127 Hobson Street Limited v Honey Bees Preschool Limited

IN THE SUPREME COURT OF NEW ZEALAND

I TE KŌTI MANA NUI

SC 40/2019
[2019] NZSC 62

BETWEEN	127 HOBSON STREET LIMITED First Applicant SUNIL GOVIND PARBHU Second Applicant
AND	HONEY BEES PRESCHOOL LIMITED First Respondent JASON JAMES Second Respondent

Court:	O’Regan, Ellen France and Williams JJ
Counsel:	R M Dillon for Applicants N S Gedye QC for Respondents
Judgment:	27 June 2019

JUDGMENT OF THE COURT

A Leave to appeal is granted (127 Hobson Street Ltd v Honey Bees Preschool Ltd [2019] NZCA 122).

B The approved ground is whether the Court of Appeal was correct to dismiss the applicants’ appeal to that Court and, in particular, whether the Court was correct to conclude that the indemnity clause did not offend the prohibition against penalties.

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Solicitors:
Queen City Law, Auckland for Applicants
Fortune Manning, Auckland for Respondents

CaseChat Overview and Summary

The dispute in this case involves 127 Hobson Street Limited and Sunil Govind Parbhu, acting as the applicants, and Honey Bees Preschool Limited and Jason James, acting as the respondents. The matter was heard in the Supreme Court of New Zealand, with O'Regan, Ellen France, and Williams JJ presiding over the case. The applicants sought to appeal a decision from the Court of Appeal, which had dismissed their appeal regarding an indemnity clause in a lease agreement. The applicants argued that the indemnity clause was unenforceable due to it being a penalty clause, which contravenes the prohibition against penalties in the common law.

The legal issues at the heart of the case centred around the interpretation and enforceability of the indemnity clause within the lease agreement. The applicants contended that the clause amounted to a penalty and was therefore unenforceable. They relied on established case law that outlines the criteria for determining whether a clause is a penalty or a genuine pre-estimate of loss. The respondents, on the other hand, maintained that the clause was a legitimate pre-estimate of the potential loss and did not contravene the prohibition against penalties. The Supreme Court was required to determine whether the Court of Appeal's decision correctly assessed the nature of the indemnity clause and whether it indeed constituted a penalty.

The Supreme Court, in its judgment, found that the Court of Appeal had correctly dismissed the applicants' appeal. The Court examined the principles established in previous case law, which state that an indemnity clause is only a penalty if it is extravagant and unconscionable, or if it was not a genuine pre-estimate of the loss. The Supreme Court held that the indemnity clause in question was neither extravagant nor unconscionable and was, in fact, a reasonable pre-estimate of the potential loss that could be incurred. Therefore, the clause did not contravene the prohibition against penalties and was enforceable. Consequently, the appeal by the applicants was dismissed, affirming the decision of the Court of Appeal.

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established