GH ROSSON V T STREET HOLDINGS LIMITED HC WN CIV 2008-485-2457

GH ROSSON V T STREET HOLDINGS LIMITED HC WN CIV 2008-485-2457 22 July 2009IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV 2008-485-2457IN THE MATTER OF the Insolvency Act 2006 AND IN THE MATTER OF bankruptcy of Garth Hamish Rosson BETWEEN GARTH HAMISH ROSSON Applicant AND T STREET HOLDINGS LIMITED Respondent Hearing: 20 July 2009 Appearances: J. McGuire - Counsel for Applicant A.R. Davie - Counsel for Respondent Judgment: 22 July 2009 at 3.30 pmJUDGMENT OF ASSOCIATE JUDGE D.I. GENDALLThis judgment was delivered by Associate Judge Gendall on 22 July 2009 at 3.30 p.m. pursuant to r 11.5 of the High Court Rules.Solicitors: Jeremy McGuire, Lawyer, PO Box 11120, Wellington Treadwells, Solicitors, PO Box 859, WellingtonIntroduction[1] Before the Court are applications by the applicant for: (a) An order staying both the execution of a judgment of the District Court dated 15 June 2009 and also bankruptcy proceedings issued against the applicant pending the determination of an appeal in the High Court; and (b) An order setting aside a bankruptcy notice issued by the respondent against the applicant. [2] Both applications are opposed by the respondent. [3] Before me, Mr. McGuire for the applicant, directed his submissions to the application to stay enforcement of the District Court judgment. I understood him to accept that in the present case the applications to stay the bankruptcy proceedings and to set aside the bankruptcy notice could not succeed if the application to stay the District Court judgment failed.Background Facts[4] On 6 June 2008 Judge Broadmore in the District Court at Wellington gave judgment under a guarantee in respect of lease rental arrears in favour of the respondent against the applicant for a debt of $36,562.52, interest of $564.94 and costs of $3,092.50. This made a total judgment of $40,219.96. There was no appearance for the applicant and judgment was effectively given by default. [5] Based on this judgment a Bankruptcy Notice was issued against the applicant on 10 November 2008. [6] An Application to Set Aside that Bankruptcy Notice was filed on 20 November 2008. The grounds for this application were effectively that an application to the District Court to set aside the 6 June 2008 judgment was to be brought.[7] That Application to Set Aside the Judgment proceeded before the District Court. After hearing argument from both the applicant and the respondent, on 15 June 2009 Judge Broadmore issued a fully reasoned decision declining to set aside the 6 June 2008 judgment. [8] That 15 June 2009 judgment of Judge Broadmore is now the subject of an appeal to this Court by the applicant which I understand was filed and served on 13 July 2009. [9] It is the applicant's position that if this appeal against the decision of Judge Broadmore succeeds then there will be no debt outstanding to the respondent to justify the issue of the Bankruptcy Notice which is in question here. [10] I turn now to the factual position which gave rise to the original proceedings against the applicant. These related to a guarantee of a lease of premises in Taranaki Street, Wellington originally entered into on 8 November 2000. This lease (ultimately taken over by the respondent as landlord) was to a company Split Rock Limited as tenant. The applicant is a director of Split Rock Limited and he and another director personally guaranteed the lease. That lease was for a term of 6 years from 1 October 2000 with 2 rights of renewal each for 3 years. The initial annual rent was $65,000.00 plus GST. [11] As 30 September 2006, the date for expiry of the initial lease, approached the solicitors acting for both Split Rock Limited and the applicant wrote to the landlords (on 4 September 2006) confirming that their tenant client gave notice that it wished to exercise a renewal of the lease for a further period of "at least 3 years". [12] Negotiations concerning this renewal and the annual rent to be paid from the renewal date ensued.[13] What appears clear, however, is that: (a) The tenant, Split Rock Limited, continued to remain in occupation of the leased premises after 1 October 2006. (b) The respondent did not seek other tenants for the premises. (c) Both parties arranged for valuations to be completed to obtain new rental figures for the renewed lease. (d) On 19 January 2007 a Deed of Variation of the Lease negotiated between the parties was signed (including by the applicant as guarantor). This varied the 8 November 2000 Lease to include a demolition clause and a 4 months rent holiday from 1 January 2007 to 30 April 2007. (That Variation Deed stated in the rent holiday clause that rental payments were to resume on 1 May 2007 and monthly thereafter and that "in all other respects the terms and conditions of the lease shall continue to apply"). (e) On 16 April 2007, Split Rock Limited, assigned its interest as tenant under the lease to Cypress Entertainment Holdings Ltd at a stated purchase price of $40,000.00 plus GST. It seems that the applicant signed the Deed of Assignment in his capacity as a Director of Split Rock Limited. The assignment was consented to by the respondent as landlord. (The Deed of Assignment of this 8 November 2000 Lease provided for a date of assignment of 30 April 2007 and confirmed that the expiry date under the current lease was 30 September 2009 with 1 Right of Renewal for 3 years remaining). [14] It seems that throughout rental for the premises continued to be paid at the old rate under the lease which was $65,000.00 per annum plus GST. The new tenant, Cypress Entertainment Holdings Ltd, however, ceased paying the rent soon after it took over the premises. The June 2008 proceedings in the District Court which were the result of the original default judgment were brought against anumber of defendants - Cypress Entertainment Holdings Ltd, as new tenant, its directors as guarantors under the Deed of Assignment of Lease, Split Rock Limited as original tenant and the applicant as an original guarantor of the lease. The lease provided specifically that the liability of Split Rock Limited and the applicant as guarantor continued notwithstanding any assignment. [15] Before me, counsel for the applicant appeared to place some reliance upon the fact that in the Deed of Assignment of Lease signed by the parties details of the lease were outlined but these omitted any reference to a rental rate. He seems to maintain that rent under any renewal of the lease was never agreed, there was no formal renewal of the lease and at best a monthly periodic tenancy was all that could have been assigned by Split Rock Limited to Cypress Entertainment Holdings Ltd. As a result, he contends that the maximum rental liability the applicant may have under the lease is 1 month's rent and no further rent should have been recovered from him. [16] It appears, however, that these arguments were advanced before Judge Broadmore, in the applicant's application to set aside the earlier District Court judgment determined on 15 June 2009, and were rejected.Counsel's Arguments and My Decision[17] Before me counsel for the applicant indicated that his present applications were brought in reliance upon r 17.29 High Court Rules. This rule states:"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] It is clear that the onus of establishing that a stay should be granted in terms of r 17.29 rests with the applicant here. As McGechan on Procedure at para. HR17.29.01 notes, this r 17.29 is separate and distinct from the power to stay execution of a judgment pending an appeal against it which power is exercisedconcurrently by the High Court and Court of Appeal under r 12 Court of Appeal (Civil) Rules 2005. I will refer to this aspect later in this judgment. [19] Returning to r 17.29, McGechan on Procedure at para. HR17.29.02 (2) in dealing with this, states:"(2) "Substantial miscarriage of justice would be likely to result if judgment were enforced"There are three elements here: (a) "Substantial miscarriage": this means "something more than minor or insubstantial ": Econotek Construction Ltd v Kale7/1/88, Tompkins J, HC Gisborne CP8/87, p 6, Adopted by Smellie J in Marac Finance Ltd v Davy 27/7/88, Henry J, HC Auckland CP542/87; (b) "Likely to result": In Amalgamated Finance v Fairlie 3/9/86, HC Auckland A1232/83, Wylie J concluded: "[T]hat 'likely' in r 565 (now r 17.29) does carry the connotation of probability rather than possibility. If those who drafted the Rules had intended to make more readily available a stay of execution it would have been very simple to use 'might' instead of 'would be likely'". Followed inEnright v Gold Metal Exports Ltd (1989) 3 PRNZ 243 at pp 245- 246;, (c) "If judgment were enforced": Although somewhat obvious, this is nevertheless a distinct element: "[F]urther the substantial miscarriage of justice must be shown to be likely to result 'if the judgment were executed'.": per Tompkins J in Econotek (above)."[20] A consideration of r 17.29 involves a balancing exercise. In Enright v Gold Metal Exports Ltd (1989) 3 PRNZ 243 at 246 Thorp J. held:"The Court must, in my view, in situations such as this seek to recognise and reconcile the conflicting interest of both parties in such manner as will best serve the overall interests of justice. Rule 565 (now Rule 17.29) permits the grant of a stay on terms. For that reason I invited (counsel) to indicate whether his client was able to offer security in the event of a stay."[21] On the issue of providing some security for a stay, the decisions in Arkley v Fraser Mill Properties Limited [1989] 2 NZLR 57 and NZ Apple & Pear Marketing Board v Wallis (1990) 4 PRNZ 713 provide additional examples of the situations where a stay has been granted with terms imposed.[22] In the present case the applicant cannot claim that he has a counter-claim against the respondent. Effectively his only argument is that he is not ultimately liable as a guarantor for the failure of a third party here (Cypress Investments Limited) to pay rent to the respondent under what is a purported assignment of the lease, a lease which he claims has not been renewed. [23] In my view and particularly for the reasons outlined at para. [13] above, this argument is extremely thin. The evidence before the Court would seem to point clearly to the fact that the lease was renewed for 3 years from 1 October 2006 and that notwithstanding the assignment, the applicant's liability as guarantor continued. In this regard para. 4 of the applicant's covenants as guarantor under the Guarantee in the Third Schedule to the lease states specifically:"The guarantor (the applicant) covenants with the landlord that: . 4. An assignment of the lease and any rent review in accordance with the lease shall not release the guarantor from liability."[24] Much of the argument before me was addressed by Mr. McGuire, counsel for the applicant, at this issue of whether or not good grounds for appeal existed. Notwithstanding this, in response to my question as to whether the applicant was able to pay the judgment debt of around $40,000.00 now either into Court or into a solicitor's trust account as security pending disposal of the appeal, Mr. McGuire took instructions from the applicant but confirmed he was quite unable to do this. At best Mr. McGuire said the applicant might be able to arrange a maximum payment of $10,000.00 but would need at least 3 weeks to endeavour to put this in place. [25] As I see it, therein lies the crux of the matter which is before the Court. [26] There has been no suggestion by the applicant that the judgment originally obtained in the District Court against him on 6 June 2008, confirmed upon his subsequent setting-aside application by Judge Broadmore on 15 June 2009 was obtained fraudulently or that any abuse of the process of the Court has occurred here.[27] Bearing this in mind and noting that to succeed under r 17.29 the applicant must show a substantial miscarriage of justice would be likely to result if this judgment were enforced, as I see the position, the only basis upon which the present application could succeed is if the approximate $40,000.00 judgment debt was paid and held as security until determination of the appeal. But, on this, as I have noted, Mr. McGuire for the applicant confirmed that he was quite unable to do this. The maximum amount the applicant might be able to arrange, given some time to do so, he said would be $10,000.00. This is unacceptable under the present circumstances. [28] The application before the Court under r. 17.29 for a stay of enforcement of the District Court judgment must be refused. [29] Although no argument was advanced to me by counsel directly on this point, I believe that I am reinforced in this view when regard is had to the power to stay execution of a judgment pending an appeal against it in tems of r 12 Court of Appeal (Civil) Rules 2005. Addressing this rule, McGechan on Procedure at para. CR12.01(2) states:"(2) Conditions (a) Rule 12(4)(b) permits the imposition of conditions. In addition to security, those imposed have included strict time tabling and payment of some/all of the judgment. (b) Where a money judgment is appealed, the proceeding is stayed only upon payment by the defendant to the plaintiff of the judgment sum, the plaintiff giving security for repayment if the appeal succeeds: (emphasis added)Contributory Mortgage Nominees Ltd v Harris Road No. 10 Limited 31 January 2006, Associate Judge Faire, HC Auckland, CIV-2005-404-3078 at para. 8."[30] In the present case, as I understand it, the respondent on several occasions has indicated that it will agree to the stay of the proceeding sought pending the appeal if the approximately $40,000.00 judgment debt is simply paid into Court or into a solicitors trust account. The respondent does not insist that these monies be paid to it pending determination of the appeal. No questions arise therefore over whethersome security should be provided by the respondent to the applicant in case the appeal succeeds. [31] But, as I have outlined above, the applicant confirms that he is not in a position to pay the judgment debt even into an independent trust account as security. [32] His present application for a stay must therefore fail. [33] In addition, as Mr. McGuire for the applicant acknowledged at the outset, the related applications seeking orders to set aside the bankruptcy notice and seeking a stay of the bankruptcy proceedings must also be dismissed.Result[34] The applicant has been unsuccessful and each of the present applications brought before the Court is dismissed. [35] Costs should follow the event in the normal way. Costs are therefore awarded against the applicant with regard to these applications on a Category 2B basis together with disbursements as fixed by the Registrar.'Associate Judge D.I. Gendall'