La Famia No.1 Limited v Gan
[2013] NZHC 3491
•18 December 2013
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV 2013-409-001696 [2013] NZHC 3491
BETWEEN LA FAMIA NO. 1 LIMITED Plaintiff
ANDKAIWAN GAN and JUZHEN YU First Defendants
WIGRAM BASE LIMITED Second Defendant
Hearing: 18 December 2013
Counsel: K W Clay for Plaintiff
C Shannon for First Defendants
NRW Davidson QC and R S Brown for Second Defendant
Judgment: 18 December 2013
JUDGMENT OF WHATA J
[1] La Famia No. 1 Limited (“LF1”) ran a restaurant business out of premises owned by Kaiwan Gan and Juzhen Yu. In July 2013 LF1 was evicted from the premises. LF1 claims that Mr Gan and Mr Yu seized LF1’s assets located at the premises. Those assets are said to include furniture, fixtures, equipment, business records, software and intellectual property. The premises were subsequently sold to Wigram Base Limited (“Wigram”). LF1 says that its assets were also sold to Wigram.
[2] LF1 has commenced proceedings in both conversion and unlawful interference with LF1’s business against Mr Gan and Mr Yu and Wigram. LF1 now makes an application for an interim injunction seeking the following:
(a) Wigram cease trading business as a restaurateur, accommodation, bar and function centre.
LA FAMIA NO. 1 LIMITED v GAN and YU [2013] NZHC 3491 [18 December 2013]
(b)Wigram return the property (set out in LF1’s asset schedule attached to the application).
[3] I must resolve whether there is a serious issue to be tried, and if so whether the balance of convenience favours the granting of the injunction.
Background
[4] LF1 occupied premises at 14 Henry Wigram Drive under a sublease from La Famia No. 2 Limited (“LF2”) for the purpose of carrying on the business of a restaurant/bar/function centre and accommodation provider. By the end of 2012, however, LF2 was not able to pay rent and in February 2013 went into voluntary liquidation. LF2’s liquidator then disclaimed the lease. Nevertheless LF1 continued to occupy the premises until 1 July 2013 when it was evicted. Attempts by LF1 to avoid this outcome via proceedings in the High Court and then in the Court of Appeal have failed, thought I note that neither sought to appeal to the Supreme Court.
[5] LF1 complains that the eviction and associated trespass notices meant that it was unable to retrieve any of its business including furniture, fixtures, equipment, business records, software and intellectual property. Further, it is said that the liquidator of LF2 met with Mr Gan and Mr Yu to discuss which of the assets remaining at the property belong to LF1. It is said that a request was made that any chattels not be removed from the property until the chattel list was resolved and ownership determined. LF1 says that this never occurred and instead Mr Gan and Mr Yu assembled their own list of chattels without any involvement of the liquidator or LF1.
[6] In August 2013 Mr Gan and Mr Yu entered into an agreement for the sale and purchase of the premises with Wigram. It appears that Wigram also obtained chattels located at the premises. It is common ground that Wigram now trades as a restaurant/bar/function and accommodation centre from the premises.
Issue
[7] The dispute is whether Wigram acquired assets in fact belonging to LF1 at the time it acquired the premises and is using those assets for the purposes of its business.
Serious issue to be tried?
[8] LF1 has filed affidavit evidence from Stephen Richard Penrose, Murray George Allott, and Harmon Lynn Wilfred. Mr Wilfred is a director of LF1. He says that the chattels listed in exhibit H to his affidavit were left at the premises and that the property was onsold to Wigram together with those chattels. Mr Allott also provides evidence as liquidator of LF2 that he provided a notice of disclaimer of the lease but also that Mr Brenton Hunt of his office met with the first defendants and recommended that an independent party should review an inventory or chattels on sight. Mr Penrose avers to the fact that he is the director and operator of Camelot Cathedral Square Limited, that he is familiar with the La Famia group of companies and that the Camelot Hotel contributed assets to LF1 to assist their work and has provided an inventory of those assets as exhibit A.
[9] In response, affidavits of Xuanhui Yu, John Edwin Walter Shivas and Manav Soni have been filed on behalf of the defendants. Mr Soni records his concern at the idea that chattels have been uplifted from Camelot Cathedral Square Hotel. Mr Soni says that he is a director and 49% shareholder of Camelot Cathedral Square Hotel. He also says that Stephen Penrose was only employed as a night porter and did not operate the hotel.
[10] Mr Yu is an employee of the first defendants. He essays the background to the leasing arrangements between LF2 and the defendants including the default by LF2, High Court proceedings and subsequent appeals and other proceedings. He says that the landlords entered the premises after repossession and realised that the tenant had taken or removed a large number of chattels noting that some 1,965 chattels were missing. He also identified 575 additional items. He says they estimated the missing chattels valued at over $16,000.
[11] Mr Shivas is a director of Wigram. He says the chattels purchased by Wigram were owned by the landlord (and identified in an inventory attached as exhibit I to his affidavit). He says that other chattels, ie those not belonging to the landlord, were valueless to him. He confirms that after he inspected the property in late June, early July 2013 that the purchase price was agreed in the sum of
$2,888,000. He also says that by the agreement for sale and purchase dated
20 September 2013, Wigram purchased chattels from the landlords to the value of
$39,365. An inventory of those chattels is attached to his affidavit. He says that in terms of the chattels identified in Annexure H to the affidavit of Mr Wilfred, he confirms that very few of those items were located at the property when he entered. He notes that several of the items were, however, purchased by Wigram from the liquidator and he challenges the values relied upon by Mr Wilfred. He also disputes various of the observations made by Mr Wilfred but it is unnecessary for the present purposes to traverse those matters.
[12] Mr Wilfred replies to Mr Shivas and Mr Yu. He maintains that LF1’s chattels were forcibly kept by the landlord. He highlights what appears to be contradictions in the affidavit evidence regarding the chattels remaining on the property. He also highlights aspects of the sale and purchase agreement which could be said to show that Wigram assumed a pre-existing business, for example purchase access was allowed to enable the purchaser to “re-establish the bar and bistro facilities”. He also says that Mr Yu’s affidavit in fact supports that LF1’s chattels were on the property and that the presence of LF1’s chattels on the property is confirmed by the liquidator’s affidavit. He also refers to a conversation he has had with Mr Penrose regarding the operation of the Camelot Hotel noting that Mr Penrose said:
Manav was a director of the Hotel but was removed after the earthquake and
I had full authority to deal with the chattels as I saw fit.
[13] In relation to Mr Yu’s affidavit, he says that the litigation in relation to the lease is ongoing currently before the Supreme Court. He also notes that Mr Yu’s chattel list is not accepted at all and that it was only generated well after LF1’s forced and surprise eviction. He also maintains that the list completed by the “landlord’s nephew” is not correct. It is unreliable, he says. He maintains the view
that the first defendant clearly sold Wigram all of LF1’s assets, intellectual property and business.
Assessment
[14] It is not possible for me to resolve on the papers the dispute as to the existence of LF1’s chattels on the property at the time of the eviction and/or whether or not, they were at the premises and if they were whether they were transferred to Wigram and in fact whether they are being used by Wigram. I am nevertheless satisfied, based on the affidavit evidence filed by the plaintiffs that there is a plausible evidential foundation for the conclusion that LF1 left some chattels on the property and that these chattels have not been accounted for. There is some corroboration for this in the affidavit of Mr Yu who alludes to the fact that more than
500 items found on the premises were not included in the head lease schedule.
[15] In those circumstances there is a serious issue to be tried, namely whether or not LF1’s chattels were in effect seized by the landlord and then transferred to Wigram. I have concerns about the claim against Wigram because there is no evidence that Wigram was aware, to a sufficient degree of particularity, of LF1’s claims at the time of purchase, except for the conditions of the sale and purchase agreement making conditional vesting of the assets. This absence of evidence presents a real issue in terms of LF1’s adverse claim vis-a-vis Wigram. But I prefer to weigh that factor in the assessment of convenience.
[16] For completeness I acknowledge the broader submission by Mr Davidson QC that in short LF1 cannot achieve, through these proceedings, what it has not been able to achieve to date in earlier proceedings in the High Court and the Court of Appeal, namely possession of the premises to run its business. Mr Clay assures me that this is not the purpose of the proceedings.
Balance of convenience
[17] Mr Clay for the plaintiff says that the balance of convenience clearly favours LF1. He says that the conduct of the first defendant was blatant and that the relief sought will enable an audit to be undertaken and thirdly, that Wigram does not point
to any particular reason why the business should not cease to operate immediately. It is also said that in relation to the adequacy of damages, that Wigram was using the business of LF1, that LF1 has lost the freedom to trade its own business and that the appropriate remedy is to cease trading at Wigram rather than seeking an award of damages. Mr Clay also refers to an undertaking provided by LF1.
[18] While I am prepared to find that there is a serious issue to be tried, I am far from convinced that the balance of convenience lies in forcing Wigram to cease operation, for the following reasons:
(a) Wigram clearly paid valuable consideration for the occupation of the premises and for the chattels. There is no direct evidence to suggest that Wigram was on sufficient notice that it was acquiring chattels against which there was an adverse claim. Mr Clay refers to conditions 18.1, 18.6 and 18.7 of the Sale and Purchase agreement which in effect make the agreement conditional on the vendors being satisfied as to ownership of the chattels. But this is an oblique basis on which to assume notice of LF1’s specific claim. Accordingly, an order requiring Wigram to cease business or deliver up chattels is prima facie unjust though I will deal with the chattels issues further below.
(b) In reality, LF1 has not been trading out of the premises since July
2013. That must have had a profound effect on its core business. The subsequent use of their chattels (assuming that to be the case) is very much a secondary impact that by itself does not justify the cessation of Wigram’s business.
(c) The orders sought cannot put LF1 into a position to trade out of the premises. As Mr Davidson submits that could only occur following a substantive assessment of whether LF1 is entitled to possession. At best (or worst, depending on one’s perspective), the orders sought will simply result in putting both LF1 and Wigram out of business and I acknowledge Mr Davidson’s submission that the Wigram business
serves a functional purpose, namely accommodation which is of some significance to the city.
[19] Overall therefore the proportionate response to these facts is not to injunct Wigram’s business. Rather, if LF1 is successful LF1 will be entitled to the return of assets and damages or any other restitutionary remedy which will provide adequate compensation for loss specifically attributable to the conversion or to the use of LF1’s assets.
[20] I also accept the basic contention that on its face the undertaking provided has no substantive value. There is only a bare assertion by Mr Wilfred, without reliable supporting material, that LF1 has the funds to pay any damages that would inevitably result in the event that Wigram was successful and was forced to cease business in the interim.
[21] Wigram also proposed a lesser course, namely an order that LF1’s chattels be returned. But this, in effect, would finally determine the substance of the proceedings. In any event, there is insufficient evidence upon which to make a definitive order for the return of the assets. Exhibit H identifies in the order of
70-100 chattels. But these have not yet been physically identified as in the possession of Wigram. Mr Shivas also says, in short, that they are no longer at the premises and that he has not been using LF1’s assets or business, and if they are there Mr Shivas has indicated that he is happy to hand them over. Mr Davidson has also helpfully suggested that an inspection could take place to identify if any of the items listed in exhibit H are at the premises, and if so that they could be uplifted. I am satisfied that that is an appropriate response to LF1’s immediate concerns.
[22] Accordingly, I decline to grant the orders sought and simply note the opportunity afforded by Mr Davidson on behalf of Wigram to have access to the premises for the purpose of identifying any remaining assets that might still belong to LF1. If there is to be any ongoing dispute about those assets then leave is reserved to Mr Clay to come back to Court if that is considered necessary.
Costs
[Discussion with counsel]
[23] I will be granting costs in favour of the second defendant, but I reserve leave to the plaintiff to file submissions as to quantum. There shall be no order as to costs in favour of the first defendant.
[24] Orders accordingly.
Solicitors:
Canterbury Legal Services Limited, Christchurch
Duncan Cotterill, Christchurch
Meares Williams, Christchurch
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