Luxottica Retail New Zealand Limited v Shynday International Limited
[2012] NZHC 162
•20 March 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV2010-404-005667 [2012] NZHC 162
BETWEEN LUXOTTICA RETAIL NEW ZEALAND LIMITED
Plaintiff
ANDSHYNDAY INTERNATIONAL LIMITED First Defendant
ANDWENJIANG XU Second Defendant
Hearing: 13 - 15 February 2012
Appearances: I Thain and C Clayton for Plaintiff
W Xu (in person) for First and Second Defendants
Judgment: 20 March 2012
RESERVED JUDGMENT OF WOOLFORD J
This judgment was delivered by me on Tuesday, 20 March 2012 at 1:00 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
Mr I Thain and Miss C Clayton, DLA Phillips Fox, Auckland.
Copy to:
Mr W Xu
LUXOTTICA RETAIL NEW ZEALAND LIMITED V SHYNDAY INTERNATIONAL LIMITED & OR HC AK CIV 2010-404-005667 [20 March 2012]
Introduction
[1] Unit 3, 112 Stoddard Road, Mt Roskill, Auckland (the premises) was subleased by the plaintiff, Luxottica Retail New Zealand Limited (Luxottica), to the first defendant, Shynday International Limited (Shynday), with effect from 1 March
2005. The second defendant, Mr Xu, who is a director and shareholder of Shynday, guaranteed all Shynday’s obligations under the sublease.
[2] The term of the sublease was from 1 March 2005 to 30 October 2010. On
8 August 2007, Luxottica peaceably re-entered the premises and cancelled the sublease on the grounds that Shynday was in arrears of rent and outgoings and had failed to provide a bank guarantee in accordance with the terms of the sublease.
[3] Despite considerable efforts, Luxottica was unable to re-sublease the premises between 8 August 2007 and 30 October 2010. Luxottica has brought this claim against Shynday, and Mr Xu as guarantor, for unpaid reinstatement costs and damages for loss of rent and outgoings for the period after cancellation of the sublease. Luxottica claims rent of $875,547.28 and outgoings of $101,615.33 less the amount of $6,750.00 received from a short licence to occupy in August 2009 together with reinstatement costs of $15,259.36.
Factual background
[4] On 7 May 2002 OPSS Limited as tenant entered into a deed of lease with the Keith McGregor Trust and the John McGregor Trust (the head landlord) to lease the premises at Unit 3, 112 Stoddard Road, Mt Roskill, Auckland. The term of the lease was from 1 November 2000 to 31 October 2010. The lease was in the Auckland District Law Society form (3rd ed) with some modifications.
[5] On 5 January 2005 OPSS Limited, Budget Eyewear Limited and the head landlord entered into a deed of assignment and variation pursuant to which OPSS Limited assigned its interest and obligations as tenant under the head lease to Budget Eyewear Limited and the head landlord agreed to vary the permitted business use of
the premises under the head lease to include manufacturing in accordance with any necessary consents or approvals from the Auckland City Council.
[6] On 14 September 2005 Budget Eyewear Limited changed its name to OPSM Group Limited. On 31 October 2007 OPSM Group Limited, Luxottica Retail New Zealand Limited and Pomposa Enterprises Limited amalgamated and changed their name to Luxottica Retail New Zealand Limited. Upon amalgamation the property, rights, powers and privileges of OPSM Group Limited became the property, rights, powers and privileges of the plaintiff (as the amalgamated company) pursuant to s
225 of the Companies Act 1993. I shall refer to Luxottica Retail New Zealand
Limited and all its predecessor companies as Luxottica.
[7] In early 2005 Luxottica advertised the premises for sublease. In February
2005 Shynday expressed an interest in taking a sublease of the premises. Shynday’s business was manufacturing and installing custom kitchens, vanities and wardrobes. The head landlord asked to inspect Shynday’s premises at Penrose and evaluate its working methods as part of its consideration of whether to consent to the sublease.
[8] Mr Keith McGregor, one of the trustees of the Keith McGregor Trust, together with the head landlord’s agent, Mr Fergus Thomson, visited Shynday’s premises in Penrose in February 2005.
[9] On 22 February 2005 Mr Thomson advised Luxottica that the head landlord would consent to a sublease of the premises to Shynday on condition that Shynday’s operations include adequate dust management equipment and disposal methods for the timber panel cutting as well as slurry management and disposal methods for the granite cutting, which must all be in accordance with regulations and not be detrimental to the buildings and site.
[10] By agreement to sublease dated 16 March 2005, but effective from 1 March
2005, Luxottica agreed to lease the premises to Shynday. Mr Xu entered into the agreement as guarantor of all of Shynday’s obligations under the sublease. Shynday also agreed to enter into a formal deed of sublease following execution of the
agreement to sublease. On 1 February 2007, Luxottica, Shynday and Mr Xu entered into a deed of sublease.
[11] The sublease provided that the term of the sublease was from 1 March 2005 to 30 October 2010. The annual rental was $220,205 plus GST payable in equal monthly instalments in advance, which matched the rent payable under the head lease. Shynday was also to pay 100% of the outgoings payable by Luxottica under the head lease.
[12] On 21 November 2006 the head landlord advised Luxottica that the rent would be increased to $252,410 plus GST in accordance with its valuer’s assessment of the new market rent. Luxottica advised Shynday of the increased market rent. Shynday did not dispute the rent review. The increased rent was applicable from
1 November 2006 in accordance with the rent review clause under the sublease.
[13] On signing the agreement to sublease, Shynday was also to deposit with
Luxottica a bank guarantee for the amount of three months rent. This it never did.
[14] The permitted business use of the premises was described in the sublease as follows:
Administration office, warehousing, manufacturing, storage, retail showroom in accordance with any necessary consents or approvals from Auckland City Council.
[15] In accordance with the conditions imposed by the head landlord for its consent to the sublease, the sublease required the first defendant to:
“ensure that adequate dust management equipment and disposal methods (timber panel cutting) and adequate slurry management and disposal methods (granite cutting) comply at all times with all statutes, regulations and bylaws and ensure that such equipment and methods were not detrimental to the Premises, the buildings or the property.”
Issues at trial
[16] Mr Xu helpfully provided the Court with a written summary of the defence on behalf of Shynday and himself in his closing submissions. The issues for determination can therefore be summarised as follows:
(a) Did the head landlord and/or Luxottica prevent Shynday from using a granite slurry disposal system in breach of the terms of the sublease?
(b)Did the head landlord conduct an excessive number of inspections of the premises thereby breaching Shynday’s right to quiet enjoyment of the premises as provided for in the sublease?
(c) Did Luxottica have a duty to try and resolve the granite slurry issue between the head landlord and Shynday and, if so, did they fail in that duty?
(d)Was the agreement, entered into between Luxottica and Shynday subsequent to the termination of the lease, in full and final settlement of all claims between the parties?
Granite slurry disposal system
[17] When granite is cut, water is used to cool the blade of the cutting machine as well as the granite. The water combines with granite dust to form a slurry, which needs to be disposed of properly.
[18] As noted above, the sublease required Shynday to have an adequate slurry management and disposal method which complied at all times with any applicable regulations and to ensure that such methods were not detrimental to the buildings or the property. Mr Xu maintains that, because representatives of the head landlord had visited Shynday’s previous premises in Penrose prior to granting consent, the head landlord had agreed that Shynday could use the premises at Stoddard Road to carry out the same manufacturing process as in Penrose. Mr Xu says that in Penrose
Shynday had cut small gutters in the concrete floor to collect the granite slurry. He says that Shynday should have been allowed to use the same process in the premises at Stoddard Road.
[19] Mr Xu points to the evidence given by Mr McGregor at trial in which Mr McGregor confirms that he, on behalf of the head landlord, refused permission to cut holes in the floor. He stated:[1]
[1] Notes of evidence at 18, lines 19 – 24.
Q. Do you remember that, Mr McGregor?
A. I do, yes and I think we refused in cutting a hole in the floor because the structure of the building, the floor was actually hold[ing] the building together, they got steel and wire in them, and you just don’t go cutting a hole in the floor. For one, all the water and slurry softens the ground underneath and things then start to move, the floor starts to move. You don’t do those sort of things. That’s why it was refused.
[20] Mr Xu says that because of this refusal, Shynday had to look for premises elsewhere where the granite cutting could take place. Such refusal is also said to be a breach of the terms of the sublease, although Mr Xu does not specify what term or terms were actually breached.
[21] Although the head landlord was undoubtedly reluctant to allow Shynday to cut holes or gutters in the floor, there is subsequent correspondence between the parties which clarifies the issue. Following a meeting between Mr Xu, Mr McGregor and Mr Thomson, Mr Thomson wrote a letter dated 23 January 2006 to Shynday in the following terms:
Thank you for meeting with Keith McGregor and myself on Friday. As promised we have summarised below the points raised with you, and added some others that became evident on our inspection of the premises.
1. Granite cutting – the by product, (slurry) from the granite cutting operation is discharging onto the factory floor, seeping through the adjacent walls, and running out of doors into the yards. In addition to the possible OSH related issues this creates, there is damage being caused to the building (specifically the bottom sections of the walls), the discharge has discoloured and degraded yard areas and it can potentially enter the local storm water systems and waterways.
While we understand the levels of granite cutting may reduce, we draw your attention to the fact that managing the effects of this was a specific requirement of our agreement to sub-lease to Shynday, and to date there is neither evidence of a reasonable solution to manage this in place, nor an attempt to mitigate the detrimental effects.
We acknowledge your enquiry about the possibility of digging a pit as part of a solution. We would not unreasonably withhold our approval for any proper plan if provided with a complete proposal incorporating all elements including the disposal of the residual waste. A request for permission to dig a pit alone is difficult to approve without the whole picture. Obviously there would need to be compliance with any Council requirements as well [as] acknowledgement of your reinstatement obligations as part of any approval.
Mr Thomson requested that this matter be addressed and resolved by 28 February
2006.
[22] So whatever Mr McGregor may have said to Mr Xu at the meeting, the letter confirmed that the head landlord would not unreasonably withhold approval for any proper plan, which inferentially may have included cutting holes in the floor. This is consistent with clause 22.1 of the head lease (imported into the deed of sublease by clause 12.2 of the sublease), which provided that the tenant was not to make any alterations to the premises without first producing to the head landlord plans and specifications and obtaining the written consent of the head landlord (not to be unreasonably or arbitrarily withheld) for that purpose.
[23] On 20 February 2006, Mr Xu wrote on Shynday’s behalf to Mr Thomson as follows:
1.We will solve the problem based on several points which list below: (see attached plan)
Build an upstand surrounded granite cutting machinery to prevent water spread, and this is no damage for the concrete floor.
Build a removal water tank near the machinery and use the pump to get out of the polluted water.
Build another removable water tank to filtrate the polluted water and collect the purified water in order to recycle.
[24] Mr Xu attached a diagram with the letter showing the granite cutting machine in an upstand which would collect water from the machine together with two adjacent tanks and two pumps. One of the tanks would contain water and slurry and the other tank would contain clean water. The plan was entitled “Proposal plan for Granite cutting water recirculat”.
Thank you for your fax dated 20 February outlining the progress you are making and your intentions to resolve the outstanding issues.
We look forward to hearing from you soon to inspect the measures you are putting in place, once all matters have been completed.
[26] Shynday did not, however, install the granite slurry disposal system set out in the diagram or indeed any other disposal system. Four months later, on 26 June
2006, Mr Thomson wrote to Shynday as follows:
2. Outstanding “Condition of Lease” matters:
We remain disappointed with the lack of resolution to the granite cutting slurry issue. Despite your assurances, on recent inspections we still observe slurry flowing from the building contaminating the yards and storm water systems, as well as continuing to degrade the building structure.
As we have now exhausted our co-operative reserves on this matter we will now direct the issue on to the head leasee [sic], the Luxottica (OPSM) Group, for resolution.
[27] Shynday’s office manager, Shirley Wang, replied to Mr Thomson by letter dated 7 July 2006 as follows:
We have been considering the issues of stone manufacturing and timber cutting, Lacquer painting since the first time we heard from Jayka Partnership. We’ve been searching a compromising way that would alleviate the concerns. On the 20 April 2006, in a meeting with you and Mr McGregor, we stated that we were going to get a new factory in terms of solving your concern as well as developing our company.
I am pleased to inform you that we’ve found a factory in New Lynn where most of our production line will be relocated to. The lease was started from
1 June 2006, and we’ve already started moving some of the stock there since
then.
Our plan is shifting the stone part, Lacquer painting part, some of the carpentering part to the new factory premise. We still would like to keep some of the carpentering processes in our premise on Stoddard Road.
...
We do not believe that we have ignored the granite cutting slurry issue. We’ve been looking for an alternative solution so that everybody will be happy with its result. As mentioned regarding Item One, the stone department will be relocated to our new factory in New Lynn. It is very difficult to set an exact date when this is going to be completed by, however, please be patient with us while we undertake this large project and it is going to happen in a very near future. I will keep you posted on the developments.
[28] On 17 July 2006, Luxottica wrote to Shynday:
In respect of the proposed relocation of the granite cutting operation to your New Lynn site please advise of your timetable to complete the transfer of this part of your operations.
...
In respect of your additional location at New Lynn would you please advise us of your long term plans. Is it your intention to remain at the Mt Roskill site for the balance of the lease? You are reminded of your obligations under the sub lease.
[29] On 12 September 2006, Shynday’s office manager replied as follows:
We are working towards shutting down our Stoddard Road granite cutting and lacquer finish painting process by the end of November 2006.
Since we are establishing a new production line at the New Lynn factory, it may take some time to complete commissioning where we are satisfied and confident of smooth operation when it takes over all granite cutting and
Lacquer finish painting for our company. We plan to keep the granite cutting and lacquer finishing painting in Stoddard road premises while testing thenew production line at the New Lynn factory until it’s all running smoothly.
...
The additional premises in New Lynn is part of our expansion, and we have no plans to shift from the Mt Roskill premises. I can assure you that if anything changes we will be contact with you in advance.
[30] Shynday then fell into arrears with its rental payments. In response to an email dated 20 December 2006 from Luxottica’s accounts receivable supervisor, Shynday’s office manager emailed Luxottica as follows:
I am writing in regards to our outstanding property rental payment. As we have mentioned to OPSM before, the landlord does not permit us to do painting and granite manufacturing in Mt Roskill factory. Also we were given several warnings from current landlord and have been warned if we do so, they shall report us to city council and cease our manufacturing. This shall cause us a big problem. Under this force and pressure, we have to rent another factory space to do the painting and granite jobs but use current space as showroom and warehouse. Therefore we start to find and discuss a new factory lease since July 2006. Owing to some unexpected issues has been arised during the rent and lease discussion, we eventually signed the lease contract and shall start to use the new factory in early December.
[31] This appears to be the first time that Shynday advised Luxottica that they had been forced to rent other premises and relocate the granite cutting business because of the head landlord’s refusal to allow them to continue granite cutting at the premises. This allegation was repeated in the following months before Luxottica re- entered the premises and cancelled the sublease in August 2007. Shynday’s allegation is not, however, consistent with the earlier correspondence between the parties, in particular, Shynday’s letters of 7 July 2006 and 12 September 2006 in which Shynday told Luxottica that the additional premises were part of its expansion and that it had no plans to shift from the premises at Stoddard Road.
[32] It is also inconsistent with the evidence of Mr McGregor who stated when questioned at trial:[2]
[2] Notes of evidence at 16, lines 19 – 28.
QOkay, I just want to confirm with you, you did ask me, “If you keep working like that, I will report to the Council, your production gonna stop.”
Did that happen or not?
A Say that again so I can just?
QYou know the – because the water run to the back yard, and you call me, we meet together. Did you remember you say, you know, we
have to stop cutting stone like that, otherwise going to report to the
council and gonna stop production?
A No, I did not say that. I did not say I’d report it to the Council,
definitely not.
[33] I accept Mr McGregor’s evidence on the point. There is no evidence to the contrary. Shynday did not call any evidence. But I also accept that the possible intervention of the Auckland City Council may have been mentioned in a conversation between Mr McGregor and Mr Xu. The head landlord was keen to see the granite slurry disposal issue resolved. In that context Mr McGregor may well have said to Mr Xu that the Council might be interested in the problem if it was unresolved, given that the Council had powers to shut down businesses which were polluting waterways. If that was the case, it was entirely proper of Mr McGregor to advise Mr Xu of the risks faced by Shynday in failing to implement a granite slurry
disposal system.
[34] In my opinion, the actions of the head landlord in attempting to secure Shynday’s compliance with the requirement in the sublease to have an adequate granite slurry disposal system in place were also entirely appropriate. On any objective analysis of the evidence, it did not force Shynday from the premises. The correspondence between the parties makes it clear that the head landlord remained willing to consider any reasonable granite slurry disposal system and had indeed approved the proposal put forward by Shynday in its letter of 20 February 2006. The approval by the head landlord of Shynday as a sublessee did not extend to the approval of a particular granite slurry disposal system at the premises in Stoddard Road as alleged by Mr Xu. The terms of the sublease were therefore in my view not breached by the head landlord or by Luxottica.
Inspections of the premises
[35] Mr Xu maintains that the head landlord conducted an excessive number of inspections of the premises thereby breaching Shynday’s rights to quiet enjoyment of the premises. During the course of the defendants’ cross-examination of Mr McGregor, it was put to him by Mr Xu that he had undertaken eight inspections of the premises during the two years that Shynday was a sublessee. Mr McGregor recalled at least five of those inspections but could not recall the other three inspections put to him. Mr McGregor explained that he was the Managing Director of Heat Treatments Ltd, a company owned by the head landlord, which operated out of a building adjacent to the premises. Mr Thomson was the General Manager of Heat Treatments Ltd and it was Mr Thomson who was responsible for the day-to-day management of the leasing of the premises on behalf of the head landlord. Because they worked nearby, the continuing problem of the granite slurry was obvious to both him and Mr Thomson.
[36] Under the head lease, the head landlord had a right of inspection. The head landlord was entitled at all reasonable times, they having given reasonable notice, to enter on the premises to view their condition. Clause 10.1.5 of the deed of sublease provided that the provisions of the head lease permitting the head landlord to take certain actions in relation to the premises (by way of example, the right to enter and
inspect) applied to the sublease but permitted both the head landlord and the plaintiff to take such action in relation to the premises.
[37] Mr Xu maintains that the number of inspections over the two year period was excessive, which impacted on their normal daily business. He says that he and his staff were annoyed by them. He also says that the majority of the inspections were conducted without formal notification. No evidence was however led by Shynday in relation to any business disruption caused by the inspections or how the lack of formal notification impacted on the business. Without such evidence, I cannot reach any other conclusion than that the number of inspections was not excessive, especially because of the continuing problems of the granite slurry disposal. It would have been quite obvious to the head landlord when slurry was escaping from the premises into the yard. Luxottica and the head landlord did not, accordingly, breach Shynday’s right to quiet enjoyment under the sublease.
Failure of the plaintiff to try and resolve the granite slurry issue
[38] As noted above, the head landlord wrote to Shynday on 23 January 2006, asking that the granite slurry issue be resolved by 28 February 2006. This was followed by a letter dated 30 January 2006 from Luxottica to Shynday as follows:
The Head Lessor has provided me with a copy of the letter it has recently sent to you highlighting a number of non-compliance issues.
The matters raised are of significant concern to the Head Lessor and I would appreciate your guarantee that all of the issues raised will be addressed by the end of next month as requested.
[39] Mr Thomson, on behalf of the head landlord, wrote again to Shynday by letter dated 16 February 2006, noting that Shynday had not replied to its letter of
23 January 2006 requesting action by the end of February 2006. This was copied to
Luxottica. The accompanying email stated:
I can only say that the McGregors’ are very unimpressed with the situation
and won’t live with status quo!
[40] Mr Xu says that from the time when Mr Thomson advised Luxottica about issues with Shynday, all Luxottica did was forward the letter from Mr Thomson to
Shynday without doing anything more. Then on 27 June 2006, Mr Thomson advised
Luxottica that:
Our patience with the tenant has now run out. We request that you place them on notice with immediate effect, and in the absence of you making any progress on all the outstanding matters, we will need to seek advice on our best course of action.
[41] Mr Xu says that there is no evidence that Luxottica, as the landlord, tried to resolve the issue that Shynday had with the head landlord. He maintains that Luxottica had an obligation to help Shynday solve the issue but notes that during the four months (February – June 2006) when relations between Shynday and the head landlord became tense, Luxottica simply sent Shynday an invoice and nothing else. Mr Xu notes that Shynday did not have a direct contractual relationship with the head landlord and maintains that if Luxottica had been on side they could have resolved the problem regarding the head landlord’s refusal to approve an appropriate granite slurry disposal system.
[42] Mr Xu cannot however point to any legal obligation on the part of Luxottica to take an active role in the negotiations between Shynday and the head landlord regarding the granite slurry disposal issue. It seems to me that Shynday had an obligation to put a system in place. Shynday had proposed a system involving an upstand and two tanks, which had been approved by the head landlord, but had not implemented it. It may be the case that there was a misunderstanding between Mr Xu and the head landlord. Mr Xu’s English is not good. Any misunderstanding may also have been cleared up through the involvement of another party such as Luxottica, but Luxottica had no obligation to actually involve itself in the discussion between Mr Xu and the head landlord. Luxottica had no duty to try and resolve the granite slurry issue on behalf of Shynday.
Agreement following termination of sublease
[43] The major issue in the case is the effect of an agreement entered into by the parties subsequent to the termination of the lease. Was it in full and final settlement of all claims between the parties? More particularly, did Luxottica agree to forgo
loss of bargain damages in exchange for the payment by Shynday to the plaintiff of a sum equivalent to one month’s rental?
[44] Shynday initiated the agreement by emailing the plaintiff on 9 August 2007, the day after Luxottica re-entered the premises and terminated the lease, in the following terms:
The preferred way is to negotiate a feasible method to terminate the rental agreement between us before it is due. We suggest some solutions as below for your consideration.
1.Clear the outstanding balance left on our account by 4 instalments within 4 weeks.
2. Stop using the premise starting from 8th August 2007.
3.Pay another one month rents for the compensation of terminating the agreement before it is due except existing outstanding balance.
4. Move two kitchens out when making the first payment (These two
Kitchens are ready for being installed).
5. Move all stuff out when all outstanding payment is cleared.
We will pay all our efforts to raise the funds to clear the outstanding balance. However, if we cannot reach an agreement on terminating the rental agreement before it is due, this matter will only be more deteriorated. I look forward to hearing from your positive response soon.
[45] Luxottica responded on 10 August 2007 as follows:
Thank you for your letter of 9 August 2007.
As you know, we terminated your sublease because of a number of defaults. They included non-payment of rent, outgoings and rental adjustments amounting to $113,300.38, which is presently overdue and owing and for which we have the immediate right to begin court proceedings against you.
To deal with the principal of the arrears of rent, outgoings and rental adjustments, we will agree to the suggestion in your letter on the following terms:
1. You pay the arrears of rent, outgoings and rental adjustments of
$113,330.38 by four weekly instalments of $28,325. As we have not received a payment from you since 28 July 2007, the first instalment must be paid by 5pm on 13 August 2007. The other three instalments must be paid by 5pm on 20 August 2007, 27 August
2007 and 3 September 2007.
2.You pay us a further $23,663.44, being the equivalent of one month’s rent as was payable under the deed of sublease. This must be paid by 5pm on 10 September 2007.
3.We will give you access to the premises to remove the two kitchens you have advised are ready to be installed upon receipt of the first
instalment of $28,325 on 13 August 2007.
4.We will give you access to the premises to remove your remaining property once you have paid the total amounts set out in items 1 and
2 above by 10 September 2007.
If you make the payment set out items 1 and 2 above within the specified timeframes, then without prejudice to any other rights, we won’t sue you immediately for the arrears of rent, outgoings and rental adjustments.
Michael, please confirm Shynday International Limited’s agreement to the terms outlined in this letter by signing the attached copy of it and returning that complete signed copy of this letter to us by email (mark.shaw- [email protected]) or by facsimile (+61 2 9815 2344).
We look forward to hearing from you.
[46] Mr Xu signed a copy of the letter dated 10 August 2007 on behalf of Shynday under the words “We agree to the terms set out in this letter” and returned it to Luxottica. The agreement was complete at that point.
[47] By letter dated 13 August 2007 Shynday requested access to the premises until the end of September 2007 to use the space as a clearance shop to sell most of its office furniture and all its display stock. In an e-mail response on the same day, Luxottica advised Shynday that it could not agree to allow Shynday to use the premises “as a clearance shop”. Luxottica stated:
Should you pay all the agreed amounts earlier we will consider varying the agreement to allow you to remove more goods. However until such time we reserve our rights under the agreement dated 10 August 2007.
[48] The next day, 14 August 2007, Mr Xu e-mailed Luxottica:
Thanks for your prompt reply. We have moved two kitchens out yesterday afternoon under Mr Steve’s supervision. Now I am expressing my intention to pay off the outstanding balance and terminate the sublease by 3rd of September (Monday). Mike, I want to pay off another three payments in lump sum with total amount of $84,975 as soon as I can, hopefully by the end of this week. Then, I think that the stock clearance can be started immediately after you confirm the payment. Would you like to exempt the September’s rent of $23,664 as agreed on 10th August if we pass the property to you on 3rd of September (Monday)? If so, I will end of stock clearance on
2nd September and tidy up the property after that.
I am sorry for bothering you again and look forward to hearing from you soon.
[49] On 15 August 2007 Luxottica responded by way of a further letter as follows:
Thank you for your e-mail of 14 August 2007.
We will agree to allow you to conduct a clearance sale from Unit 3, 112
Stoddard Road, Mt Roskill, Auckland on the following terms:
1. You pay the arrears of rent, outgoings and rental adjustments of
$84,975.38 early and in one lump sum, by 5pm on 17 August 2007 rather than only within the timeframes required by our agreement dated 10 August 2007.
2.You pay the further $23,663.44 early and in one lump sum, by 5pm on 24 August 2007 rather than only within the timeframe required by
our agreement dated 10 August 2007.
3. We will grant you a licence to occupy the premises from 25 August
2007 to 14 September 2007 solely for the purposes of selling your remaining property located in the premises, provided you have paid
the total amount set out in items 1 and 2 above by 24 August 2007.
Michael, please confirm Shynday International’s Limited’s agreement to the terms outlined in this letter by signing the attached copy of it and returning that complete signed copy of this letter to us by e-mail (mark.shaw- [email protected]) or by facsimile (+61 2 9815 2344).
If you do agree to the terms in this letter then we can discuss and make arrangements for your access to the premises for the clearance sale from 25
August 2007.
Look forward to hearing from you.
[50] On 17 August 2007, Mr Xu e-mailed Luxottica saying he was still having difficulties raising funds. He said he would therefore still comply with the terms agreed on 10 August 2007 and would make the second payment of $28,325 on the following Monday.
[51] On 21 August 2007 Mr Xu again e-mailed Luxottica as follows:
Further to our yesterday’s conversation on the phone, I am now writing regards to our next step’s payment schedule. After two payments, we are still having the arrears of rent of $56,650.38 plus a further $23,663.44 being the equivalent of one month’s rent. Therefore, the total amount we need to pay will be $80,313.82. According to my current financial and funds situation, I would like to pay off the arrears of rent $56,650.38 today before
5pm but leave another one month rent $23,663.44 which will be paid by 10th
September 5pm. I am always trying to raise enough funds to clear all balance these days but still having kinds of difficulties. After a big effort, I
can’t raise enough funds to pay off the total balance of $103,977.26 today
but can pay the arrears of rent first. I believe the funds will be collected via stock sell and other approaches because many old customer, some of them
are builders, expressed their intention to buy our stock kitchen and other
stuffs and still waiting for our notice to visit. Also, it really brings you and
Mr Steven a lot of inconvenience to open the door for us again and again.
Therefore I am now request a start to stock clearance once you got today’s payment. The following is our payment and stock sale schedule.
Pay off arrears of rent $56,650.38 by 21st August 5pm.
Stock clearance starting from 22nd August to 16th September (Sunday). Pay off $23,663.44, being the equivalent of one month’s rent by 10th
September 5pm.
Remove all remaining property in 3/112 Stoddard Road starting on 17th
September. This may last for 1 week.
Tidy up office and manufactory starting on 24th September.
Please consider my suggestions and look forward to hearing from you soon.
[52] On 22 August 2007 Luxottica replied as follows:
Thank you for e-mail of 21 August 2007.
We will agree to allow you to conduct a clearance sale from Unit 3, 112
Stoddard Road, Mt Roskill, Auckland on the following terms:
1. You pay the arrears of rent, outgoings and rental adjustments of
$56,650.38 early and in one lump sum by 5pm on 23 August 2007 rather than only within the timeframes required by our agreement
dated 10 August 2007.
2.You pay the further $23,663.44 early and in one lump sum by 5pm on 7 September 2007 rather than only within the timeframe required
by our agreement dated 10 August 2007.
3. We will grant you a licence to occupy the premises from 25 August
2007 to 5pm on 14 September 2007 (“the Licence Period”) solely for
the purpose of selling your remaining property located in the premises, provided you have paid the total amount set out in item 1
by 5pm on 23 August 2007.
4.For the avoidance of any doubt, you may not under any circumstances use the premises during the Licence Period for any purpose other than the purpose set out in item 3.
5.For the avoidance of any doubt, you may not under any circumstances remove any manufacturing equipment currently
attached to the premises during the Licence Period until you have paid the total amounts set out in item 2 by 5pm on 7 September
2007.
6. If you do not pay the total amounts set out in item 2 by 5pm on 7
September 2007, we will terminate the licence immediately without giving you notice of such termination. If we terminate the licence
we will give you access to the premises to remove your remaining
property provided you have paid the total amount set out in item 2 by 5pm on 14 September 2007.
7. Before the licence has come to an end, you will “tidy up” the
premises by removing all your fixtures and fittings (except for the manufacturing equipment currently attached to the premises which cannot be removed from the premises until you pay the amount set
out in item 2 by 5pm on 7 September 2007) making good all resulting damage and reinstating the premises in respect of all additions and alterations previously made.
Michael, please confirm Shynday International Limited’s agreement to the terms outlined in this letter by signing the attached copy of it and returning that completed signed copy of this letter to us by e-mail (mark.shaw- [email protected]) or by facsimile (+61 2 9815 2344).
If you do agree to the terms in this letter we can discuss and make arrangements for your access to the premises for the clearance sale from 25
August 2007.
We look forward to hearing from you.
[53] Mr Xu signed a copy of the letter dated 22 August 2007 on behalf of Shynday under the words “We agree to the terms set out in this letter,” and returned it to Luxottica. The initial agreement made on 10 August 2007 was accordingly amended by the letter dated 22 August 2007.
[54] Shynday did not call any evidence but it is apparent from the questions asked by Mr Xu of Luxottica’s witnesses that Mr Xu did not obtain any legal advice on the effect of the agreement reached with Luxottica. It is also apparent that Mr Xu may have thought that the agreement was in full and final settlement of any claims that Luxottica may have against the Shynday under the sublease.
[55] I am of the opinion, however, that one party’s subjective belief cannot dictate the proper interpretation of the agreement. As stated by Tipping J in Vector Gas Ltd v Bay of Plenty Energy Ltd:[3]
[20] Although subjective evidence would be relevant if a subjective approach were taken to interpretation issues, the common law has consistently eschewed that approach. The common law focuses strongly on the agreement in its final form as representing the ultimate consensus of the parties. Hence it is regarded as irrelevant how the parties reached that consensus. To inquire into that process would not be consistent with an objective inquiry into the meaning of a document which is generally designed to be the sole record of the final agreement. A party cannot be heard to say – never mind what I signed, this is what I really meant.
[3] Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [20].
[56] However, an objective approach to the interpretation of an agreement does not mean that it is not permissible to go outside the written terms of an agreement if
a reasonable person aware of all the relevant circumstances would consider that the parties intended that those terms meant something other than what they appeared to mean on their face.
[57] I have carefully considered the correspondence between the parties which eventually lead to the final agreement on 22 August 2007 and the sequence of events, including the agreed licence to occupy the premises, but do not consider that there is anything in either the correspondence or the sequence of events which would allow me to go outside the written terms of the agreement.
[58] A crucial aspect of this issue is the effect of the agreement to pay an additional $23,663.44, being the equivalent of one month’s rent, in addition to the overdue rent and outgoings which were outstanding at the time of re-entry on
8 August 2007. At the time of re-entry, a total of $113,300.38 was outstanding. This included rent for the month of August 2007, which in accordance with the terms of the sublease was payable monthly in advance. The $23,663.44 which Shynday offered to pay was additional to the outstanding amount of $113,300.38.
[59] It should be noted that notwithstanding that the sublease had been terminated as a matter of law by the re-entry on 8 August 2007, Mr Xu appears to have been under the impression that it would continue until he had taken all Shynday’s stock and machinery from the premises. His initial letter of 9 August 2007 offered “to negotiate a feasible method to terminate the rental agreement between us before it is due”. He also stated in his e-mail of 14 August 2007 “Now I am expressing my
intention to pay off the outstanding balance and terminate the sublease by 3rd of
September (Monday)”. On 21 August 2007, he sought Luxottica’s approval to conduct a stock clearance sale from 22 August to 16 September. He stated he would remove all property, starting on 17 September, which may last for one week and then tidy up “office and manufactory” starting on 24 September. Luxottica granted a licence to the first defendant to occupy the premises again from 25 August 2007 to
14 September 2007.
[60] What is of interest is that in correspondence between the parties, Mr Xu referred to the extra payment of $23,663.44 as “September’s rent” when he asked Luxottica in an e-mail of 14 August 2007:
Would you like to exempt the September’s rent of $23,664 as agreed on 10th
August if we pass the property to you on 3rd of September (Monday)?
[61] It also appears that initially Luxottica proposed to charge Shynday a licence fee to allow Shynday access to 14 September 2007 to conduct a clearance sale but did not proceed with this proposal.
[62] I have reached the conclusion that on its proper interpretation the agreement contained in the letters from Luxottica dated 10 and 22 August 2007 did not constitute a full and final settlement of all claims between the parties. The extra payment of $23,664 was not consideration for Luxottica giving up its rights to sue Shynday for loss of bargain damages. It was “September’s rent” according to Mr Xu which allowed Luxottica to grant Shynday a licence to occupy the premises for three weeks following the termination of the sublease without any further payment and to permit Shynday to remove its stock and machinery.
[63] The letters dated 10 August 2007 and 22 August 2007 also did not expressly state that the agreement was in full and final settlement of all claims between the parties as one might expect if that was the case. In fact, in its initial letter of
10 August 2007, Luxottica expressly preserved its rights, stating that it was “without prejudice to any other rights”. It is unfortunate that Mr Xu did not obtain legal advice on the effect of the agreement but ignorance of its effect is not a defence to Luxottica’s claim.
[64] It is also highly unlikely that Luxottica would have agreed to give up its right to claim loss of bargain damages when the sublease still had three years to run and there was no-one ready and able to take up the tenancy. Luxottica would not have given up its right to claim a substantial sum of money (in excess of three quarters of a million dollars) simply in return for the payment of what was already owed by Shynday.
[65] At the time it appears that both Luxottica and Mr Xu assumed that Luxottica would be able to easily re-sublease the premises in which case Shynday would not be liable for substantial damages. But it did not prove to be the case and the premises remained unoccupied for three years. This is an example of how important it is for tenants, such as Shynday, to obtain legal advice, especially because cross- cultural misunderstandings may have led to a failure on the part of Shynday to protect its legal position.
Conclusion
[66] It is not disputed that on termination of the sublease, Shynday was obliged to reinstate the premises. Mr Thomson wrote to the plaintiff by letter dated 17
September 2007 listing what was required for the reinstatement of the premises following Shynday’s departure. A meeting on site was held between Shynday’s agent and Mr Thomson on 10 October 2007. Both parties signed the list of what was required and on 26 October 2007, Mr Xu e-mailed Luxottica:
Alex had the meeting with Fergus and confirmed the issues. Please go ahead accordingly with the list.
[67] The cost of reinstating the premises was $15,259.36 including GST. Although Mr Xu now complains about the total cost of reinstatement, without any evidence to the contrary, I cannot reach any other conclusion than that the reinstatement costs are reasonable and are recoverable as a debt from Shynday to Luxottica.
[68] It is also not disputed that, despite reasonable efforts, the premises were not able to be sublet again after the termination of the sublease to Shynday. Luxottica paid rent totalling $875,547.28 and outgoings totalling $101,615.33 to the head landlord as required by the head lease over the period until it came to an end on 31
October 2010. These amounts (less the $6,750 received from a short licence to occupy in August 2009) quantify the loss of bargain damages suffered by Luxottica as a result of Shynday’s breach of the sublease.
[69] Accordingly, there will be judgment against both Shynday International Limited and Wenjian Yang (Michael) Xu, as guarantor, in favour of Luxottica Retail New Zealand Limited for the following sums:
$778,264.25 Rent (excluding GST)
$90,324.74 Outgoings (excluding GST)
$15,259.36 Reinstatement costs (including GST)
Subtotal $883,848.35
Less $6,000.00 Licence to occupy – August 2009 (excluding GST)
Total $877,848.35
[70] Interest is payable on the reinstatement costs at the default rate provided for under the sublease from 1 March 2008 to the date of judgment. Interest on the rent and outgoings is payable at Judicature Act rates from the date of payment of each monthly rental from October 2007 to October 2010 and from the date of payment of each outgoing expense to the date of judgment. Luxottica is also entitled to costs as approved by the Registrar.
……………………………….
Woolford J
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