Neglasari Farms Ltd v Brakatin Holdings Ltd HC Auckland CIV 2019-404-756

[2010] NZHC 852

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2010-404-000756

BETWEEN  NEGLASARI FARMS LIMITED Plaintiff

ANDBRAKATIN HOLDINGS LIMITED Defendant

Hearing:         14 April 2010

Appearances: P H Thorp for Plaintiff

D F Dugdale for Defendant

Judgment:      4 May 2010 at 11:30am

(RESERVED) JUDGMENT OF ANDREWS J

This judgment is delivered by me on 4 May 2010 at 11:30am pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

Solicitors:

Craig Griffin & Lord, PO Box 90459, Newmarket, Auckland 1149

Lance Lawson, PO Box 2279, Rotorua 3040
Copy to:

P H Thorp, PO Box 1987, Shortland Street, Auckland 1140

D F Dugdale, PO Box 456281, Herne Bay, Auckland 1147

NEGLASARI FARMS LTD V BRAKATIN HOLDINGS LTD HC AK CIV 2010-404-000756  4 May 2010

Introduction

[1]      The plaintiff has applied under ss 244 and 251 of the Property Law Act 2007 for possession of premises leased to the defendant and cancellation of the lease, together with other orders.  The application is on the grounds that the defendant has breached cls 23.1 and 24(c) of the lease and has failed to vacate the premises after having been given notice of the breaches and of the plaintiff’s intention to cancel the lease.

[2]      The defendant opposes the orders sought, on the grounds that the plaintiff has failed to comply with s 246(1)(a) of the Property Law Act (as to giving notice of the intention to cancel) in that the documents relied on by the plaintiff do not identify a breach of the lease, or with s 246(2)(b) and (c), which requires the notice to inform the recipient that if the breach is not remedied within a period that is reasonable in the circumstances, the lessor may seek to cancel the lease.   The defendant also claims, in the event that the notice is held to comply with s 246, to be entitled to relief under s 253 of the Property Law Act.

[3]      The issues for determination are:

a)        Has the defendant breached clauses 23.1 and/or 24(c) of the lease; and if so

b)        Has the plaintiff complied with s 246 of the Property Law Act; and

If the answers to both a) and b) are yes:

c)        Is the defendant entitled to relief under s 253?

Background

[4]      The  plaintiff  is  the  owner  of  a  property  at  Pukekohe  known  as  “The

Fireman’s Arms” (“the premises”).   It has been leased to the defendant since 26

November 2003 pursuant to a Deed of Lease dated 19 October 1998.

[5]      The original lease was for a period of six years, with two rights of renewal, making the total lease (if all renewals were agreed to) a period of 18 years, expiring on 18 October 2016.  The lease records the “business use” of the premises as being “bar/restaurant/nightclub  together  with  associated  facilities”.    The  defendant  has used the premises for those purposes.

[6]      The lease was renewed for six years from 19 October 2004.  As part of the Deed of Renewal and Variation of Lease entered into by the plaintiff and defendant, cl 15 of the lease was deleted and replaced with a new cl 15 which provided that the plaintiff (and anyone on its behalf) had the right at all reasonable times to enter the premises to view their condition.  Further, the plaintiff and the defendant agreed that an independent third party was to be appointed to inspect and view the condition of the premises.  The third party was to inspect the premises at six-monthly intervals and to provide a written report to the plaintiff and the tenant detailing failures (if any) on the part of the defendant to comply with any of the obligations and requirements of the lease as to maintaining the premises and its surrounding area in good condition.   The new cl 15 further provided that if the defendant  failed to comply with the third party’s directions and requirements within 14 days of notification, the plaintiff has a right of re-entry.   The third party appointed was BerCo Solutions Limited.

[7]      Clauses 23.1 and 24(c) of the lease are relevant to this application.  They are as follows:

23.1     THETenant  shall  comply  with  the  provisions  of  all  statutes, ordinances,  regulations  and  by-laws  relating  to  the  use  of  the premises by the Tenant or other occupant and will also comply with the provisions of all licences, requisitions and notices issued by any competent authority in respect of the premises or their use by the Tenant or other occupant ...

...

24.      THE Tenant shall not

...

(c)allow any act or thing to be done which may be or grow to be a nuisance disturbance or annoyance to the Landlord, other tenants of the property, or any other person, and generally  the  Tenant  shall  conduct  the  Tenant’s  business

upon the premises in a clean quiet and orderly manner free from damage nuisance disturbance or annoyance to any such persons but the carrying on by the Tenant in a reasonable manner of the business use or any use to which the Landlord has consented shall be deemed not to be a breach of this clause.

[8]      The defendant has carried on the business of a tavern at the premises under an on-licence granted to it under the Sale of Liquor Act 1989.  The sole director and shareholder  of  the  defendant,  Mr  Raynor  Charles  Mudgway,  had  a  General Manager’s Certificate.

[9]      On 26 November 2009 the Liquor  Licensing Authority (“the Authority”) issued a decision on two enforcement applications made by the New Zealand Police in respect of the premises, following a hearing in the Pukekohe District Court on 20

October 2009.[1]   In its decision the Authority:

[1] Cox v Brakatin Holdings Limited LLA Pukekohe PH1295/2009, 26 November 2009.

a)        Suspended the on-licence issued to the defendant for three months from Friday 1 January 2010 to Wednesday 31 March 2010;  and

b)Suspended the General Manager’s Certificate issued to Mr Mudgway for two months from 1 December 2009.

[10]     The first application referred to by the Authority was filed in June 2009.  It sought suspension or cancellation of the defendant’s on-licence and suspension or cancellation of Mr Mudgway’s  General Manager’s Certificate.  At [3], the Authority said the application for suspension of the on-licence was on the following grounds:

(1)That the licensed premises had been conducted in breach of the following provisions following provisions of the Act:

Section 168(1)(a)        Allows intoxicated persons to remain on property

Section 168(1)(b)        Allows any violent, quarrelsome, insulting or  disorderly  conduct  to  take  place  on

licensed premises.

Section 164               Minors in supervised areas

Section 165               Unauthorised sale or supply

(2)That the conduct of the licensee had been such as to show that it was not a suitable entity to hold the licence.

[11]     At [4], the Authority referred to a 16-page agreed statement of facts attached to the application, and went on to say:

...  The application, alleged numerous incidents of patrons being intoxicated on the premises, fighting, lack of food availability, minors gaining access to the tavern, and the intoxication of a duty manager.  In addition there were noise  complaints  resulting  from  the  activities  of  a  DJ  in  the  outside courtyard.   The agreed statement of facts concluded with the claim that although the number of incidents had diminished, similar types of incidents continued to occur.

[12]     At [5], the Authority recorded  that the application for suspension of Mr Mudgway’s  General  Manager's  Certificate  “was  based  on  the  ground  that  his conduct reflected a lack of suitability to hold the certificate”.

[13]     At [6], the Authority recorded that further applications for suspension or cancellation of the on-licence had been filed in May and June 2009, as were applications for suspension of Mr Mudgway’s General Manager’s Certificate.  The cited grounds were similar to those given for the original application.   The Police then filed an amended application on 5 October 2009.  The Authority noted, at [7], that this was virtually identical to the application filed in May 2009, but included an incident that had occurred on 26 September 2009.

[14]     The Authority set out the particulars of the application at [8], as follows:

The particulars in support of the application referred to allegations of intoxicated patrons on 17 October 2008, 20 February 2009, and 28 February

2009.   On the latter occasion it was also alleged that improper drinking practices were taking place in the bar.  On that occasion, the Police exercised

their powers under s.174 of the Act and ordered that the premises be closed. Further incidents of intoxication were alleged on 21 March and 4 September

2009. In addition it was alleged that on 2 April 2009, Mr Mudgway was

drinking at his premises, to the point of intoxication.  Furthermore, he had been  convicted  (for  a  third  occasion),  of  driving  with  an  excess  breath alcohol level of 821 micrograms of alcohol per litre of breath.  Finally it was contended that the “Firemans Arms” was the number one rated licensed premises in the Counties Manukau Police District according to the Alco- Link data.

[15]     The Authority summarised the evidence given in support of the applications filed in May, June, and October 2009 at [11] to [45] of the decision.   It is not

necessary to repeat this summary.   The evidence referred to visits to the premises and other incidents, on 11 occasions between 17 October 2008 and 26 September

2009. In general terms, the evidence was of observations that were very similar to those recorded at [4] of the decision; that is, patrons being intoxicated on the premises, fighting, lack of food availability, intoxication of a duty manager, and excessive noise.

[16]     Having referred to Mr Mudgway’s evidence, the Authority concluded that there was no suggestion that there would be any dramatic changes in the way The Fireman’s Arms was managed; the evidence showed persistent and blatant incidents of patron intoxication and mismanagement.  The Authority also referred to “a lack of regard for the [Sale of Liquor Act]”.  The Authority considered that it was desirable that serious sanctions be imposed.

[17]     On 8 December 2009 the plaintiff’s solicitors wrote to the defendant.   The solicitors first set out cl 24(c) of the lease.  They then referred to five attachments, of which the first was a copy of the Authority’s decision and the remaining four were copies of newspaper articles. The letter continued:

You are clearly in breach of your obligations under 24(c) of the lease.  The business operated from the premise has not been conducted in a clean quiet and orderly manner and the judge’s summation makes it clear from your evidence given in court and overall conduct that you are incapable of responsibly leasing and running a Licensed Premise.

Our client accordingly gives notice it is cancelling the lease under sections

24(c) and 29(b) of the lease and in accordance with the Property Law Act

2007 (the Act).   Please find attached the following sections of the Act, sections 244, 246, 247, 249  and 253.  The cancellation takes effect as at 15

December 2009 and it is our client’s intention to retake possession of the

premises on that date.

Our client considers the breach incapable of being remedied in that actual damage to the branding and goodwill of the business as well as the Community at large has already occurred and cannot be changed after the event.    Our  client  concurs  with  the  decision  of  the  Liquor  Licensing Authority that ‘By far the most damning evidence of unsuitability was given by Mr Mudgway himself.  Mr Mudgway has very little understanding of the Act’s objective.   Sadly he seems to have no appreciation of the harm his company was causing in the community.’

Our client does not consider any offer of compensation to be appropriate in this instance but notes that section 247(2) provides you with the opportunity to make one.

Please note you have the right under section 253 to apply to a court for relief against cancellation of the lease.   You are advised to seek legal advice should you wish to exercise that right.

[18]     The plaintiff’s solicitors sent a further letter to the defendant on 14 December

2009, as follows:

We  refer to  our letter  of 8  December  2009  a further  copy of  which is enclosed.

As an addition to this letter our client now also draws to your attention to clause 23.1 of the Deed of Lease. A copy of clause 23.1 is attached.

Once the decision of the Liquor Licensing Authority was reached on 26

November 2009 suspending your licence for 3 months from 1 January 2010 you  were  in  breach  of  clause  23.1  entitling  our  client  to  the  remedies

available under clause 29.

Our client gives notice it is also cancelling the lease under section 23.1 of the lease and in accordance with the process set out in 29(b) and 30 of the lease. This cancellation is still taking effect as at 15 December 2009 and it is our client’s intention to retake possession of the premises on that date.

[19]    On 21 December 2009 the defendant’s solicitors wrote to the plaintiff’s solicitors.  There was in that letter no reference to the letters of 8 and 14 December, but the defendant’s solicitors sought confirmation that the plaintiff consented to the assignment of the defendant’s lease to a proposed assignee, Chrisam Holdings Limited.  Attached to the defendant’s solicitors’ letter was a copy of a letter from solicitors acting for the proposed assignee and a Curriculum Vitae of a Mr Holdt, described as the proprietor of Chrisam Holdings Limited.  The letter also referred to the defendant’s plan to undertake renovations prior to the sale or the lease.

[20]     The plaintiff’s solicitors responded on 24 December 2009.  The second and third paragraphs of the letter were as follows:

As presumably you know, your client has been given Notice pursuant to section 246 of the Property Law Act 2007 of the cancellation of the lease from 15th  December 2009 because of breaches of the lease by your client. As a result, our client does not consent to any assignment of the lease and nor does it consent to any alterations to the premises.

Please advise when your client will vacate the premises.  Also, please note that, notwithstanding the cancellation of the lease, your client must still pay the rent meanwhile and complete the outstanding items in the most recent BerCo Solutions Limited report.

[21]     The defendant’s solicitors wrote to the plaintiff’s solicitors on 8 February

2010, as follows:

...

Your letter of 24 December claims that the lease is in someway cancelled. Our advice from the Barrister instructed in respect of the sale and transfer of the lease of the premises to Chrisam Holdings Limited, this stance is nonsensical.  There has been no cancellation of lease which requires either a Court Order or peaceable re-entry.  There has been no Court Order and no re-entry.  The lessee is in occupation as lessee, has paid rent in January and February which the landlord has accepted.  The lessee is not in breach of the lease.  There are no grounds for lease cancellation.  There is no requirement in the lease for the lessee to hold a current liquor licence.  The business use for the premises allows our client to supply food, non-alcoholic drinks, and conduct the poker machine operations.

It  has  been  suggested  that  the  landlord  is  in  someway  endeavouring  to support the opposition to the grant of the necessary licences to the proposed assignee.   This clearly is derogation by the landlord of the right to quiet enjoyment by the lessee.

Your client through you has been asked to consent to the assignment of the lease to the purchaser of the business.   This application was made on 21

December and no response has been received.

In  order  to  avoid  proceedings  and  further  costs  please  confirm that  the landlord is prepared to consent to the transfer of the lease to Chrisam Holdings Limited subject to the guarantee of the shareholders because the company.

Clearly an immediate response is required. Please let us have a response.

[22]     The  plaintiff’s  application  for  an  order  for  possession  was  filed  on  11

February 2010.  The plaintiff also seeks orders for cancellation of the lease, payment by the defendant of all rental and outgoings payable under the lease up until the date of possession, payment by the defendant of the cost of carrying out all maintenance work outstanding as at the date of possession, and costs.

[23]     The plaintiff’s application was supported by an affidavit sworn by Brian Kerry  Hogan,  a  director  of  the  plaintiff.    Annexed  as  exhibits  to  Mr  Hogan’s affidavit are copies of the lease, renewal of lease, decision of the Authority, and correspondence referred to above.   Also annexed are copies of reports by BerCo Solutions Limited, appointed pursuant to the Deed of Renewal to inspect and view the condition of the premises, a valuation of the premises, and correspondence relating to an earlier proposal for assignment of the lease.

[24]     A second affidavit by Mr Hogan was filed on 18 March 2010.   Mr Hogan referred to applications by Chrisam Holdings Limited for a temporary authority to sell liquor at The Fireman’s Arms (which, he said, was opposed by the Police), and by Mr Holdt for a General Manager’s Certificate (also opposed by the Police).  Mr Hogan noted that the proposed assignment to Chrisam Holdings limited was no longer  to  proceed.    The  plaintiff  had  been  advised  of  a  proposed  assignee,  Mr Pradeep Chand.   The plaintiff had sought full details of the financial position and experience of Mr Chand, without prejudice to its contention that the plaintiff is entitled to cancel the lease.

[25]     In its notice of opposition filed on 24 February 2010, the defendant contends that  the plaintiff  has  not  complied  with s 246 of the Property Law  Act,  as  the documents relied on in the plaintiff’s solicitors’ letters of 8 and 14 December 2009 do not identify a breach of the lease or comply with s 246(2)(c).

[26]   The defendant then contends that “in any event in the entirety of the circumstances the defendant should be allowed relief under s 253 of the [Property Law Act].”

[27]     Lastly,  the  defendant  contends  that  “as  well  as  the  statutory  provisions referred to the defendant relies on the principle that the main function of a right of re-entry is to provide a landlord with security for the payment of rent due to him.”

[28]     The  defendant’s  opposition  is  supported  by  an  affidavit  sworn  by  Mr Mudgway on 24 February 2010.  He says that the plaintiff carries on the business of a tavern at the premises, which requires the company to hold an on-licence, and him to hold a General Manager's Certificate, pursuant to the Sale of Liquor Act.   He refers to the suspension of both the on-licence and the certificate by the Authority’s decision of 26 November 2009.

[29]     At paragraphs 5 to 7 Mr Mudgway says:

5.The  tavern  business  including  its  goodwill  being  my  company’s property and not that of the landlord, the landlord is unaffected by a closing down of the business for the period indicated.  The landlord seems to see my company’s present difficulties as an opportunity to

acquire the business without paying for it and there have been served on the offices of my accountant in Rotorua which is the registered office of the company the notices annexed to B K Hogan’s affidavit marked “C” and “D”.

6.I am advised  that the  stance  adopted  by the  plaintiff is  entirely misconceived.   There has been no breach of clause 24 (c) and if there has been a breach of this clause or as was later suggested clause 23.1 it will be remedied by the tenant ceasing to trade.  In any event  no  period  “reasonable  in  the  circumstances”  within  the meaning of the Property Law Act 2007 s. 246 (2) is specified in the notices.

7.        The problems that culminated in the making of the order of the Liquor Licensing Authority referred to had already led the defendant to the view that it should sell its business and it has entered into the conditional contract for its sale, a copy of which is annexed and marked “A”.

[30]     A second affidavit sworn by Mr Mudgway was filed on 25 March 2010.  In that affidavit he said that as the suspension of the defendant’s on-licence had ceased, the defendant would resume trading on 1 April 2010.  Mr Mudgway also said that the plaintiff is obstructing completion of the sale of the lease to Mr Chand by refusing to consent to the assignment.  Without that consent, he said, the purchase could not proceed with necessary applications under the Sale of Liquor Act.

[31]     Updating information was provided at the hearing.  Counsel for the plaintiff provided:

a)        a copy of the Authority’s decision declining to grant an application by the Police to cancel the defendant’s on-licence;  and

b)a copy of a report from BerCo Solutions Limited as to an attempted inspection of the premises on Monday 12 April 2010.

Counsel for the defendant provided copies of:

a)a letter from the solicitor for the proposed assignee Mr Chand, to the defendant’s solicitors, dated 26 March 2010; and

b)        a letter from the defendant’s solicitors to Mr Chand’s solicitor, dated

31 March 2010.

[32]     From that correspondence it appears that the assignment is conditional on Mr Chand  being  granted  a  gaming  licence  and  liquor  licence  (which  Mr  Chand’s solicitor  understands  to  be  subject  to  the  plaintiff’s  consent  as  landlord).    Mr Chand’s solicitor says in his letter that the assignment is also subject to the landlord consenting to the assignment and agreeing “to review the term of the lease for a further six years in October 2010, if my client wishes to renew the term of the lease.”

[33]     The Court was also advised that the defendant had not resumed trading at the premises on 1 April 2010 and was not trading as at the date of hearing.

[34]     Against that background, I turn to consider the issues identified earlier.

Has the defendant breached cls 23.1 and/or 24(c) of the lease?

Submissions

[35]     On  behalf  of  the  plaintiff,  Mr  Thorp  submitted  that  cl 23.1  requires  the defendant to comply with all statutes relating to its use of the premises, and the Authority’s decision is evidence of a finding of numerous breaches of the Sale of Liquor Act, justifying the suspension of the defendant’s on-licence.  Accordingly, he submitted, the defendant had clearly breached cl 23.1 of the lease by virtue of his breaches of the Sale of Liquor Act.

[36]     Mr  Thorp  submitted  that  cl 24(c)  requires  the  defendant  to  conduct  its business on the premises in a clean, quiet, and orderly manner free from damage, nuisance, disturbance, or annoyance to any other person.   He submitted that the Authority’s decision is also evidence of a finding that the defendant has failed to conduct its business in that manner.

[37]     Mr Thorp referred to the agreed statement of facts relating to the June 2008 application, recording (as relevant to clause 24(c)) “numerous incidents of patrons being  intoxicated  on  the  premises,  fighting,  [and]  noise  complaints”.    He  also referred to the evidence in support of the 2009 application, in particular as to grossly intoxicated and unruly patrons, and fighting at The Fireman’s Arms.

[38]     Mr Thorp submitted that the Authority’s decision recorded a litany of serious breaches of cl 24(c) over a long period of time.  He noted that the evidence refered to by the Authority had not been challenged by the defendant.

[39]     On behalf of the defendant, Mr Dugdale submitted that there was no breach of either cl 23.1 or 24(c).

[40]     With respect to cl 23.1 (referred to in the plaintiff’s solicitor’s letter of 24

December 2009), Mr Dugdale submitted that the terms of the letter (“once the decision of the [Authority] was reached suspending your licence for three months ... you were in breach of 23.1”) were such that the plaintiff was relying on the suspension of the on-licence as being the breach of cl 23.1.   Thus the plaintiff’s assertion that it is entitled to cancel the lease was based on the premise that suspension of the licence amounts to a breach of cl 23.1.   He submitted that that could not be so.  The lease does not oblige the defendant to carry on the business of “bar/restaurant/nightclub together with associated facilities”, so the suspension of the licence required for such a business could not be a breach of the lease.

[41]     Mr Dugdale accepted that the defendant was in fact engaged in the business of “bar/restaurant/nightclub”, and was therefore required to comply with the provisions of the Sale of Liquor Act when carrying on that business, but submitted that the letter of 14 December 2009 relied on the suspension of the licence, rather than any breaches of the Sale of Liquor Act.

[42]     Mr  Dugdale  also  submitted  that  there  was  no  breach  of  cl 24(c).    He submitted that cl 24(c) has two limbs.   The first limb is that the tenant shall not “allow  any  act  or  thing  to  be  done  which  may  be  or  grow  to  be  a  nuisance disturbance or annoyance to the landlord, any tenants of the property, or any other person.”   The second limb is that the tenant is required to “conduct [its] business upon the premises in a clean quiet and orderly manner free from damage nuisance disturbance or annoyance to any such persons.”

[43]     Mr Dugdale submitted that the defendant was not in breach of either limb. He submitted that there was no suggestion that the plaintiff, as landlord, was in

business in the proximity and could have been affected by any nuisance, or disturbed or annoyed by any act or thing done by the defendant, or by the manner in which the defendant had conducted its business.  Mr Dugdale also submitted that there were no other  tenants  of  the  premises  who  could  have  been  so  affected,  and  no  “other persons” who could have been so affected.  Thus, there was no breach of either limb of cl 24(c).

Discussion

[44]     I am satisfied that the defendant breached both cls 23.1 and 24(c) of the lease. [45]     As Mr Mudgway said in his first affidavit, the defendant carried on the

business of a tavern at the premises.  A tavern comes within the “business use” of “bar/restaurant/nightclub” specified in the lease.   In carrying on that business the defendant was required to comply with the Sale of Liquor Act, and that Act required the defendant to hold an on-licence.

[46]     The  Authority’s  decision  includes  a  finding  that  the  defendant  failed  to comply with the provisions of the Sale of Liquor Act.  I am satisfied that the failure to comply with those provisions constituted breaches of cl 23.1.

[47]     The defendant was also in breach of cl 24(c) of the lease.  The Authority’s findings as to gross intoxication of patrons, fighting, and noise complaints at The Fireman’s Arms are evidence that the defendant was in breach of both limbs of cl 24(c) and I find that there has been such a breach.  The defendant allowed acts or things to be done at the premises that might have been, or have grown to be, a nuisance, disturbance, or annoyance to other persons, and it failed to carry on its business in a clean, quiet, and orderly manner free from damage, nuisance or annoyance to those persons.

Has the plaintiff complied with s 246 of the Property Law Act?

Submissions

[48]     It is appropriate to refer first to the submissions on behalf of the defendant. Mr Dugdale submitted that the plaintiff’s solicitors had made two attempts to give notice (that is, the letters of 8 and 14 December 2009) and both were defective.

[49]     First, Mr Dugdale submitted that both letters failed to give proper particulars of the nature and extent of the breach complained of.  He submitted that the letter of

8 December 2009 failed to define what was claimed to be a failure to conduct the defendant’s business in a clean, quiet, and orderly manner free from nuisance, disturbance or annoyance.  Secondly, he submitted that the letter does not define the nuisance, disturbance or annoyance caused.   Thirdly, he said that no attempt had been made to define the “other persons” to whom damage, nuisance, disturbance, or annoyance was caused.

[50]     Fourthly, Mr Dugdale submitted that there was no attempt to comply with s 246(2)(b) or (c).   He submitted that the plaintiff had attempted to justify this by saying that the breach was not capable of being remedied, so the plaintiff was not required to specify what the defendant had to do or stop doing, or the consequences of not remedying the breach.

[51]     Mr Dugdale submitted that the letter of 8 December 2009 was  a highly unorthodox “notice”.  He accepted that an unorthodox notice could still be valid, but submitted that to be valid, the notice must define with sufficient precision the forbidden acts or omission of which a tenant is said to be guilty, and in what respect. He submitted that a notice which complies with s 246 will be in a form which asserts that the tenant is in breach of a specified clause in the lease, then sets out in detail the particulars of that breach.  It will then set out what is required to remedy the breach and the “reasonable” period within which that must occur, and the consequences of failure to remedy the breach.  He submitted that the letter of 8 December 2009 was defective in each of those requirements.

[52]     Turning to the letter of 14 December 2009, Mr Dugdale submitted that it was also  defective,  because  it  was  based  on  the  premise  that  suspension  of  the defendant’s on-licence amounted to a breach of cl 23.1 of the lease.  As noted earlier he submitted, on the basis that the defendant was not obliged to carry on the business of “bar/restaurant/nightclub” or any other business, that the suspension of the on- licence  was  not  a  breach  of  cl 23.1.    Certainly,  it  was  not,  he  submitted,  an irremediable breach.

[53]     Mr Thorp submitted that the two letters complied with s 246 of the Property

Law Act.   First, he submitted, it is not correct to consider the letters of 8 and 14

December 2009 as two separate notices.   They are to be considered together (the letter of 14 December referred to, and enclosed a copy of, the letter of 8 December), and the enclosures (in particular the Authority’s decision) had to be considered as part of the letters.

[54]     Mr Thorp submitted that the letter of 8 December 2009 recited cl 24(c), then referred to the Authority’s decision, which, he submitted, set out the manner in which the defendant had failed “to conduct its business upon the premises in a clean quiet and orderly manner free from damage nuisance disturbance or annoyance” to any person.  He submitted that it cannot be the case that the letter is less of a notice because it had not copied what was said in the Authority’s decision into a separate document.

[55]     Mr Thorp also submitted that the letter and enclosures left the defendant in no doubt as to what he was accused of.  Taken together, the letter and the Authority’s decision clearly and graphically described the defendant’s breaches of cl 24(c).

[56]     Mr Thorp submitted that the letter of 14 December 2009 also adequately informed the defendant of his breach of cl 23.1 of the lease.  He submitted that the letter appropriately referred to the letter of 8 December, and that the Authority’s decision was, therefore, incorporated into the letter of 14 December, just as it was into the letter of 8 December.  He submitted that it was clear from the letters and the Authority’s decision that the suspension of the defendant’s on-licence was for breaches of the Sale of Liquor Act, which was a statute relating to the defendant’s

use of the premises.   Accordingly, the defendant was adequately informed of his breach of cl 23.1.

[57]     With  respect  to  s 246(2)(b),  Mr Thorp  submitted  that  it  was  only if  the plaintiff considered that the breach was capable of being remedied by the defendant doing,  or  stopping  from  doing  something,  or  by paying  compensation,  that  the plaintiff was required to state what was to be done to remedy the breaches.   He submitted that it was made clear in the letter of 8 December (and incorporated into the letter of 14 December) that the plaintiff did not consider that the breaches were capable of being remedied.  He referred to the reasons for the plaintiff’s view, as set out in the letter of 8 December.

[58]     Finally, Mr Thorp submitted that s 246(2)(c) follows from s 246(2)(b), and was  likewise  applicable  only  if  the  plaintiff  considered  that  the  breaches  were capable of being remedied by the defendant.  As the plaintiff considered the breaches were  not  capable  of  being  remedied,  and  had  given  reasons,  the  plaintiff  had complied with s 246(2)(c), to the extent that it was required to do so.

Discussion

[59]     Section 246 of the Property Law Act provides:

246     Cancellation of lease for breach of other covenants

(1)A lessor may exercise a right to cancel a lease because of a breach of a covenant or condition of the lease (except the covenant to pay rent) only if—

(a)the lessor has served on the lessee a notice of intention to cancel the lease; and

(b)at   the   expiry   of   a   period   that   is   reasonable   in   the circumstances, the breach has not been remedied.

(2)The notice required by subsection (1)(a) must adequately inform the recipient of all of the following matters:

(a)      the nature and extent of the breach complained about:

(b)if the lessor considers that the breach is capable of being remedied by the lessee doing or stopping from doing a particular thing, or by the lessee paying reasonable compensation, or both,—

(i)       the thing that the lessee must do or stop doing; or

(ii)      the amount of compensation that the lessor considers reasonable; and

(c)the consequence that, if the breach is not remedied at the expiry of a period that is reasonable in the circumstances, the lessor  may  seek  to  cancel  the  lease  in  accordance  with section 244:

(d)      the effect of section 247(1) and (2):

(e)the right, under section 253, to apply to a court for relief against cancellation of the lease, and the advisability of seeking legal advice on the exercise of that right.

[60]     Under s 246(1) of the Property Law Act the plaintiff is entitled to cancel the lease only if:

a)        It has served a notice of it its intention to cancel the lease;  and

b)If, at the expiry of a period that is reasonable in the circumstances, the breach has not been remedied.

[61]     Section 246(2) sets out the requirements of the notice required to be given under  s 246(1)(a).    The  first  requirement  (s 246(2)(a))  is  that  the  notice  must adequately inform the recipient of the nature and extent of the breach complained about.  No particular form of notice is specified in the Act.  The only requirement is that it adequately informs of the nature and extent of the breach complained of.  I was not referred to any authority as to what is required in order for a lessee to be adequately informed of the nature and extent of a breach of the lease.

[62]     In the present case, I am satisfied that the defendant was adequately informed of the nature and extent of the breaches.   The letters of 8 and 14 December 2009 were not written in the format of a formal “Notice” that might more usually be seen when a landlord is giving notice of the intention to cancel.  Nevertheless, I accept Mr Thorp’s submission that the letters and the Authority’s decision can, and should, be read together and that, when taken together, they adequately informed the defendant of  its  breaches  of  the  lease.    They may have  been,  as  Mr  Dugdale  submitted,

unorthodox, but they provided adequate information as to the breaches complained of by the plaintiff.

[63]     With respect to s 246(2)(b) and (c), it can be accepted that the two letters did not set out what the defendant was required to do, or not do, to remedy the breach, or set any period of time within which that was to occur.   I accept Mr Thorp’s submission that the plaintiff did not consider the breaches to be capable of being remedied and that the plaintiff was not, therefore, required to inform the defendant of what had to be done, or not done, to remedy the breaches or to set a time.

[64]     Section 246(2)(b) begins with the words “if the lessor considers that the breach is capable of being remedied ...”.   The subsection clearly contemplates a situation where the lessor does not consider that the breach is capable of being remedied, and in such a case the balance of s 246(2)(b), and subs (2)(c), will not apply.

[65]     In relation to s 246(2)(b) and (c), I note that the learned authors of New

Zealand Land Law say:[2]

Now that the Property Law Act 2007 has framed the “remediable” breach test, for the purpose of serving a notice, as a question of whether the lessor considers that the breach is capable of remedy, [authorities relating to s 118 of the Property Law Act 1952] should be treated with caution.  Having said that, the right to cancel may only be exercised if, at the expiry of a period reasonable in the circumstances, the breach has not been remedied.   This consequence has to be referred to in the notice to the lessee.  If the lessor applies for an order for possession, or if the lessee applies for relief, the court may have to consider whether the breach was remedied in a time that was reasonable in the circumstances, even though the lessor did not consider that the breach was capable of remedy, so did not refer to that, or to a period, in the notice.

[2] Tom Bennion and others New Zealand Land Law (2nd ed, Brookers, Wellington, 2009) at

[8.20.03(6)] (footnotes omitted).

[66]     That is, in my view, an appropriate interpretation of s 246.  The fact that the letters did not set out what the defendant had to do, or not do, nor specify a period for that to occur, does not make them invalid.

[67]     In this case, in order to be valid, the notice had to inform the defendant adequately as to:

a)        The nature and extent of the breach of the lease;

b)        The plaintiff’s right to cancel in accordance with s 244;

c)        The defendant’s right to make an offer of compensation under s 247;

and

d)The  defendant’s  right  to  apply  to  the  Court  for  relief  against cancellation of the lease under s 253, and the advisability of seeking legal advice as to the exercise of that right.

[68]     For the reasons set out above, I am satisfied that the letters of 8 and 14

December 2009 adequately informed the defendant of the extent and nature of the breaches of the lease.  The letter of 8 December 2009 also adequately informed the defendant of the plaintiff’s intention to cancel the lease, the defendant’s right to make an offer of compensation, and the defendant’s right to apply to the Court for relief against cancellation.  The letters were, therefore, valid notice under s 246.

[69]     In  the  light  of  that  finding,  it  is  not  necessary  to  consider  Mr  Thorp’s submission that any defects in the plaintiff’s notice had been “cured” by its application for an order for possession.

[70]     No submission was made on behalf of the defendant that the breaches had been remedied as at the time of the hearing.  Clearly, a period that is reasonable in the circumstances has elapsed since notice was given.   Subject to the defendant’s right to apply to the Court for relief against cancellation, the plaintiff is entitled to cancel the lease, and to an order for possession of the premises.

[71]     I therefore turn to the defendant’s submission that it is entitled to relief against cancellation.

Is the defendant entitled to relief against cancellation of the lease?

Submissions

[72]     Again, it is appropriate to refer first to the submissions for the defendant.  Mr

Dugdale submitted that defendant is entitled to relief against cancellation.

[73]     First, he submitted that it is clear from the affidavits filed on behalf of the plaintiff that the plaintiff is “itching” to cancel the lease and obtain possession of the premises,  that  the plaintiff  considers  that  the business  operated  in  the  premises should be aimed at a more “up-market” clientele than the defendant has attracted. Yet, Mr Dugdale submitted, the plaintiff had chosen to lease the premises for a possible 18 years on terms that contained no obligation on the tenant as to the social or demographic clientele for which it should cater.

[74]     Secondly, Mr Dugdale submitted that the defendant has accepted that it is desirable that it should sell the business.  He submitted that while one might have expected the plaintiff to welcome a sale, the plaintiff was instead being obstructive in refusing consent.  He submitted that the reason for this obstruction was to enable the plaintiff to re-take the premises at no cost to itself.

[75]     Mr Dugdale submitted that it would be inequitable if the defendant were required  to  forfeit  the business  it  owns  to the plaintiff.    He submitted  that  the defendant should be allowed to effect a sale of its business.   In the light of the plaintiff’s attitude to the proposed assignee, Mr Chand, he submitted that the appropriate course would be for the Court to grant relief conditional on the defendant commencing an action for a declaration that the plaintiff’s consent to an assignment is being unreasonably withheld.

[76]     Mr Thorp submitted that the defendant should not be granted relief against cancellation.    He  gave  several  reasons  for  refusing relief.    With  respect  to  the proposed assignment to Mr Chand, he submitted that insufficient information had been presented as to Mr Chand’s financial possession, there was no evidence that Mr

Chand or his company would succeed in obtaining the necessary licences under the Sale of Liquor Act and the Gambling Act 2003, and there was no evidence that Mr Chand or his company would provide the “significant” capital investment required to “re-position”  the  premises  in  a  different  market  with  different  clientele.    He submitted  that  such  re-positioning  was  necessary  to  avoid  further  Police  action against the premises.

[77]     Mr  Thorp  also  submitted  that  the  plaintiff  is  highly  sceptical  that  the assignment to Mr Chand in fact “has legs”.  He referred to the recent correspondence between the solicitors for the defendant and Mr Chand.  He noted, in particular, that the assignment is conditional on Mr Chand being granted liquor and gaming licences (said to be subject to the plaintiff’s consent), and on the plaintiff consenting to the assignment and agreeing to renew the lease for six years when the current lease term expires in October 2010.  Mr Thorp submitted that the plaintiff would not consent, and could not be required to consent, to commit to agreeing to renew the lease.

[78]     Mr  Thorp  submitted  that  the  history  of  unsuccessful  efforts  to  sell  the business over a period of four years, the fact that the lease has only 6½ years to run (if a renewal is granted in October 2010), and the significant expenditure required, mean that it is likely that the business is unsaleable.   He also submitted that the authorities on relief against cancellation are to the effect that relief should not be granted to enable a tenant to assign a lease.

Discussion

[79]     Section 253 of the Property Law Act provides that a lessee (amongst others) may apply to a court for relief against the cancellation, or proposed cancellation, of a lease on the grounds of a breach of a condition of the lease.  Section 256 sets out the powers of a court in determining an application for relief under s 253.   The court may grant relief on conditions, and it may grant relief even though the breach is of an essential term, or is not capable of being remedied.

[80]     Neither s 253 nor s 256 sets out any matters to be considered by the court when considering an application for relief.  Thus, a wide discretion is given to the

Court.  In considering an application for relief brought under s 118 of the Property Law Act 1952 (which related to applications for relief against forfeiture for breach of a condition in a lease) in Studio X Ltd v Mobil Oil NZ Ltd,[3]  Hammond J identified factors to be considered in the exercise of the court’s discretion, as follows:

[3] Studio X Ltd v Mobil Oil NZ Ltd [1996] 2 NZLR 697 at 701.

*Whether the breach was advertent or deliberately committed.   In such a case there are sound reasons why in the normal case relief should not be given:  why should a lessor be compelled to remain in a relation to neighbourhood with a person in deliberate breach of his obligations?

*Conversely, whether the breach was caused by inadvertence or was entirely beyond the tenant’s control.

*Whether the breach involves an immoral/illegal use.   It must be wrong in principle for a lessor to be forced into improper or illegal relations, possibly even exposing the lessor himself to some form of legal sanction.

*Whether a tenant has made or will make good the breach of the covenant and is able and willing to fulfil his obligations in the future.

*        The conduct of the landlord.

*        The personal qualifications of the tenant.

*        The financial position of the tenant.

*        Sometimes the position of third parties has had to be considered.

For instance the position of a contracting purchaser of the interest.

*        The gravity of the breach.

*        Whether a breach has occasioned lasting damage to a landlord.

*There is a proportionality concern.  Under this head there has to be concern whether whatever damage is said to have been sustained by the landlord can truly be said to be proportionate to the advantages she will obtain if relief is not granted.  Generally speaking, and at a greater level of abstraction, there has to be a concern with keeping an even hand. ...

[81]     I accept Mr Thorp’s submission that those factors are equally relevant to the exercise of the Court’s discretion under ss 253 and 256 of the Property Law Act

2007.  In the only case decided under the Property Law Act 2007 cited to me, Sibrad

Company Ltd v Kanters,[4] Asher J referred to Studio X in relation to applications for

[4] Sibrad Company Ltd v Kanters (2008) 9 NZCPR 356 (HC)

relief brought under s 253.   The application before his Honour was, however, for relief against forfeiture for failure to renew a lease.

[82]   Mr Dugdale referred me to the judgment of Panckhurst J in Feary v Commissioner of Crown Lands,[5]  where his Honour cited the following from the judgment of Lord Denning MR in Earl Bathurst v Fine,[6]  in relation to forfeiture arising from breaches of conditions other than as to payment of rent:

[5] Feary v Commissioner of Crown Lands [2001] 1 NZLR 204 (HC).

[6] Earl Bathurst v Fine [1974] 1 WLR 905 at 908 (CA).

In the ordinary way relief is almost always granted to a person who makes good the breach of covenant and is able and willing to fulfil his obligations in the future.

[83]     There  are  many  factors  which  count  against  the  exercise  of  the  court’s discretion in favour of a grant of relief to the defendant:

a)       First,   the   defendant’s   breaches   cannot   be   said   to   have   been inadvertent.  The defendant was found by the Authority to have failed to comply with provisions of the Sale of Liquor Act.   I have found that that failure constituted a breach of cl 23.1 of the lease.  Further, in the  light  of  the  Authority’s  findings  as  to  gross  intoxication  of patrons,  fighting,  and  noise  complaints,  I  have  found  that  the defendant has breached cl 24(c).   The breaches were not caused by inadvertence, nor entirely beyond the defendant’s control.

b)Further, the nature of the breach of cl 23.1 makes it clear that the defendant’s breach involved an illegal use of the premises.

c)       The breaches cannot be said to be minor.  They were grave enough to cause the Authority to make orders suspending the defendant’s on- licence,  and  thus  prevent  it  from  carrying on  the business  it  was carrying on at the premises.

d)Other than by not carrying on that business, there appears to be little or no prospect of the defendant being able, or willing, to remedy the

breaches.   Indeed, Mr Dugdale submitted that the defendant had accepted that “it is not entirely suited to the business carried on” and had resolved to sell the business.

[84]     Other factors referred to in Studio X are more difficult.  Mr Thorp submitted that the fact that the defendant wishes to assign the lease counts against relief being given.   In this he relied on dicta of Hammond J in Studio X[7]  and of Harrison J in

[7]  At 702

Timberco (1999) Ltd v Sarvee Acquisitions Ltd[8]  that it is inappropriate to exercise

[8] Timberco (1999) Ltd v Sarvee Acquisitions Ltd (2005) 7 NZCPR 429 at [39].

the discretion in favour of relief where the lessee intends to assign the lease.

[85]     I accept Mr Dugdale’s submission that the lessee’s wish to assign the lease will not necessarily count against a grant of relief.  I note that the possibility of an assignment appears to be expressly contemplated in the eighth factor of Studio X.

[86]     Mr Thorp referred to a “long history of difficulties the plaintiff has had with the defendant concerning compliance with the maintenance and other provisions of the lease, which difficulties the plaintiff should not be forced to endure any longer”. Correspondence annexed to Mr Hogan’s affidavits certainly suggests that maintenance issues have been raised on a regular basis, but failure to maintain was not, in either of the letters of 8 or 14 December 2009, given as grounds for cancellation of the lease so should not, in my view, be considered in the context of an  application  for  relief  against  that  cancellation.    Unattended  to  maintenance matters may, however, be properly considered when the court is deciding whether conditions should be imposed on a grant of relief, if it is otherwise appropriate to grant relief.

[87]     Mr Thorp also referred to The Fireman’s Arms being a “heritage building” and submitted that “serious reputational damage” had been caused to the plaintiff. However, as Mr Dugdale submitted, the lease does not impose any special obligation on  the  defendant  arising  out  of  a  “heritage  building”,  nor  does  it  refer  to  the reputation of the landlord.

[88]     In considering whether the defendant should be granted relief it is, in my view, relevant that the defendant has not reopened business at The Fireman’s Arms. Accordingly, the non-compliance with the Sale of Liquor Act, and the consequent breaches of the lease, are not continuing.

[89]     On balancing the factors, and in particular on balancing the consequences to the plaintiff if relief is granted and to the defendant if relief is not granted, I have concluded that the defendant should be granted relief against cancellation, but solely for the purpose of being given the opportunity to effect a sale of the business, if it is able to do so, and on conditions.

Result

[90]     The  defendant’s  application  for  relief  against  forfeiture  is  granted,  on condition that:

a)       Either the plaintiff gives consent to the assignment to Mr Chand, or the defendant obtains a declaration that the plaintiff’s consent to the assignment has been unreasonably withheld, within three months of the date of this judgment;

b)The  defendant  continues  to  pay rental  and  other  outgoings  in  the meantime;

c)       The defendant pays the costs of carrying out all maintenance work outstanding, as noted in the report of BerCo Solutions Limited, dated

7 January 2010;  and

d)The  defendant  is  to  pay  the  plaintiff’s  costs  on  the  plaintiff’s application for cancellation, and its application for relief against cancellation, on a 2B basis, together with disbursements as fixed by the Registrar.

[91]     If any of the conditions set out above are not met, then the plaintiff is entitled

to cancel the lease on the expiry of three months from the date of this judgment.

Andrews  J