PONSONBY MALL TRUST LTD & ANOR V NZ FOOD INDUSTRIES LTD HC AK CIV-2005-404-3631

PONSONBY MALL TRUST LTD & ANOR V NZ FOOD INDUSTRIES LTD HC AK CIV-2005-404-3631 5 December 2005IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2005-404-3631AND BETWEEN PONSONBY MALL TRUST LIMITED AND CRUMMER TRADING TRUST LIMITED Plaintiffs AND NEW ZEALAND FOOD INDUSTRIES LIMITED Defendant Hearing: 21, 22, 23 November 2005 Appearances: MRT Colthart for Plaintiffs R Fardell QC and DA Campbell for Defendant Judgment: 5 December 2005JUDGMENT OF ASHER JThis judgment was delivered by me on at am/pm pursuant to Rule 540(4) of the High Court Rules .. Registrar/Deputy Registrar DateSolicitors: Knight Coldicutt, PO Box 106-241 Auckland Kensington Swan, Private Bag 92101, Auckland[1] The plaintiffs, Ponsonby Mall Trust Limited and Crummer Trading Trust Limited, own a 1.3 hectare property at 4 Williamson Avenue Ponsonby, Auckland. In 2003 the defendant, New Zealand Food Industries Limited ("NZFI"), sold the property to the plaintiffs, and took a lease back for a period of one-year commencing 30 June 2004, with two rights of renewal for six month terms. [2] This dispute arises from the fact that the defendant by error neglected to renew its lease in accordance with its terms. The plaintiffs in this proceeding seek an order for possession of the premises. The defendant counterclaims seeking an order pursuant to s 120 of the Property Law Act 1952 that the plaintiffs grant to the defendant a renewal of its lease.Background[3] NZFI is New Zealand's largest producer of yeast. It currently produces 100% of liquid yeast made in New Zealand, and 98.5% of all compressed yeast. It is the major supplier of yeast to all New Zealand's major bakeries. [4] The company in its various forms has occupied the site at 4 Williamson Avenue, Ponsonby, Auckland, since approximately 1910. Until recently it owned it. By 2002 it was clear that the site occupied by NZFI had become a prime development site. It was located on valuable land that was in an area that was densely populated with residential accommodation and upmarket retail premises. [5] From October 2002 Keith Mellor, who was the commercial manager for the defendant, and Warren Wevers, who was the factory manager, were taking steps to relocate the defendant, and sell the site. [6] As part of the process it was necessary for NZFI to locate suitable premises for any relocation. There would also be an opportunity to build a new factory with more modern equipment. In the course of exploring options Mr Wevers at the end of 2002 received a telephone call from George Hunter, an Auckland real estate agent who was working at the time for a firm called Link Realty, selling and leasingcommercial property. Mr Layne Kells, the director of Marlin Group, which had an interest in purchasing the NZFI site, had contacted Mr Hunter and was interested. The response from NZFI was that as part of any process of sale it needed to locate a suitable property for relocation. Mr Hunter became involved in endeavouring to find a possible relocation site. [7] In February 2003 Burns Phillip Limited owned the shares in NZFI. At that time Burns Phillip Limited was seeking to acquire control of the Goodman Fielder Group. As a condition to it proceeding, the New Zealand Commerce Commission determined that Burns Phillip Limited would not be able to acquire control unless it divested itself of NZFI. Accordingly on 21 February 2003 Burns Phillip Limited undertook that it would sell NZFI's yeast business as a going concern, and proceeded to look for a purchaser. [8] By January 2004 there was more urgency to the process of finding purchasers for the business and land. It was possible that a purchaser could be found to acquire both at the same time. In April 2004 Messrs Mellor and Wevers gave a presentation to a number of prospective purchasers of the business and land. These included Layne Kells of Marlin Group. There has been some question as to whether Mr Hunter was present at that meeting. By then Mr Hunter was working for Marlin Group and the plaintiffs. Mr Mellor thinks that Mr Hunter was present, but Mr Hunter is adamant that he was not and Mr Wevers is unsure. I think it is unlikely that Mr Hunter was present. However, the point is not of great importance, as there is no doubt that Mr Kells who controls the plaintiffs, which ultimately purchased the site, was there. [9] There was a PowerPoint presentation at the April meeting, which included a section setting out what was involved in relocating the factory. Those present were advised by Messrs Mellor and Wevers that a realistic timeframe for relocation of the factor was about 12 to 18 months from the date on which a new site was secured. [10] On 9 June 2004 an agreement for sale and purchase was entered into between NZFI as vendor and Ponsonby Mall Trust Limited, and Crummer Trading Trust Limited as purchasers ("the plaintiff trusts"). Those trusts appear to be within theambit of Mr Kells' Marlin Group. The agreement for sale and purchase had attached to it a draft Deed of Lease between the plaintiff trusts as lessor and NZFI as lessee. [11] The purchase settled on 30 June 2004. On that date a Deed of Lease was entered into between the plaintiff trusts and NZFI. The Deed of Lease is on the standard Auckland District Law Society form. It was for one-year, commencing 30 June 2004, with two rights of renewal for a further term of six months each, the final expiry date being 29 June 2006. [12] The renewal dates were 30 June 2005 and 31 December 2005. The standard form lease was considerably altered with deletions and additional terms. The renewal of lease provision at paragraph 34.1 read as follows:34.1 If the Tenant has given to the Landlord written notice to renew the lease at least 3 calendar months before the end of the term and is not at the date of the giving of such notice in breach of this lease (including any maintenance obligations) then the Landlord will grant a new lease for a further term from the renewal date as follows: (b) The new lease shall be upon and subject to the covenants and agreements herein expressed and implied except that the term of this lease plus all further terms shall expire on or before the final expiry date.[13] In about July 2004 the shares in NZFI were sold by Burns Phillip Limited to Associated British Foods Group ("ABF Group"). ABF Group is a very large multi- national group of food companies. [14] I will refer to the dealings that followed between Messrs Mellor and Wevers and Messrs Hunter and Kells later in this judgment. [15] On 4 March 2005 Mr Mellor was made redundant. Up to that point of time as commercial manager he had been the person whose responsibility it was to deal with the renewal of leases. There was one other lease in New Zealand that he also controlled. When he was made redundant, the time for renewal of the NZFI lease had not yet arisen. It was not an issue that Mr Mellor addressed in the course of the handover process, which appears to have been somewhat rushed and pressured. Hisformer colleague, Mr Wevers, was to take over his job. However, two days after Mr Mellor's redundancy was announced Mr Wevers decided that he would resign, and he left three weeks later. Another one of the five managers was also made redundant at the same time, which meant that the management team had been depleted from five persons to two. [16] Ultimately, the managerial role in the company was taken over by Mr Jeremy Paterson, who had previously been the chief chemist in the laboratory, and had the title of quality manager. He became the acting site manager. [17] Messrs Mellor, Wevers and Paterson gave evidence. I found all three to be sound and credible witnesses. It is clear from their evidence that in the flurry of change through March, the issue of the need to renew the lease was overlooked. It would have been Mr Mellor's responsibility, and he would have done it, but he left three weeks before the issue arose. [18] In the haste of the departure of the executives, there was no person appointed to take over the role of managing the leases. Mr Wevers, who was the immediate successor, only lasted a few days and, in any event, did not have any detailed knowledge as to what was required. His successor, Mr Paterson, had no idea at all about the need to send a written notice to renew. Thus, he was entirely surprised when on 29 June 2005 he received a facsimile from one of Mr Kells' companies, Westminster Property Management Limited, on Marlin Group letterhead stating that NZFI had failed to provide notice of renewal of the lease to the trust within the required time period, and that as a result the lease had terminated. [19] The letter read as follows:We act as property manager for the landlord, Ponsonby Mall Trust Limited and Crummer Trading Trust Limited for the above property. We note that whilst you had two rights of renewal for further terms of six months each, necessary notice has not been received by our client and accordingly the lease must terminate. You are aware that our client intends to develop the site and therefore receiving notice that you wish to renew the lease was paramount to our client.Our client advises that it has expenses such as land rates which will require reimbursement from you in accordance with the lease terms. Our client will forward this to you directly for payment. We further note that there are reinstatement provisions in the lease and would be grateful if you would contact either myself on mobile 0272 449 144 to arrange a suitable time to perform a final inspection of the premises.[20] Mr Paterson contacted NZFI's solicitors, Kensington Swan, immediately. On the same day Kensington Swan sent a letter by facsimile to the plaintiff trusts giving notice that NZFI wished to renew the lease for a further term of six months from 30 June 2005. The following day Knight Coldicutt, the solicitors for the plaintiff trusts, replied and stated that the plaintiff trusts did not accept the letter of 29 June 2005 as being notice to renew the lease. Kensington Swan responded stating that if renewal was not agreed, NZFI would seek relief pursuant to s 120 of the Property Law Act 1952. The plaintiff trusts' response was to issue this proceeding on 8 July 2005 seeking an order for possession. The plaintiff trusts refunded NZFI's last payment of rental under the lease. NZFI has remained ready and able to pay the rent since that time. [21] On 22 July 2005 Kensington Swan sent a letter to the plaintiff trusts under cover of a letter to Knight Coldicutt, giving formal notice of NZFI's intention to renew the lease for the final renewal term of six months from 31 December 2005 until 30 June 2006.The issues[22] The issue in this case is whether the Court should exercise its discretion pursuant to s 120 of the Property Law Act 1952 and order the plaintiff trusts to grant the defendant two renewals of its lease to 30 June 2006. A supplementary issue is whether the Court should grant relief on terms as to costs, expenses, damages, compensation, penalty or otherwise. [23] There is no issue about the fact that the failure to renew the lease has occurred, and that this has been through inadvertence; it has been the consequence of a mistake made by NZFI's staff. There also appears to be little issue about the factthat NZFI would have been aware that the plaintiff trusts were anxious to get possession of the land as soon as possible, so that they could proceed with the redevelopment. [24] The knowledge of the plaintiff trusts about NZFI's intentions is at issue. The suggestion of NZFI is that the plaintiff trusts, through Mr Kells at least, would have been aware that NZFI would have wanted to renew, and that the non-renewal was probably a result of inadvertence. It is asserted the plaintiff trusts have deliberately sought to take advantage of NZFI's mistake.Section 120 discretion[25] Section 120(3) of the Property Law Act 1952 provides that a lessee may apply to the Court for relief if the lessee is in breach of a term of the lease or fails to give the lessor notice of intention to renew. Section 120(4) gives the Court a discretion as to whether to grant or refuse relief, as it thinks fit. No criteria are set out in relation to the discretion. The sub-section reads as follows:120 Relief of lessee against refusal of lessor to grant a renewal or to assure the reversion (4) The Court, having regard to all the circumstances of the case, may grant or refuse relief as it thinks fit, and in particular may decree, order, or adjudge— (a) That the lessor shall grant to the lessee a renewal of his lease or a new lease, as the case may require; or (b) That the lessor's covenant or agreement to assure the reversion ought to be specifically performed and carried into execution, and that the lessor shall execute such assurances as the Court thinks proper for that purpose,— on the same terms and conditions in all respects as if all the covenants, conditions, and agreements aforesaid had been duly performed and fulfilled.[26] Section 120(5) relates to costs and expenses. It reads:120 Relief of lessee against refusal of lessor to grant a renewal or to assure the reversion (5) The Court may grant relief on such terms, if any, as to costs, expenses, damages, compensation, penalty, or otherwise as the Court in the circumstances of each case thinks fit.[27] The discretion is very wide. In Vince Bevan v Findgard Nominees [1973] 2 NZLR 291 it was stated by Turner P:I think that this section in the Property Law Act, enacted as a remedial measure, could be construed as conferring upon the Court a very wide jurisdiction to do equity in relieving against refusal by lessors to renew leases.[28] In Weatherall Jewellers Limited v J Henry and Son Limited (CA 135/83, 11 September 1984) Somers J said, at p 3, that the principle behind s 120 was:To prevent one man from forfeiting what in fair dealing belongs to someone else by taking advantage of a breach from which he is not commensurably and irreparably damaged.[29] There is in New Zealand a substantial body of case law relating to this discretion. Relevant factors that are taken into account by a Court in exercising its discretion include the following: a) Reasons for the failure to give notice, e.g: Whether the failure to renew was inadvertent: Woottons Limited v Epsom Drycleaners Limited (1982) 1 NZCPR 504, Duck & Anor v Satterthwaite Holdings Limited (Christchurch High Court, M 32/00, 9 August 2000, Chisholm J). Timberco (1999) Limited v Sarvee Acquisitions Limited(High Court Auckland, CIV 2005-419-878, 26 October 2005, Harrison J). b) Whether the cause of the default was due to any action of the landlord: Boyden v New Zealand Guardian Trust Co. Limited [1995] 3 NZLR 208.c) The lessee's conduct, in particular whether it has complied with all conditions and covenants and has been a good tenant: Woottons Limited v Epsom Drycleaners Limited.d) The prejudice to the lessee if the relief is not granted: Woottons Limited v Epsom Drycleaners Limited, Boyden v New Zealand Guardian Trust Co. Limited. Weatherall Jewellers Limited v J Henry and Son Limited, Duck & Anor v Satterthwaite Holdings Limited. e) The prejudice to the lessor if the relief is not granted: Woottons Limited v Epsom Drycleaners Limited, Re a Lease: Kennedy v Kennedy [1935] NZLR 564, Timberco (1999) Limited v Sarvee Acquisitions Limited.f) The lessor's motivation for the refusal to renew and understanding of the lessee's intentions: Weatherall Jewellers Limited v J Henry and Son Limited, Duck & Anor v Satterthwaite Holdings Limited. Duck & Anor v Satterthwaite Holdings Limited, Timberco (1999) Limited v Sarvee Acquisitions Limited. g) The interests of third parties and how they may be affected by any order: Weatherall Jewellers Limited v J Henry and Son Limited, Macs Cove Tender Centre Limited v Boyd (High Court Nelson, CP 13/02, 5 December 2002, Ronald Young J).Application of these factors to this caseReasons for the failure to give notice[30] I have already summarised the facts relating to the failure to give notice. They are not in particular contention, although the plaintiff in submissions, while accepting that the failure was the result of inadvertence, suggested that it was culpable failure. A submission that NZFI was endeavouring to sit on its fence and keep its options open was withdrawn. However, it was submitted that because NZFIis a substantial commercial entity, its application should be viewed with less sympathy than if the inadvertence had been that of a small private operator. [31] I do not accept this submission. The mistake occurred because of a poor management decision, at a higher level than those managers who appeared before me, to allow redundancies and resignations to entirely decimate the good administration of NZFI through the March period. A new manager, Mr Paterson, ultimately took over who had no knowledge at all of the exact terms of the lease or the need to renew. This was a serious administrative mistake by those above him, but I do not view its seriousness as being any more grave than if the same mistake had been made in a small local company. What would have been significant is if NZFI had in some way been trying to keep its options open or exploit its position. There is no evidence of this. In the words of Chisholm J in Duck & Anor v Satterthwaite Holdings Limited at para 9:Obviously the plaintiffs had nothing at all to gain by omitting to give notice and I approach this matter on the basis that the inadvertence is capable, everything else being equal, of being excused.In my view, the inadvertence of NZFI is in this category.Was the cause of the default due to any actions of the landlord?[32] This does not arise in this case as the plaintiffs had no communication with NZFI on the question of renewal until 29 June 2005. The landlord clearly did not cause the default.The lessee's conduct[33] There is no suggestion that NZFI is not a good tenant. There is no suggestion that it has in any significant way breached the lease. Somewhat faintly the plaintiff trusts have put forward the fact that in breach of clause 21.1(c)(ii), it was the tenant's responsibility to supply the Territorial Authority with a building warrant of fitness in respect of the premises, and obtain the necessary reports, which was allegedly not done. It seems that in breach of this term, at 30 June 2005 there was no current building warrant of fitness. The building warrant of fitness had in fact expired on1 June 2005. NZFI was in the process of obtaining a new warrant of fitness when the lease fell due on 30 June 2005. The warrant of fitness was not issued until 22 July 2005. At that point it was realised that it was in NZFI's name and not in the plaintiff trusts' names, and was corrected and proper building warrants of fitness issued on 27 July 2005. [34] This was a minor breach of the lease, and would not remotely have warranted cancellation. No evidence was called to suggest that it had any significance or caused any prejudice. There was no evidence of any misconduct by the lessee which would disentitle it to relief. I do not consider it a relevant factor for the purposes of the exercise of a discretion under s 120.Prejudice to the lessee[35] A considerable amount of the evidence was concerned with the issue of the actual prejudice to NZFI. However, the plaintiff trusts did not suggest that there would be no prejudice to the lessee, or even no substantial prejudice. The argument more lay in the shades of the seriousness of that prejudice. [36] I am entirely satisfied that the prejudice to NZFI if a renewal of lease is not granted would be very grave indeed. [37] NZFI proceeded through 2005 on the basis that it would be able to renew the lease through to June 2006. It has acquired land in Hamilton, and it has started to build on that land. However, at the present time that building is at a very early stage, and will not be completed until well into next year. It is then proposed, in the period before the final termination of the extended lease, to run two plants for a short period to ensure that teething problems of the new plant will not close down production. [38] The consequence of the lease being terminated on 30 June 2005, or indeed today, will be that the existing yeast making operation would have to close down. Even if some weeks of grace were given to it, it would still have to close down at the end of that period of grace. The consequence for NZFI would be that it would have to try and meet its customers' needs by importing yeast in various forms fromAustralia. In ceasing to produce in New Zealand, it would have to lay off its staff. Its immediate loss of revenue was estimated to be in the vicinity of $5 million. While that $5 million might well be recovered by a different Australian company within the same multi-national group, that would be little comfort for those in NZFI who are still trying to continue a viable New Zealand operation. [39] The evidence established that it will not be satisfactory in the long term for yeast to be imported from Australia. While NZFI does have a contingency plan to import yeast from Australia, this was to be in the event of fire, or some other disaster that closed the plant down. The importation of yeast from Australia could only be seen rationally as a temporary expedient. This is because the yeast will not be fresh. While there are different forms of yeast, the evidence is that primary market is for fresh yeast, and the fresher the yeast the better. [40] The inevitable delays (which will be for of a minimum of seven days) of importing yeast from across the Tasman, will make NZFI's imported product much less desirable and competitive in the New Zealand market. The result is likely to be a competitor setting up an operation in New Zealand supplying yeast. At the very least NZFI would be in a position where it was competing with other imported product. [41] Thus, in addition to the immediate loss of revenue, NZFI will be at risk of losing substantial market share long term. The business that has been carried out successfully in New Zealand for approximately 100 years will be damaged and possibly lost. The prospect of resurrecting it when the new premises are completed next year will be, at the very least, diminished by the opportunity that would be given to NZFI's competitors to take its market share, together with other problems such as the loss of staff to competitors or overseas.Prejudice to the lessor[42] A failure by the lessee to meet the terms of the lease or be a good tenant could mean that a lessor would be prejudiced by the renewal, and therefore be a relevant factor. If, for instance, a tenant was in financial difficulty and appeared tobe unlikely to meet future payments, that would be relevant to the exercise of the discretion. Further, if a lessor had committed itself to contracts or another lease, relying on the failure to renew so that it would be gravely affected by renewal, that could be relevant to a Court's decision. If the lessor had changed its position in a way that would not be compensated in a compensation payment this could influence a Court to decline to grant relief. [43] However, the plaintiff trusts have not established this type of prejudice. I am not satisfied that they have entered into any commitments that will cause them loss, on the basis of the non-renewal. Rather, it was the future inability to take advantage of the non-renewal that the plaintiff trusts emphasised. The plaintiff trusts submitted that the prejudice to them in having to incur the holding costs on the property for an extra year without being able to commence the redevelopment, was a relevant factor. [44] In this regard, the basic facts were not in dispute. The plaintiffs had purchased the property for $22 million. Its holding costs on the land, taking into account the monthly rent it received from NZFI, were $238,000 per month. This meant that during the extra year of the lease, if relief was granted, NZFI would pay out a net $2,856,000. The redevelopment is going to be very substantial indeed, and an estimate of its end value was put at $220 - $250 million. The plaintiffs undoubtedly have a commercial interest in proceeding with the redevelopment as soon as possible, subject to market vagaries, as this will lead to a return as soon as possible, and the elimination of debt. Of more controversy was the actual significance of the delay in commencing and ultimately completing the redevelopment. No evidence was called as to the timetable for development. [45] I accept that the plaintiff trusts have a genuine commercial interest in having the lease end, so they can commence redevelopment. The issue that arises is whether this interest, and the prejudice that therefore may flow from a grant of relief, is the sort of prejudice that can properly be taken into account by a Court exercising its discretion under s 120. [46] In my view, the prejudice to the lessor of it not being freed from the disadvantage of the lease by the granting of relief, and consequentially being delayedin commencing demolition and construction, is not a relevant factor. This is because the lessor plaintiffs were already subject to that detriment and prejudice by the terms of the lease, but for the inadvertence of the lessee, NZFI, not renewing. The plaintiff trusts are no worse off than they would have been but for that inadvertence, if relief is granted. [47] The prejudice that the lessor Trusts raise is the prejudice of not being able to take advantage of the mistake. However, the whole purpose of the s 120 discretion is to stop landlords being able to take advantage of a lessee's mistake. If the plaintiff trusts' submission is right, it means that s 120 becomes a meaningless remedy, or at least a remedy that will be seldom invoked. As a matter of common sense, lessors are unlikely to resist renewal, unless they can see a commercial advantage to themselves in the lease terminating. If the inability to exploit that commercial advantage is seen as prejudice which the lessor can raise to stop the granting of relief, relief will seldom be granted. This is not the way in which the New Zealand Courts have approached the discretion over the years. [48] It was stated by Reed J in Re a Lease: Kennedy v Kennedy:This provision gives the Court the fullest discretion, and, as I read it, the intention of the Legislature is that the Court, regardless of technicalities, should endeavour to do what may be colloquially expressed as a fair thing between "man" and "man". An order such as sought, if granted, is taking away from the lessor a right to which, by virtue of the contract between the parties, he is entitled. The paramount question is whether, apart from the deprivation of that right, the lessor would be otherwise prejudiced by the grant of an order.[49] Reed J, thus expressly excluded from relevant prejudice the fact of the deprivation of the right. The question is whether, apart from the deprivation of the right to possession, the lessor would be otherwise prejudiced if relief was granted to the lessee. A similar approach was taken in Henderson v Ross [1979] 2 NZLR 284. In that case the defendant owner rejected the purported exercise of an option by the plaintiff because of an inadvertent failure to validly carry out its procedural requirements. The defendant raised as a reason for relief not to be granted to the plaintiff trusts, the fact that the land had greatly increased in value. Quilliam J rejected this as a valid ground for rejecting relief. He said, in relation to the disparitybetween the value of the land at the time of the trial, and the value in the option, at p 301:I realise that it will be the very fact of the substantial increase in value which will have prompted the defendant to resist any question of sale with the determination that he has, but I am unable to say that it is a factor in this case which ought to mean that I should withhold relief if it seems that in other respects relief should be granted.[50] Of similar effect are Re a Lease: McNaught v McNaught [1958] NZLR 72, at 76-77, Verran v Public Trustee [1976] 1 NZLR 518 at 520-521, and Maori Trustee v Kahuroa [1956] NZLR 713, 719. A lessor resisting relief will do so because that lessor will be better off without the lease, or, to put it the other way, worse off if relief is given and the lease continues. As is recognised in these authorities, it is implicit in s 120 that that sort of prejudice to the lessor is irrelevant, and not a reason for the Court not to exercise its discretion. [51] Both parties referred to the recent decision of Timberco (1999) Limited v Sarvee Acquisitions Limited. In that decision Harrison J declined to grant relief. This was because the tenant plaintiff was seeking relief not because of any particular need, but so that it could extract a cash premium to leave from the lessor. The lessor wanted to redevelop the site in a timeframe within the term of the lease. It was held in that case that where a lessee was effectively seeking to use s 120 for tactical reasons to obtain a negotiating advantage with the lessor, then relief was not appropriate. [52] The lessee's position in that case was very different from that of NZFI. Here, NZFI is not seeking any advantage over the plaintiff trusts that it did not already have, in terms of the original lease terms, and its wish to stay is genuine and driven by commercial need. The original lease, with the term as to renewal, gave the lessee tenure until June 2006. The lessee seeks no more than this, and the lessee was not seeking to extract any premium from the plaintiff trusts. Its motivation is not to get anything extra from the plaintiff trusts. The situation is really the reverse; the plaintiff trusts as lessor wished to extract a premium from NZFI as lessee as a condition to NZFI remaining on site. This can be seen from the plaintiff trusts' offerto take money as a condition of renewal, which I will refer to later in this judgment. This is a reason for the exercise of the discretion, rather than against it. [53] Accordingly, in exercising my discretion, I will not be taking into account the holding costs of the plaintiff trusts and the fact that they wish to commence development on site as soon as possible, save to note that they have a genuine commercial need to take possession of the premises.Lessor's motivation and knowledge that lessee wished to renew[54] Duck & Anor v Satterthwaite Holdings Limited Chisholm J said at para 12:Events have played into the hands of the defendant. It wanted to be rid of the plaintiffs I doubt that the defendant believed that the plaintiffs did not intend to renew.He held that this was a relevant factor. [55] I do not regard this factor as having great significance, having found as I have that prejudice to the landlord in the sense of its inability to be quit of the lease, is not a relevant factor. With that conclusion, the state of the landlord's knowledge about the lessee's intentions ceases to be of great significance. [56] However, it is relevant to the extent that it may be seen as giving some colour to the morality of the lessor's position. If the lessor knew all along that the tenant wished to renewal or was likely to intend to wish to renew, and deliberately kept quiet until the last possible moment in the hope of getting rid of the tenant, it does add some strength to a lessee's position, when it is seeking to invoke the Court's discretionary assistance. [57] This is one of the areas in which there was considerable evidence and some difference in the submissions of counsel. The plaintiff trusts' witness, Mr Hunter, resolutely maintained in his evidence that he assumed that NZFI would be vacating when he did not receive the notice of renewal, and was not aware that it wished to stay on until he received its immediate letter of response on 29 June 2005. NZFI's witnesses, on the other hand, emphasised the fact that they had communicated toMr Hunter and Mr Kells from 2004 the fact that it would take 12 to 18 months to relocate. [58] Messrs Mellor and Wevers also gave evidence that in two meetings through February 2005 they mentioned their relocation plans. Mr Hunter confirmed that he was told by Mr Mellor in late February 2005 that those plans were progressing and that he was in fact told at one of the meetings that NZFI might well wish to stay on beyond June 2006. He was told in that February meeting that NZFI had still not secured land for relocation. [59] It is also clear that there was no physical evidence at all of any relocation right through to June 2005. Further, the plaintiff trusts had earlier in the year developed unused space on the property for carparking. It is unlikely that they would have done this if they thought NZFI was going to vacate in June 2005. There is also some indication of the fact that the plaintiff trusts were aware that NZFI may have overlooked through advertence renewing the lease, from the words of the letter sent on 29 June 2005 advising that the lease was about to terminate. The letter included a sentence:You are aware that our client intends to develop the site and therefore receiving notice that you wished to renew the lease was paramount to our client.[60] I was informed in evidence that this sentence was put in by the plaintiff trusts' lawyers. The direction to have the letter checked by the lawyers came from the plaintiff trusts' director, Mr Kells. The defensive tone of this sentence, seeking as it does to anticipate and stifle any protest from NZFI, together with the fact that the letter was treated as being important enough to refer to solicitors and was sent on the last day, are indications that the plaintiff trusts were aware that an immediate belated renewal from NZFI was a likely response. I note that despite his obvious importance in terms of the state of knowledge of the plaintiff trusts, the Mr Kells was not called. [61] While it has not been proven that the plaintiff trusts knew for certain that NZFI would want to renew the lease, I find that the plaintiff trusts knew that there was a strong possibility that NZFI had made a mistake and would wish to renew thelease. This is a factor in NZFI's favour when I go to exercise my discretion, but I emphasise that I only regard it as of relatively minor importance in the broad scheme. This is because the more important factor is prejudice to the lessee, and the lessee's bona fides. [62] I note that immediately following NZFI's letter of 30 June 2005 expressing its wish to renew the lease, the plaintiff trusts' lawyers wrote advising:However, our client may be prepared to delay its development plans for a further term of either six months or a year on the basis that your client covers its holding costs for that period of time.This remark puts the issue in the case in context. It is one of money from the point of view of the plaintiff trusts. The plaintiff trusts sought to take advantage of NZFI's mistake, and was quite happy for NZFI to stay on as a tenant providing it received a sufficient cash sum. The delay in redevelopment in any event had been contemplated from the outset when the lease through to as late as June 2006 was granted. The plaintiff trusts were no worse off in June 2005 than they had been at the end of March 2005 when the inadvertent failure to renew had taken place. The position in June 2005, however, was that the plaintiff trusts had leverage, and were wishing to extract a financial advantage that up until the failure to renew they would not have been able to exercise. Such behaviour, while it may be a legitimate part of commercial 'rough and tumble', is a reason for a Court not to have any particular sympathy for the lessor in its position, and is a factor that adds some weight to NZFI's claim for relief.Third party interests[63] Third party interests are relevant, and can be a reason for and against the granting of relief, depending on how those third parties are effected. [64] There will be substantial detriment to third parties if relief is not granted. NZFI is the primary yeast supplier to all the major bakeries in New Zealand. NZFI's departure from the premises before it is able to relocate and set up a new plant will mean that the supply of fresh yeast in New Zealand will cease, save for yeast imported from Australia. There is a serious question as to whether the Australianmanufacturers of yeast will be able to immediately meet the New Zealand market, as well as meeting Australian requirements. Moreover, Mr Mellor gave evidence that there are different strains of yeast in Australia which have different properties, and it would be difficult in New Zealand to replicate the bread currently made, with a different type of yeast being used. Also, customers seek the freshest possible yeast. They will not be getting this because of the time taken to import from Australia. At the very least, quality will be compromised. [65] The other alternative of importing dry yeast products is unlikely to be attractive to the bakeries. They deliberately use fresh yeast because of its properties, which dry yeast does not have. The dry yeast will require rehydration by way of a rehydration plant which adds time to the process of making bread products and increases the cost of production. Further, no commercial bakeries in New Zealand at present have rehydration plants. [66] There was some debate on the evidence as to quite how long the delay would be in getting yeast to New Zealand. I do not regard the details in this regard as significant. What is clear, is that the immediate and guaranteed supply of fresh yeast to New Zealand bakeries would cease, and be replaced by a more cumbersome uncertain, and probably more expensive, importation process. I am satisfied that the bakeries would suffer some detriment should relief not be granted. [67] There will also be detriment to the employees currently employed by NZFI. If NZFI shut down only four or five staff out of the 21 presently employed are likely to be retained. [68] I am satisfied that third parties will suffer detriment unless relief is granted.Conclusion as to exercise of the discretion[69] This is a proper case for the Court's exercise of its discretion under s 120 of the Property Law Act 1952. NZFI's failure to renew was inadvertent. It will suffer very substantial prejudice if a renewal is not granted. So will innocent third parties: the New Zealand bakeries and NZFI's employees. NZFI has been a good tenant, andthe plaintiff trusts will not suffer any prejudice as a consequence of their renewal, save for their inability to take advantage of the inadvertent failure to renew. As I have stated, I do not regard that disadvantage to the plaintiff trusts as a reason to refuse to exercise the discretion. I also note that the plaintiff trusts would have all times been aware that it was likely that NZFI would want to renew, and that it had failed to renew because of an inadvertence. [70] For these reasons I propose to grant the relief sought by the plaintiff trusts.Should the plaintiff trusts be entitled to damages or compensation under s 120(5)?[71] The plaintiff trusts seek an order that as a term of the granting of relief, NZFI should have to pay to it the sum of all of the net holding costs of the property for the extra year that it will be occupied. The amount would be the $2,856,000 referred to earlier in this judgment. Such orders were not in fact sought by the plaintiff trusts in either their statement of claim, or more significantly, their statement of defence to the counterclaim seeking relief. [72] The defendant raises a pleading point because of this. The plaintiff submits that it is not necessary to plead appropriate conditions, as this issue arises automatically if the s 120 discretion is exercised. I do not consider it necessary to rule on this issue. This is because I do not consider that the plaintiff trusts are entitled to any compensation or penalty. [73] I reach this conclusion for the same basic reason that I have concluded that the prejudice to the plaintiff trusts in not being freed from the lease, is not a relevant factor in the exercise of the discretion. For the same reason, I do not consider it would be appropriate to financially cancel the advantage to the lessee from granting relief, by giving the lessor plaintiffs the financial advantage that they seek in resisting the exercise of the discretion, by quantifying it in money terms and awarding it to them.[74] In my view, s 120(5) is not intended in any way to give a lessor an opportunity to recover the benefits that would be available if relief was not granted. That would nullify the benefit of a s 120 order. The purpose of s 120(5) is much more limited. It gives the Court the ability to compensate a lessor for actual losses arising from the failure to renew, such as the costs of trying to obtain a new tenant. Another example of the sort of compensation contemplated by s 125(5) would be the lessor's costs of drawing up plans, relying on the lack of renewal, in an effort to find a new use for the property. These would be real losses that a lessor genuinely relying on the lack of renewal would be entitled to claim. They are costs that arise directly from the lessee's failure to renew, rather than from the relief itself. [75] A similar approach has been taken in earlier cases. In Laboratory Supplies Limited v Whineray (1985) 2 NZCPR 285, Tompkins J refused to impose a term in granting relief which compensated the lessor for the consequences of inflation, and the fact that the rent that would be received upon the granting of relief would be less than the market rent. He pointed out that the parties had entered into the lease with the express knowledge of its unfavourable provisions. He held:Thus the Court can impose terms designed either to rectify or to compensate for breaches of covenant. It can require the person seeking relief to meet costs or expenses incurred by the lessor. But I do not consider that that subsection empowers the Court to impose a term which cannot properly be described as costs, expenses, damages, compensation or penalty, which is not related to the breaches, and which is designed to change the terms of the lease to make it fairer to the lessor. The expression "or otherwise" in sub (5) should be construed ejusdem generis with what precedes it. If terms are to be imposed, then they should be directed to rectifying, in whatever manner may be appropriate, any prejudice suffered by the defendants consequent upon the breaches by the plaintiff that have lost to the plaintiff the right of renewal that it would otherwise have had. Secondly, to impose such a term would result in creating a new and different transaction between the parties. The parties and its predecessors, the original lessees, entered into the transaction on the basis set out in the lease, including the express limitation on the extent of any rent increases. To remove that limitation would, as the rental figures to which I have referred to indicate, result in a relationship between the parties totally different from that originally envisaged.[76] Chilwell J had adopted a similar approach in Woottons Limited v Epsom Drycleaners Limited.[77] I have earlier in this judgment referred to other cases to similar effect, relating to the granting of relief rather than the imposition of particular terms. The Court will not re-write the original bargain between the parties, by granting relief on terms which put the lessor in a better position than it would have been if the lease had been renewed. [78] For this reason I do not propose imposing any terms or conditions on the granting of relief, save for an order that the arrears in rental arising from the plaintiff trusts' refusal to accept rent be paid within 14 days. At the time of the trial those arrears amounted to $117,468.73.Orders made[79] I decline to make an order granting possession to the plaintiff trusts. [80] I make an order pursuant to s 120 of the Property Law Act 1952 that the plaintiff trusts grant to the defendant a renewal of lease to 30 June 2006, subject to all outstanding rental being paid within 14 days. [81] I order that the new lease be on the same terms and conditions in all respects as if all the covenants and conditions in the lease of 30 June 2004 had been duly performed and fulfilled.Costs[82] Both parties have asked me to delay making any order as to costs until I have received submissions. I therefore direct that submissions are to be filed as follows: a) Defendant's submissions by 5:00 pm Monday, 12 December 2005. b) Plaintiff's submissions by 5:00 pm Monday, 19 December 2005.c) Defendant's submissions in reply by 5:00 pm Wednesday, 21 December 2005. Asher J