Country Club Apartments Ltd v Mft Properties Ltd

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeWinkelmann J
Judgment Date08 Nov 2011
Neutral Citation[2011] NZCA 560
Docket NumberCA244/2011

[2011] NZCA 560

IN THE COURT OF APPEAL OF NEW ZEALAND

Court:

Arnold, Winkelmann and Andrews JJ

CA244/2011

Between
Country Club Apartments Limited
Appellant
and
Mft Properties Limited
Respondent
Counsel:

L Turner for Appellant

R S Pidgeon for Respondent

Appeal against High Court decision that arrangement to pay lower rental was not binding contract — lower rent paid for some time before lessor applied for order cancelling lease for non-payment of rent — parties' discussions on reduced rent evidenced by email — signature on email was company director's first name — whether there was agreement to reduce rent — whether Contracts Enforcement Act 1956 (“CEA”) applied where oral agreement used as a defence rather than to enforce agreement — whether email was sufficient memorandum for CEA — whether doctrine of part performance applied — whether set off available for accommodation provided by lessee to a third party at the request of lessor.

Held: The parties' conduct and contemporaneous documents led to the conclusion that an agreement to vary the rent was reached in 2006. There was a significant difference between M's explanation in his affidavit as compared to his explanation in cross examination and L's evidence was to be preferred.

There was conflicting authority as to whether raising the existence of an agreement by way of defence amounted to enforcing an agreement under s2 CEA (proof of existence of contracts relating to land). The preferable view was that of the Privy Council in Take Harvest v Liu that an unenforceable agreement could be used as a defence in an action only if raising that defence did not amounted to de facto enforcement of the oral contract. This accorded with the policy of the Act of preventing fraudulent transactions by alleging oral agreements. Both by resisting an action for cancellation, and bringing an application for relief against forfeiture, Country Club was relying on the existence of the agreement and seeking to enforce it by action.

The May 2006 email was sufficient memorandum for the purposes of the CEA. An informal name at the bottom of an email (the first name of the director only) was sufficient to be a signature for the purposes of the CEA. By signing his name “Gary”, M had signified that he, as a director of MFT, was recording the past and present rent. While there was a discrepancy as to GST, the doctrine of rectification was available to amend the instrument to correctly reflect the oral agreement, even if the effect of granting rectification was that a party could no longer rely on the CEA ( United States of America v Motor Trucks Ltd). There was sufficient evidence of an antecedent oral agreement in the terms alleged by Country Club to found a claim for rectification.

In the alternative, the doctrine of part performance of the agreement was available. Section s2(3) provided an exception for the law operating to part performance ( Take Harvest). Contrary to the reasoning in the High Court, Country Club had not incurred a benefit by reason of the reduced rent as this payment was made pursuant to an agreement. There was, moreover, no requirement that Country Club show that it had acted to its detriment in reliance on the oral agreement. It only needed to show it had done acts in performance of the agreement. The payment of the agreed rental over a number of years without objection by MFT was pursuant to the agreement. It would be unconscionable to allow MFT to resile from it and rely on non-payment as a basis for termination.

The evidence established that the arrangements as to the accommodation provided to the third party were between MFT and Country Club, and the amount claimed could be set off. However, the High Court ruling as to quantum would stand.

Appeal allowed.

JUDGMENT OF THE COURT

A. The appeal is allowed.

B. The orders made by the High Court are set aside.

C. The respondent must repay the appellant, within 28 days, such part of the $33,442 which, in terms of this judgment, is an overpayment of rent plus interest.

D. The respondent must repay the appellant, within 28 days, sums paid by way of rental and outgoings to the extent they are in excess of the agreed rental of $8,607.75, plus interest.

E. The appellant is entitled to a set off in respect of the cost of accommodation provided to Mr Colvin, calculated at a rate of $350 per week.

F. The respondent must pay the appellant costs for a standard appeal on a band A basis with usual disbursements.

REASONS OF THE COURT

(Given by Winkelmann J)

Introduction
1

The appellant, Country Club Apartments Ltd (Country Club), leased premises from the respondent MFT Properties Ltd (MFT). In 2010 MFT purported to cancel the lease, relying on Country Club's non-payment of rent and failure to formally renew the lease. When its right to cancel was challenged by Country Club, MFT applied to the High Court for an order cancelling the lease. Country Club in turn applied to the High Court for relief against the refusal by MFT to renew and against forfeiture of the lease for non-payment of rent, relying upon a purported variation of the lease which reduced the rent payable.

2

Woolford J granted relief against the refusal to renew and the cancellation, but found that the arrangement regarding a lower rental was not a binding contract – it was not recorded in writing as required by the Contracts Enforcement Act 1956 (the Act) 1 and was therefore an indulgence revocable at will. 2 He ordered Country Club to pay the difference between the lower rental rate and that fixed in the lease from 15 October 2009 until the date of judgment within 14 days, or the lease would be cancelled.

3

Country Club argues that the Judge was wrong to find that there was no binding agreement in relation to the reduction of rent. It says that he also erred in applying the provisions of the Act, but having applied the Act, that he should have found there was an adequate memorandum in writing of the agreement for the

purposes of the Act. In the alternative, Country Club says that there was part performance of the agreement and therefore the contract was enforceable at equity.
4

The issues in relation to these aspects of the appeal are as follows:

  • (a) Was there a variation to the lease reducing the rent payable?

  • (b) If so, were the provisions of the Act engaged?

  • (c) If the provisions of the Act are engaged, was there a sufficient written memorandum of that agreement to fulfil the requirements of the Act?

  • (d) If there was not a sufficient memorandum, can Country Club rely upon the doctrine of part performance to enable it to enforce the agreement to vary rent?

5

Country Club also brings an appeal in relation to the Judge's rejection of a set off claimed on account of accommodation provided by Country Club at the request of MFT's director, Mr McNabb. Country Club appeals the Judge's finding that the obligation to pay for the accommodation lay with a third party, not MFT, so that no set off was available.

Appeal in relation to cancellation of lease
Factual background
6

Country Club operates the “Quest on Mount”, which is in the business of providing serviced apartments. Part of the building used for the business is leased from MFT.

7

When Country Club bought the business in March 2006 it took an assignment of the lease. The assigned lease was for a term of five years with three further rights of renewal of five years each. The lease provided for biennial rent reviews, and obliged the tenant to pay 100 per cent of the outgoings. The Deed of Assignment of the lease from the previous tenant to Country Club recorded an annual rent for the premises of $136,000 plus GST per annum.

8

A monthly amount calculated in accordance with this annual amount was paid for the first few months of Country Club's occupation of the leased premises. In mid-2006 Country Club's sole director and shareholder, Mr Graeme Latta, proposed to MFT's director, Mr McNabb, the payment of rental and outgoings on a reduced basis. From that time until the purported cancellation of the lease by MFT, Country Club paid a monthly rental of $8,420 (equating to $101,040 per annum) and MFT paid outgoings comprising rates and body corporate charges.

9

The formal lease expired on 30 September 2006, seven months after Country Club took over the business. Although it was never formally renewed, Country Club's occupancy ran on with the (reduced) rent being paid, although payment was late on occasions.

10

In mid-2009 Mr Latta sought a further reduction in rent from Mr McNabb. He proposed a 12 per cent reduction to $7,410 (inclusive of GST) per month. MFT did not agree to that reduction, but discussions regarding the rent were put on hold as the parties entered into negotiations about the possible purchase of the leased premises by Country Club.

11

In October 2009, and whilst those negotiations were still taking place, solicitors acting for MFT wrote to Country Club advising that the concession that MFT had given to Country Club in relation to rent and operating expenses was at an end and requiring Country Club to pay the contract rent of $136,000 plus GST and outgoings from that date. Country Club responded that the rent it was paying was not a concession but rather was a variation settled through a rent review process.

12

Country Club did not pay the increased rent or the outgoings as requested by MFT. Nevertheless the parties continued negotiating over the possible purchase of the business. When those negotiations broke down in mid-2010, MFT served a notice of intention to cancel the lease. It relied on alleged breaches of the obligation to pay the rent and outgoings as recorded in the Deed of Assignment. When Country Club protested that the rent had been paid as agreed between the parties, MFT responded by saying that because of a failure by Country Club to take the required steps to formally renew the lease, Country Club's tenancy was a...

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