MJ & KIMKO COMPANY LTD v JNJ HOLDINGS LTD [2021] NZHC 3451

MJ & KIMKO COMPANY LTD v JNJ HOLDINGS LTD [2021] NZHC 3451 [14 December 2021]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2021-404-1212[2021] NZHC 3451IN THE MATTER OF an appeal from a decision of the DistrictCourt at AucklandBETWEEN MJ & KIMKO COMPANY LIMITED,KWANG-ON KIM and EUNOG KOAppellantsAND JNJ HOLDINGS LIMITEDRespondentCounsel: B P Rooney for appellantsM Singh and P S Kim for respondentJudgment: 14 December 2021JUDGMENT OF TOOGOOD J[Costs]This judgment was delivered by me on 14 December 2021 at 3.30pm, pursuant tor 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Solicitors:Queen City Law, Auckland for appellantsGlaister Ennor, Auckland for respondentIntroduction[1] MJ & Kimko Company Limited (Kimko) is a registered company whichoperated a Japanese food retail business, trading under the name "Matsu Sushi", fromshop F004 (the premises) within the Sky World Metro Complex on Queen Street,Auckland. Kwang-On Kim and Eunog Ko (the guarantors) are the directors andshareholders of Kimko who guaranteed the performance of Kimko under the lease ofthe premises from JNJ Holdings Limited (JNJ Holdings or the lessor) which owns andmanages the complex.[2] On 1 April 2021, in the District Court at Auckland, Judge Mathers enteredsummary judgment for JNJ Holdings against Kimko and the guarantors (collectively,the appellants) for unpaid rent for the premises after Kimko defaulted, but stayedexecution of the judgment pending disposition of a counterclaim.1[3] The appellants appealed against the summary judgment for unpaid rent. On11 November 2021, I allowed the appeal, set aside the District Court's summaryjudgment and remitted the claim for unpaid rent to the District Court for determinationfollowing a full hearing (the appeal judgment).2 I reserved costs and have nowreceived 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 acategory 2B basis. JNJ Holdings does not dispute the calculation of costs anddisbursements claimed but opposes an order, saying that the parties should bear theirown 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 undera deed of assignment (the deed of assignment). The initial deed of lease dated1 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 July2011 but was extended and varied by the deed of assignment to expire on29 July 2017. In discussions on 28 July 2017, Kimko confirmed it intendedto continue to lease the premises and approached JNJ Holdings to discuss theessential terms of a new lease. After the expiry of the initial deed of lease on29 July 2017, Kimko remained in occupation and possession of the premisesand continued to pay rent and outgoings in terms of the initial deed of leasewithout objection from JNJ Holdings while negotiations over the terms of anew lease took place. On 3 October 2017, in a letter described in the pleadingsas "a Lease Proposal" (the lease proposal), the "main terms" of a newagreement 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 bythe guarantors and they inserted and initialled a different provision. The leaseproposal as amended reads, as to the form of lease:The lessor and lessee agree to execute the lessor's standardlease for the premises with specific amendments to reflectterms that have been agreed. The lease is to be signed withinten (10) days of receipt. The parties acknowledge that the lessor'sstandard lease has not been provided and this is conditional uponthe 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 preparingthe lease deed 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 beeninitialled by the guarantors.[8] After the paragraphs containing the main terms, the lease proposalreads:Please note that this proposal is submitted subject to the approval ofthe Managing Director of JNJ Management Limited.[9] In her second affidavit sworn in opposition to the summary judgmentapplication on 12 February 2020, the third-named appellant Eunog Koexhibits a copy of the lease proposal confirming that the guarantors amendedand signed it on 5 October 2017. Ms Ko acknowledges that Kimko receiveda copy of the lease proposal signed, with the amendments initialled, by themanaging director of JNJ Management (who, it seems, is also managingdirector of the lessor) on or about 13 October 2017 after the guarantors hadreturned the amended lease proposal to him. From 13 October 2017,therefore, the lease proposal became an agreement to lease that was effectivefrom 1 August 2017 (the agreement to lease).[11] From 1 August 2020 Kimko defaulted in its obligations under theagreement to lease. On 25 November 2020, the lessor served notices toremedy pursuant to ss 245 and 246 of the Property Law Act 2007 (the PLA).Kimko remained in occupation of the premises until JNJ Holdings exercisedits right of re-entry on 15 January 2021 after the expiry of the PLA notice andKimko's failure to remedy the breach.[12] In its statement of claim, JNJ Holdings pleaded that the lease proposalwas "the Agreement" that contained the obligations of Kimko and theguarantors on which it sued:4 On 3 October 2017, JNJ leased the Shop F004, 291-297Queen Street, Auckland Central, Auckland (the Premises) to MatsuSushi by way of a Lease Proposal (the Agreement). The Agreementprovided, 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 themarket 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 premiseswith Matsu Sushi to approve the standard lease;(i) Matsu Sushi to pay reasonable costs in preparing the deed oflease;(j) Matsu Sushi to pay rental by automatic payment on the firstof the month; and(k) Matsu Sushi to obtain liability insurance for potential lossesand damages.JNJ relies on the Agreement as if pleaded in full (the Lease)[13] The appellants admitted that pleading in their amended statement ofdefence dated 31 March 2021, at [4].[14] JNJ Holdings' claim was for judgment in the sum of $89,694.48 as at30 November 2020, being the date of the statement of claim, plus rent up tothe date of judgment, interest and costs.[6] I found that the operative document describing the terms of the leasearrangements was the agreement to lease and noted that there was no reference in thestatement of claim, the application for summary judgment or the affidavit in supportto JNJ Holdings relying upon its standard lease in making its claim for the unpaidrent.3 I held that on the pleadings, including the affidavits, filed in support of and inopposition to the application for summary judgment, in the absence of contraryfindings of fact founded on the evidence, the terms of the initial deed of lease and thelessor's standard lease were, and remain, irrelevant to the matters at issue between theparties as pleaded.[7] The appellants' pleaded defences were:(a) that JNJ Holdings had breached the terms of the lease and derogatedfrom its obligations under the lease and under the law so as to make itimpossible for Kimko to pay any money to JNJ Holdings; and(b) that the amount of the rent, outgoings and other payments to be paid byKimko, 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 thefood retail shops in the food court could succeed and prosper together [9] Arguing that JNJ Holdings "intentionally or negligently derogated from thelease", Kimko pleaded not only the defence to the claim for unpaid rent butcounterclaimed for the sum of $120,000 for loss of income and $160,000 for loss ofbusiness goodwill, plus interest.[10] I held that, in entering summary judgment on the claim for unpaid rent butreserving Kimko's counterclaim for a full hearing, the District Court Judgemisapprehended the appellants' pleaded case by apparently considering that theallegations about the derogation from the lease applied only to the counterclaim and3 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 DistrictCourt judgment in these terms:[34] In summary, therefore, the District Court Judge misidentified factualdisputes between the parties that did not exist, failed to acknowledge theassertion that there was a direct causal connection between the allegedderogation from the lease by JNJ Holdings and Kimko's alleged inability topay the rent and overlooked the sworn basis for the appellants' challenge tothe quantum of unpaid rent that was claimed.[11] After observing that the summary of facts and the respective claims of theparties in the District Court summary judgment mischaracterised the issues and theposition taken by the appellants, I said:4That may have been at least in part because, if the Judge's summary of thesubmissions on behalf of the defending parties is accurate, the case for theappellants 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 underlyingthe derogation claims, but she may have been misled into concluding that theclaims were relevant only to the counterclaim for damages. It appears theJudge did not appreciate that they also provided an arguable defence to theclaim for recovery of unpaid rent and that Grant6 was authority for refusingsummary 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 costson the appeal. It is fair to observe, however, that the argument for theappellants on appeal did not focus as narrowly as it could have done on whichof three lease documents governed the relationship of lessor and lessee in thiscase and whether the ability to set off the cross-claim was precluded bycontractual terms. Moreover, it appears that the argument for the appellantsin the District Court may not have clearly articulated their reliance on thealleged conduct of the lessor in running down the complex as founding both adefence of derogation and contractual causes of action for loss of profits andloss of goodwill.[54] It may be that had the appellants' case been put to the District CourtJudge more fairly and squarely, summary judgment would not have beenentered. In this Court, the appellants' submissions address at some length thefalse premise that the terms of the initial deed of lease and the standard lease4 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 aconclusion that costs should lie where they fall.[14] I made it clear, however, that I did not make any determination that the partiesshould bear their own costs and I have kept an open mind about that possibilitypending receipt of counsel's submissions.Refusal of, or reduction in, costsThe respondent's submissions[15] Unsurprisingly, counsel for JNJ Holdings rely on the Court's discretion torefuse or reduce costs set out in r 14.7 of the High Court Rules 2016. The ruleprovides, so far as is relevant:14.7 Refusal of, or reduction in, costsDespite rules 14.2 to 14.5, the court may refuse to make an order for costs ormay reduce the costs otherwise payable under those rules if—(d) although the party claiming costs has succeeded overall, that party hasfailed in relation to a cause of action or issue which significantlyincreased the costs of the party opposing costs; or(f) the party claiming costs has contributed unnecessarily to the time orexpense of the proceeding or step in it by—(ii) taking or pursuing an unnecessary step or an argument thatlacks merit; or(g) some other reason exists which justifies the court refusing costs orreducing costs despite the principle that the determination of costsshould be predictable and expeditious.[16] Referring to my comments at [53] and [54] of the appeal judgment,7 counselfor 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 "falsepremise" 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 hadthe appellants' arguments been put to the District Court Judge "morefairly 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 proposaland accepted that the parties were bound by the terms of the standardlease; and(b) made references to and relied upon selected provisions in the standardlease relating to JNJ Holdings' obligations as landlord.The appellants' response[18] For the appellants, Mr Rooney argues that the appellants' case on the appealwas that there had been a breach of contract, or frustration, or failure of considerationby 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 theappellants' case which lease document applied". He says that the relevance to theappellants' argument on the appeal regarding the initial deed of lease and the "standardlease" was evidential and directly related to the defences because both made it clearthat the mutual intention of the parties was that the premises were for a specificpurpose and contained specific provisions which reflected that.[19] Mr Rooney points to aspects of the way in which the respondent's case in theDistrict Court relied on provisions of the initial deed of lease and the standard lease inrespect of claims for interest and indemnity costs, and argues that the appellants wereentitled to assume on appeal that the respondent's argument to that effect would befollowed. He says that was what occurred. The respondent claimed indemnity costsunder the terms of the standard lease and on the "no set-off" clause and a "no warrantyas to suitability" clause in the standard lease. He says that the respondent's case onappeal was framed accordingly.[20] Mr Rooney argues also that criticisms at [53] and [54] of the appeal judgmentdo not obviously fall within any of the grounds set out in r 14.7 for a refusal of orreduction in costs and that they would be unlikely to outweigh the factors in r 14.2 soas to justify a complete refusal of costs. He submits that an argument could be madeout by the appellants that the failure of the respondent to keep within the bounds of itsown pleaded case should result in increased costs against it, although that point is notbeing pursued.[21] Mr Rooney also argues that this Court should not draw inferences simply fromthe District Court judgment about the way in which the respondent's case was arguedin support of the summary judgment application.Discussion[22] It is clear, in my view, that both the appellants and the respondent demonstratedconfused 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 inferencesover 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 tome. But neither the appellants nor the respondent focused on the respective pleadedcases in the statement of claim and the amended statement of defence which identifiedthe agreement to lease based on the lease proposal as comprising the terms underwhich the respondent was entitled to sue for rent.8[23] Notwithstanding the pleaded position, the appellants relied on the initial deedof lease in pleading relevant obligations at para 19 of the counterclaim and also relied8 See paras 4 and 5 of the statement of claim and paras 4, 5, 8 and 12B of the amended statement ofdefence.on the initial deed of lease at para 31 regarding the provision in that documentpreventing Matsu Sushi from changing its menu.[24] Moreover, the issues on appeal, at least so far as the written submissions areconcerned, were shaped by the appellants' submissions relying on the Court ofAppeal's judgment in Grant v NZMC Ltd,9 and on provisions in the initial deed oflease 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 ofthe appellants:1112. The assigned lease expired in 2017. No replacement lease wasexecuted, but the appellants signed a form of agreement to lease,which referred to the agreed lease as the respondent's "standardlease". The judge in the District Court seemed to have accepted thatthe appellants were bound by the "standard lease", and summaryjudgment under it was entered against the appellants. Theapplicability of the standard lease is not challenged in this appeal.35. the issue is not so much one of counterclaim or set off. What isimportant is that the respondent, by running down the food court,ceased to provide what it had agreed, by the lease, to provide to theappellants. In the present case, there was no separate or collateralcontract as in Grant, and there was no derogating conduct outside ofthe lease (as in Mount Cook).12 There was derogating conduct whichwent to and diminished the very subject matter in the lease – the natureof the premises which the respondent said it would make available tothe 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 "thelease" is to the standard lease.[27] I accept the submission on behalf of the respondent that, in examining thewording of the clauses in the standard lease in its written submissions on appeal, therespondent's argument flowed from the appellants' reliance on Grant. I agree thatMr Rooney's proposition, that it did not matter to the appellants' case which leasedocument 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 theDistrict Court and again on appeal, in reliance on the provisions of both the initial deedof lease (in the District Court) and the terms of the standard lease (in its writtensubmissions on appeal). That approach diverted attention from the case it had pleadedin 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 areduction in the costs payable to the appellants on the grounds described inrr 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 J13 High Court Rules 2016.