Auckland International Airport Ltd v Spazio Casa Property Ltd
[2018] NZHC 440
•15 March 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-2386
[2018] NZHC 440
BETWEEN AUCKLAND INTERNATIONAL AIRPORT LTD
PlaintiffAND
SPAZIO CASA PROPERTY LTD
First Defendant
MAURIZIO COZZOLINO
Second Defendant
Hearing: 16 November 2017 Appearances:
M Eastwick-Field and M E Playle for Plaintiff No appearance for Defendants
Judgment:
15 March 2018
JUDGMENT OF PALMER J
This judgment is delivered by me on 15 March 2018 at 11.30 am pursuant to r 11.5 of the High Court Rules.
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Registrar / Deputy Registrar
Solicitors:
Russell McVeagh, Auckland Dyer Whitechurch, Auckland
AUCKLAND INTERNATIONAL AIRPORT LTD v SPAZIO CASA PROPERTY LTD [2018] NZHC 440
[15 March 2018]
Summary
[1] Auckland International Airport Ltd (AIAL) leased property to Spazio Casa Property Ltd (Spazio). Spazio defaulted on the leases over two properties. AIAL claims outstanding arrears under two personal guarantees by Mr Maurizio Cozzolino, a director, in respect of Spazio’s obligations. I heard the matter by way of formal proof. I grant judgment against Mr Cozzolino other than in relation to outgoings arrears which are insufficiently evidenced.
What happened?
[2] The primary evidence consists of three volumes of affidavits and exhibits by Mr Paul Kenna, Asset Manager of AIAL.1 I summarise the key points and then examine specific issues that arise.
Leases
[3]AIAL entered two lease agreements with Spazio Casa Ltd:
(a)in November 2009, for premises at the corner of George Bolt Memorial Drive and Manu Tapu Drive (the Manu Tapu lease) in return for annual rent of $928,769.87 plus GST and outgoings, including rates and services, utilities and amenities charges;
(b)in February 2013, for premises at 8 Landing Drive, Auckland Airport (the Landing Drive lease) for annual rent of $384,141.50 plus GST and outgoings, including rates and services, utilities and amenities charges.
Assignments of leases
[4] In 2013, there was a company restructuring. Spazio Casa Ltd became known as SCL Auckland Ltd (SCL) and was put into voluntary liquidation. As a result of discussions between the liquidator and Mr Cozzolino, the leases were assigned. On 3
1 Affidavit of Paul Miles Kenna, 21 September 2016 [Kenna Affidavit 1], Affidavit of Paul Miles Kenna, 8 November 2017 [Kenna Affidavit 2], Affidavit of Hannah Therese Drury, 8 November 2017 [Drury Affidavit].
March 2015, effective 13 December 2013, SCL assigned the leases to Spazio. Under the deeds of assignment, Spazio agreed to perform the provisions of the leases. Mr Cozzolino, a director, personally guaranteed to SCL and AIAL performance of the tenant’s obligations by Spazio. On 23 March 2015, effective 1 March 2015, Spazio further assigned the Manu Tapu lease to Tri-Star International Ltd (Tri-Star), which already sub-leased certain parts of the premises.
Breach of Manu Tapu lease
[5] As at 1 March 2015, Spazio had outstanding liabilities to AIAL under the Manu Tapu lease which, after application of a subsequent credit, totalled $24,131.98 (GST inclusive). AIAL claims $22,103.98 in rental arrears and $2,028 in outgoings arrears (GST inclusive) from Mr Cozzolino under his guarantee. I accept, on the basis of the evidence, these amounts remain outstanding.
Breach of Landing Drive lease
[6] Spazio also defaulted on the payment of outgoings under the Landing Drive lease. On 25 November 2015 AIAL issued a notice under the Property Law Act 2007 of notice of its intention to cancel the lease. AIAL extended the time for compliance until 15 January 2016. When Spazio failed to pay, AIAL re-entered the premises and cancelled the Landing Drive lease.
[7] AIAL granted Spazio until 11 March 2016 to remove its stock, fixtures, fittings and make good any damage to the Landing Drive premises. Spazio failed to remove some signing and storage racks or to repair damage. AIAL incurred costs of
$24,508.37 in addressing that. AIAL re-let the Landing Drive premises to Keith Andrews Trucks Ltd (KATL) from 1 June 2016, with a rental holiday for the first four months, as is standard in AIAL’s leases.
[8]In respect of the Landing Drive lease, AIAL claims:
(a)$174,429.53 (GST exclusive) of lost rental following cancellation of the lease;2
2 During the hearing, Ms Eastwick-Field clarified that the claim of lost rental of $206,441.31,
(b)$32,173.01 (GST inclusive) of outgoings arrears prior to cancellation;
(c)$32,295.74 (GST exclusive) outgoings arrears after cancellation;
(d)$22,096.03 (GST exclusive) for the cost of removing fixtures, fittings and making good damage; and
(e)$789.22 for the cost of re-listing the Landing Drive premises.
[9] Mr Cozzolino is still legally a director but ceased his association with the group in December 2015 and now lives in Brisbane, Australia.
Proceedings
[10] In September 2016, AIAL filed a statement of claim against Spazio for breach of the two leases and demand on Mr Cozzolino under the guarantees. Spazio took no steps. Mr Cozzolino opposed the proceeding.
[11] AIAL applied for summary judgment against Spazio. It was unopposed and Edwards J granted summary judgment on 14 March 2017.3 No payment was made.
[12] AIAL applied for summary judgment against Mr Cozzolino. Counsel withdrew on the basis of absence of instructions. However, Associate Judge Bell had questions as to the merits of the application, which he dismissed.4 He gave Mr Cozzolino the opportunity to file and serve a statement of defence.
[13] In May 2017, Mr Cozzolino filed a statement of defence and a trial was set down for 16 November 2017. However, Mr Cozzolino’s counsel again advised she was without instructions. Justice van Bohemen directed the matter to be dealt with by formal proof, unless Mr Cozzolino confirmed he intended to defence the proceedings by a date he did not meet. Counsel for Mr Cozzolino filed a memorandum explaining
calculated at PMK5-48, should be reduced by $32,011.78, so the total should be $174,429.53.
3 Auckland International Airport Ltd v Spazio Casa Property Ltd [2017] NZHC 433.
4 Auckland International Airport Ltd v Spazio Casa Property Ltd [2017] NZHC 855.
he was not in a position to fund defence of the proceeding. I heard the matter by way of formal proof.
For what is Mr Cozzolino liable under the guarantees?
Did Mr Cozzolino’s lack of involvement with Spazio make a difference?
[14] Mr Cozzolino pleaded that he has had no involvement with the Spazio companies since November 2015. But even if he proved that, it would not release him from the guarantees he signed.
Did the Tri-Star assignment of Manu Tapu lease make a difference?
[15] Mr Cozzolino also pleaded the Tri-Star deed of assignment contained an acknowledgement by AIAL that, as at 1 March 2015, it was not aware of any existing breach of lease. Mr Cozzolino relied upon that and said he believed all the rental was paid. AIAL submits it had to authorise assignment of the Manu Tapu lease to secure a direct relationship with the sub-lessee and it did not thereby waive Spazio’s payment of the arrears.
[16] I accept AIAL’s acknowledgement in the deed of assignment was not sufficient, at law, to extinguish Spazio’s liability. Clause 5 of the First Schedule reinforces that. I do not consider there is evidence of any unequivocal representation by AIAL, or reasonable reliance by Mr Cozzolino or Spazio, sufficient to found estoppel by representation. There was no forgiveness of the debt sufficient to found estoppel by deed.
Did AIAL validly exercise its rights of cancellation?
[17] I am satisfied, on the basis of the evidence, AIAL validly exercised its right of cancellation of the Landing Drive lease. AIAL was entitled to charge outgoings. It sent invoices for rates to Spazio based on Quotable Value advice, but they were not paid. The PLA notice was served and extended and the invoices were still not paid.
AIAL exercised its right to cancel the lease. There is evidence Spazio accepted the cancellation.5
Did AIAL fail to bring defaults to Mr Cozzolino’s attention?
[18] I am satisfied, on the evidence, AIAL brought to Mr Cozzolino’s attention its attempts to recover the Landing Drive outgoings arrears.
GST
[19] AIAL claims “loss of bargain” damages from cancellation of the Landing Drive lease to its receipt of new rent from KATL. AIAL does not now claim GST on this amount.
Reviewed rental
[20] AIAL claims rental amounts that include the increase from a rent review that would have been effective from 1 March 2016 with a cap of 107% of the previous rental, to $411,031 per annum plus GST. The rent review notice was issued to Spazio on 23 December 2015. Under cl 4.3(b) of the lease, Spazio had until 28 January 2016 to dispute that and it did not.
[21] AIAL accepts the rent review did not take effect as a matter of contract but submits it is relevant to quantification of its lost rental payments. Ms Eastwick-Field relies on a decision of the English Court of Appeal in Bland v Ingram’s Estates Ltd (No 2) that “[t]he lessor is not to be denied the benefit of any increased rent which would have resulted from the operation of the rent review provisions during the period prior to the grant of relief from forfeiture”.6 Ms Eastwick-Field submits it was inevitable the rent would have increased to the capped amount of $411,031 per annum plus GST from 1 March 2016 because the open market listing agreed with KAT a few months later was for $439,853.53 plus GST. AIAL’s calculations account for the increased rent it received from KATL.
5 Kenna Affidavit 2 at [59].
6 Bland v Ingram’s Estates (No 2) [2001] EWCA Civ 1088, [2002] Ch 177 at [15].
[22] I accept AIAL’s submission. The lessor is entitled to be put in the same position in which it would have been if the default giving rise to cancellation had not occurred. That included the reviewed rental.
Rental holiday
[23] Mr Cozzolino pleaded the rental holiday given to KATL was unnecessary or excessive and should not affect how much he has to pay in rent. AIAL’s evidence is that a rent holiday of four months is a standard term in AIAL leases designed to entice new tenants to lease premises from AIAL. Spazio’s original Landing Drive lease included a six-month rent holiday.
[24] Again, putting AIAL in the position in which it would have been had the default not occurred means it is entitled to this rent.7 That amount represents a loss AIAL incurred due to the default and cancellation that it would not have incurred otherwise. If AIAL wished to avoid that consequence it should have taken steps to exit the lease.
Outgoings on Landing Drive premises
[25] AIAL sought $32,173.01 (GST incl) in outgoings arrears on the Landing Drive premises before cancellation and 32,295.74 (GST excl) after cancellation. At the hearing, Ms Eastwick-Field took me to the supporting evidence which consisted of a spreadsheet of entries.8 She said they included rates and insurance and other operating expenses AIAL was entitled to charge Spazio. The total did not sum to the figures claimed.9 The entries for rates are identified and the first two of them were the subject of the PLA notice. However, the other entries are unspecified, most of them saying “Recoverable 6863 See attached”. I do not consider this is sufficient evidence of the outgoings. Other than the five rates entries in that table, I decline this aspect of AIAL’s claim.
7 Epoch Chch Ltd v Cameron HC Christchurch, CIV 2007-409-2820, 5 March 2008 at [39].
8 Kenna Affidavit 1 at Exhibit “PMK5–19”.
9 I was advised the totals are, respectively, $33,061.98 and $30,353.40.
Removal costs and credit for racking and $5,000
[26] Clause 13.2 of the Landing Drive lease provided for AIAL to remove all or any of the lessee’s fixtures which were not removed in a reasonable period, recover the cost of removal and make good any damage. I accept the evidence is the costs AIAL claims for this were reasonably incurred.
[27] Mr Cozzolino pleaded AIAL did not give appropriate credit for the value of the racking system left on the premises or $5,000 paid to AIAL on 25 January 2016. But I am satisfied, on the evidence, that AIAL received no benefit from the racking system, and AIAL applied the $5,000 to clearing other Spazio invoices.
Interest and Costs
[28] AIAL seeks contractual interest under the lease agreements, at 11 per cent per annum (three per cent per annum above the rate of interest payable by AIAL on commercial overdraft, which is computed at eight per cent), from the date of filing the proceedings (21 September 2016) on outstanding rental and outgoings. I make that order.
[29] AIAL also seeks solicitor-client costs as provided for under the leasehold agreements, in preparing letters of demand and the PLA notice, advising on cancellation rights and make good obligations and preparing summary judgment documents, of $25,359.49. Rule 14.6(3) of the High Court Rules 2016 provides that parties to litigation may be awarded indemnity costs where that is provided for under a contract. And AIAL seeks costs on a 2B basis for the litigation other than in relation to the appearance at the first case management conference. I make those orders.
Result
[30] I give judgment in favour of AIAL on its third and fourth causes of action, against Mr Cozzolino and order:
(a)judgment in the amount of $259,987.07 comprising:
(i)$24,131.98 in respect of the Manu Tapu lease;
(ii)$235,855.09 in respect of the Landing Drive lease; and
(b)default interest at 11 per cent per annum from the date of filing the proceedings;
(c)$25,359.49 of solicitor-client costs and ordinary costs on a 2B basis for these proceedings (other than for appearance at the first case management conference).
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Palmer J
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