Scrapbook Alley Limited v Chow HC Palmerston North CIV-2011-454-141

[2011] NZHC 1068

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

CIV-2011-454-141

UNDER  The Common Law

IN THE MATTER OF     a Deed of Lease

BETWEEN  SCRAPBOOK ALLEY LIMITED Plaintiff

ANDANN CHOW, FAI CHOW AND DAVID ALAN LEA

Defendants

Hearing:         25 August 2011

(Heard at Palmerston North)

Counsel:         G.A. Paine - Counsel for Plaintiff

G. Manktelow - Counsel for Defendant

Judgment:      5 September 2011 at 4:00 PM

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment was delivered by Associate Judge Gendall on 5 September 2011 at

4.00 pm under r 11.5 of the High Court Rules.

Solicitors:           Bruce Andrews, Solicitors, PO Box 351, Palmerston North

G & T Manktelow, Barristers & Solicitors, PO Box 12091, Palmerston North

SCRAPBOOK ALLEY LIMITED V A CHOW, F CHOW AND DA LEA HC PMN CIV-2011-454-141 5

September 2011

[1]      Before the Court is an application by the defendants for summary judgment

against the plaintiff or alternatively for an order striking out the plaintiff’s claim.

[2]      In addition, on 10 August 2011 the defendants filed an amended interlocutory application which included an application for security for costs against the plaintiff. As  the  plaintiff  has  had  no  opportunity  to  respond  to  that  application  or  the supporting affidavit of Mr Peter Lindstrom sworn 9 August 2011, the application for security for costs is now adjourned to a call in the List at 10.00 am on 21 September

2011.   Depending upon the outcome of the summary judgment and strike-out applications before me, the future of that application can be considered at that time.

[3]      At this point I note, however, that the plaintiff takes objection to the Court reading the affidavit of Mr Peter Lindstrom filed in support of the security for costs application on the basis that he is the solicitor who has been acting for the defendants in this matter. That objection is simply noted at this point.

[4]      This judgment therefore relates to the applications before me made by the defendants for summary judgment and strike-out.  The applications are opposed by the plaintiff.

Background Facts

[5]      The defendants are the owners of commercial premises situated at 88 Main Street, Pahiatua (the building).   By Deed of Lease dated 17 February 2010 (the Lease) they agreed to lease a portion of these premises to the plaintiff.  The plaintiff was to operate its business as a retailer of scrap-booking material from the leased premises.

[6]      The lease was for an initial term of 10 years from 1 March 2010 at an initial rental of $5,200.00 plus GST per annum with two further rights of renewal each for

3 years.

[7]      In addition, under the Lease, the plaintiff agreed that it would be responsible for payment of twenty per cent of the total insurance premium assessed for the defendants’ building of which the leased premises formed part.

[8]      So far as this insurance was concerned, clause 23.1 of the lease provided specifically:

Landlord Shall Insure

23.1     The landlord shall at all times during the term keep and maintain any buildings on the property insured under a policy of the type shown in the first schedule (cover for fire, flood, explosion, lightning, storm, earthquake and volcanic activity and (a) full replacement and reinstatement (including loss, damage or destruction of windows and other glass) and such cover may extend to:

(a)        A twelve month indemnity in respect of consequential loss of rent and outgoings;

(b)        Loss  damage  or  destruction  of  any  of  the  landlord’s fixtures,

fittings and chattels; or

(c)         Public liability.

[9]      The lease had commenced and run for only a short time when, on 23 May

2010, a fire occurred in the building and the plaintiff’s premises were substantially damaged.  Officers of the plaintiff say that they have been advised that the cause of this fire related to electrical faults in the defendants’ building which occurred in areas outside the leased premises.

[10]   The fire caused substantial damage to the plaintiff’s chattels, plant and machinery in the plaintiff’s leased premises.   The plaintiff claims this damage amounted to $62,661.67 (GST inclusive).

[11]     The plaintiff maintains that it has sought from the defendants details of the insurance assessor’s reports with regard to the fire but these have not been made available.

[12]     It  seems  that  the  fire  rendered  the  building  and  the  leased  premises untenantable and the defendants through their solicitors have apparently terminated the lease.

[13]     The  plaintiff’s  causes  of  action  against  the  defendant  are  set  out  in  its statement of claim at paragraphs 18, 19, 20 and 21 as follows:

[18]       That the defendants owe a fiduciary duty to the plaintiff to keep safe the

plaintiff ’s chattels and stock in the defendants’ premises.

[19]     The defendants were contractually bound by the said Deed of Lease to maintain adequate insurance cover so as to insure damage occasion to the plaintiff ’s stock, plant and chattels would be met from the said insurance policy(s).

[20]     That  the  defendants owe  a  duty of  care  to  the  plaintiff  to  adequately maintain the said premises and ensure that no electrical faults ensued.

[21]     In breach of the said duty the defendants allowed the premises to become unsafe to the end that fire broke out through electrical faults in the defendants premises.

[14]     As I have noted above, the defendants’ primary application here is one for summary judgment against the plaintiff pursuant to r 12.2(2) High Court Rules.  In the alternative, however, the defendants seek to strike-out the plaintiff’s claims pursuant to r 15.1 High Court Rules.

The court’s approach to a summary judgment application by a defendant

[15]     I turn first to consider the legal position regarding the defendant’s summary judgment application.

[16]     Rule 12.2(2) of the High Court Rules requires that the defendant satisfy the court that none of the causes of action in the plaintiff’s statement of claim can succeed.

[17]     Westpac Banking Corp v MM Kembla New Zealand Ltd noted the following when dealing with r 136(2), the predecessor of r 12.2(2):[1]

[1] Westpac Banking Corp v MM Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA)..

[58]     The applications for summary judgment were made under R 136(2) of the High Court Rules which permits the Court to give judgment against the plaintiff ―if the defendant satisfies the Court that none of the causes of action in the plaintiff's statement of claim can succeed.

[59]     Since  R  136(2)  permits  summary  judgment  only  where  a  defendant satisfies the Court that the plaintiff cannot succeed on any of its causes of action, the procedure is not directly equivalent to the plaintiff's summary judgment provided by R 136(1).

[60]     Where a claim is untenable on the pleadings as a matter of law, it will not usually be necessary to have recourse to the summary judgment procedure because a defendant can apply to strike out the claim under R 186. Rather R 136(2) permits a defendant who has a clear answer to the plaintiff which cannot be contradicted to put up the evidence which constitutes the answer so  that  the  proceedings  can  be  summarily  dismissed.  The  difference between an application to strike out the claim and summary judgment is that strike-out is usually determined on the pleadings alone whereas summary judgment requires evidence. Summary judgment is a judgment between  the  parties  on  the  dispute  which  operates  as  issue  estoppel, whereas if a pleading is struck out as untenable as a matter of law the plaintiff is not precluded from bringing a further properly constituted claim.

[61]     The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually summary judgment for a defendant will arise where the defendant can offer evidence which is a complete defence  to  the  plaintiff ’s  claim.  Examples,  cited  in   McGechan  on Procedure at HR 136.09A, are where the wrong party has proceeded or where the claim is clearly met by qualified privilege.

[62]     Application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment only able to be properly arrived at after a full hearing of the evidence. Summary judgment is suitable for cases where abbreviated procedure and affidavit evidence will sufficiently expose the facts and the legal issues. Although a legal point may be as well decided on summary judgment application as at trial if sufficiently clear (Pemberton v Chappell [1987] 1 NZLR 1), novel or developing points of law may require the context provided by trial to provide the Court with sufficient perspective.

[63]     Except in clear cases, such as a claim upon a simple debt where it is reasonable to  expect proof to  be  immediately available, it  will not  be appropriate to decide by summary procedure the sufficiency of the proof of the  plaintiff ’s  claim. That  would  permit a  defendant, perhaps  more  in possession of the facts than the plaintiff (as is not uncommon where a plaintiff is the victim of deceit), to force on the plaintiff ’s case prematurely before completion of discovery or other interlocutory steps and before the plaintiff's evidence can reasonably be assembled.

[64]     The defendant bears the onus of satisfying the Court that none of the claims can succeed. It is not necessary for the plaintiff to put up evidence at all although, if the defendant supplies evidence which would satisfy the Court that the claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own. Even then it is perhaps unhelpful to describe the effect as one where an onus is transferred. At the end of the day, the Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment made by the Court on interlocutory application is not one to be arrived at on a fine balance of the available evidence, such as is appropriate at trial.

[18]     These passages were approved by the Privy Council in Jones v Attorney- General.[2]

The Court’s Approach to a Strike-Out Application

[2] Jones v Attorney-General [2003] UKPC 48; [2004] 1 NZLR 433 at [5].

[19]     Next,   I  turn   to   note   the   general   legal   position   regarding   strike-out applications.

[20]     Rule 15.1 of the High Court Rules provides:

15.1 Dismissing or staying all or part of proceeding

(1)       The court may strike out all or part of a pleading if it—

(a)     discloses   no   reasonably  arguable  cause   of   action,   defence,  or   case appropriate to the nature of the pleading; or

(b)     is likely to cause prejudice or delay; or

(c)       is frivolous or vexatious; or

(d)     is otherwise an abuse of the process of the court.

(2)        If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.

(3)        Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.

(4)       This rule does not affect the court's inherent jurisdiction.

[21]     The  general  principles  to  be  applied  in  a  strike-out  application  are  well known. They were confirmed in Attorney-General v Prince & Gardner where the Court of Appeal said:[3]

[3] Attorney-General v Prince & Gardner [1998] 1 NZLR 262 (CA) at 267.

A striking-out application proceeds on the assumption that the facts pleaded in the statement of claim are true. That is so even although they are not or may not be admitted. It is well settled that before the Court may strike out proceedings the causes of action must be so clearly untenable that they cannot possibly succeed (R Lucas & Son (Nelson Mail) Ltd v O'Brien [1978] 2 NZLR 289 at pp 294 – 295; Takaro Properties Ltd (in receivership) v Rowling [1978] 2 NZLR 314 at pp 316 –

317); the jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied it has the requisite material (Gartside v Sheffield, Young & Ellis [1983] NZLR 37 at p 45; Electricity Corporation Ltd v Geotherm Energy Ltd [1992]

2 NZLR 641); but the fact that applications to srike-out raise difficult questions of

law,  and  require  extensive  argument  does  not  exclude  jurisdiction (Gartside  v

Sheffield, Young & Ellis).

[22]     The  principles  referred  to  above  were  endorsed  in  Couch  v  Attorney- General.[4]

[4] Couch v Atorney-General [2008] NZSC 45; [2008] 3 NZLR 725.

[23]     The court can have regard to evidence put forward either in opposition or support of the application provided it does not contradict that which is pleaded in the statement of claim: Attorney-General v McVeagh.[5]

[5] Attorney-General v McVeagh [1995] 1 NZLR 558 (CA) at 566.

[24]     But, caution is required, particularly where the case involves allegations of duties of care in novel situations. That has to be measured against the position that defendants  should  not  be  subjected  to  substantial  costs  by  defending  untenable claims: Queenstown Lakes District Council v Charterhall Trustees Ltd.[6]

Counsel’s Arguments and My Decision

[6] Queenstown Lakes District Council v Charterhall Trustees Ltd [2009] NZCA 374; [2009] 3 NZLR 786 at [16].

[25]     It is convenient to turn first to consider the defendants’ summary judgment application against the plaintiff.

[26]     As noted above, to succeed in this the defendants must show that none of the plaintiff’s causes of action outlined in its statement of claim can succeed – r 12.2(2) High Court Rules.

[27]     At its heart, the plaintiff’s claim here seeks ―payment from the defendants for the loss of stock, plant and chattels ... in the sum of $62,661.67‖.  The parties agree that the relationship between the plaintiff and the defendants is governed by the

lease.

[28]     The Lease, at clause 11.1, contains the following term:

11.1     THE  Landlord  shall  keep  and  maintain  the  building,  all  building  services,  the Landlord’s fixtures and fittings, and the car parks in good order and repair but the Landlord shall not be liable for any:

(a)       Repair or maintenance which the Tenant is responsible to undertake; or

(b)       Want of repair or defect in respect of building services, so  long as the Landlord is maintaining a service maintenance contract covering the work to be  done, or  where the  building services have not  been supplied by the Landlord; or

(c)       Repair or maintenance which is not reasonably necessary for the Tenant’s use

and enjoyment of the premises and the car parks; or

(d)       Loss suffered by the Tenant arising from any want of repair or defect unless the Landlord shall have received notice in writing thereof from the Tenant and shall not within a reasonable time thereafter have taken appropriate steps to remedy the same.‖

[29]     As a starting point, therefore, the plaintiff and the defendants would seem to have agreed in the lease that the defendants are not to be liable for loss suffered by the plaintiff arising from any want of repair or defect of the building unless they have received a notice in writing regarding that repair or defect from the plaintiff and have neglected to remedy that defect within a reasonable time.   (But on this see [33] following.)

[30]     The uncontradicted evidence of Mr David Lea on behalf of the defendants at para 11 is in the following terms:

While we deny there has been any lack of care on the part of the Defendants it is clear from clause 11.1 that the Trustees would only be liable if the Plaintiff had given them notice in writing of want of repair or defect which was causative of the Plaintiff’s loss. In the event, the Plaintiff gave the Defendants no notice whatsoever of any want of repair or defect of any kind. Moreover, prior to the fire the Defendants were not aware of any electrical fault in the building.

[31]     As I have noted, this evidence is not contradicted.  Indeed, it seems to be tacitly acknowledged at paragraph 2.7 of the affidavit of Ms Patricia Street on behalf of the plaintiff where she says:

The only fault notified by the previous Tenant prior to signing the lease was that the hot water zip in the kitchen did not work and there was a leaking waste pipe in the hand basin in the toilets. Neither of these faults were fixed prior to our Tenancy.

[32]     The unnamed “previous Tenant” is not identified.  The notice referred to is not produced and it is not said whether that notice was in writing.  It also appears clear

from clause 11.1 that the Plaintiff can generally only rely on its own written notices and not those of previous tenants.  In any event, from the Plaintiff’s evidence there is no argument that the hot water zip and leaking waste pipe played no part in the Plaintiff’s loss here.  The defendants contend that it follows from all this that the present claim cannot succeed regardless of the manner in which the cause of action is pleaded.

[33]     This  overlooks,  however,  the  position  noted  at  para  11.084  of  Hinde, McMorland & Sim Land Law in New Zealand (Lexis Nexis) where the learned authors addressing leases generally state:

Where a defect occurs in a part of the premises which remains under the lessor’s control no notice to the lessor is necessary. There is a breach of covenant as soon as the defect occurs.[7]

[7] British Telecommunications Plc v Sun Life Assurance Society Plc [1996] Ch 69, [1995] 4 All ER 44 (CA), noted (1996) 7 BCB 128 (McMorland).

[34]     That is precisely the situation which the plaintiff argues has occurred here.

[35]     What evidence there is before the Court here seems to indicate that the fire started through an electrical fault in a portion of the defendant’s building which was under the control of the defendants and therefore no notice of the defect (assuming it was this electrical fault) was required to be given by the plaintiff.

[36]     It is also well-settled law that if premises are unsafe as a result of a failure by a landlord to repair in areas where there is a defect under the landlord’s control then the landlord acts at his peril if the non-repair is not remedied at once – Grenada Theatres Limited v Freehold Investment (Leytonstone) Limited [1959] 1 WLR 570 at

580-581.

[37]     All this is enough in my view to defeat the defendants’ present claim for summary judgment on the basis that at least one of the causes of action in the plaintiff’s  statement  of  claim  (that  broadly  noted  at  [13]  [20]  above  suitably amended) could succeed and it needs to go to trial.  In addition, although it does not seem  to  be  directly pleaded,  it  may be that  the plaintiff may wish  to  consider whether, in the circumstances prevailing here, it may have a possible claim against

the defendants for breach of the quiet enjoyment clause 32.1 in the Lease as well.

[38]    That effectively disposes of the defendants’ present summary judgment application before me.  For completeness, however, I will briefly address the other arguments raised by the defendants, in case I may be wrong on the matters outlined above.

[39]     The first relates to a possible fiduciary duty claim.  On this, at paragraph 18 of the Statement of Claim, the plaintiff alleges:

That the Defendants owe a fiduciary duty to the Plaintiff to keep safe the Plaintiff’s chattels and stock in the Defendants’ premises.

[40]     The defendants  note that  no  authority however is  provided  to  support  the proposition that a landlord generally owes a tenant a fiduciary duty.   Certainly the Plaintiff has not cited such an authority in its Notice of Opposition or in submissions of counsel before me.

[41]     Moreover, there is nothing in either the pleadings or the affidavit evidence to suggest that the arrangement between these parties was anything other than an arms length commercial transaction.

[42]     Further, in the past the Courts have identified certain relationships which are not fiduciary.  While counsel before me could find no authority that deals specifically with landlords and tenants, the relationships of a mortgagor and mortgagee, a receiver and creditor and a vendor and purchaser among many others have been found not to be fiduciary (see Equity and Trusts in New Zealand, 2nd Edition, 2009 at 17.4.4).  In my view it is difficult to see why the relationship of landlord and tenant should be anything different.

[43]     More generally, fiduciary obligations generally will not be found:

a.      When  the  parties  were  free  to  act  completely in  their  own  interest,

Maruha Corp v Amaltal Corp Ltd [2007] 3 NZLR 192 (SC)(at footnote

16);

b. Even if one commercial party had an expectation that the other would honestly and conscientiously do what it had by contract promised to do, Re Goldcorp Exchange Ltd (In Rec) [1994] 3 NZLR 385 (PC)(at p400).

c.      Merely because the relationship was proximate;

d.     Merely because confidential information was exchanged;

e.      Merely  because  the  commercial  contractual  relationship  was  more advantageous to one party than the other.

[44]     In her evidence for the plaintiff, Ms. Patricia Street is essentially silent on the nature of the plaintiff company’s relationship with the defendants, but in my view what she does describe by way of background at paragraphs 2.1 – 2.7 of her affidavit points to a perfectly normal arms length commercial relationship between the parties to the lease.

[45]     Even if it were arguable that a fiduciary relationship existed, the duties imposed by the existence of such a relationship (to avoid unauthorised personal profit, conflict of duty, divided loyalties and to report) could never extend to the defendants owing a fiduciary duty to “keep safe the Plaintiff ’s chattels and stock”.  The plaintiff’s chattels and stock were in its possession, the defendants did not have an inventory and the defendants did not agree to insure the chattels and stock.

[46]     The Plaintiff’s Notice of Opposition on this point says:

That the relationship between landlord and tenant especially where the tenant is paying for the insurance on the building is akin to that of a fiduciary.

[47]     But it is clear here that either the relationship is a fiduciary one or it is not. There is no middle ground of a relationship “akin to that of a fiduciary”.  The plaintiff appears to attach significance to the Tenant’s obligation to pay insurance.  From the Lease it is clear that the Tenant agreed to be responsible for 20% of the Landlord’s insurance premium for the building.

[48]     However, the fact that the Tenant was obliged to pay 20% of the insurance premium for the building creates no obligation on the part of the defendants for the plaintiff’s chattels.  The Tenant’s responsibility under the lease is to contribute to the defendants’ insurance premium for the building (the term “building” is defined at page

13 of the Lease) and this does not include the plaintiff’s chattels.

[49]     The relevant wording of Clause 45.1(b) of the Lease says:

"the property” and “the building” mean the land and building(s) of the landlord which
comprise or contain the premises…

[50]     The plaintiff then goes on at paragraph 19 of the Statement of Claim to plead

that:

The Defendants were contractually bound by the said Deed of Lease to maintain adequate insurance cover so as to ensure damage occasioned to the Plaintiff’s stock, plant and chattels would be met from the said insurance policy(s).

[51]     However, there is simply no term of the Lease to this effect.  Moreover, clause

23.1 of the Lease makes it clear that it is the Landlord’s responsibility to insure the building only. Beyond that, a Landlord may extend cover to loss of rent, the Landlord’s chattels and public liability but there is no power to extend the cover to the plaintiff’s chattels.

[52]     Clearly, at the very least, some amendment to the plaintiff’s pleading in this

proceeding is required.

[53]     Next, the arguments advanced for the plaintiff hint at the suggestion that a Rylands v Fletcher cause of action might lie here in addition to a claim for negligence against the defendants.  The pleading on these matters is vague and inconclusive to say the least.  Nevertheless if the plaintiff here was intending to rely on a Ryland v Fletcher claim then this would need to be properly pleaded.  It may well be that such a cause of action is problematic given that the Rylands v Fletcher principle requires that defendants make a “non-natural use of their land” – see Rickards v Lothian (1913) AC

263 (PC).

[54]     On this, the decision in Collingwood v Home and Colonial Stores Limited (1936) 3 All ER200 (CA) would seem to indicate that there is significant authority to the effect that electricity and electrical wiring is not a “non-natural” use of land in either a home or business premises and thus any claim here under the Rylands v Fletcher principle might be difficult to maintain.

[55]     Notwithstanding this, and given the difficulties that may lie with a tortious claim in negligence being seen as an attempt to circumvent contractual agreements which limit a certain party’s liability (see Rolls Royce New Zealand Limited v Carter Holt Harvey Limited and Genesis Power Limited (CA) – CA 259/02) some proper pleading in negligence (in addition to pleading as to lease covenant breaches by the defendant) on the part of the plaintiff might be appropriate here.

[56]     From all my comments above, it will be obvious that the defendant has not done enough here to satisfy the Court that none of the causes of action in the plaintiff’s statement of claim could succeed in terms of r 12.2(2) High Court Rules.   As McGechan on Procedure at HR12.2.07 noted:

Summary judgment will not be appropriate where it is possible for the plaintiff to amend its claim so as to remedy the defects relied on by the defendant; it should be used only where the defendant has a clear answer to the plaintiff which cannot be contradicted:  Westpac Banking Corp v MM Kembla NZ Ltd [2001] 2 NZLR 298, (2000) 14 PRNZ 631 (CA); A-G v Jones (2003) 16 PRNZ 715 (PC).

Although   some   clarification   and   amendment   of   the   plaintiff’s   pleading   will undoubtedly be required here, that is appropriate in this case and the defendants’ summary judgment application must fail.

[57]     Turning now to the defendants’ strike-out application, in his submissions to me, Mr Manktelow, counsel for the defendants, contended that his arguments in support of the defendants’ summary judgment application were equally applicable to the three causes of action pleaded in the plaintiffs’ statement of claim noted at para [13] above.

[58]     On this, for the reasons I have outlined earlier, I take the preliminary view that the plaintiff’s fiduciary duty claim against the defendants noted in para 18 of its statement of claim is novel and, at this point, would seem to be unlikely to succeed.  In addition, the pleading by the plaintiff at para 19 of the statement of claim that the defendants were bound by the lease to maintain adequate insurance cover for any damage occasioned to the plaintiff’s stock, plant and chattels is also highly dubious. At the very least the statement of claim requires substantial amendment (presumably to refer to other specific lease obligations on the part of the defendants) given that the

“said insurance policy” referred to by the plaintiff is one for the defendants’ building

only.

[59]     What will be clear from these comments is that, in my view, the plaintiff’s claim here, at the very least requires significant re-pleading in a wide range of areas.  That said, it is tempting to take the step now of striking-out certain of the presently pleaded causes of action.

[60]     Rather than do this however, in my view, a better approach is simply to adjourn the defendants’ strike-out application to a directions conference in a month’s time to allow a proper re-pleading to be undertaken.

[61]     That said, this proceeding is now adjourned to a call in the Associate Judge’s

List at Palmerston North at 10.00 am on 20 October 2011 for this purpose.

[62]     As to the defendants’ summary judgment application, as I have noted above this

is dismissed.

[63]     Costs on these matters are reserved to be addressed at the next call of this matter.

‘Associate Judge D.I. Gendall’