100 Investments Limited v Walker
[2020] NZHC 3248
•9 December 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-001160
[2020] NZHC 3248
BETWEEN 100 INVESTMENTS LIMITED
First Plaintiff/First Respondent
FTG SECURITIES LIMITED
Second Plaintiff/Second RespondentRFD FINANCE LIMITED
Third Plaintiff/Second RespondentTOMANOVICH HOLDINGS LIMITED
Fourth Plaintiff/Fourth Respondent
AND
ROBERT BRUCE WALKER
First Defendant
JOHN MARSHALL SCUTTER
Second Defendant/Contd over
Hearing: 3 December 2020 Appearances:
D R Bigio QC and N R Frith for Third Defendant/First Applicant J Macgillivray for Fourth Defendant/Second Applicant
A Barker QC and R Selby for Plaintiffs/Respondents No appearance for or by First Defendant
No appearance for or by Second Defendant
Judgement:
9 December 2020
JUDGMENT OF WYLIE J
[Security for costs – first and second applicants]
This judgment was delivered by Justice Wylie
On 9 December 2020 at 2.00pm Pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:…………………………
100 INVESTMENTS LTD v WALKER [2020] NZHC 3248 [9 December 2020]
LPF GROUP LIMITED
Third Defendant/First Applicant
SPF NO 10 LIMITED (IN LIQUIDATION)
Fourth Defendant/Second Applicant
Solicitors:
Hucker & Associates/A Barker QC, Auckland Tompkins Wake, Auckland
MinterEllisonRuddWatts/D Bigio QC, Auckland
Introduction
[1] The third defendant/first applicant, LPF Group Limited (“LPF”) and the fourth defendant/second applicant, SPF No 10 Limited (“SPF”), seek security for costs from the plaintiffs. LPF seeks $250,000 by way of security. SPF seeks $150,000. They further seek that the proceeding should be stayed until security is provided.
[2] The plaintiffs accept that they should provide security. They have already agreed to pay security in favour of the second defendant, Mr Scutter, in the sum of
$70,000. They made an open offer to pay $70,000 by way of security in respect of LPF’s application, and $45,500 (a 35 per cent discount) in respect of SPF’s application. They offered to pay these sums by way of staged payments – $20,000 now, $30,000 when their briefs are served, and $20,000 immediately prior to the commencement of the hearing for LPF, and two thirds of each payment at the same times for SPF. They accept that LPF and SPF should have leave to apply for further security in the event that it becomes likely that the trial duration will exceed five days.
Background
[3] These proceedings arise out of the collapse of Property Ventures Ltd (in liquidation) (“PVL”). PVL was controlled by David Henderson. Two of the four plaintiffs, RFD Finance Ltd and Tomanovich Holdings Ltd are also controlled by Mr Henderson. The other two plaintiffs, 100 Investments Ltd and FTG Securities Ltd are controlled by two solicitors, Clive Cousins and Grant Smith. Mr Hide, who is a director of 100 Investments Ltd, has deposed that Mr Cousins and Mr Smith hold the shares in 100 Investment Ltd’s shareholder company as bare trustees. The identity of the beneficial owner has not been disclosed.
[4] The background to the proceedings was helpfully summarised by Venning J in an earlier interlocutory.1 I gratefully adopt his summary:
[2] [PVL] was the parent company for a number of subsidiaries involved in individual property developments and investments. The relevant subsidiaries in relation to the plaintiffs’ claims are:
(a)Lichfield Ventures Ltd;
1 100 Investments Ltd v Walker [2020] NZHC 165.
(b)Cashel Ventures Ltd;
(c)Tuam Ventures Ltd;
(d)Tay Ventures Ltd;
(e)Castle Street Ventures Ltd;
(f)Livingspace Properties Ltd; and
(g)St Asaph Ventures Ltd.
[3] PVL was placed in liquidation on 25 July 2010. Mr Walker [the first defendant] was appointed liquidator.2 Mr Scutter was appointed joint liquidator of PVL with Mr Walker from 4 June 2013. He remained in that role until 22 March 2018.
[4] At various dates between 13 December 2010 and 9 February 2012 the above subsidiaries were also placed in liquidation. Mr Walker was appointed sole liquidator of the subsidiaries.3
[5] In 2012, Mr Walker brought proceedings against PVL’s former directors … PriceWaterhouseCoopers … Fright Aubrey Ltd and Richard Gibbons (jointly the PVL defendants) in relation to alleged breaches of duty said to have contributed to the PVL Group’s collapse in 2010 (the PVL proceedings). On 27 May 2014, a further and separate set of proceedings brought against the PVL defendants was consolidated with the PVL proceedings.
[6] To fund the claim, the liquidators entered a litigation funding agreement with SPF … SPF was a special purpose vehicle incorporated for the purpose of the PVL proceedings. It was a wholly owned subsidiary of LPF
…
[7] At various dates between 2014 and 2017 the liquidators of PVL reached confidential settlements with each of the PVL defendants (apart from the former directors). Under the settlements the PVL defendants agreed to pay certain amounts to the liquidators. In 2018, after concluding a final settlement with PVL’s former directors the liquidators discontinued the PVL proceedings.
[8] The plaintiffs in this proceeding, 100 Investments Ltd, FTG Securities Ltd, RFD Finance Ltd and Tomanovich Holdings Ltd allege that they were and are secured creditors of the above PVL subsidiaries, by reason of various assignments of security interests originally held over the subsidiaries by other creditors. As the PVL subsidiaries were also plaintiffs in the PVL proceedings, the plaintiffs claim they are entitled to a portion of the settlement proceeds. They seek to recover the same against Mr Walker and Mr Scutter as liquidators and against SPF and LPF as recipients of the settlement proceeds.
2 The liquidation was stayed until 10 February 2012.
3 Four other subsidiaries were also placed in liquidation. They are not relevant for present purposes.
[5] Once SPF had paid the funds it received from the PVL settlements to LPF as its parent, it was put into liquidation by special resolution of LPF as its sole shareholder. SPF was removed from the Companies Register on 4 April 2019.
[6] On 18 June 2019, the plaintiffs issued these proceedings. They subsequently sought an order that SPF should be restored to the Companies Register. In a judgment dated 1 May 2020, Associate Judge Andrew ordered that SPF be restored to the Register and granted the plaintiffs leave under s 248(1)(c) of the Companies Act 1993 to bring the proceedings against SPF. In the course of his judgment, Associate Judge Andrew described the plaintiffs’ claims as “weak”.4
[7] SPF was restored to the Register on 1 July 2020, and Jeffrey Meltzer was appointed as its liquidator. SPF has no assets with which to defend the proceedings and it is relying upon funding from LPF to defend the claim made by the plaintiffs.
Relevant rules
[8] The jurisdiction to require a plaintiff to provide security for costs is found in r 5.45 of the High Court Rules. Relevantly, it provides as follows:
5.45 Order for security of costs
(1)Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—
(a)…
(b)that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff’s proceeding.
(2)A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.
(3)An order under subclause (2)—
(a)requires the plaintiff or plaintiffs against whom the order is made to give security for costs as directed for a sum that the Judge considers sufficient—
4 100 Investments Ltd v Register of Companies [2020] NZHC 880 at [63].
(i)by paying that sum into court; or
(ii)by giving, to the satisfaction of the Judge or the Registrar, security for that sum; and
(b)may stay the proceeding until the sum is paid or the security given.
…
[9] In order to determine the applications for security in this case, I am required to consider the following:5
(a)is there reason to believe the plaintiffs will be unable to pay the costs if the defendants’ claims are unsuccessful?;
(b)in all the circumstances of this case, is it just that I should order the giving of security?;
(c)if so, what amount is appropriate and when should it be provided?; and
(d)should I stay the proceedings until such time as security has been provided?
[10] It was common ground that whether or not a Court should order the giving of security and if so, in what sum and when, are discretionary. They are matters for the Judge as he or she thinks fit in all the circumstances. The discretion is not fettered by constructing “principles” from the facts of previous cases.6
Analysis
[11] Here, there was no dispute that r 5.45(1)(b) is engaged. It appears that none of the plaintiffs owns any property. Initially, the first plaintiff was recorded as being the registered owner of a property in Lichfield Street in Christchurch. However, Mr Hide, a director of the first plaintiff, has since deposed that the first plaintiff has sold this property. Mr Hide does not say what the first plaintiff did with the sale proceeds, or
5 Busch v Zion Wildlife Gardens Ltd (in rec and liq) [2012] NZHC 17.
6 A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13].
whether any of the proceeds have been retained. The second plaintiff is the subject of a defended liquidation application, having failed in an application to set aside a statutory demand for a costs award of $42,133 in favour of the BNZ. This Court has observed in other proceedings that the fourth plaintiff is a non-trading company which does not appear to have any assets.7 All plaintiffs are recorded as having granted general security interests, securing unknown amounts, to secured parties. In effect, the plaintiffs have accepted that there is reason to believe that they might be unable to pay the costs of the defendants if their claims are unsuccessful.
[12] Nor was there any argument before me that an order fixing security is just in the circumstances of this case. As I have noted, the primary issue between the parties was as to quantum.
[13] Assessing quantum is a discretionary exercise rather than a mathematical calculation.8 The Court must endeavour to fix an amount that is appropriate in the interests of justice, having regard to all the circumstances of the case. Security is not necessarily fixed by reference to likely costs awards. Rather, security falls to be fixed in such sum as the Court thinks fit in all the circumstances.9 Relevant circumstances can include:10
(a)the amount or nature of the relief claimed;
(b)the nature of the proceeding, including its complexity;
(c)the estimated trial duration;
(d)probable costs payable;
(e)estimated actual costs;
7 Tomanovich Holdings Ltd v Gibston Community Walker Co 2014 Ltd [2018] NZHC 990 at [72].
8 Sharp v Pillay [2017] NZHC 647 at [17].
9 A S McLachlan Ltd v MEL Network Ltd, above n 6.
10 A S McLachlan Ltd v MEL Network Ltd, above n 6 at [21].
(f)the funding available to the plaintiff, particularly where the plaintiff is a nominal plaintiff representing the interests of other parties; and
(g)the merits of the dispute, acknowledging that in many cases there will be a very real limit as to how far such enquiries can be taken. In complex matters, any assessment will necessarily be no more than a matter of impression, and cannot be a definite indicator of the ultimate outcome after trial.
[14] There are a number of examples of security orders made by the Court set out in McGechan on Procedure.11 Security ordered has ranged from approximately 50 per cent of the amount sought up to approximately 90 per cent of the amount sought, depending on the circumstances of each case. In my view, these various examples are at best of limited assistance and they offer general guidance only. They cannot substitute for a careful assessment of the circumstances of the case.
[15]In the present case, I note the following:
(a)The amount of money the subject of the proceedings is large. I do not set out the amounts the PVL defendants either individually or collectively agreed to pay to Mr Walker and Mr Scutter as liquidators, because, with the consent of the parties, I have already made confidentiality orders in this regard both to protect the privacy of the PVL defendants and to respect the confidential settlements reached. Moreover, it is common ground the amount sought by the plaintiffs will be less than the total settlement figure because costs were incurred in achieving the settlements. Nevertheless, suffice it to say that the amount sought in the proceeding is not insignificant.
(b)The proceedings are complex. There are five causes of action – conversion, money had and received, ss 43 and 44 of the Personal Property and Securities Act 1999, breach of s 301 of the Companies Act 1993 by Mr Walker, and breach of the same provision by both
11 A C Beck and others McGechan on Procedure (online ed, Thomson Reuters) at [HR5.45.10].
Mr Walker and Mr Scutter. Liability is likely to turn on a fine analysis of complicated and detailed commercial agreements – in particular the litigation funding agreement – and also on the actions, particularly of Mr Walker as initial liquidator of PVL. Issues of standing are likely to arise – do the plaintiffs have standing to bring this proceeding? Are the plaintiffs secured creditors of the PVL subsidiaries by virtue of the assignments of alleged security interests originally held over the subsidiaries by other creditors? Are the assignments of the alleged security interests to the plaintiffs effective? These questions will have to be answered in respect of each of the subsidiaries; their circumstances are different. Other questions likely to be in issue – for example, whether or not the plaintiffs’ causes of action against LPF extend to the funds paid first to SPF and then to LPF?; whether LPF’s claims to the funds paid to SPF pursuant to the litigation funding agreement is superior to the plaintiffs’ alleged security interests?; whether the plaintiffs’ alleged security interests in the assets of the PVL subsidiaries extend to the proceeds of settlement of the PVL proceedings, and whether the litigation funding agreement entered into between Mr Walker and SPF operates in priority to the plaintiffs’ alleged security interests in each of the PVL subsidiaries? Another issue which may arise is whether any or all of the PVL subsidiaries were bound by the litigation funding agreement or otherwise were required to account for the costs of prosecuting the PVL proceedings and, if so, how this affects the plaintiffs. Mr Walker’s actions in entering into the litigation funding agreement are likely to be carefully scrutinised. It may be necessary to consider whether or not Mr Walker had alternative options and whether the plaintiffs acquiesced in the bringing of the PVL proceedings. In relation to the plaintiffs’ cause of action in conversion, the Court is likely to be asked to determine whether conversion can apply to the settlement proceeds and whether conversion can lie in respect of a secured asset against a third party when that party has not taken a disposition of the asset in question. In relation to the action for monies had and received, the Court is likely to be asked to consider whether there was a qualifying mistake by
Mr Walker and/or Mr Scutter when they decided not to apportion the settlement proceeds between the PVL plaintiffs. In relation to the causes of action under the Personal Property and Securities Act, the Court is likely to be asked whether ss 43 and 44 of the Act apply to the proceeds of collateral received by a party other than a debtor where that party did not acquire the collateral itself. There are also likely to be issues about what part of the settlement proceeds (if any) ought to have been available for distribution between each of the PVL subsidiaries and, if a portion ought to have been available, how much should have been allocated to each PVL subsidiary. If a portion of the settlement proceeds ought to have been made available for distribution between the PVL subsidiaries, the Court is likely to be asked how much should have been allocated to each PVL subsidiary from each of the three settlements resulting from the PVL proceeding. None of these issues is likely to be simple and, in part, each is likely to have its own discrete factual setting.
(c)The plaintiffs say that the case will take five days; the defendants, 15 days. In my judgment, five days will not suffice. There will be one appearance for the plaintiffs (although two counsel will likely be required). Mr Walker is appearing for himself. Mr Scutter is legally represented. Both LPF and SPF are separately represented. LPF has indicated that it will probably call three witnesses. Mr Walker will almost certainly have to give evidence. So I suspect will Mr Scutter. This Court has already observed that there is a bitter feud between Mr Henderson and Mr Walker.12 That has the potential to obfuscate the issues and extend the time the matter might otherwise take. The matter is at a very early stage, but I am nevertheless confident that it is unlikely to conclude within five days. LPF has prepared a timeline which comes to 14.25 days. This timeline looks reasonably realistic to me. I cannot be sure at this early stage that the matter will take 15 days, but this estimate seems not unrealistic to me as matters currently stand.
12 Henderson v Walker [2019] NZHC 2184 at [1].
(d)LPF’s calculation of $250,000 assumes costs on a 2B basis for all steps other than discovery, which has been assessed on a band C basis. Scale costs are assessed at $158,218. This includes an allowance for second counsel and allows for a 15-day hearing. It includes an allowance for expert fees of $100,000. SPF has not separately calculated its likely costs. It accepts that its case will in large part overlap with LPF’s case, but says that it is unlikely to be identical.
(e)Neither the third nor the fourth defendant has given me an estimate of its actual costs going forward –both say that scale costs are conservative, given the likely complexity of the proceedings and the plaintiffs’ conduct to date. Both assert that their estimated actual costs will more than likely exceed scale costs.
(f)I know nothing of any funding available to the plaintiffs. This is not disclosed in any of the affidavits filed.
(g)As for the merits, as I have noted there are five causes of action pleaded. There are affirmative allegations in some of the statements of defence. Counsel endeavoured to persuade me that the merits were in their client’s favour, and both LPF and SPF pointed to Associate Judge Andrew’s assessment, noted in [6] above. I am in no position to make an informed assessment as to the merits of the claims made or of the affirmative assertions in some of the statements of defence. Obviously I have not seen the evidence to be adduced by either the plaintiffs or the defendants. The merits of this case at this early stage are so diffuse that I found this factor of little or no assistance.
[16] The need for expert evidence was disputed. As noted, LPF seek an allowance of $100,000 for expert evidence. They supported that claim with a letter from their intended expert, Bill Apps. He has estimated the costs he says he is likely incur in addressing various defined issues. His estimate falls between $65,000 and $115,000, plus office service fees, disbursements and GST. The plaintiffs disputed the necessity for expert evidence at all. They argued that the various matters Mr Apps says he will
assess are issues of fact for the Court. It was submitted that it is difficult at this stage to see that expert evidence will be necessary, and that it is inappropriate for an allowance to be made now for the calling of expert evidence.
[17] I have reservations about the plaintiffs’ assertion. Broadly, I do not accept the argument that the defendants should be constrained by the plaintiffs’ views in determining what witnesses it is necessary for them to call to defend the claim; in my view, it is not for a plaintiff to dictate how a defendant should respond to a claim, particularly a claim such as this, raising novel issues and seeking a substantial sum. Both the third and fourth defendants are sued separately. I do not consider that the defendants should feel constrained in resisting the claims as they see fit. If I ultimately conclude that expert evidence has been called for no good reason, this could well sound in costs against the party who has wasted the Court’s time. There is however nothing that I can see at this stage which suggests that LPF is proposing to call an expert needlessly. Prima facie the topics which it has been suggested the expert should cover are likely to be in issue. While ultimately their resolution will be for me, expert evidence may well assist me in that regard. I am prepared to make an allowance for an expert, albeit not in the sum claimed.
[18] The plaintiffs also challenged the award of a large sum by way of security for SPF. They pointed out that SPF is a 100 per cent owned subsidiary of LPF, that it has no separate personnel, and that to date its stance in the proceeding has been identical to that taken by LPF. As against this, I note Mr Meltzer’s assertion – as liquidator of SPF – that it is necessary for SPF to be separately represented. Mr Meltzer has duties as a liquidator. While he accepted that there is likely to be some overlap in SPF’s and LPF’s respective cases, there are some issues where the stance of SPF and LPF may not be the same. For example, SPF was a signatory to the litigation funding agreement. Mr Meltzer says LPF was not. What if any consequences flow from this is unclear, but it suggests that separate submissions will be required from both entities. I agree with the plaintiffs that a one third discount from the security fixed for LPF is appropriate.
[19] Taking all of these various matters into account, in my judgment, the amounts offered by way of security by the plaintiffs are too low, but the amounts sought by LPF
and SPF are too high. I fix security in favour of LPF in the sum of $175,000. This sum comprises $125,000 on account of legal and other costs arising out of the proceedings and makes an allowance of $50,000 for anticipated expert fees. I have accepted the plaintiffs’ argument that it is appropriate to discount the security payable to SPF given that it is a wholly owned subsidiary of LPF and because its case is likely to mirror, at least in part, LPF’s case. I fix security in favour of SPF in the sum of
$83,375. No allowance is made for anticipated expert fees for SPF. It is not at this stage proposing to call an expert.
[20] All counsel accepted that staging is appropriate. I agree with Mr Bigio that staging should be weighted towards discovery and the briefing of evidence. Both are cost intensive steps and, in my view, the third and fourth respondents should not be required to incur the costs of these steps unless adequate security is in place. No timetable has yet been put in place for the disposal of these proceedings. However, discovery will be the first step. I do not consider it desirable to stage the giving of security by reference to the completion of the steps which will be required to ready the matter for hearing. It is better to put in place fixed dates, which accord as near as maybe with the anticipated timeframes for discovery and the filing of evidence. Uncertainty, or worse, a delay in preparation to avoid the necessity for payment, is thereby avoided.
[21]Accordingly, I direct as follows:
(a)$62,500 is to be paid to the Registrar, or secured to the Registrar’s satisfaction, by way of security for LPF on or before Friday 29 January 2021.
(b)$41,687.50 is to be paid to the Registrar, or secured to the Registrar’s satisfaction, by way of security for SPF on or before Friday 29 January 2021.
(c)The balance of $112,500 payable in respect of security for LPF is to be paid to the Registrar, or secured to the Registrar’s satisfaction, or on before Wednesday 30 June 2021.
(d)The balance of $41,678.50 payable in respect of security for SPF is to be paid to the Registrar, or secured to the Registrar’s satisfaction, on or before Wednesday 30 June 2021.
[22] I have not directed that security be paid to the plaintiffs’ solicitors, and subject to undertakings, as sought by the plaintiffs. It seems to me to be preferable that the monies should be paid to the Registrar or secured to the Registrar’s satisfaction, in accordance with customary practice. This avoids any dispute as to the wording of undertakings. Moreover, if the plaintiffs propose to offer security for the payments ordered, the Registrar will be an independent arbiter entrusted with ensuring that the security offered is appropriate and sufficient.
[23] Although it is discretionary under r 5.45(3)(b), the Court generally stays a proceeding until the security ordered is given.13 In this case it is appropriate to order that the proceedings be stayed until the first payments are made on 29 January 2021. This largely coincides with the Christmas break so there will be little if any delay to the proceedings.
[24] Leave is reserved to both defendants to come back to the Court and seek further security in the event that the security I have ordered is likely to be insufficient because of some material change in the circumstances of this case.
Costs
[25] All parties have achieved a measure of success – the amount I have ordered the plaintiffs to pay by way of security is higher than that offered but less than that sought. It is my preliminary view that costs should lie where they fall. If any party disagrees, then I direct as follows:
(a)within 15 working days of the date of this judgment, the third and/or fourth respondents are to file a memorandum/memoranda setting out the costs and disbursements it/they seek to recover;
13 Tomanovich Holdings Ltd v Gibbston Community Water Company 2014 Ltd [2018] NZHC 990.
(b)within a further 15 working days, the plaintiffs are to respond by way of memorandum to any claim/claims made for costs and disbursements, and indicate whether or not they seek costs and disbursements and if so, the costs and disbursements they seek to recover;
(c)in the event that the plaintiffs seek costs and disbursements, then the third and/or fourth respondents are to file a reply/replies within a further 10 working day period. Such reply/replies are to be strictly limited to any claim for costs and disbursements that may be made by the plaintiffs.
[26] I will then deal with the issue of costs and disbursements on the papers unless I require the assistance of counsel.
General
[27] The Registrar is to arrange a telephone conference on the first available date in February 2021. By that date, the first payments of security should have been made. I expect counsel to advise a proposed timetable to bring this matter on for hearing at that telephone conference.
Wylie J
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