Mitre 10 (New Zealand) Ltd v Thistle Dome Holdings Ltd
[2015] NZHC 3289
•17 December 2015
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IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV 2015-435-000011 [2015] NZHC 3289
UNDER the Property Law Act 2007 IN THE MATTER
of an application to determine the meaning and effect of s 233 of the Act
BETWEEN
MITRE 10 (NEW ZEALAND) LIMITED Applicant
AND
THISTLE DOME HOLDINGS LIMITED Respondent
Hearing: 25 November 2015 Counsel:
S Mills QC for Applicant
K P Sullivan for RespondentJudgment:
17 December 2015
JUDGMENT OF BROWN J
MITRE 10 (NZ) LTD v THISTLE DOME HOLDINGS LTD [2015] NZHC 3289 [17 December 2015]
Table of Contents
Paragraph No.
Introduction [1] The legislative history [8] Sections 232 and 234 of the Act [8]
The Property Law Act 1952 [11]
The Law Commission’s 1994 Report [16]
Issue one: Having issued a proceeding, prior to settlement of the sale of leased land, against the tenant Mitre 10
for breach of a lease covenant, can Thistle maintain that
proceeding after settlement dispute s 233 of the Act? [18]
Thistle’s case [18] Mitre 10’s case [26] Analysis [34]
Issue two: Did a contrary intention appear from the lease or
another circumstance such that Thistle can pursue its claim? [41] Relevant facts [41] Thistle’s submission [47] Mitre 10’s submission [50]
Analysis [55] Orders [74]
Introduction
[1] By a lease dated 3 March 2007 Thistle Dome Holdings Limited (Thistle) leased to Mitre 10 (New Zealand) Limited (Mitre 10) the property at 140-158 John Kennedy Drive, Palmerston North. For a significant period Thistle and Mitre 10 were in dispute concerning Mitre 10’s observance of the covenants relating to maintenance and repair of the property.
[2] On 28 March 2014 Thistle signed an agreement to sell the property, subject to the lease, to Advance Properties Group Limited (APGL) or its nominee with settlement 10 working days after the date of the agreement. On 1 April 2014 APGL nominated Mitre 10 Holdings Ltd (Mitre 10 Holdings), a wholly owned subsidiary of Mitre 10, as the purchaser.
[3] On 14 April 2014, being the date prior to settlement, Thistle issued an arbitration notice to Mitre 10 seeking reimbursement by Mitre 10 for losses arising from alleged breaches of the lease covenants.
[4] Mitre 10 asserts that the effect of s 233 of the Property Law Act 2007 (the Act) is that any right of claim, which Thistle may have had, passed to the purchaser on settlement. Section 233 of the Act states:
233 Benefit of lessee's covenants to run with reversion
(1) If the reversion expectant on the lease ceases to be held by the lessor (whether by transfer, assignment, grant, operation of law, or otherwise), the rights to which this section applies—
(a) run with the reversion; and
(b) may be exercised by the person who is from time to time entitled to the income of the land, whether or not the lessee has acknowledged that person as lessor (that is, with or without attornment by the lessee).
(2) Subsection (1) applies unless a contrary intention appears from the lease or from another circumstance.
[5] While Thistle accepts that it would have no standing to commence any claim against Mitre 10 subsequent to settlement, Thistle contends that the service of its arbitration notice prior to settlement preserved its right to claim against Mitre 10 and
that that claim is unaffected by s 233. In the alternative Thistle’s notice of
opposition stated that, to the extent that ss 233 and 234 grant all rights to Mitre 10
Holdings under the lease, a contrary intention was expressed by Thistle in terms of s 233(2).
[6] In this proceeding Mitre 10 seeks a declaration that following settlement Thistle no longer has any right to pursue a claim against Mitre 10 arising out of or reliant on any alleged breach by Mitre 10 of the covenant to repair contained in the lease.
[7] The parties are in agreement that the application raises the following issues:
(a) Having issued a proceeding, prior to settlement of the sale of leased land, against the tenant Mitre 10 for breach of a lease covenant, can Thistle maintain that proceeding after settlement despite s 233 of the Act?
(b)If the answer to (a) is no, did a contrary intention appear from the lease or another circumstance such that Thistle can pursue its claim?
The legislative history
Sections 232 and 234 of the Act
[8] It is common ground that a claim for breach of a covenant to maintain and repair the property is a right to which s 233 applies. Section 232(1) states:
232 Rights under lease to which section 233 applies
(1) Section 233 applies to all or any of the following rights under a lease:
(a) the right to receive the rent payable:
(b) the right to enforce every covenant of the lessee, including a covenant relating to a subject matter that was not in existence when the covenant was made:
(c) the right to enforce any guarantee of the performance of all or any covenants of the lessee:
(d) all rights and remedies of the lessor.
[9] Also relevant to the dispute is s 234 which states:
234 When rights arising from covenants may be exercised
(1) A person who is entitled under section 233(1) to exercise a right to which that section applies—
(a) may exercise that right even though the basis for doing so first arose or accrued before the time at which that person became so entitled; and
(b) is the only person entitled to exercise that right. (2) Subsection (1)(a) applies unless—
(a) the right was waived; or
(b) the lessee was released from the obligation to which the right relates.
(3) Subsection (1)(b) applies unless the person who becomes entitled to exercise the right has agreed to the exercise of that right by some other person (in which case the right may be exercised by the other person to the extent so agreed).
[10] It is useful to trace certain aspects of the legislative history of ss 233 and 234.
The Property Law Act 1952
[11] The antecedent of s 233 was s 112 of the Property Law Act 1952. Section 112(1) stated:
112 Rent and benefit of lessee’s covenants to run with reversion
(1) Rent reserved by a lease, and the benefit of every covenant or provision therein having reference to the subject matter thereof, and on the lessee’s part to be observed or performed, and every condition of re-entry and other condition therein, shall be annexed and incident to and shall go with the reversionary estate in the land or in any part thereof immediately expectant on the term granted by the lease, notwithstanding severance of that reversionary estate, and may be recovered, received, enforced, and taken advantage of by the person from time to time entitled, subject to the term, to the income of the whole or any part, as the case may require, of the land leased. This subsection extends to a covenant to do some act relating to the land, notwithstanding that the subject matter may not be in existence when the covenant is made.
[12] The English equivalent of s 112 was s 141 of the Law of Property Act 1925 (UK). Its interpretation by the England Court of Appeal was described by the Law Commission in 1991 in this way:1
Who may claim on covenant?
435Until the decision of the majority of the English Court of Appeal in Re King [1963] Ch 459, as confirmed by the same Court in London and County (A&D) Ltd v Wilfred Sportsman Ltd [1971] Ch 764, there was doubt about whether the English equivalent of section 112 had the effect of transferring exclusively to a person who acquired the reversion the right to claim against the tenant for rent accruing due before the transfer or for breaches of covenant which had occurred before that time and were not continuing breaches. The Court has now confirmed that this is the case unless there is a contrary intention recorded between the landlord and the transferee. The English cases have been applied in New Zealand (Paramoor Nine Ltd v Pacific Dunlop Holdings Ltd (1990) ANZ ConvR 563). This position should be preserved.
[13] In Paramoor the submission was advanced that the words “persons from time to time entitled” in s 112(1) were open to the interpretation that a person or party who is or has been entitled from time to time to the income of the lease may recover and enforce the outstanding rent. It was further submitted that s 112 was really of an empowering nature without necessarily having the restriction that would prevent a former lessor’s right to recover rental.
[14] In rejecting those propositions Master Towle said that if they were valid it would completely undermine the effect of the section and that such a contention ran completely counter to the clear expositions of the position in Re King.
[15] However Paramoor is not precisely on point in the present case because in Paramoor the proceeding was commenced by the former lessor after the transfer of the leased property whereas in the present case the proceeding was commenced in the window between the date of execution of the agreement and the date of settlement.
The Law Commission’s 1994 Report
[16] The Law Commission revisited the issue in its 1994 Report, A New Property Law Act.2 The draft legislation which was proposed included the following clauses which were to become ss 233 and 234:
193 Benefit of lessee’s covenants to run with the reversion
…
(3) If the reversion expectant on a lease of land ceases to be held by the lessor (whether by transfer, assignment, grant, operation of law or otherwise), then, unless a contrary intention appears from the lease or other circumstance, the rights to which this section applies run with the reversion and may be exercised by the person who is from time to time entitled to the income of the land, whether or not the lessee has acknowledged as lessor the person so entitled (with or without attornment by the lessee).
(4) A person who becomes entitled under subsection (3) to exercise a right to which this section applies
(a) may exercise that right even if it first became exercisable or accrued before the time at which that person became so entitled, unless, before that time, the right was waived or the lessee was released from the obligation to which the right relates, and
(b) is exclusively entitled to exercise that right, unless that person has agreed to the exercise of the right by some other person; and in that case, the right is exercisable by the last-mentioned person to the extent so agreed.
[17] The commentary to the proposed bill relevantly stated:
Section 193 Benefit of lessee’s covenants to run with the reversion
600 This section carries forward, with amendments, the substance of s 112 of the 1952 Act. It gives to someone who acquires land which is already subject to a lease the right to enforce the covenants in the lease against the lessee. Included in the rights which run with the reversion are the right to receive the rent, the right to enforce other covenants (including those relating to a subject matter not in existence when the covenant was made), the right to exercise all rights and remedies under the lease (including the right to give notices and take advantage of conditions), and the right to bring about cancellation of the lease for breach. The right to enforce any guarantee given in relation to the lessee’s performance also runs with the reversion.
…
2 Law Commission A New Property Law Act (NZLC R29, 1994).
602 The rights to which this section applies run with the reversion, but may be exercised “by the person who is from time to time entitled to the income of the land”. This makes no change to the present section. For practical purposes in New Zealand, the only persons entitled to the income other than a current lessor and a mortgagee in possession or a purchaser of the reversion who has entered into possession but not yet taken title.
603 Subsection (4) puts into statutory from the case law referred to in para 435 of NZLC PP16 and confirms that a successor entitled to the reversion can exercise a right against the lessee under the lease which first became exercisable or accrued before that person acquired the reversion, unless the right had already been waived or the lessee had already been released from the obligation before that time. The current owner of the reversion is also exclusively entitled to exercise the right in question, unless that person has agreed to the exercise of the right by some other person; in that case the right is exercisable by the other person to the extent so agreed.
Issue one: Having issued a proceeding, prior to settlement of the sale of leased land, against the tenant Mitre 10 for breach of a lease covenant, can Thistle maintain that proceeding after settlement dispute s 233 of the Act?
Thistle’s case
[18] It is convenient to commence my analysis by reference first to Thistle’s case because it proceeds from the position that the leading New Zealand authority Patel v Digital Printing Group Ltd is squarely in its favour.3 It adopts the reasoning in Patel in its entirety.
[19] The Patel case raised the same primary issue as the present case in that the Patels issued proceedings for the recovery of outstanding rent on the day prior to the settlement of the sale of their leased property. The relevant facts are recited in the following paragraphs from the judgment:
[7] On 5 June 2007, Mr and Mrs Patel entered into an agreement to sell the premises. The documents drawn to evidence the sale were far from ideal. There was nothing in the agreement for sale and purchase dealing with the transfer of the Patels’ interest in the lease. Nor was any separate document drawn and executed in relation to the lease.
[8] A settlement statement was prepared by the Patels’ solicitor and
forwarded to the nominated purchaser, Chiem Investments Ltd, on or about
20 July 2007. The settlement statement contains customary apportionments for items such as rent and rates.
[9] Between April 2005 and July 2007, not all rental and other outgoings had been paid in a timely manner. On or about 20 July 2007, Mr and Mrs Patel demanded payment of $132,541.40 (plus associated costs) from Digital Printing Group Ltd, Ms Reaves-Askwith and with Mr and Mrs Churchill. Payment was demanded within seven days. The three demands produced in evidence are undated.
[10] Payment was not made. Mr and Mrs Patel issued proceedings in the District Court on 30 July 2007. However, their proceedings and the application for summary judgment were not served until 22 February 2008.
[11] The sale of the property was settled on 31 July 2007. Title to the property was registered in Chiem Investments Ltd’s name (as the entity nominated to take title to the land) on 1 August 2007.
[20] After analysing the authorities Heath J stated the issue and his conclusion as follows:
[51] Having considered the authorities, I am of the opinion that none of them determine the specific point in issue in this case: whether the legal owner of the property is entitled to sue for rent the day before settlement of the sale without losing that right on settlement and transfer of the title. However, Paramoor Nine (in its reference to the absence of proceedings being issued before settlement of the sale or transfer of legal ownership in the land) and the judgment of the Court of Appeal in Ballance (legal and equitable owners may sue), in my view, resolve the claim in favour of Mr and Mrs Patel.
(emphasis added)
[21] His Honour’s reasoning in support of that conclusion was recorded in
paras [52] to [55]:
[52] A deliberate decision was taken by Mr and Mrs Patel to issue a demand for payment of rent in arrears and to take steps to enforce payment of that debt through legal proceedings prior to the time of settlement. At the time the proceeding was issued, Mr and Mrs Patel were the only people entitled to the income from the property. The apportionment of rent and other outgoings in the settlement statement confirms this position. To the extent that the transferor had an equitable interest in the land, this did not grant a right to recover rent arrears prior to settlement.
[53] Mr and Mrs Patel agreed to sell the property, subject to the lease, to Chiem Investments Ltd. They apportioned entitlements to rent and other outgoings by reference to the proposed settlement date. In those circumstances, the agreement for sale and purchase must be interpreted as intending that Mr and Mrs Patel were entitled to sue for rent in arrears up to the date of settlement. In accordance with Master Towle’s observations in Paramoor Nine, proceedings were issued before settlement of the agreement was effected.
[54] Put simply, the actions of the parties evidence an intention that Chiem Investments Ltd was to become legal owner of the property and entitled to all income from it once settlement had been completed. It follows that Mr and Mrs Patel’s right to sue for the arrears was unaffected by the agreement.
[55] In my view, ss 232 and 233 do not prevent Mr and Mrs Patel from suing and maintaining an exclusive claim for the arrears up to the date on which the sale of the property was settled. They were the people entitled, in terms of s 233(1)(b), to the income of the land on the day they sued. Alternatively, if I were wrong on that point, s 233(2) applies and “a contrary intention” exists.
(emphasis added)
[22] The difference in approach between Mitre 10 and Thistle is demonstrated by their contrasting views concerning the highlighted conclusion at para [55]. Mr Sullivan for Thistle contends that both grounds were correct and are equally applicable to the circumstances of the present case. While accepting that Patel is supportable on the second ground, Mr Mills QC contends that the first ground was erroneous.
[23] In support of that first ground of decision, Mr Sullivan also places reliance on various passages in Ballance Agri-Nutrients (Kapuni) Ltd v Gama Foundation, including in particular the following observation of Robertson J:4
[55] Mr Thomas referred to Paramoor Nine v Pacific Dunlop Holdings
… as authority for the proposition that “there can only be one party entitled to act as lessor, and enforce the terms of the lease”. Paramoor Nine involved a landlord and tenant dispute about the payment of rent. After the rent became due, but before it sued for the rent, the landlord transferred the freehold estate to a third party. The transfer was registered before the proceedings for the unpaid rent were commenced. The tenant applied for the proceedings by the former owner of the land to be struck out and succeeded. Master Towle found that the landlord was no longer “entitled” to the rental income since it no longer had either a legal or an equitable interest in the reversion and therefore could not enforce the covenant. On the facts of this case, only one party was entitled to enforce the terms of the lease, but that does not mean that more than one party cannot, from time to time, be entitled to do so. In my view this is a simple matter of common sense.
[24] Hence Mr Sullivan submitted that, having served the arbitration notice prior to settlement, Thistle maintained its right of action notwithstanding that the
purchaser could also sue the tenant in relation to the same alleged breaches of covenant. He sought to distinguish between the different claims in this manner:
As set out in the arbitration notice the claim arises out of the breaches of lease by the tenant, but the claim is for the damages that resulted. It is not a claim to seek to have Mitre 10 carry out repairs or maintenance. The distinction may be important, because the Court is considering the right to obtain compensation which crystallised on the sale of the building, as opposed to the right to enforce a breach of covenant which may have been factored into the sale price of the property.
[25] With reference to the issue of potential double recovery he emphasised the point that on the circumstances of this case the problem would not arise because the purchaser, Mitre 10 Holdings, would not sue its parent Mitre 10. Indeed the submission stated:
It is [Thistle’s] case that Mitre 10 should not be permitted to conspire to have its wholly owned subsidiary purchase the reversion for a discount price brought about by its own breaches of lease and, despite being on notice of [Thistle’s] intention to pursue remedies against it and the arbitration notice being served prior to settlement, extinguish all claims arising out of the lease.
Mitre 10’s case
[26] Mr Mills submitted that Patel does not stand for any broad proposition that, where a vendor sues a tenant prior to settlement, the vendor is entitled then to maintain that action following settlement. In the absence of authority other than Patel directly on point, he approached the issue by reference to first principles, noting first the rationale for s 233:
6.12The purpose of section 233(1) is to overcome the lack of privity of contract that exists when a lease or reversionary interest is transferred. Repair covenants and other such rights flow from the lease. The lease is entered into between the landlord and tenant. The landlord is entitled to enforce the tenant’s covenants and the tenant the landlord’s covenants in the lease. These are rights that arise in both contract and estate.
6.13Where the original landlord transferred the reversionary interest, the tenant’s covenants were not assigned under the common law. To remedy this problem, by operation of law section 233 provides that the benefit of the tenant’s covenants run with the reversionary estate in the land. This allows the covenants to be enforced by whoever holds the reversionary interest in the land. Section 233(1) makes this clear and does away with the distinction between covenants in contract and estate.
[27] Mr Mills submitted that generally the person “who is from time to time entitled to the income of the land” in terms of s 233(1)(b) will be the landlord. However he recognised that when the landlord enters into an agreement for sale and purchase and the purchaser takes possession of the reversionary interest or has a beneficial estate, the Court of Appeal in Ballance5 has held that the purchaser is also entitled to the income of the land and so is entitled to sue on the tenant’s covenants. Such an analysis enables both the landlord and the purchaser as beneficial owner to issue proceedings enforcing the tenant’s covenants.
[28] However, while accepting that both the landlord and the beneficial owner may “commence” proceedings, Mr Mills argued that the effect of s 234(1)(b) is that ultimately there is only one person who may progress the proceeding. In support of the proposition as to the exclusive entitlement of the assignee to sue, reference was made to Re King, Paramoor and the Law Commission’s Discussion Paper.6
[29] It was submitted that the practical effects of Thistle’s argument, that it is entitled to continue its proceeding and sue for breaches of the repair covenants that occurred prior to settlement, immediately make it clear why the law does not permit this. As purchaser, Mitre 10 Holdings would also be entitled to sue for the same breaches. Hence the result of Thistle’s argument would be that two parties would be entitled to sue for the same breach, with the lessee being liable on both claims.
[30] The obvious problems which this would present were addressed by
Denning LJ in Re King:7
… when a lessor assigns his reversion to a purchaser, does he still retain the right to sue the lessee for breaches of covenant that occurred before the assignment?
…
Let me take the covenant to keep in repair. The premises fall out of repair during the assignor’s time and remain unrepaired during the assignee’s time. A year or so later the lease comes to an end and the premises are delivered up still out of repair. The assignee can clearly sue the lessee for dilapidations and he will recover the cost of making them good: for that is, in
5 Above, n 4.
6 At [13] above.
7 Re King [1963] 1 Ch 459 (CA) at 477–479.
the ordinary way, the amount by which the value of the reversion is diminished. No distinction is ever drawn between those dilapidations that occurred before the assignment and those that occurred after the assignment. The assignee recovers for the whole of them. Such is the law and it has been so applied in numberless cases to my knowledge. And I ask myself: can the assignor in those circumstances afterwards sue the lessee for the breach that occurred, before the assignment, of the covenant to keep in repair? Clearly not: for that would mean that the lessee would be made liable twice over.
…
I have taken that case when the assignee sues first. But suppose the assignor sues first. Can that make any difference? Surely not. The rights of the parties cannot depend on which of the two is first in time in issuing a writ.
… These illustrations convince me that, as a matter of principle, after an assignor has assigned his reversion, he cannot thereafter sue the lessee on the covenants to repair or reinstate.
(emphasis added)
[31] Mr Mills’ argument is that s 234(1)(b) reflects that principled position by providing that the only person who can have the right conferred by s 233(1) is the person who is entitled to the income of the land, which is now Mitre 10 Holdings.
[32] With reference to Thistle’s argument that it is not seeking to enforce the repair covenants but to obtain the alleged diminution in value, the point is made that such diminution in value is the normal measure of damages for breach of a covenant to repair and it makes no difference to the reasoning in the various authorities for Thistle to endeavour to cast its claim in that way. Reference is made to the following observation of Diplock LJ in Re King:8
The measure of damages for breach of a covenant in a lease which runs with the land – the only kind of covenant with which the section is concerned – is the diminution in the value of the reversion consequent on the breach and is sustained by the person entitled to the reversion.
[33] Finally Mr Mills made the point that the fact that Mitre 10 Holdings may not choose to sue in these circumstances, because of the corporate relationship between Mitre 10 Holdings and Mitre 10, is entirely irrelevant to the correct legal analysis of the transactions.
Analysis
[34] There is a potential ambiguity arising from the use of the word “sue” in several of the passages referred to in the course of argument. The point can be seen from the following observation of Diplock LJ in Re King:9
I take the view that the effect of this section is that after the assignment of the reversion to a lease, the assignee alone is entitled to sue the tenant for breaches of covenants contained in the lease whether such breaches occurred before or after the date of the assignment of the reversion. The effect of the section so construed is to enact a simple, rational and just rule of law.
[35] Is the reference to “sue” limited to the point in time of commencement of the proceeding (as Thistle would contend) or does it extend to embrace the duration of the litigation (as Mitre 10 contends)?
[36] On this issue the first principles approach of Mitre 10 is helpful. In my view the rationale for the introduction of the predecessor of s 233 is that, absent any contrary intention, the date of settlement of the sale of a property provides a bright line after which only the assignee may either commence litigation itself or continue with litigation previously commenced by the original lessor. I consider that that intention is plain from the reference in s 234(1)(b) to “the only person entitled to exercise that right”.
[37] Where I respectfully differ from the conclusion of Heath J is with reference to the proposition at [55] of Patel that the Patels “were the people entitled, in terms of s 233(1)(b), to the income of the land on the day they sued”.
[38] While the Patels were entitled to the income on the day that they sued, being the day prior to settlement, I consider that s 233(1)(b) had no application to that point in time. Section 233 is concerned with events following the point in time at which the reversion expectant on the lease ceases to be held by the lessor. That period of time does not commence until settlement occurs. Consequently the description of the entitled person in s 233(1)(b) has no application or relevance to the state of affairs prior to settlement occurring.
[39] The person who was entitled to the income of the land after settlement was Mitre 10 Holdings. In terms of s 234(1)(b) Mitre 10 Holdings was the only person entitled either to exercise the right to sue or to maintain an existing suit, albeit commenced by the former lessor.
[40] For those reasons, while I agree with Mr Mills that the outcome in Patel was supportable on the alternative contrary intention ground, I do not consider that the reasoning on the first ground in Patel should be applied to the circumstances of the present case.
Issue two: Did a contrary intention appear from the lease or another circumstance such that Thistle can pursue its claim?
Relevant facts
[41] The facts which form the basis for Thistle’s argument that there was a contrary intention are explained in the affidavit of G C Stewart who at all material times was the property manager for a group of companies which included Thistle.
[42] On 25 March 2014 Thistle received the unconditional offer from APGL to purchase the property for $12.25 million (plus GST, if any) which remained open for acceptance by Thistle for three working days. It was Thistle’s perception that the property would have been worth over $13 million if the building had been maintained properly.
[43] Mr Stewart explained:
34.On 27 March 2014, [Thistle’s] legal representative Michael Bale and I flew up to Auckland to meet with Mitre 10’s representatives for the purposes of discussing the offer received and the fact that [Thistle] strongly believed that the offer did not compensate [Thistle] for the breaches of the lease by Mitre 10.
35. At this meeting, the following was relayed and discussed:
35.1The APGL offer was disclosed to Mitre 10 but with the purchaser details redacted;
35.2Mr Bale and I made it clear that [Thistle’s] shareholders were not satisfied with the fact that the offer was lower than the potential market value due to the dilapidated state of the
Property, and that unless a satisfactory resolution could be reached with Mitre 10, we confirmed that [Thistle] would pursue claims against Mitre 10 even if [Thistle] accepted the offer of APGL.
35.3We put it to Mitre 10 that in addition to the purchase price offered by APGL, [Thistle] asked Mitre 10 to pay a significant sum in compensation towards the difference between the amount of the offer from APGL and the value of the Property had Mitre 10 complied with its obligations under the lease.
35.4It was strongly inferred at that meeting that Mitre 10 knew who the purchaser was.
35.5The meeting ended with Mitre 10’s representatives advising that they had no authority to agree to pay compensation but would discuss our position with the board of Mitre 10 and provide [Thistle] with a response in the morning.
36.Mitre 10 communicated its decision the next day which was that it was not prepared to offer any compensation.
[44] Mr Stewart stated that, despite Mitre 10’s decision, Thistle decided to proceed to accept APGL’s offer but on the basis that Thistle would still be entitled to pursue Mitre 10 for the losses suffered by Thistle as a result of Mitre 10’s breach of the lease.
[45] On 28 March 2014 Thistle, through its lawyers, communicated its acceptance of APGL’s offer by an email, attached to which was a copy of the executed agreement for sale and purchase. That email concluded by stating:
We record that our client is considering pursuing its rights against the tenant with regard to breaches of the lease.
No response was received from APGL.
[46] The notice under the Arbitration Act 1996 dated 10 April 2014 which was served by Thistle on Mitre 10 recited in some detail the facts which Thistle considered relevant. It concluded by identifying the dispute in the following terms:
4.The dispute which [Thistle] requires to be determined by arbitration is as follows:
4.1 Has Mitre 10 breached the lease covenants?
4.2Was Mitre 10 entitled to cease using the premises for retail use or as a retail shop?
4.3Has the breaches of covenant by Mitre 10 and/or the cessation of retail use of the property resulted in losses to [Thistle]?
4.4Should Mitre 10 reimburse [Thistle] for all of its losses arising from the breaches of covenant and the cessation of retail use including the loss in value of the Property suffered by [Thistle] on sale to Mitre 10 Holdings Ltd?
4.5What costs should Mitre 10 reimburse [Thistle] for in relation to enforcing their rights under the Lease and for moneys expended in an attempt to ensure Mitre 10’s compliance with the lease?
Thistle’s submission
[47] Thistle contends that both in the meeting with Mitre 10 on 27 March 2014 and in the email to AGPL of 28 March 2014 Thistle’s intention to pursue its remedies under the lease was made clear. It contends that AGPL as agent for Mitre 10 ought to have known about the long running and unresolved dispute between Thistle and Mitre 10 and the demands for compensation which had been made by Thistle.
[48] Thistle further contends that it made crystal clear its intention to sue by prior to settlement serving the arbitration notice which set out the specific claim for compensation. The point is made that Mitre 10 did not respond to the arbitration notice. Nor, it is said, did it seek to stop the sale or to change the terms of settlement although on what basis as tenant it could have done so is not apparent. Mitre 10
Holdings paid the purchase price in full and became the owner of the property.
[49] With reference to Mitre 10’s proposition that contrary intention must be by agreement and cannot be unilaterally expressed, the submission is made that s 233(2) is not limited in that way, citing Cox & Cox v Coughlan, Wilson and the Conveyancing Shop10. Thistle argues that the Court does not need to find a common
intention between Mitre 10 and Thistle to enter into a binding agreement, simply a
10 Cox & Cox v Coughlan, Wilson and the Conveyancing Shop [2014] NZHC 164.
contrary intention on the part of Thistle that the sole right to enforce the rights under the lease did not run with the reversion.
Mitre 10’s submission
[50] Mr Mills submits that in the context of a transfer of the reversion the courts look principally at the sale and purchase agreement and the facts surrounding a sale to determine whether the lease or agreement conveys “the shared intention” that the rights do not run with the reversion, citing Southbourne Holdings Ltd v Broadway Investments (No 2) Ltd.11
[51] He draws attention to the approach of Lightman J in First Penthouse Ltd v
Channel Hotels & Properties (UK) Ltd:12
There is no requirement as to how the intention is to be expressed; the tenancy does not have to spell it out in terms that the covenant is to be personal. The intention may be expressed explicitly or implicitly. The intention may be stated in terms or it may be deduced from the language used read in its proper context. In either case the tenancy expresses in a direct or indirect form the required intention.
[52] Mitre 10 recognises that the agreement for sale and purchase provides that it is subject to the lease but notes that neither the agreement nor the lease states either explicitly or implicitly that Thistle would retain rights to enforce all or part of the repair covenants against Mitre 10. Consequently it is said that Thistle’s case must rely on satisfying the statutory test of “other circumstance”.
[53] Mitre 10 contends that a contrary intention must be mutual or agreed. In support of that proposition it refers first to the following statement in London Diocesan Fund v Phithwa:13
The parties to a lease, however, still remain free to agree that the benefit or burden of a covenant shall not pass an assignment of the tenancy or reversion.
It also cites an observation to the same effect by Upton LJ in Re King.14
11 Southbourne Holdings Ltd v Broadway Investments (No 2) Ltd [2013] NZHC 2163, (2013) 15
NZCPR 296 at [33].
12 First Penthouse Ltd v Channel Hotels & Properties (UK) Ltd [2000] EWHC 2713 (Ch) at [49].
13 London Diocesan Fund v Phithwa [2005] UKHL 70, [2005] 1 WLR 413 at [26].
[54] It is submitted that at best both the discussion at the meeting on
27 March 2014 and the final paragraph in the email attaching the executed agreement represent no more than a statement of unilateral intention. The arbitration notice is similarly a statement of one party only.
Analysis
[55] Section 233(2), like s 231(2), allows for a contrary intention to either appear “from the lease or from another circumstance”. There is no suggestion in this case that the contrary intention appears from the lease. Rather three instances of conduct, the meeting with Mitre 10, the email to APGL and the service of the arbitration notice, are relied upon as constituting “another circumstance”.
[56] The phrase “appears from the lease or from another circumstance” derives from the Law Commission’s 1994 Report.15 This phrase is different from any of the several other “contrary intention”16 formulae which are employed in the Act.
[57] In some instances the Act specifies definitively where the contrary intention is to be found:
(a) if a contrary intention is expressed in an instrument: s 45(3); (b) unless a contrary intention appears in the instrument: s 302(2);
(c) subject to any contrary intention expressed or implied in an instrument: s 82(6);
(d)unless a contrary intention appears in the instrument or in the short-term lease not made in writing: ss 276 and 277.
14 Re King, above n [7] at 488.
15 Above n 2.
16 The Act also uses the phrase “despite anything to the contrary” (ss 81(2) and 177(3)) and the
similar phrase “subject to anything to the contrary” (s 203(3)).
[58] By contrast in other instances no locus is specified at all:
– unless a contrary intention appears: ss 215(2) and 273(2).
[59] Still other provisions provide that the contrary intention can be “otherwise”
expressed:
(a) whether in the mortgage or otherwise: s 96(2); (b) whether in a lease or otherwise: s 217.
[60] The starting point is what was meant by “from another circumstance”. In its submissions Thistle refers to “other circumstances”, noting the provision in s 33 of the Interpretation Act 1999 that the singular denotes the plural. It is curious however that so many provisions of the Act use the normal parlance of “circumstances”17 whereas in a limited number of instances the Act refers to circumstance in the singular.18
[61] Plainly a circumstance would include a lease given the reference to “another”. Beyond that I consider that “circumstance” in s 233(2) should bear its normal meaning of an incident or occurrence. In that connection I note the following observation of Buckley J in In Re Jones’s Will Trusts:19
Subsection (2) provides: “In any disposition of real or personal property made, whether by instrument inter vivos or by will (including codicil) after the date of an adoption order – (a) any reference (whether express or implied) to the child or children of the adopter shall, unless the contrary intention appears, be construed as, or as including, a reference to the adopted person; (b) …” – and this is a directly relevant provision – “… any reference (whether express or implied) to the child or children of the adopted person’s parents or either of them shall, unless the contrary intention appears, be construed as not being, or as not including, a reference to the adopted person; …” So that unless a contrary intention appears, the testator’s will must be read as though Clive were not included in the reference to the children of Mrs Hawtin. The question which I have to decide is whether a contrary intention does appear.
17 For example, ss 95(1), 246(2)(c), 323(2), 329(b) and 335(2)(a).
18 For example, s 110.
19 In Re Jones’s Will Trusts [1965] 1 Ch 1124 (ChD) at 1130–1131.
It is to be observed that the section does not say in terms that the contrary intention must appear on the face of the instrument in question and, in the absence of any such qualification, I think that the words “unless the contrary appears”, means unless the contrary appears from any surrounding circumstances which carry conviction to the mind of the court.
(emphasis added)
[62] However I consider that the important point is not what amounts to a circumstance but that the circumstance must be capable of manifesting a contrary intention to the course specified in s 233(1). Specifically, whose contrary intention must be shown?
[63] As noted in Stroud’s Judicial Dictionary of Words and Phrases, many statutes provide certain rules of construction unless a “contrary intention” is expressed.20 A well-known former example in New Zealand was s 3 of the Arbitration Act 1908 to the effect that a submission to arbitration was irrevocable unless a contrary intention was expressed therein.21
[64] Because a “submission” was defined to mean a written agreement to submit differences to arbitration, it followed that any contrary intention expressed would be the intention of all the parties to the submission, not just one. As the Court of Appeal observed in the very different context of the anti-competitive purpose provisions of
the Commerce Act 1986:22
In any event, in a case which is concerned with contracts and intended contracts it is unproductive to point to the purpose of only one party. Once the contract is concluded the parties must be taken to share the purposes of its provisions.
[65] However there can be instances where the contrary intention will be that of an individual alone, wills being the obvious example. So for example, in Re Horton (deceased) the Court was required to consider s 149 of the Property Law Act 1952
which relevantly stated:23
20 Daniel Greenberg Stroud’s Judicial Dictionary of Words and Phrases (8th ed, Sweet & Maxwell, London, 2012).
21 Some of the different formulae were discussed in Simpson v Nominal Defendant (1976) 13 ALR
218 (SC of NT) at 222 (Forster J).
22 Port Nelson Ltd v Commerce Commission [1996] 2 NZLR 554 (CA) at 583.
23 Re Horton (deceased) [1969] NZLR 598 (SC). Similarly Allie v Katah [1963] 1 WLR 202 (PC).
(1) Where a person dies seised of or entitled to any land that is at the time of his death charged with the payment of any sum or sums of money by way of mortgage, and that person has not by his will or by deed or other document signified any contrary or other intention, the devisee or other person to or on whom the land is devised or devolves shall not be entitled to have the mortgage debt discharged or satisfied out of the personal estate or any other real estate of that person, but the land so charged shall, as between the different persons claiming through or under the deceased, be primarily liable to the payment of all mortgage debts with which the same is charged, every part thereof according to its value bearing a proportionate part of the mortgage debts charged on the whole thereof.
(2) A general direction in a will that the debts or that all the debts of the testator be paid out of his personal estate, or out of his residuary real and personal estate, or out of his residuary real estate, shall not be deemed to signify an intention contrary to or other than the rule hereby established, but such an intention must be further signified by words expressly or by necessary implication referring to all or some of the testator’s debts charged or by way of mortgage on any part of his land.
(emphasis added)
[66] Reverting to s 233(2), plainly a lease, which records an agreement between two (or more) parties, will reflect the mutual contrary intention (if any) of the parties to it. But does the reference to “another circumstance” import that the contrary intention appearing from it (as distinct from a lease) may be the intention of only one of the relevant parties?
[67] I doubt that that can have been the draftman’s intention. I consider that in the context of the assignment of a lease on sale of the land there should be a constancy to the phenomenon of contrary intention, whether that is discerned from the lease itself or from some other incident or occurrence. However, I am unable to find authority directly on this issue one way or the other. I think that the practical answer in a lease (ie a bipartite) setting is simply that, in the search for a contrary intention, there cannot be room for either ambiguity or dissent as to the existence of the contrary intention. If, as here, the former lessor asserts one intention and the assignee asserts a different (opposing intention), it cannot be said that there is an unambiguous and unequivocal contrary intention.
[68] So far as Mitre 10’s submissions are concerned I do not consider that the observation in London Diocesan Fund made in the context of ss 3(6) and 15 of the Landlord and Tenant (Covenants) Act 1995, while undoubtedly a correct statement of law in context, is on point so far as the interpretation of s 233(2) is concerned. Nor does the similar statement by Upton LJ in Re King advance the matter.
[69] Nevertheless I accept Mitre 10’s proposition that contrary intention in the context of s 233(2) is not established solely by unilateral statements or conduct on the part of a lessor/vendor. I consider that it is necessary to show that such contrary intention is shared, explicitly or implicitly, by the assignee/purchaser. At the least some endorsement or acknowledgement on the part of the assignee/purchaser is required. It may be that such endorsement need not take the form of a binding contract but there must be at least some acknowledgement which affirmatively demonstrates that the assignee/purchaser does not demur from what the lessor/vendor proposes.
[70] The circumstances of the present case are to be contrasted with Patel where the settlement statement apportioned the rent and other outgoings between the Patels and Chiem Investments Limited by reference to the proposed settlement date. Heath J concluded that in those circumstances the agreement for sale and purchase should be interpreted as intending that the Patels were entitled to sue for rent in arrears up to the date of settlement.
[71] Indeed para [54] of Patel includes the finding that the acts of the parties evidenced an intention that Chiem was to be entitled to all income from the property once settlement had been completed. Nowhere in the judgment does Heath J rely on the fact of the issuing of proceedings as evidencing a contrary intention.
[72] In my view none of the three instances of conduct relied upon by Thistle as establishing a contrary intention disclose any conduct on the part of Mitre 10
Holdings from which a shared contrary intention could reasonably be inferred.
[73] Consequently I conclude that no contrary intention has been demonstrated from the evidence in this case.
Orders
[74] The first order sought in the originating application was that the notice of arbitration dated 10 April 2014 was invalid and of no effect. Reciprocally Thistle in its notice of opposition sought an order that the arbitration notice is valid and binding.
[75] Early in the hearing I conveyed my view to counsel that the real issue was not usefully expressed by reference to the validity or otherwise of the notice of arbitration document. While an issue might arise as to whether the party issuing the notice continued to have standing to pursue it, it was not obvious to me how a notice which was valid on one day could become invalid the next. After some discussion in relation to the agreed statement of issues dated 11 November 2015, revised issues of the tenor of those at [8] above were agreed.
[76] For the reasons stated above my answers to those issues are:
(a) In the absence of an agreement between vendor and purchaser or a contrary intention, the effect of s 233(1) is that, following settlement of the sale of a property, a vendor loses the right to continue to pursue a proceeding commenced by it prior to settlement against the tenant for breach of a lease covenant.
(b)A contrary intention in the context of s 233(2) must be mutual. A unilateral intention will not suffice. No contrary intention was established in this case by any or all of the meeting on
27 March 2014, the email of 28 March 2014 or the service of the arbitration notice.
[77] Mitre 10 has been successful on both issues and prima facie is entitled to costs. If the parties cannot agree on costs, then Mitre 10 is to file a memorandum by
29 January 2016 and Thistle is to file a memorandum in response by
15 February 2016.
Brown J
Solicitors:
Greenwood Roche, Lawyers, Auckland
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