Kiwi Property Holdings Limited v Amethyst Retail Holdings Limited
[2012] NZHC 267
•1 March 2012
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
CIV-2011-470-0693 [2012] NZHC 267
BETWEEN KIWI PROPERTY HOLDINGS LIMITED First Plaintiff
ANDSYLVIA PARK BUSINESS CENTRE LIMITED
Second Plaintiff
ANDAMETHYST RETAIL HOLDINGS LIMITED
First Defendant
ANDADAM STEWART ROSS Second Defendant
Hearing: 13 February 2012
Appearances: Ms N Taylor for plaintiffs
Mr K J Patterson for Defendants
Judgment: 1 March 2012
JUDGMENT OF ASSOCIATE JUDGE DOOGUE
This judgment was delivered by me on
01.03.12 at 2 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors:
Simpson Grierson, P O Box 2402, Wellington – [email protected]
Mr K J Patterson, P O Box 13006, Tauranga
KIWI PROPERTY HOLDINGS LIMITED & Anor V AMETHYST RETAIL HOLDINGS LIMITED & Anor HC TAU CIV-2011-470-0693 [1 March 2012]
[1] In the years 2006, 2007 and 2009, the plaintiffs leased three retail premises in separate shopping malls to the first defendants. The properties in question were located at Sylvia Park in Auckland, Centre Place in Hamilton and the Plaza at Palmerston North. In each case, the lessee’s obligations were guaranteed by the second defendant. The plaintiffs have re-entered into two of the leases (at the Plaza and Centre Place). Sylvia Park remains occupied.
[2] There is no argument that the leases were entered into, or that the defendants had fallen behind on their rent. The plaintiffs provided evidence that under the three lease agreements, the agreed rentals had fallen into arrears. The plaintiffs attached a schedule setting out the detailed calculations that justified the claims for rent allegedly owed under each of the three tenancies to their statement of claim. In respect of the shop at Centre Place in Hamilton, the amount claimed to be owing in arrears was $100,692.10; under the Plaza tenancy at Palmerston North, $101,290 was owed; and for Sylvia Park, $11,502.92 was owed. These figures represent the core unpaid rent. The plaintiff additionally claimed for interest in each case. The figures were calculated as at August 2011.
[3] On 11 November 2011, the plaintiffs filed an amended statement of claim in which the figures respectively had become $135,168.68, $133,805.35 and
$36,217.40. In each case, interest was additionally claimed. Amended schedules purporting to justify these figures were attached to the amended statement of claim.
[4] Briefly described, the second defendant, Mr Ross, had guaranteed the obligations of the first defendant under the three leases. However, the Centre Place contract of guarantee limited his liability to a maximum of three months’ rental. The figures that I have set out at [3] state the amounts owed by the first defendant. The plaintiffs claim slightly less from the second defendant, given the limitation in the Centre Place contract of guarantee.
[5] The defendants filed a notice of opposition to the plaintiffs’ application for summary judgment, on the grounds that the defendants had a defence to the claim in that:
(i)the defendants have made payments under the leases that have not been recognised;
(ii)the plaintiffs have breached express or implied terms in the leases, which prevent them from enforcing their terms;
(iii)the plaintiffs had agreed to vary the terms of the leases specifically with respect to interest that they are now claiming.
[6] In the affidavit in support of the notice of opposition Mr Ross filed, he made reference to the "repayment plan" agreed in September 2010. I interpolate that such an agreement was entered into. That agreement had annexed to it a spreadsheet setting out in detail how much was to be paid off in arrears of rent and by what date. Mr Ross said that the amounts owing were to be paid off by the end of April 2011. There is no dispute concerning that point. What the spreadsheet contained was a rolling total, which detailed the rents for each property, and when they would fall due, together with the instalments to be made on account of arrears. Mr Ross then went on to say in his affidavit:
24.It is clear that the defendants made all payments in accordance with the plan up until January 2011. That was when the second Christchurch earthquake occurred in February. This delayed payment somewhat; however the debt was in fact cleared by 29 April 2011.
25.The defendants cannot understand that after clearing the debt by the end of April as was agreed the plaintiffs can now backdate interest claimed until October 2010, in the case of Centre Place and 2 February 2011 in the case of the Plaza as noted above.
[7] On my initial view of the case, it appeared to me that there might be some uncertainty regarding quantum in question, so that at most, the plaintiffs would be able to obtain judgment on liability only following the hearing before me 13
February 2012.
[8] However, Ms Taylor for the plaintiffs told me that it was her view that it would be possible for the plaintiffs to succeed on both liability and quantum, but that if the Court preferred to restrict the hearing to the quantum, she would not oppose that course being taken. This was a responsible concession.
[9] If the plaintiffs are to succeed on a judgment for liability, they need only show that some amount is owing, leaving the amount of quantum to be dealt with at a subsequent hearing.
[10] Before I deal with that aspect of the case, I need to comment on the submissions that Mr Patterson made about how far the plaintiffs need to go to satisfy me about the case before I could safely enter judgment. That requires a brief consideration of authorities on the summary judgment procedure.
Relevant summary judgment principles
[11] It is for the plaintiffs to show that the defendants do not have a defence. Decided authority has established that this process may involve two steps.[1] The first involves determining whether the plaintiffs’ statement of claim and verifying affidavit take the Court to the point where it will succeed in demonstrating that there is no defence. If so, and if the defendant does not file evidence, the plaintiffs will be able to move for judgment on a summary judgment basis.
The defence contentions
[1] Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3.
[12] In this case, the defendants have put forward evidence. That evidence sets out a detailed financial proposal for payment of arrears of rent. There is no dispute that the defendants at some point were in arrears. There is no dispute either, that it was open to the parties to come to an agreement to the effect that the plaintiffs would give the defendants additional time to meet their obligations under the leases. To the extent that the plaintiffs actually gave this additional time, and provided that the defendants adhered to the agreement, it would not be possible for the plaintiffs to rely upon the breaches of original contract arising from late payment of those arrears of rent. The agreement as to the extension of time to meet rental obligations was, like any other contract, capable of being cancelled in certain circumstances.
[13] The first possibility that needs to be considered is whether the defendant could defend its position on the basis that it had complied with an agreement
extending the time available to pay the arrears of rent, with the effect that the
plaintiffs’ lose any of the remedies that might have been available to them (including the right to enforce the debt constituted by those arrears in proceedings brought before the Court).
[14] But of course the fact that the plaintiffs agreed to such a period of grace in regard to rental arrears accrued over a specific time period does not excuse the defendant from not paying all other rentals according to the lease agreements. If the defendant fell into arrears outside of any contractual extension of time, the lessors could sue for the rent relating to those breaches from the time it fell into arrears.
[15] The evidence the defendants have provided, as I have mentioned, includes a schedule for projected payments annexed to the repayment deed. The defendants having decided to put this material into evidence, will be fixed with the consequences of doing so, even if it is to their disadvantage.
[16] The schedule annexed to Mr Ross’s affidavit is a spreadsheet showing how the parties had agreed that the lessee’s would pay off the arrears and get their account back into the current state, while at the same time meeting fresh accruing obligations to pay rent. In the version annexed to Mr Ross’s affidavit, he has inserted additional material that shows what date the actual payments were made and the amount of those payments.
[17] What then does the schedule show? The defendant has put forward the schedule on the basis that it provides reliable information about the state of accounts between the parties. I agree that Mr Ross, the deponent for the defendants, does not specifically say that the parts of the schedule other than those he specifically refers to in his evidence are accurate. However, I remind myself that this is a claim for rental arrears not limited to arrears that are the subject of the repayment deed. If a party puts forward a document that deals not just with the limited range of arrears covered by the repayment deed, without any adverse comment on the balance of its contents, the Court is well able to regard the document as containing reliable information about the state of accounts between the two parties.
[18] Mr Ross’s schedule establishes that the lessee’s did not in fact comply with their obligations under the repayment deed. For example, in the month of January
2011, four payments of $5000 (that is, a total of $20,000) were required to be made. The schedule does not contain any reference to those payments actually being made and therefore, it is reasonable to conclude that they were not made. Instead of being
$17,843.80 in arrears under the Centre Place lease as at that point, the defendants owed $37,843.80. In the following month, repayments of $20,000 were again called for. Mr Ross establishes that no payments were made that month. Two payments were made in April of $17,843.80 and $16,686.56, a total of $34,530.36. Two points can be made about these payments: the payments were made late, being paid at the end of April 2011 when they were due in the period 7 January to 25 February 2011. Secondly, it is necessary to analyse the evidence of the late payments under the repayment deed in the larger context of the summary judgment application. Specifically, does the examination of the evidence show that the plaintiffs have established that the defendants have no defence on the issue of whether they are indebted in some amount?
Can the defendants contend that they are not indebted to the plaintiffs?
[19] The discussion about the reconciliation of various payments made under the repayment deed was embarked upon because Mr Ross said that certain payments did not appear in the plaintiffs’ statement of account particularising their claim for unpaid rent. I have already mentioned that the schedule was an adaptation of the repayment schedule that formed the basis for the repayment deed. Mr Ross inserted into his version of the repayment schedule two payments, the $17,843.80 and the
$16,686.56, which were not included in the original version.
[20] Ms Taylor, counsel for the plaintiffs, accepted for the purposes of the summary judgment application that the two payments in question had actually been made. She told me that the plaintiffs had consciously omitted these payments from the original calculations annexed to the statement of claim, because the payments were matched by corresponding debits, which meant that they were not required to be included in an overall schedule. I am not clear, even after the benefit of
argument, why this method was adopted, but in the end I find that it is not influential on the outcome of the summary judgment application, for reasons which I set out.
[21] While Ms Taylor accepted that the two payments were apparently made, she did not accept that they invalidated the plaintiffs’ application for summary judgment. First, she noted the point that by Mr Ross’s own telling, the payments made were made later than required by the repayment deed. Secondly, she pointed out that even allowing for the payments that were made, when they are matched against the obligations that the defendant had in terms of the repayment schedule, it becomes clear that the defendants paid less than they were required to. I consider this submission to be correct. Mr Ross himself has set out in the schedule the amounts the defendants were to pay, and then factored into that schedule the amounts actually paid, including the two "missing" payments. The effect of his evidence is as Ms Taylor describes it. Over the relevant period covered by Mr Ross’s amended schedule, the defendants were required to pay $68,850.20. They actually only paid
$34,530.56.
The evidence of indebtedness considered overall
[22] In his affidavit sworn on 8 November 2011, Mr Gudgeon asserted that the defendants were indebted in the amounts of $305,191.43 and $221,737.62, to the total of $526,929.05.
[23] In his affidavit sworn 14 November 2011, Mr Ross said, in summary:
a) the original statement of claim omitted the schedules that were referred to in the main part of the document, and therefore made it impossible to tell whether that claim was correct or not;
b)the amended statement of claim had the schedules annexed to it, but the schedules were inaccurate as they omitted the payments discussed at [19] in the preceding section of this judgment (and about which nothing more needs to be said);
c) that as a result, the schedules to the amended statement of claim "are not completely accurate";
d) that some of the items claimed as rental arrears are actually outgoings;
[24] The point in [23(a)] does not advance matters because by the time that the plaintiffs had filed the amended statement of claim, the omission of the schedules in the initial statement of claim had been cured. Apart from that matter, nowhere in Mr Ross’s affidavit is there to be found a statement of facts that could be viewed as the basis of a defence that might be sufficient to defeat the plaintiffs’ claim at trial.
[25] Furthermore, Mr Ross himself accepted that as at 21 September 2010 the defendants had admitted liability for the sums of $ 193,740.81 and $ 43,635.68, a total of $237,376.49. Mr Ross’s acceptance stems from the fact that he did not object to the repayment deed being put into evidence, and did not attempt to assert that it was not a document the parties had entered into, or that it was not a true copy of the document they entered into.
[26] In the absence of evidence establishing that all of that amount had been repaid, the effect of such an acknowledgement of debt gives rise to an inference that at least part of the accepted debt remains unpaid. The only evidence of repayments which were not taken into account by the plaintiffs were the two payments I have mentioned in [19].
[27] Because the summary judgment application deals with the issue of liability only, it is not necessary for an exact amount to be identified as the debt owing. Subject to considering other defence matters below, I am satisfied that the defendants do not have a defence to the effect that they do not owe at least part of the amount the plaintiffs’ claim.
Remaining defences
[28] The defendants’ asserted other defences that may be broadly described as set- off claims — damages payable by the plaintiffs arising out of alleged breaches of the leases.
[29] In overview, the claims are these. Firstly, there is a series of allegations that the plaintiffs have breached the covenants for quiet enjoyment contained in the leases. For example, the plaintiffs’ assert that following the global financial crisis and at a time when the defendants were under financial stress, the following occurred:
a) the plaintiffs enlarged the size of the Plaza at Palmerston North, doubling the number of shops available in the city of approximately
100,000 people, with the result being that there must have been a downturn in each retailer’s percentage share; they also allowed businesses in competition with the defendants to take space;
b)as part of a redevelopment of the Centre Place, the plaintiffs closed the shopping mall for a period;
c) during the course of the redevelopment of the Centre Place food court, the food hall was closed down, reducing the numbers of potential customers visiting the shopping centre;
d)the plaintiffs’ failed to extend rent relief to the defendants at a time when trading conditions were going through a uniquely difficult phase; what is worse, they sought a 7.28 per cent increase in rent as at August 2011 for the shop at the Plaza;
e) the plaintiffs gave rent relief to other tenants but not to the defendants, that being self-evidently unfair conduct;
f) the plaintiffs reduced the period of free customer parking available at the Plaza in Palmerston North, with consequential damage to the customer numbers — this reduction being particularly harmful because it occurred at the same time as changes to the configuration of the Plaza, which meant that customers had further to walk and therefore required greater free parking time;
g) the plaintiffs’ declined to co-operate with a relocation of the defendants into the redeveloped area of the Plaza that was a more desirable retailing site;
h)cooking odours from an Indian restaurant situated at Centre Place Hamilton entered the defendants’ retail space at that development, making it a less congenial store to visit.
[30] The defendants had not analysed the loss of income that they claimed had been caused by these events.
[31] Mr Patterson for the defendants accepted that the various complaints the defendants made did not fit easily into the category of breaches of quiet possession provisions in the leases. But his position was that the plaintiffs must have impliedly accepted obligations to avoid what Mr Patterson described as unfair conduct in their dealings with the defendants.
[32] Ms Taylor emphasised that in each case the leases contained provisions which were to the following effect. For example, in the lease for Centre Place in Hamilton:
4. What you must pay us
4.1You must pay us rent, any percentage rent, your share of the operating expenses, and the marketing levy, and any other money you owe us, on time and without set-off or deduction of any kind.
[33] Ms Taylor referred me to the judgment of Venning J in Gielen v Broadway Developments Ltd where a clause similar to cl 4 was under consideration. His Honour said of the provision that was under consideration in the case before him.[2]
Mr Twist submitted that the clause was not “express enough” to exclude set- off for misrepresentation. I disagree. The clause is quite clear. It could not be more express. Rent is to be paid without deduction or set-off. The Court of Appeal in Grant [was] prepared to accept that an express clause could exclude the right to claim a set-off in relation to misrepresentation.
[2] Gielen v Broadway Developments Ltd (2008) NZCPR 857 (HC) at [19].
[34] There is no doubt in my mind that the defendants are not able to bring cross claims of the kind that they say they do because of the existence of similar provisions in the contract in this case.
Unfairness
[35] As I understand it, the defendants’ position is that it would be “unfair” to give judgment to the plaintiff without taking into account the various claims that the defendants want to bring. While there is a discretion vested in the Court to decline summary judgment in appropriate cases, I do not accept that it can be exercised in a way which involves ignoring the term of the parties own contract
The nature of the defendants’ claim
[36] Notwithstanding my conclusion that cross claims cannot be applied in reduction of debts owing under the leases, I will give brief consideration to the nature of the cross claims which the defendants say they ought to be entitled to put forward.
[37] If the plaintiffs have caused harm to the defendants, it would seem most likely that such harm came about due to the plaintiffs introducing competitors’ businesses at the Plaza. But even in that case, this type of activity on the part of the plaintiff would seem to be permissible in terms of the lease. For example, cl 24.2 of the Centre Place lease provides:
We may allow other tenants in the centre to carry on the same or similar use.
[38] I am told that the provisions of the various leases are identical in each case and therefore, the Plaza lease will contain a like provision.
Implied term
[39] The various obligations that the defendants allege the plaintiffs have breached
— for example, an obligation to be fair when dealing with the defendants over the matter of rent reductions — can only be sustained if there were implied terms to such effect.
[40] The defendants must point to some rational basis upon which the Court can conclude that such implied terms exist. In her submissions, Ms Taylor referred me to the well known authority of BP Refinery (Westernport) Pty Ltd v Shire of Hastings,[3] which details the elements required to establish that an implied term is present. The Privy Council’s well-known formulation in that case was:
In [their Lordships’] view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.
[3] BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 16 ALR 363 at 376, as adopted by
Hickman v Turn and Wave Ltd [2011] NZCA 100, [2011] 3 NZLR 318.
[41] The Privy Council in Attorney General of Belize v Belize Telecom Ltd placed a further gloss on the BP Refinery test; though it did not reject the formulation in BP Refinery, it stated that the five criteria should not be considered as separate criteria that must each be fulfilled, but rather, different facets of the central idea that the
proposed implied term must “spell out what the contract actually means...”[4]
(Emphasis added.)
[4] Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 2 All ER 1127 at [27].
[42] Ms Taylor submitted that in relation to the complaints about allowing competing businesses to be established at the Plaza, that because the lease expressly permitted that to occur, the implied term contended for must be inconsistent with the express terms of the lease, and therefore not sustainable under the BP Refinery test. I consider that submission is correct. Furthermore, there is nothing that convinces me that the contract in any way actually meant to preclude the lessors from leasing space out to businesses in competition with the defendant, in terms of Attorney General of Belize.
[43] The assertions that the defendants make about the plaintiffs’ conduct range from instances that are unlikely to be the basis for a substantial counter-claim (for example, the odours from the Indian restaurant), through to more substantial matters
(giving rent relief to some tenants but not to the defendants, and entering into the
new tenancies on much more favourable terms as to rental — in some cases 50 per cent of what the defendants were required to pay under their leases).
[44] Redeveloping the shopping centres and closing the food court are examples of things the lessor had a specific right to do. In other cases, the Court may have different reasons for declining to imply a term. For example, where new incoming tenants were given much lower rentals — a circumstance that the defendants allege to be unfair. Ms Taylor submitted that such a term would be rejected because it implies that the lessor would be required to charge exactly the same rental for every lessee in the development. It is also unlikely that the Court would come to the view that implication of such a term was reasonable and just. Lessors such as the plaintiffs operate in a dynamic market and must be able to respond to market forces. Lessors negotiating with new tenants in subdued trading conditions are not bound by a duty of fairness to offer (what is almost inevitably) a lower rental to other lessees engaged to pay a higher rental in more buoyant times.
[45] In the case of factual contentions, the defendant at summary judgment need only show that he or she has a defence. If the defendant advances a particular series of factual contentions as being the essence of that defence, the Court will not reject it unless the facts claimed are clearly untenable.[5] The Court is not quite so constrained when it comes to dealing with legal contentions. Assuming that the Court can safely conclude that there is sufficient factual material to enable it to do so, the Court must resolve quite involved questions of law, including the interpretation of contracts.[6]
My conclusion is that none of the contractual obligations that the defendants contend for would actually be endorsed by the Court if the matter proceeded to a full hearing.
Evidence of loss
[5] Krukzeiner v Hanover Finance Ltd (2008) 19 PRNZ 162 (CA) at [26].
[6] See Attorney General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC).
[46] Even if the lessees were able to clear the formidable hurdles in their path in establishing a breach of contract, they would next have to show that they had suffered loss. For the defendants to have a tenable defence in this area, they must show that there is some material that the Court could accept at trial which, if
accepted, would possibly lead to a conclusion that the defendants were not indebted
in any amount to the plaintiffs. However, given the absence of particularisation and quantification of the losses allegedly suffered, my conclusion is that even if the Court were to conclude that there were arguable set-offs available to the defendants, there is no rational basis upon which the Court could take the view that those set-offs might equal or exceed the amount the plaintiffs are claiming.
Conclusion
[47] In my view, the defendants do not have a defence to the plaintiffs’ claim that they are indebted to the plaintiffs. While the Court cannot identify with precision the amount of the debt, it does not need to do so at this stage of the proceedings. It is sufficient to say that the defendants do not have a defence to the proposition that they are indebted to the plaintiffs for substantial amounts, measurable in the tens of thousands of dollars. I do not accept that the implied contractual terms the defendants contend for, and which they say the plaintiffs’ breached, are actually part of the contractual arrangements between the parties. In any case, the provisions of the three leases preventing claims being set-off against unpaid rent are decisive to that effect. The outcome is that the plaintiffs have satisfied me that the only issue to
be tried is one about the amount claimed.[7]
[7] High Court Rules 2008, r 12.3.
[48] The result is that pursuant to r 12.3, judgment is entered for the plaintiff declaring that the defendants are liable for unpaid rent arising from the leases referred to in the plaintiffs’ amended statement of claim.
[49] Pursuant to s 26I(d) of the Judicature Act 1908, I will determine the question of the amount of the debt owing if the parties are unable to agree on that issue. I give leave to the plaintiffs to file and serve a further amended statement of claim stating the up-to-date amount for which judgment is sought.
[50] I would invite counsel to confer on the following matters:
a) whether further disclosure of documents is required having regard to the obligation to give disclosure under the High Court Rules
Amendment Act (No 2) 2011;
b)whether further affidavits are required regarding the issue of quantum, and the timetable therefore;
c) the timetable for giving notice of cross-examination to any particular deponent whom the opposing party wishes to cross-examine at the hearing;
d) whether provision needs to be made for any other interlocutory step;
e) the duration of hearing.
[51] In relation to the last point, I would expect that the duration of the hearing would not exceed one day. If counsel are of a different view, they should advise the Court what matters they think are likely to influence the duration of the hearing.
[52] Would counsel please file a consent memorandum or separate memoranda within 14 days of the date of this judgment, so that arrangements can be made to complete the hearing of this matter. Counsel should also deal briefly with the
question of costs — that is, whether they should be fixed at this point or reserved.
J.P. Doogue
Associate Judge
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