Frost v Churton Hart and Divers Limited

[2015] NZHC 2648

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2014-404-003084 [2015] NZHC 2648

BETWEEN

BILL RHYS FROST

Plaintiff

AND

CHURTON HART AND DIVERS LIMITED

First Defendant

AND

LESLIE WILFRED DIVERS Second Defendant

Hearing:	28 October 2015
Appearances:	M F Dreaneen for the Plaintiff/Respondent P Napier for the Defendants/Applicants
Judgment:	28 October 2015

ORAL JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

B R FROST v CHURTON HART AND DIVERS LIMITED AND L W DIVERS [2015] NZHC 2648 [28

October 2015]

Background

[1]      The defendants have applied for security for costs to be fixed and for the proceeding to be stayed until security is given.

[2]      The defendants say there is reason to believe the plaintiff will be unable to pay costs if unsuccessful in the proceeding.

[3]      The plaintiff opposes the application.   He says he has sufficient assets and income  to  pay  the  defendants  costs  if  they  are  successful  in  defending  his proceeding.

Summary of affidavit evidence filed

[4]      On 24 November 2008 the plaintiff signed a heads of agreement by which he agreed to sell the assets of his company Magnum Corporation Limited (MLC) to Rush Security Services Limited (RSSL).  The plaintiff signed on behalf of MLC and Mr Darien Rush (Mr Rush) signed on behalf of RSSL.   The heads of agreement contained terms including:

(a)       Payment of the sum of $150,000 by firstly a cash payment of $12,500 on  1  December  2008,  and  then  by  three  quarterly  payments  of

$12,500 thereafter and with a final payment of $100,000 12 months after possession.

(b)      RSSL was  to  take over  and  settle  the plaintiff ’s  dispute with  the

Inland Revenue Department (IRD).

(c)       RSSL’s offer of purchase was open for acceptance until 28 November

2008.

[5]      In the evening of the following day the plaintiff telephoned his solicitors and spoke to Ms Seto a legal executive.  She said the plaintiff stated to her the deal must go through at all costs as then all his outstanding debts to IRD and child support among others would be resolved.

[6]      Later when she obtained a copy of the heads of agreement she said she noted it contained no security or charge to be registered to secure payment of the instalments  of the purchase price.    She said  she advised  the  plaintiff  as  to  the implications of the lack of security.  Also she said she advised the plaintiff that Mr Rush was known in the security business to be of questionable character.

[7]      The second defendant is a solicitor and the principal of the first defendant.

[8]      The second defendant was not available when the plaintiff initially made contact with Ms Seto seeking legal advice in respect of the sale of shares in his business to Mr Rush’s company.  Later, he said he advised the plaintiff to be weary regarding Mr Rush and that the plaintiff should not enter into any agreement with him.  The second defendant says he recalls the plaintiff in response indicated he did not have any choice because he had a tax problem and that he intended to proceed with the sale.

[9]      The second defendant said the plaintiff never outlined the extent of his difficulties with the IRD nor indicated what those problems were.   The second defendant said he reiterated advice given by Ms Seto claiming that he was not receiving any security for Mr Rush’s promises of payment.

[10]     In his statement of claim the plaintiff noted Mr Rush breached the terms of the parties’ contract in  material respects  and  as a consequence he suffered  loss because he says the contract did not adequately protect his position or interests.  He claims the defendants were negligent in that they breached a duty of care owed to him and that this breach caused loss which was foreseeable in the circumstances. Specifically he claims no advice was given to him about the risks of his signing the contract, or about the meaning of the material clauses of the contract, or about the implications and consequences for him if Mr Rush did not meet his contractual obligations, or that having transferred his shares to Mr Rush the plaintiff thereby released total control over his company.

[11]     Mr Rush paid the first instalment of $12,500 but nothing else.  The plaintiff therefore sues to recover the sum of $137,500 being the shortfall unpaid by Mr Rush.

The plaintiff also sues to recover an additional amount of $132,000 because Mr Rush did  not  resolve  the  company’s ACC,  PAYE  or  GST issues  in  that  amount  and because of which the plaintiff was sentenced to six months home detention.  Also and because of his criminal convictions the plaintiff says he was unable to work in the security industry for three years and lost an annual average income of $100,000 for each of those years.

Considerations

[12]     Rule 5.45 permits a Judge to order security for costs if there is reason to believe the plaintiff would be unable to pay those costs of the defendants if the plaintiff is unsuccessful.  Applications for security inevitably involve the Court with an enquiry into the merits of the plaintiff’s claim.  In that respect counsel have each addressed the prospects of the success.  It is the plaintiff’s case that he disputes the claims of Ms Seto and Mr Divers regarding the extent of advice they say was given to him.   As Mr Dreaneen submits the evidence behind this dispute will likely be important in the Court’s consideration of issues in due course.

[13]     For the defendants Mr Napier submits the evidence is clear regarding the defendants’ knowledge of Mr Rush’s commercial reputation; and in that context the plaintiff’s apparent determination notwithstanding to pursue the sale of his shares in MLC.   Indeed his intention was clear by the heads of agreement he had signed before contacting the defendants for advice.

[14]     If this matter proceeds to trial likely the Court will focus as well upon what each side says about the advice and the extent of that advice given by Mr Divers and Mr Seto to the plaintiff.  In that regard the Court will undoubtedly review the email evidence apparently supporting claims of advice given to the plaintiff that the agreement should have provided for security for the promises of payment made to him.

[15]     Also the Court may want to consider elements of apparent delay concerning a claim filed on 24 November 2014 exactly six years after the plaintiff pleads the services of the defendants for relevant purposes were engaged.

[16]     Mr Dreaneen correctly encourages the Court to be weary regarding too many conclusions to be drawn concerning facts which should only be determined once oral evidence is given at trial.

[17]     In that outcome the Court needs to consider whether the plaintiff could afford to pay costs if his claim failed. Those costs, calculated on a scale 2B basis amount to

$33,673 for a three day trial are not in dispute.  The plaintiff’s position is that he

could afford to pay those if his claim failed.

[18]     Evidence of his ability to do so is provided by his affidavit dated 19 August

2015.

[19]     The plaintiff’s evidence is that he has been working as a security consultant and earns $1,200 per week.  In support of that claim he provides copies of invoices he has rendered to the Te Aupouri Maori Trust Board for the weeks of 24 July, 31

July, 6 August and 13 August 2015.  He also says he has recently been employed as a security officer on a salary of $65,000 per annum.

[20]     The plaintiff also provides a spreadsheet showing his current assets, liabilities and income.  His assets include a 2004 motor vehicle which is said to have a value of

$25,0001.  Also the plaintiff says he has $20,794.26 held with Kiwi Saver.   Other

assets include ‘various tools - $10,000’ and ‘household items - $10,000’.

Considerations

[21]     The  Court  has  concerns  about  the  value  of  information  and  statements provided on behalf of the plaintiff in support of his claim of an ability to pay costs if his proceeding failed.

[22]     The plaintiff’s proof of income is only provided by invoices rendered over a period of one month. The Court considers that information is insufficient proof of an ability to meet an adverse costs payment.   Likewise there is insufficient proof of

value in his tools and household items.  No independent valuation of these has been

1 A copy of a valuation of the vehicle was handed up to the Court. That confirmed a value of $25,000 but noted the vehicle did not have a current warrant of fitness.

provided.   Also,  as counsel accepts, the  plaintiff’s  Kiwi Saver funds  cannot be accessed by a creditor seeking to enforce any costs award.  Further, it appears clear from the Court of Appeal decision in Trustees Executors Limited v Official Assignee2 that  the  plaintiff  himself  would  likely  experience  difficulties  in  obtaining  a withdrawal of his Kiwi Saver funds for the purpose of paying the Court costs of the defendants  in  this  case.     In  that  case  the  Court  agreed  that  the  legislature contemplated early withdrawal being permitted where significant financial hardship arose through the inability to meet the basic necessities of life.

Conclusions

[23]     Proof the plaintiff’s claim is not without its challenges.  However, the parties are  in  dispute  regarding  evidence  of  the  extent  of  legal  services  engaged  and provided.  Ultimately those issues will be for resolution of a trial Judge.

[24]     In the circumstances it is inappropriate to draw conclusions at this stage regarding the strength of the plaintiff’s claims.

[25]     The plaintiff claims he could meet an adverse award of costs.   The Court considers there is inadequate evidence from the plaintiff to support his claim.

[26]     Apparently the plaintiff pursued claims against Mr Rush on the breakdown of their agreement and that only in that outcome was this proceeding pursued against the defendants.  What is clear is that when the plaintiff agreed to sell his company’s business to Mr Rush he was in a state of significant credit pressure.  The Court has too little information about how the present claims against the defendants are related to those losses it is claimed arise because of Mr Rush’s default seven years ago.

Result

[27]     The application for security for costs is granted.  Security shall be fixed in the sum of $22,500.  Of that sum $12,500 is to be paid into Court immediately and until

it is the proceeding will be stayed.  The balance of $10,000 is to be paid no later than

2 (2015) 30 FRNZ 201.

that date fixed by the Court as the close of pleadings date, in default of which the

Court may, on application, consider whether the proceeding should be struck out.

[28]     The costs upon the security for costs application shall be fixed on a 2B basis and are payable by the plaintiff, but not from any funds ordered to be posted as security unless both parties agree.   The Court certifies for a quarter day’s hearing

time.

Associate Judge Christiansen