Wood Bay Enterprises Limited v Wise

[2012] NZHC 1392

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-002502 [2012] NZHC 1392

IN THE MATTER OF     section 253 of the Property Law Act 2007

BETWEEN  WOOD BAY ENTERPRISES LIMITED Applicant

ANDJOHN CHRISTOPHER WISE AND PAULINE WISE

Respondents

Hearing:         15 June 2012

Appearances: N A Farrands for the Applicant

G Collecutt for the Respondents

Judgment:      19 June 2012

JUDGMENT (NO 2) OF GILBERT J

This judgment was delivered by me on 19 June 2012 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………….

Solicitors:           Morrison Kent, Auckland :  [email protected]

Simpson Dowsett Mackie, Auckland:  [email protected]

Copy:                G Collecutt, Auckland:  [email protected]

WOOD BAY ENTERPRISES LTD V WISE HC AK CIV 2012-404-002502 [19 June 2012]

Introduction

[1]      In an oral judgment given on 24 May 2012,[1]  I declined an application by

[1] Wood Bay Enterprises Ltd v Wise [2012] NZHC 1136.

Wood Bay Enterprises Limited (Wood Bay) under s 253 of the Property Law Act

2007 for relief against cancellation of its lease by the respondents, Mr and Mrs Wise. I ordered Wood Bay to pay costs in the sum of $10,152.

[2]      On 5 June 2012, Wood Bay filed a notice of appeal to the Court of Appeal against the judgment.

[3]      Wood Bay has applied for a stay of execution in respect of the costs judgment pending appeal.  This application is made on the basis that Wood Bay’s appeal rights may be rendered nugatory if a stay is not granted because Wood Bay is unable to pay the costs and Mr and Mrs Wise may seek to liquidate Wood Bay.   Mr and Mrs Wise do not oppose this application.

[4]      Wood Bay has also applied for an interim injunction, pending determination of the appeal, requiring Mr and Mrs Wise to take all steps necessary to enable Wood Bay immediately to re-enter and occupy the property in accordance with the terms of the lease.  The grounds advanced by Wood Bay in support of this application are that it is genuinely pursuing the appeal which involves novel and important questions of law and the balance of convenience favours the issue of an interim injunction.

Legal principles

[5]      The application is brought pursuant to r 12(3) of the Court of Appeal (Civil) Rules 2005 which provides:

Pending the determination of an application for leave to appeal or an appeal, the court appealed from or the Court may, on application, —

(a)       order a stay of the proceeding in which the decision was given or a stay of the execution of the decision; or

(b)      grant any interim relief.

[6]      In an appropriate case the Court has power to grant an injunction pending appeal even where, as in this case, the appeal is against the refusal of an injunction. The position was summarised by Megarry J in Erinford Properties Ltd v Cheshire County Council as follows:[2]

[2] Erinford Properties Ltd v Cheshire County Council [1974] 2 All ER 448; Kirkman v Foodstuffs

(Auckland) Ltd & Ors CP95/94, 1 June 1994.

A judge  who  feels  no  doubt  in  dismissing  a  claim  to  an  interlocutory injunction may, perfectly consistently with his decision, recognise that his decision might be reversed, and that the comparative effects of granting or refusing an injunction pending an appeal are such that it would be right to preserve the status quo pending the appeal.  I cannot see that a decision that no injunction should be granted pending the trial is inconsistent, either logically or otherwise, with holding that an injunction should be granted pending an appeal against the decision not to grant the injunction, or that by refusing an injunction pending the trial the judge becomes functus officio quoad granting any injunction at all.

[7]      In  applications  of  this  kind,  it  is  necessary  to  balance  the  right  of  the successful party to enjoy the fruits of the judgment against the need to preserve the position so that justice can be done between the parties if the appeal is successful.[3]

The following factors are generally addressed in considering this balance: [4]

[3] Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA).

[4] Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (HC).

1.        If no stay is granted will the applicants’ right of appeal be rendered

nugatory?

2.        The bona fides of the applicants as to the prosecution of the appeal.

3.        Will the successful party be injuriously affected by the stay?

4.        The effect on third parties.

5.        The novelty and importance of the question involved.

6.        The public interest in the proceedings.

7.        The overall balance of convenience.

Bona fides of Wood Bay in prosecuting the appeal

[8]      Mr Farrands, for Wood Bay, advised that Wood Bay is considering seeking leave of the Court of Appeal to introduce further evidence relating to the re-entry.  I

do not know the nature of the evidence or whether the Court of Appeal would be

prepared to consider it.   I cannot exclude the possibility that it might affect the outcome.  In any event, I consider that Wood Bay’s appeal is arguable and that the Court of Appeal may decide that my decision was wrong.

[9]      I accept that Wood Bay is entirely genuine in seeking to prosecute its appeal. Mr Collecutt, for Mr and Mrs Wise, did not contend otherwise.

If  no  injunction  is  granted,  will  Wood  Bay’s  appeal  rights  be  rendered

nugatory?

[10]     Mr Farrands argued that Wood Bay’s appeal rights “will likely” be rendered nugatory if it is not able to trade pending determination of the appeal.   This is because Wood Bay cannot pay its creditors and faces the risk of liquidation.

[11]     David Rankin, the sole director of Wood Bay, states in his affidavit that Wood Bay has trade creditors of approximately $15,000, an outstanding loan to the ANZ Bank of $72,000 and a loan from Brookmill Finance Limited of $25,954.   The Brookmill loan carries an interest rate of 7% per month.

[12]     Mr Rankin has been in contact with Wood Bay’s creditors.  They are aware of Wood Bay’s attempts to obtain relief against cancellation of the lease.  Mr Rankin states that the creditors have not been “aggressive” to date but he fears that they may issue statutory demands and apply to liquidate Wood Bay if they hear that Wood Bay has not been successful.  No creditor has yet issued a statutory demand.

[13]     Unsecured trade creditors may consider that they have limited prospects of being paid unless Wood Bay is successful in obtaining relief against cancellation of the lease.  This may explain why they have chosen not to pursue recovery action or issue any statutory demand pending the final outcome of this proceeding.

[14]     The parties have agreed to co-operate in prosecuting the appeal without delay and in seeking to have the appeal heard at the earliest possible opportunity.   The appeal may well be heard before the hearing of any winding up application, given that no statutory demand has yet been served.

[15]     I am not satisfied on the evidence that Wood Bay’s appeal rights will be rendered nugatory if no injunction is granted.  The evidence suggests that Wood Bay will not be liquidated before its appeal can be heard so long as it prosecutes its appeal expeditiously.

Effect of injunction on Mr and Mrs Wise

[16]     Wood Bay appears to be insolvent and may well have been trading while insolvent for some time.  It first defaulted in paying the rent due to Mr and Mrs Wise on 9 August 2010.  It was clearly in serious financial difficulty throughout the latter half of 2011 when it was consistently in default of its obligations under the lease. The ANZ Bank withdrew Wood Bay’s overdraft facility in November 2011 and applied all EFTPOS receipts from sales through the business in reduction of the overdraft.

[17]     Mr and Mrs Wise were placed in a difficult financial position by Wood Bay’s failure to pay rent because they were dependent on the rent to meet their own mortgage obligations.  When the rent was not paid, they had to borrow from their respective parents to meet these obligations.

[18]     Wood Bay’s ongoing default forced Mr and Mrs Wise to take steps to protect their own financial position.  Mr and Mrs Wise decided to re-enter the premises and run the business themselves.   Since re-entry, they have incurred significant costs, including time and labour, in refurbishing the premises, purchasing plant and equipment and entering into arrangements with suppliers.   Mrs Wise resigned her employment so that she could work in the business.  They have employed five other staff members who also now work in the business.  They have entered into a tenancy agreement with one of these staff members and she now lives in upstairs accommodation at the property.

[19]     If the injunction is granted, Mr and Mrs Wise would be required to hand over possession of the premises including the benefit of the recent refurbishment.  They would be forced to terminate the employment of the new staff members or carry the cost of their employment without any return from the business.  They would not be

able  to  honour  their  commitments  under  the  residential  tenancy  agreement. Mrs Wise would need to seek employment elsewhere or suffer having no income until the appeal is heard.  The arrangements they have made with suppliers would need to be suspended.

[20]     Mr and Mrs Wise would be put back in the position of being vulnerable to further defaults by Wood Bay which has substantial unpaid creditors and a track record of being unable to trade profitably and pay rent.  Although Wood Bay has filed an undertaking as to damages, I have major reservations about whether it has the financial means to pay damages.  Wood Bay’s financial position is so precarious that it has been forced to borrow from a third tier lender at an interest rate of 7% per month.

Effect on third parties

[21]     As  I  have  noted,  five  staff  members  have  been  employed  by  Mr and Mrs Wise to assist in running the business.  They will obviously be affected if the injunction is granted.  One of these staff members resigned from her employment in Perth to take up this position and has moved to New Zealand with her child.  The staff member who is now living in the premises has moved her daughter to a local school.  Mr Farrands indicated that Wood Bay would be prepared to accommodate her position by allowing her to remain living in the upstairs accommodation.  I am not sure how practical this would be given that this staff member is only living in the accommodation as part of her employment with Mr and Mrs Wise.

[22]     All of these people will be seriously inconvenienced if the injunction  is granted.  There is no evidence that any of them accepted employment knowing that Wood Bay intended to seek relief against forfeiture.

Novelty of question involved in the appeal

[23]     Mr  Farrands  submitted  that  the  appeal  involves  novel  and  important questions of public interest.  I am unable to accept this submission.  In my view, this case involves no more than the application of settled legal principles to the particular

facts.  I do not consider that this is a significant factor weighing for or against the grant of the injunction sought.

Balance of convenience

[24]     Wood Bay has not been able to trade profitably for some time.   Trading conditions for this business are seasonal and more challenging at this time of the year.  If the injunction is granted, Wood Bay may well continue to trade at a loss and continue to be unable to meet its obligations to its  creditors, including Mr and Mrs Wise.  An injunction would give Wood Bay the opportunity of trying to salvage something from what remains of its business but there can be no assurance that its financial position would improve.

[25]     I do not consider that Wood Bay will suffer irreparable harm if the injunction is declined so long as it prosecutes its appeal without any delay.  On the evidence available, it seems unlikely that it will be liquidated before the appeal is heard.  If its appeal succeeds, it will be able to resume occupation and carry on trading.   If the Court of Appeal rules that the re-entry was invalid, it may be entitled to damages which should not be difficult to assess.

[26]     On  the  other  hand,  if  an  injunction  is  granted  and  the  appeal  does  not succeed, Mr and Mrs Wise and their employees will suffer serious inconvenience and loss with no realistic prospect of being able to recover anything from Wood Bay under its undertaking as to damages.  It is quite clear that Wood Bay will not be able to pay anything under its undertaking as to damages if its appeal fails.

[27]     In my view, the balance of convenience clearly favours not granting the injunction.   I consider that the potential gain to Wood Bay by being allowed back into possession of the property is clearly outweighed by the inevitable loss and inconvenience that would be caused to Mr and Mrs Wise and innocent third parties if an injunction was granted.

Overall justice

[28]     Wood  Bay  is  the  party  in  default  and  may  well  be  insolvent.    Mr  and Mrs Wise were forced by Wood Bay’s default to take steps to protect their own financial position.   They took those steps following the expiry of a notice served under s 245 of the Property Law Act 2007 reasonably believing that Wood Bay could not pay the rent.   Although I accept that Wood Bay is genuine in its desire to prosecute its appeal and that the appeal cannot be dismissed as being without merit, I consider that  overall  justice is  best  served  by declining to  grant  the mandatory interim injunction sought.

Result

[29]     I make an order staying execution of the judgment as to costs given on

24 May 2012 pending determination of the appeal to the Court of Appeal.

[30]     The application for interim injunction is dismissed.   The respondents are entitled to costs on this application on a 2B basis.

M A Gilbert J