Gallett Properties Limited v Nelson City Council HC Nelson CRI 2010-442-15
[2010] NZHC 1248
•20 July 2010
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
CRI 2010-442-15
GALLETT PROPERTIES LIMITED
Appellant
v
NELSON CITY COUNCIL
Respondent
Hearing: 20 July 2010
Counsel: T M Sawtell for Appellant
K Beckett for Respondent
Judgment: 20 July 2010
ORAL JUDGMENT OF RONALD YOUNG J (Appeal against sentence)
[1] Gallett Properties Limited was fined $19,350 for what was effectively using a retail premise in part as a residential premise and failing to disestablish the residential premises when required to do so by the Nelson City Council. The appellant’s case is that the fine imposed was manifestly excessive because the
District Court Judge misunderstood relevant facts.
GALLETT PROPERTIES LIMITED V NELSON CITY COUNCIL HC NEL CRI 2010-442-15 20 July 2010
Background facts
[2] The relevant building in Hardy Street, Nelson was given building consent in
1986 for the construction of two retail premises. In 2008 the Council received notice that the appellant, who by then owned the premises, was using part of the building for residential purposes. After a Council inspection of the premises a notice under the Building Act 2004 (the “Act”) was given to the appellant requiring him to disestablish the residential portion of the building by August 2008, some three months later. The notice was given because it was clear that the rear of the premises was being occupied as a residence.
[3] The appellant had difficulty in removing the tenant from the premises and so the Council delayed a further check until October 2008, two months after the expiry of the original notice. In October 2008 the appellant requested a further delay in the Council inspection. It was not until December 2008 that a further inspection was made by the Council. When the Council made enquiries it was told that the original tenant has left the premises but that the premises had been re-let to a new tenant by the appellant. Evidence established that this tenancy agreement was signed on
20 January 2009 but was backdated and commenced on 26 December 2008. The Tenancy Agreement describes the tenancy as a periodic tenancy and, with specific statutory exceptions, the landlord had to give the tenant 90 days notice to vacate.
[4] Perhaps understandably in May 2009 the Nelson City Council filed on information in the District Court alleging a breach of s 168(1) of the Act given the appellant’s refusal to comply with the relevant notice. The appellant company pleaded guilty.
[5] The Judge at sentencing identified relevant High Court authority (Wilson v Fowler (unreported High Court Auckland AP 2203/98, 16 March 1999) and Rai v Manukau City Council (unreported High Court Auckland CRI 2005-404-0408, 24
April 2006) as the appropriate approach to such sentencing. The Judge acknowledged the problems the appellant had with the first tenant but said the second tenancy was in clear defiance of the City Council notice.
[6] The Judge accepted that the primary purpose of the notice was a public safety issue given the premises have not been inspected and approved for compliance for use as residential premises.
[7] The Judge took into account there was commercial gain to the appellant from the continuing tenancy beyond the period of the notice. He said there was no real attempt by the appellant company to argue inability to pay a fine. He considered that a starting fine of $21,000 was appropriate in all of the circumstances and reduced it by ten percent for the late guilty plea.
The appellant’s case
[8] The appellant’s case is that the Judge erred in the following ways:
a.that he incorrectly viewed the appellant’s attitude as being defiant of the Notice to Fix issued by the Council;
b.he failed to appreciate that the flat remained vacant for some three months after the removal of the initial tenant and was only re-let to the second tenant in 26 December 2008 in circumstances where this tenant found herself in difficult circumstances and the appellant was sympathetic to her plight;
c. failed to appreciate that the lease to the second tenant was to be for a short period only and that the appellant expended considerable time and effort in locating alternate accommodation for her which was rejected by the tenant;
d.failed to have appropriate regard to the financial circumstances of the appellant in determining the fine;
e.took into account the alleged commercial gain to the appellant when such a factor was not a factor referred to in the guideline judgment of Wilson v Fowler (unreported High Court Auckland, AP 2203/98,
16/3/99); and
f. failed to appreciate any commercial gain to the appellant, if it is a relevant factor, should be discounted.
[9] I consider each ground of appeal in turn.
[10] As to (a) there is simply no question but that what the appellant did was deliberately defiant. The Council had been patient in giving the appellant every opportunity to get rid of the first tenant. At the appellant’s request it put off
enforcing the notice to give the appellant every opportunity of getting rid of the first tenant. The City Council did not take action against the appellant until it was clear the appellant had re-let the premises. It does not matter, as the appellant claims, that it considered the tenant was in need of accommodation or that the tenancy might be short term. The appellant knew it was in direct breach of the Council notice. It knew that the Council had given it notice that it had to disestablish the residence in the building. It knew the Council had delayed taking action out of consideration for the difficulty the appellant had in removing the first tenant. For the appellant to then re-let the premises was clearly deliberately defiant. It was August 2009 before this tenant left the premises. This was a further unauthorised occupation of the flat in breach of the Act for some eight months.
[11] As to ground (b) the Council did not appreciate that the flat was vacant from October to December 2008 because the appellant company did not tell them it was vacant. The appellant company knew that if it wanted to tenant the “flat” it had to get the relevant permission from the City Council. The appellant made no effort during this time to do the work necessary and to apply for local authority consent to occupy the building in part as a residential premise. Gound (b) does not avail the appellant in terms of an appeal against sentence.
[12] As to ground (c) the Judge appreciated this was a periodic tenancy. However the tenants should not have been in occupation at all. To re-let the premises when the appellant had notice from the City Council that it had to dis-establish the existing tenancy was, as I have said, a flagrant breach. If the appellant then had difficulty in getting rid of the second tenant it was a problem of the appellant’s own making. Whatever the circumstances of the second tenant the appellant knew it was not in a position to lawfully re-let those premises.
[13] As to (d) the Judge did have regard to the financial circumstances of the company. The Judge considered that no grounds had been advanced to satisfy him that the company had limited capacity to pay a fine. The appellant now says it has little or no income and modest assets. If a company in such a situation facing financial penalty wishes to establish that its financial circumstances are such that the Court’s capacity to impose a proper fine should be limited then it will need to do
more than produce a set of annual accounts prepared for tax purposes. As a minimum I would expect an up to date market valuation of its assets and an up to date assessment of its liabilities. Depreciated discount values of company assets set out in company accounts are unlikely to illustrate market value and are unlikely to illustrate true company value. Further, clear details of the income earned by the company and any shareholders from the company in whatever capacity are necessary.
[14] Further, in this case, in the 2009 year the company appears to have repaid significant portions of the capital of a number of company loans. There is simply no relevant evidence here that the company is unable to pay a fine of the level imposed.
[15] Commercial gain ground (e). The Judge properly took into account in fixing the quantum of the fine that after the notice to dis-establish the residential premises the appellant improperly earned eight months rent from the residence. Such commercial gain made after the City Council gave the appellant a reasonable time to comply with the notice is clearly relevant in setting the quantum of a fine. I am satisfied the Judge correctly approached the commercial gain of the appellant as a factor relevant to take into account in assessing the quantum of the fine.
[16] As to the final ground of the appeal the appellant submits that based on Wilson v Fowler, which it says suggested a starting fine of $10,000 for more serious offending, the Judge’s starting point at $18,000 was too high. In fact Wilson v Fowler does not suggest a starting point of $10,000 for more serious offending such as this. The decision says that lower scale offending under s 80(a) of the 1991 Act meant proper starting fines of “somewhere in the range of $5,000 plus” and for more serious offending under s 80(c) (the equivalent of the current offending under the
2004 Act) starting points “in the area of $10,000 upwards would not necessarily be untoward”. (emphasis added)
[17] The maximum penalty under the 2004 Act (the same as the 1999 Act) is
$200,000. Starting sentences of $10,000 or five percent of the maximum penalty for offences that are described as more serious is a very modest starting point indeed.
Such a starting point could only reflect less serious offending covered by that section.
[18] Serious offending contrary to s 168(1) should be attracting fines well above this modest percentage if the Courts are to properly reflect, as they are obliged to, the substantial maximum penalty imposed by Parliament. In this case the starting fine of about ten percent of the maximum for what was a flagrant breach of the legislation was well within the range available.
[19] As to the ten percent deduction for the guilty plea the appellant first pleaded not guilty. It maintained this plea at a status hearing then right through an initial hearing date until the date of trial in early March 2010. When faced with the prospect of the defended hearing it only then changed its plea and pleaded guilty. This was nine and a half months after initially being charged. The appellant might have been fortunate to have got any reduction for the guilty plea at all.
[20] I am satisfied the fine imposed was well within the range available. It was not manifestly excessive. The Judge did not misunderstand any of the facts. The appeal will be dismissed.
[21] Finally on this appeal the respondent, Nelson City Council, seeks costs. The sum of $1,000 is suggested. Given this is an appeal against sentence I think the appropriate sum is $500. I award that in favour of the respondent against the
appellant.
Ronald Young J
Solicitors:
T M Sawtell, C & F Legal Limited, PO Box 1049, Nelson 7040
K Beckett, Fletcher Vautier Moore, PO Box 90, Nelson 7040
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