Line 2 Line Concepts Limited v Commercial Utilities Limited

[2025] NZHC 2250

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-1071

[2025] NZHC 2250

BETWEEN

LINE 2 LINE CONCEPTS LIMITED

Plaintiff/Respondent

AND

COMMERCIAL UTILITIES LIMITED

Defendant/Applicant

Hearing:	On the papers
Counsel:	Timothy Leighton/Matthew Hague for the Plaintiff/Respondent Toby Braun/Szymon K Poborowski for the Defendant/Applicant
Judgment:	12 August 2025

JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

[Application for leave to appeal]

This judgment was delivered by me on 12 August 2025 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:

Front Line 2 Law (Timothy Leighton/Matthew Hague), Wellington, for the Plaintiff

Braun Bond & Lomas Limited (Toby Braun/Szymon Poborowski), Hamilton, for the Defendant

LINE 2 LINE CONCEPTS LIMITED v COMMERCIAL UTILITIES LIMITED [2025] NZHC 2250 [12 August 2025]

Introduction

[1]    The substantive claim relates to proceedings brought by the respondent against the applicant for breach of contract. The applicant filed an application for security for costs dated 12 November 2024. By a judgment issued on 29 April 2025, the Court dismissed the applicant’s application for security for costs (the Judgment).1

[2]    On 23 May 2025, the applicant filed an application seeking leave to appeal the Judgment. The respondent filed a notice of opposition to the application dated 27 May 2025.

[3]The applicant’s application for leave to appeal is dealt with on the papers.

Legal Principles

[4]    No appeal2 lies from any order or decision of the High Court made on an interlocutory application in respect of any civil proceeding unless leave to appeal to the Court of Appeal is given by the High Court or by the Court of Appeal following the High Court’s refusal of leave.3

[5]    The relevant principles are set out in the decision of the Court of Appeal in Greendrake v District Court where the Court of Appeal identified the following considerations:4

(a)a high threshold exists;

(b)the applicant must identify an arguable error of law or fact;

(c)the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;

1      Line 2 Line Concepts Ltd v Commercial Utilities Ltd [2025] NZHC 901.

2      Except for those appeals provided for under s 56(4) of the Senior Courts Act (the Act).

3      Section 56 of the Act.

4      Greendrake v District Court of New Zealand [2020] NZCA 122 at [6].

(d)the circumstances must warrant incurring further delay; and

(e)the ultimate question is whether the interests of justice are served by granting leave.

[6]    The Court of Appeal in that decision also approved the observations of Fitzgerald J in Finemore Upholstery Ltd v Vaughan to the effect that the requirement for leave was a filtering mechanism to ensure that unmeritorious appeals of no great significance do not unnecessarily delay the proceedings in which the orders had been made.5

Applicant’s submissions

[7]    Mr Braun, for the applicant, submits that there are arguable errors of law in the Judgment in that it held:

(a)that the threshold under r 5.45(1)(b) had not been reached, namely that there was no reason to believe that the respondent would be unable to pay the applicant’s costs if the respondent was unsuccessful in the proceeding;

(b)there was no substantive evidence as to the inability of the respondent to meet the costs award;

(c)that the respondent did not have to provide any evidence as to its financial ability to meet the adverse costs award.

[8]    Mr Braun submits that the Judgment erred in taking the view that the statements of the deponents as to the respondent’s inability to meet the costs award were mere assertions and also by relying on the respondent director’s assertion that the financial information relating to the respondent was commercially sensitive. He submits that when considering the surrounding circumstances, particularly in the light

5      Greendrake v District Court of New Zealand, above n 4, referring Finemore Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].

of previous roles of the employees of the respondent who have filed the affidavits, there is sufficient credible evidence that the respondent will be unable to meet the costs award against it, or at least enough credible evidence to demand evidence from the respondent that it is able to meet the costs award over and above the simple assertion by the respondent’s director that it could do so. He submits the respondent should have provided evidence rebutting its impecuniosity.

[9]    Mr Braun submits that the evidence from the respondent’s own former employees that there are significant concerns as to the respondent’s solvency, establishes a proper evidential basis that the respondent has insufficient assets to meet the costs award.

[10]   Mr Braun relies on Totara Investment Limited v Abooth Limited6 where, he submits, the Court noted that direct evidence that the applicant had filed was very limited and open to challenge but, despite that, the Court acknowledged this did not mean the threshold had been crossed, concluding that there was reason to believe the respondent would be unable to pay the costs if unsuccessful.

[11]   Mr Braun submits that the Court has confirmed that a defendant will invariably face difficulties in establishing the financial position of the plaintiff, citing Arklow Investments Limited v McLean7 but argues that in this case the Court has the benefit of direct evidence from former employees of the respondent and the Court erred in discounting the evidence of the former employees and accepting the respondent’s bare assertions.

[12]   Mr Braun acknowledges that evidence being filed by former employees of the respondent, whose relationship with the respondent’s director has soured, may not be determinative but submits that does not mean the evidence is not credible and in this case the evidence provided demands a response from the respondent.

[13]   Mr Braun submits that an adverse inference should be drawn from the respondent’s lack of disclosure of its financial position. He refers to

6      Totara Investments Ltd v Abooth Ltd Auckland CIV-2007-404-990 at [34].

7      Arklow Investments Ltd v McLean (1994) 8 PRNZ 191.

New Zealand Kiwifruit Marketing Board v Maheatataka Coolpak Limited,8 as setting out the principle that there must be some evidential foundation or indication to support the charge that there is reason to believe the plaintiff will be unable to pay the costs before the Court is justified in drawing an adverse inference from the absence of a positive response from the plaintiff. He submits that such evidential foundation exists here in the form of evidence from the two former employees of the respondent who have stated that the respondent will be unable to meet the costs award because:

(a)it owes hundreds of thousands of dollars in unpaid tax;

(b)it does not have any significant assets;

(c)it does not have any significant or reliable sources of income.

[14]Mr Braun submits the respondent has acknowledged that:

(a)it has GST outstanding and is in active conversation with Inland Revenue to resolve ongoing obligations satisfactorily;

(b)all staff have been made redundant.

and accordingly the respondent’s own evidence corroborates that of the former employees in that it identifies the two issues, being the outstanding tax debt and the staff redundancies.

[15]   Mr Braun submits that the interests of justice lies heavily in favour of granting leave. He points to the following:

(a)The former employees’ affidavits display a consistent theme that a substantive claim is the result of actions of an individual has been described as “aggressive and intimidating” and is determined to “keep going” after the applicant and that the respondent appears unphased

8      New Zealand Kiwifruit Marketing Board v Maheatataka Coolpak Ltd (1993) 7 PRNZ 209.

regarding the potential consequences of the substantive claim, but that “he was just going to sue the defendant for what he could”;

(b)the director of the respondent’s actions (referring to the claim) could be considered a “money grab”.

[16]   Mr Braun submits that against that background the applicant should be afforded some protection as the respondent has made an unfounded claim against the applicant and has essentially nothing to lose, with all employees redundant, evidence it has no significant assets, and a director who is unconcerned with the future of the respondent as an entity.

[17]   Mr Braun submits that the alleged error in respect of the threshold requirement is of sufficient importance to the applicant and is also of general/public importance and should be determined. He submits that it is imperative for commercial entities to understand when they are required to disclose financial information to prove their financial stability, and in effect avoid the negative inference which the applicant believes should be drawn in this instance. He submits the current lack of clarity may result in businesses refusing to disclose financial information and being more willing to file claims that have limited merits, due to lack of concerns about potential cost implications that may result.

Respondent’s position

[18]   Mr Leighton, for the respondent, submits that there are no arguable errors of law in the Judgment the applicant is attempting to relitigate the substantive application, and issues of credibility and reliability of evidence is a question of fact and not law.

[19]   Mr Leighton submits that the applicant is required to provide credible evidence from which an inference can be drawn that the respondent will be unable to meet an adverse costs award and refers to Arklow v McLean9 where, he submits, Thomas J found that there must be an evidential foundation that the plaintiff will not be able to

9      Above, n 7.

pay the costs before an adverse finding will be drawn from refusal to provide financial documents.

[20]   Mr Leighton submits the Court was right to view the evidence of the two deponents as being assertions lacking any corroborative evidence as they were disgruntled former employees of the respondent, and taking into consideration the fact that one of the deponents, Mr Percy, is now a director of Commercial Utilities NZ Ltd, a company associated with the applicant, there are real reasons to doubt the reliability of the deponents’ assertions.

[21]   Mr Leighton submits that they cannot claim unsubstantiated assertions are sufficient to meet the threshold test, and then demand that the respondent provide financial records which, in the context of these proceedings are commercially sensitive, in response.

[22]   As to the applicant’s reliance on the decision in  Totara  Investments Ltd10   Mr Leighton submits the case can be distinguished as in that case there was actual evidence beyond mere assertions filed by the defendants allowing the Court to consider the threshold test met, as he detailed such evidence at [24] of his submissions. He submits that evidence of the two deponents in respect of conversations with the respondent’s director were vague, there were no notes from meetings, no dates, no direct quotes, and the applicant concedes the deponents do not know the current financial position of the respondent.

[23]   As to the assertions by the applicant that the respondent owes money to the Inland Revenue as evidence of a struggling business, and reference to the redundancies made by the respondent, Mr Leighton submits that owing money to the Inland Revenue is not of itself evidence of impecuniosity, and the redundancies have been explained by the respondent being a result of moving from an employee model to a contracting model.

[24]   Mr Leighton submits that information the applicant asserts should have been provided by the respondent is of a commercially sensitive nature because the

10     Above, n 6.

substantive proceedings involve allegations that the applicant has improperly retained information from the respondent, and it is reasonable that the respondent is wary of providing anything which the applicant could use further to the respondent’s detriment.

[25]   As to delay, Mr Leighton submits that the further delay is unjustified as the proceedings were filed on 9 May 2024 and a trial date is yet to be set. He submits that a company with almost an identical name to that of the applicant, with the same directors plus one of the deponents, appears to be an attempt to set up a phoenix company and the longer this proceeding takes to get to trial, the more risk is perceived that the applicant will transfer its assets and information to the new company.

[26]   Mr Leighton rejects the applicant’s assertions that the substantive proceedings lack merit and as to the deponent’s criticisms of the respondent’s director, he submits this is yet another example of unsubstantiated assertions by the deponents.

[27]Mr Leighton submits:

(a)that the appeal is of no general importance, and the protection of security for costs is only available when the threshold test is met;

(b)case law surrounding the threshold test is well established and there is no public importance in this application being granted;

(c)commercial entities are not required to disclose financial information, some of which may be commercially sensitive, unless there is an evidential foundation that they are unable to pay costs which does not exist in the present case; and

(d)the applicant is attempting to muddy the waters of what is already well- articulated case law.

[28]   In summary, Mr Leighton submits that there is no error of law or fact in the Judgment which correctly applied the well-established threshold for a security for costs application. He submits the applicant has failed to provide any credible,

corroborated evidence that can justify leave being granted, and the evidence relied upon by the applicant amounts to unsubstantiated assertions by disgruntled former employees, lacking detail and independent support.

Result

[29]   I am of the view that the applicant’s application for leave to appeal should be dismissed. The reasons for this view are:

(a)The high threshold for leave to appeal set out in the Greendrake11 decision is not met. There are no arguable errors of law or fact in the Judgment. The Judgment determined that the threshold in r 5.45(1)(b) had not been reached, namely that there was no reason to believe the respondent would be unable to pay the applicant’s costs if the respondent was unsuccessful in the proceeding. The evidence provided was mere assertions by the two deponents, Mr Percy and Mr Roberts, who were former disgruntled employees of the respondent. There was no corroborating evidence as to their assertions that the respondent owed thousands of dollars in tax, had no assets, and did not have any significant or reliable sources of income. On the basis of this evidence, the Court was entitled to reach a view that there was insufficient evidence to satisfy the threshold test in r 5.45(1)(b);

(b)Mr Braun has made much of the issue that no financial information was provided by the respondent. In this respect I follow view of the Court in New Zealand Kiwifruit Marketing Board,12 namely that there must be some evidential foundation that there is reason to believe the respondent will be unable to pay the costs before the Court is justified in drawing an adverse inference in the absence of a positive response from the plaintiff. As noted above, in the present case that evidential foundation was not established. In addition, the respondent has put forward a reasonable explanation that in relation to the substantive

11     Above, n 4.

12     Above, n 8.

dispute, the financial information regarding the respondent is commercially sensitive, and there is concern about disclosing it to the applicant;

(c)the appeal does not contain any matters of general or public importance. The law regarding security for costs is well-settled, including relating to the threshold test in r 5.45(1)(b), and I do not accept the point put forward by Mr Braun that a Court of Appeal determination is necessary to clarify when a party facing an application for security for costs is obliged to provide financial information;

(d)overall, in my view the interests of justice weigh against granting leave to appeal, including taking account of the delay which will be incurred in the appeal being heard.

Orders

[30]I make the following orders:

(a)The applicant’s application for leave to appeal is dismissed;

(b)as the respondent is the successful party, costs should follow the event. Counsel are directed to endeavour to agree costs and, failing agreement being reached within a period of 20 working days from the date of this judgment, counsel for the respondent will file a memorandum as to costs (not to exceed five pages) within 5 working days after the expiry of the 20 working day period, and counsel for the applicant will file a memorandum (not to exceed five pages) in response within 5 working days  of  receipt  of  counsel  for  the  respondent’s  memorandum.    A decision as to costs will then be made on the papers.

…………………………….. Associate Judge Taylor