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Vaitamanga Holdings Ltd v Downey [2000] CKCA 3; CA 5.2000 (24 July 2000)

IN THE COURT OF APPEAL OF THE COOK ISLANDS
HELD AT AUCKLAND

CA 5/2000

IN THE MATTER of Article 60(3) of the Cook Islands Constitution Amendment Act (No. 9) 1980-81

AND

CROWN BEACH EXECUTIVE VILLAS LIMITED (In Receivership)

BETWEEN

VAITAMANGA HOLDINGS LIMITED

Appellant

AND

KERRYN MARK DOWNEY and MICHAEL ROBERT CARR as receivers of Crown Beach Executive Villas Limited (In Receivership)

Respondent

Hearing:
11, 12 July 2000
Coram:
Speight JA
David Williams
J Carter J
Counsel:
Mr. J Katz QC and Mrs. T P Browne for Appellant
Mr M C Mitchell for Respondent
Mr ID C S Morris for South Pacific Resorts Limited
Judgment:
24 July 2000

JUDGMENT OF THE COURT

INTRODUCTION - NATURE OF APPEAL

  1. This is an appeal from the reserved judgment of Norman F Smith J given on 9 June 2000 granting applications by the respondent receivers for orders dispensing with the consent of the appellant lessor ("Vaitatnanga") to an assignment of a Deed of Sublease dated 4 November 1997 ("the Sublease"), the lessee (or more accurately the sublessee) being Crown Beach Executive Villas Limited ("Crown Beach"). The Sublease encompasses the land known as Vaitamanga Section 88F1 comprising 9709 m2 and also a further 902m2 being Part of Vaitamanga and known as the reserve land. The land is leased for the maximum statutory period of 60 years.
  2. The Crown Beach receivers wished to assign the Sublease to South Pacific Resorts Limited ("South Pacific"). Smith J held that the decision Of Vaitamanga and Mrs MacQuarie to withhold consent to the assignment was unreasonable. (Mrs MacQuarie is the landowner of the land and also the lessee of the land. On 8 July 1987 she assigned part of her interest as lessee, namely 97092 to Vaitamanga. Mrs Macquarie is also a shareholder and director of Vaitamanga.)
  3. Smith I accompanied his order dispensing with the consent with a direction that Vaitamangaand Mrs MacQuarie, "submit to counsel for the applicant, a statement of the amount claimed to be due and owing and the applicant is directed to settle all payments properly payable in terms of the Sublease upon settlement of the sale thereof."
  4. The application was made in reliance on a 110 of the Property Law Act 1952 NZ which is in force in the Cook Islands by virtue of section 637 of the Cook Islands Act 1915. It provides that in all leases containing a covenant against assignment shall be deemed to be subject to a proviso to the effect that the licence or consent shall not to be unreasonably withheld. Section 110 reads as follows:

"110. License or consent not to be unreasonably withheld — (1) in all leases, whether made before or after the commencement of this Act. containing a covenant, condition, or agreement against assigning, underletting, charging, or parting with the possession of demised premises or any part thereof without license or consent, that covenant condition, or agreement shall, not withstanding any express provision to the contrary, be deemed to be subject to a proviso to the effect that the license or consent is not to be unreasonably withheld, but this proviso does not preclude the right of the landlord to require payment of a reasonable sum in respect of any legal or other expenses incurred in connection with any such license or consent

(1 A) For the purposes of this section, a license or consent shall be treated as unreasonably withheld if it is withheld by reason only of the color, race, or ethnic or national origins of any person.]

(2) In this section the term "lease" has the same meaning as in section 117 of this Act"

  1. The related section 109 prohibits the extraction of fines or sums in the nature of fines in respect of a consent to an assignment and provides:

"109. No fine for license to assign — (1) In all leases containing a covenant, condition, or agreement that the lessee shall not, without the license or consent of the lesser, assign, underlet, part with the possession, or dispose of the demised premises or any part thereof, that covenant, condition, or agreement shall, unless the lease contains an express provision to the contrary, be deemed to be subject to a proviso to the effect that no fine or sum of money in the nature of a fine shall be payable for or in respect of any such license or consent; but this proviso shall not preclude the right to require the payment of a reasonable sum in respect of any legal or other expenses incurred in relation to the license or consent.

2. Neither the assignment or underletting of any leasehold by the assignee of a bankrupt, or by the liquidator of a company, or by the Sheriff under an execution, nor the bequest of a leasehold, shall be deemed to be a breach of any such covenant, condition, or agreement, unless the contrary is expressly declared in the lease.

3. For the purposes of this section, terms defined in section 117 of this Act have the meanings assigned to them by that section"

  1. The judgment of Justice Smith also dealt with a similar application by the receivers in relation to adjoining land. This application was heard and determined at the same time and with the same outcome. There was no appeal from that part of the judgment.

THE ORIGINAL SUBLEASE

  1. The stated purpose of the original Lease of 4 November 1997 was "for the establishment of a tourist resort facility constructed and furnished to the standard of an international resort": clause 9(a). Crown Beach operates a small tourist resort on the land comprising 12 villa style units, a swimming pool, bar, administration building and restaurant. Construction of the existing buildings, which represented Stage 1 of a proposed 50 unit complex, was completed in 1998. One unit is owned by Mrs MacQuarie and is operated by Crown Beach under a Management Agreement. The resort's facilities are of a very high standard and the resort has been assessed as being of four star quality. All units contain air-conditioning. The property has substantial further development potential.
  2. On 15 November 1999, Mr K M Downey and Mr M R Carr of KPMG were appointed by Westpac Banking Corporation and others as joint and several receivers and managers of Crown Beach. The receivers subsequently determined that a sale of the business of Crown Beach as a going concern offered the best possible return for the Crown Beach business and assets. Pending this sale the resort has been traded under the control of the receivers.
  3. After an international advertising programme and the consideration of various offers received, the receivers accepted the best offer being NZ$2,783,003.00 for the business and assets of Crown Beach. The final sale agreement dated 4 April 2000 was entered into between the receivers as vendors and South Pacific as purchaser and Mr Rondo Perkins, Mosaic Travel & Tours Inc, Mr Don Morrison and Western Travel Group Limited as guarantors. The original settlement date for the agreement was 11 May 2000. True copies of the agreement were supplied to this Court by the receivers.

THE RELEVANT PROVISIONS OF THE SUBLEASE

  1. The Sublease, which had been approved by the Leases Approval Committee on 27 August 1997, provided for an annual rental which should be the greater of $5,000 per annum reviewable 5 yearly or 1.5% of the gross income of the Lessee. In order to enable the gross income to be established, clause 3(a) provided that:
  2. We were informed from the Bar that in recent times the 1.5 turnover percentage has resulted in a rental payment of about $NZ30,000 per annum.
  3. Clause 5 imposed restrictions on disposition. Clause 5(d) provided that:
  4. As to assignment, clause 5(e) provided as follows:

THE REQUEST FOR CONSENT TO THE ASSIGNMENT AND THE SUBSEQUENT RESPONSES OF THE LESSOR

  1. In the written submissions of the appellant in relation to the substantive appeal it was strongly contended that the Court below, and this Court, in considering the question of the application for dispensation with consent, should place itself in the shoes of the reasonable Lessor and confine itself solely to those matters of fact which were before the Lessor when consent was refused. No other material was admissible. The written submissions put the matter as follows:
  2. There was considerable debate at the hearing about the soundness of these submissions. The appellant's contentions derive support from certain observations by Slade LJ in Bromley Park Ltd v Moss [1982] 2 AU ER 890, 901 although Cumming-Bruce LJ found it unnecessary to decide the point and Dunn LJ did not address it. To the extent that David Williams J followed Slade LJ in Car Warehouse Limited v Vehicle Direct Ltd CP 1367/92, High Court, Auckland Registry, 22 October 1993, it is to be noted that he went on to consider the post-refusal evidence anyway. More importantly Somers J in W E Wagener Ltd v Photo Engravers Ltd [1984] 1 NZLR 412 (CA) said at 427 had expressed the position as follows:
  3. To paraphrase Cooke J in the same case at p 418, the parties cannot by relying on finely tuned evidentiary analysis abrogate the right and duty of the Court, in the event of a dispute as to the reasonableness of the withholding of consent, to decide by objective standard whether or not the refusal is unreasonable.
  4. In any event this Court considers that even if the appellant's evidentiary submissions were sound in principle, they cannot be applied to the present case for a variety of reasons. At least up until the commencement of the High Court proceedings, the respondent never made an unqualified and final decision to refuse consent as opposed to withholding it pending receipt of further information and the satisfaction of certain collateral conditions which the respondent sought to impose. Moreover, to the extent that grounds for withholding consent were given in the lead up to this litigation, they never remained constant. As is demonstrated by the factual summary which follows the respondent "shifted the goal posts" on several occasions.
  5. The view of the Court is that it must consider all of the material placed before the Trial Judge especially since all appeals are by way of rehearing (s 55 Judicature Act 1980-81). As to any additional relevant material placed before this Court on appeal there is discretion to receive it by leave under section 57. The role of this Court is therefore as stated by Lindley MR in Coghlan v Cumberland [1898] UKLawRpCh 74; [1898] 1 Ch 704:
  6. The Court considers that it is most important in deciding whether the apparent refusal was unreasonable to consider carefully the narrative of events which unfolded in this case. We are indebted to both counsel for the helpful way in which they explained the chronology of events. We find that the facts may be summarised as follows.
  7. On 30 November 1999 the solicitors for the receivers wrote to Mrs Browne of Clarkes PC who was acting for the landowners concerning various alleged breaches of the lease. They adverted to the question of consent and noted that the landowners were entitled, pursuant to clause 5(f) (i) of the Sublease, to refuse their consent to any sale whilst the company was in breach of its obligations pursuant to the Sublease. It was pointed out the receiver had requested advice as to an amount that the landowners would be prepared to accept as compensation for past or existing breaches in order to clear the way for the landowners' consent. The letter also referred to other alleged breaches.
  8. Clarkes PC replied on 22 December 1999 stating that their instructions were that in consideration of the payment to Mrs MacQuarie of $30,000 she would withdraw the default notice with regard to the alleged failure to reveal all relevant facts when offering Mrs MacQuarie a right of first refusal under clause 5(d) of the Sublease in respect of certain share transactions which had occurred in September-October 1998. The letter went on to advise that Mrs MacQuarie would not forfeit the lease as a consequence of the appointment of the receiver.
  9. On 23 December 1999 the solicitors for the appellant wrote to the receivers at some length providing a summary of the nature of the existing alleged breaches under the Sublease including the apparent omission to offer the right of first refusal. The letter concluded as follows:
  10. The actual application for consent to the proposed assignment was made by the receivers by their letter of 6 April 2000. The letter stated inter alia:
We would appreciate your early consideration and response."
  1. Attached to the letter was a memorandum on providing details of South Pacific Resorts Limited which stated as follows:
  2. The solicitors for the appellant replied on 11 April stating that their instructions were that Vaitamanga did not consent to the proposed assignment. They said that Mrs MacQuarie wished to reserve her position with regard to her right of first refusal to the said assignment until the question of consent had been dealt with. The letter concluded by asking for an extension of the 7 day period allowed under clause 5(d) of the Deed of Lease to 30 days from 6 April 2000 in respect of the right of first refusal.
  3. On 13 April the receivers responded to the appellant's solicitors and agreed to the extension to 26 April 2000 "subject to your client within that extended period providing us in writing details of the reasons and basis on which consent to the proposed assignment is withheld". It was further stated that "the details provided must be complete and should include without limitation details of any concerns your clients have with regard to the proposed assignee, further information concerning the proposed assignee your clients require, details of any breaches which would have to be remedied and of any arrears which would have to be paid in order for the consent to be given." The receivers asked for a reply by 26 April 2000. This request was criticised by counsel for the appellant on the basis that the onus of satisfying Clause 5(e) (i) was placed by that clause squarely on the lessee. We do not agree with the criticism. The receivers were being asked to extend the 7 day right of refusal period. The lessor had refused to disclose its position on consent to the assignment. In return for this indulgence the receivers sought to clarify the basis on which consent was being withheld. There is nothing in the point.
  4. On 26 April the solicitors for the appellant advised by letter that their clients were unable to exercise the right of first refusal as they were unable to obtain the finance required. They went on to say that consent to the proposed assignment "was being withheld on the following grounds:
  5. Several points should be made about this withholding of consent. First, it is to be noted that the grounds did not include any concerns about the financial standing of South Pacific. Indeed all of the grounds related to past alleged breaches of the Deed of Sublease and Mr Perkins' alleged failure in his capacity of major shareholder of Crown Beach to undertake to carry out certain suggested obligations. Secondly, the management agreement was a separate matter not relevant to the assignment. (This was later conceded in the letter from the respondent's solicitors of 26 May 2000 discussed below.) Thirdly, the items referred to in paragraphs 2(ii) and 2(iii) were remedied before the matter came before Smith 3. Fourthly, the conclusion that, based on past experience, the appellant had no reason to believe that the proposed purchaser would behave any differently to the company because of Mr Perkins continuing involvement, does not sit easily within the critical conditions for consent under the latter part of Clause 5(e)(i), at least so far as item 3 is concerned. The attitudinal or behavioural characteristics of the assignee are irrelevant if not related to the relationship of landlord and tenant: International Drilling Fluids. Ltd v Louisville Investments Ltd [1986] 1 All ER 321, 325.
  6. The solicitors for the receivers, Stevenson Nelson & Mitchell, replied on 6 May and said:

If the characterisation of the main concern is accurate the main concern had changed from that articulated in the letter of 26 April.

  1. The next development was a meeting between the solicitors for the parties on 16 May 2000. It appears that at that meeting the appellant for the first time claimed that South Pacific was not in good financial standing and did not have the potential to maintain the gross income of the resort at a level at least equal to that earned by Crown Beach. This inference may be drawn from the letter of 17 May from the receivers' solicitors to the appellant's solicitors. In that letter the question of a payment for past breaches of the lease was discussed as well as the appellant's legal and other costs to date. The letter concluded by advising that the receivers sought a swift response as they were anxious to have an application to dispense with consent heard in the current Court session should that become necessary. The receivers also sought information as to the basis "on which the lessor claims that South Pacific is not of good financial standing with potential to maintain the gross income of the resort at a level at least equal to that earned by Crown Beach".
  2. The swift response sought by the solicitors for the receivers materialised in a letter of the same date from the appellant's solicitors which stated as follows:
  3. The reference in the last sentence was not responsive to the precise Clause 5(3) (i) issue raised at the end of the receivers' letter. Be that as it may, the next development was a three page letter or notice from Vaitamanga Holdings direct to the receivers dated 22 May 2000, a letter which assumed some prominence in the arguments before us. Counsel for the respondent submitted that it was unfortunate the letter had been sent to the receivers and not to the receivers' solicitors. His lack of knowledge of this letter had led him to write a letter of 24 May 2000 asking just what were the appellant's objections to the granting of consent. (It should be interpolated here that the receivers filed their application to dispense with consent in the High Court at Rarotonga on 23 May 2000 and it was allocated a hearing date of 24 May doubtless on the grounds of urgency.)
  4. Notable features of the letter written by Vaitamanga to the receivers on 22 May were a detailed request for financial statements concerning South Pacific and similar financial statements concerning the principal shareholders of South Pacific, namely Rondo Perkins, 49% and Mosaic Travel and Tours, 51% together with evidence of any actual wholesale business contracts which Mosaic had entered in respect of bringing Canadian tourists to the Cook Islands. The letter also asked for payment of all proper costs incurred by the Lessor in respect of its inquiries as to the suitability of the proposed assignee and in this respect contended that the financial damage was occurring to the Lessee by way of unpaid solicitor's fees in respect of the consent. The letter stated:

The letter went on to point out that the default had been committed by the appointment of a receiver as provided by clause 13(a) and that such a default had to be remedied within 14 days. This statement was made notwithstanding that, as noted earlier, in December of the previous year the solicitors for the appellant had written advising that Mrs MacQuarie would not forfeit the Lease as a consequence of the appointment of a receiver. The notice concluded as follows:

"From the beginning of this DEED OF SUBLEASE between VAITAMANGA HOLDINGS LIMITED and CROWN BEACH EXECUTIVE VILLAS LIMITED, there have been consistent problems with the financial well being of the business being operated upon our land, this has resulted in very significant financial loss and mental duress upon the owners of VAITAMANGA HOLDINGS LIMITED, in the persons of Mere-Mcrae Vilma MacQuarie and her family.
Now comes again CROWN BEACH EXECUTIVE VILLAS LIMITED, (in receivership), asking us so approve the sale of our DEED OF SUBLEASE to another unknown business entity.
For the sake of preventing as much as possible any further financial loss and duress to the landowners, we are simply asking to be allowed to make our decision concerning the consent of the assignment of the lease, based on sound and reasonable business practices.
Asking to be provided with the information detailed, (and required in the Lease document), in this letter, so that we as the Lessor's are able to make a sound decision based upon facts at hand, is in our opinion a reasonable and prudent action.
We look forward to hearing from you by 05 June 2000." (Underlining added.)
  1. The underlying passages show that not only was the appellant changing the grounds of its opposition and raising matters which had earlier been cleared away but was confirming that it had not made a final decision on the application for consent as of 22 May 2000. Moreover, the reference to "another unknown business entity" would not be literally true for the identity and essential details of South Pacific had been supplied in the receivers' letter of 6 April 2000
  2. There was a preliminary hearing in the Court on 24 May before the Chief Justice after which the solicitors for the receivers wrote to the solicitors for the appellant stating inter alia:
  3. The solicitors for the appellant replied by letter dated 26 May 2000. The following matters are worthy of note:

Acknowledge that the arrears owing under the Management Agreement is not the concern of the Receiver nerveless the non payment of it demonstrates, our clients view, the type of person Mr. Perkins is particularly as had personally promised our client to pay (sic)

...
....The payment under clause 5(e)(iv) should relate to all proper costs with regard to the question of solvency, fitness and suitability of the proposed purchaser and in connection with obtaining the consent of the Lessor. We will give you a note of our costs.
Don Morrison - We have in our possession information which, if true, casts some doubt on Mr Morrison's financial standing and ability to perform. That may have been what Hinano MacQuarie was conveying to Mr Carr. According to the information that we have, Don Morrison no longer has any interest in a travel wholesale company. He was once president of Skyhigh Holidays as well as Mosaic. Skyhigh Holidays owned Cook Islands Holidays which was the company that Mr Morrison tried to purchase but was sold to someone else. Perhaps you may be able to provide us with information to the contrary which might satisfy the concerns of our client
Delaying proceedings - It is implied in your letter that we are engaging delay tactics. It seems that you expected to proceed on the application to dispense with consent even though a copy of the application was served on us on Monday 22 May and the affidavits on Tuesday 23 May. We are surprised that you expected our client, who has a genuine concern, to be ready to proceed on your application when the first notice that we had that you were applying to dispense with consent was only received by us late Friday 19 May 2000. It appears that it is your view that we should have prepared for a Court hearing prior to you filing your application.
It is quite clear from the correspondences that the parties since December 1999 have been trying to resolve outstanding issues not preparing for a Court action which may or may not happen.
We want to make it quite clear that we have no intention of delaying matters. As indicated we will be filing Mrs MacQuarie's affidavit as soon as that is completed. We confirm that it is not our client company's intention to drag matters on with the possible aim of seeing this offer collapse in the hope that the lessors ultimately gain possession of the property. You are aware that the appointment of a Receiver gives rise to a "default" under the Deed of Sublease and entitles the Lessor to forfeit the Sublease. The Lessor has chosen not to take that step. If her intention was to repossess the land surely she would have done so then.
Court hearing - You will recall that in response to the Judge's suggestion of funding a Judge to travel to Rarotonga the writer indicated that she would have to take instructions on that. The view that the writer expressed to the Court was her own. We have now had the opportunity to discuss the matter with our client and can confirm that they do not wish to contribute to the cost of bringing a Judge to Rarotonga. Before our clients decide on the question of travelling to New Zealand would you kindly indicate the size of the Receiver's contribution. Is the Receiver contributing to our travel and accommodation costs as well?
Rentals and other payments - We confirm that all rentals under the Deed of Sublease have been paid to date. A payment that was owing by the Company was subsequently paid by the Receiver. The percentage of transfer consideration on the share transfers is still outstanding." (Underlining added)
It can be seen that the appellant was again now back to the original position of not forfeiting on account of the appointment of the receiver which had been asserted only a few days earlier in the letter/notice from Vaitamanga of 22 May. Moreover, the last paragraph confirmed that, the ground rentals earlier claimed to be outstanding had been paid. On the critical Clause 5(e)(i) point time was sought to consider additional material supplied by the receivers and CVs of the proposed managers were requested.

The letter concluded by stating:

"We are instructed as follows:
Subject to satisfying the provisions of clause 5(e)(i) of the Deed of Sublease our client will be prepared to consent to the proposed assignment on the following conditions:
(i) That the sum of $16,766.00 owing under the Management Agreement to be paid together with interest for late payment.
(ii) The sum of $30,000.00 be paid with regard to the alleged breaches under clause 5(e)(iii).
(iii) The sum of US$564.53 being the difference of the percentage of the Transfer Consideration to be paid.
(iv) A debenture be entered into to secure payment under the Management Agreement
(v) Provision be made that there be a penalty interest on any late payments under the Management Agreement.
(vi) Payment of our proper costs under clause 5(e)(iv).
This offer will lapse on Wednesday 31 May 2000.
The above proposal is being suggested in order to enable the Resort to move forward. Our client has genuine grievances and, to date, Mr Perkins has not demonstrated good faith In his dealings with our client His consent to providing the above will go some way to demonstrate an intention to act in good faith in future dealings with our client?' (Underlining added.)

This passage demonstrates that lesser was seeking to acquire collateral benefits as a condition of granting consent because at the very least items (i), (iv) and (v) had nothing to do with the issues relevant to the granting of consent under Clause 5(e). The Management Agreement was a separate contractual matter governed by the separate Management Agreement between Mrs MacQuarie and Crown Beach. The letter acknowledged that this was nothing to do with the receivers. With respect to the $30,000 in (ii), the reference there presumably related to the figure of $30,000 first mentioned in the appellant's solicitor's letter of 20 December 1999 and involving the alleged failure to comply with the right of first refusal in respect of share transactions in October 1998. It will be recalled that the appellant's solicitors had said in their letter of 23 December 1999 that the calculation of damages for this alleged breach would be a very difficult one. Finally, as to payment of proper costs, there had been no indication that the proper costs of the assignment to which the lessee was entitled under clause 5(e)(iv) would not be forthcoming. On the contrary, the respondent's solicitors had confirmed in their letter of 24 May that all proper costs would be paid.

  1. The letter once more left the door open to the receivers and did not in terms signify an unflinching refusal to consent. As to the satisfaction of the provisions of clause 5(e) (i) that matter was now plainly on the table, although of course it had not been so when the letter of 26 April was written advising that consent was being withheld.

THE HEARING

  1. The applications to dispense for the consent of the lessor to an assignment of various leases to South Pacific came on for hearing by way of a special fixture in the High Court of the Cook Islands on 6 June 2000. The Judge had been flown to the Cook Islands at the receivers* expense because of the urgency of the matter. We were told that Mr Nia the other landowner whose consent was being sought made submissions and then Mrs MacQuarie confirmed her evidence and was cross-examined. The hearing lasted for half a day. A substantial body of evidence was placed before the Court including the following (the references are to the Case on Appeal):
  2. A significant additional amount of financial information concerning South Pacific was produced as Exhibits "A" - "G" by the receivers. In the Case on Appeal it runs from pages 77 to 101. It encompassed a history of Mosaic Travel & Tours Inc now known as BookForTravel.Com Inc and dealt with the involvement of Western Travel Group Ltd, Mr Don Morrison and Mr Malcolm Stone. There were CVs of Mr Morrison, Mr Stone and others as had been requested in the lessor's 22 May letter/notice.
  3. The financial performance of BookForTravel was also canvassed in detail. Full details of the loan facilities from Westpac to South Pacific were provided. In addition there was further information from an Auckland Chartered Accountant, Mr P J Brannigan, concerning the financial structuring of South Pacific and a commentary provided on its recent financial performance. A letter placed before the Court from BookTravel.Com Inc pointed out that BookForTravel had strong support from the financial and brokerage community who were committed to supporting BookForTravel's "Go Forward Growth Strategy". BookForTravel was described as a vertically integrated travel business company which included retail travel agencies, wholesale tour operators, media division print magazine, Internet website and resort properties. It suggested that BookForTravel was in a position to allow South Pacific to immediately develop the next stage of Crown Beach Resort. The resort had to be fully developed to justify the infrastructure that is presently in place.
  4. It was noted that Westpac had given a firm commitment to funding further development of the resort as soon as South Pacific had purchased the property from the receiver. The Westpac documentation confirmed that, subject to satisfying certain conditions, this was so. There was also detailed information concerning this Westpac funding which was to be guaranteed by Messrs Perkins and Morrison and BookForTravel Inc. The funding involved a term loan facility No 1 from $1,355,000 and a term loan facility No 2 of $1,020,000; the first being to assist with the acquisition of Crown Beach and the second to construct 12 additional accommodation units. There were various conditions and undertakings relating to the proposed funding.
  5. The affidavit by Mr Rondo Perkins, after dealing with the troubled history of Crown Beach, concluded as follows:
  6. On the other side, Mr Nia produced affidavits from Zandra Perkins and Eloise Hurley which discussed their past role with Crown Beach and were critical of the reliability of Mr Rondo Perkins.
  7. For the appellant a lengthy affidavit was filed by Mrs MacQuarie. In the affidavit it was stated:

Existing Breaches

8. On 23 December 1999 my solicitor wrote to the Receiver of Crown Beach summarizing the breaches of the Sublease. A copy of my solicitor's letter dated 23 December 1999 is attached and marked with the letter "A"."
  1. In relation to the existing breaches the claim that the appointment of a receiver breached clause 13A was revived once again even though that had been earlier waived. In respect of the financial standing of the proposed assignee the concluding comment was that "the details of the proposed purchaser provided to me contained several inconsistencies which are of concern to me and need clarification before I can be comfortable with the financial standing and abilities of the proposed purchaser." These concerns had apparently arisen from assessments made by Vaitamanga's accountant, Trends Limited of information supplied by the receiver concerning South Pacific. This in turn had been responded to by BookForTravel in a letter to the receivers' solicitors dated 31 May.
  2. However, the most detailed section of the affidavit related to Mrs MacQuarie's views on Rondo Perkins which cover paragraphs 29 to 53. The affidavit concluded as follows:
  3. One can readily sympathise with these sentiments. It is plain that the Crown Beach project has caused considerable problems for Mrs MacQuarie and her husband. However, subject to the remedying of past breaches, the High Court was not empowered to address these issues. Its task was to confine itself to the question of whether the refusal of consent was unreasonable.

THE JUDGMENT

  1. In his judgment the Judge said he proposed to deal with the application to dispense with consent on behalf of the landowners of sections 88F2A and B who were represented by Mr Nia first, and then to deal with the application in respect of Vaitarnanga Holdings Limited. The Judge dealt with the substance of the 88F2A and B owners' concerns as promoted by Mr Nia. Most of these are not relevant for present purposes. The Judge then turned to the concerns raised about the inclusion of Mr Rondo Perkins in the company proposing to take over the leases and said:

The Judge then made orders dispensing with the consent of the lessors of Parts Vaitamanga 88F2A and B to the assignment of the leases thereof to South Pacific Resorts Limited.

  1. The Judge then turned to the refusal of Vaitamanga and Mrs MacQuarie, a shareholder and director of that company. The Judge began by noting that "the evidence here was placed largely upon Mrs MacQuarie's strong aversion to Mr Rondo Perkins". In this respect it must be remembered that Mrs MacQuarie was cross-examined before the Judge and the inference may properly be drawn that in her oral evidence she focussed primarily, if not solely, on her aversion to Mr Perkins rather than any clause *Xi) matters that had received attention in her affidavit. This seems to be confirmed by the passage we have underlined in the next section of the judgment.
  2. The Judges' waiver point was plainly correct and once again it was confirmed that all outstanding rent had been paid. There was an indication, which the Court apparently found satisfactory, that any other amounts owing would be paid from the proceeds of the sale.
  3. The Judge went on to deal with the September/October 1998 sale and purchase agreement and said:
  4. The Judge then expressed his overall conclusion as follows:
  5. Counsel for the appellant rightly accepted that the passages in the first part of the judgment dealing with the financial aspects of South Pacific were intended to apply equally to the second part of the application in respect of Vaitamanga.

LEAVE TO APPEAL

  1. On 12 June the appellant applied for leave to appeal asserting that it was entitled to appeal as of right pursuant to Article 60(2) (b) of the Cook Islands Constitution Act 1964. As to the grounds of appeal it was asserted that the trial Judge had erred in determining that:

It may be noted in passing that none of these grounds directly addressed the financial standing of South Pacific or its potential or otherwise to maintain gross income at a level at least equal to that earned by the lessee.

  1. A date of hearing was apparently allocated for the following day for 13 June at 10.45 am. On that day N Smith J granted leave to appeal and also a stay of execution pending determination of the appeal, At this point counsel for the respondent filed a memorandum advising that it wished to present submissions on-the application for leave and pointing out that it had not had an opportunity to be heard on such matters.
  2. On 14 March a rehearing was granted and after hearing argument leave to appeal was refused. Subsequently, an application for special leave to appeal was made to this Court. Counsel for the respondent conceded that there was a wide discretion in this Court to grant leave and correctly in our view did not strongly oppose the application. The Appellant contended that special leave ought to be granted reason of its general public importance, or alternatively the magnitude of the interests affected. It was said that the following issues of general public or importance in the case of assignments of leases in the Cook Islands and in the context of applications pursuant to s 110 of the Property Law Act arose.
  3. Whatever may have occurred as to leave in the High Court we are in no doubt that we have jurisdiction to grant leave and that leave is appropriate in this case. It is granted accordingly.

APPLICABLE LEGAL PRINCIPLES

  1. In International Drilling Fluids Ltd v Louisville Investments (Uxbridge) Ltd [1986) 1 All ER 321 Baleombe L,1 summarised the law as follows:
  2. While the law has been modified by statute in the United Kingdom, the law of New Zealand and the Cook Islands is undoubtedly to the same general effect. Reference may be made to similar statements of principle in the judgment of Somers J in Wagner Ltd v Photo Engravers (1994) 1 NZLR 412 at 426, 427 and in Hinde McMorland and Sim, Butterworths Land Law in New Zealand (1st Ed 1997) at pares 5.099-5100, pp 507-508.
  3. We would add one further proposition to the eight listed by Balcombe U. Section 110 does not expressly require a landlord to respond to a request for consent within a reasonable time. Hinde, McMorland & Sim, Land Law in New Zealand 1997, para 5.099, page 506 suggest that the landlord has such a duty. The learned authors express the view that failure to respond within a reasonable time may itself constitute an unreasonable withholding of consent. They refer to Midland Bank plc v Chart Enterprises Inc [1990] 2 EGLR. 59 where a delay of 214 months was considered unreasonable but note that that case may have been influenced by the Landlord and Tenant Act 1988 UK, section 1(3) which expressly requires landlords to respond within a reasonable time. We agree with the authors that failure to respond within a reasonable time may itself constitute an unreasonable refusal. What is a reasonable time will depend on the precise circumstances of each case.

SUBMISSIONS FOR APPELLANT

  1. In the comprehensive written and oral submissions of counsel for the appellant in this Court, three main points were emphasised. First, as in the Court below, it was said that "at the heart of the objections raised by the landowners and lessor lies an objection to the personality of the proposed assignee, Rondo Perkins or any company in which Mr Perkins is involved". Mr Perkins' previous performance or alleged lack of performance, as a director and shareholder in Crown Beach was stressed. Reference made to litigation involving Crown Beach which had caused substantial costs and other losses to the native landowners and lessors and which eventually culminated in orders which led to the control of Crown Beach passing into the hands of Mr Perkins. That notwithstanding the company nevertheless went into receivership, It was emphasised that it was now the same Rondo Perkins, who sought to buy back the business under the guise of a new entity. Neither the appellant, nor Mrs MacQuarie wanted to have anything to do with neither Mr Perkins nor any company under his control. The appellant was unpersuaded by Mr Perkins' assertions that he was not directly responsible for the demise of Crown Beach.
  2. Secondly, reliance was placed on alleged existing breaches of lease. This was in part an implicit response to the Judge's rulings on waiver. It was further submitted that the unremedied breaches would not be able to be remedied as the Judge had hoped since it was doubtful whether the receivers would be able to provide financial recompense that they had promised.
  3. Finally, counsel engaged upon a detailed critique of the nature and structure of South Pacific, its directors and its financial resources. While this detailed written and oral analysis was based upon the same material as had been before the High Court it was acknowledged that this sophisticated analysis had not been presented to the Judge. Among the many points of criticism that were levelled at South Pacific was the fact that whatever the resources of its shareholders, South Pacific itself was only a $100 company. In this respect strong reliance was placed on the judgment of the Court of Appeal in Charins Investments Limited v Korochine 15 Limited (Court of Appeal, Henry 1, Thomas J and Temm J, CA 272/94, Judgment 22 April 1996). in that case Temm J at p 5 speaking for the Court referred to the finding of the Judge "that Korochine was a subsidiary of Equitable General Insurance Company Limited, that company being a substantial company in its own right and in turn a subsidiary of Equitable Holdings Limited". As to that, Temm J said that "the evidence was that Korochine was merely a subsidiary of the other companies mentioned. There was nothing to show what its financial strength amounted to, if anything. Even before us on the hearing of the appeal, it was not known what its capital was, whether it had any assets at all and whether or not the "substantial companies" named had any legal obligation to satisfy its debts". Temrn J also mentioned the fact that Korochine was a new company and did not have a balance sheet. The Court concluded that apart altogether from the failure to proffer a suitable guarantee, a reasonable lessor would require better evidence that Korochine had the financial resources to meet its commitments under the lease.
  4. We do not consider that the holding in Korochine can be transformed into an immutable principle in all cases. Each case must depend on its own facts. Here, as we note later, while South Pacific may be only a $100 company, there was more than adequate evidence before the Judge to demonstrate that, taking into account the resources of its shareholders and business associates, it was capable of meeting the standards required in the assignment clause.

SUBMISSIONS FOR THE RESPONDENT

  1. In the respondent's submissions much was made of the vacillations of the appellant on the consent issue. To the extent that in the appellant's submissions it had been claimed that by letter of 26th April the appellants declined to give consent, it was significant that in that letter there was no mention of any challenge being made to the financial good standing of the proposed assignees. The first query regarding financial good standing was not presented to the respondents (or the proposed assignee) until the letter of 26th May following an indication by counsel for the appellants at a Court hearing the previous day.
  2. Next it was suggested that the Judge's finding of waiver was amply justified. As long ago as the letter of 22nd December it had been said that "Mrs MacQuarie will not forfeit the lease as a consequence of the appointment of a receiver". The Judge was entitled to rely on that in determining that there had been a waiver.
  3. In summary the respondent asserted that the refusal of the lessor was not bona fide. "It was all about a personal argument with Mr Rondo Perkins" and the Judge had been right to rule that this was not enough.
  4. As to the financial ability of South Pacific it was said that in comparing the new and old lessees, consideration must be given to the fact that the assignee was not "just a $100.00 company" - it was a company supported by substantial working capital from the bank, substantial input from Rondo Perkins, and the Canadian interests with travel and other experience. Strong reliance was placed on the apparent financial solidity of the shareholders in South Pacific. It was pointed out that the backers of South Pacific must be prepared to stand by their company because they had given personal guarantees to Westpac. It was noted that the lease did not provide for personal guarantees. It provided only for a covenant by the assignee. The lessor should not be allowed to rewrite the tease. The appellant was attempting to improve its position by "clogging the consent".

CONCLUSIONS AND DECISION

  1. We have carefully considered the submissions for the appellant and we have steadily borne in mind that the onus of proof under the clause lay upon the respondent. hi the end we have not been persuaded that the decision of the Judge below to dispense with the consent was in any way affected by errors of principle or approach or that it was not soundly based on the material before the Court. Indeed on our own review of such material which we have summarised above, we were left in no doubt that the Judge's findings and conclusions were correct. We need not traverse all of the issues again but would highlight the following points.
  2. Clause 5(e) contains a number of provisions which need to be complied with when a lease is assigned but Clause 5(e) (i) is the only one which relates to the status of the assignee. Provided the assignee attains the requirements of s 5(e) (i) then, leaving aside the other machinery provisions including the question of past breaches, the lessor cannot withhold consent. Rejection of a proposed assignee solely through dislike of a shareholder (in this case, Mr Rondo Perkins), is not enough and the Judge was right to reject this central complaint of the respondent. The situation might, of course, be different if the challenged shareholder not only has a bad business track record but is also to play a major part in the management of the assignee's business.
  3. As to the alleged breaches of the Sublease which were set out in the letter dated 23 December 1999 from Clarkes to the Receivers, the only one which required detailed consideration by the Judge was that relating to the September/October 1998 share transaction. All others had been remedied or waived or involved payments yet to be quantified such as legal costs on the consent to the assignment.
  4. As to the share transaction, some of the conditions of the share sales would appear to have been amended between the parties, namely the vendors and the purchasers under the share transfers, subsequent to notice of the sale being given to Mrs MacQuarie and she having waived her right of first refusal. She contended that because of the change of conditions she should have been given a further right of first refusal. The shares were to be sold at $331,150.00 and even if one allows for $41,902.00 to be subsequently deducted from the purchase price by virtue of the further arrangement, there would still be a consideration of just under $290,000. However, Mrs MacQuarie's claim is that she was deprived of the right of purchase of those shares, albeit shares which are now virtually worthless. We agree with Smith J when he said it would be difficult to see, as the circumstances later developed, how a claim for loss could be sustained, even if there had been a default under the lease.
  5. Thus the only remaining issue was the question of the financial standing of South Pacific and its potential to maintain the gross income at a level at least equal to that earned by Crown Beach. The presence of the word "potential" is significant. It requires a possibility or perhaps probability but not a certainty that the proposed assignee will at least produce financial results equal to that of its predecessor. The performance or relative lack of it, by Crown Beach meant that in the circumstances this contractual standard was not a very high one. In our view the Judge was right to hold that the standard was reached.
  6. The existing lessee had been in difficulties for some time. The previous share transfer which took place in October 1998 was originally welcomed by the lessors in the hope that the overall performance of Crown Beach would improve. Regrettably this did not eventuate. While South Pacific is a one hundred dollar company the evidence demonstrated that BookForTravel, Com is an experienced travel operator which would have a reasonable clientele, Mr Don Morrison, a director of that company, has reasonable knowledge of the travel and hospitality industry in Rarotonga. The principals of South Pacific are guaranteeing the Westpac bank loan. Given the amount of their investment and the undertakings they have given it is reasonable to infer that they will use their expertise to operate the business and achieve financial results at least equivalent to its present modus operandi. The introduction of the Canadian travel industry connection creates the potential to increase the occupation rate beyond the present level. The shareholders of the company and the principals involved in the guarantee to Westpac Bank are between them providing or assuming liability for the total purchase price of $2.7m. Considerable weight must be given of the extent of their investment and their apparent conviction that they can make it a viable proposition.

FURTHER CONDITIONS

  1. When the question of the absence of personal guarantees of the rental was raised by counsel for the appellant, counsel for the respondent pointed out that the Court was empowered by s 56 of the Judicature Act to vary the judgment under appeal or make such order with respect to the appeal as the Court thought fit. Section 56 provides:

It was submitted by counsel for the respondent that if there was a real and genuine concern about the lack of direct personal guarantees of the rental, the Court could impose conditions to that effect. Counsel for the respondent indicated that the receivers had no ability to provide such undertakings but could arrange for counsel for South Pacific to appear before the Court to see whether they would do so. Mr Morris subsequently came to Court and was given leave to appear.

  1. A general discussion then took place between counsel as to the powers of the Court and in the end the Court invited both sides to signify what conditions they would either offer or seek to impose if the Court reached the position of considering adding to the conditions or directions already imposed by the Trial Judge. We have concluded that there was no basis for allowing the appeal. Strictly speaking there is now no need for us to consider the imposition of further conditions, However, in deference to the genuine concerns of the respondent, it is appropriate to deal with the additional submissions placed before us as to additional conditions.

CONDITIONS SOUGHT BY THE RESPONDENT

  1. The respondent's position remained throughout that the appeal should be allowed and the refusal of consent allowed to stand. However, without prejudice to that submission, it was suggested that if the Court was minded to uphold the decision of the lower Court, it must be subject to additional conditions.
  2. The amounts in issue so far as the lessor is concerned were perhaps seemingly small - only about NZ$30,000 per annum. Yet this amount was significant for the native land owner as providing the bulk of the appellant's income. Because the amount on a commercial scale was not large, the costs of pursuing any default were vastly disproportionate to the amounts in issue.
  3. The appellant accordingly submitted that directors/shareholders' guarantees should be provided together with some form of collateral security to ensure that in the event of a default the guarantees did not have to be enforced out of the Cook Islands jurisdiction, in the United States or Canada
  4. If, as the lower Court found, Westpac (which bank appointed the receivers) was prepared to support South Pacific, then the bank should provide at the cost of the proposed assignee an unconditional bankers bond (of the type commonly encountered in building contracts) so that the lessor could have recourse to that bond in the event of any default and without any necessity to enforce the guarantee.
  5. A further suggested condition was the payment of NZ$30,000 as the equivalent of one year's rent or 1.5% turnover rent. Such money should be held in the trust account of Clarkes, the lessors' solicitors, in trust for the benefit of the lessor and to be paid out in the event of a default in payment of rent, which default remained unremedied following the giving of a 21 day notice.
  6. As an additional condition South Pacific should be required to provide monthly returns of its gross receipts (before COGS) or any other deductions, such returns being duly certified by its accountant in the Cook Islands.
  7. As a yet further condition the Court should require that the order dispensing with consent be with respect to an assignment to South Pacific Resorts Limited and no other entity. It is that entity that was put up as the proposed assignee, not BookPorTravel, nor any other entity.
  8. Finally, the Court was referred to the provisions of clause 5(e) (iv) of the lease which related to costs issues. To the extent that the lessor had incurred additional costs in the lower Court and in this Court, essentially for the purposes of extracting satisfactory financial information or returns and extra conditions, it was submitted that all those costs wore costs which should properly fall within the scope of clause 5(e) (iv). As a result, the lessors' costs in both Courts should be paid by the lessee, regardless of the outcome of the appeal.

CONDITIONS SUGGESTED BY SOUTH PACIFIC

  1. As noted earlier, counsel for South Pacific was given leave to appear and by way of Memorandum dated 12 July advised the Court as follows:

ORDERS OF THE COURT

  1. While we can fully understand deep seated reservations held by the respondent concerning Mr Perkins, we have already held that the respondent receivers provided more than adequate information to satisfy the fairly low threshold in Clause 5(e) (i). Bearing in mind the relatively modest amounts of leasehold rental involved, albeit most important to the respondent, we find it difficult to imagine that the respondent's position could be other than better with the new tenant than it would have been with Crown Beach. Nevertheless, since South Pacific has come to the Court and volunteered additional conditions, and because those additional conditions may provide additional comfort to the appellant as well as hopefully minimising the possibility of any future discord, disagreement or difficulties between the parties, we have decided in the exercise of our powers under s 56, to make the suggested additional directions. We do this in view of the unqualified offers made in the memorandum on behalf of South Pacific and notwithstanding that the appeal has been found ultimately to be without merit.
  2. The formal orders of the Court will therefore be as follows:

COSTS

  1. At the request of counsel for the parties, costs were reserved. Memoranda on costs are to be filed with the Court within 21 days of the date of this judgment. Thereafter the Court will decide the question of costs.

POSTSCRIPT

In the course of the hearing reference was made to the UK Landlord and Tenant Act 1988. The Act is referred to in the judgment of Sir Richard Scott VC in Norwich Union Life Assurance Society v Shopmoor Limited [1997] EWHC 368; [1998] 3 All ER 32 at 45. The Act creates a statutory duty requiring landlords to attend promptly to applications for consent to assignments where there is a covenant not to assign without consent. Section 1(3) provides that the landlord:

"owes a duty to the tenant within a reasonable time -
  1. It does not appear that the New Zealand legislation has been altered in a similar manner. However, in view of the importance of leases and assignments to the Cook Islands economy and the Cook Islands people, it seems to us that the legislature of the Cook Islands might well give consideration to enacting similar provisions. Their introduction would increase the level of efficiency and fairness which should prevail in dealings between lessor and lessee in situations involving consent to an assignment and make more explicit the obligations each party owes to the other in such circumstances. Moreover, and we stress that this observation is not related to the facts of this case, as Sir Richard Scott VC said in Norwich Union at p 45:

Signed at Auckland this 24th day of July 2000

Speight JA

David Williams J

CarterJ

Solicitors: Clarice & Co, Rarotonga, Cook Islands for appellant

Stevenson Nelson & Mitchell, Rarotonga, Cook Islands for respondent.


APPENDIX A

BANKERS UNDERTAKING

BY: WESTPAC RANKING CORPORATION

TO:

At the request of:

(the applicant) and in consideration

of

(the favouree) accepting this undertaking

WESTPAC BANKING CORPORATION (the Bank) unconditionally undertakes to pay or demand any sum or sums which may from time to time be demanded by the favouree to a maximum aggregate sum of:

This undertaking is to continue until a notification has been received from the favouree or until thee winced has been dyed item the favouree that the sum is no longer required by the favouree or until this undertaking is returned to the Bank or until payment to the favouree by the Bank of the whole or any part or parts of the sum, such put as the favouree may require. Should the Bank be notified in writing purporting to be signed by or for and on behalf of the favourees that the favouree desires payment to be made of the whole or any part or parts of the sum. It is unconditionally agreed that such payment or payments will be made to the favouree forthwith without reference to the applicant and notwithstanding any notice given by the applicant to the Bank not to pay same. Provided always that the Bank may at any time without being required to do so pay to the favouree the sum less any amount or amounts it may previously have paid under this undertaking or such lesser sum may be acquired end specified by the favouree and thereupon the liability of the Bank hereunder shall immediately cease and determine.

Dated at ......................... this................day of..................................19
Signed by WESTPAC BANKING CORPORATION
by its duly appointed Attorneys TERRY SMITH and
TEREMOANA ENUA Manager and Head of Lending
Services respectively under a Power of Attorney dated
15 January 1996 who certify that they have received no
notice of revocation of the said Power of Attorney.


............................. ......................................
MANAGER HEAD OF LENDING


Please forward all notices or correspondences in respect hereto-

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