Financial Trust Limited v Wanganella Trustee Limited HC Auckland CIV-2010-404-3928

[2011] NZHC 821

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-3928

IN THE MATTER OF

BETWEEN

4 Wanganella Street

FINANCIAL TRUST LIMITED

First Plaintiff

AND

MATRIX CUSTODIAN LIMITED Second Plaintiff

AND

WANGANELLA TRUSTEE LIMITED First Defendant

AND

FERN LIMITED (IN LIQUIDATION) Second Defendant

AND

LJK INVESTMENTS LIMITED Third Defendant

AND

JOANNE MARY COOPER Fourth Defendant

AND

LANCE GILBERTSON Fifth Defendant

AND

BRENT DOUGLAS CLODE Sixth Defendant

AND

RICE CRAIG SOLICITORS NOMINEE COMPANY LIMITED

Seventh Defendant

Hearing:

1 August 2011

Counsel:         G M Sandelin for Plaintiffs and Counterclaim Defendants

No appearance for Defendants/Counterclaim Plaintiffs

Judgment:      1 August 2011

[ORAL] JUDGMENT OF ASSOCIATE JUDGE ABBOTT

FINANCIAL TRUST LIMITED V WANGANELLA TRUSTEE LIMITED HC AK CIV-2010-404-3928 1

August 2011

[1]      This  proceeding  has  been  listed  for  a  defended  hearing  today  of  two applications (in effect, three, as the first has two aspects):

(a)      An application dated 23 December 2010 by the plaintiffs and the counterclaim defendants to strike out the first, second and third counterclaims in the amended statement of defence and counterclaim filed on 8 October 2010, and by the first plaintiff and the counterclaim defendants for orders that the first to fourth defendants/counterclaim plaintiffs provide security for costs in respect of their counterclaims; and

(b)an application by the plaintiffs dated 4 March 2011 that the second to sixth defendants provide further and better discovery.

[2]      The  second  and  fourth  defendants  filed  a  notice  of  opposition  (dated

10 February 2011) to the applications for strike-out and for security for costs.  The defendants have not filed a notice of opposition to the application for further and better discovery, but the Court and the plaintiffs have proceeded on the basis that that application was being opposed.

The second defendant/counterclaim plaintiff (Fern Ltd)

[3]    Prior to preparation of argument for the defended hearing, the plaintiffs/counterclaim defendants and the second defendant/counterclaim plaintiff (which is in liquidation) reached agreement on disposal of both applications against the second defendant.   The agreement is that the second defendant/counterclaim plaintiff consents to the orders striking out its three counterclaims, and the first plaintiff/counterclaim  defendants  have  agreed  not  to  pursue  an  application  for security for costs against it.  In respect of the application for discovery, the second defendant has agreed that it will provide discovery of documents as contemplated by r 8.18 of the High Court Rules, but the parties have agreed that a sworn list will not be necessary.  Although the second defendant has filed a statement of defence, the Official Assignee (as liquidator of the second defendant) has advised that he will not

be proceeding with that defence, and the second defendant does not intend to appear further in this matter and will abide the decision of the Court.   The parties have agreed that there is no issue as to costs.

[4]      These matters have all been recorded in a joint memorandum dated 21 July

2011.  For the reasons set out in the last paragraph, I make orders by consent:

(a)      striking  out  the  second  defendant’s  counterclaims  as  set  out  in paragraphs 151-287 inclusive of the combined statement of defence and counterclaim filed on 8 October 2010;

(b)the first plaintiff’s/counterclaim defendant’s application for security for costs against the second defendant/counterclaim plaintiff is withdrawn;

(c)      the second defendant is to provide discovery in terms of r 8.18 of the High Court Rules, save that there is no requirement for filing and serving of an affidavit  of documents pending further order of the Court;

(d)the second defendant/counterclaim plaintiff is excused from further appearances in this proceeding, again pending further order of the Court;  and

(e)    finally  there  is  no  order  for  costs  as  between  the plaintiffs/counterclaim defendants and the second defendant/counterclaim plaintiff in respect of either application.

The first, third and fourth defendants/counterclaim plaintiffs

[5]      The first plaintiff and the counterclaim defendants’ applications against the fourth defendant/counterclaim plaintiff for strike-out (or alternatively for security or costs) and in respect of the first, second and third counterclaim, the first plaintiff/counterclaim defendant’s application against the first, third and fourth defendants/counterclaim plaintiffs for security for costs in respect of the fourth and

fifth counterclaims, and the plaintiffs’ applications against all defendants other than the second defendant/counterclaim plaintiff for further and better discovery, were to proceed today on a defended basis.  The plaintiffs/counterclaim defendants filed a synopsis of argument in accordance with timetable directions.

[6]      Last Friday afternoon (29 July 2011) the sixth defendant (Mr Brent Clode), who has been acting de facto on behalf of the first and third to sixth defendants, advised the plaintiffs that those defendants would not be pursuing their opposition to the applications to strike out and for security for costs, and would not resist the orders being sought on those applications.   Although there is no mention of the application for further discovery in the e-mail from Mr Clode in which this advice was given, as I have already noted, the defendants have not formally opposed that application.

[7]      Counsel informs me that he has spoken with Mr Clode this morning, when neither  he  nor  any other  of  the  defendants  appeared  for  this  hearing,  and  was authorised by Mr Clode to produce to the Court the e-mail that Mr Clode sent to the plaintiffs last Friday.  Counsel has done so.  I have viewed that email and accept the advice that the defendants do not resist the applications for strike-out or for security.

Background

[8]      The background to this proceeding, and to these applications, can be found in a comprehensive overview of the case given by Associate Judge Bell on 18 April

2011.

[9]      The grounds for the application to strike out have been set out fully in the first plaintiff/counterclaim defendant’s application (paragraphs 2.1-2.7), and are supported by counsel’s written submissions.

Strike-out

[10]     I am satisfied that there is a proper legal basis for the applicants’ contentions. Having regard to those arguments, and the withdrawal of the defendant’s opposition,

I make orders striking out the fourth defendant’s three counterclaims as pleaded in paragraphs   151-287   inclusive   of   the   combined   statement   of   defence   and counterclaim filed on 8 October 2010.

Security for costs

[11]     The first plaintiff seeks security for costs against the third defendant (on the fourth counterclaim) and against the first and fourth defendants (in respect of the fifth counterclaim), both in the amount of $50,000.  The evidential basis for the first plaintiff’s view that these defendants will be unable to meet an award of costs is set out in the affidavits of Jo-Anne Lee Thomas and Shan Francis Pearson sworn and filed in support of the application.  In essence, the factual grounds are that:

(a)      both  the  first  and  fourth  defendants  are  insolvent,  with  the  first defendant currently facing an application for liquidation and being in the process of putting a compromise to its creditors, and the fourth defendant facing an application for adjudication in bankruptcy and having filed an application for approval of a proposal to creditors under subpart 2, Part 5 of the Insolvency Act 2006;

(b)there  is  no  record  of  the  third  defendant  trading  or  owning  any property, and although it has declared that it has assets in the form of debts owed to it by the first, second, fourth and sixth defendants, it appears to have compromised those debts substantially (certainly in respect of the first and fourth defendants), and all of its property is in any event secured to the fifth defendant.

[12]     In the above circumstances, I accept that the first plaintiff has established that there is reason to believe that these three defendants will be unable to meet an award of costs against them on their counterclaims.   Having regard to that, and to the general history of this matter (as identified in the overview of case to which I have referred), I accept that an order for security for costs is appropriate.

[13]     I also accept that the counterclaims, as pleaded, will add significantly to the preparation and hearing time of this proceeding:  they appear to raise new issues of fact which require substantial further discovery by the plaintiffs/counterclaim defendants, and this will result in increasing the amount of hearing time required (scale costs on that hearing time would be in the order of $58,000, without taking into account time required on the discovery or any other interlocutory matters).   I accept the submission of counsel that this estimate of time could be increased if (as has been the case to date) the fourth defendant does not instruct legal counsel.

[14]     Weighing  up  the  various  matters,  and  taking  into  account  that  the  extra amount  of  trial  time  is  in  relation  to  both  of  the  remaining  counterclaims,  but allowing additional amounts also for interlocutory matters, I consider that an appropriate award by way of security on each of the fourth and fifth counterclaims is the sum of $40,000.

[15]     I make an order in terms of paragraphs 1.1(b) and (c) of the application that the third defendant, and the first and fourth defendants, provide security for the fourth and fifth counterclaims respectively, each in the sum of $40,000.

Further discovery

[16]     The plaintiffs have sought further discovery from each of the defendants, as specifically set out in paragraph 1 of the application dated 4 March 2011.   The grounds for the application, identifying the further documents being sought, are set out extensively in paragraph 2 of the application, and are supported by a further affidavit of Jo-Anne Lee Thomas, sworn and filed in support.

[17]     The first and third to sixth defendants filed a further affidavit of documents (sworn on 6 April 2011) after filing and service of the plaintiffs’ application.  I accept that this further affidavit does not address the concerns identified by the plaintiffs with those defendants’ earlier discovery (as identified in paragraphs 85-86 of counsel’s submissions).   I can also infer this is the case from the absence of any notice of opposition.

[18]     I make orders as sought in paragraphs 1(a)-(h) of the application, save that the time by which the first and third to sixth defendants are to respond to these orders before strike-out of their pleading is to be 12 September 2011.

Costs

[19]     Although the plaintiffs/counterclaim defendants take the view that this could be an appropriate case for increased or indemnity costs given the history of this matter, their counsel seeks only an order for costs on a scale basis.  I accept that costs are appropriate, including costs for preparing for and attending today’s hearing.   I award costs to the plaintiffs/counterclaim defendants on a scale 2B basis together with disbursements as fixed by the Registrar.

Next event

[20]     This  proceeding  is  to  be  listed  for  mention  in  the  Chambers  List  at

2:15pm on 16 September 2011, to review compliance with the orders made.

Associate Judge Abbott

Solicitors:

MinterEllisonRuddWatts, Auckland:           [email protected]
Rice Craig, Auckland  [email protected]

Brett Norris, North Shore City  [email protected]

Official Assignee (G Caro) Private Bag 92513 Auckland 1010 [email protected]

Copy to:

B D Clode, Auckland:  [email protected]

S McLaughlin, Auckland  [email protected]

Case Officer:  [email protected]