PACIFIC IMPORTS & TRADING LIMITED v CRAVE ENTERTAINMENT LIMITED [2022] NZHC 446 [14 March 2022]

PACIFIC IMPORTS & TRADING LIMITED v CRAVE ENTERTAINMENT LIMITED [2022] NZHC 446[14 March 2022]IN THE HIGH COURT OF NEW ZEALANDNEW PLYMOUTH REGISTRYI TE KŌTI MATUA O AOTEAROANGĀMOTU ROHECIV-2021-443-051[2022] NZHC 446UNDER the Property Law Act 2007IN THE MATTER OF an application for possession of land and tocancel a leaseBETWEEN PACIFIC IMPORTS & TRADINGLIMITEDPlaintiffAND CRAVE ENTERTAINMENT LIMITEDDefendantHearing: 8 March 2022Counsel: L J Turner for PlaintiffT Wano for DefendantJudgment: 14 March 2022JUDGMENT OF CHURCHMAN JThe application[1] By application dated 14 October 2021, the plaintiff applied to the Court for thefollowing orders:(a) for possession of the land at 53 Devon Street East, New Plymouth (theproperty);(b) cancellation of lease dated 13 August 2018 between the plaintiff anddefendant in respect of the property (the lease);(c) recovery of unpaid rent under the lease for the period between13 February 2021 to 1 July 2021 in the sum of $19,802.73 plus GST;(d) unpaid outgoings under the lease for the same period of $3,262.25including GST;(e) ongoing unpaid rent from 2 July 2021 until the date of cancellation ofthe lease in the sum of $142.56 plus GST per day together with unpaidoutgoings for the same period at a rate of $20.40 plus GST per day;(f) interest on "all unpaid rent and outgoings from the respective due datesfor payment at 15% per annum both before and after judgment"; and(g) solicitor and client costs and disbursements in accordance with thelease both in terms of the costs of issuing the Notice of Intention toCancel the Lease and these proceedings.1[2] On 20 January 2022 (pursuant to leave granted by Cooke J in a minute of16 December 2021)2 the defendant filed a notice of opposition which opposed all ofthe orders sought by the plaintiff. It also sought what were said to be further orders:(a) that the defendant was entitled to damages to be quantified in relationto the plaintiff's claimed breaches of the lease and proposedcancellation of the lease; and(b) a sentence which read "This notice of opposition and application for anorder is made in accordance with section 253 of the Property Law Act2007."1 No precise schedule of the total of the monies sought was filed. Inclusive of the total of $23,064.98for rent and disbursements for the period 13 February 2021 to 1 July 2021 (plus GST and interest),counsel estimated that total rent and outgoings to 5 December 2021 was in the order of $48,486.74(plus GST and interest). Counsel indicated that costs calculated on a solicitor and client basiswould be in the order of $10,000.2 Pacific Imports & Trading Ltd v Crave Entertainment Ltd CIV-2011-443-051 Minute of Cooke J16 December 2021.[3] Section 253 of the Property Law Act 2007 (the Act) is the section whichpermits the Court to grant relief against cancellation of a lease.[4] No particular objection appears to have been taken by the plaintiff to theinformal nature of either the claim for damages or the application for relief againstcancellation and I proceed on the basis that they are validly before the Court.The hearing[5] The hearing proceeded on the basis of affidavit evidence with neither partyrequiring any of the deponents for cross-examination. The Court had before it twoaffidavits from Mr Rafad Alsaloom, the principal of the plaintiff, dated 3 November2021 and 15 February 2022 respectively; and two affidavits from Mr Denys Taylor,the principal of the defendant, dated 21 January 2022 and 1 February 2022respectively.[6] As noted by Heath J in Detour Clothing Ltd v Star 5 Ltd,3 there are difficultiesin making findings on conflicting affidavit evidence in the absence of cross-examination. While the starting point is that the Court accepts at face value what adeponent says in an affidavit, the Court is not obliged to accept uncritically evidencethat is inherently lacking in credibility, inconsistent with contemporary documents orother information or inherently improbable.4Facts[7] The relevant facts which seem to be agreed are:(a) the plaintiff owns the property situated at 53 Devon Street East,New Plymouth;(b) the plaintiff leased the property to the defendant pursuant to a Deed ofLease dated 13 August 2018;3 Detour Clothing Ltd v Star 5 Ltd [2017] NZHC 1172 at [57].4 See Robertson v ASB Bank Ltd [2014] NZCA 597 at [32] applying Eng Mee Yong v Letchumanan[1980] AC 331 (PC) at 341 and Krukziener v Hanover Finance Ltd [2010] NZAR 307, at [26].(c) the premises described in the lease are "basement floor, first floor andsecond floor at 53 Devon Street East, New Plymouth";(d) the term of the lease was for 12 months to commence on 13 August2018 with four rights of renewal to be exercised on:(i) 13 August 2019;(ii) 13 August 2022;(iii) 13 August 2025; and(iv) 13 August 2028 with a final expiry date of 13 August 2031;(e) the annual rental was $52,000 plus GST;(f) the default interest rate was 15 per cent per annum;(g) the lease did not include any car parks; and(h) the lessee was obliged to pay outgoings in addition to rental.[8] It is also accepted by the parties that there were disputes between them inrelation to the abatement of rental during COVID-19 lockdown periods in 2019 and2020. The lessee did not pay rental or outgoings for the disputed periods but this isirrelevant to the present claim as such rental and outgoings are not sought to berecovered in these proceedings.[9] Relationships between Mr Alsaloom and Mr Taylor deteriorated during thecourse of the lease. During 2021, apparently without the benefit of legal advice,Mr Alsaloom attempted to terminate the lease and re-enter the premises. He wasunsuccessful in doing that as Mr Taylor did not accept the valid cancellation of thelease and refused to allow Mr Alsaloom to re-enter the premises.[10] The lessee acknowledges that no rent or outgoings have been paid sinceJanuary 2021, neither does the lessee dispute that a compliant notice for possessionunder the Act was served on it and that it has remained in possession.[11] It is undisputed that WorkSafe deemed the building unsafe and that, as a result,the New Plymouth District Council boarded the building up as from 2 December 2021,effectively excluding the lessee. What is not agreed is exactly what caused WorkSafeto deem the building to be unsafe.Conflicting evidence[12] In his affidavit of 14 February 2022 at [6](c), Mr Alsaloom contends:Crave continued to occupy the premises throughout, until finally evicted bythe local Council with the help of the Police late in 2021, due to Craveoperating the premises unsafely.[13] At [6](l) of the same affidavit, Mr Alsaloom asserts:WorkSafe and/or the Council have closed the building due to unsafeelectrical works carried out by Crave.[14] In an affidavit dated 31 January 2022, Mr Taylor had a different account. At[5], he said:In October 2021 I was contacted by WorkSafe and advised that electricalinstallation at the Premises was unsafe and consequently the power wasdisconnected.I was then in discussions with both WorkSafe and [Mr Alsaloom] at this timeand had advised [Mr Alsaloom] that the ground floor which was not leased byCrave Entertainment Ltd, had a burst water pipe, which was going over theground floor switchboard and flooding the basement. I tried to explain to himthere were issues with some of the old pipes in the building and that this wasthe reason why there were a number of ongoing issues and why ultimatelypower from the building disconnected (sic). This was, in my view, PacificImports & Trading Ltd's responsibility.[15] In [8] of the same affidavit, Mr Taylor claims that the Fire Service sent a noticesaying the building was unsafe which caused the New Plymouth District Council toboard the building up.[16] The objective evidence relevant to these contentious issues would appear to be,on 15 October 2021, Scott Collins of WorkSafe sent an email to Mr Taylor whichincluded the statements:We have been advised of a possible unsafe installation on your property.Electricians have a legal obligation to notify WorkSafe of such installation.We understand the installation has the following fault:• unsafe electrical switchboard that allows water ingress when it rains;• measures not in place to prevent direct or in-direct (sic) contact withexposed conductive parts;• exposed potentially live conductors;• multiple cables are inadequately protected against the risk of damage.[17] The letter sought Mr Taylor's response and further noted, "Water ingress intoswitchboards and electrical equipment presents a risk to people and property".[18] On 29 October 2021, WorkSafe sent a letter to Mr Taylor noting that they hadnot heard from him regarding their prior communication and requesting an immediateresponse. There is an email dated 1 November 2021 from Mr Taylor to Mr Collins atWorkSafe indicating he will meet with him as arranged that Wednesday. There is noinformation as to whether that meeting occurred.[19] An email of 8 November 2021 from Mr Taylor to Mr Alsaloom advises thatthe power has been disconnected by WorkSafe and says:The ground floor has a burst water pipe again which was going over theground floor switchboard and also flooding the basement as the basementsump pump has no power now. I have turned off the water to the buildinguntil you have fixed the leak. The burst water pipe to the ground floor toiletsstill also needs to be fixed as you did not get repaired (sic) and we had tobypass this ourselves due to the plumber refusing to repair due to you notpaying for the previous burst water pipe repairs on level 1. As you are awarethe old pipes that continuously burst need to be replaced.[20] There was also an email from Mr Alsaloom to Mr Taylor of 10 November 2021with the heading "Energy Safety Notification 211013-02-Unsafe Installation" whichsimply said:DenysWhat no u on now?Rafael[21] I interpret the email to be Mr Alsaloom seeking to contact Mr Taylor bytelephone in response to the email of 8 November 2021. There was no indication inany of the affidavit evidence whether such telephone contact was made or what mighthave been discussed.[22] There was an email dated 8 September 2021 to the lessor from a companycalled Fire Security Services which said that the building warrant of fitness wasoverdue but that the company had been unable to gain access through the tenant. Thisdocument appears to relate to the annual building warrant of fitness rather than anyunsafe electrical installation.[23] It appears that there was more than one electrical defect that was of concern toWorkSafe. The first of the concerns listed in the email of 15 October 2021 relatedspecifically to an unsafe electrical switchboard that allowed water ingress when it wasraining. The listing of this concern first would support an inference that it wasregarded as the most serious issue of non-compliance. Such an inference is furthersupported by the fact that the only specific risk identified was the risk to people andproperty arising in relation to the switchboard.[24] The emails set out above confirm that burst pipes seem to have been the causeof the risk arising in relation to the switchboard. There does not seem to be any denialby Mr Alsaloom in any of the emails that there were in fact burst pipes which allowedwater to interact with the switchboard. There was no denial by Mr Alsaloom ofMr Taylor's assertion that the burst water pipe affecting the switchboard was situatedon the ground floor of the building which was not leased by the defendant.[25] Of the other factors referred to in the letter of 15 October 2021, only the fourthfactor, that of multiple cables being inadequately protected, would appear to be theresponsibility of the lessee. It is not possible to work out what the other two factorsactually refer to so as to apportion responsibility.[26] Although there was evidence of the people wishing to conduct the buildingwarrant of fitness being unable to make contact with the lessee to carry that out, thereis no evidence of the lessor having sent anyone to fix the burst pipes, or of such aperson being obstructed by the lessee.[27] On the basis of the objective evidence, I therefore conclude that the primaryreason that the building was boarded up by the local authority on 2 December 2021was the failure by the lessor to fix a burst water pipe on the ground floor which createdan unacceptable risk in relation to the electrical switchboard.The law[28] Section 245 of the Act permits a lessor to cancel a lease where rental is inarrears for not less than 10 working days.[29] Sections 245A-B of the Act provide for an extended period of 30 working days'notice during the period commencing 1 April 2020 to the revocation of the EpidemicPreparedness (COVID-19) Notice 2020. That notice is still in force. There is nodispute that a valid Property Law Act notice relating to rental in arrears for more than30 working days was given and that the lessee is in breach of the notice.[30] Section 253 of the Act permits a lessee to apply to the Court for relief againstcancellation or proposed cancellation on the grounds of breach including breach of thecovenant to pay rent.[31] The Court has a broad discretion when considering an application to providerelief against cancellation.5[32] The Courts have historically distinguished between breaches of the covenantto pay rent and other breaches. In Pike River Coal Ltd (in rec) v O'Malley FarmingLtd, the Court said:65 See Studio X Ltd v Mobile Oil New Zealand Ltd HC Auckland CP 381/95, 12 June 1996 at 23-24,citing Mclvor v Donald [1984] 2 NZLR 487.6 Pike River Coal Ltd (in rec) v O'Malley Farming Ltd HC Wellington CIV-2011-418-66,14 October 2010 at [41], citing Studio X Ltd v Mobile Oil New Zealand Ltd HC AucklandCP 381/95, 12 June 1996.A distinction has been historically drawn in relief cases between rent and non-rent covenants. The courts have been ready to grant relief to a lessee in defaultof a rent covenant where the arrears is paid up fully, including any costs, bythe time the matter comes to court as long as the lessee is not hopelesslyinsolvent.[33] The ability of a lessee in breach of a covenant to pay rent to bring the rent upto date and to pay the costs of the Court proceedings is therefore a matter upon whichthe Court would expect evidence. There is no point in the Court granting relief againstcancellation where the lessee does not have the means to pay the arrears of rent andcosts.The lessee's position[34] In support of its application for relief against cancellation, the lessee seeks toexcuse its non-payment of rent since February 2021 on a number of grounds:(a) the parties were in dispute regarding issues relating to the lease prior toFebruary 2021 and had discussed arbitration about these matters;(b) in February 2021, the plaintiff left a trespass notice on the property inan attempt to prohibit the access of the defendant to the property;(c) in April 2021, the plaintiff sought to evict the defendant;(d) assertions by the plaintiff as to the validity of the lease and attemptedtermination "hindered the defendant's ability to both access and operateout of the property"; and(e) during the period of unpaid rent the property has been non-compliant,and/or not fit for use.Lessor's response[35] The lessor submits that matters relating to events occurring prior to February2021 are irrelevant to these proceedings as the notice issued by the plaintiff did notrelate to matters prior to 13 February 2021. It concedes that Mr Alsaloom's variousattempts to cancel the lease were not lawful and were unsuccessful.Analysis[36] The fact that relationships had broken down between the parties and they hadbeen in dispute in relation to a variety of matters including COVID-19 rebate reliefare irrelevant to these proceedings, as the lessor has not sought to recover unpaid rentfor the disputed period.[37] The misguided and unsuccessful attempts by the plaintiff to cancel the leaseand re-enter are also irrelevant. The defendant did not accept such actions were lawful,vigorously and successfully opposing them. The defendant has throughoutcontinuously asserted the existence of a lawful lease. An inevitable consequence ofthe existence of a valid lease is that the defendant had an obligation to pay the rental,absent a fundamental breach by the plaintiff.[38] The defendant's claims that the assertions by the plaintiff as to the validity ofthe lease and its actions in attempting to terminate the lease hindered the defendant'sability to both access and operate out of the property, are inconsistent with theestablished facts. Up until 2 December 2021, the defendant remained in possession ofthe property. There was at least some evidence that the defendant operated its businessduring some of this time,7 and no evidence that anything to do with the purportedcancellations of the lease adversely affected the defendant's business.[39] The situation is different in relation to the unsafe electrical installation notice.As a result of the facts that I have found above, the principal reason that the buildingwas boarded up and the defendant evicted on 2 December 2021, was the plaintiff'sfailure to provide a non-hazardous switchboard.[40] The notice from WorkSafe required that its concerns be remedied no later than22 October 2021. However, the first communication from Mr Taylor to Mr Alsaloomdrawing the matter to his attention appears to have been the email of 8 November7 There were Facebook screenshots from April 2021 apparently showing the lessee operating itsbusiness from the premises.2021. The plaintiff was therefore on notice, prior to the building being boarded up ofthe likely consequences of failure to address WorkSafe's concerns.[41] There is no evidence that it attempted to discharge its obligations between thenand 2 December 2021. The plaintiff therefore has to accept responsibility for thedefendant's eviction from the property as of 2 December 2021, and the defendant canhave no obligation to pay rent after that date.[42] The plaintiff's contentions that the property was compliant at thecommencement of the lease are irrelevant. The building clearly required ongoingmaintenance, in particular maintenance to a leaking water pipe on the first floor. Thatwas the lessor's responsibility.[43] The defendant has not made any payment to bring the rental arrears coveredby the notice of cancellation up to date. Nor offered any payment on account of theplaintiff's costs. Such evidence as there is, would tend to indicate that between13 February 2021 and 2 December 2021, the defendant operated fitfully. It has ofcourse ceased operation since 2 December 2021. That is likely to have severelyimpacted its financial situation.[44] I infer from the complete absence of any evidence as to the defendant's (orMr Taylor's) financial situation, that the absence of such evidence is because it wouldnot assist the defendant in establishing that it was presently solvent, or in any positionto pay arrears of rent and outgoings between 13 February 2021 and 2 December 2021,or make a contribution to the plaintiff's costs.[45] Accordingly, in the exercise of my discretion, and in accordance with the caselaw discussed above, I decline the application for relief against cancellation.Defendant's counterclaim[46] In its notice of opposition, the defendant set out what was effectively acounterclaim indicating that it was seeking damages, to be quantified, in relation tounspecified breaches by the plaintiff and, in particular, the proposed cancellation ofthe lease.[47] There was no evidence before the Court quantifying the proposed claim fordamages. It is also difficult to see how anything to do with the plaintiff's unsuccessfulattempts to cancel the lease could have caused the defendant's loss given thedefendant's robust rejection of the plaintiff's attempts at cancellation. This claim isdismissed.Plaintiff's claim for rent[48] For the reasons set out above, I am satisfied that for the period 13 February2021 to 2 December 2021, the plaintiff is entitled to recover arrears of rent, outgoings,and interest at the specified rate of 15 per cent per annum, and I make such an order.[49] I am also satisfied that the plaintiff is entitled to an order cancelling the lease.[50] In accordance with the lease, the plaintiff is entitled to actual and reasonablecosts. The plaintiff's counsel estimated that they were in the order of $10,000.[51] As I have found that the plaintiff is not entitled to rent or outgoings after2 December 2021, some reduction in costs is warranted to reflect the level of success.It is my view that in all the circumstances, $7,000 would be an appropriate sum.Outcome[52] I make the following orders:(a) the lease of the property is cancelled;(b) the plaintiff is entitled to judgment for arrears of rent and outgoingsbetween the period 13 February 2021 to 2 December 2021 inaccordance with the lease, together with interest on the arrears at15 per cent;(c) the defendant is ordered to pay costs of $7,000 to the plaintiff;(d) the defendant's claim for damages is dismissed; and(e) the defendant's application for relief under s 253 of the Act isdismissed.Churchman JSolicitors:Whaley Garnett, Auckland for PlaintiffGovett Quilliam, New Plymouth for Defendant