FOX EARS LIMITED AND WESTCITY NZ PTY LIMITED & WESTCITY NZ NOMINEES PTY LIMITED s COLLIERS REAL ESTATE MANAGEMENT LIMITED

[2024] NZHC 3018

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-2122

[2024] NZHC 3018

BETWEEN

FOX EARS LIMITED

Plaintiff

AND

WESTCITY NZ PTY LIMITED & WESTCITY NZ NOMINEES PTY LIMITED

First Defendants

COLLIERS REAL ESTATE MANAGEMENT LIMITED

Second Defendant

Hearing:	On the papers
Counsel:	S L L Gallagher for the Plaintiff M A Keil for the First Defendants I Davies for the Second Defendant
Judgment:	16 October 2024

JUDGMENT OF ASSOCIATE JUDGE BRITTAIN

[leave to appeal]

This judgment was delivered by me on 16 October 2024 at 12 midday.

Pursuant to r 11.5 of the High Court Rules.

…………………..

Registrar/Deputy Registrar

Solicitors:

Righteous Law, Auckland Keil & Associates, Auckland

Robertsons Barristers & Solicitors

FOX EARS LTD v WESTCITY NZ PTY LTD [2024] NZHC 3018 [16 October 2024]

Introduction

[1]    The plaintiff, Fox Ears Ltd (Fox Ears), was formerly the tenant of a premises in a shopping mall operated by the first defendants, Westcity NZ Pty Ltd and Westcity NZ Nominees Pty Ltd (Westcity). Fox Ears operated a Health 2000 franchise from the premises.

[2]    The term of the lease was seven years commencing on 19 May 2019. Fox Ears vacated the premises on about 1 December 2019. On 2 December 2019, Westcity entered into a new lease with the franchisor, Health 2000 Retail Ltd (Health 2000).

[3]    In this proceeding, Fox Ears alleges that its lease was surrendered by operation of law on 2 December 2019. Fox Ears has sued Westcity to recover a security deposit that Fox Ears paid to Westcity at the commencement of the lease, of $23,805.90. Fox Ears also claims damages for the value of its fitout of the premises and chattels left in the premises when it vacated, alleging that Westcity has been unjustly enriched by the value of those assets.

[4]    Westcity says that the security deposit was applied to the amounts due under the lease for the period ending on 1 December 2019. Westcity says that Fox Ears remains liable for any unpaid rent until the term of the lease expires on 18 May 2026.

[5]    On 12 July 2024, I granted Westcity’s application for an order that Fox Ears pay security for costs.1 I ordered Fox Ears to pay $15,000 into Court, and stayed the proceeding pending payment.2 Fox Ears seeks leave to appeal the judgment.

The judgment

[6]    I found that the threshold for an order for security was met.3 Correspondence sent by Fox Ears’director, Nan Jiang (Ms Jiang) to Westcity and its agent before Fox Ears vacated the premises in 2019 stated that Fox Ears had ceased to operate because of financial difficulties. That was confirmed in an affidavit from Ms Jiang sworn on

1      Fox Ears Ltd v Westcity NZ Pty Ltd [2024] NZHC 1913.

2      At [37]–[38].

3      At [11]–[20].

24 March 2023 and filed in opposition to Westcity’s application to liquidate Fox Ears for outstanding rent.

[7]    I then considered the merits of Fox Ears’ claims in this proceeding. I accepted that it is arguable that the lease was surrendered by operation of law on 2 December 2019. I found that an account statement kept by Colliers recorded that the security deposit had been applied to outstanding charges under the Fox Ears’ lease incurred before any surrender by operation of law.4

[8]    I considered the position if the security deposit was not lawfully applied. I held that the documentary evidence, and Ms Jiang’s affidavit filed in the liquidation proceeding, suggested that Fox Ears had repudiated the lease before the lease was surrendered. Therefore, the starting point is that Westcity is entitled to damages in respect of the unexpired lease term. The claim for loss of bargain damages was likely to exceed the security deposit.5

[9]    I held that the evidence that was available suggested that Fox Ears had consented to the franchisor acquiring Fox Ears’ rights in respect of the fitout and chattels in the premises after Fox Ears had vacated, and the prospect of Fox Ears successfully claiming damages from Westcity for the value of the fitout or the chattels was poor.6

[10]   This was not a case where Westcity’s alleged conduct had caused Fox Ears’ impecuniosity. I concluded that it was an appropriate case for security for costs.7

Legal principles

[11]   Pursuant to s 56(3) of the Senior Courts Act 2016, Fox Ears is required to obtain the leave of this Court to pursue an appeal against my decision to order it to pay security for costs.

4 At [22].

5      At [23]–[27].

6      At [28]–[31].

7      At [32]–[34].

[12]   The rationale behind the requirement for leave is simple: it serves as a filtering mechanism, ensuring that neither unmeritorious appeals of interlocutory orders, nor appeals against insignificant interlocutory orders, are allowed to proceed so as to delay unnecessarily the proceedings in which the orders are made.8

[13]   The approach to an application for leave, and the principles governing its grant or refusal, are well-established:9

(a)a high threshold exists;

(b)the applicant must identify an arguable error of law or fact;

(c)the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;

(d)the circumstances must warrant incurring further delay; and

(e)the ultimate question is whether the interests of justice are served by granting leave.

[14]   The threshold for leave may be lower in respect of a judgment that in a practical sense finally determines a proceeding.10

[15]   In the event leave is refused, the applicant is not barred from later raising their intended appeal point in an appeal against the substantive High Court decision in the proceeding.11

8      Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].

9      Tomar v Tomar [2021] NZCA 419 at [6].

10     See Simons v ANZ Bank New Zealand Ltd [2022] NZHC 2842 at [7]; Singh v Body Corporate 207650 [2023] NZHC 1269 at [13]; and D v RMC [2023] NZHC 1931 at [16].

11     Senior Courts Act 2016, s 56(6).

Discussion

Arguable error

[16]   Fox Ears does not take issue with my statement of the principles applicable to applications for security for costs. Fox Ears does not challenge my finding that the threshold for security was met. Fox Ears seeks to appeal the exercise of a discretion.

[17]   Fox Ears argues that I placed undue weight on the merits of Fox Ears’ claim when undertaking the balancing exercise required. Fox Ears submits that I should have placed more weight on the principle that access to the Courts for a genuine plaintiff is not likely to be denied.

[18]   Fox Ears argues that I should not have placed any weight on the Colliers statement which records that the security deposit was applied to charges incurred under the lease before 1 December 2019, based on Ms Jiang’s affidavit evidence that Fox Ears always kept up to date with its financial obligations. However, Ms Jiang’s evidence was bare assertion. There was no documentary evidence available to contradict the Colliers statement.

[19]   I accept that it is possible that the Colliers statement is not accurate, and the security deposit may not have been required to pay charges that accrued under the lease in the period ending on 1 December 2019.

[20]   However, Fox Ears has not advanced an argument to contradict my findings that:

(a)if there was a repudiation by Fox Ears, the terms of the lease permit Westcity to claim loss of bargain damages for the unexpired lease term, which concludes on 18 May 2026; and

(b)there is a reasonable prospect that this claim will exceed the security deposit.

[21]   Fox Ears’ claim to recover its security deposit is for $23,805.90. The much larger component of Fox Ears’ claim is for the value of the fitout and chattels. Fox Ears has not challenged my finding that the available evidence suggests that those assets were transferred to the franchisor, which negates any claim that Fox Ears could possibly have against Westcity for the value of those assets.

[22]   The fundamental problem that Fox Ears faces is that it has not advanced any tenable argument to challenge my finding that the starting point appears to be that Westcity is entitled to loss of bargain damages for the period from 2 December 2019 to 18 May 2026, likely to exceed the security deposit.

[23]I conclude that Fox Ears cannot establish an error in the judgment.

General or public importance

[24]There is no issue of general or public importance.

Importance of the issue to the applicants

[25]   Given the submissions advanced in support of the application for leave to appeal, it appears that Fox Ears’ only concern is its desire to recover the security deposit of $23,805.90. This litigation must be kept in perspective. The contest between the parties is not significant.

Interests of justice

[26]   Westcity has not pursued its counterclaim against Fox Ears for loss of bargain damages, which is not surprising given the evidence suggests Fox Ears is insolvent. The cost of that litigation appears to be unjustified.

[27]   Fox Ears has not argued that it is unable to pay the security. If Fox Ears is determined to pursue its claim, it can raise the security from its shareholder and continue.

[28]   If Fox Ears is unable to post security and the proceeding is stayed, then all that Fox Ears will lose is the opportunity to recover the security deposit of $23,805.90.

The costs and resources that will be required to pursue and conclude the proceeding are not justified by the amount at stake.

[29]   It is difficult to see how any further litigation between the parties will serve the interests of justice.

Result

[30]Leave to appeal is refused.

[31]   The costs incurred by Westcity in opposing the application have been minimal. I order that the plaintiff pay costs to the first defendants of $956, calculated on a 2B basis for preparation of the memorandum of counsel for the first defendants.

[32]   On 1 October 2024, I ordered an interim stay of enforcement of the costs order made in Westcity’s favour on the application for security for costs: that the plaintiff pay the first defendant’s costs of $8,962.50 together with disbursements of $478.26.12 That stay is now lifted.

Associate Judge Brittain

12     Fox Ears Ltd v Westcity NZ Pty Ltd HC Auckland CIV-2023-404-2122, 1 October 2024 (Minute of Associate Judge Brittain) at [8].