Mayhew v Sealegs International Limited
[2024] NZHC 3536
•25 November 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-001292
[2024] NZHC 3536
BETWEEN WILLIAM MAYHEW
First Claimant
CAROLINA SEALEGS
Second ClaimantAND
SEALEGS INTERNATIONAL LIMITED
First Respondent
FUTURE MOBILITY SOLUTIONS
LIMITED (formerly SEALEGS CORPORATION LIMITED)
DAVID MCKEE-WRIGHT
Third Respondent
Hearing: 21 November 2024 Appearances:
W Mayhew in person for Claimants (via VMR)
L P Santana De Mattos for Respondents/Applicants
Judgment:
25 November 2024
JUDGMENT OF VENNING J
This judgment was delivered by me on 25 November 2024 at 11.00 am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Turner Hopkins, Auckland Copy to: William Mayhew
MAYHEW v SEALEGS INTERNATIONAL LIMITED [2024] NZHC 3536 [25 November 2024]
Introduction
[1] The respondents, Sealegs International Limited, Future Mobility Solutions Limited (formerly Sealegs Corporation Limited) and David McKee-Wright seek an order from the Court directing K3 Legal Limited (K3 Legal) to transfer $65,000.00 held in their trust account to satisfy the costs judgment the respondents obtained against William Mayhew and Carolina Sealegs (the claimants) following an arbitration.
[2] The respondents also seek costs on the application and an additional order that the costs on the application also be paid from the funds held by K3 Legal.
Background
[3] Following an arbitration, the arbitrator, S P Pope issued a partial award dated 31 July 2023 finding that each of the claimants’ causes of action failed and the claimants were not entitled to the relief sought. Following payment of the arbitrator’s fee the partial award was delivered to the parties on 10 August 2023.
[4] The arbitrator then delivered a final award as to costs on 20 September 2023. Mr Mayhew had disputed costs. In the costs award, she noted Mr Mayhew’s submissions that, due to the manner in which the Sealegs’ parties conducted their defence in the arbitration, the inconsistency between the evidence provided by the respondents and the documentary record and the breach by Sealegs of the arbitration agreement, no costs ought to be payable. Further, Mr Mayhew had submitted that Mr McKee-Wright had breached the terms of the arbitration agreement by disclosing confidential information. Mr Mayhew suggested Mr McKee-Wright’s evidence should be disregarded and the arbitration findings reconsidered. In a further email to his counsel and the arbitrator, Mr Mayhew suggested that the matter would be turned over to the Law Society and the Serious Fraud Office “if it continues to lack legitimacy”.
[5] The arbitrator noted that she was “functus officio” apart from the issue of costs. She took Mr Mayhew’s further submissions into account to the extent that they were relevant to the issue of costs. Ultimately the arbitrator concluded that the respondents
were the successful parties in the arbitration and were entitled to a substantial contribution to their costs. She made an order that the claimants were to pay the respondents $65,000.00 in respect of the costs and expenses of the arbitration.
[6] On 10 October 2023, the respondents entered the costs award as a judgment of this Court. The costs award remains unpaid.
[7] Prior to the arbitration the parties, through counsel, had discussed and reached agreement as to the provision of security for costs by the claimants. By email dated 25 May 2021, Paul Sills, counsel acting for the claimants, stated:
My clients are prepared to provide an additional $25,000 as security for the arbitrator’s costs, also to be provided in instalments. That is, security will be provided up to a total of $100,000 in stages, as follows:
1.Upon acceptance of this proposal, $33,334 will be held in the trust account of K3 Legal Limited (Trust Account);
2.A further $33,333 will be held in the Trust Account when the parties disclose their documents; and
3.A further $33,333 will be held in the Trust Account one week before any hearing.
Please let me know if your clients accept this proposal so that K3 Legal Limited can be instructed regarding the first tranche.
[8]By email of 27 May 2021, Mr Henry, counsel for the respondents, confirmed:
The Respondents accept your 25 May 2021 offer to provide security for
$100,000 as set out in your email below.
[9] Following completion of disclosure, the respondents’ counsel noted the second tranche of security was required to be paid into K3 Legal’s trust account. On 2 April 2022, Mr Sills confirmed that his instructing solicitor was holding $66,667.00 in its trust account as security for costs.
[10] Following the outcome of the arbitration and the arbitrator’s final award in relation to costs the respondents’ counsel sought payment of security from K3 Legal. Mr Sargent of K3 Legal responded, noting that his firm was not a party to any communications on the topic and was not aware of any undertakings.
[11] Further correspondence followed. Ultimately K3 Legal’s position was recorded in an email of 9 October 2023:
… We confirm that we hold funds on instructions from Mr Mayhew for security for costs for the arbitration.
We do not have instructions to release those funds. Nothing in your correspondence with Mr Sills deals with payment of the funds held for security. K3 Legal was not asked to, and did not, provide any undertakings or assurances regarding payment from the funds held. Unless and until Mr Mayhew instructs us to pay those funds, or there is an order of the Court, we are obliged to hold them in accordance with the agreement that we would.
[12] Against that background, and having registered the costs order as a judgment of this Court, the respondents now seek the orders referred to above. The application has been served on the claimants and Mr Mayhew has entered an appearance in response.
The claimants’ response
[13] In the documents he has filed Mr Mayhew makes several allegations about the legitimacy of the arbitration process. He submits that the respondents and their counsel have admitted to breaching the terms of the closed arbitration. He also says perjury was committed under oath during the course of the arbitration. He submits:
This matter continues to be highly illegitimate, the Judge overseeing this matter is required to turn this criminal matter over to the Auckland Police under New Zealand law.
[14] Mr Mayhew then attached copies of a formal complaint to the Law Society: a narrative supporting the complaint; a document prepared by the claimants’ former counsel, Mr Puddle; a formal patent report which he submitted detailed Mr McKee- Wright’s perjury; and a further document which he submitted laid out “the mechanism to defraud the stakeholders and shareholders of the Respondents”.
[15] In the course of the hearing before the Court Mr Mayhew essentially repeated his complaint that the arbitration procedure and the subsequent steps taken by the respondents were illegitimate. Mr Mayhew referred to the memorandum of the claimants dated 12 October, and transcripts of the arbitration. He noted there was no transcript of closing arguments. He sought a continuance (adjournment) of the
application and submitted that this Court was obliged to refer the matter to the Police, referring in his oral submissions to s 315 of the Crimes Act 1961. In his written submissions he had referred to s 316 of the Crimes Act 1961 and the Court’s inherent jurisdiction.
[16] I indicated to Mr Mayhew that the Court was not prepared to grant an adjournment of the application and that it would proceed to deal with it.
[17] Mr Mayhew’s references to ss 315 and/or s 316 of the Crimes Act 1961 are misconceived. Those sections have no application to the matters before this Court.
[18] What the Court has before it is an interlocutory application for directions in a civil proceeding. On the face of it there is a costs award from an arbitration which has been entered as a judgment of this Court pursuant to which the claimants are obliged to pay the respondents/applicants $65,000.00 being the costs of their unsuccessful claim during the arbitration process. Mr Mayhew’s general allegations of impropriety in the arbitration process do not affect the validity or status of the costs judgment entered in this Court, particularly as, despite obviously feeling strongly about the process, the claimants have taken no steps to challenge the award, nor to set aside the costs judgment.
Jurisdiction
[19] The issue for the Court is whether it has jurisdiction to make the orders sought by the respondents/applicants. In his written submissions Mr Santana De Mattos relied on the inherent jurisdiction of the Court in relation to solicitors’ agreements and undertakings. He submitted the Court may exercise its disciplinary jurisdiction where a solicitor fails to honour a personal undertaking or to do an act which is in his or her power to do.1
[20] Alternatively, Mr Santana De Mattos submitted that, if the Court did not consider there was a binding agreement as to the terms on which the security was held
1 National Westminster Finance New Zealand Ltd v Bryant HC Auckland CP2103/87, 29 September 1988; and Horsham Downs Estate Ltd v Ganda & Associates HC Auckland CIV-2009-404-1497, 3 August 2009.
the Court could imply a term into the agreement that the security would be used to satisfy the costs award. He submitted that such a term satisfied the test for the implication of an implied term as it:
(a)was reasonable and equitable;
(b)was necessary to give business efficacy to the agreement;
(c)was so obvious that it went without saying;
(d)was capable of clear expression; and
(e)was not in contradiction with any express term of the contract.2
Analysis
[21] I accept that when the issue of provision of security for costs was being discussed and agreed between counsel, K3 Legal did not provide an express undertaking as to the terms upon which the funds would be held or, more relevantly, paid out following the arbitration.
[22] However, the terms of the agreement recorded in the correspondence as to the provision of security and the fact the funds paid in to K3 Legal following that agreement were to be held by K3 Legal as security for costs in the arbitration are clear. The agreement was made between counsel for the claimants, Mr Sills, and counsel for the respondents, Mr Henry. Both had authority to conclude such an agreement. The terms of the agreement were that the claimants were to provide security for costs in tranches and that the security sum would be held in K3 Legal’s trust account.
[23] The security sum or at least the first two tranches of the security sum (together with interest) are held in K3 Legal’s trust account. The moneys were effectively held in escrow pending the outcome of the arbitration.
2 Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 697; and
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266.
[24] This not a case of enforcing any undertaking given by K3 Legal but rather, it is a case of giving practical effect to the intention underlying the agreement struck between the claimants and respondents through their respective counsel in relation to security for costs. K3 Legal are effectively a stakeholder of the security. They are not able to release the security sum to the claimants, as that would be a clear breach of the terms upon which they hold the sum as security for costs.
[25] It would have been open to K3 Legal to take interpleader proceedings to resolve the issue, or for the respondents/applicants to have sought a charging order over the funds.
[26] A not dissimilar position was considered by the Court of Appeal in New Zealand Meat Board v Paramount Export Ltd (in receivership and in liquidation).3 The plaintiffs had paid $100,000.00 into the High Court as security for costs. They succeeded at trial and sought an order that the sum paid in for security be paid out to them.
[27] The Court noted there was no provision in the rules or in the order made by the Court requiring payment of the security as to the terms on which it would be paid out. The Court of Appeal confirmed that payment out to a successful party is not a merely automatic or ministerial act. Absent a direction made at the time security was required, or agreement, a further Court order was required to replace or vary the original order made directing the payment of the security. After referring to an English Court of Appeal case Stabilad Ltd v Stephens & Carter Ltd,4 the Court of Appeal accepted that in the absence of a specific rule or provision dealing with the release of the funds the Court had a broad power to direct release of the funds. The Court then considered the merits of the particular case before it and the practical situation the plaintiff faced notwithstanding that the unsuccessful defendants were pursuing an appeal. Ultimately the Court exercised its discretion and directed that the funds held as security be released.
3 New Zealand Meat Board v Paramount Export Ltd (in receivership and in liquidation) (2003) 16 PRNZ 942.
4 Stabilad Ltd v Stephens & Carter Ltd [1999] 1 WLR 1201.
[28] In this case, given the express terms of the basis upon which the security sum is held by K3 Legal and that the costs of the arbitration have been fixed and sealed as a judgment of this Court, I am satisfied that in the circumstances the Court should rely on its inherent jurisdiction to make such an order. The moneys were paid in for one purpose and one purpose only which was to provide security for costs in the arbitration. Costs in the arbitration have been fixed and settled. The moneys ought to be paid out in satisfaction of the agreement.
[29] Alternatively, if necessary, I would have implied a term into the agreement relating to the provision of security that the moneys held as security were to be paid over to meet the costs awarded against the claimants as such a term meets the criteria for the implication of a term in this case.
[30] The respondents/applicants also seek an order for costs on this application and a related order that the costs of the application be paid from the moneys held by K3 Legal. The costs sought are on a 2B basis. They are appropriate. However, they are costs on this application. As noted, the moneys held by K3 Legal are expressly held in relation to costs of the arbitration, and particularly the costs awarded by the arbitrator. The Court is not prepared to make an order that the costs of this application itself are to be paid from any surplus funds that may be held by K3 Legal.
Result/orders
[31]For the above reasons the Court makes the following orders:
(a)the sums held by K3 Legal in their trust account as security for costs in the arbitration proceedings between the claimants and the respondents are to be used to satisfy the judgment on costs sealed on 10 October 2023;
(b)K3 Legal is to transfer the costs judgment sum of $65,000.00 from its trust account directly to Shanahans Law Limited’s trust account within seven working days of this judgment; and
(c)costs on a 2B basis and disbursements for the application are awarded in favour of the respondents against the claimants jointly and severally in the sum of $8,776.00.
Venning J
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