Bell v AMP Life Limited

[2012] NZHC 2785

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-001990 [2012] NZHC 2785

BETWEEN  ANNE LYNETTE BELL Plaintiff

ANDAMP LIFE LIMITED Defendant

ANDJOHN WATT Second Defendant

Hearing:         16 October 2012

Appearances: A C C  Hooker for Plaintiff

N J Davis for Respondent

Judgment:      24 October 2012

JUDGMENT OF DUFFY J

This judgment was delivered by Justice Duffy on

24 October 2012 at 10.00 a.m., pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Solicitors:

Andrew Hooker, PO Box 4, Albany Village, North Shore City 0755

Burrowes & Company, PO Box 24515, Wellington 6142

Heaney & Company, PO Box 105 391, Auckland 1143

BELL V AMP LIFE LIMITED HC AK CIV-2012-404-001990 [24 October 2012]

[1]      The plaintiff, Anne Bell, is suing her former insurer and insurance broker for negligent misstatement and for breach of the Consumer Guarantees Act 1993.  She contends that her reliance on wrong information, which they gave to her, has caused her loss.  The defendants dispute Mrs Bell’s claims.  The first defendant, AMP Life Limited (“AMP”), applies for orders for security for costs in the sum of $50,000 or a sum that the Court deems sufficient and a stay of proceedings until the sum is paid.

Background

[2]      AMP is a New Zealand based insurer.  At all material times Mrs Bell was a resident of Victoria, Australia.  Nonetheless she entered into a contract of insurance with AMP.   The policy had three covers, one of which was income protection. Mrs Bell alleges that on 18 January 2007 she contacted AMP by telephone and was given incorrect information regarding the policy cover for income protection.  That led to her cancelling some of her cover.

[3]      Mrs Bell alleges that in July 2009 she totally ceased work as a result of depression and has been totally and permanently prevented by her illness from ever being able to engage in regular remunerative work.  She filed a retrospective claim with AMP for income protection cover on 18 April 2011.   After AMP refused to consider her claim, she began these proceedings.

AMP’s Submissions

[4]      AMP bases its application on the following grounds: (a)        That Mrs Bell is resident outside New Zealand;

(b)That it is in the interests of justice that an order for security for costs and an order staying the proceeding pending payment or provision of security be made.

[5]      In relation to the first ground, AMP submits that the Court should not take into account the fact that it always knew that Mrs Bell was resident in Australia as militating against the need for security for costs.  AMP submits such an approach

would severely limit the scope of r 5.45 of the High Court Rules, which provides for the making of orders for security for costs, as most contract claims that come under this provision would have been entered into with the knowledge that the plaintiff was resident overseas.

[6]      In relation to the second ground, AMP submits that as Mrs Bell has made it clear that she cannot afford to pay security for costs, this shows that she is highly unlikely to be able to meet an adverse costs award. As to Mrs Bell’s assertion that her impecuniosity is AMP’s fault, AMP states that her impecuniosity is a result of her being unable to work and there is no persuasive evidence pointing to AMP causing the impecuniosity.

[7]      AMP also submits that Mrs Bell’s  case is of dubious merit because she cancelled her cover in August 2007, so she has no entitlement to claim a benefit. AMP denies  giving her  incorrect  advice,  noting that  she  also  had  an  insurance advisor, who she alleges also gave her incorrect advice.  AMP maintains that Mrs Bell’s credibility is questionable, which weakens her claim, as there is only her oral evidence to prove the contents of the alleged incorrect advice.  AMP also relies on the long passage of time since Mrs Bell stopped working before she started proceedings as detracting from her credibility.

[8]      AMP submits that its interests must be weighed. It must be protected against being drawn into unjustified litigation.  Therefore, AMP seeks $50,000 for security for costs, on the basis that there will be substantial costs defending this claim, that significant discovery is required and that approximately seven full court days may be required to hear the full claim.  It seeks a stay of proceedings until payment, if the security for costs order is granted.

Mrs Bell’s Submissions

[9]      Mrs  Bell  acknowledges  that  at  all  material  times  she  was  a  resident  of Australia, but she contends that this does not automatically entitle AMP to security for costs.  Mrs Bell emphasises the discretionary nature of an order under r 5.45 and that there is no burden of proof or presumption either way.

[10]     Mrs Bell submits that one factor to be taken into account is whether the making of the order might prevent her from proceeding with a bona fide claim.  She further submits that the current case is one where AMP had a choice and it chose to enter into a contract with an Australian resident. She submits that Australia is the easiest foreign jurisdiction in which to enforce a New Zealand judgment, which counts against security for costs being imposed.

[11]     As to impecuniosity, Mrs Bell submits that the issue is whether her ability to pay security for costs has been caused by AMP’s actions.  She notes that her inability to pay security for costs was caused by AMP, not by her own impecuniosity.  She argues that because the policy being sued upon is a policy to replace losses caused by an inability to work, a failure to pay under the policy will affect her financial position and therefore her ability to pay costs.

[12]     As to AMP’s arguments on the dubious merits of the claim, Mrs Bell says that AMP is relying on speculation and innuendo.  She submits that if the Court is minded to award security for costs, a sum of $5,000 is appropriate.

Relevant Law

[13]     Rule 5.45 of the High Court Rules is the relevant provision for the granting of security for costs.  It provides:

5.45     Order for security of costs

(1)      Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—

(a)      that a plaintiff—

(i)       is resident out of New Zealand; or

(ii)      is a corporation incorporated outside New Zealand;

or

(iii)      is a subsidiary (within the meaning of section 5 of the Companies Act 1993) of a corporation incorporated outside New Zealand; or

(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.

(4)       A Judge may treat a plaintiff as being resident out of New Zealand even though the plaintiff is temporarily resident in New Zealand.

(5)       A  Judge  may  make  an  order  under  subclause  (2)  even  if  the defendant has taken a step in the proceeding before applying for security.

(6)       References in this rule to a plaintiff and defendant are references to the person (however described on the record) who, because of a document filed in the proceeding (for example, a counterclaim), is in the position of plaintiff or defendant.

[14]     As Judge Bell recently stated in Busch v Zion Wildlife Gardens Ltd (in rec and in liq) [2012] NZHC 17, an application for security for costs follows these four steps:

(a)       Has the applicant satisfied the Court of the threshold under r 5.45(1)? (b)     How should the Court exercise its discretion under r 5.45(2)?

(c)       What amount should security for costs be fixed at? (d)           Should a stay be ordered?

Threshold issue

[15]     The parties are agreed that AMP has passed the threshold, r 5.45(1), as Mrs Bell is resident in Australia.  In this case, therefore, the focus is on the exercise of the discretion.

Discretion

[16]     There is no burden of proof requirement when satisfying the Court as to whether the discretion should be exercised: Lunn v Fourth Estate Holdings Ltd (1997) 11 PRNZ 316 (HC) at 318.  So, the Court merely needs to be satisfied that it would be just in all the circumstances for an order to be granted.  The focus of the inquiry is on the individual factual circumstances that would make it just to grant an order for security for costs.  As stated in A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [14]:

While collections of authorities … can be of assistance … It is not a matter of going through a checklist 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.

Considerations for overseas plaintiffs

[17]     For  overseas  plaintiffs,  as  stated  in   Aquaculture  Corp  v  McFarlane Laboratories (1984) Ltd (1987) 1 PRNZ 467 (HC) at 470, there is no inflexible principle that such a plaintiff, with no assets within the jurisdiction, should normally be ordered to give security.   The ease, convenience and cost of enforcing a costs judgment in the plaintiff ’s country of residence is seen as a primary consideration: see Phipps v Healthcare Otago Ltd HC Dunedin CP39/95, 25 March 1999.   As Venning J noted in that case, the reason for this consideration is because the very point of an order for security against an overseas plaintiff is to avoid the cost and difficulty associated with enforcing a judgment overseas.  Although it is possible to register the judgment for costs in Australia, the Court in Jalfox Pty Ltd v Motel Association of New Zealand Inc [1984] 2 NZLR 647 (HC) found that the risk of the

defendant having to incur the additional expenditure was sufficient to tilt the balance of the relevant considerations in the defendant’s favour.

[18]     Mrs  Bell  also  raises  the  idea  that  because  AMP  willingly  entered  into contractual  relations  with  someone  in  Australia,  that  should  count  against  the granting of security for costs against the overseas plaintiff.   However, there is no legal precedent for this consideration.

General considerations

[19]     Other considerations raised by the parties include balancing AMP’s and Mrs Bell’s interests by considering the merits of the case as well as the nature of Mrs Bell’s impecuniosity.

[20]     In relation to the merits of the case, the main principle is summarised in A S McLachlan Ltd at [15]–[16]. An order for substantial security should not effectively prevent a plaintiff from pursuing a bona fide claim. If it has that effect, such an order must only be made after a careful consideration of the case leads to the conclusion that there is little chance of success.  However, the defendant must also be protected against being drawn into unjustified litigation, particularly where it is over- complicated and protracted.  So, even though the merits of the case might be difficult to assess at such an early stage of the proceeding, the Court should consider whether the action of Mrs Bell has reasonable prospects of success.

[21]     In relation to impecuniosity, the Court in Bell-Booth Group Ltd v Attorney- General (1986) 1 PRNZ 457 (HC) considered that it may be unjust for a defendant to receive security for costs if there is a reasonable possibility that the defendant’s actions have caused the plaintiff’s impecuniosity. But according to Asher J in Birnie Capital Property Partnership Ltd v Birnie HC Auckland CIV-2010-404-3000, 29

October 2010, care must be taken to avoid the circular argument that because the defendant does not accede to the claim and pay damages, the impecuniosity is its fault (at [49]):

But  only  limited  weight  can  be  put  on  this  factor  in  the  present circumstances, as any assumption as to the cause of impecuniosity assumes

that the plaintiff will succeed. As observed, there  is also an element of circularity in this sort of impecuniosity argument. It will generally be the case that if the defendant has paid the sum of money claimed by the plaintiff in the proceedings, then the plaintiff would no longer be impecunious. This is a feature of most security for costs applications and is not in itself a reason to refuse an application.

[22]     Another factor the Court should consider is whether there are grounds for thinking that the defendants are using the application oppressively to prevent Mrs Bell’s case from coming before the Court: Nikau Holdings v Bank of New Zealand (1992) 5 PRNZ 430 (HC) at 435.

Analysis

Judgment enforceability

[23] It is true that because of mutual judgment recognition arrangements, New Zealand judgments can be enforced relatively easily in Australia under the Foreign Judgments Act 1991 (Cth). However, as other Courts have granted security for costs despite the judgment being enforceable in Australia, this is merely one consideration in the balancing exercise, which is not necessarily conclusive.

Willingly entering into contractual relations with foreign plaintiff

[24]     It would be artificial to state that AMP entered into contractual relations with Mrs Bell knowing that she might ultimately sue them and that they might need to enforce  a  costs  judgment  against  her  as  a  foreign  plaintiff.    Parties  cannot  be assumed to enter into contractual relationships expecting them to end up in Court.

[25]     Security for costs is designed to protect defendants from not being able to recover costs  if  the plaintiff loses. The defendants’ knowledge that  Mrs Bell  is foreign and might not be able to pay costs does not make it less just for the order to be granted; after all, the defendants are not the ones instigating the litigation, but the ones being sued, so ought to be protected if the claim has no merit, even if they always knew the other side had no means of paying costs.

[26]     Further, as AMP points out, if this consideration were to be relevant, it would render almost all foreign contractual claims immune from the security for costs regime, since anyone entering into a contract with a foreign plaintiff would generally know that they were foreign.  Such a broad limitation on the discretion is unjustified.

[27]     So,  I  do  not  see  any  convincing  foundation  for  this  to  be  a  relevant consideration in the balancing exercise.

Merits of the claim

[28]     Neither party provided affidavit evidence that might indicate the strengths and weaknesses of their cases.  During the hearing, their counsel made a number of evidential  statements  from  the  bar,  but  as  neither  would  consent  to  the  other ’s evidence in this form I have put those statements out of my mind.  Their pleadings provide the only outline of their cases.

[29]     There is no dispute of the fact that Mrs Bell did actually cancel the part of the policy that covered her loss of ability to work, so she is not entitled to the insurance payment as of right.  This is why she brings her claims for damages for negligent misstatement or breach of the Consumer Guarantees Act 1993, leading to her cancelling the policy and not receiving a pay-out.  However, when it comes to proof of the alleged misleading statements, all Mrs Bell has is her “recollection” of telephone calls (see Second Amended Statement of Claim at [1.7]).  I am not aware of any extrinsic evidence that might corroborate her recollection of the telephone discussions.

[30]     As AMP points out, even if there were negligent misstatements that could be proven, what would have then happened is mere speculation.  It is unclear whether Mrs Bell would necessarily have paid further instalments or whether she would have cancelled anyway. So, the claim for damages is far from certain.

[31]     Ultimately, given the total reliance on Mrs Bell’s recollection of her oral unrecorded telephone discussions with someone at AMP, which is the key part of the claim, the merits of the claim seem weak.

Impecuniosity caused by AMP

[32]     Mrs Bell insists that she is not impecunious, merely that she cannot afford to pay costs.  However, she has not provided any evidence of assets that could readily be disposed of to meet a costs claim.

[33]     This is a case where Mrs Bell contends that she cannot afford to pay costs because the defendant has not done what it should allegedly have done.  But to treat the impecuniosity as having been caused by AMP would be to assume that Mrs Bell’s claim has merit.  As Asher J said, in such cases it is best to avoid circular arguments, which makes this factor neutral at best.

[34]     On an overall balancing of the factors, there are grounds for claiming security for costs  from  Mrs  Bell  as  she is  resident  overseas  and  has  shown  a  potential inability to pay costs.  This is bolstered by the fact that the merits of her case do not seem very strong both in regard to proof of liability and assessment of damages.  If she can prove liability, the better remedy might be for her to seek orders in the nature of a mandatory injunction requiring AMP to reinstate the cancelled policy rather than to attempt an assessment of the scope of her loss, which cannot be assumed to equate automatically with what she might have received under the cancelled policy.  These factors are to be weighed against the fact that it is relatively easy to enforce New Zealand judgments in Australia.   Looked at overall I consider that an order for security for costs should be made.

Quantum

[35]     The amount of security for costs granted is entirely at the discretion of the

Court. Notably, as stated in A S McLachlan Ltd at [27]:

The amount of security is not necessarily to be fixed by reference to likely costs awards ... It is rather to be what the Court thinks fit in all the circumstances.

[36]     The circumstances might include the amount or nature of the relief claimed, the complexity and novelty of the issues, the estimated duration of the trial and the

probable costs payable if Mrs Bell is unsuccessful.   Past awards have generally represented some discount on the likely award of costs.

[37]     I consider that the quantum of the security for costs order to be awarded should not be so high as to deny Mrs Bell any possibility of pursuing the claim.  The quantum does not necessarily have to be based on AMP’s estimate of what the likely costs  will  be.   AMP has  suggested  $50,000  on  the  basis  that  the  first  trial  to determine liability would cost around $21,000, as well as around $15,000 for pleading, case management and discovery.  AMP states that if that trial is successful, then there would be a second trial to determine loss, which would cost around

$23,000.

[38]     The hearing of this proceeding has been split.   The first trial has been set down for three days (see: Minute of Judge Bell, Bell v AMP Life Ltd, HC Auckland CIV-2012-404-1190, 27 September 2012).   Whether the second trial might be necessary and how long it might take is less certain.   Indeed, if a second trial is necessary, that would suggest that Mrs Bell had some success in the first trial, so she would at least not have to pay all of AMP’s costs.  So, I do not think that the costs of the second trial should necessarily be given much weight at this time.  In this regard I consider that the present security for costs order can be limited to costs arising from the first trial.  Once the outcome of that trial is known, the parties will be in a better position to assess what should be done regarding costs of the second trial.  If Mrs Bell fails to establish liability in the first trial there will be no need for the second trial, hence no need to consider security for costs for that trial.  If she is successful in the first trial that will be a relevant factor to take into account when considering whether an award for security for costs should be made for costs arising from the second trial.

[39]     Mrs  Bell  has  suggested  that  security  for  costs  ought  to  only  reflect  the additional costs of enforcing a costs order against a plaintiff in Australia as opposed to New Zealand, and submits that $5,000 might be appropriate.

[40]     This would seem to be a reasonable suggestion if Mrs Bell had shown that she had sufficient assets in Australia to meet the likely costs. However, if Mrs Bell

has no readily available assets in Australia either, then AMP are not any better protected.  So the quantum should be higher to acknowledge this possibility.

[41]     At the hearing, counsel were agreed that the key issue in the first trial would be whether or not Mrs Bell’s oral evidence of what AMP had said to her in the telephone discussion in 2007 regarding the scope of the policy’s cover would be pivotal to the outcome of the first trial.   I consider that for the moment, trial preparation, discovery and any other case management issues should be confined solely to what is needed for the first trial.  I propose to make trial directions to this effect.  When I canvassed this approach with the parties at the hearing they were in agreement with it.  If the trial preparation is pared down in this way I consider that an order for security for costs in the sum of $10,000 will provide AMP with some measure of protection for recouping its costs without at the same time being a serious obstacle to Mrs Bell’s pursuit of her claim.  If she cannot raise $10,000 for security for costs at this time, that would suggest that she was impecunious to a point where she could not likely afford to pay costs should she not succeed in the first trial.

Stay of proceedings

[42]     Although a stay of proceedings pending security for costs is discretionary, it is generally granted if security for costs is to be awarded, unless there are unusual circumstances justifying the refusal of a stay. I do not see any unusual circumstances here.

Result

[43]     AMP is  awarded  $10,000  security for  costs  for  the  first  trial.    Whether security for costs should be ordered for the second trial is to be determined at a later date following the hearing and determination of the first trial.  The proceedings are stayed until such time as the security for costs order is met.  The timetabling and case management directions relating to this proceeding are to be amended so that the only steps the parties are required to take are in relation to preparation for the first trial.   Anything related  to  the second  trial  should remain  in  abeyance until  the outcome of the first trial is known.   The parties are to confer with each other

regarding a timetable for the pretrial steps that will need to be taken to ensure the first trial is ready for hearing.  They are to file memoranda setting out the proposed steps within 10 days of the date of delivery of this judgment.  If no agreement can be reached they should outline their respective positions and on receipt of the memoranda a telephone conference will be organised to make the necessary determinations and directions.

[44]     Leave is granted to file memoranda as to costs.

Duffy J