Zajonskoski v North Sawn Treatment (BOP) Ltd

[2013] NZHC 3505

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV 2013-470-537 [2013] NZHC 3505

BETWEEN  DEAN KARL ZAJONSKOWSKI First Plaintiff

DNA MODULAR CREATIONS LTD Second Plaintiff

ANDNORTH SAWN TREATMENT (BOP) LTD

Defendant

Hearing:                   16 December 2013

Counsel:                  W T Nabney for Plaintiffs

D M Grindle for Defendant

Judgment:                19 December 2013

JUDGMENT OF HEATH J

This judgment was delivered by me on 19 December 2013 at 3.30pm pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Jackson Reeves, Tauranga WRMK Lawyers, Whangarei Counsel:

W T Nabney, Tauranga

ZAJONSKOWSKI v NORTH SAWN TREATMENT (BOP) LTD [2013] NZHC 3505 [19 December 2013]

The application

[1]      Following cancellation of a sub-lease, DNA Modular Creations Ltd (DNA) and its director, Mr Dean Zajonskowki, seek an interim injunction.1    It is designed to require North Sawn Treatment (BOP) Ltd (North Sawn) to allow DNA’s representatives to enter premises formerly leased by DNA from North Sawn, for the purpose of removing tenant’s fixtures.  North Sawn opposes the application.

Background

[2]      On 16 August 2013, DNA and Mr Zajonskowski issued proceedings against North Sawn in which it claimed that Mr Zajonskowski was the owner of the equipment and that DNA was entitled to possession of it.  Claims were brought for conversion of the equipment, and in detinue.  The pleading was premised on both Mr Zajonskowski and DNA having a right to obtain those remedies.

[3]      North Sawn is the tenant of a property situated at 112 Aviation Avenue, Mt Maunganui.   It sub-leased those premises to DNA Modular Creations Ltd (DNA) (the Lease).  The Lease was for a term of three years and four months from 1 August

2012, with an annual rent of $118,474.50.   The amount payable each month was

$9,872.88.  In addition, DNA was required to pay 50% of the head lease outgoings. Mr  Zajonskowski  and  another  person  guaranteed  DNA’s  obligations,  under  the Lease.

[4]      On 9 April 2013, North Sawn validly cancelled the Lease for non-payment of rental and outgoings.   DNA accepts that the amount outstanding at the time of cancellation was $35,226.94.   In addition, North Sawn claims costs incurred as a result of DNA’s breach, together with contractual default interest.   The amount of those is in dispute.

[5]      At the time of the cancellation, DNA had a significant amount of machinery and equipment (the equipment) stored in the leased premises.  Most, if not all, of the equipment  could  be  classified  as  tenant’s  fixtures.     North  Sawn  wanted  the equipment removed, so that it could re-let the premises.

[6]      Immediately after cancellation, the solicitors for North Sawn wrote to DNA about that issue, referring to cl 31.1 of the Lease.2    Under cl 31.1, DNA had five working days to remove the equipment.  DNA was given until 3pm on 16 April 2013 to  remove  the  equipment.3      That  time  was  later  extended  (by  agreement)  until

4.30pm on 24 April 2013.4    DNA contends that it was unable to remove all of its

equipment within the stipulated time.  Mr Nabney, on its behalf, submits that it was prevented by a trespass notice from entering the leased premises after 4.30pm on 24

April 2013.5

[7]      On 9 April 2013, following termination of the Lease earlier that day, the solicitors for North Sawn wrote to DNA:

DNA Modular Creations Limited

By Email Only: [email protected]

NORTH  SAWN  TREATMENT  (BOP)  LIMITED:  112  AVIATION DRIVE, MOUNT MAUNGANUI

OUR FILE REF: 310761-5

We act for North Sawn Treatment (BOP) Limited.

We note that your lease of the above premises has been terminated.

In accordance with clause 31.1 of the lease you now have until 3pm on Tuesday 16 April 2013 to remove all of your chattels and goods from the premises.  If these are not removed by that time our client will exercise their right to take possession of these items and will look to either sell or dispose of them.

Access will be given to the premises for the purposes of removal between

8am–3pm daily.   This will need to be arranged in advance with Marie at

North Sawn BOP.

If these items are not removed in accordance with the above then you will be liable for all costs incurred by our client in removing these items.

[8]      On 17 April 2013, the solicitors for North Sawn wrote again to DNA, saying:

DNA Modular Creations Limited

By Email Only: [email protected]

2      Clause 31 is set out at para [16] below.

3      See para [7] below.

4      See paras [8] and [9] below.

NORTH SAWN TREATMENT (BOP) LIMITED: 112 AVIATION DRIVE, MOUNT MAUNGANUI

OUR FILE REF: 310761-5

We refer to our letter of 9 April 2013.

We note that you have not removed your possessions from the premises as required under the terms of the Deed of Lease.  As the notice period which we are required to give you under the terms of the Deed of Lease and the Deed of Acknowledgement of Ownership and Consent to Entry has now expired we confirm that the landlord will now proceed to exercise its rights under the Deed of Lease to dispose of the items that have been left on the premises, on Tuesday 23 April 2013.

[9]      Two relevant emails were also exchanged on 17 April 2013.   It is unclear whether they were sent before or after the letter from North Sawn’s solicitors of the same date.6  At 1.27pm, “Theresa”, on behalf of DNA, wrote to Mr Syminton, North Sawn’s Executive Director.  She advised that “our equipment has been dissembled and palletised and once the weather clears will be moved”.   She added that any “moisture will damage the electronics”.  Mr Syminton replied at 1.57pm indicating

that North Sawn’s advice was that it could hold the machinery and sell it to recover costs.   However, an extension of five working days was granted “to complete the removal of DNA’s machinery and equipment”, meaning that the final day and time that DNA would have access to the leased premises was 4.30pm on Wednesday 24

April 2013. The following day was a public holiday – Anzac Day.

[10]     Mr Zajonskowski deposes that, at about 4.30pm on 24 April 2013, one of North Sawn’s employees approached him and served him with a trespass notice.  It was addressed to DNA, Mr Zajonskowski and the co-guarantor.  It stated:

Take notice that any right you had to either enter or to occupy the premises at 112 Aviation Drive, Tauranga has terminated.  As at 4.30pm on 24 April

2013 anything belonging to you on the premises should have been removed

by then and you are hereby warned that if you re-enter the premises after the date and time given above, you will be committing a criminal offence and liable on conviction to a fine or imprisonment.

This warning is being given by the occupier to the above address. A copy of this notice is being sent to the Tauranga Police Station.

(emphasis in original)

6      See para [8] above.

Mr Zajonskowski says that, having been served with the trespass notice, he was told to leave the site immediately; and, if he did not do so, the Police would be called and he  would  be  arrested  for  trespass.    Mr  Zajonskowski  left  the  premises.    The remaining equipment was left in the possession of North Sawn.

[11]     Mr Zajonskowski’s evidence is that the equipment is “large and bulky” and “required substantial time to disconnect and dismantle ... and prepare it for removal”. He added that this process also involved disconnecting electrical equipment, dismantling it and then putting it onto pallets, so that it could then be removed from the site.

[12]     Notwithstanding   Mr   Zajonskowski’s   present   claim   that   he   owns   the equipment,7 up to the time when Mr Zajonskowski was served with a trespass notice no dispute about the ownership of the equipment appears to have been raised.  North Sawn proceeded on the basis that it belonged to DNA.  The correspondence to which I have referred supports that proposition.8    Mr Zajonskowski’s evidence is that he owns the equipment and that he did not enter into any arrangement with DNA (or North Sawn) to transfer ownership to it.

[13]     There appear to be 59 pieces of equipment that have not yet been removed. They have been valued by an auctioneer, Mr Beer.  He has operated as an auctioneer of commercial and industrial equipment for more than 20 years.  He has valued them at $145,250, if sold at market value, or $51,580, if sold at a forced auction.  Mr Beer defines “market value” as “the best price that would be achieved after a concerted sale and marketing campaign”.   A schedule of equipment provided by Mr Zajonskowski shows the 59 items listed carrying a value well in excess of the amount that Mr Beer has indicated.

The issues

[14]     Mr Nabney accepted that the facts did not support a seriously arguable case of conversion but maintained that both plaintiffs had a solid claim in detinue.

7      See para [2] above.

8      See paras [7]–[9] above.

[15]     DNA and Mr Zajonskowski contend that North Sawn is unlawfully detaining its equipment, thereby committing the tort of detinue.  That tort arises if a person, with the intention of keeping property in defiance of the rights of another who is entitled to possession of it, deliberately retains the property for its own use.  More than mere retention must be proved; some manifestation of an intention to retain in

defiance of legal rights must also be present.9   An example of its invocation, in a not

too dissimilar situation, is Leeward Holdings Ltd v Douglas,10  a case in which a claim was successfully made to defeat a workman’s possessory lien.

[16]     North  Sawn  relies  on  cl 31.1  of  the  Lease  to  claim  ownership  of  the equipment that DNA failed to remove.  Clause 31 provides:

REMOVAL OF TENANT’S FIXTURES, FITTINGS AND CHATTELS

31.1.The Tenant  may at  any time  before  and  will  if  required  by the landlord at the end or earlier termination of the term remove all the Tenant’s fixtures sittings and chattels and make good at the Tenant’s own expense all resulting damage and if not removed within 5 working days after the date of termination ownership of the fixtures fittings and chattels may at the Landlord’s election pass to the Landlord or the Landlord may in a proper and workmanlike manner remove the same from the premises and forward them to a refuse collection centre.

31.2The cost of making good resulting damage and the cost of removal shall be recoverable from the Tenant and the landlord shall not be liable to pay any compensation nor be liable for any loss suffered by the Tenant.

[17]     Mr  Zajonskowski  and  DNA  also  seek  to  resist  North  Sawn’s  claim  of ownership by saying that the retention of the equipment amounts to an unlawful destraint.  The right to destrain for rent or other amounts payable under a lease was abolished, when the Property Law Act 2007 (the Act) came into force on 1 January

2008.11

The nature of the injunction sought

[18]     The terms of the injunction sought by Mr Zajonskowski and DNA are:

9      Generally, see Todd et al, The Law of Torts in New Zealand (5th ed, 2009) at para 12.4.01, at 579.

10     Leeward Holdings Ltd v Douglas [1982] 2 NZLR 532 (HC).

11     Property Law Act 2007, s 265(1).

(a)      North  Sawn  shall  allow  access  to  the  premises  at  112  Aviation Avenue, Mt Maunganui, to enable Mr Zajonskowski and DNA to remove the equipment listed in the schedule to the application, and

(b)Such access is for a period of seven days, to enable removal to be completed.

[19]     An interlocutory injunction in those terms will have the effect of removing the   equipment   from   North   Sawn’s   care   and   provide   no   incentive   for   Mr Zajonskowski or DNA to litigate the question whether North Sawn has committed the tort of detinue.  The onus would be put onto North Sawn to progress the proceeding in order to recover the equipment for its own use, or to sue for damages based on breach of the Lease.  While an order of the type sought would not require North Sawn to hand over the equipment to DNA (or Mr Zajonskowski), that is its effect.  The passive act of allowing access will result in the physical transfer of the equipment from North Sawn to DNA.

[20]     In this type of case, the purpose of an interim injunction is to maintain the status quo pending resolution of a substantive proceeding between the parties in dispute.  In general terms, it is necessary to determine whether the interests of justice require  some  form  of  injunctive  relief  to  be  granted.    Usually,  the  Court  can determine what is required in the overall interests of justice12 by considering whether there is a seriously arguable case that a plaintiff wishes to pursue, and marshalling relevant considerations to identify where the balance of convenience lies.

[21]     In this case, it is important to focus on the relevant status quo.  This was a topic  on  which  Baragwanath  J  touched,  in  Oggi Advertising  Ltd  v  McKenzie.13

Referring to a text on equitable remedies, he said:14

An apparent objection in cases of this nature has been that an interlocutory injunction is calculated to preserve the status quo and that the granting of a mandatory injunction is necessarily inconsistent with this purpose. This objection is not, however, sound. The general purpose of an interlocutory injunction is to preserve the interests of both parties, in as just a manner as

12     See Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).

13     Oggi Advertising Ltd v McKenzie [1999] 1 NZLR 631 (HC) at 637.

14     Spry, The Principles of Equitable Remedies (5th ed) pp 556 – 557

the particular circumstances admit, until the time of the final determination of their rights. Doubtless in many cases this is achieved by preservation of the status quo as at the time of the making of the interlocutory application in question. In other circumstances, however, it is more just that the position to be maintained be the position existing before the acts that are alleged to be unlawful took place, and a mandatory injunction directed to that purpose accordingly issues.

...

(emphasis added)

Analysis

[22]     I deal first with Mr Nabney’s argument based on illegal destraint.   North Sawn does not seek to uphold its right to retain the equipment on an ability to destrain.  Mr Grindle, for North Sawn, accepts that that right has been abolished.  I agree with Mr Grindle that what has happened in this case cannot be characterised as destraint.   Rather, the question whether a seriously arguable case on the tort of detinue exists is dependent upon the strength of North Sawn’s argument that it is entitled  to  retain  the  equipment  under  cl 31.1  of  the  Lease.    That  is  the  real battleground in this case.

[23]     North Sawn has evidenced an intention to retain ownership of the equipment. That is a relevant factor because, in fact, there are two options available under cl 31.1.15   The first involves a landlord opting to take ownership of the equipment in issue.  The second involves a decision to remove a tenant’s fixtures, for the purposes of disposing of them as waste.16    The latter point is made by the closing words of cl 31.1 which provides that North Sawn may “forward [the equipment] to a refuse collection centre”.

[24]     Clause 31.217  is also relevant; in the sense that whichever option is chosen costs thrown onto the landlord are recoverable.  The landlord may claim from the tenant any cost involved in making good damage caused by the tenant’s attempts at

removal, or its costs of removing the equipment.  Further, whatever election is made,

15     Set out at para [16] above.

16     See cl 31.1, set out at para [15] above.

17     Set out at para [15] above.

the landlord is not liable to pay any compensation.  Nor is it liable for any loss that might be suffered by the tenant.

[25]     Mr Nabney referred me to s 266 of the Act which provides a “reasonable period after the lessee ceases to be in lawful possession of the premises” for tenant’s fixtures  to  be  removed.18      However,  that  provision  does  not  assist  Mr Nabney because s 266(2) permits parties to contract out of that requirement.   And, that is precisely what the parties did in cl 31 of the Lease.

[26]     As the evidence has unfolded, it seems to me that, at trial, there may be another issue that was not argued before me.   If the equipment has a real market worth of about $145,000,19 its value could be regarded as wholly disproportionate to the value of the rent and outgoings owed by DNA to North Sawn.  That raises the question  whether the clause might  be viewed  as  a penalty,  in  the sense that  it effectively amounts to a forfeiture of a disproportionate value of property.   The

principle on which the jurisdiction rests to strike down a penalty clause is not lightly exercised because it interferes with freedom of contract.   Its true purpose is is to provide relief against oppression.20   Although, this issue may need to be debated at a substantive hearing, I give no weight to it at this stage.  It was not a point raised by Mr Nabney.

[27]     What is the status quo?  Viewing the case in the manner suggested in Oggi,21

I consider that the starting point is North Sawn’s prima facie contractual right to retain the equipment under cl 31.1.   The interim injunction application must be considered in that context.

[28]     I assume (without deciding) that there is a seriously arguable case of detinue based on the possibility that the (effective) forfeiture provision in cl 31.1 could be

viewed as a penalty.   However, I am satisfied that the following combination of

18     Property Law Act 2007, s 266(1)(b).

19     See para [13] above.

20     For example, see Amaltal Corporation Ltd v Maruha (NZ) Corporation Ltd [2004] 2 NZLR 614 (CA) at para [58], citing Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 (HL) at 86 (Lord Dunedin) and Elsley v J G Collins Insurance Agencies Ltd (1978) 83 DLR (3rd) 1 (SCC) at 15 (Dickson J).

21     Oggi Advertising Ltd v McKenzie [1999] 1 NZLR 631 (HC) at 637; particularly the passage quoted from Spry, The Principles of Equitable Remedies (5th ed) 556–557. See para [21] above.

factors clearly require dismissal of the application for interim relief, in the interests of justice:

(a)      If I were to allow removal of the equipment, North Sawn’s claimed rights under cl 31.1 might be rendered nugatory.   There would be nothing to stop Mr Zajonskowski or DNA from selling the equipment or putting it into the possession or control of some third party.

(b)North Sawn has undertaken not to dispose of the equipment pending resolution of the substantive proceeding.   That protects any interest that Mr Zajonskowski or DNA may subsequently establish following a trial.

(c)      I  am  troubled  by  Mr  Zajonskowski’s  apparent  movement  on  the question of ownership of the retained equipment.  While the pre-suit correspondence  was  premised  on  the  equipment  being  owned  by DNA, Mr Zajonskowski appears to suggest that cl 31.1 cannot apply because ownership of the property rests with him.  That was not the basis on which the parties were acting prior to 4.30pm on 24 April

2013.22

(d)DNA’s and Mr Zajonskowski’s claims of inability to remove the equipment within the time allowed ring hollow, in light of the indication  given  on  17 April  2013  that  “the  equipment  has  been disassembled and palletised”.23   On receipt of that information, North Sawn provided further time, until 4.30pm on 24 April 2013, for the equipment to be removed.  If the representation about the equipment having been disassembled and palletised were true, it is difficult to understand  how  it  was  not  possible  to  remove  any  remaining

equipment during the additional time offered.

22     See paras [7]–[9] above.

23     See para [9] above.

Result

[29]     The application for an interim injunction is dismissed.  North Sawn is entitled to costs on a 2B basis, together with reasonable disbursements, both to be fixed by the Registrar.  Those costs are awarded against DNA and Mr Zajonskowski jointly and severally.

[30]     The proceeding is adjourned for a case management conference before an Associate Judge at a time and on a date to be fixed by the Registrar.  At that time, directions shall be made to enable the substantive proceeding to be brought to trial as

soon as practicable.

P R Heath J

Delivered at 3.30pm on 19 December 2013