BAY CITIES REAL ESTATE V RE/MAX NZ HC NAP CIV 2010-441-134

BAY CITIES REAL ESTATE V RE/MAX NZ HC NAP CIV 2010-441-134 8 June 2011IN THE HIGH COURT OF NEW ZEALANDNAPIER REGISTRYCIV 2010-441-134BETWEEN BAY CITIES REAL ESTATE LIMITEDPlaintiffAND RE/MAX NEW ZEALAND LIMITEDDefendantAND ELANOR MACDONALD AND DAVIDSANDERSON GAUNTSecond Counterclaim DefendantsHearing: 7 February 2011Appearances: J Bates for Defendant in support of application for reviewP S J Withnall for Plaintiff and Second Counterclaim Defendants toopposeJudgment: 8 June 2011 at 10:30 AMJUDGMENT OF WHITE JThis judgment was delivered by me on 8 June 2011 at 10.30 ampursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate: .Solicitors: Michael Chung Law Office, PO Box 85, WellingtonQuigg Partners, PO Box 3035, WellingtonGresson Grayson, PO Box 1045, Hastings[1] In this proceeding Bay Cities Real Estate Limited (Bay Cities) has claimed damages of $4,021,414 against Re/Max New Zealand Limited (Re/Max) for misrepresentation in inducing it to enter into two Re/Max real estate franchise agreements in Hawkes Bay. Re/Max not only defended the claim but also counterclaimed and sought summary judgment against Bay Cities and its director Ms MacDonald and her husband Mr Gaunt as guarantors for unpaid franchise fees of $159,278.11 under the franchise agreements. As Bay Cities, Ms MacDonald and Mr Gaunt conceded liability for $154,991.86, summary judgment has been entered against them for that amount.[2] Enforcement of the summary judgment obtained by Re/Max was, however, stayed until further order of the Court by Associate Judge D I Gendall on 7 December 2010 on the grounds that it would amount to ―a substantial miscarriage of justice if Bay Cities was not given the opportunity to ―air its grievances in court: Bay Cities Real Estate Ltd v Re/Max New Zealand Ltd.1 Re/Max has applied for a review of the stay on the grounds that the Associate Judge erred in granting it.[3] The Associate Judge also made an order for security for costs against Bay Cities in the sum of $15,000. No review of that decision has been sought.Background[4] The background to the claim by Bay Cities is conveniently summarised in the decision of the Associate Judge:[5] On 4 August 2004, the plaintiff entered into two franchise agreements with the defendant, allowing the plaintiff to use the RE/MAX real estate system and operate under the RE/MAX banner in Napier and in Hastings for a term of five years. Another similar agreement was entered intofor the area of Taradale in November 2007. The plaintiff's obligations underthese franchise agreements were guaranteed by Ms MacDonald and Mr Gaunt.[6] In its substantive proceeding, the plaintiff claims that the defendant made certain misrepresentations as to the business to the plaintiff at a RE/MAX presentation held in Napier in May 2004, and that it was induced to enter into the Napier and the Hastings franchise agreements in reliance on1 Bay Cities Real Estate Ltd v Re/Max New Zealand Ltd HC Napier CIV-2010-441-134, 7 December 2010 at [31].these misrepresentations. The alleged misrepresentations generally concern the number of real estate offices and sales people in Napier and Hastings at the time; the average gross commission of a RE/MAX sales person in Napier and Hastings; what would be/are the fixed costs of operating a sales office; expected earnings of the owner of a RE/MAX franchise; training that would be provided by the defendant to the plaintiff; and the defendant's level ofexperience and knowledge in the real estate industry.[7] The defendant denies these allegations. It claims that the plaintiff relied on its own legal, accounting, business and/or financial advice and on its own independent investigation of the RE/MAX system, and further on the knowledge and experience of Ms MacDonald, when entering into the franchise agreements. It claims that, under the terms of the franchise agreements, the plaintiff expressly acknowledged and accepted that it had not received any warranty or guarantee, express or implied, as to potential volumes of profit, turnover or success of the franchise business; and that it went further and the plaintiff confirmed that no representations or promises had been made to induce it to enter into the agreements.[5] As is apparent from this summary based on the pleadings and the affidavit evidence, the underlying dispute relates to a claim that Bay Cities was induced to enter into the franchise agreements by misrepresentations as to the levels of expected profit over a five year period. If the claim, which is effectively brought under s 6 of the Contractual Remedies Act 1979, is successful, Bay Cities would be entitled to treat the representations as to profit as enforceable terms of the franchise agreements and to claim damages for their breach calculated on the basis of the difference between the actual profits (if any) and the amounts promised: John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand.2 Bay Cities has claimed damages totally $4,021,414, being the net profits as represented, together with the actual trading losses for the five year period.[6] Bay Cities' claim does not, however, alter or discharge the other obligationsof the parties under the franchise agreements, including the obligations of Bay Cities to pay franchise fees and the obligations of Ms MacDonald and Mr Gaunt as guarantors.[7] For present purposes it is also relevant to set out the following provisions from the franchise agreements:2 John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (3rd ed, LexisNexis, Wellington, 2007) at [11.2.6].5. PAYMENT OBLIGATIONS.....5.14 Payments without deduction. The Franchisee must pay all amounts due under this Agreement without deduction, set-off or abatement......24. INDEPENDENT INVESTIGATIONThe Franchisee acknowledges that it has conducted an independent investigation of the RE/MAX System and this Agreement and has sought independent legal, accounting and other financial advice and recognises that the business venture contemplated by this Agreement involves business risks and that its success will largely be dependent upon the ability of the Franchisee as an independent business person. RE/MAX expressly disclaims the making of, and the Franchisee acknowledges that it has not received any warranty or guarantee express or implied as to potential volumes of profit, turnover or success of the Business......28. GUARANTEE AND INDEMNITY28.1 Guarantee. Each Guarantor unconditionally guarantees to RE/MAX:(a) the punctual payment of the Administration Fee, the Franchise Service Fee, the Marketing and Training Levy, the Regional Area Development Levy and other moneys to be paid by the Franchisee under this Agreement; and(b) the punctual performance and observance by the Franchisee of all the Obligations of the Franchisee under this Agreement.28.2 Indemnity. Each Guarantor indemnifies RE/MAX against Claims incurred or arising against RE/MAX as a result of:(a) the Franchisee's breach of its Obligations under this Agreement;(b) the Franchisee's conduct of the Business;(c) the Franchisee's use of the RE/MAX System or the exercise of other Rights of the Franchisee under this Agreement;(d) the Franchisee's Obligations being or becoming unenforceable;(e) money payable to RE/MAX under the Agreement being or becoming irrecoverable; and(f) the guarantee given by a Guarantor for any reason being or becoming void, voidable or unenforceable either in whole or in part.28.3 Payment on demand. Each Guarantor shall pay:(a) on demand all money due and payable to RE/MAX under this Guarantee; and(b) if an amount remains unpaid for more than fourteen days, interest at the Interest Rate from the due date for payment until the actual payment date.28.4 Liability of Guarantor. The Obligations of each Guarantor under this Guarantee:(a) are principal Obligations and not ancillary or collateral to any other Obligation;(b) may be enforced by RE/MAX against any Guarantor even if RE/MAX does not enforce:(i) other security it holds in respect of the Franchisee'sObligations; or(ii) a Right against any other Guarantor;(c) are continuing Obligations and remain in full force and effect after the termination of this Franchise but limited to actions during the term of the Franchise Agreement; and(d) are separate and independent Obligations.28.5 No release. The Guarantor's Obligations under this Guarantee are not released by:(a) (termination of Franchise) the termination of this Agreement;(b) (waiver) the grant to any party of any time, waiver, covenant not to sue, concession or other indulgence;(c) (temporary operation) the temporary operation of the Business by RE/MAX as permitted under this Agreement providing that RE/MAX run the operation in a proper manner;(d) (incapacity) the death, mental incapacity, bankruptcy, assignment for the benefit of creditors, arrangement with creditors, winding up, reconstruction, official management, receivership, administration, liquidation, striking off or other event in respect of the Franchisee or a Guarantor;(e) (other matters) any other thing which under the law relating to sureties would or might but for this provision release a Guarantor in whole or in part from its Obligations under this Guarantee and Indemnity.28.6 Options exercised. If a further Franchise is granted by RE/MAX to the Franchisee (but excluding any successors of the Franchisee or to its permitted assigns of transferees), then this Guarantee is deemed to extend to the further Franchise.28.7 No invalidity. If any part or provision of this Guarantee and Indemnity is invalid or unenforceable, that invalidity shall not affect the validity or the enforceability of any other part or provision of this Guarantee and Indemnity.28.8 RE/MAX may assign. If RE/MAX transfers RE/MAX's Rights and Obligations as Franchisor under this Agreement, RE/MAX's Rightsunder this Guarantee (whether or not there is any express assignment of those Rights) are deemed to be assigned to theassignee or transferee of RE/MAX's Rights and Obligations......33. NO REPRESENTATIONS BY RE/MAX33.1 Franchisee's acknowledgment. Franchisee expressly acknowledges and accepts that:(a) the success of Franchisee in owning and operating a RE/MAX business is speculative and will depend on many factors including, to a large extent, the independent business ability and personal efforts of the Franchisee or Nominated Operator who is responsible for, and intends to devote full time and attention to, the management and development of the Business;(b) neither RE/MAX nor RE/MAX International has guaranteed any results to the Franchisee and cannot, except under and to the extent of the terms of this Agreement, exercise control over the Business;(c) Franchisee did not receive oral or written information contrary to the information contained in the franchise agreement;(d) RE/MAX has encouraged the Franchisee to seek legal and/or other professional guidance and advice before signing this Agreement and has encouraged Franchisee to contact existing RE/MAX Affiliates to gain a better understanding of the requirements and benefits of owning a RE/MAX franchise;(e) the Franchisee had full opportunity to review the disclosure statement and franchise agreement provided by RE/MAX and understands the terms, conditions and Obligations contained in this Agreement;(f) no representations or promises have been made by RE/MAX or RE/MAX International to induce Franchisee to enter into this Agreement except as specifically included in this Agreement;(g) RE/MAX has supplied to Franchisee all information concerning RE/MAX, RE/MAX International and the development and operation of the Office in order to make an informed decision to enter into this Agreement.[8] Notwithstanding these provisions in the franchise agreements, Bay Cities is pursuing its claim for misrepresentation against Re/Max on the basis of the evidenceof Ms MacDonald whose affidavit in opposition to the application for summary judgment and security for costs included the following statements:.....33. The issues in Bay Cities' claim are also interlinked with the Defendant's Counterclaims. For instance I believe and confirm BayCities believes that the business model the Defendant promoted and Bay Cities relied on in entering into the Napier and Hastings Franchise Agreements was flawed for the market it was applied to by the Defendant. This did not become apparent to me until the recent recession began to bite......36. More latterly it began to dawn on me that the business was not failing for the reasons I had thought, but because the model presented at the outset was flawed. As the property market boom faded and the recession began to bite I also had more time to devote to actually getting to the heart of the cause of Bay Cities difficulties. Bay Cities duly carried out analysis with the assistance of professional advisors and brought its claim against the Defendant earlier this year.[9] Ms MacDonald also addressed the financial position of Bay Cities in her affidavit as follows:39. As will be apparent from my evidence above Bay Cities is no longer trading. I confirm it does not presently have assets to pay an award of costs of a considerable amount should its claim against the Defendant be unsuccessful. I am unsure of the amount the Defendant says this might be.40. Bay Cities may be able to have recourse to resources from others but has no firm commitment in that regard. Of course Bay Cities does consider it has a significant asset in the form of its claim against the Defendant in this proceeding.41. However for the reasons I have already touched on I believe and BayCities believes that Bay Cities' financial position has been caused bythe Defendant's actions in the first place. Because of themisrepresentations made, the Plaintiff entered into the Napier and Hastings Franchise Agreements not knowing they were based on a flawed business model. I shifted my family from a good job as a sales agent in Lower Hutt, without managerial experience contrary to the suggestion otherwise of the Defendant, and proceeded to do all I could to make the business model successful over the ensuringfive years. I exceeded the Defendant's targets for recruitment but Bay Cities still incurred trading losses. As I have said the flawed business model Bay Cities had been sold on, only began to become apparent once the property market boom faded.42. Bay Cities has over this period, despite these efforts, had to shoulder considerable trading losses as well as foregoing the profits which, according to the model, it should have earned. Sustaining those losses has had to be borne by recourse to resources from close family.43. Accordingly I believe and confirm Bay Cities believes that it would be highly unjust in these circumstances for Bay Cities to have to pay security for the cost of the person who has caused Bay Cities financial difficulties, the Defendant. I am concerned this willimperil Bay Cities' ability to continue its claim against the Defendant and the Defendant is using this as a device to prevent Bay Cities having its day in court. I am aware that there are other franchisees who have had a very similar experience to my own but who have not had the resources to properly air this before a court. I believe they also have an interest in Bay Cities having its day in Court and the Defendant conversely has an interest in ensuring Bay Cities does not.[10] During the hearing of the application for review, however, it was accepted for Bay Cities, Ms MacDonald and Mr Gaunt that there was no evidence before the Court that Ms MacDonald and Mr Gaunt, the two guarantors, would be unable to meet the summary judgment obtained by Re/Max against them and that the onus had been on them to adduce such evidence.Associate Judge's decision[11] In deciding to grant the stay of the summary judgment obtained by Re/Max, the Associate Judge referred to: the submissions for the parties; the principles applicable to an application for a stay of execution of a summary judgment; the provisions of rule 17.29 of the High Court Rules and the relevant authorities relating to the rule; and the factors to be taken into account in determining whether a miscarriage of justice would occur if the stay were not granted. In assessing the relevant factors, the Associate Judge considered: the submissions for the partiesrelating to Bay Cities' claim against Re/Max; the impact of a stay on the ability of Bay Cities to pursue its claim; the effect of clause 5.14 of the franchise agreements on the stay application; the strength and weaknesses of the claim by Bay Cities and the defences raised by Re/Max based on clauses 24 and 33 of the franchise agreements; and the potential application of s 4 of the Contractual Remedies Act 1979.[12] The Associate Judge then recorded his reasons for granting the stay:[30] In my view, the merits of the plaintiff's claim cannot be adeterminative factor here. A s 4 analysis [under the Contractual Remedies Act 1979] would require the Court to have regard ―to all the circumstances of the case, focusing in particular on an assessment of the relative positions of the parties. The plaintiff seems to contend that there was an imbalance inthe parties' respective bargaining strengths. While I consider that the disclaimers, and the entire agreement and non-reliance clauses, presenthurdles to the plaintiff's case, it is impossible at this stage in the proceeding to assess the real strength of the plaintiff's claim. It is sufficient to note atthis point that I do not consider the plaintiff's claim to be so weak so as to bea factor weighing against the granting of a stay.[31] Having regard to the parties' submissions and all the circumstancesprevailing here, I conclude that it is likely that there will be a substantial miscarriage of justice if a stay of enforcement is not granted. The two factors that appear to me to be of most significance are that there is no suggestion that the defendant will be injuriously affected by the stay, beyond the obvious detriment of being deprived of the fruits of its judgment; and thatthere is a real risk that the plaintiff's claim would be rendered nugatory if enforcement of the judgment was allowed to go ahead. The defendant'scounterclaims for franchise fees and the plaintiff's claim formisrepresentation are clearly interrelated, in that they form part of the same contractual relationship, and in my view, it would amount to a substantial miscarriage of justice in these circumstances if the plaintiff was not provided with an opportunity to air its grievances in court.[32] Accordingly, I have reached the conclusion that the appropriate course of action here is to grant summary judgment in favour of the defendant for the amounts conceded by the plaintiff, Ms MacDonald and Mr Gaunt accompanied by a stay of execution of this judgment pendingresolution of the plaintiff's claim for misrepresentation.The application for review[13] The application by Re/Max for review of the Associate Judge's decisiongranting the stay proceeds on the grounds that the Associate Judge erred inconcluding at [31] of his decision that it was ―likely that there would be asubstantial miscarriage of justice if a stay was not granted because:(a) There was insufficient evidence to conclude that there was a ―real risk that Bay Cities' claim would be rendered nugatory ifenforcement of the summary judgment was allowed to go ahead.(b) A ―real risk that Bay Cities' claim would be rendered nugatory wasin any event insufficient to grant a stay.(c) Ms MacDonald and Mr Gaunt in any event have no claim against Re/Max which could be rendered nugatory.(d) There was no evidential basis to conclude that enforcement of the summary judgment against Ms MacDonald and Mr Gaunt was likely to result in a substantial miscarriage of justice.[14] In support of the application, Mr Bates submitted for Re/Max that the Associate Judge had erred in not recognising that:(a) It was not a miscarriage of justice to require payment of money due to another as a judgment debt: Marac Finance v Twilight Trustee Ltd andHeaven Farms Ltd v Aylett.3(b) The onus was on Bay Cities to establish that a substantial miscarriage of justice was likely to result, that is the miscarriage was probable rather than possible: Econotek Construction Ltd v Kale and Enright v Gold Metal Exports Ltd.4(c) In the absence of cogent evidence as to the true financial position of Bay Cities, Ms MacDonald and Mr Gaunt, the threshold test was not met: Crockett v Jonny on the Spot Drycleaners Ltd;5 cf: Air New Zealand Ltd v Air Niugini Ltd and Raffills Education Corporation Ltd v Mills.6(d) It is not axiomatic that a liquidation renders a claim nugatory: Redhill Development (NZ) Ltd v Green and Churchill Group Holdings v Aral Property Holdings7 and s 253 of the Companies Act 1993. There was3 Marac Finance v Twilight Trustee Ltd HC Auckland CIV-2008-404-7291, 25 February 2009 at [9];and Heaven Farms Ltd v Aylett HC Auckland CP480/87, 10 March 1998.4 Econotek Construction Ltd v Kale HC Gisborne CP8/87, 7 January 1998; and Enright v Gold MetalExports Ltd (1989) 3 PRNZ 243 (HC).5 Crockett v Jonny on the Spot Drycleaners Ltd (1997) 11 PRNZ 369 (HC).6 Air New Zealand Ltd v Air Niugini Ltd HC Auckland CIV-2009-404-3460, 14 October 2009 at [58]and [62]; and Raffills Education Corporation Ltd v Mills HC Auckland CIV-2008-404-5258,16 February 2009 at [36]-[37].7 Redhill Development (NZ) Ltd v Green HC Auckland CIV-2009-404-5417, 22 October 2009 at [15];and Churchill Group Holdings v Aral Property Holdings HC Auckland CIV-2001-404-2302,25 January 2010 at [23].no evidence that further litigation funding advances would not be made to Bay Cities in liquidation to enable it to continue its claim.(e) The no set-off provisions of clause 5.14 in the franchise agreements prevented Bay Cities from relying on its claim against Re/Max to avoid meeting the summary judgment by obtaining a stay: Brown'sReal Estate Ltd v Grand Lakes Properties Ltd.8(f) There was in any event no basis for ordering a stay of the summary judgment against Ms MacDonald and Mr Gaunt: Crockett v Jonny on the Spot Drycleaners Ltd.(g) The weakness of Bay Cities' case in the face of the entire agreementand non-reliance clauses in the franchise agreements and the decision in David v TFAC Ltd9 meant that the stay should not be granted.(h) The prejudice to Re/Max in being prevented from pursuing liquidation of Bay Cities at this stage also meant that the stay should not be granted.The submissions for Bay Cities[15] In opposing the application for review of behalf of Bay Cities, Mr Withnall submitted that:(a) As the application for review of the Associate Judge's decisionproceeds as a re-hearing under rule 2.3(4) of the High Court Rules, rather than a re-hearing de novo, the Associate Judge's decision ispresumed correct until the contrary is demonstrated.(b) As the grant of a stay of enforcement under rules 12.12 and 17.29 is the exercise of a broad discretionary power, positive grounds for intervening must be established. An appellate court does not8 Brown's Real Estate Ltd v Grand Lakes Properties Ltd [2010] NZCA 425 at [16].9 David v TFAC Ltd [2009] NZCA 44, [2009] 3 NZLR 329.substitute its own discretion for that of the Associate Judge: Wilson v Neva Holdings Ltd.10(c) It is incumbent on an applicant for review to show that the Associate Judge acted on a wrong principle, failed to take into account some relevant matter or took into account some irrelevant matter or was plainly wrong.(d) In terms of the very broad discretions conferred by rules 12.12 and 17.29 of the High Court Rules, the Associate Judge correctly directed himself to the key question namely whether a substantial miscarriage of justice would be likely to result if the judgment were enforced, and on the material before him was well able to conclude that a substantial miscarriage of justice would be likely to result if Re/Max did enforce the summary judgment.(e) As shown by the affidavit of Ms MacDonald, resources to pay an award of costs, let alone a judgment, were not available. Bay Cities had suffered successive and mounting trading losses in each of the years it operated and had been propped up by family resources provided by Ms MacDonald. It was self-evident Bay Cities would not be able to satisfy the summary judgment if it were enforced.(f) Re/Max's clear intention to put Bay Cities into liquidation establishedthat a substantial miscarriage of justice would be likely to arise:Roberts' Family Investments Ltd v Total Fitness Centre (Wellington) Ltd.11(g) Bay Cities suggests that Re/Max's situation is also precarious, beingsupported in business by its international parent companies. Bay Cities is concerned that if the judgment debt is paid then Re/Max10 Wilson v Neva Holdings Ltd [1994] 1 NZLR 481 (HC).11 Roberts' Family Investments Ltd v Total Fitness Centre (Wellington) Ltd [1989] 1 NZLR 15 (HC).might then be allowed to fold. That would then render Bay Cities'claim nugatory.(h) Other than in establishing general principles, the authorities relied on by Re/Max are of limited assistance when a broad discretion is involved.(i) When the relevant principles are applied none of the criticisms advanced by Re/Max amount to a serious error by the Associate Judge whose conclusion was well open to him based on his considerable experience in summary judgment/liquidation/bankruptcy matters.(j) The decision in Brown's Real Estate relied on by Re/Max should not be extended beyond its context which was an application to set aside a statutory demand under s 290(4)(b) of the Companies Act 1993. It did not support the submission for Re/Max that clause 5.14 (the no set-off provision) in the franchise agreements ousted the Court's jurisdictionunder rule 12.12 or rule 17.29 of the High Court Rules.(k) While it was accepted that there was no evidence that Ms MacDonald and Mr Gaunt as the two guarantors were unable to meet the summary judgment and that the onus had been on them to adduce such evidence, a global approach should be followed and an inference drawn that like Bay Cities itself they were not in a position to meet the summary judgment.(l) While it was also accepted that there was no evidence at present before the Court for Bay Cities or Ms MacDonald and Mr Gaunt relating to s 4 of the Contractual Remedies Act 1979 for the purpose of evaluating the strength of their case in the face of the entire agreement provision, it was still for Re/Max to provide evidence at this stage about the s 4 factors and the entire contract provision.Approach to review[16] There is no dispute that in this case the application for review of theAssociate Judge's decision granting the stay proceeds as a re-hearing under rule 2.3(4)(a) of the High Court Rules and that because the Associate Judge's decisioninvolved the exercise of a discretion under rules 12.12 and 17.29 the applicant, Re/Max, must show that the Associate Judge acted on a wrong principle or failed to take into account some relevant matter or took into account some irrelevant matter orwas ―plainly wrong: Alex Harvey Industries Ltd v CIR, Kacem v Bashir12 andMcGechan on Procedure.13Law on stay[17] The relevant provisions of the High Court Rules are:12.12 Disposal of application(1) If the court dismisses an application for judgment under rule 12.2 or 12.3, the court must give directions as to the future conduct of the proceeding as may be appropriate.(2) If it appears to the court on an application for judgment under rule 12.2 or 12.3 that the defendant has a counterclaim that ought to be tried, the court—(a) may give judgment for the amount that appears just on any terms it thinks just; or(b) may dismiss the application and give directions under subclause (1)......17.29 Stay of enforcementA liable party may apply to the court for a stay of enforcement or other relief against the judgment upon the ground that a substantial miscarriage of justice would be likely to result if the judgment were enforced, and the court may give relief on just terms.[18] There is no dispute that under rule 12.12(2)(a) the Associate Judge had a discretion when entering summary judgment against Bay Cities, Ms MacDonald and12 Alex Harvey Industries Ltd v CIR (2001) 15 PRNZ 361 (CA) at [12]-[15]; and Kacem v Bashir[2010] NZSC 112, [2011] 2 NZLR 1 at [32].13 McGechan on Procedure (looseleaf ed, Brookers) at [HR 2.3.02].Mr Gaunt to do so on terms that included a stay of enforcement under rule 17.29: NZ Food Group Ltd v Cannell, Roberts' Family Investments Ltd v Total Fitness Centre (Wellington) Ltd,14 and McGechan on Procedure at [HR 12.12.02].[19] As the authorities referred to in McGechan on Procedure at [HR 17.29.02] and the submissions for the parties confirm, the principles relating to the interpretation and application of rule 17.29 are reasonably well established. They may be summarised as follows:(a) The onus is on an applicant for the stay of enforcement to persuade the Court to exercise its discretion.(b) A ―substantial miscarriage of justice must be involved bearing in mind that ―substantial miscarriage means ―something more than minor or insubstantial and that it is not a substantial miscarriage ofjustice for a party that has had the use of another's money to berequired to repay that money or for a creditor to be able to take whatever steps it sees fit to pursue recovery: Marac Finance v Twilight Trustee.15(c) A substantial miscarriage of justice must be ―likely to result if thejudgment were enforced. It is not sufficient that a miscarriage ofjustice ―might result; it must be ―likely to result, i.e. probably result:Crawford and Yelcich v Odin Enterprises Pty Ltd.16(d) The Court must seek to recognise and reconcile the conflicting interests of both parties in such manner as will best serve the overall interests of justice: Enright at 246. A balancing exercise is involved.(e) A miscarriage of justice is unlikely to result where a party is required to pay to another an amount that is owing to it and the paying party is14 NZ Food Group Ltd v Cannell [1986] 1 NZLR 593 (HC) at 595; and Roberts' Family InvestmentsLtd v Total Fitness Centre (Wellington) Ltd [1989] 1 NZLR 15 (HC) at 21.15 Marac Finance v Twilight Trustee Ltd HC Auckland CIV-2008-404-7291, 25 February 2009 at [9].16 Crawford and Yelcich v Odin Enterprises Pty Ltd [2009] NZCA 199 at [29].free to pursue its claim against the other party in the normal way:Econotek Construction Ltd v Kale at 8.(f) Other factors which may be relevant include: the apparent strength or weakness of the claim; the ability of the applicant for the stay to meet the judgment that is being enforced; and the potential bankruptcy or liquidation of a party seeking to pursue an apparently strong claim:Roberts' Family Investments Ltd v Total Fitness Centre (Wellington)Ltd, NZ Apple & Pear Marketing Board v Wallis, Goldsmith v Drummond, and Raffles Education Corporation Ltd v Mills.17[20] The fact that in the present case the stay application was made by Bay Cities, the plaintiff in the proceeding, and Ms MacDonald and Mr Gaunt, following the entry of summary judgment obtained by Re/Max, as defendant in the proceeding, does not in my view alter the application of the principles relating to the interpretation of rule 17.29 and the application of the Court's discretion, except tothe extent that the focus was on the issue whether enforcement of the summaryjudgment by Re/Max would be likely to result in ―a substantial miscarriage of justice as between the conflicting interests of Re/Max, as the party entitled torecover the unpaid franchise fees of $154,991.86, and Bay Cities, Ms MacDonald and Mr Gaunt, as the parties claiming to be adversely affected by the enforcement of the summary judgment.The issues[21] As the Associate Judge granted the stay, the issues on this application for review of his decision are whether Re/Max has shown that, in exercising his discretion under rules 12.12 and 17.29, the Associate Judge:(a) made an error of law or principle; or17 Roberts' Family Investments Ltd v Total Fitness Centre (Wellington) Ltd (HC) at 21; NZ Apple &Pear Marketing Board v Wallis (1990) 4 PRNZ 713; Goldsmith v Drummond HC Christchurch CP201/97, 21 July 1998; and Raffles Education Corporation Ltd v Mills HC Auckland CIV-2008-404-5258, 16 February 2009.(b) reached a decision that was ―plainly wrong.[22] It was not argued for Re/Max that the Associate Judge took into account any irrelevant considerations or failed to taken into account any relevant considerations.An error of law or principle?[23] It was argued for Re/Max that the Associate Judge made errors of law or principle:(a) in interpreting rule 17.29 by adopting a test of possibility rather than probability of a substantial miscarriage of justice. Reference was made to the Associate Judge's use of the expression ―a real risk in hisdecision at [31];(b) in considering that it would have constituted a ―substantialmiscarriage of justice to require Bay Cities to meet the summary judgment before having the opportunity ―to air its grievances incourt; and(c) in not accepting that the no set-off provisions of clause 5.14 in the franchise agreements prevented Bay Cities from relying on its claim against Re/Max to avoid meeting the summary judgment by obtaining a stay: Brown's Real Estate Ltd v Grand Lakes Properties Ltd.Meaning of "likely" in rule 17.29[24] As already noted, in terms of rule 17.29, an applicant for a stay must establish that a substantial miscarriage of justice would be ―likely to result if the judgmentwere enforced. In the present case the question is whether the Associate Judge erredin law in interpreting ―likely as meaning ―a real risk.[25] The ordinary meaning of the word ―likely is ―probable: The New Zealand Oxford Dictionary.18 This meaning has been accepted by the Court of Appeal inCrawford and Yelcich v Odin Enterprises Pty Ltd at [29] as applicable in the context of rule 17.29:.... it is not sufficient that a miscarriage of justice might result: it must be―likely to result i.e. probably result.[26] In accepting a test of ―probability, the Court of Appeal has endorsed theapproach of the High Court in Amalgamated Finance Ltd v Fairlie19 where Wylie J said at 10:In the context of r 565 when I take into account the traditional marked reluctance of the Courts to deprive a successful litigant of the fruits of hisjudgment I have little difficulty concluding that ‗likely' in r 565 does carrythe connotation of probability rather than possibility. If those who drafted the Rules had intended to make more readily available a stay of execution itwould have been very simple to use ‗might' instead of ‗would be likely'. Inthis respect the test to be applied is quite different from that which will cause summary judgment to be refused under r 136, nor is an application under r 565 to be looked at in the same light as an application for interim injunction.This approach has been accepted as appropriate for a judgment regularly obtained, although a lower threshold was preferred for a judgment not regularly obtained:Enright v Gold Metal Exports Ltd.20[27] A test of ―probability may itself involve various shades of meaning ranging from ―more probable than not to ―anything more than a bare possibility: Overseas Tankships (UK) Ltd v Miller Steamship Co Pty, R v Gush and R v Piri.21 In the latterdecision it was held in a criminal law context that ―likely meant ―a real or substantial risk that something might well happen. This approach has also been adopted in competition law in Port Nelson Ltd v Commerce Commission22 where Gault J said that in the context of s 27 of the Commerce Act 1986 for something tobe ―likely it must be:18 The New Zealand Oxford Dictionary (Oxford University Press, 2008).19 Amalgamated Finance Ltd v Fairlie HC Auckland A1232/83, 3 September 1986.20 Enright v Gold Metal Exports Ltd (1989) 3 PRNZ 243 (HC) at 246.21 Overseas Tankships (UK) Ltd v Miller Steamship Co Pty (The Wagon Mound (No. 2)) [1967] 1 AC617 (HL) at 634-635 per Lord Reid; R v Gush [1980] 2 NZLR 92 (CA) at 94-95; and R v Piri [1987]1 NZLR 66 (CA) at 78-83 per Cooke P.22 Port Nelson Ltd v Commerce Commission [1996] 3 NZLR 554 (CA) at 562-563.above mere possibility but not so high as more likely than not and is best expressed as a real and substantial risk that the stated consequence will happen.The same approach was taken by the Court of Appeal in Commerce Commission v Woolworths Ltd.23[28] On the basis of the consistent approach to the interpretation of ―likely and ―probability in these appellate decisions in both criminal and civil contexts, I consider that when interpreting ―likely in rule 17.29 as meaning ―probable rather than ―possible the test may be expressed as ―a real and substantial risk that a substantial miscarriage of justice would happen if the judgment were enforced. This interpretation would implement the purpose of the rule which is to ensure that a judgment creditor is entitled to enforce the judgment unless the judgment debtor isable to establish ―a real and substantial risk of a miscarriage of justice if thejudgment were enforced, that is by reference to the impact of enforcement of the judgment on the ability to pursue a counterclaim or claim, as in the present case, and the apparent strength of the counterclaim or claim.[29] When this approach to the interpretation of ―likely in rule 17.29 is adopted, it can be seen that the Associate Judge's use of the expression ―a real risk did notconstitute an error of law or principle. On the contrary, his expression was within the meanings of ―likely and ―probability accepted as appropriate in the appellatedecisions to which I have referred.Enforcement of summary judgment not a "substantial miscarriage of justice"[30] It is true that the authorities on rule 17.29 support the proposition that it is not in the normal course of things a miscarriage of justice to require payment of money due to another as a judgment debt,24 but at the same time the authorities also recognise that if the enforcement of the judgment were to result in the bankruptcy or liquidation of a party seeking to pursue an apparently strong claim, there may be a substantial miscarriage of justice.25 It will all depend on the circumstances of the23 Commerce Commission v Woolworths Ltd [2008] NZCA 276, (2008) 8 NZBLC 102,336 at [63].24 Econotek Construction v Kale at 8; and Marac v Twilight Trustee at [9].25 Authorities referred to in [19](f) above.particular case. I do not consider therefore that the Associate Judge made an error of law or principle in considering whether this was the case here.No set-off provisions prevented reliance on Bay Cities' claim[31] Clause 5.14 of the franchise agreements required Bay Cities, as the franchisee, to:pay all amounts due under this Agreement without deduction, set-off or abatement.[32] There is no dispute that this provision prevented Bay Cities from setting-off its claim for misrepresentation against the unpaid franchise fees: cf Grant v NZMC Ltd, Browns Real Estate Ltd v Grand Lakes Properties Ltd, and Rory Derham, The Law of Set-Off.26 Nor is there any dispute that in Browns Real Estate Ltd the Court of Appeal decided at [16]-[17] that a no set-off provision prevented a commercial party from obtaining an order under s 290(4) of the Companies Act 1993 setting aside a statutory demand. But the Court of Appeal did not address the issue, which has been raised in the present case, namely whether a no set-off provision bars the Court from granting a stay of enforcement of a summary judgment under rule 17.29.[33] As the Associate Judge pointed out at [20], the Court of Appeal in Bromley Industries Ltd noted at [67]:There is a difference between whether the entry of a summary judgment may be unjust and whether the subsequent execution of the judgment may lead to a miscarriage of justice. The High Court Rules provide for the latter situation in r 17.29. An application under that rule is the appropriate way to have the Court consider the effect of execution of the judgment on parties in therespondents' position.[34] This led the Associate Judge to say at [21]:It is clear, therefore, that a no set-off clause is no bar to staying execution of an order for summary judgment, although it might amount to a relevant consideration in determining whether enforcement would lead to a substantial miscarriage of justice. Associate Judge Faire in Air New Zealand26 Grant v NZMC Ltd [1989] 1 NZLR 8 (CA) at 13; Browns Real Estate Ltd v Grand Lakes PropertiesLtd [2010] NZCA 425 at [6] and [14]; and Rory Derham, The Law of Set-Off (Oxford UniversityPress, Oxford, 2010) at [4.03] and [4.112].Limited v Air Niugini Ltd appeared to be of a similar view, when he said at [62] that:... Where there is no issue as to ability to pay, it seems to me that if the parties have contractually provided that payment is to be made without deduction that is a signal to the Court that the parties have in fact agreed that there should be no deferral of the obligation to pay. That is the case here.[35] The view that a no set-off provision does not operate as a bar to a court considering the exercise of its discretion to grant a stay of enforcement of a summary judgment is well-established in England and Australia: Rory Derham, The Law of Set-Off at [1.04] and [5.27]. It would in my view be wrong in principle to fetter theexercise of the court's discretion under rule 17.29 to accept the submission forRe/Max that a no set-off provision operated as a bar to the exercise of the discretion.[36] For these reasons therefore I do not consider that a no set-off provision automatically bars the Court from granting a stay of enforcement of a summary judgment. As the Associate Judge correctly considered, the existence of the clause might amount to a relevant consideration under rule 17.29. It is not decisive. The Associate Judge did not make an error of law or principle on this issue.Plainly wrong?[37] As is apparent from [31] of his decision, the Associate Judge identified two significant factors for concluding that a substantial miscarriage of justice was likely to occur if the summary judgment obtained by Re/Max was not stayed:(a) There was no suggestion that Re/Max would be injuriously affected by the stay beyond the obvious detriment of being deprived of the fruits of its judgment; and(b) There was a real risk that the claim by Bay Cities would be rendered nugatory.[38] The Associate Judge's express reasons for deciding that there was a real riskthat the claim by Bay Cities would be rendered nugatory without a stay may be discerned from [30]-[32] of his decision:(a) Bay Cities' claim against Re/Max was not so weak as to be a factorweighing against a stay. It was impossible to assess the real strength of the claim because, while there were hurdles in the form of the disclaimers and the entire agreement and non-reliance clauses, under s 4 of the Contractual Remedies Act 1979 the Court would have tohave regard ―to all the circumstances of the case; and(b) Re/Max's counterclaims for franchise fees and Bay Cities' claim formisrepresentation were clearly interrelated.[39] While the Associate Judge did not state so expressly, it is implicit in his decision that he also accepted the argument for Bay Cities that if Re/Max were permitted to enforce the summary judgment there was every prospect that Bay Cities would be put into liquidation and would then be unable or unlikely to pursue itsclaim against Re/Max. Bay Cities would be deprived of the opportunity ―to air its grievances in court and its claim would therefore be rendered nugatory.[40] The case for Re/Max that the Associate Judge's decision was ―plainly wrongwas essentially based on the following submissions:(a) In the face of the entire agreement and non-reliance clauses in the franchise agreements and the decision in David v TFAC Ltd, the BayCities' claim, brought some seven months after the expiration of the five year term of the agreements and two months before the expiration of the relevant limitation period, was so weak that a stay was not justified;(b) There was no cogent evidence as to the true financial position of Bay Cities, Ms MacDonald and Mr Gaunt sufficient to establish that if the summary judgment were enforced Bay Cities would go into liquidation;(c) It was not axiomatic that if Bay Cities went into liquidation the claim would not be pursued by the liquidator with or without further funding from Ms MacDonald and Mr Gaunt;(d) There was no basis for ordering a stay of the summary judgment against Ms MacDonald and Mr Gaunt who had no claim against Re/Max which could be rendered nugatory; and(e) Re/Max would be prejudiced if it was prevented from entering its summary judgment and, if necessary, putting Bay Cities into liquidation.[41] It is convenient to consider each of these submissions in turn.Weakness of Bay Cities' claim[42] Bay Cities has claimed damages of $4,021,414 against Re/Max for misrepresentation in inducing it to enter into two Re/Max real estate franchise agreements in Hawkes Bay. The claim for damages for misrepresentation depends on the operation of s 6 of the Contractual Remedies Act 1979: John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand.27 As the franchise agreements had been in force for several years, there was no claim for cancellation under s 7 of the Contractual Remedies Act 1979.[43] There is little doubt that, as the Associate Judge recognised, the entire agreement and non-reliance clauses in the franchise agreements and the decision inDavid v TFAC Ltd may well create real hurdles for Bay Cities in its claim against Re/Max, but at the same time it is clear from the decision of the Court of Appeal inDavid v TFAC Ltd at [63]-[66] that in the context of a claim under s 9 of the Fair Trading Act 1986 the effect of such clauses will depend on the facts of the particular case which will be determined on the evidence adduced at trial. In my view thesame position arises in the context of Bay Cities' claim for misrepresentation which27 John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New Zealand (3rd ed, LexisNexis, Wellington, 2007) at [11.2].will involve the Court considering the clauses under s 4(1)(c) of the Contractual Remedies Act 1979:having regard to all the circumstances of the case, including the subject- matter and value of the transaction, the respective bargaining strengths of the parties, and the question whether any party was represented or advised by a solicitor at the time of the negotiations or at any other relevant time.[44] It is clear from the authorities on the interpretation and application of s 4(1) of the Contractual Remedies Act 1979 that the question whether entire agreement and non-reliance clauses will defeat a claim for pre-contractual misrepresentation will depend on the facts of the particular case: John Burrows, Jeremy Finn and Stephen Todd, Law of Contract in New Zealand at [7.5.6]. The facts of the case will be determined at trial and not on an interlocutory application such as the present one. Similarly, the question of the relevance of the delay by Bay Cities in bringing its claim will be a matter for determination at the trial.[45] For these reasons I agree with the Associate Judge that it is not possible to conclude at this stage that Bay Cities' claim is so weak that it has no chance ofsuccess and that this is therefore a factor weighing against the granting of a stay.Re/Max has not persuaded me that the Associate Judge's assessment of the merits of Bay Cities' claim was ―plainly wrong.No cogent evidence as to true financial position of Bay Cities, Ms MacDonald and Mr Gaunt[46] There was evidence before the Associate Judge in the form of Ms MacDonald's affidavit (paragraphs 39-42) to the effect that Bay Cities was no longer trading, had incurred trading losses, had no assets to pay costs or security for costs and had no commitment for litigation funding from anyone else. There was no suggestion that Re/Max had required Ms MacDonald to be produced for cross- examination on her affidavit under rule 9.74 or that any other evidence had been adduced for Re/Max to undermine her evidence in this respect. While more detailed and independent evidence might have been adduced as to the financial position of Bay Cities, Re/Max did not really dispute that enforcement of the summary judgment was likely to result in the liquidation of Bay Cities. Indeed Re/Max soughtthe opportunity to enforce the judgment so that Bay Cities would be put into liquidation.[47] In these circumstances the Associate Judge was entitled to accept the affidavit evidence of Ms MacDonald as to the financial position of Bay Cities and to infer from that evidence that it was likely that if the summary judgment were enforced by Re/Max Bay Cities would be put into liquidation. Re/Max has not persuaded me thatthe Associate Judge was ―plainly wrong on this issue.[48] As already noted, there was, however, no evidence before the Associate Judge relating to the financial position of Ms MacDonald and Mr Gaunt. The significance, if any, of the absence of such evidence is addressed later in this judgment.Not axiomatic that claim would not be pursued by Bay Cities (in liquidation)[49] It is true that the liquidation of Bay Cities would not necessarily prevent Bay Cities (in liquidation) from pursuing its claim against Re/Max. Liquidators in carrying out their functions and duties under ss 253 and 260 of the Companies Act 1993 have express power to continue legal proceedings: Schedule 6(a). In deciding whether to exercise this power a liquidator will consider the strengths and weaknesses of the particular legal proceedings and weigh the chances of success against the costs involved and the ability or otherwise of the company to meet those costs: cf Churchill Group Holdings v Aral Property Holdings Ltd at [23] and Mana Property Trustee Ltd v James Developments Ltd (No. 2).28[50] At the same time, however, in the absence of further litigation funding from outside sources, such as Ms MacDonald and Mr Gaunt, there is a real risk that the liquidator of Bay Cities might well decide that it was not appropriate to pursue the claim against Re/Max in the face of the litigation risks involved and the level of both solicitor-client costs and potential party and party costs likely to be incurred in doing so. These practical considerations mean that if the summary judgment were enforced and Bay Cities was put into liquidation its claim against Re/Max was, as28 Mana Property Trustee Ltd v James Developments Ltd (No. 2) [2011] 2 NZLR 25 (SC).the Associate Judge found, likely to be rendered nugatory. Re/Max has not persuaded me that the Associate Judge was ―plainly wrong on this issue.No stay against Ms McDonald and Mr Gaunt[51] The position of Ms MacDonald and Mr Gaunt as guarantors of Bay Cities'obligations under the franchise agreements was not addressed separately by the Associate Judge in the reasons for his decision to grant the stay. They were effectively treated as being in the same position as Bay Cities.[52] The liability of Ms MacDonald and Mr Gaunt arose under the Guarantee and Indemnity provisions of clause 28 of the franchise agreements. These provisions reflected established legal principles relating to the liability of guarantors: Fahey v MSD Speirs Ltd29 and James O'Donovan and John Phillips, The Modern Contract of Guarantee.30 It was presumably for these reasons that Ms MacDonald and Mr Gaunt conceded that summary judgment should be entered against them as guarantors ofBay Cities' unpaid franchise fees.[53] In these circumstances it has been submitted for Re/Max that there is no basis for ordering a stay of enforcement of the summary judgment against Ms MacDonald and Mr Gaunt because:(a) they have no claim against Re/Max which could be rendered nugatory; and(b) there is no evidence before the Court relating to their financial positions.[54] It is true that the claim against Re/Max for misrepresentation in respect of the real estate franchise agreements is by Bay Cities and not by Ms MacDonald and Mr Gaunt and that their liability as guarantors for the unpaid franchise fees has been conceded, but that does not mean that the outcome of the Bay Cities' claim will have29 Fahey v MSD Speirs Ltd [1973] 2 NZLR 655 (CA) at 659.30 James O'Donovan and John Phillips, The Modern Contract of Guarantee (2nd English Edition,Thomson Reuters, London, 2010) at [1-22] and [1-91].no practical consequences for Ms MacDonald and Mr Gaunt. On the contrary, as theAssociate Judge recognised at [31], Re/Max's counterclaims for the franchise fees and Bay Cities' claim for misrepresentation are clearly interrelated in that they form part of the same contractual relationship. The ultimate liability of Ms MacDonald and Mr Gaunt to meet the summary judgment in their capacity as guarantors istherefore likely to depend on the outcome of the Bay Cities' claim.[55] It was not argued for Re/Max that the liability of Ms MacDonald and Mr Gaunt as guarantors meant that they were separately liable on the summary judgment for the unpaid franchise fees even if enforcement of the summary judgment against Bay Cities were stayed pending the outcome of the Bay Cities'claim against Re/Max for misrepresentation. An argument of this nature would have involved questions relating to the interpretation of clause 28 of the franchise agreements and the application of the law relating to the principle of co- extensiveness and the separate liability, if any, of guarantors in the circumstances of this case: cf Moschi v Lep Air Services Ltd and James O'Donovan and John Phillips,The Modern Contract of Guarantee.31 In particular, it would have been necessary for Re/Max to have explained why it should have been entitled to enforce the summary judgment against the guarantors before determination of the principaldebtor's claim against the creditor: cf Remblance v Octagon Assets Ltd32 and JamesO'Donovan and John Phillips, The Modern Contract of Guarantee at [10-225].[56] In the absence of any submissions from the parties on these issues, I am not prepared to treat the discretionary question of the stay of the enforcement of the summary judgment against Ms MacDonald and Mr Gaunt separately from the same question in relation to Bay Cities. When the questions are considered together, I do not consider that the fact that Ms MacDonald and Mr Gaunt have no claim against Re/Max or the fact that there is no evidence before the Court relating to their financial positions means that Re/Max should be entitled to enforce the summary judgment against them when enforcement of the judgment against Bay Cities is stayed.31 Moschi v Lep Air Services Ltd [1973] AC 331 (HL); and James O'Donovan and John Phillips, TheModern Contract of Guarantee at [1-91] – [1-110], [10-113], [10-192], and [11-15] – [11-16].32 Remblance v Octagon Assets Ltd [2009] EWCA CIV 581.[57] For these reasons Re/Max has not persuaded me that the Associate Judge was―plainly wrong on this issue.Prejudice to Re/Max[58] Re/Max claimed prejudice from the stay in three respects:(a) being deprived of the opportunity to use the fruits of its summary judgment to its best advantage;(b) the limitation on a liquidator only being able to claw back insolvent transactions and under value transactions within a period of two years prior to the application for liquidation being commenced; and(c) concerns regarding the possible transfer of assets at an under-value to a real estate company operating out of the same premises under theapparent directorship of Ms MacDonald's brother, and other possiblepreferential transactions to creditors which may not be able to be clawed back for the general body of creditors.[59] These claims of prejudice may be answered shortly. The first two claims are inevitable consequences of the Court being satisfied that the discretion to grant a stay should be exercised in terms of rule 17.29. They are not reasons in themselves for declining to exercise the discretion once the Court is satisfied that it should be exercised. The third claim was not supported by any evidence adduced before theAssociate Judge or on this review of the Associate Judge's decision. There istherefore no basis for considering it further.[60] This conclusion means that none of the submissions for Re/Max in support ofits case that the Associate Judge's decision was ―plainly wrong has succeeded.Result[61] The application for review of the order made by the Associate Judge staying enforcement of the summary judgment obtained by Re/Max against Bay Cities, Ms MacDonald and Mr Gaunt is therefore dismissed.Costs[62] I see no reason why Bay Cities, Ms MacDonald and Mr Gaunt should not be entitled to their costs on the application for review on a category 2B basis with disbursements to be fixed by the Registrar.__________________________D J White J