Maunier v Rouast
[2024] NZHC 1517
•11 June 2024
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2023-419-250
[2024] NZHC 1517
UNDER Part 18 of the High Court Rules 2016 and s 149 of the Companies Act 1993 BETWEEN
CHRISTOPHE CLOVIS MAUNIER
Plaintiff
AND
MAXIME GEORGES JEAN ROUAST
Defendant
Hearing: 21 May 2024 (further submissions received 5 June 2024) Appearances:
T Chubb for Plaintiff
D M O’Neill for Defendant
Judgment:
11 June 2024
JUDGMENT OF WILKINSON-SMITH J
This judgment was delivered by me on 11 June 2024 at 3.30pm..
Pursuant to Rule 11.5 of the High Court Rules.
………………………… Registrar/Deputy Registrar
Solicitors/Counsel:
Beattie Rickman Legal, Hamilton D M O’Neill, Hamilton
Sumpter Law, Auckland T Chubb, Auckland
MAUNIER v ROUAST [2024] NZHC 1517 [11 June 2024]
Introduction
[1] The defendant Mr Rouast applies for security for costs in respect of a proceeding brought by the plaintiff Mr Maunier alleging breach of s 149 of the Companies Act 1993. The basis for the application is that Mr Maunier is resident outside New Zealand and holds no assets in New Zealand
[2] Mr Maunier, is from Noumea, New Caledonia. He currently lives in France. Mr Rouast lives in Hamilton.
[3] Messrs Maunier and Rouast met and became friends when they were both at school together in New Caledonia. After high school, Mr Rouast moved to New Zealand and he and Mr Maunier lost touch. They reconnected as adults, with Mr Maunier visiting Mr Rouast in New Zealand, and Mr Rouast visiting Mr Maunier in New Caledonia.
[4] Eventually they decided to start a business together, New Zealand Guidance Plus Ltd (NZGP). NZGP was incorporated on 31 March 2016. The purpose of the business was to assist Francophones to invest in New Zealand. The initial shareholdings allocated 60 per cent of shares to Mr Rouast (equating 600 shares, making him the majority shareholder) and 40 per cent to Mr Maunier. Both contributed a modest initial investment. Mr Maunier’s contribution was $500. Mr Rouast was the sole director of NZGP.
[5] The parties operated the business until June 2021 when for various reasons the personal and business relationship soured.
[6] On 30 June 2021, Messrs Maunier and Rouast signed an agreement by which Mr Maunier agreed to transfer his interest in NZGP including shares and the current account to Mr Rouast in return for:
(a)Payment of $20,000 by Mr Rouast to Mr Maunier.
(b)Mr Rouast agreeing to meet any New Zealand income tax obligations for the current financial year in respect of the income from NZGP.
(c)Mr Rouast agreeing to facilitate the completion and filing of the personal tax return for Mr Maunier for the 31 March 2022 year including accountancy fees.
[7] On 7 September 2023, Mr Maunier brought the proceeding against Mr Rouast alleging a breach of s 149 of the Companies Act 1993 namely that Mr Rouast did not pay a fair value when he purchased Mr Maunier’s shares in NZGP.
[8] Mr Rouast has filed a statement of defence and the matter is set down for hearing on 22 and 23 July 2024.
The current application.
[9] Mr Rouast initially applied for security for costs on a staggered basis in the amount of $37,045 (representing 2B scale costs) and $21,837.50 for disbursements (comprising expert fees). This has since been increased to $66,052.50 in respect of legal fees because the estimated hearing time has increased.
[10] Mr Maunier has largely accepted that the threshold for an order for security for costs is met. There has been some negotiation regarding security for costs the chronology of which is set out below:
(a)1 November 2023: Mr Maunier offered to pay $20,000 by way of security for costs.
(b)17 November 2023: Mr Rouast suggested $44,095 as 2B costs (amended to $37,045 by removing 2B costs for security application) plus $20,000 for disbursements.
(c)5 December 2023: Mr Maunier acknowledged 2B costs and offered to pay $30,000 by way of security for costs.
(d)11 December 2023: Mr Rouast accepted the offer of $30,000 as security for costs contingent upon staggered payment of security for disbursements.
(e)24 January 2024: Mr Rouast filed the application for security for costs.
(f)11 March 2024: Mr Maunier filed an opposition to the application for security for costs.
(g)7 May 2024: Mr Maunier offered Mr Rouast an irrevocable undertaking from his grandparents on the basis that Mr Rouast would withdraw the application for security for costs. This was not accepted.
(h)8 May 2024: In a schedule attached to written submissions, Mr Rouast advised that he was seeking security for costs of $66,052.50 due to a change in the estimated length of the hearing time from two to three days.
Mr Rouast’s submissions
[11] Mr Rouast submits that security is payable as Mr Maunier resides overseas and has accepted that security should be ordered in some amount. The issue for the Court is quantum.
[12] Both parties argue as to the merits of their respective positions. Mr Rouast’s submission is that, without hearing from each party’s expert, it is difficult for the Court to draw any conclusion as to the merit of the claim.
[13] Mr Rouast says that he has attempted to reasonably resolve the matter without the intervention of the Court. He has provided his expert evidence to Mr Maunier who has nevertheless continued proceedings.
[14] Mr Rouast submits there is no evidence that payment of security would compromise Mr Maunier in pursing his claim. Mr Maunier has the financial support of family, and it would not disadvantage Mr Maunier to secure the amount sought by Mr Rouast.
[15] Mr Rouast submits that Mr Maunier resides overseas and offers little more than “promises to pay”.
[16] Without security for costs, Mr Rouast will be left with the unenviable task of having to chase any costs award in an overseas jurisdiction.
[17] In respect of the undertaking by Mr Maunier’s grandparents, Mr Rouast says that this would still require enforcement action in an overseas jurisdiction.
[18] Mr Rouast says that the balance falls firmly in favour of an order for security and that an order should be made for the full amount sought.
[19]Mr Rouast seeks the following orders:
(a)that Mr Maunier pays 2B costs and disbursements of $66,052.50.
(b)that Mr Maunier pay the costs of this application; and
(c)that the proceeding is stayed pending payment of the security.
[20]The costs and disbursements sought are:
2B Costs (Daily recovery rate = $2,390) Clause 2 Commencement of defence 2.0 Clause 10 Preparation for first CMC 0.4 Clause 11 Memorandum for CMC (2) 0.8 Clause 12 Appearance at CMC (1) 0.3 Clause 20 List of documents 2.5 Clause 21 Inspection of documents 1.5 Clause 30 Preparation of affidavits and authorities 4.0 Clause 32 Preparation for affidavit hearing 4.0 Clause 34 Trial 3.0 Total 18.5 Total 2B costs 18.5 x $2390 = $44,215.00 Disbursements Expert’s report $9,587.50 Expert’s estimate to review plaintiff’s evidence $9,000.00 Expert’s estimate to prepare for and appear at trial $3,250.00 Total disbursements = 21,837.50 Grand total = $66,052.50
Mr Maunier’s position
[21] Mr Maunier submits that a costs judgment obtained in New Zealand would be enforceable in New Caledonia pursuant to French law. He says that his claim has clear merit even on the valuation provided by Mr Rouast’s valuer.
[22] Mr Maunier says it would not be oppressive to the reasonable interests of Mr Rouast for no security to be ordered, or for security to be ordered at a lower amount than the full amount of costs on a 2B basis and disbursements.
[23] Mr Maunier says that since the sale of his shares, Mr Rouast and his partner have had full control of NZGP, and the benefit of all income generated by NZGP. In addition, Mr Rouast has had the benefit of retaining the shareholders current account of $62,270 and the amount of underpayment for the shares.
[24] Mr Maunier says that he offered an irrevocable undertaking by his grandparents to pay the amount of security sought in the application, which was rejected by Mr Rouast.
[25] Mr Maunier says that ordering security in the amount sought would significantly affect his capacity to advance a prima facie meritorious claim. He says that, while he has some funds available, they will not stretch to paying the security as sought, plus his legal fees, expert and other expenses that will be occurred in the litigation.
[26] Mr Maunier initially deposed that he has $25,000 in a New Zealand bank account and approximately $50,000 in Bitcoin and stocks. Those funds have however been depleted. Mr Maunier advises through counsel that he still has his Bitcoin investment but now has only about $1000 in his New Zealand bank account. He says that he has access to third party funding as he can borrow funds from his grandparents.
[27] Mr Maunier says that he has made earnest attempts to resolve the issue of security with Mr Rouast. Mr Rouast has rejected the undertaking offered by Mr Maunier's grandparents.
[28] Mr Maunier says he was already concerned that Mr Rouast was acting in an oppressive fashion by seeking such a high amount of security to force the withdrawal of the claim. Mr Maunier says that the rejection of the undertaking underscores this concern.
[29] Mr Maunier acknowledges that some form of security may be justified in the circumstances but says that security should not be ordered for the full amount of scale costs and expert expenses. Mr Maunier says this is particularly so given that the case concerns an alleged underpayment for shares.
[30] Mr Maunier originally offered to pay $20,000 as security for costs. He then offered to pay $30,000 which was slightly below the scale costs applicable at the time but did not account for disbursements. The offer of $30,000 was made to avoid the costs of an interlocutory hearing. Mr Maunier says that as Mr Rouast has put him to the cost of defending the application for security for costs, the original offer of $20,000 is reasonable.
[31] Mr Maunier further submits that the undertaking available to be signed by his grandparents to pay costs up to $58,885.50 is sufficient security. He says that his grandparents have assets in New Zealand which could be used to pay costs if necessary and that this solution balances the interests of both parties as Mr Rouast is provided the full amount of security without compromising Mr Maunier’s ability to pursue his claim.
The law
[32] Before making an order for security for costs, the Court must be satisfied that one of the threshold situations applies. Under r 5.45 of the High Court Rules 2016, an order for security for costs may be made if a plaintiff is resident outside New Zealand or if 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 proceeding.1
1 High Court Rules 2016, r 5.45(1).
[33] Ordering security for costs is a matter of discretion, taking into account the interests of a defendant who is forced into litigation by the bringing of the claim, and those of a plaintiff who may face hardship or even the inability to advance the case if an order for security is made that cannot be met.
[34] The offer of another party with means to meet an award of costs does not avoid the threshold being met,2 but the offer is relevant to whether the order should be made.3 An order for security may be made where is it just to do so in all the circumstances.4
[35] Whether to order security is a broad enquiry not to be constrained by reference to “principles”.5 It is relevant that an order for security for costs may prevent a plaintiff from proceeding. A genuine plaintiff is not lightly to be denied the opportunity to advance a claim.6 The amount of security is at the discretion of the court — balancing the interests of the plaintiff and defendant. It is not uncommon for the court to order a discounted amount somewhere between 50 per cent and 100 per cent of future estimated scale steps, plus an estimate of disbursements.7 An offer of a personal undertaking to pay by an individual can be a factor in whether an order for security is granted but such an undertaking cannot be compelled under r 5.45.
[36] A court is not bound to order a stay of proceedings pending security being provided but it is the normal course. Stays have been declined where the matter is so advanced as to make a stay inappropriate, for example where a trial is imminent. The merit of the respective party’s cases is relevant to both whether security should be ordered and to quantum, but it can be very difficult to ascertain the merits pre‑trial.8
2 Goldstar Invest Ltd v V [2021] NZHC 334 at [16]–[18].
3 Highgate on Broadway Ltd v Divine [2012] NZHC 2288, [2013] NZAR 1017 at [22(d)].
4 Westpac New Zealand Ltd v Adams [2013] NZHC 3112 at [25].
5 A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13]–[14].
6 At [15].
7 David Bullock and Tim Mullins The Law of Costs in New Zealand (LexisNexis, Wellington, 2022) at 7.20.
8 Ambrose v Pickard [2009] NZCA 502; and Meates v Taylor (1992) 5 PRNZ 524 (CA).
Discussion
[37] In this case the threshold test is met. Mr Maunier resides outside New Zealand. While it is apparently possible to enforce a New Zealand costs order in New Caledonia, that would put Mr Rouast to considerable inconvenience and expense.
[38] The merits of the case are difficult to assess. There is a factual dispute about the way in which the relationship broke down which may be relevant to the issues. There are conflicts in the affidavit evidence. The expert evidence as to the proper value of the shares will be important to the determination of the issues. Mr Maunier says that Mr Rouast’s own expert values his interest at greater than the $20,000 paid. There is some merit in that submission, but the expert evidence is a long way apart as to the correct value.
[39] I do not regard the undertaking by Mr Maunier’s grandparents as sufficient to address the need for security. If this were a case where the threshold test related to impecuniosity and the grandparents resided in New Zealand, such an undertaking might address the risk. In this case, the threshold is met because Mr Maunier resides outside New Zealand. His grandparents also reside outside New Zealand. They apparently hold assets in New Zealand, but enforcement action would still be complicated by their overseas residence.
[40] If an order for security for costs in the amount sought by Mr Rouast would impede Mr Maunier’s ability to pursue his claim that would be a strong factor telling against such an order.
[41] It is also relevant that Mr Maunier, if correct in his claim, has been put in the position where his funds are limited by the actions of Mr Rouast. Mr Maunier does have access to some funds through his Bitcoin investment but would need to borrow from family to meet an order for security for costs as well as his own legal fees and disbursements.
[42] Mr Maunier opposes the making of the order in the amount sought on the basis that Mr Rouast’s conduct is oppressive and the order for security is intended to prevent him from bringing a meritorious claim. I do not find that to be the case. As
Mr Rouast’s counsel submits there is considerable emotion apparent in the dispute. The parties have little to no trust in each other and both feel that they are the injured party. Given the ill-feeling between the parties, I accept that Mr Rouast genuinely believes that Mr Maunier is likely to avoid paying costs if ordered to do so — either because he does not have the funds or because he disagrees with the outcome. Mr Rouast has been drawn into litigation and he is being put to considerable expense and inconvenience to defend it.
[43] The amount of costs eventually ordered may well depend on the level of success achieved by the successful party. This is a case that calls out for settlement to be explored. The amount of money at stake is likely to be subsumed by legal fees and disbursements which are extremely unlikely to be recovered in full.
[44] The overriding consideration is how to best balance the competing interests of the parties. Mr Maunier’s claim is not without merit, but the quantum of his claim may well be inflated. Mr Rouast should not be exposed to a barren order for costs or an order that requires protracted litigation in an overseas jurisdiction to enforce.
[45] In my assessment there is a need for an order for security for costs. But there should be a discount which in part reflects the prospects of success.
[46] The hearing is set down to proceed on 22 July 2024. Mr Maunier seeks time to meet any order for payment of security for costs but the time to trial is short. Mr Rouast is necessarily incurring costs preparing for trial and that cannot be halted pending security being paid without jeopardising his reasonable preparation for trial.
[47] The parties have filed an additional memorandum as to costs. Mr Maunier currently has no more than $1,000 in a New Zealand bank account. He has other investments totalling approximately $50,000 held mainly in Bitcoin. He advises that his grandparents have $300,000 invested in New Zealand. Mr Maunier offers to arrange for one third of his grandparents’ New Zealand investments to be “ring‑fenced” so they cannot be removed from the jurisdiction pending the outcome of the litigation. This would be done by way of a letter of instruction to their financial advisor revocable only upon a letter signed by both Counsel in the proceeding.
Alternatively, he says that his grandparents are willing to sell sufficient of their investment to meet the order for security for costs.
[48] Mr Rouast filed an affidavit in response to the suggestion that part of the grandparents’ assets could be securely ring fenced. He is familiar with Mr Maunier’s grandparents’ investments in New Zealand. He says that Mr Maunier’s grandparents do not speak English and that they rely on Mr Maunier to deal with their New Zealand investments. Mr Rouast does not accept that there is any way to ensure that Mr Maunier could not himself access the investments and remove funds from New Zealand.
[49] Mr Rouast has also filed an affidavit from the financial advisor who administers the grandparents New Zealand investments. The financial advisor deposes that, contrary to earlier, email advice to Mr Maunier’s counsel, the New Zealand investments could be accessed and dissipated by the grandparents if they chose to do so.
[50] Given the evidence that Mr Maunier’s grandparents are willing to realise some of their investments to meet an order for security for costs, it appears that Mr Maunier can access funds to meet an order for security for costs. Such an order will not prevent him from continuing with his claim. I agree that the balance falls in favour of an order for security for costs to be paid into Mr Maunier solicitor’s trust account. The other measures suggested by Mr Maunier do not provide much actual security and rely on his co-operation to access the funds.
Result
[51] I fix security for costs and disbursements at $50,000 on the basis that Mr Maunier has also agreed provide a signed undertaking from his grandparents to meet costs ordered exceeding $50,000. Given Mr Rouast’s contention that Mr Maunier’s grandparents do not speak any English it is important that they do understand any undertaking that they sign. The undertaking should be in French with an unsigned English translation.
[52] Payment is to be made into Mr Maunier’s solicitors’ trust account with confirmation provided to the Court when it has been paid.
[53] The security is to be paid in two payments of $25,000. The first is to be paid within 14 days after the date of this judgment. The second instalment is to be paid by 12 July 2024.
[54] If the payment is not made with 14 days of the date of this judgment the proceedings will be stayed pending payment.
[55] If the second security for costs payment is not made by 12 July 2024 the proceedings will be stayed pending payment.
[56] If security for costs is not paid by the hearing date Mr Rouast may apply for the proceedings to be struck out.
[57] Costs in respect of this application are reserved to the end of the substantive proceeding.
Wilkinson-Smith J
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