Een v Body Corporate 383911
[2022] NZHC 852
•29 April 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-1873
[2022] NZHC 852
UNDER the Unit Titles Act 2020, section 210 IN THE MATTER OF
an originating application by a minority for relief against resolutions of the majority
BETWEEN
WONG SUN EEN and Others Plaintiffs
AND
BODY CORPORATE 383911
First Defendant
PANDEY VIADUCT QUAYS LIMITED
Second DefendantPANDEY VIADUCT SUITES LIMITED
Third DefendantPANDEY VIADUCT SUITES 2 LIMITED
Fourth DefendantPANDEY VIADUCT SUITES 3 LIMITED
Fifth DefendantCUSTOM STREET HOTEL LIMITED
Sixth DefendantAAPC PROPERTIES PTY LIMITED
Seventh Defendant
Hearing: 28 March 2022 Appearances:
Phillip Rice for the Plaintiffs
Wallace Revell for the Second to Sixth Defendants
The First and Seventh Defendants were not represented.
Judgment:
29 April 2022
WONG SUN EEN and Others v BODY CORPORATE 383911 [2022] NZHC 852 [29 April 2022]
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
This judgment was delivered by me on 29 April 2022 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
………………………….
Registrar/Deputy Registrar
Introduction
[1] This proceeding concerns a unit title development at 21 Viaduct Harbour Avenue, Auckland. The complex comprises 191 units, of which 16 are commercial and 175 are residential. It was designed as a hotel. The commercial units are those parts of the building needed to operate the hotel, including the reception, back of house office, kitchens, restaurant, bar and laundry.
[2] The plaintiffs in this proceeding are the owners or former owners of 83 residential units.1 Most, if not all, of the plaintiffs are resident outside New Zealand. They use their units as investment properties. They are, by a small margin, the minority in the unit ownership structure.
[3] The second to fifth defendants are the owners of the commercial units and 84 of the residential units. They hold a small majority in the unit ownership structure. The sixth defendant is the hotel operator, which has been joined to the proceeding as it will be affected by the relief the plaintiffs seek. The seventh defendant is the manager of the hotel operated by the sixth defendant.
[4] The plaintiffs claim that the second to fifth defendants have acted in breach of the Unit Titles Act 2010, and in breach of the body corporate rules, by having leased
1 At the commencement of this proceeding the plaintiffs owned 88 of the 175 residential units in the development. Since then, five units have been sold to the third defendant: Plaintiffs’ submissions in opposition to application by the second to sixth defendants for security for costs dated 21 March 2022 at [11].
their units, as well as some common areas within the building, for use in the hotel operation.
[5] For convenience, I will hereinafter refer to the plaintiffs collectively as “the plaintiffs”, and to the second to sixth defendants collectively as “the defendants”.
Background
[6] The Viaduct Harbour development was completed in 2007. Between then and 2010, all units in the development were leased to a company called LQHML. LQHML engaged an international hotel company to operate a Westin Hotel from the premises. LQHML was part of the CP Group of companies, which are owned by the Pandey family and which own a number of hotels in New Zealand, Australia and Fiji. The second to fifth defendants are all a part of the CP Group.
[7] LQHML went into receivership in 2010. In 2011, the second defendant bought the commercial units in the building and persuaded most of the residential unit owners to lease their units to another CP Group company, VQHL. VQHL appointed a hotel manager, who managed a luxury hotel business, the Sofitel Auckland Viaduct Harbour, in the building between March 2012 and 6 July 2020. VQHL paid unit owners for the use of their units.
[8] On 6 July 2020, the sole shareholder of VQHL put the company into voluntary liquidation. The liquidators of the company disclaimed the leases and management agreement, putting an end to the hotel business.
[9] Since October 2020, the second to fifth defendants have been participating in a new hotel business in the building, also under the name of the Sofitel Auckland Viaduct Harbour. It operates by those defendants leasing their residential and commercial units to the sixth defendant. The sixth defendant in turn has a hotel management agreement with the seventh defendant.
[10] The plaintiffs became aware in August 2020 of the proposal to reopen the Sofitel. The plaintiffs’ units were not included in the new hotel operation. They wrote to the CP Group protesting that it was not possible for the new hotel to begin operating
without a special resolution from the body corporate. They sought undertakings that the building would not be operated as a hotel, or the common areas used for that purpose, without their consent. The sought undertakings were not provided.
[11] At an extraordinary general meeting of the body corporate in September 2020, ordinary resolutions were passed amending the body corporate rules at the instigation, and with the support, of the defendants. The plaintiffs’ solicitor had attended the meeting and exercised the proxies of the plaintiff owners to vote against the proposed amendment.
[12] The amendment provides that owners of residential units shall not host members of Airbnb, or any similar accommodation operator or accommodation provider manager, in their units. The plaintiffs have claimed the amendment is intended to “squeeze out” the plaintiff unit owners. They said the effect of the new arrangement is that the minority owners are both excluded from the income they formerly enjoyed under their leases with VQHL as part of the 2012–2020 hotel operation, as well as any income they might derive from other sources like Airbnb rentals. The minority owners remain subject to liabilities of around $24,000 per year.
[13] The plaintiffs say CP Group is motivated by the prospect of being able to obtain ownership of the remaining units at a discounted price. The sixth defendant, meanwhile, has signalled that it is willing to negotiate with the minority owners to lease their units and incorporate them into the hotel operation at prevailing market rates.
[14] The defendants now concede the changes to the body corporate rules of 7 September 2020 were ultra vires and void ab initio.
Application for security for costs
Application
[15]The defendants apply for orders:2
2 Interlocutory application on notice by the second to sixth defendants for an order that the plaintiffs give security for costs, and associated orders dated 10 November 2021 at [1].
(a)requiring the Plaintiffs to give security for costs in the amount of
$500,000 or such other amount as the Court may decide;
(b)that these proceedings are stayed until the Plaintiffs have given security in the amount and form required by an order of this Court; and
(c)enlarging the time by which the Second to Sixth Defendants are required to serve an affidavit of documents, and produce non privileged documents listed in the same, to the 30th working day after the day on which security is in fact given.
[16]The grounds on which the orders are sought are:3
(a)all, or very nearly all, of the Plaintiffs are resident outside of New Zealand;
(b)accordingly, there is an appreciable risk that in the event one or more of the Second to Sixth Defendants become entitled to a payment of costs from the Plaintiffs, one or more of the Second to Sixth Defendants will be:
(i)defeated in the enforcement of their costs entitlement, due to an inability to effectively enforce an order in those countries outside of New Zealand where the Plaintiffs reside or own valuable property; or
(ii)denied the full value of their costs entitlement by being required to pursue costly enforcement proceedings in two or more foreign jurisdictions;
(c)there is reason to believe that the Plaintiffs will be unable to pay the costs of the Second to Sixth Defendants if the Plaintiffs are unsuccessful in the proceedings;
(d)the Plaintiffs themselves have presented evidence to this Court, in these proceedings, that would support a finding by this Court of an inability to pay costs;
(e)that evidence was:
(i)the Plaintiffs are of generally modest means;
(ii)the Plaintiffs’ respective units in the building that is the subject of these proceedings, have no value;
(f)notwithstanding (e) above, the only known assets of the Plaintiffs in New Zealand are real estate, and:
(i)the extent of any security interests and the indebtedness thus secured, is unknown;
3 At [2].
(ii)the standing of such debts is unknown — the registered interest of any mortgagee or other creditor would, if executed, defeat or reduce the Second to Sixth Defendants interest in costs;
(iii)real estate is not automatically liquid, and the steps required in the event that the Second to Sixth Defendants must have recourse to real estate owned by the Plaintiffs will be unduly onerous and expensive.
Affidavit of Grahame Fong in support of interlocutory application for security for costs filed 10 November 2021
[17] Mr Graham Fong, corporate counsel for the CP Group of companies, has made two affidavits in support of the interlocutory application for security for costs. In the first, filed 10 November 2021, he annexes a letter sent by the solicitors for the defendants to the solicitors for the plaintiffs, requesting that the plaintiffs give security for costs. He further annexes a letter from the plaintiffs’ solicitors in response, where the plaintiffs refuse to give security for costs.4
Affidavit of Grahame Fong in support of interlocutory application for security for costs filed 28 January 2022
[18] In Mr Fong’s second affidavit, filed 28 January 2022, he annexes a notice to admit facts dated 1 December 2021 that was served on the plaintiffs, and a notice of admission of facts of the plaintiffs that was dated and received on 8 December 2021.5
Notice of opposition to application for security for costs
[19] The plaintiffs oppose the application for security for costs on the following grounds:6
(a)The Plaintiffs are well able to meet any adverse award of costs that might be ordered against them:
4 Affidavit of Grahame Boston Fong in support of interlocutory application on notice by the second to sixth defendants for an order that the plaintiffs give security for costs, and associated orders filed 10 November 2021 at [1]–[4].
5 Affidavit of Grahame Boston Fong in support of interlocutory application security for costs filed 28 January 2020 at [1]–[3].
6 Notice of opposition to interlocutory application by second to the sixth defendants for an order that the plaintiffs give security for costs dated 24 November 2021 at [3].
(i)Together they own 85 units at the premises of which 50 are unencumbered;7
(ii)The value of those unencumbered units is more than sufficient to meet any likely award.
(b)The interlocutory decision of Hinton J dated 15 December 2020 concludes that the Plaintiffs’ claim raises a serious question to be tried;
(c)The Defendants have taken steps to prevent the plaintiffs from earning revenue from their units:
(i)The second to fifth Defendants have leased their units to the sixth defendant, a hotel manager, to manage a five star hotel in the building operated by the seventh defendant;
(ii)The Plaintiffs’ units are not part of this hotel;
(iii)The Defendants have passed resolutions prohibiting the Plaintiffs from hosting members of Airbnb or any other similar accommodation operator in their units;
(d)The Second to the Fifth Defendants have delayed in bringing this application for security for costs
(e)The order of security for costs would in all circumstances likely determine the Plaintiff’s claims[.]
Affidavit of Aladdin Bin Mohamed Lip in support of notice of opposition to application for security for costs filed 24 November 2021
[20] On 24 November 2021, Mr Aladdin Lip, a representative of the plaintiffs, filed an affidavit in support of the notice of opposition to the defendants’ application for security for costs. He deposes that the plaintiffs all own units at Body Corporate 384911 in the Viaduct Harbour in Auckland. Of the 85 units owned by the plaintiffs,
Mr Lip deposes only 35 are encumbered by a mortgage.8
[21] Mr Lip deposes that the plaintiffs intend to rent their units through an alternative room manager and that, subject to COVID-19 restrictions, a selection of the plaintiffs’ rooms will be available for booking from 1 December 2021.
7 The Court has been updated at the date of the hearing. The Plaintiffs now own 83 units in the premises, 48 of which are unencumbered: Plaintiffs’ submissions in opposition to application by second to sixth defendants for security for costs, above n 1, at [11].
8 Affidavit of Aladdin Bin Mohamed Lip in opposition to interlocutory application by second to the sixth defendants for an order that the plaintiffs give security for costs filed 24 November 2021 at [1]–[5]. Footnote 7 of this judgment sets out the updated numbers of units owned and those unencumbered as at the date of the hearing.
Further, he deposes that the proceedings were filed on 6 October 2020 and the defendants had held off applying for security for costs until two days before affidavits of documents in relation to discovery were due to be filed.9
[22] Mr Lip also refers to an earlier affidavit he made on 6 October 2021. He says that the earlier affidavit set out how the defendants’ actions placed the plaintiffs in the position of being unable to earn an income from their units.10
Affidavit of Aladdin Bin Mohamed Lip in support of notice of opposition to application for security for costs dated 9 March 2022
[23] In a further affidavit, dated 9 March 2022, Mr Lip updates the Court as to the recent sale of five units to the third defendants He says some of the former owners have now discontinued as plaintiffs in the proceeding.11
[24]Mr Lip deposes that each of the five units sold for between $150,000 and
$170,000. Applying a minimum purchase price of $150,000 across the remaining 80 units owned by the plaintiffs, he says, results in the plaintiffs holding property in New Zealand collectively worth around $12,000,000. He says that even if a significant discount is applied to that figure to account for the cost of sales, the figure is still significantly higher than the amount of security the defendants seek.12
[25] As to the plaintiffs’ alleged impecuniosity, Mr Lip deposes the plaintiffs have previously paid security for the first defendants’ costs in the sum of $7,060 into the Court.13
[26] The defendants have objected to Mr Lip’s affidavit of 9 March 2022 being accepted for filing on the basis that it is out of time. I deal with this objection later in the judgment, and I grant leave to the plaintiffs to file the affidavit out of time.
9 At [6]–[10].
10 At [11]–[12].
11 Affidavit of Aladdin Bin Mohamed Lip in opposition to interlocutory application by second to the sixth defendants for an order that the plaintiffs give security for costs dated 9 March 2022 at [1]– [15].
12 At [16]–[17].
13 At [18]–[19].
Defendants’ submissions
[27] Mr Wallace Revell, for the defendants, submits that the plaintiffs should have to provide security for costs in the proceeding. He says the plaintiffs reside outside of New Zealand, putting the defendants at a real risk that the value of a costs award in their favour would be diminished by the cost of steps necessary to enforce the award offshore. As well, there is reason to infer from the surrounding circumstances that the plaintiffs will not be able to meet a costs award.14
[28]Mr Revell submits the issues in the case are:15
(a)Are the plaintiffs resident outside of New Zealand?
(b)Irrespective of residency, is there reason to believe the plaintiffs will not be able to meet an eventual costs award?
(c)If either threshold is met, should the Court require the plaintiffs to provide security for costs?
(d)If the Court should require the plaintiffs to provide security for costs, how much should that security be?
[29] Mr Revell says Mr Lip’s evidence establishes that the plaintiffs are mainly based overseas. In any event, there is no serious contention that they reside in New Zealand. And the plaintiffs’ evidence puts their ability to meet a costs award in doubt.16
[30] Concerning the giving of security of security by overseas plaintiffs, Mr Revell submits:17
a.There is no inflexible principle that a plaintiff with no assets within the jurisdiction should normally be ordered to give security.
14 Synopsis of the second to sixth defendants in support of an interlocutory application for security for costs dated 7 March 2022 at [1]–[3].
15 At [4].
16 At [5]–[10].
17 At [19], citing Aquaculture Corp v McFarlane Laboratories (1984) Ltd (1987) 1 PRNZ 467 (HC) at 470.
b.The court’s discretion is to be exercised by taking into account all of the circumstances of the case and arriving at a conclusion which will do justice between the parties.
c.The ease, convenience and cost of enforcing a costs judgment in the plaintiff’s country of residence are primary considerations. New Zealand courts have taken the view that the wh[o]le point of ordering security against an overseas plaintiff is to avoid the cost and difficulties of overseas enforcement.
d.Otherwise, the principles applicable to applications for security by a plaintiff resident overseas are those applicable under r5.45(1)(b).
[31] As to whether a plaintiff will be able to pay costs, Mr Revell submits it is sufficient for a defendant to present evidence of surrounding circumstances from which an inference of inability to pay can reasonably be drawn. The inability does not need to be proved on the balance of probabilities — a “reason to believe” suffices.18
[32] Mr Revell says the plaintiffs face several challenges in seeking to rely on the ownership of their units as a ground for resisting a security for costs order. First, the plaintiffs’ own evidence is that the units are valueless and do not earn income. The units attract annual liabilities. Further, there is no guarantee that any given plaintiff will remain a plaintiff or continue to own their unit when the proceeding is determined. There is no evidence of the standing of the various secured loans or how the plaintiffs will make their payments. The plaintiffs have not provided evidence to support their contention that their units would have significant value, and the Court is not in a position to make that assessment at this time.19
[33] Taking into consideration Mr Lip’s evidence from earlier stages of the proceeding that most of plaintiffs are either retired or out of work, Mr Revell says there is a substantial basis for the Court to find there is reason to believe the plaintiffs would not be able to meet a costs award. The plaintiffs have not substantiated their assertion that they will be able to meet a costs award.20
18 At [20]–[21], citing Totara Investments Ltd v Abooth Ltd HC Auckland CIV 2007-404-990, 4 March 2009 at [28]; and Nicon Ltd v Tower Insurance Ltd [2016] NZCA 66, (2016) 23 PRNZ 135 at [18].
19 At [24]–[25].
20 At [27]–[31].
[34] Mr Revell submits that because both thresholds for an order for security for costs have here been met, there is a strong impetus for the Court to order the plaintiffs to provide security and for the Court to require a greater amount of security than might otherwise be the case. He says that even if the plaintiffs could make out their causes of action, they will be entitled to only notional damages. Further, he submits that the defendants are not responsible for the plaintiffs’ impecuniosity or their general economic position.21
[35] Next, Mr Revell submits that delay is not a disentitling factor. He says the application for security for costs was made only a few months after the defendants filed their statements of defence. There is no timetable for trial yet, and there is likely to be significant further interlocutory wrangling before the matter can be set down.
The application is therefore at an early stage of the proceeding.22
[36] Mr Revell submits that this is not a representative action and that each plaintiff is suing in his or her own right. Each of the 80-odd plaintiffs will have to give evidence to support their own losses. All told, a trial may last as long as a month. He says scale costs for a trial of that length would be $154,155.00. Adding to that the real prospect of further interlocutory applications and discovery and inspection, a scale costs entitlement of $170,000 is realistic. Security for costs in the amount of $130,000 would then be a suitably discounted figure.23
[37] As to stay of proceedings, Mr Revell says there are further interlocutory steps anticipated in the near term. If the proceeding is not stayed, the defendants will be at risk of costs on those further steps being unrecoverable.24
[38] Concluding, Mr Revell submits that both thresholds for granting security for costs are established. The plaintiffs reside outside of New Zealand and there is reason for the Court to believe that they will not be able to meet a costs award. A suitable
21 At [32]–[45].
22 At [46]–[52].
23 At [53]–[68].
24 At [69]–[71].
amount of security would be $130,000. It is appropriate that the Court stay the proceeding pending provision of security.25
Plaintiffs’ submissions
[39] Mr Philip Rice, for the plaintiffs, submits that security for the defendants’ costs should not be ordered in this case for the following reasons:26
(a)the plaintiffs’ claims appear to have merit;
(b)the plaintiffs have property within the jurisdiction and are well able to meet any adverse award of costs;
(c)the defendants’ conduct weighs against making an order. In particular, the defendants have:
(i)deliberately set out to injure the plaintiffs by preventing them from earning revenue from their units; and
(ii)delayed in applying for security.
[40] Mr Rice says the defendants cannot at the same time claim that the plaintiffs’ units are valueless while also having recently purchased some units for $150,000 each. He stresses that there is no inflexible principle that a plaintiff resident outside of New Zealand with no assets within the jurisdiction should normally be ordered to pay security for costs — and that conclusion applies with more force where the plaintiffs do hold assets in New Zealand.27
[41] Mr Rice also says there is no credible evidence from which it may be reasonably inferred that the plaintiffs will be unable to pay the defendants’ costs. The
25 At [72]–[75].
26 Plaintiffs’ submissions in opposition to application by second to sixth defendants for security for costs, above n 1, at [1].
27 At [2]–[7].
plaintiffs hold substantial assets within New Zealand and have paid all costs and security ordered to date.28
[42] Further, Mr Rice submits that the plaintiffs’ claims are meritorious and they are well able to meet any adverse award of costs. The plaintiffs’ units clearly have value, as evidenced by the recent sales of units for between $150,000 and $170,000. The units would have value if incorporated within the defendants’ hotel operation. And the defendants’ conduct weighs against making an order for security for costs: they have deliberately set out to injure the plaintiffs by preventing them from earning revenue from their units.29
[43] Mr Rice submits that the defendants have delayed in applying for security. The proceeding was commenced in October 2020 by way of originating application and would likely have been heard by now if it had remained an originating application. The defendants had filed a protest to jurisdiction, contending the originating application was brought out of time. Out of an abundance of caution, the plaintiffs then filed an ordinary proceeding. The two proceedings were later consolidated, with the defendants giving no indication they would apply for security. It was not until a year after commencement that the defendants first requested security for their costs. They gave no reason for the delay. Mr Rice submits this supports an inference that the application for security is a tactical move to add pressure on the plaintiffs to sell their units to the CP Group at bargain prices.30
[44] If security is ordered, Mr Rice submits it should be set at a modest quantum. He submits the issues are narrow and should take no more than four days to address at a hearing. The issues are whether it is necessary for a hotel operator to obtain a licence from the body corporate to use the common property of a unit title development for the purposes of a hotel, and if so, what relief should be granted. A realistic assessment of scale costs for a hearing of that nature would be $28,680.31
28 At [8].
29 At [9]–[22].
30 At [23]–[31].
31 At [32]–[37].
Legal principles
[45]Rule 5.45 of the High Court Rules 2016 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.
(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.
[46] In determining applications under r 5.45, the Court will generally follow these steps:32
(a)Has the applicant satisfied the court of the threshold under r 5.45(1)?
(b)How should the court exercise its direction under r 5.45(2)?
(c)What amount should security for costs be fixed at?
(d)Should a stay be ordered?
[47] The decision to order security, and the quantum of such security, are at the Court’s discretion. It is generally not to be to be fettered by constructing “principles” from the facts of previous cases.33 But the Court is to balance the competing interests
— being the defendant’s interest in protection from a costs order that is incapable of fulfilment and the plaintiff’s right of access to justice.34 Courts will be slow to make an order for security that will stifle a genuine claim.35 This balancing exercise is the Court’s overriding consideration.36
[48]The Court should assess whether there is:37
… credible (that is, believable) evidence of surrounding circumstances from which it may reasonably be inferred that the [party] will be unable to pay the costs. This does not, of course, amount to proof that the [party] will, in fact, be unable to pay them.
[49] The Court will assess the claim’s merits and prospects of success, to the extent that is possible at an early juncture.38 The Court will also consider the extent to which the plaintiff’s impecuniosity may have been caused by the defendant’s conduct.39
[50] A plaintiff’s unwillingness to pay previous judgment debts weighs in favour of an order for security.40 But whether a plaintiff has been a responsible litigant is
32 Busch v Zion Wildlife Gardens Ltd (in rec and in liq) [2012] NZHC 17 at [2].
33 A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13] and [14].
34 Clear White Investments Ltd v Otis Trustee Ltd [2016] NZHC 2837 at [4].
35 Reekie v Attorney-General [2014] NZSC 63, [2014] 1 NZLR 737 at [3].
36 Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [24(c)].
37 Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd (No 2) [1977] 1 NZLR 516 (SC) at 519; NZ Kiwifruit Marketing Board v Maheatataka Coolpack Ltd (1993) 7 PRNZ 209 (HC) at 212; and Stephenson v Jones [2013] NZHC 638.
38 Meates v Taylor (1992) 5 PRNZ 524 (CA); and Lee v Lee [2019] NZCA 345 at [73].
39 Bell-Booth Group Ltd v Attorney-General (1986) 1 PRNZ 457 (HC).
40 Taylor v Adair [2018] NZHC 1975 at [30]–[31], citing Burden v Dixie Cummings New Zealand
[2016] NZHC 729 at [22]; and Mawhinney v Auckland Council [2014] NZHC 3207.
secondary to the issue of whether the lack of merit of the claim justifies security that would prevent the claim from proceeding.41
[51] Quantum of security is discretionary and is assessed in the round. It need not be fixed by reference to likely cost awards.42 It is to be what the Court thinks fit in all the circumstances.43
[52]A Court will generally stay a proceeding until the security ordered is given.44
Analysis
Are either of the thresholds in r 5.45(1) met?
[53] The threshold in r 5.45(1)(a)(i) is met as most, if not all, of the plaintiffs are resident outside New Zealand. It is not contested in this proceeding.
[54] In my view, however, the threshold set out in r 5.45(1)(b) is not met. Mr Revell submits that it is sufficient for the defendant to present evidence of the surrounding circumstances in which an inference of an inability to pay can be reasonably drawn. He says the following are the surrounding circumstances that point to this:
(a)The plaintiffs seek to rely on ownership of their units as a ground for resisting a security for costs order. Mr Revell submits on the plaintiffs’ own evidence the units are valueless and do not earn an income. They also attract annual liabilities.
(b)There is no guarantee that any given plaintiff will remain a plaintiff or continue to own their unit when the proceeding is determined. There is no evidence of the standing of the various secured loans or how the plaintiffs will make their payments.
41 Wright v Attorney-General [2019] NZHC 3046 at [26].
42 Sharp v Pillay [2017] NZHC 647; and Red 9 Ltd v The Learning Ladder Ltd (in liq) [2021] NZCA 284 at [30].
43 A S McLachlan Ltd v MEL Network Ltd, above n 33.
44 Tomanovich Holdings Ltd v Gibbston Community Water Co 2014 Ltd [2018] NZHC 990 at [68] and [85].
(c)The plaintiffs have not provided evidence to support their contention that their units will have significant value, and the Court is not in a position to make that assessment at this time.
[55] I do not accept Mr Revell’s submissions on these points. It is clear that the units do have some value. The evidence before the Court is that five of the units have been sold to the third defendant for values of between $150,000 and $170,000. As submitted by Mr Rice, if a minimum value of $150,000 per unit is applied across the remaining 48 unencumbered units owned by the plaintiffs, they have assets within the jurisdiction exceeding $7 million.
[56] As to the point that any given plaintiff may or may not own a unit when the proceeding is determined, I do not consider this is a material risk for the defendants. It seems highly likely that out of 83 plaintiffs there will be a core group of plaintiffs continuing to own their units. In my view, it is highly unlikely that a sufficient number of plaintiffs will have sold their units and dissipated the proceeds before the costs in relation to this proceeding are determined such that there will be insufficient security available for any costs award.
[57] The plaintiffs have paid existing costs awards, so there are no background circumstances of unpaid costs awards.
[58] The defendants have also submitted that most of the plaintiffs are either retired or out of work, the implication being that for that reason they may be impecunious or have limited resources. While that may be true of some of the plaintiffs (and there is no evidence before the Court as to the financial circumstances of the individual plaintiffs), Mr Rice submitted, as a counterpoint to the inference the defendants are asking the Court to draw, that the fact the plaintiffs are located overseas and own their units as investment properties in a foreign country equally suggests that they may be individuals with resources.
[59] On balance, I do not believe there are sufficient circumstances before the Court for the Court to reach a view that there is reason to believe that the plaintiffs will be
unable to pay a costs award made against them. Accordingly, the threshold in r 5.45(1)(b) is not met.
How should the Court exercise its discretion under r 5.45(2)?
[60] I am of the view that the balance of justice indicates that security for costs should not be ordered in this proceeding. The reasons for this are as follows:
(a)As I have noted above at [55], I do not accept the contention that the units have no value at all. Even if the lowest value of $42,000 per unit as submitted in evidence is correct, then the 48 unencumbered units have a value of over $2 million. Clearly, this amount is well in excess of any costs award that could be made in favour of the defendants.
(b)There is potential for the plaintiffs’ units to earn income by leasing the units as part of a hotel operation or similar. Consequently, the plaintiffs have substantial property in New Zealand which, in addition to that property having some value, has the potential to earn income.
(c)The plaintiffs’ claim is not without merit. In the judgment of Hinton J,45 she concludes that there is a serious issue to be tried. Given there is a serious issue to be tried, the plaintiffs should not be deprived of the opportunity to pursue their claim.
(d)The conduct of the defendants weighs against ordering security for costs. The fact that the plaintiffs are not participating in the new hotel operation set up by the defendants may be partly due to the plaintiffs’ own action in that they were unwilling to negotiate acceptable terms with the defendants. This is unclear from the evidence before the Court. However, the defendants’ conduct in attempting to alter the body corporate rules (although the defendants have subsequently resiled from this position) was arguably designed to injure the plaintiffs by preventing them from earning any income from their units.
45 Een v Body Corporate 384911 [2020] NZHC 3340 at [58].
The plaintiffs submit this action by the defendants was taken with a view to coercing the plaintiffs into either accepting the terms of the current Sofitel hotel operation operated by the defendants or selling their units to the defendants. There is no evidence before the Court of the defendants’ motives. However, this conduct weighs against the defendants now asking for security for costs.
(e)The delay weighs against the defendants’ sought order for security for costs, although I do not regard this as a particularly significant factor. The proceedings were issued in 2020, but the application for security for costs was only made towards the third quarter of 2021. While it is accepted, as submitted by the defendants, that the proceedings are not close to trial and hence there is no significant prejudice to the plaintiffs, this is still a significant delay.
Leave for affidavit of Mr Lip sworn on 9 March 2022 to be filed late
[61] The affidavit of Mr Lip in question includes information regarding recent sales of units by some of the plaintiffs to the third defendant. Mr Rice in his synopsis submits that Mr Lip only became aware of the sales of the three units to the third defendant on 15 December 2021, after he had sworn his affidavit on 23 November 2021. I agree with Mr Rice’s submission that it was important for the Court to be aware of the information regarding these sales.
[62] Accordingly, leave should be granted for Mr Lip’s affidavit to be filed out of time.
Orders
[63]I make the following orders:
(a)The plaintiffs are granted leave to file the affidavit of Mr Lip sworn on 9 March 2022 out of time.
(b)Leave is granted for Haigh Lyon to withdraw from acting as solicitors, and for Mr Rice to withdraw from acting as counsel, for the plaintiffs who are owners of units 318, 338 and 324 in the development.
(c)The defendants’ application for security for costs is dismissed.
(d)The plaintiffs are entitled to costs on a 2B basis.
…………………………….. Associate Judge Taylor
Solicitors:
Haigh Lyon, Auckland, for the Plaintiffs
Farry & Co (Wallace Revell), Auckland, for the Defendants
Counsel:
Phillip Rice, Barrister, Auckland, for the Plaintiffs
R J Hollyman QC, Auckland, for the 2nd to 6th Defendants
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