OPOWORTH OF NEW ZEALAND LTD v 3R GLOBAL LTD [2020] NZHC 472

OPOWORTH OF NEW ZEALAND LTD v 3R GLOBAL LTD [2020] NZHC 472 [11 March 2020]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2019-404-002304[2020] NZHC 472UNDER s 244 of Property Law Act 2007ANDIN THE MATTER of an application for cancellation of Deed ofLease dated 12 October 2015 and possessionBETWEEN OPOWORTH OF NEW ZEALANDLIMITEDApplicantAND 3R GLOBAL LIMITEDRespondentHearing: 5 March 2020Appearances: R O Parmenter for ApplicantJ L Foster for RespondentJudgment: 11 March 2020JUDGMENT OF WYLIE JThis judgment was delivered by Justice WylieOn 11 March 2020 at 11.00 amPursuant to r 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Solicitors/counsel:Winston Wang/R O Parmenter, AucklandBen Lieu & Co/J L Foster, AucklandIntroduction[1] The applicant, Opoworth of New Zealand Limited (Opoworth) has filed anoriginating application seeking that a deed of lease between it and the respondent, 3RGlobal Limited (3R), be cancelled and that it be granted possession of the leasedpremises.[2] The application is brought pursuant to s 244(1)(a) of the Property Law Act2007 (the Act).1 Opoworth asserts that 3R breached the lease by undertaking additionsand alterations to the leased premises without first obtaining its written consent. Itsays that it served notice of its intention to cancel the lease on 3R on 18 September2019, as required by s 246 of the Act, that the breach was not remedied within the timespecified in that notice and that it is entitled to cancel the lease and take possession asa consequence.[3] 3R has filed a notice of opposition. It accepts that works were carried out byit, but says that those works were not additions or alterations as those words are usedin the lease. It also says that if consent was required, it was given orally during atelephone conversation in May 2019 between Mr Wei of Opoworth and Mr Peng onits behalf. It goes on to say that if consent was required and was not given orally, itwas requested in emails dated 28 August 2019 and 10 September 2019, and thatOpoworth has unreasonably withheld consent. As a result, it says that the PropertyLaw Act notice issued by Opoworth is invalid and ineffective. As a fall-back position,it says that if there was a breach and the Property Law Act notice is valid, then it isentitled to relief pursuant to s 253 of the Act.[4] One curious feature of this case is that Opoworth does not want to cancel thelease; nor does it want possession of the premises. It has not opposed 3R's applicationfor relief but rather says that any relief granted should be on terms. It wants 3R toobtain independent confirmation that the works carried out comply with all relevantregulatory provisions. 3R for its part, says that Opoworth would not have been entitledto independent confirmation had 3R applied for consent before it did the works and1 Applications pursuant to this section must be brought by way of originating application – HighCourt Rules 2016, r 19.2(s).that, in any event, Opoworth has sufficient materials before it on which it can be sosatisfied. It says that Opoworth's demand is unreasonable.Background facts[5] The deed of lease is dated 12 October 2015. The original lessee's interest underthe lease was assigned to 3R, with Opoworth's consent, on 4 August 2017.[6] The leased premises are part of a multi-unit property situated in Great NorthRoad, Auckland. The property is administered under the Unit Titles Act 2010 by abody corporate, which in turn is managed by an entity referred to in the materialsbefore the Court as Argyle Estates. 3R uses the leased premises as a licensedrestaurant/bar and gaming lounge known as the Aroha Café.[7] The deed of lease relevantly provides as follows:THE LANDLORD leases to the Tenant and the Tenant takes on lease thepremises described in the First Schedule together with the right to use:(a) The Landlord's fixtures and fittings contained in the premises.(b) The common areas of the property.(c) The carparks described in the First Schedule.The First Schedule defines the premises as follows:Premises: The premises shown as principle unit 6 on the attached unit plan(which is to be deposited under number 482041) together with Accessory UnitAU12 (outdoor seating area) as shown on DP 482041 and which units will beall of the units contained in a title to issue under number 677321.There is a plan attached to the lease showing principle unit 6 and accessory unit 12. Itis a copy of the deposited plan. It only shows the exterior outline of the leased unitsand not what is included within them. The lessor's fittings and fixtures are listed in aseparate schedule. They comprise air conditioning, a hot water cylinder, a kitchenextract and ducting system, and a crease trap and amenities.[8] The First Schedule also contains the terms of the lease. Relevantly, clauses22.1 and 22.2 provide as follows:22.1 THE Tenant shall neither make nor allow to be made any alteration[to] any part of the premises without first producing to the Landlordon every occasion plans and specifications and obtaining the writtenconsent of the Landlord (not to be unreasonably or arbitrarilywithheld) for that purpose. If the Landlord authorises any alterationsor additions the Tenant will at the Tenant's own expense if requiredby the Landlord at the end of the term reinstate the premises.Ownership of the alterations or additions that are not removed by theend or earlier termination of the lease may at the Landlord's electionpass to the Landlord without compensation payable to the Tenant. 22.2 THE Tenant, when undertaking any "building work" to the premises(as that term is defined in the Building Act 2004), shall comply withall statutory requirements including the obtaining of building consentsand code compliance certificates pursuant to the Act and shall providecopies of the building consents and code compliance certificates to theLandlord.[9] It is not disputed that, in May 2019, 3R started making changes to the internallayout of the premises. It:(a) removed part of a wall and installed a new door in the gap created;(b) removed part of another wall;(c) removed two existing doors and filled the gaps created by extendingexisting walls;(d) installed a new wall to create a new corridor; and(e) installed two new doors in the new wall.[10] On 14 June 2019, a compliance technician who was undertaking an annualsurvey of the building of which the leased premises form part, raised issues with thework that 3R was carrying out. He was concerned that the works were creating aproblem with the fire alarm and emergency lighting systems installed in the building.This concern was relayed to Argyle Estates.[11] Argyle Estates sent an email to both Mr Wei and Mr Peng on 14 June 2019. Itnoted that:(a) the body corporate had not been notified of the works being carried out;(b) the works undertaken had created compliance issues, in particular inrelation to the fire systems;(c) this was unacceptable. The compliance issues directly related to thebuilding's warrant of fitness, and they could jeopardise the insurancecover across all units, perhaps increasing insurance premiums orleading the insurer to avoid the insurance cover; and(d) all issues should be rectified immediately.[12] Mr Wei promptly emailed Mr Peng, expressing concern that neither he norArgyle Estates had been informed about the alterations. He said that this wasunacceptable and further that it was a breach of the lease.[13] On 17 June 2019, Mr Peng replied to Mr Wei. He asserted that:(a) he had told Mr Wei about the alterations in the course of an earliertelephone conversation;(b) his manager had been in contact with the body corporate, but had notbeen advised that 3R needed formal written consent, only that it mightneed a fire report;(c) 3R had engaged a fire engineer, and that engineer was to inspect theworks and provide a fire report;(d) he would make sure that all work complied with "the code", that therewas no problem with "compliance requirements" and that he would getit "all sorted".[14] On the same day Mr Peng sent an email to Argyle Estates acknowledging that3R had built a wall in the leased premises, and confirming that he was obtaining a firereport.[15] Mr Wei and Mr Peng had a telephone conversation on the same day. Nothingconstructive was achieved. Mr Wei says that Mr Peng was abusive. Mr Peng allegesthat Mr Wei was rude.[16] On the following day, Mr Wei replied by email to Mr Peng, denying that therehad been an earlier telephone call about the works undertaken by 3R. Mr Peng repliedto Mr Wei, on the same day asserting that "it is your character problem". Mr Weiresponded, inter alia asserting: I am just working with you to reslove (sic) the issues. But you areentangled in these unnecessary things, insulting to me. It is personal attack,that is inexplicable. I don't really know if it is your character or healthproblem?There was followed up by a similarly unhelpful meeting at the café. Both Mr Wei andMr Peng claim to have been insulted by the conduct of the other. Again, nothingconstructive was achieved.[17] On 24 July 2019, Argyle Estates sent an email to Mr Wei saying that it urgentlyneeded the fire report promised by 3R. The email also stated that there were a numberof other defects in the leased premises, and that the building had failed its building ofwarrant fitness inspection due to the works which 3R had carried out. The emailadvised that the resulting costs would be advised once the issues created by 3R's workshad been resolved.[18] Mr Wei asked Mr Peng to deal with the matters urgently and to contact ArgyleEstates.[19] On 26 July 2019, Opoworth issued a notice of its intention to cancel the leaseunder s 246 of the Act.[20] On 2 August 2019, 3R received its fire report and sent it to both Mr Wei andArgyle Estates. The report noted that:(a) under the Building Act 2004, new building work was required tocomply with the building code;(b) the Act deals with alterations to existing buildings as well;(c) the café was served by fire alarm and lighting systems, and there wasprovision for fire exits, fire separations, illuminated exit signs and fireextinguishers;(d) the building had been code compliant when a warrant of fitness wasissued in July 2018;(e) the author of the report had focused on how the new wall constructedby 3R had affected the fire safety ratings and the emergency exit routes;(f) the width of the corridor created by the new wall was "well below theminimum recommended width";(g) shelving was too low and non-compliant;(h) Mr Peng had advised that these matters had been rectified;(i) the fire systems were the responsibility of the body corporate, and ithad not received details in regard to them from Mr Peng.[21] On 12 August 2019, 3R's solicitor – Mr Liu – sent a letter to Opoworth'ssolicitor, Mr Wang. Mr Liu recorded that the notice given under the Act (see above at[20]) had been "placed at the address of the leased premises instead of the address forservice as recorded in the Company Register". It was asserted that the notice wasinvalid as a result. Mr Liu went on to advise that 3R would be seeking the landlord'swritten consent for the works undertaken, although recording 3R's view that consentmight not be required in accordance with the lease. The letter indicated that 3R wouldprovide Opoworth with details of the works undertaken "including plans andspecifications".[22] On 28 August 2019 – Mrs Peng, who is Mr Peng's wife – sent an email andplan to Mr Wei. Mrs Peng asked for Opoworth's consent to the works undertaken.The plan was hand-drawn. It was not to scale and was inaccurate in many respects.Further, there were no specifications provided. The only measurement on the planwas for the new corridor created – suggesting that that corridor was 1.2 metres in width(it now seems that this measurement was wrong).[23] Mr Wei replied to Mrs Peng, also on 28 August 2019. He referred to the letterwhich had been sent to him by Mr Liu and advised that he did not agree with most ofit. He then went on to advise that he would consider consenting to the works whichhad been undertaken, if fire compliance issues were resolved so that the building couldobtain a warrant of fitness, and if 3R agreed to pay any additional costs caused by thealterations as well as Opoworth's legal costs. (This email was sent on a "withoutprejudice" basis, but Mrs Peng nevertheless annexed it to her affidavit filed in supportof the notice of opposition and application for relief. At the hearing before me,Mr Parmenter, on behalf of Opoworth, waived any privilege in the email and insubsequent correspondence. Accordingly, I have considered the same).[24] Mrs Peng responded on 2 September 2019 and Mr Wei replied on the followingday. Mrs Peng asserted that there were no issues identified in the fire report, and thatall work complied with the building code. Mr Wei was not satisfied as to either ofthese assertions and he wanted them clarified. Mrs Peng then asserted that the newwall was not structural. She said that this had been confirmed by the Council when3R had undertaken work at another venue leased by it. She offered to make specificenquiries with the Council in relation to the Aroha Café. Mr Wei responded recordingthat 3R had built a wall which had caused fire system problems, and resulted in thebuilding failing to obtain a warrant of fitness. He sought that Opoworth should beprovided with a formal plan so that it could seek confirmation from Auckland Councilthat no building consent was required, that 3R should obtain confirmation that the allfire requirements had been met, and that Opoworth's legal fees should be reimbursed.[25] On 10 September 2019, Mrs Peng advised that 3R did not have any "formalarchitectural drawings". She referred again to the plan she had sent to Mr Wei on 28August 2019. Mrs Peng asserted that a building surveyor had told her that there hadbeen no need to apply for a building consent. She said that, if required, 3R wouldarrange another inspection and get "the report" updated. (Presumably this was areference to the fire report).[26] It seems that a building warrant of fitness was ultimately issued. It is dated 26July 2019, but it seems reasonably clear that neither party obtained it until rather later.A copy of the certificate has been made available. It contains a compliance schedule.That schedule refers only to specified systems – fire alarms, automatic doors,emergency lighting, lifts, air conditioning, signage, exits, etc. It does not confirm thatthe works undertaken by 3R comply with the Building Act, or that the building codehas been complied with. 3R did not file any independent evidence in regard to thesematters, although Mrs Peng did make various assertions as to them, all of which reliedon comments attributed to others. These assertions were hearsay and inadmissible.[27] On 17 September 2019, Opoworth issued a fresh notice advising its intentionto cancel the lease under s 246 of the Act. The fresh notice was served on the registeredoffice of 3R on 18 September 2019.[28] On 31 October 2019 – after the 20 working day deadline for rectifying thealleged breaches of the lease specified in the notice had expired – Mr Liu wrote toOpoworth's solicitors, complaining this time that the notice should have been servedat the café, and not at the company's registered office. He advised that his clients nolonger resided at the registered office, and that consequently the notice had not cometo their attention.[29] There was subsequent correspondence between the respective solicitors. Inshort, Mr Liu, for 3R, was asserting that the Opoworth was being difficult and notmaking it clear what it wanted, before it retrospectively consented to the alterations.Mr Wang, for Opoworth, was asserting that the landlord's requirements – namely thatproper plans and specifications be provided, that a suitable independent expert confirmthat the alterations had been undertaken in accordance with all relevant requirements,and that there were no issues with Auckland Council or with fire safety requirements– were unambiguous and reasonable.[30] On 8 November 2019, Mr Liu forwarded to Mr Wang a letter attaching aproperly drawn scale plan, with all relevant measurements shown on it. No otherspecifications were provided however. Further, the accompanying letter indicated thatthe new wall and doors were highlighted in yellow. That was not the case. A newcopy of the plan, highlighting the new wall and doors was finally forwarded by Mr Liuto Mr Wang on 13 November 2019.Analysis[31] As noted, it is common ground that works described above were undertakenby 3R.[32] Ms Foster, on behalf of 3R, submitted that the new wall was non-load bearing,and that the erection of the wall, the removal of some doors and the installation ofother doors, were not an additions or alterations to the premises in terms of cl 22.1 ofthe lease. She argued that what is prohibited by cl 22.1 is "alterations or additions",without consent, to "the premises". She submitted that it is only additions oralterations which require plans and specifications that engage cl 22.1, and that if thework is not of a type which would generally require plans and specifications, it doesnot fit within the words "additions and alterations" used in the lease.[33] I have difficulty with this submission.(a) First, there is no independent report confirming that the new wall putin place by 3R is non-load bearing. The fire report does comment thatthe new wall is non-load bearing, but that comment was made in areport prepared for a different purpose, and it was made by reference to"attached drawings" which have not been exhibited. Further, it wasmade by a fire assessor – not a building specialist. Nor is there anyevidence as to whether the walls (and doors) which were partiallyremoved were load bearing. Moreover, whether or not the walls areload bearing is not determinative of whether or not there have beenadditions and alterations.(b) Ms Foster's argument understates the extent of the works undertaken.I have summarised the works above at [10]. The words "additions andalterations" are not defined in the lease. They are however ordinaryEnglish words, which should be given their ordinary English meaning.Obviously enough, there is an addition when something is added; thereis an alteration when something is changed. Issues of fact and degreecan be involved; for example, nobody could sensibly suggest thatplacing a sign or a picture on an existing wall is an addition or alterationto leased premises. However, in my view, it cannot be contended thatworks which involve the removal of existing doors, the replacement ofthe spaces created with additional walls, the creation of a new internalwall and corridor, and the placement of new doors in the new wall andcorridor, are not additions and alterations. The works add to what wasthere, and altered what was there. In my judgment, what was done by3R clearly amounted to additions and alterations.[34] Next, it was contended that what was done was not done "to the premises".The description of the premises given in the first schedule to the lease – set out at [7]above – was referred to. It was noted that the plan referred to does not show theinterior layout of the units leased. It was pointed out that the lessor's fixtures andfittings are separately listed in the lease, and that there is no reference in the list to thefit-out inside the units. It was argued that works undertaken were not works done tothe premises; rather they were works done in the premises.[35] Reference was made to a decision given by Muir J – New Zealand Mint Ltd vGreys Avenue Investment Ltd.2 In that case, alterations had been made without thelandlord's consent to a reception area on the first floor of leased premises. Thelandlord gave notice of its intention to cancel the lease. The tenant sought relief. Therewas a dispute as to who owned the reception area fit-out. The tenant said the fit-outbelonged to it, and that therefore it was not required to get consent to alter it. Thelandlord said that the fit-out was owned by it as it formed part of the premises. MuirJ considered the lease before him and found that the landlord's fixtures and fittingswere not part of the leased premises, and that accordingly the clause in the leaserequiring consent was not engaged, irrespective of whether the relevant fit-out wasowned by either the landlord or the tenant.[36] I am not persuaded that the decision in New Zealand Mint assists.2 New Zealand Mint Ltd v Greys Avenue Investment Ltd [2015] NZHC 2051.(a) In the present case, Opoworth leased to 3R the premises described inthe first schedule, together with the right to use the landlord's fittingsand fixtures. The fittings and fixtures were specifically listed. The listdoes not include the interior fit-out. The description of the premisesgiven in the first schedule does not refer to the interior fit-out either.Rather, it refers to the principle unit and the accessory unit shown onthe deposited plan. As noted, the deposited plan does not show theinternal fit-out of the units – only the exterior walls.(b) In New Zealand Mint there was a plan attached to the lease. The planalso showed internal partitioning.3 The lease – as in the present case –described the demise of the leased premises and went on to provide thatthe landlord gave the tenant the right to use the landlord's fittings andfixtures. Muir J, referring to a decision made by Duffy J,4 consideredthat the terms of the demise there in issue were a strong indicator thatthe landlord's fittings and fixtures were not part of the premises for thepurposes of the additions and alterations clause there in issue. TheJudge went on to hold that the additions and alterations clause did notapply, irrespective of who owned the reception area in issue. He notedthat the tenant had moved the reception desk and placed a new door inan existing wall. The Judge considered that it was unlikely that analteration of that type constituted a failure to perform the lease, and thatany breach was in the tenant's capacity as a user rather than a lessee.(c) In the case before me, it cannot be argued, given the terms of the lease,that the internal partitioning and fit-out are the landlord's fixtures andfittings, which the tenant has the right to use. Nevertheless, the fit-outand internal partitioning are within the demised premises. Given thatthey are not fixtures and fittings, they can only be part of the demise.Otherwise the tenant would have no right to use them.3 At [42].4 Jamacs Corporation Ltd v Norfolk Trustee Company Ltd (2008) 9 NZCPR 498 (HC).[37] The tenant undertook the additions and alterations without Opoworth'sconsent. That was in breach of cl 22.1 in the lease. Opoworth gave notice under theAct alleging that 3R was in breach. The breach was not remedied within the timeperiod specified by Opoworth. That time period was reasonable, and 3R has not takenissue with the other requirement imposed by Opoworth – namely that 3R payOpoworth's costs in issuing the notice. There is no suggestion that the costs demandedwere excessive.[38] 3R asked Opoworth for its consent on two occasions – on 28 August 2019 andon 10 September 2019.[39] Unless the context otherwise requires, the covenant of a lessee not to do a thingwithout the lessor's consent must be taken as requiring the lessor:(a) not to unreasonably withhold consent to the doing of the thing by thelessee; and(b) within a reasonable time to:(i) give the consent;(ii) notify the lessee in writing that the consent is withheld.5[40] Here, Mr Wei, for Opoworth, acted promptly but he did not expressly eithergive consent or notify the lessee in writing that consent was withheld. Rather, hesought to impose conditions on the grant of the retrospective consent sought.Mr Parmenter argued that, in effect, Mr Wei did withhold consent, because he did notgrant it.[41] I accept that submission. The plan submitted by Mrs Peng on 28 August 2019was woefully inadequate. As noted, it was hand-drawn and not to scale, and therewere no specifications provided. In my judgment, Mr Wei did not act unreasonably inrefusing to consent to that plan, and by seeking to impose the conditions noted above.5 Property Law Act 2007, s 224(1).Mr Wei was implicitly withholding consent, albeit that it would have been preferableif he had expressly said so.[42] In my judgment, Opoworth has made out its case for an order cancelling thelease and for possession of the leased premises, subject only to the Court's power togrant relief against cancellation under s 253 of the Act.[43] The power to grant relief is widely expressed. A number of matters can berelevant. I adopt the helpful analysis by Osborne J in Peegeecee Limited v Parkviewon Hadley Limited.6 Clearly, relief is available on the facts before me, and as noted,Opoworth does not oppose 3R being granted relief against cancellation under s 253.[44] Opoworth does however seek to impose conditions. In particular, it seeks that3R should engage an independent building expert, to certify that:(a) the additions and alterations as built are in accordance with the planforwarded by Mr Liu to Mr Wang on 13 November 2019; and(b) the additions and alterations undertaken, as highlighted in yellow onthat plan either:(i) did not need to comply with the Building Act and the BuildingCode and that the work did not require resource consent, abuilding consent or a code compliance certificate; or(ii) that the works did need to comply with the Building Act andBuilding Code and that all requisite consents have beenobtained and that a code compliance certificate has issued.[45] 3R complains that the conditions of this kind goes beyond the terms of thelease, and are unreasonable.6 Peegeecee Limited v Parkview on Hadley Ltd [2019] NZHC 258 at [116]-[119].[46] I do not accept that submission. Had 3R sought written consent beforeundertaking the works, it would not have needed to obtain certification of these variousmatters. It would however, pursuant to cl 22.2 been required to comply with allstatutory requirements, including the obtaining of building consents and codecompliance certificates, pursuant to the Building Act, and it would have been requiredto provide copies of those consents and code compliance certificates to Opoworth.Given that 3R breached the lease by not obtaining prior written consent, it does notseem to me to be unreasonable for Opoworth now to seek independent confirmationthat cl 22.2 either was not engaged or that its requirements have been met.Result[47] I am satisfied that 3R breached the lease by failing to obtain the landlord'sconsent to the additions and alterations undertaken, in breach of cl 22.1 of the lease. Iam also satisfied that the Property Law Act notice under s 246 was validly issued, andthat 3R failed to remedy its breach of the lease within the time reasonably specified inthat notice. Opoworth is entitled to cancel the lease and to possession of the property.Nevertheless, I grant relief against cancellation, conditional upon 3R, at its ownexpense and within a period of two calendar months from the date of this judgment,engaging an independent building expert, to certify that:(a) the additions and alterations as built are in accordance with the planforwarded by Mr Liu to Mr Wang on 13 November 2019; and(b) the additions and alterations undertaken, as highlighted in yellow onthat plan either:(i) did not need to comply with the Building Act and the BuildingCode and that the work did not require resource consent, abuilding consent or a code compliance certificate; or(ii) that the works did need to comply with the Building Act andBuilding Code and that all requisite consents have beenobtained and that a code compliance certificate has issued.(c) In the event that (b)(ii) applies, 3R is to make copies of all relevantconsents and code compliance certificates available to Opoworth asrequired by cl 22.2 of the lease.(d) I reserve leave to the parties to come back to the Court if there is anydifficulty or delay in complying with this order or if further directionsor orders are required.Costs[48] Opoworth as the successful party, is entitled to recover its reasonable costs anddisbursements from 3R. In that regard, I make the following directions:(a) within 10 working days of the date of this judgment, Opoworth is filea memorandum detailing the costs and disbursements it seeks;(b) within a further 10 working days, 3R is to reply by way ofmemorandum;(c) memoranda are not to exceed five pages.I will then deal with the issue of costs and disbursements on the papers, unless I requirethe assistance of counsel.______________________________Wylie J