McVitty v Bank of New Zealand Limited HC Wellington Civ-2010-485-1164

[2010] NZHC 2360

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2010-485-1164

BETWEEN  ROBERT JULIAN MCVITTY AND MARGARET HELEN MCVITTY First Plaintiffs

ANDROBERT JULIAN MCVITTY AND MARGARET HELEN MCVITTY AS TRUSTEES OF THE R J MCVITTY TRUST

Second Plaintiffs

ANDMCVITTY PROPERTIES LIMITED (IN RECEIVERSHIP)

Third Plaintiff

ANDPATOKA DAIRIES LIMITED (IN RECEIVERSHIP)

Fourth Plaintiff

AND  BANK OF NEW ZEALAND LIMITED First Defendant

ANDMAURICE GEORGE NOONE AND JOHN HOWARD ROSS RISK (AS RECEIVERS)

Second Defendants

Hearing:         8 November 2010

Appearances: R.J. Fowler - Counsel for Plaintiffs

L. James - Counsel for First Defendant
J. Shackleton and K.R. Hodgson - Counsel for Second Defendants

Judgment:      16 November 2010 at 3.30 pm

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment was delivered by Associate Judge Gendall on 16 November 2010 at

3.30 pm under r 11.5 of the High Court Rules.

Solicitors:           Parker & Associates, Solicitors, PO Box 23270, Wellington Chapman Tripp, Solicitors, PO Box 993, Wellington Simpson Grierson, Solicitors, PO Box 2402, Wellington

RJ & MH MCVITTY AND ORS V BANK OF NEW ZEALAND LIMITED AND ANOR HC WN CIV-2010-

485-1164  16 November 2010

Introduction

[1]      The second defendants Maurice George Noone and John Howard Ross Fisk (“the receivers”) are the receivers of the third plaintiff, McVitty Properties Limited (“MPL”), and of the fourth plaintiff, Patoka Dairies Limited (“PDL”). The receivers seek orders striking out the claim of PDL and staying the causes of action brought by PDL and by MPL. In relation to the application for strike out, the receivers claim that the proceedings brought by PDL are improper as they were not properly authorised by the directors of that company. The applications for a stay are based on an alleged lack of satisfactory indemnity.

[2]      The proceedings involve various lending arrangements between the plaintiffs and the first defendant, Bank of New Zealand Limited (“BNZ”).   BNZ advanced various loans to the plaintiffs in exchange for securities in the form of mortgages, general security agreements and guarantees. The receivers were appointed by the BNZ pursuant to the general security agreements. The plaintiffs claim undue influence,  unconscionable  conduct  and  oppression  by  BNZ  with  respect  to  the lending arrangements, and mismanagement of certain assets by the receivers.

[3]      The  BNZ  has  not  taken  a  position  on  the  applications  before  the  Court brought by the receivers.  It has not brought a similar strike-out application nor has it indicated that it supports the receivers’ applications here.   Instead, before me Ms James, counsel for the BNZ confirmed that it would simply abide the decision of the Court on these applications.

Counsel’s Arguments and My Decision

[4]      In bringing their present application, the receivers rely on r 4.56(1)(a) and r

15.1(1)(d) of the High Court Rules.  These provide that the Court may strike out a party that was improperly or mistakenly joined, or strike out or stay all or part of a pleading if it is an abuse of the process of the Court. The receivers seek to strike out PDL as a plaintiff on the grounds that the directors of PDL, Mr Robert Julian McVitty, (“Mr McVitty”) and Mr Danny Garrity (“Mr Garrity”), did not properly authorise PDL to bring the proceeding. It is not disputed that Mr McVitty, in his

capacity as a director of PDL, wished to commence the proceeding. However, the receivers  contend  that  there  is  conflicting  evidence  as  to  whether  Mr  Garrity similarly considered the proceeding should be brought as being in the best interests of the company.

[5]      Alternatively, the receivers submit that the Court may wish to stay the proceeding pursuant to  r 15.1(3) until an affidavit is provided from Mr Garrity confirming that he in fact authorised commencement of the proceeding by PDL.

[6]      So  far  as  r  4.56(1)(a)  High  Court  Rules  is  concerned,  McGechan  on

Procedure at para HR4.56.05 notes:

HR4.56.05        Striking Out Parties

The approach to be adopted by the Court in relation to applications to strike-out parties is identical with that adopted in relation to applications to strike-out for no cause of action:

McKendrick Glass Manufacturing Co Ltd v Wilkinson [1965] NZLR 717, at p 718. The jurisdiction must be used sparingly and only where it is clear that the plaintiff

cannot succeed:

AMP v Architectural Windows Ltd (1988) 1 PRNZ 655. ................................

[7]      And  in  so  far  as  r  15.1(1)(d)  of  the  High  Court  Rules  is  concerned,

McGechan on Procedure at para HR 15.1.05(1) comments as follows:

HR15.1.05        Otherwise an abuse of process

(1)       Scope — what constitutes abuse?

(a)This category extends past the previous ones to catch all other instances of misuse of the Court’s process. In Ullrich v Ullrich (1996) 10 PRNZ 253, at pp 255-256, Master Venning drew on the summary of the tort of abuse of process in Hanrahan v Ainsworth (1990) 22 NSWLR 73 where Clarke JA, at p 112, said:

“An action … for abuse of the process of the Court will lie where it has been proved that process ancillary to a principal claim for relief has been used to effect an object not within the scope of the process and damage has resulted;”.

In Mobil Oil NZ Ltd v Foxley Engineering Ltd (1993) 7 PRNZ 387 at p 392, Master
Thomson stated:

“In the end, I think that whether abuse of process can be made out will boil down to proof of a defendant’s intent and be determined on the evidence adduced at trial.”

(b)This category does not include a proceeding that appears to lack merit. Thus, a proceeding is not an abuse of process merely because the defendant considers it has a complete defence: Geotherm Energy Ltd v Electricorp Ltd (1991) 4 PRNZ 231 (CA). Rejection of a pre-commencement discovery application on the ground that there was no likelihood of success, does not render the proceeding subsequently

brought an abuse of process: Glaxo Group Ltd v Apotex NZ Ltd [1996] 1 NZLR

628; (1995) 9 PRNZ 131.

Were the Proceedings by PDL Authorised?

[8]      It is common ground between the parties that the directors of a company in receivership retain certain residual powers, including the power to authorise the company to commence a legal proceeding where doing so would not imperil the assets under receivership: Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] 2 All ER 896 at 900. However, authority also exists to support a suggestion that a company that has been caused to bring a proceeding without the authority of its board of directors should be struck out as a plaintiff: Airways Ltd v Bowen [1985] BCLC 355 at 359-360. In that case, it was conceded that there was no authority to bring the proceeding on behalf of the company, with the result that the claim by the plaintiff company was struck out and the proceeding dismissed.

[9]      Here, the receivers note that they have a duty to manage, preserve and realise PDL’s assets and are therefore sufficiently involved in PDL’s affairs to entitle them to bring this application. Reference is made to NZ Mutual Travel Service Ltd v South Canterbury Finance Ltd (2000) 14 PRNZ 459 at [15]-[17] and [33], where Young J considered that an outsider to the company was not in a position to question whether the company was properly authorised to bring the proceedings, and to Downsview Nominees Ltd v First City Corporation Ltd [1993] 1 NZLR 513 at 523, where the Privy Council described the role and duties of receivers.

[10]   The receivers submit that in this case PDL’s constitution reflects the requirements of the Companies Act 1993 with respect to the powers and duties of directors. In particular, reference is made to cl 16.1.1, which provides that the business and affairs of the company must be managed by or under the direction or supervision of the board, and cl 17.7.1, which states that a written resolution signed by the directors is deemed to be as valid and effective as if it had been passed at a board meeting. The receivers here also refer to s 134 of the Companies Act 1993, which provides that a director must not act, or agree to the company acting, in a manner that contravenes the Act or the constitution of the company.

[11]     Before me, the receivers did acknowledge that it may be arguable that the common law allows for a decision of the directors of a company to be made by informal unanimous assent, notwithstanding the requirements of the Companies Act

1993, and notwithstanding provisions in a company’s constitution, for decisions to be made by written resolution in lieu of a board meeting: Haddow Nominees Ltd v Rarawa Farm Ltd [1981] 2 NZLR 16 at 29-30. However, the receivers submit that, even if these requirements are put to one side, it is still unclear whether the proceeding here was properly authorised, because there is conflicting evidence as to whether Mr Garrity agreed to commencement of PDL’s claim.

[12]     On the one hand, there is evidence before me that would seem to indicate in very clear terms that Mr Garrity did in fact authorise commencement of the proceeding. Mr Philip Bremer (“Mr Bremer”), who is one of the plaintiffs’ solicitors, deposes in an affidavit he has filed that he was told by Mr Garrity on 24 June 2010 that he supported the bringing of the proceeding in the name of PDL. Mr Bremer further deposes that he was also informed by Mr Chris Spargo (“Mr Spargo”), Mr Garrity’s own solicitor, that Mr Garrity supported the litigation in the name of PDL. Annexed to Mr Bremer’s affidavit is a letter from Mr Spargo to the plaintiffs’ solicitors, Parker & Associates, dated 22 September 2010, which specifically “reconfirm[s]” authorisation of legal proceedings on 25 June 2010 on behalf of Mr Garrity.

[13]     Similarly,  Mr  Daniel  Parker  (“Mr  Parker”),  solicitor  for  the  plaintiffs, deposes that he had several discussions with Mr Spargo to discuss the claim and to obtain confirmation from Mr Garrity that he authorised the issuing of the proceeding in his capacity as a director of PDL.  Mr Parker says that on 25 June 2010 Mr Spargo confirmed to him that “he had spoken with Mr Garrity and obtained his instructions to authorise me to proceed with the filing of the statement of claim that day”. In addition, Mr McVitty says that “Mr Garrity agreed that it was in the best interests of PDL” to issue proceedings and that they made a unanimous decision to do so.

[14]     However, the receivers’ claim in response that there is conflicting evidence before the Court as to Mr Garrity’s view on this issue, and it is not sufficiently clear whether PDL was properly authorised here to bring the proceeding. On this, the

receivers refer to evidence by Mr Maurice Noone the first named receiver and by a Mr Fletcher Bellamy, who say that they were told by Mr Garrity on 24 August 2010 that he had advised Mr McVitty that it was not in their best interests to commence legal action against the receivers or the BNZ. Mr Bellamy is an accountant who has been assisting the receivers with the receivership of PDL.  In particular, the receivers rely on a file note annexed to Mr Bellamy’s affidavit of the meeting of 24 August which states:

DG (Mr Garrity) also noted that both him and Bob McVitty (BV) get one vote each, as directors of PDL, and that as a result, PDL cannot bring legal action without DG’s consent.

DG noted that he had advised BV that it was not in their best interests to commence legal action (against BNZ or the receivers).

[15]     The receivers submit that, in the absence of a resolution or confirmation by Mr Garrity, it is not possible here for the Court to be satisfied that Mr Garrity properly authorised the proceeding to be brought in the name of PDL. It is submitted that it would be a simple matter for Mr Garrity to provide an affidavit confirming that he authorised PDL to bring the proceeding. Alternatively, it is suggested that a company resolution could now be sought ratifying the commencement of the proceeding.

[16]     The  plaintiffs’  response  is  that  the  absence  of  a  formal  resolution  is immaterial, because the directors of PDL unanimously assented to and authorised the issuing of these proceedings. They submit that there is nothing in the constitution of the  company  or  in  the  Companies  Act  1993  that  requires  a  formal  directors’ resolution for the purposes of authorising commencement of a proceeding, and that a formal resolution would be no more than additional evidence of that authorisation. They contend that it is an issue of “internal management”, and not one which could provide grounds for the present strike out application by the receivers.

[17]     The plaintiffs contend, therefore, that the issue of authorisation simply comes down to a question of fact: Did Mr Garrity authorise commencement of the proceeding? This, they argue, is clearly confirmed by the evidence. They claim that Mr McVitty and Mr Garrity both confirmed their authorisation to the solicitors

instructed to file and serve the proceedings, and that this authorisation is sufficiently supported by the evidence, in the form of the letter from Mr Spargo to Parker & Associates and as set out in the affidavits of Mr Parker and Mr Bremer. They argue that it is of no consequence that there is no further affidavit from Mr Garrity, and that it is also irrelevant whether Mr Garrity may subsequently have “lost his nerve”. With respect to this latter argument, the plaintiffs emphasise that Mr Bellamy’s file note does not expressly state that Mr Garrity did not authorise the proceeding (it merely notes that Mr Garrity had advised Mr McVitty that it was not in their best interests to commence legal action). Moreover, the note was dated 24 August 2010, and the proceedings were issued in June.

[18]     Turning now to consider these competing arguments, the first matter to be determined is the receivers’ argument that authority for commencement of the proceeding  should  have  been  properly  recorded  in  a  written  resolution.  This argument  can  be  disposed  of  briefly.  Although  I  acknowledge  that  a  written resolution would have avoided any dispute as to authority, I consider that an agreement of directors to bring legal proceedings remains effective despite the absence of such a resolution. Authority for this proposition can be found in Haddow Nominees Ltd v Rarawa Farm Ltd, as referred to by the receivers, and Equiticorp Financial Service Limited v Ararimu Holdings Limited HC Auckland CP2323/89, 5

December 1990.  In this latter case the Court held at 55 that: “the effectiveness of the expressed will of the majority of the members of the board is not diminished by the absence of a formal resolution being put and voted upon”.

[19]     As to the receivers’ ability to raise the issue of authority, I note Young J’s comments in New Zealand Mutual Travel Service Ltd v South Canterbury Finance Ltd at [17] that the Courts are “entitled to be sceptical” where a defendant who is not “involved in the affairs of the ostensible plaintiff” complains that a claim should be stayed because the directors of the plaintiff were irregularly appointed:

Although I recognise that a defendant is, therefore, entitled to raise an issue whether the plaintiff has, in fact, authorised the proceedings in question, Mr Cunliffe, for South Canterbury Finance Ltd, was not able to cite a single case to me where a defendant has successfully asserted that a claim should be stayed because those who are ostensibly the directors of a plaintiff company were irregularly appointed. This is hardly surprising. It is one thing for such an argument to be advanced by those who are, or claim to be, the shareholders of the company concerned. It is rather different

when that assertion is made not by the shareholders but rather on behalf of an alleged debtor of the company (which is broadly the position of the defendant here). So, in cases where the complaint comes not from those who are involved in the affairs of the ostensible  plaintiff  but  rather  from  the  defendant,  the  courts  are  entitled  to  be sceptical.

[20]     Although the receivers in the present case here could not be regarded as an “outside” party, I would hesitate to liken their position to that of concerned shareholders, given that their status is that of agents of the company as managers of BNZ’s security. Nevertheless, it seems to be sufficiently clear that a defendant is generally  entitled  to  raise  as  an  issue  the  question  whether  the  plaintiff  has authorised the proceedings: see New Zealand Mutual Travel Service Ltd v South Canterbury Finance Ltd at [16]-[17]. As noted in Body Corporate 182040 v Coleridge Limited HC Auckland CIV-2002-404-1665, 23 December 2008 at [26], a defendant may “challenge the ‘deemed’ authority of a solicitor [pursuant to r 5.37] to issue or continue a proceeding, provided there is some reasonable ground for doing so”. That statement was made in the context of a proceeding brought by a body corporate, but I would consider it to be equally applicable to the plaintiff companies here.

[21]     The only issue, therefore, is whether the proceeding was authorised by Mr Garrity. This is a question of fact. I consider that in the present case it is for the receivers to show a clear basis for putting authority in issue: cf Body Corporate

182040 v Coleridge Limited at [17]. On the evidence that is before the Court, there is little doubt in my view that Mr Garrity did authorise commencement of the proceeding. There are clear statements to this effect from Mr Parker and Mr Bremer, and Mr Spargo’s letter of 22 September 2010 is expressed in unambiguous terms.

[22]     The evidence relied upon by the receivers, on the other hand, is vague. First, Mr  Garrity did  not  say that  it was  not  in the best  interests  of the  company  to commence legal action. It is possible that Mr Garrity does (or did) not consider it to be in his or Mr McVitty’s best interests to bring the proceeding, but  any such concerns cannot be relevant here.   Secondly, if Mr Garrity’s statements are to be interpreted in the way suggested by the receivers, they are in direct conflict with the representations made by his solicitor, Mr Spargo. Given that these latter communications took place for the sole purpose of authorising the proceeding, I

consider there to be little merit in speculating why Mr Garrity may have voiced the concerns that he did at that later point on 24 August 2010.

[23]     I acknowledge the receivers’ submission that it would be a simple matter for Mr Garrity to provide an affidavit to confirm that he authorised the proceeding. However, given that one could normally have expected Mr Garrity here to challenge the company’s authority to bring this claim if he had not consented at the time to the proceeding going ahead, it is somewhat telling that Mr Garrity has not provided an affidavit voicing any objection to the proceeding. Overall, I am satisfied on the evidence available that there was – and that there continues to be - authority by both Mr Garrity and Mr McVitty to bring the proceeding.

[24]     That is sufficient to dispose of the receivers’ strike-out application here.  It is dismissed.

Adequacy of Indemnity

[25] Turning now to the receivers second application noted at [1] above, they submit that in their capacity as receivers of both companies, they cannot be satisfied that MPL and PDL are adequately indemnified against any liability for costs in this proceeding, and that the causes of action brought by the two companies should be stayed pending provision of adequate indemnities or security. This submission is based on the long-standing principle that the directors of a company in receivership may bring a proceeding provided that the company is indemnified against any liability for costs in connection with the proceeding. The purpose of such indemnities is to ensure that the proceeding does not impinge prejudicially on the assets which are subject to the charge: Newhart Developments Ltd v Co-operative Commercial Bank Ltd [1978] 2 All ER 896 at 900-901; Paramount Acceptance Co Ltd v Souster [1981] 2 NZLR 38 at 43.

[26]     Mr McVitty has given personal indemnities here in favour of MPL and PDL for all costs and liabilities arising in this proceeding. The receivers contend however, that in order to satisfy themselves as to the adequacy of Mr McVitty’s indemnities, they require him to produce a verified statement of his personal assets and liabilities.

They  argue  that  they  are  responsible  for  ensuring  that  MPL  and  PDL  are satisfactorily indemnified and thus, if necessary, to properly challenge the adequacy of indemnities given in favour of the companies.  On this, they refer to Brooklands Motor Co Ltd (in rec) v Bridge Wholesale Acceptance Corp (Australia) Ltd (1993) 7

PRNZ 136 at 138-140, Deangrove Pty Ltd (recs and mgrs apptd) v Commonwealth Bank of Australia (2001) 37 ACSR 465 at 474-475, and Gartner v Ernst & Young (2003) 21 ACLC 560 at 566-7.

[27]     The cited authorities all confirm the principle in Paramount that directors retain a residual power to commence a proceeding in the name of a company in receivership, without the receiver’s consent, so long as the company is indemnified against any liability for costs. In Brooklands Motor Co Ltd (in rec) v Bridge Wholesale Acceptance Corp (Australia) Ltd, Thomas J considered that it was the receivers who had the responsibility to ensure that the proceeding did not prejudicially  impinge   on   the   debenture   holder’s   interests   by  threatening  or imperilling the assets which were subject to the charge (at 139). As such, the indemnity provided must be “satisfactory”: see Deangrove Pty Ltd (recs and mgrs apptd) v Commonwealth Bank of Australia at [40]-[42].

[28]     Mr McVitty in his affidavit deposes that he owns or has access to “substantial assets that are capable of satisfying any costs and liabilities that I may be required to pay in terms of the indemnities that I have provided”. He refers to properties with alleged total net equity of $12,185,000.00. In particular, he says that he and his wife own properties with estimated net equity of $2,675,000.00 as partners of the R J and M H McVitty Partnership, and that he is a trustee and beneficiary of the R J McVitty Trust, which owns properties with an estimated net equity of $9,510,000.00.

[29]     The  receivers  have  a  number  of  concerns  regarding  this  information, however.  These concerns include the fact that Mr McVitty does not appear to be a beneficiary of  the  Trust;  that  there  are  no  registered  valuations  of  the  relevant properties; that both the Trust and the Partnership have already given substantial guarantees  to  the  BNZ;  that  MPL  currently  faces  a  deficit  of  more  than

$17,000,000.00 which would entirely erode the assets of the Partnership and the

Trust if the guarantees were called on; and that also both Mr McVitty and his wife have given substantial guarantees in favour of the BNZ.

[30]     Consequently,  the  receivers  argue  first,  that  Mr  McVitty  does  not  have access, as claimed, to $12,185,000.00 worth of net assets to satisfy his personal indemnities to MPL and PDL, and secondly, that, even if he did have net assets of

$12,185,000.00, those assets would be eroded entirely as a result of the guarantees. The receivers seek a joint and several indemnity from Mr McVitty and Mr Garrity in favour of PDL, together with verified statements of assets and liabilities to the receivers’ satisfaction.

[31]     For the plaintiffs, it is submitted that there is no requirement for all directors of  a  company in  receivership  to  provide  an  indemnity,  and  that  Mr  McVitty’s indemnity on behalf of PDL and MPL is sufficient to enable the proceedings to be brought by the companies in receivership through their directors.   The plaintiffs contend  that  the  receivers’  concerns  as  to  Mr  McVitty’s  financial  position  are entirely speculative and that Mr McVitty is not required to provide the requested statement of personal assets and liabilities verified by statutory declaration to support the indemnities. They submit that the receivers have not provided any authority for their contention that such a statement is required.

[32]     The receivers argue further that if they cannot be satisfied that Mr McVitty has sufficient personal resources to meet the indemnities, it is appropriate for supporting security to be provided.  Reference is made here to Deangrove Pty Ltd (recs and mgrs apptd) v Commonwealth Bank of Australia at 475, where Sackville J held as follows:

[46] ... orders have been made in some cases restraining directors of companies in receivership from conducting proceedings in the name of the company without first indemnifying the company and providing security for that indemnity: Charmae Investments v  ANZ  Bank,  at  52,003-4; NEC  Information Oysters v  Lockhart. In Phillips Oysters v NAB, Lockhart J dismissed the proceedings because the corporation was “hopelessly insolvent” and neither director had any assets to meet an indemnity against costs.

[47] In my view, the governing principle is that those giving instructions on behalf of Deangrove, in order to continue the proceedings, must demonstrate that “nothing in the course of the proceedings which they institute is going in any way to threaten the interests of the debenture holders”: Newhart Developments, at 821. Had there been

evidence that Mr Jeans has sufficient resources to satisfy an indemnity, it might not be necessary for any security to be provided in support of the indemnity. But no such evidence  has  been  adduced.  Nor  is  there  evidence  as  to  Deangrove’s  financial position. In these circumstances, it seems to me that Mr Jeans should provide appropriate security to support his indemnity to Deangrove if the company is to pursue its claim against CBA.

[33]     A  possible  entitlement  to  security  to  support  an  indemnity  was  also apparently envisaged in GE Capital Commercial Finance Limited v Sutton [2004] EWCA Civ 315, where the Court of Appeal observed that:

51. ... It is, we suspect, a necessary feature of cases, such as this — where all the assets of the company are charged to the debenture holder, who does not consent to the action being brought — that the director will have to find outside funds. Further, nothing that we have said should be taken to suggest that the defendant would not be entitled to seek an order that the claimant company provide, from outside funds, security for its (the defendant's) costs.

[34]     In the present case, the plaintiffs seek to distinguish Deangrove on the basis that, unlike the provider of the indemnity in that case, Mr McVitty has adduced evidence that he has sufficient resources to satisfy the indemnities he has provided. It is  submitted  that  the  indemnities  provided  are  sufficient  to  ensure  that  the proceedings will not “in any way impinge prejudicially upon the position of the debenture holders by threatening or imperilling the assets which are the subject of the charge”. The plaintiffs further argue that a receiver has no automatic right to require directors to post security for costs in support of an indemnity in the manner requested here.

[35]     In  my view,  the  main  issue  that  is  facing  the  plaintiffs  here  is  that Mr McVitty’s indemnities, combined with his affidavit, do not provide sufficient assurance  that  the  proceeding  will  not  threaten  or  imperil  the  assets  of  the companies. I accept the receivers’ assertion that Mr McVitty’s affidavit leaves significant doubt as to Mr McVitty’s ability to indemnify the companies against any costs ordered. These doubts could be removed by an appropriate and verified statement of assets and liabilities, or alternatively by the provision of proper security. I adopt the reasoning of Sackville J in Deangrove at [47] that the “governing principle” is that the directors must demonstrate that the proceedings will not “threaten the interests of the debenture holders”. As such, in my judgment, an order for security for costs might ultimately be needed here.

[36]     However, I also take the view that Mr McVitty should first be afforded the opportunity to provide adequate evidence of his ability to support and satisfy the indemnities provided. This evidence should take the form of a verified statement of assets and liabilities. If no such evidence is provided, an order for security will necessarily follow. I do not think that an indemnity from Mr Garrity is necessary. In fact, the source of the indemnity, provided it is adequate, would not seem to me to be material.

[37]     As to quantum, the receivers submit that security in the order of $250,000.00 each for PDL and MPL would be adequate here. Presumably, the receivers would therefore also be unwilling to accept a statement of assets and liabilities that shows net equity of less than $500,000.00. The plaintiffs contend that this figure is excessive,  and  that  the  potential  costs  incurred  are  not  nearly  as  significant  as claimed by the receivers. They argue that the receivers are in a position to control any internal costs incurred by the companies and that, to some extent, a costs award in favour of the defendants would have a circular effect.

[38]     The receivers, on the other hand, argue that the potential exposure to MPL and PDL for costs in this proceeding is considerable, as they will be required to pay the actual legal costs of their own solicitors, their share of any adverse costs award against the plaintiff in favour of the receivers and the BNZ, trial hearing fees, expert witness  fees,  and  the  receivers’  actual  unrecovered  costs  of  defending  the proceeding. The receivers argue that, given that the statement of claim alleges four distinct causes of action spanning a period of more than ten years, discovery is likely to be substantial and a trial may take some weeks. The resulting costs, therefore, will be potentially significant.

[39]     Although  I  accept  the  receivers’  submission  that  the  proceeding  has  the potential to give rise to substantial costs and costs awards, I agree with the plaintiffs that a figure of $500,000.00 is – at least for now – excessive. Instead, I would consider a total amount in the region of about $200,000.00 and perhaps some staging of payment or security, to be more appropriate. If concerns arise at a later stage that this sum is insufficient to avoid the risk of imperilment of the companies’ position, further security could still be ordered.

[40]     It  follows  from  these  conclusions  that  the  plaintiffs  and  Mr  McVitty  in particular need to provide verified statements of assets and liabilities that are to the satisfaction of this Court. If the Court takes the view that the statement/s are not adequate or leave doubts as to Mr McVitty’s or the plaintiffs’ ability to satisfy any indemnities given, an order for security is then to be considered.   In that event, further submissions will be necessary to determine the amount of that security and what form the security should take.  At that point, it would also need to be decided whether security should be staged.

[41]     Finally, I also note the receivers’ concern expressed at the hearing before me that  the  form  of  indemnity currently signed  by  Mr  McVitty in  favour  of  PDL contemplates a joint and several indemnity by both Mr McVitty and Mr Garrity. They consider that it would be unsafe to rely on that indemnity in its current form, given that Mr Garrity has not (and will not) provide an indemnity. This irregularity can be easily remedied.  Ultimately an order to deal with this aspect can follow.

Conclusion

[42]     As I have noted at [24] and for the reasons outlined above, the receivers’

application to strike-out the claim by PDL here is dismissed.

[43]     As to the receivers’ application to stay the causes of action brought by PDL

and MPL, the application succeeds in part, and the following orders are now made:

(a)       An order is made staying the causes of action brought by PDL and by

MPL in this proceeding until:

(i)Mr  McVitty,  a  director  of  PDL and  of  MPL  provides  the receivers and this Court with a signed indemnity under which Mr McVitty is liable to PDL and MFL in respect of all costs and liabilities that may be incurred by PDL and MFL in this proceeding;

(ii)Mr  McVitty  provides  the  receivers  and  this  Court  with  a statement of his personal assets and liabilities verified by statutory declaration to the reasonable satisfaction of the receivers and this Court;

(iii)Mr McVitty provides total security of an amount and upon terms  to  the  satisfaction  of  the  Court  in  respect  of  the indemnity he has given.

(b)A further order is made granting leave to the receivers, to Mr McVitty and to the plaintiffs to apply to the Court on no less than three days notice in relation to any issues arising out of this decision or the

subject matter of this application.

Costs

[44]     As to costs each party has been partially successful in bringing or opposing the present application.   If costs are in issue, and counsel are unable to agree the issue between themselves, they may file memoranda on costs sequentially and, in the absence of either party indicating they wish to be heard on the question, I will decide costs on the memoranda filed and the other material before the Court.

‘Associate Judge D.I. Gendall’