McNaughton v Miller
[2022] NZCA 273
•27 June 2022 at 11:00 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA109/2022 [2022] NZCA 273 |
| BETWEEN | RICHARD MCNAUGHTON |
| AND | RODNEY MILLER |
| Court: | Collins and Katz JJ |
Counsel: | Applicant in person |
Judgment: | 27 June 2022 at 11:00 am |
JUDGMENT OF THE COURT
A The application for leave to appeal is declined.
BThe applicant must pay each of the respondents costs for a standard application on a band A basis and usual disbursements
____________________________________________________________________
REASONS OF THE COURT
(Given by Katz J)
Introduction
Mr McNaughton applies to this Court for leave to appeal a decision of Associate Judge Johnston ordering Mr McNaughton to provide security for costs.[1] The Judge declined Mr McNaughton’s subsequent application for leave to appeal to this Court.[2] Mr McNaughton now applies to this Court for leave to appeal, pursuant to s 56(5) of the Senior Courts Act 2016.
Leave principles
[1]McNaughton v Miller [2021] NZHC 2688 [Security judgment].
[2]McNaughton v Miller [2022] NZHC 232 [Leave judgment]. Mr McNaughton was required to apply to the High Court for leave to appeal before applying to this Court: Senior Courts Act 2016, s 56(3).
The principles that apply to an application seeking leave to appeal an interlocutory decision are well settled. In Finewood Upholstery Ltd v Vaughan Fitzgerald J observed that:[3]
[13]The requirement for leave to appeal should serve as a “filtering mechanism”, to ensure that unmeritorious appeals of interlocutory orders, or appeals of interlocutory orders of no great significance to either the parties or more generally, do not unnecessarily delay the proceedings in which the orders were made.
[3]Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679.
The following considerations apply:[4]
(a)a high threshold exists;
(b)the applicant must identify an arguable error of law or fact;
(c)the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;
(d)the circumstances must warrant incurring further delay; and
(e)the ultimate question is whether the interests of justice are served by granting leave.
Background
[4]Greendrake v District Court of New Zealand [2020] NZCA 122 at [6], citing Finewood Upholstery Ltd, above n 3.
Mr McNaughton is a solicitor. He initially represented himself, including preparing and filing submissions in support of this leave application. Mr McNaughton advises, however, that he has recently been granted legal aid. He is now apparently represented by counsel in the High Court proceeding. The respondents have been represented by counsel throughout.
The High Court proceeding is against three remaining defendants (the claims against two other defendants have been discontinued) and alleges breach of contract, breach of the Fair Trading Act 1986, negligent misstatement, fraud, conspiracy and promissory estoppel.
The underlying dispute concerns the purchase of a plumbing and drainage company by Mr McNaughton in mid-2017. The business was sold by companies associated with Mr Miller to companies associated with Mr McNaughton for $1,250,000. Mr Kaye was the business broker engaged by Mr Miller in relation to the marketing and sale of the company. Mr McNaughton alleges that he purchased the business in reliance upon forward orders which had been under-quoted. As a result, he alleges, the company he incorporated to acquire the business did not make the projected profit, and this in turn caused its failure. Mr McNaughton claims damages of just under $6 million from Mr Miller and/or Mr Kaye.
Taverner Keys & Co are in a somewhat different position. They were Mr McNaughton’s solicitors at the time that he negotiated and entered into the sale and purchase agreement for the plumbing business. Essentially, Mr Miller claims that Taverner Keys was negligent, with concurrent liability in contract. All three defendants deny the claims against them.
Mr Miller filed an application pursuant to r 5.45 of the High Court Rules 2016 seeking security for costs in the sum of $130,000, to be paid in stages. The quantum sought was based on counsel’s assessment of likely scale costs (estimated at $128,821) if the matter proceeded to trial, having regard to the likely length of the hearing and the manner in which Mr Miller has conducted the proceeding to date. Mr Kaye and Taverner Keys subsequently also filed applications seeking security for costs. As a result, Mr Miller reduced the quantum of costs sought and each of the three defendants sought $75,000 security for costs, to be paid in stages as the claim progressed towards trial.
Mr McNaughton filed a notice of opposition to the applications. In it he stated, amongst other things, that:
The plaintiff / respondent has never been opposed to providing security and has been willing to consider the issue of security on a principled basis. …
The security for costs hearing
The High Court hearing took a day. It is apparent from the transcript that Mr McNaughton:
(a)made submissions on the merits of his claims;
(b)accepted that the requirements for ordering security for costs had been met;
(c)confirmed that the main issue related to what was fair and reasonable in terms of quantum and also how any order for security was to be structured;
(d)stated that he could not pay a significant order for security in cash and suggested instead that security could be provided over a property legally owned by his parents, in which he had a beneficial interest of at least $500,000; and
(e)suggested that security in the sum of $75,000 should cover all three defendants, but that he would “ultimately … go with [the Court’s] decision”.
The Judge’s decision
The Judge recorded that Mr McNaughton had conceded that the threshold for security was met and the defendants were prima facie entitled to an order.[5] Given Mr McNaughton’s submission that an order for security in cash would prevent him from prosecuting his claim, however, the Judge ordered that security be provided over the property registered in the name of Mr McNaughton’s parents, as Mr McNaughton had suggested.[6] The quantum of the security ordered was $225,000 in total ($75,000 in respect of each defendant).[7] The Judge also observed that from the limited argument on the merits it was “not obvious … that Mr McNaughton’s claim is a strong one”.[8]
[5]Security judgment, above n 1, at [16(a)] and [16(b)].
[6]At [16(d)], [16(e)] and [23]–[25].
[7]At [19]–[20].
[8]At [12].
Mr McNaughton subsequently sought leave to appeal the decision. The appeal appears to have been prompted, at least in part, by the fact that Mr McNaughton’s parents were not willing to provide their property as security.
The Judge declined the application for leave to appeal on the basis that Mr McNaughton had effectively consented to the order for security.[9] His Honour noted that if Mr McNaughton’s parents did not consent to their property being used as security, Mr McNaughton could apply to substitute another type of security.[10]
Application to this Court for leave to appeal
[9]Leave judgment, above n 2, at [7]–[9].
[10]At [11].
Mr McNaughton has filed a synopsis of his argument, as well as three sets of submissions in reply to the respondents’ submissions. His submissions have become somewhat more focussed in reply. Although Mr McNaughton originally appeared to seek to resile from some of the concessions he made in the High Court, his final proposed grounds of appeal appear to be that the Judge, when setting the quantum of security at $225,000:
(a)failed to take into account the merits of Mr McNaughton’s substantive claims against the defendants;
(b)failed to consider the fact that his impecuniosity was caused by the defendants’ conduct;
(c)predetermined the outcome of the application; and
(d)failed to have regard to the fact that security at such a level will prevent Mr McNaughton from engaging counsel and experts for trial.
The proposed appeal therefore relates to the amount of security ordered, rather than the making of the order per se.
Discussion
Rule 5.45 of the High Court Rules relevantly provides that if a Judge is satisfied 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 proceeding, the Judge may, if he or she thinks it is just in all the circumstances, order the giving of security for costs.
Whether or not to order security and, if so, the quantum of such security, are matters of discretion. What is called for is “an assessment in the round”.[11] The amount of security is not necessarily to be fixed by reference to likely costs awards (although that may well be relevant). Ultimately, however, it is what the court thinks fit in all the circumstances.[12] Those circumstances will generally include the:[13]
(a)amount or nature of the relief claimed;
(b)nature of the proceeding, including the complexity and novelty of the issues, and therefore the likely extent of interlocutories;
(c)estimated duration of trial; and
(d)probable costs payable if the plaintiff is unsuccessful, and perhaps also the defendant’s estimated actual (ie solicitor and client) costs.
[11]Red 9 Ltd v The Learning Ladder Ltd (in liq) [2021] NZCA 284, (2021) 25 PRNZ 780 at [30].
[12]A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13] and [27].
[13]As summarised in Robert Osborne (ed) McGechan on Procedure (online ed, Thomson Reuters) at [HR5.45.07].
Issues such as the underlying merits of the proceeding, and whether the plaintiff’s impecuniosity was arguably caused by the defendants’ actions, are generally considered at the first stage of the inquiry (whether an order for security for costs is appropriate at all). We accept, however, that these issues may also have some relevance on the issue of quantum in this case.
It is well recognised, however, that there is a limit as to how far an inquiry into the merits can be made, particularly at an early stage of the proceeding.[14] As noted in Ngai Te Hapu Inc “[f]or obvious reasons a thorough review of the merits would be impractical and undesirable in an interlocutory context”.[15] Here, the statement of claim (although already in its fourth iteration) appears to be poorly pleaded and likely requires substantial further amendment. Only one defendant (not Mr Miller, the primary defendant) has yet filed a statement of defence. The issues appear to be of some complexity. In a complex matter, any assessment of the merits will be no more than an impression.[16]
[14]Meates v Taylor (1992) 5 PRNZ 524 (CA) at 528; and Lee v Lee [2019] NZCA 345 at [73].
[15]Ngai Te Hapu Inc v Bay of Plenty Regional Council [2018] NZCA 291 at [21].
[16]A S McLachlan Ltd, above n 12, at [21].
Taking these matters into account, together with the fact that Mr McNaughton accepted that an order for security for costs (in the form of a charge over property) was appropriate and the sole issue is one of quantum, it is our view that the Judge’s failure to provide a more detailed analysis of the merits of Mr McNaughton’s claims does not give rise to an arguable error of law.
Similarly, the Judge expressly acknowledged that there was “no doubt that [Mr McNaughton] would say that his financial position has been brought about by the actions of the defendants”.[17] Obviously, however, the weight of this factor is reduced by the Judge’s preliminary assessment that Mr McNaughton’s claim did not appear to be a strong one.[18]
[17]Security judgment, above n 1, at [13].
[18]At [12]–[13].
Nor does the suggestion of predetermination give rise to an arguable error of fact or law. There is nothing in the transcript or any other document before us to support such a submission.
Finally, the suggestion that the level of security imposed would prevent Mr McNaughton from engaging counsel and experts for trial does not appear to have been a matter that was raised at the hearing, directly at least. We note, for example, that Mr McNaughton informed the Judge that he had $500,000 equity in his parents’ property, which is considerably more than the quantum of security ordered.
The real issue appears to be that Mr McNaughton is unable to provide security in the form originally contemplated, in any sum. No proposal is made to substitute another form of security, however. Nor does Mr McNaughton propose an alternative, lesser, amount of security and seek to justify that sum. Rather, although it is not entirely clear, the outcome Mr McNaughton appears to seek in his proposed appeal is that security for costs be set aside completely. This is despite Mr McNaughton having conceded in the High Court that an order for security was appropriate.
Taking all of these matters into account, it is our view that Mr McNaughton has failed to identify any seriously arguable errors of fact or law in the exercise of the Judge’s discretion to set the amount of security for costs. At the very least, the proposed arguments are not sufficiently meritorious to outweigh the cost and inconvenience of bringing an appeal. Consequently, the high threshold for the grant of leave to appeal has not been crossed. The interests of justice would not be served by granting leave.
For completeness, we note that since the parties filed submissions in relation to this application, Mr McNaughton has advised this Court that he has been granted legal aid in respect of his “claims against the respondents” in CIV 2021‑435‑01. Section 45 of the Legal Services Act 2011 provides that “[n]o order for costs may be made against an aided person in a civil proceeding unless the court is satisfied that there are exceptional circumstances.”[19] The High Court has jurisdiction to vary or set aside an order where there has been a significant change in material circumstances.[20] The High Court, in our view, is the appropriate forum to address any security for costs issues that result from Mr McNaughton’s changed circumstances (whether these arise out of his grant of legal aid, or the fact that he has been unable to provide security over his parents’ home).
Costs
[19]Legal Services Act 2011, s 45(2).
[20]See for example Driver v Radio New Zealand Ltd [2020] NZHC 2903 at [8].
All three respondents seek indemnity costs, although detailed submissions were not made on this issue. In essence, the respondents say that in light of the various admissions and concessions made by Mr McNaughton prior to and at the security for costs hearing, it is clear that the application for leave to appeal should never have been brought. In addition, Mr McNaughton was put on notice that the respondents would seek indemnity costs if the appeal was pursued but proceeded regardless.
Although the arguments advanced by Mr McNaughton in support of his application for leave to appeal are weak, we have not been persuaded that the high threshold for ordering indemnity costs, as set out in r 53E(3) of the Court of Appeal (Civil) Rules 2005, is met..
For completeness, we note that Mr McNaughton has not suggested that the grant of legal aid in the High Court proceeding is relevant to the issue of costs in respect of this application (which pre-dated that grant) and we proceed on that basis.
Result
The application for leave to appeal is declined.
The applicant must pay each of the respondents costs for a standard application on a band A basis and usual disbursements.
Solicitors:
Gawith Burridge, Masterton for First Respondent
Fee Langstone, Auckland for Fourth Respondent
Darroch Forrest Lawyers, Wellington for Fifth Respondent
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