Bos International (Australia) Limited (ABN 066601250) v Griffiths HC Tauranga CIV 2009-404-4911

[2010] NZHC 1973

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV 2009-404-4911

BETWEEN

BOS INTERNATIONAL (AUSTRALIA) LIMITED (ABN 066601250)

Plaintiff

AND

COLIN DOUGLAS GRIFFITHS First Defendant

AND

PATRICIA JEAN GRIFFITHS Second Defendant

AND

RAGLAN ACCEPTANCES LIMITED Third Defendant

AND

EDMOND JOHN STACK Fourth Defendant

AND

DANA LIMITED Fifth Defendant

AND

DENNIS ALBERT NEILSON Sixth Defendant

AND

MARRA CONSTRUCTION (2004) LIMITED

Seventh Defendant

AND

PHILIP JOHN MARRA Eighth Defendant

AND

EDWARD CHOO CHYE POH First Third Party

AND

VIVALDI ENTERPRISES LIMITED Second Third Party

AND

POH TRUSTEE LIMITED Third Third Party

Hearing:

1 November 2010

BOS INTERNATIONAL (AUSTRALIA) LTD V GRIFFITHS AND ORS HC TAU CIV 2009-404-4911  1

November 2010

Appearances: R G Simpson for plaintiff

K J Patterson for defendants

Judgment:      1 November 2010

(ORAL) JUDGMENT OF LANG J [on application for security for costs]

Solicitors:

Bell Gully, Auckland Harris Tate, Tauranga Counsel:

K J Patterson, Tauranga

2

[1]      In this proceeding the  plaintiff seeks to enforce agreements for sale and purchase in units of an apartment complex that is to be constructed on Marine Parade, Mt Maunganui, and to be known as the Vivaldi Breeze complex.

[2]      Each of the defendants entered into an agreement to purchase one or more units in the development.  Their dealings at that time were with the first third party, Mr Poh, and his companies.   The defendants take the view that the complex as finally designed was materially different to that represented to them by Mr Poh.  For that reason all of the defendants have purported to cancel the agreements for sale and purchase.

[3]      The plaintiff, who is the assignee of Mr Poh’s interests under the agreements, takes the view that the defendants have no right to cancel the agreements.   The plaintiff contends that contractual provisions within each agreement prevent the defendants from cancelling the agreements.

[4]      Each of the defendants has now applied for an order requiring the plaintiff to provide security for their costs.  At this stage, counsel for the plaintiff estimates that the trial will occupy five days.  On that basis total costs are likely to be in the region of $50,000.  I suspect that, given the number of defendants involved, the likely trial duration will be approximately two weeks.  That would raise the total costs of the proceeding to approximately $80,000.

[5]      The plaintiff resists any order for security being made.   It says that it is a substantial company with very significant assets in Australia and New Zealand.  It submits that there is no risk that it will be unable to meet the defendants’ costs.  For that reason it says that the Court should not make any order requiring it to provide security for the defendants’ costs.

The plaintiff’s financial position

[6]      The plaintiff is a subsidiary of Lloyds Banking Group plc.  That company is based in the United Kingdom, and has international assets totalling approximately

£1.02 trillion.  In 2009 its recorded profit was £2.953 billion.

[7]      The plaintiff is registered in Australia, but it is registered in New Zealand as a branch of an overseas company under Part 18 of the Companies Act 1993. Registration has the following consequences:

a)        It means that the plaintiff is carrying on business in New Zealand: ss

332 and 334 Companies Act 1993.

b)It means that the plaintiff is required to provide certain information to the Registrar of Companies in New Zealand: s 337 Companies Act

1993.

c)        It  must  file  an  annual  return  with  the  New  Zealand  Registrar  of

Companies: s 340 Companies Act 1993.

d)It means that creditors of the company can apply to this Court for an order  that  the  plaintiff  be  placed  in  liquidation:  s  342  of  the Companies Act 1993.

[8]      In  addition,  the  plaintiff  has  a  branch  office  physically  located  in  New Zealand.   It leases premises and employs staff.   It owns office equipment and has other assets in the form of cash in New Zealand.

[9]      The  plaintiff  also  owns  other  substantial  assets  in  New  Zealand.    These comprise approximately $1 billion worth of loans that have been made to New Zealand entities.  For the most part, these are subject to securities registered in New Zealand.

[10]     Looking at the wider picture, the plaintiff has assets totalling approximately

AU$14.55 billion.  Although it has liabilities of $14.02 billion, virtually all of these

are amounts due to related entities.  I take these to be advances from the plaintiff’s parent company, the Bank of Scotland.   The plaintiff therefore has net assets of approximately AU$532 million.  Of this sum it holds the sum of AU$90.19 million in the form of cash or cash equivalents.   Its total loan book amounts to AU$13.1 billion.

Decision

[11]     The principal argument for the defendants is that the plaintiff is very much at the mercy of its parent company.   The defendants are concerned that the parent company may withdraw its support for the Australia company.  This, in turn, would have implications for the New Zealand assets.  The defendants point out that the bulk of the plaintiff’s New Zealand assets take the form of loans that may be difficult to recover.  They also point out that, during the last financial year, the plaintiff made an operating loss of AU$558 million.  That was caused principally by what is described in the accounts as “impairment losses on loans and advances” of approximately AU$1.2 billion.  The defendants say that this is a significant result, and that there is nothing to prevent a similar result occurring during the current financial year.  If that occurs, the defendants believe that the parent company in England may withdraw support from the Australian company.

[12]     In my view the answer to the present application lies in the asset base of the plaintiff.   It is unrealistic to divide these into New Zealand and Australian assets, because the company operates on a cross-border basis.   Even viewing the New Zealand assets alone, however, it obviously has a very substantial asset base here when its loan book is taken into account.  Even if it was forced to write down its New Zealand loans by 80 per cent, this would still leave it with loan advances totalling $200 million repayable to it by New Zealand borrowers.  The fact that the plaintiff also has cash reserves in Australia of approximately AU$91 million convinces me that it has the wherewithal to easily meet any order for costs that the Court might make against it in this proceeding.

[13]     I am therefore satisfied that it is not appropriate to make an order for security. I do not need to traverse the merits of the proceeding, because the financial position of the plaintiff is such that it overwhelms any argument directed towards the merits.

[14]     I am prepared to direct that the plaintiff is to make available to counsel for the defendants, no later than 30 April 2011, a copy of the plaintiff’s income statements for the year ended 31 December 2010.  If this should reveal a dramatic change in the plaintiff’s financial position, the defendants have leave to re-instigate their application for security.  Any such application would obviously be dealt with on the merits as they appear at the time.

Result

[15]     The application for security for costs is dismissed.

Costs

[16]     There is no reason why costs should not follow the event.   The plaintiff is entitled to an award of costs on a Category 2B basis together with disbursements as fixed by the Registrar.

Next event

[17]     The parties are currently completing discovery and inspection.   The next event in this proceeding will be a telephone conference before the Associate Judge on 2 March 2011 at 10.20 am.

Lang J