Eckhoff v Orbell

[2023] NZHC 1068

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2020-409-133

[2023] NZHC 1068

BETWEEN

PHILIPPA JANE ECKHOFF

Plaintiff

AND

RUTH ALICE ORBELL

First Defendant

AND

NICOLA ALICE HYSLOP

Second Defendant

AND

WILLIAM HAMISH ORBELL

Third Defendant

AND

RUTH ALICE ORBELL and WILLIAM

HAMISH ORBELL as trustees of the Hamish Orbell Family Trust

Fourth Defendants

Continued page 2 …

Hearing:

14 March 2023

Appearances:

D R Tobin and R M Reeve for Plaintiff

M J Wallace for Second, Fifth and Seventh Defendants S J Jamieson for Third and Fourth Defendants

D M Jackson for Sixth Defendant

Judgment:

5 May 2023

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 5 May 2023 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

ECKHOFF v ORBELL [2023] NZHC 1068 [5 May 2023]

ANDNICOLA ALICE HYSLOP, JONATHAN ANGUS HYSLOP and QA TRUSTEES

2012 LIMITED as trustees of the Hyslop Family Trust

Fifth Defendants

AND  JOHN DUNCAN MCFARLANE

Sixth Defendant

AND  JONATHAN ANGUS HYSLOP

Seventh Defendant

[1]        This judgment is concerned with an application by all defendants apart from the first defendant that the plaintiff provide security for costs under r 5.45 of the High Court Rules 2016 (the Rules).

[2]        An application by the plaintiff under r 10.15 of the Rules for separate questions to be determined before trial was withdrawn during the hearing, and the case has been set down for trial over 20 days in early 2025.

[3]        The primary issues that arise to be determined on the application for security for costs are:

(a)whether the threshold requirement in r 5.45(1)(b), that there is reason to believe the plaintiff will be unable to pay the costs of the proceeding if she is unsuccessful, has been met; and

(b)whether, in the exercise of the court’s discretion, the plaintiff should be required to provide security for costs.

Background

[4]        It is not necessary to unduly lengthen this judgment with a detailed recitation of the facts, but some context is required. This is a dispute principally between family members relating to the administration of the estate of William Andrew Orbell (the Estate) and a trust that was established during the deceased’s lifetime called the W A Orbell Family Trust (the Trust). I understand the deceased went by the name Andrew and I refer to him as such.

[5]        The first defendant, Ruth Orbell, is Andrew’s widow. The plaintiff (Philippa), the second defendant (Nicola) and the third defendant (Hamish) are the children of Ruth and Andrew. The seventh defendant is Nicola’s husband. The sixth defendant is a retired chartered accountant, but previously acted as an advisor to the Orbell family.

[6]        At the time of Andrew’s death the major assets of the Orbell family were shares in farming companies called Clayton Station Ltd (Clayton) and Levels Estate Co Ltd (Levels).   Philippa says transactions that were entered into involving these assets

deprived her of her true entitlement under Andrew’s will and as a discretionary beneficiary of the Trust. At a very high level, the relevant transactions are the sale of Levels to Nicola and the sale of shares in Clayton to Hamish.

[7]        The latest statement of claim pleads causes of action for breach of trust against trustees (including what are said to be de facto trustees), causes of action against trustees other than for breach of trust, and causes of action against non-trustee defendants on the basis that they knowingly assisted or benefited from breaches of trust.

[8]        On 8 July 2022,  counsel  for  the  second,  fifth  and  seventh  defendants,  Mr Wallace, wrote to Philippa’s counsel, Mr Tobin, in respect to security for costs. Mr Wallace provided a calculation of the likely costs that would be payable by Philippa if she is unsuccessful at trial on the basis of her counsel’s estimate that the trial would be 20 days. He said, if unsuccessful against all four defendant groups Philippa’s adverse costs award would be in the region of $600,000 plus expert witnesses’ costs of $115,000, giving a total adverse costs award in the region of $715,000. Mr Wallace noted that Philippa also faced the prospect of paying her own legal fees and expenses of at least $340,000 and that this would mean her costs liability following trial would be in the region of $1.05 million.

[9]        Mr Wallace also advised the defendants were not aware Philippa owned any significant assets and her home at Hart Street, Dunedin appeared to be registered in a family trust. There was therefore an inference to be drawn, he said, that Philippa was not good for an adverse costs award and the threshold for making an order for security for costs under r 5.45(1)(b) was met.

[10]      Mr Wallace asked that if Philippa did have assets from which costs could be paid she should provide details of them, but that in the absence of any tangible proof of her ability to pay costs from her own resources, he would be taking instructions on filing an application for security for costs.

[11]Mr Tobin responded on 9 September 2022 with assertions that:

(a)there was precedent for the proposition that a beneficiary seeking relief against a trustee’s wrongdoing would not be ordered to pay security for costs in any situation;

(b)there was further precedent for the proposition that the court would not likely prevent a meritorious claim from being pursued; and

(c)his “clients” were in a good financial position and owned substantial assets.

[12]      Subsequently the application for security for costs was made. In response Philippa filed evidence that the Hart Street property, which had been previously owned by a family trust, was now owned by her and her husband as joint tenants and worth in the region of $1.3 to $1.45 million. She asserted that both her and her husband were in fulltime employment and had no debts.

[13]      In a more recent affidavit, Philippa deposed the Hart Street property was sold for $1.35 million and that a property was purchased at Braeview Crescent, Dunedin for $935,000. This property is owned by Philippa and her husband as joint tenants and is mortgage free. Philippa has not said what happened to the difference in value between the properties sold and purchased.

[14]      Although Philippa and her husband are in fulltime employment, there are no details provided of their salaries or expenses.

The law

[15]Rule 5.45 of the Rules relevantly provides:

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.

[16]      Whether or not to order security, and if so the quantum of such security, are discretionary matters. The discretion is not to be fettered by constructing principles from the facts of previous cases.1 The questions the court will usually consider in determining an application for security for costs are these:2

(a)Has the applicant satisfied the Court of a threshold requirement 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?

[17]      Where the party seeking security asserts there is reason to believe a plaintiff will be unable to pay costs if unsuccessful, there must be credible evidence of surrounding circumstances from which that may be inferred. That does not amount to proof that the plaintiff will in fact be unable to pay costs.3 The meaning of the word “satisfied” in r 5.45(1) does not imply any onus or standard of proof, but indicates the Court has come to a decision on the evidence before it.4 Even if there is no direct evidence of a plaintiff’s inability to pay costs, it may be sufficient if there is evidence

1      A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13].

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

3      Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd (No 2) [1977] 1 NZLR 516 (SC) at 519.

4      Wishart v Murray [2016] NZHC 3132 at [7].

of surrounding circumstances from which an inference of an inability to pay can reasonably be drawn.5

[18]      In terms of the exercise of discretion, balancing the interests of the plaintiff and defendant is the overriding consideration. As summarised in A S McLachlan Ltd v MEL Network Ltd:6

[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.

[19]      Finally, I note applications for security for costs should not be allowed to be a tactical weapon which can be abused by a defendant.7 The issue in each case should be whether there is good reason to fear that a costs order might not be satisfied.8

The threshold question

[20]      The defendants rely on r 5.45(1)(b) and argue there is reason to believe that Philippa will be unable to pay the costs of the defendants if she is unsuccessful in this proceeding.

[21]      Mr Tobin submits that Philippa is actively supported by her husband and has provided “both assurances and evidence” of assets which ought reasonably to have convinced the defendants of her ability to pay a substantial costs award. It is also submitted that Philippa is not obliged to provide further evidence of her financial means and, given the nature of the relationship between the parties, that information is regarded as private and confidential and not up for scrutiny by family members.

5      Totara Investments Ltd v Abooth Ltd HC Auckland CIV-2007-404-990, 4 March 2009 at [28].

6      A S McLachlan Ltd v MEL Network Ltd, above n 1.

7      Stills v McCormack [2023] NZHC 702 at [33].

8      Lunn v Fourth Estate Holdings Ltd (1997) 11 PRNZ 316 (HC) at 318.

[22]      I agree with Mr Wallace that this is not a case where the defendants are asking the Court to draw an inference Philippa is not good for a costs award from her failure to provide evidence of her financial circumstances; rather Philippa has given evidence of her financial circumstances and it is to be inferred that the information is complete and that nothing material has been omitted.9

[23]      It appears from the evidence that the only asset of significant value owned by Philippa is an undivided one-half share in the family home. It is reasonable to assume the property is worth $935,000 given it was recently purchased for that amount.10 In addition, Philippa is employed but there are no details of her salary or expenses. While Mr Tobin submits Philippa is actively supported by her husband, he did not go so far as to suggest that her husband will accept responsibility for any costs award made in the defendants’ favour or allow his interest in the family home to be provided as security for payment of such costs.

[24]      As I noted earlier, Philippa’s evidence does not deal with what has become of the money representing the difference between the sale price of the Hart Street property and the purchase of the Braeview Crescent property, which is $415,000. In a case where Philippa has chosen to give evidence of her financial position but does not mention having any savings or other money as an asset, no inference can be drawn that there are funds available to pay costs.

[25]      An issue then arises as to the value of Philippa’s interest in the Braeview Crescent property. The easiest approach would be to assume that is one half of the property’s market value; that is $467,500. Such an approach is overly simplistic and does not take into account the very real costs and obvious difficulties that would be involved if the defendants are required to recover payment of any costs award made against Philippa from a sale of her half interest in the property.

[26]      In his letter to Mr Tobin, Mr Wallace provided calculations of scale costs awards that might be made against Philippa in the proceeding on various scenarios.

9      Triastra Ltd v Proprietors of Taharoa “C” Block [2017] NZHC 1229 at [40].

10     In light of recent developments in the real estate market that assumption may well be in Philippa’s favour.

As noted, he concluded that she might face adverse costs awards in the region of

$600,000 plus expert witnesses’ costs of a further $115,000. There was no challenge to that assessment in Mr Tobin’s reply letter or at the hearing of this application.

[27]      I have reviewed Mr Wallace’s calculations, and, assuming the position most beneficial to Philippa that costs would be awarded on a 2B basis and with no allowance for second counsel, the adverse costs awards (including reasonable experts fees) will exceed by a significant sum one-half of the value of the family home whether that is taken as $467,500 or some lesser figure having regard to the matters in [25] above.

[28]      Another factor that needs to be taken into account is that Philippa will also have her own costs in pursuing this litigation, which will be substantial. In his letter of 8 July 2022, Mr Wallace suggested that Philippa’s further legal costs to take the case to trial would conservatively be in the region of $250,000 along with experts’ fees of $57,500 and substantial hearing fees. There was no challenge to those figures. It  is plausible that costs of such magnitude may be incurred. Regardless, the plaintiff will incur substantial legal fees. In any real-world assessment of her ability to pay an adverse costs award this must also be considered.

[29]      I am therefore satisfied there is reason to believe Philippa will not be able to meet a costs award of the magnitude reasonably expected if she was unsuccessful in this proceeding.

How should the Court exercise its discretion?

[30]      Philippa argues that if the threshold in r 5.45(1)(b) is met the Court should not order that security for costs be provided. The submissions were focused on the following three matters, namely:

(a)the defendants’ application is made for tactical reasons;

(b)the making of an order that Philippa provide security for costs might operate to stifle her claim; and

(c)Philippa’s claim is meritorious.

[31]I will deal with each of these matters.

A tactical application

[32]      Mr Tobin submits the application for security has been made as part of a strategy to make the litigation as difficult, protracted and expensive as possible. I do not see anything in the circumstances of this case to support such a submission. The evidence is that there have been several attempts by all parties involved to settle Philippa’s complaints including a mediation in 2014 which apparently almost resulted in a settlement.

[33]      Further, I consider that a good deal of the expense of this proceeding has and will continue to be incurred because of the manner in which it has been pursued. Philippa’s pleading was the subject of critical comment in an earlier judgment11 and although it has since been amended, the present pleading is still unfocused and plainly prepared with an eye to covering every possible basis of claim. Such an approach is not conducive to speedy and inexpensive litigation. As an example, the claim against the sixth defendant, based primarily on an allegation that he was a de facto trustee, is not strong in my view, and I do not see what benefit Philippa will ultimately achieve from joining him as a party. It is, of course, a matter for Philippa to determine how to run her case. For present purposes, it is enough that I do not consider there is anything in the criticism made of the defendants.

Will requiring security for costs stifle Philippa’s claim?

[34]      Whether there is any risk the ordering of security may stifle the claim will depend on the quantum and form of the security required. Cognisant of this, the defendants argue that security can be provided by way of mortgage over Philippa’s interest in the Braeview Crescent property. The property is unencumbered and Philippa has not raised any matters which would prevent a mortgage being given over her interest to secure payment of costs.

11     Eckhoff v Orbell [2021] NZHC 757 at [18]–[33].

[35]      Mr Tobin submits that, in the event the Court considers that security is required, Philippa should be given time to make submissions on the form of the security that will be provided. I find that a curious submission given there is no evidence that she has other assets that may be available to provide security and the absence also of any apparent impediment to the giving of a mortgage.

[36]      In any event, on the basis of Philippa’s evidence and the defendants’ acceptance that it will be sufficient if security is provided by way of a mortgage over her interest in the Braeview Crescent property, I do not accept the submission that Philippa’s claim might be stifled if security is ordered.

The merits

[37]      A great deal of time was spent by counsel arguing the merits of Philippa’s claim and the defences that are raised to them. The defendants rely on a number of affirmative defences, including that the claims are time barred under the Limitation Act 1950 and that the transactions Philippa complains about were part of a family arrangement with which she acquiesced.

[38]      The authors of McGechan on Procedure suggest that the Court considering an application for security for costs should, as far as possible, endeavour to assess the merits and prospects of success of the claims.12 It has also been noted that in a complex matter an assessment will be no more than an impression and cannot be a definite indicator of the ultimate outcome.13

[39]      I do not intend any disrespect when I do not set out counsels’ careful submissions in relation to the merits of the parties’ respective positions. It is simply the case that, except in respect of one party, I do not feel able, on what is before me, to come to any firm view as to the ultimate outcome of the litigation. It appears to me Philippa’s claims are arguable and the defendants do not attempt to convince me otherwise.

12     R A Osborne and others McGechan on Procedure (looseleaf ed, Thomson Reuters) at [HR5.45.03(2)].

13     A S McLachlan Ltd v MEL Network Ltd, above n 1, at [21].

[40]      The major risk to Philippa are the affirmative defences to which I have referred, that her claims are time barred and that she acquiesced in the transactions about which she now complains. However, as I understood counsel to recognise, the success or failure of those defences will depend upon the resolution of both factual and legal issues about which the parties hold strongly divergent views, and which realistically I am unable to confidently determine on this application. My impression is that this is a case where there is substantial litigation risk for all of the family member parties.

[41]      I do not consider the same can be said to be the case in respect of the sixth defendant. Despite Mr Tobin’s submissions to the contrary, the argument against him that he was a de facto trustee at relevant times does not appear strong and fails to pay proper regard to the reality that he was a long-time advisor to the Orbell family. On the evidence presently before me, I consider there is force in Mr Jackson’s submissions that the sixth defendant did not intermeddle or assume obligations in the affairs of the Estate or the Trust such that he could be considered a de facto trustee. Further, the additional allegation that the sixth defendant has a liability because during a period when he was a trustee he failed to remedy “the Plaintiff’s plight” resulting from alleged breaches of trust that occurred years earlier appears legally unsound.

What amount should security be fixed at?

[42]      As noted earlier, this proceeding has been set down for a 20-day trial commencing in early 2025. Based on Mr Wallace’s calculations and the fact there are four defendant groups, I consider that on a conservative basis if the plaintiff was unsuccessful, she would face an adverse costs award in the region of $480,000 plus

$100,000 in respect of expert witnesses’ fees.

[43]      However, in assessing the amount for which security should be fixed I must take into account that the first defendant has not joined in the application and is not seeking security for costs. Also, the case law has held that determining the amount of security is not a mathematical exercise but an assessment in the round and not necessarily linked to likely costs awards. Further, in so far as likely costs awards are

considered a relevant factor, the security ordered may represent a discount on likely scale costs.14

[44]      Apart from the likely scale costs that may be awarded to the defendants who are seeking security, there are other factors that are relevant to my consideration of this issue. While I do not dismiss the prospect that Philippa may be successful in her claim, I do not consider she has pursued the litigation in an economical fashion to date and, having regard to the present state of the pleadings and the now abandoned application to have separate question determined before trial, there is no suggestion of a change of approach. However, while the four defendant groups have different interests and are appropriately separately represented, I expect there is an opportunity for some degree of cooperation between them that would reduce costs and perhaps shorten the trial.

[45]      Looking at the matter in the round, I consider that security should be provided for the defendants who have applied in the amount of $250,000 plus $50,000 for experts’ fees.

Manner of giving security

[46]      Although it was suggested that it might be appropriate to make an individual order for security in respect of the sixth defendant, I consider that the making of a global order is the most appropriate approach in circumstances where security is likely to be provided by way of mortgage.

[47]      On the evidence, there is nothing to prevent Philippa providing security by way of a first registered mortgage over her interest in the Braeview Crescent property. However, in light of Mr Tobin’s request that Philippa be given time to consider how security should be provided, I will direct under r 5.45(3)(a)(ii) that Philippa is to provide within 28 days security for costs to the satisfaction of the Registrar in respect of the second to seventh defendants in the global sum of $300,000. That security may

14     Osborne and others, above n 12, at [HR5.45.07].

be provided by the provision of a registrable first mortgage over the Braeview Crescent property, but it need not be.15

Should a stay be ordered?

[48]      I do not propose to order a stay at this time, but I will reserve leave for the defendants to apply for a stay, or such other orders as they consider appropriate, in the event Philippa fails to provide security as ordered.

Result

[49]      Philippa’s application for determination of separate questions before trial is dismissed.

[50]      The application by the second to seventh defendants that Philippa provide security for costs is successful. Philippa shall provide security for the costs of the second to seventh defendants to the satisfaction of the Registrar in the amount of

$300,000 within 28 days (or such further time as Court may on application allow).

[51]      I reserve leave for the second to seventh defendants to apply for a stay of the proceeding, or such other orders they may consider appropriate, in the event Philippa fails to provide security for costs as ordered.

[52]      I can see no reason why the defendants would not be entitled to costs on both applications on a 2B basis, but if there is any dispute about that counsel may file memoranda within 28 days, which shall be no longer than six pages.

[53]      As the case has now been set down for trial, pre-trial directions should be made. I direct the Registrar to set the case down for a telephone case management conference no sooner than five weeks from the date of this judgment. Counsel shall confer and submit memoranda at least three working days prior to the telephone conference with a full suite of proposed directions.

15     Lee v Lee [2019] NZCA 345 at [78].

[54]      Finally, I note that although the parties have previously attended mediation, I would be prepared to consider setting the case down for a judicial settlement conference or an issues conference if counsel considered that would be useful.

O G Paulsen Associate Judge

Solicitors:

Wilkinson Rodgers Lawyers, Dunedin Gresson Dorman & Co, Timaru

Tavendale and Partners, Christchurch Berry & Co, Oamaru