MEDIA 1 LIMITED V N W SHANKS AND ANOR HC AK CIV-2007-404-4648

MEDIA 1 LIMITED V N W SHANKS AND ANOR HC AK CIV-2007-404-4648 11 September 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2007-404-4648BETWEEN MEDIA 1 LIMITED Plaintiff AND N W SHANKS AND WILSON MCKAY TRUSTEE CO LTD SUED AS TRUSTEES OF THE 'SHANKS FAMILY TRUST' AND R J BRADY AND WILSON MCKAY TRUSTEE CO LTD SUED AS TRUSTEES OF THE BRADY FAMILY TRUST Defendant Hearing: 6 September 2007 Appearances: Mr M Gilbert and Mr P Peterson for plaintiff Mr P R Rzepecky for defendants Judgment: 11 September 2007 at 9.30 amJUDGMENT OF LANG JThis judgment was delivered by me on 11 September 2007 at 9.30 am, pursuant to Rule 540(4) of the High Court Rules.Registrar/Deputy Registrar DateSolicitors: Gilbert Walker, Auckland Richard Allen Law, Auckland Counsel: Mr P R Rzepecky, Auckland[1] Media 1 Limited was the lessee of two billboard sites situated at 112 Newton Road, Auckland. The defendant trustees are the current owners of the billboards. [2] In July 2007 the trustees purported to terminate the lease on the basis that Media 1 had failed to pay outstanding rent. In this proceeding Media 1 challenges the validity of the termination. It says that the notice that the trustees gave of their intention to terminate the lease was defective. As a result, Media 1 seeks a declaration that the trustees did not validly terminate the lease. It has abandoned its alternative claim, which was for relief against forfeiture of the lease.Essential facts[3] The issue in dispute is extremely narrow. As a result, it is only necessary for me to set out the factual background in its essential detail. [4] The lease arrangement between the parties is contained in an "Advertising Site Lease" that the predecessors of both parties entered into on 25 July 2005. For present purposes it is common ground that the lease required Media 1 to pay an annual rental of $42,500 per annum for the two billboard sites. [5] Important for present purposes is clause 10(1) of the agreement, which provides the lessor with the power to terminate the lease in circumstances where the lessee falls behind in the payment of rent. It provides as follows:10. Termination10.1 The Lessor may terminate this Agreement if any instalment of the Annual Rent or any other money payable under the Agreement remain unpaid by the Lessee for more than seven (7) days after the date for payment and the Lessor has first given twelve (12) days written notice of its intention to terminate the Agreement.[6] By the beginning of July 2007 Media 1 owed arrears of rental totalling $4,635.33. On 3 July 2007 the trustees' solicitor wrote to Media 1 making demand of that sum. The letter concluded as follows:If we have not received payment for this sum by 4 pm 4th July 2007 our client intends to terminate the lease pursuant to its rights.[7] The trustees heard nothing further from Media 1 and accordingly their solicitor wrote to Media 1 on 17 July 2007 and said:We refer to our letter of 3 July to which we have had no response. Accordingly we now formally advise that the Lease is terminated. This is without prejudice to our client's rights under the lease which include all outstanding rent and costs.[8] Media 1 did not respond to this advice until 27 July 2007. On that date its solicitors wrote to the trustees' solicitor disputing the validity of the termination and tendering payment of the outstanding arrears of rental. This did not resolve matters. The trustees refused to reinstate the lease notwithstanding the fact that the arrears had been paid, and they proceeded to lease the billboards to a new tenant. Media 1 then issued this proceeding on 1 August 2007.The issue[9] The sole issue that the Court is required to determine is whether the letter dated 3 July 2007 constituted valid notice of the trustees' intention to terminate the lease in terms of clause 10.1 of the agreement. If it did, there is no dispute that the trustees were entitled to terminate the lease as they purported to do on 17 July 2007. If it did not, the trustees were not entitled to terminate the lease. In order to resolve the central issue, however, it is necessary to determine when the right to terminate the lease arose under the agreement.When did the right to terminate the lease arise?[10] The trustees contend that they became entitled to terminate the lease as soon as Media 1 was in arrears with its payments under the lease for more than 7 days. They argue that the right to terminate then arose, subject only to the trustees giving 12 days written notice. They say that the period of notice is required solely to enable the lessee to make arrangements relating to the return of the billboards to the lessee. As a result, the lessee cannot retrieve its position by paying the outstanding arrears during the 12-day period.[11] Media 1 disagrees. It argues that the right to terminate did not arise until such time as two events had occurred. The first of these was the accumulation of arrears for more than 7 days. The second was the giving of 12 days written notice of the intention to terminate. Media 1 argues that no right to terminate the agreement arises until both events have occurred. [12] I consider that Media 1 is undoubtedly correct on this point. The use of the word "and" in clause 10.1 means that the right to terminate the lease does not arise until such time as two pre-conditions have been satisfied. These are, first, the existence of arrears for more than 7 days and, secondly, the expiry of a 12-day period after written notice has been given of the lessor's intention to terminate. [13] The phrase "remain unpaid" in clause 10.1 also makes it clear that the arrears must still remain owing at the time that the lessor terminates the lease. If the arrears have been paid, they will obviously no longer "remain unpaid", and the right to terminate will be extinguished. Any other interpretation would allow the lessee to retain the right to terminate the lease at any time after arrears have been in existence for a period of 7 days, regardless of whether or not those arrears were later paid in full. That would effectively create a right of termination in respect of historic breaches that have been remedied so that they are no longer operating. That would be absurd.The test to be applied in relation to any notice given under clause 10.1[14] There was no dispute regarding the approach that the Court should take in determining whether the critical sentence in the letter dated 3 July 2007 was sufficient to constitute valid notice in terms of clause 10.1. Counsel accepted that the words used in any such notice "must be sufficiently clear and unambiguous to convey to the party to whom it was given precisely how it is intended to operate, and when it is intended to operate.": Allam & Co Ltd v Europa Poster Services Limited[1968] 1 All ER 826 at 833 per Buckley J. [15] In Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 Lord Steyn put it like this (at 772): does the notice construed against its contextual setting unambiguously inform a reasonable recipient how and when the notice is to operate under the right reserved? (Original emphasis)[16] The following comments of Slade LJ in Delta Vale Properties Ltd v Mills[1990] 2 All ER 176 at 183 are to similar effect:In my judgment, notices if they are to be valid, must be sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate.[17] In Bryers v Harts Contributory Mortgages Nominee Co Ltd [2002] 3 NZLR 343 the Court of Appeal was required to interpret a notice issued by a mortgagee pursuant to s 92 of the Property Law Act 1952. The Court held at [18] that it was required to undertake "an objective enquiry concerning how a reasonable person in the particular circumstances would understand the notice". [18] It is against that standard that I turn to consider the effect of the letter dated 3 July 2007.Was the letter dated 3 July 2007 sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when the notice was to operate?[19] The letter purported to notify Media 1 of the trustees' intention to terminate the lease. In order to be valid, the letter therefore needed to give Media 1 clear and unambiguous advice as to how and when the termination would come into effect. [20] There is no dispute that the notice gave Media 1 adequate notice that the trustees intended to terminate the lease in the event that the arrears were not paid in full. The real difficulty that arises in this case results from the fact that the letter advised Media 1 that the trustees intended to terminate the lease if they did not receive payment for the sum of $4635.33 by 5pm on 4 July 2007. [21] Counsel for the trustees submitted that a reasonable recipient of the notice could be taken to know of the terms of the lease that governed termination by thelessor on the ground that monies were outstanding under the lease. That knowledge formed part of the "contextual setting" referred to in the passage cited above fromMannai. As a result, he contended that any reasonable recipient of the letter could only have sensibly concluded that, in the event that it did not pay the arrears by 5pm on 4 July 2007, the 12-day period required for a valid termination would start to run. In other words, the notice gave the recipient a further period of grace until 5pm on 4 July 2007 to pay the outstanding arrears. If it did so, the lessor was precluded from terminating the lease as it was already entitled to do under the agreement. [22] Counsel for Media 1 contended that matters were not so clear cut. He submitted that a reasonable recipient of the letter could easily have reached two other conclusions as a result of the requirement that payment be made by 4pm on 4 July 2007. First, the recipient might reasonably conclude that, unless payment was made within the time stipulated in the notice, the lessors intended to terminate the lease immediately and without further notice of their intention to do so. Secondly, the recipient might reasonably conclude that, unless the arrears were paid by 4pm on 4 July 2007, the lessor proposed to invoke the mandatory procedure for termination stipulated in the lease. This would require the trustees to give formal notice that they intended to terminate the lease unless the arrears were not paid within a further 12-day period. [23] I accept that the interpretation for which the trustees contend is one possible conclusion that a reasonable recipient of the letter might reach after reading it. I am also satisfied, however, that other interpretations might equally reasonably be reached. In particular, the most obvious meaning to be taken from the letter is that, without further notice of its intention to do so, the lessor intended to terminate the lease immediately in the event that payment was not made by 4pm on 4 July 2007. The words "pursuant to its rights" in that context would be taken to be referring to an existing right to terminate the lease. [24] In other words, the letter could be taken to advise the recipient that the lessor intended to immediately exercise its existing right to terminate the lease in the event that the arrears were not paid within the time stipulated. The fact that immediate termination was not permitted under the lease, and that 12 days written notice wasrequired, does not, in my view, alter the impression given by the letter that the lessor intended to terminate the lease immediately in the event that payment was not made by 4pm on the following day. The fact that the letter gave Media 1 a very short time within which to pay the outstanding arrears added to the impression that the lessee was required to rectify matters immediately if it was to avoid the termination of its lease. [25] Alternatively, a reasonable recipient of the letter might appreciate that the lessor was not entitled to terminate the lease without giving 12 days notice of its intention to do so. The recipient might therefore reasonably conclude that, if it did not pay the arrears by 4pm on 4 July 2007, it would receive another notice from the lessor to the effect that it intended to terminate the lease in the event that the arrears were not paid within 12 days. [26] The notice requirement in clause 10.1 is plainly, in my view, intended to give the lessee a 12 day period within which to bring payments up to date in order to avoid the lease being terminated. As a result, it was essential for any notice that the lessor issued under the clause to contain clear and unambiguous advice of the fact that the lessor intended to terminate the lease in the event that the arrears were not paid within that period. [27] In the present case that result could have been achieved in any number of ways. It was not necessary for the notice to specify the precise date upon which the 12-day period expired. It would have been sufficient for the notice to advise the lessee that, in the event that the outstanding monies remained unpaid for a further 12 days, the lessor intended to terminate the lease. Alternatively, it would have been sufficient for the notice to have advised the lessee of the lessor's intention to terminate the lease in accordance with its rights under clause 10.1. Either of those alternatives would have left the lessee in no doubt that the lessor intended to terminate the lease unless payments were brought up to date within a 12-day period. [28] I consider, however, that the reference in the letter to payment being required by 4pm on 4 July 2007 muddied the waters. It produced sufficient ambiguity to prevent the reasonable recipient of the letter from being left in no reasonable doubtas to how and when the notice was to operate. As a result, I have concluded that the letter was not sufficient to comply with the requirements of clause 10.1. [29] The result is that Media 1 is entitled to the declaration that it seeks. That result is produced, as I have already explained, by an objective consideration of the wording used in the notice. It does not reflect the merits of the situation, because it is clear from the evidence that Media 1 was largely the author of its own misfortune. It failed to respond to communications from the trustees, and it also failed to pay the outstanding arrears for some considerable time after it received the letter dated 3 July 2007. Media 1 accepts also that the trustees did not give notice of termination until more than 12 days after that letter. Moreover, Media 1 does not complain that it was actually misled by the terms of the letter or that it was prejudiced in any way by it. In those circumstances it may seem unjust that Media 1 should now be permitted to take advantage of a failure by the trustees to give adequate notice in terms of the agreement. To the extent that equitable principles come into play, an argument could be made for withholding relief. [30] The authorities make it clear, however, that the adequacy of notice must be determined objectively and that the actions of the recipient are for the most part irrelevant. This is, perhaps, subject to the possibility that they may provide support for the proposition that an alleged ambiguity "has been a product of the ingenuity of the plaintiffs' legal advisers, rather than a reality.": Delta Vale Properties Ltd v Millsat184. For the reasons that I have already given, I do not consider that to be the case here. I consider that the letter was ambiguous according to its terms. [31] The parties have agreed that resolution of the issue relating to the adequacy of the notice is determinative of this proceeding. As a result, and given the fact that I was asked by the parties to determine the substantive proceeding rather than determine that issue as a preliminary question, I propose to make the declaration sought by Media 1.Order[32] I make a declaration that the defendants have not validly terminated the lease dated 23 July 2005 in respect of the two billboard sites situated at 112 Newton Road, Auckland and having certificate of title numbers NA517/46 and NA65A/998.Costs[33] My preliminary view is that costs and disbursements should follow the event, and that they should be calculated on a category 2B basis. If either counsel advocates a different approach, a memorandum is to be filed and served within 14 days. Memoranda in response and reply are then to be filed at 14 day intervals thereafter. Lang J