Clode v Sullivan
[2015] NZHC 2364
•29 September 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-2717 [2015] NZHC 2364
BETWEEN BRENT DOUGLAS CLODE
First Plaintiff
SYNERGY MANAGEMENT LIMITED Second Plaintiff
AND
MICHAEL GRANT SULLIVAN and DUTHCO TRUSTEES (SULLIVAN) LIMITED as trustees of THE SULLIVAN FAMILY TRUST NO 1
First Defendants
DAVID ROBERT JANS Second Defendant
THOMPSON PARK TRUST LIMITED as trustee of THE THOMPSON PARK TRUST
Third Defendant
Hearing: 14 September 2015 Appearances:
M Heard and S G T Ma Ching for Plaintiff
S C Gollin and J A Harrop for First and Third Defendants
P T Finnigan for Second DefendantJudgment:
29 September 2015
JUDGMENT OF M PETERS J
This judgment was delivered by Justice M Peters on 29 September 2015 at 1 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date: ...................................
CLODE v SULLIVAN [2015] NZHC 2364 [29 September 2015]
[1] This judgment determines applications for orders that the Plaintiffs
(“Mr Clode” and “Synergy”) give security for costs in this proceeding.
[2] The orders are sought pursuant to High Court Rules, r 5.45 which provides:
5.45 Order for security of costs
(1) Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—
...
(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.
...
(5) A Judge may make an order under subclause (2) even if the defendant has taken a step in the proceeding before applying for security.
...
[3] The Plaintiffs do not dispute that the threshold for an order is met,1 that is that there is reason to believe that they will be unable to pay the Defendants’ costs if they (the Plaintiffs) are unsuccessful. Given that, the question of whether to order the provision of security and, if so, quantum are at the discretion of the Court.
[4] The applications are made on the grounds that: (a) the Plaintiffs’ case is weak;
(b) a third party is assisting the Plaintiffs in funding the conduct of this
proceeding; and
1 Notice of Opposition to Application by First and Third Defendants for Security for Costs dated
7 August 2015; and Notice of Opposition to Application by Second Defendant for Security for
Costs dated 7 August 2015.
(c) the Plaintiffs have given discovery of more than 8,000 documents, some of which at least the Defendants contend are irrelevant.
[5] In opposition, the Plaintiffs contend that:
(a) the Defendants ought to have applied for security at an earlier stage; (b) the Plaintiffs’ case is strong;
(c) the discovery that has been given is relevant;
(d) the Defendants have contributed to any impecuniosity there may be;
and
(e) the quantum sought is excessive.
[6] The First and Third Defendants (“the trustees” and “TPTL” respectively) seek an order that both Plaintiffs give security. The Second Defendant, Mr Jans, seeks security from Mr Clode only.
[7] I propose to order that security be given. I have reservations as to the manner in which the Plaintiffs have conducted this proceeding to date and I am satisfied that aspects of the Plaintiffs’ claim are weak.
Authorities
[8] Counsel referred me to the Court of Appeal’s decision in McLachlan Ltd v
MEL Network Ltd, the relevant passages of which are:2
[13] ... Whether or not to order security and, if so, the quantum are discretionary. They are matters for the Judge if he or she thinks fit in all the circumstances. The discretion is not to be fettered by constructing “principles” from the facts of previous cases.
[14] While collections of authorities such as that in the judgment of
Master Williams in Nikau Holdings Ltd v Bank of New Zealand (1992) 5
PRNZ 430, can be of assistance, they cannot substitute for a careful assessment of the circumstances of the particular case. It is not a matter of
2 McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA).
going through a check list of so-called principles. That creates a risk that a factor accorded weight in a particular case will be given disproportionate weight, or even treated as a requirement for the making or refusing of an order, in quite different circumstances.
[15] The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs. That must be taken as contemplating also that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim. An order having that effect should be made only after careful consideration and in a case in which the claim has little chance of success. Access to the courts for a genuine plaintiff is not lightly to be denied.
[16] Of course, the interests of defendants must also be weighed. They must be protected against being drawn into unjustified litigation, particularly where it is over-complicated and unnecessarily protracted.
[9] I was also referred to the decision of this Court in Birnie Capital Property Partnership Ltd v Birnie.3 In that case Asher J, while noting that the Court’s discretion was unfettered, set out a number of factors which may nevertheless be relevant to its exercise.4 These include the apparent strength or weakness of the plaintiff’s case; whether an order would effectively prevent the plaintiff continuing the proceeding; whether the plaintiff is receiving support from a third party interested in the litigation; whether there has been delay by the defendants in seeking security; and whether the plaintiff’s impecuniosity results from the defendant’s actions. With regard to the latter, however, I also note Asher’s J caution that “care must be taken to avoid the circular argument that because the defendant does not accede to the claim and pay damages, the impecuniosity is therefore its fault”.5
Background
[10] What follows is taken from the affidavits filed in the proceeding and so is subject to whatever may emerge at trial.
[11] The dispute arises from dealings between the parties in connection with property situated in Mt Wellington (“the land”), and a proposal to construct
residential units on the land.
3 Birnie Capital Property Partnership Ltd v Birnie HC Auckland CIV-2010-404-3000, 29 October
2010.
4 At [27] – [31].
5 At [31].
[12] Box Property Investments Limited (“Box”) was the registered proprietor of the land at all material times prior to September 2013. Mr Jans and Mr Sullivan, the first named First Defendant, each owned 50 per cent of the shares in Box and each was a director of the company.
[13] Mr Clode undertook work in respect of the development at that time, although there is dispute as to the extent of the work and whether or not Mr Clode or his company (not Synergy) has been compensated for that work.
[14] In or about September 2013, Box agreed to sell the land to Thompson Park Holdings Limited (“TPHL”). On the face of the share register, Mr Jans is TPHL’s sole shareholder but it is common ground that in September 2013 he agreed that he held 50 per cent of those shares as bare trustee for Mr Clode. Part of the relief that Mr Clode seeks against Mr Jans is an order requiring the transfer of that 50 per cent. Mr Jans is, and at all relevant times has been, the sole director of TPHL. TPHL was placed into liquidation on 14 November 2014.
[15] To finance the purchase, TPHL borrowed from a third party, NZM&S, and granted a mortgage over the land in favour of NZM&S and a general security agreement over its existing and future property. Mr Jans also gave a personal guarantee.
[16] TPHL defaulted in its obligations to NZM&S in the first half of 2014. NZM&S subsequently assigned its interests to another lender (“Dragon”), and on
4 June 2014 Dragon served notice pursuant to s 119 Property Law Act 2007.
[17] TPHL sought to refinance the debt but ultimately Mr Jans resolved that TPHL
would transfer the land to Mr Sullivan or his interests.
[18] TPHL as vendor and the trustees or nominee as purchaser then entered into an agreement for sale and purchase of the land. The trustees subsequently nominated TPTL and that company is now the registered proprietor of the land.
[19] Shortly before the sale was to settle, the Plaintiffs, Box and the trustees entered into an agreement on 3 July 2014 (“settlement agreement”). This agreement, whether and/or when and/or by whom it has been breached, and whether it has been repudiated and if so by whom is central to the dispute. A summary of the relevant terms of the settlement agreement follows, with those in sub-paragraphs (b) and [20]
below being of particular relevance:6
(a) that the trustees would pay $150,000 to Mr Clode on 3 July 2014 –
this sum was paid;
(b)that the trustees would pay a further $300,000 to Mr Clode “on the first drawdown of the project finance from the Bank or Financier funding the proposed development on the land”;7 and
(c) arrangements were to be made for the transfer to Mr Clode of a particular unit in the proposed development and for a further payment to Mr Clode of $100,000.8
[20] Clause 5 provided:
5. Full and Final Settlement
This Agreement constitutes a full and final settlement of all claims legal or equitable made by [Mr Clode] and [Synergy]) and any related entitles to Synergy or [Mr Clode]) in respect of the development to be carried out at [land] (previously by [TPHL] (sic)) and all claims in respect of equity or other interests, monies or requirements in respect of parties and in any way touching or concerning TPHL its shareholders and the development including and not by limitation forgoing any interest in the “Material Contracts” as defined in Deed purported to be dated 23 September
2013 and the deed between Synergy and TPHL.
[21] The matter which has led to dispute is when the payment of $300,000 became due and whether the commencement of this proceeding was in breach of clause 5. In
September 2014, Mr Clode wrote to Mr Sullivan’s (then) solicitors, asserting that
6 Settlement Agreement dated 3 July 2014.
7 At cl 2.
8 Counsel for the Plaintiffs has advised that it may be necessary to amend the parts of the existing statement of claim which refer to these arrangements.
payment was due. The solicitors did not reply to that letter and payment was not forthcoming.
[22] Then, on 14 October 2014, Mr Clode wrote again, stating that failure to pay the $300,000 constituted a material breach and that he cancelled the settlement agreement with immediate effect.9 Mr Clode also commenced this proceeding and served a statutory demand on TPHL.
[23] The solicitors now acting for the trustees replied on 20 November 2014 and said that the $300,000 was not due and that Mr Clode had repudiated the settlement agreement by his 14 October letter and his commencement of proceedings. The trustees themselves then purported to cancel the settlement agreement. That was followed (at least on the face of the pleadings) by an email from Mr Clode purporting to withdraw his notice of cancellation.
Merits
[24] The Plaintiffs have pleaded three causes of action.
[25] The first is against the trustees and TPTL and seeks relief under s 9 of the
Contractual Remedies Act 1979 (“CRA”) and “in equity”.
[26] The second is against the trustees, and seeks damages for breach of contract, that is of the settlement agreement.
[27] The third is by Mr Clode against Mr Jans and seeks an order that he transfer
50 per cent of the shares in TPHL to Mr Clode.
[28] The Defendants deny liability and Mr Jans raises affirmative defences. The trustees also counterclaim under the CRA and Fair Trading Act 1986 to recover the
$150,000 paid to date.
[29] There are difficulties with the Plaintiffs’ case as presently pleaded.
9 Notice of Cancellation dated 14 October 2014.
[30] First, and by way of example, relief may only be granted under s 9 CRA (the first cause of action) if the settlement agreement has been cancelled. Despite that, the Plaintiffs have not pleaded cancellation, let alone when and by whom.
[31] Secondly, much of the relief sought under the first two causes of action is as would be expected and reflects the terms of the settlement agreement, that is payment of the $300,000 and performance of the arrangements regarding the unit – say relief of up to $1 million.
[32] However, the Plaintiffs are also seeking an order that the trustees should pay Mr Clode the sum of $5 million plus interest. The claim for this relief is based on two agreements, one between Mr Clode, TPHL and Box (not signed by Mr Sullivan or anyone on his behalf) and the other between Synergy and TPHL. On their face these agreements constitute an acknowledgment by TPHL that Mr Clode/Synergy has provided intellectual property and other benefits (“IP”) to the development, for which TPHL is to pay $5 million plus interest, that debt being secured by a mortgage of the IP.
[33] The Defendants contend these agreements are a sham. I express no view on that. The important point for present purposes, however, is that nothing in the Plaintiffs’ pleading establishes a basis for an order that the trustees should pay
$5 million to Mr Clode. And that relief far exceeds any sum that was agreed to be paid under the settlement agreement.
Assistance from third party
[34] The Defendants contend that Mr Clode is being assisted financially in conducting this proceeding by Mr David Oliphant and/or his company, Kai Iwi Limited. Mr Oliphant is a business associate of Mr Clode.
[35] The basis for the suggestion that Mr Oliphant is assisting Mr Clode financially arises from the fact that Kai Iwi met a (modest) costs order made earlier in the proceeding against the Plaintiffs.
[36] In [22] of his affidavit of 10 August 2015, Mr Clode states that he has no litigation funding arrangements and that, at his request, Mr Oliphant paid the costs “as a matter of convenience”. For myself, I do not consider this point adds much to the Defendants’ contentions. The main point is that the Defendants should not be wholly unprotected for costs on a claim of this nature.
Discovery
[37] The Plaintiffs have given discovery of more than 8,000 documents. The Defendants submit that the volume of discovery is oppressive and they have delayed inspection pending the outcome of this application. Counsel for the trustees estimates that at, say, one minute a document, inspection will take more than 130 hours.
[38] Counsel for the Plaintiffs assures me that his junior has checked all the documents, that they are all relevant and all confirm Mr Clode’s contribution to the project – a point put in issue by the Defendants’ denials. Counsel’s assurance of relevance would be of greater comfort if he had himself taken the time to check the documents it is proposed counsel for the Defendants should read.
[39] Regardless, inspection will impose a substantial burden on the Defendants and I am not satisfied that they should have to bear that burden without having some security for their costs.
Arguments for the Plaintiffs
[40] I referred above to the grounds on which the Plaintiffs oppose the making of any orders.
[41] The first is that the Defendants ought to have applied for security at an earlier stage. The applications were made in early July 2015. It would have been preferable for the Defendants to apply earlier but I am not satisfied there is any prejudice to the Plaintiffs as a result of the delay.
[42] As for the merits of the case, I have already referred to the difficulties that I apprehend with the case as presently pleaded. The Plaintiffs also contend that the Defendants have contributed to their impecuniosity. I do not accept this submission. The trustees paid Mr Clode $150,000 in July 2014.
[43] I propose to order the giving of security accordingly.
Quantum
[44] The First and Third Defendants seek security in the sum of approximately
$63,000. That sum is calculated on a 2B basis in respect of costs to be incurred hereon but with a claim for inspection of documents on a 3C basis ($19,800). The security sought assumes a seven day trial with an allowance for second counsel.
[45] The Plaintiffs take issue with some items in respect of which costs are claimed. They also submit that provision should be made for a percentage of costs only and that, if security is ordered, the terms of the order should allow for payment in stages.
[46] On the first point, the Plaintiffs:
(a) take issue with the allowance for a seven day hearing, as some of that time will be taken up with the trustees’ counterclaim. I shall reduce the time allowed for the hearing to five days to reflect the counterclaim; and
(b)contend that no allowance should be made for inspection, let alone on a 3C basis. The Plaintiffs submit that the discovery should already have been inspected and a defendant should not be given security “retrospectively”. I do not accept this submission but inspection should be allowed for on a 2C basis – $13,380. I would allow for second counsel.
[47] Allowing for these matters, I calculate that costs for the First and Third
Defendants would total $49,952. I accept that a percentage only should be given, but
not for provision in stages. I order provision of 50 per cent of that sum, being
$25,000.
[48] I accept the Plaintiffs’ submission that provision to a slightly extent is
required for Mr Jans. I order provision of $17,500 as security for Mr Jans’ costs.
[49] The security ordered is to be given by 4 pm, 6 November 2015, with leave to apply in the absence of compliance. The proceeding is stayed pending provision.
[50] The Defendants are entitled to costs on the applications, although I would expect those to reflect that they have succeeded in part only on quantum.
Other matters
[51] The Plaintiffs seek costs in respect of a wasted pleading (see memoranda dated 17 and 24 July 2015). The Plaintiffs should have those costs. They may be paid into Court as part provision of the security ordered.
Further and better discovery
[52] The Plaintiffs also made an application that the trustees should provide further discovery. That application has been resolved by counsel and no order is required.
..................................................................
M Peters J
Solicitors: Lee Salmon Long, Auckland
Minter Ellison Rudd Watts, Auckland
Duthie Whyte, Auckland
Counsel: P T Finnigan, Auckland