Kuoch v Ganda

[2022] NZHC 452

IN THE HIGH COURT OF NEW ZEALAND c REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-2178

[2022] NZHC 452

UNDER

Section 261 of the Property Law Act 2007 and Part 19 of the High Court Rules 2016

IN THE MATTER OF

A lease of premises at 27 Chartwell Avenue, Glenfield, Auckland

BETWEEN

JOHNLEE HUA MINH KUOCH

Applicant

AND

MAHESH GANDA, MANI GANDA and

RAMAN DIYAR GANDA as trustees of the Morar Family Trust

Respondent

Hearing:

1 March 2022

Appearances:

B Rooney for the Applicant

L Ponniah for the Respondent

Judgment:

14 March 2022

JUDGMENT OF POWELL J

This judgment was delivered by me on 14 March 2022 at 3.30 pm pursuant to R 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors/Counsel:

Fortune Manning, P O Box 4139, Auckland

(B Rooney, Vulcan Building Chambers, Auckland)

Thomas and Co, New Lynn, Auckland
(L Ponniah, P O Box 55022, Eastridge, Auckland)

KUOCH v GANDA [2022] NZHC 452 [14 March 2022]

[1]                 The  applicant,  Johnlee  Kuoch,  has   applied   for  an   order   pursuant   to  s 261(1)(a)(i) of the Property Law Act 2007 to renew the lease of the premises where his laundromat business is located (“the lease”). The application is necessary because Mr Kuoch failed to give the appropriate notice to renew the lease prior to its expiry on 8 January 2020.

[2]                 The application is opposed by the respondents, as trustees of the Morar Family Trust,  which  owns  the  premises  in  which  Mr  Kuoch’s  business  is   located (“the trustees”). While the trustees do not dispute that Mr Kuoch inadvertently failed to renew the lease, they say that Mr Kuoch’s application should be dismissed because he had two alternative opportunities available to avoid the alleged prejudice faced by the refusal to renew the lease, which he deliberately chose not to take. They argue he could either have maintained the periodic tenancy that resulted after he failed to renew the lease or, in any event, the trustees had been prepared to grant him a new lease.

[3]                 More broadly the trustees argue that to grant Mr Kuoch’s application would prejudice the trustees because the lease does not appropriately deal with liability for infrastructure growth charges (“IGC”) levied by Watercare against the trustees for water use at the leased premises and three other premises also owned by the trustees on the same site. The trustees consider Mr Kuoch has primary responsibility for these charges due to the nature of his laundromat business and associated water usage.

[4]                 Mr Ponniah, on behalf of the trustees, went so far as to submit that in the event that relief was granted on the application, it should be done so to require Mr Kuoch to enter into a new lease with the trustees, or to amend the existing lease to confirm his liability with regard to the IGC.

Factual background

[5]                 Mr Kuoch took assignment of the leased premises on 8 November 2018, which, as noted, is one of four owned by the trustees in Chartwell Avenue, Glenfield.

[6]                 Originally a bakery, the premises subject to the application had been converted into a laundromat by November 2017, and Mr Kuoch took over the business as a going concern.

[7]                 The lease was for a term of four years commencing on 8 January 2016 and included one right of renewal for a further four years to 8 January 2024. A further two-year renewal was provided for in the assignment, which also specifically noted the premises were being used as a laundromat. The trustees consented to the assignment and in doing so not only confirmed the additional right of renewal but also that the previous tenant was not in breach of the lease at the time of the assignment.

[8]                 Unbeknown to Mr Kuoch however, on 17 November 2017, shortly after the premises had been converted into a laundromat, Watercare, with whom the trustees had contracted to supply water to each of the four leased premises, had written to the trustees to advise:

I am writing to you because Watercare has become aware that there has been a commercial laundry installed at your property – 25-29 Chartwell Avenue, Glenfield (site).

Under our customer contract an Infrastructure Growth Charge (IGC) is payable where a property increases or proposes to increase their demand for our water and wastewater services by more than 220 kilolitres (kl). The IGC is a contractual charge used to recover the cost of growth related capital expenditure.

The current allocation for water demand is based on your historic use of 660kL per year. If you believe that the water and/or wastewater demand of the site will exceed 660kl (or an approximate average of 1,800 litres per day) you can complete the enclosed Water and Wastewater Services Application form and return it to us for processing. You can monitor your water demand by checking the graph on the back of your monthly Watercare invoices.

We will review your water demand in 12 months time and if the water demand for the site exceeds 660kl we will invoice you (being the owner of the 25-29 Chartwell Avenue, Glenfield) the Infrastructure Growth Charge in accordance with our customer contract.

I have enclosed a copy of our customer contract and pricing schedule for your reference.

[9]                 There is no evidence that the trustees took any steps in response to the Watercare letter, and indeed Watercare took no further steps with regard to the IGC until 26 June 2020. On that date Watercare wrote to the trustees and, after noting that no response had been received to its letter of 17 November 2017, confirmed the level of increased water usage at 25-29 Chartwell Avenue. As a result of this, the trustees were  liable  for nine “development  unit  equivalents”, resulting  in  an  IGC   fee of

$103,780  plus  GST  payable  for  the  period  2016-2020,  a  sum  that  would  be

subsequently invoiced to the trustees. The supporting information makes it clear that once the IGC had been paid the premises would then be entitled to continue to use water at a level of 2,723 kl per year across the leased premises, with the actual water usage charged to the tenants.

[10]             Again, no immediate action appears to have been taken by the trustees in response to the letter from Watercare, and it was only after the IGC had been invoiced by Watercare on 9 September 2020 that the trustees advised Mr Kuoch of what had occurred. The trustees subsequently proceeded to invoice Mr Kuoch for the total amount of the IGC incurred since 2016 and requested he “reply back with a proposal on how and when the amounts could be settled”.

[11]             Mr Kuoch responded by requesting information about the water usage across the various tenancies, but no response was given by the trustees. Instead, the next correspondence appears to have taken place at the end of March 2021. Specifically, on 30 March 2021 the trustees requested Mr Kuoch to take “immediate action” noting the “matter is now urgent”. The final paragraph of the email went on to record:

In regard to the lease, we note that a rent review is now due for consideration be given to it.

Furthermore the lease does not appear to be renewed as at 7th of January 2020?

[12]Mr Kuoch’s solicitors responded on 1 April 2021, noting:

Our client bought the laundromat business and took assignment of the lease on 9 November 2018.

We have been advised by our client that your client landlord has never disclosed the letter dated 17 November 2017 to our client. It would have been an opportune and appropriate time to have disclosed this to our client when your client undertook the process of consenting to the assignment of the lease to our client.

In fact, our client  has  also  advised  that  the letters from Watercare  dated 26 June 2020 and 9 September 2020 were also not disclosed to our client. All three letters from Watercare were only disclosed to our client for the first time on 11 October 2020.

We  are of the view that the first letter from Watercare  to your client  on      7 November 2017 should have been disclosed to our client at the time of your client’s consenting to the assignment of the lease to our client in November 2018. If it was disclosed, our client would no doubt have been able to take measures to either mitigate his use of water and waste water services and/or

make suitable application to Watercare in a timely manner for any proposed increased use in conjunction with your client landlord.

As the letter was never disclosed to our client, our client have had no opportunity to do anything to mitigate your client’s liability for an Infrastructure Growth Charge (IGC) and which is not without doubt your client’s sole responsibility to pay and, which cannot possible be attributable to our client.

In the meantime, our client also wish to formally advise of his exercise of his right to renew the lease for a further 4 years from 8 January 2020.

[13]             Mr Ponniah was then instructed and responded on behalf of the trustees on  18 June 2021. After noting that as notice of renewal had not been given in accordance with the lease Mr Kuoch occupied  the  property  on  a  month-to-month  tenancy,  Mr Ponniah went on to state that he would take further instructions “as to the continuation of the leasing”.

[14]             The primary focus of Mr Ponniah’s letter was the IGC and a further letter from Watercare to the trustees dated 11 March 2021. Mr Ponniah expressed the view that Mr Kuoch was liable for the IGC as an outgoing under the lease and went on to conclude his letter in the following terms:

Therefore, if your client continues to be in breach by failing to pay the Watercare invoice 6522982-90 dated 4 September 2020 for $103,780 excluding GST on or before 5pm on Friday 25 June 2021, our client will terminate the month-to month tenancy bringing to an end this onerous and disproportionate liability for additional IGC.

[15]             Mr Rooney was then instructed as counsel for Mr Kuoch. In his response to Mr Ponniah, Mr Rooney disputed that the IGC were an outgoing under the lease, and also questioned how Mr Kuoch could be liable for IGC incurred in a period before he became the tenant. Finally, he requested Mr Ponniah to confirm if the trustees were prepared to renew the lease, and if not, their reasons for declining.

[16]             In response, on 5 July 2021, Mr Ponniah proposed that Mr Kuoch pay the IGC arising after the assignment on 9 November 2018 ($39,016 plus GST), with the status of the balance of the IGC to be determined by arbitration as provided for in the lease. Mr Ponniah went on to give notice on behalf of the trustees that in the event that the proposed approach was not accepted by Mr Kuoch, and conditions were not complied

with within 10 working days, the month-to-month tenancy would expire on 4 August 2021.

[17]             Subsequent correspondence between Mr Ponniah and Mr Rooney focused on the IGC issue, with Mr Rooney confirming on behalf of Mr Kuoch that he was “prepared to consider a reasonable formula to cover his share of the infrastructure growth charge, but it will be a non-negotiable condition that his lease will have to be renewed before any payment is made”.

[18]             These discussions did not resolve the matters between the parties. However, on 12 September 2021 one of the trustees, Raman Ganda, emailed Mr Kuoch confirming the IGC had been paid by the trustees. At the same time Mr Ganda forwarded credit notes to Mr Kuoch, effectively reversing the entire amount previously claimed by the trustees on 11 October 2020.

[19]             Given that position, Mr Rooney wrote to Mr Ponniah on 20 September 2021 requesting confirmation that the lease would now be renewed. Mr Ponniah advised that the trustees would deal with Mr Kuoch “directly to resolve matters”, and that proceedings to obtain a renewal would be “highhanded and unnecessary”.

[20]             No further communications were received by Mr Kuoch and so the present application was filed on 1 November 2021.

[21]             On 8 November 2021 another of the trustees, Mahesh Ganda, left the following message on Mr Kuoch’s cellphone:

Hi Johnlee, its Mahesh Ganda here, Morar Family Trust re the laundromat. We have received something from your barrister. We have spoken to him, umm, we have written to him as far as the Watercare side of things, we have sorted all that out, it is just the lease to sort out now. This proceeding that he is talking about is just a money-grab by him and I suggest you tell him to withdraw those proceedings. Can you please get back to me – it’s very important. You just need to sort the lease out and then everything good to go. It will be a good lease, umm that’s about it. Just carry on business as usual.

Thank you.

[22]             Following receipt of this message, Mr Rooney confirmed that further correspondence should be through the solicitors and advised that if the trustees were

now willing to renew the lease, the deed of renewal should be sent through to        Mr Kuoch’s solicitors. In response, Raman Ganda, as solicitor for the trustees, wrote to Mr Kuoch’s solicitor, arguing that any renewal of the lease would prejudice the landlord as a  result  of the trustees having to pay the IGC to Watercare.   Instead,   Mr Ganda confirmed that the trustees were prepared to offer Mr Kuoch a new lease based on a four-year term commencing on 15 November 2021 and containing one right of renewal  for another  four years.  The proposed terms  of  the lease  detailed by  Mr Ganda included:1

(a)a starting rent of $30,000;

(b)subject to an automatic minimum rental increase of six per cent every two years, with the landlord receiving an option of a market rate rental increase as well;

(c)requiring water conservation measures limiting the use of  water in  Mr Kuoch’s premises to the average water usage levels between November 2018 and June 2020, failing which the tenant is liable for any WaterCare IGC; and that

(d)Mr Kuoch pay $39,016 plus GST for the IGC incurred between November 2018 and June 2020.

[23]             As Mr Rooney noted in response it was difficult to reconcile Mr Ganda’s statements with the previous message from Mahesh Ganda, or indeed the water usage records from Watercare, and confirmed that Mr Kuoch’s position was that he was still seeking a renewal of the existing lease in terms of his application. Mr Rooney concluded:

Any issue about the rent for the premises can and should be determined under the rent review provisions in the existing lease, and if the majority of the defendants other than Mahesh Ganda do in fact wish to pursue contribution by my client to the Watercare infrastructure growth charge, then they can invoke the arbitration clause in the lease once it is renewed.

1      This offer was expressed to be without prejudice, save as to costs, but the terms of the offered lease were explicitly relied upon by Mr Ponniah at the hearing.

Discussion

[24]             There is no dispute that s 261 of the Property Law Act 2007 gives jurisdiction to the Court to renew a lease in situations where a tenant has failed to give notice of intention to renew within the time specified in the lease agreement.

[25]             The Court has broad discretion to grant relief under s 264 of the Property Law Act. The Court can grant an order directing a renewal or extension of the lease, and may impose conditions that it sees fit. It is well established that s 264 is a “remedial measure” conferring a “very wide jurisdiction to do equity in relieving against refusals by lessors to renew leases”.2

[26]             In exercising its discretion, the Court must consider all relevant circumstances and balance the rights of the lessor and lessee.3 The underlying rationale for the Court’s discretion is to avoid injustice, protecting the lessee from a lessor taking commercial advantage of their inadvertent mistake, where doing so would disproportionately impact the lessee.4

[27]             Justice Asher in Ponsonby Mall Trust Ltd5 identified the following grounds to be considered by the Court in exercising their discretion:

(a)Reasons for the failure to give notice, e.g., whether the failure was inadvertent.

(b)Whether the cause of the default was due to any action of the lessor.

(c)The lessee’s conduct, in particular whether it has complied with all conditions and covenants and has been a good tenant.

(d)The prejudice to the lessee if relief is not granted.

(e)The prejudice to the lessor if relief is granted.

2      Vince Bevan Ltd v Findgard Nominees Ltd [1973] 2 NZLR 290 (CA) at 297.

3      KAM Holdings Ltd v Wanganui Regional Development Trust Board HC Wanganui M35/90, 31 October 1990.

4      Wendco (NZ) Ltd v LJCTB Trustees Ltd [2017] NZHC 2668 at [17].

5      Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd (2005) 7 NZCPR 48 (HC) at [29].

(f)The lessor’s motivation for the refusal to renew and understanding of the lessee’s intentions.

(g)The interests of third parties and how they may be affected by any order.

[28]             None of these factors listed are determinative.6 The Court must order relief that it sees fit in accordance with the justice of the particular application.7

[29]             Applying the Ponsonby Mall principles to the present case, the background set out above makes it clear that Mr Kuoch simply overlooked the requirement to renew the lease and therefore failed to do so through pure inadvertence. The evidence is clear the failure to renew was neither the result of any ulterior motive on the part of       Mr Kuoch, nor was it caused by any action of the trustees. It is equally clear that both parties continued to proceed on the basis that the lease was continuing up until the trustees’ query at the end of the email dated 30 March 2021, some 14 months after the lease had expired. Consistent with this is that as soon as the issue of the non-renewal of the lease was raised, Mr Kuoch made it clear through his solicitors that he wished to renew the lease.

[30]             Likewise, and leaving aside the issues surrounding the IGC, there is absolutely no evidence to suggest that Mr Kuoch was other than a good tenant. The prejudice that would be faced by Mr Kuoch if the lease is not ultimately renewed is self-evident, as he would be forced to close or move his business.

[31]             It is no answer for Mr Ponniah to submit that Mr Kuoch would not have been prejudiced if he had maintained the month-to-month tenancy or accepted the new lease offered by the trustees after the issue of these proceedings. Quite clearly the month- to-month tenancy gave Mr Kuoch no security, evidenced by the trustees purported termination when Mr Kuoch did not pay the IGC when requested to do so by the trustees. Likewise the new lease offered by the trustees quite clearly included a number of terms that were much worse than the existing lease, including a base rental

6      Sibrad Company Ltd v Kanters (2008) 9 NZCPR 356 (HC) at [20].

7      Vince Bevan Ltd v Findgard Nominees Ltd, above n 2, at 299.

20 per cent higher than the existing rental, as well as an automatic rental increase every two years, or, at the trustees discretion, a greater increase by way of market rental.

[32]             Conversely there is no evidence of any prejudice to the trustees if the application is granted and the lease renewed. Mr Ponniah attempted to argue that the trustees would be prejudiced if Mr Kuoch could renew the lease without requiring him to pay the IGC, but there is no substance to this submission for the following reasons:

(a)The trustees now appear to have accepted that Mr Kuoch cannot be liable for IGC incurred before he took the assignment of the lease.

(b)Mr Kuoch has made an offer to make a reasonable contribution to the IGC incurred since he has become the tenant once there has been a full reconciliation.

(c)The trustees have in the interim issued credit notes to Mr Kuoch for the full amount of the IGC invoiced by Watercare.

(d)In any event Mr Kuoch’s liability for IGC, whether before or after he took over the lease, stands to be determined by the provisions of the lease as it applied at the time the IGC were incurred, whether or not the lease is renewed.

[33]             Given this position, it is clear that the trustees’ opposition to the application is fundamentally an opportunistic attempt to take advantage of Mr Kuoch’s inadvertent failure to renew the lease in time in order to strengthen their own position with regard to obtaining a contribution for the IGC incurred.

[34]             Taking these various matters into account I therefore have no hesitation in concluding that the present application should be granted.

[35]             For completeness I note that while the notice of opposition filed on behalf of the trustees simply sought to have the application declined, in the course of his oral submissions Mr Ponniah suggested the Court had jurisdiction to revisit the terms of the lease. This is incorrect.

[36]             Sections 261 and 264 make it clear that the relief that can be granted is limited in this case to determining whether or not a renewal should be granted and the jurisdiction does not extend to changing the contractual terms between the parties as suggested by Mr Ponniah. In the same vein, as there has been no determination that Mr Kuoch is liable for all or any of the IGC, still less any detailed reconciliations as to any respective contributions of the different tenants it would be inappropriate to make any order for the payment of IGC as a condition for granting the renewal in terms of s 264(2)(b) of the Act.

Decision

[37]             Mahesh Ganda, Mani Ganda and Raman Diyar Ganda as lessors of premises at 27 Chartwell Avenue, Glenfield under a deed of lease dated 22 December 2015, as varied and assigned by deeds of assignment dated 12 November 2016 and 8 November 2018, are directed to renew the lease in favour of Johnlee Kuoch until 7 January 2024 and for such other renewal periods under the lease as may be notified.

[38]             Mr Kuoch is entitled to costs on the application, and Mr Rooney has confirmed that indemnity costs are sought. In the event that agreement cannot be reached within one month of this judgment, memoranda not exceeding five pages are to be filed by both parties and I will then determine costs on the papers.

Powell J