THE GENERAL TRUST BOARD OF THE DIOCESE OF AUCKLAND v VAN DE WIEL & ORS [2023] NZHC 3773

THE GENERAL TRUST BOARD OF THE DIOCESE OF AUCKLAND v VAN DE WIEL & ORS [2023]NZHC 3773 [19 December 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2022-404-1788[2023] NZHC 3773UNDER Section 244 of the Property Law Act 2007IN THE MATTER of Lease number 9358545.1 (LeaseholdRecord of Title 609000 (North AucklandRegistry)) at 400 Parnell Road and 2 StStephens Avenue, ParnellBETWEEN THE GENERAL TRUST BOARD OF THEDIOCESE OF AUCKLANDApplicantAND PETER CORNELIUS WILHELMUS VANDE WIEL and VAN DE WIEL TRUSTEESLIMITEDRespondentHearing: 22 March 2023Appearances: C Bryant for the applicantN Saunders for the respondentJudgment: 19 December 2023JUDGMENT OF ROBINSON JThis judgment was delivered by me on 19 December 2023 at 3:00 pmpursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors:Hesketh Henry, AucklandNorling Law, AucklandIntroduction[1] The applicant (lessor) leases land in Parnell to the respondents (lessees) fromwhich they operate an accommodation business, the Parnell City Lodge. In an awarddated 20 January 2022, an Arbitral Tribunal appointed in accordance with the terms ofthe lease (and the Public Bodies Lease Act 1969 (Act)) reviewed and increased theannual rent payable under the lease from $120,000 plus GST to $395,000 plus GSTfrom 26 September 2019. The Tribunal also directed the lessor and the lessee to eachpay half of the Tribunal's costs.[2] The lessees have continued to pay annual rent of $120,000 plus GST but theyhave not paid the increased rent due under the lease in accordance with the Tribunal'saward. Nor have they paid their share of the Tribunal's costs, which the lessor paid infull. On 16 June 2022 the lessor served the lessees with a notice under s 245 of theProperty Law Act 2007 (PLA) for unpaid rent (s 245 notice) and a notice under s 246of the PLA for GST and costs (s 246 notice). The lessees have not complied with thosenotices.1[3] In this proceeding the lessor applies under s 244 of the PLA (amongst otherthings) for an order cancelling the lease. More particularly, the lessor seeks orders for:(a) possession of the land;(b) cancellation of the lease;(c) payment of outstanding rent, GST, and the lessees' share of theTribunal's costs;(d) interest pursuant to s 10 of the Interest on Money Claims Act 2016; and(e) the costs of this application.[4] The lessees oppose. They say:1 The lessor also served the notices on the leasehold mortgagee, from whom there has been noresponse.(a) the award is unenforceable by the lessor because the lessor has notregistered the award as a judgment in accordance with article 35(1)(b)of Schedule 1 to the Arbitration Act 1996 (Article 35) and rules 26.20– 26.27 of the High Court Rules 2016 (Rules); and(b) alternatively, the Court should exercise its discretion to grant the lesseesrelief against cancellation under ss 253 and 256 of the PLA.The lease[5] The lease is a registered ground lease, number 9358545.1 (Leasehold Recordof Title 609000 (North Auckland Registry)) (lease). The lessor is a leasing authorityas defined in s 2 of the Act. It originally let the land under s 7(1)(e) of that Act, whichprovides:7 Powers of leasing authority to grant leases(1) Where a leasing authority has power to let any land, it may let the landunder the provisions of this Act on any of the following tenancies orleases:(e) a tenancy for any term not exceeding 21 years, with aperpetual right of renewal for the same or any shorter period,at a rent to be determined by valuation in accordance with theprovisions of Schedule 1:[6] The lease was most recently renewed for a term of 21 years commencing 26September 2012 with perpetual rights of renewal. The initial rent was $120,000 perannum plus GST. Clause 1 of the lease provides:The Lessee will duly and punctually pay the rent hereby reserved by equalhalf-yearly payments in advance on the 26th day of March and the 26th day ofSeptember and in each year during the term.[7] The lease provides that the rent will be reviewed at seven-year intervals inaccordance with ss 7(1)(e) and 22 of, and Schedule 1 to the Act, the terms of whichare set out in an addendum to the lease. Section 22(2)(e) provides:22 Periodic review of rents(2) Where a lease contains any such provision for the review of rent—(e) the yearly rent agreed to or deemed to have been agreed to bythe lessee or determined by arbitration under this subsectionshall be the yearly rent payable under the lease for thatensuing period.[8] Similarly, clauses 1 and 9 of Schedule 1 to the Act (and the addendum to thelease) provide that:1. The rent for subsequent periods of seven years of the term of thelease shall be determined in accordance with section 22 of the PublicBodies Leases Act 1969.9. The decision of the 2 arbitrators if they agree or in such respects asthey agree, or of the umpire if the arbitrators do not agree or in suchrespects as they do not agree, shall be binding on all parties.The 2019 rent review[9] The first rent review date under the renewed lease was 26 September 2019. On15 August 2019 the lessor served a notice of rent review proposing an annual groundrent of $512,363 plus GST and outgoings in accordance with a rental valuation it hadobtained from a registered valuer.[10] The lessees did not accept the proposed rent. On 11 October 2019 their then-solicitors served the lessee with a notice requiring the annual rent to be determined byarbitration. The documentary evidence shows that for several months the lessorattempted to progress matters via its solicitor, including suggesting that the parties'valuers confer to try to reach agreement and avoid the cost of arbitration.[11] On 17 August 2020 the lessor appointed John Schellekens of PwC AdvisoryServices as its arbitrator. On 25 September 2020 the lessees appointed Gary Sheyneas an arbitrator. The arbitrators appointed Alan Galbraith KC to be their umpire.[12] Although the lessees had appointed an arbitrator, they initially refused to signthe Conditions of Appointment of the Tribunal. On 21 May 2021 the lessor sought apreliminary ruling by the Tribunal confirming its jurisdiction to determine the rent. Inits minute of 8 June 2021 the Tribunal advised the parties that it would hear the lessor'sapplication on 21 June 2021.[13] On 16 June 2021 counsel then acting for the lessees recorded that they did nottake issue with the Tribunal's jurisdiction, but otherwise reserved their rights. Counselfor the lessees proposed a telephone conference to advance the timetable of thesubstantive arbitration. Eventually the parties agreed a timetable for the exchange ofevidence in advance of a three-day hearing.[14] On 11 August 2021 the lessor served evidence from a registered valuerconfirming his earlier view that the annual market rent was $512,000 ex GST. Thelessees did not serve any evidence. On 7 September 2021 their counsel and solicitorsadvised they were no longer instructed.[15] The arbitrators convened a pre-hearing conference on 5 November 2021. Thelessees were invited but did not attend. Instead, the lessees corresponded with thearbitrators on 3 November 2021 and again on 9 November 2021 after receipt of theTribunal's minute of the same day.[16] In its award the Tribunal sets out this procedural history in some detail. Itrecords that:1.18 Our purpose in recording in considerable detail matters leading up tothe arbitration hearing, which the Lessee chose not to attend, is torecord that the Lessee had been afforded ample opportunity toparticipate in the proceeding and ultimately choose not to.1.19 Section 25(c), Schedule 1, of the Arbitration Act 1996 (Act) provides:Section 25 "Default of a party. Unless otherwise agreed by theparties, if, without showing sufficient cause, - (c) Any party fails to appear at a hearing or to producedocumentary evidence, the arbitral tribunal may continue theproceedings and make the award on the evidence before it:"1.20 The hearing proceeded in accordance with the timetable, absent theLessee. As a result, the evidence before the Tribunal for it to considercomprises the Lessor's evidence and submissions, answers toquestions from the Tribunal and the Lessee's letter.1.21 After the hearing, the arbitrators met and have agreed the fair marketrent to apply for the seven year period from the date of review.Accordingly, we have not needed to refer the matter to the umpireappointed between us.The award[17] In his evidence the lessor's valuer set out two mainstream approaches to theassessment of the ground rental under the lease, namely:(a) the "Traditional Approach", under which an assessed fee simple landvalue is multiplied by an assessed ground rental rate; and(b) the "Classical Approach", under which comparable ground rentalagreements, expressed as a rate per square metre of land area, areconsidered and applied to the assessment of ground rent for theproperty.[18] The Tribunal did not consider it was appropriate to apply the ClassicalApproach using the evidence of the lessor's valuer. In taking the TraditionalApproach, the Tribunal accepted the lessor's valuer's estimate of the fee simple valueof the land but applied a lower ground rental rate. In this way the Tribunal confirmedthe fair annual rent for the seven-year period commencing 26 September 2019 at$395,000 ex GST, 23 per cent lower than the $512,000 proposed by the lessor's valuer.As noted, the Tribunal directed each party to pay 50 per cent of its costs.Notices of Intention to Cancel Lease[19] The lessees have continued to pay annual rent of $120,000 plus GST in six-monthly instalments. They have not paid the increased rent or GST due under thelease in accordance with the Tribunal's award.[20] On 16 June 2022 the lessor's solicitors served the lessees with a Notice ofIntention to Cancel Lease pursuant to s 245 of the PLA (s 245 Notice). In the s 245Notice, the lessor advised the lessees that they were in default under the lease forhaving failed to pay the sum of $825,000 in annual rent instalments excluding GSTfor the period from 26 September 2019 until 25 September 2022. The lessor requiredthe lessees to remedy the default by paying that amount by 29 July 2022, failing whichthe lessor advised that it may seek to cancel the lease in accordance with s 244 of thePLA without further notice. The lessor advised the lessees that they had the right unders 253 of the PLA to apply for relief against cancellation.[21] At the same time, the lessor served the lessees with a Notice of Intention toCancel Lease under s 246 of the PLA (s 246 Notice). In the s 246 Notice the lessoradvised the lessees that they were in default under the lease for having failed to payGST on the annual rent in the total amount of $123,750 for the period from 26September 2019 until 25 September 2022. Also, that the lessees had failed to pay 50per cent of the Tribunal's costs, being $31,510 including GST. The lessor required thelessees to remedy the default by paying $155,260 by 29 July 2022, failing which thelessor advised it may seek to cancel the lease in accordance with s 244 of the PLAwithout further notice.[22] The lessor's solicitors also served the lessees' mortgagee with the s 245 Noticeand the s 246 Notice.Legal principles[23] A lease may only be cancelled in accordance with ss 244 – 252 of the PLA.2A lessor may cancel a lease because of a breach of a covenant to pay rent, or for thebreach of another covenant, provided the requisite notice of intention to cancel is givenand the breach is not remedied within the specified time.3[24] Subject to ss 245 and 246, a lessor may apply to the Court for an order forpossession of the land for the purpose of cancelling the lease.42 Property Law Act 2007, s 243(1).3 Property Law Act 2007, ss 245 and 246.4 Property Law Act 2007, s 244.[25] In addition to making orders for possession and cancellation, the Court mayorder a lessee to pay rent up to the date of cancellation or possession; and/or to payreasonable compensation for the breach; and/or impose other conditions it thinks fit.5A lessor may also claim damages for a breach of the lease or other duty owed to it.6[26] A lessee may apply to the Court for relief against cancellation.7 The Court'spower to grant relief is discretionary and may be subject to any conditions the Courtthinks fit.8 Where the basis for cancellation is the non-payment of rent, there is apresumptive right to relief on payment of the arrears and costs. It is only in exceptionalcircumstances that relief is to be denied if the debt is paid in full.9 That is because itis inequitable that the benefit of the lease should be lost to a tenant who has restoredto the landlord all that the landlord is entitled to under the lease. The ability to forfeitthe lease and take possession is treated by the Court as security for the payment ofrent.10Does the Award have to be registered as a judgment?[27] The lessees oppose the lessor's application for cancellation under s 244. Thelessees say the application should be dismissed because the Award has not beenregistered as a judgment or pursued by action through the correct procedure requiredby the Arbitration Act 1996 and/or the Rules. In particular, counsel for the lesseesubmits that:(a) the lessor has not applied to the Court to request that the award berecognised as a judgment;(b) the lessor has erroneously relied on the Award in issuing the s 245Notice and the s 246 Notice because the lessor did not first apply tohave the Award registered as a judgment;5 Property Law Act 2007, s 243 (1).6 Property Law Act 2007, s 252.7 Property Law Act 2007, s 253.8 Property Law Act 2007, s 256.9 Mulholland v Waimarie Industries Ltd (2009) 10 NZCPR 590 at [23(1)] per French J.10 At [23](2), citing Endeavour Lodge Motel Ltd v Langford & Gavin HC Gisborne CP3/98, 24August 1998 per Elias J.(c) the lessor has pursued enforcement of the Award by action by issuingthe s 245 Notice and the s 246 Notice and/or by bringing the applicationunder s 244, neither of which are provided for in the Rules or theArbitration Act 1996 as methods of enforcing an Award; and(d) as a result, the lessees have been deprived of the opportunity to disputethe enforcement of the Award.[28] Article 35 is the first article in Chapter 8 of Schedule 1 to the Arbitration Act1996. Chapter 8 deals with "Recognition and enforcement of awards". Article 35provides:1135 Recognition and enforcement(1) An arbitral award, irrespective of the country in which it was made,—(a) must be recognised as binding; and(b) on application in writing to a court, must be enforced by entry as ajudgment in terms of the award, or by action, subject to theprovisions of this article and of article 36.(2) The party relying on an award or applying for its enforcement mustsupply—(a) the duly authenticated original award or a duly certified copy of theaward; and(emphasis added)[29] As for the Rules, Part 26 applies to all appeals from arbitral awards,applications for leave to appeal against arbitral awards and applications for entry ofawards as judgments. Subpart 4 concerns the entry of awards as judgments underArticle 35. Once an award is entered as a judgment it may be enforced as a judgmentin accordance with Part 17.[30] The flaw in the lessees' case is that the lessor is not asking the Court to enforcethe award as a judgment. It does not need to. The parties have already agreed, by theterms of the lease and in accordance with the Act, that the rent will be reviewed and11 Emphasis added.determined every seven years, including by arbitration, and that this will be the rentpayable under the lease for the ensuing period.12 The lessor does not also need toregister the award as a judgment in order to take the steps available to it under the PLAto enforce its rights under the lease. I accept Ms Bryant's submission for the lessorthat it is pursuing statutory remedies available to it following the default of the lessee;but, it is not seeking to enforce the award whether as a judgment or otherwise. Article35 draws a clear distinction between recognition and enforcement of an award. In itsapplication for cancellation under s 244 the lessor is essentially asking the Court torecognise the award, which it must. But it is not taking steps to enforce the award asa judgment or otherwise.[31] Similarly, in Makan Distiller Ltd v Natural Sugars (New Zealand) LtdAssociate Judge Bell declined a debtor's application to set aside a statutory demandfor amounts due under two arbitral awards on the basis that those awards had not beenentered as a judgment under Article 35 or otherwise enforced by action.13 His Honourheld that:[23] An award may be used not only defensively but also to prove that thesuccessful party under the award is a creditor of the other party. As anexample, suppose that the losing party had gone into liquidation. A liquidatorwould be entitled to recognise the award as binding on the company, even ifit had not been entered as a judgment in the court. Just as an award would berecognised as binding in a liquidation, I regard an award as also binding forthe purpose of a statutory demand, even if it has not been entered as ajudgment. Under an award directing payment, the party directed to makepayment comes under an obligation to the other party to make the payment.The award establishes the relationship of creditor and debtor. I see no reasonwhy the court should not recognise that as creating binding obligations,without requiring the award to be entered as a judgment in court.[32] I agree. Similarly, I do not consider that the lessor is required to have the awardentered as a judgment in order for the Court to recognise the lessor's contractual rightsunder the lease and its statutory remedies under the PLA. The rent has been reviewedand determined in accordance with the lease and the lessees are obliged to pay it.12 Public Bodies Leases Act 1969, s 22(2)(e); clause 13 of the Lease; clauses 1 and 9 of theAddendum to the Lease.13 Makan Distiller Ltd v Natural Sugars New Zealand Ltd [2015] NZHC 1111.[33] Counsel for the lessees submit that Makan is distinguishable because it dealtmerely with creditors' remedies, whereas here the lessor applies to cancel the lessees'property rights. I do not accept that submission. Both cases demonstrate the importantdistinction between the recognition of an award and the enforcement of an award as ajudgment. In any event, a lease is a contract and the award determines the amountsdue and payable under it. Also, the failure to comply with a statutory demand givesrise to a presumption of insolvency which provides an evidential basis for the Courtto place the debtor company into liquidation. As a matter of principle, an applicationto cancel a lease is not necessarily of anymore (or less) significance than an applicationto set aside a statutory demand.[34] For these reasons I do not accept the lessees' submission that the lessor wasrequired to register the award as a judgment before taking steps to cancel the leaseunder s 244 – 246 of the PLA.Should the lessees be granted relief against cancellation?[35] Counsel for the lessees submits that for a number of reasons their case was notappropriately presented to the Tribunal, and no appeal was lodged within time.Counsel submits that taking into account these various factors the Court should grantthe lessee relief against cancellation.[36] Counsel emphasises that Mr Van De Wiel is 77 years old and wishes tocontinue living and working at the property, operating the accommodation businessand generating income. Counsel submits that Mr Van De Wiel has no alternativehousing, nor the means to obtain housing. He is not in a position to borrow money orstart a new business. Counsel submits that the lessees have not had a properopportunity to remedy the breach.[37] In his affidavit, Mr Van De Wiel explains he had counsel engaged for thearbitration but prior to the hearing chose not to continue with counsel. As such,Mr Van De Wiel says he did not have appropriate legal advice during the arbitrationprocess, and did not understand that it was crucial for him to file evidence and attendthe hearing. He explains that he had significant health issues in September 2021, twomonths prior to the hearing.[38] Mr Van De Wiel also explains that the lessees' business experienced asignificant loss of profit due the impacts of COVID-19. His counsel submits that thisshould have been taken into account by the Tribunal in its retrospective assessment ofthe fair annual rent. In his affidavit, Mr Van De Wiel also suggests that the lessor hasfrustrated the lessees' attempt to sell their business in 2017 by advising the prospectivepurchaser that it would increase the rent significantly on the rent review date. He alsocomplains that the lessor has refused to buy out the lessees' interest in the lease. MrVan De Wiel's evidence is that he considers the lessor wishes to remove the lesseesfrom the property so that they can demolish the buildings and re-purpose the land. Heunderstands that the lessor obtained a demolition consent before the lessees acquiredtheir interest in the lease.[39] The lessor disputes Mr Van De Wiel's evidence, and submits that in any eventthere is no basis for the Court to decline the lessor's application to cancel the lease.[40] In his affidavits in support of the lessor's application, the lessor's propertymanager, Mr Anderson, refers to a letter dated 28 April 2022 in which the lessor invitedthe lessees to provide financial statements for the period before and during theCOVID-19 lockdown. The lessor said it would review the statements in good faith toconsider providing a rental abatement for the relevant period. However, Mr Andersonsays he never received any response to that letter, nor any financial information uponwhich a rental abatement could be considered or assessed.[41] Mr Anderson does not accept that the lessor has frustrated the lessees' effortsto sell its business. He says the lessees have never requested the lessor to consent toan assignment or transfer of the lease. Mr Anderson recalls meeting with someone atMr Van De Wiel's request several years ago who he said was investigating a purchaseof the lessees' interest. Mr Anderson does not recall discussing the rent. However, heexplains that his usual response to queries about ground lease rent reviews is to saythat the rent is usually based on the freehold market value of the land multiplied by aground rental factor. In the absence of a current market land valuation Mr Andersonwould usually refer to the land value component of the rateable value and suggest apossible multiplier of between 5 – 6.5 per cent. Apart from that, he tells interestedparties to take their own advice.[42] In terms of Mr Van De Wiel's complaints that the lessor has not bought out thelessees' interest, Mr Anderson says that although the lessees have asked the lessor tobuy them out, they have never presented a formal offer. In any event, Mr Andersonsays the lessor has advised the lessees that it does not wish to purchase the lease or thelessees' business, and has no obligation to do so.[43] As for Mr Van De Wiel's concerns that the lessor plans to remove and demolishthe building on the property, Mr Anderson explains that in late 2017, on the advice ofits planning consultants, the lessor obtained certificates of compliance from AucklandCouncil under s 139 of the Resource Management Act 1991 for a number of propertiesit owns (including 400 Parnell Road) in order to preserve the benefit of existingplanning rules for the properties. The certificates record that existing structures maybe demolished without a resource consent. However, the lessor has confirmed to thelessees that while the lease remains on foot the lessor cannot and will not demolishany structures or the building on the land leased to the lessees. The certificate ofcompliance has no effect on the lessees' rights under the lease.Analysis[44] I do not consider the lessees have identified any grounds upon which the Courtshould grant relief against cancellation. The lessees required the rent to be determinedby arbitration and had instructed counsel to assist. However, they ultimately chooseto disengage counsel and not to participate in the arbitral process. The Tribunal(including the lessees' arbitrator) determined the fair annual rent in accordance withthe terms of the lease and the Act. They determined the fair annual rent to besignificantly less than that proposed by the lessor's valuer.[45] The lessees owe arrears to the lessor in excess of $1,000,000. In cases wherethe Court has granted relief, the outstanding rent has either been paid or there is a highdegree of certainty that it will be.14 In his affidavit Mr Van De Wiel sets out steps heintends to take to ensure he can continue to pay the rent, but does not seriously suggestthat those steps will be sufficient to remedy the default by paying the arrears. Whilstthe combination of factors giving rise to the lessees' default may be unfortunate, I do14 Mulholland v Waimarie Industries Ltd at [29](I).not consider they are sufficient to support their application for relief againstcancellation. Nor do I accept the lessees' submission that the lessor has acted with theulterior motive of cancelling the lease in order to demolish the building and re-purposethe land. In my view the lessor is entitled to the relief it seeks.Result[46] I grant the lessor's application for the following orders:(a) for possession of the property known as 400 Parnell Road and 2 StStephens Avenue, Parnell, Auckland comprising 1051 square metresmore or less and legally described as Lot 2 on Deposited Plan 93399Record of Title NA49D/1061 (Property);(b) cancelling lease number 9358545.1 (Leasehold Record of Title 609000(North Auckland Registry)) (Lease);(c) requiring the respondent to pay rent and/or demesne profit of $395,000per annum from 26 September 2019 up to the date on which the lesseeyields up possession of and vacates the property;(d) requiring the respondent to pay GST on the annual rent from 26September 2019 up to the date on which the lessee yields up possessionof the property;(e) requiring the respondent to pay $31,150.00, being the respondent'sshare of the arbitration tribunal's costs to determine the fair annual rentwhich the applicant has previously paid; and(f) interest pursuant to s 10 of the Interest of Money Claims Act 2016.Costs[47] The lessor is entitled to costs. It applies for an order that the lessees pay itscosts of and incidental to the application in accordance with clause 16 of the lease,which provides that:In case default shall be made in the observance or performance of any of theLessee's obligations hereunder the Lessor shall be at liberty at any time orfrom time to time to enter upon the said land and to do execute and performor procure to be done executed or performed all such acts deeds matters andthings as may in its opinion be necessary or expedient for the complete or (atits option) partial observance and performance of the said obligations or anyof them And all moneys paid and costs and expenses incurred in or about sodoing shall be recoverable by the Lessor from the Lessee by action at law orotherwise and in the same manner as rent in arrears.[48] The parties did not make submissions in relation to this aspect of the lessor'sapplication. If the parties are unable to agree, counsel for the lessor should file amemorandum of not more than five pages (excluding attachments) within 20 workingdays of the date of this judgment. The respondent should file any memorandum inreply within a further 10 working days._____________________________Robinson J