Hennah v Westpac Banking Corporation

[2024] NZHC 3537

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-2526 [2024] NZHC 3537

BETWEEN

GEOFFREY MAURICE HENNAH and

CHERYL ELLEN HENNAH as trustees of the BEAULY TRUST

First Plaintiff

GEOFFREY MAURICE HENNAH and CHERYL ELLEN HENNAH (IN PARTNERSHIP)

Second Plaintiff

AND

WESTPAC BANKING CORPORATION

First Defendant

WESTPACT NEW ZEALAND LIMITED

Second Defendant

Hearing:	21 November 2024
Counsel:	L C A Farmer / G D Simms / N F D Moffatt for the Plaintiffs B J Upton for the Defendants
Judgment:	25 November 2024

JUDGMENT OF ASSOCIATE JUDGE BRITTAIN

This judgment was delivered by me on 25 November 2024 at 12 midday.

Pursuant to Rule 11.5 of the High Court Rules.

…………………..

Registrar/Deputy Registrar

Solicitors/Counsel:

Wynn Williams, Auckland Simpson Grierson, Auckland

HENNAH v WESTPAC BANKING CORPORATION [2024] NZHC 3537 [25 November 2024]

Introduction

[1]    Mr and Mrs Hennah are the trustees of the Beauly Trust and the Hennah Partnership. They sue Westpac Banking Corporation and Westpac New Zealand Ltd (together,  Westpac)  for   losses   alleged   to   arise   from   Westpac’s  advice   to Mr and Mrs Hennah and the Hennah group of entities regarding interest rate swaps as part of a finance package.

[2]    On 30 June  2022,  Associate  Judge  Andrew  (as  he  then  was),  ordered Mr and Mrs Hennah to provide security for costs of $25,000 in respect of discovery and any interlocutory applications, with further security for costs to be reviewed after the conclusion of those steps (the judgment).1

[3]    Mr and Mrs Hennah paid the security. Discovery has now been completed, and Westpac applies for further security for costs for preparation of evidence and trial. Westpac seeks security of $256,852, based on its calculation of an award of 2B costs for the anticipated steps to conclude the trial and an estimation of experts’ costs.

[4]    Mr and Mrs Hennah argue that no further security should be required, and alternatively, any further security should be modest.

Legal principles

[5]    The Court has a discretion to grant an application for security of costs under  r 5.45(2) of the High Court Rules 2016 if it would be just in all the circumstances to do so. That discretion is engaged if the threshold test in r 5.45(1) is met.

[6]    In the present case the threshold is met because there is reason to believe that Mr and Mrs Hennah will be unable to pay Westpac’s costs if the proceeding is unsuccessful. However, the imposition of security is not an automatic consequence of the plaintiff’s impecuniosity.2

1      Hennah v Westpac Banking Corporation [2022] NZHC 1526.

2      Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [20]–[21].

[7]    Exercise of the Court’s discretion under r 5.45(2) requires a balancing of the interests  of  plaintiff  and  defendant,  as  summarised  by  the  Court   of  Appeal    in McLachlan v MEL Network Ltd:3

[15]   The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs. That must be taken as contemplating also that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim. An order having that effect should be made only after careful consideration and in a case in which the claim has little chance of success. Access to the Courts for a genuine plaintiff is not lightly to be denied.

[16]   Of course, the interests of defendants must also be weighed. They must be protected against being drawn into unjustified litigation, particularly where it is over-complicated and unnecessarily protracted.

[8]    The less apparently meritorious a case is, the more likely that security will be ordered.4

[9]    The Court has a broad discretion which is not to be fettered by constructing “principles” from the facts of previous cases.5

The judgment and subsequent developments

[10]   Associate Judge Andrew made the following findings in the judgment which remain pertinent:

(a)Mr and Mrs Hennah are not a nominal plaintiff representing the interests of others – they are representing their own interests;6

(b)there is no evidence that Mr and Mrs Hennah have disposed of assets to avoid meeting an adverse costs order;7

3      McLachlan v MEL Network Ltd (2002) 16 PRNZ 747 (CA).

4      Highgate on Broadway Ltd v Devine, above n 2, at [22].

5      McLachlan v MEL Network Ltd, above n 3, at [13].

6      Hennah v Westpac Banking Corporation, above n 1, at [25(a)].

7      At [25(b)].

(c)there is some evidence of financial support for Mr and Mrs Hennah from external sources, but that appears to be informal and from persons or entities with no direct interest in the subject matter of the litigation;8

(d)it is not reasonably probable that Mr and Mrs Hennah’s impecuniosity was caused by Westpac;9

(e)Mr and Mrs Hennah’s claims are not prima facie unmeritorious, although there are some formidable obstacles to overcome;10

(f)the denial of security for costs would not be oppressive for Westpac, although Westpac faces the risk of significant costs;11 and

(g)the ordering of modest security was unlikely to bring the claim to a dead halt.12

[11]   Mr and Mrs Hennah have amended their statement of claim twice since the judgment.   The   amended    claims    have    not    changed    the    substance    of Mr and Mrs Hennah’s allegations against Westpac.

[12]   Discovery and inspection have been completed, including discovery from the receivers of a company in the Hennah group. The parties have attended mediation, unsuccessfully.

[13]   The parties have not filed any updating evidence relevant to security for costs. Neither party submitted that there has been a material change in the circumstances that existed at the time of the judgment.

8      At [25(d)].

9      At [26(a)].

10     At [25(c)].

11     At [25(e)].

12 At [26(b)] and [28].

Analysis

[14]   The sole issue for determination is how the Court ought to exercise its discretion to fix further security.

[15]   In their written submissions, both parties reiterated arguments that were put to Associate Judge Andrew and drew on the Judge’s reasoning in the judgment. I do not need to repeat those arguments, and no challenge was made to Associate Judge Andrew’s findings.

[16]   Westpac seeks further security for the same reasons that supported the first award of security of $25,000. Westpac places most weight on the following factors:

(a)the significant weaknesses in Mr and Mrs Hennah’s claims;

(b)there is no evidence that Mr and Mrs Hennah will be unable to progress their claims if additional security is required; and

(c)the proceeding is complex and actual costs are likely to exceed the scale 2B costs by a significant margin.

[17]   I return to the fundamental balance between a genuine plaintiff’s right to access the courts, and a defendant’s right to be protected from unjustified litigation.

[18]   Mr and Mrs Hennah’s claim may face significant obstacles, however, it is apparent that Westpac does not perceive those obstacles to be sufficient to justify an application for defendant’s summary judgment or strikeout.

[19]   The Commerce Commission investigated Westpac and other banks in 2013 to 2015, including Westpac’s actions in promoting interest rate swaps. Westpac accepted that it had engaged in certain conduct that was likely to mislead or deceive some customers, although Westpac does not accept that it is liable to Mr and Mrs Hennah.

[20]   The claim is tenable. I consider Mr and Mrs Hennah to be genuine plaintiffs, with a right to access the courts.

[21]   Westpac is a well-known significant financial institution, with recent reported annual profits in excess of $1 billion. It will not be oppressive if further security is limited to a reasonable amount.

[22]   Mr and Mrs Hennah do not assert that they are unable to pay any further security. Mr and Mrs Hennah have demonstrated that they have been able to raise security of $25,000 in the past. Mr and Mrs Hennah have continued to retain their own counsel and have elected not to disclose how they are continuing to fund the litigation. The affidavit evidence in opposition to Westpac’s first application for security confirms that Mr and Mrs Hennah have funding support from non-parties.

[23]   Counsel for Mr and Mrs Hennah submitted that if further security is to be ordered it should be significantly less than Westpac’s 2B calculation. Westpac’s calculation of 2B costs for the remaining steps in the proceeding is $111,852. The remaining interlocutory steps and preparation of evidence accounts for $31,189.50. The balance of $80,662.50 is for trial preparation and appearance at trial. I consider that security of $100,000 is reasonable for legal costs.

[24]   Regarding experts’ costs, it was submitted for Mr and Mrs Hennah that Westpac’s primary expert has already tendered a report, so an allowance of $75,000 is too high, and the other experts’ costs asserted by Westpac are not supported by any evidence.

[25]   It is difficult to assess the experts’ costs that Westpac is likely to incur when Mr and Mrs Hennah are yet to serve their evidence. Counsel for Westpac has made what he considers to be a conservative estimate of the experts’ costs that Westpac expects to incur, based on an assumption of the scope of the expert evidence that will be required for the defence. Any award of security for costs should be prospective. I consider that $50,000 is a reasonable allowance to make for security for experts’ costs.

[26]   Westpac could not identify any good reason not to stage the further security. During oral submissions, counsel for Westpac submitted that if the Court orders security in two stages, the first stage should be due immediately and should be greater than the second stage, which should be paid two to three months before the trial.

[27]   Counsel for Mr and Mrs Hennah submitted that if there is to be a first stage of security, it should be paid when the plaintiffs serve their briefs of evidence in December 2025. Counsel agreed with the timing of a second stage shortly before trial.

[28]   As submitted by counsel for Westpac, it is reasonable and prudent for Westpac to begin preparation of evidence before being served with Mr and Mrs Hennah’s briefs of evidence. I agree that it is appropriate for a first stage of security to be paid before Westpac is compelled to carry out any further substantial work.

[29]   Therefore, when I balance the interests of Mr and Mrs Hennah and Westpac, I conclude that further security of $150,000 is appropriate, payable in two instalments:

(a)stage one of $50,000, representing security for the preparation of evidence, including expert evidence; and

(b)stage two of $100,000, representing security for preparation and attendance at the three-week trial and further experts’ costs.

Orders

[30]The plaintiffs shall deposit the sum of $50,000 with the Registrar by

31 January 2025. If that security is not lodged then the proceeding is stayed.

[31]The plaintiffs shall deposit the further sum of $100,000 with the Registrar by

31 May 2026. If that security is not lodged then the proceeding is stayed.

[32]   My preliminary view is that Westpac is entitled to costs on this application on a 2A basis, to reflect:

(a)the reduced time required due to the previous application for security;

(b)no evidence was required; and

(c)the orders granted are for less than the amount sought.

[33]If the parties are unable to agree on costs then:

(a)the defendants may file and serve a memorandum on costs, of no more than three pages;

(b)within 10 working days of service of that memorandum, the plaintiffs may file and serve a memorandum on costs, of no more the three pages; and

(c)I will determine costs on the papers.

Associate Judge Brittain