Ballantyne Trustees Ltd v HFK Ltd
[2016] NZHC 917
•6 May 2016
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2015-409-000173 [2016] NZHC 917
BETWEEN BALLANTYNE TRUSTEES LIMITED
AND OTHERS Plaintiff
AND
HFK LIMITED First Defendant
AND
KEIRAN ANNE HORNE Second Defendant
Hearing: 11 April 2016 Appearances:
M J Tingey for Plaintiffs
M E Parker for DefendantsJudgment:
6 May 2016
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
as to interlocutory application
Introduction
[1] This judgment is upon:
(a) an application for leave to bring a claim under s 284 Companies Act
1993; and
(b) a cross-application for security for costs.
Background
[2] The plaintiffs were shareholders in Goose Bay Ranch Holdings Ltd (GBRH). GBRH is in liquidation. Initially, on 31 March 2009, it was put into interim
liquidation by order of this Court on the without notice application of GBR
BALLANTYNE TRUSTEES LIMITED AND OTHERS v HFK LIMITED [2016] NZHC 917 [6 May 2016]
Investment Ltd (GBR Investment) which held a minority (12.2 per cent) share in GBRH. Keiran Horne and David Crichton were appointed as interim liquidators of GBRH. At the same time, they were appointed interim liquidators of three wholly owned subsidiaries of GBRH, namely Moana Investment Property Ltd (Moana), Makura Settlement Ltd (Makura) and PK Construction Ltd (PK Construction) (collectively “the associated companies”).
[3] Subsequently, PK Construction was put into liquidation by order of this Court on the application of a third party creditor on 2 November 2009, Ms Horne and Mr Crichton being then appointed the permanent liquidators.
[4] On 27 November 2009, following a defended hearing, GBRH was placed into liquidation by order of this Court, with Ms Horne and Mr Crichton (of the firm HFK Limited (HFK)) appointed the permanent liquidators of GBRH.1 By the same judgment, the Court dismissed the application for orders liquidating Moana and Makura by reason of the fact GBR Investment did not have the status of shareholder (that is, in the associated companies) which it had relied on in bringing its
application. The Court therefore found that the orders of interim liquidation had been made without jurisdiction.2
[5] Shortly afterwards, on 9 December 2009, Moana and Makura were placed into liquidation by this Court on the application of third party creditors. Ms Horne and Mr Crichton were again appointed permanent liquidators.
[6] The associated companies were subsequently struck off the Companies
Register around the date of 9 August 2011 for Moana and Makura and 14 September
2011 for PE Construction.
[7] GBRH owned a 314 hectare rural property at Goose Bay. The property was mortgaged to Papprill Hadfield & Aldous Solicitors Nominee Company Ltd (the Nominee Company). The mortgage secured a loan of $1,450,000 which had been
obtained on the basis of a registered valuation of $4,450,000. In 2009, following the
1 GBR Investment Ltd v Goose Bay Ranch Holdings Ltd [2010] NZCCLR 11 (HC).
2 At [53].
appointment of interim liquidators, GBRH did not meet its interest payments to the Nominee Company or repay the principal. GBRH in October 2009 failed to comply with a notice under the property issued by the Nominee Company under the Property Law Act 2007.
[8] The Nominee Company conducted a mortgagee sale, by a deadline sale process. The Nominee Company sold the property in February 2010 for $1,130,000. GBRH owes the Nominee Company a residual debt of some $420,000.
The substantive proceeding
[9] On 31 March 2015, the plaintiffs commenced this proceeding. The initial statement of claim on its face contained a single cause of action. The omnibus pleadings, however, contained references to breaches of liquidators’ duties owed to GBRH and associated companies and to negligence.
[10] Later in 2015, the plaintiffs transferred their instructions to their present solicitors. A form of amended statement of claim was filed on 26 November 2015. By it the plaintiffs plead two causes of action based on substantially the same pleadings as the earlier statement of claim. On that basis, the amended statement of claim identifies:
(a) First cause of action – breach of the liquidator’s duty under s 301
Companies Act 1993 (a claim against the second defendant, Ms
Horne);
(b)Third cause of action – negligence in specified particulars – a claim against Ms Horne and her firm, the first defendant, HFK.
[11] The plaintiffs are entitled to pursue those two causes of action as of right. The amended statement of claim would also introduce a second cause of action, namely that Ms Horne acted improperly in her role as interim liquidator and liquidator of GBRH and associated companies through the same conduct as the plaintiffs assert in relation to the first cause of action.
[12] The plaintiffs under the second cause of action would pursue a number of declarations and orders. They would be doing so in their status as shareholders of GBRH. They therefore require, pursuant to s 284(1) Companies Act 1993, the leave of the Court to pursue the second cause of action.
Preliminary issue – steps taken out of time
[13] Before considering the plaintiffs’ application for leave, I need first to rule on matters relating to steps taken out of time. The application for leave is, by its nature, pursued against Ms Horne only. Ms Horne’s detailed grounds of opposition are contained in a draft notice of opposition which was filed and served on 12 February
2016 under cover of an application for extension of time.
[14] As I find the circumstances to amply justify the grant of an extension of leave, I will deal with the background and the grounds of the plaintiffs’ opposition to the grant of leave briefly.
[15] The plaintiffs’ application for leave to pursue the s 284 claim was filed on 26
November 2015 and a copy forwarded to the defendants’ solicitors, but without the entry of a hearing date. The plaintiffs’ solicitors advised the defendants’ solicitors that the service copy would be provided when the “endorsed copy” was received from the Court. I am informed by Mr Parker, from the bar, that such follow-up service did not in fact occur. A copy of the application with hearing date included is reasonably required if the respondent to the application is to be able to calculate the correct date for the filing of opposition under r 7.24(1) High Court Rules.
[16] In the event, I vacated a mentions hearing allocated for 26 November 2015 and adjourned the proceeding to a case management conference on 3 February 2016. In the Minute I made no directions as to the hearing of the application for s 284 leave as I was at that point unaware the application was being filed. My Minute contained no directions in relation to the s 284 leave application at all.
[17] When the case management conference was convened on 4 February 2016, Mr Tingey for the plaintiffs noted that the defendants had failed to file a notice of opposition in relation to the s 284 leave application.
[18] For Ms Horne, Mr Parker has advised the Court from the Bar that the failure to file a notice of opposition was an oversight on the part of counsel, not occasioned by any decision or step on the part of Ms Horne. Mr Parker sought an extension of the time to file a notice of opposition but Mr Tingey indicated that he had no instructions to agree to such an extension. I accordingly made directions which took into account the possibility that the parties may yet agree on leave but, if not, a formal application for extension would be required.
[19] Before that discussion was completed, Mr Parker noted that there was at least one unsatisfactory aspect of the plaintiffs’ application for leave in that the application was not supported. The absence of such affidavit was a breach of r 7.20 High Court Rules.
[20] It transpired that the plaintiffs would not agree to an extension of time for the opposition to leave application. Ms Horne’s application for an extension of time was filed together with her draft notice of opposition. The draft notice of opposition raises matters that are clearly worthy of consideration, as I will come to.
[21] The plaintiffs filed their notice of opposition to the application for extension of time. Their grounds, apart from relying on what they contend to be the “obvious merit” of the s 284 proceeding, rely on the lateness of the defendant’s opposition and the absence of proper explanation for delay.
[22] I find it unfortunate that the plaintiffs opposed the extension of time. Their own interlocutory application had failed to meet the requirement of a supporting affidavit under r 7.20. An affidavit subsequently filed by Mr Keung purportedly in opposition to the extension of time application for the most part contained the material which ought to have been filed with the plaintiffs’ original application. Furthermore, the overlooking of the time of the deadline for opposition is partly explained by the peculiarities of the plaintiffs’ procedure to which I have referred and partly (as accepted by Mr Parker) that it was he, as counsel, who overlooked the timing. The plaintiffs’ notice of opposition to the extension of time did not identify any prejudice which would be caused by an extension of time. I am satisfied that there can be no prejudice as both the extension application and the plaintiffs’ leave
application have been heard at one hearing, with all necessary evidence before the
Court.
[23] It is appropriate that the Court, in its discretion, and pursuant to r 1.19(1) High Court Rules, extends the time for the filing of Ms Horne’s notice of opposition. I will be making that order together with an order that there be no costs payable as the order involves an indulgence.
[24] Given that I will be making that order, and notwithstanding the fact that Mr Tingey for the plaintiffs has made no formal application for an extension of the time in which to file Mr Keung’s supporting affidavit, I will also be making an order extending the time for the filing of Mr Keung’s affidavit. The parties might regard the indulgences as nicely balanced.
The application for leave under s 284 Companies Act 1993
The nature of the plaintiffs’ claim
[25] In the form the proceeding was initially commenced, the plaintiffs’ claim was primarily founded on allegations of misconduct by the liquidators, but without an application to review the liquidators’ actions under s 284.
[26] The plaintiffs, as shareholders in GBRH, sought orders that the defendants pay (unquantified) damages to them directly.
[27] On the repleading of the statement of claim, and its division into three causes of action, the plaintiffs maintain through the third cause of action (in negligence) an entitlement to damages. But by both the first (s 301 Companies Act) cause of action and the proposed second (s 284 Companies Act) cause of action, the plaintiffs seek orders that Ms Horne contribute a sum to the assets of GBRH and associated companies by way of compensation and an order for an enquiry into damages.
[28] For the plaintiffs, Mr Tingey submits that the application for leave in this case has a different context to that in most cases where leave is sought. That is because the applicants have claims (under the first and third causes of action) which they
were already pursuing as of right and will be pursued regardless of the outcome of this application. Mr Tingey observes that the leave application is brought (so as to pursue s 284 relief) to ensure that any procedural requirements in relation to the challenge of the liquidators’ actions are met. In the context, Mr Tingey submits, there can be no prejudice to the liquidator.
Arguable case?
[29] I turn to the applicants’ case and its arguability in terms of the approach
outlined in Trinity Foundation Services (No 1) Ltd v Downey.3
[30] In doing so I do not approach the matter on the basis of Mr Tingey’s introductory submissions which put an emphasis on the proposition that the granting of leave could not prejudice the liquidator because she is already being sued on two other causes of action in relation to the same matters. Leave is only to be granted if the threshold tests under the Trinity Foundation Services are satisfied.
Section 284 Companies Act 1993 – the statutory provision
[31] Section 284 Companies Act provides:
284 Court supervision of liquidation
(1) On the application of the liquidator, a liquidation committee, or, with the leave of the court, a creditor, shareholder, other entitled person, or director of a company in liquidation, the court may—
(a) give directions in relation to any matter arising in connection with the liquidation:
(b) confirm, reverse, or modify an act or decision of the liquidator:
(c) order an audit of the accounts of the liquidation:
(d) order the liquidator to produce the accounts and records of the liquidation for audit and to provide the auditor with such information concerning the conduct of the liquidation as the auditor requests:
3 Trinity Foundation Services (No 1) Ltd v Downey (2005) NZCLC 263,917 (HC); affirmed on appeal in Trinity Foundation Services (No 1) Ltd v Downey (2006) 3 NZCCLR 401 (CA).
(e) in respect of any period, review or fix the remuneration of the liquidator at a level which is reasonable in the circumstances:
(f) to the extent that an amount retained by the liquidator as remuneration is found by the court to be unreasonable in the circumstances, order the liquidator to refund the amount:
(g) declare whether or not the liquidator was validly appointed or validly assumed custody or control of property:
(h) make an order concerning the retention or the disposition of the accounts and records of the liquidation or of the company.
(2) The powers given by subsection (1) are in addition to any other powers a court may exercise in its jurisdiction relating to liquidators under this Part, and may be exercised in relation to a matter occurring either before or after the commencement of the liquidation, or the removal of the company from the New Zealand register, and whether or not the liquidator has ceased to act as liquidator when the application or the order is made.
…
The timing of the application
[32] Pursuant to s 284(2) of the Act, an application for an order under s 284(1) may be made even if the liquidator has ceased to hold office (as in this case). The fact that the plaintiffs commenced this proceeding after the liquidation was completed does not of itself debar the claim.
The Court’s approach to leave under s 284 of the Act
[33] The jurisdiction of the Court to grant leave will be established if one of the classes of person named under s 284(1) of the Act (including shareholders) shows that they have an arguable case.4 That means a case with two characteristics, namely that:5
(a) the case must have a credible factual basis; and
(b) there is a reasonable likelihood that, if the applicant’s claim is
established, the Court will disturb or make orders in relation to the act
4 Trinity Foundation Services (No 1) Ltd v Downey, above n 3.
5 At [21].
or decision in question, a step the Court is likely to take only if the act or decision was wrong or unreasonable.
Application of the threshold test
[34] The allegations in the statement of claim may be reduced to three major propositions:
(a) the plaintiffs are the majority shareholders in GBRH (undisputed);
(b) Ms Horne was appointed interim liquidator of GBRH on 31 March
2009 and subsequently liquidator on 27 November 2009, and was also appointed liquidator of the associated companies variously on 2
November 2009 and 9 November 2009 (undisputed); and
(c) Ms Horne acted improperly in her role as interim liquidator and liquidator of GBRH and the associated companies in particularised ways.
Mr Tingey’s chronological summary
[35] The plaintiffs, by their amended statement of claim, assert that a number of events constituted improper conduct on the part of Ms Horne in her role as interim liquidator and subsequently liquidator of GBRH and the associated companies. Mr Tingey identified key events in a chronology which was filed. The key events he identified were:
· 6 April 2009 – the interim liquidators sold remaining assets of GBRH and the companies;
· 9 April 2009 – Ms Horne caused public notice of liquidation to be placed in the Christchurch Press, the New Zealand Gazette, and on the Companies Office website;
· May 2009 – main suppliers of PK Construction stopped trading with PK
Construction;
· February/March 2010 – GBRH’s Goose Bay property (also referred to as
“Makura Farm”) was sold at a mortgagee sale for $1,130,000;6
· 21 April 2010 – the High Court awarded costs against Mr Keung as a non-party in the liquidation proceeding.
Improper conduct – allegation 1: conflict of interest
[36] In addition to the matters summarised by Mr Tingey in his chronology, the amended statement of claim pleads a failure by Ms Horne to act objectively in respect of her management of the liquidation of GBRH and the associated companies. That is particularised in the following way:
(a) Ms Horne and HFK took appointment as representatives of GBR Investment prior to GBR Investment commencing its liquidation proceeding against GBRH;
(b) Ms Horne worked as an agent for GBR Investment;
(c) Ms Horne advised GBR Investment to proceed with the filing of the liquidation proceeding in order to have herself appointed as interim liquidator;
(d) Ms Horne did not investigate the actions of GBR Investment when
GBR Investment made its liquidation application; and
(e) Ms Horne used Lynda Smart, GBR Investment’s representative, to
manage the liquidation files of GBRH and the associated companies.
[37] In his affidavit in support of the application for leave, Mr Keung deposes:
11. I was aware that GBR Investments Limited (GBRI) had contracted
HFK Limited and Keiran Horne to provide forensic or accountancy-
6 Above at [8].
related services in respect of GBRI’s involvement with GBRH and the Associated Companies. Prior to this, HFK limited and Keiran Horne had acted on behalf of the Koulanov family in regards to other interests they had. Further, GBRI appointed HFK Limited and Lynda Smart, (whom completed the actual work in the liquidation), as their shareholder representative before the interim liquidation application was made.
And later in his affidavit, Mr Keung continued:
28. Ms Horne could not act objectively in respect of her management of the liquidation of GBRH and the Associated Companies, given her relationship with GBRI. She managed her client being GBRI prior to the GBRI Application and she appointed Lynda Smart from HFK Limited to complete the work in the Liquidation whom was the agent for GBRI. Further, she advised GBRI to proceed with filing the GBRI Application to have herself appointed as interim liquidator, three of four of those applications were made without jurisdiction. She should not have acted at all. 29.
Given this conflict, she failed to act in the best interests of GBRH and the Associated Companies, their creditors and shareholders by stopping the pending share sales from taking place, preventing any further acquisitions and joint business ventures from taking place, and failing to complete the annual accounts of GBRH and the Associated Companies to allay any concerns about the money from GBRH and the Associated Companies being misused. Importantly, she also failed to pursue any debtor that owed money to GBRH or the Associated Companies. Subsequently she gathered no income and we agreed to settle matters in such a way that provided for her fees as we remain consistent that the company should be brought out of liquidation and further that the initial expartie application was not brought with clean hands.
30.
Ms Horne’s failure in her duties as a liquidator was particularly prominent when she failed to negotiate with the majority shareholders of GBRH to purchase the Makura Farm from GBRH for $4.5 million, and sold the Makura Farm at mortgagee sale for around $1.13 million (exclusive of GST), resulting in a shortfall of around $3.3 million compared to the shareholders’ offer.
[38]
For
the plaintiffs, Mr Tingey refers to Consolidated Technologies
Development (NZ) Ltd v McCullagh.7 In that case, Rodney Hansen J recognised the
liquidator’s duty to act impartially as one which:8
… may be encompassed by the overriding duty to act in good faith but at the very least a breach will be amenable to the power of the Court to interfere when a liquidator has acted unreasonably. The Court can review the
decision of a liquidator who fails to act even-handedly as between the various groups whose interests he or she is required to advance or consider.
[39] In Consolidated Technologies the Court found that, while the liquidator of the company had acted in what he genuinely believed to be the best interest of creditors and therefore in good faith, he had acted unreasonably in effecting an assignment of the company’s assets.
Discussion – allegation 1: conflict of interest
[40] As presented by the plaintiffs the conflict of interest allegations have impact in two areas. First the applicants say that Ms Horne’s conflict of interest should have debarred her from appointment as liquidator at all. Secondly, the conflict of interest is the background to an allegation of wrongful or unreasonable conduct in the liquidation.
[41] In relation to the fact that Ms Horne accepted appointment at all, the plaintiffs pursue orders declaring that Ms Horne was not validly appointed as liquidator of GBRH and the associated companies and she did not validly assume custody or control of the companies’ property.
[42] For Ms Horne, Mr Parker submits that the proposed relief is legally unsupportable. Ms Horne and Mr Crichton were appointed liquidators of GBRH and the associated companies by the various orders of this Court, which I have referred to.9
[43] The allegations of conflict of interest now pursued by the plaintiffs, if valid, would have been directly relevant to the Court’s liquidation orders. The plaintiffs did not pursue appeals in relation to the appointment of Ms Horne and Mr Crichton. As Mr Parker submits, the appropriate procedure for overturning a decision as to the identity of liquidators was by appeal, rather than an application long after the event, brought under s 284 of the Act. That this is so in this case is reinforced by the fact that at the hearing before Associate Judge Gendall, GBR Investment offered not only
the making of a liquidation order but also specifically the appointment of Ms Horne
9 At [3] to [6] above.
and Mr Crichton. GBRH sought the appointment of other identified liquidators.10
The Court’s appointment of Ms Horne and Mr Crichton on a contested basis
necessitated prompt challenge by appeal, if there were to be challenge.
[44] There is no realistic prospect that this Court would, in 2016, grant orders declaring that Ms Horne was not validly appointed or that she did not validly assume custody or control of the companies’ property. That is so whether or not there is any substance in the conflict of interest allegations now outlined in Mr Keung’s affidavit.
[45] To the extent that the conflict of interest allegations are relied upon also as background to allegations of wrongful or unreasonable conduct, they are not, in terms of the threshold test under Trinity Foundation Services, allegations of misconduct in themselves. The specific, alleged instances of misconduct would require examination.
Improper conduct – allegation 2 : the decision to put GBRH into liquidation
[46] The third form of relief which the plaintiffs intend to pursue is an order reversing or modifying the act or decision of Ms Horne to put GBRH into liquidation.
[47] Mr Parker, for Ms Horne, took the obvious point that it was this Court and not Ms Horne or Mr Crichton who made the relevant decision to put GBRH into liquidation. As with the earlier relief discussed, a right of appeal lay from that decision if it was considered wrong.
[48] In his written synopsis Mr Tingey had made the bare assertion, in relation to this relief, that the discussion of impartiality in Consolidated Technologies Development supports the arguability of the case for relief in this proceeding.11 On reflection, in his oral submissions, Mr Tingey accepted that the specified relief was “not well drafted”, as Ms Horne had not put GBRH into liquidation. Mr Tingey sought to recast the allegation on the basis that Ms Horne had accepted the
appointment and took steps as liquidator.
Discussion – allegation 2: the decision to put GBRH into liquidation
[49] Mr Tingey’s recasting of the third prayer for relief does not assist the plaintiffs. The reality is that they seek to attack the decision to appoint Ms Horne and Mr Crichton as liquidators when that appointment, in 2009, was a Court appointment. In terms of that process the liquidators cannot be criticised after the event, for acting in accordance with the Court orders and in discharge of their obligations as liquidators under the Companies Act 1993.
Improper conduct – allegation 3: misconduct causing loss
[50] The fourth and fifth forms of relief which the plaintiffs would seek in a s 284 proceedings are an order that Ms Horne refund her remuneration as liquidator and an inquiry into the damage suffered by the plaintiffs as a result of Ms Horne’s conduct in the liquidations.
[51] The inquiry into damage would parallel the inquiry into damage also sought by the plaintiffs under the first and third causes of action which they are entitled to pursue as of right. In relation to all three causes of action the damage is said to arise from the same pleaded conduct.
[52] For the plaintiffs, Mr Tingey, in his written synopsis, supported as appropriate the pursuit of these forms of relief by reference to Mr Keung’s affidavit evidence concerning Ms Horne’s conduct, followed by the proposition that there is an arguable case that the Court would interfere with Ms Horne’s actions given the approach in Consolidated Technologies Development.
[53] Mr Parker’s submissions in opposition fell into two parts. First he submitted, by reference to the evidence filed, that there was a lack of particularisation in Mr Keung’s allegations, reflected in the amended statement of claim, which meant that the plaintiffs have not established, in terms of Trinity Foundation Services, a credible factual basis for their claim. While I recognise the strength of Mr Parker’s criticism of the nature of Mr Keung’s evidence, I will not determine this application by reference to an analysis of that evidence. There are further and more fundamental difficulties with the proposed s 284 claim which Mr Parker identified under the
second limb in Trinity Foundation Services, namely whether there is a reasonable likelihood of the Court granting the requested orders.
[54] Three matters stand in the way of the likelihood of the Court’s granting the
fourth and fifth forms of relief:
(a) Section 284(1)(f) Companies Act – the plaintiffs intend to invoke the Court’s power to order a refund by Ms Horne of her remuneration in “an amount retained as remuneration [but] found by the Court to be unreasonable in the circumstances”. As Mr Parker submitted, the primary function of s 284(1)(f) must be to allow the Court to consider the reasonableness of remuneration for the liquidation work performed, rather than to provide a mechanism whereby aggrieved parties claim damages and then effectively setting them off against the liquidator’s remuneration. The plaintiffs’ intended use of s 284(1)(f) is not within the evident purpose of the provision. If the factual basis is established to claim damages from Ms Horne, it must exist independently of s 284(1)(f).
(b)Court approval of remuneration – to the extent that a substantial focus of Mr Keung’s allegations is upon conduct in relation to the period of interim liquidation, the Court has already considered the reasonableness of the liquidators’ remuneration and made remuneration orders in relation to the various companies.12 The remuneration judgment is dated 5 February 2010. The liquidators’ entitlement to that remuneration, absent appeal, is final.
(c) Delay – the delay in pursuing s 284 relief in relation to liquidations which are long complete has not been satisfactorily explained. The liquidators carried out their work and received their remuneration without such challenge. If other claims, such as for negligence, can
be pursued as of right by reason of the limitation periods involved, the
12 GBR Investment Ltd v Goose Bay Ranch Holdings Ltd (in liq) HC Christchurch CIV-2009-409-
000613, 5 February 2010.
delay in seeking to in some way undo steps taken in a completed liquidation would weigh heavily with the Court against granting relief.
[55] These matters raised by Mr Parker in opposition cumulatively defeat the assertion that it is reasonably likely that the Court will (in 2016 or later) disturb or make orders in relation to the liquidators’ conduct or decisions of 2009/2010. If the plaintiffs have legitimate grievances against Ms Horne which ultimately justify an award of damages, they will become entitled to an enforceable judgment against Ms Horne in the normal way. There is no suggestion that she is not good for judgment. Even if leave were granted and a Court were to have found the Trinity Foundation Services threshold to have been established, it is probable that the Court would have declined to make an order such as “refund remuneration” given the lack of any demonstrated utility in such an order. Ms Horne can either pay any ordered damages or she cannot. An order to require her to do so by “refunding remuneration” would add nothing.
Ms Horne’s statements during the interim liquidations
[56] In the amended statement of claim, the plaintiffs refer to an article published by “The Press” newspaper in Christchurch on 5 December 2009 based on an affidavit filed by Ms Horne in the liquidation proceedings. Set out in the amended statement of claim are a series of quotations printed in “The Press” taken from Ms Horne’s evidence in that proceeding.
[57] It was noted at the hearing of this application that Ms Horne has immunity from suit in relation to her evidence in the liquidation proceeding.
[58] Mr Tingey responsibly withdrew reliance on the pleading in the paragraphs
relating to Ms Horne’s quoted evidence.
Outcome of leave application
[59] The plaintiffs have not satisfied the threshold test under Trinity Foundation
Services. Leave will be declined.
The defendants’ application for security for costs
The application
[60] The defendants apply for security for costs. They rely on four grounds:
(a) the fourth-named plaintiff, Calmwater Enterprises Pty Limited, is an
Australian corporation;
(b)there is reason to believe that the other plaintiffs will be unable to pay costs in the event they are unsuccessful at trial;
(c) the merits of the plaintiffs’ claims are negligible to non-existent; and
(d) it is just and expedient that security for costs be ordered.
[61] The plaintiffs oppose the application for security for costs. They identify four grounds of opposition:
(a) the plaintiffs are jointly liable to pay any costs awarded;
(b)there is no credible evidence that the plaintiffs, as a group, would be unable to meet a costs order rendering any security order inappropriate;
(c) there is strong merit in the plaintiffs’ claims; and
(d) it is not just and expedient that security be ordered.
[62] The defendants, by their application, seek an order for security for both defendants in a total sum of $64,391.25. The defendants’ calculation of that sum is explained neither in the notice of application nor in Ms Horne’s supporting affidavit.
[63] In their notice of opposition the plaintiffs assert that (should security be ordered) a sum of $64,391.25 would be excessive in this proceeding.
The submissions
[64] I heard submissions in relation to the present applications on the same day as I heard submissions in other proceedings involving most of the same parties, namely Ballantyne Trustees Limited v Papprill Hadfield & Aldous Solicitors Nominee Company Limited. In that case the same plaintiffs (as shareholders of GBRH) are pursuing leave to bring proceedings against the nominee company which conducted the mortgagee sale of the Goose Bay property. The respondents in that case brought a parallel application for security for costs. Having heard the submissions on that
application I gave judgment on 18 April 2016 (the nominee company judgment).13
[65] In the nominee company judgment I referred to the jurisdiction of the Court to order security of costs under r 5.45 High Court Rules.14
[66] I then found:
(a) The threshold test for an order that Mr Keung provide security was satisfied.15
(b)The other applicants had not established through evidence of their finances their ability to pay costs which may be awarded.16
(c) The proceedings in their present state were not such that the Court could conclude that the applicants’ claim was altogether without merit.
(d) There was no basis on the evidence to conclude that an order for
security may have the effect of bringing the applicants’ claim to an
end.17
13 Ballantyne Trustees Ltd v Papprill Hadfield & Aldous Solicitors Nominee Company Ltd [2016] NZHC 713.
14 At [30] to [31].
15 At [32] to [39].
16 At [37] to [38].
(e) The applicants’ claim was in relation to events six years earlier – the proceeding would likely require greater complications and expense than would have occurred had proceedings been commenced soon after the relevant event. The respondents have a legitimate interest in obtaining a full measure of protection for costs and disbursements
should the proceeding be unsuccessful.18
(f) It was likely that the costs and disbursements for which the applicants would be liable (if unsuccessful) would substantially exceed the
$25,000 figure of security requested by each of the respondents.19
[67] In the nominee company judgment I accordingly concluded that $25,000 for each of the first and second respondents was an appropriate sum to be provided by way of security.
Applicability of the nominee company judgment to this case
[68] The relevant evidence and circumstances leading to the nominee company judgment are generally applicable to this proceeding also, save in relation to the amount of security which I will come to.
[69] With that exception, I adopt my summary of conclusions from the nominee company judgment set out at [71] above and also the more detailed reasoning contained in that judgment.
[70] On the present application for security, the defendants relied not only on Mr Keung’s financial situation but also upon the fact (supported by evidence) that one plaintiff (Calmwater) is a corporation incorporated outside New Zealand. The threshold test for security under r 5.45(1)(a)(ii) High Court Rules is, therefore, satisfied on this application in relation to Calmwater. Such a situation provides a second reason for finding the threshold under r 5.45 established but does not materially alter the nominee company judgment reasoning which I am adopting in
this case also.
18 At [46].
Amount and staging of security
[71] It is appropriate to treat this as an ordinary proceeding which will now be case-managed to readiness for trial. Having regard to the timely application for security, it is appropriate to deal with only a first tranche of security to cover the period to the making of trial directions, with the application then adjourned for resolution of any second tranche of security.
[72] Most steps in this proceeding to the setting down for trial are likely to involve costs appropriately dealt with on a 2B basis.20 I anticipate that preparation for trial, as I found in the nominee company judgment, will be more extensive and that a 2C award is likely to be more appropriate at that point, but that will be for consideration if the Court is called upon to order a second tranche of security.
[73] For security purposes it is appropriate to take into account the following items:
Step Description Band B Days Amount 2
Defence
2.0
$ 4,460
2 Defence to amended claim 2.0 $ 4,460 10 Preparation for first case management
conference
0.4
$ 892
11 Memorandum for first case management
conference
0.4
$ 892
13 Appearance at first case management
conference
0.3
$ 669
11 Three subsequent memoranda 1.2 $ 2,676 13
20
Appearance at a further case management
conference
Discovery of documents (dealt with informally rather than by list)
2.5
$ 669
$ 5,575
21 Inspection of documents 1.5 $ 3,345 11 Memorandum for final pre-trial
conference
0.4
$ 892
13 Appearance at final pre-trial case
management conference
0.3
$ 669
Total Costs $25,199
20 High Court Rules: Category 2 under r 14.3(1) and band B under r 14.5(2).
[74] The defendants will also incur some modest disbursements. $220 can be identified as the cost of filing the initial statement of defence and the amended defence which is likely to be required when the plaintiffs amend their statement of claim.
[75] Having regard to the above figures I view a rounded sum of $25,000 as an appropriate pre-estimate of costs and disbursements to the final case management conference. I view that also as the sum which represents a just award of security by way of first tranche.
[76] I will make the appropriate order in that regard together with ancillary orders in relation to non-payment.
Costs
[77] Counsel accepted that costs would appropriately be dealt with in relation to the present applications on a 2B basis.
[78] Having regard to the orders I am to make, costs should follow the event in favour of the defendants.
Orders
[79] I order:
Application for leave under s 284 Companies Act 1993
(a) The plaintiffs’ application dated 25 November 2015 is dismissed.
Security for costs
(b)The plaintiffs shall, within 15 working days, give security for the costs and disbursements of this proceeding in the sum of $25,000 to the satisfaction of the Registrar (“the first tranche security”).
(c) The first tranche security is to be provided as security for costs and disbursements incurred to the point when trial and pre-trial directions are made.
(d)In the event the first tranche security is not provided as ordered the proceeding will be stayed until further order of the Court.
(e) Except to the extent hereby dealt with, the defendants’ application for security for costs is adjourned to be brought on five days notice should the parties be unable to agree on a second tranche of security at the appropriate time.
Costs
(f) The plaintiffs are to pay to the defendants, in any event, on a 2B basis the defendants’ costs in relation to both the application for leave under s 284 Companies Act 1993 and the application for security for costs, together with disbursements to be fixed by the Registrar.
Associate Judge Osborne
Solicitors:
Bell Gully, Auckland
Parker Cowan Lawyers, Queenstown
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