GO LOUNGE LTD v OECL LTD [2021] NZHC 3364

GO LOUNGE LTD v OECL LTD [2021] NZHC 3364 [10 December 2021]IN THE HIGH COURT OF NEW ZEALANDHAMILTON REGISTRYI TE KŌTI MATUA O AOTEAROAKIRIKIRIROA ROHECIV-2021-419-298[2021] NZHC 3364BETWEEN GO LOUNGE LIMITEDApplicationAND OECL LIMITEDRespondentHearing: 9 December 2021Appearances: V A Whitfield and M Meier for Applicant T C Tran for RespondentJudgment: 9 December 2021JUDGMENT OF LANG J[on application for interim injunctive relief]This judgment was delivered by me on 9 December 2021 at 3.30 pm,pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors:Gurnell Harrison Stanley Lawyers, HamiltonCounsel:V A Whitfield, Barrister, Cambridge[1] In this proceeding the applicant, Go Lounge Ltd (Go Lounge), seeks an order under s 264 of the Property Law Act 2007 (the Act) granting it relief against forfeiture of a lease. Go Lounge seeks the order in relation to a lease of commercial premises situated in Cooks Beach. Its application will be heard on 14 March 2022.[2] The current owner of the premises is the respondent, OECL Ltd (OECL). It has given Go Lounge notice that it must vacate the premises no later than 23 December 2021. Go Lounge seeks an interim order prohibiting OECL from acting on its notice until Go Lounge's application for relief has been heard and determined.[3] I heard the application for an injunction as a matter of urgency given the proximity of the date on which OECL expects Go Lounge to vacate the premises. This meant OECL had no opportunity to place any evidence before the Court. It appeared through counsel on a "Pickwick" basis after having had little time to prepare for the hearing. I express my gratitude to Mr Tran for the fact that he was able to prepare comprehensive submissions so soon after being instructed to act on OECL's behalf.Background[4] Go Lounge operates a restaurant and bar on the ground floor of the premises. Until August 2021 Mr Ryan Laird, the shareholder and director of Go Lounge, also lived with his family in residential accommodation on the upper floor of the premises. The residential accommodation was not included in the lease.[5] Until October 2021 the building was owned by another entity. By a deed of lease dated 14 June 2019 Go Lounge agreed to lease the ground floor of the premises from that entity for a term of three years from 1 August 2018. The lease gave Go Lounge three rights of renewal of three years each, thereby taking the potential term of the lease to 1 August 2030.[6] At an auction held in July 2021 the previous owner sold the premises to OECL. OECL operates another bar and restaurant in Cooks Beach in competition with Go Lounge. At the time of the auction Go Lounge had not given formal notice of its intention to renew the lease. Notwithstanding this fact it appears that both Go Lounge and the previous owner were proceeding on the basis that Go Lounge would renew thelease. This flows from the fact that the terms and conditions of the auction stated that the ground floor of the building was subject to an existing lease.[7] Prior to settlement, however, Go Lounge learned from the previous owner's solicitors that both the previous owner and OECL considered the lease of the ground floor would not be renewed and the lease had expired. Go Lounge then sought to invoke an arbitration clause in the lease. When OECL refused to participate in the arbitration Go Lounge filed the present proceeding.[8] On or about 23 November 2021 OECL served a notice on Go Lounge requiring it to vacate the premises no later than 23 December 2021. Go Lounge then filed the present application seeking an interim injunction preventing OECL from acting on the notice.The test for an interim injunction[9] There is no dispute regarding the test for interim injunctive relief. The applicant must establish that there is a serious question to be tried and that the balance of convenience favours the granting of relief. These two issues inform the ultimate issue, which is whether the overall justice of the case requires relief to be granted. 1Is there a serious question to be tried?[10] On OECL's behalf Mr Tran contends there is no serious question to be tried because the Court has no jurisdiction to hear the substantive application for relief against forfeiture. He submits Go Lounge filed its application out of time and the Court has no power to extend the time for filing the application.[11] OECL bases this argument on the fact that in an email sent on 11 August 2021 the solicitors acting for the previous owner advised Go Lounge that the previous owner and OECL considered the lease was at an end. Go Lounge did not file the present proceeding until 17 November 2021. OECL contends that Go Lounge was required to file the application no later than 11 November 2021 and is now barred from applying for relief.1 Harvest Bakeries Ltd v Klissers Farmhouse Bakeries Ltd [1985] 2 NZLR 129 (CA).[12] This argument depends on the interpretation to be given to ss 261 to 264 of the Act. Go Lounge relies upon these sections in advancing its application for relief against forfeiture. They provide:261 Relief against lessor's refusal to enter into renewal or sell reversion to lessee(1) This section applies to a lease if—(a) the lessor has covenanted in writing with the lessee that,—(i) on the expiry of the term of the lease, the lessor will extend the term of the lease, renew the lease, or enter into a new lease of all or part of the premises to the lessee; or(ii) on the expiry of the term of the lease, or at some earlier time, the lessor will transfer or assign to the lessee all or part of the reversion expectant on the lease; and(b) the obligation of the lessor referred to in paragraph (a) is conditional on—(i) the fulfilment of any condition or the performance of any covenant or agreement of the lessee; or(ii) the lessee giving notice, within a specified time or in a specified manner, of the intention to exercise the right to require an extension or a renewal of the lease or the entering into of a new lease or the transfer or assignment of the reversion; and(c) the lessee is in breach of the condition, covenant, or agreement, or has failed to give the notice within the specified time or in the specified manner; and(d) the lessor has refused to extend or renew the lease, or enter into a new lease, or transfer or assign the reversion, as the case may be.(2) If this section applies to a lease, any of the following persons may apply to a court in accordance with section 262 for relief under section264:(a) the lessee:(b) a mortgagee of the leasehold estate or interest:(c) a receiver appointed in respect of the leasehold estate or interest:(d) if 2 or more persons are entitled to the leasehold estate or interest as joint tenants, 1 or more of those persons on behalf of the other joint tenants.(3) If an application made in accordance with subsection (2)(d) is not made by all of the joint tenants, the application must be served on every joint tenant who is not already a party, unless the court orders otherwise.262 How application under section 261 for relief under section 264 to be madeAn application under section 261 for relief under section 264—(a) may be made to the court in any proceeding brought by the lessor for an order for possession of the land or in a proceeding brought by the lessee, mortgagee, or receiver for the purpose of seeking relief; and(b) must be made not later than 3 months after the date on which the lessor serves on the lessee, and on any mortgagee or receiver of the leasehold estate or interest of which the lessor has actual notice, a notice that adequately and expressly informs the lessee of the matters specified in section 263.263 Matters lessee must be informed of by noticeThe matters referred to in section 262(b) are—(a) that the lessor refuses to extend or renew the lease, or enter into a new lease, or transfer or assign the reversion, as the case may be; and(b) that the lessee, mortgagee, or receiver may apply to a court for relief against the refusal; and(c) that the right to apply for such relief lapses if the application is not made to the court within 3 months of the date of service of the notice; and(d) that it is advisable for the lessee, mortgagee, or receiver to seek legal advice on the exercise of the right to apply to a court for relief against the refusal.264 Relief court may grant on application(1) On an application under section 261, the court may grant relief against the refusal of the lessor to extend or renew the lease, or enter into a new lease, or transfer or assign the reversion, as the case may be.(2) In particular, the court may—(a) do either of the following:(i) order the lessor to extend or renew the lease or enter into a new lease with the lessee, mortgagee, or receiver; or(ii) order the lessor specifically to perform the lessor's covenant or agreement to transfer or assign the reversion, and to execute all necessary assurances for that purpose; and(b) grant relief under paragraph (a)(i) or (ii) on any conditions (if any) as to expenses, damages, compensation, or any other relevant matters that the court thinks fit.(3) The fact that the lessor may have made a disposition to a person, other than the lessee, mortgagee, or receiver, that would be prejudicially affected by the grant of relief to the lessee, mortgagee, or receiver under this section does not affect the power of the court to grant that relief, but in that case the court may do all or any of the following:(a) cancel or postpone that estate or interest:(b) assess the damages or compensation to be paid to any person prejudicially affected by that cancellation or postponement:(c) order any damages or compensation to be paid by the lessor or by the lessee, mortgagee, or receiver, or partly by the lessor and partly by the lessee, mortgagee, or receiver in the proportions that the court determines.(4) If, under this section, an order is made in respect of Maori land for the extension or renewal of a lease, or the entering into of a new lease to the lessee, mortgagee, or receiver, or the specific performance of a covenant or agreement to transfer or assign the reversion, the extension, renewal, entering into of a new lease, transfer or assignment must be confirmed as of right under Te Ture Whenua Maori Act 1993.[13] As Associate Judge Gendall observed in Gawith v Lawson, notice of intention not to renew a lease that does not comply with the requirements of s 263 may still be effective. 2 This is because the Act does not require such notice to be given in any particular way. This reflects the fact that a lessor may give notice of its intention not to renew a lease in any number of ways. It may be accomplished by words or conduct, orally or in writing. In the case of a commercial lease it is more likely to be done formally and in writing. In the present case the email sent on 11 August 2021 plainly constituted notice to Go Lounge that the previous owner and OECL were not intending to renew the lease.[14] A lessor who gives a lessee notice in a form that complies with the requirements imposed by s 263 will thereby subject the lessee to the time limit set out in s 262(b). Importantly, however, such notice must "adequately and expressly inform the lessee" of the matters referred to in s 263. These include the fact that the lessee has the right to apply for relief against forfeiture.[15] However, where a lessor gives notice in a manner that does not comply with s 263 the lessee will not be subject to any time limit within which to file an application for relief against forfeiture. In Gawith v Lawson, Associate Judge Gendall noted that the fact that the lessor had failed to serve a notice that complied with s 262 meant that the lessees were not yet out of time to bring an application for relief. 3 Any delay in applying for relief may obviously, however, be taken into account by the Court in determining how to exercise its discretion to grant relief.2 Gawith v Lawson HC Masterton CIV 2010-435-253, 4 May 2011, at [18].3 Gawith v Lawson, above n 2.[16] OECL contends that the advice given to Go Lounge in the email dated 11 August 2021 amounted to a notice given under s 262(b) and 263. As a result, s 263(c) required Go Lounge to file its application for relief against forfeiture no later than 11 November 2021. This argument must fail because the email in question did not contain the advice expressly required by s 263. It therefore did not constitute notice for the purposes of ss 262(b) and 263. It follows that Go Lounge has never been subject to the time limit imposed by s 262(b). This means the Court has jurisdiction to determine Go Lounge's application for relief against forfeiture.[17] Mr Tran submits next that, even if the email dated 11 August 2021 did not amount to notice under s 262(b), nevertheless the lease has now expired. As a result, Go Lounge is the lessee under an implied tenancy that is terminable at will. He says the lessor has now terminated the lease and accordingly there is no pathway available to Go Lounge to apply for relief.[18] I disagree. The Court has the power to grant relief by renewing a lease even where it has expired. Many applications for relief are heard after the date upon which the lease has expired. That fact is no barrier to relief against forfeiture being granted.[19] Putting these jurisdictional arguments to one side there is plainly a serious question to be tried. Go Lounge has been the lessee of the premises since 2007 and was not in default under the terms of the lease as at 31 July 2021. These factors obviously support its application for relief.[20] On the evidence currently available the only factor that may not count in Go Lounge's favour flows from the fact that shortly before the auction the previous owner's solicitor asked Go Lounge's solicitor whether Go Lounge intended to renew the lease. Go Lounge's solicitor responded by saying Go Lounge would only do so if it could also secure a lease of the residential accommodation on the upper floor. Go Lounge did not hear back about this proposal. Whether the advice given to the previous owner's solicitor ultimately counts against the granting of relief will require an examination of whether and to what extent OECL relied on Go Lounge's advice in deciding to purchase the building.Balance of convenience[21] As Mr Tran acknowledges, the balance of convenience favours Go Lounge. There will not be a significant delay before Go Lounge's application for relief is heard. However, the intervening period is very important for Go Lounge because, as OECL well knows, the Christmas period is the peak trading period for restaurants and bars on the Coromandel Peninsula. It will obviously be impossible for Go Lounge to relocate its business to new premises in the next two weeks.[22] If Go Lounge is forced to vacate the premises on 23 December 2021 it will therefore suffer significant financial loss. This will take the form not only of the income that it will lose for the balance of the term of the lease but also the capital costs incurred in setting up and maintaining the premises. In addition, Mr Laird will lose his livelihood and his staff will lose their employment.[23] Damages are not likely to be an adequate remedy because they would be very difficult to calculate given the fact that the lease still has nine years to run. Furthermore, OECL will not suffer loss if Go Lounge remains in possession of the premises. Go Lounge is still paying rent and will continue to do so until the application for relief is heard.Overall justice of the case[24] My conclusion in relation to the balance of convenience effectively determines this issue as well. It is plainly in the interests of justice for the status quo to be maintained until the Court hears Go Lounge's application for relief in March 2022.Result[25] I grant Go Lounge interim relief as sought in paragraph 1.1 of its interlocutory application dated 6 December 2021.Costs[26] Go Lounge is entitled to costs as the successful party. On its behalf Ms Whitfield seeks increased costs because she says OECL failed to accept the validity ofits argument in correspondence both prior to and after Go Lounge filed the present application. She says OECL ought to have agreed not to act on the notice to vacate the premises until Go Lounge's application for relief had been determined.[27] I accept Ms Whitfield's argument on this point. Rules 14.6(3)(b)(ii) and (iii) permit the Court to award increased costs where a party advances an argument that lacks merit or fails without reasonable justification to accept a legal argument. It should not have been necessary for Go Lounge to apply for the injunction given the legal argument that it had put to OECL's legal advisers. I therefore grant Go Lounge costs on a category 2B basis but increased by 50 per cent to reflect this factor.[28] Go Lounge is also entitled to disbursements as fixed by the Registrar.Lang J