Drake City Limited v Tasman-Jones
[2016] NZHC 3164
•20 December 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-002810 [2016] NZHC 3164
BETWEEN DRAKE CITY LIMITED
Plaintiff
AND
DAVID JONATHAN TASMAN-JONES First Defendant
AND
OMAR JOVANNY BARRAGAN MERCHAN
Second Defendant
Hearing: 11 July 2016 Appearances:
A J Steel for Plaintiff
Judgment:
20 December 2016
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 20 December 2016 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Beca & Co, Auckland
V Ammundsen, Auckland
S Keall, Auckland
A Steel, Auckland
DRAKE CITY LTD v TASMAN-JONES & Anor [2016] NZHC 3164 [20 December 2016]
[1] Drake City Limited claims summary judgment for unpaid rent and outgoings against the defendants, David Tasman-Jones and Omar Merchan, as guarantors of a lease.
Background
[2] Drake is the registered proprietor of restaurant premises located at the Victoria Park Market in Auckland. In April 2012 it bought the premises from Victoria Quarter No. 1 Limited and acquired the reversion of the lease that Victoria had granted to BMTJ Limited in September 2011.
[3] The defendants, on the directions of BMTJ, provided a written guarantee for the performance of the lease including payment of the rent and outgoings. As found by Venning J in the context of the defendants’ earlier application for a stay of the plaintiff’s proceeding, the defendants remain bound by their covenants under the lease.1
[4] On 17 September 2012 BMTJ and Drake entered into a variation of the lease, following BMTJ’s complaints about the effects of ongoing upgrading work at the Victoria Park Market and low levels of occupancy of other premises in the Market. The variation allowed a reduction of rent for a temporary period.
[5] By March 2013 BMTJ’s directors decided to sell the restaurant business due
to its poor performance. Attempts to sell failed. There were no buyers.
[6] On 1 January 2014 BMTJ fell into arrears with its payments under the lease and thereafter failed to pay the rent and the outgoings. On 14 March 2014 BMTJ was placed into voluntary liquidation.
[7] On 18 March 2014 the liquidators disclaimed the lease. Drake eventually found a new tenant and entered into a lease on 1 March 2015, at which point it
terminated the lease to BMTJ.
1 Drake City Ltd v Tasman-Jones, [2016] NZHC 899 at [42] per Venning J.
[8] Drake now seeks judgment for the unpaid rent or $143,717.16 for 1 January
2014 to 31 December 2014 plus the outstanding outgoings of $56,544.25 for that period.
Grounds of opposition
[9] The defendants’ grounds of opposition set out in its notice of opposition can
be summarised as follows:
(a) That there is a set-off for damages for loss suffered as a result of breach of quiet enjoyment covenant cause be construction dust, noise and other disruption, as set out in the affidavit of the second defendant.
(b) The set-off may be applied to the operating expenses.
[10] These grounds are primarily concerned with issues relating to the outgoings though the first ground is broadly referable to both rent and outgoings.
Legal principles
[11] Drake 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.
…
[12] 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
[13] I put aside momentarily the issues requiring determination to record certain procedural matters at the commencement of the hearing. Counsel for the defendants was given leave to withdraw, which left the first defendant as the sole defendant to appear. The second defendant did not appear.
[14] The first defendant sought an adjournment on behalf of himself and the second defendant, which I declined. The request was unsupported by any reasons other than a general unpreparedness to proceed. Additionally:
(a) The matter has a long history, such that the defendants could not but be familiar with Drake’s case or the matters they themselves rely upon in opposition.
(b)I was informed by Mr Keall at the outset that he had advised the second defendant of the intention to seek leave to withdraw and of the need to make an appearance in person.
(c) Counsel for the plaintiff recognised properly that if there was any substance in the case relied upon by the first defendant, such that summary judgment against him should be declined, the same result should apply to the second defendant.
[15] The first defendant made brief submissions in opposition to the application. The submissions were concerned essentially with the plaintiffs’ claim for the outgoings. It is nevertheless for the plaintiff to establish both the claim for rent, as well as the outgoings, as it has the overarching onus.
The claim for rent
[16] I turn then to the claim for the rent and the issue of whether there is an arguable defence such that summary judgment would be inappropriate. There is no dispute that rent in the amount claimed by the plaintiff was not paid as required under the lease. The grounds of opposition rely on a set off against the rent for loss allegedly suffered as a result of an alleged breach of the quiet enjoyment covenant in clause 32.1 of the lease. They appear to recognise however that any such set off at least against the rent will not be a defence to the present summary judgment application.
[17] The reasons are twofold. First, the parties have agreed (by the terms of clause 44.1) that disputes to recover rent and outgoings may be pursued by the landlord by ordinary proceedings and without resort to arbitration. Clause 44 relevantly states:
Arbitration
44.1 UNLESS any dispute or difference is resolved by mediation or other agreement, the same shall be submitted to the arbitration of one arbitrator who shall conduct the arbitral proceedings in accordance with the Arbitration Act 1996 and any amendment therefore or any other statutory provision then relating to arbitration.
…
44.3 THE procedures prescribed in this clause shall not prevent the Landlord from taking proceedings for the recovery of any rent or other monies payable hereunder which remain unpaid or from exercising the rights and remedies in the event of such default prescribed in clause 28.1 hereof.9
[18] Secondly, clause 1.1 of the lease expressly excludes any right of set- off against the rent for disputes of the kind relied upon by the defendants. It states:
Rent
1.1 THE Tenant shall pay the annual rent by equal monthly payments in advance (or as varied pursuant to any rent review) on the rent payment dates. The first monthly payment (together with rent calculated on a daily basis for any period from the commencement date of the term to the first rent payment date) shall be payable on the first rent payment date. All rent shall be paid without any deductions or set-off by direct payment to the Landlord or as the Landlord may direct.
[19] Indeed, these matters already been determined by Venning J in the context of the earlier stay application. He found:
[25] The defendants’ claims of misrepresentation and breach of cl 32.1 are opposed and are currently unqualified. They are properly disputes which should be referred to arbitration in terms of cl 44.1. However, the fact those disputes should go to arbitration does not prevent Drake from taking these separate proceedings to recover rent and outgoings. The parties agreed that Drake was not prevented from doing so despite the reference to arbitration of other disputes under the lease. The commercial reason for such a clause is obvious. It is the same reason parties provide for no set-off clauses in relation to rent in leases.
[26] Indeed cl 1.1 of the lease in this case confirms that there is no right of set-off in relation to the disputes that the defendants now seek to rely on, at least as against the claim for rent. The complicating feature of this case on that aspect is that cl 1.1 only refers to rent. It does not refer to outgoings, so the claim for outgoings may not be excluded from set-off. The consequence of that is a matter for consideration at the summary judgment stage. For present purposes, the effect of cl 44.3 remains that Drake may pursue these proceedings and its application for summary judgment for rent and outgoings.
[20] There is therefore no bar to Drake’s seeking judgment for the outstanding rent for the outstanding rent by summary judgment, as opposed to arbitration; and nor is there any available defence by way of set-off to summary judgment for the rent.2 If there is an arguable claim for breach of the covenant of quiet enjoyment then that will have to be pursued by the defendants by some means other than by set off against rent in this proceeding.
Claim for outgoings
[21] I turn then to the claim for the outgoings. Two issues arise for determination:
2 No defence was provided by the first defendant, and indeed, none was relied upon. There will therefore be judgment for the outstanding rental owed.
(a) Does clause 1.1 of the lease also bar a right of set-off against unpaid outgoings for breach of the quiet enjoyment covenant? If not, does that mean that the alleged breach may be raised as a defence by way of set-off in this proceeding?
(b)Has the plaintiff discharged the onus of demonstrating that there is no arguable case for breach of the covenant of quiet enjoyment? (If such is the case, Drake will be entitled to summary judgment on its claim for the outgoings).
Issue One
[22] Dealing with the first issue, the terms of clause 1.1 set out what the parties expressly agreed in terms of the landlord’s right to be paid the rent free of any deduction or set-off. For reasons best known to the parties, they have said nothing in clause 1.1 that might reflect an intention that this right should extend to the outgoings. Clause 1.1 as noted above states :
[23] 1.1 THE Tenant shall pay the annual rent by equal monthly payments in advance (or as varied pursuant to any rent review) on the rent payment dates. The first monthly payment (together with rent calculated on a daily basis for any period from the commencement date of the term to the first rent payment date) shall be payable on the first rent payment date. All rent shall be paid without any deductions or set-off by direct payment to the Landlord or as the Landlord may direct.
[24] As Venning J noted, this is a “complicating feature”, which he described as
follows:
… cl 1.1 only refers to rent. It does not refer to outgoings, so the claim for outgoings may not be excluded from set-off. The consequence of that is a matter for consideration at the summary judgment stage. For present purposes, the effect of cl 44.3 remains that Drake may pursue these proceedings and its application for summary judgment for rent and outgoings.3
[Emphasis added].
[25] There is another complicating feature in relation to the outgoings; the defendants contend there is a set off. They say the extent of it is to be dealt with by
arbitration. They also rely on it as a defence to summary judgment. I can only assume that they do indeed rely upon it as such.
[26] Counsel for Drake acknowledged that it is difficult to construe the lease as supporting an intention on the part of the parties to bar set-off as a defence against a claim for outgoings. He has contended that the real argument for Drake relates to the question whether there is an arguable defence to summary judgment in breach of the covenant for quiet enjoyment. In other words, the plaintiff accepts that the alleged breach may be relied upon as a defence to summary judgment assuming there is a tenable argument about breach.
Issue two
[27] I turn then to the issue of whether or not breach of the covenant for quiet enjoyment is arguable.
[28] Counsel for Drake acknowledges that the defendants’ evidence claims disruption caused by construction activities that were troublesome to the defendants. He conceded responsibly that “at a pinch” the second defendant’s evidence might be sufficient to lay an evidential foundation for breach of quiet enjoyment; and he drew to my attention a decision of the Chief Justice, which indicates that construction works and their adverse effects can be a breach on the part of the landlord if the
landlord has some control over the construction activities.4 Counsel accepted in this
case that Drake did have a measure of control. However, he submitted that there are two good reasons why the defendants claim to a set off for breach of the quiet enjoyment covenant should be rejected and summary judgment granted, as follows:
(a) First, whether or not there is an arguable case for breach of the covenant turns on whether the effects of disruption caused by construction are sufficiently serious and particularised by the second defendant in his evidence so as to constitute a breach of the covenant. He says they are not sufficiently particularised.
(b)Secondly, even if prima facie there was sufficient evidence of disruption caused by construction, the Court is entitled to take a robust view given that the evidence was raised late in the piece.
[29] Counsel for the plaintiff further submitted that the first defendant placed little emphasis on the adverse effects of construction, and emphasised the main problem was really one of ‘isolation’ and the existence of surrounded untenanted property or shops.
[30] These submissions are not without their difficulties and I do not agree with them. The plaintiff will be entitled to seek further particulars, but the evidence as it stands is sufficient to paint a picture of substantial disruption from dust, construction noise, and other effects which, if true, point to a possible breach of the defendants’ right to quiet enjoyment. Further, the lack of occupancy of other tenancies may well be a consequence of such effects and as such tend to reinforce the defendants’ complaints of breach and loss. While not wishing to say anything that is determinative of the issue of whether or not there was a breach, it would be peremptory to grant summary judgment – to do so would be to ignore the evidence that has been given about the alleged nature and effects of construction work on the defendants’ right to quiet enjoyment and the right to put the allegation of breach to the test at trial. Caution, rather than robustness, is warranted in this case.
Result
[31] For reasons have discussed I am satisfied that the case for summary judgment for the claimed rental is made out. I am not satisfied such a case has been made out for that part of the plaintiff’s claim that relates to the outgoings. Accordingly Drake’s application for summary judgment is allowed in part and declined in part as follows:
(a) I enter summary judgment against both defendants for the claimed rental of $143,717.16 for 1 January 2014 to 31 December 2014.
(b) I decline summary judgment for the unpaid outgoings of outgoings of
$56,544.25 for that period. The claim for the outgoings is to be adjourned to an initial case management conference. The defendants are to file and serve a statement of defence not later than February
2017 in which they may raise as a defence the alleged set-off claimed in respect of the outgoings for breach of the covenant of quiet enjoyment.
[32] Costs and remaining issues of interest are reserved. Either side may seek to have the issue of costs or quantification of interest brought before the Court at the initial case management conference, or earlier, by way of memorandum filed on two days’ notice.
[33] I add as a postscript that it remains open to Drake to refer the claim for outgoings to arbitration. In view of my finding that there is an arguable dispute to the breach of the covenant of quiet enjoyment, the parties may consider it appropriate to refer all of the remaining issues to arbitration – in which case the remaining issues in this proceeding should be stayed pending the outcome of
arbitration.
Associate Judge Sargisson
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