Patel v Shah

[2020] NZHC 3235

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-2363

[2020] NZHC 3235

UNDER

Section 253 of the Property Law Act 2007

IN THE MATTER

of an application for an order preventing the proposed cancellation of a sublease

BETWEEN

NIMESH PATEL and PRITI PATEL

Plaintiffs

AND

BHAVNA SHAH and MINU SHAH

Defendants

Hearing:	7 December 2020
Appearances:	K P McDonald for the plaintiffs M M Gunawan for the defendants
Date of judgment:	8 December 2020

JUDGMENT OF PALMER J

This judgment was delivered by me on Tuesday 8 December 2020 at 4.00pm.

Pursuant to Rule 11.5 of the High Court Rules.

………………………… Registrar/Deputy Registrar

Solicitors:

Kevin McDonald & Associates, Auckland Patel Nand Legal, Auckland

PATEL v SHAH [2020] NZHC 3235 [8 December 2020]

Context

[1]    In 2016, the Patels entered a management agreement with the Shahs in relation to a dairy in Lake Road, Takapuna, Auckland. They have been working there, and living in the flat above the shop with their young son, since then. They say the management fee/rental terms of the agreement are exploitative. On receiving legal advice they have stopped paying rent to manage the business. There is a dispute about whether the agreement is a licence or a lease.

[2]    The Shahs lease the dairy from the owners, the trustees of the Thompson Commercial Trust, who were apparently not told about the agreement with the Patels but have recently found out about it. The owners are now in dispute with the Shahs, alleging the Shahs are in breach of the head lease for illegally sub-leasing the dairy. The owners are requiring the Shahs to fulfil maintenance and repair obligations. The owners have served a notice on the Shahs under s 246 of the Property Law Act 2007 (PLA). The owners apparently have a good relationship with the Patels and have agreed to lease the premises to them, subject to cancellation of the lease between the owners and the Shahs.

[3]    The Shahs have issued a notice cancelling the agreement, relying on the non- payment of rent. The Shahs have requested the Patels to undertake maintenance and repair obligations and have given the Patels until 9 December 2020 (tomorrow) to complete them or the management agreement will terminate.

Application and submissions

[4]    In the Duty Judge list yesterday Mr McDonald, for the Patels, sought interim orders under ss 253 and 256(1) of the PLA, preventing the Shahs from cancelling the management agreement and taking possession of the dairy. He submits the orders are a holding measure to prevent the Patels being thrown out into the street. He submits the agreement is clearly a sub-lease because the Patels have exclusive possession of the dairy.1 He submits the orders would have no effect on the owners’ rights who know about the application and whose dispute is with the Shahs. He submits the Patels

1      Factac Ltd (in liq) v Commissioner of Inland Revenue [2002] 3 NZLR 648 (CA).

do not object to doing repairs and maintenance or allowing the Shahs to do it. He submits the Patels have claims for mistake and undue influence against the Shahs and the Shahs have been in breach of the agreement since entering it. He submits the Patels’ remedies against the Shahs would be compromised if interim orders are not granted.

[5]    Mr Gunawan, for the Shahs, submits they are under significant pressure from the owners in relation to the dispute about whether the sublease was illegal and about the repair and maintenance. He submits the owners and the Patels are hell-bent on seeing the Shahs out and all the Shahs have is tenure of the dairy. He submits the terms of the management agreement require the terms of the lease to be abided by and there is nothing in the lease that explicitly permits residence. He submits the orders would prejudice the Shah’s ability to remedy their breach of the lease if there turns out to be a breach. He submits it would also prejudice any application of the Shahs for relief against cancellation, which would be assisted by them issuing a notice of termination to the Patels. He submits this would constitute a current, substantial and proximate risk of irreversible damage to the Shahs. He submits there is nothing to indicate damages are not an adequate remedy. He advises that the Shahs will submit the dispute to arbitration.

Law of interim orders

[6]    Rule 7.53 of the High Court Rules 2016 entitles a party to a proceeding to apply for an interlocutory injunction if certain conditions are fulfilled. The court must examine whether there is a serious question to be tried, consider the balance of convenience for the parties, pay particular attention to whether damages would be an adequate  remedy,  and assess the overall justice of the position.2 The legal test  for   a mandatory interim injunction is the same.3

2      NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [12]; Cabco Group Ltd v Bartlett (2009) 6 NZELR 500 (HC) at [30].

3      Bacon Holdings Ltd v Bally McCahill Ltd [2018] NZHC 2507; Clode v Oliphant [2018] NZHC 1442 at [21]–[23]; and see Pilkington v Fidelity Life Assurance Co Ltd HC Wellington CIV-2007- 485-2270, 14 April 2010 at [18] and Fidelity Life Assurance Co Ltd v Pilkington [2010] NZCA 424 at [26].

[7]     The same considerations are relevant in relation to orders under s 256 of the PLA, which can have the effect of a mandatory interim injunction. As Elizabeth Toomey’s text states:4

The court is willing to entertain applications for interim relief from lessees. The court must be persuaded that at trial it will appear that the injunction was rightly granted, as the nature of the relief is tantamount to the grant of an interim mandatory injunction. Given the general willingness to grant relief against forfeiture for non-payment of rent, interim relief is frequently forthcoming if sought.

[8]    The approach in that context is also influenced by the equitable aspects of applications for relief against cancellation of leases.5 In Detour Clothing Ltd v Star Five Ltd, Heath J gave a useful summary of principles relevant to substantive relief against cancellation of a lease, including: whether the breach was deliberate or beyond the tenant’s control; whether the breach involves immoral or illegal use; whether the tenant will make good the breach, the conduct of the landlord and personal qualifications and financial position of the tenant; the gravity of the breach; damage to the landlord; and proportionality.6 Heath J observed that, ultimately a balancing exercise is required to determine whether, and if so on what terms, relief should be granted.7

Should interim orders be made?

[9]    In the time available, and on the basis of the information before me, I consider there is a case for interim orders being made, whether that is under s 256 of the PLA, if the agreement is a sub-lease, or under the Court’s inherent jurisdiction and the High Court Rules 2016 if it is not.

[10]   There is a serious question to be tried here, whether in Court or by arbitration. If the agreement is cancelled, the Patels would suffer significant prejudice to their living arrangements that would not be easily compensable by damages. The wording of the interim orders will not inhibit the Shahs’ access to the property for the purpose

4      Elizabeth Toomey (ed) New Zealand Law Law (3rd ed, Thomson Reuters, Wellington, 2017) at [8.2.08(4)], citing Shepherd Homes Ltd v Sandham [1971] Ch 340.

5      Paros Property Trust Ltd v Faith [2014] NZHC 2826, (2014) 15 NZCPR 878.

6      Detour Clothing Ltd v Star Five Ltd [2017] NZHC 1172 at [39]-[44], citing Studio X Ltd v Mobil Oil NZ Ltd [1996] 2 NZLR 697 (HC) at 701.

7 At [44].

of maintenance and repairs. I do not accept that the Shahs’ own foreshadowed application for relief against cancellation would be prejudiced because it would be clear to a court that they have done what they can. Responsibility for the alleged breach of the agreement appears, on the information before me, to lie with the Shahs and to have been beyond the Patels’ control. The equity of the situation appears to lie with the Patels.

Orders

[11]   Under ss 253 and 256(1) of the Property Law Act 2007 and/or under r 7.53 of the High Court Rules 2016, I order:

(a)The defendants and their agents are restrained from cancelling the Management Agreement entered into between the plaintiffs and the defendants dated 4 July 2016.

(b)The defendants and their agents are restrained from attempting to re- enter the property at 150 Lake Road, Takapuna, Auckland for the purposes of cancelling the Management Agreement and taking possession of the land at that property.

(c)The above interim orders remain in force pending further order of the Court.

(d)Costs are reserved.

(e)The proceedings are to be called in the Duty List in the week of 8 February 2021, for an update to the Court on their status.

Palmer J