Dhingra v Gupta
[2020] NZHC 3081
•20 November 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-352
[2020] NZHC 3081
UNDER the Contract and Commercial Law Act 2017 and Fair Trading Act 1986 IN THE MATTER
of misrepresentation, breach of contract and breach of the Fair Trading Act 1986
BETWEEN
RAJIV DHINGRA
Plaintiff
AND
GAGAN DEEP GUPTA
First Defendant
SIMMI GUPTA
Second Defendant
Hearing: 21 October 2020 Appearances:
C McLean and D Torii-Lee for the Plaintiff PM Webb for the Defendant
Judgment:
20 November 2020
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 20 November 2020 at 4pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
McLean Law, Auckland. Denham Bramwell, Auckland
Dhingra v Gupta [2020] NZHC 3081 [20 November 2020]
Introduction
[1] The defendants apply for an order for security for costs. The application has been made rather late in the proceedings in response to affidavit evidence filed by the plaintiff in support of applications firstly to appear at the trial by audio visual link (“AVL”) and then to adjourn the trial. The evidence indicated that the plaintiff was no longer in New Zealand and a property in Whangarei had recently been sold.
[2] The issues are whether a security for costs order should now be made and, if so, for how much and when.
Background
[3] The proceeding arises from a dispute over the purchase of shares in a company, now named RD International Ventures Limited1 (the Company).
[4] The plaintiff, Mr Dhingra, sues the defendants, Mr and Mrs Gupta, alleging misrepresentation, breach of contract and misleading conduct under the Fair Trading Act 1986.
[5] The plaintiff seeks judgment for $928,416.55, with further unquantified costs and expenses claimed.
[6]The defendants deny all claims.
[7] The trial was scheduled to commence on 17 August 2020 but was adjourned on 24 July 2020 on the basis that the plaintiff’s preparation for trial had been disrupted by his and his family’s evidenced medical conditions.
Application for security
[8] On 21 July 2020, the defendants filed this application for security for costs. The defendants seek the following orders:
1 The Company was originally called Aggarwal Interiors Ltd, then Bath & Tile NZ Ltd.
(a)security in the sum of $60,000 based on a Category 2B2 calculation of costs of $62,140;
(b)the security is paid in three tranches with:
(i)one-third payable on the allocation of a new trial date;
(ii)second-third payable at the close of pleadings date; and
(iii)final third payable three weeks prior to commencement of the trial; and
(c)the proceeding is stayed until security is provided.
[9]The plaintiff opposes security on the following grounds:
(a)the plaintiff’s claim has good prospects of success;
(b)the defendants’ actions have contributed to the plaintiff’s weakened financial position;
(c)an award of security for costs would cause undue prejudice to the plaintiff if granted and impede the plaintiff’s access to justice; and
(d)the defendants’ actions have contributed to the plaintiff’s inability to obtain residency in New Zealand.
[10] The plaintiff further submits that if security for costs is to be ordered, it should be ordered for a smaller sum than that proposed by the defendants, stating that there is double counting in the defendants’ calculation of 2B costs. On the plaintiff’s calculation, 2B costs would only amount to $39,486.
2 High Court Rules 2016, Category 2 under r 14.3(1) and Band B under r 14.5(2).
The Relevant Rule
[11] Rule 5.45 of the High Court Rules provides jurisdiction for an order for security for costs.
[12] The principles to apply on such an application are well settled. The general approach was summarised in Busch v Zion Wildlife Gardens Ltd (in rec and in liq):3
(a)Has the applicant satisfied the court of the threshold under r 5.45(1)?
(b)How should the court exercise its discretion under r 5.45(2)?
(c)What amount should security for costs be fixed at?
(d)Should a stay be ordered?
Threshold – r 5.45(1)
[13]The threshold in r 5.45(1) will be met if either:
(a)the plaintiff is resident out of New Zealand; or
(b)there is reason to believe that the plaintiff will be unable to pay costs if unsuccessful.
[14] Counsel for the plaintiff accepted at the hearing that the plaintiff is resident out of New Zealand and so there is no dispute that the threshold in r 5.45(1) is met. There is no need to go further to consider whether there is also reason to believe that the plaintiff will be unable to pay costs if unsuccessful. The financial position of the defendant is relevant, however, to the exercise of the discretion discussed below.
Exercise of discretion
[15] Rule 5.45(2) provides that once I am satisfied that the threshold is met, I may order the giving of security if I think it is “just in all the circumstances”.
3 Busch v Zion Wildlife Gardens Ltd (in rec and in liq) [2012] NZHC 17 at [2].
[16] In A S McLachlan Ltd v MEL Network Ltd, the Court of Appeal held that the discretion in r 5.45(2) is not to be “fettered by constructing ‘principles’ from the facts of previous cases”.4 In its recent decision in Lee v Lee, the Court of Appeal described the discretion as follows:5
[20] The discretion is a broad one. It may be exercised to require security even if that may prevent a plaintiff from pursuing a claim. But access to the Court for a genuine plaintiff is not lightly to be denied. In A S McLachlan Ltd v MEL Network Ltd this Court summarised the position:
“[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.”
[17] Similarly, in Reekie v Attorney-General6 the Supreme Court said that applications for security in first instance proceedings call for careful consideration and judges are slow to make an order for security which will stifle a claim.
[18] While the above cases involved impecunious plaintiffs, the approach to plaintiffs resident out of New Zealand is similar. In Aquaculture Corporation v McFarlane Laboratories (1984) Ltd, McGechan J stated:7
In both cases a mechanism is provided to protect defendants faced with difficulties in recovering an award of costs.
[19] Meeting the threshold, either by being resident out of New Zealand or impecunious, effectively opens the door for an order for security for costs. But it is not enough on its own. As Kós J held in Highgate on Broadway Ltd v Devine, impecuniosity (or, in this case, being out of the jurisdiction) does not require the making of such an order.8 The plaintiff’s right to access to justice must be balanced
4 A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13].
5 Lee v Lee [2019] NZCA 345 (footnote omitted).
6 Reekie v Attorney-General [2014] NZSC 63, [2014] 1 NZLR 737 at [3].
7 Aquaculture Corporation v McFarlane Laboratories (1984) Ltd (1987) 1 PRNZ 467 (HC) at 470.
8 Highgate on Broadway Limited v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [20]-[21].
against a defendant’s right to be protected for costs in order to determine whether such an order should be made.
Relevant factors
[20] The four factors relevant to the exercise of the discretion relied on by the parties are:
(a)the merits of the case;
(b)whether the defendants’ actions have contributed to the plaintiff’s weakened financial position;
(c)whether the defendants’ actions have contributed to the plaintiff’s inability to obtain a visa; and
(d)whether an order for security would unfairly prevent the plaintiff’s access to justice.
I discuss each in turn below.
Merits
[22] The merits of the case were the main factor focused on by the parties in their submissions. The defendants submitted the lack of merits supported the imposition of a security for costs order, whereas the plaintiff submitted it had very good prospects of success and therefore an order should not be made.
[23] In Lee v Lee, the Court of Appeal considered the merits of the case in some detail because the basis of the appeal was that the Judge at first instance had not considered the merits at all. The Court cautioned against doing so usually, saying:9
Normally the court will only endeavour to assess the merits and prospects of success of the claim by way of overview. But given the extent of Mr Lee’s submissions we have sought to address the issue in more detail. We do
9 Lee v Lee, above n 5, at [73] (footnote omitted).
emphasise, however, that an application for security for costs should not generally become an opportunity to explore the merits in any depth.
[24] In McLachlan, the Court of Appeal described the depth of the consideration of the merits necessary for an application for security as being to form an impression rather than give a definite indication of the ultimate outcome after trial.10
[25] As noted, this application was brought less than a month before the original hearing date of 17 August 2020. Following the filing of this application, an application was filed by the plaintiff to adjourn the trial. The plaintiff gave evidence of the very difficult year he had endured.11 The application to adjourn the trial was granted as a result of the disruption to trial preparation caused.
[26] The adjournment was ordered less than a month before the scheduled hearing date of 17 August 2020, at a time when briefs of evidence had been served by the parties. Copies of those briefs of evidence have been provided to the Court.
[27] An assessment of the merits for the purposes of a security for costs application is usually undertaken at a much earlier stage based on the pleadings and affidavit evidence filed in support of the application. In this case, counsel for the defendants relied in their submissions on the briefs of evidence served which have not yet been presented in Court and which are not sworn. Bearing in mind the Court of Appeal’s cautions in Lee and McLachlan 12 against undertaking an in-depth assessment of the merits in determining an application for security, I have stopped short of fully considering the briefs of evidence, relying primarily on the pleadings and affidavit evidence filed and the submissions of counsel to reach an impression of the merits sufficient for the exercise of the Court’s discretion.
10 A S McLachlan Ltd v MEL Network Ltd, above n 4, at [21].
11 Namely, that his wife had suffered a stroke shortly before lockdown and had returned to India, the plaintiff’s isolation during lockdown in New Zealand as a result and the effect that had on his existing mental health condition, and his later return to India to support his wife and family.
12 Lee v Lee, above n 5; A S McLachlan Ltd v MEL Network Ltd, above n 4.
[28] Counsel for the plaintiff describes the plaintiff’s claim as covering various losses but primarily relating to losses suffered when the plaintiff purchased shares in the Company after relying on inaccurate and misleading accounts provided by the defendants.
[29] The plaintiff alleges that the defendants filed accounts with the Inland Revenue Department (“IRD”) in March 2018 which were significantly different to the management accounts provided to the plaintiff prior to the purchase. The accounts filed with the IRD recorded significant losses for the relevant periods, whereas the management accounts had shown the Company operating at a profit. Mr Dhingra alleges he only became aware of the accounts filed with the IRD in June 2018. The plaintiff says the lack of profitability of the Company resulted in the plaintiff’s visa applications being declined which then required him to on-sell the business at a loss.
[30] In response, the defendants say the plaintiff was aware of the change made to the accounts as it resulted from a revaluation of stock following an independent valuation that was provided for in the original sale and purchase agreement. An adjustment to the accounts was necessary to reflect the change in stock value. As a result of the change in the stock value, the plaintiff’s initial purchase of shares was increased from a 50 per cent parcel to 65 per cent, again, the defendants say, in accordance with the original agreement.
[31] The defendants say that draft versions of the accounts filed with the IRD, showing the amended stock value, were provided to the plaintiff from late November 2017 to early January 2018. Counsel for the plaintiff does not dispute this but says the plaintiff did not turn his mind to the figures in the draft accounts.
[32] The defendants further say that the plaintiff purchased the remaining 35 per cent of the shares after he became aware of the adjustment to the stock value and so cannot now claim for losses allegedly suffered as a result of that change.
[33] The plaintiff annexed to his affidavit correspondence from Immigration New Zealand dated 19 April 2018 declining his visa. This correspondence does not support his argument that the lack of profitability of the company was the reason his visa
application was declined. Further, on this aspect of the claim, the plaintiff says the accounts filed with the IRD were provided to Immigration New Zealand by IRD, but there is no evidence that this had occurred.
[34] For present purposes the material before the Court suggests that there may be considerable factual and causation difficulties with the plaintiff’s claim. My impression is that the plaintiff’s primary claim is not strong.
[35] The remaining aspects of the plaintiff’s claim relate to allegations that listed chattels were not delivered to the plaintiff on settlement, and certification issues with some stock meant it could not be sold. There are further specific claims relating to the Fuji Xerox lease, faulty products and missing deposits but these claims amount in aggregate to less than $50,000. These remaining claims appear finely balanced at best.
Defendants’ actions – financial position
[36] The second factor relied on by the plaintiff in opposition is that the defendants’ actions have contributed to the plaintiff’s weakened financial position.
[37] This factor is connected to the question of the merits of the plaintiff’s claim. As Kós J held in Highgate:13
…Where it is reasonably probable that the defendant’s actions the subject of a cause of action caused the plaintiff’s impecuniosity, that is a strong consideration against awarding security. The Court will already have formed a view as to whether a cause of action has potential merit. The question then is whether it is reasonably probable that it caused the plaintiff’s financial embarrassment. A question of linkage rather than any further examination of the merits.
[38] In this case, the plaintiff says the misrepresented figures in the management accounts meant the shares purchased were not worth what was paid for them. He says the Company’s lack of profitability meant his visa applications were declined and further expense was incurred in trying to resolve those issues. But, as set out above when discussing the merits, it is not clear that the visa issues did arise as a result of
13 Highgate on Broadway Limited v Devine, above n 8, at [23(a)] (footnotes omitted).
the changes to the accounts and the defendants say the plaintiff was aware of the changes made to the accounts in any event.
[39] Mr Dhingra’s overall financial position is also not clear from the evidence before the Court. He has deposed he has shares in Regal Residency Limited, a New Zealand company with leasehold interests in a property from which it runs a motel. Other than the leasehold motel interests, Mr Dhingra says he has a small amount of money in New Zealand bank accounts but he accepts this would not be sufficient to meet any costs award on its own.
[40] No evidence was provided, however, of assets that he may own in India, other than to say that if the proceeds of the sale of the shares he held in Regal Residency were not enough to pay any costs award, he had limited funds in his New Zealand and Indian bank accounts to cover any outstanding amount.
Defendants’ actions – visa
[41] The third factor relied on by the plaintiff in opposition is that the defendants’ actions have caused Mr Dhingra’s visa issues. As already discussed above, there appear to be difficulties with this argument as the inability to obtain a visa appears to arise as a result of a number of factors, with the current profitability of the business not referred to. I note that the business plan provided to Immigration New Zealand specifically recorded that the stock was to be independently valued.
Access to justice
[42] The final factor raised by the plaintiff in opposition is that of access to justice. The plaintiff, however, does not go so far as to say that an order for security would prevent him pursuing his claim. Instead, he says that it would put him in a tight financial situation and that he may need to sell his shares or interest in Regal Residency or make other financial arrangements. Whilst it may be difficult for him, the evidence does not support the plaintiff’s contention that an order would prevent him access to justice.
Delay
[43] The last factor to be considered is the delay in bringing the application. As noted, this application for security was brought much later in the proceeding than is usual. Mr Gupta’s affidavit in support of the late application says that when the proceedings were first brought the request for security was firmly rejected on the basis that:
(a)the plaintiff was resident in New Zealand (with working visa information provided); and
(b)the plaintiff was the sole director and shareholder of RD International Limited which held an unencumbered interest in land in Whangarei and that he had advanced significant funds to the Company.
[44] One month before the trial was scheduled to commence on 17 August 2020, the plaintiff filed an application to appear remotely as he had returned to India.
[45] The plaintiff did not rely on the delay in opposing the application for security and nor did counsel for the plaintiff argue that the security ordered should only be in respect of future steps, rather than steps that had already been undertaken. In my judgment, in the circumstances, the delay is not a factor that should prevent an order for security. It is relevant, however, to the quantum to be fixed as discussed below.
Final balancing
[46] The final question to consider is “how should the respective interests of the parties best be balanced?”.14 This was described in Highgate as the “overriding and most important consideration of all”.15
[47] Weighing all of the above matters, on balance I am satisfied that an order for security for costs is appropriate in this case.
14 Highgate on Broadway Limited v Devine, above n 8, at [24(c)].
15 At [24(c)].
Quantum
[48] The parties agree that the likely costs award should be calculated on a Category 2B basis and that four days would be appropriate for the hearing. Mr McLean submitted that the defendants’ calculation involved double counting, including steps 30 and 32 from Schedule 3, which related to hearings on affidavit evidence, as well as step 33, which related to a witness hearing, and proposed that any costs award would be more likely to be in the order of approximately $40,000.
[49] I agree that items 30 to 32 will not be relevant to any costs award but the defendants’ calculation does not include all relevant steps for a witness hearing. Items 33, 33A and 33B each need to be included in the calculation. If included, the likely costs award would be closer to $50,000, including disbursements.
[50] Rule 5.45(3) directs me to order a sum that I consider sufficient. In my view, security of $37,500 would be appropriate, representing approximately 75 per cent of a likely costs award, an appropriate discount given the timing of the application and the circumstances of the plaintiff.
[51] The defendants accepted a staged approach should be ordered, agreeing with the plaintiff that three stages would be appropriate. Security is therefore ordered to be provided in three tranches, each of $12,500.
[52] As a new date for trial has not yet been allocated, counsel for the defendants did not oppose the plaintiff’s request for a grace period before the first tranche is required to be paid, to allow for necessary financial arrangements to be made.
Orders
[53]I make the following orders:
(a)the plaintiff is to pay into Court within 30 working days of this judgment the first tranche of security for costs of $12,500;
(b)following payment of the first tranche, a new four-day fixture will be allocated;
(c)if the first tranche is not paid within 30 working days, the defendants may apply to strike out the proceeding;
(d)the plaintiff is to pay the second tranche of $12,500 into Court at least
three months prior to the commencement of the new fixture;
(e)the plaintiff is to pay the third and final tranche of $12,500 into Court
15 working days prior to the commencement of the new fixture;
(f)if the plaintiff fails to pay the second and third tranches of security as ordered (as set out in subparagraphs (d) and (e) above), the proceeding will be stayed with immediate effect, with leave reserved to apply to strike out the proceeding (or vary this order if a stay is no longer appropriate).
Costs
[54] Costs would normally be fixed on an interlocutory application. However, the successful defendants submitted that costs should be reserved and determined with costs in the substantive proceeding. Costs on the application are, therefore, reserved.
Associate Judge Sussock
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