Auckland International Airport Limited v Spazio Casa Property Limited

[2017] NZHC 855

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-2386 [2017] NZHC 855

IN THE MATTER OF

an application for summary judgment

BETWEEN

AUCKLAND INTERNATIONAL AIRPORT LIMITED

Plaintiff

AND

SPAZIO CASA PROPERTY LIMITED First Defendant

MAURIZIO COZZOLINO Second Defendant

Hearing:	26 April 2017
Appearances:	M Eastwick-Field and A R Duff for Plaintiff A R Gilchrist for Second Defendant (given leave to withdraw)
Judgment:	26 April 2017

ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL

Solicitors:

Russell McVeagh, Auckland, for Plaintiff

Dyer Whitechurch, Auckland, for Defendants

Counsel:

Andrew R Gilchrist, Auckland (given leave to withdraw)

AUCKLAND INTERNATIONAL AIRPORT LIMITED v SPAZIO CASA PROPERTY LIMITED [2017] NZHC

855 [26 April 2017]

[1]      Spazio Casa Property Ltd is one of the Spazio Casa group of companies that imported and distributed high-end Italian bathroom and related products.  The group had insolvency problems in 2015.   Maurizio Cozzolino was and remains in law a director of Spazio Casa Property Ltd but his association with the group effectively came to an end in December 2015.   He now lives in Brisbane, Australia, and has been served by substituted service.

[2]      Spazio Casa Property Ltd was the tenant under two commercial leases from Auckland International Airport Ltd.   Mr Cozzolino guaranteed the company’s performance under the leases.  One lease was for premises at the corner of George Bolt Memorial Drive and Manu Tapu Drive (the Manu Tapu lease) at Auckland Airport.  The other lease was for premises at 8 Landing Drive at Auckland Airport (the Landing Drive lease).

[3]      In  short,  the Manu  Tapu  lease  was  assigned.    The Airport  says  that  on assignment there was unpaid rent and outgoings under the Manu Tapu lease.  It sues Mr Cozzolino under his guarantee of that lease.  For the lease at Landing Drive, the Airport re-entered in January 2016.  It says that the outgoings had not been paid and that it has suffered losses following re-entry.   It sues Mr Cozzolino under his guarantee of the Landing Drive lease.  It has applied for summary judgment.

[4]      Spazio Casa Property Ltd did not take any steps in opposition.  Judgment has been given against it.  Mr Cozzolino filed a notice of opposition and an affidavit.  At the hearing, his counsel, Mr Gilchrist, sought leave to withdraw because of absence of instructions.  Notwithstanding that withdrawal, I had questions as to the merits of the application for summary judgment.  I have canvassed those queries with counsel.

[5]      The  principles  that  courts  apply  on  plaintiffs’  applications  for  summary judgment are well established.  In Krukziener v Hanover Finance Ltd, the Court of Appeal said:1

[26]     The  principles  are  well  settled.    The  question  on  a  summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried …  The Court must be left

1      Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162.

without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to  respond  if  the  application  is  to  be  defeated  …    The  Court  will  not normally resolve material conflicts of evidence or assess the credibility of deponents.   But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements made by the same deponent, or is inherently improbable …  In the end the Court’s assessment of the evidence is a matter of judgment.  The Court may take a robust and realistic approach where the facts warrant it  …

[27]     … [T]he defendant need not file a statement of defence.  The onus remains on the plaintiff, and summary judgment will be denied if on the hearing of the application it appears that there is an issue worthy of trial.

[6]      In opposition, Mr Cozzolino acknowledges that he guaranteed the obligations of Spazio Casa Property Ltd.  His defence is that there is nothing owing under the Manu Tapu lease, and he considers that the amounts claimed for the Landing Drive lease are significantly over-stated.   He also alleges that the Airport failed to mitigate its losses.

The Manu Tapu lease

[7]      In November 2009 the Airport leased the Manu Tapu Drive premises to Spazio Casa Ltd.  That is a different company from Spazio Casa Property Ltd.  The term of the lease was 10 years from 1 August 2007.  Mr Cozzolino guaranteed the performance  by Spazio  Casa  Ltd,  but  the  Airport  does  not  sue  him under  that guarantee.  Spazio Casa Property Ltd was incorporated on 13 December 2013 with Mr Cozzolino as director.  Spazio Casa Ltd assigned its interest under the lease to Spazio Casa Property Ltd.   That was under the Auckland District Law Society’s standard deed of assignment of lease.  The parties to the deed are Spazio Casa Ltd, Spazio Casa Property Ltd, Paolo Cozzolino as a shareholder of Spazio Casa Ltd, Maurizio Cozzolino as guarantor of Spazio Casa Property Ltd, and the Airport. Under the assignment, Spazio Casa Property Ltd undertook to the Airport that it would  perform  all  the  provisions  of  the  lease  from  the  date  of  assignment. Mr Maurizio Cozzolino guaranteed to both Spazio Casa Ltd and the Airport the performance by Spazio Casa Property Ltd of its obligations under the lease.   The deed of assignment of lease shows the annual rent as at the date of execution as some

$908,000 plus GST.  The date of assignment is recorded as 13 December 2013.  In other words, the deed is intended to have retrospective effect.

[8]      There was a further assignment of the lease from Spazio Casa Property Ltd to Tri-Star International Ltd.  Tri-Star International Ltd is not connected to the Spazio Casa group.  That was under the same form of the deed of assignment of the lease as was used for the assignment from Spazio Casa Ltd to Spazio Casa Property Ltd. This deed of assignment is dated 23 March 2015.  The parties to the deed are Spazio Casa Property Ltd as assignor, Tri-Star International Ltd as assignee, Mr Maurizio Cozzolino as shareholder and director of Spazio Casa Property Ltd, a Mr Challis as guarantor for Tri-Star International Ltd, and the Airport as landlord.   The date of assignment is defined as 1 March 2015.  The annual rent at the date of assignment is recorded as $928,769.35 plus GST per annum.  Under cl 3 of the Second Schedule, Spazio Casa Property Ltd warranted that all the provisions of the lease had been performed up to the date of assignment.  The deed contains this acknowledgment by the Airport:

The landlord acknowledges that as at the date of assignment the landlord is not aware of any existing breach of the lease by the assignor and has no interest in any of the assignor’s assets.

The deed says nothing about Spazio Casa Property Ltd being in default under any provisions of the lease as at the date of signing.

[9]      The Airport sues Mr Cozzolino on his guarantee in the deed assigning the lease from Spazio Casa Ltd to Spazio Casa Property Ltd.  It says that Spazio Casa Property Ltd was in default under the lease as at 1 March 2013 as follows:

[a]      it did not pay rent of $22,103.98 for the period 1 January 2015 to

28 February 2015; and

[b]      outgoings of $2,028 for the same period.

Mr Cozzolino’s evidence is that he understood that all rent and outgoings had been

paid in full.

[10]     On the current state of the evidence, Mr Cozzolino has arguable defences.  I do not regard the Airport’s evidence as adequate to establish that there were outstanding defaults as at 1 March 2016.  Its evidence is no more than assertion.  It has not proved the debt.  It is apparent that the monthly rental under the lease was more than $75,000 per annum.  The outstanding rental is significantly less than that. The Airport is claiming a balance, not an entire month’s rent.   As with any claim based in debt, as where a creditor is suing for goods and services provided, I would expect there to be proof of the supply and the non-payment.   Typically, as in this case, that would be done with invoices for the rent and accounting records to show what payments had been made by the debtor and any outstanding balance.   That evidence is missing here.  The alleged unpaid debts have not been adequately proved for summary judgment purposes.

[11]     There is a further matter.  That is the acknowledgment by the Airport that as at 1 March 2016 it was not aware of any breaches of the lease.  The Airport would have knowledge of its own accounting records and it would know from those accounting records whether there was any breach of the terms of payment as at 1

March 2016.  The deed of assignment of lease from Spazio Casa Property Ltd to Tri- Star International arguably creates an estoppel by deed which prevents the Airport from contending later that there was a breach of the lease at the date of assignment.

[12]     Accordingly, for the Manu Tapu lease, the Airport has not satisfied me that

Mr Cozzolino does not have a defence to the claim against him under the guarantee.

The Landing Drive lease

[13]     The Airport leased the Landing Drive premises to Spazio Casa Ltd under a lease dated 26 February 2013.   Again, Mr Maurizio Cozzolino guaranteed performance by Spazio Casa Ltd.  The lease was for a term of six years beginning 1

March 2013.  The lessee provided for market rent review dates on 1 March 2016 and

1 March 2019.  The lease could be extended for a further six years.  Spazio Casa Ltd assigned the Landing Drive lease to Spazio Casa Property Ltd under a deed of assignment of lease in the same terms as the assignment of the Manu Tapu lease. The assignment was signed in March 2015.   The date of assignment was again

recorded  as  13  December  2013.    This  deed  had  the  same  parties  as  for  the assignment from Spazio Casa Ltd to Spazio Casa Property Ltd for Manu Tapu. Again, Spazio Casa Property Ltd undertook to the Airport that it would perform all the provisions of the lease from the date of assignment.   That was backdated to

13 December 2013.  Again Mr Maurizio Cozzolino guaranteed to Spazio Casa Ltd and to the Airport the performance by Spazio Casa Property Ltd of its obligations as tenant under the lease.  The rental was recorded $394,141.50 plus GST per annum. That lease was not further assigned.   The lease provides for the tenant to pay a number of outgoings.  It also has a rent review provision.

[14]     In November 2015 Mr Cozzolino ended his association with the Spazio Casa group even though he remained, in name at any rate, a director of Spazio Casa Property Ltd.   Notwithstanding the end of his association with the Spazio Casa group, he remained guarantor of the obligations of Spazio Casa Property Ltd under the deed of assignment of lease.

[15]     In November 2015 the Airport served on Spazio Casa Property Ltd a notice under the Property Law Act 2007, saying that it had breached the lease for non- payment of outgoings.  These totalled $16,673.43.  The notice required compliance within 14 working days.   In January 2016 the Airport’s lawyers sent a letter to Spazio Casa Property Ltd giving a further day to pay the outstanding outgoings.  On

26 January 2016 the Airport’s lawyers gave notice to Spazio Casa Property Ltd cancelling the lease and giving notice of re-entry, relying on non-payment of outgoings.

[16]     The Airport says that at the end of January 2016 the Landing Drive premises still had significant amounts of property belonging to Spazio Casa Property Ltd left in the premises.  That was stock, fixtures and fittings, including heavy steel racking. The Airport gave notice to Spazio Casa Property Ltd to remove all its stock as well as its fixtures and fittings.  The Airport gave various extensions of time to complete this, up until 11 March 2016.  It says that by that date the external signage had not been removed, storage racks remained on the premises, and there was damage to the premises requiring repair.  It says that it incurred costs of $24,508.37 to complete the

removal and make good the work.  It paid a security company to oversee the removal process.

[17]     Once all the fixtures and fittings had been removed and the damage repaired, the Airport had the premises listed with land agents.  It found a new tenant, Keith Andrews Trucks Ltd.   In May 2016 it entered into a new lease of the premises to Keith Andrews Trucks Ltd.  This provided for rent at a higher figure than the current rent to Spazio Casa Property Ltd.   Keith Andrews Trucks Ltd was given a rent holiday of four months, and was not required to start paying rent until 1 October

2016.  It was, however, required to pay outgoings from the start of the lease.

[18]     The Airport makes these claims for the Landing Drive lease.   It says that there were unpaid outgoings of $32,173.01 up to the date of cancellation.  It had a loss  of  income  of  $237,407.51.    After  cancellation  it  had  to  pay  outgoings  of

$37,140.10 on the premises, for which it did not receive any reimbursement from the tenant.  It claims $25,510.43 for removing the fixtures and fittings that Spazio Casa Property Ltd left and making the premises good again.   It claims $907.60 for re-

letting the premises.

Outgoings arrears	$32,173.01
Lost rent following cancellation	$237,407.51
Outgoing costs following cancellation	$37,140.10
Costs of removing lessee’s fixtures
and making good	$25,510.43.
Costs of re-letting the premises	$907.80

Total:             $333,138.85

[19]     Those claims are in two parts:

[a]       The sums falling due under the lease up until cancellation.

[b]       The    damages   claimed    for   the    losses    arising    following    the cancellation.

One reason for drawing this distinction is because there are different rules as to GST. Up until cancellation the Airport was required to claim GST because the commercial

lease was clearly a taxable supply under the Goods and Services Tax Act 1985. After  cancellation,  the  taxable  supplies  ceased.    The  Airport,  as  landlord,  may recover damages, but only to the extent it is out of pocket.  As it is entitled to claim GST for damages – for example, for repair costs – but did not make a taxable supply, its damages claims should be excusive of GST.

[20]     Mr Cozzolino’s evidence is that he was not involved in running Spazio Casa Property Ltd at the time.  He believed that all rental obligations under the lease had been paid but there might have been a small amount of operating expenses outstanding.  He was not aware of the amount.  He also alleges failure to mitigate by the Airport in not acting in a timely fashion to arrange a new lease of the premises. He claims that the Airport should have started its search for a tenant earlier.

[21]     I deal with the mitigation point first.  In this context it is useful to restate the dictum of Lord Macmillan in Banco de Portugal v Waterlow:2

Where the sufferer from a breach of contract finds himself in consequence of that breach placed in a position of embarrassment, the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the party whose breach of contract has occasioned the difficulty.  It is often easy after an emergency has passed to criticise the steps which have been taken to meet it, but such criticism does not come well from those who have themselves created the emergency.  The law is satisfied if the party placed in a difficult situation by reason of the breach  of  a  duty  owed  to  him has  acted  reasonably  in  the  adoption  of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken.

[22]     The Airport took steps on cancellation that would ordinarily be expected of a commercial landlord following re-entry.  It was a reasonable decision for the Airport to first of all clear out all the fixtures and fittings that Spazio Casa Property Ltd had left, before putting the premises on the market for letting again.  The time taken to find a new tenant does not strike me as unreasonable.   In a summary judgment application the plaintiff has the burden of proof throughout.  On the evidence, I am satisfied that the Airport did take reasonable steps to mitigate within good time. Mr Cozzolino has not advanced anything of substance that the Airport failed to

mitigate its losses.

2      Banco de Portugal v Waterlow [1932] AC 452 (HL) at 506.

[23]     I have, however, questions about other aspects of the Airport’s case.  As with the Manu Tapu lease, the Airport has not given evidence proving the amounts for outstanding outgoings, payable under the lease, when it gave its notice under the Property Law Act 2007 in November 2015.  Again, the evidence is only assertion. There are no supporting documents, for example, to say what those outgoings were. There are no accounting records to show what outgoings have been paid and not paid.  The evidence at this stage is insufficient to prove its case.  In the absence of that evidence, I cannot find that the Airport was entitled to cancel the lease when it re-entered in January 2016.  That is not to say that the Airport’s case is hopeless.  It is simply that at this stage its evidence is inadequate.  It will have the opportunity to adduce further and better evidence later.

[24]     Similarly,  the  Airport’s  claim  for  outgoings  up  to  cancellation.    That  is similarly no more than  assertion  without  any supporting documentary evidence. Again, in the absence of adequate proof, Mr Cozzolino has an arguable defence to that claim.

[25]     The Airport has claimed GST in all of the damages it has claimed following cancellation.  For the reasons I have outlined, in the absence of any taxable supplies the Airport is entitled only to recover the net amount of its losses.   Its damages claims should have any GST element taken out.

[26]     An email from a Mr McLennan dated 24 February 2016, and a reply by the Airport’s lawyers of 25 February 2016 refer to a payment of $5,000 by Spazio Casa Property Ltd to the Airport.   That $5,000 does not seem to have been taken into account in the damages claim.

[27]     Spazio  Casa  Property  Ltd  left  racking  behind.    That  racking  constituted lessee’s fixtures under the definition in the lease.  There is a provision in the lease for the Airport to take that property.  To my mind, there is a question whether the Airport ought to account to the tenant for the racking when calculating its damages. There is a principle under the law of damages that where a plaintiff takes a step to mitigate a loss consequent upon a defendant’s wrong, and those steps are successful, the defendant is entitled to the benefit accruing from the plaintiff’s action, and is

only liable for the loss as reduced.  That applies so long as the benefit to the plaintiff is not collateral.  That matter is often put simply on the basis that the plaintiff cannot recover for avoided loss.  The receipt of the racking may be considered part of an avoided loss.

[28]     I have queries as to the calculation of loss of income following cancellation.

[29]     The first goes to the rate of rent claimed by the Airport.  In December 2015 the Airport  gave Spazio  Casa Property Ltd  a  written notice that  its  valuer had assessed the current rent for the Landing Drive properties at $420,281 plus GST, effective from 1 March 2016.  The rent review provisions of the lease provided that in any rent review the rent would not be increased to an amount which is more than

107 per cent of normal rent.  Given the report by the valuer, the Airport proposed the rent would be $411,000 per annum, plus GST, with effect from 1 March 2016.  The rent review provisions gave the lessee 20 working days from receipt of that notice in which to contest it.  On my calculation, the 20 working days expired on 28 January

2016.  The Airport cancelled the lease on 26 January 2016 before the 20 working day period had expired.

[30]     There is a question to be explored as to the effect of the cancellation of the lease on the rent review process.  Cancellation of a lease relieves both sides from future performance.  Given that, it may be queried whether there can be a rent review to take effect after cancellation of the lease.  The rent review provisions contemplate participation by the tenant in fixing the rent.  After all, notice has to be given to the tenant and the tenant has to be given the opportunity to reply.  That right is given to a tenant – not to a former tenant.  Once a lease has been cancelled, the Airport cannot engage in a rent review process with a former tenant.  It seems arguable to me - and as I say it is only a matter of argument to be explored later -  that if the rent review process has not been completed before cancellation, the rent for fixing damages is measured by the rent in force at the date of cancellation and cannot be adjusted upwards afterwards.  It is contestable whether the Airport can claim lost income on the basis of the rent review to take place on 1 March 2016.   That is a potential arguable defence for Mr Cozzolino.

[31]     I accept that once cancellation is properly proved, the Airport could claim loss of income down to entering into a new lease.  I have a query, however, as to the claim for lost rent from 1 June 2016 to 1 October 2016.  Ordinarily, a tenant might accept that he may be required to pay rent until a landlord finds a new tenant, but his liability should end there.   The new lease gave a rental holiday.   It is potentially arguable for Mr Cozzolino that he ought not to have to pay the Airport because it gave a rental holiday to an incoming tenant.  I bear in mind that the rent to the new tenant was higher than the old rent, even as fixed under the rent review, which the Airport tried to carry out in December 2015 and January 2016.  The matter is not so straightforward that on the present state of the evidence I am confident that I can give summary judgment for it.

[32]     In  summary  there  are  elements  in  the  Airport’s  damages  claim  that  are

contestable.

Outcome

[33]     I dismiss the summary judgment application for the claims under both the

Manu Tapu lease and the Landing Drive lease.

[34]     If he wishes to continue defending the proceeding, Mr Cozzolino will have the opportunity to do so.  He is to file and serve a statement of defence by 2 June

2017.  Time will be of the essence.  If he does not file his statement of defence by then, he will lose the opportunity to defend the proceeding.  The Airport instead will be entitled to ask for the case to be listed before a Duty Judge for formal proof.  The Airport will, of course, have the opportunity to supplement its evidence and to fill gaps in its case.

[35]     Costs on the summary judgment application are reserved.

……………………………….

Associate Judge R M Bell