Stylo Medical Services Ltd v Hum Hospitality Ltd

[2014] NZHC 2029

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-1764 [2014] NZHC 2029

UNDER	s 244 Property Law Act 2008
IN THE MATTER	of an application for cancellation of a Deed of Lease dated 22 January 2011 and possession
BETWEEN	STYLO MEDICAL SERVICES LIMITED Applicant
AND	HUM HOSPITALITY LIMITED Respondent

Hearing:	26 August 2014
Counsel:	RO Parmenter for applicant SL Abdale for respondent
Judgment:	26 August 2014

(ORAL) JUDGMENT OF FAIRE J

Solicitors:           Winston Wang & Associates, Auckland (D Chang) Legal Vision, Auckland (T Bates)

Stylo Medical Services Limited v Hum Hospitality Limited [2014] NZHC 2029 [26 August 2014]

[1]      The plaintiff applies by way of an originating application for orders that a deed of lease dated 21 January 2011 be cancelled and that the applicant be granted possession. A number of ancillary orders are sought.

[2]      This application, together with an application by the respondent for an order to consolidate this application with CIV-2013-404-4995, was allocated a fixture to be heard before me today.  Counsel for the respondent appears to seek an adjournment of both applications.  The reason given is that counsel has been ill and it was thought not able to attend Court.   She has attended Court, but was not able to present submissions in opposition and in support.

[3]      I would have considered the respondent’s application but for the fact that I have a very clear view of the outcome of this proceeding and what is appropriate to see matters advanced without delay.

[4]      This is the third proceeding which the applicant has filed seeking orders cancelling  the  lease.    The  first  resulted  in  a  judgment  delivered  by  Ellis  J  on

20 August 2013.  Her Honour’s conclusions, which are recorded in [50] to [55] of

the judgment are as follows:1

[50]      For the reasons already given I consider it is strongly arguable that the  PLA notice  did  not  adequately  inform  Hum  of  what  it  was required to do to remedy the breach of the lease and is therefore invalid.  Given that Hum plainly is in breach of the lease, however, I prefer, not to deal with the matter on that basis.   Such a finding would simply result in Stylo issuing another notice, for example, on the basis that the breaches were incapable of remedy within a reasonable period.

[51]      Equally, I have indicated my view that the lease itself is immune from the kinds of attacks made by Hum in these proceedings and that there are no positive defences available to it.  Once that point is reached, it is not in dispute Hum is in breach.

[52]      But lastly, and as I have said, the factors going to the exercise of the Court’s discretion to order relief against cancellation favour Hum, at least for the moment.

[53]      What is required, if at all possible, is for the parties to work together with a  view to  obtaining a  mutually beneficial resolution of the difficulties that have arisen. I accept that there is little or no prospect

that Hum will be able to remedy its defaults and meet the final deadline under the lease.  It is not clear to me, however, whether the rental payments might be able to be made by Ms Armitage in any event, once the rent holiday ends.   Clearly, if she were, then that might alleviate all of Dr Ooi’s concerns.

[54]     For the time being, however, I propose to exercise my discretion under PLA s 253, and order relief against cancellation.   Leave will be reserved to the parties to bring the matter back before me if a way forward cannot be negotiated.

[55]     Hum has only been successful in terms of my discretion to grant it relief.  In my view it is not appropriate for costs to follow that event and it is my intention to direct that costs should lie where they fall. To the extent either party has a strong contrary view memoranda are to be filed within 10 working days.

[5] The parties did not avail themselves of the leave reserved in [54].

[6]      The plaintiff issued a second proceeding.  That resulted in what appears to be an interim judgment of Whata J delivered on 8 July 2014.   Prior to His Honour issuing that judgment, he held a telephone conference with counsel on 9 June 2014. Of particular relevance to the current proceeding is the comment recorded in [5] of His Honour’s Minute, which is as follows:

As noted at the conference, I am conscious now that this application has been outstanding for some time.   Mr Parmenter also indicated to me that there can be anticipated a further application as rent has not been paid.   I suggested to the parties that the sensible way to proceed would be to have that application join the present application and have them heard and determined together by me.  That might redress some of the inefficiency that has occurred already.

[7]      His Honour then issued his judgment on 8 July 2014.  His conclusions are recorded at [43] to [48] as follows:2

[43]     I am prepared to grant relief from cancellation notwithstanding the current state of the evidence.   It seems to me that there is at least some evidence supporting the basic proposition that the tenant has worked hard to put the premises into a state enabling it to commence its business in earnest.   While the improvements do not appear to meet  the  applicant’s  requisite  standards,  even  on  Mr  Nixon’s evidence there has been almost $100,000 expended by the tenant in the improvement of the property.  At the other end of the spectrum, were I to accept Mr Emmitt’s evidence, then plainly the tenant has made a very substantial contribution to the improvements of the property well in excess of any ordinary rental that the tenant would

have been expected to pay in the three year abatement period.  But I am not prepared to accept that evidence at face value and for this reason I will grant relief on a conditional basis only.  I consider that it is absolutely necessary to bring some clarity to the extent of the works undertaken by the tenant so that a proper and full assessment can be made as to whether the tenant should be afforded the ongoing forbearance of this Court.  I therefore propose to make the grant of relief conditional upon the production of a report by a Court appointed expert specifically assessing whether the works specified at cl 48.5 have been completed, whether those works have been completed in a workman like manner, and if not, what is required to complete those works to that standard.  I record that this route to a final outcome was suggested by Ms Abdale.

[44]     The cost of the Court appointed expert will be borne by the tenant given the further indulgence afforded to it.

[45]     Counsel  have  five  working  days  to  identify  an  expert  that  is acceptable to both of them to address the task I have identified.   I will select the expert if there is no agreement.  The expert will have one calendar month within which to undertake his or her assessment and to report to the Court.  The parties will then have five working days  within  which  to  make  further  submissions  on  the  report. Unless requested by counsel, I will then determine on the papers whether relief should continue.

[46]     Nothing  in  this  judgment  should  be  seen  to  affect  whatever application that the applicant wishes to make for cancellation based on non payment of rent.  For completeness I have taken into account the fact that three months rent is currently due and owing.  That non payment is not sufficient in my view to warrant or to preclude me from exercising a discretion in favour of the tenant.  Needless to say, however, that if non payment of rental continues then that will be on my final decision.

[47]     The  parties  have  leave  to  come  back  to  this  Court  if  further clarification is needed.  I otherwise implore the parties to refer to the express requirements of cl 48.5.

Costs

[48]     While the applicant has not succeeded in obtaining an order for cancellation, I have exercised my discretion in favour of relief from cancellation on a limited basis in favour of the tenant.   I consider that having granted that indulgence, my current view is that the tenant should be liable for the costs of the applicant on a 2B basis together with disbursements as fixed by the Registrar.  Nevertheless, costs  are  reserved  pending  the  outcome  of  the  Court  appointed expert review.

[8]      The plaintiff issued  this  proceeding on  16  July 2014.    There is  now  an acknowledged breach of the covenant to pay rent by the respondent.

[9]      What is clear is that the disputes between the parties arise directly from the obligations imposed under the lease.   In short, in terms of r 10.12(b)(ii) of the High Court Rules, the rights to relief claimed are in respect of, or arise out of the same transaction, namely the deed of lease.  In those circumstances, having regard to the current state of matters in CIV-2013-404-004995, it is appropriate that this proceeding be consolidated with that proceeding.  It is also appropriate that I now give directions to ensure that the matter is handled expeditiously.   Accordingly, I order:

(a)       That this proceeding be consolidated with CIV-2013-404-4995;

(b)That the Case Officer who has responsibility for this file arrange for a case  management  conference  before  Whata  J  and  counsel.    That should be arranged as soon as time is convenient to the Judge and counsel. The conference will discuss:

(i)       Progress with the report ordered in [45] of the judgment of

Whata J;

(ii)Whether the indicated potential grant of relief to the tenant as set out in [43] of His Honour’s judgment should delay the disposal of the application to cancel, based on non-payment of rent, and depending upon the answer to that, what further directions are then appropriate; and

(iii)     Any other relevant matter;

(c)      Counsel for the plaintiff shall file and serve five working days before the  conference  a  memorandum  dealing  with  the  above  matters. Counsel for the respondent shall file and serve a memorandum in response three working days before the conference, which shall respond  to  the  applicant  counsel’s  memorandum  and  the  above matters.

[10]     Consistent with the position adopted throughout, I reserve costs.  Clearly, the respondent is seeking indulgences as it is, having regard to the findings made by the

Judges before me, in breach of the deed of lease. Accordingly, I reserve costs.

JA Faire J