Waikoro Limited v Beach Arena Limited

[2021] NZHC 2707

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-002778

[2021] NZHC 2707

BETWEEN

WAIKORO LIMITED

Plaintiff

AND

BEACH ARENA LIMITED

First Defendant

AND

SAREN LOO

Second Defendant

AND

CON YUEN LU

Third Defendant

AND

WEI YUEN LOO

Fourth Defendant

AND

GEN YUEN LOO

Fifth Defendant

Hearing:	On the papers
Counsel:	D Chisholm QC and M J W Lenihan for Plaintiff A M Glenie for First Defendants
Judgment:	11 October 2021

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 11 October 2021 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

WAIKORO LTD v BEACH ARENA LTD [2021] NZHC 2707 [11 October 2021]

[1]                  In this proceeding, Waikoro Ltd (Waikoro) seeks to recover sums it says are owed to it by Beach Arena Ltd (BAL) under a deed of lease of premises at 131 Beach Road and 128 Anzac Avenue, Auckland (the property). The second to fifth defendants provided a limited guarantee of the obligations of BAL under the lease.

[2]                  In a judgment of 6 July 2021 (the judgment), I considered several applications, including:1

(a)by Waikoro for an order striking out certain paragraphs of BAL’s amended statement of defence and counterclaim; and

(b)by BAL for an order striking out or staying Waikoro’s claim as an abuse of process.

[3]                  I granted Waikoro’s application in certain respects. BAL has appealed the orders I made in respect of Waikoro’s application, which it can do as of right.2

[4]                  I dismissed BAL’s application to strike out or stay Waikoro’s claim. BAL wishes to also appeal the dismissal of its application but for this it requires and applies for leave to appeal under s 56(3) of the Senior Courts Act 2016.

Background

[5]                  The relevant background is set out at paras [5] to [30] of the judgment. For present purposes the following will suffice.

[6]                  Neville Mahon is the sole director of BAL. Timothy Edney is the sole director of Waikoro and of another company called Waimauri Ltd (Waimauri).

[7]                  On or about 20 December 2012, Waikoro (as landlord) and BAL (as tenant) entered into the lease of the property.

1      Waikoro Ltd v Beach Arena Ltd [2021] NZHC 1673.

2      Senior Courts Act 2016, s 56(4)(a).

[8]                  On 20 September 2013, Waimauri provided BAL with an interest bearing loan which captured BAL’s shortfalls under the lease. Mr Mahon guaranteed BAL’s obligations under the loan agreement.

[9]                  In March and July 2015, Mr Edney authorised the transfer of further amounts considered owing by BAL under the lease to the Waimauri loan account (the Converted Sums).

[10]              In September 2016, Waikoro terminated the lease and took possession of the property. It later sold the property.

[11]              On 14 March 2018, Waimauri commenced proceedings against Mr Mahon under his guarantee of the loan agreement (the Waimauri proceeding) which included a claim for the Converted Sums.

[12]              On around 15 February 2019, Mr Mahon joined BAL as a defendant and counterclaim plaintiff to the Waimauri proceeding. Mr Mahon considered the transfer of the Converted Sums to the loan account was invalid as neither he nor BAL had consented to them. In addition, Mr Mahon and BAL alleged that 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 affecting the property and the sale of the property and in respect of which “neither side had any liability to the other and that no sums would be due under or in respect of the BAL Loan Agreement.” I refer to this as the clean slate defence. BAL also counterclaimed for remediation costs it claimed Waikoro was liable to reimburse it.

[13]              On 19 December 2019, Waikoro filed this proceeding against BAL and the guarantors. I will henceforth refer to it as the Waikoro proceeding. Waikoro pleaded that in the Waimauri proceeding Mr Mahon and BAL had pleaded the transfers of the Converted Sums to the Waimauri loan account were invalid and that if it was held the transfers were invalid Waikoro claimed the Converted Sums against 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 $741,441 if the Converted Sums were claimable from Mr Mahon in that proceeding.

[14]              The Waimauri proceeding had been set down for trial commencing 3 March 2020.  On 13 February 2020, Downs J issued a ruling dismissing applications by   Mr Mahon and BAL to adjourn the trial and to consolidate the Waimauri proceeding and the Waikoro proceeding. He granted Mr Mahon and BAL leave to file an amended counterclaim.3

[15]              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. A different variation agreement was now pleaded alleging that BAL was also to share in the profit earned by Waikoro on the sale of the property. I refer to this as the uplift entitlement. Mr Mahon continued to plead the transfer of the Converted Sums was invalid and the variation agreement in defence of any liability to Waimauri under the loan agreement. Mr Mahon and BAL advanced two counterclaims against Waimauri, Mr Edney and Waikoro. The first counterclaim sought judgment for

$3,457,317 representing the uplift entitlement. The second counterclaim sought judgment for $910,026 as reimbursement of remediation costs.

[16]              The Waimauri proceeding was heard over 10 days in March 2020. Muir J issued judgment on 29 May 2020. Relevantly for present purposes, he identified as one of five “real issues” in the case:4

(c)… can Waimauri claim  sums  owed  by  BAL  to  Waikoro  which Mr Edney unilaterally chose to “fold” into the loan agreement?

[17]              Muir J gave judgment for Waimauri against Mr Mahon for $394,245.74 plus interest.5 He held that  Waimauri  could  not  recover  the  Converted  Sums  from  Mr Mahon under the loan agreement. He rejected Mr Mahon and BAL’s clean slate defence and also rejected their counterclaims. Mr Mahon and BAL have appealed against that decision.

[18]              Returning to the Waikoro proceeding, after having unsuccessfully sought to effectively stay the proceeding pending the determination of the appeal from Muir J’s

3      Waimauri Ltd v Mahon HC Auckland CIV-2018-404-454, 13 February 2020 (Minute).

4      Waimauri Ltd v Mahon [2020] NZHC 1170 at [31].

5 At [216].

judgment in the Waimauri proceeding,6 BAL filed a statement of defence on 11 August 2020.

[19]              On 9 October 2020, Waikoro filed its application to strike out aspects of BAL’s defence.

[20]              On 19 December 2020, BAL filed its application to strike out or stay Waikoro’s claim.

The application to strike out or stay Waikoro’s claim

[21]              BAL argued that Waikoro’s claim is an abuse of process under the principles in Henderson v Henderson7 and Johnson v Gore Wood & Co.8 Mr Edney is, BAL submits, the directing mind and will of both Waimauri and Waikoro and could readily have caused them to bring their claims, in which they were seeking some of the same amounts in the form of the Converted Sums, in a single proceeding from the outset.

[22]              In my judgment of 6 July 2021, I noted the underlying public interest in the finality in litigation and that a party should not be twice vexed in the same matter.9 I noted also that the leading authority is Johnson v Gore Wood & Co10 which requires a broad merits-based judgment to the question of what constitutes an abuse of process.11 I found Waikoro was not in this proceeding reopening disputes that could or should have been raised in the Waimauri proceeding and was not misusing the Court’s processes to vex, harass or embarrass BAL.12 In arriving at that conclusion, I noted the following matters:

(a)there was no question of double vexation of BAL arising as the Waimauri proceeding and the Waikoro proceeding were not conterminous but were claims brought by different plaintiffs against

6      Waikoro Ltd v Beach Arena Ltd [2020] NZHC 1712.

7      Henderson v Henderson (1843) 67 ER 313 (Ch).

8      Johnson v Gore Wood & Co [2002] UKHL J1214-3, [2002] 2 AC 1.

9      Waikoro Ltd v Beach Arena Ltd, above n 1, at [49] and [50].

10     Johnson v Gore Wood & Co, above n 8.

11     Waikoro Ltd v Beach Arena Ltd, above n 1, at [48] and [49].

12 At [51].

different defendants, based on different agreements and different causes of action;

(b)contrary to BAL’s submission it was not artificial to distinguish between Mr Edney, Waimauri and Waikoro;

(c)the two proceedings shared only a limited factual connection;

(d)there were good reasons why the two claims were not brought together and/or consolidated; and

(e)there was no unfairness in the inclusion of the Converted Sums in the Waikoro claim.

The law

[23]Section 56(2) and (3) of the Senior Courts Act relevantly provides:

56       Jurisdiction

…

(3)No appeal, except an appeal under subsection (4), lies from any order or decision of the High Court made on an interlocutory application in respect of any civil proceeding unless leave to appeal to the Court of Appeal is given by the High Court on application made within 20 working days after the date of that order or decision or within any further time that the High Court may allow.

(4)Any party to any proceedings may appeal without leave to the Court of Appeal against any order or decision of the High Court---

(a)striking out or dismissing the whole or part of a proceeding, claim, or defence; or

(b)granting summary judgment.

[24]              In Li v Chief Executive, Ministry of Business, Innovation and Employment, Palmer J considered an application by the Crown for leave to appeal stating:13

13     Li v Chief Executive, Ministry of Business, Innovation and Employment [2018] NZHC 1171, [2018] NZAR 1134.

[21]     Pulling all these strands together, I consider the text, purpose, context and case law of s 56 suggests an application to appeal an interlocutory decision under s 56(3) is likely to be granted if:

(a)the appeal is not likely to be overtaken by the substantive hearing or cannot otherwise be considered as effectively in the context of an appeal of the substantive decision; or

(b)the appellant is likely to be prejudiced by a postponement to the substantive appeal; or

(c)the appeal may be dispositive of the case in law or as a practical matter;

and

(d)the arguments in the appeal are capable of bona fide and serious argument; and

(e)the issue on appeal concerns a decision of sufficient significance to the parties or a question of law or general principle of sufficient importance as to outweigh the cost and delay of the appeal.

[22]    More pithily, perhaps, an application to appeal an interlocutory decision under s 56(3) is likely to be granted where: (a) there is good reason to consider it before, or separately to, the substantive appeal; and (b) it is sufficiently meritorious in substance and relates to a sufficiently important issue as to outweigh the cost and delay of appeal.

[25]              In Greendrake v District Court of New Zealand, the High Court made an order for joinder of an additional respondent.14 An application for leave to appeal from the joinder decision was declined by the High Court.15 Declining leave to appeal, the Court of Appeal stated:16

[6]    In Finewood Upholstery Ltd v Vaughan, to which Dunningham J referred to in the leave decision, Fitzgerald J appropriately observed that the requirement for leave to appeal should serve as a filtering mechanism to ensure that unmeritorious appeals of interlocutory orders, or appeals of interlocutory orders of no great significance to either the parties or more generally, do not unnecessarily delay the proceedings in which the orders were made.17 The following considerations were recognised as relevant on an application for leave to appeal:

(a)a high threshold exists;

(b)the applicant must identify an arguable error of law or fact;

14     Greendrake v District Court of New Zealand [2019] NZHC 1680.

15     Greendrake v District Court of New Zealand [2019] NZHC 2504.

16     Greendrake v District Court of New Zealand [2020] NZCA 122.

17     Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].

(c)the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;

(d)the circumstances must warrant incurring further delay; and

(e)the ultimate question is whether the interests of justice are served by granting leave.

[7]        This Court in Ngai Te Hapu Inc v Bay of Plenty Regional Council18 indicated that considerations similar to the principles applicable to applications under the former s 24G of the Judicature Act 1908, as explained in Meates v Taylor [Leave],19 apply to applications under s 56(5) stating:

We agree that leave to appeal should only be granted where the significance or implications of an arguable error of fact or law, either for the particular case or for the applicant or as a matter of precedent, warrants the further delay which the appeal process would involve.

[26]              Recently in Lobb v Ryan the Court of Appeal referred to the approach in Greendrake and said the circumstances in which leave to appeal will be given are settled.20

[27]              BAL submits there is a greater readiness to grant leave to appeal where strike out or summary judgment is sought which, it says, is reflected in the right of appeal without leave where summary judgment or strike out is granted under s 56(4) of the Senior Courts Act. I was referred to Yu v Bradley where Moore J noted that where an application for summary judgment has been dismissed, deferring an appeal until after trial would mean the benefit of time and cost savings if a proceeding is resolved before a substantive hearing would be squandered.21

[28]              BAL also relies on Burden v ESR Group (NZ) Ltd where the Court declined a plaintiff’s application for leave to amend the pleadings in one proceeding and declined the defendant’s application to strike out the claim in a second proceeding on Henderson v Henderson grounds.22 Venning J noted that a more permissive approach to granting leave to appeal may be available where the outcome of the application will

18     Ngai Te Hapu Inc v Bay of Plenty Regional Council [2018] NZCA 291.

19     Meates v Taylor (1992) 5 PRNZ 524 (CA) at 526.

20     Lobb v Ryan [2021] NZCA 2224 at [2].

21     Yu v Bradley [2018] NZHC 2312 at [15].

22     Burden v ESR Group (NZ) Ltd [2019] NZHC 2745.

determine the proceeding and considered also relevant that the plaintiffs could appeal the pleadings decision without leave.23

[29]              I do not accept that an inference can be drawn from s 56(4) that a permissive approach is to be taken to the granting of leave to appeal decisions refusing strike out or summary judgment. I do accept the fact the outcome of an appeal may be dispositive of the proceeding is a factor to be taken into account in assessing where the overall interests of justice lie. However, I also agree with Waikoro’s submission that given the high thresholds that apply to applications for strike out and summary judgment a failure at first instance should give the unsuccessful party cause to reflect as to whether the bar required to obtain leave to appeal can realistically be cleared.

[30]              I also do not consider significant weight should be given to the fact BAL is able to appeal without leave from my decision on Waikoro’s application striking out aspects of BAL’s statement of defence and counterclaim. Such an approach would be unprincipled and undermine the function of s 56(3) as a filtering mechanism.

Discussion

[31]BAL submits that leave to appeal should be granted because:

(a)the judgment contains arguable errors of law or fact which materially contributed to the dismissal of BAL’s application;

(b)the issues on the intended appeal are of general or public importance to the efficient administration of justice and to the parties; and

(c)the circumstances of the case justify the issues being determined in advance of trial.

23 At [21].

The alleged errors of law

[32]              BAL identifies six errors of law in the judgment and I shall deal with each in turn.

[33]              First, BAL argues I was wrong to conclude that the principles in Henderson v Henderson can only apply where there is absolute identity of parties. I reached no such conclusion. However, on the facts  of this  case the  mere fact  of  control by  Mr Edney of Waimauri and Waikoro could not be enough to make Waikoro’s proceeding an abuse of process24 and no question of double vexation arose when the defendants in the two proceedings were different. In regards the latter point, I relied upon the Court of Appeal’s decision in Commissioner of Inland Revenue v Bhanabhai.

25

[34]              Second, BAL argues I was wrong to conclude that the lease provided an insufficient factual connection between the Waimauri proceeding and the Waikoro proceeding. This submission is based on an incorrect premise that both the Waimauri claim and the Waikoro claim are founded (or depend) on the same underlying alleged breaches of the lease.

[35]              Third, BAL argues I was wrong not to require Mr Edney to put forward a good reason or “special circumstances” for splitting “his” case in two. I do not accept this argument is tenable. It was for BAL to establish reasons why Waikoro’s bringing of the claim was manifestly unjust.26 BAL’s submission proceeds on the erroneous basis that both Waikoro’s claim and Waimauri’s claim are Mr Edney’s claims when, as Waikoro submits, this is indisputably not so. Further, in the judgment I set out the compelling reason why the proceedings were not heard together, which was that consolidation was refused by the Court.27

24 Spencer Bower and Handley: Res Judicata (5th ed LexisNexis, London, 2019) at [26.21].

25 Commissioner of Inland Revenue v Bhanabhai [2007] 2 NZLR 478 (CA) at [61].

26 Johnson v Gore Wood & Co Ltd, above n 8, at 31; Playboy Club London Ltd v Banca Nazionale  Del Lavoro Spa [2018] EWCA Civ 2025 (CA) at [54] citing Michael Wilson & Partners v Sinclair [2017] 1 WLR 2646 (CA) at [100].

27 Waikoro Ltd v Beach Arena Ltd, above n 1, at [60].

[36]              Fourth, BAL argues I was wrong to conclude that it was seeking to carry out a collateral attack on the decision of Downs J to refuse consolidation of the two proceedings. BAL says the issue was not fairly raised by Waikoro in its notice of opposition and the collateral attack principle only applies in respect to a final judgment. BAL says Downs J’s decision was an interlocutory case management minute, not a judgment. Waikoro’s reliance on the decision of Downs J was raised in submissions filed and served well prior to the hearing. No objection was taken to it. In any event, the relevance of the decision is not that it gave rise to an estoppel but as a factor in the merits-based assessment as to whether Waikoro is misusing or abusing the process of the Court.

[37]              The fifth and sixth arguments are related and are that I failed to give any consideration to the negative impact that the Waikoro  proceeding has upon BAL,  Mr Mahon and public interests. Having found there was no question of double vexation the asserted private and public interests did not arise.

[38]              I do not consider any of the grounds that are raised are strong, nor do I consider that any of them are of considerable general importance. The law relating to Henderson v Henderson abuse of process is well established and clear.

Importance to the parties

[39]              BAL argues that the issues it wishes to raise are of considerable importance because they have the potential to either resolve or materially refine Waikoro’s claim. It argues that even if strike out of the entire claim is not granted, a stay or strike out of the “twice-claimed Converted Sums” would narrow the scope of the proceeding and enhance the prospects of settlement.

[40]              I accept that notionally a successful appeal has the potential to be dispositive of Waikoro’s claim. However, it appears to be accepted by BAL that its argument is strongest in relation to the Converted Sums. There is a substantial amount claimed to be owing to Waikoro in addition to the Converted Sums which was not in issue in the Waimauri proceeding.

[41]              Even if Waikoro succeeded in obtaining strike out or stay of the Converted Sums I do not see how that would significantly reduce the scope (except as to quantum) or duration of the hearing. Nor do I consider, given the litigation history and personal animosity between Mr Mahon and Mr Edney, that it will enhance settlement prospects. The same argument was advanced by Mr Glennie before Muir J in a costs context and rejected.28

Appeals

[42]              BAL argues its appeal from aspects of the judgment striking out its pleading, particularly its pleading raising the clean slate defence, was only ever intended to preserve its position pending the hearing of its appeal against the judgment of Muir J in the Waimauri proceeding.  It contends a decision in its favour on appeal from  Muir J’s judgment would require its pleading to be reinstated affecting the scope of this proceeding in terms of discovery, evidence and trial. Therefore, it submits, this proceeding cannot progress until the outcome of both appeals is known and there will be no incremental delay associated with granting it leave to appeal on this application.

[43]              Since BAL’s submissions were filed the final position in respect to the clean slate defence has become known. I am advised BAL and Mr Mahon have abandoned their grounds of appeal against Muir J’s judgment relating to that defence and to their claim to the uplift entitlement.29 This development will not totally dispose of BAL’s appeal but the remaining grounds of challenge are not a reason why this case cannot be progressed at the same time as the appeal.

No prejudice to Waikoro

[44]              BAL submits as this claim dates back to 2013, it was not served with it until January 2020 and Waikoro is claiming default interest, Waikoro cannot be prejudiced by further delays that might result from allowing it to appeal. I do not accept this submission. The sums claimed extend to the date BAL’s lease was terminated in September 2016. The statement of claim was filed in December 2019. Almost two

28     Waimauri Ltd v Mahon [2020] NZHC 2310 at [55].

29     Mahon v Waimauri Ltd CA 338/2020, 27 August 2021 (Minute).

years has passed and as yet the parties have not even given discovery. I consider BAL is responsible in large part (although not completely) for the delays. Its efforts to avoid filing a statement of defence is a case in point. Further, the ability that Waikoro has to claim default interest is no answer to concern over the potential for further delay as there is reason to believe BAL will be in no position to pay it.30

[45]              The importance of delay as a factor was emphasised in Lobb v Ryan.31 There, the main protagonists were a divorced couple who had been separated for five years during which period they had engaged in much litigation with each other. The application before the Court of Appeal was by the husband for leave to appeal a decision refusing to dismiss or stay a proceeding by the wife seeking a declaration as to the construction of a clause in a trust deed providing for the resettlement of trust assets. Despite accepting the issue raised by the husband in support of his application was one upon which there was little authority and of general interest, leave to appeal was refused. The Court said, “given the history of the dispute, the interests of justice make prompt resolution of the substantive proceeding the determinative factor”.32

[46]              Parallels exist between Lobb v Ryan and this case. The relationship between Mr Edney and Mr Mahon, which was once close, has bitterly broken down. The parties have chosen to resolve those differences through litigation which has been fought on several fronts. The litigation extends beyond what has been referred to in this judgment. Muir J noted the positions of Mr Mahon and Mr Edney have become “entrenched and seemingly personal”.33 A prompt resolution of this litigation is an important factor.

Interests of justice

[47]              Standing back and taking a broad view, I consider BAL’s proposed grounds of appeal are not strong and the appeal is very unlikely to be dispositive of Waikoro’s claim. The proposed appeal will not be overtaken by the substantive hearing. It raises no issues of public importance and the interest of the parties will be best served by the

30     See Waikoro Ltd v Beach Arena Ltd, above n 1, at [125].

31     Lobb v Ryan, above n 20.

32 At [18].

33     Waimauri Ltd v Mahon, above n 28, at [55].

prompt resolution of the substantive proceeding. On balance, leave to appeal should not be granted.

Result

[48]The application for leave to appeal is refused.

[49]              There shall be costs to Waikoro on a 2B basis plus reasonable disbursements as fixed by the Registrar.

O G Paulsen Associate Judge

Solicitors:

Brown Partners, Auckland for Plaintiff.

Counsel – David Chisholm QC, [email protected] Michael Lenihan, [email protected]

Scott Russell, Barrister and Solicitor for Defendants Counsel – Scott Russell, [email protected]

Glenie Legal Ltd, Auckland for First Defendant, [email protected]