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High Court of New Zealand Decisions |
Last Updated: 18 April 2012
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
CIV 2010-425-000147 [2012] NZHC 441
BETWEEN NIAGARA SAWMILLING COMPANY LIMITED
Plaintiff
AND CARTER HOLT HARVEY LIMITED Defendant
Hearing: 27 and 28 February 2012
Counsel: P B Churchman for Plaintiff
R G Simpson and S Elliott for Defendant
Judgment: 15 March 2012
JUDGMENT OF WHATA J
[1] Niagara Sawmilling Co Limited (“Niagara”) is the landlord of substantial commercial premises near Christchurch. Carter Holt Harvey (“CHH”) is a lessee of those premises. The leasing obligations were contained in two separate agreements and an informal tenancy. In 2006 they decided to bring the arrangements under one lease. A solicitor acting for CHH stated that apart from identified changes, this new lease was otherwise on the same terms and conditions as previously agreed. Niagara says this was false and that the 2006 update included a 10% ceiling on reviewed rent whereas earlier leases had provided for rent to be reviewed to the current market rent. Niagara makes a claim under s 6 of the Contractual Remedies Act 1979 for misrepresentation and/or s 9 of the Fair Trading Act 1986 for misleading and deceptive conduct. Relief is also sought on the basis that the relevant rent review
clause is internally inconsistent and repugnant.
NIAGARA SAWMILLING COMPANY LIMITED V CARTER HOLT HARVEY LIMITED HC INV CIV 2010-
425-000147 [15 March 2012]
Background
[2] CHH and Niagara entered into a lease of land and buildings for a period of two years from 1 July 1998 at a rental of $85,000 per annum payable monthly in advance. The lease related to premises situated at Johns Road and at McLeans Island, near Christchurch. That lease expired on 30 June 2000, but CHH remained at the property and paid rental for its occupation on what appears to be an implied monthly tenancy.
[3] In early January 2003 Niagara and CHH negotiated and agreed on terms for Niagara to construct an extension to the factory building at the property and the parties were to enter into a new lease incorporating the extension. That lease was ultimately executed in March 2003. Upon each renewal date, it provides for rent to be reviewed to the current market rent.
[4] In about May that year Niagara and CHH negotiated and agreed to construct two further extensions to the factory building at the property. That agreement was recorded in an agreement dated September 2003. That leasing agreement refers to rental reviews to the current market rent every three years and a cap of 10% on any increase.
[5] Following execution of the agreement Niagara constructed the two further extensions and CHH took possession of those additional buildings. There then followed a further period of negotiation in March 2004 through to November 2004 with the result that Niagara agreed to refurbish another commercial building at the property called the Brazier site and it was agreed that CHH would lease this also.
[6] CHH took possession of the Brazier building in about December 2004 and Niagara carried out the refurbishment. Leasing arrangements for the Brazier building were left on a somewhat informal basis and without there being any written lease agreement for the Brazier building and surrounds executed by the parties.
[7] In January 2006 Niagara and CHH agreed that they should enter into a new lease of the property to incorporate the land in the 2003 lease, the premises in the
September 2003 document and the Brazier building and surrounds. That lease was then prepared by Mr Palmer, CHH’s solicitor. In a cover letter attaching a proposed new lease agreement, Mr Palmer records:
The lease is for a three year term as from 1 February 2006 with three further renewal terms and at the rent for the first term of $224,000 pa plus GST. It is otherwise on the same terms and conditions as previously.
The net effect is that this lease replaces all previous agreements.
[8] The lease was then executed. In November 2007 Niagara wrote to CHH advising of its concern as to the 10% rent review cap and the 2006 lease and asking for it to be deleted. There are no further dealings on this issue until about June 2008 when Niagara again corresponded with CHH regarding the rent review due alongside the lease renewal on 1 February 2009. Niagara took the position that the rent should be increased to current market rent, while CHH provided Niagara’s solicitors with a renewal deed including a 10% increase. Proceedings were issued in March 2010.
Issues
[9] Helpfully the essential issues of fact and law have been agreed, namely:
(a) Did the September 2003 and November 2005 agreements, entitled “Agreement Varying a Lease”, vary the terms of the March 2003 lease?
(b) Did the September 2003 and November 2005 lease documents introduce a 10% ceiling on rent reviews of the entire leased area, including the original leased area that is the subject of the March 2003 lease, or only the additional leased areas?
(c) Did the letter from the second defendant to the plaintiff dated
29 August 2006 contain a misrepresentation?
(d) Did the second defendant make any representation with the intent of causing the plaintiff to execute the 2006 lease agreement, or did he wilfully use language calculated, or of a nature, to induce the plaintiff
to execute that agreement?
(e) Was the plaintiff in fact misled by the representation?
(f) Was it reasonable for the plaintiff to have been misled by the representation?
(g) Does the rent review clause in the 2006 lease agreement contain inconsistent and repugnant terms?
(h) Has the plaintiff suffered loss?
[10] With the benefit of hearing the evidence, it became clear that a further issue required attention, namely whether Mr Palmer’s statement that the 2006 lease was “otherwise on the same terms and conditions as previously” was a statement of opinion about the terms of the leases rather than simply a statement of fact. I gave the parties an opportunity to submit on this issue. Mr Simpson contended that Mr Palmer’s statement was one of mixed fact and law and/or a statement as to the effect of a document, with the law treating both these classes as representations of fact. He requested that whatever view I reached on this aspect, I should resolve the other issues. Mr Churchman emphasised that the issue was not pleaded, but that in his view the statement was one of fact. In any event, his argument from earlier submissions was that the legal consequence of the 2003 agreement was that the lease was surrendered and re-granted, and this would preclude the argument on this point.
[11] Mr Churchman accepted, properly in my view, that if I found that the 10% cap was discussed with Mr Richardson prior to the September 2003 lease, then the plaintiff’s case must fail.
The plaintiff ’s case
[12] Mr Churchman contends that the statement in the letter of 29 August 2006 was a misrepresentation and/or misleading and deceptive conduct because it was untrue. In favour of a finding that there was a misrepresentation, he argues that it
was reasonable for the plaintiff to rely on the statement and execute the 2006 lease and that the defendant wilfully made the misrepresentation via its solicitor who had prepared all of the relevant leasing arrangements.
[13] In response to CHH’s contention that the earlier September 2003 lease and
Brazier lease included a 10% cap, he says:
(a) Mr Richardson was never aware of the inclusion of the 10% cap, it never having been discussed or agreed;
(b) The September 2003 lease was not a variation, but involved a re-lease of land subject to the proposed additions with the result that the balance of the leased area was not affected; and
(c) The lease for the Brazier building was never executed (or received by Niagara) and any informal arrangement existed separately for the Brazier building.
[14] Finally he submits that the rent review clause is inherently contradictory, purporting to impose a market rent while at the same time imposing a cap. He says it would be appropriate to repair the contract by removing the 10% cap, relying on the general principles of law affirmed in cases including Re Burberry Mortgage
Finance & Savings Limited (In Receivership)(No 1).1
[15] The plaintiff’s case is supported by evidence from Ian Osborne, a former manager at Carters. He describes the background to the negotiations over the extension of the lease of the premises and avers to the following:
I am now aware that the lease for the extensions contained a clause limiting the reviewed rent to 10% of the rent payable previously. I was never aware of a policy by Carters to limit reviewed rent in this way and there was never any mention of this in my discussions with Mr Richardson. I did not instruct the Auckland office to include this clause, nor did anyone require me to discuss this with Mr Richardson [for Niagara], and, as I had no knowledge of what is now alleged to be a policy about rent reviews, there is no way I could have discussed this with Mr Richardson.
1 Re Burberry Mortgage Finance & Savings Limited (In Receivership) (No 1) HC Christchurch
M267/89, 1 November 1990
[16] There is then the evidence of Ross Craig Richardson, the director of Niagara. Mr Richardson details a description of the property and the background to the lease negotiations, including their various leases and extensions. He refers to Mr Palmer’s letter that included the alleged representation. Mr Richardson says that given Mr Palmer’s letter he understood that apart from the changes to the term of the rental the lease was on the same terms and conditions as the March 2003 lease to Carters. That lease contained no reference to a 10% cap. The first he became aware of the cap was after the 2006 lease had been executed. More specifically he stated:
The lease was for three years from 1 February 2006 at the market rent of
$224,000 per annum from Ford Baker’s report. The lease also had three
rights of renewal of three years each and with rent reviewed to the current market rent on each renewal date. Given that, and Mr Palmer’s letter saying the lease was otherwise on the same conditions as previously, I understood that apart from changes to the term and rental the lease was on the same terms and conditions as the original lease to Carters (the 2003(1) lease).
The defendant’s case
[17] The defendant denies that there was any misrepresentation. It says the cap was first introduced through the September 2003 variation with the result that Mr Palmer’s statement was factually correct – the 2006 lease was otherwise on terms and conditions previously agreed.
[18] The defendant called Grant Harvey Main and Simon Middleton Palmer. Mr Main was responsible for managing the commercial and industrial property portfolio owned or leased by CHH at the time of the leases. Mr Palmer is a solicitor who for many years acted for CHH on numerous property matters, including the negotiation and drafting of leases.
[19] Mr Main explains that CHH was a large landowner and tenant of many properties. In around 1999 CHH began introducing a new term into its lease agreement that imposed a 10% cap on increases to contract rents as a consequence of rent reviews. He details the processes followed by the leasing team and notes that any commitment could not be made to a landlord until the approval process has been completed. This included the completion of a leasing expenditure proposal document which detailed the key components of a proposed lease.
[20] He explains that once a proposal had been approved Mr Palmer was then engaged and that for the past decade or so he would meet with Mr Palmer every Tuesday to review property matters. He says Mr Palmer would draft lease agreements on his laptop using the CHH standard form lease document. Mr Palmer would then prepare an internal form requesting approval of the lease to be signed by key persons in CHH before a lease was executed by authorised signatories.
[21] He also details the history of the leasing arrangements for the McLean’s Island site that commenced on 1 July 1998 and the deeds of renewal prepared through to 1 July 2003. He says that in addition to the land being leased under the
1998 lease, Carters made use of a small section of land adjacent to the factory buildings. Carters agreed to vacate that land but as they needed additional dry storage space in October 2001 they began discussions with Mr Richardson about a proposal for his company to construct an extension to the existing factory building which would be leased. He says ultimately a new lease agreement with Mr Richardson was reached. It covered the original premises leased under the 1998 lease and the new dry store extension for a term of six years from 1 February 2003 and three rights of renewal for three years each. The annual rent he says was set at
$115,000 with three yearly rent reviews. The agreement was executed by CHH and
Niagara in March 2003.
[22] He then says that by May 2003 CHH was in need of additional storage space. Negotiations had begun through Mr Osborne with Mr Richardson. He says that Mr Osborne apparently had given the go ahead for a lease without his authority. It was about this time that he discussed with Mr Palmer whether CHH should move to the longer form of the ADLS lease form. Mr Palmer recommended that they provide for the lease of the two extensions by way of a short form variation of lease modelled on the March lease rather than move to the longer lease. Mr Palmer did suggest, however, that it was an opportune time for CHH to move to a 10% cap on rent reviews. He says that he called Mr Richardson and that he is confident he discussed with Mr Richardson their requirement to introduce the 10% cap on rent reviews. At about this time Mr Palmer also sought drawings of the site, existing premises and the two extensions, which would become an attachment to the
agreement. Mr Palmer drafted the agreement varying the 2003 lease and it was executed by both CHH and Niagara with no objection to the 10% cap on rent review.
[23] He refers to a further variation to the lease in 2005. Mr Palmer prepared the lease variation and once again included a 10% cap on rent reviews. He accepts there is no record of the agreement being executed by Niagara.
[24] In 2006, following a rent review, CHH wanted the property team to prepare a new lease agreement to consolidate the March 2003 lease agreement, the September
2003 variation and the November 2005 agreement into one lease document. This was put to Mr Richardson and he agreed that it was sensible.
[25] Mr Palmer provides a detailed account of the documents that he drafted. He confirms that prior to the agreements it was often necessary for Mr Main to negotiate the terms with Mr Richardson. He then details the processes followed for the March
2003 lease and the September 2003 lease. He says he then suggested to CHH that they impose the 10% cap on increases to rentals during the September 2003 process. He recalls asking Mr Richardson to provide him with a site plan during the conversation for the purposes of attaching it to the then proposed lease agreement. He remembers discussing the proposal to introduce a 10% cap on all future rent reviews into the lease and telling Mr Richardson that CHH required this cap because the commitment was becoming more significant. He specifically says:
I remember discussing our proposal to introduce a 10% cap on all future rent reviews into the lease and telling Mr Richardson that CHH required this cap as its commitment to the property was now becoming more significant and it was a standard requirement on CHH leases. I don’t specifically recall Mr Richardson[’s] response, but I assume he accepted the inclusion of this clause, as it was included in the variation of lease that I prepared shortly after our conversation ended.
[26] He then refers to the 2005 variation of lease to include the Brazier building, and observes that he may have failed to send a version of that to Mr Richardson. He then describes the 2006 lease process and how there was general consensus that it would be sensible to prepare one consolidated agreement to replace the 2003 lease and variation and the 2005 variation. He confirms that he prepared the new 2006 lease with the previously agreed 10% ceiling on any increase. He said he forwarded
execution copies to Mr Richardson for his signature and he refers to the cover letter. He posted a set of the lease documents to Mr Richardson and in due course received a signed duplicate back from Mr Richardson. He says that when he drafted the 2006 lease agreement he believed that the terms of the 2006 agreement reflected the terms of the existing lease agreement as amended by the 2003 variation and supplemented by the 2005 variation. He therefore sent a letter enclosing the leases recording his belief that the 2006 lease was “otherwise on the same terms and conditions as previously.” He says the first time it came to his attention that he had allegedly misrepresented the position was a letter received on 2 October 2009 from Niagara’s solicitor, Duncan Anderson. He then said in a letter dated 7 October 2009 that the
10% ceiling on rent review was incorporated as early as the 2003 variation and subsequently in the 2005 variation.
Framework for analysis
[27] Mr Churchman submits that the claim under the Fair Trading Act 1986 (FTA) is essentially the same as the claim under the Contractual Remedies Act 1979 (CRA), except that Niagara does not have to prove under the FTA an actual or constructive intention to mislead. I am not convinced that the two regimes are essentially the same. The CRA is concerned with inter party remedies whereas the FTA has a much wider scope and consumer protection purpose. This latter purpose, rather than the intentions of the parties, drives the FTA analysis. Nevertheless I am broadly content to proceed on the basis that the claims give rise to key issues identified by the parties. The following briefly describes the framework that I adopt for the purpose of resolving those issues.
Contractual Remedies Act
[28] In the context of the CRA, it is common ground that Niagara must establish that Mr Palmer intended to induce Mr Richardson into signing the 2006 update. By induce I respectfully adopt the following statement by Hardie Boys J in Savill v NZI
Finance Ltd:2
2 Savill v NZI Finance Ltd [1990] 3 NZLR 135 at 145-146
... the familiar verb "induce", which has always had its two aspects, has been retained. Therefore I consider that it remains the law that it is not enough for a party to say that a representation caused him to act in a particular way. He must also show either that the representor intended him to do so, or that he “wilfully used language calculated, or of a nature to induce a normal person in the circumstances of the case to act as the representee did”: I quote from Spencer Bower & Turner at p 132. To view the Act in this way is to be consistent with the objective approach generally taken in regard to the law of contract.
Fair Trading Act
[29] Whether any conduct is misleading or deceptive is assessed objectively, by reference to “whether a reasonable person in the claimant’s situation – that is, with the characteristics known to the defendant or of which the defendant ought to have been aware – would likely have been misled or deceived”.3 Stevens J in Krtolica v Westpac Banking Corporation referred to various leading authorities and stated that this involved consideration of three issues, namely whether:4
(a) The conduct was capable of being misleading;
(b) The plaintiff was in fact misled by that conduct; and
(c) It was reasonable for the plaintiff to have been misled by that conduct.
[30] Usefully, this aligns with the agreed issues – though issue (a) must be addressed when I deal with whether there was a misrepresentation.
[31] If the conduct is objectively misleading, the next question is whether the conduct was a material cause of the loss. More specifically, in order to qualify for a remedy under the Fair Trading Act the misleading conduct must be “the effective
cause or an effective cause”5 in the sense that:6
3 Red Eagle Corporation Ltd v Ellis [2010] 2 NZLR 492, at [28]
4 Krtolica v Westpac Banking Corporation [2008] NZHC 1; [2008] NZCCLR 24 at [158]
5 Red Eagle Corporation Ltd v Ellis at [29]
6 Red Eagle Corporation Ltd v Ellis at [29]; see also Goldsbro v Walker [1993] 1 NZLR 394 (CA)
at 401
The impugned conduct, in breach of s 9, does not have to be the sole cause, but it must be an effective cause, not merely something which was, in the end, immaterial to the suffering of the loss or damage. The claimant may, for instance, have been materially influenced exclusively by some other matter, such as advice from a third party.
[32] If the claimant’s action contributed to the loss, then this may be relevant to the apportionment of loss, or in this case, the form of relief.
[33] In circumstances where the impugned conduct is a statement of opinion, as the Court of Appeal observed in Premium Real Estate Ltd v Stevens:7
It is difficult to see why an honestly held, reasonably based opinion should be actionable under s 9 simply because it is not borne out by subsequent events. The person expressing the opinion may have done all that could sensibly be done to reach an informed view but would still be liable, even if the subsequent events or circumstances were unforeseeable.
[34] I deal with the principles concerning surrender and repugnancy as they arise in the resolution of the agreed issues.
Issues
Did the September 2003 and November 2005 leases vary the March 2003 agreement?
[35] Yes, insofar as concerns the September 2003 agreement. The September
2003 lease changed the scope of the use of the leased areas, including construction and use of new buildings and provided for additional rent. The September 2003 was not however a separate lease – it was an adjunct or overlay to the existing lease – to coincide with it and to be read in tandem with it. The rent reviews were coordinated with the existing reviews so that the two agreements ran together and not as separate, distinct leasing arrangements. Common sense also dictates that as the proposed additions were within an existing leased area, the two agreements were to be read as
complementing rather than supplanting each other.
[36] I am also unable to agree with the careful argument presented by Mr Churchman on the doctrine of surrender. As Mr Churchman submitted, by virtue of the doctrine of implied surrender, when a landlord and lessee agree to change the terms of a tenancy, the preceding tenancy may be deemed to have been surrendered and replaced with a new grant to properly reflect the changed position as between
landlord and lessee.8 It is important to recall however that the doctrine applies most
prominently to clarify the contractual obligations of an assignor of a tenancy, with the result that any previous obligation of the assignor ended and was replaced by the new obligation assumed by the assignee.9 The utility of the doctrine in this context is obvious. But even so, that doctrine appeared to have limited scope, namely in circumstances where the term is extended or new premises are added.10
[37] In the present context, Niagara remains the landlord and CHH remains the tenant. There is no need for the type of caution that might arise where an assignee might be exposed to unexpected liability. I can simply look to the new agreement to ascertain whether the new agreement surrenders the existing tenancy and replaces it
with a new one.11 I am satisfied for the reasons I state at [35], that neither Niagara
nor CHH sought to create a new tenancy through the September 2003 agreement. Rather they sought to add to an existing tenancy.
[38] I would further observe that application here of the doctrine of surrender has the appearance of forcing what happened into a legal fiction; that is so as to arrive at the conclusion that the September 2003 agreement is a stand-alone lease, and did not otherwise change the essential terms of the March lease. In reality the September
2003 agreement varied the March lease, but the issue remains by how much.
[39] For completeness the Brazier (draft) lease was never executed. It therefore cannot be said to modify the prior leasing arrangements. It also relates to a different area of land. If it did apply, there is no reason to apply its terms directly to the areas
subject to the March and September 2003 leases. At most it supports Mr Palmer’s
8 Refer Halsbury’s Laws of England, Landlord and Tenant Vol 27(1), 2006 Reissue at [634]-[635]
9 Refer Gibbons Holdings Limited v Wholesale Distributors [2008] 1 NZLR 277; Sina Holdings
Ltd v Westpac Banking Corporation [1996] 1 NZLR 1
10 Refer Adams v Touchtwo Limited (2010) 11 NZCPR 577, at [53]
11 Consider by analogy the approach taken by the Court of Appeal in Sina Holdings Ltd, at 5.
assumption that the parties had already agreed a 10% cap as his draft included that cap.
10% cap on entire area?
[40] The September agreement does not expressly purport to change the terms of the March lease except insofar as it provides for the new buildings and use of those buildings.
[41] While it simply refers to “rent” in the rent review clause, that must be coloured by the immediate context, and ostensible purpose and scope of the September agreement – namely to add more areas onto the current arrangements:
(a) Premises are defined as:
PREMISES: That further part of the Landlord’s property at Johns Road and 16 McLeans Island Christchurch outlined in red on the attached plan having an area of
1,068m² more or less together with existing access to Johns and Broughs Roads and McLeans Island.
(b) The agreement then expressly refers to additional rent, not the total rent, in the operative rent clause.
(c) The tenant’s and landlord’s obligations are related to the “premises”.
(d) The consideration is expressed as lease of the “premises” not lease of
the premises plus the existing leased areas.
(e) The additional provisions relate specifically to southern and northern additions within the defined premises.
(f) Provision is made for work on the “premises” by the landlord.
(g) Quiet enjoyment of the “premises” is specified, not quiet enjoyment
of all leased lands.
[42] Further, CHH’s background documentation does not overtly suggest that a
wider cap was intended. The lease and the lease summary defines the premises as
1068m2 of additions. Additional rent is specified, as are the rent reviews with the cap but without referring to the wider leasing arrangements. The tenant’s maintenance obligations refer to the premises, and the landlord maintenance is related to a building. The extensions relate to agreed specifications. It then says, “Otherwise, on terms of the existing lease”.
[43] Mr Simpson contends that if I accept Mr Palmer’s evidence that the parties discussed and agreed the cap across all lease areas, then the actual intention must prevail over any presumed intent.12 But this begs the question as to what was actually agreed or intended. I address the evidential issue below. I have formed the view that the cap was discussed. But I am not satisfied that there was any consensus on the precise scope of any cap. Mr Palmer is not precise about what
Mr Richardson’s reaction was and properly so, given that the discussion occurred several years ago. He simply assumed that he accepted the inclusion as it was included in the variation of the lease. Furthermore, there is nothing in the available material to suggest a common intention to apply the cap across all the leased area.
[44] Turning then to the subsequent conduct of the parties. Mr Simpson refers to:
(a) The November 2005 variation drafted by Mr Palmer included an equivalent rent review cap;
( b) The 1 February 2006 rent review applied to all rent and resulted in a single rent figure of $224,000 plus GST; and
(c) Both parties executed the 2006 update which included the 10% cap.
[45] I am not going to wade into the debate about the efficacy of a subsequent conduct enquiry. Apart from the fact I am now bound to do so,13 there was no
12 Citing Gibbons Holdings Limited v Wholesale Distributors Supra at [97], per Thomas J
13 Ibid at [52], [74] and [122];
serious challenge to it. But I commence by restating the purpose of such enquiry, as put by Thomas J in Gibbons Holdings Limited v Wholesale Distributors:14
[114] ... Evidence of subsequent conduct is admitted, not for the purpose of importing an intention which was not expressed in the contract, but with a view to elucidating the meaning which the parties intended their contract to have when they entered into it. The reasonable expectations of the parties to the contract should not be defeated by attributing a meaning to it which their subsequent conduct demonstrates they did not intend. As an Australian Judge has put it: “[J]ustice requires that the parties should be held to the bargain in the sense to which they have agreed”.
[46] As to the alleged subsequent conduct, the November 2005 variation did not reach Mr Richardson. It cannot support the presence of a common intention. The 1
February 2006 rent review did not invoke the 10% cap. The then new market rental fell below that threshold. It is not at all clear that the parties considered the cap in the negotiations. Finally, it could be said that the 2006 Agreement objectively suggests a cap was previously agreed, given Mr Palmer’s statement about the effect of the 2006 Agreement. But, not only does this involve circular reasoning, it is met with the evidence that Mr Richardson complained about the rent review clause when he first became aware of it. Therefore, in my view, the subsequent conduct does not elucidate in any clear way, the meaning which the parties intended by the September
2003 variation when they entered into it.
[47] Mr Simpson then prays in aid of commercial common sense. He says it cannot be right that CHH agreed to cap rent review on two buildings only, while the balance of the site remained unaffected. That is a curious submission given the very piecemeal and informal way the parties leased the property, with additions included as needed and dealt with separately (or not at all) until the parties decided to amalgamate the leasing arrangements in 2006 (eight years after the first lease was executed). With respect to Mr Simpson’s submission, commercial commonsense is very much in the eye of the beholder in this context.
[48] In summary, against the full background and the implications of a 10% cap, I
would have expected far more clarity if the parties intended all the leased lands to be caught by the September agreement. I am not greatly assisted by the evidence about
14 Ibid
the detail of what was discussed – while I accept it was discussed, the evidence does not clearly disclose what was in fact agreed. In my view, having regard to the language of the September 2003 agreement, the parties agreed on terms relating to the additions only and otherwise on the terms of the existing March lease.
Did the 29 August 2006 letter contain a misrepresentation (and was it capable of being misleading)?
[49] Yes, but only in part. Contrary to the statement in Mr Palmer’s letter, the
2006 agreement did alter a key term in relation to all of the leased areas, rather than the “premises” subject to the September 2003 agreement. The statement therefore misrepresented the correct legal position insofar as concerned those areas not subject to the September agreement.
[50] I would add however that, for the purpose of the FTA, the extent to which Mr Richardson was capable of being misled is circumscribed by his previous execution of the September 2003 agreement. Mr Palmer could not mislead him about that aspect, because it was factually and legally correct to say the September
2003 leased premises were subject to a cap. This then has implications for Mr Richardson because, objectively assessed, Mr Richardson ought to have assumed that some of the leased areas at least would be subject to a cap. I address the implications of this below.
Was the intent to cause the plaintiff to execute the 2006 agreement?
[51] No. The statement was not designed to cause a misunderstanding of the proposed leasing arrangements or to induce Mr Richardson to sign.
[52] In reaching this view, I accept that at the time Mr Palmer believed that the September 2003 agreement applied across all leases and that by 2006 the policy of a cap was well established. His statement reflected a genuine and honestly held belief that the terms of the lease were otherwise the same as the existing leases including a cap. In this regard, I accept his evidence that the cap was previously discussed in a telephone conversation in 2003. Notably:
(a) Mr Palmer could firmly place the timing of the discussion. He says it coincided with the request for plans. It immediately preceded the receipt of the plans for the proposed additions from Mr Richardson. Mr Richardson accepted that the request for the plans occurred via a telephone conversation.
(b) Mr Palmer’s evidence is supported by Mr Main. While Mr Main is not an independent witness, their respective accounts are logical, consistent and plausible, given that the policy of CHH was to cap reviews for long term leases.
(c) Mr Palmer was not shaken under cross examination. He was plainly confident in this aspect of his recollection.
(d) Reflecting a frank and honest disposition, Mr Palmer freely admitted weaknesses adverse to his position. There was no contrivance to his testimony. Indeed his truthfulness was not seriously challenged.
(e) I find it highly implausible that Mr Palmer would deviously or negligently insert a clause without discussing it with a contracting party. To this extent I accept Mr Simpson’s submission that it would not make commercial or professional sense for Mr Palmer or CHH to act deviously. CHH has many leases within its portfolio. Apparently Mr Palmer has worked on thousands of them for CHH. Mr Main said that there have been no other complaints of this kind. All of this strongly militates against a finding that Mr Palmer would act in a covert way.
(f) Mr Richardson signed an agreement that clearly specifies a 10% cap for rent reviews. I agree with Mr Simpson that this is the best evidence of the understandings of the parties at the time of execution. Certainly it would have justified Mr Palmer thinking that a cap of some sort was in place by 2006.
[53] Mr Richardson says that he simply had no authority to agree to a 10% cap. He said that the land was owned by the Council and ground lease conditions did not permit him to bind Niagara to a fixed cap. No evidence was presented about the ground lease, but I am prepared to accept Mr Richardson’s testimony that the ground lease imposed a constraint on him. I also accept that he had no recollection of agreeing to the cap in 2003. He had certainly forgotten about it by 2006. But he did sign the 2003 lease with a 10% cap. That is an incontrovertible fact. Why Mr Richardson did so thinking there was no cap is really now a matter for speculation. But I am not satisfied that Mr Palmer acted in a covert way either in
2003 or 2006. I also prefer Mr Palmer’s testimony that the cap was discussed. I wish to be clear that I am not suggesting Mr Richardson has been dishonest about his recollection of events. But I apprehend that Mr Richardson’s disbelief at finding a cap, without any clear recollection of agreeing to it, has fortified his view that it could not have been discussed.
[54] In summary, the evidence falls well short of demonstrating that Mr Palmer knowingly, by his letter or otherwise, induced Mr Richardson to execute the 2003 or
2006 agreements.
[55] Given the above, I do not view the misrepresentation as actionable under the
CRA.
Was Mr Richardson in fact misled by the representation?
[56] I accept nevertheless that Mr Richardson went into the 2006 agreement thinking that the leased areas were not subject to a cap. He plainly has no recall about the discussion of the cap in 2003. I also accept that when he saw Mr Palmer’s letter he focussed on the key changes as he perceived them. By this time, he wanted all his leasing arrangements tidied up and like CHH dealt with in one document. He read the document to ensure that the correct changes and additions had been made. He did not look further, in reliance on Mr Palmer’s statement that “it is otherwise on the same terms and conditions as previously”.
[57] For completeness, I acknowledge an apparent concession under cross- examination by Mr Richardson that he did not rely on Mr Palmer’s letter. The relevant part of the cross-examination proceeded on the following basis:15
Q. Don’t we read contracts before we sign them to make sure we’re
happy with their contents? A. Correct. Thank you.
Q. So you read this document in 2006 before you signed it to make sure you were comfortable with what was in it, right?
A. Correct.
Q. And that’s what you did back in 2003 when you signed the September variation. You read it first to make sure you were comfortable with its contents, agreed?
A. Yes, but if – the only fact is I wasn’t aware of the 10% cap.
Q. So you didn’t rely on Mr Palmer’s letter where it said, “It is otherwise on the same terms and conditions as previously,” you read it to make sure that you were comfortable with its terms, agreed?
A. I can see the angle you’re coming at, yes.
Q. Well, you’re not answering my question, Mr Palmer [sic].
A. I said, “Yes”. Mr Richardson, yeah.
[58] But this honest concession in my view must be read in the context of series of questions relating to whether Mr Richardson had read the agreement and why he would have done so. It is an invitation to reconstruct what he did and why he did it. I therefore interpret his answer as simply conceding that he would have checked the document to make sure it was right. What the cross examination does not directly contradict is the primary evidence of Mr Richardson that he did not then check that the agreement was otherwise on terms and conditions previously agreed given Mr Palmer’s statement.
[59] In re-examination Mr Richardson elaborated on this issue in the following way:16
15 Notes of evidence, at 23-24
16 Notes of Evidence at 27
Q. Towards the end of the questioning of you, it was put to you that you didn’t rely on Mr Palmer’s letter, that’s document 309 in the common bundle, now if that letter hadn’t said that apart from the term and the amount of rental payable, that the lease wasn’t otherwise on the same terms and conditions, would that have affected in any way what you did?
A. Yes, it would have, yes.
Q. Explain to the Court how that might have been.
A. Well, I, at that point I would have, I would have definitely either sent it to McAllisters, [sic] which is a lawyers in town here, or um, read it in more detail.
[60] The first part of this answer is somewhat self serving. But the balance illustrates, fairly in my view, that Mr Richardson would have read the lease in more detail but for Mr Palmer’s statement.
[61] In summary therefore, Mr Richardson relied on the statement in the August letter. He did not approach the terms of the agreement with greater care because he thought the terms were unchanged, other than as specified in the letter. But I do not find that he was “misled” by the letter or misled by the statement alone. As I will explain, while Mr Palmer’s statement was not correct, the underlying mistake sat with both parties – both parties proceeded on an erroneous assumption about the terms of the prior leasing arrangements.
Was it reasonable for him to have been misled?
[62] No. First, Mr Richardson was involved in an arm’s length commercial negotiation with CHH. As the facts of this case demonstrate, good faith intentions and understandings sometimes get lost during the translation into agreements. Mr Palmer expressed a view, as a solicitor, always acting solely for CHH. Mr Richardson should have been alert to the need to secure independent advice. This will be a bitter pill for Mr Richardson who made an assumption that the leases were concluded on the basis that a general cap did not apply. But Mr Palmer’s honest yet mistaken interpretation of the lease agreements illustrates why independent advice is necessary, so that legitimate misunderstandings are avoided.
[63] Second, Mr Richardson signed the September 2003 agreement with a cap on rent reviews. Objectively, Mr Richardson should have been alert to the possibility of that cap being incorporated into the 2006 agreement. While he may have forgotten about it, or never appreciated it was there, Niagara cannot deny the existence of the September 2003 agreement unless it establishes a proper basis for setting that agreement aside. No such basis has been asserted, other than to suggest that the cap was not properly brought to Mr Richardson’s attention. I have found against Niagara on this. In reality, Niagara cannot reasonably say it was misled, because it ought to have known about its earlier agreement to a cap, even if it was a limited one.
[64] Third, while an intention to mislead is not necessary,17 I am fortified in my view given the clear absence of such an intention. I have dealt with Mr Palmer’s position. I accept that Mr Main based some of his testimony on what his practice was, rather than what he directly recalled. Some of his evidence was written for him. But his practice and his evidence aligns with his company policy and detailed methodologies for executing leases. It might also be said that CHH made an assumption rather than secured Mr Richardson’s clear understanding of what the September agreement meant. That assumption was that it was obvious that the rent review applied to all leases. As I have found, it did not. Be that as it may, no impropriety has been identified that might otherwise raise the need for intervention in a commercial context.
[65] Fourth, approaching the matter through the lens of causation, it cannot be fairly said that Mr Palmer’s representation was the effective cause of Niagara’s loss. Mr Palmer sent the agreement to Mr Richardson for his “approval”. The representation was not a guarantee as to its correctness. As the Court of Appeal said in Premium Real Estate Limited v Stevens:
[48] Mr Akel’s formulation of the issue raises the question of the reach of s 9. Section 9 is undoubtedly a broad provision, but it does have limits. Elias J made this point, albeit in a different commercial context, in Des Forges v Wright [1996] 2 NZLR 758 at p 764:
“Section 9 is not to be turned into a general warranty by a vendor of the expectations of the purchaser.”
17 Goldsbro v Walker [1993] 1 NZLR 394 (CA) at 406
Similarly, s 9 does not provide a mechanism to deal with every situation in which parties consider that they have suffered loss as a result of accepting, or being influenced by, the (mistaken) views of those acting for them. Decisions that have proved unwise in hindsight, and against which other advisers might have counselled, may well cause regret, but they will not necessarily be capable of remedy through s 9.
[66] While Mr Richardson may have relied on it, he did so because of his own understanding of the leases and without checking whether that understanding was correct or different from Mr Palmer’s. To that extent, in my view, the effective or operative cause of Mr Richardson’s loss was his assumption that he and Mr Palmer shared the same view of the existing terms and conditions. The position would be different if Mr Palmer had recorded that the 10% cap had been deleted. That is a clear statement of fact capable of misleading Mr Richardson into not checking the agreement on this point. That did not occur here.
Was the representation a statement of opinion, honestly and reasonably held?
[67] Given the position adopted by both counsel, I do not propose to resolve this issue with finality. I simply observe that in light of the way I have resolved the issues, Mr Palmer’s statement that the proposed lease was “otherwise on terms and conditions previously agreed” was a non sequitur. Given my findings on the honesty of Mr Palmer’s view, my tentative view is that Mr Palmer’s statement was no more than an assertion premised on an assumption of law about the legal effect of these prior terms. It must be doubtful that such an assertion qualifies for redress under the FTA.
Summary
[68] I find:
(a) That the representation in the letter of August 2006 does not constitute an actionable misrepresentation under the CRA as there was no intention to induce Mr Richardson to sign.
(b) Mr Richardson was unreasonable in relying on the representation –
objectively assessed, Mr Richardson should have checked what it
meant; and he should have obtained independent advice on the scope of his legal obligations. The operative cause of Niagara’s position was an assumption about a shared view of the terms of the existing agreements.
[69] Accordingly the present action under the CRA and the FTA cannot succeed.
Repugnant term?
[70] Mr Churchman contends that the rent review clause is internally inconsistent and repugnant. The clause in the 2006 lease states:
Rent Reviews: The rent shall be reviewed to the current market rent on each renewal date. The rent review procedure shall be that outlined in the ADLS 4th edition 2002 (2) deed of lease but with a 10% ceiling on any increase.
[71] Tipping J in Re Burberry identifies a process to be followed before the Court should intervene on the basis of repugnancy:18
(a) If the dominant intention of the parties can be ascertained with reasonable clarity, any part which is not in harmony can be rejected or treated as superfluous;
(b) Only if the Court cannot determine with reasonable clarity the intention will it resort to the general rule that the first words of the deed should prevail.
[72] It is further suggested that if the later provision simply clarifies the earlier provision, then the two must be read together.
[73] In my view the dominant intention of the 2006 agreement is clear. A comprehensive approach to the lease areas is sought, on a consistent and coherent basis. This involves a common methodology for rent reviews. The rent review
process involves two clear steps:
18 Re Burberry Mortgage Finance & Savings Limited (In Receivership)(No 1), supra at 19
Step 1, establish the market rent.
Step 2, if necessary; cap the maximum increase at no more than 10%.
[74] Approaching this issue another way, the 10% cap simply clarifies the scope of the rent review. I see no internal inconsistency that would warrant intervention.
[75] I apprehend that Mr Churchman seeks to impress upon me that given that the actual intentions of the parties are well apart on this, I should resolve any apparent conflict with this difference in mind. I have to say that this submission seems well adrift from accepted principles of contractual interpretation. While I accept that a contract should be interpreted to give effect to the actual intentions of the parties in preference to a presumed intention,19 that presupposes a clear common intention. That is simply not the case here. I prefer to approach the interpretation, given the conflicting positions, by reference to the language of the agreement itself, informed
by context and then only to intervene in the manner sought if there is ambiguity or potential for commercial absurdity.20 The ambiguity here, to the extent there is any, only arises because of Mr Richardson’s disbelief at finding a 10% cap. While I can understand his frustration, this one sided disbelief is not by itself a reason for intervention on the basis of repugnancy.
[76] In the circumstances, it is not necessary for me to resolve whether the plaintiff has suffered loss.
Conclusion
[77] Given the foregoing, I find:
(a) The September 2003 agreement varied the March 2003 lease; (b) The 10% cap applied only to the additional areas;
19 Refer Gibbons Holdings Limited v Wholesale Distributors per Thomas J
20 Refer Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 per
Blanchard J at [8] and McGrath J at [61]-[65]
(c) The statement “otherwise on the same terms and conditions as
previously” was partially incorrect.
(d) The defendant did not intend by the statement to induce the plaintiff into signing the 2006 agreement;
(e) Mr Richardson was not in fact misled by the statement - both parties proceeded on an erroneous assumption about the previous terms and conditions;
(f) In any event, it was not reasonable for Mr Richardson to be misled by the statement;
(g) The rent review clause is not repugnant. [78] On that basis, the plaintiff’s claims must fail. Costs
[79] Submissions on costs are to be lodged within 14 days with replies seven days thereafter.
Solicitors:
Macalisters, Invercargill, for Plaintiff
Palmer & Associates Law, Auckland, for Defendant
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URL: http://www.nzlii.org/nz/cases/NZHC/2012/441.html