]      The  second  plaintiffs,  Mr  and  Mrs  Lawrence,  are  the  directors  and shareholders of the first plaintiff, Lawrence Riverside Limited (“Lawrence Riverside”).  Lawrence Riverside was in receivership, but that receivership is now at an end.  It used to run the Lakewood Motel in Rotorua.

[6]      The first defendant, CP Holdings Limited (“CP Holdings”), used to own the freehold of the motel property.  In May 2006, CP Holdings transferred ownership of the property to the second defendant, Capital Hospitality Holdings Ltd (“Capital Hospitality”).

[7]      Lawrence  Riverside  purchased  the  leasehold  interest  in  the  property  in January 2003 and, with CP Holdings’ agreement, it took a transfer of the leasehold estate and possession of the motel property in February 2003.   The rental for the property was then $150,000 plus GST per annum.

[8]      Shortly after Lawrence Riverside took over the motel business, there were a number of problems with water pipes in the motel units.  A number of pipes failed and damage was caused to the units.  There was disruption to Lawrence Riverside’s business as a result.  Mr and Mrs Lawrence raised the problems with CP Holdings. There was no immediate agreement as to who was responsible for the pipes.

[9]      In  March  2005,  CP  Holdings  served  notice  under  the  lease.  seeking  to increase the rent to $194,750.   The notice was issued in accordance with the provisions of the lease.   Lawrence Riverside did not take any steps to dispute the proposed rental, and it was therefore deemed to have accepted the same.

[10]     Lawrence Riverside paid the increased rent for a short period of time.  It was, however, unable to keep up the rental payments and substantial arrears accrued.  The right to seek the arrears was assigned by CP Holdings to Capital Hospitality, and Capital Hospitality gave notice of its intention to re-enter.   Proceedings were then issued.  Lawrence Riverside sought damages of some $1.2 million for breach of the lease  by the  defendants  and  an  injunction  to  prevent  Capital  Hospitality taking possession.

[11]     Following a defended hearing on 27 September 2006, the Court granted an interim injunction in Lawrence Riverside’s favour.  The effect of the Court order was to allow Lawrence Riverside to remain in possession of the motel premises and run its business on payment of a reduced rental figure pending the substantive resolution of the proceedings.

[12]     In February 2007, a fixture date was allocated by the Registrar.  The allocated date for the hearing was 29 October 2007.

[13]     In June 2007, the defendants obtained leave to file a counterclaim in respect of the outstanding rental.   The counterclaim joined Mr and Mrs Lawrence to the proceedings as counterclaim defendants.

[14]     On 9 October 2007, Lawrence Riverside applied for an adjournment of the fixture, and on 15 October 2007, Venning J vacated the trial.  He noted that it was

necessary to vacate the trial due to Lawrence Riverside’s impecuniosity and its inability to properly instruct counsel.

[15]    A judicial settlement conference was then held before Duffy J.   It was unsuccessful.   In the course of the conference, Mr Keene for Lawrence Riverside indicated that his client wished to file an amended statement of claim.  Her Honour noted as follows:

Since the proceeding was set down for hearing this week and no amendment to the claim could have been made without leave, I consider that position still applicable.  This means that it is for the plaintiff to seek leave to amend its pleading.

[16]     An  application  for  leave  was  filed  and  it  came  before  Venning  J  on

1 February 2008.  His Honour also noted that because the case was set down, leave was required.  He recorded that the onus was on Lawrence Riverside, and that the Court had to consider whether a substantial ground for the claim had been made out. He reviewed the proposed amendments.   He concluded that the cause of action which Lawrence Riverside wished to introduce was not arguable at law.  He declined the application to amend the pleading.  He did, however, permit Lawrence Riverside to  join  Mr and  Mrs  Lawrence  as  additional  second  plaintiffs.    In  addition,  His Honour set aside the interim injunction so as to enable Capital Hospitality to re-take possession for non-payment of the rent.  The Court gave Mr and Mrs Lawrence time to order their affairs, and in the event, Mr and Mrs Lawrence vacated the premises on a managed basis, with the agreement of Capital Hospitality.

[17]     An amended statement of claim was filed by Lawrence Riverside on 22 April

2008 joining Mr and Mrs Lawrence as second plaintiffs.

[18]     The plaintiffs appealed against Venning J’s decision, but they took no steps to prosecute the appeal.  Ultimately it was deemed to have been vacated.

[19]     The proceedings came before Doogue AJ on a number of occasions by way of case management conferences.  As at 7 May 2008, the plaintiffs were pushing for a fixture and the defendants were resisting the same because of the uncertainty then surrounding the proceedings.  Doogue AJ took the view that a replacement fixture

should not then be allocated.  On 29 October 2008, Doogue AJ took the view that there was sufficient certainty for the matter to be set down for trial.   He did not, however, fix a new hearing date.  Nor did he direct the Registrar to allocate a fixture. However, his minute did contain the following paragraph:

The default arrangements in the Rules will apply to the pre-trial timetable including fixing of setting-down date, exchange of statements of evidence and indexes of documents, etc.

[20]     Subsequently, the Registrar allocated a fixture date by notice to the parties dated 17 November 2008.  The date allocated was 26 April 2010.

[21]     On 28 January 2010, the plaintiffs filed the second amended statement of claim and the amended statement of defence to the counterclaim.   As noted, the defendants opposed the filing of these documents.  They say that leave is required and that it was not obtained.

[22]     The  issue  was  raised  before  me  by  way  of  telephone  conference  on

10 February 2010.  I refer to my minute of that date.  Both parties agreed that the issue needed to be resolved urgently, because briefs of evidence are shortly required to be filed, and because the parties are preparing for trial.  At my request, Mr Keene filed an application seeking leave, on a without prejudice basis to his argument that it is not necessary for him to do so.

[23]     I record that this matter was dealt with on an urgent basis.   Mr Keene did seek  an  adjournment,  but  I declined  the  same.    In  the  course of  the  telephone conference, both counsel accepted that they needed to know whether or not the case is going to proceed on the basis of the amended pleadings.  The Court made time available at short notice.  It is unlikely that an alternative date can be made available in the near future.   Both parties had prepared written synopses of their respective arguments.  Mr Keene was expressly invited to elaborate on his written arguments, and to address the matters in issue as he saw best.  He took full advantage of that opportunity.

The submissions

[24]     The respective submissions for the parties can be shortly stated.

[25]     Mr Keene for the plaintiffs submits that the effect of Doogue AJ’s minute issued on 29 October 2008 was to expressly change the setting down date which had previously been fixed.  He says that the default provisions now contained in r 7.13(5) apply,  and  that  the  setting down  date was  29  January 2009,  being the  date  60 working days before the allocated hearing date.  He submits that as a result, no leave was necessary when he filed the amended pleadings on 28 January 2010 because he was entitled to file the same under r 7.18.  In the alternative, and in the event that leave is required, he submits that leave should be granted to do justice between the parties.  He says that there is no undue prejudice to the defendants.

[26]     Mr Williams for the defendants asserts that the setting down date was in mid to late 2007, and that the plaintiffs require leave to amend their pleadings under r 7.18.  He submits that Doogue AJ’s minute does not amount to an express change in the setting down date.  He further submits that leave should be declined.  He says that  the  plaintiffs  are  endeavouring  to  re-open  Venning  J’s  decision  given  on

8 February 2008 and that the amendments are unnecessary and legally misconceived. He submits that if leave is to be granted, it would cause significant prejudice to the defendants.

Analysis

[27]     In his judgment of 27 September 2006, Venning J directed that the case should be granted a priority fixture, and by minute dated 2 February 2007, His Honour directed the Registrar to allocate a fixture for five days in consultation with counsel.  He did not then fix the setting down date for the proceeding, and as a result, the then applicable default provisions contained in r 434(5) of the High Court Rules

1991 applied.  The setting down date for the proceeding became the later of:

a)        the date that was 40 working days before the hearing date; or

b)        the date on which the hearing date for the proceeding was allocated.

[28]     A fixture was allocated by the Registrar on 13 February 2007.   The date allocated was 29 October 2007.  It follows that the setting down date was the date that was 40 working days before the hearing date.

[29]     As noted, in the event that fixture was vacated.   Nevertheless, the setting down date remains in place.   There is no provision in the High Court Rules or authority that I am aware of, suggesting that the adjournment of a fixture starts the process again, so as to permit, for example, parties to file amended pleadings without leave.    Indeed  the  contrary position  is  confirmed  by the  authorities  –  see,  e.g. Clappterton  v  Orion  New  Zealand  Ltd  HC  Wellington  CIV-2003-454-100,  23

November 2009 at [9] – [24], per Simon France J, and Carter Holt Harvey Ltd v Genesis Power Ltd & Ors HC Auckland CIV-2001-404-001974, 29 August 2008, per Randerson J at [6].  It was also confirmed by Duffy J in the present case as noted in [15] above.   The position was accepted by the plaintiffs, because they filed an application for leave to file an amended statement of claim.  That application came before Venning J who also confirmed that leave was required, because the amended pleadings were filed after the setting down date – see [16] above.

[30]     Mr Keene submits that Doogue AJ’s minute of the telephone conference referred to in [19] amounted to an express change of the setting down date.

[31]     I do not accept that submission for the following reasons:

a)       The memoranda filed by counsel prior to the telephone conference do not  propose  an  express  change  to  the  setting  down  date.    I  am informed from the bar that the matter was not argued.  The matter was not directly in issue.

b)There is no analysis of the matter in the minute.  It is unlikely that the Associate Judge intended to depart from the express observations of Duffy and Venning JJ.

c)       Doogue AJ did not in his minute fix a new trial date, or direct the Registrar to allocate a trial date.   In the absence of one or other of those directions, there is nothing to trigger the operation of the default provisions contained in the rules.

d)The consequences of finding that the minute amounts to an express change of the setting down date would be undesirable.   It has consequences for the parties which should have been expressly addressed if a change was intended.

[32]     In  the  circumstances,  it  seems  to  me  that  the  paragraph  relied  on  by Mr Keene in the minute is more of a pro forma comment than an express and considered direction.   I conclude that the setting down date was not changed by Doogue AJ’s minute.  Rather the setting down was fixed under the default provisions contained in the then applicable High Court Rules when the initial fixture date was allocated in February 2007.   It was the day 40 days before 29 October 2007. Thereafter, and notwithstanding the lengthy delays which have occurred, leave has been required to file amended pleadings under what was r 438A and is now r 7.18.

[33]     I now consider whether or not leave should be granted in the present case.

[34]     The principles applicable in considering applications for leave have been discussed in, e.g. Fordham v Xcentrex Communications Ltd [1996] 9 PRNZ 682 and Elders Pastoral Ltd v Marr [1987] 2 PRNZ 383.  In broad terms, there must be some material on which the Court can exercise its discretion in favour of the applicant. Further, it must be shown that the amendments proposed are in the interests of justice, that they will not significantly prejudice the defendants, and that they will not cause significant delay.

[35]     In  the  present  case,  there  is  no  material  before  me  disclosing  why  the pleadings were not amended, or application made, at an earlier date.  I bear in mind that the present application has been made at my request, on a without prejudice basis, and at short notice.  Nevertheless, the plaintiffs should have been aware that the defendants have been treating the case as set down and ready for trial.  Indeed

counsel filed a list of issues for the Court.  Their points now sought to be raised were not listed, although it should be acknowledged that the plaintiffs did record their intention to seek to amend the pleadings before the trial Judge.

[36]     I now turn to consider whether or not the amendments are in the interests of justice.

[37]     The  plaintiffs  seek  to  add  additional  paragraphs  to  the  first  amended statement of claim asserting that the lease was cancelled and that they are therefore entitled to relief under s 7 of the Contractual Remedies Act 1979.  They also seek to raise six affirmative defences to the statement of defence to the defendants’ counterclaim.  These can be summarised as follows:

a)       That  the  first  defendant,  and  their  valuer,  represented  that  their assessment of the increased market rental payable in respect of the motel property was “a fair market rent”, and that this representation induced the first plaintiff to abandon its right to object to the rent increase.

b)That the lease was cancelled, and as a result, the plaintiffs are entitled to relief under the Contractual Remedies Act.

c)       That there was an implied term in the lease that any increase in rental that resulted in the new rental being substantially above a fair market rental would be invalid whether or not the tenants objected to the same.

d)That there was an implied term in the lease that, when arranging for a registered valuation as a prelude to a rent review, the landlord would fully inform the registered valuer of the landlord’s knowledge of the motel buildings, and that the landlord failed to do so.

e)       That it was implicit in the lease that the parties would act in good faith towards each other, and that in attempting to substantially increase the rent, the first defendants breached this obligation.

f)        That the first plaintiff was entitled to and did abate the rent, because the motel building had suffered partial destruction and the first defendant  failed  and/or  refused  to  repair  or  reinstate  the  motel building, or to take any steps to remedy the issue.

[38]     Mr Keene accepted, as he did in the course of the hearing before Venning J on 1 February 2008, that the purpose of the amendments is to address a perceived difficulty for the plaintiffs that may follow in the event that the damages awarded to the plaintiffs are less than the shortfall in rental unpaid by the first plaintiff to the second defendant in terms of the lease.   The amendments seek in one way or the other to challenge or undermine the increased rental.

[39]     I cannot see that the interests of justice require that the amendments  be allowed.  There are a number of reasons for that view:

a)       Lawrence Riverside did not dispute the notice to increase the rent in terms of the lease when the same was given in mid 2005.   It is no longer open to Lawrence Riverside to seek an extension of time under the provisions of the Arbitration Act 1996.  Consequently, Lawrence Riverside is seeking to rely on a representation, cancellation, or implied terms to go behind the provisions in the lease.  The difficulty with the proposed amendments, as noted by Venning J, is that they are contrary to the express terms of the lease, and established law.

b)There were detailed provisions in the lease agreement providing for rent increases.  The lease required the landlord to commence a review by giving written notice of intent specifying the annual rental “considered by the landlord” to be the current market rent as at the review date.  The lease then gave the tenant the right to dispute the landlord’s assessment.  In my view there can be no proper basis for an

argument that the landlord’s notice was a representation of a “fair market”  rent or that the plaintiffs were induced by the landlord’s notice to abandon their right of objection.  The argument cannot stand in the face of the provisions in the lease.  The reality is that the tenant had the right to object to the landlord’s notice.  It did not object and as a result, the rent was deemed to be fixed at the amount notified by the landlord and considered by the landlord to be the then current market rent.  Some five years have passed since the notice was given, the first plaintiff failed to object, and the rent was increased.  It is very late in the day for the first plaintiff to seek to raise the issue now.

c)       In regard to the claim for cancellation, if the amendment were to be allowed, the parties would have to investigate the words and conduct said to amount to repudiation.  These have not been particularised by the plaintiffs.   There would be a number of factual issues to be investigated.   The defendants would undoubtedly claim that the plaintiffs affirmed the contract by their words and conduct over the years, and that in turn would demand a careful analysis of the records, and enquiry of a number of prospective witnesses.

d)In regard to the third to fifth affirmative defences, as Venning J noted in his judgment of 8 February 2008 at [27] to [29], there can be no basis or requirement for the implication of the terms which the first plaintiff seeks to introduce.  They are directly contrary to the express provisions   of   the   lease,   and   their   implication   would   create considerable commercial uncertainty.   The lease is straightforward and it is a standard commercial document.  The affirmative defences are in effect the same issues as were considered by Venning J in February 2008.   In my view, the defendants are seeking to re-visit Venning   J’s   judgment,   and   notwithstanding   that   they   initially appealed that judgment and then failed to prosecute that appeal.

e)       In addition, the fourth affirmative defence is based on the allegation that the valuer was not informed of the building defects.   That is

contrary to the plaintiffs’ own evidence.  Mrs Lawrence deposed in an affidavit of 31 August 2006 that the valuer was in fact properly appraised of the defects because he had visited the motel on more than one occasion and because he had been advised of the same by Mr and Mrs Lawrence – see paragraph 8.8 of the affidavit.

f)        In regard the fifth affirmative defence, the allegation of good faith cannot, in my view, be made out in the face of the lease document. There is no precedent that I am aware of for importing the obligation to act in good faith in commercial arm’s length contracts.  As is noted in Burrows, Finn & Todd Law of Contract in New Zealand (3ed) para

2.2.6 at p 19, the case law in both England and in New Zealand has generally declined to admit this concept, except in the case of those contracts  which  can  properly be  described  as  contracts  uberrimae fidei.  The lease here in issue was not a contract of this kind.

g)       As  for  the  sixth  affirmative  defence,  even  if  the  trial  judge  is persuaded to Mr and Mrs Lawrence’s point of view in regard to the rent increase, the Courts have held that the law does not permit an adjustment of a contractual liability to pay rent simply because the Judge thinks “it is fair” to do so and where there is no other right – see Clarence Holdings Ltd v Cox [1998] 3 NZCon 192, 748 and 192, 754.

[40]     Further,  to  allow  the  pleadings  to  be  amended  now  as  proposed  would introduce considerable uncertainty for the defendants, and operate to their significant prejudice.

[41]     The defendants would need to obtain a brief of evidence from the author of the valuation prepared in March 2005 in support of the landlord’s notice of increase. It would, in all probability, be necessary to instruct an alternative valuer to provide a critique of that valuation.  It could be necessary for the defendants to join the valuer as a third party.  That could well delay the resolution of these proceedings and as noted they have already been outstanding for some considerable time.

[42]     The relief sought by the plaintiffs is in effect a reduction of the rent fixed by the landlord’s notice.   The relief sought would require that the condition of the premises at each monthly rent interval be considered.  That is because the state of the premises  was  not  static  but  the  subject  of  gradual  deterioration.    It  would  be necessary for the defendants to investigate the state of the premises by a series of snapshots, taken on a monthly basis.  At this very late stage, that would be a very difficult exercise.

[43]     Finally I note that the defendants concede that they are liable in terms of the plaintiffs’ statement of claim.   The sole issue between the parties pursuant to the statement  of  claim  is  as  to  quantum.    The  plaintiffs  seek  to  recover  damages reflecting the value of the lease as if there had been no water problems, and compensation for lost income caused by the water problems.  Once that claim has been quantified, there can in my view be no proper ground for further compensation in the manner sought by the proposed amendments to the first amended statement of claim and the statement of defence.  The case raised by the plaintiffs, and conceded by the defendants, should be sufficient to give fair compensation to the plaintiffs.

[44]     In my view, it is simply too late for the plaintiffs to try and re-open the rental for  the  premises  which  was  fixed  in  accordance  with  the  lease  as  long ago  as April/May 2005.  The amendments are not necessary to achieve justice as between the parties.  If made, they would cause significant prejudice to the defendants, and they could result in yet a further delay in this matter.

[45]    The application to amend both the amended statement of claim and the statement of defence to the counterclaim is declined.

[46]     The defendants have sought costs.  I am aware that the plaintiffs are legally aided.   In the circumstances, in my judgment costs should be reserved.   Costs, together with the plaintiffs’ circumstances and any other relevant matters can be considered at trial.

Wylie J