MJ & Kimko Company Limited v JNJ Holdings Limited
[2021] NZHC 3451
•14 December 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1212
[2021] NZHC 3451
IN THE MATTER OF an appeal from a decision of the District Court at Auckland BETWEEN
MJ & KIMKO COMPANY LIMITED, KWANG-ON KIM and EUNOG KO
Appellants
AND
JNJ HOLDINGS LIMITED
Respondent
Counsel: B P Rooney for appellants
M Singh and P S Kim for respondent
Judgment:
14 December 2021
JUDGMENT OF TOOGOOD J
[Costs]
This judgment was delivered by me on 14 December 2021 at 3.30pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors:
Queen City Law, Auckland for appellants Glaister Ennor, Auckland for respondent
MJ & KIMKO COMPANY LTD v JNJ HOLDINGS LTD [2021] NZHC 3451 [14 December 2021]
Introduction
[1] MJ & Kimko Company Limited (Kimko) is a registered company which operated a Japanese food retail business, trading under the name “Matsu Sushi”, from shop F004 (the premises) within the Sky World Metro Complex on Queen Street, Auckland. Kwang-On Kim and Eunog Ko (the guarantors) are the directors and shareholders of Kimko who guaranteed the performance of Kimko under the lease of the premises from JNJ Holdings Limited (JNJ Holdings or the lessor) which owns and manages the complex.
[2] On 1 April 2021, in the District Court at Auckland, Judge Mathers entered summary judgment for JNJ Holdings against Kimko and the guarantors (collectively, the appellants) for unpaid rent for the premises after Kimko defaulted, but stayed execution of the judgment pending disposition of a counterclaim.1
[3] The appellants appealed against the summary judgment for unpaid rent. On 11 November 2021, I allowed the appeal, set aside the District Court’s summary judgment and remitted the claim for unpaid rent to the District Court for determination following a full hearing (the appeal judgment).2 I reserved costs and have now received helpful memoranda from counsel for the parties.
Respondent submits that costs should lie where they fall
[4] As the successful parties, the appellants apply for costs according to scale on a category 2B basis. JNJ Holdings does not dispute the calculation of costs and disbursements claimed but opposes an order, saying that the parties should bear their own costs.
The appeal judgment
[5] To understand the basis for JNJ Holdings’ submission, and the appellants’ response to it, it is convenient to set out relevant paragraphs from the appeal judgment:
[5] On 13 May 2014, Kimko was assigned the lease of the premises under a deed of assignment (the deed of assignment). The initial deed of lease dated
1 JNJ Holdings Ltd v MJ & Kimko Company Ltd [2021] NZDC 10554 at [19].
2 MJ & Kimko Company Ltd v JNJ Holdings Ltd [2021] NZHC 3055.
13 September 2005 (the initial deed of lease) had been due to expire on 29 July 2011 but was extended and varied by the deed of assignment to expire on 29 July 2017. In discussions on 28 July 2017, Kimko confirmed it intended to continue to lease the premises and approached JNJ Holdings to discuss the essential terms of a new lease. After the expiry of the initial deed of lease on 29 July 2017, Kimko remained in occupation and possession of the premises and continued to pay rent and outgoings in terms of the initial deed of lease without objection from JNJ Holdings while negotiations over the terms of a new lease took place. On 3 October 2017, in a letter described in the pleadings as “a Lease Proposal” (the lease proposal), the “main terms” of a new agreement to lease were proposed by JNJ Management Limited (JNJ Management) on behalf of the lessor.
[6] In the lease proposal, a provision for rent reviews was scored out by the guarantors and they inserted and initialled a different provision. The lease proposal as amended reads, as to the form of lease:
The lessor and lessee agree to execute the lessor’s standard lease for the premises with specific amendments to reflect terms that have been agreed. The lease is to be signed within ten (10) days of receipt. The parties acknowledge that the lessor’s standard lease has not been provided and this is conditional upon the lessee approving this standard lease upon receipt from the lessor.
A copy of the lessor’s standard lease is available on request.
The lessee will pay the lessor’s reasonable costs in preparing the
leasedeed of lease.
[7] The italicised sentence in the first quoted paragraph, and the words “deed of lease” in the last quoted paragraph, were inserted (and the word “lease” deleted) after the original proposal was submitted to the guarantors: they are in a smaller font than that used in the rest of the letter and have been initialled by the guarantors.
[8] After the paragraphs containing the main terms, the lease proposal reads:
Please note that this proposal is submitted subject to the approval of the Managing Director of JNJ Management Limited.
[9] In her second affidavit sworn in opposition to the summary judgment application on 12 February 2020, the third-named appellant Eunog Ko exhibits a copy of the lease proposal confirming that the guarantors amended and signed it on 5 October 2017. Ms Ko acknowledges that Kimko received a copy of the lease proposal signed, with the amendments initialled, by the managing director of JNJ Management (who, it seems, is also managing director of the lessor) on or about 13 October 2017 after the guarantors had returned the amended lease proposal to him. From 13 October 2017, therefore, the lease proposal became an agreement to lease that was effective from 1 August 2017 (the agreement to lease).
…
[11] From 1 August 2020 Kimko defaulted in its obligations under the agreement to lease. On 25 November 2020, the lessor served notices to remedy pursuant to ss 245 and 246 of the Property Law Act 2007 (the PLA). Kimko remained in occupation of the premises until JNJ Holdings exercised its right of re-entry on 15 January 2021 after the expiry of the PLA notice and Kimko’s failure to remedy the breach.
[12] In its statement of claim, JNJ Holdings pleaded that the lease proposal was “the Agreement” that contained the obligations of Kimko and the guarantors on which it sued:
4 On 3 October 2017, JNJ leased the Shop F004, 291-297 Queen Street, Auckland Central, Auckland (the Premises) to Matsu Sushi by way of a Lease Proposal (the Agreement). The Agreement provided, inter alia, for the following terms and conditions:
(a)Lease commencement date 1 August 2017;
(b)Lease term often (10) years;
(c)Lease expiry date of 31 July 2027;
(d)Annual net rent $198,603.56 + GST;
(e)The second and third defendants to guarantee the lease;
(f)Rent review of the base rent on the following dates:
(i)1 August 2019 and 1 August 2023 based on CPI + 5%; and
(ii)1 August 2021 and 1 August 2025 based on the market rent review or CPI + 5% whichever is higher;
(g)Electricity, gas and water separately metered;
(h)Agreement to execute JNJ’s standard lease for the premises with Matsu Sushi to approve the standard lease;
(i)Matsu Sushi to pay reasonable costs in preparing the deed of lease;
(j)Matsu Sushi to pay rental by automatic payment on the first of the month; and
(k)Matsu Sushi to obtain liability insurance for potential losses and damages.
JNJ relies on the Agreement as if pleaded in full (the Lease)
[13] The appellants admitted that pleading in their amended statement of defence dated 31 March 2021, at [4].
[14] JNJ Holdings’ claim was for judgment in the sum of $89,694.48 as at 30 November 2020, being the date of the statement of claim, plus rent up to the date of judgment, interest and costs.
[6] I found that the operative document describing the terms of the lease arrangements was the agreement to lease and noted that there was no reference in the statement of claim, the application for summary judgment or the affidavit in support to JNJ Holdings relying upon its standard lease in making its claim for the unpaid rent.3 I held that on the pleadings, including the affidavits, filed in support of and in opposition to the application for summary judgment, in the absence of contrary findings of fact founded on the evidence, the terms of the initial deed of lease and the lessor’s standard lease were, and remain, irrelevant to the matters at issue between the parties as pleaded.
[7]The appellants’ pleaded defences were:
(a)that JNJ Holdings had breached the terms of the lease and derogated from its obligations under the lease and under the law so as to make it impossible for Kimko to pay any money to JNJ Holdings; and
(b)that the amount of the rent, outgoings and other payments to be paid by Kimko, if it was found to be liable, was $77,567.39.
[8] The appellants also pleaded that they had a counterclaim against JNJ Holdings, including an allegation founded on the initial deed of lease which they said:
… contained a number of provisions which were devised to ensure that the food retail shops in the food court could succeed and prosper together …
[9] Arguing that JNJ Holdings “intentionally or negligently derogated from the lease”, Kimko pleaded not only the defence to the claim for unpaid rent but counterclaimed for the sum of $120,000 for loss of income and $160,000 for loss of business goodwill, plus interest.
[10] I held that, in entering summary judgment on the claim for unpaid rent but reserving Kimko’s counterclaim for a full hearing, the District Court Judge misapprehended the appellants’ pleaded case by apparently considering that the allegations about the derogation from the lease applied only to the counterclaim and
3 MJ & Kimko Company Ltd v JNJ Holdings Ltd, above n 2, at [15].
not to the defence of the claim for unpaid rent. I summarised my view of the District Court judgment in these terms:
[34] In summary, therefore, the District Court Judge misidentified factual disputes between the parties that did not exist, failed to acknowledge the assertion that there was a direct causal connection between the alleged derogation from the lease by JNJ Holdings and Kimko’s alleged inability to pay the rent and overlooked the sworn basis for the appellants’ challenge to the quantum of unpaid rent that was claimed.
[11] After observing that the summary of facts and the respective claims of the parties in the District Court summary judgment mischaracterised the issues and the position taken by the appellants, I said:4
That may have been at least in part because, if the Judge’s summary of the submissions on behalf of the defending parties is accurate, the case for the appellants was not explained to the Court as well as it might have been.
[12]I said also:5
… Judge Mathers did not misunderstand the nature of the evidence underlying the derogation claims, but she may have been misled into concluding that the claims were relevant only to the counterclaim for damages. It appears the Judge did not appreciate that they also provided an arguable defence to the claim for recovery of unpaid rent and that Grant6 was authority for refusing summary judgment on that ground.
[13]Then, when reserving costs for exchange of memoranda, I said this:
[53] As the successful parties, the appellants are arguably entitled to costs on the appeal. It is fair to observe, however, that the argument for the appellants on appeal did not focus as narrowly as it could have done on which of three lease documents governed the relationship of lessor and lessee in this case and whether the ability to set off the cross-claim was precluded by contractual terms. Moreover, it appears that the argument for the appellants in the District Court may not have clearly articulated their reliance on the alleged conduct of the lessor in running down the complex as founding both a defence of derogation and contractual causes of action for loss of profits and loss of goodwill.
[54] It may be that had the appellants’ case been put to the District Court Judge more fairly and squarely, summary judgment would not have been entered. In this Court, the appellants’ submissions address at some length the false premise that the terms of the initial deed of lease and the standard lease
4 MJ & Kimko Company Ltd v JNJ Holdings Ltd, above n 2, at [26].
5 At [45].
6 Grant v NZMC Ltd [1989] 1 NZLR 8 (CA).
were arguably in play. The Court’s discretion as to costs might lead to a conclusion that costs should lie where they fall.
[14] I made it clear, however, that I did not make any determination that the parties should bear their own costs and I have kept an open mind about that possibility pending receipt of counsel’s submissions.
Refusal of, or reduction in, costs
The respondent’s submissions
[15] Unsurprisingly, counsel for JNJ Holdings rely on the Court’s discretion to refuse or reduce costs set out in r 14.7 of the High Court Rules 2016. The rule provides, so far as is relevant:
14.7 Refusal of, or reduction in, costs
Despite rules 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if—
…
(d) although the party claiming costs has succeeded overall, that party has failed in relation to a cause of action or issue which significantly increased the costs of the party opposing costs; or
…
(f)the party claiming costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
(ii)taking or pursuing an unnecessary step or an argument that lacks merit; or
…
(g)some other reason exists which justifies the court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.
[16] Referring to my comments at [53] and [54] of the appeal judgment,7 counsel for JNJ Holdings argue that costs should lie where they fall because:
7 MJ & Kimko Company Ltd v JNJ Holdings Ltd, above n 2.
(a)the points advanced by the appellants on appeal relied on a “false premise” that the terms of the standard lease were in play;
(b)that reliance dictated the arguments of the parties on appeal; and
(c)summary judgment may not have been entered in the District Court had the appellants’ arguments been put to the District Court Judge “more fairly and squarely”.
[17]Counsel say that the appellants’ points on appeal and written submissions:
(a)did not address the applicability of the initial lease or the lease proposal and accepted that the parties were bound by the terms of the standard lease; and
(b)made references to and relied upon selected provisions in the standard lease relating to JNJ Holdings’ obligations as landlord.
The appellants’ response
[18] For the appellants, Mr Rooney argues that the appellants’ case on the appeal was that there had been a breach of contract, or frustration, or failure of consideration by the respondent in failing to retain and maintain the premises for “the mutually- agreed purpose” as a high-quality, diverse and populated international food court. Counsel submits that with the argument framed in that way, “it did not matter to the appellants’ case which lease document applied”. He says that the relevance to the appellants’ argument on the appeal regarding the initial deed of lease and the “standard lease” was evidential and directly related to the defences because both made it clear that the mutual intention of the parties was that the premises were for a specific purpose and contained specific provisions which reflected that.
[19] Mr Rooney points to aspects of the way in which the respondent’s case in the District Court relied on provisions of the initial deed of lease and the standard lease in respect of claims for interest and indemnity costs, and argues that the appellants were entitled to assume on appeal that the respondent’s argument to that effect would be
followed. He says that was what occurred. The respondent claimed indemnity costs under the terms of the standard lease and on the “no set-off” clause and a “no warranty as to suitability” clause in the standard lease. He says that the respondent’s case on appeal was framed accordingly.
[20] Mr Rooney argues also that criticisms at [53] and [54] of the appeal judgment do not obviously fall within any of the grounds set out in r 14.7 for a refusal of or reduction in costs and that they would be unlikely to outweigh the factors in r 14.2 so as to justify a complete refusal of costs. He submits that an argument could be made out by the appellants that the failure of the respondent to keep within the bounds of its own pleaded case should result in increased costs against it, although that point is not being pursued.
[21] Mr Rooney also argues that this Court should not draw inferences simply from the District Court judgment about the way in which the respondent’s case was argued in support of the summary judgment application.
Discussion
[22] It is clear, in my view, that both the appellants and the respondent demonstrated confused thinking in the presentation of their cases in the District Court and on appeal. I accept Mr Rooney’s submission that I should be cautious about drawing inferences over the way in which the respondent’s case was argued in the District Court – counsel’s submissions at first instance, whether oral or written, were not provided to me. But neither the appellants nor the respondent focused on the respective pleaded cases in the statement of claim and the amended statement of defence which identified the agreement to lease based on the lease proposal as comprising the terms under which the respondent was entitled to sue for rent.8
[23] Notwithstanding the pleaded position, the appellants relied on the initial deed of lease in pleading relevant obligations at para 19 of the counterclaim and also relied
8 See paras 4 and 5 of the statement of claim and paras 4, 5, 8 and 12B of the amended statement of defence.
on the initial deed of lease at para 31 regarding the provision in that document preventing Matsu Sushi from changing its menu.
[24] Moreover, the issues on appeal, at least so far as the written submissions are concerned, were shaped by the appellants’ submissions relying on the Court of Appeal’s judgment in Grant v NZMC Ltd,9 and on provisions in the initial deed of lease and the standard lease proffered by JNJ Holdings that was never adopted.10
[25] For emphasis, I repeat paras 12 and 35 of the written submissions on behalf of the appellants:11
12. The assigned lease expired in 2017. No replacement lease was executed, but the appellants signed a form of agreement to lease, which referred to the agreed lease as the respondent’s “standard lease”. The judge in the District Court seemed to have accepted that the appellants were bound by the “standard lease”, and summary judgment under it was entered against the appellants. The applicability of the standard lease is not challenged in this appeal.
…
35. … the issue is not so much one of counterclaim or set off. What is important is that the respondent, by running down the food court, ceased to provide what it had agreed, by the lease, to provide to the appellants. In the present case, there was no separate or collateral contract as in Grant, and there was no derogating conduct outside of the lease (as in Mount Cook).12 There was derogating conduct which went to and diminished the very subject matter in the lease – the nature of the premises which the respondent said it would make available to the appellants, and for which the appellants agreed to pay.
[26] It is clear in the context of the submissions that the reference at para 35 to “the lease” is to the standard lease.
[27] I accept the submission on behalf of the respondent that, in examining the wording of the clauses in the standard lease in its written submissions on appeal, the respondent’s argument flowed from the appellants’ reliance on Grant. I agree that Mr Rooney’s proposition, that it did not matter to the appellants’ case which lease document applied, is not sustainable.
9 Grant v NZMC Ltd, above n 6.
10 Paragraphs 7, 11 and 12–17 of Mr Rooney’s written submissions on appeal.
11 Some footnotes omitted; emphasis added.
12 Mount Cook National Park Board v Mount Cook Motels Ltd [1972] NZLR 481 (CA).
Conclusions and decision
[28] I conclude, therefore, that the appellants ran their derogation argument in the District Court and again on appeal, in reliance on the provisions of both the initial deed of lease (in the District Court) and the terms of the standard lease (in its written submissions on appeal). That approach diverted attention from the case it had pleaded in the District Court and led to substantial arguments on appeal about irrelevant issues.
[29] In the exercise of the costs discretion in r 14.2, I hold there should be a reduction in the costs payable to the appellants on the grounds described in rr 14.7(f)(ii) and 14.7(g).13
[30]Accordingly, I direct that the respondent shall pay the appellants’ costs of
$7,162.50, being the amount claimed according to scale, reduced by 50 per cent.
Toogood J
13 High Court Rules 2016.
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