Herbert v USAR Napier Limited
[2022] NZHC 655
•1 April 2022
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2021-441-8
[2022] NZHC 655
BETWEEN MALCOLM ANDREW HERBERT
First Applicant
ANTHONY JAMES HERBERT
Second ApplicantANTHONY JAMES HERBERT,
STEPHEN PETER LUNN as trustees of the Thackeray Trust
Third Applicants
ANTHONY JAMES HERBERT,
STEPHEN PETER LUNN as trustees of the Charles Street Trust
Fourth Applicants
AND
USAR NAPIER LIMITED
Respondent
Hearing: 31 March 2022 Appearances:
J K Mahuta-Coyle for Applicants
S M Lowery and J Suyker for Respondent
Judgment:
1 April 2022
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
[1] The applicant parties (the Herbert group) are developers. They were involved in the development of a hotel in Munroe Street in Napier. They entered into an agreement to lease the hotel to the respondent (USAR) which was proposing to operate the hotel as one of the Hilton chain of hotels. The Herbert group cancelled the agreement. There followed litigation including an application by USAR for injunctive
HERBERT v USAR NAPIER LIMITED [2022] NZHC 655 [1 April 2022]
relief. However, common sense prevailed. The parties resolved their differences in a settlement agreement dated 10 December 2020 (apparently, the day that USAR’s application for interim injunctive relief was to be heard). The terms of this settlement agreement required the Herbert group to make certain payments to USAR:
(a) $115,000 by 17 December 2020;
(b) $145,000 by 24 March 2021; and
(c)$250,000 plus interest in equal monthly payments commencing on 5 April 2021 and ending on 5 December 2021.
[2] It also required the Herbert group to provide security pending payment of those sums.
[3] The applicants’ made the first payment, but have not made any of the others, and the security has not been provided.
[4] USAR commenced this proceeding on 12 February 2021 and applied for summary judgment.
[5] The application came on for hearing on 20 September 2021. In a judgment dated 5 October 2021 Associate Judge Lester entered summary judgment for the amount due to USAR as at that date against the first, second and third defendants, and ordered the fourth defendants to provide the mortgage security. In a supplementary judgment dated 4 February 2022, the Judge entered judgment against the first, second and third defendants for the balance of the monies which by then were due.
[6] In doing so, the Judge concluded, as of course he needed to be able to do in order to enter summary judgment, that USAR had discharged the onus of demonstrating that the Herbert group had no arguable defence to the claim.
[7] Ultimately, judgment was entered in USAR’s favour for a total of $580,980.76, inclusive of costs and disbursements (plus interest).
[8]By notice of appeal dated 21 October 2021, the Herbert group has appealed.
[9] The group now applies for a stay of execution of the judgment. Its notice of application says that it does so pursuant to r 17.29 of the High Court Rules and r 12 of the Court of Appeal (Civil) Rules.
[10]Rule 17.29 of the High Court Rules provides:
17.29 Stay of enforcement
A liable party may apply to the court for a stay of enforcement or other relief against the judgment upon the ground that a substantial miscarriage of justice would be likely to result if the judgment were enforced, and the court may give relief on just terms.
[11]Rule 12 of the Court of Appeal (Civil) Rules provides:
12 Stay of proceedings and execution
(1)None of the matters referred to in subclause (2) operate as—
(a)a stay of a proceeding in which a decision was given; or
(b)a stay of execution of that decision.
(2)The matters are—
(a)an application for leave to appeal; or
(b)the giving of that leave; or
(c)an appeal.
(3)Pending the determination of an application for leave to appeal or an appeal, the court appealed from or the Court may, on an interlocutory application,—
(a)order a stay of the proceeding in which the decision was given or a stay of the execution of the decision; or
(b)grant any interim relief.
(4)An order or a grant under subclause (3) may—
(a)relate to execution of the whole or part of the decision or to a particular form of execution:
(b)be subject to any conditions that the court appealed from or the Court thinks fit, including conditions relating to security for costs.
(5)If the court appealed from refuses to make an order under subclause (3), the Court may, on an interlocutory application, make an order under that subclause.
(6)If the court appealed from makes an order under subclause (3), the Court may, on an interlocutory application, vary or rescind that order.
(7)The Court may, at any time, vary or rescind an order made by it under this rule.
[12] It is the latter rule that is engaged here. Rule 17.29 applies generally to applications for stays of execution. Rule 12 is specifically directed at applications for stays pending appeal, and confers jurisdiction exercisable by both this Court and the Court of Appeal.1
[13] Counsel were on common ground as to the principles. They are well settled. The leading case is Keung v GBR Investment Ltd2 in which the Court of Appeal approved Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd.3
[14] Mr Mahuta-Coyle for the Herbert group summarised the principles involved as follows:
5.The relevant legal principles are well-established:
5.1.the Court will weigh a range of factors in determining, on the whole case, the balance between the successful litigant’s right to the fruits of judgment, and the need to preserve the position should the appeal succeed. Those factors are:
5.1.1.whether the appeal may be rendered nugatory by the lack of stay. This factor is not, however, determinative;
5.1.2.the bona fides of the applicant as to the prosecution of the appeal;
5.1.3.whether the successful party will be injuriously affected by the stay;
5.1.4.the effect on third parties;
5.1.5.the novelty and importance of the questions involved;
5.1.6.the public interest in the proceeding;
1 Palmerston North City Council v Birch [2012] NZHC 3248 at [17].
2 Keung v GBR Investment Ltd [2010] NZCA 396.
3 Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48.
5.1.7.the overall balance of convenience; and
5.1.8.the apparent strength of the appeal.
5.2.generally, a stay of a judgment will only be granted on provision of security.
[Footnotes omitted.]
[15] Mr Lowery for USAR did not differ materially from that analysis, and I could not improve on it.
[16] USAR’s application articulates the grounds upon which it is made in these terms.
2.Upon the grounds:
2.1the applicants have appealed the judgment;
2.2the applicants’ appeal rights will be rendered nugatory if a stay were not granted.
2.3the respondent have advised they are to commence enforcement proceedings against the applicants after being served with the appeal;
2.4the orders sought are therefore necessary to preserve the applicants’ position in the event the appeal is successful;
2.5the applicants intend to place on trust sufficient funds necessary to meet the judgment as sealed and will provide evidence of having done so prior to the giving of the orders sought in paragraphs 1.1 and 1.2 above Alternatively such orders might be made conditional on suitably evidencing that such funds have been secured;
2.6the respondent will not be injuriously affected by the stay. At worse the respondent will face a delay of proceedings that have been on foot since February 2021;
2.7the applicants are bona fide in the prosecution of their cross appeal; and
2.8the overall balance of convenience favours the granting of a stay.
[17] Mr Mahuta-Coyle submitted that the Herbert group has commenced its appeal bona fide, and will prosecute it in a timely way. He says this is not an appeal which has been lodged outwith proper purposes so as to provide a foundation for this
application in order simply to delay matters. The Court has no reason to doubt that. Mr Lowery for USAR submitted that the Herbert group’s bona fides is called into question by its failure to pay the amount of the judgment debt into trust pending the disposal of the appeal. I do not accept that. That may say something about the group’s financial position, but it does not speak to the genuineness of the appeal.
[18] It is contended on the Herbert group’s behalf that if enforcement is not stayed this will have the effect of rendering the appeal nugatory. I do not accept that submission. The basis for it appears to be that because USAR has commenced bankruptcy proceedings against Malcolm Herbert and Peter Lunn, their bankruptcy would render a successful appeal worthless. That is wrong in at least two respects. First, it is wrong in the practical sense that it is open to Mr Herbert and Mr Lunn to apply for orders setting aside bankruptcy notices served on them which I understand they have done. Even if they were unsuccessful in that it will remain open to them to apply for a halt or stay of any bankruptcy proceeding. Second, it is wrong in the more technical sense that even if one or more of the individuals connected with the Herbert group were to be made bankrupt, that would not bring the appeal to an end. The remaining group members would have standing to proceed, and, in any event, the Official Assignee might lend her support to the appeal.
[19] Mr Mahuta-Coyle turned next to the merits of the appeal. It should be acknowledged that in an applications such as this (just as in applications for orders for security for costs and the like), all the Court can do is form an impression as to the merits of the appeal. Mr Mahuta-Coyle indicated that in prosecuting its appeal the Herbert group would contend that the Judge erred in at least four ways:
Merits of the appeal
10.In pursuing their appeal, the applicants will argue that in granting summary judgment the learned Judge has erred in at least four ways:
10.1.in determining, as a question of law, that the focus of an expectation damages claim is the loss of net profit rather than the loss of revenue as the anticipated benefit from a bargain;
10.2.that the failure of the hotel to open by July 2021, as an actus interveniens, meant that the applicants suffered no loss from the respondent’s misrepresentation in any event. The focus of argument here, will be whether or not the loss of forward hotel
bookings (which provided the applicant with only a contingent benefit) may constitute loss for the purposes of assessing damages;
10.3.that the loss of trading profit was the only type of loss identified by the applicants cross-claim. Whereas the evidence before the Court was that the inability to take forward bookings and demonstrate projected income harmed the applicants’ ability to obtain refinancing of the hotel property as an ongoing development. The applicants’ evidence had been that the respondent knew this and adopted it as a specific tactic to undermine the applicants; and
10.4.overall the Court adopted an unreasonably high threshold, one not supported by the authorities3, for the establishment of a cross-claim by a defendant to a summary judgment application. The applicants’ burden was to lay a credible foundation for the existence of a cross-claim. They did not, as the High Court seems to have approached it, have to prove all elements of such a claim immediately within the context of a defended summary judgment hearing.
[Footnotes omitted.]
[20] Thus, the thrust of the appeal would appear to be the contention that the Judge erred in concluding that the Herbert group did not have an arguable cross-claim based on alleged pre-contractual misrepresentations.
[21] As I understand the way that matters unfolded. Because affidavit evidence was filed in response to USAR’s application by the Herbert group at the eleventh hour, to which USAR had no opportunity to respond, the Court was invited to proceed on the basis that the Herbert group would be able to establish that USAR had made actionable representations to the effect that all advertising of the hotel under the Hilton branding had or would cease, and that this did not happen. In those circumstances, the only live issue insofar as the alleged cross-claim was concerned was whether the Herbert group would be able to establish that any recoverable loss flowed from the (assumed) breach. The contention was that this had resulted in the entity to which they had rented the hotel, which was intending to operate it as part of the Swiss-Belhotel chain of hotels, was unable to secure advance bookings in the expectation of the hotel opening in early July 2021 and that the Herbert group therefore suffered loss in the form of the revenue they would otherwise have received.
[22] The Judge concluded that there was no evidence to which the Herbert group could point providing a foundation for its submission that it suffered any recoverable loss. This was because, at the time of the summary judgment application, the hotel was not complete and there was apparently no certainty as to when it would open. Thus, the Judge concluded, there was no reliable evidence that the operator would have been able to accommodate guests and that there would have been any revenue. In addition, the Judge accepted a submission made on USAR’s behalf that the only evidence related to revenue and that as there was no evidence as to the costs that the Herbert group would have incurred, even at a theoretical level the Herbert group could not point to evidence that they had suffered a net loss. As Mr Lowery submits, the task of doing so on the basis of the evidence currently before the Court will be even harder on appeal because, as it turns out, the hotel did not open until early December 2021.
[23] Mr Mahuta-Coyle submitted that in reaching these conclusions the Judge had set the bar too high. Relying on the observations of Gault J delivering the Court of Appeal’s judgment in Middleditch v New Zealand Hotel Investments Ltd,4 he submitted that, it having been accepted that USAR was in breach, it was sufficient for the Herbert group to point to the type of damage that might naturally flow from the breach in order to defeat the application for summary judgment. I do not see that at all. Middleditch v New Zealand Hotel Investments Ltd is not authority for that proposition, and the authorities to which Mr Lowery referred me are to the contrary effect. They indicate that a defendant relying on a cross-claim to avoid summary judgment will need to point to an evidential foundation upon which it can argue that it suffered compensatable loss.5 I do not say that the defendant needs to be able to identify the precise loss, but the Court needs to be satisfied that there is evidence to support this aspect of the claim. Gray v Stevenson, Freshmax and Pacific Basin Education all contain searching analyses of whether there is evidence of loss.
[24] In short, I can perceive no obvious error in the reasoning that the Judge applied or the conclusion that he reached.
4 Middleditch v New Zealand Hotel Investments Ltd (1992) 5 PRNZ 392.
5 Gray v Stevenson (unreported), High Court Wellington Young J, 15 October 2008; Freshmax NZ Ltd v Oak Glen Orchards Ltd [2012] NZHC 1560; Pacific Basin Education Foundation Ltd v Richina Ltd [2016] NZHC 2193.
[25] I decline Mr Mahuta-Coyle’s invitation to conclude that the Judge “adopted an unreasonably high threshold, one not supported by the authorities, for the establishment of a cross-claim by a defendant to a summary judgment application”.
[26] For those reasons, the view I have reached is that USAR’s prospects on appeal are not good.
[27] Mr Mahuta-Coyle relied on the effect that the enforcement of the judgment might have on third parties. He pointed in particular to the position of the second-named third defendant trustee, Mr Peter Lunn. Mr Lunn is a solicitor and a professional trustee with no beneficial interest either either of the trusts involved here. Of course, Mr Lunn is a party. Mr Mahuta-Coyle’s focus was less on Mr Lunn’s personal position as on the positions of those connected with the other trusts of which he is a trustee, estates of which he is an executor and companies of which he is a director. The evidence is that there are many dozens of these. Mr Lunn’s position is unfortunate, no doubt. However, Mr Lunn has elected in the course of his professional practice to assume the role of trustee and must be taken to have had full knowledge of the responsibilities that that entails. His personal position cannot stand in the way of USAR being entitled to enforce its judgment. Nor, in my view, can the inconvenience for these other trusts, estates and companies of possibly having to find someone else to stand in for Mr Lunn.
[28] Finally, Mr Mahuta-Coyle focussed on the balance of convenience. He contends that on the one hand the enforcement of this judgment will have “irreversible” consequences for all the individuals connected with the Herbert group, whereas a stay will simply keep USAR out of its money for a comparatively short period of time. As I understood the argument the irreversible consequences are the possible need to sell assets in sub-optimal circumstances. Again, this is an argument which is almost invariably open to an applicant in the group’s position.
[29] I am not satisfied that any of the matters raised by Mr Mahuta-Coyle bring this case within the category of cases where the Court would be justified ordering a stay of execution pending appeal.
[30] At one stage since this application was filed and served, the Herbert group indicated to the Court through their solicitors that they were proposing to refinance so that they could pay the amount of the judgment debt into trust pending the appeal. Had they done so that would almost certainly have put a different complexion on their application. They have not. They have explained why, and the Court makes no criticism. However, their inability to put up security is unquestionably a relevant consideration.
[31] It should be recalled that, in the end, the parties entered into a settlement agreement in which the Herbert group agreed to make certain payments and provide security to USAR to settle that company’s claim. They have not done what they agreed to do. It appears to me that all the Court has done in entering summary judgment in this case is to hold the Herbert group to the agreement it had entered into. The points put up in response by the Herbert group do not appear to me to have any real merit.
[32]The application is dismissed.
[33] During the hearing Mr Lowery made it clear that whilst USAR’s preference would be to be paid, it would not proceed with enforcement provided its position was properly protected pending appeal. That protection he indicated could be in the form of payment into trust or any other adequate form of security. That is something that the Herbert group may wish to consider.
[34] Costs are reserved. If these cannot be resolved by counsel, as I would expect, they may come back by memorandum in the usual way.
Associate Judge Johnston
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