IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-5656

BETWEEN	E & E DEVELOPMENTS LIMITED Plaintiff

AND	HOUSING NEW ZEALAND LIMITED First Defendant

AND	HOUSING NEW ZEALAND CORPORATION
Second Defendant

Hearing:	29 March 2010

Counsel:	PF Chambers for plaintiff
MHA Ho for defendants

Judgment:	31 March 2010 at 3:00 pm

JUDGMENT OF ASSOCIATE JUDGE FAIRE [on application for summary judgment]

Solicitors:	James D Thompson, PO Box 33 197, Auckland for plaintiff
Gilbert/Walker, PO Box 1595, Auckland for defendants

E & E DEVELOPMENTS LTD V HOUSING NEW ZEALAND LTD HC AK CIV-2009-404-5656  31 March
2010

[1]       The  plaintiff  applies  for  summary  judgment  against  both  defendants  for

$260,076.05 plus interest in accordance with Schedule 2, Clause 3 of a Lease plus costs.

[2]       The lease, which is the foundation for the claim, was executed on 20 January

2004.  The parties to the lease are the plaintiff and first defendant.

[3]       It  is  common  ground  that  the  first  defendant,  which  is  a  company incorporated under the Companies Act 1993, is a wholly-owned subsidiary of the second defendant.  There is no direct contractual link between the plaintiff and the second defendant.

[4]       The plaintiff’s statement of claim does not plead a precise basis for its claim against the second defendant.   When pressed, Mr Chambers advised the court that the second defendant was joined more out of an abundance of caution and because it is the sole shareholder of the first defendant.  He could provide no specific basis for the claim against the second defendant.  I cannot see how there could be such a claim with the result that the application for summary judgment against the second defendant must fail.

The opposition

[5]       The first defendant opposes summary judgment.  It says that it is not liable as a matter of construction of the lease to pay the rent which is claimed.  From that it follows that it would not be liable for the claim, including the interest and costs. Counsel for the defendant advised that an application by the first defendant for summary judgment  had  been  filed.    As  that  was  not  on  the file,  and  with  the agreement of counsel, I reserve leave to address the question of a defendant’s summary judgment application if, in fact, one is discovered in the orders that are made at the conclusion of this judgment.

[6]       Counsel were in agreement that the approach which should be followed when considering a plaintiff’s application for summary judgment was that which is set out in the Court of Appeal judgment in Krukziener v Hanover Finance Ltd.

The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA).  The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11
PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).

Background

[7]       On  22  May 2002  the  plaintiff  and  the  first  defendant  and  Mr LR Ellery signed an agreement.   Under the agreement the plaintiff, as vendor, agreed to construct 38 units on land and subdivide the land so that each house was on a lot with its own separate unit title.  The agreement provided for the first defendant to purchase each of the residences that had been constructed.  It also required the first defendant to make regular progress payments.   The first defendant, in fact, made progress payments totalling $5,195,970.

[8]       The agreement contains in the definition section, a settlement date, which I need not repeat for the purposes of this judgment.  It also makes provision for the first defendant to occupy prior to the settlement by clause 8.  Clause 8 provides as follows:

Should Practical  Completion  have  been  achieved  and  the  Purchaser and Vendor agree that the Purchaser may take occupation of the Residences prior to the Settlement Date the Purchaser shall take possession of the Residences

without the Purchaser having to pay rent or any other consideration to the Vendor although without prejudice to the parties’ obligations on the Settlement  Date  and  on  the  basis  that  the  Purchaser  will  insure  the Residences for their full reinstatement value against damage or destruction by all risks reasonably required by the Purchaser from the date possession is taken.

[9]       On 28 February 2003 the plaintiff and the first defendant and another party, whose position need not be analysed for the purpose of this judgment, entered into a new agreement.   Under that agreement the first defendant was to lease the units which were being built rather than purchase them.  The plaintiff would complete the subdivision.  The first defendant would continue to make progress payments to the plaintiff to enable it to complete the units.   The progress payments would be reimbursed to the first defendant on completion of the subdivision.

[10]     On 20 January 2004 the parties entered into the third document and the one that is central to this summary judgment application.  Under this agreement the first defendant leased the then unsubdivided land.   Clause 1.10 of Schedule 1 to this
agreement provided for the payment of monthly rent as follows:

10.	Monthly Rent:	$40,343.33 (inclusive of GST) being one twelfth of	
	the Annual Rent as reviewed from time to time in	
	accordance with this Lease (notwithstanding clause	
	1.1  of  the  Second  Schedule  to  this  Lease  the	
	Annual Rent is payable from the date the Payments	
	(as that expression is used in the agreement dated	
	22 May 2002 and made between the Lessor, the	
	Lessee and Lindsay Royce Ellery) are repaid to the	
	Lessee).	

[11]     Subsequently the plaintiff sold the 38 units to another company which then onsold them to 38 different investors.

[12]     The plaintiff completed the subdivision on 21 June 2004.   It obtained 38 individual unit titles.  It settled its sale and purchase of the units with its purchaser. It repaid the first defendant $5,195,970.00.   The first defendant entered into 38 individual leases with the 38 investor-purchasers.  The significance of the settlement on 21 June 2004 is that that is the date in respect of which payments, as that is used in the 22 May 2002 agreement, was actually made.

[13]     Clause 1.10 of the First Schedule of the lease must be read in conjunction with Clause 1.1 of the Second Schedule of the lease of 20 January 2004.   That provides:

1.1        The Lessee shall pay during the Term the Annual Rent (as reviewed and varied from time to time under this Lease) on the first day of each Month during the Term.  Payments of the Monthly Rent shall be  paid in  arrears  with  the  first  payment  (being a proportionate payment if applicable) to be paid on the first day of the Month first occurring after the Commencement Date.

[14]     The plaintiff claims rent pursuant to the lease for the period from 8 December

2003, which is the commencement date of the lease, until 21 June 2004.

[15]     The issue raised by this summary judgment application is whether or not there is any legal obligation on the first defendant to pay rent under the lease for the period prior to the date when payment was provided to be made in the 22 May 2002 agreement.  The question I must decided, then, is what meaning is to be given to the words in Schedule 1.10: “The annual rent was payable from the date the payments
…. are paid to the lessee.”

[16]   The question involves the consideration of the lease.    In Investors Compensation Scheme Ltd v West Bromwich Building Society which was adopted in Boat Park Ltd v Hutchinson there is contained the following guidance on the construction of a contract:

The principles may be summarised as follows.

(1)        Interpretation  is  the  ascertainment  of  the  meaning  which  the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2)        The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the

language  of  the  document  would  have  been  understood  by  a reasonable man.

(3)       The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4)        The  meaning  which  a  document  (or  any  other  utterance)  would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax (see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 3 All ER 352, [1997] 2
WLR 945).

(5)        The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the commonsense proposition that we do not easily accept  that  people  have  made  linguistic  mistakes, particularly  in formal documents. On the other hand, if one would nevertheless conclude  from  the  background  that  something  must  have  gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord  Diplock made  this point  more  vigorously when  he  said  in Antaios Cia Naviera SA v Salen Rederierna AB, The Antaios [1984]
3 All ER 229 at 233, [1985] AC 191 at 201:

‘. . . if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.’”

[17]	The approach which the court adopts was succinctly set out in Taylor Marine

Ltd v Taylor Marine Brokers (2005) Ltd:

One  does  not  look  for  the  intent  of  the  parties  without  looking  at  the meaning of the words that they have used. Rather, the position is that words should  be  given  their  natural  and  ordinary  meaning,  unless  there  is something in the context which makes it plain that some other meaning must have been intended.

[18]     Mr Ho summarised the first defendant’s position in the following two short paragraphs of his written synopsis:

13.	Black’s Law Dictionary (7th exemplary damages.) defines “payable”
as meaning:

“payable, adjourn (of a sum of money or a negotiable instrument) that is to be paid.  An amount may be payable without  being  due.    Debts  are  commonly  payable  long before they fall due.

14.        This  definition  recognises that  there  is  a difference between  the point at which a liability to pay arises (“payable”) and the point at which the creditor is required to discharge that liability by way of payment (“due”).  There is nothing in the lease to suggest that the parties intend “payable” to mean “due”.  The parties chose a word which is clearly defined, and which reflected their intention that HNZL would not be liable for rent until it received repayment of the progress payments of $5,195,970 which was being held by E&E on interest-free terms.

[19]     I find that analysis compelling and I adopt it.  However, it is appropriate that

I briefly refer to the matters raised by Mr Chambers.

[20]     Mr Chambers submitted that the parties’ clear intention was that it would pay rent from the commencement of the term, namely 8 December 2003.  He said that was evidenced by the fact that the first defendant obtained a rent subsidy from the Department of Building and Housing.   I do not accept that position.   The rent subsidy  had  as  its  foundation  a  make-up  payment  representing  the  difference between the market rent that could be expected to be paid by an occupant of each unit and the actual rent paid by the occupant of that unit.  It has nothing to do with arrangements entered into between the lessee and lessor under a head lease.

[21]     The next matter that Mr Chambers referred to was the fact that under the May 2002  agreement  there  was  provision  permitting  the  first  defendant  to  take possession provided it insured the residences.   That does not assist his argument because the obligation to pay rent which he relies upon occurs as a result of the 2004 lease which followed the change in position of the parties so that the first defendant ceased to be the purchaser of each of the units.

[22]     Mr Chambers also referred to correspondence both before and after the entry of the parties into the 2004 lease.   Even if that material is admissible there is no evidence in it to show an acceptance of an intention to pay rent for the period
8 December 2003 to the date when the payments were required to be made and were, in fact, made on 21 June 2004 on the part of the first defendant.

[23]     Mr Chambers next raised the question of whether there was any benefit to the plaintiff in entering into the 2004 lease.   The answer to this would seem to be obvious on the material that was placed before me.  The properties, that is the 38 units, were sold to investors who were looking for an income return.   They could only get that return from the income generated from leases to the clients of the first defendant.  It seems to me, therefore, that there was an obvious reason for entering into the lease.

[24]     None  of  the  matters  advanced  by  Mr Chambers  support  a  construction different from that advanced by Mr Ho.  Accordingly, I conclude that the plaintiff’s application  for  summary judgment  fails  in  respect  of  both  defendants.    I order accordingly.

[25]     Because  there  is  some  doubt  as  to  whether  there  was  a  corresponding application by the first defendant for summary judgment, I adjourn this proceeding to the Summary Judgment List at 2:15pm on 15 April 2010.  If there is a defendant’s summary  judgment  application  specific  directions  will  be  given  at  that  time  in relation to it.  If there is none, then directions for the completion of this proceeding will be given.

[26]     Because of the conclusion I have reached I reserve costs.  If it is appropriate to deal with that matter, that issue will also be dealt with on 15 April 2010.

JA Faire
Associate Judge