Foodsrus Limited v Hussain
[2025] NZHC 1612
•23 June 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-090-001661
[2025] NZHC 1612
BETWEEN FOODSRUS LIMITED
Plaintiff
AND
PAKISTAN MART LIMITED (removed)
First Defendant
IFTIKHAR HUSSAIN
Second DefendantRIZWAN ULLAH BUTT
Third Defendant
Hearing: 13 June 2025 Appearances:
P Kennelly for the Plaintiff
N H Malarao for the Second Defendant
Judgment:
23 June 2025
JUDGMENT OF ASSOCIATE JUDGE COGSWELL
This judgment was delivered by me on 23 June 2025 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Kennelly Law, Orewa
Meredith Connell, Auckland
FOODSRUS LTD v HUSSAIN [2025] NZHC 1612 [23 June 2025]
Introduction
[1] The second defendant, Iftikhar Hussain, has applied for security for costs against the plaintiff, and for wasted costs in respect of steps taken in the District Court.
The claims were transferred to the High Court in 2023.1
[2]The second defendant seeks an order for security for costs in the sum of
$45,000 on a staged basis, on the basis that there is reason to believe the plaintiff will be unable to pay his costs if it is unsuccessful in the proceeding, and that, in all the circumstances, it is appropriate for security for costs to be paid and the plaintiff’s proceedings stayed until payment is made.
Approach to security for costs
[3] The Court is able to order a plaintiff to pay security for costs to a defendant if there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in its proceeding, and that it is, in all the circumstances, just that security be given.2
[4] The determination of a security for costs application involves a two-step analysis:
(a)Has the applicant satisfied the Court of the threshold issue of inability to pay costs if unsuccessful?
(b)If so, then how should the Court exercise its broad discretion under r 5.45(2)?
[5] Associated with that, if security is to be granted, what level should it be set at, and should the proceedings be stayed pending payment?
[6] Each case must be determined on its own circumstances, and reference to authority may be of limited assistance in the particular circumstance of each case.
1 Foodrus Ltd v Pakistan Mart Ltd [2023] NZDC 11270.
2 High Court Rules 2016, r 5.45.
[7] However, some guiding principles can be drawn from the authorities, including:
(a)There is a need to balance the competing interests of both the plaintiff and the defendant. The Court should weigh the plaintiff’s right to be heard in the proceedings and the right of an unsuccessful defendant to be protected from costs if the plaintiff’s claim is unsuccessful. The Court will not readily make an order for security that will prevent a legitimate claim being advanced.
(b)The Court should assess the merits, and therefore the prospects of success, of the substantive claim as far as possible given the limited amount of untested evidence available to the Court at the date the application is determined.
(c)If the plaintiff’s impecuniosity is caused by the defendant’s actions, then this is a factor that may militate against the making of an order.
The threshold question
[8] The plaintiff concedes that it will be unable to meet the costs of the defendant if it is unsuccessful in its proceedings. It admits that if security is granted the matter will not be able to proceed.
[9] It says that the plaintiff’s impecuniosity is linked directly to the actions of the defendant in not meeting his obligations as a guarantor under the agreement the subject of the proceeding.
The merits
[10] It is difficult for the Court to meaningfully assess the merits of the respective parties’ positions at this early stage.
[11] The proceedings relate to a claim for breach of an agreement for sale and purchase of a business known as Apna Bazaar (the agreement). The agreement is dated 21 May 2019. It is a standard form agreement using the ADLS form.
[12] The agreement includes a guarantee under which the guarantors jointly and severally guarantee performance by the purchaser of its obligations under the agreement.
[13]It is alleged that:
(a)the plaintiff was the vendor;
(b)a company now removed from the Companies Register called Pakistan Mart Limited was the purchaser; and
(c)the purchaser’s obligations were guaranteed by the second and third defendants.
[14]On the face of the agreement, it is signed by all the parties above.
[15] The agreement was declared unconditional on 5 June 2019, and was due to be settled on 13 June 2019.
[16]The transaction never settled.
[17] The plaintiff says that the first defendant and the second and third defendants are in breach of the obligations they assumed under the agreement.
[18]The first defendant has been removed from the Register.
[19] Judgment was entered against the third defendant under circumstances that the third defendant takes issue with, but which do not need to factor into my consideration on this application.3 The judgment is unsatisfied.
3 Foodsrus Ltd v Pakistan Mart Ltd HC Auckland CIV-2022-090-1661, 19 March 2024.
[20] The second defendant’s argument is that he is not liable to the plaintiff as he did not sign the agreement. Rather, he says that his signature has been forged by the third defendant.
[21] The third defendant says that he signed the agreement (which includes the relevant guarantee) on behalf of and with the second defendant’s specific authority.
[22] Whether the third defendant signed the agreement with the authority of the second defendant will be a key issue for determination at trial. I cannot determine that matter now.
[23] The plaintiff refers to relevant conduct surrounding the transaction which it says supports its case that the second defendant agreed to be and knew he was bound to the agreement. Those actions include the second defendant:
(a)having his lawyer draft the agreement;
(b)incorporating the first defendant, Pakistan Mart Limited;
(c)obtaining an IRD number for Pakistan Mart Limited;
(d)paying part of the deposit from his own funds;
(e)taking possession of the business on 29 April 2019 and operating it until 28 June 2019 when he gave up possession;
(f)selling the plaintiff’s stock from the business during the course of his operation of the business and retaining the proceeds of sale;
(g)paying insurance premia, his own legal costs and taking drawings from the proceeds of those sales;
(h)entering into contracts for supply, and the provision of an EFTPOS machine in the name of the first defendant;
(i)seeking bank finance together with the third defendant;
(j)signing financing documents including the provision of a mortgage over his property to Heartland Bank to support the borrowing to fund the purchase;
(k)executing an assignment of lease necessary to effect the settlement of the transaction so the business could be operated from its current premises with the approval of the landlord;
(l)writing an email on 14 June 2019 that repeatedly refers to “we” when discussing the mechanics of the transaction. The plaintiff says that in using “we” he must have meant himself as well as the third defendant and shows that he knew he was bound to the agreement;
(m)attending a meeting on 20 June 2019, after settlement was due and not mentioning his current defence that he did not sign the agreement, or authorise the third defendant to sign the agreement on his behalf. The lawyer acting for the plaintiff, Mr Hodson, gives evidence that he attended this meeting and that there was no suggestion at any stage that the agreement had not been executed properly or that the second defendant had not signed it;
(n)attending a meeting convened at the Pakistan Association of New Zealand on 31 July 2019 when, Mr Butt says, the second defendant never raised the issue about execution of the agreement; and
(o)retaining the balance of the unsold stock.
[24] Many of these facts, if proven, will be persuasive evidence against the second defendant.
[25]The second defendant says that the case against him is weak. He says that:
(a)the third defendant’s evidence is unreliable and self-serving and that as a judgment debtor to the plaintiff he is colluding with the plaintiff and that his evidence should not be trusted;
(b)he has sworn an affidavit deposing that he did not sign the agreement for sale and purchase, the assignment of lease or the statement of financial position documents;
(c)there is a “confession” by the third defendant that he signed the second defendant’s name on the documents;
(d)his WhatsApp conversation with the third defendant later on 21 June 2019 shows that he wanted changes to the agreement after it was said to have been signed (on 21 May 2019) and so he cannot have signed it when it is alleged to have been signed;
(e)he cannot have signed the assignment of lease document as alleged. The evidence of Sarah Erojo saying that she met with and witnessed the assignment of lease document on 12 June 2019 is wrong, as the executed assignment document was circulated to the parties’ lawyers on 11 June 2019. Clearly the evidence is that an executed assignment document was circulated on 11 June 2019, but it may be that Sarah Erojo is simply wrong in her recollection of the date. Her evidence is that the second defendant attended and signed and that his signature was witnessed by her;
(f)he says that geolocation evidence from his phone shows that he cannot have been in Queen Street on 11 June 2019 as he was at home or at the business on that day and not in Queen Street at all. Hence, he could not have signed the assignment of lease with Ms Erojo on 11 June 2019;
(g)he says that the third defendant was the only one dealing with the lawyers in the transaction and not the second defendant; and
(h)finally, he alleges that the Companies Office dealings were all done by the third defendant using the second defendant’s company key and that he did not do any of those dealings.
[26] It should be noted however that neither the third defendant’s “confession”, nor the WhatsApp conversation are definitive because the plaintiff’s case is that the third defendant was authorised by the second defendant to sign the agreement. Signing the actual name of the second defendant may have been in accordance with the authority granted to the third defendant by the second defendant. The agreement had already been signed by the time the WhatsApp conversation took place. The fact that the second defendant wanted further terms may simply have been an attempt to further negotiate terms to an agreement that was by then unconditional.
[27] All of these matters give some strength to the second defendant’s defence, but are not determinative. The second defendant’s later conduct is inconsistent with his position that he is not bound by the agreement. For example, in arranging finance with the third defendant and granting a mortgage over his home. These issues will all be relevant to the Court’s consideration at trial of whether the second defendant is bound to the guarantee obligation included in the agreement.
[28] However, at this initial stage of the proceedings, I find that there is a prima facie case to be answered by the second defendant based on his conduct which may corroborate the plaintiff’s claim that he is a guarantor.
[29]In particular, I find it significant that the second defendant:
(a)paid part of the deposit from his own funds;
(b)sought bank finance on behalf of the purchaser company with the third defendant and signed bank documents with the third defendant to fund that purchase;
(c)granted a mortgage over his home to secure the bank funding to pay the purchase price;
(d)authorised the payment of the deposit for the purchase price from the funds advanced by Heartland Bank;
(e)operated the business for two months, during which time he sold stock and retained the proceeds of sale;
(f)attended the 20 June 2019 meeting but did not raise the issues about him not being bound to the agreement at that key meeting; and
(g)kept the keys to the business until long after the settlement was due on 13 June 2019, only returning them on 28 June 2019.
[30] All of this conduct is consistent with the second defendant being bound to the agreement which he performed in part.
[31] He may ultimately prove that he did not authorise the third defendant to bind him, or that the third defendant exceeded his authority, but at this stage I find that the conduct is consistent with him being a party to the agreement and the guarantee.
[32] The plaintiff makes the point that the issues around the second defendant not having signed or authorised the signing of the agreement were never raised until the second defendant retained his current firm of lawyers.
[33] The second defendant’s counsel submitted also that he may not have understood the impact of entering into possession and that the steps he took are consistent with him effectively engaging in a lengthy due diligence period. However, there is no pleading of non est factum, the second defendant’s defence is squarely founded on an argument that he did not sign, nor authorise, his signature binding him to the agreement.
[34] That is the key issue. His conduct after the agreement was allegedly signed on his behalf may inform the Court on that issue.
[35] I find that there is a prima facie case that the second defendant is a guarantor of Pakistan Mart Limited’s obligations to the plaintiff.
Key issue – impecuniosity caused by the defendant
[36] This is the key issue to be determined in this application, once the threshold test and the merits of the claim are considered.
[37] The cases are clear that it could be unjust for a defendant to receive security for costs if it is the defendant’s actions, being the subject of the litigation, that have caused the plaintiff’s impecuniosity.4
[38] This factor includes a consideration of linkage, rather than any further examination of the merits.5 It involves weighing two considerations. First, whether the possibility of a connection between the plaintiff’s impecuniosity and the subject matter of the proceeding is sufficiently strong to weigh against an order for security.6 Second, the need to take care to avoid the circular argument that because the defendant does not accede to the claim and pay damages, the impecuniosity is therefore its fault.7
[39] In Davy v Howell the Court discussed how any reasonable probability established by persuasive evidence – mere assertion not sufficing – that the plaintiff’s impecuniosity results from the defendant’s actions complained of in the proceeding is relevant as a factor which militates against security.8
[40] I am satisfied there is a suitable case for finding that the impecuniosity of the plaintiff is caused by the second defendant.
4 Bell-Booth Group Ltd v Attorney-General & BCNZ (1986) 1 PRNZ 457 (HC).
5 Highgate on Broadway Ltd v Divine [2012] NZHC 2288 at [23].
6 Du Claire v Palmer HC Wellington CIV-2009-485-2638, 29 October 2010 at [23].
7 Birnie Capital Property Partnership Ltd v Birnie HC Auckland CIV-2010-404-3000, 29 October 2010 at [31] and [48]–[50].
8 Davy v Howell (1993) 7 PRNZ 141 (HC) at 144–145. See also Jessica Gorman and others
McGechan on Procedure (looseleaf ed, Thomson Reuters) at [HR5.45.03].
[41]The factors include:
(a)the size of the purchase price, being $340,000, which the plaintiff has been deprived of as a result of Pakistan Mart Limited’s failure to settle;
(b)the fact that the second defendant operated the plaintiff’s business for two months, during which time he sold down, but did not replenish, the plaintiff’s stock, and kept the proceeds of those sales for himself. If the second defendant truly considered that he was not bound to purchase the business, then he had no entitlement to retain those proceeds, and should have disgorged them to the plaintiff. Those proceeds would have then been available to the plaintiff to fund this litigation. There is a dispute about the amount of those proceeds, but on the evidence it appears that the amount is equivalent at least to the security amount sought by the second defendant;
(c)the fact that the plaintiff entered into an assignment of lease with its landlord in anticipation of Pakistan Mart Limited becoming the assignee and then on breach having to recommence paying rent and then negotiate an exit from the lease obligation, causing loss to the plaintiff; and
(d)the fact that the purchaser’s breach meant that the plaintiff’s shareholder’s related company Tetrad Holdings Limited was then in breach of its funding with Heartland Bank causing Heartland Bank to enforce its security, rendering that business worthless as well.
[42] The effects of the purchaser and guarantors’ breach were significant and far reaching.
[43] The second defendant relies on authority that in a closely held company like the plaintiff, it may be appropriate for the shareholder to fund the litigation as the shareholder stands to directly benefit from the litigation.9
9 Birnie Capital Property Partnership Ltd, above n 7, at [30].
[44] However, here, the shareholder has had its value in both the vendor company and its related company, Tetrad Holdings Limited, destroyed by the purchaser’s breach. It is the plaintiff’s position that the sale proceeds of the sale of Apna Bazaar to Pakistan Mart Limited was intended to repay Tetrad Holdings Limited’s borrowings from Heartland Bank. Its failure to do that resulted in Heartland Bank taking enforcement action against Tetrad Holdings Limited’s assets.
[45] This has had the effect that the shareholder is now unable to fund the plaintiff’s progress of the litigation, because both of his businesses, Foodsrus Limited and Tetrad Holdings Limited, have been negatively impacted by the failure of Pakistan Mart Limited and its guarantors to meet their obligations under the agreement.
[46] Accordingly, I consider that the plaintiff’s impecuniosity has been caused by the defendant’s actions. This is a factor that militates against the granting of security.
Decision
[47] Denying access to a plaintiff to advance its claims by an award of security for costs that will prevent it advancing those claims is a matter “to be given significant weight” in the Court’s decision to decline an application for security for costs.10
[48] The Court will not likely deprive a plaintiff of an opportunity to advance its claim where the defendant has contributed to the impecuniosity that the plaintiff now complains of. The plaintiff has proven to the standard required that the impecuniosity has been caused by the second defendant.
[49] Effectively, the second defendant’s conduct in not meeting his guarantee of Pakistan Mart Limited’s obligations, in selling down the stock of the plaintiff and not replenishing it, retaining the funds and not disgorging them to the plaintiff and causing the plaintiff loss by having to take on the lease obligations it thought had been assigned to the purchaser, had the result that the plaintiff’s business was if not destroyed then seriously imperilled.
10 Murray v Piggot [2019] NZHC 2568 at [29].
[50] The plaintiff has not been able to sell the business to other purchasers, and so the defendant’s actions have had an actual causative effect on the losses suffered. I accept that the plaintiff has proven that the second defendant’s actions have destroyed the business, leaving the plaintiff with little or no asset available to sell. The plaintiff has not failed to mitigate.
[51]I, therefore, find:
(a)the threshold test of impecuniosity has been met in this case;
(b)there is a strongly arguable case that the plaintiff’s impecuniosity has been caused by the defendant’s breach of contract; and
(c)therefore, in all the circumstances I decline the application for security for costs.
Wasted costs application
[52] The second defendant also seeks an order for the costs he incurred in defending the District Court proceedings until the time that they were transferred to this Court.
[53]The District Court held that all costs issues in that Court were reserved.
[54] I consider that the issue of costs in that Court should similarly be reserved pending the outcome of the proceeding in this Court.
[55]Accordingly, I decline the second defendant’s application for wasted costs.
Costs
[56]The plaintiff has been successful. It is entitled to 2B costs.
[57] If the parties are unable to agree on costs, then the plaintiff may file a memorandum seeking costs of no longer than five pages (including attachments) within 20 working days of the day of this judgment.
[58] The defendant may file a memorandum opposing costs, of no more than five pages (including attachments) within a further five working days.
[59]The costs application will be determined on the papers.
Associate Judge Cogswell
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