New Wing Investment Ltd v Wain HC Auckland CIV-2010-404-008321

[2011] NZHC 794

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-008321

BETWEEN	NEW WING INVESTMENT LTD Plaintiff
AND	CLARE MARY WAIN First Defendant
AND	PHILLIP TREVOR LYONS Second Defendant
AND	COLIN SLATER CONTRACTORS 2008 LTD Third Defendant
AND	IAN JESSE RICHARDS Fourth Defendant
AND	MARCUS CHARLES PATERSON Fifth Defendant
AND	MARK WILLIAM DE LISLE Sixth Defendant
AND	BRONWYN LESLIE SLATER Seventh Defendant
AND	COLIN LESLIE SLATER Eighth Defendant
Hearing:	28 July 2011

Appearances: J A Wickes for Plaintiff

D Chesterman for Third, Seventh and Eighth Defendants
J Millar for Fourth, Fifth and Sixth Defendants

Judgment:      28 July 2011

ORAL JUDGMENT OF ASSOCIATE JUDGE BELL

Solicitors:

Loo & Koo, PO Box 99687, Newmarket, Auckland Dix Koretz & Millar, PO Box 41, Otorohanga Nielsen Law, PO Box 1108, Hamilton

NEW WING INVESTMENT LTD V CLARE MARY WAIN HC AK CIV-2010-404-008321 28 July 2011

[1]      This is an application for particular discovery in the context of an opposed summary judgment application.  It arises out of a leasing of a commercial building at

345 Chapel Road, Botany Downs, Manukau City.  It is necessary to record some of the background first before addressing the particular application.

[2]      The original owner of the premises was Chapel Road Holdings Ltd.   That company gave a lease of five commercial units to TLC Botany Downs Ltd.  That company has now been re-named Colin Slater Contractors 2008 Ltd, the third defendant.   The fourth to eighth defendants all guaranteed the obligations of TLC Botany Downs Ltd.  The lease was for 10 years running from August 2004, with one right of renewal for six years.  The rent was $20,038.25 per month, plus GST.  The lease was in the form of the Auckland District Law Society commercial lease.  The tenant paid 100% of the outgoings.   If there was default in payment, interest was charged at a penalty rate of 14%.

[3]      In December 2005, Chapel Road Holdings Ltd sold its interest in the freehold to New Wing Investments Ltd, the plaintiff in this proceeding.  In June 2008, TLC Botany Downs Ltd assigned its interest as tenant to TLC Healthcare Ltd, a company associated with Phillip Trevor Lyons, the second defendant.  Under the assignment, there were changes to the lease as well.   The term was extended by a further six years so that it ended in 2020 and there was a right of renewal for a further six years which could take the lease out to 2026.  The means of conducting rent reviews was changed.  The standard provisions of the Auckland District Law Society lease were replaced with new provisions allowing for increases related to the consumer price index. Those provisions were invoked in August 2008.

[4]      The  new  tenant  fell  into  default  in  payment  of  rent.    According  to  the plaintiff, the shortfalls in payment of rent began from August 2008 with no payments of rent at all from 1 December 2009.  There were also defaults in paying outgoings. The plaintiff’s claim is for unpaid rent and outgoings of $380,738.07.  There is also a claim for unpaid default interest of $179,842.16.  It appears that the tenant sold its business, made a payment to the landlord and has since gone into liquidation.  The

landlord has accordingly brought these proceedings against the former tenant as assignor who remains liable both at common law and under the terms of the assignment of lease and also against the guarantors of the original assignor.

[5]      The guarantors of the original assignor have no direct knowledge of the defaults by the tenant.   They have asked for discovery.  Their original application sought five classes of documents:

1.        All documents relating to rent reviews, which occurred in or about

August 2006 and August 2008;

2.        Tax invoices for rent payable from commencement of Lease.

3.        Bank statements relating to rent unpaid.

4.        All  documents  pertaining  to  payments  allegedly  made  by  the

Plaintiff on behalf of the Tenant for which reimbursement is sought.

5.All documents pertaining to outgoings as specified in paragraph 18 of the Statement of Claim.

[6]      In the hearing today, the scope of documents in issue has been narrowed.  The defendants no longer seek disclosure of documents relating to rent reviews.  They no longer seek tax invoices for rent and I am told that records relating to outgoings have already been disclosed.  Effectively, the application today focused on the defendants’ claim for discovery of source documents for rent payments made by the last tenant.

[7]      Counsel helpfully reviewed the authorities on discovery in the context of a summary judgment application.  While they reminded me of more recent decisions, at the end of the day I find the guidance given by McGechan J in NZI Bank Ltd v Philpott[1] most helpful.  He said:

[1] (1988) 1 PRNZ 560 at [11]

In practical terms, it may well be that discovery will have only minor importance in summary judgment matters.  Generally, I suggest it will not be granted prior to the first hearing of the summary judgment application itself. Even at that hearing such orders will not be granted at all unless “necessary”. Such orders hardly will be “necessary” where a defendant, bereft of any significant defence framework, simply wishes to go fishing oceanwide, to see if something can be trawled up.  It will not be necessary in the converse situation where quite apart from questions of discovery the Court is not satisfied  the  defendant  has  no  defence,  and  the  summary  judgment application therefore is to be dismissed on ordinary principles.   Its likely

significance will be in the relatively narrow band of marginal cases where an outline defence is made out, but the Court encounters genuine difficulty in determining whether or not there is no defence, and has a substantial reason to believe discovery in the proceeding will or may well assist that determination.  Even in that limited range of situations, a Court encountering such difficulties might prefer to dismiss the summary judgment application under its general discretion, as a simple matter of caution and justice, rather than prolong matters through discovery, but the latter course would be open. Unjustified applications for discovery can of course be suitably dealt with costs.

[8]      In a case where a commercial landlord is seeking recovery from guarantors of the original assignor, it needs to be borne in mind that those guarantors will have no direct knowledge of the defaulting tenant’s performance of his obligations under the lease.   They cannot be expected to have knowledge in their own possession or control whether the tenant has performed all his obligations or not.   The starting point in such a summary judgment application is that it is incumbent on the landlord to prove defaults by the tenant and to show that those are defaults to which the guarantors of the assignor must answer.

[9]      In approaching the matter this way, I have found it helpful to bear in mind that there is another class of people who are often asked to answer for defaults in this way.  Those are underwriters.  Underwriters conventionally require people that make claims on them to make proper disclosure of the matters giving rise to the loss so they can be satisfied that a loss has truly been suffered which falls within the terms of the policy.

[10]     In this case, what the plaintiff has done so far is consult its own records and then put in evidence its findings from consulting its source of documents.  But it has not put the source documents themselves directly in evidence.  I would have thought that prudence would suggest to the plaintiff that if it wanted to make it abundantly clear what payments had been made, it would have put its original source documents in evidence.  I understand from the plaintiff’s lawyer that it does not keep any kind of rent book or similar record on which payments by this particular tenant were separately recorded.   It simply has bank statements which it consults to find out whether rent has been paid on time or not.

[11]     In this case, if the landlord does not keep its own separate rent book or similar document in which it records these rent payments (and I would regard such a rent  book  as  something  that  would  have  to  be  put  in  evidence  in  a  summary judgment application), then it is necessary for the plaintiff to put in evidence those source documents so that they can be made available to show that it is entitled to summary judgment.   On ordinary principles then I would have thought that the plaintiff would have shown in its application from its own source documents what defaults in payment had been made by the plaintiff.   In effect, by this discovery application, the defendants are trying to get the plaintiff to do its job properly.

[12]     I  am  fortified  by  the  approach  I  am  taking  by  additional  considerations showing that there have been some errors by the plaintiff in the calculation of its claim.  The defendants instructed a Hamilton accountant to analyse the data provided by the plaintiff to see whether the claims have been calculated correctly.   He established that the plaintiff had calculated the interest payments on a compounding basis, whereas the lease provided only for a simple interest calculation.   He also found  another  arithmetical  error,  $1000  or  so.    Mr  Millar  submits  that  having received invoices as to outgoings, there are items that are open to question as not falling within the outgoings recoverable under the lease.  Those matters give concern to suggest that this would be a proper case where the plaintiff should disclose its source documents so that there can be no doubt as to what payments have or have not been made by the tenant.

[13]     Accordingly, I make an order for the plaintiff to file and serve an affidavit attaching its bank statements from 1 August 2008 until the end of the tenancy by TLC Healthcare Ltd.   Those bank statements should identify what payments have been made by TLC Healthcare Ltd.  I give these directions:

(a)       The  plaintiff  is  to  file  and  serve  its  affidavit  of  documents  by

12 August 2011;

(b)The  defendants  are  to  file  and  serve  any  further  affidavits  in opposition by 2 September 2011;

(c)       The  plaintiff  is  to  file  and  serve  any  affidavits  in  reply  by

16 September 2011;

(d)      The case is given a half-day fixture on 20 October 2011 at 10:00 am; (e)     The plaintiff is to file and serve a case book, synopsis of submissions

and bundle of authorities by 6 October 2011;

(f)       The defendants are to file and serve their synopses of submissions and bundle of authorities by 13 October 2011.

[14]     The defendants have asked for costs.  I reserve costs.  I suspect that once this matter comes to a hearing and a judge has considered the summary judgment application, it will be seen in hindsight whether this has been something of a fishing expedition or not.   That is, if in fact the plaintiff has been accurate in setting out records of rent payments, the plaintiff might be able to say that this application has been an unnecessary exercise.   I may be pre-empting matters by ordering costs against the plaintiff at this stage.  I leave the plaintiff the opportunity of raising that after the final hearing.  I need to mention, of course, that there are other issues in this

case beside the discovery and quantum issues.

R M Bell

Associate Judge