Lad v Lad
[2019] NZHC 2965
•14 November 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-002833
[2019] NZHC 2965
BETWEEN SHASHI KANT LAD
Plaintiff
AND
HEMANT KUMAR LAD
Defendant
Hearing: 6 August 2019 Appearances:
A Kashyap and S Yong for the Plaintiff P Rice for the Defendant
Judgment:
14 November 2019
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 14 November 2019 at 10.30 a.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Newton Law, Auckland P Rice, Auckland
LAD v LAD [2019] NZHC 2965 [14 November 2019]
Introduction
[1]This judgment deals with two interlocutory applications.
[2] The wider proceeding concerns an action by the plaintiff, Shashi Lad, seeking orders removing the first defendant, Hemant Lad (his brother) as a trustee of the Lads Family Trust. The plaintiff lives in Fiji. The trust’s main assets are a property at Dominion Road which is used as the home of Hemant; a property at Heaphy Street, Blockhouse Bay which is rented to tenants; and a bank account with approximately
$1.3 million in it.
[3] The plaintiff’s primary complaint is that the trust assets are managed by his brother as if they were his own personal assets. In particular, the first defendant has continued to reside in the Dominion Road property rent-free for a number of years.
[4] The second defendant is Mr Ranjit Budhabhai, who was appointed as independent trustee and wishes to avoid becoming involved in this proceeding insofar as is possible.
The applications
[5]The current application is by the first defendant, who seeks:
(a)security for costs in the sum of $50,000;1 and
(b)further and better particulars of paragraphs 14 and 15 of the statement of claim (now reproduced in an amended statement of claim).
[6] For reasons that will follow, I decline to grant the application for security for costs.
1 Under r 5.45 of the High Court Rules 2016.
[7] Because the plaintiff has agreed to provide the further particulars sought I will not discuss that application in any detail. The further particulars are to be provided within 10 working days.
Application for security for costs
[8] The first defendant’s central grounds as set out in the application are that the plaintiff is a resident outside of New Zealand and appears unlikely to be able to pay an award of costs should judgment be issued against him, and that it is just in the circumstances to order security.
[9] The plaintiff opposes. His grounds are that the dispute at hand relates solely to the trust, of which the plaintiff and he are the only beneficiaries (albeit discretionary beneficiaries), and he brings his claim in his capacity as a trustee. The plaintiff says any costs ordered against him may be offset against his substantial beneficial interest in the trust.
Principles on security for costs
[10]Rule 5.45 of the High Court Rules 2016 relevantly states:
5.45 Order for security of costs
(1) Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—
(a) that a plaintiff -
(i) is resident out of New Zealand; or
…
(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.
…
[11] There is no dispute that the plaintiff is resident outside New Zealand. As such, the jurisdiction to exercise the discretion under r 5.45(2) is clearly engaged.
[12] The approach in cases involving an overseas plaintiff is similar to those where a plaintiff appears unable to pay costs for any other reason.2
[13] Justice McGechan set out the core principles on whether to order security against a plaintiff resident out of New Zealand, once the threshold has been met, in Aquaculture Corp v McFarlane Laboratories (1984) Ltd:3
(a)there is no inflexible principle that a plaintiff resident outside New Zealand with no assets within the jurisdiction should normally be ordered to give security for costs.4
(b)The Court’s discretion is to be exercised by taking into account all the circumstances of the case and arriving at the conclusion which will do justice between the parties.
(c)The ease, convenience, and cost of enforcing a costs judgment in the plaintiff’s country of residence are primary considerations. The point of ordering security against an overseas plaintiff is generally to avoid the costs and difficulties of overseas enforcement.
(d)Otherwise, the principles applicable to applications for security by a plaintiff resident overseas are those applicable where there is reason to believe a plaintiff will be unable to pay.
[14] The other principles relevant to any decision whether to exercise the discretion to make an order are well established:5
(a)The interests of both the plaintiff and the defendant must be considered. The Court should not allow the rule to be used oppressively to deny plaintiffs the ability to bring their case before the Court, nor to allow them to act oppressively or to place unfair pressure on the defendant.
2 Aquaculture Corp v McFarlane Laboratories (1984) Ltd (1987) 1 PRNZ 467 (HC) at 470.
3 Aquaculture Corp v McFarlane Laboratories, above n 2, at 470.
4 Jalfox Pty Ltd v Motel Assn NZ Inc [1984] 2 NZLR 647 (HC).
5 See McLachlan v MEL Network Ltd (2002) 16 PRNZ 747 (CA); and Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [13]–[28].
(b)The general principles for the exercise of the discretion show that the Court’s discretion is not fettered by the automatic application of “principles”.6 The amount of the security ordered should not be illusory nor oppressive, not too little nor too much.
(c)The Court may take into account, in the exercise of its discretion, whether the action of the plaintiff has reasonable prospects of success. The courts are generally reluctant to grant security where that would have the effect of denying access to justice.7
Discussion
[15] As the plaintiff resides outside of New Zealand the threshold requirement under r 5.45(1)(a)(i) is plainly made out. In issue is the discretion at r 5.45(2), and whether an order for security is just in all the circumstances.
The case advanced by the first defendant
[16]Counsel for the first defendant advanced three core arguments:
(a)the plaintiff’s case is unlikely to succeed;
(b)recovering costs from the plaintiff in Fiji would be oppressive; and
(c)it is no answer that the first defendant can recover costs from the plaintiff’s share of the trust fund.
[17] The first defendant characterises the basis of the plaintiff’s claims as being that he has mismanaged the trust assets (primarily by living in the Dominion Road property without paying rent), becoming reluctant to disclose information and refusing to wind up the trust and divide its assets. Counsel submits that the plaintiff is unlikely to succeed on these claims for a range of reasons, including that the trust deed and past conduct of the parties appears to support the first defendant’s residing in the property
6 McLachlan v MEL Network Ltd, above n 5, at [13]–[14].
7 Highgate on Broadway Ltd v Devine, above n 5, at [22](e).
without paying rent; that the plaintiff has access to the trust’s financial statements and bank accounts (as well as being entitled to inspect documents stored in the first defendant’s home); and that the plaintiff has never previously requested information or complained about the first defendant’s management of trust assets.
[18] Counsel submits that recovering costs from the plaintiff in Fiji would be neither easy nor convenient, sufficient to make the exercise potentially uneconomic. As such, denying an order for security would give the plaintiff leverage to pressure the first defendant into settling the claim in order to avoid incurring effectively irrecoverable costs.
[19] Counsel says that the plaintiff cannot tenably argue that any costs order against him should be paid out of his share of the trust fund. This is because the plaintiff is merely a discretionary and ultimate beneficiary of the trust so has no direct current claim on the trust assets;8 allowing the plaintiff to be indemnified by the trust will potentially disadvantage other beneficiaries (primarily himself) by reducing the trust’s pool of money; and the plaintiff in his statement of claim seeks an order preventing the first defendant from being indemnified by the trust for any costs he has to pay (so allowing the plaintiff to be indemnified would be unfair).
[20] Finally, counsel submits that ordering the plaintiff to pay security will not deprive the plaintiff of the ability to advance a meritorious claim – both because the plaintiff’s claim lacks merit and because the plaintiff is financially comfortable enough to afford making the payment. I note that this cuts against the first defendant’s suggestions in the affidavits that the plaintiff is in difficult financial straits, but those suggestions were not pursued in submissions.
The case advanced by the plaintiff
[21]Conversely, the plaintiff submits that:
(a)his claim has merit;
8 See Kain v Hutton [2008] NZSC 61, [2008] 3 NZLR 589 at [25] and [55].
(b)he brings the proceeding in his capacity as a trustee;
(c)his interest in the trust significantly outweighs any potential costs award against him; and
(d)the defendant having to recover costs from Fiji would not be oppressive.
[22] The plaintiff disputes the first defendant’s reading of the trust deed as allowing him to reside in the Dominion Road property without consideration, saying there are no resolutions supporting this view and it cannot be in the trust’s interests to allow. Further, the plaintiff alleges distinct and observable inequality in the use of the trust assets which the defendant has not explained. He also points to the defendant’s failure to answer queries as indicating mismanagement.
[23] Counsel submits the plaintiff has brought his claim in his capacity as a trustee, and ordering security would put unnecessary pressure on him in his personal capacity. Counsel submits the plaintiff is financially and will be able to pay costs, but an order for security of $50,000 would still constitute a meaningful imposition.
[24] Regarding the availability of trust money to indemnify the parties for costs, the plaintiff points to the trust deed as protecting the defendant against a barren costs order on the basis that it empowers him, in his capacity as a trustee, to give a guarantee of his obligations as a discretionary beneficiary. Counsel also points to the fact that the plaintiff will be a final beneficiary and so is likely to ultimately receive at least some disposition. Counsel cites the case of Ash v Singh, in which Associate Judge Bell did not grant a defendant’s application for security for costs on the basis that the plaintiff, although residing overseas, was a final beneficiary in a trust whose vesting date was within the next two years, and the plaintiff’s share of assets was likely to significantly outweigh any costs ordered against him.9
9 Ash v Singh [2017] NZHC 2909 at [51].
[25] There is also a reciprocal enforcement of judgments arrangement between New Zealand and Fiji which counsel says would allow the defendant to register and enforce a costs order in Fiji should it be necessary.10
Analysis
[26] Regarding the imposition that a costs order represents, I bear in mind three factors:
(a)First, it is possible to register and enforce a judgment of this Court in Fiji should the plaintiff refuse to pay costs. Neither party has provided evidence on how much that process would cost. The first defendant has suggested it could be costly and difficult. Counsel has not provided evidence to support this suggestion, nor to show the costs of registering the judgment would not also be recoverable. In my view, registering and enforcing a judgment is a relatively routine exercise. It does not weigh heavily on my reasoning.
(b)Second, the plaintiff’s position is that his finances are in order and he is living comfortably, such that having to pay security for costs would be an unwelcome imposition but not a debilitating one. This has not been challenged beyond assertions in the first defendant’s affidavits. I do not consider there is a reason to believe the plaintiff is financially incapable of making payment.
(c)Third, in light of the above points and the context of this dispute, I do not consider there is a current risk of the plaintiff using a denial of security for costs to unduly pressure the first defendant into settling.
[27] Turning to the substance of the proceeding, this case appears to bear the hallmarks of a breakdown between two siblings preventing the effective and unanimous administration of the trust, exacerbated by the fact that one of them resides overseas. The independent trustee also appears not to be playing an active role, based
10 Reciprocal Enforcement of Judgments Act 1934; Reciprocal Enforcement of Judgments Order 1940; and Reciprocal Enforcement of Judgments Act (Fiji).
on the affidavits and his passivity in the proceedings. The person standing to benefit from this status quo continuing is the first defendant. I consider the plaintiff’s case is at least arguable. Even if the Court does not grant all of the orders he seeks (which include replacing the first defendant and holding him personally liable for failing to keep records and any breaches of duties), it may well deem some sort of intervention necessary.
[28] Finally, I consider there is a real possibility of the plaintiff being indemnified for costs by the trust. As a matter of principle, trustees are generally entitled to be indemnified out of the trust for legal costs which have been incurred reasonably.11 This extends to a trustee who is removed by order of this Court but behaves reasonably, and could include a trustee who brings an unsuccessful claim to Court in what they sincerely and reasonably believe is the best interest of the trust.12 I note that the plaintiff seeks to deny the first defendant indemnification by the trust for his costs. Despite opposing that order, the first defendant seeks to deny the plaintiff the same. Whether either party will be indemnified by the trust will depend on the reasonableness of their conduct as assessed by the Court. The situation is also complicated by the fact that the plaintiff and defendant are both the discretionary beneficiaries of the trust as well as its trustees – meaning that any application ostensibly brought in the plaintiff’s capacity as a trustee also implicates his interests as a discretionary beneficiary. I am not influenced by his being a final beneficiary because the vesting date is five decades away. In my view it is at least arguable that each of the parties will be able to look to the trust fund to cover their costs in resolving this dispute.
[29] Ultimately, I consider the plaintiff’s case appears relatively strong, that there is some possibility of indemnification by the trust and that registering and enforcing a costs judgment in Fiji would not be, in this context, an undue burden on the first defendant. I do not consider the risk of the first defendant being unable to recover costs is sufficiently great to make imposing on the plaintiff by ordering security just in all the circumstances.
11 See Trustee Act 1956, ss 38 and 71.
12 See for instance Carmine v Ritchie [2012] NZHC 2279 at [3].
Orders
[30]I order:
(a)The application for security for costs is dismissed.
(b)Further and better particulars of paragraphs 14 and 15 of the statement of claim are to be provided and filed within ten days.
(c)The defendants are to pay the costs of the application on a 2B basis together with disbursements to be fixed by the Registrar.
Associate Judge Sargisson
0
5
0