HSC Holdings Limited v Tomu

[2012] NZHC 1769

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-001031 [2012] NZHC 1769

BETWEEN  HSC HOLDINGS LIMITED Plaintiff

ANDMANU TOMU Defendant

Hearing:         19 July 2012

Counsel:         K F Gould for plaintiff

D Singh for defendant

Judgment:      19 July 2012

(ORAL) JUDGMENT OF ASSOCIATE JUDGE ABBOTT

Solicitors:

Bruce Cyril McNiece, PO Box 99 Shortland Street, Auckland

S Singh, P O Box 10018, Dominion Rd, Mt Eden, Auckland

Counsel:

K Gould, P O Box 1011, Shortland Street, Auckland

HSC HOLDINGS LIMITED V MANU TOMU HC AK CIV 2012-404-001031 [19 July 2012]

[1]      This is a dispute over the right to possession of a residential property at 6

Jenkins Place, Manurewa.

[2]      The plaintiff purchased the property at an auction, conducted pursuant to a mortgagee sale, in December 2011.  It has applied for an order for recovery of the land, by way of summary judgment.

[3]      The defendant  has  tenanted the property since  June 2009.    She opposes summary judgment, contending that she has an arguable case for possession.

Background

[4]      Some brief background assists the understanding of the key issues in the case. As at June 2009, the property was owned by Chia Ling Lu (Mr Lu).  The property was subject to a mortgage to Westpac New Zealand Limited.  On 19 June 2009 Mr Lu let the property to the defendant.   The tenancy agreement shows that it was a periodic tenancy commencing on 20 June 2009.   It appears that the defendant has been in occupation of the property since that time.

[5]      In June 2011 Set Kien  Law (Ms Law) lodged a caveat against the title,

claiming  an  interest  “as  purchaser  and  lessee  pursuant  to  an  agreement  dated

05/03/2011 between the registered proprietor Chia Ling Lu and the caveator”.  That

agreement is not in the evidence before the Court.

[6]      On 27 August 2011 Mr Lu and Ms Law apparently entered into a tenancy agreement under which Mr Lu granted a five year fixed term tenancy to Ms Law. The agreement states that the tenancy shall commence on 27 August 2011, and terminate on 27 August 2016.  It contained the following provisions:

(a)       Under “Tenancy details”:

Prepaid lease (Rent) from 27/08/2011 for 5 years as per Sales and purchase agreement dated 5/3/2011.

(b)      Under the agreement itself:

The landlord and tenant agreed that

...3. The tenant shall not assign or sublet the tenancy without the

landlord’s written consent

5.   Existing  tenancy  can  be  transferred  [sic]  to  this  tenancy agreement.

[7]      There is no evidence before the Court as to what happened to the tenancy agreement dated 19 June 2009 between Mr Lu and the defendant, nor as to any arrangements made between the defendant and either Mr Lu or Ms Law consequent upon  either the  apparent  sale and  purchase  agreement  of  5  March  2011  or the tenancy agreement of 27 August 2011.   However, on 16 November 2011 Ms Law apparently entered into a tenancy agreement with Manu Tomu (Ms Tomu) with effect from that date. The agreement specifically provided that it was a periodic tenancy.

[8]      It is clear that title to the property remained in the name of Mr Lu despite the apparent agreement with Ms Law in March 2011.  Again there is no evidence as to what took place in relation to that agreement, but it is a possible inference that Mr Lu was unable to provide clear title.  Whether or not that is the case, it appears that Mr Lu ran into financial difficulties, and at some point through 2011 Westpac took steps to sell the property as mortgagee.

[9]      On 1 December 2011 the plaintiff purchased the property at auction.  At that time Ms Law’s caveat was still in place.  Westpac applied for removal of the caveat. On 19 December 2011 this Court made an order removing it (together with caveats on other properties), on the basis that the interest claimed by Ms Law under the

caveat did not survive the mortgagee sale.[1]   The Court noted that there were issues

over tenancy, and said that they were matters to be determined between the tenants and the plaintiff in due course.

[1] Relying principally on Land Transfer Act 1952, s 105.

[10]     Subsequent to removal of the caveat Ms Law wrote to the plaintiff claiming an interest as the tenant under the agreement of 27 August 2011, and that the plaintiff acquired the property subject to her tenancy, and with knowledge of it.  She referred to warning signs having been placed on the property and asked that no steps be taken

to disturb the tenancy.  By that time the plaintiff had visited the property and found

that Ms Tomu was in occupation, although there is no evidence to suggest that the plaintiff was aware of any specific arrangement between Ms Law and Ms Tomu.

Principles of summary judgment

[11]     The principles that the Court applies when determining an application for summary judgment are well known and do not require restatement.  They are to be found in the early case of Pemberton v Chappell[2] and have recently been succinctly summarised by the Court of Appeal in Krukziener v Hanover Finance Ltd.[3]    The main principles of relevance to the present application are:

[2] Pemberton v Chappell [1987] 1 NZLR 1 (CA).

[3] Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 (CA).

(a)      The plaintiff seeking summary judgment must establish that there is no reasonably arguable defence.

(b)Where the plaintiff establishes a prima facie case, a defendant must put forward some evidential basis for the defence being asserted.

(c)      The Court will not endeavour to resolve disputes of fact or assess credibility of deponents, but is able to consider whether a defendant has advanced facts to provide a sufficient evidential foundation for the defences raised.

(d)The Court does not have to accept uncritically every assertion by a defence but may consider whether the assertion is credible in light of undisputed contemporary documents or, other statements by the same deponent, or is so inherently improbable that it does not pass a threshold of credibility.

(e)      Finally, the Court is entitled to take a robust and realistic approach where the facts warrant it.

The contentions in this case

[12]     The plaintiff contends that it is not bound by any agreement with Ms Tomu. It contends that any tenancy agreement between Mr Lu and Ms Law fell away with the sale of the property, and that it had no knowledge of, and has not consented to, any arrangement with Ms Tomu.

[13]     Counsel for the plaintiff did not oppose a late change in the argument being advanced on behalf of the defendant, in respect of reliance on s 58 of the Residential Tenancies Act 1986, and addressed those arguments both in his written and oral submissions.   In essence he argued that the plaintiff had no knowledge of the arrangements with Ms Tomu and therefore could not be bound by them.   In the alternative, he argued that if the section had any application, the plaintiff was entitled to rely on the provisions in the section which put it in the same position as the landlord under the tenancy agreement, and said that it had given a valid notice of termination on 3 April 2012.

[14]     In relation to the defendant’s argument that there was a basis for knowledge, counsel submitted that the defendant had failed to explain much of the sequence of events: there was no explanation of the events surrounding the agreement between Mr Lu and Ms Law, nor as to what happened to the defendant’s previous tenancy, nor a satisfactory explanation as to the genesis of the tenancy agreement eventually signed between Ms Law and the defendant.  He accepted that there was some bare evidence of the plaintiff ’s knowledge of the alleged agreement between Mr Lu and Ms  Law  of  August  2011,  but  nothing  at  all  to  show  any  knowledge  of  the arrangement between Ms Law and the defendant.

[15]     Counsel for the defendant submitted that the plaintiff was not entitled to an order for possession because it was bound by the fixed term tenancy to Ms Law by reason of s 58 of the Residential Tenancies Act.   He argued that the defendant’s rights derived from that other tenancy, and Ms Law was the only party who was able to terminate that agreement.  He said that there was at least an arguable case that the plaintiff had knowledge of Ms Law’s tenancy, and that that was sufficient to bring

into play the provisions of s 58, as the purchaser had sufficient knowledge of a tenancy to bind it in equity.[4]

Discussion

[4] Relying on Ziki Investments (Properties) Ltd v McDonald [2008] 3 NZLR 417 (HC).

[16]     There are two central issues in this application.  The first is whether s 58 of the Residential Tenancies Act applies.  The second is whether that first issue can be determined at summary judgment.

[17]     Section  58(1)(a)  of  the  Residential  Tenancies Act  provides  that  where  a mortgagee or other person becomes entitled (as against the landlord) to possession of premises, the tenancy shall continue notwithstanding the mortgagee or other person becoming entitled to possession.[5]   This section goes on to provide that the mortgagee or other person has  the  same rights  (if any)  as  the landlord  under the tenancy agreement, with specific reference to notice.

[5] Residential Tenancies Act 1986, s 58(1).

[18]     Counsel  were  able  to  find  only one  case  of  any likely  application:  Ziki Investment (Properties) Limited v McDonald.  In that case this Court considered the application of s 58 and its interrelationship with the doctrine of indefeasibility.   It was accepted both in that case, and by counsel in this matter, that the plaintiff comes within the description of “other person” in s 58(1)(a), as a subsequent purchaser of the property.[6]

[6] Ziki at [40].

[19]     In  his  analysis  of  s  58, Asher  J  identified  the  following  points  (I  have substituted “subsequent purchasers” for “other person” to make the points directly referable to the present case):

(a)      Under the doctrine of indefeasibility of title, a subsequent purchaser obtains a right to possession of premises, and the right to exclude any occupiers of premises, but the tenancy nevertheless continues prima

facie under s 58(1)(a).[7]

[7] At [41].

(b)Under s 58(1)(b) the subsequent purchaser is deemed to have acquired a landlord’s interest in premises, and has the same rights (if any) as the landlord under the tenancy agreement to give notice terminating the agency.[8]

[8] At [42].

(c)      As a landlord has no right to terminate a fixed term tenancy by notice, the subsequent purchaser can do no better (as his rights are the same as the landlord’s).[9]

(d)Under s 58(1)(d) the subsequent purchaser has the right to give notice to  terminate  a  fixed  term  tenancy  as  if  that  tenancy  had  been  a periodic tenancy,[10] but this provision does not apply where the subsequent purchaser is bound by the tenancy.

[9] At [43].

[10] Residential Tenancies Act 1986, s 58(1)(d).

[20]     The Court in Ziki then went on to consider what was meant by being bound by the tenancy.  After rejecting the proposition that the mere fact of a tenancy being in existence at the time that the subsequent purchaser entered into his agreement was sufficient,[11]   and  examining  authorities  relating  to  the  application  of  equitable interests, Asher J stated:[12]

[11] Ziki at [51].

[12] At [59]–[62].

... A purchaser or mortgagee with no notice of the tenancy would not be bound in terms of s 58(1)(e) and would consequently benefit from the termination provisions of s 58(1)(d). Notice is the key to the landlord being “bound”.

[60] This interpretation of “bound” is also consistent with the use of the phrase “consented in writing” in s 58(1)(e). It involves the same element of knowledge of the tenancy, but exact knowledge of the terms is not a requirement. In both situations it would be inequitable for a mortgagee or other purchaser then to reject the tenancy. Interpreting “bound” in this way means that s 58(1)(e) meets the intention implicit in the subsection of protecting a tenant against an inequitable refusal by a landlord or mortgagee to honour a known tenancy.

[61] This interpretation of s 58(1) can undoubtedly be seen as an exception to the doctrine of indefeasibility of title. However, that is expressly contemplated by s 58(2) of the Act when it states that s 58(1) shall apply notwithstanding the provisions of the Land Transfer Act. Further, it is in

accord with the general tenor of the Act and the emphasis in s 85(2) on applying  the  general  principles  of  law  and  considering  “the  substantial merits and justice of the case”. It means, as Mr Molloy for Ziki points out, that  any  prospective  purchaser  or  mortgagee  of  a  residential  property knowing of a tenancy should check its conditions prior to entering into a mortgage or sale and purchase agreement. Such a requirement is not exceptional, and can be seen as in accord not only with ordinary notions of fairness and justice but with sound commercial practice. The standard Auckland  District  Law  Society  agreement  for  sale  and  purchase  form provides explicitly for the recording of the details of any tenancy of the property. A wise mortgagee will also check any known tenancies of the mortgaged property before entering into the mortgage.

[62] I conclude that the word “bound” means “bound” in equity, putting to one side the indefeasibility provisions of the Land Transfer Act. In this respect I differ from the learned District Court Judge.

[21]     The effect of the above authority is that to succeed on this application the plaintiff must show that there is no arguable basis on which the defendant can contend that the plaintiff had knowledge which makes it inequitable to honour the tenancy.    This  begs  a  second  question,  and  that  is,  which  tenancy  must  be considered?

[22]     The  latter  point  is  where  the  parties  differ  in  their  arguments.    As  I understood the argument for the plaintiff, it was focused essentially on the tenancy agreement between Ms Law and the defendant.   However, the argument for the defendant is that the critical tenancy in terms of s 58 is the agreement between Mr Lu and Ms Law.

[23]     I accept  the argument  for the defendant  that  the critical  tenancy for  the purposes of the argument under s 58 is the agreement between Mr Lu and Ms Law of

27 August 2011.  The defendant’s entitlement derives from the August agreement.  If the plaintiff is bound by that agreement, it seems axiomatic that it must also be bound by any rights that derive from it.

[24]     I turn now to consider what notice the plaintiff had.

[25]     Counsel for the defendant sought to argue that the plaintiff had notice by reason of a clause in the agreement signed following the auction which provided that the property was sold subject to existing tenancies (if any), including holding over

by the mortgagor.  In my view that clause does not assist the defendant other than to put a purchaser on notice in a very general way that if a tenancy exists it will be bound  by that.    It  does  not  help  a decision  as  to  whether  there was  sufficient knowledge in this case.

[26]     Counsel for the plaintiff, properly, and fairly, accepted that there was some knowledge of the tenancy between Mr Lu and Ms Law, at least for the purpose of raising an arguable defence.  This was the evidence that signs had been erected on the property alerting prospective purchasers to the tenancy and warning them that the tenants would be claiming rights.  I consider that that evidence is supported by the reference in the caveat lodged by Ms Law to an interest as lessee.  In my view those two matters are sufficient to found an argument that the plaintiff ought to have made some enquiry, at least to establish the existence of the agreement between Mr Lu and Ms Law.  Had that occurred, the possibility exists that the plaintiff would also have learned of the terms of that agreement, including the possibility of the sub tenancy.

[27]     Counsel for the plaintiff endeavoured to persuade me that these matters were insufficient to constitute sufficient notice.  He argued that there were so many gaps in the evidence that I should dismiss these arguments.  In particular, he pointed to the paucity of evidence as to the arrangement between Mr Lu and Ms Law, and the absence of any affidavit from Ms Law.  These are fair points.  There are many gaps in the evidence.   However, I am not persuaded that I can simply dismiss the case being advanced on behalf of the defendants.  There are many matters that need to be investigated further, both through discovery, and possibly by cross-examination at trial.  I do not accept that they should be determined on this application.

Decision

[28]     The application for summary judgment is dismissed.   Costs  are reserved pending final determination of the proceeding.

[29]     To progress the substantive proceeding, I make the following directions:

(a)       The defendant is to file and serve a statement of defence by 3 August

2012.

(b)Counsel are to confer on discovery over the following two weeks, both as to whether standard or tailored discovery is to be given and as to the protocols for exchange.

(c)      The Registrar is to allocate a case management conference for the proceeding as soon as time can be found after 24 August 2012 with a view to making orders for discovery, giving directions on any other interlocutory matters, discussing possible settlement initiatives and allocating a trial date.   Memoranda should be filed ahead of that

conference in the usual course.

Associate Judge Abbott