Flaxpod Investments Limited v Gerbes

[2023] NZHC 1910

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2023-485-386

[2023] NZHC 1910

IN THE MATTER OF

a personal guarantee

BETWEEN

FLAXPOD INVESTMENTS LIMITED

Applicant

AND

MARK GERBES AND KATHRYN GERBES

Respondents

Teleconference:

20 July 2023

Counsel:

S Baigent for the Applicant

D G Dewar for the Respondents

Judgment:

20 July 2023

JUDGMENT OF GWYN J

Solicitors:

Thomas Dewar Sziranyi Letts, Lower Hutt BMC Lawyers, Paraparaumu

FLAXPOD INVESTMENTS LIMITED v GERBES [2023] NZHC 1910 [20 July 2023]

Background

[1]    On 11 July 2023 Palmer J granted an interim injunction on a without notice application by the applicant, Flaxpod Investments Ltd (injunction judgment).1 Flaxpod is the landlord of premises leased by Spectrum Collision Repairs (Spectrum) which is now in liquidation. The respondents, Mark and Kathryn Gerbes, are the guarantors under the deed of lease. Mr Gerbes was the sole director, and the Gerbes together were the shareholders, of Spectrum. The lease expires in March 2028.

[2]    The basis for the application is set out in the injunction judgment. The orders made by Palmer J were:2

(a)the respondents, Mr Mark and Ms Kathryn Gerbes, must not disburse the proceeds of sale of 44 Kotuku Drive, Paraparaumu (Record of Title 308927, Lot 225 Deposited Plan 376894) to any third parties, except by repayment of the first mortgage, until resolution of the substantive proceedings;

(b)the applicants must file a statement of claim in the substantive proceedings within five working days;

(c)leave is reserved for any party to apply, on three days’ notice, to vary or discharge the orders above;

(d)the proceedings will be called in the Judge’s Chambers List in the Wellington High Court at 10.00 am Monday 31 July 2023 to review progress. The parties should file and serve memorandum by noon Thursday 27 July 2023 to update the Court; and

(e)the applicants’ counsel must provide this judgment, along with the Court’s formal order, to the respondents and/or their solicitors, forthwith.

1      Flaxpod Investments Ltd v Gerbes [2023] NZHC 1811.

2 At [10].

[3]    Subsequently, on 18 July 2023, Palmer J issued a minute directing that the applicant was to file and serve the statement of claim by the original deadline of

5.00 pm Wednesday 19 July 2023, given the urgent timeframes involved. The statement of claim was filed on 19 July 2023.

This application

[4]    The respondents, Mark Gerbes and Kathryn Gerbes, have now filed a notice of application to rescind the injunction, supported by an affidavit from Ms Gerbes. Their application has come before me as Duty Judge.

[5]The rescission application is made on the grounds that:

(a)The applicant has no legal claim, right or interest in the respondents’ property at 44 Kotuku Drive, Paraparaumu Beach.

(b)At the date of the application for the without notice interim injunction the only demand made by the applicant against the respondents was for payment of the sum of $586.26, said to be outstanding under a Deed of Lease.

(c)The applicant failed to disclose to the Court relevant information, being the course of dealings between the applicant, its solicitor and the liquidator of Spectrum Collision Repairs Ltd (in liquidation).

[6]    Accordingly, the respondents submit that the application does not raise a serious question to be tried; the balance of convenience favours the status quo. In addition, the application is not based on true urgency and the potential claim that the applicant makes is for a modest liquidated amount. In that respect damages would be an adequate remedy.

[7]The respondents also submit that the applicant has acted in bad faith.

[8]    The respondents have sold the property referred to at [2(a)] above and settlement will occur on Friday 21 July 2023. The effect of the order made by Palmer J is to prevent disbursement of any proceeds of sale.

[9]For that reason there is an urgency to this application.

The law

[10]   The application to rescind is made in reliance on rr 7.23, 7.49 and 7.51 of the High Court Rules 2016 (Rules).

[11]   Rule 7.49 provides that an interlocutory order may be varied or rescinded if shown to be wrong. Rule 7.51 provides that a Judge may rescind any order that has been fraudulently or improperly obtained.

[12]   I note that r 7.49(5) provides: “Unless a Judge otherwise directs, the application must be heard by the Judge who made the order or gave the decision”. I consider that the application is appropriately heard by me as Duty Judge, rather than Palmer J. I am satisfied that the information necessary to consider this application to rescind is clear from the documents filed.

Submissions

[13]   For the applicants, Mr Dewar submits the Court should never have made the orders – it was induced to err by the material put before it by the applicant.

[14]   The “current outstanding obligations” of the respondents at the time of the application for the injunction amounted to only $568. That amount was highly relevant to the question of whether damages were an adequate remedy.

[15]   Mr Dewar says that although the statement of claim now filed claims a current amount outstanding of $36,602.72, that includes “estimated legal fees”. The actual amount currently outstanding is $13,602.72. Mr Dewar says all other amounts set out in the statement of claim are prospective and/or disputed.

[16]   Ms Gerbes’ affidavit in support of this application for rescission addressed an assertion made by Ms Sowry in her affidavit in support of the without notice interlocutory application. Ms Sowry said: “The Respondents have not paid or made any offers to pay any outstanding obligations due under the lease despite demands being made by the Applicant through its solicitor.”

[17]   In response, Ms Gerbes states that she had already told their lawyer and the liquidator that on settlement of the sale of their house they would pay the rent due. Ms Gerbes says: “I assure the Court and, if necessary, I will have our lawyer assure the Court, that we have in excess of $400,000 net equity after payment of all obligations to our mortgagee, rates, selling costs, etc.”

[18]   That is consistent with evidence from John Scutter, in support of the application to rescind the injunction, which I received during the course of my telephone conference  with  counsel.  Mr Scutter  is  the  Liquidator  of  Spectrum. Mr Scutter’s affidavit notes that the clear plan for the liquidation has been to sell the business as a going concern. He deposes that, since the sale of the respondents’ Paraparaumu Beach property, and since his appointment as Liquidator, he has had an arrangement with them pursuant to which they are to lodge an agreed sum of $65,000 to the company’s account, from which he had expected to pay the rent and outgoings to date. He had expected to receive those funds on settlement, on Friday 21 July 2023.

[19]   Mr Scutter understands that he would not now receive those funds as a result of the injunction judgment in this case.

[20]   Mr Scutter’s affidavit also addresses the applicant’s claim for reinstatement of the premises (quantified in the statement of claim at $57,500). Mr Scutter notes that the lease is specific to the panel-beating and spray-painting business carried out in the building. The building is purpose-fitted for that business use which, to his knowledge, has been occurring there for approximately 30 years. Mr Scutter notes there have been no additions or alterations since the commencement of the lease in April 2022.

[21]   Ms Baigent for the respondents, in response, disputes that the information put before the Court in the original application was incomplete or inaccurate.

[22]   While some of the amounts claimed are prospective, the evidence for the applicant asserted that Ms Gerbes had indicated that future liabilities would not be paid by the respondents.

[23]   Ms Baigent submits that the “estimated legal fees” disputed by Mr Dewar are a valid claim as, under the lease, the respondents are required to pay the legal costs of enforcement of the lease.

Discussion

[24]   The principles relevant to the grant of an interim injunction are succinctly set out by Palmer J in the injunction judgment.3 Those are the principles relevant to my assessment whether the injunction should be rescinded.

[25]   I am satisfied that the Court did not have before it all relevant information at the time it heard the without notice application for interim injunction.

[26]   It appears that the applicant did not disclose to the Court anything other than the bare fact of the appointment of a liquidator to Spectrum and did not provide the Court with information about the attempts by the Liquidator to sell the business as a going concern and to assign the lease to mitigate or remove any loss to the applicant. Nor was there full disclosure of the ongoing correspondence between the Liquidator and Flaxpod’s solicitor about that possibility.

[27]   The information in Mr Scutter’s affidavit, received today, would have been relevant to the Court’s consideration of the injunction application but, because the application was made without notice, it was not before the Court.

[28]   I am also satisfied that the information put before the Court on the application for interim injunction did not adequately explain the calculation of the amounts said to be owing and that some of those amounts, such as reinstatement of the premises, might well be disputed.

3 At [8].

[29]   For those reasons I am satisfied it is appropriate to rescind the orders made by the Court, subject to a condition which I set out below.

Result

[30]   I direct that the orders made by Palmer J be rescinded, subject to the condition that the respondents are to pay to the applicant on 21 July 2023 the sum of $13,602.72.

[31]   The substantive proceedings will be called in the Judge’s Chambers List in the Wellington High Court at 10.00 am on Monday 31 July 2023 to review progress. The parties are to file and serve a memorandum or memoranda by  noon on Thursday  27 July 2023 to update the Court.

Costs

[32]The respondents expressly reserve their position on costs.

Gwyn J