Wendco (NZ) Limited v Howley
[2023] NZHC 2061
•4 August 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-000981
[2023] NZHC 2061
UNDER Part 19 of the High Court Rules 2016 and articles 9, 17A and 17B of Schedule 1 of the Arbitration Act 1996 BETWEEN
WENDCO (NZ) LIMITED
Applicant
AND
JOSEPH HOWLEY, L’EMIRA RANIA HOWLEY and ED JOHNSTONE & CO
TRUSTEES LIMITED as trustees of the J HOWLEY FAMILY TRUST
Respondents
Hearing: 17 July 2023 Appearances:
L M Van and J E Morton for Applicant G J Kohler KC for Respondents
Judgment:
4 August 2023
JUDGMENT OF VAN BOHEMEN J
This judgment was delivered by me on 4 August 2023 at 1:30 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………..
Counsel/Solicitors:
Anthony Harper, Auckland G J Kohler KC, Auckland M A Ashmore, Auckland Castle Brown, Auckland
WENDCO (NZ) LIMITED v HOWLEY [2023] NZHC 2061 [4 August 2023]
[1] The applicant, Wendco (NZ) Ltd (Wendco), seeks interim orders restraining the respondents, the trustees of the J Howley Family Trust (the Trust), from taking certain steps in relation to premises at 620 Great South Road in Greenlane, Auckland (the Greenlane Premises) pending the outcome of an arbitration which Wendco has sought to institute but to which the Trust has not agreed.
[2] The Greenlane Premises, comprising land and buildings, are owned by the Trust. Wendco operates a Wendy’s hamburger restaurant at the Greenlane Premises.
[3] The Trust has owned the Greenlane Premises since February 2002 when it purchased the property from Wendy’s Restaurants (NZ) Ltd (Wendy’s NZ). Since August 2001, Wendco has occupied the Greenlane Premises under an agreement to lease concluded with Wendy’s NZ (the Lease). Whether Wendco still has a right to occupy the premises is one of the issues in dispute.
[4] The Trust opposes the orders sought by Wendco. It has undertaken, however, not to re-enter the Greenlane Premises or otherwise interfere with the premises pending the Court’s determination of Wendco’s application.
[5] At the hearing on 17 July 2023, I was informed by Ms Van, counsel for Wendco, that, at the request of Wendco, the New Zealand Law Society has appointed Hon Raynor Asher KC as arbitrator. I was informed by Mr Kohler KC, counsel for the Trust, that the Trust does not oppose that appointment and will agree to arbitration if I grant the orders sought by the Trust. However, if I decline to grant the orders because I am not satisfied that there is a reasonable possibility that Wendco will succeed on the merits of its claim, the Trust will not agree to arbitration. Mr Kohler said that Mr Asher would take no steps in the arbitration until I have issued my decision.
[6] Both counsel agreed that my task is to decide Wendco’s application for interim orders. It is not to rule on the merits of Wendco’s reference to arbitration.
Relevant background
[7] The following account is drawn principally from affidavits sworn by Danielle Lendich, the Chief Executive Officer of Wendco, and Joseph Howley, the appointed trustee of the Trust, and, in particular, from contemporaneous documents exhibited to those affidavits. Mr Howley is resident in Sydney, Australia.
Wendy’s franchise established
[8] In 1988, the Lendich family obtained the rights to operate Wendy’s Hamburgers in New Zealand pursuant to a franchise arrangement with Wendy’s International Inc (Wendy’s International). The term of the franchise agreement was 20 years.
Joint venture established under Wendco umbrella
[9] In 1992, the Lendich family and Wendy’s International formed a joint venture to operate in New Zealand under the umbrella of Wendco. That led to an expansion of the Wendy’s brand in New Zealand to the point that Wendco currently operates 22 Wendy’s Hamburger Restaurants in various locations in New Zealand under the franchise agreement with Wendy’s International.
Wendco purchases Greenlane Premises
[10] In 1996, Wendco purchased the land and fixtures comprising the Greenlane Premises and developed the Greenlane Premises as a Wendy’s Restaurant. Because Wendco owned the land and operated the restaurant, no lease was required. Similar arrangements were put in place for Wendy’s restaurants located in Mt Wellington (the Mt Wellington Premises) and Panmure (the Panmure Premises).
[11] Between 1999 and 2000, Wendy’s International decided to divest its New Zealand assets. The joint venture was dissolved. The Greenlane Premises, the Mt Wellington Premises and the Panmure Premises were transferred to Wendy’s NZ, a company controlled by Wendy’s International. The shares in Wendco were transferred to the Lendich family.
[12] On 3 August 2001, Wendy’s NZ and Wendco executed the Lease. At the same time, they also executed another agreement titled “Addendum to Deed of Lease” (the Addendum). Similar leases between Wendy’s NZ and Wendco were executed with respect to the Mt Wellington Premises and the Panmure Premises.
Relevant terms of the Lease
[13]Under the Lease:
(a)The parties were Wendy’s NZ (The Landlord) and Wendco (The Tenant);
(b)The lease term was 12 years, commencing on 1 August 2001.
(c)The Lease could be renewed for one further term of eight years from 1 August 2013.
(d)The final expiry date was 1 August 2021.
(e)The annual rent was $160,901.00 plus GST, with rent reviews every third year from the commencement of the lease.
(f)The Business Use was Wendy’s Hamburger Restaurant.
(g)Clause 18 provided that the Tenant could not, without the prior written consent of the Landlord, use the premises for any use other than the business use. The Landlord’s consent was not to be unreasonably or arbitrarily withheld in respect of any proposed use that came within specified parameters.
(h)Clause 36 provided that the Tenant could not assign, sublet or otherwise part with possession of the Greenlane Premises without first obtaining the written consent of the Landlord which the Landlord was required to give if specified conditions were satisfied.
(i)Clause 43 provided that if the Landlord permitted the Tenant to remain in occupation of the premises after the expiration of the term, the occupation was to be a monthly tenancy, terminable by one month’s written notice at the rent then payable (the Holding Over provision).
Relevant terms of the Addendum
[14]Under the Addendum:
(a)The parties were Wendy’s NZ (The Landlord) and Wendco (The Tenant);
(b)The recitals recorded that the parties had agreed to special terms in respect of the business use of the Panmure premises, the Greenlane Premises and the Mt Wellington Premises that were not to form part of the leases of those premises (the Leases).
(c)The Reversions meant the freehold interest in the Panmure premises, the Greenlane Premises and the Mt Wellington premises.
(d)In cls 2.1, 3.1 and 4.1, The Landlord and The Tenant agreed that, during the period in which The Landlord was the owner of the Reversions:
(i)notwithstanding cl 18 of the Leases, the business use for the Leases was to be a Wendy’s Hamburger Restaurant and The Landlord was not required to consent to any change of the business use as contemplated by cl 18 in the Leases (cl 2.1);
(ii)The Landlord was required to consent to an assignment of the Leases pursuant to cl 36 of the Leases only if the proposed assignee was carrying on the business of a Wendy’s Hamburger Restaurant (cl 3.1); and
(iii)in the event that the Tenant ceased to be a franchisee of Wendy’s NZ and no other franchisee was available or willing to carry on
the Wendy’s Hamburger business from the premises described in the Leases, the relevant lease terminated forthwith (cl 4.1).
(e)The reference to any party to the agreement included “as far as consistent with the provisions of this agreement” that party’s successors in title and permitted assigns.
Trust acquires the Greenlane Premises
[15] In February 2002, the Trust purchased the Greenlane Premises from Wendy’s NZ. The purchase was subject to the Lease. Mr Howley says the Trust was not provided with and was not aware of the Addendum at the time of purchase.
Wendy’s franchise extended
[16] In June 2008, Wendy’s International granted the Lendich family continued rights to operate Wendy’s Restaurants in New Zealand for a further 20 years (to June 2028), with a right to renew for a further 10 years (to 2038).
Lease renewed
[17] In June 2014, the Lease was renewed for a further term of eight years from 1 August 2013. The Deed of Renewal of Lease provided that:
(a)the term of the Lease was renewed for a further term of 8 years from 1 August 2013 and ended on 31 July 2021;
(b)there were to be no further rights of renewal; and
(c)the rent was $160,901.00 per annum (that is, no change from the previous rent).
Issues arise over payment of invoices
[18] The Lease renewal occurred despite tensions in the relationship between Wendco and the Trust over responsibility for payments relating to the repair of the air-
conditioning, refrigeration unit and other items in the Premises. On at least one occasion, Ms Lendich deducted amounts from the sum Wendco reimbursed the Trust for its payment of Auckland Council rates for the Greenlane Premises. Mr Howley says Wendco also made deductions from its rent payments, but this is denied by Ms Lendich.
[19] Disagreements over disputed invoices continued into 2018. The parties were also in disagreement over the rent review that had been due in 2016.
Meeting in Sydney in July 2018
[20] In July 2018, Ms Lendich travelled to Sydney to meet Mr Howley. Ms Lendich says the purpose of her travel was to discuss, among other things, the outstanding invoices and an extension of the Lease term.
[21] Ms Lendich says that at the meeting, she and Mr Howley established that both parties wanted to continue a lease agreement which could include two terms of occupation of five years over the Lease. Ms Lendich says that, on this basis she agreed to pay the disputed invoices.
[22] Ms Lendich says that, upon her return to New Zealand and on the basis that the Trust had agreed to commit to an extension of the term of the Lease, she paid the disputed invoices as promised on her return to New Zealand
Subsequent emails from Ms Lendich
[23] Upon her return to New Zealand, Ms Lendich emailed Mr Howley on 2 August 2018. Ms Lendich describes the purpose of the email as being “to restate what was discussed”. The terms of that email are considered below.
[24] Mr Howley received Ms Lendich’s email of 2 August 2018. However, Mr Howley did not reply to the email or to Ms Lendich’s follow up email of 24 September 2018.
[25] Mr Howley says the invoices remain unpaid, but this is disputed by Ms Lendich.
Subsequent discussions
[26] Ms Lendich says that, despite Wendco’s payment of the invoices and ongoing discussions between Wendco and the Trust, the Trust refused to extend the term as it had agreed to.
[27] On 20 August 2020, Jason Orlowski, on behalf of Wendco, emailed Mr Howley with a “proposal” for a lease extension. Wendco’s proposal was for a renewal of the Lease for a term of five years with a right of renewal for a further term of five years. The email also proposed rights of first refusal to a further lease or to the purchase of the Greenlane Premises, rent of $165,000, and payments of an incentive, outside the lease term, of $15,000 per year, increasing by 7.5 per cent each year on a cumulative basis.
[28]Mr Howley did not reply to this email.
Lease term expires
[29]On 31 July 2021, the Lease expired in accordance with its terms.
Discussions continue on lease renewal
[30] On 5 August 2021, Mr Orlowski re-sent to Mr Howley his email of 20 August 2020 and said he would call shortly to discuss. Negotiations on a lease renewal followed.
[31] On 21 November 2021, Mr Orlowski sent a further email to Mr Howley. In a section headed “The Current Offer”, the email set out a revised proposal which included: renewal of the current lease for a term of five years; a right of renewal for a further term of five years provided the Trust did not have other plans for the site; rent of $165,000; payments of an incentive of $15,000 per year, increasing by 7.5 per cent each year on a cumulative basis; Wendco to install its own air-conditioning unit at its
cost; Wendco to write off the $12,000 spent on past air-conditioning maintenance; and various other proposals for Wendco to take over management of the property.
[32]This offer was not accepted.
[33] On 19 January 2023, Hadi Younan, as agent for the Trust, sent Wendco a proposal for a five year lease extension. Under the proposal, Wendco would assume ownership of interior fitouts, including air-conditioning; the rent would be $270,000 plus GST and operating expenditure per annum, with annual rent reviews.
[34] Wendco did not respond to the offer but engaged with the Trust over issues it was having with the air-conditioning unit. Further exchanges of emails in late January 2023 between the parties’ representatives did not advance matters.
Notices of termination of tenancy; Wendco calls on the Addendum
[35] On 31 January 2023, Mr Younan purported to issue Wendco notice of termination of the Lease by way of an email to Mr Orlowski.
[36] On 10 February 2023, Ms Lendich wrote to Mr Howley. In her letter, Ms Lendich said Wendco had “tried to negotiate a lease with you over the past 5 years or more, with terms substantially better than market but with little engagement by you.” The letter referred to the January 2023 negotiations and said Wendco’s “hope was that we would be able to negotiate a lease and get the building back to standard”. The letter noted that the notice of termination was not in accordance with the notice provisions of the Lease and said the giving of notice on 31 January was unreasonable. The letter said Wendco would consider that notice began on 9 February 2023 and would begin the process to close the store.
[37] On 22 March 2023, Wendco’s solicitors wrote to Mr Howley stating that the notice of termination had been invalidly served and that Wendco reserved its right to dispute the notice. The letter also referred to the Addendum and asserted that cl 2 of the Addendum required the Greenlane Premises to be used as a Wendy’s Hamburger Restaurant. It also asserted that the clause continued to apply even after the date the Lease had come to an end.
[38] Correspondence ensued between solicitors for Wendco and the Trust over the meaning and effect of the Addendum. The Trust’s solicitors said the Trust was not a party to or aware of the Addendum.
[39] On 4 April 2023, the Trust’s solicitors, gave notice to Wendco under s 210 of the Property Law Act 2007 that Wendco’s right to possess the Greenlane Premises would terminate 20 working days after service of the notice; that is, 5 May 2023.
[40] On 26 April 2023, Wendco’s solicitors wrote to the Trust’s solicitors asserting that the Trust could not terminate the Lease in circumstances where Wendco was available and able to continue trading as a Wendy’s Hamburger Restaurant at the Greenlane Premises. The letter stated that Wendco had a franchise agreement that ran until October 2028 with a right of renewal for a further 10 years and that, while the agreement was extant, Wendco was entitled to continue its occupation of the Greenlane Premises for the purposes of trading as a Wendy’s Hamburger Restaurant. The letter disputed the validity of the Property Law Act notice and required its withdrawal. The letter noted that the parties had been in discussions over Wendco’s continued occupation of the Greenlane Premises and that Wendco was willing to continue those discussions to see if commercial terms could be agreed.
[41] By letter dated 27 April 2023, the Trust’s solicitors gave notice to Wendco pursuant to the Holding Over provision of the Lease that Wendco’s right to possession of the Greenlane Premises would terminate one month after service of the notice and that the date of termination would be 31 May 2023.
Reference to arbitration / commencement of proceedings
[42] On 15 May 2023, Wendco gave notice that it wished to refer the dispute to arbitration. The letter stated that the termination notice issued by the Trust should be withdrawn pending the outcome of the arbitration. The letter stated that if the notice was not withdrawn by 16 May 2023, Wendco would seek injunctive relief.
[43]The current application was filed on 22 May 2023.
Order preserving Wendco’s position
[44] By minute dated 25 May 2023, Jagose J ordered that the Trust was prohibited from terminating the Lease pending further order of the Court or earlier issue of an arbitral award.1
The orders Wendco seeks
[45] Wendco applies for orders that, until final determination by arbitration or agreement of the dispute between the parties as to the interpretation of the Addendum and the Trust’s rights to terminate the Lease, the Trust is prohibited, until further order of the Court or arbitrator, whichever occurs first:
(a)from utilising or otherwise promoting the Greenlane Premises for any use other than as a Wendy’s Hamburger Restaurant; and
(b)from terminating the Lease or interfering with Wendco’s right to occupy the Greenlane Premises.
Relevant law
Arbitration Act 1996
[46]Article 6 of sch 1 of the Arbitration Act provides:
Any court having jurisdiction may perform any function conferred on a court by these articles, except where the article provides that the function shall be performed by a specified court or courts.
[47] Article 17 defines “interim measure” to mean a temporary measure by which a party is required, before an award is made in relation to a dispute, to do any or all of the following:
(a)maintain or restore the status quo pending the determination of the dispute:
1 Wendco (NZ) Ltd v Howley and others HC Auckland CIV 2023-404-981, 25 May 2023 (Minute of Jagose J).
(b)take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral proceedings:
…
[48]Article 17A provides:
Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, grant an interim measure.
[49] Article 17B(1) provides that, if an interim measure of a kind described in art 17(a) or (b) is requested:
… the applicant must satisfy the arbitral tribunal that—
(a)harm not adequately reparable by an award of damages is likely to result if the measure is not granted; and
(b)the harm substantially outweighs the harm that is likely to result to the respondent if the measure is granted; and
(c)there is a reasonable possibility that the applicant will succeed on the merits of the claim.
[50] It is common ground that, under the above provisions, the Court has the power to make the orders sought by Wendco, provided Wendco satisfies the Court as to the matters in art 17B(1)(a) – (c).
[51] It is also common ground that the test in art 17B(1)(c) – that there is a reasonable possibility that the applicant will succeed on the merits of the claim – is akin to the “serious question to be tried” requirement for an interim injunction.2 Similarly, it is common ground that art 17B(1)(a) and (b) cover much of the traditional balance of convenience considerations considered in interim injunction applications.3
Property Law Act 2007
[52] Under s 24 of the Property Law Act 2007, a contract for the disposition of land is not enforceable by action unless:
2 See Safe Kids in Daily Supervision Ltd v McNeill [2012] 1 NZLR 714 (HC) at [30]; Prestige Motors Ltd v My Trustee Company (Nikolas and Petra) Ltd [2021] NZHC 237 at [25].
3 Safe Kids in Daily Supervision Ltd v McNeill, above n 2, at [33].
(a)the contract is in writing or its terms are recorded in writing; and
(b)the contract or written record is signed by the party against whom the contract is sought to be enforced.
[53] It is common ground that any renewal of the Lease for a term of five years is a contract for the disposition of land.
[54] Section 26 of the Property Law Act provides that s 24 does not affect the operation of the law relating to part performance. It is common ground that, to establish part performance, the party seeking to enforce the contract must establish that:4
(a)there is an oral agreement that is sufficiently complete and certain to be otherwise enforceable as a contract;
(b)it has done one or more acts of part performance by the doing of something that is both a step in the performance of a contractual obligation, or the exercise of a contractual right, under the oral contract and also is an action which, viewed independently of the oral contract is something which, on the balance of probabilities, was done on the footing that a contract relating to the land, and one consistent with the oral contract alleged, was in existence; and
(c)the circumstances are such that it would be unconscionable or inequitable for the other party to seek to rely on the Property Law Act.
Questions for decision
[55]The questions for decision are:
(a)Is there a reasonable possibility that Wendco will succeed on the merits of its claim that Wendco and the Trust agreed in 2018 to renew the Lease?
4 Nguyen v SM & T Holmes Ltd [2016] NZCA 581, [2017] 3 NZLR 281 at [32].
(b)Is there a reasonable possibility that Wendco will succeed on the merits of its claim that the Trust is precluded by the Addendum from using the Greenlane Premises other than as a Wendy’s Restaurant while Wendco or another franchise operator is willing and able to operate a Wendy’s Restaurant from the Greenlane Premises?
(c)Does the balance of convenience in making or not making the orders sought by Wendco lie in favour of Wendco or the Trust?
Submissions for Wendco
[56] Ms Van submits that, at the meeting in Sydney on 18 June 2018, there was an agreement on all the essential terms of an extension of the Lease. There was agreement as to the parties, the premises to be leased, the lease term (two terms of five years each), and the rent (the present rent reviewable in accordance with the Lease).
[57] Ms Van submits that Wendco paid the disputed invoices in part performance of the agreement to extend the Lease and on the footing that an agreement to extend the Lease was in place. Ms Van says that Mr Howley’s evidence, that the disputed invoices remain outstanding, is not credible. Ms Van also says it is for the arbitrator and not the Court to resolve the conflict in the evidence.
[58] Ms Van says that, following the Trust’s refusal to honour its commitment to extend the Lease, Wendco endeavoured to reach a commercial solution from 2020 onwards. Ms Van also says it would be unconscionable for the Trust now to resile from the agreement reached in 2018 because Wendco would be deprived of the benefit of the extended Lease term and the security and certainty that entails, as well as having paid the invoices.
[59] Ms Van says it is reasonably arguable that, properly construed, the Addendum prohibits the Trust from allowing the Greenlane Premises from being used other than as a Wendy’s Restaurant and requires the Trust to provide Wendco with continuing rights to trade as a Wendy’s Restaurant while Wendco is willing to trade as such. Ms Van submits that it defies commercial reality to interpret the Addendum as
applying for only the six months between signature of the Addendum and settlement of the Trust’s purchase of the Premises.
[60] Ms Van submits that the Courts have recognised that long-term rights to occupation of land are not readily compensable by damages and that damages are not an adequate remedy for Wendco given:
(a)the loss of revenue over an indefinite period if the Lease is terminated;
(b)the negative impact to the Wendy’s brand caused by the loss of the well- known operation at the Greenlane Premises;
(c)the impacts on staff, suppliers and customers, and possible impact on Wendco’s rights under the franchise agreement.
Submissions for the Trust
[61] Mr Kohler submits that there is no reasonable possibility that Wendco will succeed in its claim that a binding agreement was entered into in July 2018. Mr Kohler says that the factual situation is clear and simple – there was no binding agreement in July 2018 to extend the Lease and this is clear from the contemporaneous documents. Mr Kohler says that, in its own terms, Ms Lendich’s email of 2 August 2018 cannot be interpreted as recording an agreement reached at the meeting in Sydney.
[62] Mr Kohler says the subsequent documents are inconsistent with any binding lease having been agreed. He refers particularly to the emails Mr Orlowski sent in August 2020 and November 2021.
[63] Mr Kohler submits that the Addendum was personal to the immediate parties and could apply only during the currency of the Lease and not after its expiry. The covenants in the Addendum do not touch or concern the land. Mr Kohler says the interpretation advanced by Wendco – that the Trust was not at liberty to lease its land to any other party but an operator of a Wendy’s restaurant, even after the expiry of the
Lease would be economically absurd. Mr Kohler also submits that cl 2.1 of the Addendum does not have the effect contended for by Wendco.
[64] Mr Kohler accepts that the balance of convenience favours Wendco but submits that this does not overcome Wendco’s inability to establish that there is a reasonable possibility it will succeed in its substantive claims.
Analysis
[65] As Ms Van submits, the Courts will not normally, in applications for interim injunctions, resolve material conflicts of evidence or assess the credibility of deponents. However, it is also well-established that, when considering whether there is a serious question to be tried, the Court need not accept uncritically evidence that is inconsistent with undisputed contemporary documents or other statements by the same deponent or is inherently improbable.5
Is there a reasonable possibility that Wendco will succeed on the merits of its claim that it and the Trust agreed in 2018 to renew the Lease?
[66] The only evidence that there was an agreement in July 2018 to renew the Lease is that contained in Ms Lendich’s affidavits sworn on 18 May 2023 and 19 June 2023, some five years after the relevant events. That evidence is not consistent with the contemporaneous documents from that time or the subsequent correspondence between the parties. In particular, it is not consistent with Ms Lendich’s emails of 2 August 2018 and 24 September 2018.
[67] In her affidavit of 18 May 2023, Ms Lendich says the purpose of her email of 2 August 2018 was “to restate what was discussed” at her meeting with Mr Howley in Sydney.
[68] The email of 2 August 2018 states that “the discussion was useful in establishing that both parties wish to continue a lease agreement”. It goes on to state
5 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26], citing Eng Mee Yong v Letechumanan [1980] AC 331 (PC) at 341.
that Ms Lendich and Mr Howley had “some discussion on lease format and duration” and that:
… while we would prefer a new long lease and a landlord contribution to a building upgrade we would be open to an extension of the current lease of 2 terms of 5 years each without a building upgrade and if at the end of the second term you wished to lease the premises we would like the option of a first refusal for a further lease. This would then give you greater certainty of a tenant without tying you into a long term lease. It would also remove the need to negotiate a new lease and any costs associated with that.
[69]The email concluded:
It would be appreciated if you would let us know your thoughts on this Joseph. I will come back to you on the invoices under separate cover.
[70] On 24 September 2018, Ms Lendich sent Mr Howley an email which had the heading “Rent Review”, and which read, in part:6
Can you also please advise me if you received my email on 2 August 2018 regarding extending the lease for a further 2 terms of 5 years without any contribution to an exterior upgrade. If you can please let me know your thoughts?
[71] In Bathurst Resources Ltd v L & M Coal Holdings Ltd,7 the Supreme Court reaffirmed that the general approach to contractual interpretation is the approach it set out in Firm PI 1 Ltd v Zurich Australian Insurance Ltd:8
[60] … the proper approach is an objective one, the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. This objective meaning is taken to be that which the parties intended. While there is no conceptual limit on what can be regarded as “background”, it has to be background that a reasonable person would regard as relevant. Accordingly, the context provided by the contract as a whole and any relevant background informs meaning.
[72] I am satisfied that no reasonable person, having the background knowledge available to Ms Lendich and Mr Howley in July 2018, would interpret the email of 2 August 2018 as amounting to an agreement or as recording the fact of an agreement
6 The first part of the email was redacted under the heading “Without Prejudice”.
7 Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696 at [43].
8 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 (footnotes omitted).
to renew the Lease or as linking such renewal to payment of the disputed invoices. Those conclusions are plain from the language of the email itself.
[73] The email made no reference to the conclusion of any agreement at the meeting in Sydney. If referred only to there being a mutual “wish” to continue “a lease agreement”. The reference to “a lease agreement” was not necessarily a reference to renewing the then current Lease. It is apparent from the email that Wendco’s preference was for a “new long lease” with a landlord contribution to a building upgrade. That is not a continuation of the current Lease. The option of extending the current Lease was expressed as being something Wendco would be “open to”. It was put forward as a fallback option, not as something that had been agreed. In addition, the email asked for something that was not provided for in the then current Lease; a first refusal for a further lease. It follows that any renewal on the terms proposed would have required the Trust’s agreement. There was no reply to the email.
[74] In addition, the email asked for Mr Howley’s “thoughts on this”. That request is inconsistent with there being any agreement at that time, as asserted by Ms Lendich. Furthermore, the email stated that Ms Lendich would send a separate email on the invoices. That suggests Ms Lendich considered that payment of the disputed invoices was separate from the renewal of the Lease. That suggestion is inconsistent with Wendco’s claim that payment of the invoices was consideration for and part performance of the asserted agreement to renew the Lease.
[75] The email of 24 September 2018 reinforces the conclusion that no agreement was made in July 2018 to renew the Lease. It again asked for Mr Howley’s thoughts “regarding extending the lease”. It made no reference to there being an agreement in place. That a rent review appears to have been in progress or in prospect is also inconsistent with Wendco’s claim that the essential terms of the renewed lease had been agreed. There was no reply to this email either.
[76] Accordingly, on the basis of the emails of 2 August 2018 and 24 September 2018, and in the absence of any reply to those emails, I am satisfied that there is no tenable basis for an arbitrator to hold that, in July 2018, Wendco and the Trust had agreed to renew the Lease in consideration of payment of the disputed invoices.
Ms Lendich’s evidence to the contrary is inconsistent with her own contemporaneous correspondence. Whether or not the invoices were paid has no bearing on that conclusion. There is no need, therefore, to resolve the conflict in the evidence on that point.
[77] The subsequent correspondence between Wendco and the Trust further supports the conclusion that there was no agreement in July 2018 to renew the Lease. Mr Orlowski’s email of 20 August 2020 was sent a full year before the then Lease was due to expire. It set out Wendco’s “proposal” for a renewal of the Lease. Apart from the proposed right of first refusal to purchase the Greenlane Premises, the offer was much the same as the fall back option in Ms Lendich’s email of 2 August 2018. The offer would have been unnecessary if there had been an agreement in July 2018 to renew the Lease. The fact the offer was made in August 2020 is not consistent with Wendco’s claim that there was such an agreement in July 2018.
[78] Mr Orlowski’s email does not refer to any July 2018 agreement to renew the Lease. Nor is there any reference in any of the subsequent correspondence between the parties or their agents right up to the commencement of this proceeding. Significantly, in her email of 23 February 2023 to Mr Howley, Ms Lendich stated that Wendco had “tried to negotiate a lease with you over the past 5 years or more”. That statement is at odds with the claim that an agreement to renew the Lease had been reached in July 2018, well within the period of “5 years or more” referred to by Ms Lendich.
[79] In conclusion, all of the documentary evidence between August 2018 and February 2023 is inconsistent with Wendco’s claim that an agreement to renew the Lease had been reached in 2018. I am satisfied that there was no such agreement. In these circumstances it is not necessary to consider whether any such agreement was part performed in order to avoid the requirement of s 24 of the Property Law Act that the agreement had to be in writing.
[80] I am satisfied that there is no serious question to be tried as to whether Wendco and the Trust agreed in 2018 to renew the Lease. Accordingly, there is no reasonable possibility that Wendco will succeed on the merits of its claim in that regard.
Is there a reasonable possibility that Wendco will succeed on the merits of its claim that the Trust is precluded by the Addendum from using the Greenlane Premises other than as a Wendy’s Restaurant?
[81] Ms Lendich says in her affidavit of 18 May 2023 that Wendco’s “take” on the Addendum was that it ensured that the Greenlane Premises would be available for use as a Wendy’s Restaurant as long as a franchisee was willing to operate a Wendy’s Restaurant from the Greenlane Premises and leases were in place for the Greenlane Premises, the Mt Wellington Premises and the Panmure Premises. Ms Lendich, acknowledges, however, that the Leases and the Addendum were standard form documents provided by Wendy’s International and that Wendco did not participate in the drafting of the documents other than signing them.
[82] Although there is no other evidence about the intended purpose of the Addendum, it is obvious the Addendum does not have the effect suggested by Ms Lendich. It is also obvious the Addendum could never have been intended to bind anyone who purchased the Greenlane Premises from Wendy’s NZ, irrespective of the standard form clause in the Addendum that the reference to a party included that party’s successors or assigns.
[83] It is clear that cls 2.1, 3.1 and cl 4.1 of the Addendum were for the benefit of Wendy’s NZ while it owned the three Premises in Greenlane, Mt Wellington and Panmure. The clauses were not intended to benefit or bind any tenant of the Premises or subsequent purchaser of the Premises.
[84]While Wendy’s NZ owned the Premises:
(a)cl 2.1 allowed it to withhold consent to any business use of the Premises other than that of a Wendy’s Restaurant even if a proposed alternative use came within the parameters specified in cl 18;
(b)cl 3.1 allowed it to withhold consent to an assignment of the Lease, even if the conditions specified in cl 36 of the Lease had been met; and
(c)cl 4.1 provided that the Lease would be terminated if the tenant ceased to be a franchisee of Wendy’s NZ and no other Wendy’s franchisee was available .
[85] In these respects, the clauses protected Wendy’s NZ interests while it owned the Premises, from having to take steps or accept circumstances that did not align with its commercial interests relating to the operation of the Wendy’s franchise in New Zealand.
[86] Given that the Addendum was signed at the same time as the Leases and in preparation for the divestment of Wendy’s International’s assets in New Zealand, and given that Wendy’s NZ was the vehicle for achieving that divestment, it is plain the Addendum was intended to have effect only for a short period – that is, until Wendy’s NZ had sold the Premises subject to the Leases. In that respect, there is no commercial unreality to the Addendum applying for only the six months between its signature and settlement of the Trust’s purchase of the Premises.
[87] Conversely, it would be thoroughly unreal from a commercial perspective to interpret cl 2.1 as imposing an obligation on a subsequent purchaser of the Greenlane Premises to maintain the business use of the premises as that of a Wendy’s Restaurant irrespective of whether the tenant was complying with the Lease and irrespective of whether there was a valid lease in place. The commercial absurdity of that result is further underlined by the fact that the Wendy’s franchise can extend to 2038 and, if further renewed, even beyond that date. Any obligation to restrict the business use of the Greenlane Premises for such an extensive, and possibly indefinite, period would have had to have been disclosed to any potential purchaser and would have been destructive of any value that Wendy’s NZ could have realised from a sale of the Premises subject to the Lease.
[88] It follows that to interpret “Landlord” in cl 2.1 (and in cls 3.1 and 4.1) as meaning a successor or permitted assign of Wendy’s International would not be consistent with the provisions of those clauses. It is hardly surprising, therefore, that the Addendum was not disclosed to the Trust when it purchased the Premises given that it would not apply to the purchaser and had no bearing on that purchase.
[89] In summary, I am satisfied that it is not reasonably arguable that the Addendum has the meaning or effect contended for by Wendco and that there is no serious question to be tried as to the interpretation and application of the Addendum.
[90] I am satisfied, therefore, that there is no serious question to be tried as to whether the Trust is precluded by the Addendum from using the Greenlane Premises other than as a Wendy’s Restaurant as long as a franchisee is willing to operate a Wendy’s Restaurant from the Greenlane Premises. Accordingly, there is no reasonable possibility that Wendco will succeed on the merits of its claim in that regard.
Conclusions and result
[91] For all the above reasons, I am satisfied that there is no reasonable possibility that Wendco will succeed on the merits of its claims with respect to the renewal of the Lease or the effect of the Addendum.
[92] It follows that Wendco has not satisfied the requirements of art 17B(1)(c) of sch 1 of the Arbitration Act. In these circumstances, it is unnecessary to consider whether the balance of convenience favours Wendco or the Trust. In any event, Mr Kohler properly conceded that the balance lies in Wendco’s favour.
[93] Nonetheless, because Wendco has not satisfied the requirements of art 17B(1)(c), I must decline its application for interim orders.
[94]I dismiss the application accordingly.
[95] I also discharge the order made by Jagose J on 25 May 2023 prohibiting the Trust from terminating the Lease.9
9 Above n 1.
Costs
[96] As the successful party, the Trust is entitled to costs on a 2B basis. Counsel are directed to try to agree on costs. If counsel are unable to agree, they may submit memoranda of no more than four pages:
(a)Any memorandum from counsel for the Trust is to be filed and served by 1 September 2023.
(b)Any memorandum from counsel for Wendco is to be filed and served by 22 September 2023.
G J van Bohemen J
0
4
1