M & L Clayton Trustee Limited v Jackson
[2024] NZHC 1945
•16 July 2024
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE ROTORUA-NUI-A-KAHUMATAMOMOE ROHE
CIV-2023-463-88
[2024] NZHC 1945
UNDER Section 19, Receivership Act 1993 & Section 176, Property Law Act 2007 & s 301 of the Companies Act BETWEEN
M & L CLAYTON TRUSTEE LIMITED as
trustee of the Mark Clayton Rotorua Trust First Plaintiff
M & L CLAYTON TRUSTEE LIMITED as
trustee of the Oasis Trust Second Plaintiff
M & L CLAYTON TRUSTEE LIMITED as
trustee of the Mark Clayton Katikati Trust Third Plaintiff
continued…/2
Hearing: 4 June 2024 Appearances:
D G Hayes for the Plaintiffs
S Hunter KC, L L Fraser and J Marcetic for the First Defendants D Broadmore and Z Sinclair for the Second Defendant
Judgment:
16 July 2024
JUDGMENT OF HARVEY J
[Security for costs]
This judgment is delivered by me on 16 July 2024 at 9.30 am pursuant to r 11.5 of the High Court Rules.
……………………………………………
Registrar / Deputy Registrar
M & L CLAYTON TRUSTEE LIMITED v JACKSON & ORS [2024] NZHC 1945 [16 July 2024]
/2
ANDNEALE JACKSON, BRENDON JAMES GIBSON and GRANT GRAHAM
First Defendants
BANK OF NEW ZEALAND
Second Defendants
Introduction
[1] On 13 March 2024, judgment was issued declining the 21 December 2023 applications of Calibre Partners and the Bank of New Zealand Limited for firstly, security for costs against M & L Clayton Trustee Limited as trustee of the Mark Clayton Rotorua Trust. Secondly, for the transfer of the proceedings from Rotorua to Auckland.1 At a case management conference held before Associate Judge Taylor on 19 March 2024, the defendants indicated that they would apply for recission of the judgment.2 The Judge then issued directions that a half-day hearing be scheduled.
[2] On 20 March 2024, the defendants filed an interlocutory application seeking recession of that part of the judgment determining their applications for security and other orders. They ask that the plaintiff pay $120,000, or an amount the Court considers sufficient, as security regarding the claims against each of the defendants, so $240,000 in total. Finally, the defendants ask for a stay until security for costs are ordered and for costs on this application. The plaintiff opposes the application.3
[3] On 30 April 2024, I issued a minute directing the registrar to schedule the matter for hearing. That took place on 4 June 2024 via VMR.
[4] Both defendants filed an amended statement of defence on 5 April 2024. An affidavit from Lee-Anne Clayton (director of the plaintiff), dated 5 April 2024, has also been filed updating the Court on the plaintiff’s funding of the litigation following Associate Judge Taylor’s direction.4 A further affidavit from Neale Jackson was filed on 20 March 2024 in support of the recission and security applications. For convenience all evidence filed in respect of the initial application forms part of the evidence in this application. I also heard oral argument and received further submissions from the parties.
1 M & L Clayton Trustee Ltd v Jackson [2024] NZHC 531. Neale Jackson, Brendon Gibson and Grant Graham, trading as Calibre Partners are referred to for convenience along with the BNZ as the defendants.
2 High Court Rules 2016, r 7.49.
3 M & L Clayton Trustee Ltd, acting in its capacity as trustee of the Mark Clayton Rotorua Trust (first plaintiff), the Oasis Trust (second plaintiff) and the Mark Clayton Katikati Trust (third plaintiff). For convenience, M & L Clayton Trustee Limited will be referred to as the plaintiff.
4 M & L Clayton Trustee Ltd v Jackson HC Auckland CIV-2023-463-88, 9 March 2024 (Amended directions Minute of Associate Judge Taylor).
Submissions
Calibre and BNZ
[5] Mr Hunter KC for the defendants submitted that the plaintiff will be unable to pay the applicants’ costs if it is unsuccessful and the evidence of this can be inferred from the surrounding circumstances. The plaintiff was incorporated following the liquidation of other trust entities that previously held the position it now occupies. More importantly, counsel underscored, the plaintiff does not have any assets and it is accepted that it is relying on interest-free loans from the Clayton family to continue this proceeding. Mr Hunter contended that the plaintiff was established to recover funds to pay the unsecured creditors of the previous Clayton entities. Counsel argued that under the assessment for whether to grant security for costs, the plaintiff’s ability to pay is material. The fact that third parties are providing financial support does not detract from the reality that the plaintiff is impecunious.
[6] In addition, Mr Hunter submitted that the plaintiff’s claim is without merit and unlikely to succeed. It is substantively the same as that pursued by Mr Clayton in 2020 and 2021 (Claymark Claim).5 In the 2020 injunction proceeding Campbell J found that Mr Clayton’s claim against the receivers was not seriously arguable.6 The Claymark Claim was struck out for want of prosecution by Lang J on 12 March 2021.7 According to counsel, the proceedings did involve materially the same subject matter despite Mr Clayton not personally bringing the claim.
[7] Further, Mr Hunter submitted that the costs incurred by this proceeding are likely to be substantial. The plaintiff is a nominal plaintiff receiving third party funding. Moreover, counsel contended that, separate from the arguments that the plaintiff will not be capable of paying costs, these factors point to a grant of security.
5 Clayton v Jackson [2020] NZHC 2666.
6 At [24]–[37].
7 Clayton v Jackson HC Auckland CIV-2020-404-1729, 12 May 2021.
MLCT
[8] In summary, Mr Hayes submitted that the strength of the defence, and the merits of the overall claim, cannot be determined at this early stage of the proceeding. Such an assessment is possible once the claim reaches, at least, the discovery and inspection stages. Any denial of liability is to be expected but is based on speculation.
[9] In addition, counsel contended that the interlocutory proceeding may be inadmissible according to s 50 of the Evidence Act 2006 on the basis that it involved a different plaintiff. Even if it is admissible, Mr Hayes argued, the interlocutory proceeding is not comparable as there was no discovery, cross examination or expert evidence. Likewise, he submitted that the Claymark Claim cannot be used as evidence to suggest the current proceeding is without merit. That proceeding was struck out for want of prosecution, not because it lacked merit.
[10] Counsel contended that the defendants should not be allowed to change their position with respect to this application for security by submitting new affidavit evidence that contains information already known to them at the time of the initial application.8 According to Mr Hayes, they deliberately chose to withhold information from the Court. Further, counsel argued that the defendants have asserted that the receivers achieved the best realisation for the sale of the Claymark businesses. This assertion does not answer the claim made by the plaintiff or show that it is without merit. That is a matter for trial.
[11] Finally, Mr Hayes submitted that the defendants seek to stifle the plaintiff’s claim, and the plaintiff has confirmed that a security for costs order will indeed lead to that outcome. No evidence has been provided that suggests otherwise. Counsel contended that when balancing the interests of the parties, it is relevant that the defendants are well-resourced while the plaintiff has only limited resources and will be deprived of justice by an order for security.
8 Affirmation of Neale Jackson (20 March 2024).
Discussion
Is there reason to believe that MLCT will be unable to meet a costs award?
[12] As mentioned, counsel made brief oral arguments on the merits of this proceeding. I note as a preliminary matter that the defendants submitted that Mr Jackson’s 20 March 2024 affidavit should not be taken account of as it is not properly in reply to the plaintiff’s submissions. That characterisation is correct. However, in the interests of being properly informed on the matter and accounting for the fact that my finding on security in the earlier judgment was based largely on a lack of information (including the absence of a fulsome statement of defence), I have read and considered Mr Jackson’s affidavit as part of this application.
[13] Mr Hayes’s submission that an order for security will stifle the plaintiffs’ claim suggests that the present arrangements do not provide the plaintiff with open ended funding. As the defendants pointed out, litigation of this kind is generally an expensive and lengthy undertaking. I consider it likely that the plaintiff will not be in a position to meet a costs award if it is unsuccessful, having borrowed funds to bring its claim in the first place. The defendants highlighted that while the plaintiff has received funding to continue this litigation, its intention is to recover funds for unsecured creditors. Should the plaintiff be unsuccessful, it is difficult to understand what incentive or responsibility those funders would have to pay a costs award after the fact.
[14] Ms Clayton’s 5 April 2024 affidavit acknowledged that the plaintiff has funded its litigation through loans, and will continue to do so:
Simply put the Plaintiff borrows funds from myself and family members to pay our legal costs in this proceeding. Part of the reason this case was commenced was our family concern over unsecured creditors in our community. We would like to recover something for the unsecured creditors as the whole receivership experience has been embarrassing for the family.
The loans made to the Plaintiff are interest free and have no strings attached apart from repayment to the lenders when the company comes into funds.
[15] In summary, and for the same reasons expressed in the 13 March 2024 judgment, I accept that there are grounds to believe the plaintiff will be unable to meet
a costs award.9 The subsequent evidence and submissions have not altered that impression.
Is it just in all the circumstances for an order for security for costs be made?
[16] In McLachlan v MEL Network Ltd, the Court of Appeal cautioned against fettering the discretion exercised by the Court in this analysis by constructing “principles” from the facts of earlier cases.10 The exercise is discretionary, both in deciding whether security should be ordered, and in what quantum. The amount of security ordered is not limited to likely costs awards but is “what the Court thinks is fit in all the circumstances.”11
[17] Turning to the merits, I agree that it is too early in the proceeding to make even a tentative finding on the merits. The matters raised by the evidence and statements of claim and defence thus far, linking as they do to allegations of professional negligence, will only be answered by a careful assessment of the facts through the trial process. Even with the additional information provided by the defendants’ counsel, it is impossible to predict with any reasonable certainty that the claim is bound to fail or succeed.
[18] In this specific context, the judgment of Campbell J is distinguishable for the reasons given by the plaintiff and as set out in the 13 March 2024 judgment. The circumstances of an interim injunction are different to that of a trial, putting aside the concern that Mr Clayton is not acting as plaintiff here. Further, and without commenting on its merits, I consider that the plaintiff has additional evidence to raise now that was not available in 2020 regarding the on-sale of assets. In any case, this complicates the issue of security, having regard to the comments in McLachlan that:
[15] The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs. That must be taken as contemplating also that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim. An order having that effect should be made only after careful consideration and in a case in which the claim has little chance of success. Access to the courts for a genuine plaintiff is not lightly to be denied.
9 M & L Clayton Trustee Ltd v Jackson, above n 1, at [14]–[15].
10 McLachlan v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13]–[14].
11 At [27].
[19] The plaintiff has argued that the defendants have sought these orders so as to stifle their genuine claim, rather than out of concern that they will not recover costs. The defendants submitted that there are already outstanding liabilities owed to them (some $2.5 million to BNZ outstanding, and an unpaid costs award from Mr Clayton to the receivers). It is therefore reasonable that they would seek security against further unpaid costs, as is the right of any defendant.
[20] As foreshadowed, I consider that there is a reasonable risk to the defendants that their costs may be unrecoverable should they successfully defend the plaintiff’s claim. On the other hand, there is also a risk that ordering security will stifle the plaintiff’s claim. At the risk of belabouring the point, it is too soon to tell whether that claim has merit. Moreover, there are factors pointing to an order of security without reference to the substance of the claim. These are that MLCT is a nominal plaintiff,12 and that it is dependent on external funding.13 The funding arrangement has been acknowledged by Ms Clayton, but not in detail. On balance, I find that an order of security for costs is appropriate.
[21] In lengthy and complex cases, such as this one, it is not unusual for security to be paid in stages. This gives some assurance to the defendants that they will receive a costs award in the event the plaintiff is unsuccessful, while reducing the burden on the plaintiff, particularly in these early stages where trial is likely to take place more than a year hence. In this context, I am not persuaded to accept the quantum proposed by the defendants. In particular, that $50,000 be ordered in respect of each defendant for expert fees. There is certain to be overlap between the defendants in respect of the content of expert evidence. A more appropriate figure for this cost is in the range of
$15,000, total, for both defendants with respect to expert fees.
[22]The proposed quantum, less expert fees, is $69,601.43 per defendant including:
(a)pleadings ($4,780);
(b)case management up to pre-trial ($5,258);
12 Highgate on Broadway Ltd v Devine [2013] NZAR 1017, [2012] NZHC 2288, at [22(a)].
13 At [22(d)].
(c)discovery and inspection ($9,560);
(d)an interlocutory application ($7,648);
(e)preparation for and appearance at a five-day trial, including costs for second counsel ($41,825); and
(f)filing fees for statement of defence and interlocutory application ($530.43).
[23] The proposed costs are calculated as 2B scale costs according to sch 2 and 3 of the High Court Rules 2016. The defendants submitted that these are conservative estimates of what might be spent. It is not necessary to include the costs for this interlocutory application in the quantum for security. Costs have been separately sought on this application and are addressed at the end of this judgment. There is contrasting case law as to whether an order for security can apply retrospectively or whether it should capture only the steps still to be taken in the proceeding. The authors of The Law of Costs in New Zealand say on this point:14
In the authors’ view, security for costs would, as a matter of construction, have to relate to steps yet to be incurred in the litigation. This encourages timely applications (or discussions) about security for costs and prevents the potential for abuse through tactical applications made after the plaintiff has committed resources to advancing the matter.
[24] I agree. In this case, while there has been no delay on the part of the defendants in filing their application for security, I am not prepared to include the preparatory step for filing a statement of defence as part of the quantum. The initial statements of defence were, as discussed, a bare response to the statement of claim. The quantum reached, for each defendant, therefore comprises:
(a)Case management ($5,258);
(b)Discovery and inspection ($9,560);
(c)Preparation for and appearance at a five-day trial, including costs for second counsel ($41,825); and
14 David Bullock and Tim Mullins The Law of Costs in New Zealand (Lexis Nexis, Wellington, 2022) at [7.18].
(d)Provision for expert fees ($7,500).
[25] This totals $64,143 in scale costs. As is usual in orders for security, I propose to order security at approximately 80 per cent of that total.15 Security of $51,200 is payable by the plaintiff in respect of each defendant ($102,400 total), to be paid in three stages as outlined at [29] below.
Should the 13 March 2024 judgment be rescinded?
[26]Rule 7.49 of the High Court Rules 2016 provides:
7.49 Order may be varied or rescinded if shown to be wrong
(1) A party affected by an interlocutory order (whether made on a Judge’s own initiative or on an interlocutory application) or by a decision given on an interlocutory application may, instead of appealing against the order or decision, apply to the court to vary or rescind the order or decision, if that party considers that the order or decision is wrong.
(2) A party may not apply under subclause (1) if the order or decision was made or given—
(a) with the consent of the parties; or
(b) on an interlocutory application for summary judgment under rule 12.4.
…
(4) The application does not operate as a stay unless a Judge so orders.
(5) Unless a Judge otherwise directs, the application must be heard by the Judge who made the order or gave the decision.
(6) The Judge may,—
(a) if satisfied that the order or decision is wrong, vary or rescind the order or decision; or
(b) on the Judge’s own initiative or on the application of a party, transfer the application to the Court of Appeal.
[27] Recission will generally be appropriate where the Court has not had the benefit of full argument or where some relevant point of evidence has been overlooked.16 That
15 See Purau Moorings Association Inc v Canterbury Regional Council [2018] NZHC 462 at [53].
16 Howard v Accident Compensation Corporation [2013] NZHC 1004 at [4]; Crequer v Chief Executive of the Ministry of Social Development [2012] NZHC 3620 at [3].
was the case here. Recission of the 13 March 2024 judgment is granted insofar as it dealt with the first application for security for costs.
Decision
[28]The judgment dated 13 March 2024 is rescinded in part.
[29] The application for security for costs is granted. The plaintiff is ordered to pay security for costs in three stages. First, the amount of $10,000 each for the receivers and BNZ within two months from the release of this judgment. Secondly, the amount of $10,000 each for the receivers and BNZ at the close of pleadings date. Thirdly, the balance of $31,200 each for the receivers and BNZ to be paid 20 working days before the date on which the trial is set to commence.
[30]A stay of proceedings is granted until security has been paid as ordered.
Costs
[31] All parties have had some measure of success on this application. I consider that it is appropriate that costs lie where they fall.
Harvey J
Counsel:
David Hayes, Barrister, Hamilton S M Hunter KC, Auckland
Solicitors:
Chapman Tripp, Auckland (L L Fraser, J Marcetic) Buddle Findlay, Auckland (D Broadmore, Z Sinclair)
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