Colin Dennis Adams and Richard Neil Adams and the E W Parker Trustee Company Ltd v Touchtwo Ltd and Ors
| Jurisdiction | New Zealand |
| Judge | Hugh Williams J. |
| Judgment Date | 07 May 2010 |
| Neutral Citation | [2010] NZHC 873 |
| Docket Number | CIV-2009-404-5274 |
| Court | High Court |
| Date | 07 May 2010 |
and
and
and
and
and
and
[2010] NZHC 873
CIV-2009-404-5274
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
Application for summary judgment against Touchtwo Ltd for rental arrears — Touchtwo sought summary judgment on the basis that Adams' claims could not succeed — Touchtwo leased premises from Adams — Adams gave notice under s245 Property Law Act 2007 of their intention to cancel the lease — Touchtwo had assigned the lease which extended the original 10 year lease — whether the lease had been surrendered by operation of law — whether Touchtwo had implied or expressly stated it would remain liable for rent after the expiry of the original 10 year lease — whether the Contractual Mistakes Act 1977 applied.
G P Blanchard and P A Chambers for Plaintiffs
T J Cooley for First to Third Defendants
No appearance for Fourth to Seventh Defendants
A The lease in question having been surrendered by operation of law, the plaintiffs' application for summary judgment against the First to Third defendants, and the First to Third defendants' application for summary judgment against the plaintiffs are both dismissed for the reasons set out in this Judgment.
B Costs are to lie where they fall.
RESERVED JUDGMENT OF Hugh Williams J.
| Paragraph | |
| Introduction | [1] |
| Facts: | [4] |
| (1) Lease and Assignments | [4] |
| (2) Defaults, Further Assignment, Termination | [13] |
| (3) Evidence | [16] |
| Submissions: | |
| (1) Plaintiff's surrender by operation of law | [25] |
| (2) Express or Implied Agreement | [26] |
| (3) Estoppel by Convention | [28] |
| (4) Contractual Mistakes Act 1977 | [31] |
| (5) Failure to Mitigate/Unreasonable Refusal to Assign | [32] |
| (6) Touchtwo Defendants | [37] |
| (7) Plaintiffs' Reply | [44] |
| Discussion and Decision: | |
| (1) Surrender by operation of law and Re-grant of the Lease of 7 December 1999 | [45] |
| (2) Contractual Mistakes Act 1977 | [84] |
| (3) Express or Implied Agreements/Estoppel by Convention | [91] |
| (4) Unreasonable Refusal of Consent to Assignment/Mitigation of Loss | [97] |
| Quantum of Claim | [101] |
| Result | [104] |
In this proceeding the plaintiffs, the Trustees of the C R Adams Trust, seek summary judgment against the First-Third Defendants (“the Touchtwo defendants”) for $431,929.19, the sum which the plaintiffs say is owing under a lease dated 7 December 1999 and the Touchtwo defendants seek summary judgment against the Adams Trust on the basis that none of the causes of action in the claim against them can succeed.
The pivotal question on which both applications depend is whether the lease has been surrendered by operation of law. Broadly put, if it has, then the Adams Trusts cannot obtain summary judgment. If it has not, then the Touchtwo defendants' application to strike out the relevant portions of the claim cannot succeed.
It was said by counsel that the point in issue appears not to be the subject of any directly applicable precedent in this country.
The central facts are straightforward.
The Adams Trust has at all material times been the registered proprietor of the property at 144 Parnell Road, Auckland. Throughout, the premises have been utilised as licensed/eating house premises, though with a different emphasis from time to time.
On 7 December 1999 the Adams Trust leased 144 Parnell Road to the Touchtwo defendants for a term of 10 years from 1 January 2000 to 31 December 2009. There were to be bi-annual reviews of the rent – set initially at $202,000 plus GST – but the lease contained no right of renewal.
As with many commercial lettings, the lease obligated the lessees to pay rates, insurance premiums and similar levies, contribute to a maintenance reserve fund (the amount of which was varied by letter mid-term), and prohibited assignment without consent and without complying with a right of first refusal by the Adams Trust.
The lease provided for early termination (cl 21) and holding over as monthly tenant “otherwise than pursuant to the grant of a further lease” (cl 22) and said termination of the lease would not release the Touchtwo defendants from liability for rent then unpaid. In the event of termination the Lessee was to indemnify the Lessor “against any loss of rent and payment of outgoings … for the period from the determination date to the date when the term of this lease would otherwise have expired” (cl 13.1(c)). Touchtwo agreed to pay interest at 5% over the lessor's overdraft rate on amounts payable but unpaid for 14 days.
The second and third defendants, Mr Jones and Ms Christie, guaranteed Touchtwo's obligations.
On 30 June 2006 Touchtwo entered into an assignment of the lease to the fourth defendant, BFS Auckland Limited, with the fifth – seventh defendants guaranteeing BFS's obligations (the “BFS defendants”). (Counsel said the BFS defendants acknowledge their liability in this claim and are in negotiation with the plaintiffs. Those negotiations are in abeyance until determination of the summary judgment applications.)
The assignment was in the ADLS 1 form then current. It obligated the assignee and its guarantors to pay rent for the balance of the term of the lease. Touchtwo expressly acknowledged:
That the covenants of the assignee are not in substitution for and do not reduce prejudice or vary the liability of the assignor under the lease.
Also on 30 June 2006 the Adams Trust entered into a Deed of Variation of Lease with the BFS defendants whereby the term of the lease was extended to 31 May 2016. Touchtwo was not a party to that Deed. That extension of term is crucial to the present dispute.
Payments under the lease were made until about 2 June 2008 but fell into arrears thereafter. Although some further payments were made, by 9 April 2009 the position had been reached where, according to the Adams Trust, $134,854.46 was owed. It gave notice on that date to BFS of its intention to cancel the lease under s 245 of the Property Law Act 2007 (the “2007 Act”). That notice was copied to the Touchtwo defendants.
On 6 May 2009 the Adams Trust solicitors notified the Touchtwo and BFS defendants that the 7 December 1999 lease was at an end. The letter said that took effect from 2 May 2009, but it is a little difficult to correlate that advice with the commencement date in the lease to the new tenant, Juice TV Bar Limited, of 1 July 2009. The rental payable under the Juice lease was rent free for the first four months, $160,000 plus GST from 1 July 2009–28 February 2010, $200,000 plus GST for the next period ending on 31 January 2011 and $220,000 plus GST from 1 February-31 December 2011. It was then to be subject to rent review. Thus the rent payable under the Juice lease was significantly lower than reviewed rent payable by BFS.
On 18 June 2009 the Adams Trust issued demands to the Touchtwo and BFS defendants. The former were said to be liable for $431,929.19 and the latter for an additional $291,775.32. The letter said the total claim against the Touchtwo defendants was for money payable under the lease up until cancellation plus the Adams Trust's damages to 31 December 2009. The claims against the BFS defendants were for moneys payable under the lease until cancellation plus the Adams Trust damages to 31 December 2011. The claims were said to be the “difference between the contractual rent under the lease and the rent recoverable under the new lease with a net present value adjustment” plus outgoings and re-letting costs. The demand letter included a number of schedules giving details of the plaintiffs' calculations of the losses, including differences arising from reductions in the plaintiffs' overdraft interest rate from 31 January 2009.
Initially at least, the Touchtwo defendants' response to the claim was largely confined to matters of quantum, but Mr Jones' first affidavit sworn on 27 October 2009 said neither Ms Christie nor he were signatories to the variation extending the lease term and were not provided with a copy before service of these proceedings. He continued:
Whilst we were aware that the landlords had agreed to lease the premises to BFS for an extended term, we did not appreciate that the Deed of Variation of lease may have had a legal impact upon our obligation to the Landlord under the Lease, Guarantee and Assignment.
At no time did the plaintiff request Ms Christie or myself to sign the variation of Deed of Variation of Lease or agree that the obligation of Touchtwo under the lease and myself and Ms Christie under the Guarantee were to extend to the terms of the variation. Certainly, Touchtwo, Ms Christie and myself would not have agreed to sign the Deed of Variation of Lease as we had no intention of incurring any further liability to the plaintiffs in relation to the premises.
We now understand that the Lease, including the Guarantee, was surrendered by operation of law when the Deed of Variation of Lease was executed and the term was extended from 31 December 2009 to 31 May 2016. Accordingly, we believe that the plaintiff's claim against Touchtwo, Ms Christie and myself should be dismissed on the basis that the Lease, including the Guarantee,...
To continue reading
Request your trial