RSM 99 Limited v Torthienchai
[2024] NZHC 698
•27 March 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2024-409-110
[2024] NZHC 698
BETWEEN RSM 99 LIMITED
Applicant
AND
NATCHA TORTHIENCHAI and VIRAJ TORTHIENCHAI
Respondents
Hearing: 19 March 2024 Appearances:
B O’Callahan and T Hu for the Applicant
R J Hollyman KC and A J Steel for the Respondents
Judgment:
27 March 2024
JUDGMENT OF HARLAND J (INTERIM INJUNCTION)
Introduction
[1] RSM 99 Ltd (RSM) operates The Riccarton Hotel at 106 Mandeville Street, Riccarton, Christchurch. Between 30 April 2021 and 22 December 2023, RSM leased the premises from the respondents as partners of the V & N Partnership (the partnership) under a Deed of Lease (the lease). On 22 December 2023, the partnership cancelled the lease pursuant to a consent order made by the Court on 21 December 2023 because RSM had not paid an amount required by the consent order. An order for possession was subsequently made in favour of the respondents also based on the consent order. RSM has now applied for relief against the cancellation of the lease and interim relief in the form of an order that the partnership does not re-enter the premises pending the substantive relief application being determined.
RSM 99 LIMITED v TORTHIENCHAI [2024] NZHC 698 [27 March 2024]
[2]The respondents oppose the application.
[3] I have decided to dismiss the application. This judgment sets out my reasons for doing so.
Background
The parties
[4] Sunil Kumar is the manager of RSM and Preeti Khurana, who is the sole director of RSM, is his wife. Saroch Torthienchai is employed by the partnership as the New Zealand based manager of the partnership’s assets.
[5] Both Mr Kumar and Mr Torthienchai filed affidavits in support of each party’s respective positions on this application for an interlocutory injunction, as did Mr Zhang (the solicitor for RSM). Mr Zhang’s affidavits largely dealt with a conversation on 21 December 2023 between himself and Mr Steel (counsel for the partnership at the relevant time) and correspondence on 22 December 2023, and in early January 2024 which is subject to a claim of privilege. I have decided that, for the purposes of this application, it is not necessary to resolve that issue or refer to the conversation or correspondence in issue. The reasons for this will be explained later in this judgment.
The lease documents
[6] An hotel has operated from the premises at the property for some years. At some point, a Deed of Lease was entered into between the Ashley Hotel Christchurch Ltd as lessee (tenant), and the respondents as lessor (landlord). The Deed of Lease is undated but was registered against the title of the property on 23 May 2011. The final expiry date of the lease is 19 May 2036. It provides for rent reviews and rights of renewal (three for terms of five years each).1
[7] On 30 April 2021, the Ashley Hotel assigned its estate and interest in the premises and the lease to RSM (the assignment). Ms Khurana and Mr Kumar
1 The lease was subject to a variation and rent review dated 11 May 2018, but the terms of the variation are not material to this judgment.
guaranteed the obligations of RSM under the lease and the respondents were parties and agreed to the assignment.
[8] At the same time, a Deed of Renewal of Lease (the renewal) was entered into between RSM and the respondents, it being the second of the rights of renewal provided for under the lease. The renewal date provided was 20 May 2021, with an expiry date of 19 May 2026. The rent was fixed at $234,199.51 plus GST (or
$269,329.44). The Deed of Renewal noted two rights of renewal for further terms of five years.
[9] Problems arose very shortly after the assignment and renewal of the lease. From December 2021, RSM withheld the payment of rent and outgoings because it claimed that the maintenance and upkeep of the premises, which it says were the responsibility of the partnership, were not undertaken.
The cancellation proceeding (CIV-2023-409-148)
[10] In February 2023, the partnership served Property Law Act 2007 (PLA) notices on RSM and, in April 2023, the partnership applied to this Court for orders cancelling the lease and for possession and ancillary orders on the basis that no payments for rent or outgoings had been received by it since December 2021. At that stage, the arrears were $495,769.08 plus interest of $35,448.58.
[11] The Court allowed RSM several extensions of time to enable it to pay the amounts outstanding and to formally oppose the cancellation proceedings, including a final extension granted to it by Mander J on 11 July 2023.
[12] On 12 July 2023, RSM formally opposed the cancellation proceeding. It also cross-applied for relief from cancellation on 13 September 2023. I refer to both in this judgment as “the cancellation proceeding”.
[13] On 1 August 2023, the cancellation proceeding came before Associate Judge Lester. RSM resisted the partnership’s request to have the proceeding set down for hearing on 31 October 2023. The Judge allocated a hearing date of 1 February 2024, but he also directed that RSM lodge, in its solicitor’s trust account, the sum of $67,500
plus GST; that being the rental that would accrue between the partnership’s preferred hearing date of 31 October 2023 and RSM’s preferred hearing date of 1 February 2024. The Judge directed this fund was to be held on interest bearing deposit pending further order of the Court or agreement by the parties in writing. The Judge also directed that, if the funds were not deposited within 10 working days, then the hearing would proceed on 31 October 2023. He also noted RSM’s submission that it had funds to meet the arrears which, at that time, exceeded $500,000.
[14] On 15 August 2023, Mr Kumar deposited the sum of $77,625 into his solicitor Zhang Law’s trust account, being the sum of $67,500 plus GST ordered by Associate Judge Lester. I refer to those funds as “the deposited funds”.
Arbitration
[15] In September 2023, an arbitrator was appointed to determine who was responsible for the maintenance and repair obligations under the lease.
[16]An award in the arbitration was delivered on 23 November 2023.
Settlement Deed – 20 December 2023
[17] On 20 December 2023, the parties agreed to settle the issues outstanding between them. They executed a Deed of Settlement (Settlement Deed). The Settlement Deed was entered into without any admission of liability. RSM agreed to pay the partnership a settlement sum of $517,500 in satisfaction of “the presently outstanding arrears of rent and outgoings due under the lease”. Instalment payments of the settlement sum and additional monthly interest payments were required under the Settlement Deed, with the time for payment being “of the essence”. The sum of
$217,000 (the first instalment of the settlement sum) was due to be paid by RSM to the partnership by 2.00 pm on 22 December 2023. This was the Friday before the 2023 Christmas break.
[18] The parties also agreed to vary the lease to take effect upon the making of consent orders, which they agreed to seek from this Court to resolve the cancellation proceeding. The consent order they proposed was attached to the Settlement Deed as
“Schedule 1”. The Settlement Deed was conditional upon the making of the proposed consent orders and it also made provision for the arbitration proceedings to be terminated. There are other provisions in the Settlement Deed which are important, including that it could only be varied by the parties to it in writing. There was also a provision dealing with what would happen if, for any reason, any part of the Settlement Deed was subsequently found to be unenforceable.
[19] Mr Kumar deposed that, after he signed the Settlement Deed on the afternoon of 20 December 2023, he realised he had assumed the deposited fund could be used by RSM to meet part of the 22 December 2023 payment. In his affidavit, Mr Kumar referred to another business being sold with a deposit of $200,000 being available from that sale in January 2024. Because of this, Mr Kumar was confident the payments due on 1 February 2024 ($50,500 and $2,504.17 interest) would be met and, I infer, the deposited fund could be refunded.
[20] Mr Kumar said he notified his solicitor immediately and asked him to find out if the partnership would consent to allowing the deposited fund to be used as part of the first instalment of the settlement sum, being the sum of $217,000 referred to above. Although Mr Kumar refers to contacting his solicitor Mr Zhang immediately, Mr Zhang refers to this occurring on 21 December 2023.
Consent orders – 21 December 2023
[21] On 21 December 2023, Osborne J made consent orders that were then sealed on the same day. The consent order resolved the partnership’s application for possession and ancillary orders dated 14 April 2023 and RSM’s application for relief from cancellation dated 12 July 2023. It provided:
1. If the respondent does not pay the amounts specified in clauses 1.1(c) to
(f) (inclusive) of the settlement deed annexed to these Orders and marked “A” (the Settlement Deed) in the manner prescribed by clause 1.1(e), and/or for 12 months following the date of these orders the respondent does not pay the amounts specified in clause 1.1(a) of the Settlement Deed within 20 working days of being served with a written notice of default, at the applicants’ election and without prejudice to any other rights the applicants may have:
(a)The applicants shall be entitled to possession of 106 Mandeville Street, Christchurch, being that land comprised in record of title CB28A/1170 (the Land);
(b)The respondent’s lease of the Land demised by registered leasehold instrument 8768582.3 (the Lease) will be cancelled;
(c)The respondent shall vacate the Land in a proper and orderly manner and deliver up vacant possession of the Land to the applicants and their agents no later than 4.00 pm within five working days;
(d)The applicants shall be immediately entitled upon proof by affidavit to the Registrar’s satisfaction of non-payment of any amount due under the Settlement Deed to seal further orders:
(i)authorising and requiring the Sheriff to take possession of the Land;
(ii)for submission to the Registrar-General of Land to better effect cancellation of the Lease.
2. Service of the written notice referred to in Order 1 above shall be effected by way of email to both […] and […] and such notice will be deemed to have been received and served when sent.
3. The funds directed by the Court on 1 August 2023 to be paid to the respondent’s solicitor’s trust account shall be applied in accordance with the Settlement Deed.
...
[22] The consent order was emailed to the parties at about 4.30 pm on 21 December 2023.
[23] On 21 December 2023, Mr Torthienchai went hiking in Thailand. Mr Torthienchai sent a WhatsApp message to Mr Kumar on 21 December 2023 at 5.16 pm (NZT) advising that the agreement had been completed, that he would be on leave on 22 December 2023 and that the bank account into which the first settlement instalment was to be paid had been sent to his solicitor. Mr Torthienchai requested proof of transfer.
[24] At about the time he received the consent order, Mr Zhang deposed that Mr Kumar called him and told him he had misunderstood the timing of the payments under the Settlement Deed and that he thought that the deposited funds held in the trust account could be used to meet the first instalment. Mr Zhang was asked to contact the respondents to see if they were willing to allow that amount be used for the first
instalment, with security being provided over the funds due from the sale of the other business referred to in para [19] above.
[25] Mr Zhang contacted Mr Steel, counsel for the respondent, at 6.52 pm on 21 December 2023. This is the conversation in respect of which privilege is claimed.
[26] At 7.37 pm on 21 December 2023, Mr Kumar sent a WhatsApp message to Mr Torthienchai asking what time he could ring him urgently. Mr Torthienchai did not receive that message because he was hiking in the mountains.
22 December 2023
[27] Mr Zhang deposed that, by the morning of 22 December 2023, Mr Kumar had transferred approximately $134,000 into Zhang Law’s trust account, this being the amount needed to pay the first settlement instalment, less the approximately $78,000 required by Associate Judge Lester’s order of 1 August 2023.
[28] Mr Kumar deposed that, as at 22 December 2023, he had been advised by Mr Zhang that the partnership could cancel the lease if the first instalment was not made by 2.00 pm that day. However, Mr Kumar also said that he understood the partnership was still considering his request and he thought Mr Torthienchai would respond that day in a reasonable time before the 2.00 pm deadline for payment. It is not clear why Mr Kumar thought this would be the case. It seems he assumed it would, but I note there is no other factual narrative to support the reasonableness of his assumption. Given the time of the year, this assumption was neither wise nor reasonable, especially in light of the WhatsApp message sent to him the day before by Mr Torthienchai advising he would be on leave as of 22 December 2023.
[29] Mr Zhang’s affidavit confirms his advice to Mr Kumar that, if Mr Kumar did not make the full payment by 2.00 pm, the respondents could cancel the lease. But further, Mr Zhang said that he told Mr Kumar he needed to raise the balance of the funds in case the respondents refused his request to use the deposited funds for the first instalment. Mr Zhang’s understanding was that Mr Kumar would wait that morning for a response from the respondents but would, at some point before 2.00 pm,
transfer through to him the remainder of the funds needed for the first settlement instalment.
[30] At 9.45 am on 22 December 2023, a sealed copy of the consent orders made on 21 December 2023 was served on Mr Zhang.
[31] There was no other correspondence from Mr Steel to Mr Zhang prior to 2.00 pm. Mr Zhang followed up Mr Kumar’s request with the partnership’s solicitors at
1.48 pm on Friday 22 December 2023 but did not hear back from them until 2.20 pm, by which time the partnership’s solicitor, Ms Yee, had cancelled the lease.
[32] Based on the consent orders made by Osborne J the day before and after reading an affidavit affirmed by Ms Yee, the partnership’s solicitors obtained an order from the Court cancelling the lease. At 4.36 pm, the partnership’s solicitors served a copy of a sealed order on Mr Zhang cancelling the lease. This was disputed by RMS’s solicitors at 4.59 pm, injunctive relief was threatened and a response by the respondents was sought by 27 December 2023.
[33]After receiving advice that the lease had been cancelled, Mr Kumar transferred
$78,000 into RSM’s solicitor’s trust account to make up the balance of the first settlement instalment. At 3.20 pm on 22 December 2023, Mr Zhang emailed the partnership’s solicitors notifying them that the first settlement instalment was ready to be paid into their nominated account if the cancellation of the lease was withdrawn. The partnership refused to accede to this request.
[34] Two other WhatsApp messages were sent by Mr Kumar to Mr Torthienchai on the evening of 21 December 2023, and two further messages on 22 December 2023 at
3.49 pm and 11.05 pm but, as outlined above, Mr Torthienchai was on leave in Thailand and did not receive them until much later.
Possession of the premises and licence agreement
[35] In an email sent to Mr Zhang on 22 December 2023, the partnership’s solicitor Ms Yee requested that vacant possession of the premises be provided by 9 January 2024.
[36] On 27 December 2023, another email was sent to RSM’s solicitors requesting details about the arrangements that could be made for the partnership to enter back into possession of the premises.
[37] There were attempts to resolve matters between the parties in early January 2024, which were unsuccessful.
[38] On 12 January 2024, RSM paid the first settlement instalment payment that had been due on 22 December 2023, following the partnership’s solicitors making a formal demand for it to be paid. Further negotiations followed but they were not successful in achieving a resolution. The partnership’s position is that RSM did not respond to an offer made by it to resolve matters on 15 January 2024.
[39] The Court granted the partnership a possession order on 25 January 2024. An order was made for the bailiff to execute the order.
[40] On 30 January 2024, the partnership’s solicitors received a without prejudice settlement proposal from RSM’s solicitors, but it was not acceptable to the partnership. The following morning, the partnership’s solicitors wrote to RSM’s solicitors advising that enforcement steps would be taken. This letter included an offer to allow RSM to remain in occupation of the premises on the property for a short period under a licence agreement.
[41] On 31 January 2024, the execution of the partnership’s possession warrant was deferred until 11.00 am to allow RSM time to consider its position. As no agreement was reached, steps were taken to execute the warrant. Although Mr Kumar said that all hotel guests were evicted “from their rooms”, Mr Torthienchai deposed that he understood only two guests were present and that the disruption caused by the warrant was minimal.
[42] At 11.06 am, RSM’s solicitors advised that it was willing to sign the proposed licence agreement. A signed copy of the agreement was sent to the partnership’s solicitors at 11.51 am. RSM resumed possession of the premises.
[43] The licence to occupy expires at 4.00 pm on 29 March 2024. It contains an acknowledgement at cl 4.1 as follows:
Prior Lease: The Licensee and Guarantors acknowledge, accept and agree that the Prior Lease was validly terminated by order of High Court of New Zealand made in CIV-2023-409-148 effective 22 December 2023.
[44] Although RSM has paid the weekly licence fee due under the licence, it has not paid the legal costs for preparation of the licence that were invoiced to it on 8 February 2024, which were payable under cl 15.1 of the licence. Neither has RSM paid any of the outgoings due under the licence, despite demands to do so having been made directly to Mr Kumar.
Agreement to sell business
[45] On 1 February 2024, RSM entered into an agreement to sell The Riccarton Hotel business. The agreement is conditional on the partnership granting a new lease either to the purchasers directly or to RSM to assign to the purchasers with the partnership’s consent. RSM’s position is that, should the Court grant its substantive application (relief from cancellation), it will seek the partnership’s consent for an assignment of the lease.
[46] Mr Torthienchai deposed that, on 16 February 2024, he was approached directly by one of the purchasers about the possibility of that person dealing directly with the partnership. Emails and information were exchanged. One of the emails from the purchaser provides:
Despite multiple follow-ups and discussions, Sunil signed the agreement on 1st February but subsequently ceased all communication. Despite our reminders, we have not received the lease copy or any information regarding chattels. Sunil had given assurances of property repairs and renovations, encompassing the kitchen, building interiors and exteriors, as well as air conditioning in all rooms; however, our recent inspection revealed no progress or improvements as promised.
[47] The partnership’s current position is that, even if the lease is reinstated, on the information available, an assignment to the purchasers will be most unlikely.
[48] On 27 February 2024, RSM applied to this Court for an order granting relief from cancellation of the lease. These are the proceedings in respect of which the interlocutory injunction is sought.
[49] In support of this application, Mr Kumar has deposed that hotel bookings are in place for the remainder of the year. If these bookings are required to be cancelled pending RSM’s relief from cancellation application being decided, RSM contends that The Riccarton Hotel business will suffer significant reputational damage but, even if it succeeds, RSM contends it would be facing the rest of the year with no bookings.
[50] Mr Kumar also outlined that he is involved in running other hotels around the country. He is concerned about the reputational damage those entities will suffer, should the hospitality community find out that RSM has been forced to vacate the property and cancel all its bookings.
[51] Mr Kumar is concerned that, if these matters became known or eventuated, the value in the business would be destroyed.
[52] The partnership considers that, if an injunction is granted, it will be unable to move forward with its plan to consider alternative options for the property. However, while acknowledging that the licence provides for the possibility of an extension by agreement, the partnership notes that it has not been approached by RSM requesting an extension.
The principles and the issues
[53] The principles that apply to the granting of an interim injunction are well known. The Court must consider:2
(a) whether an applicant can show there is a serious question to be tried and, if so;
(b) where the balance of convenience between the parties lies; and
2 Klissers Farmhouse Bakery Ltd v Harvest Bakery Ltd [1985] 2 NZLR 129 (CA) at [142]; as explained and endorsed by the Court of Appeal in Commerce Commission v Viagogo AG [2019] NZCA 472, [2019] 3 NZLR 559 at [30].
(c) the overall justice of the case.
[54]RSM submits it has a seriously arguable case because:
(a) there is no jurisdiction under s 256(1) of the PLA to make an order that contravenes s 243(1) of the PLA and therefore the consent order of the Court should be set aside (Ground 1); and
(b) if the Court disagrees and considers the lease was validly cancelled, the Court can grant relief:
(i)under s 253 of the PLA (Ground 2); or
(ii)in its residual equitable jurisdiction (Ground 3).
[55] The partnership submits that RSM does not have a seriously arguable case and so the threshold for granting injunctive relief is not met. It submits there are three fundamental difficulties with RSM’s application:
(a) RSM wishes to undo the settlement which it agreed in December 2023 and with which it failed to comply;
(b) RSM expressly agreed on 31 January 2024 that the lease was validly terminated in December 2023; and
(c) there is no jurisdiction on which to found its application for relief.
[56] The partnership also submits that RSM is precluded/estopped from arguing that the lease was not validly terminated because of the provisions contained in a licence it entered into with the partnership dated 31 January 2024.
[57]RSM submits that it is not estopped from advancing its argument because:
(a) any acknowledgement in the licence agreement has the effect of circumventing ss 243-264 of the PLA and accordingly has no effect under s 243(3)(c); and
(b) the second and third grounds RSM advances do not rely on it disputing the validity of the cancellation, only that such cancellation was unreasonable in all the circumstances, even though it was legal.
[58] Both parties submit the balance of convenience and overall justice of the case favour each of them respectively, but there is also an argument about the adequacy of the three undertakings as to damages provided by and on behalf of RSM.
Is there a serious question to be tried?
[59] In Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd, Lush J explained what is meant by a “serious question to be tried”:3
In order to determine whether there is a serious question to be tried it is necessary to consider what is the applicable law and whether there are arguable differences concerning it, what the facts are said to be on the opposing sides and where the issues lie, and whether there is a tenable combination of resolutions of the issues of law and fact on which the plaintiffs could succeed.
[60] Bearing that in mind, I now consider each of the grounds advanced by RSM to support its case that there is a serious question to be tried, and the partnership’s response to them.
Did the High Court have jurisdiction to make the orders on 21 December 2023?
[61] RSM’s primary argument is that the High Court lacked the jurisdiction under s 256(1) of the PLA to make orders that it agreed to have made on 21 December 2023. It argues that the consent orders should be set aside.
[62] Mr O’Callahan for RSM commenced his submissions on this topic by outlining the nature of the lessor/lessee relationship. That relationship is not only contractual because it creates an interest in estate and land. He submitted that equity has long been willing to intervene to prevent a lease from being cancelled if it would be inequitable to the lessee.4 He submitted that, in nearly all cases, it will be
3 Henry Roach (Petroleum) Pty Ltd v Credit House (Vic) Pty Ltd [1976] VR 309 at 311.
4 Sanders v Pope (1806) 12Ves Jun 282 at 289, cited in Pike River Coal Ltd (in receivership) v O’Malley Farming Ltd HC Wellington CIV-2011-418-66, 14 October 2011 at [40].
unconscionable for a lessor to rely on the strict legal right to forfeiture for breach of a rent covenant if a lessee can make good the arrears and any costs. He submitted that there would need to be something quite exceptional in the tenant’s conduct or other circumstances would be needed to negate that principle.5 This, Mr O’Callahan submitted, is the policy underlining sub-pt 6 of pt 4 of the PLA governing the cancellation of leases which reflects these longstanding principles. None of these matters are controversial. They are well established principles, as Mr O’Callahan submits. But it is the relevant provisions in the PLA as they relate to the cancellation of leases that are key in this case.
[63]The starting point is s 243 of the PLA, which provides:
243 Sections 244 to 264 to be code
(1) A lease may be cancelled only in accordance with sections 244 to 252.
(2) Any relief against any of the following things may be given only in exercise of the powers conferred by sections 253 to 264:
(a)the actual or proposed cancellation of a lease; or
(b)the refusal to extend or renew a lease; or
(c)the refusal to enter into a new lease; or
(d)the refusal to transfer or assign the reversion expectant on a lease.
(3) Any term expressed or implied in a lease or in any other instrument has no effect if it—
(a)provides that the lease is automatically cancelled by breach of a covenant or condition of the lease; or
(b)is otherwise inconsistent with this section or with sections 244 to 264; or
(c)has the purpose or effect of avoiding the need for compliance with this section or with sections 244 to 264.
[64] Following on from s 243(1) and to provide some context, ss 244 to 252 of the PLA:
(a) govern the right to cancel for non-payment of rent, or for the breach of other conditions or covenants of a lease (ss 244-245); and
5 Elizabeth Toomey (ed), New Zealand Land Law (3rd ed, Thomson Reuters, Wellington) at 790.
(b) impose specific procedural requirements should the lessor wish to pursue cancellation (ss 246-252).
[65]Section 244 of the PLA provides:
244 Cancellation of lease for breach of covenant or condition: general
(1) A lessor 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—
(a)apply to a court for an order for possession of the land; or
(b)re-enter the land peaceably (and without committing forcible entry under section 91 of the Crimes Act 1961).
(2) However, subsection (1) is subject to sections 245 and 246.
(3) If the lessor applies to a court for an order for possession of land for the purpose of cancelling a lease, the cancellation takes effect—
(a)on the making of the order; or
(b)on any later date that is specified in the order.
[66] As can be seen, s 244 refers to the breach of a covenant or condition. Section 207 of the PLA (the interpretation section) defines “condition, in relation to a lease” and “covenant” as follows:
condition, in relation to a lease,—
(a)means a covenant, condition, or power expressed or implied in the lease; and
(b)includes, for the purposes of sections 243 to 264, and 273 any such provision under which an act or omission of the lessee or any other person (except an act or omission that is a breach of a covenant of the lessee), or a specified event (except the expiry of the term of the lease), is a ground for the cancellation of the lease (and a breach of a condition includes the commission of that act, or the occurrence of that omission or event)
covenant, in relation to a lease, means a promise expressed or implied in the lease
[67]Section 256 of the PLA is also important. It provides:
256 Powers of court on application for relief
(1) In determining an application for relief against the cancellation, or proposed cancellation, of a lease, under section 253, a court may grant—
(a)the relief sought on any conditions (if any) as to expenses, damages, compensation, or any other relevant matters that it thinks fit; and
(b)an injunction restraining any similar breach in the future.
…
[68] RSM submits that the right to cancel the lease in this case arises from the Settlement Deed, which is a separate document governing a set of contractual rights, but is not “the lease”. Mr O’Callahan noted that the right to cancel in the Settlement Deed has not been expressed in the lease itself nor does it meet the test to be implied as a term of it,6 therefore it is not a “covenant” or “condition” of the lease as defined in s 207 to which sub-pt 6 applies. Accordingly, Mr O’Callahan submitted there is no right to cancel this lease because the condition of cancellation arises from the Settlement Deed rather than from the lease and, as s 243(1) provides, a lease may only be cancelled in accordance with ss 244 and 245 of the PLA.
[69] In response, Mr Hollyman KC for the partnership submitted that the Court’s jurisdiction for the orders it made on 21 December 2023 had already been invoked by the cancellation proceedings which were filed on 14 April 2023. These proceedings were based on the PLA notices served on RSM in February 2023. Mr Hollyman highlighted that the partnership had applied under s 244 of the PLA for cancellation of the lease on the basis that RSM had not paid any rental or outgoings since December 2021, despite the lease providing that rent must be paid without deduction or set off. Mr Hollyman also submitted that the partnership’s application conferred upon the Court jurisdiction to make the order for possession, whether immediate or to take effect later and on conditions.
[70] In relation to RSM’s application for relief against cancellation, Mr Hollyman submitted that the High Court had exercised its powers under ss 253 and 256 of the PLA to grant RSM relief when it made the orders on 21 December 2023, but this relief was made on the condition that RSM pay $450,000 plus GST in respect of the arrears of rental and outgoings in the manner provided in cls 1.1(c), (d) and (e) of the Settlement Deed.
6 Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85.
[71] He submitted that, on an application under s 253, s 256 of the PLA confers upon the Court a power to grant relief on any conditions that it thinks fit, which is what the Court did in this case. Mr Hollyman also submitted that, because RSM failed to make payment in time (time being of the essence under cl 1.1(e)), the conditional possession order made by the Court in terms of s 244(3)(b) was triggered.
[72] Mr O’Callahan submitted that s 256(1) does not confer jurisdiction to grant a right of cancellation outside of sub-pt 6 and if such a right is granted (as he submitted occurred here), it has no effect because of s 243(3).
[73] Because s 243(3)(b) provides that a “term … in any other instrument has no effect if it … is otherwise inconsistent with this section or with sections 244 to 264”, Mr O’Callahan submitted that s 256(1) must be read alongside it. This means, he submitted, that if s 256(1) is used to create an instrument that conflicts with s 243, as he contends the consent order does here, it would allow for the cancellation of a lease for reasons outside of ss 244 to 245. If that occurs, then Mr O’Callahan submitted that the instrument has no effect to the extent of that conflict.
[74] As well, Mr O’Callahan highlighted the provisions of s 243(3)(c) which provides that an instrument has no effect if it “has the purpose or effect of avoiding the need for compliance with this section or with sections 244 to 264”. He submitted that Mr Torthienchai’s affidavit (at [9]-[10]) makes it clear that the partnership’s sole purpose in seeking the automatic cancellation mechanism was to circumvent the sub- pt 6 procedures in the PLA. I do not agree that this inference is fair given the background I have outlined.
[75] In support of RSM’s argument, Mr O’Callahan referred to the following passages in Harlow Finance & Leasing Ltd v Sterling Nominees Ltd:7
[10] It was suggested that further conditions should be imposed, including making the relief conditional upon Harlow meeting the teams of the lease in all respects in the future. I am not satisfied that the Court has jurisdiction to grant relief on that basis. Although one or two cases were cited where relief appears to have been granted on that basis, there does not appear to have been any detailed consideration of the Court's jurisdiction to do so. I note the
7 Harlow Finance & Leasing Ltd v Sterling Nominees Ltd HC Auckland M1262/00, 17 August 2000.
remarks of Tipping J in Guardsman Restaurant (Christchurch) Ltd v Victoria Square Estates (unreported, High Court, Christchurch, M.339/87, 11 December 1987) and noted at (1988) 4 BCB 284 that the Court will not guard the lessor against the "ordinary commercial risks of a tenant's future insolvency".
[11] Here, if such a condition were imposed and the tenant were to commit any slight breach of the lease in the future, then it would be at risk of losing the benefit of its lease, possibly without the opportunity to come back to the Court to seek relief. The landlord is protected because as a result of the grant of relief, the lease is reinstated and the tenant is necessary obliged to meets its terms. If it does not, then the landlord has its remedies and no doubt will exercise them if it wishes to do so.
[76] Mr O’Callahan further submitted it does not matter that the parties consented to the mechanism through which the lease was cancelled contrary to s 243(1) because the only enquiry required is whether the process followed was consistent with s 243(1). Citing Plymouth Corporation v Harvey in support,8 Mr O’Callahan submitted that the fact that the correct procedure was not followed in this case means that the cancellation provided for in the consent order was not valid.
[77] In Plymouth Corporation v Harvey, the defendant lessee had breached a covenant of a lease that he remove all caravans except one from the leased property by a certain date. The date for compliance was extended by the landlord on the condition that the lessee execute a deed of surrender of lease and hand it in escrow to a third party for it to be delivered to the landlord if there was a failure by the lessee to comply. The Court held that the deed of surrender was void because it was a device to circumvent the provisions of the relevant Act; because the landlord was not entitled to forfeit the lease without following the statutory procedures, which included allowing the defendant the opportunity to provide relief by way of compliance.
[78] By way of analogy, Mr O’Callahan submitted that s 243(3) prevents the parties from contracting out of sub-pt 6 of the PLA and, further, the licence agreement, insofar as it contains the acknowledgement of the lawfulness of the Court order, has likewise no effect.
[79] Mr O’Callahan also submitted that the fact the Court made a consent order is also important. As a matter of general principle, the fact an order is made by consent
8 Plymouth Corporation v Harvey [1971] 1 All ER 623 at 627.
does not provide greater validity to it than the law upon which it is based.9 Undoubtedly, this principle is correct. Less clear however is how that principle is applicable in this case.
[80] Mr O’Callahan submitted that the consent order was not a determination of the Court under s 256, as a determination would require more of a consideration of the merits of the case. Mr O’Callahan referred to cases where consent orders were sought based on a mistake, but he submitted this is not necessarily the case.10
[81] Mr Hollyman submitted that the consent orders were the exercise of the Court’s jurisdiction and determined the applications under s 256. He noted that the protections in the PLA have, in any event, been observed because the partnership had issued PLA notices which were not complied with, hence it applied to the Court for relief. In other words, there was nothing unlawful about what the Court was being asked to do as the correct processes had already been followed.
[82] I am not persuaded by RSM’s argument on this point. Consent orders are not rubber stamped by the Court. In making the consent order, the Court had not only the Settlement Deed, the Court file also comprised the applications and affidavits filed in respect of the cancellation proceeding. This included two affidavits from Mr Torthienchai, an affidavit from Mr Kumar and an affidavit from Mr Viloria filed in support of the partnership. Although, as Mr Hollyman highlighted, Osborne J amended the consented orders in a small way, more fundamentally in my view, “determining” means resolving or disposing of a proceeding and does not require a contest, cross-examination or formal proof.
[83] Overall, I am not persuaded that RSM’s argument about jurisdiction is correct. Undoubtedly, the PLA is a code but what RSM’s argument fails to acknowledge is that the 21 December consent orders “determined”, in my view, the two live applications that were before the Court and, in relation to RSM’s non-payment of rent, although
9 Huddersfield Banking Company Ltd v Henry Lister & Son Ltd [1895] 2 CH 273; Great Northwest Central Railway Company & Ors v Charlebois & Ors [1899] AC 114 (PC) at pg 124.
10 Gibson v Official Assignee [2019] NZHC 532.
the amount owing had been reduced under the Settlement Deed, relied on an earlier valid PLA notices issued against RSM.
[84] Further, I am not persuaded that the Harlow case is binding authority. First, the observations made to the Court were, in my view, obiter but, more importantly, the case predates the PLA. The PLA makes it plain that the Court can make such an order for cancellation or relief against cancellation on any conditions it sees fit. The Court’s power under s 256 is broad.11 The terms of the relief that were agreed to here by RSM were precise, limited as to time and scope, and expressly intended to address the payment of the long outstanding accrued arrears. I agree with Mr Hollyman that there was an unambiguous and straightforward requirement to pay the arrears of rental and outgoings by a mutually agreed time. It is the failure to comply with that particular condition of relief that engaged the Court’s possession order.
[85] But I am also satisfied that the Court has on many occasions granted relief to a lessee on the basis that outstanding arrears are paid within a stipulated period, in circumstances where failure to do so results in a possession order and the lease being cancelled. I agree that the cases cited to me, listed in the footnote below, are all cases where conditional relief has been granted on the basis that, if there was non- compliance, a possession order could be made.12
[86] I am satisfied that the Court had the jurisdiction to make the orders it did. There is no question that the Court, counsel or the parties were mistaken about what was being ordered. I am not persuaded that the jurisdiction argument is a serious question to be tried for the purposes of this application. It follows that the lease has been validly cancelled and the order for possession was able to be made.
Can the Court grant RSM relief under s 253 of the PLA?
[87]Section 253 of the PLA provides:
11 Brian Green Properties (1971) Ltd v Bindon Holdings Ltd [2017] 18 NZCPR 570 (CA) at [81].
12 Canterbury Legal Services Ltd v Tuam Ventures Ltd HC Christchurch CIV-2009-409-2041, 20 October 2009 at [53]; Grant v Hannay (2010) 11 NZCPR 283 (HC) at [45]; Strong v Hurunui Hotel (2004) Ltd No. 1 (2015) 16 NZCPR 375, [2015] NZHC 1216 at [54]; Waikato District Council v Singh [2015] NZHC 2233; Stylo Medical Services Ltd v Hum Hospitality Ltd [2020] NZHC 2969 at [45].
253 Relief against cancellation of lease for breach of covenant or condition
(1) All or any of the following persons may apply to a court for relief against the cancellation, or proposed cancellation, of a lease on the ground of a breach of a covenant or condition of the lease:
(a)the lessee:
(b)a mortgagee of the leasehold estate or interest:
(c)a receiver appointed in respect of the leasehold estate or interest:
(d)if 2 or more persons are entitled to the leasehold estate or interest as joint tenants, 1 or more of those persons on behalf of the other joint tenants.
(2) If an application made in accordance with subsection (1)(d) is not made by all of the joint tenants, the application must be served on every joint tenant who is not already a party, unless the court orders otherwise.
(3) Relief may be sought in—
(a)a proceeding brought by the lessor for an order for possession of the land; or
(b)a proceeding brought for the purpose of seeking the relief.
(4) A proceeding referred to in subsection (3)(b) must be brought—
(a)before an order for possession of the land is made in a proceeding referred to in subsection (3)(a); or
(b)if the lessor has peaceably re-entered the land, not later than 3 months after the date on which the lessor peaceably re-entered the land.
(5) Subsection (4)(b) is subject to section 254.
[88] RSM argues that even if the lease has been validly cancelled it can still apply for relief from cancellation under s 253 of the PLA. Mr O’Callahan submitted that the procedural requirements in sub-pt 6, including the service of a notice of breach, the time periods provided to allow an opportunity for the lessee to rectify the breach and the ability to apply for relief from cancellation did not occur here.
[89] It is accepted that the partnership did not serve any notice of intention to cancel the lease upon RSM’s failure to meet payment within the timeframe stipulated in the order on 22 December 2023. Mr O’Callahan highlighted that the lease was cancelled by 2.20 pm when, under the Settlement Deed, it could be cancelled at 2.01 pm. Within
this 19 minute window, he submitted the partnership did not notify RSM of its intention to cancel and therefore did not comply with the requirement to apply for relief before an order for possession could be made under s 253(4)(a).
[90] Mr O’Callahan also highlighted that RSM offered to remedy the breach within an hour after it had been notified that the lessor considered there was a default, however, the partnership refused that offer. However, Mr Hollyman highlighted that payment was in fact not made to remedy the breach until 12 days later on 12 January 2024, no doubt because of RSM’s requirement that, prior to that date, payment would be conditional on the partnership retracting the cancellation.
[91] I am not persuaded that RSM has raised a serious question to be tried in respect of this ground either. I agree with Mr Hollyman that relief under s 253 is not available to RSM for two reasons. First, the lease was not cancelled because of any breach of covenant or condition as provided for in s 253. Rather, it was cancelled pursuant to the Court’s power under s 244 of the PLA because RSM failed to comply with the condition the Court stipulated enabled it to obtain relief under s 256.
[92] But second, there is force to Mr Hollyman’s submission that, even if s 253 applied, RSM’s originating application for relief is a fresh proceeding not brought in response to any application for possession before an order for possession has been made, which is a requirement under s 253(4). There are strong policy reasons for this requirement because, to do otherwise would allow lessees to undermine and revisit final orders of the Court.
[93] Because there is no jurisdiction for RSM to bring the present application under s 253, its originating application cannot, as Mr Hollyman submits, raise a serious question to be tried.
Can the Court grant RSM relief under its residual equitable jurisdiction?
[94] Mr O’Callahan referred to Tahake Holdings Ltd v Harbrow, as well as Gill v Lewis and Studio X Ltd v Mobil Oil New Zealand Ltd to outline the principles that apply to granting the relief it seeks based on the Court’s equitable jurisdiction.13
[95] Although it is worth noting that each of these cases precede the PLA, the principles themselves are sensible and readily understandable. Whether the breach was inadvertent, whether the tenant has or will rectify the breach of any covenant, whether the tenant is willing and able to fulfil its obligations in the future, the landlord’s conduct, the gravity of the breach and whether a breach has occasioned lasting damage to the landlord, the consequences of cancellation and how proportionate they are to the damage sustained by the landlord, are all factors that should be considered.
[96] The partnership’s response is a simple one. It maintains, and I consider rightly, that s 243(2)(a) of the PLA is a complete answer to RSM’s submission. It states that any relief against the actual or proposed cancellation of a lease may be given “only in exercise of the powers conferred by ss 253 and 264”. Thus, no residual equitable jurisdiction is available to be invoked by RSM.
[97]The learned authors of Hinde, McMorland and Sim state:14
The Court’s jurisdiction to grant relief against cancellation is thus conferred by statute; and the provisions of the Property Law Act 2007 apply in all cases
… The Court’s former inherent equitable jurisdiction is excluded.
[98] And finally, I address Mr O’Callahan’s reference to Storageone Kapiti (2012) Ltd v Sharja Ltd where Cooke J said:15
I do not say that a Court can never give equitable relief in cases such as this. But in my view, the Court should apply the statutory provision as the primary basis upon which the relief is granted.
13 Tahake Holdings Ltd v Harbrow (1991) 1 NZConvC 191,064 (HC) at 191,066; Gill v Lewis [1956] 2 QB1 (CA) at 13 per Jenkinson LJ cited by Hillyer J in Cooper v Clark [1992] 2 NZConvC 191,309 (HC) at 191,311; and Studio X Ltd v Mobil Oil New Zealand Ltd HC Auckland CP381/95, 12 June 1996 at [25]
14 Hinde, McMorland & Sim Land Law in New Zealand (online ed, LexisNexis) at 11.242(a)-(b).
15 Storageone Kapiti (2012) Ltd v Sharja Ltd [2022] NZHC 2252 at [31].
[99] I agree with Mr Hollyman that the observation by Cooke J was obiter but, more particularly, in the context of that case, not authority for the existence of any ongoing equitable jurisdiction in this case.
[100] I am not persuaded that, in light of the statutory provisions referred to, this question is seriously arguable.
Conclusion
[101] I have reached the view that there are no seriously arguable questions to be tried and, accordingly, the threshold for the making of an interim injunction has not been met by RSM. But, in case I am wrong about this, I go on to consider where the balance of convenience and interests of justice in this case lie.
Balance of convenience
[102] RSM refers to the consequences to it. It states it will have to close down its hotel business, cancel all future bookings, remove its chattels and vacate the premises. It is concerned about irreparable reputational harm to it and associated companies in which Mr Kumar is involved.
[103] As well, RSM refers to the agreement for sale and purchase of its business. Should RSM be forced to vacate on 29 March 2024, Mr Kumar is concerned that this will drive future buyers away and make it more difficult for RSM to recoup its investment.
[104] As against this, the partnership refers to RSM’s conduct which it was submitted reveals a conscious disregard in relation to its obligations under the lease, the delay by RSM in bringing this proceeding, the fact that an assignment to the current proposed purchasers of the business not likely, and the existence of the licence as relevant factors to be taken into account.
[105] Mr Hollyman highlighted that there would be prejudice to the partnership if the injunction was granted because it cannot retake possession of the premises and deal with them as it wishes, that being a substantial interference with the partnership’s
property rights. He also submitted the partnership would be precluded from relying on its contractual rights under the licence and would risk continuing to be exposed to a lessee who does not meet its obligations for an extended period. But, importantly, Mr Hollyman submitted that damages would be an adequate remedy should RSM proceed with its application and succeed at trial against the partnership.
[106] There are points in favour of both parties under this heading but I am persuaded, by a narrow margin, that the balance of convenience would favour the partnership. Although, on the face of it, the decision to cancel seems harsh, it must be viewed against the context of significant arrears having been accrued over a lengthy period of time, Mr Kumar’s decision, against legal advice, not to immediately resort to personal funds to make the payment on 22 December 2023 and the delay in paying the sum due. Further, I am not persuaded, even on a preliminary basis, that the reputational damage alleged by RSM is a matter of any significance As well, there is the licence and the ability of RSM to ask for it to be extended which, to date, it has not done.
[107] But, as well, I am satisfied that damages would suffice should RSM eventually succeed on its application, if the application is still able to be argued. I did not receive submissions about this, so take that matter no further.
[108] I am persuaded that the balance of convenience favours the partnership and not RSM.
Interests of justice
[109]The conduct of the parties is relevant to the granting of interim relief.
[110] The partnership refers to the delay by RSM for over two months to bring the present application, in circumstances where, from 22 December 2023, its position was that the termination of the lease was unlawful. As Mr Hollyman submitted, rather than taking any steps to challenge that, RSM entered into a licence arrangement and expressly conceded that the termination was lawful and the lease had ended.
[111] Mr O’Callahan submitted that, to the extent there was any delay in bringing the application, the partnership has not been able to point to any prejudice arising from it.
[112] I agree with Mr O’Callahan to an extent, but it is important not to minimise the ongoing pattern of behaviour exhibited by RSM, which gives the impression that it is not willing to fulfil its obligations in a timely way. As well, the partnership has appeared to respect RSM’s business (by granting it a licence) more than RSM has respected its business (to pay the rent and outgoings). I mention the licence arrangements which, in the circumstances, seem to me to have been a very practical and considerate option for the partnership to have entertained.
[113] I have determined there are no serious questions to be tried in relation to the validity of the cancellation but there is still a potential argument about the relief RSM seeks from cancellation of the lease. It may be, in this regard, that the conversation between the lawyers on 22 December 2023 and the correspondence in January 2024, in respect of which privilege is claimed, can more fully inform the Court about the justice of the situation. On a preliminary basis, for the purposes of this application, I have determined it is not necessary for me to reach a position on the claim for privilege because of the admissions made by Mr Kumar in his affidavit. But that determination has been made in the context of the law that applies to injunctive relief.
[114] I am not satisfied that the interests of justice favour the granting of an interim injunction, however, I am persuaded that, given the upcoming Easter break, provision should be made by the Court to lessen any impact on third parties (hotel guests) and to protect RSM’s appeal rights. I address this at the end of this judgment.
Undertaking as to damages
[115] Three undertakings as to damages have been provided; one from RSM, another from Preeti Khurana and the third from Mr Kumar.
[116] Although, on the face of it, r 7.54 simply requires an undertaking to be filed outlining that an applicant will comply with any order for the payment of damages to
compensate the other party for any damage sustained through the injunction, an undertaking must be meaningful.
[117] Given RSM’s difficulty in complying with its financial obligations in a timely way and in the absence of any financial information about its creditworthiness, in my view, more information was required to establish the adequacy of its undertaking. As against this, there is the fact that the order made by Associate Judge Lester, requiring funds to be paid into RSM’s solicitor’s trust account, was met with in a timely and appropriate manner. And, although there is reference to another business venture of Kumar enabling funds of some $200,000 to be made available in January 2024, given that Mr Kumar wished to have recourse to the funds held in RSM’s solicitor’s trust account to meet the agreed amount payable on 22 December 2023, this tends to suggest that the company is only able to find funds with recourse to other sources. The fact that the payment was not made until 12 January 2024 is also a matter of concern.
[118] As well, the Court is simply unable, on the information provided, to properly assess either Mr Kumar or Ms Khurana’s ability to meet any damages payable at a later date, should that need arise.
[119] I accept Mr O’Callahan’s point that the value of the undertaking should be assessed against the context of any potential damages claimed. This can be assessed in relation to the Deed of Settlement, at least in the first instance. The agreed payments amount to just over $526,000.
[120] In my view, it was reasonable for the partnership to request, as it did, disclosure of RSM’s financial position and Mr Kumar’s position. I am not satisfied that sufficient information has been provided by any of the parties providing the undertakings.
Result
[121] The application for injunctive relief by RSM is dismissed. However, I order a stay on any execution until 5.00 pm on Friday 12 April 2024 of the holding over provision in cl 2.2 of the licence as it relates to possession where no written consent is given to the licence continuing after 4.00 pm on 29 March 2024. This will enable the parties to consider whether an extension of the licence agreement is in order and it
will, to a limited extent, prevent inconvenience to hotel guests over the Easter break. It will also enable RSM to consider its appeal rights.
Costs
[122] Costs follow the event. Any application for costs is to be filed by the respondent within 14 days. Any response by the applicant is to be filed within a further 14 days. I will thereafter deal with costs on the papers.
Harland J
Solicitors:
B O’Callahan, Barrister, Downtown Auckland
R J Hollyman KC, Barrister, Downtown Auckland.
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