Blue Water Resort Limited v Spellman HC Christchurch CIV 2009-409-911
[2010] NZHC 710
•14 May 2010
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2009-409-000911
BETWEEN BLUE WATER RESORT LIMITED Plaintiff
ANDGRAHAM SPELLMAN ANGELA SPELLMAN First Defendants
ANDJONATHAN HURST DEBORAH HURST Second Defendants
ANDDAVID MILLAR Third Defendant
ANDPETER SCOTT JEAN SCOTT Fourth Defendants
CIV-2009-409-000908
AND BETWEEN BLUE WATER RESORT LIMITED Plaintiff
ANDPETER SCOTT JEAN SCOTT Defendants
Hearing: 14 May 2010
Appearances: S E Goodwin and S Dwight for Plaintiff
M Henderson for Defendants
Judgment: 14 May 2010
ORAL INTERIM JUDGMENT OF ASSOCIATE JUDGE DOHERTY
BLUE WATER RESORT LIMITED V SPELLMAN AND ORS HC CHCH CIV-2009-409-000911 14 May
2010
[1] This is an application made pursuant to r 5.45 of the High Court Rules, which enables the Court to order security when there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in its proceeding.
[2] There are four separate proceedings. They all relate to the alleged failure by defendants to settle the sale of individual units in a proposed resort at Tekapo. There is a range of prices for these units, but they are range in the vicinity of $450,000 to
$650,000. The plaintiff seeks specific performance of its contract relying upon the documents on their face.
[3] The defendants Spellman, Hurst and Millar are all overseas nationals residing, I am told, in the United Kingdom. The defendants Scott are locally based.
[4] Each of the defendants in each of the proceedings plead that they have no obligation to settle the sales and purchases because the units and their accoutrements were misrepresented to them. They also plead affirmative defences in relation to those misrepresentations, and defences under the Contractual Remedies Act 1979 and the Fair Trading Act 1986.
[5] The defendants Spellman, Hurst and Millar also counterclaim for the return of deposits paid which were set at 10 per cent of the purchase price, together with a reservation fee which was paid in pounds sterling to the entity which the defendants claim was the agent of the plaintiff.
[6] The Scotts claim the same misrepresentations. They plead affirmative defences of unconscionable conduct, hardship or impossibility, the Contractual Remedies Act, the Fair Trading Act 1986 and also that there has been a breach of contract. The Scotts’ case is slightly different as their claims are not just the affirmative claims I have mentioned, but that they also did not get the unit they agreed to buy, and that a sunset clause in the contract operated so as to enable them to cancel the contract prior to settlement, which they did.
[7] It is common ground that the determination of these applications requires to be dealt with in two stages, the first being what is called the threshold test. That is whether or not there is reason to believe that the plaintiff would be unable to pay the costs of the defendants if it were unsuccessful in its claim. Much evidence has been presented by some or all of the defendants in that regard. However, one need not delve into that, as the plaintiff accepts that for the purpose of this application that threshold has been crossed.
[8] The second stage of consideration of the application requires a decision of the Court whether or not it should in the circumstances before it exercise its discretion to order security, and if it does so, for how much and in what form.
[9] It is also common ground that the exercise of that discretion is not fettered by principles arising from the facts of other cases. It is accepted, and I accept, that whilst they may be of assistance, they are not a substitute for analysis of the particular case or cases in hand. Those principles come from A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747.
[10] There is no limitation upon the matters which the Court can take into consideration in the exercise of the discretion. There are a number which have assumed importance in other cases, and they may be touched upon in the course of this decision.
[11] The first matter I take into account is, whilst the plaintiff accepts it is impecunious for the purposes of this exercise, there is no evidence that, if there is an order requiring security to be paid, that in itself will put paid to the plaintiff’s ability to prosecute any or all of its claims. In other words, it is not suggested that payment for security, together with its own litigation funding costs, will prevent the plaintiff from continuing.
[12] The second matter is that I accept that the defendants have made this application in a timeous way. The matter is not ready for trial, there have been some preliminary skirmishes over discovery, and in respect of the Scott claim there has been an unsuccessful judicial settlement conference.
[13] The next factor is that there is no issue raised that the position of the defendants in failing to settle these contracts has per se caused the impecuniosity of the plaintiff. Frankly, there is no financial information provided by the plaintiff to be of any assistance to the Court.
[14] The next factor is the merits of the claims. Both sides claim that the other’s case is not strong. Both claim that their own cases have strength. The plaintiff relies, in all of these cases, on the simple fact that there are validly executed contracts which are now unconditional, and the plaintiff is entitled to the benefit of those contracts through the medium of specific performance.
[15] On the other hand, all of the defendants rely on pre-contractual misrepresentations as to the ultimate format and quality of the resort. In the round, they say that the plaintiff has let them down and that what they contracted for is not what they are getting. There are some other twists and turns to that in the cases of the defendants, but by and large that is the fundamental issue.
[16] To counter that, the plaintiff relies on an “entire agreement” clause in the contract.
[17] In addition, as I have said, the Scotts say that they have a valid cancellation because the contract did not ever become unconditional, but there is an argument as to whether there was an extension of the condition for the benefit of the plaintiff.
[18] In assessing the merits of all of these cases, I agree with plaintiff’s counsel that it is difficult to precisely assess just where the strength of each case lies on the papers, but I have had the additional benefit of presiding over a judicial settlement conference in the Scott case.
[19] As far as I can tell at this stage, the merits are reasonably easily poised. Perhaps they might tip towards the defendant in each case, but if so, only just.
[20] In my view, one of the major factors for consideration in the exercise of this discretion is the existence of the affirmative defences of all defendants and the
counterclaims of the defendants Spellman, Hurst and Millar. Much reliance has been placed on this, particularly by the plaintiff. The Court has, in many cases, taken this into consideration: Ansell v State Insurance (1996) 10 PRNZ 133.
What is the reality here?
[21] Whilst it could be said that the plaintiff’s claim is a simple one relying upon the face of the documentation, the defences rely on the action of the plaintiff, its employees and its agents in the marketing of this complex as a resort, and the advantages to the defendants of individual ownership of part of that resort. It can hardly be said that because the defendants have raised defences per se it is their fault that disproportionate time will be taken in the conduct of the trial.
[22] There is some argument between counsel that the affirmative defences and counterclaims will occupy such a disproportionate time at trial. The defendants’ counsel accepts that perhaps two-thirds of the time might be taken up by that – the plaintiff estimates three-quarters. There is really not a lot in it. But in my view the affirmative defences are separate legal consequences which arise from the same set of facts. It might be said that counterclaims are in a different category, but I agree with defence counsel that the major component of these counterclaims is intrinsic to the subject matter of the claims. The counterclaims relate to the deposits paid. The success of those counterclaims will depend entirely upon whether the defendants are successful in their defence of the plaintiff’s claim. Neither the affirmative defences nor the counterclaims claim “relief” in the usual sense of that word. They are merely a consequence of the defence of the plaintiff’s claim.
[23] On balance, it is my view that the risk of the defendants being out of pocket because of the impecuniosity of the plaintiff in facing these claims ought to be ameliorated.
[24] A further factor to be taken into account in what I mean by amelioration is the question of the attitude of the parties to consolidation. It seems to me that all of these proceedings are a prime candidate for an order under r 10.12. Common questions of law and fact arise in all of them. The rights to relief apply in all of
them. They come effectively out of the same subject matter as to each transaction. The same events in terms of the alleged affirmative defences apply, namely the same misrepresentation. The same counsel are involved in all of them. It seems to me that there are considerable savings in costs to parties and to the justice system by the efficient disposal of Court business that such an order ought to be made.
[25] The defendants resist consolidation. The plaintiff supports consolidation. Counsel for the defendants accepted that if there was consolidation then there would be a significant saving in costs. The corollary of that is that if there were to be consolidation, there ought to be a significant difference in the award of any security for costs.
[26] The Court has the ability under r 10.12 to order that two or more proceedings be consolidated on terms it thinks just. Regardless of the attitude of the defendants, I think it is just that there be consolidation and I make an order consolidating all four of these proceedings into one. They shall be given the same heading as is set out in the intituling to this interim judgment. From now on, I order that only one document need be filed in relation to any of the proceedings referring to the first-numbered proceeding in the intituling to this judgment.
[27] There is the outstanding issue for the Scott claim of a matter for discovery. It ought to remain separate from the consolidation until such time as it is dealt with and completed, or by further order or direction of this Court.
[28] I intend that security for costs be provided by the plaintiff in relation to the consolidated proceeding. That will require a consideration of the quantum of such security. Counsel for the defendants was seeking security for costs of $39,000 in relation to each of the separate proceedings. I now direct that counsel provide to the Court a joint memorandum with a consent position on a likely schedule of defendants’ costs and disbursements on a category 2B basis for such a consolidated proceeding. That is to be filed within five working days. Upon receipt of it I will set the security for costs amount.
[29] At the current stage I make an order that there be security in the sum to be determined in accordance with the foregoing mechanism.
[30] The consolidated proceeding is stayed until that security is provided.
[31] I formally record the concession of the defendants that they consent to their counterclaims being stayed upon the payment of that security. Each of those orders shall inure until further of this Court.
Costs
[32] I have not been addressed on costs, but ordinarily costs would follow the event. Should there be any issue about that and any divergence on an award on a schedule 2B basis, I would expect counsel to raise it in their joint memorandum relating to the security quantum issue.
[33] I record that counsel have conferred as to the disposition of the outstanding discovery applications for the defendants Spellman, Hurst and Millar. I direct that the plaintiff file an amended list of documents verified by affidavit and served on the defendants by 4 p.m., 11 June 2010.
[34] The consolidated matter is adjourned for a case management conference at
9 a.m., 30 June 2010. The parties are to file a joint memorandum as to the status of the consolidated proceeding which might include whether or not the application for discovery has been disposed of. Any outstanding issues can be argued on the telephone at that conference.
[35] I direct that the joint memorandum refer to such further matters as are required for:
a) the setting of a fixture date;
b) the setting down of the proceeding;
c) any other matter which is required to enable the matter to proceed to hearing.
[36] For the avoidance of doubt, this judgment and directions are interim in the sense that whilst there has been an order for security, there will be a final judgment relating to the issue of quantum and the terms of its payment. The intention would be that such payment would be required in a timely way so as to enable the defendants to have confidence as to any further step they may take, and the cost thereof.
Solicitors:
Cavell Leitch Pringle & Boyle, Christchurch
Coghlan Smith, Christchurch
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