Waddell v Jhaveri Holdings Limited
[2024] NZHC 1584
•17 June 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-2933
[2024] NZHC 1584
BETWEEN PAUL RAYMOND WADDELL, SUSAN MARIANNE WADDELL and LYNTON
ROSS CAMPBELL as trustees of the Waddell Business Trust
PlaintiffAND
JHAVERI HOLDINGS LIMITED
First Defendant
KAMAL JHAVERI
Second Defendant
Hearing: 29 May 2024 Counsel:
J D Turner / F Ryan for the Plaintiffs A Nair for the Defendants
Date of Judgment:
17 June 2024
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 17 June 2024 at 12 Midday.
Pursuant to r 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors:
McVeagh Fleming, Auckland Hermant Patel, Auckland
Counsel:
Arvind Nair, Auckland
WADDELL v JHAVERI HOLDINGS LTD [2024] NZHC 1584 [17 June 2024]
Introduction
[1] The plaintiffs are the trustees of the Waddell Business Trust (WBT). WBT formerly owned a unit at Elizabeth Knox Place, St Johns, Auckland (the Property).
[2] WBT leased the Property to the first defendant, Jhaveri Holdings Ltd (JHL), via written agreement dated 17 December 2021, for a term of three years commencing on 1 February 2022. JHL’s obligations under the lease were guaranteed by the second defendant, Kamal Jhaveri.
[3] During 2022, JHL defaulted in payment of rent and outgoings under the lease. The defaults continued in 2023. Mr Jhaveri was in regular communication with WBT’s representative, Mr Waddell. JHL gave WBT numerous assurances that the defaults would be remedied, but they were not.
[4] The parties dispute the legal consequences of the communications between Mr Jhaveri and Mr Waddell during May 2023. JHL and Mr Jhaveri argue that the lease was terminated on 22 May 2023, and WBT waived all outstanding rent and outgoings. WBT argues that the lease continued until 6 July 2023 when the Property was sold to an unrelated third-party and outstanding rent and outgoings remain due.
[5] WBT applies for summary judgment for the unpaid rent and outgoings. The issues are:
(a)Did the lease terminate on 22 May 2023?
(b)Did WBT agree to waive its right to claim outstanding rent and outgoings?
(c)Can JHL claim a set-off for damages for WBT’s alleged breach of the landlord’s covenants in the lease?
(d)Is there a dispute that must be referred to mediation under the lease?
(e)What is the quantum of WBT’s claim for outstanding rent and outgoings?
Summary judgment principles
[6] The Court may give judgment against a defendant if satisfied that the defendant has no defence to a cause of action in the statement of claim.1
[7] The leading authority on applications for summary judgment is Krukziener v Hanover Finance Ltd.2 The Court of Appeal set out the following principles:3
(a)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. The Court must be left without any real doubt or uncertainty.
(b)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.
(c)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 not consistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable. 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.
1 High Court Rules 2016, r 12.2(1).
2 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162.
3 At [26].
[8] The defendant is under an obligation to lay a proper foundation for the defence in the affidavits filed in support of the notice of opposition.4
[9] If the defendant fails to provide an evidential foundation for a defence, then the plaintiff’s verification of the statement of claim stands unchallenged and ought to be accepted, unless it is patently wrong.5
Did the lease terminate on 22 May 2023?
What happened
[10] It is not necessary to traverse in detail JHL’s defaults during 2022 and the resulting communications between Mr Waddell and Mr Jhaveri. There is no doubt that JHL was in default, and Mr Jhaveri acknowledged the default and made promises to pay. WBT served JHL with a notice of intention to cancel the lease on 15 August 2022, but did not proceed to cancel at that time.
[11] On 27 January 2023, Mr Jhaveri sent an email to Mr Waddell advising that rent would be brought up to date, and then paid weekly rather than monthly as required by the lease. Mr Jhaveri said:
We will put this property in market to lease and tennent [sic] once found then I will move out of property and will surrender the lease without any conditions.
[12] JHL did not bring the rent up to date or maintain weekly payments. During March 2023, JHL endeavoured to sell its business as a going concern. Text messages between Mr Jhaveri and Mr Waddell confirm that JHL offered to pay WBT any deposit received by JHL on a sale of its business.
[13] On 15 March 2023, Mr Jhaveri sent a text message to Mr Waddell including photographs of what appear to be three pages from an agreement for sale and purchase of JHL’s business. The contents of the pages are not legible in the copies produced in evidence.
4 Middleditch v New Zealand Hotel Investments Ltd (1992) 5 PRNZ 392 (CA) at 394.
5 Australian Guarantee Corp (NZ) Ltd v McBeth [1992] 3 NZLR 54 (CA) at 58–59.
[14] Subsequent text messages between Mr Jhaveri and Mr Waddell confirm that Mr Jhaveri was negotiating with potential buyers of JHL’s business and that WBT was also independently pursuing a sale of the Property.
[15] On 27 March 2023, Mr Jhaveri sent a text message to Mr Waddell advising that he was working with three potential buyers of JHL’s business, and that:
Fingers crossed s&p will be signed on Monday and will send to your lawyer and deposit funds will be transferred to your account.
[16] Mr Waddell replied with a text message to Mr Jhaveri advising that WBT was planning to re-enter the Property the following day, and that JHL would need to make a rent payment to avoid that. Mr Jhaveri replied with a text message advising that the rent would be paid in full regardless of what happened with JHL’s sale. WBT did not re-enter.
[17] On 3 May 2023, Mr Waddell sent an email to Mr Jhaveri advising that WBT was selling the Property, together with other units owned by WBT at Elizabeth Knox Place. Mr Waddell advised Mr Jhaveri that WBT had instructed its lawyer to issue a notice under the Property Law Act 2007 (PLA) saying:
This will give you 10 days to make payment in full for all outstanding debt or we then have the right to change the locks and then sort out how to move your possessions from the building. I would definitely prefer that you voluntarily vacate say before 22 May 2023, rather than us having to change locks etc.
[18]Mr Jhaveri replied by email the same day, saying:
No excuses and I can understand your situation. I had instructed my lawyers to make you rent payment from the deposit of the sale of business. I will follow up with them now and if not will arrange April rent payment from my end.
I will do what works best for you and you get maximum for your building. You have supported me all the time and I always keep relationships ahead of any other.
[19] On 4 May 2023, Mr Waddell sent an email to Mr Jhaveri requesting confirmation that JHL would vacate the Property by 22 May 2023. Mr Jhaveri responded with the requested confirmation.
[20] On 5 May 2023, WBT served a PLA notice on JHL. The notice included a spreadsheet recording that $99,073.44 was due from JHL under the lease at that date.
[21] On 10 May 2023, Mr Waddell sent Mr Jhaveri an email following a telephone discussion between them. The email read:
Hi Kamal
Thanks for the phone call today. I appreciate your efforts to gain a solution for both of us by trying to complete a sale of your business and an assignment of the lease. I have spoken with Jonathan and we believe that we have three, or possibly 4, offers coming in on the property so at this stage I think that we would prefer that you vacate the property by 22 May 2023 as we have previously agreed. Should we get an offer that we are happy to accept, we can then move on this without any issues. If we can sell then that would place a line in the sand limiting your outstanding debt which may be the best thing for both of us.
[22] JHL asserts that this email records WBT’s agreement that it would not pursue outstanding rent and outgoings if JHL agreed to vacate the premises by 22 May 2023.
[23] On 25 May 2023, Mr Jhaveri sent a text message to Mr Waddell, which appears to be a forwarded message from a contractor engaged to collect JHL’s chattels and/or possessions from the Property that day.
[24] On 31 May 2023, Mr Waddell sent a text message to Mr Jhaveri, asking for confirmation that JHL had vacated and cleaned the Property. Similar communications followed in June 2023.
[25] On 1 July 2023, Mr Jhaveri sent a text message to Mr Waddell, giving an update regarding a metal recycling company which was to visit the site to collect “materials”, and the steps that were in place to remove tables and chairs.
[26]WBT settled the sale of the Property to an unrelated third-party on 6 July 2023.
The parties’ positions on termination
[27] JHL argues that it vacated the premises early in May 2023, and that the parties agreed that the lease terminated on 22 May 2023.
[28] WBT argues that JHL remained in possession of the Property from 23 May 2023 to 6 July 2023, due to the presence of JHL’s chattels and possessions.
Analysis
[29] WBT was entitled to cancel the lease following expiration of the time for compliance with the PLA notice. JHL’s failure to pay rent was a repudiation or fundamental breach of the lease. WBT had signalled that it intended to exercise its right to cancel by re-entering the Property.
[30] It is at least arguable that WBT and JHL agreed that JHL would vacate the premises by 22 May 2023, and that their agreement amounted to cancellation of the lease on that date.
[31] For WBT, Mr Turner accepted that cancellation of the lease on 22 May 2022 would alter the basis of WBT’s claim for the period from 23 May 2023 to 6 July 2023. The claim would be for loss of bargain damages, which remain available where a tenant’s failure to pay rent is a repudiation or a fundamental breach of the lease.6
Did WBT agree to waive its right to claim outstanding rent and outgoings?
JHL’s position
[32] Mr Jhaveri’s evidence is that JHL had an offer of $54,000 for its business and he was close to achieving a sale. He says that he understood Mr Waddell’s email of 10 May 2023, reproduced in [21] above, to mean that in exchange for JHL cancelling the sale of its business the arrears of rent would be forgiven. Mr Jhaveri says that JHL relied on that assurance and cancelled the sale of its business. There is no evidence of Mr Waddell providing any verbal assurance that arrears of rent would be forgiven.
6 Morris v Robert Jones Investments Ltd [1994] 2 NZLR 275 (CA); and Manukau City Centre Ltd v Sudhakar [2023] NZHC 3820 at [11].
WBT’s position
[33] Mr Turner submitted that there is no evidence of any concluded sale of JHL’s business. Mr Jhaveri’s text message to Mr Waddell on 27 March 2023 mentioned potential buyers, but no signed agreement for sale and purchase of the business was ever submitted to WBT’s lawyer — which is what Mr Jhaveri said would happen. Mr Waddell’s evidence is that nothing eventuated.
Analysis
[34] The agreement to lease included a clause requiring JHL to enter into a formal lease on the then current Auckland District Law Society (ADLS) form. The parties agreed to be bound by the terms of that lease document, notwithstanding that it may not have been executed. The form of the deed of lease incorporated into the agreement is the Sixth Edition 2012 (5) of the ADLS form.
[35] Clause 33.1 of the lease prohibited JHL from assigning the lease without WBT’s consent, which could not be unreasonably withheld if certain conditions were met, including payment of all rent and other money due under the lease.
[36] JHL was free to market its business for sale, however, any sale which included the benefit of the lease required WBT’s consent to an assignment of the lease. WBT was free to market the Property for sale pending expiration of the PLA notice, and notwithstanding that JHL was attempting to find a suitable assignee of the lease.
[37] The email correspondence between Mr Jhaveri and Mr Waddell between 3 and 10 May 2023 does not mention any pending sale of JHL’s business. There is no evidence that JHL ever sought WBT’s consent to an assignment of the lease. JHL did not make a payment towards the arrears of rent from a deposit received from JHL from a purchaser of its business. Other than Mr Jhaveri’s assertion, there is no evidence that JHL cancelled a contract for the sale of its business.
[38] For JHL, Mr Nair relied on Mr Waddell’s email to Mr Jhaveri dated 10 May 2023, and in particular, the words “place a line in the sand limiting the
outstanding debt”. Those words must be read in the context of the entire sentence, which reads:
If we can sell then that would place a line in the sand limiting your outstanding debt which may be the best thing for both of us.
[39] It was WBT’s proposed sale that would draw the “line in the sand”. The meaning of the sentence is obvious — the date of sale of the Property would be the line in the sand for liability for rent.
[40] There is no basis for JHL to argue that WBT is estopped from claiming rent that accrued up to the termination of the lease on 22 May 2023, or loss of bargain damages from 23 May 2023 to 6 July 2023.
[41] This analysis is confirmed by the correspondence between the parties during August and September 2023. Mr Waddell and Mr Jhaveri exchanged emails and spreadsheets and attempted to agree on the total of the rent and outgoings that was due. Mr Jhaveri’s calculations included rent until 6 July 2023. Mr Jhaveri’s emails to Mr Waddell contain repeated acknowledgements that JHL owed a debt to WBT.
Can JHL claim a set-off for damages for WBT’s alleged breach of the lessor’s covenants in the lease?
[42] JHL relies on what amount to minor issues with the interior of the Property. The evidence in support of these claims is sparse, including some photos that are produced without sufficient explanation as to their significance.
[43] JHL and Mr Jhaveri did not raise any of these issues in Mr Jhaveri’s correspondence in May 2022, or in August and September 2023 during the negotiations in respect of the arrears of rent and outgoings. JHL has not discharged the evidential onus upon it to adduce evidence of a genuine dispute.
[44] In any event, cl 1.1 of the lease provides that all rent shall be paid without any deductions or set-off. Even if JHL had an arguable claim against WBT for breach of the landlord’s covenants in the lease, that would not bar WBT from obtaining summary judgment for outstanding rent.
Is there a dispute that must be referred to mediation under the lease?
[45] JHL claims that WBT was obliged to issue a notice calling for mediation when the lease terminated to recover any arrears of rent and outgoings.
[46]JHL relies on the following terms of the agreement to lease:
5.1Unless otherwise provided in this Agreement, if a party considers that there is a dispute in respect of any matters arising out of, or in connection with this Agreement, then that party shall immediately give notice to the other party setting out details of the dispute. The parties will endeavour in good faith to resolve the dispute between themselves within five (5) working days of the receipt of the notice, failing which the parties will endeavour in good faith within a further ten (10) working days to appoint a mediator and resolve the dispute, time being of the essence.
5.2Neither party will commence legal proceedings against the other except for injunctive relief before following the procedure set out in subclause 5.1.
[47] Mr Nair submitted that the Court has a discretion on an application for summary judgment to stay the proceeding for mediation to take place. In Waterco (NZ) Ltd v Simpson,7 Associate Judge Faire (as he then was) held that the Court’s discretion on an application for summary judgment includes a consideration of whether claims should be stayed because the parties are contractually bound to a dispute resolution clause.8
[48] An agreement to mediate may be enforced by the Court by directing a stay where the agreement to mediate is certain and it is appropriate to do so.9
[49] The obligation to mediate in cl 5.1 of the agreement to lease did not arise in the present case. First, there is no genuine dispute regarding JHL’s liability to pay rent and outgoings. JHL did not give notice to WBT of any dispute regarding the condition of the Property.
7 Waterco (NZ) Ltd v Simpson [2012] NZHC 2361.
8 At [19]–[22].
9 Braid Motors Ltd v Scott (2001) 15 PRNZ 508 (HC) at [33]; Archers Road Trust Co v Udy [2016] NZHC 2987 at [24]; and SPAMAAH Pty Ltd v ASJ Commodities LP [2022] NZHC 1580 at [54].
[50] Secondly, the opening words of cl 5.1, “Unless otherwise provided in this Agreement…” are determinative. Clause 1.1 of the lease obliged JHL to pay rent without any deductions or set-off. Clause 43.4 of the lease provides that the mediation and arbitration processes do not prevent the landlord from taking proceedings for recovery of any rent or any other monies due under the lease.
What is the quantum of WBT’s claim for outstanding rent and outgoings?
[51] For the period from 1 February 2022 to 22 May 2023, WBT’s claim is for outstanding rent and outgoings under the lease. The affidavit of Mr Waddell dated 5 June 2024 confirms that the outstanding rent and outgoings for this period is
$65,949.10 including GST. WBT is entitled to judgment for that amount.
[52] Clause 29.1 of the lease provides that the landlords entitlement to recover damages from the tenant for breach of the obligations to pay rent and other monies under the lease subsists notwithstanding any determination of the lease. WBT is entitled to loss of bargain damages for the period from 23 May 2023 to 6 July 2023.
[53] WBT owed JHL a duty to act reasonably to mitigate its loss.10 JHL argues that WBT failed to mitigate its loss by failing to re-let the premises. I reject that argument for the following reasons:
(a)WBT sold the Property with vacant possession to be given on 6 July 2023;
(b)the communications between Mr Waddell and Mr Jhaveri from 23 May 2023 to 6 July 2023 confirm that JHL had left chattels and possessions in the premises, and the premises required cleaning;
(c)WBT acted reasonably in taking steps to ensure that JHL removed its chattels and possessions as soon as possible, and that the premises were cleaned; and
10 Sullivan v Darkin [1986] 1 NZLR 214 (CA) at 217–218.
(d)there was no reasonable prospect of WBT re-letting the premises for any part of the period from 23 May 2023 to 6 July 2023.
[54] Therefore, the measure of WBT’s loss of bargain damages is the rent and outgoings that would have fallen due for payment under the lease from 23 May 2023 to 6 July 2023. WBT is registered for GST, so damages are to be awarded exclusive of GST. The evidence of Mr Waddell confirms that this amount is $16,815.29 (comprising $14,848.45 for rent and $1,966.84 for outgoings).
[55] In addition, WBT is entitled to interest at the default interest rate of 14 per cent per annum under cl 5.1 of the lease, and an award of solicitor/client costs under cl 6.1 of the lease.
[56] I am not satisfied that Mr Waddell’s calculation of default interest, compounding monthly, is correct. Clause 5.1 of the lease does not provide for compounding interest. It is clear that WBT is entitled to default interest on:
(a)the outstanding rent and outgoings of $65,949.10 including GST, from 23 May 2023 to the date of payment at the rate of 14 per cent per annum; and
(b)the loss of bargain damages of $16,815.29 exclusive of GST, from 7 July 2023 to the date of payment at the rate of 14 per cent per annum.
[57] Indemnity costs to a GST registered taxpayer are to be awarded exclusive of GST. WBT has produced invoices from its solicitors which confirm that the total of WBT’s legal costs incurred resulting from JHL’s breach of the lease is $43,202.11 exclusive of GST, which is reasonable in the circumstances.
Liability of Mr Jhaveri as guarantor
[58] Mr Jhaveri’s liability as guarantor of the obligations of JHL is coextensive with JHL’s liability. Mr Jhaveri has not raised any issue with the form or substance of his guarantee.
Orders
[59] I enter summary judgment for the plaintiffs against the first defendant and the second defendant jointly and severally for the following amounts:
(a)Rent and outgoings outstanding under the lease — $65,949.10 including GST.
(b)Loss of bargain damages — $16,815.29 exclusive of GST.
(c)Default interest:
(i)on the outstanding rent and outgoings of $65,949.10 from 23 May 2023 to the date of payment at the rate of 14 per cent per annum; and
(ii)on the loss of bargain damages of $16,815.29 from 7 July 2023 to the date of payment at the rate of 14 per cent per annum.
(d)Indemnity costs of $43,202.11 exclusive of GST.
Associate Judge Brittain
4
1