TURRALL and BUTLER v JACKSON [2018] NZHC 381

TURRALL and BUTLER v JACKSON [2018] NZHC 381 [12 March 2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV 2017-404-857[2018] NZHC 381BETWEEN JOHN GRAHAM TURRALL and PETERWILLIAM BUTLERPlaintiffsAND BRYAN LEE JACKSONFirst DefendantKAREN LETICASecond DefendantMAEGAN JANE FOXThird DefendantDONALD ANDREW FOXFourth DefendantBRIAN GRAHAM BLUETT and TODDGRAHAM BRUCE BLUETTThird PartiesHearing: 22 February 2018Appearances: C M Fry for PlaintiffR J Hollyman and A J Peat for First and Second DefendantsA Steel for Third and Fourth DefendantsG E Schumacher for Fifth and Sixth DefendantsJudgment: 12 March 2018JUDGMENT OF VAN BOHEMEN JThis judgment was delivered by me on 12 March 2018 at 10.00ampursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarIntroduction[1] The main proceeding, which was commended by statement of claim dated 1May 2017, concerns liability for payment of arrears and related costs under aregistered lease (registered lease instrument C872767.1) in respect of a property at 384Ellerslie-Panmure Highway, Auckland. It has been set down for hearing on 21 June2018. This judgment deals with the liability of the third parties to the first to fourthdefendants under the lease.Background[2] The plaintiffs, as trustees of the Flo-Ter Trust, were owners and landlords ofthe property until July 2016. Between 19 April 1995 and July 2016, the property wasleased to a succession of lessees, including the first to fourth defendants and the thirdparties, under the lease granted originally to RJ and CI Duncan Ltd and then assignedto subsequent lessees:(a) On 9 July 1995, the first and second defendants took an assignment ofthe lease;(b) On 14 June 2004, the first and second defendants assigned the lease tothe third and fourth defendants;(c) On 3 September 2007, the third and fourth defendants assigned thelease to the third parties.[3] In taking their assignments of the lease, the first and second defendants and thethird and fourth defendants covenanted with the plaintiffs to pay the rental and otheroutgoings "now and into the future" and to perform the covenants and conditions, bothexpress and implied, in the lease.[4] In a judgment dated 3 February 2016,1 Toogood J gave judgment in favour ofthe plaintiffs against the third parties for various defaults while the third parties werethe assignees under the lease and:1 Turall v Bluett [2016] NZHC 64.(a) Made orders granting the plaintiffs possession of the land andcancelling the lease;(b) Required the third parties to pay to the plaintiffs rental and outgoingstotalling $979,796.70, being the amount owing at the date of judgment,together with unpaid rental, penalties and interest between the date ofjudgment and the date the plaintiffs actually took possession of theland; and(c) Ordered that the third parties should pay costs and disbursements to theplaintiffs in accordance with the lease in the sum of $23,992.25.[5] The first to fourth defendants say the plaintiffs have not sought to enforce thatjudgment against the third parties but have instead brought the current proceedingsagainst them for the same claim.[6] In their amended statement of claim dated 7 November 2017, the plaintiffs seekrecovery against the first to fourth defendants under their covenants to the plaintiffs.They also seek recovery against the fifth and sixth defendants as guarantors under adeed of guarantee and indemnity.[7] The plaintiffs say that pursuant to the Limitation Act 2010, any liability of thefirst to the fourth defendants, and of the fifth and sixth defendants, to the plaintiffs islimited to the six years immediately preceding the plaintiffs' claim, that is from 1 May2011 until termination of the lease on 3 February 2016. Accordingly, they claimagainst the first to fourth defendants, and separately against the fifth and sixthdefendants:(a) Outstanding rent of $662,729.86;(b) Outstanding insurance premium of $52,151.05;(c) Outstanding interest of $241,751.85; and(d) Further interest and costs incurred in bringing the previous proceedingsand the current proceedings.[8] The first to the fourth defendants deny any liability to the plaintiffs. They havealso cross-claimed against the fifth and sixth defendants.[9] By statement of claim dated 8 September 2017, the first to the fourthdefendants claim indemnity under statute and against the third parties for any liabilitythat the first to fourth defendants may be held to owe to the plaintiffs under the lease.[10] The third parties have taken no steps in response to the claim by the first tofourth defendants.[11] By minute dated 22 January 2018, Jagose J set down a formal proof hearing ofthe first to fourth defendants' claim against the third parties.Formal proof hearing[12] The formal proof hearing was held before me on 22 February 2018. Withleave, Ms Fry, counsel for the plaintiffs withdrew from the hearing. Counsel for thefifth and sixth defendants, Ms Schumacher, attended but made no submissions.[13] As set out in their claim against the third parties, the first to the fourthdefendants seek:(a) A declaration that the [first to the fourth] defendants are entitled toindemnity from the third parties in respect of the plaintiffs' claimsagainst the [first to the fourth] defendants under the lease and the [firstto the fourth] defendants' expenses incurred;22 The first to the fourth defendants' claim against the third parties was filed before the first to thefourth defendants' cross claim against the fifth and sixth parties so did not distinguish between thedifferent categories of defendant.(b) An order that the third parties are to pay or secure any amounts due tothe plaintiffs when the amount of indebtedness (if any) of the [first tothe fourth] defendants has been obtained.Discussion[14] The case for the first to fourth defendants was well set out in their counsels'memorandum dated 20 December 2017 to which Mr Hollyman and Mr Steel spoke.The essence of their case is that the first to fourth defendants have a right to a fullindemnity from the third parties for any liability owed by the first to fourth defendantsto the plaintiffs pursuant to s 98 of the Land Transfer Act 1952 (LTA), notwithstandingthe repeal of that section by the Property Law Act 2007 (PLA).[15] Section 98 of the LTA provides:98 Implied covenants in transfer of leaseIn every transfer of a lease as aforesaid there shall be implied a covenant byand on the part of the transferee with the transferor that the transferee willthenceforth pay the rent by the said lease reserved, and observe and performall the covenants in the said lease expressed or implied on the part of the lesseeto be observed and performed; and will indemnify and keep harmless thetransferor and his representatives from and against all action, suits, claims,and expenses in respect of the non-payment of the said rent, or the breach ornon-observance or non-performance of the said covenants or any of them.(emphasis added)[16] Section 98 of the LTA was repealed by s 364(1) and Schedule 7 of the PLAwith effect from 1 January 2008 when the PLA came into force.[17] Despite the repeal of s 98 of the LTA, s 367(5) of the PLA provides:(5) Covenants implied by the Property Law Act 1952, or by section 96 or 98 ofthe Land Transfer Act 1952, into instruments that came into operationbefore 1 January 2008 are not affected by sections 364 and 366(c), andcontinue as if that Act, and those sections, had not been repealed.[18] Accordingly, the covenant implied by s 98 of the LTA into the lease over theproperty at 384 Ellerslie-Panmure Highway, Auckland continues to operate.[19] Section 98 of the Act, also reflected in s 242 of the Property Law Act 2007,captures the long-standing common law principle that an assignee indemnifies theprevious assignors of the lease for the consequences of any breach of covenant in thelease, including any damages and costs incurred as a result of the breach.[20] As stated by Cockburn C J in Moule v Garrett:3The defendants are the ultimate assignees of a lease, and the plaintiff, who issuing them for indemnity against the consequence of a breach of a covenantcontained in that lease, is the original lessee. There is no doubt that the breachof a covenant is one in respect of which the defendants, as assignees, are liableto the lessor, and that they have acquired by virtue of mesne4 assignments thesame estate which the plaintiff originally took. And I think that taking thisestate from the assignee of the plaintiff, their own immediate assignor, theymust be taken to have acquired it, subject to the discharge of all of theliabilities which the possession of that estate imposed on them under the termsof the original lease, not merely as regards the immediate assignor, but asregards the original lessee.The damage therefore arises through their default, and the general propositionapplicable to such a case as the present is, that where a person is compelled topay damages by the legal default of another, he is entitled to recover from theperson by whose default the damage was occasioned the sum so paid.[21] It was confirmed in Rogers v Locum Developments Ltd5 that s 98 of the LTA isconsistent with the common law and should not be interpreted as overruling thecommon law.[22] Under the covenant implied by s 98 of the LTA and as reflected in the commonlaw principles stated by Cockburn CJ:(a) The third parties have covenanted to indemnify the third and fourthdefendants, from whom they took a direct assignment of the lease, fromany suit, claim and expenses in respect of the non-payment of rent, orthe breach or non-observance or non-performance of the covenants inthe lease, by the third parties;3 Moule v Garrett (1872) LR 7 Exch 101 at 103.4 "mesne" in this context means "intermediate" or "intervening".5 Rogers v Locum Developments Ltd (1993) 2 NZ ConvC 191,507 (HC) at 9.(b) The third parties have covenanted to indemnify the first and seconddefendants, as earlier assignees of the lease, from any suit, claim andexpenses in respect of the non-payment of rent, or the breach or non-observance or non-performance of the covenants in the lease, by thethird parties.[23] It follows that the first to fourth defendants are entitled be indemnified by thethird parties for any liability for which the first to fourth parties might be held as aconsequence of a failure by the third parties for non-payment of rent and any breachor non-observance or non-performance of the covenants in the lease, and for anydamages and expenses occasioned by those defaults.[24] As counsel for the first to fourth defendants also submitted, in accordance withHCR 4.17, the third parties are to be taken as having admitted the liability claimed bythe first to fourth defendants by defaulting in filing a statement of defence to the firstto fourth defendants' statement of claim.[25] In their memorandum of 20 December 2017, counsel for the first to fourthdefendants asked that the court make orders as to the indemnity their clients claimagainst the third parties in respect of the plaintiffs' claims against the first to fourthdefendants under the lease and related costs when those are ascertained, and forjudgment in the amounts already incurred by the first to fourth defendants in theirdefence of the plaintiffs' claims. I am satisfied the first to fourth defendants areentitled to the orders sought.[26] As to costs and expenses incurred to date, counsel for the first to fourthdefendants have provided copies of invoices giving rise to the amounts of $30,632.21incurred by the first and second defendants and $10,499.60 incurred by the third andfourth defendants. I am satisfied the first to fourth defendants are entitled under thecovenant implied by s 98 of the LTA and under the common law to be indemnified forand to recover those amounts.Orders[27] I make the following orders:(a) The first to fourth defendants are entitled to an indemnity from the thirdparties in respect of the plaintiffs' claims against the first to fourthdefendants under the lease in respect of the property at 384 Ellerslie-Panmure Highway, Auckland (registered lease instrument C872767.1)and their expenses incurred in relation to the same.(b) The third parties are to pay or secure any amounts due to the plaintiffswhen the amount of indebtedness (if any) of the first to the fourthdefendants has been ascertained;(c) Pursuant to that indemnity, judgment is entered against the third partiesin the amount of $30,632.21 in favour of the first and second defendantsand $10,499.60 in favour of the third and fourth defendants;(d) Leave is granted to the first to fourth defendants to apply for the entryof judgment in respect of any further amounts payable by way ofindemnity by the third parties;(e) The third parties are to pay the first to fourth defendants' costs on anindemnity basis of and incidental to this formal proof hearing.[28] Memoranda as to costs are to be filed by 6 April 2018._________________van Bohemen JSolicitors:John G Turrall, North ShoreSpencer Legal, AucklandFriedlander & Co, AucklandDuncan King Law, AucklandCounsel:C M Fry, AucklandR J Hollyman, Auckland