Olma Investment Limited v R & a Auton Limited

[2024] NZHC 771

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2024-409-10

[2024] NZHC 771

BETWEEN

OLMA INVESTMENTS LIMITED

Applicant

AND

R & A AUTON LIMITED (removed) First Respondent

AND

ANDREW MYERS AUTON and ROBYN IRIS BUTTERS

Second Respondents

Hearing:	On the papers
Counsel:	D J Ballantyne for the Applicant Second Respondents in person
Judgment:	11 April 2024

JUDGMENT OF HARLAND J

Introduction

[1]    The proceeding determines the second respondents’ appearance protesting the court’s jurisdiction to determine the originating application by Olma Investments Limited (Olma) for orders under ss 244 and 251 of the Property Law Act 2007 (PLA). I have decided the Court does have jurisdiction to determine the claim. I have directed it be set it down before a duty Judge to make any further directions necessary to progress the application.

[2]This judgment sets out my reason for reaching this conclusion.

OLMA INVESTMENTS LTD v R & A AUTON LTD [2024] NZHC 771 [11 April 2024]

Background

[3]    This proceeding concerns a property comprising premises at Unit 11, 8 Henrick Lane, Rolleston, being an industrial warehouse space with a dwelling above it. Olma owns the property.

[4]    On 23 August 2022, Olma entered into a Deed of Lease (the lease) with the first respondent (the company) and the second respondents, who were the directors of the company who provided a guarantee and indemnity in respect of the company’s obligations under the lease.

[5]    Olma contends that, by September 2023, rental and outgoing arrears had accrued and there was also a failure to comply with cl 48.1 of the lease and the rules of the Residents Association because a pet or pets were being kept on the premises.

[6]    Notices of Demand under s 245 of the PLA were served on the company and the second respondents on 13 September 2023. These notices were not remedied and negotiations to resolve the issues between the parties failed.

[7]    Olma has applied to the Court for orders under ss 244 and 251 of the PLA to cancel the lease. Olma also seeks re-entry into and possession of the premises as well as ancillary orders for the payment of rental arrears, damages, interest and legal fees against the company and the second respondents as guarantors.

[8]    The company was removed from the Companies Register on 27 January 2023. It has not been reinstated. It is not clear when Olma found out about this.

[9]    By minute dated 26 February 2024, Dunningham J allowed the second respondents time to file a notice of opposition identifying the basis upon which they challenge Olma’s application.

[10]    The second respondents have filed an unsigned, undated document entitled “appearance under protest to jurisdiction and application for relief from eviction”.

[11]The second respondents claim that:

(a)  Olma breached the contract by encouraging the second respondents to move into the property with their dogs, without first gaining the Residents Association’s approval.

(b)  Olma agreed the second respondents would only have to pay half the rent until the dogs were approved by the Residents Association.

(c)  The second respondents attempted to apply for mediation and/or arbitration long before they were notified of any arrears.

(d)  The Law Society and Tenancy Tribunal have jurisdiction to deal with this matter.

(e)  Any eviction would be unlawful as the second respondents have not been able to fully take possession of the property.

(f)  The arrears claimed are well below this Court’s lower limit and are, in any case, disputed as Olma’s breach of the contract has caused the conflict.

Legal principles

[12]Rule 5.49 of the High Court Rules 2016 (HCR) states:

(1)   A defendant who objects to the jurisdiction of the court to hear and determine the proceeding may, within the time allowed for filing a statement of defence and instead of so doing, file and serve an appearance stating the defendant's objection and the grounds for it.

(2)   The filing and serving of an appearance does not operate as a submission to the jurisdiction of the court.

(3)   A defendant who has filed an appearance may apply to the court to dismiss the proceeding on the ground that the court has no jurisdiction to hear and determine it.

…

[13]   Assessing the competence of the Court to decide the dispute is a proper function of r 5.49.1 The section is only concerned with whether jurisdiction exists, not whether a parallel jurisdiction is better suited to determining the issues before it.2 The onus will always be on the defendant/respondent to establish that the Court does not have jurisdiction.3

Submissions

Second respondents’ submissions

[14]   The second respondents claim the company was deregistered because of Olma’s failure to fulfil its responsibilities under the lease, as it refused to return a signed lease or provide receipts for rent, GST or insurance, causing issues with the IRD. They claim this forced them to deregister the company.

[15]   The second respondents refer to schedule four of the lease which provides that “the guarantor may for all purposes be treated as the tenant”, which they submit enables them to respond and defend their position.

[16]   They also submit that, as the commercial warehouse has an attached residence, they are residential tenants. They claim this position is further strengthened by the existence of the Residents Association and various dispute mechanisms in the lease, including arbitration and recourse to the Tenancy Tribunal, which they assert could be employed to help resolve these matters.

[17]   Finally, the second respondents advise that the Law Society has agreed to “take the case if it is referred to them”.

Olma’s submissions

[18]   Mr Ballantyne, counsel for Olma, submits that the company, as the tenant under the lease, is in default in three material respects under the clauses of the lease

1      Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 94, [2013] 1 NZLR 804 at [23].

2      New Zealand Law Society v Deliu [2014] NZHC 2467, [2015] 2 NZLR 224 at [40].

3      Huang v Huang [2021] NZHC 2902 at [45].

(cls 28.1(a), 28.1(b) and 28.1(d)). Cancellation of the lease is allowed for under subs

(a) if the rent is in arrears, under subs (b) in the event of a breach of the lease and under subs (d) in the event of insolvency, receivership, or liquidation.

[19]As the company no longer exists, Mr Ballantyne submits:

Prima facie, Olma has the right to rely on its notice under s 245 Property Law Act 2007 and apply to the Court for orders under s 244 and s 246 of Property Law Act 2007. By virtue of s 4 Property Law Act 2007, the “court”, in relation to any matter, means the court before which the matter falls to be determined and is the High Court under r 19.2 …

[20]   Rule 19.2 of the HCR dictates that orders under s 244 of the PLA must be made by originating application to the Court. That is what has occurred. Mr Ballantyne correctly submits that ss 244–264 of the PLA is a code in respect of cancellation of leases.

[21]   Mr Ballantyne submitted that the lease is a commercial one, meaning the Tenancy Tribunal does not have any jurisdiction under s 5(1)(a) of the Residential Tenancies Act 1985 (RTA). He highlighted that cl 49 of the lease contains an acknowledgement by the tenant that the RTA does not apply. Mr Ballantyne noted the premises are not part of a unit title development, being held freehold and with a registered land use covenant setting out the Residents Association rules.

[22]   Mr Ballantyne highlighted that the protest to jurisdiction has been filed on behalf of the second respondents, not the tenant. He submits this is noteworthy because the second respondents’ liability to Olma is in their capacity as guarantors and indemnifiers under the fourth schedule of the lease. That contractual liability, Mr Ballantyne submits, is to indemnify the landlord against any loss it might suffer.

[23]   Mr Ballantyne does not agree with the second respondents’ contention that mediation or arbitration is appropriate because the company no longer exists. Additionally, Mr Ballantyne noted that nothing in cl 43.3 of the lease prevents Olma from taking proceedings for the recovery of rent or any monies payable under the lease which remain unpaid or from exercising rights or remedies in the event of the default, prescribed in cl 28 of the lease.

[24]   The rent owing under the PLA notice as of 5 September 2023 was $12,750. Mr Alexander, the director of Olma, submits that, as of 26 February 2024, Olma is owed $27,780.62 and that this cost is currently being carried by its directors personally. That amount includes legal fees.

Discussion

[25]The third schedule of the lease states at cl 49.1:

The Tenant acknowledges that the dwelling in the Premise is consented for use only in conjunction with the warehousing space. The Tenant may not separately sublet the dwelling the Premise. The Tenant further acknowledges that as a lease of industrial warehousing the Residential Tenancies Act 1986 does not apply to this Lease.

[26]   Mr Ballantyne correctly notes that the Unit Titles Act 2010 does not apply. It appears the premises are commercial premises, with no subsequent application of the RTA.

[27]   The second respondents are the guarantors under the lease. I note the following extracts from the fourth schedule of the lease:

2.     As between the Guarantor and the Landlord the Guarantor may for all purposes be treated as the Tenant and the Landlord shall be under no obligation to take proceedings against the Tenant before taking proceedings against the Guarantor.

3.     The guarantee and indemnity is for the benefit of and may be enforced by any person entitled for the time being to receive the rent.

[28]   When there is ambiguity, the terms of a guarantee will be construed strictly against the person offering it.4 However, the main objective is to endeavour to define the intention of the parties, at the time they entered into the lease, from the terms of the document itself construed purposively.5 Neither party is prejudiced if the above clauses are construed as clauses that allow the second respondents to bring their protest to the Court’s jurisdiction in their capacity as guarantors, noting that the lease provides that “the guarantor may for all purposes be treated as the tenant.”

4      Hodren v Coffey (1992) 2 NZ ConvC 121,238 (HC) at 5.

5      Land Law (Thomson Reuters, online ed) at RT2.25.01.

[29]   This Court’s jurisdiction to deal with matters has been a salient issue for the second respondents. Mr Ballantyne is correct to identify cl 43.4 in the lease that allows the landlord to take proceedings “for the recovery of rent” and, with the arbitration provisions in mind, does not prevent the landlord “from exercising the rights and remedies in the event of the default prescribed in subclause 28.1”. Olma has applied to this Court for orders and specified three breaches under cl 28.1 of the lease.

[30]   For the moment, I put to one side the rental arrears matter as well as the assertion by the second respondents that the blame for the tenant’s removal from the Companies Register lies with Olma. Section 15 of the Companies Act 1993 is clear in stating that a company is a legal entity in its own right “until it is removed from the New Zealand register”. Removal of a company from the register is the corporate equivalent to an individual’s death.6 The tenant was removed on 27 January 2023. While the lease does not specifically note “removal” as a ground for cancellation under cl 28.1, I am satisfied that removal may be read into the clause that declares insolvency, bankruptcy, statutory management, voluntary administration, receivership and liquidation as grounds for cancellation. The company’s removal (that has still not been rectified) appears to be sufficient cause for cancellation under cl 28.1(d).

[31]   A lessor (Olma) who wishes to exercise a right to cancel a lease because of a breach by the lessee of a covenant or condition of the lease may apply to a court for an order for possession of the land under s 244 of the PLA. Orders under s 244 must be made to this Court by way of originating application under r 19.2(s) of the HCR. The lease is clear that the RTA does not apply to it.

[32]   The protest to jurisdiction is therefore dismissed. Dunningham J was, with respect, correct to note in her minute that it would be difficult to resist an order terminating the lease and requiring the tenant to give up vacant possession when the tenant has been removed from the Companies Register.

[33]   According to the second respondents, Olma breached the lease by encouraging the second respondents to move into the property, with their dogs, without first gaining the Residents Associations’ approval. The second respondents claim they came to an

6      Re Saxpack Foods Ltd [1994] 1 NZLR 605 (HC) (at 608).

agreement with the landlord to pay half rent until this issue was resolved. They claim they have attempted to apply for mediation and arbitration several times, long before any “arrears” were notified. It certainly appears, based on emails filed by the second respondents, that Olma, via its director’s communications, was open to the second respondents moving in with their dogs, regardless of the Residents Associations’ views. On the face of it, it appears there is a valid dispute here as to what is owed and whose fault that is.

Result

[34]   There is no basis to assert a protest to the Court’s jurisdiction to hear and determine this application. No notice of opposition has been filed however, the fact a protest to jurisdiction was filed and given the material filed by the second respondents in respect of it, it is clear they wish to defend the application. The High Court Rules require them to file a notice of opposition and any affidavit evidence in support if they wished to do so and they have not done so.

[35]   Given the submissions filed so far, there may not to be any need for further evidence or submissions in relation to Olma’s application for cancellation of the lease and/or possession. However, further evidence may be required about the other orders sought, including the amount of rental owing. The fairest approach, in my view, given that the second respondents represent themselves, is for this to be placed before a Judge in a duty Judge civil list. That Judge may then consider what further directions may be necessary before this application can be resolved, either in part by determining cancellation and possession first but reserving argument about quantum or by dealing with both aspects of the application together.

Harland J

Solicitors:

D J Ballantyne, Barrister, Christchurch Copy to:

A Auton & R Butters, Second Respondents.