Chen Xi Enterprises Limited v Triple Union Limited
[2023] NZHC 94
•3 February 2023
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE
CIV-2022-425-000014
[2023] NZHC 94
BETWEEN CHEN XI ENTERPRISES LIMITED
Appellant
AND
TRIPLE UNION LIMITED
Respondent
Hearing: 17 November 2022 Appearances:
K L E Coote for the Appellant C M Ruane for the Respondent
Judgment:
3 February 2023
JUDGMENT OF NATION J
[1] When parties to a commercial contract are in dispute, the challenges for judges are not necessarily determined by the monetary value of what is at issue.
Background
[2] The appellant (Chen Xi), pursuant to a lease dated 29 June 2018, leased premises they owned at Unit 9 Shotover Ridge, 193 Glenda Drive, Frankton (the leased premises) to the respondent (Triple Union). The lease was for five years beginning 29 June 2018, with rights of renewal. The lease required Triple Union to pay an annual rental of $26,000 plus GST and rates or levies payable to the Queenstown Lakes District Council.
[3] Triple Union fell into arrears in payment of both rental and rates. By notice of breach of lease served on Triple Union on 18 December 2018, Chen Xi required Triple Union to pay rental arrears and rates.
CHEN XI ENTERPRISES LTD v TRIPLE UNION LTD [2023] NZHC 94 [3 February 2023]
[4] On 16 January 2019, Chen Xi filed a statement of claim seeking an order for cancellation of the lease, judgment for rent and rates arrears, the further instalments due when the proceedings were heard, and compensation of $1,308.60 plus GST for legal costs Chen Xi had incurred.
[5] An interlocutory order was made by consent on 9 April 2019 formally terminating the lease with effect from 9 April 2019.
[6] On 6 May 2019, Chen Xi applied to have Zheng Shi and Linna Jia, both then directors of Triple Union, joined as second defendants to the proceedings on the ground they had guaranteed Triple Union’s performance of the agreement to lease.
[7] On 27 May 2019, Chen Xi filed an amended statement of claim against Triple Union and the second defendants. In that amended statement of claim, Chen Xi sought judgment for arrears of rent and rates for the period through to 9 April 2019. They also claimed that, while Triple Union was in occupation of the leased premises, they interrupted the supply of electric power to the upstairs apartment in the building. The tenant consequently vacated the upstairs apartment. Chen Xi claimed judgment against Triple Union for:
(a) arrears of rent and rates;
(b) rental lost from the upstairs apartment;
(c) costs incurred in making electrical repairs;
(d) costs of repairing door and locks after Chen Xi had to gain entry to the leased premises;
(e) travel and accommodation costs for a Chen Xi director to travel from Invercargill to Queenstown to visit the premises and arrange for repairs;
(f) costs incurred for cleaning;
(g) costs connected with real estate agents for the re-letting of the upstairs apartment; and
(h) interest on overdue payments at the rate of 14 per cent per annum and interest on the balance of the claim.
[8] A statement of defence and counterclaim was filed for both Triple Union and the second defendants. In their statement of defence, they made certain allegations in defence to the claim for rental and rates. They pleaded the electrical supply to the upstairs apartment in the building was routed, at least in part, through the leased premises, the supply of electricity to that apartment failed from time to time due to overloading, the defendants had not interrupted the power supply to the upstairs apartment and, if that power supply was interrupted, it was due to the inadequacies of the electrical supply to that apartment and not to any action taken by the defendants.
[9] The defendants pleaded they had been entitled to change the locks to the leased premises to prevent unauthorised access by Chen Xi and the tenants of the upstairs apartment. The defendants pleaded they had been willing to meet with Chen Xi or Chen Xi’s representatives to hand over keys, but Chen Xi’s representatives were unwilling to meet. They denied any liability for costs claimed in the amended statement of claim and said, if the claimed expenses were incurred, those costs were a result of deficiencies or failures in the electrical supply to the leased premises and should thus be borne by Chen Xi.
[10] The defendants claimed that, in the expectation they would be able to operate the leased premises as a Chinese fast food business, they had travelled to China to source plant and equipment and, in doing so, had incurred wasted travel and accommodation costs. They counterclaimed for $5,519 on account of such costs. That counterclaim was not pursued at trial.
District Court decision
[11] At the outset of the hearing scheduled for 12 November 2021, the defendants sought leave to amend the statement of defence to add an affirmative defence of accord and satisfaction. They wished to plead that, through correspondence between solicitors, there had been an agreement in late 2018 that Triple Union would surrender the lease so no payments would be due under the lease from then until April 2019, the date to which rental had been claimed.
[12] Judge Tuohy said there had been no real controversy over the date of the termination of the tenancy in a legal sense until the issue was raised with the application for leave to amend. An amendment would raise a number of new legal issues: whether there was an accord and satisfaction through the exchange of emails; and whether the respondents had, themselves, reaffirmed the lease by agreeing to a consent order in April 2019 that the lease then be terminated. The Judge, in the interests of justice, refused the application.1
[13] In the substantive judgment, the Judge set out the factual background to the dispute between the parties.2 He said the Frankton premises owned by Chen Xi was on two storeys. Triple Union intended to use the ground floor leased premises as a restaurant. The upstairs apartment was rented by a family. At the root of the dispute was that the hot water cylinders for both the upstairs apartment and the leased premises were on the ground floor. The power supply to both hot water cylinders was metered through the switchboard for the ground floor leased premises and charged to the tenant of those premises. The switchboard was situated inside a small room only accessible from inside the leased premises.
[14] On 21 August 2018, Triple Union received their first power bill for the leased premises from Meridian Energy. It was for a substantial sum even though the restaurant had not opened.
[15] On two occasions, 29 and 30 August 2018, the upstairs tenant found there was no hot water in their apartment. They contacted Chen Xi’s director, Carman Feng. Ms Feng then contacted Triple Union. On both occasions, the water heating to the upstairs apartment resumed.
[16] On 7 September 2018, the upstairs tenant contacted Ms Feng to complain there was again no hot water in the upstairs apartment. Ms Feng contacted Mr Shi one of the directors of Triple Union. The next day the upstairs tenant contacted Ms Feng complaining they still had no hot water. Ms Feng contacted the other director of Triple Union, Ms Jia, who said she had engaged an electrician.
1 Chen Xi Enterprises Ltd v Triple Union Ltd [2021] NZDC 22337.
2 Chen Xi Enterprises Ltd v Triple Union Ltd [2022] NZDC 1275.
[17] On 9 September 2018, the upstairs tenant contacted Ms Feng and said he still had no hot water. Ms Feng contacted Ms Jia who said she would contact the upstairs tenant after work and they would sort it out.
[18] On 11 September 2018, the hot water supply to the upstairs apartment had resumed.
[19] The Judge referred to a report from the electrician which said he attended the leased premises at the request of Ms Jia (it appears there was a slip in the Judge’s decision where he referred to that attendance having been on 7 August 2018). The Judge referred to the electrician’s statement that he had established and advised Triple Union that the upstairs apartment’s hot water cylinder was fed from the ground floor switchboard and was being charged to the ground floor meter holder.
[20] On 14 September 2018, Triple Union put a notice on the upstairs tenant’s door advising that the power switch for the upstairs apartment from downstairs would, from then, be turned off and the upstairs tenant should contact the landlord. The upstairs tenant telephoned Ms Feng and advised her of this. Ms Feng spoke to one of the directors, Mr Shi, and said she would engage an electrician to rectify the problem with the connection of the upstairs hot water cylinder to the downstairs switchboard the next day.
[21] On 17 September 2018, Ms Feng drove to Queenstown to meet with Ms Jia, together with the electrician. The electrician found the switchboard fault but was not permitted by Triple Union to correct it.
[22] On 25 September 2018, there was an informal mediation between the parties but nothing was resolved.
[23] On 31 October 2018, Chen Xi asked Triple Union, through Triple Union’s lawyer, for permission to enter the leased premises and engage an electrician to remedy the fault at Chen Xi’s cost. Triple Union did not give permission to do so.
[24] On 23 November 2018, the upstairs tenant contacted Ms Feng to advise the power upstairs had been turned off.
[25] Ms Feng travelled to Queenstown on 23 November 2018. She was unable to contact the second defendant directors of Triple Union but found the leased premises locks had been changed. Ms Feng arranged for a workman to force entry the following day and arranged for an electrician to be present to ensure power was supplied to the upstairs apartment. One of the second defendant directors, Ms Jia, arrived with her husband, Mr Wen, and told the electrician he had to stop work. Ms Jia and her husband continued to refuse entry to Ms Feng. It was not possible for power to be restored to the upstairs apartment that day. The upstairs tenant had had enough and terminated his tenancy.
[26] Chen Xi was unable to gain access to the leased premises to have power restored to the upstairs apartment or to have the switchboard problem rectified until after Triple Union’s tenancy was terminated on 9 April 2019.
[27] After the termination of the downstairs lease, an electrician found there was a disconnect switch on the downstairs switchboard which enabled power to the upstairs apartment to be turned off totally by a single movement of that switch. He carried out the necessary electrical work to ensure the power usage for the upstairs hot water cylinder was metered henceforth to the upstairs switchboard.
[28] The Judge found Triple Union had possession of the leased premises, to the exclusion of Chen Xi, until 9 April 2019, the date of termination. He found Triple Union was obliged to pay rent and rates during that term, whether they wished to occupy the premises or not. He found the amount due for rates had not been established, but found Triple Union was liable for rent of $13,039.54.
[29] The Judge held Chen Xi should be responsible for all electricians bills for investigations except for those that were related to power to the upstairs apartment being turned off. He awarded Chen Xi $750 towards electricians’ costs. He awarded Chen Xi $1,114.78 for the cost of fixing a door and repairing locks, on the basis Triple Union had been in breach of an obligation under the lease to yield up the premises in
an appropriate condition with regard to the condition of the premises at the beginning of the lease.
[30] The Judge allowed a sum of $420 for cleaning costs, and interest on unpaid rent at 14 per cent. He declined travel expenses incurred by Chen Xi on the basis it was Ms Feng’s choice to run her Queenstown business from Invercargill.
[31] There was no appeal or cross-appeal as to the Judge’s decision as to those matters.
[32] As to Chen Xi’s claim for loss of rental from the upstairs tenant, the Judge said the amended statement of claim clearly pleaded the essential facts underlying this claim. They included specifically that, as a result of the interruption to his power supply by one or other of the defendants, the upstairs tenant quit the premises causing loss of rent to the landlord. The Judge said the legal basis for the claim had not been pleaded and did not have to be, but it had to be established for adjudication. Counsel had said the primary legal basis for the claim was the tort of unlawfully inducing the upstairs tenant to breach his contract with the landlord.
[33] Counsel had also submitted that, alternatively, the defendants had breached a duty of care not to interfere with the current tenancy associated with the building. The Judge said Chen Xi had not provided authority for the recognition of a tortious duty of care in those circumstances. The Judge reached his decision on the basis there was no such duty of care.
[34] The Judge said he was satisfied on the facts that power to the upstairs apartment was cut off on 23 November 2018 by turning off the switch on the downstairs switchboard. He said that action must have been carried out by one of the two directors of Triple Union or someone permitted by them to enter the leased premises. It was also very likely done with the knowledge and intent that power to the upstairs apartment would be turned off.
[35] The Judge was however not satisfied that it was sufficiently proven the action was carried out by either of the second defendant directors of Triple Union. One had
not given evidence. The other had denied in evidence carrying out the action or knowing it had been done. The Judge said there was another possible perpetrator who he considered more likely than either of the directors. That being, Mr Wen, the husband of Ms Jia. The Judge said, if it was Mr Wen, he could not be sure Mr Wen acted with Ms Jia’s knowledge and approval.
[36] The Judge said it had also not been proved that the upstairs tenant had breached his contract with Chen Xi by quitting the upstairs apartment during the fixed term of the tenancy. That had not been alleged by Chen Xi. The Judge doubted the upstairs tenant was in breach of the fixed term of his tenancy given his leaving the premises would likely have been found to be justified by the Tenancy Tribunal.
[37] The Judge said it was also highly arguable that the loss of rental was not the consequence of the upstairs tenant quitting the premises but the consequence of Chen Xi being prevented from re-letting it. Ms Feng’s evidence was that she had found a new tenant, one willing to pay a higher rent than the upstairs tenant had been paying, but could not let the upstairs apartment because she was unable to gain entry to the leased premises and the switchboard room to turn on the upstairs power and separate the meter for the upstairs hot water cylinder.
[38] The Judge said Triple Union had stopped Chen Xi from doing so by changing the locks and refusing entry to the leased premises and therefore the switchboard room. He said that may have been a breach of cl 15.1 of the lease (access for works), entitling Chen Xi to loss of rental for the relevant period. That had not however been the case pleaded on behalf of Chen Xi. The Judge said it would be unfair to the defendants to decide this part of the case on a legal basis which had not been pleaded.
[39] It was for those reasons the Judge declined the claim for loss of rental for the upstairs apartment. It was that part of the decision which Chen Xi appealed.
Submissions
Submissions for appellant
[40] The written submissions of Mr Eagles for Chen Xi were relied on by Ms Coote at the hearing of the appeal.
[41] Chen Xi accepted there had been no error in the Judge rejecting the claim based on breach of a duty of care. Chen Xi accepted there could be no claim for damages for economic loss based on such a potential duty.
[42] Chen Xi noted the key factual findings made by the Judge. Chen Xi referred to the Judge’s finding that the person more likely to have turned off the switch on the downstairs switchboard on 23 November 2018 was Mr Wen. In initial submissions, Chen Xi said, with regard to a company search in the agreed bundle of documents, the Judge had been mistaken in considering Mr Wen was not a director of Triple Union on 23 November 2018. In reply submissions, Chen Xi accepted there had been no such mistake by the Judge.
[43] Chen Xi submitted Mr Wen must have been acting with the consent and approval of Triple Union because Triple Union had put up the 14 September notice about turning off the power. The essence of that submission was that the Judge should have been satisfied on the evidence potentially, if necessary, through drawing logical and reasonable inferences on undisputed evidence, that on 23 November 2018, through the actions of Mr Wen, Triple Union had turned off power to the upstairs apartment. Further, Chen Xi argued the Judge should have concluded that, on 24 November 2018, Triple Union had obstructed Chen Xi and their electrician from remedying the problem with the downstairs switchboard so power to the upstairs apartment could be restored.
[44] Chen Xi submitted the Judge erred in holding they had not been proved the upstairs tenant had, in quitting the upstairs apartment, breached his contract with Chen Xi. Chen Xi submitted the lease agreement they had with the upstairs tenant did not create any obligation on the part of Chen Xi to supply electricity to the apartment. They submitted the Judge’s assumption was contrary to s 39(4)(a) of the Residential
Tenancies Act 1986, which provided that a tenant is responsible for charges in respect of electricity and gas.
[45] Chen Xi submitted the Judge had also been in error in saying Chen Xi’s loss resulted not from the tenant quitting the upstairs apartment but from the fact Chen Xi, as landlord, was prevented from re-letting the premises. They said it was clear on the evidence that the interference with the power supply had caused the claimed lost rental. That claim had been clearly set out in the amended statement of claim. Chen Xi submitted direct interference by unlawful means had been established. Chen Xi submitted the agreement to lease had incorporated the tenant’s obligation to allow access for works. Although the specific clause of the agreement had not been referred to in pleadings, the facts for a claim based on interruption to the power supply had been pleaded, and the changing of locks was “part and parcel” of that. Chen Xi submitted the claim as to that should not have been disallowed on the basis this was not the way the case had been pleaded.
Submissions for respondent
[46] Mr Ruane noted Chen Xi’s pleading had been that Triple Union interfered with the power supply to the upstairs apartment. Triple Union submitted there had been no obligation on Triple Union as the downstairs tenant, whether in contract or in tort, to supply power to the upstairs apartment, and it had been for Chen Xi to ensure the upstairs apartment had a secure power supply.
[47] Triple Union submitted there had been no evidence from the upstairs tenant as to what interference there had been to the power supply. They submitted there had been no direct evidence of the upstairs tenant complaining of the loss of any other electrical supply but acknowledged there was evidence that the upstairs tenant complained from time to time of a lack of hot water.
[48] Triple Union accepted there was evidence on which the Judge could reasonably conclude that the action of turning off power to the upstairs hot water cylinder must have been carried out by one of the two directors of Triple Union or someone permitted by them to enter the downstairs premises. Triple Union also acknowledged there was no error in the Judge concluding that the more likely perpetrator was Mr Wen but, with
reference to Companies Office records, they submitted the Judge could not have concluded that, at the time of the incident on 23 November 2018, Mr Wen was a director of Triple Union.
[49] Triple Union submitted, on the evidence, the Judge was entitled to conclude that, if Mr Wen had cut off the power, it had not been proved he did so with Ms Jia’s knowledge and approval. Triple Union submitted an appellate court should be reluctant to interfere with the Judge’s finding as it involved an assessment of Ms Jia’s credibility as a witness. It could not be inferred from Triple Union’s notice that they were terminating the power supply to the upstairs apartment, or that the later actions of Mr Wen could be attributed to his wife as a director and thus to the company.
[50] Triple Union referred to s 45(2) of the Residential Tenancy Act 1986 which limits the circumstances in which a landlord can interfere with the supply of electricity or other services to leased premises.
[51] Triple Union also submitted Chen Xi had effectively not mitigated their loss through failing to pursue a claim against the upstairs tenant, if his departure had been unjustified as Chen Xi claimed. Triple Union also submitted Chen Xi had not mitigated their loss through unreasonably not taking advantage of the opportunity to conclude an agreement as to the surrender of the lease during negotiations that took place between the parties’ solicitors between 29 November 2018 and 3 December 2018. Triple Union also criticised Chen Xi for filing an application on notice for summary judgment on 25 January 2019 in breach of clauses in the agreement to lease which called for the appointment of a mediator before legal proceedings were issued.
Analysis
[52] Chen Xi’s notice of appeal was lodged somewhat beyond the time for the filing of an appeal as referred to in the District Court Rules. That was because there was a delay between the date the Judge completed and signed his judgment and the date it was released to the parties. Chen Xi thus sought leave extending the time to lodge their appeal. That was not opposed. Leave is granted accordingly.
[53] Chen Xi’s notice of appeal named only Triple Union as a respondent, with no reference to the directors as second defendants. That may have been a slip but is ultimately of no consequence. The directors had been joined as defendants based on their alleged liability as guarantors of the lease. The appeal relates to the Judge’s decision on Triple Union’s liability in tort for inducement to breach contract, not Triple Union’s liability as lessee.
[54] In their amended statement of claim of 23 May 2019, Chen Xi pleaded, as a result of Triple Union interrupting the power supply to the upstairs apartment, Chen Xi lost rental from that apartment as follows:
23 November 2018 to 17 January 2019 8 weeks at $650.00 per week: $5,200.00
18 January 2019 to 26 April 2019 15 weeks at $725.00 per week:
$10,875.00
$16,075.00
[55]Ms Feng’s evidence as briefed was consistent with that pleading.
[56] Ms Feng was not challenged as to that evidence but the lease agreement with the upstairs tenant was in the bundle of documents before the Court. It showed the rent for the upstairs apartment was $550 per week from 15 January 2018 and $600 per week from 15 July 2018. In oral evidence, Ms Feng said the upstairs tenant had been paying $600 per week.
[57]I find, on the evidence, the rent payable by the upstairs tenant was $600 weekly.
[58] The lease with the upstairs tenant was for a fixed term ending on 15 January 2019. There was also reference in the agreement to the provision under the Residential Tenancies Act that a fixed term contract would automatically become periodic unless either party to the contract gave the required notice not to continue with the tenancy. It was not a term of the Residential Tenancies Act that the landlord would ensure there was a secure electricity supply to leased premises. Section 45(2) of the Residential Tenancies Act limited the circumstances in which a landlord could interfere with the supply of electricity to leased premises.
[59] The Judge had reasonably found that the supply of electricity to the upstairs apartment had been interfered with by someone associated with Triple Union switching off the power supply to the upstairs apartment. That was not the action of Chen Xi. Ms Feng and Chen Xi were wanting to ensure there was a secure power supply to the upstairs apartment and were doing all they reasonably could to fix the problem that had arisen as to this. Chen Xi had thus not repudiated any general obligation they had to provide the upstairs tenant with premises suitable for use as a residence. The difficulties the upstairs tenant faced through what was happening with the power supply may have made it difficult for Chen Xi to obtain an order from the Tenancy Tribunal that the upstairs tenant should pay the rent due under the lease for the period after 23 November 2018. The evidence was nevertheless sufficient to establish that the upstairs tenant was in breach of his lease in abandoning the upstairs apartment on 23 November 2018 and refusing to pay rent under the agreement for the agreed term of the lease.
[60] There was no challenge to Chen Xi’s claim that the upstairs tenant had not paid rent for eight weeks from 23 November 2018. The evidence therefore establishes that the upstairs tenant had not paid rent of $4,800 for the eight weeks from 23 November 2018 which he was required to pay in terms of his lease of the upstairs apartment.
[61] For Chen Xi to have succeeded on their claim against Triple Union for inducing a breach of contract, Chen Xi had to prove, firstly, that Triple Union must have engaged in the conduct which induced a breach of the contract between the upstairs tenant and Chen Xi. The conduct Chen Xi relied on was the way in which Triple Union had interrupted the supply of electricity and thus hot water to the upstairs apartment.
[62] Through Mr Ruane’s submissions, Triple Union accepted the Judge was entitled to find that power to the upstairs apartment was turned off, at least to the hot water cylinder, by one of the two directors of Triple Union or someone permitted by them to enter the leased downstairs premises. Triple Union also accepted that the Judge was entitled to reach the conclusion that the more likely perpetrator was Mr Wen. In the circumstances of this case, that concession is important.
[63] As established, Mr Wen’s wife, Ms Jia, was one of the directors of Triple Union and gave evidence at the trial. In her evidence as briefed, Ms Jia said she and Mr Wen, and the other director and second defendant Mr Shi, met with Ms Feng of Chen Xi on 13 June 2018. Triple Union offered to enter into a lease with Chen Xi for the premises. In oral evidence, she said Mr Wen was her husband and “support me with the business and because I am less of experience of doing the business so he just back off me”.
[64] In her evidence, Ms Jia traversed the various occasions on which there were issues over the power supply to the upstairs apartment, as well as dealings she said she had with Ms Feng and electricians over the matter. She referred to Ms Feng visiting the premises on 17 September 2018 with an electrician, she alleged, without notice to Triple Union directors. Ms Jia said “we” stopped the landlord’s attempts to have the electrician modify the cable connection to the premises. In her brief, Ms Jia said “We were not happy with the way in which this was being done and we stopped the landlord from doing this”.
[65] Ms Feng’s evidence was that, after the upstairs tenant had told her of the note left on the door to the upstairs apartment and that power had been turned off, she told both Triple Union directors she would engage an electrician to sort out the problem. On 17 September 2018, she travelled from Invercargill to Queenstown and went to the leased premises. She called Ms Jia and arranged for her to be at the leased premises. She also contacted an electrician to be there. Ms Feng said Zheng Shi was not there. Mr Wen and Ms Jia opened the leased premises. The electrician found the problem. Ms Feng said she asked for it to be fixed but Mr Wen refused to have the fault corrected and told the electrician to stop.
[66] In oral evidence, Ms Jia said, of herself and Mr Wen: “We allowed a person to check the board but we didn’t let him to change anything …”.
[67] In her evidence as to what happened at that time, Ms Jia talked about “we” agreeing to meet the landlord on site, “we” not knowing exactly what the electrician proposed to do, and “we” not being prepared to agree to make any changes without consulting our overseas investor. In her evidence as briefed, Ms Jia went on to talk about how “we” asked the landlord’s friend to help with the communication and how,
because of this, “we” had a meeting in Invercargill with the person who they wanted there with the landlord. It was Ms Feng’s evidence, not contested by Ms Jia, that this led to Ms Feng, Mr Shi, Ms Jia and Mr Wen all meeting in Invercargill to discuss the situation.
[68] In her evidence as briefed, Ms Jia said “we” did not know anything about the disruption to the power supply to the apartment on 23 November 2018, but said “we” had already changed the locks because we were concerned the landlord was getting access to the premises without our permission and we wanted to secure the property “we” had stored at the premises. Ms Jia talked about their being shocked at finding Chen Xi had entered the leased premises on 24 November 2018 and the front door had been broken and the lock damaged. She said “we” called the Police. She said “we” discovered this when Mr Wen found the landlord had brought electricians into the leased premises and he called the Police.
[69] Ms Feng’s evidence was that she contacted Mr Shi and Ms Jia to arrange for them to meet her at the leased premises on 24 November 2018. Mr Wen and Ms Jia arrived at the premises at 11.30 am and stopped the electricians from doing the work. After the Police arrived, Ms Jia and Mr Wen refused to let Ms Feng enter the premises. Ms Feng’s evidence as to how this happened and who was there was not contested.
[70] The Judge was satisfied on the evidence, as was reasonable, that it must have been one of the two directors, or someone permitted by them to enter the leased premises, who turned off the switch on the downstairs switchboard so as to cut off power to the upstairs apartment.
[71] The Judge considered the person who did this was likely Mr Wen but said he could not be sure Mr Wen acted with Ms Jia’s knowledge and approval. The Judge’s use of the term “sure” suggests he required Chen Xi to prove beyond reasonable doubt, rather than on the balance of probabilities, that Mr Wen would have done this with the knowledge and approval of his wife, a director of Triple Union.
[72] I find that, on the evidence I have referred to which was not in dispute, the logical and sensible inference which the Judge should have drawn was that Mr Wen
was likely to have changed the locks and switched off the power supply to the upstairs apartment with the knowledge and approval of the director, his wife, Ms Jia.
[73] It was argued for Triple Union that for me to draw that conclusion would involve reversing the trial Judge’s finding as to the credibility of Ms Jia with the advantages he had in seeing her give evidence. I consider the Judge had already made findings which reflected adversely on Ms Jia’s credibility. Under cross-examination, at a number of points in her evidence, Ms Jia had been adamant that neither she nor Mr Wen did anything to the power supply to the upstairs apartment. At least by the time of the trial, in the context of the allegations Triple Union was facing, it defies common sense to believe that, when Ms Jia gave evidence, she would not have known that Mr Wen had interfered with the power supply on 23 November 2018, if he had in fact done so as the Judge considered was likely. With the Judge finding it likely that Mr Wen had interfered with the power supply, he had therefore made a determination which reflected adversely on Ms Jia’s credibility, in the same way as my judgment does.
[74] I thus conclude, on the evidence, the Judge should have found that on 23 November 2018 Triple Union did interfere with the power supply to the upstairs apartment by switching off the power supply, and by obstructing Chen Xi in their attempts to have an electrician identify and fix the problem on 24 November 2018. They did that, firstly, by changing the locks to the premises and then by insisting that the electrician cease what he was doing.
[75] It was suggested there was no evidence from the upstairs tenant that they had abandoned the premises because of the interruptions to his apartment’s power supply on 23 November 2018 and on earlier occasions. It is however clear from the notes of evidence that the evidence of certain witnesses was, by consent, presented by way of affidavit. The tenant’s sworn affidavit of 20 February 2020 was before the Judge. In that affidavit, the tenant detailed the occasions on which the supply of power to the upstairs apartment had been disrupted. He referred to the occasion on 23 November 2018 when he said, again, the power was turned off. He arranged for an electrician, Mr Coleman, to come and check the upstairs apartment. He also phoned Ms Feng.
He said, by that stage, he had had enough. He, his wife and son could not manage without regular power, and he vacated the upstairs apartment.
[76] Even without evidence from the upstairs tenant that he vacated those premises because of problems with the power supply, with the evidence the Judge received from Ms Feng and the Triple Union director, Ms Jia, the Judge could have reasonably drawn the inference that the upstairs tenant did vacate the upstairs apartment because of the disrupted power supply to that apartment.
[77] Chen Xi had thus proved that Triple Union engaged in conduct which in fact caused the upstairs tenant to abandon the upstairs apartment and stop paying rent, in breach of his lease agreement with Chen Xi.
[78] To succeed in their claim, Chen Xi also had to prove that Triple Union must have known their conduct would induce the breach and have intended that. Just what has to be proved to establish this element of the tort is discussed carefully and extensively in Todd on Torts.3
[79] Although the tort of inducing breach of contract requires causation to be shown, the causative link between a defendant’s conduct and the breach is not, of itself, sufficient. A plaintiff must establish the defendant’s requisite state of mind. The defendant must have intended to induce or persuade the contracting party to break the contract.4 The defendant’s conduct may thus not merely be inconsistent with a contract between others, it must have been targeted or aimed at the plaintiff. If the breach was not the defendant’s very purpose but was merely a foreseeable consequence of his or her conduct, the requisite intention for the tort is not established.5
3 Stephen Rodd (ed) Todd on Torts (8th ed, Thomson Reuters, Wellington, 2019) at [13.2.04].
4 Todd on Torts, above n 3, at 205-206, citing Allen v Flood [1898] AC 1 (HL); Chaplin v Young (1911) 31 NZLR 214 (SC); Blanche v McGinley (1912) 31 NZLR 807 (SC); Hughes v Northern Coal-Mine Workers’ Industrial Union of Workers [1936] NZLR 781 (SC); Jaddcal Pty Ltd v Minson (No 3) [2011] WASC 362 at [198].
5 Todd on Torts, above n 3, citing OBG Ltd v Allan [2007] UKHL 21, [2008] AC 1 at [62]; Correia v Canac Kitchens 2008 ONCA 506, (2008) 91 OR (3d) 353, at [99]; Barrick Gold Corp v Goldcorp Inc 2011 ONSC 3725; Maxam Opportunities Fund Ltd Partnership v 729171 Alberta Inc 2015 BCSC 271; Water Guard NZ Ltd v Midgen Enterprises Ltd [2015] NZHC 2227.
[80] Relevantly, as stated in Todd on Torts, intentional interference presupposes knowledge of the contract that is being interfered with.6 Although the defendant must know of the existence of the contract it has breached, it is not necessary that he or she know the precise terms of it.7
[81] It was clear from the evidence that Triple Union knew of the upstairs tenant’s lease of the upstairs apartment, not least because of the notice Triple Union put on the door of those premises advising the tenant power would be turned off and the tenant should contact the landlord.
[82] The Judge did not expressly consider whether Triple Union had intended to induce or persuade the tenant to break the lease with Chen Xi. The Judge did however find that the action of cutting off the power on 23 November 2018 was very likely done with the knowledge and intent that the upstairs power would be turned off. The Judge said there was a strong inference, from the nature of the required action and the timing in terms of negotiations for a settlement between the parties, that the motive for the action was likely to put pressure on the landlord in those negotiations or mere spite.
[83] On the evidence, Chen Xi had established that Triple Union knew tenants were resident in the upstairs apartment. Triple Union must have known that the upstairs tenant was there pursuant to a lease with Chen Xi and that such lease would not have allowed the upstairs tenant to simply abandon the premises and stop paying rent without a period of notice to the landlord. Through their directors, Triple Union must have known that, after earlier occasions when there had been a disruption to the power supply to the upstairs apartment and, in particular, the loss of a hot water supply to that apartment, what they did on 23 November 2018 was inevitably going to cause extreme discomfort for the upstairs tenant. The upstairs tenant had made this clear through his dealings directly with people associated with Triple Union and to Ms Feng of Chen Xi. There is ample evidence that Ms Feng had recognised those concerns and brought them to the attention of Triple Union and their directors.
6 Above n 3, citing OBG Ltd v Allan, above n 5, at [192] per Lord Nicholls. Thus, allegations of inducing breach of contract need to be adequately particularised in pleadings: Internet Traders Ltd v Williams [2015] NZHC 1809 at [42].
7 Above n 3, at 707, citing Greig v Insole [1978] 1 WLR 302 (Ch).
[84] Despite Ms Jia’s denial of Triple Union’s involvement, it was highly likely Triple Union had been responsible for putting the notice dated 14 September 2018 on the door to the upstairs apartment. The notice stated:
Notice
After the decision of the shareholders meeting of TRIPLE UNION LTD, the Power switch of unit 9 [unit 9 refers to the premises containing both the leased premises and the upstairs apartment] the downstairs will be turned off from now on. If there is any objection from other people, please contact the landlord.
Triple union Ltd 14/09/2018
[85] Triple Union’s motive or desired result may have been to improve their own position in the negotiations then taking place with Chen Xi. As acknowledged by Ms Jia in her evidence, in November 2018, the directors of Triple Union and their overseas investor did not want to continue with Triple Union’s lease of the premises.
[86]As stated in Todd on Torts:8
Although the defendant must know of the existence of the contract, actively or constructively, and intend to procure the breach of it, it is not necessary that the breach be the defendant’s desired end in itself. It is sufficient that it is a means to achieve some other end.
[87]The authors also noted:
… it is generally unlikely that interference with contracts will be motivated by mere malice. Rather, it is more probable that those who intend to bring about breaches of the contracts of others do so with the aim of enriching themselves, or improving their own position some way. The necessary intention for the tort of inducing breach of contract will be established if the defendant aims to procure the breach, regardless of whether the breach is of his or her desired or only end, or whether it is a means to obtain some other benefit.
(footnote omitted)
[88] I find the evidence was sufficient to prove, on the balance of probabilities, that Triple Union did intend to induce the upstairs tenant to walk away from his lease of
8 Above n 3, at 708.
the upstairs apartment through making it intolerable for him and his family to live there due to irregular power supply.
[89] The Judge held there was also a difficulty with Chen Xi’s claim in that Chen Xi had not pleaded the factual basis on which it could be asserted Triple Union’s conduct was unlawful. The Judge said, at least potentially, Triple Union’s conduct was in breach of cl 15.1 of the Auckland District Law Society lease which Triple Union had, in the agreement to lease, agreed to complete. This clause required Triple Union to allow access by the landlord or their employees and contractors to carry out works on certain services.
[90] A defendant’s actions do not however have to be in breach of contract or in some other way unlawful if they are tortious through being an inducement to breach contract with all the elements necessary for such a tort to be established.
[91] The authors in Todd on Torts say the judgments of the House of Lords in OBG Ltd v Allen provide the starting point today for any consideration of the tort of inducing a breach of contract. As a result, they say essential to the tort are the following ingredients:9
(1) There must be a legally enforceable contract in existence.
(2) The defendant must have engaged in conduct which in fact induced a breach of the contract.
(3) The defendant must have known that his or her conduct would induce the breach.
(4) The defendant’s conduct inducing the breach must have caused loss or damage to the plaintiff.
(5) The defence of justification may arise.
[92] It was not an element of any of those ingredients that the defendant’s conduct must have been unlawful in some way other than as a tort. As the authors of Todd on Torts pointed out, with the judgment of Lord Hoffman in OGB Ltd v Allen10, with
9 Above n 3, at 701.
10 OBE Ltd v Allan, above n 5, at [38].
which the Judges unanimously agreed, inducing a breach of contract and causing loss by unlawful means are two separate torts.11
[93] It was accordingly not necessary for Chen Xi to prove that Triple Union’s interference with the power supply to the upstairs apartment was in breach of their lease agreement, or for that to have been pleaded in their amended statement of claim. The Judge was thus in error in referring to this as a difficulty for Chen Xi in establishing their claim against Triple Union, at least as to Triple Union’s liability for damages based on the tort of inducement to breach contract.
[94] Triple Union did not contend that their actions in switching off the power supply to the upstairs apartment were justified and there was no evidential basis for them to suggest this was so. Switching off the power supply to the upstairs apartment was not required to maintain the power supply to Triple Union’s leased premises. It was not required to protect the premises or to prevent their right to use and enjoy the premises they were leasing. While they might have been concerned they were potentially incurring additional power supply charges for electricity used by the upstairs apartment, there was no evidence that they cut off the power supply on 23 November 2018 to avoid incurring any such expenses, and it would not have been a reasonable way of doing so.
[95] The Judge also suggested there was another difficulty for Chen Xi’s claim as there was evidence that Chen Xi’s loss resulted not from the upstairs tenant moving out of the property but Chen Xi’s inability to lease the upstairs apartment to a new tenant. There was some evidence that, after the tenant had abandoned the upstairs apartment, Chen Xi did have a tenant that might have been willing to take over the upstairs apartment, at potentially a higher rent than the previous tenant had been paying, had there not been a problem with the power supply.
[96] I find the Judge was in error in adopting that approach. Triple Union was liable in tort for inducing a breach of contract once all the elements of the tort had been proven and the upstairs tenant had abandoned that contract.
11 At 699-701.
[97] Chen Xi could however recover damages only for the loss suffered by reason of the inducement for the upstairs tenant to breach his contract.
[98] The starting point was the loss Chen Xi suffered by reason of not receiving the rent which the tenant would have been required to pay for the balance of the lease through to 15 January 2019. Chen Xi did have a duty to take reasonable steps to mitigate their loss. However, it was Triple Union who had the burden of proving, on the balance of probabilities, what those steps should have been and how they would have reduced the loss Chen Xi suffered. As stated in Todd on Torts:12
The plaintiff is not required to do anything more than is “reasonable” in the circumstances and the onus rests on the defendant to show that reasonable steps have not been taken. The question whether the plaintiff has acted reasonably is one of fact to which all the circumstances of the case are relevant.
(footnotes omitted)
[99] It was submitted for Triple Union that Chen Xi could have sought to hold the upstairs tenant to the lease and could have issued proceedings to recover from that tenant the unpaid rent for the balance of the lease. The Judge referred to the possibility that Chen Xi could have found another tenant for the upstairs apartment who would have paid the same or more than the rent that had been lost.
[100] I do not consider, on the evidence, that Chen Xi’s claim should have been reduced on account of the potential for Chen Xi to have recovered their loss through seeking recovery of the rent from the upstairs tenant. Chen Xi would have faced difficulty in obtaining a remedy for such a claim against the upstairs tenant when Chen Xi were being denied access to the leased premises and thus were unable to have work done with the switchboard and power supply to assure the upstairs tenant that, in the period through to 15 January 2019, there would be an uninterrupted power supply to the upstairs apartment.
[101] On the evidence, Triple Union has not established that Chen Xi should have reduced their loss by finding another tenant for the upstairs apartment for the period from 23 November 2018 to 15 January 2019. It would not have been possible to find
12 Above n 3, at 1317.
a new tenant willing to move into those premises when Chen Xi could not assure any prospective tenant there would be an uninterrupted power supply to the upstairs apartment. Chen Xi would not have been able to provide such an assurance because Triple Union was denying Chen Xi access to the leased premises for an electrician to do the necessary work. Further, there was evidence indicating Chen Xi made efforts to re-let the apartment.
[102] Triple Union has also not established that Chen Xi acted unreasonably in not agreeing to the surrender of Triple Union’s lease before 12 April 2019. There was no dispute Triple Union had contracted to lease the premises for five years from 29 June 2018. Any issue over the metering for the supply of electricity to the upstairs apartment could have been remedied simply by an electrician making appropriate repairs or changes to the switchboard arrangement downstairs, as happened when Chen Xi was ultimately able to obtain access to the leased premises. There was no challenge to the Judge’s determination that Triple Union remained liable for rent for the leased premises until the agreed cancellation of the lease on 9 April 2019.
[103] Chen Xi thus established that the loss they incurred from Triple Union’s tortious liability in tort for inducement of a breach of contract was the rent of $4,800 they lost through the upstairs tenant abandoning that lease. Further, this loss should not be reduced to reflect a lack of reasonable mitigating action by Chen Xi.
[104] Chen Xi had also claimed for a loss of anticipated rental at $725 per week for 15 weeks from 18 January 2019 to 26 April 2019.
[105] I concluded from Ms Feng’s evidence that she had discussions with the upstairs tenant as to what the rent for him would be in 2019. Because she wanted to keep him as a tenant, the rent for him would have been $600 per week, although tenants in other apartments were paying $700 per week. She said, after the Court order of 9 April 2019 terminating the lease had been made, it took some time to make the necessary changes to the electrical system and get the upstairs apartment ready for new tenants. This did not happen until August 2019. The new tenants then agreed to pay $720 per week.
[106] On Ms Feng’s evidence, if Triple Union had not disrupted the power supply to the upstairs apartment, it is likely the existing tenant would have renewed the lease at a rental of $600 per week. Accordingly, if Triple Union was liable for damages equal to the rent that could have been obtained for the upstairs apartment after 15 January 2019, the damages would have had to be based on a rental of $600 weekly.
[107] Ms Feng said in evidence that it took several days after 9 April 2019 for her to obtain access to the leased premises and some further time for her to have an electrician make the changes necessary to ensure the power supply to the upstairs apartment was independent of the supply to the leased premises.
[108] It was understandable for Chen Xi to consider they had suffered a loss of rental for the period from 24 November 2018 to 26 April 2019 by reason of Triple Union’s disruption of the power supply to the upstairs apartment. Chen Xi’s claim was however based on a tortious inducement to the upstairs tenant to breach its contract with Chen Xi. There was no lease in place for the period after 15 January 2019. Chen Xi’s claim for damages for loss of rental for the period after 15 January 2019 could not be based on the tort of inducement to breach a contract, the legal basis on which the claim had been presented in the District Court.
[109] Chen Xi might well have claimed that amount by way of damages for Triple Union’s breach of cl 15.1 of the lease agreement which the parties had agreed would apply with the signed agreement to lease. But, Chen Xi had not pleaded that Triple Union was liable for such damages on such a basis. In the relevant amended statement of claim, Chen Xi had not referred to the terms of the deed of lease which Triple Union had agreed to enter into when signing the agreement to lease. Clause 15.1 of that lease required the tenant to permit Chen Xi and their employees and contractors to have access to the premises “to install inspect repair renew or replace any services” which were not the responsibility of the tenant. There was no reference in the pleadings to that clause.
[110] There was no evidence from Ms Feng that, after 15 January 2019, Chen Xi had put Triple Union on notice that, in terms of cl 15.1 of the lease, they were required to allow Chen Xi and an electrician they had engaged to enter the premises to do the
work required to provide a secure power supply to the upstairs apartment, and that Triple Union would be liable for any loss Chen Xi might suffer by reason of not being able to do this. In cross-examination of Ms Jia, it was not suggested that, in continuing to deny Chen Xi access to the leased premises to fix the switchboard problem, Triple Union was in breach of cl 15.1 of the lease.
[111] The inference I draw from the evidence is that, after 15 January 2019, Chen Xi knew Triple Union was denying Chen Xi and their electricians access to the leased premises to do the work necessary to secure the electrical supply to the upstairs apartment. On 16 January 2019, Chen Xi filed proceedings seeking only an order for cancellation of the lease and judgment for rent and rates arrears. Chen Xi thus put Triple Union on notice that they would be held liable for rent and rates for the leased premises while the lease continued. It was only after the agreed cancellation of the lease in April 2019, with the filing of the amended statement of claim on 23 May 2019, that it was suggested Triple Union would or could be liable for rent that Chen Xi was unable to obtain from the upstairs apartment through the continuing disruption to the power supply.
[112] The Judge noted that, at the outset of the hearing, he had refused Triple Union leave to amend their pleading so as to allege the defence of “accord and satisfaction”.
[113] The Judge decided in the circumstances of this case that it would be unfair to allow Chen Xi to pursue a claim for a loss suffered by reason of a breach of cl 15.1 of the lease. I do not consider there was any error in that regard. Chen Xi’s entitlement was to the damages suffered by reason of Triple Union’s tort in inducing the upstairs tenant to breach his agreement and abandon the upstairs apartment. The loss for which Triple Union was liable was thus the sum of $4,800.
Conclusion
[114] For all the above reasons, I have concluded that the Judge in the District Court was in error in dismissing the part of Chen Xi’s claim that was for Chen Xi’s loss of rental from the upstairs apartment. The judgment in the District Court for Triple Union as to that part of Chen Xi’s claim is quashed. Judgment is now given for Chen Xi in the sum of $4,800.
[115] Chen Xi is also entitled to interest on the $4,800 under the Interest on Money Claims Act 2016 from the date Chen Xi’s amended statement of claim was filed on 23 May 2019 to the date of payment in respect of this judgment. That interest is to be calculated at the relevant rate using the online calculator in accordance with the Interest on Money Claims Act.13
[116] As the successful party on this appeal, Chen Xi are entitled to costs on a 2B basis. Chen Xi are also entitled to an order that the amount paid into Court as security for costs on the appeal is to be released to Chen Xi. If there is any dispute as to the costs which Triple Union are to pay, Chen Xi is to file a memorandum as to the amount they seek within four weeks of this judgment. Triple Union is to file a memorandum in reply within two weeks of receiving Chen Xi’s memorandum. Any reply by Chen Xi is to be filed within one week of receiving Triple Union’s memorandum. The memoranda are to be no longer than three pages. Any costs issue will be determined on the papers.
[117] As an order for costs was made in the District Court for Chen Xi as the successful party in the proceedings there, there is no need for either this Court or the District Court to reconsider the costs order made in the District Court in light of Chen Xi’s success on this appeal.
Solicitors:
Eagles Eagles & Redpath, Invercargill C M Ruane, Barrister, Christchurch.
13 “Civil Debt Interest Calculator” Ministry of Justice: interest-calculator/
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