Detour Clothing Limited v Star Five Limited
[2016] NZHC 3195
•22 December 2016
IN THE HIGH COURT OF NEW ZEALAND
INVERCARGILL REGISTRY
CIV-2016-425-122
[2016] NZHC 3195
UNDER The Property Law Act 2007 IN THE MATTER OF
An application under section 253 for relief against cancellation of a lease dated
4 February 2014
BETWEEN
DETOUR CLOTHING LIMITED
Applicant
AND
STAR FIVE LIMITED
Respondent
Hearing: 14 December 2016 Counsel:
D R Tobin and A Holland for Applicant B M Russell for Respondent
Judgment:
22 December 2016
JUDGMENT OF NICHOLAS DAVIDSON J (APPLICATION FOR INTERIM INJUNCTION)
The application before the Court
[1] Detour Clothing Ltd (“Detour”) is lessee under a lease of retail space at 17 Rees Street, Queenstown (“17 Rees Street”). The lessor is Star Five Ltd (“Star Five”).
[2] The lease is dated 4 February 2014 and in total the lease term is approximately 14 years.
[3]Detour agreed to pay $195,100 for goodwill and has spent approximately
$240,000 on fit-out. The goodwill figure was later compromised after default in some of the periodic payments.
DETOUR CLOTHING LTD v STAR FIVE LTD [2016] NZHC 3195 [22 December 2016]
[4] On 26 September 2016, Star Five issued a Property Law Act Notice specifying three alleged breaches of the lease, including non-payment of outgoings and legal costs. Central to this application is the Notice of a breach of the lease in the change of management of Detour’s business, without the consent of the lessor. The notice (relevantly) recorded:
1. Default
1.1The Landlord gives you notice that you have breached the following covenants:
1.2As a result of a change in shareholding in the Tenant from Natalie Anne Houghton to Michael Roy Collins and the removal of Natalie Anne Houghton as a director of the Tenant and appointment of Michael Roy Collins as director of the tenant, you have breached the following covenant:
a. Clause 33.3: Where any Tenant is a company which is not listed on the main board of a public stock exchange in New Zealand or Australia, then any change in the legal or beneficial ownership of its shares or the shares of its shareholder or issue of new capital in the company or its shareholder where in any case there is an effective change in management or control of the company will require the written consent of the Landlord which will not be unreasonably withheld or delayed.
…
2.1 If you wish to remedy the breach specified in paragraph 1.2 you must obtain written consent from the Landlord to the effective change in management and control of the Tenant from Natalie Anne Houghton to Michael Roy Collins by 5:00 p.m. on Tuesday 18 October 2016 being 15 working days of the service of this notice (Specified Period).
[5] On 19 October 2016, Star Five cancelled the lease for alleged failure to remedy the breaches alleged, and that on 28 October 2016 Star Five changed the locks. Detour says it would be unjust if the landlord is allowed to cancel the lease, and seeks interim relief until its full challenge to cancellation is heard.
[6] Star Five opposes the application for interim relief, and says that there is no serious question to be tried, that it properly cancelled the lease, and has now entered into a lease with another company, Happy Travels NZ Ltd (“Happy Travels”), which has taken occupation. Star Five otherwise says that the balance of convenience and justice of the case favours the status quo, if there is a serious question to be tried, and that its new lease was entered in the belief that it was entitled to cancel the lease, and
without the new lessee, Happy Travels, knowing of the dispute and potential challenge.
[7] Neither Detour nor Star Five assert that Happy Travels was aware of any dispute, nor that it knew Detour had given the lessor notice that it would challenge any cancellation of the lease.
Happy Travels
[8] A striking feature of the proceedings up to this point is that Happy Travels was not aware of the dispute, but if Detour’s application for interim relief is successful, its lawful occupancy of the premises would be undone, and not having taken any part in the proceedings. It was only made aware of the dispute when the Court asked that contact be made with its representatives during the hearing.
[9] For reasons which I develop further, Happy Travels’ position is important in the resolution of this application. The notion that an order should be made which has the effect of dispossessing a party which lawfully entered a lease of premises, and taken occupation, is not on its face attractive. This is not one of those cases where legal or commercial arrangements are entered with full knowledge of the risks associated with its doing so. It would have been an orthodox step for Detour to have served Happy Travels so that it could participate in the proceedings had it chosen or at least advise it of the litigation. So too would it have been a reasonable step for Star Five to have informed Happy Travels of the impact to it of a potential challenge to cancellation of the lease.
[10] There is a good deal of evidence before the court for an application such as this. Not only were there various evidential exchanges before the hearing, but afterwards. In particular, Detour’s commercial position in Queenstown, and its ability to access other premises, was the subject of further affidavits and memoranda which passed hither and thither, almost up to the time this judgment is delivered.
[11] These later affidavits filed were relevant and have been brought to account, but it is not possible to reach a definitive conclusion on what is disputed evidence without a fuller hearing, for which there is no time.
[12] Before the competing positions are considered in more detail, it is important to note the timing of this judgment. The parties are on the cusp of Christmas, a crucial time for the retail and service industries, and in particular in a tourist town such as Queenstown. At stake is the occupation of strategically placed premises in Rees Street.
For Detour
[13] Detour seeks interim orders so that it may resume possession and trading from 17 Rees Street, subject to the lease dated 4 February 2014, or that Star Five will not damage, remove or destroy the fit-out installed by Detour at 17 Rees Street.
[14] Mr Tobin, who appeared with Mr Holland for Detour described the chronology, from which I identify salient features as follows.
[15] The deed of lease was entered on 4 February 2014, for an initial term of four years and seven months with a right of renewal for 10 years. Detour opened its doors on 11 June 2014 and some eight months later a Property Law Act Notice was issued alleging there had been a breach of the lease in the transfer of interest and control to a Ms Houghton, in December 2014. Ms Houghton became a shareholder, and director in place of Mr Collins. This did not come to much and overall the impression is that this issue was informally resolved by Star Five not taking the Property Law Act Notice any further. On the evidence before the Court, it would seem that Ms Houghton proved satisfactory to Star Five, at least for a while.
[16] Then in mid-July 2016 Ms Houghton, who had been the business and life partner of Mr Collins, transferred her shareholding to Mr Collins and resigned as director to be replaced by Mr Collins, which led to the second Property Law Act Notice dated 27 September 2016. Star Five again was not asked for consent, and the second Notice reflected that.
[17] Some three weeks later, on 18 October 2016, Detour’s solicitors sought the required consent retrospectively and warned if Star Five that it tried to cancel the lease, Detour would seek relief under s 253 of the Property Law Act 2007 (“the Act”), but Star Five gave notice of cancellation on 19 October 2016.
[18] On 27 or 28 October 2016, Star Five re-entered the premises and on 3 November 2016, Star Five entered a lease with Happy Travels.
[19] The application for relief against cancellation under s 253 of the Act was filed on 8 November 2016. The application for interim relief was filed on 14 November 2016.
[20] Section 253 of the Act allows a lessee to seek relief against cancellation of a lease for breach of a covenant or condition, and under s 256 the Court has wide powers to grant relief, including injunctive relief on such conditions as it thinks fit, restraining breach. Relief may be granted even though cancellation was for breach of an essential term, or not capable of being remedied. The Court may grant an interim injunction preventing the landlord from acting inconsistently with the lease.1
[21] The usual considerations apply as to whether there is a serious question to be tried, the balance of convenience between the parties, and the overall justice of the case. Detour has given an undertaking as to damages.
[22] This case is not really focused at this point on arrears of rent, OPEX, or legal costs incurred by the lessor, although there have been late payments of rent and OPEX over time. Star Five did not purport to cancel the lease for non-payment of rent. The evidence shows that there were, at times, some reasonably significant delays in paying rent, but each time it was brought up to date. The link between those defaults and the consent refused is whether on a full review by the Court they are relevant to whether consent was reasonably withheld.
[23] The approach of Hammond J is advanced by Mr Tobin for Detour, when he said that in non-rent cases, the essential justice of the case is assessed on a proportionality basis, and whether determination of the lease is a proportionate response to the lessee’s breach.2 The judgment in Studio X Ltd v Mobil Oil NZ Ltd,3
1 Palmerston North Cosmopolitan Club v Palmerston North Squash Club Inc [2012] NZHC 1526 at [36].
2 Pike River Coal Ltd (In Rec) v O’Malley Farming Ltd (HC Wellington CIV-2011-418-66, 14 October 2011).
3 Studio X Ltd v Mobil Oil NZ Ltd [1996] 2 NZLR 687 (HC) at 701.
provides guidance as to the exercise of the Court’s discretion, to which this judgment returns.
[24] On the evidence, Mr Tobin submits that it is relevant that the first Property Law Act Notice complained of the transfer of an interest in Detour from Mr Collins to Ms Houghton, and that Star Five always knew of Ms Houghton’s role. No formal consent was ever given to the transfer of shares and control to Ms Houghton. Mr Tobin says that that position was simply reversed in 2016 and Mr Collins took back control and ownership.
[25] Mr Collins says that he did not think about clause 33.3 of the lease when Ms Houghton became involved in Detour, by oversight. He thinks Mr Spary, who is the principal of Star Five, did not think of it either.
[26] Mr Collins says that he assumed the second Property Law Act Notice was about the original change in ownership and control, which is odd because it was about reversion to Mr Collins. Mr Collins could not be surprised by Star Five’s actions because when he told Mr Spary he was purchasing Ms Houghton out and returning Detour’s ownership to the time of the lease being entered, Mr Spary simply said that Star Five would cancel the lease, but did not say why. His attitude was clear.
[27] The cancellation of the lease followed the day after Detour’s solicitors wrote to ask for the lessor’s consent. Mr Tobin says the breach of clause 33.3 by not obtaining the consent of the lessor is trivial, and has not caused any inconvenience, uncertainty, or loss.
[28] Mr Tobin places emphasis on the evidence that the legal ownership and control of Detour has simply returned to its original setting, and the Court should otherwise view cancellation in the context of Star Five having wanted to get rid of Detour for some time. There is the evidence from Mr Collins of this, that Mr Spary told him he wanted to bring the lease to an end. There is other evidence that Mr Spary said he wanted to commence a hospitality venture at the premises.
[29] Berry & Co wrote to Star Five’s solicitors on 18 October 2016 warning Star Five that it had instructions to apply for relief against cancellation of the lease, and Mr Spary must have known cancellation would be contested, and he knew that when the lease with Happy Travels was entered on 3 November 2016.
[30] No lasting damage is said to be caused to Star Five, nor Happy Travels. The judgment of Gilbert J is cited by Mr Russell in Wood Bay Enterprises Ltd v Wise,4 where a new tenancy agreement had been entered after Wood Bay had not met its obligations. A third party had moved into the premises, and Gilbert J said that Wood Bay had brought the position on itself. Gilbert J recognised the disruption and inconvenience to an innocent third party. Mr Tobin distinguishes Wood Bay because in that case the lessee’s financial position was weak and when the new lease was entered it was still in default.
[31] In Warnocks (1992) Ltd v Queensgate Centre Ltd,5 Heron J held that receivers who maintained occupation and paid rent under a lease at Queensgate had tried hard to remedy lessee default, while honouring rental obligations, and that Queensgate had ambushed the lessee by entering a new arrangement with Hallensteins. Mr Tobin analogises the case because he says that Detour made consistent and conscientious efforts to remedy the breach of clause 33.3, while honouring other obligations under the lease, including rent.
[32] In another case, Curreen v Hodgson,6 a tenant was in default for a small sum and the landlord entered with what the court regarded as “at least extraordinary haste” new tenancies. Mr Tobin says the same occurred here, and Detour moved swiftly to seek relief. Detour is said to be in a strong financial position, unlike Wood Bay, and there is no prejudice to Happy Travels according to Mr Tobin, because there is “no evidence” to that effect.
[33] The test of proportionality is submitted to favour Detour because the evidence is that the shop at 17 Rees Street is very important to Detour’s clothing business, it
4 Wood Bay Enterprises Ltd v Wise [2012] NZHC 1136.
5 Warnocks (1992) Ltd v Queensgate Centre Ltd [1993] 2 NZLR 236 (HC).
6 Curreen v Hodgson (1999) ANZ ConvR 500 (HC).
spent $250,000 on improvements, and has $600,000 worth of stock to sell. The issue of other premises being available to Detour was in dispute at the hearing, and has remained in dispute since. I refer to this further. There may be alternative premises available to Detour but no certainty of that, and probably not of the quality of 17 Rees Street, for this sort of retail business. It is submitted there will be a disproportionate impact on Detour if the interim relief sought is not ordered.
[34] Mr Tobin puts it that a serious question has been raised because return of control and management to Mr Collins was simply a reversion to the original position and otherwise withholding of the lessor’s consent was not justified and the lessor was, in effect, programmed to refuse consent. As to the balance of convenience, he says if Detour cannot regain possession, it would mean that Detour is brought to its knees. The substantive proceeding would be rendered nugatory. The status quo should be preserved, and the evidence is that the undertaking as to damages would be met.
[35] Mr Tobin says that Detour has invested heavily in the lease in terms of key money and fit-out, and any disruption to Happy Travels cannot match that to Detour if it cannot regain possession.
For Star Five
[36] Mr Russell submits that Star Five was entitled to cancel the lease and peaceably re-enter. He says that Detour’s actions, through Mr Collins, constitute a disregard for the terms of the lease which counts against it, and it fails at the first hurdle for interim relief because there is no serious question to be tried.
[37] Mr Russell adds to Mr Tobin’s chronology by saying that the first transfer of shares, without the lessor’s consent, was made on 21 July 2014 from Mr Collins to Ms Houghton, and she was appointed director on 1 September 2014. These events were not advised to the lessor until 5 December 2014.
[38] Detour’s financial accounts were provided in May 2015, which confirmed Ms Houghton’s financial interest after the effective assignment of the lease in July 2014.
[39] Mr Russell concentrates on the change in effective management and control on 18 July 2016. Detour does not say that the landlord responded unlawfully by asserting breach, but that that this was a trivial breach, which Mr Russell contests. He says that it is serious, but I do not agree with his submission that there is no legal distinction between a trivial breach or a non-trivial breach of the lease, as that may well be determinative or influential in the result. A notice may rely on various degrees of breach which is what I take Mr Russell to mean.
[40] The second Property Law Act Notice of 27 September 2016 set out the steps required to remedy the breach. This has the feature that the lessor’s consent was required to rectify the breach and not to act unreasonably in deciding whether to give consent. The lessee was already in breach because it had not sought consent for the transfer of interest and control from Ms Houghton to Mr Collins. The lessor set its own timing for consent to be given. The consent had to be obtained by 5 pm on 18 October 2016 so it was clear that Detour had to make the case for consent, to which there could have been no unreasonable refusal. The request for consent by Detour was made on the morning of 18 October 2016, without explaining fully its financial position in Mr Collin’s hands or that of a possible new entrant into the affairs of Detour, Mr Ball. Thus, Mr Russell says that Star Five had nothing really to consider in relation to the request, other than the knowledge that Mr Collins for Detour had earlier been in default in his arrangements with Ms Houghton by not seeking the lessor’s consent to those, and after July 2016 in default under the lease by delayed payment of rent.
[41] The ability to meet the financial obligations imposed under the lease is a factor in the consent of a lessor, so the Supreme Court has held in Greymouth Gas Kaimiro Ltd v GXL Royalties Ltd.7 Mr Russell submits that Detour failed comprehensively in the way in which it sought the consent, which was slipshod and where the lessor was not compelled to give a consent under accepted principles and in refusing consent was not acting unreasonably.
7 Greymouth Gas Kaimiro Ltd v GXL Royalties Ltd [2011] 1 NZLR 289 at 293.
[42] Applying the principles set out in Studio X Ltd, Mr Russell submits that Detour’s breach was, if not deliberate, reckless. The background was the earlier failure to obtain consent to the transfer of interest and control to Ms Houghton in July 2014 and Mr Collins simply ignored the need for consent in 2016. It is also not at all clear that this was simply a return to the original interest of Mr Collins as shareholder and director because plainly a Mr Ball was expected to be involved in some major way. Mr Russell puts it that this was a deliberate disregard for the lease in again failing to seek and gain the lessor’s informed consent but that position had not been formalised. It was certainly relevant if Mr Ball was going to back Detour, even if not by a formal legal arrangement.
[43] Mr Russell submits that Detour simply failed, in the hands of Mr Collins, to recognise its obligations to present its application in an orthodox way, if it did have a good basis to seek the lessor’s consent. Mr Collins says that Detour was in a financially stable position, but there was no evidence on which the lessor could rely. Detour was balance sheet insolvent in 2013 and 2014 and cash flow insolvent from October 2014, but the position appeared to have been rectified by the date of the purported cancellation.
[44] While Mr Russell has to bow to the inevitable and recognise that it is clear that Mr Spary did not want Detour as a lessee, for whatever reason, he submits this is not enough to count against Star Five given the failure of Detour to provide the information necessary, if it expected and warranted consent.
[45] There is evidence of other default by Detour, particularly since Mr Collins took back control of the company in July 2016, and there is evidence which indicates a good deal of crossfire between Mr Collins and Ms Houghton. It seems Ms Houghton enabled resolution of the dispute with Beaver Liquor Ltd (“BLL”) as to key money which had not been paid by Detour as it had contracted to do, and made other payments into the company, which seems to have kept it going. So Mr Russell says on the one hand Ms Houghton’s role was accepted by Star Five, who did not act further on the first Notice, but the reversion to Mr Collins raised a completely new issue of Detour’s financial credibility, in his hands. The lessor had reason not to agree to the transfer to Mr Collins, according to Mr Russell.
[46] Happy Travels entered a lease and opened for business on 1 December 2016. The nature of the lease is a little experimental, but it is there for five months at least, and then it can exercise its rights to take a longer term. I asked Mr Russell to make enquiries with Happy Travels’ principals in Australia, and they confirmed they are open for business, staff are in place, and to repeat, Happy Travels was not aware of the dispute. It has acted in good faith. As there is no evidence before the Court, primarily I expect because they were not served, I am not prepared to make assumptions other than that its lawful business will be disrupted in some way, without the ability to further measure that.
[47] As to the balance of convenience, Mr Russell recognises Detour needs to sell its seasonal stock and recover its fit-out, but on the other hand Happy Travels would be affected. He submits that Detour’s ability to meet any damages is not proven, notwithstanding an undertaking.
[48] Happy Travels may be entitled to bring proceedings against Star Five for not disclosing the dispute when entering a lease, but this does not influence the court to any extent because Star Five could have addressed this when entering arrangements with Happy Travels.
[49] Mr Russell says this whole situation has developed because of Detour’s failure to comply with its obligations and so it has caused its own inconvenience and any loss. Mr Russell emphasises that the Notice gave 21 days to respond, and only on the last day did a response come which was bereft of information for Star Five to make an informed decision. Some nine days later, after cancellation, the premises were peaceably re-entered. The correspondence shows that Detour’s solicitors were accommodating and helpful, wanting only the opportunity to remove property to protect Detour’s position, while reserving its position at law.
[50] Proceedings were not commenced until 8 November 2016. Mr Russell says that Star Five did not have to wait for Detour’s litigation response and it could get on with entering a new lease.
[51] Mr Collins says that Detour can meet an award of damages, but there is nothing much to support that. The story of this lease, the casual approach to obligations, with some default in payment but not that much, means there should have been fuller information given to assess Detour’s ability to meet the undertaking. Mr Russell says that while a matter for inference, the idea that Detour’s stock value of $600,000 would be lost does not fit with turnover estimated of $1,000,000 for 2016/2017. I have considered Mr Russell’s argument in this regard, but I do not think the Court should reach any such conclusion. It would clearly be at least more difficult for Detour to sell its stock other than from its base of two plus years.
Alternative retail space
[52] Mr Spary said there are other tenancies to which Detour can turn, provided it can get its fit-out from the premises, although it would lose the key money invested. In his prepared submissions, Mr Russell said there was no evidence that Detour had closely considered moving to other premises, and it could trade online, or at a temporary location, so it can still trade in some way. It is said that goes to the balance of convenience and the overall justice lies with Star Five because Detour has acted in such as way so as to bring the current position on itself. Mr Russell says that Detour has wilfully disregarded its obligations.
[53] Before I address disposition, I refer to the plethora of contesting evidence regarding Detour’s ability to relocate. Mr Ball is in discussions with Mr Collins about buying into Detour to set up an online shop. Discussions were not fully concluded as of 9 December 2016. He is said to have a lot of money and is willing to invest and to expand Detour’s business online, and this is seen as an advantage by Mr Collins. He seems to have communicated with Mr Patterson, who is involved with Mr Spary. Some of the text exchanges between Mr Patterson and Mr Ball are a little unsettling and are not expressed in language one would expect in a responsible commercial dealing. Mr Collins has made some financial arrangements with Mr Ball which would somehow link to his “buy in” into Detour. In short, Mr Collins said that an agreement has been reached whereby he expects Mr Ball to buy in to Detour, to set up an online retail facility.
[54] Mr Spary approached Skyline, whose property manager Mr Dennison has sworn an affidavit. Mr Dennison says that Skyline do not have sites to lease and that when Mr Spary says otherwise, he is wrong. He says there was a “for lease” sign in the window of premises upstairs in the building occupied by Detour, but it is not for lease and Skyline has no access to that property. Mr Spary says he was mistaken. In the end, I do not know whether other premises are available, but it is clear that prime leased space is at a premium in Queenstown.
Discussion
[55] The first question is whether there is a serious question to be tried, which comprehends whether there was a breach of the lease in the re-transfer of interest and control to Mr Collins, without consent of the lessor, whether it was unreasonably withheld, and whether relief might be ordered under s 253 of the Property Law Act 2007.
[56] I recognise there is first a question whether this was a transfer of interest and control for which consent of the lessor was required. The merits of that question seem to lie with Star Five in that there had been the earlier transfer of interest and control to Ms Houghton without consent, which settled down after the initial reaction by Star Five, and she was apparently accepted in that position, scarcely surprising given her financial contributions to the company and to the resolution of the issue over key money. Star Five, in my view, would be estopped from arguing that it had not given consent to her interest and control. That position was set up by Detour’s own actions, in failing to seek a consent as it was required to do and was then reversed following the seemingly acrimonious dispute between Mr Collins and Ms Houghton at a personal and corporate level.
[57] The evidence, such as it is, indicates there was some financial stress on Detour, given default in meeting obligations under the lease from the time Mr Collins again took control, and again he ignored the obligation to get Star Five’s consent.
[58] It is a fact that getting the consent of the lessor was not promising as Star Five plainly did not want Detour as a lessee on the evidence to date. This leaves Detour to argue unreasonably withheld consent. But Detour did not respond with any
promptitude to the Notice given, as its limited reply came only on the day before the Notice expired. However, there clearly is an issue as to whether the lessor addressed the question of consent reasonably, and what the Court might regard as relevant to discretionary relief.
[59] In the mix is the surprisingly lax response or adherence to obligations held under the lease by Detour. In 2014 the issue first arose regarding Ms Houghton’s interest. The first Notice was issued in 2015, and a little over a year later the same issue arose, again without the lessee addressing its obligations. When it did so, late in the piece and in response to the second Notice, it provided very little on which the lessor was able to make a (reasonable) decision. Viewed from the lessor’s perspective, here was a defaulting lessee, late in several payments of rent, making arrangements which were a reversal to the original position, but in circumstances where the lessee had introduced Ms Houghton, and having achieved acceptance of that by the lessor, could in my view only revert to Mr Collins with the lessor’s consent. Once again, the interest and control in the company changed and it required consent. It needed to be addressed in the appropriate way. Whether Mr Ball would have fitted the bill is uncertain. But there is certainly enough here for the lessor to be on guard about the arrangements proposed between Mr Collins and Mr Ball.
[60] It is a curious feature of the case that the lessor asserts default, wants the lessee out, and then has to consider the response to the Notice and itself respond by a certain date. This gives the Court pause.
[61] On the other hand, the lessee at all times seems to have taken the most casual view of its obligations, and slowly and inadequately responded to the Notice. If it had done what it should have done and provided information sufficient for the lessor to make a proper decision, then its argument could well have been that there was no good reason for consent to be withheld. It is not in that position, but perhaps could do better in substantive proceedings.
[62] There is a serious question to be tried, in particular whether the lessor would not and did not truly consider consent, and whether relief might be granted. It is not a strong case for Detour on the evidence to date.
[63] As there is a serious question to be tried, considerations of the balance of convenience and the interests of justice apply. Were it not for the Court’s enquiries on the day of hearing, the interest of Happy Travels in my view would pre-empt any interim relief. The Court is not likely to make an order against an innocent party who has entered arrangements lawfully, and without any notice of the dispute. I am not prepared to assume that Happy Travels, having committed itself to a short lease only, would not choose to become a long term lessee, nor can I make any judgment as to the degree of disruption that would be caused it, as these are issues which primarily should have been addressed by Detour, but that cuts against Star Five too as it could have provided information about Happy Travel’s position.
[64] Were it not for the limited information made available to the Court, I would know nothing about Happy Travels except that it entered a lease and is in occupation. I consider its interest is an important factor in disposition, based on the balance of convenience, and the Court’s reluctance to make an order which could affect its position, without it being heard, or even knowing, of the underlying dispute when it entered into the lease.
[65] I do recognise that on the balance of convenience and in the interests of justice, it is relevant that Detour, over a short period of time, has put a lot of money into the business, and it stands to lose a good deal from its loss of these premises. I would consider that influential, but for the extent of apparent default, by Detour, its unsatisfactory response to the Notice, and the interest of Happy Travels.
[66] There is a large amount of stock to be sold. On the evidence I cannot determine whether there is an alternative outlet, and there is no evidence of an equivalent outlet availablebut the Court is aware that there are various means of disposing of stock, including online, pop-up stores and possibly, but not certainly, other leasehold premises. I am conscious that not to grant relief may well be a final position, that Detour may not take the proceedings further and it could lose significantly as the result.
[67] I do not regard the balance of convenience and the justice of the case as entirely straightforward. The fact is that Detour is in a poor litigation and commercial position,
but largely by its own default. It may lose heavily, and that is in its favour when seeking interim relief, but not decisive.
[68] This judgment is reached in the setting of an interim application. If the proceedings reach trial, then they would need to do so urgently given the potential effect on Happy Travels and for Detour to have a commercial life in Rees Street. There is only a short period before a renewal decision will need to be made by Happy Travels.
[69] At a substantive trial, Detour would seek relief which would first turn on whether it was in breach, which I have found is probably the case by the test on an interim basis, and then whether it can make a case that despite its default and inaction, it should have relief in the discretion of the Court after full evidential exploration. There would still be significant issues with which the Court would grapple. Detour has itself only been in occupation of the premises for a short while and although there has been some default in meeting the strict obligations for payment under the lease, it is now up to date. It seems that Ms Houghton assisted financially and in various ways. Now, Mr Collins contemplates Mr Ball’s involvement, and the outcome of that is obviously relevant to any substantive judgment. There would also be the need for Detour to demonstrate that it was worthy of consent by the lessor under the proposed control and ownership. The issue would be whether consent was withheld unreasonably or relief otherwise be granted. The fact that the consent is sought after the event is another relevant factor, but is not an absolute bar to Detour’s success.
[70] The strongest point for Detour is the amount of money that it has put into the investment, which will be lost, and in particular the key money, together with losses attributable to being kept out of the premises should it not obtain relief. It otherwise held a long lease, or the potential for such, and it would have expected to have recovered key money, even if it did not trade at a profit. However, those are issues which require much fuller examination than in this interim setting. Detour has put itself in this position, and by this judgment bears the consequences, at least on an interim basis. Happy Travels should be able to continue its occupation, at least in the short term. If this matter is to come back to the Court, Detour will have to move swiftly to seek an urgent hearing within a period which does not affect Happy Travels’ future position, or seriously jeopardise it.
Disposition
[71] I reach these conclusions. There is a serious issue to be tried, but not strongly in favour of Detour. The balance of convenience and justice of the case favours the status quo being the arrangements entered between Star Five and Happy Travels which has the undoubted right to occupation. There is doubt as to the value of the undertaking given by Detour. The position thus overall favours Star Five and the interim relief sought is refused but this judgment imposes a condition which reflects the application for alternative relief that the lessor must take all practical and reasonable steps to allow recovery of the fit-out by Detour, and should secure the co-operation of Happy Travels to do so. If there is any doubt about this, which there should not be, then the issue may be referred back to the Court through the Registry, as a matter of urgency by teleconference. If the lessor does not meet this condition or Happy Travels does not co-operate, the Court would as a matter of urgency look to further protect the fit-out interest of Detour.
[72]Costs are reserved.
…………………………………………
Nicholas Davidson J
Solicitors:
Berry & Co, Queenstown Lane Neave, Christchurch cc: Counsel
Dean Tobin, Dunedin