Doxcon Pharmaceuticals Limited v TasmanDairy Limited
[2015] NZHC 350
•26 February 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-000299 [2015] NZHC 350
BETWEEN DOXCON PHARMACEUTICALS
LIMITED Plaintiff
AND
TASMANDAIRY LIMITED First Defendant
SUPERMEGA MARKETING LIMITED Second Defendant
Hearing: 26 February 2015 Counsel:
D W Grove for the Plaintiff
B L Martelli for the DefendantsJudgment:
26 February 2015
Reasons:
4 March 2015
REASONSJUDGMENT OF DUFFY J [re Interim Relief]
This judgment was delivered by Justice Duffy on 4 March 2015 at 12.45 pm, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Counsel: D W Grove, Auckland
Solicitors: Heaney and Partners, Auckland
DOXCON PHARMACEUTICALS LTD v TASMANDAIRY LTD [2015] NZHC 350 [26 February 2015]
[1] The plaintiff, Doxcon Pharmaceuticals Ltd (“Doxcon”), leases commercial premises (“the premises”) from the defendant, Tasmandairy Ltd (“Tasmandairy”). The lease was cancelled and Tasmandairy re-entered the premises. Doxcon successfully sought interim relief against the cancellation of the lease. The interim orders are set out in a result judgment that I delivered on 26 February 2015.1 The reasons for judgment now follow.
Background
[2] Doxcon is a dairy product producer. It leased the premises for this operation. The second defendant Supermega Marketing Ltd (“Supermega”) is associated with Tasmandairy. It distributes milk products. The interim relief does not affect Supermega.
[3] Tasmandairy bought the premises off Naturies Laboratories Ltd. The sale was completed on or about 11 June 2014. One of the conditions of the sale was that Tasmandairy enter into a deed of lease with Doxcon (“the lease”). Clause 21.2 of the agreement for sale and purchase provided that the annual rental of the lease would be
$360,000 plus GST. However, cl 23.1 of the agreement for sale and purchase provided that “both parties agreed that the tenant only need to pay half of the rent which is $180,000 plus GST for the first year ($15,000 plus GST monthly).”
[4] The lease between Tasmandairy and Doxcon does not contain provision for the payment of half of the rent. However, from the time the lease commenced until December last year, the parties conducted themselves as if the monthly rent then payable was only half of the contract rent.
[5] The sixth schedule of the lease required that the tenant provide the landlord a bank guarantee of $180,000 plus GST. This provided that after one day of non- payment of the rent, the landlord was entitled to the entire guarantee amount and any net interest accrued. However, if the tenant could bring the rent payment up to date within the first 30 days from the date of non-payment, the entire amount was to be
returned, minus the default interest accrued.
1 Doxcon Pharmaceuticals Ltd v Tasmandairy Ltd [2015] NZHC 295.
[6] The bank guarantee was not ultimately used. Mrs Hu, the director of Doxcon, explained in her evidence that it was decided that the best course of action would be for $207,000 to be placed in the trust account of the solicitors of Mr Easter, the director of Tasmandairy. This amount was paid to Amicus Law and, shortly thereafter, Amicus Law, without informing Doxcon, paid the funds to Tasmandairy.
[7] On 29 August 2014, Tasmandairy’s solicitor served a statutory demand under the Companies Act on Doxcon demanding payment of $45,438. This was made up of rent for July and August of $34,500, an unpaid water bill of $511, and legal costs of $10,427. The demand threatened to apply to have Doxcon placed into liquidation if the demand was not complied with. On the same day, Tasmandairy’s solicitors served a notice on Doxcon under s 245 of the Property Law Act 2007 (“the August notice”). The notice stated that if Doxcon failed to remedy the breach, being the failure to pay rent, within 10 working days, Tasmandairy would seek to cancel the lease in accordance with s 244 of the Property Law Act. It is significant that in the August notice, the monthly rent payments said to be in arrears were half of the monthly contract rent.
[8] A settlement agreement was signed by the parties on 11 September 2014. The amount payable was $68,755. This sum was paid on 1 October 2014. However, Tasmandairy contends that there were other amounts due under the settlement agreement that Doxcon did not pay. Doxcon asserts that it did not make those payments then, as they were not given all the relevant information to which they were entitled.
[9] On 12 December 2014, Tasmandairy’s solicitors served a further notice of intention to cancel the lease (“the December notice”). This notice calculated the total amount owing as $249,647. This sum was said to comprise:
(a) Rent due between May 2014 and December 2014 (being based on the contract rent) $192,274 (b)
Insurance
$ 14,461
(c)
Interest on unpaid rent
$ 4,905
(d) Water costs $ 3,507 (e) Legal costs $ 34,500
Subtotal $249,647
Less payment received ($207,000) Total owing $ 42,647
[10] On 7 January 2015, Tasmandairy cancelled the lease. Doxcon has been excluded from the premises since 22 January 2015.
[11] On 20 February 2015, Doxcon paid the second defendant $224,687. This amount represents the amount sought in liquidation proceedings Tasmandairy brought against Doxcon, which was $218,000, plus interest and costs.
[12] $104,218 has also been deposited in Doxcon’s solicitors’ trust account. This
is the amount that Doxcon contends is due, being:
(a) Rent for October, November and December 2014, January and February 2015
(being 50 per cent of the contract rent)
$ 86,250
(b)
Insurance
$ 14,461
(c)
Water costs
$ 3,507
[13] By the time of the hearing, Doxcon had also paid the sum of $17,250 into its solicitors’ trust account to be applied towards payment of any further outstanding amounts, if any.
[14] At the date of the interim relief hearing, Doxcon contended that all outstanding rent and associated costs had been paid, and that the bond of $207,000 was now restored in full.
[15] Tasmandairy disputed this. However, its position was based on the view that the $207,000 bond that it now possesses is not part of the rent payment. It relies on the terms of the bond to argue that this money is now forfeit to Tasmandairy, and is not to be used to reduce the rental payments which it alleges therefore remain unpaid.
[16] Tasmandairy accepts that for it to be owed rent, the $207,000 it is holding would need to be excluded from the rent calculation. This is contrary to how Tasmandairy presented matters in the December notice, where it expressly treated the $207,000 as a payment towards rent that it alleged was owing at that time.
[17] The rental amount claimed to be owing in the December notice is contrary to the way in which Tasmandairy calculated rent owing in the August notice, as in the August notice the rent claim was based on the monthly rent payable being 50 per cent of the contract rent.
[18] Further, the rent owing after the settlement in September was for the period October, November December 2014, and not from May to December 2014 as stated in the December notice.
[19] Whether Tasmandairy was entitled to re-enter the land turns on the effect of it depositing the $207,000 into its own bank account and whether the actual monthly rental for the first 12 months is only half of the contract rent. If those two issues are ultimately determined in Doxcon’s favour, Tasmandairy had no basis for terminating the lease and entering the premises.
[20] There is no written evidence, other than Mrs Hu’s affidavit, as to whether the
$207,000 was to be held on the same terms as the original bank guarantee suggested. However, Tasmandairy’s conduct in taking those funds and then applying the funds as a credit towards rent owing in the December notice contradicts Tasmandairy’s portrayal of the funds as money that Tasmandairy is entitled to claim in addition to rent for the premises. Regarding the rent, the parties’ earlier conduct and Tasmandairy’s claim for rent in the August notice is consistent with Doxcon’s claim that for the first 12 months, only half the contract rent is payable.
[21] I was satisfied that on one view of the facts, Doxcon has a seriously arguable case for establishing that no rent was unpaid as at the time the December notice was issued. It also has a seriously arguable case for establishing that by issuing the December notice, Tasmandairy has acknowledged that it can no longer rely on the August notice, even if it was able to do so earlier on.
Relief against cancellation
[22] Under s 253 of the Property Law Act, the lessee may apply to the Court for relief against the cancellation of the lease. The Court has wide powers to grant any relief sought on any conditions as to expenses, damages, compensation or other relevant matters.2 It is well established that where the breach is only non-payment of rent, it will be presumed that relief against cancellation should be granted on payment of the arrears and costs.3 Similarly, where the breach is non-payment of money, except in exceptional cases “it will generally be axiomatic that payment fixes the breach and that further penalties are disproportionate”.4 Furthermore, insolvency on its own is not enough to refuse relief against cancelation. Where the payment of rent had been brought up to date, “the court should be satisfied that there is no realistic chance that the next rental commitments can be met, before refusing to grant relief.”5 It is therefore only when the lessee is “hopelessly insolvent” that, as a general rule, the Court should not grant relief.6
[23] Interim relief can be granted pending the resolution of the substantive proceedings for relief against cancelation. Where this happens, the Court will grant an interim injunction for possession, preventing the landlord from acting inconsistently with the lease.7
[24] Whether to grant interim relief in the present context turned on the usual factors for granting interim relief: whether there is a serious question to be tried, the
2 Property Law Act 2007, s 256.
3 See Howard’s Lodge Ltd v Guy HC Rotorua CIV-2011-463-733, 1 December 2011 at [19].
4 At [22].
5 QT Hospitality Ltd v Oxford Holdings Ltd (2007) 8 NZCPR 817 at [19].
6 Mullholland v Waimarie Industries Ltd (2009) 10 NZCPR 590 at [23].
7 See Palmerston North Cosmopolitan Club v Palmerston North Squash Club Inc [2012] NZHC
1526.
balance of convenience and the overall interests of justice.8 Usually, an undertaking as to damages will be required, but this can be dispensed with in appropriate cases.9
[25] Here I was satisfied that Doxcon had raised a serious question to be tried.
[26] As to the balance of convenience, Doxcon argues that it must gain access to the building because if it is not able to access the building, it will be unable to progress its application for registration, which is critical to enable the re- commencement of milk production. Further, Doxcon argues that it is unable to market its product to customers, as customers usually visit the factory to review its products before making an order. This is hindering the company’s ability to sell product. Finally, Doxcon states that it needs to complete approximately $50,000 of remedial works to comply with MPI regulatory changes. This suggests that there will be quite extensive damage to Doxcon if it does not regain possession of the premises. Doxcon admits that the company has cash-flow difficulties. However, it maintains that these will clear once the certification is received. Further, a new share purchase is expected to be completed within the next three weeks. Doxcon does not therefore seem to be in a position where it is “hopelessly insolvent”.
[27] Doxcon has given an undertaking as to damages. The basis of this ability to pay damages seems to be based on the value of Doxcon’s equipment, which is stated to be $1.21 million. Tasmandairy disputes the equipment has this value. However, even if the true value was 10 per cent of the valuation, it would exceed any loss in failure to pay future rent over the next few months. I was satisfied, therefore, that the balance of convenience favoured Doxcon.
[28] Overall, I considered that due to the effect on Doxcon’s business, the overall
justice of the case favoured an interim order allowing Doxcon to take possession of the property and preventing Tasmandairy from acting inconsistently with the lease.
8 At [42]. See also Auckland Council v Cosdo Equity Ltd [2014] NZHC 1900.
9 Palmerston North Cosmopolitan Club, above n 7, at [52]. For example where the respondent is unlikely to suffer significant damages and the plaintiff does not have the means of honouring the undertaking.
[29] The dispute between the parties is largely factual. Whether Tasmandairy had the right to cancel the lease when it purported to do so can only be dealt with at the substantial hearing. Resolving disputed facts is not something that can readily be done in an interlocutory hearing. The proceedings require an urgent substantial hearing.
[30] Interim relief was granted for a period of two weeks (it expires on 13 March
2015) to enable the parties to see if they could agree a timetable with a view to securing a fixture for the substantial hearing at the earliest opportunity.
[31] The interim relief application was listed for mention in the Duty Judge list on
12 March 2015. By then, the parties should have made enquiries of the Registry regarding a fixture date. I anticipate that when the matter is called in the Duty Judge List that the interim relief will then be extended until the substantial hearing. If need be, this judgment and the result judgment should be referred to the Civil List Judge to assist the parties in their endeavour to obtain a priority fixture.
Duffy J
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