Burton v Jennings
[2020] NZHC 1423
•23 June 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2019-409-000441
[2020] NZHC 1423
IN THE MATTER of an equitable interest in property by way of constructive trust BETWEEN
ALYCIA HELEN LOUISE BURTON
Plaintiff
AND
BELINDA HELEN JENNINGS, STEPHEN JENNINGS and HATHERLEY LOUGHNAN TRUSTEES LIMITED as
trustees of THE JENNINGS GORT FAMILY TRUST
Defendants
Hearing: 8 June 2020 Appearances:
S J Bee for Plaintiff
P M Smyth for Defendants
Judgment:
23 June 2020
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 23 June 2020 at 2.30 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
BURTON v JENNINGS [2020] NZHC 1423 [23 June 2020]
Introduction
[1] This ruling concerns the defendants’ application for security for costs.1 In this proceeding, the plaintiff (Ms Burton) claims that the defendants hold a property at Telegraph Road, Burnham (the property) on constructive trust for her. She relies upon the principles in Lankow v Rose.2
[2] Ms Bee sensibly acknowledges the threshold for granting an order for security for costs has been established and that in exercise of the court’s discretion security for costs will be required. Ms Burton is resident out of New Zealand and it is just in all the circumstances that security for costs be provided.3 I am only required to decide what represents an appropriate amount of security and what form of security would be satisfactory.
The litigation background in context
[3] The first and second-named defendants (the Jennings) and the third-named defendant, Hatherley Loughnan Trustees Limited, are the trustees of the Jennings Gort Family Trust. The Jennings are also the parents of Caleb Jennings (Caleb). Ms Burton married Caleb in 2012. Caleb died in October 2018.
[4] The defendants own the property as trustees. In early-2015, Ms Burton and Caleb were looking to purchase a house. In discussions with the Jennings, it was decided to place a relocatable house on the property for them. A loan was taken out by Caleb and the Jennings to fund the purchase, relocation and refurbishment of the relocatable house (the loan).
[5] In 2016, Ms Burton moved overseas to pursue her career. There were discussions between Ms Burton and Caleb about ending their relationship. Ms Burton says the separation did not occur. She returned to New Zealand for a time after Caleb’s death but has returned to live in Australia and the United States where she has
1 High Court Rules 2016, r 5.45.
2 Lankow v Rose [1995] 1 NZLR 277 (CA).
3 High Court Rules, r 5.45(a)(i).
established a business. She says for taxation reasons she cannot now return to New Zealand.
[6] Ms Burton pleads she made substantial contributions, directly and indirectly, to the property. These contributions are said to include payments towards the loan and the cost of utilities/insurance, liaising with contractors, the performance of work (including clearing land, building fences and painting) and ensuring the house achieved code compliance. In addition, Ms Burton’s father did work on the property. These contributions were made, Ms Burton pleads, in the reasonable expectation that she and Caleb would have an interest in the property. Ms Burton says the Jennings promised to gift the property, knew of the work that she and Caleb did on the property, repeatedly made it clear to her and Caleb that the property would be theirs and knew also that she and Caleb considered themselves the beneficial owners of the property. It would be unjust, Ms Burton contends, if the defendants did not acknowledge her interest in the property. Ms Burton seeks a declaration that the property is held on constructive trust for her or, alternatively, for an order compensating her for a percentage of the value of the property as the court sees fit. It appears, from Ms Bee’s submissions, that the quantum of the claim exceeds $70,000.
[7] The defendants deny that Ms Burton has an interest in the property. They do not accept she made a direct financial contribution to the property. They will argue Ms Burton had no reasonable expectation of an interest in the property and the benefits she received from her occupation of it exceed the value of any contributions. They contend that Ms Burton’s claim fails to recognise the property is owned by trustees and not by the Jennings personally. They consider it significant the loan was borrowed by the Jennings and remains outstanding.
[8] Mr Smyth submits that the issue in this case boils down to this; does the value of the relocated house exceed the amount of debt the Jennings’s incurred to acquire and relocate the house? The Jennings will contend it does not and there is no “equity of value to be claimed” by Ms Burton.
Informal attempts to settle the amount of security
[9] There were discussions between counsel as to an appropriate amount to be provided by Ms Burton as security for costs. They reached agreement and filed a joint memorandum on 8 November 2019 stating Ms Burton would provide security of
$25,000 to be lodged with the court pending which the claim would be stayed. Ms Burton is holding $25,000 in an account with ANZ Bank. Mr Smyth then decided that $25,000 was an inadequate amount and the defendants resiled from the agreement. There was toing and froing between counsel and the court and delays while counsel attempted to sort the matter out. When they could not do so, this application was filed.
The appropriate amount of security
[10] The Judge’s task in terms of r 5.45(3) is to direct security in a sum which the Judge considers sufficient. The amount of security involves exercising discretion rather than a mathematical process.4 It involves the court doing what it thinks fit in all the circumstances and will not necessarily be fixed by reference to a likely costs award.5 The circumstances that are relevant may include, but are not limited to, the amount or nature of the relief claimed, the nature of the proceeding including the complexity and novelty of the issues, the estimated duration of trial and, the probable costs payable if the plaintiff is unsuccessful.
[11] The parties have divergent views on what is sufficient in this case. Mr Smyth argues that Ms Burton should be ordered to provide security in an amount that approximates scale costs. He argues that any discount on likely scale costs should be small reflecting the weakness of Ms Burton’s case. Ms Burton is agreeable to pay
$5,000 by way of security. However, in her written submissions, Ms Bee noted that Ms Burton has $25,000 available to her that can be used for the purpose.
[12] Mr Smyth has calculated the defendants’ likely scale costs as $54,984 (including expert’s fee). This is calculated on a 2B basis and assumes the hearing will take four days with each party calling two or three witnesses as well as an expert
4 Sharp v Pillay [2017] NZHC 647 at [17].
5 McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [27].
valuer. Mr Smyth criticises the statement of claim which is, he submits, “replete with evidence”. He also submits there will likely be additional costs incurred as the statement of claim will need to be repleaded and there is the possibility of an application to strike-out the claim. Ms Bee submits the calculation of scale costs is excessive as this is not a complex case, the quantum of the claim is modest, the hearing is likely to take only three days and discovery will not be extensive.
[13] I was referred to several decisions of the court as a guide to an appropriate discount on scale costs. In most instances, the security ordered was around two-thirds of scale costs. Mr Smyth argues the size of the discount generally reflects the court’s assessment of the strength of a plaintiff’s case. He acknowledged outliers among the decisions which could be explained on other grounds. For instance, a greater discount may be given if due to the impecuniosity of a plaintiff a substantial order might close the courtroom door on its claim.
[14] Ms Bee argues that a relevant factor to be considered is whether an order may prevent Ms Burton from pursuing her claim, noting the importance of enabling access to justice. She submits that requiring Ms Burton to provide a substantial sum as security will cause her hardship and that even an order of $25,000 might impede her ability to bring her claim. Ms Burton’s business has suffered due to the COVID-19 pandemic and she may need to draw on her cash reserves. Ms Bee also refers to, as another factor to consider, the relative ease of enforcing a costs award against Ms Burton in Australia. Ms Bee accepts that the court must look at the merits of the case, but argues that can be no more than an impression at this early stage
Analysis
[15] I consider that Mr Smyth’s assessment of the defendants’ scale costs is higher than reasonable. This is a small claim and not complicated in either a factual or a legal sense. It has not been categorised for costs purposes but if appropriately a category 2 case, it is unlikely that each step, particularly discovery and inspection, will be calculated at band B. I also consider that a four day trial is unwarranted when the disputed factual matrix is relatively narrow. I consider that the trial should be no longer than three days.
[16] As to the merits of the claim, as Ms Bee correctly submits this can only be a matter of impression. Much will depend upon whether Ms Burton can prove the contributions she says she made to the property and that those contributions increased the value of the property.6 Some of what Ms Burton advances in her statement of claim as contributions to the property do not appear to be so. There is plainly a live- issue whether Ms Burton could have a reasonable expectation of an interest in the property. That said, I do not accept Mr Smyth’s assessment that the claim is so weak it may be summarily struck out. I do not accept either the issue is whether the value of the house exceeds the amount of the loan. The court will be concerned with a broader consideration of whether Ms Burton’s proved contributions added value to the property as a whole exceeding the benefits she received from her occupation and enjoyment of the property. The authorities also establish that it will not be a complete answer to the claim that the property is owned by the defendants as trustees.7
[17] I do not accept Ms Bee’s submission that the making of an order that Ms Burton provide security may cause her hardship that could prevent her from pursuing the claim. Her affidavit of means indicates that she has a good income and a significant business. I accept that due to the COVID-19 pandemic she may have to draw on her cash reserves, but it is confirmed that she presently has available to her $25,000 to provide security. I do not accept either the submission as to the ease of enforcing a costs award against Ms Burton in Australia. No meaningful submissions were presented to support this contention, and, in any event, Ms Burton apparently leads a peripatetic lifestyle in Australia and the United States making enforcement of a costs award both difficult and expensive.
[18] Based on the factors discussed I accept that Ms Burton could reasonably be expected to provide security within a range of $25,000 to $35,000. I am adopting the lower figure. Largely overlooked by counsel is the agreement which was notified to the court that Ms Burton would provide $25,000 as security for costs. Mr Smyth emphasised that the decision to resile from the agreement was made reluctantly after he had taken advice as to his ethical obligations. I accept that was the case. However,
6 Wakenshaw v Wakenshaw [2017] NZCA at [25], Vervoort v Forrest [2016] NZCA 375, [2016] 3 NZLR 807 at [74] – [75].
7 Vervoort v Forrest, above n 6 at [51] – [72].
the sum of $25,000 was within the range of what the parties, acting reasonably, might agree would be provided as security. Mr Smyth, presumably, had instructions from the defendants to accept that sum. There was no change of circumstances that I am aware of that justified the defendants seeking further security for their costs. Agreements reached between counsel on such matters should be honoured. Importantly, Ms Burton apparently acted on what was agreed and has $25,000 available to provide as security for costs. She also incurred unnecessary costs on further negotiations and court attendances. It would be wrong that the defendants now obtain an order that she provide security in a greater sum.
The form of security
[19] Counsel proceeded on the basis that security would be provided by Ms Burton making payment of that sum to be held pending the determination of this proceeding and I consider that appropriate.
Result
[20] Ms Burton is to provide by way of security for the defendants’ costs, disbursements and expert witnesses’ fees the sum of $25,000. This sum is to be paid into court by Ms Burton (or on her behalf) within 21 days of the date of this decision and held on interest-bearing deposit pending further order of the court.
[21] In the event that Ms Burton fails to comply with the order in [20], this proceeding shall be stayed until the said sum of $25,000 is paid into court.
[22] As far as costs are concerned, my initial impression is that costs should lie where they fall. However, I will reserve costs and in the event that either party wishes to seek costs they may apply by memorandum within 14 days. Any reply memoranda shall be filed seven days thereafter.
[23] Subject to Ms Burton complying with the order in [20], this case will be called for a teleconference at 2.30pm on 23 July 2020. Counsel shall file preferably a joint
memorandum by no later than 21 July 2020 addressing all schedule 5 High Court Rules matters.
O G Paulsen Associate Judge
Solicitors:
Saunders & Co, Christchurch Smyth & Co, Christchurch
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