Southern Farms NZ Limited v New Zealand Rural Land Investments GP Limited
[2025] NZHC 1917
•14 July 2025
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE
CIV-2025-425-7
[2025] NZHC 1917
UNDER the Property Law Act 2007 IN THE MATTER
of an application for relief against cancellation under s 253
BETWEEN
SOUTHERN FARMS NZ LIMITED
Plaintiff/Applicant
AND
NEW ZEALAND RURAL LAND INVESTMENTS GP LIMITED as General
partner for NEW ZEALAND RURAL LAND INVESTMENTS LIMITED PARTNERSHIP
Defendant/Respondent
Hearing: (On the papers) Appearances:
I G Hunt for Plaintiff/Applicant
S Bisley for Defendant/Respondent
Judgment:
14 July 2025
Reissued:
15 July 2025
JUDGMENT OF ASSOCIATE JUDGE LESTER
(Application for further discovery)
SOUTHERN FARMS NZ LIMITED v NEW ZEALAND RURAL LAND INVESTMENTS GP LIMITED [2025] NZHC 1917 [14 July 2025]
[1] In this proceeding, Southern Farms NZ Limited (Southern Farms) seeks the following orders:
(a)granting it relief against cancellation of the lease agreement (the Lease) in respect of the properties at 178 and 215 Dunlop Street, Wallacetown (the farm property) between the plaintiff and the defendant, without conditions;
(b)alternatively, granting relief against cancellation of the Lease agreement on such conditions as the Court thinks fit;
(c)that the defendant is restrained by themselves or by their advisors, agents or employees from taking any steps to cancel the Lease;
(d)that the defendant is restrained by themselves or by their advisors, agents or employees from re-entering the farm property; and
(e)as to costs.
[2]Clause 21.2 of the Lease between the parties provides:
21.2If at any time:
(a)…
(b)the Lessee breaches any express or implied covenant in this Lease (other than the covenant to pay rent) and the Lessee has failed to remedy that breach within the period specified in a notice served on the Lessee in accordance with section 246 of the PLA;
the Lessor may:
(c)…
(d)cancel this Lease in respect of part or all of the Land by notice to the Lessee and/or by re-entering the Land.
[3] On 23 May 2024, New Zealand Rural Land Investments GP Limited (NZ Rural) wrote to Southern Farms setting out a schedule of areas of alleged non-compliance with the Lease. Southern Farms says it worked through that schedule and provided its response in August 2024. However, on 24 September 2024 NZ Rural issued a Property Law Act Notice (the Notice) with a schedule of claimed breaches of the Lease. The Notice stated that if the claimed breaches were not remedied within 10 working days from the date of service, that is by 5 October 2024, NZ Rural could cancel the Lease.
[4] Southern Farms responded on 7 October 2024 to each of the breaches. There was further correspondence which included Southern Farms setting out why it considered aspects of the effluent system on the leased property were deficient or that some of the issues raised by NZ Rural were related to the state of the property at handover.
[5] NZ Rural gave notice on 21 January 2025 that it considered breaches in the Notice had not been satisfied and it was cancelling the Lease. Southern Farms sought injunctive relief which was resolved by undertakings.
[6] For a case management conference scheduled for 28 May 2025, the parties filed a joint memorandum with a schedule of disputed discovery categories. Counsel were directed to file submissions in respect of the disputed categories of documents, with those issues to be dealt with on the papers.
[7] Section 255(3) of the Property Law Act 2007 (the Act) provides that the Court may grant relief against cancellation of a lease without determining whether there has been a breach of covenant or condition of the lease, or that because of such breach the lessee had the right to cancel the lease. The Court takes into account all the circumstances in determining whether to grant relief.
[8] A number of categories have since been agreed. I now deal with the disputed categories.
Category 4
[9]Category 4 reads:
All documents relating to the decision of the Respondent to terminate the lease, including internal emails, correspondence, meeting agendas, board papers and minutes with respect to the meeting of the board of the Respondent on 23 December 2024 and any other meetings prior to that date at which the Lease was considered and discussed.
[10] NZ Rural has agreed to disclose the following documents in respect of the board’s decision to cancel the Lease:
(a)documents provided to the board for the purpose of deliberating the Decision;
(b)documents recording the board’s deliberative process; and
(c)documents recording the Decision.
[11] Mr Hunt, counsel for Southern Farms, submits Category 4 is relevant as the documents will show whether NZ Rural was satisfied that the asserted breaches had been remedied. He submits the documents are also relevant to Southern Farms’ belief that it had remedied the asserted breaches, that this was accepted by NZ Rural, and that NZ Rural intended to take no further steps with respect to the Notice.
[12] In terms of NZ Rural’s ability to cancel the Lease, it is not whether it reasonably believed grounds of cancellation existed, but whether the facts as determined by the Court meant NZ Rural was entitled to cancel. If there was no breach within cl 21.2 of the Lease, NZ Rural had no right to cancel, whether it reasonably believed it was entitled to do so or not.
[13] Mr Hunt submits that Southern Farms believes NZ Rural accepted the breaches had been remedied and that NZ Rural intended to take no further steps with respect to the Notice — however, that is not what is pleaded by Southern Farms. The closest the second amended originating application of 21 March 2025 gets to, is in paras 2.23—
2.27. In summary, the pleading is that on 28 November 2024, Southern Farms
provided a detailed response to or respect of the asserted breaches. Further, Southern Farms says there was no substantive response to acknowledgement of the 28 November 2024 letter. Southern Farms says there was no substantive response or acknowledgment of a further letter sent to NZ Rural’s solicitors on 20 December 2024. The next pleaded step is cancellation.
[14] Silence by NZ Rural in response to the 28 November 2024 and 20 December 2024 letters will not found an estoppel and, as I have said, estoppel is not pleaded. Accordingly, I cannot agree that the basis of relevance submitted by Mr Hunt is valid.
[15] As to documents identifying the dates on which NZ Rural received the specified correspondence, I adopt Mr Bisley’s suggestion, counsel for the defendant, that without accepting the relevance of the material sought, NZ Rural will treat the query as if it were a request for interrogatories and identify the dates requested.
Decision — Category 4
[16]Discovery of Category 4 is declined.
Category 5
[17]Category 5 states:
An unredacted version of the paper provided to the board on 23 December 2024.
[18] NZ Rural has claimed privilege over part of this document on the basis of legal advice privilege.
[19] Mr Hunt says the material is relevant because it goes to the factors taken into account in NZ Rural’s decision to cancel the Lease.
[20] Again, if, as a matter of fact, NZ Rural was entitled to cancel the Lease, then its motivations for doing so are a matter for it. This was a commercial Lease between commercial parties. If NZ Rural was motivated by commercial self-interest (which one presumes was the case), then that will not invalidate its decision to cancel.
Whether cancellation was a proportional response to the breach does not depend on NZ Rural’s motives, but whether the damage sustained by the landlord is disproportionate to the benefit the landlord will obtain if relief is not granted.1
[21] Mr Hunt submits that NZ Rural has waived privilege by putting the privileged document in issue. He submits that NZ Rural relies on the analysis within the memorandum as justifying its decision to terminate but refuses to disclose the advice which informed the analysis. Mr Hunt suggests that if disclosure is not agreed by NZ Rural, an unredacted copy of the memorandum should be provided to me to determine whether privilege applies.
[22] Mr Bisley says NZ Rural is not relying on the privileged communication in this proceeding as the legally privileged communication was redacted in its entirety. NZ Rural pleads the factors it took into account in reaching its decision to terminate the Lease, which do not include either the fact or substance of the legal advice. It is said there has been no partial disclosure of the advice.
[23] Southern Farms is free to challenge the pleaded factors that the board says it took into account in deciding to cancel the Lease if it considers such a challenge may assist the Judge in determining the application for relief. However, NZ Rural does not seek to explain or justify its decision to cancel on the basis of legal advice. Whether the legal advice was right or wrong is irrelevant to whether NZ Rural in fact had an entitlement to cancel pursuant to cl 21.2 of the Lease.
[24] The second amended originating application does not allege that the power of cancellation was exercised for a collateral purpose or in bad faith. It says that to allow cancellation would be to give NZ Rural a “grossly disproportionate advantage … having regard to the nature and extent of the Asserted Breaches (whether established
… or not)”.
1 Studio X Ltd v Mobil Oil New Zealand Ltd [1996] 2 NZLR 697 at [701].
[25] I am satisfied that the privileged material has not been put in issue by NZ Rural. That the legal advice was taken into account by the board does not make it relevant and discoverable if it is privileged. Southern Farms’ pleading does not challenge the process of cancellation rather, it alleges it was not in breach, or if it was, the breaches were minor or inadvertent or caused by the state of the farm that it took over or rectified.2
Decision — Category 5
[26]Southern Farms’ application for discovery of Category 5 is declined.
Category 6
[27]Category 6 states:
Correspondence between the Respondent and Fortuna between 24 September 2024 to present.
[28] Mr Hunt submits that NZ Rural was negotiating with Fortuna prior to termination of the Lease. The Lease with Fortuna provided that Fortuna would provide funding to remedy issues with the dairy shed/farmhouses. Mr Hunt submits these provisions of the Lease are relevant to Southern Farms’ claim that there were issues with the dairy shed, plant and equipment, and farmhouses at the time the property was leased to Southern Farms.
[29] Mr Bisley submits there is no dispute that NZ Rural entered into a lease with Fortuna before the decision to terminate the Lease. As such, Mr Bisley says discovery in respect of that issue is not required.
[30] As to there being issues with the dairy shed, plant and equipment and the farmhouses, Mr Bisley submits that none of the breaches in the Notice or relied on for termination related to the condition of the dairy shed. The only issue is whether Southern Farms commissioned dairy shed, plant and equipment servicing before
2 Southern Farms says that the Notice, in giving 10 working days’ notice to remedy the defaults was unreasonably short notice given the prevailing weather at the time, but that appears to be the only issue of form or process raised.
31 July 2023 and 31 July 2024 as required by the Lease. Mr Bisley says these obligations are independent of the actual condition of the dairy shed.
[31] An issue between the parties is the state of the dairy shed, plant and equipment and the farmhouses at the commencement of the Lease. Southern Farms alleges pre-contractual misrepresentations on those matters.
[32] A representative of Southern Farms carried out an inspection of the farm property on 25 May 2023. Southern Farms alleges that NZ Rural’s representative advised a report had been completed in respect of the dairy shed on the farm and said there were no issues with respect to its functionality, maintenance or associated machinery, which all complied with the terms of the Lease. It is also said the representative of NZ Rural said that the five farmhouses on the property met all relevant legislation.
[33] Mr Bisley submits that the condition of the dairy shed and Fortuna’s views on the condition of the dairy shed are irrelevant.
[34] This Category seeks documents after 24 September 2024. It is alleged that the alleged misrepresentations occurred on 25 May 2023.
[35] It is not in dispute that the farmhouses were in poor condition, that being one of the basis of termination. A further ground of termination was as noted, that Southern Farms had not commissioned dairy shed, and plant and equipment servicing before 31 July 2023 or 31 July 2024.
[36] I come back to whether the Fortuna material might support the allegation that the pleaded statements were misrepresentations. That cannot be determined without seeing the material.
Decision — Category 6
[37] Mr Bisley is to review the Fortuna correspondence covered by Category 6 to determine to what extent it refers to the matters put in issue by paras 2.14 of the second amended originating application of 21 March 2025. For example, the correspondence
may refer to work Fortuna was prepared to fund which may suggest the farmhouses did not, at the time of the correspondence, meet the Residential Tenancies (Healthy Homes Standards) Regulations 2019. Similarly, if the foreshadowed funding shows that the type of work to be funded in the dairy shed and its associated plant and equipment was such that the work must have existed for some time, then the material will have to be discovered, for the reasons I discuss in relation to Category 7. Mr Bisley is to review that material and advise Mr Hunt of his investigation within 15 working days of this ruling.
Category 7
[38]Category 7 states:
All documents relating to the Respondent’s due diligence investigations including documents showing the condition of the dairy shed and the farmhouses at the time of purchase.
[39] The parties disagree on this category because NZ Rural says its knowledge of the condition of the farm at the time of its purchase in April 2022 is irrelevant to the issues of condition raised by Southern Farms as at the commencement of the Lease.
[40] I disagree. As discussed in respect of Category 6, the type of issues identified in NZ Rural’s due diligence may point to issues with the dairy shed, its plant and equipment and the farmhouses, that continued to exist at the time of the Lease — a little over a year after NZ Rural’s acquisition. For example, if one or other of the farmhouses was determined to not meet the Residential Tenancies (Healthy Homes Standards) Regulations at the time of NZ Rural’s due diligence, then unless NZ Rural had rectified those issues before leasing the property to Southern Farms, that issue would have continued to have exist. NZ Rural pleads that Southern Farms failed to maintain the farmhouses in good order, repair and condition. For the same reason, if the Fortuna material in Category 6 refers to the same issues as in the due diligence, it will confirm that those issues existed from the time of due diligence through to the Fortuna correspondence, or recurred in the meantime.
Decision — Category 7
[41] I am satisfied that documents within Category 7, but only those relating to the condition of the diary shed and farmhouses at the time of purchase, are discoverable. Other aspects of the due diligence documents are not relevant to the breaches said by NZ Rural to have entitled it to cancel the Lease.
Associate Judge Lester
Solicitors:
PRLaw, Invercargill (for Applicant)
Wilson Harle, Auckland (for Respondent)
Copy to counsel:
I G Hunt, Barrister, Christchurch (for Applicant) S Bisley, Barrister, Wellington (for Respondent)
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