GARAGE HOSPITALITY LIMITED V LONDON PROPERTY INVESTMENTS LIMITED HC AK CIV-2008-404-8542

GARAGE HOSPITALITY LIMITED V LONDON PROPERTY INVESTMENTS LIMITED HC AK CIV- 2008-404-8542 8 July 2009IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2008-404-8542BETWEEN GARAGE HOSPITALITY LIMITED Plaintiff AND LONDON PROPERTY INVESTMENTS LIMITED Defendant Hearing: 2 July 2009 Appearances: R Parmenter for Plaintiff R Enright and MG Kirkland for Defendant Judgment: 8 July 2009 at 5:00 pmJUDGMENT OF ASHER JThis judgment was delivered by me on 8 July 2009 at 5:00 pm pursuant to Rule 11.5 of the High Court Rules .. Registrar/Deputy Registrar .. DateSolicitors: Graham & Co., PO Box 8793, Symonds Street, Auckland RB Enright/MG Kirkland, Kirkland Enright, PO Box 1290, Auckland Copy: RO Parmenter, Barrister, PO Box 1052, Shortland Street, AucklandIntroduction[1] London Property Investments Limited ("London") owns a property at 12 Vulcan Lane, Auckland, known as the Queen's Ferry Hotel ("the property"). The property is leased by an undated 2006 lease to Garage Hospitality Limited ("Garage"). On 22 December 2008 Garage filed a without notice interim injunction application to restrain London from entering into possession of the property. The injunction was granted on condition that $58,892.07, being an amount claimed by London, continued to be held in Garage's solicitor's trust account. By an application on 9 April 2009, London applies to set aside that interim order. [2] There are two broad grounds put forward in support of the application. The first is that there was non-disclosure of material matters by Garage when it obtained the without notice orders. The second, allied to the first, is that on the basis of the matters that should have been disclosed, there is no serious question to be tried warranting the granting of the interim relief. [3] There are three factual matters put forward to support the non-disclosure and lack of a serious question to be tried submissions. The first is that there was outstanding rent owing by Garage to London. The second is that Garage had assigned its lease without permission. The third is there is an outstanding Council code compliance certificate relating to building works done by Garage. It is submitted that these three matters were not disclosed, and show a weak case. [4] I will approach this application on the basis that the general onus of proving a serious question to be tried and the balance of convenience rests on Garage, despite the fact that it is a respondent to the application. The fact that a respondent has succeeded in obtaining a without notice injunction does not shift the onus, which remains on the party seeking to maintain the interim injunction in any later with notice application to set it aside: Automatic Parking Coupons Ltd v Time Ticket International Ltd (1996) 10 PRNZ 538, at 539.Application out of time[5] There was objection by Garage to London filing its application out of time. The application was filed some three-and-a-half months after the orders were made and was undoubtedly out of time. The orders were made on 22 December 2008 and served at about that time. The application was filed on 9 April 2009. High Court Rule 7.49(3)(b) provides that a notice of application to vary or rescind an order or interlocutory decision must be filed and served: if it is made by a party who was not present and not represented, within 5 working days after receipt by the party of notice of the making of the order or the giving of the decision, and of its terms.[6] It is not in contention that the time for filing the application expired in January 2009. The question that arises is whether the Court should apply its discretion set out in r 1.19, which provides:1.19 Extending and shortening time(1) The court may, in its discretion, extend or shorten the time appointed by these rules, or fixed by any order, for doing any act or taking any proceeding or any step in a proceeding, on such terms (if any) as the court thinks just. (2) The court may order an extension of time although the application for the extension is not made until after the expiration of the time appointed or fixed.There must be material upon which the Court can exercise its discretion: Day v Ost (No. 2) [1974] 1 NZLR 714; Ratnam v Cumarasamy [1965] 1 WLR 8. A proper evidential foundation for the request for extension must be made out by an applicant. [7] The reason put forward by London for its delay is that the management of the lease has been in disarray since the control of its enterprise by a Mr Meadows. It is asserted that London was placed into receivership as a consequence of his actions, and that there have been difficulties in establishing financial records and the history of dealings with tenants. [8] I consider it relevant in exercising the discretion to consider the nature of the application. A party who is restrained by a without notice order is affected incircumstances where that party has not been afforded the very important right of being heard. As I have observed, the onus in any later application to set aside the orders remains with the party that obtained the without notice order. I consider when an applicant has not been heard on orders that are made adverse to that applicant's interests, more leeway should be granted than otherwise to ensure the applicant is given an opportunity to be heard. It is also relevant that there does not appear to be any prejudice to Garage as a consequence of the delay. [9] Given the fact that some basis for failure to file within time has been put forward, the particular nature of the application, and the lack of prejudice, I extend the time for the filing of this application to 9 April 2009.The three alleged non-disclosuresThe approach to disclosure[10] If an applicant for a without notice interim injunction misstates or fails to disclose material facts that could be adverse to the application, this may be a sufficient ground for dissolving any order made: Escott v Thomas [1934] NZLR S 175, at 176-177. The purpose of the practice is to stop an applicant who has improperly obtained an order retaining that advantage. It is also to create a deterrent, to ensure that persons who apply without notice rigorously observe the duty to present material accurately, and to disclose all relevant material. [11] While misrepresentation of position or non-disclosure are grounds for setting aside without notice orders, they will not lead to rescission as a mandatory consequence: Ellinger v Guinness Mahon & Co. [1939] 4 All ER 16, at 24-25. I respectfully agree with the observation of McGechan J in Tucker v News Media Ownership Ltd [1986] 2 NZLR 716 at 730:Unless it is necessary to punish deception, there generally is little point in looking back in anger. It is better to look forward constructively. There is no suggestion in this case of bad faith. Moreover, the interim injunctions were obtained under conditions of extreme haste in which some oversights are excusable. To simply discharge the interim injunctions on a technical basis of non-disclosure or misrepresentation, without examining the meritsof or need for further injunctive restraint could lead to a grave injustice. I am not prepared to take that approach.[12] Nevertheless, serious misrepresentation or non-disclosure may well lead to the order being set aside. It is necessary to examine all the circumstances, including the gravity and materiality of the failure, the urgency of the application, the nature of the relief sought, the strength of the applicant's case, and any change to the factual circumstances since the orders were made.Failure to disclose to the Court that there was outstanding rent[13] The without notice injunction was obtained by Garage as a response to a notice issued by London under s 245 of the Property Law Act 2007, ("the s 245 notice"). That notice was served by London on Garage on 19 December 2008, and was headed "Notice of Intention to Cancel Lease". The default referred to in the notice was referred to as follows:The lessee is in breach of the lease. The lessee has failed to pay the Opex specified in the lease; and breached 35.1 of the lease.[14] There was, therefore, no reference in the notice to outstanding rent. However, the lessor asserts that further investigations since then have revealed that rent of approximately $132,000 is presently owed. [15] There are three leases between London and Garage relating to the property. At least one of the earlier leases had provided for a rental holiday of 18 months. That rental holiday was apparently taken. The current 2006 lease, which related back to the commencement date in 2004, did not refer to a rent holiday. London and Garage both appear to have assumed that Garage had an entitlement to that rental holiday until London reviewed the leases this year, and discovered there was no express provision for the rental holiday in the current 2006 lease. London takes the view that the terms of the present 2006 lease apply, and there was no rent holiday. It asserts that there can be no basis for a departure from the rental obligations in the 2006 lease.[16] London's claim to the extra rent does not seem strong. There is corroboration for the fact that there was an earlier rental holiday, as the parties appear to have acted for many years on the basis that this was so. If the parties accepted the fact of a rental holiday, that may bind the parties even if it is not in writing. I did not receive detailed submissions on the topic, but the doctrine of waiver may well apply. It may also be the case that the relevant paragraph in the earlier lease is to be treated as part of the 2006 lease. In such circumstances there is a serious question to be tried, and indeed a strong arguable case, that there was a rent holiday. [17] Moreover, London can hardly complain about Garage not disclosing a dispute about outstanding rental at the time it sought the without notice injunction in December 2008, when London itself was not making any such claim. Garage assumed, it appears with some justification, that it was up to date on rent. It was at the time paying rent monthly and continues to do so. In an email from London dated 23 December 2008, the day after the grant of the injunction, Mr R Lyon for London stated he "has now discovered" rental arrears. If he had only then discovered the alleged arrears then he cannot complain about Garage not disclosing a dispute about them the day before. They were not an issue on 22 December 2008. [18] Mr Enright for London referred to a letter from London to Garage where in the last two paragraphs there was a reference to London contesting that "the rent is CPI and is consequently subject to market reviews". This is not a reference to rent actually owing, and does not appear to be relevant to any claim for rent. [19] He also placed weight on an email that was sent after the issue of the without notice injunction, on 19 March 2009. That email set out a quote from another document which referred to there being a balance of $9,478 which was to be paid at some point in the future. This is an amount owed to London which is not now in contention, but Garage claims that it has a set-off in relation to it. It was not a figure in dispute at the time of the application for the interim injunction, and is not relevant to the issue of disclosure.[20] I conclude that there was no apparent dispute about outstanding rent on 22 December 2009 when Garage sought the without notice injunction. There was nothing that it needed to disclose as relevant to such an issue. [21] I do not consider that any of the new material that has since come to light establishes at this stage that there were any large amounts of rent owing, to a sufficient degree to warrant the injunction being set aside or its terms reviewed. There is, indeed, a strong arguable case that the rental is up to date.The assignment of lease[22] Garage has assigned its lease to Hunter & Co. Limited. This was disclosed by Garage in its without notice application for injunction. It was also disclosed in a letter quoted in an affidavit of Mr G M Bilkey in support of the application, that there had been disputes in relation to the assignment and that the assignee had taken possession. There was no indication of an ongoing dispute about the assignment. [23] However, the s 245 notice, which was exhibited, expressly referred to a breach of the assignment clause in the lease (clause 35.1). Also, although the affidavit does not specifically set out Garage's position on the assignment, its tenor is to explain and justify the assignment. This could be expected, given that a failure to obtain consent was one of the grounds of default in the s 245 notice. An exchange of emails about the assignment were attached to the affidavit in support of the without notice application. These include an email of 24 October 2008, in which a representative of London congratulates a representative of the assignee on the assignment, and refers to the assignee as the "approved tenant". There is, therefore, a serious question as to whether formal consent to the assignment is being unreasonably withheld. If it is, the tenant and assignee were entitled to proceed with the assignment without the lessor's consent: Countrywide Banking Corporation Ltd v Roni Corporation Ltd (1990) 1 NZ ConvC 190,520. [24] London's position was shown in the s 245 notice. The relevant correspondence, which indicated a suitable assignee, and at least informal consent, was disclosed. It is not clear whether London's objection to the assignment had beenexpressed any more fully than in the s 245 notice. In the circumstances, I cannot discern any non-disclosure. Even if this issue could have been more clearly signalled to the Judge, I do not consider it would have affected his decision.The code compliance certificate[25] There was no reference in the without notice application, of any building consent or code compliance certificate ("CCC") issues. [26] London has since discovered material which indicates that there may be an outstanding code compliance issue. In its latest affidavit it has included a Land Information Memorandum ("LIM"), which refers to "refurbishment of Queen's Ferry Hotel (commercial alteration)" and "CCC not issued". There is a further statement that a consent had been approved, but the final code compliance certificate not issued. It was submitted by Mr Kirkland, who made submissions on this point for London, that this was a very serious matter, as the public used the premises. [27] There is nothing to indicate that Garage should have been aware that the CCC issue was of relevance to the issue of cancellation of the lease. It had not received any correspondence on the matter from London, which, it appears, did not know about it. The fact that the only material indicating there is an issue is contained in a LIM report is an indication that the outstanding CCC is not a serious problem, and indeed it may be entirely routine. It was not an issue between London and Garage in December 2008, and is not of sufficient importance to warrant the conclusion that it should have been disclosed at the time of the application. [28] The existence of the outstanding CCC does not appear to be a matter of sufficient weight to affect the fact that there is a reasonable question to be tried that there was no default warranting the cancellation of the lease.Conclusion on the three non-disclosures[29] I conclude that there was no failure to disclose on the part of Garage in its application. I also conclude that none of the matters raised, even if they had beentraversed as they have been in this hearing, would have affected the strength of Garage's without notice application, or the outcome of the application. I am satisfied that Garage has shown a reasonable question to be tried as to the ability of London to re-enter. There is no doubt that the balance of convenience favours the continuation of the status quo until the disputed issues are resolved. [30] It is relevant that even if there have been breaches of the lease by Garage, there is sufficient doubt about their materiality and gravity for relief against forfeiture to be an option. There could, therefore, be a serious case to be tried for relief against forfeiture. This is another factor which supports the continuation of the interim injunction. [31] The application to set aside the interim injunction must fail, and the injunction will continue until further order of the Court.The amount held[32] Mr Enright submitted rather faintly that the amount held in Garage's solicitor's trust account should be increased to cover the amount of rent it was now said was owing ($132,000), together with the Opex (the operating expenses) that it was claimed were owing (now reduced from $59,846.19 to approximately $26,000). However, for the reasons that I have already explained, the claim for the extra $120,000 for rent is belated, and does not appear to be strong. The sum presently held of approximately $59,000 considerably exceeds the long-standing but now reduced claim for Opex. In all the circumstances, no change to the amount held is warranted.Change to the words of the injunction[33] The injunction is worded very broadly, and does not relate to a specific s 245 notice. Mr Enright reasonably observes that there should not be an injunction in place which precludes London from issuing a s 245 notice in respect of any new breach.[34] Counsel both agreed that all the outstanding issues that have been referred to in submissions are to be resolved in an arbitration. That arbitration, which was invoked in terms of the usual lease arbitration clause, is to take place on 26 August 2009. [35] In the circumstances, I consider that a more precise form of words is appropriate. That form was discussed between counsel who agreed that an amendment narrowing its terms was appropriate. The injunction will now read as follows:The defendant is restrained from any entry into the property known as the Queen's Ferry Hotel at 12 Vulcan Lane, Auckland, based on the s 245 notice dated 19 December 2008, or any matter being considered in the present arbitration to be heard on 26 August 2009, those matters including:• Outstanding opex and rental.• The assignment of lease.• Failure to obtain a code compliance certificate in respect of building works. The $59,846.18 will continue to be held in the trust account of Graham & Co. in the joint names of the parties.Costs[36] London seeks costs whatever the outcome of this proceeding. It bases its application on clause 6.1 of the 2006 lease. It provides:The tenant shall pay the Landlord's solicitor's reasonable costs of and incidental to the preparation of this lease and any variation or renewal or any deed recording a rent review, and the Landlord's legal costs (as between solicitor and client) of and incidental to the enforcement or attempted enforcement of the landlord's rights remedies and powers under this lease.It is submitted that London's costs in applying to set aside the injunction which prevented it from enforcing the lease, must be seen as costs incurred in the enforcement or attempted enforcement of the lease, whether or not the application is successful. It is submitted that all London's costs are therefore payable by Garage.[37] In ANZ Banking Group (NZ) Limited v Gibson [1986] 1 NZLR 556, an obligation to pay a creditor's costs in a guarantee was held to entitle the bank to indemnity with respect to legal expenses "properly" incurred in relation to recovery action: at 566. In Frater Williams & Co. Limited v Australian Guarantee Corp (NZ) Limited (1994) 2 NZ ConvC 191,873 it was assumed that an unqualified obligation to pay the lessor's legal costs of and incidental to any enforcement was an entitlement to reasonable costs. It was stated at 191,887 by Fisher J:I respectfully agree with the test posed by Robertson J so long as it is understood that the word "reasonable" does not import a discretion in the usual sense. The ANZ Banking case established that in principle one party may contractually bind itself to pay the other party's full solicitor- client costs. In such a case the Court must decide what tasks attract a costs indemnity on a proper construction of the contract, whether the task undertaken in the instant case was one of those contemplated in the contract,whether the steps taken were reasonably necessary in pursuance of that task, whether the rate at which they were then charged was reasonable having regard to the principles normally applicable to solicitor-client costs, and whether any other principles drawn from the general law of contract would in whole or in part deny the claimant its prima facie right to judgment. [emphasis added]In Anglesea Medical Properties Limited v Braemar Hospital Limited (No 2) HC AK CIV-2006-419-1492 9 May 2008 Allan J at [13], it was held that costs claimed under a similar clause had to be "objectively reasonable". [38] In these cases it was assumed that payment of legal costs clauses in mortgages and leases must be reasonable. Given the submission of Mr Enright that Garage is entitled to indemnity costs, even if it fails in this application, it is necessary to analyse the basis for the implication that such costs must be reasonable. [39] In clause 6.1 the word "reasonable" is used in relation to the costs of and incidental to the preparation of the lease and any variation or renewal. The word "reasonable" is not repeated in the second part relating to the costs of enforcement. It could be argued that the lack of the word "reasonable" in relation to the second clause means that it must be assumed that the landlord is entitled to charge unreasonable enforcement costs.[40] However, although the word "reasonable" is not repeated in the second part of clause 6.1, it is implicit from the use of the word "reasonable" at the outset that costs incurred in bad faith or which are unreasonable cannot be claimed. There is no logical basis for one sort of cost relating to the lease (its creation) to have to be reasonable, while another sort of cost relating to the lease (its enforcement) can be unreasonable. They must both be reasonable. Such an assumption is implicit in the actual language of the clause, and is an implied term of the second type referred to by Cooke P in Vickery v Waitaki International Limited [1992] 2 NZLR 58 at 64, arising from the express terms of the contract. As was stated in Gomba Holdings (UK) Limited v Minories Finance Limited [1993] 1 Ch 171 at 186 in relation to a similar clause in a mortgage which did not include the qualification "reasonable":But nothing in the language used justifies the conclusion that the mortgagor was agreeing to pay, or to permit to be charged on the mortgaged property, costs, charges and expenses that had been unreasonably incurred or that were unreasonable in amount.[41] It could also be observed that the implication of such a term could be justified on the basis of the third type of implied term referred to in Vickery. Such a term may be implied to give business efficacy to the contract, of the type referred to inDevonport Borough Council v Robbins [1979] 1 NZLR 1 following the judgments of the Privy Council in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council(1977) 180 CLR 266 at 283. It would be absurd in terms of workable business practice, if a landlord was able to bring an application such as this which in the end has failed and which was not necessary, and still successfully claim costs. Some limitation on such an exercise must be implied to make the contract work as a business document. It cannot be expected that the parties would have contemplated that a landlord could make unnecessary and wasteful applications, but still recover the costs of those applications from the innocent tenant. To the contrary, it goes without saying that only reasonable costs can be recovered. [42] I conclude that costs incurred by the landlord must be reasonable. This application has failed. London should not have brought it. The costs of the application are not, therefore, reasonable costs, and are not within the ambit of clause 6.1 of the lease. London cannot recover its costs as a matter of contract.[43] Costs should, therefore, follow the event. I have no doubt that the change to the words of the interim injunction could have been done by consent, so this is not a factor warranting any change to the usual approach, that the party who fails must pay costs to the party who succeeds. London has failed in its application and Garage has been successful. Accordingly London will pay costs to Garage on a 2B basis plus disbursements.Result[44] The application is dismissed. [45] The defendant is to pay the plaintiff's costs on a 2B basis, together with disbursements. Asher J