Fanshawe 136 Limited v Fanshawe Capital Limited

[2013] NZHC 2931

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-004179 [2013] NZHC 2931

BETWEEN  FANSHAWE 136 LIMITED First Plaintiff

136 FANSHAWE LIMITED Second Plaintiff

ANDFANSHAWE CAPITAL LIMITED First Defendant

WILSON PARKING NEW ZEALAND LIMITED

Second Defendant

Hearing:                   6 November 2013

Appearances:           W McCartney for First Plaintiff

D Valente for Second Defendant

Judgment:                6 November 2013

ORAL JUDGMENT OF VENNING J

on application for review of Associate Judge's Decision on security for costs

Solicitors:           Carson Fox Legal, Auckland

Glaister Ennor, Auckland

Lee Salmon Long, Auckland

Copy to:            W McCartney, Auckland

FANSHAWE 136 LTD v FANSHAWE CAPITAL LTD [2013] NZHC 2931 [6 November 2013]

Introduction

[1]      In  a  judgment  delivered  on  21  October  2013  this  year Associate  Judge Matthews directed the plaintiffs to provide security for costs of $20,000 in favour of the  second  defendant.    In  default  of  that  sum  being  provided  by  5.00  pm,  1

November 2013 he directed that the plaintiffs’ proceeding be stayed and the fixture vacated. At the same time he made orders for security for costs against the plaintiffs in favour of the first defendant.

[2]      There  have  been  a  number  of  developments  since  that  judgment.    The plaintiffs and first defendant have reached an accommodation pursuant to which the plaintiffs will abandon all claims against the first defendant with the exception of the plaintiffs’ claim for specific performance.  On that basis the first defendant consents to effectively waiving or varying the orders requiring security for costs in its favour so  that  the plaintiffs’ claim  for specific performance may proceed  provided the second defendant’s counterclaim also proceeds.

[3]      The plaintiffs have also  sought  to  review the Associate Judge’s  decision requiring  them  to  pay  security  to  the  second  defendant.    The  matter  has  been allocated this hearing as a matter of urgency given the fixture is scheduled to commence next Monday, 11 November 2013.

Background

[4]      The detailed background to the proceeding is set out in the Associate Judge’s decision.  It is unnecessary to refer to it in any particular detail for the purposes of this application.   I take the summary of the position from counsel for the second defendant’s submissions as follows.

[5]      The first plaintiff and second defendant both entered agreements for sale and purchase to purchase a property at Fanshawe Street from the first defendant.  The first plaintiff nominated the second plaintiff to complete the purchase.  A dispute has arisen as to which agreement prevails.  The agreement for sale and purchase between the first plaintiff and the first defendant was entered into prior to the agreement for sale and purchase between the first defendant and second defendant.  However, the

second defendant had a right of first refusal arising from a lease.  It claims a prior equitable interest in the property which arose at the time its right to be offered the property crystallised.

[6]      The plaintiffs allege that the second defendant waived its right of first refusal and/or is estopped from asserting it. Those are the issues for determination at trial.

The Associate Judge’s judgment

[7]      The Associate Judge was satisfied that the plaintiffs, if unsuccessful, would be unable to meet the defendants’ costs and accordingly the threshold requirement was met.  He then went on to consider the particularly relevant factors in the case, namely the strength of the plaintiffs’ case, the fact that the case involved a counterclaim by the second defendant and determined that an order for security was appropriate.  He assessed the plaintiffs’ claim against the first defendant as weaker than that as against the claim against the second defendant.  He made a distinction in the amounts, and ordered $30,000 to the first defendant and $20,000 to the second defendant. As noted the issue in relation to the first defendant has been resolved.

Grounds for review

[8]      In support of the application for review the plaintiffs raised the following issues:

(a)      First, that if the plaintiffs remain obliged to pay security that is likely to deny them access to justice as they will not be able to pay security and also present their case.

(b)Second, that it is effectively an accident of timing that the plaintiffs are the plaintiffs rather than the second defendant.   Both claim an interest in the property of the first defendant.   One of them had to issue the proceedings.

(c)      Next, following the settlement with the first defendant, the plaintiffs are now only required to pay $20,000 for security.   The plaintiffs

argue they should not be required to pay that sum when the property in issue is potentially worth approximately $15 million.  The purchase price for the property is $11.5 million so that there is a potential profit of $3.5 million to the successful party.

(d)Next, if the plaintiff is required to pay security, which it cannot pay and its claim against the second defendant is stayed, the second defendant will still proceed with the counterclaim and the plaintiff can defend that counterclaim.

(e)      Finally, it is said that the second defendant has caused or contributed

to the plaintiff’s poor financial position.

Principles

[9]      As this is an application for review, r 2.3(4) applies.  The Associate Judge’s decision was a reasoned one following a defended hearing.   The approach is essentially an appellate approach.  The Court applies the approach taken, mandated by the Supreme Court in Austin, Nichols & Co Inc v Stichting Lodestar.1   The Court has to make its own assessment of the matters.

Discussion

[10]     The first issue relied on by the plaintiffs, which is an important point of principle, is that if required to pay security the plaintiffs may be denied access to justice.  Mr McCartney referred to authorities where the Court has indicated that the Court is reluctant to make an order that will deny a plaintiff with an otherwise arguable claim access to justice and deny them the opportunity of having that case considered by the Court.

[11]     In relation to that issue the Associate Judge found the position to be:

[30]    The evidence establishes that there is a fund of money, of an undisclosed sum, ready for use for the trial, and presently earmarked (though insufficient) for counsel’s fees.  If security for costs were to be ordered, and paid from that sum, the shortfall in the sum required for counsel’s fees (also

1      Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.

undisclosed) would be that much larger.   However, the trial is still three weeks away, and endeavours to raise further funding are continuing.

[12]     The evidence before the Judge about this issue is contained in the evidence of Mr Haghi, the sole director and shareholder of the first plaintiff.  He is also closely associated with the second plaintiff.  The sole director and shareholder of the second plaintiff is his sister.

[13]     In his first affidavit Mr Haghi said he acknowledged that the plaintiffs had no substantial assets other than the right to purchase the property.  He said his personal financial circumstances were not good.   He was presently facing two bankruptcy proceedings.   One was adjourned pending the outcome of this litigation and an adjournment was sought on the other.  He said:

I am attempting to find sufficient funds for the plaintiffs to complete this litigation.  While I have some funds in place, I do not yet have as much as my counsel have requested.

My sister Fatemeh is not able to provide the funding required.

If the plaintiffs were required to pay security for costs, there is a serious risk that they would be unable to pay counsel to go to trial.

[14]     Shortly before the hearing before the Associate Judge Mr Haghi filed an updated affidavit in which he said:

1.Since making my earlier affidavit ... I have continued to try to find funds for this litigation.  I have not yet obtained all the funding I was hoping to get.  At present, there is still not enough to pay counsel through  to  the  end  of  trial.    I am hoping counsel will  agree to proceed without full funding.

2.However,  as  things  stand  today,  [as  at  15  October  2013]  if  the plaintiffs are ordered to pay security for costs, then I do not think that the plaintiffs could afford to go to trial.   I live in hope that something will change.

3.If I could raise the money for security for costs, as well as the money needed for the trial, I would agree to pay security, because what the plaintiffs stand to gain far outweighs the risk of having to pay costs.

[15]     There has been no further evidence filed or sought to be adduced for the purposes of this review.

[16]     On the basis of the evidence before the Court I do not accept the plaintiffs’

submission that if they are ordered to pay the now reduced sum for security of

$20,000 (as opposed to $50,000) they will be denied access to justice.

[17]     The statements of Mr Haghi are general in the extreme.  They are effectively no more than assertions as to financial position, particularly as to the financial position of his sister for example.  It appears from the information before the Court there are other commercial entities that Mr Haghi is involved in.  It is also apparent, indeed it formed part of Mr McCartney’s submissions, the successful party in these proceedings  will  acquire  a  property worth  $15  million  approximately for  $11.5 million and immediately have an effective windfall of approximately $3.5 million.

[18]     In the circumstances, and given that the plaintiffs’ argument against security is premised on the basis it has a strong case, it defies logic to suggest that there would not be a commercial backer willing to assist the plaintiffs to achieve that outcome by providing $20,000 for security for costs.  When I put that proposition to Mr McCartney he acknowledged the logic of it but submitted that the cost or the share or return that might be required by the funder could be an issue.  That is a quite separate point and does not support the submission that the plaintiffs would be prevented from having their day in Court.

[19]     It is apparent from the Judge’s findings and from the evidence before the Court  that  the  plaintiffs  are  effectively prioritising  their  commitments  and  their available funding.

[20]     I am not satisfied at all that if required to pay security the plaintiffs would be denied access to justice. The evidence does not go that far.

[21]     I  turn  to  the  second  point  which  is  that  the  plaintiffs  have  faced  this application for security only because they acted more promptly than the second defendant.

[22]     The first observation must be that, as Mr McCartney acknowledged, security for costs can be obtained against counterclaim plaintiffs.   Further, as Ms Valente

submitted this case does not involve exactly two sides of the same coin.  While both the plaintiffs and second defendant claim an interest in the property and that is the main focus of the claim, the plaintiffs’ claim against the second defendant also includes claims of constructive trust and particularly damages falling out of that. The damages are claimed against the second defendant.  While the present trial has, as a result of Associate Judge Matthew’s other orders now been determined to be a liability trial initially, I accept counsel’s submission that that order was made at a late stage and that costs have already been incurred in relation to the preparation to meet those claims.  Those claims are different and additional to the major dispute between the parties, which is focused on the claim to the rights in the property.

[23]   In any event the short point is that the plaintiffs did commence these proceedings.   They initiated the proceedings and as such are vulnerable to an application for security.  I do not consider this point to be a particularly convincing one on behalf of the plaintiffs.

[24]     Related to it is the further submission that even if the plaintiffs’ claim against the second defendant is stayed in accordance with the Associate Judge’s direction or orders, the second defendant will proceed with its counterclaim against the plaintiffs and will be put to the cost of that counterclaim.   An answer to that submission, however, is that if the second defendant succeeds on its counterclaim it will have achieved its purpose but on the other hand it will not have to meet the plaintiffs’ claim which is not limited to the issue of the rights to the property.  Further, despite Mr McCartney’s submissions, I consider there will be a distinction or a difference between the way the cases are presented at trial so that the costs of the second defendant will be lessened if the plaintiffs’ claim is stayed and the second defendant does not have to address all aspects of that claim.

[25]     The last substantive submission advanced on behalf of the plaintiffs is that the actions of the second defendant have prevented the sale and caused the plaintiffs’ financial loss.  However, as Ms Valente submitted it appears that the plaintiffs and Mr  Haghi  have  been  impecunious  for  some  time.    Further  this  submission  is premised on the proposition that the second defendant was not entitled to lodge the caveat and to take the steps it has taken to protect its claimed interest in the property.

That is a matter to be determined in these particular proceedings.  I consider this case is different to other cases where it can properly be said the very acts of the defendant have caused the financial impecuniosity of the plaintiff.2

[26]     The  last  consideration  is  the  issue  of  the  merits.    The Associate  Judge determined that the claim by the plaintiffs’ against the second defendant was stronger than the plaintiffs’ claim against the first defendant  but noted even so it is not without its difficulties.  Ms Valente submitted that there was further information that had recently been obtained on discovery to suggest that the plaintiffs’ reliance on estoppel might be more difficult.  She referred to a number of documents attached to an affirmation of Ms Yallop.  The documents suggest that the moneys relied on to support the estoppel were incurred by entities other than the plaintiffs and that, by the time the plaintiffs incurred any obligations it would have been unreasonable for the plaintiffs to have relied on any earlier representation from 2012 as they had notice of the second defendant’s claim in the property.  Mr McCartney countered that by submitting the documents presented were selective.   I leave the matter on the basis that the Associate Judge’s assessment the claim is not without its difficulties is a fair summation of the merits.

[27]     Against that background and having regard to the above factors the plaintiffs fail to satisfy the Court that the Associate Judge was wrong to require the plaintiffs to provide security on the terms that he set.

Result

[28]     The application for judicial review is declined with costs on a 2B basis to the second defendant.

Other issues

[29]     There are two practical matters counsel addressed at the end of the hearing. The  first  is  pleadings.    There  is  no  opposition  by  the  plaintiffs  to  the  second

defendant’s application for leave to file a third amended statement of defence and

2      Bell-Booth Group Ltd v Attorney-General & BCNZ (1986) 1 PRNZ 457;  and Birnie Capital

Property Partnership Ltd v Birnie HC Auckland CIV-2010-404-3000, 29 October 2010.

counterclaim.  Leave is granted accordingly.  That claim is to be filed by 10.00 am tomorrow.  The plaintiffs are to have until 4.00 pm on Friday, 8 November 2013 to plead to that amended statement of defence and counterclaim.

[30]     The  other  issue  is  in  relation  to  the  costs  ordered  by  Associate  Judge Matthews.  Counsel have clarified that the costs order made against the plaintiffs in relation to the second defendant arising out of Associate Judge Matthews’ decision was for one set of costs on a 2B basis.

Terms of the stay

[31]     In light of the above decision Mr McCartney sought clarification of the effect of the stay. The stay presently remains in full force and effect.  I further direct that in the event that the security for $20,000 is paid or otherwise resolved satisfactorily to the second defendant by 4.30 pm on Friday 8 November, then the stay will be lifted and  the hearing next  week  will  include  the plaintiffs’ claim  against  the second defendant.

[32]     If, however, the plaintiffs fail to pay security or otherwise settle the issue with the second defendant by 4.30 pm that day then the stay will be a final stay.  In that case the hearing next week will proceed on the basis that the plaintiffs’ claim is stayed, albeit that the second defendants’ counterclaim will proceed and the plaintiffs

can oppose that counterclaim.

Venning J