Patel v MacLeod

[2018] NZHC 388

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-2712

[2018] NZHC 388

UNDER

Section 253 of the Property Law Act 2007 and under Part 19 of the High Court Rules

IN THE MATTER

of an application for relief against forfeiture from unpaid rent and breach of other

covenants

BETWEEN

MANU PATEL, PAMELA PATEL and

VINESH PATEL trading as Greer Corner Applicants

AND

GRANT and JACQUELINE MACLEOD as

trustees of the Macleod Trust Respondents

Hearing:	21 February 2018
Appearances:	C J Pendleton for Applicants K McMullen for Respondents
Judgment:	12 March 2018

JUDGMENT OF LANG J

[on application for relief from forfeiture]

This judgment was delivered by me on 12 March 2018 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

PATEL v MACLEOD [2018] NZHC 388 [12 March 2018]

[1]                  This proceeding involves the lease of commercial premises situated at 360-362 Lake Road, Takapuna. The applicants, three members of the Patel family (the Patels), are the lessees and the respondent trustees (the trustees) are the owners and lessors of the premises.

[2]                  On 11 August 2017, the trustees terminated the lease and re-entered the premises after they said the Patels had failed to comply with a notice issued under s 246 of the Property Law Act 2007 (the Act) on 18 July 2017 (the 18 July PLA notice). This required the Patels to rectify alleged breaches of their obligations under the lease by 1 August 2017.

[3]                  The Patels now seek relief against forfeiture of the lease under ss 253 and 256 of the Property Law Act 2007 (the Act) on the ground that it is just and equitable for relief to be granted. The trustees oppose relief being granted. They say the Patels remain in default of their obligations under the lease, and that there can be no guarantee they will faithfully perform their obligations as lessees in the future.

The deed of lease

[4]                  The operative deed of lease is dated 5 November 2015. It provides for the Patels jointly to lease the premises for a period of seven years from 1 August 2015 with a right of renewal for a further period of seven years. The lease permitted the premises to be used for the purposes of a fruit and vegetable retail shop and a café.

[5]                  The initial rental was $80,000 per annum plus GST, together with a share of outgoings. Rental was to be paid monthly in advance on the first day of each month by payments in the sum of $6,666.67 plus GST.

[6]                  The lease provided for a default interest rate of 14 per cent per annum and also required the lessees to reimburse the lessors for “legal costs (as between solicitor and client) of and incidental to the enforcement of the Landlord’s rights under [the] lease”. Furthermore, a special condition of the lease required the lessees to procure and maintain a guarantee from a major New Zealand trading bank in favour of the lessors. This enabled the trustees to obtain payment directly from the bank if the Patels failed to perform their obligations under the lease. The guarantee, which operated in effect

as a performance bond, was limited to six months rental and outgoings inclusive of GST.

Preliminary issue: effect of Manu Patel’s bankruptcy

[7]                  The application has been filed in the name of all three lessees. At the commencement of the hearing, however, Manu and Pamela Patel advised me they wanted Vinesh to advance the application on behalf of all three lessees. They relied on s 253(1)(d) of the Act which provides that, where two or more persons are entitled to a leasehold estate as joint tenants, an application for relief may be brought by one or more of those persons on behalf of the other joint tenants. The lease in the present case provides for the lessees to hold the leasehold interest in the land jointly, so the procedure prescribed by s 253(1)(d) is available to them.

[8]                  Ordinarily there could be no issue with Vinesh making the application for relief on behalf of all three lessees. The complicating feature in the present case arises out of the fact that Manu was adjudicated bankrupt on 20 July 2017. His interest as lessee passed to the Official Assignee at that point. As a result, the Official Assignee is the only person who can provide the necessary authority under s 253(1)(d) for Vinesh to make the application in relation to the interest formerly held by Manu.

[9]                  When the hearing commenced, there was nothing before me to suggest the Official Assignee was aware of the present proceeding or that he had authorised Vinesh to make the application on the Official Assignee’s behalf. I therefore directed counsel for the Patels to ascertain whether the Official Assignee was prepared to consent to Vinesh advancing the application on behalf of the Official Assignee.

[10]              On 9 March 2018 the Official Assignee’s solicitors filed a memorandum advising that the Official Assignee did not consent to Vinesh Patel advancing the application for relief on his behalf. The memorandum also advises that the Official Assignee considers Manu does not have standing to advance the application in his own right. At my request the Official Assignee also filed a further memorandum confirming the Official Assignee did not wish to advance the application on Manu’s behalf.

[11]              The stance taken by the Official Assignee regarding these issues means the application cannot succeed. The Court cannot grant relief against forfeiture in circumstances where one of the three original lessees does not wish to obtain relief.

[12]              For the sake of completeness, however, I propose to address the remaining issues raised at the hearing.

The validity of the termination of the lease

[13]              I deal first with a challenge by the Patels to the validity of the termination of the lease on 11 August 2017. They advance three arguments in this context. First, they contend the 18 July PLA notice was invalid because it required the Patels to perform an act that was unreasonable in all the circumstances. Secondly, the Patels maintain they complied in any event with the requirements imposed by the 18 July PLA notice. Thirdly, they contend the trustees purported to terminate the lease when the time for complying with a further PLA notice issued by the trustees on 10 August 2017 (the 10 August PLA notice) had not yet expired. As a result of these factors the Patels say the purported termination of the lease on 11 August 2017 was invalid, and the resulting re-entry was also illegal and/or in breach of the lessor’s obligations under the lease.1

[14]              An originating application for relief against forfeiture is not the appropriate framework within which to determine a claim that a lease has not been validly cancelled. If the Patels’ argument is correct, they would not need to seek relief against forfeiture because the lease would remain in existence. I note that a similar situation arose in Ladies Mile Motor Company Ltd v Zhan.2 In that case Woodhouse J suggested it would appear to be appropriate for the lessor to file a statement of claim, and for the lessee to file a statement of defence raising an affirmative defence or counterclaim based on the alleged invalidity of the cancellation of the lease. That procedure is obviously impracticable in the circumstances of the present case because of the advent of Manu’s bankruptcy. I therefore propose to deal with the issue on the current pleadings.

1      Including the right of the lessees to be in physical possession of the premises.

2      Ladies Lime Motor Company Ltd v Zhan [2018] NZHC 152.

Was the 18 July PLA notice invalid?

[15]Section 246 of the 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.

[16]              The 18 July PLA notice contained two requirements, both of which the Patels were required to satisfy by 1 August 2017. The first was a requirement that they were to pay the rent due on 1 July 2017. The Patels take no issue with this requirement, and they satisfied it by making a payment into the trustees’ bank account on 1 August 2017. The second was a requirement that the Patels reinstate the performance bond to the sum of $51,300. This was necessary because the trustees had called on the bank to honour the guarantee during July 2017 to obtain payment of other monies owing by the Patels. This had reduced the amount available under the bank’s guarantee to the sum of $34,100.

[17]              For the Patels, Ms Pendleton submits that the performance bond was designed to provide the trustees with a means of ensuring they would continue to receive payments due under the lease for up to six months in the event that the Patels defaulted in their obligation to make those payments. Ms Pendleton therefore submits the notice ought to have given the Patels six months within which to reinstate the performance bond.

[18]              I do not accept this submission. The lease required the lessees to maintain the performance bond at a sum equivalent to six months rental and outgoings inclusive of GST. That obligation was constant and ongoing. It did not permit the lessees to wait until the amount available to the lessors under the bank’s guarantee was exhausted before reinstating the amount available to $51,300. The issue in the present case is whether it was reasonable for the notice to require the Patels to reinstate the performance bond from its existing level of $34,100 to the required sum of $51,300 within ten working days.

[19]              Whether or not a requirement imposed by a PLA notice is unreasonable will obviously depend on the circumstances, including in particular the nature of the requirement and the steps that the lessee will be required to take to comply with it.3 The requirement that a reasonable period of time be given to remedy breaches of obligations other than that relating to payment of rent reflects the fact that a lease will generally impose numerous obligations on the lessee. Breaches of some obligations may not be capable of remedy within the ten working days imposed in relation to outstanding rent.

[20]              The Patels have not adduced any evidence to explain what steps the process of reinstatement required them to take. The Court is therefore left to make its own assessment based on correspondence the trustees have produced involving their solicitors, the bank and the solicitors acting for the Patels during early August 2011.

[21]              Late on the afternoon of 1 August 2017 the trustees’ solicitor received an email from the Patels’ solicitors containing the following advice:

3      Cash Handling Systems Ltd v Augustus Terrace Developments (1996) 3 NZ ConvC 192,398 (HC).

Hi David

In respect of the rental arrears, the sum of $9,873.02 has been paid into your client’s account today.

In respect of the performance bond, the sum of $17,043 has been paid into ASB.

Accordingly, it is our client’s position that the default under the lease has been remedied. Please see the attachment for confirmation of this.

In respect of the invoice for the roofing repairs, may we please have a copy of the service maintenance contract cited in outgoing 7 of the first schedule.

In light of the above, can you please confirm that the lease will not be cancelled?

We look forward to hearing from you.

[22]              This email prompted the trustees’ solicitor to send the following email to the bank on 2 August 2017:

Hi Shahid

I understand that the sum of $17,043.00 was credited to the bank guarantee account yesterday as per the attached, and that the bond has accordingly been reinstated to $51,300.00.

Could you please confirm so that I can advise my client that they should not
proceed with cancelling the lease.

[23]The bank responded as follows on 3 August 2017:

Good morning David

As previously advised we were unable to top up the existing bond and we have had to set up a new replacement bond of $51,300.

This has been approved by ASB and I also confirm we hold cleared funds of

$51,300 for this.

Documents are currently being prepared and will issuing out the new bank guarantee [sic] once the documents have been prepared.

Please do not hesitate to contact me

…

[24]              This correspondence suggests the Patels needed to provide the bank with total cleared funds equivalent to the maximum amount for which the bank was to provide the trustees with a guarantee. An issue obviously arose after the trustees began to call

on the bank to honour the guarantee during July 2017. It seems that the bank’s procedures did not permit the Patels to simply “top up” the funds necessary to enable the bank to revert to a guarantee of up to $51,300. Instead it was necessary for the original bond to be cancelled and a new bond documented.

[25]              The Patels have not explained why they did not provide the bank with cleared funds of $17,043 prior to 1 August 2017. This was a relatively modest amount and they were able to provide it to the bank on 1 August 2017. In the absence of any explanation from the Patels I see no reason why this could not have been done significantly earlier, thereby allowing time for the necessary documentation to be prepared and signed before 1 August 2017. On the information presently available I therefore do not accept that the requirement for reinstatement of the performance bond by 1 August 2017 was unreasonable.

Did the Patels comply with the requirements of the 18 July PLA notice?

[26]              The 18 July PLA notice required the Patels to pay outstanding rental and legal costs totalling $9,873.02 no later than 1 August 2017. As I have already recorded, the notice also required them to provide the trustees’ solicitors with written evidence by the same date confirming they had reinstated the amount of the performance bond from $30,400 to $51,300.

[27]              The Patels rely on the email from the bank dated 3 August 20174 as providing confirmation that they had reinstated the performance bond by 1 August 2017. The email confirms the Patels had lodged sufficient funds with the bank to enable the new bond to be put in place. It also clearly states, however, that the documentation relating to the new bond had not been prepared and signed as at 3 August 2017.

[28]              The argument for the Patels is further undermined by the events that occurred after 3 August 2017. The emails set out above initially led the trustees to believe the Patels had reinstated the guarantee to the sum of $51,300. On 11 August 2017, however, the trustees’ solicitor received the following advice from the bank:

Hi David,

4 Set out above at [19].

Thanks for your email,

I confirm the new bank guarantee of $51,300 has not been reinstated as of today and the existing bank guarantee is still in place hence the partial demand yesterday has left a balance of $30,040.79.

Kind regards,

…

[29]              The bank provided this information after the trustees had called on the bank’s guarantee on 11 August to obtain further funds that remained outstanding under the lease. The trustees say that this discovery led them to conclude the Patels had failed to comply with the PLA notice issued on 18 July 2017. This prompted them to terminate the lease and re-enter the premises later the same day.

[30]              I consider the email correspondence between 3 and 11 August 2017 demonstrates conclusively that the Patels had not reinstated the performance bond by the time the trustees purported to terminate the lease.

What was the effect of the 10 August PLA notice?

[31]              This issue is not raised in the originating application seeking relief against forfeiture, and determination of it is not particularly suited to the originating application procedure. In essence it comprises an argument that relief is not required because the lease has never been validly terminated.

[32]              The argument is based on the fact that on 10 August 2017 the trustees served another PLA notice on the Patels (the 10 August PLA notice). This required them to provide “written evidence to the Landlord’s solicitor no later than 25 August 2017 that the performance guarantee with ASB has been reinstated to $51,300 (GST inclusive)”. The 18 July PLA notice had contained the same requirement but required it to be satisfied by 1 August 2017.

[33]              The Patels contend that the requirement imposed by the 10 August PLA notice extinguished or overrode that contained in the 18 July PLA notice. As a result, the Patels gained an extension of time until 25 August 2017 to rectify the alleged breach relating to reinstatement of the performance bond. The trustees also lost the ability to

terminate the lease on the basis that the Patels had failed to rectify the breaches referred to in the 18 July PLA notice.

[34]              After the trustees had terminated the lease, the Patels’ solicitor queried how the termination could be valid when the time for complying with the 10 August PLA notice had not yet expired. The trustees’ solicitor responded as follows:

Hi Phil

The corrected notice [the 10 August PLA notice] is attached – it is due to be remedied by 25 August.

There is then a second notice which is also currently running in respect of August’s rental – also attached.

There is then a third notice (attached) [the 18 July PLA notice] which has run overdue. It has not been retracted by the Landlord and the default (reinstatement of the bank guarantee) has not been remedied. Our client reserves its rights in respect of this notice.

[35]              The trustees have not explained why they issued the 10 August PLA notice. They argue, however, that they were entitled to issue it whilst reserving any rights they might have arising out of the failure by the Patels to comply with the requirements of the 18 July PLA notice.

[36]              I do not consider this submission can be correct. The purpose of a notice issued under s 246 is to ensure the lessee clearly understands the breaches to be remedied by a specified date in order to avoid the lease being cancelled.5 A lessor is obviously entitled to issue a second notice requiring the lessee to remedy the same breach after an earlier notice has expired without the breach being remedied. In that event, however, the lessee is entitled to assume the lessor has extended the time within which the breach must be rectified so as to avoid the lease being cancelled. Any other outcome would lead to confusion on the part of the lessee as to the date by which the breach must be rectified. I therefore do not accept it is open to a lessor to issue a second notice in respect of the same breach whilst ostensibly “reserving its rights”, as the trustees in the present case purported to do, in respect of the earlier notice.

5      See Horsey Estate Ltd v Steiger [1899] 2 QB 79 (CA) at 91-92, cited in Cash Handling Systems Ltd, above n 2.

[37]             In order to comply with the 18 July PLA notice the Patels were required to both pay the outstanding rental and provide written evidence of the reinstatement of the performance bond to the sum of $51,300. Failure to rectify either of those breaches by 1 August 2017 would entitle the trustees to terminate the lease at any time after midnight on 1 August 2017. Matters changed, however, when the trustees issued the 10 August notice. Thereafter that became the operative notice, and they could no longer terminate the lease because of any failure by the Patels to comply with the requirements of the 18 July PLA notice. I note that Duffy J took a similar approach, albeit in the context of an application for interim relief, in Doxcon Pharmaceuticals Ltd v v Tasmandairy Ltd.6 In that case Duffy J observed that it was “seriously arguable” that by issuing a second PLA notice the lessor acknowledged inability to rely on the earlier notice.

[38]              Importantly, however, the Patels did not provide written evidence of reinstatement of the performance bond by 25 August 2017. Had they done so, the trustees could not have remained in possession of the premises and they would have been required to accept that the lease remained in existence. As it transpires, however, the Patels have never provided evidence of reinstatement of the bond. For that reason, and notwithstanding the fact that the original purported termination was invalid, the trustees became entitled to terminate the lease on 26 August 2017 when the 10 August PLA notice expired and the breach had not been remedied. They have clearly signalled their intention to terminate the lease by remaining in possession of the premises. I consider that termination of the lease  became legally effective  upon expiry of the  10 August PLA notice at midnight on 25 August 2017.

[39]              It follows that the trustees cannot require the Patels to pay rental or outgoings for the period between 11 and 26 August 2017. The trustees may also be liable to the Patels for losses they have incurred because they were shut out of the premises between those dates. I do not consider, however, that the trustees have been wrongfully in possession of the premises since 26 August 2017.

6      See in this context the comments made by Duffy J in Doxcon Pharmaceuticals Ltd v Tasmandairy Ltd [2015] NZHC 350 at [21].

Conclusion

[40]                  Although the purported termination of the lease on 11 August 2017 was invalid and legally ineffective, I consider the trustees were entitled to terminate the lease on 26 August 2017 and did so by retaining possession of the premises.

Relief against forfeiture

Relevant principles

[41]              The authority most commonly cited in this context is Studio X Ltd v Mobile Oil (New Zealand) Ltd,7 in which Hammond J summarised factors that will often be relevant to an application for relief.8 These include the nature and seriousness of the breach, and the consequences of cancellation for the lessee. These factors are likely to inform the decision as to whether or not cancellation of the lease is proportionate to the breach that has occurred. Another important factor is whether the lessee has made good, or is in a position to make good, the breach in question. Other matters that may be relevant are the extent to which the lessor’s conduct may have contributed to the situation that has arisen and whether the breach has caused lasting damage.

[42]              As Heath J recently observed in Detour Clothing Ltd v Star Five Ltd, the factors referred to in the Studio X case will often provide helpful guidance as to the considerations to be taken into account in determining whether relief should be granted in any given case.9 The extent to which, if at all, they are to be given weight in any given case will depend on the nature and circumstances of the case. For that reason the approach taken in other cases will generally be of limited assistance. They merely illustrate the way in which the courts have exercised the discretion in given sets of circumstances.10

7      Studio X Ltd v Mobile Oil (New Zealand) Ltd [1996] 2 NZLR 697 (HC).

8      At 701.

9      Detour Clothing Ltd v Star Five Ltd [2017] NZHC 1172 at [43].

10     McIvor v Donald [1984] 2 NZLR 487 (CA) at 494; Roses are Red Ltd v Board of Administration of the Methodist Church of New Zealand HC Auckland CIV-2007-404-8040, 21 February 2008 at [23].

[43]              These statements of principle confirm that, as always, context is everything. The Court is ultimately required to make a judicial assessment as to whether relief is appropriate having regard to all circumstances relevant to the case being considered.

Submissions regarding relief

The Patels

[44]              The argument for the Patels on the issue of relief is straightforward. They say that on 1 August 2017 the trustees remained in a position to require the bank to pay more than $30,000 to remedy any failure by the Patels to meet their obligations under the lease. As a result, there was little or no prospect they would suffer further loss if the lease remained on foot.

[45]              The Patels also contend that their obligations under the lease ceased once it was terminated. Despite this the trustees have wrongly continued to draw down funds from the bond to meet those obligations.

[46]              Finally, the Patels acknowledge that they have occasionally been late in paying rental and meeting other payments required of them under the lease. They say the fact that they may have been late in making payments in the past does not disqualify them from obtaining relief. They contend their business is now on a sound financial footing due to the recent involvement of another investor, and there is no reason to believe they will default on their obligations under the lease in the future.

The trustees

[47]              The arguments for the trustees are equally straightforward. They say the Patels have been late with virtually every payment of rental since 1 January 2016. This has required them to issue numerous PLA notices to compel payment of outstanding sums. They draw little comfort from the fact that they can recover funds using the bank’s guarantee because the late payments require constant intervention by their solicitors.

[48]              The trustees contend the Patels have also breached other obligations under the lease. By way of example, they promoted a scheme under which customers could taste wine at the premises when they did not have the appropriate licence permitting that to

occur. They did not abandon the scheme until the regulatory authorities became aware of it and commenced an investigation. The Patels were also extremely tardy in obtaining a code compliance certificate for work carried out in the fit-out of the premises.

[49]              In addition, the trustees have discovered that Manu Patel is currently an undischarged bankrupt. The lease permits the lessor to terminate the lease if the lessee becomes bankrupt, and the trustees could have cancelled the lease for this reason had they been aware of it on 11 August 2017. Furthermore, Manu’s interest as lessee has now vested in the Official Assignee. The trustees say the position has therefore changed. They should not now be put in a position where they are required to lease the premises to a person who was not originally a party to the lease.

[50]              The trustees also say they have spent considerable sums of money to refurbish the premises and bring them up to a high standard. They have had offers or expressions of interest from numerous other persons who wish to lease the premises. They say it would be wrong for the Court to require them to continue their relationship with the Patels and thereby prevent them from leasing the premises to a solvent and more trustworthy tenant.

[51]              Finally, the trustees say this is the third occasion on which they have been required to deal with an application by the Patels for relief against forfeiture. All of these have resulted from breaches by the Patels of their obligations under the lease. The trustees contend matters have now reached the stage where the Court should not require them to continue to be locked into a lease with such unsatisfactory lessees.

Decision

The nature and gravity of the breach

[52]              As Ms Pendleton acknowledges on the Patels’ behalf, the Court is entitled to look beyond the breach that ultimately led to the termination of the lease. The history of the relationship between the trustees and the Patels is also relevant to the issue of relief, principally because it is likely to indicate the course events will take in the future.

[53]              The trustees have produced a schedule setting out the dates upon which payments have fallen due under the lease since 1 January 2016 and the dates upon which those payments have been made. This shows that the Patels have virtually never paid rental and outgoings on the due date.

[54]              Between 1 January and 1 July 2016 not one payment of rental was received on the due date. The payments for February, March and May 2016 were made on the second day of the month but the May payment was subsequently dishonoured. The January and April payments were made on the twelfth and seventh days of the month respectively. By 1 July 2016 the sum of $28,641.87 remained outstanding. This comprised rental for June and July, together with legal costs incurred by the lessee in enforcing payments due under the lease.

[55]              By the end of July 2016 the Patels ought to have been well aware of the importance of making payments on the date when they were due. They had already been required to file an application seeking relief against forfeiture of the lease when they failed to comply with a PLA notice and the trustees cancelled the lease and re- entered the premises on 26 May 2016. The Patels negotiated a settlement with the trustees shortly before the application for relief was due to be called in Court for the first time on 7 July 2016. They then failed to make a payment due under the settlement and this led to the trustees filing documents in opposition to their application. The settlement was ultimately implemented and the Patels withdrew their application, but the Court awarded the trustees indemnity costs partly because of the delay by the Patels in performing their obligations under the settlement.11 This series of events ought to have brought home to the Patels the importance of making payments under the lease on the due date in the future.

[56]              Notwithstanding this, however, the Patels continued to make payments late during the latter part of 2016. Sometimes they paid outstanding rent by way of instalments during the course of the month. By this stage the trustees had resorted to the practice of issuing a PLA notice on the second day of any month in which payment

11     Patel v Macleod [2017] NZHC 990 at [28].

was not made on the due date. This occurred every month between August and December 2016

[57]              Matters improved during the first half of 2017. Payments for February, May and June 2017 were all made on the due date although the February payment was dishonoured the following day. The remaining payments were received on dates ranging between the third and the eleventh days of the month.

[58]              On 14 June 2017, the trustees issued a PLA notice to recover the costs awarded by the Court in the earlier relief proceedings. The Patels paid the sum claimed in the notice by instalments of $8,200 and $3,007.27 on 30 June 2017, but the payment of

$8,200 was dishonoured on 3 July 2017. The July rental payment was also dishonoured on 7 July 2017.

[59]              It was at this point that the trustees resorted to the bank’s guarantee for the first time. On 12 July 2017 they obtained a payment from the bank in the sum of $8,842.26 to cover approximately half the monies owing by the Patels as at that date. The trustees then obtained payment of the July rental after issuing the PLA notice on 18 July 2017, before resorting to the bank again to obtain payment of a further sum of $4,216.75 on 10 August 2017. The PLA notice issued to recover the August rental did not result in any further payment being made  before  the  trustees  re-entered  the  premises  on 11 August 2017.

[60]              Ms Pendleton points out that although the Patels were often late with payments, the payments were generally made later the same month. She therefore submits that the gravity of earlier breaches is therefore less than would be the case if the Patels had defaulted for months on end.

[61]              I accept this submission as far as it goes, but the obligation to pay rental and outgoings on the due date is one of the most important obligations imposed on any tenant under a lease. The importance of the obligation flows from the fact that the owner of leased premises will often require payments to be made on the due date in order to meet his or her own obligations. Default by a lessee can leave the lessor vulnerable to default in meeting those obligations.

[62]              The Patels have always known they were required to pay rental on the first day of every month and they have provided no explanation for their constant failure to meet that obligation. I would characterise their persistent failure to make payments under the lease on the due date as being an ongoing and serious breach of their obligations as lessees.

[63]              The ultimate breach that led to termination was the failure by the Patels to reinstate the performance bond to $51,300. The gravity of that breach lies in the fact that it deprived the trustees of their contractual right to a means by which they could obtain payment of monies due under the lease if the Patels defaulted in their obligations to make those payments.

Breach of other obligations under the lease

[64]              Although the breach of other obligations under the lease would ordinarily be a significant matter, I do not consider the other breaches alleged in the present case are sufficiently serious to be taken into consideration for present purposes. They are a neutral factor.

Ability to rectify the breaches and to meet the obligations under the lease in the future

[65]              The Court will generally only grant relief against forfeiture where the lessee has demonstrated an ability to rectify any existing breaches and to meet future obligations under the lease. In the present case that would require the Patels to show they could pay outstanding rental and reinstate the bank’s guarantee to the level required by the lease. They have provided no evidence to confirm they have this ability. Nor have they explained why the new performance bond was never signed in August 2017. The manner in which the Patels have approached their obligations under the lease in the past instils no confidence in their ability to meet their obligations under the lease in the future.

[66]              The Patels’ assertion that they have found investors to replace Manu and provide financial assistance to their business carries little weight for several reasons. First, the details surrounding the financial background and circumstances of those persons is extremely vague. More importantly, the Court has the power to grant relief

against forfeiture of an existing lease. It does not have the power to require the lessor to enter into a new lease with different lessees. The trustees are the persons who will suffer loss if any new arrangement does not work out. They are therefore the persons who must assess the suitability of the proposed investors as new lessees.

[67]              The manner in which the Patels have approached the present proceeding also calls into question their willingness and/or ability in the future to abide by the terms of the lease. They filed the proceeding on the last day of the three month period permitted by s 253 of the Act. They then ignored timetable directions made by the Court in relation to the filing of submissions. Conduct of this type does not sit well with an assertion that they will faithfully abide by the terms of the lease in the future.

The consequences for the Patels if relief is denied

[68]              If the Court declines to grant relief the Patels will obviously lose the value of any investment they have made in the business they were previously conducting from the leased premises. It is impossible to gauge the value of any such loss, however, because the Patels have placed no evidence before the Court regarding the profitability of the business or its future prospects.

[69]              Manu obviously cannot continue as a partner in the business because he is now bankrupt. Neither of the other two lessees has adduced evidence as to how the loss of the business is likely to affect them individually if relief is denied. I therefore regard the consequences for the Patels if relief is denied as being a neutral factor.

Conclusion

[70]                All of the factors relevant to the Court’s assessment in the present case are either neutral or militate against relief being granted. It follows that the Patels have failed to establish a case for relief to be granted even if the Court had jurisdiction to make the order they seek.

Result

[71]The application for relief against forfeiture is declined.

Costs

[72]              The trustees have succeeded and would ordinarily be entitled to an award of costs against Vinesh and Pamela on a category 2B basis together with disbursements as fixed by the Registrar. If the trustees seek costs on any other basis their counsel should file a concise memorandum within 21 days setting out the trustees’ claim for costs. I will then give directions for any response to be filed by Vinesh and Pamela.

Lang J

Solicitors:

Cavell Leitch, Christchurch Copy to Applicants