MJ & Kimko Company Ltd v JNJ Holdings Ltd

[2021] NZHC 3055

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-1212

[2021] NZHC 3055

IN THE MATTER OF

an appeal from a decision of the District Court at Auckland

BETWEEN

MJ & KIMKO COMPANY LIMITED, KWANG-ON KIM and EUNOG KO

Appellants

AND

JNJ HOLDINGS LIMITED

Respondent

Hearing:	30 September 2021
Counsel:	B P Rooney for appellants K K Kommu for respondent
Judgment:	11 November 2021

JUDGMENT OF TOOGOOD J

This judgment was delivered by me on 11 November 2021 at 2pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:

Lovegroves, Auckland for appellants Glaister Ennor, Auckland for respondent

MJ & KIMKO COMPANY LTD v JNJ HOLDINGS LTD [2021] NZHC 3055 [11 November 2021]

Introduction

[1]    MJ & Kimko Company Limited (Kimko) is a registered company which operated a Japanese food retail business, trading under the name “Matsu Sushi”, from shop F004 (the premises) within the Sky World Metro Complex on Queen Street, Auckland (Sky World Metro or the complex). Kwang-On Kim and Eunog Ko (the guarantors) are the directors and shareholders of Kimko who guaranteed the performance of Kimko under the lease of the premises from JNJ Holdings Limited (JNJ Holdings or the lessor) which owns and manages the complex.

[2]    On 1 April 2021, in the District Court at Auckland, Judge Mathers entered summary judgment for JNJ Holdings against Kimko and the guarantors (collectively, the appellants) for unpaid rent for the premises after Kimko defaulted, but stayed execution of the judgment pending disposition of a counterclaim.1

[3]    The appellants appeal  against  the  summary  judgment  for  unpaid  rent.  JNJ Holdings has not cross-appealed against the decision that judgment should be stayed pending the disposition of the counterclaim, but interlocutory steps remain on foot in the District Court.

Result

[4]    For the reasons given below, I allow the appeal and make the orders at [52] setting aside the judgment entered in the District Court.

Background

[5]    On 13 May 2014, Kimko was assigned the lease of the premises under a deed of assignment (the deed of assignment). The initial deed of lease dated 13 September 2005 (the initial deed of lease) had been due to expire on 29 July 2011 but was extended and varied by the deed of assignment to expire on 29 July 2017. In discussions on 28 July 2017, Kimko confirmed it intended to continue to lease the premises and approached JNJ Holdings to discuss the essential terms of a new lease. After the expiry of the initial deed of lease on 29 July 2017, Kimko remained in

1      JNJ Holdings Ltd v MJ & Kimko Company Ltd [2021] NZDC 10554 at [19].

occupation and possession of the premises and continued to pay rent and outgoings in terms of the initial deed of lease without objection from JNJ Holdings while negotiations over the terms of a new lease took place. On 3 October 2017, in a letter described in the pleadings as “a Lease Proposal” (the lease proposal), the “main terms” of  a  new  agreement  to  lease  were  proposed  by  JNJ  Management  Limited  (JNJ Management) on behalf of the lessor

[6]    In the lease proposal, a provision for rent reviews was scored out by the guarantors and they inserted and initialled a different provision. The lease proposal as amended reads, as to the form of lease:

The lessor and lessee agree to execute the lessor’s standard lease for the premises with specific amendments to reflect terms that have been agreed. The lease is to be signed within ten (10) days of receipt. The parties acknowledge that the lessor’s standard lease has not been provided and this is conditional upon the lessee approving this standard lease upon receipt from the lessor.

A copy of the lessor’s standard lease is available on request.

The lessee will pay the lessor’s reasonable costs in preparing the lease deed of lease.

[7]    The italicised sentence in the first quoted paragraph, and the words “deed of lease” in the last quoted paragraph, were inserted (and the word “lease” deleted) after the original proposal was submitted to the guarantors: they are in a smaller font than that used in the rest of the letter and have been initialled by the guarantors.

[8]After the paragraphs containing the main terms, the lease proposal reads:

Please note that this proposal is submitted subject to the approval of the Managing Director of JNJ Management Limited.

[9]    In her second affidavit sworn in opposition to the summary judgment application on 12 February 2020, the third-named appellant Eunog Ko exhibits a copy of the lease  proposal  confirming  that  the  guarantors  amended  and  signed  it  on 5 October 2017. Ms Ko acknowledges that Kimko received a copy of the lease proposal signed, with the amendments  initialled,  by  the  managing  director  of  JNJ Management (who, it seems, is also managing director of the lessor) on or about 13 October 2017 after the guarantors had returned the amended lease proposal to him.

From 13 October 2017, therefore, the lease proposal became an agreement to lease that was effective from 1 August 2017 (the agreement to lease).

[10]   Following its acceptance of the agreement to lease, Kimko complied with its obligations under the agreement and continued to make rent and other payments that fell due without raising any issue. On 18 June 2018, the solicitors for JNJ Holdings provided Kimko with the lessor’s standard lease for execution. It contained terms consistent with the agreement to lease but the standard lease was never signed by the appellants. Kimko continued to occupy the premises, however, and continued to meet its obligations under the agreement to lease, including by monthly payment of rent and outgoings throughout this period. This compliance also included paying increased rent from 1 August 2019 after JNJ Management issued a rent review notice for the base rent in accordance with the agreement to lease.

[11]   From 1 August 2020 Kimko defaulted in its obligations under the agreement to lease. On 25 November 2020, the lessor served notices to remedy pursuant to ss 245 and 246 of the Property Law Act 2007 (the PLA). Kimko remained in occupation of the premises until JNJ Holdings exercised its right of re-entry on 15 January 2021 after the expiry of the PLA notice and Kimko’s failure to remedy the breach.

The pleadings

The statement of claim

[12]   In its statement of claim, JNJ Holdings pleaded that the lease proposal was “the Agreement” that contained the obligations of Kimko and the guarantors on which it sued:2

4        On 3 October 2017, JNJ leased the Shop F004, 291-297 Queen Street, Auckland Central, Auckland (the Premises) to Matsu Sushi by way of a Lease Proposal (the Agreement). The Agreement provided, inter alia, for the following terms and conditions:

(a)Lease commencement date 1 August 2017;

(b)Lease term often (10) years;

(c)Lease expiry date of 31 July 2027;

2      Emphasis added.

(d)Annual net rent $198,603.56 + GST;

(e)The second and third defendants to guarantee the lease;

(f)Rent review of the base rent on the following dates:

(i)1 August 2019 and 1 August 2023 based on CPI + 5%; and

(ii)1 August 2021 and 1 August 2025 based on the market rent review or CPI + 5% whichever is higher;

(g)Electricity, gas and water separately metered;

(h)Agreement to execute JNJ’s standard lease for the premises with Matsu Sushi to approve the standard lease;

(i)Matsu Sushi to pay reasonable costs in preparing the deed of lease;

(j)Matsu Sushi to pay rental by automatic payment on the first of the month; and

(k)Matsu Sushi to obtain liability insurance for potential losses and damages.

JNJ relies on the Agreement as if pleaded in full (the Lease)

[13] The appellants admitted that pleading in their amended statement of defence dated 31 March 2021, at [4].

[14]   JNJ Holdings’ claim was for  judgment  in  the  sum  of  $89,694.48  as  at  30 November 2020, being the date of the statement of claim, plus rent up to the date of judgment, interest and costs.

The application for summary judgment

[15]   In its interlocutory application for summary judgment, JNJ Holdings asserted that Kimko agreed to pay the annual rent set out in an unspecified “agreement to lease”, but a copy of the lease proposal was attached as exhibit “JNJ-2” to an affidavit sworn in support of the summary judgment application. The copy of the lease proposal exhibited does not contain the managing director’s signature or initials, but the affidavit confirms that the obligation to pay rent which had been breached was that set out in the exhibited document. There is no reference in the statement of claim, the

application for summary judgment or the affidavit in support to JNJ Holdings relying upon its standard lease in making its claim for the unpaid rent.

The defence and counterclaim

[16]   In their amended statement of defence and counterclaim, the appellants denied Kimko had defaulted on its obligations under the agreement to lease (formally putting JNJ Holdings to proof on the extent of the alleged default) and further said, at [8], that:

… the rent, operating expenses and other monies claimed by the Plaintiff were not due and payable because the Plaintiff had defaulted on its obligations under the terms of the Lease and under the Law, so as to make it impossible for the First Defendant [Kimko] to pay the monies.

[17]   At [10], the appellants denied that the sum demanded of them by JNJ Holdings “was outstanding liability for the First Defendant to the Plaintiff”.

[18]   In response to JNJ Holdings’ calculation of its loss of $89,691.48, the appellants pleaded at [12]:3

12.The Defendants deny the Plaintiff’s allegations in paragraph 12 of the Statement of Claim, and further say:

A.THAT the amount of the rent, outgoings, and other payments to be paid by the First Defendant, if it is liable, is $77,567.39;

and

B.THAT the Plaintiff had breached the terms of the Lease and derogated from its obligations under the Lease and under the Law so as to make it impossible for the First Defendant to pay any money to the Plaintiff.

[19]   At [16], the appellants pleaded that they had defences to the lessor’s claim and that Kimko had a counterclaim against JNJ Holdings. The counterclaim included an allegation at [19] that the initial deed of lease:

… contained a number of provisions which were devised to ensure that the food retail shops in the food court could succeed and prosper together …

3      Emphasis added.

[20]   The appellants alleged at [20] that the food court was well-managed and operated “until a couple of years ago”4 when JNJ Holdings “started derogating from its obligations under the leases it had entered into with the tenants of the shops in the food court on the ground floor of the building”, including Kimko. Particulars of the allegations were pleaded. Kimko alleged  that  its  turnover was  reduced  to  about 30 per cent of the prior year when it resumed business in June 2020 after the COVID-19 lockdown and that JNJ Holdings did nothing to improve the situation. The pleading alleges that, from the end of 2020, Matsu Sushi was one of the only two shops open and operating in the food court, the other being a bakery owned and operated by JNJ Holdings. Kimko pleaded that the reason it could not pay the rent that was owing under the agreement to lease was that JNJ Holdings “intentionally or negligently derogated from the lease” as a result of which Kimko suffered loss of income and loss of the goodwill of its business.

[21]   Kimko claimed the sum of $120,000 for loss of income and $160,000 for loss of business goodwill, plus interest.

[22]   So far as their pleading is concerned, therefore, the appellants claimed that JNJ Holdings’ alleged conduct in derogation from their interests under the lease supported both a defence to the claim for unpaid rent (because the resulting losses suffered by them meant they were unable to afford the rent) and a counterclaim for a total of $280,000 in damages.

The key uncontested facts

[23]   Careful analysis of the pleadings (including the affidavits filed in support of and in opposition to the application for summary judgment) – always a necessary element of the consideration of a summary judgment application – establishes that the following facts were not in dispute by the time the summary judgment application was heard by Judge Mathers:

(a)The initial lease expired on 29 July 2019 according to its terms but Kimko remained in occupation of the premises and continued to pay

4      The amended statement of claim containing the pleading is dated 31 March 2021.

rent in terms of the initial deed of lease with the acquiescence, if not the agreement, of JNJ Holdings.

(b)Kimko and JNJ Holdings executed the lease proposal as an agreement to lease the premises with effect from 1 August 2017 on the terms set out in the agreement to lease executed by the guarantors on 5 October 2017 and on behalf of JNJ Holdings on 13 October 2017.

(c)Although JNJ Holdings proposed that its standard lease would be executed by the parties, the application of the terms of the standard lease were conditional upon Kimko’s approval, which approval was never given.

(d)From 13 October 2017 until the date the lessor re-entered the premises, the lessor/lessee/guarantor relationships between the parties were conducted solely on the basis of the agreement to lease, without reference to the initial deed of lease or the lessor’s standard lease.

[24]   It follows that – in the absence of contrary findings of fact founded on the evidence – the terms of the initial deed of lease and the lessor’s standard lease were, and remain, irrelevant to the matters at issue between the parties as pleaded.

District Court decision

[25]   Judge Mathers summarised the facts and respective claims of the parties in succinct terms:5

[1]        The plaintiff seeks summary judgment against the first defendant. It also seeks summary judgment against the second and third defendants as guarantors. The plaintiff owns premises at the Sky World Metro complex situated at 291-297 Queen Street, Auckland. The complex comprises a number of retail tenancies.

[2]        On 13 May 2014 the first defendant was assigned the lease of Shop FOO4. At the expiration of the lease (having been extended) the first defendant continued to pay rent in terms of the lease until 1 August 2020 when it stopped further payments.

5      JNJ Holdings Ltd v MJ & Kimko Company Ltd, above n 1.

[3]        The  plaintiff  seeks  summary  judgment   for   $89.694.48   as   at 30 November 2020 being the date of the statement of claim plus rent up to the date of judgment, plus interest and costs.

[4]        The defendants have brought a counter-claim upon the basis that the plaintiffs intentionally or negligently derogated from the lease and caused loss.

[5]        The defendants’ pleadings seem to acknowledge, and this was confirmed during the hearing before me, that as at 1 December 2020 the defendants owed $77,567.39 in terms of the lease. The plaintiff does not understand the basis of this concession. The second and third defendants also acknowledge that they are the guarantors of the lease.

[6]        The real dispute arises from the expiration of the lease and while the defendants continued in occupation and while the parties engaged in negotiations to enter into a new lease. In summary the plaintiff says that a new lease was agreed but the defendants deny this. In addition, of course, the defendants have counter-claimed.

[26]   In my respectful view, this summary of the facts, pleaded cases and the dispute between the parties mischaracterises the issues and the position taken by the appellants. That may have been at least in part because, if the Judge’s summary of the submissions on behalf of the defending parties is accurate, the case for the appellants was not explained to the Court as well as it might have been.

[27]   First, the appellants not only brought a counterclaim for damages based on the alleged derogation, but also pleaded the conduct said to amount to derogation as a defence to the claim for unpaid rent.

[28]   Second, the  Judge  said  that  it  was  conceded  at  the  hearing  that  “as  at  1 December 2020 the defendants owed $77,567.39 in terms of the lease”.6 Respectfully, I do not consider that statement does justice to the pleading at [12A] of the amended statement of defence. There, the appellants denied that the unpaid rent claimed was owing and further said that “the amount of the rent, outgoings, and other payments to be paid by [Kimko], if it is liable,7 is $77,567.39”. It reinforces its defence to the claim for unpaid rent by asserting that the alleged derogation from the lease by JNJ Holdings had made it “impossible” for Kimko to pay any money to the lessor. Irrespective of the strength of the appellants’ claims about derogation, about which the

6      JNJ Holdings Ltd v MJ & Kimko Company Ltd, above n 1, at [5].

7      My emphasis.

Judge was sceptical, the pleaded case tied the derogation directly to the obligation to pay rent.

[29]   Third, the Judge noted that JNJ Holdings could not understand the basis of the conceded quantum and, it appears, the Judge was similarly puzzled. But the third- named appellant Ms Ko explained in her first affidavit dated 22 December 2020 in support of the notice of opposition to the application for summary judgment, in exhibit 5 headed “Matsu sushi rent pending amount correction data”, how that sum had been calculated.

[30]   Fourth, the Judge’s brief statement at [6] that “(i)n summary the plaintiff says that a new lease was agreed but the defendants deny this” may have reflected the submission made to the Court, but it misstates the parties’ pleaded positions and is not consistent with the uncontested evidence about the applicable lease terms. As I have explained at [23], the shared view of the parties was that the initial deed of lease expired at the end of July 2017 and that the new lease was founded on the terms set out in the agreement to lease that were concluded on 13 October 2017. In making its claim for unpaid rent, JNJ Holdings relied exclusively on the agreement to lease and did not assert that the standard lease had any application.

[31]   The learned Judge’s misapprehension as to the appellants’ pleaded case affected the Judge’s view of the merits and the implications of the defence and counterclaim in the summary judgment context. The Judge said:

[8]        Quite clearly there is a dispute as to the facts between the date of the final expiration of the lease and the negotiations that followed. I am invited by the plaintiff to take a “robust and realistic approach where the facts warrant it” and grant summary judgment. Of course the defendants oppose this and sue by way of counter-claim, despite the concession I have already referred to, as to the amount outstanding.

[9]        Cutting to the core of the defendants’ defence, they claim that despite continuing to occupy the premises for approximately three years, the new formal agreement to lease is unenforceable because of a term that required the approval of the plaintiff’s managing director, which was never communicated to the defendants and the defendants never approved the term of the standard lease.

[10]      Quite frankly, having considered the defendants’ stand on this issue, and the competing submissions, I see little or no merit in the allegation that the plaintiff’s managing director failed to approve the new lease. Putting

aside, for a moment, the issue of the counter-claim, and taking a robust approach to the affidavit evidence and submissions, I consider that the evidence of the defendants as to the new formal lease and the lack of the plaintiff’s managing director approval is inherently lacking in merit such as to be inherently lacking in credibility.

[32]   It is likely that the Judge was misled as to the significance of the factually incorrect claim by Ms Ko in her first affidavit that the approval of JNJ Holdings’ managing director to the agreement to lease was never communicated to the appellants. In her second affidavit of 12 February 2021, without acknowledging her earlier error, Ms Ko deposed at [21] that she had received a copy of the managing director’s approval to the lease agreement on 13 October 2017. The Judge was correct to say, however, that the appellants never approved the term of the standard lease, but that was not relevant to JNJ Holdings’ claim, the defence or the counterclaim. Without analysing the affidavit evidence and the pleadings, the Judge appears to have misunderstood the appellants’ position, saying she was taking “a robust approach to the affidavit evidence and submissions” in holding that the absence of the appellants’ approval of the new formal lease (that is, the standard lease) and the lack of approval of JNJ Holdings’ managing director was lacking in merit and lacking in credibility.

[33]   The Judge also overlooked Ms Ko’s calculations as to the sum the appellants accepted was owing by way of rent, if they were liable, and could not see on the evidence why the amount claimed by JNJ Holdings was not the proper amount owing as at that date.

[34]   In summary, therefore, the District Court Judge misidentified factual disputes between the parties that did not exist, failed to acknowledge the assertion that there was a direct causal connection between the alleged derogation from the lease by   JNJ Holdings and Kimko’s alleged inability to pay the rent and overlooked the sworn basis for the appellants’ challenge to the quantum of unpaid rent that was claimed.

The applicable principles for summary judgment

[35]   In considering the position the Court should take to the application for summary judgment in relation to the unpaid rent claimed by JNJ Holdings, Judge

Mathers cited the Court of Appeal’s approach in Krukziener v Hanover Finance Ltd.8

The Court said:9

The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1; (1986) 1 PRNZ 183 (CA), at p 3; p 185. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331; [1979] 3 WLR 373 (PC), at p 341; p 381. In

the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).

[36]   Applying those principles to this case, I am satisfied that the District Court Judge fell into error by failing to appreciate the true nature of the pleaded defence to the rent claim and the evidence underpinning it. As I have said, what the Judge understood to be a concession by counsel for the appellants that they owed “$77,567.39 in terms of the lease” may have encouraged the Judge to think that she did not need to look closely at the evidence itself. The position taken by the Court appears, however, to overlook the important qualification in [12A] of the amended statement of defence that the amount conceded as payable was conditional upon Kimko being held liable.

[37]Even if there is some doubt about:

(a)whether JNJ Holdings was under any positive obligation to promote the interests of the food court as a going concern for all tenants, including Kimko; and

(b)whether the financial difficulties experienced by Kimko could be attributed wholly to a breach of that obligation by the lessor,

8      Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162.

9 At [26].

it could not be said on the pleadings and the affidavit evidence that there was no real question to be tried on the defence of derogation. The approach of the District Court Judge was to dismiss what appears to me to have been material conflicts of evidence about the extent to which JNJ Holdings either deliberately or negligently ran down the food court business, and the arguable consequences of such an event.

Appellate approach

[38]   The Court’s approach to general appeals is well settled by the Supreme Court’s decisions in Austin, Nichols & Co Inc v Stichting Lodestar and Kacem v Bashir.10 The Court on appeal considers the merits of the case afresh.11 The appellate court must be persuaded that the decision was wrong,12 but the weight to be given to the lower court’s reasons is a matter for the assessment of the appellate court.13

Principles applying to applications for summary judgment

[39]   Summary judgment is available in circumstances where “the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim”.14 It is settled law that “summary judgment will be inappropriate where there are factual disputes and, in particular, credibility issues that cannot be resolved on the basis of … affidavit evidence”.15

[40]   Conflicts of evidence ought generally not to be resolved in a summary judgment application, but the court may take a robust approach and need not accept uncritically evidence that inherently lacks credibility.16 As Greig J said in Attorney- General v Rakiura Holdings Limited:17

10     Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [13] and [16]; Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [31]-[32].

11     Kacem v Bashir, above n 10, at [31].

12     Austin, Nichols & Co Inc v Stichting Lodestar, above n 10, at [13].

13     Kacem v Bashir, above n 10, at [31].

14     High Court Rules 2016, r 12.2(1); Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3.

15     Sandman v McKay [2019] NZSC 41, [2019] 1 NZLR 519 at [97].

16     Long Capital Holdings NZ Ltd v Jacks Point Village Holdings No 2 Ltd [2020] NZCA 102 at [29], citing Krukziener v Hanover Finance Ltd, above n 8 at [26].

17     Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC) at 14, citing Eng Mee Yong v Letchumanan [1980] AC 331 at 341 per Lord Diplock.

In a matter such as this it would not be normal for a judge to attempt to resolve any conflicts in evidence contained in affidavits or to assess the credibility or plausibility of averments in them. On the other hand, in the words of Lord Diplock in Eng Mee Yong v Letchumanan [1980] AC 331 at 341 E, the Judge is not bound ‘to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be’.

[41]   The Court does not have to be convinced of the truth of the statements made by the defendant; so long as there are unequivocal statements which amount to an arguable defence, that will generally be sufficient to justify a refusal of the summary judgment application.18

[42]   While the Court of Appeal has stated that it will take a robust approach to summary judgment applications,19 the Court also will be:20

… wary of allowing the rule to become an instrument of oppression or injustice in the laudable interest of expediting litigation. It is true that “justice delayed is justice denied”, but not at the expense of a fair hearing for both parties, unless the Court is sure there is no real defence. It is unlikely to reach this conclusion if the affidavits disclose disputed questions of fact, the resolution of which depends on an assessment of credibility or reliability of witnesses.

Is there an arguable defence to the claim for unpaid rent?

[43]   It is common ground between the parties that the Court of Appeal established in Grant v NZMC Ltd that a defendant may set off a cross-claim which so affects the plaintiff’s claim that it would be unjust to allow the plaintiff to have summary judgment without bringing the cross-claim to account.21 Looking at the counterclaim, Judge Mathers commented on “certain similarities” between the present case and Grant v NZMC Ltd, noting the allegations by the appellants that Sky World Metro had been allowed to run down, as arguably set out in their affidavits, to such an extent that “it is only fair that there should be an offset or counter-claim”.22 The Judge observed:23

18     Local Courier Service Ltd v Kesha (1995) 8 PRNZ 690 (HC) at 693.

19     Krukziener v Hanover Finance Ltd, above n 8, at [26].

20     Doyles Trading Co Ltd v West End Services Ltd [1989] 1 NZLR 38 (CA) at 41.

21     Grant v NZMC Ltd [1989] 1 NZLR 8, at 12–13.

22     JNJ Holdings Ltd v MJ & Kimko Company Ltd, above n 1, at [15].

23 At [16].

Although I am sceptical as to the ultimate success of the defendants’ counter- claim I am nevertheless of the view that it is arguable on the disputed facts and that there is sufficient “link” so that it would be unfair to enter judgment on the plaintiff’s claim without regard to the defendants’ counter-claim.

[44]   That view of the appellants’ claims was entirely appropriate, in my view. But it seems Judge Mathers saw the entry of summary judgment for the unpaid rent as inevitable given what she understood to be the concession by the appellants that it was in default of its rent obligations. The Judge relied on Grant to ameliorate the effect of that judgment by deferring execution of it pending determination of an arguable counterclaim.24

[45]   That is where the learned Judge erred, in my respectful view. Judge Mathers did not misunderstand the nature of the evidence underlying the derogation claims, but she may have been misled into concluding that the claims were relevant only to the counterclaim for damages. It appears the Judge did not appreciate that they also provided an arguable defence to the claim for recovery of unpaid rent and that Grant was authority for refusing summary judgment on that ground.

Were the appellants entitled to offset the cross-claim against the obligation to pay rent?

[46]   In their careful submissions about the application of the Court of Appeal’s statements of legal principle in  Grant,  both  Mr Rooney  for  the  appellants  and  Mr Kommu for JNJ Holdings accepted that the right to rely on a cross-claim to resist a claim for rent can be excluded by the terms of the contract between the parties.25

[47]   Counsel focused much of their respective arguments before me on the significance of the differences between a set-off and a counterclaim, and the differences in wording between relevant clauses in the initial deed of lease and the lessor’s standard lease. The initial deed of lease provided, at cl 3.2(a)(iv), that the rent or other moneys were required to be paid “without any deduction whatsoever”; the equivalent provision in the lessor’s standard lease at cl 3.1 said the rent was required to be paid “without any deduction or set-off whatsoever”.

24     JNJ Holdings Ltd v MJ & Kimko Company Ltd, above n 1, at [19].

25     Grant v NZMC Ltd, above n 21, at 13, citing Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd [1974] AC 689 at 712 and 723.

[48]   Since it is clear, however, upon a proper analysis of the pleadings and the evidence that neither the initial deed of lease nor the standard lease applied, the question of whether a deduction or set-off was permitted must be determined by reference to the terms of the agreement to lease founded upon the lease proposal. The agreement to lease contains no such express provision. Moreover, the terms of the standard lease cannot be imported into the agreement to lease by incorporation because the condition for its application (namely, the lessee’s approval) was never satisfied.

[49]   It follows that, on the pleadings and the affidavit evidence, and on Judge Mathers’ justifiable view of the link between the disputed evidence and JNJ Holdings’ claim, there was no impediment to a finding that the derogation allegations provided an arguable defence to the claim for unpaid rent. It will be for the District Court to determine whether the allegations of derogating conduct are made out, both in terms of providing a defence to the claim for rent and as a foundation for the claims for damages.

[50]   I observe in passing that, when the appellants argue the case in the District Court, they will need to revisit the extent to which they can rely on the obligations of JNJ Holdings under the initial deed of lease as a foundation for the defence and the counterclaim.

Result

[51]I allow the appeal.

[52]   The order of the District Court entering summary judgment in  favour  of  JNJ Holdings Limited is set aside, together with any incidental orders, and the claim for unpaid rent is remitted to the District Court for determination following a full hearing.

Costs

[53]   As the successful parties, the appellants are arguably entitled to costs on the appeal. It is fair to observe, however, that the argument for the appellants on appeal did not focus as narrowly as it could have done on which of three lease documents

governed the relationship of lessor and lessee in this case and whether the ability to set off the cross-claim was precluded by contractual terms. Moreover, it appears that the argument for the appellants in the District Court may not have clearly articulated their reliance on the alleged conduct of the lessor in running down the complex as founding both a defence of derogation and contractual causes of action for loss of profits and loss of goodwill.

[54]   It may be that had the appellants’ case been put to the District Court Judge more fairly and squarely, summary judgment would not have been entered. In this Court, the appellants’ submissions address at some length the false premise that the terms of the initial deed of lease and the standard lease were arguably in play. The Court’s discretion as to costs might lead to a conclusion that costs should lie where they fall.

[55]   I make no such  determination,  however.  The appellants  shall  have until  25 November 2021 to apply for costs by memorandum; the respondent shall have until 9 December 2021 to respond. Costs shall then be determined on the papers unless the Court directs otherwise.

Toogood J