New Zealand Mint Ltd v Greys Avenue Investment Ltd
[2015] NZHC 2051
•28 August 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-1202 [2015] NZHC 2051
UNDER The Property Law Act 2007 IN THE MATTER OF
An application for relief under s 253
BETWEEN
NEW ZEALAND MINT LIMITED Applicant
AND
GREYS AVENUE INVESTMENT LIMITED
Respondent
Hearing: 14 August 2015 Appearances:
A Barker for the Applicant
S O McAnally for the RespondentJudgment:
28 August 2015
JUDGMENT OF MUIR J
This judgment was delivered by me on Friday 28 August 2015 at pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date:………………………….
Counsel/Solicitors:
A Barker, Barrister, Auckland
S McAnally, Keegan Alexander, Auckland
NEW ZEALAND MINT LIMITED v GREYS AVENUE INVESTMENT LIMITED [2015] NZHC 2051 [28
August 2015]
[1] The applicant is the lessee of commercial premises at 48 Greys Avenue, Auckland comprising the entire first floor, part of the basement and the lower basement of the property. The respondent is the lessor.
[2] On 20 May 2015 the respondent served the applicant with a notice under s 246 of the Property Law Act 2007 (the Act) claiming default under cl 20.1 of the lease, which prohibits alterations or additions to the premises without first producing to the landlord relevant plans and specifications and obtaining its written consent.
[3] I am satisfied that relief is appropriate.
Background
[4] The applicant purchased the business of New Zealand Mint in 2012, from interests associated with a Mr Gary McNabb. Mr McNabb’s interests also owned the property at 48 Greys Avenue from which the New Zealand Mint business operated.
[5] As part of the purchase of the business, the applicant took a lease which was in two parts. The first was of the premises themselves comprising the floors or part floors previously identified, together with certain car parks. The annual rental for the premises is specified as $380,000 plus GST.
[6] The second part relates to the specialist fit-out in the basement area, required on account of the nature of the applicant’s business which relates to the buying, selling and storage of precious metals, gold and silver bullion. This specialist fit-out attracts a separate rental of $290,000 plus GST. Such rental is payable for the first term of the lease (expiring 31 March 2022). In the event of any renewal, the fit-out is to be provided at no additional cost from 1 April 2022.
[7] The applicant says that as part of its purchase it took ownership of all of the fit-out in the premises other than the specialised fit-out in the basement areas. That is disputed by the respondent.
[8] Of relevance is cl 20.1 of the lease, which provides:
THE Tenant shall neither make nor allow to be made any alterations or additions to any part of the premises or alter the external appearance of the building without first producing to the Landlord on every occasion plans and specifications and obtaining the written consent of the Landlord (not to be unreasonably or arbitrarily withheld or delayed) for that purpose. If the Landlord shall authorise any alternations or additions the Tenant will at the Tenant’s own expense if required by the Landlord at the end or earlier termination of the term reinstate the premises. If the Tenant fails to reinstate then any costs incurred by the Landlord in reinstating the premises whether in whole or in part, within 6 months of the end or earlier termination of the term shall be recoverable from the Tenant.
[9] In 2014 the applicant made alterations to the reception area on the first floor of the premises. Whereas previously there was a free-standing counter to the left of the lift egress, this was moved to face the egress and enclosed for security purposes. A door was then inserted from the enclosed area to the balance of the premises.
[10] The alteration also involved the construction of a bulkhead above the new reception area which was constructed over the top of the existing ceiling tiles. That bulkhead contains a new lighting feature. Photographs produced by the respondent indicate an attractive and professionally executed alteration.
[11] To put the works in context, Mr Harding for the applicant deposes that the cost of reinstatement of the premises to their original condition amounts to $10,116 plus GST. He annexes a quotation to that effect. The applicant’s position, however, is that the works demonstrably improve the premises for the purposes they were leased by adding to their overall security. Initially it did not seek a consent for the works under cl 20.1 of the lease because of its assessment that they were very minor. It now contends, however, that either on a proper construction of the lease, or because it owns the relevant fit-out, it was not obliged to obtain such consent at all.
[12] In 2015 further minor works were undertaken on conference rooms in the basement area. The purpose of the work was to turn three small nonsecure storage rooms into one large storage area. This involved the removal of two partitions or walls and miscellaneous associated works. The total cost to the applicant was
$5,847 plus GST.
[13] During the course of the basement works Mr Coupe, who is now the sole director of the respondent, observed the delivery of building materials to the premises and wrote, on 7 May 2015, indicating his fear that a “possible breach of cl 20.1 of our respective lease agreement may have happened”.
[14] On 11 and 12 May 2015 the applicant’s solicitors wrote to the respondent pointing out the very minor nature of the works that were being undertaken and their client’s previous belief that an application for consent was wasting the landlord’s time. It pointed out that the works were in fact so minor that there were no working drawings or plans prepared or needed in respect of them and nor was any Council consent necessary. The letter of 11 May emphasised that, under cl 20.1, the landlord’s consent could not be unreasonably or arbitrarily withheld and the letter of
12 May that the landlord could access the premises at a time to be arranged to inspect the works.
[15] At 4.29 pm on 12 May Mr Coupe responded in terms indicating that he would be undertaking an inspection with professional assistance.
[16] On 13 May the solicitors for the respondent wrote to the solicitors for the applicant referring to the agreed access but saying that this was of limited utility until plans and specifications had been provided. Such plans were sought no later than 5 pm on 15 May 2015.
[17] On 19 May 2015 the applicant’s solicitors responded referring to an earlier telephone discussion and email of 15 May. The letter enclosed a specification and drawing prepared by Cubicon Interiors Limited for the basement works. It also referred to unrelated matters which I am satisfied was the genesis for the respondent’s subsequent decision to issue a Property Law Act notice the next day. I will return to these matters briefly later in the review of the background facts.
[18] In the Property Law Act Notice issued on 20 May 2015, the relevant default is identified in the following terms:
The Tenant is in default of its covenant not to make any alterations or additions to any part of the Premises or alter the external appearance of the
building without first producing to the Landlord on every occasion plans and specifications and obtaining the written consent of the Landlord for that purpose and the Tenant has:
1. Failed to produce plans and specifications that adequately inform the
Landlord of:
1.1 the extent and quality of the additions and alterations that the
Tenant is undertaking, or has undertaken;
1.2the location of the additions and alterations including the failure to identify the additions and alterations carried out in the reception area of the premises; and
1.3the steps taken to ensure the additions and alterations meet all regulatory requirements including, but not limited to, fire safety compliance.
2. Undertaken additions and alterations without the Landlord’s consent.
[19] On 28 May the applicant’s solicitors wrote to the respondent’s solicitors at length, again referring to both the minor nature of the basement and reception counter works. In respect of the basement works they once more pointed out that consent could not be unreasonably withheld and referred to their previous request for such consent. They confirmed that their client would reinstate the alterations and additions at the final expiry date specified in the lease. Confirmation was provided by quantity surveyors that no change to existing fire services or existing fire egress routes was required.
[20] In respect of the reception counter, the letter pointed out that the applicant did not consider this to be an alteration for the purposes of cl 20.1 of the lease but that, nevertheless, the applicant would again remove and make good at the final expiry date. The letter pointed out that, given the applicant’s construction of cl 20.1 it did not consider an application for landlord’s consent was required but that, if the defendant took a different view, such consent was formally requested.
[21] Further correspondence passed between the parties on 2 and 3 June 2015. The respondent’s position was that the works required consent, that this had not been provided and that it was accordingly entitled to proceed with its Property Law Act Notice. The applicant’s response was to seek an assurance by 5 pm 3 June 2015 that the respondent would not take any cancellations/repossession or other enforcement
action under the Notice. Absent such confirmation it indicated an intention to apply for urgent interim relief.
[22] In its application for interim relief the applicant indicated that it would reinstate the basement works with no admission of liability. Reinstatement was largely complete by 4 June 2015. From the Bar Mr Barker indicated that the remaining decorating had now been completed. I sought confirmation of that and received it in an affidavit from Jane Brophy dated 14 August 2015. No contrary position has been advanced by the respondent.
[23] I do not therefore further refer to the basement works in this judgment, other than as relevant to costs. The authorities indicate that, where a breach has been remedied, the Court will invariably grant relief 1 and I am satisfied that this has occurred.
[24] I now address briefly the other disputes which have arisen between applicant and respondent and which give context to the current proceedings.
[25] The applicant purchased the New Zealand Mint business from a company then called New Zealand Mint Limited (now Antiquus Aurum Limited (Antiquus)). The shares in Antiquus were owned by the McNabb Investment Trust.
[26] At settlement issues arose around potential breach of warranties relating to stock valuation, stock methodology and unsatisfied creditors.
[27] These issues became contentious and were ultimately the subject of an arbitration before the Hon Barry Patterson QC. The respondents in that proceeding were Antiquus and the trustees of the McNabb Investment Trust, including Mr McNabb.
[28] In April 2014 an award of $773,396 was made in the applicant’s favour. It
partially recovered that through a set off against a vendor finance arrangement, leaving a balance outstanding of just under $400,000. The applicant then pursued
1 McIvor v Donald [1984] 2 NZLR 487 (CA) at 494 per Somers J; Bathurst (Earl) v Fine [1974] 1
WLR 905 (HL) at 908 per Denning J.
Mr McNabb for the remainder of the arbitral award. It served a bankruptcy notice and subsequently filed an application to adjudicate him.
[29] Immediately before the hearing of that application a settlement was reached between the applicant and Mr McNabb whereby Mr McNabb acknowledged an indebtedness of $383,119.71. This was to be repaid over time.
[30] To effect the settlement, a term loan agreement, deed of variation of lease and general security agreement were executed by the applicant, the respondent and Mr McNabb. The term loan incorporated a guarantee by the respondent. Simultaneously, the lease between the applicant and respondent was varied so as to permit a set-off against lease payments for any valid claim the former may have against the latter.
[31] On 7 May 2015 Mr McNabb was adjudicated bankrupt on the application of a third party creditor. That constituted an act of default under the relevant loan agreement, as a result of which the plaintiff called up the loan and made demand on the respondent as guarantor. The balance owing under the loan agreement was at that stage $322,414.40. Demand was made on the guarantor on 11 May 2015.
[32] No response having been received by 18 May 2015, the applicant issued a statutory demand against the respondent.
[33] The respondent then applied to set aside the statutory demand. That application has yet to be heard. In the interim, the applicant has been offsetting the amount which it claims against the respondent against the rental payments. By the time the application to set aside is heard it is likely that there will be only a relatively modest amount outstanding.
[34] Mr Coupe became the sole director of the respondent on 12 May 2015 and its sole shareholder on 15 May. He deposes that he purchased the shares in the respondent for $65,100 plus the assumption of unspecified debts (in part relating to work done on the building).
[35] The applicant says, with some justification in my view, that the circumstances of the transfer constitute a breach of cl 51 in the lease whereby a right of first refusal is conferred on the applicant. In particular cl 51.7 states that:
No shares in the landlord company, i.e. Greys Avenue Investments Limited nor its holding company NFT Treasury Limited may be transferred to any other person/entity without the consent of the tenant and to the intent that the effective ownership and/or control of the landlord company is not to be varied while the tenant has the rights of first refusal set out in this clause 51.
[36] Having reviewed all the correspondence passing between the parties, I am satisfied that what started as a routine albeit retrospective exercise in seeking landlord consent for relatively minor alterations (and in respect of which the landlord initially indicated an intention to inspect as part of a normal approval process) rapidly escalated after service by the applicant of its statutory demand. I regard the issue of the Property Law Act Notice on 20 May 2015 as having largely been retaliatory and/or representing an attempt on the part of the respondent to gain negotiating leverage in relation to the claims which resulted in that demand.
The law
[37] Both counsel accepted that the jurisdiction to grant relief from forfeiture is mature and the principles well settled.
[38] I regard those principles as accurately summarised in the applicant’s written submissions in terms generally that:
(a) The Court exercises a broad discretion. There has been a reluctance in the authorities to place any restrictions on the factors it may consider. See Hyman v Rose.2
(b) The leading decisions in New Zealand are McIvor v Donald and
Studio X Ltd v Mobil Oil New Zealand Ltd.3
(c) As part of the application for relief, the Court is entitled to determine whether there has, in fact, been a breach of the lease. If there has been no breach, relief will be granted because the lessor is not entitled to cancel; Arthur Devine Ltd v Highgate on Broadway Ltd.4
2 Hyman v Rose [1912] 2 KB 234(HC) at 241-242.
3 McIvor v Donald, above n 1; Studio X Ltd v Mobil Oil New Zealand Ltd [1996] 2 NZLR 697 (HC).
4 Arthur Devine Ltd v Highgate on Broadway Ltd (2011) 13 NZCPR 276 (HC).
(d) However, the Court does not have to determine whether the lessee is in breach, before it can grant relief. That emerges from s 255(2) and (3) of the Act which provides:
(2) The application is not, in itself, to be taken as an admission by the person making it—
(a) There has been a breach of a covenant or condition of the Lease by the lessee; or
(b) That, because of the breach, the lessor has the right
to cancel the Lease; or …
(3) The Court may grant relief against cancellation of the Lease without determining all or any of the things set out in subsection (2).
(e) Where the breach has been remedied, or is capable of being remedied, then the Court will as, already indicated, invariably grant relief. If the breach has not been remedied by the time of the hearing, the Court may choose to require it to be remedied as a term of the relief granted. See McIvor v Donald.5
(f) The requirement to remedy the breach does not have to be immediate, or indeed close in time to the ordering of the relief. For example, in the leading authority of McIvor v Donald, the Court endorsed the development of a program for remediation, which would have seen the breach remedied by the end of the lease.
(g) Alterations to premises are a breach that is capable of remedy. The English Court of Appeal in Savva v Houssein stated the principle as follows:6
When something has been done without consent, it is not possible to restore the matter wholly to the situation which it was in before the breach. The moving finger writes and cannot be recalled. That is not to my mind what is meant by a remedy, it is a remedy if the mischief caused by the breach can be removed. In the case of a covenant not to make alterations without consent or not to display signs without consent, if there is a breach of that, the mischief can be removed by removing the signs or restoring the property to the state it was in before the alterations.
(h) The conduct of the parties is a relevant consideration: Hyman v Rose.7
(i)The ultimate inquiry is one of proportionality, and whether the breach committed requires the response of cancellation. The approach was
5 McIvor v Donald, above n 1.
6 Savva v Houssein [1996] 2 EGLR 65 at 66.
7 Hyman v Rose, above n 2.
summarised by Williams J in Pike River Coal Ltd (in rec) v O’Malley
Farming Ltd in the following terms:8
A distinction has been historically drawn in relief cases between rent and non-rent covenants. The Courts have been ready to grant relief to a lessee in default of a rent covenant where the arrears is [sic] paid up fully, including any costs, by the time the matter comes to Court, as long as the lessee is not hopelessly insolvent.
…
In non-rent cases the Courts have traditionally taken a broad approach in which the essential justice of the case is transparently assessed in a proportionality exercise. The question asked is whether in all the circumstances, determination of the Lease is a proportionate response to the lessee’s breach.
Issue 1 – is clause 20.1 engaged?
[39] I confine myself to the issue of the reception works for the reasons already indicated.
[40] The applicant says that the clause does not engage for two reasons:
1.Regardless of who owns the first floor fit-out (that is, whether it is a landlord or tenant’s fixture), the fit-out is not part of the “premises” and therefore no consent is required.
2. In any event, the fit-out is owned by it.
Is the first floor fit-out part of the premises?
[41] Clause 20.1 imposes a proscription in relation to alterations or additions to any part of the premises. The premises are defined in an annexure to the lease as:
Premises:All that part of the land and buildings situated at 48 Greys Avenue, Auckland (identifier NA28C/977) containing (m² where referred to is approximate);
(a) lower basement (Basement 2) plant area, vault and basement lift area and storage rooms 7, 8 and 9 (543 m²);
8 Pike River Coal Ltd (In rec) v O’Malley Farming Ltd HC Wellington CIV-2011-418-66, 14
October 2011 at [41]-[43].
(b) upper basement area (Basement 1) comprising dispatch, truck dock and storage rooms 3, 5 and 6 (116 m²);
(c) all of first floor – office (840 m²);
and including exclusive use of the vault lift that runs between Basement 2 and the first floor; and for clarity including use in common with the other tenants of all other lifts in the building;
and being more particularly highlighted in purple on the attached plans.
[42] The attached plans consist, in respect of the first floor, of a working drawing prepared by Brown Day Group Ltd and entitled, “Ground Floor fitout 48 Greys Ave”. Despite its title, the drawing includes a plan of the first floor. The drawing was evidently prepared as part of a consent process and includes the notation “No works on level 1 as part of this consent”. As appended to the lease, the drawing has purple highlighting around the four outside perimeter walls of the first floor (which has an oblong configuration). Predicatably, because it is a design drawing, it also shows the location of internal partitioning.
[43] The applicant says that this highlighting confirms that what is being leased is simply a space confined by a series of lines. The respondent says that, because the drawing identifies all the relevant internal partitions within the space, the intention is that such partitions (and the reception desk also depicted in the drawing) form part of the premises.
[44] On the drawing itself, the position is, in my assessment, ambiguous, although
I tend towards the applicant’s analysis.
[45] The applicant says, however, that its position is supported by a number of other indicia in the lease. Firstly, it refers to the demise in terms:
THE LANDLORD Leases to the Tenant and the Tenant takes on Lease the premises and the car parks (if any) described in the First Schedule together with the right to use:
(a) The Landlord’s fixtures and fittings contained in the Premises.
(b) The common areas of the property.
[46] Accordingly, the applicant says that a right to use the fixtures and fittings arises in consequence of the lease of the premises but that the lease clearly indicates that the fixtures and fittings contained within the premises are not the same as the premises themselves.
[47] A similar conclusion, on the same wording was reached by Duffy J in Jamacs Corporation Ltd v Norfolk Trustee Company Ltd.9 That was a case on appeal from an arbitrator – again the Hon Barry Patterson QC. Although Her Honour agreed with the arbitrator that the case fell on a “fine line”, she stated:10
Overall, however, I conclude that the demised premises do not extend to the fixtures and fittings. The operative clause clearly demonstrates an objective intention that Jamacs have only a use right of fixtures and fittings and that, as such, the fixtures and fittings are differentiated from the demised premises. This is supported by the fact that fixtures and fittings are separately referred to in the lease when the context requires.
[48] Mr Barker then reviewed other provisions in the lease which he said supported that interpretation, being:
8.1 THE Tenant shall (subject to any maintenance covenant by the
Landlord) be responsible to:
(a) Maintain the premises
In a proper and workman-like manner and to the reasonable requirements of the Landlord keep and maintain the interior of the premises including the Landlords fixtures and fittings…
8.4NOTWITHSTANDING any other provision of this lease, the Tenant shall not be liable to repair any inherent defect in the premises or the Landlord’s fixtures and fittings nor to pay any outgoings incurred by the Landlord in remedying any inherent defect.
…
11.1 THE Landlord shall keep and maintain the building, all building services, the Landlord’s fixtures and fittings, and the car parks in good order and repair…
9 Jamacs Corporation Ltd v Norfolk Trustee Company Ltd (2008) 9 NZCPR 498 (HC).
10 At [33].
23.1THE Landlord shall at all times during the term keep and maintain any buildings on the property insured under a policy of the type shown in the First Schedule and such cover may extend to:
…
(b) loss damage or destruction of any of the Landlord’s fixtures
fittings and chattels; or …
[49] Finally, Mr Barker refers to the fact that in the latest (sixth) edition of the ADLS form of lease (the present case involving the fifth edition (2008)) the term “premises” is now defined in cl 45.1 as including “all the Landlord’s fixtures and fittings and any specific items set out in the Fourth Schedule of the Lease”. He
refers to a paper by Joanna Pidgeon presented to the 16th Annual Conference of the
Commercial Leasing and Property Conference where she states that the previous form of lease gave rise to inconsistencies in relation to matters such as the maintenance provisions and to a lesser extent “notification of defects, landlord’s rights of inspection and alterations and additions provisions”.11
[50] For the respondent, Mr McAnally says that the present case can be distinguished from Jamacs12 by the following factors, on which I comment seriatim:
1.Firstly, he says that the premises, as defined in the lease, include references to various storage rooms. This, he says, is consistent with identification of internal walls and partitions on the plans and the respondent’s argument that such partitions therefore form part of the premises.
I note, however, that the storage rooms are in the basement area. In so far as the first floor is concerned, the definition of premises is confined simply to “all of the first floor – office (840 m²)”.
2.Secondly, he says that the present lease does not draw a clear distinction between the lease of the premises and the right to use
11 Joanna Pidgeon “ADLS Inc 6th Edition Commercial Lease and 9th Edition Sale Purchase Agreement” (paper presented to Commercial Leasing and Property Management Conference, November 2012).
12 Jamacs Corporation Ltd v Norfolk Trustee Company Ltd above n 9, at [33].
common areas because the specific definition of premises defines the extent to which the tenant may use certain areas (namely the lifts).
That may be so, but it does not detract from the fact that in the demise a distinction was drawn between a lease of the premises and a right of use in respect of the Landlord’s fixtures and fittings.
3.Thirdly, he says that it is apparent that the version of the ADLS Deed of Lease in issue in Jamacs did not, as far as the obligation of the tenant to notify the Landlord of defects is concerned, include as part of the tenant’s obligation to notify the landlord of any “defect in the premises”, the particular obligation to notify of any defect relating to pipes or fittings used in connection with water, electrical gas or drainage surfaces.
If that is so, it does not, in my view, materially assist his argument.
4. Finally he points to cl 48.1 in terms:
48.1Notwithstanding clauses 8 and 20 of the Lease the Tenant shall have no obligations to paint/redecorate/replace floor coverings nor to reinstate the premises in respect of fit- out/improvements in/to the premises.
He says that this clause expressly makes fixtures or fittings, forming part of any fit-out or improvement, part of the premises.
[51] Mr Barker’s response to this final point is that the reference in cl 48.1 could, within the context of the lease, be interpreted as a reference to the specialised basement fit-out which is unarguably a landlord’s fixture and fitting.
[52] I am not required to make a ruling on that issue of construction. At best, from the respondent’s perspective, cl 48.1 represents one favourable provision among many which point the other way. Ultimately I find myself reaching the same conclusion as Duffy J did in the Jamacs decision and for essentially the same reasons. In particular, I find the terms of the demise a strong indicator that the
landlord’s fixtures and fittings are not part of the premises for the purposes of
cl 20.1.
[53] Accordingly, I find that cl 20.1 was not engaged in relation to alterations to the reception area, irrespective of whether the relevant fit-out is owned by the applicant or respondent. It follows from that conclusion that, in my view, the obligation to reinstate (at landlord’s request) any alterations or additions under cl 20.1 “at the end or earlier termination of the term” does not arise.13
[54] Mr McAnally submits that there was nevertheless a breach of the lease because under s 218 of the Act every lease contains the implied covenants, conditions and powers set out in Part 2 of Schedule 3, and cl (12)(1)(b) provides that the lessor may cancel the lease in accordance with s 244 if —
The lessee has failed, for a period of 15 working days, to observe or perform any other covenant, condition or stipulation on the part of a lessee expressed or implied in the lease.
[55] He submits that the only right acquired by the applicant was to use the landlord’s fittings and fixtures and that by moving the reception desk and placing a new door in an existing wall the tenant has gone beyond “use” and has accordingly “failed to perform a covenant condition or stipulation”. I think it unlikely that an alteration of the character complained of constitutes a failure to perform within the terms of cl (12)(1)(b) and any breach would seem to be in the applicant’s capacity as “user” rather than lessee. In any event, the respondent’s Property Law Act Notice was directed to an alleged non-compliance with cl 20.1.
[56] In the event the relevant fittings and fixtures are owned by the respondent, unauthorised alterations might still sound in a damages claim. There may, for example, be a conceivable cause of action in conversion. However, that is a separate
inquiry.
13 Such obligation is in any event negated by cl 48.1, assuming (but without deciding) that it applies to all fit-out/improvements in/to the premises and not the specialised basement fit-out alone.
Is the first floor fit-out owned by the applicant?
[57] The applicant argues:
(a) that it purchased the assets of Antiquus which included “tangible assets”;
(b) the tangible assets included those listed in Schedule A; (c) Schedule A includes plant and equipment;
(d)plant and equipment are referred to in the accounts attached in Schecule B to the agreement. They had a value of $3.9 million part of which was made up of “leasehold improvements”. The applicant says this refers to the fit-out;
(e) the agreement contained a warranty that the tangible assets in Schedule A included all the tangible assets set out in the business accounts;
(f) the only landlord improvements referred to in the lease are those separately identified at page 22 of the agreement and which were in turn separately leased to the applicant (the basement fit-out); and
(g)accordingly, any remaining fit-out was owned by Antiquus and purchased by the applicant.
[58] The respondent says that the onus is on the applicant to disprove the basic proposition that what is affixed to the premises is a landlord’s fixture and fitting and that it has failed to do so. It says, correctly, that there may be breaches of warranty on the part of the vendor in the sale of the business to the applicant but that this is not determinative of the issue of ownership.
[59] Ultimately, because of the conclusion I have reached in relation to cl 20.1 of the lease, it is unnecessary for me to decide this point. If it ultimately requires
adjudication, it is, in my view, better addressed in the context of declaratory judgment proceedings against a full evidential background.
Issue 2 - General relief from forfeiture
[60] If I am wrong either in my conclusion that cl 20.1 is not engaged by the reception works, or the views expressed in [55] then I would, in any event, have been prepared to grant relief from forfeiture under s 253 of the Act on the basis that termination of the lease would, I consider, be disproportionate to the alleged breach. In assessing proportionality I take into account, on the one hand, the minor nature of the works and, were reinstatement required, the modest cost of that, and, on the other, the egregious consequences to the applicant were relief not granted. Those consequences are set out in [51] – [54] of Mr Harding’s affidavit where he deposes that the premises contain many millions of dollars worth of bullion, precious metals and other valuables all of which is stored in specialist vault facilities with high security features. The company simply cannot operate its business other than from purpose built premises.
[61] He further deposes that the business of bullion exchange and storage requires customers to maintain a high level of trust in the applicant’s ability to store safely their valuables and bullion and it is accordingly “a highly reputational business”. He says that if the respondent were to re-enter the premises and prevent customer access it would have a significant impact on the applicant’s business. It would also, he says, raise obvious security concerns.
[62] All of what Mr Harding says is, in my view, understandable in the context of
the plaintiff’s business.
[63] I also take into account what I regard as unsatisfactory conduct on the part of the respondent. Although (had cl 20.1 applied) it may have been technically correct in its position that the obligation not to withhold consent unreasonably arose only in relation to an application made prior to completion of the works and supported by appropriate plans and specifications, nevertheless, when the issue of potential breach was drawn to the applicant’s attention, the applicant adopted a pragmatic and
sensible approach by requesting consent and offering to reinstate at the conclusion of the term.
[64] Had cl 20.1 applied and had the applicant sought consent, no lessor could, in my opinion, have reasonably declined the application. The premises are highly specialised with significant security infrastructure already in place and the additional security offered by the remodelled reception area is likely, in my view, to have added to the value of the premises, not detracted from them.
[65] The approach adopted by the respondent, and in particular its issue of a Property Law Act Notice, indicates, in my view, either an animus on its part, or an attempt to obtain leverage in relation to the claims made by the applicant under its guarantee. I do not consider it to have acted reasonably in that regard.
[66] Moreover, there appears to have been a clear breach by the respondent of its obligations under the right of first refusal which, in my view, is a relevant consideration under the principle referred to in [38](h) if changes accepted.
[67] In relation to the conditions which might attach to any grant of relief, I am not, having regard to my conclusions in relation to the application of cl 20.1, persuaded that a reinstatement obligation is appropriate in relation to the reception area. If the respondent alleges that it has suffered any loss or damage then it retains its remedy in damages.
Result
[68] I grant relief to the applicant under s 253 of the Act against any proposed cancellation by the respondent of the lease between the applicant and respondent dated 30 March 2012.
[69] The relief is not subject to conditions.
Costs
[70] In Roses Are Red Ltd v Board of Administration of the Methodist Church of New Zealand,14 the Court of Appeal noted that the discretion to award costs in relief cases is to be exercised generally in accordance with rr 14.2-14.10 of the High Court Rules, including the usual principle that the party who fails should pay costs to the other. It said, however, that there are some further broad policy considerations in such cases, including that where an application for relief against forfeiture is made
following a breach of lease, the tenant is seeking an indulgence and may well be in a different position from other “winners”.
[71] Significantly in the context of this case, the Court said:15
In some cases it may be self-evident that it was unfair or unreasonable for a landlord unnecessarily to impose the need for a defended hearing and a costs award can reflect that. For example… in situations where the landlord was seeking to obtain some sort of commercial or other advantage or was somehow pressuring the tenant so as to improve its position, the usual rule of costs following the event should apply. In other cases it may equally be plain that it was fortuitous for the tenant to be granted relief against forfeiture in which case the tenant can expect to pay costs.
[72] In my view this case falls within the first category identified in this extract. It follows that the applicant is entitled to costs.
[73] Mr Barker applies for an order for increased costs under r 14.6. He says that an uplift of 100 per cent on 2B costs should be applied having regard to what he says was a failure on the part of the respondent to act reasonably.
[74] Importantly, the unreasonable conduct must be in relation to the proceeding, that is, conduct after it was commenced, not earlier conduct.16 Further, the Court should consider the extent to which the failure to act reasonably contributed to the time or expense of the proceeding. Rule 14.6(3)(b) emphasises that point by focusing on actions by the unsuccessful party which increased the costs of the
proceeding once issued. It is difficult to identify any conduct within that category in
14 Roses Are Red Ltd v Board of Administration of the Methodist Church of New Zealand [2009] NZCA 237, (2009) 19 PRNZ 369 at 374.
15 At 375.
16 Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA) at [160].
this case. It is the antecedent conduct of issuing the Property Law Act Notice which
I consider to have been unreasonable.
[75] Moreover, the applicant has, for its part (at least in respect of the basement works where by its actions it has acknowledged a requirement to reinstate), been somewhat casual in respect of consent requirements. Even though these reinstatement works have now been completed, it still technically seeks an indulgence in the context of its s 253 application.
[76] Looking at the position in the round, I consider the appropriate outcome is that costs be awarded to the applicant on a 2B basis but with no uplift. If the quantum of such costs cannot be settled between the parties, I will receive
memoranda. They are to be exchanged in advance so as to limit areas of difference.
Muir J
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