OODIAN (AUCKLAND CITY) LIMITED V COLWALL PROPERTY INVESTMENT LIMITED HC AK CIV 2005-404-002061

OODIAN (AUCKLAND CITY) LIMITED V COLWALL PROPERTY INVESTMENT LIMITED HC AK CIV 2005-404-002061 15 March 2006IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2005-404-002061BETWEEN OODIAN (AUCKLAND CITY) LIMITED Plaintiff AND COLWALL PROPERTY INVESTMENT LIMITED Defendant Hearing: 13 March 2006 Appearances: Mr B Bhanabhai granted leave to withdraw Mr C Naidoo, Company Director, appearing by leave for the Plaintiff Ms Hunt for Defendant Judgment: 15 March 2006JUDGMENT OF VENNING JSolicitors: Beca & Co, PO Box 91-441, Auckland Dyer Whitechurch, PO Box 5547, Auckland Copy to: Barbara Hunt, PO Box 5494, Wellington Mr C Naidoo, 8 Del Mar Court, Howick, AucklandIntroduction[1] The plaintiff and defendant were in a lessee/lessor relationship in relation to premises at the Atrium on Elliott. The plaintiff sues the defendant alleging breach of contract, conversion and breach of the Fair Trading Act. The defendant counterclaims for rental and other costs and expenses due under the terms of the lease.Representation[2] The plaintiff has been represented throughout the proceedings by a solicitor and counsel. However, counsel withdrew before the fixture that was originally scheduled to commence on 27 February 2006. Mr Bhanabhai's firm, Dyer Whitechurch agreed to represent the plaintiff at that time and successfully sought an adjournment of the fixture to a later date. [3] This fixture was rescheduled to 13 March 2006. Unfortunately at the outset of the fixture on 13 March 2006, Mr Bhanabhai also sought leave to withdraw. The plaintiff has not been able to provide proper instructions to Mr Bhanabhai or his firm. Mr Bhanabhai was granted leave to withdraw without opposition. Mr Naidoo, the director of the plaintiff company, appeared before the Court. After hearing from Mr Naidoo I granted him leave to represent the plaintiff company given that on the day of the fixture the company was left without representation. I accepted that this was an urgent situation where the justice of the case required leave to be granted to Mr Naidoo to represent the company: Re G J Mannix Ltd [1984] 1 NZLR 309 (CA). [4] Mr Naidoo took part in the hearing, made submissions on behalf of the plaintiff and cross-examined the defendant's witness. He also gave his evidence by reading a written statement that had been prepared for him by former counsel and which had been reduced to a witness statement.Background[5] The plaintiff held the Auckland city franchise for a food retail outlet called Nandos. The plaintiff wished to establish an outlet in central Auckland. The defendant owned property known as the Atrium on Elliot. On 5 September 2001 the parties completed a heads of agreement in respect of premises known as Shop No. 1.12B Level 1 Atrium on Elliot. The term of the lease was for six years from 1 September 2001. The rental was $60,000 per annum plus GST. The heads of agreement also included a clause dealing with the hours during which the restaurant precinct (of which the plaintiff's leased premises formed part) was to be open. [6] The heads of agreement also confirmed the parties would take a lease of the premises in the draft form attached to the heads of agreement, amended to take account of the terms set out in the heads of agreement. [7] The plaintiff took possession of the premises. The defendant's solicitors provided the agreed standard lease (amended to reflect the terms of the agreement) to the plaintiff's solicitors in November 2001. The lease was returned by the plaintiff's solicitors on 12 December 2001. The lease had been executed by the plaintiff but the plaintiff had also made some further alterations to it. [8] From the outset there were difficulties between the plaintiff and defendant. Initially the difficulties centred on the opening hours. The shopping centre of which the leased premises formed part took in separate levels and included retail shops. The retail shops did not open for the extended hours that the restaurant precinct operated. In the heads of agreement the plaintiff had sought to open for even more extensive hours. The defendant was required to provide additional toilets to the restaurant area and incurred additional costs to prevent access to other parts of the mall to maintain the longer opening hours the plaintiff sought. Other food outlets in the restaurant precinct did not keep to the extended opening hours. Issues arose between the parties concerning the opening hours. The parties held a meeting in February 2002. Following that meeting the defendant wrote to the plaintiff setting out its position and noting its concern inter alia that while the plaintiff had expresseda desire to stay open the plaintiff had also varied trading hours and closed before the scheduled time. [9] The plaintiff's business was not successful. From time to time the plaintiff fell into arrears under the lease. By 25 March 2003 the position had deteriorated to the point the defendant made formal demand for arrears of $12,287.73 relating to utility, rates and rent costs. The plaintiff failed to pay. The defendant terminated the lease and changed the locks. [10] The plaintiff initially issued those proceedings in the District Court in July 2003. The proceedings were subsequently transferred to this Court and an amended claim filed in November 2004. [11] The plaintiff alleges breach of agreement to lease in particular in relation to the trading hours provision; detinue and conversion of the plaintiff's property; and breach of the Fair Trading Act, based on representations by the defendant as to the trading hours. [12] The defendant counterclaims seeking damages for loss of bargain.Issues• Was there a binding equitable agreement to lease?• What were the terms of that equitable agreement to lease, particularly in relation to the operating hours?• Was the defendant in breach of the agreement relating to operating hours or did the defendant misrepresent its position in relation to operating hours during the negotiations?• If the defendant is in breach or misrepresented its position is the plaintiff discharged from liability under the lease?• The defendant's counterclaim.The nature and terms of the agreement[13] Mr Webb-Speight gave evidence for the defendant. He negotiated the heads of agreement with the plaintiff. Mr Webb-Speight's evidence was that there were a number of drafts of the heads of agreement. The drafts provided for a standard lease document to be attached. Mr Webb-Speight said that the draft was too bulky to attach but a copy of that standard lease document was provided to Mr Naidoo for the plaintiff at the last meeting and prior to execution of the agreement. The only changes made to that standard lease by the defendant were to complete the relevant sections in the reference schedule and the Fourth and Sixth Schedules, to reflect the terms of the agreement. [14] Mr Naidoo disputed that a copy of the draft lease was given to him prior to the completion of the heads of agreement. He also said that he was told the agreement would be on a standard Law Society form lease. [15] I prefer the evidence of Mr Webb-Speight on this issue. Mr Naidoo raised the suggestion that the standard form lease was to be in the form of a Law Society lease for the first time in the course of his evidence before the Court. He did not refer to that in his witness statement, nor was it a point taken by his solicitors when they returned the lease agreement in December 2001. Further, given the nature of the premises a standard form Law Society lease would not have satisfied the defendant's lessor's requirements. I accept that the defendant did not refer to the draft lease as a standard Law Society form and that the lease was provided to the plaintiff prior to its execution of the heads of agreement. [16] I also find that, subject to the changes the plaintiff sought to make to that standard form, the plaintiff confirmed its acceptance of the standard form of lease and the heads of agreement by execution of both the heads of agreement on 5 September 2001 and execution of the standard form lease (with the changes that it had made) and returning that with its solicitor's letter of 12 December 2001.[17] In the circumstances I find there was a binding equitable agreement to lease for a term of six years commencing 1 September 2001 and terminating 31 August 2007 in which specific performance would have been available notwithstanding that the formal lease was not executed by the defendant and notwithstanding the lease was not registered: Walsh v Lonsdale (1882) 21 ChD 9.The operating hours issue[18] Clause 15 of the heads of agreement provided:Restaurant precinct trading hours are Monday – Thursday 9.00am – 7.00pm, Friday 9.00am – 10.00 pm. Saturday 10.00 am – 10.00 pm and Sunday 10.00am – 5.00pm. The Lessee must open the premises during trading hours for trade during the restaurant precinct hours. The Lessor may vary trading hours at some future date to the extent that Government legislation or statutory or other tribunals permit. The Lessee must obtain the Lessor's prior consent to trade outside the minimum trading hours and the Lessor may, as a condition of the grant of any consent, require the Lessee to pay an extra contribution towards the operating expenses of the Centre.[19] The trading hours were also dealt with in the lease. Clause 8.23, which was a lessee's covenant provided:Breach of Business Hours8.23 The Lessee will at all times during the Lease keep the Premises open for retail trade during Usual Business Hours. In the event of breach by the Lessee of this clause, the Lessor shall be entitled to recover from the Lessee as liquidated damages arising from such breach such sum as is equal to twice the average Rent payable by the Lessee at the time of such breach for each day or part day during which the breach continues.Usual business hours was defined in the lease as:A minimum of 9.00am to 7.00pm Monday to Thursday, 9.00am to 7.00pm Fridays, 10.00am to 5.00pm Saturdays and 10.00am to 5.00pm Sundays and as otherwise varied by the Lessor to the extent that legislation or regulations permit.[20] It is of interest that the scheme of the lease in clauses 12.4 and 12.5 in particular is that there was an obligation on the plaintiff to be open during the business hours identified in para 8.23, rather than the plaintiff having the right to be open during those hours. There is also a difference between the "usual businesshours" as defined in the agreement to lease executed by the plaintiff and the heads of agreement which provided for opening hours of 10.00 p.m. on Fridays and Saturdays. [21] Both clause 15 of the heads of agreement and clause 27 of the lease provided flexibility for the defendant as lessor to alter the trading hours. Clause 27 provided:The normal hours of operation of the Centre and the Complex shall be determined from time to time by the Lessor having reasonable regard to the need to accommodate the various working hours of the various lessees in the Complex and the Centre. [22] Having heard the evidence of Mr Webb-Speight and Mr Naidoo on the issue I accept that the intention of the parties at the time the lease was entered was that the restaurant precinct would be open for the usual business hours as was required in the lease but that at Mr Naidoo's request access would be provided to the restaurant precinct outside those hours, particularly to 10 p.m. on Friday and Saturday nights. Further, I find as a fact that the defendant constructed additional toilet facilities, reprogrammed the access control security system, provided security and additional cleaning in order to enable the plaintiff to open for the extended hours that it sought.Was the defendant in breach or did it misrepresent the position of operating hours?[23] The difficulty for the plaintiff was that the retail shops in of the premises did not keep the extended hours that the plaintiff wished to operate. The plaintiff did not have the custom it needed to make the extended opening profitable. After a relatively short period of time the plaintiff itself did not keep to the extended hours and in fact shut earlier than the usual business hours defined in the lease from time to time. While I accept Mr Naidoo's evidence that he experienced some difficulty with the security system and with access I do not accept the difficulties were as extensive as he suggested. When the matter was drawn to the defendant's attention it did what it could to address the issue. The defendant's position was addressed in a letter written to the plaintiff in a letter dated 11 March in which the defendant said:We have yet to finally conclude exactly what trading hours you wish to open under. From my notes, I understood that you wanted to stay open until10.00pm on Friday and Saturday nights, but otherwise would conform to the existing Food Gallery opening hours. We understand also that you have experienced problems with the entrance doors failing to open during extended trading hours, and we have personally checked this out. As a result, we have been unable to find the same problems that you had described, and would ask that you immediately contact either the Security Guard or myself when this occurs again. Ron, we really need to get this issue of opening hours finalised and set into place. As detailed to you at the meeting, you were counselled by myself on at least two occasions that there was little business outside the core trading hours, yet you were adamant that you wished to stay open longer. As a result, the owners invested almost $50,000.00 in after hours toilet facilities for your customers, which we now find are basically not needed. Additionally, your attempt at extending trading hours required substantial changes to the building security procedures and many hours of work to re-programme various alarms and grills.[24] Also, and later in the same letter, the defendant said in relation to trading hours:We must point out that you cannot simply vary your trading hours, either because it is quiet or you wish to undertake cleaning of your outlet. Therefore, if you decide to open until 10pm on Friday and Saturday nights, then you must trade until that time every Friday and Saturday night until the expiry of your lease.[25] Mr Naidoo suggested in evidence that the letter reflected an attempt by the defendant to renegotiate the terms of lease recorded in the heads of agreement. However, having heard both Mr Webb-Speight and Mr Naidoo's evidence on the issue and considering the letter in context I find the position to be as follows: the plaintiff wanted to open outside the standard opening hours of the centre provided for in the lease and the defendant was prepared to facilitate the extended opening hours by the plaintiff as it considered that may lead to an extension of opening hours of the other restaurants in the centre. The defendant accordingly made the capital outlay for the toilet facilities required and also made changes to the security system to enable customers to have access to the restaurant precinct outside the normal opening hours of the centre. However, within a short period of time the plaintiff found the extended opening hours were not economical. The letter of 11 March 2002 was not an attempt to renegotiate the matter but rather was a record of the defendant's frustration that despite the plaintiff's insistence on having access outside the normal hours of the centre, and despite the efforts and costs that the defendanthad been put to the plaintiff had begun to close early, even earlier than normal operating hours. [26] I also note that although the plaintiff fell into arrears under the lease during 2002 at no time did the plaintiff formally raise the issue of the defendant's supposed failure to permit the plaintiff to trade outside the usual business hours and to 10.00 p.m. on Friday and Saturday nights as a reason for its failure to meet rental or as a fundamental breach of the term of the lease agreement until the defendant had terminated the lease.Result[27] The plaintiff has failed to make out any actionable misrepresentation by the defendant or its representatives at the time the heads of agreement was entered. I accept that at the time the heads of agreement was entered into the defendant intended to facilitate extended opening hours sought by the plaintiff and, indeed, took steps to facilitate that. [28] For the same reason I find as a fact the defendant was not in breach of any obligation under the agreement to lease to provide opening hours for the restaurant precinct to 10.00 p.m. on Fridays and Saturdays. [29] I accept Mr Webb-Speight's evidence that he was surprised by Mr Naidoo's claims access was not available and the doors did not work as no complaints had been made to him. I also note that Mr Naidoo did not formally raise the matter during 2002 after the defendant's letter of 11 March 2002. [30] Significantly, as Mr Webb-Speight observed, by the time of the February meeting the defendant was already having difficulties with the plaintiff's operation because the plaintiff had failed to keep its business operating even during the normal hours of the retail precinct. That was expressly referred to in the letter of 11 March 2002.[31] Even if there was such a breach it was not a breach entitling the plaintiff to terminate the lease itself. The operating hours were not an essential term of the contract breach of which would have entitled the plaintiff to cancel: Contractual Remedies Act s 7(3)(b). It can hardly be said to have been essential to the plaintiff to have had the restaurant premises open till 10.00 p.m. on Friday and Saturday evenings when the plaintiff did not operate those hours when it had the opportunity to do so. The plaintiff may have had an expectation that other retail shops in the business would be open later and other restaurant businesses would open later but any such expectation was not a contractual term. [32] In summary the plaintiff has failed to make out a basis for a claim for misrepresentation or breach of lease by the defendant, quite apart from the fact the plaintiff led no evidence to prove any loss as a consequence of such breach or misrepresentation. The plaintiff's claim against the defendant under those heads fails. [33] For present purposes, the defendant accepts that it has retained chattels belonging to the plaintiff. It did so in exercise of its rights under the deed of lease following default by the plaintiff. The defendant accepts that the plaintiff is entitled to a credit for the value of those chattels.The defendant's counterclaim[34] That leaves the defendant's counterclaim. There is no challenge by the plaintiff to the pleading that the plaintiff has failed to make payment of rental and other costs under the lease. Mr Webb-Speight's evidence as to his calculation of the amounts owing was also largely uncontested by Mr Naidoo for the plaintiff. [35] I accept the defendant's quantification of its counterclaim as follows:Arrears to the date of termination $12,022.76 Damages from termination to date of the hearing $199,510.43 Less rent received in mitigation $49,674.52 __________ $161,858.67Plus present value of rent from court case to end of term @ 8% $75,244.94 __________ $237.103.62 Rates $2,933.65 Signage $1,083.00 Lease preparation costs $1,008.89 _________ $5,025.54 Plus legal enforcement costs to date $33,594.36 Interest @ 15% per the lease to date of termination $2,739.71 Interest @ 7.5% judicature rate following termination $19,236.28 __________ $297,699.51[36] From that figure must be deducted the market value of the plaintiff's chattels retained by the defendant. During the course of the proceedings the parties agreed upon the joint appointment of a valuer to fix the value of chattels. They agreed that Mr Bensemann of Action Auctions would value the chattels. In September 2003 Mr Naidoo agreed that if the judgment went against him and he took the chattels he would pay the market value of the chattels fixed by Mr Bensemann. In fact the chattels have been retained by the defendant. The defendant accepts the figure Mr Bensemann fixed for the chattels should be deducted from the defendant's claim for damages. Mr Bensemann valued the chattels in the sum of $25,145.00. [37] The net result is that the defendant is entitled to judgment sought in the sum of $272,554.51.Ordersa) The plaintiff's claim against the defendant is dismissed. b) The defendant has judgment against the plaintiff in sum of $272.554.51.c) Costs to the defendant on a 2B basis together with disbursements as fixed by the Registrar on all steps in the proceedings where costs have not yet been fixed by the Court, save for the costs on the plaintiff's application for further and better discovery which are to be costs to the plaintiff in any event. __________________________ Venning J