SYLVIA PARK BUSINESS CENTRE LIMITED V PEARL OF EAST LIMITED HC AK CIV-2010-404-004448

SYLVIA PARK BUSINESS CENTRE LIMITED V PEARL OF EAST LIMITED HC AK CIV-2010-404- 004448 9 December 2010IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2010-404-004448UNDER Part XVI of the Companies Act 1993 IN THE MATTER OF a proceeding to put PEARL OF EAST LIMITED into liquidation BETWEEN SYLVIA PARK BUSINESS CENTRE LIMITED Plaintiff AND PEARL OF EAST LIMITED Defendant Hearing: 9 December 2010 Appearances: R P Brier for Plaintiff Q Wang for Defendant Judgment: 9 December 2010ORAL JUDGMENT OF VENNING JSolicitors: Simpson Grierson, Auckland Forest Harrison, Auckland[1] Sylvia Park Business Centre Limited (Sylvia Park) seeks an order placing Pearl of East Limited (Pearl) into liquidation. The application is opposed. [2] Sylvia Park leased premises in a shopping mall to Pearl. Under the lease Pearl incurred obligations to pay rent and other expenses. Pearl failed to pay in terms of the lease. Sylvia Park terminated the lease and issued a statutory demand against Pearl for the balance due under the lease. The statutory demand was issued on 1 June 2010. Pearl did not respond to the statutory demand. On 12 July 2010 Sylvia Park made application to place Pearl in liquidation. Again Pearl took no steps in response to that. It was only at the first call of the application to liquidate on 1 September 2010 that Pearl took any steps. On that day its director, Ms Zhu, appeared before the Court and sought leave to defend the proceedings. Leave was granted on terms and the matter was allocated today's fixture in due course. [3] At the outset of the hearing Mr Wang sought leave to adduce a further affirmation by Ms Zhu. He submitted the purpose of the affidavit was to update the Court as to the District Court proceedings between the parties and to correct some errors in the first affirmation by Ms Zhu. [4] I declined leave for that affirmation to be filed. I note that on 13 October 2010, when the matter was last before the Court, Associate Judge Abbott declined an application by Pearl to file further affidavits. [5] Further, the fact that Pearl has taken proceedings against Sylvia Park and Sylvia Park has responded to the claim in the District Court is not relevant to the matters before this Court. The fact of those proceedings is referred to in the evidence already before this Court in any event. [6] As to the matters of clarification they are either irrelevant or are effectively a reply to a reply, for which Judge Abbott declined leave. [7] The basis of Pearl's defence to these proceedings is essentially that representatives of Sylvia Park have made a number of actionable misrepresentationsto Pearl, which it has relied on to its detriment. There is also a submission that Sylvia Park effectively waived the right to pursue its claim for rental and other moneys owing under the lease as from August 2009. I note here that part of the further evidence that Mr Wang sought leave to adduce was to suggest that the waiver applied from October 2009 but, for the reasons that follow the actual date of the alleged waiver is not particularly material in the circumstances of this case. [8] The starting point is that where, as in this case, a company such as Pearl receives a statutory demand, and it claims to have a genuine dispute as to whether it is liable for the sum claimed in the demand, it should follow the procedure set out in the Companies Act 1993 and apply to set aside the statutory demand. Normally, if a defendant company has failed to take those steps, it will not be permitted to raise a substantive defence at subsequent liquidation proceedings. However, in rare cases the Court will hear and consider a substantive challenge to the debt that provides the basis for the proceeding, even at the stage of liquidation hearing: Best Wholesale Ltd v Coldfield Investments Ltd;1 Investment Enterprises Ltd v Private Sale Co Ltd.2 I note here that even under the former legislation that pre-dated the 1993 Companies Act, where a company's opposition to liquidation was based on a counterclaim that was insufficient to prevent a liquidation proceeding: Anglian Sales Ltd v South Pacific Manufacturing Co Ltd.3[9] In this case Mr Wang sought valiantly to argue that this was a rare case and that the Court should consider the arguments that Pearl wished to raise in response. [10] Insofar as the opposition to the liquidation is based on actionable misrepresentations it can be dealt with relatively shortly. The alleged actionable misrepresentations are that Mr Douglas, the Centre Manager, and Mr Tanday the Leasing Executive, represented to Pearl, prior to it entering the agreement to lease that other shops in the foodcourt had a turnover of approximately $20,000 a week. Pearl also says that Mr Douglas represented to Pearl that if it signed the lease Sylvia Park would consent to an early assignment of it.1 Best Wholesale Ltd v Coldfield Investments Ltd HC Auckland M1639-IM02, 15 May 2003.2 Investment Enterprises Ltd v Private Sale Co Ltd (1997) 10 PRNZ 282.3 Anglian Sales Ltd v South Pacific Manufacturing Co Ltd [1984] 2 NZLR 249.[11] Those representations are denied by Mr Tanday and Mr Douglas. However, quite apart from the denials, the documentary evidence before the Court does not support an arguable defence in relation to the turnover or assignment representations. [12] The starting point is the agreement to lease signed by the parties on 25 September 2006. That agreement to lease was a formal document which confirmed at C and 29.2 that Pearl would be bound by the terms of the lease from the handover of the premises irrespective of whether or not the lease was executed. Attached to the agreement to lease was a standard form lease document. In fact that standard form lease document was ultimately executed. [13] The standard form lease document recorded in relation to the rent and other outgoings at cl 4.1:You must pay us rent, any percentage rent, your share of the operating expenses, and the marketing levy, and any other money you owe us, on time without set off or deduction of any kind. ...[14] As I have noted the lease itself was, in any event, executed on 12 July 2007. The lease itself contained a clause in relation to pre-contractual representations at paragraph 55. Paragraph 55.1 provided:You agree that other than as expressly contained in this lease, no promise, representation, undertaking or warranty (for example as to exclusivity, gross sales, profitability, future foot traffic, renewal rights or tenancy mix) given by us or on our behalf has been relied on by you in entering into this lease or has in any material way induced you to enter into this lease. ...[15] Given that this was a freely negotiated agreement to lease containing this provision and the clause expressly excludes any representation as to turnover, there is no arguable case to be made by the defendant on the basis of that particular alleged representation, even if it were made. I note that it is denied. In the circumstances there is no need to consider the alternative submission for Sylvia Park that in fact other businesses in the foodcourt had a turnover of approximately $20,000 per week. [16] Next, in relation to the assignment representation, Ms Zhu says that Mr Douglas had orally agreed with her that she could sell Pearl's business but that Pearl had to sign the lease before it could sell the business. Ms Zhu says that later shefound an interested buyer but in breach of the earlier representation Sylvia Park declined to agree to assign the lease and the sale fell through. As a consequence Pearl had to continue running the business and it incurred further liability to Sylvia Park and further expenses. [17] The first point in relation to the alleged representation about the assignment is that, by entering the agreement to lease (as it had done by the date of the alleged representation), Pearl became bound by the terms of the lease irrespective of whether it executed a formal lease document. The execution of the lease did not in any way add to Pearl's obligations. In terms of its obligations relating to assignment it was already bound by the provisions in the existing lease. [18] Clause 26.2 of the lease provided that one of the terms of consent was that two years had passed since the commencement date. The lease commenced on 9 April 2007. At the time that Pearl made the request to assign, in August 2007, two years had not passed. Ms Zhu's evidence as to the assignment representation is contradicted by Mr Douglas' evidence and documents written at the relevant time. [19] Mr Douglas says that on 28 August 2007 Ms Zhu met with him and advised that she had sold the business. He says that he drew her attention to cl 26.2 of the lease and told her she did not have Sylvia Park's consent. He refers to a file note made on the day. The file note has been produced to the Court. That file note records:Linda informed us that she had conditionally sold the business for $110k. I informed her that this was against the Landlords consent and against what I had advised her the previous week. We concluded the meeting by saying that she must get her Lawyer to contact me urgently.[20] Further, there was then a letter of 30 August 2007 from Davenports West, the solicitors then acting for the defendant, which referred to the defendant's request for Sylvia Park's consent to an assignment of the lease and noted:We confirm that our client has found a purchaser for the business but of course we shall require landlord's consent. We should be obliged if you could please advise us if you are prepared to grant your consent to assignment of the lease even though the two year period has not elapsedsubject to your being satisfied that the remaining conditions set out in paragraph 26 have been complied with.[21] There was no reference to the alleged representation or agreement to assign. Mr Douglas replied on 3 September 2007 on behalf of Sylvia Park declining the request in reliance on clause 26.2 of the lease. Nothing further was heard. [22] So the contemporaneous written evidence is contrary to Ms Zhu's evidence. I reject Ms Zhu's evidence about the assignment issue. [23] In relation to the issue of misrepresentations generally, to the extent that the misrepresentations are said to support a set-off or counterclaim, they are in this case in any event excluded by the clear provisions of the lease, in particular cl 4.1 I have referred to. [24] I note that in Browns Real Estate Limited v Grand Lakes Properties Limitedthe Court of Appeal addressed the effect of such a clause at the stage of an application to set aside the statutory demand. 4 Even at that stage the Court noted that by seeking to raise the counterclaim based on misrepresentation in response to the statutory demand, the tenant was seeking to justify non-payment of rent which it was prohibited from doing in terms of the lease. The Court went on to say: 5In our view a contractual no set-off provision of the type at issue in this case would normally result in the court's discretion being exercised against an applicant if the sole grounds for an application to set aside a statutory demand was the existence of a set-off, counterclaim or cross-demand which a party had expressly agreed could not be raised. We consider that commercial parties should be required to honour the bargain they have made,12 absent other grounds that tell against the recognition of a statutory demand.[25] The position is even stronger for the plaintiff Sylvia Park in this case, given that the issue was not raised in response to the statutory demand and that the matter now before the Court is the application for liquidation.4 Browns Real Estate Limited v Grand Lakes Properties Limited [2010] NZCA 425 at [14].5 At [17].[26] That leaves the last alleged representation, which Mr Wang categorised as a waiver, which is the representation that she alleges Mr Douglas made when she says he told her "Don't worry about the rent". Again that representation is denied. [27] It arises in Ms Zhu's affirmation as follows:24. In August 2009 I once again met with Mr Douglas and told him that I wanted to close the business immediately and relinquish the Premises. 25. Mr Douglas asked me to keep the shop running saying that it was important that the shops remain open because closed shops would look really bad for the Centre. He told me "don't worry about the rent". This led me to believe that I was not required to pay rent and operating expenses from that time onwards, particularly after [another tenant] told me that this was exactly what happened to him before I took over the premises.[28] Mr Wang pointed to other evidence where Sylvia Park had accepted a rebate or reduced rental from other tenants. [29] In his affidavit, while denying that he made the representation to Ms Zhu, Mr Douglas accepted that on occasions Sylvia Park had provided some form of rent relief to tenants at its discretion and on a negotiated basis. [30] The difficulty for the defendant with this alleged waiver is that again it is contrary to the actions of the defendant at the time and the contemporaneous documentation. Even accepting the suggestion made through counsel that Ms Zhu was mistaken when she referred to August 2009 and the representation was made in October, Pearl paid rental arrears of in excess of $12,500 in October 2009 without raising any issue about the alleged rent representation. More significantly, however, in November 2009 the parties agreed to a process for early termination of the lease. That agreement was accepted on behalf of Pearl by Ms Zhu. Clause 5 of that agreement recorded:Any income due to the Landlord under the Lease, such as but not limited to rent, operating expenses and marketing contribution will be borne by the Tenant until the opening of a new retailer in the stated tenancy and paid to the Landlord on or before the surrender date.[31] That agreement was concluded on 16 November 2009 without any reference by Ms Zhu to a waiver of the requirement to pay rent. [32] Further, on 10 February 2010 in reliance on that agreement Sylvia Park gave Pearl notice to vacate by 14 March 2010. The letter recorded:The other terms of the agreement apply including the payment of the outstanding arrears as per the statement attached. To clear your account we require payment of $34,473.14 by the 14 th March 2010.[33] The letter was amended and returned by Ms Zhu on behalf of Pearl on 12 February 2010. She deleted the reference to "by the 14 th March 2010" and inserted "by negotiation" but significantly did not take issue with the sum of $34,473.14 demanded at that time. If there had been an agreement that rent was to be waived one would have expected she would raise it at that time. The letter was also apparently accompanied by a handwritten letter from Ms Zhu of the same date referring to the notice to vacate. In that letter she expressly stated:The other term about payment $34,473.14 rent in arrears we are really not able to made enough business to keep up the rent so we can't do any promise at the moment. For this shop to keep opening I sold whatever I can sell. house. car – . I got nothing left.[34] Again the opportunity to raise the issue of waiver was there but not taken by Ms Zhu. This is the type of case contemplated by the English Court of Appeal inEng Mee Yong v Letchumanan6 where Ms Zhu's evidence about the representations are simply not credible and are contrary to contemporaneous documents. I reject her evidence of waiver. [35] There is no dispute taken with the quantum claimed by Sylvia Park. There is no explanation given even today by Pearl for non-payment of the rental other than the alleged misrepresentations which, for the above reasons, I have either rejected or Pearl cannot rely on as a matter of law. [36] Even today there is no evidence before the Court as to the financial position of Pearl. Pearl has had the opportunity to put evidence before the Court to satisfy it that it is able to pay its debts. It has not done so. In the absence of such evidence6 Eng Mee Yong v Letchumanan [1980] AC 331.and on the basis of its failure to meet the statutory demand it is presumed to be unable to pay its debts and should be placed into liquidation. [37] Pearl of East Limited is placed into liquidation by order of this Court. The Official Assignee is appointed liquidator and the time noted is 11.35 a.m.Costs[38] The plaintiff Sylvia Park is entitled to costs and it is to have costs on a 2B basis for all steps taken throughout the proceeding and on the basis of a half day hearing for today. __________________________ Venning J