Colin Dennis Adams and Richard Neil Adams and the E W Parker Trustee Company Ltd v Touchtwo Ltd and Ors

JurisdictionNew Zealand
CourtHigh Court
JudgeHugh Williams J.
Judgment Date07 May 2010
Neutral Citation[2010] NZHC 873
Docket NumberCIV-2009-404-5274

[2010] NZHC 873

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV-2009-404-5274

Between
Colin Dennis Adams and Richard Neil Adams and the E W Parker Trustee Company Limited
Plaintiffs
and
Touchtwo Limited
First Defendant

and

Louis Philip Jones
Second Defendant

and

Julie Claire Christie
Third Defendant

and

BFS Auckland Limited
Fourth Defendant

and

Howard Stanley Moore
Fifth Defendant

and

Gillian Patricia Moore
Sixth Defendant

and

Caroline Roser Chapman
Seventh Defendant
Counsel:

G P Blanchard and P A Chambers for Plaintiffs

T J Cooley for First to Third Defendants

No appearance for Fourth to Seventh Defendants

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.

Held: English law held that an assignment that extended the term of the lease beyond that originally contemplated triggered a legal fiction of surrender by operation of law and a re-grant of a new lease. However much it might be regarded as a legal fiction, the lease between T Ltd and B Ltd effected a surrender of the balance of the original lease and a re-grant of a new lease to B Ltd from 2006 until 2016. Such a legal fiction could be displaced by clear evidence of the intention of the parties expressed in the documents, but there was no evidence the parties ever realised their mistake, that being the fictional surrender and re-grant. The parties had replaced one lease with another for the balance of the existing term plus a substantial period thereafter. The variation/extension had materially altered the original 1999 lease by deleting the lessor's power of early termination and limiting the lessees' right to alter the premises. The transaction should therefore be viewed as a surrender of the original lease.

A's application for summary judgment therefore failed but that result shouldn't overlook 2 matters: (1) T Ltd had argued that the Court should not follow English law, but were unable to suggest what should replace it, and in any case, common law had developed a fiction to deal with what parties agreed in a commercial context, any divergence from English law adopted in NZ would most likely reflect the terms of the Covenants Act 1995 (UK): (2) in enacting the Property Law Act 2007, the New Zealand Parliament decided not to follow the Covenants Act. When the New Zealand Parliament did not follow the British Parliament's lead, it was not for the Court to do so.

Section 206 PLA set out the effect of transfer of leases, whereby the assignor remained liable for all rent payable. However, in executing the 2006 lease, T Ltd could not have their liability increased beyond that in the 1999 lease.

The claim under the Contractual Mistakes Act 1977 failed as the parties could not be said to be mistaken when they had not turned their mind to an issue. There was no evidence to show that T Ltd had intended to remain liable to A.

Without any evidence relating to the market rent for similar property, the Court was unable to conclude whether or not A had failed to mitigate the loss. A was under no duty to mitigate its loss until after the expiry of the 1999 lease. T Ltd's application for summary judgment was dismissed.

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.

TABLE OF CONTENTS

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]

Introduction
1

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.

2

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.

3

It was said by counsel that the point in issue appears not to be the subject of any directly applicable precedent in this country.

Facts:
(1) Lease and Assignments
4

The central facts are straightforward.

5

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.

6

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.

7

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.

8

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.

9

The second and third defendants, Mr Jones and Ms Christie, guaranteed Touchtwo's obligations.

10

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.)

11

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.

12

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.

(2) Defaults, Further Assignment, Termination
13

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.

14

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...

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