MFT PROPERTIES LIMITED V COUNTRY CLUB APARTMENTS LIMITED HC AK CIV-2010-404-005913

MFT PROPERTIES LIMITED V COUNTRY CLUB APARTMENTS LIMITED HC AK CIV-2010-404-005913 6 May 2011IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2010-404-005913BETWEEN MFT PROPERTIES LIMITEDApplicantAND COUNTRY CLUB APARTMENTSLIMITEDRespondentHearing: 6 May 2011Counsel: R Pidgeon for the ApplicantL Turner and J Garnett for the RespondentJudgment: 6 May 2011JUDGMENT OF WOOLFORD J(on application for stay pending appeal)Solicitors:Thorne, Thorne, White & Clark-Walker, PO Box 1140, Shortland St, Auckland. DX CP21508Whaley & Garnett, PO Box 17181, Greenlane, Auckland. DX CP33502[1] Country Club Apartments Limited (Country Club) applies for a stay of orders made in paras [54](b), (c) and (d) of my judgment dated 13 April 2011 pending thedetermination of Country Club's appeal.[2] The orders at issue:(a) Cancel the lease between MFT Properties Limited (MFT) as lessor and Country Club as lessee unless a sum equivalent to the difference between the rent of $136,000 plus GST per annum together with all outgoings on the premises from 15 October 2009 until the date of judgment and the rent actually paid in that period.(b) Permitted MFT to take possession of the premises 14 days after the date of judgment, unless the specified sum was paid within those 14 days.(c) If the specified sum was paid within those 14 days directing that Country Club continue to pay rent at $136,000 plus GST per annum together with all outgoings on the premises unless otherwise agreed.[3] An appeal against my judgment was filed in the Court of Appeal on 21 April 2011.[4] MFT calculates the amount owing in terms of my judgment, including GST and interest, to be $186,300.64. Country Club accepts that a figure in the broad vicinity of $150,000 is likely to be payable.[5] Country Club is not in a position to make any such payment. Country Club currently has less than $10,000 in funds and these are required to meet operational expenses. Country Club is not likely to generate the funds in the near future. It projects the modest profit of around $45,000 over operating expenses over the next 12 months. This projected profit does not take into account the rent I have determined as properly payable by Country Club to MFT.[6] The grounds on which the orders are sought are as follows:(a) If no stay is granted then Country Club's right of appeal will berendered nugatory. It will lose the business it paid $600,000 to acquire.(b) Country Club intends to prosecute the appeal in good faith and as promptly as possible and is willing to have a condition imposed that it apply for a hearing date within 20 working days.(c) MFT will not be injuriously affected by a stay. Country Club is not currently in a position to pay the sums ordered under the judgment. Country Club will, however, continue to pay rental at the rateconfirmed by MFT's Mr McNabb in the rent review email as being"not unreasonable" pending determination of the appeal. This rental is at or above a market rental which MFT would be able to obtain from another tenant.(d) There is no effect on third parties.(e) There is some novelty and importance of the questions involved, particularly in respect of the question as to whether s 2 of the Contracts Enforcement Act 1956 and its successors are relevant where a party relies on an oral contract as a defence and also in respect of email communications as a note or memorandum of such contracts.(f) There is a public interest in the proceedings insofar as the determination of the questions in (e) as a matter of law are matters of public interest.(g) The overall balance of convenience favours a stay.(h) The appeal is arguable.(i) MFT has been invited to agree to a stay pending the determination of the appeal but has refused to do so. MFT has also been invited to agree to an interim stay to take the matter beyond the Easter period and avoid inconvenience to counsel and the Court but has also refused this request.[7] The first seven factors are listed by the Court of Appeal in Keung v GBR Investment Ltd1 as those to be taken into account in the balancing exercise required under r 12(3) of the Court of Appeal (Civil) Rules 2005. The Court of Appeal commented that the apparent strength of the appeal has been treated as an additional factor.[8] The stay is opposed by MFT on the basis that:(a) Country Club owes the judgment sum in question to MFT.(b) Country Club admits it is insolvent and is unable to pay its debts as they fall due.(c) The effect of granting a stay would be to deny MFT the fruits of its judgment and effectively to permit Country Club to continue to breach the lease.(d) Country Club's breaches of the lease continue to cause hardship to MFT and third parties as set out in Gary John McNabb's affidavit tobe filed in support herein.(e) The grounds advanced in the appeal filed with the Court of Appeal have limited prospects of success.[9] Looking at each of the factors in turn, it does seem to me that the appeal may well be rendered nugatory by the lack of stay. Counsel for MFT drew my attention to the judgment in Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises1 Keung v GBR Investment Ltd [2010] NZCA 396 at [11].Ltd,2 a judgment of Hammond J in which he referred to the comments by the Court of Appeal in Savill v Chase Holdings (Wellington)Ltd:3It does not make their appeal nugatory. What it may do is require them to substitute a claim for damages for the claim for specific performance in the event that in the interim a sale of the three properties or any one of them is effected.[10] However, in this case, an alternative claim for damages would be problematical. If my judgment is not stayed, the lease will be cancelled and MFT will retake possession of the premises.[11] I do not question the bona fides of the applicant. I formed the impressionfrom Mr Latta's evidence at trial that he genuinely believed that he had a binding agreement with Mr McNabb that Country Club did not have to pay the rent specified in the written rental agreement or the outgoings.[12] On the other hand, I accept that MFT will be injuriously affected by the lack of a stay. MFT owes body corporate arrears of $33,650.29. The mortgage for the group of companies of which MFT is one has not been refinanced. The mortgagor, the Public Trust, may soon issue Property Law Act notices and charge penalty interest. MFT is not able to sell the premises because of Country Club's position.[13] Although counsel for the applicant submitted that there were effects on third parties, including the Public Trust, other companies in the MFT Group and the body corporate, I am of the view that the effects on those third parties is not a determining factor when weighed in the balance. Notwithstanding the submissions by Country Club, there is in my opinion, no real novelty or importance of the questions involved. There is also no public interest in the proceeding between these two corporate entities.[14] Looking finally to the overall balance of convenience, it seems to me that if a stay is not granted, the effect on Country Club would be catastrophic, in that it would lose the lease, its franchise agreement with Quest and all the money it had invested2 Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (HC).3 Savill v Chase Holdings (Wellington) Ltd [1989] 1 NZLR 257.in the business. However, I am not prepared to grant an unconditional stay. MFT's position is only slight less precarious. It needs cash to pay body corporate arrears and to keep the Public Trust at bay.[15] Country Club has not paid any rent at all for the months of January, February and March 2011 as it claims a set-off with regard to the accommodation provided to Mr David Colvin for five and a half months. In my judgment I held that it was an implied term of the agreement between Mr McNabb and Mr Latta that the rent payable was to be a reasonable rent based on long-term stay rates and not the rack rate. I also held that it was a debt properly payable by New Zealand Mint Limited and not MFT. At the very least Country Club, therefore, needs to pay the outstanding rent since the beginning of the year. They also need to reimburse MFT for the amount it has paid in respect of body corporate levies. MFT is apparently in a position to repay these funds to Country Club if the Court of Appeal so directs.[16] Country Club has also offered to pay the rent which I determined in my judgment to be the rent properly payable between the parties as from the date of the judgment to the appeal.Result/Orders[17] I therefore order a stay of execution of my judgment dated 13 April 2011 on condition that:(a) Country Club pay the sum of $33,442 to MFT within 28 days of this judgment, which sum is to be repaid by MFT to Country Club if so directed by the Court of Appeal. This sum consists of the rental unpaid for the months of January, February, March this year plus the contribution made by MFT to the body corporate arrears.(b) Country Club is to pay rental of $136,000 plus GST per annum plus all outgoings from the date of my judgment, 13 April 2011, to the expiry of the lease in September this year.[18] If either of the above conditions are not met, the stay of execution of my judgment dated 13 April 2011 automatically expires and the judgment is able to enforced.[19] Finally, I also direct that Country Club is to apply for a hearing in the Court of Appeal within seven days of the date of this judgment.[20] I give liberty to the parties to apply if there is any substantial delay in prosecuting the appeal or if, for any other reason, the assistance of the Court is required.[21] Costs on this application are reserved.__________________________Woolford J