Renaissance Capital Investment and Finance Group Ltd v Cook Strait Properties Limited
[2018] NZHC 242
•26 February 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-002095
[2018] NZHC 242
UNDER Section 290 of the Companies Act 1993 BETWEEN
RENAISSANCE CAPITAL INVESTMENT AND FINANCE GROUP LTD
Applicant
AND
COOK STRAIT PROPERTIES LIMITED
Respondent
Hearing: 19 February 2018 Appearances:
J Macdonald for Applicant
S W B Foote for Respondent
Judgment:
26 February 2018
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
ON APPLICATION TO SET ASIDE STATUTORY DEMAND
This judgment was delivered by me at on February 2018 pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
RENAISSANCE CAPITAL INVESTMENT AND FINANCE GROUP LTD v COOK STRAIT PROPERTIES LIMITED [2018] NZHC 242 [26 February 2018]
Introduction
[1] Renaissance Capital Investment And Finance Group Ltd (Renaissance) leased commercial premises in Auckland from Cook Strait Properties Ltd (Cook Strait). The (extended) term of the lease was to expire on 31 May 2017. The lease contained a provision (“clause 31”) which required Renaissance, upon termination of the lease, to remove tenant’s fixtures and chattels and to make good any resulting damage.1
[2] Issues arose from 31 May 2017 between Renaissance and Cook Strait as to Renaissance’s compliance with clause 31. Correspondence ensued then and over subsequent months as to compliance with clause 31 and payment of rental.
The statutory demand and this application
[3] On 31 August 2017, Cook Strait issued a statutory demand for $73,016.13. The demand represents two sets of sums for which Cook Strait had invoiced Renaissance in reliance upon the lease. Cook Strait claimed:
(a)$44,850 for costs of making good; and
(b)$28,166.13 for rental and operating expenditure (“opex”) for the period 1 June 2017 to 28 September 2017.
[4] Renaissance filed this application to set aside the statutory demand. It asserted that it had genuine and substantial disputes in relation to the entire sum demanded.
[5]Cook Strait opposed the application.
The jurisdiction to set aside a statutory demand - the principles
[6] The Court’s jurisdiction to set aside a statutory demand is contained in s 290 Companies Act 1993. I refer specifically to the basis upon which the Court may grant an application as contained in s 290(4) which reads:
1 The deed of lease dated 27 May 2010 was in the Auckland District Law Society’s 5th ed. 2008 form.
290 Court may set aside statutory demand
…
(4)The court may grant an application to set aside a statutory demand if it is satisfied that-
(a)there is a substantial dispute whether or not the debt is owing or is due; or
(b)the company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or
(c)the demand ought to be set aside on other grounds.
[7] Renaissance invokes s 290(4)(a) for the purposes of this hearing I adopt as a general approach to the exercise of this jurisdiction these principles:
· The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt. Put another way, the applicant must show that there is a real and not a fanciful or insubstantial dispute.
· The mere assertion that the dispute exists is not sufficient. Material short of proof is required to support the claim that the debt is disputed.
· If such material is available the dispute should normally be resolved other than by means of proceedings in the Court’s Companies Act jurisdiction.
· It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.
The make-good costs issue falls away
[8] In December 2017, Renaissance paid Cook Strait the full sum ($44,850) demanded for make-good costs. To that extent the statutory demand has been satisfied.
The rental issue as a whole
[9] Cook Strait claims $28,166.13 for the period 1 June 2017 to 28 September 2017. The rental demand is most satisfactorily examined in two periods, being first
that from 1 June 2017 to 1 July 2017, and secondly the period thereafter until 28
September 2017.
[10] In relation to both periods, Cook Strait invokes clause 37.1 of the lease which provides under a heading “Holding Over”:
IF the Landlord permits the tenant to remain in occupation of the premises after the expiration or sooner determination of the term, such occupation shall be a periodic tenancy only terminable by 20 working days’ notice at the rent then payable and otherwise on the same covenants and agreements (so far as applicable to a periodic tenancy) as herein expressed or implied.
[11] The express provisions of the lease may be compared with the statutory tenancy created under s 210 Property Law Act 2007 applicable when a tenant remains in possession after termination of the lease, which also provides for 20 working days’ notice of termination in a situation of holding over.
Rental issue 1 – rental for 1 June 2017 to 1 July 2017
[12] The parties agree that the rental and opex for the period 1 June 2017 to 1 July 2017 calculated at the rates payable under the lease amounted to $7,652.51. It is also common ground that Renaissance has not made payment of that sum (or a larger sum encompassing it) to Cook Strait.
[13]After Cook Strait issued its demand, Renaissance caused a sum equivalent of
$44,730 to be paid into its solicitor’s trust account as evidence (in the words of its deponents) “that it was clearly solvent”. The $44,730 was a sum which had been identified in full and final settlement negotiations between the parties (to which I return from [42] below).
[14] Renaissance did not explain in its evidence why it has never paid the June rental to Cook Strait. Mr Macdonald explained from the bar that Renaissance’s staff had understood that the June rent had been paid through the payment made to the solicitor. Any such understanding was plainly incorrect.
[15] For Renaissance, Mr Macdonald accepted in the course of submissions that, in light of confirmation of the fact that the June rental remains unpaid, the Court, if it
finds Cook Strait’s claim is not debarred by the settlement agreement discussed at [42] below, should uphold the statutory demand to the extent of the amount owing to the end of June. Mr Macdonald, having regard to what may be seen as the various components of the total comprising the sum demanded, also accepted that it would be appropriate that the Court uphold the statutory demand for this component even if setting aside the statutory demand in relation to all other components.
[16]The order below will therefore require payment of this component.
Rental issue 2 – rental after 1 July 2017
The factual background
[17] Cook Strait asserts that beyond the (agreed) month’s rental due for June 2017, Renaissance was liable for rental from 1 July 2017 to 28 September 2017 under the (clause 37.1) holding-over provisions in the deed2 and under s 210 Property Law Act. This specific ground was stated in Cook Strait’s notice of opposition as:
… no challenge was offered to the existence of a statutory periodic tenancy and no notice has ever been given by the applicant to terminate the tenancy.
[18] For the context of any arrangements between the parties from late-June 2017, it is necessary first to identify how the agreed extension through June 2017 came into being.
[19] With the term of the lease due to expire on 31 May 2017, Cook Strait had the premises inspected that day. It found that Renaissance still had chattels in the premises and had not completed make-good obligations. Ernie Gartrell, Cook Strait’s solicitor, wrote to Renaissance on 31 May 2017 stating:
Until this matter is remedied, your company is holding over in terms of the lease and will be charged rental and OPEX accordingly. This form of tenancy under the Property Law Act is only terminable on 20 working days’ notice. As an alternative to the make good we sometimes agree with the tenant for a lump sum payment to discharge the make good obligations. If you wish to pursue this option you should contact the Director …
2 Above at [12].
[20] Mr Gartrell’s statement of the legal position was incorrect.3 But it prompted the next day an offer from Renaissance of $3,000 for make-good.
[21] On 6 June 2017, Mr Gartrell emailed Renaissance. The $3,000 offer was rejected. The email then continued:
Failing an offer which could be regarded as realistic, we must insist on a full make good to the premises to enable us to re-let. We would remind you that pursuant to the Property Law Act you are now on a tenancy at will and this requires 20 working days’ notice provided the work has been completed.
[22] Mr Gartrell’s statement of law was again incorrect but Renaissance responded by email the same day, explaining how the $3,000 offer had been calculated. The email response continues:
We would also like to extend the rental period to at least 1st of July. It is going to help reduce your vacancy period which means more income…
[23]On 7 June, Mr Gartrell emailed his response which reads:
Lizzy
We note your request for an extension of the lease to the 1st July 2017, the Directors have considered your application and agreed. Please note that any additional period should include an allowance for make good in terms of time.
[24]Renaissance’s offer of $3,000 was again rejected.
[25] Through June 2017 there was further email correspondence between the parties relating to Renaissance’s non-payment of the June rental and arrangements Renaissance was making for removal of chattels and make-good work.
[26] Through the correspondence particularly of 6 – 7 June 2017, Renaissance became indisputably liable to pay rental calculated under the lease for the period to 1 July 2017. Through Mr Macdonald it has accepted that liability.
3 See below from [36].
[27] Mr Macdonald however asserts that after 1 July 2017 Renaissance was neither holding over in terms of the lease nor remaining in possession in terms of s 210 Property Law Act.
[28] On 30 June 2017, the parties exchanged emails. First, Cook Strait repeated a request earlier made for advice of Renaissance’s “make good timeline”. The email continued:
…until this matter is remedied your company is holding over in terms of the lease and will be charged rental and OPEX accordingly.
Renaissance (through Li Wen Sun) sent an email response that day. Having explained that she had been sick earlier in the week, Ms Sun continued:
We have moved out as advised and made part of the make good.
[29] After further exchanges, Cook Strait sent an email to Renaissance on 4 July 2017 stating:
…you must realise that the make good carried out to date is in no way complete, and that rent and opex are payable until such time as the make good works are complete. Noting that your June rent has not been paid and July is now due as well.
[30] In subsequent email correspondence through July, Cook Strait continued to refer to accruing rent and opex and to the “requirement” to give 20 days’ notice.
[31] Eventually a settlement meeting was arranged between the parties. It took place on 15 August 2017. It is common ground that the parties orally agreed upon a full and final settlement figure of $44,730 including GST. The deponents disagree as to the time stipulated for payment. Zi Ming Li of Renaissance deposes that it was to be as soon as Renaissance could make payment. Pasquale Vinaccia of Cook Strait deposes that it was to be by the end of the week (18 August 2017).
[32] As I come to at [42] below, this settlement agreement must have come to an end without being fulfilled. For Cook Strait, Mr Foote relies upon subsequent correspondence between the parties as further indicating that the tenancy was continuing on a holding-over basis. Mr Foote notes that the full and final settlement
figure was described by Cook Strait in an email on 16 August 2017 as including “all outstanding rental and outgoings for your lease”.
[33] Mr Foote notes (correctly) an absence of “push-back” by Renaissance to such continuing assertions as to rental obligations having continued.
Discussion of the legal position on holding-over
[34] The correspondence of Cook Strait (including that of Mr Gartrell) commencing from late May 2017 displays an incorrect understanding of the law relating to liability for rental when a tenant has not fulfilled its make-good obligations. Cook Strait took the position that until the make-good obligation was remedied, Renaissance would be holding-over under the lease (with clause 37.1 of the lease and s 210 Property Law Act applying).
[35] For Renaissance, Mr Macdonald submits that the law in this area is correctly identified in the judgments of Gallen J in Cigna Life Insurance New Zealand Ltd v NZ Counties Investment Co Ltd4 and of Panckhurst J in Jansen Ltd v Petra Holdings Ltd.5
[36] Those cases indicate that, as reflected in this deed of lease and in the wording of s 210 Property Law Act, holding-over flows in certain circumstances from the tenant’s continued occupation or possession of the premises.
[37] In Cigna the holding-over clause was in similar terms to clause 37.1 in this deed of lease, commencing with the parallel words:
If the lessor permits the lessee to continue to occupy the premises beyond the expiration of the term of this lease…
Of those words, Gallen J in Cigna said:6
The wording of that clause contemplates a consensual continuation where there is on the one part a permission to remain and on the other, an intention to remain…
4 Cigna Life Insurance New Zealand Ltd v NZ Counties Investment Co Ltd (1997) 3 NZ ConvC 192,540.
5 Jansen Ltd v Petra Holdings Ltd [2013] NZHC 30.
6 Cigna Life Insurance New Zealand Ltd v NZ Counties Investment Co Ltd, above n 4, at p 15.
[38] Gallen J continued that whether or not there is continued occupation is a matter of fact.7 His Honour held that the tenant’s failure to remove partitions (and implicitly to make good) was not an indication of holding over but rather a breach of lease obligations sounding not in liability not for rental but for damages.8
Application of the law
[39] For the month of June 2017 there existed a consensual arrangement between Cook Strait and Renaissance in relation to continued possession and the payment of rental. The 6/7 June 2017 correspondence cannot be read otherwise. The agreed term (to 1 July 2017) displaced any other term which would apply. Under the 6/7 June 2017 correspondence, notice of termination was not required as it would be under clause
37.1 or under s 210 Property Law Act – the parties had themselves agreed on the termination date.
[40] Notwithstanding Mr Foote’s detailed analysis of the context of later discussions and correspondence, it is open to dispute whether Renaissance remained in occupation of the premises after 1 July as a tenant holding over. Renaissance was arguably at pains by 30 June 2017 to confirm that it had given up possession. Contrary to the repeated assertions of Mr Gartrell, the fact that Renaissance had outstanding obligations to make good did not constitute Renaissance a lessee who was holding over. Cook Strait could not unilaterally impose that characterisation upon Renaissance. As Cigna establishes, holding over involves a consensual continuation of the prior occupation rights. The Court is required to consider what factual indicia of possession exist. It is arguable on the correspondence and affidavit evidence that there was not a continued possession of the land, let alone a consensual occupation. There are no clear indicia of continued possession in this case.
[41] Renaissance has established that there is arguably a genuine and substantial dispute as to the existence of a debt in relation to the post-1 July 2017 rental claim. The statutory demand will be set aside in relation to that component.
7 At p 15.
8 At pp 16 – 18.
Rental issue 3 – a full and final settlement?
[42] Renaissance, as an alternative ground of application, asserted that Cook Strait’s claim was precluded by a full and final settlement agreement reached (orally) by the parties on 15 August 2017. In full and final settlement of the make-good costs and all outstanding rental and outgoings, Renaissance agreed to pay to Cook Strait $44,730 (inclusive of GST). Renaissance in this proceeding relied on this agreement (and its subsequent payment of $44,850 into its solicitor’s trust account) as grounds for resisting the demand as to the rental liability it disputes. This ground of application is without substance – Renaissance has neither promptly after the settlement agreement nor since actually paid the agreed sum to Cook Strait. Cook Strait therefore gave notice of cancellation. The settlement agreement is no longer on foot.
Rental issue 4 – the lease’s dispute resolution provisions
[43] In the alternative, Renaissance invoked clause 44 in the lease which contains an arbitration agreement. The arbitration agreement has an exclusion in relation to the Cook Strait’s recovery of rent or other monies payable under the lease. My earlier findings render it unnecessary to uphold or reject this ground advanced by Renaissance. That said, I find nothing in the (clear) wording of clause 44 which would have required Cook Strait to submit the rental claim to arbitration.
Rental issue 5 – Cook Strait’s calculations of debt
[44] As noted at [15] above, Mr Macdonald conceded that (subject to the Court’s finding on the settlement agreement), the demand for the June rental and opex was valid. However, the component of Cook Strait’s demand which related to rental (totalling $28,166.13) relied on a statement which showed Renaissance entitled to a credit of $1,773.78 as at 30 May 2017. When that credit is partly utilised to cover outstanding and opex due in the previous period, the credit available to Renaissance was $1,045.45. If that sum is credited against the monthly rental figure of $7,652.51, the balance owing to 30 June 2017 is $6,607.06.
[45] At the conclusion of the hearing, I invited counsel to discuss the appropriate calculation should the Court uphold the statutory demand only to the extent of the
rental due to the end of June 2017. Rather than reach agreement, counsel have filed conflicting memoranda as to the figures the Court should adopt. Some of the figures promoted by Mr Foote, including interest calculations, turn on additional documents not in evidence on the application.
[46] In the absence of agreement between the parties, I will determine matters on the evidence as adduced, which produces the figure of $6,607.06 identified at [44] above. I am not satisfied on any figure of indebtedness beyond that.
Outcome
[47] Renaissance is entitled to have the statutory demand set aside in relation to the two components of make-good costs (since paid) and post-1 July 2017 rental (in relation to which there is arguably a genuine substantial dispute).
[48] The balance of Cook Strait’s demand (in relation to the June rental but accounting for the credit due to Renaissance) is beyond dispute and that debt will be the subject of orders made below.
Costs
[49]I will reserve costs.
[50] It appears appropriate that all steps be calculated on a 2B basis.9 My preliminary view is that Cook Strait is entitled to its full scale costs and disbursements incurred in filing its opposition, having regard to the fact that Renaissance thereafter paid the make-good costs and has subsequently conceded Cook Strait’s entitlement to payment of the June rental. In relation to the costs of preparation for the hearing and the hearing itself, the parties might take the view that costs should lie where they fall having regard to the comparative degrees of success and time taken in argument on the two components of rental. The Court will determine costs and disbursements on the papers if there is disagreement.
9 High Court Rules, Category 2 under r 14.3(1) and band B under r 14.5(2).
Orders
[51]I order:
(a)The statutory demand issued by the respondent to the applicant on 31 August 2017 is set aside except as to $6,607.06.
(b)The applicant shall pay to the respondent within ten working days the sum of $6,607.06 failing which the respondent will be entitled to make an application for an order putting the applicant into liquidation.
(c)Costs are reserved, with memoranda (five-page limit) to be filed in the event of disagreement with the applicant’s memorandum to be filed within ten working days and the respondent’s within five working days thereafter.
Associate Judge Osborne
Solicitors:
MBC Law Limited, Auckland E W Gartrell, Wellington
Counsel: S W B Foote, Auckland
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