SGAH Investments Limited v Mei Enterprises Limited
[2021] NZHC 1588
•30 June 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-1819
[2021] NZHC 1588
UNDER Part 19 of the High Court Rules 2016 and sections 244-246 of the Property Law Act 2007 IN THE MATTER OF
an application for possession following expiry of a lease
BETWEEN
SGAH INVESTMENTS LIMITED
Applicant
AND
MEI ENTERPRISES LIMITED
Respondent
Hearing: 2 February 2021 Appearances:
M Singh and P S Kim for Applicant J Strauss and A Yang for Respondent
Judgment:
30 June 2021
JUDGMENT OF DUFFY J
This judgment was delivered by me on 30 June 2021 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Counsel/Solicitors: Glaister Ennor, Auckland J Strauss, Auckland
JCL Legal, Auckland
SGAH INVESTMENTS LTD v MEI ENTERPRISES LTD [2021] NZHC 1588 [30 June 2021]
[1] There are two matters before the Court for determination. The first is an originating application by SGAH Investments Ltd (SGAH) as lessor of commercial premises at 1/140 Finlayson Avenue Clendon (the premises) seeking an order for possession of the premises on the basis the lease to Mei Enterprises Ltd (Mei) has expired.1 At the time of filing this application SGAH also relied on rent totalling
$41,816.20 remaining outstanding. However, Mei has since paid the rent arrears.
[2] The second matter is an interlocutory application filed on 1 December 2020 by Mei in which it seeks relief against the refusal of SGAH to extend or to renew the same lease or to grant a new lease to Mei.2
[3]Each application is opposed by the affected party.
The issues
[4] SGAH contends that Mei’s application is brought out of time and there is no ability for the Court to grant Mei an extension of time. If this is correct it is a complete answer to Mei’s application, which must therefore fail.
[5] Alternatively, SGAH contends that Mei’s application fails on the merits and for this reason as well it should be dismissed and SGAH granted the order it seeks.
[6] Mei disputes SGAH’s contentions and argues that the circumstances warrant it being granted the orders it seeks.
[7] I begin with SGAH’s application as it was commenced first. I deal with each set of issues in turn.
Is Mei’s application out of time?
[8] Section 262 of the Property Law Act 2007 (PLA) prescribes a limitation period for a lessee seeking relief under s 261 of not later than three months after the date on which the lessor has given notice of its refusal to renew a lease:
1 SGAH’s application is brought under s 244 of the Property Law Act 2007.
2 Mei’s application is brought under ss 261, 262 and 264 of the Property Law Act.
262How application under section 261 for relief under section 264 to be made
An application under section 261 for relief under section 264—
(a)may be made to the court in any proceeding brought by the lessor for an order for possession of the land or in a proceeding brought by the lessee, …for the purpose of seeking relief; and
(b)must be made not later than 3 months after the date on which the lessor serves on the lessee,…, a notice that adequately and expressly informs the lessee of the matters specified in section 263.
[9]The Court has no power to grant an extension of time.3
[10] Also relevant is s 263 of the PLA, which prescribes matters that the lessee must be informed of by notice:
263 Matters lessee must be informed of by notice
The matters referred to in section 262(b) are—
(a)that the lessor refuses to extend or renew the lease, or enter into a new lease, or transfer or assign the reversion, as the case may be; and
(b)that the lessee, mortgagee, or receiver may apply to a court for relief against the refusal; and
(c)that the right to apply for such relief lapses if the application is not made to the court within 3 months of the date of service of the notice; and
(d)that it is advisable for the lessee, mortgagee, or receiver to seek legal advice on the exercise of the right to apply to a court for relief against the refusal.
[11] Here the lease was due to expire on 23 September 2020. Mei was required to give at least three months’ notice in writing of its intention to renew the lease.
[12] On or about 18 June 2020, Mei gave written notice of its intention to renew the lease. SGAH, through its solicitors, Glaister Ennor, gave Mei written notice of its refusal to renew the lease in a letter dated 5 August 2020. This notice triggered the three month limitation period in s 262(b). It meant that Mei had until 6 November 2020 to file an application for relief under s 261.
3 Lawson v Gawith [2017] NZHC 40 at [39](b).
[13] A complicating factor is that SGAH gave further notice of its refusal to renew in a letter dated 23 September 2020, which was sent directly to Mei. The fact there are notices given on 5 August 2020 (the August notice) and 23 September 2020 (the September notice) means there is now a contest between the parties as to which is the operative notice. SGAH contends that the August notice is the operative notice, which means that Mei has commenced its application for relief out of time. Mei contends that the September notice is the operative notice, which means its application for relief is brought within time.
The first notice
[14] The August notice was sent by email to Mei’s then solicitor, Moyee Poon of Chen Legal. The notice informed the recipient that it should be treated as a notice issued pursuant to s 263 of the PLA. The letter stated that Mei’s notice of renewal was not accepted, and SGAH refused to renew the lease. Mei was advised of its right to apply to the Court for relief against the refusal to renew. It was made clear to Mei that the right to make that application could lapse if not exercised within three months of the date of service of the notice, and that it would be advisable for Mei to seek legal advice on the right to apply to Court for such relief. I am satisfied that the August notice met the requirements of s 263 of the Act.
[15] I am also satisfied that the August notice was correctly served on Mei. Sections 352 and 353 of the PLA prescribe the way notices are to be served. Section 352 requires a notice given under s 261 (being a lessor’s notice of refusal to grant a renewal) to be served in the manner prescribed in s 353 of the PLA. Section 353 relevantly provides that a document to which the section applies is to be served on a registered company in the manner provided for in s 388 of the Companies Act 1993. Section 388 of that Act permits service by email at an email address that is used by the subject company.4
[16] SGAH submits that it served the s 261 notice on an email address that was used by Mei. I accept this submission. Here Mei’s notice of intention to renew the lease was sent to SGAH by email and copied to Mei’s then solicitor who used the email
4 Companies Act 1993, s 388(d).
address [email protected]. At the time, Glaister Ennor were using this email address to communicate with Moyee Poon regarding Mei because it was actively involved in litigation with SGAH regarding other aspects of the lease. In March 2020 Mei had stopped paying rent and outgoings owing under the lease. On 29 May 2020, SGAH’s solicitors served Mei with a statutory demand and a notice under ss 245 and 246 of the Companies Act. On 24 July, as a result of Mei’s continued refusal to pay rent and outgoings, SGAH filed and served an application to liquidate Mei.
[17] I accept SGAH’s explanation that because it was actively engaged in litigation with Mei regarding rent arrears under the lease and Mei was legally represented by Moyee Poon once SGAH chose to send the notice to refuse to renew the lease through its solicitors the proper approach was for Glaister Ennor to send the August notice to Moyee Poon. In this way Glaister Ennor avoided any criticism that they were communicating directly with Mei, despite it being legally represented.
[18] Because time for bringing a s 261 application cannot be enlarged, the findings I have reached would be the end of the matter for Mei’s application, were it not for the September notice.
The second notice
[19] The September notice meets the requirements of ss 262 and 263. Accordingly, it is capable of triggering the legal consequences associated with such notices. The question is whether the act of sending the September notice either extinguished the August notice or estopped SGAH from relying on the earlier notice.
[20] The September notice commences by expressly reaffirming the continuance of the August notice:
… gives notice (in addition to the letters dated 5 August 2020 and 2 September 2020) that it refuses to renew the Lease due to the defaults specified below.
(emphasis added)
[21] The letter dated 2 September 2020, which is also mentioned, is neutral because although it refers to SGAH’s refusal to renew the lease it does not do so in terms that meet the requirements for a notice given under s 262(b).
[22] The remainder of the September notice lists Mei’s defaults of the lease terms in much greater detail than the August notice. However, that type of information is not one of the requirements of s 263. So, there was no need for SGAH to expand the legal grounds in support of the first refusal to renew the lease.
[23] Insofar as the September notice expands on earlier correspondence in which SGAH had recorded its dissatisfaction with Mei as a tenant, this notice could be understood as an updating document on the deteriorating situation. However, the form of the September notice presents as a legal notice under ss 261 to 264: in particular, it expressly refers at paragraphs [14] to [17] to the statutory requirements in s 263 for giving notice of a refusal to renew a lease, including the right to apply for relief lapsing if the application is not made “within 3 months of the date of service of this notice”. This is followed by a statement giving the date of the notice as “23 September 2020”. The question therefore is whether the form of the notice and the language used at paragraphs [14] to [17] by implication substitutes the September notice and the time frame it stipulates for seeking relief for the August notice. Neither party referred me to relevant case law; nor could I find any.
[24] In his affidavit evidence in support of the application for relief Mei’s director Zhong Xing says nothing about either notice. Evidence from SGAH’s shareholder Gurpreet Bains in support of SGAH’s application for possession refers to both notices. No explanation is given for why two notices were issued. In his affidavit in reply Zhong Xing refers to Mr Bain’s reference in his evidence to the September notice, to assert that the September notice is operative and therefore Mei’s application for relief is brought in time. This is all Mei says in relation to the date of SGAH’s refusal to renew.
[25] Mei gives no evidence that it regarded the September notice as a substitute for the August notice and therefore (before the effluxion of time for the August 2020 notice) believed that the three-month time limit ran from 23 September 2020 rather than 5 August 2020.
[26] Undoubtedly the September notice confuses matters. On its face it informs Mei the three-month time limit starts from 23 September 2020. In such circumstances the law of estoppel could in principle operate to prevent a lessor who causes such confusion from relying on the earlier notice to assert the lessee’s application for relief is out of time. However, for estoppel to operate in this way Mei would need to satisfy the essential elements of estoppel. These are stated in Wilson Parking New Zealand v Fanshaw 136:5
In brief it must be shown that:
(a)a belief or expectation by [the plaintiff] has been created or encouraged by words or conduct by [the defendant];
(b)to the extent and express representation as relied upon, it is clearly an unequivocally expressed;
(c)[The plaintiff] reasonably relied to its detriment on the representation; and
(d)it would be unconscionable for [the defendant] to depart from the belief or expectation.
[27] Here, the evidence from Mei does not satisfy those elements. There is no evidence from Mei that it relied to its detriment on a representation, explicit or implicit, in the September notice that the time limit would run from 23 September 2020 and therefore expire on 24 December 2020.6 Mei did not attempt in its submissions to rely on the law of estoppel. Accordingly, the law of estoppel is of no help to Mei.
[28] The language of the September notice is ambiguous. On the one hand it specifically refers to the August notice without saying whether that notice was being overtaken by the September notice, which is consistent with the August notice remaining alive. On the other hand, the September notice expressly refers to the s 263 requirements and time to apply for relief running from the date of the September notice. That date is stated to be 23 September 2020, which is consistent with the intention that the notice should run from that date.
5 Wilson Parking New Zealand v Fanshaw 136 [2014] NZCA 407, [2014] 3 NZLR 657 at [44].
6 An inference to this effect may be available from the circumstances, but Mei has not advanced this argument.
[29] The statutory purpose of ss 262 and 263 is to ensure that a lessee is properly informed of its rights, and the statutory requirements it must satisfy if it is to seek relief under s 261. To permit s 262 notices to be issued in a way that causes confusion would thwart this purpose. The language in s 262(b) requiring a notice to “adequately and expressly” inform the lessee of the matters specified in s 263 indicates that Parliament intended notices refusing renewal of leases to be issued in a way that would not result in a lessee being confused as to its rights and the obligations to be satisfied, should it choose to exercise those rights. This is reinforced by the fact there is no statutory provision to enlarge time for seeking relief. It follows that a lessee needs to be informed in the clearest possible way of when time for seeking relief will expire.
[30] Accordingly, in cases where a lessor issues two or more successive notices refusing renewal, and each complies with s 263, I consider that Parliament intended that on the issue of each successive notice the legal effect of the earlier notice is automatically extinguished and therefore no longer available as setting the limitation period for time to run under s 262(b). This interpretation of ss 262 and 263 is the only way those provisions can be read if their intent and purpose is to be achieved.
[31] Another way of viewing what has happened here is to regard the lessor by issuing a second notice as having waived its right to rely on the earlier notice.
[32] Accordingly, I am satisfied that the effect of SGAH issuing a second notice on 23 September 2020 means that time for Mei to apply for relief did not expire until 24 December 2020. It follows that the application for relief Mei filed on 1 December 2020 was filed in time.
Should relief be granted?
[33] In cases where a commercial lessor’s refusal to renew has been sparked by a tenant’s rent arrears, the Court will typically grant relief against a refusal to renew once the arrears are paid. This approach is based on the principle that where a commercial lessor was prepared to include a right of renewal in the lease at the outset, once any outstanding rent arrears are corrected and there is no risk of ongoing rental arrears it makes little difference to a lessor who the tenant is. The key point is that the
lessor was prepared to contemplate the possibility of renewal. This principle is well- explained in Ponsonby Mall Trust Ltd v NZ Food Industries Ltd:7
[46] In my view, the prejudice to the lessor of it not being freed from the disadvantage of the lease by the granting of relief, and consequentially being delayed in commencing demolition and construction, is not a relevant factor. This is because the lessor plaintiffs were already subject to that detriment and prejudice by the terms of the lease, but for the inadvertence of the lessee, NZFI, not renewing. The plaintiff trusts are no worse off than they would have been but for that inadvertence, if relief is granted.
[47] The prejudice that the lessor Trusts raise is the prejudice of not being able to take advantage of the mistake. However, the whole purpose of the s 120 discretion is to stop landlords being able to take advantage of a lessee’s mistake. If the plaintiff trusts’ submission is right, it means that s 120 becomes a meaningless remedy, or at least a remedy that will be seldom invoked. As a matter of common sense, lessors are unlikely to resist renewal, unless they can see a commercial advantage to themselves in the lease terminating. If the inability to exploit that commercial advantage is seen as prejudice which the lessor can raise to stop the granting of relief, relief will seldom be granted. This is not the way in which the New Zealand Courts have approached the discretion over the years.
...
[50] Of similar effect are Re a Lease: McNaught v McNaught [1958] NZLR 72, at 76-77, Verran v Public Trustee [1976] 1 NZLR 518 at 520-521, and Maori Trustee v Kahuroa [1956] NZLR 713, 719. A lessor resisting relief will do so because that lessor will be better off without the lease, or, to put it the other way, worse off if relief is given and the lease continues. As is recognised in these authorities, it is implicit in s 120 that that sort of prejudice to the lessor is irrelevant, and not a reason for the Court not to exercise its discretion.
[34]A similar point was made in Stylo Medical Services Ltd v Hum Hospitality Ltd:8
The Court’s discretion to grant relief is wide. Where a breach consists solely of a failure to pay rent, as here, there is a presumptive right to relief. It is only in exceptional circumstances that relief is to be denied if the debt is paid in full.
[35] Exceptions to the typical approach depend upon various considerations, including:
(a)reasons for failure to give notice for renewal, for example if the failure was inadvertent;
7 Ponsonby Mall Trust Ltd v NZ Food Industries Ltd (2005) 7 NZCPR 48 (HC).
8 Stylo Medical Services Ltd v Hum Hospitality Ltd [2020] NZHC 2969 at [29].
(b)whether the default was due to any action on the part of the lessee;
(c)the lessee’s conduct and in particular whether it has complied with all conditions and covenants and has been a good tenant;9
(d)the prejudice to the lessee if the relief is not granted;
(e)the prejudice to the lessor if relief is granted;
(f)the lessor’s motivation for the refusal to renew and understanding of the lessee’s intentions; and
(g)the interests of third parties and how they may be affected by any order.
[36] In Stylo Medical Services Ltd , Katz J found it was well recognised that it would be inequitable to place a lessor in the position where immediate rent defaults by the tenant would follow the granting of relief.10 This can be categorised as either a consideration involving the lessee’s conduct or prejudice to the lessor if relief were to be granted.
[37] Generally, a lessee’s bad conduct must be significant before a Court will refuse to grant relief. In Stylo Medical Services Ltd, Katz J referred to Sibrad Co Ltd v Kanters11 as one of the few cases in which the Court refused to grant a tenant relief based on bad behaviour. In that case, the lessor lived in immediate proximity to the land leased by the lessee and there was regular contact with the lessee’s employees. The lessee was found to have committed four significant breaches of the lease which were partly unremedied. In addition, the lessee’s attitude showed a lack of willingness to rectify some breaches and there were elements of nuisance, disturbance and damage caused to the lessor’s adjacent land.
9 Woottons Auto Accessories Ltd v Epsom Dry Cleaners Ltd (1982) 1 NZCPR 504 (HC).
10 Stylo Medical Services Ltd v Hum Hospitality Ltd, above n 8, at [39] citing QT Hospitality Ltd v Oxford Holdings Ltd HC Invercargill CIV-2007-425-178, 11 May 2007 at [16].
11 Sibrad Co Ltd v Kanters (2008) 9 NZCPR 356 (HC) at [14].
[38] Similar circumstances were found to justify refusing relief in Brewer v Marlborough Airport Ltd.12 This was a case where the licensee/applicant for relief operated a café in a terminal building at Blenheim airport. The licensor was an airport company that operated a licence from the Crown for the conduct of civil aviation services at the airport. The sub-licence for the café was between the licensor and a predecessor of the licensee/applicant. The licensee/applicant had taken an assignment of the licence from 2007 and she was required to give at least three months’ notice of her intention to renew the licence. She did not do so. The licence expired in its terms in May 2009 and afterwards ran on a monthly basis. In July 2009 the airport company gave notice to terminate. The applicant was found to have been an unsatisfactory licensee and likely to continue in this way. Dobson J found this was not an appropriate situation in which to exercise the discretion under s 264. He found that the relationship between the airport company as licensor and the operator of the café was unusually interdependent. This meant the licensor’s tolerance for licensee breaches and poor conduct was lowered.
[39]Of the considerations identified in [35] herein, those set out at (c), (d), (e) and
(f) are relevant here. I shall deal with each in turn.
Lessee’s conduct
[40]SGAH contends that Mei is in default under the terms of the lease in two ways:
(a) failure to perform maintenance; and (b) subleasing the premises without SGAH’s permission.
[41] The alleged failure to perform maintenance relates to the exterior area of the premises. In its evidence, Mei’s director Zhong Xing acknowledges the appearance of untidiness in the carparking area/yard outside the premises but says Mei is not responsible for this condition. He refers to photographs attached to Mr Bain’s affidavit of January 2021 (SGAH’s deponent) and deposes that the Finlayson Superette (the premises leased by Mei) is not the only business operating from the lessor’s premises. He says that several other businesses that also operate from those premises have contributed to the general shabby appearance of the premises’ exterior. Zhong Xing
12 Brewer v Marlborough Airport Ltd (2009) 11 NZCPR 437 (HC).
also deposes that a container and other goods located in the outside yard close to Finlayson Superette do not belong to Mei; he understands they are goods that belong to a third party. Similarly, a discarded gate and general rubbish shown in the photographs is not Mei’s responsibility.
[42] Zhong Xing says that from the inception of the lease he has ensured the outside area in and around the Finlayson Superette is kept neat and tidy. He points to one of the photographs attached to Mr Bain’s January 2021 affidavit as evidence of this. Zhong Xing accepts the surface of the parking area is not in good shape but says this is not Mei’s sole responsibility. Rather, it is a shared responsibility of all the tenants, and it is up to SGAH to co-ordinate their maintenance efforts. Nevertheless, Zhong Xing says Mei, at its sole expense, has fixed some of the potholes closest to the Superette. He deposes that Mei is happy to work with SGAH to solve any remaining concerns about maintenance of the premises.
[43] SGAH’s evidence is that Mei’s response regarding its poor maintenance of the exterior yard of the premises is not good enough, and that Mei cannot avoid responsibility simply by attributing the poor condition of the exterior yard to other tenants. In this regard Mei has duties under cl 10.2 of the lease to maintain and keep the carpark and surrounding exterior yard in good order. SGAH accepts Mei is not responsible for the entirety of the carpark but deposes that further maintenance work is required to carparks directly being used by Mei.
[44] Regarding Mei’s subleasing of the premises without SGAH’s permission, Zhong Xing denies this. He says SGAH has always known that he and his wife do business using two corporate entities, Mei and So Guo Limited (So Guo). His wife is the sole shareholder of the two companies, but Zhong Xing and his wife are both directors of both companies. Mei is used as the holding company and So Guo is used as the trading entity. He says the use of the two companies in this way is done on the advice of his accountant for income tax purposes.
[45] Further, Zhong Xing points to a rent renewal notice dated 10 September 2014 that was addressed to So Guo as evidence of SGAH’s prior knowledge of the two
companies. He denies that Mei has sublet the premises or that Mei conducts any business other than the Superette/lotto shop on the premises.
[46] On the other hand, SGAH maintains its complaint regarding the sublease of the premises, based on concerns about Mei’s solvency. SGAH refers to Mei’s financial report which shows the nature of its business is “business leasing” and that its only source of income is “sales/lease” with a gross profit of $48,365 for 2020. There are expenses of $4,517 and a net profit of $14,137. These expenses do not record the rent and outgoings payable under the lease. SGAH contends that Mei is the party to the lease and Mei’s financial report casts doubt about its ability to fulfil its promise to pay the lease. In this respect Mei’s financial report demonstrates it is unable to pay more than three months of rent. SGAH submits that if Mei wished to structure its affairs to achieve the best tax outcome it should have complied with the lease and sought SGAH’s consent to the use of a two-company structure.
[47] Relevantly, SGAH accepts that taken individually the breaches of the lease in terms of alleged subleasing and poor maintenance of the exterior yard are not determinative. However, SGAH argues that these are instances which demonstrate Mei’s disregard for its obligations under the lease and a refusal to engage with SGAH. SGAH is sceptical about Zhong Xing’s assertion that he is happy to work with SGAH to resolve any remaining concerns about maintenance.
[48] I find SGAH’s concerns regarding maintenance of the premises’ exterior and subleasing are not enough to warrant the Court refusing to grant Mei relief. Such concerns are something that can be addressed by the parties during the currency of the lease. They are not so serious or material to the performance of the lease that they provide a basis for refusing relief.
Prejudice to lessee if relief not granted
[49] Mei contends it will suffer prejudice if not granted relief. Mei bought the Finlayson Superette and lotto shop, which has been operating at 1/140 Finlayson Avenue for about 20 years, in 2014 for $840,000 and has occupied the premises since then. Until March 2020, Mei complied with all its obligations under the lease. There have been two renewals and in terms of the written lease there was one further term
left, which would expire in September 2024. The business cannot be relocated elsewhere.
[50] Mei says it would never have paid $840,000 for the business had it not been assured of a long-term lease. Until the dispute arose between the parties in early 2020 there have not been any major issues between Mei and SGAH, which is confirmed by the uneventful renewals of the lease over the years.
[51] The lotto license is an integral part of the business and is tied to the premises. If Mei cannot operate the business from the existing premises the business will be destroyed, leaving Mei with only the existing stock which represents a small part of the value of the business.
[52] Mei argues that SGAH refused to renew the lease primarily because Mei stopped paying rent in March 2020. Mei ceased rent payments because of its claim that it was entitled to an extension of the lease well beyond the stipulated 24 September 2024 expiry date and it mistakenly believed that it was entitled to set-off the rent against this claim. Mei now accepts that it was wrong to take this step. Mei has now paid all rent arrears and undertaken that rent will be paid on or before the due date for the remaining duration of the lease. Therefore, it will suffer prejudice if the lease is not renewed.
[53] I am satisfied that Mei will suffer prejudice through loss of its business if the lease is not renewed. Further, I accept it is likely that when Mei first purchased the Finlayson Superette it would have expected to be able to remain in the business through the exercise of the available rights of renewal in the lease.
Prejudice to lessor if relief granted
[54] It is difficult to ascertain the prejudice to SGAH if relief is granted. Providing Mei fulfils its promise to pay rent from now on, it is difficult to see how SGAH could be in any worse position if Mei remained a tenant. In principle it is generally considered that:13
13 Mulholland v Waimarie Industries Ltd (2009) 10 NZCPR 590 (HC) at [23].
… it is inequitable that the benefit of the lease should be lost to a tenant who has restored to the landlord all that the landlord is entitled to under the lease.
[55] I acknowledge that SGAH is sceptical of Mei’s promise to pay rent and the relationship between the parties is not good, but this is due to the other disputes that have arisen between them. However, other than a refusal to pay rent, those disputes are outside the performance of the lease.
[56] The disputes have their genesis in Mei’s decision in March 2020 to refuse to pay rent as a bargaining lever in negotiating a further 20 years for the lease to run. From that point it is fair to say the parties’ relationship went badly downhill. Mei asserted it was entitled to an extension of the lease way beyond the stipulated 24 September 2024 expiry date, and wrongly took the view that it could set-off rent against the claim it contends it has against SGAH. SGAH contends that Mei engaged in a sustained and deliberate course of conduct aimed at extracting an extension of the lease to 2044. Mei’s refusal to pay rent and outgoings since March 2020 resulted in Mei owing a sum in excess of $65,000. This sum was only paid on 27 November 2020, an hour before a scheduled Court hearing to liquidate Mei for this reason.
[57] I accept that prior to 27 November 2020 SGAH suffered prejudice from Mei’s refusal to pay rent. This was inexcusable conduct. However, the payment of the arrears and payment of rent since then have rectified this prejudice. Insofar as the parties remaining in a commercial relationship carries a risk of prejudice for SGAH, it will only arise should Mei attempt to use this relationship as a bargaining tool against SGAH to secure a new lease. Given the lack of success this stratagem has had for Mei to date, I consider the more likely outcome is that Mei has now realised that withholding rent will not secure it a longer-term lease from SGAH. Also, I note that there is no evidence to suggest that before the present dispute about the length of the lease arose Mei had behaved badly as a tenant. Earlier requests for renewal of the lease have been actioned by SGAH without consequence.
Lessor’s motivation for the refusal to renew the lease and understanding of lessee’s intentions
[58] Now that the rent has been paid the only motivation SGAH has for refusing to renew is its scepticism that Mei will continue to pay the rent and its concerns that Mei
will behave badly in pursuit of its separate dispute with SGAH. These issues are to be addressed separately and later in the judgment. Putting those issues to the side, I am satisfied SGAH has no reasonable basis for refusing to renew the lease.
Mei’s bad behaviour
[59] I now turn to the remaining issue: the risk of Mei continuing to behave badly as a lessee.
[60] As mentioned, Mei withheld rent in March 2020 under the belief it was entitled to do so until SGAH extended the lease until 2044.14 In addition, Mei engaged in a series of combative actions to pressure SGAH into granting Mei a lease until 2044, by which time Mei’s director Zhong Xing would be 65 years old and ready to retire. Examples of such conduct are set out below.
[61] On 23 December 2019 Mei commenced separate proceedings in this Court against SGAH and an associated entity Satnam Enterprises Ltd (Satnam) alleging that they had promised Mei’s director Zhong Xing that the lease for the Finlayson Superette could be extended for as long as Mei wanted; this allegation was subsequently changed to an alleged expiry date of 2044. Zhong Xing purported to act for Mei. The relief claimed was specific performance or damages. On 19 February 2020, the Court ordered Mei to appoint legal counsel to act for it. Mei stopped paying SGAH rent on 1 March 2020 on the basis it was entitled to set off the rent against its legal claim against SGAH.
[62] In a letter dated 16 April 2020 Mei wrote: “As you are aware Mei Enterprises sued your company for over 550K losses and any legal action that you propose in the email will be delivered after my claim.” On 17 April 2020 Mei wrote: “Even if your client sue me I will rather pay the rent to court trust account in interest bearing account
14 This view of matters is tenuous. The Finlayson Superette used to be owned by Satnam Enterprises Limited (Satnam). Shaminder Kaur Singh is the shareholder and director of this company. She is also a shareholder and director of SGAH. In early 2014 Satnam sold the Superette business to Mei. As part of the sale, the lease of the premises was assigned to Mei. Later, SGAH purchased the premises with the effect that SGAH became the lessor. For Mei to pursue a claim against SGAH based on alleged misrepresentation made by Satnam at the time it sold the Superette business to Mei, Mei would need to establish that SGAH was in some way legally liable for misrepresentations made by Satnam. SGAH denies that any such misrepresentations were ever made.
until the proceeding that I filed at High Court concluded … I strongly recommend your client consider a without prejudice settlement proposals.” On 29 April 2020 Mei wrote: “Thus request refund of all overpayment of the rent of over $72K immediately. Failing to refund Mei Enterprises Limited on due date, Mei Enterprises Limited reserve right to hire debt collection to collect the debts.” Between 29 April 2020 and 7 May 2020 Mei issued five letters making demands for payment from SGAH.
[63] On 22 May 2020 Zhong Xing commenced a proceeding in this Court in relation to a liquor store business that operates from the same block of shops as the Finlayson Superette. This proceeding was initially brought against Tara Singh who is one of SGAH’s shareholders and Bain Brothers Ltd, a company that is no longer registered. Later, on 8 December 2020, Zhong Xing added as defendants Mr Singh’s wife, Shaminder Kaur (who is also a shareholder of SGAH), Mr Singh’s son Satnam Bains and Mr Singh’s former accountants Patel and Associates. Mr Singh contends that the three additional defendants have nothing to do with the liquor store issue, which involves alleged enforcement of a purported restraint of trade. The owner of the liquor store business is a registered company Xing Seng Ltd. Mr Singh contends that Zhong Xing has no basis for bringing this claim, and it is simply part of his campaign against SGAH and the persons associated with that company.
[64] On 18 May 2020 Zhong Xing threatened to advise Auckland Council the Superette premises were unconsented. Later in May when Mr Singh (one of SGAH’s shareholders) went to the Superette with a builder to check complaints about the building he was said to be trespassing. Then on 22 May 2020 Zhong Xing went to the family home of SGAH’s shareholders and served trespass notices on the shareholders.
[65] On 16 July 2020 Mei wrote: “Without prejudice meeting is to help your clients to save cost especially two proceedings against your client; if your clients object to this I will more comfortable to confront with your clients after the court proceeding finalised as I had given three chances to your clients to save costs.”
[66] Since July 2020 Mei has taken no steps in the separate proceedings it has brought based on the misrepresentation as to the term of the lease that was alleged to
have given rise to the alleged rental set-off. The solicitors acting in that proceeding have now been granted leave to withdraw.
[67] On 15 September 2020 Mei sought a without prejudice meeting and threatened liquidation proceedings against SGAH. On 22 September 2020 Mei sought a renewal of the lease and offered payment of all rent to a “third party account pending upon decision from the court for the lease till 2044.” On 23 September 2020 Mei sent another proposal seeking a lease extension to 2044, a four-year right of renewal and offer that rent would be repaid but only “with proper valuation.”
[68] On 6 October 2020 Mei issued SGAH with a further letter of demand threatening liquidation if payment was not made. Then on 29 October 2020 by its director, Zhong Xing, Mei applied to liquidate SGAH without any legal basis; this proceeding remained live until 8 December 2020 when Mei discontinued the application to liquidate SGAH with costs to SGAH. On 29 October 2020 Zhong Xing commenced the liquidation proceedings, despite two directions from this Court in other proceedings that he could not personally act for Mei. On 8 December 2020, the liquidation proceedings were discontinued. The same day Zhong Xing served SGAH with an amended statement of claim in the liquor store proceeding, which is when the three additional defendants were joined.15
[69] On 5 and 6 November 2020 Zhong Xing, purporting to act for Mei, filed and served interlocutory applications to restrain SGAH’s counsel from acting and to stay all proceedings.
[70] Zhong Xing has also attempted to bring a private prosecution for perjury against one of SGAH’s shareholders. Throughout the dispute Zhong Xing has made damaging allegations and disparaging remarks about the family members of SGAH’s shareholders in the various aforementioned proceedings which either Mei or he have initiated.
15 See [63] herein, which explains how those persons have no connection with the claim made in the liquor store proceeding.
[71] SGAH did not receive the rent and outgoings it was due under the lease between 1 March 2020 and 27 November 2020, when it did so without prejudice to its rights under s 213 of the Property Law Act. SGAH has incurred costs in excess of
$27,500 in the lease matters.
[72] SGAH contends that throughout 2020 Mei and its director, Zhong Xing, have shown no inclination towards resolving matters. Mei has now had four sets of solicitors, yet it has refused to accept until either the point of liquidation or losing possession of the premises that it must comply with its obligations under the lease, including the obligation to pay rent.
[73] SGAH submits that the above examples of bad behaviour on the part of Zhong Xing have left the relationship between SGAH and Mei beyond repair. Further, because such conduct was carried out as a means of leverage against SGAH to obtain an extended term of lease SGAH considers it is a reasonable inference that this type of behaviour will not abate. Thus, continuation of any commercial relationship between the parties will provide fertile ground for such conduct to continue. Moreover, Mei’s actions go well beyond the conduct that can be described as mere disharmony or hostility between the parties as was demonstrated in Saisatnam v Brandons Trustee Company Limited.16
[74] SGAH submits that the facts of this case do not support the exercise of discretion in favour of Mei. It refers to Ponsonby Mall Trust Ltd v NZ Food Industries Ltd where Asher J said of the analogous discretion under the Property Law Act 1952: “the whole purpose … is to stop landlords being able to take advantage of a lessee’s mistake.” Here, SGAH submits there has been no innocent mistake on the part of Mei, nor has SGAH taken advantage of Mei. If there is any mistake it has been Mei’s strategy in withholding rent and outgoings, its refusal to address other issues and its director’s peripheral conduct expecting that “SGAH would fold under such pressure.”
[75] I accept that Mei has behaved very badly and not in a way that is usually associated with commercial parties. It is difficult to see how Mei could have envisaged its conduct would achieve the outcome it desired. No lessor is likely to grant a 20-
16 Saisatnam Ltd v Brandons Trustee Co Ltd [2017] NZHC 538, (2017) 18 NZCPR 215.
year extension to a lease when confronted with a lessee who behaves as Mei did. The typical approach in commercial leases that once rent arrears are paid relief should be granted stems from the assumption that commercial parties will conduct themselves in a commercially sensible way and that no-one would refuse to pay rent for the types of reasons that lie behind what happened here. Ordinarily, it does not matter whether commercial parties like each other and can get on together or not. Each is assumed to have its own separate commercial interest in ensuring the lease operates well. For the lessor it is a source of income and for the lessee it provides the premises from which its business operates. Provided those needs are met neither is considered to have much interest in the other.
[76] I have considered whether the bad conduct displayed by Mei is sufficient to displace the typical approach and the assumptions that underlie it. I can readily understand why SGAH does not want to expose itself to the risk of a continuation of Mei’s bad conduct and why SGAH is concerned about such conduct being ongoing.
[77] On the other hand, these parties have been in a lease relationship since 2014. There were no disputes until the lease reached the final renewal, and Mei became most reluctant to accept the lease would end in 2024. Before this time, the parties seemingly managed to get on in the way commercial parties to a lease manage to do. This shows that Mei and its director Zhong Xing are capable of behaving sensibly. By now Zhong Xing should have come to realise his attempts at bullying SGAH into granting Mei a long lease have failed. The other proceedings Mei/Zhong Xing have commenced that remain alive can either be pursued or discontinued. Insofar as they are shown to be without merit (either because they fail at trial or they are discontinued) SGAH can be compensated for wasted time and trouble through awards of costs. The Court can award above scale costs for hopeless proceedings. Thus, SGAH has another remedy for the costs it has incurred by Mei’s conduct. Also, Mei’s discontinuance of the liquidation proceedings and its payment of rent arrears, albeit at the final hour, show that Zhong Xing can accept the error of his ways and the need to make good with his conduct. Further there is no evidence of Mei’s solvency being in doubt.
[78] In Arthur Devine v Highgate on Broadway Ltd, Mackenzie J found there was a high degree of animosity between the parties but that was not “a reason why the lessee should be deprived of his continued right to a renewal of the lease”.17 The same approach was taken in Saisatnam Ltd v Brandons Trustee Co Ltd.18
[79] The present dispute is the first such dispute between the parties. I have found that the typical relevant considerations weigh in favour of granting relief. The consideration that weighs against granting relief is not directly related to the performance of the lease and is something that is typically regarded as irrelevant.
[80] Mei has wrongly used the rent under the lease as a weapon to win its battle for something else. I consider it would be wrong to rely on this conduct alone as a reason for refusing relief. If Mei persists with such conduct and continues to withhold rent after being granted relief matters may then move to the point where in a subsequent application for forfeiture based on a new refusal to pay rent Mei would be refused relief. At some point in time aberrant bad conduct by a lessee in a commercial lease setting, (including wilful refusal to pay rent for ulterior purposes) may justify a Court refusing to grant the lessee relief against forfeiture by the lessor. But we are not at this point yet. However, Mei would do well to keep in mind it has come close to the tipping point, despite this being the first such occasion.
[81]Accordingly, I am satisfied Mei is entitled to the relief it seeks.
[82]It follows that SGAH’s application for possession fails.
Result
[83] I order that SGAH is required to enter into a new lease with Mei that expires on 23 September 2024, and otherwise upon and subject to the covenants and agreements in the lease.
17 Arthur Devine Ltd v Highgate on Broadway Ltd (2011) 13 NZCPR 276 (HC) at [20].
18 Saisatnam Ltd v Brandons Trustee Co Ltd, above n 16, at [90].
[84]SGAH’s application for recovery of the property is dismissed.
[85]Leave is reserved to the parties to file memoranda on costs.
Duffy J
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