SALE 33 LIMITED v M D DESIGNER INTERNATIONAL LIMITED & ORS [2015] NZHC 2403

SALE 33 LIMITED v M D DESIGNER INTERNATIONAL LIMITED & ORS [2015] NZHC 2403 [10 October 2016]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2015-404-2353[2015] NZHC 2403BETWEEN SALE 33 LIMITEDPlaintiffAND M D DESIGNER INTERNATIONALLIMITEDFirst DefendantAND MARIA SIMPSONSecond DefendantAND DAVID JOHN GRAEME COXThird DefendantHearing: 3 October 2016Appearances: M Kilman for the Applicants/DefendantsB Gustafson for the Respondent/PlaintiffJudgment: 10 October 2016JUDGMENT OF THOMAS JThis judgment was delivered by me on 10 October 2016 at 12.30 pmpursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate:.Solicitors:Anderson Creagh Lai Limited, Auckland.Lowndes Jordan, Auckland.Introduction[1] In November 2015, the plaintiff/respondent applied for an interim injunction seeking orders that the first and third defendants cease operating a brothel, escort service or any other prostitution related activity from the apartment leased by the first defendant from the plaintiff at 33 Sale Street, Auckland (the Apartment). The application was dismissed.[2] The Court of Appeal dismissed the plaintiff's appeal from that decision on27 July 2016.[3] The defendants/applicants have now applied to strike out the substantive proceeding on the basis it is frivolous and vexatious and an abuse of process. The plaintiff opposes the application.Background[4] The plaintiff owns all of the building at 33 Sale Street, Auckland (the Building). The Apartment is a five bedroom loft style apartment. It is the only residential unit in the Building. There are four other tenants, including a restaurant located on the ground level (the Restaurant).[5] Pursuant to a document described as a Residential Tenancy Agreement, the plaintiff leased the Apartment to the first defendant, M D Designer International Ltd (the Company), for a term of one year from 23 July 2015.[6] The second defendant, Maria Simpson, became a director of the Company on 13 August 2015 and is now its sole shareholder and director. The third defendant, David Cox, was, until 13 August 2015, the sole shareholder and director of the Company.[7] Maria Simpson is married to David Simpson who is a former solicitor and an undischarged bankrupt. He forwarded the tenancy application for the Apartment tothe real estate agents acting for the plaintiff. The applicant was shown as the Company and the email address was that of Mr Simpson.[8] In his email attaching the application, Mr Simpson said:Please find attached an application for 33 Sale Street. By way of background, M D Designer International Limited is a company owned byJohn Cox, solicitor. The company's business is legal consultancy andfashion modelling and styling. We provide consultancy services to the company and the tenancy is part of a corporate package.[9] The occupancy details in the application stated that those intending to reside in the Apartment were Maria and David Simpson and two children.[10] The application was signed by Mr Cox.Pleadings[11] The plaintiff's statement of claim includes a claim under the Fair Trading Act 1986 (the FTA), claiming the application for the tenancy and accompanying email were misleading and deceptive for reasons including that the email stated theCompany's business was legal consultancy, fashion modelling and styling; that the only tenants would be Mr and Mrs Simpson and two children; that it was always intended that a brothel would be operated from the Apartment and this was not disclosed.[12] The plaintiff claims the misleading conduct encouraged and caused it to grant the lease to the Company and, had the misleading conduct not occurred, it would not have granted the lease. It says the lease and operation of a brothel from the Apartment caused damage and loss to the plaintiff because the Building was devalued by having a brothel operate from the Apartment; future tenants of the Apartment would be less inclined to rent it if it had previously been used as a brothel; future tenants of other parts of the Building were less likely to rent those premises or pay a premium for them; and current tenants of the Building, whose quiet enjoyment was disturbed by operation of the brothel, might sue the plaintiff for nuisance emanating from the common areas or seek to cancel existing leases for breach.[13] The second cause of action is in nuisance, claiming that the operation of abrothel from the Apartment created a nuisance which disturbed the plaintiff's quietenjoyment of the Building and caused the plaintiff loss in similar terms to that claimed in respect of the breach of the FTA.[14] By its amended statement of claim, the plaintiff includes a third cause of action claiming damages pursuant to s 6 of the Contractual Remedies Act 1979 (the CRA) in respect of the alleged misrepresentation.[15] The claimed compensation pursuant to s 43 of the FTA, and for damages pursuant to s 6 of the CRA, are to be particularised before trial. This has not yet occurred.[16] The defendants deny the allegations.Application for strike out[17] The grounds on which the application is brought are:(a) The proceeding is concerned with a residential tenancy dispute in respect of the Apartment.(b) The Residential Tenancy Tribunal (the Tribunal) has determined thatthe Apartment is a "residential premises" for the purpose of theResidential Tenancies Act 1986 (the RTA) and accordingly the Tribunal has exclusive jurisdiction over any disputes concerning it.(c) The plaintiff did not appeal that decision.(d) One of the key issues the Court would be called upon to determine if the proceeding continues is the jurisdiction issue.(e) The jurisdiction issue has already been fully and finally determined by the Tribunal and the plaintiff is estopped from asking the High Court to determine this issue again in the proceeding.(f) The proceeding does not appear to be within the jurisdiction of the High Court in that the quantum of the claim does not exceed $200,000.[18] The defendants therefore say the proceeding should be struck out on the grounds that the High Court has no jurisdiction and the proceeding is an abuse of process.[19] The plaintiff opposes the application on the grounds:(a) Whether or not the potential damages are less than $200,000 is not a ground to strike out.(b) The application in the Tribunal was an unsuccessful application for an urgent interim injunction bought by the defendants.(c) The defendants' position that the Tribunal conclusively determinedthe jurisdiction issue is misconceived, and ignores the judgment of the Court of Appeal in relation to these proceedings.(d) Issue estoppel on jurisdiction cannot arise from determination of an interim injunction by the Tribunal.(e) The High Court has inherent jurisdiction to hear claims that inferior Courts cannot. The Tribunal does not have jurisdiction to hear claims under the FTA.(f) The Tribunal does not have jurisdiction to determine the jurisdiction of the High Court in this case.Strike out principles[20] Under r 15.1(c) and (d) of the High Court Rules, the Court may strike out any proceeding if it is frivolous or vexatious, or is otherwise an abuse of the process ofthe court. The Court of Appeal in Commissioner of Inland Revenue v Chesterfields Preschools Ltd said:1 In regards to r 15.1(1)(c), a "frivolous" pleading is one which trifles withthe court's processes, while a vexatious one contains an element of impropriety.[96]Rule 15.1(1)(d) — "otherwise an abuse of process of thecourt" — extends beyond the other grounds and captures all other instances of misuse of the court's processes, such as a proceedings that has been brought with an improper motive or are an attempt to obtain a collateral benefit. An important qualification to the grounds of strike out listed in r 15.1(1) is that the jurisdiction to dismiss the proceeding is only used sparingly. The powers of the court must be used properly and for bona fide purposes. If the defect in the pleadings can be cured, then the court would normally order an amendment of the statement of claim.[21] In addition, an "abuse of process" has been held to cover attempts torelitigate matters already determined,2 and the duplication of proceedings,3 or the continuation of a stale proceeding.4[22] Pleaded facts, whether or not admitted, are assumed to be true though this does not extend to pleaded allegations which are entirely speculative and without foundation. The court will not strike out a claim summarily unless it can be sure that it cannot succeed.5Jurisdiction[23] The defendants say the Tribunal's finding that the Apartment is "residential premises" authoritatively determines that the dispute falls within the RTA, and thatthe Tribunal has exclusive jurisdiction. The decision was final and binding and subject to the principles of res judicata. It has determined where any dispute about the tenancy should be heard.[24] The plaintiff claims that the Tribunal decision was not a definitive finding. It relies on the fact that the Court of Appeal said the question of jurisdiction – and1 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53, [2013] 2 NZLR 679 at [89] (footnotes omitted).2 Hunter v Chief Constable of the West Midlands Police [1982] AC 529 (HL) at 541.3 Otis Elevator Co Ltd v Linnel Builders Ltd (1991) 5 PRNZ 72 (HC).4 Tau v Durie [1998] 2 NZLR 103 (HC) at 107.5 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33] per Elias CJ and Anderson J.necessarily the question of "residential premises" – was still to be determined after the High Court injunction decision.[25] In full, the Court of Appeal said:[7] We do not read the Judge's decision as having the effect of finally determining the issue of jurisdiction. The Judge made her decision in the context of an application for interim injunctive relief. In some cases the issue of jurisdiction may need to be determined substantively during the interlocutory process. In the present case, however, we do not consider that was possible. On the evidence as it stands, arguments run both ways. Resolution of the issue will ultimately require a detailed analysis of the nature and extent to which the respondents have used the apartment for commercial and residential purposes. Those are intensely factual issues, and the respondents' evidence will in all probability need to be tested by cross- examination. The important point for present purposes is that the issue could not be finally resolved in the context of an interlocutory application in respect of which the Court was obliged to proceed on an incomplete and untested factual basis.[8] Following delivery of the judgment in the High Court the question of whether or not the apartment had been used principally as a residence or for commercial activities therefore remained a live issue to be determined in the future by the High Court or the Tenancy Tribunal.[26] The footnote at the end of paragraph 8 read:Following delivery of the High Court judgment in this case the Tenancy Tribunal issued a declaration that the premises were at all times residential premises to which the Residential Tenancies Act applies in determining an application lodged with the Tribunal by M D Designer, Ms Simpson and Mr Simpson: M D Designer International Limited v Sales 33 Limited TT Auckland 15/02720/AK, 5 January 2016.[27] The Court answered the question which was put before it, which was whether the question of jurisdiction had been determinatively considered in my decision. TheCourt's response was that it had not and that, following my decision, the issueremained a live issue to be determined in future by the High Court or Tribunal. The Court then noted that, subsequently, the Tribunal had in fact determined the point. As the Court had observed, either the Tribunal or the High Court could determine jurisdiction after my decision.Tribunal decision[28] The plaintiff submits that the Tribunal decision was an interim one only and jurisdiction could not be ruled on without assessing all of the factual matrix in accordance with the Court of Appeal's observations.[29] The defendants submit that the plaintiff did not appeal the Tribunal decision and it was a final declaration having heard evidence on the matter.[30] The Tribunal's order pursuant to ss 77(2)(a) and 78(1)(a)(i) of the RTA was that:By way of declaration, following the recent High Court's decision on jurisdiction, the premises were at all material times residential premises towhich the Residential Tenancies Act 1986 applies.[31] The Tribunal cited case law on the question of what a residential tenancy was before coming to a conclusion. It referred to the evidence it had heard about the tenancy. The decision had many of the features the Court of Appeal said would be necessary for a definitive finding about the nature of the lease. The Tribunal thensaid it concurred with my observations and "is bound by [the High Court] decision on jurisdiction".[32] The application to the Tribunal was, however, dismissed. The application had been brought in the Tribunal by the first and second defendants and David Simpson. They claimed the plaintiff had engaged in harassing behaviour in breach of s 38 of the RTA. They sought urgent ex parte interim orders to prevent the plaintiff committing further breaches of the RTA. The Tribunal declined to make those orders and instead an urgent hearing on notice was held in October 2015. Mr Simpson gave evidence.[33] Mr Gustafson, for the plaintiff, refers to the way in which the order was expressed, that is, the declaration was made "following the High Court's decision on jurisdiction". It is somewhat ambiguous as to whether the word "following" meant "later in time" or "in accordance with". If the latter, then the plaintiff's position hassome merit. The context of my decision was an application for interim relief and, asthe Court of Appeal confirmed, the analysis of jurisdiction must be considered in that light. Furthermore, the decision recognised that the principal use of premises was a question of degree.6 The decision also referred to the application then before the Tribunal noting:[47] The Company previously applied to the Tribunal for urgent interim orders including a declaration that its use of the Apartment was lawful. A hearing took place and viva voce evidence was given, including as to use. The decision has not yet been delivered by the Tribunal. The Tribunal, therefore, is already seized of this issue, has heard evidence and is best placed to make the factual finding on actual use of the Apartment.[34] Ms Kilham notes that Mr Simpson gave evidence and was cross examined before the Tribunal, but the plaintiff chose not to have any witness available for cross examination. The comments in paragraph in [47] of my decision recorded the information before the Court at that time. All of this serves to emphasise the difficulty of having two sets of proceedings running in parallel in different jurisdictions.[35] There was nothing about the Tribunal's decision which suggested that it was temporary or "interim" in any way, despite the substantive application in the Tribunal being for interim orders. The finding as to the status of the Apartment was expressed as being a declaration. Under s 80 of the RTA, orders of Tribunal are to be final:Subject to sections 105 and 117 to 120, every order made by the Tribunal shall, unless it is expressed to be an interim order made under section 79, be final and binding on all parties to the proceedings.[36] Despite the plaintiff's concerns, this decision was not appealed.Jurisdictional cap[37] This is not, however, the end of the matter. The plaintiff relies on s 77(5) of the RTA which provides:(5) Despite subsection (1), the Tribunal does not have jurisdiction to require any party to pay any sum, or to do any work to a value, or otherwise to incur any expenditure, in excess of $50,000.6 At [37].[38] Because an application to strike out must proceed on the basis that the pleadings are taken at their highest, Mr Gustafson submits that this provision alone means the application cannot succeed.[39] Ms Kilham objects to this approach, pointing out that the strike out hearing was the first occasion on which the plaintiff has raised this issue. In her submission, the plaintiff has had ample opportunity to put evidence of quantum before the Court and even now the plaintiff's claim does not show that it exceeds the monetaryjurisdiction of the Tribunal. She notes that the rental paid by the defendants was $1,650 per week and the defendants understand the Apartment has been re-let. In those circumstances, in her submission it is inconceivable that the plaintiff's claimwill exceed $50,000.[40] Ms Kilham refers to s 10 of the RTA in contending that the onus is on the plaintiff. However, s 10 applies to proceedings before the Tribunal.[41] The plaintiff's claim is on the basis of reputational damage to the Building which includes not only the Apartment but other commercial premises. Mr Gustafson concedes that the Apartment may have been re-let but, he says, this has occurred relatively recently and the plaintiff has not yet been in a position to instruct an expert to carry out an assessment of the damages.[42] In my decision on the application for an interim injunction, I noted there was no evidence from any of the other tenants of the Building. Again, however, that was in the context of the application for an interim injunction. On a strike out application, I cannot predetermine what evidence the plaintiff might be able to bring to the Court in support of its claim. The damages claim is not limited to the rental the plaintiff is able to obtain for the Apartment. It relates to the whole Building.[43] For that reason, the application to strike out cannot succeed because the Courtcannot be sure that the plaintiff's claim is within the jurisdiction of the Tribunal.Fair Trading Act[44] I will also address the second jurisdictional issue which relates to theplaintiff's claim under the FTA.[45] The defendants submit that the same orders the plaintiff seeks under the FTA can be made in the Tribunal, and, relying on World TV Ltd v Best TV, that the"general" FTA should not override specific legislation operating as a code such asthe RTA.7[46] The plaintiff submits that the defendants are asking that the Court determine in a strike out context whether the FTA can apply to residential tenancies. It points to the purpose of the FTA, and the fact that the Court has inherent jurisdiction as justifying hearing the matter in the High Court. It says that the FTA and the RTA can be read together, and this is not a situation as in World TV where a party with no standing tries to use the FTA to give itself standing. It points to Fava v Zaghloul, in which Venning J held that the Tribunal had no jurisdiction under the FTA.8 It saysthat the "disconnect" between the jurisdiction of the Tribunal and the FTA creates a deficiency and the Court should use its inherent jurisdiction to remedy it.Analysis[47] Fava v Zaghloul does not suggest there is a gap in the legislation. It simply states that the Tribunal does not have jurisdiction to consider FTA claims. There is no"gap" in the legislation which needs to be filled by the use of the Court's inherentjurisdiction.[48] World TV concerned an untenable copyright claim with the applicant attempting to say that, although not a breach of copyright, the defendant's actionswere in breach of the FTA. In that context the Court said that, although within the technical wording of the FTA, the FTA had to be read subject to the code established by the Copyright Act. The purpose of the Copyright Act had to be taken into account when considering its relationship to the FTA, so that the FTA did not undermine7 Citing World TV Ltd v Best TV (2005) 11 TCLR 247 (HC) at [46].8 Fava v Zaghloul HC Auckland CIV-2005-404-6818, 28 April 2006.established categories of intellectual property protection. The case may be seen as broadly supportive of a purposive interpretive approach when interpreting statutes which conflict with each other: as arguably is the case where the RTA is expressed as being a code but Parliament has not accounted for the possibility of plaintiffs bringing claims under the FTA.[49] Under s 82 of the RTA, no court or other body shall have originating jurisdiction over any matter within the jurisdiction of the Tribunal unless proceedings in respect of that matter were commenced before that court or other body before the commencement of RTA or there has been an order for the transfer of the proceedings to the District Court.[50] The Tribunal does not have jurisdiction under the FTA. However s 77, which gives the Tribunal jurisdiction, is expressed as follows:77 Jurisdiction of Tribunal(1) The Tribunal has, subject to the Limitation Act 2010, jurisdiction to determine in accordance with this Act any dispute that—(a) exists between a landlord and a tenant or between a landlord and the guarantor of a tenant; and(b) relates to any tenancy to which this Act applies or to which this Act did apply at any material time.[51] The reasons against allowing an FTA claim to be brought in the High Court are ones of policy, as canvassed in my initial judgment.[46] It cannot have been Parliament's intention, when enacting the Act, to allow a landlord to circumvent the otherwise applicable code of the Act by tailoring its pleaded cause of action to be outside the jurisdiction of the Tribunal. I accept that, to allow this approach, would undermine the purpose of the Act, being to establish a Tribunal to determine tenancy disputes expeditiously.[52] Although the plaintiff says that it will be denied the ability to make an FTA claim if it is not allowed to bring a claim in the High Court, in substance in this case there would seem to be no denial of rights given the nature of the plaintiff's claim.The Tribunal has essentially the same powers to provide the remedy sought in this case.9[53] Furthermore, the Court of Appeal commented:[13] During the hearing we asked counsel to advise us of the issues that still remain to be determined between the parties. On the basis of their responses it appears that the only remaining issue of any substance will be the claim for damages based on pre-contractual misrepresentations made by the respondents. There does not appear to be any real issue that the respondents made representations that were false. The real issue is likely to be the quantification of damages.[14] Although it is a matter for Sale 33 and its advisors, we see little advantage in continued reliance on the cause of action under the FTA. This is essentially a dispute about representations made prior to the point at which the parties entered into a contract. That type of claim would ordinarily be determined under the Contractual Remedies Act 1979.[54] Ms Kilham points out that the outstanding issues are not limited to quantum given the statement of defence wherein the defendants deny the allegations as tomisleading conduct and misrepresentation. Despite the Court of Appeal's comments,Mr Gustafson confirms that the plaintiff intends to pursue its claim under the FTA.[55] In the circumstances of this case, where the remedy sought could equally be granted by the Tribunal, there is an issue as to whether the case should be heard in the Tribunal. However, I make no further finding on this point given the monetary cap referred to.[56] Finally, although not a reason to strike out the proceedings, the plaintiff is reminded of the jurisdiction levels of the District Court.Result[57] For the reasons given, the application is dismissed. If costs cannot be agreed the plaintiff is to file a memorandum within 28 days with any response from the defendants 14 days thereafter. Costs will be decided on the papers.9 See s 78(1), subject to the monetary cap in s 77(5).[58] The plaintiff is to file and serve particulars of its claimed damages/compensation by 11 November 2016._______________________Thomas J