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

NORTHCOTT LANDS LTD V RITCHIE, SHEARER AND KOCH AS TRUSTEES OF THE TE ORANGA PAI TRUST HC NWP CIV 2008-443-439 17 March 2009IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY CIV 2008-443-439IN 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 2009JUDGMENT OF HARRISON JIn 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 QCIntroduction[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 March2003 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 41-975-857SOLD 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 (4 th 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 forsubmission 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 wherethe 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 theagreement, 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