Line 2 Line Concepts Limited v Commercial Utilities Limited

[2025] NZHC 901

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-1071

[2025] NZHC 901

BETWEEN

LINE 2 LINE CONCEPTS LIMITED

Plaintiff

AND

COMMERCIAL UTILITIES LIMITED

Defendant

Hearing:

7 April 2025

Appearances:

Matthew Hague for the Plaintiff

Szymon K Poborowski for the Defendant

Judgment:

29 April 2025

JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

[Security for Costs]

This judgment was delivered by me on 29 April 2025 at 3pm

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 901 [29 April 2025]

The application

[1]        Commercial Utilities Limited (CUL) has applied for an order for security for costs in proceedings brought against it by Line 2 Line Concepts Limited (Line 2).

[2]        Line 2 opposes the making of the orders sought, and seeks costs on this application.

Background

[3]        Line 2 has brought proceedings alleging breach of contract and breach of fiduciary duty following the termination of a commercial contract between the parties.

[4]        In September 2020, Line 2 entered into an agreement with CUL to provide specific services supporting CUL’s energy sales operation. Under the agreement, Line 2 promoted CUL’s energy retail business.

[5]        The agreement set out the terms of the fee arrangement under which Line 2 would charge CUL. Broadly, this involved CUL and Line 2 sharing equally in the commission received by CUL.

[6]        On 7 July 2023, the agreement was terminated by CUL. Following the termination, a dispute has arisen as to what subsequent payments are required under the agreement. CUL says that it was agreed that commission payments would cease following the termination of the agreement, however Line 2 contends that there was an implied term that some payments would continue for as long as the fixed term contract between CUL and the customer remained in place.

[7]        Line 2 is also claiming that CUL owed it fiduciary duties, which were breached, which is denied by CUL.

Legal principles

[8]Rule 5.45 of the High Court Rules 2016 provides:

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

(ii)is a corporation incorporated outside New Zealand; or

(iii)is a subsidiary (within the meaning of section 5 of the Companies Act 1993) of a corporation incorporated outside 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.

(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.

(4)A Judge may treat a plaintiff as being resident out of New Zealand even though the plaintiff is temporarily resident in New Zealand.

(5)A Judge may make an order under subclause (2) even if the defendant has taken a step in the proceeding before applying for security.

(6)References in this rule to a plaintiff and defendant are references to the person (however described on the record) who, because of a document filed in the proceeding (for example, a counterclaim), is in the position of plaintiff or defendant.

[9]        In determining applications under r 5.45, the Court will generally follow these steps:1

(a)Has the applicant satisfied the court of the threshold under r 5.45(1)?

(b)How should the court exercise its direction under r 5.45(2)?

(c)What amount should security for costs be fixed at?

(d)Should a stay be ordered?

[10]      The decision to order security, and the quantum of such security, are at the Court’s discretion. It is generally not to be to be fettered by constructing “principles” from the facts of previous cases.2 But the Court is to balance the competing interests

— being the defendant’s interest in protection from a costs order that is incapable of fulfilment and the plaintiff’s right of access to justice.3 Courts will be slow to make an order for security that will stifle a genuine claim.4 This balancing exercise is the Court’s overriding consideration.5

[11]As above, the Court should assess whether there is:6

… credible (that is, believable) evidence of surrounding circumstances from which it may reasonably be inferred that the [party] will be unable to pay the costs. This does not, of course, amount to proof that the [party] will, in fact, be unable to pay them.

[12]      The Court will assess the claim’s merits and prospects of success, to the extent that is possible at an early juncture.7 The Court will also consider the extent to which the plaintiff’s impecuniosity may have been caused by the defendant’s conduct.8

[13]      A plaintiff’s unwillingness to pay previous judgment debts weighs in favour of an order for security.9 But whether a plaintiff has been a responsible litigant is

1      Busch v Zion Wildlife Gardens Ltd (in rec and in liq) [2012] NZHC 17 at [2].

2      A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13] and [14].

3      Clear White Investments Ltd v Otis Trustee Ltd [2016] NZHC 2837 at [4].

4      Reekie v Attorney-General [2014] NZSC 63, [2014] 1 NZLR 737 at [3].

5      Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [24(c)].

6      Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd (No 2) [1997] 1 NZLR 516 (HC) at 519; NZ Kiwifruit Marketing Board v Maheatataka Coolpack Ltd (1993) PRNZ 209 (HC) at 212; and Stephenson v Jones [2013] NZHC 638.

7      Meates v Taylor (1992) 5 PRNZ 524 (CA); and Lee v Lee [2019] NZCA 345 at [73].

8      Bell-Booth Group Ltd v Attorney-General (1986) 1 PRNZ 457 (HC).

9      Taylor v Adair [2018] NZHC 1975 at [30]–[31], citing Burden v Dixie Cummings New Zealand

[2016] NZHC 729 at [22] and Mawhinney v Auckland Council [2014] NZHC 3207.

secondary to the issue of whether the lack of merit of the claim justifies security that would prevent the claim from proceeding.10

[14]      Quantum of security is discretionary and is assessed in the round. It need not be fixed by reference to likely cost awards.11 It is to be what the Court thinks fit in all the circumstances.12

[15]A Court will generally stay a proceeding until the security ordered is given.13

CUL’s position

[16]      CUL’s application for security for costs is made on the grounds that there is reason to believe that Line 2 will be unable to pay CUL’s costs if Line 2 is unsuccessful in the proceedings because Line 2 does not have any significant assets and has large amounts of debt.

[17]      Mr Braun, for CUL, submits it is just to order security in this case because Line 2’s case lacks merit and its impecuniosity was not caused by CUL’s alleged actions.

[18]      In support of its application, CUL has filed affidavits of two former employees of Line 2.

[19]      Mr Braun submits that test requires CUL to provide credible evidence of circumstances from which it may be reasonably inferred that Line 2 will be unable to pay costs if its claim fails,14 but also that a failure by Line 2 to disclose its financial circumstances may give rise to an adverse inference as to ability to meet costs.15

10     Wright v Attorney-General [2019] NZHC 3046 at [26].

11     Sharp v Pillay [2017] NZHC 647; and Red 9 Ltd v The Learning Ladder Ltd (in liq) [2021] NZCA 284 at [30].

12     A S McLachlan Ltd v MEL Network Ltd, above n 2.

13     Tomanovich Holdings Ltd v Gibbston Community Water Co 2014 Ltd [2018] NZHC 990 at [68] and [85].

14     Sports Worx Ltd v Uprising Sports Centre Pte Ltd [2024] NZHC 430 at [10].

15     New Zealand Kiwifruit Marketing Board v Maheatataka Cool Pack Ltd (1993) 7 PRNZ 209 at 212–213.

[20]Mr Braun submits that there is evidence that Line 2:

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

(b)does not have any significant assets; and

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

[21]      Mr Braun submits that Line 2’s evidence in response to these allegations as to its financial position is plainly inadequate and lacks material detail. He invites the Court to therefore infer that Line 2’s finances are as described in the former employees’ evidence, and submits that it would not be unusual for a defendant to struggle to establish the financial position of a plaintiff, relying on Arklow Investments Ltd v MacLean.16

[22]      Mr Braun submits that the affidavits of Line 2’s two former employees to support CUL’s position are particularly compelling, one of whom managed the relationship between the two entities, and both of whom were familiar with Line 2’s financial situation as well as the commercial interests of the director of Line 2,      Mr Turnbull. He submits that Mr Turnbull is now Line 2’s sole permanent employee and, having made staff redundant, the company is now engaging independent contractors on an as-needed basis.

[23]      Mr Braun submits that, although the substantive proceedings are in their infancy,  there is real  reason to be sceptical as  to the merits of Line 2’s  claims.     Mr Turnbull is alleged to have made a range of comments that could be regarded as demonstrating a flippant view as to Line 2, and he submits that Mr Turnbull is not concerned about the future of Line 2 as a company. He submits that there were also allegations that Mr Turnbull had previously inflated figures in Line 2’s reports to suggest it had performed better than it in fact had. He submits these allegations support the Court exercising its discretion to order security for costs, on the basis that it is not in the public interest for directors to regard commercial trading entities they are in control of with a flippant attitude.

16     Arklow Investments Ltd v MacLean (1994) 8 PRNZ 188 at 191.

[24]      In terms of quantum of security, Mr Braun has calculated scale costs on a 2B basis, for a total of $48,278.00. If security is ordered, he suggests that this be paid in tranches, with $16,000 payable immediately, $16,000 before briefs of evidence are due, and $16,278 before the trial starts.

Line 2’s position

[25]      Mr Leighton, for Line 2, submits that the two affidavits relied on by CUL from the former employees of Line 2 are inadmissible in evidence. This issue is dealt with below.

[26]      Mr Leighton submits that CUL has not met the threshold test because it has not provided credible evidence that Line 2 will be unable to make an adverse costs award.

[27]Mr Leighton submits:

(a)The unwillingness of a plaintiff to provide financial documents should not be taken as a concession that it is unable to meet a costs award.

(b)The information on Line 2’s financial situation is commercially sensitive and Line 2 therefore has good reason to withhold it from a competitor.

(c)CUL’s application stands on the evidence of two disaffected former employees of Line 2, which lack any supporting evidence.

(d)Compared with the application in Sports Worx,17 where the Court had letters from contractors advising of unpaid invoices, a gazette notice of a liquidation application against the respondent, and no new solicitors being instructed after the previous solicitors withdrew, this application has no evidence to support it.

17     Sports Worx Ltd v Uprising Sports Centre Pte Ltd, above n 14.

[28]      Mr Leighton further submits that should CUL have satisfied the threshold test, the Court should not exercise its discretion in favour of granting the application. The balance of convenience in this case, lies with the plaintiff. The accusations at the heart of this case are serious, as it is alleged that the CUL has improperly retained around

$380,000.

[29]      Finally, if the Court was to find that the threshold test is met, Mr Leighton submits that this has been caused by the improper retention of money by CUL.

Analysis

Admissibility issue

[30]      Mr Leighton submits that the two affidavits relied on by CUL are evidence of two former employees who are not parties to the proceedings and contain accusations that they have not been able to substantiate. He nevertheless submits that this evidence should be ruled inadmissible pursuant to ss 8, 11, 12, 30 and 69 of the Evidence Act 2006.

[31]      Sections 8, 11 and 12 relate to the Court’s powers to determine admissibility depending on broad and general factors which need not be recited here. Section 30 applies only to criminal proceedings so does not apply to this case. Critically, s 69 is not an admissibility provision, it is a disclosure provision. It gives the Court the power to direct that confidential information be disclosed following the balancing exercise in s 69(2), however the information in question in this case, if it is confidential, has already been disclosed. Consequently s 69 has no application to the affidavits of the two employees.

[32]      To the extent there is a breach of confidentiality by the two former employees of Line 2 in providing the affidavits, this is an issue between Line 2 and those employees, and not an issue in these proceedings.

[33]      As to Mr Leighton’s submissions that paragraphs 16–18 of Mr Adam Percy’s affidavit are inadmissible as they constitute the deponent’s opinion on the merits of

Line 2’s case and his beliefs as to Mr Turnbull’s motives, this is accepted and these paragraphs of the affidavit are excluded from evidence

Security for costs

[34]      The first issue is whether CUL has satisfied the Court that the threshold under r 5.45(1)(b) has been reached, namely that there is reason to believe that Line 2 will be unable to pay the costs of CUL if Line 2 is unsuccessful in Line 2’s proceeding.

[35]      In my view this test is not met and that is dispositive of the application. The reason for my view is that there is no substantive evidence as to the inability of Line 2 to meet a costs award. The only evidence is that provided by the affidavits of the two former employees, which when taken at its face value (disregarding any bad faith which might emanate from their disgruntlement as former employees) are mere assertions by those deponents that Line 2 does not have any assets, does not have any income, and owes thousands of dollars in taxes, and there is no corroborative evidence. As to speculations by those deponents on the personal circumstances of Mr Turnbull, firstly they are irrelevant as it is Line 2’s financial position which is relevant, and in any event are again mere assertions by the deponents, not corroborated by any evidence.

[36]      While the Court is entitled to draw adverse inferences from the fact that Line 2 has not provided financial information, this is not determinative, and Mr Turnbull has advanced the reason that the information is commercially sensitive and should be not disclosed to a competitor.

Result

[37]      I am of the view that CUL’s application for security for costs should be dismissed.

Orders

[38]I make the following orders:

(a)Paragraphs 16 to 18 of Mr Adam Percy’s affidavit dated 12 November 2024 is excluded from evidence.

(b)CUL’s application for security for costs is dismissed.

(c)As Line 2 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 Line 2 will file a memorandum as to costs (not to exceed five pages) within five working days after the expiry of the 20 working day period, and counsel for CUL will file a memorandum (not to exceed five pages) in response within five working days of receipt of counsel for Line 2’s memorandum. A decision as to costs will then be made on the papers.

…………………………….. Associate Judge Taylor