Kree NZ Ltd v Kang Trust Ltd
[2023] NZHC 2229
•17 August 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-2429
[2023] NZHC 2229
IN THE MATTER OF an application for relief under ss 261, 264 and 253 of the Property Law Act 2007 BETWEEN
KREE NZ LTD
Applicant
AND
KANG TRUST LTD
Respondent
Hearing: On the papers Counsel:
E J Taia for Applicant A Ho for Respondent
Judgment:
17 August 2023
JUDGMENT OF LANG J
[Costs]
This judgment was delivered by Justice Lang On 17 August 2023 at 2.00 pm
Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar
Date:…………………………
Solicitors/counsel:
Franklin Law, Pukekohe
Chen Sandhu/Crimson Legal, Auckland
KREE NZ LTD v KANG TRUST LTD [2023] NZHC 2229 [17 August 2023]
[1] Kree NZ Ltd (Kree) is the lessee under a lease of commercial premises owned by Kang Trust Ltd (Kang). Kree failed to give notice of its intention to renew the lease within the time required under the lease. This prompted it to file the present proceeding, in which Kree sought an order granting it relief under ss 261 and 264 of the Property Law Act 2007.
[2] The application was set down for hearing on 19 July 2023. On 7 July 2023 counsel filed a joint memorandum confirming that Kang had agreed to grant Kree a renewal of the lease from 1 April 2022. The fixture was accordingly vacated and the proceeding came to an end other than in relation to the issue of costs.
[3] The parties have been unable to reach agreement regarding that issue. The file has therefore been referred to me as Duty Judge to determine costs on the basis of the memoranda filed by counsel.
Background
[4] The lease originally commenced on 1 April 2016. It required the tenant to pay both rental and operating expenses (Opex). The lease was for a term of two years with five rights of renewal of two years each. This meant the lease would finally expire on 31 March 2028. If the tenant wished to renew the lease, it was obliged to give the lessor notice of its intention to do so at least three months prior to expiry of the current term of the lease.
[5] Kang became the owner of the premises, and the lessor under the lease, in April 2017. Kree took an assignment of the lease in August 2020. Under the deed of assignment, the parties agreed to extend the term of the lease until 2036.
[6] The lease was next due to expire on 31 March 2022. Kree failed to give Kang the required notice of its intention to renew the lease for a further two-year period. On 4 May 2022 Kang’s solicitors advised Kree’s solicitors that the lease had come to an end and that Kree now occupied the premises on a monthly tenancy. They also advised that Kang proposed to cancel the monthly tenancy unless Kree agreed to enter into a new lease on specified terms and conditions.
[7] The correspondence that followed eventually resulted in Kree filing the present proceeding.
Analysis
Contractual indemnity costs
[8] Kang contends it is entitled to indemnity costs under the lease because it has a contractual right to be reimbursed on a solicitor client basis for all costs incurred “incidental to the enforcement of the landlord’s rights and remedies and powers under the lease”.
[9] I disagree. Kang’s response to the present proceeding did not constitute, and was not incidental to, enforcement of its rights, remedies and powers under the lease. Rather, it responded to Kree’s application for an order granting it relief against forfeiture. It is common ground that Kree was never in default in the payment of rental under the lease. There was a dispute between the parties about payment of the Opex but this has effectively been resolved in Kree’s favour. The proceeding therefore did not engage Kang’s rights under the lease to enforce the landlord’s rights, remedies and powers.
[10] It follows that Kang is not entitled to rely on its contractual right under the lease to recover indemnity costs.
Costs payable under the High Court Rules 2016
[11] Both parties contend they are entitled to an award of costs under the High Court Rules 2016. All questions as to costs are at the discretion of the Court.1 In exercising its discretion, the Court applies the principles set out in r 14.2. To the forefront of these is the principle that the unsuccessful party with respect to a proceeding shall pay costs to the successful party.2
1 High Court Rules 2016, r 14.1(1).
2 Rule 14.2(1)(a).
[12] In the present case I am satisfied that Kree was the successful party because it achieved the outcome it sought when it filed the proceeding. Kree would therefore ordinarily be entitled to an award of costs in its favour.
[13] However, the courts have in the past taken a different approach when a tenant seeks relief against forfeiture. This may occur where, for example, the lessee has fallen into arrears in the payment of rental or is otherwise in breach of the terms of the lease. The courts have traditionally granted relief where the lessee remedies any default.3 However, the lessee has sometimes been required to pay costs to the lessor even though the application has been successful. This was said to be justified on the basis that the lessee had received an indulgence given that it had previously been in default.4
[14] Recent authority suggests this argument may no longer be appropriate in all cases. In Cunningham v Butterfield the Court of Appeal observed:5
[53] Closer to the present facts are cases where lessees have obtained relief against forfeiture subject to orders that the costs be paid to the lessor who had opposed the grant of relief. Thus, in QT Hospitality Ltd v Oxford Holdings Ltd relief was granted against the forfeiture of the lease in circumstances where rent had been in arrears but was subsequently brought up to date. Asher J observed that the lessee had been seeking an indulgence, and the lessor had every reason to be frustrated with and distrustful of the lessee: there had been “a succession of dishonoured cheques” and failed commitments to make payments.6
[54] Mr Johnson also referred to McKenna v North Harbour Taverns Ltd, Yoo v Dominion Income Property Fund Ltd and Wislang v City Realties (Holdings) Ltd.7 In all of those cases relief against forfeiture was granted subject to an award of costs in favour of the lessor who had opposed the grant of relief.
[55] They may be contrasted with another decision of Asher J in Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd in which the plaintiffs had failed to secure an order for possession and were unsuccessful in their claim for damages.8 The defendant had obtained an order pursuant to s 120 of the
3 McIvor v Donald [1984] 2 NZLR 487 (CA) at 494; and New Zealand Mint Ltd v Greys Avenue Investment Ltd [2015] NZHC 2051 at [23].
4 QT Hospitality Ltd v Oxford Holdings Ltd (2007) 8 NZCPR 817 (HC).
5 Cunningham v Butterfield [2014] NZCA 213, (2014) 22 PRNZ 521.
6 QT Hospitality Ltd v Oxford Holdings Ltd, above n 4, at [37].
7 McKenna v North Harbour Taverns Ltd HC Auckland CP459/91, 22 July 1991; Yoo v Dominion Income Property Fund Ltd HCF Auckland CIV-2005-404-3239, 13 July 2005; Wisland v City Realties (Holdings) Ltd HC Auckland CP567/976, 6 December 1996.
8 Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd HC Auckland CIV-2005-404-3631, 8 March 2006.
Property Law Act 1952 that the plaintiffs grant a renewal of the defendant’s lease. There was no doubt that the defendant was the party who had succeeded in the action. However, the defendant had failed to renew the lease and it was its error that gave rise to the litigation. Asher J found that the defendant had made an innocent mistake, and had not engaged in any “sharp dealing” or attempt to take an advantage.9 He decided that costs should go to the defendant, applying the normal rule that costs should follow the event.
[56] Of particular relevance here is Asher J’s conclusion that, while the usual pattern prior to 1995 was to award costs to the unsuccessful landlord in relief against forfeiture cases, since the new costs regime came into force on 2 January 2000, the outcomes had been more varied: while costs were awarded to the landlord in two cases, in another two costs had been awarded to the defendant.10
[57] In our view the cases on which Mr Johnson relied should not be seen as establishing a general rule that costs will usually be granted in favour of a lessor who has unsuccessfully opposed an application for relief against forfeiture made by a lessee. While we accept that the cases temper the general rule that costs should follow the event, we do not consider the position can be put on any more definite basis. Rather, what is required is a principled application of the rules. In cases such as this that may require an analysis of the facts to see what has given rise to the litigation, taking into account the conduct of the parties and whether one of them has contributed to its costs or engaged in other conduct that should influence the costs decision.
Analysis
[15] In the present case Kree’s error in failing to give the requisite notice led to the lease expiring. There is no suggestion the error was caused through anything other than inadvertence on its part. Nor is there any suggestion Kree has been guilty of any “sharp dealing” or other questionable conduct. It has also maintained from the outset that it wanted to renew the lease on existing terms.
[16] It is also clear that Kang was prepared from an early stage to grant Kree a new lease provided it agreed to the terms of the lease being varied in certain respects. In essence, Kang sought to take advantage of Kree’s error by negotiating new terms that were advantageous to it. Kang also filed documents in opposition to Kree’s claim. It was not until the hearing approached that Kang realised it could not realistically oppose Kree’s application for relief. At that point it agreed to grant Kree a new lease
9 At [16].
10 At [18]-[19] citing Walsh v Utting [2004] 1 NZLR 402 (HC); Umbria Café v Bridgend Holdings Ltd HC Auckland CIV-2004-404-1311, 4 October 2004; Duck v Satterthwaite Holdings Ltd HC Christchurch M32/00, 9 August 2000; and Timberco (1999) Ltd v Sarvee Acquisitions Ltd (2005) 7 NZCPR 429 (HC).
and accepted that any other issues should be resolved through negotiation. Kang should have taken this approach from the outset.
[17] I also consider Kree was justified in filing the present proceeding. It is true that Kang never threatened to evict Kree from the premises. However, Kang continued to maintain that the lease had expired and it therefore had the ability to terminate the resulting monthly tenancy. Kree was at risk Kang would take this step if it did not take steps to protect its position. Any significant delay in filing the application could also count against it given that a grant of relief is a discretionary exercise.
[18] The factual situation in the present case is not dissimilar to that in Storageone Kapiti (2012) Ltd v Sharja Ltd.11 In that case, as in this, the lessee of commercial premises had inadvertently failed to give notice of its intention to renew the lease. The lessor also alleged the lessee had breached the terms of the lease in two respects. The lessor was prepared to enter into a new lease but on terms that were more beneficial to it. Cooke J observed that it “can fairly be described as a case where the landlord is seeking to take advantage of a tenant’s mistake in order to secure a better deal”.12 He said that in such circumstances there would have to be compelling reasons for the Court not to grant relief. Cooke J duly granted the lessee relief and said that his preliminary view was that the lessee was entitled to costs on a category 2B basis.13
[19] I take the same view in the present case. I see no reason to depart from the usual principle that Kree should receive an award of costs as the successful party in the litigation.
[20] Kree says it is entitled to an award of increased costs because Kang filed evidence suggesting that Kree had failed to pay Opex since taking possession of the leased premises. Kree was required to confront this argument, which it says should never have been raised.
[21] The Court has the power to order increased costs when a party has contributed unnecessarily to the time or expense of a proceeding by taking or pursuing an argument
11 Storageone Kapiti (2012) Ltd v Sharja Ltd [2022] NZHC 2252, (2022) 23 NZCPR 545.
12 At [16].
13 At [44].
that lacks merit.14 I accept that it was unfortunate that Kang sought to rely on an alleged failure by Kree to pay Opex. However, the reply affidavit that Kree filed in response to Kang’s evidence contained just eight paragraphs dealing with the Opex issue. The other 20 paragraphs dealt with other issues. I do not consider Kang’s argument contributed unnecessarily to the cost of the proceeding to the extent necessary to justify an award of increased costs.
Result
[22] Kree is entitled to an award of costs on a category 2B basis together with disbursements as fixed by the registrar.
Lang J
14 High Court Rules, r 14.6(3)(b)(ii).
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