JNJ Holdings Ltd v Kent Sing Trading Co Ltd - [2017] NZHC 3274

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

CIV-2015-404-000099

[2017] NZHC 3274

BETWEEN JNJ HOLDINGS LIMITED
Plaintiff

AND KENT SING TRADING COMPANY
LIMITED
First Defendant
QUOC THAI
Second Defendant
LE QUAN WU
Third Defendant

Hearing: 13 to 17 February 2017

10 April 2017
3 to 7 July 2017

Appearances: Paul Dalkie for the Plaintiff

Michael Black for the Defendants

Judgment: 21 December 2017

JUDGMENT OF MOORE J

This judgment was delivered by me on 21 December 2017 at 12:00 pm
pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

Date:

JNJ HOLDINGS LIMITED v KENT SING TRADING COMPANY LIMITED & ORS [2017] NZHC 3274 [21 December 2017]

Contents

Paragraph

Number

Introduction............................................................................................................ [1]

Factual background............................................................................................... [5]

The pleadings........................................................................................................ [26]

Burden of proof..................................................................................................... [42]

The parties to the contract – a privity issue....................................................... [44]

Did JNJ validly cancel the contract?.................................................................. [53]

Was Kent Sing in breach of the lease at the time JNJ issued its notice? ...................................................................................................

(a)      Rent..................................................................................................... [57]
(b)     Operating expenses ........................................................................... [61]
(c)      Consumables...................................................................................... [69]
(d)            Marketing and promotion fund...................................................................................... [71]
Did the notice dated 10 June 2014 comply with the relevant provisions of the

PLA? ...................................................................................................

(a)      Inconsistency with invoices .............................................................. [73]
(b)     “With” versus “within”....................................................................... [74]
(c)      Other expenses not due and payable................................................... [78]

Did JNJ re-enter the premises prematurely?... ................................................................................................... [85]

Matters raised in defence – my approach to the factual analysis.................... [92]

Alleged breaches

Water leaks...... ................................................................................................... [95]
Noxioussmells ................................................................................................... [156]

Signage ............................................................................................................ [184]

Automatic doors ............................................................................................. [238]

Lessor’s works ................................................................................................... [252]

(a) Clause 5............................................................................................. [253]
(b) Clause 6............................................................................................. [264]

Roof and exterior. ................................................................................................... [268]

Commonareas ................................................................................................ [272]

Utilities ................................................................................................... [280]

Failure to deliver-up; “the white sheet”... ................................................................................................... [285]

(a) Did the white sheet screen off the lower basement?......................... [291]
(b) Did the white sheet amount to a landlord acquiescence?.................. [300]

Alleged breaches of terms.................................................................................. [305]

Quiet enjoyment

Pleadings..................................................................................................................................................................................................................................... [306]
Legal principles ........................................................................................................... [312] Analysis ...........................................................................................................

(a) Whether the water leaks and the smells, individually or collectively
breach the landlord’s covenant of quiet enjoyment?......................... [318]

Business efficacy

Pleadings [325]

Legal principles... ........................................................................................................... [329]

Analysis. ........................................................................................................... [336]

(a)      Was fitness for purpose an implied term?.......................................... [337]
(b)     Does the “as is” term deny relief?..................................................... [340]
Derogation from grant
Pleadings   [344]

Legal principles... ........................................................................................................... [345]

Analysis. ........................................................................................................... [350]

Penalty interest..................................................................................................... [355]

The submissions for Kent Sing. ........................................................................................................... [357]

Were the payments for rent and other expenses due and payable?. ........................................................................................................... [358]

Is JNJ required to prove loss?.. ........................................................................................................... [359]

Is cl 3.10 an unenforceable penalty?.. ........................................................................................................... [365]

What can the plaintiff claim for?

Unpaid rent..... ........................................................................................................... [376]
Unpaid operating expenses, unpaid rates and wash-up of operating

expenses for the year ending 31 March 2014.... ........................................................................................................... [377]

Unpaid utility charges. ........................................................................................................... [378]

Agency fees ........................................................................................................... [379]

Fit-out costs.. ........................................................................................................... [380]

Loss of future rent. ........................................................................................................... [381]

Legal costs associated with enforcement of rates under lease.... ........................................................................................................... [384]

Conclusion on plaintiff’s claim........................................................................... [385]

The counterclaim – did the defendants validly cancel the contract?.............. [389]

In any event, are the defendants entitled to any damages?

Pleadings [390]

Effect of the exclusion clauses.. ........................................................................................................... [394]

Negligence ........................................................................................................... [409]

Expert evidence

.................................................................................................................................. [414]

Analysis

.................................................................................................................................. [423]

Stock Damage

................................................................................................................................... [425]

Conclusion

................................................................................................................................... [446]

Result

................................................................................................................................... [448]

Costs

................................................................................................................................... [449]

Introduction

This is a dispute between the landlord of commercial premises and its tenant. The landlord claims it terminated its lease with the tenant because the tenant was in arrears of rent.
The tenant denies it was in arrears but, in any event, claims it pre-empted the landlord’s purported cancellation by terminating the lease itself. The tenant says it did so because the landlord had breached various express and implied terms under the lease. It claims its tenancy was plagued by chronic issues such as water leakage, noxious smells, problems with access and issues around signage and the operation of the automatic doors. In essence, the tenant says that the leased space was unfit for its purpose as a retail shop.
The landlord claims the tenant’s complaints are unfounded in some respects and in others, greatly exaggerated if not fabricated. The landlord seeks damages arising from its claim the tenant wrongfully terminated the lease. It seeks costs associated with securing a replacement tenant.
The tenant defends the landlord’s claim by asserting it was justified in vacating the premises due to the landlord’s breaches. The tenant also counterclaims that by reason of the landlord’s breaches it suffered stock losses, loss of customer patronage, loss of profits and other consequential losses.

Factual background

JNJ Holdings Limited (“JNJ”) is the registered proprietor of a commercial building situated at 291-297 Queen Street, Auckland. The building is known as The Metro Centre (“the Centre”). It is a large multi-storey building covering some 15,000 m2 and accommodating approximately 40 tenants.
Kent Sing Trading Company Limited (“Kent Sing”) is a wholesale company which imports, mostly from Asia, a wide variety of goods which include electronic items, clothes, apparel, souvenirs, stationery, soft toys, jewellery, phone accessories, beauty products, homeware and a range of other accessories. This stock was housed

in Kent Sing’s South Auckland warehouse. Kent Sing sells these items to local retailers.

Closely connected to Kent Sing is General Goods Limited (“General Goods”). This entity was incorporated relatively recently and was established to operate Kent Sing’s proposed new retail venture out of leased premises in the Centre. Kent Sing would supply the product from its warehouse to General Goods for sale through its Queen Street shop in the Centre.
Kent Sing was incorporated in 1996. Its directors and equal shareholders are the second defendant, Quoc Thai (Ken Thai) and his wife, Le Quan Wu, the third defendant. Theirs is a family business with the directors’ daughters, Lucinda and Michele Thai, who assisted in the management and operation of the General Goods’ retail store at the Centre.
Although there was no direct evidence on the point the forensic accountant called by Kent Sing gave evidence without objection on the reasons which lay behind Kent Sing’s decision to create a new and separate retail trading entity in the form of General Goods. He said that since its incorporation Kent Sing had built up a large base of stock which was held in its South Auckland warehouse. This facility had become significantly over stocked, presumably because the retailers to whom Kent Sing sold its stock had not purchased these goods. The stock was not treated as redundant because the Thai family believed the value of the excess stock could be realised without loss if an appropriate retail outlet was established under its control. It was believed that the premises in the Centre met that objective because they were located on Queen Street, handy to other amenities popular with the public. It was expected the new business would capitalise on the volumes of foot traffic in the vicinity. This was in the latter part of 2012.
The ground floor, upper basement and lower basement areas of the Centre had previously been occupied by Borders Bookshop, a large retail outlet, which vacated the tenancy following its liquidation. For the purposes of re-letting the vacant space JNJ reconfigured it into multiple tenancies and engaged the commercial real estate and property management company, Jones Lang LaSalle (“JLL”) to market the premises

to prospective tenants. One of the new spaces created was located on the upper basement floor with direct access off Queen Street via a set of newly installed escalators. The fast food outlet, Carl’s Jr, had recently taken over the lease of the ground floor space and was in the process of fitting out its premises. The upper basement area marketed by JLL was situated beneath the kitchen and food preparation areas of Carl’s Jr’s premises.

[11] As noted, the prominence of the Queen Street site was attractive to Mr Thai who, on several occasions, inspected the space with others including his daughters. Sometime between October 2012 and January 2013 Mr Thai, on Kent Sing’s behalf, signed a proposal with JLL to lease the upper basement space. The proposal was prepared by JLL acting as agent for JNJ. It expressly recorded that the proposal was subject to the approval of JNJ in its absolute discretion.

[12] The proposal included the following provisions:

(a)a term of seven years;
(b)commencement date of 1 March 2013;
(c)net monthly rental of $119,200 payable by monthly instalments in advance;
(d)premises to be provided to the lessee in an “as is” condition with utility connections in place and all base building services in good and tenantable condition; and
(e)signage to be erected by the lessee as determined by JNJ.

[13] To this proposal Mr Thai added two special conditions. These were recorded by the JLL agent in handwriting. They were:

(a)a condition that JNJ would not, during the term of the lease, let adjoining premises to variety discount stores including Dollar Mart,
Look Sharp, Korean 123, Japan Mart or New Zealand souvenir stores; and

(b) the ceiling tiles were to be reinstated.

[14] This proposal was followed by the execution of a formal lease which commenced on 1 March 2013. The principal provisions mirrored the earlier proposal but also relevantly added:

(a)the rental area of 403 m². In addition to the upper basement area a lower basement area of approximately 100 m² was included. This space was contiguous with, but below, the upper basement and was accessible via a short flight of three or four stairs;
(b)a requirement that Kent Sing pay a percentage of the rates on a pro-rata service area calculation;
(c)a requirement that Kent Sing pay for the utilities consumed (water, gas and electricity);
(d)that JNJ could recover damages for loss of bargain in the event of a breach by Kent Sing;
(e)Mr Thai and his wife as guarantors of Kent Sing’s obligations under the lease in the event of a default by Kent Sing; and
(f)that prior to 31 January 2013 JNJ would provide nominated services and would also re-carpet the premises, reinstate ceiling tiles and “thin out” and re-gib the concrete columns.

[15] For the first four months of the tenancy the property managers were JLL following which the management of the Centre was brought in-house and a new building manager, Mr Van der Han, assumed this responsibility. Over the months which followed there was some correspondence between General Goods and

management regarding signage, water leaks, problems with the automatic doors and complaints about unpleasant smells apparently emanating from other tenancies.

On 25 March 2014, a little more than a year after the lease commenced, Mr Thai, through one of his daughters, sent Mr Van der Han an email (the “25 March 2014 Lease Termination email”) in which she listed a series of complaints regarding the tenancy and what General Goods claimed was a chronic failure on the part of JNJ to rectify. These included complaints about the Centre’s management refusing to permit General Goods to keep the automatic doors in open mode, a smell described as “horrible” coming from the basement, a dirty and unhygienic store room, the presence of a dirty “white sheet”, dirty lifts, little or no benefit from the marketing expenses component of the rent, problems with signage, water leaks from the roof and consequent damage to stock, poor management and changes in security leading to a reduction in the quality of service. The letter concluded by purporting to give notice of General Goods’ intention to sublet the tenancy. It also demanded a reply from JNJ by 4:00 pm on 14 April 2014 after which General Goods claimed it reserved the right to sublet to other interested parties or terminate the lease with immediate effect.
This email was followed on 31 March 2014 by a face-to-face meeting with Mr Van der Han attended by Mr Thai and his daughter Lucinda. The accounts of what occurred at that meeting differ. On the one hand Lucinda Thai said she discussed, in some detail, each of the issues set out in her letter and informed Mr Van der Han that if they were not rectified Kent Sing would terminate the lease. She said Mr Van der Han understood her concerns and agreed to remedy all the defects and indicated this would be completed within about a week.
Mr Van der Han had a very different recollection of the meeting. He accepted that Lucinda Thai delivered an ultimatum that if the problems listed in her letter of 25 March 2014 were not rectified Kent Sing would terminate the lease. He agreed that Lucinda Thai said that if the problems were not remedied Kent Sing would terminate the lease.
However, he did not accept some, if not all, of Lucinda Thai’s complaints, a number of which he described as speculative opinion, which he did not share. These

included criticisms regarding security and poor management. He did, however, accept that a plan of action would have been implemented to have any outstanding issues which were material and which the management was capable of remediating, resolved.

About six weeks later, on 5 May 2014 Lucinda Thai sent Mr Van der Han another email (the “5 May 2014 Lease Termination email”). This email recorded that as a consequence of a number of issues, including continuing to pay rent for what she described as the “unusable space downstairs” Kent Sing could not continue trading. She said that the business was running at a loss. She then listed, as she had done in the previous 25 March 2014 Lease Termination email, the seven issues which she claimed had led to Kent Sing’s decision to terminate the lease.
An examination of this second email reveals that to a large extent it was simply a repetition of the same issues listed in the earlier email of 25 March 2014. In fact, large tracts of the May email are simply cut and pastes of the March email so that the items complained of and their descriptions are identically worded when the emails are examined side by side. The only item not mentioned in the 5 May 2014 correspondence, but included in the earlier email, is a reference to the automatic front doors.

Lucinda Thai wrote that they were “fed up” with the number of issues which had been left unresolved by the Centre’s management and JNJ’s failure to uphold its obligations under the lease. The letter concluded that, as a result of these unresolved issues and the conduct of JNJ, Kent Sing had decided not to continue to operate its business in the Centre and gave notice of its intention to sublet the tenancy. Advice was given that Kent Sing’s last day of trading would be 30 June 2014 following which the stock and fixtures would be removed.
However, before that date, on 11 June 2014, JNJ issued Kent Sing with a notice (dated 10 June 2014) under ss 245 and 246 of the Property Law Act 2007 (“the PLA”) advising that payments were due and were required to be paid into a nominated account. This document enclosed a notice of intention to cancel the lease alleging Kent Sing was in breach by failing to pay outstanding rent arrears and nominated operating expenses totalling $20,199.45. The notice stated that unless the breach was

remedied within 10 working days, being 25 June 2014, the landlord intended to exercise its remedies under the lease including cancellation and re-entry.

On 25 June 2014 Kent Sing removed its stock from the premises. The following day JNJ gave notice of re-entry and re-entered the premises.
On 27 June 2014 Kent Sing paid JNJ the sum of $20,199.45 as specified in the notice of intention to cancel.

The pleadings

The plaintiff’s case¹ is relatively straightforward. The plaintiff sues Kent Sing for breaching the terms of the lease by failing to pay rental and other payments by the due dates. As a consequence, JNJ exercised its remedies under the lease including cancellation and peaceable re-entry.
JNJ claims it took immediate steps to re-let the premises and secured a new tenant, Pearl Trading Limited (“Pearl Trading”), four months after Kent Sing vacated the premises. It seeks damages for the costs associated with obtaining the new tenant, unpaid rent, operating expenses, unpaid rates, unpaid utility charges for the four month period while the premises were untenanted as well as other costs associated with Kent Sing’s breach.
JNJ’s second cause of action is against Mr Thai and his wife as guarantors of Kent Sing’s obligations under the lease.
JNJ seeks judgment for $235,338.82 together with interest of $107,638.95 calculated in accordance with nominated provisions in the lease being 6 per cent above the lessor’s banks’ overdraft rate at the time of default,² compounded on quarterly rests from the date of default³ and the costs by the lessor of any expenses borne in respect of the lessee’s default.⁴
Amended statement of claim and defence to counterclaim and set-off dated 27 January 2017.
Item 16 of the First Schedule.
Clause 3.10 of the Third Schedule.
Clause 14.1(b) of the Third Schedule.

On the other hand, the defendants’ position is a good deal more complex. It is contained in the third amended statement of defence, set-off and counterclaim.⁵
In respect of the plaintiff’s claim the defendants assert that the PLA notices were invalid and the rent and other invoices issued by the plaintiff were incorrect and overstated. The defendants “put the plaintiff to proof”.
In any event, Kent Sing claims that JNJ was in breach of various express and implied terms under the lease and that Kent Sing gave JNJ notice of the breaches but Kent Sing failed to comply. Kent Sing thus claims it was justified in giving notice to cancel. Kent Sing asserts that all rental was paid and JNJ was not entitled to cancel and, in any event, JNJ was itself in breach of its obligation to undertake lessor’s works, committed various defaults under the lease which it failed to remedy, was unable to provide possession of the lower basement and common areas and as a consequence Kent Sing moved to cancel the lease and vacate the premises.
Kent Sing says that on 31 March 2014 (the meeting with Mr Van der Han) it gave notice to JNJ that if the nominated defaults were not remedied Kent Sing would vacate the premises.
Kent Sing says that the lease was not validly cancelled by JNJ due to JNJ’s defaults and JNJ’s inability to give Kent Sing possession of the whole premises. JNJ thus wrongfully repudiated the lease.
On the damages claimed for the costs of re-letting the premises after Kent Sing had vacated them, Kent Sing puts JNJ to proof.
Kent Sing advances three affirmative defences to JNJ’s claim of breach of lease. These are that there were numerous breaches of express and implied obligations including the covenant of quiet enjoyment, the failure to give business efficacy or ensure that the premises were fit for purpose and that JNJ, through its breaches, derogated from its grant under the lease.
Dated 7 February 2017.

[37] The particulars under these various heads overlap and are re-pleaded in the various affirmative and alternative defences as well as the counterclaim and set-off. However, the particular breaches asserted are as follows:

(a)there were numerous water leaks into the premises throughout the course of the lease which not only damaged stock but also disrupted the defendants’ business (“water leaks”);
(b)there were noxious smells emanating from or caused by other tenancies which rendered the lower basement area unusable for retail purposes (“noxious smells”);
(c)an oral agreement on signage was negotiated before the lease was executed. The plaintiff breached the terms of that oral agreement and, furthermore, caused unreasonable delays in the defendants’ attempts to erect the signage as agreed (“signage”);
(d)the glass automatic doors on the Queen Street frontage malfunctioned, which inhibited pedestrian traffic off Queen Street from entering the store (“automatic doors”);
(e)the plaintiff failed to carry out lessor’s works to premises and lessor’s works to adjoining tenancies (“lessor’s works”);
(f)the plaintiff failed to maintain the roof and exterior of the Centre as required by the lease (“roof and exterior”);
(g)the plaintiff failed to maintain the common areas as required by the lease (“common areas”);
(h)the plaintiff failed to provide utility services such as electricity, water, gas and telephone as required by the lease (“utilities”); and
(i)the plaintiff failed to deliver up the whole or part of the premises as required by the lease (“failure to deliver up”).

As to the guarantees, the defendants accept personal guarantees were given but claim no liability under the guarantees arises by reason of JNJ’s breaches under the lease (as nominated above).
In their amended set-off and counterclaim the defendants claim to maintain, jointly and severally with General Goods, a legal and equitable right of set-off and/or counterclaim against any amount that may be payable to the plaintiff. The defendants claim that they validly cancelled the lease, that JNJ has no entitlement in damages and that if the defendants owe any liability to JNJ the defendants’ losses should be set off. By way of relief the defendants (and General Goods) claim stock damage of $57,478.73, loss of profit of $727,164.77 together with interest and costs.
By way of further counterclaim and set-off the defendants and General Goods claim in negligence. They say that JNJ owed the defendants a duty of care to prevent water ingress and breached that duty of care thereby causing the losses described above.
The defendants also challenge the plaintiff’s claim for compound interest, asserting it amounts to a penalty and is punitive, unenforceable, extravagant, onerous and/or equates to a credit contract which should be re-opened on the grounds it is oppressive and contrary to reasonable standards of commercial practice.

Burden of proof

Before examining the substantive issues, it is necessary to examine how the burden of proof operates in a case such as this. Put simply, the party who asserts must prove. The authors of Cross on Evidence elaborate:⁶
“The general (but probably not universal) rule in civil cases is that the plaintiff must prove all the elements of liability that together constitute the cause of action, even when such elements include negative matters such as lack of consent or want of due notice. The defendant must prove any matters which it pleads in confession and avoidance. Walsh JA put it thus:⁷
‘In my opinion, the burden of proof in the first sense lies on a plaintiff, if the fact alleged (whether affirmative or negative in form) is an
Matthew Downs (ed) Cross on Evidence (online looseleaf ed, LexisNexis) at [2.32].
Currie v Dempsey [1967] 2 NSWR 532 at 539.

essential element in his cause of action, e.g. if its existence is a condition precedent to his right to maintain the action. The onus is on the defendant, if the allegation is not a denial of an essential ingredient in the cause of action, but is one which, if established, will constitute a good defence, that is, an “avoidance” of the claim which, prima facie, the plaintiff has.’”

Applying these principles to the present case, the onus lies with JNJ, as plaintiff, to prove its claim for non-payment of rent and other expenses which were owing under the lease and to prove that its cancellation was lawfully effected. However, it is for the defendants to prove JNJ was in breach of the lease itself when it purported to cancel the contract and it is for them to prove the various matters it asserts in its counterclaim.

The parties to the contract – a privity issue

An antecedent issue arises. The lease agreement was executed between JNJ and Kent Sing. Mr Dalkie, for JNJ, submits that General Goods was never a party to the lease with the consequence that it cannot make a counterclaim in contract.
Mr Dalkie submits that Kent Sing and General Goods are separate and distinct companies. As he observes, Kent Sing was incorporated on 1 May 1996, had its own GST number, delivered annual accounts, and conducted its business from its warehouse at 533H Great South Road, Papatoetoe. General Goods, on the other hand, was incorporated on 21 January 2013, had its own GST number, delivered annual accounts, and conducted its business at the Queen Street premises. Mr Dalkie submits these companies are separate and distinct legal personalities and are not interchangeable.
Item 2 of the First Schedule of the lease names the “Lessee” as “Kent Sing Trading Company Limited”. The term “Lessee” is then defined under the lease variously as follows:⁸
“Lessee and persons under the control of the Lessee means the Lessee the servants and agents of the Lessee and any other person in or about the Premises at any time at the request or invitation of or under the control or direction of the Lessee;
Clause 1.1 of Schedule 3.

Lessee or Lessee’s Agent means the Lessee or any other person for whose acts or omissions the Lessee is responsible;
Lessee described in ITEM 2 of the First Schedule means the Lessee the successors and permitted assigns of the Lessee and where not repugnant to the context the servants licensees contractors customers and agents of the Lessee and any other person under the Lessee’s direction or control”

Mr Dalkie, emphasising the separate legal personality of General Goods, submits that there was no assignment of the lease from JNJ to General Goods at any stage. As he points out, the lease prohibited any such assignment for the first 12 months of its duration and thereafter JNJ’s consent was required before any such assignment could occur. As Mr Dalkie submits, there is no evidence to suggest that Kent Sing ever sought JNJ’s approval for an assignment or that Kent Sing ever intended to assign the lease to General Goods.
On the basis of this analysis, Mr Dalkie submits that “all of the claims for breach of contract made by Kent Sing must fail” because “it was never in the premises at the material time”. His argument is that if Kent Sing never occupied the premises, it cannot have been affected by any of JNJ’s alleged contractual breaches. Mr Dalkie submits further that any claim by General Goods for damages for loss of business based upon a breach of the lease must fail as it is not the contracting party.
In response, Mr Black for Kent Sing, refers to Item 20 of the First Schedule of the lease. This item describes the “permitted use of the premises” as “a variety or department store as represented in the attached Business Plan dated 17 September 2012”. The attached business plan, in turn, refers to General Goods trading out of the premises. Mr Black submits the reference to General Goods in the business plan, coupled with the subsequent correspondence between JNJ and General Goods, clearly demonstrates that the parties contemplated General Goods trading out of the premises. Mr Black submits that General Goods and Kent Sing’s trading activities were so closely aligned that it would make no commercial sense for them not to trade out of the same premises. To buttress his position, Mr Black emphasises the wide definition of “Lessee” under the lease.
I accept Mr Dalkie’s submission that General Goods never stood in a relationship of contractual privity with JNJ. It was not the lessee in that sense. While

“Lessee” is defined broadly in the lease to include its agents and those under its direction or control, the breadth of this definition cannot operate to confer contractual rights under the lease to any entity other than Kent Sing. The reference to “customers” in the definition of “Lessee” illustrates this point. In certain contexts, it makes sense for references in the lease to the “Lessee” to incorporate references to its customers. However, it is elementary that a customer could never sue JNJ in contract. The protean nature of the definition simply reflects the ability of the lease to respond to context as required. The “Lessee”, as confirmed by Item 2, is Kent Sing. Because no assignment or novation took place, Kent Sing is the only entity which can enforce the contract with JNJ.

It does not follow, however, that Kent Sing cannot claim for breach of contract. That is because, in my view, it is wholly artificial to suggest Kent Sing never occupied the premises. It occupied them through its trading entity and invitee, General Goods, as envisaged by the business plan attached to the lease. That this arrangement was within the parties’ contemplation is evidenced by the complete absence of any objection by JNJ to General Goods trading out of the premises throughout the duration of the lease.
In consideration for rent, JNJ was bound to observe the lease covenants. JNJ was not relieved of its contractual obligations simply because Kent Sing invited General Goods to trade out of the premises. The contention that JNJ was entitled to receive rent for over a year from JNJ without assuming any enforceable contractual obligations to it only has to be stated to be rejected.

Did JNJ validly cancel the contract?

This aspect of the judgment addresses the argument that JNJ’s cancellation of the lease was invalid because the PLA notices were invalid and the rent and other invoices issued by the plaintiff were incorrect and overstated. As earlier noted, the defendants, in their third amended set-off and counterclaim, claim that they validly cancelled the lease. This claim relies on factual assertions examined later in the judgment. For that reason, I confine my analysis here to whether JNJ validly cancelled the contract in accordance with the lease and the relevant provisions of the PLA.

Whether Kent Sing validly cancelled the lease before JNJ purported to do so is considered later in relation to the defendants’ counterclaim.

[54] As noted, on 11 June 2014 JNJ served a notice of intention to cancel the lease for non-payment of various sums including rent, operating expenses, utility charges and a promotion fund levy. The notice, dated 10 June 2014, reads as follows:

“...
1. As at the date of this notice, you are in breach of the Lease by failing
to:
(a)pay the rent for the premises, the arrears of which $11,423.33; and
(b)pay the operating expenses, utility charges and promotion fund levy under clause of the Lease, the arrears of which total $8,776.12.

2. You are hereby called upon to remedy the breach outlined in
paragraph 1 above by paying the arrears of rent and outgoings being the total amount of $20,199.45.

3. In addition, you are required to make payment of all costs, charges
and expenses for which the Landlord shall become liable in consequence of or in connection with any breach of default by the Tenant under the Lease and in respect of this obligation you are required to make payment of costs and disbursements.

4. Unless the foregoing breach is remedied with 10 working days from
the date of service of this notice, being 25 June 2014, then without any further warning or demand, the Landlord intends to exercise each and every remedy which is available to the Landlord because of your continuing breach including, by way of example, but not of limitation, cancelling the Lease by re-entering the Premises under section 244(1)(b) of the Property Law Act 2007.

5. Under section 253 of the Property Law Act 2007, you have the right
to apply to a court for relief against the cancellation of, or proposed cancellation of, the Lease as contemplated by this notice. It is advisable for you to take legal advice on the exercise of that right.”

[55] Subsequently, JNJ provided Kent Sing with a statement dated 12 June 2014 which referred to three different invoices comprising the sum claimed to be owing. The statement confirmed the sum owing as $20,199.45.

Kent Sing did not pay by 25 June 2014, the date specified in the notice. JNJ purported to cancel by way of peaceful re-entry on 26 June 2014.⁹ A day later, on 27 June 2014, Kent Sing paid the sum of $20,199.45.

Was Kent Sing in breach of the lease at the time JNJ issued its notice?

(a) Rent

Under the lease, Kent Sing was required to make monthly rental payments on the first day of each month. Clause 3.1 relevantly provides as follows:¹⁰
“The Lessee shall pay to the Lessor during the term of this Lease in each Lease Year ...the Annual Base Rent ... by equal monthly payments in advance on the 1^st day of each and every month (and proportionately for any part of a month). ... All payments of Rent or other moneys required to be paid by the Lessee under this Lease shall be paid to the Lessor without demand from the Lessor and without any deduction or set-off whatsoever.”
On 27 May 2014 JNJ sent Kent Sing an invoice setting out the rent which would become payable on 1 June 2014. Kent Sing did not make this payment until 27 June 2014, after the lease was cancelled.
In his closing submissions, Mr Black referred to two invoices which were attached to an affidavit filed in JNJ’s earlier application for summary judgment. One of those invoices records a nil balance owing on the rental sum of $11,423.33 due on 1 June 2014. The other invoice records a nil balance owing on the sum of $413.74 due for utilities. However, I accept Mr Dalkie’s submission for JNJ that these invoices were generated after the events in question. The actual invoices for the relevant period were sent to Kent Sing by way of email. Plainly, the sums claimed were not paid until 27 June 2014.
I conclude that as at 1 June 2014 the sum of $11,423.33 was due and payable as payment for rent and that Kent Sing did not pay this sum until 27 June 2014.
Property Law Act 2007, s 244(1)(b).
Clause 3.1 of Schedule 3 of the Lease.

(b) Operating expenses

Under the lease, Kent Sing was required to pay a proportion of the total amount of the operating expenses of the Sky World Centre with such proportion “being the percentage that the rentable area of the Premises bears to the total rentable area of the Centre”.¹¹
Clause 3.7 of the lease provided the process by which Kent Sing was to make its contribution to the operating expenses of the Centre. For present purposes, cl 3.7 may be summarised as follows:
(a)Prior to or as soon as practicable after 31 March of each lease year, JNJ was required to provide Kent Sing with “estimates of the Lessee’s Contribution to the Operating Expenses of the Centre for the year to the 31 March next following”.¹²
(b)At any time JNJ could provide a revised estimate of Kent Sing’s yearly contribution to the Centre’s operating expenses.¹³
(c)As from 1 April and on the first day of each month thereafter Kent Sing was required to pay one twelfth of its estimated yearly contribution to the Centre’s operating expenses.¹⁴
(d)As soon as convenient after 31 March JNJ was required to provide Kent Sing with a statement of the actual operating expenses for the previous 12 months.¹⁵
(e)JNJ was then required to provide Kent Sing with notice in writing of its actual liability in respect of the operating expenses and the total of the monthly payments previously made on account of those liabilities. Any deficiency was required to be paid to JNJ within seven days.

Clause 3.3 of Schedule 3 of the Lease.
Clause 3.7(b) of Schedule 3 of the Lease.
Clause 3.7(b) of Schedule 3 of the Lease.
Clause 3.7(c) of Schedule 3 of the Lease.
Clause 3.7(d) of Schedule 3 of the Lease.

Alternatively, any excess was required to be refunded to Kent Sing within seven days.¹⁶

Mr Black cross-examined Mr Van der Han at some length on this issue. Mr Van der Han was unable to confirm whether or not JNJ had complied with its obligations under cl 3.7 before claiming payment of the operating expenses. However, Ms Kwak, JNJ’s company accountant and the member of staff responsible for running JNJ’s accounting functions, gave a witness statement in which she explained:
“Commonly, as with other landlords, what we will do is deliver a fixed monthly estimate of opex and then make adjustments as the year runs. Obviously, the opex monthly account is a variable figure, as the ledger for the relevant period ... shows. We usually do the adjustment at the end of the year.”
Mr Black submits there is a requirement for payment of seven days following the date of service pursuant to cl 3.7 of the Lease. He submits that, presuming service of the statement was made on 13 June 2014 (being the day after the statement date), then the operating expenses would not fall due until 20 June 2014. Mr Black submits, therefore, that Kent Sing was not in default of its obligations with respect to operating expenses at the time JNJ Holdings served its notice of intention to cancel.
I do not accept Mr Black’s analysis. The operating expenses claimed by JNJ relate to Kent Sing’s obligation to provide monthly (provisional) payments towards operating expenses based on JNJ’s yearly estimate. These were due and payable on 1 June 2014.
The obligation of Kent Sing to make deficiency payments after actual operating expenses have been determined is separate. The “wash-up” of the Centre’s operating expenses for the year ending 31 March 2014 resulted in a deficit of $12,531.78 owed by Kent Sing to JNJ. That figure is claimed separately in the proceedings; it does not relate to the operating expenses claimed in the notice.
Unlike a deficiency payment, which would not have become due until seven working days after the rendering of accounts, Kent Sing’s monthly provisional
Clause 3.7(e) of Schedule 3 of the Lease.

contribution to the Centre’s operating expenses was due and payable as at 1 June 2014. The only prior obligation imposed on JNJ by the lease was to provide Kent Sing with an estimate of its yearly contribution to the Centre’s operating expenses.

[68] Mr Van der Han could not confirm in evidence whether this obligation had been complied with. Ms Kwak’s statement of evidence is silent on this point. But I do not consider that to be determinative. It is entirely possible, indeed likely, that JNJ did comply with its obligation to provide Kent Sing with an estimate of its yearly contribution towards operating expenses. But for reasons I will come to shortly, I am satisfied that any failure on the part of JNJ to comply with its obligations under cl 3.7 did not affect its cancellation rights.

(c) Consumables

[69] Clause 8.7 of the Lease dealt with consumables. In brief:

(a)JNJ was to supply Kent Sing with reasonable quantities of consumables, including electricity, gas, water or telephone services, as was “required for the proper use of the premises”.¹⁷
(b)JNJ was to charge Kent Sing in accordance with the rates imposed by the relevant authorities.¹⁸
(c)JNJ was required to render accounts to Kent Sing which were payable within 10 working days.¹⁹
(d)In the event that Kent Sing defaulted on its payment obligations, JNJ was entitled to disconnect the relevant supply and the costs of doing so would become rent in arrears.²⁰

[70] I accept Mr Black’s submission that the sum claimed as consumables was not due for 10 working days after receipt of the statement dated 12 June 2014. JNJ was

Clause 8.7(b) of Schedule 3 of the Lease.
Clause 8.7(c) of Schedule 3 of the Lease.
Clause 8.7(d) of Schedule 3 of the Lease.
Clause 8.7(e) of Schedule 3 of the Lease.

required under the Lease to “render accounts” to Kent Sing. That occurred when the statement dated 12 June was served on Kent Sing. It does not matter whether the statement was sent on 12 June (the date on the statement) or 13 June (as Mr Black submits). Either way, Kent Sing could not have been in breach of its obligations under the lease until at least 26 June 2014.

(d) Marketing and promotion fund

[71] Clause 9 of the Lease dealt with the marketing and promotion fund. Clause 9.4 relevantly provides:

“The Lessee will contribute to the Marketing and Promotion Fund an initial amount as nominated in ITEM 15 of the First Schedule or as notified in writing by the Lessor to the Lessee at any time, such amount to be punctually paid to the Lessor by monthly payments in advance by automatic bank transfer on the first of each and every month.
...
(c)Payments due to the Lessor on account of the Marketing and Promotion Fund shall be a debt due to the Lessor under this Lease and shall be recoverable by the Lessor as Rent in arrear.”

[72] Kent Sing’s monthly contribution towards the marketing and promotion fund was due on 1 June 2014. I am satisfied it was properly claimed for.

Did the notice dated 10 June 2014 comply with the relevant provisions of the PLA?

(a) Inconsistency with invoices

[73] Mr Black submits there are “inconsistencies and contradictions” with the 12 June 2014 combined statement which stated the money was due. Mr Black submits the invoices referred to in the statement record a nil balance as owing. I have already rejected this argument. I am satisfied that the invoices were generated after the events in question and that they cannot be invoked to impugn the validity of the notice dated 10 June 2014 or the subsequent statement dated 12 June 2014.

(b) “With” versus “within”

[74] The 10 June 2014 notice required Kent Sing to pay the claimed sum “with 10 working days”. Plainly, the word “with” can only have been intended to mean

“within”, as is made clear by the later reference to the payments “being due by 25 June 2014”. Mr Black accepts as much.

Mr Black refers, however, to Riposare Ltd v Hilton in which Peters J queried whether requiring a breach to be remedied “within” 10 workings days was compliant with s 245 of the PLA.²¹ Her Honour observed:
“[20] The second reservation I have regarding the notice is that it purports to require the breach to be remedied "within" 10 working days, whereas s 245(3) provides that the period allowed to remedy the breach must be not less than 10 working days. "Within" 10 working days is a period less than 10 working days, and for this reason I consider the plaintiff has not or may not have complied with s 245.”
However, Riposare provides very limited support for Mr Black’s argument because Peters J went on to hold that this point was “not fatal” to the landlord’s case and made an order allowing the landlord to take possession of the premises. Moreover, I do not share Peters J’s reservation regarding use of the word “within”. Section 245(3)(c) provides as follows:
“The notice required by subsection (1)(b) or (2) must adequately inform the recipient of all of the following matters:
^...
(c)the period within which the breach must be remedied (which must not be less than 10 working days after the date of service of the notice):”
[Emphasis added]
JNJ specified the period “within which” the breach must be remedied. That period was equal to and not less than 10 working days required under the PLA.

(c) Other expenses not due and payable

As I have outlined above, Mr Black submits the operating expenses and utilities were not due and payable as at 1 June 2014. As observed, I do not accept Mr Black’s analysis with respect to the operating expenses. However, given Mr Van der Han’s answers in cross-examination and Ms Kwak’s statement of evidence, I am
Riposare Ltd as Trustee of Di Lusso Family Trust v Hilton HC Whangarei CIV-2011-488-360,
16 November 2011.

prepared to assume, for the purposes of the present inquiry, that JNJ did not comply with its obligations under cl 3.7. Moreover, I accept that the sum claimed as consumables was not payable until 10 working days after Kent Sing received the statement dated 12 June 2014.

[79] The question is whether any deficiencies with respect to the cancellation procedures under s 246 (cancellation for breach of other covenants) affect JNJ’s ability to cancel the lease under s 245 for non-payment of rent. I am satisfied that they do not. My reasons follow.

[80] Section 245(3)(a) and (b) of the PLA required JNJ to adequately inform Kent Sing of the nature and extent of the breach complained about as well as the amount that had to be paid to remedy the breach. The notice clearly specified that Kent Sing was in breach of the lease for failing to pay rent. It also specified the amount of rent owing as $11,423.33. The first paragraph of the notice reads as follows:

“1. As at the date of this notice, you are in breach of the Lease by failing to:
(a)pay the rent for the premises, the arrears of which [sic] $11.423.33; and
(b)pay the operating expenses, utility charges and promotion fund levy under clause of the Lease, the arrears of which total $8,776.12.”

[81] The issue is whether the second paragraph in the notice, by combining the claim for rent with the claim for other expenses, renders the notice invalid. It reads as follows:

“2. You are hereby called upon to remedy the breach outlined in paragraph 1 above by paying the arrears of rent and outgoings being the total amount of $20,199.45.”

[82] It is arguable that by requiring payment of $20,199.45 to “remedy the breach [singular] outlined in paragraph 1 above”, the notice misrepresented the nature and extent of the breach of the covenant to pay rent and the amount that had to be paid to remedy it. That is because not all of the $20,199.45 claimed in the notice was due and payable as at the date of the notice.

[83] However, in my view the notice provides separate notices of JNJ’s intention to cancel for breach of the covenant to pay rent and for breach of other covenants. The heading of the notice refers to both ss 245 and 246 of the PLA. The first paragraph of the notice clearly separates the sum owing into rental sums and payments due for other expenses. Thus, read as a whole, it is clear the notice is a dual one and I do not consider that a defective notice under s 246 should affect rights of cancellation arising under s 245 provided, of course, the requirements of s 245 are met. I am satisfied they are. The notice specifies the rental owing, the time within which it must be paid and the consequences if the breach was not remedied and the right to apply for relief against cancellation of the lease.

[84] It is therefore appropriate to treat the notice as two separates notices. The notice under s 245 is compliant. The one under s 246 is not. Because cancellation rights arise independently under s 245 the notice is valid for the purposes of s 245 irrespective of its defects in respect of s 246.

Did JNJ re-enter the premises prematurely?

[85] Section 245 of the PLA confers on a landlord a right to cancel a lease because of a breach of the covenant to pay rent under the lease if:²²

(a)the rent has been in arrears for not less than 10 working days; and
(b)the lessor has served on the lessee a notice of intention to cancel the lease; and
(c)at the expiry of the period specified in the notice, the breach has not been remedied.

[86] The notice of intention must specify a period within which the breach must be remedied. This period must not be less than 10 working days after the date of service of the notice. Critically, the period for remedying the breach specified in the notice of

Property Law Act 2007, s 245(1).

intention to cancel may run concurrently with the minimum period of 10 days for which the rent must be in arrears before the landlord can cancel.²³

The terms of the lease are largely symmetrical with the requirements of s 245 of the Act. That is unsurprising as parties to a lease cannot contract out of this provision.²⁴ Clause 11.1(a) of the lease provides as follows:

“If at any time during the occupation of the Premises by the Lessee:

(a)Any Rent or other moneys payable by the Lessee are in arrear for the space of ten (10) Working Days after the same shall have become due and the Lessee has failed to remedy that breach within ten (10) Working Days after service of a notice in accordance with Section 245 of the Act;
^...
then in addition to its other powers at law or pursuant to [the Property Law] Act and notwithstanding any prior waiver or failure to take action by the Lessor or indulgence granted by the Lessor to the Lessee in respect of any such matter of default whether past or continuing it shall be lawful for the Lessor or any other person duly authorised by it to:
(v)cancel this Lease by re-entering upon the Premises or any part thereof in the name of the whole and thereby determine the estate of the Lessee;”

Mr Black submits JNJ cancelled the lease prematurely and failed to comply with the conditions of the lease. He submits that on a proper interpretation of this clause there are three preconditions to cancellation:
(a)the lessee has failed for the period of 10 working days to pay rent and/or the money payable under the lease; and
(b)the lessor has given the lessee a notice in accordance with s 245 of the PLA, after the 10 working day period in which the lessee has failed to pay rent and/or the money payable under the lease; and
Property Law Act 2007, s 245(4).
Section 243.

(c)the lessee has failed to remedy the breach within 10 working days after
the service of the s 245 notice.

Mr Black submits that JNJ could not issue a notice of its intention to cancel until after the rent had been in arrears for 10 working days. I do not accept this interpretation of the lease. Rather, the three preconditions to cancellation which Mr Black identifies are modelled on s 245 of the PLA. Under s 245(4), the period for remedying the breach can run concurrently with the 10 working day minimum required following service of notice of intention to cancel. There is nothing in the lease to suggest the parties intended to deviate from the cancellation procedures laid out in s 245 which operate as a “code”.²⁵ And, in any event, JNJ’s powers under the lease are additional to the powers it enjoys under s 245. So even if Mr Black’s interpretation of the relevant lease clauses is correct, JNJ could cancel the lease in accordance with s 245.
Accordingly, so long as notice was given at a time when the rent was in arrears and 10 working days had elapsed after the giving of notice then JNJ’s cancellation was validly effected. I am satisfied that is the case here. As Mr Dalkie submits, the count begins on the day after service of the notice. That occurred on 11 June 2014. There are 10 clear working days before JNJ re-entered the premises on 26 June 2014.²⁶
Mr Black’s arguments on this point must fail. JNJ did not exercise its cancellation rights prematurely.

Matters raised in defence – my approach to the factual analysis

I turn now to consider the defendants’ affirmative defences to the plaintiff’s claim for rent and other expenses. The resolution of the parties’ positions requires a detailed analysis of the complex factual matrix. It is the resolution of the facts which will determine the outcome more than the law. Pared back to its bare essentials the resolution of the parties’ competing cases is largely, if not entirely, decided by how I determine the defendants’ various claims the plaintiff breached the terms of the lease.
Section 243 of the PLA provides that sections 244 to 246 are to be a code.
The days are: 12 June (1); 13 June (2); 16 June (3); 17 June (4); 18 June (5); 19 June (6); 20 June (7); 23 June (8); 24 June (9); 25 June (10).

This is because, irrespective of whether the issues are pleaded as a defence to the plaintiff’s claim, affirmative defences or counterclaim the defendants’ position remains the same; JNJ’s conduct was such that Kent Sing was justified in terminating the lease.

For that reason, it is logical to consider the merits of each of Kent Sing’s complaints individually and decide whether individually and/or collectively they operate to make out Kent Sing’s claims.
I shall deal with each alleged breach in the same order as set out in [37] above.

Alleged breaches Water leaks

Mr Black did not address me in any detail on the evidence which the defendants rely on in support of their claim that water ingress, smell and the other factors constituted breaches of the lessor’s various covenants and obligations under the lease. This may have been because the relevant evidence is voluminous, widely scattered and difficult to analyse.
On the question of water leaks, the 25 March 2013 Lease Termination email and the 5 May 2014 Lease Termination email are identically expressed. The complaint, as then described by Kent Sing, reads as follows:
“6. Ceiling leakage – An issue from day one, that a year later has still not be [sic] resolved. This problem has never been permanently fixed, resulting in numerous amounts of stock being damaged and our floor layout and merchandising being comprised. To date, we have had a problem with the ceiling leaking once every two months, each time nothing is done and we simply wait until the issue rises again this has caused the ceiling to disintegrate and grow mould over time which is not only off-putting for customers but we also fear that the ceiling may collapse on us and we are left. This poses a serious threat to our staff and customers and is also a building health and safety issue.”
The primary defence witnesses on the issue of water leaks were Mr Thai, his two daughters, and Ms Wang, the General Manager of Kent Sing. Also called in support were Mr Alok Gautam and Mr Varun Makol who were associated with Pearl

Trading, the company which took over the lease of the first basement area from 1 October 2014. They gave evidence of various difficulties they claimed they encountered during their relatively brief tenancy in the Centre, including water leaks.

For JNJ, a number of witnesses were called on the issue of water leaks. These included Mr Young who was JLL’s property manager for the Centre until these services were brought in-house and Mr Van der Han who took over from Mr Young.
The differences in the evidence of the respective parties was marked. They are so stark that findings as to credibility and reliability are required. For example, the impression given by the Kent Sing witnesses was that the leakages were so numerous and so substantial that it was simply impracticable to continue to trade. In contrast, the JNJ witnesses, while accepting there were leaks from time to time, said these occurred at nothing like the frequency alleged and were generally minor. In any event, JNJ claims that when Kent Sing complained about leaks, these were attended to and remediated in a timely and effective fashion.
In determining which account or accounts I prefer I am satisfied that the most reliable source of evidence is the contemporaneous documentary record, incomplete though it is. I have also placed weight on the evidence of those witnesses who are less closely connected to the parties who share an obvious interest in the outcome of this litigation. With those principles in mind I now turn to consider the evidence.
As previously noted, four witnesses gave evidence for Kent Sing in respect of water damage and water ingress. I shall discuss the evidence of each although to a considerable extent their evidence was not only similar but in some parts of the prepared written statements of evidence, all but identical.
Mr Thai gave evidence that shortly after occupying the premises water began to both drip and flow from the ceiling space onto the stock. The area worst affected was in the main retail space in the upper basement in the vicinity of the counter. He described the water as being between one and two inches deep across large areas of the floor requiring the use of buckets, mops and towels. He said the leak caused considerable stock damage rendering it unusable and unsaleable. He said he regularly

notified the Centre’s management and discussed the problems with Mr Van der Han. He said he did so both in writing and in emails. He said the Centre’s management failed to remedy or rectify the problems although they accepted they existed.

In assessing Mr Thai’s evidence it is apparent he devoted most of his energies to operating the warehouse in South Auckland. In comparison to others, particularly his daughters, he spent relatively little time at the shop. As such, his evidence of water leaks and the other claims of nuisance (which are discussed below) were heavily dependent on the observations of others. In cross-examination, it became apparent that Mr Thai’s lack of proficiency in English meant that most, if not all, of his communications with JNJ, were conducted with the assistance of his daughters, particularly Lucinda, who crafted most if not all of the emails which were sent out under his name.
Furthermore, although Mr Thai now appears to elevate the significance of the water leaks, this issue does not appear to have been at the front of his mind in his last correspondence with Mr Van der Han on 27 June 2014. In an email sent on that date Mr Thai, probably through Lucinda Thai, reported that the premises had been cleared and cleaned and the security cards and keys returned. In expressing hope that JNJ would find a suitable tenant he observed that the space downstairs should be checked because it has a “quite an unpleasant smell”. No mention, of any kind, was made of water leaks or the effect leaks might have on future tenants. In my view this provides some context for the discussion which follows because, while I accept Kent Sing did experience instances of water leakage into the tenanted space, I do not accept the occasions were as frequent or as serious as is now claimed.
Kent Sing’s primary witness in respect of all allegations relating to the defects, inadequacies and nuisances was Lucinda Thai. The evidence revealed she assumed principal responsibility for the Queen Street business and was the primary point of contact between Kent Sing and JNJ. She was also the store manager and was present in the shop most of the time it was open for business.
In her written statement of evidence she said the water ingress problems first became evident in around April 2013 shortly after Kent Sing had taken possession.

She said that water leaked in a number of areas and the nature and extent of the problem varied over the time of Kent Sing’s occupancy. As did her father, she said the principal area affected was around the main counter on the upper basement level. She said that while the leaks sometimes happened during the day, the problem most frequently occurred overnight. The source was not able to be identified but she said the culprit was obviously the pipes which serviced the toilet facilities as well as the activities of other tenancies. She produced a video, as well as still photographs taken from it, showing pipes in the ceiling space and what appeared to be water damaged ceiling tiles. Some of the video footage also showed what appeared to be areas of water pooling in the ceiling space. Another series showed the inside of the store with a triangular area defined by chairs connected by yellow plastic emergency tape. From the photographs the dimensions of the triangle appear to be approximately 1.5 x 1.5 x 2 metres. The contained area does not appear to be extensive. Inside the area demarcated by the yellow tape are a number of plastic buckets full or partially full of water. On the seat of one of the chairs is a sign which reads, “Sorry ... our roof is leaking.”

Additionally, Lucinda Thai produced notes which she described as extracts from a communication diary. She explained that the primary purpose of this diary was to track foot traffic into the store and measure the extent to which that foot traffic translated into actual sales. However, the communication diary also served as a record of significant daily events. These included instances of leakage and water damage. In Lucinda Thai’s statement of evidence, which I understood was prepared from an affidavit filed in opposition to JNJ’s application for summary judgment, she produced only what she described as a sample of the entries taken from the complete diary adding that the whole document could be produced in the event the dispute went to trial. However, no additional records or entries from the communication diary were produced at the trial. Lucinda Thai explained that this was because the original diary had since been lost over the course of several house moves. Thus the Court has before it only extracts of the diary selected by Lucinda Thai.
On the evidence I accept that there was an occasion when a major leakage of water entered the shop occupied by Kent Sing. This was when the yellow emergency tape was used and buckets deployed. It occurred on Sunday, 9 February 2014. An

extract from the communication diary, which Lucinda Thai believed was completed by her, recorded water damage on that day and referred to buckets and towels being used. It also referred to the Centre’s security officer providing the yellow tape and chairs being placed around the wet area as was depicted in the photographs. Plainly, this was a major event. Lucinda Thai described the water being between one and two inches deep and the entire floor being blocked from the public while she and the staff worked overnight to remedy the problems.

Lucinda Thai said that she contacted Mr Van der Han about this (and the other problems) but his response, which she claimed was typical, was that he would get back to her after speaking with the landlord. Instead of engaging the necessary expertise, she said Mr Van der Han would routinely refer the matter to security who would typically help the Thais clean up but never addressed the underlying problem.
The correctness of that generalisation, however, needs to be reviewed against extracts taken from JNJ’s incident report for 8 February 2014. This recorded that at midday on 8 February 2014 advice was received from General Goods that there had been an air conditioning water leak in the store. The air conditioning firm, AHI Carrier, was recorded as being called and promised to be on site shortly. At 12:58 pm the record stated that the AHI Carrier staff were on site and diagnosed the problem as being caused by a block in the drain line. The staff cleared the drain line, shut the water off and dried the ceiling. It was recorded that some drops would continue for the next day or so while the ceilings dried out. The technician advised that regular staff would be on site the following day to check out the problem. The report records that the manager of General Goods was advised and AHI Carrier staff left the site at 1:43 pm. At 12:20 pm the following day, 9 February 2014, General Goods’ staff advised that water had started to leak again, the carpet was wet and all buckets were full of water. The report records that the Centre called AHI Carrier again. They arrived at 1:15 pm. The drain line was cut and the line blown out. The ceiling was cleaned and the technicians left at 2:40 pm. On 10 February 2014, the AHI Carrier staff returned and continued to work to resolve the problem.

Plainly this was a serious incident but it is equally clear that the landlord responded in a timely and responsible fashion by immediately engaging the appropriate air conditioning contractors.
Surprisingly, when the security reports relating to this incident were put to Lucinda Thai she could not specifically remember it, claiming flooding happened so often. However, this was the incident she produced photographs of and described.
I accept this was not the only leakage of water into the shop although the others do not appear to have been as significant. From my analysis of the evidence and, in particular, the pages of the communication diary produced by Lucinda Thai, it appears there were four other incidents of water leakage. These were on 10 April 2013, 20 May 2013, 2 August 2013, and 15 September 2013. I shall describe each in turn.
On Wednesday, 10 April 2013 the communication diary recorded, “Ceiling leaking found in the morning.” It then noted, “Many stocks were damaged, i.e. clothing and electronic stocks.” A note attached to this page was addressed to Lucinda Thai and said:
“We found leaking on the ceiling when we opened this morning and there are a lot of stocks were damaged such as lady dress 58 pcs, plain t-shirt 60 pcs, mans short 60 pcs, XL bear toy 12 pcs, M Crocodile toy 20 pcs, 5 crocodile toys 15 pcs, M Monkey toy 8 pcs. These stocks were all wet and bad smell due to the leaking. I put these damaged stock aside. Please check! I call the head office of the management but nobody answer the phone. I tried to call them so many times I advised the security already. We lost the customers and sales.”
Kent Sing’s telephone records for the period 25 March 2013 to 30 May 2014 were produced. These revealed that while no calls were made from the shop’s landline to the Centre or management on 10 April 2013 one call of approximately two and a half minutes duration was made from the shop to the mobile phone number of a manager at the Centre.
The next record of leaks was on Monday, 20 May 2013. Although the author of the note in the communication diary was unable to be identified, the note read:
“Leaking again!! From about 1pm today until about 4pm. Lost the customers. We called the management, NO ONE answer the phone. Only me in the shop.

Gary went for lunch for 1¹/₂ hours. Nobody helped me to move the stock. Water everywhere! All souvenirs were damaged; sheep skins 24 pcs; wool blanket 20 pcs; alpaca blanket 18 pcs; camel sheep blanket 20 pcs; artwork 20 pcs; t-shirt (adult) 20 pcs; t-shirt (child) [illegible] units. We put the damaged stocks aside! Please check.”

The telephone records for 20 May 2013 reveal that two telephone calls were made from the General Goods’ store to management lasting 1 minute and 17 seconds and 1 minute and 31 seconds respectively. If these were the calls referred to in the daily communication sheet then it would appear that the calls were, in fact, answered.
The next record of a water leak was on Friday, 2 August 2013. Michele Thai believed she made this call. The daily communication note recorded:
“Hi, the ceiling was leaking. It was leaking heaps and we had to move all the stock today from the backpack section. Heaps were damaged so we needed to close the store to see what was sellable.”
No reference was made to which particular stock had suffered damage.
On this date, Kent Sing’s telephone records revealed four calls were made from the shop to the Centre’s management’s landline. All calls were of relatively short duration ranging from 38 seconds to 1 minute and 6 seconds.
The last record of leakage in 2013 was Sunday, 15 September 2013. The unidentified author wrote:
“Leaking since last night! I opened by myself. Damon came in at 12pm. When I opened I found somewhere were leaking. I think from last night. There were so many stocks damaged. I have to closed the half door to clean up and move the stocks.”
Again, no reference was made to which particular stock was damaged.
Two calls, each of approximately 30 seconds in duration, were made from the store’s landline to the Centre’s management’s landline that day.

[124] The next incident was the leak on 8 February 2014 which I discussed earlier.

In my view, it is unlikely there were any other leakage events worthy of note. Had there been they would have been recorded in the daily communication diary which Lucinda Thai had when she prepared her affidavit. I regard it as inherently unlikely other pages of the diary mentioned leaks on other occasions but were omitted by Lucinda Thai when she was preparing her affidavit before the diary was lost.
Also relevant, in the context of the defence claim that Kent Sing’s complaints to the Centre’s management either went unanswered or were not rectified, was Ms Park’s analysis of JNJ’s security reports. Ms Park was JNJ’s in-house legal counsel. She produced a summary of the security reports held by JNJ. The security reports were an electronic record, in Excel spreadsheet form, taken from hard copy originals completed by the Centre’s staff. The reports contain daily notes made by security and maintenance staff regarding issues encountered by them or tenants in the Centre. Ms Park said that the 2013 reports could not be found but the 2014 records remain. To create her summary Ms Park undertook a search using the key words “General Goods”, “leak”, “smell” and “automatic door”. That search revealed references to the water leak on 8 February 2014. It recorded the leak as coming from the air conditioning unit. There was also reference to a leak on 25 March 2014 caused by a sprinkler activation at Carl’s Jr on 25 March 2014.
Assessing her evidence as a whole I did not find Lucinda Thai to be a convincing or reliable witness. Her evidence, if taken at face value, conveyed the clear implication that during its tenancy at the Centre, Kent Sing was bedevilled by water leaks so numerous and so frequent that they could not be remembered with any real level of specificity. And yet the contemporary documentary record revealed five incidents which Kent Sing’s staff on duty regarded as sufficiently significant to record. While plainly any water ingress into a tenancy is unsatisfactory I am satisfied the scale in the present case is a good deal more modest than that claimed by Kent Sing’s primary witnesses.
Furthermore, the broad and repeated assertion that Kent Sing’s calls for assistance were left unanswered by JNJ is not only contradicted by the records produced, but I am also satisfied, for reasons which follow when I discuss the evidence of Mr Young and Mr Van der Han, that these claims too were exaggerated.

Another example of Lucinda Thai’s tendency to overstate and embellish was her account of the face-to-face meeting she had with Mr Van der Han on 31 March 2014. This was the occasion when the parties met to discuss Kent Sing’s complaints as listed in the 25 March 2014 Lease Termination email. Lucinda Thai claimed each of these issues was discussed in detail. She said she told Mr Van der Han that if the problems were not rectified Kent Sing would terminate the lease. However, she also claimed that Mr Van der Han understood her concerns and agreed to remedy all the defects, going so far as to suggest JNJ would rectify all the issues discussed within about a week. Unsurprisingly Mr Van der Han said he did not accept he ever said such a thing. Assessed against the evidential backdrop his denial is neither surprising nor inconsistent with the circumstances as they existed at the time. I find it inherently unlikely Mr Van der Han would have conceded that his management of the Centre was effectively incompetent. Secondly, a number of the issues which Lucinda Thai complained about were never accepted by the JNJ management. Why then would he accept this if Lucinda Thai’s account is to be believed? And thirdly, how could Mr Van der Han effectively promise that all the issues would be remedied within about a week given the history and the chronic nature of the problems if their scale and frequency was as described by Lucinda Thai? And if, indeed, he ever said such a thing and Lucinda Thai accepted his assurance, it necessarily belies her claim that the issues were as major and as enduring as she now claims if they really were capable of rectification within a week or so.
When analysed in this way I am led to conclude that Lucinda Thai was prone to hyperbole on these central allegations. Another example is the photographs she produced of water pooling in the ceiling space. These photographs were taken from video footage captured on her cell phone. Initially, Lucinda Thai claimed that the photographs were taken on different dates, suggesting they depicted different events. However, when challenged about whether they were taken on the same day or not she became vague and uncertain. In my view, it is clear from the photographs themselves they depict a single event and not two separate events.
My assessment of Lucinda Thai is fortified by other aspects of the documentary record, in particular, the exchange of emails. For example, on 6 November 2013, eight months into the tenancy, Lucinda Thai on behalf of her father, complained to Mr Van

der Han about the lack of signage. Despite the directness of her language, nowhere in this correspondence, or in any earlier emails, was there any mention of water leaks or damage to stock. If the levels of stock damage were as extensive as that claimed it is more than a little surprising that no contemporaneous complaint was registered with the landlord while other complaints, arguably a good deal less serious, were.

The Thais are not a commercially naïve family. Mr Thai is a sophisticated and apparently very successful businessman. This was confirmed in the forensic accounting evidence. He has owned and operated Kent Sing since the mid-1990s. Lucinda Thai holds a Bachelor of Commerce degree and has worked with her father for some years. Michele Thai is finishing a business degree. None could be described as inexperienced or ignorant in matters relating to commerce. Indeed, Lucinda Thai’s forthrightness and intolerance of what she regarded as professional lapses by the Centre’s management, as is apparent from her email traffic, conveys the impression of an astute business woman who did not hesitate to record her complaints to the Centre’s management when she felt the need. And yet it was not until the 25 March 2014 Lease Termination email, more than a year after General Goods first occupied the premises, that the issue of water leaks was first mentioned. How that came to be was never properly answered in the evidence.
To a considerable extent, the observations made in respect of Lucinda Thai may also be made in respect of Michele Thai. She was the author of at least one of the entries in communication diary. As with others, her statement of evidence described the water leaks as being continuous with the landlord never fixing the problem. And yet the evidence reveals, at least for the 8 February 2014 leak, that specialist air conditioning contractors were engaged immediately and attended each day for the next few days until the issue was resolved.
The last witness for the defence on this issue was Ms Wang, Kent Sing’s general manager and shop supervisor. Although her evidence was that she visited the shop almost daily, it appears she did not spend long periods there. Furthermore, from 1 January 2014 she was on leave. Essentially her evidence mirrored that of the other witnesses, observing that she would regularly find water flowing and dripping from the ceiling onto the stock. She said that she assisted other members of the staff to note

the stock losses when this occurred. She said that calls to management to rectify the problem went unanswered.

For JNJ two witnesses gave evidence in respect of water leaks. These were Mr Young and Mr Van der Han. I shall deal with each in turn.
As noted, Mr Young was working for JLL when he negotiated the lease with Kent Sing. Drawing on some 30 years’ experience in property management he explained that there were two primary causes of leaks in commercial premises such as the Centre. The first were leakages from the air conditioning systems which in the Centre were fan cooled units. These operate on reticulated water passing through a coil which is fan cooled. The units were situated in the ceiling space and produced condensation which dripped into a collection tray from which there was a drain. If the drain blocked the collection tray would overflow into the premises below. Mr Young described leaks from this source as common in commercial settings.
The other primary source of leakage occurs when there is a breach of internal plumbing; water and waste pipes in the ceiling space, often associated with other tenancies.

i-Health v iSoft NZ Ltd [2011] NZCA 575, [2012] 1 NZLR 379 at [43].
i-Health v iSoft NZ Ltd HC Auckland CIV-2006-404-7881, 8 September 2010 at [20].
CGS NZ Ltd v Quirke Export Ltd [1988] 1 NZLR 52 (CA).

I accept that JNJ had prior notice of the incident of water ingress which occurred on 9 February 2014 and the days which followed. It received notice from General Goods of an air conditioning leak on the previous day, 8 February 2014. Thus, the exclusion clause would not be valid in this instance if stock was water damaged after the initial leak. However, the photographs taken on this occasion show the stock had been moved. There is no reliable evidence that after the first water ingress on 8 February 2014 further stock was damaged. Indeed, the evidence points to the contrary. AHI Carrier staff advised Kent Sing that some water would continue to fall over the next day or so. It is most unlikely new or replacement stock would be placed in the vulnerable part of the store with the knowledge it was also prone to damage. In any event the leak which started on 8 February 2014 was part of a continuum over the following days as the external contractors worked to remedy the problem.
The position is different with respect of the other incidents of water ingress. On the evidence before me I do not accept Mr Black’s argument that JNJ had prior notice of any other defects which were liable to cause such damage. As I have found, the other episodes of water ingress were relatively infrequent and different in nature. I have also found that JNJ responded promptly to the incidents as they arose. The proviso in cl 12.4 does not operate to render the exclusion clause ineffective in respect of these incidents.
Given my earlier conclusion that JNJ did not breach Kent Sing’s right to quiet enjoyment, I do not need to consider the relationship between cls 12.4 and 12.1. Nor, given my earlier conclusion that JNJ did not derogate from grant, do I need to consider whether JNJ’s contractual performance was totally different from that contracted for by the parties.
However, the authorities are clear that excluding liability for negligence requires the clearest of terms.⁸⁶ Clause 12.4 does not expressly refer to negligence and for that reason I am prepared to accept that a claim in negligence is available. I am fortified in this conclusion with reference to the proviso within cl 12.4 which
Producer Meats v Thomas Borthwick Ltd [1964] NZLR 700 (CA) at 703; DHL International v
Richmond [1993] 3 NZLR 10 at 18; Chase v De Groot [1994] 1 NZLR 613 (HC); Westpac Banking Corporation v M M Kembla New Zealand Ltd [2001] 2 NZLR 298, (2000) 14 PRNZ 631 (CA) at 315, 648.

maintains JNJ’s liability for damage caused by defects of which it had knowledge. The clause itself therefore contemplates liability for actions which are foreseeable and thus properly termed negligent. For the avoidance of doubt, my conclusions here are restricted to whether cl 12.4 excludes an action in negligence not whether such an action is available in law. That is an issue I turn to shortly.

What also needs to be considered is whether cl 12.4 prevents either Kent Sing or General Goods from pursuing counterclaims in torts which involve an interference with goods. Mr Black submits the clause does not attempt to exclude loss of profits and/or business income occasioned by trespass or conversion. I do not accept this analysis. Tortious liability for interference with goods does not require proof of fault or negligence. Thus, to allow Kent Sing to pursue claims in trespass or conversion would render the clearly expressed exclusion clause otiose. For the clause to have meaningful effect, it must prevent Kent Sing from bringing tortious claims involving interference with goods.
The same conclusion applies in respect of General Goods. As discussed earlier in relation to privity of contract, Kent Sing occupied the premises through its invitee, General Goods, as envisaged by the business plan attached to the lease. It follows that the contractual exclusion clause must apply to the entity actually responsible for trading the goods in question.

Negligence

Mr Dalkie’s position is that a lessor owes no general liability in negligence to a third party, a label he applies to General Goods, or to a lessee. Mr Black’s position is that a lessor owes a lessee a duty of care in negligence, particularly where the lessee might be reasonably expected to be affected by the condition of the premises. Both parties cite the same passage in Land Law in New Zealand in which the authors observe:⁸⁷
“While the traditional view is that a lessor has no general liability in negligence to a lessee or third party, a lessor who is involved in the design or building of premises may be liable in negligence to all persons, including
Hinde McMorland and Sim Land Law in New Zealand (online looseleaf ed, LexisNexis) at
[11.063] (citations omitted).

lessees, who might reasonably be expected to be affected by the condition of the premises. There is also some authority for the proposition that a general duty of care may now apply to lessors who let defective premises.”

[410] Earlier discussion allows me to state my conclusions briefly.

I first consider the leakage on 8 February 2014. Even though the exclusion clause does not apply in respect of this incident, I am not persuaded JNJ’s conduct amounted to negligence. As earlier noted, on 8 February 2014 General Goods notified JNJ of an incident of water ingress. JNJ promptly called AHI Carrier who, in turn, arrived promptly on site. AHI Carrier staff diagnosed the problem, cleared the drain line, shut the water off and dried the ceiling. When the water leaks persisted the following day, JNJ again called AHI Carrier. AHI Carrier staff attended promptly, cleaned the ceiling and returned to the Centre on 10 February 2014 to continue to work at resolving the problem. I am satisfied JNJ’s efforts in calling in the relevant experts to resolve the issue meets the requirements of any duty of care imposed on them by the law of negligence. It is clear that the landlord responded in a timely and responsible fashion by immediately engaging the appropriate air conditioning contractors.
As for the balance of the defendants’ complaints, I am not satisfied, for essentially the same reasons which led me to reject the defendants’ affirmative defences, that the premises were defective or that JNJ breached any alleged duty of care. The premises, leased on an “as is” basis, were not unfit for purpose. And, when incidents arose, the evidence suggests JNJ dealt with them as appropriately and as required. Thus, I am not persuaded a duty of care existed and if it did I am not persuaded JNJ breached it.
In case I am wrong, I turn to consider the evidence advanced in support of Kent Sing’s claim for damages.

Expert evidence

The defendants called a forensic accountant, Mr Lane, to support their claim for damages exceeding $700,000.

With the exception of the part of the claim which relates to stock damage by water, Mr Lane’s conclusions were predicated on five assumptions the correctness of which go to the very heart of this case.

[416] The relevant part of Mr Lane’s evidence is reproduced in full below:

“11. The communication sheets prepared by the manager, Lucinda Thai shown (sic) that in the initial weeks of the tenancy the store attracted a high level of foot traffic and was able to convert almost 44% of that traffic into sales. But then significant problems began to emerge which hindered [Kent Sing’s] quiet enjoyment of the premises and began to destroy the feasibility of the underlying realisation objective. These were:
·     Promises as to signage were not [given effect to]. The initial decal which was displayed, pending installation of a light-box on Queen Street, was removed by the landlord and installation of the light-box was not approved until December 2013.
·     There were continual problems with the automatic doors at the entrance which prevented customers gaining access to the shop.
·     The lower basement area proved to be unusable because of smells, rubbish and other nuisances associated with the adjoining Food Hall. The area of the lower basement area was 100 m2 of the total area leased of 403 m2. JNJ proved to be unable to resolve the problems with this area.
·     There was continual material water leakage into the upper basement area, which represented the balance of the tenancy which JNJ was also unable to rectify. The water damage caused stock losses for General Goods.
12.As a result of the combined effect of all of the landlord’s defaults [Kent Sing] cancelled the tenancy and vacated the premises in late June 2014. JNJ has since obtained a replacement tenant and is claiming damages of $235,828.82 from [Kent Sing].”

[417] Mr Lane was not present in Court when the key witnesses gave evidence and it was unclear whether he had read any of the notes of evidence or critically considered the competing accounts. His assumptions that the deterioration and ultimate failure of the business on the Queen Street site could only have come from what he was told by members of the Thai family. Even under cross-examination Mr Lane’s steadfast acceptance of the Thais’ account was plainly apparent. A particularly concerning example emerged when he was asked by Mr Dalkie about his methodology. Mr Lane’s curious reply was:

“That was all I had and the reality was, and I think it must be common ground [inaudible] particularly obnoxious set of premises which did not help the poor tenant. ...”

When Mr Dalkie explored this answer further and put to Mr Lane that his previous answer contained quite emotive language, Mr Lane replied:
“I suppose that’s right. I am very sympathetic to the position of my client. I mean perhaps I overuse emotive language sometimes.”
For Mr Lane to describe Kent Sing and the Thai family as his clients and to state he was sympathetic to their position unmasks a woeful misunderstanding of his special role and status as an expert witness.
There were other instances when Mr Lane strayed well beyond his professional area of expertise and offered opinions in the nature of advocacy. For example, on the question of water damage, Mr Lane volunteered:

“... a decent landlord would have looked at this and shown concern.”

When Mr Dalkie challenged him on whether that opinion was given as an expert, Mr Lane’s response was that he said it “... as a rationale normal human being”.
The notes of evidence reveal other examples of partisanship and lack of professional objectivity. These comments are inappropriate observations from a witness ostensibly called to give expert evidence on the question of quantum of damages. Mr Lane’s errors in this regard were not isolated lapses. They punctuated his evidence in a way which eroded the value of his conclusions.

Analysis

In any event, it is unnecessary to examine Mr Lane’s calculations in respect of the claims of loss of customer patronage and business, loss of profits and turnover and consequential losses because each of these is inextricably connected to the underlying assumptions set out above which I have determined on the evidence are not sustained.
This leaves the only remaining issue as whether the claim for stock damage is made out.

Stock damage

[425] The claim for $57,478.73, being stock damaged by water leaks falls into a different category.

[426] I have already determined:

(a)that the “as is” condition in cl 5.1 of the Second Schedule exempts JNJ from liability;
(b)the exclusion clause contained in paragraph 12.4 of the Third Schedule also, absent negligence, operates to exclude JNJ’s liability for stock damage caused by water leaks; and
(c)that the negligence claim is not made out on the facts.

[427] However, even if I am wrong, I do not accept that there is sufficient, reliable evidence from which an assessment of damages may be made. My reasons follow.

[428] According to Lucinda Thai, stock damaged by water was not always recorded or collated at or about the time of the damage. As I understood her evidence it was that when there was damage by water she would write out what stock had been damaged on a piece of paper and give it to her father so he could connect that stock to invoices to arrive at a figure for the value of the damaged stock. None of those primary and source documents is apparently available. Certainly, none was produced in evidence. No explanation was given for its absence. Lucinda Thai said she did not know what her father did with the pieces of paper.

[429] For the purposes of quantifying stock damage six documents on General Goods’ letterhead were produced. Each was entitled, “Stock Damage” and each was “invoiced” to JNJ Holdings. The documents were dated 10 April 2013, 20 May 2013, 2 August 2013, 15 September 2013, 9 February 2014 and 26 June 2014. The amounts in these “invoices” totalled $134,534.

The author of these documents is not known. Neither is their provenance. Despite them being described as invoices payable by JNJ there is no evidence they were ever sent, let alone on or about the dates which appear on them. Indeed, when Lucinda Thai was asked if she knew who had completed them she conceded she did not “have a clue”. It is plain these documents were created for the purposes of this litigation. They are not contemporaneous, original source documents that on their face they appear to be.
The documents said to provide the unit cost of the stock damage also import a level of confusion and uncertainty. Kent Sing’s invoices relating to the delivery/sale of product to General Goods were produced which listed items of the same description as items listed on General Goods’ stock damage invoices showing a unit price in New Zealand dollars which are GST exclusive. However, the total is the same amount for a parallel set of invoices which described themselves as GST inclusive although the total sum of $151,513 is the same whether it is described as GST inclusive or GST exclusive. For this reason, it is unclear what the original purchase price of the goods was.
Another aspect of the unsatisfactory nature of this evidence arises when the dates of General Goods’ stock damage invoices are examined. The first in time is dated 20 May 2013 which coincides with a daily communication sheet describing stock damage also of the same date. The items listed in the daily communication sheet appear to correspond exactly with the stock damage invoice of that date.
However, as previously noted, the daily communication sheet for 10 April 2013 also records extensive damage to stock but there is no corresponding General Goods’ stock damage invoice.
According to the daily communication sheets the next record of a water leak was on Friday, 2 August 2013. A General Goods’ stock damage invoice of that date claims damage to 11 varieties of goods totalling $23,322 although the daily communication sheet does not itemise these goods.

The next leakage event recorded in the daily community sheets was 15 September 2013. A General Goods’ stock damage invoice of that date records eight varieties of goods damaged totalling $14,976. The daily communication sheet simply refers to many stocks being damaged without itemisation.
The next leak listed was the substantial air conditioning overflow on 8 February 2014 when the yellow emergency tape and buckets were deployed. The total value of the goods claimed to have been damaged was $23,776.
The final invoice is dated 26 June 2014. This was on the last day of the tenancy when it is claimed that because JNJ refused to allow Kent Sing access to parking in the sub-basement goods were placed on the footpath outside the Centre and were damaged by rain. The General Goods’ stock damage invoice claims that the damage goods totalled $30,682.
Mr Van der Han’s evidence was that on this day Kent Sing had parked their truck in the loading dock which was reserved for the exclusive use of the Civic Theatre. Mr Van der Han directed Kent Sing to move the truck but after further negotiations Mr Van der Han permitted it to be parked there for a limited period for the purpose of Kent Sing removing their stock.
In an email sent by Lucinda Thai to Mr Van der Han on 25 June 2014 Kent Sing registered a complaint with Mr Van der Han relating to the events of that day. Kent Sing alleged that JNJ refused to allow them to move their truck which cost $200 an hour and, as a consequence, the truck was required to be hired for five hours, costing Kent Sing $1,500. The author of the email registered their concerns but said that they would not deduct that amount from the rental payment.
However, nowhere in the correspondence is there any reference to extensive stock damage caused by rain. It is possible the rain damage occurred the following day but when Lucinda Thai was asked to explain she said they were too busy moving the stock out to make any reference to the damage, an explanation which is difficult to reconcile with the lack of any mention in the contemporaneous email or any other later correspondence.

For these reasons, I regard the evidence on the issue of stock damage quantum as unreliable and falling well short of satisfying me on balance of the defendants’ claim, or any part of it.
For the reasons I have already discussed I am satisfied Kent Sing’s decision to vacate the premises prematurely was not caused by any or all of the alleged shortcomings in the premises themselves. Although I am not required to determine the issue I am satisfied Kent Sing’s decision to abandon the Queen Street shop was because the model the business was set up for, namely to dispose of excess goods at retail, was flawed. Support for this conclusion comes from Mr Lowther, the plaintiff’s forensic accountant. He undertook an analysis of General Goods’ GST returns over the period in question and from that examined the trading patterns.
From that he concluded that Kent Sing’s first month of trading, March 2013, was its best. He attributed this to what he described as “the hype in extra advertising around the opening”. The GST returns revealed sales taking $20,086.10.⁸⁸ For the period February and March 2014 the sales totalled $39,225.46. Given that this was a two month period and under the assumption that sales were equally spread across both months, the sales for March 2014 were $19,612.73, a difference of just $473.37 for the March 2013 period. This represents a drop in sales of 2.4 per cent which is a modest difference if March 2014 was supposedly the worse month of trading. In other words, throughout the history of the shop, its profitability never appreciably improved.
In this context, I also note Lucinda Thai’s evidence that sales when the decal sign was in position were $4,000 to $5,000 per week higher than after the sign was removed. This assertion is not made out on the forensic accounting evidence.
I do not place weight on this aspect because I accept there are other variables which may affect these figures. However, they do tend to provide some support to my conclusion, based on other evidence, that any faults or limitations in the premises were not as influential as Kent Sing claims.
General Goods was not trading during February 2013. Only the month of March was included in
the return.

Conclusion

The defendants’ counterclaim fails in its entirety except to the extent it relates to the default interest rate claimed under the lease. General Goods’ claims against JNJ also fail. That being the case, no rights of set-off arise.
To briefly recapitulate, JNJ validly cancelled its lease for non-payment of rent. JNJ was not in breach of the lease at the time of cancellation. Rather, it was ready, willing and able to perform the contract. It is entitled to claim the sums specified at [388] above.

Result

I enter judgment for JNJ against all three defendants in the sum of $215,048.42. Interest continues to accrue until satisfaction of the judgment debt at the rate of 5 per cent compounded on quarterly rests.

Costs

Mr Black asks that the parties be heard on the question of costs. I direct memoranda are to be filed and served by 5:00 pm on Friday, 2 March 2018. No memorandum is to exceed five pages.

Moore J

Counsel/Solicitor:

Mr Dalkie, Auckland
Mr Black, Auckland