Kung v DVD Advance Limited [2018] NZHC 3319 (14 December 2018)

Last Updated: 21 December 2018

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE

CIV-2018-412-000081 [2018] NZHC 3319

BETWEEN	MARIE KUNG Plaintiff
AND	DVD ADVANCE LIMITED First Defendant
AND	DANIEL MARK FERGUSON Second Defendant

Hearing:	21 November 2018
Appearances:	L A Andersen for Plaintiff C J G Lucas for Defendants
Judgment:	14 December 2018

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

[1] Ms Kung owns a property at 735 Great King Street, Dunedin. On or about 18 November 2013 the first defendant (DVD), which operated a DVD rental business, entered an agreement to lease the premises from her. The agreement was signed for DVD by the second defendant (Mr Ferguson) who is its sole director. He also signed the document adjacent to the words “Gauranteed (sic) by DANIEL FERGUSON”. In this judgment, this document is referred to as the agreement to lease.

[2] It is common ground that neither DVD nor Mr Ferguson has paid all the rent or outgoings provided for in the agreement to lease. Ms Kung sues DVD as tenant and Mr Ferguson as guarantor. She claims rent and outgoings up to December 2016, with interest.

KUNG v DVD ADVANCE LTD [2018] NZHC 3319 [14 December 2018]

[3] DVD accepts liability for unpaid rent and outgoings up to 23 May 2016. It says the lease ended on that date as the premises became uninhabitable due to a flood caused by a blocked drain. DVD, therefore, denies liability for any rent or outgoings after that date. Mr Ferguson denies liability altogether.

[4] Ms Kung applies for summary judgment.

Principles applicable to summary judgment

[5] Rule 12.2 of the High Court Rules provides that the Court may give judgment against a defendant if a plaintiff satisfies the Court that the defendant has no defence to its claim. The onus of establishing this position is on the plaintiff. The Court must be left without any real doubt or uncertainty on this point.¹

[6] As a general rule, the Court considering a summary judgment application will not attempt to resolve genuine conflicts of evidence or assess the credibility of statements made by the parties in their affidavits. However, it is also established that the Court is not prevented by this principle from rejecting spurious defences or plainly contrived factual conflicts on the evidence. The position is summarised this way in Attorney-General v Rakiura Holdings Ltd:²

In a matter such as this it would not be normal for a judge to attempt to resolve any conflicts in evidence contained in affidavits or to assess the credibility or plausibility of averments in them. On the other hand, in the words of Lord Diplock in Eng Mee Yong v Letchumanan,³ the Judge is not 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 by the same deponent, or inherently improbable in itself it may be.

[7] It is established that the Court may take a robust approach to summary judgment applications. Affidavits must have an aura of credibility.⁴

¹ Pemberton v Chappell [1986] NZCA 112; [1987] 1 NZLR 1 (CA) at 4.

² Attorney-General v Rakiura Holdings Ltd (1986) 1 PRNZ 12 (HC) at 14.

³ Eng Mee Yong v Letchumanan [1980] AC 331 at 341 E.

⁴ Bilbie Dymock Corporation Ltd v Patel & Bajaj (1987) 1 PRNZ 84 (CA) at 85-86.

The agreement to lease

[8] The agreement to lease was signed on a printed form approved by the Auckland District Law Society and the Real Estate Institute of New Zealand and is described as Fifth Edition 2012. On the first page it provides a space for the name of the landlord which has been filled in in handwriting “Marie Kung”. There is a further space for the name of a tenant and that is filled in in handwriting with “DVD Advance Ltd”. The printed form does not contain a space for the name of a guarantor.

[9] The agreement then provides for a lease for a term from the commencement date at an annual rental both of which are set out in the first schedule. It states that the landlord and the tenant agree as set out in the second schedule. It then has two printed provisions for signing, one by the landlord and one by the tenant. The names of these parties are written adjacent to these spaces, and signatures appear nearby. Below that is the handwritten entry in relation to a guarantee described earlier.

[10] The first schedule sets out the basic provisions of the lease including the premises, the term (three years), commencement date (2 December 2013), rights of renewal, expiry date, rent, rent review dates and the proportion of outgoings to be borne by the tenant. It provides for a business use of “retail” and a default interest rate of 14 per cent per annum. There is no reference to a guarantee in this schedule.

[11] This is followed by a definition of outgoings, then a second schedule. This schedule contains 12 provisions. Two are in issue in this case:

4. The Tenant shall enter into a formal lease with the Landlord to be prepared by the Landlord’s solicitor at the cost of the Tenant, the lease covenants to be no more onerous than those contained in the Auckland District Law Society Commercial Lease Form 3^rd Edition 1993 (“ADLS Lease Form”). Any dispute as to the lease covenants shall be determined by the nominee of the President of the District Law Society of the district in which the premises are situated, acting as an expert and not as an arbitrator.

...

6. Where the Tenant is a company and if the Landlord so requires, the Tenant shall arrange for its shareholders to guarantee the obligations of the Tenant.

[12] Clause 6 contains the only reference to a guarantee in the second schedule.

[13] The solicitors for Ms Kung prepared a Deed of Lease on the Sixth Edition 2012 of the Auckland District Law Society Commercial Lease Form and submitted it to a solicitor nominated by Mr Ferguson to act on DVD’s behalf. This document was not signed, despite a number of reminders being sent during 2014 and 2015. It provided for Mr Ferguson to be a guarantor and set out the terms of his guarantee in the third schedule. This is the document which Ms Kung maintains complies with the description of a formal lease in paragraph 4 of the second schedule of the agreement to lease.

The issues

[14] There are two issues to be decided:

1. Has Ms Kung established to the requisite standard for the entry of summary judgment that DVD is liable for rent outgoings and interest from 23 May 2016 to the end of the term of the agreement to lease on 2 December 2016?

2. Has Ms Kung established to the requisite standard for the entry of summary judgment that Mr Ferguson is a guarantor of the liability of DVD in respect of unpaid rent, outgoings and interest on unpaid sums?

First issue: liability for rent and outgoings from 23 May 2016 to 2 December 2016

[15] It is common ground that at May 2016 DVD was well in arrears with rent and outgoings, and had not paid any interest on overdue instalments of either. I return to the amount owing as at that date later in this judgment.

[16] In an affidavit sworn in opposition to this application Mr Ferguson says that Ms Kung was aware at the beginning of the lease that DVD rental businesses were in decline, because an outlet called Video Ezy had closed and DVD was taking over the business of United Video which previously operated from Ms Kung’s premises.
[17] Mr Ferguson says that late in 2015 he rang Ms Kung and explained to her that whilst he would continue to do his best, it looked as if DVD was now unlikely to be able to meet all its obligations. He discussed the possibility that DVD might hold a pre-Christmas sale and then close late in December 2015. Mr Ferguson recalls that this did not surprise Ms Kung, who told him that she knew things were hard and that she had let Video Ezy out of its lease, owing her lots of money. Mr Ferguson says that at Ms Kung’s suggestion he agreed that DVD would stay on for as long as it could, and would assist her in trying to find a new tenant. He agreed to a For Lease sign being placed on the property. DVD continued to occupy the premises until 23 May 2016 when sales of DVDs were halted by a flood. It sold off remaining stock, repaid a bank loan and, according to Mr Ferguson, used the surplus to make final payments to Ms Kung. He says she agreed that the store should close and that neither DVD nor Mr Ferguson would be liable for any rent or outgoings beyond the closure date. On that date she retook possession of the premises and the tenancy came to an end.

[18] However, that is not as Ms Kung recalls events. She says that she thought it would help DVD and Mr Ferguson if another tenant was located and that is why a For Lease sign was put up on the premises. She says there was never any suggestion that DVD or Mr Ferguson would be released from their obligations, and they did not discuss let alone agree that neither DVD nor Mr Ferguson would be liable for rent and outgoings beyond the closure date. She says she did not give any indication to that effect, and nor was it suggested by Mr Ferguson at any time during the time of the lease. According to Ms Kung, the first time she learned of Mr Ferguson’s claim that there was an agreement that less than the total rent was payable was when she considered his affidavit in this case. She describes this contention as completely untrue.

[19] Clearly, there is a direct and significant conflict in the evidence. As a general rule, this cannot be resolved when evidence is given by affidavits.

[20] Aspects of Mr Ferguson’s affidavit give the Court concern. He contends that he was not asked to give a guarantee, yet his signature appears next to words indicating his guarantee on the agreement to lease. He says that he “never heard anything further about signing a lease”, yet lease documents were sent to the solicitor that he nominated
to act, and reminders were sent to that solicitor on numerous occasions. This evidence was not, of course, tested in cross-examination and it may be established at trial that despite signing the agreement twice, including next to words “Gauranteed by DANIEL FERGUSON”, Mr Ferguson did not know he was signing a guarantee. Equally it may be established at trial that his nominated solicitor failed to advise him not only of the arrival of the documents for signature, but also of every one of the reminders that was sent to him. The unlikelihood of these contentions by Mr Ferguson being true might reflect adversely on his version of discussions with Ms Kung. In the end, however, I have decided that liability for the period from 23 May 2016 to 2 December 2016 is an issue for resolution at trial and cannot be resolved on the basis of affidavits alone.

[21] It follows that the Court will not enter summary judgment in respect of rent outgoings or interest for any period after 23 May 2016.

Second issue: is Mr Ferguson liable as a guarantor?

[22] The case as pleaded for Ms Kung is that by signing the front page of the agreement as guarantor Mr Ferguson became liable for the obligations of DVD which are set out in that agreement. Mr Andersen presented argument based on the proposition that there was an obligation on Mr Ferguson to execute the formal guarantee contained in the Deed of Lease submitted to his solicitors. On the principle that equity would be regarded as having been done that which should have been done, Mr Andersen submits Mr Ferguson was liable notwithstanding the fact that he had not signed the guarantee. Alternatively, Mr Andersen says that Mr Ferguson is liable as guarantor of the terms in the agreement to lease itself by virtue of his having signed that document as guarantor.

[23] The principal thrust of the argument presented for Mr Ferguson is that the terms of the proposed lease are not sufficiently certain, and therefore the obligations which were to be guaranteed, are insufficiently certain for the guarantee to be enforced.

[24] Mr Lucas for Mr Ferguson also says that the Court cannot entertain the first of Mr Andersen’s arguments on an application for summary judgment as it is not pleaded. He noted the observation of Duffy J in Westpac New Zealand Ltd v Cooper to the
effect that a statement of claim in a summary judgment application should provide the Court and the defendant with a road map which sets out the essential elements of the plaintiff’s claim.⁵ He notes that the statement of claim specifically pleads reliance on the agreement to lease as founding liability.

[25] Mr Lucas also argues that Mr Ferguson cannot be liable as the only reference to a guarantee in the agreement, apart from his signature on the first page, is in clause 6, which requires the shareholders of DVD to guarantee the obligations of the company. He notes that Mr D R Ferguson is also a shareholder as well as the defendant Mr D M Ferguson, so on the principle in Kolmar Investments Ltd v R Hannah & Co Ltd,⁶ Mr Ferguson is not bound until all shareholders have signed a guarantee document.

[26] Finally, Mr Lucas argues that the requirements of s 27 of the Property Law Act 2007 are not satisfied. This section requires that a contract of guarantee must be in writing, and signed by the guarantor. He says that there is no contract of guarantee satisfying this section in this case.

Discussion

[27] Both counsel referred to four cases on liability under guarantees in circumstances similar, at least in some respects, to the circumstances in this case. The first is Honk Land Ltd v Featherston.⁷ In 2001 an agreement to lease was entered between GMO Trust Ltd as landlord and Risk Management Services Ltd as tenant. The words “Guarantor Dennis John Featherston” were added to the standard form and Mr Featherston signed as guarantor. Although the agreement is not produced in full in the first judgment of the Court, clause 6 of the agreement is, and it is in identical terms to clause 6 of the agreement in the present case.

[28] Further, it was provided that an ADLS Lease form would be executed, but no formal lease or guarantee document was ever signed.

⁵ Westpac New Zealand Ltd v Cooper [2010] NZHC 16; (2010) 20 PRNZ 568 (HC) at [32].

⁶ Kolmar Investments Ltd v R Hannah & Co Ltd HC Auckland CIV-2002-404-1861, 5 June 2003.

⁷ Honk Land Ltd v Featherston (2006) 7 NZCPR 805 (HC).

[29] The initial term of the lease was six months, but the tenant did not vacate at the end of six months. It remained in occupation until November 2002 when Honk Land re-entered the premises for failure to pay rent and outgoings. In issue was liability for the period beyond six months.

[30] Honk Land Ltd sued the tenant and Mr Featherston as guarantor in the District Court for outstanding rent and outgoings. Summary judgment was entered for monies that were payable during the six month term of the lease, but the claim for rent and outgoings after the expiration of the first six months was dismissed. Honk Land appealed. As recorded by Frater J, by reference to the District Court Judge:

[21] He rejected the appellant’s argument that the terms of the ADLS lease form were incorporated into the agreement to lease by virtue of cl 4, preferring the submission made on behalf of Mr Featherston that the alleged agreement to guarantee was void for uncertainty as there was no statement as to what was actually guaranteed. He considered that at most, there was an agreement to guarantee. The agreement to lease did not stipulate the precise terms of the deed of lease. It simply stated the most onerous form that could be required. The landlord still needed to produce a deed of lease for perusal by the tenant, followed by negotiation and, if necessary, the settlement of any disagreement by an independent expert. He said that until the landlord elected which covenants were to become part of the formal deed of lease and submitted a draft deed for perusal, there was no certainty as to what the terms of the lease, and therefore the guarantee, would have been.

[31] Frater J dismissed an appeal against this judgment, on the basis that there was not a sufficient degree of certainty about the terms of the lease or other obligations to which the guarantee attached. On that basis she found that the principle in Walsh v Lonsdale by which an equitable lease may be enforced by the courts, was not applicable.⁸ She noted that in Bradley West Solicitors Nominees Ltd v Keeman, the terms of the mortgage were not in dispute.⁹ She said that in both Inglis v Clarence Holdings Ltd,¹⁰ and Moredo v Sintau Ltd,¹¹ the terms of the lease were clearly those set out in the standard ADLS form. In Lucky Red 8 Ltd v Kiwi Property Holdings Ltd,¹² the terms and conditions of the lease were annexed to the agreement to lease.

⁸ Walsh v Lonsdale [1882] 21 ChD 9.

⁹ Bradley West Solicitors Nominees Ltd v Keeman [1994] 2 NZLR 111 (HC).

¹⁰ Inglis v Clarence Holdings Ltd [1997] 1 NZLR 268 (CA).

¹¹ Moredo v Sintau Ltd (2002) 4 NZ ConvC 193,625 (HC).

12. Lucky Red 8 Ltd v Kiwi Property Holdings Ltd HC Hamilton CIV-2005-419-920, 9 November 2005.

In these cases specific performance of agreement was ordered on the Walsh v Lonsdale
principle. Her Honour then continued:

[47] In this case, in contrast, the only certainty was about the most onerous terms on which the parties might have continued the lease after the expiry of the fixed term. If put under pressure, Risk Management might well have executed an agreement in the terms specified. Equally there may have been changes.

[48] It is all very well to say, as Mr Stanley did, that it is not necessary to take a technical approach as Mr Featherston agreed to guarantee “the tenant’s obligations”. But those obligations had to be clearly defined and, in this case, they were not.

[49] Until the lease was settled in final form, there could be no certainty. If Mr Featherston is to be believed, the premises changed, as did the rental arrangements. We know the worse case scenario, but not the best.

[50] In the absence of certainty as to the contractual obligations to be enforced specific performance could not have been ordered. Nor given the ambiguity and doubt about the terms of the guarantee, could the appellant possibly succeed in its claim against Mr Featherston for any debt incurred by Risk Management after 7 April 2002.

[32] Accordingly, the appeal was dismissed.

[33] Honk Land Ltd applied for leave to appeal to the Court of Appeal.¹³ Lang J recorded, first, Mr Featherston’s execution of the agreement to lease and the terms of clauses 4 and 6 of the second schedule which are identical to those in the present case. He noted that notwithstanding the fact that this document required the parties to subsequently execute a formal lease document, the agreement to lease contained a provision stating that the agreement was a binding contract. His Honour then said:

[23] As a result, it is plain that the agreement amounted to a binding contract for the lease of the premises for a period of six months. Notwithstanding the failure of the parties to execute a formal lease, I have no doubt that the agreement could have been enforced against both Mr Fetherston and his company in respect of obligations arising under the lease during that six- month period.

[34] This decision is precisely in point in the present case. The balance of the judgment of Lang J is directed at whether or not liability could be imposed in relation

¹³ Honk Land Ltd v Fetherston HC Auckland (2007) AP-2005-404-7019, 30 April 2007.

to the period following the expiration of the term of the lease which Mr Featherston said he had not guaranteed. In respect of this, Lang J said:

[28] The primary issue to be determined in both the District Court and on appeal was therefore whether the agreement to lease incorporated the terms of the ADLS lease. If it did, Mr Fetherston’s guarantee would extend to any period of holding over by virtue of Clause 38. If it did not, the guarantee would not survive the expiry of the original term prescribed by the agreement to lease.

[35] His Honour went on to find that the terms of the Deed of Lease which might have been entered by the parties after signing the agreement to lease were uncertain. His Honour said:

[45] In my view, however, the wording of clause 4 is plain and unambiguous. It provides that the tenant shall enter a formal lease with the landlord and that the covenants in the lease are to be no more onerous than those contained in the ADLS standard form of lease. The agreement does not purport to provide that the terms of the lease will be those in the ADLS lease. It says only that the covenants of the formal lease will be “no more onerous” than those contained in the ADLS standard form lease. It follows that the covenants of the formal lease could differ from those in the ADLS lease in that they could be less onerous than those in that document. A lease that omitted clause 38 would obviously fall into this category.

[46] In my view the wording of clause 4 meant that it was necessary in the present case for the parties to reach agreement regarding the precise terms of the formal lease ...

[36] His Honour continued:

[47] The parties to the lease arrangement in the present case therefore never agreed upon the terms of the formal lease. They did no more than agree that the terms of any such lease could not be more onerous than those contained in the ADLS standard form. A lease document that excluded liability on the part of the guarantor after the expiry of the term of the lease remained, in theory at least, a possible outcome. For this reason I agree with both Judge McElrea and Frater J that the terms of the formal lease remained uncertain and the appellant could not establish that the terms of the ADLS 3rd Edition commercial lease were incorporated within the agreement to lease.

[37] To the extent that Ms Kung places any reliance on the terms of the lease submitted by her solicitors to Mr Ferguson’s solicitors, she cannot succeed, on the basis of the two judgments of this Court in Honk Land. However, Ms Kung relies expressly on the terms of the agreement to lease. In Honk Land judgment was entered in the District Court against Mr Featherston on the basis of liability being established for the six month term of the lease recorded in the agreement to lease in that case.
That liability was not challenged on appeal, and was the subject of the observation by Lang J at [23] of his judgment, recorded above.

[38] Mr Lucas relied on the judgment of Simon France J in Regan v Brougham.¹⁴ The document in issue in this case was the ADLS term loan agreement form. This cited a lender and a borrower together with “Guarantor(s): Rachael Christina Dey and Bryce Brougham”. Mr Brougham signed as guarantor.

[39] The document contained an obligation to repay the loan to which it related and then provided, as a condition precedent to the making of an advance, as follows:

Before we can make the first advance to you under this contract:

(a) ...

(b) ...

(c) If any person is named in this agreement as a guarantor, the guarantor must have signed a deed of guarantee and indemnity in the form required by us and the conditions precedent to the acceptance of that guarantee (if any) must have been completed to our satisfaction.

[40] The Court found that although Mr Brougham had signed the agreement as guarantor he was not liable. Simon France J said:¹⁵

The Agreement clearly contemplates that any guarantee will be found in a separate contract. Consistent with this, and unlike for both the borrower and any covenantor, there are no operative clauses within the document imposing any obligation at all on a guarantor. Nowhere it is said what the guarantor is agreeing to, nor when that obligation might arise. I acknowledge that with a simple term loan arrangement the nature and extent of a guarantor’s obligations may be easy to infer, but one would still expect clarity around matters such as when the guarantee will be triggered and what notice is required. Further, I do not accept that a consumer protection requirement such as s 27 of the Property Law Act 2007, which requires that a guarantee contract be in writing, is met by a document which merely describes a person as a guarantor, and which is then signed by the guarantor. The essential terms of a guarantee contract must in writing and here they are not.

[41] Thus the learned Judge concluded that the agreement itself was not a contract of guarantee. He went on to record that he did not accept that by signing as guarantor the signatory could be taken to be covenanting that he would sign a deed of guarantee.

¹⁴ Regan v Brougham [2017] NZHC 1091.

¹⁵ At [25].

[42] The Court of Appeal has granted leave to appeal the judgment of France J in Regan v Brougham. Although the judgment of the Court of Appeal is not available yet, the judgment granting leave contains this passage:

In particular we note that the loan agreement was a standard ADLS form and therefore its construction is a matter of general importance. We note too the existence of previous authority – not cited to Simon France J – which is held when a person signs a loan agreement as guarantor he or she can be taken as agreeing to guarantee something and that in the absence of words of limitation, the natural and only reasonable inference is that they are agreeing to guarantee all the obligations of the principal debtor contained in the document. Further, the issue of whether and when equity can be invoked to overcome the effects of non-compliance with s 27 is a novel one.

The Court did not identify the authority referred to, but one case is Bradley West Solicitors Nominee Company Ltd v Keeman to which I refer below.¹⁶

[43] The application of s 27 of the Property Law Act was examined in Chambers v Chatfield.¹⁷ This case also concerned an agreement to lease containing a covenant to execute a Deed of Lease, but the agreement also contained a covenant to enter into a guarantee, unlike the present case which does not include such a covenant.

[44] The case commenced in the District Court, which applied Inglis v Clarence Holdings Ltd.¹⁸ In that case, in the original agreement to lease, there was also an obligation on named covenantors to sign a guarantee, and that agreement was signed by the covenantors. The intended Deed of Lease, containing the terms of the guarantee, was annexed to the agreement to lease. The guarantors were found liable. The District Court Judge applied this case and found that the guarantee before him was enforceable.

[45] In the High Court Edwards J reviewed the decision in Inglis, noting that the Court of Appeal said:¹⁹

As is well established, on the principle that equity will regard as having been done that which should have been done, an agreement to lease on stated terms and conditions will be treated as having been performed so as to enable

¹⁶ Bradley West Solicitors Nominee Company Ltd v Keeman [1994] 2 NZLR 111.

¹⁷ Chambers v Chatfield & Hancock [2016] NZHC 1871, (2016) 10 NZBLC 99-723.

¹⁸ Inglis v Clarence Holdings Ltd, above n 10.

¹⁹ At 272.

enforcement of the terms of the lease if the agreement is one which would be specifically enforced.

[46] Thus the Court of Appeal found the guarantors liable under the principle in Walsh v Lonsdale.²⁰ The terms of the guarantee were sufficiently clear as both the lessee’s obligations, and the guarantor’s obligations, were actually annexed to the original agreement. This is not the position in this case, nor is there an obligation on Mr Ferguson in the agreement to later provide a guarantee of the foreshadowed lease.

[47] In Chambers v Chatfield it was argued that the guarantee was not enforceable in the terms annexed to the agreement, as that guarantee had not been executed and therefore there had not been compliance with s 27 of the Property Law Act. The Court found that as Mr Chambers had not only agreed to enter into a deed incorporating certain terms of a guarantee, but appeared to have either signed it or at the very least accepted that he was bound by its terms, it would be inequitable for him to now use s 27 to escape liability on the grounds that a signed deed can no longer be found. Edwards J said:

[50] It is beyond argument that s 27 of the PLA changed the law as it relates to enforceability of guarantees. But I do not consider any of those changes mean that specific performance of the Agreement to Lease would not be granted in this case. None of the policy considerations behind the changes reflected in s 27 of the PLA are engaged in this case. This is not a case about an oral guarantee, or part performance being relied on to prove the existence of a guarantee. There is no uncertainty in the terms of the guarantee as it is clearly set out in the Deed itself.

[51] Specific performance of the covenant is consistent with the requirements of s 27 in my view ...

[48] The present case differs. On the pleadings Ms Kung seeks to enforce the guarantee, as she argues it to be, in the original agreement. On the authority of Chambers v Chatfield, and Honk Land, there would be real difficulty in the way of Ms Kung enforcing a guarantee in the terms set out in the Deed of Lease submitted to Mr Ferguson’s solicitors. There is insufficient certainty in the agreement to lease of the terms of a guarantee to be incorporated in a Deed of Lease (or separate document). The sufficient certainty found in Inglis is not present. The principle in Walsh v Lonsdale could not be applied. It is unnecessary to consider, therefore, whether the

²⁰ Walsh v Lonsdale, above n 8.

decision of Edwards J in Chambers in relation to s 27 of the Property Law Act should be applied. As Ms Kung’s case is pleaded on the basis of liability arising under the agreement for lease, the terms of that document alone are those which might be considered to constitute a guarantee, and that document is signed by Mr Ferguson.

[49] In Bradley West Solicitors Nominee Company Ltd v Keeman, Tipping J discussed a variation of mortgage document signed by four persons next to the word “Guarantors”. It also contained a clause saying those persons had executed the document as guarantors. No other terms of guarantee were included in the document. His Honour said:²¹

The document as a document either constitutes a valid guarantee or it does not.

The question becomes whether the document itself evidences with sufficient clarity an intention on the part of the purchasers to guarantee the nominee company mortgage.

[50] The agreement in the present case is, in my opinion, able to be construed as an agreement between both landlord and tenant on specific and clear terms, and Ms Kung relies only on those terms in her proceeding. Correctly, in my view, DVD does not submit that it is not liable under the agreement (subject only to the argument about when the agreement came to an end, discussed earlier). In virtually identical circumstances the District Court and the High Court had no difficulty in finding in Honk Land that the signing of a materially identical document to that in the present case by Mr Featherson was sufficient to found liability against him as guarantor for the terms of the lease recorded in that document.

[51] As the guarantee liability arises from Mr Ferguson signing the agreement as guarantor, and not under clause 6 which refers to shareholders of DVD, the principle in Kolmar Investments v R Hannah & Co Ltd does not apply.²² Rather, in terms of Bradley West, the agreement itself evidences a sufficiently clear intention to guarantee the obligations of DVD.

²¹ Bradley West Solicitors Nominee Company Ltd v Keeman [1994] 2 NZLR 111 at 116.

²² Kolmar Investments v R Hannah & Co Ltd, above n 6.

[52] The guarantee is signed by Mr Ferguson. As in Honk Land, the terms are contained within the agreement. There is therefore compliance with s 27 of the Property Law Act.

[53] The agreement provides:

DEFAULT INTEREST RATE: (subclause 5.1 of the Lease) 14% per annum.

[54] The words in brackets refer to a clause in “the Lease”. Clause 4 requires DVD to enter a “formal lease” and for “the lease covenants to be no more onerous than those contained in the Auckland District Law Society Commercial Lease Form 3^rd edition 1993. Annexed to the agreement is a copy of the sixth edition 2012 of this form. It contains a clause 5.1 which provides for payment of interest at the default interest rate on unpaid moneys from the due date to the date of payment. In my view the reference in the agreement to clause 5.1 neither adds to nor detracts from the plain meaning in the agreement that interest is payable at 14% if there is “default”. This can only mean default in payment of sums due under the agreement.

[55] For these reasons I find that Ms Kung has established that Mr Ferguson does not have a defence to her claim against him as guarantor under the agreement to lease for rent, outgoings, and interest as set out in that agreement.

Quantum

[56] The consequence of this judgment is that both DVD and Mr Ferguson as guarantor are liable to Ms Kung for rent, outgoings and interest at the contractual rate, 14 per cent, up until the date the premises were vacated, 23 May 2016.

[57] Ms Kung produced a schedule to her affidavit, and in the text of her affidavit drew from that schedule figures for rent, interest and outgoings up to the end of the lease in December together with interest on an ongoing basis. She did not expressly give evidence on the figure said to be owing at 23 May 2016, nor was there evidence from the author of the schedule.

[58] The schedule is in the form of a spreadsheet with liability for rent, outgoings and interest calculated on a month-by-month basis, so figures are shown for May 2016.
Mr Ferguson did not give evidence on quantum either, but Mr Lucas said that as far as he could tell the schedule did not apportion the month of May 2016 to 23 May, and that appears to be correct.

[59] Mr Andersen endeavoured to explain the schedule to me, but I was initially unable to draw any conclusion from the evidence before the Court of the amount owing at 23 May. I therefore invited counsel to agree a figure for quantum.

[60] Counsel were unable to agree on figures. This resulted in each counsel filing a memorandum.

[61] Mr Lucas says that the defendants have reviewed the plaintiff’s calculations of the amount said to be owing at 23 May and do not agree with it. Mr Lucas says that DVD made one further payment of $4,695.83 which has not been credited. Mr Andersen agrees this payment was made, and has allowed for it in the calculations which he now presents to the Court.

[62] I have considered the schedule and the material put before me by counsel and have reached a conclusion in relation to quantum. It is now clear to me from the spreadsheet that as at 30 April 2016 the sum owing for rent was $32,870.83. This is the sum shown at that date on the spreadsheet less the missed payment of $4,695.83, referred to above.

[63] I am also satisfied that the monthly rental commitment of $4,695.83 can be apportioned on a daily basis for 23 days from 1 May to 23 May, which amounts to
$3,484. Of this, $2,695.83 was paid, so the amount owing to 23 May is $788.17. This means the total as at 23 May for rent is $33,659.

[64] The spreadsheet also shows that an insurance premium of $2,928.62, due in July 2015, remained unpaid as at 23 May 2016. Therefore, leaving aside interest, both of the defendants owed $36,587.62 as at 23 May 2016.
[65] Despite Mr Andersen’s additional explanation in his memorandum I remain unable to follow the calculation of interest in the spreadsheet. I decline to award any interest by way of summary judgment.

Outcome

[66] The outcome is as follows:

(a) Summary judgment is entered in favour of Ms Kung against DVD in the sum of $36,587.62, and on liability for interest at 14% on unpaid sums from the date they fell due, to the date of judgment on quantum of interest.

(b) Summary judgment is entered in favour of Ms Kung against Mr Ferguson in the sum of $36,587.62, and on liability for interest at 14% on unpaid sums from the date they fell due, to the date of judgment on quantum of interest.

(c) The application for summary judgment in relation to the quantum of interest is dismissed.

(d) Ms Kung has been successful on the majority of her claim. She is entitled to one award of costs against both defendants on a 2B basis plus disbursements, fixed if necessary by the Registrar.

[67] As the case remains on foot in relation to quantification of Ms Kung’s claim for interest it is adjourned to the List in Dunedin on 7 February 2019 for review, unless earlier discontinued.





J G Matthews Associate Judge

Solicitors:

Albert Alloo & Sons, Dunedin

Counsel: L A Andersen, Barrister, Dunedin Lucas & Lucas, Dunedin