Shanks and McKay Trustee Co Limited as Trustees of the Shanks Family Trust and others v Media 1 Limited [2008] NZCA 77 (8 April 2008)

Last Updated: 18 April 2008

IN THE COURT OF APPEAL OF NEW ZEALAND

CA495/07

[2008] NZCA 77

BETWEEN N W SHANKS & WILSON MCKAY TRUSTEE CO LIMITED AS TRUSTEES OF THE SHANKS FAMILY TRUST AND R J BRADY & WILSON MCKAY TRUSTEE CO LIMITED AS TRUSTEES OF THE BRADY FAMILY TRUST
Appellants

AND MEDIA 1 LIMITED
Respondent

Hearing: 12 March 2008

Court: Chambers, John Hansen and Heath JJ

Counsel: M G Ring QC and P R Rzepecky for Appellants
M A Gilbert and P A Paterson for Respondent

Judgment: 8 April 2008 at 3.30 pm

JUDGMENT OF THE COURT

A The appeal is allowed.

2. The declaration made in the High Court is quashed and, in its place, a declaration is made that the lease dated 25 July 2005 was validly terminated.

100. Any costs order in the High Court is quashed. An order is made that the respondent must pay in respect of the appellants’ costs in the High Court the appellants’ reasonable costs calculated in accordance with clause 21.2 of the lease.

4. An order is made that the respondent must pay in respect of the appellants’ costs in this Court the appellants’ reasonable costs calculated in accordance with clause 21.2 of the lease.

E Liberty to apply to this Court in respect of any costs dispute.

REASONS OF THE COURT

(Given by John Hansen J)

[1] In a reserved decision dated 11 September 2007 Lang J declared that the appellant trustees had not validly terminated a lease dated 25 July 2005 in respect of two billboard sites situated at 112 Newton Road, Auckland: Media 1 Ltd v Shanks & Others HC AK CIV 2007-404-4648. The trustees appeal.

Background

[2] By deed of lease dated 25 July 2005, Mr A J Davies leased to Honk Limited two billboard sites at an annual rental of $42,500. For present purposes it is enough to say that ultimately the trustees became lessors and Media 1 the lessee.
[3] At the beginning of July 2007 Media 1 owed arrears of rent totalling $4635.33. On 3 July 2007 the trustees’ solicitor wrote to Media 1 making demands in the following terms:

RE LEASE 112 NEWTON RD

Notification of the rent review was made by fax and post on 30 April 2007.

Despite several phone calls you have not responded to our client.

We have been instructed by your Landlord to recover the outstanding rental, legal costs plus executed Deed Fixing Rental sent to you on 7th June 2007.

The sum outstanding totals $4635.33 made as per the attached statement.

If we have not received payment for this sum by 5pm 4th July 2007 our client intends to terminate the lease pursuant to its rights.

[4] The trustees heard nothing from Media 1, and on 17 July 2007 their solicitor wrote in the following terms:

RE LEASE 112 NEWTON RD

We refer to our letter of 3 July to which we have had no response.

Accordingly we now formally advise that the Lease is terminated.

This is without prejudice to our client’s rights under the lease which include all outstanding rent and costs.

[5] On 27 July 2007 the solicitors for Media 1 wrote disputing the validity of the termination and tendering payment of the outstanding arrears of rental. Matters were not resolved and the trustees leased the billboards to a new tenant. Media 1 commenced proceedings to challenge the purported termination.

The High Court decision

[6] Lang J identified the sole issue the Court was required to determine as whether the letter dated 3 July 2007 constituted valid notice of the trustees’ intention to terminate the lease in terms of clause 10.1 of the lease. That clause reads as follows:

10. Termination

10.1 The Lessor may terminate this Agreement if any instalment of the Annual Rent or any other money payable under this Agreement remain unpaid by the Lessee for more than seven (7) days after the date for payment and the Lessor has first given twelve (12) days written notice of its intention to terminate this Agreement.

[7] The question for the Judge was whether or not the letter gave Media 1 clear and unambiguous advice as to how and when the termination would operate and what steps were required of Media 1 to prevent this. While he accepted the interpretation contended for by the trustees was one possible conclusion, he was satisfied that other interpretations might reasonably be reached.
[8] Lang J accepted the trustees’ contention that the reasonable recipient of the letter could have concluded that in the event they did not pay the arrears by 5 p.m. on 4 July 2007, the 12 day period for a valid termination would start to run. But he took as a more obvious meaning that, without any further notice of an intention to do so, the trustees intended to terminate the lease immediately in the event that payment was not made by 5 p.m. on 4 July 2007. He considered the words in the letter “pursuant to its rights” would be taken to be referring to an existing right to terminate the lease. Alternatively, he considered a reasonable recipient might appreciate the trustees were not entitled to terminate the lease without giving 12 days’ notice of this intention. He considered such a recipient might reasonably conclude that, if they did not pay the arrears by 5 p.m. on 4 July, they would receive a further notice from the trustees to the effect it intended to terminate the lease in the event that the arrears were not paid within 12 days.

The appeal

[9] In their notice of appeal the trustees maintained the Judge was wrong to conclude that the notice was ambiguous. Secondly, the trustees allege that the other interpretations the Judge relied on were not consistent with the notice, given that the trust intended to terminate the lease only “pursuant to its rights”. Thirdly, the Judge had found as a fact on Media 1’s own evidence that it was not misled or prejudiced in any way by the terms of the notice, and that it simply failed to take any action. The trustees contend that the alleged ambiguity, contrary to the Judge’s finding, was the product of the ingenuity of Media 1’s legal advisers.
[10] Alternatively, the notice of appeal states that if the Judge was right and the notice was ambiguous, the Judge should have concluded that Media 1 could not now rely on the existence of other reasonable interpretations which did not occur to it at the time and/or where it chose to ignore receipt of the notice altogether.

Submissions

[11] Both Mr Ring QC for the appellants and Mr Gilbert for the respondent accepted that the Judge had applied the correct legal test.
[12] However, Mr Ring submitted that there was only one reasonable interpretation of the notice consistent with the trustees’ rights under the lease. He said the other interpretations that the Judge found reasonable were in fact inconsistent with those rights.
[13] Mr Ring submitted that in reaching his conclusions as to alternative meanings the Judge inappropriately applied an “alpha plus standard”. (The reference to the “alpha plus standard” comes from Lord Salmon’s speech in Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1972] 2 All ER 271 (HL). We will return to this decision later in this judgment.)
[14] Mr Ring further submitted that the Judge erred in rejecting the proposition that the ambiguity was the product of the ingenuity of the plaintiffs’ legal advisors. He referred to the undisputed evidence that:

1. Media 1 ignored the notice;
2. even after receipt of the 17 July termination letter Media 1 did not identify any ambiguities;
3. the reaction of Media 1 to the termination was to take legal advice and then claim an entitlement to relief against forfeiture – such a stance necessarily involved accepting the termination and therefore the notice was valid;
4. Media 1’s application to the High Court relied on only one alternative reasonable interpretation, being the 24-hour notice;
5. the other reasonable interpretation (that the notice would be followed by a 12-day notice pursuant to clause 10.1) emerged in submissions at the hearing in front of Lang J.

[15] Mr Ring said against the background of this evidence the only reasonable conclusion was that none of the witnesses for Media 1 identified any inconsistency even when it was in their interest to do so. The initial legal advice did not identify any ambiguity or inconsistency. By the time Media 1’s solicitors filed and served its application there was only one allegedly reasonable alternative put forward, but in submissions others were put forward.
[16] Mr Ring identified yet a further claimed alternative meaning in Mr Gilbert’s oral submissions before us. He said this highlighted the fact that all these alternative meanings arose from hindsight when lawyers had minutely examined the text.
[17] However, for Media 1, Mr Gilbert contended that the Judge was right to find that a number of possible alternative meanings could be attributed to the letter. He supported the three that he had contended for before the Judge. In oral submissions Mr Gilbert also contended for a fourth interpretation which was that the 12 day period commenced to run from the receipt of the letter of 3 July.

Discussion

[18] We set out at [3] the letter sent to Media 1 by the solicitor for the trustees.
[19] It is clear that the notice served on a tenant must unambiguously inform a reasonable recipient how and when it is to operate (Allam & Co Ltd v Europa Poster Services Ltd [1968] 1 All ER 826 at 833 (Ch), per Buckley J).
[20] To similar effect, Slade LJ in Delta Vale Properties Ltd v Mills [1990] 2 All ER 176 at 183 (CA) stated:

In my judgment, notices ... if they are to be valid, must be sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate.

[21] In Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19; [1997] AC 749 (HL) Lord Steyn stated at 772:

The real question is a different one: Does the notice construed against its contextual setting unambiguously inform a reasonable recipient how and when the notice is to operate under the right reserved? As Lord Hoffmann has observed we no longer confuse the meaning of words with the question of what meaning in a particular setting the use of words was intended to convey.

[22] This Court, in Bryers v Harts Contributory Mortgages Nominee Co Ltd [2002] 3 NZLR 343, was required to consider the validity of a notice pursuant to s 92 of the Property Law Act 1952. There was an obvious clerical error in the notice, but this was held not to render the notice invalid. On an objective reading in the context in which the notice was given, it complied with the form by conveying the required message concerning the date for remedying the mortgage defaults.
[23] We are in agreement with Lang J and counsel that the test enunciated in these authorities is the correct one to apply to the notice given in this case. However, with respect to the learned High Court Judge, we have reached the conclusion that the letter of 3 July is plain on its face. It must be viewed in context, and in this case that means that Media 1 must be deemed to have knowledge of the terms and conditions of the lease. The test is an objective one, so we are concerned with what a reasonable recipient in the position of the tenant would have taken from the letter.
[24] The interpretation that found most favour with the Judge was that the lessor intended to terminate the lease immediately, without further notice of its intention to do so, in the event that payment was not made by 5 p.m. on 4 July 2007: at [23]. We cannot see how that interpretation could possibly be open. The lease required the lessor to give 12 days’ written notice of an intention to terminate before the lessor was entitled to terminate. Since the 3 July letter is the only document which can constitute a notice of intention to terminate and since that letter was careful to state that the lessor intended to act only “pursuant to its rights” (ie not unlawfully), it is just not reasonably possible to read it as providing for only a day’s notice. That would be contrary to the lease and not “pursuant to its rights”.
[25] The Judge’s second interpretation was that the letter could be taken to mean that all the lessor was doing was advising that, if arrears of rent were not paid by 5 p.m. on 4 July, the lessor would be giving a 12 day notice of an intention to terminate. In other words, the last sentence of the 3 July letter was no more than a giving of notice that notice would be given. It was simply notifying Media 1 of what the lessor's rights were under the lease, but was not a notice of the lessor's intent. With respect, we cannot accept that interpretation is open. In our view, it is quite clear this was a notice of intention to terminate pursuant to the lease, not merely gratuitous advice of a particular right the lessor enjoyed under the lease and which it might choose to exercise in future.
[26] Mr Gilbert, in his oral submissions, suggested a third interpretation. This was that the 12 day notice period started running immediately. Mr Ring riposted that this new suggested interpretation could not be given credence in circumstances where no one from Media 1 had ever suggested they thought this was what the letter meant and in circumstances where Mr Gilbert had not considered this a viable meaning in the High Court. Indeed, this meaning did not even appear in Mr Gilbert’s written submissions filed in this Court. We agree that this meaning is not reasonably open. It ignores the careful structure of the final sentence of the 3 July letter. The letter is clear that the notice of intention to terminate is given only if the protasis is not fulfilled (that is to say, only if the trustees did not receive the arrears by 5 p.m. on 4 July).
[27] In our view, the letter is clear on its face. It first of all makes plain that the solicitors had been instructed by the trustees to recover outstanding sums due under the lease. The sum involved is specified and a statement is attached showing how it is made up. The last sentence then grants an indulgence to Media 1 by giving them until 5 p.m. on 4 July 2007 to pay the outstanding sums. Mr Gilbert accepted that the trustees were entitled to grant such an indulgence to Media 1. The letter also made plain that if the indulgence was not accepted then the trustees intended to terminate pursuant to their rights under the lease. In our view that is clear notice of an intention to terminate pursuant to clause 10.1 if the sums due under the lease remain unpaid by 5 p.m. on 4 July 2007. At the expiration of the 12 day period from that date the trustees were entitled to terminate, and lawfully did so by way of letter dated 17 July 2007.
[28] We return to Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd, where Lord Salmon stated at 293:

To work an estoppel the representation relied on must be clear and unequivocal: Low v Bouverie. Counsel has sought to find some support for his argument from the second part of the celebrated passage from Bowen LJ’s judgment ([1891] 3 Ch at 106, [1891–94] All ER Rep at 355) in that case. I entirely agree with Cairns LJ’s analysis [in the Court of Appeal] of that passage. It is reasonably easy to draft a letter containing a representation, the true meaning of which is clear and unequivocal. I would classify such a letter as ‘alpha’. It is, however, quite another matter to be able to draft a letter, or anything else, which is not only clear and unequivocal but is also incapable of having extracted from it some possible meaning other than its true meaning. I would classify such a letter, if it exists, as ‘alpha plus’. As I understand Bowen LJ’s judgment... all he was saying was that the language on which an estoppel is founded must comply with what I call the ‘alpha’ standard but that it need not come up to ‘alpha plus’.

[29] This approach was adopted by this Court in Lim v Ward McCulloch Solicitors Nominees Ltd (1999) 8 NZCLC 261,922 (CA). In that case this Court was concerned with the meaning of a letter sent by a solicitor’s clerk. Tipping J, after referring to the passage we have just cited continued:

[22] To anticipate the discussion which follows and our conclusion in respect of the letter in this case, we are bound to say that while it may not have been up to the alpha plus standard, it undoubtedly justifies an alpha.

[30] Evidence to satisfy an alpha standard is sufficient to give proper notice. In this case we are satisfied the alpha standard is clearly met. On that basis alone the appeal must be allowed.
[31] We would add this. While the test is objective, it does seem to us that the views of Mr Jamieson, Ms Galbraith and Mr Webb of Media 1 are informative. On their own they cannot substantiate an objective standard, but they do indicate that none of the relevant staff of Media 1 had any doubts as to the meaning and effect of the 3 July letter. Mr Jamieson simply ignored it. Ms Galbraith did not identify any ambiguities, even after the receipt of the letter of 17 July 2007. Indeed it appears from a call she made to Mr Shanks, one of the trustee appellants, that there had simply been a failure within Media 1 to properly deal with correspondence, not any difficulty as to what the letter of 3 July had meant.
[32] Mr Webb, in his affidavit of 1 August 2007, says he called the trustees, pointed out that the rent had been paid in full and on time in the past, and asked for the lease to be reinstated. He then instructed his solicitors, Chapman Tripp, to respond. Their letter is dated 27 July 2007. While that letter alleges that the trustees did not follow the correct procedures in attempting to terminate the lease, there is no suggestion of any ambiguity in the notice. This evidence simply confirms that none of the staff of Media 1 were misguided or misled by the notice.
[33] In our view this evidence reinforces that a reasonable tenant receiving the notice would clearly know the default alleged (non-payment of rent), the amount due, and the fact that an indulgence had been granted which, if not acted upon, would cause the notice of intention to terminate to run in terms of clause 10.1.

Result

[34] It follows that the appeal is allowed. We declare the trustees have validly terminated the lease dated 25 July 2005 in respect of the two billboard sites situated at 112 Newton Road, Auckland, and having certificate of title numbers NA517/46 and NA65A/998.
[35] The trustees sought costs on an indemnity basis in this Court and in the High Court pursuant to clause 21.2 of the lease, which reads as follows:

The Lessee must pay the Lessor’s solicitor’s reasonable costs of and incidental to the preparation of this Lease and any variation or renewal or any Deed recording a rent review, and the Lessor’s legal costs (as between solicitor and own client) of and incidental to the enforcement or attempted enforcement of the Lessor’s rights, remedies and powers under this Lease.

[36] Mr Gilbert did not dispute the trustees’ entitlement to indemnity costs in the event of the trustees’ success on this appeal. We agree that it is appropriate that the trustees should receive costs in terms of clause 21.2.
[37] We are not certain whether any costs order has in fact been made in the High Court. Lang J simply indicated a “preliminary view” as to what an appropriate costs order should be: at [33]. We were not told whether that was ever firmed up into a formal order. If it was, we quash it. We substitute for it the order set out in order C above. We also award costs in this Court on the same indemnity basis: see order D above.
[38] We hope very much the parties will be able to agree on “the appellants’ reasonable costs” under clause 21.2. If they cannot agree, then there would seem to us to be two possible ways of resolving any impasse. One way would be to take the dispute to arbitration in terms of clause 14 of the lease. Another solution would be to have the dispute resolved by a court registrar on a taxation basis: see High Court Rules, rr 54-59. We did not hear from the parties as to how any dispute should be resolved. We leave that open. We have reserved liberty to apply to this Court: see order E. The point of that is to provide a convenient route for the parties if they disagree on what the procedure should be for resolving any dispute as to the quantum of reasonable costs.
[39] We give notice now that, if this liberty to apply has to be exercised, the matter will be considered by a differently constituted panel, as John Hansen J retires as a Judge later this month.

Solicitors:
Richard Allen Law, Auckland, for Appellants
Gilbert Walker, Auckland, for Respondent