HJS Ag Ltd v Tumatatoro Ltd

[2021] NZHC 1070

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-570

[2021] NZHC 1070

IN THE MATTER

of a claim for specific performance of an obligation to renew a lease and related

claims under a guarantee

BETWEEN

HJS AG LTD

Plaintiff

AND

TUMATATORO LTD

First Defendant

RIPEKA PATENE-STOUT, SAMUEL NGAKAPA THOMPSON, MATILDA ORA THOMPSON, MOANA VICKI

THOMPSON (aka MOANA APAAPA) and RAYMOND WAERO THOMPSON in their

capacities as trustees or former trustees of Kahupeka Te Waero Whanau Trust Second Defendant

Hearing:

11 May 2021

Counsel:

H L Thompson for Plaintiff

K K Naidu and S M P Loa for First Defendant and Ripeka Patene- Stout, Samuel Ngakapa Thompson and Raymond Waero
Thompson (First, Second and Fifth-named Second Defendants)

Judgment:

13 May 2021

JUDGMENT OF BREWER J

This judgment was delivered by me on 13 May 2021 at 3 pm pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

HJS AG LTD v TUMATATORO LTD [2021] NZHC 1070 [13 May 2021]

Introduction

[1]        The plaintiff applies, on notice, for interim injunctive relief against the first defendant and the second defendants. The defendants oppose the application on the same grounds.

[2]        The plaintiff is a dairy farmer. It subleases a dairy farm from the first defendant which in turn leases the farm from the second defendants.

[3]        The second defendants are sued as trustees, or former trustees, of Kahupeka Te Waero Whanau Trust, an Ahu Whenua trust.

[4]        The plaintiff leases the dairy farm pursuant to a lease dated 30 November 2013 (“the lease”). The term of the lease is seven years from 1 June 2014.  It expires on  31 May 2021.

[5]        The lease provides for a renewal of eight years from 1 June 2021, with a final end date of 31 May 2029.

[6]        The plaintiff wishes to renew the lease, and has purported to give notice to that effect, but the first defendant does not wish to grant the renewal. The plaintiff’s substantive proceeding includes a claim for specific performance requiring the lease to be renewed.

[7]The plaintiff’s application for interim relief is for an order:

Restraining the first respondent/first defendant, Tumatatoro Limited (“Tumatatoro”), and the second respondents/second defendants named above (“the Trustees”) or their agents, successors or assigns, from re-entering or purporting to re-enter, or from evicting HJS Ag or taking possession from HJS Ag of the land situated at 1177A East Coast Road, Kaiaua, contained in Computer Freehold Register NA16D/1250 being 18.2109 hectares more or less and the land situated at 1177B East Coast Road, Kaiaua contained in Computer Freehold Register NA51D/1219, being 95.6167 hectares more or less (together, “the Property”) pending further order of this Court.

[8]The plaintiff is entitled to injunctive relief if it satisfies the Court:1

1      Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 140 (CA); American Cyanamid v Ethicon Ltd [1975] AC 396.

(a)there is a serious question to be tried; and

(b)the balance of convenience favours the granting of the injunctive relief taking into account whether damages would be an adequate remedy; and

(c)the overall interests of justice require the granting of the relief sought.

Serious question of law

[9]        During the course of the lease a dispute arose between the plaintiff and the first defendant which was resolved by arbitration in favour of the plaintiff. The arbitrator ordered the first defendant to pay the plaintiff costs of $212,500. Ultimately, the plaintiff obtained a charging order over the payments of rent under the lease. However, for three months, before the charging order was obtained, the plaintiff did not make rent payments. This was in breach of the lease which provides:

3.1 … the Lessee will pay the Rental Payments on the due date without deduction or set-off whether legal or equitable in the manner directed by the Lessor.

[10]The right of renewal in the lease is expressed:

41.1If the Lessee has always fulfilled the Lessee’s material obligations under this lease the Lessee will have the right to renew it for the Renewal Period.

41.2The Lessee must give the Lessor written notice of its intention to renew at least 3 months before the End Date.

[11]      The first defendant and the second defendants contend that the non-payment of rent means that the plaintiff cannot require a renewal of the lease.

[12]      The first defendant and the second defendants also contend that the plaintiff did not give proper notice of its wish to renew the lease.

[13]      The plaintiff, on 10 May 2021, filed an amended statement of claim in which it now claims against the first defendant relief pursuant to ss 261, 262 and 264 of the Property Law Act 2007.

[14]      Mr Naidu, for the second defendants he represents, referred me also to an exhibit to the affidavit of Samuel Ngakapa Thompson filed in support of the notice of opposition. The exhibit, ST3, is a schedule showing rental payments which were not paid on time and/or were not paid in full. Mr Thompson deposes that on occasions outgoings and rates were also unpaid.

[15]      Mr Naidu’s submission is that this evidence of a history of breaches of the lease would persuade the Court not to grant relief under the Property Law Act. In his submission there is no serious question of law to be tried.

[16]      Mr Thompson, in reply, referred me to Mr Silich’s reply affidavit of 5 May 2021 in which Mr Silich refers to exhibit ST3 and says that alleged short payments between June 2018 and February 2019 were abated payments which the arbitrator found were justified. Similarly, non-payment of rates was held justified to an extent by the arbitrator, and the balance is the subject of set-off against the debt owed by the first defendant. The lease does not prohibit such set-off.

[17]      I find there is a serious question of law to be tried. The Court has a discretion to order a renewal of the lease pursuant to ss 261, 262 and 264 of the Property Law Act. On the material contained in the affidavits of Dion John Silich in support of the application and in the affidavit of Samuel Ngakapa Thompson in support of the notice of opposition, there is a clearly arguable case for the exercise of the Court’s Property Law Act discretion in favour of the plaintiff. The first defendant owes the plaintiff a sum greatly in excess of the rent which was not paid, the period of unpaid rent for which default notices were issued was relatively short, and the plaintiff obtained a charging order over the rent payments which regularised the subsequent withholding of payments. The history of breaches which Mr Naidu submits exists is a factor, if established, to be considered by the Court on its context.

[18]      I find there is also a serious question of law as to whether notice of renewal was given properly. On the face of Mr Silich’s second affidavit, there is a clear argument that either notice was given properly or there is an estoppel. The Court’s discretion under the Property Law Act is in play also.

[19]      The second defendants are the controllers of the first defendant. Their lease to the first defendant is in substantially the same terms as the lease. Further, they are parties to the lease as head lessor. They guarantee to the plaintiff due performance of the first defendant’s obligations. That, arguably, includes the obligation of the first defendant (an obligation said to be implied in the lease) to apply to the second defendants for a renewal.

[20]      There is, practically, no distinction between the first defendant and the second defendants. In my view, there is a serious argument at law that the second defendants are bound to grant the first defendant a renewal of the head lease so that the lease will be renewed. And, to procure the first defendant to grant renewal of the lease. There is no statement of defence as yet. Mr Naidu in this hearing does not contend that the second defendants have an independent right to refuse to renew their lease to the first defendant.

The balance of convenience

[21]      The balance of convenience favours the plaintiff. The plaintiff maintains a herd of around 260 dairy cows on the farm. The produce of the farm, premium jersey milk, is contracted to a specialist dairy company. The house on the farm is inhabited by a migrant farm worker and his family whose work visa is tied to his work on the farm.

[22]      Damages would not be a suitable remedy in circumstances where the plaintiff would have to relocate the dairy herd, the worker and his family, and make whatever arrangements the plaintiff might be able to in respect of the contract to supply milk to the specialist dairy company.

[23]      Further, the plaintiff has a seriously arguable case that it is entitled to occupy the farm for a further eight years. It is entitled to seek to establish its right to do so.

[24]      On the other hand, the first defendant leases the farmland for profit and, subject to the charging order, the plaintiff must continue to pay rent. The second defendants’ interests are the same as the first defendant’s.

[25]      The first defendant submits it has legitimate reason to fear that the plaintiff will fail to pay rent in the future. It submits that the relationship between the parties has entirely broken down, and in such circumstances compelling the leasing relationship to continue is a recipe for future conflict.

[26]      I accept that the personal relationship between the parties has broken down. But that does not affect their legal rights. Nor their legal duties. That can be made clear.

Overall justice

[27]      In my view, the overall interests of justice go to providing interim relief to the plaintiff. It has an existing right to carry on a dairy farming business on the farm. It has fallen out with the first defendant and the second defendants. The defendants would like the plaintiff’s lease from the first defendant to end. But that would have very serious effects on the plaintiff’s dairy farming business, damages would not be an adequate remedy, and the plaintiff has serious legal arguments that it should have a renewal of the lease. These arguments should be determined by the Court.

Decision

[28]The application for interlocutory relief is granted. I make the following order:

Restraining the first respondent/first defendant, Tumatatoro Limited (“Tumatatoro”), and the second respondents/second defendants named above (“the Trustees”) or their agents, successors or assigns, from re-entering or purporting to re-enter, or from evicting HJS Ag or taking possession from HJS Ag of the land situated at 1177A East Coast Road, Kaiaua, contained in Computer Freehold Register NA16D/1250 being 18.2109 hectares more or less and the land situated at 1177B East Coast Road, Kaiaua contained in Computer Freehold Register NA51D/1219, being 95.6167 hectares more or less (together, “the Property”) pending further order of this Court.

[29]      This order does not absolve the plaintiff from otherwise complying with the terms of the lease. Leave is reserved to the first defendant to apply for variation or rescission of this order in the event of breach of the lease by the plaintiff.

Costs

[30]      In the normal course I would award costs to the plaintiff on a 2B basis. I will do so unless I receive a memorandum or memoranda arguing a contrary outcome within 10 working days of the date of this judgment.

Brewer J

Solicitors:

McMahon Butterworth Thompson (Auckland) for Plaintiff Tamaki Legal (Auckland) for Defendants