GODZONE (2011) LIMITED V CHEW AND FONG AS TRUSTEES OF THE CAROL CHEW FAMILY TRUST HC AK CIV-2012-404-003290

GODZONE (2011) LIMITED V CHEW AND FONG AS TRUSTEES OF THE CAROL CHEW FAMILY TRUST HC AK CIV-2012-404-003290 [16 August 2012]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2012-404-003290[2012] NZHC 2082UNDER the Property Law Act 2007IN THE MATTER OF an originating application for relief againstproposed cancellation of a lease pursuant tos 253 of the Property Law Act 2007BETWEEN GODZONE (2011) LIMITEDApplicantAND THENG HOK CHEW AND WAI LOONGANDREW FONG AS TRUSTEES OFTHE CAROL CHEW FAMILY TRUSTRespondentsHearing: 16 August 2012Counsel: C P Merrick for the ApplicantJ A Wickes for the RespondentsJudgment: 16 August 2012(ORAL) JUDGMENT OF WOODHOUSE JSolicitors: Mr N A Speir, Rice Craig, Solicitors, Papakura Mr A Loo, Loo & Koo, Solicitors, AucklandCounsel: Mr C P Merrick, Barrister, AucklandMs J A Wickes, Loo & Koo, Solicitors, Auckland[1] The applicant is the tenant of four floors of a commercial building in Auckland. The respondent landlord issued a notice under the Property Law Act 2007 (the Act) for non-payment of rent and other sums said to be due under the lease. The tenant has applied under s 253 of the Act for relief against cancellation.[2] The application was made on 8 June 2012. On 20 June 2012 an interim order was made by this Court restraining the landlord from taking any steps to cancel. Since then the following payments have been made by the tenant in respect of some of the sums claimed in the Property Law Act notice:(a) On 29 June 2012 the tenant paid arrears of rent of $81,458.37.(b) On 6 July 2012 the tenant paid the landlord $44,174.34 for outstanding charges for water services. This was in accordance with a further direction of the Court made on 5 July that this particular sum be paid by 6 July. (On that date the Court also extended the interim order restraining the landlord.)[3] There was a claim by the landlord for $19,494.33 for insurance contributionssaid to be due from the tenant. It is now accepted by the landlord that the tenant'sliability was in fact met by a payment made to a real estate agent in January 2012. This is therefore no longer in issue although the landlord, perhaps with some justification, notes that it would have materially assisted if the landlord had been directly told that this payment had been made, and certainly by the time the Property Law Act notice was issued.[4] There are four remaining claims by the landlord which have not been met by the tenant. Having heard from both counsel on these particular claims, and in respect of which there was agreement as to the legal principles although somedifferences as to what directions should then follow, I deal with these four items inthe next paragraphs.[5] The landlord claims $10,708.80 for work on the lift in the building. The tenant contends that there is a properly founded dispute as to whether the tenant has any liability for this particular sum. Ms Wickes responsibly acknowledged that this is an item in dispute, as opposed to an undoubted liability of the tenant. Outstanding disputes have been referred to arbitration and it is accepted that this is a matter that will be resolved by the arbitrator. Accordingly, payment of this sum is not required at this date.[6] The next item is $2,443.75 for sinking fund contributions due from the tenant. This represents the total outstanding for five months (with the sinking fund contributions required to be paid in conjunction with the monthly rental payments). The tenant contends that the landlord has failed to meet its obligations properly to maintain the building and to effect necessary repairs. This is a matter firmly disputed by the landlord. Questions in this regard will also be dealt with in the arbitration. However, I am satisfied that this is an item which should nevertheless be paid by the tenant as a condition of an order granting relief against cancellation. It could be argued that the tenant may have a right of equitable set off in respect of thelandlord's obligations to repair against the liability for the sinking fund contribution. On the other hand, it is the contributions to the sinking fund that the landlord relies on, at least in part, to meet its obligations. In addition, the lease has some considerable time to run; the current term does not expire until December 2013 and there are rights of renewal. It is to be expected that the current disputes in relation to maintenance will have been resolved before expiry of the current term and there will be ample opportunity to address any entitlement the tenant may have in respect of these matters. Consequently I will make a direction that this sum be paid.[7] The third item is a claim of $8,907.62 for penalty interest. This is less than the amount claimed in the Property Law Act notice. It is a sum the parties agree is the correctly calculated sum for penalty interest on the sums that it is agreed were not paid on due date and should have been paid. Mr Merrick quite properly acknowledged for the tenant that it is difficult to resist the proposition that the tenant has liability, at least to an extent. He submitted that the tenant was prepared to pay this sum into a trust account pending determination of the arbitration. In my judgment this is a sum which comes in the same category as the liability for rent andthe other principal amounts that have already been paid. In addition, in relation to rent, there is a no set off provision in the lease. Consequently this sum must also be paid as a condition of an order for relief.[8] The remaining claim is for legal costs on the Property Law Act notice of $550. Although there were some issues as to the validity of the notice, these have not been pursued. This sum should also be paid.[9] I accordingly make an order granting the applicant relief against cancellation of the lease with this order made on the condition that the tenant is to pay the three sums referred to above, totalling $11,901.37, by 4:00 pm on Friday, 24 August 2012.Payment is to be made into the landlord's bank account, being the bank account as advised by the landlord's solicitors to the tenant's solicitors. To avoid any furtherissues it would be advisable for the tenant to make this payment well before 4:00 pm on Friday, 24 August 2012.[10] The landlord has sought costs on the application for relief. Costs are sought on a 2B basis. Ms Wickes submitted, in essence, that the payments that have now been made by the tenant should have been made long ago and that the payments that have in fact been made were made very belatedly. Mr Merrick opposes costs. He points to evidence in affidavits that the tenant tried to engage with the landlord inrespect of the tenant's concerns and that when the tenant commenced arbitration proceedings this was resisted by the landlord.[11] What the tenant seeks is relief against the consequences of the tenant'sadmitted defaults. In the normal course, although an order for relief is made, the landlord would be entitled to costs. Also, I consider there is some weight in MsWickes' submissions. If the landlord was in fact unwilling to engage with the tenantto address the problems raised by the tenant, then the tenant should have commenced the arbitration proceedings, in accordance with the lease, at a much earlier date. To the extent that there may have been default by the landlord in respect of its obligations under the lease, these are matters more properly dealt with in the arbitration proceedings.[12] For these reasons I am satisfied that the landlord is entitled to costs on a 2B basis in respect of the opposition to the application and the various hearings. I would anticipate that counsel would be able to agree on the quantum.[13] It is appropriate to record that the tenant must obviously continue to meet itsobligations under the lease in respect of the various payments which have been incontention, apart from the lift maintenance item.[14] I thank both counsel for their helpful and constructive submissions._____________________________________Woodhouse J