General Trust Board of the Diocese of Auckland v Van de Wiel
[2023] NZHC 3773
•19 December 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-1788
[2023] NZHC 3773
UNDER Section 244 of the Property Law Act 2007 IN THE MATTER
of Lease number 9358545.1 (Leasehold Record of Title 609000 (North Auckland Registry)) at 400 Parnell Road and 2 St Stephens Avenue, Parnell
BETWEEN
THE GENERAL TRUST BOARD OF THE DIOCESE OF AUCKLAND
Applicant
AND
PETER CORNELIUS WILHELMUS VAN DE WIEL and VAN DE WIEL TRUSTEES LIMITED
Respondent
Hearing: 22 March 2023 Appearances:
C Bryant for the applicant
N Saunders for the respondent
Judgment:
19 December 2023
JUDGMENT OF ROBINSON J
This judgment was delivered by me on 19 December 2023 at 3:00 pm pursuant to Rule 11.5 of the High Court Rules
…………………………………………………………………… Registrar/Deputy Registrar
Solicitors:
Hesketh Henry, Auckland Norling Law, Auckland
THE GENERAL TRUST BOARD OF THE DIOCESE OF AUCKLAND v VAN DE WIEL & ORS [2023] NZHC 3773 [19 December 2023]
Introduction
[1] The applicant (lessor) leases land in Parnell to the respondents (lessees) from which they operate an accommodation business, the Parnell City Lodge. In an award dated 20 January 2022, an Arbitral Tribunal appointed in accordance with the terms of the lease (and the Public Bodies Lease Act 1969 (Act)) reviewed and increased the annual rent payable under the lease from $120,000 plus GST to $395,000 plus GST from 26 September 2019. The Tribunal also directed the lessor and the lessee to each pay half of the Tribunal’s costs.
[2] The lessees have continued to pay annual rent of $120,000 plus GST but they have not paid the increased rent due under the lease in accordance with the Tribunal’s award. Nor have they paid their share of the Tribunal’s costs, which the lessor paid in full. On 16 June 2022 the lessor served the lessees with a notice under s 245 of the Property Law Act 2007 (PLA) for unpaid rent (s 245 notice) and a notice under s 246 of the PLA for GST and costs (s 246 notice). The lessees have not complied with those notices.1
[3] In this proceeding the lessor applies under s 244 of the PLA (amongst other things) for an order cancelling the lease. More particularly, the lessor seeks orders for:
(a)possession of the land;
(b)cancellation of the lease;
(c)payment of outstanding rent, GST, and the lessees’ share of the Tribunal’s costs;
(d)interest pursuant to s 10 of the Interest on Money Claims Act 2016; and
(e)the costs of this application.
[4]The lessees oppose. They say:
1 The lessor also served the notices on the leasehold mortgagee, from whom there has been no response.
(a)the award is unenforceable by the lessor because the lessor has not registered the award as a judgment in accordance with article 35(1)(b) of Schedule 1 to the Arbitration Act 1996 (Article 35) and rules 26.20
– 26.27 of the High Court Rules 2016 (Rules); and
(b)alternatively, the Court should exercise its discretion to grant the lessees relief against cancellation under ss 253 and 256 of the PLA.
The lease
[5] The lease is a registered ground lease, number 9358545.1 (Leasehold Record of Title 609000 (North Auckland Registry)) (lease). The lessor is a leasing authority as defined in s 2 of the Act. It originally let the land under s 7(1)(e) of that Act, which provides:
7 Powers of leasing authority to grant leases
(1)Where a leasing authority has power to let any land, it may let the land under the provisions of this Act on any of the following tenancies or leases:
…
(e)a tenancy for any term not exceeding 21 years, with a perpetual right of renewal for the same or any shorter period, at a rent to be determined by valuation in accordance with the provisions of Schedule 1:
…
[6] The lease was most recently renewed for a term of 21 years commencing 26 September 2012 with perpetual rights of renewal. The initial rent was $120,000 per annum plus GST. Clause 1 of the lease provides:
The Lessee will duly and punctually pay the rent hereby reserved by equal half-yearly payments in advance on the 26th day of March and the 26th day of September and in each year during the term.
[7] The lease provides that the rent will be reviewed at seven-year intervals in accordance with ss 7(1)(e) and 22 of, and Schedule 1 to the Act, the terms of which are set out in an addendum to the lease. Section 22(2)(e) provides:
22 Periodic review of rents
…
(2)Where a lease contains any such provision for the review of rent—
…
(e)the yearly rent agreed to or deemed to have been agreed to by the lessee or determined by arbitration under this subsection shall be the yearly rent payable under the lease for that ensuing period.
[8] Similarly, clauses 1 and 9 of Schedule 1 to the Act (and the addendum to the lease) provide that:
1.… The rent for subsequent periods of seven years of the term of the lease shall be determined in accordance with section 22 of the Public Bodies Leases Act 1969.
…
9.The decision of the 2 arbitrators if they agree or in such respects as they agree, or of the umpire if the arbitrators do not agree or in such respects as they do not agree, shall be binding on all parties.
The 2019 rent review
[9] The first rent review date under the renewed lease was 26 September 2019. On 15 August 2019 the lessor served a notice of rent review proposing an annual ground rent of $512,363 plus GST and outgoings in accordance with a rental valuation it had obtained from a registered valuer.
[10] The lessees did not accept the proposed rent. On 11 October 2019 their then- solicitors served the lessee with a notice requiring the annual rent to be determined by arbitration. The documentary evidence shows that for several months the lessor attempted to progress matters via its solicitor, including suggesting that the parties’ valuers confer to try to reach agreement and avoid the cost of arbitration.
[11] On 17 August 2020 the lessor appointed John Schellekens of PwC Advisory Services as its arbitrator. On 25 September 2020 the lessees appointed Gary Sheyne as an arbitrator. The arbitrators appointed Alan Galbraith KC to be their umpire.
[12] Although the lessees had appointed an arbitrator, they initially refused to sign the Conditions of Appointment of the Tribunal. On 21 May 2021 the lessor sought a preliminary ruling by the Tribunal confirming its jurisdiction to determine the rent. In its minute of 8 June 2021 the Tribunal advised the parties that it would hear the lessor’s application on 21 June 2021.
[13] On 16 June 2021 counsel then acting for the lessees recorded that they did not take issue with the Tribunal’s jurisdiction, but otherwise reserved their rights. Counsel for the lessees proposed a telephone conference to advance the timetable of the substantive arbitration. Eventually the parties agreed a timetable for the exchange of evidence in advance of a three-day hearing.
[14] On 11 August 2021 the lessor served evidence from a registered valuer confirming his earlier view that the annual market rent was $512,000 ex GST. The lessees did not serve any evidence. On 7 September 2021 their counsel and solicitors advised they were no longer instructed.
[15] The arbitrators convened a pre-hearing conference on 5 November 2021. The lessees were invited but did not attend. Instead, the lessees corresponded with the arbitrators on 3 November 2021 and again on 9 November 2021 after receipt of the Tribunal’s minute of the same day.
[16] In its award the Tribunal sets out this procedural history in some detail. It records that:
1.18Our purpose in recording in considerable detail matters leading up to the arbitration hearing, which the Lessee chose not to attend, is to record that the Lessee had been afforded ample opportunity to participate in the proceeding and ultimately choose not to.
1.19Section 25(c), Schedule 1, of the Arbitration Act 1996 (Act) provides:
Section 25 “Default of a party. Unless otherwise agreed by the parties, if, without showing sufficient cause, - …
(c) Any party fails to appear at a hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the award on the evidence before it:
…”
1.20The hearing proceeded in accordance with the timetable, absent the Lessee. As a result, the evidence before the Tribunal for it to consider comprises the Lessor’s evidence and submissions, answers to questions from the Tribunal and the Lessee’s letter.
1.21After the hearing, the arbitrators met and have agreed the fair market rent to apply for the seven year period from the date of review. Accordingly, we have not needed to refer the matter to the umpire appointed between us.
The award
[17] In his evidence the lessor’s valuer set out two mainstream approaches to the assessment of the ground rental under the lease, namely:
(a)the “Traditional Approach”, under which an assessed fee simple land value is multiplied by an assessed ground rental rate; and
(b)the “Classical Approach”, under which comparable ground rental agreements, expressed as a rate per square metre of land area, are considered and applied to the assessment of ground rent for the property.
[18] The Tribunal did not consider it was appropriate to apply the Classical Approach using the evidence of the lessor’s valuer. In taking the Traditional Approach, the Tribunal accepted the lessor’s valuer’s estimate of the fee simple value of the land but applied a lower ground rental rate. In this way the Tribunal confirmed the fair annual rent for the seven-year period commencing 26 September 2019 at
$395,000 ex GST, 23 per cent lower than the $512,000 proposed by the lessor’s valuer. As noted, the Tribunal directed each party to pay 50 per cent of its costs.
Notices of Intention to Cancel Lease
[19] The lessees have continued to pay annual rent of $120,000 plus GST in six- monthly instalments. They have not paid the increased rent or GST due under the lease in accordance with the Tribunal’s award.
[20] On 16 June 2022 the lessor’s solicitors served the lessees with a Notice of Intention to Cancel Lease pursuant to s 245 of the PLA (s 245 Notice). In the s 245
Notice, the lessor advised the lessees that they were in default under the lease for having failed to pay the sum of $825,000 in annual rent instalments excluding GST for the period from 26 September 2019 until 25 September 2022. The lessor required the lessees to remedy the default by paying that amount by 29 July 2022, failing which the lessor advised that it may seek to cancel the lease in accordance with s 244 of the PLA without further notice. The lessor advised the lessees that they had the right under s 253 of the PLA to apply for relief against cancellation.
[21] At the same time, the lessor served the lessees with a Notice of Intention to Cancel Lease under s 246 of the PLA (s 246 Notice). In the s 246 Notice the lessor advised the lessees that they were in default under the lease for having failed to pay GST on the annual rent in the total amount of $123,750 for the period from 26 September 2019 until 25 September 2022. Also, that the lessees had failed to pay 50 per cent of the Tribunal’s costs, being $31,510 including GST. The lessor required the lessees to remedy the default by paying $155,260 by 29 July 2022, failing which the lessor advised it may seek to cancel the lease in accordance with s 244 of the PLA without further notice.
[22] The lessor’s solicitors also served the lessees’ mortgagee with the s 245 Notice and the s 246 Notice.
Legal principles
[23] A lease may only be cancelled in accordance with ss 244 – 252 of the PLA.2 A lessor may cancel a lease because of a breach of a covenant to pay rent, or for the breach of another covenant, provided the requisite notice of intention to cancel is given and the breach is not remedied within the specified time.3
[24] Subject to ss 245 and 246, a lessor may apply to the Court for an order for possession of the land for the purpose of cancelling the lease.4
2 Property Law Act 2007, s 243(1).
3 Property Law Act 2007, ss 245 and 246.
4 Property Law Act 2007, s 244.
[25] In addition to making orders for possession and cancellation, the Court may order a lessee to pay rent up to the date of cancellation or possession; and/or to pay reasonable compensation for the breach; and/or impose other conditions it thinks fit.5 A lessor may also claim damages for a breach of the lease or other duty owed to it.6
[26] A lessee may apply to the Court for relief against cancellation.7 The Court’s power to grant relief is discretionary and may be subject to any conditions the Court thinks fit.8 Where the basis for cancellation is the non-payment of rent, there is a presumptive right to relief on payment of the arrears and costs. It is only in exceptional circumstances that relief is to be denied if the debt is paid in full.9 That is because it is inequitable that the benefit of the lease should be lost to a tenant who has restored to the landlord all that the landlord is entitled to under the lease. The ability to forfeit the lease and take possession is treated by the Court as security for the payment of rent.10
Does the Award have to be registered as a judgment?
[27] The lessees oppose the lessor’s application for cancellation under s 244. The lessees say the application should be dismissed because the Award has not been registered as a judgment or pursued by action through the correct procedure required by the Arbitration Act 1996 and/or the Rules. In particular, counsel for the lessee submits that:
(a)the lessor has not applied to the Court to request that the award be recognised as a judgment;
(b)the lessor has erroneously relied on the Award in issuing the s 245 Notice and the s 246 Notice because the lessor did not first apply to have the Award registered as a judgment;
5 Property Law Act 2007, s 243 (1).
6 Property Law Act 2007, s 252.
7 Property Law Act 2007, s 253.
8 Property Law Act 2007, s 256.
9 Mulholland v Waimarie Industries Ltd (2009) 10 NZCPR 590 at [23(1)] per French J.
10 At [23](2), citing Endeavour Lodge Motel Ltd v Langford & Gavin HC Gisborne CP3/98, 24 August 1998 per Elias J.
(c)the lessor has pursued enforcement of the Award by action by issuing the s 245 Notice and the s 246 Notice and/or by bringing the application under s 244, neither of which are provided for in the Rules or the Arbitration Act 1996 as methods of enforcing an Award; and
(d)as a result, the lessees have been deprived of the opportunity to dispute the enforcement of the Award.
[28] Article 35 is the first article in Chapter 8 of Schedule 1 to the Arbitration Act 1996. Chapter 8 deals with “Recognition and enforcement of awards”. Article 35 provides:11
35 Recognition and enforcement
(1) An arbitral award, irrespective of the country in which it was made,—
(a)must be recognised as binding; and
(b)on application in writing to a court, must be enforced by entry as a judgment in terms of the award, or by action, subject to the provisions of this article and of article 36.
(2) The party relying on an award or applying for its enforcement must supply—
(a)the duly authenticated original award or a duly certified copy of the award; and
…
(emphasis added)
[29] As for the Rules, Part 26 applies to all appeals from arbitral awards, applications for leave to appeal against arbitral awards and applications for entry of awards as judgments. Subpart 4 concerns the entry of awards as judgments under Article 35. Once an award is entered as a judgment it may be enforced as a judgment in accordance with Part 17.
[30] The flaw in the lessees’ case is that the lessor is not asking the Court to enforce the award as a judgment. It does not need to. The parties have already agreed, by the terms of the lease and in accordance with the Act, that the rent will be reviewed and
11 Emphasis added.
determined every seven years, including by arbitration, and that this will be the rent payable under the lease for the ensuing period.12 The lessor does not also need to register the award as a judgment in order to take the steps available to it under the PLA to enforce its rights under the lease. I accept Ms Bryant’s submission for the lessor that it is pursuing statutory remedies available to it following the default of the lessee; but, it is not seeking to enforce the award whether as a judgment or otherwise. Article 35 draws a clear distinction between recognition and enforcement of an award. In its application for cancellation under s 244 the lessor is essentially asking the Court to recognise the award, which it must. But it is not taking steps to enforce the award as a judgment or otherwise.
[31] Similarly, in Makan Distiller Ltd v Natural Sugars (New Zealand) Ltd Associate Judge Bell declined a debtor’s application to set aside a statutory demand for amounts due under two arbitral awards on the basis that those awards had not been entered as a judgment under Article 35 or otherwise enforced by action.13 His Honour held that:
[23] An award may be used not only defensively but also to prove that the successful party under the award is a creditor of the other party. As an example, suppose that the losing party had gone into liquidation. A liquidator would be entitled to recognise the award as binding on the company, even if it had not been entered as a judgment in the court. Just as an award would be recognised as binding in a liquidation, I regard an award as also binding for the purpose of a statutory demand, even if it has not been entered as a judgment. Under an award directing payment, the party directed to make payment comes under an obligation to the other party to make the payment. The award establishes the relationship of creditor and debtor. I see no reason why the court should not recognise that as creating binding obligations, without requiring the award to be entered as a judgment in court.
[32] I agree. Similarly, I do not consider that the lessor is required to have the award entered as a judgment in order for the Court to recognise the lessor’s contractual rights under the lease and its statutory remedies under the PLA. The rent has been reviewed and determined in accordance with the lease and the lessees are obliged to pay it.
12 Public Bodies Leases Act 1969, s 22(2)(e); clause 13 of the Lease; clauses 1 and 9 of the Addendum to the Lease.
13 Makan Distiller Ltd v Natural Sugars New Zealand Ltd [2015] NZHC 1111.
[33] Counsel for the lessees submit that Makan is distinguishable because it dealt merely with creditors’ remedies, whereas here the lessor applies to cancel the lessees’ property rights. I do not accept that submission. Both cases demonstrate the important distinction between the recognition of an award and the enforcement of an award as a judgment. In any event, a lease is a contract and the award determines the amounts due and payable under it. Also, the failure to comply with a statutory demand gives rise to a presumption of insolvency which provides an evidential basis for the Court to place the debtor company into liquidation. As a matter of principle, an application to cancel a lease is not necessarily of anymore (or less) significance than an application to set aside a statutory demand.
[34] For these reasons I do not accept the lessees’ submission that the lessor was required to register the award as a judgment before taking steps to cancel the lease under s 244 – 246 of the PLA.
Should the lessees be granted relief against cancellation?
[35] Counsel for the lessees submits that for a number of reasons their case was not appropriately presented to the Tribunal, and no appeal was lodged within time. Counsel submits that taking into account these various factors the Court should grant the lessee relief against cancellation.
[36] Counsel emphasises that Mr Van De Wiel is 77 years old and wishes to continue living and working at the property, operating the accommodation business and generating income. Counsel submits that Mr Van De Wiel has no alternative housing, nor the means to obtain housing. He is not in a position to borrow money or start a new business. Counsel submits that the lessees have not had a proper opportunity to remedy the breach.
[37] In his affidavit, Mr Van De Wiel explains he had counsel engaged for the arbitration but prior to the hearing chose not to continue with counsel. As such, Mr Van De Wiel says he did not have appropriate legal advice during the arbitration process, and did not understand that it was crucial for him to file evidence and attend the hearing. He explains that he had significant health issues in September 2021, two months prior to the hearing.
[38] Mr Van De Wiel also explains that the lessees’ business experienced a significant loss of profit due the impacts of COVID-19. His counsel submits that this should have been taken into account by the Tribunal in its retrospective assessment of the fair annual rent. In his affidavit, Mr Van De Wiel also suggests that the lessor has frustrated the lessees’ attempt to sell their business in 2017 by advising the prospective purchaser that it would increase the rent significantly on the rent review date. He also complains that the lessor has refused to buy out the lessees’ interest in the lease. Mr Van De Wiel’s evidence is that he considers the lessor wishes to remove the lessees from the property so that they can demolish the buildings and re-purpose the land. He understands that the lessor obtained a demolition consent before the lessees acquired their interest in the lease.
[39] The lessor disputes Mr Van De Wiel’s evidence, and submits that in any event there is no basis for the Court to decline the lessor’s application to cancel the lease.
[40] In his affidavits in support of the lessor’s application, the lessor’s property manager, Mr Anderson, refers to a letter dated 28 April 2022 in which the lessor invited the lessees to provide financial statements for the period before and during the COVID-19 lockdown. The lessor said it would review the statements in good faith to consider providing a rental abatement for the relevant period. However, Mr Anderson says he never received any response to that letter, nor any financial information upon which a rental abatement could be considered or assessed.
[41] Mr Anderson does not accept that the lessor has frustrated the lessees’ efforts to sell its business. He says the lessees have never requested the lessor to consent to an assignment or transfer of the lease. Mr Anderson recalls meeting with someone at Mr Van De Wiel’s request several years ago who he said was investigating a purchase of the lessees’ interest. Mr Anderson does not recall discussing the rent. However, he explains that his usual response to queries about ground lease rent reviews is to say that the rent is usually based on the freehold market value of the land multiplied by a ground rental factor. In the absence of a current market land valuation Mr Anderson would usually refer to the land value component of the rateable value and suggest a possible multiplier of between 5 – 6.5 per cent. Apart from that, he tells interested parties to take their own advice.
[42] In terms of Mr Van De Wiel’s complaints that the lessor has not bought out the lessees’ interest, Mr Anderson says that although the lessees have asked the lessor to buy them out, they have never presented a formal offer. In any event, Mr Anderson says the lessor has advised the lessees that it does not wish to purchase the lease or the lessees’ business, and has no obligation to do so.
[43] As for Mr Van De Wiel’s concerns that the lessor plans to remove and demolish the building on the property, Mr Anderson explains that in late 2017, on the advice of its planning consultants, the lessor obtained certificates of compliance from Auckland Council under s 139 of the Resource Management Act 1991 for a number of properties it owns (including 400 Parnell Road) in order to preserve the benefit of existing planning rules for the properties. The certificates record that existing structures may be demolished without a resource consent. However, the lessor has confirmed to the lessees that while the lease remains on foot the lessor cannot and will not demolish any structures or the building on the land leased to the lessees. The certificate of compliance has no effect on the lessees’ rights under the lease.
Analysis
[44] I do not consider the lessees have identified any grounds upon which the Court should grant relief against cancellation. The lessees required the rent to be determined by arbitration and had instructed counsel to assist. However, they ultimately choose to disengage counsel and not to participate in the arbitral process. The Tribunal (including the lessees’ arbitrator) determined the fair annual rent in accordance with the terms of the lease and the Act. They determined the fair annual rent to be significantly less than that proposed by the lessor’s valuer.
[45] The lessees owe arrears to the lessor in excess of $1,000,000. In cases where the Court has granted relief, the outstanding rent has either been paid or there is a high degree of certainty that it will be.14 In his affidavit Mr Van De Wiel sets out steps he intends to take to ensure he can continue to pay the rent, but does not seriously suggest that those steps will be sufficient to remedy the default by paying the arrears. Whilst the combination of factors giving rise to the lessees’ default may be unfortunate, I do
14 Mulholland v Waimarie Industries Ltd at [29](I).
not consider they are sufficient to support their application for relief against cancellation. Nor do I accept the lessees’ submission that the lessor has acted with the ulterior motive of cancelling the lease in order to demolish the building and re-purpose the land. In my view the lessor is entitled to the relief it seeks.
Result
[46]I grant the lessor’s application for the following orders:
(a)for possession of the property known as 400 Parnell Road and 2 St Stephens Avenue, Parnell, Auckland comprising 1051 square metres more or less and legally described as Lot 2 on Deposited Plan 93399 Record of Title NA49D/1061 (Property);
(b)cancelling lease number 9358545.1 (Leasehold Record of Title 609000 (North Auckland Registry)) (Lease);
(c)requiring the respondent to pay rent and/or demesne profit of $395,000 per annum from 26 September 2019 up to the date on which the lessee yields up possession of and vacates the property;
(d)requiring the respondent to pay GST on the annual rent from 26 September 2019 up to the date on which the lessee yields up possession of the property;
(e)requiring the respondent to pay $31,150.00, being the respondent’s share of the arbitration tribunal’s costs to determine the fair annual rent which the applicant has previously paid; and
(f)interest pursuant to s 10 of the Interest of Money Claims Act 2016.
Costs
[47] The lessor is entitled to costs. It applies for an order that the lessees pay its costs of and incidental to the application in accordance with clause 16 of the lease, which provides that:
In case default shall be made in the observance or performance of any of the Lessee’s obligations hereunder the Lessor shall be at liberty at any time or from time to time to enter upon the said land and to do execute and perform or procure to be done executed or performed all such acts deeds matters and things as may in its opinion be necessary or expedient for the complete or (at its option) partial observance and performance of the said obligations or any of them And all moneys paid and costs and expenses incurred in or about so doing shall be recoverable by the Lessor from the Lessee by action at law or otherwise and in the same manner as rent in arrears.
[48] The parties did not make submissions in relation to this aspect of the lessor’s application. If the parties are unable to agree, counsel for the lessor should file a memorandum of not more than five pages (excluding attachments) within 20 working days of the date of this judgment. The respondent should file any memorandum in reply within a further 10 working days.
Robinson J
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