Paros Property Trust Limited v Smith

[2019] NZHC 1657

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-2527

[2019] NZHC 1657

BETWEEN

PAROS PROPERTY TRUST LIMITED

Applicant

AND

TIMOTHY SMITH

Respondent

Hearing:	22 February 2019
Appearances:	D R Bigio QC and L E Mannis for Applicant Respondent in person
Judgment:	16 July 2019

JUDGMENT OF PETERS J

This judgment was delivered by Justice Peters on 16 July 2019 at 5 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date: ...................................

Solicitors:           Brown Partners, Auckland Counsel:   D R Bigio QC, Auckland

L R Mannis, Auckland

Copy for:           Respondent

PAROS PROPERTY TRUST LTD v TIMOTHY [2019] NZHC 1657 [16 July 2019]

Introduction

[1]                 The applicant, Paros Property Trust Limited (“Paros”), is the lessor of land in Freemans Bay, Auckland. The respondent, Mr Timothy Smith, is the, or one of the, assignee(s) of the leasehold interest in the land.

[2]                 By its amended originating application of 15 February 2019, Paros seeks two declarations:

(a)that the lease, being Memorandum of Lease L243503.01 as varied by instrument VL6240784.1, “remains on foot”; and

(b)that Mr Smith’s cancellation or purported cancellation of the lease on 30 August 2018 was invalid.

[3]                 On the face of the relevant certificate of title, Mr Smith acquired the leasehold interest with Ms Toni Shaw in August 2015, they being joint tenants of that interest.1 At all times material to this dispute,  Mr Smith and Ms Shaw were separated, and  Mr Smith’s unsworn evidence is that he purchased Ms Shaw’s interest in the lease after the separation. Despite that, at least on the certificate of title Ms Shaw continues to be a joint tenant of the leasehold estate. Ms Shaw is not a party to this application, and she has not been served. This is doubly surprising because one of Paros’s submissions is that Mr Smith’s cancellation of the lease on 30 August 2018 was invalid because, amongst other reasons, it was unilateral. I shall come back to this point below.

Background

[4]                 Auckland City Council granted the lease on 22 January 1973 for a term  of  99 years commencing 14 November 1972, with rent reviews every 21 years, and a final rent review in about 2056. The lease is a ground lease.

[5]The lease was varied in December 2004, this being the variation referred to in

[2] above. Mr Evan Christian and Mr Martin Brown owned the fee simple at that time. The effect of the variation was to substitute perpetually renewable terms of 21 years

1      Land Transfer Act 2017, s 47; and Land Transfer Act 1952, s 61.

with rent reviews every seven years. Also, by a new cl 23, the lessee was to have the option of acquiring the fee simple, this option exercisable within the year preceding the next, and each subsequent, rent review date.

[6]    Paros acquired the fee simple in December 2006. Mr Neil Christian is the principal of Paros.

[7]    On acquiring the leasehold interest in August 2015, Mr Smith and Ms Shaw as covenantor (singular) entered into a deed of covenant with Paros, providing:

1.1 The Covenantor covenants with the Lessor from the date of the acquisition of the lessee’s interest under the Lease to at all times during the continuance of the term of the Lease to:

(a)       ...

(b) observe and perform all the covenants, conditions  and  agreement contained in the Lease or implied on the part of the lessee to be observed and performed.

Clause 23 of the lease

[8]    On 14 November 2017, the option period for the purchase of the fee simple under cl 23 commenced.

[9]    In April 2018, and following various communications, Mr Christian advised Mr Smith that if Mr Smith (not Mr Smith and Ms Shaw, but Mr Smith) wished to acquire the fee simple he should notify Paros’s property manager, and the manager would “then advise the steps required. Prior Payment of valuation etc”. Mr Christian’s text message to Mr Smith was as follows:

Hi Tim

Thanks for your email.

Re purchase of your L/HD interest. The Trust is not in a position to purchase this from you. However, if you wish to freehold [the land] as in accordance with the lease you can tender your request in writing to Point Management the Trusts property managers. Once they receive your notice they will then advise the steps required. Prior Payment of valuation etc.

Thanks again Regards

Neil

[10]   On 26 April 2018, Mr Smith sent a notice of his wish to purchase the fee simple, pursuant to cl 23. Clauses 23(a) and (b) provide:

23If the Lessee has not been in breach of this lease the Lessee will have the option during the 12 month period prior to 14 November 2011, and then during the 12 month period prior to each subsequent rent review date, to purchase the Lessor’s fee simple estate in the Land in accordance with the following procedure and subject to the following conditions:

(a)The Lessee may at any time during the 12 months period specified in this clause 23 give notice to the Lessor of the Lessee’s desire to purchase the Lessor’s fee simple estate in the Land. The notice will not be valid unless it is accompanied by a remittance for the cost of the valuation referred to in clause 23(b).

(b)As soon as practicable after receipt by the Lessor of the Lessee’s notice and payment by the Lessee of the cost of the valuation the Lessor will cause a valuation to be made by a registered valuer of the valuer of the Lessor’s fee simple estate in the Land.

[11]   Clause 23(c) provides for the matters the valuer is or rather is not to take into account in valuing the fee simple. The provision then continues:

(d)As soon as practicable after the making of the valuation the Lessor will give notice in writing to the Lessee (“Offer Notice”) offering to sell the land to the Lessee at a price equivalent to the amount of that valuation inclusive of GST, if any. The Offer Notice must include a copy of the valuation.

(e)Within one month after the giving of the Offer Notice (time being of the essence) the Lessee must give notice in writing to the Lessor stating either:

(i)That the Lessee accept the Lessor’s offer at the price specified in the Offer Notice;

(ii)That the Lessee does not accept such offer.

(f)Acceptance by the Lessee of the Lessor’s offer will be deemed to constitute a contract for the Lessor to sell and the Lessee to purchase the Lessor’s fee simple estate in the land at the price so offered and for the purchase price to be paid in one sum in cash one month after the date of the Lessee’s acceptance (time being of the essence) with all outgoings and incomings to be apportioned between the parties as at the due date for payment of the purchase price.

(g)If the Lessee fails to give notice referred to in clause 23(e) within the time specified, the Lessee will be deemed not to have accepted the Lessor’s offer and the Lessor’s offer will immediately lapse.

(h)…

(i)The provisions of clause 21 of the lease shall not apply to this clause 23. [Clause 21 is an arbitration provision.]

[12]   In summary, therefore, the lessee gives notice in accordance with cl 23(a); the lessor takes the steps required by cl 23(b); the lessor receives the valuation; the lessor is bound to offer to sell the fee simple at a price equivalent to valuation; and the lessee can accept or decline the offer as the lessee sees fit. If the lessee accepts, then there is a binding contract for sale and purchase of the fee simple to be settled one month thereafter.

[13]   Coming back to the chronology, as I have said and as Mr Christian proposed, on 26 April 2018, Mr Smith emailed Ms Baillie of Point Property a notice of his wish to purchase the fee simple. He attached to his email a copy of his cheque to Gribble Churton Taylor (“GCT”), valuers of Auckland, this to constitute the “remittance” required by cl 23(a), and he also copied Mr Taylor of CGT on his email. Mr Smith’s email was as follows:

Good Morning Lisa,

Pursuant to “Right to Freehold” clause 23 outlined in the ground lease … I give notice of my intention to purchase the lessors fees simple interest in the land.

In accordance with the lease a registered valuer is required to be used and paid for by me. Accordingly please find attached the remittance for the valuation, Neil Christian has requested that this is prepaid and in accordance with this the valuer has been paid at my cost.

Please cause the valuation to happen by “reply all” confirming the receipt of this notice, and for the valuation to take place to the valuer who is cc’d above and myself.

Yours faithfully Tim Smith

[14]   Mr Smith’s evidence is that he settled on GCT having agreed with Ms Baillie how he should proceed, as Mr Christian had said he should do (Ms Baillie denies any such agreement), and having contacted various valuers, many of whom said they had a conflict of interest as they had previously been instructed by Mr Christian or Paros. GCT said they were not conflicted and gave Mr Smith a price for the work. Mr Smith sent the cheque to GCT, and attached a copy to his notice.

[15]   The gist of Paros’s response(s) was, first, that it was for Paros to select the valuer, not Mr Smith and, secondly, a copy of Mr Smith’s cheque did not constitute “remittance” as required by cl 23(a).

[16]   The parties debated the position for several months, and Paros instructed its solicitors, Brown Partners. This led to further correspondence in the course of which Brown Partners proposed that Mr Smith should send another cl 23 notice, to them, with a cheque payable to their trust account for $2,500 on account of the cost of the valuation, following which Paros would commission a valuation from a valuer of its choosing. Mr Smith declined on the grounds, amongst others, that this was not what cl 23(a) required. Nor did he consider Paros was entitled to choose the valuer. Moreover, if Paros did choose the valuer, Mr Smith anticipated the fee simple would be “valued” at a grossly excessive sum, ie the valuation would not be a valuation at all.

[17]   Subsequently, counsel for Paros, Mr Bigio QC, provided an opinion to the effect that cl 23, read as a whole, provided for Paros to select the valuer. Brown Partners sent Mr Bigio’s opinion to Mr Smith on 21 June 2018, but he was not persuaded.

[18]   By this time, Mr Smith believed that Paros was seeking to frustrate his wish to acquire the fee simple and that it wished to “run down the clock” until the rent review to set the new rent to be paid from 14 November 2018.

[19]   On 13 August 2018, Brown Partners wrote to Mr Smith (Mr Smith alone) apropos of the rent review, and providing the lessor’s valuation of the new rent.2

[20]   On 30 August 2018, Mr Smith wrote to Paros, giving the notice of cancellation in respect of which the second declaration is sought, saying:

The lessee gives notice to the Lessor, that due to the Lessor’s repudiation and breach of the lease, and pursuant to the Contractual Remedies Act 1979 that the lease is discharged and completed.

2      There also appears to be an issue between the parties as to the construction of the rent review provision in the lease, but it is unnecessary for me to comment on this.

[21]   It appears from the notice that Mr Smith took the view that Paros had repudiated its obligations under the lease, cl 23 to be precise, and that he was entitled to cancel.

[22]   On 14 September 2018, Brown Partners advised Mr Smith that Paros rejected all his allegations and stated that he was welcome to purchase the fee simple in accordance with the procedure in the lease. Because the parties had such dramatically opposed views as to what that procedure was, Brown Partners repeated an earlier suggestion by Paros that the matter go to arbitration. Brown Partners also referred to the rent review, and concluded by suggesting (as it had previously) that Mr Smith take legal advice.

[23]   Paros filed its application for the declarations in [2] above in November 2018, and then an amended application in February 2019.

Originating application

[24]The first declaration Paros seeks is part and parcel of the second.

[25]   The first ground on which Paros seeks the second declaration is that Ms Shaw is not a party to the cancellation and as a result such cancellation could never be effective, whatever its underlying merits. The second ground on which that declaration is sought is that Mr Smith had no grounds for cancellation because Paros’s interpretation of cl 23, that is Paros instructs the valuer, is correct. To the extent this is not evident on the face of the clause, Mr Bigio for Paros submits any omissions may be remedied by implication.

First ground

[26]   As to the first ground, as I have said, on the face  of the certificate of title,  Ms Shaw remains a joint lessee. Given that, regardless of the private arrangements between Ms Shaw and Mr Smith (but subject to what follows), Ms Shaw remains liable to Paros for performance of the lessee’s obligations under the lease and bound by the deed of covenant. She also remains entitled to share in the benefit of the lease.

[27]   Mr Bigio referred me to several authorities which he submitted established that any unilateral cancellation by a joint lessee is ineffective, and that Mr Smith’s cancellation would be likewise ineffective. These authorities are Re Viola’s Indenture of Lease and Hounslow London Borough Council v Pilling.3 Hammersmith and Fulham London Borough Council v Monk is also relevant.4

[28]   These authorities draw a distinction between periodic tenancies or tenancies with “break” provisions, and other forms of lease. A periodic tenancy may be determined at the instigation of one joint tenant.5 However, the lease in this case is not a periodic tenancy and so, in the usual course of events, termination by one joint lessee only would be ineffective to terminate the leasehold interest.6 In that case, regardless of the underlying merits, Mr Smith’s unilateral cancellation would be ineffective.

[29]   That said, I decline to make the second declaration on this ground. First, there is the very important point that Ms Shaw is not a party to the application and has not been served, even though on Paros’s case she remains a joint lessee. Secondly, Paros’s reliance on Ms Shaw’s status as joint tenant has come very late in the piece and appears to be something of an afterthought. There is no mention of Ms Shaw in the many emails and letters, some from Paros’s legal advisers, written prior to the filing of the amended originating application in February 2019. Nor, on the evidence before me, did Paros give Ms Shaw notice of the rent review, although she must have been entitled to notice if she continued to be liable for the rent. Nothing in the evidence for Paros explains the failure to refer to Ms Shaw and/or to join or serve her and whether, in fact, Paros has known throughout that Mr Smith has acquired Ms Shaw’s interest.

[30]   This is not to say that Mr Smith by himself could give an effective notice to terminate, even if Paros did know throughout that he had acquired Ms Shaw’s interest. I do not know whether he could or could not. However, at present there is no evidence from Ms Shaw, she is not a party, and there is no evidence from Paros as to what it

3      Re Viola’s Indenture of Lease [1909] 1 Ch 244 (Ch); and Hounslow London Borough Council v Pilling [1993] 1 WLR 1242, [1994] 1 All ER 432 (EWCA).

4      Hammersmith and Fulham London Borough Council v Monk [1992] 1 AC 478, [1991] 3 WLR 1144 (HL).

5      Property Law Act 2007, s 214 makes express statutory provision to the same effect.

6      Even if this proposition applies in this case, it may not extend to the cl 23 notice because the mere sending of that notice does not purport to alter the lessee’s rights and obligations.

knew as to her position vis-à-vis the lease prior to February 2019. I decline to make the second declaration sought in these circumstances.

Second ground

[31]   As to Paros’s second ground, the meaning of cl 23 is highly contentious. A valid notice under cl 23(a) must be accompanied by remittance of the cost of the valuation. Mr Smith’s point is the lessee can only do this if the lessee knows the cost of the valuation. However, nothing in the clause addresses how that is to be known unless it is for the lessee to select the valuer and ascertain the cost.

[32]   There is also force in Paros’s submission that it must be for the lessor to select the valuer as it “commissions” the valuation under cl 23(b) and it is the lessor who supplies a copy of the valuation to the lessee under cl 23(d). Paros also submits that it must be entitled to selected the valuer of what is, after all, its asset.

[33]   Quite aside from these arguments as to construction, Mr Smith maintains that Mr Christian referred him to Ms Baillie, which Mr Christian did, that he and Ms Baillie reached agreement on what he should do, and he did it. Paros’s response to this contention is that Ms Baillie reached no such agreement and that she could not bind the lessor in any event, whatever Mr Christian may have said in his text message in April 2018.

[34]   A much more comprehensive argument than that made to me would be required to construe cl 23, especially if any term was to be implied. Ms Shaw would also need an opportunity to be heard on the matter. There would also need to be evidence from Mr Smith and Ms Baillie, and cross-examination of the same, as to what was or was not discussed before Mr Smith sent his notice of 26 April 2018. Failing that, it would be difficult if not impossible to resolve all the relevant issues. Given these matters, I decline to make the second declaration and, as stated, the first is part and parcel of the second.

Result

[35]   For the reasons given I decline to make the declarations sought and I dismiss this application. The parties may make submissions as to costs if they wish, although my preliminary view is that they should lie where they fall.

[36]   I make the following additional comments in the hope they will assist the parties. A party’s best interests are usually served by resolving a dispute of this nature by agreement, if it is possible to do so on reasonable terms. If such a resolution proves impossible in this case, and in the absence of arbitration, then pleadings that identify all issues to be determined will be required, and the matter will proceed to trial in the usual way, with all of the expense (both in time and money spent) that entails. However matters proceed, I would encourage Mr Smith to obtain legal representation if at all possible.

Peters J