Monnery v Parsons

[2018] NZHC 3414

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2018-485-482

[2018] NZHC 3414

BETWEEN

PAUL MARK MONNERY

First Plaintiff

PAUL MARK MONNERY and JULIE ANN MONNERY

Second Plaintiffs

AND

ANDREW GRAHAM PARSONS

First Defendant

JOHN MURRAY CREIGHTON
Second Defendant

BRUCE GORDON COPELAND
Third Defendant

KURT BREDENBECK

Fourth Defendant

MURRAY CHARLES PARSONS
Fifth Defendant

Continued over

Hearing:

26 November 2018

Appearances:

C Carruthers QC and J Tizard for plaintiffs

P Chisnall and J Haig for first and sixth defendants G Bogiatto for fourth, fifth and ninth defendants

D J Chisholm QC and J Ryan for third, seventh and eighth defendants

Judgment:

19 December 2018

JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

MONNERY v PARSONS [2018] NZHC 3414 [19 December 2018]

AND

PUSH DEVELOPMENTS LIMITED

Sixth Defendant

SANDFIELD ASSOCIATES LIMITED
Seventh Defendant

SANDFIELD VENTURES LIMITED
Eighth Defendant

P K B INVESTMENTS LIMITED

Ninth Defendant

Introduction

[1]    The first plaintiff, Paul Mark Monnery, and the second plaintiffs, Mr Monnery and Julie Ann Monnery jointly, sue the first to ninth defendants in relation broadly to the failure of a company by the name of Convendium Ltd, which was incorporated in June 2005 and removed from the register in November 2017.1 Since 2006 the company has focussed on developing and marketing technology for operating cashless vending machines. The parties to this proceeding are mostly investors in that failed venture. Another company, Eftpos Vending Ltd, was also involved in the venture as a licensee for the cashless payment system. It was incorporated in December 2013 and placed into liquidation by this Court in April 2018.

[2]    Mr and Mrs Monnery jointly were the trustee owners of shares in Convendium and Eftpos Vending. Mr Monnery was the sole director and the person with day-to- day responsibility for the management of the  business.  The  second  defendant, John Murray Creighton, an associate of Mr Monnery, also became a trustee shareholder in, and later the director of, Convendium. The sixth defendant, Push Developments Ltd, a provider of cash operated vending machines, also became a shareholder in Convendium and Eftpos Vending. The first defendant, Andrew Graham Parsons, is the shareholder and director of Push Developments. The ninth defendant, P K B Investments Ltd, became a shareholder in Convendium and Eftpos Vending. The fourth defendant, Kurt Bredenbeck, is P K B’s shareholder and director. The fifth

1      It was later restored to the register in November 2018.

defendant, Murray Charles Parsons, is the first defendant’s father. He advanced funds to Eftpos Vending. The third defendant, Bruce Gordon Copeland, is a shareholder and director of the seventh and eight defendants. The seventh defendant, Sandfield Associates Ltd, developed the software for Convendium that is at the heart of this proceeding. The eighth defendant, Sandfield Ventures Ltd, became a shareholder in Convendium.

[3]    The plaintiffs’ statement of claim dated 4 July 2018 is not a spare document. It extends to some 20 pages and 90 paragraphs. It traverses Convendium’s history in some detail. I have not found it especially easy to discern from the statement of claim the precise bases for the plaintiffs’ claims against the defendants. However, under the heading “CAUSES OF ACTION”, the plaintiffs allege that:

(a)each of the defendants intentionally caused the plaintiffs economic harm by unlawful means; and

(b)were all complicit in a conspiracy to injure the plaintiffs’ economic interests.

[4]    Before me for determination are applications pursuant to  r  5.45  of  the  High Court Rules 2016 for orders for security for costs against the plaintiffs by:

(a)the first and sixth defendants;

(b)the third, seventh and eighth defendants; and

(c)the fourth, fifth and ninth defendants.

[5]    The applicants’ written submissions suggest that each of the three applications are independent, in which case the total security being sought would be $350,000 ($100,000 in the case of the first and sixth defendants; $125,000 in the case of the third, seventh and eighth defendants; and $125,000 in the case of the fourth, fifth and ninth defendants). That was certainly how the plaintiffs understood things. However, during the course of argument, Mr Chisnall for the first and sixth defendants informed

me that the three groups of defendants seek only one order. If I have misunderstood Mr Chisnall, then I record that it would not affect the conclusions I have reached.

[6]The plaintiffs oppose these applications.

Security for costs

[7]Rule 5.45(1) and (2) provide:

5.45     Order for security of costs

(1)Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—

(a)that a plaintiff—

(i)is resident out of New Zealand; or

(ii)is a corporation incorporated outside New Zealand; or

(iii)is a subsidiary (within the meaning of section 5 of the Companies Act 1993) of a corporation incorporated outside New Zealand; or

(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 for costs.

[8]    The authorities are clear that applications for security for costs are to be approached in three stages:2

(a)the first question is whether the threshold test in r 5.45(1) is met, or in other words, whether the applicant can establish that the rule applies;

(b)if the threshold is met, then the second question is whether it is just in all the circumstances to make an order for security for costs; and

2      Busch v Zion Wildlife Gardens Ltd (in rec and in liq) [2012] NZHC 17.

(c)if the Court so concludes, then the third question is the nature of the order that should be made — orders must be tailored to the particular circumstances of the case.

The threshold question

[9]    There is no doubt that the threshold test is met here. The plaintiffs do not contend otherwise. They acknowledge that their financial positions are such that they would be unable to meet an award or awards of scale costs in the event their claims were unsuccessful.

[10]I move directly to the second stage of the analysis.

Whether an order would be just in the circumstances

[11]   For the plaintiffs, Mr Carruthers invited me to approach this, the key issue for determination, in the manner proposed by Kós J in Highgate on Broadway Ltd v Devine.3 I accept that the approach suggested in that case is a helpful one.

[12]   The starting point, at least in a case such as this where it is common ground that the threshold test is met because the plaintiffs are impecunious, is a recognition that the plaintiffs’ impecuniosity effectively opens the door to an order for security for costs.

[13]   However, as Kós J observed in Highgate on Broadway, impecuniosity itself is insufficient. All it does is establish that an order for security for costs would be justified if favoured by other factors. In this regard, Kós J referred to Zuckerman on Civil Procedure, where Professor Zuckerman emphasised the fundamental importance of access to justice, how the jurisdiction of the Court to make orders for security for costs places a constraint on that, and that the Court must look to balance a plaintiff’s right of access to justice against a defendant’s right to be protected for costs.4 This

3      Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017.

4      Adrian Zuckerman Zuckerman on Civil Procedure (2nd ed, Sweet and Maxwell, London, 2006) at 380.

balancing exercise informed Kós J’s analysis of the primary factors for and against the making of an order.

Considerations in favour of making an order

[14]   Kós J first identified a series of questions, affirmative answers to which would favour the making of an order.

[15]   As Mr Carruthers submitted the first two such questions are irrelevant here. The first is whether the plaintiff is a nominal party only, put up to insulate the real claimant from any costs award. The second is whether there is evidence of the plaintiff taking steps to guard against any costs award by, for example, disposing of assets. I accept that these factors have no application in this case. The plaintiffs are not nominal litigants. There is no evidence that they have taken steps to insulate themselves from any costs award.

Apparent merits of the claim

[16]   The next question is whether it is apparent that the claim is lacking in merit. I use the term “apparent” because, as all of the authorities say, a Judge dealing with an application for security for costs at the interlocutory stage of the proceeding is only ever able to gain an impression as to the merits.

[17]I have already I identified the causes of action being relied on by the plaintiffs.

[18]   The first pleaded cause of action — intentionally causing economic harm by unlawful means — requires a plaintiff to establish:5

(a)an intention to cause the plaintiff economic harm; and

(b)interference, by unlawful means, with the economic interests of a third party with whom or which the plaintiff shares an economic interest; and

(c)casually linked loss.

5      Van Camp Chocolates Ltd v Aulsebrooks Ltd [1984] 1 NZLR 354 (CA).

[19]   In order to succeed on their second cause of action – conspiracy to injure economic interests – the plaintiffs will have to establish:6

(a)an agreement between two or more of the defendants to injure the plaintiffs’ economic interests;

(b)that steps were taken by the parties to that agreement in furtherance of that objective, which may be lawful or unlawful; and

(c)causally linked loss.

[20]   Both causes of action present particular difficulties. To illustrate this, it is only necessary to focus on one component of the tort of intentionally causing economic harm by unlawful means. A defendant does not commit this tort merely by acting unlawfully and thereby causing harm to the plaintiff. To commit this tort, it must be the intention of the defendant to cause economic harm to the plaintiff. He, she or it must act for that purpose. So, for example, a defendant acting unlawfully for purely selfish reasons to further his, her or its own interests, and incidentally causing harm to the plaintiff in the process, does not commit this tort because he, she or it did not act with the requisite intention.

[21]   Against that background it is necessary to examine — admittedly reasonably briefly — the claims advanced by the plaintiffs here. In the course of argument counsel described the plaintiffs’ case in different ways. In the end, I regard the proper focus as being the claim as currently pleaded. Both causes of action are particularised in identical terms – and as follows:

84.The Defendants have utilised the assets of Convendium and Eftpos not for the benefit of those companies and their shareholders but for their own personal benefit so as to constitute a misuse of the confidential information of Convendium and Eftpos.

85.Such conduct was intended to and did cause loss to the Plaintiffs, and the other minority shareholders of Convendium.

6      PTY Homes Ltd v Shand [1968] NZLR 105 (SC).

Particulars of pargraphs 84 and 85

85.1To achieve such end, Murray C wrongfully asserted a right for Monitor Business Machines Limited (Creighton Investments Ltd) to use the software developed by Sandfield for Convendium.

85.2Contrary   to   the   acknowledgement   given   by   Sandfield   on   23 September 2009 that Convendium was the owner of the software and associated intellectual property Sandfield had developed for Convendium, Sandfield, supported by the other Defendants, asserted ownership of that software and associated intellectual property;

85.3Andy, Kurt and Murray P conspired to obtain a copy of the source code and associated intellectual property owned by Convendium to enable Eftpos to change the Pin Pads on the vending machines operated by Eftpos and Push so as to divert the share of the revenues to which Convendium was entitled to Eftpos, Push and/or such other entities as they may have established and further diverted such revenues from Eftpos to deny any benefit to the Plaintiffs;

85.4Eftpos, Push and/or such other entities as Andy, Kurt and Murray P may have established published and distributed under the name “Carnival Payments” brochures and promotional material, website and telephone number identical in all but name to that used by Convendium and copied from Convendium’s Festival Payments promotional material, website and telephone number;

85.5Eftpos, Push and/or such other entities as Andy, Kurt and Murray P may have established copied a cashless laundry solution developed jointly by Convendium and Speed Queen and, without the permission of either Convendium or Speed Queen, promoted and operated it through Gooder Equipment in Auckland and Christchurch;

85.5 From April 2016, Murray C diverted the revenues due to Convendium from Speed Queen and persons using the Speed Queen system to Creighton IT, an entity he controls and owns.

[22]   On the basis of those particulars, the plaintiff’s case can be summarised in this way:

(a)Convendium was the owner of the software necessary for the operation of the cashless vending machine system it was marketing, that software having been developed for it by the third, seventh and eighth defendants;

(b)each of the defendants, individually, and in combination, formed an intention to cause economic harm to the plaintiffs, presumably in their capacities as shareholders in the case of the second plaintiffs (loss of

share value), and in his capacity as a director and employee in the case of the first plaintiff (loss of income); and

(c)in order to inflict that economic harm, the defendants denied Convendium’s ownership of the software, asserting that the third, seventh or eighth defendants owned the same and unlawfully involved themselves in usurping that software and employing it other than for Convendium’s benefit.

[23]   I acknowledge at once that that is an over simplification of the plaintiffs’ case. However, it appears to me to describe the core claim as pleaded and to be a proper basis on which to consider its strengths and weaknesses.

[24]   At a corresponding level of generality, the following themes emerge from the submissions made on behalf of all three groups of defendant applicants:

(a)they say that, pursuant to the contractual arrangements between Convendium and the third, seventh and eight defendants, property in the software never passed to Convendium because the company did not pay for it;

(b)they say that, far from conspiring with each other, they can be demonstrated to have been discordant, except to the extent that, following a meeting on 16 March 2015 they concluded — on good grounds — that Convendium was  unlikely  to  be  successful,  that  Mr Monnery was incapable of managing the company successfully and that he should be replaced. Although that was a view generally held amongst the defendants, the conclusion to replace Mr Monnery was one that was forced upon them because Mr Monnery effectively abandoned his role as a director and manager;

(c)they say that, each individual defendants’ actions, and any apparent collective actions on their part, were motivated not by any intention to harm Convendium, in which several of the defendants were themselves

shareholders, and much less by any intention to harm the plaintiffs, but out of self-interest to protect their investments in Convendium to the extent that it was possible, or at least to salvage what they could;

(d)they say that, to the extent that the plaintiffs suffered any loss, this resulted from Convendium’s failure, which was certainly not something that they desired or welcomed any more than the plaintiffs themselves; and

(e)they say that, in any event, those losses are overstated (for example because Convendium was never capable of meeting the solvency test in s 4 of the Companies Act 1993 and yet Mr Monnery overdrew his shareholder current account to the extent of approximately $500,000).

[25]   The affidavit evidence filed in support of and in opposition to these applications contains a considerable amount of material and counsel referred me to aspects of this during the course of the hearing. In my judgement, it would not assist to traverse that material here.

[26]   My sense is that the plaintiffs’ claim faces significant difficulties. For a start, it is not at all obvious that they will be able to establish that any of the defendants formed the necessary intention to cause them economic harm. Nor is it clear that the defendants acted in concert. Such evidence as is before the Court at this stage suggests that Convendium was obliged to pay for the software before it could claim ownership, and it is quite clear that it did not do so. None of that is to say that the plaintiffs’ case is doomed to fail. Even on their current pleading, they may be able to establish that one or more of the defendants formed the necessary intention and either individually or collectively took steps to cause the plaintiffs economic harm. And of course, the conspiracy cause of action does not necessarily require unlawful action on the part of the conspirators. Moreover, it is obvious that there is scope for recasting the aspects of the case, and interlocutories may put in a new complexion on aspects of the case. However, on balance, the impression I have at this stage is that the claim is not strong.

[27]   In summary then, this is certainly not one of those cases where the plaintiffs’ claim is so obviously meritorious that the Court ought to ensure that an order for security for costs does not prevent it coming to trial, but nor, in my view, is the plaintiffs’ case capable of being categorised as entirely without merit.

Third party funding

[28]   The fourth question that Kós J identified is whether the plaintiff has access to third party funding. There is no evidence in relation to this. During the course of the hearing I put Mr Carruthers in an awkward position by asking him how the plaintiffs are funding this litigation. He was of course obliged to respond, and it would seem from what he said, which of course I accept without question, that the only assistance that the plaintiffs are receiving is from their solicitors and counsel, in the sense that they regard themselves as having a responsibility to ensure that the plaintiffs are not prevented from proceeding by an inability to pay fees.

[29]   In the end, this is not a factor that in my view should influence the outcome of the defendants’ applications.

Oppression of applicants

[30]   The fifth question Kós J identified is whether declining to order security for costs would be oppressive from the perspective of the applicant. His Honour put the point as follows:7

Security for costs is relatively exceptional. Where it is likely to result in the denial of access to justice, it is entirely exceptional. But in some situations to allow litigation to proceed without the checks and protection of security will be oppressive to the interests of other parties, particularly where the litigation is unjustified or unmeritorious, over-complicated or unnecessarily protracted.

[31]   Although I have reached the view that the plaintiffs’ claim faces serious difficulties, my view is that it would be going too far to conclude, at least at this stage, that their claim falls into the category of litigation described in that passage.

7      Highgate on Broadway Ltd v Devine, above n 3, at [22](e).

Considerations against making an order

[32]   Kós J then turned to considerations that may count against an order being made in relation to an impecunious plaintiff.

[33]   The first of these is whether it is reasonably probable that the plaintiffs’ impecuniosity was caused by the defendant. In a sense, this is the reverse of the question posed earlier as to the merits of the plaintiffs’ claim.

[34]It will already be apparent that I am not prepared to conclude that it is probable

— reasonably or otherwise — that the defendants’ actions resulted in the plaintiffs’ impecuniosity.

[35]   The second question is whether an order for security for costs of anything other than a nominal amount would likely have the effect of preventing a plaintiff from being able to advance a prima facie meritorious claim. In relation to this, Kós J said:8

Only where a clear impression can be formed that the plaintiff’s claim is altogether without merit – so that in the alternative it would be amenable to being struck out – would it be right for security to be ordered where to do so would bring the plaintiff’s claim to dead halt. In cases where the claim is being seriously misconducted (with undue complexity or expense), security orders short of effective termination of the claim may be appropriate. As the Court of Appeal said in McLachlan, “access to the Courts for a genuine plaintiff is not lightly to be denied.”

[36]   A consideration that makes balancing the interests of the parties particularly difficult in this case is that the plaintiffs have elected not to put in any evidence as to their financial positions. In those circumstances, I do not think I can properly infer that the plaintiffs are unable to put up any amount of security for costs or that an order would prevent them from pursuing this litigation. Having regard to the material before the Court I do not think I can go any further than concluding that an order for security for costs against the plaintiffs in this case will make it more difficult for them to pursue their claim.

8      Highgate on Broadway Ltd v Devine, above n 3, at [23](b), citing McLachlan v MEL Network Ltd

(2002) 16 PRNZ 747 (CA) at [15].

[37]   The final question identified by Kós J is whether the application for security has been unduly delayed.

[38]No suggestions were made along those lines in the present case.

The costs risk

[39]   In their submissions, counsel for the defendants suggested that if this case were to go to trial it would take four weeks. I am not convinced that that is right. It is obvious that there is room for the repleading of the case in a more focussed way. In turn that should bring the areas in respect of which factual evidence will be necessary into a narrower and more controlled compass. Whilst it seems to be common ground that there will need to be expert accounting evidence, I would have thought that that would require only one expert witness from the plaintiffs’ perspective and one from that of the defendants. Even then, if the issue is the solvency of Convendium whilst  it remained a going concern and possibly some analysis of its prospects in different scenarios, there may well be grounds for optimism that two experienced accountants could, by conferring, narrow the technical accounting issues. Obviously, interlocutories including discovery and interrogatories are potential tools for refining the real issues. Finally, I would have thought that there is every reason for thinking that a good level of cooperation between the defendants would ensure that there was no duplication as between their evidence and submissions.

[40]   My strong sense is that with careful case management and a reasonable level of cooperation between the parties this case is one that could be disposed of within 5-10 days. On that basis, scale costs are likely to be closer to the $50,000–$75,000 range than the $100,000–$125,000 range on which all three groups of defendants focussed.

Conclusion

[41]   The view I have reached, balancing what I see as the legitimate interests of the plaintiffs in having access to the Court, and those of the defendants in obtaining protection in respect of their costs, is that justice will be served if I make a modest, staged order for security for costs.

[42]   The three considerations that have weighed most heavily on me in reaching the conclusion I have are:

(a)my impression that the plaintiffs’ case faces considerable difficulties but is not capable as being categorised as entirely hopeless;

(b)the fact that the plaintiffs have elected not to offer evidence as to their financial position; and

(c)my sense that the case, properly managed, and with an appropriate level of cooperation between parties and amongst the defendants, is capable of being disposed of at trial in between and five and ten working days, meaning that the cost risks that the defendants are running are not quite as significant as they suggest.

Terms of order

[43]That brings me to the third aspect of the three-stage test, the form of any order.

[44]   My starting point is that an important consideration is to ensure that both the plaintiffs and the defendants know where they stand. The plaintiffs are entitled to know before proceeding further that there will come a point in the litigation when they are required to pay security for costs. For their parts, the defendants are entitled to know as costs are incurred what measure of protection they will have.

[45]   In this case, I take the view that it would not impose an unreasonable burden on the defendants to expect them to proceed through the core interlocutory stages of the proceeding without having any protection for their costs.

[46]   With those considerations in mind, I have concluded that the appropriate outcome in this case would be orders that the plaintiffs provide security for costs in the sum of $25,000 following the core interlocutory stages of the proceeding, when the matter is set down for trial, and a further $25,000, three months out from the trial. I identify both of those dates as being immediately prior to periods during which the parties will be required to commit significant resources to the litigation.

Result

[47]On those bases, I make the following orders:

(a)pursuant to r 5.45, I direct that the plaintiffs are to provide security for the defendants’ costs by paying the following sums (on account of the costs of all defendant applicants) to the Registrar of the High Court at Wellington:

(i)$25,000 upon the case being set down for trial;

(ii)$25,000 three months prior to the commencement of the trial.

(b)pursuant to r 5.45(3)(b), if those amounts remain unpaid after they have fallen due for payment, the plaintiffs’ case will be stayed until such time as they are paid.

Costs

[48]   The costs of this application are reserved. If counsel are unable to settle these they may come back by memorandum and I will deal with them on the papers.

Associate Judge Johnston

Solicitors:

Oakley Moran, Wellington for plaintiffs
Macalister Mazengarb, Wellington first and sixth defendants

Claymore Partners Ltd, Auckland for third, seventh and eighth defendants George Bogiatto, Auckland for fourth, fifth and ninth defendants