RENAISSANCE CAPITAL INVESTMENT AND FINANCE GROUP LTD v COOK STRAIT PROPERTIES LIMITED [2018] NZHC 242

RENAISSANCE CAPITAL INVESTMENT AND FINANCE GROUP LTD v COOK STRAIT PROPERTIESLIMITED [2018] NZHC 242 [26 February 2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2017-404-002095[2018] NZHC 242UNDER Section 290 of the Companies Act 1993BETWEEN RENAISSANCE CAPITAL INVESTMENTAND FINANCE GROUP LTDApplicantAND COOK STRAIT PROPERTIES LIMITEDRespondentHearing: 19 February 2018Appearances: J Macdonald for ApplicantS W B Foote for RespondentJudgment: 26 February 2018JUDGMENT OF ASSOCIATE JUDGE OSBORNEON APPLICATION TO SET ASIDE STATUTORY DEMANDThis judgment was delivered by me at on February 2018pursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarIntroduction[1] Renaissance Capital Investment And Finance Group Ltd (Renaissance) leasedcommercial premises in Auckland from Cook Strait Properties Ltd (Cook Strait). The(extended) term of the lease was to expire on 31 May 2017. The lease contained aprovision ("clause 31") which required Renaissance, upon termination of the lease, toremove tenant's fixtures and chattels and to make good any resulting damage.1[2] Issues arose from 31 May 2017 between Renaissance and Cook Strait as toRenaissance's compliance with clause 31. Correspondence ensued then and oversubsequent months as to compliance with clause 31 and payment of rental.The statutory demand and this application[3] On 31 August 2017, Cook Strait issued a statutory demand for $73,016.13. Thedemand represents two sets of sums for which Cook Strait had invoiced Renaissancein reliance upon the lease. Cook Strait claimed:(a) $44,850 for costs of making good; and(b) $28,166.13 for rental and operating expenditure ("opex") for the period1 June 2017 to 28 September 2017.[4] Renaissance filed this application to set aside the statutory demand. It assertedthat it had genuine and substantial disputes in relation to the entire sum demanded.[5] Cook Strait opposed the application.The jurisdiction to set aside a statutory demand - the principles[6] The Court's jurisdiction to set aside a statutory demand is contained in s 290Companies Act 1993. I refer specifically to the basis upon which the Court may grantan application as contained in s 290(4) which reads:1 The deed of lease dated 27 May 2010 was in the Auckland District Law Society's 5th ed. 2008form.290 Court may set aside statutory demand(4) The court may grant an application to set aside a statutory demand ifit is satisfied that-(a) there is a substantial dispute whether or not the debt is owingor is due; or(b) the company appears to have a counterclaim, set-off, or cross-demand and the amount specified in the demand less theamount of the counterclaim, set-off, or cross-demand is lessthan the prescribed amount; or(c) the demand ought to be set aside on other grounds.[7] Renaissance invokes s 290(4)(a) for the purposes of this hearing I adopt as ageneral approach to the exercise of this jurisdiction these principles:• The applicant must show that there is arguably a genuine and substantialdispute as to the existence of the debt. Put another way, the applicant mustshow that there is a real and not a fanciful or insubstantial dispute.• The mere assertion that the dispute exists is not sufficient. Material shortof proof is required to support the claim that the debt is disputed.• If such material is available the dispute should normally be resolved otherthan by means of proceedings in the Court's Companies Act jurisdiction.• It is not usually possible to resolve disputed questions of fact on affidavitevidence alone, particularly when issues of credibility arise.The make-good costs issue falls away[8] In December 2017, Renaissance paid Cook Strait the full sum ($44,850)demanded for make-good costs. To that extent the statutory demand has been satisfied.The rental issue as a whole[9] Cook Strait claims $28,166.13 for the period 1 June 2017 to 28 September2017. The rental demand is most satisfactorily examined in two periods, being firstthat from 1 June 2017 to 1 July 2017, and secondly the period thereafter until 28September 2017.[10] In relation to both periods, Cook Strait invokes clause 37.1 of the lease whichprovides under a heading "Holding Over":IF the Landlord permits the tenant to remain in occupation of the premisesafter the expiration or sooner determination of the term, such occupation shallbe a periodic tenancy only terminable by 20 working days' notice at the rentthen payable and otherwise on the same covenants and agreements (so far asapplicable to a periodic tenancy) as herein expressed or implied.[11] The express provisions of the lease may be compared with the statutorytenancy created under s 210 Property Law Act 2007 applicable when a tenant remainsin possession after termination of the lease, which also provides for 20 working days'notice of termination in a situation of holding over.Rental issue 1 – rental for 1 June 2017 to 1 July 2017[12] The parties agree that the rental and opex for the period 1 June 2017 to 1 July2017 calculated at the rates payable under the lease amounted to $7,652.51. It is alsocommon ground that Renaissance has not made payment of that sum (or a larger sumencompassing it) to Cook Strait.[13] After Cook Strait issued its demand, Renaissance caused a sum equivalent of$44,730 to be paid into its solicitor's trust account as evidence (in the words of itsdeponents) "that it was clearly solvent". The $44,730 was a sum which had beenidentified in full and final settlement negotiations between the parties (to which Ireturn from [42] below).[14] Renaissance did not explain in its evidence why it has never paid the Junerental to Cook Strait. Mr Macdonald explained from the bar that Renaissance's staffhad understood that the June rent had been paid through the payment made to thesolicitor. Any such understanding was plainly incorrect.[15] For Renaissance, Mr Macdonald accepted in the course of submissions that, inlight of confirmation of the fact that the June rental remains unpaid, the Court, if itfinds Cook Strait's claim is not debarred by the settlement agreement discussed at [42]below, should uphold the statutory demand to the extent of the amount owing to theend of June. Mr Macdonald, having regard to what may be seen as the variouscomponents of the total comprising the sum demanded, also accepted that it would beappropriate that the Court uphold the statutory demand for this component even ifsetting aside the statutory demand in relation to all other components.[16] The order below will therefore require payment of this component.Rental issue 2 – rental after 1 July 2017The factual background[17] Cook Strait asserts that beyond the (agreed) month's rental due for June 2017,Renaissance was liable for rental from 1 July 2017 to 28 September 2017 under the(clause 37.1) holding-over provisions in the deed2 and under s 210 Property Law Act.This specific ground was stated in Cook Strait's notice of opposition as: no challenge was offered to the existence of a statutory periodic tenancyand no notice has ever been given by the applicant to terminate the tenancy.[18] For the context of any arrangements between the parties from late-June 2017,it is necessary first to identify how the agreed extension through June 2017 came intobeing.[19] With the term of the lease due to expire on 31 May 2017, Cook Strait had thepremises inspected that day. It found that Renaissance still had chattels in the premisesand had not completed make-good obligations. Ernie Gartrell, Cook Strait's solicitor,wrote to Renaissance on 31 May 2017 stating:Until this matter is remedied, your company is holding over in terms of thelease and will be charged rental and OPEX accordingly. This form of tenancyunder the Property Law Act is only terminable on 20 working days' notice.As an alternative to the make good we sometimes agree with the tenant for alump sum payment to discharge the make good obligations. If you wish topursue this option you should contact the Director 2 Above at [12].[20] Mr Gartrell's statement of the legal position was incorrect.3 But it promptedthe next day an offer from Renaissance of $3,000 for make-good.[21] On 6 June 2017, Mr Gartrell emailed Renaissance. The $3,000 offer wasrejected. The email then continued:Failing an offer which could be regarded as realistic, we must insist on a fullmake good to the premises to enable us to re-let. We would remind you thatpursuant to the Property Law Act you are now on a tenancy at will and thisrequires 20 working days' notice provided the work has been completed.[22] Mr Gartrell's statement of law was again incorrect but Renaissance respondedby email the same day, explaining how the $3,000 offer had been calculated. Theemail response continues:We would also like to extend the rental period to at least 1st of July. It is goingto help reduce your vacancy period which means more income[23] On 7 June, Mr Gartrell emailed his response which reads:LizzyWe note your request for an extension of the lease to the 1st July 2017, theDirectors have considered your application and agreed. Please note that anyadditional period should include an allowance for make good in terms of time.[24] Renaissance's offer of $3,000 was again rejected.[25] Through June 2017 there was further email correspondence between the partiesrelating to Renaissance's non-payment of the June rental and arrangementsRenaissance was making for removal of chattels and make-good work.[26] Through the correspondence particularly of 6 – 7 June 2017, Renaissancebecame indisputably liable to pay rental calculated under the lease for the period to 1July 2017. Through Mr Macdonald it has accepted that liability.3 See below from [36].[27] Mr Macdonald however asserts that after 1 July 2017 Renaissance was neitherholding over in terms of the lease nor remaining in possession in terms of s 210Property Law Act.[28] On 30 June 2017, the parties exchanged emails. First, Cook Strait repeated arequest earlier made for advice of Renaissance's "make good timeline". The emailcontinued:until this matter is remedied your company is holding over in terms of thelease and will be charged rental and OPEX accordingly.Renaissance (through Li Wen Sun) sent an email response that day. Having explainedthat she had been sick earlier in the week, Ms Sun continued:We have moved out as advised and made part of the make good.[29] After further exchanges, Cook Strait sent an email to Renaissance on 4 July2017 stating:you must realise that the make good carried out to date is in no waycomplete, and that rent and opex are payable until such time as the make goodworks are complete. Noting that your June rent has not been paid and July isnow due as well.[30] In subsequent email correspondence through July, Cook Strait continued torefer to accruing rent and opex and to the "requirement" to give 20 days' notice.[31] Eventually a settlement meeting was arranged between the parties. It tookplace on 15 August 2017. It is common ground that the parties orally agreed upon afull and final settlement figure of $44,730 including GST. The deponents disagree asto the time stipulated for payment. Zi Ming Li of Renaissance deposes that it was tobe as soon as Renaissance could make payment. Pasquale Vinaccia of Cook Straitdeposes that it was to be by the end of the week (18 August 2017).[32] As I come to at [42] below, this settlement agreement must have come to anend without being fulfilled. For Cook Strait, Mr Foote relies upon subsequentcorrespondence between the parties as further indicating that the tenancy wascontinuing on a holding-over basis. Mr Foote notes that the full and final settlementfigure was described by Cook Strait in an email on 16 August 2017 as including "alloutstanding rental and outgoings for your lease".[33] Mr Foote notes (correctly) an absence of "push-back" by Renaissance to suchcontinuing assertions as to rental obligations having continued.Discussion of the legal position on holding-over[34] The correspondence of Cook Strait (including that of Mr Gartrell) commencingfrom late May 2017 displays an incorrect understanding of the law relating to liabilityfor rental when a tenant has not fulfilled its make-good obligations. Cook Strait tookthe position that until the make-good obligation was remedied, Renaissance would beholding-over under the lease (with clause 37.1 of the lease and s 210 Property LawAct applying).[35] For Renaissance, Mr Macdonald submits that the law in this area is correctlyidentified in the judgments of Gallen J in Cigna Life Insurance New Zealand Ltd v NZCounties Investment Co Ltd4 and of Panckhurst J in Jansen Ltd v Petra Holdings Ltd.5[36] Those cases indicate that, as reflected in this deed of lease and in the wordingof s 210 Property Law Act, holding-over flows in certain circumstances from thetenant's continued occupation or possession of the premises.[37] In Cigna the holding-over clause was in similar terms to clause 37.1 in thisdeed of lease, commencing with the parallel words:If the lessor permits the lessee to continue to occupy the premises beyond theexpiration of the term of this leaseOf those words, Gallen J in Cigna said:6The wording of that clause contemplates a consensual continuation wherethere is on the one part a permission to remain and on the other, an intentionto remain4 Cigna Life Insurance New Zealand Ltd v NZ Counties Investment Co Ltd (1997) 3 NZ ConvC192,540.5 Jansen Ltd v Petra Holdings Ltd [2013] NZHC 30.6 Cigna Life Insurance New Zealand Ltd v NZ Counties Investment Co Ltd, above n 4, at p 15.[38] Gallen J continued that whether or not there is continued occupation is a matterof fact.7 His Honour held that the tenant's failure to remove partitions (and implicitlyto make good) was not an indication of holding over but rather a breach of leaseobligations sounding not in liability not for rental but for damages.8Application of the law[39] For the month of June 2017 there existed a consensual arrangement betweenCook Strait and Renaissance in relation to continued possession and the payment ofrental. The 6/7 June 2017 correspondence cannot be read otherwise. The agreed term(to 1 July 2017) displaced any other term which would apply. Under the 6/7 June 2017correspondence, notice of termination was not required as it would be under clause37.1 or under s 210 Property Law Act – the parties had themselves agreed on thetermination date.[40] Notwithstanding Mr Foote's detailed analysis of the context of laterdiscussions and correspondence, it is open to dispute whether Renaissance remainedin occupation of the premises after 1 July as a tenant holding over. Renaissance wasarguably at pains by 30 June 2017 to confirm that it had given up possession. Contraryto the repeated assertions of Mr Gartrell, the fact that Renaissance had outstandingobligations to make good did not constitute Renaissance a lessee who was holdingover. Cook Strait could not unilaterally impose that characterisation uponRenaissance. As Cigna establishes, holding over involves a consensual continuationof the prior occupation rights. The Court is required to consider what factual indiciaof possession exist. It is arguable on the correspondence and affidavit evidence thatthere was not a continued possession of the land, let alone a consensual occupation.There are no clear indicia of continued possession in this case.[41] Renaissance has established that there is arguably a genuine and substantialdispute as to the existence of a debt in relation to the post-1 July 2017 rental claim.The statutory demand will be set aside in relation to that component.7 At p 15.8 At pp 16 – 18.Rental issue 3 – a full and final settlement?[42] Renaissance, as an alternative ground of application, asserted that Cook Strait'sclaim was precluded by a full and final settlement agreement reached (orally) by theparties on 15 August 2017. In full and final settlement of the make-good costs and alloutstanding rental and outgoings, Renaissance agreed to pay to Cook Strait $44,730(inclusive of GST). Renaissance in this proceeding relied on this agreement (and itssubsequent payment of $44,850 into its solicitor's trust account) as grounds forresisting the demand as to the rental liability it disputes. This ground of application iswithout substance – Renaissance has neither promptly after the settlement agreementnor since actually paid the agreed sum to Cook Strait. Cook Strait therefore gavenotice of cancellation. The settlement agreement is no longer on foot.Rental issue 4 – the lease's dispute resolution provisions[43] In the alternative, Renaissance invoked clause 44 in the lease which containsan arbitration agreement. The arbitration agreement has an exclusion in relation to theCook Strait's recovery of rent or other monies payable under the lease. My earlierfindings render it unnecessary to uphold or reject this ground advanced byRenaissance. That said, I find nothing in the (clear) wording of clause 44 which wouldhave required Cook Strait to submit the rental claim to arbitration.Rental issue 5 – Cook Strait's calculations of debt[44] As noted at [15] above, Mr Macdonald conceded that (subject to the Court'sfinding on the settlement agreement), the demand for the June rental and opex wasvalid. However, the component of Cook Strait's demand which related to rental(totalling $28,166.13) relied on a statement which showed Renaissance entitled to acredit of $1,773.78 as at 30 May 2017. When that credit is partly utilised to coveroutstanding and opex due in the previous period, the credit available to Renaissancewas $1,045.45. If that sum is credited against the monthly rental figure of $7,652.51,the balance owing to 30 June 2017 is $6,607.06.[45] At the conclusion of the hearing, I invited counsel to discuss the appropriatecalculation should the Court uphold the statutory demand only to the extent of therental due to the end of June 2017. Rather than reach agreement, counsel have filedconflicting memoranda as to the figures the Court should adopt. Some of the figurespromoted by Mr Foote, including interest calculations, turn on additional documentsnot in evidence on the application.[46] In the absence of agreement between the parties, I will determine matters onthe evidence as adduced, which produces the figure of $6,607.06 identified at [44]above. I am not satisfied on any figure of indebtedness beyond that.Outcome[47] Renaissance is entitled to have the statutory demand set aside in relation to thetwo components of make-good costs (since paid) and post-1 July 2017 rental (inrelation to which there is arguably a genuine substantial dispute).[48] The balance of Cook Strait's demand (in relation to the June rental butaccounting for the credit due to Renaissance) is beyond dispute and that debt will bethe subject of orders made below.Costs[49] I will reserve costs.[50] It appears appropriate that all steps be calculated on a 2B basis.9 Mypreliminary view is that Cook Strait is entitled to its full scale costs and disbursementsincurred in filing its opposition, having regard to the fact that Renaissance thereafterpaid the make-good costs and has subsequently conceded Cook Strait's entitlement topayment of the June rental. In relation to the costs of preparation for the hearing andthe hearing itself, the parties might take the view that costs should lie where they fallhaving regard to the comparative degrees of success and time taken in argument onthe two components of rental. The Court will determine costs and disbursements onthe papers if there is disagreement.9 High Court Rules, Category 2 under r 14.3(1) and band B under r 14.5(2).Orders[51] I order:(a) The statutory demand issued by the respondent to the applicant on 31August 2017 is set aside except as to $6,607.06.(b) The applicant shall pay to the respondent within ten working days thesum of $6,607.06 failing which the respondent will be entitled to makean application for an order putting the applicant into liquidation.(c) Costs are reserved, with memoranda (five-page limit) to be filed in theevent of disagreement with the applicant's memorandum to be filedwithin ten working days and the respondent's within five working daysthereafter.Associate Judge OsborneSolicitors:MBC Law Limited, AucklandE W Gartrell, WellingtonCounsel: S W B Foote, Auckland