Fanshawe 136 Limited v Fanshawe Capital Limited
[2014] NZHC 1068
•20 May 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-004179 [2014] NZHC 1068
BETWEEN FANSHAWE 136 LIMITED
First Plaintiff/Respondent
136 FANSHAWE LIMITED Second Plaintiff/Respondent
AND
FANSHAWE CAPITAL LIMITED First Defendant
WILSON PARKING NEW ZEALAND LIMITED
Second Defendant/Applicant
Hearing: 20 May 2014 Appearances:
W McCartney for Plaintiffs
E D Nilsson for Second Defendant/ApplicantJudgment:
20 May 2014
ORAL JUDGMENT OF VENNING J
Solicitors: Lee Salmon Long, Auckland
Carson Fox Legal Limited, Auckland
Copy to: W McCartney, Auckland
FANSHAWE 136 LTD v FANSHAWE CAPITAL LTD & ANOR [2014] NZHC 1068 [20 May 2014]
[1] This is an application by Wilson Parking New Zealand Limited (Wilson) for stay of execution of a costs judgment pending the outcome of Wilson’s appeal of the substantive judgment to the Court of Appeal.
[2] I take the background from the summary in the substantive judgment.1 The issue concerned a commercial property at 136 Fanshawe Street, Auckland. Both the plaintiffs and Wilson claim to have entered legally enforceable agreements to purchase the property. In her decision delivered on 16 December 2013 Katz J concluded that Wilson was estopped from denying that it had waived its right of first refusal to the property and was also estopped from asserting an interest in relation to the property in priority to that of the plaintiffs. She ordered specific performance of the agreement in favour of the plaintiffs, removal of Wilson’s caveat and dismissed Wilson’s counterclaim. Katz J also directed that, as successful parties, the plaintiffs were entitled to costs and provided for an exchange of memoranda to fix costs.
[3] The practical effect of the judgment is that the plaintiffs were able to repurchase the property in issue for approximately $11.4 million. It was accepted by the Judge that the property was worth considerably more than that, in excess of $15 million and, during the course of argument today, Mr McCartney suggested the difference may even be as much as $6 million. In any event, shortly after the delivery of the judgment Wilson lodged an appeal against the substantive judgment.
[4] There was some discussions between the parties regarding a stay pending the appeal which ultimately led to a consent order being made. That consent order provided:
(a) Until after the second defendant’s appeal rights expire, or are determined against the second defendant, or until further order of the Court, the plaintiffs will take no further steps to progress the lapsing of the second defendant’s caveat registered 9474972.1 against CTNA
977/58, and will immediately inform the District Land Registrar of these orders.
(b) The plaintiffs will not settle or call for the settlement of the purchase of 136 Fanshawe Street from the first defendant until after the second defendant’s appeal rights expire, or are determined against the second defendant, or until further order of the Court.
(c) This stay of execution will not include a stay of the orders made by
Justice Katz as to the determination of costs or the payment of costs.
(d) The second defendant is to take all reasonable steps to progress its appeal as a matter of urgency, including seeking entry of the appeal to the Court of Appeal’s fast track.
(e) The application is adjourned to a mention date in February 2014 to assess progress. Any party may to apply vary or alter these orders on notice to the others.
(f) Costs are reserved.
[5] Of particular relevance to this application is cl 3(c):
(c) This stay of execution will not include a stay of the orders made by
Justice Katz as to the determination of costs or the payment of costs.
[6] The consent order was made on 20 December 2013. At that time costs had not been quantified by the Judge.
[7] While Wilson accepts that, following Katz J’s costs decision, it is indebted to the plaintiffs in the total sum of $45,065.40 that sum has been paid into its solicitors’ trust account pending the outcome of the appeal. Wilson says it should not be required to pay the costs order over to the plaintiffs because the plaintiffs will be unable to refund the costs in the event that Wilson is successful on its appeal.
[8] The application for stay raises two principal issues. First, the effect of the consent order and second, whether Wilson satisfies the Court that, in the exercise of its discretion, a stay should be granted particularly whether, if the plaintiffs do not receive payment of the costs award at this stage, they would not be able to fund the defence of Wilson’s appeal.
[9] A consent order, even an interlocutory one, can bring the doctrines of res judicata or issue estoppel into play.2 The issue is in each case is the effect and interpretation of the particular consent order.
[10] Mr McCartney submits that the terms of the consent order and the express reference to costs effectively required payment of costs because costs were not
subject to the stay. On the other hand Mr Nilsson submits that all that the parties had done was to carve off the issue of costs so that it stood outside the stay. It remained to be dealt with separately.
[11] As I read the orders as to stay I consider cl 3(c) excludes the issue of costs from the stay so that the parties were able to proceed to have the issue of costs determined by Katz J, as indeed they did. However, I am unable to accept Mr McCartney’s submission that the clause prevents Wilson from subsequently applying to stay the payment of costs independently or separately or that cl 3(c) in some way required Wilson to pay costs. The wording, in my view, is consistent with the issue of costs simply being put to one side and not being dealt with in the stay that was issued. The issue of costs and any stay of costs was left for determination at a later date if necessary.
[12] If I am wrong in that interpretation in any event the consent orders provided that “any party may apply to vary or alter these orders on notice to the others”. While strictly speaking, as Mr McCartney has pointed out, the application for stay is not an application to vary the consent order, in substance that is what it is directed at. If necessary, I would find that by agreement, the parties had reserved the right to themselves to apply to vary the orders, so that if the order 3(c) is to be interpreted as Mr McCartney argues for, the parties reserved the right to vary that order and once the costs were actually quantified and steps taken by the plaintiffs to enforce that order for costs that justified an application for variation by Wilson.
[13] It follows that I do not consider the terms of the consent order prevent the application for stay. The application falls to be determined on the general principles in relation to stay.
[14] Mr McCartney submitted that fresh circumstances would need to be shown if there was to be any variation to the order but I consider there to be sufficiently fresh circumstances in the quantification of the costs order and the steps taken by the plaintiffs to enforce the order if such fresh circumstances are required. In my assessment the issue falls to be determined having regard to the interests of justice.
[15] In relation to that the principles applying to a stay are settled. The factors noted in Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd are3:
(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) public interest in the proceeding; and
(g) the overall balance of convenience.
[16] In the present case the relevant considerations are whether the appeal may be rendered nugatory by the lack of a stay, whether the successful party, the plaintiffs, will be injuriously affected by the stay, and the overall balance of convenience. It must be accepted that Wilson is bona fide as to the prosecution of the appeal. It has sought and obtained an urgent fast track hearing of the appeal. The appeal is due for hearing in early June. All preparatory steps, by Wilson at least, have been taken to ready the appeal for hearing.
[17] I accept Mr McCartney’s point that the outcome of the substantive appeal will not be rendered nugatory by the lack of a stay but nevertheless the issue of the payment of costs and the inability of Wilson to recover those costs if paid at this stage, is a relevant consideration.
[18] I should say that it is clear on the evidence before the Court and conceded by the plaintiffs’ director Mr Haghi, that if the appeal is successful and the costs have been paid over to the plaintiffs prior to the appeal, the plaintiffs will not be in a
position to repay or refund those costs. The $45,000 would be lost to Wilson.
3 Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48.
[19] Heath J considered that to be a relevant factor in the case of Body Corporate No 188529 & Ors v North Shore City Council & Ors, a case involving a stay application in relation to costs.4 While observing that, if the charging order in relation to costs were made absolute and enforced the proceeds would find their way into the hands of solicitors for the designer who are owed the outstanding costs, the Judge said:
[20] ... Rather, I make the point to demonstrate that, if the costs were paid, they would go beyond the designer, leaving no security for the plaintiffs to recover in the event that they were successful in their appeal to the Court of Appeal.
[21] While that state of affairs does not render the right of appeal nugatory, it does have a significant impact on whether it is just to require payment in advance. Other factors pointing in favour of a stay include the bona fide nature of the appeal, the novelty and importance of the questions raised and the public importance of the issues to be debated on appeal, given the large number of “leaky homes” cases pending before this Court and a statutory tribunal.
[20] Mr Nilsson submitted that similar considerations should apply in the present case.
[21] In response Mr McCartney referred to and relied on the decision of SKIDS Program Management Ltd & Ors v McNeill& Ors.5 The case involved alleged breaches of franchise arrangements in relation to childcare facilities. Following delivery of the substantive judgment an appeal was lodged. The issue was raised as to the execution of costs awarded pending the appeal. In that case Woodhouse J dismissed the application for stay in part.
[22] Mr McCartney submitted that the Judge’s observation at [24] that if the defendants are paid the costs in full this would have no material impact on the plaintiffs’ ability to obtain the benefit of the appeal on the substantive issues if the plaintiffs succeed was precisely identical to the same situation in the present case. Woodhouse J was clearly aware, he submitted, that if the costs payment was made it
may not have been recoverable.
4 Body Corporate No 188529 & Ors v North Shore City Council & Ors (No 6) HC Auckland CIV-
2004-404-003230, 11 February 2009.
5 SKIDS Program Management Ltd v McNeill HC Auckland CIV-2010-404-1696, 20 December
2011.
[23] However, I consider the SKIDS’ case to be distinguishable from the present. Importantly at [25] of the judgment Woodhouse J observed:
[25] In relation to the costs judgment, payment to the defendants, without any conditions, may give rise to some risk for the plaintiffs in recovering the money if the appeal means they are entitled to recover the costs. But risk simply means that recovery may be more difficult in this case than it might be in another case. This does not render the appeal on costs nugatory. In addition, I am satisfied from the evidence available that, if the defendants are directed to repay some or all of the costs sum, they will find the means to do so.
[24] In the present case, however, it is not a question of risk of the plaintiffs being unable to pay. It is accepted and conceded that they would be unable to pay. On the evidence before the Court there is no prospect that, if the stay is not granted, and the costs are paid to the plaintiffs, the plaintiffs would be in a position to repay. Further, in the SKIDS’ decision the Judge was influenced by the fact that, as Mr McCartney submitted, the plaintiffs’ actions had put the defendants into the very position which the plaintiffs relied on to argue the defendants might not be entitled to receive the money which the Court had ordered them to pay.
[25] Again, however, the position is different in the present case. It appears from the evidence of Mr Haghi that the financial difficulty that he and the plaintiffs are in is attributable to, at least on his explanation, to the GFC and the consequential downturn in the property market. Further, the issue between the parties has not arisen out of any particular breach by either of the parties as such. Rather the issue that was determined by the Court was which of the two parties were entitled to the benefit of two separate agreements for sale and purchase in relation to the property. For those reasons I do not consider the SKIDS’ case to be on point.
[26] Mr McCartney next submitted that if the plaintiffs were not able to receive costs at this stage it would effectively be the same as requiring them to pay security for costs for the appeal. I am unable to accept that submission as a matter of interpretation. Obviously the appellants have paid security for costs for the appeal. The issue of payment of costs for this Court’s judgment is a quite separate and distinct issue. Further, while the plaintiffs were required to pay security for costs in
this Court the trial Judge has already directed that the security be repaid and refunded to the plaintiffs.
[27] Next, Mr McCartney referred to Wilson’s submissions for the appeal that if Wilson failed on its principal argument and was left with its alternative argument, the plaintiffs might recover equitable damages only. On one view of it that might be in the region of $40,000. But as Mr Nilsson pointed out in any event that is at most a fallback argument for Wilson. Its substantive argument is still that it is entitled to the entire benefit of the agreement for sale and purchase. Mr Nilsson submitted that actually the factual issues challenged were less than those suggested by Mr McCartney. This Court is in no position to assess the particular merits of the appeal and it is unnecessary to do so to determine this particular application. As noted, the bona fides of Wilson in pursuing the appeal is not challenged. A cursory read of Wilson’s synopsis of argument on appeal suggests that there are substantive issues for determination by the Court of Appeal on the appeal.
[28] Further, as Mr Nilsson submitted, if Wilson succeeds on its appeal, even on part of the appeal, its costs will be substantial. Not only will it have potentially lost the $45,000 now but it would, on the evidence, be unable to recover the approximately $50,000 costs that may be awarded in this Court and the additional
$15,000 that it would expect to be awarded if successful in the Court of Appeal.
[29] The principal issue remains the issue that was before this Court on the application for security for costs, namely the submission on behalf of the plaintiffs that they will be at risk of not being able to present their defence to the appeal if they do not receive the payment of costs of $45,000.
[30] However the evidence to support the submission is general. I note the notice of opposition to the application for stay says there is a possibility the plaintiffs would be starved of funds with which to defend the appeal and that they need the costs to be paid in order to pay for their defence of the appeal. However the evidence in support is essentially that the plaintiffs already owe their lawyers over $100,000 in respect of the litigation. There is no evidence as to what if any arrangements are made or whether, for instance, the lawyers would refuse to continue to act if the
money is not paid over. Mr Haghi refers to an attempt to raise funds to fight Wilson. He says he managed to raise money by borrowing small amounts from various friends but all of that has been spent. No reference to the amounts are disclosed. Mr Haghi says he is unable to borrow any more money from mainstream banks. He says he has tried to obtain funding from two financiers who have lent him money in the past but they refused him. Again there are no details of the approaches nor when they were made. He also says he tried to obtain funding from a professional litigation funder, but was also refused.
[31] Again very similar general statements were raised in relation to the application in the opposition to the application for security for costs. It was said that if the plaintiffs were obliged to pay security it was likely they would be denied access to justice as they would not be able to pay security and present their case. Despite that submission when the Court made an order for security it was met in short time frame. If anything from the point of view of an external funder or litigation funder the plaintiffs’ position has improved. They now hold a judgment in their favour, the fruits of which are on any view of it worth between $4 and $6 million. That must be a proposition that a party would be interested in funding, at least on certain terms.
[32] To be fair I record that Mr McCartney properly advised the Court that his instructing solicitors had advised him the plaintiffs were presently involved in discussions with a funder who might be able to assist them with funding for the appeal. Mr McCartney made the point that funder had previously indicated a willingness but had withdrawn. There was no certainty about the matter. He did suggest that might be clarified within a day or so or even today.
[33] However, I am satisfied that it is appropriate to deal with this application on the information before me at the moment. Obviously if the funding became available then the issue which the Court is currently discussing would not be an issue. But in any event I am not satisfied on the basis of the evidence presently before the Court that it can be said if the costs are not paid over and the application for stay declined that the plaintiffs will be unable to present a defence to the appeal.
[34] I note that in the course of oral submissions reference was made to the plaintiffs’ desire to instruct Mr Campbell QC. Again however there is no information before the Court by way of evidence as to the terms upon which Mr Campbell might or might not be prepared to act. I am unable to take that matter any further.
[35] For the above reasons the application for stay is granted. If the stay were not granted and the costs paid over, which they would be, I am satisfied that in the event Wilson succeeded in the appeal the costs would be lost to it and there is no prospect of it being repaid.
[36] While as Mr McCartney submits Wilson may be a financially strong company it would effectively be put in a position of part funding the opposition to its successful appeal, which it should not be required to do.
[37] There will be an order accordingly in terms of the application staying the execution of this Court’s costs order against the appellant pending determination of Wilson’s appeal to the Court of Appeal in proceedings CA24/2014.
Costs
[38] That leaves the issue of costs. Mr McCartney has submitted that costs should be reserved or fixed to follow the outcome in the Court of Appeal. He submits that effectively Wilson has obtained an indulgence from the Court. However, I do not accept that the order is in the nature of an indulgence. There has been no action by Wilson which has led to any indulgence. On my analysis it was entitled to apply for a stay in relation to the issue of costs.
[39] Mr McCartney referred to the delay by Wilson in pursuing this application. But until costs were fixed on 2 April and the order was sealed on 11 April there was no need for Wilson to seek or make application for stay. The application for stay was made on 16 April. Prior to that an offer had been made for payment into the solicitors’ trust account as has occurred. Costs are secured there for the plaintiffs in the event Wilson’s appeal is unsuccessful. The plaintiffs were unable to respond to
Wilson’s solicitor’s invitation to provide information to satisfy it that the costs would be repaid if Wilson succeeded in the appeal.
[40] I consider, as this is an interlocutory application, costs should be fixed at this stage in the usual way.
[41] There will be costs to the applicant on a 2B basis together with disbursements as fixed by the Registrar. The payment, however, of those costs is to await the
outcome of the substantive appeal in the Court of Appeal.
Venning J
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