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Apia Quality Meats v Westfield Holdings Ltd [2009] WSCA 2 (1 May 2009)

IN THE SAMOA COURT OF APPEAL
HELD AT APIA

BETWEEN:

APIA QUALITY MEATS
Appellant

AND:

WESTFIELD HOLDINGS LIMITED
Respondent

Coram: Honourable Justice Baragwanath
Honourable Justice Fisher
Honourable Justice Hansen

Counsel: G Latu for Appellant
M Ring QC and R Drake for Respondent

Hearing: 27 April 2009
Judgment: 1 May 2009

JUDGMENT OF THE COURT

A The appeal is dismissed

B The appellant must pay the respondent costs of $5000 and usual disbursements

REASONS OF THE COURT

1. The respondent Westfield Holdings Ltd owns land between Vaea St and Togafuafua Rd, Apia, known as the Saleufi Premises. It includes portion of Building B at Saleufi Mall, known as the Old Retzlaff Complex, which we will call "the Premises" and is the subject of this appeal. Westfield leased property, including the Premises, to a head lessee, Anroco Ltd, for a term of 20 years from 15 July 1999. Westfield terminated the head lease for non-payment of rent with effect from 27 May 2002.
   
2. The appellant Apia Quality Meats Ltd claims that, in the interim, it secured from Anroco a sublease of the Premises. It continues to operate its business there despite the judgment of the Supreme Court delivered by Sapolu CJ, from which this appeal comes, striking out both the claim and AQM’s defence to Westfield's claim for arrears of rent and ordering AQM to deliver up possession of the Premises.
   
3. AQM's argument is two-fold: both that it is an underlessee of the Premises for a term of 16 years; and that it is entitled under s 119 of the Property Law Act 1952 to exercise by the Supreme Court of its jurisdiction to make an order, on such terms of compensation or otherwise as it thinks fit, vesting in a sublessee the property comprised in the head lease for a term not exceeding the sublessee's term under the sublease.
   
4. The Chief Justice rejected both that claim, which is repeated in this Court and an alternative claim in equity that, even if there is no contract with Westfield, it should intervene to grant AQM relief as against Westfield. In opening the appeal Mr Latu told us that the appeal on the equity point was not pursued. We enquired whether AQM might be seeking a different form of relief, that it was entitled as against Maja to relief in equity, which might be worked out in the form of a sublease which could then be the subject of a s 119 application against Westfield. Having considered the position over the luncheon adjournment Mr Latu advised that the appeal was confined to the argument summarised at [3], which therefore alone remains for us to consider.
   
5. A distinctive feature of the case is that, in the expectation of finalising its long-term sublease AQM claims to have expended on the Premises some $1.8m for internal fittings plus a further sum, of up to $104,000, towards capital costs and set up there the business it has now operated for some seven years. In addition it has paid part of the rent claimed by Maja, and later Westfield which contends that the only tenancy is at will or one terminable on a month's notice under s 105 of the Property Law Act.
   
6. The appeal also challenges a consequential order striking out, as not disclosing proper grounds, the statement of defence of AQM to a claim by Westfield for arrears of rent under what the Supreme Court held was a monthly tenancy under s 105 of the Property Law Act. AQM claims to be entitled to a set off of some or all of its payments against the balance of its rent.
   

Factual setting

7. While for a time Westfield denied that a head lease had been created, following Westfield’s instruction of Mr Ring QC it admitted the existence of that lease: see the judgment of this Court between the same parties CA 01/07 14 September 2007 at [9-11]. The rental for the whole of the Saleufi Premises was $18,750 a month.
   
8. Anroco's shareholder and director, Mr Tapusoa, incorporated a second company, Maja Holdings Ltd, to enter into development arrangements for Anroco's leasehold interests, including subleases.
   
9. The evidence before the Supreme Court comprised affidavits filed by AQM and their exhibits. For present purposes they are unchallenged. But Mr Ring QC submits that, having had the opportunity to put forward its best case, AQM has failed to show that it is arguable.
   
10. Before the Supreme Court AQM did not rely on a transaction in December 2000 between Mr Wetzell of AQM and Mr Tapusoa of Maja, of which the key points were recorded in an undated letter sent by AQM to Maja in January 2001. But in this Court AQM advances a new argument that rental was then agreed. The letter stated:
    

The following is an outline of an agreement that has been reached to now proceed to the preparation of a formal lease and to commence work on upgrading the facility.

(emphasis added)

It provided that rent was to be paid on a per month square foot basis, to commence with the date of opening of the new facility at a rate of $1.15 per square foot. That was to be completed in line with specifications set out in plans completed by AQM. The letter referred to:

...the attached building outlines and who is responsible for appropriate construction costs.

These and a set of plans relating to the building and various specification schedules also said to be attached were not among the documents produced to the High Court. The letter continued with stipulation of higher per foot rates of $1.25 and $1.50 as Stages 2 and 3 of the upgrading were reached. The parties expected the works would take four weeks to complete. The letter attached a cheque for $4500:

...which represents one months rent and this is paid in good faith and will be deemed as one month's rent in advance

and added:

It is also agreed that rent will commence upon opening of the facility and all parties will act in good faith to ensure the build of the facility is completed as soon as is practical...

11. Maja replied on 20 February confirming the graduated rent beginning at $1.15 per square foot. Its letter confirmed the area of the premises and of a loading bay. Rent was calculated as $6,611.43, made up of:
    

1 Main area - 4958 sq ft @ $1.15 = $5701.70

2 Loading bay - 615 sq ft @ $0.60 = $601.13

$6011.30

VAGST =$ 601.13

TOTAL =$6611.43

12. On 23 February AQM confirmed the rent of $6611.43 and sent to Maja a cheque for $2111.43 to make up the shortfall on the cheque for $4500 sent I January.
    
13. Also in February:
    

(1) Maja provided AQM with a draft lease, which recorded the total lettable area of the premises as 5474 sq ft (rather than the total of 5573 of the February correspondence) and a starting rental of $6295 (rather than $6611.43). It contained an arbitration clause;

(2) in the words of Mr Wetzell’s affidavit, AQM and Maja agreed that:

all immovable capital works/building improvements in relation to the Premises would be paid for and provided by Maja. This included work such as securing the building with doors etc, providing toilets, and insulation to the building, repairing of concrete...Essentially Maja would pay for all work that could not be removed. AQM agreed to pay for all work directly relating to its business including installation of refrigerating equipment and offices. Anything that could be removed would be paid for by AQM.

14. In April AQM wrote to Maja enquiring as to progress with the work. It sought confirmation of the term of the head lease as 40 years and that it permitted subleasing. It also asked for a copy of Maja's proposed lease; which would suggest that the earlier draft was not seen by AQM as operative.
    
15. The evidence of events over the following months until AQM was able to open its business in October is slender. The power transformer, not contemplated at the outset, cost $34,224.55 and the parties agreed to bear the cost equally. The supplier agreed to accept an initial $14,000 down payment and the balance over 24 months. Each party paid its $7000 but MAJA failed to meet its monthly payments of $421.50 and in order to maintain power AQM paid Maja’s share. The work performed by or on behalf of AQM cost it $1.8m, which included building the coolstore required by AQM. The power transformer payments aside, it was not suggested by Mr Wetzell in his affidavits that such expenditure fell outside what the parties had contemplated at the outset would be AQM’s obligations ([14(2)] above). Because of Maja’s financial pressure AQM paid, as well as Maja's monthly share of the cost of the transformer, some degree of contribution towards the exterior redevelopment, including site work, perhaps amounting to $104,000, which was the responsibility of Maja.
    
16. After a meeting on 15 October Mr Tapusoa of Maja wrote to AQM recording an agreed starting date of the AQM lease as 1 October 2001. He advised that the maximum term would be of eight years plus one eight year renewal. AQM replied that it sought six renewable options for five year periods, a total of 30 years. After a period of silence from Maja Messrs Wetzell and Tapusoa met on 8 February 2002. There were two major topics discussed; term and payment for capital items:
    

(1) As to term, Mr Tapusoa was not prepared to go beyond a total of 16 years; Mr Wetzell continued to seek 30 years. Mr Wetzell's note of the meeting recorded:

We agreed that rent would be reviewed on a bi annual basis with rent to be set at a 10% increase.

We need to reach an agreement on a rent basis when we "roll over" our rent periods.

(2) As to capital items, Mr Wetzell handed Mr Tapusoa a list of the items for which AQM had paid in an effort to complete the site works and which AQM claimed were non-removable items chargeable to Maja. As well as an unexplained $2,000 item (added to the typescript in handwriting) they were:

staff bathroom $26,676.30

engine room $16,108

telephone booths $5,989.40

septic tank $ $2,442.76

foyer $50,884.70

total $102,101.16

17 Maja wrote to AQM on 2 April a letter which was not produced, disputing construction costs AQM had paid or incurred to complete the site works. But Maja agreed to allow AQM to off-set the outgoings payable by AQM against the sums paid by AQM to the electricity supplier.

18 In a letter to Maja of 7 April AQM repeated its request for a 30 year term and sought reimbursement of the costs listed in [16(2)] by way of reduced rent over a period to be determined. It recognised Maja’s need to receive rent payments from AQM to assist the completion of proposed buildings on Maja’s site. It also asked that Maja provide copy of the head lease so AQM might confirm Maja’s tenure and ability to sublease to AQM on a long term basis. It requested:

...that we now move forward to the execution of AQM’s lease document and finalisation of all outstanding matters, which include the completion of works at the front of AQM House (Fencing, land fill, car park).

19 MAJA replied on 11 April. It rejected AQM’s costs proposals as excessive. It offered a term of 4x4x4x4 starting 1 October 2001.

20 There followed a meeting on 23 April and AQM’s letter of that date to MAJA. It recorded agreement as to term (4x4x4x4) plus a further 20 years should MAJA renew the head lease. While resolving other issues, it noted that:

The stumbling block to reaching agreement is in fact the amount of capital cost 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-removable 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 had advised me the sketches will be completed by 11th May 2002.

AQM enclosed a cheque for $5000 as a result of its suggestion that it agree to such payments from April 2002. But the letter added:

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.

The letter further stated:

A matter I did not raise with you and requires resolution is the manner in which rent reviews are carried out. I would appreciate your thoughts on this so we may incorporate amendment in our lease document.

It repeated the request to see the head lease.

21 By 14 May site works MAJA had agreed to undertake had still not been completed. By letter of that date AQM advised MAJA that it would proceed with such works, for which they had a quote of $3,300, to infill a hole in front of the AQM building to allow erection of a fence, create a level car park, and level the road running through the property. It advised that AQM’s draftsman would have "the drawings you requested for AQM House" by week’s end.

22 That was the last stage of events between AQM and MAJA. The next development was Westfield’s rescission of the head lease on 27 May.

The decision of the Supreme Court

23 Sapolu CJ at [112] noted that by the end of the correspondence between AQM and MAJA there had been no final agreement on rent. The rent of $5000 suggested by AQM was paid as a matter of goodwill and 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 AQM in its letter of 23 April also required resolution. Other matters referred to in the letter also required attention. The letter referred in its last paragraph to "the speedy conclusion of all outstanding matters".

24 The Chief Justice concluded that what was missing prior to the termination of the head lease was an intention on the part of AQM and MAJA to be contractually bound. It follows, he reasoned, that there was no commitment longer than the monthly tenancy presumed by s 105 of the Property Law Act. So no order under s 119 could exceed that period. It would be irrational to give relief against forfeiture, for a term of only one month, on the conventional terms of payment by AQM of all arrears of rent due by it to MAJA, which he assessed as being some $294,000. Considering that the claim could not possibly succeed he struck it out.

25 As to the counter-claim, AQM was on the foregoing findings a monthly tenant of Westfield from May 2002. Adapting Edlington Properties v JH Fenner & Co Ltd [2006] EWCA Civ 403; [2006] 3 All ER 1200 (CA) at [54] per Neuberger LJ, the Chief Justice held that AQM could not set-off against Westfield’s rent debts owed to AQM by MAJA. Since it could be inferred from AQM’s affidavits established that it had paid no rent for the period claimed by Westfield (27 May 2002 to 27 December 2003) it could have no defence to the counterclaim. The statement of defence to that claim was also struck out.

Discussion

26 Mr Latu cited my judgment in the High Court of New Zealand in Macmillan v Covic [2004] 2 NZLR 106:

[22] The law of contract imputes to the parties an intention to contract in the manner an objective bystander, familiar with the facts known to both, would take them to intend. When the issue of intention to contract at all is in dispute a high standard of specificity of intent to contract is required: see Fletcher Challenge Energy Ltd v Electricity Corporation of New Zealand Ltd [2001] NZCA 289; [2002] 2 NZLR 433. But when the contract is undeniably complete the issue becomes one of construction and the parties will be taken to intend the consequences the notional informed bystander would reasonably infer.

[23] It is a fact of life that commercial parties...will quite frequently contract in a manner that does not deal precisely with the problem that later emerges...The law’s task is to give effect to freely accepted mutual obligations; it is therefore the Courts’ responsibility to identify and find means of giving practical and just effect to those obligations even if they have not been expressed meticulously. To get out of phase with what reasonable commercial parties would make of a transaction would turn the process upside down: the law exists to give effect to such obligations, not to defeat them.

The judgment continued to note that the Courts have distinguished between the primary obligations assumed by the parties and subordinate terms intended to give effect to them. The principles were discussed by Cooke P in Money v Ven-Lu-Ree Ltd [1988] 2 NZLR 414 (CA) at 416-7:

It is elementary law that the Court cannot add implied terms to make a contract for the parties: Aotearoa International Ltd v Scancarriers A/S [1984] NZCA 64; [1985] 1 NZLR 513, 556. It is no less elementary that contracts are very often implied by the conduct of the parties or their correspondence objectively considered, in which event supplementary implied terms may arise by operation of law (for instance the Sale of Goods Act 1908) or by necessary implication on well-settled principles. Into which category a given case falls can be a difficult question. It may be seen as resolving into whether there is sufficient certainty in what has been agreed to warrant the Court in proceeding to the further stage of considering implications...

In modern times the Courts have tended in the main to seek to give business efficacy to agreements apparently reached, provided that some standard or machinery can properly be found for supplying what is lacking in the express terms...

An appeal from that judgment to the Privy Council was dismissed: [1989] UKPC 30; [1989] 3 NZLR 129.

27 As was noted in Wilmott v Johnson [2002] NZCA 309; [2003] 1 NZLR 649 (CA) at [37], it is conventional to determine whether a contract exists by assessing whether the Court is satisfied, on an objective appraisal, that an offer by one party has been accepted unconditionally by the other party in circumstances suggesting a common purpose of undertaking mutual commitment to be legally bound. So in British Steel Corp v Cleveland Bridge and Engineering Co Ltd (Queen’s Bench Division 21 December 1981) Robert Goff J, later Lord Goff, held there was no contract in circumstances where, at the request of the defendant contractor, the plaintiff manufacturer had made and supplied cast-steel products in anticipation of a contract being entered into but the parties were unable to agree on the contractual terms. Injustice was avoided by recourse to the law of restitution. There was a similar result in Brewer Street Investments Ltd v Barclays Woollen Co Ltd [1953] 2 All ER 1330 (CA).

28 But, as the Chief Justice recognised and was also noted in Wilmott v Johnson at [40], there is another form of contractual analysis which was described by Cooke J in Boulder Consolidated Ltd v Tangaere [1980] 1 NZLR 560 (CA) at 563 and which by applying:

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

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 Satterthwaite & Co Ltd [1974] NZLR 505 (PC) at 510.

29 The inference may relate to the very existence of a contract or to particular terms. In the present case the parties contemplated throughout that their ultimate contract would be recorded in a formal deed of sublease. That not having occurred, the issue on this appeal from a strike-out is whether, as Westfield contends, all that is arguable for AQM is that it has no more than a monthly tenancy at will; or whether, as AQM contend, it is arguable there is a contract for a 16 year lease.

30 The Property Law Act 1952 states:

105 Tenancy from year to year not implied – 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.

31 In Fulton v Woods [2002] 2 NZLR 508 (CA) the Fulton’s leased a property owned by the Woods for the purpose of developing a dairy unit. They did so at an agreed rent on terms that there would be no written lease but only an arrangement resting on mutual trust. Mr Fulton undertook extensive improvements to the property, involving considerable expense and hard work by his wife and himself. The Woods gave the Fultons’ a month’s notice to quit and sought summary judgment for possession, which was granted by the High Court. The Court of Appeal allowed the appeal, holding that there was an arguable case that the s 105 presumption of a one month term had been rebutted.

32 Gault J, for the Court, applied the principle that, if there are disputes of fact to be resolved, the plaintiffs are entitled to the opportunity to establish their allegations at trial. But if, assuming the plaintiffs cannot establish that which they assert, they still cannot succeed, judgment should be entered against them. A similar approach applies to a strike-out application.

33 The judgment stated that, in applying the standard test for implication of terms stated in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (PC) as the test for departure from the default position in s 105, the judge had erred:

[24] ...The real inquiry is to determine the terms of the arrangement settled between the parties. That is a matter for evidence of what was said in the context of the matrix of facts against which the arrangement was made.

[25] As Williams J said in O’Brien v Jarrett [(1886) NZLR 5 SC 14] at p 15:

"The agreement as to the duration of a tenancy...may be made either by express words or may be an inference not of law but of fact, from the surrounding circumstances – an inference which, being an inference of fact, is such as a jury or Judge sitting as a jury might properly draw".

The summary judgment was set aside and the case sent for trial so that a judge might determine what term greater than one month should be assessed as the duration of the lease.

34 In the present case the relationship between AQM and MAJA was an evolving one. It began in February 2001 with a conventional arrangement, never formally reduced to writing but apparent from the parties' course of dealing, that MAJA would provide capital improvements which could not be removed at the end of the contemplated tenancy and AQM, like any other tenant, would accept responsibility only for items it could remove at that point plus, no doubt, conventional tenants’ expenditure such as interior decoration. Such arrangement was between commercial parties for commercial purposes. The only characterisation it can be given under the law is that of agreement, in the sense of contract. Its term, which, for the reasons that follow, was overtaken by later events and so does not fall for consideration, is another matter.

35 The parties' course of dealing did not stop there. MAJA appears to have overreached; its limited liquidity did not permit it to carry out ifs contemplated work. As a result, without formal agreement, the parties gave effect to a modified arrangement by which AQM carried out part of Maja's obligations under the original agreement, to the extent of up to $104,000.

36 By May 2002 the position arguably reached by AQM and MAJA was that there was consensus as to:

(1) rental of $6939.13 per month ($6611.43 plus $327.70);
(2) a term of 4x4x4x4 years (plus a further 20 years if MAJA obtained renewal of the head lease).

But we accept Mr Ring’s submission that it is not arguable there was consensus as to the allowance to be made by MAJA to AQM in respect of capital payments and deductions (and if so what deductions) should be made from AQM's monthly rental to deal with that. We do not accept Mr Latu’s submission that the parties had agreed on the form of lease, which contained an arbitration clause. That is because the parties were still in negotiation and had not specifically accepted the form. Nor had MAJA agreed to AQM’s proposal that the issue as to capital works paid for by AQM should be resolved by a sketch to be prepared by AQM’s architects. So it cannot be said, as Mr Latu argues, that as in France v Hight [1990] 1 NZLR 245 (CA) there was a binding contract in relation to all issues that would have been adopted in a later formal lease document. It is unnecessary to consider Westfield’s further submission that the procedures for rent review and rental of an outside bathroom and the front entrance also required agreement.

36 It follows that AQM's contention for a sixteen year contract of the conventional kind - agreement by the parties to specific terms - is not arguable.

37 It follows that the appeal fails and must be dismissed.

38 We record that we have considered whether justice would require inviting submissions of counsel on a further option not argued before us. This is that, even if the original arrangement between MAJA and AQM whereby MAJA was let into possession was terminable under s 105 on a month’s notice, that was overtaken by the later arrangement that AQM would pay up to about $100,000 to meet the costs of capital items for which MAJA was responsible but which it lacked the money to provide, and it is arguable that AQM was entitled as against MAJA to a term long enough to justify relief against Westfield under s 119.

39 Mr Ring submitted that Brewer Street v Barclays decides that where a prospective tenant undertakes liability for renovation and fails to secure the tenancy, it remains liable on its undertaking, subject only to set-off of any benefit to the prospective landlord. We regard the case as distinguishable. It concerned costs incurred to meet the special requirements of the prospective tenant, Barclays, which never took possession. The central point of this case – the nature of AQM’s right to tenure – never arose.

40 It was not suggested that the capital payment was by way of gift to MAJA. While the parties did not agree how it would be accounted for, it is arguable that the law would impute as an implied term a reasonable response. That might be by way of repayment in cash, rent abatement, or conceivably a greater term than the month’s notice under s 105.

41 But AQM’s claim against Westfield under s 119 is dependent upon its establishing the platform of a tenancy right as against MAJA of (now) at least seven years (from May 2002). It was not argued by AQM that a court of trial would convert the $100,000 capital payment into a notional lease of sufficient term to justify keeping Westfield out of possession for a further period. Such an argument would raise issues closely similar to those of equitable estoppel, which AQM abandoned. The parties are entitled after such long delay now to have this Court’s judgment on the issues that were argued before it.

Decision

41 The appeal is dismissed.

42 Westfield is entitled to costs which we fix at $5000 plus usual disbursements.

Honourable Justice Baragwanath
Honourable Justice Fisher
Honourable Justice Hansen