Arthur Devine Ltd v Highgate on Broadway Ltd HC Auckland CIV-2011-406-185

[2011] NZHC 1712

IN THE HIGH COURT OF NEW ZEALAND BLENHEIM REGISTRY

CIV-2011-406-185

UNDER  The Property Law Act 2007

IN THE MATTER OF     Applications for Relief

BETWEEN  ARTHUR DEVINE LIMITED First Applicant

ANDARTHUR LAWRENCE MICHAEL DEVINE

Second Applicant

ANDHIGHGATE ON BROADWAY LIMITED Respondent

ANDHARDY-JONES CLARK Third Party

Hearing:         10 October 2011

Counsel:         P J Radich and M J Radich for Applicants

D J Clark for Respondent
J A Maslin-Caradus for Third Party

Judgment:      10 November 2011 at 4:30 PM

I direct the Registrar to endorse this judgment with a delivery time of 4.30pm on the

10th day of November 2011.

RESERVED JUDGMENT OF MACKENZIE J

Background

[1]      Mr Devine was the lessee of premises in Highgate’s building in High Street

in Blenheim, from which he operated a hairdressing salon.   In this proceeding, he

ARTHUR DEVINE LIMITED V HIGHGATE ON BROADWAY LIMITED HC BLE CIV-2011-406-185 10

November 2011

seeks relief, under s 253 of the Property Law Act 2007 (the Act) against cancellation of that lease, and under s 264 of the Act against refusal to renew the lease.

[2]      The lease was for a term of five years from 1 September 2006, with a right of renewal for a further five years.  In November 2010 there were discussions between Mr Devine and Mr Yates, the principal of Highgate, over the possible renewal of the lease.    Mr Yates  wrote  to  Mr Devine  on  30 November 2010,  the  day  after  that conversation, and said:

We also discussed the lease agreement and you indicated your desire to renew the lease and that we should take this opportunity to do so.   I will direct my solicitor to draft and forward a copy to you this week.

[3]      Documentation for a new lease, not a renewal of the existing lease, on terms different from the existing lease, was prepared by Highgate’s solicitors and sent to Mr Devine.  The lessee was different.  There is some confusion in the documentation as to whether the lessee in the original lease is Mr Devine or his company, Arthur Devine Limited.  The parties now accept that Mr Devine is the lessee.  The name of the company was inserted as the lessee in the proposed new lease, with Mr Devine as guarantor.   Also, the rent was different.   The rent was stated to be $34,100, not

$31,000 as in the existing lease (there being no right to review the rental at the renewal date).  No new lease was finalised.

[4]      Mr Devine fell behind with his rent payments.  By letter dated 6 July 2011, Highgate’s solicitors, Hardy-Jones Clark, issued a notice that if the outstanding rent was not paid within ten working days the lease would be cancelled.  That letter did not meet the requirements of s 245 of the Act.  Before the expiry of the ten working day period, on 21 July 2011, Hardy-Jones Clark sent a further notice, to remedy the defect.  The ten working day period in that second notice expired on 4 August 2011. Mr Devine  gave  a  cheque  for  the  amount  claimed  to  Hardy-Jones  Clark  on

1 August 2011 but that was dishonoured by the bank.  Mr Devine says that this was because it was presented by Hardy-Jones Clark earlier than that firm had agreed.  I make no factual finding on that at this stage.  When Mr Devine discovered that the cheque had been dishonoured, he decided to pay by EFTPOS.  He went to Hardy- Jones Clark shortly before 9.30am on 4 August 2011, and paid the total amount, in five separate transactions, through the EFTPOS machine at Hardy-Jones Clark’s

office.  The following morning, 5 August, Mr Devine received a telephone call from a member of his staff, as a result of which he went to the premises.  He found there signs to the effect that his lease had been cancelled and a security guard was in attendance.

[5]      Arrangements were made between Mr Yates and Mr Devine for Mr Devine to enter the premises for the purpose of removal of the lessee’s fittings.  These were removed on Sunday 7 August. Again, I make no factual findings about the details of what occurred in relation to that removal.

[6]      Subsequently, Hardy-Jones Clark discovered that the rent had been paid on

4 August 2011.  That firm acknowledged its error.  Other solicitors were instructed for Highgate.   On 12 August Hardy-Jones Clark made a payment of $20,000 to Mr Devine.    There  was  considerable  acrimonious  correspondence  between  the parties’ solicitors.   The parties were unable to agree upon an acceptable basis for Mr Devine   to   resume   possession   under   the   lease   prior   to   its   expiry   on

31 August 2011.  They have also been unable to agree upon a renewal of the lease from 1 September 2011.

The s 253 application

[7]      The issues between the parties on the application for relief against forfeiture of the lease, which expired on 31 August 2011, can be shortly stated.   The lessee seeks an order under s 256 that it was entitled to possession of the premises without qualification or condition from 5 August 2011 to 31 August 2011.   The lessee also seeks restitution under s 253 such that the lessor is required to put the premises back into the condition they were in before its unlawful entry.  The lessor’s position is that there is no jurisdiction to make an order under s 253, because the lease was never validly cancelled.  The lessor further submits that there is no jurisdiction to make an order for restitution as sought by the plaintiff under s 256, and that the lessee’s remedy lies in an action for damages.

[8]      The relevant statutory provisions, in addressing these respective contentions, are ss 253, 255 and 256 of the Act. Those sections provide:

253Relief against cancellation of lease for breach of covenant or condition

(1)       All or any of the following persons may apply to a court for relief against the cancellation, or proposed cancellation, of a lease on the ground of a breach of a covenant or condition of the lease:

(a)      the lessee:

(b)      a mortgagee of the leasehold estate or interest:

(c)       a receiver appointed in respect of the leasehold estate or interest:

(d)       if 2 or more persons are entitled to the leasehold estate or interest as joint tenants, 1 or more of those persons on behalf of the other joint tenants.

(2)       If an application made in accordance with subsection (1)(d) is not made by all of the joint tenants, the application must be served on every joint tenant who is not already a party, unless the court orders otherwise.

(3)      Relief may be sought in—

(a)       a  proceeding  brought  by  the  lessor  for  an  order  for possession of the land; or

(b)      a proceeding brought for the purpose of seeking the relief. (4)       A proceeding referred to in subsection (3)(b) must be brought—

(a)      before an order for possession of the land is made in a proceeding referred to in subsection (3)(a); or

(b)      if the lessor has peaceably re-entered the land, not later than

3 months after the date on which the lessor peaceably re- entered the land.

(5)      Subsection (4)(b) is subject to section 254.

255     Application for relief not to constitute admission

(1)       This  section   applies  to   an   application  for   relief   against  the cancellation, or proposed cancellation, of a lease.

(2)       The application is not, in itself, to be taken as an admission by the person making it—

(a)       that there has been a breach of a covenant or condition of the lease by the lessee; or

(b)       that, because of the breach, the lessor has the right to cancel the lease; or

(c)       that  a  notice  has  been  duly  served  on  the  applicant  in accordance with section 245 or 246; or

(d)       that, at the time when the lessor applied to the court for an order for possession of the land or peaceably re-entered the land, the following periods had expired:

(i)        the period for the remedying of the breach specified in a notice served in accordance with section 245, if notice was served under that section:

(ii)      a period for the remedying of the breach that was reasonable in the circumstances, if notice was served under section 246.

(3)       The  court  may  grant  relief  against  the  cancellation  of  the  lease without determining all or any of the things set out in subsection (2).

256     Powers of court on application for relief

(1)       In determining an application for relief against the cancellation, or proposed cancellation, of a lease, under section 253, a court may grant—

(a)       the relief sought on any conditions (if any) as to expenses, damages, compensation, or any other relevant matters that it thinks fit; and

(b)      an injunction restraining any similar breach in the future.

(2)      The court may grant relief against the cancellation, or proposed cancellation, of a lease even though—

(a)       the cancellation is for a breach of an essential term of the lease; or

(b)      the breach is not capable of being remedied.

[9]      In general terms, where there is a wrongful cancellation of a lease by a lessor, the appropriate remedy for the lessee will be an action for possession and damages. An application for relief against cancellation provides a discretionary remedy to a lessee whose breach of covenant has led to cancellation.  Such relief is not necessary when the lessee is not in breach of the lease.   That point is made clear in Kim v

Kwon,[1] on which counsel for the respondent relies.

[1] Kim v Kwon CA126/01, 24 April 2002.

[10]     It is however also clear from s 255(2)(a) that s 253 may be relied upon by a

purchaser, in circumstances where the lessor’s right to cancel for breach of condition

is disputed by the lessee.  Counsel for the applicants submits that this Court therefore does have jurisdiction to grant relief when the purported breach relied on by the lessor has not occurred.  Counsel for the applicant refers to Amity Inns Ltd v RH & PL Papps Ltd.[2]  The Court of Appeal said:[3]

[2] Amity Inns Ltd v RH & PL Papps Ltd [2007] 3 NZLR 553 (CA).

[3] At 556.

Where a lessor purports to forfeit the lease in circumstances which the lessee considers involve breach of the terms of the lease such as the covenant of quiet enjoyment the lessee has a number of alternatives.   The lessee may take proceedings for breach of the lease and seek specific performance or damages.  The lessee may simply accept the position and walk away.  The lessee may seek relief against forfeiture recognising that at some point that will be construed as an admission that the lease was validly forfeited.  The lessee may proceed in the alternative to challenge the forfeiture and if successful to seek the discretionary relief.   Whether the taking of any one course is inconsistent with, and an unequivocal abandonment of, another or others, whether as to the exercise of a right or as to remedy, and at what point, will be matters of fact for determination in the circumstances of each particular case.

[11]     The Court accordingly recognised the potential availability of the remedy of relief  against  forfeiture  in  circumstances  where  the  lessee  was  not  in  breach. Section 255(2) now addresses the point made by the Court of Appeal that seeking relief against  forfeiture  would  be construed  as  an  admission  that  the lease was validly forfeited.   Furthermore, s 255(3) specifically provides that the Court may grant relief against cancellation without determining whether there has been a breach of the lease by the lessor.  That wording suggests that the Court may, in appropriate cases determine that question.  If that is so, it would be odd if, having determined that question and held that no breach had occurred, the Court had no power to grant relief against the wrongful cancellation of the lease.  I do not consider that such an interpretation is consistent with the purpose of the legislation.  For these reasons, I do not accept counsel for the lessor’s submission that there is no jurisdiction to grant relief under s 253 because the lease was never validly cancelled.

[12]     In the present case, the lessor had, before the proceedings were issued on

23 August 2011, accepted that the cancellation was unlawful.  Counsel for the lessor submits that, before these proceedings were commenced, the lessor had unconditionally offered to restore possession.   Counsel relies upon a letter dated

11 August 2011 from the lessor’s solicitors.   I do not accept that that letter was

sufficient to remedy the lessor’s wrongful cancellation so as to justify refusal of relief. The letter offered possession of the premises only in their then condition. The lessee was not, in the circumstances, bound to accept possession of the premises in that state, and did not.   There was further correspondence.   In a letter from the lessor’s solicitors dated 23 August 2011, the lessor’s requirement for immediate re- entry was specified as payment of some $2,000 for rent and outgoings, for the month of August, less one week for what the letter described as “the hiatus from 5 to

11 August”.   No basis was put forward in the letter for the lessor’s contractual entitlement to insist upon that payment as a condition of re-entry, and that stipulation was contested by the lessee.   In these circumstances, the parties were, when the proceedings were issued, at odds over the lessee’s entitlement to possession of the premises.  In those circumstances an order of the Court was needed by the lessee, to regain possession.  That is a remedy which can be granted under s 256.  I consider that this case therefore falls within the class of case contemplated by the Court of Appeal in Amity Inns, where seeking relief against forfeiture might be one of the alternatives open to the lessee.

[13]     For these reasons, I hold that the Court has jurisdiction to grant relief under s 253.  In doing so, the Court has the powers in s 256.  I return to consider the extent of the powers under s 256, and what relief is appropriate, after first considering the application for relief against refusal to renew the lease, under s 261 of the Act.

The s 261 application

[14]     The relevant provisions are ss 261 and 264 of the Act. These provide:

261Relief  against  lessor’s  refusal  to  enter  into  renewal  or  sell reversion to lessee

(1)      This section applies to a lease if—

(a)      the lessor has covenanted in writing with the lessee that,—

(i)        on the expiry of the term of the lease, the lessor will extend  the term of the lease, renew  the  lease,  or enter into a new lease of all or part of the premises to the lessee; or

(ii)      on the expiry of the term of the lease, or at some earlier time, the lessor will transfer or assign to the lessee all or part of the reversion expectant on the lease; and

(b)       the obligation of the lessor referred to in paragraph (a) is conditional on—

(i)        the fulfilment of any condition or the performance of any covenant or agreement of the lessee; or

(ii)      the lessee giving notice, within a specified time or in a specified manner, of the intention to exercise the right to require  an extension  or  a renewal  of the lease  or  the  entering  into  of  a  new  lease  or  the transfer or assignment of the reversion; and

(c)       the  lessee  is  in  breach  of  the  condition,  covenant,  or agreement, or has failed to give the notice within the specified time or in the specified manner; and

(d)       the lessor has refused to extend or renew the lease, or enter into a new lease, or transfer or assign the reversion, as the case may be.

(2)       If this section applies to a lease, any of the following persons may apply to a court in accordance with section 262 for relief under section 264:

(a)      the lessee:

(b)      a mortgagee of the leasehold estate or interest:

(c)       a receiver appointed in respect of the leasehold estate or interest:

(d)       if 2 or more persons are entitled to the leasehold estate or interest as joint tenants, 1 or more of those persons on behalf of the other joint tenants.

(3)       If an application made in accordance with subsection (2)(d) is not made by all of the joint tenants, the application must be served on every joint tenant who is not already a party, unless the court orders otherwise.

264     Relief court may grant on application

(1)       On  an  application  under section  261, the  court  may  grant  relief against the refusal of the lessor to extend or renew the lease, or enter into a new lease, or transfer or assign the reversion, as the case may be.

(2)      In particular, the court may—

(a)      do either of the following:

(i)        order the lessor to extend or renew the lease or enter into a new lease with the lessee, mortgagee, or receiver; or

(ii)      order the lessor specifically to perform the lessor’s covenant or agreement to transfer or assign the reversion, and to execute all necessary assurances for that purpose; and

(b)       grant relief under paragraph (a)(i) or (ii) on any conditions (if any) as to expenses, damages, compensation, or any other relevant matters that the court thinks fit.

(3)       The fact that the lessor may have made a disposition to a person, other than the lessee, mortgagee, or receiver, that would be prejudicially affected by the grant of relief to the lessee, mortgagee, or receiver under this section does not affect the power of the court to grant that relief, but in that case the court may do all or any of the following:

(a)      cancel or postpone that estate or interest:

(b)       assess the damages or compensation to be paid to any person prejudicially affected by that cancellation or postponement:

(c)       order any damages or compensation to be paid by the lessor or by the lessee, mortgagee, or receiver, or partly by the lessor and partly by the lessee, mortgagee, or receiver in the proportions that the court determines.

(4)       If, under this section, an order is made in respect of Maori land for the extension or renewal of a lease, or the entering into of a new lease   to   the   lessee,   mortgagee,   or   receiver,   or   the   specific performance of a covenant or agreement to transfer or assign the reversion, the extension, renewal, entering into of a new lease, transfer or assignment must be confirmed as of right under Te Ture Whenua Maori Act 1993.

[15]     The approach to be adopted on an application for relief against a lessor’s

refusal to renew a lease was described by Asher J in Sibrad Company Ltd v Kanters.[4]

[4] Sibrad Co Ltd v Kanters (2008) 9 NZCPR 356 (HC).

He said:[5]

[5] At [17]-[20].

… the discretion under s 120 is broad, as it is equally under s 264 of the

2007 Act.  It was described by Turner P in Vince Bevan Limited v Findgard

Nominees Limited [1973] 2 NZLR 290 at 297-298, quoted in Weatherall Jewellers Limited v J Hendry & Son Limited CA135/83 11 September 1984 (CA):

This section … enacted as a remedial measure, should be construed

as conferring upon the court a very wide jurisdiction to do equity in

relieving against refusals by lessors to renew leases.  In my opinion it would stultify the intention of the Legislature to construe this section so strictly.   All its provisions seem to me to indicate that Parliament intended that it should be applied largely.

In Weatherall Jewellers Limited Richardson J described the discretion as follows at p8:

Clearly the court has to do justice as between lessor and lessee having regard to all the circumstances of the case and so having regard to the relative prejudice occasioned to the lessor or lessee by the  grant  or  refusal  of  relief  and  by  any  terms  imposed  under subs (5).

In Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd HC AK CIV-2005-404-3631 5 December 2005, I endeavoured to summarise some of the relevant factors to be taken into account by a Court in exercising this discretion, with reference to relevant authorities, as follows:

(a)       Reasons  for  the  failure  to  give  notice,  e.g:  Whether  the failure to renew was inadvertent.

(b)       Whether the cause of the default was due to any action of the landlord.

(c)       The lessee’s conduct, in particular whether it has complied with  all  conditions  and  covenants  and  has  been  a  good tenant.

(d)      The prejudice to the lessee if the relief is not granted. (e)    The prejudice to the lessor if the relief is granted.

(f)      The lessor’s motivation for the refusal to renew and understanding of the lessee’s intentions.

(g)       The interests of third parties and how they may be affected by any order.

Thus it has been held that the lessee’s conduct, in particular whether it is compliant with covenants and conditions and has been a good tenant, can be relevant: Woottons Auto Accessories Ltd v Epsom Dry Cleaners Ltd (1982)

1 NZCPR 504, 507.   Breaches of lease by the lessee, and prejudice to the lessor if the relief is granted are clearly relevant matters.  It is not sufficient for an applicant to simply explain the failure to renew as innocent and inadvertent, and then to expect relief.   If that were the position, the Act would  say  so.  Rather  there  is  a  broad  discretion,  and  where  there  are breaches of lease by the lessee, the extent to which they affect the lessor can be considered.  So can bad behaviour by a lessee and consequent bad feeling between landlord and tenant, as these can give rise to real prejudice to a lessor if a renewal is forced.

[16]     In his submissions, counsel for the respondent referred to the matters listed by Asher J.           Counsel for the respondent submits that there was a failure to give

notice which was not inadvertent, but rather the lessee wanted to explore options and keep options open without committing to any particular course of action and that the lessee wanted an altogether new lease in favour of his company which was offered but not accepted.  He submits that there are issues which are unresolved and that the lessee was equivocating.  Counsel for the respondent also submits that there was no action of the lessor which contributed to the default and that the lessee asked for a new lease to a different party.  Counsel further submits that the lessee has not been a good tenant and there have been substantial defaults without satisfactory explanation and there is now a belligerent attitude present and a very public airing of the dispute between the parties such that the point has been reached where the parties should not be forced into a landlord and tenant relationship for a further five years.  He submits that there would be no prejudice to the lessee if relief is not granted and that there would be prejudice to the lessor if it were required to have a belligerent tenant in a bad financial state.

[17] I deal first with the position concerning notice of renewal. The starting point is the letter from Mr Yates to Mr Devine dated 30 November 2010, the relevant part of which is set out at [2]. That letter is arguably sufficient, in contractual terms, to evidence a concluded agreement for the renewal of the lease. If that were so, relief against refusal to renew is unnecessary, since there would be an enforceable contract renewing the lease. For present purposes, and because these proceedings cannot resolve all issues between the parties, as I later discuss, it is preferable that I make no finding on that point. I proceed on the assumption that relief against refusal to renew may be necessary. On that assumption, I consider that the letter of

30 November 2010 must, at the very least, have conveyed to the lessee that the lessor regarded the discussions as indicating an intention on the part of the lessee to renew. That letter was sufficient to justify a belief on the part of the lessee that it was not necessary to give a more formal notice of its desire to renew the lease.   It weighs heavily in favour of the granting of relief from the consequences of a failure, if there was one, to give notice of renewal.

[18]     The evidence as to events following that letter does not support Highgate’s submission that Mr Devine wanted a new lease in favour of his company which was offered and not accepted.  The documentation proposing a new lease was submitted

by Highgate’s solicitors.  The evidence does not support the proposition that there was a proposal by Mr Devine that there should be a change in the lessee from him to his company, or that this was a sticking point in any negotiations.  There was, as I have noted at [3], some confusion in the original lease documentation as to whether the lessee is Mr Devine or his company.  The parties now accept that Mr Devine is the lessee.  The draft lease submitted by Highgate’s solicitors named the company as the  lessee.    That  did  not,  on  the  correspondence,  result  from  any  proposal  by Mr Devine that there be a change of lessee. That proposal originated from the lessor.

[19]     As to the submission that the conduct of the lessee should weigh against the granting of relief, I consider that the evidence does not establish any failures on the part of the lessee which would justify refusal of relief.  There have, at least arguably, been some late payments by the lessee.  Again, it is preferable that I do not at this stage make factual findings.  Taking a view of the evidence most favourable to the respondent, there is not a history of failure to pay, or late payment, which would justify the a refusal of relief.

[20]     It is clear that there is a high degree of animosity between the parties. That is not, however, a reason why the lessee should be deprived of his contractual right to a renewal of the lease.  It is not a reason why relief should be refused.  In so holding, I make no factual findings on the evidence on both sides which seeks to attribute responsibility for that animosity to the other party.

[21]     As I have indicated, there is, at least arguably, a concluded agreement to renew the lease, by the lessor’s letter of 30 November 2010.  If that is so, then no question of the Court’s discretion arises in relation to the renewal.   But, if the correspondence does not constitute a concluded agreement so that relief against the refusal to renew the lease is required, then I do not consider that there is anything in the conduct of the lessee which would justify the refusal of relief.

[22]     For these reasons, I consider that, to remove any doubt as to whether the landlord’s letter of 30 November 2010 did constitute a concluded agreement for the renewal of the lease, the lessee is entitled to relief against the respondent’s refusal to enter into a renewal of the lease.

Relief

[23]     The consequence of my findings in relation to both the s 253 and s 261 application is that the applicant has been the lessee of the premises continuously throughout the relevant period.  The respondent’s purported cancellation of the lease before its expiry on 31 August 2011 was, as counsel for the respondent now accepts, unlawful, and the lessee is entitled to a renewed lease from 1 September 2011.

[24]     The relief sought by the applicant in the application is particularised in these terms:

(a)       Under Section 253 of the Property Law Act 2007 that:

(i)        The Deed of Lease (Lease) between the Applicants and the Respondent dated 1 September 2006 for premises at 62 High Street, Blenheim (Premises) was wrongfully cancelled by the Respondent on 5 August 2011.

(ii)      As a consequence of the wrongful cancellation, the Lease is to be re-instated with immediate effect.

(iii)      In the interim, in order to remediate the damage caused by the wrongful cancellation:

(A)      The Applicants are to be re-instated in the Premises

immediately at the Respondent’s cost in all respects.

(B)      The Lease is to be extended to 31 January 2012 on the same terms and conditions as applied at the date of cancellation.

(C)      Rental  under  the  Lease  is  to  be  abated  for  three months from the date of the Applicants’ re- instatement to the Premises to enable the Applicants to re-establish their business from the Premises.

(b)      Under Section 261 of the Property Law Act 2007 that:

(i)        The Applicants be given the right to renew the Lease for the five year term from 1 September 2011.

(ii)      Such right to renew to be exercised no later than 1 January

2012.

(ii)      Such renewal to be on the terms provided for in the Lease.

(c)       The Respondent compensates the Applicants for loss of profits in the period from 5 August 2011 until the effects of the wrongful cancellation have ceased.

(d)      The Respondent pays the Applicants damages for stress, hurt and humiliation and damage to reputation.

(e)       The Respondent pays the Applicants’ costs of this Application.

(f)       Such other relief as the Court considers appropriate.

[25]     I consider that the relief to be granted to the lessee should extend to the orders sought in para (a)(i) and (ii) of the application.  There will be a declaration that the deed of lease was wrongfully cancelled by Highgate on 5 August 2011, and that  the  lease  is  to  be  reinstated  from  5  August  2011  until  its  expiry  on

31 August 2011.

[26]     The relief to be granted should also extend to the renewal of the lease from

1 September 2011.  As I have discussed I consider that it is arguable that there is a concluded agreement for the renewal of the lease.  To the extent that there is not, so that relief against the refusal to renew if necessary, I consider that the appropriate relief is an order in terms of para (b) of the application.

[27]     The combined effect of these orders is that the lease has been continuously in force throughout the relevant period.  The making of these orders will not provide a comprehensive remedy for the applicant for all losses and damages arising from the wrongful cancellation of the lease.   First, these orders will not, by themselves, be sufficient  to  ensure  that  the  premises  are  reinstated  to  their  condition  as  at

4 August 2011.  The condition in which Highgate should be contractually obliged to deliver the premises at the commencement of the renewed lease should therefore be the condition in which the premises were on 4 August 2011, before the wrongful cancellation and the wrongful requirement for removal of the lessee’s fittings and fixtures.   The relief sought in para (a)(iii)(A) is directed towards achieving this outcome.

[28]     I must consider whether such relief is available under s 256, in particular s 256(1)(a).   Counsel for the respondent submits that it is not.   He relies on Twin Peaks Coffee Co Ltd v Broadway Developments 1986 Ltd.[6]    That case involved an

[6] Twin Peaks Coffee Co Ltd v Broadway Development 1986 Ltd (2010) 12 NZCPR 49 (HC).

application under s 261 for the grant of a new lease.  The application was filed after

the termination of the earlier lease, and after the lessor had begun demolition of the premises.  The Court considered whether, in granting relief under s 264, the relief could include an order for physical reinstatement of the premises.  Cooper J said:[7]

Although the power to impose conditions set out in s 264(2)(b) is indeed widely drawn, it is important to take due account of the fact that the power is a power to impose conditions on the grant of relief. In my view, that implies that the condition imposed will be something that relates to the grant of the extended or renewed lease (where subs (2)(a)(i) applies), or to the performance by the lessor of the obligation to transfer or assign the reversion (where subs (2)(a)(ii) applies). I do not consider that subs (2)(b) naturally extends to the imposition of conditions requiring the  lessor to take  any action; actions by the lessor are required by the grant of relief itself under paragraph (a). References to “expenses”, “damages”, “compensation” and to “any  other  relevant  matters”  are  much  more  naturally  applicable  to obligations that are to be cast on the lessee as a result of the obtaining of relief, than on the lessor. While it may be that a wrongful refusal by the lessor to renew a lease may have caused the lessee to suffer loss, that would not be a loss consequent on the grant of relief. The lessee obtains a benefit from the grant of relief and obtaining relief does not logically give rise to the possibility  that  the  lessor  should  be  entitled  to  conditions  covering  the matters set out in paragraph (2)(b).

[7] At [57].

[29]     He then considered two previous decisions of this Court on the equivalent provisions in the Property Law Act 1952.[8]   He said:[9]

[8] Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd (2005) 7 NZCPR 48 (HC); Laboratory Supplies Ltd v Whineray (1985) 2 NZCPR 285 (HC).

[9] Twin Peaks Coffee Co Ltd v Broadway Development 1986 Ltd, above n 6, at [61]-[63].

Both judgments envisage conditions to be imposed on the lessee to compensate the lessor, and the reasoning would not justify the imposition of a condition requiring a lessor to compensate a lessee. I consider that the same approach is appropriate in applying s 264(2)(b) of the 2007 Act. The result is that it is not possible on the present application to make an order under s 264(2)(b) in terms that ordered the respondent to grant a new lease and  required  it  to  reinstate  the  premises  as  sought  by  the  amended application. Nor would there be power, in terms of the alternative amended order sought, to order that the respondent facilitate reinstatement of the premises and compensate the applicant for all reasonable costs incurred if it carried out the reinstatement works.

That conclusion does not mean, however, that relief should not be granted. If such relief is otherwise appropriate, and it was ordered that the respondent grant a new lease in terms of clause 33.1 of the deed of lease, the result would be a new lease for a further term from the renewal date. In those circumstances, the applicant might not be without a remedy in relation to the actions carried out by the respondent, but it would need to commence an appropriate proceeding in order to secure a result which, as I see it, cannot be achieved in this application.

It  follows  from  the  preceding  discussion  that  it  is  also  my  view  that s 64(2)(b) would not contemplate a damages claim by a lessee against a lessor as also sought in the present application. As I see it, that is an issue that would also need to be advanced in a different proceeding commenced by notice of proceeding and statement of claim.

[30]     Counsel for the respondent submits, on that authority, that the relief sought by the applicant, relating to the cost of reinstating the premises, is not available in these proceedings.   Counsel for the applicant submits that that reasoning does not apply to relief under s 256.  He submits that there is a difference in wording between s 256 and s 264, and that the power to grant relief under s 256 is broader than that under s 264.

[31]     In the usual class of case falling within s 256, where the Court has granted relief against cancellation following a breach of the lease by the lessee, the expectation would be that the conditions on which relief would be granted would be conditions for the benefit of the lessor, because the lessee has, in that usual case, been granted an indulgence for its breach of lease, for which the lessor ought to be compensated.  However, s 256 is not in its terms limited to conditions favouring the lessor.  As I have noted, s 255(2) contemplates that an application for relief under s 253 may occur in circumstances where the validity of the cancellation is disputed, because the lessee does not accept that there has been a breach of the lease.  That might suggest that the Court has power, in an application under s 253, to determine that there was no breach of the lease justifying cancellation and that the cancellation was wrongful.  If the Court does have such power, conditions favouring the lessee might be seen as appropriate under s 256.

[32]     For the reasons I have given, I consider that the power to grant relief under s 253 extends to cases where there has in fact been no breach of covenant by the lessee justifying cancellation.   In such a case, the reasons given by Cooper J for holding that an order for reinstatement cannot be made as a condition of an order for renewal of the lease are less persuasive in respect of the conditions which may be imposed in granting relief against cancellation.  I consider that a condition to ensure that the premises are restored to their pre-cancellation condition does fall within the scope  of  the  Court’s  power  to  grant  relief  on  conditions,  under  s 256(1)(a).    I consider therefore that an order that the respondent meet the reasonable costs of

reinstating the premises does fall within the scope of s 256(1)(a).  Such an order is necessary to ensure that appropriate relief against the cancellation of the old lease is granted to the applicant.   The granting of relief under s 256(1)(a) means that the premises must be restored to their pre-cancellation condition, and that will determine their required condition on renewal.  No order under s 264 is needed to achieve that outcome. There will be an order in terms of para (a)(iii)(A) of the application.

[33]     There may be further consequences of the wrongful cancellation which will require consideration.   In Ingram v Patcroft Properties Ltd,10  there was a similar repudiatory breach by the landlord.  That breach prevented the lessees from carrying on their businesses.  The breach in this case has had a similar effect.  In that case, as in this, the lessees did not accept the lessor’s repudiatory breach by cancelling the lease. The lessees were held entitled to damages for the loss of business arising from

the lessor’s wrongful re-entry.  Similar issues may arise here, and there may be other losses  and  damages  which  have  been  suffered  by  the  lessee,  arising  from  the wrongful eviction.   There is insufficient evidence to address all issues of liability, and quantum, for any such claim.  I do not consider that any further relief, by way of damages as claimed in paras (c) and (d) of the application, is appropriate in these proceedings.  The question of other damages resulting from the landlord’s wrongful cancellation of the lease should be determined (if the parties are unable to resolve matters in the light of the findings in this judgment) in an action for damages.  As counsel for the applicants acknowledges, that cannot be done in these proceedings.

[34]     The applicants seek costs in these proceedings, on a solicitor client basis.  I did  not  hear  detailed  submissions.    Counsel  for  the  applicants  would  need  to establish that the circumstances fall within r 14.6 of the High Court Rules.  Costs are

reserved and memoranda may be filed.

Solicitors:           Radich Law, Blenheim, for Applicants

Wisheart Macnab & Partners, Blenheim, for Respondent

Duncan Cotterill, Nelson, for Third Party.

“A D MacKenzie J”

10     Ingram v Patcroft Properties Ltd [2011] 3 NZLR 433 (SC).