Clear White Investments Ltd v Otis Trustee Ltd

[2016] NZHC 2837

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-2504 [2016] NZHC 2837

BETWEEN

CLEAR WHITE INVESTMENTS

LIMITED Plaintiff

AND

OTIS TRUSTEE LIMITED Defendant

On thepapers:
Appearances:	D J Chisholm QC for the Plaintiff D W Grove for the Defendant
Judgment:	28 November 2016

SECURITY FOR COSTS JUDGMENT OF ASSOCIATE JUDGE R M BELL

This judgment was delivered by me on  28 November 2016  at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

…………………………………………………….

Registrar/Deputy Registrar

Solicitors:

Carson Fox Bradley Ltd, Parnell, Auckland, for Plaintiff

Ewart & Ewart, Epsom, Auckland, for Defendant

Copy for:

David J Chisholm QC, Auckland, for Plaintiff

Daniel W Grove, Auckland, for Defendant

CLEAR WHITE INVESTMENTS LIMITED v OTIS TRUSTEE LIMITED [2016] NZHC 2837 [28 November

2016]

[1]      Otis Trustee Ltd applies for security for costs under r 5.45 of the High Court

Rules.

[2]      This is the second proceeding between the parties.  In CIV-2016-404-2295, Clear White Investments Ltd applied under s 145A of the Land Transfer Act 1952 to sustain a caveat lodged against the title to the property at 40 Te Kauwhata Road, Te Kauwhata.  In this proceeding it seeks substantive relief in terms of the caveat plus related orders.

[3]      I heard the caveat application on 15 November 2016.  At that hearing I gave case management directions for this proceeding.   The close of pleadings date is

30 January 2017.  It is to be heard for three days beginning 3 April 2017.  I gave directions for the parties to file submissions on security for costs.   I have used evidence filed in the caveat proceeding.  I am deciding the application on the papers. I set out the background facts in the caveat decision at [1]-[9] and [15]-[39].1

[4]      Clear White accepts that under r 5.45(1)(b) there is reason to believe that it will be unable to pay the costs of Otis Trustee Ltd if it is unsuccessful at trial.   I agree, given my findings as to its insolvency at [9] in my caveat decision.  A finding that one of the grounds under r 5.45(1) has been satisfied does not mean that security is ordered automatically.  Under r 5.45(2), the court has a discretion:  “if the Judge thinks it is just in all the circumstances”.  The court balances competing interests: the  defendant’s  interest  in  being  protected  from  a  barren  costs  order  and  the plaintiff’s right of access to the court.

[5]      In assessing the merits of the case, I have the advantage of having read the evidence and heard argument in the caveat application.   I assessed the claim to a caveatable interest in light of the causes of action in the statement of claim in this proceeding:   constructive trust, estoppel, and relief under Part 5 of the Credit Contracts and Consumer Finance Act 2003.  I held that Clear White did not have a

caveatable interest in the property, because I considered that at the hearing of this

1      Clear White Investments Ltd v Otis Trustee Ltd [2016] NZHC 2823 at [1]-[9] and [15]-[39].

proceeding it could hope, at best, to obtain only monetary relief.  Otis will remain owner of the property and free to develop it.

[6]      As to the constructive trust claim I considered that Clear White had a possible claim for monetary relief arising out of the failure of the alleged promissory common intention for a buy-back arrangement.   While it would not be viable to order the return of the title to Clear White, restitutionary relief may be available.  That would involve assessing the parties’ relative  benefits and detriments arising out of the transfer of title to Otis on 20 July 2016.   There is reasonably clear evidence that Clear White sold at an under value.  It bought the property for $2 million and re-sold for $1.8 million.   Clear White will contend that the property had risen in value between its purchase in December 2015 and its on-sale to Otis in July 2016.  Otis also has the use of Clear White’s “intellectual property” – the information gained from the investigations into the feasibility of developing the property and preparing a subdivision application.  Clear White did not pay at least some of the consultants. Otis has paid those consultants instead and to that extent it may not be required to account.  But if it has taken advantage of information which Clear White had paid for, a restitutionary adjustment may be required.

[7]      Similarly for the estoppel cause of action I held that reliance-based relief was appropriate rather than an expectation-based remedy.   That would also result in monetary relief.   I am  not persuaded that the claim for relief under the Credit Contracts and Consumer Finance Act adds much, if anything, to the other claims.  It presupposes an actual credit arrangement when there is none.

[8]      I declined  to  make  a  credibility finding.    Much  may turn  on  credibility findings made at trial.  Without speculating as to whose evidence may be preferred, my assessment is that Clear White does have a triable case for monetary relief and to that extent is entitled to its day in court.

[9]      Otis is entitled to be protected against a barren order for costs.  If Clear White is ultimately unsuccessful, there is little prospect of Clear White being good for any costs order made against it.  It has been insolvent for most of this year.  An added

element  of  risk  for  Otis  is  that  Mr Chevin,  Clear  White’s  director,  is  awaiting

sentence on charges to which he has pleaded guilty.

[10]     I  accept  the  submission  for  Otis  that  it  did  not  cause  Clear  White’s insolvency.  Clear White was already in a poor financial position when Mr Chevin first approached Mr McKay in July 2016.

[11]     In my assessment of all matters, Clear White should pay security for costs, but following normal practice there should be a discount (which in part reflects its prospects of success).

[12]     Otis suggests scale costs on a 2B basis, including disbursements which come to  $29,769.00.    It  has  not  claimed  for  disbursements,  but  it  is  likely  to  incur witnesses’  expenses  (valuation  evidence  may  be  required).  Its  estimate  may be overstated in claiming for case management conferences.  Clear White did not take issue with the estimate of costs.

[13]     In these circumstances, I fix security for costs at $16,000, which offers some protection to Otis, but is not intended to set too high a bar on Clear White’s access to the court.  Clear White proposed that any order for security should be staged.  I see no need.  If security is paid as directed, this case will have its substantive hearing in April.   With a relatively early hearing date, there should be a single payment of security.

[14]     If the security for costs is not paid by the close of pleadings date (30 January

2017), the proceeding will be stayed pending payment.  The directions in paragraphs

[10]-[14] of my minute of 16 November 2016 will be vacated.

[15]     Any security for costs paid into court is to be held on an interest-bearing basis.

[16]     If security for costs is not paid by 30 April 2017, Otis Trustee Ltd may apply for the proceeding to be struck out.   If security for costs is paid after 30 January

2017, either party may ask for a further case management conference for directions

to be set afresh.  If this proceeding is stayed and the stay ceases because of payment, leave is reserved to review the amount of security.   That is because I have fixed security on the basis that the case will run smoothly to a hearing in April 2017. I have not allowed for further attendances caused by delays by Clear White.

[17]     As the parties have had divided success on the security for costs application, there is no order for costs.

[18]     A  consequential  adjustment  to  the  directions  I  gave  in  my  minute  of

16 November 2016 is required.   Clear White may wish to amend its statement of claim, given what I said as to the remedies available to it in the caveat decision.  I direct  Clear  White  to  file  and  serve  any  amended  statement  of  claim  by

16 December 2016.   Any statement of defence to that statement of claim is to be filed and served by 30 January 2017.

………………………............

Associate Judge R M Bell