Hum Hospitality Limited v Stylo Medical Services Limited
[2016] NZHC 2466
•17 October 2016
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2016-404-001735
[2016] NZHC 2466
UNDER Section 290 of the Companies Act 1993 BETWEEN
HUM HOSPITALITY LIMITED
Applicant
AND
STYLO MEDICAL SERVICES LIMITED
Respondent
Hearing: 17 October 2016 Appearances:
S Abdale for the Applicant
R Parmenter for the Respondent
Judgment:
17 October 2016
ORAL JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN
HUM HOSPITALITY LIMITED v STYLO MEDICAL SERVICES LIMITED [2016] NZHC 2466 [17 October 2016]
The application
[1] The applicant Hum Hospitality Limited (Hum) applies to set aside the statutory demand served by respondent Stylo Medical Services Limited (Stylo). The statutory demand was for $9,577.17 being the amount due under an order for costs made on 1 July 2016 by Courtney J.
Background
[2] Justice Courtney dealt with an interim injunction concerning a property at 123 Grafton Road, Auckland, owned by Stylo and leased to Hum. Her Honour noted the substantive proceeding alleged misrepresentations regarding work that Stylo undertook prior to the lease and also claims of a breach of the covenant of quiet enjoyment. Stylo’s counterclaim, among other claims, was that Hum was using the premises to operate a boarding-house/guest accommodation in breach of the lease. Stylo then applied for an interim injunction to constrain Hum’s use of the premises pending determination of the substantive proceeding. Her Honour held that overall justice favoured Stylo and made orders granting Stylo interim relief in relation to the use of the premises leased to Hum. Her Honour granted costs to Stylo in the amount detailed in the statutory demand.
[3] Hum’s position is that its substantive claim ought to be heard first before obligations for payment of costs are required to be met. Hum’s setting aside application was filed on 26 July 2016. It claims, inter alia:
(a)There may be an appeal of the judgment.
(b)Hum has filed a claim in the High Court under 2016-404-`636 claiming the amount of $635,960.
(c)If required to pay costs Hum’s ability to pursue its substantive claim may be compromised and it may lose its 22 year lease of the premises.
Ms Armitage’s evidence for Hum
[4] Ms Armitage has sworn an affidavit in support of the setting aside application. She is the director and shareholder of Hum. It has a lease of the premises until 2033 with a first right of renewal and first right of purchase. The lease incorporated a three year rent free period. Rentals first became due in 2014.
[5] The property at 123 Grafton Road is a heritage property. Hum together with a charitable trust work “to promote Culture, Art, Music, Education, Health, Sustainability and Wellbeing in the community”.
[6] Ms Armitage says the project has been a success despite the efforts of Stylo to undermine those. She said Hum and Falling Apple Charitable Trust operate as a community project run by volunteers. Volunteers run a small coffee hut at the front of the property. Long term residents occupy upstairs and the public use the downstairs spaces “to view the villa and relax”. Also the property is used for “workshops, monthly creative sessions, weekly swing dance classes, animal rights group meet-ups and more”.
[7] Ms Armitage speculates that Courtney J awarded costs “on matters that Hum had not provided evidence for”. Ms Armitage says Hum had withheld evidence “in anticipation of the substantive claim on the matter, which would deal exhaustibly with the subject matter of “use” of the property…”. Hum believes Courtney J’s judgment contains inaccuracies and that Her Honour’s statement that the District Plan only permitted a single household unit as a permitted activity, was incorrect and that the District Plan indeed allowed multiple “household units” on the site.
[8] The setting aside application indicated Courtney J’s judgment may be appealed.
[9] Hum’s substantive claim is stated to be dealing with matters not fully heard by Courtney J concerning the area of “use” and the insurance of the building. It is asserted that the costs award outcome of the substantive claim “could make the Statutory Demand nugatory”.
[10] Hum says that when it took possession of the property Stylo misrepresented the state of re-piling and re-levelling of the villa. Further, in breach of a code compliance certificate essential substructure work has not been done.
[11] Hum’s application requests that the demand be set aside until its stay application, appeal or substantive claim is heard.
[12] Ms Armitage has since sworn a further affidavit and this was filed on 11 October 2016. Some parts of that second affidavit repeat what is contained in Ms Armitage’s first affidavit. To her second affidavit Ms Armitage attaches comments by others regarding the state of the work carried out by Stylo before Hum entered into occupation. It is claimed that issues concerning the substructure affect the potential for further development of the property. Ms Armitage complains about ongoing breaches of an entitlement to quiet enjoyment.
[13] Although rental payment has sometimes been late Hum’s evidence is that it has regular income from rents received and coffee kiosk earnings, together with donations which enable it to sustain its not insubstantial monthly outgoings which includes rent.
[14] Ms Armitage says that if required to pay the amount of the statutory demand Hum’s ability to undertake its substantive claim could be compromised. That may threaten Hum’s lease and what Ms Armitage considers an estimated $650,000 investment in the external restoration of the villa.
Submissions on behalf of Hum
[15] Hum believes Stylo wants to take the property back. Hum says the lease does not provide “a full picture”; and that the statutory demand is not just an attempt to recover a debt but to recover a property.
[16] Ms Abdale submits the issue of the statutory demand is a debt collection device. Hum says it has paid all debts and will continue to do so. Therefore the use of the statutory demand to achieve that end is an abuse of process.
[17] Primarily Hum’s opposition focuses upon its claims of an arguable defence based on its own proceeding claim of about $635,000 for misrepresentation and breach of quiet enjoyment.
[18] Hum says its claims contain both qualified and unqualified amounts and that while the exact quantum of damages is yet to be established that should not disqualify the Court’s ability to set aside Stylo’s demand.
[19] Ms Abdale submits Hum’s case is about pre contractual representations made concerning what needed to be done to restore the villa, and about the value of that work, and how long the free rent period should prevail. Hum claims Stylo misrepresented work Stylo claimed to have done on foundations and substructure; that this affected Hum’s own calculation of work required – which affected the extent of the rent free period agreed, and because of building code requirements, the extent of the further work able to be done.
Considerations
[20] Hum relies on affidavit evidence that has already been provided to the Court in proceedings prior to this. Hum says it has quantified damages regarding claims of substructure issues against Stylo, in a sum of around $65,000. Hum calculates upper deck and structural repair damages around the upper deck will cost around $200,000. Hum says consequential damages will amount to $30,000. It also claims for loss of income.
[21] Hum says that its evidence of claims of breaches of its right to quiet enjoyment are detailed in Ms Armitage’s affidavit and were provided in the proceeding before Whata J which concerned Stylo’s claim for unpaid rent.
[22] Hum claims breaches of its quiet enjoyment will support a claim of $312,960 compensatory damages and $25,000 general damages.
[23] Ms Abdale’s submission is that Stylo’s present application is a covert attempt “to wind up Hum to scupper Hum’s claim against Stylo, and as such is an abuse of process and would “unjustly” benefit Stylo”.
[24] Rule 14.8(1)(b) provides that costs on an opposed interlocutory application “become payable when they are fixed” “unless there are special reasons to the contrary”.
[25]As the Court of Appeal in Chapman v Badon Ltd1 noted:
The rule reflects the fact that the merits of particular applications and those of the substantive proceeding are different matters.
[26] Does therefore Hum have special reasons why the costs awarded against it should not be paid now?
[27] As earlier noted Hum’s case relies upon claims that there is a dispute about whether the debt is due. There is Hum’s counterclaim, and also claims that Hum will fail financially if required to pay.
Conclusions
[28] In this case there is not a substantial dispute about whether the costs order is owing. There is a counterclaim but that arises in the very proceeding in which the costs order has been made. As Mr Parmenter submits that situation brings about some tension with r 14.8(1)(b) which must contemplate that, in a proceeding, even if the party losing the interlocutory skirmish has a good case, nevertheless, costs must be fixed and paid when they are fixed. As Mr Parmenter noted probably the rule is there to stop tactical applications, which is essentially what Gilbert J must have decided the stay application was, when His Honour refused to set aside Courtney J’s costs order.
[29] In this case the Court agrees that r 14.81(b) is designed to defeat the use of s 290 when it comes to the matter of payment of costs.
1 2010 [NZCA 613 at paragraph 12].
[30] This judgment has endeavoured albeit briefly, to provide an assessment of Hum’s claims by its statement of claim about misrepresentations by Stylo as to the state of the villa, and of breaches of the covenant of quiet enjoyment. They have been referred to in a number of judgments of the High Court already given.
[31]In this Court’s view and regarding Hum’s proceeding claim the Court notes:
(a)Clause 48.6 of the parties’ lease provides that at the expiry of the lease term or earlier termination of the lease all work and fit out completed… shall be the property of the landlord.
(b)There appears to be no evidence or reasonable explanation to support a claim of $312,960 for the breach of the covenant of quiet enjoyment.
(c)Except by reference to “ongoing breaches” Hum does not provide evidence in support of claims of Stylo’s attempts to bring the project into disrepute and harassment.
[32] Hum bears the burden of proving its claim of a fairly arguable basis existing. In this Court’s view Hum still has some way to go in this regard.
[33] When Gilbert J ordered Hum to pay costs on the failed stay application, Hum’s application to set aside a statutory demand for that sum was struck out by Sargisson AJ2 on the grounds of (persistent) breaches of r 5.36.
[34] Mr Parmenter advises that in addition to the amount owed by the present statutory demand, other costs on two other applications totalling $14,754.67 remain unpaid.
[35] It seems clear Hum cannot afford these amounts. That has not discouraged Hum from bringing the interlocutory applications it has, and in opposing those that it has little chance of winning.
2 [2016] NZHC 2295.
[36] Before this Court Ms Abdale has endeavoured to introduce new evidence. Counsel submitted the affidavit of Ms Armitage dated 7 November 2016 filed in another proceeding was to be relied upon. As Mr Parmenter submitted, it should not be permitted.
[37] In any event, the fact of previous litigation is irrelevant to the fact that costs are owed by Hum on the successful application for an injunction. An inference able to be drawn was that Hum was in breach of its lease.
[38] Claims of arguable set off are barely supportable by reference to the evidence offered in support of that claim.
[39]Evidence appears to support claims that Hum is unable to pay those costs.
Result
[40]The setting aside application is dismissed.
[41] The Court extends the date by which Stylo’s statutory demand is to be complied with, to 10:45am, 28 October 2016 when the matter will be called in the Companies List.
[42] Hum is ordered to pay Stylo’s costs on a 2B basis, together with disbursements. These too must be paid in cleared funds by 10:45am, 28 October 2016 if Hum is to avoid s 291 and the possible consequences of an immediate order for liquidation.
Associate Judge Christiansen
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