Morris v Claudatos HC Napier CIV-2005-441-694
[2007] NZHC 1705
•29 March 2007
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
CIV-2005-441-694
BETWEEN ANTHONY AUBREY JAMES MORRIS Plaintiff
ANDANDREW DIONYSIOUS CLAUDATOS First Defendant
ANDSTAR FISH SUPPLY LIMITED Second Defendant
ANDSTAR OFFSHORE SERVICES LIMITED Third Defendant
Hearing: 2 March 2007
Appearances: T.G.A. Manktelow for Plaintiff
M.J. Wenley for Defendant
Judgment: 29 March 2007 at 4.30 pm
In accordance with r540(4) I direct the Registrar to endorse this judgment with a delivery time of 4.30pm on the 29th day of March 2007.
JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL
Introduction
[1] The defendants apply for security for costs to be provided by the plaintiff. The amount sought for security is based on a three day hearing for this matter and is suggested at $22,400.00.
[2] The application is opposed by the plaintiff.
MORRIS V CLAUDATOS AND ORS HC NAP CIV-2005-441-694 29 March 2007
Background Facts
[3] The plaintiff owned a fishing boat built in late 2002 called the Raubtier. The plaintiff maintains that when it was completed it had a valuation of $1.1 million. Secured against the boat at the time were advances from Spiers Finance which totalled approximately $460,000.00. It is the plaintiff’s contention, therefore, that he had substantial equity in the Raubtier in the vicinity of $600,000.00 when he entered into dealings with the defendants.
[4] The plaintiff says he had been carrying out inshore fishing on the Taranaki Coast when, in about April 2003, he accepted an offer from the defendants to bring his vessel Raubtier to Napier to fish under contract to the defendant Starfish Group.
[5] Although there is some dispute between the parties as to the level of the plaintiff’s debt which had then developed by August 2003, what appears to be clear is that the Spiers Finance loan over the vessel was refinanced by the defendant Group under what the parties describe as a “rescue package” with an advance of
$550,000.00 made on 22 August 2003. This refinancing, it is said, included the sum of about $86,000.00 which the plaintiff owed at that time to a member of the defendant Starfish Group. The $550,000 loan according to the plaintiff was a term loan over ten years repayable by monthly instalments of $7,843.28.
[6] In addition to this loan, the contract fishing arrangement between the plaintiff and the defendants continued after August 2003. According to the defendants, by as early as December 2003 the plaintiff as a result of his spending and his failure to generate sufficient fishing income, was defaulting under the term loan arrangements and owed a further $39,900.00 to the Starfish Group.
[7] The defendants say that the plaintiff’s debit balance with the defendant Group then continued to grow alarmingly during the first five months of 2004 culminating in a demand being issued against the plaintiff on 1 June 2004 by the defendants. The demand was unremedied, but according to the defendants, an interim arrangement was put in place to allow the plaintiff to continue fishing to avoid further losses.
[8] The defendants state that matters limped on and around February 2005, as the plaintiff was in default under the defendants’ security agreement over the boat, repossession of the Raubtier took place and the Ministry of Fisheries and Survey Nelson Limited were advised of the change of ownership.
[9] Then, according to the defendants, on about 4 May 2005 the plaintiff’s contract as a boat master with the defendant company was terminated.
[10] The present proceedings were issued on 18 October 2005. The plaintiff’s case broadly is that the conduct alleged against the defendants enabled the defendants to seize the Raubtier vessel in February 2005, and since that time they have put the Raubtier to their own use.
[11] In his Statement of Claim the plaintiff alleges numerous breaches of fiduciary obligation on the part of the defendants, together with a failure to account to him.
[12] The plaintiff’s case is that the conduct of the defendant group towards him over these periods has been such as to place him in his present precarious financial position and this has occurred solely through the alleged breaches of their obligations to him.
[13] The defendants’ deny any liability whatever to the plaintiff. The defendants assert that Starfish refinanced the Spiers Finance security over the Raubtier in the face of a repossession notice issued by Spiers, and also to secure the then unsecured debt owing by the plaintiff of some $86,000.00.
[14] The defendants contend that the evidence shows after the Starfish refinancing “rescue package” in August 2003 the plaintiff continued to under-perform as a fisher. The effect of this was that his indebtedness to the defendants continued to escalate, resulting in the demand made on him on 1 June 2004 and finally the taking of title to the Raubtier by the defendants in February 2005.
[15] The defendants state that the simple fact is that when he was operating the
Raubtier the plaintiff incurred greater indebtedness to Starfish, he did not meet other
debts relating to the construction and commissioning of the vessel, and any complaints on his part that he was unable to earn a reasonable income from fishing must rest entirely with his own actions. As I have noted, the plaintiff does strongly dispute these contentions.
Counsel’s Argument and My Decision
[16] The defendant’s security for costs application is made pursuant to r 60(1)(b) High Court Rules which provides:
60 Power to make order for security for costs
(1) Where the Court is satisfied, on the application of a defendant, …
(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,—
the Court may, if it thinks fit in all the circumstances, order the giving of security for costs.
[17] The two-step approach under this rule is well-established. First, the Court must address whether the ‘threshold test’ (reason to believe a plaintiff is unable to pay costs) has been met. Once this threshold has been passed, a second question arises: should the Court exercise its discretion to order security for costs, in the circumstances of the case (Hamilton v Papakura District Council (1997) 11 PRNZ
333, 335-36.)
[18] The threshold test requires the Court to be satisfied that there is reason to believe that, if unsuccessful, the plaintiff will not be able to meet an adverse costs order. In this regard, there is authority to the effect that a plaintiff’s failure to provide information about its means may be construed as inferring impecuniosity: Nikau Holdings Ltd v BNZ (1992) 5 PRNZ 430, 436. However, before such an adverse inference may be drawn, some evidential foundation to support the contention will be required: New Zealand Kiwifruit Marketing Board v Maheatataka Cool Pack Ltd (1993) 7 PRNZ 209, 213.
[19] With regard to the second question, the authorities suggest that the Court’s discretion under r 60 is not to be fettered by the application of principles, but is to be exercised based on a careful assessment of the circumstances of the particular case: McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747. There is no predisposition towards either the grant or refusal of an application: Bell-Booth Group Ltd v Attorney-General (1986) 1 PRNZ 457, 460.
[20] A balancing of the interests of plaintiff and defendant is necessary at this point. If an order for security for costs will prevent the plaintiff bringing a genuine claim, such an order should be made only after careful consideration, and where the claim has little chance of success. This must be balanced against the need to protect a defendant from unjustified litigation (especially where it may be overly complicated or unduly protracted): A S McLachlan Ltd v MEL Network Ltd at [15]-[16].
[21] The merits of a case, insofar as they can be assessed at the interlocutory stage, will be relevant to the exercise of the discretion under rule 60. As McGechan on Procedure at para HR60.03 notes, there is of course a very real limit as to how far such an enquiry as to the merits of a case can be made, particularly at an early stage of the proceeding - Meates v Taylor (1992) 5PRNZ 524 (CA).
[22] Further factors which have been regarded as relevant in considering applications for security for costs were outlined in McGechan on Procedure at para HR60.03 in the following terms:
(c) Impecuniosity: Any “reasonable probability” established by persuasive evidence – mere assertion will not suffice – that the plaintiff’s impecuniosity results from the defendant’s actions complained of in the proceeding: Davy v Howell (1993) 7 PRNZ
141; Weld Street Takeaways and Fisheries Limited v Westpac Banking Corp [1986] 1 NZLR 741 at 743. As with the merits, assessment of this factor, short of a full hearing, is regularly acknowledged as being very difficult, if not impossible: Meates v Taylor (1992) 5 PRNZ 524 (CA).
(d) Delay: In terms of delay, factors include:
(i) Whether the application was made as soon as the defendant became aware, or could with reasonable enquiry have become aware, of the plaintiff’s likely inability to meet costs.
(ii) Any needless delay, particularly if designed to prejudice the plaintiff.
(iii) Whether, and if so to what extent, the delay has prejudiced the plaintiff. An obvious example is a plaintiff who has expended substantial sums, including legal costs, to get a proceeding to the brink of trial, only to be met by an application for security, deliberately withheld to the eleventh hour.
[23] I turn now to consider each of these requirements.
[24] Looking first to the threshold test that the Court needs to be satisfied there is reason to believe that if unsuccessful, the plaintiff will not be able to meet an adverse costs order, there is little doubt in the present case that this impecuniosity test has been met. The plaintiff has provided little information about his means or his financial position, and clearly this can be construed as inferring impecuniosity – Nikau Holdings Ltd v BNZ. And before me, counsel for the plaintiff raised no real argument to the defendants suggesting that the plaintiff is impecunious. I find, therefore, that the threshold test of impecuniosity is met.
[25] Turning now to consider the second question relating to the merits of the plaintiff’s claim, I remind myself of the comments noted above (at paragraph [21]) that there is always a difficulty and a very real limit as to how far such an enquiry can be made, particularly at what is here a relatively early stage of the present proceeding – Meates v Taylor.
[26] Notwithstanding this, in reaching a balance between the interests of the plaintiff and the defendants in this case, although the claim made by the plaintiff does not appear to be totally lacking in merit, the impression I form on the basis of the material presently before the Court does not convince me that the plaintiff’s claim is a strong one. It seems clear that the plaintiff had outstanding debts from the time that he started fishing for the second defendant, and he acknowledges himself at paragraph 9 of his Statement of Claim that the refinancing by the defendants of the Spiers Finance and other debts was a “rescue package”. And from that time in August 2003 onwards, there are strong suggestions that the plaintiff’s debt position worsened, despite what might be seen as a patient approach adopted by the defendants until finally the boat was “repossessed” by the defendants in February
2005. Further, the plaintiff’s claim appears to be based principally on an alleged fiduciary relationship with the defendant group, and contentions of a breach of the defendants’ obligations under this relationship. The defendants argue in turn that it is inherently unlikely that the relationship between the parties was a fiduciary one, given the commercial nature of the refinancing “rescue package” and the various legal contracts entered into between the parties. More than this, they contend that throughout the plaintiff has acted in an irresponsible and commercially reckless manner and he accepts no responsibility for his own actions or the management of his business affairs.
[27] The plaintiff contests this and argues that his claim is an arguable one. He contends the defendants have acknowledged this when they withdrew their earlier summary judgment application. His position is that at worst, it must be a matter of conjecture, turning as this case does on disputed evidence, whether he has a strong case or not.
[28] Whilst ultimately there may be seen to be something in these submissions put forward by the plaintiff, on balance at this point I tend to the view that they can scarcely be said to be persuasive.
[29] Given all these matters, in my view it needs to be said that the plaintiff’s prospects of success in this proceeding on the basis of his pleadings to date and the material before the Court can hardly be rated very highly.
[30] I turn now to consider the next claim by the plaintiff that the conduct of the defendants here has caused or contributed to any impecuniosity he may suffer. As I have noted above, the authorities have established that where a defendant has caused or significantly contributed to a plaintiff’s impecuniosity, it militates against an application for security – Bell Booth Group Limited v Attorney-General [1986] 1
PRNZ 457. In the present case, the plaintiff contends that a valuation of the Raubtier when it was completed was obtained at a figure of $1.1 million, and as there was only $460,000.00 finance to Spiers Finance secured against it, his equity at that time was around $600,000.00.
[31] The plaintiff says that within a short space of time, by February 2005 when the defendants “repossessed” the boat, the plaintiff was effectively deprived of this
$600,000.00 in equity. And as I have noted, the plaintiff’s Statement of Claim alleges against the defendants numerous breaches of fiduciary obligation and a failure to account. In short, the plaintiff’s case is that these alleged breaches occasioned the defendant’s ability to seize the Raubtier, which they have put to their own use ever since. The plaintiff says that if he is ultimately able to prove his case against the defendants, then there can be little doubt that the defendants’ conduct has been a key factor in determining the plaintiff’s present financial circumstances.
[32] In response, the defendants contend that the plaintiff has been the author of his own misfortunes, in his continued failure to honour the terms of the “rescue package” and to keep his growing debts under any degree of control.
[33] As McGechan on Procedure at para HR60.03 notes in the section I have referred to at paragraph [22] above, the “reasonable probability” that the plaintiff’s impecuniosity results from the defendant’s actions complained of must be established by persuasive evidence. Mere assertion is not sufficient. McGechan registers a caveat here too when the learned authors also note that it is difficult if not impossible to assess this factor short of a full hearing and a proper testing of all the evidence.
[34] Weighing up these matters, I am of the view that the material presently before the Court in this case does not provide persuasive evidence that there is a “reasonable probability” that any impecuniosity the plaintiff may suffer has resulted from the defendant’s actions complained of in this proceeding. The plaintiff has asserted that this is the case, but as I have noted above, mere assertion will not suffice. This factor does not assist the plaintiff in his opposition to the present application.
[35] I turn now to consider the plaintiff’s argument that there has been undue delay on the part of the defendants in making the present application for security for costs, and that this has prejudiced the plaintiff.
[36] These proceedings were commenced by the plaintiff on 18 October 2005. On
15 November 2005 the defendants filed their Statement of Defence, together with an application for summary judgment against the plaintiff. On 8 December 2005 the plaintiff filed a Notice of Opposition to the defendants’ summary judgment application. Subsequently, this application was withdrawn by the defendants.
[37] The present security for costs application was not brought by the defendants until 24 November 2006.
[38] In the meantime, the plaintiff contends that he was required first to resist the defendants’ (subsequently withdrawn) summary judgment application, secondly, to seek non-party discovery from Charterman Marine Services Limited, thirdly, to undertake a major inspection exercise, fourthly, to undertake detailed accounting exercises, forensic testing and settlement negotiations, then only to be met by the present security for costs application at a late stage. The plaintiff submits that these factors must militate against granting security in favour of the defendants here.
[39] In opposition, before me counsel for the defendants noted that any question of delay on their part was not decisive and simply one of the matters to be considered by the Court in exercising its discretion in considering the present application. The defendants’ position is that if there has been delay in bringing this application, this has not resulted in any prejudice to the plaintiff. The defendants contend that this whole case has been characterised by delay on the part of the plaintiff, and any delay in filing the present application should not count against the defendants.
[40] Further, the defendants suggest that the position of the plaintiff’s mother, who had provided a mortgage over her property as additional security to Spiers Finance for the original loan to the plaintiff, may well be relevant here. The defendants contend that given the plaintiff’s claimed impecuniosity, it is a fair inference that his present proceeding against the defendants in their words is “being backed by his mother”. I note, however, that there is no evidence of this before the Court. I leave it on one side.
[41] Weighing up all the other matters raised, I come to the view that although there has been delay on the part of the defendants in bringing the present security for costs application, there is nothing before the Court to show that this delay has been designed to prejudice the plaintiff, nor that it has indeed caused significant prejudice to the plaintiff, for example, in the sense that the application is made on the brink of the trial of this proceeding.
[42] Although timing of the interlocutory steps taken by the defendants in this proceeding generally and that November 2006 decision to bring the present security application specifically could not be seen in any sense as ideal, in my view this is not fatal to their present application.
[43] In conclusion then, I find that in balancing all the factors I am required to consider here, an order for security should be made.
[44] As to the quantum of security ordered, as I noted at the outset, the amount sought by the defendants is $22,400.00 based upon a three day hearing.
[45] The amount of security is always to be in the Court’s discretion, but it is clear from past awards of security that they generally are to represent some discount on the likely award of costs as calculated under Schedule 3 of the High Court Rules – see McGechan HR60.07.
[46] In the present case counsel for the defendants has confirmed that the
$22,400.00 which the defendants seek represents the total basic costs on a category
2B basis for a three day hearing. Both counsel agree this is to be a three day hearing matter.
[47] That said, in my view an appropriate quantum to order for security for costs in the present case is a total figure of $10,000.00.
Conclusion
[48] The defendants’ security for costs application therefore succeeds.
[49] An order is now made that the plaintiff is to give security for costs to the defendants in the sum of $10,000.00 either by paying the same into Court, or by giving security for the same to the satisfaction of the Registrar, or by such means as is agreed between the parties and notified to the Registrar. If the monies in question are to be paid into Court, then they are to be appropriately invested in an interest- bearing deposit.
[50] The plaintiff is to have a period of 30 working days from the date of this judgment to provide this security.
[51] There is to be no order staying this proceeding during that 30 working day period.
[52] An order is made, however, that if the plaintiff is unable to satisfy the order for security for costs within the 30 working day period from the date of this judgment, then from that date, 30 working days from the date of this judgment this proceeding is stayed until security in the sum of $10,000.00 is properly provided.
[53] As to costs, the defendants have been successful in this application and are entitled to an award of costs. Costs are awarded to the defendants against the plaintiff on this application on a category 2B basis, together with disbursements as approved by the Registrar.
‘Associate Judge D.I. Gendall’
Solicitors:
Guy & Toby Manktelow, Palmerston North for Plaintiff
Willis Toomey Robinson, Napier for Defendants
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