Luscombe v O'Sullivan
[2012] NZHC 1203
•31 May 2012
IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY
CIV 2010-443-000073 [2012] NZHC 1203
BETWEEN CHARLES REX LUSCOMBE, DOROTHY TURNER, AND KATHLEEN WHYTE AS ALL THE EXECUTORS NAMED IN THE WILL OF WINIFRED ANNE LUSCOMBE DECEASED Plaintiffs
ANDDILLON O’SULLIVAN First Defendant
ANDKELVIN JOHN SYMS Second Defendant
Hearing: 7 December 2011
Counsel: D J King for Plaintiff/Applicants
A S Ross for Fifth and Sixth Defendants/Respondents
Judgment: 31 May 2012
RESERVED JUDGMENT OF ASSOCIATE JUDGE ABBOTT
This judgment was delivered by me on 31 May 2012 at 11.30 am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors:
Dennis King Law, PO Box 1092, New Plymouth 4340 (for plaintiffs) Gilbert Walker, PO Box 1595 Auckland 1140 (for first defendant) David J Stock, Christchurch for second and third defendants
Jones Young, PO Box 189, Auckland 1140 (for fourth defendant)
Chapman Tripp, PO Box 2206, Auckland 1140 (for fifth and sixth defendants) Izard Weston, PO Box 5348, Wellington 6145 (for seventh defendant)
Counsel:
M A Muir, Barrister, PO Box 4234, Auckland 1140C T Patterson, Barrister, PO Box 2886, Auckland 1140
CHARLES REX LUSCOMBE & ORS v O'SULLIVAN & ORS HC NWP CIV 2010-443-000073 [31 May 2012]
ANDSIMON ROBERT PURVIS Third Defendant
ANDANDRE GAYLARD Fourth Defendant
ANDBRET PAUL JACKSON Fifth Defendant
ANDKENNETH DAVID SWAIN Sixth Defendant
ANDDONALD FRANCIS CURTIN Seventh Defendant
ANDJOHN PERRIS Eighth Defendant
[1] This judgment is given on an application by the plaintiffs (who are executors and trustees of the estate of Winifred Anne Luscombe, deceased) for stay of execution of a judgment in which the plaintiffs were ordered to pay costs to the fifth and sixth defendants (called “the defendants” in this judgment for convenient reference) following a summary judgment against the plaintiffs and in favour of the defendants.
[2] The plaintiffs have appealed the judgment and seek a stay of execution of the costs order pending determination of the appeal.
[3] The primary ground for the application is that there are insufficient assets in the estate to pay the costs and the plaintiffs will be unable to pursue their appeal, or the proceeding generally, if a stay is not granted. They say that a balancing of interests favours a granting of the stay.
[4] The fifth and sixth defendants say that the plaintiffs’ case, in essence, is that they prefer to put resources at their disposal into pursuing the appeal in preference to meeting their costs under the judgment, and that they have failed to establish either a legal or a factual basis for their contention that the claim would be rendered nugatory. They say that a stay is not justified on an analysis of the factors advanced by the plaintiffs.
Background
[5] The plaintiffs are executors and trustees of the will of their late mother, Winifred Anne Luscombe. They commenced this proceeding against the directors of a failed financial advisory company, FP North Limited (in liquidation) (FP North), and members of an investment committee overseeing investments managed by FP North. The plaintiffs are seeking to recover substantial losses in their mother’s investment portfolio, suffered as a consequence of the demise of finance companies in which her money had been invested.
[6] The defendants were directors of FP North but had no direct involvement in the investment portfolio of the late Mrs Luscombe. They applied for summary judgment against the plaintiffs, or for strike out of the claims against them. On 15
August 2011, this Court found that there was no arguable basis for the plaintiffs’ claims against them.[1] It granted the applications for summary judgment. It also ordered the plaintiffs to pay costs on a scale 2B basis, together with disbursements as approved by the Registrar. Those costs were subsequently fixed at $38,486.38.
[1] Luscombe v O’Sullivan HC New Plymouth CIV-2010-442-73, 15 August 2011.
[7] The plaintiffs have appealed against the judgment. At the date of this hearing they had not yet filed their case on appeal. I understand that they have since done so, and that the appeal is to be heard in October 2012.
[8] The defendants have sealed the judgment, including the order for costs. They have demanded payment from the plaintiffs. The present application is in response to that demand.
The legal principles
[9] The application is made under r 20.10 of the High Court Rules and r 12 of the Court of Appeal (Civil) Rules 2005. For the purpose of the present application, there is no substantive difference between them.
[10] Rule 20.10 reads:
20.10 Stay of proceedings
(1) An appeal does not operate as a stay—
(a) of the proceedings appealed against; or
(b) of enforcement of any judgment or order appealed against.
(2) Despite subclause (1), the decision-maker or the court may, on application, do any 1 or more of the following pending determination of an appeal:
(a) order a stay of proceedings in relation to the decision appealed against:
(b) order a stay of enforcement of any judgment or order appealed against:
(c) grant any interim relief.
(3) An order made or relief granted under subclause (2) may—
(a) relate to enforcement of the whole of a judgment or order or to a particular form of enforcement:
(b) be subject to any conditions for the giving of security the decision-maker or the court thinks just.
[11] A party applying for stay of a judgment pending appeal must establish reasons to justify it (an appeal does not give rise to a stay automatically). When considering an application, the Court balances the competing interests, being the successful litigant’s rights to enjoy the fruits of a judgment, as against the need to preserve the applicant’s position in the event the appeal is successful.[2] The Court has a discretion, which is to be exercised after taking into account factors relevant to the particular case.
[2] Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA) at 87.
[12] The principles which the Court applies have recently been restated by the
Court of Appeal as:[3]
[3] Keung v GBR Investments Ltd [2010] NZCA 396, [2012] NZAR 17 at [11].
[11] ... In determining whether or not to grant a stay, the Court must weigh the factors “in the balance” between the successful litigant’s rights to the fruits of a judgment and “the need to preserve the position in case the appeal is successful”. Factors to be taken into account in this balancing exercise include:
(a) Whether the appeal may be rendered nugatory by the lack of a stay; (b) The bona fides of the applicant as to the prosecution of the appeal;
(c) Whether the successful party will be injuriously affected by the stay;
(d) The effect on third parties;
(e) The novelty and importance of questions involved; (f) The public interest in the proceeding; and
(g) The overall balance of convenience.
That list does not include the apparent strength of the appeal but that has been treated as an additional factor.
(footnotes omitted)
The case for the plaintiffs
[13] Counsel for the plaintiffs accepted that the Court must balance the interests of the parties. He submitted that the balance was in favour of the plaintiffs for the following reasons:
(a) Failure to grant a stay would render the plaintiffs’ appeal nugatory, as the estate did not have the ability to pay the costs or to reimburse them if they were to pay. The plaintiffs were likely to withdraw their claim, and not pursue the appeal, if they are required to pay the costs.
(b)Failure to grant a stay would affect several other similar cases which are awaiting the outcome of the plaintiffs’ appeal (in a loose sense, this was a “test case”). The decision on the appeal was likely to be relevant to the conduct of the other cases (all of the cases are currently being case managed together), but the plaintiffs in the other cases have no standing to pursue this appeal if the plaintiffs do not. The steps taken in this proceeding (summary judgment and appeal) would likely be repeated in each of those cases (as this case and one other were the weakest of the claims), with the time and money that had gone into this case being wasted.
(c) The plaintiffs have a good chance of success on their appeal, and therefore a significant prospect of reversal of the order for costs. Three specific aspects of the appeal support this general submission: first, there is a strong argument that directors’ liabilities is a developing area of law, which needs to be addressed in trial; secondly, there is a strong argument that directors do not owe duties just to the company; thirdly, a number of the findings were inappropriate in a summary judgment application as they needed to be made in a complete factual matrix, which included the exploration of evidence in trial.
(d)The defendants would not be prejudiced by allowing the appeal to proceed (the plaintiffs had paid the required security for costs).
(e) The appeal had significant importance to the parties, and there was a public interest in allowing it to proceed (in light of the number of similar cases pending before the Courts). These points essentially are a restatement of the “test case” point already identified.
Consideration of the factors
[14] Counsel for the plaintiffs initially advanced their case on the basis that the estate did not have the ability to pay the costs. During the course of oral submissions he conceded (appropriately in light of the authorities)[4] that the plaintiffs had a personal liability to meet costs, and submitted that the issue for them was that the estate was incapable of indemnifying them. He submitted that the effect was the same: the appeal would be rendered nugatory.
[4] Laws of New Zealand Trusts at [430]; John Mowbury, Lynton Tucker, Nicholas Le Poidevin, Edwin Simpson and James Brightwell Lewin on Trusts (18th ed, Sweet & Maxwell, London, 2008) at [21]- [51]; Cadman v Versini HC Auckland CIV-2009-404-7925, 30 May 2011 at [47].
[15] Counsel for the defendants raised a preliminary point on the meaning of “nugatory”. He submitted that the test to apply was whether the plaintiffs would be prevented from enjoying the benefits of the appeal if it was successful,[5] as distinct from inability to pursue the appeal for financial reasons. He said that if the plaintiffs succeeded in the appeal they would be able to pursue their claim against the defendants, and would be entitled to a return of the costs (there is no suggestion that the defendants would not be in a position to repay). He contended that the plaintiffs were in no different position from any other litigant, in that the cost of litigation has
to be funded (including any adverse awards of costs). He argued that the right to appeal in this case could not be considered nugatory any more than a right to bring a proceeding could be said to be rendered nugatory because a plaintiff found it difficult to fund the litigation. He relied on the decision of the Court of Appeal in Keung v GBR Investments Ltd where an application for stay of a judgment for costs, pending appeal, was declined notwithstanding the appellant’s argument that the appeal would
be rendered nugatory because he would become bankrupt.[6]
[5] See Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA) at 86-87.
[6] Keung at [19]-[20].
[16] I do not regard this factor as a significant one in the present case for the following reasons:
(a) The appeal will not be rendered nugatory in a direct sense. If the plaintiffs are successful, they will be able to continue with their claim against the defendants and recover the costs paid (assuming the costs order was cancelled).
(b)Even if the appeal could be said to be rendered nugatory indirectly because of inability to pay (a proposition which seems doubtful in the case of a monetary judgment, in the absence of either provision of security or some special circumstances),[7] there is no evidence before the Court to support the plaintiffs’ assertion that the estate does not have funds, and there is no evidence at all as to the plaintiffs’ personal
financial positions. In the former respect, no accounts have been produced nor any other evidence given as to the assets that lay within the estate, or what has happened to those assets (which surely must be a relevant consideration for the Court). It is also significant that the plaintiffs have been able to pursue this litigation for the past two years, and there is merit in the submission for the defendants that they are electing to expend their resources on the appeal rather than to meet obligations incurred in the case to this point.
(c) In any event, the fact that an appeal is rendered nugatory is not determinative.[8]
[7] Keung at [12].
[8] Keung at [20].
[17] This takes me to the plaintiffs’ contention that this is a test case which should be allowed to run its course, both in relation to the other similar claims being made against the defendants in this proceeding and generally in the public interest.
[18] Whilst it is true that the parties agreed that this case should be argued first “as a test case”, it is not a test case in the usual sense of involving novel propositions of law. I accept the submission of counsel for the defendants that the judgment under appeal concerned the application of well-recognised principles to the facts of this case. The outcome may well influence the course of the other proceedings currently before the Court, but I do not see that that is a significant factor. The other cases will
turn on their own facts (the plaintiffs acknowledge that the plaintiffs in six of the
other seven cases have substantially stronger facts than they have by virtue of the fact that those plaintiffs entered into agreements which gave the advisors authority to make decisions on their behalf, whereas the present plaintiffs made their own decisions based on the information they obtained from the advisors).
[19] Ultimately, however, they are separate proceedings, and the fact that a decision in this case may influence other proceedings does not warrant any different treatment for the plaintiffs in this case. If the plaintiffs in the other cases felt that there is any advantage to them in having the appeal determined, there is nothing to stop them assisting the plaintiffs with the costs of pursuing the appeal (the same solicitors are acting in all proceedings, and the other plaintiffs can be taken to know what is happening in this proceeding).
[20] I accept that there is a general public interest in the conduct of finance companies in recent years. But, even if that could be regarded as a factor when considering a stay, it is not a factor on the facts of the present case where the allegation is of a lack of care in the advice given rather than allegations of criminal offending on the part of directors.
[21] Counsel for the plaintiffs invited the Court to take into account that the plaintiffs had a good chance of success on the appeal. I have already referred to three key points which the plaintiffs were advancing in the appeal. I am not persuaded that the merits of the appeal are so clearly in favour of the plaintiffs as to be a significant factor in favour of a stay:
(a) I have already indicated that I do not see any novel points of law. I also note counsel for the defendants’ contention that the Court did not say that directors only owed duties to the company, but rather that that was the general position, and that there was no reason to treat this case as unusual, and attracting a duty.
(b)There is merit to the defendants’ argument that the plaintiffs were unable to persuade this Court that there was a sufficient factual and legal basis for an arguable case, notwithstanding that the plaintiffs had the benefit of discovery, had re-pleaded the case on at least two occasions, and had senior counsel arguing the case. If the Court had
felt that facts were needed, or cross-examination required, he would have declined summary judgment.
[22] The Court is reluctant to venture far into the merits on these cases, save in exceptionally clear cases. This is not one. I regard this as a neutral factor.
[23] The last factor I will mention is the plaintiffs’ contention that the defendants will not be adversely affected by a stay. Counsel for the plaintiffs took this to refer to an unanswered query as to whether the defendants were insured. I am not in a position to form any view on that (there is simply no evidence before me about that). However, I do not accept the plaintiffs’ submission. There is an inherent detriment to a successful party in not being able to enjoy its rights. Further, the defendants must be prejudicially affected by deferral of their entitlement to payment of costs. They will have incurred significant costs in the arguing of the summary judgment application, and must be prejudiced if they are denied any recovery against those costs, even on a temporary basis. The plaintiffs have not met the usual requirement of paying the amount into Court or otherwise securing it, so the defendants are not protected for the principal sum, nor offered interest to compensate them for the delay.
The balancing exercise
[24] The essence of the balancing exercise that the Court must undertake is to consider what course will best serve justice between the parties pending hearing of the appeal. The successful party in this Court is entitled to the fruits of its judgment, and the mere fact of an appeal does not operate as a stay. It is for the party seeking stay to show some reason to justify it. Having considered the factors advanced for the plaintiffs, I am not persuaded that the appeal is necessarily rendered nugatory if the order for costs is not stayed. This is a money claim. The payment of costs will not be irreversible if the appeal succeeds, nor will the plaintiffs’ substantive rights in the proceeding be affected. The plaintiffs have not shown that they will be unable to fund their appeal if they are required to pay the costs beforehand. Even if enforcement of the costs order will have an effect on the plaintiffs’ ability to pursue the appeal, that fact alone is not determinative of the manner. They have not persuaded me that the merits of the appeal are clearly in their favour, or that there are
any other considerations which should outweigh the defendants’ entitlement to the
benefit of the cost judgment pending appeal.
[25] In balancing the respective interests I also take into account that the defendants invited the plaintiffs to withdraw, without any liability for costs if they did so before the defendants pursued their application for summary judgment. They set out the reasons that they considered that the claim would fail. They were the same reasons that were accepted by the Court when granting summary judgment. The plaintiffs elected not to take up that offer. They must have appreciated there would be this cost consequence if they failed.
Decision
[26] The application to stay is dismissed.
[27] The defendants, having succeeded on this application, are entitled to costs. I see no reason to depart from a scale 2B basis. If the parties are unable to agree on the quantum of costs within the coming 10 days, the defendants are to file and serve a memorandum in support of the quantum they are seeking within 15 working days and the plaintiffs are to file and serve any memorandum in response within 20
working days.
Associate Judge Abbott