TOBEM HOLDINGS LIMITED v KID COUNTRY HOLDINGS LIMITED (in liquidation) [2023] NZHC 98

TOBEM HOLDINGS LIMITED v KID COUNTRY HOLDINGS LIMITED (in liquidation) [2023] NZHC 98 [3February 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV 2020-404-000987[2023] NZHC 98UNDER Section 248 of the Companies Act 1993BETWEEN TOBEM HOLDINGS LIMITEDPlaintiffAND KID COUNTRY HOLDINGS LIMITED (inliquidation)DefendantHearing: 13 December 2022Appearances: D R Bigio KC & T Nelson for the PlaintiffK A Cocks as liquidator for the DefendantJudgment: 3 February 2023JUDGMENT OF TAHANA JThis judgment was delivered by me on 3 February 2023 at 4.00pmPursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors/Counsel:D Bigio KC, AucklandT Nelson, AucklandWaterstone Insolvency, AucklandIntroduction[1] Tobem Holdings Limited (Tobem) was granted leave to continue its claimsagainst Kid Country Holdings Limited (in liquidation) (Kid Country). The claimswere 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 November2016, 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 toTobem when Tobem purchased the Property.[3] Prior to assignment of the Lease, Kid Country disputed the calculation of rentalbecause 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 hasbreached 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 andoutgoings?(b) If yes, what losses has Tobem suffered as a result of any breach of theLease?(c) Are any counterclaims available to Kid Country such that it is not liablefor any of the losses claimed?BackgroundHeads of agreement[5] Vaco is a property developer. Mr Arnerich of Vaco commenced negotiationswith Mr Lowry of Kid Country about building a childcare facility. On 9 November2016, 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) wasissued for the new building;(b) the initial term of the lease would be 15 years with two rights of renewalof ten years each;(c) the annual rent would be $50 per child per week being $390,000 (plusGST) per annum if there were 150 children plus "50% of pro rata shareof operating expenses, Rates and outgoings all Plus GST";(d) the rent would rent would increase each year until it reached $390,000per annum after two years:Year 1 Rental 75 license being $195,000 paAfter 18 months a further 50 license being a further $130,000paAfter 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 begranted; and(f) Kid Country would pay 50 per cent of the "operating expenses for itspremises."[6] Vaco arranged for its solicitors to prepare an agreement to lease to reflect theterms of the HOA. A draft agreement to lease was provided to Kid Country for reviewon 17 November 2016.Terms of the Lease[7] On 21 November 2016 Kid Country's solicitor confirmed there was no issuewith the draft terms except that the lease needed to refer to the latest Auckland DistrictLaw Society (ADLS) lease template.[8] Vaco then provided the final version for Kid Country to sign and on23 November 2016 Vaco and Kid Country signed the Lease. The key terms of theLease reflected the HOA except that:(a) clause 4.10 provided that the annual rent would be calculatedon 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 ifthe 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 bebased on 50% of licenced places (being $195,000 plusGST per annum based on 150 licenced places).2. After 18 months from the commencement date ofthe Lease, based on a further 75% of licenced places),the Rent shall increase to $325,000 plus GST perannum.3. After 2 years from the commencement date of theLease, based on 100 % of licenced places, the Rentshall increase to $390,000 plus GST per annum.4. Thereafter, the Rent shall increase by CPI rentreviews annually and Market Rent Reviews (as moreparticularly set out below).(c) Kid Country would pay 50 per cent of the "Outgoings in relationto the Development."Resource consent[9] On 1 March 2017, resource consent was granted for a 150-child childcarefacility.Sale of Property[10] On 22 February 2019, Vaco sold the Property to Narendra Patel with asettlement date of 19 July 2019. The sale and purchase agreement (SPA) provided thatthe Lease was to be assigned to the purchaser. Mr Patel subsequently nominatedTobem 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 "mistakesin the lease document that need fixing" and suggested that the errors had arisenbecause the solicitors who drafted the Lease had ignored the HOA. Mr Lowry pointedto differences between the HOA and the Lease, including that the rent was linked tothe 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 noeffect. Vaco rejected this request and denied Kid Country had any right to terminatethe Lease.[13] On 19 July 2019 Vaco notified Kid Country that a CCC had been issued forthe Premises. The Lease was therefore to commence on 18 August 2019 (being 30days 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 nottake possession of the Premises.Non-payment of rent and outgoings[15] On 20 November 2019, Tobem issued a perpetual invoice to Kid Country forpayment 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 KidCountry was $54,556.57 in arrears.[16] On 5 February 2020 Tobem notified Kid Country under s 245 of the PropertyLaw Act 2007 (the PLA) of its intention to cancel the Lease for non-payment ofoutgoings (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 20May 2020, Tobem issued a notice under the PLA notifying Kid Country of its intentionto 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 tofind 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). Thekey 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 willbe subject to market rent reviews on each renewal date (the fifteenthand twenty fifth anniversary of the Commencement Date) and annualCPI rent reviews.[21] On 20 April 2022 Tobem and Just Kidz executed a formal deed of lease asanticipated in the ATL.Procedural history[22] On 29 June 2020, Tobem commenced proceedings against Kid Country andVaco. Tobem filed an amended statement of claim on 30 November 2020 allegingbreach of the Lease by Kid Country, and breach of the SPA and misrepresentation byVaco. Affidavit evidence was subsequently filed in late 2020 by Mr Arnerich, asdirector of Vaco, Mr Lowry, as director of Kid Country, Mr Urlich (real estate agentacting 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 fourcounterclaims for misrepresentation; misleading and deceptive conduct; mistake; andwrongful cancellation. Tobem filed a reply to the statement of defence andcounterclaims on 7 May 2021.[24] Kid Country was placed into voluntary liquidation on 31 May 2022, nineworking days prior to the scheduled trial.[25] When leave was granted to continue its claim, the Court ordered that evidencemay be given by affidavit, pursuant to r 9.56(1) of the High Court Rules 2016 (theRules). The affidavit evidence filed for the trial was therefore before the Court for theformal 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 proofhearing 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 establisheach cause of action to a judge's satisfaction.1 Duffy J has held that "the level at whicha Judge is required to satisfy herself regarding the plaintiff's evidence is much thesame as it would be if the proceeding had gone to trial."2[29] If damages are sought the plaintiff must provide sufficient information toenable the Judge to calculate and fix the damages.3[30] I therefore consider whether the evidence filed proves each of the causes ofaction 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 andoutgoings 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," whichwas defined as 7.5 months from the "Commencement Date." The CommencementDate is defined as 30 days after the lessor advises that a CCC had been issued. This1 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 therefore18 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] referto rent being based on the resource consent on the one hand, and based on "licensedplaces" 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 ofEducation (MOE) licensed places. The MOE is responsible for issuing a licenceconfirming the total number of children authorised to be in the childcare facility. ThePremises was only capable of being licensed for 118 children. This interpretation isconsistent with the HOA which provided that rent would be calculated at $50 per childper week and the number of children linked to licensed places.[36] Tobem submits that the number of MOE licensed places is an "operationalmatter" over which Vaco had no control. Tobem also refers to correspondencebetween Vaco and Kid Country which stated:As discussed, the premises have a resource consent for 150 places. The agreedannual rental calculation was based upon the premises having this resourceconsent. Plans were provided to your client showing the suggested fitout toaccommodate this number of places. In our client's view, if the actual numberof available places has been reduced from the original plans then that wouldbe largely due to your client's changes to these plans and fitout and operationalrequirements.[37] Mr Lowry's evidence is that the number of licensed places is linked to thespace within and outside the childcare centre. He says that Kid Country had no controlover the architect, who was engaged by Vaco, and Vaco could therefore influencewhether the available space was sufficient for 150 licensed places.[38] Vaco is the developer and owner of the building and I accept the spaceavailable was within its control. Further, it makes more commercial sense for rentalto be linked to licensed places rather than the resource consent as the former is linkedto the potential revenue available to the lessee. The facility is more valuable if thereare more licensed places. In contrast, the number in the resource consent does notreflect value unless it is linked to potential returns, which it is not without the MOElicences.[39] I consider that the reference to "licensed places" in the First Schedule shouldbe read as referring to MOE licensed places as this is consistent with the languageused, the prior negotiations between the parties, the HOA and commercial sense. Aresource consent does not "licence" places and is not a licensing regime.[40] I therefore need to consider the wording in the First Schedule: "subject toamendment in accordance with clause 4.10." That wording indicates that the FirstSchedule should be amended if it is inconsistent with cl 4.10. That supports the rentalbeing based on the 150 children referred to in the resource consent and not "licensedplaces."[41] The rent is therefore to be calculated in accordance with cl 4.10 on the basis ofa 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 theCommencement 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 tothe Lease as "a childcare centre and retail development within the existing building onthe Land."[43] Kid Country claimed in its statement of defence that it is only required to pay50 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 thatrelates 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 foroutgoings to be half of those attributable to the childcare centre. This would requirethe 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 theargument that it does not make commercial sense for the lessor to pay 50 per cent ofthe outgoings attributable to the childcare facility. The lessor does not control the useof the childcare facility. Further, the childcare facility is part of a larger building withother retail uses and this is consistent with the lessee of that facility only paying 50per cent of the total outgoings for all of the building.[46] The Lease therefore required Kid Country to pay 50 per cent of the outgoingsfor 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 thatKid Country breached the Lease.Has Tobem suffered loss?Mitigation[48] A lessor may recover reasonable expenses incurred to avoid or diminish thedamage arising from the lessee's breach. That is so even if the resulting damageexceeds the damage that would have been suffered had no mitigating steps beentaken.4[49] Mr Patel deposed that Tobem undertook an extensive refit of the Premises onprofessional advice from Mr Gilbert, a real estate agent. Tobem has since entered intoa new lease with Just Kidz for part of the Premises (1,270.2 m2). The rest of thePremises (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 Ltdv Kent Sing Trading Company Ltd [2017] NZHC 3274 at [380].Supplier Invoice Date GST exclusive GST inclusiveGo Planning INV-0075 1 July 2020 $7,778.00[$13,003.00]5$8,944.70[$14,953.45]LifestyleArchitecturalServicesINV-1044812 August2020$12,700.00 $14,605.00Go Planning INV-0085 1 September2020$3,960.00 $4,554.00Total $24,438.00 $28,103.70[51] Tobem seeks $937,000.00 for expenses reasonably incurred in mitigation. Thisis 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 leavesexpenditure of $912,645.24 (excluding GST).[53] I therefore accept that the alterations were reasonable given they were takenon professional advice. Further, the alterations resulted in part of the Premises beingleased to a new tenant so did enable Tobem to mitigate its losses. Tobem is thereforeentitled 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 itwill receive under new leases and the payments it would have received under the Leasewith Kid Country.[55] A lessor who cancels a lease during its term and relets the property at a lowerrent is entitled to damages based on the difference between:75 There are two invoices from Go Planning numbered INV-0075 and dated 1 July 2020. The secondinvoice incorporates all the details and charges of the first and adds additional items. Only theduplicated items, totalling $7,778.00 (excluding GST) are included in the above calculation to bededucted 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 wouldhave been recoverable); and(b) the 'rental value' of the premises at the date of cancellation,8 being thelevel of rent which can actually be obtained on the prevailing rentalmarket on that date.[56] Valuation evidence is not required. The best evidence is the rent which isobtained by actively endeavouring to relet.9 If the landlord establishes there is noavailable market for a replacement lease of similar terms, damages are to be assessedby refence to its actual loss.10[57] Tobem says it would have received rental of $5,837,000 (plus GST) from KidCountry 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 basedon annual rent of $210,660 (plus GST), a 50 per cent rent rebate for the first 12 monthsand 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 ofthe Premises (still unrented), based on $200 per square metre with a rent-free periodof one year.[59] Tobem thereby estimates that the difference between what it would havereceived under the Lease with Kid Country and the amount it may actually receiveunder new tenancies is (at least) $1,879,602.[60] I accept that both the actual rental to be received from Just Kidz and theestimated rental for the remaining area are appropriate measures of the rental value ofthe 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 byreconfiguring the Premises; and(b) $1,879,602 in loss of rental value arising from Kid Country'sfailure to pay rental for the term of the Lease.[62] I now consider whether there are any counterclaims available to Kid Countryto 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 itwas induced to enter the Lease by Vaco's misrepresentations as follows:(a) the total net licensable interior and exterior play space available to thechildcare centre would allow 150 MOE licences;(b) Kid Country would only be liable to pay 50 per cent of the outgoingsfor 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 priordiscussions.[64] The above representations were allegedly made prior to the Lease. I thereforeneed to consider whether the terms of the Lease are conclusive or whether I shouldinquire 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 anyadvertisement or any brochure issued in relation to the Building or by anyservant or agent of the Lessor whether in relation to the Building, the Premisesor otherwise, nor does it warrant the suitability of the Premises for any purposeand the Lessee acknowledges that the Lessee enters into this agreement inreliance 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 frominquiring into or determining the question of—(a) whether a statement, promise, or undertaking was madeor given, either in words or by conduct, in connectionwith or in the course of negotiations leading to themaking of the contract; or(b) whether, if it was so made or given, it constituted arepresentation 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 anddetermining any question referred to in subsection (1) unlessthe court considers that it is fair and reasonable that theprovision should be conclusive between the parties, havingregard 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 lawyerat the time of the negotiations or at any other relevanttime.[67] I may therefore inquire into the alleged representations unless I consider it isfair and reasonable that cl 9.4 of the Lease is conclusive having regard to thecircumstances 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 isa significant amount. The Lease was for a childcare facility which was a critical assetfor Kid Country's business.[69] The Lease was negotiated largely between commercial parties, Mr Lowry andMr Arnerich, and not by lawyers. While the HOA does not appear to have been draftedby lawyers, the Lease was drafted by Vaco's solicitors and provided to Kid Country'ssolicitors for review. Mr Lowry deposes that Mr Arnerich called him repeatedly overa few days and demanded that he sign quickly. Mr Arnerich denies this. Thetimeframe however (six days), was very short given the value of the Lease and thissuggests there was some pressure to sign quickly. Kid Country's solicitor confirmedwithin four days that they had been through the lease agreement and "nothing ringsalarm bells."[70] Mr Lowry says that he was suffering from stress and personal issues and thatMr Arnerich was aware of this at the time.[71] While the value of the Lease and the involvement of lawyers support cl 9.4being conclusive, I consider that the circumstances of the negotiations indicate thatthe lawyers' involvement was very limited and over a small number of days. The HOAwas 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 thetransaction. This factor supports a finding that it is not just and reasonable that cl 9.4be conclusive as between the parties. It is appropriate that I inquire into the allegedrepresentations.[72] Section 37 of the CCLA provides that a party may cancel a contract if inducedto enter into it by misrepresentation, whether innocent or fraudulent, made by or onbehalf of another party.11 Such a party may only cancel where the parties have agreedthat the truth of the representation is essential to the cancelling party or the effect ofthe misrepresentation will substantially reduce the benefit, increase the burden or alterthe benefit or burden of the contract for the cancelling party.1211 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 interiorand exterior play space available to the childcare centre would allow 150 MOElicences. The completed development only allowed space for a licence for 118children. This did not become apparent until March 2019 (almost two and ahalf 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 MOElicences.(b) The original plans prepared by Vaco refer to 150 MOE licences allowedfor the childcare centre.(c) The original plans, and all plans prepared thereafter, show total netlicensable interior and exterior play space available to the childcarecentre sufficient to support 150 MOE licences.(d) Communications between the Kid Country and Vaco refer to 150 MOElicences.(e) Rent calculations were based on 150 MOE licences.[75] While I accept representations were made that the Premises would be able toaccommodate 150 children, those representations were made with qualifiers. Theindicative plans qualified the statement of 150 licences allowed by stating "subject toaccuracy of building survey plan and existing structure."[76] Further, I do not accept that any representations as to the number of licencesinduced Kid Country to enter into the Lease in circumstances where the HOA and theLease provided for the rental to be reduced (by referring to 50% of licensed places andby 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 thecapacity 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 thatthe 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 liablefor 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 centof the outgoings of the entire "Development" which included the retail development.[78] The representation cannot have induced Kid Country to enter into the Leasebecause the terms of the Lease clearly linked outgoings to the whole of thedevelopment. The Lease was provided to Kid Country and Kid Country obtainedadvice 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 theHOA 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 termsof the HOA."[80] Kid Country obtained legal advice so had the opportunity to check the termsof the Lease and negotiate changes. In those circumstances, I do not find thatMr 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 didnot draft the Lease so it would be unreasonable for Mr Lowry to rely on that emailalone. The fact that Kid Country's solicitors failed to identify discrepancies betweenthe 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 counterclaimfails 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 clausebased 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 theconsideration.14[84] Unless the context otherwise requires, mistake means a mistake, whether oflaw or of fact; a mistake in the interpretation of a document is a mistake of law.15However, 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 interpretationgiven 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 clause13 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 withKid 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. KidCountry's mistaken belief about this is also due to a mistake in the interpretation ofthe Lease.[87] Section 25 of the CCLA precludes any relief for mistakes in contractualinterpretation. This counterclaim therefore fails.Fourth counterclaim — wrongful cancellation[88] Given my findings that Tobem was entitled to cancel the Lease for breaches byKid 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 theLease which provides:The Lessee shall indemnify the Lessor and keep the Lessor indemnified fromand against all losses, damages, costs (including legal costs computed on asolicitor and owner client basis) and expenses incurred by the Lessor as aconsequence or arising from a breach by the Lessee of the Lessee's obligationsunder this agreement.[90] I have found at [47] that Kid Country breached the Lease. Tobem is thereforeentitled to costs in accordance with cl 3.9 which includes solicitor and owner clientcosts.[91] The First Schedule of the Lease prescribes the interest rate to apply if there isa default under the Lease being 5% per annum above the lessor's overdraft rate. It istherefore appropriate that this interest rate apply.Result[92] Tobem succeeds in its claim for damages. Accordingly, Kid Country is to payTobem the following:(a) $1,879,602 for the difference in payments it would have received underthe Lease and payments it may receive under replacement leases;(b) $912,645.24 for expenses reasonably incurred in mitigation so as torelet 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 theLease.______________________Tahana J