NORTHCOTT LANDS LTD V RITCHIE, SHEARER AND KOCH AS TRUSTEES OF THE TE ORANGA PAI TRUST HC NWP CIV 2008-443-439 [2009] NZHC 328 (17 March 2009)

IN THE HIGH COURT OF NEW ZEALAND
NEW PLYMOUTH REGISTRY
                                                                    CIV 2008-443-439


               IN THE MATTER OF             an appeal under s 72 District Courts Act
                                         
  1947

               BETWEEN                      NORTHCOTT LANDS LTD
                                            Appellant

 
             AND                          PETER WILLIAM RITCHIE, GEOFFREY
                                            KEENAN SHEARER
AND KEVIN
                                            FRANCIS KOCH AS TRUSTEES OF
                                            THE
TE ORANGA PAI TRUST
                                            Respondents


Hearing:       23 February 2009

Appearances: Ian Matheson
for Appellant
             Susan Hughes QC for Respondents

Judgment:      17 March 2009



                           JUDGMENT OF
HARRISON J



                  In accordance with R11.5 I direct that the Registrar
                     endorse this judgment with
the delivery time of
                              12.30 pm on 17 March 2009




_________________________________________________________________________________

SOLICITORS
Reeves Middleton Young (New Plymouth) for Appellant
Govett Quilliam (New Plymouth) for Respondents

COUNSEL
Susan Hughes
QC

NORTHCOTT LANDS LTD V RITCHIE, SHEARER AND KOCH AS TRUSTEES OF THE TE ORANGA
PAI TRUST HC NWP CIV 2008-443-439 17 March 2009

Introduction


[1]    Mr Peter Ritchie and his co-trustees of the Te Oranga Pai Trust have issued a
proceeding in the District
Court at New Plymouth against Northcott Lands Ltd. The
trustees seek judgment for damages of $71,808 consequential upon Northcott's
cancellation of an agreement to lease a farm. Northcott denies a binding agreement
and counterclaims for modest damages.


[2]  
 The parties consented to determination of the question of liability first. A
threshold finding was required on whether or not an
enforceable agreement to lease
had ever come into existence. Chief Judge Russell Johnson found affirmatively for
the trust. Northcott
now appeals.


[3]    In support of Northcott's appeal Mr Ian Matheson has undertaken a close
examination of the extensive oral and
documentary evidence. His purpose was to lay
a foundation for challenging almost all material findings in the District Court.
However,
the facts relevant to the principal issues fall within a relatively confined
focus, and the issues themselves are less complex than
was originally signalled.


Background


[4]    Mr Matheson does not challenge Judge Johnson's recitation of the relevant
facts,
which are summarised as follows.


[5]    Mr Ritchie and the Northcott family farmed neighbouring properties at Tarata
in Taranaki.
Northcott itself was the legal owner of the Northcott family property;
its original directors were Mr and Mrs Northcott Senior and,
after the former's death,
Mrs Northcott and three of their four sons, Max, Graeme and Peter. Northcott was
represented throughout
by the three sons and its accountant was Mr Bruce Richards
of Staples Rodway.


[6]    Mr Ritchie and Mrs Northcott Senior were friends.
She supported his wish to
lease the family farm after her husband's death. The three Northcott sons and
another family member, Mr
Ritchie and Mr Richards met at the farm on 14 March

2003 to discuss terms. Mr Matheson devoted a good deal of his submissions on
appeal to identifying the evidential differences between the participants about what
was agreed at the meeting. In my view that approach
diverted attention from the true
issues. Subsequent events are more relevant.


[7]    Mr Richards made notes of the 14 March meeting.
He wrote to the Northcott
brothers on 4 April 2003 recording what was materially agreed.                  The terms of
Mr Richards'
letter justify full repetition:

       Dear Peter, Max, Graham and Alan

       Northcott Lands Limited

       Further to meetings I have had with Peter, Max, Graham and Melva
       Northcott, we have agreed to lease the farmland owned by your Mum and
     
 Dad's company to Mr Peter Ritchie. I have met with Mr Paul Carrington
       who is the lawyer for the company and instructed him
to prepare a lease
       agreement. Basically the terms of the lease will be for six years, the rent for
       the first 3 years
will be $150 per acre for the total area of the farm, excluding
       the house, the farm buildings and several paddocks which will
be sufficient
       for your mother to graze up to 10 horses.

       The lease payments will commence from 1 May 2003 although
Peter Ritchie
       will be allowed access to the farm to carry out a certain amount of
       maintenance work. Graham, Max and
Peter have viewed the farm with Peter
       Ritchie and agreed on the maintenance work that will be undertaken.
       Northcott
Lands Limited will meet the cost of the maintenance work.
       However Peter Ritchie will liase with Graham Northcott before commencing
       any additional maintenance work. It was also agreed that at the completion
       of the lease Peter Ritchie must leave on
the farm the equivalent of 200 round
       bales of hay (size 15) or such equivalent. There will be a rent review after
       the
first 3-year period and if a market valuation dictates, the rental will be
       increased for the second 3 years of the lease.
After 6 years of the lease Peter
       Ritchie will have a right of renewal for a further 3 years.

       ...

       If you have
any queries in regards to the comments I have made above
       please do not hesitate to contact me. Once Paul Carrington has completed
       the lease it will be forwarded to Peter Ritchie's solicitor for signature. This
       will be done during April and I will
then arrange for Peter Ritchie to set up
       an automatic payment payable to the company for the monthly lease
       payment.

       Yours faithfully
       STAPLES RODWAY

       (Signature)
       B C Richards

[8]    Mr Ritchie entered possession of
the Northcott property in April 2003 to
undertake maintenance. He commenced formal occupation in May when the trust
started to pay
rent.     Both steps were taken in accordance with the agreement
recorded in Mr Richards' note. Messrs Ritchie and Richards conversed
directly in
early June. Mr Richards reported to the Northcott family in these terms:

       11 June 2003

       Dear Melva, Peter,
Graham and Max

       Northcott Lands Limited

       On Thursday 5 June I had a telephone conversation with Peter Ritchie in
 
     regards to the finalisation of the lease for the property owned by Northcott
       Lands Limited on Tarata Road. On the attached
schedule I have summarised
       the total area of the farm and after allowing for various deductions which are
       summarised
on the schedule, the net area available to be leased by Peter
       Ritchie is 112 hectares.

       Peter Ritchie has advised me
that he has measured the areas that had been
       deducted from the total rateable area of land, as shown by the rate demand,

      in conjunction with Mrs Northcott. Therefore, this area will be leased by
       Peter Ritchie's trust as from 1 May 2003 at
the rate previously agreed of
       $150 per [acre]. This will generate a rental income to the farm of $45,000
       per annum.

       ...

       This letter has been sent to Mrs Northcott, her three sons and to the lawyer.
       Once you have reviewed the
contents of the letter if you have any queries
       please contact me in the first instance as I wish Paul Carrington to arrange
       for the lease to be drawn up as soon as possible. Obviously once the lease is
       signed by other parties rent will be
required to be paid immediately back-
       dated to 1 May 2003.

       Yours faithfully
       STAPLES RODWAY

       (Signature)
       B C Richards

[9]    Mr Richards sent the trust a tax invoice on 25 June 2003 as follows:

       SUPPLIED BY

               Name            Northcott Lands Limited
            
  Address         PO Box 146
                               New Plymouth

       GST No          41-975-857

       SOLD TO

  
            Name            Te Oranga Pai Trust
               Address         828 Tarata Road
                               RD
7
                               Inglewood

       For lease of 280 acres at $150 per acre
       (as agreed) from 1 May 2003.  
                          42,000.00

       PAYABLE MONTHLY - $4,166.67

       TOTAL                                           
        44,444.44
       GST                                                       5,555.56
       TOTAL PAYABLE                
                          $50,000.00

[10]   Finally, in this documentary narrative, Mr Richards wrote to Mr Ritchie as
follows:

       1 July 2003

       Mr P Ritchie
       828 Tarata Road
       RD 7
       INGLEWOOD

       Dear Peter

       Northcott
Lands Limited

       Further to our telephone conversation of Monday 30 June, I advise that we
       have still not received from
the lawyer who acts for Northcott Lands
       Limited, a copy of the new lease. Therefore, so that the lease payments do
      
not get too far behind I enclose a tax invoice in respect of the rental payable
       by your trust, the Te Oranga Pai Trust to
Northcott Lands Limited.

       You will be paying an agreed rate of $150 per acre for 280 acres owned by
       the company. In
addition, we have estimated the rates for the forthcoming
       year as being $2,444.44. In total the rental and rates for the next
year will be
       $44,444.44 and together with GST will total $50,000 per annum. I suggest
       you arrange for an automatic
payment to be made directly to Northcott
       Lands Limited whose bank account is TSB Bank, Inglewood Branch
       [account number].
You should commence the automatic payment as from
       31 July and thereafter at the rate of $4,166.67 per month.

       Can you
please arrange for a cheque to be forwarded to Northcott Lands
       Limited care of the writer for an amount of $8,333.33 being
the rental due
       for the months of May and June which have yet to be paid. I advise that I
       have forwarded all the relevant
information and you have spoke (sic) to the
       lawyer on two occasions so hopefully we should have a lease agreement
       soon.
In the meantime, I will write to him again and advise him that you
       have commenced paying the lease on a monthly basis as suggested
in this
       letter.

         If you have any queries in regards to the enclosed instructions please do not
         hesitate
to contact me. It would be appreciated if you could arrange for the
         two months rent cheque for May and June to be forwarded
to me as soon as
         possible.

         Yours faithfully
         STAPLES RODWAY

         (Signature)
         C Richards

[11]     The trust paid Northcott $8,333.33 on 5 July as Mr Richards demanded, and
thereafter made monthly payments of $4,166.67
on 2 September, 1 October,
14 October, 31 October, 2 December, 31 December and 31 January 2004.


[12]     Northcott's solicitors
sent the trust a series of draft leases commencing on
about 16 July 2003. Materially the first substantial draft, prepared on Northcott's
instructions, recorded the term of the lease as being for six years from 1 May 2003.
Rental was nominated at $150 per acre plus GST.
Rates were identified as a separate
item for payment.


[13]     It will only be necessary to refer briefly to subsequent events
when
discussing Northcott's cancellation of the parties' agreement in February 2004. It is
convenient to deal at this chronological
stage with the validity issues, and in
particular the question of compliance with s 2 Contracts Enforcement Act 1956.
Later events
will not affect this threshold question but remain relevant to liability.


Issues


[14]     In order to succeed the trust had to prove: (1) the existence of an agreement
on all essential terms
of the lease; (2) compliance with s 2(2); and (3) a mutual
intention to be legally bound in the absence of execution of a formal
lease. The
Judge found for the trust on all three elements and, in particular, that the parties
entered into an oral agreement to
lease on or about 4 April 2003: at [61]. I will now
deal with each element separately.


(1)      Agreement

(a)    Certainty of
Terms


[15]   The primary question is whether or not the parties reached an agreement.
Counsel concur on the four material terms
on which agreement is necessary to
provide certainty of contract: namely, (a) the parties to the lease; (b) the premises to
be leased;
(c) the period of the lease (commencement and duration); and (d) the
rental or other consideration payable: see Halsbury's Laws of
England (4th Ed.)
Vol 27(1), paras 59-61. Mr Matheson challenges the Judge's finding that all four
terms were satisfied here. He
submits there was uncertainty on three of them and an
absence also of agreement on important farming items.


[16]   First, Mr Matheson
submits that there was no certainty of parties. He says
that Mr Ritchie was the nominated lessee at the 13 March meeting but subsequently
substituted his trust. As noted, Mr Ritchie was one of the trustees along with two
others (including a solicitor). Mr Matheson submits,
though, that certainty required
Northcott's acceptance of all three at the relevant time.


[17]   Ms Susan Hughes QC, the trust's
counsel, observes that Mr Matheson did not
advance this argument in the District Court. Judge Johnson noted nevertheless that
Mr
Ritchie remained as a party to be bound regardless of his status: at [55].
Mr Matheson is correct that the substitution of one legal
entity, such as a company,
for another will likely negate an agreement. But there was no unilateral substitution
here. The parties
agreed on 13 March that Mr Ritchie would be the lessee. He took
possession in that capacity, in which he remained throughout his
occupation.


[18]   In or about June 2003 Mr Ritchie nominated to Mr Richards his two co-
trustees as fellow lessees. Mr Richards
then invoiced the trust for rent payments. A
trust is not a legal entity and must act through or by its trustees who assume
liabilities.
Whether or not he nominated his trust or more particularly his fellow
trustees as lessee, Mr Richards remained primarily liable to
Northcott throughout for
performance of all the lessee's obligations. His status as trustee did not limit or
derogate from that personal
liability. I agree with Judge Johnson.

[19]   The point becomes academic in any event because (a) in June and thereafter
Northcott
demanded and received rent from the trustees and (b) in September its
solicitors nominated the three trustees as lessee in a formal
deed of lease. These
events were sufficient to establish a variation of the original agreement whereby
Northcott agreed to the addition
of two further trustees (although they would not
have become bound unless and until they had executed the formal deed).


(b)   
Premises


[20]   Second, Mr Matheson does not dispute the parties' agreement at 13 March on
the area of the land to be used. It
was described in Mr Richards' 4 April letter and
particularised in his 11 June letter. The leased premises were the Northcott farm
minus the house, associated buildings and space for grazing 10 horses.


(c)    Term


[21]   Third, Mr Matheson submits that the
parties never agreed on the duration of
the lease (he accepts that it was to commence on 1 May). He submits that Judge
Johnson erred
in finding that Mr Richards' letter correctly recorded the parties'
agreement on a term of six years: at [57]. He specifically challenges
the Judge's
conclusion:

       ... [of] considerable doubt as to the reliability of the Northcott's memories
       because of their
admitted preferred distance from the arrangements being put
       in place by Mr Richards and their failure to correct him when he advised
       them by
mail what he said was agreed.

[22]   The Northcotts' evidence was that the agreed term was three years;
Mr Ritchie, supported by
Mr Richards, said six years. Mr Richards' letter to the
Northcotts three weeks later, based on his notes of the meeting, confirmed
six years
with a right of review after three years.


[23]   Judge Johnson had a proper basis for rejecting the Northcotts' evidence
on
this point. The brothers must have known that Mr Richards was making notes of the
meeting for the instructed purpose of formalising
what was agreed orally for

submission to the company's solicitor who would prepare a lease. Mr Richards said
his letter was prepared
from those notes which are no longer available.


[24]   All three brothers, who were then or later directors of the company, said
they
could not remember receiving or reading the letter. Following the first meeting Peter
said he was leaving everything to his
brothers; Graeme said he had medical
problems; and Max said he had reading problems and relied on his wife. None of the
three was
prepared to take responsibility for considering the document which
contradicted their later denial of an agreement on the terms contained
within it.


[25]   It is inconceivable that none of the brothers took an interest after the meeting
in correspondence sent by the
company's agent.          The only inference logically
available from the evidence is that one or more of the Northcott brothers
read and
accepted the 3 April letter as a correct record of what the parties had orally agreed at
the meeting.     All steps taken
subsequently by Northcott corroborated the
presumption of accuracy of the letter's contents in the absence of a contemporaneous
complaint.


(d)    Rental


[26]   Fourth, Mr Matheson says there is no certainty of rental. He accepts that the
parties agreed on a figure
of $150 per acre. But he says the figure actually agreed
was $45,000 per annum exclusive of rates and other charges.


[27]   Mr
Matheson devoted a good deal of written and oral argument to this
submission but it confused or obscured what was plain. The parties'
agreement on a
rental figure of $150 per acre equated with an annual liability of about $42,000.
Because rental is a periodical sum
paid in return for occupation of the land and
issuing out of the land, it does not normally include additional charges for rates
etc:
Escalus Properties v Robinson  [1996] QB 231 (CA).                Against that is the
presumption that rates are payable by the land owner unless otherwise agreed. The
question
here, however, is one of terminology.

[28]    Mr Richards' three letters of 4 April, 11 June (both to Northcott) and 1 July
referred
consistently to the agreed rate of $150 per acre.       His first two letters
calculated that that figure would equate to an annual
rental income of $45,000.
However, Mr Richards' tax invoice dated 25 June correctly quantified the rental
figure at $42,000. His
calculation of monthly payments of $4,166.67 is explicable
by the notation in his letter dated 1 July to Mr Ritchie that this periodic
sum also
included annual rates of $2,444.44 together with GST liability. The total payable
was $50,000 per annum. Mr Richards' description
of the gross figure (of about
$44,500) as `rental income to the farm of $45,000 per annum' does not alter its
essential characteristics.


[29]    Mr Matheson now seeks to challenge Mr Richards' methodology. But that is
of no relevance to the central question of whether
there was agreement on payment
of rent of $42,000. He also relies extensively on a report from a farm advisor, a
Mr Twaddle, provided
to Northcott before the meeting recommending a higher
rental. But this document is no more than a record of advice given to Northcott
on
an appropriate figure. I agree with Ms Hughes that a third party's recommendation
of a rental of X is of no assistance in determining
whether or not the parties in fact
agreed to Y.


[30]    Mr Matheson also submits that this uneconomic litigation was caused by
Mr Ritchie's wrongful refusal in February 2004 to accept that the rental figure
agreed in March 2003 net of rates and other charges
was $45,000, not $42,000, and
to pay a relatively small amount of arrears backdated to 1 May 2003. Northcott
cancelled the agreement
on the ground of Mr Ritchie's refusal to pay this sum. An
objective assessment of the evidence establishes that Mr Ritchie was right,
and that
responsibility for the litigation rests solely with Northcott.


(e)     Farming Terms


[31]    Fifth, Mr Matheson submits
there was no certainty on miscellaneous but
important farming terms. He refers to issues of fencing, maintenance, hay and
fertiliser.

[32]   A term is essential if it is of such importance to the party concerned that he
would not have entered into the contract
unless assured of a strict or substantial
performance of the promise, and where this ought to have been apparent to the
promisor:
Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR
(NSW) 632.     The Northcotts' evidence referred to their offers
to rectify some
gateways and fencing and to clean drains, and Mr Ritchie's obligation to do some
fencing work as well and to fertilise
horse paddocks and the rest of the farm.
However, Mr Richards' 4 April letter recorded the parties' agreement on the
maintenance
work to be undertaken at Northcott's cost. The principal issue was
Mr Richards' agreed obligation to leave the equivalent of 200
round bales of hay on
the farm at completion of the lease.


[33]   There is no evidence that the parties had not agreed on liability
to undertake
and pay for these incidental obligations, or that they were of such importance that the
agreement would not proceed
in the absence of certainty. To the contrary, Northcott
allowed the trust into possession in April 2003 for the purpose of allowing
it to carry
out its maintenance obligations.


[34]   Accordingly I am satisfied that Judge Johnson was correct in finding a
concluded
agreement on certain terms; and that the agreement was entered into on
13 March 2003, not 4 April which is the date of Mr Richards'
letter.


(2)    Contracts Enforcement Act 1956


[35]   Section 2(2) Contracts Enforcement Act 1956, which was then in force,
required
that every contract to enter into any disposition of land be in writing or
proved by writing. The section further provided:

   
   No contract to which this section applies shall be enforceable by action
       unless the contract or some memorandum or note thereof is in writing
and is
       signed by the party to be charged therewith or by some other person
       lawfully authorised by him.

       [Emphasis
added]

[36]    Mr Matheson does not challenge Judge Johnson's finding (at [22]-[32] and
[58]) that Mr Richards' 4 April 2003 letter
confirmed by subsequent correspondence
was a memorandum or note of the agreement within the meaning of s 2(2).
However, he submits
that Mr Richards was not `lawfully authorised' by Northcott to
sign the letter. He says that Mr Richards was not a duly authorised
agent and he had
no authority to make decisions about or negotiate the terms of the lease.


[37]    In a submission which tends
to undermine, indeed answer, his own
proposition, Mr Matheson accepts that `it is true that [Mr Richards] had authority to
take steps
to have the lease completed by the Northcott's solicitor'. It is implicit in
such an authority that an agent has the power to sign
a letter for that purpose. As
Judge Johnson found, the Northcotts accepted that they authorised Mr Richards to
give effect to any
arrangements agreed about the lease, both with Mr Ritchie and
with the solicitors: at [37].


[38]    The various authorities cited
by Mr Matheson are of no assistance. The
distinction he seeks to draw is factually and legally misconceived. Mr Richards did
not
purport to have authority to make decisions about the terms of the lease or to
negotiate those terms. His 4 April letter is no more
than a record or note of what was
agreed by the parties on 13 March. Mr Richards' subsequent correspondence refers
to discussions
with Mr Ritchie. But they were plainly for the purpose of setting in
place or implementing what had earlier been agreed orally.


[39]    The Judge correctly found that Mr Ritchie had Northcott's actual authority to
act as its agent: at [38], and this ground
fails.


(3)     Intention to be legally bound


[40]    The parties never executed a formal deed of lease. A number of drafts were
exchanged. But finality on a formal document was not reached.


[41]    Judge Johnson nevertheless found that the parties intended
to be legally
bound on 13 March: at [59]-[60]. He earlier examined the relevant authorities, in
particular France v Hight  [1990] 1 NZLR 345 (CA). He concluded that, even where

the parties contemplate drawing up a formal lease document, it does not
automatically follow
that they did not intend to be bound by the prior oral
agreement. The Court's task is to review all relevant evidence to construe
whether
the intention exists without the formal document: at [54].


[42]   Mr Matheson also challenges this conclusion. He relies
on a number of
authorities in this Court in support. He distinguishes France on its facts. While I
agree that in France the parties
had made more progress towards completion of a
formal lease than in this case, the decisive finding in that case was that the parties'
intention to enter into a binding contract crystallised when they agreed on the
essential terms, following which the lessee went
into possession.


[43]   I agree with Ms Hughes. All the decisions turn on their facts. Mr Matheson
does not submit that Judge Johnson
erred in law. To the contrary, I am satisfied that
the legal test he formulated accords squarely with France. Mr Matheson simply
submits that each of the factors which the Judge found to be consistent with an
intention to be bound did not justify that conclusion.


[44]   The Judge found, I think correctly, that the totality or combination of the
language of the correspondence, Mr Ritchie's
entry into possession, his payment of
rent, his maintenance work, his acquisition of a herd, and his arrangements for
leaving hay
all supported the existence of an immediate intention to be bound on
13 March. Together they are, as the Judge found, `antithetic
to the proposition that
only a monthly tenancy existed'. Mr Richards' correspondence was intended to
record a binding contract. As
noted, all essential elements had been agreed. None of
the parties' subsequent words or actions led to a different conclusion.


[45]   This ground of appeal also fails.


Decision


[46]   Northcott's appeal is dismissed (except that the District Court judgment
is
varied to record that the date of the oral judgment was 13 March 2003, not 4 April
2003). It follows from my findings that the
company's notice of cancellation of the

agreement, given orally by Mr Max Northcott on 10 February 2004, was unlawful.
Mr Matheson
said it was based upon Mr Ritchie's refusal to pay arrears of rent. In
my judgment Mr Northcott had no justification to terminate
for refusal to pay arrears
at a rate which were never agreed. Northcott must bear the financial consequences.
The proceeding is remitted
to the District Court to determine the trust's losses.


[47]   The trust is also entitled to costs and disbursements on the appeal
according
to category 2B. An additional uplift of 50% of those costs is justified. While the
trust's pleadings were legally confused,
the issues for determination had crystallised
by the time of trial in the District Court. I am satisfied that many of the grounds
of
appeal were without hope or misconceived and it is regrettable that Mr Matheson did
not adopt a discriminating approach instead
of revisiting arguments advanced at trial
which were decisively and rightly answered by Judge Johnson.


[48]   Northcott is ordered
to pay the trust costs calculated according to category
2B, plus a 50% increase, together with disbursements.




              
                       ______________________________________
                                      Rhys Harrison J