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Court of Appeal of New Zealand |
Last Updated: 12 July 2013
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IN THE COURT OF APPEAL OF NEW ZEALAND
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BETWEEN
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First Appellant |
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Second Appellant |
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Third Appellant |
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Fourth Appellant |
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Fifth Appellant |
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AND
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Respondents |
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Hearing: |
2 July 2013 (by telephone) |
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Court: |
O’Regan P, Ellen France and Wild JJ
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Counsel: |
H L Wilfred in person
S Caradus and B D A Collins for Respondents |
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Judgment: |
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Reasons: |
4 July 2013 |
JUDGMENT OF THE COURT
____________________________________________________________________
REASONS OF THE COURT
(Given by Ellen France J)
Introduction
[1] The appellants sought a stay pending appeal of a judgment of Chisholm J in which the Judge made an interim order granting the respondents immediate possession of a Christchurch property known as Wigram Manor, which is owned by the respondents.[1] The stay application was opposed. After hearing from the parties, we declined to grant a stay. These are our reasons for that decision.
Background
[2] We first discuss the facts and the procedural background to the stay application.
The leasing arrangements for Wigram Manor
[3] The judgment of Chisholm J granting interim relief describes the relevant arrangements and we adopt the Judge’s description of the key matters.[2]
[4] On 7 July 2009, the respondents entered into a lease with La Famia No 2 Ltd in relation to Wigram Manor. Chisholm J described that lease as the “head lease” and we do the same. The head lease was for a term of five years with a right of renewal. The annual rental of $150,000 plus GST was payable by monthly payments of $12,500 plus GST. The head lease provided that there was to be no subletting and there were no guarantees.
[5] In 2011, La Famia No 1 and La Famia No 4 (the fourth and fifth appellants) entered into subleases of part of the premises. As Chisholm J said, the term “sublease” has to be used in a loose sense in this context.[3]
[6] We interpolate here that Mr Harmon Wilfred, the first appellant, and Mrs Carolyn Dare-Wilfred (the second appellant) are, relevantly, directors of La Famia No 1, No 2 and No 4. Ms Angela Smalley, the third appellant, is a director of La Famia No 1 and No 2. Amongst other things, the Manor has been used for accommodation and as a function centre. In addition, some charitable work is done there.
[7] In mid-2012, the rental fell into arrears. In September of that year the respondents issued a notice of breach. There were discussions between the parties and Mr Wilfred provided a personal guarantee. At the start of 2013, there was a default under the guarantee. By 19 February 2013 a total of $130,000 was outstanding (combining the amount due under the guarantee and rental).
[8] On 20 February 2013, La Famia No 2 went into voluntary liquidation. The liquidator disclaimed the head lease bringing it to an end.[4] The respondents at this point sought to re-enter. The appellants challenged their ability to do so on the basis there was no order for possession and stayed on the property. The respondents then issued a proceeding seeking an order for possession and interim relief.
The High Court decision on interim relief
[9] As we have foreshadowed, after a hearing, Chisholm J granted interim relief. In doing so, the Judge found that the respondents had a “relatively strong” arguable case for possession given the continuing default and the fact the head lease had been disclaimed and so was at an end.[5] Chisholm J also considered that the balance of convenience favoured the respondents and he was satisfied that the overall interests of justice supported interim relief.
[10] In reaching these conclusions, the Judge said that the appellants faced “major problems” in obtaining relief.[6] The Judge explained that the appellants relied on ss 258 and 260 of the Property Law Act 2007 dealing with the protection of a sublessee on the cancellation of a superior lease. However, Chisholm J noted the respondents made the point that there had been no cancellation. Further, s 258 applies to “interested persons”, relevantly defined here as sublessees. The issue then arose of whether the respondents were estopped from relying on the prohibition against subleasing or had waived that in some way. Chisholm J said that on the information currently available there was no evidence of estoppel. Accordingly, Chisholm J stated:
[23] All of this indicates that the [appellants] have got a very uphill road if they are to establish a legal entitlement to relief under either s 258 and s 260. Even if they are able to do so, relief is discretionary. ...
[11] Turning then to the balance of convenience and the overall justice, Chisholm J considered a number of factors. The first of these was that damages are an adequate remedy for the appellants. Chisholm J was also concerned that the appellants would be unable to meet a claim for damages if the respondents ultimately succeeded. Chisholm J noted the arrears of rent and the appellants’ acknowledgement that they could not “meet current payments and clear the arrears”.[7] A factor weighing against relief was the position of third parties. Forward bookings would be lost.
[12] The appellants’ proposal as to the future leasing of the premises was seen as very important. In terms of that, there was no proposal for immediate payment of arrears and the proposal was for a monthly rent of about 64 per cent of the rental under the head lease. The proposal also required maintenance work to be completed by the respondents. Accordingly, the Judge said:
[39] The [appellants] are effectively asking the [respondents] to enter into a new lease for another five years (which, I might say, is beyond the term of the head lease) at a reduced rental. There are no immediate prospects of the rental arrears being paid. Moreover, if the [respondents] decline to carry out the maintenance work the proposal cannot get off the ground. Added to that it is clear that these maintenance items have a direct effect on the profitability of the [appellants’] operation.
[13] When these factors were weighed up, the Judge said the balance of convenience and overall justice favoured relief. In these circumstances, the Judge made an order granting possession.
[14] However, the respondents did not, as we shall explain, take possession at that point.
A stay pending appeal
[15] The appellants appealed against the decision of Chisholm J. In the grounds of appeal, the appellants say that Chisholm J applied too low a threshold in granting interim relief in a situation where interim relief effectively disposed of the case substantively. The appellants will also argue that the respondents are estopped from arguing there is no sublease and that the respondents do not come with clean hands because they have not undertaken any repairs of the property since the earthquake in February 2011.
[16] The appellants also sought a stay in the High Court. A stay was granted.[8] The stay was subject to a number of conditions. The key condition for these purposes was that the appellants were to make weekly payments of $3,317.31 (GST inclusive) as rental during the continuance of the stay.
[17] The appellants’ appeal was to be heard in this Court on 14 May 2013. The hearing was adjourned on that day on the application of Mr Wilfred. Mr Wilfred has subsequently, in accordance with the Court’s direction, filed an application to adduce new evidence along with the proposed evidence.
[18] There were various procedural skirmishes before the matter went back again to the High Court to deal with an application by the respondents for a discharge of the stay. The discharge was sought on the basis on non-payment of the rent. The appellants also made an application for rent review. In a judgment delivered on 27 June 2013, Panckhurst J discharged the stay and declined the application for rent rebate.[9] The Judge said that in doing so he had not overlooked the presence of third parties at Wigram Manor who would be affected by any decision concerning ongoing occupation of the premises by the La Famia group of companies. However, the Judge concluded that “commercial reality” must ultimately prevail.[10]
[19] Panckhurst J concluded:
[16] ... The stay was granted on the basis that monthly rental could, and would, be paid. Mr Wilfred now accepts that payment of rental is no longer possible. He attributes the downturn of the Wigram Manor business to uncertainty, and an inability to enter into long term commitments, on account of this litigation. Regardless of the pending appeal, I am satisfied that the commercial realities are such that there is no option but to discharge the stay granted in this Court in March 2013. It follows that the application for an abatement of rent, or rental relief, pending the appeal and continuing while maintenance/repair work was undertaken, must be dismissed.
[20] The release of the sealed judgment was delayed for a brief period but then, on 1 July 2013, Panckhurst J refused to make any further stay.[11] The appellants then filed an application for a stay in this Court.
[21] An interim stay pending our hearing of the stay application was granted on 1 July 2013. By that point we understand that the respondents had effectively reentered the premises.
The application for a stay
[22] The appellants’ argument in a nutshell is that they should not have to pay rent because of the condition of the building and that position should continue until this Court has heard the appeal.
[23] In developing this submission, Mr Wilfred for the appellants says that he paid the rent as envisaged by the stay conditions up to 6 June 2013. At that point, because of the condition of the building (no heating), he was not able to carry on paying the rent. He says these problems can be attributed to the respondents because of their failure to undertake the necessary maintenance.
[24] Mr Wilfred explains that, having taken advice from a valuer, he has a proposal for a new lease. Under this proposal, when the costs of the deferred maintenance are taken into account, the appellants will have paid their rent from 20 February 2013 and indeed will have a credit for the rental for the future. This proposal is dependent on maintenance work.
[25] Mr Wilfred also emphasises the impact of the respondents taking possession on the business and on those employed at Wigram Manor.
[26] The respondents say, first, that there is nothing to stay because they have now taken possession. Secondly, they submit that damages are an adequate remedy and they should not have to allow the appellants to occupy the premises without any payment of rent.
Our assessment
[27] There are a number of factors to consider in weighing the balance between allowing the successful litigant to obtain the fruits of his or her judgment and preserving the position in case the appeal is successful. In Keung v GBR Investment Ltd this Court identified the factors to be taken into account as including:[12]
- (a) whether the appeal may be rendered nugatory by the lack of a stay;
- (b) the bona fides of the applicant as to the prosecution of the appeal;
- (c) whether the successful party will be injuriously affected by the stay;
- (d) the effect on third parties;
- (e) the novelty and importance of questions involved;
- (f) the public interest in the proceeding; and
- (g) the overall balance of convenience.
[28] The Court in Keung also said that the apparent strength of the appeal has been treated as an additional factor. We deal with each of these factors in turn.
[29] In terms of the impact on the appeal, nothing is advanced to indicate damages would not be an adequate remedy. Further, the indications are that the financial situation of the appellants may mean that it is less likely that the respondents would recover damages if they were to succeed.
[30] The appeal is to be heard in this Court on 25 July 2013.
[31] The key factor in this case is that the appellants seek to remain in possession without paying any rent. That would impact adversely on the respondents in circumstances where the appellants obtained the initial stay on the basis of the condition that they would pay the rent. Chisholm J records the statement in Mr Wilfred’s affidavit of 18 March 2013 that the appellants would be willing to pay rent equivalent to the original head lease during the time in occupation. The appellants can make arguments on appeal about the impact of issues of maintenance but if they wanted the status quo to be preserved it was reasonable to require payment of rent in the meantime, especially where there are arrears and no present proposal to clear those. The apparent decline in the appellants’ financial situation does not assist in this regard. These matters are also particularly relevant to the assessment of the balance of convenience.
[32] Those working at Wigram Manor will be affected by this decision.[13] The next two factors referred to in Keung (novelty and importance of the questions and the public interest) are neutral at best. As to the apparent strength of the appeal, that is difficult to assess at this point. Further evidence has been filed and the Court hearing the appeal will need to consider the admission of that evidence. However, there is nothing in this factor that outweighs the adverse impact on the respondents if the appellants remain in possession without paying rent. In our view, the overall balance of convenience weighs strongly against any further stay.
[33] Because of our conclusion, we do not need to consider the technical argument made by the respondents as to the effect of their re-entry. We note, however, that r 12(3)(b) enables this Court pending appeal to grant “any interim relief”.
Result and costs
[34] For these reasons, the application for an interim order under r 12(3) of the Court of Appeal (Civil) Rules 2005 was dismissed.
[35] The respondents, having succeeded, are entitled to costs. We order the appellants, jointly and severally, to pay costs to the respondents for a standard application on a band A basis and usual disbursements.
Postscript
[36] We allowed Mr Wilfred to make submissions on behalf of all the appellants given the exigencies of the situation. However, the normal rule is that a solicitor must act for a company in commencing and carrying on a proceeding.[14] This rule may be departed from only in exceptional circumstances. For the purposes of the forthcoming hearing of the appeal, we are content for Mr Wilfred to file written submissions for all appellants. However, when he appears in Court, he should speak only for himself. We add there are on the Court file written submissions in relation to the appeal from the then solicitors for the appellants so the Court will also have the benefit of those submissions.[15]
Solicitors:
Duncan Cotterill, Christchurch for
Respondents
[1] Gan v Wilfred [2013] NZHC 535.
[2] At [6]–[12].
[3] At [7]. There is a conflict over whether the respondents were aware of the sub-leases although Chisholm J said it was clear there was no formal consent by the respondents to the sub-leases.
[4] Companies Act 1993, s 269 (power to disclaim onerous property).
[5] Gan v Wilfred, above n 1, at [25].
[6] At [25].
[7] At [28].
[8] Gan v Wilfred HC Christchurch CIV-2013-409-442, 18 March 2013; 27 March 2013.
[9] Gan v Wilfred [2013] NZHC 1508.
[10] At [16].
[11] Gan v Wilfred HC Christchurch CIV-2013-409-442, 28 June 2013.
[12] Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17 at [11], citing Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (HC) at [9].
[13] The respondents submit that the business at Wigram Manor ceased to operate on 1 July 2013.
[14] Re GJ Mannix Ltd [1984] 1 NZLR 309 (CA); and Commissioner of Inland Revenue v Chesterfields Preschools Ltd (No 2) [2013] NZCA 53, (2013) 26 NZTC 21-007.
[15] These submissions were filed prior to the fixture that was to proceed on 14 May 2013.
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