Weine v Capital and Coast District Health Board

[2012] NZHC 3617

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2012-485-1405 [2012] NZHC 3617

BETWEEN  RUTH RENTON WEINE Plaintiff

ANDCAPITAL AND COAST DISTRICT HEALTH BOARD

Defendant

Hearing:         28-29 November 2012

Appearances: R C Laurenson for Plaintiff

TGH Smith for Defendant

Judgment:      21 December 2012

In accordance with r 11.5 I direct that the delivery time of this judgment is 3.30pm on the 21st day of December 2012.

RESERVED JUDGMENT OF MACKENZIE J

Table of Contents

Introduction  [1] The lease  [3] The relevant documentary exchanges  [7] The oral evidence at trial  [23] My findings on the evidence  [30] The legal effect of that agreement  [36] Part performance  [42] Remedy  [58]

Result  [64]

WEINE V CAPITAL AND COAST DISTRICT HEALTH BOARD HC WN CIV-2012-485-1405 [21 December

2012]

Introduction

[1]      The   plaintiff,   Mrs Weine,   is   the   owner   of   an   office   building   at

6 Hagley Street, Porirua.   She leased part of the first floor, an area of 260 square metres, to the defendant Capital and Coast District Health Board (CCDHB) for a term of three years from 1 February 2008, with two rights of renewal of three years each.      CCDHB  did   not   give  notice  exercising  its   right   of  renewal   from

1 February 2011 but it remained in occupation of the premises.  Mrs Weine claims that at a meeting between her and the property manager of CCDHB, Ms Gough, on
21 November 2011, the parties agreed to renew the lease.  CCDHB denies that it did so and says that at all times after 1 February 2011 its status was that of a monthly tenant holding over after expiry of the lease.

[2]      The contract which the plaintiff alleges was entered into was oral.  It is not enforceable by action if s 24 of the Property Law Act 2007 applies.  Section 24 does not affect the operation of the law in relation to part performance, so the contract will be enforceable if that doctrine applies.

The lease

[3]      The lease was on the Auckland District Law Society Deed of Lease form (5th edition 2008).  It was dated 10 October 2008 and provided for a commencement date of 1 February 2008.  Renewal was provided for in cl 33.1 which provided as follows:

IF the Tenant has given to the Landlord written notice to renew the lease at least 3 calendar months before the end of the term and is not at the date of the giving of such notice in breach of this lease (including any maintenance obligations) then the landlord will grant a new lease for a further term from the renewal date as follows:

(a)       If the renewal date is a rent review date the annual rent shall be agreed upon or failing agreement shall be determined in accordance with clauses 2.1 and 2.2 but such annual rent shall not be less than the rent payable as at the commencement date of the immediately preceding lease term;

(b)       Subject to the provisions of paragraph (a) the new lease shall be upon and subject to the covenants and agreements herein expressed and implied except that the term of this lease plus all further terms shall expire on or before the final expiry date;

(c)       The annual rent shall be subject to review during the term of the new lease on the rent review dates or if no dates are specified then after the lapse of the equivalent periods of time as are provided herein for rent reviews;

(d)       The Landlord as a condition of granting a new lease shall be entitled to have the new lease guaranteed by any guarantor who has guaranteed this lease on behalf of the Tenant who has given notice;

(e)       Pending  the  determination  of  the  rent,  the  Tenant  shall  pay  an interim rent in accordance with clauses 2.3 and 2.4;  and

(f)       Notwithstanding anything contained in clause 33.1(e) the interim rent referred to in that clause shall not be less than the annual rent payable as at the commencement date of the immediately preceding lease term.

[4]      Rent  was  reviewable  every  two  years.     The  rent  review  dates  were

31 January 2010, 2012, 2014 and 2016.   The reviews were provided for in cl 2.1 which (as amended by the Fourth Schedule) provided:

2.1THE annual rent payable as from each rent review date shall be determined as follows:

(a)       Either party may not earlier than 3 months prior to a rent review date and not later than the next rent review date give written notice to the other party specifying the annual rent proposed as the current market rent as at the relevant rent review date.

(b)       If  the  party  receiving  the  notice  (“the  Recipient”)  gives written notice to the party giving the notice (“the Initiator”) within 20 working days after service of the Initiator’s notice disputing the annual rent proposed and specifying the annual rent proposed by the Recipient as the current market rent, then the new rent shall be determined in accordance with clause 2.2.

(c)       If the Recipient fails to give such notice (time being of the essence) the Recipient shall be deemed to have accepted the annual  rent  specified  in  the  Initiator’s  notice  and  the extension of time for commencing arbitration proceedings contained in the Arbitration Act 1996 shall not apply.

(d)       [Notwithstanding  any  other  provision  in  this  lease,  the annual rent payable as from the relevant rent review date shall be not less than the rental payable for the preceding rental period increased by the same percentage increase as the increase in the Consumer Price Index for the corresponding rental period.]

(e)       The annual rent agreed, determined or imposed pursuant to this  clause  shall  be  the  annual  rent  payable  as  from  the

relevant rent review date, or the date of service of the Initiator’s notice if such notice is served later than 3 months after the relevant rent review date but subject to clause 2.3 and 2.4.

(f)      The rent review at the option of either party may be recorded in a Deed.

[5]      The  initial  rent  was  $30,000  per  annum  or  $2,500  per  month.    From

1 February 2010 that was increased to $31,650 per annum ($2,637.50 per month), in line  with  the  CPI  index  increase,  under  cl 2.1(d).     From  1 November 2010, Mrs Weine leased to CCDHB a tandem car park at the property on a monthly basis.

[6]      Under cl 33 of the lease, written notice to renew the lease was required by

31 October 2010.   That date, and the expiry date of the initial term of the lease,

31 January 2011, came and went with no action by either party.  CCDHB remained in possession and continued to pay rent at $2,637.50 per month, plus the rent for the car park.

The relevant documentary exchanges

[7]      Ms Gough joined CCDHB as its property manager in September 2010.  She initiated  contact  with  Mrs Weine  over  the  lease  in  an  email  sent  on  Friday,

21 October 2011 where she said:

I  have  been  reviewing  the  tenancy  file  for  Mental  Health  in  level  1,

6 Hagley St and note there are a few items that I would like to have tidied up, in brief:

The outstanding lease renewal due as at the 1 February 2011

Recoverable outgoings invoice 986277 – payment not yet authorised

Finalise    documentation   pertaining   to    the   lease   of   carparking commencing in January 2011

I would appreciate the opportunity to meet with you to discuss the above and to endeavour to formalise a further term of lease.

With regards to the last outgoings invoice I understand there has been some query already from Mental Health in relation to the detail and would appreciate it if you would provide me with “reasonable details of the actual outgoings” charged in this last invoice of 986277 as per the lease provisions; upon satisfaction of which I will approve the invoices for payment.  It may

also be timely to  discuss expectations for details relating to recoverable outgoing  invoices,  so  that  we  may  avoid  delay  in  payment  for  future invoices.

Unfortunately I am away on leave for next week (24 – 28 October) but would welcome the opportunity to meet and discuss with you at your earliest convenience in the week commencing 31st October.

I look forward to hearing from you.

[8]      Following some email exchanges as to the time and place for the meeting, they fixed on a meeting time of 2pm on Monday, 21 November 2011, at Peppercorns Café in Porirua.  Ms Gough sent an email on Friday, 18 November to confirm the meeting in these terms:

I will see you at Peppercorns, 2pm Monday (I will bring lease files with me) What I would like to discuss with you is the current lease arrangement for

the premises and carparks – I understand some were leased at the beginning of the year but the paperwork not done.

With regards to outgoings, I would like a better understanding of your formula for calculating Mental Health’s share and whether there may be a better way of organising information and payment

[9]      The meeting took place as arranged.  I heard evidence from both Mrs Weine and Ms Gough as to what was discussed at that meeting.  I deal with their evidence later.

[10]     Following  the  meeting,  Mrs Weine  wrote  to  Ms Gough  a  letter  dated

21 November which read:

Further to our meeting today I wish to confirm the following.

I am attaching invoices relating to repairs as charged on invoice 986277.  I understand this will then clear the way for you to arrange payment of this invoice.  Perhaps you could confirm when you would expect this payment to come through and also with regard to future invoices also to advise if you wish them to continue to be addressed to Te Korowai Whariki or to another name.

With reference to the lease for which the documentation for a renewal was not   completed   in   February   2011   I   confirm   the   following:-   This documentation will be deferred until late January 2011 by which time the renewal  documentation  can  also  incorporate  the  1st   February  2012  rent review, the renewal, and incorporate the tandem car park which is being rented currently on a monthly basis into the lease.   I also confirm I will

request a rent increase relating to the CPI indexed TO December 2010 and

December 2011 only as agreed.

I will send you a GST invoice next month for a separate automatic payment to cover the period 1st  January 2012 to 1st  June 2012 to cover estimated payments of all incidental outgoings (i.e. common area cleaning, common area  power,  water  rates, fire  alarm monitoring,  fire alarm servicing and repairs).   This payment will be estimate to cover payment for the period

1 July 2011 to 30 June 2012 except for power which is related to the dates of power accounts.   I would then account for the exact amount during July/August 2012 and either send you a refund or an invoice for any extra amount that may be owing.

As from 1st July 2012 I will do an estimated invoice to cover a monthly payment for all outgoings for the 2012/2013 rating year.   (All outgoings, being the items set out above plus rates and insurance.)   This once again would be accounted for after the end of the financial year.  Although this is not my preferred way of invoicing I am happy to do it this way to assist you in your budgeting.

Would you please confirm to me in writing that the above mentioned items cover your understanding of our meeting.

I confirm I went and inspected the ceiling of the 1st  floor ladies toilets and will  arrange  for  it  to  be  repainted.    I also  confirm I have  checked  my plumbers account for the repair which comes to $185 which means even the cost of repainting it is not something I would look at submitting an insurance claim for.

[11]     Ms Gough did not respond to that letter.  On 14 December 2011, she sent an internal memo to Mr Mishra, the management accountant for the Mental Health Directorate of CCDHB which read:

Following on from the operating expense charges from Weine Properties –

invoice 986277.

I  would  recommend  payment  be  made  for  the  remaining  $1,774.65  as

CCDHB’s share of building outgoings.

However from this point on we will be implementing a required format of outgoings identification, with a view of paying a monthly estimated amount and then annual wash-up.

Please confirm your acceptance and advise as to when payment should be able to be processed.

[12]     Mrs Weine wrote to Ms Gough on 3 February 2012.  She said:

You will recall when we met last year we discussed the facts that the renewal which came due 1 February 2012 [sic] had not been documented and the car parks you were renting had not been formally added to your lease.   I suggested that this documentation was left until the next rent review on 1st

February this year.   I have just received the updated CPI figures for the period to 31 December 2011 so now set out the rental for the next 2 years.

I have calculated this figure by combining the rental and car park rental amounts and adjusting them by the increase in the CPI only.  On this basis the new rental as from 1st February 2011 would become $36300 per year plus GST being $3025 per month plus GST.

I will request my solicitor to prepare a document, documenting the rent review, renewal of lease and inclusion of a tandem car park in the lease. Could you please confirm if this document should be sent to you or to another department or a solicitor?

As I am not requesting a larger increase than the CPI index I attach a tax invoice to cover the new rental amount.

[13]     On  8 February 2012  Ms Gough  prepared  for  Mr Watson,  the  executive director for the Clinical and Corporate Services Directorate of CCDHB, an action required brief described as “external lease arrangements 2012 – overview/ strategy”. That contained recommendations for approval or decline by Mr Watson concerning a number of properties leased by CCDHB, including the 6 Hagley Street property. That property’s situation was described in these terms:

Lease  renewal  was  due  1  February  2011  and  rent  review  is  due

1 February  2012.    CCDHB  did  not  exercise  this  right  of  renewal;

therefore the lease has defaulted to a month to month basis.  When the landlord advises the new rental rate, we will be forced to enter into a

new term.  CCDHB are currently paying an effective gross rental rate of

$157.41 per square metre.

Property  recommends  securing  current  arrangements  for  a  further

12 month term. A rental increase of up to 3% is considered acceptable.

[14]     There was then a place provided for Mr Watson to approve or decline and initial.  That section is not completed.  Instead there is an undated handwritten note reading as follows.   “As per last conversation, we are going to try and exit this property rather than resign.  The above is a Plan B”.  I discuss this aspect in more detail later.

[15]     Ms Gough replied to Mrs Weine’s letter of 3 February on 22 February.  She said:

Thank you for your letter dated the 3 February 2012, proposing a rental increase in accordance with CPI figures and invoice 770542 for “rental”.

Upon reviewing your figures I am unable to account for your methodology in the proposed increase.  The rental rate C&C DHB are currently paying is

$30,000.00PA   ($2,500.00   per   month)   and   your   proposed   rental   is

$36,300.00PA  ($3,025.00  per  month)  based  on  the  invoice  provided  it appears that there is an effective rent increase of 21%.

I trust that the intent is to vary the lease document to include the rental of car parks  that  have  been  utilised  since  January  2011;    however  I  would appreciate clarification in your methodology to ensure we are of the same understanding.

In considering a variation of lease, I would like to suggest the following:

Outgoings:  It may be timely to review the current lease situation as I note that property outgoings are charged at 25.5%, which includes items such as Rates.   In reference to Part 1, Schedule 1 of the Local Government (Rating) Act 2002;  the portion of your property which is utilised for C&C DHB purposes appears to be non-rateable and therefore the charge not appropriate.

Moving forward a comprehensive breakdown of outgoings would be useful to ensure smooth payment transactions.  We would be happy to receive a yearly estimated outgoings schedule and provide monthly estimate payments with an actual outgoings wash-up annually to address any over payment or shortfall.

Carparks:  In Porirua C&C DHB currently pay market rate of between

$24 - $30 + GST per park per week, it is our expectation that the costs should be similar in carparks being leased from Weine properties;  as it

appears that we may be already paying a premium rate an increase may

not be necessary.

Clarification of details of carparks and a plan would be greatly appreciated.

Term:  It has been confirmed that for the years of 2012 we are unable to enter into lease terms of greater than twelve (12) months, whilst an audit of external lease arrangements is being undertaken;  therefore I am not in a position to accept a current term beyond 2013 at this time.

I understand that the automatic payment arrangements ceased at the end of January and you are pending rent payments for February and March.  As an interim measure, with your consent, if you would generate invoices for these months at the previous rental rate I am able to arrange immediate payment on that basis and address the differential when new figures are finalised.

I look forward to receiving your advice regarding the above.

[16]     Mrs Weine replied to that letter by an email on 22 February as follows:

…  I am working away from my office at the moment and am unable to print or access more than one screen at once but yes I added the current cost of the car parks onto the current rental and then calculated the new rental based on the CPI increases.  Prior to this you were paying $220 per month plus GST

for what is either a tandem two or more likely 3 car park so I do not consider this unreasonable as if three cars use this space this is only just over $70 per month  per  car.    Regarding  outgoings  as  rates  and  insurance  have  been charged until June I would wish to charge other outgoings until 30 June also by the current method I would then be happy to look at changing for you.  I will endeavour to  recheck my calculations  but it is my recollection  the amount I requested was the exact CPI index increase for the previous 2 years.

[17]     She followed that up with a letter later that day which said:

With reference to your letter you have clearly overlooked the fact your rental was reviewed in 2010 under the terms of the lease.  Yes I have added the carpark figure to the rental figure to calculate the new rental.

I find it far easier to charge the exact amount of outgoings. This means that I am charging the rates and insurance at the time these amounts are invoiced with the new annual amounts which is around September of each year.  All other  outgoings  I invoice in arrears usually 6  monthly.   These amounts include water rates, cleaning, common area power, fire alarm inspections and monitoring and repairs and maintenance.  However I have recently sent you an invoice for outgoings these have broken the normal pattern in that they are not for an exact 6 months the reason for this is one of the other tenancies in the building was changing ownership on a certain date and I was trying to give them an invoice to cover outgoings as near as possible to that date. It therefore made sense to charge all the tenancies to the same date.

As I said in my earlier email the car park is sufficient for most likely three cars in which case I am only charging $73.33 per month prior to adjustment which is well under the market rate according to your calculations.  The car park is a long one in which 3 cars can be parked nose to tail hence the lower charge.

Your lease clearly shows the renewal as going to 31st January 2014 and does not have any cause to cover variations on this date.

As I nave stated above was indirect line with the CPI increases for the previous 2 years, which were 4% and 1.9% (Rounded up or down to the nearest $100) so I am not sure what else there is to do to finalize the figures.

[18]     Ms Gough sent an email response on 24 February.  She said:

Thank you for both your emails.

I have re-checked the file and do not appear to have any correspondence pertaining to rent reviews.

I would be grateful if you would send me through a copy of the relevant correspondence (a copy of the deed fixing rent would be great) so that I may re-check my calculations.

[19]     There was internal correspondence within CCDHB, over the timing of giving notice to terminate on the basis that there was a monthly tenancy.  Of significance in that  internal  correspondence  is  an  email  to  Ms Gough  from  her  line  manager, Mr Makhija, on 12 March which read:

You are looking forward to giving notice to Ruth, isn’t it??!!

[20]     On 13 March Ms Gough sent an email and letter to Mrs Weine.  The email said:

Please find attached a copy of the letter as in today’s mail.

I understand that the outcome may not be as expected, however please be assured  no  decisions  with  regards  to  lease  arrangements  have  been undertaken lightly.

If you have any questions, please feel free to give me a ring or if you prefer I

am happy to meet and discuss with you.

[21]     The letter read:

Thank you for your email correspondence and letter dated the 22nd February

2012.

As mentioned in my letter of the 22nd  February 2012;  an audit of external lease arrangements is currently being undertaken.

In reviewing the arrangement between Capital and Coast District Health Board (C&C DHB) and Weine Properties it has been determined that there is no longer the requirement for the tenancy at part level 1, 6 Hagley St, Porirua.

As provided for in the Deed of Lease there is provision for a Rent Review as at 31 January 2012, thus obliging attendance to the lease renewal term which was due 1 February 2011 and has not been formally exercised.

Subsequently please  accept  this  letter as  formal  written  notification  that C&C DHB in accordance with Clause 347.1 Holding Over now provides terminable notice of 20 Working days from the date of this letter.

For purposes of clarification, this notice extends to include the arrangement of the use of the tandem car park which has not yet been formalised.

I appreciate that this notice period may not be in the benefit of either party and in good faith respectfully request on a without prejudice basis that you consider a notice period instead of 58 working days so that the final date of occupation is 31 May 2012.

If possible I would appreciate your acceptance to the extension of notice period prior to the end of this week, so that we may arrange vacation accordingly.

I would  be  grateful  if  you  would provide  me  with an invoice for  final account for the rental of the premise from 1 February 2012 to the date of expiration.

[22]     Mrs Weine replied to that letter by an email on 14 March.  She said:

I consider all discussions, correspondence and emails we have had since last

October/November constitutes an understanding that the lease was renewed.

You will recall from our meeting that the only reason a renewal document was not prepared at the time of our meeting in late November was because I suggested  it  be  incorporated  with  the  rent  review  which  was  due  on

1 February to save paperwork documentation and costs.

You  will  also  recall  I  wrote  to  you  on  21 November  confirming  the discussions that took place and outcome of our meeting.   My reason for doing this was so they were set down on record.  I invited you to correct me if my understanding was wrong.  You did not respond to this letter or advise me I was incorrect.  Capital and Coast’s conduct to date have indicated their intent to continue for the remaining balance of the three year term.

I have an email from an external party of less than 3 weeks ago regarding upgrading of the premises for Capital and Coast.

I am placing this matter in the hands of my solicitor for his opinion. Meanwhile I would appreciate your attending to outstanding payments for

February and March Rental.

The oral evidence at trial

[23]     With that background, I come to the evidence of Mrs Weine and Ms Gough as to what occurred at the meeting on 21 November 2011.

[24]     Mrs Weine  swore  an  affidavit  in  support  of  an  application  for  summary judgment.  That application was not pursued but the affidavit was treated as the brief of her evidence in chief at trial.   It was supplemented by a brief responding to Ms Gough’s affidavit.

[25]     Mrs Weine’s evidence was that at the meeting on 21 November it was agreed between her and Ms Gough that:

(a)      CCDHB occupation of the premises was a renewal of the existing lease  and  in  terms  of  the existing lease,  from  1 February 2011  to

31 January 2014;

(b)a  rental  review  was  to  occur  effective  from  1 February 2012  and therefore the documentation for the renewed lease would be combined with the documentation of the rental review;

(c)      the lease by the defendant of the tandem car park in the same property would be incorporated in the documentation of the renewed lease; and

(d)she would limit the rent review effective from 1 February 2012 to the consumer price index increases for the years to December 2010 and December 2011 on the rental then currently payable.

[26]     She says that they also agreed at the meeting the way outgoings payable under the lease would be invoiced to and paid for by CCDHB in the future.  They discussed  at  some  length  her  calculation  of  outgoings  already  invoiced  since

1 February 2011.  She showed Ms Gough copies of source accounts which she had brought to the meeting.

[27]     Under cross-examination, Mrs Weine said that it was Ms Gough who initiated the discussion on renewal by saying words to the effect of we need to formalise the documentation of the renewal and include the car park (or:  add the car park to the documentation).  She said that Ms Gough never gave her an indication at all that she was not in a position to confirm that the lease would be renewed.    Ms Gough introduced herself as the property manager.  It was put to Mrs Weine that Ms Gough had raised with her the fact that CCDHB had a substantial deficit in its previous financial year and that, in the context of a commercial negotiation, the reason for Ms Gough raising that was to make the point that CCDHB might not be prepared to renew.  Mrs Weine did not accept that, and said that nothing like that was indicated to  her  at  all.    She  said  that  the  context  of the  CCDHB’s  indebtedness  had  no commercial context in that meeting and was discussed almost as banter as they stood

up to go.  Mrs Weine was firm in her evidence that it was clearly agreed between them  that  a  renewal  was  taking  place  and  that  she  would  not  have  suggested deferring the lease documentation to complete it in February with the new rental if that had not been accepted.

[28]     Ms Gough  affirmed  an  affidavit  in  opposition  to  the  summary  judgment application and that affidavit, together with a supplementary brief, formed her evidence in chief at trial.   Of the 21 November meeting, she said that Mrs Weine appeared to assume that CCDHB would inevitably want to renew the lease on the terms that she proposed and that she outlined her expectations upon which she thought the lease should be renewed.   Ms Gough used the occasion to introduce herself as the new CCDHB property manager and to gauge the existing relationship with Mrs Weine.  She particularly wanted to do that because she had concerns that CCDHB was not getting a good deal out of the previous arrangements because of a concern that the lease had not been managed as tightly as it should have been.  She said:

26.Despite Ms Weine making clear that she expected the Lease to be renewed, I emphasised to her that I was undertaking a review of external tenancies to determine which sites remained required and which sites may be no longer required as part of my intended Audit. In  response  to  this  Ms Weine  replied  that  she  continued  to  be confident that C&CDHB would remain as a tenant.  She stated that this was due to the improvements that C&CDHB had made to the premises.   She specifically referred to the investments made by C&CDHB, being new kitchen and data cabling referred to above.  I then said that I was sure that she would have read in the media that C&CDHB  was  $40,000,000  in  debt  and  that  the  context  had changed.    I noted  that  things  would  have  to  be  reviewed  going forward.  Ms Weine then proceeded to recount being at the premises when C&CDHB moved in and seeing a large flat screen television being moved into the premises.   She made clear that she felt that C&CDHB could plainly afford to renew the Lease.  However, on the back of this anecdote Ms Weine then declared that she would limit the rent review to CPI index increases rather than the greater of current market or CPI as the Lease provided.

27.However, I specifically recall stating that I could not at that stage confirm that C&CDHB would be renewing the Lease.   As an experienced   property   manager,   I   knew   that   an   irrevocable undertaking would have undoubtedly compromised C&CDHB’s position in negotiating potential new terms, new rent level and / or Landlord cost transparency.   I was also in no doubt that I had not received instructions from management to commit C&CDHB to terms.  Nor had I prepared a recommendation for internal decision

making processes.  Accordingly, I therefore considered the meeting purely a meet and greet introduction to understand the relationship between C&CDHB and Ms Weine thus far – with an opportunity to discuss only limited specifics concerning claimed outgoings and the like.

28.In all of my discussion with landlords at around that time I made sure that I let them know that C&CDHB was considering all of its options, as at that stage I considered that an audit of the portfolio was necessary in providing Management an overview of its position to ensure performance criteria was being met.

29.At all times when I was dealing with Ms Weine I was aware that C&CDHB was in a negotiating position, as the terms had not been agreed.  This was because I knew that the right of renewal had not been undertaken and therefore gave the ability to C&CDHB for the negotiation of several different options between agreeing to vary the Lease, negotiating new lease terms or terminating the lease arrangement.  Contrary to Ms Weine’s position, I would never have agreed, and did not agree, simply to accept proposed lease terms suggested to me by her over coffee in a café.   Signing up to a commercial lease is a matter which requires careful commercial analysis in each case – and this one was no exception.

30.Further,  given  the  well  [understood]  formalities  surrounding  the need for leases to be in writing, which are well reflected in commercial practice, I would always expect it to be understood by all parties in commercial lease negotiations that lease arrangements, including renewals, have to be reduced to writing.

31.At that stage I considered that there was too many unknown issues surrounding the previous administration of this lease arrangement which I needed to understand better before making final recommendations to my managers.

[29]     Under cross-examination, Ms Gough maintained that no agreement to renew the lease had been reached at the meeting.   She said that the current lease had expired and that Mrs Weine’s position was that she was deferring the negotiation of terms for a new lease until January when the CPI figures would be available.  She agreed in cross-examination that it was her position that Mrs Weine had in effect said at the meeting that she realised the lease had not been renewed and was going to wait until January to determine what the increase might be so that they could negotiate a new lease.

My findings on the evidence

[30]     Having seen and heard both witnesses giving evidence, and assessing their evidence  in  the  light  of  the  background  as  it  is  disclosed  by  the  documentary evidence which I have described, I accept Mrs Weine’s evidence.  Her description of what occurred at the meeting is substantially in accordance with the way in which she recorded the position in her letter of 21 November.   She confirmed that the documentation was to be deferred until late January by which time the rent renewal documentation could incorporate the rent review.  That description is consistent with the parties having agreed at the meeting that the lease would be renewed in accordance with its terms for the first renewal term from 1 February 2011.   The second full paragraph of the letter is not consistent with Ms Gough’s evidence as to what occurred at the meeting.  If the discussion had been as Ms Gough describes, the letter would not have been worded as it was.   It is unrealistic to suggest that at a meeting arranged specifically to discuss the current lease arrangement, Mrs Weine would have agreed to let the old lease run on until January before negotiating terms for a new lease.  There would have been no sensible reason for a deferral of negotiations over a new lease until January.  The CPI increase was relevant to a rent review under a renewal of the old lease.  It had no relevance to negotiations for a new lease.

[31]     I  do  not  consider  that  there  was  room  for  misunderstanding  between Mrs Weine and Ms Gough, having regard to their respective accounts of the meeting. The terms of that paragraph in the letter of 21 November were at such odds with Ms Gough’s  evidence  that  it  might  have  been  expected  that  she  would  have responded to Mrs Weine’s request in the letter to confirm her understanding of the meeting by taking issue with what Mrs Weine had said.  She did not, despite the fact that, if her evidence is accepted, the paragraph of the letter could not have been an accurate record of the discussion.

[32]     Mrs Weine’s evidence as to the discussion at the meeting is consistent with Ms Gough’s email of 21 October describing her reasons for requesting a meeting. Ms Gough referred to, as one of the items that she would like to have tidied up, “the outstanding lease renewal due as at the 1 February 2011”.  On Mrs Weine’s evidence,

that is exactly what occurred at the meeting.   The outstanding lease renewal was tidied up by the parties agreeing to enter into a renewal of the lease as if the right of renewal  had  been  exercised  in  February.    On  Ms Gough’s  evidence,  what  was discussed at the meeting was not a tidying up of the outstanding renewal but an inconclusive discussion which might have led, at a later date, to negotiations concerning a new lease.

[33]     The internal CCDHB correspondence around the time of the meeting is also consistent with the proposition that the Board wished to renew the lease.  The first indication in the internal documentation that anyone in CCDHB considered the lease might be on a month to month basis was in Ms Gough’s brief to Mr Watson dated

8 February 2012, set out at [13]. The first indication that CCDHB might not wish to stay in the premises is the note, which Ms Gough said is in Mr Watson’s handwriting, endorsed on that brief, set out at [14]. Ms Gough was not a direct report to Mr Watson in the CCDHB hierarchy. Her evidence is that the conversation referred to in the note would have been between Mr Watson and Mr Makhija, who was Ms Gough’s immediate superior. The brief, and Mr Watson’s note, are clear evidence of a change of plan on the part of CCDHB as to the continued occupation of the premises. The date of that change is uncertain. It must have been after

8 February, and probably after Ms Gough’s letter of 22 February, set out at [15].

[34]     The documentary evidence  also  shows  that  CCDHB  recognised  that  this change of plan would come as an unwelcome surprise to Mrs Weine.  Mr Makhija’s email of 12 March, set out at [19] illustrates that.   The evidence establishes that CCDHB was aware that Mrs Weine did not understand that CCDHB regarded itself as a monthly tenant.  The internal CCDHB correspondence indicates that it did not wish to disturb the situation.  This confirms my assessment that the discussions with Mrs Weine on 22 November 2011 did not proceed as Ms Gough maintains, and in particular that she did not make it clear to Mrs Weine that entry into a new lease was not certain.

[35]     For these reasons, I find that the evidence establishes that, at the meeting on

21 November 2011, Ms Gough agreed on behalf of CCDHB to renew the lease, on

the terms that would have applied had the right of renewal been exercised from

1 February 2012.

The legal effect of that agreement

[36]     Mr Smith relies upon the decision of the Court of Appeal in Carruthers v Whitaker,1   and upon the observation in the Court of Appeal in Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd,2 that:

… the normal inference in New Zealand is that the parties do not intend to be bound before the agreement has been drawn up and executed on both sides.

[37]     He  submits  that,  where  there  is  a  need  for  writing  as  evidence  of  the particular contract, it could not be reasonable for a party to contemplate that something short of signing a document could bring finality to their negotiations.

[38]     In this case, it is not in dispute that the absence of a written agreement means that s 24 of the Property Law Act 2007 is engaged, unless the doctrine of part performance  applies.    Mr Smith’s  submission  is  that  the  absence  of  writing  is relevant in another way, namely that the absence of a written agreement points against an intention to create legal relations so as to make binding as a contract the oral agreement which I have found was reached.

[39]     I do not consider that the absence of a written agreement does point against an intention to create legal relations by the oral agreement in this case.  The normal inference referred to in Concorde was related to the circumstances of that case. There had been negotiations partly between the solicitors and partly between the parties directly, and the agreement was an important commercial agreement of some complexity.  This was not such a case.  The agreement was an important one, but it was not one of any complexity.   The terms of the lease were settled and the only agreement required was as to the renewal of those terms for a further period.  I find that the parties did not intend that the oral agreement which they reached, to effect

that renewal, would not be immediately binding as a contract.  The fact that there

1      Carruthers v Whitaker [1975] 2 NZLR 667 (CA).

was no agreement in writing goes to the enforceability of the contract under s 24, but it does not lead to the inference that the parties did not intend to enter into an oral contract.

[40]     I add for completeness that no issue as to the actual or ostensible authority of

Ms Gough to enter into a contract for a renewal of the lease arises.

[41]     For these reasons, I find that an oral contract for the renewal of the lease was entered into on 21 November 2011.

Part performance

[42]     The next question is whether the oral contract has been partly performed, so as to engage s 26 of the Property Law Act.

[43]     The facts in Mahoe Buildings Ltd v Fair Investments Ltd bear some similarity to this case.3    The High Court had found as a fact that the parties orally agreed to renew a lease.  The issue was whether the oral contract was enforceable.  That turned on whether there was part performance and whether the lessor was entitled to rely upon  it.    In  its  discussion  of  the  matters  to  be  taken  into  account  in  a  part performance case, the Court of Appeal said:4

An extensive review, including a consideration of New Zealand, Australian and English cases, and academic writing was undertaken by Tipping J in TA Dellaca Ltd v PDL Industries Ltd [1992] 3 NZLR 88. The learned Judge concluded at p 109 that:

". . . in a part performance case the Court must consider three points which I would frame as follows:

1.Was there a sufficient oral agreement such as would have been enforceable but for the Act?

2.Has   there   been   part   performance   of   that   oral agreement by the doing of something which:

(a)       clearly amounts to a step in the performance of a contractual obligation or the exercise of

3      Mahoe Buildings Ltd v Fair Investments Ltd [1994] 1 NZLR 281 (CA).

a contractual right under the oral contract;

and

(b)       when  viewed  independently  of  the  oral contract was, on the probabilities, done on the  footing  that  a  contract  relating  to  the land and such as that alleged was in existence.

3.Do the circumstances in which that part performance took place make it unconscionable (fraudulent in equity) for the defendant to rely on the Act?"

We are satisfied that for the purposes of this case that is a helpful analysis of the matters to be considered in this case.

[44]     Shortly after Mahoe was decided, Tipping J delivered the judgment of that

Court in Fleming v Beevers.5  The Court said:6

We are content, for present purposes, as was this Court in Mahoe Buildings Ltd v Fair Investments Ltd [1994] 1 NZLR 281  to take the analysis in Dellaca at p 109 as a useful starting and reference point.  …

[45]     In  the  light  of  that  endorsement  by  the  Court  of Appeal,  I  proceed  by considering  the  three  questions  posed  by  Tipping J  in  TA  Dellaca  Ltd  v  PDL Industries Ltd.7

[46]     My finding that there has been an oral contract answers question one in the affirmative.

[47]     For question two, there must be part performance by the plaintiff of her obligations under the contract. As the Court of Appeal said in Mahoe:8

We note the importance of the acts being those of the party relying on the part performance. This was underlined in Megarry and Wade, The Law of Real Property at pp 590-591:

"The act of part performance must have been done by the plaintiff . .

. what is required in the case of part performance is an act by the plaintiff, who is seeking to enforce the contract; for if the party

refusing  to  perform  the  contract  has  done  the  only  act  of  part

performance, there is no fraud but merely a loss to himself."

5      Fleming v Beevers [1994] 1 NZLR 385 (CA).

6      At 391-392.

7      TA Dellaca Ltd v PDL Industries Ltd [1992] 3 NZLR 88 (HC).

8      Mahoe Buildings Ltd v Fair Investments Ltd, above n 3, at 287.

[48]     The acts of part performance relied upon by the plaintiff are set out in the statement of claim in these terms:

7.1      She   arranged   for   her   solicitors   to    prepare   on   or    about

16 February 2012 a written deed of renewal and variation of lease which deed:

(a)       Recorded the first renewal of the lease of the premises under the deed of lease from 1 February 2011 to 31 January 2014.

(b)       Varied the lease to incorporate in the premises one tandem carpark.

(c)       Recorded that the rental payable under the renewed lease from 1 February 2012 to 31 January 2014 was $36,300 plus GST per annum payable by equal monthly instalments of

$3,025 plus GST which in turn was the sum of the CPI
increases on:

(i)        The rental payable under the lease for the two years commencing 1 February 2010 of $31,650 plus GST; and

(ii)      The rental paid to 31 January 2012 on the tandem carpark;

And the plaintiff refers to the form of the deed of renewal and variation of lease in its entirety.

7.2Incurred the initial liability of her solicitors’ costs for the preparation of the deed of renewal and variation of lease.

7.3      Received and accepted rent from the defendant for the premises to

31 January 2012 in the amount of $31,650 plus GST per annum.

7.4Invoiced rental for the premises including for the tandem carpark at the amount of $36,300 plus GST per annum at $3,205 plus GST per calendar month.

7.5Invoiced and received payments for the outgoings payable by the defendant   including   receiving   and   accepting   on   or   about

20 December 2011 a payment from the defendant for the defendant’s

proportion of:

(a)      Rates for the period ending 30 June 2012;  and

(b)      Insurance premium for the period ending 14 August 2012.

[49]     On the first of those matters, Mrs Weine’s evidence is that she instructed her

solicitors to prepare and complete the documentation which had been agreed on

21 November 2011.  The fact that those instructions were given is confirmed by a letter drafted by Mrs Weine’s solicitors.   The draft is dated 16 February 2012.  It

referred to a deed of renewal and variation of lease which had been drafted by the solicitors.  That letter was not sent to CCDHB because, on Mrs Weine’s evidence, after the preparation of the documents, the contents were to be confirmed with her but the letter of 22 February 2012 from CCDHB intervened.

[50]     In Mahoe, one of the acts of part performance relied upon was an act of the landlord in arranging for a valuation to obtain a new rental figure.   The Court of Appeal said of this:9

The respondent clearly acted from 1 April 1988 as if there were a renewal in terms of the earlier contractual arrangement. Although the obtaining of the new valuation and the expense thereof might in a technical sense be treated as a gratuitous undertaking, it is a detriment which followed the telephone conversation between Mr Smith and Mr Marriott. The first appellant stood by and allowed it to occur.

[51]     That  step,  of  arranging  a  valuation,  has  some  similarity  to  the  step  of instructing solicitors to prepare documentation for a lease.  Although it might in a technical  sense  be  seen  as  a  gratuitous  undertaking,  it  is  a  step  which  is  in conformity with the contract.

[52]     In  instructing  her  solicitors  to  prepare  the  renewal  documentation,  the plaintiff incurred a potential liability for her solicitor’s costs for that work.  In terms of cl 6.1 the lease, those costs would have been recoverable from the lessee, and the letter which was prepared to be sent to CCDHB contained the solicitor’s account for that work.  That does not, however, prevent the giving of instructions to prepare the lease from being treated as an act of part performance.   I find that the giving of instructions, and incurring the liability for costs, involve an act of part performance.

[53]     The next matter relied upon is receipt and acceptance of rent for the period to

31 January 2012.    I  do  not  consider  that  that  can  be  properly  treated  as  part performance.    The  receipt  of  that  rent  does  not  relate  to  the  exercise  of  the contractual right under the oral contract.  It is equally consistent with the proposition that CCDHB was, under cl 37 of the lease,  a  tenant holding over at  the rental

previously payable.

9      At 288.

[54]     The position is different for the next matter relied on, the invoicing of rental for the premises at the increased rental of $36,300 per annum.  A tax invoice for the whole period of the renewal, from 1 February 2012 to 1 January 2014, was issued on

3 February 2012 and sent with the letter of 3 February 2012 referred to above at [12]. The issuing of that invoice is consistent only with the exercise of a right under the oral contract. It is not consistent with the tenant holding over. The issuing of that invoice was an unequivocal statement that the plaintiff was acting on the renewed lease. It is an act of part performance.

[55]     The final matter relied upon is the invoicing and receipt of payments for outgoings.  In particular, the plaintiff places reliance on the receipt and acceptance of a payment of the proportion of outgoings for rates and insurance, that payment having been received on 20 December 2011.   I do not consider that this matter is consistent only with the proposition that an oral agreement was entered into on

21 November.      The   invoice   had   first   been   issued   before   the   meeting   on

21 November, and was one of the matters discussed at the meeting.  On that basis, the plaintiff’s claim to those payments cannot have been made in reliance on the existence of the oral agreement.  The receipt, after the date of the oral agreement, of an amount which had been claimed before the oral agreement had been entered into cannot properly be regarded as consistent only with the existence of the oral agreement.

[56]     I do however consider that the payment of the outgoings by CCDHB is relevant to the final question, which is whether the circumstances in which part performance took place make in unconscionable (fraudulent in equity) for the defendant to rely on s 24 of the Property Law Act.   The payments for rates and insurance which the defendant made were payments which the defendant would not have been obliged to make it that time if the defendant was holding over as a monthly tenant under cl 37 of the lease.  The payments related to some six months (for the  rates) and  eight  months  (for the insurance premium),  after the date of payment.  If the defendant was holding over as a monthly tenant it could not have been liable for more than one month.  Ms Gough’s evidence was that it was usual practice to pay outgoings for a longer period, subject to reimbursement if the tenancy was terminated earlier.  I do not accept that analysis of the position.  I do not think

that a monthly tenant is likely to agree to pay outgoings except on a monthly basis.  I consider that the defendant’s payment of outgoings for a longer period is consistent with an oral agreement to renew the lease having been reached.  It did not signal an intention to assert the status of a tenant holding over.  Because that is an act of the defendant, not of the plaintiff, it is not available to the plaintiff as an act of part performance.   It is however an acknowledgement by the defendant of the ongoing existence of the lease.  As such, it is a circumstance in which the other acts of part performance,  which  I have  found  at  [52]  and  [54],  took  place  which  makes  it unconscionable for the defendant to rely on s 24.

[57]     I find that the oral contract entered into on 21 November 2011 has been partly performed.

Remedy

[58]     The  plaintiff  seeks  the  remedy  of  specific  performance.    Mr Laurenson submits that the plaintiff does not have a claim for common law damages for breach, on the basis that, without the doctrine of part performance, the plaintiff has no remedy because the contract is otherwise unenforceable.

[59]     A similar point was discussed in Mahoe. The Court said:10

In this Court the first substantial challenge was that the doctrine of part performance could not in any event apply in the circumstances of this case. It was said that the respondent's claim was a claim for loss arising out of breach of contract. It was not an application for specific performance or an appeal to the equitable jurisdiction of the Court. In as much as part performance  was  said  to  be  available  only  if  the  Court's  equitable jurisdiction is invoked so the appellants submitted the claim could not lie in these factual circumstances.

The position taken by the appellants is summarised in Snell's Equity (29th ed, 1990) at p 600:

"If the plaintiff has wholly or in part carried out his part of a parol agreement in the confidence that the defendant would do the same, the court often orders specific performance on the ground that it would be fraud on the defendant's part not to carry out the contract. This is the doctrine of part performance; . . .

10     At 284.

The doctrine of part performance is purely equitable, applicable  only  to  actions  for  specific  performance;  if specific performance is not available, the doctrine does not open the door to an award of damages."

Comment to like effect is found in Megarry and Wade, The Law of Real

Property (5th ed, 1984) p 590:

". . . it is essential that the plaintiff should establish a case for specific performance of the contract. In equity, part performance raises a right to full performance, but not to any other remedy . . .".

And in New Zealand Hinde, McMorland and Sim, Land Law (1979) vol 2, para 10.039 notes:

"Further, part performance, being an equitable doctrine, can be pleaded only in support of a claim for specific performance, including actions where damages are given in lieu of specific performance under Lord Cairns' Act 1858, and so is limited to contracts which are specifically enforceable. It is doubtful if the doctrine is available in support of a claim for any other equitable remedy, such as an injunction. But it is quite certain that it is not available in support of a claim for damages at common law."

[60]     Mr Laurenson’s submission is consistent with the views expressed in those texts.

[61]     Despite the plaintiff being, in his submission, limited to a claim for specific performance, Mr Laurenson made it clear that the plaintiff does not seek an order which  would  require  CCDHB  to  retake  possession  of  the  premises  so  that  the contract would in all respects be specifically performed.  The plaintiff’s pursuit of that remedy results solely from the restriction on the ability of the Court to order damages.

[62]     Section 16A of the Judicature Act 1908 provides:

Where the Court has jurisdiction to entertain an application for an injunction or specific performance, it may award damages in addition to, or in substitution for, an injunction or specific performance.

[63]     The Court of Appeal in Mahoe held that that section was not applicable because that was not a claim for damages but a claim to enforce a contract.  Despite that rejection of the applicability of s 16A, I wish to hear further argument on the question   of   whether,   in   considering   the   discretionary   remedy   of   specific

performance, s 16A might enable an alternative remedy in damages to be granted. Specific performance is a discretionary remedy and I consider that this is a case where, if it were available, a remedy in damages in breach of contract might be a more appropriate remedy.  This is a claim for specific performance, and there seems no reason, on the face of it, why s 16A could not be called in aid to achieve that outcome.

Result

[64]     I have  found that the pleaded oral contract to  renew the lease has been established, and that the doctrine of part performance means that the contract is not unenforceable by reason of s 24 of the Property Law Act.  The issue of relief is a matter that I prefer to reserve for further argument.

[65]     For that reason, I issue this judgment as an interim judgment under r 11.2(a)

of the High Court Rules.

[66]     If the parties are unable to agree on the appropriate remedy in the light of my findings, the matter may be set down for a further hearing on the question of the appropriate remedy.  Costs are reserved.

“A D MacKenzie J”

Solicitors:         Richard Laurenson, Barrister, Wellington for Appellant

Luke Cunningham & Clere, Wellington, for Respondent