Delta Petroleum (Nevis) Ltd v Oojj'S Ltd and Hyliger

• Jurisdiction: Saint Kitts and Nevis
• Judge: Pereira, C.J.
• Judgment Date: 10 October 2016
• Neutral Citation: KN 2016 CA 5
• Docket Number: SKBHCVAP2013/0016
• Court: Court of Appeal (Saint Kitts and Nevis)
• Date: 10 October 2016

Court of Appeal

Pereira, C.J.; Michel, J.A.; Thom, J.A.

SKBHCVAP2013/0016

Delta Petroleum (Nevis) Ltd.

and

Oojj'S Ltd. And Hyliger

Appearances:

Mr. John Carrington QC for the appellant.

Ms. Sherry-ann Liburd-Charles for the respondents.

Civil Appeal - Landlord and Tenant — Covenant not to derogate from grant — Whether the respondent derogated from the grant — Whether respondent's omission amounts to breach of covenant — Whether applicant is entitled to terminate lease agreement on basis of breach of fundamental terms — Whether the judge erred in finding that the respondent was entitled to set off — Whether the judge erred in the exercise of his discretion in awarding costs on the counterclaim.

On 1st August 2002, the appellant and first respondent entered into an agreement whereby the appellant was to supply the first respondent with petroleum products for resale. At the expiration of that agreement, the first respondent was indebted to the appellant in the sum of $486,833.84. The parties then entered into a second agreement on 30th May 2008 and under this agreement the first respondent's debt was to be treated as advance payment of rent due from the appellant to the second respondent pursuant to an agreement for lease of the second respondent's premises. A fixed term tenancy of five years (June 2008 – May 2013) commenced when the appellant entered the second respondent's premises at the beginning of July 2008. However, on or about 30th September 2008, the appellant purported to repudiate the tenancy on the ground that it was unable to conduct its operations on the premises due to the second respondent's derogation from grant, in breach of the terms of the lease, by failing to ensure an adequate supply of electricity to the said premises. The purported repudiation was rejected by the respondents on the ground that there was no legal basis for termination. The respondents subsequently terminated the lease agreement in December 2009. A month after, a lump sum payment of $278,433.84 was made by the second respondent towards the debt. The appellant then filed a claim against the respondents for the outstanding amount due of $241,932.89. In response, the second respondent brought a counterclaim averring that the appellant owed him $208,000.00 in outstanding rent due for the duration of the lease agreement and that this amount, in addition to the lump sum payment, should be set off against the principal debt of $486,833.84 owed to the appellant. At first instance, the learned judge found, amongst other things, that the second respondent had not derogated from grant and that there was no legal basis for the appellant's purported termination of the lease on the ground of a breach of a fundamental term. Additionally, the learned judge found that the second respondent, having been successful on his counterclaim, was entitled to set off the $208,000.00 owed by the appellant for rent against the $486,833.84, which debt is satisfied when the lump sum payment is added, subject to any outstanding amounts owed by way of principal and interest. The appellant was also awarded the sum of $32,698.75 consisting of the outstanding principal and interest. Further, in relation to costs, the learned judge ordered prescribed costs on the quantum awarded to the appellant and prescribed costs on the value of the counterclaim to the second respondent. The appellants, dissatisfied with the decision of the learned judge, appealed.

Held: allowing the appeal in part and ordering costs in the appeal be assessed at 1/6 of the prescribed costs in the court below, that:

• 1. The covenant not to derogate from grant is prospective in nature. While it embraces any act or omission on the part of the landlord which has the effect of rendering the premises substantially less fit for the purpose, it does not embrace acts or omissions occurring before the lease agreement was entered into. In this case, the second respondent wired the demised premises before and not after the lease was entered into. Consequently, there was no derogation from grant with respect to the pre-lease wiring and/or any continuing consequences this might have had for the tenant.

• Southwark London Borough Council v. Mills and others ; Baxter v. Camden London Borough of Council [1999] 4 All E.R. 449 applied; Chartered Trust plc v. Davies [1997] 2 E.G.L.R. 83 applied; William Old International Limited v. Arya and another [2009] E.W.H.C. 599 (Ch) at para. 36 applied.

• 2. In order to have validly terminated the lease agreement on the basis of there being a breach of a fundamental term of the agreement, there must have been, at the time of the purported termination, cogent evidence that conclusively established that (i) the adequate supply of electricity was in fact a fundamental term; and (ii) the second respondent failed in his duty to provide an adequate supply of electricity. In this case, the fundamental term relates to the supply of electricity to the premises, not its adequacy. Since the agreement was not discharged on the ground of a breach of the fundamental term to supply electricity or more generally a breach of the covenant not to derogate from grant, the appellant wrongfully purported to terminate the lease agreement in September 2008. Further, there was no conclusive evidence that unequivocally established that the second respondent caused the fluctuations or that he was under an obligation to rectify the wiring of the demised premises so as to make it fit for its intended purpose. The learned judge was therefore right in holding that the appellant had no legal or factual basis for the early termination of the lease agreement.

• 3. In relation to the entitlement to set off, since the appellant wrongfully purported to terminate the lease agreement, its obligation to pay rent continued until December 2009. Accordingly, the learned judge was entitled to set off the sum of $208,400.00 representing unpaid rent against the principal sum of $486,833.84 owed to the appellant.

• 4. On the question of costs, rule 65.5(1)(2) of the Civil Procedure Rules, 2000 provides in part that the “value” of the claim, whether or not the claim is one for a specified or unspecified sum, coupled with a claim for other remedies is to be decided in the case of the claimant or defendant – (a) by the amount agreed or ordered to be paid. In the case at bar, no money was “ordered to be paid” to the second respondent. The $208,400.00 was an amount that was set off against the debt owed to the appellant. The learned judge therefore had no legal basis for awarding prescribed costs to the second respondent on the counterclaim, which in effect was a set off.

• Rule 65.5 (1) of the Civil Procedure Rules, 2000 applied; Rule 64.6(1) of the Civil Procedure Rules 2000 considered.

Pereira, C.J.

1 This appeal raises the central issue of whether there was a derogation from grant by the respondents, thereby entitling the appellant to terminate a lease agreement. Connected to this issue is a number of sub-issues, including whether the learned judge erred in finding that the second respondent was entitled to set off a certain sum against the debt due to the appellant; and whether the learned judge erred in principle in the exercise of his discretion when awarding costs.

THE BACKGROUND

2 An agreement was entered into between the appellant and respondents on 1st August 2002 under which the appellant was obliged to supply the first respondent with petroleum products for resale. In keeping with the terms of the agreement, the first respondent was allowed a credit limit of $200,000.00 in relation to payments due to the appellant for the supply of petroleum products, and which the first respondent was obliged to pay off at the end of each month or when the credit limit was reached.

3 The first respondent exceeded the credit limit and after the expiration of the agreement, acknowledged in writing, on or about 30th May 2008 that it was indebted to the appellant in the sum of $486,833.84.

4 On 30th May 2008, a second agreement was entered into by the parties under which the first respondent's debt was to be treated as an advance payment of rent due from the appellant to the second respondent pursuant to an agreement for the lease of the second respondent's premises in Basseterre. The second respondent, by way of a promissory note, also agreed to pay its debts in installments of $12,000.00 per month commencing 6th June 2008, the date when the lease was to commence.

5 A fixed term tenancy of five years (June 2008 – May 2013) commenced when the appellant entered into the premises at the beginning of July 2008. The appellant, however, purported to repudiate the tenancy on or about 30th September 2008 on the ground that it was unable to conduct its operations on the premises due to the second respondent's derogation from grant, in breach of the terms of the lease, by failing to ensure an adequate supply of electricity to said premises.

6 The appellant averred that, as a consequence of the foregoing, only the sum of $36,000.00 was applied towards the first respondent's debt over the period July– September 2008.

7 The appellant purported to repudiate the lease in September 2008, but this was not accepted by the respondents, who contended that there was no legal basis for the purported termination. The respondents subsequently terminated the lease agreement in December 2009.

8 In January 2011, the second respondent made a lump sum payment of $278,433.84 towards the debt.

9 On 21st August 2011, the appellant filed a claim against the respondents claiming the sum of $241,932.89 as being the outstanding amount due to the appellant from the respondents pursuant to the agreement entered into on or about 30th May 2008.

10 In response to the appellant's claim for the alleged outstanding sum, the second respondent brought a counterclaim averring that the...