Radius Health Group Limited v Consultant Management Services Limited
[2013] NZHC 1312
•7 June 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2013-412-000006 [2013] NZHC 1312
BETWEEN RADIUS HEALTH GROUP LIMITED Applicant
ANDCONSULTANT MANAGEMENT SERVICES LIMITED
Respondent
Hearing: 7 June 2013
Appearances: I M Hutcheson for the Applicant
P Dalkie for the Respondent
Judgment: 7 June 2013
ORAL JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
RADIUS HEALTH GROUP LIMITED v CONSULTANT MANAGEMENT SERVICES LIMITED [2013] NZHC 1312 [7 June 2013]
The application
[1] The applicant (Radius) applies to set aside the respondent’s (CMS) statutory demand.
[2] The statutory demand claims $98,133.25 for unpaid rent for the five months from August – December 2012 (inclusive).
Background
[3] Radius leased commercial premises in Papakura. Radius did not occupy the property but subleased it to other occupants. CMS now owns that property having acquired it in about March 2012. Before then Radius had from October 2005 rented the property from Symphony Properties Limited (Symphony) who in November
2005 sold the property to Citymed Health Care Limited (Citymed).
[4] Radius’ issues regarding CMS’s claims of rent arrears arose from events which began in 2011 when Millbrook Road Developments Limited (Millbrook) showed an interest in buying the property from Citymed.
[5] Mr Cook solicitor for Radius explains what happened at that time. He deposes that Millbrook entered into discussions with Radius “with a view to a substantial renovation and reconfiguration of the layout of the premises. The discussions included Millbrook leasing back a portion of the redeveloped premises from [Radius]”. Documentation was completed which included a Memorandum of Understanding, a Deed of Side Arrangement, and an Agreement to Sublease.
[6] They noted that Millbrook was the unconditional purchaser of the property from Citymed Health Care Limited and that Ray’s Gym Limited was a prospective tenant of part of the property. The documents recorded the objective of providing approximately 1000m2 for Ray’s Gym.
[7] From November 2011 extensive renovation and demolition work was commenced.
[8] Millbrook settled its purchase on 13 March 2012. Then it immediately transferred the property to CMS. The clear evidence, and notwithstanding Mr Humphries evidence for CMS suggesting otherwise, is that the renovations and layout reconfiguration were far from complete at this time.
[9] The following day Radius received a letter from Millbrook advising that “we are effectively your new landlord” and providing bank account details for payment of rent.
[10] Radius began making payments of rent to the new account believing, Mr Cook deposes, that it was paying Millbrook. Mr Cook says that because progress with the renovations “became extremely protracted and in the face of the renovations still being substantially incomplete in August 2012” Radius stopped payment of rental. Correspondence between solicitors ensued.
[11] It is clear from the evidence that at the time of discussions between Radius and Millbrook, Millbrook did not own the property. CMS’s solicitors wrote to Radius’ solicitors on 12 December 2012 advising that the persons with whom Radius had been dealing in connection with Millbrook’s development plans did not represent CMS or have any authority to make any commitments on its behalf. They advised Millbrook had an unconditional agreement to purchase but failed to settle and their agreement was cancelled. They said CMS was unaware of any agreements made by Millbrook with Radius and as such they were not binding on CMS.
[12] When responding to CMS’s solicitors Mr Cook by letter dated 14 December
2012 enquired on what basis were Millbrook’s representatives continuing to visit the site and having dealings with Radius in relation the development. In response CMS’s solicitors stated:
The problem your client has is that Millbrook at no stage had anything more than an unconditional agreement to purchase the development. It was not the owner of the property when it entered into the various agreements with your client.
...
Issues your client may have with Rays Gym are a separate matter and your client has remedies in that regard.
[13] Mr Hutcheson, counsel for Radius then wrote to CMS’s solicitors advising that Radius required CMS to forthwith reinstate the premises to the “as leased” condition in terms of the deed of lease. Mr Hutcheson informed that meanwhile the full amount of outstanding rental would be paid into his instructing solicitor’s trust account.
[14] Then, by letter dated 21 December 2012 Radius’ solicitors wrote:
In light of your client’s advice disclaiming responsibilities for the actions of Mr Nash, Mr Farron and Millbrook Road Developments Limited our client views the subsequent/consequential complete renovation and reconfiguration of the premises as a breach of the covenant of quiet enjoyment and a breach of your client’s obligations of non-derogation from the grant of the lease.
Additionally the failure/refusal by your client to agree to reinstate the premises (and provide a proposed timetable for that to be completed) amounts to a repudiatory breach of the lease contract giving rise to a right of cancellation under Section 7(4)(b) of the Contractual Remedies Act 1979.
Accordingly our client hereby cancels the lease on the grounds of breach of the covenant of quiet enjoyment, derogation from the grant and/or repudiation as set out above.
[15] Shortly after CMS’s statutory demand was served.
[16] On or about 20 February 2013 Radius issued substantive proceedings in this
Court grounded upon claims of:
(a) Breach/repudiation of Deed of Lease. (b) Frustrated Contracts Act 1944.
(c) Equitable estoppel. (d) Implied term.
(e) Breach of Agreement to Sublease.
[17] Radius continues to pay to its solicitors the monthly rental otherwise payable to the landlord as a demonstration of its solvency. Through counsel they have
confirmed to the Court their undertaking to continue to pay a monthly rental into
their solicitor’s account and there to be held pending further order of the Court.
[18] Solvency is not seriously an issue for the Court at this time in light of the
payment arrangements being handled by Radius’ solicitors.
Principles
[19] They are set out in s 290(4) of the Companies Act 1993. A Court may set aside a statutory demand if there is a substantial dispute whether or not the debt is owing or due. This requires an applicant to demonstrate that there is arguably a genuine and substantial dispute as to the existence of the debt.
Opposition to application
[20] In summary CMS’s position is:
(a) That a tenant must pay the rent regardless of whether or not the landlord’s actions may have affected the tenant’s rights of use of the land, because that is what the lease document implies when it demands rent be paid to the landlord without deduction or set off.
(b) In this case the renovation works were brought about by the tenant’s
actions and the landlord had no part of those.
(c) Complaints of renovation work delays are vague and inconsistent with the Millbrook documents which did not specify any date for their completion.
(d)The complaints of the tenant if they are too seriously to be considered involve in fact the building contract and not a lease and are matters involved in another party and not the landlord.
[21] As Mr Dalkie identifies, the fundamental commercial reason for the
Millbrook documents was to enable Radius to be better able to meet its rental
commitments. This appears to be unchallenged. Therefore Mr Dalkie says the renovations were required for Radius’ own purposes and in the outcome of any failure or breakdown of those arrangements, no liability should lie with the landlord.
Considerations
[22] A significant purpose of the arrangements entered into between Radius and Millbrook was to redevelop the space to enable Radius to sublease an area to Rays Gym Limited. As the key documents signed by the parties acknowledge, a substantial destruction and redevelopment of the premises was required. The cost of these works was estimated at $300,000. A significant reorganisation of occupancy areas was involved.
[23] The documents recorded a “Staged Take Up” comprising a new tenancy from the landlord, a further tenancy from the landlord and the creation of subleases. Agreement was reached for free rent for a period following occupation. The documents provided that Millbrook would pay for the cost of obtaining local authority consents, of demolition of existing structures and partitions, of internal fit out in accordance with the plans and specifications, and for the relocation of the physiotherapy practice tenant.
[24] The Deed of Side Arrangement provided that to the extent the parties’ arrangement varied or modified Radius’ lease then it will take effect as a variation from the date that Millbrook settled its purchase of the property.
[25] As earlier noted Millbrook did settle its purchase on 13 March 2012. It appears clear that it was unknown to Radius at the time that the property was then immediately transferred to CMS. This notwithstanding, Millbrook wrote the following day to Radius with advice that it was effectively Radius’ new landlord.
[26] CMS’s position is that the person involved on behalf of Millbrook had no authority to act on behalf of CMS. This, even though the Millbrook representatives remained on site or in consultation with the redevelopment works well beyond 13
March when CMS took a transfer of the property from Millbrook.
[27] As to this, Mr Humphries deposes that he was aware of the fit out on Rays
Gym being completed; that he acknowledged that between March and July 2012
Millbrook continued to work on the fit out; and that he said “the problem in fact appears to be that it is taking too long to complete the fit out”.
[28] Mr Humphries explains that CMS had previously lent money to companies associated with Millbrook, and in this instance CMS was approached when it appeared Millbrook would not be able to raise finance to complete the purchase of the property. Eventually and rather than advance monies to Millbrook it was agreed CMS would settle the purchase of the property and contemporaneously enter into an unconditional agreement with Millbrook which would allow it to purchase the property back from CMS by 7 September 2012. Eventually Millbrook was unable to purchase the property back and its agreement with CMS was cancelled.
[29] The evidence suggests that Mr Humphries claim that the renovations were substantially complete in March 2012 (when CMS took its transfer) is inconsistent with the documentary evidence available to the Court. Also it has to be measured against CMS’s solicitors letter dated 14 December 2012 which asserted to Radius’ solicitor;
Issues your client may have with Rays Gym are a separate matter and your client has remedies in that regard.
[30] It is Radius’ position that CMS’s purchase was subject to the equities applying to Millbrook as vendor (s231 Property Law Act 2007). Therefore CMS was not able to deny any/all liability for the renovations and for the Millbrook agreements. Also, that CMS is in breach in failing to complete those renovations in a reasonable time or in a workmanlike manner and also for failing to pay rent in terms of the sublease that Millbrook committed itself to.
[31] Although the Millbrook documents did not contain a date for completion of the renovation works it is unlikely a Court would shy from the responsibility of implying a completion date – beyond which a Court would be prepared to say there has been too much delay.
[32] The renovation works began in November 2011 and continued until July. CMS knew of these. Obviously they were tied up with the arrangement by which CMS was to sell the property back to Millbrook.
[33] It will be for a Court to assess in due course whether Radius acted for proper legal reason in stopping the payment of rent when it did and whether in that act a cancellation of the lease can be implied on a date earlier than that in December 2011 when express notice of cancellation was given.
[34] It is not necessary in the context of the present setting aside application to examine in depth counsels’ outline of applicable legal principles. It is clear that in appropriate circumstances that a significant interference with a tenant’s right of occupation can provide appropriate grounds for cancellation of the lease. In this case an examination of those circumstances is appropriately left for trial.
Conclusions
[35] In part for reasons indicated by Radius’ willingness to continue to pay rent albeit to their solicitors trust account, considerations of solvency do not arise upon the setting aside application. Rather, the focus of the application is about whether or not Radius has an obligation meanwhile to continue paying rent to CMS.
[36] The applicant has satisfied the Court that there is sufficient evidence to show a substantial dispute about whether or not rental in the amount claimed or in any lesser sum is owed by Radius to CMS.
[37] In good faith Radius entered into binding legal arrangements with the unconditional purchaser of the property tenanted.
[38] Radius had no knowledge of the arrangements by which that purchaser settled its purchase and then immediately transferred its property to another party who had funding arranged.
[39] It is against that background that the ultimate purchaser’s claims of having no responsibility for the lease rearrangements or renovations work that were done need to be examined further.
[40] A significant factual enquiry is needed to test the position maintained by CMS in particular for it is only in that outcome can Radius’ claims of sufficiently substantial interference with Radius enjoyment of its premises, be tested.
Judgment
[41] CMS’s statutory demand is set aside.
[42] CMS will pay Radius’ costs on a 2B basis together with disbursements as
approved.
Associate Judge Christiansen
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