Zhou v Pacific Pearly Accommodation Limited - [2020] NZHC 3133

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2020-404-000113

[2020] NZHC 3133

UNDER Sections 244 and 251 of the Property Law Act 2007

IN THE MATTER OF

of a lease dated 15 May 2013 in respect of the premises at 9 Bicknell Road, Favona, Auckland

BETWEEN

KENING ZHOU and NAIYUAN SANG

Applicants

AND

PACIFIC PEARL ACCOMMODATION LIMITED

Respondent

Hearing: 24 July 2020

Appearances:

D L C Liu for the Applicants

C A Murphy for the Respondent

Judgment:

26 November 2020

JUDGMENT OF VAN BOHEMEN J

This judgment was delivered by me on 26 November 2020 at 2.00pm Pursuant to Rule 11.5 of the High Court Rules

…………………………

Registrar/Deputy Registrar

Solicitors/Counsel:
Heritage Law Ltd, Auckland High St Chambers

ZHOU v PACIFIC PEARL ACCOMMODATION LIMITED [2020] NZHC 3133 [26 November 2020]

Introduction

[1] The applicants, Kening Zhou and Naiyuan Sang (the Trustees), as trustees of the Zhou and Sang Family Trust (the Trust), apply under the Property Law Act 2007 (PLA) for orders cancelling a lease over a property the Trust owns at 9 Bicknell Road, Favona, Auckland, which the Trust purchased in October 2014. The Trustees also seek possession of the property, rental up to the date of cancellation or, if later, the date of possession, and compensation for breaches of the lease.

[2] The principal building on the property was built in the 1960s by the Ministry of Works for use as a hospital. Its use changed over time to that of a boarding house.

[3] The respondent, Pacific Pearl Accommodation Ltd, is the lessee and operator of the boarding house and was the lessee and operator of the boarding house at the time of the Trustees’ purchase of the property.

[4]The Trustees say Pacific Pearl has breached the lease in various respects.

[5] Pacific Pearl denies that there has been a breach of the lease sufficient to warrant cancellation and, if the Court finds there has been any such breach, seeks relief against cancellation under s 253 of the PLA 2007.

Relevant background

[6] The following account is drawn principally from two affidavits, with accompanying exhibits, sworn by Mr Zhou on 28 January 2020 and 28 May 2020 and two affidavits, with accompanying exhibits, sworn by Allan Eaton, the sole director and shareholder of Pacific Pearl, on 19 March 2020 and 19 June 2020. Some information has also been obtained by affidavits of expert witnesses who gave evidence on behalf of the parties.

The lease

[7] By deed of lease dated 15 May 2013, Pacific Pearl took a lease of the property from Hargian Enterprises Ltd (the Lease). The lease was for a term of 10 years from 15 May 2013, with two rights of renewal of five years each.

[8] The lease was in the standard form of the Auckland District Law Society (Sixth Edition). Relevantly:

(a)Clause 11 of the First Schedule provided that there would be market rent reviews every two years commencing 15 May 2015.

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2020] NZHC 3133
Decision Date: 26 November 2020

CaseChat Overview and Summary

The applicants, Kening Zhou and Naiyuan Sang, as trustees of the Zhou and Sang Family Trust, sought orders cancelling a lease over a property at 9 Bicknell Road, Favona, Auckland. The respondents, Pacific Pearl Accommodation Limited, denied that there had been a breach of the lease sufficient to warrant cancellation and, if the Court found there had been any such breach, sought relief against cancellation under s 253 of the Property Law Act 2007. The questions for decision were: (a) what are the alleged breaches of which Pacific Pearl has been given notice in terms of s 246(2) of the Property Law Act 2007; (b) are the applicants estopped from pursuing their claims in respect of those breaches by the Deed of Settlement; (c) if the applicants are not estopped from pursuing their claims, has Pacific Pearl breached the lease, and given notice of the breach in accordance with s 246 of the Property Law Act 2007; (d) if Pacific Pearl has breached the lease in one or more of the above respects, does the breach justify cancellation of the lease; and (e) if there has been a breach of the lease that justifies cancellation, should the Court nonetheless grant Pacific Pearl relief from cancellation? Having considered the evidence and submissions, the Court concluded that the only breach of the lease for which notice was given in accordance with s 246 of the Property Law Act 2007 was Pacific Pearl's failure to pay costs in the sum of $5,747.00. That breach arose in the context of increasing inquiries by the solicitor for the applicants that extended well beyond information that was reasonably required to approve the assignment. While that does not excuse the non-payment, the Court did not consider it was a breach that was sufficiently serious to justify cancellation of the lease. Even if the breach had been sufficient to justify cancellation of the lease, it was a breach that could readily be remedied and for which relief from forfeiture would be appropriate. For all the above reasons the Court dismissed the applicants' application for orders cancelling the lease in favour of Pacific Pearl of the property at 9 Bicknell Road, Favona, Auckland. Pacific Pearl was entitled to costs on a 2B basis. If the parties were unable to agree costs, they might submit memoranda of no more than 4 pages each. Any memorandum by Pacific Pearl was to be filed and served by 17 December 2020. Any memorandum in reply by the applicants was to be filed and served by 30 January 2021.

Orders