Te Wairua O te Ora Limited v Tuhoe Waikaremoana Maori Trust Board [2014] NZHC 3212 (15 December 2014)

Last Updated: 16 February 2015

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV 2013-463-000340 [2014] NZHC 3212

BETWEEN	TE WAIRUA O TE ORA LIMITED Plaintiff
AND	TUHOE WAIKAREMOANA MAORI TRUST BOARD First Defendant
	RAKEIWHENUA TRUST Second Defendant
	WAYLYN TAHURI-WHAIPAKANGA Third Defendant

Hearing:	10 December 2014
Appearances:	G J Kohler QC for the Plaintiff/Respondent FCK Wood for the Second and Third Defendants/Applicants
Judgment:	15 December 2014

_{JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN}

This judgment was delivered by me on

15.12.14 at 4:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

_{Date...............}

TE WAIRUA O TE ORA LIMITED v TUHOE WAIKAREMOANA MAORI TRUST BOARD & ORS [2014] NZHC 3212 [15 December 2014]

[1] The second and third defendants apply for an order requiring the plaintiff to give security for costs. They say the plaintiff will be unable to pay their costs if the plaintiff is unsuccessful in its case against them.

Issues overview

[2] The evidence indicates the plaintiff would be unable to meet an adverse costs award. It requests the Court to exercise its discretion not to order security to be provided. Clearly an order for substantial security would effectively prevent the plaintiff pursuing its claim. The Court should be hesitant about ordering security unless it appears the claim has little chance of success.

[3] In the balance of considerations there is a need to provide Court access to a genuine plaintiff, whilst ensuring the interests of defendants who should not be drawn into unjustified litigation.¹

[4] The Court will need to assess the merits of the plaintiffs claim and review prospects of success. If the claim is altogether without merit then the Court may require security of a significant amount. Even if the claim appears to have reasonable prospects of success then security may be ordered albeit in a less than significant sum.

[5] In this case the plaintiff claims its impecuniosity has been caused by the actions of the defendants. Some factual review is required. In part this was undertaken by my judgment in this case on 14 July 2014 when I dismissed the first defendant’s strike out application. At that time I noted:

It is appropriate that the Court... assumes the plaintiff ’s pleaded facts to be capable of proof and that the plaintiff ’s allegations do not appear entirely speculative or without foundation.

¹ A S McLachlan Ltd v NEL Network Ltd [2002] NZCA 215; (2002) 16 PRNZ 747 (CA).

[6] The strike out application is supported by the affidavit of a staff solicitor

employed by the second and third defendant’s solicitors.

[7] On 22 September 2014 the solicitors wrote to plaintiff’s counsel requesting

details of the plaintiff ’s financial position. In response the financial accounts for the

2010 – 2013 years were provided. An invitation was provided if further information was required.

[8] The solicitor notes the annual reports indicate the business of the company is that of a “laundry, drycleaners and hotel/takeaway operators”; that the 2013 accounts indicate the plaintiff ’s income appears to be from “management fees” from which a net surplus after tax of $11,160.00 was recorded. Net liabilities were noted at

$247,402.00.

[9] The solicitor states that it is her belief the plaintiff would not be able to meet an award of costs against it.

[10] No other affidavit has been provided on behalf of the defendants. Attached to the defendants’ bundle of documents for this hearing is a copy of that affidavit from Mr Temara of the first defendant filed in support of the strike out application that I had earlier heard.

[11] Evidence for the plaintiff in opposition to the security for costs application has been provided by Ms Stewart. It was she who filed the plaintiff’s affidavit in opposition to the strike out application. Ms Stewart and her husband are the directors and shareholders of the plaintiff.

[12] The parties’ dispute concerns the former tavern and motel complex at Taneatua known as the Te Punawai. In December 2008/January 2009 the then lessee wished to end the lease. Ms Stewart was a board member of the first defendant at the time. Her enquiries revealed the Tuhoe Services Trust (TST) had agreed to take the lease over. Later it was agreed that the plaintiff would become the lead

operations manager for the continued occupation of the Te Punawai. The plaintiff agreed to purchase the stock and chattels of the outgoing lessee.

[13] By deed of lease dated 13 February 2009 the first defendant leased the Te Punawai to TST for a period of four years from 19 January 2009 with three rights of renewal, each of four years. The lease was a standard Auckland District Law Society form of lease.

[14] By deed of sublease dated 14 February 2009 TST leased the Te Punawai to the plaintiff. The first defendant consented to that sublease.

[15] Lease payments began on 20 February 2009 and these were accepted by the first defendant.

[16] Ms Stewart deposes that moving into the Te Punawai was a new venture for the plaintiff; that the plaintiff’s business included the provision of social services, for and on behalf of the first defendant, but in the interim it included the retailing of takeaways, hotel and liquor sales. Ms Stewart says the plaintiff’s intention was to progressively move from that operation to a solely social services operation.

[17] Ms Stewart said the plaintiff was unable to operate its business before 3 April

2009 because staff were receiving training from Southern Hospitality as required by the Whakatane District Council.

[18] Issues arose in late 2009 when the plaintiff applied to extend its liquor licence. The first defendant lodged a formal objection. The application was declined. The liquor licence lapsed on 26 September 2009.

[19] By November 2009 the first defendant decided to sell the Te Punawai.

[20] Early in 2010 the plaintiff and first defendant had discussions for the sale and purchase of the Te Punawai.

[21] Ms Stewart says as at mid June 2010 the plaintiff had 36 employees and a number of clients and as well tenants living at the Te Punawai.

[22] In June 2010 the plaintiff was advised that the Te Punawai had been sold to the second defendant and on 15 June 2010 Ms Stewart received a telephone call from the manager at the Te Punawai at 2:45am. She was told there were people breaking into the Te Punawai. Later that same day Ms Stewart spoke to the third defendant. She said the third defendant informed her that the second defendant had taken possession of the Te Punawai.

[23] By email at 3:09pm on 15 June 2010 the third defendant advised Mr Temara that;

The trust board is now able to provide vacant possession as the hauora has taken possession of [the premises].

FYI –

• Your tenant has 3 weeks to uplift their property from Whakatane secure storage... The keys can be obtained by contacting [the third defendant].

• The freezer which contained food items is stored in Taneatua. Phone the general manager for pickup arrangements.

• The outside furniture can be picked up from the hauora in Ruatoki...

[24] A letter from the first defendant’s solicitors to the second defendant’s

solicitors the following day, noted:

We refer to your email of Tuesday, 15 June, in which you confirmed your clients advice to you that our client had now provided vacant possession and accordingly, you now wish to complete settlement.

The situation is that your client took it upon itself to break into the premises

and physically remove our client’s tenant’s goods from the property.

Your client has severely compromised our client’s position and its actions are consistent with our previous position that your clients had determined to accept possession of the building without vacant possession and take matters into its own hands.

An email from your client’s chairman advising of the steps they have taken

is attached.

Your client’s assertion that this has enabled our client to provide vacant possession is incorrect. Your client has wrongly seized possession of the premises and must now settle on the basis that vacant possession is not provided by the vendor and that your clients will need to resolve matter with the tenant directly. Your Client’s Chair has confirmed to Our Client’s Chair

that the probable litigation from the tenant stemming from your client’s

actions will be defending by your client.

[25] Ms Stewart said that in the following day the intruders continued to remove items belonging to the plaintiff, changed locks, erected temporary fencing and refused to allow anyone from the plaintiff access to the Te Punawai. She said the intruders locked employees of the plaintiff in the residential units, packed up their belongings and barricaded the site. She said the second and third defendants took possession of all of their property including the stock and chattels it had purchased. She said under protest they had to pay the costs of storage but much of it was damaged or missing and some commercial kitchen equipment required repair before it was disposed of. Ms Stewart said the break in and subsequent eviction resulted in loss of contracts. That with the Ministry of Social Development was lost shortly after the break-in. She said a Child Youth and Family contact handover from the first defendant was unable to be implemented. Contracts with the Ministry of Health and Ministry of Education were also ended in 2011 – 2012.

[26] On 25 June 2010 the plaintiff received a “notice to vacate” from the second and third defendants written by the third defendant describing herself as the general manager of the second defendant. It reads:

To the Occupant

... Re notice to vacated

Rakeiwhenua Trust has purchased and now is the new owner of 44 – 46

Tuhoe Street, Taneatua.

The conditions of that purchase required an unencumbered interest in the property which has now been affected.

Rakeiwhenua Trust requires that you vacate the premises currently occupied by yourself.

We are happy to provide you 14 days to do this from the date of receiving this notice.

We note that you or the whanau have been seen videotaping people and events at Te Punawai. You are advised that should this footage be used without permission of those filmed, your actions will be passed onto our solicitors.

...

[27] The Police refused to become involved because they considered the matter a civil dispute.

[28] Ms Stewart claims that the reason why the plaintiff is not in a financial position to provide security is because of the defendant’s action in seizing the plaintiff’s chattels and evicting it from the premises. That she said completely destroyed the business. Ms Stewart confirms the shareholders do not have the cash or resources to provide security and are going to struggle to pay all of the costs of litigation. Some borrowing has been obtained to fund the proceedings. Ms Stewart says that she and her husband have five dependent children in their household.

[29] No affidavit has been filed by or on behalf of the second and third defendants challenging Ms Stewart’s account of these events. Instead they rely upon the earlier mentioned affidavit of Mr Temara.

[30] The evidence of Mr Temara focuses upon claims that it was never intended the Te Punawai would continue to be used for the sale of liquor and that that had been the policy position of the first defendant since 2008. It was for that reason that the first defendant had advised the then lessee that its lease would not be renewed when due to expire on 30 June 2009.

[31] Mr Temara confirms that at a board meeting on 3 April 2009 the first defendant agreed to the sublease being approved subject to compliance with the conditions of the head lease.

[32] The first defendant had called for tenders and a number had been received but all of those proposed to continue to run the premises as an existing tavern. The first defendant’s intention was to permit community and social services to be run from the premises and it was with that objective in mind that the TST approached the board.

[33] It is not in issue but that the first defendant consented to the grant of a sublease to the plaintiff and that the business use provided for “community social services including offices and the provision of health and communication services together with offering the existing tavern facilities”.

[34] Mr Temara says the sublease is not consistent with the Board’s resolution of 3

April 2009 requiring any sublease to comply with the conditions of the head lease;

that it is inconsistent with the Board’s clearly expressed intentions for the premises.

[35] Mr Temara expresses the view that a sublease claim against the Board for breach of sublease conditions of quiet enjoyment and/or derogation cannot be maintained. Further he says the Board denies any involvement by itself or any member or agent in the re-entry of the premises and that the conduct of those persons engaged was done without the knowledge, approval or consent of the Board. He said the Board settled its sale with the tenant in possession.

[36] It is submitted on behalf of the second and third defendants (although no affidavit has been filed by either) that they were unaware of the existence of the sublease at the time they say they entered into an agreement for sale and purchase which provided for vacant possession.

[37] It will be the case for the second and third defendants that the claim against them needs proof they were involved but further that if they were whether such conduct amounted to trespass, breach of quiet enjoyment, a derogation from the grant of sublease, a conversion of property, and whether the second defendant may have committed Land Transfer Act fraud.

[38] Although there is no evidence on the matter Mr Wood explains the second and third defendant’s position is that they were unaware of the existence of a valid sublease. He says the second defendant says it purchased the property which provided for vacant possession and that vacant possession was provided on settlement by the first defendant and that chattels located on the premises were removed and placed into storage for safekeeping for the plaintiff.

[39] Regarding the plaintiff ’s claims of losses Mr Wood submits most of those are unsupported by any documentation; that there is no evidence of contracts for the provision of social services; that there is no documentation nor even any asset list supporting claims of purchase of stock and chattels from the previous lessee; that no documentation proves there were 36 employees and clients and tenants living at the

premises or that contracts were lost because of what occurred; nor is there any evidence of losses claimed.

[40] The second and third defendants believe the claim is a “try on”; that the plaintiff operated an unprofitable and failing business which was on its decline.

[41] Mr Wood concludes by submitting the plaintiff’s business was clearly on the

decline for reasons not associated with the alleged termination of the sublease.

[42] In his submissions Mr Wood acknowledges that in certain circumstances it may be unjust for a defendant to receive security for costs if it is the defendant’s actions, being the subject of the liquidation, that have caused the plaintiff’s impecuniosity. He submits however that it remains open for the Court to order security for costs whether or not such a link exists – that it may justify some reduction in the amount of security ordered.

[43] Mr Wood submits having regard to Ms Stewart’s own evidence of impecuniosity that it reasonable to assume that if the plaintiff fails then any costs awarded against it would have to come from other sources and in such circumstances it is unlikely that would occur and the plaintiff would simply go into liquidation leaving any costs award unsatisfied.

[44] Referring to the 2013 accounts Mr Wood points to the plaintiff company’s

losses and low taxable income.

[45] Mr Wood submits there are serious issues concerning the state of the plaintiff’s business activities, in particular the lack of documentation to prove aspects of the plaintiff’s claim. He suggested that even if the plaintiff had been evicted from the premises there was no logical reason why it could not have continued to operate “its supposed business as a health provider (or otherwise) from alternative premises”.

Considerations

[46] The second and third defendants have not filed their own affidavits in support of their security for costs applications. Regardless, there is clear evidence that they both were connected to the events by which the plaintiff was evicted from its sublease premises. Questions of the extent of provable claims are matters for trial but it is very unclear by what authority the second and third defendants could have acted lawfully. The first defendant disavows any connection. The second and third defendants claim they were entitled to vacant possession. What is not clear is by what authority they could act to ensure vacant possession was available when they needed it later to settle their purchase. Why then act as they did when they did? It has not been suggested their agreement for sale and purchase provided that authority. Further it appears the plaintiff’s sublease continued to authorise all activity being carried out on the premises. The first defendant appears to have authorised the very activities the sublease permitted to be carried out.

[47] Of course many of these conclusions require further enquiry at a trial, the very need for which has been caused by the actions of the second and third defendants. Yet, it is those defendants who want the security of their costs being paid if the plaintiff does not win its claim against them.

[48] In the summary of things it might appear that the primary purpose of the trial will be to judge the actions of the defendants in acting as they did. This does not assume that those defendants did not believe they were acting lawfully and properly. However they are viewed it is their actions that will be the subject of significant enquiry at a trial.

[49] The sole ground relied upon by the second and third defendants, is an inability to pay costs in the plaintiff fails. Challenges to the merits of the plaintiff’s claim focus upon the plaintiff’s impecuniosity and claims their business was failing anyway. Mr Wood suggests at best the plaintiff could achieve a nominal damages outcome. The second and third defendants have provided no evidence to challenge the merits of the plaintiffs claim. Mr Woods submissions focussed primarily upon an apparent unavailability of evidence provided by the plaintiff to prove its losses. In

part that may have been due to the fact that no further financial information was requested by the solicitors acting for the second and third defendants after the financial accounts were provided to them.

[50] The unchallenged evidence is that the plaintiff was the sublessee of the premises pursuant to a formal deed of sublease that had been approved by the first defendant. The plaintiff paid its rental.

[51] When the second and third defendants purchased the freehold title from the first defendant tenancies were recorded as nil. Clearly however it seems the second and third defendants were fully aware that the plaintiff held a lease and was in occupation. Their recovery of the premises, prior to settlement, appears to have been carefully planned. Storage for property taken had apparently been arranged in advance.

[52] As is clear from the correspondence referred to already in this judgment, the second and third defendants were aware that the property was occupied prior to them agreeing to purchase it.

[53] The first defendant is adamant that the second and third defendants were aware of the lease and sublease. As Mr Kohler submits the first defendant asserts that notwithstanding their failure to list the tenancy, the property was not sold with vacant possession. Mr Temara deposes the Board sold the property subject to “tenant in possession”.

[54] The Court has no doubt that there will pass to the second and third defendants the burden of justifying their actions. Mr Wood has submitted the second and third defendants did not know of the sublease. Of course the Court has no evidence by which to assess that submission.

[55] Mr Wood asserts that at best the plaintiffs only had a “statutory tenancy”. But it is clear the plaintiff had a valid sublease. Anyway, a statutory tenant is entitled to proper notice and there exists no right to seize a statutory tenant’s chattels. Claims of trespass and conversion will be at the forefront of the Court’s

consideration when reviewing the evidence provided as justification for the second and third defendants actions.

Result

[56] The plaintiff’s claim has substance. The Court is not going to be distracted by submissions highlighting an apparent lack of evidence to support allegations of the extent of losses. Whatever the extent of those, there appears a strong case to be advanced on behalf of the plaintiff.

[57] In all the circumstances and notwithstanding their acknowledgement of impecuniosity, the plaintiff should not be denied access to the Court.

[58] It is not appropriate for an order for security to be made even though the second and third defendants may have crossed their application threshold.

[59] As Kos J noted in Highgate on Broadway Limited v Devine² the imposition of security is not an automatic consequence of the plaintiff’s impecuniosity.

Judgment

[60] The application is dismissed.

[61] The second and third defendants are jointly and severally liable to pay costs on a 2B basis together with disbursements which shall include the travel costs of

_{senior counsel.}

_{Associate Judge Christiansen}

² [2012] NZHC 2288 at [21].