St Lukes Group (No.2) Ltd v Holding Number One Ltd (previously known as Nest Ltd) HC Auckland CIV-2011-404-003152

[2011] NZHC 1658

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-003152

BETWEEN  ST LUKES GROUP (NO. 2) LTD Plaintiff

ANDHOLDING NUMBER ONE LTD (PREVIOUSLY KNOWN AS NEST LTD) First Defendant

ANDPIXIE MCKINNON Second Defendant

Hearing:         8 November 2011

Appearances: N R Miller for Plaintiff

Second Defendant in Person

Judgment:      8 November 2011

ORAL JUDGMENT OF VENNING J

Solicitors:           Simpson Grierson, Auckland

Copy to:            B McKinnon and Pixie McKinnon, Auckland

ST LUKES GROUP (NO. 2) LTD V HOLDING NUMBER ONE LTD HC AK CIV-2011-404-003152 8

November 2011

Introduction

[1]      This is an application for summary judgment.  The plaintiff leased premises at Nuffield Street to the first defendant company.  The second defendant is a director of the first defendant and guaranteed  its obligations under the lease.   The first defendant has defaulted in its obligations under the lease and the plaintiff seeks summary judgment against the second defendant for $292,354.33 together with interest and costs.

[2]      The first defendant is now in liquidation.

[3]      The second defendant has filed a notice of opposition and opposes the entry of summary judgment.

Preliminary matters

[4]      The second defendant sought to refer to and rely on an email of 15 October

2010 written on behalf of the plaintiff and directed to her husband suggesting that

$200,000, (being an assessed value of the fit-out of the premises installed by the first defendant), should be applied to moneys owing by the first defendant to the plaintiff. Ms Miller formally objected to the admissibility of that email noting it was without prejudice and was written in the course of negotiations between the parties regarding the resolution of outstanding matters between them, including the surrender of the premises.

[5]      The position in relation to privileged communications is now covered by s 57 of the Evidence Act 2006.   Importantly the privilege applies in respect of communications between parties to a dispute if the communication was intended to be confidential and it was made in connection with an attempt to settle the dispute.

[6]      In the present case, on the information before the Court, it does not appear there was a dispute between the parties as such.  For present purposes I am prepared to consider that email correspondence in support of the opposition to the application for summary judgment.

[7]      There  is  one  other  preliminary  matter.    The  second  defendant  has  filed detailed submissions covering factual matters with her synopsis of argument and also has attached to that synopsis a number of additional documents which were not included with her affidavit in opposition.  She has also arranged for an affidavit to be sworn and filed by Adrian Spalletta, estimating the cost of the fit-out left in the premises when vacated by the first defendant.

[8]      Again Ms Miller takes objection to the matters contained in the second defendant’s submissions (and I take to the affidavit as well), taking the point that the material could have been obtained earlier and put before the Court with the first affidavit in opposition.

[9]      The position is really covered by the High Court Rules, r 12, and 12.11 in particular.  Generally there is no provision for the filing of further material following the reply affidavit by the plaintiff.   I am, however, conscious in this case of the position of the second defendant as a self represented litigant.  The issue at the end of the day is always whether the interests of justice require further material to be admitted.  The factual material referred to in the second defendant’s submissions and in the affidavit support the opposition flagged in her notice of opposition and affidavit.  They provide more detail to support those earlier grounds of opposition and evidence in her earlier affidavit.   They do not themselves raise any particular new matters.  In the circumstances I am prepared to consider them, but only to the limited extent that, as I say, they provide further evidence of matters flagged by the second defendant in her notice of opposition.

The opposition

[10]     The  basis  for  the  second  defendant’s  opposition  to  the  application  for summary judgment is set out in her notice of opposition.  The second defendant has confirmed in her submissions to the Court today that she generally accepts that the

$292,000 claimed is owing but opposes the entry of summary judgment on the basis that she considers the actions by the plaintiff to be unjust and immoral.   In her submission, the plaintiff has opportunistically used the receivership of the first defendant as a means to renege on an agreement that had been concluded between

the plaintiff and the first defendant pursuant to which the plaintiff had agreed to purchase selected items of the fit-out for $200,000.   The plaintiff has also opportunistically used the receivership to effectively confiscate or take over valuable items of the fit-out left in the premises by the receivers.

[11]     The second defendant considers that the plaintiff and the replacement tenant, Witchery, have effectively benefitted at the first defendant’s and her expense.

[12]     She submits that it is wrong and unfair for the plaintiff to take the benefit of the fit-out yet still pursue her as a guarantor for the moneys that the plaintiff now seeks to recover from her.

Principles

[13]     I  remind  myself  of  the  principles  in  relation  to  summary  judgment applications.  They are well settled.  The onus is on the plaintiff to satisfy the Court that the defendant has no arguable defence to its claim.   If the plaintiff provides contractual documents, which on their face entitle the plaintiff to judgment, then unless the defendant is able to raise a tenable defence the plaintiff is entitled to judgment.

Decision

[14]     The plaintiff’s claim is made up of the balance of moneys owing under the lease.  Under the lease, which was made on 16 April 2007, the first defendant leased premises at Shop S12 Nuffield Street from the plaintiff from 1 October 2006 to 30

September 2016.   The first defendant spent considerable sums in fitting out the premises, which was over two floors of the building.  The plaintiff also contributed towards the fit-out of the premises.   Apart from the lease, the parties entered a separate document, a Deed of Agreement (Contribution Agreement) dated 8 June

2006 pursuant to which the plaintiff agreed to pay $351,100 plus GST towards the fit-out as a contribution.

[15]     The second defendant executed the lease and the Contribution Agreement on behalf of the first defendant as its sole director at the time and also guaranteed the performance of the first defendant under the lease.   The terms of the guarantee confirmed, amongst other things, that the second defendant was liable as a principal debtor.

[16]     The first defendant experienced difficulties in meeting its obligations under the lease.  By Deed of Partial Surrender and Variation of Lease dated 8 July 2009 the plaintiff agreed to accept the surrender of the first floor of the premises on a number of conditions including a surrender fee of $196,875.

[17]     The second defendant signed the Deed of Partial Surrender on behalf of the first defendant and confirmed her consent as guarantor.   On the same day, 8 July

2009, the parties executed a Deed of Acknowledgement of Debt pursuant to which the first defendant acknowledged its indebtedness to the plaintiff for the surrender fee and rental arrears as at that date, in total $321,234.69.  The plaintiff agreed to accept payment of that sum by way of monthly instalments of $3,454.36 for the first three years following the operative date.  They increased to $4,101.56 commencing on the third anniversary of the operative date.

[18]     The material conditions of the Deed of Acknowledgement of Debt included clause 5.6:

No  defence:    the  Lessee  irrevocably  acknowledges  and  agrees  that  the Lessee has no, nor will the Lessee claim any, defence, nor right of set-off, counterclaim, or abatement in respect of the Debt or the balance of the Debt then outstanding.

And clause 9:

GUARANTOR

The Guarantor acknowledges that the Lessor has agreed to accept payment of  the  Debt  on  the above  terms  and  conditions  and  not to exercise the Lessor’s rights and remedies for recovery of the Debt provided that the Lessee observes and complies with those terms and conditions at the request of the Guarantor and accordingly the Guarantor irrevocably guarantees the due and punctual observance by the Lessee of the terms of this deed and indemnifies the Lessor against any loss the Lessor shall suffer or incur as a result of the Lessee defaulting in its obligations to the Lessor under this

deed.  The Guarantor also agrees that the terms of the guarantee contained in clause 22 of the Lease shall apply to the terms of this deed.

[19]     Clause 22 of the lease provided, amongst other things, that as between the guarantor and the lessor, the guarantor was a principal debtor jointly and severally liable with the lessee.

[20]     The first defendant’s financial difficulties continued.   The parties entered further Deeds of Variation of Deed and Acknowledgement and Modification on 2

November  2009  and  24  May  2010.     In  both  deeds  the  second  defendant acknowledged her position as guarantor and both deeds contained clauses similar to those referred to above.

[21]     The first defendant was ultimately unable to continue its business operation from the premises in Nuffield Street.   The parties had a number of discussions directed at the surrender of the entire lease by the first defendant.  On 1 June 2010 the parties entered a Deed of Surrender of Lease pursuant to which they agreed that the surrender date was to be no less than two months from the date the lessor, the plaintiff, gave the lessee a notice of surrender subject to no such notice being given during the months of September, October and November of any year.

[22]     In consideration of that surrender, the parties acknowledged, amongst other things, that the surrender was without prejudice to the rights of either party arising before the surrender date and without prejudice to the lessee’s and the guarantor’s obligations under the Deeds of Acknowledgement of Debt.  The relevant clause of the Deed of Surrender went on to provide:

Without limiting such rights of the Lessor, the Lessee must pay to the Lessor on or before the surrender Date all money due and payable under the Lease up to and including the Surrender Date.

[23]     It also provided that:

In  consideration  of  the  Lessor  accepting the  surrender  of the  Lease the Lessee undertakes to, at the Lessee’s sole cost, strip out the Premises as required under the Lease and in accordance with directions of the Lessor as to  the  methodology and  timing of  such  works  prior  to 4.00  pm on  the Surrender Date.  If the Lessee fails to do this then the Lessor may carry out

such works and the Lessee will reimburse to the Lessor the costs the Lessor incurs in doing so.

[24]     Finally,  the  guarantor  acknowledged  her  agreement  to  the  terms  of  the surrender.

[25]     The plaintiff gave notice of surrender on 31 August 2010.  The surrender date was 1 November 2010.

[26]     The parties’ discussions regarding the first defendant’s fit-out continued.  For the reasons given above I accept that the email of 15 October sent by the representative of the plaintiff to the second defendant’s husband is admissible. However, it does not advance the position of the second defendant for the following reasons. The email records:

I have asked our solicitors to put our offer to you in writing, we calculated the offer based on a 40% depreciation of the original cost as follows.  [There then follows detailed calculations leading to a total sum of $200,000.]

This amount will come off the outstanding debt.

Our solicitors will put this offer in a letter today, along with confirmation of the defit scope we discussed yesterday.

[27]     On its face the email records the state of discussions between the parties but makes it clear that, from the plaintiff’s point of view, the matter was subject to a formal offer to be put by the plaintiff’s solicitors to the defendants’ solicitors to be accepted by the defendants.  It is implicit in the wording of the email that until such offer was formally put through the solicitors and accepted there would be no such

agreement:  Masters v Cameron.[1]

[1] Masters v Cameron [1954] HCA 72.

[28]     The plaintiff’s solicitors sent a letter dated 15 October 2010 formally putting that offer to the defendants’ solicitors.  It referred to the recent discussions between the parties’ clients and recorded:

... our instructions are that our client will agree to a variation of your clients’ de-fit obligations under the Deed of Surrender, and will waive $200,000 of the contribution payment ($351,100) your clients owe our client, on the following terms and conditions: ...

There then followed a number of conditions, including a warranty that the items were not subject to any third party interests, that certain property was to be removed before 4.00 p.m. on the surrender date, that either the de-fit works were to be carried out by the defendants at their cost by the surrender date or the defendants would pay for the plaintiff to carry out the de-fit works, and that the balance of the contribution payment of $151,100 was to be paid by the surrender date.  Finally and importantly the offer was open for acceptance until 4.00 p.m. on Tuesday 19 October 2010.

[29]     The terms of the offer made it clear that, if it was accepted, it was directed at applying $200,000 towards the obligations of the first defendant to repay the contribution payment of $351,000 referred to and recorded in the Contribution Agreement  dated 8 June 2006.    In  relation to  that  I note that  clause 5 of that Contribution Agreement recorded that:

All fixtures, fittings, articles and property comprising the fitout of the Premises which have been paid for by the Lessor with the contribution will at all times remain the property of the Lessor.  However, if:

(a)       the Lease is assigned, transferred or surrendered by the Lessee; or

(b)       the Lease is terminated by the Lessor by reason of default by the

Lessee;  or ...

THEN the Lessee will repay to the Lessor the Contribution in full ...

[30]     So at the time of the negotiations and discussions between the parties in October 2010 the first defendant had an obligation to repay the $351,100 to the plaintiff.   On the face of the letter the offer was effectively to waive or set-off

$200,000 of that as consideration for the fit-out left in the premises.

[31]     However, the offer was never accepted by the defendants.   The conditions upon which the offer was presented to the first defendant were not complied with.  It is unnecessary to go through each one of the particular conditions.  It is sufficient to record that the offer was open for acceptance until 4.00 p.m., 19 October 2010. Unfortunately for the defendants the receivership of the first defendant intervened. The first defendant was placed into receivership on 18 October 2010.

[32]     Further, it is clear that in any event, the balance of the contribution payment of $151,100, which was a separate figure to the sum for which the plaintiff sues in these proceedings, was never paid either.  The plaintiff ultimately cancelled the first defendant’s lease on 28 October 2010.

[33]     The receivership was then later terminated on 15 March 2011.  The plaintiff made demand of the second defendant  as  guarantor  on 31  March 2011 for the

$292,354.33 being the sum then due and owing under the Deeds of Acknowledgement of Debt relating to the balance of the surrender payment and rental due at the time. The $292,354.33 is unrelated to the contribution payment.

[34]     The evidence of Mr Roberts, the Centre Manager of the premises for the plaintiff, satisfies the Court that the sum of $292,354.33 was due and owing by the defendants to the plaintiff at the relevant time.  As noted the second defendant did not really suggest otherwise.

[35]     However, nor in my assessment can there be any arguable defence to the plaintiff’s claim on the grounds raised by the second defendant for the following reasons.

[36]     First, as noted there is no evidence to dispute the plaintiff’s claim for the

principal sum due of $293,354.33 which is due and owing under the lease.

[37]     Next, under the Deeds of Acknowledgement of Debt the first defendant has expressly contracted out of any right of set-off or counterclaim.   Although Mrs McKinnon sought to argue that as guarantor she had not contracted out of any right of set-off or counterclaim, the difficulty from her point of view is that any right of set-off or counterclaim in relation to the fit-out must be a right vested in the first defendant as the owner of the fit-out.  It is not a right that vests in her.  The fact that she  is  liable  as  a  principal  debtor  under  the  terms  of  the  lease  relates  to  her obligations to the plaintiff but it does not of itself give her any legal right to the assets of the first defendant, including any claims it may or may not have had against the plaintiff.

[38]     The  second  defendant  is  liable  as  guarantor.    She  guaranteed  the  first defendant’s performance of its obligations under the lease and the Deed of Acknowledgement of Debt to the plaintiff.  She consented to the surrender and each of  the  Deeds  of Acknowledgement  of  Debt  and  the  variations  thereof  on  each occasion.  As noted she has accepted liability as a principal.  In fact the terms of the guarantee go even further and record that all money not recoverable from her on the footing of the guarantee whether by reason of any legal limitation or by reason of any other act or circumstance will nevertheless be recoverable from her as the sole principal  debtor.    Her  personal  liability as  guarantor  could  not  be more clearly expressed.

[39]     For the reasons given above there was no legally binding contract concluded in  relation  to  the  offer  of  an  adjustment  of  $200,000  in  relation  to  the  first defendant’s obligations under the contribution agreement.

[40]     The  parties’  negotiations  and  discussions  towards  that  end  were  not concluded.  Further, while, on a practical basis, the plaintiff may have achieved some benefit in that it has retained the improvements left in the premises by the first defendant which may have facilitated the re-letting of the premises, there is no legal basis upon which the second defendant can set-off such benefit at law against the plaintiff’s claim.

[41]     The high point for the second defendant’s argument is that there was an agreement that $200,000 would be credited against the first defendant’s contribution liability (even though I accept Mrs McKinnon’s evidence that considerably more, perhaps as much as between $600,000 and $800,000 had been spent on that fit-out). At its most, $200,000 was the figure that was to be allowed but, as noted, there no was concluded agreement in relation to that.  There is no basis on the material before the Court to find that there is an arguable defence by the second defendant to the claim made by the plaintiff.  The $200,000 was, in any event, to be credited or set- off against an unrelated claim in relation to the contribution moneys the plaintiff had provided.   I note that the plaintiff makes no attempt to recover that sum in these proceedings in any event.

Result

[42]     In summary there is no basis for a defence at law to the plaintiff’s claim.  The

plaintiff is entitled to the judgment it seeks.

[43]     The plaintiff is to have judgment against the second defendant in the sums of:

the principal amount owing as at 31 March 2011 of:	$292,354.33
interest from 31 March 2011 to 8 November 2011:	$24,023.93
expenses and legal costs incurred by the plaintiff in the collection of overdue money due in terms of the Deeds in the sum of:	$51,847.72
disbursements	$1,379.74
Total:	$369,605.72

Venning J