Marphona Trustees Limited v NYX Limited
[2022] NZHC 792
•29 April 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-000604
[2022] NZHC 792
BETWEEN MARPHONA TRUSTEES LIMITED
Plaintiff
AND
NYX LIMITED
First Defendant
JOSEPH AZOURI
Second Defendant
Hearing: 28 February 2022 Appearances:
A Fuiava for the Plaintiff
R Latton for the Defendants
Judgment:
29 April 2022
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 29 April 2022 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Pidgeon Judd, Auckland Denham Bramwell, Auckland
R Latton, Auckland
MARPHONA TRUSTEES LTD v NYX LTD [2022] NZHC 792 [29 April 2022]
Introduction
[1] Marphona Trustees Limited (Marphona) applies to strike out the statement of defence of the second defendant, Joseph Azouri, under r 15.1(a) and (b) of the High Court Rules 2016. Marphona claims that Mr Azouri’s statement of defence discloses no reasonably arguable defence and that he has and continues to cause prejudice or delay to it.
[2] Mr Azouri opposes the application. He says that the statement of defence discloses a reasonably arguable defence in relation to one aspect of the relief claimed; and in relation to the other, the defect can be repaired if he is permitted the opportunity to amend the statement.
[3] Marphona had also applied to strike out Mr Azouri’s counterclaim. Further, Mr Azouri had applied for relief from unless orders that his counterclaim would be struck out if he did not provide his initial disclosure and standard discovery related to that counterclaim. Both these applications were resolved when Mr Azouri sought leave to discontinue his counterclaim shortly before the hearing. At the hearing I ordered that Mr Azouri’s counterclaim was discontinued with the leave of the Court, with costs on that discontinuance reserved.
[4]Therefore, the issues for determination are:
(a)Does Mr Azouri’s statement of defence disclose a reasonably arguable defence?
(b)Should his defence be struck out because it is likely to cause prejudice or delay?
Background
The lease, its termination and re-entry
[5] On or about 18 March 2015, Marphona agreed to lease commercial premises in Papakura (the premises) to the first defendant, NYX Limited (NYX). Mr Azouri
is the sole director and shareholder of NYX and was the co-covenanter and guarantor pursuant to an agreement to lease.
[6] The date of renewal of the lease was 19 March 2017. NYX did not give written notice of an intention to renew but was permitted to remain in occupation of the premises. From that point, NYX was holding over under a periodic tenancy terminable on not less than 20 working days’ notice.1
[7] On a date between 1 and 4 March 2019, Marphona gave notice to the defendants by way of letter to terminate the lease.2 On 28 or 29 March 2019, Marphona peacefully re-entered the premises and expressed its intention to terminate the tenancy.3
[8] NYX never paid any rent for its four year occupation of the premises. Demand for payment of rent was made for the first time on 4 March 2019.4
[9] On 29 March 2019, Mr Azouri barricaded himself inside the premises. On 3 April 2019, a trespass notice was issued. Despite this, Mr Azouri refused to leave and remained in possession of the premises. The next day, NYX advertised its intention to reopen the premises for trading on 5 April 2019.
[10] Marphona commenced these proceedings on 5 April 2019. On 8 April 2019, it successfully obtained an interim order granting it possession of the premises.
Procedural background
[11] By its statement of claim dated 2 April 2019, Marphona sought a declaration/order cancelling the lease and ordering possession of the land comprised in the lease, judgment against the defendants in the sum of $127,742.93 (jointly and severally), and costs on an indemnity basis.
1 Clause 36.1 of the agreement to lease: see Marphona Trustees Ltd v NYX Ltd & Azouri [2019] NZHC 2923 at [34].
2 At [38].
3 At [39].
4 At [13].
[12] Marphona sought summary judgment of its claim against the defendants. It was opposed by the defendants. On 28 November 2019, Associate Judge Paulsen dismissed the application.
[13] Marphona sought leave to discontinue the proceeding as it had become uneconomic. Leave was necessary as Marphona provided an undertaking as to damages when it obtained the ex parte interim order for possession of the property, and r 15.20(1)(b) of the High Court Rules provides that a party may discontinue only with the leave of the Court where a party to the proceeding has given an undertaking to the Court. The defendants opposed leave as they wanted to file a counterclaim in relation to Marphona’s re-entry. Marphona withdrew its application for leave to discontinue.
[14] However, NYX ceased to engage with the proceeding and did not file a statement of defence or counterclaim as directed by the Court. On 5 May 2021, judgment by default was entered against it for the liquidated portion of the claim in the sum of $90,486, comprising $72,000 for the unpaid lease payments plus costs and disbursements of $18,486.
[15] On 15 October 2020, Associate Judge Andrew made initial discovery directions for final discovery to be completed by 27 November 2020. Marphona filed its affidavit of documents on this deadline while NYX and Mr Azouri failed to comply. On 11 December 2020, they sought further discovery from Marphona and an extension of time to provide outstanding discovery. Associate Judge Bell extended the deadline to 19 February 2021. Marphona filed a supplementary affidavit on 5 February 2021. NYX and Mr Azouri again failed to provide discovery by the extended deadline.
[16] On 12 April 2021, Mr Azouri’s statement of defence and counterclaim dated 25 September 2020 was accepted for filing.5
5 The documents were submitted to the Court and served on Marphona on 25 September 2020, but as no filing fee was paid the documents were not accepted at that time: Marphona Trustees Ltd v NYX Ltd HC Christchurch CIV-2019-404-604 (Minute of Associate Judge Sussock dated 18 June 2021) at [3] and [7].
[17] In his statement of defence, Mr Azouri states that he agreed with Marphona’s agent, Mr Pulman, that the agreement to lease had been renewed. He denies that NYX continued to occupy the premises after the renewal date pursuant to a tenancy terminable on 20 working days’ notice. He admits that Marphona expressed its intention to terminate the lease and re-entered the premises, and that following this, he re-entered the premises. He says that the premises were damaged as a result of a burglary and denies that NYX owed the amount demanded by Marphona for repair of the premises and unpaid rent and costs.
[18] In his counterclaim, he claimed against Marphona for the loss of NYX’s business resulting from the re-entry and pursuant to the undertaking Marphona gave the Court when it sought the interim orders. As noted, the counterclaim is now discontinued.
[19] On 25 May 2021, after Mr Azouri failed to attend two Court appearances,6 Associate Judge Sussock made unless orders against him. These required him to file his initial disclosure and provide standard discovery on the terms agreed by the parties by 15 June 2021 or his counterclaim would be struck out.7
[20] On 18 June 2021, Mr Azouri successfully applied to extend the deadline to 9 July 2021 on the basis that he also file an application for relief from the unless orders with an affidavit of support and payment of the filing fee by the same date.8
[21] On 9 July 2021, Mr Azouri filed an interlocutory application for relief against the unless orders supported by an affidavit, memorandum and affidavit of documents. He served the discovery documents on 6 August 2021; nearly a month after the deadline set by the unless orders.
6 Associate Judge Sussock noted that 21 May 2021 was the second conference at which there was no appearance or attendance in person by the defendants: Marphona Trustees Ltd v NYX Ltd HC Christchurch CIV-2019-404-604 (Minute of Associate Judge Sussock dated 25 May 2021).
7 At [24].
8 Marphona Trustees Ltd v NYX Ltd HC Christchurch CIV-2019-404-604 (Minute of Associate Judge Sussock dated 18 June 2021).
Legal principles
[22] The court may strike out all or part of a pleading if it discloses no reasonably arguable cause of action, defence or case appropriate to the nature of the pleading.9 The Court of Appeal summarised the principles applicable to the exercise of this discretion in Attorney-General v Prince:10
A striking-out application proceeds on the assumption that the facts pleaded in the statement of claim are true. That is so even although they are not or may not be admitted. It is well settled that before the Court may strike out proceedings the causes of action must be so clearly untenable that they cannot possibly succeed…; the jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied it has the requisite material…; but the fact that applications to strike out raise difficult questions of law, and require extensive argument, does not exclude jurisdiction.
[23] Where a defect in a pleading challenged as disclosing no reasonably arguable cause of action or defence can be cured by amendment which the party is willing to make, the Court will almost always permit amendment rather than striking the pleading out.11
[24] Although r 15.1(1) expressly contemplates the striking-out of part of a proceeding, the Court is cautious about partial strike-out applications. A careful assessment must be made to determine whether the time and expense of such an application will, overall, be an efficient use of the resources of all involved.12
[25] Delay in complying with procedural requirements and court orders may be an abuse of the process of the Court.13 In terms of r 15.1(1)(b), the Court of Appeal has considered that pleadings likely to cause prejudice or delay are those that involve “an element of impropriety”. This includes pleadings that are unnecessarily lengthy,
9 High Court Rules 2016, r 15.1(1)(a).
10 Attorney-General v Prince [1998] 1 NZLR 262 at 264; endorsed by the Supreme Court in Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].
11 Marshall Futures Ltd v Marshall [1992] 1 NZLR 316 (CA) at 324 and Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA) at [66], as cited recently by the Court of Appeal in Smith v Fonterra Co-operative Group Ltd [2021] NZCA 552 at [38].
12 Body Corporate 360683 v Auckland Council [2017] NZHC 1785 at [31]-[37]; Auckland City Council v Effuzi (International) Ltd HC Auckland CIV-2009-404-6044, 19 October 2011 at [103]; and see Andrew Beck and others McGechan on Procedure (online ed, Thomson Reuters) at [HR15.01.08].
13 Mead v Day [1985] 1 NZLR 100 (CA).
irrelevant, comprised of purely evidential matters, or unintelligible.14 Even where there is no prejudice or delay, pleadings may be struck out under r 15.1(1)(d) as otherwise an abuse of process; meaning an “improper use of [the court’s] machinery” and use of that process “for a purpose or in a way significantly different from its ordinary and proper use”.15 This includes a proceeding brought with an improper motive or to obtain a collateral advantage beyond that legitimately gained from a court proceeding, or an attempt to relitigate matters that have already been determined.16
Does Mr Azouri’s statement of defence disclose a reasonably arguable defence?
[26] Ms Fuiava for Marphona submits that Mr Azouri’s statement of defence does not disclose an arguable defence. He pleads that the lease was renewed, and he admits that he was guarantor of NYX’s obligations under the lease. He has not pleaded the matters raised in his affidavit of June 2019, namely that NYX had an agreement with Marphona that it need not pay rent and that the guarantee is not enforceable because he did not receive independent legal advice when he signed it. This is despite having two years to do so.
[27] Judgment was entered against NYX for rent arrears. Therefore, Marphona submits, Mr Azouri cannot plead an arguable defence to that part of the claim.
[28] Marphona accepts that Mr Azouri pleads a defence to its claim to costs of repair of the premises, namely that the damage to the premises was caused by a burglary.
[29] However, Marphona pleads joint and several liability with NYX; and Ms Fuiava submits that Mr Azouri cannot raise defences for the company.
[30] Mr Latton for Mr Azouri concedes that the statement of defence does not presently disclose a reasonably arguable defence in relation to the claim to rental arrears. However, Marphona has admitted that the defence pleads a defence to the claim for damage to the property. Mr Azouri maintains that defence.
14 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53 at [89].
15 At [87]; Attorney-General v Barker [2000] 1 FLR 759 (QBD) at 764.
16 Commissioner of Inland Revenue v Chesterfields Preschools Ltd, above n 14, at [89], as cited recently in Green v Gillette [2022] NZCA 49 at [25]; Collier v Butterworths of New Zealand Ltd (1997) 11 PRNZ 581 (HC) at 586
[31] With respect to the claim to rental arrears, the defect in the statement of defence can be corrected by amendment. Mr Latton submits that as guarantor, Mr Azouri can rely on the defences of NYX.
[32] Further, there is no question of issue estoppel because judgment was obtained against NYX by default. Mr Azouri asks that he be given the opportunity to amend his statement of defence to include defences raised by NYX in the summary judgment application; namely, that the re-entry by the plaintiff was unlawful and amounted to a trespass, and that consequently NYX ceased to operate, thus causing the rental arrears now claimed.
[33] Mr Azouri admits that he was a guarantor of NYX’s obligation under the lease, but Mr Latton submits that Mr Azouri relied on NYX’s defence that the company was not liable in the first place because of the unlawful re-entry. Through some error, NYX did not pay the filing fee for its statement of defence, and therefore judgment was entered by default.
[34] In response, Ms Fuiava submits that Mr Azouri was the sole director of NYX, so allowed that company’s defence to lapse by not paying the filing fee. In any case, Mr Azouri pleads unlawful re-entry by the landlord in relation to its counterclaim for loss of profits (now discontinued). That makes sense. But the defence of unlawful re-entry has no bearing on Marphona’s claim to rental arrears. The rental arrears had accrued before the re-entry, and therefore, any alleged unlawful re-entry by the landlord cannot provide a defence to the landlord’s claim to unpaid rental.
[35] Mr Latton submits that the statement of defence might be amended to plead the oral term raised by Mr Azouri in his affidavit of June 2019. Ms Fuiava responds that Mr Azouri is a guarantor and therefore this defence is not available to him, to which Mr Latton responds that as guarantor he can step into the shoes of the company.
[36] I am not satisfied that Mr Azouri’s statement of defence should be struck out for disclosing no reasonable defence. In his judgment dismissing Marphona’s application for summary judgment, Associate Judge Paulsen found that it was arguable that Marphona had committed a trespass when it purported to re-enter on 28 and
29 March 2019.17 In the Judge’s view, NYX was entitled to remain in occupation until 2 August 2019. Regarding Marphona’s claim to rental arrears, the Judge concluded, after reviewing the evidence, that he could not discount Mr Azouri’s claim that NYX had an agreement with the previous landlord that rent would not be paid until a Code Compliance Certificate was issued for the property. In so doing, the Judge noted that no rent (or outgoings) was ever paid by NYX for the four years of its occupation of the premises; and Marphona did not demand rent until 4 March 2019. Like Associate Judge Paulsen, I find this fact curious.
[37] Furthermore, in relation to the claim for repair costs, he concluded that it was not proved to his satisfaction how the damage was caused, who is responsible to pay the costs of repairs, or what those costs are. He was not satisfied that Marphona was not insured for at least some of the damage. He thought it conceivable that some of the damage was caused by a burglary, and some might be wear and tear.
[38] The Judge concluded that as NYX had an arguable defence to Marphona’s claim for rent and repair costs, Mr Azouri had an arguable defence to the claim against him under the guarantee.18
[39] Thus, in its opposition to the application for summary judgment, NYX has previously raised several issues that could conceivably provide Mr Azouri with defences to Marphona’s claim under the guarantee, given that a guarantor can generally rely on any claims and defences available to the principal debtor; in this case, the lessee.19 The judgment in default against NYX in relation to rental arrears was a judgment entered in default by the Registrar. I am satisfied that Mr Azouri has a reasonable argument that the defences traversed in the summary judgment remain available to him as guarantor of NYX’s obligations.
[40] Mr Azouri has now instructed new counsel and expressed a willingness to amend the defence to properly plead these matters. Mindful that the Court will almost
17 Marphona Trustees Ltd v NYX Ltd & Azouri, above n 1, at [40].
18 At [64].
19 See Wayne Courtney, James O’Donovan and John Phillips The Modern Contract of Guarantee (4th ed, Sweet and Maxwell, London, 2020) at 11-045 and 11-046 and the cases cited therein, as referred to by Land Law: Westlaw New Zealand (online ed, Thomson Reuters) at [LS17.01].
always permit amendment rather than striking the pleading out, and subject to the next point, I will give Mr Azouri that opportunity.
Should his defence be struck out because it is likely to cause prejudice or delay?
[41] The plaintiff relies on the prolonged nature of this matter and Mr Azouri’s consistent disregard for Court timelines. He has consistently filed documents late, and without the filing fee.
[42] The plaintiff tried to discontinue this proceeding but understood at the time that the defendants had filed statements of defence and counterclaims, so it was unable to do so. It eventually withdrew its application to discontinue. So it has been locked into this proceeding by that counterclaim until the Friday before the hearing, when the counterclaim was finally discontinued.
[43] To that, Mr Latton responds that issues surrounding Mr Azouri’s counterclaim are now irrelevant. In relation to his statement of defence, Mr Azouri has filed a statement of defence and he has complied with his discovery obligations relating to that defence. He is not currently in default of any obligations concerning his statement of defence.
[44] It is true that Mr Azouri has repeatedly failed to comply with the timetable directions of the Court. That is inexcusable, even when a party is without legal representation. However, more recently Mr Azouri has attempted to comply with the Court’s directions. He has filed his statement of defence and affidavit of documents, although I note Marphona has remaining issues with his discovery.
[45] Overall, I am not satisfied that it is in the interests of justice for Mr Azouri’s statement of defence to be struck out because of his pattern of non-compliance with procedural directions.
[46] I also note that Marphona has not been entirely compliant with the Court’s directions. Marphona was directed to file and serve an amended statement of claim by February 2020 (by consent) and later on 11 September 2020. It does not appear to
have done so, and the issues with the pleading identified by Associate Judge Paulsen remain.
Result
[47] Marphona’s application to strikeout Mr Azouri’s statement of defence is dismissed.
[48]I direct that:
(a)Marphona is to file an amended statement of claim addressing the issues identified by Associate Judge Paulsen in his decision on the summary judgment application within 20 working days;
(b)Mr Azouri is to file an amended statement of defence within a further
25 working days;
(c)the Registry is to schedule a case management conference for the first available date after that.
[49] Marphona has been unsuccessful, but my preliminary view is that costs should lie where they fall because Mr Azouri withdrew his counterclaim on the eve of the hearing. If either party takes a different view, they may file submissions of no longer than 4 pages within 20 working days.
Associate Judge Gardiner
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