Merahan RS Limited v Clyde Trustees Limited
[2024] NZHC 749
•10 April 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-1944
[2024] NZHC 749
BETWEEN MERAHAN RS LIMITED
Applicant
AND
CLYDE TRUSTEES LIMITED
Respondent
Hearing: 7 March 2024 Appearances:
M Pascariu / J Murdoch for the Applicant
D Chisholm KC /J D Ryan for the Respondent
Judgment:
10 April 2024
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
[Application to set aside a statutory demand]
This judgment was delivered by me on 10 April 2024 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Hamilton Locke (Mihai Pascariu/J Murdoch), Auckland, for the Plaintiff Claymore Partners Limited (J D Ryan) Auckland, for the Defendant
Copy for:
David Chisholm K C, Auckland, for the Defendant
MERAHAN RS LIMITED v CLYDE TRUSTEES LIMITED [2024] NZHC 749 [10 April 2024]
TABLE OF CONTENTS
Paragraph
Introduction [1]
Background [2]
Merahan’s application to set aside statutory demand [10]
Affidavit of Sivamani Krishnamurthi dated 9 August 2023 [12]
Clyde’s opposition [20]
Affidavit of Richard Timothy Blackwood dated 13 February 2024 [21]
Legal Principles [31]
Analysis [35]
Arrangements not to charge ground rent [37]
Land Transfer Act 1952, ss 62 and 182 [44] Conclusion in respect of ss 62 and 182 of the Land Transfer Act 1952 [48] Is there an arguable basis for estoppel against Clyde? [49]
Conclusion in respect of estoppel [60]
Admissibility of Mr Blackwood’s evidence [62]
Result [65]
Orders [66]
Introduction
[1] Merahan RS Limited (Merahan) applies to set aside a statutory demand made on it by Clyde Trustees Limited (Clyde) for payment of ground rent, payable under a registered ground lease dated 28 September 2007 (the Ground Lease) in relation to the stratum in leasehold properties at 167-169 Mount Albert Road, Auckland (the Property), for the period from 23 May 2022 to 31 July 2023.
Background
[2] The Property was originally owned by Campbell Lanye Kells (Mr Kells) and Kingie Trustee Services Limited (Kingie). Mr Kells also controlled and beneficially owned Auckland Freehold Limited (AFL) and Auckland Leasehold Limited (ALL). On 11 May 2012, Kingie was put into liquidation by order of the Court.
[3] On or about 15 May 2012, AFL acquired the freehold interest in the Property and ALL acquired the leasehold interest in the Property.
[4] On 23 May 2012, ALL and Mr Sivamani Krishnamurthi (Mr Krishnamurthi) entered into an agreement for the sale and purchase of the leasehold interest in the Property (Sale Agreement). On the same date, under a separate agreement, ALL agreed to buy back the leasehold interest in the Property from Mr Krishnamurthi (Buy- Back Agreement).
[5]Mr Kells was declared bankrupt on 10 August 2012.
[6] Mr Krishnamurthi incorporated Merahan in July 2012 to be his nominee for the settlement of the Sale Agreement.
[7] On 23 January 2014, Clyde acquired the freehold interest in the Property from AFL and became the lessor under the Ground Lease.
[8]On 21 July 2023 Clyde issued a statutory demand against Merahan for
$52,103.03 being the net ground rental alleged to be owing by Merahan to Clyde for the period from 23 May 2022 to 31 July 2023.
[9] Merahan made an application to set aside the statutory demand dated 10 August 2023 and Clyde filed a notice of opposition dated 12 February 2024.
Merahan’s application to set aside statutory demand
[10]Merahan seeks orders:1
(a) setting aside the statutory demand dated 21 July 2023 served on the applicant by the respondent;
(b) alternatively, staying the time for compliance with the statutory demand until further orders of the Court;
(c) directing that the parties engage in arbitration; and
(d) that the respondent pay the applicant’s costs of and incidental to this application.
[11]The grounds on which the orders are sought are, in summary:2
(a) There is a genuine and substantial dispute as to whether or not the debt specified in the statutory demand is owing or due as:
(i) In or about May 2012, Mr Krishnamurthi (or his nominee) purchased the leasehold interest in the Property from ALL on the basis that ALL and/or AFL would buy back the leasehold interest and that no ground rent would be charged in the meantime:
A. Mr Krishnamurthi and ALL (or nominee) entered into a written buyback Agreement dated 23 May 2012 providing for a purchase price of $1,100,000 and a settlement date of 30 June 2013;
B. AFL gave an undertaking not to charge ground rent until the settlement of the Buy-Back Agreement.
(ii)Despite Merahan’s repeated requests, ALL and AFL failed to settle the Buy Back Agreement.
1 Originating application for order setting aside statutory demand dated 10 August 2023 at [1].
2 At [2]
(iii)On or about 23 January 2014, the freehold of the Property was transferred by AFL to Clyde;
(iv)Clyde was aware of AFL’s undertaking referred to in (a)(i)(B) above, and as its successor in title is bound by it; alternatively, Clyde is estopped from charging Merahan any ground rent.
(b) Clause 18.1 of the Ground Lease provides that any differences and disputes which may arise concerning the Ground Lease are to be referred to arbitration.
(c) In the circumstances, the use of the statutory demand procedure is an abuse of the Court’s process.
Affidavit of Sivamani Krishnamurthi dated 9 August 2023
[12] Mr Krishnamurthi, shareholder and director of Merahan, has made an affidavit in support of Merahan’s application to set aside the statutory demand.3
[13]Mr Krishnamurthi deposes that the Buy-Back Agreement was varied. He says:
(a)On 21 August 2012, AFL was added as a party to the buyback.
(b)On 23 August 2012, AFL provided:
(i)an undertaking not to charge ground rent until settlement of the Buy-Back Agreement; and
(ii)an undertaking not to charge ground rent for a period of 10 years from the date of the Buy-Back Agreement.
[14] He deposes that the Buy-Back Agreement was never settled and that Merahan remains the registered owner of the leasehold interest in the Property, despite his requests to Mr Kells to complete the buy-back.
3 Affidavit of Sivamani Krishnamurthi in support of originating application to set aside statutory demand dated 9 August 2023.
[15] Mr Krishnamurthi states that the Ground Lease was varied in about April 2012 and it provides, at clause 18.1 that any differences and disputes which may arise concerning the ground lease are to be referred to arbitration.
[16] Mr Krishnamurthi states that there was an agreement with Mr Kells that AFL would not charge ground rent to Merahan. He refers to the email chain and states that Mr Kells provided an indemnity to Merahan against any ground rent payable to the owner of the freehold interest in the Property.
[17] In August 2014, Mr Krishnamurthi deposes that Clyde, through its property manager Genesis Property Management, wrote to Merahan giving notice of Merahan’s alleged failure to pay rent under the Ground Lease. He instructed his solicitor to write to Clyde and explain that Merahan was not liable for ground rent.
[18] He states that he does not recall why his solicitor only referred to the first undertaking in his letter and not the second undertaking. He notes that given it was still within the 10-year period following entry into the Buy-Back Agreement, his solicitor opted to reply on AFL’s understanding not to charge rent for that period. He says there was no further correspondence between his solicitor and Clyde and there were no further demands from Clyde for payment of rent until 2023.
[19] On 14 June 2023, Mr Krishnamurthi deposes that he received a letter from Clyde’s solicitors demanding ground rent of $59,218.67 on the basis that the 10-year period following entry into the Sale Agreement during which rent was not payable had expired.
Clyde’s opposition
[20]Clyde opposes the application on the grounds which, in summary, are:4
(a)The relevant terms of the Ground Lease, as amended by registered variation of lease and effective from 1 December 2011, are summarised as follows:
4 Notice of opposition to originating application to set aside statutory demand dated 12 February 2024 at [3].
(i)the rent is $40,000 plus GST per annum;
(ii)the ground rent would be increased by annual CPI reviews (capped at maximum of 3% per annum) until 28 September 2022; and
(iii)there would be no market rent reviews before 28 September 2022.
(b)Except for the registered variation of lease referred to in [19](a), there has been no other registered variation to the Ground Lease and there are no other registered interests relating to the Ground Lease.
(c)On 23 August 2012, Merahan (as Mr Krishnamurthi’s nominee) completed the purchase of the leasehold interest in the Property and became a lessee under the Ground Lease.
(d)Under sections 62 and 182 of the Land Transfer Act 1952 (which applied at the time), Clyde:
(i)acquired the freehold interest in the Property subject only to those interests registered at the time and there was no interest registered regarding any alleged arrangement that no ground rent would be payable; and
(ii)is immune from attack from Merahan’s claim of a prior unregistered interest.
(e)Any claim Merahan may have against ALL and/or AFL is irrelevant to the debt the subject to the statutory demand because:
(i)Clyde is immune from attack from Merahan’s claim of a prior unregistered interest under sections 62 and 182 of the Land Transfer Act 1952;
(ii)Clyde, ALL and AFL are separate legal entities, and Clyde is not a party to or bound by any alleged agreements between Merahan, and ALL and/or AFL; and
(iii)As between Merahan and Clyde, there is no valid set off by Merahan against any amounts alleged to be owed by ALL under the alleged agreement with Merahan and any such claims (which are denied) are time barred.
(f)In the above circumstances, there is no genuine and substantial dispute as to the debt required to be paid in terms of a statutory demand.
Affidavit of Richard Timothy Blackwood dated 13 February 2024
[21] Mr Blackwood, director of Clyde, has made an affidavit in support of Clyde’s opposition to set aside the statutory demand.5
[22] He deposes that neither Clyde nor himself was aware of, or party to, any alleged prior arrangement not to charge ground rent. He states that there were no registered interests recording any such arrangements.
[23] Mr Blackwood states that in mid-2014, Clyde started to investigate the ground rent payable by Merahan. He says Mr Krishnamurthi alleged that Merahan did not have to pay ground rent and the basis for that was outlined in the letter dated 19 September 2014 which was provided to Clyde. He says the letter stated that “Merahan would not be liable to pay ground rent for a period of ten (10) years”.
[24] Mr Blackwood does not accept that AFL agreed not to charge ground rent at the time Merahan completed the purchase of the Property. He says in any event, Clyde is not bound by any such alleged unregistered arrangement because:
(a)Clyde was a bona fide purchaser for value of the Property;
(b)Clyde was not aware of, or party to, any alleged prior arrangement not to charge ground rent; and
5 Affidavit of Richard Timothy Blackwood in support of notice of opposition to originating application to set aside statutory demand dated 13 February 2024.
(c)Clyde’s indefeasible title in the fee simple estate defeats any alleged unregistered arrangement not to charge ground rent.
[25] In relation to the Buy-Back Agreement and the undertakings, Mr Blackwood refers to Mr Krishnamurthi’s correspondence confirming that ground rent was payable and that he was settling the purchase based on his email of 12.26pm. He notes that it is the very same day as the undertakings are dated. He further deposes that, subsequently, ground rent was paid by Merahan.
[26] Mr Blackwood further raises concerns around the authenticity of clause 19 of the Buy-Back Agreement and the undertakings.
[27] Mr Blackwood states that the purchaser under the Buy-Back Agreement, namely ALL was not the owner of the fee simple estate and thus, did not have the status to waive the obligation to pay ground rent. He says that AFL, as the owner of the fee simple estate was not party to the Buy-Back Agreement, and it received no consideration of the purported undertaking not to charge ground rent. Therefore, he deposes that the purported undertaking by AFL under the Buy-Back agreement is also defective as AFL was not a party to the Buy-Back Agreement.
[28] He deposes that any proposal not to pay ground rent simply did not make commercial sense from AFL’s perspective as the owner of the freehold.
[29]In relation to the claimed set offs, Mr Blackwood deposes:
(a)Clyde, ALL and AFL are separate legal entities;
(b)Clyde is not a party to or bound by any alleged agreements between Merahan, ALL and/or AFL; and
(c)As between Merahan and Clyde, there is no valid set off by Merahan against any amounts alleged to be owed by ALL, AFL, Mr Kells and or Mr Colthurst.
[30] Mr Blackwood concludes his affidavit by stating that there is no genuine or substantial dispute regarding the debt which is subject of the statutory demand.
Legal principles
[31]Section 290 of the Companies Act 1993 provides, relevantly:
290 Court may set aside statutory demand
(1)The court may, on the application of the company, set aside a statutory demand.
…
(4)The court may grant an application to set aside a statutory demand if it is satisfied that—
(a)there is a substantial dispute whether or not the debt is owing or is due; or
(b)the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross- demand is less than the prescribed amount; or
(c)the demand ought to be set aside on other grounds.
[32]The Court has set out the principles relevant to the application of s 290(4):6 What the applicant must show is that the dispute it raises has substance;
the applicant must explain to the court what the dispute is; and the
dispute so shown must be a real and not a fanciful or insubstantial dispute. The Court must bear in mind that it is operating in the summary jurisdiction, with the accompanying disadvantages that brings for any applicant. The Court must also keep in mind the requirement that what is intended to be a summary hearing should not be converted into a full- blown trial.
[33] As to s 290(4)(a), the Court is to look at whether a genuine substantial dispute exists.7 Mere assertion of a dispute does not suffice, and the applicant must show a
6 AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559, [2016] NZAR 1338 at [22] (footnotes omitted).
7 Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 (CA) at 301.
fairly arguable basis for it.8 In practice, it is required that there is some material short of proof which backs up the claim that the amount is in dispute.9
[34] Where a counterclaim, set-off, or cross-demand is sought to be raised, the Court has a discretionary power to set aside the statutory demand, but the company must show a real basis, on clear and persuasive grounds, for doing so. And “pay now, argue later” considerations have sometimes been allowed to prevail over the effect of liquidation.10
Analysis
[35] The issue to be determined in this judgment is whether there is a genuine and substantial dispute as to whether the debt claimed by Clyde for ground rent under the Ground Lease is due and owing. This issue devolves into three subsidiary questions:
(a)What arrangements were made in relation to the ground rent?
(b)Whether Clyde is bound by the undertakings given by AFL/ALL/Mr Kells and if so, whether it is defeated by ss 62 and 182 of the Land Transfer Act 1952?
(c)is there a reasonably arguable basis for an estoppel preventing Clyde from charging the ground rent under the Ground Lease?
[36]I deal with each of these in turn.
8 N F Global Ltd v Sky Capital Management Ltd [2020] NZHC 2196 at [39]. See also United Homes (1998) Ltd v Workman [2001] 3 NZLR 447 (CA) at [27].
9 Arzan Investments Ltd v Beresford Apartments Ltd (2003) 16 PRNZ 825 (HC) at [17].
10 N F Global Ltd v Sky Capital Management Ltd, above n 8, at [40], citing Volcanic Investments Ltd v Dempsey & Wood Civil Contractors Ltd (2005) 18 PRNZ 97; Browns Real Estate Ltd v Grand Lakes Properties Ltd [2010] NZCA 425, (2010) 20 PRNZ 141; Covington Railways Ltd v Uni- Accommodation Ltd [2001] 1 NZLR 272 (CA) at 274–275.
Arrangements not to charge ground rent
[37] Mr Pacariu, for Merahan, submits that there were two undertakings given by AFL not to charge ground rent following the variation of the Buy-Back Agreement on 21 August 2012:
(a)an undertaking not to charge ground rent until settlement of the Buy-
Back Agreement; and
(b)an undertaking not to charge ground rent for a period of 10 years from the date of the Buy-Back Agreement.
[38] Additionally, he submits that Mr Kells gave an indemnity to Merahan against any ground rent payable to the owner of the freehold interest in the Property.
[39] Mr Pascariu submits that since the Buy-Back Agreement has never been settled, no ground rent can be charged in respect of the Property under the undertaking.
[40] Before addressing the issue of whether the undertakings not to charge ground rent are binding on Clyde, Mr Chisholm, for Clyde, submits there is uncertainty as to the nature of those arrangements. He refers to contemporaneous correspondence which is inconsistent. He suggests the arrangement was that ground rental would be payable with a top-up, pointing to the following:
(a)Mr Kells did not accept the side agreement and it was not signed by Mr Krishnamurthi and/or Merahan. In any event, the side agreement contemplated ALL paying $10,000 to Mr Krishnamurthi to “top up” his income for the first six months of the Ground Lease, rather than a waiver of ground rent.
(b)Mr Krishnamurthi and/or Merahan did not rely on the side agreement or the undertaking not to charge ground rent and completed the purchase solely based on the arrangement set out in Mr Krishnamurthi’s email of 12:26pm on 23 August 2012.
(c)Mr Krishnamurthi was advised that ground rent would be payable.
(d)In accordance with the arrangement set out in Mr Krishnamurthi’s email of 12:26pm on 23 August 2012:
(i)a contingency of $30,000 for ground rent was paid to Merahan on 26 September 2012; and
(ii)Merahan made a payment of $9,750.00 for ground rent on 21 December 2012.
(e)Any obligation of AFL and/or ALL to complete the Buy-Back Agreement was never novated from Mr Krishnamurthi to Merahan.
[41] Mr Chisholm therefore submits that the arrangements not to charge ground rent under the Ground Lease relied on by Merahan were never finally agreed.
[42] Mr Chisholm submits that the arrangements (whether contractually binding on ALL, AFL and Merahan or not) were never registered against the records of title to the Property. Therefore, he submits the arrangement is personal to the parties, and the arrangement does not run with the land. Accordingly, any such arrangement is defeated by ss 62 and 182 of the Land Transfer Act 1952. This is discussed in the next section.
[43] It is not necessary for me to decide, for the purposes of this judgment, whether the arrangements entered into between ALL, AFL, Mr Kells, Mr Krishnamurthi and Merahan have the binding effect on those parties as submitted by Mr Pascariu. This is because, in the next section of the judgment, I have reached the view that even if these arrangements are binding on those parties, they are defeated by ss 62 and 182 of the Land Transfer Act 1952.
Land Transfer Act 1952, ss 62 and 182
[44] Mr Chisholm submits that Mr Blackwood unequivocally denies any knowledge of the arrangements between Mr Kells and Mr Krishnamurthi at the time
of the purchase of the leasehold interest in the Property. He submits that even if Clyde did have knowledge of the arrangements, knowledge by itself would be insufficient to undermine Clyde’s entitlement to claim rental under the Ground Lease. He submits that under ss 62 and 182 of the Land Transfer Act 1952 (LTA) (being applicable at the time), Clyde is immune from Merahan’s claim for a prior unregistered interest. He submits Clyde’s indefeasible title in the fee simple state defeats any alleged unregistered arrangement not to charge ground rent.
[45] Mr Chisholm submits that to circumvent ss 62 and 182 of the LTA, it is not enough to simply assert knowledge of an unregistered interest in the land. In referring to a number of authorities, he submits that dishonesty is required, not simply notice.11 He also points to the same principles applying under s 6 of the Land Transfer Act 2017, which expressly requires actual dishonesty. He submits that fraud or dishonesty is not pleaded or asserted in the present case by Merahan.
[46] Mr Chisholm submits that, consequently Clyde is entitled to rely on the terms of the Ground Lease and the arrangements between Merahan and Mr Kells or AFL. He submits that even if Clyde had notice of those arrangements, they are unregistered variations to the Ground Lease and are not binding on Clyde.
[47] In response to this issue, Mr Pascariu submitted that the decisions referred to by Mr Chisholm relating to the application of ss 62 and 182 of LTA all relate to cases where the unregistered interest claimed was an interest in land and thus engaged the provisions of the LTA. He submits that in the present case the right alleged by Merahan is not an interest in land, but an equitable estoppel which is not defeated by ss 62 and 182 of the LTA.
Conclusion in respect of ss 62 and 182 L T A 52
[48] I am of the view that the arrangements between AFL, ALL, Merahan, Mr Kells and Mr Krishnamurthi and (assuming they were agreed and binding between those parties), as no fraud is alleged, are effectively an unregistered variation of the terms of
11 Green Growth No.2 Ltd v Queen Elizabeth Second National Trust [2019] 1 NZLR 161 (SC) at [101], [139] to [140]; Epsom Woods v Waitakere Farms [2020] NZCA 226 at [9] to [22]; Infinity Enterprises NZ Ltd v Kinara Trustee Ltd [2020] 3 NZLR 626 at [65] to [84].
the registered Ground Lease. Sections 62 and 182 make it clear that, even with notice, a party taking an indefeasible fee simple title will take free of any unregistered interest in the land. Accordingly, as an unregistered variation of the terms of the Ground Lease relating to payment of the ground rent, they are not binding on Clyde. This applies even if Clyde did have notice of those arrangements at the time of purchasing the freehold of the Property.
Is there an arguable basis for estoppel against Clyde?
[49] Mr Chisholm complained that Merahan had not pleaded estoppel by acquiescence or silence, or equitable estoppel, and these arguments were only raised in submissions. However, I will allow these arguments to be put forward as Clyde had time to consider them and was able to respond to them in the hearing.
[50] Mr Pascariu acknowledges that the undertaking not to charge ground rent was given by AFL/Mr Kells and not Clyde, and that there was no communication between Merahan and Clyde in this respect until 2014. He nevertheless submits that until recently Clyde did not charge ground rent. While Mr Blackwood challenges Mr Krishnamurthi’s evidence that no ground rent is payable, Clyde does not provide any explanation as to why it did not charge ground rent for a period of 10 years. Mr Pascariu submits that in these circumstances estoppel by acquiescence applies.
[51] Mr Pascariu refers to the decision in Wilson Parking New Zealand Ltd v Fanshawe Street 136 Ltd, and submits that the Court articulated the essential elements of estoppel based on unconscionability.12 He then refers to the decision of Willmot v Barber13 where Fry J set out five criteria for estoppel by acquiescence.
[52] Mr Pascariu further refers to the principles relating to estoppel in Blue Haven Enterprises Ltd v Tulley14 and the principles applicable to estoppel by acquiescence in Purewal BS and JK Ltd v Connell Street Ltd.15
12 Wilson Parking New Zealand Ltd v Fanshawe Street 136 Ltd [2014] NZCA 407; [2014] 3 NZLR 567; (2014) 15 NZCPR 615 at [44].
13 Wilmott v Barber (1880) 15 Ch D 96.
14 Blue Haven Enterprises Ltd v Tulley [2006] UKPC 17 at [23].
15 Purewal BS and JK Ltd v Connell Street Ltd [2012] NZCA 42; (2012) 13 NZCPR 108 at [60].
[53]Mr Pascariu then applies these principles to Merahan’s position as follows:
(a)Clyde’s omission to charge ground rent for a period of a decade amounted to a clear and unequivocal representation that Clyde would not charge ground rent. Clyde’s conduct led to the belief or expectation in Merahan that supports an equitable estoppel.
(b)Merahan reasonably relied upon Clyde’s conduct to its detriment and did not rigorously pursue AFL in relation to the buy-back or its rights under the indemnity given by Mr Kells. He points out that AFL was removed from the Companies Office, and although it was later reinstated, there may be potential limitation issues in pursuing the company under the Buy-Back Agreement. In addition, limitation issues may also prevent enforcement of the indemnity provided by Mr Kells.
(c)Foregoing Court proceedings which would otherwise been commenced (and which had some prospect of success) qualifies as detrimental reliance in an estoppel claim, citing O’Malley v Mutual Credit Corp Ltd16 as authority for this proposition.
(d)Merahan will suffer a significant detriment if relief from ground rent is not recognised and will be left with a loss-making leasehold interest in the Property.
(e)It would, therefore, be unconscionable now for Clyde to depart from the belief or expectation engendered by its conduct that no ground rent will be charged. He submits that Clyde clearly purchased the freehold property with some knowledge of the existing arrangements between Mr Krishnamurthi and Mr Kells.
[54] Mr Pascariu submits the elements of an estoppel claim are made out. Thus, he submits the equity arising in Merahan’s favour ought to bind Clyde and prevent it from charging ground rent.
16 O’Malley v Mutual Credit Corp Ltd HC Christchurch, AP112-91, 25 November 1991.
[55] In response, Mr Chisholm submits that Merahan has not pleaded estoppel by acquiescence or equitable estoppel. He submits it has been raised for the first time in submissions and is not supported by evidence. He points to several submissions made by Merahan which are not supported by evidence including claims that Merahan relied on Clyde’s conduct (there are no details of how Merahan relied on Clyde’s conduct), that Merahan has suffered detriment by forgoing Court proceedings (despite Merahan being on notice of Mr Kells’ bankruptcy), and that Merahan would be left with a loss- making leasehold interest. He submits if these were real concerns for Merahan, it should have exercised its perceived legal rights at the relevant time.
[56] As to estoppel by acquiescence, Mr Chisholm submits that Merahan’s claim is untenable for the following reasons:
(a)In mid-2014, Clyde initiated an investigation into the ground rent payable by Merahan. Merahan’s formal position was that it would not be liable to pay ground rent for a period of 10 years as evidenced by Merahan’s solicitor’s letter dated 19 September 2014, and the three attachments to that letter. The letter concludes: “We trust sense will prevail and Clyde Trustee Limited will refrain from making any demand for ground rent until 2022”.
(b)Merahan was not asserting that ground rent was not payable for an unlimited period. The period expired on 23 May 2022 and accordingly Merahan could never have had an expectation that Clyde might refrain from taking any steps for longer than 10 years.
(c)The Ground Lease expressly provides that in no way will a failure to act by Clyde in respect of breach of the Ground Lease by Merahan will operate as a waiver (cls 13.6 and 16.1).
(d)On 23 June 2023, Clyde made demand for arrears of ground rent following 23 May 2022.
[57] Mr Chisholm submits that Clyde proceeded on the basis that Merahan’s position stated in the letter of September 2014 was correct, specifically that Merahan was not liable for ground rent until 23 May 2022. Therefore, there was no estoppel by acquiescence as Clyde had accepted the position advanced by Merahan in that letter.
[58] In these circumstances, Mr Chisholm submits that the first element of estoppel by acquiescence, namely that the party against which estoppel is alleged has a duty to speak, is not met. Mr Chisholm refers to the excerpt from the judgment of Clifford J in Infinity Enterprises NZ Ltd v Kinara Trustee Ltd, where the Court said:17
[100] As Equity and Trusts in New Zealand goes on to explain:18
New Zealand courts have analysed cases of estoppel by silence by asking whether the silent party was under a legal, as opposed to a mere moral or social duty to speak. However, very little guidance has been given on how to establish such a duty. The jurisprudence of the English courts is more developed and utilises a test based on the reasonable expectations of the silent party. In The Lutetian Bingham J held that:19
[T]he duty necessary to found an estoppel by silence or acquiescence arises where a reasonable man would expect the person against whom the estoppel is raised, acting honestly and reasonably to bring the true facts to the attention of the other party known by him to be under a mistake as to their respective rights and obligations.
[59] Mr Chisholm submits that in the circumstances where Clyde accepted exactly the position set out in Merahan’s solicitor’s letter of September 2014, there was clearly no duty to speak, therefore, the first ground of estoppel by acquiescence is not made out. Accordingly, he submits the claim of estoppel by acquiescence by Clyde not charging ground rent for 10 years is not tenable.
Conclusion in respect of estoppel
[60] I am of the view that, assuming Merahan could establish the arrangement with AFL, ALL and Mr Kells that no rent would be payable until the Buy-Back Agreement was completed, the argument that Clyde was estopped from asserting its rights to
17 Infinity Enterprises NZ Ltd v Kinara Trustee Ltd [2020] NZCA 309 at [100].
18 Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) 601 at 632.
19 The Lutetian [1982] 2 Lloyd’s Rep 140 (QB).
charge ground rent after May 2022, on the basis of estoppel by silence or acquiescence by Clyde, is untenable.
[61]The reasons for this are:
(a)The letter from Merahan’s solicitors to Clyde in September 2014, stated that Merahan’s view of the position was that no ground rent was payable for a period of 10 years which was accepted by Clyde. Thus, there was no duty on Clyde to speak, and the essential element of estoppel by acquiescence or equitable estoppel arising from Clyde’s actions or omissions is not fulfilled. There was no reference in that letter to the undertaking that no ground rent would be charged until the Buy-Back Agreement was settled. It is not possible for Clyde to have created an expectation in Merahan by silence or acquiescence that it would honour that undertaking when it was not put to Clyde, and such an estoppel cannot be inferred from Clyde abiding by the 10-year undertaking.
(b)There was no evidence of reliance on representations in relation to forgoing legal action against AFL in respect of the obligation to complete the Buy-Back Agreement, or against Mr Kells in respect of indemnity. Consequently, there is no evidence of reliance by Merahan to its detriment on the alleged expectation created by Clyde.
Admissibility of Mr Blackwood’s evidence
[62] Mr Pascariu submits that parts of Mr Blackwood’s affidavit sworn on 13 February 2024 should be excluded as parts of the affidavit either improperly makes submissions or involve Mr Blackwood deposing as to background matters in relation to the proceeding for which he was not present and therefore cannot depose. The relevant paragraphs have been highlighted in yellow in the copy of Mr Blackwood’s affidavit included in the casebook.
[63] Mr Chisholm did not make a submission in opposition to Mr Pascariu’s submissions in respect of the admissibility of parts of Mr Blackwood’s affidavit.
[64] Having reviewed the relevant passages of Mr Blackwood’s affidavit, I am of the view that the passages highlighted in yellow in the copy of the affidavit included in the casebook are in the nature of submissions or depose to background matters for which Mr Blackwood was not present.and therefore should be excluded for the purposes of the proceeding.
Result
[65] As a result of the conclusions, I have reached at [48], [60] and [61], I am of the view that Merahan’s application to set aside the statutory demand issued by Clyde should be dismissed.
Orders
[66]I make the following orders:
(a)The sections of Mr Blackwood’s affidavit sworn on 13 February 2024 marked yellow in the copy of the affidavit included in the casebook are excluded from evidence for the purposes of the proceeding.
(b)Merahan’s application for set aside the statutory demand issued by Clyde is dismissed.
(c)Merahan will comply with the statutory demand in accordance with s 289(2)(d) of the Companies Act 1993 within 20 working days from the date of this judgment.
(d)As Clyde is largely the successful party, costs should follow the event. Counsel are directed to endeavour to agree costs and failing agreement being reached within a period of 20 working days from the date of this judgment, counsel for Clyde will file a memorandum as to costs (not to exceed five pages) within 5 days after the expiry of that 20 working day
period, and counsel for Merahan will file a memorandum (not to exceed five pages) in response within 5 working days of receipt of counsel for Clyde’s memorandum. A decision as to costs will then be made on the papers.
…………………………….. Associate Judge Taylor
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