Hawkins v Gannon
[2022] NZHC 941
•5 May 2022
IN THE HIGH COURT OF NEW ZEALAND MASTERTON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKAORIORI ROHE
CIV-2021-435-19
[2022] NZHC 941
BETWEEN KATHRYN ANNE HAWKINS, TERENCE SPENCER JOHN HAWKINS, RUSSELL SPENCER HAWKINS and
BEVERLEY KAY HAWKINS
PlaintiffsAND
PATRICK GANNON and CAROLINE DENISE GANNON
Defendants
Hearing: 23 March 2022 Appearances:
M J Wenley for Plaintiffs Defendants in person
Judgment:
5 May 2022
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
Introduction
[1] At all material times the trustees of the R & B Hawkins Family Trust (“plaintiffs” or “trustees”) have owned a property in Upper Hutt on which there is a motel complex. Pursuant to a deed of lease dated 1 April 2003 the trustees leased the property to a third party. Pursuant to a deed of assignment of lease dated 11 March 2011, the leasehold interest in the property was assigned to McGannon Motels Ltd (“McGannon Motels” or “company”). Mr and Mrs Gannon (“defendants” or “Gannons”) were the shareholders and directors of McGannon Motels. They were also parties to the deed of assignment, executing it as guarantors of the discharge by the company of its obligations under the same.
HAWKINS, v GANNON [2022] NZHC 941 [5 May 2022]
[2] The Gannons ran the motel down to 11 May 2021, on which date this Court made an order winding up McGannon Motels.
[3]Following McGannon Motel’s winding up, the liquidators disclaimed the lease.
[4] Presumably, the trustees have taken, or are taking, whatever steps are available to them to advance their claim against the company in liquidation.
[5] In this proceeding, they seek summary judgment against the defendants pursuant to their guarantees. There are six components to the claim:
(a)a claim for unpaid rent;
(b)a claim for unpaid insurance premiums;
(c)a claim for unpaid contributions to a maintenance fund;
(d)a claim for the recovery of costs incurred by the trustees for resurfacing an area of pavement;
(e)interest; and
(f)costs.
[6] The application is opposed by the Gannons, who have filed and served a notice of opposition and affidavit evidence in support of the same.
Summary judgment applications
[7]Summary judgment is governed by pt 12 of the High Court Rules.
[8]Materially, r 12.2 provides:
12.2Judgment 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.
(2)The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[9] The leading authority Krukziener v Hanover Finance Ltd where the Court of Appeal said:1
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 not consistent 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).
Under r 141A the 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.
[10] In the end, the onus rests on the plaintiff (in a plaintiff’s application) to satisfy the Court there is no arguable defence to the claim, or no arguable cross-claim that should be brought to account at the same time. Although, as I say, the onus is on the plaintiff throughout, if a defendant contends that there is an arguable defence or cross-claim, the defendant must be able to point an evidential foundation for the same. In order to enter summary judgment against a defendant, the Court must be in a position to conclude that the plaintiff’s case is unanswerable, and such a conclusion will not be available where there is an arguable defence or cross-claim. Whilst the Court may deal with clear cut legal issues in the context of an application for summary judgment, the summary judgment context is less appropriate for determining factual
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at [26]–[27].
disputes and that is especially so where pleadings are necessary to enable the essential issues to emerge.
The trustees’ case
[11] The plaintiffs’ case is straightforward. They say that the evidence establishes their claim against the company in liquidation, and that the defendants as guarantors have no arguable defence, either on the basis that the claim or any aspect of it could not succeed against the company, or on any basis relating to the enforceability of their guarantees.
The Gannons’ case
[12] Mr and Mrs Gannon are acting for themselves. They have sought to articulate the defences on which they rely in their affidavit evidence and their submissions. Both are a mix of factual assertion and argument. They go well beyond what would be necessary to address the claim against them. I propose to focus on the evidence and argument that is responsive to the plaintiffs’ claim.
The relationship between the parties
[13] At the outset, it may be useful to address a general allegation made by the Gannons that permeated their evidence and submissions. The Gannons say that the trustees “took an extreme dislike to [them] and essentially started a campaign of obstruction and antagonism against [them] which has been going on since at least 2014.” More particularly they say that the trustees’ actions were designed to prevent them from operating the motel profitably, and that both the winding up proceeding and this proceeding have been commenced and pursued spitefully. The trustees deny these allegations.
[14] It is no part of the Court’s role in this proceeding to adjudicate on the relationship between the parties, much less to attribute blame for any difficulties with that relationship over the years. If, as is alleged, there was any unlawfulness, impropriety or unfairness in the trustees’ proceeding under the Companies Act 1993 in which they moved to wind the company up, then that is a matter which could and
should have been addressed in that proceeding. It is outside the scope of the Court’s role in this proceeding to revisit the issue. On 11 May 2021, this Court made an order winding the company up. That is the starting point. On its face, this proceeding is an orthodox claim under guarantees given by the Gannons.
Rental
[15] The plaintiffs say that as at the date on which McGannon Motels was wound up the company had short paid rent. The Gannon’s accept this. The only issue is the amount involved. This has been something of a moving feast. By the conclusion of the hearing, the trustees’ case was that the short paid rent totalled $135,125.33.
[16]This sum is made up of two components:
(a)first, there was a rent review which concluded with an arbitration. The arbitrator’s award increased the rental from that date from $160,000 to
$185,000 per annum. This involved a monthly increase of $2,395.84. The Gannons, it would seem, did not agree with the outcome of the rent review process, and never paid the increased rent. Accordingly, the first component of the claim is the difference between the earlier and increased rental from August 2019;
(b)the second component of the claim is for three months’ rent which, allegedly, was not paid.
[17] Mr and Mrs Gannon accept that they did not pay the increased rental and do not contest the first component of the claim.
[18] However, they say that there were no missed payments prior to the company being wound up, and they also point to the fact that the liquidators paid rental after the liquidation.
[19] The Gannons refer to the company’s bank account statements which they say show the three payments.
[20] However, as Mr Wenley submits, the evidence confirms that all payments made by McGannon Motels have been brought to account in calculating arrears. The payments on which the Gannons focus were all allocated to earlier months because, from the start, rent was in arrears.
[21] As already said, the Gannons also seek to rely on rental payments made by the liquidators in respect of the period after the company was wound up. It is elementary that the position as between the trustees and the company, and therefore the liability of the Gannons under the guarantee, must be assessed as at the date of liquidation. The Gannons are not entitled to credit for any rental payments made by the liquidators.
[22] I accept Mr Wenley’s submission that the trustees have established that McGannon Motels short paid rent in the sum of $135,125.33.
Insurance
[23] Mr and Mrs Gannon accept that McGannon Motels short paid insurance premiums in the amount of $67,811.54.
[24] There is therefore no issue for determination in relation to this component of the claim.
Maintenance fund arrears
[25] Clause 17 of the lease provided for the establishment of a maintenance fund in the following terms:
17.Maintenance fund
17.1The landlord shall set up a bank account called the Hawke’s in Maintenance Fund in the joint names of the landlord and the tenant.
17.2The tenant shall pay into the bank account on each rent payment date an amount that is equal to the following proportion of the monthly payment that is due on the rent payment date and the Goods and Services Tax charged on the monthly payment:
(a)four per cent, if the rent payment date is after the end of the 2nd year of the term and before or at the end of the 7th year of the term;
(b)five per cent, if the rent payment date is after the 7th year of the term;
17.3The tenant with the approval of the landlord may use the contents of the bank account to pay for work that is the responsibility of the tenant under clause 14.
17.4The tenant has no right to the contents of the bank account other than under clause 17.3.
17.5For the term of this lease, the landlord shall not permit the contents of the bank account to be used other than under clause 17.3.
[26] In the course of their submissions the Gannons submitted that the maintenance fund was in the nature of a trust fund held by the lessor effectively on behalf of both parties as joint beneficiaries. On that basis, they contended that, whatever monies were in the fund at the conclusion of the lease ought to be available for distribution to them.
[27] Whilst it is indisputable that the maintenance fund was to be held by the lessor in a bank account in the joint names of the lessor and the lessee, and to that extent the lessor might be viewed as holding the fund as a trustee, it seems equally clear from cl 17 that the fund was more in the nature of a purpose trust that both lessor and lessee were entitled to insist be used only to defray the cost of maintenance for which the latter was responsible under the lease. That being so, unless the Gannons were able to establish that, as at the date of liquidation, all maintenance for which they were responsible had been carried out — and their own evidence is to the contrary — there would be no prospect of them being entitled to claim the monies in the fund on the basis of some sort of resulting trust.
[28] As already said, under cl 17, the monies in the maintenance account were available only to defray the cost of maintenance for which the lessee was responsible. In order to access the maintenance fund for that purpose the trustees’ permission was required. No doubt such permission could not be withheld unreasonably.
[29] This raises a more difficult issue related to the trustees’ claim in respect of the maintenance fund (which spills over into the next component of the claim concerning pavement resurfacing) that the Gannon’s submissions touched on, but which was not developed by them.
[30] As Mr Wenley submits on behalf of the trustees, the lease is clear in the way that it attributes responsibility to lessor and lessee for maintenance.
[31]Under cl 13, the lessor is obliged to keep the buildings watertight.
[32]Under cl 14.1, the lessee’s obligations are articulated in this way:
14.1 The tenant shall keep the exterior and interior of the premises at the same good order, condition, and repair as they were at the commencement of the term, excluding any requirement to replace or repair exterior cladding or roofing where the requirement is due to fair wear and tear or defect and is the landlord’s responsibility under cl 13.
[33] The balance of cl 14 goes on to describe in a more specific way the lessee’s obligations in respect of maintenance, and, in cl 15, the lease provides that the landlord may step in and carry out the lessee’s maintenance work and charge the lessee for the same should the lessee fail in its responsibilities under the lease or not comply with a notice to repair.
[34] The Gannon’s evidence and submissions contained a considerable amount of material directed at establishing exactly which party was responsible for what during the term of the lease and more specifically what is meant by terms such as “capital expenditure”, “maintenance” and “repair”. It is unnecessary to attempt any definitive analysis of those matters for the purposes of disposing of the trustees’ application for summary judgment.
[35] In their evidence and submissions, the Gannons described how over the years McGannon Motel was obliged to carry out a large amount of work to keep the motel running, which they say, and I agree, predominantly involved maintenance for which the company was responsible. The Gannons put a figure on the company’s expenditure over the years on maintenance of approximately $467,700.00 (plus GST). Whether that figure is correct, and how it should be attributed to expenditure for which the lessor was responsible and expenditure for which the lessee was responsible, the evidence does not enable the Court to determine.
[36] However, the Gannons’ evidence is that, time and again, they sought permission from the trustees to use the monies accumulated in the maintenance fund
to defray the cost of this work, and their evidence, which is largely uncontested, is that such permission was rarely given.
[37] Whilst, as already said, the Court may not at this stage be in a position to determine how much expenditure McGannon Motels incurred, or what proportion of that should properly be regarded as maintenance for which the lessee was responsible, or the reasonableness or otherwise of the landlord’s refusal to permit the lessee to access the maintenance fund to cover the costs involved, standing back from the matter as best I can, I am not satisfied that the trustees can demonstrate to the necessary standard that McGannon Motels would not have been entitled to defend this claim against it on the basis that at least some quantifiable and material proportion of the expenditure was of a character in respect of which the trustees were obliged to permit the lessee to access the maintenance fund to defray.
[38] Obviously, if such a defence were open to McGannon Motels, it is open also to the Gannons as the guarantors of that company’s obligations.
[39] This, it certainly appears to me, constitutes an arguable defence to the trustees’ claim in respect of the maintenance fund. Strictly speaking that conclusion renders it unnecessary to go on and deal with the issue of quantum, but it may be helpful to do so in any event.
[40] The Gannon’s position in relation to this issue is similar to their position in relation to rental payments. They say that they paid an additional three payments of
$766.67 up until the liquidation on 11 May 2021. They also say that after that date the liquidators made additional payments.
[41] The trustees’ response too is the same. They accept that the three payments were received from McGannon Motels to the maintenance fund in February, March and April 2021 and say that these were credited by them to payments which should have been made but which were not made in July, August and September 2020. They say that any payments made by the liquidator after the company was wound up are irrelevant.
[42] On the evidence, I am satisfied that the trustees can establish that McGannon Motels underpaid the maintenance fund in the sum of $12,122.96. For the reasons already articulated I accept the trustee’s submission that payments made by the liquidators after the company was wound up cannot be brought to account.
Resurfacing
[43] During the period of time that the trustees leased the motel to Gannon Motels, the trustees initiated the resurfacing of the paved areas of the complex. Ultimately, the trustees incurred costs for this work totalling $63,644.45. They say that they were entitled to recover that amount against the company, and are therefore entitled to do so against the Gannons.
[44] The affidavit evidence of both parties, and the submissions made on the trustees’ behalf and by the Gannons cover a considerable amount of ground. In my view, the position is not especially complicated.
[45] The parties agree that on 24 December 2018 the trustees served a notice effectively requiring the Gannons to carry out this maintenance work.
[46]The Gannons ignored this notice.
[47] Accordingly, the trustees proceeded to carry out the work and paid the cost of the same.
[48] There is no doubt that the lessee was responsible for maintaining the pavement. Clause 14.4 of the lease expressly provided so. The Gannons contend that the work was unnecessary and that the paving could have been adequately maintained at considerably less cost. This is not a building dispute. There is no evidence before the Court which will enable the Court to reach a determination on that score.
[49] However, it will be obvious that the defence that I have concluded is available to the Gannons in relation to the maintenance fund contribution applies equally to this component of the trustees’ claim. If, as seems clear, McGannon Motels was
responsible for this resealing work, then prima facie it was entitled to access the maintenance fund to defray the cost of the same.
[50] For the reasons already explained, that appears to me to provide the Gannons with an arguable defence to this component of the claim.
Scope of potentially available defence
[51] In relation to the claims by the trustees concerning maintenance fund contributions and the pavement resurfacing work, I have concluded that an arguable defence is available to the Gannons. Essentially, the defence is that Gannon Motels may have been entitled to access the maintenance fund to defray costs that it incurred in carrying out maintenance work including the cost of the pavement resurfacing work.
[52] Obviously, if such a defence were to be successful, it would only affect the two relevant claims, and would only serve to reduce those claims by the amount that was in the maintenance fund as at the date of liquidation. The evidence does not identify that amount. Nevertheless, to this extent, I am not satisfied that the trustees have been unable to establish that the Gannons do not have a defence. I propose therefore to decline the trustees’ application for summary judgment insofar as it relates to these two components of the claim.
Interest
[53] The plaintiffs claim interest on any amount in respect of which they are entitled to summary judgment on the basis of cl 7 of the lease. Clause 7 provides that in the event of a failure to pay any monies payable to the lessor by the lessee that are overdue by 14 days or more the lessor is obliged to pay interest at 2 per cent more than the rate of interest that the landlord back charges on the due date for an overdraft on a cheque account.
[54]This is a perfectly orthodox provision in commercial leases.
[55] The Gannons complain that interest calculated at 2 per cent above an overdraft rate is verging on punitive. That, however, is the terms that the parties agreed, and it is no part of the Court’s role to modify the terms of that contract after the event.
[56]The evidence covers the trustees’ bank’s overdraft rate.
Costs
[57]The trustees also seek costs.
[58] These are provided for in cl 8 which essentially provides that the lessor is entitled to its actual and recoverable solicitor and client costs.
[59] As far as I can see the trustees’ costs are not contained in the evidence at this stage, so that the Court will be obliged to deal with costs separately.
[60] Whilst the Gannons did not oppose costs on this basis, it appears to me to be fair to allow them an opportunity to review their stance on costs in the light of this judgment.
Conclusion
[61] For those reasons, the plaintiffs are entitled to summary judgment against the defendants for:
(a)A total amount of $202,936.87 made up as follows:
(i)unpaid rental of $135,125.33; and
(ii)unpaid insurance premiums of $67,811.54; and
(iii)interest at the contractual rate.
[62] The plaintiffs’ application for summary judgment in respect of alleged unpaid contributions to the maintenance fund and the resurfacing costs is dismissed, and will have to proceed to trial.
[63] As to costs, these are reserved. If they cannot be agreed the parties may file memoranda in the usual way;
[64] The Registrar is to enter this matter in the next Masterton Associate Judge’s list for mention, when I would expect to make directions for the disposal of any outstanding interlocutory matters and set the matter down for trial.
Associate Judge Johnston
Solicitors:
Willis Legal, Napier for plaintiffs
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