Hatfields Property Holdings Limited v Otanerau Property Holdings Limited

[2016] NZHC 2122

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-002324 [2016] NZHC 2122

BETWEEN

HATFIELDS PROPERTY HOLDINGS

LIMITED Plaintiff

AND

OTANERAU PROPERTY HOLDINGS LIMITED

First Defendant

AND

ROBERT JAMES HODGSON Second Defendant

AND

GRAEME JAMES MILNE Third Defendant

AND

ANNE MAREE O’CONNOR
Fourth Defendant

AND

GARY ALAN HARWOOD Counterclaim Defendant

Hearing:	2 September 2016
Appearances:	J Dean for Plaintiff and Counterclaim Defendant D Taylor for Defendants
Judgment:	8 September 2016

JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment was delivered by me on 8 September 2016 at 10.00 a.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

McBreens, Hamilton

John Dean Law Office, Hamilton

D J Taylor, Hamilton

Date.......................................

HATFIELDS PROPERTY HOLDINGS LIMITED v OTANERAU PROPERTY HOLDINGS LIMITED [2016] NZHC 2122 [8 September 2016]

[1]      The defendants seek two orders (by way of interlocutory application) as follows:

(a)       An  order  striking  out  paragraphs  35  to  58  of  the  first  amended statement of claim; and1

(b)      An order that the plaintiff give security for costs.

Strike-out

[2]      The defendants submit that paragraphs s 35 to 58 of the amended statement of claim are totally extraneous to the plaintiff’s causes of action.   The causes of action are twofold.  The first claims breaches of fiduciary duty by the first defendant in its capacity as corporate trustee; and the second alleges knowing assistance in those breaches by the second, third and fourth defendants (directors of the first defendant).

[3]      The plaintiff’s claim arises in the context of a troubled venture involving the plaintiff, the defendants, and the counterclaim defendant in a proposed subdivision of  a  property  near  Orewa.     The  defendants  deny  any  liability,  and  bring counterclaims alleging a failure by the plaintiff and the counterclaim defendant to pay any financial contribution towards the venture.   They also plead a breach of fiduciary duty.

[4]      In  a  meeting  in  July  2009  control  of  the  venture  was  taken  from  the counterclaim defendant.   No contribution was sought from the plaintiff or counterclaim defendant in relation to outstanding financial contributions.   The defendants say the cost of funding the land acquisition had been borne by them, and they continued to meet those costs as if the venture were between the remaining venturers.   Five years later the plaintiff lodged a caveat triggering the substantive proceeding.

[5]      The paragraphs of the plaintiff’s claim that the defendants seek to have struck

out concern the sale by the second defendant of some maple trees, the net proceeds

1      The plaintiff has provided a draft second amended statement of claim on the eve of the hearing in which it has made minor amendments to the paragraphs that the defendants would like struck out. In the draft document the relevant paragraphs are 43 to 55.

of which were to be applied to the holding costs of the property in circumstances where the venture was undermined (indirectly) by the global financial crisis.

[6]      During the course of the hearing counsel for the plaintiff accepted that these paragraphs lack an essential nexus between the alleged actions of the second defendant and the defendants as alleged fiduciaries of the plaintiff.   The pleading requires amendment to plead how or why the actions attributed to the second defendant in these paragraphs are a breach of fiduciary duty; and why such breach is attributable to each of the other defendants as fiduciaries - what was their duty, to whom was it owed, and how did the alleged actions constitute a breach of fiduciary duty on the part of each defendant (the pleading reads currently as one alleging a breach of an individual creditor’s obligations).

[7]      Counsel  for  the  plaintiff  submits  that  the  pleading  is  capable  of  being remedied, to show how the alleged failures of the second defendant (to achieve the best price and to account for the proceeds) are a breach of fiduciary duty on the part of each defendant in the context of the parties’ property venture.    I will therefore allow the opportunity to amend the pleading.

[8]      I order that the further amended claim is to be filed and served not later than

5.00  pm on  28  October 2016.    If  the amended  pleading is  filed on  time, the defendants will have leave to bring the matter back before the Court if it is still considered deficient, and may seek to have the relevant part of the pleading struck out.  A memorandum may be filed on two days’ notice for that purpose.   It goes without saying that if the amended pleading is not filed on time, there will be an order striking out the paragraphs complained of.

Security for costs

[9]      On  the  security  for  costs  application  it  is  common  ground  that  the jurisdictional threshold for an order under High Court Rule 5.45 is met. The plaintiff accepts that it is impecunious.

[10]     The first issue for determination is therefore how should the Court exercise the wide discretion afforded to it under 5.45(2).   The test is whether the Court

“thinks it is just in all the circumstances”, to order the giving of security for costs. It is trite law that what is involved is a broad overall assessment; the discretion is not to be put into a straitjacket by burdens of proof.2

[11]     The following factors are routinely taken to be relevant:

(a)      A balancing of the interests of the plaintiff and defendant.  This is the overriding consideration.  The interests of the defendant in not being drawn into unjustified litigation, particularly where the litigation is complicated or unnecessarily protracted, is to be weighed against access to the Courts for a genuine plaintiff.   The Court is therefore to endeavour to assess the merits and prospects of success.  In doing so, the Court does not need to be provided with excessive information on the merits, or to make an in-depth assessment.  It needs to be borne in mind that it is not making findings that are dispositive of the merits.

(b)      Whether  the  plaintiff’s  impecuniosity  results  from  the  defendant’s

actions.

(c)      Whether the defendant has delayed in making its application, and whether the delay has prejudiced the plaintiff.

[12]     It is not suggested that the plantiff’s case is unarguable.  At the heart of the claim is an argument about what were the terms of the party’s property venture, what contribution was the plaintiff required to make, and whether it has an equitable interest in the property.  As far as I can assess on the material presently before the Court, the plaintiff’s claim is not one that appears altogether without merit.  It is at least tenable.  The plaintiff should not therefore be lightly denied the opportunity to pursue its claim for reasons of impecuniosity or because of an excessive burden to provide security which it may be unable to meet.   In this case I am advised by counsel for the plaintiff that it is reliant upon legal aid, and that may well point to

such an outcome.

2      Lunn v Fourth Estate Holdings Ltd (1997) 11 PRNZ 316 (HC) at 318.

[13]     Counsel  for the defendants  argues  that  the plaintiff  was  almost  certainly impecunious at the outset of the parties’ venture, and therefore whatever the defendants are alleged to have done, they have not caused its impecuniosity.   He submits that any suggestion to the contrary should not weigh in the plaintiff’s favour. Counsel for the plaintiff submits, however, it was always known that the plaintiff did not  have  the  ability  to  make  a  significant  cash  contribution.    He  submits  the plaintiff’s contribution was always to be in the form of “intellectual property” and property development knowledge, negotiating skills, and the like, and if denied the opportunity  to  prosecute  its  claim  because  of  the  burden  of  having  to  provide security, it will lose what it stood to gain from its involvement in the venture.

[14]     Counsel for the plaintiff also submits that there has been a significant delay by the defendants in making the application for security.   He points out that the statement of claim was filed in late 2014, and argues that the plaintiff has already expended significant time and cost.

[15]     As  against  that  argument,  counsel  for  the  defendants  submits  that  the application for security has been made in accordance with timetable directions, albeit directions that were modified to allow an extension of time.   He submits it must be borne in mind, that the extension took account of the plaintiff’s intention to amend its statement of claim, and that in all the circumstances the plaintiff cannot fairly say it has been prejudiced by delay on the defendants’ part.

[16]     I accept that the plaintiff has been on notice from an early stage that security would be sought, but as against that, it was open to the defendants to make their application for security well before now.   I do however take into account that the plaintiff itself has delayed for some considerable time in bringing its action.

[17]     Weighing  all  of  these  factors,  my  impression  is  that  the  defendants  are entitled to at least some measure of security.  There is always a risk that security will impose a heavy burden on an impecunious plaintiff, but conversely the plaintiff has not exactly acted with alacrity in prosecuting its claim, and its pleadings are wanting (albeit in some limited respects).   I am satisfied therefore that there should be an order for security, but that it should be limited.

[18]     I turn then to the remaining issue – what security should be ordered. I think an appropriate sum to allow for some measure of compensation to the defendants, in the event that the claim is unsuccessful, would be $25,000.  It is to be paid into Court in two tranches of $12,500:

(a)       The first is to be paid when the amended claim is filed; and on time the proceeding will be deemed stayed pending further order.

(b)The second is to be paid by the close of pleadings date (yet to be fixed).

(c)       Leave is reserved  to seek to have the proceeding stayed if  either payment is not made on time.

Costs

[19]     The defendants have achieved a significant measure of success on the two applications.  However, as the plaintiff is legally aided, there would seem little point in making an order for costs against the plaintiff at this stage.  Pursuant to r 14.7(g),

costs are reserved.

Associate Judge Sargisson