NRM Investments Limited v Semone Trustees Limited
[2022] NZHC 735
•11 April 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-560
[2022] NZHC 735
UNDER the Declaratory Judgments Act 1908 BETWEEN
NRM INVESTMENTS LIMITED
Plaintiff/Applicant
AND
SEMONE TRUSTEES LIMITED
Defendant/Respondent
Hearing: 22 February 2022 Appearances:
J Parker for Plaintiff/Applicant
E Watt and O Wilkinson for Defendant/Respondent
Judgment:
11 April 2022
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
Introduction and background
[1] The plaintiff, NRM Investments Ltd (NRM), produces and sells gelato. The business premises from which it operates are at 228 Oriental Parade in Wellington (“the property”). The defendant, Semone Trustees Ltd (Semone), owns the property.
[2] The history of the leasing arrangements is unconventional. Ownership of the property has changed over the period during which NRM has occupied it. Exactly how things have developed over the years is important.
[3] The late Natalino Koss acquired the property in April 1980. Although Mr Koss continued to own the property until he died in May 2021, the original named parties to an agreement to lease executed in July 2015 which is at the heart of this litigation
NRM INVESTMENTS LIMITED v SEMONE TRUSTEES LIMITED [2022] NZHC 735 [11 April 2022]
were a company by the name of Ultimate Homes Ltd as lessor, NRM as lessee and Nathan Meyer as guarantor. Mr Meyer was and is NRM’s director.
[4] The explanation for this is that, prior to the execution of the lease, Mr Koss and Ultimate Homes had entered into a conditional sale and purchase agreement in relation to the property. Plainly those parties were sufficiently confident that the sale and purchase would proceed for Ultimate Homes to agree to lease the property to NRM. Presumably NRM and Mr Meyer shared this confidence, initially at least.
[5] Not long after the execution of the lease it appears to have occurred to NRM and Mr Meyer that, if the sale and purchase transaction between Mr Koss and Ultimate Homes did not proceed, things might become messy. Seemingly at their instigation, in August 2015 Ultimate Homes, NRM and Mr Koss executed a deed of variation that, amongst other things, sought to clarify the position by locking Mr Koss as the owner of the property into the lease. Clause 6 of the deed provided:
Tony is entering into this Deed as the registered proprietor of the Premises and agrees to be bound by the Lease Documents and this Deed as the lessor until the title to the Premises passes to the Landlord (or another third party), and where this Deed or the Lease Documents reference an obligation or right of the Landlord it shall apply equally to Tony as lessor.
[6] Adding to the unorthodox nature of these arrangements, on 1 September 2015 Mr Koss signed a letter which seems to have been intended to reinforce his commitment to the lease, but this does not appear to me to have added anything.
[7] It turns out that the parties’ confidence that the sale and purchase between Mr Koss and Ultimate Homes would proceed was unjustified. The transaction fell through, though not until the leasing arrangements had been on foot for some time. Ultimate Homes departed the scene, and Mr Koss stepped into the role of landlord on a day-to-day basis. Obviously, none of this was sufficiently disconcerting for Mr Koss, NRM or Mr Meyer to consider getting advice or executing new documentation regularising the situation. But there we are.
[8] The lease was originally to commence on 1 September 2015, but that commencement date was varied in the deed of variation, the new commencement date
being identified as five working days following the issue of such consents as were necessary for NRM’s operating requirements.
[9] The original term of the lease was two years and it provided that NRM was to have nine rights of renewal, each for a further period of two years commencing on 1 September of 2017 and so on. NRM was entitled to exercise these rights by giving written notice of its intention to renew at least one calendar month before the expiration of each term.
[10] NRM sought to exercise its first right of renewal by email dated 27 June 2017 addressed to Ultimate Homes, which, at that point, was still a conditional purchaser and the de facto landlord. The parties proceeded on the basis that the renewal was to commence on 1 September 2017.
[11] NRM sought to exercise its second right of renewal by email dated 28 May 2019. By this time, the conditional sale and purchase agreement between Mr Koss and Ultimate Homes had fallen through, and Mr Koss was taking day-to-day responsibility as landlord. The notice was therefore addressed to Mr Koss and the parties appear thereafter to have proceeded on the basis that the second right of renewal (for the period commencing 1 September 2019) had been exercised.
[12] As already said, Mr Koss died in May 2021. Following his death, the property passed to his personal representatives, two partners in the Wellington firm of solicitors known as Oakley Moran.
[13] Accordingly, when NRM came to exercise the third right of renewal (for the period commencing 1 September 2021), it sought to do so by email dated 11 February 2021 addressed to Oakley Moran.
[14] There is no conclusive evidence that NRM’s first and second notices were ever acknowledged. However, Mr Koss’ personal representatives acknowledged receipt of the third notice.
[15] Shortly after the date of the third notice, NRM was informed that Mr Koss’ personal representatives were selling the property to Semone. The transfer of the property took place on 7 May 2021. It is quite apparent that, from the outset, Semone was not especially keen on the continuation of NRM’s tenancy.
[16] Semone’s solicitors, Keesing McLeod, wrote to NRM on 11 June 2021, purporting to “decline” the exercise by NRM of its right of renewal by notice dated 11 February 2021, saying:
We act for Semone Trustees. We understand you are aware that Semone Trustees Ltd are the new owners of [the property].
We further understand from the Executors of the Estate of Natalino Antonio Koss that you have requested a renewal of the Lease.
Your request for a renewal of the Lease is declined because the Lease expired on 31 August 2017. There is no evidence that the Lessee company gave the required notice, three months before the expiry date (31 August 2017) or at any time thereafter.
Therefore, the status is as per clause 36.1 of the Lease Holding Over as a periodic tenancy enabling the Lessor to terminate the periodic tenancy.
The Lessor now wishes to terminate the periodic tenancy.
As such we enclose by way of service Notice of Termination Lease.
[17] Three points emerge. First, there seems to be no difference between the parties as to the date upon which the original terms of the lease ended and therefore the date upon which any renewal period would begin. Second, the sole basis upon which Semone was asserting that it was in a position to terminate the lease was that NRM had failed to exercise its first right of renewal. Third, Semone’s solicitors had obviously misread the lease because it provides that the lessee may renew by giving no less than one month notice, not three.
[18] WCM Legal, NRM’s solicitors, replied the same day. Their reply was brief. They said that NRM had renewed by timely notices in 2017, 2019 and 2021. They said that Semone’s notice of termination was therefore of no effect.
[19] Keesing McLeod replied on 14 June 2021. They said that they had made enquiries of Oakley Moran as the solicitors acting in the late Mr Koss’ estate, and had
been told that there was no evidence of notices to renew having been given in 2017 or 2019. Accordingly, Keesing McLeod concluded: “Our notice of 11 June 2021 still stands”.
[20] WCM Legal replied on 16 June 2021 saying that NRM was in a position to prove that it had given notice in a timely way in 2017 and 2019.
[21] By letter dated 17 June 2021 Keesing McLeod asked for proof that notices had been given in those years.
[22]WCM Legal replied on 18 June 2021 providing copies of NRM’s two emails.
[23] From that point, it appears to have been accepted by Semone that NRM had emailed Ultimate Homes (in 2017) and Mr Koss (in 2019) and that those emails had been received and treated as notices to renew — there was never any dispute that the company had given timely notice to Mr Koss’ personal representatives in 2021.
[24] This appears to have precipitated a change of tack on Semone’s part. In a lengthy letter dated 26 August 2021, Keesing McLeod set out a list of hitherto unstated allegations that NRM had breached the terms of the lease, which, it was now said, disentitled NRM to exercise its rights of renewal in 2017, 2019 and 2021. On that basis, Semone claimed that, since 1 September 2017, NRM had been on a monthly tenancy which was lawfully terminated by Semone’s notice dated 11 June 2021. It will be necessary to return to these allegations. At this stage, it is only necessary to say that the correspondence between the solicitors continued for some time prior to and after the commencement of this proceeding. Positions became increasingly entrenched, and, in the way of these things, the exchanges appear to have generated more heat than light.
Summary judgment principles
[25]Summary judgment is provided for in pt 12 of the High Court Rules.
[26]Rules 12.2 provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1)The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
(2)The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[27] The leading authority is Krukiziener and Hanover Finance Ltd where the Court of Appeal said:1
The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is not consistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
Under r 141A the defendant need not file a statement of defence. The onus remains on the plaintiff, and summary judgment will be denied if on the hearing of the application it appears that there is an issue worthy of trial.
[28] Accordingly, the plaintiff (in the case of a plaintiff’s application) bears the burden throughout of establishing that the defendant has no arguable defence to the claim, or relevant aspect of the claim, or that any cross-claim put up by the defendant cannot succeed. Although that burden rests with the plaintiff from beginning to end, the courts have also recognised that if a defendant contends that there is an arguable defence or cross claim, he, she or it must be able to point an evidential foundation establishing the same.2 In other words, for the Court to enter summary judgment in
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at [26]–[27].
2 Pemberton v Chappell [1987] 1 NZLR 1, (1986) 1 PRNZ 183 (CA) at 185, per Somers J.
the plaintiff’s favour it must be satisfied that the plaintiff’s case is unanswerable, and it can only be so satisfied where there is no arguable defence or cross-claim.3
The plaintiff’s case
[29]NRM’s case is straight forward.
[30] It says that the lease was binding on Mr Koss as the owner and landlord from the outset, which it says the parties have always accepted. It says that the 14 August 2015 deed of variation (and the 1 September 2015 letter) merely served to confirm the position. It says that it renewed in a timely way in 2017, 2019 and 2021, so that the parties are now in the fourth term and third period of renewal. It says that the arguments put up on behalf of Semone to the effect that the lease has expired and that it is in breach are without merit, and that the Court should enter summary judgment by way of a declaration to that effect.
The defendant’s case
[31] In its notice of opposition dated 2 December 2021 Semone pleads four grounds of opposition:
(a)that there was no valid lease in the first place;
(b)that, even if there was a valid lease, NRM did not comply with the requirements for renewal in 2017 or 2019 so that the lease expired on 31 August in 2017 or 2019, and has since operated on a month-to-month basis;
(c)to the extent that NRM is seeking relief from Semone’s cancellation of the lease, that there was no lease to cancel for one or more of the reasons already touched on;
(d)finally, Semone pleads that even if there was a lease and the term was renewed in 2017 and 2019, Semone was entitled to refuse to renew or
3 Maclean v Stewart CA288/96, 20 August 1997 (CA).
cancel the lease and the Court should not, in the context of a summary judgment application, exercise its discretion pursuant to pt 4 of the Property Law Act 2007 to grant NRM relief against that refusal to renew or cancellation, because it is an exercise of a discretion which should only take place after a full analysis of the circumstances.
[32] It is fair to say that Semone’s pleaded case as summarised above is not on all fours with the argument advanced by Mr Watt on its behalf. However, Mr Parker did not take this point. He met the defence head on, and I follow his lead in this.
No valid lease
[33] The way in which Semone has pleaded the contention that there is no valid lease is as follows:
(a)The agreement to lease relied upon by the applicant was signed by the applicant as tenant and Ultimate Homes Ltd as landlord (UHL Agreement). Ultimate Homes has never been the registered proprietor of the Property.
(b)The requirements of certainty of premises and exclusive possession are not met.
[34] That is a clear enough pleading. Semone Trustees is saying that there was no valid lease for two reasons. First, because the documentation was signed not by Mr Koss as lessor, but Ultimate Homes, which was not, and never became, the owner of the property. Second, it is asserted that fundamental aspects of a concluded agreement were missing, that is to say that the agreement was uncertain as to the premises and as to exclusive possession.
[35]In my assessment, the first contention cannot be correct.
[36] It appears to me that Mr Koss, then the legal and equitable owner of the property, assumed responsibility as the landlord under the lease from the outset, albeit via an express or implied agency arrangement with Ultimate Homes, with which company he had entered into in a conditional sale and purchase agreement.
[37] As the owner of the property, and, as the evidence establishes, responsible for enabling the lease arrangement in the first instance, Mr Koss appears to me to have assumed the rights and obligations as lessor from the outset. Furthermore, the deed of variation said just that. In any event, it seems to me that Mr Koss would be estopped from denying his position as lessor under the lease, he, along with Ultimate Homes, having been responsible for allowing NRM to commit to the property, with all that entailed, in the belief that it had enforceable rights as the lessee.
[38] Insofar as NRM is concerned, it too went into these arrangements with its eyes open, and, in my view, has had the rights and obligations as the lessee under the lease from the outset.
[39] Ms Watt did not place any real emphasis on the issue of certainty in her submissions. Accordingly, it may not be necessary to address the issue. Whatever issues of certainty may or may not have existed at the time of the execution of the lease, they are not matters that were raised by Mr Koss, Ultimate Homes, or Mr Koss’ personal representatives (or for that matter by NRM or Mr Meyer), and, in my view, it is not open to Semone as a subsequent purchaser of the property with notice of the tenancy to raise them as a basis for denying the existence of a lease seven years in.
[40] Ms Watt advanced an unpleaded argument to the effect that the original lease was void ab initio because it was brought about by duress, undue influence or unconscionability.
[41] Duress requires an improper threat or pressure, so as to overwhelm the victim’s free will. The law treats a victim’s free will as being displaced where it can be said the victim’s decision was induced by the threat or pressure, so that they had no reasonable alternative option other than to accede.4 The requisite threat is typically to do or not do something whether lawful or unlawful, that the law would regard as illegitimate.5 The standard is a high one. The doctrine of undue influence is directed at conduct within a relationship which justifies the conclusion that the disposition or
4 Pharmacy Care Systems Ltd v Attorney-General CA198/03, 16 August 2004 at [92].
5 Haines v Carter [2001] 2 NZLR 167 at 189.
agreement was not the result of a free exercise of a person’s will.6 Unconscionability is a more recently developed doctrine. Essentially the law will intervene where an agreement is unconscionable as a result of a stronger party imposing his, her or its will on a weaker party.
[42] The three doctrines, although developed separately, are very closely related. In the end, they all require that the Court intervene in dealings where there is demonstratable unfairness brought about because the plaintiff was unable to exercise genuine free will. The point is that it is not a matter of the Court interfering just because a transaction appears very one-sided. The unfairness must arise as a result of improper influence of sufficient magnitude to prevent the plaintiff exercising free will in the matter.
[43] Ms Watt invited the Court to consider two features of the lease which she suggested were demonstrably unfair. First, the lease provides for NRM to be entitled to set off the cost of its fitout against rental, without any cap on this. Second, potentially at least, the rental is fixed for 20 years (the original two-year term and nine rights of renewal for further terms of two years) without any provision for review. In commercial leases, it is by no means unusual for a landlord to absorb the cost of fitout by way of a rent holiday as an inducement, though it is certainly unusual for there to be no cap on this. It is also true that a fixed rental for up to twenty years is potentially very favourable to the lessee, even with modest inflation over that period of time, though such leases are by no means unheard of. For present purposes, I am prepared to accept that it is reasonably arguable that the terms of the lease are such as to raise the issue of whether there may have been some untoward influence at play.
[44] At the time that the lease was being entered into it was the expectation of all concerned, that is to say Mr Koss, Ultimate Homes, NRM and Mr Meyer that Ultimate Homes would purchase the property and then become the lessor, and of course that company entered into the lease as lessor. Nevertheless, given that Mr Koss was the owner at the time, it seems to me that Semone might succeed in defeating the
6 Contractors Bonding Ltd v Snee [1992] 2 NZLR 157 at 165.
agreement if it were able to establish that Mr Koss was unable to exercise free will in the matter.
[45] The first difficulty for Semone is that there is no convincing evidence of this. Ms Watt points to the affidavit of Mr Joiner who is Semone’s director. Here is what Mr Joiner says on the point:
5.Tony was a unique character. He was not in contact with his family. He had a daughter, but I understand they were estranged. He was very private and did not talk about his personal life with anyone, including his closest friends. I believe Tony had been sick for between six and eight years before his death in May 2020, but to the best of my knowledge he did not tell anyone he was unwell until about four weeks before he died, when he told me he had terminal cancer. Around four years ago, Tony began to gain weight I believe this was the result of the medication he was on. Then a year or so later, he began losing weight fast. In January 2020, when I finally noticed how much weight he had lost, I asked him if he wanted to go to the hospital. Then, about a month before he died when I spoke to him, he appeared very unwell and was struggling to stand. I told him I was going to take him to the hospital again, but he refused.
6.Tony told me a few days before he went into the hospice that he was going to leave the Property to me when he died. He did so on the basis I took on the mortgage, which was about $1.3 million at that stage. I have had significant experience with commercial leases in my professional life, both as lessor and lessee. Because of this, one of the first things I asked Tony was about the lease arrangements with the downstairs tenant (Mr Meyer/NRM Investments Ltd). Tony said “they don’t have a lease”.
[46] This evidence says nothing about the position in July 2015 which is the critical point. At the most it points to the possibility of Mr Koss becoming vulnerable some years after the lease was executed.
[47] I am not satisfied that that evidence provides a basis for the contention that Semone has even an arguable case based on duress, undue influence or unconscionability.
[48] Even if the position were otherwise, it is not at all obvious to me that this is a matter that Semone, as a purchaser years later with notice of the existence of the tenancy, is in a position to rely on to refuse to renew or terminate the lease. The lease that was originally executed in July 2015 was, over the years, treated by Mr Koss,
Ultimate Homes, Mr Koss’ personal representatives, NRM and Mr Meyer as being valid and enforceable in its terms right through until the sale of the property to Semone. It does not seem to me to be open to Semone, which does not deny that it purchased the property with notice of the existence of NRM’s tenancy, to rely on events that took place years prior to its acquisition as a basis for an argument that the lease was invalid from the outset. The reality seems to be that Semone exercised the option to acquire the property, knowing that there was an existing tenancy of some sort, but without carrying out any real investigation into the same. The upshot is that it has acquired a property subject to a tenancy that it does not like. It is not for the Court to relieve it of the responsibilities it now finds itself with.
Renewal
[49] Ms Watt’s second contention was that even if the lease was valid in the first instance, NRM did not exercise its rights of renewal in 2017 (or 2019) “so that it had no right of renewal to exercise for the period commencing 1 September 2021.”
[50] The argument was not that NRM did not give timely notice in 2017 and 2019, but that the notices it gave in those years (most particularly 2017) were ineffective.
[51] Ms Watt submitted that whilst the lease agreement allows service of notices by email, it provides that such service is only complete when the addressee acknowledges receipt, and that there is no evidence that Ultimate Homes (in 2017) or Mr Koss (in 2019) acknowledged receipt of NRM’s emails.
[52]Ms Watt continued:
34. As a result of the applicant’s failure to comply with the notice requirements, SDL was entitled to refuse renewal. The result is that NRM holds a periodic tenancy terminable with 20 working days’ notice.
41. The UHL agreement otherwise remains in effect to the extent that the terms are not inconsistent with that.
[53] Let me state the effect of this submission in case it is not self-evident. Despite the now seemingly uncontested evidence that NRM emailed timely notices in 2017 and 2019, it is contended that, because the lease provides that notice by email will be
deemed to have been received when acknowledged by the recipient, Semone Trustees, which has recently acquired the property, with notice of the existence of the NRM’s tenancy, should be entitled to treat the lease as a nullity because of the failure of Ultimate Homes (2017) and Mr Koss (2019) to acknowledge receipt of NRM’s notices. This is notwithstanding that both of those entities subsequently accepted that the lease was continuing on, and allowed NRM to believe the same.
[54] For a start, it does not appear to me to be correct to say that the lease provides that, to be effective, notice given by email must be acknowledged. Clause 32, which specifically relates to renewal, simply requires notice to be given, whereupon the landlord “is obliged to grant a new lease for the further term”. Clause 42 says that notices are to be in writing and may be served by one means or another including by email. It then goes on to say that depending on what means is used to effect service, any notice will be deemed to have been served at certain points. To this extent, the clause is essentially an evidential provision. In my view, it does not mean, as Ms Watt appeared to submit, that the Court would be entitled to treat a notice which is established to have been served as not having been served because the deeming provision does not apply. In a case such as this, where the evidence establishes, and it is acknowledged, that timely notices were emailed to and received by the parties standing in the shoes of the landlord in 2017 (Ultimate Homes) and 2019 (Mr Koss), the tenant does not have to rely on the deeming provision in cl 42 of the lease. It has proved service of its notices.
[55] Even if that is not correct, by their actions, the parties, Ultimate Homes, NRM and Mr Meyer in the case of the renewal that commenced on 1 September 2017 and Mr Koss, NRM and Mr Meyer in the case of the renewal that commenced on 1 September 2019, represented, each to the others, that the renewal was effective from those dates, and allowed the other parties to proceed on that basis. In my view, they would all have been estopped from denying otherwise had they done so. Nor does it seem to me to be open to a subsequent purchaser of the property, with notice of the existence of the tenancy, to deny that the lease was properly renewed in 2017 and 2019.
[56] I reject the submission that it is reasonably arguable that NRM did not give proper notice of renewal in 2017 and 2019.
Breach
[57] The final argument, again not pleaded, is that, when NRM gave its third notice of intention to renew, it was in breach of covenants of the lease, and therefore that Semone was entitled to refuse to renew or cancel the lease.
[58]There is a fundamental difficulty with this contention.
[59] It will be recalled that the lease provides that notice of renewal, to be effective, must be given within one month of the expiration of any current term. There is no temporal requirement as to how early notice may be given. Theoretically, the lessee might give notice immediately after the commencement of one term in respect of the next, or possibly even immediately after the commencement of the first term in respect of all subsequent terms.
[60] Accordingly, in terms of the timing, NRM was perfectly entitled to give notice of its intention to renew for a third time on 11 February 2021, more than six months before the expiration of the second period of renewal.
[61] At the time that that notice was given, Mr Koss’ personal representatives were the owners and lessors. They raised no issue in relation to historical or current breaches of the lease. That must mean that the renewal was effective from the date of the notice, 11 February 2021.
[62] Against that background, it does not seem to me to be open to Semone to revisit the issue of whether that renewal was effective irrespective of whether or not NRM was in breach at the time. By the time Semone acquired the property on 7 May 2021 the lease had already been renewed.
[63] Nor can Semone’s notice be treated as notice of termination for breach as it is silent on the subject.
[64] Of course, it is entirely open to Semone, as the lessor since 7 May 2021, to take steps in respect of any current breach, but that is an entirely different matter involving an entirely different process.
Result
[65] In my judgment, the defendant has no arguable defence to the plaintiff’s claim. The plaintiff is entitled to summary judgment in the form of a declaration as sought in the prayer for relief contained in its statement of claim dated 8 October 2021.
[66] Costs are reserved. If counsel are unable to resolve these, they may submit memoranda in the usual way.
Associate Judge Johnston
Solicitors:
WCM Legal, Wellington for Plaintiff/ApplicantKeesing McLeod, Lower Hutt for Defendant/Respondent
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