Zheng Li Trustee Limited v Henderson [2015] NZHC 1723 (27 July 2015)

Last Updated: 31 July 2015

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2015-485-193
CIV-2015-485-198 [2015] NZHC 1723

BETWEEN	ZHENG LI TRUSTEE LIMITED AND MK TRUSTEE (2013) LIMITED Plaintiffs
AND	EWAN STUART HENDERSON Defendant

Hearing:	7 July 2015
Counsel:	D Consedine for the Plaintiffs E S Henderson in Person
Judgment:	27 July 2015

_{JUDGMENT OF ASSOCIATE JUDGE SMITH}

Introduction – the summary judgment application ....................................................................... [1] Mr Henderson’s opposition ............................................................................................................ [15] Summary judgment – legal principles ........................................................................................... [30]

Relevant provisions of the deeds of lease and guarantees ............................................................ [37] The Victoria Street lease ............................................................................................................... [37] Mr Henderson’s guarantee of the Victoria Street lease ................................................................ [42] The Courtenay Place lease ........................................................................................................... [45] The guarantee of the Courtenay Place lease ................................................................................ [49]

The issues to be determined............................................................................................................ [50] The Victoria Street lease ............................................................................................................... [50] The Courtenay Place lease ........................................................................................................... [50]

Discussion and conclusions on the issues ....................................................................................... [53] The Victoria Street lease ............................................................................................................... [53] The Courtenay Place lease ........................................................................................................... [93]

_{Result ...............................................................................................................................................[114]}

ZHENG LI TRUSTEE LIMITED AND MK TRUSTEE (2013) LIMITED v EWAN STUART HENDERSON [2015] NZHC 1723 [27 July 2015]

Introduction – the summary judgment application

[1] In each of these proceedings, the plaintiff landlords apply for summary judgment against Mr Henderson, who guaranteed the lessees’ obligations under separate leases of commercial properties in Wellington. By consent, the summary judgment applications were heard together.

[2] The first of the two relevant properties is a multi-storey building situated on the corner of Victoria Street and Chews Lane. Until recently a company called 3C Bar Limited (3C) operated a restaurant and bar in premises on the ground floor of the building (the Victoria Street premises).

[3] 3C occupied the Victoria Street premises as lessee under a ten year lease which had commenced on 1 May 2008 (the Victoria Street lease). Mr Henderson personally guaranteed 3C’s obligations under the Victoria Street lease.

[4] The other property is a building situated at 134 Courtenay Place. Until recently, part of the property (the Courtenay Place premises) was leased to a company called Molly Malones (Wellington) Limited (Molly Malones), which operated a restaurant/bar in the building. Molly Malones had a nine year lease of the Courtenay Place premises which had commenced on 30 May 2007 (the Courtenay Place lease). Mr Henderson personally guaranteed Molly Malones’ obligations under the Courtenay Place lease.

[5] Mr Henderson was a director of, and shareholder in, both 3C and Molly Malones. He says that the two companies were managed together, and that their businesses were interdependent in that there were times when each depended on the other for cash flow.

[6] 3C failed to pay any of the rent instalments which were due under the Victoria Street lease on 1 November 2014, 1 December 2014, and 1 January 2015. It was placed in voluntary liquidation on 23 January 2015. As at that date, the plaintiffs say the rent arrears totalled $70,504.38.

[7] On 13 February 2015, 3C’s liquidators gave formal notice of disclaimer of

the Victoria Street lease. At that stage, the rent arrears had risen to $92,122.75.

[8] Molly Malones failed to pay rent instalments due under the Courtenay Place lease on the same dates, although it did make payments of $8,225 on 7 November and 19 December 2014. It was placed in voluntary liquidation on 20 January 2015. As at that date, the plaintiffs say the rent arrears totalled $89,363.97.

[9] Molly Malones’ liquidators gave formal notice disclaiming the

Courtenay Place lease on 13 February 2015. By then, the rent arrears had risen to

$124,822.29.

[10] Following the liquidators’ disclaimers of the two leases, the plaintiffs entered into possession of both properties. As of the date of the hearing, they had not found a new tenant for either property.

[11] The plaintiffs commenced the present proceedings against Mr Henderson on

6 March 2015. In proceeding CIV-2015-485-193, which relates to the Victoria Street lease, they claim from Mr Henderson the $92,122.75 which was owing at the date of the liquidators’ disclaimer. In addition, they claim interest under a default interest clause in the Victoria Street lease, at the rate of 14 per cent per annum, and an order that Mr Henderson is liable to indemnify them for all losses incurred as a result of the liquidators’ disclaimer. They ask for costs on a solicitor/client basis pursuant to a clause in the Victoria Street lease which provided for the recovery of the landlord’s

enforcement costs on that basis.¹

[12] In proceeding CIV-2015-485-198, which relates to the Courtenay Place lease, the plaintiffs claim from Mr Henderson the $124,822.29 which they say was owing at the date of the liquidators’ disclaimer. In addition, they claim interest at the default interest rate of 12 per cent per annum payable under the Courtenay Place lease, and an order that the defendant is liable to indemnify them for all losses

_{incurred as a result of the disclaimer. They also ask for costs on a solicitor/client}

¹ Clause 6.1.

basis in this proceeding, relying on an identical clause to that which appeared in the

Victoria Street lease.

[13] The plaintiffs say that Mr Henderson has no defence to their claims, and that in those circumstances they are entitled to summary judgment on the basis of the affidavit evidence alone, without the need for the claims to proceed to a trial in the usual way.

[14] Mr Henderson opposes the summary judgment applications.

Mr Henderson’s opposition

[15] Mr Henderson does not dispute that he personally guaranteed the respective liabilities of 3C and Molly Malones under the Victoria Street lease and the Courtenay Place lease. His case is that neither company owed or owes anything to the plaintiffs, because they have claims of their own which they are entitled to set off against the amounts claimed by the defendants. Alternatively, the companies have counterclaims which should be brought to account, and which provide a basis on which the Court should exercise its discretion to refuse to enter summary judgment.

The defences/counterclaims relating to 3C and the Victoria Street lease

[16] In July 2013, 3C’s premises were damaged by an earthquake which hit the Wellington region. Five glass windows in the Victoria Street premises were cracked. Mr Henderson says that although an email was sent to the plaintiffs’ agent on 23 July

2013 requesting that the cracked windows be repaired, no response was ever received. Despite repeated requests made by 3C, the damage was not repaired for approximately sixteen months.

[17] There was another earthquake in August 2013, which caused additional damage to the building. Mr Henderson says that all of the cracked windows in the building sat for well over a year in a state of disrepair, some with unsightly masking tape over them.

[18] On 18 September 2014 the plaintiffs arranged for all of the damaged windows in the building to be repaired. Scaffolding was put up near the entrance to the Victoria Street premises. Mr Henderson says that there was no prior consultation, and for a period on 18 September 2014 all entrance ways to the Victoria Street premises were blocked. Staff could not obtain entry.

[19] Mr Henderson says that substantial disruption was caused to 3C’s business by

the repair work, which was carried out on the building in the period between

18 September 2014 and 17 November 2014 (the date the scaffolding was taken down). He says that the work was carried out at the busiest time of the year for 3C, and that the erection of the scaffolding and associated shade-cloth during that busy trading period delivered a crippling blow to the business. Internal lux levels in the bar were halved, patronage dropped over 50 per cent, and the scaffolding created a tunnel/cave-like exterior in the spring months. The gloomy ambience worked to keep patrons away.

[20] Mr Henderson says that the late November/December trade never picked up. The business had lost bookings, and events were cancelled due to the loss of the ambience of the restaurant and bar. He contends that the plaintiffs’ actions with regard to the window repairs denied 3C the right to “quiet enjoyment” of the Victoria Street premises, and as a result the business became uneconomic.

The defences/counterclaims relating to Molly Malones and the Courtenay Place lease

[21] Mr Henderson says that the scaffolding problem which affected the Victoria Street premises resulted in cash flows across the combined businesses falling, to the point where neither business could be sustained. He contends that it was the plaintiffs’ breach of the tenant’s “quiet enjoyment” entitlement under the Victoria Street lease which initially caused the difficulties for both businesses, and that the plaintiffs knew they were creating unsustainable cash flow circumstances for both companies.

[22] Mr Henderson has an additional ground of opposition in respect of the claim based on the Courtenay Place lease. He says that he was endeavouring to sell the

Molly Malones business, and had a prospective buyer, but the plaintiffs acted unreasonably in refusing to give their consent to an assignment of the Courtenay Place lease and/or to an application for a liquor licence made by the prospective assignee.

[23] Earlier, the plaintiffs had themselves approached Molly Malones with a view to purchasing that company’s business. Mr Henderson says that at the time he wanted to quit both premises for personal reasons, and Molly Malones was then considering a third party offer to purchase both the Molly Malones premises and the

3C premises. However, no agreement was reached, and the plaintiffs’ offer to purchase Molly Malones’ business was withdrawn at a meeting between the parties on 2 October 2014.

[24] After that 2 October 2014 meeting, Mr Henderson says that he made continuing efforts to sell the Molly Malones’ business as a going concern, and that he eventually succeeded in arranging a sale to Russell Wood (or nominee). The arrangement came to nothing, however, because the plaintiffs allegedly imposed unreasonable demands for an assignment of the Courtenay Place lease to any third party buyer.

[25] Mr Henderson says that they demanded a 12 month bank bond over Molly Malones, a general security agreement over 3C’s plant, and repayment in full of a debt owing to DB. The plaintiffs also wanted their legal costs paid.

[26] Mr Henderson says that he advised the plaintiffs that changed personal circumstances had rendered his personal guarantee worthless, and that the plaintiffs’ requirements for a consent to the proposed assignment were not constructive. He characterises the demands the plaintiffs were making as excessive, rendering a sale to any third party virtually impossible.

[27] Mr Henderson states that the plaintiffs did finally consent to an assignment, on slightly lesser terms, on 20 November 2014. But by then the scaffolding outside

3C’s Victoria Street premises had become a problem, and cash flow was getting tighter for both businesses. And he says that there were further delays while the

plaintiffs withheld consent to the granting of a liquor licence to Mr Henderson’s prospective assignee. That consent was not forthcoming until 9 December 2014, a delay of almost three weeks, and Mr Henderson says that by then it was too late: the purchaser had been put off, and the businesses run by 3C and Molly Malones were no longer viable.

[28] Mr Henderson alleges that the plaintiffs’ ultimate aim was to take over both of his companies, using their superior bargaining position arising from the financial difficulties of 3C and Molly Malones to achieve their ends.

[29] Mr Henderson contends that it would be inequitable to allow the plaintiffs to enforce the guarantee against him when the plaintiffs’ own actions have caused the business failures, and that the counterclaims should be determined at the same time as the plaintiffs’ claims, so that any losses can be off-set.

Summary judgment – legal principles

[30] Under r 12.2 of the High Court Rules, the Court may give judgment against a defendant if the plaintiff satisfies the Court that the defendant has no defence to a cause of action in the statement of claim or a particular part of any such cause of action. If the Court is satisfied that the defendant is liable to the plaintiff, but the Court is not satisfied as to the amount for which judgment should be entered, it may

give judgment on the issue of liability and direct a trial of the issue of amount.²

[31] The principles to be applied in considering an application for summary judgment have been clearly established through decisions of the Court of Appeal.³

The plaintiff must first satisfy the Court that the defendant has no arguable defence to the claims brought against it. The issue is whether there is a real question to be tried. It is generally not possible to determine disputed issues of fact based on

_{affidavit evidence alone, particularly when issues of credibility arise.}

² _{High Court Rules, r 12.3.}

³ See for example Pemberton v Chappell [1986] NZCA 112; [1987] 1 NZLR 1 (CA); Grant v New Zealand Motor Corporation Ltd [1988] NZCA 135; [1989] 1 NZLR 8 (CA) and Westpac Banking Corporation v M M Kembla New Zealand Ltd [2000] NZCA 319; [2001] 2 NZLR 298 (CA).

[32] However in Pemberton v Chappell, the Court of Appeal held:⁴

Where the defence raises questions of fact upon which the outcome of the case may turn it will not often be right to enter summary judgment. There may however be cases in which the Court can be confident – that is to say, satisfied – that the defendant’s statements are to matters of fact are baseless. The need to scrutinise affidavits, to see that they pass the threshold of credibility, is referred to in Eng Mee Yong v Letchumanan.

[33] In Eng Mee Yong, the Privy Council said:⁵

Although in the normal way it is not appropriate for a judge to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements made by the same deponent, or inherently improbably in itself it may be.

[34] Rule 12.12 addresses the situation where it appears that a defendant, although without any defence to a plaintiff’s claim, may have an arguable counterclaim. The rule materially provides:

12.12 Disposal of application

....

(2) If it appears to the court on an application for judgment under rule

12.2... that the defendant has a counterclaim that ought to be tried, the court—

(a) may give judgment for the amount that appears just on any terms it thinks just; or

(b) may dismiss the application and give directions under subclause (1).

[35] Casey J commented in Pemberton that a counterclaim is not a defence, and that it is always open to a defendant to bring a counterclaim notwithstanding the application for summary judgment, and that the defendants might have no defence to

_{the claim.}⁶

⁴ _{Pemberton v Chappell, above n 3, at [4].}

⁵ _{Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC).}

⁶ Pemberton v Chappell, above n 3, at [5]-[6].

[36] The learned authors of McGechan on Procedure note that r 12.12(2) imports a measure of flexibility into the summary judgment procedure where, although defendants may have no defence, they nevertheless have what appears to be a possibly meritorious counterclaim. Rather than give an immediately enforceable judgment to the plaintiff in those circumstances (perhaps allowing the plaintiff to bankrupt the defendant before the defendant’s counterclaim can be brought to judgment and off-set), the Court may, and commonly does, grant the plaintiff summary judgment accompanied by a stay of execution of such judgment pending resolution of the counterclaim. Alternatively, the Court may dismiss the summary

judgment application and direct trial of both claim and counterclaim.⁷

Relevant provisions of the deeds of lease and guarantees

The Victoria Street lease

[37] The Victoria Street lease provided for monthly rent payments of $18,798.58 plus GST, payable on the first day of each month, commencing on 1 May 2008. Under cl 1.1 of the deed, the rent was to be paid “without any deductions or set off.”

[38] Under cl 11.1, the plaintiffs were to keep and maintain the building in good order and repair, although the plaintiffs would not be liable for any loss suffered by

3C arising from any want of repair or defect unless they had received notice in writing from 3C and had not within a reasonable time thereafter taken appropriate steps to remedy the want of repair or defect.⁸ 3C was required to permit the plaintiffs and their employees and contractors access to the premises at all reasonable times to carry out repairs, but all such repairs, inspections, and work to be carried out with the least possible inconvenience to 3C.

[39] A “Partial Destruction” clause in the Victoria Street lease provided that if the premises were damaged, but not so as to render the premises untenantable, then (subject to certain provisions which are not relevant for present purposes) the

_{plaintiffs were to expend any insurance monies received by them in respect of the}

⁷ McGechan on Procedure (online looseleaf ed, Brookers) at [HR 12.12.01], citing Roberts

Family Investments Ltd v Total Fitness Centre (Wellington) Ltd [1989] 1 NZLR 15, (1988) 1

_{PRNZ 88 at 21,92.}

⁸ Victoria Street lease, cl 11.1(d).

damage towards repairing the damage, or reinstating the premises and/or the building, up to the amount of the insurance money received. Clause 27.3 provided:

Until the completion of the repairs or reinstatement a fair proportion of the rent and outgoings shall cease to be payable as from the date of damage.

[40] By cl 29 of the Victoria Street lease, failure to pay rent or other monies payable under the lease on the due date was deemed to be a breach going to the essence of the tenant’s obligations. In such case the plaintiffs would be entitled to recover damages from 3C for the breach, and that entitlement was to subsist notwithstanding any determination of the lease. It was also to be in addition to any other right or remedy which the plaintiffs as landlord might have had.

[41] Clause 32.1 of the deed was the “quiet enjoyment” clause to which

Mr Henderson refers. It reads:

The tenant paying the rent and performing and observing all the covenants and agreements herein expressed and implied shall quietly hold and enjoy the premises throughout the term without any interruption by the Landlord or any person claiming under the Landlord.

Mr Henderson’s guarantee of the Victoria Street lease

[42] The guarantee was set out as the third schedule to the Victoria Street lease. In it, Mr Henderson:

(1) guaranteed payment of the rent and the performance by 3C of its covenants under the Victoria Street lease, and

(2) indemnified the plaintiffs against any loss they might suffer should the lease be lawfully disclaimed or abandoned by any liquidator.

[43] As between the plaintiffs and Mr Henderson as guarantor, Mr Henderson was to be treated for all purposes as the tenant, and the plaintiffs were under no obligation to take proceedings against the tenant before taking proceedings against Mr Henderson.

[44] The guarantee was limited to a maximum of 1 year’s annual rental plus GST.

The Courtenay Place lease

[45] The Courtenay Place lease provided for a term of 9 years, commencing on 30

May 2007, at a monthly rent of $30,833.33 plus GST, payable on the first day of each month. Again, the rent was to be paid without any deductions or set-off.⁹

[46] As with the Victoria Street lease, all repairs, inspections, and work which required access to the Courtenay Place premises were to be carried out by the landlord or their contractors with the least possible inconvenience to Molly Malones.¹⁰

[47] There was also a “Partial Destruction” clause similar to that contained in the Victoria Street lease, including cl 27.3, which provided for the abatement of a fair proportion of the rent and outgoings from the date of the relevant damamge. And there was a similar clause relating to the essentiality of the obligation to pay rent and other monies payable under the lease.

[48] The Courtenay Place lease contained the following provision dealing with assignment or subletting:

Assignment or subletting

35.1 The Tenant shall not assign sublet or otherwise part with the possession of the premises or any part thereof without first obtaining the written consent of the Landlord which the Landlord shall give if the following conditions are fulfilled:

(a) The Tenant proves to the satisfaction of the Landlord that the proposed assignee or subtenant is (and in the case of a company that the shareholders of the proposed assignee or subtenant are) respectable responsible and has the financial resources to meet the Tenant’s commitments under this lease;

(b) All rent and other moneys payable have been paid and there is not any subsisting breach of any of the Tenant’s covenants;

(c) In the case of an assignment a deed of covenant in customary form approved or prepared by the Landlord is duly executed and delivered to the Landlord;

⁹ _{Courtenay Place lease, cl 1.1.}

¹⁰ Courtenay Place lease, cl 15.1.

(d) In the case of an assignment to a company (other than a company listed on the main board of a public stock exchange) a deed of guarantee in customary form approved or prepared by the Landlord is duly executed by the principal shareholders of that company and delivered to the Landlord; and

(e) The Tenant pays the Landlord’s proper costs and disbursements in respect of the approval and the preparation of any deed of covenant or guarantee and (if appropriate) all fees and charges payable in respect of any reasonable inquiries made by or on behalf of the Landlord concerning any proposed assignee subtenant or guarantor. All such costs shall be payable whether or not the assignment or subletting proceeds.

The guarantee of the Courtenay Place lease

[49] The terms of Mr Henderson’s guarantee of the Courtenay Place lease were materially identical to his guarantee of the Victoria Street lease.

The issues to be determined

[50] The following issues are to be determined:

The Victoria Street lease

(1) Did 3C have a right to set off against the rent and outgoings payable, the amount of any losses suffered by it as a result of the plaintiffs’ delay in repairing the broken windows in the period between July 2013 and November 2014? If so, how much was 3C entitled to set off?

(2) Did 3C suffer loss arising out of the repair of the broken windows in the building (including the erection of the scaffolding near the entrance to the Victoria Street premises) between 18 September and the date in November 2014 when the repair work was completed? If so, what was the amount of the loss, and was 3C entitled to set off that loss against the rent and outgoings payable by it under the Victoria Street lease?

(3) Was there partial damage to the Victoria Street building (the cracked or broken windows and the steps taken to repair them) which entitled

3C to an abatement of a fair proportion of the rent and outgoings payable under the Victoria Street lease? If so, how much and for what period?

(4) Does Mr Henderson have a counterclaim against the plaintiffs for losses suffered as a result of the failure of 3C’s business? If so, in what amount?

(5) Would it be inequitable or otherwise inappropriate to permit the plaintiffs to enforce the guarantee of the Victoria Street lease against Mr Henderson without determining at the same time Mr Henderson’s counterclaims?

(6) Should an order be made that Mr Henderson is liable to the plaintiffs for losses incurred by them as a result of the liquidators’ disclaimer of the Victoria Street lease?

The Courtenay Place lease

(7) Did the repair work carried out in the period September 2014- November 2014 on the Victoria Street building (including the erection of the scaffolding near the entrance to the Victoria Street premises) cause or contribute to the failure of Molly Malones’ business?

(8) If the answer to issue (7) is “yes”, was Molly Malones entitled to set the amount of its loss off against rent and outgoings payable under the Courtenay Place lease?

(9) Did the plaintiffs act unreasonably, or otherwise in breach of their obligations under the Courtenay Place lease, in failing to provide written consent to the assignment of the Courtenay Place lease to Mr Wood?

(10) If the answer to issue (9) is “yes”, was Molly Malones entitled to set off any losses caused by the plaintiffs’ unreasonable actions and/or

breaches, against the rent and outgoings payable under the

Courtenay Place lease?

(11) Does Mr Henderson have a counterclaim against the plaintiffs arising out of (i) the repair work and the scaffolding issue affecting the Victoria Street premises; or (ii) any unreasonable actions or breaches of duty by the plaintiffs in respect of Molly Malones’ attempts in 2014 to assign the Courtenay Place lease?

(12) If Mr Henderson does have an arguable counterclaim on either of those bases, would it be inequitable or otherwise inappropriate to permit the plaintiffs to enforce the guarantee of the Courtenay Place lease against him without determining the counterclaims at the same time?

(13) Should an order be made that Mr Henderson is liable to the plaintiffs for losses incurred by them as a result of the liquidators’ disclaimer of the Courtenay Place lease?

[51] The ultimate questions will be whether, in light of the answers to these issues, the plaintiffs have shown (i) that Mr Henderson has no reasonably arguable defences, and (ii) that any counterclaims he might have should not influence the Court to exercise its discretion against the entry of summary judgment (or to stay the execution of any judgment which may be entered).

[52] I consider each of the issues in turn.

Issue (1) - Did 3C have a right to set off against the rent and outgoings payable the amount of any losses suffered by it as a result of the plaintiffs’ delay in repairing the broken windows in the period between July 2013 and November 2014? If so, how much was 3C entitled to set off?

[53] I accept that the evidence shows that the plaintiffs did not promptly respond to 3C’s requests to repair the cracked window panes. On the face of it, that was a breach which continued over a lengthy period.

[54] In Grant v NZMC Limited, the Court of Appeal held that a defendant may set off a cross-claim which so affects the plaintiff ’s claim that it would be unjust to allow the plaintiff to have judgment without bringing the cross-claim to account. The link must be such that the two are in effect interdependent: judgment on one cannot fairly be given without regard to the other. For a valid set-off defence, the defendants claim must call into question, or impeach, the plaintiff’s demand. But it is neither necessary, nor decisive, that the claim and cross-claim arise out of the same

contract.¹¹

[55] A right of equitable of set-off may be contractually excluded, expressly or by clear implication. Although the lease in Grant contained an obligation on the Grants to pay the rent “free and clear of exchange or any deduction whatsoever”, the Court considered that the word “deduction” did not in its natural sense embrace a set-off, and it was not clear that it was agreed that a set-off of the kind claimed by the Grants

could not be made.¹²

[56] In this case set-off is expressly excluded by cl 1.1 of the Victoria Street lease, so Mr Henderson cannot rely on Grant to justify non-payment of the rent because 3C may have had an (unquantified) cross-claim for damages for breach of the plaintiffs’ obligations to repair.

[57] Furthermore, the cracked window panes were in the end repaired, and Mr Henderson has not put forward any evidence suggesting that the existence of the cracks themselves caused significant loss to 3C. 3C did not elect to repair the windows itself, and nor did it invoke the arbitration clause in the Victoria Street lease. Any loss suffered as a result of the plaintiffs’ delay in attending to the repair work, although the delay extended for a period of approximately 14 months, seems unlikely to have been substantial.

[58] I find against Mr Henderson on issue (1): 3C had no right to set off against rent and outgoings any claims it might have had arising out of delay by the plaintiffs

_{in repairing the windows.}

¹¹ _{Grant v NZMC Limited [1988] NZCA 135; [1989] 1 NZLR 8 (CA), at [54].}

¹² At [13].

Issue (2) - Did 3C suffer loss arising out of the repair of the broken windows in the building (including the erection of the scaffolding near the entrance to the Victoria Street premises) between 18 September and the date in November 2014 when the repair work was completed? If so, what was the amount of the loss, and was 3C entitled to set off that loss against the rent and outgoings payable by it under the Victoria Street lease?

Issue (3) – Was there partial damage to the Victoria Street building (the cracked or broken windows and the steps taken to repair them), which entitled 3C to an abatement of a fair proportion of the rent and outgoings payable under the Victoria Street lease? If so, how much and for what period?

[59] I will consider these issues together.

[60] Mr Barber, a facility manager who was responsible for the operation of the building at 56 Victoria Street for the plaintiffs, states that the building had significant glass damage resulting from the 2013 earthquakes, and that the damage had created a significant hazard to pedestrians in the area. In total, 85 panes of glass in the building needed replacing. Given the height and location of the glass, scaffolding had to be erected to allow the repair work to proceed and ensure the safety of the public. Mr Barber says that tenants, including 3C, were notified about the work which had to be done, and they welcomed it.

[61] The scaffolding was first erected on 18 September 2014. At about 11.30am that day, a complaint was received from Mr Henderson that the scaffolding and the presence of Wellington City Council traffic management personnel in the immediate vicinity were affecting 3C’s business. Mr Henderson gave Mr Barber the cellphone number of a staff member at the 3C bar for Mr Barber to get back to 3C on the matter. Mr Barber says that he then instructed Wellington Scaffolding to remove the scaffolding and await further instructions from him. The scaffolding which had been put up was then taken down.

[62] Mr Barber says that there were further discussions with 3C about the repair work in the week commencing 22 September 2014 in the course of which a proposed plan of the works was shown to 3C.

[63] The scaffolding work remained on hold while Mr Barber waited for 3C’s

response. He says that he received a text message from 3C’s bar manager, Mr Allan,

on 8 October 2014. Mr Allan stated that he had not heard back from Mr Henderson regarding the work, but as far as he (Mr Allan) was concerned, the work could proceed as long as the entry/egress points were available when the scaffolding was in place. Mr Barber said that he would come to see Mr Allan to go through the proposal again.

[64] In a letter to the plaintiffs’ solicitors dated 31 October 2014, Mr Henderson agreed that there had been telephone contact with Mr Barber on 8 October 2014. Mr Henderson says that Mr Barber advised that the scaffolding would go back up the next day, 9 October 2014. However, on 9 October 2014, Mr Barber advised that the work had been rescheduled to the following day. 3C then requested that the start date be put back to the following Monday, which would cause less disruption to 3C’s business, and that was agreed.

[65] The scaffolding work duly began on 13 October 2014. Mr Barber says that the contractor was careful to ensure that the scaffolding did not impede access to and from the Victoria Street premises. It appears that there was no further complaint from 3C at that stage.

[66] Mr Barber did receive a text message from Mr Allan on 21 October 2014, asking if 3C’s cracked glass panels would be replaced. He says that he responded stating that they would be replaced at the end of the job, when the scaffolding was removed.

[67] The scaffolding and installation work was completed on 23 October 2014, and the contractors began the window replacement work, starting at level 6.

[68] On 4 November 2014 Mr Barber received another text message from Mr Allan. Mr Allan wanted to know how much longer the scaffolding would be in place. Mr Barber told him it would be there for a further two weeks.

[69] The scaffolding was finally removed on 17 November 2014. Shortly thereafter the cracked window panes in the Victoria Street premises were repaired.

[70] Mr Barber says that he tried to liaise with Mr Henderson directly in relation to the proposed scaffolding work, but after trying to contact him twice without success, he dealt directly with Mr Allan.

[71] Mr Henderson did not challenge Mr Barber’s evidence, except in two respects. First, Mr Henderson says that, before the scaffolding was put up, there was no prior notification or consultation as to the timing of the work, its intended purpose or its expected duration. Mr Henderson says that, had there been prior consultation, he would have requested that the repair work be undertaken in January/February, a quiet time in 3C’s trading year.

[72] Secondly, Mr Henderson complains that when the scaffolding was dismantled the work continued through a Thursday lunchtime (3C’s busiest trading day of the week), and that 3C could not open until mid-afternoon that day. He says that, had consultation been carried out, he would have requested that the work be undertaken on a Saturday or Sunday to negate any such disruption. That evidence was not challenged in any reply affidavit.

[73] Reading the affidavits of Mr Barber and Mr Henderson together, it appears that Mr Henderson does not deny that 3C, along with other tenants, was notified that the plaintiffs were planning to undertake the window repair work on the building – the principal complaint is that there was no consultation over the details and the timing of the work. Mr Henderson does not suggest that he could not have contacted the building manager himself to point out that September was a busy period for him, and that he would prefer to have the work done in January or February. Whether carrying the work out in January or February would have been convenient for other tenants in the building is of course another matter.

[74] When the scaffolding went back up on 13 October 2014, there was no immediate complaint from 3C, either about access or the shade-drapes. Mr Henderson appears to have left the matter with Mr Allan, and apart from one text message sent by Mr Allan on 4 November 2014, 3C did not raise any concern.

[75] In summary, there were two periods of disruption when 3C appears to have lost its lunchtime trade: one on 18 September 2014 and the other in November when the scaffolding outside the Victoria Street premises was removed. There appears to have been no interference with the Victoria Street premises, or disruption to 3C’s business, in the period after the scaffolding was taken down on or shortly after 18

September 2014, and 13 October 2014. The disruptive effect between 13 October

2014 and 17 November 2014, when the scaffolding was taken down for the last time, would have been largely caused by the reduced lux levels in the bar and restaurant, and consequent interference with its ambience.

[76] Under cl 15.1 of the Victoria Street lease, 3C was required to permit the plaintiffs and their employees and contractors at all reasonable times to enter the premises to carry out repairs to the premises or adjacent premises. All such repairs, inspections and work were to be carried out with the least possible inconvenience to

3C. But it appears that the repair of the cracked and broken windows elsewhere in the building (for which the scaffolding was required) did not necessitate the plaintiffs actually entering the Victoria Street premises. In those circumstances the clause does not apply.

[77] I am satisfied that the erection of the scaffolding was necessary for the plaintiffs to discharge their obligations to repair the 85 window panes in the building that had to be repaired. The issues are whether (and if so, how) the “Partial Destruction” clause in the Victoria Street lease (cl 27) should be applied, and whether in the placement of the scaffolding and/or shade drapes, the plaintiffs breached 3C’s entitlement to “quiet enjoyment” under cl 32.1 of the Victoria Street lease.

[78] Clause 27.1 of the Victoria Street lease, dealing with “Partial Destruction” of the premises, applied where the premises “or any portion of the building of which the premises may form part” were damaged, but not so as to render the premises untenantable. I think that was the position in this case: the 2013 earthquakes caused damage to the building of which the Victoria Street premises formed part, but the damage was not such as to render the Victoria Street premises untenantable. I also think it reasonable to infer that commercial landlords such as the plaintiffs would

have had appropriate insurance to cover the costs of replacing the 85 cracked or broken window panes, and that all necessary permits and consents for the repair work were obtained. In those circumstances, I find that it is arguable for Mr Henderson that cl 27.3 of the Victoria Street lease entitled 3C to an abatement of “a fair proportion of the rent and outgoings” from the date of the damage to the completion of the repairs or reinstatement work.

[79] In my view any such abatement to which 3C may have been entitled would not have been affected by the “without any deductions or set-off” provision in the Victoria Street lease. That provision was to apply to the rent payable under the lease, and if that rent was itself changed by the operation of some other clause in the lease (in this case, cl 27.3), I think it at least arguable for Mr Henderson that the “without any deductions or set-off” provision would not preclude the deduction of the “fair proportion” from the rent and outgoings which would otherwise have been payable under the Victoria Street lease.

[80] At the hearing, Ms Consedine advised that if the Court finds that 3C was entitled to some deduction or abatement of rent and outgoings on account of the window repairs and/or scaffolding issues, her clients’ position is that the largest deduction that could be regarded as reasonably arguable for Mr Henderson for the purposes of the proof threshold on a summary judgment application, would be the equivalent of two months’ rent under the Victoria Street lease.

[81] Any rent abatement for the period of approximately one year and two months from the date of the damage to the date of commencement of the repair work would not have been substantial, but I accept that there may well have been substantial disruption to 3C’s business in the October/November 2014 period when the scaffolding and shade-drapes appear to have substantially interfered with the ambience of the 3C restaurant and bar. Mr Henderson says that the lux levels in the Victoria Street premises were halved in the relevant October/November 2014 period, and that patronage dropped by over 50 per cent. I think it is plausible that a number of customers and potential customers of 3C would have been put off by what appears to have been a “construction site” atmosphere around the building, and an unappealing, gloomy atmosphere within the Victoria Street premises themselves.

While Mr Henderson did not provide details of any cancelled bookings, or monthly management accounts for 3C evidencing the claimed drop-off in turnover, the claim that there was a substantial drop-off in turnover is a credible one. And I accept that the disruption probably came at a bad time of the year for 3C, at the beginning of the pre-Christmas function period, when 3C might reasonably have expected to attract pre-Christmas client or staff functions.

[82] It is not possible on a summary application such as this to assess exactly how much 3C may have been entitled to by way of rent abatement. There was no valuation evidence directed to that issue, nor any evidence of the precise financial impact the damage and subsequent repair work may have had on 3C’s business. However I do not consider it arguable for Mr Henderson that any rent abatement would have exceeded the two months’ figure proposed by the plaintiffs. There is no evidence to support a significant abatement in the period before the repair work was commenced, and the Victoria Street premises must have had some rental value in the period between September and November 2014 when the repair work on the building was being done. Clause 27.3 did not provide for any abatement in respect of the period after the repairs or reinstatement work had been carried out.

[83] In all those circumstances, I consider the two months’ rent period proposed by the plaintiffs is reasonable, and that summary judgment should not be entered in respect of that part of the amount claimed which represents two months’ rent payable under the Victoria Street lease.

[84] Ms Consedine submitted that the time for 3C to have made any claim for a rent abatement was back in July 2013, when the damage occurred. But there was nothing in the Victoria Street lease which imposed a time limit on any such claim, and Mr Henderson did require an abatement (of one month, reserving the right to make additional claims) in his letter dated 31 October 2014.

[85] Turning to Mr Henderson’s claim based on alleged breach of the “quiet enjoyment” covenant, I accept his submission based on the Fujiyama and Scrapbook cases that a landlord lawfully carrying out necessary repair work may, depending on the circumstances, nevertheless be acting in breach of the “quiet enjoyment”

covenant.¹³ But the difficulty is that any damages claim under the covenant could not have been set off against the rent – any such set-off was precluded by cl 1.1 of the Victoria Street lease.

[86] Answering the questions posed by issues (2) and (3), I find on issue (2) that

3C probably did suffer loss arising out of the repair of the broken windows in the building (including the erection of the scaffolding near the entrance to the Victoria Street premises) during the relevant period, but the “without any deductions or set-off” provision in the Victoria Street lease precluded it from setting that loss off against the rent. In those circumstances it is not necessary to consider the amount of any such loss. On issue (3), I find that there was partial damage to the Victoria Street building which entitled 3C to an abatement of a fair proportion of the rent and outgoings, and that for the purposes of the present summary judgment application that “fair proportion” should be assessed as the equivalent of two months’ rent payable under the Victoria Street lease.

[87] Mr Henderson cannot be liable for any sum greater than that for which 3C is liable under the Victoria Street lease, and it is therefore arguable for him that he has no liability in respect of two months’ rent payable under the Victoria Street lease. Subject to my conclusions on issues (4) and (5) below, he must be liable, however, for the balance of the amount claimed for rent, including the rent instalment which was missed on 1 February 2015, and default interest on the unpaid sums running from their respective due dates for payment.

Issue (4) – Does Mr Henderson have a counterclaim against the plaintiffs for losses suffered as a result of the failure of 3C’s business? If so, in what amount?

Issue (5) – Would it be inequitable or otherwise inappropriate to permit the plaintiffs to enforce the guarantee of the Victoria Street lease against Mr Henderson without determining at the same time Mr Henderson’s counterclaims?

[88] It is possible that 3C might have a damages claim for breach of the quiet enjoyment clause in a sum which exceeds the two months’ rent which I have

13. Fujiyama Teppanyaki Japanese Restaurant Ltd v Morgan (2003) 5 NZCPR 369 (2003) 4 NZ ConvC 193, 777; and Scrapbook Alley Ltd v Chow [2012] NZHC 1635.

regarded (for the purpose of the summary judgment application) as a “fair” abatement of 3C’s obligations to pay rent – I make no finding on the point. But 3C had no entitlement to set off any such damages claim against the rent and outgoings payable under the Victoria Street lease.

[89] Mr Henderson has not put forward any counterclaim based on losses which are said to be personal to him, as opposed to losses suffered by 3C. The loss of the business is a loss which was suffered by 3C, not Mr Henderson, and he has not suggested he has a claim for any alleged diminution in the value of his shares in 3C, or any similar kind of loss. It is clear enough that 3C became insolvent, but there is nothing to show that it was not insolvent (and Mr Henderson’s shares worthless) before 13 October 2014, when the scaffolding and shade-drapes went back up. Any losses Mr Henderson has suffered appear to arise solely out of his ongoing liability under his personal guarantee.

[90] In those circumstances, I do not believe it would be inequitable to enter judgment for the plaintiffs without bringing to account any counterclaim Mr Henderson may have. Mr Henderson assumed liability as a principal debtor (“as the tenant”) under his guarantee, and the only possible counterclaim he has identified is effectively a claim of 3C. In those circumstances I see no reason why he should be in any better position than 3C would have been if it had been pursuing a claim for damages against the plaintiffs for breach of the quiet enjoyment covenant – because of the “without any deductions or set-off” provision, 3C would have been obliged to continue paying the rent and outgoings while its damages claim was litigated (or more likely arbitrated).

[91] The answer on issue (5) is accordingly “no”. No answer is required on issue

(4).

Issue (6) – Should an order be made that Mr Henderson is liable to the plaintiffs for losses incurred by them as a result of the liquidators’ disclaimer of the Victoria Street lease?

[92] I do not think such an order is appropriate at this stage, when the nature and extent of the plaintiffs’ losses is not fully known. There may or may not be

arguments of failure by the plaintiffs to mitigate their losses by putting in a new tenant promptly after the plaintiffs re-entered and, more generally, I doubt the utility of making the order sought without identifying at least the kinds of “losses” to which the indemnity would apply. Losses arising from the liquidators’ disclaimer are better left for trial.

Issue (7) – Did the repair work carried out in the period September 2014- November 2014 on the Victoria Street building (including the erection of the scaffolding near the entrance to the Victoria Street premises) cause or contribute to the failure of Molly Malones’ business?

Issue (8) – If the answer to issue (7) is “yes”, was Molly Malones entitled to set the amount of its loss off against rent and outgoings payable under the Courtenay Place lease?

[93] Mr Henderson has no reasonably arguable defence to the claims under the Courtenay Place lease on either of these bases. First, there is insufficient evidence of a causal relationship between the window repair work carried out on the Victoria Street building and the failure of Molly Malones’ business (issue 7). Mr Henderson has produced no evidence of the size of any cash injection Molly Malones may have required from 3C, whether 3C could have provided that cash if it had not been for the scaffolding issue at Victoria Street, or why Molly Malones could not have borrowed from other sources. I note too that Mr Henderson did not challenge the plaintiffs’ evidence that Molly Malones had been falling behind with rent payments long before the scaffolding went up on the Victoria Street building.

[94] Even if there were sufficient evidence to raise a reasonable argument on the causation question, there is nothing to suggest that Molly Malones and the plaintiffs intended that Molly Malones should have a right of set-off in respect of claims for economic loss suffered by it as a result of repair work being carried out by the plaintiffs on the Victoria Street building interfering with 3C’s ability to lend money to Molly Malones. There is no basis for the implication of such a term in the

_{Courtenay Place lease.}¹⁴ _{And I do not believe it is arguable for Mr Henderson that}

¹⁴ Such a term would not have been necessary to give business efficacy to the Courtenay Place lease, and there is nothing to suggest that the original parties to the Courtenay Place lease would have considered such a term obvious, so that it “went without saying”. Burrows, Finn and Todd

the plaintiffs owed a duty in tort to Molly Malones or Mr Henderson to protect Molly Malones from economic loss of that sort, when repairs to the Victoria Street building were expressly contemplated by the Victoria Street lease and the Victoria Street lease provided 3C with redress for any loss caused by repair or reinstatement work in the form of an abatement of a fair proportion of the rent and outgoings which would otherwise have been payable. In circumstances where the parties’ relationships (the plaintiffs vis-à -vis 3C, and the plaintiffs vis-à-vis Molly Malones) were carefully regulated by separate, detailed deeds of lease, I do not consider it reasonably arguable that, even if the plaintiffs were aware that Mr Henderson was managing both businesses as if they were one, the law would effectively “graft on” to one or both of the relevant deeds of lease additional obligations owed by the plaintiffs in tort to Molly Malones or Mr Henderson.

[95] Even if Mr Henderson could somehow surmount those obstacles, a claim by Molly Malones could not have been set off against the rent payable by it under the Courtenay Place lease – the “without any deductions or set-off” provision in the Courtenay Place lease precluded any such set-off.

[96] For those reasons, I consider that, even if the repair work at the Victoria Street premises did cause cash flow problems for Molly Malones, Molly Malones had no right to set off any losses arising from those cash flow problems against the rent and outgoings payable under the Courtenay Place lease. The answer to issue (8) is accordingly “no”. In light of that conclusion, there is no need for me to make any finding on issue (7).

Issues (9) – Did the plaintiffs act unreasonably, or otherwise in breach of their obligations under the Courtenay Place lease, in failing to provide written consent to the assignment of the Courtenay Place lease to Mr Wood?

Issue (10) – If the answer to issue (9) is “yes”, was Molly Malones entitled to set off any losses caused by the plaintiffs’ unreasonable actions and/or breaches, against the rent and outgoings payable under the Courtenay Place lease?

_{[97] I am not satisfied that Mr Henderson has an arguable case on these issues.}

Law of Contract in New Zealand (4^th ed, LexiNexis, Wellington, 2012) at 220, 223.

[98] First, clause 35 of the Courtenay Place lease does not appear to me to apply to negotiations for the surrender of the leasehold interest to the landlord, and s 226 of the Property Law Act 2007 (which provides that a lessor must not unreasonably withhold consent on receiving an application by the lessee “requesting the lessor’s consent to [among other things] transfer or assign the lease, enter into a sublease, or part with possession of the lease premises”), is concerned with the landlord’s function qua landlord in consenting to certain steps which the lessee wishes to take. It is not, in my view, concerned with consensual negotiations between lessor and lessee which would have the effect of bringing the lease to an end.

[99] Secondly, there is no evidence showing that Molly Malones complied with the conditions set out in s 35.1 of the Courtenay Place lease, in particular that it provided the plaintiffs with sufficient proof that Mr Wood or his nominee had the financial resources to meet the tenant’s commitments under the Courtenay Place lease, or that the shareholders of any company nominated by Mr Wood had those resources.¹⁵

[100] Thirdly, there is no evidence that Molly Malones ever had a binding agreement with any third party to take an assignment of the Courtenay Place lease, subject to the plaintiffs’ consent. Mr Henderson refers in his affidavit to having negotiated a purchase by Russell Wood or nominee, but he did not produce any copy of the agreement, nor any correspondence between Mr Wood and Molly Malones. He refers to an agreement for sale and purchase of a business “headline sheet dated

14 September 2014”, but the single page document which was attached consists only of the heading “AGREEMENT FOR SALE AND PURCHASE OF A BUSINESS; RUSSELL WOOD”, all appearing above what appears to be a price and the date 21

November 2014. Without evidence on the point, it is not possible to reconcile the 14

September 2014 date mentioned in the body of Mr Henderson’s affidavit with the 21

November 2014 date in the attachment.

[101] In circumstances where Mr Henderson was arguing that Molly Malones suffered substantial loss because of delays by the plaintiffs in giving consent to an

_{assignment, the existence of a willing assignee who met the requirements of cl 35 of}

¹⁵ Clause 35.1(a).

the Courtenay Place lease was clearly relevant. Yet Mr Henderson did not produce any reliable evidence to corroborate his contention that (but for the plaintiffs’ delays) Mr Wood or his nominee would have taken an assignment of the Courtenay Place lease.

[102] There are further unsatisfactory aspects of Mr Henderson’s evidence. From his letter dated 5 February 2015 to the plaintiffs’ solicitors, it appears that at the time of the meeting held on 2 October 2014, there was a potential buyer for both 3C’s and Molly Malones’ businesses. However Mr Henderson went on to say in his letter that the potential buyer for 3C’s business was “scared away” by the scaffolding issue, which he or she saw in the course of a visit to Wellington on 7 November 2014. Mr Henderson says that on 20 November 2014 the plaintiffs “finally consented” to an assignment, but it is not clear from his evidence whether that referred to an assignment to the same assignee who had earlier been “scared away”, or whether by

20 November 2014 there was a new prospective assignee.

[103] On all of these matters, I am of the view that Mr Henderson has really done no more than make bare assertions, unsupported by documents which presumably could have been produced, that the plaintiffs unreasonably delayed in giving their consent to an assignment (or in notifying Molly Malones that no such consent would be given).

[104] Mr Henderson may have been on stronger ground in alleging that the plaintiffs acted unreasonably in imposing on Molly Malones unreasonable conditions to the granting of consent to an assignment of the Courtenay Place lease. He refers, for example, to the plaintiffs’ demand for a bank bond in a sum equivalent to 12 months’ rent under the Courtenay Place lease. Under s 227(1)(a)(ii) of the Property Law Act 2007, a lessor’s consent to an assignment is deemed to have been unreasonably withheld if, as a condition of, or in relation to giving consent, the lessor –

...(ii) imposes on the lessee any unreasonable condition or pre-condition.

[105] The plaintiffs elected not to meet Mr Henderson’s allegations of unreasonable delay and/or imposing unreasonable terms directly. They filed no affidavits in reply.

At the hearing, Ms Consedine relied on cl 1.1 of the Courtenay Place lease, and in particular the obligation of Molly Malones to pay the rent without any deductions or set-off. She submitted that any claim Molly Malones might have had for damages arising from any unlawful behaviour by the plaintiffs in delaying the giving of their consent to an assignment, or imposing unreasonable conditions on a consent to the assignment, would have to have been brought by Molly Malones as a separate claim for damages. Such a claim could not have been set off against the rent payable under the Courtenay Place lease.

[106] I accept Ms Consedine’s submissions on this point. Clause 1.1 of the Courtenay Place lease obliged Molly Malones to continue paying the rent while arbitrating or litigating any claims for damages it may have had separately.

[107] That result is not affected by the provisions in the Property Law Act 2007 relating to unreasonable behaviour by landlords in delaying or withholding the granting of consents to assignments, or in imposing unreasonable conditions on those assignments. Section 228 provides that certain persons who suffer loss because of a lessor’s failure to comply with the obligations may recover damages from the lessor for such loss, but there is no provision in the Act for the person suffering the loss (if it is the lessee) to set its loss off against the rent payable under

the lease.¹⁶

[108] An additional point is that s 228 of the Property Law Act 2007 does not confer a right to sue on a guarantor of a lease: the persons entitled to sue for damages are the lessee, or “any assignee, sublessee, mortgagee, or person in possession of the leased premises”.

[109] Having regard to those considerations, I conclude in answer to the question posed at issue (10) that Molly Malones was not entitled to set off any losses caused by the plaintiffs unreasonably delaying their consent to an assignment of the Courtenay Place lease or imposing unreasonable conditions on such an assignment, against the rent and outgoings payable under the Courtenay Place lease. In those

_{circumstances, it is again unnecessary to answer the question posed by issue (9).}

¹⁶ Property Law Act 2007, s 228.

Issue (11) - Does Mr Henderson have a counterclaim against the plaintiffs arising out of (i) the repair work and the scaffolding issue affecting the Victoria Street premises; or (ii) any unreasonable actions or breaches of duty by the plaintiffs in respect of Molly Malones’ attempts in 2014 to assign the Courtenay Place lease?

Issue (12) – If Mr Henderson does have an arguable counterclaim on either of those bases, would it be inequitable or otherwise inappropriate to permit the plaintiffs to enforce the guarantee of the Courtenay Place lease against him without determining the counterclaims at the same time?

[110] Essentially for the same reasons as are set out under issues (4), (5), and (8), I do not consider that it would be inequitable or otherwise inappropriate to permit the plaintiffs to enforce Mr Henderson’s guarantee of the rent and outgoings payable under the Courtenay Place lease, without determining at the same time any counterclaims he might have. In my view, the clear intention of the “without any deductions or set-off” provision was that rent should be paid on the due date, with any cross-claims by the tenant to be arbitrated or litigated separately. I think that clear intention would be defeated if the plaintiffs were not permitted to enforce their right to recover the rent until such time as any counterclaims by Molly Malones or Mr Henderson had been resolved.

[111] I therefore conclude on issue (12) that it would not be inequitable or otherwise inappropriate to permit the plaintiffs to enforce Mr Henderson’s guarantee of the Courtenay Place lease without determining the counterclaims he asserts that he has. That conclusion applies equally whether the proposed counterclaim relates to the repair work and scaffolding issue affecting the Victoria Street premises, or to any allegedly unreasonable actions or breaches of duty by the plaintiffs in respect of Molly Malones’ attempts in 2014 to assign the Courtenay Place lease.

[112] My conclusion on issue (12) means that there is no need to make any findings on issue (11).

Issue (13) – Should an order be made that Mr Henderson is liable to the plaintiffs for losses incurred by them as a result of the liquidators’ disclaimer of the Courtenay Place lease?

[113] For the reasons set out in my answer to issue (6), I do not think such an order is appropriate at this stage.

Result

[114] I make the following orders:

(1) In proceeding CIV-2015-485-193, relating to the Victoria Street lease, there will be summary judgment for the plaintiffs against Mr Henderson in the sum of $48,886.01, being the total claimed for rent minus the sum of $43,237.34 representing the equivalent of two months’ rent under the Victoria Street lease. In addition, there will be summary judgment for the plaintiffs for interest on the monthly rent instalments which were payable on 1 January 2015 and

1 February 2015, calculated at the rate of 14 per cent per annum, running from those dates down to the date of this judgment. The total amount of the judgment for interest under this paragraph is $3,191.65.

(2) The application for summary judgment on the plaintiffs’ claim for an order that Mr Henderson is liable to indemnify the plaintiffs for all losses incurred as a result of the disclaimer of the Victoria Street lease is dismissed. That claim, and the plaintiffs’ claims for the two months’ rent referred to in subpara (1) above and any claims for interest on rent payments missed prior to 1 January 2015, are to go forward to trial in the ordinary way.

(3) In respect of proceeding CIV-2015-485-198, relating to the Courtenay Place lease, there will be judgment for the plaintiffs against Mr Henderson in the total sum of $124,822.29, being the total claimed for rent under the Courtenay Place lease to the end of February 2015. In addition, there will be summary judgment for the plaintiffs against Mr Henderson for interest at the rate of 12 per cent per annum on (i)

the shortfall in rent paid for November 2014 ($26,673.06, reduced to

$18,447.33 from 19 December 2014), calculated from

1 December 2014 down to the date of this judgment and (ii) the rent payments of $35,458.32 due on 1 December 2014, 1 January 2015 and 1 February 2015, calculated respectively from those dates down to the date of this judgment. The total amount of interest for which judgment is entered under this paragraph is $8,775.16.

(4) The application for summary judgment on the plaintiffs’ claim for an order that Mr Henderson is liable to indemnify the plaintiffs for all losses incurred as a result of the disclaimer of the Courtenay Place lease is dismissed. That claim, and any claims the plaintiffs may have for additional interest on the short-paid rent for November 2014, are to go forward to trial in the ordinary way.

_{(5) Costs are reserved on both summary judgment applications.}

Solicitors:

Morrison Kent, Wellington for the plaintiffs

E Henderson, Wellington in person

Associate Judge Smith