RONALD EDWARD McDRURY and JOHN GERARD McDRURY of Tai Tapu, Farmers v FRANCO LUPORINI and GRAZIANA MARIAM MOLTENI LUPORINI both of Darfield, Farmers [1999] NZCA 309 (14 December 1999)

IN THE COURT OF APPEAL OF NEW ZEALAND

ca25/99

	between	RONALD EDWARD McDRURY and JOHN GERARD McDRURY of Tai Tapu, Farmers
		Appellants

	and	FRANCO LUPORINI and GRAZIANA MARIAM MOLTENI LUPORINI both of Darfield, Farmers
		Respondents

Hearing:	18 October 1999
Coram:	Tipping J McGechan J Paterson J
Appearances:	D H Hicks and S A Johnston for Appellants R A Osborne and CJR Baird for Respondents
Judgment:	14 December 1999

judgment of the court delivered by TIPPING J

Introduction

[1] The appellants (the McDrury brothers) leased a 318 hectare farm at Glenroy beside the Hororata River from the respondents (the Luporinis).The Luporinis as lessors continued to live on the homestead block, which was excluded from the lease.The lease was for 3 years from 1 April 1995 but on 16 October 1996 the Luporinis forfeited the lease and re-entered.The validity of their doing so is at the heart of this appeal.The McDrury brothers contended at the trial before Young J in the High Court at Christchurch that the Luporinis had waived the breach upon which they relied.The re-entry and forfeiture were accordingly said to be invalid and unlawful.The Luporinis argued they had not waived the breach and accordingly their actions were justified and valid.It is no longer in dispute that, as Young J found, the McDrury brothers were in breach of the lease by not applying fertiliser to the land as required.It should be noted however that throughout the material time and at trial the McDrury brothers maintained they were not in breach and had applied the required fertiliser.

Background circumstances

[2] The Luporinis came to New Zealand from Italy in 1990.The Judge described them both as sophisticated and particular people.At the time of the trial they had a good command of English in which they gave evidence.At the commencement of the lease they had virtually no farming experience.The Judge described the McDrury brothers as very experienced and competent farmers, who had owned and leased a number of farms together.

[3] The crucial events surround 1 April 1996.By that date the McDrury brothers were obliged in terms of Clause 2(b) of the lease to have applied, in consultation with the Luporinis, a certain amount of fertiliser during the first year of the term.They were also obliged to have provided written evidence of having done so.On 25 January 1996 the Luporinis' solicitors wrote to the McDrury brothers' solicitors advising that the Luporinis had been inspecting the farm regularly and certain matters required attention as soon as possible.On 22 February the Luporinis' solicitors advised the McDrury brothers that 57 tonnes of fertiliser had to be applied by 31 March 1996 to fulfil the fertiliser covenant.

[4] The Luporinis were leaving for Italy on 1 April.Their solicitors wrote to the McDrury brothers' solicitors on 29 March stating that the required 57 tonnes had still not been applied.Actually some 3.5 tonnes had earlier been applied but that is of no present moment.The Luporinis' solicitors indicated to their counterparts that if the McDrury brothers had not applied the necessary fertiliser within the next two days they would have their own fertiliser contractor do so on Monday 1 April 1996.The Luporinis did not in the event pursue that course.

[5] On Sunday 31 March 1996 Mr Luporini sent a fax to the McDrury brothers saying that he and his wife had noted that the day before two trucks had been sent to the farm to spread fertiliser.The fax continued:

By talking with the drivers we noticed that only around 20 tonnes were spread.

That happened without any consultation with us as provided by Clause 2B(i) of the Lease Agreement.

We wish to remind you that Mr John McDrury was well aware of the date of our departure, which is tomorrow, and therefore we formally ask you not to apply any further fertiliser during our absence.

[6] At the same time as sending the fax Mr Luporini made contact with his solicitor and gave him instructions which included the information that only about 20 tonnes of fertilizer had been applied instead of the required 57 tonnes.

[7] The Luporinis' solicitors wrote to the McDrury brothers' solicitors on Tuesday 2 April 1996 saying, among other things, that their clients' "attempt to comply with [the fertiliser covenant] was too late and too little".They also said "Our clients [the Luporinis] also noted that only about 20 tonnes were applied instead of 57 tonnes as agreed..."The McDrury brothers' solicitors replied to this letter on 24 April.The letter constituted simply a bare denial of any breach.It said a detailed response would be given later but no such was forthcoming until attempts were made to justify the McDrury brothers' stance months later.

[8] The McDrury brothers were in breach of the fertiliser covenant on and from 1 April 1996 when the required amount of fertiliser had not been applied by 31 March 1996.It is common ground that this was a non recurring, not a continuing, breach.The Luporinis continued to invoice the McDrury brothers for rent right through until they re-entered in October 1996.The rent so invoiced was paid and accepted.In July 1996 the Luporinis served a notice under s118 of the Property Law Act 1952 on the McDrury brothers who continued to deny any breach of the fertiliser covenant as they had done from 24 April of that year.The notice was not fulfilled and re-entry followed.It was contended that by accepting rent the Luporinis waived the breach if they had sufficient knowledge of it.They denied they had sufficiently clear and certain knowledge of the breach to qualify their acceptance of rent as a waiver of it.Young J upheld their stance and the McDrury brothers appeal claiming that the Judge erred in this respect.

High Court judgment

[9] After reference to authority the Judge held that a lessor must be "fully aware" of the lessee's breach before a waiver can be found.He then said:

In this case the McDrury brothers were asserting at the time and have continued to assert down to trial that the fertiliser requirement had been satisfied.I have rejected that contention.Their alternative argument is the unattractive one that it was so obvious that they were lying that the Luporinis must be taken to have known that this was so and thereby, while investigating the position, inadvertently waived the breach when accepting rent and otherwise acting on the lease.

Throughout the Luporinis obviously believed that there had been breaches.But given that the detail of the fertiliser which was applied lay principally within the knowledge of the McDrury brothers, they could hardly be completely confident (to the point of knowledge) that there had been breaches.

[10] It followed in the Judge's view that the Luporinis had not waived their right to forfeit and re-enter.Of course following a valid waiver the breach can no longer be relied upon as a basis for re-entry: Jacob v Down [1900] 2 Ch 156; Segal Securities Ltd v Thoseby [1963] 1 QB 887. Indeed in such circumstances forfeiture and re-entry are themselves breaches of the covenant for quiet enjoyment and actionable by the lessee accordingly:see Cash Handling Systems Ltd v Augustus Terrace Developments Ltd (1966) 3 NZ ConvC 192,398 (HC).The first question is whether the Judge correctly directed himself as to the knowledge required for waiver and, if so, whether he correctly applied the law to the facts of the present case.

Waiver:knowledge

[11] The knowledge required for waiver is knowledge of the facts constituting the breach.There does not have to be knowledge of the legal consequences of those facts, nor need there be any intention to waive:see Cornillie v Saha and Bradford & Bingley Building Society (1996) 72 P & CR 147 (CA) per Aldous LJ at 156-7.In Van Haarlam v Kasner [1992] 2 EGLR 59 Harman J said:

The decision [referring to Chrisdell v Johnson (infra)] does not seem to have been reached upon any very detailed consideration of the authorities, which are lengthy.They appear in Woodfall (28th ed) as note 44 to para 1-1913 and Woodfall summarises the decision itself at the end of that paragraph as follows:

Where a landlord suspected that a tenant might be in breach of the tenancy agreement, but was not sufficiently confident that a judge would disbelieve the tenant's denial of that allegation, a failure to take any action against the tenant and a continued acceptance of rent did not amount to a waiver of the breach.

Thus, Woodfall explains it as mere suspicion faced with a clear explanation and denial upon the other side.

[12] Thus it is clear that suspicion does not constitute knowledge.In order to know something it is necessary at least to believe it to be so.What is in issue in waiver cases is actual knowledge as opposed to constructive knowledge. In Tri-Star Customs and Forwarding Ltd v Denning [1999] 1 NZLR 33 this Court discouraged undue sophistication in cases where actual knowledge is in issue.Writing for the Court Henry J said:

It is sometimes said that so-called wilful blindness constitutes actual knowledge.Again, whether such a separate classification is helpful may be doubtful.The deliberate shutting of eyes to what is an obvious fact may well lead to a finding or assist in drawing an inference of knowledge in a particular set of circumstances.But the need to have regard to specified categories is not apparent, and can lead to undesirable rigidity.The inquiry is a straightforward question of fact, which does not require either the substitution of other words or the application of a formula.We also doubt whether the further category relied on by Mr Katz, namely wilful and reckless failure to make the inquiries an honest person would make, could be said to necessarily demonstrate actual knowledge. (at 38/28-40)

[13] In similar vein we doubt whether such expressions as "full knowledge" and "fully aware" are of any particular assistance except to emphasise that actual knowledge and not some lesser state of mind is necessary.Put bluntly people either know something or they do not.The onus in waiver cases is on the party in breach to establish on the balance of probabilities that the other party knew the facts constituting the breach.In this case the McDrury brothers had to show that the Luporinis knew they, the McDrury brothers, were in breach of the fertiliser covenant as at 1 April 1996.Their continuing protestations that they were not in breach did not make their task any easier:compare Glidewell LJ in Chrisdell Ltd v Johnson [1987] 2 EGLR 123, 125:

If a landlord receives a representation from his tenant which, if true, it means that there has been no breach, and if the landlord, not being sufficiently confident of the untruth of what the tenant said, decides not to take proceedings, but proceeds on the basis that what the tenant says is true then, in my view, it cannot later be said that he knew all the necessary facts to establish a breach.

But even when the lessee denies the breach it is still possible that the lessor knows there has been a breach and can be found to have waived it by subsequent conduct.What is more, in the present case the McDrury brothers' unparticularised denial was not formally communicated until 24 April, some three weeks after the breach occurred.During this three week period the Luporinis invoiced the McDrury brothers for the April rent and accepted payment.Thus there were acts of waiver during a time when the McDrury brothers' stance as to compliance with the fertiliser covenant was equivocal, certainly not a flat denial.

[14] In the passage from his judgment mentioned earlier Young J found the Luporinis could hardly have been "completely confident (to the point of knowledge)" that there had been a breach of the fertiliser covenant.His basis for saying this was that the detail of the fertiliser applied lay principally within the knowledge of the McDrury brothers.Leaving aside whether the phrase "completely confident" is necessarily an appropriate substitute for the concept of knowledge, we have, with respect, real difficulty with the Judge's conclusion.As at 29 March 1996 the Luporinis knew that 57 tonnes or thereabouts of fertiliser had to be applied by the end of 31 March.So much cannot really be in doubt.A month earlier on 22 February the Luporinis knew that 57 tonnes were required.They said as much in their solicitor's letter of that date.They indicated they would make arrangements to have that amount of fertiliser applied at the McDrury brothers' cost if the McDrury brothers had not done so themselves.On 29 March the Luporinis instructed their solicitor to write to the McDrury brothers' solicitors saying that the required fertiliser "has still not been applied as at today's date". On 30 March the two trucks arrived at the farm about 7am and spread around 20 tonnes.That was within the direct knowledge of the Luporinis because they were there and confirmed the amount with the truck drivers.The Luporinis therefore knew that no more than 20 tonnes had been applied on 30 March as against the shortfall of 57 tonnes.Their solicitors said in the letter of 2 April that the Luporinis had "noted that only about 20 tonnes were applied instead of 57 tonnes as agreed".

[15] With respect to the Judge we consider that there arose from this sequence of events and correspondence an irresistible inference that the Luporinis knew that the McDrury brothers had not supplied the required amount of fertiliser by 31 March.They therefore knew the facts which constituted the breach of the fertiliser covenant by the McDrury brothers.This inference of knowledge must be drawn in spite of the fact that the McDrury brothers later denied they were in breach.In the absence of an estoppel or other cause (none was pursued here) a denial by the lessee of a breach does not prevent the lessee from later asserting waiver; albeit against such denial the inference of knowledge of the breach by the lessor must be a strong one.In the present case the formal denial came after acts of waiver but in any event we consider that such inference is strong.If there were no knowledge of the breach in the present case it is difficult to see how a lessor could ever have knowledge of a denied breach.Even if one were to adopt expressions like full knowledge or fully aware we consider, with respect, that the Luporinis were fully aware and had full knowledge that on 30 March the McDrury brothers supplied under half the fertiliser which the lease still required them to apply.In his evidence Mr Luporini said that when he wrote his fax of 31 March to the McDrury brothers he did not think they had completed their obligations for fertiliser.He thought they had a substantial quantity still to apply.

[16] The Judge's finding of lack of knowledge was not a finding of primary fact.It was a finding which depended on his declining to draw an inference of knowledge from largely uncontested primary facts.In such circumstances the ordinary restrictions which apply to an appellate Court in differing from the trial Judge on matters of fact do not apply with such force.Having given the matter the most careful consideration we feel compelled to differ from the Judge and hold that the McDrury brothers did prove on the balance of probabilities that the Luporinis knew they were in breach of the fertiliser covenant as at 1 April.

Waiver - relevant legal ingredients

[17] Based on a suggestion from the Bench not argued below, Mr Osborne contended in supplementary written submissions, that even if his clients had knowledge of the breach they were not precluded by waiver from forfeiture and re-entry.The essence of this submission was that as there was no enforceable right to forfeit until the Property Law Act notice had expired, there could be no waiver of that right prior to such expiry.It is common ground that if this is the correct analysis, there were no acts of waiver in the few days between the expiry of the notice and the date on which the Luporinis purported to forfeit and then re-entered.The point is one of general importance.We will examine the competing submissions in some detail and then state our conclusions.We are indebted to counsel, particularly counsel for the Luporinis, for their research, which is reflected in what follows.

[18] Mr Osborne correctly accepted that from early times the law has not looked with sympathy on rights of forfeiture.In Goodwright d Walter v David [1778] EngR 27; (1778) 2 Cowp 804, 98 ER 1371 Lord Mansfield said cases of forfeiture are not favoured in law; and where the forfeiture is once waived the Court will not assist it.In The Forfeiture of Leases by M Pawlowski, Sweet & Maxwell, 1993 at 139, the author says the common law doctrine of waiver was from early times viewed as a means of mitigating the harshness of the remedy of forfeiture.In England prior to 1881 there was only a limited equitable jurisdiction to grant relief against forfeiture.There was no statutory jurisdiction until the Conveyancing Act 1881 (UK).The equitable jurisdiction was confined to relief against forfeiture for non payment of rent, and to the exercise of a general equitable power, not confined to leases, to grant relief against the consequences of fraud, accident or mistake:see Hill & Redman's Law ofLandlord and Tenant (1999) at para 9081 on page A2426.The current statutory provisions for relief against forfeiture, except in the case of non payment of rent, are to be found in s146 of the Law of Property Act 1925 (UK) and s118(2) of our Property Law Act 1952.

[19] Both sides were agreed that the essence of waiver, at least in the present context, lies in election; that is to say, an unequivocal act demonstrating a choice between two inconsistent rights.In Matamata Metal Supplies Ltd v Waipa District Council [1996] 3 NZLR 190, 193, Henry J writing for this Court, said:

In essence Mr Fogarty relied upon the line of cases which establish that a landlord who receives rent after notice of a tenant's breach of covenant is precluded from taking advantage of the earlier forfeiture. The basis is that it is "a contradiction in terms to treat a man as a tenant, and then treat him as a trespasser." (Finch v Underwood (1876) 2 Ch D 310, 316 per Mellish LJ). In such circumstances the right to exact forfeiture cannot co-exist with the right to receive rent and thereby to treat the former tenant as still the tenant.

The doctrine is expressed in Chitty on Contracts: General Principles (27th ed, 1994) vol 1, 24-005 as arising "when a person is entitled to alternative rights inconsistent with one another and that person acts in a manner which is consistent only with his having chosen to rely on one of them". For it to apply, there must be an unequivocal act which amounts to a choice between two inconsistent rights (Clarkson BookerLtd v Andjel [1964] 2 QB 775, 792).

[20] It is helpful to set out more fully the passage which Henry J cited from Chitty on Contracts.It reads:

Affirmation is sometimes regarded as a species of waiver, the innocent party 'waiving' his right to treat the contract as repudiated.But the word "waiver" is used in the law in a variety of different senses and so bears 'different meanings'.Two types of waiver are relevant here.The first type may be called 'waiver by election' and waiver is here used to signify the 'abandonment of a right which arises by virtue of a party making an election'.Thus it arises when a person is entitled to alternative rights inconsistent with one another and that person acts in a manner which is consistent only with his having chosen to rely on one of them.Affirmation is an example of such a waiver, since the innocent party elects or chooses to exercise his right to treat the contract as continuing and thereby abandons his inconsistent right to treat the contract as repudiated.

[21] It is important to note that waiver, in the present sense of election, depends upon the person said to have made an election being entitled at the time of such election to alternative and inconsistent rights.There cannot be an election unless the person concerned is faced with a choice, and clearly demonstrates which road is being chosen.This is how it was put by Lord Atkin in United Australia Ltd v Barclays Bank Ltd [1941] AC 1, 30:

... if a man is entitled to one of two inconsistent rights it is fitting that when with full knowledge he has done an unequivocal act showing that he has chosen the one he cannot afterwards pursue the other, which after the first choice is by reason of the inconsistency no longer his to choose.

[22] Further statements of high authority to the same effect can be found in Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850, 883A per Lord Diplock; The "Kanchenjunga", Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India [1990] 1 Lloyd's LR 391, 398 per Lord Goff; and The Commonwealth v Verwayen (1990) 170 CLR 394, 406-407 per Mason CJ.Mr Osborne argued that for there to be a right of election each of the two inconsistent rights must be immediately available to the person concerned.He submitted that unless the right to forfeit was immediate, no question of election between that right and the lessor's right to keep the lease on foot could arise.This argument, which is central to the present issue, was also put on the basis that no question of election arises unless both rights have fully accrued.Mr Osborne supported his submission by reference to the judgment of Brennan J in The Commonwealth v Verwayen (supra) at 427 where his Honour said:

As a right is waived only when the time comes for its exercise and the party for whose sole benefit it has been introduced knowingly abstains from exercising it, a mere intention not to exercise a right is not immediately effective to divest or sterilize it. ...

[23] In terms of s118 of the Property Law Act 1952, a lessor's right of re-entry or forfeiture (other than in the case of non payment of rent) is not enforceable by action or otherwise, unless and until a lessor has served on the lessee a notice specifying the particular breach complained of, and, if the breach is capable of remedy, requiring the lessee to remedy the breach, and in any case requiring the lessee to make compensation in money for the breach, and the lessee has failed within a reasonable time to remedy the breach if it is capable of remedy, and to make reasonable compensation for the breach in money to the satisfaction of the lessor.Thus, if, as here, the lessees (the McDrurys) were liable in terms of the lease to forfeiture for breach of the fertiliser covenant, the lessors (the Luporinis) could not exercise their right of re-entry and forfeiture until they had served the requisite notice and the McDrurys had failed, within a reasonable time, to remedy the breach, if it was capable of remedy, and to make reasonable compensation in money.

[24] The Property Law Act notice was served in early July 1996.It gave 3 months for compliance, which the Judge found to have been a reasonable time. Thus compliance was due in early October 1996.Mr Osborne contends that until the notice had expired unfulfilled, the Luporinis had no exercisable right of forfeiture, and thus no question of election could arise until then.So far as counsels' researches have gone, and our own, it seems that no such question as the present has directly arisen in the United Kingdom.There are cases in that jurisdiction which have decided, and this is hardly surprising, that the very act of issuing a Property Law Act notice does not amount to an election to keep the lease on foot:see Old Grovebury Manor Farm Ltd v W C Seymour Plant Sales & Hire Ltd & Anor (No. 2) [1979] 3 All ER 504 (CA) per Lord Russell at 506-507; Church Commissioners for England v Nodjoumi (1985) NLJ 1185; and Civil Service Co-operative Society Ltd v McGrigor's Trustee [1923] 2 Ch 347 per Russell J.

[25] Mr Osborne referred us to the decision of the Ontario Supreme Court (Appellate Division) in J B Jackson Ltd v Gettas [1926] 2 DLR 721. While that case did not involve allegations of waiver by payment of rent, the conclusion of the Court is of relevance.On the facts the Court divided 3:2. In relation to a statute similar to our s118(2), Masten JA observed that a right of forfeiture pending expiry of the notice was best described as an "inchoate right".It was thus described because unless and until the requisite notice had been served, and had expired unfulfilled, the lessor had no unconditional right to forfeit.

[26] Of direct relevance to the present case is Orde JA's statement at 732-733:

The tenant having failed to comply with the requirements of the notice, the landlord's right of re-entry then became enforceable, and it was not until then that he was free to elect whether to exercise it or not.

This observation was in the context of the date from which forfeiture should be regarded as taking effect, but the approach is of obvious present relevance.

[27] Mr Osborne also made reference to cases decided before there was any statutory forfeiture regime but in which there were contractual restrictions on the right to forfeit.In Doe d Morecraft v Meux (1825) 4 B&C 606, the lease provided for three months notice of breach before forfeiture could take place.The landlord gave notice on 7 August 1823.On 24 October 1823 he accepted a half year's rent to 29 September 1823.It is implicit that the Court did not regard the collection of rental as amounting to a waiver of the landlord's right to forfeit.Acceptance of the rent was seen as confirming that the lease would continue for the period of the notice, but without prejudice to the landlord's ability to forfeit if the notice expired unfulfilled.

[28] This approach is supported by Peter Luxton in his article "Business Property - Waiver of Forfeiture:Time to Shake Away the Doctrine of Election" [1991] JBL 342.At 344 the author says:

Since election is thus in suspense during the running of the notice, a landlord may, during such time, demand or accept rent attributable to a period overlapping with the running of the notice without risk of losing the right to forfeit for the breach in respect of which such notice was served.

This suspensory approach leads to the same result as the approach which says that no enforceable right arises until the notice expires unfulfilled.During the currency of the notice, the lease remains in force and the mutual obligations of the parties should be able to be fulfilled and accepted without connotations of waiver by election.

[29] Mr Osborne properly noted certain authorities in England which could be thought to be against him.These included the decision of Sachs J in Segal Securities Ltd v Thoseby (supra) and the decision of the Court of Appeal in Central Estates Ltd v Woolgar (No 2) [1972] 3 All ER 610. Mr Osborne acknowledged that there has been at least a degree of assumption in some writings on the law of forfeiture that demand for or acceptance of rent between breach and issue of notice may amount to waiver. The suspensory approach evidenced in the Luxton article suggests that election is only in suspense during the running of the notice, with the possible corollary that there is the capacity for election prior to the issue of the notice.

[30] As to what view should be taken if a landlord, being aware of a breach, delays in issuing the notice, Mr Hicks argued that the risk that tenants would be put at serious disadvantage by such delay, was a factor which told against the force and desirability of Mr Osborne's submission.

[31] The next case to be mentioned deals both with concerns over that issue and with the main point.It is the decision of the Supreme Court of New South Wales sitting on appeal in Campbell v Payne (1953) 53 NSW SR 537.There was a breach by subletting of which the landlord became aware in January 1952. He accepted rent on 5 November 1952, and served a notice to quit, based on the breach, on 8 November 1952.Although the case was influenced by relevant statutory regulations, Herron J made the point that rent was both payable and receivable during the currency of the required statutory notice.This was on the basis that the lease continued during the notice period and acceptance of rent was therefore not necessarily inconsistent with the lessor's right to determine the lease after the notice had expired, if the tenant had not fulfilled its terms.

[32] There is a helpful commentary on this decision in (1954) 27 ALJ 568.At 569 the author refers to the concern raised that on this approach a landlord might simply equivocate and not issue a notice for some time.Indeed the time between knowledge of the breach and issue of the notice in the case was extensive, some 10 months.The author concluded that the Court had implicitly held that the landlord could not defer action, when entitled to give notice, for a long period of time because this might well be evidence of acquiescence in the conduct complained of.Indeed undue delay in issuing a notice could well lead to an estoppel, particularly if rent was being received in the meantime.

[33] Mr Osborne concluded his submissions by contending that there was no valid policy reason to apply the doctrine of waiver at any point before a s118(1) notice expires.Addressing the concern that this might encourage landlords to sit on their remedies, counsel argued that the doctrines of estoppel and acquiescence were sufficient to control any such problem.Mr Osborne argued that there was nothing unequivocal about the acceptance of rent during the running of a statutory notice.The landlord is obliged to issue the notice and to allow the lease to run on until a reasonable period for remedy has expired. It was also implicit in counsel's argument, that landlords in these circumstances should have a reasonable period to assess their position and their options before being regarded as having elected against forfeiture by accepting rent.Mr Osborne pointed out that the doctrine of waiver was introduced into this field at a time when forfeiture was not statutorily restrained.Counsel suggested that the law had not sufficiently adapted to the circumstances in which landlords were placed by the statutory requirement for notice.

[34] Mr Hicks commenced his submissions by referring to Sachs J's dictum in Segal Securities Ltd v Thoseby (supra), that the law relating to waiver of forfeiture was a minefield in which it is necessary to treat with diffidence and warily.He identified the immediate issue as being whether lessors can be regarded as having waived their right to forfeit before, as he put it, they are in a position to formally complete the act of forfeiture.This reference to completion was made in support of the suggestion that the right to forfeit accrues on breach, but is simply deferred in a procedural sense until a notice has been served and has expired unfulfilled.It must, however, be noted that the right is not deferred simply in a procedural sense.It is capable of being defeated if the tenant complies with the notice.It is therefore truly conditional.

[35] Mr Hicks cited Spencer-Bower & Turner's Estoppel by Representation (1977) which refers at paragraph 318 to election between mutually exclusive steps, proceedings, courses of action or attitudes.Building on this reference counsel suggested that waiver should not focus solely on inconsistent rights. The passage, however, uses the words "steps, proceedings, courses of action or attitudes" in an evidentiary sense.It is the right which is waived by the conduct in question.

[36] An important aspect of Mr Hicks' argument was the proposition that if lessors stated in terms that they realised that the lessee had committed a breach entitling them to issue a s118 notice but they were not going to take that course and wished to keep the lease on foot, the lessors would undoubtedly be held to that election.Counsel argued that the same should apply if the waiver was implied rather than express, and that the Luporinis were trying to make a false distinction in this respect.It is open to the view, however, that in the case posited, ie. an express statement following knowledge of breach, that the landlord proposes to keep the lease on foot, there would arise an estoppel preventing the lessor from later forfeiting rather than an election not to forfeit.This view would be consistent with the proposition that, there being no unconditional right of forfeiture at that stage, no question of actual election could arise but it would nevertheless be unconscionable to allow the lessor to resile from the position earlier taken if detriment would accrue to the lessee.

[37] Mr Hicks suggested that the Courts had consistently treated acceptance of rent with appropriate knowledge of breach as a special and strict case of waiver.It is no doubt correct that acceptance of rent has been regarded as the classic act of waiver but this does not remove the need to address, on a principled basis, whether there is a sufficient right to forfeit ahead of the expiry, unfulfilled, of a required statutory notice.None of the cases cited by Mr Hicks, including Segal Securities Ltd v Thoseby (supra), directly address that issue, which does not seem to have been raised in its present acute form in the various cases which counsel helpfully cited.

[38] The highest Mr Hicks could put it, was that a number of the reported cases had considered the question of waiver in respect of the period prior to the issue or expiry of a Property Law Act notice.Counsel suggested that these cases seemed to have proceeded on the assumption that waiver could take place at any time from breach up to actual forfeiture.Mr Hicks suggested that such an approach was consistent with the reference in Spencer-Bower & Turner's Estoppel by Representation (supra) to an election to take a "step, proceeding, course of action, or attitude".Hence the argument that serving a s118 notice qualified as such.But, as already noted, the reference to such conduct can hardly assist if the right which is said to have been waived, in favour of an inconsistent right, has not yet unconditionally accrued.

[39] It is true that the cases cited by Mr Hicks in this respect (including Jacob v Down (supra); Windmill Investments (London) Ltd v Milano Restaurant Ltd [1962] 2 QB 373; Segal Securities Ltd v Thoseby (supra); David Blackstone Ltd v Burnetts (West End) Ltd [1973] 3 All ER 782, and Cash Handling Systems Ltd v Augustus Terrace Developments Ltd (supra)) are open to the construction that waiver can take place both before and during the currency of a s118 notice.In none of the cases cited, however, does the present point appear to have been expressly raised. Mr Hicks was correct when he suggested that the decisions had proceeded on the basis of an assumption.

[40] In response to Mr Osborne's reliance on Re J B Jackson Ltd v Gettas (supra), Mr Hicks drew attention to the fact that in the passage following Masten JA's reference to the person with the right of forfeiture having, pending expiry of the notice, an inchoate right, his Honour said:

But, while the landlord could not summarily, on September 7, cancel the lease and eject his tenant, there was nothing to prevent him at any time after September 7 from making his election not to avoid the lease or in other words to waive the forfeiture.The question is, did the landlord make such election by supplying ice-cream to the tenant... .

It appears, however, that the Court had not been invited in Jackson's case to take the view that an unequivocal statement by the lessor that he would not forfeit the lease, prior to his having an unconditional right to do so, was more properly to be regarded as an estoppel based on concepts of acquiescence rather than a waiver by election.

[41] It is important to notice that the need for the inconsistent rights to have unconditionally accrued, before there can be any question of election between them, is implicit from what Bramwell B said in the leading case of Croft v Lumley [1858] EngR 626; (1858) 6 HL Cas 672, 705 (HL):

... the common expression "waiving a forfeiture", though sufficiently correct for most purposes, is not strictly accurate.When a lessee commits a breach of covenant on which the lessor has a right of re-entry, he may elect to avoid or not to avoid the lease, and he may do so by deed or by word; and if with notice he says, under circumstances which bind him, that he will not avoid the lease, or he does an act inconsistent with his avoiding, as distraining for rent (not under the statute of Anne), or demanding subsequent rent, he elects not to avoid the lease; but if he says he will avoid it, or he does an act inconsistent with its continuance, as bringing ejectment, he elects to avoid it -

In the circumstances which obtained at that time, his Lordship could only have been speaking of an unconditional and accrued right of re-entry.

[42] Mr Hicks submitted finally that the only conclusion which could be drawn from the cases which he had cited, was that lessors may elect to affirm the lease at any time after becoming aware of the breach, and regardless of whether a Property Law Act notice has been issued, or if issued, regardless of whether it has expired unfulfilled.

Discussion

[43] In order to decide which approach to adopt, it is desirable to consider the issue both as a matter of principle and as a matter of policy, the original purpose of waiver being to introduce a fair balance between the interests of lessors and lessees.The fundamental starting point, and this can sometimes be overlooked, is that it is not the lessee's breach which is being waived; rather it is the lessor's right to forfeit and re-enter.The lessor is not waiving the lessee's wrong:rather the lessor is choosing between two inconsistent remedies for that wrong.The choice is between affirming the lease and bringing the lease to an end.It is axiomatic that the whole question of waiver only arises, in the present context, following a breach of the lease by the lessee.If, with full knowledge of the breach, the lessor, having the right to forfeit, unequivocally indicates that the lease will not be forfeited, the law holds the lessor to that choice by the doctrine of waiver in its present sense of election.

[44] There is compelling force in the view that until the lessor has an unconditional right to forfeit, no choice is possible between that right and the alternative right of keeping the lease alive.Under the general law of contract the innocent contracting party does not have to choose whether to accept a repudiation of the contract by a contract breaker, and thereby to discharge the contract by cancellation, or whether to affirm and keep the contract alive, until there has been an unequivocal act of repudiation. Putting the matter in modern terminology, no choice is open or required unless and until the innocent party has an unconditional right to cancel.Of course earlier conduct inconsistent with cancellation may create an estoppel, but there can be no question of election until each of the two inconsistent alternatives has unconditionally accrued.There is no doctrine of anticipatory election.No unconditional right to forfeit accrues unless and until the required statutory notice has been given and has expired unfulfilled.Until then the lessee is entitled to restrain any purported forfeiture and re-entry. That there is no unconditional right to forfeit until then, is also clear from the ability of the lessee to avoid forfeiture by compliance with the notice. At best, any earlier right vested in the lessor is contingent and defeasible. It would be contrary to the whole foundation of the doctrine of waiver by election to regard the lessor as having made a binding election before the right to forfeit unconditionally accrues.

[45] It is, however, necessary to factor into the equation the legitimate concern that on this basis lessors might unreasonably delay in issuing the required statutory notice and thereby hold potential forfeiture over the lessee's head.That problem should not be dealt with by distorting the principles of waiver by election.Such distortion would arise if it were held that there may be such waiver before the lessor has an unconditional choice of remedies.The proper approach is to examine the lessor's conduct prior to the issue of the statutory notice in terms of estoppel.If the lessor has delayed the issue of the statutory notice for an unreasonable length of time, and has accepted rent in the meantime, it may well be appropriate for the Court to hold that the lessor is estopped from proceeding on the notice, and correspondingly estopped from forfeiture and re-entry.All the circumstances of the case would have to be considered, including such other conduct of the parties as might be relevant.What the Court is in essence examining is whether the lessor has acquiesced in the breach in such a way that it would be unconscionable for the lessor to be allowed to proceed to forfeiture.

[46] It follows that acceptance of rent in the period prior to the issue of the statutory notice cannot amount to an election not to forfeit.This is because no unconditional right to forfeit has yet arisen.Whether acceptance of rent in these circumstances may be evidence upon which an estoppel could be asserted, does not arise upon this appeal as no question of estoppel was argued before us.The Luporinis' acceptance of rent during the running of the statutory notice cannot, for similar reasons, be regarded as an election not to exercise their contingent remedy of forfeiture.Equally, there can be no question of an estoppel during this period.The very service of the notice makes it clear that the lessors were asserting a right to forfeit if the notice was not complied with.

[47] As a matter of policy we consider this approach creates a fair balance between the competing interests of lessors and lessees in present circumstances.The lessee knows full well, following service of a statutory notice, that the lessor is complaining of a breach and giving the lessee a chance to remedy it.The lessee cannot reasonably assert that the lessor's acceptance of rent shows an unequivocal intention not to forfeit.The very purpose of serving the notice is to give a right to forfeit on non-fulfilment. The lessor should not be put in the position of having to decline to accept rent during the currency of the notice because the rent may never be forthcoming if the lessee fails to comply and the lease is forfeited.The lessee gets the benefit of the continuation of the lease during the notice period and should be obliged to pay rent in the ordinary way for that benefit. It is hardly logical in such circumstances to hold that the lessor has lost the right to forfeit by accepting what the lessee is obliged to pay for the extra time which the statute allows for the lessee to remedy the breach.To argue that the receipt of rent during the running of the notice could amount to waiver would also, in our view, be contrary to the general scheme of the notice provisions.The Property Law Act differentiates between a breach by non-payment of rent and other types of breaches.It can be inferred that Parliament saw breach by non-payment of rent as more serious and entitling the landlord to more immediate action.It would be contrary to this view to suggest that, under s118, a landlord must go without rental payments during the currency of the notice.

[48] In the period following their becoming aware of the breach, lessors should be entitled to a reasonable period to assess their options.The simple act of accepting rent during that period should not inevitably be construed as leading to an estoppel against issuing a notice.The longer the period prior to issue of the notice, and the longer the period for which rent is accepted, the stronger will be the case for such estoppel.It will, as always, be a matter of judgment whether, in all the circumstances, acceptance of rent between knowledge of breach and issuing the notice ought to give rise to an estoppel against forfeiture.

Conclusion

[49] It follows that although the Luporinis knew that the McDrurys were in breach, they did not, by accepting rent prior to the issue of the statutory notice, and during its currency, waive their right to forfeit the lease if and when the notice expired unfulfilled.Nor can there have been any estoppel preventing such forfeiture arising from acceptance of rent during the running of the notice.Equally in this case no question of estoppel was raised with regard to the period prior to the issue of the notice.The question of estoppel was raised by the McDrurys in the High Court, albeit in a somewhat different context, but the point was not pursued in this Court.In his supplementary submissions Mr Osborne did suggest that estoppel was the proper way to deal with the period between breach and issuing of the notice. Mr Hicks did not contend in that event there was such an estoppel or that the matter should be referred back to the High Court on that issue.

[50] Young J held that the Luporinis' forfeiture and re-entry was valid.We have reached the same conclusion but by a different route.The appeal is therefore dismissed.In view of the basis upon which the matter has now been determined, there will be no order for costs in this Court.

Solicitors

Meares Williams, Christchurch, for appellants

Duncan Cotterill, Christchurch, for respondents