Apia Quality Meats Ltd v Westfield Holdings Ltd [2009] WSSC 1 (7 January 2009)

IN THE SUPEME COURT OF SAMOA
HELD AT APIA

BETWEEN:

APIA QUALITY MEATS LIMITED
a duly incorporated company having its registered office
at AQM House, Saleufi, Apia.
Plaintiff

AND:

WESTFIELD HOLDINGS LIMITED
a company having its registered office at
Level 2, Chandra House, Convent Street, Apia.
Defendant

Counsel: G Latu for plaintiff
M Ring QC and P Rzepecky (both of the New Zealand bar) for defendant

Hearing: 5, 6 June 2007
Conclusions: 7 October 2008
Judgment: 7 January 2009

JUDGEMENT OF SAPOLU CJ

Proceedings

[1] These proceedings are concerned with two motions by the defendant Westfield Holdings Ltd (WHL) a duly incorporated company with its registered office in Apia. The purpose of the two motions is to strike out a statement of claim and a statement of defence filed by the plaintiff Apia Quality Meats Ltd (AQM) a duly incorporated company also with its registered office in Apia. This statement of defence was filed by the plaintiff to the counterclaim by the defendant.

[2] The first motion is the second amended interlocutory motion dated 28 November 2007 by WHL to strike out AQM’s third (second) amended statement of claim dated 20 November 2007 and/or dismiss its proceeding. The second motion is the interlocutory motion dated 1 August 2006 by WHL to strike out AQM’s amended statement of defence dated 31 July 2006 to WHL’s counterclaim for arrears in rent first pleaded on 19 July 2006 and repeated in its statement of defence dated 28 November 2007.

[3] AQM in its current statement of claim pleads two causes of action, relief against forfeiture under s.119 of the Property Law Act 1952(NZ) and equitable estoppel. WHL says that on the undisputed/indisputable facts and on the relevant law, both of these causes of action are patently untenable and should be struck out.

[4] Moreover, WHL says that AQM clearly has no defence to its counterclaim for arrears in rent. AQM’s amended statement of defence to WHL’s counterclaim should therefore be also struck out.

Strike out jurisdiction and approach to strike out motions

1. Statement of claim
   

[5] For the purpose of Samoan law there are two sources of the Court’s jurisdiction for striking out a statement of claim which discloses no reasonable cause of action that is tenable in law. These are the Court’s inherent jurisdiction and the Supreme Court (Civil Procedure) Rules 1980.

[6] Rule 70 of the Supreme Court (Civil Procedure) Rules 1980, upon which WHL relies in its motion to strike out AQM’s statement of claim, provides:

"Where in any proceedings no cause of action is disclosed the Judge may, on the application of the defendant order the proceedings to be struck out."

[7] I accept that under r.70 the Court, on a strike out application by the defendant, is entitled to take into account the contents of all relevant documents in the proceedings and not just the pleadings. This has been the practice of this Court when dealing with an application to strike out a statement of claim as disclosing no reasonable cause of action.

[8] The approach which has been followed by the Samoan Courts when dealing with a motion to strike out a statement of claim as disclosing no reasonable cause of action is now well settled. For instance, in Bluesky Communications Ltd v Attorney-General [2007] WSSC 58, this Court said:

"The approach which the Samoan Courts have adopted to a motion to strike out a statement of claim as disclosing no reasonable cause of action has been stated and applied in numerous cases that it is well understood by now. It is that the summary jurisdiction to strike out a statement of claim as disclosing no reasonable cause of action is to be sparingly exercised. It will only be exercised in a plain and obvious case where it appears from the material before the Court that the plaintiff’s cause of action is so clearly untenable that it cannot possibly succeed and is certain to fail: see, for example, Peter Meredith & Co Ltd v Drake Solicitors Nominee Co Ltd [2001] WSSC 32".

[9] In Peter Meredith & Co Ltd v Drake Solicitors Nominee Co Ltd [2001] WSSC 32, this Court also affirmed the principle that the need for extensive argument does not of itself exclude the jurisdiction to strike out. This Court said:

"It is open to counsel moving to strike out a claim as disclosing no cause of action or is frivolous, vexatious and an abuse of process to demonstrate even by extensive argument that a claim is so clearly untenable that it has no possible chance of success on any of those grounds that it should be struck out. Counsel opposing the strike out motion may also demonstrate even by extensive argument that a claim is tenable and should not be stuck out."

[10] Furthermore, in Peter Meredith v Co Ltd v Drake Solicitors Nominee Co Ltd [2001] WSSC 32 this Court said:

"In General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125, 130, Barwick CJ stated in relation to a motion to strike out a claim:

‘"I do not think that the exercise of the jurisdiction should be reserved for those cases where argument is unnecessary to evoke the futility of the plaintiff’s claim. Argument perhaps even of an extensive kind, may be necessary to demonstrate that the case of the plaintiff is so clearly untenable that it cannot possibly succeed"’.

"That statement was accepted by the New Zealand Court of Appeal in Lucas & Sons Ltd v O’Brian [1978] 2 NZLR 289 and Takaro Properties Ltd v Rowling [1976] 2 NZLR 314 and more recently applied by the High Court in Britons v Feltex [1990] NZHC 392; [1991] 2 NZLR 677. In E v K [1995] 2 NZLR 239, Morris J in dealing with a strike out application stated:

‘"[I] would add that although a striking-out application may raise difficult questions of law which entail extensive argument, this does not, of itself, exclude the jurisdiction to strike out: (see Gartside v Sheffield, Young & Ellis [1983] NZCA 37; [1983] NZLR 37, 45 per Richardson J). This observation is specially apposite in this case where, on the legal submissions involved, counsel addressed the Court for over two days, filed extensive written submissions and drew to my attention many decisions of both New Zealand and foreign origin".

[11] As to the use of affidavit evidence in a strike out motion, this Court in Peter Meredith & Co Ltd v Drake Solicitors Nominee Company Ltd [2001] WSSC32, whilst accepting the use of affidavit evidence in a strike out motion, expressed caution about allowing preliminary proceedings on a strike out motion to become a trial on affidavits on contentious matters of fact. Such matters must await the substantive hearing for determination when oral evidence is called and subjected to examination, cross-examination and re-examination.

[12] As to the approach to be applied where there are conflicts in the affidavit evidence in summary proceedings for removal of a caveat, this Court in Chan Chui & Sons Ltd v Pereira [2006] WSSC 34 said:

"In the normal way, it is not appropriate to resolve conflicts in the evidence on affidavits alone. However, as Cooke P in Barrett v IBC International Ltd [1995] 3 NZLR 170, 175 following Lord Diplock in Eng Mee-Yong v Letchumanan s/o Velayutham [1980] AC 331, 334, pointed out, a Judge is not bound to accept uncritically as raising a dispute of fact which calls for further investigation every statement in an affidavit however equivocal, inconsistent with contemporary documents, or inherently improbable in itself it may be".

[13] This is the approach which this Court has been applying to conflicts in the affidavit evidence in proceedings for removal of a caveat: Mackenzie v Richard Kidd Marketing Ltd [2007] WSSC 4; Lana Schwalger Toleafoa v Sophie Ben [2008] WSSC 62; In re application of Dora Letele [2008] WSSC 63.

[14] In my view, the same approach should apply to conflicts in the affidavit evidence used in summary proceedings to strike out a statement of claim as disclosing no reasonable cause of action. Mr Ring for the defendant referred to two decisions of the New Zealand Court of Appeal which support that view. The first is Attorney General v McVeagh [1995] 1 NZLR 558 where it was said:

"The Court is entitled to receive affidavit evidence on a striking out application, and will do so in a proper case. It will not attempt to resolve genuinely disputed issues of fact and therefore will generally limit evidence to that which is undisputed. Normally it will not consider evidence inconsistent with the pleading, for a striking-out application is dealt with on the footing that the pleaded facts can be proved; see Electricity Corporation Ltd v Geotherm Energy Ltd [1992] 2 NZLR 641, 645-646; Southern Ocean Trawlers Ltd v Director-General of Agriculture and Fisheries [1993] 2 NZLR 53, 62-63, per Cooke P. But there may be a case where an essential factual allegation is so demonstrably contrary to indisputable fact that the matter ought not to be allowed to proceed further".

[15] The above approach was re-affirmed by the New Zealand Court of Appeal in Pharmacy Care Systems Ltd v Attorney General (2001) 15 PRNZ 463, 472 where it was said:

"[30] In particular circumstances the Court may be entitled on a strike-out application, where there are apparent conflicts in the affidavit evidence, to look beyond bare statements in affidavits to determine whether particular assertions are capable of belief. Clearly, a high threshold is required before the Court will be entitled to reject affidavit evidence and strike out the proceeding but it is unnecessary for present purposes to attempt a formulation of a threshold test applicable in all the wide range of circumstances which may arise for consideration under r186. Bearing in mind that applications under different rules may raise somewhat different features, the considerations expressed by Lord Diplock in Eng Mee-Yong v Letchumanan [1980] AC 331; [1970] 3 WLR 373 at p. 341; p.381 are likely to provide helpful guidance. He said:

‘"Although in the normal way it is not appropriate for a Judge to attempt to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement in an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be... It is for him to determine in the first instance whether statements contained in affidavits that are relied upon as raising a conflict of evidence upon a relevant fact have sufficient prima facie plausibility to merit further investigation as to their truth.’"

[16] Where the conflicts in the affidavit evidence cannot be resolved in summary proceedings to strike out, that may not be the end of the enquiry whether the statement of claim discloses a reasonable cause of action. The Court would have to assume that the conflicting allegations in the plaintiff’s affidavits and the pleadings in the statement of claim to which they relate are correct. The Court would then determine whether on the basis of the plaintiff’s pleadings and his conflicting affidavit evidence assumed to be correct, a reasonable cause of action is disclosed. If not, the claim would still be struck out. A similar approach was stated in Lana Schwalger Toleafoa v Sophie Ben [2008] WSSC 62 and In re application of Dora Letele [2008] WSSC 63 which involved consideration of conflicting affidavit evidence on an application for removal of caveat.

(b) Statement of defence

[17] The application by WHL to strike out AQM’s statement of defence as disclosing no reasonable defence to WHL’s amended counterclaim is made under r.206 of the Supreme Court (Civil Procedure) Rules 1980 and the Court’s parallel inherent jurisdiction.

[18] Rule 206 provides:

"If any case arises for which no form of procedure has been provided by the Judicature Ordinance 1961 or these rules, the Court shall dispose of the case in such manner as the Court deems best calculated to promote the ends of justice".

[19] In my view r.206 provides sufficient jurisdiction to strike a statement of defence to a claim or counterclaim which discloses no reasonable defence or is frivolous and vexatious or an abuse of process. This is based on the words that if a case arises for which there is no form of procedure provided under the rules, then "the Court shall dispose of the case in such manner as the Court deems best calculated to promote the ends of justice".

[20] The Court also has an inherent jurisdiction which provides a parallel basis for striking out a statement of defence which discloses no reasonable defence or is frivolous and vexatious or an abuse or process: see, for instance, McGechan on Procedure vol 1, HR 186.01.

[21] The same principles and approach which apply to the pleadings and affidavit evidence in a motion to strike out a statement of claim as disclosing no reasonable cause of action would also apply to a motion to strike out a statement of defence as disclosing no reasonable defence.

Background

[22] I have taken the background to these proceedings mainly from the written submissions of counsel for WHL which are essentially undisputed in relation to this part of the proceedings.

[23] WHL is the owner of a commercial property at Saleufi in Apia. The Saleufi property is about one and a quarter acre. At the time it was acquired in 1997 by WHL, it had five or six buildings in varying states of repair and occupation.

[24] The sole shareholder of WHL is a company called Westfield Investments Ltd (WIL) which is registered overseas. Mr Murray Drake, the senior partner in the law firm of Drake & Co, is WIL’s local representative under a power of attorney.

[25] At this time, Drake & Co Ltd had a client Mr Vainu’u Tapusoa who was the principal of and operated through his company, Anroco Ltd.

[26] By letter dated 17 August 1998, Mr Tapusoa on behalf of Anroco Ltd offered to lease the whole Saleufi property from WHL and to develop it. An exchange of correspondences followed and by letter dated 25 February 1999 WHL accepted the offer from Anroco Ltd. In its statement of defence dated 28 October 2007, WHL admits that its acceptance of 29 February 1999 brought into existence an agreement to lease but no formal head lease was signed.

[27] On or about 15 July 1999, with WHL’s consent, Anroco Ltd entered into possession of the property for a term of 20 years at the agreed initial rent of $18,750 per month for the whole Saleufi property.

[28] Mr Tapusoa then incorporated another company, Maja Holdings Ltd (Maja), with the intention that Maja would enter into a development agreement and lease of the property and also enter into sub lease arrangements.

[29] In December 2000, AQM’s managing director, Mr Robert Wetzell approached Mr Tapusoa about the possibility of sub-leasing the premises and paid Maja a cheques "which represents one month’s rent in advance".

[30] In February 2001, Maja gave AQM a draft lease. But it did not record every thing that was required for a formal lease and neither party ever signed it. Further negotiations followed. Outstanding issues included the term of the lease, the commencement date, rent and the costs of capital works to be done to the premises – some of which Maja was supposed to carry out-including the quantum and manner of recovery by AQM of part of the capital works it was to carry out.

[31] The last relevant communication was the letter dated 23 April 2002 from AQM to Maja. This followed a series of letters and meetings between the parties over the preceding couple of weeks. Whether these negotiations culminated in a concluded binding agreement to sublease between AQM and Maja is the fundamental issue in the substantive proceedings as well as these preliminary proceedings. AQM contends that such an agreement was concluded between AQM and Maja. WHL, on the other hand, says that no such agreement was reached.

[32] In the meantime, Maja/Anroco was in serious default on payment of the rent to WHL under the agreement to head lease. As at May 2002, the arrears were $600,000. By formal written notice dated 27 May 2002, WHL terminated the head lease arrangements with Maja for non-payment of rent.

[33] At the same time, WHL issued a notice to the occupants of the Saleufi property, including AQM, advising of the rescission of the head lease arrangements between WHL and Anroco/Maja and the consequential automatic termination of any sub-lease arrangements. The notice stated that any continued occupation of the property would be as a monthly tenant subject to any new arrangements WHL may consider.

[34] By 27 May 2002, WHL had appointed Mr Patrick Chan Mow of Chan Mow & Company Ltd to assist in managing the problems and the property.

[35] On 29 May 2002, at the request of Mr Wetzell AQM’s managing director, Mr Chan Mow and Mr Drake (in his capacity as the authorised representative of WIL) met with Mr Wetzell to establish and discuss AQM’s situation. AQM’s particular concern was that it had expended a considerable amount on capital works against a promise from Maja to off-set these payments against the rent. AQM claims that it spent $1.8 million in outfitting the premises and it also claims that it spent a considerable sum to carry out necessary work which Maja had agreed to do.

[36] According to Mr Drake, there followed protracted but inconclusive negotiations between Mr Wetzell, Mr Chan Mow and himself, by personal meetings and correspondence, over the terms of a lease directly between WHL and AQM. Finally, on 30 April 2004, in the absence of final agreement, Mr Chan Mow issued on behalf of WHL a one month’s notice to quit.

[37] In the meantime, AQM was not paying any rent to WHL on the basis that it was entitled to off-set rent owing to WHL against alleged reimbursement by Maja of capital works done to the property by AQM. WHL denies there was such an agreement between Maja and AQM and, in any event, such an agreement did not bind WHL.

[38] In December 2003, after it had instructed a firm of solicitors in Wellington, New Zealand, to act for it, AQM unilaterally started paying rent in an undisclosed amount to the trust account of a different firm of solicitors in Wellington and not to WHL. In fact since 27 May 2002 when WHL rescinded its head lease with Maja and gave notice to AQM that its continued occupation of WHL’s property would be as a monthly tenant, AQM had not paid any rent to WHL.

[39] By July 2004, according to WHL, AQM had accrued rental arrears owing to WHL in excess of $180,000. On 9 July 2004, WHL issued and served on AQM another formal written notice to quit pursuant to the monthly tenancy and s.105 of the Property Law Act 1952 (NZ).

[40] On 16 July 2004, AQM issued proceedings against WHL and served a statement of claim on WHL. After some interlocutory proceedings issued by AQM, WHL filed and served a statement of defence and counterclaim on 18 October 2004.

[41] On 28 July 2005, Vaai J ordered AQM to pay rent from then on into the trust account of the Ministry of Justice and Courts Administration. At this stage, the then local solicitors for AQM proposed that the rent should be $5651.20 per month on the alleged basis that this was the rent agreed to between AQM and Maja.

[42] On 31 July 2006, AQM filed an amended statement of defence to WHL’s amended counterclaim (counterclaim).

[43] On 20 October 2006, AQM agreed that WHL could receive the accumulated arrears in rent from January 2004 held in the trust accounts of the solicitors in Wellington and the Ministry of Justice and Courts Administration respectively, and that AQM would from then on pay the rent in the amount of $5,651.20 per month direct to WHL. At that rent, WHL says that AQM would be owing about $107,372.80 plus VAGST in rent for the nineteen months period from May 2002 to December 2003. WHL says it is prepared to accept this amount for the purposes of the strike out proceedings.

[44] AQM subsequently filed a third (second) amended statement of claim on 20 December 2007 to which WHL filed a statement of defence and counterclaim dated 28 November 2007.

[45] AQM did not file a further statement of defence to WHL’s counter claim of 28 November 2007.

AQM’s Statement of Claim

[46] As pleaded in AQM’s third (second) amended statement of claim (statement of claim) on 20 December 2007, its causes of action are for relief against forfeiture under s.119 of the Property Law Act 1952 (NZ) and equitable estoppel.

[47] Section 119 of the Property Law Act 1952 (NZ) provides:

"Where a lessor is proceeding, by action or otherwise, to enforce a right of re-entry or forfeiture under any covenant, proviso, or stipulation in a lease, the Court may, on application by any person claiming as underlessee any estate or interest in the property comprised in the lease, or any part thereof, either in the lessor’s action (if any) or in any action brought by that person for that purpose, make an order .........., for the whole terms of the lease or any less term, the property comprised in the lease, or any part thereof, in any person entitled as underlessee to any estate or interest in that property, upon such conditions as to execution of any deed or other document, payment of rent, costs, expenses, damages, compensation, the giving of security, or otherwise as the Court in the circumstances of each case thinks fit; but in no case shall any such underlessee be entitled to require a lease to be granted to him for any longer term that he had under his original underlease.

[48] In relation to the cause of action for relief against forfeiture, it is pleaded by AQM in paragraphs 19 to 28 of its statement of claim that Maja and AQM did enter into a lease agreement.

[49] AQM claims in paragraph 20 of its statement of claim that this agreement is recorded in writing in the following documents:

a). an undated letter from AQM to Maja,

b). a letter dated 20 February 2001 from Maja to AQM,

c). an undated unsigned lease prepared on behalf of Maja and given to AQM in February 2001,

d).letter dated 29 October 2001 from Maja to AQM advising the term of the lease is eight (8) years with a right of renewal allowing a total period of sixteen (16) years, the commencement date being 1 October 2001.

[50] It is then pleaded in paragraph 21 and 22 of the statement of claim that Maja and AQM as landlord and tenant respectively, agreed that AQM would lease the premises and that agreement is recorded in writing in these documents, namely, the said undated letter from AQM to Maja, the said letter dated 20 February 2001 from Maja to AQM and the said undated unsigned lease prepared by Maja and given to AQM in February 2001.

[51] In paragraph 23 of the statement of claim it is pleaded that the agreement between Maja and AQM as to the rent is recorded in writing by letter from Maja to AQM dated 20 February 2001.

[52] In paragraph 25 of the statement of claim it is pleaded that Maja and AQM agreed that AQM at its own cost would undertake an internal refit of the premises to accommodate itself.

[53] In paragraph 26 of the statement of claim it is pleaded that Maja and AQM agreed that Maja at its own cost would undertake certain external site works to accommodate AQM and that agreement is recorded in writing in the letter dated 29 October 2001.

[54] It is then pleaded in paragraphs 21 and 28 that on 15 October 2001 Maja and AQM agreed that the term of the lease would be four terms of four years and that agreement is recorded in writing in a letter from Maja to AQM dated 29 October 2001. Subsequently on 23 April 2002, Maja and AQM agreed that the term of the lease would be four terms of four years and that agreement is recorded in writing in letters from Maja to AQM dated 11 April 2002 and from AQM to Maja dated 23 April 2002.

[55] AQM therefore claims in paragraphs 34 to 39 of the statement of claim that at all material times there was a lease agreement between Maja and AQM as subleasee for a term of 16 years.

[56] AQM then seeks an order vesting the premises in AQM for the term of 16 years or in the alternative, damages for loss of the value of the premises.

[57] In relation to the cause of action founded in equitable estoppel, it is pleaded in paragraph 28 of AQM’s statement of claim that in reliance upon the lease agreement, AQM performed its obligations under the lease and undertook the unmet obligations of Maja, including inter alia:

(a) between June and October 2001 AQM undertook the agreed internal outfit of the premises at a cost to AQM of $1.8 million.

(b) making repairs and maintaining the building when Maja neglected to do so.

[58] It is then pleaded in paragraph 30 of AQM’s statement of claim that AQM relied on the oral representations of Maja, the written confirmation of the lease arrangements as pleaded, and performed the terms and conditions of the sub-lease between Maja and AQM.

[59] AQM also says that it relied on representations from Mr Murray Drake, WHL’s authorised signatory, and outfitted the premises at considerable expense and paid and continued to pay rent.

[60] The representations by Mr Drake upon which AQM seeks to rely are pleaded in paragraphs 43 to 46 of the statement of claim. In paragraph 43 of the statement of claim it is pleaded that AQM received representations from Mr Drake as the authorised signatory of WHL that there was a head-lease between WHL and Maja and thereby encouraged AQM to enter into the sub-lease with Maja.

[61] In paragraph 44 of the statement of claim it is pleaded that Mr Drake made written representation to a third party, namely the Pacific Commercial Bank, that Maja had a long term lease of 20 years with WHL and further represented to the Pacific Commercial Bank that there were sub-leases of properties at the Saleufi premises.

[62] In paragraph 45 of the statement of claim it is pleaded that Mr Drake prepared and engrossed deeds of sub-lease.

[63] In paragraph 46 of the statement of claim it is pleaded that Mr Drake as WHL’s authorised signatory knew and authorised Maja to lease AQM and others the Saleufi premises.

[64] AQM then says in paragraphs 47 to 51 of the statement of claim that it acted on the above representations and out-fitted the premises at considerable expense and paid rent. As a result AQM has acted to its detriment. WHL should therefore be estopped from forfeiting the sub-lease between Maja and AQM and exercising its right to re-entry.

[65] Orders are then sought to permit AQM to remain in the premises for the whole term of the lease, namely, 16 years and vesting the premises in AQM for a term of 16 years.

AQM’s amended statement of defence to WHL’s counterclaim

[66] Even though AQM has not filed a statement of defence to WHL’s counterclaim contained in its statement of defence and counter claim dated 28 November 2007, I will assume, for present purposes, that AQM’s amended statement of defence of 31 July 2006 to WHL’s then amended counterclaim applies here.

[67] AQM’s amended statement of defence contains only admissions and denials – including a denial of the arrears of rent claimed by WHL.

[68] AQM does not plead an affirmative defence.

The issues

[69] There are essentially two basic issues in these strike out proceedings. The first, to which I have earlier referred as the fundamental issue, is whether there was a concluded binding agreement to sublease for 16 years between AQM and Maja. This must be as of 27 May 2002 when WHL rescinded its hard lease arrangements with Maja because once the head lease arrangements were terminated, Maja no longer had any power to enter into any sublease with AQM.

[70] The second issue is equitable estoppel. That is to say, did WHL make any representation to AQM upon which AQM relied and acted to its detriment so that it would now be unconscionable for WHL to depart from that representation.

[71] I will now deal with the first issue and then with the second issue.

The first issue

[72] To determine whether there was a concluded binding agreement to sublease between AQM and Maja, it must be borne in mind that a sublease agreement is a type of contract. So it is necessary to start off by referring to the approaches applied by the Courts in determining whether a contract has come into existence.

(a) Approaches to contract formation

[73] The two approaches to contract formation are the traditional approach and what may be called as the global approach. The requirement of intention to be bound by contract applies to both approaches. This is a question of fact: Wilmot v Johnson [2003] 1 NZLR 646, para [37].

[74] In terms of the traditional approach, a contract, as a general rule, comes into existence when one party makes an offer and acceptance of that offer by the other party is communicated to the offeror. A statement of the relevant principles in the context of landlord and tenant will be found in Baikie v Fullerton – Smith [1961] NZLR 901 where North J, in the New Zealand Court of Appeal said at pp 913 – 914:

"The law is plain that in order to constitute a contract, whether it be for a tenancy or anything else, there must be an offer made by one person which is capable of unqualified acceptance by the person to whom the offer is addressed; and unless the Court can reach a clear conclusion that the parties did intend immediately to contract with each other, then it must be accepted that the mater had not proceeded beyond the stage of negotiation and proposals. A helpful statement of principle will be found in Booker v Palmer [1942] 2 A11 ER 674, where Lord Greene M R observed:

‘"Whether or not parties intend to create as between themselves the relationship of landlord and tenant, under which an estate is created in the tenant and certain mutual obligations arise by implication of law, must in the last resort be a question of intention. Where the parties enter into a formal document the intention to enter into formal legal relationship is obvious; but when all that happens is a quite casual conversation on the telephone, it is very much more difficult to infer that the parties are really contemplating entering into any legal relationship as that of landlord and tenant...There is one golden rule which is of very general application, namely, that the law does not impute intention to enter into legal relationships where the circumstances and the conduct of the parties negative any intention of the kind’ (ibid, 676).

"In short, parties become bound by contract when, and in the manner in which they intend and contemplate becoming bound: Feeles v Bryant and Pollock [1948] 1 Ch. 93, 104; [1947] 2 A11 ER 865, 868."

[75] In Wilmot v Johnson [2003] 1 NZLR 646, Baragwanath J in delivering the judgment of the New Zealand Court of Appeal said at p.656:

"It is conventional and frequently decisive to analyse dealings in terms of offer and acceptance".

[76] In relation to the global approach to contract formation, Baragwanath J in delivering the judgment of the New Zealand Court of Appeal in Wilmot v Johnson [2002] NZCA 309; [2003] 1 NZLR 649 said at p. 659:

"[40] Another form of analysis is that described by Cooke J in Boulder Consolidated Ltd v Tangaere [1980] 1 NZLR 560 at p.563 which by applying

‘"...the test whether, viewed as a whole and objectively, the [evidence] shows a concluded agreement."

"avoids:

‘"...the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration...’

"of which Lord Wilberforce spoke in New Zealand Shipping Co Ltd v AM Sutterthwaite & Co Ltd [1974] 1 NZLR 505 at p.510."

[77] The leading New Zealand authority on the global approach to contract formation must now be Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2001] NZCA 289; [2002] 2 NZLR 433, where Blanchard J in delivering the judgment of the Court of Appeal said at p.443:

"[52] But even where the parties are ad idem concerning all terms essential to formation of a contract – the basic structure of a contract under consideration is found to have been present in the terms which have been agreed – they still may not have achieved formation of a contract if there are other unagreed matters which the parties themselves regard as a prerequisite to any agreement and in respect of which they have reserved to themselves alone the power of agreement. In such cases, what is missing at the end of the negotiations is the intention to contract, not a legally essential element of a bargain."

[78] Further on at p.444, Blanchard J went on to say:

"[53] The prerequisites to formation of contract are therefore:

"(a) An intention to be immediately bound (at the point when the bargain is said to have been agreed); and

"(b) An agreement, express or found by implication, or the means of achieving an agreement (eg an arbitration clause), on every term which:

"(i) was legally essential to the formation of such a bargain, or

‘(ii) was regarded by the parties themselves as essential to their particular bargain."

"A term is to be regarded by the parties as essential if one party maintains the position that there must be agreement upon it and manifests accordingly to the other party.

"[54] Whether the parties intended to enter into a contract and whether they have succeeded in doing so are questions to be determined objectively. In considering whether the negotiating, parties have actually formed a contract, it is permissible to look beyond the words of their ‘agreement’ to the background circumstances from which it arose – the matrix of facts. This can include the statements the parties made orally or in writing in the course of their negotiations and drafts of the intended contractual document."

[79] Further on at p.444 Blanchard J went on to say:

"[56] It is also permissible when considering contract formation (or rectification) to look at subsequent conduct of the parties towards one another, including what they have said to each other after the date of the alleged contract (Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1998) 18 NSWLR 540 at p.550)

[80] On the approach to be followed by the Court in determining whether the parties had an intention to contract and the approach to be applied to questions of uncertainty and incompleteness in the alleged contract, Blanchard J said at pp. 445 – 446:

"[58] The Court has an entirely neutral approach when determining whether the parties intended to enter into a contract. Having decided that they had that intention, however, the Court’s attitude will change. It will then do its best to give effect to their intention and, if at all possible, to uphold the contract despite any omissions or ambiguities...We agree with the way in which Anderson J expressed the position in Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101 at pp. 132 – 133:

"I think it is fair to say, speaking very generally, that where the parties intended to make a final and binding contract the approach of the Courts to questions of uncertainty and incompleteness is rather different from the approach that is taken when the uncertainty or incompleteness goes to contractual intention. Where the parties intended to make an immediately binding agreement, and believe they have done so, the Courts will strive to uphold it in spite the omission of terms or lack of clarity...However, the principle that Courts should be the upholders and not destroyers of bargains, which is the principle that underlies this approach, is not applicable where the issue to be decided is whether the parties intended to form a concluded bargain. In determining that issue, the Court is not being asked to enforce a contract, but to decide whether or not the parties intended to make one. That inquiry need not be approached with any predisposition in favour of upholding anything. The question is whether there is anything to uphold."

[81] Later, in emphasising the importance of the objective assessment of whether the parties intended to be bound, Blanchard J went on to say at p.446:

"[60] The intention of the parties, as discerned by the Court, to be bound or not to be bound should be paramount. If the Court is satisfied that the parties intended to be bound, it will strive to find a means of giving effect to that intention by filling the gap. On the other hand, if the Court takes the view that the parties did not intend to be bound unless they themselves filled the gap (that they were not content to leave that task to the Court or a third party), then the agreement will not be binding."

[82] Then at p.447, Blanchard J said:

"[63] However, if essential matters (i.e. legally essential or regarded as essential by the parties) have not been agreed upon and are not determinable by recourse to a mechanism or to a formula or agreed standard, it may be beyond the ability of the Court to fill the gap in the express terms, even with the assistance of expert evidence. In Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd (1991) 24 NSWLR 1 at p.20, Kirby P remarked:

"Courts are not well equipped, drawing on their own experience, to fill out the detail of such contracts where the parties leave gaps in their own agreements. The fact that this may result in wasted time and money is a risk which parties to negotiation must always weigh up. Courts cannot enforce such agreements because they are incapable of judging where the negotiation on particular points would have taken the parties, acting bona fide but legitimately in their own interests.’

"It will be a matter of fact and degree in each case whether the gap left by the parties is simply too wide to be filled. The Court can supplement, enlarge or clarify the express terms but it cannot properly engage in an exercise of effectively making the contract for the parties by imposing terms which they have not themselves agreed to and for which there are no reliable objective criteria."

Contract formation

(a) Was there a sublease agreement between Maja and AQM?

[83] As it appears from the statement of claim by AQM, the following documents are said to contain a sub-lease agreement between Maja and AQM:

(a) the undated letter from AQM to Maja,

(b) the letter dated 20 February 2001 from Maja to AQM, and

(c) the undated, unsigned deed of lease.

[84] Counsel for WHL submitted that presumably in addition to the above documents was the letter dated 11 April 2002 from Maja to AQM and the letter dated 23 April 2002 from AQM to Maja.

[85] According to the affidavit evidence of Mr Robert Wetzell, the managing director of AQM, in December 2000, Mr Wetzell approached Mr Tapusoa, the managing director of Maja, and discussed the possibility of obtaining a sub-lease for AQM of WHL’s Saleufi property which had been leased to Maja.

[86] Then in January 2001 Mr Wetzell sent a letter to Mr Tapusoa enclosing a cheque for $4,500 which represented one month’s advance rent. The same letter referred to an outline of an agreement presumably between Mr Wetzell on behalf of AQM and Mr Tapusoa on behalf of Maja. It is then suggested by Mr Wetzell in his letter that Mr Tapusoa proceeds to the preparation of a formal lease.

[87] In February 2001, Maja gave AQM a draft lease. But neither party ever signed it. As it is apparent from ensuing correspondence, further negotiations followed between Mr Wetzell and Mr Tapusoa. But by the end of October 2001, there were still outstanding issues to be agreed upon. These included the term of the sub-lease, the commencement date, the rent, and the recovery by AQM of the costs of capital works which it carried out to the premises but some of which Maja was supposed to carry out.

[88] The letter dated 29 October 2001 from Mr Tapusoa on behalf of Maja to Mr Wetzell on behalf of AQM referred to a number of outstanding issues which were addressed in a meeting held on 15 October 2001 between the two of them. The letter then set the commencement date of the sub-lease at 1 October 2001 but did not finally resolve any of the following issues. For instance, Maja offered to contribute a total of $7,544 towards capital works expenditure incurred by AQM to be off-set against rent; for rent calculation purposes Maja categorized the areas to be sub-leased as either undeveloped or semi-developed and suggested an applicable rent per square foot; and Maja offered a term of 8 years plus a single right of removal for another term of 8 years making a total of 16 years.

[89] A meeting was later held between Mr Wetzell and Mr Tapusoa on 8 February 2002. I have carefully perused Mr Wetzell’s notes of that meeting and they do not support any agreement. They show that Mr Wetzell wanted a lease for 30 years but Mr Tapusoa had advised in his letter dated 29 October 2001 that the lease was to be for a maximum period of 16 years. Mr Wetzell’s notes also show that he did not accept the proposal by Mr Tapusoa for Maja’s contribution to the capital works expenditure and the rent applicable to them. Mr Wetzell also refers in his notes to "the need to reach agreement on a real basis when we ‘roll over’ our rent periods".

[90] By letter dated 7 April 2002 from Mr Wetzell to Mr Tapusoa, Mr Wetzell indicated that AQM wanted a 30 year lease, that is to say a 5 year lease renewable five times at 5 year intervals. This is different from the lease advised by Mr Tapusoa of an 8 year term with a single right of renewal for another 8 years making a total of 16 years. Mr Wetzell in the same letter also proposed that the costs of "non-removable" structures completed by AQM to Maja’s property would be improvements to Maja’s property and that Maja should give consideration to the reimbursement of those costs to AQM by way of a reduced rent over a period to be determined. Mr Wetzell also claimed $102,101.16 as Maja’s contribution to the capital works expenditure and suggested applying the unpaid rent for the preceeding 6 months to that figure with the balance of $58,623.96 to be paid by rent reductions spread over the next 24 months. Mr Wetzell further suggested that at the end of this period, Maja paid interest to it on the said balance of $58,623.96 at 12.5%.

[91] By letter dated 11 April 2002 from Mr Tapusoa to Mr Wetzell, Mr Tapusoa rejected in emphatic terms as far too excessive the costs of reimbursement for capital expenditure requested by Mr Wetzell. Mr Tapusoa also rejected Mr Wetzell’s counter-offer in relation to the applicable rental rate and maintained Maja’s offer contained in its previous letter dated 29 October 2001. Mr Tapusoa also maintained that the sub-lease was for a total term of 16 years made up of a term of 4 years with 3 renewals each for terms of 4 years.

[92] At the bottom of Mr Tapusoa’s letter of 11 April2002 are handwritten notes by Mr Wetzell. Listed under the heading "outstanding issues" are "Capital Costs" and "Lease Renewal". Under the heading "Agreement" are "Sketches" and "$5,000 per month commencing April". So it is clear that at the time of those handwritten notes, there was still no agreement on capital costs and lease renewal.

[93] As for the "sketches" and "$5,000 per month commencing April", Mr Wetzell says in his letter dated 23 April 2002 to Mr Tapusoa (which was the last relevant communication between the parties):

"The stumbling block to reaching agreement is in fact the amount of capital costs AQM is wishing to recover from Maja. To move forward with the matter it was agreed that AQM would arrange for some sketches of the non-removal structures in question. This would assist you determine and reach conclusion re our claim for the capital costs. I have today had discussions with our architect and he has advised me the sketches will be completed by 11th May 2002

"As a mater of goodwill I suggested that AQM would agree to commencement of rent payments of $5,000 per month commencing April 2002 and this cheque is enclosed. It was also agreed that this payment does not bring to conclusion that matter of recovery of capital costs as discussed and this matter remains outstanding for resolution and agreement.

[94] It would appear from the above that the "Sketches" mentioned under the heading "Agreement" in Mr Wetzell’s handwritten notes did not refer to any agreement on any substantive issue. What the parties appear to have agreed upon is the next step in the process which they hoped would ultimately lead to a substantive agreement on AQM’s outstanding claim for reimbursement of capital works expenditure. It should also be noted that by 27 May 2002 when WHL terminated its head lease arrangements with Maja, there is nothing to show that AQM had supplied any sketches to Maja as Mr Wetzell said in his letter of 23 April 2002 will be completed by AQM’s architect by 11 May 2002.

[95] The rent of $5,000 per month seems to be a temporary measure suggested by Mr Wetzell "as a matter of goodwill" pending resolution and agreement on the outstanding issue about the recovery of capital costs outlaid by AQM. The issue of rent seems to be related to the issue of recovery by AQM of the capital costs it had outlined on the premises. As Mr Wetzell said in his letter of 7th April 2002 to Mr Tapusoa:

"It has been suggested that Maja give consideration to the reimbursement of these costs by way of a reduced rent over a period to be determined. We have suggested that Maja consider spreading the compensation of this costs to AQM over a two year period in the following manner..."

[96] In Mr Tapusoa’s letter of 11 April 2002 to Mr Wetzell, he rejected in emphatic terms AQM’s proposed costs as far too excessive. This of course must impact on the issue of rent as claimed by AQM. So when Mr Wetzell said in his letter of 23 April 2002 to Mr Tapusoa that AQM would agree to commence payment of rent at $5,000 per month but that would not bring to conclusion the outstanding issue of recovery of capital costs which still remained for resolution and agreement, that must mean the rent of $5,000 per month was only a temporary measure, unilatreally suggested by Mr Wetzell, pending resolution of the disputed issue of capital costs expenditure. Counsel for WHL also submitted that AQM unilaterally paid the $5,000 under sufferance as a matter of goodwill.

[97] As it appears from Mr Wetzell’s letter of 23 April 2002, AQM in that letter:

"Confirmed agreement on the term of the sub-lease with Maja to be for 4 years with three rights of renewal for three 4 year terms (4x4x4x4)plus a right of renewal for a further 20 years should Maja recur its sub lease with WHL;

Noted the continued absence of any agreement on the "method of recovery of capital works costs" which clearly included both the amount of contribution from Maja as well as the timing and manner of its recover;

Noted that rent payments of $5,000 per month would commence in April 2002 and a cheque for that amount from AQM was enclosed. However, it was agreed that this payment "does not bring to a conclusion that matter of recovery of capital costs as discussed and this matter remains outstanding for resolution and agreement;"

Stated that the manner in which rent reviews would be carried out was "A matter I did not raise with you and requires resolution..."AQM then requested Maja’s thoughts on this mater so that it may be incorporated into the lease agreement.

[98] Mr Wetzell then concluded his letter of 23 April 2002 by saying "I look forward to the commencement of works as agreed and the speedy resolution of all outstanding maters". As it turned out there was never any resolution of the outstanding matters up to the time WHL terminated its head lease with Maja on 27 May 2002. It also appears that not even the sketches that AQM said would be completed by 11 May 2002 by its architect were supplied to Maja by the time the head lease was terminated.

[99] It would appear from previous correspondence between the parties and from Mr Wetzell’s letter dated 23 April 2002 which was the last relevant communication between the parties, that as of that date:

There was no clear or final agreement on rent. The amount of $5,000 by way of rent per month was an amount suggested by AQM as a matter of goodwill" pending resolution and agreement on the disputed recovery of capital costs. It was an amount AQM paid under sufferance as submitted by counsel for WHL.

Mr Wetzell also raised a new matter that had to be resolved and incorporated into the lease agreement. This was the manner in which any rent review was to be carried out.

The only matter that was agreed upon was the term which was to be 4x4x4x4 commencing 1 October 2001.

[100] Counsel for AQM submitted that by 23 April 2002 the parties had agreed to be bound as indicated by the following passage from Mr Wetzell’s letter of 23 April 2002 to Mr Tapusoa which states:

"It is now appropriate to move forward with the completion of the lease document between AQM Ltd and Maja Holdings Ltd and I await your instructions as to how we should approach this without incurring substantial legal costs for the preparation and execution of such a lease."

[101] Perhaps I should also cite the next three sentences which immediately follow the above passage. Those three sentences state:

"As mentioned above we will include in our lease document the right of renewal beyond the 4/4/4/4 period in the event that Maja renews its lease with the property owners. A matter I did not raise with you and requires resolution is the manner in which any rent reviews are carried out. I would appreciate your thoughts on this so we may incorporate agreement in our lease agreement."

[102] Counsel for AQM then submitted that preparation of legal documents is usually the final step following a concluded bargain. He further submitted that agreement had been reached on rent as $5,000 and the term of the lease which was to be 4x4x4x4. Counsel also referred to the outstanding matters of capital works and non-removable structures and pointed out that in Mr Wetzell’s letter of 23 April 2002 to Mr Tapusoa, it is stated in relation to capital works and non-removable structures:

"To move forward with the matter it was agreed that AQM would arrange for some sketches of the non-removable structures in question."

[103] As already pointed out in para [93] the next two sentences which immediately follow the above passage read:

"This would assist you determine and reach conclusion re our claim for the capital costs. I have today had discussions with our architect and he has advised me the sketches will be completed by 11th May 2002."

[104] As also pointed out earlier, when the head lease between WHL and Maja was terminated on 27 May 2002, no sketches had been supplied by AQM to Maja. There is nothing in the pleadings or AQM’s affidavits to show such sketches were supplied.

[105] Counsel for AQM then referred in his submissions to acts of part performance done by AQM and stated that, in relation to the outstanding matter of capital works, the draft lease that was agreed to by both AQM and Maja provides a mechanism namely, arbitration, to resolve that matter.

[106] I will come back to the issue of part performance but I will now deal with the submissions for AQM relating to the issues of whether the parties had an intention to be contractually bound and whether there was a binding and concluded agreement.

[107] In relation to the issues of intention to be contractually bound and whether there was an agreement or the means of achieving an agreement, it is important to bear in mind that these issues are separate even if the evidence which relates to each one appear to overlap at times.

[108] As explained by Blanchard J when delivering the judgment of the New Zealand Court of Appeal in Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2001] NZCA 289; [2002] 2 NZLR 433 at p.444, there are two prerequisites to contract formation. The first is an intention tot be immediately bound at the point when the bargain is said to have been agreed. The second is an agreement, express or implied, or the means of achieving an agreement (eg an arbitration clause) on every term which was legally essential to the formation of a bargain or was regarded by the parties themselves as essential to their particular bargain. This is the global approach to contract formation.

[109] As it is also stated by Blanchard J in Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2001] NZCA 289; [2002] 2 NZLR 433 at p.443, "even where the parties are ad idem concerning all terms essential to formation of a contract... they still may not have achieved formation of a contract if there are other unagreed matters which the parties themselves regard as a prerequisite to any agreement and in respect of which they have reserved to themselves alone the power of agreement. In such cases what is missing at the end of the negotiations is the intention to contract, not a legally essential element of a bargain." (emphasis mine)

[110] The last relevant communication between AQM and Maja was the letter dated 23 April 2002 from Mr Wetzell to Mr Tapusoa. It is clear from the submissions by counsel for AQM that his position is that as at 23 April 2002 as shown by Mr Wetzell’s letter of that date the parties intended to be bound.

[111] The requisite intention to be bound for the prupose of formation of a contract is the intention to be immediately bound at the point when the bargain is said to have been agreed: Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2001] NZCA 289; [2002] 2 NZLR 433 at p.444.

[112] But how could 23 April 2002 be said to be the point in time that a bargain was agreed to between AQM and WHL? At that time, there had been no final agreement on rent. The rent of $5,000 per month suggested by AQM as a matter of goodwill was paid under sufferance. The question of recovery of capital costs which was very important to the parties, especially AQM, still remained outstanding for resolution and agreement. The question of rent review raised for the first time by Mr Wetzell in his letter of 23 April 2002 also required resolution. There were also other matters requiring attention set out in the last paragraph of the said letter. The letter then concludes with the reference to "the speedy conclusion of all outstanding matters" which clearly suggests that there were still outstanding matters that AQM wanted to be speedily concluded.

[113] In the circumstances, what was still missing as of 23 April 2002 was an intention to be contractually bound. Presumably, this was more so on the part of Maja as shown by the letter dated 11 April 2002 from Mr Tapusoa in which he rejected in emphatic terms as far too excessive the costs claimed by AQM from Maja as reimbursement for capital costs expended by AQM on the works which it did to the premises. Apparently AQM was eager to have a lease agreement on terms favourable to it but that does not mean that the parties had an intention to be immediately bound at the point when the bargain is said to have been agreed. The requirement of intention to be immediately bound is qualified by the words "at the point when the bargain is said to have been agreed".

[114] As also cited earlier from Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2001] NZCA 289; [2002] 2 NZLR 433 at p.444:

"[The parties] still may not have achieved formation of a contract if there are other unagreed matters which the parties themselves regard as a prerequisite to any agreement and in respect of which they have reserved to themselves alone the power of agreement. In such cases, what is missing at the end of the negotiation is the intention to contract, not a legally essential element of a bargain".

[115] As earlier mentioned, as at 23 April 2002 there was still no final agreement on the rent or capital costs. There was also no agreement on rent review raised for the first time by AQM on 23 April 2002. But rent is an important element of a lease. It is also clear that recovery of costs for capital works was so important to the parties that it had effectively become a prerequisite to any lease agreement between them. Rent review was also clearly important to AQM which raised it that it must be regarded as an essential term to the lease to be agreed . In respect of these matters the parties had reserved to themselves alone the power of agreement. However, as at 23 April 2002 there was no agreement on the recovery of capital costs or rent review. So what was missing at that point in time was an intention to be contractually bound.

[116] It may be argued that the parties did not reserve to themselves alone the power of agreement on the outstanding issues because there is an arbitration clause in the draft, unsigned deed of lease. However, that deed of lease was not only an unsigned draft, but it was also never adopted by the parties.

[117] The said draft unsigned deed of lease also came into existence about February 2001. From that time up to 23 April 2002, the parties never mentioned the arbitration clause in the draft unsigned deed of lease during any of their disputes, differences, or negotiations, particularly in relation to capital works. They always tried to resolve their disagreements between themselves. So by their actions or conduct for more than a year, the parties had shown that they had resaved to themselves alone the power to reach agreement on their differences instead of referring to the arbitration clause in the draft unsigned deed of lease which they never adopted.

[118] I, therefore, conclude that as at 23 April 2002, the parties did not have an intention to be contractually bound which is the first prerequisite for formation of a contract. At that point in time, the parties were still at the stage of negotiation.

[119] In view of the conclusion I have come to on the first prerequisite for formation of a contract, it is not really necessary to go on to the second prerequisite. But as the second prerequisite for formation of a contract explained in Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2001] NZCA 289; [2002] 2 NZLR 433 was addressed in some detail in the submissions by counsel for AQM, I will turn to it now.

[120] The second prerequisite to contract formation is whether there was an agreement or the means of achieving an agreement on every term which was legally essential to the formation of a bargain or was regarded by the parties themselves as essential to their particular bargain.

[121] As mentioned earlier, as at 23 April 2002 there was no final agreement on rent. The issue of capital works was still outstanding and required resolution and agreement. The issue of rent review raised by AQM was also unresolved. So clearly there was no agreement as at 23 April 2002 on issues which were regarded by the parties themselves as essential to their bargain.

[122] Even though capital works would not fall within what is traditionally regarded as the essential legal elements of a valid lease, it is to be considered as a ‘term’ because the parties regarded it as essential to their particular bargain: Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2001] NZCA 289; [2002] 2 NZLR 433 at p.444.

[123] It was also submitted for AQM that under the draft deed of lease that the parties agreed to, there is an arbitration clause which provides a formula or mechanism to resolve disputed issues including the outstanding issue of capital works. This suggests that the parties had agreed on the means of achieving agreement on the disputed issue of capital works in terms of the second prerequisite to formation of a contact: Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2001] NZCA 289; [2002] 2 NZLR 433 at p.444.

[124] I have serious doubts about this. The draft deed of lease was unsigned and was never signed. It was also never adopted by the parties. This suggests that the arbitration clause in the deed of lease was never adopted by the parties as a means for achieving dispute resolution. Furthermore, from the time of the deed of lease in February 2001 to the time of the last relevant correspondence dated 23 April 2002 between the parties, there was never any mention of the arbitration clause during the disputes or differences between the parties including their dispute over the capital works. Even in the letter dated 23 April 2002 by AQM, what was suggested to assist Maja with the issue of capital works was sketches prepared by AQM’s architect, there was no reference to the arbitration clause as a possible mechanism for resolving the dispute over the capital works. The arbitration clause has only come up in these proceedings through the submissions of counsel for AQM.

[125] Given the omission by the parties to refer to arbitration at any time except in their draft unsigned deed of lease which they never adopted, and the actions of the parties to try and resolve their differences by themselves over a period of more than one year, I have come to the clear view that arbitration was never in the minds of AQM and Maja as a means of achieving agreement on their disputed issues. By their actions and conduct, the parties have shown that they had reserved to themselves alone the power of reaching agreement on the essential issues. However, they never reached agreement on all the essential issues except for the term of a sub-lease yet to be agreed upon.

[126] I, therefore, conclude that as at 23 April 2002 the parties had not adopted arbitration as a mechanism for achieving agreement on the issue of capital works or any other issue.. So no binding contract was formed between AQM and Maja.

[127] It is true that in Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2001] NZCA 289; [2002] 2 NZLR 433 at p.447, Blanchard J said:

"[62] We agree with Professor McLauchlan (‘Rethinking Agreements to Agree’ (1998) 18 NZULR 77 at p.85) that ‘an agreement to agree will not be held void for uncertainty if the parties have provided a workable formula or objective standard, or a machinery (such as arbitration) for determining the matter which has been left open’ We also agree with him that the Court can step in and apply the formula or standard if the parties fail to agree or can substitute other machinery if the designated machinery breaks down. This is generally the approach taken by this Court in Attorney-General v Barker Bros Ltd [1976] 2 NZLR 495".

[128] Even though the arbitration clause provided in the draft unsigned deed of lease (which was never adopted), provides that all disputes and differences between the parties shall be submitted to arbitration, that was not a contractually binding provision which the parties had to follow. In fact the parties never followed it or even referred to it during any of their disputes and differences. This clearly suggests that the parties did not intend to provide for arbitration as the mechanism for resolving their disputes and differences.

[129] I also have serious doubt that arbitration is still a workable formula or mechanism given that the head lease between WHL and Maja had been terminated for non-payment of rental arrears and Maja cannot now be restored into a contractual or sub-lease arrangement with AQM. This is a different type of factual situation from the one in Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2001] NZCA 289; [2002] 2 NZLR 433.

[130] Apart from the global approach to contract formation, there is the traditional approach which analyses the dealings between the parties in terms of offer and acceptance. Under the traditional approach a contract comes into existence when one party makes an offer and another party accepts the offer and communicates his acceptance to the offeror.

[131] As already discussed, as at 23 April 2002 there were still outstanding issues to be resolved between the parties. There had been no unqualified acceptance by Maja of certain important and essential matters suggested or proposed by AQM. So there was no concluded and binding sub-lease agreement in terms of the traditional approach to contract formation.

(b) Part performance

[132] The doctrine of part performance was also raised on behalf of AQM. In relation to part performation, it is stated in Sale of Land (2000) by D W McMorland at para 422, p132:

"The role of part performance is limited. Its only function is as a substitute for compliance with s.2 [of the Contracts Enforcement Act 1956]. Therefore, it is available only when there is a concluded and otherwise enforceable contract between the parties that existed before the performance of the acts relied on. The doctrine is irrelevant if the parties are still negotiating, if the acts were performed before the contract was made, the acts could not then have been in part performance of the contract..."

[133] Perhaps it should be noted here that s.2 Contracts Enforcement Act 1956 (NZ) is now s.24 Property Law Act 2007 (NZ).

[134] In T A Dellaca v PDL Industries Ltd [1992] 3 NZLR 88, Tipping J in the High Court of New Zealand summarised the matters to be considered in an application for part performance by stating at p.109:

"Against the background of the authorities and learned writings which I have traversed and for the reasons given I am of the view that in a part performance case the Court must consider 3 points which I would frame as follows:

"(1) Was there a sufficient oral agreement such as would have been enforceable but for the [Contracts Enforcement Act 1956?]

"(2) Has there been part performance of that oral agreement by the doing of something which:

"(a) clearly amounts to a step in the performance of a contractual obligation or the exercise of a contractual right under the oral contract; and

"(b) when viewed independently of the oral contract was, on the probabilities, done on the footing that a contract relating to the land and such as that alleged was in existence.

"(3) Do the circumstances in which that part performance took place make it unconscionable (fraudulent in equity) for the defendant to rely on the Act?"

[135] In Fleming v Beevers [1994] 1 NZLR 385, Tipping J, sitting as a member of the Court of Appeal of New Zealand, in delivering the judgment of that Court said at p.392 that the words "such as that alleged" in (2) (b) should be "consistent with that alleged".

[136] In Land Law in New Zealand (2004) vol 2 by Hinde, McMorland and Sim, the learned authors’ state in para 11.039 at p.64:

"Where complete or final agreement has not yet been reached the remedy of specific performance may not be available even where there is evidence of part performance of the anticipated agreement".

[137] The acts of part performance specifically alleged on behalf of AQM were the $5,000 paid by AQM for rent, the expenditure by AQM of $1.8 million on capital works, and the $9,000 paid by Maja as contribution to a transformer.

[138] In my respectful view, the fundamental problem with the doctrine of part performance in this case is the absence of a sufficient oral agreement or even an agreement based on the exchange of correspondence between the parties to be part performed. What had happened was that by 1 October 2001 AQM had moved onto the premises and started to trade before any sub-lease agreement had been concluded with Maja. At that time there were still outstanding issues to be resolved.

[139] Some of the capital works were carried out by AQM after 3 December 2001 but at that time there were still outstanding issues to be resolved in relation to other parts of the capital works. The term of the sub-lease, the rent, and the recovery by AQM from Maja of costs expended by AQM on capital works were still unresolved. So at that time there could not have been a concluded, complete or final agreement. Therefore any capital works carried out by AQM on the site by that time could not have been carried out in part performance of any agreement existing at the time. But acts alleged to be done in part performance pre-suppose the pre-existence of an agreement. It follows that any capital works carried out by AQM at that time were not acts carried out in part performance of any existing agreement.

[140] As for the payment of $9,000 by Maja towards the costs of the transformer, Maja agreed to make that payment on or before 11 April 2002 as shown by Mr Tapusoa’s letter of that date to Mr Wetzell. But it is clear from the same letter that the parties had not reached an agreement at that time. There was then no agreement on the term of the sub-lease, the rent, and capital costs expended by AQM. So the agreement by Maja to contribute $9,000 was not an act done in part performance of an existing agreement to sub-lease.

[141] The same can be said of the $5,000 paid under sufferance as a matter of goodwill for one month’s rent on 23 April 2002 by AQM. There was still no agreement to sub-lease at that time. So the payment of $5,000 under sufferance was not done in part performance of any concluded, complete or final agreement to sub-lease between AQM and Maja.

[142] All in all then, the doctrine of part performance cannot succeed.

Tenancy

[143] Given the absence of a sub-lease agreement between AQM and Maja, the question arises as to what basis AQM has been occupying the premises. I accept the submissions by counsel for WHL the owner of the premises that there are two possibilities to be considered – a tenancy at will or a periodic (monthly) tenancy.

(a) Tenancy at will

[144] In Land Law in New Zealand (2004) vol 2 by Hinde, McMorland and Sim, the learned authors’ state in para 11.021 at p.45:

"[The] commonest situations in which tenancies at will are implied by the common law are where a tenant whose lease has expired holds over with the permission of the landlord without having yet paid rent on a periodic basis, where an intending tenant has been let into possession during negotiations for a lease, and where a purchaser has been let into possession of property before completion of the purchase and is not entitled to possession by virtue of the contract." (emphasis mine)

[145] In Javad v Aqil [1991] 1 A11 ER 243, Nicholls LJ, in a judgment with which Mustill and Ralph Gibson LJJ concurred, stated at p.254:

"Entry into possession while negotiations proceed is one of the classic circumstances in which a tenancy at will may exist (see Scarman LJ in Hagee (London) Ltd v AB Erikson & Larson (a firm) [1975] 3 A11 ER 234 at 237, [1976] QB 209 at 217)."

[146] It is also stated in Land Law in New Zealand (2004) vol 2 in para 11.021 at p.45:

"The relationship crated by a tenancy at will is personal to the landlord and the tenant, and it has been suggested that it is ‘not a species of estate but a mere relationship of tenure unaccompanied by any estate".

[147] Further on in Land Law in New Zealand (2004) vol 2, para 11.021 at p.45 the learned authors’ state:

"[A] tenancy at will confers no estate in the land..."

[148] The first cause of action by AQM is for relief against forfeiture under s.119 of the Property Law Act 1952(NZ) which still applies in Samoa. Section 119 only applies to an "application by any person claiming as underlessee any estate or interest in the property".

[149] As there was no sub-lease agreement between AQM and Maja, AQM may have been in occupation of the premises as a tenant at will. However, a tenancy at will does not confer an estate of interest in land. So s.119 cannot sustain AQM’s first cause of action for relief against forfeiture if AQM has been in occupation of the premises pursuant to a tenancy at will.

[150] Furthermore, it is sated in Land Law in New Zealand (2004) vol 2, para 11.021 at p.44:

"It is of the essence of a tenancy at will that it is determinable by either party on demand, and even if, when it is created, it is expressed to be determinable at the will of the landlord only, or at the will of the tenant only, the law implies that it shall be determinable at the will of the other party also. Every tenancy at will must be at the will of both parties"

[151] Section 119 provides that "in no case shall any such underlessee be entitled to require a lease to be granted to him for any longer term than he had under his original underlease". However, a tenancy at will has no term because it is determinable on demand at the will of the landlord or tenant. So for this reason as well, s.119 does not apply to AQM’s first cause of action for relief against forfeiture. In other words, AQM’s cause of action under s.119 for relief against forfeiture is not maintainable in law.

(b) Periodic (monthly) tenancy

[152] The second possibility submitted by counsel for WHL which could have arisen if there was no sub-lease agreement between AQM and Maja is a periodic (monthly) tenancy pursuant to s.105 of the Property Law Act 1952(NZ). Section 105 provides:

"No tenancy from year to year shall be created or implied by payment of rent; and if there is a tenancy it shall be deemed in the absence of proof to the contrary to be a tenancy determinable at the will of either of the parties by one month’s notice in writing".

[153] In Land Law in New Zealand (2004) vol 2 by Hinde, McMorland and Sim, the learned authors when considering s.105 refer in para 11.022 at p.48 to Baikie v Fullerton-Smith [1961] NZLR 901 (CA) where North J gave a considered opinion on the scope of s.105. His Honour said at p.916:

"For myself, I am not prepared to accept the view that a prospective lessee let into possession prior to the signing of a contract for a lease for a term automatically becomes, in New Zealand, a monthly tenant, though I agree that if rent is paid, the character of the tenancy may change and what began as a tenancy at will may become a periodic tenancy, determinable on the execution of the lease contracted for..."

[154] The learned authors of Land Law in New Zealand then go on in para 11.022 at p.48 to say:

"This opinion [of North J] suggests a reconciliation between the two extreme views which had hitherto been taken of the effect of s.105. It is now open, at least to the Court of Appeal, to hold that the section has no application to a true tenancy at will at common law, but that it does apply as soon as the tenancy at will is changed into a periodic tenancy by the payment of rent. If this interpretation of the section were adopted, it would follow that tenants let into possession pending negotiations for a lease, purchasers let into possession prior to completion, tenants holding over without having paid rent, and tenants whose occupation is merely permissive without payment of rent would not be within the scope of s.105 of the Property Law Act 1952 and would not be entitled to one month’s notice to quit...It is also arguable that as a tenancy at will confers no estate s.105 has no application to it until it acquires the nature of a true tenancy by the payment of rent".

[155] If there was a periodic tenancy in this case, that must have occurred upon payment of rent. Such rent was monthly. This first occurred in January 2001 as shown in an undated letter from Mr Wetzell to Mr Tapusoa where it says: "As agreed please find attached a check which represents one month’s rent and this is paid in good faith and will be deemed as one month’s rent in advance". There was no further payment for rent until the said payment of "$5,000 per month" already discussed. The correspondence between the parties also clearly shows that they treated the question of rent on a monthly basis. So if there was a periodic tenancy, it must have been a monthly tenancy.

Relief against forfeiture

[156] Given that there was no concluded binding agreement between AQM and Maja, the continuing occupation of the premises by AQM would be either on the basis of a tenancy at will or a periodic monthly tenancy.

[157] AQM in its claim for relief against forfeiture under s.119 is seeking a lease of 16 years. However, the maximum term that may be granted under s.119 is restricted to the term of the original sub-lease. Section 119 in so far as relevant provides:

"[In] no case shall any such underlessee be entitled to require a lease to be granted to him for any longer term than he had under his original underlease".

[158] Section 119 further provides that relief against forfeiture may be granted:

"upon such conditions as to execution of any deed or other document, payment of rent, costs, expenses, damages, compensation, the giving of security, or otherwise as the Court in the circumstances of each case thinks fit..."

[159] Counsel for WHL cited the case of Belgravia Insurance Co, Ltd v Meah [1963] 3 A11 ER 828 where Lord Denning MR, in relation to s.146 (4) of the Law of Property Act 1925 (UK), said at p.832:

"In 1925, the whole law as so evolved was consolidated in s.146 of the Law of Property Act 1925. Section 146(4) enabled the Court to grant relief to an underlessee, not only in case of other breaches but also non-payment of rent, on such conditions ‘as the Court in the circumstances of each case shall think fit’. It seems to me that, in exercising this discretion, the Court, will, in the ordinary way, grant relief to an underlessee on the terms of paying the rent in arrear, performing the covenants, and paying all the costs: see Gray v Bonsall [1904] UKLawRpKQB 55; [1904] 1 KB 601 at p. 608 by Romer LJ".

[160] It appears from Land Law in New Zealand (supra) at paras 11.163 and 11.164 that under the property Law Act 1952 (NZ), relief against forfeiture for breach of the covenant to pay rent is treated differently from relief against forfeiture for other breaches of covenant. But whichever is the type of breach, the tenant is normally required to make good the breach as a condition of being granted relief.

[161] In this case, that means if AQM is to be granted relief against forfeiture it would be on the condition that it pays to WHL all the arrears in rent. But the maximum relief that could be available to AQM is one month’s tenancy, that is, if one were to accept that the basis of AQM’s occupation of the premises is a periodic monthly tenancy. However, the total amount of rent arrears is now quite substantial that it is unrealistic to expect AQM to comply with a condition of paying the rent arrears just to get a one moth’s lease.

[162] According to AQM, the rent payable to Maja as at 27 May 2002 was $5651.20 per moth. For the purposes of these proce3edings, WHL is prepared to accept that figure. On that basis the total arrears in rent up to 5 June 2008, the date of hearing of these proceedings would be $294,092.80 plus interest. On the other hand, if the rent arrears are calculated on the basis of Maja’s total rent arrears for the whole property under the head lease with WHL, the total arrears would be over $700,000. So if this matter is allowed to proceed to trial, the total arrears in rent AQM has to pay would be even higher. As I have earlier said, it would be unrealistic to expect AQM to pay the rent arrears just to get a one month’s lease.

[163] In any event, WHL has agreed to allow AQM to continue to occupy the premises for a month from the date of the Court’s judgment in these proceedings without any payment condition. This would be more favorable to AQM then the terms of any order for relief against forfeiture under sl.119.

[164] For all the foregoing reasons which substantially accept the submissions by counsel for WHL, I have decided that AQM’s cause of action for relief against forfeiture under s.119 which seeks a lease for a term of 16 years cannot possibly succeed. AQM’s first cause of action for relief against forfeiture is therefore struck out.

Equitable estoppel

[165] The second cause of action by AQM is founded on equitable estoppel. A modern statement of the general principles of equitable estoppel may be found in Burbery Mortgage Finance and Savings Ltd v Hindsbank Holdings Ltd [1988] NZCA 220; [1989] 1 NZLR 356 where Richardson J said at p.361:

"This then is a straight forward application of modern principles of equitable estoppel. It is well settled that where one party has by words or conduct made to the other a clear and unequivocal promise or assurance intended to affect the relations between them and to be acted on accordingly, then once the other party has taken him at his word and acted on it, the one who gave the promise or assurance is bound by that assurance unless and until he has given the promisee a reasonable opportunity of resuming his position (16 Halsbury’s Laws of England (4th ed) para 1514). Although there are indications in some of the authorities that there must be a pre-existing contractual relationship between the parties, I am of the view that the doctrine applies in appropriate cases where there is a pre-existing legal relationship (Durham Fancy Goods Ltd v Michael Jackson (Fancy Goods) Ltd [1968] 2 QB 839, 847); or where the promise affects a legal relationship which will arise in the future (Bank Negara Indonesia v Hoalim [1973] 2 MLJ 3 (PC); or more broadly where, as here, the promisor and promisee have interests in the same subject – matter".

[166] In Land Law in New Zealand (2004) vol 2 by Hinde, McMorland and Sim, the learned authors’ state in para 11.045 at p.75:

"Where a landowner creates or encourages in another an expectation or belief that an interest in the land will be granted, that other relies upon that expectation or belief to his or her detriment, and it would be unconscionable to allow the party against whom the estoppel is alleged to resile from the representation or action that has encouraged that expectation or belief, equity may compel performance even in the absence of an enforceable contract or written agreement. In relation to leases the principles of equitable estoppel have been applied to assist prospective lessees where the formal requirements for the creation of a leasehold estate have not been fulfilled, and, in more recent cases, to assist landowners where they have undertaken significant expenditure or suffered some other detriment in the expectation that a lease will be entered into by a prospective lessee. It has also been held that pre-contractual representations may found an equitable estoppel qualifying the terms of a subsequent written lease".

[167] Essentially, equitable estoppel consists of four elements. These are a clear and unequivocal representation made by one party to the other party, reliance by the other party on that representation, consequential detriment, and departure from the representation by the party who made it would be unconscionable.

[168] The express representations upon which AQM relies for its cause of action in equitable estoppel are:

1. representations from Maja to AQM that AQM had a lease for 16 years;
   
2. representation from Maja to Mr Drake on behalf of WHL that Maja had entered into a sub-lease with AQM;
   

100. representation from Mr Drake on behalf of WHL to AQM that there was a head lease between WHL and Maja;
     

4. representations by Mr Drake on behalf of WHL to the Pacific Commercial Bank that Maja had a 20 year lease with WHL and that there were sub-leases of properties at the Saleufi premises;
   
5. that Mr Drake had prepared and engrossed deeds of sub-leases; and
   
6. WHL, through Mr Drake, knew and authorised Maja to lease to AQM and others the Saleufi premises.
   

[169] It is alleged by AQM in its statement of claim that it acted in reliance on the above representations and outfitted the premises at considerable expense as well as paying rent and continuing to pay rent.

[170] It is also alleged by AQM in its statement of claim that WHL’s actions in purporting to forfeit the sub-lease and enforcing a right of re-entry will result in detriment to AQM.

[171] It is then alleged by AQM that in the circumstances WHL "is estopped from denying the existence of the under-lease or sub-tenancy on the terms agreed as between Maja and the plaintiff [AQM]".

(a) Relevant representations

[172] For a representation to found an estoppel, it must be from the person against whom the estoppel is alleged to the person who is seeking to rely on the representation. In this context, for a representation to be capable of founding an estoppel it must have been from WHL against whom the estoppel is alleged to AQM who is seeking to rely on the representation.

[173] On that basis, the following representations are not relevant to found an estoppel because they were not from WHL to AQM:

1. the representations from Maja to AQM that AQM had a lease for 16 years;
   
2. the representations from Maja to Mr Drake for WHL that Maja had entered into a sub-lease with AQM;
   

100. the representations by Mr Drake on behalf of WHL to the Pacific Commercial Bank that Maja had a 20 year lease with WHL; and
     

4. the implied representation that Mr Drake had prepared and engrossed deeds of sub-leases.
   

[174] The remaining alleged representations upon which AQM relies are:

1. the representation from Mr Drake on behalf of WHL to AQM that there was a head lease between WHL and Maja; and
   
2. the implied representation that WHL, through Mr Drake, knew and authorised Maja to lease to AQM and others the Saleufi premises.
   

[175] As to the representation from Mr Drake on behalf of WHL to AQM that there was a head lease between WHL and Maja, WHL does admit that there was such a head lease. If the said representation was made by WHL, it is not trying to resile from it because WHL is saying that it is true there was a head lease between WHL and Maja Estoppel applies to prevent a party from resaling from a representation it had made. Here WHL is admitting that there was a head lease as alleged by AQM.

[176] As to the representation that WHL knew and authorised Maja to enter into sub-lease arrangements with AQM and others, under the head lease between Maja and WHL, Maja was permitted to enter into sub-leases. So Maja was permitted under the head lease to enter into sub-leases with AQM and others. WHL is not denying that or trying to resile from it. In fact WHL admits that the head lease permitted Maja to enter into sub-lease agreements.

[177] As already mentioned, estoppel applies to prevent a party from resiling from a representation it had made. Here, WHL is not trying to deny or withdraw from the fact that the head lease permitted Maja to enter into sub-lease agreements.

[178] Furthermore, neither of these two alleged representations could have created a belief or expectation in AQM that it had a sub-lease agreement for a term of 16 years. WHL never represented to AQM that it had such a sub-lease with Maja. Whether or not there was a sub-lease agreement was a matter for negotiation between AQM and Maja.

[179] It follows that there was no relevant representation upon which a claim for equitable can be founded.

(b) Reliance

[180] It is claimed by AQM that it acted in reliance on the said representations and outfitted the premises at considerable expense and paid rent which it has continued to do up to now. The only representations upon which AQM can claim reliance are the representation from WHL to AQM that there was a head lease between WHL and Maja and the implied representation that WHL knew and authorised Maja to lease to AQM and others the Saleufi premises.

[181] As it appears from Mr Wetzell’s affidavit of 13 February 2006, the first representation from WHL to AQM which suggests the existence of a head lease was the notice dated 27 May 2002 from WHL to AQM advising that WHL’s head lease arrangements with Maja had been terminated and that there had been a forfeiture of the head lease. The second occasion was on 29 May 2002 at a meeting between WHL and AQM where it is said that Mr Drake told Mr Wetzell that the reason the head lease was terminated was that Maja had fallen substantially in arrears with its rent payments to WHL. Then on four occasions from June 2002 and June 2004, WHL stated in writing to AQM that there was a head lease between AQM and Maja.

[182] However, it is clear from the correspondence between AQM and Maja that any outfitting done by AQM to the premises must have been done well before 27 May 2002 which was the date of the notice from WHL to AQM advising that WHL’s head lease arrangements with Maja had been terminated. AQM does state in its statement of claim that it outfitted the premises between June and October 2001.

[183] So there is no way that AQM had outfitted the premises between June and October 2001 in reliance on the representations made by WHL in referring to a head lease in May 2002 and from June 2002 to June 2004. There is also nothing in AQM’s affidavit evidence which states that AQM acted in reliance on the said representations from WHL and outfitted the premises.

[184] In respect of rent, the first payment of $6,611.63 was made on 23 February 2001. The second payment of $5,000 was suggested as a matter of goodwill by Mr Wetzell at discussions with Mr Tapusoa on 23 April 2002. Neither of these payments could have been made in reliance on any of the said representations by WHL, the first of which was made on 27 May 2002 by way of the notice of termination of the head lease.

[185] Any further payments of rent made by AQM after May 2002 to its overseas solicitors were payments made by AQM after it had been notified by WHL that its head lease with Maja had been terminated. AQM should then have been aware that in the circumstances its occupation of the premises would be at best on the basis of a monthly tenancy. In fact that should have been clear from the notice dated 27 May 2002 issued by WHL to the occupiers of the premises including AQM. There is also nothing in that notice which expressly or impliedly states that there was a sub-lease agreement between AQM and Maja for 16 years and that in spite of the termination of the head lease such a sub-lease agreement was to remain.

[186] So it cannot be said that AQM paid any rent before or after May 2002 on the belief or expectation that it would be granted a sub-lease agreement for 16 years on the basis of the said presentations from WHL.

[187] I therefore conclude that there was no relevant representation from WHL to AQM or reliance by AQM on any representation from WHL to AQM which can create an estoppel. It follows that the cause of action in equitable cannot possibly succeed and is therefore struck out.

AQM’s statement of defence to WHL’s amended counterclaim

[188] As earlier mentioned, apart from WHL’s motion to strike out AQM’s statement of clam is its other motion dated 1 August 2006 to strike out AQM’s statement of defence dated 31 July 2006 to its then amended counterclaim. Obviously, this counterclaim must have been filed prior to 31 July 2006.

[189] Subsequently, AQM filed a third (second) amended statement of claim on 20 November 2007. This is the statement of claim to which WHL’s strike out motion that I have already dealt with relates.

[190] To this statement of claim, WHL filed an (amended) statement of defence and counterclaim dated 28 November 2007. However, AQM has not filed a statement of defence to WHL’s (amended) statement of defence and counterclaim.

[191] Nonetheless, AQM’s statement of defence dated 31 July 2006 has been treated in these proceedings as related to WHL’s (amended) counterclaim dated 28 November 2007. I will proceed on that basis as it does not seem to create any serious problems. For present purposes, I will refer to WHL’s amended statement of defence and counterclaim of 28 November 2007 as simply the "counterclaim."

[192] In WHL’s motion to strike out AQM’s statement of defence of 31 July 2006, it is claimed that AQM’s statement of defence discloses no reasonable defence to the counterclaim and is frivolous and/or vexatious as well as being an abuse of process.

[193] In para 5.1 of the counterclaim it is alleged that in March 1997 WHL became the registered owner of the property which includes the premises.

[194] It is then alleged in para 5.2 of the counterclaim that by notice dated 27 May 2002 WHL terminated its head lease agreement with Maja. That notice had the automatic effect of terminating any sub-lease or sub-tenancy of the premises. On the same date WHL served notice to this effect on AQM. As a result, AQM continued to occupy the premises as a monthly tenant of WHL. It is also alleged that AQM continued to occupy the premises at an agreed rent of $5,651.20 per month.

[195] In para 5.3 o the counterclaim it is alleged that on 9 July 2004 WHL gave AQM one month’s notice to terminate the monthly tenancy at the expiry of which AQM was required to quit the premises.

[196] Then in para 5.4 it is alleged that AQM refused to vacate the premises and has continued to occupy the premises. It is also alleged that AQM has refused to pay rent arrears to WHL.

[197] In para 5.5 it is alleged that the accrued and unpaid rent arrears from 27 May 2002 to 27 December 2003 will be $102,372.80 plus VAGST.

[198] And in para 5.6 of the counterclaim it is alleged that WHL has lost the use of and opportunity to reinvest the $5,651.20 monthly, and so claims interests at 7.5% per annum on each unpaid rental instalment from the date on which payment was due to the date of actual payment, being $1.16 per day.

[199] In its statement of defence at para 1, AQM admits that WHl became the owner of thepremises in March 1997.

[200] In para 2 of its statement of defence, AQM admits that WHL served on it a notice advising that WHL has terminated its arrangements with Maja. AQM then says that it continued to occupy the premises as a sub-lease. This is clearly not right. If there was a sub-lease between AQM and Maja, that was automatically terminated as a matter of law when WHL terminated its head lease with Maja. So AQM could not have continued to occupy the premises as a sub-lessee. In any event, there was no concluded binding sub-lease agreement between AQM and Maja.

[201] AQM in para 2 of its statement of defence denies every other allegation in para 5.2 of the counterclaim. This must mean that AQM is denying that as a result of the termination of the head lease it became a monthly of WHL at the agreed rent of $5,651.20 per month. This seems to suggest that AQM is of the view that it continued to occupy the premises as a sub-lease even after the termination of the head lease between WHL and Maja. However, this is legally not possible.

[202] AQM was either a tenant at will or more probably a periodic monthly tenant.

[203] As for the allegation in para 5.2 of the counterclaim about the agreed rent of $5,651.20 per month, AQM’s affidavit evidence shows that AQM had agreed to that rent. This is shown in the affidavits of Mr Wetzell dated 14 July 2004 and 12 August 2005. So in this connection, the denial by AQM in the statement of defence is contradicted by its own affidavit evidence and I prefer what is contained in the sworn affidavits.

[204] In para 3 of its statement of defence, AQM admits what is alleged by WHL in para 5.3 of its counterclaim that WHL gave AQM a month’s notice to terminate a monthly tenancy. However, AQM says it otherwise denies the allegations contained in para 5.3 of the counterclaim.

[205] A copy of the said notice is attached to Mr Drake’s affidavit of 5 May 2006. The notice is dated 9 July 2004 and required AQM to quit and deliver up on 9 August 2001 possession of the premises it was holding as a monthly tenant. The pleading in para 5.3 of the counterclaim is therefore factually consistent with what is contained in the notice. So it is not clear what AQM is denying.

[206] In para 4 of its statement of defence, AQM admits that it has continued to occupy the premises as a sub-lease but otherwise denies each and every allegation in para 5.4 of the counterclaim. As already explained, AQM could not have continued to occupy the premises as a sub-lessee. In the first place, if there was any sub-lease agreement between AQM and Maja, that sub-lease was automatically terminated when the head lease between WHL and Maja was brought to an end. Secondly, there was no concluded sub-lease agreement between AQM and Maja.

[207] In so far as AQM’s denial relates to its alleged refusal to pay rent arrears to WHL, one refers to Mr Wetzell’s affidavit of 14 July 2004 where it is alleged that AQM had paid $11,611.43 to WHL on account of rental. This is not correct. It is quite clear from the documentary material that that money was paid by AQM to Maja and not to WHL prior to 27 May 2002 when the head lease was terminated.

[208] The only rent which WHL received from AQM was for the period of July 2005 to October 2006 pursuant to an order made by Vaai J on 28 July 2003 which required AQM to pay rent into the Court. However, AQM still refused to pay any rent arrears for the period from May 2002 to December 2003 despite repeated requests from WHL. On the basis of a monthly rental of $5,651.20 plus VAGST for 19 months from 27 May 2002 to 27 December 2003, the total unpaid rent would be $107,322.80 plus VAGST.

[209] In principle, AQM cannot set-off any rent it owes to WHL (after the head lease between WHL and Maja was terminated) for its unilateral contribution to the capital works which occurred during its relationship with Maja. WHL was not involved with the capital works and therefore cannot be legally bound by AQM’s arrangements with Maja. That was a matter between AQM and Maja.

[210] In Edlington Properties v J H Fenner & Co Ltd [2006] 3 A11 ER 1200 an owner of land built a factory on its land. When the factory was built, it granted a lease of the premises to J H Fenner & Co Ltd (J.H.F). The owner then assigned the reversion to B in 1998. B further assigned the reversion to Edlington Properties (EP) in 2003. The factory that was built by the owner turned out to be seriously defective and unsuitable to JHF’s purposes. So JHF sought to set off the rent due from it to EP against its claim for damages for the defective factory built by the owner. Neuberger LJ, in a judgment with which Pill and Scott Baker LJJ concurred, stated at p.1211 in para [42]:

"[Leading] textbooks on set-off...all take the view that a transferee of the reversion is not bound by any rights of equitable set-off which the tenant could have raised against his predecessor in title"

Further on at p.1216, Neuberger LJ stated at para [54]:

"In all these circumstances, it appears to me that the weight of principle, authority and textbooks all point firmly in the same direction. Where the reversion to a lease is transferred, a tenant cannot set-off, against rent falling due after the transfer, a claim for damages he has arising out of a breach by his original landlord of the lease, let alone of the agreement pursuant to which the lease was granted, unless of course the lease specifically provides that he should have that right".

[211] In principle, it must follow that where a lessor terminates its head lease with a lessee so that any sub-lease is automatically terminated and a sub-lessee or sub-tenant becomes a tenant at will or periodic tenant, the tenant cannot set off against rent falling due to the lessor after the termination of the head lease a claim for damages arising out of a breach by the person who was the lessee under the head lease. The same applies to a tenant at will or periodic tenant who had been given occupation of the premises by the lessee but still remains in occupation after the head lease between the lessor and lessee had been terminated.

[212] AQM in para 5 of its statement of defence further denies paras s.5 and s.6 of WHL’s counterclaim. But there is nothing in its affidavits or statement of defence where it states that AQM paid any rent except for the $11,611.49 made up of the initial rent of $6,611 for one month paid on 23 February 2001 and the $5,000 unilaterally paid as a matter of goodwill on 14 May 2002. The clear inference from this is that AQM did not pay any other rent including the rent for the period 27 May 2002 to 27 December 2003 as claimed by WHL.

[213] For all these reasons, AQM’s statement of defence discloses no reasonable defence. It is therefore struck out.

Conclusions

[214] WHL’s motion to strike out AQM’s third (second) amended statement of claim succeeds and the statement of claim is struck out.

[215] WHL’s motion to strike out AQM’s statement of defence to WHL’s counterclaim also succeeds and the statement of defence is also struck out.

[216] In view of those conclusions, AQM is ordered to quit and deliver up possession of the premises to WHL by the end of one month from the date of this judgment on the basis of the notice to quit of 9 July 2004 already served upon it by WHL.

[217] Counsel to file memoranda as to costs in 14 days.

CHIEF JUSTICE