Dilworth Trust Board v Jack's Ventures Limited
[2012] NZHC 183
•20 March 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-3312 [2012] NZHC 183
BETWEEN DILWORTH TRUST BOARD
Plaintiff
ANDJACK'S VENTURES LIMITED First Defendant
ANDJACK ZHOU Second Defendant
ANDRUIYU LYNN Third Defendant
ANDKUN WEI CHEN Fourth Defendant
ANDQIANGUAN CHEN Fifth Defendant
ANDMAHARAJ & ASSOCIATES LIMITED Sixth Defendant
ANDPRAVIN KUMAR MAHARAJ Seventh Defendant
Hearing: 27 October 2011
Appearances: C Harris for Plaintiff
E Lau (by leave) for First Defendant and Second Defendants
Third, Fourth and Fifth Defendants in person
R Qiu translator for Third to Fifth Defendants
Judgment: 20 March 2012 at 4 pm
RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON (Summary Judgment)
This judgment was delivered by me on 20 March 2012 at 4 pm pursuant to
Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date .......................... Solicitors:
Jackson Russell, PO Box 3451, Auckland
E K Lau, PO Box 276138, Manukau, Auckland
DILWORTH TRUST BOARD V JACK'S VENTURES LIMITED HC AK CIV-2011-404-3312 [20 March 2012]
[1] The plaintiff, the Dilworth Trust Board, claims against the defendants following rental default and termination of the lease of commercial retail premises.
[2] Dilworth has applied for summary judgment against all defendants for the losses claimed in its statement of claim. The first defendant, Jack’s Ventures Limited, was the original tenant. The second to fifth defendants were the four guarantors under the deed of lease. The sixth and seventh defendants were assignees of the lease.
[3] The sixth and seventh defendants have taken no steps in the proceeding or to oppose summary judgment.
[4] The first and second defendants did not appear personally but I have given Mr Lau, who has their power of attorney, leave to make submissions for them. Counsel for the plaintiff takes no objection to this course.
[5] For the purpose of its application, Dilworth proceeds in the first instance on the issue of liability only, on the basis that if successful on that issue, the issue of quantum will be dealt with at a further hearing.
[6] Dilworth needs to prove the defendants have no defence to its liability claims. In this case the material terms of the deed of lease and guarantee; the assignment and the details of the lease default are not in dispute.
Background
[7] In January 2009, Jack’s Ventures leased Dilworth’s commercial retail property at 480 Broadway, Newmarket, to operate a greengrocer business.
[8] In February 2009 the rent was reviewed in accordance with the provisions of the lease. An annual rental of $110,467 plus GST per annum was claimed and was not objected to.
[9] Following the rent review Jack’s Ventures paid the new rate for a period of 16
months until it sold its greengrocer business to the sixth defendant, Maharaj &
Associates Limited. On 15 July 2010 Dilworth consented to Jack’s Ventures assignment of the lease to Maharaj and the parties executed a deed of assignment and covenant. The seventh defendant, a principal of Maharaj, guaranteed the assignee’s obligations.
[10] In August 2010 Maharaja fell into arrears in respect of rent and outgoings payable. On 24 September 2010 Dilworth served a Lease Default Notice on each of the defendants. The defaults were not remedied and on 16 December 2010 Dilworth cancelled the lease and re-entered the property. Dilworth claims that at the termination of the lease it was owed $41,781.40 in unpaid rent and $4,670.13 in unpaid outgoings. Dilworth also claims costs for the cleaning and painting of the property for re-letting, rent for the period when the property was untenanted and a letting fee for the new tenancy. Also there is a claim for the significant reduction in the rental income under the replacement tenancy.
[11] The default on payment of rent and outgoings that is the subject of the summary judgment application only relates to the period after the lease was assigned by Jack’s Ventures to Maharaj.
[12] It is the defendants’ position that Dilworth must bear some responsibility for Council works to the Newmarket overhead motorway which Jack’s Ventures claims caused losses to it business.
Opposition to summary judgment
[13] The greengrocer business was purchased by Jack’s Ventures for $360,000 in the expectation of a net profit return of between $100,000 and $200,000 per annum. The defendants say they were forced to sell the business to Maharaj for $180,000.
[14] The defendants rely upon the wording of the preamble in a schedule to the lease:
These rules and regulations are to be observed by the Lessee, and are made for the safety, care, operation and cleanliness of the Building, and for the preservation of good order, safety, and comfort of the Lessee and visitors to the Building.
[15] The defendants claim that because of the nearby motorway works Jack’s Ventures and its customers could not enjoy the comfort it says was promised by the lease terms. The defendants say the works caused the closure of roads which provided access to the shop.
[16] The defendants claim Dilworth was aware of the impending upgrading works and must have been aware for at least two years before the upgrading works began on a large scale in September 2009. They also claim that Dilworth’s actions to lease the premises for more than they were worth while aware of the likely impact of the impending road works, was misleading and deceptive conduct and in breach of s 9 of the Fair Trading Act 1986.
[17] The defendants are aware that Dilworth’s substitute tenant pays $6,250 plus
GST per month which is about $4,000 less than was charged to Jack’s Ventures.
[18] The defendants complain there was noise, air, visual and destruction pollution caused to surrounding areas by the motorway works.
[19] The defendants have given notice of a counterclaim in the sum of
$369,201.11.
[20] In summary the defendants believe the actions of Dilworth were dishonest and commercially reprehensible.
Discussion
[21] Jack’s Ventures claims of losses are unsupported by reliable evidence. Likewise there is a lack of evidence to show a loss in the businesses value was caused by the council’s motorway works. That aside, the terms of the lease are fatal to the Jack Venture’s case. Dilworth was under no obligation or covenant to ensure that Jack’s Ventures’ business was uninterrupted by the road works that were being undertaken by an unrelated third party in a location that was neither adjacent to nor adjoining the leased premises.
[22] It is clear from the deed of lease (clause 7.10) that Dilworth made no warranty as to the existing or continuing suitability of the premises for Jack’s Ventures purposes. Clause 15.6 of the deed of lease provides that Jack’s Ventures occupied the premises at its own risk and that Dilworth was to have no liability for claims that may arise in respect of damage occurring to property in or about the premises.
[23] Dilworth’s lease obligations are contained in express covenants in the deed of lease and to a limited extent by the implied covenants contained in the Property Law Act 2007. The Act abolished the common law covenants in leases. Clause 1.4 of the deed of lease expressly excludes the lessor’s covenants implied under the Act.
[24] Clause 17 of the deed of lease provides:
17.1 Quiet enjoyment of premises:
If the Lessee pays the Rent and all other money payable by the Lessee under this Lease in the manner required by this Lease, and complies with the obligations of the Lessee under this Lease, the Lessor shall permit the Lessee to quietly hold and enjoy the Premises, without interruption by the Lessor or by any person claiming under the Lessor, until the expiry or sooner termination of the Term.
[25] I agree with the submission for Dilworth that the lessor’s covenant to permit the quiet enjoyment of the premises without interruption only applies to the actions of the “Lessor or any person claiming under the Lessor...”. The covenant providing for quiet use contains no requirement for Dilworth to ensure that third parties do not interfere with the tenancy use and enjoyment of the leased premises – understandably so because the acts of unrelated third parties are beyond the control of the landlord.
[26] Clause 17.10 provides:
17.10 No warranty as to suitability of Premises:
The Lessor gives no warranty or representation, express or implied, that the Premises are now suitable, or will remain suitable or adequate, for use by the Lessee, or that any use of the Premises by the Lessee will comply with any laws or requirements of any Authority.
[27] Clause 15.6 provides:
15.6 Lessee to occupy Premises at own risk:
The Lessee shall occupy and use the premises at the Lessee’s risk and shall release the Lessor (to the full extent permitted by law) from all claims and demands of any kind, and from all liability which may arise in respect of any accident, damage or injury occurring to any person or property in or about the Premises or the Building.
[28] Jack’s Ventures claims it should have paid no greater monthly rental rate than the premises are now being tenanted for. However, the rent charged to Jack’s Ventures was an agreed rate as reviewed under clause 4 of the lease and advised to Jack’s Ventures by letter dated 19 February 2009. The deed contains its own formula for undertaking rent reviews and they do not contain any external market or environmental considerations. Under the formula, Jack’s Ventures was able to dispute the new rental struck in February 2009 but did not do so. Moreover, there is no evidence before the Court supporting claims of misleading conduct or representation in any manner that should permit the rental rate to be retrospectively reviewed.
[29] In the course of the hearing the issue was raised whether the second to fifth defendants continued to be bound by their guarantees following assignment of the lease to Maharaj. At that time I adjourned the hearing part heard in order to receive further submissions. Those filed on behalf of the defendants did not address the separate issue of continuing liability. Rather they largely reiterated the submissions prepared for the hearing before me.
[30] On behalf of Dilworth counsel has filed supplementary submissions.
[31] The terms of the lease provide for the guarantors to be treated as principal debtors and that they are jointly and severally liable for any breaches that the lessee would be liable for.
[32] The lease assignment provisions require a lessee to procure the execution of a deed of covenant by the assignee that is not to release the lessee from the lessee’s obligations under the lease.
[33] Counsel submits and I accept that by executing the deed of lease as guarantors, the second to fifth defendants accepted that the lease could be assigned and that this would not release the lessee and, consequently, the guarantors from their liability under the lease. In this case the lease was assigned according to the lease terms, without variation or extension of guarantee liability terms.
[34] A lessee who assigns a lease remains liable to the lessor for payment of rent and the performance of all lessee covenants. Under the guarantee the second to fifth defendants stand in the shoes of the lessee and must meet the lessee’s obligations including the payment of rent and performance of all covenants. Accordingly, the second to fifth defendants are jointly and severally liable together with Jack’s Ventures for all rental and other monies payable by the lessee under the lease and for the observance and performance of all covenants of the lessee.
[35] The second to fifth defendants’ obligations as guarantors were unaffected by
Jack’s Ventures’ assignment of its lease to Maharaj.
Conclusions
[36] The defendants’ plight is understandable. To their mind unheralded motorway works began at about the same time Jack’s Ventures purchased the greengrocer business. But, it is most unlikely those works were unheralded. Public notice of them would have been given long before those works began.
[37] The defendants’ claims are supported by suspicion and supposition, but little
else.
[38] Unsurprisingly the deed of lease contains no covenants that will serve to insure or protect the defendants from the consequences of their having taken the lease in January 2009. I am satisfied that there is no validity in the defendants’ proposed counterclaim.
[39] Dilworth has therefore satisfied me that the defendants do not have a defence to claims of liability for losses occurred in the outcome of the cancellation of the lease.
Decision
[40] Summary judgment on the issue of liability is entered against each of the defendants.
[41] As costs follow the event under the statutory costs regime, the plaintiff is entitled to an order for costs. A single award of costs on a 2B basis together with disbursements (as fixed by the Registrar) is made which the defendants are directly and severally liable to pay.
[42] The proceeding is to be re-listed for mention in the chambers list on 9 May
2012.at 2.15 pm. The purpose of the mentions hearing will be to discuss directions for a further hearing on the issue of quantum (whether pursuant to r 12.3 of the High
Court Rule or otherwise).
Associate Judge Sargisson
0
0
1