Sale 33 Limited v M D Designer International Limited

[2016] NZCA 286

IN THE COURT OF APPEAL OF NEW ZEALAND

CA737/2015
[2016] NZCA 286

BETWEEN

SALE 33 LIMITED
Appellant

AND

M D DESIGNER INTERNATIONAL LIMITED
First Respondent

MARIA SIMPSON
Second Respondent

DAVID JOHN GRAEME COX
Third Respondent

Hearing:	15 June 2016
Court:	Miller, Lang and Peters JJ
Counsel:	B D Gustafson for Appellant R Butler and M C Kilham for Respondents
Judgment:	27 June 2016 at 11.00 am

JUDGMENT OF THE COURT

AThe appeal is dismissed.

BThe appellant must pay the respondents one set of costs for a standard appeal on a band A basis and usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Lang J)

1. This proceeding concerns a dispute between the landlord and a tenant of premises situated at 33 Sale Street, Auckland. 

2. The appellant, Sale 33 Limited (Sale 33), is the owner of the entire building.  In July 2015 Sale 33 leased an apartment on the top floor of the building to the first respondent, M D Designer International Limited (M D Designer).  At that time Mr Cox, the third respondent, was the sole director and shareholder of M D Designer.  The lease was for a period of 12 months from 1 August 2015 with no right of renewal.  The intended occupants were Ms Simpson, the second respondent and current sole director and shareholder of M D Designer, and her husband and two children.  The apartment in question is a five bedroom loft style apartment, and is the only residential unit in the building.  The building contains four other units, all of which are leased to commercial enterprises.  These include a well‑known restaurant situated on the ground floor of the building.

3. After Ms Simpson and her husband had taken possession, Sale 33 learned that they were using one or more of the bedrooms in the apartment to operate a massage and escort service.  When the respondents refused to agree to cease these activities Sale 33 commenced proceedings in the High Court.  Sale 33 alleged that the respondents had engaged in misleading and/or deceptive conduct in terms of s 9 of the Fair Trading Act 1986 (FTA).  It then amended the proceeding to include a claim based on pre-contractual misrepresentation.  Both claims are based on statements made by the respondents before they entered into the lease regarding the use to which they proposed to put the apartment.  They had told Sale 33 that they intended to use the apartment as a residence for the Simpson family, and to run a modelling agency and legal consultancy business from it.  They did not disclose that they also intended to use it to operate a massage and escort service. 

4. Sale 33 applied for an interim injunction under s 41 of the FTA to prevent the respondents from continuing to operate the escort and massage service from the apartment.  In a judgment delivered on 2 December 2015, Thomas J declined the application.[1]  Sale 33 appeals to this Court against the Judge’s decision.

Jurisdiction

[1]Sale 33 Ltd v M D Designer International Ltd [2015] NZHC 3029 [High Court judgment].

1. One of the principal issues argued before Thomas J related to the jurisdiction of the High Court to deal with the claim.  The respondents argued that the lease arrangement was governed by the Residential Tenancies Act 1986 (RTA).  As a result, any dispute between the parties needed to be determined by the Tenancy Tribunal and not the High Court.[2]

   [2]Residential Tenancies Act 1986, ss 77 and 82.

2. Thomas J was not satisfied that the High Court had jurisdiction in relation to Sale 33’s claims and considered that the appropriate forum for the dispute was the Tenancy Tribunal.[3]  Sale 33 has taken the Judge’s decision to be a substantive determination that the High Court does not have jurisdiction to deal with the entirety of its claim and that all of the claim must be dealt with by the Tenancy Tribunal.  It seeks clarification from this Court regarding the issue because the Tenancy Tribunal has no jurisdiction to deal with claims under the FTA.  Sale 33 would therefore be precluded from continuing with its claim under the FTA in the event that the whole of the dispute had to be determined by the Tenancy Tribunal.

   [3]High Court judgment, above n 1, at [48].

3. 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.  

4. 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.[4] 

The application for an injunction

[4]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.

1. In case she was wrong regarding the issue of jurisdiction, Thomas J went on to consider whether an injunction should be issued under s 41 of the FTA.  This required her to apply the conventional tests as to whether there was a serious issue to be tried and where the balance of convenience lay.[5]  The Judge was satisfied that there was a serious issue to be tried in relation to the issue of misrepresentations made by the respondents prior to the point at which they entered into the lease.  She considered there were doubts, however, as to whether or not the respondents were “in trade” for the purposes of s 9 of the FTA when they made those representations.[6]  She also saw logical difficulties in issuing an injunction to stop the respondents using the apartment for the purposes of a massage parlour or escort service when the misleading conduct upon which Sale 33 relies has now ceased.  All of these findings were obviously provisional, and the same issues will need to be finally determined by the court or tribunal that ultimately determines Sale 33’s claim.  

   [5]American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL); Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).

   [6]High Court judgment, above n 1, at [63].

2. The Judge also noted that Sale 33 had not adduced any evidence of damage to the businesses operated by the remaining tenants in the building, or to Sale 33 itself.[7]  This was obviously not a finding that Sale 33 has not suffered any damage, because that issue will need to be determined at trial.  Sale 33 may well have suffered damage as a result of the respondents’ activities, but the nature and extent of that damage cannot be ascertained at this stage.

   [7]At [66].

3. Although the Judge accepted that Sale 33 might have understandable concerns about the nature of the activities the respondents were carrying on from the premises, those activities were not illegal.  The Judge also observed that the lease would come to an end on 2 August 2016.  Given that fact and her provisional view that Sale 33 did not appear to have sustained any loss or damage, the Judge did not consider there was any injustice in permitting the status quo to continue.[8]  In reaching that decision, she considered that damages were likely to be an adequate remedy and that any damage that Sale 33 might suffer had probably already occurred.  These factors persuaded the Judge that the overall justice of the case did not favour the grant of the injunction.[9]

   [8]At [72].

   [9]At [75].

4. We have reached the same view and for largely the same reasons.  First, the lease will come to an end in six weeks time.  There would be little point in issuing an injunction for such a limited period unless there was clear evidence that Sale 33 is continuing to suffer significant detriment from the activities being carried on by the respondents.  More importantly, a grant of interim relief would require the Court to make assumptions regarding issues such as jurisdiction that we do not consider can be properly made at this stage in the proceeding.  We therefore decline to interfere with the Judge’s decision not to issue an injunction.

Remaining issues

1. 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. 

2. 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.

Result

1. The appeal is dismissed. 

2. The appellant must pay the respondents one set of costs for a standard appeal on a band A basis and usual disbursements.  We decline to entertain increased costs.

Solicitors:
Lowndes Jordan, Auckland for Appellant
Anderson Creagh Lai Ltd, Auckland for Respondents