MONO F LIMITED v FIRST CBD COMPANY LIMITED [2017] NZHC 2052

MONO F LIMITED v FIRST CBD COMPANY LIMITED [2017] NZHC 2052 [25 August 2017]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV 2017-404-1314[2017] NZHC 2052BETWEEN MONO F LIMITEDPlaintiffAND FIRST CBD COMPANY LIMITEDDefendantHearing: 25 August 2017Counsel: R O Parmenter for PlaintiffS R Neville for DefendantJudgment: 25 August 2017JUDGMENT OF VAN BOHEMEN JThis judgment was delivered by me on 25 August 2017 at 4.00pmpursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors:Whitworth & Co, AucklandEllis Gould, AucklandCounsel:R O Parmenter, AucklandIntroduction[1] This is an originating application seeking relief from the cancellation of the lease of a venue in Auckland, currently operated as a nightclub by the applicant, Mono F Ltd (Mono F). Mono F is in significant arrears in its payment of rent to its lessor, First CBD Co Ltd (First CBD), the respondent.[2] On 22 May 2017, First CBD served a notice on Mono F pursuant to ss 244 and 245 of the Property Law Act 2007 asserting that Mono F was in arrears to the sum of $88,770.69 and advising of its intention to cancel the lease if the sum was not paid within 10 working days. Mono F applies to the Court under section 253 of the Property Law Act 2007 for relief against cancellation of the lease. Mono F challenges the validity of the notice, asserting that it is not in compliance with the requirements of the Property Law Act 2007. It also questions whether and to whatextent Mono F is in arrears and asserts that First CBD has contributed to Mono F'sfinancial difficulties through representations made in connection with a liquor licence and allowing the repossession of audio equipment hired by Mono F when First CBD was in possession of the premises. First CBD denies these assertions.Background Facts[3] The parties entered an agreement to lease on 13 January 2015. The lease was to commence on 1 March 2015 for a period of four years (with one further right ofrenewal for two years). The agreement also provided for a deposit of two months'rent in advance, being $27,695.84 including GST. The first schedule to the agreement contained a standard ADLSi Deed of Lease. The third schedule providedfor the payment of bond to the respondent's solicitors, for the sum of $41,543.76,including GST. Any interest on the bond was payable to Mono F unless First CBD exercised its rights to the bond. The advance rent and bond were paid on 17 February 2015.[4] According to First CBD, almost from the outset — that is, after the initial rent holiday and drawdown of rent paid in advance — there was a pattern of rental payments falling into in arrears, followed by sporadic, late and partial payments. According to Mono F, a principal reason for this situation was its inability to obtain aliquor licence promptly. The application for relief asserts that an agent of First CBD, when showing the premises to Ms Yu Okamura, Mono F's principal, misrepresented that the previous occupier's liquor licence could be transferred to Mono F. This isdenied by the agent who states in his affidavit that he recommended to Ms Okamura and her husband that if they were interested in the premises they should engage a liquor licence agent and also talk to the Auckland City Council about a liquor licence. In any event, it would seem that delays in obtaining a liquor licence were among the key factors delaying the opening of the nightclub and the generation of revenue.[5] Between October 2015 and March 2017, the pattern of missed and late payments of rent continued, with arrears at one point, November 2016, reaching over $150,000. Various notices were issued by First CBD under ss 244 and 245 of theProperty Law Act 2007, notifying its intention to cancel for breach of Mono F'scovenant to pay rent and the property was re-entered, not always, according to Mono F, in accordance with the terms of s 245. But through negotiations between the Mono F and First CBD, agreements were reached by which the lease would continue on the basis of a further rental holiday in one instance and commitments made by Mono Fto repay the outstanding arrears. It appears that Mono F's performance even incomplying with the renegotiated agreements was patchy. Three cheques tendered by Mono F in part payment of arrears were apparently dishonoured by the bank when presented by First CBD. Even so, First CBD twice agreed to reinstate the lease, most recently on 21 April 2017.[6] Despite this last reinstatement of the lease, problems continued. Mono F asserts its ability to earn substantial revenue from an event held in the premises on 22 April was compromised by First CBD allowing the owners of audio equipment hired by Mono F to repossess that equipment while First CBD was in possession ofthe premises. First CBD's evidence in reply was that its agent allowed the owners ofthe equipment access to the site upon production of evidence that Mono F was in arrears in paying for the hire of the equipment. It also notes the event on 22 April went ahead in any case.[7] Most fundamentally from First CBD's perspective, the rent remainedsignificantly in arrears. Although Mono F made lump sum payments of $20,000 and $5,000 on 1 May and 8 May 2017 respectively, it failed to make payment of rent and outgoings due at 15 May 2017. As at 18 May 2017, the total rent in arrears stood at $88,770.69. On that basis, First CBD served a further notice under s 245 of the Property Law Act on 22 May 2017, which led to these proceedings.[8] While disputing the validity of the 22 May 2017 notice and indicating its intention to apply for relief, Mono F made further efforts to resolve matters, including payment of $30,000 on 13 June 2017. It sought and was granted extensions of time by First CBD for payment of the balance. However, on the basis of its position that arrears of $58,770.69 were still outstanding on 16 June 2017, and notwithstanding further undertakings by Mono F to repay the balance in full upon receipt of monies payable out of a car insurance claim, First CBD re-entered the premises that day, 16 June 2017. The Police were involved in this final re-entry, as Ms Okamura, would not leave the premises.[9] Cancellation is therefore sought on the basis of rent in arrears of $58,770.69.[10] On 23 June 2017, Mono F's solicitors advised they had $40,000 in clearedfunds from their client which were available for transfer to the solicitors for First CBD to further reduce the rental arrears. On instructions from First CBD, its solicitors replied that First CBD was not prepared to withdraw its notice of cancellation of the lease, that it had re-entered the premises and terminated the lease.[11] In her affidavit, Ms Okamura asserts Mono F would be in a position to clear the arrears upon receipt of monies from a car insurance claim or upon settlement of a residential property in Henderson she is selling. Settlement date is said to be 4 September 2017. Mono F has not produced any documentary evidence of either the car insurance payment or of the sale.[12] In her affidavit, Ms Okamura asserts the nightclub is profitable and that the arrears were incurred during the 16 months Mono F could not trade as a result of not having a liquor licence. She asserts that once the arrears are cleared the business willbe able to pay its own way. She also says that if the lease is cancelled, Mono F will lose most of the $1.7 million it invested in fitting out the premises. She has not disclosed, however, any information about the ongoing financial viability of the company.Legal Principles[13] Sections 244 and 245 of the Property Law Act 2007 govern the circumstances in which a lessor may exercise its rights to cancel a lease for a breach of the covenant to pay rent. Where there has been such a breach, the lessor may only exercise its rights of cancellation in accordance with the terms of those sections.1The right to cancel arises only if:2(a) the rent has been in arrears for not less than 10 working days; and(b) the lessor has served on the lessee a notice of intention to cancel the lease; and(c) at the expiry of the period specified in the notice, the breach has not been remedied.[14] To be effective, notice must be in a form specified in s 245(3). It must specify:(a) the nature and extent of the breach complained about:(b) the amount that must be paid to remedy the breach:(c) the period within which the breach must be remedied (which must not be less than 10 working days after the date of service of the notice):(d) the consequence that, if the breach is not remedied at the expiry of the period specified in the notice, the lessor may seek to cancel the lease in accordance with section 244:(e) the right, under section 253, to apply to a court for relief against cancellation of the lease, and the advisability of seeking legal advice on the exercise of that right.1 Property Law Act 2007, s 243.2 Section 245(1).[15] As indicated by the last of those criteria, a lessee may apply under s 253 of the Property Law Act 2007 for relief against cancellation.3 Where relief is sought, a court may grant:4(a) the relief sought on any conditions (if any) as to expenses, damages, compensation, or any other relevant matters that it thinks fit; and(b) an injunction restraining any similar breach in the future.[16] Relief may be granted even if the breach is of a fundamental term or is not capable of remedy.5[17] It is well established that the powers of the Court are broad and discretionary. In Mulholland v Waimarie Industries Ltd, French J summarised the authorities on the principles applying to cancellation:6[23] The principles relating to applications for relief against forfeiture (or cancellation, as it is now called) are well established and can be summarised as follows:(1) Where the breach consists solely of a failure to pay rent, there is a presumptive right to relief on payment of the arrears and costs. It is only in exceptional circumstances that relief is to be denied if the debt is paid in full (Gill v Lewis [1956] 2 QB 1 (CA); Yoo v Dominion Income Property Fund Ltd HC Auckland CIV-2005-404- 3239, 13 July 2005; Eason; Treka Developments Ltd v Lehman Jackson Ltd HC Auckland CP13871/88, 28 June 1988).(2) This is because it is inequitable that the benefit of the lease should be lost to a tenant who has restored to the landlord all that the landlord is entitled to under the lease. The ability to forfeit the lease and take possession is regarded by the Court as security for payment (Endeavor Lodge Motel Ltd v Langford HC Gisborne CP3/98, 24 August 1998).(3) Where, however, it is clear the tenant is hopelessly insolvent, the Court will not grant relief as a general rule (Inner City Businessmen's Club Ltd v James Kirkpatrick Ltd [1975] 2 NZLR 636).(4) Mere suspicion of insolvency is not enough to outweigh the presumptive right to relief on payment of rental and costs (Guardsman Restaurant (Christchurch) Ltd v Victoria Square Estates Ltd HC Christchurch M399/87, 11 December 1987).3 A lessee's right to do so is provided by s 253(1)(a) of the Act.4 Section 256(1).5 Section 256(2).6 Mulholland v Waimarie Industries Ltd (2009) 10 NZCPR 590 (HC).[18] The counterpart to the first of the above principles, of course, is that the presumptive right to relief does not arise where the arrears and costs remain unpaid and there is no realistic prospect that they will be paid. That is because the lessee bears the burden of proving it should be entitled to the presumption.Submissions for the PartiesMono F[19] In his written submissions, Mr Parmenter, for Mono F, signalled his client would seek allowance from the Court for it to repay the debt following settlement of the sale of the Henderson property on 4 September 2017. At that point, Ms Okamura would have sufficient funds to discharge any debt. On that basis, he expected hewould ask the court to grant relief conditional on First CBD's claims being met on 4September 2017. He cited several cases in support of this approach, notably Studio X v Mobil New Zealand Ltd7 and Stylo Medical Services Ltd v Hum Hospitality Ltd.8[20] At the hearing on 25 August 2017, however, Mr Parmenter advised that the Henderson property was matrimonial property owned by Ms Okamura and her former husband and could not be sold until a matrimonial settlement was achieved. He could offer no date as to when that would happen. In the circumstances, Mr Parmenter acknowledged that he was in no position to provide any firm guidance as to when the property might be sold and the arrears owing to First CBD settled, were the Court minded to grant an adjournment of the application for relief pending the sale of the property.First CBD[21] In her written submissions, Ms Neville, for First CBD, submitted that theapplicant is "hopelessly insolvent"9 and that relief against the notice of cancellation should be declined. The thrust of her argument was that it would be unfair for the respondent to have the applicant inflicted on it as a tenant on an ongoing basis.7 Studio X v Mobil New Zealand Ltd [1996] 2 NZLR 697 (HC).8 Stylo Medical Services Ltd v Hum Hospitality Ltd [2014] NZHC 2428.9 See Inner City Businessmen's Club Ltd v James Kirkpatrick Ltd [1975] 2 NZLR 636 (SC) at 644.[22] Ms Neville emphasised that, though relief is only exceptionally denied when the tenant is able to pay in full, several cases have held that the arrears must be paid up fully by the time the matter comes to court. She cited several authorities in support, notably Pike River Coal Ltd (in rec) v O'Malley Farming Ltd,10 Stylo Medical Services Ltd v Hum Hospitality Ltd11 and QT Hospitality Ltd v Oxford Holdings Ltd.12[23] At the hearing, Ms Neville produced a letter she had sent to Mr Parmenter earlier in the week, to which was attached a copy of a title search of the Henderson property showing that the property is subject to a mortgage, two caveats and charging order all registered by financial institutions. Ms Neville advised that, despite the requests in her letter, neither Mono F nor Ms Okamura had provided information as to the price expectations from the sale of the property or the level of indebtedness secured against it. In the circumstances, she submitted there was no basis for relief to be granted or for any adjournment of the application for relief.Decision[24] As indicated at the hearing, there is no basis for granting the relief sought.[25] There was no argument at the hearing or in written submissions regardingMono F's contentions that First CBD's actions contributed to Mono F's financialdifficulties. Nor is there sufficient evidence on these matters for me to decide themand they play no part in my decision. Nor does Mono F's assertion that the notice of22 May 2007 was invalid — an assertion that was also not pursued in submissions.[26] The only question at issue, therefore, is whether I should grant relief in circumstances where the applicant has not been able to provide any information that can satisfy me, on the balance of probabilities, that the substantial rental arrears owed by Mono F to First CBD will be paid within any definite time horizon. The answer to that question is no.10 Pike River Coal Ltd (in rec) v O'Malley Farming Ltd (2011) 6 NZ ConvC 95-559 (HC).11 Stylo Medical Services Ltd v Hum Hospitality Ltd, above n 8, at [25].12 QT Hospitality Ltd v Oxford Holdings Ltd (2007) 8 NZCPR 817 (HC).[27] There is insufficient evidence upon which I can conclude that Mono F is"hopelessly insolvent" as asserted by First CBD. However, the authorities establish that the starting position for the presumption of a right to relief under s 253 of the Property Law Act 2007 to arise is that the lessee has repaid the outstanding rent and costs. Mono F has not done so, even though the notice was served over 3 monthsago. At today's hearing, counsel for Mono F properly acknowledged he was unableto indicate when Mono F might be in a position to meet the arrears. Nor did he advance any other basis on which the Court might exercise its jurisdiction in favour of his client.[28] Given that situation and the two-year history of either absent or late payments of rent by Mono F, I see no basis for granting relief under s 253 of the Property Law Act 2007 as sought. Accordingly, the application for relief is denied.Costs[29] Ms Neville for First CBD sought costs on a solicitor and client basis as provided for in clause 6.1 of the First Schedule to the Deed of Lease. Mr Parmenter did not challenge that submission.[30] Accordingly, costs are to be awarded in favour of First CBD on a solicitor and client basis. Counsel are to reach agreement on reasonable costs and to file memoranda for my decision if they are unable to agree.________________________________Van Bohemen J