Bligh v Earthquake Commission

[2017] NZHC 2994

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2013-409-001333 [2017] NZHC 2994

BETWEEN

DEREK RICKY BLIGH

Plaintiff

AND

EARTHQUAKE COMMISSION First Defendant

AND

IAG NEW ZEALAND LIMITED Second Defendant

Hearing:	27, 28 November 2017
Appearances:	R J Lynn for Plaintiff N S Wood for First Defendant P M Smith for Second Defendant J Moss and G P Davis for Claims Resolution Service Limited P J Napier for Grant Shand
Judgment:	4 December 2017

JUDGMENT OF ASSOCIATE JUDGE OSBORNE [on security for costs]

Introduction

[1]      This   proceeding   was   originally  scheduled  to   have   a  seven-day  trial commencing 31 October 2016.  Now, by reason of unusual circumstances, there is a

new trial date commencing 19 February 2018 (estimated to take 10 days).

BLIGH v EARTHQUAKE COMMISSION [2017] NZHC 2994 [4 December 2017]

[2]      The circumstances in  which there came to be a new trial  date are fully explained in a judgment of Associate Judge Matthews in which a default judgment obtained by the defendants on 1 November 2016 was set aside.1    Mr Bligh had a contract with a litigation funder, Claims Resolution Service Ltd (CRSL). His solicitor in the litigation had been Grant Shand, Barristers and Solicitors. Either shortly before or on the day of hearing, CRSL purported to cancel its contract with Mr Bligh.  That led Mr Andrew Ferguson, the solicitor from Grant Shand’s firm who was acting, to seek and obtain leave to withdraw as the plaintiff’s solicitor. As a result of Mr Bligh’s non-appearance in Court, Clark J entered judgment by default for the defendants.2

[3]      Mr Bligh subsequently applied for and obtained the order setting aside the default judgment.3   Associate Judge Matthews then made timetabling orders on all parties’ signalled applications for costs and the defendants’ signalled application for security for costs in relation to the freshly-pending trial.

The applications for security for costs

[4]      As a matter of exigency, in this judgment I determine only the applications for security for costs.  There is a distinct urgency attaching to those having regard to the new trial date.

[5]      The defendants (“IAG” and “EQC”) apply for orders pursuant to r 5.45 High Court Rules that the plaintiff give security for costs in favour of each defendant in the sum of $20,000. They ask that the orders require security by 22 December 2017. The defendants apply also for orders staying the proceeding if the plaintiff does not give such security by 22 December 2017.

[6]      Mr Bligh opposes the applications for security.  Responsibly, he does not take issue with the appropriateness of the amount sought ($20,000 for each defendant) if security is to be granted.  Nor did Mr Lynn (for Mr Bligh) submit that there ought not to be a stay of the proceeding if security, though ordered, is not provided. Further, Mr

Lynn accepted that the threshold requirement under r 5.45 – that there is reason to

1      Bligh v Earthquake Commission [2017] NZHC 995.

2      Bligh v Earthquake Commission [2016] NZHC 2619.

3      Bligh v Earthquake Commission, above n 1.

believe the plaintiff will be unable to pay the defendants’ costs if the plaintiff is unsuccessful in the proceeding – is established.  In fact, Mr Bligh positively asserts that he is impecunious.

[7]      Mr Bligh’s opposition invited the Court in its discretion to refuse orders of security having regard to five matters:

(a)       Mr Bligh is impecunious and any order for security for costs will not be able to be paid;

(b)Mr Bligh has a bona fide claim against each defendant with reasonable prospects of success;

(c)       any order for security for costs will prevent Mr Bligh from pursuing his claim, thereby effectively denying him access to the Courts;

(d)      Mr Bligh’s right of access to the Court must prevail over the defendants’

rights to costs in the event that they are successful; and

(e)      it is in the interests of justice that there be no order of security.

Defendants’ evidence and submissions

[8]      Counsel for the defendants acknowledged the Supreme Court’s recognition in

Reekie v Attorney General that:4

Applications for security for first instance proceedings call for careful consideration and Judges are slow to make an order for security which will stifle a claim.

Counsel for EQC and IAG nevertheless submit that other considerations to be taken into account justify security orders in this case.

[9]      First, they submit that, on a review of the now-disclosed communications between Mr Bligh and his former solicitors and the further evidence now briefed, there

4      Reekie v Attorney General [2014] NZSC 63, [2014] 1 NZLR 737, (2014) 21 PRNZ 776 at [3].

must be a serious doubt as to whether Mr Bligh’s claim will succeed either at all or at the quantum currently pleaded.   Mr Bligh now claims $839,004 which may be compared with the sum of $596,244.71 as claimed at the time the first trial was aborted.   Leading up to the 31 October 2016 trial date, Mr Bligh and his solicitors/funders had disagreed on whether he could on the evidence for trial recover even $150,000.

[10]     Mr Smith,  for  IAG,  invited  the Court  to  have regard to  observations  of Hammond J in Hamilton v Papakura District Court5  and Master Lang in Astro Enterprises Ltd v LJS Management (2000) Ltd.6     In those cases, this Court has emphasised the need, on an application for security, to address the economic realities of a case for both parties.   In particular, Mr Smith invoked the observation of Hammond J in Hamilton v Papakura District Court where his Honour said:7

From a defendant’s economic perspective, there are two issues which often go unaddressed. The first is that light-handed control of a plaintiff’s proceedings may enable a plaintiff to extract quite unworthy “nuisance value” settlements. The second is that surely a defendant, too, is entitled to be made whole, if successful.

[11]     The defendants submit that a refusal of the security sought in this case would be oppressive and unjust to the defendants.  They rely particularly upon the evidence of Mr Bligh’s limited assets and the likelihood of their depletion through litigation costs.  Mr Bligh’s evidence is that his only significant asset is his house property, the subject of his insurance claims.   The  property is valued at $335,000  for rating purposes, comprising $155,000 for land and $180,000 for improvements.  Given that this proceeding relates to damage to the improvements, the present value of the property is likely to be lower than its rating valuation.  Mr Bligh has come to his arrangements with his present solicitors by providing a first mortgage security over the house property, protected by way of a caveat against the title.   The mortgage secures payment of both the legal fees and expert fees and disbursements. There will be significant costs involved in preparation for and attendances at trial. The resulting erosion of Mr Bligh’s equity is likely, in the event he has to pay the defendants’ costs

of the proceeding, to result in a shortfall in recovery of costs by the defendants (if

5      Hamilton v Papakura District Court (1997) 11 PRNZ 333.

6      Astro Enterprises Ltd v LJS Management (2000) Ltd HC Auckland CP139/02, 11 February 2003.

7      Hamilton v Papakura District Court, above n 5, at 336.

successful). Mr Bligh’s costs payable to his own solicitors and experts will have been covered through the mortgage security. The defendants at present have no such cover.

[12]     Thirdly, the defendants invite the Court to reject Mr Bligh’s assertion that an order for security will effectively deny him access to this Court.  Counsel note the ability of the Court to order as security some form of security other than cash paid into an account.  Counsel note the absence of any evidence by Mr Bligh as to attempts to raise further finance to be secured against his property, which is subject only to the mortgage in favour of his solicitors.

[13]     Fourthly, counsel for EQC and IAG recognise that the security applications have been made at a late point in the proceeding.  Mr Knight, for EQC, notes that up to the point of the aborted trial, EQC had adopted its consistent position in proceedings on the Earthquake List of not pursuing security.   Counsel for both EQC and IAG submit that the events surrounding the aborted trial dramatically altered the situation. Mr Bligh’s loss of his litigation funder (who was proceeding on a “no win, no pay basis”) created the real risk that Mr Bligh’s equity will be eroded, if not exhausted. The disclosure of the communication between Mr Bligh and his lawyer/funders, including a relatively negative analysis of Mr Bligh’s prospects of proving earthquake- caused damage, gives the Court a perspective on the plaintiff’s case which would not usually be available on a security application.

[14]     There is also the unusual aspect to this case that the evidence establishes Mr Bligh, to date, has not personally incurred costs or disbursements in having the case briefed in anticipation of the first trial date.  All those costs and disbursements have been absorbed either by the litigation funder or his previous solicitors.  This is not therefore a case in which it could be said that the plaintiff has been lulled into incurring the costs of preparation through not earlier facing an application for security.

[15]     Finally, counsel for the defendants note that with a 10-day trial scheduled, the combination of scale costs and disbursements (including expert witnesses) is likely to exceed $80,000.

Plaintiff ’s evidence and submissions

[16]     Mr Lynn, for Mr Bligh, submitted that the overarching consideration is that it is not in the interests of justice that orders for security be granted.   Mr Lynn first submitted that any order for security for costs is likely to stifle Mr Bligh’s claim, effectively denying him access to the Court.

[17]     Secondly,  Mr  Lynn  submitted  that  the  Court  should  also  decline  the applications on the basis that the defendants have delayed in bringing the applications. Mr Lynn notes that, even since the default judgment was set aside and security applications signalled, the timetable to a second trial date has meant that Mr Bligh has had to incur significant additional fees and disbursements to be ready for the new trial date.

[18]    Thirdly, Mr Lynn made reference to the position of both defendants as substantial corporate entities of significant means.   When the relevance of the defendants’ means was questioned in the course of submissions, on the basis that balance of convenience considerations generally do not arise in this context, Mr Lynn resiled from any reliance on this aspect as directly relevant to the security considerations, indicating that he simply identifies the defendants’ substantial means as a fact, rather than a relevant consideration.

[19]     Fourthly, Mr Lynn invited the Court to undertake a degree of analysis of the plaintiff’s case as it has been further developed. Although the evidence of Mr Bligh’s key engineering expert, Mr Kearney, means that the general nature of Mr Bligh’s “theory of the case” remains “more or less the same”, Mr Kearney’s briefed evidence has been substantially developed to explain such key issues as to why damage to brickwork (which is likely to have significantly reduced the structural and functional utility walls) is the result of the earthquakes.  Mr Lynn submits that no weight should be accorded to the negative views of Mr Bligh’s former counsel as to the merits of his case as the assessments at that time were “flawed in several significant respects”.  Mr Lynn submits that, put another way, the claim as prepared by Mr Shand and his firm may have been weak but Mr Bligh’s claim, now properly prepared, has demonstrable merit.

Discussion

Delay

[20]     I will consider first the issue of delay as it is the matter which initially most concerned me. The defendants’s applications for security came at a time well after the close of pleadings and the completion of the exchange of briefs. When security is first pursued at such a point, the delay will very often stand as a significant, if not decisive, influence on the Court’s discretion.8   The rationale is that, where an application is made very close to a hearing date or where the applicant has stood by allowing a plaintiff to incur considerable expense without even an informal request in relation to security, it would be unjust, at a late stage, to place the hurdle of security in the plaintiff’s path.

[21]     In Nikau Holdings Ltd v Bank of New Zealand, Master Williams QC granted the defendant security for costs notwithstanding the fact that the proceeding was well advanced when the application was made.9   His Honour found that the situation did not appear to be one of those where a defendant’s delay in making the application had:10

… gulled a plaintiff in continuing to incur legal costs in prosecuting its action on the assumption that no application for security would be made.

[22]     Such arguments as to delay do not assist the plaintiff in this case for three reasons.  First, the relevant financial circumstances of the plaintiff became known to the defendants only as a consequence of the aborted trial.  Secondly, the defendants were justified in reconsidering the security position when they became faced with the inevitably increased costs of preparation for a second trial date with the plaintiff’s case redeveloped.  Finally, the plaintiff’s “no win, no pay” arrangement with his funder

mean that he has not in fact incurred legal costs in prosecuting his claim to date.

8      See Oceania Furniture Ltd v Debonaire Products Ltd HC Wellington, CIV-2008-485-1701, 24

April 2009, and Coote v Murray HC Nelson [2012] NZHC 3200 at [8]–[9].

9      Nikau Holdings Ltd v Bank of New Zealand (1992) 5 PRNZ 430.

10     Nikau Holdings Ltd v Bank of New Zealand, above n 9, at 441.

Access to justice

[23]     Mr Bligh did not give any evidence as to attempts to raise $40,000 for the purposes of providing cash security. On the other hand, he deposes that he cannot pay that sum or any other amount.   He states that he has limited income from WINZ support and an income protection policy.  He deposes that his surplus after his living expenses goes to servicing debts.  He deposes to having total debts of $47,557.33, including more than $42,000 owing on credit card debt and $4,000 owing on bank overdraft.  I am satisfied that Mr Bligh is not in a position to raise cash to provide security.

[24]     That said, he is in a position, through owning his property, to provide security in the form of a mortgage.   To minimise cost, such mortgage could be protected through a caveat.

[25]     In the course of submissions, it was recognised that the mortgage security provided to Mr Bligh’s present solicitors (protected by caveat) would need to be taken into account.  That could be done either by the Court’s requiring Mr Bligh to arrange for the solicitors to yield first priority in the sum of $40,000 – $20,000 each to the defendants – or by requiring Mr Bligh to arrange for his solicitors to accept a priority sum (on a first ranking mortgage) of, say, $100,000.  While these discussions took place only in the course of oral submissions, it is equally the case that Mr Lynn  did not at that point submit that (in the event security is to be ordered) either of those approaches would be inappropriate.

[26]     I find that an access to justice issue does not arise when Mr Bligh has the ability to provide security in such form.

The merits of Mr Bligh’s claim

[27]     One of Mr Bligh’s grounds of opposition is that he has a bona fide claim against both defendants with reasonable prospects of success.

[28]     Assessment of Mr Bligh’s case when it has been further developed since the aborted trial but still remains for hearing can at most be a matter of impression.  It is

appropriate in this context to follow the assessment of Associate Judge Matthews on the setting aside application in which his Honour was not persuaded that the strength of Mr Bligh’s case should be assessed at a level below it being arguable.11   Equally, there is much in the material provided in evidence on this application to indicate that it is far from certain that Mr Bligh will be able to satisfy the burden of proving that the Canterbury Earthquake Sequence was the relevant cause of significant damage to his property.

[29]     The strengths or weaknesses of Mr Bligh’s claim in this case need not be a factor in favour of or against an award of security.

Conclusion

[30]     The amount of security sought by each defendant is at the lowest end of an appropriate range.  Mr Bligh has the means to provide security provided it is not in cash.  If he provides a mortgage security, he will not be precluded from taking his claims to trial.

[31]     It is appropriate that there be a stay of the proceeding if Mr Bligh does not provide security. By this judgment, Mr Bligh will have two weeks in which to arrange a mortgage security.  If by the expiry of that time (18 December 2017), he has not provided such security then it is appropriate  that the Court and defendants know that the stay will operate, the trial date will be vacated and none of the parties will have, for the time being, any additional costs of preparation.

Costs

[32]     It is appropriate that the costs of the defendants’ applications follow the event.

[33]     All counsel, having regard to the comparatively small amount of time required for this application, recognised that a 2A award of costs is appropriate.12

11     Bligh v Earthquake Commission, above n 1, at [47].

12     High Court Rules, Category 2 under r 14.3(1) and band A under r 14.5(2)(a).

[34]     I exclude from the disbursements payable any disbursements incurred for travel and accommodation as the most substantial reason for the hearing on 27-28

November 2017 related to other issues which needed a hearing in Court.

Orders

[35]     I order:

(a)      The plaintiff shall by 4.00 pm, 18 December 2017 provide a registrable mortgage security in the sum of $20,000 to each defendant, securing payment up to that sum of any costs awarded in favour of the defendants as a consequence of the trial of this proceeding.

(b)The mortgage securities are to be capable of registration but are to be protected pending trial by caveats against the title.

(c)      The  mortgage  securities  for  $20,000  each  shall,  at  the  plaintiff ’s election, be either:

(i)a  first  mortgage  security  against  the  title  to  the  plaintiff’s property at 27-29 Waddington Road, Waddington (“the title”); or

(ii)a second mortgage security against the title, second behind a mortgage to the plaintiff’s solicitors which is limited in priority to a maximum sum of $100,000.

(d)In the event that the plaintiff fails to provide security as ordered by 4.00 pm, 18 December 2017, the plaintiff ’s proceeding will be stayed with immediate effect.

(e)       The plaintiff is to pay the costs of the application on a 2A basis together with disbursements to be fixed by the Registrar.

Associate Judge Osborne

Solicitors:

GCA Lawyers, Christchurch Chapman Tripp, Wellington Duncan Cotterill, Auckland Keegan Alexander, Auckland

Jai Moss, Barrister, Christchurch