Waikoro Limited v Beach Arena Limited
[2021] NZHC 3283
•2 December 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2778
[2021] NZHC 3283
BETWEEN WAIKORO LIMITED
Plaintiff
AND
BEACH ARENA LIMITED
First Defendant
SAREN LOO
Second DefendantCON YUEN LOO
Third DefendantWEI YUEN LOO
Fourth Defendant
GEN YUEN LOO
Fifth Defendant
Hearing: 1 November 2021 Appearances:
MJW Lenihan for the Plaintiff
RB Hucker and RF Selby for the Second to Fourth Defendants No appearance by the Fifth Defendant
Judgment:
2 December 2021
JUDGMENT OF FITZGERALD J
[Application for interim injunction]
This judgment was delivered by me on 2 December 2021 at 12.30pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date………………..
Solicitors: Brown Partners, Auckland
Hucker & Associates, Auckland
To: M Lenihan, Auckland
WAIKORO LTD v BEACH ARENA LTD [2021] NZHC 3283 [2 December 2021]
Introduction
[1] This judgment represents the latest round in an ongoing dispute between Mr Timothy Edney (and parties associated with him) and Mr Neville Mahon (and parties associated with him). The plaintiff (Waikoro), and another company referred to in this judgment, Waimauri Ltd (Waimauri), are Mr Edney’s companies. The first defendant (BAL) is Mr Mahon’s company. The second defendant, Saren Loo, is Mr Mahon’s life partner. The third to fifth defendants are Ms Loo’s brothers.
[2] Waikoro and BAL were parties to a commercial lease (as lessor and lessee respectively) (the Lease). The Lease was executed in December 2012 and concerned the old Station Hotel (now known as “Arena”) on Beach Road in Auckland, and two adjacent development lots. I will refer to the leased premises collectively in this judgment as “the Premises”.
[3] The second to fifth defendants are the guarantors of BAL’s obligations under the Lease, to a capped amount of $500,000 (the Guarantee). Only the second to fourth defendants have participated in these proceedings. I will refer to them collectively as “the Guarantors”.
[4] Waikoro sues BAL seeking to recover approximately $2.5 million, being what it says is unpaid rent and outgoings under the Lease, together with (significant) default interest. Waikoro sues the Guarantors under the Guarantee. BAL and the Guarantors have advanced various defences and counterclaims in response to Waikoro’s claim.
The substantive claims will be heard at an eight day fixture in April 2023.1
[5] As security for the Guarantee, the Guarantors agreed to register mortgages in favour of Waikoro against two investment apartments owned by them (as trustees) (the Apartments). There are no other mortgages registered against the Apartments. Despite it not being in dispute that the equity in the Apartments is more than sufficient to meet the guaranteed amount, in November 2020, Waikoro issued Property Law Act notices (the PLA Notices) giving the Guarantors notice that unless the guaranteed
1 A fixture in late 2022 was offered to the parties, but senior counsel for Waikoro was not available.
amount was paid on or before 31 July 2021, Waikoro would take steps as mortgagee to sell the Apartments.
[6] The Guarantors accordingly apply for interim relief prohibiting Waikoro from taking any steps on the PLA Notices pending determination of the parties’ substantive claims. Somewhat curiously, the application was originally made on a without notice basis. Powell J directed that it proceed on notice, and I heard the application on 1 November 2021. The parties agreed that, despite the hearing being an application for interim relief, the matter was (by then at least) not particularly urgent: Waikoro had given an undertaking not to take any steps on the PLA Notices pending the hearing of the Guarantors’ application, and has since given a further undertaking not to take any step on the PLA Notices until five working days after the delivery of my judgment.
[7] The key aspects of the Guarantors’ defences and/or counterclaims to Waikoro’s claims are as follows:
(a)First, given serious issues experienced at the Premises over the term of the Lease, and in light of substantial sums paid by BAL in remediating those issues, the rent and outgoings under the Lease were abated to such an extent that, taking into account rent and outgoings paid by BAL, no monies remain due and owing under the Lease (and thus the Guarantee).
(b)Second, that Waikoro/Mr Edney made a number of pre-contractual misrepresentations which induced BAL to enter into the Lease and the Guarantors to enter into the Guarantee, such that the Guarantee was vitiated from the outset.2
[8] The Guarantors say there is plainly a serious question to be tried on their defences and counterclaims (noting that Waikoro has not sought to progress its claims by way of summary judgment). They further submit that, given the extent of equity in the Apartments, there is simply no prejudice to Waikoro if an interim injunction is granted.
2 Though I note that vitiation, rather than cancellation, is not, yet at least, formally pleaded.
[9] Conversely, Waikoro says there is no serious question to be tried on the Guarantors’ defence and counterclaims because:
(a)the abatement claims are unsustainable, BAL not having given any notice of an abatement claim, or requested that Waikoro make a claim on its insurance policy, at any time during the term of the Lease, and that under the Lease, it was BAL’s obligation to remediate those problems in any event; and
(b)the claims are either time barred, or an abuse of process, given they were, or could have been, brought by BAL in in an earlier piece of litigation between Mr Edney, Waimauri and Waikoro on the one hand, and BAL and Mr Mahon on the other (the Waimauri proceedings).3
[10] Waikoro also says that the balance of convenience and overall interests of justice favour it, because it ought to have been paid the guaranteed amount on or before 31 July 2021, and may now not recover that amount until sometime in or around mid to late 2023, following a decision in the substantive proceedings.
[11] At my request, the parties have confirmed that the loss Waikoro would suffer from being “out of pocket” of the $500,000 for approximately two years is $50,000, adopting an interest rate of 5 per cent.4 Again, it is not seriously in dispute that the equity in the Apartments is sufficient to cover an amount of this order, in addition to the $500,000 guaranteed amount.
[12] I accordingly observe that the potential prejudice to Waikoro if interim relief is granted yet the Guarantors later fail in their defences and counterclaims is somewhat de minimis in overall scheme of this litigation. Given this, and the protection offered by Waikoro’s mortgages over the Apartments, this could be the start and finish of my determination of the Guarantors’ application. Nevertheless, the Court must be
3 Resulting in a decision of Muir J delivered on 29 May 2020: Waimauri Ltd v Mahon [2020] NZHC 1170.
4 Adopting an interest rate pursuant to the Civil Debt Interest Calculator established by the Interest on Money Claims Act 2016, the amount is approximately $10,700.
satisfied that there is a serious question to be tried on at least some aspects of the Guarantors’ claims which justifies injunctive relief being granted.
[13]I make two further observations by way of introduction:
(a)First, given the grounds for Waikoro’s opposition to the current application, and in particular its submission that the Guarantors’ claims are an abuse of process, it is necessary to traverse the lengthy and somewhat convoluted factual and procedural history to the present proceedings.
(b)Second, since the hearing of the Guarantors’ application, Waikoro has filed an application to strike out aspects of BAL and the Guarantors’ claims.5 The strike out application is due to be heard on 28 April 2022. There is considerable overlap between the matters arising on the present application and what will need to be determined on the strike out application. I discuss this overlap, and its implications, later in this judgment (particularly given this is an application for interim relief, and accordingly the Court is not called upon to make any final determination of the parties’ respective claims).
[14]The balance of this judgment is structured as follows:
(a)I first summarise the factual background to the current application. I do so largely by adopting the helpful summary of that background in Associate Judge Paulsen’s recent judgment in these proceedings, determining Waikoro and BAL’s respective applications to strike out the other’s claims.6
(b)Second, I set out in more detail Waikoro’s claims, BAL’s defences and counterclaims, and the Guarantors’ defences and counterclaims. Although BAL is not a party to the present application, it is necessary
5 This is actually Waikoro’s second strike out application in relation to BAL’s claims.
6 Waikoro v Beach Arena Ltd [2021] NZHC 1673.
to address its defences and counterclaims, given Waikoro’s submission that aspects of the Guarantors’ defences and counterclaims are matters BAL could and ought to have raised in the Waimauri proceedings.
(c)Third, I summarise Associate Judge Paulson’s recent judgment on Waikoro and BAL’s strike out applications, aspects of which are also relevant to the present application.
(d)Fourth, I summarise the legal principles applicable to an application for interim injunction, which are not in dispute.
(e)Fifth, I summarise the parties’ respective submissions.
(f)Sixth, I address whether the Guarantors have persuaded me that there is a serious question to be tried on any or all of their affirmative defences and/or counterclaims.
(g)Lastly, I address the balance of convenience and the overall interests of justice.
Factual background
[15] As noted, I gratefully adopt Associate Judge Paulson’s helpful summary of the background to this proceeding (at least at the point of his judgment in July 2021):7
[5] The applications fall to be considered against the backdrop of other litigation Waimauri Ltd v Mahon. The relevant factual background is as stated below but can be found in greater detail in the judgment of Muir J in that proceeding.
[6] The leading protagonists in this proceeding and Waimauri Ltd v Mahon are Neville Christopher Mahon and Timothy Laird Edney. Mr Mahon is the sole director of BAL. Mr Edney is the sole director of Waikoro and of Waimauri Ltd (Waimauri). Mr Mahon and Mr Edney have known each other for over thirty years. Although once on good terms, they have fallen out bitterly resulting in litigation between them and their related entities.
7 Italicised aspects of the extract are my emphasis. Other than terms I have defined in this judgment, I will adopt the defined terms used in Associate Judge Paulson’s judgment.
[7] Waikoro owned properties at 131 Beach Road and 128 Anzac Avenue, Auckland (the property). On or about 20 December 2012, Waikoro and BAL entered into the lease of the property. The guarantors provided limited guarantees of BAL’s obligations under the lease.
[8] Under the lease, BAL took on maintenance obligations and the property was in need of repairs. In addition, shortly after the commencement of the lease, BAL was presented with a large and unexpected insurance bill. On 20 September 2013, Waimauri provided BAL with funding by way of an interest bearing loan which captured BAL’s various shortfalls under the lease. Mr Mahon guaranteed BAL’s obligations under the loan agreement.
[9] BAL did not meet its obligations under the lease. Arrears of rent and other sums accrued. In 2015, Mr Edney authorised the transfer of arrears considered owing by BAL under the lease to the Waimauri loan account. Two transfers occurred: on 31 March 2015 the sum of $832,624 was transferred, and on 31 July 2015 the sum of $86,175 was transferred (the Converted Sums).
[10] On 11 August 2016, Waimauri’s lawyers sent a letter to BAL making a formal demand for repayment of the loan. A demand was also made upon Mr Mahon, as guarantor. No payment was made by BAL or Mr Mahon.
[11] On 15 September 2016, Waikoro terminated the lease and took possession of the property. It then sold the property.
[12] On 14 March 2018, Waimauri commenced proceedings against Mr Mahon (but not BAL) under his guarantee of the loan agreement (the Waimauri proceeding). The amount claimed was in excess of $2,400,000 and included the Converted Sums.
[13] On around 15 February 2019, Mr Mahon joined BAL as a party to the Waimauri proceeding. Mr Mahon and BAL alleged that in April 2013 Mr Mahon, BAL, Waimauri and Waikoro had entered into an oral agreement (the variation agreement) pursuant to which Mr Mahon and BAL would manage both the remediation of defects (at Waikoro’s cost) and the sale of the property and:
Upon the receipt of a reasonable offer for and/or sale of [the property] then BAL and Mr Mahon on the one hand; and [Waimauri] and Waikoro on the other, all accepted that neither side had any liability to the other and that no sums would be due under or in respect of the BAL Loan Agreement.
[14] In addition, BAL counterclaimed for $861,361 in respect of remediation costs it alleged it had incurred in respect of the property for which, it said, Waikoro was liable to reimburse it under the variation agreement.
[15] The Waimauri proceeding was set down for trial commencing 3 March 2020.
…
[17] On 19 December 2019, Waikoro filed this proceeding against BAL and the guarantors. In its statement of claim, Waikoro pleaded that in the Waimauri
proceeding Mr Mahon asserted the transfers of the Converted Sums to the Waimauri loan account were invalid and if it was held the transfers were invalid Waikoro claimed the Converted Sums from BAL. Waikoro sought judgment for more than $2,250,000 if the Converted Sums were not claimable from Mr Mahon in the Waimauri proceeding but a lesser sum of $741,441 and interest if the Converted Sums were claimable from Mr Mahon.
…
[19] On 13 February 2020, Mr Mahon and BAL made urgent applications to:
(a) adjourn the trial of the Waimauri proceeding;
(b) consolidate the Waimauri proceeding and the Waikoro proceeding; and
(c) to amend Mr Mahon’s and BAL’s counterclaim in the Waimauri proceeding (although it had been struck out).
[20] The applications were heard by Downs J who issued his ruling in a minute of 13 February 2020. He:
(a) dismissed the application to adjourn the Waimauri proceeding;
(b) dismissed the application to consolidate the Waimauri proceeding and the Waikoro proceeding; and
(c) granted Mr Mahon and BAL leave to file an amended counterclaim.
[21] It is necessary to refer to the arguments advanced in support of the applications and Downs J’s reasons.
[22] In relation to the consolidation application, Mr Mahon and BAL argued the Waimauri proceeding and the Waikoro proceeding ought to have been brought as one proceeding for reasons of efficiency and fairness. Separate claims, they contended, risked inconsistent conclusions on fact, law or both. They emphasised the “common thread” to the claims, being the lease between Waikoro and BAL.
[23] Downs J did not accept these arguments and held the interests of justice did not warrant consolidating the proceedings. He said:
[11] First, the issues in each claim are not coterminous. The Waimauri claim rests on the loan agreement between Waimauri and BAL. This Mr Mahon guaranteed. The Waikoro claim rests on a different, antecedent agreement: the lease agreement between Waikoro and BAL. Mr Mahon did not guarantee it. Second, each claim has different legal elements. Risk of inconsistency must be assessed in this light. And, Waikoro is prepared to be bound by this Court’s factual and legal conclusions in the Waimauri claim, should any affect it. Third, the only common party is BAL, and this because of its counterclaim. More about this aspect shortly. Fourth, Mr Mahon’s efficiency submission overlooks the obvious disruption caused by an
adjournment. It imagines a hypothetical in which neither claim has yet been filed. Waimauri filed its claim in 2018. It has already been adjourned once. Fifth, I do not accept there is a real risk of oppression or unfairness to Mr Mahon or BAL if the claims remain separate. Mr Mahon and BAL are not synonymous. Sixth, I do not accept the allied submission there is something sinister in the claims being filed separately, years apart. Waimauri and Waikoro are not synonymous either. And as observed, each’s claim involves different legal elements. Seventh, the timing of the adjournment application is a little odd. Mr Mahon asserts on oath he did not know of the Waikoro claim until late January 2020. However, Mr Mahon’s lawyer was given the Waikoro claim on 19 December 2020. He later said he was not authorised to accept service.
[24] In relation to the application to amend the counterclaim, Mr Mahon and BAL wished to argue for a different variation agreement which, they now said, was entered into in November 2013 – not April 2013 – and, under which BAL would share in the profit made on the sale of the property. They wanted judgment for any amount Waikoro received upon the sale of the property over
$13,042,683. In allowing Mr Mahon and BAL to file the proposed counterclaim, Downs J noted two important factors namely, that Waimauri and Waikoro did not oppose the application and that the counterclaim could be heard without prejudice to Waimauri and Waikoro. He said:
[15] Despite all this, Waimauri and Waikoro acknowledge they “could live with” the amended counterclaim in the 2 March trial, providing they receive discovery of financial records of BAL and others. I thank Mr Chisholm QC for this helpful concession. The interests of justice favour Mr Mahon having leave to advance an amended counterclaim, as this will permit full ventilation of his case – however seemingly improbable – without material prejudice to Waimauri or Waikoro.
[25] On 17 February 2020, BAL and Mr Mahon filed their second amended statement of defence and counterclaim in the Waimauri proceeding. Mr Edney and Waikoro were joined to the Waimauri proceeding as second and third counterclaim defendants. BAL and Mr Mahon pleaded the new variation agreement in defence of any liability to Waimauri under the loan agreement and advanced two counterclaims against Waimauri, Mr Edney and Waikoro. This iteration of the variation agreement differed in several respects from the previous pleading. As far as the counterclaims were concerned, the first counterclaim sought judgment for $3,457,317, as representing the surplus realised on the sale of the property. The second counterclaim sought judgment for $910,026 as reimbursement of remediation expenses incurred by BAL in respect of the property and other expenses, such as costs of obtaining a resource consent and readying the property for sale.
[26] The Waimauri proceeding was heard over 10 days in March 2020. At the commencement of the trial, Muir J granted BAL and Mr Mahon leave to amend their pleadings yet again; this time to introduce a new defence of estoppel. This defence, which was a back-up to the principal argument there was a contractual variation of the loan agreement, was understood to be that Waimauri, Waikoro and Mr Edney were estopped from relying on the strict terms of the loan agreement insofar as they conflicted with the terms of the variation agreement. However, the case advanced by BAL and Mr Mahon
developed during the hearing. In his judgment, Muir J noted there had been no suggestion when BAL was granted leave to rely on estoppel of the basis it was subsequently advanced at trial and, had that been known, “I doubt Mr Chisholm’s response would have been so accommodating, and leave may very well have been declined.”
[27] Muir J issued judgment on 29 May 2020. He identified the five “real issues” in the case as follows:
(a)Was there an agreement in or about November 2013 whereby BAL would be given relief from its financial obligations under the lease and, in the event of a proximate sale, would be entitled to have its debt wiped clean and receive any additional “upside”?
(b)If not, should Waimauri nevertheless be estopped from asserting its strict contractual rights?
(c)If (a) and (b) are answered in the negative, can Waimauri claim sums owed by BAL to Waikoro which Mr Edney unilaterally chose to “fold” into the loan agreement?
(d)If not and Waimauri is limited to the initial advance under the agreement, how does the Court now deal with the fact that, according to Waimauri’s own internal records, such amount was overstated by $71,960.29?
(e)Can, if all else fails, BAL bring a quantum meruit claim for the moneys expended by it on the properties?
[28] The Judge noted, “in the background” lay allegations by BAL of non- disclosure and misrepresentation and while there were no claims pleaded in respect of those matters, “...BAL and Mr Mahon say that these issues are nevertheless important because they explain why Mr Edney would have considered it appropriate to make the concessions alleged.”
[29] In the result, Muir J held Waimauri could not recover the Converted Sums from Mr Mahon but gave judgment for Waimauri against Mr Mahon for the balance owing under the loan agreement excluding the Converted Sums of
$825,664. He rejected Mr Mahon’s and BAL’s defences there was a variation agreement entered into which exonerated BAL and Mr Mahon from any liability to Waimauri and that Waimauri was estopped from asserting its strict contractual rights under the loan agreement. He also rejected Mr Mahon’s and BAL’s counterclaims for a share of the profits on the sale of the property and to recover remediation and other costs.
[30] Mr Mahon and BAL have filed an appeal against that decision. The appeal is yet to be heard.
(emphasis added, citations omitted)
[16] Before leaving the topic of Muir J’s judgment, I note that in finding that the Converted Sums could not be recovered by Waimauri pursuant to the loan agreement
or the guarantee given by Mr Mahon, Muir J was careful not to “stray into” issues that will arise for determination in these proceedings. His Honour simply observed that as the Converted Sums were not recoverable by Waimauri under the loan agreement, “Mr Edney’s interests must look to BAL and its guarantors if they seek to recover these amounts”.8 Muir J also stated that “since there are currently outstanding proceedings in this respect I decline to express any view on ultimate recoverability”.9
[17] As noted, Mr Mahon and BAL have appealed Muir J’s judgment. But the scope of Mr Mahon and BAL’s appeal has changed significantly in recent times. The appeal against Muir J’s findings on the alleged variation agreement and/or estoppel has been abandoned. Instead, at the appeal hearing on 16 September 2021, BAL and Mr Mahon sought leave to amend their pleadings in the Waimauri proceedings (and as a consequence, their notice of appeal), to effectively “build into” their defence and counterclaims in those proceedings the pre-contractual misrepresentation claims which, at the time of Muir J’s judgment, simply “lay in the background”.10
[18] Shortly prior to the appeal hearing, Cooper J made the following observations about the proposed appeal in a minute issued on 27 August 2021:11
In these most unusual circumstances, in which it is clear that unless the application for leave to amend the pleadings and grounds of appeal is successful, the appeal will inevitably be dismissed, the appropriate course to follow is to deal with the appellant’s application on 16 September. The Court can hear argument on that day on whether the foreshadowed amendments should be permitted, and if so, what terms might be appropriate.
[19] As at the date of this judgment, the Court of Appeal has not delivered its judgment on BAL and Mr Mahon’s appeal. I simply observe that if the proposed amendments are permitted, and the Court of Appeal were to direct that the matter be remitted to this Court to hear and determine the new misrepresentation claims, BAL and Mr Mahon would be advancing in the Waimauri proceedings the same claims that
8 At [195].
9 At fn 55.
10 See [28] of the above extract from Associate Judge Paulson’s judgment.
11 Waikoro Limited v Beach Arena Limited HC Auckland CIV-2019-404-002778 27 August 2021 (Minute of Cooper J).
BAL and the Guarantors are advancing by way of affirmative defences and counterclaims in these proceedings.12
The pleaded claims and defences/counterclaims
Waikoro’s first amended statement of claim
[20] Waikoro’s first amended statement of claim, dated 20 October 2020, is relatively straightforward. As noted, Waikoro seeks recovery from BAL of amounts said to be owing under the Lease, and in turn, by the Guarantors under the Guarantee.
[21] Waikoro says that on 19 December 2019, it made demand for what was then due by BAL under the Lease, namely $2.263 million. Waikoro’s first cause of action against BAL is for breach of contract, alleging that the total amount due to Waikoro under the Lease, as at the date of the amended statement of claim, is approximately
$2.577 million. My reading of the annexure to the amended statement of claim (which provides further detail about the break-down of that amount) is as follows:
(a)capital amounts owing under the Lease are said to total approximately
$2.619 million;
(b)BAL made payments of approximately $1.206 million under the Lease;
(c)the outstanding capital due under the Lease is accordingly approximately $1.412 million;
(d)accrued interest is said to total approximately $1.164 million; and
(e)the amounts referred to at (c) and (d) result in the total claim of approximately $2.577 million.
[22] It will be immediately apparent that accrued default interest makes up a substantial part of Waikoro’s claim.
12 See the summary of the pleadings below.
[23] Waikoro’s second cause of action seeks recovery from the Guarantors of the capped amount under the Guarantee, namely $500,000.
BAL’s second amended statement of defence and counterclaim
[24] In its second amended statement of defence and counterclaim dated 28 July 2021 (“2nd ASODC”), BAL admits the existence and express terms of the Lease, but at [7] of its pleading, alleges that Waikoro made the following pre- contractual misrepresentations prior to entry into the Lease:13
[7] BAL admits paragraph 7 concerning a lease of premises at 131 Beach Rd and 128 Anzac Avenue (Properties) between Waikoro and BAL dated 20 December 2012 (Lease), and further says that it was induced to enter into that Lease by misrepresentations or non-disclosures or conduct that was misleading or deceptive or likely to mislead or deceive by or on behalf of Waikoro in relation to the Properties including to the effect that:
(a)no engineering report had assessed any part of the Properties as falling below 38% of the New Building Standard, or requiring remediation work;
(b)the insurance premiums(s) for the Properties for 2013 would not substantially exceed the insurance premium(s) for 2012;
(c)the Properties were safe for use and occupation by BAL and its employees and members of the public, and that there were no significant hazards in the Properties (such as asbestos, sewerage, seismic or falling masonry hazards), of which Waikoro was obliged to warn other persons under section 16 of the Health and Safety in Employment Act 1992.
[25] In response to Waikoro’s allegations of defaults under the Lease, BAL pleads that:14
Indemnification against costs under clause 25 of lease
(a)In June/July 2013, the Properties were damaged by flood, storm and/or other risks against which Waikoro was (or had covenanted with BAL to be) insured.
(b)BAL paid the cost of making good that damage (in a sum to be confirmed before trial).
(c)Waikoro indemnified BAL against the cost of making good that damage.
13 Essentially the same pre-contractual misrepresentations BAL seeks to introduce into an amended pleading in the Waimauri proceeding; see [17] above.
14 At [12] of the 2nd ASODC.
(d)Waikoro has not made any payment or given any credit to BAL in respect of the cost of making good that damage.
Rent and outgoings not payable under clause 27 of the Lease
(e)In June/July 2013, the Properties were damaged by flood, storm and/or other factors but not so as to render them untenantable.
(f)Waikoro was obliged to, with all reasonable speed, expend all insurance moneys it received in respect of such damage towards repairing or reinstating the Properties.
(g)Waikoro did not expend any such insurance moneys towards repairing or reinstating the Properties.
(h)BAL incurred the cost of repairing or reinstating the Properties (in a sum to be confirmed before trial).
(i)A fair proportion of the rent and outgoings ceased to be payable from the date of the damage until completion of the repairs or reinstatement.
[26] BAL then goes on to plead two affirmative defences and three counterclaims. As to the affirmative defences, BAL says:
(a)any claims by Waikoro in respect of amounts said to be unpaid under the Lease and said to have fallen due prior to 20 October 2014 are now time barred, under s 11(1) of the Limitation Act 2010 (the LA); and
(b)Waikoro’s claims are an abuse of process, given they could and should have been pleaded, and the relief sought, by Waikoro in the Waimauri proceedings.
[27]As to the three counterclaims, BAL says that:
(a)Waikoro made misrepresentations to BAL “including as pleaded in paragraph 7(a)” (see [24] above);15 those misrepresentations induced BAL to enter into the Lease, and BAL is therefore entitled to damages (“in a sum to be confirmed before trial”);
15 No other particulars are given.
(b)based on the same alleged pre-contractual misrepresentations, Waikoro engaged in misleading or deceptive conduct in breach of the Fair Trading Act 1986 (the FTA);16 and
(c)Waikoro has converted BAL’s chattels which were located at the property at the time Waikoro re-entered and took possession on 15 September 2016. BAL seeks damages reflecting the value of the chattels as at 15 September 2016.17
The Guarantors’ second amended statement of defence and counterclaim
[28] The Guarantors filed and served a 2nd ASODC on 20 October 2021. The pleading generally contains significantly more particulars than that filed by BAL. However, as will become apparent from the summary of the pleading below, the Guarantors’ affirmative defences and/or counterclaims effectively mirror the substance of BAL’s claims.
[29] The crux of the Guarantors’ pleading (other than a denial of Waikoro’s claims) comprises four “affirmative defences and/or counterclaims”.18
[30] The first affirmative defence and/or counterclaim is styled “abatement”. As noted earlier, the Guarantors say that because of the partial destruction of the Premises, and the inability of members of the public to safely access it, the right of abatement under the Lease means that no rent or outgoings remain due and owing by BAL.
[31] By way of more detail, the Guarantors allege that partial destruction of the Premises commenced in June 2013 and continued through to the end of the Lease in August 2016, the relevant details set out in a schedule (Schedule A) to the pleading.
16 The conduct is again not particularised, other than to say that it “includes” that pleaded at [7(a)] of the 2nd ASODC. On this counterclaim, BAL seeks an order pursuant to s 43(3)(a) of the Fair Trading Act 1986 declaring all or part of the Lease to have been void at all times on or after 20 December 2012; or an order pursuant to s 43(3)(e) or (f) of the Fair Trading Act 1986 directing Waikoro to refund or to pay damages (again in an amount to be confirmed before trial).
17 Again not particularised, though I note that the Guarantors value the chattels at $59,000.
18 A fifth affirmative defence and/or counterclaim is no longer pursued, given it relied on BAL’s appeal against Muir J’s finding that no variation agreement was entered into (or an estoppel otherwise arose) succeeding.
That schedule demonstrates that all of the alleged damage or destruction commenced in June 2013, other than a “façade north face collapse” (said to have commenced in December 2013); “emergency gantry protection for façade collapse” (also said to have commenced in December 2013); “emergency work to repair cladding as instructed by a structural engineer” (also said to have commenced in December 2013); “emergency asbestos removal work” (said to have commenced in September 2014); “storm related sewage overflows” (said to have commenced in September 2014); and “evacuation of rooms and emergency work required due to collapse of drainage pipe” (said to have commenced in June 2015).
[32] Schedule A contains a percentage assessment over relevant months of the proportion of the Premises that was unusable at any given time. So, for example, it is alleged that 48 percent of the Premises was unusable in June 2013; 63 percent was unusable in December 2013; 23 percent was unusable in July 2017 and so on. The alleged partial destruction events and occupation rates are the subject of evidence filed in support of the current application, by way of an affidavit of Con Loo, the third defendant. Mr Loo is a civil engineer with qualifications and experience in civil and structural engineering and construction, and had close involvement at the time in trying to deal with the issues at the Premises.
[33] The Guarantors further allege that as a result of a storm in June 2013, certain damage occurred to the Premises, as set out in a report prepared by Mr Loo on or around July 2013. It is alleged that this is damage for which Waikoro was responsible as landlord under s 269 of the Property Law Act and/or for which Waikoro was liable to indemnify BAL under cl 25 of the Lease. The Guarantors say that a result of this damage, BAL lost a subtenant at the Premises who walked out of their sublease, with a resulting loss of rental income of approximately $214,000.
[34] The Guarantors further allege that there was ongoing and consequential damage caused to the Premises as a result of Waikoro failing to undertake the works to make good the destruction or damage, the effects against which BAL continued to rectify and made payments to third parties. That consequential damage is said to include the damage for which repairs were undertaken as set out in Schedule B to the amended pleading, totalling approximately $282,000.
[35] The Guarantors then plead that BAL paid approximately 64 per cent of the rent demanded by Waikoro from the commencement of the Lease to the date of re-entry. It is further pleaded that there is an error by Waikoro in its calculation of rent, and when corrected, BAL paid approximately 72 per cent of the rent (prior to any abatement) over the period the Lease. It is also pleaded that BAL paid all of the outgoings under the Lease, including approximately $418,000 for insurance premiums (save for some rates which were paid by Waikoro). The Guarantors say that the payments made by BAL represented more than a fair proportion of the rent and outgoings for the purposes of cl 27.3 and 27.5 of the Lease.19
[36] The Guarantors’ second affirmative defence and/or counterclaim alleges Waikoro’s conversion of BAL’s chattels. This proceeds on the same basis as BAL’s affirmative defence summarised at [27(c)] above. The Guarantors’ evidence filed in support of the present application for interim relief estimates the value of the chattels at $59,000. Mr Hucker, counsel for the Guarantors, acknowledges that this affirmative defence/counterclaim, in and of itself, does not advance matters significantly for the Guarantors, and its effect is merely “cumulative”.
[37] The Guarantors’ third affirmative defence and/or counterclaim is styled “misrepresentation”. Like BAL’s pleading, this centres on Waikoro’s alleged failure, prior to entry into the Lease, to disclose the true position in relation to:
(a)insurance premiums;
(b)the assessment of the Premises under the NBS (namely that there was no report assessing it below 38 per cent of the NBS); and
(c)the condition of the Premises more generally.
[38] The Guarantors’ pleading as to the alleged “half-truths” and “undisclosed defects” is similar to that summarised above in relation to BAL’s pleading.
19 The abatement provisions in the Lease. Clause 27.3 relates to “partial destruction” of the Premises; cl 27.5 to “no access in emergency”.
[39] The Guarantors say that they did not become aware that Waikoro was aware of the undisclosed defects at the time the Lease was executed until March 2020, through the hearing in the Waimauri proceedings.
[40] The Guarantors allege that as a result of the half-truths, undisclosed defects and misrepresentations by silence, BAL:
(a)entered into the Lease;
(b)was unable to pay the amounts claimed by Waikoro in this proceeding;
(c)lost $115,000 in relation to the insurance premiums; and
(d)lost $766,000, “being the costs incurred in respect of remediating the properties without obtaining any benefit from those payments”.20
[41] The Guarantors further plead that if they had been aware of the undisclosed defects at the time of the execution of the Lease and Guarantee, they would not have entered into the Guarantee. The Guarantors plead that they have accordingly cancelled the Guarantee for misrepresentation by silence by a letter dated 18 October 2021.
[42] The Guarantors’ final affirmative defence and/or counterclaim effectively seeks a permanent injunction preventing Waikoro from taking any steps to exercise any powers under its mortgage. Related declarations and a permanent injunction are sought, and also an order that Waikoro be ordered to execute a discharge of mortgage.
Associate Judge Paulson’s strike out judgment
[43] As noted earlier, it is necessary to summarise Associate Judge Paulsen’s judgment on Waikoro and BAL’s strike out applications. For example, and relevant to Waikoro’s submission that aspects of the Guarantors’ claims are an abuse of process,
20 This amount is the total of the loss claimed by BAL before Muir J on the basis of the alleged variation agreement. The original pleaded amount was the $910,026, reduced in opening before Muir J to $766,295.18 (see fn 56 of Muir J’s judgment).
Waikoro says aspects of the Guarantors’ claims are a tactical device to “get around” (my wording, not Waikoro’s) aspects of Associate Judge Paulson’s decision.
[44] By way of background, BAL applied to strike out or stay Waikoro’s claims in their entirety, or alternatively to strike out or stay Waikoro’s claims insofar as they sought to recover the Converted Sums, default interest and indemnity costs under the Lease. As a further alternative, BAL sought a stay of the proceedings until its appeal from Muir J’s decision had been determined.
[45] The crux of BAL’s strike out/stay application was that Waikoro’s claim was an abuse of process under the principles articulated in Henderson v Henderson, because Waikoro and Waimauri’s claims ought to have been brought together in the one proceeding. This was said to be because both claims concerned the same subject matter, the same contracts, the same events and the same parties. In relation to the Converted Sums, BAL also said that because Waimauri’s claim in relation to those sums was dismissed by Muir J, Mr Edney and his companies were having “a second bite at the cherry” in seeking to recover them in this proceeding.
[46] Associate Judge Paulsen found, “by a wide margin”, that BAL had failed to demonstrate that Waikoro’s claim was an abuse of process.21 Referring to Downs J’s minute of 13 February 2020, Associate Judge Paulsen noted that the Waimauri and Waikoro proceedings are not coterminous, being brought by different plaintiffs, against different defendants, based on different agreements and different causes of action. Associate Judge Paulsen accepted that the two proceedings share a common factual connection to the Lease, but stated “that is where the commonality ends”.22 The Judge also rejected BAL’s submission that Mr Edney was having a “second bite at the cherry” in relation to the Converted Sums, given Muir J specifically noted that Mr Edney and his related interests would need to look to BAL and the Guarantors to recover them.
[47] Associate Judge Paulsen also rejected BAL’s submission that there was no reason why Waikoro could not have brought its claims now pursued in this proceeding
21 At [51].
22 At [56].
in the Waimauri proceedings. Associate Judge Paulsen noted that Waikoro’s joinder as a counterclaim defendant in the Waimauri proceedings had been very late in the day (two weeks prior to trial), and that:23
…to have introduced Waikoro’s claims against BAL and the guarantors at that late stage would have been entirely unrealistic. The trial dates would have been lost. Days would have been added to the duration of the trial. … the guarantors would have been prejudiced by having to sit through a lengthy trial which largely did not concern them.
[48] In those circumstances, Associate Judge Paulsen considered BAL’s application to strike out was an impermissible collateral attack on Downs J’s minute.
[49] Turning to Waikoro’s application to strike out aspects of BAL’s first statement of defence and counterclaim (1st ASODC), Associate Judge Paulsen struck out the claims founded on the alleged precontractual misrepresentations concerning the insurance premiums and the general state and safety of the Premises, on the basis they were time barred.24
[50] The Judge rejected BAL’s argument that the limitation period ought to be extended because Mr Mahon only became aware during the trial in the Waimauri proceedings that Mr Edney had known of the insurance premium increase prior to the Lease being signed.25 The Judge recorded BAL’s acknowledgement that Mr Mahon was aware of the increased premium soon after the Lease was entered into, which the Judge observed “must have been so”, given it was drawn to Mr Mahon and BAL’s attention at that time (and resulted in BAL borrowing money from Waimauri in September 2013 to pay it).26 Associate Judge Paulsen accordingly found that upon acquiring knowledge of the increased premium, Mr Mahon and BAL were aware of all the facts required to brings its misrepresentation claim, irrespective of whether they knew Mr Edney was aware of the increase prior to the Lease being entered into.27
[51] In relation to the state and safety of the Premises, Associate Judge Paulsen held this must have been apparent to BAL and Mr Mahon from shortly after the Lease was
23 At [59].
24 At [104].
25 At [109].
26 Ibid.
27 Ibid.
signed, the evidence in this regard being “simply overwhelming”.28 The Judge noted that BAL must have had knowledge of such defects prior to November 2013, as in its pleading, BAL alleged that in or about November 2013 the parties entered into the variation agreement which included a term that BAL and Mr Mahon would manage the remediation of defects.29 Associate Judge Paulsen also noted that there was “a great deal about the state of the property in Anderson Creagh Lai’s 22 December 2016 letter”, being a “comprehensive document showing the asserted position of BAL and Mr Mahon at that time”.30 Associate Judge Paulsen accordingly held that this aspect of BAL’s counterclaims was also time barred and struck it out.
[52] The Judge also noted that BAL could not seek to call in aid s 50 of the LA, as there was no extant application before the Court for such relief and thus the section did not apply.31
[53] Associate Judge also struck out those aspects of BAL’s (then) counterclaim which relied on the alleged variation agreement and estoppel arguments that had already been dismissed by Muir J in the Waimauri proceeding.
[54] The Judge declined, however, to strike out that aspect of BAL’s counterclaims relating to the alleged misrepresentation that there had been no assessment of the Premises which took them below 38 per cent of the NBS. While he saw force in the arguments raised by Waikoro on this aspect of its strike out application, Associate Judge Paulson said he could not dismiss Mr Mahon’s affidavit evidence that he was not aware of the true position until March 2020.
[55] Finally, Associate Judge Paulsen also declined to strike out those aspects of BAL’s counterclaims which relied on cls 25 and 27 of the Lease, namely that BAL ought to be indemnified for certain costs incurred by it in rectifying damage to the
28 At [112].
29 Ibid.
30 At [113].
31 Pursuant to s 50 of the LA, a court may, in its discretion, “if it thinks it just to do so”, grant relief against any limitation defence applying to an “ancillary claim”, if the “original claim” is itself not time-barred. An “ancillary claim” is defined as claim “that relates to, or is connected with, the act or omission on which another claim (the original claim) is based” and is, among other types of claims, a counterclaim or set off (s 4 of the LA). A claim for relief pursuant to s 50 of the LA has not yet been the subject of a decision of the senior courts.
property (cl 25), and that there ought to be an abatement of rent and outgoings (cl 27).32 The Judge said that common sense would suggest that time began to run on these claims very shortly after the relevant damage had occurred, which was suggested to be in June/July 2013. But he said that the damage and the sums claims were not particularised, nor the allegation that Waikoro received insurance monies in respect of the damage and failed to expend it towards repairing the Premises. The Judge said that in those circumstances, it was not clear when the act or remission upon which the set off was based occurred. He concluded:33
This circumstance arises due to the inadequacy in BAL’s pleadings. Again, I expect an application for particulars will establish the set off is time barred. Be that as it may, I cannot presently be satisfied the claim set out in [12] is time barred.
[56] Associate Judge Paulsen also declined to strike out this aspect of BAL’s pleading out on the basis it was an abuse of process (being capable of being advanced by BAL in the Waimauri proceedings). The Judge noted that in this proceeding, BAL is relying on clauses 25 and 27 of the Lease, which were not raised or relied upon in the Waimauri proceedings. The Judge also said that given it was not clear BAL is seeking to recover in this proceeding the same sums claimed by it in the Waimauri proceedings, he was not “presently satisfied” that it would be unjust to allow it to rely on these alleged breaches of the Lease. Associate Judge Paulsen stated, however, that it may well be that a request for particulars would reveal that BAL is seeking to recover the same sums claimed in the Waimauri proceedings, but on another basis. He said “in that case, this issue could be revisited”.34 I simply observe at this stage that the Guarantors’ pleading tends to suggest that the amounts being claimed by BAL by way of indemnification pursuant to clause 25.1 of the Lease (that is, the $766,000) are the same amounts it sought to recover through its quantum meruit argument in the Waimauri proceedings.
Legal principles
[57] The legal principles applicable to an application for an interim injunction are not in dispute and may be briefly stated.
32 See [25] above.
33 At [87].
34 At [79].
[58] It is helpful to recall the fundamental purpose of an interim injunction, described by the Court of Appeal as follows:35
The object of an interim injunction is to protect the plaintiff from harm occasioned by any breach of rights that is the subject of current litigation, for which the plaintiff might not be adequately compensated by an award of damages by the court, if successful at trial. Against that object it is necessary to weigh the consequences to defendants of preventing them from acting in ways which the trial may determine are in accordance with their rights.
[59] There are three stages to the consideration of whether an interim injunction ought to be granted:36
(a)first, the applicant must establish there is a serious question to be tried, or that its claim is not vexatious or frivolous;
(b)second, the balance of convenience must be considered; and
(c)finally, an assessment of the overall justice of the position is required as a check.
[60] When assessing whether there is a serious question to be tried, the court must consider:37
(a)what each of the parties claims the facts to be;
(b)what the issues are between the parties on these facts;
(c)the law applicable to those issues; and
(d)whether there is a tenable resolution of the issues of fact and law on which the plaintiff may be able to succeed at trial.
35 Roseneath Holdings Ltd v Grieve [2004] 2 NZLR 168 (CA) at [35].
36 NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90 at [12].
37 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA) at 133.
The parties’ submissions
Submissions on behalf of the Guarantors
[61] Mr Hucker first referred to a number of factual findings made by Muir J in the Waimauri proceedings. I understood this not (necessarily) to be for the purpose of suggesting that each gives rise to an issue estoppel (other than that concerning Mr Edney’s knowledge of the increased insurance premium prior to the Lease being entered into), but rather so that the Court can have confidence that, putting aside issues of limitation and abuse, there is a factual foundation for the Guarantors’ claims. In this context, Mr Hucker referred to the following findings by Muir J:38
(a)The condition of the Premises was far worse than imagined with regular flooding, unsanitary overflows of sewage and falling masonry creating serious health and safety issues (paragraph 5).
(b)BAL “soldiered on” on using its cashflow to meet the immediate maintenance requirements as well as improvements to the Premises’ accommodation. BAL stabilised the position with the building, added value to the hotel as a result of an expensive and time consuming resource consent process, unlocked the development potential of the adjacent land but did so at the expense of meeting its rental and other financial obligations under the Lease (paragraph 5).
(c)There were numerous problems with the hotel and several were so serious that the continued operation of the Premises was at risk (paragraph 20).
(d)Waikoro declined to assist in the remediation of any of the problems despite the health and safety implications (paragraph 21).
(e)Mr Edney was aware of the very significant increases in the insurance premium immediately prior to the execution of the Lease but did not convey that information to Mr Mahon (paragraphs 125 and 129).
38 The paragraph references being references to Muir J’s judgment.
Abatement claim
[62] Mr Hucker submits that there is clearly a serious question to be tried that an abatement claim is available to BAL, and through BAL, the Guarantors, pursuant to cl 27.3 and/or 27.5 of the Lease. On the basis of the evidence filed on the present application, Mr Hucker submits that there is a serious question to be tried that when the amount of rent actually paid by BAL under the Lease is taken into account, abatement pursuant to cl 27 results in there being no remaining rent or outgoings due to Waikoro under the Lease. In this context, Mr Hucker notes that abatement pursuant to cl 27 of the Lease operates not as a set-off or counterclaim, but as a true defence, given it extinguishes the primary obligation to pay rent in the first place.39 Mr Hucker submits that the value of the rent abatement claim, on the basis of schedule A to the pleading and the evidence on the current application, is at least $634,000.
[63] Mr Hucker further submits that there is a serious question to be tried that the BAL also has a right of indemnification from Waikoro pursuant to clause 25.1 of the Lease, for monies expended by BAL in order to make good the damage or destruction. This is pleaded as further “abating” any remaining rent owed.
[64] Mr Hucker submits that the evidence suggests that the costs incurred by BAL to remedy damage which ought to have been subject to an insurance claim by Waikoro total $282,000. Together with the abatement referred to at [62] above, this gives rise to at least $1 million of abatement of rent. Mr Hucker submits that the average percentage of the Premises partially destroyed over the course of the tenancy was 38 percent, and an abatement of that amount ought to be applied to all outgoings as well. Mr Hucker submits that because the abatement extinguishes the rental and outgoings, this will in turn significantly affect what (if any) default interest ought to have accrued.
[65] Mr Hucker notes that no limitation issues arise in relation to the abatement claim, given it operates as a true defence to the claim for rent. Alternatively, if a limitation issue arises, Mr Hucker submits there are good prospects of a s 50 LA
39 Relevant to any suggestion the abatement claim is time barred.
application being granted, because the abatement claim in inextricably linked to Waikoro’s claim for rent.
[66] In this context, Mr Hucker submits that the discretion to be exercised pursuant to s 50(1) should be exercised in a broad and liberal manner, against the overriding principle of ensuring that the real controversy between the parties concerned is determined, erring on the side of an adjudication on the merits of a claim and an ancillary claim, unless there is some overriding prejudice to the party responding to the ancillary claim. Mr Hucker submits that there is no evidence before the Court on the present application suggesting any prejudice to Waikoro in having to deal with the Guarantors’ defence and/or counterclaim in response to its own claim.
[67] Mr Hucker further submits that it is not an abuse of process for the Guarantors to rely on an abatement claim in this proceeding. Mr Hucker says that it is incorrect to suggest the abatement claim could and ought to have been advanced by BAL in the Waimauri proceedings, given there was no claim by Waikoro against BAL in those proceedings for unpaid rent under the Lease. Mr Hucker further refers to Downs J’s decision declining to consolidate the Waikoro and Waimauri proceedings, and Associate Judge Paulsen’s endorsement of that approach. Mr Hucker submits that Downs J’s decision supports the proposition that the claims under the Waimauri loan agreement and rental due under the Lease are quite distinct, such that it cannot be an abuse to now advance the latter in these proceedings.
[68] Turning to BAL’s claim for reimbursement of monies expended by it on remediating the Premises, and which the Guarantors say Waikoro ought to indemnify BAL against pursuant to cl 25.1 of the Lease, Mr Hucker submits that there is no res judicata (or cause of action or issue estoppel) arising from Muir J’s observations on BAL’s quantum meruit argument in the Waimauri proceedings. This is because the pleaded claim before Muir J was a contractual claim on the basis of the alleged variation agreement, and therefore says nothing about the right of indemnification pursuant to cl 25.1 of the Lease. For these reasons, Mr Hucker says that Muir J’s observations of what he would have found even if a quantum meruit claim had been pleaded, were not essential and fundamental steps in the logic of his Honour’s decision on the issues properly before him.
[69] In this context, Mr Hucker submits that Muir J’s findings at [211] to [213] of his judgment, as to certain provisions of the Lease and their impact on a restitutionary quantum meruit claim, were not required on the pleaded case, and did not address cls 25 or 27 of the Lease in any event. Further, Mr Hucker submits that in any event, all that Muir J’s observations extend to is a finding that the obligation to incur certain expenditures (to the extent it was “maintenance”) fell on BAL in the first instance, and says nothing about whether such expenditures ought nevertheless to be indemnified pursuant to cl 25.1 of the Lease. Mr Hucker further submits that even if an issue estoppel arises from this aspect of Muir J’s judgment, it is limited to the referenced provision of the Lease preventing a restitutionary claim in respect of capital expenditure, and that Muir J did not make any final determination as to what proportion of the expenditure consisted of capital works as opposed to maintenance.
Pre-contractual representations
[70] Mr Hucker submits that there is a serious question to be tried that not only that the pre-contractual misrepresentations were made, but also that they had the effect of vitiating the Guarantee ab initio (rather than simply having the effect of permitting the Guarantors to cancel the Guarantee on a forward looking basis). I interpolate at this point to note that there is no real dispute that there is a serious question to be tried as to whether the alleged pre-contractual representations were made.
[71] As to the effect of the alleged misrepresentations, Mr Hucker refers to authorities such as Scales v Far Eastern Shipping Co Public Ltd40 and Madagascar v Paulson41 as standing for the proposition that the Guarantee is vitiated from the outset, rather than simply cancelled on a forward looking basis.42
[72] Mr Hucker further submits that an essential element of the misrepresentation claim (by half-truths or silence), or for vitiation of the Guarantee for non-disclosure, is knowledge on the part of Mr Edney/Waikoro as to the true position (as to the insurance premium and the state of the property more generally). As the Guarantors
40 Scales v Far Eastern Shipping Co Public Ltd [1999] 3 NZLR 26 (CA).
41 Madagascar v Paulson [2016] NZHC 553.
42 He also refers to Nandani v South Pacific Loans Ltd (No 2) [2016] NZHC 2751 and Chapman v Westpac New Zealand Ltd [2018] NZHC 1986 as reinforcing this distinction.
only became aware of Mr Edney’s knowledge in March 2020, Mr Hucker submits that the claim cannot be time barred, because of the late knowledge extension provided for in the LA.
[73] Mr Hucker acknowledges that similar issues were considered by Associate Judge Paulsen as between Waikoro and BAL, and the Judge held that Mr Edney or Waikoro’s own knowledge was not an essential element of the misrepresentation claim. Mr Hucker submits that Associate Judge Paulsen’s decision is not binding on me, and that in any event, the Judge expressly noted that the application was one not involving the Guarantors. Mr Hucker further notes that the issue of whether the Guarantee was vitiated from the outset was not a matter before the Judge.
[74] As a fall-back position, Mr Hucker notes that the Guarantors have made an application pursuant to s 50(1) of the LA. This also puts them in a different position to BAL when these issues were considered by Associate Judge Paulsen. Mr Hucker submits that the s 50(1) claim does not need to be resolved at this time, but submits that there is a reasonable prospect of the s 50(1) application being granted. Mr Hucker says that a powerful factor in relation to granting the s 50 application is that Waikoro’s claim against the Guarantors was not commenced until late 2019 (and not served until early 2020). He says that in the absence of any formal claim under the Lease or the Guarantee, there was no reason or need for BAL or the Guarantors to have counterclaimed in relation to the alleged pre-contractual misrepresentations.
Chattels
[75] Mr Hucker submits there is a serious question to be tried on this counterclaim also, given BAL’s clear right under the Lease to reasonable and necessary access to the Premises for the purposes of exercising its right to remove fixtures and chattels.
Balance of convenience/overall interests of justice
[76] Mr Hucker acknowledges that the Apartments are not resided in by any of the Guarantors. Mr Hucker nevertheless submits there is substantial potential prejudice to the Guarantors if the injunction is not granted, yet no prejudice to Waikoro if it is not. Mr Hucker says that the sale of the Apartments in forced market conditions,
particularly with the uncertainties arising from COVID-19, would detrimentally affect the sale price achievable. Further, and in the event there were to be a rising market for property (which there currently is), the forced sale now of one or both of the Apartments would inflict unnecessary losses on the Guarantors which would be difficult to fully and accurately quantify.
[77] Conversely, and as noted as the outset of this judgment, Mr Hucker submits that Waikoro is more than adequately protected by the equity in the Apartments, both in terms of the substantive amount under the Guarantee and any loss occasioned to Waikoro from not recovering the guaranteed amount now. In this context, Mr Hucker submits it is perfectly reasonable, including from a commercial/financial perspective, for Waikoro to await the determination of issues at trial without exercising mortgagee sale rights in a pre-emptive manner.
[78] Finally, standing back and considering where the overall justice lies, Mr Hucker submits that given there is a serious question to be tried, and that the balance of convenience strongly favours the Guarantors, the interests of justice weigh heavily in favour of the injunction being granted. Mr Hucker says this is supported by the overall approach taken to these matters by Mr Edney and his interests, described by Muir J in the Waimauri proceedings as Mr Edney’s “rapacious conduct” .43
Submissions on behalf of Waikoro
Abatement claim
[79] Mr Lenihan first emphasises that this claim requires the Guarantors to “stand in the shoes” of BAL, as it is not being argued as a defence available to the Guarantors in their own right.
[80] Mr Lenihan notes the Guarantors’ submission that an abatement affects the primary obligation and that a limitation defence does not apply as a result (relying on commentary in Laws of New Zealand), but says that that authority is premised on the basis that abatement is a true defence rather than a set-off or counterclaim, and here
43 At [125].
the claim is pleaded as a counterclaim. Mr Lenihan also refers to a table at [81] of the Guarantors’ submissions, which he says confirms that significant aspects of the abatement claimed arose out of events occurring prior to October 2015, which are accordingly time barred.
[81] Mr Lenihan submits that in any event, it is implicit in cls 23, 25 and 27 of the Lease that a request should have be made by BAL at the time for Waikoro to claim under its insurance policy, or that BAL would carry out repairs and then seek indemnification from Waikoro. Mr Lenihan refers to the New South Wales Court of Appeal’s decision in Edex International Holdings Pty Limited v Marmalade Films Pty Limited for the proposition that a tenant cannot make a claim for an abatement of rent where the tenant had paid rent without protest or notice being given.44
[82] Mr Lenihan notes that Mr Edney deposes that no request was ever made of him to make a claim under Waikoro’s insurance policy in respect of alleged flood and other damage, or for abatement of rent. Mr Lenihan notes that Ms Loo in her reply affidavit makes the (hearsay) statement that she was aware that Mr Mahon had asked for an abatement of rent, but says Ms Loo’s evidence should be viewed with some scepticism, particularly given there is no evidence from Mr Mahon on this point, or any documentary evidence to support it.
[83] Mr Lenihan further submits that the terms of the Lease, and in particular, the special clauses, mean that no abatement or obligation on Waikoro’s part to expend insurance monies arise in any event. Mr Lenihan refers in this regard to cl 46 of the Lease (that the special clauses take precedence over the general clauses); that BAL took the property on an “as is” basis (cl 56(a)), and BAL’s maintenance obligations (which includes replacement of plant, equipment and chattels) (cl 56(e)). Mr Lenihan also points to cl 56(f), which provides that BAL was to occupy and use the Premises as its own risk, and released Waikoro from all claims, demands or liability arising from any accident, damage or injury occurring to any person or property on or about the property during the term of the Lease.
44 Edex International Holdings Pty Limited v Marmalade Films Pty Limited [2003] NSWCA 8. Mr Lenihan acknowledges, however, that the New South Wales Court of Appeal observed that where rent and outgoings have not been paid the situation may be different. I discuss this further below, at [108].
[84] Mr Lenihan says that while Waikoro did hold a policy of insurance, it is arguable that these clauses extinguished Waikoro’s liability under the Lease if BAL did not make a request for Waikoro to claim under its policy. Mr Lenihan notes that the policies of insurance will now have expired, and it is simply too late for Waikoro to make a claim.
[85] Finally, Mr Lenihan says that the claim of abatement in this proceeding is an abuse of process, given such a claim could and ought to have been made against Waikoro in the Waimauri proceeding.
[86] As to the amount the Guarantors say BAL spent repairing the Premises, and for which it ought to have been indemnified by Waikoro pursuant to cl 25.1 of the Lease ($282,000), Mr Lenihan submits that such a claim is also an abuse of process, given it formed part of the amount claimed by BAL in the Waikoro proceedings. That claim was dismissed by Muir J, and Mr Lenihan submits it is not now open to BAL, and through it, the Guarantors, to seek to claim some of those amounts in this proceeding, on a different basis. Mr Lenihan also submits that the underlying events which led to the suggested expenditure all occurred in 2013 or prior to September 2014, such that the claim is time-barred in any event. He submits that it is not credible to suggest that repairs were ongoing to the end of the Lease. Mr Lenihan also suggests that there are real questions around whether all of the claimed invoices relate to repairs arising from an insured event in any event.
[87] For all these reasons, Mr Lenihan says there is no serious question to be tried on the abatement claim.
Pre-contractual misrepresentation claims
[88] As to the misrepresentation claim, Mr Lenihan first submits that the Guarantors are improperly trying to circumvent Associate Judge Paulsen’s decision striking out BAL’s misrepresentation claim (at least in relation to the insurance premium and condition of the Premises generally), by pleading misrepresentation in relation to the Guarantee. However, even accepting that Associate Judge Paulsen’s decision is not binding on the Guarantors, Mr Lenihan submits there are nevertheless a number of fundamental issues with the claim.
[89] Mr Lenihan says that it is clear that, like BAL, the Guarantors knew by January or February 2013 that the insurance premiums had risen to $144,815.84. He says that by that time, the Guarantors knew all the facts necessary for a claim of misrepresentation, because Mr Edney’s knowledge of the increased premium was not an element of the cause of action. Mr Lenihan accordingly endorses Associate Judge Paulson’s finding to this effect. Mr Lenihan further says that despite knowledge of all elements necessary for a misrepresentation claim by early 2013, no claim was made until the Guarantors pleaded the misrepresentation claim in their 2nd ASODCC of 20 October 2021. Not only does the Guarantors’ conduct in the interim amount to an affirmation of the Guarantee, but Mr Lenihan submits that this lengthy delay seriously undermines the credibility of the suggestion that the Guarantors relied on the representation as to insurance when entering into the Guarantee.
[90] As to the claim based on alleged pre-contractual statements as to the state of the Premises, Mr Lenihan again endorses Associate Judge Paulsen’s finding that BAL and Mr Mahon must have been aware of the true state of the Premises by November 2013 at the latest. Mr Lenihan submits that, given their close involvement in and work on the Premises, this knowledge must also have extended to at least Ms Loo and Mr Loo. Mr Lenihan also refers in this context to the detailed letter from Anderson Creagh Lai of 22 December 2016, in which Anderson Creagh Lai recorded that they acted for Mr Mahon and BAL and the Guarantors.
[91] In relation to the misrepresentation claim based on the Premises’ IEP and seismic reports (BAL’s claim based on the same matters not being struck out by Associate Judge Paulson), Mr Lenihan submits that the Guarantors have not pleaded that this caused them any loss.
[92] As to the purported cancellation of the Guarantee, Mr Lenihan says this is misconceived, given cancellation affects only liabilities arising after cancellation. He further notes that the Lease was for a fixed term of 10 years, and submits that the consideration for the Guarantee was indivisible, and thus the Guarantee cannot be revoked by the Guarantors.45
45 Referring to Geraldine Andrews and Richard Millett Law of Guarantees (7th ed, Sweet & Maxwell, London, 2015) at 8-005.
[93] Turning to limitation, Mr Lenihan submits that the application pursuant to s 50 of the LA ought to be determined at this time, including because relief on the application was sought in the Guarantors’ interlocutory application seeking injunctive relief.46 Mr Lenihan submits there is no need for such an application to await trial, and doing so would encourage parties facing a strike out application based on limitation to simply file a s 50 application to force the matter to a full trial.
[94] On the merits of the s 50 application, Mr Lenihan submits that it should be declined because:
(a)Waikoro’s statement of claim was filed on or about 20 December 2019, yet the misrepresentation claims were not made by the Guarantors until October 2021 (with there being no credible reason for such a delay);
(b)similarly, and more starkly, the Guarantors were aware of the insurance premium increase in January or February 2013, but did not plead any relief in relation to this until 20 October 2021;
(c)the Guarantors were also aware of issues regarding the Premises by November 2013 at the latest, yet they only raised those issues in their first amended statement of defence and counterclaim dated 27 July 2021;
(d)the Anderson Creagh Lai letter of 22 December 2016 was, as noted, expressly sent on behalf of the Guarantors; and
(e)the conduct of the Guarantors in this proceeding represents tactical steps to either “side-step” Associate Judge Paulson’s judgment, or to re-run claims that were or ought to have been advanced by BAL in the Waimauri proceedings.
46 The application pursuant to s 50 of the LA described as being “ancillary orders”.
Chattels
[95] Mr Lenihan notes that the quantum attaching to this counterclaim is minor, and has no material impact on the guaranteed amount.
Balance of convenience and interests of justice
[96] Mr Lenihan says that given the Apartments are investment properties, damages will be an adequate remedy for the Guarantors in the event they are successful at trial. He submits there would be no difficulties in proving the loss, and that Waikoro will be in a position to pay any damages ordered, which, following the hearing, is now also subject to a personal undertaking by Mr Edney.
[97] In contrast, Mr Lenihan notes that the Lease was terminated by Waikoro in September 2016, and demand was made on BAL on 23 September 2016 for unpaid rent, outgoings and interest. Waikoro’s proceeding was commenced in December 2019. Mr Lenihan submits that if Waikoro is successful in its claims against the Guarantors, Waikoro will have been out of its money for nearly seven years, in a scenario where, at least under the Guarantee, contractual interest is unable to be claimed.
[98] Standing back, Mr Lenihan submits that the Court can be satisfied at this stage that all of the Guarantors’ claims are susceptible to either being an abuse of process, time barred or on their face, highly improbable, and highly unlikely to operate to reduce BAL’s remaining liability under the Lease to less than $500,000 in any event.
Analysis
Is there a serious question to be tried on the abatement affirmative defence/counterclaim?
[99] I have approached the Guarantors’ abatement affirmative defence/counterclaim on the basis it comprises two distinct elements:
(a)first, abatement of rent pursuant to either or both of cl 27.3 and 27.5 of the Lease (as a result of partial destruction of the Premises or an emergency preventing access); and
(b)second, the claim in relation to money actually expended by BAL in remediating the Premises ($282,000) and which the Guarantors say Waikoro should have indemnified BAL for pursuant to cl 25.1 of the Lease.47
[100] I will refer to the first aspect of the abatement claim, referred to at (a) above, as the “true abatement claim”, and to the second aspect, summarised at (b) above, as the “indemnification claim”.
[101] As a preliminary point, there was no real dispute that from a factual perspective, there is a serious question to be tried on the Guarantors’ true abatement claim. That must be so in my view, at least on the materials presently before the Court. There is no doubt that there were multiple and serious issues arising at the Premises from shortly after the Lease was entered into. I also refer in this context to the factual findings made by Muir J and referred to at [61] above, not to suggest that those findings are necessarily binding on the parties in this proceeding, but rather that they support the factual basis for the true abatement claim. There is also the (unchallenged) evidence before the Court as to those aspects of the Premises which could not be occupied or used at any given time (see [32] above).
[102] There is a contractual right of abatement of both rent and outgoings under the Lease, both in terms of damage to the Premises but which does not render them untenantable (cl 27.3) and an “emergency” which prevents the tenant from gaining access to the property (cl 27.5). I am satisfied that there is a serious question to be tried that the problems at the Premises fall into to one or other of these provisions (being damage and lack of access as a result of storm, flood, discovery of asbestos
47 The Guarantors do not plead that this would operate as a counterclaim by BAL against Waikoro; rather they plead that the failure by Waikoro to indemnify BAL against the cost of carrying out the remedial works, as required under ss 268 and 269 of the Property Law Act 2007 and cl 25.1 of the Lease, operates by way of further abatement to rent and outgoings.
requiring immediate evacuation, falling masonry, and the like). Waikoro did not suggest otherwise.
[103] Being satisfied that, from a factual perspective, there is a serious question to be tried on the true abatement claim, I am also of the view that a tenable resolution is that this would reduce the rent and outgoings which remain due and owing under the Lease to below $500,000. The Guarantors suggest that the contractual abatement claim alone totals at least $634,000. There was no real challenge to that figure on the present application. The precise timing of any abatement is not clear on the materials presently before the Court, but as noted earlier (at [22]), a very significant proportion of Waikoro’s claim reflects accrued default interest. Given, if successful, the abatement claim would mean that a fair proportion of rent and outgoings never became payable in the first place, successful abatement of rent and outgoings from the outset of the Lease, coupled with what I accept to be evidence of substantial amounts of rent and outgoings that were paid by BAL, could have a substantial impact on the amount of Waikoro’s claim.48 Waikoro did not present any analysis to suggest that even adopting the Guarantors’ suggested proportion of the Premises unable to be used or accessed at any given time, and taking into account the rent and outgoings that were paid by BAL, the resulting unpaid rent and outgoings would clearly exceed $500,000.
[104] Nor am I persuaded that the fact there was not, or does not appear to have been, a formal request by BAL for, or notification of, a claim of abatement during the term of the Lease means there is no serious question to be tried on the true abatement claim. At least in relation to abatement pursuant to cl 27 of the Lease, the relevant contractual provisions do not contain a notice requirement, nor are they expressly tied to Waikoro’s obligation to make a claim on its insurance premium. Rather, the provisions simply provide that, pending reinstatement or resumed access (as the case may be), a fair proportion of the rent and outgoings will be abated.
[105] Nor do I consider that the decision in Edex International Holdings is fatal to the true abatement claim. Indeed, aspects of the decision suggest the opposite.49
48 Given the (potentially significantly less) default interest accruing at any given point in time.
49 The decision does not appear to have been cited previously in any decisions in this jurisdiction.
[106] In Edex, the tenant had paid all rent due up until it vacated the premises, as well as the rent due for the month following vacation of the premises. The landlord then sued for the balance of rent due to the end of the lease’s full term. The tenant counter-claimed, seeking a refund of rent already paid (on the basis of the right of abatement), and also defended the claim for unpaid rent on the same basis. At first instance, the District Court gave judgment for the landlord on both the tenant’s claim for a refund, and the landlord’s claim for unpaid rent. The tenant sought leave to appeal to the Court of Appeal.
[107] The New South Wales Court of Appeal declined to grant leave to appeal in relation to the tenant’s claim for a refund. It considered the lack of notice of the damage to the premises and an abatement claim fatal to such a claim, in circumstances where the landlord was not aware of the problems with the premises at the time, and the rent had been paid without complaint. That the lack of notice was fatal to the tenant’s claim for a refund was said to be on the basis of either (1) the proper interpretation of the relevant provisions of the lease; (2) the non-availability of restitutionary relief in the context of voluntary payments and non-notification; or (3) the implication of a notification requirement (for business efficacy purposes). The Court did not reach any concluded view of which of these three “pathways” was correct, given on any view, it did not consider it appropriate to grant leave to appeal.
[108] The Court reached a different conclusion, however, on the tenant’s defence to the landlord’s claim for unpaid rent, and granted leave to appeal. Hodgson JA, with whom the other members of the Court agreed, said the following:50
It is by no means obvious that it would be unreasonable for an abatement to occur, even if the landlord does not know about the damage and even if the claim for abatement is not made until proceedings are brought for the rent. … I do not think any of the three bases of denying relief to the tenant in relation to the rent and outgoings already paid apply here. In particular, I do not think that the implication of a term requiring notice in these circumstances is necessary to give business efficacy to the contract. If in any particular case a landlord is disadvantaged because of some failure by the tenant to communicate the damage to the landlord, in circumstances where such communication should have been made, the landlord may be able to rely on an estoppel.
50 At [31] and [32].
In these circumstances, I do not think there is a ground made out for not applying the literal terms of cl 8.2.2, unaffected by any implication, in relation to rent and outgoings not yet paid.
(emphasis added)
[109] On that basis, the Court granted leave to appeal and proceeded to determine the substantive appeal. It assessed the percentage reduction of usability of the premises, and the consequent reduction in liability for rent and outgoings, at 30 percent, and reduced the amount of the first instance judgment in favour of the landlord by a corresponding amount.
[110] In this case, Waikoro claims unpaid rent and outgoings, rather than BAL (and through BAL, the Guarantors) seeking a refund of rent already paid. The Guarantors plead the abatement claim as an affirmative defence (“and/or” as a counterclaim). Unlike in Edex, there does not seem to be any dispute that Waikoro was aware of the problems at the Premises from an early stage. This is at least evident from Muir J’s judgment, where he observed that Waikoro declined to assist in the remediation of any of the problems, despite the health and safety implications, because its position was that BAL was responsible for all maintenance.51 Further, Mr Hucker took me to at least one email from Mr Mahon to Mr Edney during the term of the Lease which discusses the “crises” at the Premises (noting that Mr Edney had been “kept updated” on them), and possibly, though not clearly, suggesting an abatement of rent.52
[111] Finally, and although not the subject of any detailed argument before me, I also consider it arguable that the special clauses of the Lease referred to at [83] above do not undermine the true abatement claim. In particular, it is arguable that the maintenance obligations on BAL, even if quite onerous, did not extinguish a parallel right of abatement of rent and outgoings in circumstances of partial destruction of or inability to access the Premises due to an emergency. And cl 56(f), namely that BAL occupied the Premises at its own risk, and released Waikoro from “all claims, demands or liability … which may arise in respect of any accident, damage or injury occurring to any person or property on or about the property at any time during the term of the lease” appears aimed more at releasing Waikoro from any damage suffered by BAL
51 At [21].
52 Email of 1 July 2013. I was not taken to any other, later, such communications.
itself, or any person or property while on the Premises, rather than releasing Waikoro from claims arising from damage to the Premises themselves.
[112] Having reached these conclusions, the next question is whether the true abatement claim is clearly time barred and/or an abuse of process, such that no serious question to be tried arises.
[113] As to the former, the true abatement claim in this case is that because of the events triggering the right of abatement pursuant to cl 27.3 or 27.5 of the Lease, BAL was not liable to pay a fair proportion of rental and outgoings. In this way, and as pleaded by the Guarantors, the claim operates as a defence. Being a true defence, it is not subject to limitation rules applying to set-off or counterclaim.53 There is accordingly a serious question to be tried as to whether the true abatement claim operates by way of a defence and is therefore not time barred.
[114] Moreover, even if the abatement claim was likely to be time barred, I consider there is a serious question to be tried that the Guarantor’s application pursuant to s 50 of the LA would be granted. I do not agree with Waikoro’s submission that I should finally determine the s 50 application now. I am conscious that I am only determining an application for an interim injunction, which requires an assessment of whether there is a serious question to be tried, rather than any substantive determination. And the application under s 50 of the LA has plainly been made by the Guarantors at this time to ensure there is an application on foot at all relevant times, so they do not fall into the same trap as BAL when Associate Judge Paulson determined Waikoro’s strike out application. These comments should not, however, be taken as suggesting that an application pursuant to s 50 of the LA should always await trial. Indeed, it may be necessary to address it earlier, for example in cases where, absent relief pursuant to s 50, a court would strike out a claim on the basis it was time barred.
[115] Turning to why I consider there is a serious question to be tried on the s 50 application, the true abatement claim is obviously very closely tied to Waikoro’s claim against the Guarantors, which relies on the underlying claim against BAL for unpaid rent and outgoings. The resolution of the substantive appeal in Edex reinforces the
53 Robert Fisher The Laws of New Zealand - Set-Off and Counterclaim (online ed) at [13].
connection between a claim for rent and outgoings and a defence of abatement. It was no doubt this close connection which led the Court in Edex to observe that “[i]t is by no means obvious that it would be unreasonable for an abatement to occur, even if the claim for abatement is not made until proceedings are brought for the rent.”54 In this context, having failed to have these and the Waimauri proceedings consolidated, it is understandable that BAL did not seek to advance in the Waimauri proceedings a claim which directly impeaches Waikoro’s claim for unpaid rent and outgoings, as that claim was not advanced in the Waimauri proceedings, but advanced in these separate proceedings (then already on foot).
[116] It is also likely to be important to the s 50 application that Waikoro elected not to pursue any claim against BAL or the Guarantors for or in connection with unpaid rent or outgoings under the Lease until December 2019. In circumstances where Waikoro had elected not to pursue its claim for unpaid rent and outgoings under the Lease for some three and a half years after the Lease was terminated, it would seem somewhat odd and contrary to the interests of justice if the Guarantors could not advance by way of a defence that no amounts in fact remain due under the Lease, and thus under the Guarantee. Finally, Waikoro did not suggest, on this application at least, that it would suffer any forensic prejudice (such as inability to secure relevant evidence) as a result of the timing of the true abatement claim.
[117] Turning to whether the true abatement claim is an abuse of process, being capable of being advanced, but not advanced, by BAL in the Waimauri proceedings (or at least so clearly so that no serious question to be tried arises on this aspect of the Guarantors’ claims), the answer must be, in my view, “no”.
[118] The issues for determination in the Waimauri proceedings did not include what amounts might remain due and owing by way of rent and outgoings under the Lease.55 Given the existence of these (extant) proceedings, and as noted earlier, Muir J was also careful not to express any view on what might be recoverable by Waikoro under the Lease (that is, rather than by Waimauri under the loan agreement).56 It is correct that,
54 Edex International Holdings Pty Limited v Marmalade Films Pty Limited [2003] NSWCA 8 at [31].
55 See those issues identified for determination by Muir J at [31] of his judgment.
56 At fn 55.
in the Waimauri proceedings, BAL advanced a counterclaim that all amounts that might remain due and owing under the Lease had been extinguished pursuant to the alleged variation agreement, and joined Waikoro as a counterclaim defendant for that purpose. But that was a different argument and contractual claim than the true abatement claim in this proceeding. In this context, there is clearly some inherent tension in each party’s argument on abuse of process and the arguments they made on the consolidation application in February 2020. Ultimately, however, Waikoro and Waimauri opposed the consolidation of the two proceedings, on the basis they gave rise to different issues between different parties. Those arguments were accepted and ruled upon by Downs J. There is accordingly some inconsistency in Waikoro now advancing the proposition that the true abatement claim ought to have been advanced by BAL in the Waimauri proceedings.
The indemnification claim and alleged pre-contractual misrepresentations
[119] I have carefully considered the parties’ submissions on the indemnification and misrepresentation claims, in the context of whether there is a serious question to be tried. Having done so, I have concluded that it is not necessary or appropriate for me to express a view on them.
[120] Firstly, given I am satisfied that there is a serious question to be tried on the true abatement claim (including whether it results in the remaining rent and outgoings due under the Lease being less than $500,000), and telescoping forward to my conclusion that the balance of convenience and overall interests of justice favour the injunction being granted, it is not necessary to examine the remaining issues in detail. Further and importantly, nor would it be appropriate to do so. As noted, Waikoro has recently filed a strike out application in relation to aspects of BAL’s and the Guarantors’ claims. The grounds of that application overlap substantially with Waikoro’s grounds of opposition on the present application. Given this substantial overlap, I consider it appropriate to confine my analysis of whether there is a serious question to be tried to the minimum required to support injunctive relief being granted, and to justify moving to consider the balance of convenience and overall interests of justice. Expressing views, even if obiter, on aspects of the present application which
are not necessary for its determination would unnecessarily constrain the Judge or Associate Judge determining Waikoro’s strike out application.
Balance of convenience and overall interests of justice
[121] Having concluded that there is a serious question to be tried on aspects of the Guarantors’ claims that could justify injunctive relief, I am clear in my view that the balance of convenience and the overall interests of justice weigh in favour of granting the Guarantors’ application. My reasoning in this regard can be brief, and is essentially as set out at the outset of this judgment.
[122] Acknowledging that the Apartments are investment rather than residential properties, a registered proprietor ought not to be forced to sell their property, and thereby permanently divested of their interest in that property, unless and until that is necessary and reasonable. That is particularly so when the sale would be conducted as a mortgagee sale. Further, were the Apartments sold now and it later transpired that they should not have been, even on a resulting damages claim, there could still be disputed issues and evidence over the sale price actually achieved and the market value of the Apartments at that future point in time. The Court is certainly familiar with how expert valuation evidence on the same property can differ, and sometimes quite starkly.
[123] Conversely, Waikoro is fully protected by the equity in the Apartments, which is sufficient to meet both the $500,000 guaranteed amount, plus any potential loss from being “out of pocket” of that amount for a period of around two years.57 Indeed, and at least on the basis of the loss of interest calculated pursuant to the Civil Debt Interest Calculator, Waikoro might have spent more on opposing the application for an interim injunction than the potential loss arising from the injunction being wrongly granted.
[124] For all these reasons, the overall interests of justice mean the interim injunction ought to be granted.
57 At noted earlier, not likely to be much more than around $50,000, and potentially much less.
Result
[125] The Guarantors’ application for interim relief is granted. There is an order in terms of paragraph 1(a) of the amended (with notice) application for interim orders and for ancillary orders dated 20 October 2021.
[126] I invite the parties to confer and agree costs. There would appear to be no reason why costs ought not to follow the event in the ordinary way, and for the Guarantors to be awarded costs on the application. On the materials presently before the Court, there does not appear to be any basis for increased or indemnity costs. In particular, despite my view on the balance of convenience and overall interests of justice, it was not unreasonable for Waikoro to test whether there was a serious question to be tried on the Guarantors’ claims.
[127]If the parties are unable to agree costs:
(a)the Guarantors may file a costs memorandum within 15 working days of the date of this judgment; and
(b)Waikoro may file a costs memorandum in response within a further 5 working days.
[128]No memorandum is to be longer than three pages in length.
[129] Unless I needed to hear further from counsel, I will thereafter determine costs on the papers.
Fitzgerald J
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