TILES & TILES LIMITED V HOWARD, HOWARD AND MACKENZIE ELVIN TRUSTEES LIMITED HC TAU CIV 2006-470-00650

TILES & TILES LIMITED V HOWARD, HOWARD AND MACKENZIE ELVIN TRUSTEES LIMITED HC TAU CIV 2006-470-00650 31 October 2006IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY CIV 2006-470-00650IN THE MATTER OF an application for relief from forfeiture BETWEEN TILES & TILES LIMITED Plaintiff AND DONALD HOWARD, KAREN HOWARD AND MACKENZIE ELVIN TRUSTEES LIMITED Defendants Hearing: 26 October 2006 Counsel: W T Nabney for Plaintiff C D Gudsell and S Goodwin for Defendants Judgment: 31 October 2006 at 1:00pmJUDGMENT OF ANDREWS JIn accordance with r540(4) I direct that the Registrar endorse this judgment with the delivery time of 1.00pm on 31 October 2006. Counsel: W T Nabney, Tauranga C T Gudsell, Hamilton Solicitors: McKenzie Elvin, TaurangaIntroduction[1] On 11 December 2002 an Agreement to Lease was executed by "Tiles & Tiles Limited trading as Tile Clearance Depot" as tenant and "The Donald and Karen Howard Family Trust" ("the Trust") as landlord, in respect of the property at Unit 4, 17 Newton Street, Mount Maunganui ("the property"). [2] On 23 June 2006 the tenant was given notice of termination on the grounds that it had failed to execute a formal Deed of Lease. The tenant now applies for relief against forfeiture. [3] The issues for determination in this application are: a) Whether Tiles & Tiles Limited ("Tiles") has standing to apply for relief; and b) If it does, whether in all the circumstances relief should be granted.Relevant facts[4] All evidence was given by affidavit. None of the deponents was required to attend for cross-examination. [5] The Agreement to Lease contained a provision requiring Tiles to enter into a formal Deed of Lease, which was to be prepared by the Trust's solicitors, at the tenant's cost. On 23 December 2002 a draft Deed of Lease was sent to Mr McKenzie, a director of Tiles, for his review. Accompanying the letter were a settlement statement and an invoice for the lessee's portion of rates and insurance, and for the costs and disbursements relating to the lease. [6] The Trust's solicitors sent follow-up letters and emails to Mr McKenzie and received some response from him and from Ms Rawlinson, an employee of Tiles (who for the most part dealt with matters relating to the lease on behalf of Tiles). However, the rates and insurance were not paid until March 2003. The solicitor'scosts were not paid until June 2004, after Mr Howard (one of the trustees of the Trust) sought payment from Ms Rawlinson. [7] There is no evidence that Tiles responded to the invitation to "review" the draft Deed of Lease. A Deed of Lease signed by the trustees ("the Lease") was sent to Tiles on 23 September 2004. This was after Ms Rawlinson had sent an email to the Trust's solicitors on 17 September 2004:Following up on our copy of the lease for 4/17 Newton Street, Tauranga. You did mention to me that a copy would be sent when the account was paid. This was paid on the 23 June, 04. We have not received our copy to date.[8] In the Lease, the trustees of the Trust were named as landlord and Tiles was named as tenant. It had been dated 24 June 2004. [9] Mr McKenzie's evidence was that "after being provided with the Lease", Ms Rawlinson thought it should be executed in the name of The Tile Clearance Depot Limited ("Tile Clearance"), the name under which Tiles had been trading. He said that Ms Rawlinson had taken steps to incorporate Tile Clearance. He said that neither he nor Ms Rawlinson turned their minds to the fact that as the Agreement to Lease was with Tiles, Tiles should execute the Lease. [10] The Lease was not returned to the Trust's solicitors. On 23 September 2004, the day Tiles received it, Ms Rawlinson sent an email to the Trust's solicitors, as follows:Today we received copies of the Lease with a letter asking us to sign and forward to you. We have already signed two copies of the Lease and returned [them] last year, we are requesting our copy of the Lease for our files. Please forward our copy to us.[11] There was no response from the Trust's solicitors. Ms Rawlinson's evidence was that it was by "oversight" that Tiles had not returned the signed Lease; rather, they had returned copies of the Agreement to Lease. She said that neither Mr Howard nor Mr Elvin (the Trust's solicitor) corrected the error. When she did not get a response to her email of 23 September 2004, she assumed that everything was in order in relation to the lease documentation.[12] In December 2005 Mr Howard sent Ms Rawlinson an email headed 'Formal Notification Renewal of Lease and Rent Review'. After mentioning the renewal (due on 7 January 2006) Mr Howard went on to set out proposed rental payments for the period through to January 2009. Ms Rawlinson responded in an email on 18 February 2006, noting that the rent review was not in fact due until 2007. In that email she also asked for a renewed lease to be provided. [13] A Deed of Renewal of Lease was emailed to Ms Rawlinson on 21 March 2006. That email referred to the Lease, noting that it had not been returned to the Trust's solicitors. Mr Small, solicitor for Tiles, said that this was the first mention of the Lease since it had been sent to Tiles in June 2004. [14] The Deed of Renewal of Lease named the lessee as 'Tiles & Tiles Limited trading as Tile Clearance Depot'. It was executed by Ms Rawlinson and dated 11 July 2006. Ms Rawlinson altered the lessee's name by deleting the words 'Tiles & Tiles Limited trading as' so that it read 'Tile Clearance Depot Limited'. This amendment was made on the front (title) page, in the naming of the parties at the head of the document and on the execution page for the lessee. The description of "lessee" in the interpretation clause (clause 1) was not altered and remained 'Tiles & Tiles Limited trading as Tile Clearance Depot'. The Deed of Renewal of Lease was returned to the Trust's solicitors under cover of a letter from Tiles' solicitors dated 14 July 2006. [15] In part, the delay in returning the Deed of Renewal of Lease appears to have been the result of concern on the part of Tiles at signage erected on the car park at the property. Tiles appears to have refused to return the Deed of Renewal of Lease until the sign was removed. [16] In the meantime, on 16 June 2006, the Trust's solicitors advised Ms Rawlinson that:We have been instructed by our client that if we do not receive executed copies of the Lease dated 24 June 2006 [this should clearly be 2004] and Renewal of Lease within 14 days of receiving this email, then our client shall re-enter the premises and the Lease shall terminate.[17] On 23 June 2006 the Trust's solicitors discovered that Tiles had been struck off the Companies Register in July 2005, for failing to file annual returns. On the same day, they faxed a letter addressed to Ms Rawlinson and Mr McKenzie, as follows:We note that Tiles & Tiles Limited, company no. 1237683, has been struck off the Companies Register and the company no longer exists. You are all ready [sic] in breach of clause 4 in the second schedule of the Agreement to Lease and clause 29(b) of the Head Lease. We have therefore been instructed by our client to terminate the Lease pursuant to clause 29 and inform you that you have 14 days to vacate the premises from the date of this facsimile in accordance with clause 43.1(b) of the Lease.[18] Application was then made for Tiles to be restored to the Register. Restoration was effective on 1 September 2006. [19] There was no issue as to payment of rent. At all times, rent was paid to the Trust either on time or in advance. Further, as the rental was increased during the first three years (as set out in the Agreement to Lease), the increased payments were made.Preliminary issue – Substitution of Tiles as Plaintiff[20] The application for relief against forfeiture was made by Mr McKenzie "as promoter of a company formerly known as Tiles & Tiles Limited". That was, Mr Nabney said, because Tiles was at that time off the Register and 'non-existent'. Once it was restored, an amended application for relief was filed, in the name of Tiles. Application was also made under r 101 of the High Court Rules, for substitution of Tiles as plaintiff in the application for relief. [21] It is relevant to note that at the time of the original application for relief, an application had been filed for Tiles' restoration to the register. It was capable of being a registered company. Tiles is now restored to the register. It is, once more, an extant company. Pursuant to s 330(2) of the Companies Act 1993, once restored, Tiles is deemed to have continued in existence as if it had never been removed from the register.[22] Had Tiles not been removed from the Register it could have made an application for relief at any time after the notice of termination. It could make that application now. [23] I have considered Mr Gudsell's argument that Mr McKenzie purported to issue the proceeding for relief as "promoter" of a non-existent entity – a struck off company – and that as the original application for relief was a nullity, there could be no substitution. The application for relief would always, he submitted, be a nullity. [24] A similar argument was considered by the English Court of Appeal inTyman's Ltd v Craven [1952] 2 QB 100, where a preliminary objection was taken that an application made by a company at a time that it was struck off the register was a nullity and could not be entertained. The argument was rejected; the majority holding that an order for restoration to the register was effective to validate retrospectively all that had been done in the name of or on behalf of the company during the period it was off the register (see at p111 per Evershed MR and at p 126 per Hodson LJ). [25] For that reason, I do not consider that substitution is precluded by the fact that Tiles was off the register at the time the application was filed. [26] Turning to r 101, I am satisfied that the restoration of Tiles to the Register is an "event occurring after the commencement of the proceeding", that has caused a "change of interest" and for that reason it is necessary or desirable that Tiles be made plaintiff in the proceeding. [27] Accordingly, I ordered that Tiles be substituted as plaintiff in place of Mr McKenzie.Does Tiles have standing to apply for relief?[28] Mr Gudsell argued that there were two aspects to this issue. First, the tenant occupying the property after 15 July 2005 cannot have been Tiles, as Tiles was thenstruck off the register. As a non-existent company it could neither occupy the premises nor pay rent. [29] Second, a business trading as Tile Clearance Depot occupied the property at all times, and rent was paid. It followed, Mr Gudsell argued, that there must have been an assignment from Tiles, without the knowledge or consent of the Trust. The assignment meant that the tenant is Tile Clearance, not Tiles, and Tiles has no standing to apply for relief.Tiles could not have been the tenant as it was off the register, and "non-existent"[30] As noted earlier, upon re-registration, Tiles is deemed to have continued in existence as if it had not been removed (s 330(2) Companies Act 1993). In Natural Selection Clothing Ltd v Commissioner of Trade Marks [1996] 2 NZLR 148, the Court of Appeal considered a notice of opposition to a trade mark registration filed by an Australian company that had, at the time the opposition was filed, ceased to be a registered company. The company was subsequently reinstated under s 574 of the Australian Corporations Act 1989. Section 574 includes a deeming provision in similar terms to s 330(2) of the Companies Act 1993. [31] Having referred to the majority decision of the English Court of Appeal inTyman's Ltd v Craven (supra), concerning the corresponding English legislation, the Court held, at 154-155:Whether or not [the decisions were void] really depends upon whether, on its correct interpretation, s 574(2) extends its impact to third parties. We have no doubt that it should extend to all matters the only defect in which stems from the non-existence of the company. To take the more restrictive view would be to create difficulties in such areas as company contracts and dealings by the company and its officers in the course of business. The validation is statutory and therefore plainly an exception to any general principle that what is void cannot be revived[32] In Best Wholesale Ltd v Coldfield Investments Ltd (HC AK M 1639-IM02, 15 May 2003) Venning J considered the effect of s 330(2) in the context of a statutory demand served by a company that had been struck off the register and concluded, at [30]:It is a matter of interpreting the effect of the statutory wording in s 330(2) of the Companies Act. I interpret those words as the Court of Appeal interpreted very similar words in the Natural Selection case namely that the section has the effect of validating actions of the company taken during the period it is off the register so that the issue of the statutory demand and the subsequent issue of proceedings based on the defendant's failure to comply with the statutory demand are valid.[33] On the basis of those authorities, I find that the fact that Tiles was off the register between July 2005 and 1 September 2006 does not preclude it from being the tenant and thus having standing to apply for relief.Was there an assignment to Tile Clearance?[34] I am satisfied that there was no assignment to Tile Clearance. It was common ground that the Lease was not executed and returned to the Trust's solicitors until 14 July 2006: that is, after the notice of termination on the grounds that Tiles had failed to enter into the Lease was received. Up to the date of termination, the operative agreement between the parties was the Agreement to Lease. That was, and remained, in the name of "Tiles & Tiles Ltd trading as Tile Clearance Depot". Accordingly, at all times up to termination, the only party named on any written lease document was Tiles. [35] There was no direct evidence before me of any intention on the part of Tiles to assign the Agreement to Lease to Tile Clearance. Mr McKenzie said in his affidavit that his employee, Ms Rawlinson had thought the lease should be executed by Tile Clearance, and to that end had altered the names of the tenant. However, as Mr Gudsell pointed out, that evidence was hearsay, and should be given no weight. There was no evidence from Ms Rawlinson on the point. Mr Gudsell invited me to infer an intention to assign, and an ulterior motive, on the part of Tiles, but I have no basis on which to make such an adverse inference. [36] Accordingly, I am satisfied that Tiles has standing to apply for relief.In all the circumstances, should relief be granted?[37] Section 118(2) of the Property Law Act 1952 provides that: the Court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the circumstances of the case, may grant or refuse relief, as it thinks fit; and in the case of relief may grant the same on such terms (if any) as to costs, expenses, damages, compensation, penalty, or otherwise, including the granting of an injunction to restrain any like breach in the future, as the Court in the circumstances of each case thinks fit.[38] In McIvor v Donald [1984] 2 NZLR 487 (CA), at p 494, Somers J said of the jurisdiction:The legislature has not seen fit to lay down rules as to the exercise of the wide discretion it has conferred on the Court and the undesirability of the Court attempting to do so was emphasised in Hyman v Rose [1912] AC 623, 631. Many of the subsequent reported cases are no more than instances of the exercise of the discretion but some point to features of general importance. Thus relief is normally granted to one who has made good the breach and is able and willing to fulfil his obligations in future: Earl Bathurst v Fine[1974] 1 WLR 905, 908; but when there are wilful breaches relief will not readily be given: Shiloh Spinners v Harding [1973] AC 691, 725, 726. Again, save in rare cases a lessee will not be permitted to buy his way out by the payment of a sum of money to his landlord unless the forfeiture clause is merely security for the payment of money.[39] In Studio X Ltd v Mobil Oil New Zealand Ltd [1996] 2 NZLR 697, Hammond J proceeded on the basis that s 118(2) conferred the "widest discretion" on the Court. At p 701 he set out a number of factors to be considered that had been identified by trial and appellate Courts, as follows (in so far as relevant to the present application):• Whether the breach was advertent or deliberately committed. In such a case there are sound reasons why in the normal case relief should not be given: why should a lessor be compelled to remain in a relation of neighbourhood with a person in deliberate breach of his obligations?• Conversely, whether the breach was caused by inadvertence or was entirely beyond the tenant's control.• Whether a tenant has made or will make good his breach of the covenant and is able and willing to fulfil his obligations in the future.• The conduct of the landlord.• The personal qualifications of the tenant.• The financial position of the tenant.• The gravity of the breach.• Whether a breach has occasioned lasting damage to the landlord.[40] It is clear in the present case that Tiles has made good the breach: Tiles has executed the Lease and Deed of Renewal of Lease, and these have been returned to the Trust's solicitors. Others of the factors listed above may be dealt with quite shortly: a) It cannot be argued that the breach has occasioned lasting damage to the Trust. The rent has been paid on time throughout, and the Trust has been protected by the terms of the Agreement to Lease. b) Payment of certain outgoings was apparently made late on two occasions, but that delay was remedied when the matter was brought to Tiles' attention. c) There was no evidence to suggest that Tiles would not meet its financial obligations under the Lease in the future, or that the "personal qualifications" of Tiles were such that relief should not be granted. d) Tiles was under an obligation to execute a Lease. It failed to do so, in a timely fashion, when the Lease was sent to it. This was despite reminders sent periodically (although it is apparent that after May 2003, the reminders related to payment of costs, rather than execution of the Lease). The breach cannot be described as minor but it has now been remedied. [41] The substantive issues argued before me were as to whether the breach was "advertent" or inadvertent, and as to the conduct of the landlord.Was the breach "advertent" or inadvertent?[42] Mr Gudsell argued that the breach was "advertent", or wilful: that Tiles had made a conscious decision to allow itself to be struck off the register and hadassigned the lease to Tile Clearance. There was, he said, a "complete disregard" of the requirement to enter into a Lease, a conscious "dropping" of the entity that had that obligation, and the incorporation of a new company that was in fact occupying the property. In the face of that behaviour, relief should not be given. [43] I am satisfied that the breach was inadvertent. I note in particular Ms Rawlinson's emails to the Trust's solicitors of 17 and 23 September 2004, referred to at [7] and [10], above. It is clear from those emails that Ms Rawlinson was under the impression that Tiles had already signed the Lease. She was mistaken in that belief, as Tiles had executed the Agreement to Lease, not the Lease, but that mistake was not remedied by the Trust's solicitors until 2006. [44] Further, as set out above, I am satisfied that there was no assignment to Tile Clearance. Accordingly, Tiles is not precluded from seeking relief on the grounds of wilful breach.Other circumstances[45] Mr Gudsell urged me to take into account "all of the circumstances". In addition to the matters already referred to, he referred to liquidators' reports concerning two companies in which Mr McKenzie had been involved. He noted that Tiles had given no evidence of its financial position, or of who was actually trading the business being carried on at the property. He also noted that no direct evidence was given as why Ms Rawlinson had changed the name of the tenant on documentation sent to her (but not returned by her to the landlord). [46] I have considered those matters. I have already found that I cannot draw the adverse inference that Mr Gudsell urged on me.The landlord's conduct[47] It needs also to be remembered that by virtue of there being no response to Ms Rawlinson's email of 23 September 2004, Ms Rawlinson, and therefore Tiles, was allowed to remain of the mistaken view that the Lease had been signed.[48] Further, on 19 December 2005, Mr Howard sent Ms Rawlinson an email dealing with renewal of the lease, and setting out a proposed rent review. He was incorrect in asserting a rent review, and Ms Rawlinson advised him of that. However, Mr Howard and Ms Rawlinson were dealing with each other on the basis that there was a lease agreement between the Trust and Tiles, which was now due for renewal. Had the Trust been concerned as to Tiles' failure to execute the Lease, it could be expected that Mr Howard would have raised the matter at that time.Conclusion[49] I was referred to judgments in which relief had either been granted or not granted. As may be expected, in none of the cases referred to me were the facts on all fours with the present one. I have considered the application for relief on the facts as presented to me, and in light of the principles set out in McIvor v Donald(supra) and the factors identified in Studio X (supra). [50] In all of the circumstances, I am satisfied that this is a proper case for relief to be granted. Accordingly, there will be an order in favour of the plaintiff, Tiles, granting relief. [51] In this case, I consider that costs should lie where they fall. Accordingly I make no order as to costs. _____________________________ Andrews J