Keemati Ltd v MR Civil Ltd - [2020] NZHC 3496

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-000967

[2020] NZHC 3496

BETWEEN
KEEMATI LIMITED

Plaintiff/First Counterclaim Defendant

AND

MR CIVIL LIMITED

First Defendant/First Counterclaim Plaintiff

AND

JIE GAO

Second Defendant

AND

QNZ LIMITED

Third Defendant/Second Counterclaim Plaintiff

AND

KEEMATI LAL ANGURALA

Second Counterclaim Defendant

Hearing: 17 November 2020

Appearances:

Keemati Angurala in Person for the Plaintiff/First Counterclaim Defendant

William Cheyne and Zared Wall-Manning for the Defendants and Counterclaim Plaintiffs

Judgment:

22 December 2020

JUDGMENT OF MOORE J

This judgment was delivered by me on 22 December 2020 at 10:30 am pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar Date:

KEEMATI LIMITED v MR CIVIL LIMITED & ORS [2020] NZHC 3496 [22 December 2020]

Introduction

[1] The defendants, MR Civil Limited (“MR Civil”), Jie Gao and QNZ Limited (“QNZ”) apply for an order for security for costs against the plaintiff, Keemati Limited (“Keemati”).

[2] They do so on the basis that Keemati’s 2019 financial statements show that it has only approximately $10,000 in net assets. The defendants claim that any award of costs in this proceeding is likely to significantly exceed $10,000 and there is thus a significant risk that Keemati will be unable to meet an award of costs out of its assets.

[3] Keemati opposes the application. It says the merits of its case mean it is likely to be successful and, in any event, there is no reason to believe it will be unable to pay the costs if unsuccessful. It owns plant, machinery and vehicles with values well in excess of any likely award of costs and it is involved in ongoing projects which, when complete, will realise several million dollars in profit. Additionally, Mr Angulara, Keemati’s sole director and shareholder holds considerable assets in his own name and is presently in the process of selling property. If sold, Mr Angulara’s equity would more than cover any costs award.

Factual background

[4] The following summary is taken from Associate Judge Paulsen’s judgment on Keemati’s application that certain caveats not lapse,1 the voluminous evidence filed by the parties, the pleadings and the parties’ oral and written submissions.

[5] The third defendant, QNZ, is a property development company. Mr Qiu is QNZ’s sole director and CEO.

[6] The first defendant, MR Civil is a construction contractor. It is a wholly owned subsidiary of QNZ. Mr Qiu is MR Civil’s sole director and CEO.

[7] The second defendant, Ms Gao, is Mr Qiu’s wife. She was formerly a director of MR Civil and QNZ. She is not a party to the present application.

1 Keemati Limited v QNZ Limited [2020] NZHC 299.

[8] In late 2016 QNZ2 employed Mr Angurala to carry out construction work on its residential subdivision at Flat Bush School Road.

[9] Shortly after this, Mr Angurala was made a director of MR Civil. QNZ engaged MR Civil as the construction contractor to carry out earthworks at Flat Bush School Road.…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2020] NZHC 3496
Decision Date: 22 December 2020

CaseChat Overview and Summary

The defendants, MR Civil Limited, Jie Gao, and QNZ Limited, applied for an order for security for costs against the plaintiff, Keemati Limited. They argued that any award of costs in this proceeding is likely to significantly exceed $10,000, and there is thus a significant risk that Keemati will be unable to meet an award of costs out of its assets. Keemati opposed the application, stating that it was likely to be successful and, in any event, there was no reason to believe it would be unable to pay the costs if unsuccessful. It owned plant, machinery and vehicles with values well in excess of any likely award of costs and was involved in ongoing projects which, when complete, would realise several million dollars in profit. Additionally, Keemati’s sole director and shareholder held considerable assets in his own name and was presently in the process of selling property. If sold, the equity would more than cover any costs award.

The Court found that there was reason to believe that if unsuccessful, Keemati would be unable to pay the defendants’ costs. As noted, on Keemati’s own balance sheet, the net value of the assets was wholly inadequate to satisfy an adverse costs order. It was artificial to all but ignore Keemati’s liabilities, which when taken into account revealed a net asset position of just over $10,000. The Court was satisfied it was just in all the circumstances to make an order for security for costs. The defendants sought an order for security in the sum of $130,000, which the Court found to be fair and appropriate. The Court ordered that Keemati provide security of $129,984 for this proceeding in the amounts and on the dates set out below: (a) $27,404 to be paid immediately to cover costs up to the end of discovery and inspection; (b) $63,742.50 to be paid following the completion of discovery and inspection; and (c) $38,837.50 to be paid two months in advance of trial. The proceedings are to be stayed until the relevant security in terms of this judgment is paid. The defendants, having been successful, are entitled to costs.

The Court granted the defendants' application for security for costs and ordered Keemati to provide security of $129,984 in the amounts and on the dates set out above. The proceedings are to be stayed until the relevant security is paid. The defendants are entitled to costs.

Orders