Whitley v Stewart St Properties Ltd HC Auckland CIV-2011-404-6621 [2011] NZHC 1699 (25 November 2011)

Last Updated: 30 November 2011

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV-2011-404-6621}

BETWEEN KEVIN JOHN WHITLEY Applicant

AND STEWART ST PROPERTIES LTD First Respondent

AND THE BOOMERANG INN LTD Second Respondent

AND BONNIE DAWN JOHNSON Third Respondent

AND FM CUSTODIANS LTD Fourth Respondent

Hearing: 11 November 2011

Counsel: R B Hucker for Applicant

B D Johnson (Third Respondent) and H A Smith in person

Judgment: 25 November 2011

_{JUDGMENT OF BREWER J}

This judgment was delivered by me on 25 November 2011 at 10:00 am pursuant to Rule 11.5 High Court Rules.

_{Registrar/Deputy Registrar}

SOLICITORS

Hucker & Associates (Auckland) for Applicant

_{(copies to Respondents in person)}

WHITLEY V STEWART ST PROPERTIES LTD HC AK CIV-2011-404-6621 25 November 2011

Introduction

[1] This litigation concerns the operation of a restaurant and motel complex called the Ramarama Country Inn. Generally speaking, the Inn consists of a block containing reception facilities for the motel plus bar and restaurant facilities. There is a front motel block containing 12 motel units on two levels. There is a rear block containing another 12 units over two stories, but not all of those are inhabitable. In addition, in the grounds of the complex are a number of other accommodation units referred to as cabins.

[2] The first respondent owns the complex itself. The second respondent has a lease of the complex and operates its business. Both are in receivership. The receiver has obtained an order to take exclusive possession of the Ramarama Country Inn. He has been stopped, however, by an interim injunction obtained by people residing at the complex who claim rights to occupy the property. I am now asked to resolve the matter.

Background

[3] The applicant is an accountant applying in his capacity as receiver of the first and second respondents pursuant to general security agreements dated 9 June 2009 and as receiver of income pursuant to a memorandum of mortgage dated 25 August

2009 granted by the first respondent to the fourth respondent and registered under mortgage no. 8162488.2.

[4] By without notice application for leave to commence proceeding by way of originating application dated 17 October 2011, the applicant applied for the following order (among others):

The Applicant as receiver and the receiver of income of STEWART ST PROPERTIES LTD and the receiver of THE BOOMERANG INN LTD is entitled to exclusive possession of that land contained and described in Certificate of Title NA35A/1476 and all of the chattels, goods and/or other personal property required for the operation of the business of THE BOOMERANG INN LIMITED to the exclusion of all other persons.

[5] On 18 October 2011, White J granted the application for this order. His Honour also made other orders contained within the application directing service on the third respondent and reserving leave to her to apply to set aside the order on

48 hours‘ notice. Leave was granted similarly to any third and/or non-party claiming to be affected by the order to apply also.

[6] On 21 October 2011 Heath J, by telephone, heard an urgent application to vary the orders made by White J. The fact galvanising counsel in this regard was that having sealed the orders made by White J, the applicant attempted to enforce them only to encounter a number of people claiming prior legal rights to occupy the property concerned. The first respondent and the second respondent immediately sought orders to exclude from the scope of White J‘s orders tenancies arising from fixed term leases to individuals. An affidavit from one of the parties concerned, Mr Smith, identified 11 other persons said to have residential tenancies on fixed terms.

[7] Heath J decided that a variation of White J‘s order on these terms was not appropriate at that point. However, Heath J held that there is a seriously arguable case that tenancies of the type described by Mr Smith could fall within the Residential Tenancies Act 1986 and issued an injunction, pending further order of the Court, to prevent steps being taken to eject any of the named persons from the premises. Heath J also made an order joining the 12 named ―tenants‖ as parties to the proceeding.

[8] The case came before me on 11 November 2011. Mr Smith and Ms Johnson (the third respondent) appeared personally. There was no appearance by or for the other 10 named ―tenants‖, although Mr Smith made the point that he could be considered as their representative. That cannot be the case in any formal sense because Mr Smith is not a lawyer, but in the general sense the issues he raises are common to all of the people in his position.

[9] What I have to decide is whether, and to what extent, it is necessary to vary the order of White J to take into account the legal rights, if any, of Mr Smith and Ms Johnson or anyone else who might clearly be affected by the order.

[10] An interlocutory application for variation of order dated 20 October 2011 filed by Richard Allen, solicitors, on behalf of the first and second respondents, was abandoned. The interlocutory application dated 28 October 2011 filed by Ms Johnson in person is one of the matters I have to determine. However, I will consider the respondents‘ position as broadly as I can in the overall interests of justice.

The occupants

(a) Ms Johnson

[11] Ms Johnson is the sole director and shareholder of both the first respondent and the second respondent. She described herself as the manager and overall proprietor for both the respondent companies. She held the sale of liquor license for the property and the general manager‘s certificate, and lived and worked at the complex fulltime.

[12] Ms Johnson maintains that there is a lease between her and the second respondent for the unit she occupied over the restaurant complex. However, she was unable to give me any details, saying that it was locked in her office to which she can no longer gain access.

[13] Ms Johnson told me that she does not dispute that the applicant is entitled to the income of the property. However, she did take issue with the way in which the applicant went about securing it. In her submission, he should have put an accountant into the business to see how it was run. Ms Johnson expressed her fear that because the applicant does not understand how the business is run, he will allow it to fail and there will be nothing left but a liquidation. For very genuine and human reasons, Ms Johnson opposes the loss of any of the employees and defends their occupation of the complex.

[14] Mr Smith advised me that he occupies a unit in the rear motel block. He has resided at the unit since August of this year. He does not have a written tenancy agreement and he does not pay rent. He characterised his occupation of the unit as being casual and not permanent.[1] He gives value for his occupation of the unit by advising and assisting Ms Johnson, particularly in relation to the commercial problems she has been and is now facing.

(c) Other occupants

[15] Ms Johnson, at my request, listed the occupants of the complex and explained the basis for their residence there. Although not admitted as evidence in this proceeding, I accept her statements as submission and relevant background information. Her descriptions were not challenged by any other party.

[16] Ms Johnson explained that some of the occupants reside at the motel as a condition of their employment. These include the restaurant chef, who must stay on- site because a significant part of the client base of the motel and restaurant are truck drivers who come and go (and need to be fed) at odd hours. There is also a kitchen hand/waitress whose residence was part of her employment arrangement.

[17] Others do not pay any fixed rent (or have written employment contracts) but provide services in lieu — building and machinery repairs, lawn mowing and odd jobs. On Ms Johnson‘s submission, only two occupants paid rent, one paid rent

_{sometimes and the rest of the people were described as staff.}

[18] Mr Hucker advised me that the applicant has managed to enter into arrangements with some of the occupants of the complex. In an affidavit by the applicant sworn on 10 November 2011, he deposes that one occupant (Frederick Webb) has signed a tenancy agreement in respect of his unit. Another (Mary Iti) has signed a service tenancy agreement in respect of her unit and is now employed in the receivership.

[19] Mr Hucker submits that none of the named persons, except for Ms Johnson, alleges that they have written tenancy agreements. None assert a fixed term or periodic tenancy under the Residential Tenancies Act 1986. None asserts that there is a notice period or that there is a payment of a monetary kind in the nature of rent. Therefore, all are present on a casual basis or, at best, a service tenancy.

Issue

[20] The issue I must determine is whether the Residential Tenancies Act 1986 applies to the occupants‘ living situation. If it does, then they are entitled to have the status of their tenancies determined by the Tenancy Tribunal and I should vary the orders of White J. If it does not, then they are not tenants in terms of the Act; their claim must fail and I should lift Heath J‘s injunction.

[21] The Tenancy Tribunal will have jurisdiction if there is an arguable case that the occupants, or some of them, are tenants or service tenants under the Act. It does not have jurisdiction if they are service occupants (that is, if their occupancy is simply an incident of their employment) or if they reside merely on a casual basis.

Law

[22] Lord Templeman in Street v Mountford discussed the relevant guiding principles as follows:[2]

There can be no tenancy unless the occupier enjoys exclusive possession; but an occupier who enjoys exclusive possession is not necessarily a tenant. He may be owner in fee simple, a trespasser, a mortgagee in possession, an object of charity or a service occupier. To constitute a tenancy the occupier must be granted exclusive possession for a fixed or periodic term certain in consideration of a premium or periodical payments. The grant may be express, or may be inferred where the owner accepts weekly or other periodical payments from the occupier.

Occupation by service occupier may be eliminated. A service occupier is a servant who occupies his master's premises in order to perform his duties as a servant. In those circumstances the possession and occupation of the servant is treated as the possession and occupation of the master and the relationship of landlord and tenant is not created; see Mayhew v Suttle (1854) 4 El. & Bl. 347. The test is whether the servant requires the premises he occupies in order the better to perform his duties as a servant:

―Where the occupation is necessary for the performance of services, and the occupier is required to reside in the house in order to perform those services, the occupation being strictly ancillary to the performance of the duties which the occupier has to perform, the occupation is that of a servant‖; per Mellor J. in Smith v Seghill Overseers (1875) L.R. 10 Q.B. 422, 428.

[23] Lord Templeman‘s judgment was endorsed by the Court of Appeal in Fatac

Ltd (in liq) v Commissioner of Inland Revenue,[3] which continued:

[68] There will similarly be no tenancy where the occupier‘s right to possession may be terminated for reasons extraneous to the occupation of the land. Examples are occupation pursuant to an employment relationship, a purchaser in occupation, a mortgagee in possession, occupation pursuant to the holding of an office, and exclusive occupation of an area that is small in proportion to the total area affected by the agreement. In cases of this kind questions of degree will be unavoidable but the answer is not to be found in the perceived intention of the parties as to the legal classification or dominant purpose of their transaction.

[24] Generally, the provisions of the Residential Tenancies Act do not apply in respect of hotels, motels and temporary lodging; that is, where the premises:[4]

(i) are intended to provide temporary or transient accommodation (such as that provided by hotels and motels), being accommodation that is ordinarily provided for periods of less than 28 days at a time; and

(ii) are subject to an agreement that has been entered into for the purpose of providing temporary or transient accommodation that continues to be provided under the agreement:

[25] However, rooms in a motel or similar premises may be subject to the Residential Tenancies Act where they are rented on a long-term basis, such that the occupancy cannot be described as ―temporary or transient‖.[5] In such circumstances the occupier may be found to be a tenant.

[26] A tenant is the grantee of a tenancy, which is defined in s 2 of the Act as:

tenancy, in relation to any residential premises, means the right to occupy the premises (whether exclusively or otherwise) in consideration for rent; and includes any tenancy of residential premises implied or created by any enactment; and, where appropriate, also includes a former tenancy:

[27] Service tenancy is defined in s 2 of the Act as:

service tenancy means a tenancy granted under a term of, or otherwise as an incident of, a contract of service or a contract for services between the landlord as employer and the tenant as employee or contractor, whether or not a separate tenancy agreement is concluded in writing between the parties, and whether or not any rent is payable for the tenancy ...

[28] A service occupancy arises where the occupation of a residence is a necessary aspect of employment. It is an employment matter, not a tenancy situation. By contrast, a service tenancy does not depend on an employment agreement; it arises where occupancy is an incidence of a contract of service or a contract for services. The distinction between the two was discussed by Goddard CJ in Armstrong v

Attorney-General:[6]

Essentially, the dispute comes down to this: whether the occupation of the houses was an incident of employment, or whether it was in each case a tenancy constituted independently of the employment contract.

The significance of the distinction is this: that a service occupancy determines automatically on the termination of the employee‘s employment, and presumably does not determine and cannot be determined independently of it except by consensual variation of the employment contract. In other words, the rights of occupancy form part of the remuneration or emoluments for the position or office and therefore cannot be altered unilaterally. A service tenancy is, however, in a different category being terminable by

contractual notice like any other tenancy. In respect of tenancies to which the Residential Tenancies Act 1986 applies, the distinction between the two kinds of tenure seems to be merged or, as Mr Chauvel put it, confused in that no notice to terminate a service tenancy as defined in the Act is to have effect on a date preceding the date on which the termination of the contract of service or the transfer of the employee to another district takes effect: Residential Tenancies Act 1986 s 53(3). ...

The authorities seem to imply that a service occupancy will be created where it is essential to the performance of an employee‘s duties that he or she should reside in a particular house or where it is desirable and the employment contract so provides: see, for example Woodfall‘s Law of Landlord and Tenant, para 1.029. Without a doubt, that must be so as a matter of common sense. However, while a service occupancy will always arise in these two situations, there is no reason why they should make up an exhaustive list of the circumstances in which it can arise. As the same learned authors go on to say:

―It is enough that there is a nexus between the occupancy and the employment, ... The fact that the employee himself derives a benefit from the provision of the accommodation does not prevent his occupation from being that of a service occupier nor does the fact that the employee‘s monetary remuneration is diminished because he is accommodated by his employer nor because a deduction is made from his wages. ‖

[29] Under s 53(1) of the Residential Tenancies Act, a landlord must give a minimum period of 14 days notice to terminate a service tenancy if the contract of service has been terminated, or if notice has been given that it will be terminated.

Discussion

[30] While most of the occupants are not parties to this proceeding, their presence has been acknowledged by all parties and it would be artificial and unjust for me to exclude from my consideration the impact of this judgment on them. I proceed on the basis that White J‘s order should be varied if there is an arguable case that the occupants, or some of them, fall under the jurisdiction of the Tenancy Tribunal.

[31] On the evidence and submissions before me, I am not satisfied that the occupants‘ various living situations come within s 5(1)(k) of the Residential Tenancies Act, which provides an exception to the Act for motels and temporary lodging. The occupants have lived in their respective units on a relatively permanent basis. Although the complex is a motel, their individual units have not been treated

as temporary or transient accommodation. The occupants have been residing there

(more or less) as staff, rather than as guests.

[32] Ms Johnson‘s residence at the motel was pursuant to a service occupancy. Her residence was a necessary condition of her employment as manager of the complex. It was subsidiary to her employment arrangement. I am not satisfied that she ever had a separate tenancy agreement. The tenancy document that she asserts is not bona fide. The evidence is that the form produced was not created until October

2010, yet the date is 1 August 2009. I asked Ms Johnson about that and she said that it was a copy because she could not get into her office to obtain the original. I am satisfied that Ms Johnson is not a tenant or a service tenant under the Act.

[33] Mr Smith is not an employee of the respondent companies. He described his occupancy arrangement as casual and not permanent. He does not pay rent. He does not have a written tenancy agreement and I am satisfied that there was no oral agreement. There was nothing in the evidence or submissions before me to suggest the existence of a contract of service underlying a service tenancy. I am satisfied that Mr Smith‘s accommodation arrangement is not governed by the Act.

[34] It is unlikely that any of the other occupants are tenants simpliciter under the Act. They do not have written tenancy agreements,[7] they do not pay fixed or regular rent,[8] and it appears that they do not have any tenancy obligations that would hamper them from simply walking away from the tenancy if they chose. While none of these factors is determinative, they strongly point against the existence of a tenancy relationship. Rent is an important indicator of an intention to be legally bound although, as the Court of Appeal observed in Fatac,[9] its absence does not per se negate a tenancy.

[35] Nevertheless, it is not possible for me conclusively to determine the tenancy status of the other occupants who were not parties to this proceeding. They may be

_{merely casual occupants; they may not be. On the submissions before me, it appears}

that the chef, who resides at the motel as a condition of his employment, was a service occupant. If that is the case, that arrangement is outside the jurisdiction of the Tenancy Tribunal. It is less clear whether the same can be said for the kitchen hand/waitress. In respect of the others, they are very unlikely to have been employees in terms of s 6 of the Employment Relations Act 2000. They might have service tenancies if they are able to prove the existence of a contract of service or a contract for services. That is something best left to be determined by the Tenancy Tribunal (if an application is made by any of the occupants concerned).

Decision

[36] Ms Johnson‘s interlocutory application dated 28 October 2011 is dismissed. I

find that Ms Johnson‘s occupation status at the complex was as a service occupant.

[37] I find that Mr Smith‘s status as occupier of a unit at the complex is not subject to the Residential Tenancies Act 1986.

[38] White J‘s order is varied by inserting the bolded amendment below:

The Applicant as receiver and the receiver of income of STEWART ST PROPERTIES LTD and the receiver of THE BOOMERANG INN LTD is entitled to exclusive possession of that land contained and described in Certificate of Title NA35A/1476 and all of the chattels, goods and/or other personal property required for the operation of the business of THE BOOMERANG INN LIMITED to the exclusion of all other persons, subject to the determination of the Tenancy Tribunal, on application by any occupant(s), of whether the occupant(s) are tenants or service tenants under the Residential Tenancies Act 1986.

[39] Heath J‘s interim injunction is lifted.

Costs

_{[40] In the circumstances I make no order for costs. Costs will lie where they fall.}

Brewer J

---

[1] In his affidavit in support of an interlocutory application for variation of order dated 20 October

2011, Mr Smith deposed that he had a residential tenancy agreement with The Boomerang Inn Ltd for a fixed term expiring on 31 March 2012 at a weekly rental of $70. However, he made it clear to me that whereas that was the case on 21 October 2011, the situation now is as he has represented it to me.

[2] Street v Mountford [1985] UKHL 4; [1985] AC 809 (HL) at 818.
[3] _{Fatac Ltd (in liq) v Commissioner of Inland Revenue [2002] 3 NZLR 648 (CA) at [43].}
[4] Residential Tenancies Act 1986, s 5(1)(k).

[5] See the discussion in Andrew Alston Residential Tenancies (3rd ed, Butterworths, Wellington,

_{1998) at [2.5].}

[6] Armstrong v Attorney-General [1995] 1 ERNZ 43 (EMC) at 53–54, overturned on unrelated grounds in Attorney-General v Armstrong [1996] 1 ERNZ 344 (CA). See also New Zealand Railways Corporation v Te Aonui HC Wellington AP26/92, 3 February 1993 at 29, where Gallen J, after an extensive review of the authorities, expressed the view that the term ―service tenancy‖ as used in the Residential Tenancies Act 1986 is ―more extensive in its scope than the term ‗service tenancy‘ as it was used in the common law ...‖.

[7] Although oral tenancy arrangements are, of course, still enforceable: Residential Tenancies Act _{1986, s 13C.}

[8] Although rent has a wide definition, which includes ―any money, goods, services, or other valuable consideration in the nature of rent‖: s 2.

[9] At [66].