Taste of Asia Limited v Hillcrest Properties Limited

[2020] NZHC 3245

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE

CIV-2019-412-000029

[2020] NZHC 3245

UNDER

The Property Law Act 2007

IN THE MATTER

of an application under s 253 for relief against cancellation of a lease

BETWEEN

TASTE OF ASIA LIMITED

Applicant

AND

HILLCREST PROPERTIES LIMITED

Respondent

CIV-2019-412-000030

IN THE MATTER

of an application for an order for possession

BETWEEN

HILLCREST PROPERTIES LIMITED

Applicant

AND

TASTE OF ASIA LIMITED

Respondent

Hearing:

On the papers

Appearances:

D Tobin and J C McLeod for Taste of Asia Ltd

A Pinnock and M C Ryan for Hillcrest Properties Ltd

Judgment:

9 December 2020

JUDGMENT OF LANG J

[on costs]

This judgment was delivered by me on 9 December 2020 at 3.30 pm,

pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

TASTE OF ASIA LTD v HILLCREST PROPERTIES LTD [2020] NZHC 3245 [9 December 2020]

[1]    In a judgment delivered on 18 August 2020 I dismissed an application by Hillcrest Properties Limited (Hillcrest) seeking possession of restaurant premises that it owns in Dunedin and granted an application by Taste of Asia Limited (Taste of Asia) for relief against forfeiture of its lease of those premises.1 The parties have been unable to reach agreement on costs and I am now required to determine that issue on the basis of the memoranda filed by both counsel.

[2]    Taste of Asia considers it has been the successful party in both proceedings and says it should receive an award of costs calculated on a category 2B basis for that reason. Hillcrest contends it has a contractual right under the lease to recover its costs from Taste of Asia on a solicitor client basis. In the alternative, it seeks an award of costs on a category 2B basis together with disbursements as fixed by the Registrar.

Background

[3]    The proceedings were filed after Taste of Asia breached a provision of the lease that prohibited it from subleasing the premises without the prior consent of the lessor. It did so by subleasing the premises to a third party, Lim 88 Investments Limited (Lim 88), in October 2013. Taste of Asia and Lim 88 then entered into a further deed of sublease in June 2015.

[4]    Hillcrest did not become aware of the existence of the sublease until approximately February 2019. Two months later, on 24 April 2019, Hillcrest served a notice of its intention to cancel the lease on Taste of Asia. It then rejected an attempt by Taste of Asia to obtain retrospective consent to the sublease. This led to the present proceedings, in which Hillcrest sought an order giving it possession of the premises2 and Taste of Asia sought relief against forfeiture of the lease.3

Relevant principles

[5]    Up until 1995, it was not uncommon for the courts to award costs in favour of a lessor who had unsuccessfully opposed an application by a defaulting lessee for relief

1      Taste of Asia Ltd v Hillcrest Properties Ltd [2020] NZHC 2081.

2      In CIV-2019-412-030.

3      In CIV-2019-412-219.

against forfeiture of a lease. As Asher J noted in Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd, the position changed after the new costs regime came into force on 2 January 2000.4 Thereafter, the outcome in terms of costs became more varied and the courts began to focus on relevant issues particular to the proceeding in question.

[6]    Subsequently, in Q T Hospitality Ltd v Oxford Holdings Ltd, Asher J voiced the concern that, if an award of costs was made too frequently in favour of an unsuccessful lessor in relief proceedings, there would be little incentive for landlords to take a pragmatic approach to such litigation and accept reinstatement where a breach had been remedied.5

[7]I take the current position to be that described by the Court of Appeal in

Cunningham v Butterfield:6

[57]   In our view the cases on which Mr Johnson relied should not be seen as establishing a general rule that costs will usually be granted in favour of a lessor who has unsuccessfully opposed an application for relief against forfeiture made by a lessee. While we accept that the cases temper the general rule that costs should follow the event, we do not consider that the position can be put on any more definite basis. Rather, what is required is a principled application of the rules. In cases such as this that may require an analysis of the facts to see what has given rise to the litigation, taking into account the conduct of the parties and whether one of them has contributed to its costs or engaged in other conduct that should influence the costs decision.

[8]    In Cunningham v Butterfield the Court of Appeal undertook the analysis in the following way:

[58] Here the factors that favour an award of costs to the respondents are  that the Judge found that Mr Cunningham was in breach of his contractual obligations, that he was primarily responsible for the dispute that had arisen and also observed that Mr Cunningham had received an indulgence. Counterbalancing those considerations are Mr Cunningham's success in the litigation: if r 14.2(a) were to be strictly applied there is no doubt that he was the party who succeeded, and the respondents failed. We note also the Judge's findings that Mr Cunningham's conduct was not at the “egregious end of the scale”, and that the issues affecting the relationship of the parties were not one-sided. Added to this, as the Judge observed, the contractual arrangements were “poorly conceived”.

4      Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd HC Auckland CIV-2005-404-3631, 8 March 2006 at [9].

5      Q T Hospitality Ltd v Oxford Holdings Ltd [2007] 8 NZCPR 817 (HC) at [37].

6      Cunningham v Butterfied [2014] NZCA 213, (2015) 22 PRNZ 521.

[9]    It follows that it is necessary for me to identify the issues that gave rise to the two proceedings, the conduct of the parties in relation to those issues and the ultimate outcome.

Decision

[10]   One of the most significant factors in the present case is my conclusion that Taste of Asia deliberately decided to conceal the existence of the sublease from Hillcrest over an extended period.7 I considered this to be a “deliberate and serious” breach of Taste of Asia’s obligations under the deed of lease.8 That factor obviously weighs heavily in favour of it being required to contribute to the cost of the proceedings. It also needs to be recognised, however, that Taste of Asia was ultimately the successful party in each proceeding.

[11]   On the other hand, the breach did not result in Hillcrest suffering any financial or reputational loss because Taste of Asia has always met its financial and other obligations under the lease. Furthermore, Hillcrest has never objected to the suitability of Lim 88 as a tenant of the premises. Rather, it sought to intervene on Lim 88’s behalf because it appears to have considered Taste of Asia was requiring Lim 88 to pay exorbitant sums under the sublease. Hillcrest’s principal, Mr Gordon McLauchlan, also plainly feels he can no longer trust Taste of Asia given the events that have occurred. As I observed in my judgment, these factors were not relevant to the issues raised by the two proceedings.9

[12]   I am satisfied Hillcrest was entitled both to seek possession of the premises and oppose the application for relief because of the seriousness of the breach that had occurred. Its position is similar to that of the lessor in Q T Hospitality, where Asher J observed that the frustrated lessor was entitled to have its day in Court so it could explore the issues raised by the breach.10 Similarly, Taste of Asia must receive some credit because it was ultimately the successful party in both proceedings and the breach did not cause Hillcrest to suffer any loss.

7      Taste of Asia Ltd v Hillcrest Properties Ltd, above n 1, at [26]-[30].

8 At [30].

9      At [38]–[41].

10     Q T Hospitality Ltd v Oxford Holdings Ltd, above n 5, at [38].

[13]   Ultimately, however, Taste of Asia’s conduct led directly to both proceedings being commenced. Its decision to conceal the existence of the sublease from Hillcrest over a lengthy period resulted in a serious breach of the terms of the lease. Taste of Asia must have appreciated that significant consequences were likely to follow if Hillcrest discovered what had occurred. These subsequently materialised in the form of the present proceedings. I am therefore satisfied that Hillcrest should receive an award of costs to recognise those factors.

[14]   Hillcrest relies on the following clause in the lease in support of its claim for costs and disbursements on a solicitor client basis amounting to approximately

$85,000:

6.1 The Tenant shall pay the Landlord’s solicitors reasonable costs of incidental to the preparation of this lease and any variation or renewal or any Deed recording a rent review, the landlord’s reasonable costs incurred in considering any request by the Tenant for the Landlord’s consent to any matter contemplated by this lease and the Landlord’s legal costs (as between solicitor and client) of and incidental to the enforcement or attempted enforcement of the landlord’s rights remedies and powers under this lease.

(Emphasis added)

[15]   In Roses are Red Ltd v Board of Administration of the Methodist Church of New Zealand a lessor relied on a similar clause to seek indemnity costs after unsuccessfully opposing an application by the lessee for relief against forfeiture.11 I did not accept this was appropriate, and awarded costs to the lessor on a category 2B basis together with disbursements as fixed by the Registrar. I also observed that, if the lessor maintained its view that the clause applied to the proceedings, it could issue proceedings against the lessee to seek recovery of its actual costs. Although I did not expressly say so, I declined to award indemnity costs in that case because I had some doubt as to whether the clause applied to proceedings of the present type. The Court of Appeal subsequently rejected an appeal by the lessee against my decision to award costs to the lessor without commenting on the effect of the clause.12

11     Roses are Red Ltd v Board of Administration of the Methodist Church of New Zealand HC Auckland CIV 2007-404-8040, 21 February 2008.

12     Roses are Red Ltd v Board of Administration of the Methodist Church of New Zealand [2019] NZCA 237, (2009) 19 PRNZ 369.

[16]   I consider the situation in the present case is analogous to that in Q T Hospitality Ltd v Oxford Holdings Ltd.13 In that case Asher J held it had not been unreasonable for the lessor to have opposed the lessee’s application for relief against forfeiture even though it was unsuccessful in doing so. He awarded costs to the lessor on a Category 2B basis together with disbursements as fixed by the Registrar.

[17]   I consider the same approach to be appropriate in the present case. Although I do not consider an award of indemnity costs to be appropriate, Taste of Asia has nevertheless largely created the situation that has arisen by deliberately breaching its obligations under the lease. I therefore award costs in favour of Hillcrest on a Category 2B basis together with disbursements as fixed by the Registrar.

Conditions

[18]   I granted Taste of Asia relief against forfeiture on the condition that it must now seek Hillcrest’s consent to the sublease of the premises to Lim 88. Counsel for Hillcrest advises me that Hillcrest sought information from Taste of Asia about Lim 88’s financial position and this has not yet been provided. Hillcrest therefore seeks an order that, if Taste of Asia does not provide the information requested by Hillcrest within five working days, the order granting relief will automatically lapse.

[19]   I do not propose making such an order. If Lim 88 remains in possession of the premises and Taste of Asia does not engage further with the consent process, it will be open to Hillcrest to terminate the lease again on the basis that Taste of Asia has failed to comply with the conditions set by the Court and the unauthorised sublease remains in effect.

13     Q T Hospitality Ltd v Oxford Holdings Ltd, above n 5.

Order

[20]   In both proceedings Taste of Asia is to pay costs to Hillcrest on a category 2B basis together with disbursements as fixed by the Registrar. Hillcrest will only be entitled to a single award where steps have been taken in both proceedings simultaneously.

Lang J