Chow Group Limited v Rangihuna HC Auckland CIV 2009-404-7395
[2010] NZHC 1717
•21 September 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-7395
BETWEEN CHOW GROUP LIMITED Plaintiff
ANDDEAN LEROY RANGIHUNA Defendant
Hearing: 3 May 2010
Counsel: A L Harlowe for Plaintiff
D L Rangihuna in person
Judgment: 21 September 2010 at 11 am
RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON (Summary Judgment Application)
This judgment was delivered by me on 21 September 2010 at 11 am pursuant to
Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date ..........................
Solicitors:
Buddle Findlay, PO Box 1433, Auckland
CHOW GROUP LIMITED V RANGIHUNA HC AK CIV-2009-404-7395 21 September 2010
Introduction
[1] The plaintiff, Chow Group Limited, applies for summary judgment on its claim against the defendant, Mr Rangihuna. The claim is in essence that Mr Rangihuna is liable as guarantor for the failure of Palace Casino Limited, of which he was a director, to pay rent owing under a lease to Chow Group. Palace Casino is now in liquidation.
[2] The application is opposed. Mr Rangihuna is self-represented. He has failed to file any affidavit evidence. The onus remains, nevertheless, on Chow Group to prove its claim and the absence of a tenable defence.
Background
[3] By agreement for sale and purchase of 3 October 2008 Chow Group purchased 73-75 Victoria Street West, Auckland from The New Zealand Guardian Trust Company Limited, the mortgagee for Aurora Property Ventures Limited. The agreement provided the sale was subject to a lease to Palace Casino for a 10-year term from 1 February 2008 at a rent of $255,000 plus GST per annum. The parties settled on 13 November 2008.
[4] The essential issue in this application concerns the terms of the lease binding Palace Casino and Aurora and the true accord of the then parties, prior to settlement. On settlement Chow Group acquired the reversion expectant on the lease and with it Aurora’s rights and obligations under the lease.
[5] On 1 February 2008, Palace Casino entered into a lease with Aurora (the
2008 lease). Mr Rangihuna signed the lease on behalf of Palace Casino and as its guarantor. The lease provided for a rent of $290,000 plus GST per annum for an area including a deck and car parks.
[6] On 30 April 2008, Palace Casino entered into a deed of variation of lease with Aurora. Mr Rangihuna, again, signed the deed on behalf of Palace Casino and as its guarantor. The variation removed the deck and car parks from the leased area
and reduced the rent to $255,000 plus GST per annum. Chow Group seeks to enforce the terms of the 2008 lease as varied by this deed (the varied 2008 lease). Chow Group contends it purchased the property subject to the varied 2008 lease.
[7] At issue is an apparently anomalous deed of 15 February 2008. By this deed, Palace Casino and Aurora agreed to enter into a new lease on terms no less favourable than the terms of an earlier lease of 16 December 2002 (the 2002 lease). Mr Rangihuna signed the deed on behalf of Palace Casino. He is not party to the deed as guarantor. The 2002 lease is not in evidence. It is not known whether Mr Rangihuna is party to the lease as guarantor. Mr Rangihuna seeks to rely on the terms of the 2002 lease as preserved by this deed. Mr Rangihuna contends these terms reflect the true accord of Palace Casino and Aurora, the then parties.
[8] In its evidence, Chow Group acknowledges the deed of 15 February 2008. Its counsel’s submissions refer to an alleged rent under the 2002 lease of $192,000 plus GST per annum. In fact, it appears from the parties’ correspondence, placed in evidence by Chow Group, that the rent under the 2002 lease was alleged to be
$238,500 plus GST per annum. The former figure derives, it appears, from a distinct agreement alleged to have been reached with Guardian Trust. This agreement is the subject of a letter from Palace Casino’s solicitors to Mr Kayu (John) Chow, of Chow Group, of 1 December 2008. The letter contends that by this agreement, reached by reference to the deed of 15 February 2008 and the premises’ apparent state of disrepair, the terms of the 2002 lease were varied to reduce the rent to $192,000 plus GST per annum (or, rather, $16,000 plus GST per month). Mr Rangihuna has not, however, placed in evidence a written variation to this effect. There is some ambiguity in the parties’ correspondence as to whether such a variation is alleged to have been for a two-month period or until repairs were undertaken. In any case, Chow Group’s own evidence is consistent with, though certainly not determinative of, the alleged variation. Chow Group accepts that from settlement in November
2008 to July 2009, Palace Casino paid rent to Chow Group of $192,000 plus GST
per annum ($16,000 plus GST per month).
[9] During this period Chow Group made repeated demands for the full rent payable under the varied 2008 lease ($21,250 plus GST per month). The demands
were not met. For the month of August 2009 Palace Casino paid no rent. Mr Chow deposes that Mr Rangihuna informed him then that Palace Casino was unable to pay rent in August and would be unable to pay rent in the coming months.
[10] Chow Group, having issued the requisite demands, re-entered the premises on 2 September 2009. On 1 February 2010 it re-let the premises (inclusive of the deck and car parks) to JM Auckland Limited for $290,000 plus GST per annum. The directors and shareholders of Chow Group are those of JM Auckland.
Parties’ submissions
[11] Chow Group claims, first, rent arrears to the date of re-entry under the terms of the varied 2008 lease. Its counsel submits rent arrears are recoverable from Mr Ranginhuna as guarantor, in respect of Palace Casino’s breach of covenant to pay rent.
[12] Chow Group claims, secondly, loss of bargain damages in the amount of “lost rent” (that otherwise payable) under the terms of the varied 2008 lease from the date of re-entry to the date of re-letting. Its counsel submits loss of bargain damages are recoverable from Mr Rangihuna as guarantor, his liability being equal to that of Palace Casino under the terms of his guarantee, in respect of Palace Casino’s repudiation of the lease.
[13] Mr Rangihuna is self-represented. He opposes Chow Group’s application for summary judgment. He relies on the deed of 15 February 2008 and the terms of the
2002 lease it sought to preserve. He further relies on the alleged reduction in rent agreed to by Guardian Trust. He contends Chow Group had knowledge of both.
[14] Counsel for Chow Group’s submissions in respect of the deed of 15 February
2008 are twofold. First, counsel submits, the deed lacks continuing legal effect. It is rendered a legal nullity by the deed of variation of lease of 30 April 2008 confirming the terms of the 2008 lease. Secondly, counsel submits, Mr Rangihuna cannot estop Chow Group from relying on the varied 2008 lease by reference to the deed of 15
February 2008 (or, presumably, otherwise) as he does not come to the Court with
clean hands. This is because, counsel submits, he appears to admit he freely entered into the 2008 lease and the deed of variation of 30 April 2008 for fraudulent purposes. Chow Group does not, however, plead or give evidence of fraud on the part of Mr Rangihuna.
Legal principles on summary judgment
[15] Chow Group applies for summary judgment under r 12.2 of the High Court
Rules. Rule 12.2 provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1) The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
…
[16] The legal principles applying to applications for summary judgment were succinctly expressed by the Court of Appeal in Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [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: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left 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: MacLean v Stewart (1997) 11 PRNZ 66 (CA). 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 by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). 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: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ
84 (CA).
Discussion
[17] I am not satisfied, on the evidence before me, that Mr Rangihuna has no defence to Chow Group’s claim. My reasons follow.
The deed of 15 February 2008
[18] At issue in this case is a lease, the terms of which govern the rights and obligations of the parties, and on which terms both liability and quantum turn. Chow Group contends these terms are those of the varied 2008 lease. Mr Rangihuna contends these terms are those of the 2002 lease as preserved by the deed of 15
February 2008, and as further varied by agreement with Guardian Trust. That the terms in which the lease is recorded in the agreement for sale and purchase appear to accord with those of the varied 2008 lease is not of itself determinative.
[19] Chow Group pleads the deed of 15 February 2008. Its statement of claim reads at [5] that:
On 15 February 2008 Aurora and Palace Casino entered into a Deed
(“Deed”) under which purportedly (inter alia):
(a) Palace Casino surrendered a lease of the Premises between Aurora and Palace Casino dated 16 December 2002 (including a variation of that lease in 2004) (“2002 Lease”) (clause 2.1(a)); and
(b) Aurora agreed to grant Palace Casino a new lease with the intention that its terms would be no less favourable than the terms of the 2002
Lease until such time as Solent Holdings Limited ceases to be a shareholder of Palace Casino or until Palace Casino assigns the new lease to a third party (clauses 2.1(b) and 2.2).
[20] Counsel for Chow Group’s submissions in respect of the deed are twofold. The first is that the deed is a legal nullity. The second, to which I turn presently, is that, in any event, Mr Rangihuna is precluded from raising a defence of estoppel based on the deed as he does not come to the Court with clean hands.
[21] Counsel submits the deed of 15 February 2008 is rendered a legal nullity by the later deed of variation of lease of 30 April 2008. The latter deed expressly confirmed the terms of the 2008 lease:
For the avoidance of doubt, except as varied by this Deed, the terms of the [deed of lease of 1 February 2008] are confirmed in all respects by the Parties to this Deed.
[22] Chow Group pleads, accordingly, that:
To the extent (if any) that the [deed of 15 February 2008] had any legal effect on the terms of the [deed of lease of 1 February 2008], those terms were confirmed by the [deed of variation of lease of 30 April 2008] such that the [deed of 15 February 2008] had no continuing effect.
[23] This may well be the case. But the submission is conclusory. It rather begs the question as to whether the deed of 15 February 2008 has some collateral existence or import. While the deed is on its face anomalous, it is presumably explicable. Counsel did not seek to explain it. There was no attempt to examine the terms of the deed insofar as they might explain the parties’ dealings. Counsel’s argument proceeded on the basis that it was for him to show the deed was a legal nullity and he must, therefore, do so. It is on that basis, in the absence of further submissions, that I must also proceed.
[24] The deed, responsibly placed in evidence by Chow Group, leaves me in little doubt that on its execution it was intended to bind the parties to its terms. It is a carefully drafted document. It contains the requisite attestations. The parties’ signatures are witnessed. The signature of Mr Jason Meadows of Aurora is, indeed, witnessed by a solicitor, a Mr Charles Fletcher of Fletcher Law, Hamilton. The earlier 2008 lease refers to Fletcher Law as being Aurora’s solicitors. Fletcher Law also drafted the deed of variation of lease of 30 April 2008.
[25] Further, it appears from the parties’ correspondence that the deed was provided to Chow Group as part of the due diligence process undertaken preparatory to its purchasing the property. Certainly at no point in either Chow Group’s pleading or evidence does it disclaim knowledge of the deed prior to its first being relied on by Palace Casino (by its solicitor’s letter of 1 December 2008).
[26] I turn then to the terms of the deed. Its operative provisions are these:
2.0 Surrender of Lease and Grant of New Lease
2.1 In consideration of the terms of this deed:-
(a) The Tenant will surrender the Lease, and
(b) The Landlord will grant a new lease to the Tenant.
2.2It is the intention of the parties that, until Solent Holdings Limited ceases to be a shareholder of the Tenant, the terms of the new Lease will be on terms no less favourable to the Tenant than the terms of the existing Lease and the terms of this deed shall entrench this benefit for the Tenant until such time as Solent Holdings Limited ceases to be the shareholder of the Tenant or until the date that the Tenant assigns the new Lease to a third party.
3.0 Indemnity
3.1In consideration for the Tenant signing the surrender of Lease and the new Lease, the Landlord indemnifies the Tenant from any provisions in the new Lease which may result in the terms of that Lease being less favourable than the terms of the Lease and the Tenant will only have a liability to the Landlord to the extent that such liability is on the same or similar terms to that contained in the Lease which is to be surrendered, until such time as Solent Holdings Limited ceases to be a shareholder in the Tenant or the date that the Tenant assigns the new Lease to a third party.
3.2This indemnity shall come to an end on the date that Solent Holdings Limited transfers the shares in the Tenant to Parakai (as contemplated pursuant to the terms of an Agreement for Sale and Purchase of shares dated 19 November 2007) or the date that the Tenant assigns the new Lease to a third party.
[27] The above terms are suggestive of a factual context broadly consistent with Mr Rangihuna’s notice of opposition and position at hearing, albeit neither supported by sworn evidence of his own. That is, that pursuant to an agreement for sale and purchase of shares, one of Mr Meadows’ interests (Parakai) was to purchase the shareholding in Palace Casino from one of Mr Rangihuna’s interests (Solent). Collateral to this agreement, Mr Rangihuna suggests, was another agreement concerning Aurora and a third party, for the purposes of which Mr Meadows wished to demonstrate the higher “current rent” (in Mr Rangihuna’s terms) reserved by the
2008 lease and variation. This rent was seemingly reflective of market rent (it matched that at which Chow Group re-let the premises in February 2010). The effect of the deed of 15 February 2008, it appears from its terms, was to ensure any terms less favourable than those of the 2002 lease did not take effect until Palace Casino’s shareholding was transferred to Mr Meadows’ interests. Palace Casino was further protected by an indemnity to subsist until this date. From transfer of the
shareholding, as then envisaged, or assignment, the newly constituted Palace Casino or assignee would be held to the terms of the new lease.
[28] In light of the terms of the deed, and in light of Chow Group’s apparent notice of the same prior to purchase, I cannot safely conclude it is a legal nullity, of no significance to the inquiry into the terms of the lease prior to Chow Group’s taking the reversion. I emphasise that this finding is based on Chow Group’s own evidence. Mr Rangihuna may have bound Palace Casino and himself as guarantor to the terms of the varied 2008 lease but such remains, in my view, in light of the deed of 15 February 2008, a matter of conjecture. I cannot safely regard the legal status of the deed of 15 February 2008 as other than a real issue to be tried. It may not ultimately afford Mr Rangihuna a defence, but that is an issue properly reserved for trial where the Court will have the benefit of greater evidence as to the intentions of the parties and the extent of Chow Group’s knowledge or understanding of the same.
[29] Counsel’s second submission is that Mr Rangihuna is precluded from raising a defence founded in estoppel as he does not come to the Court with clean hands. Chow Group has not pleaded fraud. Counsel submits Mr Rangihuna “appears to admit” he entered into the 2008 lease and variation for “fraudulent purposes”.
[30] This submission is, again, conclusory. I am not satisfied the parties’ dealings are self-evidently fraudulent. I have a paucity of evidence as to precisely what these dealings were, save for their expression in the three deeds, or as to the parties’ respective roles. It is apparent the deed of 15 February 2008 was entered into at Aurora’s behest. This is Mr Rangihuna’s account, supported by the provision that the costs of and incidental to preparation of the deed were to be borne by Aurora. It is clear Aurora was legally advised in respect of all three deeds. And the very presence of the deed of 15 February 2008 rather undermines the proposition that the
2008 lease and variation were pure facades, the product of a fraud in which Mr Rangihuna was complicit. The circumstances are not such that I can safely conclude a defence based on estoppel, one Chow Group’s submissions admit of, is unarguable.
[31] I do not wish to be seen as expressing a view on either of counsel’s submissions – that the deed is a legal nullity or an incident of fraud – save to say that
I am not satisfied, on the evidence before me, of either. Both remain real issues to be tried. The words of the Court of Appeal in Mayhew v Robert Jones Investments Ltd (1993) 2 NZ ConvC 191,719 at 191,724, albeit in a different context, are apposite:
This is not a case where, by simple interpretation of the documents and the application of the relevant law, the matter can be decided. It requires some further evidential material before that result can be reached.
Guardian Trust’s alleged variation of rent
[32] In Mr Rangihuna’s notice of opposition, he contends he met with Guardian
Trust and Gareth Hoole, the receiver appointed by Guardian Trust, to:
… discuss the rent and my indemnity document. I also made them aware of the state of the building and my views on the rent going forward. It was agreed that the adjusted rent would be $16,000 per month plus GST.
[33] This is consistent with a letter from Morgan Coakle, Palace Casino’s solicitors, to Mr Chow of 1 December 2008. In this letter, Morgan Coakle wrote:
In recognition of the Deed and also the above breach of lease, NZGT varied the terms of the lease to receive the sum of $18,000 inclusive of GST as monthly rental for the last 2 months.
[34] In a later letter of 30 January 2009, this time to Morrison Kent, Chow
Group’s solicitors, Morgan Coakle wrote:
Our client has been paying rental at a rate set in agreement with the receivers appointed by New Zealand Guardian Trust to compensate our client for the losses suffered due to the aforementioned breaches.
[35] Chow Group disclaims knowledge of such a variation, and submits that in any event it would not bind it. In a letter of 8 December 2008, Morrison Kent wrote:
Our client is not aware of arrangements that the tenant may have made with NZGT regarding a reduction in the rental for the “last 2 months”. In any event, no such arrangement is binding on our client.
[36] In a letter of 2 February 2009, Morrison Kent wrote:
Please provide a copy of the agreement with the receivers appointed by New Zealand Guardian Trust and why you believe any such agreement might be binding on our client.
[37] In his affidavit, Mr Chow writes that Morgan Coakle’s letter of 1 December
2008 was:
… the first time that I had heard anything about NZGT varying the rent. Mr Rangihuna had not mentioned this in our meeting on 11 November 2008. … In addition, Palace Casino did not provide me with any written confirmation from NZGT that reduced the rent payable under the Variation.
[38] Counsel for Chow Group submits:
Chow Group purchased the Property and took assignment of the Lease as a bona fide purchaser for value without notice of the facts alleged in the Notice of Opposition ….
[39] I accept Chow Group’s unchallenged evidence that it did not have notice of the alleged variation in rent and that it has not received a written variation to the effect contended. No written variation is placed in evidence by Mr Rangihuna. Nor, indeed, is any evidence from Guardian Trust.
[40] There remain, however, unanswered questions. First, it appears that depending on when the variation is alleged to have taken place it may have been within Guardian Trust’s powers under the agreement for sale and purchase. Clause
20.6 of the further terms of sale provides that:
During the period from the date of this Agreement up to the Settlement Date, the Vendor is entitled to enter into a deed of lease, consent to any assignment or subletting, or to grant or renew the Leases and to review and determine rent under the Leases insofar as the Vendor is obliged and/or entitled to do. The Vendor is, as soon as practicable, to give the Purchaser details of any such matters, but is not required to obtain the Purchaser’s consent to any such action.
[41] The first date on which Aurora was obliged to review rent under the 2008 lease was 1 February 2013. A landlord is, however, always entitled to vary rent downward. The further terms of sale take apparent care to preserve that entitlement from execution of the agreement for sale and purchase to settlement. Chow Group’s consent was not required. It may not, then, be a complete answer to Mr Rangihuna’s alleged defence that Chow Group received no notice of the alleged variation. If indeed Guardian Trust varied the rent, its failure to give Chow Group details might give rise to an action against Guardian Trust, but not necessarily preclude Palace Casino from seeking to rely on it. I cannot be satisfied on the evidence before me
that Mr Rangihuna has no defence to the amount claimed by Chow Group by reference to an alleged variation of rent by Guardian Trust.
[42] Secondly, there seems to be a clear means by which the rent Palace Casino was paying to Guardian Trust prior to settlement may be determined, and the extent to which Chow Group was aware of the same. This is the apportionment on settlement. The agreement for sale and purchase settled on 13 November 2008. It is Mr Chow’s evidence that Chow Group was expecting its first monthly rental payment to be paid on 1 December 2008, the date from which Chow Group claims rent arrears in its application. But what apportioned rent did Chow Group receive in respect of the month of November from Guardian Trust on settlement? If it received an apportionment of a rent payment of $16,000 plus GST for the month, this would lend some credence to Mr Rangihuna’s account and impute a degree of relevant knowledge to Chow Group.
[43] I again emphasise that I express no view on the above, save that in this respect also, in the circumstances, Chow Group’s pleadings and evidence are inadequate. The issues are addressed too summarily. Counsel for Chow Group’s conclusions may well prove to be cogent, but they are conclusions, and I am unwilling to accept them without further substantiation in light of the issues arising from the parties’ correspondence as placed in evidence by Chow Group, and those raised by Mr Rangihuna in his notice of opposition and on cross-examination.
Additional gaps in the evidence
[44] There are other deficiencies. In a straightforward case in which the terms of the lease, the fact and extent of breach, the measure of loss, and the limits to recoverability were clear, pleadings and evidence of the brevity of the plaintiff’s may well have been appropriate. As is prefaced in my analysis above, this is not such a case. The following omissions have also weighed in my considering that this case is inappropriate for summary judgment.
a) The omission of the even-numbered pages of the further terms of sale to the agreement for sale and purchase. Materially, clauses 20.1 to
20.3 governing the terms of the lease subject to which Chow Group contends it purchased the property are omitted. The omitted clauses potentially qualify the terms of the lease. The omission is doubtless inadvertent. Ordinarily I would have granted leave to file further evidence, but in the event it is a further omission I have been unable to overlook.
b)The failure to obtain evidence from parties who may have cast light on the issues: Mr Fletcher of Fletcher Law who may, if any claim to privilege was waived, have been able to cast light on the various deeds, and Guardian Trust, as to whether it agreed to a reduction in rental.
c) The failure to address apportionment of rent from settlement on 13
November 2008 to 1 December 2008 (from which date rent arrears are sought). What rent was apportioned? Had Palace Casino paid Guardian Trust rent at the alleged varied rate, or at the rate reserved by the varied 2008 lease?
d) What steps were taken in the five-month period from re-entry on 2
September 2009 to re-letting on 2 February 2010 to mitigate loss? It was anticipated as early as 29 October 2009 (the date on which Mr Chow’s affidavit was sworn) that Chow Group was “currently planning to incorporate a company to take over the business”. The premises was not re-let until three months later. While the onus is on Mr Rangihuna to put in issue the reasonableness of such steps, it is for Chow Group to state what they were. It has not.
Conclusion
[45] I am not satisfied, on the evidence before me, that Mr Rangihuna has no defence to Chow Group’s claim. I order accordingly.
Result
[46] The plaintiff’s application for summary judgment is declined.
[47] I reserve costs in accordance with the decision of the Court of Appeal in NZI Bank Ltd v Philpott [1990] 2 NZLR 403.
[48] The case is to be listed in the chambers list on 20 October 2010 at 2.15 pm
for further directions. Memoranda should be filed at least two days prior with proposed directions.
Associate Judge Sargisson
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