W & G Sports Limited v Batchelar Centre Limited
[2014] NZHC 3379
•2 February 2015
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
CIV-2014-454-86 [2014] NZHC 3379
IN THE MATTER OF Section 290 of the Companies Act IN THE MATTER OF
An application to set aside a statutory demand issued pursuant to section 289 of the Companies Act 1993
BETWEEN
W & G SPORTS LIMITED Applicant
AND
BATCHELAR CENTRE LIMITED Respondent
Hearing:
Further submissions:
23 October 2014
7 November 2014 and 17 November 2014
Counsel:
D I Sheppard for Applicant
G P Mason for RespondentJudgment:
2 February 2015
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The applicant lessee (W & G) applies to set aside a statutory demand issued by the respondent landlord (BCL) in which BCL claims an alleged shortfall in the amounts paid by W & G for rent and outgoings.
[2] For a number of years, W & G occupied commercial premises at 39-41
Broadway, Palmerston North (the premises). It ran a sports retail business there pursuant to a deed of lease originally entered into on 25 November 2009 between W & G and the then owner of the land, Valor Ideal Ltd (Valor). The lease was for a term of five years, and the rent was $72,000 plus GST per annum, including
outgoings.
W & G SPORTS LIMITED v BATCHELAR CENTRE LIMITED [2014] NZHC 3379 [2 February 2015]
[3] There was a downturn in the retail market in the Palmerston North CBD, and in February 2012 Mr Barris, a director of Valor, orally agreed with W & G’s Mr Murrie to reduce the rent and outgoings from $72,000 plus GST per annum to
$48,000 plus GST per annum. The agreement was that the reduced rate would apply until the expiry of the lease in November 2014. From February 2012 onwards, W & G paid the rent and outgoings at the reduced rate in accordance with that oral agreement.
[4] The agreement to reduce the rent and outgoings was never recorded in writing.
[5] Valor put the property containing the premises (the property) on the market in the middle of 2013. By then, it was running into its own financial difficulties, and it was put into liquidation on 5 September 2013. The sale process was taken over and completed by Valor’s mortgagee, the ANZ Bank.
[6] BCL purchased the property, subject to any tenancies. It took possession on
31 October 2013. The first instalment date for rent payable by W & G was the following day, 1 November 2013, and on that day W & G paid BCL the appropriate monthly amount based on an annual figure for rent and outgoings of $48,000 plus GST. W & G continued to pay monthly instalments to BCL at that rate until April 2014, when the present dispute emerged.
[7] BCL says that it was prepared to accept rent and outgoings at the reduced rate which had been informally agreed between W & G and Valor only on the basis of an agreement made between it and W & G on 7 November 2013, under which W & G would enter into a new long-term lease of space in a nearby property at 33 Broadway (No. 33), which BCL was seeking to acquire. W & G’s existing tenancy of the premises would come to an end when certain development work at No. 33 was completed and the retail space at No. 33 became available.
[8] BCL says that if it did not succeed in acquiring No. 33, the fallback arrangement agreed with W & G was that BCL would extend the premises to approximately twice their current size, and W & G would occupy the (extended) premises on the same terms as had been agreed in respect of the space at No. 33.
[9] In the event, BCL was unable to acquire No. 33. It says that when that fact became known, W & G reneged on the fallback agreement.
[10] W & G denies that there was any fallback agreement. It says further that BCL was aware of, and bound by, the rent reduction agreement it had made with Valor, and that when it became clear that BCL had not acquired No. 33, W & G was entitled to continue to occupy the premises, at the reduced rate for rent and outgoings, until the original deed of lease expired on 25 November 2014.
[11] BCL denies that it was bound by the rent and outgoings reduction agreed between Valor and W & G. It contends that when W & G failed to honour its agreement to take a new long-term lease of the (extended) premises, BCL was entitled to insist on payment of the rent and outgoings at the full rates reserved by the November 2009 deed of lease of the premises.
[12] On 1 April 2014, BCL demanded the sum of $11,500 from W & G, that sum representing the shortfall ($10,000 plus GST) between the figure for rent and outgoings under the November 2009 deed of lease, and the figure W & G had been paying to BCL, calculated over the five month period between 1 November 2013 and 31 March 2014.
[13] Attempts by the parties to resolve their dispute were unsuccessful, and on
1 July 2014 BCL issued its statutory demand. W & G filed its application to set the demand aside on 14 July 2014.
The Agreement to Lease between BCL and W & G
[14] W & G and BCL set out their agreement in respect of the development and leasing of the space at No. 33, in a written Agreement to Lease dated
7 November 2013. The new lease would be for a term of eight years commencing
on 1 June 2014 (or on the date of practical completion of the development work and tenant’s fit-out). Special conditions in the Agreement to Lease included provision for BCL to carry out the development work and contribute $52,000 towards W & G’s fit-out costs.
[15] Special condition (4) provided:
Landlord Purchase
This contract remains conditional upon the Landlord securing freehold title of [No. 33] on or before 12 December. In the event the Landlord is unsuccessful then the abovementioned terms and conditions shall revert to the Tenant’s existing “
premisesLEASE” at 39–41 Broadway Avenue, Palmerston North.
[16] Special condition (5) provided that, at the commencement of the lease of the space at No. 33, W & G’s lease obligations in respect of the premises would cease.
BCL’s attempt to acquire No. 33
[17] BCL did enter into an agreement to purchase No. 33, on 17 December 2013. Mr Charles told Mr Murrie about that in December 2013, and on 3 February 2014, BCL wrote to W & G confirming that it had been successful in securing No. 33. The letter went on to advise:
Accordingly special condition four of the Agreement to Lease dated
7th November 2013 evidenced between Batchelor Centre Limited and
W & G Sports Limited has been met and the contract is now deemed unconditional.
[18] That advice proved to be premature. The vendor of No. 33 subsequently cancelled its agreement to sell to BCL, and No. 33 was sold to a third party.
[19] In the meantime, W & G, relying on Mr Charles’ December advice and on BCL’s 3 February 2014 advice that it had secured No. 33, began making arrangements to relocate its business to No. 33.
On what basis did BCL agree to accept payments on the reduced basis between
November 2013 and February 2014?
[20] Mr Murrie’s evidence is that Mr Charles of BCL came to the premises one day in the latter part of 2013, and told Mr Murrie that BCL was going to be W & G’s new landlord. Mr Murrie says that he checked with Mr Charles that Mr Charles knew that the rent for the premises had been reduced, and that Mr Charles confirmed that he was aware of the reduction. Mr Charles acknowledges in his evidence that he was aware when BCL took over the property that W & G had been paying rent and outgoings for the premises at the reduced rate it had agreed with Valor.
[21] In his evidence, Mr Charles says that, while Valor may have agreed to accept payments for rent and outgoings at a level lower than W & G was contractually obliged to pay, there was no obligation on BCL to accept that arrangement when it took over the premises. BCL bought the property from the ANZ Bank (selling as mortgagee) on the basis of a Deed of Lease which provided for rent and outgoings at
$72,000 plus GST per annum, and in Mr Charles’ view BCL was entitled to enforce those terms.
[22] As for the agreement for W & G to take a new lease at No. 33, Mr Charles’ evidence is that he and Mr Murrie originally discussed two options. The first was that BCL would acquire No. 33 and W & G would move into it after the necessary development work had been undertaken at No. 33. The second option would apply if BCL did not acquire No. 33. In that situation, BCL would carry out work on the property, at the rear of the premises, which would provide W & G with significantly more retail space on the property itself. There would also be potential for Mr Murrie or W & G to purchase the property in the future.
[23] Mr Charles says that he agreed orally with Mr Murrie that W & G could continue paying rent and outgoings for the premises at the rate of $4,000 plus GST per month (that is, at the reduced rate of $48,000 plus GST per annum which W & G had agreed with Valor) until the handover of larger premises to W & G (whether at No. 33 or at the property) had occurred.
[24] Mr Charles says that when it became clear that BCL was unable to secure freehold title to No. 33, it put plans in place to extend the property at the rear of the premises in accordance with its agreement with W & G. He says that BCL applied for a building consent to begin the work at the rear of the property, and that approximately 90 per cent of the work could have been completed with W & G continuing to operate its business from the premises. Mr Charles says that W & G was advised that it had until 30 May 2014 to agree to BCL’s plans for the work at the rear of the premises, or to make any reasonable requests in respect of that work. He says that all work at the property would have been completed by 1 December 2014.
[25] W & G refused to sign off on BCL’s plans, or call for any amendment to them, by 30 May 2014. BCL says that it was therefore unable to commence the work on the property. It contends that W & G’s failure to engage with BCL over the renovation of the property amounted to a breach of the agreement Mr Charles had reached with Mr Murrie, and that in those circumstances the rent and outgoings reverted back to the $72,000 plus GST figure set out in the November 2009 Deed of Lease.
[26] Mr Murrie rejects Mr Charles’ claim that the November 2013 Agreement to Lease contemplated the first and second options referred to by Mr Charles. He says that the most that can be said is that the second option (extending the premises) was an option mentioned by Mr Charles which was never taken up by W & G. In his view, the Agreement to Lease was never intended to apply to the premises. The proposed extensions to the premises would have involved massive interruptions to W & G’s business, and he and his wife would never have agreed to it.
[27] Mr Murrie says that it was at W & G’s instigation that the word “premises” was altered to “LEASE” in special condition four in the November 2013 Agreement to Lease. His evidence is that he and his wife required this change, so that if BCL did not acquire No. 33 the parties would revert to the existing lease of the premises, which would come to an end in November 2014. That arrangement would ensure that W & G would have the ability to find alternative, larger premises elsewhere.
[28] In support of W & G’s contention that the November 2013 Agreement to Lease was intended to have no application in respect of the property, Mr Murrie says that, after entering into the November 2013 Agreement to Lease, Mr Charles showed a prospective tenant through the property. However, it is not clear from the evidence exactly when this occurred, and in particular whether it occurred before or after BCL learned that it had not been successful in securing No. 33. Mr Murrie also says that Mr Charles’ claim that the Agreement to Lease applied to the property was not raised until more than two and a half weeks after BCL did receive notification that it had failed to acquire No. 33.
[29] Mr Murrie denies Mr Charles’ evidence that BCL applied for a building consent for the extension of the premises. He says that no floor plans to redevelop the property were provided, until W & G received a letter from BCL’s counsel on
7 April 2014.
W & G’s counterclaims
[30] Mr Murrie says that W & G spent approximately $30,000 purchasing stock (which it would not otherwise have purchased) for the larger shop floor it would have at No. 33.
[31] Mr Murrie also says BCL’s inability to provide the new retail space at No. 33 has caused W & G loss. He contends that W & G has been deprived of approximately $150,000 in revenue that it would have received if BCL had not defaulted under the Agreement to Lease, that figure being an estimate covering the first 12 months of trading at No. 33. He says the revenue figures would have been higher in subsequent years. He calculates the lost profits at $62,500 for the period of approximately five months from June 2014 (the date W & G says it should have been operating at No. 33) to November 2014 (the expiry of the term of W & G’s lease of the premises), and contends that W & G has a valid counterclaim against BCL for that lost revenue. W & G also claims for the cost of the stock purchased which would not otherwise have been purchased. Its claims significantly exceed the amount demanded by BCL in the statutory demand.
[32] In response, Mr Charles says that W & G has been aware since February
2014 that BCL was unsuccessful in its attempt to acquire No. 33, but has failed to make any claim for its alleged losses since that time.
Applications to set aside statutory demands – Legal principles
[33] Section 290(4) of the Companies Act provides as follows:
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.
[34] The principles applicable to such applications are well established: 1
(a) W & G must show there is arguably a genuine and substantial dispute as to the existence of the debt. The task for the Court is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.
(b)The mere assertion that a dispute exists is not sufficient. Material, short of proof, is required to support the claim that the debt is disputed.
(c) If such material is available, the dispute should normally be resolved other than by means of proceedings in the Companies Court.
(d)An applicant must establish that any counterclaim or cross-demand is reasonably arguable in all the circumstances. The obligation is not to
prove the actual claim…
1 Brookers Companies and Securities Law, (looseleaf ed. Thomson Reuters) [CA 290.02(1)], referred to in Greys Avenue Investments Ltd v Harbour Construction Ltd, HC Auckland CIV-
2009-404-002026, 12 June 2009 at [8].
(e) It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.
[35] However, a conflict in the evidence on its own, does not necessarily mean that a setting aside application cannot succeed. A court is not required to accept uncritically any or every disputed fact.2
Issues
[36] The following issues fall for consideration:
(1)Does the fact that BCL knew about the Valor/W & G rent reduction agreement when BCL took over the premises mean that BCL was bound by that agreement?
(2) Is it reasonably arguable for W & G that the November 2013
Agreement to Lease constituted a binding agreement with BCL under which (if BCL did not acquire No. 33) W & G would lease the premises for the remainder of the term of the original lease at the rate of $48,000 plus GST per annum?
(3) Did BCL agree to accept rent and outgoings at the rate of $48,000 per annum plus GST only until it was able to hand over larger premises (either No. 33 if it was able to secure it, or by extending the premises at the back of the property)?
(4) If the answer to Issue (3) is “yes”, did W&G’s refusal to cooperate with BCL’s plans to extend the premises result in the reinstatement of W & G’s obligation to pay the rates stated in the original deed of lease?
(5) Do W & G’s counterclaims provide a basis for setting aside the statutory demand?
2 Eng Mee Yong v Letchuman [1980] AC 331 at 341, applied in the context of a setting aside application in Freemont Design & Construction Ltd v W Stevenson & Sons Ltd, HC Auckland CIV-2005-404-4807, 20 April 2006 at [8].
Issue 1
Does the fact that BCL knew about the Valor/W & G rent reduction agreement when
BCL took over the premises mean that BCL was bound by that agreement?
[37] In the end, I have come to the view that the statutory notice should be set aside on grounds other than the promissory estoppel claim which is at the heart of this issue. However, the parties directed a substantial part of their argument to this issue so I will briefly set out my view on it.
[38] Mr Mason submits that the February 2012 agreement between W & G and Valor for the reduction in rent and outgoings did not constitute a valid variation of the lease. Under s 25 of the Property Law Act 2007, any lease other than a short-term lease as defined in s 207 of that Act must be in writing, and an oral variation to a contract which is required to be in writing is unenforceable.3 The lease in this case was not a “short term lease”, as the term exceeded the one year period prescribed in the definition of “short-term lease” in s 207 of the Property Law Act
2007.
[39] No doubt with those considerations in mind, Mr Sheppard did not put his argument on the basis of a variation of the lease. Instead, he argued that Valor’s representation to W & G that it would accept rent and outgoings at the reduced rates, and W & G’s reliance on that representation, created an estoppel, under which Valor would have been prevented from going back on the agreement to accept rent and outgoings at the reduced rates had it attempted to do so. Mr Sheppard referred to the Court of Appeal decision in Burbery Mortgage Finance & Savings Ltd v Hindsbank Holdings Ltd, where the Court stated that the principle of promissory estoppel applies when one party has, by words or conduct, made to the other a clear and unequivocal promise or assurance intended to affect the relations between them and to be acted on accordingly. Once the other party has taken the promissor or assurer at his or her word and has acted on it, the promissor or assurer is bound by that
promise or assurance.4
3 Morris v Baron [1918] AC 1; Watson v Healy Lands Ltd [1965] NZLR 511.
4 Burbery Mortgage Finance & Savings Ltd v Hindsbank Holdings Ltd [1989] 1 NZLR 356 (CA)
at 361.
[40] Mr Mason referred to the “broad rationale of estoppel”, being to prevent a party from going back on his word (whether express or implied) when it would be unconscionable to do so.5
[41] The authors of Equity and Trusts in New Zealand say:6
Although the modern approach is “to depart from strict criteria and to direct attention to overall unconscionable behaviour” it is nevertheless clear that the party alleging estoppel must show that:
(a) a belief or expectation has been created or encouraged through some action, representation or omission to act by the party against whom the estoppel is alleged; and
(b) the belief or expectation has been reasonably relied upon by the party alleging the estoppel; and
(c) detriment will be suffered if the belief or expectation is departed from; and
(d) it would be unconscionable for the party against whom the estoppel is alleged to depart from the belief or expectation.
[42] I am content to adopt the formulation set out in Equity and Trusts in
New Zealand.
[43] In this case, the “detriment” relied upon by W & G is said to be twofold:
(a) if it had known that the landlord could revert to the original rent and outgoings figure of $72,000 plus GST, W & G could have looked to sublease the premises to cover the higher rent;
(b) alternatively, W & G would have simply abandoned the tenancy
(neither Mr Murrie nor his wife had personally guaranteed the lease).
[44] I doubt that the evidence produced by W & G is sufficient to show the necessary “detriment” to support the estoppel argument. The evidence suggests that, when the rent reduction agreement was made in February 2012, the downturn in the
local market for commercial property was significant, and there is no evidence to
5 Citing National Westminster Finance NZ Ltd v National Bank [1996] 1 NZLR 548 (CA).
6 Jeff Kenny and others Equity and Trusts in New Zealand (2nd ed, Brookers, Wellington, 2009) at
613.
support the suggestion that W & G could have found a sub-lessee who was willing to pay the higher rental. It cannot be a “detriment” to forgo something one could not have obtained anyway. Nor does the suggestion that W & G could have simply walked away from its lease amount to a detriment, because if Valor had insisted on reverting to the higher rent and outgoings figures there would presumably have been nothing to stop W & G walking away from the lease then.
[45] There are other difficulties with the promissory estoppel argument mounted by Mr Sheppard, not least that the promise relied upon was not made by BCL. I accept Mr Mason’s submission that, to be binding on the conscience of BCL, the relevant representation would have to have been made by BCL, or at least adopted by it.
[46] Mr Sheppard endeavoured to get around that particular difficulty by relying on the so-called “doctrine of notice”. Under this doctrine, an equitable interest (such as W & G’s lease) can be enforced against a bona fide purchaser for value of a legal estate in land if that purchaser has notice of the equitable interest.7 Mr Sheppard relied on the decision of Potter J in Mercury Geotherm Ltd v McLachlan.8
[47] The problem with this submission is that the doctrine of notice applies only between competing holders of unregistered equitable interests in a property. Once one of those parties has become registered as proprietor of the relevant land, the registration prevails over the competing unregistered equitable interest, at least in the absence of fraud. The registered proprietor is entitled (subject to the possibility of any claim being made against him or her in personam) to rely on his or her
indefeasible title under the Land Transfer Act 1952.9
7 Hinde McMorland and Sim, Land Law in New Zealand (online looseleaf ed, LexisNexis) at
[4.023].
8 Mercury Geotherm Ltd v McLachlan [2006] 1 NZLR 258 (HC).
9 Mercury Geotherm Ltd v McLachlan above n 8, referring to s 182 of the Land Transfer Act
1952.
[48] That result follows from s 182 of the Land Transfer Act 1952, which provides:
182 Purchaser from registered proprietor not affected by notice
Except in the case of fraud, no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner concerned to inquire into or ascertain the circumstances in or the consideration for which that registered owner or any previous registered owner of the estate or interest in question is or was registered, or to see to the application of the purchase money or of any part thereof, or shall be affected by notice, direct or constructive, of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding, and the knowledge that any such trust or unregistered interest is in existence shall not of itself be imputed as fraud.
[49] Potter J noted in Mercury Geotherm that New Zealand Courts have consistently held that the protection of s 182 cannot be claimed until registration (a relevant matter in the case before her, where the competing claims were between the holders of unregistered interests in the relevant land).10
[50] In my view, W & G’s reliance on Mercury Geotherm is misplaced. The case is distinguishable on the basis that in this case, BCL had become the registered proprietor of the land, and was entitled to rely on s 182 of the Land Transfer Act
1952. Under that section, it was not affected by notice, direct or constructive, of any unregistered interest in the land, “any rule of law or equity to the contrary notwithstanding”. Knowledge that any unregistered interest was in existence was not of itself to be imputed as fraud.
[51] Mr Sheppard referred to a number of United Kingdom authorities in support of his argument that BCL was bound by the representations made by Valor. These included Taylor v Needham11 and Hopgood v Brown.12 However, it is not clear that these English cases are good authority in New Zealand. I note that in Femme Enterprises Ltd and Timperley v Lion Corporation Ltd and Custodian Enterprises
No 65 Ltd, Henry J said:13
10 At [123].
11 Taylor v Needham (1810) 2 Taunt 278.
12 Hopgood v Brown [1955] 1 WLR 213.
13 Femme Enterprises Ltd and Timperley v Lion Corporation Ltd and Custodian Enterprises No 65
Ltd, HC Auckland CP1970-87, 18 December 1987 at 8-9.
The plaintiffs are under a further and I think significant difficulty. None of the representations relied upon were made by or on behalf of Kingston [the transferee of Lion Corporation’s interest as head lessor of the relevant land]. They were made by Lion and by Lion alone. In general, a representation binds only the representor. Mr Finnigan relied on some authorities [including Taylor v Needham and Hopgood v Brown] which lend some support for his submission. But whether the principle there enunciated would operate to bind a bona fide assignee for value is clearly a matter of some uncertainty.
[52] Mr Mason advanced other arguments in opposition to the promissory estoppel claim, including arguments based on s 105 of the Land Transfer Act (which relates to purchasers acquiring land from a mortgagee acting in the exercise of its power of sale). In the view to which I have come on Issue 1, it is not necessary for me to consider those arguments. Considering all the circumstances, I conclude that BCL’s knowledge of the rent reduction agreed between Valor and W & G could not, without more, be enough to create any estoppel binding on BCL as purchaser of the land.
Issues 2 and 3
(2) Is it reasonably arguable for W & G that the November 2013 Agreement to Lease constituted a binding agreement with BCL under which (if BCL did not acquire No. 33) W & G would lease the premises for the remainder of the term of the original lease at the rate of $48,000 plus GST per annum?
(3) Did BCL agree to accept rent and outgoings at the rate of $48,000 per annum plus GST only until it was able to hand over larger premises (either No. 33 if it was able to secure it, or by extending the premises at the back of the property)?
[53] It will be convenient to consider these issues both together.
[54] It is perhaps a quirk of this case that both parties say that, for the greater part of the period covered by the statutory demand, W & G was entitled to occupy the premises on the basis of the reduced rate for rent and outgoings. W&G says that is because BCL was bound by Valor’s representation that rent and outgoings could be paid at the reduced rate through to the end of the lease. For BCL, Mr Mason submits that it was agreed that “in order to retain [W & G] as tenant in future [BCL] agreed that the rent would be $48,000 per annum plus GST until the handover of the larger premises with there being two options for the provision of larger premises: [W & G]
moving to No. 33 if BCL was able to require it, or the premises being expanded at the rear of the premises if BCL could not get No. 33.” BCL says that its agreement to accept $48,000 per annum plus GST was conditional on W & G cooperating with BCL in terms of renovation works to be undertaken to increase the size of the premises, and that W & G failed to do so.
[55] It is common ground that W & G did not cooperate with BCL’s proposals to extend the premises after BCL’s agreement to purchase No. 33 had been cancelled – it says that it was not obliged to cooperate, as there was no agreement reached for the extension of the premises in the event that BCL could not secure No. 33.
[56] The Agreement to Lease signed by W & G and BCL on 7 November 2013 does not specifically say anything about the rent and outgoings W & G would have to pay for the premises in the period before the development work could be completed and No. 33 would be ready for handover, and nor does it expressly mention the alternative of extending the premises at the rear of the property if BCL was unable to secure No. 33. The closest the November 2013 Agreement to Lease came to addressing those topics was in special condition (4), which provided:
(4) Landlord Purchase
This contract remains conditional upon the Landlord securing freehold title of the premises on or before 12 December. In the event the Landlord is unsuccessful then the abovementioned terms and conditions shall revert to the Tenant’s existing “
premisesLEASE” at 39–41 Broadway Avenue, Palmerston North.
[57] There may be some room for argument that BCL, having advised W & G orally in December 2013 and in writing in early February 2013 that it had secured No. 33, breached the Agreement to Lease when it subsequently failed to provide new retail space at No. 33. The argument was made in Mr Murrie’s affidavit, but it was not pressed strongly by Mr Sheppard in his submissions. Mr Mason submitted that the simple fact was that special condition (4) was not fulfilled, and whatever BCL may have said to the contrary cannot change that fact. In the circumstances, I will proceed on the basis that the condition at special condition (4) of the November 2013
Agreement to Lease did fail. The critical question then is what was meant by the
second sentence of the special condition, providing that “the abovementioned terms and conditions shall revert to the Tenant’s existing lease at [the premises].”
[58] In correspondence shortly after it became known that BCL had not acquired No. 33, BCL clearly took the position that, on its true construction, special condition (4) required that all of the provisions of the Agreement to Lease would apply to the premises in the event that BCL did not secure No. 33. In other words, W & G would commit to a new lease of the premises, with an eight year term commencing on 1 June 2014 (or on the date of practical completion of fitout of the (extended) premises), and at the rent and on the other terms set out in the Agreement
to Lease.14
[59] That construction may have been correct if the word “premises” in special condition (4) had not been crossed out and replaced by the word “LEASE”. I think some meaning has to be given to that change, and it seems to me to be at very least arguable for W & G that when the parties said “the above mentioned terms and conditions” would “revert to the Tenant’s existing LEASE”, they meant that the “above mentioned terms and conditions (which were applicable to No. 33) would be replaced by the “existing lease”.
[60] If that is right, the next question is what did W & G and BCL mean when they referred to the “existing lease”?
[61] They might have been referring to the 2009 deed of lease (as BCL now contends) or they might have been referring to the lease terms on which W & G was occupying the premises as at the date of the Agreement to Lease. Bearing in mind that W & G had paid rent at the reduced rate only six days before the Agreement to Lease was signed, the rent and outgoings payable in the latter situation may have been payable at the reduced rates.
[62] While the correct rate will clearly be ascertainable once the special condition has been interpreted (and there is therefore a sufficient writing for the purposes of
14 See for example, Mr Mason’s letter to W & G dated 21 March 2014: “Accordingly the terms and conditions of the agreement to lease … signed 7 November 2013 in respect of [No. 33] apply to [the premises] with a term running to 1 June 2022.”
s 25 of the Property Law Act), the wording of Special Condition (4) is in my view ambiguous. In those circumstances, evidence of the wider context may point to the correct answer, or at least assist in determining the meaning the parties must be taken to have intended.15 The issue is not in my view suitable for resolution on an application to set aside a statutory demand.
[63] In those circumstances, it is unnecessary to consider issues (4) and (5), beyond noting that, if the arrangement had been as Mr Charles contended, I doubt that the answer on issue (4) would have been favourable to BCL. On the ordinary contract measure of loss, BCL would have had an unliquidated claim for damages for breach of contract by W & G, and a claim of that sort would not have qualified as a “debt” for the purpose of the statutory demand procedure.
[64] For the foregoing reasons, I am of the view that W & G has raised a genuine and substantial dispute as to whether the debt claimed in the statutory demand is owing. The application therefore succeeds, and I make an order setting aside the statutory demand issued by BCL on 1 July 2014.
[65] W & G is allowed costs on a 2B basis, and disbursements as fixed by the registrar.
Associate Judge Smith
Solicitors:
Fitzherbert Rowe, Palmerston North for Applicant
Powell Lyall Lawyers, Palmerston North for Respondent
15 As acknowledged by the Supreme Court in the recent decision of Firm PI 1 Ltd v Zurich
Australian Insurance Ltd and Another [2014] NZSC 147, at [63].
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