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IN THE SUPREME COURT OF NEW ZEALAND
SC 72/2010 [2011] NZSC 49
BETWEEN GRAEME JOHN INGRAM AND ELIZABETH KNEE First Appellants
AND KIP INVESTMENTS LIMITED Second Appellant
AND PATCROFT PROPERTIES LIMITED Respondent
Hearing: 22 March 2011
Court: Elias CJ, Blanchard, Tipping, McGrath and William Young JJ
Counsel: D W Grove for Appellants D G Collecutt for Respondent
Judgment: 10 May 2011
JUDGMENT OF THE COURT
AThe appeal is allowed and the orders made by the High Court are restored.
BThe appellants are awarded costs of $15,000 together with their reasonable disbursements to be fixed if necessary by the Registrar.
CThe costs order made by the Court of Appeal is reversed. Any outstanding questions concerning interest and costs should be determined by the High Court.
REASONS
(Given by Blanchard J)
Introduction
This case is about the consequences of the actions of a lessor of commercial premises in prematurely re-entering, impounding the lessees’ fixtures, fittings and chattels and preventing the lessees from accessing the premises by changing the locks. Those actions are accepted to have been in breach of the lease contract at the time when they occurred because, although the lessees had previously failed to pay some rent when it fell due, the lease terms postponed the lessor’s ability to exercise its right of re-entry on that account for 14 days and the re-entry occurred one day before that period had ended.
The lessees could immediately have accepted the lessor’s repudiation of the lease contract by giving notice of cancellation. But they did not do so.
The next day the rent became 14 days overdue. The lessees still did not pay it. Nor, other than remonstrating with the lessor and pointing out the unlawfulness of its actions, did the lessees attempt to regain possession. Matters did not come to a head for nearly a year until the lessor, still treating the lease as validly terminated, claimed damages. The lessees retaliated with their own damages proceeding based on the lessor’s breach. It is accepted that, if the lease remained on foot, the bringing of that proceeding constituted a notice of cancellation by the lessees.
The lessor claimed, however, that it had enjoyed and exercised a right to cancel the lease contract once the 14 days had expired and that it had then, by its conduct in continuing to exclude the lessees, cancelled the lease in reliance on the lessees’ continuing default in paying the rent. It is common ground that no rent payments were made after the invalid re-entry.
The High Court found in favour of the lessees and awarded them damages for the loss of their businesses.[1] The Court of Appeal, by majority, reversed that decision and set aside the High Court’s orders for payment of damages by the lessor.[2]
Facts
[1] Ingram v Patcroft Properties Ltd (2009) 10 NZCPR 426 (HC) per Allan J.
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
Ingram v Patcroft Properties Ltd [2011] NZSC 49
Case
[2011] NZSC 49
Decision Date
CaseChat Overview and Summary
Ingram and Knee leased a property from Patcroft for use as a backpackers' accommodation business. KIP Investments, which was 50% owned by Ingram and Knee and 50% owned by a Mr Pearce, subleased part of the property. When Ingram and Knee failed to pay some rent that fell due, Patcroft re-entered the property one day before the period during which it was entitled to do so had ended. Patcroft then changed the locks on the property and posted notices of re-entry, trespass and distraint. Ingram and Knee did not take steps to regain possession of the property. Instead, they brought an action against Patcroft for damages for breach of contract. Patcroft counterclaimed for damages for breach of contract. The High Court found in favour of Ingram and Knee and awarded them damages for loss of their businesses. The Court of Appeal reversed that decision and set aside the orders for payment of damages. The Supreme Court allowed the appeal and restored the orders made by the High Court. The Supreme Court held that Patcroft's unlawful re-entry and exclusion of Ingram and Knee from the property constituted a repudiatory breach of the lease contract that prevented Ingram and Knee from carrying on their businesses. Ingram and Knee were therefore entitled to a right of cancellation under s 7(4)(b) of the Contractual Remedies Act. As long as Patcroft's repudiatory stance was unchanged, it would be a continuing breach capable of acceptance and cancellation by Ingram and Knee under that Act. The non-payment of the rent was justified by the re-entry. Ingram and Knee could not be expected to pay arrears of rent while Patcroft's denial of the existence of any lease continued. Patcroft was precluded from claiming a right to cancel for non-payment of rent because of its unretracted repudiation of the lease. Its purported cancellation was entirely inconsistent with its stance that the lease no longer existed from 14 June.