Sahar Ehsani Investment Limited v Retyred (2020) Limited
[2023] NZHC 1515
•16 June 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2022-404-2080
[2023] NZHC 1515
UNDER The Contempt of Court Act 2019 BETWEEN
SAHAR EHSANI INVESTMENT LIMITED
Plaintiff
AND
RETYRED (2020) LIMITED
First Defendant
WARREN GRAEME SINCLAIR
Second Defendant
Hearing: 1 May 2023 Appearances:
S Wroe and T Ashley for the plaintiff
R Lane and W Williams for the defendants
Judgment:
16 June 2023
JUDGMENT OF CAMPBELL J
This judgment was delivered by me on 16 June 2023 at 2.30 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
SAHAR EHSANI INVESTMENT LIMITED v RETYRED (2020) LIMITED [2023] NZHC 1515 [16 June
2023]
[1] The plaintiff, Sahar Ehsani Investment Ltd (SEIL), commenced this proceeding on 27 October 2022. At that time, it applied for interim injunctions against the defendants. The defendants took no steps to oppose the application. The Court granted interim injunctions on 2 December 2022.
[2] On 21 December 2022, SEIL filed an application seeking orders for contempt of court, alleging the defendants had failed to comply with the interim injunctions. The defendants filed a notice of opposition to the contempt application on 27 January 2023. That was the defendants’ first step in the proceeding. Directions were made for the contempt application to be heard on 1 May 2023.
[3] In March 2023, the defendants not having filed a defence, SEIL requested, and the Court directed, that the proceeding be listed for formal proof at the same time as the hearing of the contempt application.
[4] SEIL filed affidavits and synopses for the hearing. Then, on 28 April 2023 (the working day before the hearing), the defendants applied for an adjournment of the formal proof hearing, a stay of the proceeding, leave to file a statement of defence and a variation of the terms of the interim injunctions. At the hearing, SEIL applied for leave to cross-examine the second defendant, Mr Sinclair, on the contempt application.
[5]In this judgment, I determine the following issues:
(a)Should I stay the proceeding?
(b)Should I grant leave to the defendants to file a statement of defence?
(c)Should I grant leave to SEIL to cross-examine Mr Sinclair on the contempt application?
SEIL leases premises to Retyred
[6] SEIL owns land at 177 Dominion Road, Papakura, Auckland. It leases that land (the premises) to the first defendant, Retyred (2020) Ltd (Retyred).
[7] The premises consist of a fenced yard of about 7,500 square metres with a gated entrance from Dominion Rd. SEIL also owns the neighbouring property at 179 Dominion Rd, from which it runs an auto parts business.
[8] SEIL leased the premises to Retyred under an agreement to lease dated 28 February 2022. The term of the lease is five years commencing 30 March 2022. The second defendant, Mr Sinclair, was the sole director and shareholder of Retyred when the agreement to lease was entered into. Mr Sinclair guaranteed Retyred’s obligations under the lease.
[9] Clause 4.1 of the agreement provides that Retyred shall enter into a formal lease using the current Auckland District Law Society Inc deed of lease form, amended in accordance with the agreement. A deed of lease in that form is annexed to the agreement. It shows various amendments in accordance with the agreement. No deed of lease has been executed. Nothing turns on that, as the effect of cl 4.3 is that the parties are bound by the terms contained in the agreement and in the annexed deed of lease as if the deed of lease had been executed.
[10] The agreement describes the business use of the premises as “Recycling tyres and showhome display yard for modular house business”. Clause 16.1 of the deed of lease provides that Retyred shall not, without SEIL’s prior consent, use or permit the premises to be used for any use other than that business use.
[11] Clause 8.2 of the deed provides that Retyred must keep the grounds in a clean and tidy condition. Clause 21.1 requires Retyred to comply with all statutes and regulations relating to the use of the premises. By cl 22.1, Retyred must not store goods or things of a dangerous nature at the premises or allow any act or thing to be done which may be or grow to be a nuisance, disturbance or annoyance to SEIL or any other person.
[12] Clause 5.1 of the agreement provides that disputes are to be the subject of negotiation and mediation. Clause 5.2 provides that neither party will commence legal proceedings before following the procedure set out in cl 5.1, except proceedings for injunctive relief.
[13] The deed of lease provides, in cl 43.1, that the parties shall first endeavour to resolve any dispute by agreement and by mediation. Clause 43.2 then provides:
Unless any dispute or difference is resolved by mediation or other agreement within 30 days of the dispute or difference arising, the same shall be submitted to the arbitration of one arbitrator who shall conduct the arbitral proceedings in accordance with the Arbitration Act 1996 or any other statutory provision then relating to arbitration.
SEIL’s substantive claims
[14] SEIL makes two substantive claims. Its main claim, against both defendants, is that Retyred has dumped and stored large quantities of used tyres at the premises. SEIL says Retyred did this without SEIL’s consent (in breach of cl 16.1 of the deed of lease) and that it has covered almost the whole of the premises with piles of tyres that are a fire risk and nuisance (in breach of cl 22.1). SEIL says the quantity of tyres exceeds 100 cubic metres without a resource consent (in breach of cl 21.1). Finally, SEIL says the storing of the tyres means Retyred has not kept the grounds clean and tidy (in breach of cl 8.2). SEIL says Mr Sinclair is liable as guarantor for Retyred’s breaches.
[15] SEIL’s second claim is against Retyred alone, in trespass. SEIL pleads that Retyred’s agents have, at various times since the commencement of the lease, used a driveway that is part of SEIL’s neighbouring property (at 179 Dominion Road) to access the premises. SEIL says it has informed both defendants on many occasions that Retyred has no right to use the driveway to access the premises and that in October 2022 it served a trespass notice on Retyred warning that further use of the driveway would be a trespass. SEIL alleges that Retyred’s employees and agents have continued to use the driveway.
Procedural background
[16] When commencing the proceeding on 27 October 2022, SEIL also applied, on notice, for interim injunctions restraining the first defendant from collecting further tyres at the premises and requiring the defendants to remove most of the tyres that were already there.
[17] SEIL served its statement of claim and its application for interim injunctions on the defendants on 4 November 2022. The application was first called on 24 November 2022 before Muir J. There was no appearance by the defendants. Muir J was unable to fully deal with the interim injunction application at that call but made an interim order that the defendants be restrained from dumping or otherwise accumulating further tyres at the premises pending determination of the interlocutory application. His Honour scheduled that to be heard on 13 November 2022.
[18] The interim injunction application was heard on 13 November 2022 by Wylie J. Again, there was no appearance by the defendants. In a judgment dated 2 December 2022,1 Wylie J granted an interim injunction largely in the terms sought by SEIL. The orders made by Wylie J were served on the defendants on 12 December 2022.
[19] On 21 December 2022, SEIL filed an application seeking orders for contempt of court. SEIL alleged that the defendants had failed to comply with the interim order made by Muir J and with the interim injunction made by Wylie J. The defendants filed a notice of opposition to the contempt application on 27 January 2023. That was the first step taken by the defendants in the proceeding. Directions where then made, by consent, for the disposition of the contempt application. It was scheduled to be heard on 1 May 2023.
[20] On 10 March 2023, SEIL filed a memorandum seeking a formal proof hearing. This noted that although the defendants were legally represented in relation to the contempt application, counsel for the defendants had indicated they did not have instructions to act on the substantive proceeding. The defendants not having filed a defence, the plaintiff sought a fixture for a formal proof hearing. On 13 March 2023, Wylie J directed that there be a formal proof hearing and that it proceed at the same time as the hearing of SEIL’s contempt application.
[21] SEIL filed affidavits and a synopsis in support of formal proof. It also filed and served a synopsis in support of its contempt application.
1 Sahar Ehsani Investment Ltd v Retyred (2020) Ltd [2022] NZHC 3213.
[22] On 28 April 2023 – the last working day before the hearing – the defendants filed an interlocutory application for orders adjourning the formal proof hearing, granting a stay of the proceeding, granting leave to the defendants to file a statement of defence and varying the terms of the interim injunction granted by Wylie J on 2 December 2022. SEIL filed a notice of opposition to that application on the day of the hearing.
[23] At the hearing, Ms Lane, counsel for the defendants, confirmed that the defendants were not seeking to stay the contempt application. However, both counsel agreed that that application should not proceed at the hearing because an issue had arisen as to whether SEIL should be able to cross-examine Mr Sinclair, who had made an affidavit in support of the defendants’ notice of opposition.
[24] After discussion with counsel, it was agreed that I should determine the defendants’ application to stay the proceeding, their application for leave to file a defence and SEIL’s application for leave to cross-examine Mr Sinclair. If I granted either of the defendants’ applications, I would not proceed to consider formal proof. If I declined both their applications, I would proceed to deal with formal proof (in a separate judgment, most likely on the papers).
Should I stay the proceeding?
[25] The defendants say that the subject matter of SEIL’s proceeding is a dispute under the lease and that cl 43.2 of the deed provides for arbitration of that dispute. The defendants say this is true not only of SEIL’s claim that Retyred has breached the lease but also of SEIL’s claim in trespass. The defendants say that, in accordance with art 8(1) of sch 1 of the Arbitration Act 1996, this court must therefore stay the entire proceeding. Article 8(1) provides:
A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting that party’s first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.
[26] Mr Ashley, who advanced SEIL’s submissions in opposition to the stay application, said there were two reasons I should not stay any part of the proceeding. First, in terms of the final proviso to art 8(1), there was not in fact any dispute between the parties. Secondly, the defendants had already, when responding to the contempt application, submitted a statement on the substance of the dispute and so it was too late for them to apply for a stay under art 8(1). If I did not accept those arguments, Mr Ashley submitted that the trespass claim should not be stayed as that did not raise a dispute under the lease and so was not covered by cl 43.2.
[27]The issues are:
(a)Is there not in fact any dispute between the parties with regard to the subject matter of the proceeding?
(b)Had the defendants already submitted a statement on the substance of the dispute?
(c)Does the trespass claim raise a dispute under the lease?
Is there not in fact any dispute between the parties?
[28] Article 8(1) provides that the court “shall” stay the proceeding and refer the parties to arbitration except in four cases. Here, SEIL relies on the concluding words to art 8(1): “unless [the court] finds … that there is not in fact any dispute between the parties with regard to the matters agreed to be referred”.
[29] The meaning of those words was considered by the Supreme Court in Zurich Australian Insurance Ltd v Cognition Education Ltd.2 In that case, the Court of Appeal had held that the words conveyed the same arguable defence test that applied to summary judgment applications. This meant a stay was available only if the defendant had an arguable defence.3 The Supreme Court disagreed, adopting a narrower meaning. The Court held the words meant a court must grant a stay unless
2 Zurich Australian Insurance Ltd v Cognition Education Ltd [2014] NZSC 188, [2015] 1 NZLR 383.
3 Zurich Australian Insurance Ltd v Cognition Education Ltd [2013] NZCA 180, [2013] 3 NZLR 219.
it finds “it is immediately demonstrable either that the defendant is not acting bona fide in asserting that there is a dispute or that there is, in reality, no dispute”. 4 An application for summary judgment and an application for a stay were not two sides of the same coin.5
[30] I now turn to examine whether there is, in the sense described by the Supreme Court, in fact any dispute with regard to SEIL’s substantive claims.
[31] The first set of claims concern the accumulation of tyres at the premises. The principal of SEIL, Mr Sahar, has made several affidavits in this proceeding. He deposed that soon after Retyred took possession of the premises, truckloads of tyres were brought to the premises but there was no sign of recycling or processing. When he raised concerns, Mr Sinclair told him that a processing machine was due to arrive. Mr Sahar deposed, however, that there was only one small machine at the premises for a short time in 2022.
[32] On 11 October 2022, SEIL served a notice of breach on Retyred. This said that Retyred was not permitted under the lease to use the premises for the storage of tyres. Mr Sinclair responded by email on 28 October 2022. He said that tyres had to be collected in order to be recycled and so he saw no breach of the lease.
[33] Mr Sahar deposed that more tyres were brought to the premises after service of the breach notice. He estimated that, by mid-October 2022, around 6,500 to 7,000 square metres of the 7,500 square metre site were covered in tyres piled several metres high. Photographs of the site confirm this. Mr Sahar’s concerns about this led to SEIL bringing this proceeding.
[34] Mr Sinclair has made two affidavits: one in response to the contempt application and one in support of the stay application. He did not dispute the extent of the accumulation of tyres at the site. He merely deposed that it had always been his intention to recycle the tyres on the site, but the process had taken longer than anticipated. He explained that shredding is the first of two steps in the process
4 Zurich Australian Insurance Ltd v Cognition Education Ltd [2014] NZSC 188, [2015] 1 NZLR 383 at [52].
5 At [52].
of recycling tyres. He said that there had been ongoing delays in obtaining machines to shred the tyres. Approximately 8,000 tyres had been shredded with a smaller shredder but that proved to be inefficient.
[35] On 23 February 2023, the solicitors for Retyred and Mr Sinclair wrote to counsel for SEIL. Among other things, they said that Mr Sinclair had arranged for the lease of a shredding machine from the end of February 2023 for a three-month period. Mr Sahar deposed that, as of the end of April 2023, no such machine had arrived. That is consistent with Mr Sinclair’s second affidavit, dated 28 April 2023, in which he said nothing about a machine having arrived and instead deposed that he was “in the process of negotiating” a deal for a shredder to come from Australia.
[36] SEIL claims that the storage of this vast quantity of tyres at the premises is outside the permitted business use and therefore breaches cl 16.1 of the deed. As noted, the defendants do not dispute the quantity of tyres they have accumulated at the site. The application for a stay says the defendants have “substantial grounds of defence” but there is no elaboration. In his affidavit in support, Mr Sinclair merely says “I disagree that there have been breaches of the lease”.
[37] Ms Lane, counsel for the defendants, filed a memorandum in support that said that the use that Retyred was making of the premises was within the permitted use under the lease. She did not expand upon this in her submissions. Mr Sinclair had made a similar point in his email of 28 October 2022, saying he saw no breach of the lease because tyres had to be collected in order to be recycled.
[38] I find that on the claim of a breach of cl 16.1 there is not, in reality, any dispute. The evidence shows that Retyred and Mr Sinclair have repeatedly made promises to SEIL that they will, in time, properly begin the process of recycling the tyres that are stored at the site. But, except a short period in 2022, all that Retyred has used the premises for is the storage rather than the recycling of tyres. In Zurich, the Supreme Court said that the concluding words to art 8(1):6
… act so as to filter out cases where the defendant is obviously simply playing for time – the bald assertion of a dispute is not enough to justify the granting
6 At [39].
of a stay where it is immediately demonstrable that there is, in reality, no dispute.
[39]I consider those words capture the present circumstances.
[40] SEIL also claims that the quantity of tyres exceeds 100 cubic metres without a resource consent, in breach of cl 21.1. Mr Ashley referred me to the Resource Management (National Environmental Standards for Storing Tyres Outdoors) Regulations 2021. Under these regulations, a resource consent is required to store more than 100 cubic metres of used tyres outdoors. Further, under the Auckland Unitary Plan a resource consent is required for tyre recycling in an area of more than 1,000 square metres.
[41] It is not in dispute that Retyred has no resource consent for its activities. Auckland Council served abatement notices on Retyred in November 2022 and March 2023. Both notices said resource consent was required (citing the instruments to which I referred in the previous paragraph) and that no consent had been applied for or granted. In his first affidavit, Mr Sinclair said he was considering obtaining resource consent or building appropriate sheds to contain the tyres so that consent was not needed. In his second affidavit, he said it should be “possible” to obtain resource consent and that he had been in contact with a resource management consultant to discuss options.
[42] The defendants nonetheless assert that they have a substantial defence to the claim that Retyred has breached cl 21.1. I was not provided with any explanation of what this defence might be. Given the undisputed matters to which I have referred, I find there is, in reality, no dispute on this claim.
[43] SEIL also says that Retyred has breached the obligation in cl 8.2 to keep the grounds clean and tidy. Mr Ashley acknowledged that cl 8.2 had to be applied in the context of a lease that permits the premises to be used for the recycling of tyres. I accept Mr Ashley’s submission that, even allowing for that context, the grounds are self-evidently not clean and tidy when they are almost completely covered in piles of used tyres. The defendants have responded with nothing more than bare denials of a breach. I am satisfied that, in reality, there is no dispute on this matter.
[44] SEIL also says that the piles of tyres are a fire risk and nuisance, in breach of cl 22.1. Mr Ashley noted that the Auckland Unitary Plan classifies the recycling, recovery, reuse or disposal of tyres on an area in excess of 1,000 square metres as “high risk”. He also referred me to a District Court decision, Bay of Plenty Regional Council v Merrie,7 in which Judge Steven said:
Large tyre stockpiles also pose a significant environmental risk in the event of a fire, as tyres burn extremely fast, with extreme heat and are difficult to extinguish. A fire would result in the release of large volumes of toxic smoke with a range of contaminants that can affect the air, land and water … .
[45]I respectfully agree with those observations.
[46] The defendants have not – beyond a bare denial – indicated how they might dispute the claim of a breach of cl 22.1. I find there is, in reality, no dispute.
[47] In respect of all the claims under the lease, Ms Lane submitted that SEIL should have pursued other remedies such as cancellation or re-entry. This is no answer to any of the claims. A lessor may become entitled to cancel or re-enter as a result of a lessee’s breach. But a lessor is not obliged to exercise those entitlements.
[48] SEIL’s other claim is in trespass. Mr Sahar deposed that in late September 2022 Retyred started to use the driveway on SEIL’s neighbouring property at 179 Dominion Road to access the rear of the premises with trucks carrying tyres. He said he asked Retyred’s employees to stop but they refused.
[49] On 11 October 2022, SEIL served a trespass notice on Retyred warning Retyred to stay off the driveway and any other area of 179 Dominion Road. Mr Sahar deposed that the next day Retyred’s employees used the driveway again. He said he then chained the access from that driveway to the premises. He said that three days later Retyred’s employees used the driveway again and cut the chain to gain access to the premises and that they also moved and damaged one of his vehicles in the process.
7 Bay of Plenty Regional Council v Merrie [2021] NZDC 11444.
[50] Mr Sinclair did not, in his affidavits, dispute any of Mr Sahar’s evidence. He merely said “My understanding was that the lease allowed Retyred to use of the driveway running down the south-eastern side of the premises.” Mr Sinclair did not explain the basis for that understanding. He did not suggest that it came from SEIL or Mr Sahar.
[51] As Mr Ashley submitted, Mr Sinclair’s subjective understanding is irrelevant to the claim in trespass. No real dispute has therefore been raised in relation to that claim.
[52] I conclude that there is not, in reality, any dispute with regard to any of SEIL’s claims. It follows that I decline to stay the proceeding. Nonetheless, for completeness, I will address the remaining issues relevant to the stay application.
Had the defendants already submitted a statement on the substance of the dispute?
[53] Prior to applying for the stay, the only documents filed by the defendants were its notice of opposition to the contempt application and Mr Sinclair’s affidavit in support of that opposition. These address SEIL’s allegation that Retyred failed to comply with the interim injunction issued by this Court. They do not address the substantive claims that SEIL has made in this proceeding. The defendants were therefore at liberty to request a stay.
Does the trespass claim raise a dispute under the lease?
[54] Clause 43 of the deed of lease provides for the arbitration of any “dispute or difference” between the parties. It is implicit in this provision that the dispute or difference must arise out of the lease. This can be contrasted with cl 5.1 of the agreement to lease. Clause 5.1, although not requiring arbitration, is more explicit (and broader): “a dispute in respect of any matters arising out of, or in connection with this Agreement”.
[55] Even on the narrower formulation in cl 43 of the deed, I consider that this trespass claim arises out of the lease. This is because the trespass occurred in the course of Retyred accessing the leased premises.
Should I grant leave to file a statement of defence?
[56]Rule 15.9(3) of the High Court Rules 2016 provides:
After a proceeding is listed for a formal proof hearing, no statement of defence may be filed without the leave of a Judge granted on the ground that there will or may be a miscarriage of justice if judgment by default is entered, and on such terms as to time or otherwise as the Judge thinks just.
[57] The parties were agreed that the relevant considerations in exercising the discretion whether to grant leave under r 15.9(3) are:8
(a)whether the defendant has a substantial ground of defence;
(b)whether the delay is reasonably explained; and
(c)whether the plaintiff will suffer irreparable injury if leave to defend is belatedly granted, or the judgment set aside.
[58] Given my conclusion that there is, in reality, no dispute with regard to SEIL’s substantive claims, it will be apparent that I am of the view that the defendants do not have substantial grounds of defence. Indeed, I find they have no grounds of defence.
[59] As to delay, Mr Sinclair deposed that his financial position has limited his ability to defend the proceeding. He said his funds were low when the proceeding was filed in October 2022 and as a result he could not instruct lawyers to defend it. He said he became worried when the contempt application was filed and he prioritised responding to that. He had only recently reached an arrangement with his lawyers to defend the main proceeding.
[60] This is not a reasonable explanation for the defendants’ delay. There is no evidence of Retyred’s financial position. In his first affidavit, Mr Sinclair deposed to Retyred having a “lucrative and profitable business plan”. On 23 February 2023, the defendants’ solicitors wrote to SEIL’s counsel. Among other things, they said that Retyred’s business “is a profitable one”. Other than responding to the contempt
8 Shoye Venture Ltd v Wilson [2013] NZHC 2339 at [10]–[13]; Neumayer v Kapiti Coast District Council [2014] NZHC 417 at [8].
application in late January 2023 (by which time any statements of defence were well overdue), the defendants took no steps until the day before the scheduled formal proof hearing.
[61] If leave to file a defence were granted, I do not consider this would cause SEIL irreparable injury. There may be some injury from the further delay, but I am not satisfied it would be irreparable.
[62] Of these considerations, the first is the most prominent. A miscarriage of justice would not occur if judgment by default were entered, given that the defendants have no grounds of defence. I decline to grant leave to the defendants to file a statement of defence.
Should I grant leave to cross-examine Mr Sinclair on the contempt application?
[63] Ms Wroe advanced SEIL’s submissions on this matter. She said SEIL had filed its contempt application as an originating application, in accordance with the requirements of r 19.2(ca) of the High Court Rules 2016. Under the originating application procedure, leave to cross-examine is not required. A notice to cross- examine is all that is needed,9 and such notice was served on the defendants.
[64] Ms Wroe said that the only reason SEIL needed leave was a technicality: the Registry had processed the originating application as an interlocutory application in this proceeding, and in an earlier minute I had directed that the application be treated as an interlocutory application.
[65] Ms Wroe’s submission is well made. My direction was not intended to alter the rules that would apply to the application. Further, Mr Sinclair cannot fairly expect to rely on his affidavit but then avoid cross-examination.10
9 See r 19.14, which applies r 9.74.
10 Siemer v Stiassny [2007] NZCA 117, [2008] 1 NZLR 150 at [33].
Result
[66] I decline the defendants’ applications for a stay of the proceeding and for leave to file a statement of defence.
[67]I grant SEIL leave to cross-examine Mr Sinclair on the contempt application.
[68] SEIL is entitled to costs on these applications. If quantum cannot be agreed, brief memoranda (no more than two pages each, excluding relevant annexures) may be filed: SEIL by 30 June 2023, the defendants by 7 July 2023.
Campbell J
2
6
1