Manukau Golf Club Incorporated v Shoye Venture Limited
[2012] NZHC 1219
•31 May 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-4422 [2012] NZHC 1219
BETWEEN MANUKAU GOLF CLUB INCORPORATED
Plaintiff
ANDSHOYE VENTURE LIMITED Defendant
Hearing: 31 May 2012
Counsel: K Simcock for Plaintiff
M Colthart for Defendant
Judgment: 31 May 2012
Reasons: 1 June 2012
REASONSFOR JUDGMENT OF TOOGOOD J [SECURITY FOR COSTS]
This judgment was delivered by me on 1 June 2012 at 5:00 pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors:
K Simcock, Lee Salmon Long, Auckland: [email protected]
W Simpson, Warren Simpson & Co., Papakura: [email protected]
Copy:M Colthart, Barrister, Auckland: [email protected]
MANUKAU GOLF CLUB INCORPORATED V SHOYE VENTURE LIMITED HC AK CIV-2010-404-4422 [31 May 2012]
[1] This proceeding has been set down for a four-day trial beginning on
11 June 2012. Each of the parties applied for an order for security of costs under r 5.45(2) High Court Rules, and each sought a stay in support of any such order. After a hearing, I dismissed both applications. These are my reasons.
[2] Rule 5.45, so far as is relevant to the present applications provides:
5.45 Order for security of costs
(1) Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—
...
(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 of costs.
(3) An order under subclause (2) —
(a) requires the plaintiff or plaintiffs against whom the order is made to give security of 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.
...
(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.
[3] In the present proceeding, the plaintiff advances six causes of action and claims a total of $1.137 million in damages. The defendant has counterclaimed for
$1.109 million in damages.
[4] The effect of r 5.45(6) is that both parties were entitled to seek orders for security of costs.
The defendant’s financial position
[5] The plaintiff brought its claim for security for costs on the basis that the defendant, a closely held family investment company, has no assets and does not appear to be trading. The financial position of the defendant, as indicated by the financial statements for the period ended 31 March 2011, is that the company operated at a net loss of $144,309 in that period and its net liabilities exceeded its net assets at the balance date by some $565,067. The shareholders of the defendant are Maurice Anthony Joyce and Penelope Joyce; Mr Joyce is the sole director.
[6] In his affidavit filed in opposition to the plaintiff’s application and in support of the defendant’s application for an order for security of costs against the plaintiff, Mr Joyce said that his wife and he have owned the company since 1985. He said that during that time, the defendant has owned and operated a number of businesses, including rest homes and residential care facilities, importing businesses, and bars and restaurants. Mr Joyce said that over that entire time the defendant has met all of its financial obligations; has never failed to pay any of its creditors; has always kept its tax affairs up to date; and has never defaulted on any financial commitment it has made.
[7] Mr Grenfell, an accountant engaged by the plaintiff, deposes that it appears from the financial records and other information provided in discovery that the defendant has been funded in the litigation with the plaintiff by advances from a related company, Scamp Investments Limited, and Mr and Mrs Joyce personally.
[8] The financial statements for Scamp Investments Limited for the period ended
31 March 2011 show that it too traded at a loss in the years ended 31 March 2010
and 2011 respectively, and that shareholders’ equity in the Company in March 2011 was minus $148,194. Mr Joyce deposed that, between them, the properties owned by Scamp Investments, family trusts, and his wife and himself personally have a total equity of approximately $300,000. He said that he has never defaulted on any financial obligation he has had and no company he has owned has ever defaulted.
[9] Nevertheless, it appeared to be clear that Shoye Venture Limited would not be able to pay any debtor without the injection of funds by increased capital or by advances.
[10] The plaintiff assesses the potential liability of the defendant for costs if the plaintiff succeeds in defending the counterclaim, calculated in accordance with Part 14 of the High Court Rules, is $28,764.
The merits of the plaintiff ’s application
[11] There cannot be any doubt that, in the absence of the injection of considerable capital or further advances from related entities or persons, the defendant will be unable to pay the plaintiff ’s costs if the defendant fails in its counterclaim. I concluded that the plaintiff therefore met the threshold in r 5.45(1)(b).
[12] The Court’s discretion to order the giving of security of costs may be exercised only if the Court thinks it is just in all the circumstances.[1] As to that, I took into account Mr Joyce’s assurances that the defendant has never failed to meet its financial obligations and also that he has never defaulted in meeting his financial obligations. The nature of a limited liability company means that the plaintiff would have no means of enforcing effectively any costs order made in its favour and would be dependent, for payment, upon the goodwill of those who have supported the defendant financially in the past. In his affidavit Mr Joyce stopped short of giving
the Court an undertaking that he will meet any costs liability of the defendant.
[1] High Court Rules, r 5.45(2).
[13] When I suggested to Mr Colthart, in the course of oral argument, that I considered the absence of an undertaking to be deliberate, Mr Colthart indicated that he did not think that to be the case. I took a brief adjournment during which Mr Colthart obtained further instructions.
[14] On returning to Court, I was informed by Mr Colthart that he had been instructed by Mr Joyce:
That Mr Joyce gave a personal undertaking to the Court to meet any award of costs made against the defendant in the proceeding which the defendant was unable to pay.
[15] I indicated to Mr Colthart that such an undertaking was acceptable to me subject to hearing submissions from Ms Simcock who had also taken the opportunity, during the adjournment, to seek further instructions from the plaintiff.
[16] Ms Simcock indicated that the undertaking was satisfactory in its terms but pointed out that there was no evidence of Mr Joyce’s personal financial circumstances before the Court.
[17] Bearing in mind Mr Joyce’s assertions on oath that he has never defaulted on any personal financial obligation and that he has always ensured that the defendant meets its obligations, I am satisfied that the undertaking is properly given and that it should weigh in favour of the defendant as a basis for declining to order security for costs in the exercise of the discretion available to me under r 5.45(2). Any breach of the undertaking would amount to a contempt of Court. In the circumstances, I considered it would not be just to make an order for security for costs against the defendant, much less ordering a stay, so close to trial.
[18] For those reasons I do not need to deal in any depth with the defendant’s other arguments against an order for security. These related to unreasonable delay; the respective merits of the defendant’s counterclaim and the substantive claim by the plaintiff; and the assertion that the defendant’s current financial position is attributable to the breaches by the plaintiff which form the basis of the defendant’s counterclaim.
[19] Although the plaintiff’s application has been made very late in the piece, and requires the leave of the Court, I was satisfied that the plaintiff’s concerns were raised in reasonable time, not least because the defendant did not disclose its latest financial statements in a timely manner as it was required to do under the discovery rules. Mr Colthart explained the delay simply on the basis that the financial statements had not earlier been considered relevant.
[20] I would not have been persuaded by the argument that the defendant’s current financial position is attributable to any breaches of duty by the plaintiff, the defendant’s net liabilities exceeded its net assets by over $400,000 before the parties entered into the venture which is the source of the current litigation. I do acknowledge, however, that, as a result of the events leading to the litigation, a business said to have been valued at $300,000 has been liquidated for a return of only $10,000, and that a revenue stream in excess of $100,000 a year has been denied to the defendant as a result.
[21] I would not have been persuaded to refuse the plaintiff’s application on the ground that the defendant’s counterclaim was a strong one. In that regard I need refer only to the observations of the Court of Appeal in its recent judgment setting aside a summary judgment entered in favour of the defendant.[2] I refer particularly to the observations of the Court of Appeal that the pleadings disclosed “a factually uncertain and legally complex situation and [that it would] be necessary for there to be a full trial to unravel the tangle.” [3]
[2] Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZCA 154 at [29]-[32].
[3] At [32].
[22] I note that the amount of costs estimated by the plaintiff’s solicitors of
$28,764 appears to have been estimated correctly in accordance with the High Court
Rules.
[23] On the strength of the defendant’s delay in disclosing the financial statements, I granted the plaintiff leave to bring the application. The application was
dismissed, however, on the basis of Mr Joyce’s undertaking.
The defendant’s application for security of costs by the plaintiff
[24] The defendant’s application for an order for security of costs against the plaintiff was brought by way of a cross-application made in the notice of opposition which the defendant filed in respect of the plaintiff’s application. The defendant’s concerns about the plaintiff’s ability to meet any costs award in the defendant’s favour were raised on or about 17 May 2012. It was suggested that the plaintiff’s financial statements for the year ended 30 September 2011 disclose that the plaintiff is experiencing falling membership, that it is making substantial losses year on year, and that it is able to continue to trade only with the support of its bankers. Mr Joyce deposed also that he had heard rumours of the Club closing its doors or being put into liquidation.
[25] I was not persuaded there is any substance to the suggestion that the plaintiff would be unable to pay the defendant’s costs if its claim is unsuccessful. The plaintiff’s financial statements, as at 30 September 2011, reveal that the plaintiff had a total equity of $6.8 million on account of valuable land holdings. Although its current liabilities exceeded its current assets by $543,000, the plaintiff then had some
$183,000 available to it by way of overdraft from its bank, and the treasurer’s report noted that the Club enjoyed continuing support of its bank through a loan facility.
[26] Hearsay evidence from Mr Joyce about the plaintiff’s intentions as to its future carries no weight. There is no admissible evidence to indicate that the plaintiff is not continuing to trade. Although trading at a loss year on year, the plaintiff appears to be able to meet its debts as and when they fall due.
[27] I was not satisfied that the defendant’s application reaches the threshold of establishing that the plaintiff would be unable to meet the defendant’s costs if its claim fails. The defendant was also given leave to apply but its application was dismissed.
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Toogood J
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