Lami Investments Ltd v Kelton Investments Ltd [2006] FJCA 2; ABU0059J.2005 (10 March 2006)

IN THE COURT OF APPEAL, FIJI ISLANDS
ON APPEAL FROM THE HIGH COURT OF FIJI

Civil Appeal No. ABU0059.2005
(High Court Civil Action No. HBC0078 of 2005S)

BETWEEN:

LAMI INVESTMENTS LIMITED
T/A FOOD FOR LESS SUPERMARKET
Appellant

AND

KELTON INVESTMENTS LIMITED
Respondent

Coram: Tompkins, JA
Scott, JA
Wood, JA

Date of Hearing: Monday 6 March 2006

Counsel: Mr. H. Nagin for the Appellant
Ms. B. Narayan for the Respondent

Date of Judgment: Friday 10 March 2006

JUDGMENT OF THE COURT

INTRODUCTION

[1] This is an appeal from an order for the possession of premises made on 21 July 2005 pursuant to the provisions of Section 171 of the Land Transfer Act (Cap. 131).

BACKGROUND

[2] On 9 December 1998 the Respondent agreed to lease premises to the Appellant at Rodwell Road, Suva. The Appellant required the premises for use as a supermarket.

[3] The initial term of the lease was 5 years commencing on 17 December 1998 however clause 3 (a) provided conditional options for its renewal for three further periods of 5 years each. A principal condition for the exercise of the options was that:

'the lessee shall during [the initial] term pay the rent hereby reserved and observe and perform the conditions on the part of the lessee here contained and implied up to the expiration of the said term ......'

[4] The conditions which were particularly relevant to these proceedings are those contained in clauses 4 (j), 4 (k) and 7 (g). Paragraph 4 (j) provided that the Appellant was not to make any use of the premises:

'whereby or by reason whereof any public or statutory (authority) may give or issue or be entitled to give or issue any notice requiring structural alterations or repairs to be made or carried out to the premises or to the whole or any part of the building;'

[5] In clause 4 (k) the Appellant covenanted:

'not without the prior written consent of [the Respondent] to:

(ii) make or permit to be made any alteration or addition in or to the premises or any [of the Respondent’s] fittings (including but without limiting the generality thereof the partitions and floor coverings) or the building drive nails or screws or any way damage or deface any ceilings, walls, partitions, floors, wood, stone, concrete or iron or metal work thereof;'

[6] In clause 7 of the lease it was agreed and declared that:

'(g) no internal office partitions which the [Appellant] may desire to be erected shall be erected except the consent in writing of the [Respondent] first had and obtained and then only of such material, colour size and style and in such places upon or in the said premises as shall be first designated by the [Respondent].'

[7] It is not disputed that shortly after the parties entered into the lease agreement one or more substantial mezzanine floors were constructed by the Appellant within the premises. It is not disputed that the Appellant did not, before undertaking the construction of the mezzanine floors obtain either the prior written consent of the Respondent or the approval of the Suva City Council.

[8] On 22 August 2003 the Appellant’s solicitors wrote to the Respondent giving notice that the Appellant wished to exercise its first option to renew the lease for a further term of 5 years. On 2 October 2003 the Respondent’s solicitors replied. The material parts of the letter read as follows:

'our instructions are that your client has failed to observe and perform certain requirements in relation to your client’s tenancy at Rodwell Road, Suva. Our client has also communicated in writing to your client on various occasions that regard and for this reason our client is not inclined to consider an extension of your client’s tenancy on the property.

Notwithstanding our comments above, we are instructed to notify your client that the rental amount (to be applied) is a serious issue for consideration. That is to say, it is our client’s view that the existing rental amount is far below the normal market rate and therefore not acceptable should the lease/tenancy be considered for extension/renewal.'

[9] It may be noted that none of the breaches of the lease agreement alluded to in the letter of 2 October involved construction of the mezzanine floors.

[10] Under clauses 2(a) and 3 of the lease the rent payable for the first 5 year term was to be $11,000 rising to $12,100 per month in the second (or first option renewal) term.

[11] On 24 November 2003 a meeting took place between Rudra Prasad, the Appellant’s Managing Director and Mr. James Ah Koy, Group Executive Chairman of the Respondent. According to Mr. Prasad (paragraph 13 and Exhibit E to his affidavit filed on 13 March 2005) Mr. Ah Koy was prepared to overlook all the alleged breaches of covenant, including the construction of the mezzanine floors, if it was agreed that the rent would immediately rise to $25,000 per month. According to Mr. Ah Koy (paragraphs 5 (iv), 14 and 18 of his affidavit filed on 7 April 2005) he had only become aware of the construction of the mezzanine floors in November 2003 and told Mr. Prasad that he would not even consider renewing the lease unless the floors were first removed. Following their removal an entirely new lease would have to be entered into and at a rental approved by the Prices and Incomes Board. While it happened that on 10 August 2004 the PIB fixed the maximum rental for the premises at $25,000 per month, no such figure was ever mentioned at the meeting in November 2003.

[12] On 11 August 2004 Mr. Ah Koy wrote to Mr. Prasad advising him that the lease had expired on 16 December 2003 and that the PIB had approved a rental of $25,000 per month. Mr. Ah Koy concluded his letter:

'should you wish to renew the lease, please contact the undersigned. Could you please send us your cheque for $84,700 to bring your outstanding rent to date.'

It will be noted that the letter (Exhibit H to Mr. Prasad’s affidavit) makes no mention of the removal of the mezzanine floors.

THE PROCEEDINGS IN THE HIGH COURT

[13] The Respondent’s case in the High Court was quite simple. In its written submissions it suggested:

(a) that renewal of the lease was conditional upon the Appellant complying with the covenants contained in the lease;

(b) that the construction of the mezzanine floors without the approval of the Respondent or the Suva City Council breached the terms of the lease;

(c) that the breach had not been remedied;

(d) that therefore the Respondent had refused to accept the Appellant’s offer to exercise its option to renew;

(e) that therefore the lease had expired and the Respondent was merely holding over as a monthly tenant;

(f) that the Respondent had failed to pay the increased monthly rental of $25,000;

(g) that therefore a notice to quit had been sent to the Appellant on 7 October 2004;

(h) that the Appellant had failed to comply with the notice;

(i) that in all these circumstances the Appellant had no right to continue in occupation of the premises;

(j) and therefore the Respondent was entitled to a summary order for possession.

[14] The record does not contain a copy of any written submissions filed by the Appellant’s solicitors but in the second paragraph of page 5 of the judgment the Appellant’s submissions to the High Court were summarized as follows:

'Mr. Nagin submitted that the Plaintiff was motivated by greed and was finding an excuse to determine the tenancy due to greed. He submitted that the Plaintiff raised no issue of breach until the Defendant exercised his option for renewal. He submitted that the Plaintiff just wanted $25,000 in rent and the rest would be forgotten. The rental for option period is already fixed. He says the Plaintiff is still holding on to the deposit. This is not a proper case for vacant possession under Section 169 he submitted.'

[15] Having considered the submissions the judge saw no reason to doubt that the terms of the lease had been seriously breached by the construction of the mezzanine floors and that the Appellant had failed to remedy that breach. For this reason the option to renew did not become exercisable and therefore the Appellant had no right to remain on the premises. Accordingly the Respondent was entitled to possession.

GROUNDS OF APPEAL

[16] Ten grounds of appeal were filed. The first suggested that the judge wrongly excluded a second affidavit which Mr. Prasad swore on 27 May 2005. Having been excluded from consideration by the judge, this affidavit should not have been included in the record before us. Its contents should not have been referred to in the written submissions filed in support of the appeal. No leave was sought to file the affidavit. No explanation for the late attempt to file it was offered. In our view the contents of the affidavit added little to the debate. The decision to exclude additional evidence is discretionary. We are satisfied that the judge did not err in reaching his decision. This ground has no merit and fails.

[17] In our view ground 3 is unarguable. It depends on assertions of law for which no basis is offered and assertions of fact for which no evidence is adduced. This ground fails.

[18] Ground 5 suggests that the judge erred in law by not concluding that the Respondent was demanding a rent increase which was not permitted under the terms of the lease. In our view it is plain that the increase to $25,000 was demanded in circumstances where the Respondent was treating the lease as having expired. Whether or not that was in fact the case was an important issue to be determined by the Court. This ground does not advance the argument to any degree and the error, if any, did not affect the determination of the central issue before the Court. The error, if any, was irrelevant to the outcome of the proceedings and therefore this ground also fails.

[19] Grounds 7 and 8 are predicated on the assumption that on the date that the option to renew became exercisable it could still validly be exercised. Since this question was itself centrally in issue these two grounds cannot independently succeed.

[20] It will be convenient to consider Grounds 2, 4, 6, 9 and 10 together. As will have been seen from the judge’s summary of the Appellant’s submissions, set out in paragraph 14 above, no mention was made by the judge in that summary of the possibility either that the Respondent had in fact agreed to the construction of the mezzanine floors or that it had either waived the obvious breach of clauses 4(j), 4(k) and 7 (g) of the lease or alternatively had acquiesced in them.

[21] On pages 6 and 7 of his judgment the judge did refer to the Appellant’s suggestion that the Respondent had acquiesced in the construction of the mezzanine floors but, in the face of the Respondent’s denial that this was the case, concluded that the allegation of acquiescence was mere assertion. We do not think that this conclusion accurately describes the position.

[22] The Appellant did not deny that it had commissioned and completed major alterations to the leased premises. It could not do so since the substantial mezzanine floors were and are there for all to see. Neither could it point to any written request or authority to make those substantial alterations. It could not deny that the consent of the Suva City Council had never been obtained nor that the Suva City Council had demanded the demolition of the mezzanine floors. Rather than attempt to do any of these things however, it advanced the proposition that the installation of the mezzanine floors was in fact well known to the Respondent and that no objection had been taken to their construction or installation in the five years that followed from about October 1998 to November 2003.

[23] In paragraphs 5 (ii), 5(iii) and 9 of his affidavit Mr. Prasad averred that the mezzanine floors were constructed with the 'full knowledge and consent of the Plaintiff not long after the Defendant entered into the lease agreement', that 'Mr. Michael Ah Koy, a director of the Plaintiff’s company and also a signatory of the lease agreement was fully aware of the mezzanine floor construction from its inception and no objection was raised of whatever nature at all at that time and not until our lease renewal notice was sent to the Plaintiff that Plaintiff’s officers and directors have on several occasions visited the mezzanine floors and have never before objected to the same'. Demonstrating a remarkable command of legal concepts, Mr. Prasad suggested that 'the Plaintiff is therefore deemed to have acquiesced in the same and is estopped from raising this issue and deemed to have waived any objection that it may have to the same'. In paragraph 9 he again averred that 'the Plaintiff and its directors were fully aware from the beginning of the mezzanine floor construction .....'

[24] In answer to this assertion Mr. James Ah Koy was only able (in paragraph 5 (iii) of his answering affidavit) to aver that he had:

'made enquiries with Michael Ah Koy and the other directors of the company and they have advised me that they were not aware that the mezzanine floors had been constructed and installed by the Defendant.'

As pointed out by Mr. Nagin, it is noteworthy that neither Mr. Michael Ah Koy nor any of the other unnamed directors chose to file any evidence.

[25] We find it a little surprising that the lessor of substantial commercial premises in which it was intended to fit out and operate a supermarket would be unaware that substantial alterations, including the installation of mezzanine floors had taken place and would remain so unaware for 5 years. In view of the allegation that it was Michael Ah Koy and other directors who had been aware of these substantial alterations, we find it unsatisfactory that their reaction to the allegation should solely be contained in the hearsay evidence of Mr. James Ah Koy whose own direct knowledge of the alterations had never been suggested.

[26] The law relating to the release of restrictive covenants is not entirely straightforward and depends on the careful and detailed evaluation of the facts. It is important also to distinguish between the different legal concepts of waiver of past breaches and acquiescence or implied release which releases the covenant in the future. Some of the relevant considerations were discussed by this Court in Maganlal Patel v. NLTB (Civ. App. 40/76 – FCA B/V 150/76). Among other authorities on the subject we may mention Hepworth v. Pickles [1899] UKLawRpCh 141; [1900] 1 Ch 108; Gibson v. Payne (1907) 23 TLR 250; Hartley v. Hymans [1920] 3 KB 475; City and Westminster Properties (1934) Ltd v. Mudd [1959] 1 Ch 129 and Banning v. Wright [1972] 1 WLR 972, 989.

[27] In our view the Appellant raised an arguable issue of fact with important and possibly decisive legal consequences. Applying the approach which this Court explained in Natsun Pacific Ltd v. Suresh Hansji ([2005] FJCA 59; ABU0015.2005 – F/CA B/V 05/559) we do not think that Section 169 proceedings were appropriate.

RESULT

1. Appeal allowed, order for possession set aside.

2. Appellant’s costs assessed at $1,000.00

Tompkins, JA
Scott, JA
Wood, JA

Solicitors
Messrs. Sherani for the Appellant
Lateef and Lateef, lawyers, for the Respondent.