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Hirst & Anor v. Vousden & Anor (New Zealand) [2004] UKPC 24 (25 May 2004)

Privy Council Appeal No. 31 of 2003

(1) Robert Gary Hirst and

(2) Helen May Hirst Appellants

(1) George Vousden and

(2) Glennys Vousden Respondents

FROM

THE COURT OF APPEAL OF NEW ZEALAND

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL,

Delivered the 25th May 2004

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Present at the hearing:-

Lord Bingham of Cornhill

Lord Hoffmann

Lord Phillips of Worth Matravers

Lord Scott of Foscote

Lord Walker of Gestingthorpe

[Delivered by Lord Walker of Gestingthorpe]

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This appeal is concerned with an ill-advised business venture which put a most unhappy end to the long-standing friendship between two married couples, Mr Robert Hirst and Mrs Helen Hirst (the respondents at first instance and the appellants before the Board) and Mr George Vousden and Mrs Glennys Vousden (the applicants at first instance and the respondents before the Board). Their dispute arose out of an oral agreement for a lease of commercial holiday premises to be granted by the Hirsts to the Vousdens. The Vousdens went into possession of the premises on 9 April 1999 and remained in possession until they were evicted on 22 December 2000. But for a substantial part of that period the premises were in such a bad state as to be incapable of commercial use; indeed parts of the premises were incapable of commercial use for the whole of the period. These misfortunes had not been contemplated by either side when the oral agreement was entered into.

The background facts are that in 1992 the Hirsts purchased for $210,000 commercial holiday premises at Waipu Cove, a popular summer resort accessible from Auckland. The premises then consisted of at least four buildings: a takeaway bar with manager's accommodation; a block of five holiday cabins; a block of two cabins; and a building containing one cabin and a games room (there may have been an ablutions block also). The buildings and most of the land on which they stood were let to a tenant, Mr McCarthy, who ran the business. The Hirsts (who were then both in employment, based in Auckland) saw the property as a long-term investment and a possible place for their eventual retirement. They put a caravan on the unlet part of the land and went there at weekends.

In 1998 the Vousdens were each about 50 years of age. Mr Vousden had been made redundant and had received a substantial severance payment. His wife was in employment in Auckland. In about August 1998 the Vousdens first raised with the Hirsts the possibility of the Vousdens becoming tenants in place of Mr McCarthy, who was seriously in arrears with his rent and was thought to have a drink problem. The Vousdens envisaged running the business for about ten years, until the Hirsts reached their retirement. There were further discussions at meetings in November 1998 and (between the Hirsts and Mrs Vousden alone) in February 1999. At the meeting in November 1998 the Hirsts gave the Vousdens a copy of the existing lease to Mr McCarthy. There was a conflict of evidence as to the precise purpose of handing over this document. The lease was in a standard form of business lease prepared by the Auckland District Law Society.

When the ensuing litigation came before Morris J at a four-day hearing in June 2001, the judge had a good deal of evidence (in the form of affidavits on which the deponents were cross-examined) about the terms of the oral agreement reached either in November 1998 (as pleaded by the Vousdens and found by the judge) or in February 1999 (as found by the Court of Appeal). There were various contemporaneous notes prepared for negotiating purposes but nothing amounting to a document capable of satisfying section 2 of the Contracts Enforcement Act 1956. However, the Hirsts did not plead section 2 in their defence and a very late application for leave to amend was refused.

One of the main points at issue in the courts below was whether there was (as the Hirsts contended) an agreement for a twelve-month probationary term to be followed (if both sides were content with the arrangement) by three further terms of three years each, or (as the Vousdens contended) a twelve-month period to be followed (if the Vousdens alone so elected) by three further terms of three years each. Another issue was whether there was to be an absolute prohibition on assignment or (as in the standard form of lease) only a qualified prohibition. It is unnecessary for the Board to review the oral evidence on these points because the lower courts have arrived at concurrent findings of fact. Blanchard J, delivering the judgment of the Court of Appeal, put it as follows:

"The Judge has, however, found that the parties actually agreed upon the extension, if the Vousdens wanted it, at that [February 1999] meeting. Mrs Vousden and Mr Hirst gave evidence about the meeting. The Judge recorded that he accepted the evidence of the Vousdens in preference to that of the Hirsts:

'Specifically I accept the plaintiffs understood at the end of 12 months they would have the right to a lease essentially on the same terms as the one given to them and I record I am satisfied Mr Hirst in particular appreciated this was the position. I do not accept the defendants' claim the granting of any lease at the end of the initial 12 months was subject to the Hirsts being satisfied with the Vousdens as tenants.'

Having reviewed the evidence, we have come to the conclusion that the Judge cannot be said to be wrong in making this critical finding. He thought it was consistent with what the Vousdens were committing themselves to during the first year and that the position taken by the Hirsts was totally at odds with the then future plans of both parties. We agree. It seems most unlikely that the Vousdens, comparatively naïve as they may have been about matters of business, would have been prepared for Mrs Vousden to give up her job in Auckland (Mr Vousden had previously been made redundant) and move to Waipu Cove and put in a good deal of hard work in trying to revive a failing business, only to be at the mercy of the Hirsts at the end of the first year. Obviously the rewards for the work done in the first year were likely to be reaped only if there were an extension."

Blanchard J then went on to give detailed reasons for upholding the judge's resolution in favour of the Vousdens of the assignment point.

The Vousdens spent Christmas 1998 at the property, and Mr Vousden stayed on for some weeks afterwards to see how the business was run. The Hirsts had at one stage thought of terminating Mr McCarthy's lease at Christmas 1998, but in the event they did not do so until after the meeting in February 1999. There seems to have been some apprehension (justified by events) as to how Mr McCarthy would react to the termination of his lease. In the event he did not leave the premises until the beginning of April (which was at the very end of the summer season) and he removed many fixtures and fittings and left the premises in a deplorable state. This led to severe problems with the health and safety authorities. Nevertheless the Vousdens went into possession of the premises on 9 April 1999, although the takeaway bar was incapable of commercial use until it had been cleaned, repaired and re-equipped, and it did not open to customers until 10 December 1999. The attached living accommodation was uninhabitable and Mr Vousden lived in a caravan. Nevertheless throughout the rest of 1999 the Vousdens paid the agreed yearly rent of $19,000 by monthly instalments. They did so because Mr Hirst told them that he needed to have a regular income in order to maintain his bank borrowing, which was essential to the refurbishment of the premises.

The takeaway bar was not the only part of the demised premises which was incapable of commercial use. The block of five cabins was prone to flooding, as it was below the level of the road, and this block was demolished. The Hirsts paid a deposit on a prefabricated replacement building but could not get planning consent for its installation. The other two cabin buildings were removed from the site to enable them to be replaced on top of piles. After they were replaced (which was not until March 2000 or thereabouts) the Hirsts (quite deliberately, as the Court of Appeal held) failed to reconnect the cabins to the mains electricity supply, so that they remained virtually useless.

The judge did not make (and may well not have had sufficient evidence to enable him to make) any clear findings about how the parties bore the expense of refurbishing and re-equipping the takeaway bar and removing and replacing (or attempting to replace) the cabins. But it is reasonably clear that both sides bore part of the expense (with the Vousdens subsidising the Hirsts' expenditure, to an unquantified degree, by paying the full rent, although the premises could not be used). The Vousdens also incurred substantial expenditure on equipment, stock and remuneration of builders and plumbers (though the Hirsts criticised some of their expenditure, such as the purchase of a ride-on mower, and their failure to do small repairs themselves, as extravagant or unnecessary).

When the matter first came to court (by way of an originating application under section 120 of the Property Law Act 1952) the Vousdens made a joint affidavit which suggested (although not expressly stating) that the demolition and removal of the cabins had been carried out without their consent. Any such impression would be quite wrong. There are concurrent findings that the Vousdens agreed to these steps (Morris J paragraphs 10, 27, 36 and 44; Court of Appeal paragraphs 15 and 24). But there are also concurrent findings (Morris J paragraph 9; Court of Appeal paragraphs 16 and 24) that after the surviving cabins had been re-sited the Hirsts deliberately failed to get them reconnected to main electricity, so that they were still virtually useless. Mr Dillon (who appeared before the Board for the Hirsts; he did not appear below) submitted that the Vousdens should have mitigated the damage they were suffering by themselves arranging for the supply to be reconnected. Their Lordships do not accept that submission, which was not made below and has no evidential basis.

In his submissions to the Board Mr Dillon referred to the well-known case of Charles Rickards Ltd v Oppenheim [1950] 1 KB 616 and argued that the Vousdens had acquiesced in the Hirsts' actions in relation to the cabins and that, having done so, they could not change their attitude without giving notice of reasonable duration. The principle in Charles Rickards Ltd v Oppenheim is not in doubt, but the relevant facts cannot be brought within it. The Vousdens consented to or at least acquiesced in the demolition of the five-cabin block and the temporary removal of the other cabin buildings in the expectation that they would be replaced. Having done so they could not complain of what had become a fait accompli. But the Vousdens in no way consented to or acquiesced in the Hirsts' deliberate failure to reconnect the mains electricity, which was a separate episode and a serious breach of duty on the part of the Hirsts.

So from 10 December 1999 the Vousdens were at last in a position to commence trading from the takeaway bar, and Mrs Vousden gave up her job and joined Mr Vousden in running it. They also employed one female assistant. But at first there was no cabin accommodation available at all, and when some cabins were restored to the site in March 2000 they remained unusable because of the lack of electricity. By then the relations between the parties had begun to deteriorate, and unfortunately they continued to deteriorate as the year went on. Mrs Vousden (who may have been the more practical and articulate of the couple) was away in Australia for a month because her sister was dying. The Vousdens stopped paying rent. They wanted a rebate on account of the full rent which they had paid during the wholly unproductive period at the start of the tenancy. At the Hirsts' invitation they prepared a memorandum (undated, but apparently sent on 17 June 2000) setting out their case. In response the Hirsts offered a single month's rebate but their response was in all other respects unhelpful. In an open letter dated 9 August 2000 the Hirsts wrote to the Vousdens, among other things,

"On the basis of the outstanding rental payments we as the landlords are not satisfied with your performance and as a result are no longer prepared to offer a lease as agreed under our original conditions of rental."

During September 2000 there was correspondence between solicitors which failed to reach agreement as to the terms of a new lease, the difference of opinion as to the tenants' right to assign being one of the sticking points. This correspondence was marked "without prejudice" but privilege was waived at trial.

In the event the Vousdens made no further payment of rent. They instructed valuers who advised that a fair annual rent for a two-year letting of the takeaway bar alone would be $11,950 and for the cabins alone (described as two detached cabins and an ablutions block) as $7,300 (later revised to $7,950). The Vousdens were willing to pay the rent recommended by the valuer, and a fair market rent for any further cabins which were re-established.

On 14 October 2000 the Hirsts gave the Vousdens notice to quit on the ground of non-payment of rent. On 30 November 2000 the Vousdens applied to the High Court for relief from forfeiture. The Vousdens deposed in a joint affidavit dated 29 November 2000 that they would pay any arrears of rent found to be due and that they had lodged funds with their solicitor for that purpose. The matter came before the court on 14 December when the Hirsts asked for an adjournment to file evidence. Then on 22 December at about 5 pm, after solicitors' offices had closed for the Christmas holiday, the Hirsts (accompanied by a policeman) attended at the premises, served a trespass notice, and evicted the Vousdens (although they were permitted to spend the night there). Their Lordships were told that it is not unlawful under the law of New Zealand to carry out an eviction when a claim for relief from forfeiture is before the court. But in all the circumstances the eviction was, in their Lordships' view, a most unattractive way for the Hirsts to treat their old friends.

Morris J held that the eviction was unlawful and that the Vousdens were entitled to damages which he assessed (under section 9 of the Contractual Remedies Act 1979) at $70,000, together with aggravated damages of $5,000 to each of the applicants. The Court of Appeal dismissed the Hirsts' appeal and (on the Vousdens' cross-appeal) increased the statutory damages to $81,500. In the course of the litigation the issues have varied and many points have been taken, some of a technical nature. In their Lordships' view the judge rightly saw his first main task as being to resolve a dispute as to the terms of an imprecise oral agreement negotiated at a series of informal meetings between four individuals with little commercial experience and no legal training or legal advice. He had to do so in the face of severe conflicts of evidence and with little or no useful contemporaneous documentary evidence. It is questionable whether reference to the standard form of lease handed over at the November 1998 meeting gave any real assistance, since the parties themselves seem to have paid no attention to its terms (their Lordships note in passing that clauses 24 and 25 of the form of lease cover total or partial destruction of the demised premises, but neither side has at any stage based any submission, even by analogy, on those provisions). The issue as to whether both sides had to agree to the extension of the lease, and the issue as to assignment, were still live in the Court of Appeal but are no longer live before the Board. The same applies to an issue as to whether the premises were to be let as a going concern, and as to the Hirsts' breach of duty in deliberately refusing to have the cabins reconnected to mains electricity.

The main issue before the Board has been whether the Vousdens' non-payment of rent, after April 2000, entitled the Hirsts to serve a notice to quit and to re-enter the premises. Mr Koppens (for the Vousdens) did not seek to rely on equitable set-off but instead supported the judgment of the Court of Appeal as expressed in the following passage from the judgment of Blanchard J:

"The Hirsts were disentitled from taking the point against the Vousdens because they themselves were denying the existence of any continuing contract and thereby repudiating it. How can it be said that lessees are obliged to keep making rental payments pursuant to a contract (i.e. not merely because they are holding over or are in possession at the sufferance of the lessor) when the lessors are refusing to acknowledge the existence of the lease contract? And how can a purported cancellation of the lease on that ground then be valid? Thus, even if the Vousdens were not entitled to assert a setoff or to seek a rent reduction or to cease rental payments, the Hirsts had disentitled themselves from relying on that point. The eviction was therefore unlawful."

In their Lordships' view this reasoning and conclusion cannot be faulted. The Hirsts had (quite apart from their breach in deliberately not reconnecting the electricity) repudiated the contract by their unequivocal refusal (in the open letter of 9 August 2000) to grant a lease on the terms which (as the judge held) had been agreed. That was a repudiation going far beyond a mere bona fide difference as to a point of construction on the contract (see Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699). The Vousdens had (by the time of the trial at latest) accepted that repudiation (their amended statement of claim contained an alternative claim for relief from forfeiture and the grant of a new lease, but by then that was hardly a realistic possibility). But their initial reasonably prompt application for relief from forfeiture, and their willingness (backed by the lodgement of funds with their solicitor) to pay any arrears found properly due, confirm the Court of Appeal's conclusion. That Court, speaking with wide experience of practice in New Zealand, thought it obvious that relief from forfeiture, if needed, would have been granted.

The eviction of the Vousdens was therefore unlawful. They were entitled to damages for their unlawful eviction, and also for the Hirsts' wrongful failure to reconnect the electricity. Contrary to the submission of Mr Dillon, these matters were adequately (if not elegantly) pleaded (see paragraphs 23, 24, 27, 33 and 34 of the amended statement of claim).

In awarding damages the judge had a wide discretion under section 9 of the Contractual Remedies Act 1979: Thomson v Rankin [1993] 1 NZ LR 408. But wide as the discretion was, the judge should have given some indication of how he arrived at his global figure of $70,000. In the absence of some reasoned explanation, however brief, the Court of Appeal was entitled to review his award on the Vousdens' cross-appeal. Their Lordships see no reason to depart from the revised sum of damages substituted by the Court of Appeal.

For these reasons their Lordships will humbly advise Her Majesty that this appeal should be dismissed with costs.

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