Hansen Trust Company Ltd v Goodness Breads Ltd

[2023] NZHC 3353

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV-2023-441-47

[2023] NZHC 3353

UNDER

section 245 of the Property Law Act 2007

IN THE MATTER

of an application for cancellation of lease and possession of land

BETWEEN

HANSEN TRUST COMPANY LTD

Applicant

AND

GOODNESS BREADS LTD

Respondent

Hearing:	23 November 2023
Counsel:	D J O’Connor for Applicant H Worth for Respondent
Judgment:	23 November 2023

REASONS JUDGMENT OF ISAC J

[Application for cancellation of lease]

Introduction

[1]    This proceeding concerns an application by a landlord to cancel a lease of commercial premises for non-payment of rent by a tenant. The underlying issue of the unpaid rent, totalling $15,526, was resolved on 17 November 2023, with a payment by the tenant to the landlord of $19,339.59.

[2]    In an oral results judgment today, I granted relief against forfeiture in favour of the tenant on terms.1 This judgment sets out my reasons for doing so.

1      Hansen Trust Company Ltd v Goodness Breads Ltd [2023] NZHC 3352.

HANSEN TRUST COMPANY LTD v GOODNESS BREADS LTD [2023] NZHC 3353 [23 November 2023]

The issue

[3]    Somewhat unusually, the tenant, Goodness Breads, has not brought an application for relief against cancellation (or forfeiture) of the lease under s 253 of the Property Law Act 2007. Nevertheless, the applicant, Hansen Trust Company Ltd, did not oppose the making of such an order provided Goodness Breads paid the landlord’s reasonable and actual costs (including costs on its application to the Court) as a condition of relief. Hansen Trust Company says that when relief against forfeiture is granted, it is usual for the court to order not only the payment of outstanding rent but also the landlord’s costs.

[4]    Hansen Trust Company points to cl 6.1 of the lease, which provides an entitlement to legal costs “as between lawyer and client” of and incidental to the enforcement of the landlord’s rights under the lease. As at the date of hearing, and taking into account the part payment  of  costs  received  on  17  November  2023, Mr O’Connor submitted that the total actual and reasonable costs incurred by the applicant is $26,735.10.

[5]    As at 6 November 2023, the total that had been due by way of costs (taking into account the part payment of costs on 17 November) had been $20,040 made up as follows:

(a)$460, being the remaining unpaid costs incurred in relation to preparation and service of Property Law Act 2007 notices.2

(b)$18,400, being counsel’s costs. Itemised invoices for these costs are in evidence.

(c)$1,180, being the Court filing and scheduling fees.

[6]    However, as a hearing had been necessary because the parties had not reached agreement on all issues, further costs of $6,695.10 had been incurred made up of legal

2      The applicant’s submissions indicate that Goodness Breads had agreed to pay $3,812.65 in relation to these costs, but refused to pay the invoices of a process server who served the notices and these proceedings. The payment on 17 November 2023 appears to have been comprised of the unpaid rent together with costs of $3,812.65.

fees and travel expenses. That brings the total unpaid costs of the landlord up to

$26,735.10 as at the date of hearing.

[7]    In response, Goodness Breads says that the appropriate costs and disbursements that should be ordered are only $6,423 in total. This sum is comprised of costs calculated in accordance with band 2A of sch 3 of the High Court Rules 2016, totalling $5,883.00, together with disbursements of $540, being the filing fee only. Mr Worth on behalf of the tenant submits that indemnity costs are exceptional and require exceptionally bad behaviour, relying on the Court of Appeal’s decision in Bradbury v Westpac Banking Corporation. He says those circumstances are not made out here.

Consideration

[8]    At the hearing, Mr Worth confirmed that his client had underlying concerns on a number of issues about the tenancy. He indicated that Goodness Breads may wish to pursue those matters through the dispute resolution procedures set out in the lease.

[9]    While that is the appropriate procedural pathway to address the tenant’s concerns, the relevant terms of the lease could not be clearer: the tenant is obliged to pay rent when due and without deduction or set-off. In effect, the contract creates a pay now argue later obligation, at least insofar as the tenant’s paramount obligation is concerned.

[10]   There is no dispute the tenant failed to pay rent when due, or that the landlord has incurred significant costs pursuing its right to rent under the lease. The only questions to be determined are:

(a)the appropriate measure of costs;

(b)whether those costs should be a condition of any grant of relief against cancellation of the lease; and

(c)whether I should make such an order.

Appropriate measure of costs?

[11]   Section 251 of the Property Law Act provides that the court may when cancelling a lease order the lessee to pay not only the rent up to the date of cancellation but also reasonable compensation for the breach. Reasonable compensation may include reimbursement of the lessor’s reasonable expenses. It is therefore clear that if the issue was simply the question of cancellation of the lease, the Court has jurisdiction to make an order for payment of a landlord’s actual and reasonable costs.

[12]   Under s 256 of the Act, the Court may grant a tenant relief against cancellation of a lease on any conditions as to expenses, damages, compensation, or any other relevant matter as it thinks fit. Again, the Act contemplates a tenant may be required to pay compensation to a landlord as the price of an indulgence—relief against cancellation—following a failure to pay rent when due.

[13]   In addition to these statutory powers, Hansen Trust Company is entitled to rely on cl 6.1 of the lease, which provides it with a contractual right to actual and reasonable costs in relation to enforcement of the lease. There can be no doubt, then, that the applicant is entitled to claim the costs it incurred pursuing the respondent.

[14]   Finally, while a tenant has a well-recognised presumptive right of relief against cancellation, the right only arises “on payment of the arrears and costs”.3 This 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.4

[15]   In the present case, Goodness Breads has only recently made good on the unpaid rent but has not restored to Hansen Trust Company all that it is entitled to under its lease. As I have noted, the landlord has an entitlement to reasonable and actual costs in enforcing its rights under the lease. It has been obliged to incur substantial legal costs pursuing Goodness Breads for unpaid rent. I am unable to accept Mr Worth’s submission that this means his client’s landlord should be out of pocket for the trouble.

3      Mulholland  v  Waimarie  Industries  Ltd   (2009)  10  NZCPR  590   (HC)   at  [23(1)];  and   DW McMorland and others Hinde McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at [11.243].

4      At [23(2)].

Given the applicant relies on a contractual indemnity in relation to its costs, which clearly applies to the current proceeding, the respondent’s reliance on authorities such as Bradbury is misplaced. The sole issue is whether the costs claimed are reasonable. I am satisfied that they are. I am reinforced in that view by a broad-brush comparison with what would have been the applicant’s costs entitlement had they been calculated on a 2B basis.

[16]   I am also satisfied that the disbursements sought by the applicant are properly payable. There can be no good reason why Hansen Trust Company should not recover a hearing fee it has incurred as a result of the need to pursue these proceedings.

[17]   Given the basis of the offers made by Goodness Breads in correspondence, I am not surprised that they were unacceptable to the applicant. It is also therefore unsurprising that the total costs claimed as at the date of the hearing have increased significantly since 6 November 2023.

[18]   It follows that it is appropriate for Hansen Trust Company to recover from Goodness Breads the sum of $26,735.10. I make an order to that effect pursuant to    s 256(1)(a) of the Property Law Act. The only remaining issue is whether payment of that sum should be a condition of an order for relief against cancellation of the lease.

Payment of applicant’s costs as a condition of relief against cancellation?

[19]   In arguing that costs should be a condition of relief against cancellation,     Mr O’Connor pointed to the long history of acrimony that appears to have arisen between the parties in the relatively short period of time they have been in commercial relationship. He submitted given the various grievances voiced by the principal of Goodness Breads, it is highly likely that if the Court did not make it a condition of relief against forfeiture that the respondent would simply refuse to pay the costs and raise a counterclaim or set-off in relation to any liquidation proceedings the landlord might bring to recover its costs.

[20]   There is some considerable force in this submission given the evidence reveals a level of difficulty in the relationship. Given the evidence, and the attitude of the tenant both to compliance with its fundamental obligation to pay rent when due and

without deduction, and since these proceedings began, I have been left with a concern that the failure to pay rent was a matter of choice rather than financial distress.

[21]   This was confirmed following an adjournment so that Mr Worth could take instructions on whether his client might be willing to provide an undertaking to the Court that it would pay any costs ordered without a claim to set-off or deduction. I had suggested this as a likely requirement for making an order for relief against cancellation which did not require payment of costs as a precondition.

[22]   Following the adjournment, Mr Worth confirmed his clients could pay the entire costs claimed by 4 December 2023, if payment was made a condition of relief. In these circumstances, and given the indication Goodness Bread can pay relatively promptly, I am satisfied it should be.

Conclusion and result

[23]   I grant the tenant’s application for relief against forfeiture, conditional on the respondent paying the sum of $26,735.10 in clear funds and without deduction to the applicant on or before 5.00 pm on 4 December 2023.

[24]   If payment of that sum is not made, I reserve leave to the applicant to renew its application for the cancellation of the lease. Should that be necessary, I may be minded to deal with the application on the papers.5

Isac J

Solicitors:

Hansen Bale Ltd, Hastings for Applicant WCM Legal, Wellington for Respondent

5      There being no dispute in relation to the failure to pay rent as and when due, or indeed that the landlord has incurred reasonable costs in having to make good on the tenant’s breach of lease.