AFFCO New Zealand Ltd v NZ Premium Trading Company Ltd
[2017] NZHC 2218
•13 September 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2015-004-000368 [2017] NZHC 2218
BETWEEN AFFCO NEW ZEALAND LTD
Plaintiff
AND
NZ PREMIUM TRADING COMPANY LIMITED
Defendant
Hearing: 11 September 2017 Appearances:
G P Malone for the Plaintiff
A Parkinson on behalf of the DefendantJudgment:
13 September 2017
JUDGMENT OF HINTON J
This judgment was delivered by me on 13 September 2017 at 4:15 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Date:
Solicitors:
Solutions Law Office, Nelson
Copy to:
The Defendant
AFFCO NEW ZEALAND LTD v NZ PREMIUM TRADING COMPANY LIMITED [2017] NZHC 2218 [13 September 2017]
[1] This case was to have a six day hearing commencing on 11 September 2017. The fixture was vacated on 3 August 2017 after the defendant filed a memorandum, dated 23 June 2017, saying that its lawyers were to cease acting due to funding difficulties and it therefore could not be ready in time for the trial. That memorandum led to an application for security for costs by the plaintiff, which is the subject of this judgment.
Preliminary issue
[2] Mr Parkinson, a director of the defendant company, is appearing in person on behalf of the defendant. The general rule, however, is that a company can only present a case in Court through a legal representative.1 This rule was set out in Re G J Mannix Ltd by Cooke J2 and was affirmed by the Court of Appeal in
Commissioner of Inland Revenue v Chesterfields Preschools Ltd.3 The main policy
reason behind the rule is that the interests of the individual director may be quite different to those of the company.4 In individual cases, the rule may be departed from in the exercise of judicial discretion.5
[3] Cases which have been held to justify an exception from the rule include an emergency situation; a particularly straightforward matter where assistance of counsel is not needed by the Court; where it would be unduly technical, burdensome or costly to insist on counsel;6 or where time limits are looming and the director is only seeking leave to take a complying step.7 The English Court of Appeal in Radford v Freeway Classics Ltd, a case approved in this country, has held that lack
of funds is not an exceptional circumstance justifying a company’s being represented
by a director in Court.8
1 Re G J Mannix Ltd [1984] 1 NZLR 309 (CA); Commissioner of Inland Revenue v Chesterfields
Preschools Ltd [2013] NZCA 53, [2013] 2 NZLR 679 at [25]-[27].
2 Re G J Mannix Ltd, above n 1.
3 Commissioner of Inland Revenue v Chesterfields Preschools Ltd, above n 1.
4 At [34].
5 Re G J Mannix Ltd, above n 1, at 316; Commissioner of Inland Revenue v Chesterfields
Preschools Ltd, above n 1, at [33].
6 Honda New Zealand Ltd v New Zealand Boilermakers’ Union [1991] 1 NZLR 392 (CA) at 397.
7 Kai Iwi Tavern Ltd v New Zealand Guardian Trust Company Ltd [2013] NZCA 199 at [10]-[11].
8 Radford v Freeway Classics Ltd [1994] 1 BCLC 445 at 448–449, approved in Business
Associates Ltd v New Zealand Post Ltd (1998) 12 PRNZ 497 (HC) per Master Thomson.
[4] In my view, where a tightly-held, private company cannot afford representation, and where the interests of the company and a director are clearly aligned, a commonsense approach towards exercising the discretion is appropriate. In this case, Mr Parkinson is a director and shareholder. The defendant is a small private company. It is in a difficult financial position. Mr Parkinson’s interests and the company’s interests are aligned and he tells me he has the approval of the other directors and shareholders to represent the company.
[5] I therefore grant leave to Mr Parkinson to represent the defendant. Having said that, I discussed with him the fact that the proceeding is factually complicated and the defendant’s counterclaim is legally complicated. Also, the defendant will likely have to call evidence from China by AVL. All of these matters mean the defendant would be well advised to at least have some ongoing legal assistance.
The underlying dispute
[6] The plaintiff, AFFCO New Zealand Limited (“AFFCO”) is a meat processor. It sold meat products to the defendant, NZ Premium Trading Company Limited (“NZ Premium”), which would then export the product to China. The underlying dispute stems largely from agreements entered into between the parties after Chinese authorities suspended certain meat products from being imported into China in May 2013 and March 2014.
[7] In essence, after the meat products were declined by the Chinese authorities, AFFCO agreed to replace the product and reimburse NZ Premium for the cost of returning the declined product to New Zealand. The parties disagree as to the precise terms of the various agreements. AFFCO claims that the upshot of the trading in 2013 and 2014 is that it is still owed approximately $118,000 net by NZ Premium. NZ Premium says that it is owed $93,623 net by AFFCO. AFFCO says, even on the defendant’s view of the arrangements, the defendant would still owe AFFCO about $8,000.
[8] NZ Premium counterclaims against AFFCO. The counterclaims are pleaded in the second amended statement of defence and counterclaim dated 18 January
2017. The third and sixth counterclaims fall outside the “accounting” arrangements
between the parties referred to above. In essence, NZ Premium says AFFCO put it out of the exporting business by causing it to lose sales or future sales. The third pleaded counterclaim is a claim for $500,000 for lost profit on 40 containers, as a result of AFFCO’s wrongfully cancelling a contract and in addition, for consequential loss of anticipated future profits of approximately $8.8 million.
[9] The sixth counterclaim is for a loss of anticipated future profits of $56,000 flowing on from delay and delivery of a container that AFFCO moved to a different port in China when the dispute over payments arose.
Security for costs – general principles
[10] Rule 5.45(1)(b) of the High Court Rules 2016 allows for security for costs to be ordered against a counterclaimant if there is reason to believe that they will be unable to pay the costs of the plaintiff if unsuccessful in their counterclaim.
[11] Security for costs on a counterclaim is inappropriate if the counterclaim is in effect a defence to the plaintiff’s claim, as opposed to a true counterclaim in respect of separate and distinct matters.9
[12] In this case, while there is obviously some connection, the third and sixth counterclaims stand substantially apart from NZ Premium’s pleaded defence to AFFCO’s claim. The defendant has also raised the stakes in the matter significantly. This is a case therefore where, subject to the usual principles, security might be appropriate in respect of the counterclaim.
[13] Security for costs applications typically raise the following sequential issues:
(a) Has the applicant satisfied the Court 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 its proceeding? In appropriate cases, the Court may draw an adverse inference from the defendant’s failure to
adduce evidence as to its financial position.10 The meaning of
9 Onop Properties Ltd v Fallon Properties Ltd (1988) 1 PRNZ 261 (HC).
10 Nikau Holdings Ltd v Bank of New Zealand (1992) 5 PRNZ 430 (HC) at 436.
“satisfied” in r 5.45(1) does not imply any onus or standard of proof. Rather, it merely indicates that the Court has to come to a decision on the evidence before it.11
(b)If the threshold is crossed, should the Court exercise its discretion to order security for costs? In doing so, the Court should endeavour, so far as is possible, to assess the merits of the statements of claim and defence, and to form some view of the respective prospects of success. However, in a complex matter, assessment at an interlocutory stage can be no more than impression.12 As to the circumstances of the plaintiff, it may be relevant that the impecuniosity of the plaintiff has been caused by the very acts of the defendant on which the action has been brought.13
(c) If security for costs is appropriate, what should the amount be? The Court should fix an amount that is appropriate in the interests of justice having regard to all the circumstances of the case. The Court will often take into account the amount or the nature of the relief claimed, the nature of the proceedings including the complexity and novelty of the issues, the estimated duration of the trial and any
unusual costs in conducting the trial such as expert evidence.14 The
amount fixed is not intended to be an estimate of the actual amount the defendant would be liable to pay, but that is a relevant consideration.15 It is generally inappropriate to make an order for security for costs that have already been incurred. The security should
look to the future.16
11 Wishart v Murray [2016] NZHC 3132 at [7].
12 AS McLachlan Ltd v MEL Network Limited (2002) 16 PRNZ 747 (CA) at [21].
13 Bell-Booth Group Ltd v Attorney-General (1986) 1 PRNZ 457 (HC) at 458.
14 Nikau Holdings Ltd v Bank of New Zealand, above n 10, at 438-439.
15 At 439.
16 Pickard v Ambrose HC Wellington CIV-2003-091-143, 13 August 2009 at [9]; upheld on appeal in Ambrose v Pickard [2009] NZCA 502.
(d)If security for costs is ordered, should a stay be ordered? The Court generally orders a stay until the security ordered is given.17
Application to this case
Can NZ Premium pay a costs award?
[14] In its 23 June 2017 memorandum, NZ Premium was not so much saying that it did not have access to funds, but rather that it made arrangements with its lawyers where it had to pay $100,000 by August 2017. The lawyers had then sought an immediate payment of $50,000 in May 2017, which was outside the agreed arrangement according to NZ Premium and which it could not comply with. However, Mr Parkinson’s affidavit dated 9 August 2017 suggests that, if successful, the defendant will only be able to pay costs on the third and sixth counterclaims from the money recovered from AFFCO on the balance of the proceeding. Mr Parkinson acknowledged in Court that any security that I might order would come not from the defendant but from private means.
[15] In the circumstances, I am satisfied there is reason to believe that the defendant would be unable to pay the costs of the plaintiff if unsuccessful in the third and sixth counterclaims.
Should I exercise my discretion to make an order?
[16] I consider that it is appropriate to exercise my discretion to order security for costs.
[17] I take the following matters into account:
(a) The defendant says that the plaintiff put it out of the exporting business by its actions.
17 Andrew Beck (ed) McGechan on Procedure (Thomas Reuters, online looseleaf ed) at
[HR5.45.11].
(b)The third and sixth counterclaims are nonetheless very substantial, totalling approximately $9 million. These counterclaims also add complexity to the proceeding.
(c) It seems that about half of the six day trial will likely relate to these counterclaims and that there will need to be evidence, for example, by way of AVL from China.
(d)The defendant is at least in theory saving itself money by being self- represented, but that in turn is likely to lead to greater costs for the plaintiff.
(e) Were it not for the defendant’s counterclaims, this matter would have been heard in the District Court, which would likely again have been cheaper.
(f) I make no comment on the merits at this stage. The defendant’s briefs of evidence are still to be filed. It is clear that the defendant is very genuine in its position and that there is a very genuine dispute here between parties who previously, at least, were on good terms. The defendant needs to appreciate that loss of profit claims will require very careful proof. Again, legal input will be difficult to avoid.
(g)The defendant had agreed to pay $100,000 on account of costs to its former solicitors.
How much should the security be?
[18] Mr Malone is seeking a sum of approximately $45,000 based on 2C costs for a 5 day hearing, which is presumably the length of the trial that he would attribute to the counterclaims. Adding to that is 5 days preparation and 2.5 days for preparation of rebuttal briefs, producing a total of 12.5 days at $2,230 being $27,875. The plaintiff then adds a hearing fee of $17,600, bringing the claimed security sum to
$45,475.
[19] I have approached the matter of security on the basis that approximately 3 extra hearing days would be required for the third and sixth counterclaims. On a 2B scale (rather than 2C), Mr Malone advises me that 3 hearing days plus rebuttal briefs/preparation would amount to about $14,000. Adding to that 50 per cent of the hearing fee produces a total of $22,800.
[20] Rounding that amount down, I have decided that in all of the circumstances security for costs should be paid in the sum of $20,000.
[21] Mr Parkinson advises that he should be in a position to raise that amount within three weeks of this hearing.
[22] I therefore direct that the defendant pay the sum of $20,000 by way of security for costs on the counterclaim by Monday, 2 October 2017.
Stay and timetable directions
[23] Mr Malone sought either a stay or a fresh set of timetable directions, coupled with an unless order for failure to comply with the order for security for costs. I am satisfied that Mr Parkinson will comply with the order made and that the preferable course of action is to adjourn this proceeding to a telephone conference to take place before me on Tuesday, 10 October 2017 at 9:00 am. I draw this date to the attention of the parties as the date directed at the end of the hearing conflicts with another matter. I have explained to Mr Parkinson the need to make very material progress on the defendant’s briefs in the interim.
[24] Finally, I thank both Mr Malone/AFFCO and Mr Parkinson for their courteous submissions. I am aware they have unsuccessfully tried to resolve what is a significant dispute by direct discussion, but I raise the possibility that a mediation with a very capable mediator might still achieve a cheaper solution than a six day
hearing.
Hinton J
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