Tobem Holdings Limited v Kid Country Holdings Limited (in liquidation)
[2023] NZHC 98
•3 February 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2020-404-000987
[2023] NZHC 98
UNDER Section 248 of the Companies Act 1993 BETWEEN
TOBEM HOLDINGS LIMITED
Plaintiff
AND
KID COUNTRY HOLDINGS LIMITED (in
liquidation) Defendant
Hearing: 13 December 2022 Appearances:
D R Bigio KC & T Nelson for the Plaintiff K A Cocks as liquidator for the Defendant
Judgment:
3 February 2023
JUDGMENT OF TAHANA J
This judgment was delivered by me on 3 February 2023 at 4.00pm Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
Solicitors/Counsel:
D Bigio KC, Auckland T Nelson, Auckland
Waterstone Insolvency, Auckland
TOBEM HOLDINGS LIMITED v KID COUNTRY HOLDINGS LIMITED (in liquidation) [2023] NZHC 98 [3
February 2023]
Introduction
[1] Tobem Holdings Limited (Tobem) was granted leave to continue its claims against Kid Country Holdings Limited (in liquidation) (Kid Country). The claims were set down for hearing by way of formal proof.
[2] Tobem purchased a property at 131C Lincoln Road, Henderson (the Property) from Vaco Investments (Henderson Project) Ltd (Vaco) in July 2019. In November 2016, Kid Country and Vaco had entered into an agreement to lease part of the Property (the Premises) to develop a childcare centre (the Lease). Vaco assigned the Lease to Tobem when Tobem purchased the Property.
[3] Prior to assignment of the Lease, Kid Country disputed the calculation of rental because the Premises was only capable of being licensed for 118 children and not 150. Kid Country did not pay any rental or outgoings. Tobem claims Kid Country has breached the Lease and claims the losses it says it has suffered as a result.
[4]The issues I need to determine are:
(a)Has Kid Country breached the Lease by failing to pay rental and outgoings?
(b)If yes, what losses has Tobem suffered as a result of any breach of the Lease?
(c)Are any counterclaims available to Kid Country such that it is not liable for any of the losses claimed?
Background
Heads of agreement
[5] Vaco is a property developer. Mr Arnerich of Vaco commenced negotiations with Mr Lowry of Kid Country about building a childcare facility. On 9 November 2016, Vaco and Kid Country signed a heads of agreement for a proposed lease (HOA). The key terms provided that:
(a)the lease would commence when a code of compliance (CCC) was issued for the new building;
(b)the initial term of the lease would be 15 years with two rights of renewal of ten years each;
(c)the annual rent would be $50 per child per week being $390,000 (plus GST) per annum if there were 150 children plus “50% of pro rata share of operating expenses, Rates and outgoings all Plus GST”;
(d)the rent would rent would increase each year until it reached $390,000 per annum after two years:
Year 1 Rental 75 license being $195,000 pa
After 18 months a further 50 license being a further $130,000 pa
After 24 months final 25 license being a further $66,250 [pa] Total rent for 150 license after 24 months.
(e)a rent-free period of 75 days from the commencement date would be granted; and
(f)Kid Country would pay 50 per cent of the “operating expenses for its premises.”
[6] Vaco arranged for its solicitors to prepare an agreement to lease to reflect the terms of the HOA. A draft agreement to lease was provided to Kid Country for review on 17 November 2016.
Terms of the Lease
[7] On 21 November 2016 Kid Country’s solicitor confirmed there was no issue with the draft terms except that the lease needed to refer to the latest Auckland District Law Society (ADLS) lease template.
[8] Vaco then provided the final version for Kid Country to sign and on 23 November 2016 Vaco and Kid Country signed the Lease. The key terms of the Lease reflected the HOA except that:
(a)clause 4.10 provided that the annual rent would be calculated on the basis of a resource consent for 150 children at the rate of
$50 per child per week (plus GST) and adjusted up or down if the resource consent allowed for a different number of children;
(b)the First Schedule then stated:
Subject to amendment in accordance with clause 4.10:
1. During the first year of the Lease, the Rent shall be based on 50% of licenced places (being $195,000 plus GST per annum based on 150 licenced places).
2. After 18 months from the commencement date of the Lease, based on a further 75% of licenced places), the Rent shall increase to $325,000 plus GST per annum.
3. After 2 years from the commencement date of the Lease, based on 100 % of licenced places, the Rent shall increase to $390,000 plus GST per annum.
4. Thereafter, the Rent shall increase by CPI rent reviews annually and Market Rent Reviews (as more particularly set out below).
(c)Kid Country would pay 50 per cent of the “Outgoings in relation to the Development.”
Resource consent
[9] On 1 March 2017, resource consent was granted for a 150-child childcare facility.
Sale of Property
[10] On 22 February 2019, Vaco sold the Property to Narendra Patel with a settlement date of 19 July 2019. The sale and purchase agreement (SPA) provided that the Lease was to be assigned to the purchaser. Mr Patel subsequently nominated Tobem as purchaser on 18 July 2019.
Dealings between Kid Country and Vaco
[11] On 1 April 2019 Mr Lowry emailed Mr Arnerich saying there were “mistakes in the lease document that need fixing” and suggested that the errors had arisen
because the solicitors who drafted the Lease had ignored the HOA. Mr Lowry pointed to differences between the HOA and the Lease, including that the rent was linked to the resource consent and not the number of Ministry of Education licensed places.
[12] Kid Country urged Vaco to renegotiate the Lease or acknowledge it was of no effect. Vaco rejected this request and denied Kid Country had any right to terminate the Lease.
[13] On 19 July 2019 Vaco notified Kid Country that a CCC had been issued for the Premises. The Lease was therefore to commence on 18 August 2019 (being 30 days from date of CCC) with rent payable 7.5 months after that date.
[14] Kid Country continued to assert that the Lease was unenforceable and did not take possession of the Premises.
Non-payment of rent and outgoings
[15] On 20 November 2019, Tobem issued a perpetual invoice to Kid Country for payment of its share of the outgoings. That required Kid Country to pay $13,053.45 (plus GST) in outgoings monthly. Kid Country did not pay and by February 2020 Kid Country was $54,556.57 in arrears.
[16] On 5 February 2020 Tobem notified Kid Country under s 245 of the Property Law Act 2007 (the PLA) of its intention to cancel the Lease for non-payment of outgoings (PLA notice). Kid Country did not pay the outstanding outgoings.
[17] Kid Country did not pay any rent when it became due on 3 April 2020. On 20 May 2020, Tobem issued a notice under the PLA notifying Kid Country of its intention to cancel the Lease.
[18]On 3 June 2020 Tobem cancelled the Lease and re-entered the Premises.
Steps taken to find another tenant
[19] At the same time as demanding payment for outgoings, Tobem took steps to find another tenant and engaged a real estate agent on 12 December 2019.
[20] In March 2020 Tobem began negotiations with Just Kidz Franchise System Ltd (Just Kidz) and entered into an agreement to lease on 22 July 2020 (the ATL). The key terms of the ATL provide that:
(a)the initial term is 15 years;
(b)rental is payable as from 1 February 2022; and
(c)rental per annum starts at $210,660 (ex GST and outgoings) and will be subject to market rent reviews on each renewal date (the fifteenth and twenty fifth anniversary of the Commencement Date) and annual CPI rent reviews.
[21] On 20 April 2022 Tobem and Just Kidz executed a formal deed of lease as anticipated in the ATL.
Procedural history
[22] On 29 June 2020, Tobem commenced proceedings against Kid Country and Vaco. Tobem filed an amended statement of claim on 30 November 2020 alleging breach of the Lease by Kid Country, and breach of the SPA and misrepresentation by Vaco. Affidavit evidence was subsequently filed in late 2020 by Mr Arnerich, as director of Vaco, Mr Lowry, as director of Kid Country, Mr Urlich (real estate agent acting for Vaco) and Mr Witty (consultant to early childhood centres for Kid Country).
[23] On 16 April 2021, Kid Country filed a statement of defence and four counterclaims for misrepresentation; misleading and deceptive conduct; mistake; and wrongful cancellation. Tobem filed a reply to the statement of defence and counterclaims on 7 May 2021.
[24] Kid Country was placed into voluntary liquidation on 31 May 2022, nine working days prior to the scheduled trial.
[25] When leave was granted to continue its claim, the Court ordered that evidence may be given by affidavit, pursuant to r 9.56(1) of the High Court Rules 2016 (the
Rules). The affidavit evidence filed for the trial was therefore before the Court for the formal proof hearing.
[26]Tobem discontinued proceedings against Vaco on 14 July 2022.
Position of liquidator
[27] Counsel for the liquidator was granted leave to appear at the formal proof hearing by way of watching brief only. No submissions were made.
Formal proof — legal principles
[28] The procedure for a formal proof hearing is governed by r 15.9 of the Rules. Relevantly, the plaintiff must file affidavit evidence before the hearing to establish each cause of action to a judge’s satisfaction.1 Duffy J has held that “the level at which a Judge is required to satisfy herself regarding the plaintiff’s evidence is much the same as it would be if the proceeding had gone to trial.”2
[29] If damages are sought the plaintiff must provide sufficient information to enable the Judge to calculate and fix the damages.3
[30] I therefore consider whether the evidence filed proves each of the causes of action and the losses claimed.
Did Kid Country breach the terms of the Lease?
[31] Tobem claims that Kid Country breached the Lease by failing to pay rent and outgoings and this entitled it to cancel the Lease.
How was the rent to be calculated?
[32] The Lease provided that Kid Country would have a “Rent Free Period,” which was defined as 7.5 months from the “Commencement Date.” The Commencement Date is defined as 30 days after the lessor advises that a CCC had been issued. This
1 High Court Rules 2016, r 15.9(4).
2 Ferreira v Stockinger [2015] NZHC 2916 at [35].
3 High Court Rules 2016, r 15.9(4).
notification was provided on 19 July 2019. The Commencement Date was therefore 18 August 2019. Kid Country was therefore obliged to pay rent as from 3 April 2020.
[33] The terms of cl 4.10 of the Lease and the First Schedule as set out at [8] refer to rent being based on the resource consent on the one hand, and based on “licensed places” on the other.
[34] Tobem argues that cl 4.10 and the First Schedule are consistent and that “licensed places” should be read by reference to the resource consent for 150 children.
[35] An alternative interpretation is that “licensed places” refers to Ministry of Education (MOE) licensed places. The MOE is responsible for issuing a licence confirming the total number of children authorised to be in the childcare facility. The Premises was only capable of being licensed for 118 children. This interpretation is consistent with the HOA which provided that rent would be calculated at $50 per child per week and the number of children linked to licensed places.
[36] Tobem submits that the number of MOE licensed places is an “operational matter” over which Vaco had no control. Tobem also refers to correspondence between Vaco and Kid Country which stated:
As discussed, the premises have a resource consent for 150 places. The agreed annual rental calculation was based upon the premises having this resource consent. Plans were provided to your client showing the suggested fitout to accommodate this number of places. In our client’s view, if the actual number of available places has been reduced from the original plans then that would be largely due to your client’s changes to these plans and fitout and operational requirements.
[37] Mr Lowry’s evidence is that the number of licensed places is linked to the space within and outside the childcare centre. He says that Kid Country had no control over the architect, who was engaged by Vaco, and Vaco could therefore influence whether the available space was sufficient for 150 licensed places.
[38] Vaco is the developer and owner of the building and I accept the space available was within its control. Further, it makes more commercial sense for rental to be linked to licensed places rather than the resource consent as the former is linked
to the potential revenue available to the lessee. The facility is more valuable if there are more licensed places. In contrast, the number in the resource consent does not reflect value unless it is linked to potential returns, which it is not without the MOE licences.
[39] I consider that the reference to “licensed places” in the First Schedule should be read as referring to MOE licensed places as this is consistent with the language used, the prior negotiations between the parties, the HOA and commercial sense. A resource consent does not “licence” places and is not a licensing regime.
[40] I therefore need to consider the wording in the First Schedule: “subject to amendment in accordance with clause 4.10.” That wording indicates that the First Schedule should be amended if it is inconsistent with cl 4.10. That supports the rental being based on the 150 children referred to in the resource consent and not “licensed places.”
[41] The rent is therefore to be calculated in accordance with cl 4.10 on the basis of a resource consent for 150 children at the rate of $50 per child per week plus GST.
Obligation to pay outgoings
[42] Clause 4.4(c) of the Lease provides that the lessee is to pay outgoings from the Commencement Date. The amount to be paid is 50 per cent of the outgoings for the “Development.” “Development” is defined by cl 1.1 and [A] of the Introduction to the Lease as “a childcare centre and retail development within the existing building on the Land.”
[43] Kid Country claimed in its statement of defence that it is only required to pay 50 per cent of the outgoings for the childcare centre as that was agreed in the HOA.
[44] There is no evidence as to the percentage of the area of the development that relates to the childcare centre and the percentage that relates to the retail development. Further, counsel for Tobem submitted that it does not make commercial sense for outgoings to be half of those attributable to the childcare centre. This would require the lessor to bear costs attributable to Kid Country’s use of the Premises.
[45] The Lease is the binding agreement between the parties and its terms are clear. It is irrelevant that the earlier HOA used different language. Further, I accept the argument that it does not make commercial sense for the lessor to pay 50 per cent of the outgoings attributable to the childcare facility. The lessor does not control the use of the childcare facility. Further, the childcare facility is part of a larger building with other retail uses and this is consistent with the lessee of that facility only paying 50 per cent of the total outgoings for all of the building.
[46] The Lease therefore required Kid Country to pay 50 per cent of the outgoings for the whole of the “Development” as from the Commencement Date.
Conclusion — breach of Lease
[47] By failing to pay the outgoings and rental owing under the Lease, I find that Kid Country breached the Lease.
Has Tobem suffered loss?
Mitigation
[48] A lessor may recover reasonable expenses incurred to avoid or diminish the damage arising from the lessee’s breach. That is so even if the resulting damage exceeds the damage that would have been suffered had no mitigating steps been taken.4
[49] Mr Patel deposed that Tobem undertook an extensive refit of the Premises on professional advice from Mr Gilbert, a real estate agent. Tobem has since entered into a new lease with Just Kidz for part of the Premises (1,270.2 m2). The rest of the Premises (529.8 m2) remains untenanted.
[50] Tobem have provided the Court with invoices for the refitting of the Premises. In reviewing those invoices, three appear to have been included twice, as follows.
4 New Zealand Forest Products Ltd v O’Sullivan [1974] 2 NZLR 80 (SC) at 83; JNJ Holdings Ltd v Kent Sing Trading Company Ltd [2017] NZHC 3274 at [380].
Supplier Invoice Date GST exclusive GST inclusive Go Planning INV-0075 1 July 2020 $7,778.00
[$13,003.00]5
$8,944.70
[$14,953.45]
Lifestyle Architectural
Services
INV- 10448 12 August 2020 $12,700.00 $14,605.00 Go Planning INV-0085 1 September
2020
$3,960.00 $4,554.00 Total $24,438.00 $28,103.70
[51] Tobem seeks $937,000.00 for expenses reasonably incurred in mitigation. This is approximately the total of the invoices submitted with Mr Patel’s affidavit6 ($937,083.24 (plus GST)).
[52] If the duplicated invoices are deducted from the above amount, this leaves expenditure of $912,645.24 (excluding GST).
[53] I therefore accept that the alterations were reasonable given they were taken on professional advice. Further, the alterations resulted in part of the Premises being leased to a new tenant so did enable Tobem to mitigate its losses. Tobem is therefore entitled to recover the costs incurred in mitigation of $912,645.24 (excluding GST).
Loss of bargain
[54] Tobem also claims losses arising from the difference between the payments it will receive under new leases and the payments it would have received under the Lease with Kid Country.
[55] A lessor who cancels a lease during its term and relets the property at a lower rent is entitled to damages based on the difference between:7
5 There are two invoices from Go Planning numbered INV-0075 and dated 1 July 2020. The second invoice incorporates all the details and charges of the first and adds additional items. Only the duplicated items, totalling $7,778.00 (excluding GST) are included in the above calculation to be deducted from the amount claimed.
6 Mr Patel states in this affidavit that Tobem spent $937,083.24 (plus GST) on refitting the Premises.
7 DW McMorland and others Hinde McMorland & Sim Land Law in New Zealand (online ed, LexisNexis) at [11.241(c)], n 13.
(a)the rent payable under the original lease (plus other sums which would have been recoverable); and
(b)the ‘rental value’ of the premises at the date of cancellation,8 being the level of rent which can actually be obtained on the prevailing rental market on that date.
[56] Valuation evidence is not required. The best evidence is the rent which is obtained by actively endeavouring to relet.9 If the landlord establishes there is no available market for a replacement lease of similar terms, damages are to be assessed by refence to its actual loss.10
[57] Tobem says it would have received rental of $5,837,000 (plus GST) from Kid Country from 18 August 2019 through to 17 August 2034. Tobem will receive
$2,685,000 (plus GST) for the part of the Premises rented to Just Kidz. This is based on annual rent of $210,660 (plus GST), a 50 per cent rent rebate for the first 12 months and a contribution of up to $250,000 (plus GST, if any) towards refitting the Premises.
[58] Tobem estimates it will receive approximately $1,272,398 for the other part of the Premises (still unrented), based on $200 per square metre with a rent-free period of one year.
[59] Tobem thereby estimates that the difference between what it would have received under the Lease with Kid Country and the amount it may actually receive under new tenancies is (at least) $1,879,602.
[60] I accept that both the actual rental to be received from Just Kidz and the estimated rental for the remaining area are appropriate measures of the rental value of the Premises at the date of cancellation. Tobem is entitled to claim the shortfall of
$1,879,602.
8 Williams v K F Meates & Co Ltd (1971) 1 NZCPR 594 (CA) at 7-11; Lewis Holdings Ltd v Steel & Tube Holdings Ltd [2015] NZHC 2189 at [10]-[12].
9 Innes-Jones v Spencer CA55/93, 15 September 1993 at 7; Cheng v Heise (1991) ANZ ConvR 388 (HC) at 16.
10 Lewis Holdings Ltd v Steel & Tube Holdings Ltd, above n 8, at [20].
Conclusion — losses
[61]Tobem is therefore entitled to recover losses of:
(a)$912,645.24 (plus GST) in costs for mitigating its loss by reconfiguring the Premises; and
(b)$1,879,602 in loss of rental value arising from Kid Country’s failure to pay rental for the term of the Lease.
[62] I now consider whether there are any counterclaims available to Kid Country to determine whether Tobem is entitled to recover all of the losses claimed.
First counterclaim — misrepresentations
[63] Kid Country counterclaimed for misrepresentation and in its defence says it was induced to enter the Lease by Vaco’s misrepresentations as follows:
(a)the total net licensable interior and exterior play space available to the childcare centre would allow 150 MOE licences;
(b)Kid Country would only be liable to pay 50 per cent of the outgoings for the Premises, being approximately $45,000 to $54,000 annually; and
(c)the terms of the Lease reflected the terms of the HOA and other prior discussions.
[64] The above representations were allegedly made prior to the Lease. I therefore need to consider whether the terms of the Lease are conclusive or whether I should inquire into the representations.
Reliance clause in the Lease
[65]Clause 9.4 of the Lease provides that:
The Lessor does not warrant the accuracy of any statements made in any advertisement or any brochure issued in relation to the Building or by any servant or agent of the Lessor whether in relation to the Building, the Premises or otherwise, nor does it warrant the suitability of the Premises for any purpose and the Lessee acknowledges that the Lessee enters into this agreement in reliance solely on the Lessee’s own judgment.
[66]Section 50 of the Contract and Commercial Law Act 2017 (CCLA) provides:
50 Statement, promise, or undertaking during negotiations
(1)This section applies if a contract, or any other document, contains a provision purporting to prevent a court from inquiring into or determining the question of—
(a) whether a statement, promise, or undertaking was made or given, either in words or by conduct, in connection with or in the course of negotiations leading to the making of the contract; or
(b) whether, if it was so made or given, it constituted a representation or a term of the contract; or
(c) whether, if it was a representation, it was relied on.
(2)The court is not, in any proceeding in relation to the contract, prevented by the provision from inquiring into and determining any question referred to in subsection (1) unless the court considers that it is fair and reasonable that the provision should be conclusive between the parties, having regard to the matters specified in subsection (3).
(3)The matters are all the circumstances of the case, including—
(a) the subject matter and value of the transaction; and
(b) the respective bargaining strengths of the parties; and
(c) whether any party was represented or advised by a lawyer at the time of the negotiations or at any other relevant time.
[67] I may therefore inquire into the alleged representations unless I consider it is fair and reasonable that cl 9.4 of the Lease is conclusive having regard to the circumstances of the case, including the matters specified in s 50(3) above.
[68] The total amount payable under the Lease was in excess of $5 million. This is a significant amount. The Lease was for a childcare facility which was a critical asset for Kid Country’s business.
[69] The Lease was negotiated largely between commercial parties, Mr Lowry and Mr Arnerich, and not by lawyers. While the HOA does not appear to have been drafted by lawyers, the Lease was drafted by Vaco’s solicitors and provided to Kid Country’s solicitors for review. Mr Lowry deposes that Mr Arnerich called him repeatedly over a few days and demanded that he sign quickly. Mr Arnerich denies this. The timeframe however (six days), was very short given the value of the Lease and this suggests there was some pressure to sign quickly. Kid Country’s solicitor confirmed within four days that they had been through the lease agreement and “nothing rings alarm bells.”
[70] Mr Lowry says that he was suffering from stress and personal issues and that Mr Arnerich was aware of this at the time.
[71] While the value of the Lease and the involvement of lawyers support cl 9.4 being conclusive, I consider that the circumstances of the negotiations indicate that the lawyers’ involvement was very limited and over a small number of days. The HOA was prepared by non-lawyers and there are differences between it, and the Lease, which may not have arisen if lawyers had been involved in all aspects of the transaction. This factor supports a finding that it is not just and reasonable that cl 9.4 be conclusive as between the parties. It is appropriate that I inquire into the alleged representations.
[72] Section 37 of the CCLA provides that a party may cancel a contract if induced to enter into it by misrepresentation, whether innocent or fraudulent, made by or on behalf of another party.11 Such a party may only cancel where the parties have agreed that the truth of the representation is essential to the cancelling party or the effect of the misrepresentation will substantially reduce the benefit, increase the burden or alter the benefit or burden of the contract for the cancelling party.12
11 Section 37(1)(a).
12 Section 37(2).
Representation as to capacity of childcare facility
[73]Kid Country says that Vaco misrepresented that the total net licensable interior and exterior play space available to the childcare centre would allow 150 MOE licences. The completed development only allowed space for a licence for 118 children. This did not become apparent until March 2019 (almost two and a half years after the HOA).
[74]Kid Country refers to the following in support of the alleged misrepresentation:
(a)The HOA states that the childcare centre is to accommodate 150 MOE licences.
(b)The original plans prepared by Vaco refer to 150 MOE licences allowed for the childcare centre.
(c)The original plans, and all plans prepared thereafter, show total net licensable interior and exterior play space available to the childcare centre sufficient to support 150 MOE licences.
(d)Communications between the Kid Country and Vaco refer to 150 MOE licences.
(e)Rent calculations were based on 150 MOE licences.
[75] While I accept representations were made that the Premises would be able to accommodate 150 children, those representations were made with qualifiers. The indicative plans qualified the statement of 150 licences allowed by stating “subject to accuracy of building survey plan and existing structure.”
[76] Further, I do not accept that any representations as to the number of licences induced Kid Country to enter into the Lease in circumstances where the HOA and the Lease provided for the rental to be reduced (by referring to 50% of licensed places and by reducing the rental to the number of children specified in the resource consent). These terms indicate Kid Country accepted that the childcare centre may not have the
capacity for 150 licensed places if resource consent was not obtained for that number. Kid Country cannot, therefore, have relied on any representation as a guarantee that the Premises would be able to accommodate 150 licensed spaces.
Representation as to outgoings
[77] Kid Country say that Vaco misrepresented that Kid Country would be liable for 50 per cent of the outgoings for the Premises and/or outgoings of approximately
$45,000 to $54,000 annually. Under the Lease, Kid Country was liable for 50 per cent of the outgoings of the entire “Development” which included the retail development.
[78] The representation cannot have induced Kid Country to enter into the Lease because the terms of the Lease clearly linked outgoings to the whole of the development. The Lease was provided to Kid Country and Kid Country obtained advice on it, so it was therefore aware of the express term of the Lease. Accordingly, this counterclaim fails.
Representation that the Lease reflected the HOA
[79] Kid Country claims that Vaco misrepresented that the Lease would reflect the HOA and related discussions. Mr Lowry deposes that when he talked to Mr Arnerich, he stated that the Lease “is all in order and pretty much as we agreed under the terms of the HOA.”
[80] Kid Country obtained legal advice so had the opportunity to check the terms of the Lease and negotiate changes. In those circumstances, I do not find that Mr Arnerich’s email constitutes a representation that the Lease terms reflect the HOA. While that appears to have been the intention, Mr Arnerich is not a solicitor and did not draft the Lease so it would be unreasonable for Mr Lowry to rely on that email alone. The fact that Kid Country’s solicitors failed to identify discrepancies between the terms of the HOA and the Lease is a matter between Kid Country and their solicitor.
Second counterclaim — s 9 of the Fair Trading Act 1986
[81] Given my findings regarding the alleged representations, this counterclaim fails for the same reasons.
Third counterclaim — mistakes
[82]Kid Country alleges that the Lease contained “mistakes”:
(a)Kid Country mistakenly believed there was a rent adjustment clause based on MOE licensed places; and
(b)Kid Country mistakenly believed that it was only required to pay 50% of outgoings relating to the childcare centre.
[83]Section 24 of the CCLA provides that a court may grant relief where a party:
(a)entered a contract under the influence of a mistake; and
(b)the mistake was material to that party; and
(c)the other party knew of the mistake;13 and
(d)the mistake resulted in:
(i)a substantially unequal exchange of values; or
(ii)a benefit or obligation substantially disproportionate to the consideration.14
[84] Unless the context otherwise requires, mistake means a mistake, whether of law or of fact; a mistake in the interpretation of a document is a mistake of law.15 However, mistake does not include a mistake in the interpretation of a contract.16
[85] I consider that Kid Country’s mistaken belief was a mistake in interpretation given the wording of cl 4.10, which provided that rent would be adjusted (up or down) based on the resource consent. It was not therefore a case of a rent adjustment clause
13 Section 24(1)(a)(i)-(ii).
14 Section 24(1)(b).
15 Section 23(1)-(2).
16 Section 25(1).
being inadvertently admitted but rather, the terms of the Lease being inconsistent with Kid Country’s mistaken belief. That is an issue of contractual interpretation.
[86] The terms of the Lease are also clear as to calculation of outgoings. Kid Country’s mistaken belief about this is also due to a mistake in the interpretation of the Lease.
[87] Section 25 of the CCLA precludes any relief for mistakes in contractual interpretation. This counterclaim therefore fails.
Fourth counterclaim — wrongful cancellation
[88] Given my findings that Tobem was entitled to cancel the Lease for breaches by Kid Country, the fourth counterclaim necessarily fails.
Costs and interest under the Lease
[89] Tobem seek indemnity costs in relation to this proceeding under cl 3.9 of the Lease which provides:
The Lessee shall indemnify the Lessor and keep the Lessor indemnified from and against all losses, damages, costs (including legal costs computed on a solicitor and owner client basis) and expenses incurred by the Lessor as a consequence or arising from a breach by the Lessee of the Lessee’s obligations under this agreement.
[90] I have found at [47] that Kid Country breached the Lease. Tobem is therefore entitled to costs in accordance with cl 3.9 which includes solicitor and owner client costs.
[91] The First Schedule of the Lease prescribes the interest rate to apply if there is a default under the Lease being 5% per annum above the lessor’s overdraft rate. It is therefore appropriate that this interest rate apply.
Result
[92] Tobem succeeds in its claim for damages. Accordingly, Kid Country is to pay Tobem the following:
(a)$1,879,602 for the difference in payments it would have received under the Lease and payments it may receive under replacement leases;
(b)$912,645.24 for expenses reasonably incurred in mitigation so as to relet the Premises;
(c)indemnity costs in accordance with cl 3.9 of the Lease; and
(d)interest at the contractual rate specified in the First Schedule of the Lease.
Tahana J
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