Pascoe Properties Limited v Attorney-General [2012] NZHC 2671 (23 October 2012)

High Court of New Zealand

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Pascoe Properties Limited v Attorney-General [2012] NZHC 2671 (23 October 2012)

Last Updated: 9 November 2012

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2011-485-1588 [2012] NZHC 2671

BETWEEN PASCOE PROPERTIES LIMITED Plaintiff

AND THE ATTORNEY GENERAL Defendant

Hearing: 27 August 2012

Counsel: K B Johnston and A V Abeygoonesekera for Plaintiff

M J Andrews and C I J Fleming for Defendant

Judgment: 23 October 2012

_{JUDGMENT OF SIMON FRANCE J}

Introduction

[1] This case concerns a dispute as to whether a right of renewal of lease was exercised. The landlord, Pascoe Properties Limited, says it was and sues for unpaid rent. The tenant, the Ministry of Economic Development, denies there was an agreement to renew.

Facts

[2] In 2003 the plaintiff purchased a commercial building in Lower Hutt. The Ministry of Economic Development was an existing tenant. Its occupancy had commenced in 1997, and been renewed for a further three years in 2003, a few

_{months prior to Pascoe Properties purchasing the building.}

PASCOE PROPERTIES LIMITED V THE ATTORNEY GENERAL HC WN CIV 2011-485-1588 [23 October

2012]

[3] The Ministry had two further rights of renewal. The first renewal date would be 1 August 2006, and in order to exercise the renewal, the Ministry would need to be in good standing and give three months’ notice. However, in 2005, Mr Thompson, the principal of Pascoe Properties, raised the issue with the Ministry. He was hoping for an early commitment. Mr Thompson spoke at the time with a Mr Grindey of the Ministry. He referred Mr Thompson to Mr Benjamin, a property consultant.

[4] Mr Benjamin had a long-standing arrangement to act as the Ministry’s property agent. He describes the arrangement as having started about 20 years earlier. He knew the now Deputy Secretary of the Ministry, Mr Harris, well, and would assist with viewing potential premises for leasing opportunities.

[5] From the time in October 2005 when Mr Thompson was referred to Mr Benjamin, until the time when the tenancy ended in February 2007, the relevant relationship and dealings were between Mr Thompson and Mr Benjamin. There is evidence that Mr Benjamin kept relevant persons in the Ministry informed, but he was the point of contact for Pascoe Properties.

[6] Over this period there were two live issues:

(a) the building leaked and the Ministry wanted these problems fixed; (b) the renewal.

[7] The two matters ran on a parallel basis, but inevitably became intermingled, since Mr Benjamin was under pressure from his client to get the leaks fixed. Mr Thompson’s view, which is disputed, is that he was trying to have them fixed but it was not straight forward.

[8] Concerning the renewal Mr Benjamin was keen to achieve four things: (a) a revised security system;

(b) a comprehensive lift maintenance contract; (c) a $50,000 contribution to recarpeting;

(d) repairs to walls and columns. This issue was associated with the leaks.

[9] In February 2006 these four propositions were put to Mr Thompson. He replied, essentially agreeing but qualifying the suggestions in terms of the dates by when things would be done.

[10] Mr Benjamin’s letter setting out these propositions had concluded:

I suggest you prepare a variation of lease incorporating the above details for execution by MOED. In the meantime could you please countersign this letter signifying your acceptance of the above terms.

[11] Mr Thompson indeed did countersign on 10 March 2006, but adding:

Subject to comments above.

1. Will get Kane to send you full copy [the lift contract].

2. Self explanatory – want to see new rent go through before I pay [the

$50,000].

3. I don’t want to replaster the walls till we find any leaks that may be

there.

[12] On 9 May Mr Benjamin’s office replied (there was no explanation for the

time gap):

We write on behalf of the Ministry of Economic Development.

Thank you for forwarding the countersigned letter outlining the agreed basis for the MOED exercising it’s right of renewal at 330 High St, Lower Hutt. Can you please now prepare a variation of the lease incorporating both your written comments and those listed in type. Once ready for execution, can you please forward the appropriate copies to this office so we can arrange execution.

[13] It is at this point that the plaintiff says there is a concluded binding agreement to renew the lease. The defendant says there is not, because any agreement was always subject to Ministry approval, and to execution of a formal document. Further, Mr Benjamin was not authorised to bind the Ministry, did not do so, and had no apparent authority to do so.

[14] Before addressing these issues, I set out the balance of the narrative. Notwithstanding the request in the 9 May letter for it to do so, Pascoe Properties did not send a variation of lease. Any contact between the parties was limited to discussions about the on-going leak issues.

[15] The renewal date of 1 August 2006 came and went. The Ministry continued to pay rent at the existing rate. On 25 August 2006 Mr Benjamin wrote again to Pascoe Properties:

Re: Deed of Variation – MOED Lease Renewal

I have taken the liberty of preparing the above document, incorporating all the matters that have been discussed and agreed. The rental I have calculated at ...

... This variation is subject to the approval and ratification by Mr Neville Harris in his capacity as Deputy Secretary of Ministry of Economic Development, within seven days of which [when?] we receive the executed copy from you.

[16] There was no response from Pascoe Properties. However, on

27 September 2006 there is an internal email within the Ministry. It originated from Mr Grindey who had responsibility for property matters. He advised the recipient that Mr Thompson would be calling in to present new tax invoices for the new rental. It appears that Mr Thompson indeed did that, since the invoices appear as part of the agreed bundle. They set out the new agreed rental. However, at a date unknown the invoices have been changed within MOED; the sum stated by Mr Thompson has been crossed out and the existing rent written in. The Ministry continued to pay the existing rent and never paid the rent that would be due under a renewal.

[17] On 3 November 2006 Mr Benjamin wrote again asking for the documents, and saying he was keen to put something to Mr Harris for approval. Mr Thompson does not recall seeing this letter, but on 23 November Mr Benjamin wrote thanking Mr Thompson for the documents. He advised that the documents would now go to Mr Harris for his approval. The Lease Variation to which this letter refers is signed by Mr Thompson but not dated.

[18] Next, on 5 December 2006 Mr Benjamin wrote saying that Mr Harris had refused to approve a renewal and so the Ministry would continue to occupy as a monthly tenant. In response, a member of Mr Thompson’s staff emailed the next day asking Mr Benjamin:

why they did not approve the renewal and what their intentions are?

[19] The following day Mr Thompson faxed Mr Benjamin asking:

what the problem is as I thought we had an agreement.

[20] Then on 18 December Mr Thompson wrote to Mr Benjamin asking him to arrange for Mr Harris to contact him:

as to why he hasn’t approved what we had agreed to for the renewal.

[21] On 20 December Mr Benjamin replied, advising it was because of the many years of leaks, both roof and window, the state of the lift interior and service, and non-compatible tenants in the rest of the building. He advised that the Ministry would vacate on 20 February 2007, which it did.

Decision

[22] At the heart of the dispute is Mr Benjamin’s role. Pascoe Properties position is that it reasonably believed that Mr Benjamin had authority to commit the Ministry to a renewal. It accepts now that Mr Benjamin did not have such authority, but says it was led to believe he did. In legal terms, Mr Benjamin concluded an agreement that he had apparent authority to conclude, and accordingly the Ministry is bound by it.

[23] The Ministry’s position is that Mr Thompson and Mr Benjamin never reached a binding agreement to renew. The exchange of correspondence made clear that any agreement would be subject to approval and completion of a formal agreement. However, if wrong in this and the letter of 9 May did constitute the final step in a formal agreement, Mr Benjamin did not have authority to do that. Further, either Mr Benjamin had always made that plain, or, if he did not, any belief by Mr Thompson in Mr Benjamin’s authority was not the product of words or conduct by the Ministry. The Ministry never conferred any apparent authority on Mr Benjamin to contract a concluded deal.

[24] There are three aspects on which I need to comment. Before doing so, I observe that, notwithstanding it is a surprising conclusion, I accept Mr Thompson believed Mr Benjamin could conclude a contract. I say it is surprising because one would expect people engaged in commercial transactions of this nature with the government to appreciate there are inevitably approvals and formalities required. Second, Mr Thompson is experienced – as a young man he worked for a government department as a valuer, and now he is the principal of entities owning about 50 buildings which involve around 350 leases.

[25] However, Mr Thompson said that this was the only occasion when the government was a tenant, and he believed that Mr Benjamin was authorised. He did not focus on the nature of the relationship between Mr Benjamin and the government. I accept his evidence.

[26] This leads to the first of the matters on which I need to comment. Mr Benjamin testified that he told Mr Thompson he had no authority to bind the Ministry. He says he did this both by letter, and in conversation at the outset. Mr Thompson says he never received such a letter, and he does not recall such a conversation.

[27] Mr Benjamin is unable to produce the letter. He advises that his business changed document management systems, and the documents from that relevant time were lost. One might expect if it was standard practice he could nevertheless produce a letter of its type, but he could not. I suspect this is because this is not a

role Mr Benjamin performs much. He indicated he acts generally for landlords, and I infer mainly in relation to his own property investments. Mr Benjamin was under cross examination overnight. When he returned, having searched further overnight for like letters, he produced two. I admit to being somewhat baffled because neither of the two letters that were produced assisted at all. The one that might have been written in a similar context to the matter before the Court said nothing at all about his limited role. I was left satisfied that the letter to Mr Thompson was not sent.

[28] That leaves the assertion of oral communication. This is very much a case of competing evidence with no real basis to resolve it. Mr Harris testified that on other occasions, presumably somewhat distant, he had been present with Mr Benjamin when Mr Benjamin had set out his limited role. I have regard to that evidence but it is of limited value. It does not say anything about this occasion, or much about what Mr Benjamin might say when not reminded to do so by the presence of Mr Harris.

[29] Mr Thompson acted throughout in a way inconsistent with a person who had been expressly told that Mr Benjamin could not seal the deal. He struck me as an honest witness and so I am not satisfied the limited role of Mr Benjamin’s engagement was explained. This is not to question Mr Benjamin’s honesty. I am simply not satisfied that his recollection after this period of time is correct.

[30] The other two matters on which I wish to comment are each independently determinative of the proceedings. They concern whether there was a concluded agreement on 9 May 2006, and whether the Ministry ever represented to Mr Thompson that Mr Benjamin could conclude a deal.

[31] Turning first to the letter of 9 May, I do not consider it represents a concluded deal. I believe that throughout this process Mr Thompson has made assumptions, and not actually focussed on what was being said.

[32] The letter of 20 February says quite clearly that a variation of lease is to be prepared incorporating the terms for execution. The plaintiff led expert evidence from Mr John O’Regan that it is not uncommon in renewal situations for agreement to be reached by an exchange of correspondence, and for formal documentation not

to be prepared. I accept that evidence but consider that here the tenant was making it plain that formality was required before there would be a concluded contract.

[33] Then the letter of 9 May says it is the “agreed basis” for the MOED exercising its right of renewal.1 I do not consider that is saying that there is a concluded agreement. This is not, in my view, a notice formally exercising the tenant’s right of renewal; it is just saying we have reached agreement on the basis on which we will renew but:

can you please now prepare a variation of the lease incorporating both your written comments and those listed in type. Once ready for execution, can you please forward the appropriate copies to this office so we can arrange execution.

[34] This passage makes plain the need for a document. In doing so it reflects the terms of the earlier letter of 20 February which also spoke of a variation document. My assessment is that the execution of a variation was intended to be the formal step. It was not intended just to be an after the event record of binding agreements already reached. If Mr Thompson did not appreciate this, it is because he was not focussing on it properly.

[35] Even accepting, as Mr O’Regan testified, that these things are often done by letter, for the 9 May letter to constitute a concluded binding agreement to exercise to right of renewal, in the circumstances of this case, I would expect it to say just that. It does not, but instead confirms that the parties have reached agreement as to the basis on which the renewal will be exercised. That is not the same thing as exercising it. Further, the letter again refers to the need to prepare documentation, a point made earlier in the February letter.

[36] Accordingly, I do not consider the 9 May letter represents an exercise of the renewal or constitutes a binding agreement to renew the lease. The plaintiff accepted that if I took that view of this documentation, there was no other basis it could advance in support of there being a renewal of the lease.

[37] There is an alternative basis on which I would have found against the plaintiff. It is common ground that Mr Benjamin did not have authority to bind the Ministry. He was, however, its agent and the Ministry would be bound if it had conveyed to Mr Thompson the opposite impression. In other words, did words or conduct of the Ministry cloak Mr Benjamin with apparent authority?

[38] The following passage from Mountain Lake Holdings v Darrell McGregor

(Contractor) Limited adequately states the principle for the purposes of this case:2

It arises when a principal acts in such a way as to lead another person to believe that he or she has authorised that third person to act on the principal’s behalf, and that other person enters into a transaction with a third person in the belief that such an authority exists. A principal who has induced the appearance of authority is bound by the transaction. Ostensible authority is based on estoppel. The representation must be clear and unequivocal, and if the conduct is capable of being interpreted in a way which does not accord with the granting of authority to an agent, no authority can arise. (Savill v Chase Holdings (Wellington) Ltd [1989] 1

NZLR 257 (HC, CA and PC) at pp 272–275 and 304–305).

[39] I have considered the matters relied on by the plaintiff to establish a representation by the Ministry that Mr Benjamin had authority to finally conclude the negotiations about renewal, and to bind the Ministry to such a renewal. In doing so I have kept in mind that the inference can be drawn not just from words but also from the circumstances in which the principal has placed the agent. For several reasons I do not consider ostensible authority has been shown.

[40] I first address Mr Thompson’s evidence that when he was first referred on to

Mr Benjamin, Mr Grindey had said to him that:

Mr Benjmain was the party who I should be dealing with regarding this matter and he had the authority to act.

[41] In cross-examination Mr Thompson appeared to accept it was an impression he gained, and certainly he could not recall the words.

[42] I do not place weight on this hearsay evidence that emerged for the first time in oral evidence. It carries the dangers of hearsay in that it is unclear what the speaker actually said, and seems to rely on impressions taken by the hearer. I have observed I do not consider in that regard Mr Thompson is one who particularly focussed on the exact words, but rather tended to assume meaning. Second, it is significant that it is an allegation not previously raised. Had there been any certainty that an officer of the respondent had conveyed in express terms that Mr Benjamin had authority to bind the Ministry to a lease, one would expect it to be pleaded and addressed in the written brief.

[43] The plaintiff next places weight on trial evidence from Mr Benjamin that he copied the Ministry into correspondence. From this it is said that the Ministry’s inaction in not making plain that Mr Benjamin could not act should be seen as supportive of the proposition it was representing he could. A difficulty with this is that if one reads the correspondence in the way I do, there is no reason for the Ministry to have stepped in and made things clear. At the least I consider that, in terms of this argument, there is no sufficiently clear assertion of authority by Mr Benjamin known to the Ministry that justifies weight being placed on the failure of the Ministry to correct it.

[44] Next, reference was made to the fact that Mr Benjamin signed Notices to Correct Defects in the lease in a manner clearly suggestive of authority to act. I agree, but do not consider the context (notices to fix) can be equated with an ability to commit the Ministry to a three year lease.

[45] Overall I consider, and not with much difficulty, that the claim of ostensible authority fails.

Conclusion

[46] For two separate reasons I conclude the claim fails. I do not consider Mr Benjamin had ostensible authority to bind the Ministry, and in any event I do not consider anything he did purported to bind the Ministry.

[47] For completeness, I record that as regards damages, I would have rejected the defendant’s submission that the plaintiff failed to show it had mitigated its losses. The evidence that was provided on the inability to lease the building, although sparse, was sufficient in the absence of any contrary evidence on the point.

[48] The defendant is entitled to costs. Memoranda may be filed if agreement cannot be reached.

Simon France J

Solicitors:

K B Johnston, Barrister, Wellington, email: [e-mail]

M J Andrews, Crown Law, Wellington, email: [e-mail]