Supermega Market Limited v NBL (New Zealand) Limited
[2024] NZHC 3885
•18 December 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-001117
[2024] NZHC 3885
BETWEEN SUPERMEGA MARKET LIMITED
Applicant
AND
NBL (NEW ZEALAND) LIMITED
Respondent
Hearing: 19 September 2024 Appearances:
J Johnson, O Harding and A Ho for the Applicant A Barker KC and M Ashmore for the Respondent
Judgment:
18 December 2024
JUDGMENT OF WALKER J
This judgment was delivered by me on 18 December 2024 at 12.30 pm Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
SUPERMEGA MARKET LIMITED v NBL (NEW ZEALAND) LIMITED [2024] NZHC 3885 [18 December 2024]
Introduction
[1] Supermega Market Limited (Supermega) brings an originating application for relief against the cancellation for breach of covenant of an alleged sublease with the respondent, NBL (New Zealand) Limited (NBL). The application is made under the Property Law Act 2007 (the Act).1
[2] Supermega no longer seeks an order for reinstatement of the lease.2 It acknowledges that this course is not open to it because the head lease between NBL and the landlord, Northland Food Limited (Northland), has been cancelled.
[3] Supermega instead contends that, though it does not seek reinstatement, the Court is empowered by s 256 of the Act to make declarations in this proceeding as to the legal effect of an agreement between the parties and their conduct. It appears that declarations in its favour would advance Supermega’s position in a parallel set of proceedings between the parties.
[4] Less than a week before the hearing of this application for relief Supermega filed its amended application seeking:3
(a)A declaration that the business co-operation agreement (Agreement) between the parties dated March 2022 was a sublease and was wrongfully cancelled by NBL on 25 March 2024.
(b)Orders that NBL compensate Supermega for direct and indirect losses (in an amount to be particularised in parallel proceedings CIV-2024-404-645 (645 Proceeding)) incurred from the sublease cancellation date until the head lease cancellation date.
[5] NBL filed a notice of opposition to the original application for relief and now challenges the Court’s jurisdiction to make the above orders (even if there were
1 Property Law Act 2007, s 253.
2 In an originating application for relief against forfeiture for breach of covenants dated 2 May 2024 Supermega initially sought (amongst other things) to reinstate the lease.
3 First amended originating application for relief against forfeiture for breach of covenants dated 13 September 2024.
substantive grounds to do so, which it denies). It says that s 256 of the Act gives power to grant relief against cancellation on any conditions the Court thinks fit but those conditions must be anchored to the grant of underlying relief against cancellation. As the Court is not being asked to make an order reinstating a lease, it does not have the power to impose conditions and it is inappropriate for contested factual issues to be dealt with within the originating application procedure.
[6] NBL contends that the application should therefore be summarily dismissed. If not dismissed, Mr Barker KC, counsel for NBL, submits that NBL fairly requires time to evidentially respond to the amended application given that Supermega changed tack less than a week before the hearing despite previously advising the Court that the application for relief would be discontinued.
[7] This jurisdictional issue is a gateway issue which obviously requires determination first given it may dispose of the substantive matters.
Procedural history and background
[8] Supermega markets and sells milk powder and various nutraceutical products. NBL also markets “white labelled” nutraceutical products under its own brands. NBL rented industrial premises at 12 Harbour Ridge Drive, Wiri (Wiri premises).
[9] Around February 2022, NBL encountered financial problems and was unable to fulfil its rental obligations under its head lease.
[10] In March 2022, Supermega and NBL entered into the Agreement which provided that:
(a)Supermega would have access to the Wiri premises where it would operate both its own and NBL’s production facilities, paying expenses such as rent, wages, water, electricity and depreciation;
(b)NBL would no longer manufacture its own products and would place all of its orders with Supermega;
(c)Supermega would be responsible for fulfilling NBL’s orders (ensuring production quality met standard);
(d)Supermega would assist NBL to meet its debts, including by lending sums that it required to be repaid within 12 months of the effective date of the Agreement;
(e)NBL would provide NHS Production Qualification to Supermega for confirmation;
(f)NBL was to purchase all of its products for on-sale from Supermega; and
(g)Supermega would have “exclusive right” to the “cooperation area” of the Wiri premises.4
[11] In June 2023, Northland Food Limited (Northland) acquired the Wiri premises subject to the lease.
[12] In November 2023, NBL commenced proceedings against Supermega requiring Supermega to give it access to inspect the premises as to the state of repair, to carry out repair work and to comply with enactments and bylaws. It did so on the basis that the Agreement was a sub-lease and NBL relied on implied terms incorporated in all leases under the Act. A director of NBL deposed that NBL’s view was that Supermega is in breach of a sub-lease.
[13] Supermega opposed that application arguing that it was designed for an ulterior purpose to allow a “strategic investor” access to assess NBL’s machinery and equipment.
[14]NBL thereafter elected to discontinue the proceeding and agreed to pay costs.
4 Affidavit of Yi Wu dated 1 May 2024 explains that this referred to the office, workshop, warehouse, and equipment and machinery and accessories in the so-called “cooperation area”.
[15] On 27 February 2024, Supermega made demand for payment by NBL of approximately $800,000, contending that this sum was owed as a result of financial assistance provided to NBL under the Agreement. At the same time, Supermega ceased to meet the production facility expenses including rent, wages, water, electricity and depreciation.
[16] On 1 March 2024, NBL issued an invitation to negotiate and a formal notice of default and demand. The notice of default alleged that:
(a)Supermega failed to maintain capacity and product quality in respect of NBL’s orders;
(b)Supermega failed to meet all necessary costs required under the Agreement including for agreed depreciation of equipment per month; and
(c)Supermega failed to use NBL’s qualifications to complete registration and export and cancelled NBL’s qualification and certification.
[17] On 25 March 2024, NBL issued notices of cancellation and re-entry. It engaged security guards and restricted Supermega’s access to the Wiri premises.
[18] On 27 March 2024, Supermega applied, among other things, for interim orders prohibiting NBL from restricting its access and dismantling and removing any of Supermega’s equipment located at the premises.5 Supermega argued that it was entitled to interim relief pending determination of the substantive issues between the parties including whether the Agreement was in fact a lease (as opposed to a licence); whether NBL failed to comply with the Act when purporting to cancel and re-enter; whether NBL validly terminated the Agreement; and whether NBL breached the Agreement.
[19] On 28 March 2024, at the conclusion of an oral “Pickwick” hearing, Johnstone J determined that cl 11 of the Agreement gave rise to a serious argument
5 Referred to as the 645 Proceeding.
that Supermega was entitled to all of the protections of a lessee pursuant to the Act.6 That being so, and there being no dispute that the re-entry requirements pursuant to notices issued under the Act had not been met, he determined there was a serious question to be tried as to whether in fact Supermega was entitled to ongoing exclusive possession of the area designated as the “co-operation area”.7
[20] Turning to the balance of convenience, Johnstone J concluded that this favoured Supermega’s application, provided that, in the event re-entry was ordered, Supermega would be required to pay $78,000 in monthly rental commencing 1 April 2024.8 He held that the overall justice favoured re-entry and made the following interim orders:9
(a)NBL is prohibited from restricting Supermega’s access to the Wiri premises and from dismantling or removing any of the industrial equipment at those premises, whether that be equipment owned by Supermega or by NBL.
(b)That prohibition is conditional upon Supermega paying a monthly rental of $78,000, including GST, on the first of each month commencing 1 April 2024.
[21] In the ultimate paragraph of his oral judgment, Johnstone J dealt with further timetabling to allow for “that aspect of this proceeding which requires determination whether the agreement is in the nature of a lease, and if so how and on what basis it may be cancelled.”10 Supermega construes this part of the judgment as a direction that the lease aspect be determined first in accordance with part 19 of the High Court Rules 2016.
[22] On 2 May 2024, Supermega filed the present proceedings by way of originating application for relief against forfeiture for breach of covenants. As noted,
6 Supermega Market Limited v NBL (New Zealand) Limited [2024] NZHC 712 at [11].
7 At [13].
8 At [16]–[17].
9 At [18]–[19].
10 At [19].
originally that application sought, among other things, to re-instate the agreement between NBL and Supermega on its original terms, restore the Wiri premises to their pre-cancellation condition, compensate Supermega for loss of profits and damage to its business goodwill and pay costs. The relief replicated at least in part the relief sought in the first two causes of action in the 645 Proceeding.
Substantive issues
[23]The substantive grounds pleaded by Supermega are:
(a)The Agreement is a sub-lease and not a licence.
(b)The November 2023 proceedings were filed by NBL on the basis that the Agreement was a sub-lease and NBL was relying on implied terms to all leases under the Act.
(c)The alleged breaches relied on in NBL’s purported cancellation of the Agreement are denied by Supermega but in any event such purported breaches had been rectified.
(d)NBL has itself breached the Agreement, including by failing to pay amounts owed to Supermega.
(e)When NBL re-entered the premises, it dismantled, removed and misplaced equipment causing damage.
(f)Supermega suffered loss of profits and damage to its business goodwill on re-entry.
[24] On 10 May 2024, the landlord, Northland, issued NBL with a notice of intention to cancel its lease alleging failure by NBL to pay rent. It served a statutory demand for sums allegedly outstanding.
[25] NBL failed to comply with the notice and on 27 May 2024, Northland cancelled the head lease with NBL. This means that the disputed “sublease” with Supermega is also cancelled.
[26] On 29 May 2024 directions were made by consent for NBL to file and serve its opposition to Supermega’s application and evidence.
[27] On 12 June 2024 both this proceeding and the 645 Proceeding were called in the duty Judge list. Prior to the call, counsel for Supermega had filed a memorandum noting that as NBL’s lease from Northland was cancelled, NBL’s sublease arrangement with Supermega was also cancelled and Supermega should be released from its obligation to pay rent. Counsel also noted that, in the absence of NBL bringing its own application for relief against forfeiture against Northland, Supermega would discontinue its application for relief against forfeiture and amend its claim in the 645 Proceedings to claim damages.
[28] Counsel for NBL responded noting that Northland and Supermega have the same sole director, Mr Wi Yu, who is also Northland’s sole shareholder. She informed the Court that she had instructions from NBL to apply for relief against forfeiture.
[29] Counsel then filed a joint memorandum. By consent, Venning J discharged the order made by Johnstone J as to payments to NBL and instead, pending further order of the Court, Supermega was to pay the sum of $78,000 directly to Northland on the first of every month.11 A timetable was directed so that NBL’s signalled application for relief against forfeiture and Supermega’s application for relief against forfeiture would be heard together.
[30]Despite the earlier indication, NBL did not apply for relief.
[31] Supermega contends that it is entitled to apply for relief against Northland under the provisions of ss 258 to 260 of the Act by seeking an order that Northland
11 Supermega Market Limited v NBL (New Zealand) Limited HC Auckland CIV-2024-404-645/ CIV- 2024-404-1117, 12 June 2024.
enter into a new lease with Supermega. However, it has opted not to seek that form of relief. Instead Supermega seeks the relief set out at [4] above.
Parties’ position in relation to jurisdiction
[32] Determination of whether the arrangements between Supermega and NBL constituted a lease is material to an assessment of who owes what for the interim period comprising the approximately eight-week window between the grant of the interim injunction on 28 March 2024 and 27 May 2024 when Northland terminated the head lease.
[33] Mr Johnson, counsel for Supermega, stresses the unusual context of the present conundrum arising from determination of the head lease. He submits that Johnstone J specifically recognised and contemplated resolution of the question of sub-lease or licence within an application for relief against forfeiture in the ultimate paragraph of his judgment on interim relief; that it would be duplicative of costs not to resolve the question in this proceeding; and no more evidence is needed on the part of the respondent on the issue of interpretation of the Agreement. Mr Johnson directs the Court’s attention to earlier pleadings and evidence from NBL in which it said itself that there was a sub-lease. He maintains that NBL’s change of position is unsustainable and the issue is not difficult to resolve on the proper construction of the Agreement.
[34] In terms of what s 256 of the Act intends, Mr Johnson contends that while in the usual class of cases falling within that provision, the expectation is that the conditions on which relief would be granted are for the benefit of the lessor in exchange for the indulgence granted to the lessee, s 256 is not on its terms limited to conditions favouring the lessor. He argues that the wide ambit of the Court’s discretion enables it to impose conditions on the primary declaratory relief sought by Supermega.
[35] Mr Johnson submits that the cancellation of the head lease does not extinguish the right to apply for other relief and therefore the Court’s jurisdiction to retrospectively determine the key foundational matters — whether the Agreement was a sublease and whether it was wrongfully cancelled. He notes that Supermega
provided undertakings as to damages in the 645 Proceeding when it sought injunctive relief and that the injunctive relief granted provided no assurance that Supermega’s ongoing possession was substantively lawful, thereby exposing Supermega to a damages claim by NBL. If this Court makes the declarations sought, it follows that Supermega’s possession of the Wiri premises during that window was substantively lawful.
[36] The only authority Mr Johnson points to in support of his submissions is Arthur Devine Ltd v Highgate on Broadway Limited.12
[37] Mr Barker acknowledges the Court’s broad ability to make further orders under s 256 but only if they are conditional on the grant of relief against cancellation. Without an application for relief against cancellation, there is no basis to seek orders under s 256(1)(a).
[38] He submits that this is precisely how conditions under s 256(1) have operated in practice and pointed to examples such as the grant of relief conditional on a lessee making good outstanding rent,13 paying for damages caused by their conduct,14 on the basis of appointment of an arbitrator to resolve outstanding disputes15 or with a suite of terms designed to force the lessee into compliance with the lease in future.16
[39] Mr Barker contends that the case relied on by the applicant has very different facts but in principle supports NBL’s position.
[40] Finally, Mr Barker submits that the questions of whether Supermega was lawfully in possession of the Wiri premises, whether any injunction order should have been made and whether Supermega is liable to pay any damages, are all matters more appropriately dealt with in the main 645 Proceeding.
12 Arthur Devine Ltd v Highgate on Broadway Limited HC Blenheim CIV-2011-406-185 [10 November 2011].
13 Godzone (2011) Ltd v Chew [2012] NZHC 2082.
14 Detour Clothing Ltd v Star Five Ltd [2017] NZHC 1172 at [74].
15 Maydanoz NZ Ltd v Poppelwell t/a The Poppelwell Partnership [2012] NZHC 1026.
16 McIvor v Donald [1984] 2 NZLR 487 at 493 (CA).
Analysis of jurisdiction issue
[41] Section 256 of the Act allows for a lessee (among others) to apply for relief against cancellation of a lease for breach of a covenant or condition. Section 256(1) sets out the power of the Court on such an application. It reads:
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.
(2)The court may grant relief against the cancellation, or proposed cancellation, of a lease even though—
(a)the cancellation is for a breach of an essential term of the lease; or
(b)the breach is not capable of being remedied.
[42] It is apparent to me that Mr Barker’s approach to s 256 is the correct one. The express wording of subs (1) makes it clear that the focus is “relief against cancellation”. This is the essence of s 256 and the Court’s discretionary power. “The relief sought” in s (1)(a) is a reference back to “relief against cancellation”. The conditions by which the Court has discretion to include are parasitical on relief against cancellation. If the Court has not made an order reinstating the lease, it cannot make further orders as conditions on the reinstatement of the lease. This much is clear from the wording of the section as Mr Barker submits.
[43] The case of Arthur Devine Ltd v Highgate on Broadway Ltd does not provide support for Mr Johnson’s submission. The respondent in that case accepted that the lease had not been validly cancelled and made declarations of wrongful cancellation and reinstatement. The essence of the reasoning is found in the following paragraph:
[31] In the usual class of case falling within s 256, where the Court has granted relief against cancellation following a breach of the lease by the lessee, the expectation would be that the conditions on which relief would be granted would be conditions for the benefit of the lessor, because the lessee
has, in that usual case, been granted an indulgence for its breach of lease, for which the lessor ought to be compensated. However, s 256 is not in its terms limited to conditions favouring the lessor. As I have noted, s 255(2) contemplates that an application for relief under s 253 may occur in circumstances where the validity of the cancellation is disputed, because the lessee does not accept that there has been a breach of the lease. That might suggest that the Court has power, in an application under s 253, to determine that there was no breach of the lease justifying cancellation and that the cancellation was wrongful. If the Court does have such power, conditions favouring the lessee might be seen as appropriate under s 256.
[44] As Mr Barker puts it, it is one thing to say that the Court can make declarations that support the ultimate grant of relief. It is another to say that s 256 empowers the Court to make free-floating declarations where no relief against cancellation is granted, or sought.
[45] There is no jurisdiction for the relief now sought this originating application proceeding. It is therefore unnecessary (and inappropriate) to go on to determine the issue of whether possession of the Wiri premises from 28 March 2024 to May 2024 was or was not lawful. That is a matter more suited to and clearly within the compass of the 645 Proceeding.
Result
[46] It follows that I decline to grant the application on jurisdictional grounds. That finding of course says nothing about the underlying substantive issues which are for another day in another proceeding.
[47] If questions of costs on this application are not resolved between the parties (and my expectation is that they should be), memoranda of no more than three pages in length may be filed within 21 working days.
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Walker J
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