Coffey v Walker
[2021] NZHC 1073
•13 May 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-000857
[2021] NZHC 1073
BETWEEN PAUL CORNEL COFFEY and WILLIS
STREET TRUSTEE SERVICES LIMITED
as trustees of the PC COFFEY TRUST PlaintiffsAND
MARK ALAN WALKER as a trustee of the WYNSFIELD FAMILY TRUST
Defendant
Hearing: 11 May 2021 Counsel:
K C Francis and S J McNae for Plaintiffs D J Clark and E Z Caro for Defendant
Judgment:
13 May 2021
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 13 May 2021 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
COFFEY v WALKER [2021] NZHC 1073 [13 May 2021]
The application
[1] The plaintiffs bring this proceeding to recover the balance of a loan and default interest said to be owing under an agreement for the sale and purchase of shares. This judgment concerns an application by the defendant under r 5.45 of the High Court Rules 2016 that the plaintiffs give security for costs. The plaintiffs accept an order that they give security for costs should be made, but they do not accept the quantum sought by the defendant.
The issues arising on this application are:
(a)the amount of security to be paid;
(b)when and to whom the security is to be paid; and
(c)should an order be made that this proceeding is stayed pending payment of security or upon default in payment.
Background
[3] The plaintiffs are the trustees of the PC Coffey Trust. The defendant is the trustee of the Wynsfield Family Trust.
[4] On 14 May 2008, the trustees of the PC Coffey Trust agreed to sell shares in Alligator Ltd (Alligator) and Independent Monitoring Services Ltd (IMS) to the trustees of the Wynsfield Family Trust.
[5] Under the sale agreement, the purchase price of the shares was $700,000. An additional payment was made for stock, plant and equipment. Of the $700,000 purchase price:
(a)$200,000 was paid by the defendant on the settlement date; and
(b)the remaining $500,000 was advanced as an interest-bearing loan repayable after five years.
[6] The settlement date was 1 June 2008 and the shares were duly transferred shortly thereafter.
[7] The defendant failed to pay interest on the loan and, in due course, did not pay the balance of the loan on due date.
[8] The plaintiffs say demand was made for payment of the loan on 28 September 2015 but no payment was made.
[9] The plaintiffs commenced this proceeding in May 2019 and sought summary judgment on their claim. On 31 October 2019, Associate Judge Smith refused summary judgment finding the plaintiffs had failed to prove the defendant did not have an arguable defence he had validly cancelled the sale agreement in mid-2009.1
[10] The defendant filed his statement of defence on 22 November 2019. In addition to the defence the sale agreement had been cancelled, he pleaded defences that the sale agreement had been abandoned, that the plaintiffs had waived or were estopped from pursuing their rights under the sale agreement and, that the plaintiffs’ claim was time barred under the Limitation Act 1950.
[11] The defendant filed his application for security for costs shortly thereafter on 27 November 2019 but it was not progressed immediately as the plaintiffs applied for, and obtained, leave to appeal the decision of Associate Judge Smith refusing summary judgment.
[12] On 4 December 2020, the Court of Appeal dismissed the appeal. The flavour of its decision can be found in its findings:2
[37] What emerges from the evidence is that there are a number of important factual issues in dispute regarding what was said between the parties in 2009 and 2011 and that there is evidence on which it could reasonably be argued that Mr Walker had taken steps that conveyed cancellation of the agreement. Some of the recorded communications are consistent with either cancellation or affirmation. But it is significant that there are a number of pieces of evidence that are consistent with cancellation.
1 Coffey v Walker [2019] NZHC 2795 at [122].
2 Coffey v Walker [2020] NZCA 621.
[38] These include the lack of any reference in the email of 15 July 2009 to the balance owing for the shares, Mr Walker’s failure to repay the balance when it fell due and Mr Coffey’s failure to do anything in response to that failure (we acknowledge that Mr Coffey has an explanation for this but it is of course untested). Further, Mr Coffey’s actions after Mr Walker resigned as a director are consistent with the agreement having been cancelled: Mr Coffey advanced some $300,000 to the companies to deal with the IRD, he procured a general security agreement which would have required a shareholders’ resolution but the matter was never raised with Mr Walker. The receivers’ report indicates that the business was sold to a party related to the Coffey Trust but the sale was never discussed with Mr Walker. Nor was Mr Walker consulted in relation to the receivership and liquidation of the companies. Mr Slevin’s response is that Mr Coffey’s conduct is properly characterised as breach of the shareholders’ agreement entered into at the same time as the share sale agreement rather than indicative of the agreement having been cancelled. That is a matter for submission. These questions are not amenable to resolution on the affidavit evidence and cannot be determined until there has been discovery and cross-examination.
[13] A case management conference was scheduled for 26 February 2021 but counsel filed a joint memorandum prior to the conference and timetabling directions were made by consent. These included the plaintiffs were to file any response to the application for security for costs by 19 March 2021 and the application would be heard on 11 May 2021. The plaintiffs failed to comply with the direction and the case was re-listed before Venning J as Duty Judge on 21 April 2021. By this stage, the plaintiffs had instructed new counsel who confirmed that the plaintiffs did not oppose an order being made they give security for costs but the amount to be paid was in issue. An amended timetable was made to allow the hearing to proceed on 11 May 2021. The plaintiffs were ordered to pay costs.
[14] Correspondence has been exchanged between the parties’ lawyers in relation to this application. In a letter of 27 April 2021, the plaintiffs’ lawyers offered on their behalf to pay security of $20,000 on a staged basis. That was not acceptable to the defendant. The defendant’s lawyers set out his counter-position in a letter of 3 May 2021. He required security in the amount of $65,000. He agreed the security could be paid on a staged basis. The parties’ competing positions were maintained at the hearing before me.
The amount of security to be paid
[15] The jurisdiction to grant security for costs is contained in r 5.45, High Court Rules. It is accepted by the plaintiffs the threshold in r 5.45(1)(b), that there is reason to believe the plaintiffs will be unable to pay the costs of the defendant if the plaintiffs are unsuccessful in the proceeding, is made out. They also accept, it must be inferred, it is appropriate for any order for security for costs to be made.3
[16] The amount of security is not necessarily to be fixed by reference to likely costs awards in the proceeding. In deciding whether to order security and, if so, the quantum, the Court exercises a discretion which “is not to be fettered by constructing “principles” from the facts of previous cases.”4 Here, counsel accept it is appropriate to have regard to likely scale costs when considering the quantum of security to be given in this case.
[17] It is not, of course, possible to predict exactly what the defendant’s scale costs will eventually be but the defendant submits a reasonable assessment on a 2B basis and assuming a 6 day hearing is $87,414.50 or thereabouts. The defendant’s calculation of scale costs is attached as Schedule A to this judgment.
[18] Mr Clark advises that the defendant’s costs to date amount to $60,000 and the defendants solicitor-client costs are estimated at any eye-watering $250,000-$350,000 should the matter proceed to trial. I do not accept the latter figure is a reasonable assessment. He also submits the amount the plaintiffs should pay as security is 75 per cent of the estimated scale costs amounting to $65,000. In support of this submission he advances several factors.
[19] The case involves, he submits, a claim for a large sum which by trial will be in the region of $1,500,000. It is relatively complex involving many disputed questions of fact and law. Cross-examination will, he says, be crucial and there is the potential for up to 12–15 witnesses to be called who will include, for the defence, the defendant,
3 Highgate on Broadway Ltd v Devine [2013] NZHC 2288 at [21], [2013] NZAR 1017.
4 A S McLachlan v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13].
the defendant’s fellow trustee at the relevant time, employees of Alligator and IMS, the accountants for Alligator and IMS and the lawyers for those companies.
[20] While recognising the assessment of security to be paid is generally future- looking, Mr Clark submits that it is appropriate in this case that security be paid for steps taken in relation to the summary judgment application and the filing of the statement of defence which are the only steps that were taken prior to filing the application for security for costs.
[21] Mr Clark also submits there are reasons to believe there is a high risk the plaintiffs will not pay costs if unsuccessful which broadly include the plaintiffs’ delays in conceding that security for costs should be paid and in paying a previous costs award, the refusal by the plaintiff Mr Coffey to give details of his financial circumstances and the source of funds used to pay costs, the high likelihood the plaintiff Willis Street Trustee Services Ltd has no assets, that both Alligator and IMS were placed in receivership, that IMS was subsequently placed into liquidation as a result of non-payment of PAYE and GST over a considerable period of time and, that Mr Coffey was convicted of tax offences.
[22] In addition, Mr Clark submits the merits of the case can be assessed in light of the judgments of Associate Judge Smith and the Court of Appeal and these indicate the plaintiffs have considerable hurdles to overcome to succeed on their claim.
[23] For the plaintiffs, Mr Francis submits the defendant’s scale costs calculation is excessive and inappropriate. The defendant is, he submits, adopting a “Rolls Royce” approach to what is a simple debt collection claim. While he accepts other witnesses may be called, he submits in substance all evidence will be given by Mr Coffey and Mr Walker who were the only deponents providing contentious evidence for the summary judgment application. He submits the trial should last no longer than three days.
[24] Mr Francis also takes issue with the defendant including in his assessment of scale costs steps taken in filing the statement of defence and relating to the summary
judgment application which, he submits, are contrary to the Court’s practice that security is generally future-looking.5
[25] Mr Francis also challenged the defendant’s assessment of scale costs in relation to discovery which he says will not be extensive and should therefore be a scale 2A not a scale 2B exercise. In this regard, he notes the plaintiffs have filed their affidavit of documents and have only 118 documents to disclose. The defendant, who is yet to provide discovery, has previously deposed that he has destroyed or misplaced his documents. There were other miscellaneous challenges made to the defendant’s assessment of scale costs in relation to the need for interlocutory applications, case management conferences and second counsel.
[26] In the result, the plaintiffs’ position is that the defendants scale costs for future steps to trial amount to just $24,378 and it was on that basis its offer to pay $20,000 as security for costs was made.
[27] Mr Francis also argues there are access to justice considerations to be brought into the mix. In reliance upon the Court of Appeal’s judgment in A S McLachlan Ltd v MEL Network Ltd,6 and the judgment of Kós J in Highgate on Broadway Ltd v Devine,7 he argues it would be wrong to order security in an amount that would deny the plaintiffs of the ability to pursue the claim particularly in circumstances where it is reasonably possible that the impecuniosity of the plaintiffs was caused by the defendant.
[28] As far as the merits of the claim are concerned, Mr Francis submits Associate Judge Smith found a number of the defendant’s proposed defences are unarguable and that the judgments on the summary judgment application did no more than find there was some evidence to support an arguable defence. He submits the only arguable issue that has been raised relates to the possibility of cancellation of the sale agreement for which there is no clear evidence. He submits there is much evidence that favours the plaintiffs on the cancellation issue.
5 Oxygen Air Ltd v LG Electronics Australia Pty Ltd [2018] NZHC 2504 at [73]-[74].
6 A S McLachlan Ltd v MEL Network Ltd, above n 4.
7 Highgate on Broadway Ltd v Devine, above n 3, at [23].
Discussion
[29] Given the vagaries of litigation it is somewhat artificial to attempt to forecast precisely what steps will be taken assuming the case proceeds to trial and the costs consequences. All that I can do is make an assessment of the parties’ competing positions based upon experience and knowledge of how litigation proceeds.
[30] In response to particular matters raised by Mr Francis challenging the defendant’s assessment of scale costs, I do not consider this is a simple debt collection claim nor do I consider there is any prospect that it will be heard in three days. Mr Clark’s assessment of a six-day trial appears entirely reasonable. There is a substantial amount of evidence to be given of events spanning several years. The Court of Appeal highlighted the number of important factual issues in dispute. I accept it is likely a number of witnesses will be called other than Mr Coffey and Mr Walker and there will be lengthy cross-examination. There are also several legal issues that arise other than cancellation of the sale agreement which will need to be addressed by legal submission.
[31] The plaintiffs object to the inclusion in the defendant’s assessment of scale costs claims relating to steps taken prior to the defendant filing its application for security for costs. I accept the Court’s approach to security for costs is generally forward-looking. However, the Court exercises a discretion in assessing the quantum of security having regard to the particular circumstances of the case before it. There is no invariable rule that the Court cannot take into account in its assessment steps previously taken in the proceeding.8
[32] Here, the application for security for costs was made very shortly after the summary judgment application was dismissed. As Mr Francis acknowledged, whilst it is open to a defendant facing a summary judgment application to apply for security for costs such applications are unusual. They are also unlikely to be granted. In most instances, responsible defendants will await the outcome of a summary judgment application before applying for security for costs. In circumstances where an
8 White v James Hardie New Zealand [2019] NZHC 188 at [19].
application for security for costs promptly follows the refusal of summary judgment it would be unfair that no account at all is taken of the costs already incurred.
[33] Mr Francis argued that it is unlikely interlocutory application’s will be necessary but my assessment is that they are very likely, particularly concerning discovery. He also argues that given the defendant’s position that he has misplaced or destroyed his documents discovery will not be onerous and costs should be assessed on a 2A basis. In light of Mr Clark’s indication as to the relatively small number of documents involved in the defendant’s disclosure there is merit in that submission. Although not raised by Mr Francis, I also have doubts whether an allowance for second counsel is justifiable.9
[34] I do not accept that access to justice considerations are significant in this case. Mr Coffey has filed a brief affidavit in which he does not give any details of his assets or the assets of the PC Coffey Trust. He also does not give details of his income citing confidentiality obligations. He says he has every expectation that he will be in a position to pay an adverse costs award. He does not say he would be prevented from pursuing the claim by the making of an order that he pay security. He only goes so far as to say that “an excessively large security order” would make pursuing the case much more difficult.
[35] As far as the merits of the case are concerned, I accept my ability to assess them at what is still an early stage is limited. I regard this as a neutral factor overall.
[36] I consider the plaintiffs’ assessment that scale costs for future steps to the conclusion of trial will amount to little more than $24,000 to be wholly unrealistic. I accept that the defendant’s calculation of likely scale costs is broadly reasonable. Specifically, I accept the assessment of the steps likely to be taken in the proceeding and that most steps are likely to involve costs appropriately dealt with on a 2B basis. In my view, it may well turn out the defendant’s assessment of scale costs is a substantial underestimate when one has regard to the history of this matter, the possibility, given the attitudes of the parties, of interlocutory skirmishes, the potential for the trial to go beyond six days and the likelihood for expert witness fees to be
9 Teece v Veint [2021] NZHC 1036 at [8].
claimed as disbursements (of which the defendant has taken no account). I have accepted, however, that there are some items claimed by the defendant with which the plaintiffs can justifiably quibble. Looking at the matter in the round I proceed on the basis that a reasonable assessment of the defendant’s scale costs is $75,000.
[37] It is not uncommon when ordering security for costs that the Court requires payment of a sum which falls short of a realistic pre-estimate of scale costs. Counsel proceeded on the basis that was appropriate here, albeit the defendant considers any discount should be tempered by the high risk the plaintiffs will no ability to pay costs. In all the circumstances, I consider the least amount that the plaintiffs should be required to pay as security for costs is $50,000.
The timing of when security is to be paid and to whom it is to be paid.
[38] Counsel agree that security should be paid in three tranches with payments now, at the time of setting down and prior to trial. I am prepared to accept what counsel have proposed. I will require the final tranche to be paid eight weeks prior to trial thereby reducing the risk that Court time may be wasted if the final tranche is not paid.
[39] I understand Mr Francis’s firm does not operate a trust account and therefore cannot hold the security. In the circumstances, I consider it appropriate to direct that security be paid into Court to be held by the Registrar pending further order of the Court.
Should an order be made that the proceeding is stayed pending payment or on default of payment?
[40] Timetabling directions have already been made and the case is set down for a further case management conference on 25 June 2021. Mr Clark submits the proceeding should be stayed pending payment of the first tranche of security. I do not agree as that would necessarily disrupt the progress of the proceeding in accordance with the directions that have already been made. I consider the appropriate course is to order that the proceeding shall be stayed in the event that any tranche is not paid on or before due date.
Result
[41] The defendant’s application for security for costs is successful. The plaintiff must pay security for costs in the amount of $50,000 in three tranches as follows:
(a)an amount of $10,000 on or before 25 June 2021;
(b)an amount of $15,000 upon the case being set down for hearing; and
(c)an amount of $25,000 eight weeks prior to trial.
[42] The security for costs is to be paid to the Registrar of the High Court at Auckland to be held pending further order of the Court.
[43] In the event that any tranche is not paid on or before due date this proceeding shall be stayed until payment is made.
[44] Mr Francis asked I reserve costs and call for submissions. Costs are reserved. Counsel are to confer and attempt to agree on costs. In the event they cannot agree they may file memoranda within 21 days. Memoranda are to be no greater than five pages. I would expect to deal with costs on the papers.
O G Paulsen Associate Judge
Solicitors:
Lindsay & Francis, Auckland for Plaintiffs
Wilson McKay, Auckland for Defendant (D Clark, Barrister)
Appendix A
Using 2B Scale Costs
| B | Amount | ||
| 2. | Commencement of Defence | 2 | 4,780 |
| 10. | Prep first case management conference | 0.4 | 956 |
| 11. | Memo for first case management conference | 0.4 | 956 |
| 12. | Memo for subsequent case management conference | 0.4 | 956 |
| 13. | Appearances at subsequent case management conference (x2) | 0.6 | 1,434 |
| 15. | Preparation and appearance at pre-trial/issues conferences | 1.0 | 2,390 |
| 16. | Notice to answer interrogatories | 1.0 | 2,390 |
| 20. | Discovery | 2.5 | 5,975 |
| 21. | Inspection | 1.5 | 3,585 |
| 22. | Filing interlocutory application | 0.6 | 1,434 |
| 24. | Written submissions | 1.5 | 3,585 |
| 26. | Appearance at interlocutory hearing | ½ day | 1,195 |
| 27. | Second counsel | ½ day | 597.50 |
| 23. | Summary judgment hearing | 0.6 | 1,434 |
| 24. | Prep for hearing | 1.5 | 3,585 |
| 26. | Attendance | ¾ day | 1,792.50 |
| 27. | Second counsel | ¾ day | 896.50 |
| 29. | Sealing order | 0.2 | 478 |
| 33. | Preparing hearing | 5.75 | 13,742.50 |
| 33.B. | Preparing hearing | 5.75 | 13,742.50 |
| 34. | Appearance at hearing | 6 | 14,340 |
| 35. | Second counsel | 6 | 7,170 |
| $87,414.50 |
2
5
0