PETER BRENT HOME HUBBARD AND HARLEY HAYNES V KIWI RAIL LIMITED [2017] NZCA 375

PETER BRENT HOME HUBBARD AND HARLEY HAYNES V KIWI RAIL LIMITED [2017] NZCA 375 [28 August 2017]IN THE COURT OF APPEAL OF NEW ZEALANDCA272/2016 [2017] NZCA 375BETWEEN PETER BRENT HOME HUBBARDAND HARLEY HAYNESFirst AppellantsAND OCEANIC PALMS LIMITEDSecond AppellantAND KIWIRAIL LIMITEDRespondentHearing: 28 August 2017Court: Harrison, Duffy and Williams JJCounsel: Appellants in personM L Campbell and L M McGlone for RespondentJudgment: 28 August 2017ORAL JUDGMENT OF THE COURTA The application for stay of execution of this Court's judgment deliveredon 4 July 2017 is declined.B The appellants must pay the respondent costs on a band A basis as for a standard application for leave to appeal and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Harrison J)Introduction[1] On 4 July 2017 this Court dismissed an appeal by Peter Hubbard, Harley Haynes and their company Oceanic Palms Ltd (collectively Oceanic) against a judgment delivered by Fogarty J in the High Court on 20 May 2016 declining an application for relief against forfeiture of a lease of premises in Onehunga for the non-payment of an increased rental following a review.1 Oceanic now applies for astay of execution of this Court's judgment pending determination of their applicationfor leave to appeal to the Supreme Court. Mr Campbell for KiwiRail Ltd, which opposes the application, advises that Oceanic's submissions in support of the application for leave to the Supreme Court are not due until 8 September 2017.Background[2] The brief circumstances of the application for a stay are as follows.[3] KiwiRail owns land at Onehunga. In 2009 it agreed to lease the premises to Oceanic for a period of five years commencing on 1 March 2010. The initial rental was $34,300 per annum. At the time KiwiRail advised Oceanic that the agreed rental was not the current market rental but was concessionary. KiwiRail alsodeclined Oceanic's request to limit any rent increase after five years to movements in the consumer price index.[4] In December 2013 the lease was varied by increasing the leased area and the rent to $37,502 per annum. The lease provided a single right of renewal which Oceanic exercised for a further term of five years from 1 March 2015. Critically, the agreement entitled KiwiRail to review the rent by giving written notice to Oceanic specifying the annual rental to apply from the rent review date. KiwiRail gave notice that it had determined the market rent for the land as $123,200 per annum. For unexplained reasons Oceanic did not respond within the agreed 28-day period. Nevertheless, despite Oceanic's deemed acceptance of the new rental, KiwiRail did not seek to enforce its legal right.1 Hubbard v KiwiRail Ltd [2016] NZHC 1061 [HC judgment]; aff'd [2017] NZCA 282 [CA judgment].[5] Instead both sides engaged valuers. CBRE for KiwiRail gave a derived market rental of $117,000 per annum; Frank Knight for Oceanic assessed the rental at $75,000. The valuers then conferred. They made a joint recommendation to the parties that the rent should be fixed at $100,000 for the renewed term. That recommendation was acceptable to KiwiRail, which invoiced Oceanic accordingly. However, Oceanic did not accept the joint recommendation and continued to pay the original rental amount.[6] As this Court noted in dismissing Oceanic's appeal:[16] Because no progress towards resolution was being made, KiwiRail gave notice on 17 September 2015 under s 245 of the Property Law Act 2007 advising that unless Oceanic Palms paid the outstanding rent within 10 working days, KiwiRail intended to cancel the lease. This did notproduce the desired response. Accordingly, KiwiRail's solicitors served afurther such notice on 1 December 2015 requiring the outstanding rental to be paid by 16 December 2015 failing which KiwiRail intended to cancel the lease. This notice prompted Oceanic Palms to apply for relief against the proposed cancellation under s 253 of the Property Law Act.[7] In the High Court Oceanic advanced 16 grounds in support of its application for relief against forfeiture, partly relying on allegations of bad faith. Fogarty J dismissed all 16 grounds. Nevertheless, he allowed Oceanic a further opportunity to avoid cancellation by taking two steps within a calendar month from the date of his judgment.2 One was to pay KiwiRail the arrears of rent payable under the renewed lease. The other was to formally dispute the rent so that it could be submitted toarbitration. Despite the High Court's grace, Oceanic took no other step.[8] Oceanic appealed to this Court on 10 grounds, all of which were dismissed in a comprehensive judgment. In concluding this Court noted as follows:[43] The appellants have made it clear that they are not prepared to pay any increased rental. They acknowledge that such an outcome can only be achieved by setting the lease to one side and ignoring the rent review provision. That is not a proper basis for the Court to grant relief against forfeiture of a lease. Such relief is generally only appropriate in circumstances where the Court can have reasonable confidence that the lease terms will be complied with if relief is granted. That is not the case here. If relief against forfeiture were to be granted, that would effectively require KiwiRail to accept the initial concessionary rental agreed in 2005 for the2 HC judgment, above n 1, at [65].entirety of the lease. That would be contrary to the parties' agreement andneither fair nor equitable.Decision[9] In support of the application for leave for a stay pending the determination of its application for leave to the Supreme Court, Oceanic relies on a number of grounds. In opposing, KiwiRail points out that any further delays would prejudiceits ability to recover Oceanic's debt; the amount presently outstanding is $173,692 for rental arrears and costs. Also Oceanic is not paying the rental rate upheld by this Court. KiwiRail also questions Oceanic's ability to pay the debt.[10] Nevertheless KiwiRail would consent to an order staying re-entry of the premises on two conditions: first, that Oceanic pay the outstanding amounts owing under the renewed lease or provide satisfactory security; and second, that Oceanic pays the market rate of $100,000 plus GST on a monthly basis until determination of its application for leave to appeal. Neither of these conditions is acceptable to Oceanic, which will agree only to pay future rental at the concessionary rate payable under the expired lease.[11] Mr Hubbard raises the orthodox grounds in support of Oceanic's application. In particular he points out that if a stay is not granted the application for leave to appeal may be rendered nugatory; that Oceanic is acting in good faith; that KiwiRail will not suffer any prejudice; and, in particular, that the application for stay has merit.[12] We are not satisfied that these grounds are sustainable. Having reviewed thisCourt's judgment and the judgment of Fogarty J in the High Court, we do notconsider Oceanic's application for leave to appeal has any merit. The appeal is mounted on a diffuse combination of allegations of bad faith and breach of contract, none of which is reasonably arguable where the obligations imposed on Oceanic by the lease are unequivocal. We are also satisfied that KiwiRail's rights will beprejudiced by further delays given our doubts about Oceanic's financialcircumstances.[13] Moreover, Oceanic has failed to take the reasonable steps available to preserve its position pending determination of its application for leave to appeal. Oceanic has not, we repeat, taken advantage of Fogarty J's grace in allowing the rentfigure to be remitted for arbitration; nor has it taken any steps to pay or secure past arrears or undertake to pay future rental at the renewed rate of $100,000 annually.Result[14] In these circumstances Oceanic's application for stay of execution of thisCourt's judgment delivered on 4 July 2017 is declined.[15] Oceanic must pay costs to KiwiRail on a standard application for leave to appeal on a band A basis together with usual disbursements.Solicitors:Russell McVeagh, Wellington for Respondent