Morrell v World Solar Ltd

[2018] NZHC 518

IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY

I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE

CIV-2017-425-000121 [2018] NZHC 518

UNDER

Section 174 of the Companies Act 1993

BETWEEN

ALLEN GODFREY MORRELL

Plaintiff

AND

WORLD SOLAR LIMITED

First Defendant

AND

DOONE ANTONIO MORRELL

Second Defendant

Appearances:	G L Wilkin for Defendants (Applicants for security) T C Gunn for Plaintiff (Respondent on security)
Judgment:	23 March 2018
(Determined on the papers)

JUDGMENT OF ASSOCIATE JUDGE OSBORNE

as to security for costs

Introduction

[1]                   The plaintiff, Allen Morrell, is a shareholder and former director of the first defendant, World Solar Ltd (World Solar). The second defendant, Doone Morrell, is a shareholder and director of World Solar.

[2]                   Originally, there were three equal shareholders of World Solar. In 2013, the third shareholder transferred his shares to Doone Morrell, making Doone Morrell the majority shareholder. Around the same time, Allen Morrell was removed (without his consent) as a director of World Solar.

MORRELL v WORLD SOLAR LIMITED [2018] NZHC 518 [23 March 2018]

[3]                   Allen Morrell issued this proceeding for relief under s 174 Companies Act 1993 (the Act). He alleges unfairly prejudicial and detrimental conduct on the part of Doone Morrell. He seeks compensation for losses and other relief under the Act.

[4]                   The defendants, by their joint statement of defence, deny the material allegations in the statement of claim.

Application for security

[5]The defendants apply for security for costs.

[6]                   The defendants rely on the fact that Allen Morrell resides outside of New Zealand (namely in New South Wales). In support of the application, Doone Morrell has deposed that he is aware of financial difficulties experienced by Allen Morrell. He provides detail as to matters pointing to such financial difficulties. Allen Morrell has not opposed the application. By counsel’s memorandum he states that he neither opposes nor consents to the application. Mr Gunn’s memorandum implicitly accepts that the threshold test for an order of security is established. The Court must nevertheless consider whether to exercise its discretion to award security and, if so, in what sum or sums.

The security jurisdiction

High Court Rules

[7]                   Rule 5.45 High Court Rules empowers me to order the giving of security for costs when either the plaintiff is resident out of New Zealand (r 5.45(1)(a)(i)) or there is reason to believe the plaintiff will be unable to pay the costs of the defendant if the plaintiff does not succeed in the proceeding (r 5.45(1)(b)).

The threshold test

[8]                   The threshold tests under both r 5.45(1)(a)(i) and r 5.45(1)(b) are established in this case.

The discretion

[9]                   The general approach to the discretion (as contained at the time in r 60) was described by the Court of Appeal in McLachlan v MEL Network Ltd in these terms:1

[13]      Rule 60(1)(b) High Court Rules provides that where the Court is satisfied, on the application of a defendant, that there is reason to believe that the plaintiff will be unable to pay costs if unsuccessful, “the Court may, if it thinks fit in all the circumstances, order the giving of security for costs”. Whether or not to order security and, if so, the quantum are discretionary. They are matters for the Judge if he or she thinks fit in all the circumstances. The discretion is not to be fettered by constructing “principles” from the facts of previous cases.

[14]      While collections of authorities such as that in the judgment of Master Williams in Nikau Holdings Ltd v Bank of New Zealand (1992) 5 PRNZ 430, can be of assistance, they cannot substitute for a careful assessment of the circumstances of the particular case. It is not a matter of going through a check list of so-called principles. That creates a risk that a factor accorded weight in a particular case will be given disproportionate weight, or even treated as a requirement for the making or refusing of an order, in quite different circumstances.

[15]      The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs. That must be taken as contemplating also that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim. An order having that effect should be made only after careful consideration and in a case in which the claim has little chance of success. Access to the courts for a genuine plaintiff is not lightly to be denied.

The parties’ positions

[10]               By his memorandum, Mr Gunn for Allen Morrell, suggested there were three matters relevant to the plaintiff’s claim which ought to be taken into account in the exercise of the discretion, namely:

(a)the context of the claim is that a shareholder is alleging prejudice in terms of the Act;

(b)the claim ought to be treated as one which does not lack merit and the Court should avoid any order which shuts out a genuine claim;2 and

1      McLachlan v MEL Network Ltd (2002) 16 PRNZ 747 (CA).

2      Relying on Bell-Booth Group Ltd v Attorney-General (1986) 1 PRNZ 457 (HC).

(c)any total sum of security might appropriately be ordered to be paid in two tranches.

[11]               For the defendants, Mr Wilkin provided a calculation of costs on a 2B basis.3 His total is $23,414.

[12]               Mr Wilkins’ calculation includes an allowance for this interlocutory application (at 0.6 days). Once that item is excluded (because it will be dealt with in this judgment) the total 2B calculation is $22,077.

[13]Mr Wilkin submits an appropriate order of security would be $20,000.

Discussion – the discretion as to an order of security

[14]               This is an appropriate case in which to order the provision of security. Although the defendants have provided evidence as to the plaintiff’s financial difficulties, there is no basis on the evidence to infer that this particular plaintiff, having through his solicitor commenced this proceeding, will be unable to provide a substantial sum of security and thereby be precluded from pursuing his claim to a hearing. On the other hand, the Court should have significant regard to the difficulty which the defendants would likely experience in enforcing any costs order against the plaintiff while he continues to live overseas.

[15]               I do not view the shareholder-dispute context as significantly affecting the exercise of the discretion in this case given my finding that the evidence did not establish that access to justice issues will arise through an order of security.

[16]               I have also considered whether security might be more appropriately awarded in two tranches in this case. There is no evidence to suggest at this point that any further interlocutory steps in this proceeding (which Mr Wilkin has not factored into his costs calculations) will be extensive or take a significant period. In the circumstances, the provision of a single sum by way of security is appropriate.

3      High Court Rules, Category 2 under r 14.3(1) and band B under r 14.5(2).

[17]               I consider $16,500 to be a just award of security (that sum equating to approximately 75 per cent of a 2B calculation).

An order staying the proceeding

[18]               The defendants also seek an order that the proceeding be stayed until security is provided. Such an order is appropriate and will be made.

Costs

[19]               The defendants seek the costs of the application. By his memorandum, Mr Gunn for Allen Morrell submitted that costs might appropriately lie where they fall. In particular, he recorded that the defendants provided no notice to the plaintiff before filing their application for security.

[20]               Mr Gunn’s submission calls for consideration of the principles which should apply when the costs of a successful interlocutory (or other) proceeding could have been avoided by the applicant.

[21]Rule 14.7 High Court Rules provides:

14.7     Refusal of, or reduction in, costs

Despite rules 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if—

(a)       …

(f)the party claiming costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

(i)…

(ii)taking or pursuing an unnecessary step …; or

(iii)…

(g)some other reason exists which justifies the court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.

[22]               Except sometimes in situations of clear urgency, the Court expects plaintiffs and applicants, before issuing proceedings or making applications, to explore

resolution informally. In relation to general proceedings, this is frequently done through a “letter before action”. A failure to pursue resolution through either a non- litigious approach or through a less expensive course of proceeding may attract the Court’s invocation of r 14.7. The Australian commentary in Professor Dal Pont’s Law of Costs, in relation to the disallowance of costs in certain cases, includes the following:4

8.18      The court’s general costs discretion dictates that, where in accordance with its proper exercise, a court deems that costs should be disallowed to a litigant, even if he or she is ultimately successful, it may make an order to this effect. What costs should be disallowed depend on the circumstances of each case. For instance, Courts have disallowed costs incurred:

…

·that might fairly have been rendered unnecessary by a little forethought (see, for example, Re Commissioners for Railways (1902) 18 WN (NSW) 296 at 297 per A H Simpson CJ);

·as a result of an unnecessary application (see, for example, Re Ewer

(1903) 4 SR (NSW) 240);

·where a less expensive course of effecting the same outcome was readily available (see, for example, Dore v Gormley (1962) 9 LGRA 187 at 190 per Gibbs J (SC(Qld)); Commissioner of Stamp Duties v Edmunds [1989] 1 QdR 271 at 273 per Matthews J (FC));

…

[23]               In the present case, the absence of formal opposition by the plaintiff strongly indicates the provision of security may well have been resolved by agreement had the issue of security been raised beforehand on an informal basis. The formal application for security was, in terms of r 14.7(f)(ii), an “unnecessary step”.

[24]               The just outcome in this case is that there be no order as to the costs of the application for security.

4      G E Dal Pont Law of Costs (3rd ed, LexisNexis, Butterworths Australia, 2013) at [8.18].

Orders

[25]I order:

(a)The plaintiff shall within 20 working days give to the satisfaction of the Registrar security for $16,500.

(b)In the event the plaintiff does not provide security within 20 working days, the proceeding will be stayed until the security is given.

(c)There is no order as to costs of the defendants’ application.

Associate Judge Osborne

Solicitors:

Shine Lawyers New Zealand Ltd, Auckland AWS Legal, Invercargill