Turrall v Jackson
[2018] NZHC 381
•12 March 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2017-404-857 [2018] NZHC 381
BETWEEN JOHN GRAHAM TURRALL and PETER
WILLIAM BUTLER Plaintiffs
AND
BRYAN LEE JACKSON First Defendant
KAREN LETICA Second Defendant
MAEGAN JANE FOX Third Defendant
DONALD ANDREW FOX Fourth Defendant
BRIAN GRAHAM BLUETT and TODD GRAHAM BRUCE BLUETT
Third Parties
Hearing: 22 February 2018 Appearances:
C M Fry for Plaintiff
R J Hollyman and A J Peat for First and Second Defendants
A Steel for Third and Fourth Defendants
G E Schumacher for Fifth and Sixth DefendantsJudgment:
12 March 2018
JUDGMENT OF VAN BOHEMEN J
This judgment was delivered by me on 12 March 2018 at 10.00am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
TURRALL and BUTLER v JACKSON [2018] NZHC 381 [12 March 2018]
Introduction
[1] The main proceeding, which was commended by statement of claim dated 1
May 2017, concerns liability for payment of arrears and related costs under a registered lease (registered lease instrument C872767.1) in respect of a property at 384
Ellerslie-Panmure Highway, Auckland. It has been set down for hearing on 21 June
2018. This judgment deals with the liability of the third parties to the first to fourth defendants under the lease.
Background
[2] The plaintiffs, as trustees of the Flo-Ter Trust, were owners and landlords of the property until July 2016. Between 19 April 1995 and July 2016, the property was leased to a succession of lessees, including the first to fourth defendants and the third parties, under the lease granted originally to RJ and CI Duncan Ltd and then assigned to subsequent lessees:
(a) On 9 July 1995, the first and second defendants took an assignment of the lease;
(b)On 14 June 2004, the first and second defendants assigned the lease to the third and fourth defendants;
(c) On 3 September 2007, the third and fourth defendants assigned the lease to the third parties.
[3] In taking their assignments of the lease, the first and second defendants and the third and fourth defendants covenanted with the plaintiffs to pay the rental and other outgoings “now and into the future” and to perform the covenants and conditions, both express and implied, in the lease.
[4] In a judgment dated 3 February 2016,1 Toogood J gave judgment in favour of the plaintiffs against the third parties for various defaults while the third parties were
the assignees under the lease and:
1 Turall v Bluett [2016] NZHC 64.
(a) Made orders granting the plaintiffs possession of the land and cancelling the lease;
(b)Required the third parties to pay to the plaintiffs rental and outgoings totalling $979,796.70, being the amount owing at the date of judgment, together with unpaid rental, penalties and interest between the date of judgment and the date the plaintiffs actually took possession of the land; and
(c) Ordered that the third parties should pay costs and disbursements to the plaintiffs in accordance with the lease in the sum of $23,992.25.
[5] The first to fourth defendants say the plaintiffs have not sought to enforce that judgment against the third parties but have instead brought the current proceedings against them for the same claim.
[6] In their amended statement of claim dated 7 November 2017, the plaintiffs seek recovery against the first to fourth defendants under their covenants to the plaintiffs. They also seek recovery against the fifth and sixth defendants as guarantors under a deed of guarantee and indemnity.
[7] The plaintiffs say that pursuant to the Limitation Act 2010, any liability of the first to the fourth defendants, and of the fifth and sixth defendants, to the plaintiffs is limited to the six years immediately preceding the plaintiffs’ claim, that is from 1 May
2011 until termination of the lease on 3 February 2016. Accordingly, they claim against the first to fourth defendants, and separately against the fifth and sixth defendants:
(a) Outstanding rent of $662,729.86;
(b) Outstanding insurance premium of $52,151.05;
(c) Outstanding interest of $241,751.85; and
(d)Further interest and costs incurred in bringing the previous proceedings and the current proceedings.
[8] The first to the fourth defendants deny any liability to the plaintiffs. They have also cross-claimed against the fifth and sixth defendants.
[9] By statement of claim dated 8 September 2017, the first to the fourth defendants claim indemnity under statute and against the third parties for any liability that the first to fourth defendants may be held to owe to the plaintiffs under the lease.
[10] The third parties have taken no steps in response to the claim by the first to fourth defendants.
[11] By minute dated 22 January 2018, Jagose J set down a formal proof hearing of the first to fourth defendants’ claim against the third parties.
Formal proof hearing
[12] The formal proof hearing was held before me on 22 February 2018. With leave, Ms Fry, counsel for the plaintiffs withdrew from the hearing. Counsel for the fifth and sixth defendants, Ms Schumacher, attended but made no submissions.
[13] As set out in their claim against the third parties, the first to the fourth defendants seek:
(a) A declaration that the [first to the fourth] defendants are entitled to indemnity from the third parties in respect of the plaintiffs’ claims against the [first to the fourth] defendants under the lease and the [first
to the fourth] defendants’ expenses incurred;2
2 The first to the fourth defendants’ claim against the third parties was filed before the first to the fourth defendants’ cross claim against the fifth and sixth parties so did not distinguish between the different categories of defendant.
(b)An order that the third parties are to pay or secure any amounts due to the plaintiffs when the amount of indebtedness (if any) of the [first to the fourth] defendants has been obtained.
Discussion
[14] The case for the first to fourth defendants was well set out in their counsels’ memorandum dated 20 December 2017 to which Mr Hollyman and Mr Steel spoke. The essence of their case is that the first to fourth defendants have a right to a full indemnity from the third parties for any liability owed by the first to fourth defendants to the plaintiffs pursuant to s 98 of the Land Transfer Act 1952 (LTA), notwithstanding the repeal of that section by the Property Law Act 2007 (PLA).
[15] Section 98 of the LTA provides:
98 Implied covenants in transfer of lease
In every transfer of a lease as aforesaid there shall be implied a covenant by and on the part of the transferee with the transferor that the transferee will thenceforth pay the rent by the said lease reserved, and observe and perform all the covenants in the said lease expressed or implied on the part of the lessee to be observed and performed; and will indemnify and keep harmless the transferor and his representatives from and against all action, suits, claims, and expenses in respect of the non-payment of the said rent, or the breach or non-observance or non-performance of the said covenants or any of them.
(emphasis added)
[16] Section 98 of the LTA was repealed by s 364(1) and Schedule 7 of the PLA
with effect from 1 January 2008 when the PLA came into force.
[17] Despite the repeal of s 98 of the LTA, s 367(5) of the PLA provides:
(5)Covenants implied by the Property Law Act 1952, or by section 96 or 98 of the Land Transfer Act 1952, into instruments that came into operation before 1 January 2008 are not affected by sections 364 and 366(c), and continue as if that Act, and those sections, had not been repealed.
[18] Accordingly, the covenant implied by s 98 of the LTA into the lease over the property at 384 Ellerslie-Panmure Highway, Auckland continues to operate.
[19] Section 98 of the Act, also reflected in s 242 of the Property Law Act 2007, captures the long-standing common law principle that an assignee indemnifies the previous assignors of the lease for the consequences of any breach of covenant in the lease, including any damages and costs incurred as a result of the breach.
[20] As stated by Cockburn C J in Moule v Garrett:3
The defendants are the ultimate assignees of a lease, and the plaintiff, who is suing them for indemnity against the consequence of a breach of a covenant contained in that lease, is the original lessee. There is no doubt that the breach of a covenant is one in respect of which the defendants, as assignees, are liable to the lessor, and that they have acquired by virtue of mesne4 assignments the same estate which the plaintiff originally took. And I think that taking this estate from the assignee of the plaintiff, their own immediate assignor, they must be taken to have acquired it, subject to the discharge of all of the liabilities which the possession of that estate imposed on them under the terms of the original lease, not merely as regards the immediate assignor, but as regards the original lessee.
…
The damage therefore arises through their default, and the general proposition applicable to such a case as the present is, that where a person is compelled to pay damages by the legal default of another, he is entitled to recover from the person by whose default the damage was occasioned the sum so paid.
[21] It was confirmed in Rogers v Locum Developments Ltd5 that s 98 of the LTA is consistent with the common law and should not be interpreted as overruling the common law.
[22] Under the covenant implied by s 98 of the LTA and as reflected in the common law principles stated by Cockburn CJ:
(a) The third parties have covenanted to indemnify the third and fourth defendants, from whom they took a direct assignment of the lease, from any suit, claim and expenses in respect of the non-payment of rent, or the breach or non-observance or non-performance of the covenants in
the lease, by the third parties;
3 Moule v Garrett (1872) LR 7 Exch 101 at 103.
4 “mesne” in this context means “intermediate” or “intervening”.
5 Rogers v Locum Developments Ltd (1993) 2 NZ ConvC 191,507 (HC) at 9.
(b)The third parties have covenanted to indemnify the first and second defendants, as earlier assignees of the lease, from any suit, claim and expenses in respect of the non-payment of rent, or the breach or non- observance or non-performance of the covenants in the lease, by the third parties.
[23] It follows that the first to fourth defendants are entitled be indemnified by the third parties for any liability for which the first to fourth parties might be held as a consequence of a failure by the third parties for non-payment of rent and any breach or non-observance or non-performance of the covenants in the lease, and for any damages and expenses occasioned by those defaults.
[24] As counsel for the first to fourth defendants also submitted, in accordance with HCR 4.17, the third parties are to be taken as having admitted the liability claimed by the first to fourth defendants by defaulting in filing a statement of defence to the first to fourth defendants’ statement of claim.
[25] In their memorandum of 20 December 2017, counsel for the first to fourth defendants asked that the court make orders as to the indemnity their clients claim against the third parties in respect of the plaintiffs’ claims against the first to fourth defendants under the lease and related costs when those are ascertained, and for judgment in the amounts already incurred by the first to fourth defendants in their defence of the plaintiffs’ claims. I am satisfied the first to fourth defendants are entitled to the orders sought.
[26] As to costs and expenses incurred to date, counsel for the first to fourth defendants have provided copies of invoices giving rise to the amounts of $30,632.21 incurred by the first and second defendants and $10,499.60 incurred by the third and fourth defendants. I am satisfied the first to fourth defendants are entitled under the covenant implied by s 98 of the LTA and under the common law to be indemnified for and to recover those amounts.
Orders
[27] I make the following orders:
(a) The first to fourth defendants are entitled to an indemnity from the third parties in respect of the plaintiffs’ claims against the first to fourth defendants under the lease in respect of the property at 384 Ellerslie- Panmure Highway, Auckland (registered lease instrument C872767.1) and their expenses incurred in relation to the same.
(b)The third parties are to pay or secure any amounts due to the plaintiffs when the amount of indebtedness (if any) of the first to the fourth defendants has been ascertained;
(c) Pursuant to that indemnity, judgment is entered against the third parties in the amount of $30,632.21 in favour of the first and second defendants and $10,499.60 in favour of the third and fourth defendants;
(d)Leave is granted to the first to fourth defendants to apply for the entry of judgment in respect of any further amounts payable by way of indemnity by the third parties;
(e) The third parties are to pay the first to fourth defendants’ costs on an indemnity basis of and incidental to this formal proof hearing.
[28] Memoranda as to costs are to be filed by 6 April 2018.
Solicitors:
John G Turrall, North Shore
Spencer Legal, Auckland
Friedlander & Co, Auckland
Duncan King Law, Auckland
Counsel:
C M Fry, Auckland
R J Hollyman, Auckland
van Bohemen J