Red Bond Limited v Formation Holdings Limited [2018] NZHC 3053 (23 November 2018)

Last Updated: 19 December 2018

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE

CIV-2018-412-000055 [2018] NZHC 3053

BETWEEN	RED BOND LIMITED Plaintiff
AND	FORMATION HOLDINGS LIMITED Defendant

Hearing:	21 November 2018
Appearances:	G A Paine for the Plaintiff L A Andersen for the Defendant
Judgment:	23 November 2018

JUDGMENT OF NATION J

[1] The plaintiff (Red Bond) seeks an injunction restraining the defendant (FHL) from re-entering leased premises.

[2] For Red Bond, Mr Paine submitted the relevant lease is for a fixed term, until 31 December 2019. Any variation to the lease, pursuant to s 25 Property Law Act 2007, had to be in writing. Although a potential variation to the lease, whereby either party would be entitled to terminate on three months’ notice, was discussed in October 2017, there was no agreement varying the lease on that basis.

[3] A notice FHL claimed to have sent to Red Bond in June 2018 terminating the lease on 1 October 2018 was never actually delivered to Red Bond and, in any event, could not have validly terminated the lease because there had been no enforceable variation of the lease permitting the landlord to terminate it on three months’ notice.

RED BOND LTD v FORMATION HOLDINGS LTD [2018] NZHC 3053 [23 November 2018]

[4] There was no agreement entered into between the parties for the lease to terminate and for Red Bond to vacate the leased premises on 31 October 2018.

[5] The submissions of Mr Andersen for FHL are reflected in my judgment set out below.

Discussion

[6] The term of the original lease was until 31 December 2019. It is not clear that there was a duly executed variation of the lease permitting either party to terminate it on three months’ notice, as it appears was discussed in October 2017.

[7] On 27 October 2017, Mr Whelan of Red Bond sent an email to Mr Scott of FHL stating:

Robert as discussed I will provide you three months notice prior to 30^th September 2018 (ie no later than 30tth June) should we wish to relinquishing [sic] the lease to you. You have the same option should you wish to terminate the lease.

The landlord has the option to terminated [sic] the lease with three months notice from the 30^th June 2018.

[8] Mr Scott responded the same day, “The landlord has the option to keep Red Bond on until the end of the original lease”.

[9] It is thus not clear that FHL had the right to terminate the lease on three months’ notice or that they actually did so by serving on Red Bond a notice to that effect in June 2018. The uncertainty over these matters is not material given subsequent events.

[10] On 15 June 2018, FHL served on Red Bond a notice of intention to cancel the lease on the basis of alleged unpaid rent and unpaid outgoings in the sum of $895.50. FHL was also claiming certain other expenses for which it said Red Bond was liable. This is as set out in an affidavit of Mr Whelan for Red Bond, sworn on 4 July 2018, and consistent with a notice of intention to cancel lease annexed to that affidavit and dated 15 June 2018.
[11] On 4 July 2018, Red Bond filed in the High Court at Dunedin an interlocutory application for relief against cancellation of the lease. The application was made on grounds, amongst others, that there was no outstanding rental and that FHL had not provided details of the expenses for which it claimed Red Bond was liable.

[12] In an accompanying statement of claim, it sought, amongst other relief:

1. an order granting relief against forfeiture;

2. an order restoring Red Bond to the premises; and

3. damages – general damages.

[13] In those pleadings, Red Bond acknowledged that it fell behind with the rental leading to a notice of intention to cancel the lease being served on it for unpaid rental. It acknowledged that a further notice of intention to cancel the lease was served with respect to unpaid outgoings. In its statement of claim, Red Bond claimed that all outstanding rent was paid on 18 June 2018 and accepted by FHL as settlement of all outstanding rental claims.

[14] On 6 July 2018, Mr Whelan of Red Bond emailed Mr Scott of FHL stating, “As you have requested I will relinquish the lease no later than the end of the 2018 October School Holidays”.

[15] On 17 July 2018, the solicitor for FHL emailed the solicitor for Red Bond stating:

On Friday 6 July 2018 your client paid the rent and part of the other monies claimed – at which point your client was allowed back onto the property.

On the basis of the payment made, his agreement to pay any outstanding balance as ascertained by Stu Mclachlan, accountant - and also on the basis of your client’s emailed agreement to deliver vacant possession of the premises no later than the end of the 2018 October School Holidays.

The current rent is 17 days late.

[16] There was a conference with counsel on 30 July 2018. Nicholas Davidson J noted that relief against a forfeiture was not then in issue and recorded:

The plaintiff is back in possession under the terms of the original lease, which I understand may be subject to some oral variation. Mr Paine [counsel for Red Bond] intends to proceed with a claim for damages and the pleading required associated with a dispute as to outgoings.

[17] On 15 August 2018, Red Bond filed an amended statement of claim. Red Bond claimed it had been forced to incur costs for matters for which FHL was responsible. Red Bond claimed it had suffered various costs “as a result of the unlawful lock out by the plaintiff” but did not actually specify when such lock out was alleged to have occurred. In that amended statement of claim, Red Bond alleged:

... that the defendant asserts that the plaintiff was let into the premises on an agreement to vary the lease so that it expires on 31 October 2018.

The plaintiff denies such agreement was reached and further states that the defendant when confronted with the proposal to resolve matters by way or early termination stated that it would have the option to keep the plaintiff as tenant until the end of the original lease.

The latter part of the second paragraph was clearly a reference to the exchange between the parties in October 2017, not what happened around 6 July 2018.

[18] FHL filed a statement of defence on 24 August 2018. In that statement, it alleged monies were still outstanding in respect of rental and outgoings when it served notices of intention to cancel the lease and when it re-entered the premises on 29 June 2018. It referred to the purported earlier variation of the lease and a notice in July terminating the lease on 31 October 2018 but also alleged:

The defendant agreed on 6 July 2018 that the plaintiff could resume possession of the premises in accordance with the lease notwithstanding a 29 June 2018 re-entry.

The plaintiff agreed in writing on 6 July 2018 that it would vacate the premises no later than the end of the October school holidays which ended on 14 October 2018.

[19] There was a conference in relation to the proceedings before Dobson J on 4 September 2018. He recorded:

[2] The proceeding began as an application for relief against forfeiture when the landlord retook possession of the property on the ground of unpaid rent. The tenant has now been allowed back into possession but wishes to pursue a claim for damages alleging wrongful retaking of possession of the property by the landlord.

[20] His Honour made directions recording agreements reached as to how information would be provided to resolve conflicting claims about unpaid rent.

[21] On 1 November 2018, Red Bond applied for an interim injunction to restrain FHL from terminating the lease on 31 October 2018 and permitting a third party to move into the premises.

[22] In a telephone conference on 2 November 2018, it was agreed there would be a hearing as to the application for an interim injunction on 21 November 2018 and FHL would take no steps to remove Red Bond until 30 November 2018.

[23] In an affidavit of 9 November 2018, Mr Scott referred to Red Bond being allowed back onto the property on 6 July 2018 on terms that it would vacate the premises by the end of the October school holidays. Mr Scott said, with the understandings that had been reached, he contacted an adjoining tenant and offered them the lease of the premises from 1 November 2018. He also said the undertaking as to damages provided by Red Bond gave him no comfort because of Red Bond’s repeated delays in paying rent on time and a cheque for rental earlier this year being dishonoured with the notation “insufficient funds”.

[24] Mr Whelan filed an affidavit, sworn on 16 November 2018. In that affidavit, he refers to various background matters including the potential variation of the lease allowing for termination on three months’ notice. He acknowledged he had sent the email of 6 July 2018 and that it was based on a discussion which would enable Red Bond to get back into the store. He stated:

(i) there was no agreement to leave the premises early;

(ii) I specifically advised him [Mr Scott] that with his agreement I would vacate the premises at the end of the 2018 October school holidays to enable me to get back into the store. His agreement was never forthcoming; and

(iii) there was no communication from the defendant or its lawyers confirming the early termination of the lease and whilst offers had been made by the plaintiff they have never been accepted by the defendant.

[25] Against that evidential background, I am satisfied that, in the context of an ongoing dispute between the parties as to claims and counterclaims in respect of
alleged unpaid rent and outgoings, Red Bond was locked out of the leased premises. The dispute over whether they should be readmitted to occupation of the premises was resolved by agreement between the parties that Red Bond would relinquish the lease and vacate the premises no later than the end of the 2018 October school holidays. Contrary to Mr Whelan’s assertion in his affidavit of 16 November 2018, this was clearly accepted by FHL through the emailed letter to Red Bond’s counsel of 17 July 2018.

[26] With the parties having resolved, on that basis, the dispute over Red Bond’s claim to possession of the premises, Red Bond has no proper basis for claiming that the lease had to continue beyond 31 October 2018.

[27] On an application for an interim injunction, as set out in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd,¹ the Court must consider:

(a) is there a serious question to be tried;

(b) what is the balance of convenience; and

(c) where does the overall justice lie.

[28] Because of the agreement between the parties that Red Bond would vacate the premises no later than the end of the 2018 October school holidays, I am satisfied there is no serious question to be tried.

[29] There is evidence which indicates there are likely to be continuing problems for FHL over delayed or non-payment of rent given acknowledged earlier defaults and the absence of any explanation for the dishonouring of a cheque. FHL also indicated in an open way that it would have been prepared to allow Red Bond to remain in the premises until the end of February 2019 to allow it to wind up its business if Red Bond paid all rent in advance. That proposal has obviously not been accepted.

[30] FHL has raised a real issue as to whether Red Bond is sufficiently solvent for its undertaking to pay any damages for which it might become liable as a result of an

¹ Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 140.

interim injunction being granted. No evidence has been provided to afford FHL the reassurance it is entitled to.

[31] Red Bond has not provided information in its affidavits to indicate it would suffer irreparable harm if an injunction were to be refused. Its agreement to relinquish the lease at the end of the 2018 October school holidays indicates it will not suffer such irreparable harm with the refusal of an interim injunction.

[32] I accept that the overall justice of the situation favours the defendant.

[33] The application for an interim injunction is denied. I was however told during the hearing that Red Bond had paid rent for the premises for the month of November 2018. FHL previously confirmed it would not be taking any steps to remove Red Bond until 30 November 2018. Although Red Bond is denied an interim injunction, this is on the basis that FHL will not be taking any steps to re-let the premises or to exclude Red Bond from possession until after 30 November 2018.

Solicitors:

G A Paine, Barrister, Dunedin

L A Andersen, Barrister, Dunedin.