BAY CITIES REAL ESTATE V RE/MAX NZ HC NAP CIV 2010-441-134 8 June 2011

IN THE HIGH COURT OF NEW ZEALAND

NAPIER REGISTRY

CIV 2010-441-134

BETWEEN BAY CITIES REAL ESTATE LIMITED

Plaintiff

AND RE/MAX NEW ZEALAND LIMITED

Defendant

AND ELANOR MACDONALD AND DAVID

SANDERSON GAUNT

Second Counterclaim Defendants

Hearing: 7 February 2011

Appearances: J Bates for Defendant in support of application for review

P S J Withnall for Plaintiff and Second Counterclaim Defendants to

oppose

Judgment: 8 June 2011 at 10:30 AM

JUDGMENT OF WHITE J

This judgment was delivered by me on 8 June 2011 at 10.30 am

pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………….

Solicitors: Michael Chung Law Office, PO Box 85, Wellington Quigg Partners, PO Box 3035, Wellington Gresson 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 into

for the area of Taradale in November 2007. The plaintiff‘s obligations under

these 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 on

1 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 of

experience 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 obligations

of 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 INVESTIGATION

The 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 INDEMNITY

28.1 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‘s

Obligations; 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 Rights

under this Guarantee (whether or not there is any express

assignment of those Rights) are deemed to be assigned to the

assignee or transferee of RE/MAX‘s Rights and Obligations.

.....

33. NO REPRESENTATIONS BY RE/MAX

33.1 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 evidence

of 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 Bay

Cities 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 Bay

Cities believes that Bay Cities‘ financial position has been caused by

the Defendant‘s actions in the first place. Because of the

misrepresentations 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 ensuring

five 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 will

imperil 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 parties

relating 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 a

determinative 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 in

the parties‘ respective bargaining strengths. While I consider that the

disclaimers, and the entire agreement and non-reliance clauses, present

hurdles 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 at

this point that I do not consider the plaintiff‘s claim to be so weak so as to be

a factor weighing against the granting of a stay.

[31] Having regard to the parties‘ submissions and all the circumstances

prevailing 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 that

there 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‘s

counterclaims for franchise fees and the plaintiff‘s claim for

misrepresentation 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 pending

resolution of the plaintiff‘s claim for misrepresentation.

The application for review

[13] The application by Re/Max for review of the Associate Judge‘s decision

granting the stay proceeds on the grounds that the Associate Judge erred in

concluding at [31] of his decision that it was ―likely‖ that there would be a

substantial 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 if

enforcement of the summary judgment was allowed to go ahead.

(b) A ―real risk‖ that Bay Cities‘ claim would be rendered nugatory was

in 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 and

Heaven 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 was

3 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 Metal

Exports 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’s

Real 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 agreement

and 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 decision

proceeds 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 is

presumed 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 not

8 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 established

that 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, being

supported in business by its international parent companies. Bay

Cities is concerned that if the judgment debt is paid then Re/Max

10

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 jurisdiction

under 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 the

Associate 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 decision

involved 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 or

was ―plainly wrong‖: Alex Harvey Industries Ltd v CIR, Kacem v Bashir12

and

McGechan on Procedure.13

Law 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 enforcement

A 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 and

12

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 of

justice for a party that has had the use of another‘s money to be

required 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 the

judgment were enforced. It is not sufficient that a miscarriage of

justice ―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 is

14

NZ Food Group Ltd v Cannell [1986] 1 NZLR 593 (HC) at 595; and Roberts’ Family Investments

Ltd 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 to

the extent that the focus was on the issue whether enforcement of the summary

judgment 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 to

recover 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; or

17

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 CP

201/97, 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 his

decision at [31];

(b) in considering that it would have constituted a ―substantial

miscarriage of justice‖ to require Bay Cities to meet the summary

judgment before having the opportunity ―to air its grievances in

court‖; 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 judgment

were enforced. In the present case the question is whether the Associate Judge erred

in 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 in

Crawford 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 the

approach 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 his

judgment I have little difficulty concluding that ‗likely‘ in r 565 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‘. In

this 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 latter

decision 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 to

be ―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 AC

617 (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 is

able to establish ―a real and substantial risk‖ of a miscarriage of justice if the

judgment 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 not

constitute an error of law or principle. On the contrary, his expression was within

the meanings of ―likely‖ and ―probability‖ accepted as appropriate in the appellate

decisions 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 the

23

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 the

respondents‘ 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 Zealand

26

Grant v NZMC Ltd [1989] 1 NZLR 8 (CA) at 13; Browns Real Estate Ltd v Grand Lakes Properties

Ltd [2010] NZCA 425 at [6] and [14]; and Rory Derham, The Law of Set-Off (Oxford University

Press, 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 the

exercise of the court‘s discretion under rule 17.29 to accept the submission for

Re/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 risk

that 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 factor

weighing 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 to

have regard ―to all the circumstances of the case‖; and

(b) Re/Max‘s counterclaims for franchise fees and Bay Cities‘ claim for

misrepresentation 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 its

claim 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 wrong‖

was 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 Bay

Cities‘ 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 in

David 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 in

David 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 the

same position arises in the context of Bay Cities‘ claim for misrepresentation which

27

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 of

success 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 sought

the 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 that

the 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, as

28

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 of

Bay 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 have

29

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 the

Associate 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 is

therefore 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 principal

debtor‘s claim against the creditor: cf Remblance v Octagon Assets Ltd32

and James

O‘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, The

Modern 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 the

apparent directorship of Ms MacDonald‘s brother, and other possible

preferential 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 the

Associate Judge or on this review of the Associate Judge‘s decision. There is

therefore no basis for considering it further.

[60] This conclusion means that none of the submissions for Re/Max in support of

its 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