Tran v Thru Now Ltd

[2014] NZHC 379

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2013-412-000515 [2014] NZHC 379

BETWEEN  DS and DS TRAN Plaintiffs

ANDTHRU NOW LTD First Defendant

ANDND and N NILSEN Second Defendants

Hearing:                   4 March 2014

Appearances:           L A Andersen for Plaintiffs

D R Tobin for Defendants

Judgment:                6 March 2014

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1]      The plaintiffs (Mr and Mrs Tran) own a property in Princes Street, Dunedin. The first defendant, Thru Now Limited (Thru Now), leased the property from Mr and Mrs Tran as assignees under a lease originally granted in September 2000, and which expired on 17 September 2011.

[2]      Thru  Now  operated  a  restaurant,  and  continued  to  do  so  after  the  lease expired.   In December 2011 it executed a new lease with a commencement date coinciding with the expiration of the former lease.  The second defendants, Mr and Mrs Nilsen, are the guarantors under the lease.  It was terminated by agreement on 5

March 2013.

[3]      At the time the lease was entered Thru Now was in arrears with payment to

Mr and Mrs Tran of rent and outgoings in respect of the property which were payable to Mr and Mrs Tran under the former lease.  The sum owing was just over

DS and DS TRAN v THRU NOW LTD [2014] NZHC 379 [6 March 2014]

$23,000, but the parties agreed to a figure of $23,000 plus GST and in paragraph

46.4 of the new lease Thru Now acknowledged those arrears and agreed to pay them to Mr and Mrs Tran in 23 equal consecutive monthly instalments of $1,000 plus GST each, commencing on 19 September 2011.  Any balance owing at the termination of the lease was to be paid in full.

[4]      Mr and Mrs Tran sue Thru Now and Mr and Mrs Nilson on two bases.  First, they sue in relation to arrears of rental said to be owing at the end of the lease, together with interest.  Secondly, they say that the premises were left in a condition which breached a term of the lease requiring the premises to be left in the same clean order, repair and condition as they were in at the commencement of the lease.  They say that the value of the premises has been diminished by $70,000 as a result, and they seek judgment for this sum.

[5]      Both claims are brought by way of summary judgment.  Summary judgment may be entered where a plaintiff proves that a defendant does not have a defence to the  claim.    The  onus  of  proof  lies  on  the  plaintiff.    However,  if  the  evidence presented by a plaintiff shows on its face that the plaintiff is entitled to the remedy sought an evidential onus passes to a defendant to demonstrate a tenable defence.1

[6]      The Court will not normally resolve material conflicts of evidence or assess credibility of deponents.   However, it need not accept uncritically evidence that is inherently lacking in credibility, for example where it is inconsistent with disputed contemporary documents or other statements by the same deponent, or is inherently improbable.   The Court is to take a robust and realistic approach where the facts warrant it.2

Claim for rent and outgoings

[7]      The claim for rent and outgoings by Mr and Mrs Tran developed after the proceedings were filed and affidavits exchanged, culminating in the production of a spreadsheet by a chartered accountant acting for Mr and Mrs Tran in his second

affidavit  affirmed  on  25  February  2014,  just  a  week  before  the  fixture.    This

1      Auckett v Falvey HC Wellington CP296/86, 20 August 1986.

2      Krukziener v Hanover Finance Ltd [2008] NZCA 187 at [26].

document,  and  supporting documents  produced  on  behalf  of Mr and  Mrs Tran, enabled Thru Now and Mr and Mrs Nilson to analyse the claim, as it stood by that time.  The sum said to be owing by Mr and Mrs Tran had reduced from $18,546.87 originally claimed to $11,015.51.  Thru Now still maintained that this sum exceeded the amount they were required to pay, a position they had maintained throughout, but after the provision of further information made a payment of $10,536.27 resulting in the claim reducing to just $479.24.  That was the state of the claim on the first issue, which was brought to the Court by way of a fixture, and argued.

[8]      The balance of the claim, $479.24, comprised just two elements.  The first was  a  claim  for  reimbursement  of  rates  dating  back  to  19  September  2011, amounting to $350.08.  The second was a claim for reimbursement of the cost of a security system check dating back to 20 September 2011 in the sum of $131.46.  By the time the case was argued an invoice for the latter sum had been produced and Mr Tobin responsibly accepted that the defendants would pay this sum as it was shown as properly owing, a position he says had not been achieved prior to that.  That left just $350.08 in contention.

[9]      The position of Thru Now and Mr and Mrs Nilson as guarantors is that this claim related to a period in respect of which they had agreed to pay a round figure of

$23,000 for all arrears.   The position of Mr and Mrs Tran is that it related to the September quarter of 2011, and the agreed arrears figure of $23,000 was for arrears at 31 March that year.

[10]     I am satisfied that Thru Now, and therefore Mr and Mrs Nilson, do not have a defence to this aspect of the claim.  Although the clause in the new lease which sets out the agreement to pay arrears of $23,000 plus GST is silent as to the date at which these arrears were owing, there is in evidence an email from a representative of Thru Now in relation to the arrears which refers to the agreed payment covering arrears for the three financial years ended 31 March 2009, 2010 and 2011.   The claimed reimbursement for rates is for a quarter later than the last of these financial years.

[11]     The position of Mr and Mrs Tran is therefore validated by a contemporaneous document emanating from Thru Now, and puts the matter, in my judgment, beyond

argument.  Mr and Mrs Tran are entitled to summary judgment for the amount of the rates instalment, and the security bill, a total of $479.24.

[12]     Mr and Mrs Tran claim interest calculated on amounts outstanding.  The sum claimed was adjusted for four reasons:

(a)    Acceptance by Mr and Mrs Tran that Thru Now is entitled to limit its liability  for  outgoings  to  the  period  of  the  new  lease,  which  has required apportionments of invoices originally claimed.

(b)Correction of an error by Mr and Mrs Tran who charged rental for all of March  2013,  when  the  lease  was  determined  partway  through  the month.

(c)    Withdrawal of an expense claimed for a building warrant of fitness as the invoice has not been able to be located.

(d)     The payment by Thru Now in February 2014, discussed above.

[13]     They say that once these adjustments are made and interest is applied to outstanding balances at the interest rate shown in the lease, which applies to both rent and outstanding claims for reimbursement of outgoings, interest to 25 February

2014 amounts to $1,855.60.  They claim this sum together with interest at a daily rate until the date of judgment.

[14]     The obligations of Thru Now to pay outgoings is set out in Part 3 of the lease. The provisions of relevance to the claim for interest are these:

3.5THE outgoings shall be payable on demand or if required by the Landlord by monthly instalments on each rent payment date of such reasonable amount as the Landlord shall determine calculated on an annual basis.  Where any outgoing has not been taken into account in determining the monthly instalments it shall be payable on demand.

3.6AFTER the 31st  March in each year of the term or such other date in each year as the Landlord may specify, and after the end of the term, the Landlord shall supply to the Tenant reasonable details of the actual outgoings for the year or period then ended.  Any over payment shall be credited or refunded to the Tenant and any deficiency shall be payable to the Landlord on demand.

[15]     Mr and Mrs Tran say that they did require Thru Now to pay outgoings in accordance with clauses 3.5 and 3.6, that in any event most of the major outgoings were for recurring expenses (an annual insurance premium, quarterly rates, monthly building inspection costs and security fees) and that as a result they are entitled to interest under clause 5.1.  This provides that if the tenant defaults in payment of the rent or other monies payable under the lease for 10 working days the tenant must pay interest at the default interest rate of unpaid monies, to the date of payment.

[16]     Mr  Nilson  says,  however,  that  Mr  and  Mrs  Tran  did  not  follow  the requirements of the lease in relation to charging for outgoings.   He says relevant invoices were not provided at the time; rather they received statements generated on behalf of Mr and Mrs Tran merely specifying a figure for outgoings without any proof of how that figure had been set.  He says they had to ask for copies of actual invoices to justify the claims and although they received many of them they did not receive all of them. As well, this would be “months after the year in question” rather than at the time the invoices were payable.

[17]     There is a clear conflict in the evidence on whether the landlord followed the procedure set out in clauses 3.5 and 3.6, which would have entitled them to interest under clause 5.1.  I am not satisfied that summary judgment can be entered for the interest as now sought.

Claim in relation to the property

[18]     Mr and Mrs Tran’s claim under this heading is based on clause 8.1 of the

lease. This provides, relevantly:

8.1    THE  Tenant  shall  (subject  to  any  maintenance  covenant  by  the

Landlord) be responsible to: (a)     Maintain the premises

In  a proper and workmanlike manner and to the reasonable requirements of the Landlord keep and maintain the interior of the premises including the Landlord’s fixtures and fittings in the same clean order repair and condition as they were in at the commencement of this lease and will at the end or earlier determination of the term quietly yield up the same in the like clean order repair and condition.  In each case the Tenant shall not be liable for fair wear and tear arising from reasonable use.

[19]     Mr and Mrs Tran plead, in their statement of claim, that when the lease ended the premises were left in an untidy and messy state, and required thorough cleaning. In many instances electrical fittings and fixtures had been removed leaving exposed wiring.  Plumbing, fittings and fixtures had been removed leaving open and exposed waste pipes. They say there was damage to various parts of the premises.

[20]     Mr and Mrs Tran claim, as a result, that the value of the premises has dropped from $680,000 to $610,000 and they claim this sum by way of damages.

[21]     However, in presenting their evidence in support of their application  for summary judgment they also produced a report from a firm which had assessed the condition of the premises, and advised that the cost to carry out all repairs they listed as required under the lease, which were itemised in detail, would be a maximum sum of $26,000, and probably less if one contractor were employed to undertake all tasks.

[22]     By a straightforward application of the principles of mitigation of loss, if the premises can be restored to the required condition for a sum under $26,000, Mr and Mrs Tran cannot claim a diminution in value of the premises without that work having been done, of $70,000.

[23]     During argument it also became apparent that a further complication lay in the way of the claim for summary judgment under this heading.  This arises from the provisions of clause 31 of the lease:

31.1THE  Tenant  may  at  any  time  before  and  will  if  required  by  the Landlord at the end or earlier termination of the term remove all the Tenant’s fixtures fittings and chattels and make good at the Tenant’s own  expense  all  resulting  damage  and  if  not  removed  within

5 working days after the date of termination ownership of the fixtures fittings  and  chattels  may  at  the  Landlord’s  election  pass  to  the Landlord or the Landlord may in a proper and workmanlike manner remove the same from the premises and forward them to a refuse collection centre.

31.2The cost of making good resulting damage and the cost of removal shall be recoverable from the Tenant and the Landlord shall not be liable to pay any compensation nor be liable for any loss suffered by the Tenant.

[24]     It is clear from the evidence that the claim for Mr and Mrs Tran has not been analysed and presented in accordance with these provisions.  When Thru Now left the premises, a significant number of their fittings were left behind.   Some of the maintenance that is said to be required is maintenance of those very fittings.  Further, no decision has been made by Mr and Mrs Tran on which of the options in clause

31.1 they will take, and until they do and act on it the claim cannot be presented in accordance with clause 31.2.

[25]     There are also conflicts on the evidence between Mr and Mrs Tran’s version of the way the premises were let, and that of Thru Now.  The latter also maintains that some of its fittings which it left behind are actually an asset to Mr and Mrs Tran: significant refitting in the commercial kitchen was undertaken, which included the installation of stainless steel sheeting on the walls, covering the plaster which was there initially, and other fittings have been left behind in the expectation that the premises will be re-let as a bar and restaurant.  In that event, these fittings would be used by a future tenant and therefore leaving them behind was of assistance to Mr and Mrs Tran in arranging a new lease.

[26]     Yet another issue for Mr and Mrs Tran to face is that their evidence did not establish the condition of the premises at the start of the second lease which is the baseline for assessment under clause 8.1.

[27]     The difficulties lying in the way of Mr and Mrs Tran in the case as presently before the Court became apparent during argument, if they were not apparent before, and as a consequence counsel conferred and agreed that they would refer these issues to alternative dispute resolution, and this aspect of the application should be adjourned to enable this to occur.   Although it is unorthodox to adjourn part of a summary judgment application during the course of argument, in the circumstances of this case (particularly the relatively small sum of money in issue) I am satisfied it is appropriate.

[28]     Mr and Mrs Tran are to file an amended statement of claim which pleads their case in terms of clause 8.1(a) and clause 31.   That is to be filed and served within 10 working days.

Costs

[29]     Counsel also agree to refer all issues relating to costs to alternative dispute resolution.   Mr and Mrs Tran claim costs on an indemnity basis under the lease. Thru Now and Mr and Mrs Nilson say that the lease is not a licence to incur legal expenses which are disproportionate to the sums at issue, and that is what they say has occurred.

[30]     All issues relating to costs are reserved.

Outcome

[31]     There will be judgment for Mr and Mrs Tran in the sum of $479.24.

[32]     The balance of the claim is adjourned for further consideration by way of alternative dispute resolution.

[33]     Costs are reserved.

[34]     This case will be called in the List on 8 May 2014 for review and further directions, unless earlier discontinued.

J G Matthews

Associate Judge

Solicitors:

Albert Alloo & Sons, Dunedin.

Wilkinson Adams, Dunedin.