LADIES MILE MOTOR COMPANY LTD v ZHAN AND LOO [2018] NZHC 152

LADIES MILE MOTOR COMPANY LTD v ZHAN AND LOO [2018] NZHC 152 [15 February 2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2017-404-1114[2018] NZHC 152IN THE MATTERANDof the Property Law Act 2007, s 261 to s 264IN THE MATTER of an application for relief against refusal toenter into renewal of a leaseBETWEEN LADIES MILE MOTOR COMPANYLIMITEDApplicantAND SHU XIAN ZHAN AND ARTHUR LOORespondentsHearing: 9 February 2018Appearances: D K Wilson for the ApplicantJ A Wickes for the RespondentsJudgment: 15 February 2018JUDGMENT OF WOODHOUSE J(Adjournment : Pleadings)This judgment was delivered by me on 15 February 2018 at 1:30 p.m.pursuant to r 11.5 of the High Court Rules 1985.Registrar/Deputy RegistrarCounsel / Solicitors:Mr D K Wilson, Barrister, AucklandMr P Wong (applicant's instructing solicitor), Wong and Bong Law Office Ltd, Solicitors, HighlandPark, AucklandMs J A Wickes, Loo & Koo, Solicitors, Newmarket, Auckland[1] A commercial lease was entered into in 2011 between the applicant as lesseeand Peter and Cheryl Letica, the former registered proprietors of the fee simple, aslessors. The fee simple estate was transferred to the respondents in February 2017.Neither the lease, nor a renewal for 3 years in 2014, were registered against the titleunder the Land Transfer Act 1952.[2] The primary issues arising on the applicant's originating application were:(a) Whether Mr and Mrs Letica and the applicant entered into a deed ofrenewal of the lease for a term of 3 years from 1 January 2017.(b) If there was no renewal, whether the applicant is entitled to an orderpursuant to ss 261 to 264 of the Property Law Act 2007 granting reliefagainst the refusal by the respondents to enter into a renewal of the leasefor 3 years from 1 January 2017.[3] At the hearing on 9 February an issue arose as to whether the respondents areentitled to argue that, even if there was a renewal of the lease binding on Mr and MrsLetica, the respondents, as purchasers of the fee simple from Mr and Mrs Letica, tooktitle free of any lease to the applicant. I will refer to this as the "indefeasibilityargument".[4] The first notice of the indefeasibility argument was in Ms Wickes' submissionsfor the respondents. The legal position of most relevance is summarised in Hinde onCommercial Leases as follows:1[U]nder the Land Transfer system, a lessee who holds under an agreement tolease or under an unregistered lease has an equitable interest only which canbe defeated by the registration without fraud of an adverse instrument whichwas given for valuable consideration.The authority cited is Harris v Fitzmaurice.21 G W Hinde Hinde on Commercial Leases (2015, LexisNexis, 3rd ed) at [11.044(a)]. And seeHinde, McMorland & Sim Land Law in New Zealand (loose-leaf ed, LexisNexis) at [11.044(a)].2 Harris v Fitzmaurice [1956] NZLR 975. This is one of the cases cited by Ms Wickes in hersubmissions.[5] For the applicant, Mr Wilson did not seek to challenge the legal propositionsummarised in Professor Hinde's text. But he submitted that the respondents shouldnot be permitted to maintain the indefeasibility argument because it had not beenpleaded by them and no notice of an intention to advance the argument was given untilthe respondents' submissions were received immediately before the hearing.[6] Mr Wilson further submitted that the indefeasibility argument could not beproperly and fairly addressed at the hearing. The applicant had proceeded on the basisthat the only issues were those recorded above, because the respondents' notice ofopposition had not indicated there were any other material issues. In consequence, theapplicant came to court content to argue the issues on the affidavits without cross-examination, and without any interlocutory steps having been taken on behalf of theapplicant in respect of the respondents' knowledge and conduct on acquiring title tothe fee simple. Mr Wilson said that, had there been a proper pleading by therespondents, or at least adequate notice of the indefeasibility argument, the applicantat the least would have sought discovery of documents relating to the dealings betweenthe respondents as purchasers and Mr and Mrs Letica as vendors, and notice to cross-examine deponents would have been given.[7] I accept Mr Wilson's submission to the essential effect that it would be unfairto the applicant to determine the indefeasibility argument in the context of the presenthearing. It can be accepted that, had there been earlier notice, the applicant wouldhave taken pre-trial steps, such as discovery and notice to cross-examine, and possiblyinterrogatories. But I am not satisfied that it would be fair to the respondents to refuseto allow them to maintain the argument. The indefeasibility point is plainly arguable.It would be wrong to dismiss it without considering it because of a failure to givesufficient notice unless not dismissing it peremptorily would result in relevantprejudice to the applicant. Not dismissing it peremptorily would not result in relevantand material prejudice to the applicant. Nor did Mr Wilson argue that an adjournmentwould result in material prejudice to the applicant. Importantly, the applicant remainsin occupation of the premises subject to the lease in issue.[8] The applicant's fall-back position was that the proceeding should be adjournedto enable the indefeasibility point to be adequately pleaded, investigated throughappropriate interlocutory steps, and then subjected to a full hearing with cross-examination. I am satisfied that that is the fair way of dealing with the difficulty.Result[9] I make the following orders and directions:(a) The proceeding is adjourned.(b) Counsel are to confer and endeavour to reach agreement on the mostappropriate means of putting all issues before the Court, being theissues raised for the applicant in the originating application (which alsorequires amendment), the indefeasibility point, and any other issuesrequiring determination. For that purpose it would appear to beappropriate for the applicant to file a statement of claim and for therespondents to file a statement of defence with affirmative defences ora counterclaim or both.(c) Counsel are also to confer on interlocutory steps that may be necessaryand the most suitable way of putting all evidence before the Court.(d) Not later than 9 March 2018 joint or separate memoranda are to be filedrecording the proposals in respect of the preceding matters, and anyother proposals necessary to advance all matters to a new hearing.(e) The memoranda are to be referred to me for directions.(f) The memorandum, or separate memoranda, should also address thequestion of costs in respect of the proceeding up to the hearing on 9February. My provisional view is that costs should lie where they falland, if neither party seeks costs, there will be an order to that effect.__________________________________Woodhouse J