Data Pacific Limited v Kieser HC Auckland CIV 2007-404-7514

[2008] NZHC 2392

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2007-404-7514

BETWEEN  DATA PACIFIC LIMITED & ANOR Plaintiff

ANDLAWRENCE KIESER & ORS Defendant

Hearing:         26 June 2008

Appearances: E Grove for Plaintiffs

I Williams for 1st,3rd,4th,5th & 6th Defendants
No appearance for 2nd Defendant

Judgment:      30 June 2008 at 12 pm

JUDGMENT OF ASSOCIATE JUDGE ROBINSON

This judgment was delivered by me on June 2008 at 12 pm pursuant to Rule 540(4) of the High Court Rules.

Registrar/Deputy Registrar

DATA PACIFIC LIMITED & ANOR V LAWRENCE KIESER & ORS HC AK CIV 2007-404-7514  30 June

2008

[1]      The first, third, fourth, fifth and sixth defendants are all represented by Mr Williams. They apply to this court for an order requiring the plaintiffs to provide security for their costs. The second defendant is not represented by counsel. A lay litigant  in  New  Zealand is  not  entitled,  except  in  exceptional  circumstances,  to recover costs see Re Collier (a bankrupt) 1996 [2 NZLR 438] Lysnar v National Bank of New Zealand Limited (2) [1935] NZLR 557. Consequently, as it is most unlikely that the first defendant whilst representing himself would recover costs against the plaintiffs if the first defendant was successful, it is not appropriate to require the plaintiffs to provide security for costs for the first defendant.

[2]      The application for security for costs is opposed. In support of the opposition to an order for security for costs the plaintiffs submit: -

a)       That the first plaintiff Data Pacific Limited has since the beginning of these proceedings traded into profitability.

b)Although Secureco Limited has no assets it has a common interest in the proceedings  with the first plaintiff Data Pacific Limited.  Data Pacific Limited will probably prosecute the claim on behalf of both plaintiffs.

c)       That the trading difficulties experienced by the plaintiffs were caused by the first and second defendants and that the defendants therefore should not be able to use an order for security for costs to prevent the plaintiffs   from   bringing   proceedings   to   hold   the   defendants accountable for their actions.

[3]      These proceedings arise out of a claim by the plaintiffs that two of their employees namely Lawrance Kieser the first defendant and Rodney Franzoi the second defendant whilst in the employment of the plaintiffs and in breach of their obligations as employees diverted business from the plaintiffs to the third and fifth defendants being companies they established. The fourth and sixth defendants are directors and shareholders of those companies. Causes of action include allegations

of breach of contractual and statutory duties, deceit, fraud and misuse of confidential information.

[4]      When  the  plaintiffs  commenced  the  proceedings  they  applied  for  and obtained Mareva injunctions and orders restraining the first and fourth defendants until further order from disposing or dealing with any of their property described by identifier NA 94B/707 North Auckland Registry in their names and against the first, second, third and fourth defendants requiring them to file affidavits listing their assets and any assets they have disposed of since 1 August 2006.

[5]       In his affidavit in support of the application for the Mareva injunction, Mr Woodley, the director and sole shareholder of the plaintiffs provided an undertaking on behalf of the first plaintiff as to damages. His evidence in support of the application for the Mareva injunction was to the effect that Secureco Limited has no assets.  He  also  stated  that  Data  Pacific  Limited,  based  on  its  accounts  for  the

2006/2007 financial year, had liabilities that exceeded its assets by $136,276 and had recorded  a  net  loss  of  $118,455  for  that  year.  He anticipated  that  Data  Pacific Limited would trade profitably for the 2007/2008 year.

[6]      Mr Woodley has now produced draft accounts for Data Pacific Limited for the year ended 31 March 2008. He points out that according to those accounts the company operated with a trading surplus of $256,807 compared with an operating loss of $118,455 for the previous year. He also points out that the balance sheet discloses a surplus of equity over liabilities amounting to $121,171. Pursuant to rule

60 High Court rules, the court may if it thinks fit in all the circumstances order the giving of security of costs where 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. Mr Williams points out that when these proceedings were commenced based on Mr Woodley’s evidence there was good reason to believe that both plaintiffs would be unable to pay the costs of the defendants if the plaintiffs are unsuccessful.

[7]      Mr Williams submits that after careful perusal of the draft accounts produced by Mr Woodley, there is still reason to believe that Data Pacific Limited will be

unable to pay the costs of the defendants if it is unsuccessful in these proceedings. He points out that included in current liabilities are accounts payable of $400,237. In addition the company is liable to GST of $8,726 and has listed under current portion of term liabilities $47,221. Its current assets include accounts receivable of $207,

708, $57,840 in the BNZ cheque account and $8,378 in the ASB cheque account. Consequently the  company must rely upon recovery of accounts receivable and retentions in addition to the amounts in the company’s bank account to pay the accounts payable. There is no evidence as to the risk relating to accounts receivable nor is there any evidence as to when the $400,237 under accounts payable should be paid.

[8]      It is also submitted that the company’s past history of trading unprofitably can  give  the  court  no  confidence  that  it  will  continue  to  trade  profitably.  Mr Williams also points out that Mr Woodley has not produced any budget or evidence upon which the court could conclude that the company will continue to trade in profit.

[9]      Mr Williams also submitted that although the two plaintiffs plead their causes of action seeking relief jointly, in the event they are successful there will be several judgments depending upon the loss proved to each entity. It is also submitted that there may be different duties owed to each of the plaintiffs, different funds and resources and customers are alleged to have been misappropriated. Consequently it is submitted that the similarity of evidence relevant to each company is not sufficient to found a claim of an identity of interest. It follows therefore that one plaintiff may be successful and the other unsuccessful. If Secureco Limited was unsuccessful then clearly it would be unable to pay costs awarded in favour of the defendants that are likely to follow the dismissal of the claims by Secureco Limited.

[10]     Mr Williams also emphasised that the court should not give too much weight to the plaintiff’s claim that its financial problems were caused by the defendants. Only two of the defendants were alleged to have breached their obligations to the plaintiffs and one of them is not represented by counsel. Furthermore at this stage, the court has not had the benefit of the defendants version of events.

[11]     In the present case I consider there is still reason to believe that each plaintiff will be unable to pay the costs of the defendants if they are unsuccessful. The points made by Mr Williams concerning the evidence of Data Pacific Limited’s current financial position are justified and in the absence of any further evidence as to projected profit, there must still be concern as to the ability of Data Pacific Limited to pay the defendant’s costs.

[12]     It is conceded by the plaintiff’s that Secureco Limited would be unable to pay costs if unsuccessful. Whilst there may be some commonality of interest in the claims brought by each plaintiff rule 60 requires an individual approach. The Court of Appeal in Smith v Coddington Spencer Limited [2008] 1 NZLR 75 emphasised that in a multi-plaintiff case rule 60 did not permit an order to be made against all plaintiffs simply because some plaintiffs are unable to meet a likely costs award against them. In coming to that conclusion the Court of Appeal accepted that there could be a qualification in cases where two parties are suing in the same interests with the same solicitors and counsel having regard to rule 50. In that respect the Court of Appeal in its judgment at paragraphs 24 and 25 stated:

We accept that the change in the language of r 60(1)(a) after Ariadne means that an individualised approach must be adopted, so that an order could be made against a qualifying plaintiff in a multi-plaintiff action, but not against non-qualifying plaintiffs. That is, r 60 no longer requires an “all or nothing” approach, as the language of the former r 60(1) (a) did. This is subject, however, to another point made by this Court in Ariadne at p 333:

“Where, as here, two parties are suing in the same interest with the same solicitors and counsel there will ordinarily be only one set of costs. In those circumstances if one of the two can pay the costs no security will be needed; otherwise security from the one who can best provide it will meet the case. See eg Slazengers Ltd v Seaspeed Ferries International Ltd [1987]

2 All ER 967; Harpur v Ariadne Australia Ltd (1984) 8 ACLR 835. We would not, however, interfere with the order already made against Napoli.”

This  approach  reflects  R  50,  which  provides  that,  in  the  absence  of  a contrary direction by the court, the liability of each of two or more parties ordered to pay costs is joint and several.

[13]     However, as I have reason to believe that both defendants will be unable to pay  a  costs  order  made  against  them,  I  need  not  consider  whether  in  the circumstances  in  this  case  I  should  dispense  with  security  because  one  of  the plaintiffs is capable of meeting the costs order.

[14]   When obtaining the Mareva injunction, Mr Woodley gave his personal undertaking as to damages. He claims to have assets of $400,000. The court accepted his undertaking as to damages. I therefore conclude that as he has given an undertaking as to damages Mr Woodley should also give an undertaking as to any costs that might be ordered in favour of the defendants against the plaintiffs or either of them.

[15]     Mr  Williams  estimated  that  the  amount  of  security  required  would  be

$30,000. Mr Grove clearly did not consider such amount to be excessive.

[16]     In the circumstances, I direct that the plaintiffs shall provide security for costs in the following way; either –

a)       Mr Woodley is to enter into an undertaking to pay any costs ordered in favour of the defendants against the plaintiffs; or

b)If  such  undertaking  is  not  entered  into  within  one  month  the proceedings shall be stayed until such time as the plaintiffs pay the sum of $30,000 into court as security for costs.

[17]     As the defendant’s application for security for costs has been successful the defendants will be entitled to costs on this application assessed on a schedule 2B

basis.

Associate Judge Robinson