Manukau City Centre Limited v Sudhakar
[2023] NZHC 3820
•20 December 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-001551
[2023] NZHC 3820
UNDER Part 12 of the High Court Rules 2016 BETWEEN
MANUKAU CITY CENTRE LIMITED
Plaintiff
AND
SHANEEL KUMAR SUDHAKAR
First Defendant
THE DREDGE LIMITED
Second DefendantANIL DATT SHARMA
Third Defendant
Hearing: 14 December 2023 Appearances:
A Patutama for the Plaintiff
S Sharma for the First Defendant
Judgment:
20 December 2023
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 20 December 2023 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date.......................................
Solicitors:
Patel Nand, Auckland Simpson Grierson, Auckland
MANUKAU CITY CENTRE LTD v SUDHAKAR [2023] NZHC 3820 [20 December 2023]
Introduction
[1] In 2008 the plaintiff (MCCL) leased Shop S260 at Westfield Manukau City to Hospitality HQ Limited.1 In 2012 the lease was assigned to the second defendant (Dredge).2 The third defendant (Mr Sharma) guaranteed Dredge’s obligations to MCCL under the lease.3 Dredge renewed the lease in 2016,4 and in 2019 assigned the lease to AVS Investments 108 Limited (in liquidation) (AVS).5 The first defendant (Mr Sudhakar) guaranteed AVS’s obligations to MCCL under the lease.6
[2] AVS did not pay rent to MCCL for 23 months of the lease, beginning in February 2020. On 15 November 2022, MCCL served on AVS a notice of intention to cancel the lease.7 The notice expired unremedied on 9 January 2023. On 27 January 2023, AVS was placed into liquidation by special shareholders’ resolution. On 7 February 2023, MCCL cancelled the lease.
[3] MCCL seeks summary judgment against Mr Sudhakar in terms of its statement of claim for $1,286,858.68, being money owing by AVS for rent arrears, damages for lost rental, damages for failure to de-fit and reinstate the premises, and legal costs.
[4]On 17 October 2023, Venning J entered judgment in the sum of
$1,286,858.68 against Dredge and Mr Sharma. No payment has been made by Dredge or Mr Sharma.
[5] Mr Sudhakar opposes MCCL’s application on these grounds set out in his notice of opposition:8
(a)MCCL breached the terms of the lease;
(b)MCCL breached COVID-19 regulations and directions; and
1 Deed of Lease, dated 9 May 2008.
2 Deed of Assignment of Lease dated 23 August 2012 [First Deed of Assignment].
3 First Deed of Assignment, Third sch, cls 1 and 2.
4 Deed of Renewal of Lease, dated 26 August 2015.
5 Deed of Assignment of Lease, dated 12 December 2019 [Second Deed of Assignment].
6 Second Deed of Assignment, Third sch, cls 1 and 2.
7 Property Law Act 2007, ss 245, 246 and 253.
8 Notice of Opposition, dated 27 October 2023.
(c)the quantum is inaccurate.
[6]In written submissions Mr Sudhakar raises these further “grounds”:
(a)a proper trial is required with witnesses and cross-examination;
(b)inquiries need to be made into whether Mr Sudhakar received independent legal advice; and
(c)there is no prejudice to MCCL if summary judgment is refused.
[7] The issue is whether any of those grounds present an arguable defence to MCCL’s claim so that summary judgment should be refused.
Legal principles
Summary judgment by plaintiff
[8]Rule 12.2(1) of the High Court Rules 2016 provides:
The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[9] The relevant principles governing a summary judgment application are well established:9
(a)The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried. The Court must be left without any real doubt or uncertainty.
(b)The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated.
9 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].
(c)The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent or is inherently improbable. In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it.
[10] The defendant is obliged to lay a proper foundation for the defence in the affidavits filed in support of the notice of opposition.10
Loss of bargain damages
[11] Where a lessor loses the benefit of a lease, the lessor may recover damages for the loss of future benefit under the lease.11 In terms of measuring loss of bargain damages, Hinde McMorland and Sim Land Law in New Zealand states:12
Where loss of bargain damages are available, the measure is the financial loss sustained by the innocent party as a result of the loss of future performance of the contract of lease by the defaulting party…
The onus of proof of the measure claimed and the supporting evidence of rental value lies on the party claiming the damages.
In claiming such a figure as damages, the lessor is under the normal duty of care to mitigate the damages claimed by making all reasonable efforts to re- let, if cancellation has occurred before re-letting, and at the best rent reasonably obtainable, though the burden placed on the lessor is not high in view of the lessee's default. The onus is on the defendant to prove a failure to mitigate.
COVID-19 regulations and directions
[12] The COVID-19 Response (Management Measures) Legislation Act 2021 amended the Property Law Act 2007 to provide for an implied covenant of an abatement of a fair proportion of rent if a lessee was unable to gain access to their
10 Middleditch v New Zealand Hotel Investments Ltd (1992) 5 PRNZ 392 (CA) at 394.
11 Morris v Robert Jones Investments Ltd [1994] 2 NZLR 275 (CA) at 277.
12 DW McMorland and others Hinde McMorland and Sim Land Law in New Zealand (online ed, LexisNexis) at [11.241(c)].
premises to conduct fully their operations because of reasons of health or safety related to the pandemic.13 The amendments applied to all commercial leases operating during the "affected period", which was from 18 August 2021 to 20 October 2022.
[13]I tun now to each of the grounds of opposition raised by Mr Sudhakar.
MCCL has breached the terms of the lease
[14] Mr Sudhakar does not identify, in his notice of opposition, affidavit or indeed in submissions, what terms of the lease MCCL is said to have breached.
[15] In his affidavit, Mr Sudhakar alleges that the premises were not in order due to severe leakages and other shortcomings, which he says MCCL took no steps to remedy to AVS’s satisfaction. He attaches a series of emails he sent MCCL between November 2019 and November 2020 identifying issues requiring MCCL’s attention.
[16] In his affidavit in reply, Mr Gardner of MCCL says that minor maintenance issues arose occasionally and that these were attended to by MCCL as quickly as possible. He says that the issues were routine for an area in a shopping centre and did not indicate a need for major repair works or neglect by MCCL.
[17] Mr Sudhakar’s emails list several issues, most of which are minor: a light not working, broken tiles, an issue with water pressure and garden maintenance. More significantly, he identifies leaks in the frontage and office roof. MCCL was obliged by cl 11.3 of the lease to keep the roof and exterior in a watertight condition. From Mr Sudhakar’s emails, this issue seems to have persisted from November 2019 through to November 2020. However, it is also apparent from the emails that MCCL responded to his complaints, including by arranging for a glass contractor to address the problem in August 2020, and instructing a roofing contractor to reattend in November 2020 to carry out a thorough investigation and repair. I find that Mr Sudhakar’s evidence does not lay a proper foundation for a defence that MCCL breached its obligations in the lease to maintain the premises.
13 COVID-19 Response (Management Measures) Legislation Act 2021, sch 6, pt 4, cl 16.
[18] Mr Sudhakar also alleges that MCCL did not provide rent concessions when AVS was required to close the premises temporarily for clean-up and repairs following various incidents due to the “negligence” of MCCL’s security personnel.14 Mr Gardner’s evidence is that MCCL’s security personnel did what they could to assist AVS with these incidents, which were caused by AVS’s own patrons.15 In any event, there was no legal requirement for MCCL to provide any rent concessions to AVS under the lease on these occasions.
[19] Mr Sudhakar further alleges in his affidavit that AVS’s trading hours were “abruptly cut” without prior notice from 3am closure to 11pm.16 Mr Gardner’s evidence is that MCCL gave AVS and Mr Sudhakar notice by letter dated 3 August 2021, and made the decision to deescalate the violence and incidents occurring at the premises.17
[20] Additionally, Mr Sudhakar claims that during the first week of November 2019 there were three fire alarm drills at the premises without notice to AVS, which had a major financial impact on the business. Mr Gardner’s evidence is that MCCL has no record of three alarm drills within one week. He states that MCCL operates two fire alarm drills per year, every six months, and any other fire alarm activations are due to tenants activating the fire alarms.
[21] Overall, I am not persuaded from the evidence Mr Sudhakar has presented that he has an arguable case that MCCL breached the terms of the lease.
[22] Even if there was any merit to Mr Sudhakar's allegations that MCCL breached the lease, those allegations could only give rise to a claim for set-off or counterclaim by AVS against MCCL. A set-off may operate as a defence to a summary judgment application, but a counterclaim does not.18
14 Affidavit of Shaneel Kumar Sudhakar affirmed 27 October 2023, at [34].
15 Affidavit of Paul Boyd Gardner in Reply sworn 1 December 2023, at [20].
16 Affidavit of Shaneel Kumar Sudhakar affirmed 27 October 2023, at [35].
17 Affidavit of Paul Boyd Gardner in Reply sworn 1 December 2023, at [21]–[22].
18 See Grant v NZMC Ltd [1989] 1 NZLR 8 (CA); and Pemberton v Chappell [1987] 1 NZLR 1 (CA).
[23] In the present case, the lease precludes any set-off or counterclaim against money due and owing to MCCL under the lease. Clause 3.2.2 of the lease states:19
The Lessee will pay all money to be paid to the Lessor by an appropriate order or orders on the Lessee's bankers directing payment to the credit of the Lessor's account at such bank and branch as is from time to time nominated by the Lessor, and otherwise as the Lessor may direct, without equitable or legal deduction, counterclaim or set-off.
[24] Venning J considered a similar clause in Gielens v Broadway Developments Ltd and held:20
The present clause is sufficient to exclude the right of set-off by the tenant Constant Trendz. Any claims Constant Trendz may have for breach of lease are excluded from set-off. Ms Gielens [guarantor] cannot take advantage of or rely on any claims the company had under the lease to resist the claim for rent.
[25] Accordingly, Mr Sudhakar's allegations that MCCL breached the lease do not provide any basis for the Court to deny MCCL's application for summary judgment.
MCCL breached COVID-19 regulations and directions
[26] Mr Sudhakar claims that in breach of the COVID-19 regulations and directions MCCL only waived a “small part” of the rent, and deferred the remainder, even though AVS had no access to the premises nor was it able to use the premises for its business. He says that he sought rental concession from MCCL on several occasions, but MCCL never responded. He attaches an email to MCCL dated 8 September 2020 in which he asks for a rent concession for the “three-week lockdown”. He alleges that the required rent reductions were not granted to the business, and in some instances, MCCL “unilaterally determined” rent reductions without consulting AVS.
[27]Mr Gardner’s undisputed evidence is:
Covid-19 Rental Assistance
11. The plaintiff offered AVS and the defendants Covid-19 rental assistance in relation to the lockdowns in Auckland in 2020 and 2021.
Lockdown 1 - Period from 1 April 2020 to 30 June 2020
19 Affidavit of Paul Boyd Gardner in Support sworn 5 July 2023, at Exhibit B.
20 At Exhibit B.
12. By letter dated 17 August 2020, the plaintiff offered AVS Covid-19 assistance for the above period, as referred to in paragraph 23 of the statement of claim.
13. The first defendant, on behalf of AVS, agreed to the assistance by countersigning the letter on 18 August 2020. Annexed and marked "G" is a copy of the countersigned Covid-19 rental assistance letter.
14. The plaintiff applied credits to AVS's account reflecting the agreed assistance. Annexed and marked "H" is a copy of an invoice from the plaintiff dated 18 November 2020 providing the Covid-19 credits applied to AVS's account.
Lockdown 2 - Period from 1 August 2020 to 30 September 2020
15. By letter dated 22 September 2020, the plaintiff offered AVS Covid-19 assistance for the above period, as referred to in paragraph 25 of the statement of claim.
16. The first defendant, on behalf of AVS, agreed to the assistance by countersigning the letter on 23 September 2020. Annexed and marked "I" is a copy of the countersigned Covid-19 rental assistance letter.
17. The plaintiff applied credits to AVS's account reflecting the agreed assistance. Annexed and marked "J" is a copy of an invoice from the plaintiff dated 2 June 2021 providing the Covid-19 credits applied to AVS's account.
Lockdown 3 - Period from 31 August 2021 to 3 December 2021
18. By letter dated 13 December 2021, the plaintiff offered AVS Covid-19 assistance for the above period, as referred to in paragraph 27 of the statement of claim.
19. The first defendant, on behalf of AVS, agreed to the assistance by countersigning the letter on 22 December 2021. Annexed and marked "K" is a copy of the countersigned Covid-19 rental assistance letter.
20. The plaintiff applied credits to AVS's account reflecting the agreed assistance. Annexed and marked "L" is a copy of an invoice from the plaintiff dated 2 February 2022 providing the Covid-19 credits applied to AVS's account.
Covid-19 Credits Applied
21. The plaintiff offered and agreed with AVS Covid-19 rental assistance as set out above and in the statement of claim. However, despite the assistance and in breach of the Lease, AVS failed to pay rent and other money due under the Lease.
22. The plaintiff applied credits totalling $114,263.02 to AVS's account as Covid-19 rental assistance, as referred to in paragraph 30 of the statement of claim.
[28] I am not persuaded that Mr Sudhakar has a tenable defence based on MCCL being in breach of COVID-19 regulations and directions.
[29] The implied covenant of an abatement of a fair proportion of rent if a lessee was unable to gain access to their premises to conduct fully their operations because of reasons of health or safety related to the pandemic only applied to commercial leases operating during the "affected period" of 18 August 2021 to 20 October 2022.21 MCCL was not legally obliged by this implied covenant to provide rent reductions outside that period. Despite that, MCCL provided AVS with substantial rent relief in relation to the first lockdown (April to June 2020) and the second lockdown (August and September 2020). Mr Sudhakar agreed to this waiver.
[30]MCCL also provided a rental waiver over the affected period. MCCL waived
50 per cent of the rent and outgoing for the months affected by the third lockdown — August to November/December 2021. This period spanned Alert Levels 3 and 4. Mr Sudhakar agreed to this waiver.
[31] In oral submissions, Mr Sharma acknowledged this waiver, but said that AVS’s position was that the reduction was not enough, considering access issues that continued after this period. He referred to Coffee Culture Franchises Ltd v Home Straight Park Trustees,22 in which Associate Judge Bell held that arguably when a café’s sole customer, the Inland Revenue, directed its staff to work from home, access (by customers) to the premises was affected, so cl 27.5 of the lease (“No access in emergency”) was triggered.23
[32] Yet the facts here are very different to those in Coffee Culture. In those highly unusual circumstances, the Associate Judge considered that the Revenue’s directive to staff was akin to a measure within cl 27.5 to reduce the spread of COVID-19 and that meant, in a practical sense, that staff could not access the premises to fully conduct their business.
21 COVID-19 Response (Management Measures) Legislation Act 2021, sch 6, pt 4, cl 16.
22 Coffee Culture Franchises Ltd v Home Straight Park Trustees Ltd [2021] NZHC 577.
23 At [31] to [34]. Clause 27.5 of Auckland District Law Society’s standard Deed of Lease is in similar terms to COVID-19 Response (Management Measures) Legislation Act 2021, sch 6, pt 4, cl 16.
[33] Here, there is no suggestion by Mr Sudhakar that he or his staff could not access the premises from December 2021. Rather, his evidence is that from December 2021 to April 2022 revenue was severely affected by ongoing restrictions to 100 patrons at a time, staff shortages due to self-isolation requirements, elevated costs of goods, reduced operating hours and the increased cost of living.
[34] MCCL’s only legal obligation was to waive a fair proportion of the rent otherwise payable by AVS for any period when AVS was unable to gain access to the premises to conduct fully its operations because of reasons of health and safety related to the pandemic. MCCL was not legally obliged to waive rent payable by AVS because its revenue had declined due to other factors affecting the business. Mr Sudhakar’s general evidence is wholly lacking in sufficient detail to meet the onus on him to raise a tenable defence that MCCL breached the implied covenant in the COVID-19 legislation.
Quantum is inaccurate
[35] Mr Sudhakar does not say precisely how the amount claimed by MCCL is inaccurate, or by how much. He raises several general objections, which overlap with his other grounds of opposition — that MCCL breached the terms of the lease and COVID-19 regulations. I have already dealt with those.
[36] Additionally, Mr Sudhakar states in his affidavit that he had to renovate key areas of the premises at his own cost, including the toilets, dining area, bar, and floors. However, he provides no further detail of these works, or of the costs involved.
[37] Mr Sharma relies on a passage from Auckland Council v Cosdo Equity Ltd in which Duffy J acknowledged the difference between a right to abate rent in certain circumstances contained in the lease and set-off, which was prohibited by the lease.24 This case is distinguishable because the MCCL/AVS lease did not give AVS the express power to abate rent. In any event, as noted, Mr Sudhakar has not presented any evidence of costs he allegedly incurred that he could seek to abate.
24 Auckland Council v Cosdo Equity Ltd [2014] NZHC 1900; and SHK Trustee Co Ltd v NZDMG Ltd [2021] NZHC 1895.
[38] Mr Sudhakar also alleges that MCCL failed to reduce its losses and take steps to find an alternative lessee for the premises.25 Mr Sharma refers to SHK Trustee Co Ltd v NZDMG Ltd where the Court found that the lessor had failed to mitigate its loss by promptly seeking a new tenant.26 However, that case is distinguishable because the landlord took no steps to attempt to re-let the premises once the lease was terminated.
[39] In contrast, Mr Gardner provides evidence of the attempts MCCL has made to find a new tenant from February to August 2023.27 Mr Gardner also deposes that AVS left the premises in a state of significant disrepair, with several health and safety concerns which required extensive de-fit and reinstatement works that began on 1 May 2023, and were not yet complete when he swore his affidavit in December 2023. Mr Gardner has put in evidence a series of photographs taken on the day MCCL re-entered the premises, which show the state of disrepair and damage to the premise and the scope of works for the de-fit and reinstatement work. Based on this evidence I cannot accept Mr Sudhakar’s evidence that AVS left the premises in a “good and working condition”.
[40] Overall, I am not persuaded that Mr Sudhakar has a defence that MCCL has failed to mitigate its loss. There is no plausible evidence put forward by Mr Sudhakar that there were any other steps available to MCCL that it has failed to take.
Further grounds raised in written submissions
[41]As noted above at [6], Mr Sudhakar raises these further “grounds”:
(a)a proper trial is required with witnesses and cross-examination;
25 Affidavit of Shaneel Kumar Sudhakar affirmed 27 October 2023, at [38]–[39].
26 SHK Trustee Co Ltd v NZDMG Ltd [2022] NZHC 2620 at [74] and [75].
27 Affidavit of Paul Boyd Gardner in Reply sworn 1 December 2023, at [32]–[34].
(b)inquiries need to be made into whether Mr Sudhakar received independent legal advice; and
(c)there is no prejudice to MCCL if summary judgment is refused.
[42] I find that none of these matters provide the Court with a good reason to refuse summary judgment.
[43] First, Mr Sudhakar has not established that he has a tenable defence, so there is no purpose in the matter going to trial.
[44] Second, any issue as to whether Mr Sudhakar received legal advice when he signed the guarantee is irrelevant to the summary judgment. If there is an issue, Mr Sudhakar may have a claim against the solicitor who gave him advice and/or witnessed his signature but that does not prove him with a defence to AVS’s claim.
[45] Third, the assertion that there is no prejudice to MCCL if summary judgment is refused is wrong. Judgment has been entered against the second and third defendants, but they have not paid MCCL. Plainly there is a benefit to MCCL of obtaining judgment against Mr Sudhakar jointly and severally with the second and third defendants. Further, MCCL is prejudiced by delay if summary judgment is refused when Mr Sudhakar has no defence to the claim in any event.
Result
[46]I make the following orders:
(a)judgment is entered against Mr Sudhakar jointly and severally with Dredge and Mr Sharma, for $1,286,858.68;
(b)interest will accrue on this sum pursuant to s 10 of the Interest on Money Claims Act 2016, from the date of this judgment until the date of payment in full; and
(c)Mr Sudhakar will pay MCCL costs on a Category 2B basis incidental to this proceeding of $6,692, and disbursements of $50.
Associate Judge Gardiner
4
0