Bright v Wolfbrook Residential Limited
[2024] NZHC 1272
•22 May 2024
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2023-485-795
[2024] NZHC 1272
BETWEEN PAMELA ALISON BRIGHT
Plaintiff/Respondent
AND
WOLFBROOK RESIDENTIAL LIMITED
First Defendant/Applicant
STEVEN CAVELL BROOKS
Second Defendant/ApplicantJAMES OWEN COONEY
Third Defendant/Applicant
Hearing: 1 May 2024 Appearances:
M Freeman for Plaintiff/Respondent
S Campbell and C Martin for Defendants/Applicants
Judgment:
22 May 2024
JUDGMENT OF ASSOCIATE JUDGE SKELTON
[1]Before me are two applications by the defendants:
(a)an application for change of registry from Wellington to Christchurch under r 5.1 of the High Court Rules 2016 (HCR); and
(b)an application for security for costs against the plaintiff under r 5.45 of the High Court Rules.
[2] The defendants contend that the proper registry is Christchurch and/or that it is more convenient to the parties. The defendants also contend that there is reason to
BRIGHT v WOLFBROOK RESIDENTIAL LIMITED [2024] NZHC 1272 [22 May 2024]
believe that the plaintiff will be unable to pay their costs if she is unsuccessful, and that an order for security for costs is just in all the circumstances.
[3] Both applications are opposed by the plaintiff. The plaintiff contends that Wellington is the proper registry because some material part of the cause of action arose in Upper Hutt and/or Wellington is more convenient to the parties. The plaintiff refutes the contention that she would be unable to pay the defendants’ costs, and says that in any event it is not just for an order to be made.
Background
[4] The plaintiff (Ms Bright) claims that the first defendant (Wolfbrook) solicited her to sell her property at 58 Martin Street, Upper Hutt as part of a property development venture, and used Fix My Property Ltd (FMP) as an intermediary for the purchase. Ms Bright and FMP executed the contract for sale and purchase of the property on 16 December 2021. The contract became unconditional on 9 March 2022. The settlement date was 9 November 2022.
[5] Ms Bright contends that, in reliance on the contract, she entered into a contract to purchase a different property at 56 McLeod Street, Upper Hutt for $938,000, which settled on 27 April 2022. Ms Bright arranged bridging finance of $918,000 until the settlement of the sale of 58 Martin Street.
[6] FMP did not settle the purchase of 58 Martin Street on 9 November 2022 and has not taken any steps to settle the purchase or otherwise perform the contract, despite Ms Bright issuing a settlement notice and a statutory demand for default interest for late settlement. FMP was placed into liquidation by resolution of its shareholders on 30 June 2023.
[7]Ms Bright has sued the defendants pleading the following causes of action:
(a)First, Ms Bright claims that Wolfbrook as the principal purchaser (FMP acting as its agent) repudiated the contract and is liable for breach of contract.
(b)Second and alternatively, Ms Bright claims that Wolfbrook engaged in unconscionable conduct under ss 7 and 8, and misleading and deceptive conduct under s 9, of the Fair Trading Act 1986 by representing that she would be selling to Wolfbrook (a resourced and reputable company) rather than FMP (a company with no assets), as a device to protect it from liability if it chose not to settle the purchase of the property.
(c)Third, Ms Bright says that the second and third defendants, as directors of FMP, breached their duties to FMP and its creditors under ss 135 and 136 of the Companies Act 1993 by directing FMP to enter into the contract with Ms Bright.
[8] Under each cause of action, Ms Bright claims reliance damages, expectation damages, interest and costs. Additionally, in respect of the third cause of action Ms Bright seeks an inquiry into the conduct of the directors or former directors under s 301 of the Companies Act.
Proper registry
[9]By affidavit dated 29 November 2023, Ms Bright elected pursuant to r 5.1(2) and 5.1(3) of the High Court Rules to commence these proceedings in the High Court at Wellington on the following basis:
1. A material part of the actions in this proceeding arose in Upper Hutt.
2. I was solicited by the First Defendant in Upper Hutt to sell my property at 58 Martin Street, Upper Hutt. I subsequently entered into a sale and purchase agreement in Upper Hutt, which the First Defendant has failed to settle.
3. I therefore elect pursuant to r 5.1 of the High Court Rules to commence these proceedings in the High Court at Wellington, which is the nearest Court to Upper Hutt.
Legal principles — proper registry
[10] Rule 5.1(1)(a) relevantly provides that when there are two or more defendants, the proper registry is determined by reference to the first-named defendant who is
resident or has a principal place of business in New Zealand. That presumption is qualified by r 5.1(2) which states:
(2)Despite subclause (1)(a), if the place where the cause of action sued on, or some material part of it, arose is nearer to the place where the plaintiff or the plaintiff first-named in the statement of claim resides than to the place where the defendant resides, the proper registry of the court for the purposes of subclause (1) is, at the option of the plaintiff or the plaintiff first-named, as the case may be, the registry nearest to the residence of the plaintiff or the plaintiff first-named, as the case may be.
[11]Rule 5.1(3) then provides:
(3)If a plaintiff proposes to exercise the option conferred by subclause (2), the plaintiff must file with the statement of claim and notice of proceeding an affidavit by the plaintiff or the plaintiff’s solicitor stating the place where the cause of action or the material part of it arose, and that that place is nearer to the place where the plaintiff or the plaintiff first-named in the statement of claim resides than to the place where the defendant resides.
[12]Rule 5.1(4) provides:
(4)If it appears to a Judge, on application made, that the statement of claim has been filed in the wrong registry of the court, he or she may direct that the statement of claim or all documents filed in the proceeding be transferred to the proper registry.
[13]In Overton Holdings Ltd v APN New Zealand Ltd, The Court held that:1
[17] ... What the Court is required to do here is to determine whether or not the Plaintiff can satisfy it that some “material part of the cause of action” arose in Wellington.
[18] A “cause of action” means every fact which it would be necessary for the plaintiff to prove if traversed, in order to support the plaintiff's right to the judgment of the court;2 and a material part of a cause of action must be more than just a part of the cause of action. As such, it needs to be “pertinent, germane or essential to” the cause of action, dependent on the particular circumstances of the case — see Colman v Attorney General (1978) 3 PRNZ 577 (SC).
[14] Further, under r 5.1(5), if it appears to the Court on application made, that a different registry of the Court would be more convenient to the parties, the Court may
1 Overton Holdings Ltd v APN New Zealand Ltd [2013] NZHC 754 at [17]-[18].
2 Read v Brown (1889) 22 QBD 128; Anderson v Tuapeka County (1890) 18 NZLR 509.
direct that the statement of claim or all documents be transferred to that different registry which becomes the proper registry. Assessing convenience requires consideration not only of physical, financial and other matters but also the overall justice of the case.3
Did some material part of the cause of action arise in Upper Hutt?
[15] The property at the centre of this case is in Upper Hutt. However, the defendants contend that Ms Bright’s affidavit is not sufficient to displace the presumption under r 5.1(a) of the proper registry being the High Court at Christchurch because Wolfbrook has its principal place of business in Christchurch.
[16] The defendants submit that the contract between Ms Bright and FMP was formed in Christchurch when FMP accepted Ms Bright’s offer. The defendants say that the place of contract formation can be where the contract is executed, and that place was Christchurch in the present case.4 However, Ms Bright states in her affidavit that she signed the contract in Upper Hutt, so the contract was executed in Upper Hutt and Christchurch. Further, the evidence is that the executed contract was emailed to Ms Bright’s lawyer on 16 December 2021. Therefore, the place of receipt of the email communicating the acceptance was Upper Hutt,5 and this may determine the place at which the contract was reached.6
[17] Further, with regard to the second cause of action, the defendants accept the general proposition that a misleading statement under the Fair Trading Act is operative where the statement was made and received.7 Therefore, the Fair Trading Act cause of action arose in Upper Hutt and Christchurch.8
[18]In Paterson v Lepionka & Company Investments Ltd, the Court held that:9
3 Morgan v Sovereign Assurance Co Ltd [2013] NZHC 1195 at [31].
4 Anderson v Tuapeka County Council (1899) 18 NZLR 509 (SC) at 511.
5 Contract and Commercial Law Act 2017, s 216.
6 Burrows, Finn and Todd The Law of Contract in New Zealand (7th ed, Lexis Nexis, Wellington, 2022) at [3.5.3(c)] and n 297.
7 McArdle v BNZ Finance Ltd (1990) 4 PRNZ 653 (HC) at 655.
8 Overton Holdings v APN New Zealand Ltd, above n 1, at [25].
9 Paterson v Lepionka & Company Investments Ltd [2020] NZHC 530 at [9].
[9] The land at the centre of this dispute is in Hawkes Bay. It appears to me from the pleadings that many of the events about which Mr Paterson complains took place — at very least in part — in Hawkes Bay. I am satisfied that a material part — or, rather, material parts — of the causes of action relied on by Mr Paterson took place in Hawkes Bay.
[10] On those bases, I am prepared to accept that Mr Paterson was entitled to file in Napier.
[19] In the present case, it is apparent that some “material part of the cause of action” in respect of two of the three causes of action arose in Upper Hutt, albeit that some of those material parts of the causes of action also arose in Christchurch.10
[20] The defendants seem to contend that Ms Bright’s affidavit is substantively defective because it does not traverse the various elements of each of the causes of action and depose to those arising in Upper Hutt. In Ravensdown Fertiliser Co-operative Ltd v Ballance Agri-Nutrients Ltd, the Court found in respect of an affidavit under the predecessor rule 107(3):11
[10] The affidavit is a pro forma affidavit. It does not contain any detailed explanation as to why a material part of the cause of action arose at Leeston.
[11] However, as Mr Osborne submitted, in practice, often such pro forma affidavits are filed. If objection is taken then the merits of the matter are determined on an application such as the present.
[12] As a matter of practice these affidavits are not referred to Judges or Masters when the proceedings are filed. Provided the points referred to in r 107(3) are covered in the affidavit, albeit briefly, the current practice is to accept the affidavits. Even if the pro forma affidavit is not strictly in compliance with the rule, it is not a nullity. I note that where the affidavit is not filed at the same time as the statement of claim, the Court can excuse non-compliance under r 5: BCNZ Ltd v Diet Tea Co Ltd [1986] 2 NZLR 690. Any challenge to the right to rely on r 107(2) and (3) can be determined on an application such as the present. That has a number of practical advantages to all parties. If the rule is breached and a cause of action affidavit is filed without proper basis then the Court can award costs against the plaintiff. In addition, a solicitor making such an affidavit has an obligation to act bona fide.
[21] In her affidavit, Ms Bright deposes that a material part of the actions in this proceeding arose in Upper Hutt. The affidavit also refers to the sale and purchase of
10 See McArdle v BNZ Finance Ltd, above n 7, at 654-655, where the Court considered it necessary to turn only to one of the causes of action and to show that a material part thereof arose in Christchurch.
11 Ravensdown Fertiliser Co-operative Ltd v Ballance Agri-Nutrients Ltd (2002) 16 PRNZ 516 at [10] –[12].
the subject property in Upper Hutt and alleges that Wolfbrook has failed to settle. It seems to me that this suffices in terms of stating where the cause of action or a material part of it arose for the purposes of r 5.1(3). I do not accept that the affidavit is substantively defective.
[22] The defendants also contend that the affidavit is deficient because Ms Bright does not state in her affidavit that Upper Hutt is nearer to where she resides (Upper Hutt) than to where the defendants reside (Christchurch). The defendants rely on Morgan v Sovereign Assurance Co Ltd.12 In that case, the plaintiff did not state that the cause of action arose in Dunedin and that Dunedin was nearer to the place where she resided than to the place where the defendant was based (Auckland). The Court found that the plaintiff could not have made a statement of the kind required under r 5.1(3) because she was a resident of Queensland, and Auckland was closer to her residence than Dunedin. The Court found that the affidavit was insufficient, and an irregularity, and the proceeding should not have been accepted for filing in the Dunedin Registry.
[23] In my view, the finding that the affidavit was insufficient and an “irregularity” in Morgan arose from a combination of factors including that: the plaintiff did not state that the cause of action had arisen in Dunedin; the plaintiff did not state that Dunedin was nearer to the place she resided that the place the defendant was based; the plaintiff could not state that Dunedin was nearer to the place she resided than the place the defendant was based because the plaintiff resided in Queensland.
[24] I consider that the present case can be distinguished from Morgan. First, Ms Bright has stated in her affidavit that a material part of the causes of action arose in Upper Hutt. Second, although Ms Bright has not expressly stated that Upper Hutt is nearer to where she resides than to Christchurch, that is obvious, and Ms Bright could as a matter of fact have made that statement. In my view, the deficiency in Ms Bright’s affidavit raised by the defendants is a technical irregularity of a kind which may be properly excused, corrected or cured pursuant to the discretion under
12 Morgan v Sovereign Assurance Co Ltd, above n 3, at [5]–[10].
r 1.5 of the HCR.13 If necessary, I exercise my discretion to excuse, cure or correct the technical irregularity in the affidavit.
[25] Overall, I am satisfied that some “material part of the cause of action” arose in Upper Hutt, and this is clearly nearer to where Ms Bright resides than where the defendants are based (Christchurch), and therefore the proceedings have been properly filed in the Wellington Registry, being the nearest registry to Upper Hutt.
Which is the more convenient registry to the parties?
[26] The defendants also apply under r 5.1(5) for transfer of the proceeding to the Christchurch registry on the basis that it is more convenient to the parties.
[27] The following list of factors (generally ranking in the order set out below) are considered regarding convenience and fairness under r 10.1 of the HCR (venue for trial) and are also applicable under r 5.1(5): 14
(a)The parties: their location, impact of any likely absence of senior officers or staff, and the potential disruption to business of the parties;
(b)Witnesses: the number, location and convenience of each party’s proposed witnesses;
(c)Counsel: the convenience of counsel;
(d)Delays at present registry or at proposed new venue.
[28] With regard to the parties, Mr Campbell submits that Wolfbrook has its registered office in Christchurch and the second and third defendants reside in Christchurch. Further, FMP had its registered office in Christchurch prior to its liquidation and Christchurch was its principal place of business, although the liquidators are based in Auckland. The majority of the employees in the Wolfbrook
13 Ravensdown Fertiliser Co-operative Ltd v Ballance Agri-Nutrients Ltd, above n 11, at [10] –[12]; Jessica Gorman and others McGechan on Procedure (Online ed, Thomson Reuters) at [HR1.5.07].
14 McGechan on Procedure, above n 13, at [HR10.1.03]; Wyndham Contracting Ltd v Webbline Agriculture Ltd [2021] NZHC 1341 at [11].
Group are based in Christchurch, including all key people involved in this matter. The accountants of the defendants are based in Christchurch.
[29] Mr Campbell also submits that Mr Brooks and Mr Cooney are the directors of multiple companies and there will be unavoidable disruption to the companies’ business if they are required to travel and attend any trial in Wellington. Wolfbrook does not have a physical presence in Wellington.
[30] With regard to witnesses, Mr Campbell submits that the defendants anticipate that all of their fact witnesses are Christchurch-based and that expert witnesses, for example a real estate agent expert and valuation expert, are likely to be Christchurch-based. Mr Campbell submits that the cost and time delay of multiple Christchurch-based witnesses, both factual and expert is enormous. The consequence of key directors and staff being in Wellington rather than Christchurch for the hearings will be substantial. Mr Campbell also submits that it would be easier to find trial time in Christchurch, when the majority of the witnesses are Christchurch-based.
[31] Mr Freeman submits that Wolfbrook is a company that trades in several locations in New Zealand and its employees and officers routinely travel for work, including to Wellington. On the other hand, Ms Bright deposes that she is not able to easily travel to Christchurch for this case. She is 65, lives in Upper Hutt, and is currently looking for a job in Wellington which would restrict her ability to travel to Christchurch. She does not travel well and has suffered from anxiety since the age of 18 and has been prescribed medication.
[32] Mr Freeman also submits that Ms Bright is not in a position at this stage to give evidence as to the likely witnesses that would be required at trial beyond Ms Bright. That is because the defendants have not yet filed their statement of defence and therefore Ms Bright is not aware of the issues that need to be determined at trial.
[33] Mr Freeman submits that the issue of the proper registry of the Court is a different issue from the most convenient venue for trial. He submits that it is premature to determine the latter issue at this stage and that it is more properly the subject of an application under r 10.1 of the HCR at a later stage.
[34] I have found that Wellington is the proper registry of the Court under r 5.1(2) of the HCR. Mr Campbell submits that the defendants were required to make an application r 5.1(4) and r 5.1(5) at this stage, otherwise there was a risk of waiver of the alleged irregularity in Ms Bright filing in Wellington. He submits that therefore the Court should be prepared to determine the issue of convenience now notwithstanding that Ms Bright has not put forward any evidence as to her likely witnesses.
[35] It is not clear that the defendants were required to make an application under r 5.1(4) and r 5.1(5) at this stage to avoid waiver of any irregularity regarding the proper registry. It seems to me that waiver would have been avoided by making an application only under r 5.1(4).15 In any event, I have found that the proceeding was properly filed by Ms Bright in Wellington. Case management conferences are conducted by VMR or teleconference and interlocutory applications do not require witnesses and parties to travel; the convenience of counsel is a neutral factor. Therefore, I consider that the central issue raised by the defendants’ application under r 5.1(5) is whether it is more convenient to the parties for the trial to be held in Christchurch rather than Wellington.
[36] The defendants have put forward evidence as to the disruption and expense that would be caused to them and their witnesses if the trial was in Wellington. However, Ms Bright has deposed that a hearing in Christchurch would be disruptive for her and that travel to Christchurch may well aggravate her medical condition. Mr Freeman has submitted that Ms Bright cannot put forward her likely witnesses at this stage given that the issues in dispute are not yet identified.
[37] I am not satisfied that I am able to properly and fairly weigh the various relevant factors and the overall justice of the case as between the parties at this stage. In the circumstances, I consider that the issue is more properly and fairly addressed at a later stage in the proceeding by way of an application under r 10.1 of the HCR. The Court is likely to be much better informed as to the various relevant factors at that stage following the filing of a statement of defence, discovery of documents and any
15 Morgan v Sovereign Assurance Co Ltd, above n 3, at [13]–[15] and [23].
interlocutory applications (for example, for strike out of some causes of action) as foreshadowed by Mr Campbell. This approach has been recognised as appropriate in a number of cases, including Anderson v Tuapeka.16
[38] Accordingly, the defendants’ application under r 5.1(5) for the proceeding to be transferred to Christchurch is dismissed. However, this is without prejudice to the defendants bringing an application under r 10.1 HCR if it is considered appropriate at a later stage in these proceedings.
Security for costs
[39]Rule 5.45(1) and (2) of the High Court Rules 2016 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.
…
[40]Applications for security for costs are to be approached in three stages:17
16 Anderson v Tuapeka County Council, above n 4, at 511. See also McArdle v BNZ Finance Ltd, above n 7, at 655 and Sangster v H & R Block the Income Tax People Ltd (1990) 4 PRNZ 47 (HC) at 53.
17 Busch v Zion Wildlife Gardens Ltd (in rec and liq) [2012] NZHC 17; and McGechan on Procedure, above n 13, at [HR5.45.01]–[HR5.45.04], [HR5.45.07], [HR5.45.09] and [HR5.45.11].
(a)the first question is whether the threshold test in r 5.45(1) is met, or in other words, whether the applicant can establish that the rule applies;
(b)if the threshold is met, then the second question is whether it is just in all the circumstances to make an order for security for costs;18 and
(c)if the Court so concludes, then the third question is the nature of the order that should be made.
[41] Determining the amount of security justified in the particular case requires the exercise of discretion rather than a strict mathematical approach.19 It does not necessarily need to be fixed by reference to likely costs awards but rather what the Court thinks fit in all the circumstances.20 The circumstances to be taken into account include the following:21
(a)amount or nature of the relief claimed;
(b)nature of the proceeding, including the complexity and novelty of the issues;
(c)estimated duration of the trial; and
(d)probable costs payable if the plaintiffs are unsuccessful and/or the defendants’ estimated actual costs.
[42] Ultimately, the question of whether or not to order security, and if so, the quantum, are discretionary matters. The discretion is not to be fettered by principles from previous cases.22
18 Balancing the interests of plaintiff and defendant is the overriding consideration: see Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [24].
19 Sharp v Pillay [2017] NZHC 647.
20 McLachlan v MEL Network Ltd (2002) 16 PRNZ 747 (CA).
21 This summary was adopted by the Court of Appeal in McNaughton v Miller [2022] NZCA 273 at [17].
22 AS McLachlan Ltd v MEL Network Ltd, above n 20, at [13] and [14].
Threshold test
[43]Ms Bright deposes that the current valuation of her house is approximately
$800,000 and she also has savings of approximately $70,000. She states that the only significant debt she has is to Kiwibank as a consequence of the events which are the subject of her claim. The debt is currently $164,000. Her equity in the property is therefore approximately $635,000. The debt to Kiwibank is due to be paid by 7 May 2028 and the interest rate on the loan varies between 7.15 per cent and 8.50 per cent.
[44] The defendants have estimated their scale costs and disbursements in this case if successful would be in the region of $139,348. Mr Freeman does not take issue with this estimate per se.
[45] Ms Bright’s equity in her property would not necessarily be sufficient to find that the threshold test has not been met. 23 However, there is an additional relevant factor in this case which is that Ms Bright is currently unemployed and looking for a job. The Court should not only consider the plaintiff’s financial position in terms of a “snapshot” at the time of the hearing for security for costs, but must also take into account liabilities and commitments into the proximate future.24
[46] Ms Bright has ongoing liabilities and commitments in particular the loan from Kiwibank and the costs of prosecuting this proceeding, and it is not clear how she will continue to fund these liabilities given that she is currently unemployed and if she is unable to find employment. There could be implications for Ms Bright, for example the possibility of default on the loan and a mortgagee sale of her property at below market value. Ms Bright says she has savings of approximately $70,000, but these funds are likely to be used up in the prosecution of the proceedings. Ms Bright refers to “other financial resources” but there are no details of those resources in the evidence.
23 See Greenwell v Southland District Health Board [2012] NZHC 1622. In that case, the plaintiff had “narrow equity” in several properties although it was still well in excess of the estimated scale costs of the defendant and the amount sought as security. The Court ordered the provision of security for costs by way of a charging order.
24 Keezz Ltd v Waikato District Health Board [2020] NZHC 2330 at [38].
[47] The defendants do not need to prove that Ms Bright will, in fact, be unable to pay their costs if unsuccessful. What is contemplated by the test is that there is material from which it may be reasonably inferred that Ms Bright will be unable to pay costs.25
[48] In the circumstances I am satisfied by a fine margin that there is material before the Court from which it may be reasonably inferred that Ms Bright would be unable to pay the costs of the defendants if they are successful in this proceeding.
Whether an order for security for costs would be just in the circumstances?
[49] Relevant factors for and against the making of an order for security for costs in terms of the exercise of the discretion are identified in Highgate on Broadway Ltd v Devine.26 These include, in the context of this proceeding:
(a)the apparent merits of Ms Bright’s claim;
(b)whether the denial of security would be oppressive to the defendants;
(c)whether Ms Bright’s financial position was caused by the defendants;
(d)whether ordering security would deprive Ms Bright of the ability to advance her claim.
[50] There is a limit to the inquiry that can be made into the merits at this early stage of the proceeding (no statement of defence has yet been filed) and any assessment is no more than an impression of the case.27
[51] Mr Campbell spent some time in his submissions raising issues with the merits of Ms Bright’s causes of action. In particular, with regard to the first cause of action, Mr Campbell submits that there is no evidence of any agency relationship between
25 Concord Enterprises Ltd v Anthony Motors (Hutt) No. 2 [1977] 1 NZLR 516 (SC) at 519; Cook v Thompson [2022] NZHC 3373 at [17]; and McGechan on Procedure, above n 13, at [HR5.45.02].
26 Highgate on Broadway Ltd v Devine, above n 18, at [24].
27 McNaughton v Miller, above n 17, at [19].
Wolfbrook and FMP. Further, both the alleged principal and agent deny the existence of an agency relationship. Regarding the second cause of action, Mr Campbell submits that there was no unconscionable conduct because incorporation of a new company to undertake a specific purpose is standard commercial practice, with risk mitigation being one justification. He submits that Ms Bright was legally represented in respect of the transaction and would or should have been advised of the risk that FMP may be unable to settle the purchase and that she was not contracting with Wolfbrook. Mr Campbell categorises the first cause of action as “hopeless”. In respect of both the first and second causes of action he submits that these are likely to be the subject of strikeout and/or summary judgment applications.
[52] With regard to the third cause of action, the allegations of breach of duty by the second and third defendants are denied. However, Mr Campbell acknowledges that this claim would need to go to trial to be determined.
[53] Mr Freeman submits that it is arguable that although the defendants used FMP as a vehicle to purchase the property, Wolfbrook (or another company in the Wolfbrook Group) was the intended owner. In that regard, he submits that there are a number of entities in the Wolfbrook Group and it is not entirely clear which entities were involved in this transaction. He submits that, if another entity is the appropriate defendant, then this does not undermine the claim and it would be expected that this position would be clarified and particularised in the defendants’ statement of defence.
[54] Mr Freeman submits that the case against the second and third defendants under the third cause of action is straightforward and that Ms Bright, as a creditor of FMP, has direct standing to bring an application for breach of director’s duties.28
[55] Overall, without pre-judging any applications for strike out and/or summary judgment that may be made, there appear to be significant hurdles for Ms Bright, particularly in relation to the agency issue. On balance, this factor supports an order for security.
28 Mr Freeman refers to Yan v Mainzeal Property and Construction Ltd (in liq) [2023] NZSC 113; and its application in Ji v Ding [2023] NZHC 2730.
[56] The defendants acknowledge that Ms Bright has the right to bring her case to the Court. However, Mr Campbell submits that the defendants also have a right to seek costs from Ms Bright if she fails in her claim. He submits that Ms Bright’s claim should not be allowed to proceed unless the defendants have some assurance that a contribution to their legal expenses will be made if they succeed. He submits this is particularly so given the causes of action are flawed, the defendants have no relationship with Ms Bright, the costs of the proceeding rest largely on the defendants and the defendants will face complex and possibly fruitless enforcement proceedings to recover their costs if they are successful. On this last point, Mr Freeman submits that security for costs is not a mechanism to avoid the cost of enforcement action.29
[57] Overall, I accept the submission that the defendants should have some assurance of a contribution to their costs if they are successful in defending the claim, provided that that does not mean that Ms Bright is prevented from pursuing her claim.
[58] Mr Freeman submits that Ms Bright’s financial position has been prejudiced because of the defendants’ actions which are the subject of this proceeding. Mr Campbell points to the difficulties with Ms Bright’s agency argument and submits that this separates Wolfbrook from the actions of FMP in this case. However, the cause of action against the second and third defendants as directors of FMP is directed towards their alleged breaches of duty by directing and allowing FMP to enter into the contract with Ms Bright. On balance, this seems to be a factor against granting security.
[59] The final issue to consider is whether an order for security for costs in this case would have the effect of preventing Ms Bright from pursuing her claim. In Highgate Broadway Ltd v Devine, Kós J held that:30
...Access to justice is an essential human right. The cost of exercising that right is the payment of costs in the event of failure. The right of a successful defendant to costs in that event is arguably subordinate to the plaintiff’s right to be heard. Strong social policy considerations favour the use of Courts as an accessible forum for the resolution of disputes and grievances of almost all kinds. Only where a clear impression can be formed that the plaintiff’s claim is altogether without merit — so that in the alternative it would be amenable to being struck out — would it be right for security to be ordered where to do so would bring the plaintiff’s claim to dead halt. In cases where the claim is
29 Mu v Body Corporate 312421 HC Auckland CIV-2011-404-4768, 8 December 2011 at [11].
30 Highgate on Broadway Ltd v Devine, above n 18, at [23(b)].
being seriously misconducted (with undue complexity or expense), security orders short of effective termination of the claim may be appropriate. ...
[60] In this case, it seems to me that it would not be just to order security for costs if that meant that, in order to pursue her claim, Ms Bright would need to sell her property. This has been recognised by the defendants. Mr Campbell submits that, in the circumstances, the defendants would accept a mortgage as security in lieu of payment of security for costs.
The costs risk
[61] The defendants seek security for costs in the sum of $139,348 which is Mr Campbell’s estimate of the defendants’ scale costs and disbursements.
[62] Mr Freeman accepts that scale costs on a 2B basis is not an unreasonable assessment for security for costs but only on the basis that this amount would be used as a priority amount in respect of a mortgage security. Mr Freeman submits that if Ms Bright was required to pay costs into Court, then the amount sought as security would be disputed.
Conclusion
[63] In my view, balancing what I see as the legitimate interests of Ms Bright in having access to the Court, and those of the defendants in obtaining protection in respect of their costs, it is just in all the circumstances to make an order for security for costs in the total sum of $139,348 for all the defendants. However, I have only reached this conclusion on the basis that security for costs in this case is provided by way of a mortgage security over Ms Bright’s property. This overcomes the access to justice issue arising from the fact that Ms Bright is unlikely to be able to raise cash to provide security in the sum sought by the defendants without selling her property. If a mortgage security securing the sum of $139,348 cannot be provided by Ms Bright, then the issue of whether Ms Bright is required to provide security for costs, and if so, the quantum of such security, would need to be reconsidered.
[64] The mechanism for the provision of a mortgage security to the defendants was not discussed in any detail at the hearing. In the circumstances, I propose to direct
counsel to confer and to attempt to agree on consent orders regarding the provision of a mortgage security against the title of Ms Bright’s property on the basis that this would secure payment up to $139,348 of any costs awarded in favour of the defendants in this proceeding. This should include agreement on a reasonable period for the mortgage security to be provided and consideration as to whether, rather than a registered mortgage security, the mortgage security would be capable of registration and protected pending trial by a caveat against the title. The consent orders should also provide that, if the mortgage security is not provided by Ms Bright within the agreed period, then the proceedings would be stayed with immediate effect under r 5.45(3)(b) of the HCR.
Result
[65] The defendants’ applications under r 5.1(4) and r 5.1(5) regarding the proper registry are dismissed. However, this is without prejudice to the defendants bringing an application under r 10.1 of the High Court Rules 2016 if it is considered appropriate at a later stage in these proceedings.
[66] The plaintiff, Ms Bright, is to provide security for the defendants’ costs in the total sum of $139,348 by way of a mortgage security against the title to Ms Bright’s property at 58 Martin Street, Upper Hutt.
[67] Counsel for the parties are to confer and endeavour to agree consent orders as to the mechanism for provision of the mortgage security including the timeframe for the provision of the security by Ms Bright. If counsel have not reached agreement on consent orders within 15 working days of the date of this judgment, then they are to advise the Court and a telephone conference will be convened to endeavour to resolve any outstanding issues.
[68] In the meantime, there is a temporary stay of the proceedings pursuant to r 5.45(3)(b) of the High Court Rules 2016, and the defendants are not required to file any statements of defence.
[69] With regard to costs, Ms Bright has been successful in defending the defendants’ application with regard to the proper registry and transfer to the
Christchurch registry, and the defendants have been successful on their application for security for costs. In the circumstances, my preliminary view is that costs should lie where they fall. If either party disagrees with this preliminary view, then memoranda may be filed (not exceeding 3 pages, excluding costs schedules) and costs will be determined on the papers.
Associate Judge Skelton
Solicitors:
Thomas Dewar Sziranyi Letts, Lower Hutt for Plaintiff/Respondent Wynn Williams, Christchurch for Defendants/Applicants
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