Lip v Pandey

[2023] NZHC 860

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-241

[2023] NZHC 860

UNDER

Rule 4.24(a) of the High Court Rules

BETWEEN

ALADDIN BIN MOHAMED LIP and NORCHIK BINTI ABDUL RAHIM

Plaintiffs

AND

PRAKASH PANDEY

Defendant

Hearing:	1 February 2023
Counsel:	R J Hollyman KC and V H H Hansen for defendant/applicant S V A East and S J Leslie for plaintiffs/respondents
Judgment:	21 April 2023

JUDGMENT OF ASSOCIATE JUDGE TAYLOR

[Applications for more explicit statement of claim, striking-out and security for costs]

This judgment was delivered by me on 21 April 2023 at 3:00pm, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:

Bell Gully, Auckland for Plaintiffs Farry & Co, Auckland for Defendant

Copy for:

R J Hollyman KC, Auckland, for the Plaintiffs

LIP and RAHIM v PANDEY [2023] NZHC 860 [21 April 2023]

TABLE OF CONTENTS

Paragraph

Introduction  [1]

Background  [3]

Application for more explicit pleadings, to strike out elements of pleadings

and security for costs  [10]

Affidavit of Alan LeslieFisher dated 8 September 2022  [12]

Affidavit of Rula Alemdar dated 25 November 2022  [13]

Notice of Opposition  [15]
Affidavit of AladdinBin Mohamed Lip dated 19 September 2022  [16]

Second affidavit of Aladdin Bin Mohamed Lip dated 31 January 2023                [18]

Mr Pandey’s submissions  [19]

More explicit pleading  [20]

Striking out elements of the statement of claim  [22]

Mr Lip and Mrs Rahim’s submissions  [30]
More explicit pleading  [31]

Striking out elements of the statement of claim  [33]

Security for costs  [41]

Legal principles  [45]
More explicit pleading  [45]

Strike out  [54]

Security for costs  [59]

Approach to analysis  [67]

More explicit pleading  [67]

Issues for strike-out  [68]

Issues for security for costs  [69]

Analysis for strike-out  [71]

(a)Limitation under s 43A of the FTA for s 9 claim  [71]

Conclusion on limitation under s 43A of the FTA for s 9 claim  [79]

(b)     Limitations under ss 11 and 14 of the Limitation Act for negligence

and dishonest assistance claims  [81]

Conclusion on limitations under ss 11 and 14 of the Limitation Act
for negligence and dishonest assistance claims  [88]

(c)Reasonably arguable breach of s 9 of the FTA  [89]

Conclusion on reasonably arguable breach of s 9 of the FTA  [96]

(d)Reasonably arguable duty of care in negligence  [98]

Conclusion on reasonably arguable duty of care in negligence                   [111]

(e)     Reasonably arguable trust and breach of trust for dishonest assistance claim[114]

Conclusion on reasonably arguable trust and breach of trust for

dishonest assistance claim  [126]

Analysis of security for costs  [129]
Has Mr Pandey satisfied the Court of the threshold under r 5.45(1)?                 [130]

How should the Court exercise its discretion under r 5.45(2)  [131]

Conclusion on the order for security for costs  [138] Result  [139]

Orders  [140]

Costs  [141]

Introduction

[1]    In the substantive proceeding, the plaintiffs, Mr Aladdin Lip and Mrs Norchik Rahim (Mr Lip and Mrs Rahim), sue in their own right and on behalf of a class action and raise three causes of action against the defendant, Mr Prakash Pandey (Mr Pandey), for breach of s 9 of the Fair Trading Act 1986 (FTA), negligence and dishonest assistance.

[2]    This judgment relates to three interlocutory applications by Mr Pandey for orders:

(a)requiring a more explicit statement of claim;

(b)striking out elements of the plaintiffs’ statement of claim; and

(c)requiring the plaintiffs to provide security for costs.

Background

[3]    Mr Lip and Mrs Rahim own a residential unit in 21 Viaduct Harbour Avenue, Auckland (the complex). They bring this proceeding in relation to arrangements they entered into to lease their unit so that it could be part of a hotel operation. They say that these arrangements were marketed to them directly by Mr Pandey, and that they were misled as to those arrangements.

[4]    Mr Pandey is sued in his capacity as director of an entity which owns the complex’s commercial units and some of the residential units. Mr Lip and Mrs Rahim sue personally and in a representative capacity on behalf of 78 other residential unit owners in the complex.

[5]    The proceedings concern an email dated 12 October 2011, in which Mr Pandey set out a proposal in which the plaintiffs would lease their units to the entity Viaduct Quays Hotel Limited (VQHL), which would then lease them to the hotel brand Accor. That proposal is now challenged as false and misleading.

[6]    At the time of the initial proposal the plaintiffs formally entered into and documented that arrangement between them as unit owners and VQHL.

[7]    In 2015, the plaintiffs initiated arbitration proceedings disputing their return on investment. Mr Pandey contends that those proceedings included, among other matters, allegation by the plaintiffs which mirror, or at least underpin, these proceedings.

[8]    In February 2022, the plaintiffs sued Mr Pandey based on claims arising from the 2011 proposal.

[9]    For the sake of completeness, in 2021 VQHL went into liquidation and the hotel shut down. A new hotel was established, in which the plaintiffs are not currently participating.

Application for more explicit pleadings, to strike out elements of pleadings and security for costs

[10]Mr Pandey seeks orders:1

More Explicit Pleading

(a)requiring the Plaintiffs to file and serve:

(i)a more explicit statement of claim; and/or

(ii)an amended statement of claim providing further particulars of the claims;

as detailed in Schedule A to this application; and

(b)staying the proceeding until either the Court dismisses this application, or the Plaintiffs comply with the Court's order requiring

1 Interlocutory application on notice for order requiring a more explicit statement of claim and/or further particulars, for order for strike out, and for order for security for costs dated 12 August 2022 at [1].

a more explicit statement of claim and/or further particulars, whichever is applicable; and

Strike out

(c)striking out the following parts of the Statement of Claim:

(i)paragraph 60;

(ii)at paragraph 61(a) all references to conduct alleged to have occurred prior to:

1.   8 March 2019; and/or

2.   8 March 2016; and

(iii)paragraph 61(b)

(iv)paragraphs 65 and 66 of the Statement of Claim;

(v)at paragraph 67, all references to conduct alleged to have occurred prior to 8 March 2016;

(vi)the third cause of action;

Security for Costs

(d)requiring the Plaintiffs to provide security for costs, in such amount as the Court may decide;

(e)that these proceedings are stayed until the Plaintiffs have given security in the amount and form required by an order of this Court;

(f)enlarging the time by which the Second to Sixth Defendants are required to serve an affidavit of documents, and produce non privileged documents listed in the same, to the 30th working day after the day on which security is in fact given; and

(g)requiring the Plaintiffs to pay the Defendant’s costs in with respect to each of the above applications.

[11]The grounds on which the orders are sought are:2

More Explicit Pleading

(a)The Statement of Claim presently fails to:

(i)fairly define the contest between the parties;

(ii)inform the Defendant, and the Court, of the necessary ingredients of the Plaintiffs’ claims;

2 At [2].

(iii)tell the Defendant exactly what the allegations are that the defendant must answer — instead, the statement makes inferential assertions, and leaves the Defendant to guess;

(iv)provide a proper opportunity for the Defendant to take steps in advance to deal with the case the Defendant will have to meet;

(v)limit the scope of matters that the Plaintiffs may put in issue at trial, or in pre-trial settlement discussion;

(vi)provide the defendant with a proper opportunity to seek summary determination on the basis that the claim, as pleaded, is untenable;

(b)the specific failing(s) of particular parts of the statement of claim are set-out in Schedule A to this application;

(c)the consequence of the various failings of the statement of claim is to undermine the objective of the High Court Rules to secure just, speedy, and inexpensive determination of proceedings;

(d)stay:

(i)all subsequent procedural steps contemplated by the High Court Rules are predicated on the pleadings, beginning with the statement of claim, providing a reference point for the just, speedy, and inexpensive conduct of a proceeding;

(ii)more particularly:

(1)before the parties can properly assess what documents should be required in discovery, the case that must be answered should be defined as precisely as possible, so that the scope of discovery is not broader than necessary to address the case to be answered;

(2)a defendant cannot be expected to make precise denials or admissions until the case the defendant is required to answer is precisely pleaded;

(3)given the principle that an application for strike out may be refused if the deficiency in question can be fixed by re-pleading, a plaintiff should be required to particularise their statement of claim fully, before a defendant should be put to the burden of an application for strike-out.

Strike Out

(e)as the statement of claim is pleaded, there is no arguable case that the Defendant was acting in trade for the purposes of the Fair Trading Act 1986;

(f)the issue of each monthly statement was a discrete action;

(g)section 43A of the Fair Trading Act 1986 prohibits all claims brought 3 years or longer after the date on which the loss or damage, or likelihood of loss or damage, or ought reasonably to have been discovered;

(h)the Plaintiffs knew about the alleged losses relied on with respect to paragraph 61(a) in commencing their arbitration claim against VQHL in 2015;

(i)in any event section 11 of the Limitation Act 2010 prevents an action from proceeding based on conduct or events that occurred 6 or more years before the Statement of Claim was filed and served;

(j)the matters alleged at paragraph 61(b) are not capable of amounting to a breach, or breaches, of section 9 of the Fair Trading Act;

(k)the facts relied on by the Plaintiffs at paragraph 64 of the Statement of Claim, in support of paragraphs 65 and 66, are incapable of creating:

(i)the assumption of responsibility alleged at paragraph 65; and

(ii)the duty of care alleged at paragraph 66;

(l)the issue of each monthly statement was a discrete cause of action;

(m)section 11 of the Limitation Act 2010 prevents an action from proceeding based on conduct or events that occurred 6 or more years before the Statement of Claim was filed and served;

(n)as pleaded, the Statement of Claim does not disclose the existence of any trust, pursuant to which the Plaintiffs could allege:

(i)breach of trust;

(ii)dishonest assistance of such breach of trust;

(o)clause 5.2 of the Lease(s) is incapable of supporting

(i)the existence of a trust; or

(ii)the alleged breach of trust.

(p)as pleaded, the Statement of Claim does not disclose any facts, or principles, that can support the allegation of

(i)assistance of the breach of trust, alleged at paragraph 74; and

(ii)dishonesty, as alleged at paragraph 75;

(q)the Plaintiffs are prevented from pursuing the third cause of action, or a portion of it, by the doctrine of laches.

Security for Costs

(r)all, or very nearly all, of the Plaintiffs and class members are resident outside of New Zealand;

(s)accordingly, there is an appreciable risk that in the event the Defendant becomes entitled to a payment of costs from the Plaintiffs and class members, the Defendant will be

(i)defeated in the enforcement of the Defendant’s costs entitlement, due to an inability to effectively enforce an order in those countries outside of New Zealand where the Plaintiffs and class members reside or own valuable property; or

(ii)denied the full value of the Defendant’s costs entitlement by being required to pursue costly enforcement proceedings in two or more foreign jurisdictions;

(t)there is reason to believe that the Plaintiffs and class members will be unable to pay the costs of the Defendant if the Plaintiffs and class members are unsuccessful in the proceedings;

(u)the Plaintiffs and class members themselves have presented evidence to this Court, in related proceedings, that would support a finding by this Court of an inability to pay costs;

(v)that evidence was

(i)the Plaintiffs and class members are of generally modest means;

(ii)the Plaintiffs’ and class members’ respective units in the building that is the subject of these proceedings, have no value;

(w)notwithstanding [(v)] above, the only known assets of the Plaintiffs and class members in New Zealand are real estate, and:

(i)the extent of any security interests and the indebtedness thus secured, is unknown;

(ii)the standing of such debts is unknown — the registered interest of any mortgagee or other creditor would, if executed, defeat or reduce the Defendant’s interest in costs; and

(x)real estate is not automatically liquid, and the steps required in the event that the Defendant must have recourse to real estate owned by the Plaintiffs and class members will be unduly onerous and expensive.

Affidavit of Alan Leslie Fisher dated 8 September 2022

[12]   Mr Fisher has made an affidavit in support of Mr Pandey’s application. He deposes that during the time that VQHL leased units from the plaintiffs in this proceeding, he was closely involved in the generation of the monthly statements

provided to them under their leases. Each month’s statement was stand-alone — the information in it was from that month alone and did not carry-over any information from any months prior.3

Affidavit of Rula Alemdar dated 25 November 2022

[13]   Ms Alemdar has made an affidavit in support of Mr Pandey’s application. She deposes that she has personal knowledge of the files related to the defendant in the present proceeding and in the proceeding Een v Body Corporate 382911 (CIV-2020- 404-1873 and CIV-2020-404-1899), in which the plaintiffs are very nearly identical to those in this proceeding.

[14]She produces the following documents for the court:

(a)affidavit of  Aladdin  Bin  Mohamed  Lip  for  the  Applicants  dated  6 October 2020;

(b)affidavit of Richard James Lawson dated 15 October 2020;

(c)affidavit of Grahame Fong dated 20 October 2020;

(d)affidavit of Prakash Pandey dated 20 October 2020;

(e)reply Affidavit of Aladdin Bin Mohamed Lip dated 21 October 2020;

(f)affidavit of Aladdin Bin Mohamed Lip in opposition to interlocutory application by second to sixth defendants for an order that the plaintiffs give security for costs dated 23 November 2021;

(g)Affidavit of Aladdin Mohamed Lip in opposition to interlocutory application by second to sixth defendants for an order that the plaintiffs give security for costs dated 9 March 2021;

3      Affidavit of Alan Leslie Fisher dated 8 September 2022 at [2] and [3].

(h)affidavit of Grahame Boston Fong in support of interlocutory application on notice by the second to sixth defendants for an order that the plaintiffs give security for  costs,  and  associated  orders,  dated 24 March 2022;

(i)reply affidavit of Grahame Boston Fong in support of interlocutory application for security for costs — replying to the affidavit of Aladdin Lip dated 24 March 2022;

(j)Affidavit of Grahame Boston Fong in support of interlocutory application for security for costs, dated 24 March 2022;

(k)email    correspondence    between    Wallace    Revell,    David    Friar,

Sarah Leslie and Nick Moffatt dated 13 April 2022; and

(l)email correspondence between Sophie East, Wallace  Revell  and  Vita Hansen dated 26 June 2022.

Notice of opposition

[15]The plaintiffs oppose all applications on the following grounds:4

More Explicit Pleading

(a)The statement of claim filed by the plaintiffs meets the requirements of High Court Rules 5.26 and 5.27 as pleaded and there is no basis for the argument that a further amended statement of claim ought to be filed.

(b)The statement of claim sets out, with more than sufficient detail and clarity:

(i)The nature of the plaintiffs’ claim to the relief sought (claims under s 9 of the Fair Trading Act, negligence and dishonest assistance and the pleaded facts that make out the essential elements of those causes of action);

(ii)The specific timing of the events in question, the parties involved and the arrangements between them; and

4 Notice of opposition to interlocutory application for order requiring a more explicit statement of claim, order for strike out, and order for security for costs dated 14 September 2022 at [3].

(iii)The relief sought, being damages, interest and costs. Further, those damages that can be quantified now have been, and (as is common practice) other aspects of damages sought will be quantified prior to or at trial.

(c)The purpose of a statement of claim is to set out the essential basis of a claim and the necessary ingredients of it.5 The statement of claim fulfils that purpose and gives details of the claim sufficient for the parties to agree discovery categories and progress the proceeding. The defendant seeks information which exceeds the level of detail necessary or appropriate for a statement of claim. Examples are set out in Schedule A to this notice of opposition, which responds to Schedule A of the application.

(d)Pleadings are the documents which establish the parameters of a case and are not briefs of evidence.6 A statement of claim must not stray into setting out the evidence relied upon.7 The defendant’s application wrongly suggests that it must and seeks evidence of the case against him rather than particulars of allegations. Examples are set out in Schedule A to this notice of opposition, which responds to Schedule A of the application.

(e)It is inappropriate and unnecessary for this proceeding to be stayed on the basis of a dispute as to particulars. The pleadings are adequately particularised and the issues sufficiently clear in order for the parties to be able to advance this proceeding to a discovery phase.

(f)A stay of proceedings would be contrary to the objective  in  the High Court Rules of just, speedy and inexpensive determination of disputes.

Strike out

(g)It is reasonably arguable that the defendant was acting in trade in making a proposal to the plaintiffs to participate in a hotel business and implementing that proposal;

(h)It is reasonably arguable that the issue of each monthly statement was not a discrete cause of action in circumstances where Viaduct Quays Hotel Ltd (in liq) (VQHL) was obliged to provide an audited annual statement, which it failed to do;

(i)Section 11 of the Limitation Act 2010 and section 43A of the Fair Trading Act 1986 apply as at the date the claim was filed, not when it was served;

(j)It is reasonably arguable that VQHL’s application of funds due to the plaintiffs and deducted for a particular purpose, in circumstances where those funds were required to be held in a separate bank account, was a breach of trust;

5      Price Waterhouse v Fortex Group Ltd CA179/98, 30 November 1998 at 18.

6      At 17.

7      Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53, [2013] 2 NZLR 679 at [84].

(k)It is reasonably arguable that the defendant’s knowing actions as director of VQHL in causing VQHL to commit a breach of trust amounted to dishonest assistance;

(l)The doctrine of laches is not applicable to the third cause of action.

Security for costs

(m)The plaintiffs are in a position to meet any adverse award of costs that may be made against them:

(i)Although they reside overseas, the plaintiffs own property of value in New Zealand.

(ii)There is no credible evidence from which the defendant can reasonably infer that the plaintiff’s will be unable to pay a costs order. The same parties were recently involved in a related proceeding where they met all costs ordered against them.8

(iii)In that related proceeding, the Court found that there was not sufficient circumstances before it to give it reason to believe that the plaintiffs would be unable to pay a costs award made against them.9

(iv)The conduct of the defendant in inter alia under reporting hotel profit so as to deprive the plaintiffs of rental income, and putting VQHL into liquidation and commencing a new hotel operation excluding the plaintiffs, was designed to injure the plaintiff’s interest and it is inappropriate in the circumstances for security for costs to be ordered. Indeed, in the other related proceedings,10 the Courts have held or the defendant’s related interests have conceded that they have, unlawfully passed body corporate resolutions that had the effect of preventing the plaintiffs from using their unit to derive income, and unlawfully sought to have the plaintiffs pay (via a body corporate levy) for security for a hotel operation from which they were excluded.

(n)The threshold in High Court Rule 5.45(1)(b) is not met.

Affidavit of Aladdin Bin Mohamed Lip dated 19 September 2022

[16]   Mr Lip has made an affidavit in support of his opposition to the interlocutory applications.11 He deposes that he and Mrs Rahim have owned one residential unit in the complex since 2006 and alongside the 78 other property-owning class members

8      Een v Body Corporate 383911 [2022] NZHC 852 at [41].

9 At [59].

10     CIV-2020-404-1873, CIV-2020-404-1899 and CIV-2020-404-2385.

11 Affidavit of Aladdin Bin Mohamed Lip in opposition to interlocutory application by defendant for orders for a more explicit statement of claim, strike out and security for costs dated 19 September 2022.

have leased their units to VQHL to run the Sofitel Hotel from 2012 until July 2020, when Mr Pandey put VQHL into liquidation.

[17]   In his affidavit he explains the 2011 email proposal and subsequent leases before explaining how the lack of auditing led to 2015 arbitral proceedings, and these proceedings after the 2020 liquidation of VQHL and the misreporting of funds. He ends by explaining that post liquidation the hotel reopened despite the plaintiffs not being given the opportunity to participate in the new venture and the problems arising from new body corporate rules challenged in other proceedings.

Second affidavit of Aladdin Bin Mohamed Lip dated 31 January 2023

[18]   Mr Lip has made a brief further affidavit in support of his opposition.12 In it he responds to Mr Pandey’s submission that the plaintiffs are simply relitigating issues from the 2015 arbitral proceedings, namely the FFE contribution and All Fixed Charges deduction. Mr Lip deposes that the arbitral proceedings were to seek an audit as the leases with VQHL entitled them to and which still has not been completed. Further, he deposes that at those proceedings he was unaware what was being deducted under the All Fixed Charges heading nor did he have any cause to suspect the FFE contributions were not being paid into a separate account or not being used appropriately in accordance with the lease.

Mr Pandey’s submissions

[19]   Mr Hollyman KC, for Mr Pandey, submits that all three interlocutory applications should be granted. He takes each in turn.

More explicit pleading

[20]   Mr Hollyman submits that the current statement of claim is not sufficiently explicit because it fails to meet the proper purposes and functions of a properly pleaded statement of claim. Those purposes are to fairly define the contest between parties and inform the opposing party of the essential basis, and necessary ingredients, of the claim. And the functions are to promote the just, speedy inexpensive determination of

12     Second affidavit of Aladdin Bin Mohamed Lip dated 31 January 2023.

proceedings by telling the defendant exactly what the allegations are, enabling the parties to take steps in advance to deal with the case, providing a reference point for discovery, limiting the scope of matters that a plaintiff may put in issue at trial or in pretrial settlement discussion, and providing a defendant with the opportunity to seek summary determination.

[21]   Mr Hollyman submits the schedule to the application sets out the statement of claim’s deficiencies. He submits the statement leaves Mr Pandey and the Court uninformed about various factual matters that  underpin the assertions.   It leaves   Mr Pandey unable to identify, with any precision, the factual matters and witnesses to be pursued, and those that may be disregarded. Finally, it leaves Mr Pandey unable to assess the narrowest appropriate scope for the discovery that Mr Pandey should be providing and requiring from the plaintiffs. Ultimately, it has impeded Mr Pandey’s ability to assess whether the Court should be asked to strike out various elements of the statement of claim.

Striking out elements of the statement of claim

[22]   Mr Hollyman makes four submissions: that the claims are barred by statutory limitations, that no breach of s 9 of the FTA arises on the pleadings, no assumption of responsibility for negligence arises on the pleadings, and no trust nor breach of trust for dishonest assistance arises on the pleadings.

[23]   On limitations, both the FTA and Limitation Act 2010 give cause to strike out. First, the FTA limitation period in s 43A prohibits all claims brought more than 3 years after the date on which the loss or damage, or likelihood of loss or damage, was discovered or ought reasonably to have been discovered. Mr Hollyman submits the evidence here shows actual knowledge of the claims in 2015 when the plaintiffs brought arbitration proceedings against VQHL on these and similar grounds. He further disputes that in so far as the claim now relies on subsequent monthly statements, there can be no suggestion that the plaintiffs were in fact misled by those statements or actions. Second, s 11 of the Limitation Act prohibits all money claims more than six years after the alleged act or omission on which the claim is based.

[24]   On no breach of s 9, he cites the Supreme Court in Red Eagle for the proposition that the focus is on whether the alleged conduct was likely to mislead or deceive reasonable people in the position of the plaintiffs.13 He submits the alleged misleading conduct occurred in 2020 despite the email proposal being sent in 2011. Mr Pandey’s 2020 conduct, liquidating VQHL in May 2020, establishing a new hotel in September 2020, and at a time when the leases would otherwise have run 11 more years, did not breach s 9 as it was not itself misleading nor deceptive, and the 2011 email proposal cannot be made misleading and deceptive solely by reference to the 2020 conduct. The 2011 proposal is now insignificant given VQHL and the plaintiffs subsequently negotiated and entered commercial contracts and the plaintiffs issued arbitral proceedings based on those contracts. In sum, he submits s 9 cannot apply because it does not enforce promises but merely prohibits misleading and deceptive conduct.

[25]   On assumption of responsibility, he submits that statements in the 2011 email proposal are insufficient to establish a duty of care based on an assumption of responsibility by Mr Pandey. Mr Hollyman submits the words fall short of making such a statement, the plaintiffs entered a subsequent contractual relationship displacing a duty of care in negligence,14 and the court are rightly dubious about undermining separate corporate personality by holding a company’s director personally liable when the plaintiffs contracted with the company VQHL.15 On that last point he notes the Court of Appeal’s view that there is a presumption against a duty of care absent evidence the director was doing something other than acting on the company’s behalf.16 He submits there is no such evidence here. Furthermore, he submits that the pleaded responsibility assumed is for the accuracy of VQHL’s monthly statements and continuation of the hotel until 2031, which he submits is extraordinary given the proposal email was no more than a statement of opinion about the future and not a guarantee. Finally, he reiterates his s 11 Limitation Act argument finding the negligence claim time-barred.

13     Red Eagle Corporation Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].

14     Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA).

15     Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 (CA) at 523; Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL).

16     Body Corporate 202254 v Taylor [2008] NZCA 317, [2009] 2 NZLR 17 at [33].

[26]   On dishonest assistance, Mr Hollyman submits that there is no trust, no assistance and no loss on the pleadings. No trust arises on the lease’s terms because the lease entitled VQHL to make deductions from revenue to expend as of right on fixtures, fittings and equipment (FFE), the lease does not state the FFE fund was held on trust nor for the plaintiff’s benefit, the lease does not require a discrete bank account for FFE deductions and any separate bank account requirement can be no more than an informational requirement sounding in breach of contract. There is no pleaded basis of Mr Pandey’s assistance beyond mere reliance on him being VQHL’s director. And there is no loss as the FFE funds were not held on trust for the benefit of the plaintiffs. Finally, he reiterates his s 11 Limitation Act argument finding the dishonest assistance claim time-barred.

Security for costs

[27]   Mr Hollyman relies on rule 5.45 of the High Court Rules 2016 to assert that the plaintiffs meet both alternative thresholds for security for costs: that they are resident outside New Zealand, or there is reason to believe they will not be able to meet an award of costs if the proceeding fails.

[28]   Mr Lip and Mrs Rahim, who would be liable for costs, live overseas in Malaysia and the only New Zealand property they have provided evidence of owning is this residential unit, which is encumbered and of no realisable value. Furthermore, Mr Hollyman submits they have provided little to no financial information on their ability to meet any eventual costs award.

[29]   Ultimately, Mr Hollyman submits that an order for $350,000 in costs to be paid in instalments against the estimated $520,000 total is appropriate.

Mr Lip and Mrs Rahim’s submissions

[30]   Ms East, for Mr Lip and Mrs Rahim,17 submits that all interlocutory applications should be dismissed. In short, she submits the statement of claim meets the r 5.26 standard by showing the nature of the claim, relief sought and sufficient

17     Some of the submissions on behalf of Mr Lip and Mrs Rahim were made by Ms East and some by Ms Leslie. For simplicity, I refer to submissions by Ms East throughout.

particulars of the facts underpinning the causes of action. It is inappropriate to strike out parts of the proceedings as there is an arguable duty of care in negligence, a breach of s 9 arises when Mr Pandey made promises he had no intention of honouring, breach of trust arises on the pleadings, and the claims are not so clearly time-barred as to be an abuse of process. Finally, she submits security for costs is unnecessary as the plaintiffs are in a position to meet any adverse award and the Court should not exercise its jurisdiction for the same reasons as the Court in the related proceeding of Een v Body Corporate 383911.18

More explicit pleading

[31]   Ms East submits the statement of claim presents the material facts clearly, logically and succinctly, uses appropriate headings to signal topics, sets out the nature of the relief sought and the facts underlying the causes of action, and does not contain irrelevant material. It comfortably meets the required r 5.26 standard and concludes with relief complying with r 5.27.

[32]   In relation to the schedule of alleged deficiencies, Ms East responds in a schedule in their notice of opposition. Broadly she contends that the alleged deficiencies are either differences of interpretation and disputes as to underlying facts, or assertions that matters are pleaded without a sufficient evidential basis. As to the former, she submits these are matters to be resolved in the proceeding, and as to the later she submits that this is best left for trial with the plaintiffs not required to set out all the evidence they will rely on to prove their case.

Striking out elements of the statement of claim

[33]   At the outset, Ms East submits where partial strike-out is sought, it may not be a productive use of the parties’ and court’s resources to strike out parts of the claim on limitation grounds when similar transactions are within time and will be tested at trial,19 nor on substantive grounds where similar issues will need to be addressed even

18     Een v Body Corporate 383911, above n 8.

19     Scott v ANZ Bank New Zealand Ltd [2020] NZHC 906, [2020] 3 NZLR 145 at [190].

if  some  matters  are struck out.20     Ms East then addresses each of Mr Pandey’s strike-out claims in turn.

[34]   On s 9 of the FTA, she submits contrary to Mr Pandey that there is ample case law providing that a promise a defendant has no interest in honouring can be misleading and deceptive.21 She submits Mr Pandey’s intention is a matter for trial with the benefit of discovery but there is an arguable basis in Mr Lip’s affidavit. She turns to the subsequent contractual relationship and submits that it is well established that a person can be liable under the FTA despite acting for a company,22 and the Court of Appeal in Body Corporate 202254 v Taylor dismissed a similar argument, finding that if a person is in trade, it did not need to be on their own account and it was sufficient that the conduct was undertaken as agent for another business or company.23 Finally, Ms East asserts there is genuine dispute about whether the plaintiffs excluded themselves from the new hotel’s operation.

[35]   On duty of care, she submits it is at least arguable that Mr Pandey assumed responsibility for an arrangement: (i) which would deliver the plaintiffs what they were owed after hotel operating costs came out; (ii) that was transparent; and (iii) that would give the plaintiffs some certainty in terms of their participation in an Accor hotel going forward.

[36]   Regarding  the  subsequent  contractual  relationship,   Ms   East   rejected  Mr Pandey’s submission that Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd

20 Econicorp Holdings Ltd v Minister of Education [2011] NZSC 148 at [3].

21 Martel v Auckland City [2012] NZHC 241; Gunton v Aviation Classics Ltd [2004] 3 NZLR 836 (HC); GSE Group Ltd v Walters Supplies Ltd HC Auckland CIV-2005-404-3045, 16 July 2008; McKeown Group Ltd v Russell (2010) 13 TCLR 1 (HC); Philip Moore & Co Ltd v Surridge [2018] NZHC 562, (2018) 15 TCLR 79; Yan v Mainzeal Property and Construction Ltd (in liq) [2021] NZCA 99, [2021] 3 NZLR 598.

22 Robert Hollyman Falsehood and Breach of Contract in New Zealand (Thomson Reuters, Wellington, 2017) at [14.2.5]: “The person who in fact acted in a misleading or deceptive way is, on the current law, personally liable. They do not escape separate liability on the basis that they are also acting on behalf of a company”, citing Body Corporate 202254 v Taylor, above n 16, at [78]; Kinsman v Cornfields Ltd (2001) 10 TCLR 342 (CA); Newport v Coburn (2006) 11 TCLR 831, (2006) 8 NZBLC 101,717 (CA) at [56]; Gilmour v Decisionmakers (Waikato) Ltd [2012] NZHC 298; NZX Ltd v Ralec Commodities Pty Ltd [2016] NZHC 2742 at [235]; Specialised Livestock Imports Ltd v Borrie CA72/01, 28 March 2002 at [27]; Commerce Commission v Mega Vitamin Laboratories (NZ) Ltd (1994) 6 TCLR 95 (DC); Lynn v AC Fryer & Sons Ltd [2013] NZHC 2942, (2013) 14 NZCPR 879 at [60]; Mace v Strategic Planning Group Ltd [2014] NZHC 1500 at [28]–[30]; Commerce Commission v Callaghan (1993) 5 TCLR 394 (DC).

23 Body Corporate 202254 v Taylor, above n 16, at [91].

stands for the proposition that a tortious duty of care in negligence is generally displaced by contractual duties. The present case is also distinguishable because the plaintiffs are not endeavouring to enforce obligations between parties other than themselves. In any event the Court of Appeal in Rolls-Royce recognised that a cause of action for negligent misstatement pre-contract could co-exist with subsequent separate contractual claims. This is the current position in New Zealand as summarised by the authors of Todd on Torts.24

[37]   Regarding the undermining of separate corporate personality, Ms East submits the cases cited highlight the significance of facts and context in deciding whether there has been an assumption of personal responsibility by a director. In a number of interlocutory judgments, the Court has declined to strike out claims on the basis that there ought to be the opportunity for further evidence as to the extent of the director’s personal involvement.25 The plaintiffs submit that the pleading ought to survive strike- out so that this issue of Mr Pandey’s personal liability can be properly tested with the benefit of the full set of facts.

[38]   On dishonest assistance, Ms East submits express words are not necessary to create a trust and cites two cases which found implied express trusts and that the extent of fiduciary duties is determined by the implied and express terms of contract, by the commercial context, and by the nature of the tasks a party has committed to undertake.26 She concludes that the existence of an implied trust is reasonably arguable. She submits that Mr Pandey’s assistance in managing the flow of monies between the hotel operator and plaintiffs must be fairly implied in the context and that despite Mr Pandey’s denial in submissions (not evidence) the plaintiffs are entitled to test that contention through discovery. Finally, Ms East submits that as there was a trust and an obligation to hold FFE funds for the beneficiaries, loss is reasonably arguable.

24     Stephen Todd (ed) Todd on Torts (8th ed, Thomson Reuters, Wellington, 2019) at [1.1.03].

25     C Evans & Sons Ltd v Spritebrand Ltd [1985] 1 WLR 317 (CA); Body Corporate 202254 v Taylor, above n 16; DB Breweries v Domain Name Company Ltd (2001) 52 IPR 280 (HC).

26     Bethell v Papanui Properties Ltd [2019] NZHC 3169; Re STA Travel (NZ) Ltd (in liq) [2022] NZHC 1398.

[39]   On limitations, Ms East submits that s 43A of the FTA provides that the claim only must be filed with three years of when the loss was discovered or ought reasonably to have been discovered. Similarly, she contends that ss 11 and 14 of the Limitation Act provide for a primary limitation period of six years, and an additional late knowledge period of three years, if the plaintiffs did not know nor ought reasonably to have known all of the following relevant facts during the primary period:

(a)The fact that the act or omission had occurred;

(b)The fact that the act or omission involved Mr Pandey;

(c)The fact that the plaintiffs suffered a loss.

[40]   Ms East submits late knowledge arguably applies on these fact. The monthly statements were provisional only, and the information prepared by VQHL would not necessarily be accurate or complete, or able to be relied upon by the recipients, until verified by a third party in the annual audited statement, which never occurred. Further the 2015 arbitral proceedings did not raise any underreported income issues, did not assert VQHL was not entitled to deduct the All Fixed Charges amount, and did not raise the FFE contribution. Ms East concludes that the proceeding is not so clearly time-barred so as to be an abuse of process, and that loss that only occurred following VQHL’s 2020 liquidation is obviously not time-barred.

Security for costs

[41]   Ms East submits that Mr Lip and Mrs Rahim are in a position to meet any adverse costs award despite their overseas location. Mr Lip and Mrs Rahim own the unit in the complex which was purchased for $499,000 in 2006 and which is, contrary to defence submissions, unencumbered. The plaintiffs here are not making a “bare assertion” of an ability to pay with no evidence of financial position. The plaintiffs have given clear evidence of real property they own in New Zealand, that is identical to property the defendant’s interests have recently purchased for at least $150,000 per unit.

[42]   The plaintiffs also sue on behalf of other unit owners in the building. This group is the same group that has brought related proceedings against the body corporate of the complex and four companies of which Mr Pandey is a director, namely Een v Body Corporate 383911. The Court in Een has observed that the plaintiffs have paid existing costs awards and “there are no background circumstances of unpaid costs awards.”27 This is contrary to the difficulty the plaintiffs have had getting the defendant parties to pay costs in that case.

[43]   Ultimately, Ms East submits the threshold under r 5.45(1)(b) is not met given the evidence of New Zealand property ownership. The Court should further not exercise its discretion to issues security for costs under r 5.45(2) in line with Een where that Court declined to exercise that discretion because: (a) the units have value; (b) there is the potential for the plaintiffs to earn income by leasing the units as part of a hotel operation or similar; (c) the plaintiffs claim is not without merit and they should not be deprived of an opportunity to pursue it; and (d) the conduct of the defendants weighed against the ordering of security for costs.28

[44]   If the Court considers that security should be ordered, the quantum of security should be considerably less than the $350,000 claimed by Mr Pandey. The plaintiffs have prepared their own schedule of likely costs which adds to approximately half of the value the defendant’s interests have recently paid for a single unit in the complex.

Legal principles

More explicit pleading

[45]   Rule 5.26 provides that the statement of claim must show the general nature of the plaintiff's claim to the relief sought, and it must give sufficient particulars of fact

—  “time, place, amounts, names of persons, nature and dates of instruments, and other circumstances to inform the court and the party or parties against whom relief is sought of the plaintiff's cause of action”.

27     Een v Body Corporate 383911, above n 8, at [57].

28 At [60].

[46]   In Platt v Porirua City Council, Kós J held that particulars of pleadings are important to:29

(a)inform defendants as to the case they have to meet;

(b)limit the scope of matters the plaintiff may put in issue at trial (or in pre-trial settlement discussions);

(c)enable defendants to know what witnesses they will need to retain and enable them to start preparing evidence ahead of the formal exchange of evidence; and

(d)provide an opportunity for defendants to seek summary determination on the basis that the claim as pleaded is untenable.

[47]   The ultimate touchstone is whether the pleading is sufficiently particularised to give fair notice of the pleaded case, and to prevent trial by ambush.30

[48]   Rule 5.27 further provides that the statement of claim must conclude by specifying the relief or remedy sought (and separately in respect of each cause of action).

[49]   Where the claim is a claim for money, r 5.32 requires that the statement of claim “must state the amount as precisely as possible”. This is a variable requirement, which as the authors of McGechan on Procedure explain:31

… may vary from minute precision in an action to recover a loan plus interest, to pure intuition in a claim for general damages for defamation.

[50]As the authors elaborate:32

Difficulties can arise where entitlement to particulars of damage can be alleged, but at the time the claim is filed insufficient information is available for precise quantification. One option is to estimate the figures concerned, in the knowledge that

29     Platt v Porirua City Council [2012] NZHC 2445 at [19].

30     Body Corporate 74246 v QBE Insurance (International) Ltd [2015] NZHC 1360 at [18(h)].

31     Robert Osborne (ed) McGechan on Procedure (online ed, Thomson Reuters) at [HR5.32.02].

32     At [5.32.02].

such can later be amended when more information emerges. Others are to allege damage in “amounts to be notified after discovery”, and to claim in the first instances “an inquiry as to damages”. Whether or not strictly permissible in terms of the rule, both the latter have been recognised in practice as acceptable stopgap measures.

[51]   The case law makes clear however that delaying stating the amount will not be an acceptable practice in cases where the plaintiff is in fact capable of providing some assessment as to loss, whether that be an estimate or a particular sum.33

[52]   The Court of Appeal cautioned in Pricewaterhouse v Fortex Group Ltd that the view that an exchange of briefs of evidence before trial might be seen as curing any lack of particularity in the pleadings is misguided.34

[53]   That Court continued however that the level of particularity required is “not an area for mechanical approaches or pedantry”.35 In summary, a pleading:36

… does not require the full detail which later will be contained in a brief of evidence. Nor does the modern requirement for pre-trial exchange of briefs dilute the earlier and differently based requirement for sufficiently particular pleading. What is required is an assessment based on the principle that a pleading must, in the individual circumstances of the case, state the issue and inform the opposite party of the case to be met. As so often is the case in procedural matters, in the end a common-sense and balanced judgment based on experience as to how cases are prepared and trials work is required.

Strike-out

[54]Rule 15.1 of the High Court Rules provides:

15.1     Dismissing or staying all or part of proceeding

(1)The court may strike out all or part of a pleading if it—

(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading[.]

[55]There are established criteria for strike-out:37

33     See CrossFit Inc v Exercise Industry Association Ltd [2016] NZHC 1028 at [130]; Hunt v New Plymouth District Council [2011] NZCA 406 at [82].

34     Price Waterhouse v Fortex Group Ltd, above n 5, at 17.

35     At 19.

36     At 19.

37     Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267; and Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].

(a)a strike-out application proceeds on the assumption the pleaded facts are true, unless those pleaded facts are entirely speculative or without foundation;

(b)the cause of action or defence must be clearly untenable;

(c)the jurisdiction is to be exercised sparingly and only in clear cases;

(d)the jurisdiction is not excluded by the need to decide difficult questions of law;

(e)the Court should be slow to strike out a claim in any developing area of the law, perhaps particularly where a duty of care is alleged in a new situation.

[56]   Also relevant to this case is limitation periods under the FTA and Limitation Act 2010. Section 43A of the FTA provides:

43A     Application for order under section 43

A person may apply to a court or the Disputes Tribunal for an order under section 43 at any time within 3 years after the date on which the loss or damage, or the likelihood of loss or damage, was discovered or ought reasonably to have been discovered.

[57]Section 11 of the Limitation Act provides:

11       Defence to money claims filed after applicable period

(1)It is a defence to a money claim if the defendant proves that the date on which the claim is filed is at least 6 years after the date of the act or omission on which the claim is based (the claim’s primary period).

(2)However, subsection (3) applies to a money claim instead of subsection (1) (whether or not a defence to the claim has been raised or established under subsection (1)) if—

(a)the claimant has late knowledge of the claim, and so the claim has a late knowledge date (see section 14); and

(b)the claim is made after its primary period.

(3)It is a defence to a money claim to which this subsection applies if the defendant proves that the date on which the claim is filed is at least—

(a)3 years after the late knowledge date (the claim’s late knowledge period); or

(b)15 years after the date of the act or omission on which the claim is based (the claim’s longstop period).

[58]Section 14 continues:

1. Late knowledge date (when claimant has late knowledge) defined

   (1)A claim’s late knowledge date is the date (after the close of the start date of the claim’s primary period) on which the claimant gained knowledge (or, if earlier, the date on which the claimant ought reasonably to have gained knowledge) of all of the following facts:

   (a)the fact that the act or omission on which the claim is based had occurred:

   (b)the fact that the act or omission on which the claim is based was attributable (wholly or in part) to, or involved, the defendant:

   (c)if the defendant’s liability or alleged liability is dependent on the claimant suffering damage or loss, the fact that the claimant had suffered damage or loss:

   (d)if the defendant’s liability or alleged liability is dependent on the claimant not having consented to the act or omission on which the claim is based, the fact that the claimant did not consent to that act or omission:

   (e)if the defendant’s liability or alleged liability is dependent on the act or omission on which the claim is based having been induced by fraud or, as the case may be, by a mistaken belief, the fact that the act or omission on which the claim is based is one that was induced by fraud or, as the case may be, by a mistaken belief.

   (2)A claimant does not have late knowledge of a claim unless the claimant proves that, at the close of the start date of the claim’s primary period, the claimant neither knew, nor ought reasonably to have known, all of the facts specified in subsection (1)(a) to (e).

   (3)The fact that a claimant did not know (or had not gained knowledge), nor ought reasonably to have known (or to have gained knowledge), of a particular fact may be attributable to causes that are or include fraud or a mistake of fact or law (other than a mistake of law as to the effect of this Act).

   Security for costs

[59]Rule 5.45 of the High Court Rules 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.

[60]   In determining applications under r 5.45, the Court will generally follow these steps:38

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

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

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

(d)Should a stay be ordered?

[61]   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.39 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.40 Courts will be slow to make an order for security that will stifle a genuine claim.41 This balancing exercise is the Court’s overriding consideration.42

[62]As above, the Court should assess whether there is:43

… 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.

[63]   The Court will assess the claim’s merits and prospects of success, to the extent that is possible at an early juncture.44 The Court will also consider the extent to which the plaintiff’s impecuniosity may have been caused by the defendant’s conduct.45

[64]   A plaintiff’s unwillingness to pay previous judgment debts weighs in favour of an order for security.46 But whether a plaintiff has been a responsible litigant is

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

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

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

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

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

43  Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd (No 2) [1977] 1 NZLR 516 (HC) at 519; NZ Kiwifruit Marketing Board v Maheatataka Coolpack Ltd (1993) 7 PRNZ 209 (HC) at 212; and Stephenson v Jones [2013] NZHC 638.

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

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

46     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.47

[65]   Quantum of security is discretionary and is assessed in the round. It need not be fixed by reference to likely cost awards.48 It is to be what the Court thinks fit in all the circumstances.49

[66]A Court will generally stay a proceeding until the security ordered is given.50

Approach to analysis

More explicit pleading

[67]   I have dealt with the application by Mr Pandey for more explicit pleading and/or further particulars to be filed by the plaintiffs by means of Schedule A attached to this judgment. Schedule A sets out the result in respect of each paragraph of the statement of claim in respect of which Mr Pandey sought more explicit pleading and/or further particulars.

Issues for strike-out

[68]   The issues to be determined in this judgment in relation to Mr Pandey’s application to strike out parts of the plaintiffs’ statement of claim are:

(a)Whether the claim  for breach of s 9 of the FTA is  time-barred under  s 43A of the FTA?

(b)Whether the claims in negligence and dishonest assistance are time-barred by ss 11 and 14 of the Limitation Act?

(c)Whether it is reasonably arguable that a breach of s 9 of the FTA arises on the pleadings?

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

48     Sharp v Pillay [2017] NZHC 647; and Red 9 Ltd v The Learning Ladder Ltd (in liq) [2021] NZCA 284, (2021) 25 PRNZ 780 at [30].

49     McLachlan Ltd v MEL Network Ltd, above n 39.

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

(d)In respect of the negligence claim, whether it is reasonably arguable that a duty of care arises on the pleadings?

(e)Whether in relation to the claim of dishonest assistance it is reasonably arguable that a trust exists and, if so, whether it is reasonably arguable that a breach of trust arises on the pleadings?

Issues for security for costs

[69]   The issues to be determined in relation to Mr Pandey’s application for security for costs are:

(a)Has Mr Pandey satisfied the Court of the threshold under r 5.45(1)?

(b)If so, how should the Court exercise its discretion under r 5.45(2)?

(c)If security for costs is ordered, what should the amount be fixed at?

(d)If security for costs is ordered, should a stay be ordered?

[70]I deal first with the strike-out application and then security for costs.

Analysis of strike-out

(a)  Limitation under s 43A of the FTA for s 9 claim

[71]   Section 43A of the FTA provides that a claim must be filed within three years of the date of the loss or damage, or the likelihood of loss or damage, being discovered or ought reasonably to have been discovered. A useful statement in relation to the application of s 43A is set out in Commerce Commission v Carter Holt Harvey Ltd in which the Supreme Court stated:51

Time should not start running when past loss is just a mere possibility or something that could well have happened. Nor should the commencement of the three years be deferred until past loss is a near certainty. Likelihood of past loss in the sense that it is more probable than not strikes an appropriate

51     Commerce Commission v Carter Holt Harvey Ltd [2009] NZSC 120, [2010] 1 NZLR 379 at [31].

balance between the competing interests in legislation the principal purpose of which is consumer protection. …

[72]   Mr Hollyman submits that the plaintiffs had actual knowledge in 2015, which is not only more than three years but more than six years prior to the filing of the proceeding. He submits that the claim for breach of s 9 of the FTA relies on the proposal of October 2011 and monthly statements issued by VQHL from February 2013. He refers to the statement of claim and the pleading is that in essence VQHL:

(a)under-reported the gross profit until 2016 ([61], [36]–[39]);

(b)overcharged the FFE deductions ([61], [40]–[45]).

[73]   Mr Hollyman submits that the plaintiffs had the requisite knowledge in July 2015 when they brought arbitration proceedings against VQHL in which, among other matters, they sought an audit of the accounts. He then points to [14], [15] and [16] of the arbitration proceedings and to the deduction of “all fixed charges”. Mr Hollyman also submits that each monthly statement was discrete and time started to run for limitation purposes on delivery of the monthly statement.

[74]   Ms East, on the other hand, submits that the proposition that each monthly statement was discrete and time started running from delivery of the monthly statement is incorrect. She submits the lease required VQHL to issue an audited annual statement showing the items reported in the unaudited monthly statements and that is an effective contractual acknowledgement that the monthly statements were provisional only and the information prepared by VQHL would not necessarily be accurate or complete or able to be relied upon by the recipients until verified by third party under the audit.

[75]   Ms East submits that the 2015 arbitral proceedings concerned what was apparent from the face of the monthly statements and other materials available to the plaintiffs at the time. She submits that:

(a)The arbitral proceedings did not raise any specific issue with under- reporting of the income statements and the focus of the proceedings

was early payments to third parties and improper deductions that were apparent on the face of the statements. She submits that if the audit revealed wider issues, the plaintiffs will at that stage have the necessary information to commence proceedings.

(b)Ms East acknowledges the arbitral proceedings did assert that VQHL was not entitled to the deductions referred to in the statements as “all fixed charges” but it was not clear what was purported to have been deducted. She submits that further questions arose later as to whether the amounts actually deducted as “all fixed charges” were identified in the statements at all and points to two different versions of the statement issued after the arbitration commenced showing a large discrepancy in respect of the figures for the “all fixed charges”.

(c)In relation to the FFE contribution, Ms East submits this was not raised in the arbitration proceedings and, at 4.11 of Mr Pandey’s submissions, the reference to FFE fund is taken out of context.

[76]   Ms East then refers to the decisions of Stalker v Duncan,52 Coombe v Jenkinson,53 and Burmeister v O’Brien,54 which she cites as examples of where the Court had not accepted that time starts to run until the plaintiffs obtain some kind of documentary evidence or record as to what has happened, such as a title search or an acknowledgement as to whom funds were paid, or a third party evaluation (for example by a court, lawyer or valuer) of what had in fact occurred.

[77]   Ms East submits the Court cannot confidently exclude the possibility that the plaintiffs are entitled to rely on the late knowledge protection under s 43A of the FTA and the proceeding is not so clearly time-barred as to be an abuse of process. In particular, Ms East refers to:

(a)no explanation has been offered for a significant discrepancy, being VQHL’s production of two versions of a monthly statement showing a

52     Stalker v Duncan [2020] NZHC 1484.

53     Coombe v Jenkinson [2020] NZHC 3178, (2020) 25 PRNZ 530.

54     Burmeister v O’Brien [2010] 2 NZLR 395 (HC).

discrepancy of over $240,000 for one line item, but the same amount due to the unit owners in rent;

(b)no substantive response has been made to allegations of illegitimate deductions, under-reporting of income, or failure to pay the FFE contributions into a separate bank account;

(c)no audit has been conducted as required and the defendant has prevented the plaintiffs’ efforts to have the audit conducted.

[78]   In relation to reliance on the proposal as the basis of a claim under s 9 of the FTA which the plaintiffs claim was misleading as Mr Pandey had no intention of honouring the proposal, Ms East submits that the plaintiffs cannot reasonably have been expected to know they had suffered the loss before the liquidation of VQHL on 6 July 2020 and the re-opening of the hotel in October 2020. Accordingly, that part of the claim under the FTA cannot be time-barred.

Conclusion on limitation under s 43A of the FTA for s 9 claim

[79]   In my view the plaintiffs’ arguments are not untenable. My views in relation to issues raised in respect of limitation under s 43A of the FTA are:

(a)I accept Ms East’s argument that each statement issued by VQHL was not a discrete action and the statements were only provisional until an audited annual statement was provided. Clauses 4.4, 4.5 and 4.6 of the lease reinforces this point. I therefore am of the view that it is reasonably arguable that time did not start running in relation to each of the statements separately at the time of issue.

(b)It is true that the arbitration proceedings in 2015 brought by the plaintiffs raised the issue of deduction of all fixed charges. In my view it is reasonably arguable that at the time of issuing the arbitration proceedings the plaintiffs were aware that there appeared to be things wrong with the statements, and in particular the deduction of “all fixed charges”, but, without the benefit of the audit, they could not be

reasonably expected to have understood all the issues relating to income reporting and deductions in respect of the statements. The situation is arguably analogous to Coombe v Jenkinson.55 In that case the plaintiffs might have been put on notice that there was a problem with the will when they received two legal opinions to the effect that a further court application might be required, but they did not know it had been negligently prepared until findings by the High Court were made. In this instance, the plaintiffs appear to have had knowledge of problems with deductions and potentially other inaccuracies with the statements but arguably did not have sufficient information to constitute knowledge in relation to the current s 9 FTA claim.

(c)In relation to the FFE allegations, I accept Ms East’s submission that the reference to FFE in Mr Pandey’s submissions is taken out of context and the issue of the FFE deductions and placement of the FFE in a separate account was not an issue in the 2015 arbitration proceedings. Accordingly, it is reasonably arguable the plaintiffs did not have late knowledge of the issue relating to the FFE in 2015.

(d)In relation to the allegation the proposal was misleading, I again accept Ms East’s argument that it is reasonably arguable that the plaintiffs could not have known that the proposal was misleading until liquidation of VQHL in 2020 and at that point it became apparent that Mr Pandey did not intend to honour his original promises.

[80]   In conclusion therefore, it is my view that the claim under s 9 of the FTA should not be struck out on the basis of limitation under s 43A of the FTA.

(b)  Limitation under ss 11 and 14 of the Limitation Act for negligence and dishonest assistance claims

[81]   Sections 11 and 14 of the Limitation Act, which apply to the claims in negligence and dishonest assistance, collectively provide for a primary limitation

55     Coombe v Jenkinson, above n 53.

period of six years, and an additional late knowledge period of three years, if the plaintiffs did not know, nor ought reasonably to have known, all of the following relevant facts during the primary period:

(a)the fact that the act or omission had occurred;

(b)the fact the act or omission involved Mr Pandey;

(c)the fact the plaintiffs have suffered loss.

[82]   Mr Hollyman submits that the negligence on the basis of the alleged under- reporting of rental and various monthly rental statements is a money claim under     s 12(1) of the Act and is therefore subject to the six year limitation period in s 11 of the Limitation Act. He submits that the monthly statements were raised and pleaded by the plaintiffs in the arbitration proceedings and each monthly statement was discrete and accordingly the issue of each monthly statement was a separate action. Consequently, each monthly statement is treated as a separate cause of action, one per month, throughout the period complained of by the plaintiffs.

[83]   Mr Hollyman submits that s 11 of the Act is concerned with when the acts on which the money claim is based took place, not when the loss was known or ought to have been known by the plaintiffs. Accordingly, the allegations of negligence in respect of the rental statements are based on actions that took place six years or more before the statement of claim was served on Mr Pandey and is therefore time-barred under s 11.

[84]   Ms East, on the other hand, submits that, as with the FTA and discussed at [74] to [77] above, at the time of issue of the arbitration proceedings it is reasonably arguable that the plaintiffs did not have the requisite knowledge in relation to the monthly statements and the FFE payments to constitute late knowledge for the purposes of s 14 of the Limitation Act.

[85] I have already determined at [80] above that the plaintiffs did not have sufficient late knowledge to trigger the limitation under s 43A of the FTA and a similar determination applies to late knowledge under s 14 of the Limitation Act.

[86]   As to the claim of dishonest assistance, Mr Hollyman submits that dishonest assistance is an equitable cause of action and thus falls within the definition of “money claim” under s 12(1) of the Limitation Act. He submits, for the same reasons as the claim under the FTA is time-barred under s 43A of the FTA and the claim in negligence is time-barred by the six year limitation period in the Limitation Act, the claim of dishonest assistance is similarly time-barred under the Limitation Act.

[87]   Ms East makes the same submission in respect of dishonest assistance as in relation to the negligence claim, that the plaintiffs did not have late knowledge under s 14 at the time the arbitration proceedings were issued in 2015.

Conclusion on limitation under ss 11 and 14 of the Limitation Act for negligence and dishonest assistance claims

[88]   In my view, the same analysis as is set out above in relation to the plaintiff’s state of knowledge relating to the FTA claim applies to the plaintiffs’ state of knowledge in relation to the negligence claim and dishonest assistance claim. Accordingly, I am of the view that the plaintiffs’ argument is not untenable and it is reasonably arguable in relation to both of these claims that the plaintiffs did not have late knowledge in 2015 and accordingly these claims are not time-barred by the Limitation Act.

(c)  Reasonably arguable breach of s 9 of the FTA

[89]   Mr Hollyman summarises the plaintiffs’ allegations of breach of s 9 of the FTA based on the October 2011 proposal as “promises and representations which in the circumstances were misleading” because:

(a)the placement of VQHL into liquidation in May 2020;

(b)a new hotel was established in the building in September 2020, to the exclusion of the plaintiffs;

(c)the leases would have had a further 11 years to run.

[90]   Mr Hollyman submits that it is highly relevant that subsequent to the 2011 conduct, VQHL and the plaintiffs entered into negotiated contracts which regulated their relationship and entered into commercial activity based on those contracts. He submits the plaintiffs’ arbitral proceedings were based on those contracts and in such circumstances the 2011 email and proposal fades into background insignificance.

[91]   Mr Hollyman also submits that as regards the claim that Mr Pandey has been operating a hotel to the exclusion of the plaintiffs, the Court has already held the plaintiffs excluded themselves and that factual conclusion was reached by Gordon J in parallel proceedings between the plaintiffs and the new hotel companies.56

[92]   Finally, Mr Hollyman submits that the FTA does not enforce promises but only prohibits misleading or deceptive conduct.

[93]   Ms East on the other hand submits there is ample authority for the proposition that a promise that Mr Pandey had no intention of honouring can be misleading and deceptive.57 Ms East submits that Mr Pandey’s intention when making the proposal is a matter for trial, with the benefit of discovery. She points to the events detailed in Mr Lip’s affidavit which call into doubt Mr Pandey’s intentions when making the proposal — specifically referring to the promised transparency that never eventuated as VQHL never complied with its obligation to provide audited statements; opposed and delayed the arbitration proceedings seeking an audit; failed to comply with a consent order for an audit; put VQHL into liquidation two years later; profit forecasts were missed by considerable margins; the plaintiffs commenced arbitration proceedings and during that time over half the residential units were purchased by Mr Pandey’s interests for a fraction of their original value.58

56 Een v Body Corporate 384911 [2021] NZHC 729 at [40].

57 Martel v Auckland City [2012] NZHC 241; Gunton v Aviation Classics Ltd [2004] 3 NZLR 836 (HC); GSE Group Ltd v Walters Supplies Ltd HC Auckland CIV-2005-404-3045, 16 July 2008; McKeown Group Ltd v Russell (2010) 13 TCLR 1 (HC); Philip Moore v Surridge [2018] NZHC 562; Yan v Mainzeal Property and Construction Ltd (in liq) [2021] NZCA 99.

58 Affidavit of Bin Mohamed Lip, above n 11.

[94]   Ms East submits that it is reasonably arguable that Mr Pandey had no intention of honouring the promises in the proposal and accordingly this matter should be taken to trial with the benefit of discovery.

[95]   As to the submission by Mr Pandey that the subsequent entry into a contractual relationship between the plaintiffs and VQHL meant that the proposal faded into insignificance and accordingly the FTA could not apply, Ms East submits that it is a well-established principle that a person is liable under the FTA despite acting for a company. She relies on the Court of Appeal decision in Body Corporate 202254 v Taylor where, she submits, the Court of Appeal dismissed a similar argument that the person did not need to be acting on their own account and that it was sufficient that the conduct was undertaken as agent for another business or a company.59

Conclusion on reasonably arguable breach of s 9 of the FTA

[96]   In my view, having regard to the matters raised by Ms East in relation to the conduct of Mr Pandey since the proposal was made in 2011, it is reasonably arguable by the plaintiffs that there is a breach of s 9 of the FTA. Mr Pandey’s conduct needs to be examined at trial as to whether the plaintiffs can establish misleading or deceptive conduct following discovery and evidence at trial.

[97]   Accordingly, I am of the view that the plaintiffs’ claim should not be struck out on that basis.

(d)  Reasonably arguable duty of care in negligence

[98]   Mr Hollyman submitted that [64] and [65] of the statement of claim plead that the 2011 email and proposal are sufficient to establish a duty of care based on the assumption of responsibility to the plaintiffs. He submits that the words in the email fall well short of making any statements or assume any responsibility and secondly the plaintiffs subsequently moved to a contractual relationship with VQHL which displaced any duty of care in negligence. He submits that a duty of care in negligence will not arise when a party has had the opportunity to protect itself by requiring a

59     Body Corporate 202254 v Taylor, above n 16.

promise or guarantee from another party and relies on Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd.60

[99]   Mr Hollyman submits that the courts are dubious where there are claims that a company director is personally liable where the plaintiffs have contracted with the company. He submits that to allow such a claim would wholly undermine the basis of the separate corporate personality. Mr Hollyman refers to Trevor Ivory Ltd v Anderson and sets out at [4.30] of his submissions the components of the Court of Appeal’s reasons for finding that Mr Ivory was not liable as a director.61 Mr Hollyman also refers to the decision of Body Corporate 202254 v Taylor,62 where he submits the Court of Appeal held that there was a presumption against a duty of care and there has to be evidence that the director was doing something other than acting on behalf of the company. He submits in the present case there is nothing in the 2011 email and proposal that suggests Mr Pandey was taking personal responsibility and that the plaintiffs transacted with the company, VQHL.

[100]   Finally, Mr Hollyman submits that the pleading is not that the statements in the email and proposal were negligent; it is that Mr Pandey assumed responsibility for:

(a)the accuracy of the monthly statements to be issued by VQHL; and

(b)the continuation of the hotel until 2031.

[101]   Mr Hollyman submits this pleading would make Mr Pandey a guarantor for the monthly statements and the continuation of the hotel until 2031 regardless of subsequent events, and this is an extraordinary suggestion.

[102]   Ms East on the other hand submits that the particular actions of Mr Pandey in sending the proposal to the plaintiffs, which was unsolicited and went directly from Mr Pandey to the plaintiffs, and as set out at [33] of her submissions, demonstrate that it is at least arguable that Mr Pandey assumed responsibility for an arrangement:

60     Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd, above n 14.

61     Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 (CA).

62     Body Corporate 202254 v Taylor, above n 59.

(a)which would deliver the plaintiffs what they were owed after the hotel operating costs came out;

(b)that was transparent;

(c)that would be give the plaintiffs some certainty in terms of their participation in an Accor hotel going forward.

[103]   Ms East also points to further communications from Mr Pandey to the plaintiffs and their representatives that followed the proposal which is referred to in Mr Lip’s reply affidavit.63 Ms East submits that the proposition is not that Mr Pandey is a guarantor of VQHL’s obligations, but that Mr Pandey was obliged to take care to pay the plaintiffs what they were owed and to be transparent about that, and not to unfairly exclude them from the commercial arrangements which he was proposing in the proposal.

[104]   As to the argument put forward by Mr Hollyman that the subsequent contractual relationship between the plaintiffs and VQHL displaced any duty of care in negligence and his reliance on the decision in Rolls-Royce, Ms East submits that the Rolls-Royce decision does not stand for the proposition that a tortious duty of care in negligence is generally displaced by contractual duties. As to the Rolls-Royce case, Ms East submits that the present case is distinguishable because they are not endeavouring to enforce obligations between parties other than themselves.64

[105]   Ms East submits that in any event the Court of Appeal recognised that a cause of action for negligent misstatement pre-contract could co-exist with subsequent separate contractual claims.

63 Reply affidavit of Bin Mohamed Lip sworn 31 January 2023.

64 Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd, above n 1460, at [66]. In the Rolls-Royce case, Carter Holt had contracted with the Electricity Corporation (which became Genesis) to deliver a co-generation plant. Genesis subsequently contracted with Rolls-Royce to design, construct and commission the plant and the plant was alleged to be defective. Carter Holt issued proceedings against Genesis for breach of contract and against Rolls-Royce for negligence. Carter Holt pleaded that Rolls-Royce had breached its duty of care to perform its contractual obligations with Genesis. The Court rejected the claim on the basis there is no duty in tort to take reasonable care to perform a contract because such duty is contractual nature and could not be owed to a third party to the contract.

[106]   In response to Mr Hollyman’s argument that the claim against Mr Pandey personally undermines the basis of the separate corporate personality that the plaintiffs contracted with (that is, VQHL), and the reference by Mr Hollyman to the Trevor Ivory and Body Corporate 202254 decisions, Ms East submits that these decisions highlight the significance of the facts and context in deciding whether there has been an assumption of personal responsibility by the director. Ms East submits that in both of those cases, a full finding of facts had been conducted whereas by contrast in a number of interlocutory judgments the Court has declined to strike claims on the basis that there ought to be an opportunity for further evidence as to the extent of the director’s personal involvement.

[107]   Ms East submits that on analysis of the decision in Body Corporate 202254 and the decision in DB Breweries v Domain Name,65 it is clear that while it will no doubt not be easy to sheet home liability to the director personally, the Court’s approach is that it depends on all the facts and there is clear authority for the proposition that where a tort is procured or directed by a director of the company, the director may be personally liable for the tort.66 Accordingly, the success or otherwise of the claim against the director will depend on the facts established at the trial.

[108]   Ms East submits that like the position in Body Corporate 202254, a lot will turn not only on the plaintiffs’ evidence, but on what may be obtained in discovery, given the information imbalance which presently exists between the parties, and accordingly the issue should be allowed to go to trial so it can be tested with the benefit of the full set of facts.

[109]   Finally, Ms East submits that some of  the  actions  complained  of against Mr Pandey could not have been performed by him as director of VQHL such as:

·     the liquidation of VQHL, which could only have been done by shareholder resolution;

65     DB Breweries v Domain Name Co Ltd (2001) 52 IPR 280.

66 At [17].

·     procurement of the participation of other Pandey-related entities in the hotel operation, which VQHL had no entitlement to demand; and

·     his exclusion of the plaintiffs from the new operation.

[110]   Ms East submits Mr Pandey also made representations as to his personal experience, relationships and expertise.

Conclusion on reasonably arguable duty of care in negligence

[111]   In my view the plaintiffs’ claim  is  not  untenable.  The  issue  of  whether Mr Pandey assumed responsibility for ensuring that the plaintiffs were paid what they were owed and the statements produced by VQHL were reflective of what was proposed by Mr Pandey to the plaintiffs is reasonably arguable and needs to be tested in evidence. Detailed evidence of discussions between Mr Pandey and the plaintiffs leading up to launch of the Sofitel hotel operation need to be examined at trial.

[112]   With respect to Mr Pandey’s personal liability versus the liability of VQHL, my view is that again the plaintiffs’ claims are not untenable and, as has been submitted by Ms East, this issue requires a full examination of the facts and the actions taken by Mr Pandey personally in relation to dealings with the plaintiffs.

[113]   I am of the view therefore that the plaintiffs’ claim for negligence against   Mr Pandey should not be struck out.

(e)  Reasonably arguable trust and breach of trust for dishonest assistance claim

[114]   Mr Hollyman submits that liability for dishonest assistance requires the following elements:

(a)the existence of a trust or a fiduciary duty;

(b)a breach of that trust or fiduciary duty, by a trustee or a fiduciary, that results in a loss;

(c)assistance by the defendant in the breach of trust or fiduciary duty;

(d)dishonesty on the part of the defendant.

[115]   Mr Hollyman references two decisions, Westpac New Zealand Ltd v MAP and Associates Ltd,67 and Sandman v MacKay,68 as setting out similar formulations of what dishonesty in the context of dishonest assistance requires.

[116]   Dealing with these criteria, Mr Hollyman submits, first, that no trust arises under the terms of the lease to VQHL. He makes the following points in support of this argument:

(a)The lease entitled VQHL to make a deduction from each month’s hotel revenue, which VQHL was entitled to expend as of right on fixtures, fittings, and equipment.

(b)The lease does not state that the FFE fund was held on trust nor that the beneficiaries of the trust were the plaintiffs. While the lease does state a requirement for funds deducted with respect to the FFE to be deposited in a discrete bank account, it does not provide that doing so is a pre-condition of VQHL deducting or expending FFE funds.

(c)As the lease is expressed, the requirement for a separate bank account can only be read as for informational/accounting purposes and breach is no more than a breach of contract.

[117]   Mr Hollyman submits there is no basis on which Mr Pandey is said to have assisted. He submits that the plaintiffs merely rely on Mr Pandey’s position as a director of VQHL and the processing of the FFE funds to a distinct bank account was another operational obligation of VQHL under the lease and Mr Pandey had no personal involvement.

[118]   Next, Mr Hollyman submits there is no loss for the reason that the FFE funds are not held on trust for the plaintiffs and they are an entitlement of VQHL as of right.

67     Westpac New Zealand Ltd v MAP and Associates Ltd [2011] NZSC 89, [2011] 3 NZLR 751.

68     Sandman v MacKay [2019] NZSC 41, [2019] 1 NZLR 519.

He submits that the definition of the FFE makes it clear that the FFE funds are for expenditure on the hotel at a base rate of 4 per cent and the amount is simply deducted as a portion of the operating profit. Mr Hollyman submits that these arrangements are commercial and do not give rise to an equitable trust relationship and any breach of them may be actioned as a breach of contract but not as a breach of trust. There is no loss which is required as a component of dishonest assistance as noted above.

[119]   Ms East, on the other hand, submits that it is clear under cl 5.2 of the lease that FFE contribution is to be held in a separate account. Failure to do this is a breach of trust and these funds were not additional money to be allocated as VQHL saw fit as, but for the requirements to hold this money as an FFE contribution, it would have formed part of the monies payable to the plaintiffs as rental. She submits that Mr Pandey as a director of VQHL assisted in the breach of trust as he knew that VQHL was in breach of trust and this was not a transaction in which he could honestly participate.

[120]   Ms East relies on the decisions in Bethell v Papanui Properties Ltd and recently Re STA Travel (NZ) Limited (In Liquidation).69 She submits the principles which can be extracted from these decisions are:

(a)It is not necessary for the word “trust” to be used in order to find a trust. A trust may be inferred from the commercial context and the relationship between the relevant parties.

(b)The existence of a commercial contractual arrangement is not a barrier to finding a trust. Instead, the extent of fiduciary duties is determined by the implied and express terms of the contract, by the commercial context and by the nature of the tasks a party has committed to undertake.

(c)In cases of money transferred, the key question is whether the intention of the parties, objectively ascertained, for the funds to become the

69     Bethell v Papanui Properties Limited, above n 26; Re Webb [2022] NZHC 1398.

property of the recipient, including whether it was intended to be at the recipient’s free disposal to be used as part of its cash flow.

[121]   Applying these principles in the present case, Ms East submits that it is reasonably arguable that the circumstances exist for an implied express trust in respect of the FFE contributions because:

(a)the lease was clear that VQHL would act responsibly to place the monies received from the hotel into a specific account for the specific purpose of repairing, maintaining and refurbishing hotel units or parts of the common property used in the hotel operation;

(b)as part of this arrangement, VQHL was required to account to the plaintiffs for the above money — to keep matters transparent because the money deducted would otherwise have been payable to the plaintiffs;

(c)on any objective assessment, it was not the parties’ intention that these funds were at the free disposal of VQHL and cl 5.5 of the lease says quite the opposite.

[122]   As to the argument put forward by Mr Hollyman that Mr Pandey did not assist in relation to any breach of trust and it is not enough to rely on his position as director of VQHL, and he had no personal involvement in processing the FFE fund, Ms East submits that there is existing case law to the contrary, and refers to the decisions of Royal Brunei Airlines Sdn Bhd v Tan,70 Whitford Properties (In Liquidation) v Bruce,71 and Eden Refuge Trust v Hohepa,72 as examples of where the defendant was a director of the company in breach of trust and was held liable for dishonest assistance for causing or permitting the company to use money knowing it was not authorised to do so.

70     Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 (PC).

71     Whitford Properties (in liq) v Bruce [2017] NZHC 625.

72     Eden Refuge Trust v Hohepa [2011] 1 NZLR 197 (HC).

[123]   Ms East submits that in the present case Mr Pandey personally approached and marketed the arrangement to the plaintiffs prior to incorporation of VQHL; six days after doing so, VQHL was incorporated with Mr Pandey as director and sole shareholder; and Mr Pandey continued to liaise directly with the plaintiffs after the incorporation of VQHL, for example, by sending profit forecasts to the plaintiffs in January 2012.

[124]   Ms East submits this is reasonably arguable and the plaintiffs are entitled to test the point, including by way of discovery on these issues.

[125]   As to the assertion there can be no loss because the FFE funds are not held on trust for the plaintiffs but are an entitlement of VQHL, Ms East reiterated the assertions that the FFE fund is not an entitlement of VQHL, but rather VQHL holds it on trust for a specific purpose and the law is clear that an equitable trust relationship can co-exist with a commercial relationship (referring to the decisions in Bethell and Royal Brunei Airlines).

Conclusion on reasonably arguable trust and breach of trust for dishonest assistance claim

[126]   In my view, the plaintiff’s claim is not untenable and it is reasonably arguable that the FFE funds were held on an implied express trust for the purposes of maintenance of the fittings, fixtures and furniture etc in the hotel as set out in the lease. This is reinforced by the obligation to place the funds in a separate account, and in my view it is arguable that VQHL did not have an entitlement to expend these funds as it wished, but that they were held for the specific purpose of the FFE fund.

[127]   As to Mr Pandey’s dishonest assistance, in my view the plaintiffs’ claim is not untenable. It is reasonably arguable that as sole shareholder and director of VQHL at the time, reinforced by Mr Pandey’s personal involvement in events leading up to establishment of the Sofitel hotel operation and his continued direct involvement with the plaintiffs after VQHL was incorporated, that he participated in dishonest assistance in breach of trust by VQHL.

[128]Accordingly, the claim in this respect should not be struck out.

Analysis of security for costs

[129]   I deal now with the questions set out at [69] as to whether security for costs should be ordered against the plaintiffs.

Has Mr Pandey satisfied the Court of the threshold under r 5.45(1)?

[130]   There is no dispute the plaintiffs reside outside New Zealand for the purposes of r 5.45(1)(a)(i). Consequently the jurisdiction to award security for costs is established. The next issue to be considered is whether the Court should exercise its discretion to award security for costs.

How should the Court exercise its discretion under r 5.45(2)?

[131]   Mr Hollyman submits that with respect to whether or not the plaintiff will be able to pay costs, it is sufficient to present evidence as to surrounding circumstances from which an inference of an inability to pay can reasonably be drawn. He refers to the decision in Totara Investments Ltd v Abooth Ltd.73 Mr Hollyman submits that the inability does not need to be proved on the probabilities, and all that is required is “a reason to believe” that  the  plaintiff  will  not  be  able  to  meet  a  costs  award.74  Mr Hollyman submits that the defendant cannot be expected to prove the plaintiffs’ inability to pay costs, given that the defendant does not (generally) have access to the plaintiff’s private financial detail. When a defendant has pointed to surrounding circumstances that call the ability to pay costs into question, and also the plaintiff positively asserts their ability to pay costs, the Court is entitled to draw an adverse inference from the plaintiff’s failure to then produce evidence of their ability to pay costs. Mr Hollyman relies on the decision in Colbart Limited v Eastpack Limited & Others.75

[132]   Mr Hollyman submits that evidence that would support the plaintiffs’ ability to meet an eventual costs award includes evidence of current income, assets currently held, current liabilities, financial obligations between now and when the plaintiffs

73     Totara Investments Ltd v Abooth Ltd HC Auckland, CIV-2007-404-990, 4 March 2009.

74     Nioon Ltd v Tower Insurance Ltd [2016] NZCA 66, (2016) 23 PRNZ 135 at [18].

75     Colbart Limited v Eastpack Limited & Others [2012] NZHC 2175.

would become liable to pay costs, and how those obligations would be met. He points out that little or no information has been provided by the plaintiffs in this respect.

[133]   As to the plaintiffs owning property in New Zealand, Mr Hollyman submits that the two plaintiffs own only one unit in the hotel building and it has no realisable value.

[134]   Ms East, on the other hand, submits that the plaintiffs maintain they are in a position to meet any adverse costs award that may be made against them. She submits they own property in New Zealand, namely the title to their unit in the complex which was purchased for $499,000 in 2006 and which is unencumbered.

[135]   Ms East points to the fact the plaintiffs sue on behalf of and with the consent of other unit owners in the building, and this group is the same group that has brought related proceedings against the body corporate in the complex and four other companies of which Mr Pandey is a director.76 Ms East argues that the same considerations which led the Court to decline to order security for costs in Een apply in the present case.

[136]   As to Mr Hollyman’s argument that the Court is entitled to draw an adverse inference from the plaintiffs’ failure to produce evidence of their ability to pay costs, Ms East responds as follows:

(a)the plaintiffs are not making a bare assertion on ability to pay with no evidence as to their financial position as they had given evidence of real property owned in New Zealand which is identical to property the defendant’s interests have recently purchased for at least $150,000 per unit;

(b)in relation to Mr Pandey’s reliance on the decision in Colbart Limited,77

it does not go as far as Mr Pandey suggests;  the security for costs rule

76     Een v Body Corporate 383911 [2022] NZHC 852.

77     Above, n 75.

does not suggest that security for costs may be obtained simply because the other party has been silent as to its financial position.78

Failure or omission to provide proof has not necessarily been seen as fatal. Ms East submits that a similar position should be arrived at to the position arrived at by the Court in the Een judgment.79

[137]   In relation to the conduct of Mr Pandey, she submits that the plaintiffs can point to similar conduct to that in the Een decision, namely that Mr Pandey, in under- reporting the hotel profit so as to deprive the plaintiffs of rental income, putting VQHL into liquidation, and commencing a new hotel operation excluding the plaintiffs, was conduct designed to injure the plaintiffs’ interests and it is inappropriate in the circumstances for security for costs to be ordered.

Conclusion on the order for security for costs

[138]   In my view, an order for security for costs is not appropriate in the present circumstances. While the threshold under r 5.45(1) is met and the Court has jurisdiction to order security, the plaintiffs have valuable property in New Zealand available to meet a costs award. There is no history of unpaid costs awards against the plaintiffs. In addition, while it is fully acknowledged there is no evidence of this before the Court, as the plaintiffs sue on behalf of the representatives of the other owners of units in the complex, similar to the plaintiffs in the Een litigation, it would not be unreasonable to expect that there may be arrangements in place between the plaintiffs and the remaining members of the group for support for costs in respect of the litigation from the other members of the group on whose behalf the plaintiffs are suing.

Result

[139]   As a result of the conclusions I have reached at [67], [79], [80], [88], [96], [97], [111]–[113], [126]–[128] and [138]:

78     Above n 75, at [32].

79     Above n 76.

(a)In respect of the application for a more explicit statement of claim, the orders should be made as set out in Schedule A.

(b)The application to strike out elements of the plaintiffs’ statement of claim should be dismissed.

(c)The application to require security for costs from the plaintiffs should be dismissed.

Orders

[140]I make the following orders:

(a)In respect of Mr Pandey’s application for a more explicit statement of claim/further particulars, I make the orders set out in the Schedule A attached to this judgment. The plaintiffs are to file an amended statement of claim within 14 working days of the date of this judgment.

(b)Mr Pandey’s application to strike out parts of the plaintiffs’ statement of claim is dismissed.

(c)Mr Pandey’s application requiring the plaintiffs to provide security for costs is dismissed.

Costs

[141]   The plaintiffs have been successful in opposing Mr Pandey’s application to strike out elements of the statement of claim and his application for an order granting security for costs. In relation to the application for a more explicit statement of claim, each party has had partial success.

[142]   Counsel are directed to endeavour to agree costs within 20 working days of the date of this judgment. Failing agreement, counsel for the plaintiffs is to submit a memorandum as to costs (not exceeding five pages) within 10 working days after the expiry of the 20 working day period, and counsel for Mr Pandey is to submit a

memorandum in reply (not exceeding five page), within five working days of receipt of counsel for the plaintiffs’ memorandum. Costs will be then determined on the papers.

…………………………….. Associate Judge Taylor