GP 96 Limited v FM Custodians Limited HC Christchurch CIV-2011-409-000627 [2011] NZHC 1497 (12 October 2011)

Last Updated: 15 November 2011

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

_{CIV-2011-409-000627}

BETWEEN GP 96 LIMITED Plaintiff

AND FM CUSTODIANS LIMITED Defendant

CIV-2010-409-002222

AND IN THE MATTER OF an Application under s 244 of the

Property Law Act 2007

BETWEEN FM CUSTODIANS LIMITED Applicant

AND LIVINGSPACE PROPERTIES LIMITED (IN RECEIVERSHIP)

First Respondent

AND GP 96 LIMITED Second Respondent

Hearing: 12 October 2011 (Heard at Ashburton)

Appearances: A J Forbes QC for Plaintiff/Applicant

P F Whiteside for Defendant/Respondents

Judgment: 12 October 2011

_{JUDGMENT OF WHATA J}

Solicitors:

Canterbury Legal Services Ltd, PO Box 22-115, Christchurch 8142

Wynn Williams & Co., PO Box 4341, Christchurch 8140

Copy to:

A J Forbes QC, PO Box 2929, Christchurch 8140

GP 96 LIMITED V FM CUSTODIANS LIMITED HC CHCH CIV-2011-409-000627 12 October 2011

[1] This is an application for access to premises by GP96 Ltd, the plaintiff in this proceeding. The details of the access sought are set out in the application.

[2] The background is usefully detailed in the judgment of Chisholm J dated 24

May 2011. For present purposes the key facts are:

(a) The plaintiff claims that it is an assignee of the lease over property at

96 Litchfield Street, comprising a five-level building which appears to have been erected during the 1940s. It is located within the CBD and provides economy level accommodation by way of 110 rooms, up to

220 guests both long and short term can be accommodated.

Significant parts of the building were sublet (―the property‖).

(b) The defendant is a trustee for a mortgagee, Canterbury Mortgage

Trust.

(c) The property has been damaged by earthquakes and is currently located within the Red Zone.

(d) The defendant claims to be a mortgagee in possession and this is disputed by the plaintiff.

(e) In May the plaintiff obtained an interim injunction on the following terms:

3. The following orders were made:

(a) the defendant is prohibited from demolishing, selling or leasing the building at 96 Litchfield Street, Christchurch until the substantive matter is heard or until further order of the Court.

(b) the defendant shall pay the costs to the plaintiff on a 2B

scale plus disbursements as specified in the schedule attached hereto.

(f) Since that judgment the defendant has received income in respect of the property.

(g) There has been further damage to the premises, especially as a consequence of the 13 June earthquakes with damage assessed up to

65 per cent.

(h) There have been various proposals for access but no agreement has been reached on that.

Basis for plaintiff ’s application

[3] The plaintiff contends:

(a) The judgment of Chisholm J does not address possession or access.

(b) Status quo ante should prevail, namely prior to the claimed possession by the defendant.

(c) The defendant is in de facto possession only.

(d) The plaintiffs and subtenants could resume their hotel and hospitality businesses at the premises.

_{(e) They wish to seek access for the purposes of:}

Ensuring that the premises are properly cleaned

Commencing repair work so that the plaintiff’s businesses can

_reopen

Checking on cash in premises which was there at the time of the February earthquake

Obtaining access to business records of the plaintiff which were also situated there at the time

Checking on whether anything appears to have been wrongly

_{removed from the premises}

Checking on the state of the plaintiff ’s fixtures, fittings and chattels following the 13 June 2011 earthquake and to arrange a further inspection by a structural engineer following this

_earthquake

Checking whether the building is subject to any leaks or any

_{ongoing damage}

Checking on the state of food in refrigerators in the hotel and refrigerators and freezers of the bars and restaurants situated in

_{the building}

(f) At least as at 8 August being the date of the plaintiff’s first memorandum there is some suggestion that public access would soon be available.

(g) There is a serious issue to be tried as to the lawfulness of the defendant’s assumed possession and a relatively strong case that the property is not untenentable.

Defendant’s response

[4] The defendants:

(a) Criticise the plaintiff’s lackadaisical approach to access.

(b) Observe that the property remains in the Red Zone and no immediate prospect of reoccupation by the plaintiff.

(c) Say that nothing has changed since the May judgment to warrant access being granted and if anything, matters have worsened for the plaintiffs given the additional damage.

[5] The defendant also firmly rejects the proposition that Chisholm J missed the issue of possession. Possession it says, was the key underlying issue, together with purported rights of possession. It is these latter rights that were injuncted in part.

[6] On the so called serious issues to be tried, namely as to lawful possession and untenetable the defendant submits that:

(a) It has now received rent; and

(b) There is now 65 per cent damage to the property.

[7] Both these facts it says rebut the suggestion that there remains a serious issue.

Assessment

[8] I approach this as a fresh application for access, but with the effect of varying the terms of the injunction granted by Chisholm J.

[9] I reject, however, the suggestion that Chisholm J ―missed‖ the possession issue. The judgment presupposes that the defendant is exercising its alleged rights of a mortgagee in possession. Furthermore the orders would have bee superfluous without the underlying assumption of possession by the defendant in some form. It was specifically asserted by Mr Reid in his affidavit1 and was noted by Mr Hindman

in his affidavit.2

[10] But I do not read Chisholm J’s judgment as precluding refinement of the orders that he made given that circumstances can change to require a fresh look at the scope of the relief that might be afforded to a litigant who challenged asserted

_rights.

1 _{At paragraph 40.}

2 At paragraph 3.

[11] Here we are dealing with competing alleged rights of possession and occupation. The defendants are factually in the ascendency, having as I understand it, changed the locks and it appears managing the building albeit within the constraints imposed by CERA.

[12] Chisholm J has found that serious issues arise regarding the lawfulness of possession. Chisholm J observed that no rent had been paid to the defendant and therefore it was not clear that s 139(1)(b) applies. That section states:

139 When mortgagee becomes mortgagee in possession

(1) A mortgagee who exercises a power to enter into possession of mortgaged land or goods in accordance with section 137 becomes a mortgagee in possession of the land or goods on the earlier of—

(a) the date on which the mortgagee enters into, or takes, physical possession of the land or goods; or

(b) the date on which the mortgagee first receives any income from the land or goods as mortgagee in possession; or

(c) the date of the mortgagee’s application to the court for the

order if —

(i) the mortgagee applies to the court for an order for possession of the land or goods; and

(ii) the court, in response to the mortgagee’s application, makes the order.

[13] The defendant now says that it has evidence that shows rent has been paid. The defendant has also produced hearsay evidence as to the scale of works required to repair walls, doors and non structural components. It is estimated that between

1,000 and 1,500 hours are needed for those repairs.

[14] But the defendant has not sought to challenge the underlying basis for relief or seek to discharge the orders made by Chisholm J. There is also some debate about whether the payments alleged by the defendant can legitimately be called rental payments. The plaintiff says that such payments should in fact have been made to the plaintiff rather than the mortgagee as de facto head lessor. I am therefore not prepared to unwind the premise of the injunction based on the information placed before me.

[15] The critical issue here then is whether the plaintiff is entitled to the access sought by it, against the backdrop of a finding of a seriously arguable case.

[16] Returning to the plaintiff’s request for access, applying basic balance of convenience principles, what are the relative costs and benefits to the parties? While the defendants raise practical issues I can see no adverse effect on the defendant’s position if access is granted to the plaintiffs subject to conditions. Responsibly this was accepted by Mr Whiteside, who in fact noted and emphasised to me that access was always available to the defendants in some form. Indeed, the defendants specifically contemplated as much in a letter dated 11 August 2011 in which access would be allowed as follows:

1. Checking on cash in the premises at the time of the February earthquake;

2. Obtaining access to business records of the Plaintiff, provided that those records are identified in advance so that it is clear that they belong to the Plaintiff, rather than other entities;

3. Checking on whether anything appears to have been wrongly removed from the premises – we note that our client’s position is that nothing has been wrongly removed;

4. Arranging a further inspection by the Plaintiff’s structural engineer.

We are instructed there has been considerable further damage to the building from the 13 June 2011 earthquake; and

5. Checking on the state of food in fridge in the hotel and fridges and freezers in the bars and restaurants situated in the building.

[17] The defendants objected, however, to providing access to allow repairs and to inspect fixtures, fittings and chattels. The defendant has concerns about how it might manage and secure the property currently located at the premises.

[18] For my part, as I have indicated, I struggle to understand how inspection of fixture and chattels adversely effects the defendant. By contrast the plaintiff wants to be in a position to understand the state of such matters for, among other reasons, any insurance cover that it may have.

[19] The plaintiff also was concerned at the period it might take to resolve issues. The plaintiff lessee seeks some ability to monitor the state of the premises, especially

in relation to repair work and chattels, so that it is able to act to protect its rights if, and when necessary.

[20] I do note however, that the request for access to undertake repairs was always unrealistic in current circumstances. Mr Forbes QC has sensibly in my view amended that request to simply an opportunity to assess repairs.

[21] On that basis, as foreshadowed, the balance of convenience supports access for inspection purposes. But that cannot be unfettered. The defendant is entitled to as a mortgagee in possession (even if it is challenged) to reasonably regulate access. In addition, I am not prepared to grant mutually enforceable conditions. The defendant mortgagee is standing in the shoes of a landlord and without determining the validity of that standing must have for present purposes a greater interest in maintaining the property and for different reasons may wish to have access to the property. I also have no basis to assume malefides on the part of the mortgagee landlord and therefore I am not prepared to limit the the defendant’s access.

[22] However, I am prepared to allow access to the plaintiffs subject to the following conditions:

(a) The plaintiffs may make three requests on 48 hours notice for the purposes of inspecting the property for the reasons set out at paragraph 15 of the plaintiff’s memorandum, excluding for the purpose of commencing repair work.

(b) A suitably qualified expert may inspect on 24 hours notice for the purposes of assessing the need for repairs, and the state of the premises including fixtures and fittings.

(c) The defendant shall be entitled to three representatives for the purpose of any inspection of the property.

(d) A representative or representatives of the mortgagee in possession are to be present during any visit, unless it agrees otherwise to be absent.

[23] For completeness nothing in this order confers a right of occupation for any purpose and specifically including for the purpose of repairs. Nor does this order entitle or confer a right on the part of the plaintiff to remove any item from the premises without obtaining the approval of the mortgagee in possession.

[24] Leave is granted to the parties to come back to this Court if need be for the purpose of further direction or clarification of the orders relating to access.

Costs

[25] While the plaintiffs have succeeded in one key aspect, namely inspection for the purposes of assessment of repairs, fixtures and fittings, it has largely failed to obtain the rather comprehensive orders it sought through its formal application. On that basis I award costs in favour of the defendants on a 2B basis, reduced by one- tenth to account for the fact that the plaintiff was partially successful. There shall be

_{disbursements as fixed by the Registrar, also in favour of the defendant.}

Whata J