Bay Cities Real Estate Limited v Re/Max New Zealand Limited HC Napier Civ-2010-441-134
[2010] NZHC 2372
•7 December 2010
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
CIV-2010-441-134
BETWEEN BAY CITIES REAL ESTATE LIMITED Plaintiff
ANDRE/MAX NEW ZEALAND LIMITED Defendant
ANDELANOR MACDONALD AND DAVID SANDERSON GAUNT
Second Counterclaim Defendants
Hearing: 19 November 2010
Appearances: P.S.J. Withnall - Counsel for Plaintiff and Second Counterclaim
Defendants
J. Bates - Counsel for Defendant
Judgment: 7 December 2010 at 3.30 pm
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
This judgment was delivered by Associate Judge Gendall on 7 December 2010 at
3.30 pm under r 11.5 of the High Court Rules.
Solicitors: Michael Chung Law Office, Solicitors, PO Box 85, Wellington
Quigg Partners, Solicitors, PO Box 3035, Wellington
Gresson Grayson, Solicitors, PO Box 1045, Hastings
BAY CITIES REAL ESTATE LIMITED V RE/MAX NEW ZEALAND LIMITED AND ANOR HC NAP CIV-
2010-441-134 7 December 2010
Introduction
[1] The plaintiff, Bay Cities Real Estate Limited, has brought proceedings against the defendant, RE/MAX New Zealand Limited, which is the franchisor of the RE/MAX real estate franchise in New Zealand. The proceedings concern alleged misrepresentations by the defendant which the plaintiff claims induced it to enter into two RE/MAX franchise agreements in the Hawkes Bay area with the defendant. The plaintiff seeks $4,021,414.00 in damages.
[2] The defendant denies the allegations and, in addition, has brought counterclaims against the plaintiff, and against Elanor MacDonald (“Ms. MacDonald”) and David Gaunt (“Mr Gaunt”) as guarantors, for unpaid franchise fees under the franchise agreements. The defendant has applied for summary judgment on these counterclaims, and has also brought an application for security for costs against the plaintiff. It was these two applications by the defendant – the application for summary judgment on the counterclaims and the application for security for costs - that were before me on 19 November 2010. Initially, both applications were opposed.
[3] At the hearing of these applications, it became clear that the counterclaim defendants conceded liability for a sum of $154,991.86 and agreed that summary judgment could be entered for that amount. The defendant did not seek to pursue summary judgment for the balance of its counterclaims. However, the plaintiff argued that enforcement of the judgment should be stayed.
[4] It is the plaintiff’s application for a stay of execution of the summary judgment and the defendant’s application for security for costs that were argued before me and that this judgment will address.
Background Facts
[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 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.
[8] Following the issue of these proceedings by the plaintiff, the defendant brought counterclaims against the plaintiff as the first counterclaim defendant, and against Ms MacDonald and Mr Gaunt as second counterclaim defendants. Ms MacDonald is a director of the plaintiff. The counterclaims raise three causes of actions against the plaintiff and three causes of actions against the second counterclaim defendants as guarantors of the plaintiff’s obligations. In the first and second causes of action, the defendant claims damages for unpaid franchise fees in breach of cl 5 of the Napier and Hastings franchise agreements. These amount to
$50,074.50 and $94,447.26 respectively, plus late charges and interest. The third
cause of action claims $14,756.35 for unpaid franchise fees, plus late charges and interest, pursuant to the franchise agreement for the Taradale area.
[9] The defendant then applied for summary judgment on its counterclaims against the plaintiff, Ms MacDonald and Mr Gaunt as counterclaim defendants, and also applied for security for costs against the plaintiff. The counterclaim defendants initially opposed the application for summary judgment. Later, however, they conceded liability for franchise fees totalling $49,028.25 with respect to the Napier franchise agreement, $94,447.26 with respect to the Hastings agreement and
$14,756.35 with respect to the Taradale agreement, but from this they claimed a refund of $3,240 for marketing and training that they say was not provided. This left a total amount payable of $154,991.86. The counterclaim defendants disputed that any amounts became due under the franchise agreements after they were terminated in August 2009 and claimed that no late charges were payable by them.
[10] Based on the counterclaim defendants’ concession to agree to summary judgment for $154,991.86, judgment can be entered against the plaintiff, Ms MacDonald and Mr Grant for that amount. The defendant did not pursue the balance of its counterclaims on the present summary judgment application.
[11] The plaintiff did argue, however, that execution of the summary judgment should be stayed, on the basis that there would be a miscarriage of justice if the judgment were able to be enforced before the plaintiff’s substantive claim in this proceeding is heard and determined. Accordingly, as I have noted above, this judgment deals with the plaintiff’s application for a stay of execution and the defendant’s application for security for costs.
Application for Stay
[12] As to its stay application, the plaintiff submits that the situation in this case falls easily within the principles affirmed in Roberts Family Investments Limited v Total Fitness Centre (Wellington) Limited [1989] 1 NZLR 15, where McGechan J held that:
Rather than give an immediately enforceable judgment to the plaintiff on the plaintiff's (summary judgment) claim, perhaps allowing the plaintiff to bankrupt the defendant before the latter's counter claim can be brought to judgment and off set, the Court may and commonly does grant the plaintiff summary judgment accompanied by stay of execution of such judgment pending resolution of the counter claim, or occasionally dismisses the summary judgment application, directing trial of both claim and counter claim.
[13] The plaintiff also refers to Oceania Furniture Limited v Debonaire Products Limited HC Wellington CIV-2008-485-1701, 3 December 2008, D.I. Gendall AJ at [49], where I cited the following passage from McGechan on Procedure (then at HR.
142.01 but now at HR. 12.12.01):
Subclause (2) (of r 12.12) imports a measure of flexibility into the procedure where, although defendants may have no defence to the claim, they nevertheless have what appears to be a possibly meritorious counterclaim. Rather than give an immediately enforceable judgment to the plaintiff on the plaintiff’s claim (perhaps allowing that plaintiff to bankrupt the defendant before the latter’s counterclaim can be brought to judgment and offset), the Court may, and commonly does, grant the plaintiff summary judgment accompanied by a stay of execution of such judgment pending resolution of the counterclaim, or occasionally dismisses the summary judgment application, directing trial of both claim and counterclaim: per McGechan J in Roberts Family Investments Ltd v Total Fitness Centre (Wellington) Ltd [1989] 1 NZLR 15...
[14] The McGechan commentary then goes on to outline the following approach to staying execution of a summary judgment pending resolution of a counterclaim (at HR 12.12.02):
The issue of staying execution of a summary judgment arises most frequently in connection with counterclaims. Where a counterclaim amounts to a set-off, this will provide a defence to the summary judgment application. In cases where the defendant has a counterclaim which cannot be classified as a set-off, the question arises as to whether the Court should stay execution of the summary judgment pending resolution of the counterclaim. The defendant should therefore apply for a stay at the time of filing the counterclaim: Roberts Family Investments Ltd v Total Fitness Centre (Wellington) Ltd [1989] 1 NZLR 15; (1988) 1 PRNZ 88. An application for a stay is made under r 17.29: see NZ Food Group Ltd v Cannell [1986] 2 NZLR 593.
The decision to grant a stay rests essentially on whether it would be a miscarriage of justice to allow execution of the plaintiff’s judgment. See NZ Apple & Pear Marketing Board v Wallis (1990) 4 PRNZ 713, where there was a possibility of the defendant being declared bankrupt before the counterclaim could be heard.
An application for a stay pending resolution of criminal proceedings was refused in ADT Securitas Ltd v Geange (1992) 6 PRNZ 100. A stay pending resolution of proceedings against the respondent was refused in Crockett v Jonny on the Spot Drycleaners Ltd (1997) 11 PRNZ 369, because such proceedings were likely to be lengthy and complex, and there was insufficient evidence of any miscarriage of justice.
[15] Rule 17.29 High Court Rules provides:
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.
[16] That r 17.29 provides the right basis for the grant of a stay of execution of a summary judgment was confirmed by Associate Judge Faire in Air New Zealand Limited v Air Niugini Ltd HC Auckland CIV-2009-404-3460, 14 October 2009 at [61]. As noted above, r 17.29 states that a liable party may apply for a stay of execution on the ground that a substantial miscarriage of justice would be likely to result if the judgment were enforced. Other relevant factors are the strength or weakness of the counterclaim, and the ability of the applicant to meet the judgment that is being enforced: Raffles Education Corporation Limited v Mills HC Auckland CIV-2008-404-5258, 16 February 2009. Associate Judge Faire in Air New Zealand Limited v Air Niugini Ltd noted the following factors as assisting in determining whether a miscarriage of justice would occur:
[61] In relation to a stay, the issue is essentially whether it would be a miscarriage of justice to allow execution of the plaintiff’s judgment ahead of determination of the counterclaim: NZ Apple and Pear Marketing Board v Wallis (1990) 4 PRNZ 713. Although the cases do not specifically refer to the rule basis for the grant of the stay, the notes in McGechan at 12.12.02 in my view correctly refer to the fact that if a stay is ordered it is made pursuant to r 17.29. In Nga Uri Whakatipurunga O Ngarae Inc v Marac Finance Ltd HC AK CIV 2008-404-6180 7 September 2009, Courtney J at [5] confirmed factors which assist in determining whether a miscarriage of justice would occur and therefore whether a stay is justified. They were, of course, identified in Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13
PRNZ 48. They are:
a) If no stay is granted whether the right of review or, in this case, counterclaim would be rendered nugatory;
b) The bona fides of the review — in this case the counterclaim;
c) Whether the successful party will be injuriously affected by the stay;
d) The effect on third parties;
e) The novelty and importance of the question involved;
f) The public interest in the proceedings; and g) The overall balance of convenience.
[17] The plaintiff submits that the present case squarely falls within the Debonaire scenario, where I concluded that it would be a miscarriage of justice to allow execution of any summary judgment granted against the applicant before its alleged counter-claim could be heard. In that case, I had found that the applicant’s counterclaim might well be valid. The plaintiff in the present case further contends that it is a relevant consideration that its claim was brought well before the defendant’s counterclaim, and that it has been on foot for almost nine months. The plaintiff maintains that, had its claim been able to take the usual course, it would by now have been close to being set down for trial. The plaintiff also points out that its claim is for an amount considerably in excess of the counterclaims.
[18] The defendant denies that there is any injustice in “giving effect to the bargain the parties have made”. It relies on Crockett v Jonny on the Spot Drycleaners Ltd (1997) 11 PRNZ 369, where as has been noted above, a stay of execution of an order for summary judgment was refused. This was because the pending proceedings were likely to be lengthy and complex, and there was insufficient evidence that the applicants would suffer a probable and substantial miscarriage of justice. In that case, the applicants could not show that the proceedings, in which they had a financial interest, would not be able to be brought.
[19] The defendant also places reliance on cl 5.14 of each of the franchise agreements, which provides that the plaintiff as franchisee “must pay all amounts due under this Agreement without deduction, set-off or abatement”. Here, the defendant points to Browns Real Estate Limited v Graham Lakes Properties Limited [2010] NZCA 425 and Bromley Industries Limited v Martin & Judith Fitzsimons Ltd (2009) 19 PRNZ 850, submitting that these cases make it clear that the terms of a no set-off or cross-demand provision preclude the ability to raise a counterclaim in answer to a statutory demand or summary judgment. In Bromley Industries, for example, the Court of Appeal concluded that it could not be said to be an injustice to give effect to the bargain the parties had made in circumstances where set-off was excluded by an express contractual provision in an agreement between commercial parties.
[20] However, at [67] the Court of Appeal also went on to note that:
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 respondent’s position.
[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 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.
[22] Here, of course, there is an issue as to the plaintiff’s ability to pay. If enforcement of the order for summary judgment is not stayed according to counsel for the plaintiff, it is likely that the plaintiff will be liquidated.
[23] Turning to the merits of the plaintiff’s claim, the defendant submits that there are substantial difficulties with the plaintiff’s misrepresentation claims. It notes that the claims rest on pre-contractual misrepresentations which are alleged to have occurred almost six years prior to the filing of the present proceeding, and that these pre-contractual representations cannot be relied upon due to various disclaimers, entire agreement provisions and non-reliance clauses that are contained in the franchise agreements and in the relevant documentation referred to by the plaintiff. For example, the defendant points to the following disclaimer in a “franchise presentation” document, which the plaintiff seems to allege contained misleading budgeting advice:
Information contained herein is not to be construed as an undertaking or guarantee of performance in relation to any offer to franchise. The figures, formulae, assumptions or statements contained herein do not in any way form part of any franchise.
[24] The defendant also points specifically to the following clauses in the franchise agreements:
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.
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.
[25] The defendant argues that the efficacy of entire agreement provisions and non-reliance clauses amongst commercial parties has recently been confirmed by the Court of Appeal in David v TFAC Limited [2009] 3 NZLR 239 and PAE (New Zealand) Ltd v Brognahan [2009] NZCA 611. It submits that, in the absence of fraud, clauses of this nature are likely to be upheld, referring also to WaikatoLink Ltd
v Comvita New Zealand Ltd HC Tauranga CIV-2008-470-90, 4 June 2010. Ultimately, no doubt, the main issue for the plaintiff here is whether, pursuant to s 4 of the Contractual Remedies Act 1979, it is fair and reasonable that these provisions should be conclusive.
[26] The purpose and effect of entire agreement clauses was discussed by the
Court of Appeal in PAE (New Zealand) Ltd v Brognahan in the following terms:
[15] An entire agreement clause, however, is not absolute or conclusive. Section 4(1) recognises a wide judicial discretion to determine whether it is “fair and reasonable that the provision should be conclusive”. While the issue is to be determined “having regard to all the circumstances of the case”, the specified criteria focus the inquiry on an assessment of the relative positions of the parties and their access to independent legal advice. Its apparent purpose is to protect one party’s relative vulnerability from another party’s power to impose an exemption from liability which is contrary to the factual reality or an existing legal obligation and is thus unreasonable and unfair. Section 4(1) is a mechanism for striking balances, both individually between parties and conceptually between freedom of contract and unfair or unreasonable commercial conduct. (See also Dawson and McLauchlan The Contractual Remedies Act 1979 (1981) at 36–40.)
[27] In David v TFAC Limited, the Court of Appeal commented in these terms:
[65] While we hesitate to disagree with the Judge on an assessment of this type, we consider that the Judge was wrong to discount the effect of the independent advice requirement and acknowledgment clauses in the way that he did. The JHS documentation was consistent in saying clearly and repeatedly that those considering taking up a JHS franchise should obtain independent legal, accounting and business advice from people with experience in franchising. The documents made it clear that JHS would assist those independent advisers by providing information and such like. Far from being downplayed or “buried”, this advice was placed to the forefront.
[66] We accept that the failure to take independent advice in the face of a recommendation or requirement to take it will not excuse conduct that is misleading or deceptive. Where a person wrongfully conceals information, for example, it is no defence to say that the other party could have discovered it by seeking independent advice or asking the right questions. But here the purpose of emphasising the need for advice from experienced independent advisers was so that those advisers could assist potential franchisees, particularly those without experience, by advising on the legal, financial and business aspects of the proposed franchise arrangement. Clearly the JHS people were unwilling to provide such advice themselves, but were willing to provide relevant information to independent advisers.
[67] A significant basis for the Judge’s finding of liability was that Mrs David misled the Grisdales as to the prospects for JHS in New Zealand. Given that the Grisdales knew that JHS was new to New Zealand, and that Mrs David was new to JHS, we consider that the requirement for independent advice, including from a business perspective, was a powerful one for the Grisdales. In other words, it was unreasonable for them simply to rely on any assurances that they thought they had been given on this aspect, rather than on independent advice from someone experienced in
franchising from a business perspective. So on that ground, also, we would allow the appeal.
[28] The plaintiff’s position is that there is clearly an issue in this case whether s 4 of the Contractual Remedies Act 1979 is applicable, and that this is an issue that needs to go to trial. It contends, for example, that Ms MacDonald was not a true commercial party as alleged by the defendant, as she was simply a real estate agent with no managerial experience, and that this would be a factor that would weigh in favour of exercising the s 4 discretion.
[29] The defendant also argues that the plaintiff’s claim of inducement lacks credibility, given first, that the plaintiff entered into the Taradale agreement in 2007, three years after the alleged misrepresentations were made, and secondly, that the plaintiff brought proceedings after the agreements had expired and only when the defendant had been seeking payment of outstanding franchise fees. The plaintiff responds to these arguments by suggesting that the fact that the business model was flawed only began to become apparent once the property market boom had faded, and that it had to shoulder considerable losses over the period in question.
[30] In my view, the merits of the plaintiff’s claim cannot be a determinative factor here. A s 4 analysis 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.
Application for security for costs
[33] I now turn to the defendant’s application for security for costs.
[34] The power to make an order for security for costs is contained in r 5.45 of the
High Court Rules. It provides in part:
5.45 Order for security of costs
(1) Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—
…
(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—
(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.
[35] Here, the plaintiff concedes that it is not presently trading and that it has no assets to pay a substantial award of costs should its claim against the defendant be unsuccessful. It indicates that it may have access to resources from others, but says that it has no firm commitment in that regard.
[36] Given that impecuniosity is conceded, the only remaining issue here is whether an order for security for costs would be just in all the circumstances: r
5.45(2). In A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747, the Court of Appeal provided a useful summary of the general approach to be applied in such applications:
[13] Rule 60(1)(b) (now r 5.45(1)(b)) High Court rules provides that where the court is satisfied, on the application of a defendant, that there is reason to believe that the plaintiff will be unable to pay costs if unsuccessful, “the court may, if it thinks fit in all the circumstances, order the giving of security for costs”. Whether or not to order security and, if so, the quantum are discretionary. They are matters for the Judge if he or she thinks fit in all the circumstances. The discretion is not to be fettered by constructing “principles” from the facts of previous cases.
[14] While collections of authorities such as that in the judgment of Master Williams in Nikau Holdings Ltd v Bank of New Zealand (1992) 5 PRNZ 430, can be of assistance, they cannot substitute for a careful assessment of the circumstances of the particular case. It is not a matter of going through a check list of so-called principles. That creates a risk that a factor accorded weight in a particular case will be given disproportionate weight, or even treated as a requirement for the making or refusing of an order, in quite different circumstances.
[37] It is clear, however, that certain factors are often regarded as relevant in determining whether the ordering of security would be just in the circumstances. At [16], the Court in McLachlan stated that defendants “must be protected against being drawn into unjustified litigation, particularly where it is over-complicated and unnecessarily protracted”. On the other hand the court in McLachlan noted at [15] that the plaintiff’s right to access to the court is not lightly to be denied:
[15] The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs. That must be taken as contemplating also that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim. An order having that effect should be made only after careful consideration and in a case in which the claim has little chance of success. Access to the courts for a genuine plaintiff is not lightly to be denied.
[38] The plaintiff submits that it would not be in the interests of justice in this case to make an order for security for costs. It submits that an order would have the effect
of denying it access to the court, when its weakened financial situation has been caused by the actions of the defendant in the first place. The plaintiff claims, of course, that it was because of the defendant’s misrepresentations that it entered into the franchise agreements, not knowing that they were based on a “flawed” business model. Accordingly, the plaintiff argues that it would not be in the interests of justice if its weakened financial position was to imperil its ability to pursue its claim against the defendant, as the defendant should not be able to take advantage of its own conduct in obtaining an order for security for costs.
[39] The defendant, on the other hand, submits that it would be unfair if the plaintiff were able to rely on external funders (as has been hinted at here) for the purposes of pursuing the proceedings while not having to provide security for costs, given that external funders would not be exposed to a costs award in the event that the claim is unsuccessful. It also contends that in any event the plaintiff has been in financial difficulties for some years, and that this was the reason, rather than any alleged misrepresentation, that it is now insolvent.
[40] Another relevant factor in applications of this nature is the strength of the plaintiff’s claim, which I have already addressed in the context of the plaintiff’s application for a stay of execution. I do not need to add anything to that assessment, but note the plaintiff’s submission that it would be wrong to speculate, in the context of this application, on what are essentially matters of evidence.
[41] Balancing the interests of both the plaintiff and the defendant, I conclude that a modest order for security for costs would be appropriate here. While this is not a situation where the defendant is being drawn into “unjustified” or “over-complicated and unnecessarily protracted” litigation, I do consider it to be of some relevance that the plaintiff appears to rely on outside funding to pursue its present claim and I take the position that the defendant is entitled to some level of protection. At the same time, however, I am of the view that there is more than a “mere assertion” that the plaintiff’s impecuniosity results from the defendant’s actions complained of in the proceeding: see Davy v Howell (1993) 7 PRNZ 141; Weld Street Takeaways & Fisheries Ltd v Westpac Banking Corp [1986] 1 NZLR 741. The entire claim is
based on the allegation that the plaintiff made significant losses by relying on the defendant’s alleged misrepresentations.
[42] For these reasons, a modest amount by way of security is to be ordered here. As to the quantum of this, I do not accept the defendant’s position that security in the order of $40,000 would be appropriate. This figure is based on an estimated one- week trial. The plaintiff contends that a three-day trial would be more likely, and that an appropriate figure would be $15,000. Given that I consider the justice of this application to be finely balanced, I conclude that in all the circumstances here, a relatively modest amount by way of security should be ordered and set at the sum of
$15,000.00.
Conclusion
[43] The defendant is entitled to summary judgment on its counterclaims in the sum of $154,991.86. However, the plaintiff is entitled to a stay of execution of this judgment pending further order of this Court.
[44] In addition, the defendant is also entitled to security for costs in the sum of
$15,000.00.
Orders
Summary Judgment
[45] Summary Judgment is now granted to the defendant on its counterclaim against the plaintiff as First Counterclaim Defendant and against Ms MacDonald and Mr Gaunt as Second Counterclaim Defendants in the sum of $154,991.86.
Stay
[46] An order is made, however, pursuant to r 17.29 High Court Rules staying the enforcement of the Summary Judgment order outlined at [45] above until further order of this Court is made.
Security for Costs
[47] An order is made that the plaintiff is to give security for costs to the defendant in the total sum of $15,000.00 by paying this sum into Court or by giving to the satisfaction of the Registrar proper security for this amount.
[48] The additional order sought by the defendant for stay pending security for costs being properly given is appropriate here. An order is now made staying this proceeding until such time as security for costs as outlined above has been given.
Costs
[49] Costs are reserved. In the event counsel are unable to agree on the costs issue they may file memoranda (sequentially) and I will decide the question on the material before the Court.
‘Associate Judge D.I. Gendall’
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