Liguori v Tai Shing Industries Limited [2004] NZCA 115 (1 July 2004)

IN THE COURT OF APPEAL OF NEW ZEALAND

CA240/03

BETWEEN ALFONSO LIGUORI
Appellant

AND TAI SHING INDUSTRIES LIMITED
Respondent

Hearing: 23 June 2004

Coram: Anderson P Hammond J William Young J

Appearances: R J Warburton for Appellant
G A Ireland for Respondent

Judgment: 1 July 2004

JUDGMENT OF THE COURT DELIVERED BY HAMMOND J

Introduction

[1] We have before us an appeal from a judgment of Associate Judge Sargisson delivered on 6 October 2003, allowing the respondent’s application for summary judgment against the appellant, Mr Liguori, for a sum of $57,634.25, being the rent owing to the respondent under a lease of which he was the guarantor, along with interest and costs.

Background

[2] In 1994 Tai Shing Industries leased part of its property in Hobson Street, Auckland to Gilmer Properties Limited. A deed of lease was entered into on 27 September 1994 between Tai Shing and Gilmer. The deed utilised an Auckland District Law Society standard Deed of Lease (3 ed, 1993). Mr Liguori was the guarantor. He covenanted in the terms set out in the Third Schedule to that lease.
[3] This lease was for a period of six years commencing on 1 August 1994, with a right of renewal for three years from 31 July 2000. The rent for the additional term was to be determined by agreement or, failing that, by a mechanism provided for under the lease.
[4] On 25 August 1998 the parties entered into a Deed of Surrender of the lease under which various claims for breach of the lease were waived, and part of the leased premises were removed from the scope of the lease. The parties acknowledged that the balance of the premises were held on the same terms as under the original lease, albeit that the rent was reduced to $46,000 plus GST per annum, plus $30 plus GST each for the lease of five carparks. Mr Liguori acknowledged that he remained liable as guarantor.
[5] On 3 May 2000 Gilmer gave notice to Tai Shing of its intention to renew the lease, but for a period of two years rather than the three years provided for in the lease. On 22 August 2000 Tai Shing’s solicitors accepted a renewal for the lesser period.
[6] Tai Shing also proposed an increased rental, based on a valuation it had obtained, of $68,000 plus GST and $35 plus GST for the carparks. Gilmer rejected that offer.
[7] There were then communications between the parties, but no agreement was reached until, allegedly, 7 August 2001. Mr Lo, Tai Shing’s property manager, asserts that on that date an oral agreement was reached that the lease would be renewed retrospectively from 1 August 2000, for a term of three years. The rental was to remain as stated in the original lease until the end of 2001, from which point it would be increased, in stages. Documents were prepared by Tai Shing’s advisers, but were not executed. Throughout this period, Gilmer remained in occupation and paid rent intermittently at the rate specified under the original lease.
[8] On 30 November 2002 Tai Shing resumed possession of the property, after serving a Notice of Intention to Re-Enter on Gilmer. Assuming that the higher rent said to be agreed on 7 August 2001 was owing, the amount of rent outstanding was $63,226.31. If, on the other hand, the higher rent was not payable the amount outstanding was $57,634.25.

The High Court proceedings

[9] Tai Shing initiated proceedings against Mr Liguori as guarantor. It sought summary judgment. Gilmer was not named as a defendant, and has not been joined into the proceedings.
[10] Tai Shing’s primary submission in the High Court was that Mr Liguori remained bound as guarantor under the lease as renewed in accordance with the oral agreement of 7 August 2001. Accordingly judgment of $63,226.31 was sought. Alternatively, Tai Shing submitted that even if the lease was not renewed, Mr Liguori remained liable, albeit only to pay rental at the original rate, under the holding-over provision in the lease (clause 38) which provided:

If the Landlord permits the Tenant to remain in occupation of the premises after the expiration of the premises after the expiration or sooner determination of the term, such occupation shall be a monthly tenancy only terminable by one month’s written notice at the rent then payable and otherwise on the same covenants and agreements (so far as applicable to a monthly tenancy) as herein expressed or implied.

[11] Mr Liguori’s counsel submitted that the lease was not renewed but nor had a monthly tenancy under clause 38 commenced. It was argued that the correct position was that there had been a monthly tenancy under s105 of the Property Law Act 1975, which provides:

No tenancy from year to year shall be created or implied by payment of rent; and if there is a tenancy it shall be deemed in the absence of proof to the contrary to be a tenancy determinable at the will of either of the parties by one month’s notice in writing.

[12] For Mr Liguori it was submitted that his liability as guarantor came to an end with the expiry of the fixed term lease. It was also sought to raise a number of claims by way of set-off, relating to allegedly serious leaks in the roof of the property. These included $9,675 for maintenance and roof repair which it was said the landlord was obliged to fix; and $70,000 for losses resulting from Gilmer’s inability to lease one half of the premises from 1 August 2000 to 30 November 2002.
[13] The Associate Judge accepted that the lease was not validly renewed. Notice was not given in accordance with the terms of the lease (which required three months notice); and in any case was in the nature of a counter offer in that it asked for a two year term. In the negotiations that followed, no agreement was concluded.
[14] The Associate Judge further concluded that there was clear evidence of a holding over in terms of clause 38 of the lease. Section 105 applied only in the absence of proof to the contrary. The mere proposal to increase the rent was not evidence of a new agreement for tenancy. Gilmer had not accepted the proposal and had continued to pay rent in accordance with the original lease. The Associate Judge referred to a decision of a decision of Paterson J in Maccaulay v Wesley College Trust Board (19 July 1999) HC AK AP25-SW99 (which related to the same standard form clause). There the Judge had held that the effect of clause 38 was to render the guarantor liable for rent after the expiry of the term of the lease.
[15] On the set-off point, the Associate Judge took the view that Mr Liguori had failed to establish an arguable defence of set-off. In relation to the claim for loss of rent, Mr Liguori had been unable to point to any provision in the lease which would entitle either himself or Gilmer to claim against Tai Shing. In any case any such claim was not so linked as to be interdependent with Tai Shing’s claim or to mean judgment could not fairly be given on it. The Associate Judge was prepared to accept that Gilmer may have an arguable claim in relation to the roof repairs, for it was for a relatively small sum and would not justify refusing summary judgment. But even if it had a claim, it had been slow to pursue it and Mr Liguori’s affidavit in support of it lacked particularity. Further, even if Gilmer had provided sufficient evidence to succeed, any loss would have been borne by it and not Mr Liguori. Mr Liguori had not established any basis on which an alleged set-off could be raised.

The appellant’s submissions

[16] The appeal amounts to a rerun of the arguments in the High Court.
[17] First, it is said that the Associate Judge erred in holding that Mr Liguori had no arguable defence under s105 of the Property Law Act. Mr Warburton argued that, having maintained that the rent payable increased from 1 January 2002 in accordance with an earlier oral agreement, it is not now open to Tai Shing to now claim that it did not. It is said that there is only a holding over under clause 38 while the rent being paid is that payable at the termination of the term. As soon as the rent increases, the tenancy becomes a monthly tenancy under s105 of the Property Law Act. The rent claimed up to 31 December 2001 was $25,737.66 and Gilmer’s payments to Tai Shing exceeded that sum.
[18] The second ground of appeal is that the Associate Judge erred in holding that the alleged losses caused by the leaking roof were borne by Gilmer, and that Mr Liguori had not established any basis on which an alleged set-off would vest in him. Counsel relied on the decision of this Court in Grant v New Zealand Motor Corporation [1989] 1 NZLR 8 (CA). In that case, the appellants, who were shareholders and directors of a company, were entitled to set-off losses suffered by the company as their shareholding had reduced in value. It is said that Mr Liguori, as shareholder and director of Gilmer, is similarly entitled.

The respondent’s submissions

[19] On the first ground of appeal, Mr Ireland argued that the position of the appellant is entirely contradictory. Mr Liguori’s position was that Gilmer had never accepted a renewal, including the obligation to pay increased rent. If that contention was correct, then, as the Associate Judge held, the applicable rent was that payable when the lease expired. Clause 38 applied, and the continued obligation to pay rent remained subject to the guarantee in the lease.
[20] On the second ground of appeal it was argued that a set-off can only be maintained if there is identity of parties (Hamilton Ice Arena Ltd v Perry Developments Ltd [2002] 1 NZLR 309 (CA)); and a guarantor is not able to rely on a set-off that the principal debtor may have without joining the principal debtor to the proceedings. Mr Ireland argued that Grant v NZMC is distinguishable because the lease was in the personal name of the shareholders and not in the name of the company. Then it was submitted that the Associate Judge had also ruled against Mr Liguori on the merits of his proposed claim, and that there was ample evidence on which the Associate Judge could have received that view.

Discussion

[21] On the first ground of appeal, clause 38 of the lease is determinative. The landlord permitted the tenant to remain in occupation of the premises after the expiration of the term and no statutory tenancy was created by continued occupation. The only possible issue is whether the parties had agreed to a new lease or a renewal of the original lease. A renewal is determined on the usual objective basis. It is quite irrelevant whether one party believed there to be a renewal or a new lease; without more it could not possibly alter the existing legal situation arising between the parties. The Associate Judge held, on the facts, that there was no such agreement. This finding is not challenged on appeal, and there was evidence on which the Associate Judge could have come to the view she did. This ground of appeal fails accordingly.
[22] On the set-off point, the Associate Judge had distinct concerns, on the facts, with Mr Liguori’s claims. There were undoubtedly some leaks in the roof. Some of these leaks predated the deed of surrender. The landlord replaced the roof in the year 2000 at a cost of some $30,000. There were some minor leaks after the roof was replaced, and Tai Shing agreed to pay for some minor reinstatement damage if the cost exceeded $3,000. There was evidence from Tai Shing that there was never any complaint by Mr Liguori about further leaking. The lease expired on 31 July 2000. If the leaks were of the order of seriousness suggested by Mr Liguori he could have vacated the premises, but he chose to stay on. In short, on the facts, Mr Liguori failed to satisfy the Judge there was a proper factual basis for the counter claim. There was evidence before the Associate Judge on which she could have reached that view, and we are not disposed to interfere with that factual determination.
[23] It is also distinctly arguable that the sums associated with the fixing of the leaks cannot be set-off, as being excluded by clause 1.1 which required all rent to be paid “without any deductions ...”. This is a matter which was not apparently addressed in the High Court.
[24] For completeness, we note that the entry of summary judgment does not prevent Mr Liguori from pursuing any claim he may have against Tai Shing. And apparently both the lessee and Mr Liguori have taken proceedings in the Auckland District Court.

Conclusion

[25] In the result, the appeal is dismissed. The respondent will have costs in this Court of $3,000 together with disbursements (to include the reasonable travel and accommodation costs of counsel). If counsel are unable to agree on those disbursements, they are to be fixed by the Registrar.

Solicitors:
Warburton, Auckland for Appellant
Milne Ireland Walker, Auckland for Respondent