Crawford v Bacon

[2022] NZHC 3085

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV-2022-441-17

[2022] NZHC 3085

BETWEEN

MATTHEW WILLIAM CRAWFORD

Plaintiff

AND

WAYNE ERROL BACON, VANESSA JAYNE BACON and VICKY AILEEN BEALE

First Defendants

STACEY RENEE BACON

Second Defendant

Hearing:

14 November 2022

Appearances:

J Bates for Plaintiff/Respondent

J W A Johnson and S T Dymond for Defendants/Applicants

Judgment:

24 November 2022

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

[Costs]

Introduction

[1]    This is an application by the defendants (“the applicants”), Wayne Bacon, Vanessa Bacon and Vicky Beale, and Stacey Bacon,  pursuant  to  r 5.45  of  the  High Court Rules 2016 for an order for security for costs. The applicants invite the Court to make an order requiring the plaintiff (“the respondent”), Matthew Crawford, to pay security in the sum of $42,174 before the proceeding goes any further. Matthew opposes the application.1

1      For ease of reference I use first names in this judgment.

CRAWFORD v BACON, [2022] NZHC 3085 [24 November 2022]

[2]The factual background is not complicated.

[3]    Wayne, Vanessa and Vicky are the trustees of the Bacon Family Trust. In that capacity they own a large residential property in Hawkes Bay. The property was acquired by the trustees from Wayne and Vanessa in November 2014. Wayne and Vanessa’s home is located on the property.

[4]    In 2000 Matthew and Stacey embarked upon a de facto relationship. Stacey is Wayne and Vanessa’s daughter. Vicky is Vanessa’s mother and Stacey’s grandmother.

[5]    Between 2004 and 2008 Matthew and Stacey lived in Wayne and Vanessa’s home. Over that time, Matthew and Stacey had their first and second children. Although the parties offer different descriptions of exactly how and when this came about, it is clear enough that, as this time drew to a conclusion, Matthew and Stacey were anxious to establish their own home.

[6]    It will be necessary to come back to the precise circumstances in which they did so, but, in September 2008, Matthew and Stacey borrowed $330,000 from the National Bank (now ANZ) in order to build a second dwelling on the property owned by the trustees. The discharge of their obligations as borrowers was guaranteed by the trustees, and the debt was secured over the trust property. Further borrowing followed in April 2009, May 2013, and October 2013. The second dwelling was built between March and May 2009, and Matthew, Stacey and their family lived in this dwelling until February 2018. During that time, they had two more children.

[7]    In or around February 2018 Matthew and Stacey separated. Their separation was not amicable. There are unresolved proceedings in the Family Court. The evidence before the Court — not unusually I am afraid to say — contains accusations and counter-accusations as to their behaviour towards each other both during the relationship and after it came to an end. It is not obvious to me that the behaviour of the parties to each other outside the immediate context of this proceeding is of any particular relevance to the disposal of the application before the Court.

[8]    In March 2022, Matthew commenced this proceeding, in which he asserts a proprietary interest in the entire property owned by the trustees, not merely the second dwelling.

Security for costs

[9]    Security for costs is governed by r 5.45 of the High Court Rules 2016, which provides as follows:

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.

(3)An order under subclause (2)—

(a)requires the plaintiff or plaintiffs against whom the order is made to give security for costs as directed for a sum that the Judge considers sufficient—

(i)by paying that sum into court; or

(ii)by giving, to the satisfaction of the Judge or the Registrar, security for that sum; and

(b)may stay the proceeding until the sum is paid or the security given.

(4)A Judge may treat a plaintiff as being resident out of New Zealand even though the plaintiff is temporarily resident in New Zealand.

(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.

(6)References in this rule to a plaintiff and defendant are references to the person (however described on the record) who, because of a document filed in the proceeding (for example, a counterclaim), is in the position of plaintiff or defendant.

[10]   Applications pursuant to this rule are invariably difficult. They call for the Court to balance the right of a plaintiff to prosecute the claim against the right of a defendant not to be required to shoulder the cost of defending the claim, where there is no real prospect of recouping its costs if it is unsuccessful. This tension is not especially easy to reconcile.

[11]In his well-known text, Professor Zuckerman says:2

Requiring a claimant to provide security for costs as a condition to proceeding with the claim is on the face of it an extraordinary jurisdiction. The principle of access to justice demands that citizens should have an untrammelled opportunity to pursue bona fide claims or defences in Court.

[12]   However, r 5.45 exists for a purpose, namely because there are situations in which it is in the interests of justice to make such an order, that in some circumstances the principle of access to justice must yield to other considerations.

[13]   In Bush v Zion Wildlife Gardens (in rec and in liq), Bell AJ identified the core questions that the Court must determine in dealing with applications for orders for security for costs: 3

(a)whether the applicant can satisfy the Court that the threshold issue in  r 5.45(1) is met;

(b)whether the Court should exercise its discretion to make an order for security for costs;

(c)if so what the amount and terms of any order should be; and

2      Adrian Zukerman Zuckerman on Civil Procedure: Principles of Practice (4th ed, Sweet and Maxwell, London, 2021) at 10.309.

3      Bush v Zion Wildlife Gardens (in rec and in liq) [2012] NZHC 17 at [2].

(d)should the Court order a stay pending the payment of all or part of the security for costs.

[14]   In their submissions, both Mr Johnson for the applicants and Mr Bates for the respondent recognised those as the core questions.

[15]   There are cases in which the Courts have attempted to chart the most appropriate approach to determining applications under r 5.45, including for example the well-known case of Highgate on Broadway Ltd v Devine.4 Those cases are variable in terms of their helpfulness though that observation is less a criticism and more of an observation that the merits of such applications are very context specific. They also illustrate that the Court’s discretion is not to be fettered by the facts of previous cases.5

[16]   There are however some well settled principles which I would summarise in these terms:

(a)Only if an applicant can establish that the threshold test in r 5.45(1) has been met can the application go any further. However, that is a mere threshold test. The fact that it is met in any given case does not mean that an order for security for costs will be made. Far from it. It is simply the starting point for the analysis.6

(b)When the threshold is met the Court has a discretion and may make an order for security for costs where the Judge “thinks it is just in all the circumstances”, and on whatever terms the Court regards as just.7

(c)Given that the Court must balance the interests of the parties in the way I have described, one key consideration in virtually every case is likely

4      Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017.

5      McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13]–[14].

6 Above n 4, at [21].

7      Westpac New Zealand Ltd v Adams [2013] NZHC 3112 at [25].

to be the apparent merits of the claim.8 Obviously, in the context of an interlocutory application, all the Court can do is gain an impression.9

[17]   Over and above those core considerations, the analysis tends to be very case specific, but points to which the courts regularly have regard include the following:

(a)whether the claimant is being put up as such because he, she or it is impecunious, so as to shield the true claimant from potential liability;10

(b)whether there is any evidence that the claimant has deliberately secreted or disposed of assets so as to avoid exposure to a costs award;11

(c)whether the claimant, though impecunious himself, herself or itself, has any other sources of funding;12

(d)whether the claimant’s impecuniosity is a result of the actions or omissions of the respondent that are the subject matter of the proceeding;13

(e)whether making an order for security for costs would deprive the plaintiff of the capacity to advance a prima facie meritorious claim;14

(f)whether there is any public interest in the proceeding;15 and

(g)the conduct of the parties in the relevant litigation.16

8      Ambrose v Pickard [2009] NZCA 502.

9      Meates v Taylor (1992) 5 PRNZ 524 (CA); Lee v Lee [2019] NZCA 345 at [73]; and McNaughton v Miller [2022] NZCA 273 at [19].

10     Above n 4, at [22(a)].

11     At [22(b)].

12     At [22(d)].

13     Bell-Booth Group Ltd v Attorney-General & BCNZ (1986) 1 PRNZ 457 (HC).

14     Above n 4, at [23(b)].

15     At [24(b)].

16     Sharda Holdings Ltd v Gasoline Alley Services Ltd HC Auckland CIV-2008-004-539, 13 November 2009 at [7].

[18]   All of the cases emphasise that in the end the overriding consideration is to balance the interests of the plaintiff and the defendant so that any order made is just in all the circumstances.17

Analysis

[19]I am satisfied that the threshold test in r 5.45(1) is met in this case.

[20]   The primary affidavit in support of the application was sworn by Stacey. Her narrative evidence was critical of the way that Matthew managed his financial affairs during their relationship. She said that he was “bad with money”. She expressed doubt that as a driver he would command a large income, and implied that, in all likelihood, whatever he earned would do no more than cover his living expenses. The implication was that it was most unlikely that Matthew would have any funds available to meet a substantial costs award.

[21]   In opposing the application, there was no obligation on Matthew to provide details of his financial circumstances. However, the practical reality is that the failure of the party opposing the application to provide full and frank disclosure as to his financial position inevitably invites the Court to draw inferences.18 In his affidavit in reply Matthew elected not to disclose details of his financial position. He said only that he and his current wife, Mrs Nicola Crawford, own a house in which they have a substantial equity. That, Matthew invited the Court to conclude, was an answer to the applicants’ concern in relation to his capacity to pay a costs award in the event of his claim being unsuccessful.

[22]   In the course of the hearing I asked Mr Bates if Matthew’s position was essentially that he would not have immediate access to funds to pay a costs award, and that he relied on his half interest in the equity of the property he and his wife own. Mr Bates confirmed that that was the position.

[23]   Affidavit evidence in reply filed and served by applicants criticised Matthew for not being open about his financial position. In response, and at the eleventh hour,

17     Above n 4, at [24(c)].

18     Monnery v Parsons [2021] NZHC 2854 at [51]–[52].

Matthew filed and served an affidavit sworn by Nicola, providing details relating to the property they own. On Nicola’s evidence, which I accept, it would seem that the property probably has a market value of approximately $680,000–$750,000. As against that there is debt secured against the property of approximately $400,000. Thus, it is fair to conclude that, between them, they have net equity of something like

$310,000 On that basis, Matthew is entitled to say that, as matters stand, he has an interest in the house with a value of approximately $155,000, which is more than any costs award that would likely follow were his claim unsuccessful.

[24]   That, however, is by no means an end of the matter. Matthew has not offered any form of security over the house. Often in a situation such as this a party will offer an equitable mortgage (an agreement to mortgage) that could be supported by a caveat in order to secure any costs obligations that may arise. Of course that would require the agreement of both Nicola and the mortgagee. As Matthew has not put his full financial position before the Court, he may have substantial unsecured debt which would reduce the practical value of his interest in the property he and Nicola own for an unsecured creditor.

[25]   Even putting those considerations aside, as Mr Johnson submits, especially in a volatile market such as currently prevails, a mere paper interest in a property is not reliable security.

[26]   As already said, for those reasons, I am satisfied that r 5.45(1) threshold is met in this case.

[27]That brings me to the substantive issue of the Court’s discretion.

[28]   Towards the end of his helpful submissions on Matthew’s behalf, Mr Bates advanced a general proposition, the gist of which was that r 5.45 should not be allowed to operate as a mechanism to preclude people with relatively limited resources from access to justice.  It is  difficult  to argue with that proposition. However,  so long as r 5.45 exists in its current form, the Court must apply it. The kinds of considerations that Mr Bates’ submission was directed at are ones which, it seems to me, can be brought to account by the Court in the exercise of its discretion.

[29]   What this really points to is that the overwhelmingly most important consideration in this case is the merits of Matthew’s case. As to this, counsel advanced diametrically opposed submissions. I will return to the merits, as it is convenient to deal with other points before doing so.

[30]   There is no suggestion in this case that Matthew is being put up as a claimant to protect any other party or parties. Nor is there any evidence that he has deliberated secreted or disposed of assets so as to avoid exposure to a costs award.

[31]   As to the possibility of Matthew having access to other sources of funding, there is no suggestion of this. Nicola has of course sworn an affidavit. However, it is not suggested that she is an available source.

[32]   There is a sense in which Matthew may be able legitimately to say that his impecuniosity is related to the actions or non-actions of the trustees. He would no doubt contend that, had they faced up to their responsibilities and recognised his proprietary interest in the property, he would not need to pursue this claim. However, again, that simply begs the question of the merits of his claim.

[33]   It appears clear to me, and I accept Mr Bate’s submission in this regard, that an order for immediate payment of the full amount of security for costs sought by the applicants in this case would likely preclude Matthew from prosecuting his claim. That, in my view, is an important consideration. As Mr Bates submitted, access to justice is an extremely important principle.

[34]   There is no sense in which this case involves the public interest. Above all else, it is a private dispute. The only parties with any interest in it are the parties to the proceeding.

[35]   Turning to the conduct of the parties, as already said, it seems clear to me that conduct in the past, such as conduct within the context of marriage is not something which the Court should place undue emphasis on in dealing with the application before it. For a start, some of the accusations and counter accusations made by the parties have not been tested, and, in my assessment, it would be unfair to reach any

conclusions  in  relation to these.    The primary focus to this consideration is the  behaviour of the parties in connection with this litigation.

[36]   The applicants’ criticism of Matthew in relation to the conduct of this litigation is essentially a criticism that the claim is a “try on”. They are saying that well after the litigation was commenced in the Family Court, Matthew has come up with this new claim, essentially to continue to pursue what they refer to a ‘campaign of abuse’. As far as I am able to discern, Matthew is advancing a claim in which he has faith, and I do not doubt his bona fides in doing so.

[37]   Very broadly speaking, those factors do not appear to me to be dispositive. As I have already said, the key consideration appears to be the merits of the case.

[38]   The view I have reached is that Matthew’s claim is arguable but not obviously strong.

[39]   In his amended statement of claim dated 21 July 2022, Matthew seeks one remedy, that is to say, a determination by the Court that he has a proprietary interest in the trustees’ property and the consequential imposition of a remedial constructive trust protecting that interest.

[40]   There are three causes of action pleaded. It is not clear to me that they are genuinely distinct causes of action, and, without being critical, they are pleaded in a way which appears to confuse the relevant equitable concepts. In the end, though, none of that matters. The core components of Matthew’s claim are clear enough. He invites the Court to conclude that he has an equitable interest and to provide a remedy by the imposition of a constructive trust on any of the following bases:

(a)that the parties entered into arrangements in which they agreed that he and Stacey would have such an interest — thus invoking the equitable principle that equity will do that which ought to be done; or

(b)that Matthew and Stacy contributed to the value of the trustees’ property – thus invoking the equitable principle that a party making

contribution to a property that enhances the value of the property in a way that exceed materially any advantage they have secured, has an equitable interest in the same; or

(c)that if his claim is rejected then the trustees will be enriched to his disadvantage — thus invoking the principle of unjust enrichment.

[41]   On their face, all three causes of action — which are, after all, variations on a theme — appear to be arguable, at least on the basis of the factual circumstances pleaded by Matthew and reinforced in his affidavit evidence.

[42]   However, there appears to me to be difficulties with the evidential foundation for Matthew’s assertions as to the contributions he made to the property:

(a)Matthew’s description of events is contradicted by Wayne, Vanessa and Stacey, all of whom say that there was never an agreement of the kind he asserts. Whilst that might not be surprising, there does not appear to be any objective  evidence, such as contemporaneous records, or  ex post facto acknowledgments on the part of the applicants, supporting Matthew’s position. On the contrary, there is some evidence that until comparatively recently Matthew was not contending for the existence of such an agreement between the parties. One example is a text message sent by Matthew on 28 June 2018 which articulated his argument in terms that would preclude the existence of the pleaded agreement.

(b)There is an aspect of the arrangement that Matthew asserts the parties entered into which appears to me to be implausible. Matthew and Stacey were the principal borrowers of the loan taken out to build the second dwelling on the property. Wayne and Vanessa guaranteed their obligations. The arrangement that Matthew asserts would have involved Wayne and Vanessa not only foregoing any rental that Matthew and Stacey may otherwise have been liable for, but also giving away some significant proportion (perhaps as much as a half) of their

property. That may not be entirely unbelievable. After all, Stacey is Wayne and Vanessa’s daughter, and generous parents might well contemplate such an arrangement. However, the Court would certainly expect clear evidence that they had agreed to any such arrangement.

(c)It turns out that the property is not sub-divisible. Therefore, a core component of the supposed arrangement between the parties was never achievable. It is not immediately apparent at what stage the parties became aware of this. Nevertheless, it is unlikely that they were prepared to enter into an arrangement which could never be implemented.

(d)Finally, it was necessary for the trustees to obtain resource consent to build a second dwelling on the property. The terms of the consent provided that the second dwelling could only be occupied by members of Wayne and Vanessa’s immediate family, and, upon the sale of the property, the second dwelling had to be removed. The practical effect of that is that it makes it extremely doubtful that the erection of a second dwelling on the property added materially to the property’s overall market value.

[43]   Against the background of the above considerations, I have reached the conclusion that it would be just in the circumstances of this case to make an order for security for costs in favour of the applicants.

[44]   The next question is the term of that order. Considering that issue takes me full circle back to the point Mr Bates raised at the conclusion of his submissions concerning access to justice. I am not prepared to make the order in the terms sought by the applicants, as I accept that would effectively preclude him from prosecuting it further, or at least make that extremely difficult.

[45]   On behalf of the applicants, Mr Johnson calculates scale costs on a 2B basis through to the conclusion of a trial as likely to be in the order of $42,174 inclusive of disbursements of $110. Mr Bates does not dispute that calculation, and it appears

correct to me. On that basis, the applicants are seeking an immediate order for security for costs in that amount and a stay of the proceedings pending the payment of those costs.

[46]   The view I have reached is that substantial justice will be done in this case if I make an order requiring the respondent to pay the pre-hearing component costs at this stage, but defer any final order in relation to hearing costs unless and until the matter is set down for trial.

Result

[47]   For those reasons, I make an order that the plaintiff pay the sum of $17,079 by way of security for costs forthwith. I make a further order that, if and when this proceeding is set down for trial, the plaintiff is to provide security for costs for a further

$25,095.00, which may be in the form of cash or other security. At that stage, I grant leave to either party to come back to the Court for directions as to the form of security.

[48]There will be an order staying the proceeding pending the payment of $17,079.

[49]   The question of whether the proceeding should be stayed if and when the further security is required can be addressed at the time.

[50]   Costs are reserved. If counsel cannot resolve these, as I would expect them to do, they may file and serve memoranda in the usual way.

Associate Judge Johnston

Solicitors:

Brown & Bates, Napier for Plaintiff Gifford Devine, Auckland for defendants