Re/Max New Zealand Limited v Bay Cities Real Estate Limited [2011] NZCA 623 (8 December 2011)

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Re/Max New Zealand Limited v Bay Cities Real Estate Limited [2011] NZCA 623 (8 December 2011)

Last Updated: 14 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA691/2011 [2011] NZCA 623

BETWEEN RE/MAX NEW ZEALAND LIMITED Applicant

AND BAY CITIES REAL ESTATE LIMITED Respondent

Hearing: 29 November 2011

Court: Ellen France, Harrison and Wild JJ

Counsel: J L Bates for Applicant F E Geiringer for Respondent

Judgment: 8 December 2011 at 9 am

JUDGMENT OF THE COURT

1. The application for special leave to appeal to this Court is dismissed.
2. The applicant must pay the respondent costs for a standard application for leave on a Band A basis and usual disbursements.
   

REASONS OF THE COURT

(Given by Harrison J)

Introduction

[1] Re/Max New Zealand Ltd applies for special leave to appeal against a judgment delivered by White J in the High Court at Napier.[1] White J dismissed an application to review an order of Associate Judge Gendall staying enforcement of a summary judgment obtained by Re/Max against Bay Cities Real Estate Ltd and Elanor MacDonald and David Gaunt (collectively Bay Cities).

Background

[2] In 2010 Bay Cities issued proceedings against Re/Max in the High Court. Re/Max is the franchiser of Re/Max Real Estate franchises in New Zealand. Bay Cities alleges that Re/Max made misrepresentations which induced it to enter into two franchise agreements in the Hawkes Bay area. Ms McDonald and Mr Gaunt guaranteed Bay Cities’ contractual obligations.
[3] Bay Cities says that it suffered loss as a result of Re/Max’s alleged misrepresentations and now seeks damages of $4,021,414. Re/Max defended the claim which has yet to go to trial. It has also counter claimed for summary judgment for unpaid franchise fees of $159,278, of which Bay Cities conceded that $154,991 was owing. Associate Judge Gendall entered summary judgment for that amount.
[4] However, the Associate Judge stayed enforcement of the summary judgment entered in Re/Max’s favour. He was satisfied that enforcement would likely cause Bay Cities a substantial miscarriage of justice if it was not able “to air its grievances in court”.[2] Re/Max applied to review the stay on the grounds that the Associate Judge erred. As noted, White J dismissed the application. He later refused to grant leave to appeal to this Court.[3]

Leave

[5] Section 26(P) of the Judicature Act 1908 relevantly provides:

(1) Any party to any proceedings who is affected by any order or decision made by an Associate Judge in Chambers may apply to the Court to review that order or decision and, where a party so applies in accordance with the High Court Rules, the Court—

(a) Must review the order or decision in accordance with the High Court Rules; and

(b) May make such order as may be just.

(1AA) The determination of the High Court on a review under subsection (1) is final, unless the High Court gives leave (or the High Court refuses leave, but the Court of Appeal gives special leave) to appeal from it to the Court of Appeal.

...

[6] Rule 17.29 of the High Court Rules grants the power to grant a stay of enforcement as follows:

17.29 Stay of enforcement

A liable party may apply to the court for a stay of enforcement or other relief against the judgment upon the ground that a substantial miscarriage of justice would be likely to result if the judgment were enforced, and the court may give relief on just terms.

[7] Mr Bates for Re/Max submits that, in dismissing Re/Max’s application for an order reviewing the Associate Judge’s decision, White J erred in three respects. Initially he submitted that all three alleged errors gave rise to questions of law capable of bona fide and serious argument involving some interest of sufficient importance to justify a further appeal.[4] However, in oral argument he confined that submission to the first two questions.

Decision

(a) Incorrect test

[8] First, Mr Bates submits that White J affirmed the Associate Judge’s error of law in treating the word “likely” in r 17.29 as equating to a “real risk” or “real and substantial risk”, thereby adopting a wrong and inappropriate low standard.
[9] Mr Bates advanced the same argument in the High Court. On the review application, White J surveyed the leading authorities before concluding as follows:

[28] On the basis of the consistent approach to the interpretation of “likely” and “probability” in these appellate decisions in both criminal and civil contexts, I consider that when interpreting “likely” in rule 17.29 as meaning “probable” rather than “possible” the test may be expressed as “a real and substantial risk” that a substantial miscarriage of justice would happen if the judgment were enforced. This interpretation would implement the purpose of the rule which is to ensure that a judgment creditor is entitled to enforce the judgment unless the judgment debtor is able to establish “a real and substantial risk” of a miscarriage of justice if the judgment were enforced, that is by reference to the impact of enforcement of the judgment on the ability to pursue a counterclaim or claim, as in the present case, and the apparent strength of the counterclaim or claim.

[29] When this approach to the interpretation of “likely” in rule 17.29 is adopted, it can be seen that the Associate Judge’s use of the expression “a real risk” did not constitute an error of law or principle. On the contrary, his expression was within the meanings of “likely and “probability” accepted as appropriate in the appellate decisions to which I have referred.

[10] We are satisfied that White J treated the “likely” test as equating with “probability”. Mr Bates submits that the Judge’s approach cannot be reconciled with Crawford v Odin Enterprises Pty Ltd[5]and Enright v Gold Metal Exports Ltd.[6] We disagree: White J considered both authorities, correctly following the former[7] and distinguishing the latter.[8]
[11] This ground of appeal is not arguable and we add that in any event Mr Bates was unable to identify any basis upon which, even if the Associate Judge had formulated the wrong test of what was “likely”, it might be said that his error materially affected his decision. In this respect we also note that the Associate Judge expressly concluded: “...it is likely that there will be a substantial miscarriage of justice if a stay of enforcement is not granted”.[9] While later in the same passage the Associate Judge used the phrase “a real risk” when observing that Bay Cities’ claim would be rendered nugatory if the judgment was enforced, we are satisfied that he applied the “likely” test in assessing whether a miscarriage of justice would ensue.

(b) The effect of the “pay now argue later” clause

[12] Second, Mr Bates submits that White J erred in failing to give full and proper effect to what is termed a no set-off clause under the original franchise agreements – that is, a provision which obliged Re/Max to “pay all amounts due under this agreement without deduction, set-off or abatement”. In particular, he says White J failed to apply what Mr Bates described as the ratio implicit in this Court’s decision in Browns Real Estate Ltd v Grand Lakes Properties Ltd.[10] Mr Bates describes the ratio from Browns Real Estate as being that no substantial miscarriage of justice can conceivably arise if enforcement of a judgment were to follow when the parties have agreed on a “pay now argue later” clause, unless there is some identifiable feature beyond an inability to pay and the existence of a counter claim.
[13] In this respect Mr Bates emphasises that Bay Cities did not seek an order cancelling the contract. However, we record that that remedy would plainly have been superfluous given that the proceedings were brought seven months after the agreements had expired.
[14] Mr Bates also raised this argument on Re/Max’s substantive application to the High Court for review and again on its application for leave to appeal to this Court. White J distinguished Browns Real Estate in his substantive judgment because it did not address the issue arising in this case – namely whether a no set-off provision barred the Court from granting a stay of enforcement of a summary judgment.[11] He agreed with the Associate Judge that acceptance of Mr Bates’ submission that a no set-off provision automatically bars a Court from granting a stay of enforcement of a summary judgment would be wrong in principle because it would improperly fetter the Court’s discretion under r 17.29.[12] White J expressed a similar view in his leave judgment.[13]
[15] We are not satisfied that White J erred. To the contrary, we agree with his analysis. As Mr Geiringer emphasises, this Court in Browns Real Estate dismissed an appeal against an Associate Judge’s refusal to set aside a statutory demand under s 290(4)(b) of the Companies Act 1993. It expressly noted that in the summary judgment context this Court held in Bromley Industries Ltd v Martin and Judith Fitzsimons Ltd[14] that, where set-off is excluded by an express contractual provision in an agreement between commercial parties, there is no injustice in giving effect to the bargain made by the parties.[15] Applying the same principle, this Court in Browns Real Estate held that a contractual no set-off provision “would normally result” in the Court exercising its discretion against an application to set aside a statutory demand if the sole ground was the existence of a set-off, counter claim or cross-demand which the applicant had expressly agreed could not be raised.[16]
[16] As White J recognised, and Mr Geiringer emphasises, in Bromley and Browns Real Estate this Court was considering a no set-off provision at the threshold stage of liability, not within its discretion about whether to allow enforcement of a judgment. Different considerations necessarily apply at each stage. And, in agreement with White J and the Associate Judge, we reject Mr Bates’ submission that Browns Real Estate effectively excludes the Court’s jurisdiction to grant a stay where the underlying agreement contains a set-off provision without an additional identifiable feature beyond an inability to pay and the existence of a counterclaim.
[17] We are not satisfied that White J erred or that an arguable question of law arises.

(c) Evidence of guarantors’ inability to pay

[18] Mr Bates originally submitted that White J erred in upholding the Associate Judge’s decision in circumstances where the guarantors, Ms McDonald and Mr Gaunt, produced no evidence of their ability to pay Bay Cities’ debt. However, Mr Bates accepts that this question was essentially factual and could not of itself justify an application for special leave.

Result

[19] Re/Max’s application for special leave to appeal to this Court is dismissed.
[20] Re/Max is to pay Bay Cities costs for a standard application for leave on a Band A basis and usual disbursements.

Postscript

[21] Mr Bates advised that the parties have adopted a “leisurely timetable” towards preparation for trial of Bay Cities’ claim and Re/Max’s counterclaim since the order for stay was made. We note that, with expedition, the substantive proceeding might have already been determined, and we commend each party to use their best endeavours to have their competing claims heard as soon as possible.

Solicitors:
Gresson Grayson, Hastings for Applicant
Michael Chung Law Office, Wellington for Respondent

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[1] Bay Cities Real Estate Ltd v Re/Max New Zealand Ltd HC Napier CIV-2010-441-134, 8 June 2011.

[2] Bay Cities Real Estate Ltd v Re/Max New Zealand Ltd HC Napier CIV-2010-441-134, 7 December 2010 at [31].

[3] Bay Cities Real Estate Ltd v Re/Max New Zealand Ltd (No 2) HC Napier CIV-2010-441-134, 29 September 2011.
[4] Waller v Hider [1998] 1 NZLR 412 (CA).
[5] Crawford v Odin Enterprises Pty Ltd [2009] NZCA 199 at [29].
[6] Enright v Gold Metal Exports Ltd [1989] 3 PRNZ 243 (HC).
[7] At [25].
[8] At [26].

[9] Bay Cities Real Estate Ltd v Re/Max New Zealand Ltd HC Napier CIV-2010-441-134, 7 December 2010 at [31].

[10] Browns Real Estate Ltd v Grand Lakes Properties Ltd [2010] NZCA 425, (2010) 20 PRNZ 141 at [17].

[11] Bay Cities Real Estate Ltd v Re/Max NewZealand Ltd HC Napier CIV-2010-441-134, 8 June 2011 at [32].
[12] At [35] and [36].

[13] Bay Cities Real Estate v Re/Max New Zealand Ltd HC Napier CIV-2010-441-134, 29 September 2011 at [13]–[14].

[14] Bromley Industries Ltd v Martin and Judith Fitzsimons Ltd [2009] NZCA 382, (2009) 19 PRNZ 850 at [66].
[15] Browns Real Estate at [12].
[16] At [17].