Koroniadis v Fisk
[2014] NZHC 2823
•13 November 2014
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2014-485-9285 [2014] NZHC 2823
BETWEEN ATHANASIOS KORONIADIS
Applicant
AND
JOHN HOWARD ROSS FISK First Defendant
AND
RICHARD LONGMAN Second Defendant
AND
COLIN THOMAS MCCLOY Third Defendant
CIV-2014-485-9289
IN THE MATTER OF The Receiverships Act 1993
BETWEEN ATHANASIOS KORONIADIS Applicant
ANDJOHN HOWARD ROSS FISK First Defendant
ANDCOLIN THOMAS MCCLOY Second Defendant
Hearing: 23 September 2014 Counsel:
A Koroniadis in person in both proceedings
G Joe for defendants in both proceedingsJudgment:
13 November 2014
JUDGMENT OF ASSOCIATE JUDGE SMITH
Introduction ....................................................................................................................................... [1]
The receivers’ applications for security for costs............................................................................ [7] Background – Mr Koroniadis’ claims............................................................................................ [12]
The MDL Proceeding .................................................................................................................. [12]
ATHANASIOS KORONIADIS v JOHN HOWARD ROSS FISK [2014] NZHC 2823 [13 November 2014]
The commencement of the MDL proceeding ................................................................................ [18] The claims made in the MDL proceeding ..................................................................................... [20] (1) The receivers’ appointment ................................................................................................. [20] (2) The receivers’ costs ............................................................................................................. [22] (3) Failure to give the directors access to MDL’s records ........................................................ [23] (4) Keeping MDL money separate from other money............................................................... [24] (5) Failure to provide copies of reports to MDL’s directors ..................................................... [25] (6) Failure to inform the directors of relevant litigation .......................................................... [26] (7) Defective service of Property Law Act Notices ................................................................... [27] (8) Failure to account for rental income from Te Aro Street property ...................................... [28] The claim for relief ....................................................................................................................... [29]
The ASP proceeding ......................................................................................................................... [35] The commencement of the ASP proceeding .................................................................................. [35] The claims made in the ASP proceeding....................................................................................... [36] (1) The validity of the receivers’ appointment .......................................................................... [36] (2) The receivers’ remuneration................................................................................................ [37]
(3) Failure to consider information provided by ASP’s directors, and/or to meet the directors ......
............................................................................................................................................ [38] (4) Diverting money for personal gain/misuse of ASP’s money ................................................ [39] (5) Obstructing directors’ efforts to discharge statutory obligations........................................ [40] (6) Failure to keep adequate records ........................................................................................ [41] (7) Failure to inform directors of litigation, and improperly incurring legal costs .................. [42] (8) Improper charging after receivers should have retired from office ..................................... [43] (9) Failure to return surplus funds ........................................................................................... [44] (10) Failure to deliver up documents at the end of the receivership ...................................... [45] The claim for relief ....................................................................................................................... [46]
Legal principles applicable to security for costs applications...................................................... [48]
Application for the legal principles in this case ............................................................................ [52] The application for security in the MDL proceeding.................................................................... [53] The application for security in the ASP proceeding ..................................................................... [71]
Conclusion........................................................................................................................................ [78]
Introduction
[1] In the first of these two proceedings (CIV-2014-485-9285 – the MDL proceeding), Mr Koroniadis has applied for summary judgment against Mr Fisk and Mr McCloy as receivers of a company called Miramar Development Ltd (in
receivership and in liquidation). Mr Koroniadis is a director of Miramar
Development Ltd (MDL).
[2] Mr Koroniadis has also joined Mr Longman as a defendant in the MDL proceeding, because Mr Longman’s name has appeared on legal documents as a receiver of the company.
[3] MDL was put into liquidation on the application of the Bank of New Zealand
(the bank), on 9 September 2013.
[4] In the second proceeding (CIV-2014-485-9289 – the ASP Proceeding), Mr Koroniadis applies for summary judgment against Mr Fisk and Mr McCloy as the former receivers of a company called ASP Development Ltd (ASP), a company of which Mr Koroniadis is also a director. Mr Fisk and Mr McCloy retired as receivers of ASP on 27 November 2013.
[5] Instead of filing notices of opposition and affidavits in opposition to each summary judgment application made by Mr Koroniadis, the receivers have filed applications for security for costs. They say that if Mr Koroniadis is unsuccessful with his claims, his financial position is such that he will not be able to pay any costs which the Court may award against him in the proceedings.
[6] On 19 August 2014, I directed that the receivers’ applications for security for costs were to be heard in advance of Mr Koroniadis’ summary judgment applications, and that the listing of the summary judgment applications for further hearing was to be addressed following the security for costs hearing.1
The receivers’ applications for security for costs
[7] Applications by defendants for security for their costs are governed by r 5.45 of the High Court Rules. That rule relevantly provides:
5.45 Order for security of costs
1 Security for costs may be awarded in a summary judgment proceeding: see Tongan Cultural Society v THE BANK HC Auckland CP811/89, 19 September 1989, and Rafiq v Mediaworks TV Ltd [2014] NZHC 1699.
(1) Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—
…
(b) that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff's proceeding.
(2) A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.
(3) An order under subclause (2)—
(a) requires the plaintiff or plaintiffs against whom the order is made to give security for costs as directed for a sum that the Judge considers sufficient—
(i) by paying that sum into court; or
(ii) by giving, to the satisfaction of the Judge or the
Registrar, security for that sum; and
(b) may stay the proceeding until the sum is paid or the security given.
…
(5) A Judge may make an order under subclause (2) even if the defendant has taken at step in the proceeding before applying for security.
[8] In this case, Mr Koroniadis acknowledges that he would be unable to pay the receivers’ costs if his proceedings are unsuccessful. Accordingly, there is jurisdiction to order security under subparagraph (1)(b) of the rule.
[9] The receivers ask for orders for staged security, under which Mr Koroniadis would pay the sum of $7,960 into Court in each of the two proceedings as security for the receivers’ costs of the proceedings up to the point when the summary judgment applications have been heard and determined. They ask for orders that Mr Koroniadis’ proceedings be stayed until those sums have been paid into Court.
[10] The amount of $7,960 which the receivers seek as security in each of the two proceedings is calculated by reference to the costs to which they will be entitled if
they are successful on the summary judgment applications, under sch 2 and 3 to the
High Court Rules.2
[11] Mr Koroniadis opposes the applications for security. He says that he has bona fide claims against the receivers, and that it would be unjust if he were not able to pursue his claims. He contends it is in the public interest that he should be allowed to do so.
Background – Mr Koroniadis’ claims
The MDL Proceeding
[12] MDL was placed in receivership by the bank on 18 September 2012, almost a year before it was put into liquidation.
[13] Mr Koroniadis says that Companies Office records show that Mr Fisk and Mr Longman were appointed by the bank as receivers, under a General Security Agreement. Mr Fisk and Mr Longman are both chartered accountants at Price Waterhouse Coopers.
[14] The Companies Office website was subsequently amended to show Mr Fisk and Mr McCloy as the receivers. In an affidavit filed in support of the receivers’ application for security for costs, Mr Fisk says that Mr Longman’s name was listed on the Companies Office website as one of the receivers in error. He says that the website listing appears to have stemmed from an administrative error when the receivership details were initially provided to the Companies Office.
[15] Mr Fisk provided a copy of the notice of appointment of receivers which was given to MDL. It is dated 18 September 2012, and it shows Mr Fisk and Mr McCloy as the receivers appointed by the bank. A notice published in The Dominion Post newspaper on 20 September 2012, and in The New Zealand Gazette on 27
September 2012, also showed Mr Fisk and Mr McCloy as the receivers, as did a
notice delivered to Mr Koroniadis on 22 September 2012. In earlier proceedings
2 Treating the proceedings as Category 2, Band B proceedings for the purposes of sch 2 and 3 of the High Court Rules.
which Mr Koroniadis commenced against Messrs Fisk, Longman, and McCloy,3
Mr Fisk produced a copy of the formal appointment document dated 18 September
2012, under which the bank appointed himself and Mr McCloy as receivers and managers of MDL.
[16] Mr Koroniadis complains that it was not until 4 July 2014 or thereabouts that the Companies Office amended its website, removing Mr Longman’s name as a receiver.
[17] On the face of it, the appointment of Mr Fisk and Mr McCloy appears to have been properly made, but somehow Mr Longman’s name was given to the Companies Office as joint receiver with Mr Fisk instead of Mr McCloy. There is nothing in the evidence to show that Mr Longman has in any way purported to deal with the assets or affairs of MDL as a receiver of the company.
The commencement of the MDL proceeding
[18] Mr Koroniadis deposes that MDL’s board of directors, being the directors who were in office prior to the liquidation, have authorised him to file the MDL proceeding in his capacity as a director of the company and a representative of the board. With his supporting affidavit, he produced a copy of the relevant resolution of the MDL board. It reads as follows:
The board of directors have had a meeting to discuss issues with the receivers. From the outcome of the meeting, the directors are very concerned that the receivers were not appointed correctly and that there are a number of concerns with the way that they are acting as agents of the company.
We authorise Mr Koroniadis to represent the company on any litigation he may engage in against the receivers.
[19] The resolution was signed by Mr Koroniadis and by the other director, Mr Stephen Pritchard.
3 Proceeding CIV-2014-485-2567.
The claims made in the MDL proceeding
(1) The receivers’ appointment
[20] In his statement of claim, Mr Koroniadis alleges that the defendants have failed to comply with s 10(1) of the Receiverships Act 1993 (the Act), in that they did not have a valid Deed of Appointment before MDL was placed into receivership on 18 September 2012. He contends that persons who have accepted invalid appointments as receivers are liable for trespass or conversion of the company’s land and chattels, and for tortious interference with the company’s contracts. He also alleges that the receivers breached their duty under s 8(1)(b) of the Act by not providing accurate public notices, and that the defendants have acted misleadingly by not updating the Companies Office records, the New Zealand Gazette, and affected parties, and have thereby committed an offence under the Act.
[21] Mr Koroniadis says that the receivers also failed to provide a notice of their appointment to him, as they were required to do under s 8(1)(a) of the Act, until
22 August 2012 or thereabouts. He alleges that they were also late in advertising their appointment and in giving public notice of it to the Registrar of Companies. Under s 8(3) of the Act, those steps should have been attended to within seven days of their appointment; they were not.
(2) The receivers’ costs
[22] Mr Koroniadis challenges the amount of costs charged by the receivers to MDL during the period of the receivership. The claim includes allegations that MDL has been charged for some services by the receivers that were unrelated to MDL or the receivership, and that the receivers have wrongly billed MDL for their time in settling the claims of ordinary creditors, a task which he says was not necessary for the receivers to carry out their duties as defined in the General Security Agreement.
(3) Failure to give the directors access to MDL’s records
[23] Mr Koroniadis alleges that the receivers have failed to give MDL’s directors access to MDL’s records, with the result that they have been unable to comply with statutory obligations and render accounts. Mr Koroniadis asks for an order under
s 37(4)(a) of the Act directing the receivers to provide access to MDL information requested by him in a notice sent on 6 April 2014.
(4) Keeping MDL money separate from other money
[24] Mr Koroniadis questions whether the receivers have kept MDL money separate from other monies received by them which did not relate to the receivership, and he says that “to date the directors are unable to determine if [MDL] has met its obligations to pay money for taxation … [Mr Koroniadis] is seeking the Court’s assistance to verify that payments have been made to the IRD, to determine if the receivers have caused [MDL] to commit an offence.”
(5) Failure to provide copies of reports to MDL’s directors
[25] At paragraph 46 of the claim, Mr Koroniadis seeks the Court’s “assistance for an explanation by the defendants on the nature of each task undertaken, the considerations which led them to embark upon that task and, if the task proved more difficult or expensive to perform than at first expected, to persevere in it.” And at paragraph 54, Mr Koroniadis says that he is “seeking the Court’s assistance to determine if accurate records were kept at a standard required by the Act and for copies of all records to be provided to the directors.”
(6) Failure to inform the directors of relevant litigation
[26] Mr Koroniadis alleges that the receivers failed to inform the directors of the bank’s application to put MDL into liquidation.
(7) Defective service of Property Law Act Notices
[27] Property Law Act 2007 notices issued in respect of the sale of certain property owned by MDL are alleged to have been served on Mr Koroniadis out of time, and the receivers and the bank are alleged to have accelerated the payment obligations in the bank loan without issuing an appropriate “acceleration notice”.4
Mr Koroniadis also pleads that notice of intention to claim a deficiency upon sale
4 Mr Koroniadis refers in that respect to the judgment of Associate Judge Bell in this Court on
25 October 2013, in proceeding CIV-2013-485-2905 – judgment at [2013] NZHC 2865.
was not served on him as a former covenantor, 20 working days before the exercise of the relevant power of sale.5
(8) Failure to account for rental income from Te Aro Street property
[28] Mr Koroniadis alleges failure by the receivers to account for rental income from a property situated in Edward Street, Te Aro, Wellington. The shortfall in rental is said to be approximately $136,000.
The claim for relief
[29] The claim for relief in Mr Koroniadis’ statement of claim runs to no fewer than three pages.
[30] The relief sought includes rulings from the Court that the defendants have committed offences and should be liable on conviction to fines under various sections of the Act. Other paragraphs appear to be seeking declarations that the receivers have acted in breach of their duties, while others appear to be asking the Court to conduct a general inquiry into the conduct of the receivership (for example, at paragraph G of the claim for relief: “under s 22(1) of the Receiverships Act 1993, seeking the Court’s assistance to determine if accurate records were kept at a standard required under the Act and for copies of all records to be provided to the Directors”. And at paragraph J of the claim for relief, Mr Koroniadis seeks the Court’s assistance under s 34(1) of the Act “for an explanation by the defendants on the nature of each main task undertaken, the considerations which led them to embark upon that task and, if the task proved more difficult or expensive to perform than at first expected, to persevere in it.”).
[31] At paragraph K of the claim for relief, Mr Koroniadis seeks the Court’s assistance under s 34(2)(a) and (b) of the Act “to determine if the Company has been overcharged or incorrectly charged, and if found to be so, to have the money refunded back to the Company”. He asks the Court to direct that a total of
$554,914.51 be paid by the receivers to the Court, until such time as the Court has
completed a review “to determine where the money has gone”.
5 Contrary to s 122 of the Property Law Act 2007.
[32] If and to the extent that the Court determines that the defendants were not validly appointed as receivers, Mr Koroniadis seeks what amounts to a declaration that the defendants are guilty of trespass. He also seeks damages for any such trespass, but does not quantify his claim.
[33] At paragraph R of the claim for relief, Mr Koroniadis asks for “the Court’s assistance to find the defendants guilty of being unfit to act as receivers and have the Court place the defendants under prohibition”. He also applies for orders under s 301 of the Companies Act 1993, “seeking the Court’s assistance to find the receivers guilty of negligence, breach of duty, or trust in relation to [MDL]”. He asks for an order that the receivers repay or restore money (plus interest) which they have misapplied or retained, or for which they have become accountable.
[34] Finally, Mr Koroniadis asks for the Court’s assistance to find the defendants guilty of not providing a notice of deficiency upon sale of [MDL’s] building at least
20 working days before the exercise of a power of sale.
The ASP proceeding
The commencement of the ASP proceeding
[35] Mr Koroniadis is a director and unsecured creditor of ASP, and a former guarantor of a General Security Agreement given by ASP. As with the MDL proceeding, Mr Koroniadis deposes that the board of directors of ASP has authorised him to file the proceeding as a director of ASP and as a representative of the board. The relevant board resolution, dated 31 January 2014 and signed by Mr Pritchard and Mr Koroniadis, reads as follows:
The Board of Directors of [ASP] have recently had a meeting to discuss issues with the receivers appointed by the bank of New Zealand. With the company having come out of receivership we find that there are a number of concerns ie no financial accounts provided during the receivership, company information withheld, money unaccounted for by the receivers, bank taking money without authorisation, concern with the receivers actions after the secured creditor was paid in full and the general security agreement ended.
We authorise Mr Koroniadis to represent the company on any litigation he may engage in against John Fisk and Colin McCloy.
The claims made in the ASP proceeding
(1) The validity of the receivers’ appointment
[36] Mr Koroniadis also challenges the validity of the receivers’ appointment in this proceeding. He alleges that the defendants have failed to comply with the requirements of s 10(1) of the Act, in that they did not have a valid Deed of Appointment before ASP was placed into receivership. He also alleges that the receivers failed to give notice to the grantor of the General Security Agreement on their appointment, in breach of s 8(1) of the Act. He says that he has never received notice of the appointment, contrary to s 8(1) of the Act (which requires that notice is to be served on the directors).
(2) The receivers’ remuneration
[37] Mr Koroniadis also challenges the remuneration received by the receivers. His allegations include that the receivers have been guilty of “double dipping”, by charging both ASP and MDL for the same work. He says that the receivers’ invoices have not adequately detailed the hours spent, work done, and costs incurred. At paragraph 27 of the claim, he says “it is difficult to determine if the Company has been overcharged or incorrectly charged”. He seeks an explanation by the receivers of the nature of each task undertaken in the receivership, the considerations which led them to embark upon that task and, if the task proved more difficult or expensive to perform than at first expected, to persevere in it.
(3) Failure to consider information provided by ASP’s directors, and/or to meet
the directors
[38] Mr Koroniadis complains that requests were made by the receivers to the directors of ASP for access to historical company accounts, but the receivers then refused to pay for the directors’ reasonable costs or expenses of compliance. The receivers are also alleged to have wrongly refused to review old accounts and records which the directors did make available to them.
(4) Diverting money for personal gain/misuse of ASP’s money
[39] Mr Koroniadis alleges that the receivers diverted money for personal gain, and withheld information from ASP in the form of bank statements for the trust account and financial accounts for ASP, in breach of the Act. He says that for a period of three months the defendants personally benefited from the accumulation of interest on ASP money sitting in a Price Waterhouse Coopers general trust account. He seeks the Court’s assistance under s 21 and 22 of the Act to find the defendants guilty of diverting ASP funds, not meeting their fiduciary duty as agents of ASP, and not keeping proper financial information for ASP.
(5) Obstructing directors’ efforts to discharge statutory obligations
[40] Mr Koroniadis says that the receivers’ reluctance to provide accounts to the directors has meant that they have not been able to comply with statutory obligations to render accounts or returns required by the Inland Revenue Department. He alleges that the receivers’ defaults in that respect have interfered with ASP’s ability to comply with its obligations in respect of both GST and company tax, particularly in the 2013 and 2014 tax years. The Inland Revenue Department is said to have applied penalties for ASP’s failure to complete GST returns on time, and it has invoiced ASP for $4,055.33 plus interest.
(6) Failure to keep adequate records
[41] Under s 22(1) of the Act, Mr Koroniadis asks for the Court’s assistance “to determine if accurate records were kept at a standard required under the Act and for all copies of all records to be returned back to the company”.
(7) Failure to inform directors of litigation, and improperly incurring legal costs
[42] Mr Koroniadis alleges breaches by the receivers of their duty to inform the directors of any litigation brought against ASP, or brought in the name of ASP, and by incurring unauthorised legal costs. Certain legal fees charged to ASP are said to be not adequately explained, and/or to have been excessive. Mr Koroniadis seeks the Court’s assistance “to determine if the costs paid [to a law firm] were legitimate ASP expenses, and if not, to have the money returned to ASP”.
(8) Improper charging after receivers should have retired from office
[43] Mr Koroniadis applies for an order under s 34 of the Act, seeking the Court’s assistance to have $40,511.53 paid by the defendants into Court until such time as the Court has completed a review to determine whether or not the receivers have improperly taken money from ASP after the point when the secured creditor had been paid in full (7 December 2013).
(9) Failure to return surplus funds
[44] Mr Koroniadis says that surplus company funds were not returned to ASP. He alleges that there was a total of $64,949.39 available to ASP as at 27 December
2012, but only $10,051.31 was eventually returned to the company. He alleges that ASP funds were diverted on 21 November 2013 to a Price Waterhouse Coopers general trust account. Mr Koroniadis says in the claim that the directors have had great difficulty in matching the receipts and payments detailed in receivers’ reports, with the actual receipts and bank statements provided by the receivers on 23 January
2014. Nor were any of the three receivers’ reports made available to the directors as required by the Act. He alleges that the receivers have committed offences under ss 23(4) and 24(4) of the Act.
(10) Failure to deliver up documents at the end of the receivership
[45] Finally, the statement of claim in the ASP proceeding alleges that the receivers acted in breach of duties to deliver up to ASP all documents in their possession belonging to the company at the end of the receivership.
The claim for relief
[46] The claim for relief in this proceeding extends over almost two pages, with
13 individual claims. The relief sought again includes orders holding the defendants liable for breaches of the Act for which they would be liable on conviction to a fine. Other claims are made for relief of a declaratory nature, while some simply seek the Court’s assistance to determine whether or not something untoward has happened (for example, at paragraph B of the claim for relief: “under s 34(2)(c) of the Receiverships Act 1993, [Mr Koroniadis] is seeking the Court’s assistance to
determine if the receivers were validly appointed by the bank”). In similar vein, Mr Koroniadis applies under s 22(1) of the Act for “the Court’s assistance to determine if accurate records were kept at a standard required under the Act, and for an order that copies of all records be returned to ASP.” Under s 37 of the Act, he asks for an order that the defendants provide accounts and workings, so that he can have the accounts audited to determine if ss 23 and 24 of the Act have been breached.
[47] Other paragraphs in the claim for relief seek the Court’s review of the receivers’ charges, and a direction that they provide access to information which the directors requested on 6 April 2014. Mr Koroniadis asks for orders prohibiting the receivers from acting as such for a period not exceeding five years.
Legal principles applicable to security for costs applications
[48] Applications by defendants for security for costs are governed by r 5.45 of the High Court Rules. The relevant parts of this rule are set out above at paragraph [7] of this judgment.
[49] In McLachlan v MEL Network Ltd the Court of Appeal provided the following guidance on the exercise of the Court’s discretion in deciding whether to make an order for security for costs under the rule:6
Whether or not to order security and if so, the quantum are discretionary. They are matters for the Judge if he or she thinks fit in all the circumstances. The discretion is not to be fettered by constructing “principles” from the facts of previous cases.
While collections of authorities such as that in the judgment of Master Williams in Nikau Holdings Ltd v THE BANK (1992) 5 PRNZ 430, can be of assistance, they cannot substitute for a careful assessment of the circumstances of the particular case. It is not a matter of going through a checklist of so-called principles. That creates a risk that a factor accorded weight in a particular case will be given disproportionate weight, or even treated as a requirement for the making or refusing of an order, in quite different circumstances.
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,
6 McLachlan v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13] – [16].
prevent the plaintiff from pursuing the claim. An order having that effect should be made only after careful consideration and in a case which the claim has little chance of success. Access to the Courts for a genuine plaintiff is not likely to be denied.
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.
[50] As far as possible, the Court is required to assess the merits and prospects of success of the plaintiff’s claim. If a plaintiff’s claim has limited prospects of success, or the claim might be considered a disproportionate response, the chances of an order for security being made are higher.7 In Goston v Jamieson, Rodney Hansen J stated that the merits of the plaintiffs’ claim and its prospects of success were of “paramount importance”.8
[51] In Highgate on Broadway Ltd v Devine, Kós J noted that the imposition of security is not an automatic consequence of the plaintiff’s impecuniosity.9 The Judge listed a number of considerations which may be relevant in particular cases, while noting that the issue will always be one for the judge’s discretion on the particular facts of the case. Among the considerations proposed by Kós J in Highgate on Broadway Ltd were the following:10
(a) Is the plaintiff’s substantive claim prima facie unmeritorious?
While the Court hearing a security for costs application cannot generally do more than form an impression of the merits, if it is able to say that the plaintiff’s claim is prima facie unmeritorious, that will be a factor favouring an order for security.
(b)Would the denial of security for costs be oppressive to the reasonable interests of the defendant?
7 Goston v Jamieson (2001) 15 PRNZ 325 (HC); Bevan-Smith v Team New Zealand Ltd HC Auckland CIV-2003-404-468, 5 April 2004.
8 Goston v Jamieson, at [15].
9 Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [21].
10 At [22] – [24].
While the Judge noted that where an order for security would be likely to result in the denial of access to justice, an award may be considered “entirely exceptional”. But in some situations, allowing litigation to proceed without the checks and protection of security will be oppressive to the interests of other parties, particularly where the litigation is unjustified or unmeritorious, over-complicated or unnecessarily protracted.
(c) Would an order of security deprive the plaintiff of the capacity to advance a prima facie meritorious claim?
(d) Has the defendant delayed unduly in applying for security? (e) Is the conduct of either party relevant?
Under this heading, Kós J noted that any behaviour of either party that is contemptuous or oppressive will be significant, but the whole spectrum of each party’s conduct in relation to the litigation and its subject matter should be considered.
(f) How should the respective interests of the parties best be balanced?
Kós J considered this to be the paramount consideration.
Application of the legal principles in this case
[52] In support of their applications for security, the receivers submit that Mr Koroniadis’ applications for summary judgment are unsustainable, and that his underlying claims are without merit. They also point to other factors which they submit make it appropriate for security to be ordered. The first of these concerns is Mr Koroniadis’ standing to issue the MDL proceeding when MDL is in liquidation.
The application for security in the MDL proceeding
[53] I accept the receivers’ submission that the claims in the MDL proceedings appear to be substantially blocked by s 248(1)(b) and (c) of the Companies Act 1993.
[54] Section 248 of that Act provides as follows:
248 Effect of commencement of liquidation
(1) With effect from the commencement of the liquidation of a company,—
(a) the liquidator has custody and control of the company's assets:
(b) the directors remain in office but cease to have powers, functions, or duties other than those required or permitted to be exercised by this Part:
(c) unless the liquidator agrees or the court orders otherwise, a person must not—
(i) commence or continue legal proceedings against the company or in relation to its property; or
(ii) exercise or enforce, or continue to exercise or enforce, a right or remedy over or against property of the company:
….
(2) Subsection (1) does not affect the right of a secured creditor, subject to section 305, to take possession of, and realise or otherwise deal with, property of the company over which that creditor has a charge.
…
[55] I accept the receivers’ submission that substantial parts of Mr Koroniadis’ statement of claim appear to be “legal proceedings…in relation to” the property of MDL (covered by s 248(1)(c)(1)). For example, allegations that proceedings have been wrongfully brought by MDL, incurring unauthorised legal costs, are in substance allegations “in relation to” MDL’s property, as are allegations that the company has been overcharged or incorrectly charged. There is no evidence that Mr Koroniadis has the consent of the liquidator to issue the MDL proceeding, or that the Court has given him authority to do so.
[56] I also accept the receivers’ submission that the effect of s 248(1)(b) is that, on the liquidation, Mr Koroniadis ceased to have the powers, functions or duties that he was formerly entitled to exercise or perform as a director of MDL. There is nothing in part 16 of the Companies Act (the part of the Act which includes s 248) which
would permit a director to initiate proceedings in relation to the company’s property
without the consent of the liquidator or the Court.
[57] Claims for declarations that the defendants have breached various sections of the Act, and should be liable on conviction to a fine, are not in my view suitable for the exercise of the Court’s civil jurisdiction. There are three paragraphs among the
21 paragraphs in Mr Koroniadis’ claim for relief in the MDL proceeding, where claims of this sort are made.
[58] To the extent that Mr Koroniadis seeks relief under s 34(1) of the Act (paragraph J of the claim for relief in the MDL proceeding), I note that the Court’s jurisdiction under s 34(1) appears to be exercisable only on the application of a receiver. And to the extent that Mr Koroniadis seeks relief under s 34(2) of the Act (paragraphs K and M of the claim for relief), I note that there is a limited number of individuals who may apply under that subsection.
[59] As I understand his case, Mr Koroniadis is relying on s 34(3)(e) of the Act, which provides that (in the case of a grantor company which is in liquidation) the board of the grantor at the time of the appointment of the liquidator may apply for relief under s 34(2). In this case, the board at the time of the liquidation appears to have included Mr Pritchard, and he has not been joined as a plaintiff in the proceeding. (If he had been, it may be that there would have been a plaintiff with sufficient assets to meet any costs award in the event of the claims being unsuccessful.)
[60] To the extent that Mr Koroniadis’ claims are based on trespass or conversion (this appears to be the basis of the claims flowing from his contention that the receivers were not properly appointed), it seems to me that the substance of the claims must again be “in relation to” the property of MDL, and are therefore precluded by s 248(1)(c)(i) of the Companies Act. And as for the alleged failures by the receivers to provide notice of their appointment (ss 8 and 10 of the Act), it is not clear to me that breaches of these sections could form the basis of any claim by a director of the company, at least in the exercise of the Court’s civil jurisdiction.
Furthermore, I note that s 16(1) of the Act provides that, subject to subs 2 of that section:
No act of a receiver is invalid merely because a receiver was not validly appointed or is disqualified from acting as a receiver or is not authorised to do the act.
[61] Section 16(2) provides:
16 Validity of acts of receivers
…
(2) No transaction entered into by a receiver is invalid merely because the receiver was not validly appointed or is disqualified from acting as a receiver or is not authorised to enter into the transaction unless the person dealing with the receiver has, or ought to have, by reason of his or her relationship with the receiver or the person by whom the receiver was appointed, knowledge that the receiver was not validly appointed or was disqualified from acting as a receiver or did not have authority to enter into the transaction.
[62] It seems to me that the combined effect of s 16 of the Act and s 248(1)(b) and (c) of the Companies Act is that Mr Koroniadis’ claims in the MDL proceeding arising out of alleged irregularities in the receivers’ appointment must be regarded as weak.
[63] To the extent that Mr Koroniadis invokes s 22(1) of the Act (receiver’s duty to keep accounting records that correctly record and explain the receipts, expenditure, and other transactions relating to the property in receivership), it is difficult to assess whether the claims may have any merit. In the claim for relief (paragraph G), I note that Mr Koroniadis is only seeking the Court’s assistance to determine if accurate records were kept at a standard required by the Act. On its face, the allegation appears to require a detailed review of the receivers’ records and accounts which would not be suitable for the summary judgment jurisdiction.
[64] At paragraph O of his claim for relief, Mr Koroniadis asks the Court to make an order under s 34(5) of the Act, fixing the receivers’ remuneration at a reasonable level as defined under s 34(2) of the Act. It is not clear that Mr Koroniadis, on his own, is entitled to make this application, but even if he is, the subsection empowers the Court to “revoke or vary any order made under sub s 2 of this section”. As far as
the evidence shows, no order has yet been made under s 34(2) which could be the subject of any revocation or variation order under s 34(5).
[65] I note that in the earlier proceeding issued by Mr Koroniadis in respect of MDL,11 Mr Fisk provided an affidavit responding to Mr Koroniadis’ allegations under the headings “work undertaken”, “statutory duties and administrative tasks”, “realisation of income and assets” and “remuneration received”. The issues of the sale of the Te Aro property and the property rental received were also addressed in that affidavit. It is not clear if and to what extent Mr Koroniadis’ concerns may have
been dealt with in that affidavit.
[66] The foregoing considerations are sufficient to show that large parts of this long and discursive claim appear to be weak. Other parts of it are arguably unsuitable for the exercise of the Court’s summary judgment jurisdiction. The merits of the application then, weigh in favour of the receivers.
[67] So does the manner in which the claim has been presented. No notices of proceeding were filed12 and the statement of claim is rambling and repetitive. It appears that substantial court time would be required to fully investigate every issue raised by Mr Koroniadis.
[68] A final consideration is that it is not at all clear that an order for security for costs at the level sought by the receivers would necessarily bring the proceeding to an end. The statement of claim says expressly that the claim is brought on behalf of the board of directors of MDL, and there is no evidence before the Court to show that Mr Pritchard, the other director, is not in a position to provide security.
[69] In those circumstances, I am of the view that Mr Koroniadis has not provided sufficient evidence that there is a public interest in him being permitted to proceed without providing security for the receivers’ costs.
[70] Weighing the foregoing factors, I exercise my discretion in favour of the defendants. There will be an order that Mr Koroniadis pay the sum of $7,960 into
11 CIV-2014-485-2567.
12 A point the receivers elected not to take.
Court as security for the defendants’ costs in the MDL proceeding, and an order
staying the proceeding until that sum has been paid.
The application for security in the ASP proceeding
[71] On the merits of Mr Koroniadis’ claims, a number of the same considerations apply as are applicable in respect of the MDL proceeding. For example, the claims for a declaration that each defendant is liable for offences under the Act to a fine as stipulated under that Act, is not in my view a suitable matter for the exercise of the Court’s civil jurisdiction. That consideration applies to paragraphs A, C, and I in Mr Koroniadis’ claim for relief.
[72] To the extent that Mr Koroniadis’ claims flow from allegations that the receivers were not properly appointed, and have therefore trespassed or converted ASP’s property, the claims face the difficulty of s 16 of the Act. Also, it appears that any property rights which may have been violated would be rights of ASP, and not of Mr Koroniadis personally. Those considerations apply in respect of paragraphs A, B, C, and E of the claim for relief.
[73] To the extent that Mr Koroniadis seeks relief under s 34(2) of the Act, it seems to me that he alone may not have standing to sue: it is the board of directors of ASP (which according to Mr Koroniadis’ evidence includes Mr Pritchard), who would have standing to apply. The claim is brought expressly on behalf of the board,13 and in those circumstances Mr Pritchard, as a member of the board, should have been joined as a plaintiff.
[74] The majority of the claims set out in the statement of claim do not at first sight appear strong, and, as with the MDL proceeding, the statement of claim includes a number of claims which do not appear to be appropriately brought in a civil proceeding (for example, claims for a declaration that the receivers have been guilty of offences and should be liable on conviction to a fine). The claims that the
receivers remained in possession of ASP’s property and undertaking for longer than
13 Statement of claim, para [4].
they should have, again seem to me to be claims which should have been brought by the company, and not by Mr Koroniadis.
[75] The apparent weaknesses in the claim, and the seeming unsuitability of considerable parts of it for the “fast track” summary judgment procedure, are factors pointing strongly to the making of an order for security.
[76] Finally, I observe that the ASP proceeding appears to have been brought primarily for the benefit of ASP. That company is not in liquidation, and there is no evidence before the Court that it would be unable to provide security at the level sought by the receivers. Indeed, as the party which appears to be primarily interested in the relief which is being sought, I would expect it do so.
[77] Weighing the considerations applicable to the security application in the ASP proceeding, it is clear that an order for security should be made. Accordingly, there will be an order that Mr Koroniadis post security for the defendants’ costs in the ASP proceeding, in the sum of $7,960. That sum is to be paid into court, and until the payment into court is made, the ASP proceeding is stayed.
Conclusion
[78] The receivers’ applications for security for costs are granted. Mr Koroniadis is to pay $7,960 into Court in each of the MDL and ASP proceedings. Each of those proceedings is stayed until the payment for that proceeding has been made.
[79] The costs of both security for costs applications are reserved.
Associate Judge Smith
Solicitors:
A Koroniadis, Wellington in person in both proceedings
Simpson Grierson, Wellington for defendants in both proceedings
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