Zhang v Wilson Garden Limited

[2014] NZHC 840

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV2013-404-004913 [2014] NZHC 840

UNDER	Section 244 Property Law Act 2007
AND
IN THE MATTER	of an application for cancellation of a Deed of Lease dated 29 April 2011 and possession
BETWEEN	LING ZHANG and HUA YING WU Applicants
AND	WILSON GARDEN LIMITED Respondent

Hearing:	16 April 2014
Appearances:	R O Parmenter for the Applicants F C Deliu for the Respondent
Judgment:	28 April 2014

JUDGMENT OF GILBERT J

This judgment is delivered by me on 28 April 2014 at 4pm pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

ZHANG and WU v WILSON GARDEN LIMITED [2014] NZHC 840 [28 April 2014]

Introduction

[1]      The applicants lease land and premises at Kumeu to the respondents. The respondent has failed to pay rent and outgoings due under the lease.  The applicants served notices complying with s 245 of the Property Law Act 2007 and these have now expired.   The breaches of the lease have not been remedied.   In these circumstances, the applicants would normally be entitled to the orders they seek, which are orders for possession of the land pursuant to s 244(1)(a) of the Act and payment of the outstanding rent and outgoings together with interest and costs as provided for under the lease.

[2]      The respondent raised the following grounds in its notice of opposition to the application:

(a)      The second applicant does not own the land and therefore has no standing to sue or to seek remedies under the Act.

(b)The affidavit initially relied on by the applicants in support of their application was inadmissible hearsay evidence from the applicants’ solicitor and should therefore be disregarded.

(c)      Relief should be granted to the respondent under s 253 of the Act because the respondent has cross claims, including for misrepresentation inducing the lease.   At the time the notice of opposition was filed the respondent had not initiated proceedings but it has now done so.

[3]      Mr Deliu advised at the hearing that the respondent no longer relies on the first  two  of  these  grounds  of  opposition.    While  he  maintains  that  the  second applicant has no standing despite the evidence that she owns a half interest in the property and is one of the lessors, he places no reliance on this issue for the purposes of the present  application.    He also  abandoned  the evidential  point.    Mr Deliu explained that the respondent is content to focus on the real issue, which is whether relief against the proposed cancellation should be granted to the respondent in view of its cross claims in the related proceeding.  Mr Deliu submits that the appropriate course is to stay the present proceeding, consolidate it with the related proceeding

and have all matters heard together at a single trial.  To that end, the respondent has made a formal application for consolidation and stay.

Breaches of the lease relied on to support cancellation

[4]      The Deed of Lease is between the applicants as landlord, the respondent as tenant and the sole director and shareholder of the respondent, Jun Ying Su, as guarantor.  The initial term of the lease was for a period of three years commencing on 1 June 2011.   The first schedule to the lease records that there is one right of renewal for a further term of three years so that the final expiry date, if the right of renewal is exercised, is 31 May 2017.   The annual rental is $70,000 plus GST payable monthly in advance by instalments of $5,833.33 plus GST.

[5]      Clause 1.1 of the second schedule of the lease provides:

The tenant shall pay the annual rent by equal monthly payments in advance (or as varied pursuant to any rent review) on the rent payment dates.  The first monthly payment (together with rent calculated on a daily basis for any period from the commencement date of the term to the first rent payment date) shall be payable on the first rent payment date.  All rent shall be paid without any deductions or set-off by direct payment to the Landlord or as the Landlord may direct.

[6]      The respondent paid the rent at the rate agreed in the lease from the date of commencement of the lease on 1 June 2011 until October 2012.  The rent was short paid from November 2012 onwards.   By mid-September 2013, the rental arrears amounted to $33,791.63.  No rental payments have been made since July 2013. The arrears  now  exceed  $74,000.     The  respondent  has  also  not  paid  its  agreed contribution to the rates for the quarter commencing on 1 July 2013, being the sum of $353.33.  The insurance premium has also not been paid.  The insurance arrears calculated up to 30 September 2013 amount to approximately $18,600.

[7]      The notices prepared under s 245 of the Act were served on the respondent and Mr Su on 2 October 2013. As noted, these notices have not been complied with; nothing has been paid.

Respondent’s claim

[8]      The respondent’s claim against Ms Zhang was filed on 8 April 2014.  It takes the form of a narrative of alleged facts under the headings “Seeds”, “A Budding Enterprise”, “The Business Fails to Bloom...”, “...And so Litigation Blossoms in the Spring”.   Following this narrative, the respondent sets out six “heads of claim” as follows:

(a)       Misrepresentation    for    which    damages    are    sought    under    the

Contractual Remedies Act 1979. (b)     Negligent misrepresentation.

(c)       Breach of the Fair Trading Act 1986.

(d)      Unilateral or common mistake for which relief is sought under the

Contractual Mistakes Act 1977. (e)           “Unconscionable bargaining”. (f)        Unjust enrichment.

[9]      The asserted factual foundation for these claims is briefly as follows. Mr Su says that in late 2010, Ms Zhang proposed that they jointly undertake a farming business.   Mr Su says that he declined this offer because he had no farming experience.

[10]     Mr Su then says that in late March or early April 2011, Ms Zhang proposed that they start a business growing flowers at the Kumeu property.  Mr Su claims that Ms Zhang made a number of representations about the proposed business.   These included the number of Asiatic lily bulbs that could be planted and the expected turnover, costs and profitability of the business.  He claims that Ms Zhang also said that if he proceeded with the venture she would provide the planting crates, potting mix and other equipment already located on the property that would be needed for the business.   Mr Su says that he agreed to proceed on the basis of these representations and duly incorporated the respondent company.

[11]     Mr Su says that before the company was incorporated, Ms Zhang told him that she wanted 40 per cent of the shares and rent of $70,000 per annum for the use of her land and premises.  Mr Su says that he rejected Ms Zhang’s proposal for a shareholding and rent.  He considered that it should be one or the other, but not both and this was accepted. The respondent company was incorporated on 29 April 2011 and it entered into a lease with the applicants that day at the agreed rent of $70,000 plus GST per annum.

[12]     Mr Su says that his first language is Mandarin and that he is not fluent in English.   He claims that Ms Zhang urged him to sign the lease without obtaining independent legal advice and this is what he did.   He also claims, contrary to the terms of the lease, that the parties agreed that he would not be required to insure the property “unless the law required otherwise”.  He also claims that they agreed that the lease would be for a term of three years with two rights of renewal for further three year terms.

[13]     Mr Su complains that, contrary to her promise, Ms Zhang sold the planting crates, potting mix and other equipment in mid-2011 and that the respondent had to purchase replacement items at a cost of approximately $60,000.  He also complains that the business has not achieved the turnover, pricing or profitability which he claims Ms Zhang forecast.

[14]     Ms Zhang disputes these claims.  She says that it was Mr Su who raised the prospect of renting her property, not the other way around.  She said that she never considered participating in a flower growing business with Mr Su and did not ask for a shareholding in the company; she was only ever interested in receiving a rental income from the property. She says that Mr Su provided the forecast figures for his proposed business.   She says that she knew nothing about growing flowers and did not supply these figures.

[15]     Ms Zhang also says that she did not agree to provide planting crates, potting mix or other equipment for the business.  She says that these items belonged to the previous tenant and that Mr Su was well aware of this.

[16]     Ms Zhang denies agreeing to relieve the respondent of its obligation under the lease to insure the property and pay the premium although it appears that she agreed that a further right of renewal was agreed to.

Is the respondent entitled to relief against the proposed cancellation?

[17]     The Court has a wide discretion under s 253 of the Act to grant relief against the cancellation, or proposed cancellation, of a lease.  The Court has power to grant relief on such condition as it considers just.

[18]     Mr Deliu submits that both proceedings should be consolidated and heard together and that it would be inappropriate to make an order for possession in favour of the applicants in this proceeding before the respondent’s claims in  the other proceeding are determined. The respondent proposes that relief against the proposed cancellation of the lease should be granted subject to a condition that the respondent pays $3,000 per month into a solicitor’s trust account as partial security for the rent and  outgoings  pending  resolution  of  the  respondent’s  claims  in  the  related proceeding.  At the hearing, Mr Deliu indicated that the respondent would be able to pay the full amount of the rent and that if the Court concludes that the rent should be paid as a condition of granting relief, he invites the Court to direct that 50 per cent of the rent be paid to the applicants with the balance being paid into a solicitor’s trust account pending determination of the respondent’s claims.

[19]     I do not consider that the respondent has established good grounds for relief against cancellation under s 256 of the Act.  While it is not possible to resolve the fundamental factual disputes between the parties in the context of the present application, which has proceeded on the basis of untested affidavit evidence, I consider  that  it  is  significant  that  it  was  not  until  the  applicants  took  steps  to terminate the lease in late 2013 that the respondent alleged that it had been misled about planting crates, potting mix and other equipment.  This is despite the fact that the respondent had to purchase these items at the outset of the lease in mid-2011.

[20]     The alleged misrepresentations about the future profitability of the business were similarly not raised by the respondent until late 2013.  By then, the business had been in operation for over two years.

[21]   If the respondent was truly aggrieved as a result of these alleged misrepresentations, one would have expected it to have raised the issue much earlier. The respondent did not file proceedings advancing these complaints until April of this year, almost three years after the alleged misrepresentations were allegedly made and the lease signed.

[22]     The respondent has chosen not to exercise any right it may have to cancel the lease. Instead, it has affirmed the lease and elected to confine itself to a remedy in damages, assuming it can prove its claims.

[23]     Having affirmed the lease, the respondent is bound to meet its obligations to pay rent.  It has contracted out of any right of set-off.  In my view, it should be held to this promise.  It should not achieve the benefit of a set-off through the grant of relief when it expressly agreed that no set-off should be available in relation to the rent.

[24]     The breach of the obligation to pay rent in this case is flagrant and prolonged. The rent was short paid from November 2012 and no rent at all has been paid since July 2013.  I do not consider that it is reasonable for the applicants to be expected to continue to make the land and premises available for the respondent’s occupation without receiving the rent.

[25]     The applicants are entitled to an order for possession.  They are also entitled to an order requiring payment of the rental arrears to the date possession is yielded, together with interest and costs as provided for under the lease.   However, the applicants’ entitlement to outgoings is disputed and cannot be resolved in the present context. That part of the claim can only be determined at trial.  I consider that the appropriate course is therefore to consolidate this proceeding with the related proceeding commenced by the respondent so that these remaining issues can be heard together with those cross claims.

[26]     Mr Parmenter suggested that any order for possession should lie in Court for a period of five working days following delivery of the judgment to afford the respondent a final opportunity to pay all rent arrears before the order for possession

comes into effect and the lease is cancelled.  Mr Deliu endorsed this approach if the Court rejected the respondent’s application for relief.  I accept that this is the proper course in this case.

Result

[27]     I make an order pursuant to s 244(1)(a) of the Act granting possession of the land and premises at 97 Hanhan Road, Kumeu, Auckland to the applicants.   This order is to lie in Court for five working days following the date of delivery of this judgment.

[28]     The  respondent  is  to  pay  all  arrears  of  rental  up  to  the  date  it  yields possession.

[29]     The respondent is to pay the costs claimed by the applicants for issuing the notice  under  s 245  of  the Act  in  terms  of  paragraph  1(c)(i)  of  the  applicants’ originating application dated 19 November 2013.

[30]     The respondent is to pay interest on the outstanding rent in accordance with cl 5.1 of the second schedule of the lease.

[31]     The  respondent  is  to  pay  the  applicants’ costs  of  and  incidental  to  this

proceeding on a 2B basis in terms of cl 6.1 of the second schedule of the lease.

[32]     I reserve leave to the parties to make further application should there be any dispute as to the quantification of the amounts ordered to be paid in terms of this judgment.

[33]     I make an order consolidating this proceeding with CIV-2014-404-000827 so that the outstanding claims in this proceeding can be heard at the same time as the

claims in that proceeding.

M A Gilbert J