McFall v Physio 2 U Limited HC Tauranga CIV-2011-470-660

[2011] NZHC 2091

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2011-470-660

BETWEEN  MAURICE SAMUEL MCFALL AND OTHERS

Plaintiffs

ANDPHYSIO 2 U LIMITED First Defendant

ANDPETER JOHN SWANEPOEL Second Defendant

ANDLYNDA WHEELER Third Defendant

Hearing:         12 December 2011

Appearances: Ms Cook for Plaintiffs

Mr N Smith for First Defendant

Judgment:      19 December 2011 at 5:00 PM

JUDGMENT OF ASSOCIATE JUDGE DOOGUE

This judgment was delivered by me on

19.12.11 at 5 pm, pursuant to

Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:

O’Sheas Solicitors, P O Box 460, Hamilton – [email protected]

Mr N Smith, P O Box 13430, Tauranga –  [email protected]

MCFALL AND Ors V PHYSIO 2 U LIMITED  & Ors HC TAU CIV-2011-470-660 19 December 2011

Background

[1]      In brief, the background to this dispute is as follows.  The parties entered into a lease in  June 2009  under which  the plaintiffs  were the  lessors  with  the first defendant as lessee.   The premises were situated at 14 Hocking Street, Mount Maunganui.   The term of the lease was for six  years from 1 June 2009 and it contained one right of renewal of six years.  Starting rental was to be $104,857.32 per annum plus GST, payable monthly.   Rent reviews were available every three years and the lessee was to pay 100 per cent of the outgoings of the leased premises together with 25 per cent of the outgoings of the access areas.  Default interest of 14 per cent per annum was chargeable upon unpaid rent.   The second and third defendants  executed  the  lease  as  guarantors.    The  purpose  of  the  lease  of  the premises was for use as a medical and rehabilitation centre with associated activities. The validity of the lease is not in dispute.

[2]      The first defendant established its business in the premises but unfortunately, it depended upon health authority contracts, many of which it lost towards the end of

2009.  It is not disputed that the plaintiffs, by way of providing assistance to the first defendant, agreed to accept 50 per cent of the rent chargeable in satisfaction of the lessee’s obligations to pay rent for the months of November and December 2009 and January 2010.  As I will discuss further in detail elsewhere in this judgment, though, the defendants contend that that was not the only concession entered into.  They say that the plaintiffs actually agreed to a suspension of rental payments on the understanding that the defendants would pay whatever they were able to afford, presumably from the end of 2009.

[3]      On 8 July 2011 the plaintiffs changed the locks to the premises.   Shortly afterwards, on 11 July 2011, the second defendant, together with some other persons, went back into the premises and took away a reception counter, gym equipment, and other items which he alleged belonged to the defendants.  The plaintiffs allege that in doing so, the second defendant caused substantial damage to the property and they claim to recover the costs of putting right that damage.

Rental payments

[4]      Some of the facts in this matter are not in dispute.  It is accepted that a lease agreement was entered into and there is no dispute as to the amount of rent and outgoings that the defendants were required  to pay pursuant to the lease.   The disputed matter concerns what, if anything, Mr McFall, as trustee of the lessor trust, told the defendants about varying the rental arrangements, either permanently or temporarily.  There is a dispute between the parties on the affidavits in this regard.

[5]      As is usual, both parties have attempted to reinforce their version of events by making reference to contemporaneous documents.

[6]      On  the  one  hand  the  defendants  say  that  Mr  McFall,  on  a  number  of occasions, knowing that the defendants were substantially in default with rent payments, told them that they did not need to worry about the rent or words to that effect.  I will make reference to the individual alleged representations shortly.

[7]      There appears to have been an additional factor present in this case to which I need to make reference.  It introduced an element which is not generally part of the background to most arms-length commercial rental arrangements.  The defendants, it is clear, were highly qualified and skilled in their vocational fields of physiotherapy and other therapies.  They had in fact provided treatment to Mr McFall’s son, Bryce, who had been injured in a motorcycle accident.  It seems clear that Mr McFall had regard for their abilities and that his family trust and his wife (for which he also seemed to speak in the negotiations) were prepared to make concessions to the defendants to help them get their business established in the new premises.  This was apparent from the way that Mr McFall approached matters towards the end of 2009 when it had become apparent that the defendants were going to lose the health authority contracts to which reference has already been made.

[8]      In any case, Mr McFall agrees that he advised the defendants that the lessor would accept one half of the contractual rental for three months.  He said:

I am very clear that at no time did I agree, other than for the three  months of November  2009,  December  2009  and  January  2010  did  I  (sic)  or  the plaintiffs forgive or write-off the rest of the rent. What I did agree to in June

2011 was to allow Peter's business to be closed down and I would not claim future rent from 1 July 2011.

[9]      Mr McFall does not offer particulars of when that agreement to reduce rent for three months was reached.

[10]     Mr Swanepoel on the other hand says:

In early December 2009 we held a meeting with Mr Morris McFall on  the premises and informedhim of the situation.  I advised him that we would not be able to continue trading and the doors to the centre would have to be closed.  However he replied:

Don’t do anything rash, don’t worry about the rent payments for now, just pay me what you can afford.  I don’t want to be blamed for closing the gym just because you can't meet your rent payments.

[11]     Mr Swanepoel says that there were reiterations of this position twice in the course of the meeting which took place in December 2010 and again in April 2011. The defendants allege that Mr McFall said, at the December 2010 meeting:

Don’t worry about the rent … just call me Santa Clause (sic) … this centre is too important for the community and I don’t want to be blamed for its closure just because you can’t afford to keep the doors open.  Don’t worry I’ll never lock the doors on you.

[12]     Perhaps unseasonably, Mr Swanepoel says that there were further references to Mr McFall describing himself as “Santa Clause” at a meeting on 28 April 2011. On that date, Mr Swanepoel alleges that Mr McFall said:

Don’t be too concerned about the rent.  I know it’s a lot of money to you but it  is not a lot to me … just call me Santa Clause.  You have nothing to worry about. I will never lockthe doors on you.

[13]     Against this background, an e-mail which Mr McFall sent to Mr Swanepoel on 19 August 2010 has particular significance.  In that e-mail, he made reference to the fact that Mr Swanepoel had previously received a summary of the position with regard to rent and outgoings payments.  He referred to $90,000 which he had spent on upgrading the premises “for you”.  He said in the e-mail:

I also gave you a 50% rent reduction for Nov, Dec  and January last year as a goodwill measure.  Since then you have paid the full rate for February.  For six months now I have received no rent whatsoever and the very small

amount you paid has not even covered the outgoings.   Your total lack of delivering on your promises to me bring me to the conclusion that your integrity is non-existent and I’m expected to believe utter bullshit.   As of now you are in arrears to the extent of $69,505.08 with the next instalment of rates due.   What are you going to do about it?   You are a huge disappointment to me as I have bent over backwards to help you and I expected better from you.  Attend to this problem immediately or I will.

[14]     Mr Swanepoel sent a response to this e-mail the same day.   He noted the support that he had received from Mr McFall.  He apologised for undermining Mr McFall’s trust in him and said:

All I have been able to do over the past year is report to you our situation and state the business plans we had in mind to counter the massive changes we have had to endure.  The reports have been just that, no excuses just the facts of our position.

[15]     Both counsel accepted that this e-mail exchange was of central importance to the outcome of the summary judgment application.  The significance is twofold: first as providing a cross-check when the Court comes to determine whether it was likely that  Mr  McFall  in  fact  made  the  representations  that  the  defendants  allege concerning suspension of the rent; and secondly, the nature of the response from Mr Swanepoel is significant because it suggests questions that need to be asked, which is whether it is likely that he would have written the response that he sent had the arrangements been as he now deposes?  In his response, why did he not remonstrate that the defendants’ continued occupation of the property without paying the rent was exactly what Mr McFall had agreed to?

[16] Mr Smith urged me to conclude that there was an ambiguity in the e-mail which Mr McFall sent to Mr Swanepoel and which I have set out the text at paragraph [13]. Mr Smith said that the background to the arrangement that the parties entered into could not be ignored. Both the lessors and the lessee were motivated to ensure that the defendants continued in practice because that would be in the interests of the wider community. He reminded me that Mr McFall’s son had been treated at the centre with gratifying results. For that reason, the arrangement with the lessors was not a strictly business one.

[17]      In his submissions, Mr Smith focused attention on paragraph 3 of the e-mail.

He submitted that when Mr McFall, having set out the arrears, asked, “What are you

going to do about it?”, his intent was to indicate that the lessor, which was undoubtedly owed money, wanted to know how much the lessees would be able to repay with the intent being that it was that amount which the lessor was seeking payment of and not the full arrears.  The lessor was doing no more than making such an enquiry.

[18]     I do not regard that explanation as being consistent with the natural meaning of Mr McFall’s e-mail message or Mr Swanepoel’s response.  The background to Mr McFall sending that e-mail was that the lessor had previously supplied the lessees with a statement showing what the arrears were.  Mr McFall did not say something to the effect that “that is the amount that is theoretically due but it is recognised that you will not be paying all of that.  We want to know how much you will be paying”.

[19]     Mr Smith drew attention to the terms of the e-mail which Mr Swanepoel sent in response on 19 August 2010 and in particular the reference to there being two options: either to carry on and wait for things to pick up, or close the doors and move on.

[20]     The thrust of the submission was that, even in mid-2010 when the rent was in arrears, the parties had entertained the possibility of the lessors carrying on on the basis that very little rent was to continue to be paid.  Mr Smith submitted that there was a factual dispute about the meaning of the e-mails which needed to be resolved by cross-examination.

[21]     Ms Cook on the other hand said there was no ambiguity in the e-mail when Mr McFall referred to the arrears of rent of $69,505.08.  Further, Mr McFall referred to the earlier concession that the lessors had granted to the lessees by accepting only

50 per cent of the rent due for November and December of 2009 and January 2010. He made no mention of any general suspension of the rent.  Instead, he proposed a meeting at which his accountant would be present “with our accounts to discuss the best way forward”.

[22]     The evidence gives rise to questions about the overall relationship between the parties. It is clear that for most of the period during which they were in a

business relationship, Mr McFall was supportive of what the defendants were trying to achieve with their rehabilitation business.  That seems to be the explanation why considerable leeway was given to the defendants about the payment of rent.   No enforcements steps were taken of the kind that one would expect an unpaid landlord to have taken in a normal arms-length commercial tenancy.  The fact that Mr McFall was prepared to extend leniency for payment of the rent could theoretically have involved two possibilities:

a)        unpaid rent was to be written off; or

b)the lessees were not released from their obligation to pay rent entirely, but they were given additional time.

[23]     The defendants defence is that outcome "a") was one that the plaintiffs agreed to.  The question for the court at this stage of the proceedings is to enquire whether the defendants have an arguable defence that the plaintiffs agreed to write off the unpaid rent.

[24]     I agree with Ms Cook.  The overall context of the e-mails is consistent with what Mr McFall now says and inconsistent with the version of events put forward by the defendants.   Mr McFall set out how much the lessor was owed after making allowance for the rental concession to which it had actually agreed, but obviously recognised that any resolution had to reflect business realities, which was why he was prepared to meet with Mr Swanepoel and the accountant.  I do not agree with Mr Smith that it is likely that light will be thrown on the meaning of the e-mails by asking the parties what their intentions were.  The value of the e-mails as evidence lies in their consistency or otherwise with the alleged representations or agreement upon which the defendants based their promissory estoppel defence.

[25]     I also consider that the plaintiff is able to rule out as being available any defence  that  rests  upon  a  release  from  the  obligation  to  pay  rent,  as  that  is inconsistent with the fact that, every month, invoices for the rent were sent to the defendants and no one from their side ever responded to them in terms suggesting that the invoices had been wrongly rendered.

[26]     I accept that summary judgment generally should not be entered where there are disputes of material facts.  However, the Court must take a “robust and realistic”[1] approach and “spurious defences or plainly contrived factual conflicts”[2]  should not prevent   judgment   being   obtained.      Summary   judgment   may   be   given notwithstanding  a  factual  dispute  where  the  defendant’s  claims  do  not  pass  a threshold of sufficient prima facie plausibility, by being inconsistent with undisputed contemporary documents or inherently improbable in itself.[3]    For the reasons given above, I consider that the defendants’ claims in this case could be so described.

[1] Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA) (Cooke P, McMullin J and Casey J).

[2] McGechan on Procedure High Court Rules (online ed) at [HR12.2.08].

[3] Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341 per Lord Diplock. These statements were endorsed in Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC) per Greig J and Pemberton v Chappell, at 4.

[27]     My conclusion is that the plaintiffs have negatived the existence of any arguable defence based upon a representation by Mr McFall of the kind for which

Mr Swanepoel and the other defendants now contend.  Such a defence is not one that the court can regard as an issue requiring determination at trial.

Promissory estoppel

[28]     The factual matters which I have been discussing relate to the defence of promissory estoppel which the defendants now advance.

[29]     Ms Cook also submitted that the elements of promissory estoppel that the defendants rely upon were not present.   She said that there was no clear and unambiguous representation[4]  made which is one requirement that must be present before the court will conclude that a promissory estoppel has been made out.

[4] Marine Steel Ltd v The Ship “Steel Navigator” [1992] 1 NZLR 77

[30]     The representation that is set out in the notice of opposition is that:

The … plaintiff had previously advised [the first defendant] in a number of meetings that it was not required to pay the full rental and that it only had to pay what it could afford and that the plaintiff would not enforce the terms of the lease against it.

[31]     I am not sure that the case turns upon whether the alleged representation was unambiguous and unequivocal.  To require someone to pay what they could afford may be an expression of which the parties were clear about the meaning.

[32]     There are difficulties, though, with the other elements that must be present if a successful defence of promissory estoppel is to be raised.  The only detriment that the  defendants  seemed  to  point  to  is  that  Ms  Wheeler,  the  third  defendant, “personally paid staff wages from [her] pension fund”.

[33]     No particulars were given of this matter, including the date and amount of payments  actually  made.     Given  that  those  matters  are  within  the  exclusive knowledge of the defendants, one would have thought that details would have been provided.  I will assume that from their nature that such payments, if made, were not de minimis.

[34]     Before it could be determined whether there had been an overall detriment incurred or not, one would have to enquire further into the general circumstances of what occurred after the alleged representation was made.  It is not to be overlooked that the forbearance on the part of the plaintiffs provided the defendants with an opportunity to continue with their business to which they had a strong commitment. I assume that if any of the extra representations of the kind alleged by the defendants were made, they did lead to the defendants’ overall financial detriment.  I would not be prepared to conclude that the defendants’ posited defence of estoppel would be defeated on this point at summary judgment stage.

[35]     However, given my conclusion on the improbability that Mr McFall actually made a representation of the kind alleged, I consider that the plaintiffs have

negatived the existence of an arguable defence and that judgment ought to be entered for them for the amount of the rent.

Quantum

[36]     There is in dispute also the damage allegedly caused to the building by the defendants when they got into the building after the locks had been changed and

took away gym equipment and furniture and fittings. That is not a matter that can be

determined on the state of the evidence at this point to the requisite state of satisfaction that the court must reach before summary judgment can be entered.

Result

[37]     The  result  is  that  the  plaintiffs  are  entitled  to  judgment  for  the  sum  of

$162,220.23 in respect of rent.  As there seems to be no basis upon which payment of outgoings ought to be differentiated from rent, the plaintiffs are entitled to judgment for the sum of $9,792.32 for that item.   There was no dispute that the plaintiffs are entitled to their legal costs nor was there any dispute concerning the reasonableness of those costs at the hearing I therefore conclude that the plaintiffs are entitled to judgment for the sum of $8,625 under that heading.

[38]     As I understand it the amount of $162,220.23 for which judgment is to be entered includes interest under the contract down to 30 June 2011.  The plaintiffs are also entitled to contractual interest down to the date of judgment.   I am not clear whether an additional sum for contractual interest under that head has been claimed.

[39]     Because there are unresolved matters concerning the interest component of the judgment, I reserve leave to the parties to seek directions concerning the calculation of interest.   My preference, though, would be that counsel settle the matter between themselves and to agree on the amount for which judgment is to be

entered.

J.P. Doogue

Associate Judge