My Virtual Home International Limited (in rec and in liq) v Ngati Tama Custodian Trustee Limited HC Auckland CIV 2009-443-548

[2010] NZHC 2115

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2009-443-548

BETWEEN

MY VIRTUAL HOME INTERNATIONAL LIMITED (IN RECEIVERSHIP) AND (IN LIQUIDATION)

First Plaintiff

AND

OPEN GROUP LTD Second Plaintiff

AND

DAVID WILLIAM PHILLIPS Third Plaintiff

AND

MVH GROUP LIMITED Fourth Plaintiff

AND

NGATI TAMA CUSTODIAN TRUSTEE LIMITED

First Defendant

AND

RODNEY IVAN MARTIN Second Defendant

AND

GREGORY LLOYD WHITE Third Defendant

AND

THE TE RUNANGA O NGATI TAMA Fourth Defendant

AND

THE CUSTODIAN AND ELDERS AND TRUSTEES OF THE NGATI TAMA IWI Fifth Defendant

AND

BRISBANE SOFTWARE PTY LTD Sixth Defendant

Hearing:

(on the papers)

Counsel:         E Orlov for First, Third and Fourth Plaintiffs

D W Phillips, in person, Third Plaintiff
D M Hughes and K A Van Houtte for First, Third, Fourth, Fifth and
Sixth Defendants
J P Nolen for Second Defendant

Judgment:      29 November 2010

JUDGMENT OF HEATH J

This judgment was delivered by me on 29 November 2010 at 2.00pm pursuant to Rule 11.5 of the

High Court Rules

Registrar/Deputy Registrar

MY VIRTUAL HOME INTERNATIONAL LIMITED (IN RECEIVERSHIP) AND (IN LIQUIDATION) AND ORS V NGATI TAMA CUSTODIAN TRUSTEE LIMITED AND ORS HC AK CIV 2009-443-548  29

November 2010

[1]      An Australian company called Creative Design Software Pty Ltd developed a source code and intellectual property for a computer programme designed to enable those who wished to build or renovate homes to use three dimensional images on a computer screen to test various designs.  Licences to use the produce were granted to My Virtual Home International Ltd (My Virtual Home) and Open Group Ltd.

[2]      As a result of transactions that occurred in 2008 and 2009, disputes have arisen as to the true ownership of a source code and the licences.  The current contest is between MVH Group Ltd, a company to which My Virtual Homes (through its receiver) purported to transfer those assets, and Brisbane Software Group Pty Ltd, a company to which Creative Design Software Pty Ltd purported to transfer the same assets in Australia.   The validity of security documents given by Creative Design Software Pty Ltd are central to the dispute.

[3]      It  became  clear,  after  a  number  of  interlocutory  skirmishes,  that  the ownership issue had to be determined promptly; otherwise, there was a real risk that commercial advantages to the true owner could be lost through a significant delay in resolving the present proceeding.

[4]      On  27  October  2010,  I  made  an  order  that  the  following  questions  be determined separately from other issues arising in the proceeding:[1]

[1] My Virtual Home Internation Ltd (In Rec) and (In liq) v Ngati Tama Custodian Trustee Ltd HC Auckland CIV 2009-443-548, 27 October 2010 (Minute No. 6).   See also High Court Rules, r10.15(a).

a)        What  entity  owned  the  Auran  jet  engine  source  code,  as  at  24

December 2008?

b)Were the two debentures, deed of subordination of debt and guarantee entered into lawfully on 24 December 2008?  In other words, are they valid documents?

c)       If  receivers  of  Computer  Design  Software  Pty  Ltd  were  validly appointed by Ngati Tama Custodian Trustee Ltd, pursuant to the debenture in favour of the latter company, was CDS entitled to terminate the licence (on the basis of notice given on 7 July 2009) to use  (non  Aurun)  software  of  My  Virtual  Home  International  Ltd and/or Open Group Ltd on 28 October 2009?

Consequential directions were also made to enable those three questions to be tried over one week, commencing on 28 March 2011.

[5]      When I made those orders, there were extant applications for security for costs pending.   I directed memoranda to be filed and exchanged and said I would rule on any live security for costs’ applications on the papers.

Security for costs’ applications

[6]      Mr Hughes, for Ngati Tama, Mr White, Te Runanga o Ngati Tama, the custodians, elders and trustees of the Ngati Tama iwi and Brisbane Software Group Pty Ltd, has advised the Court that those defendants do not pursue their applications for security for costs, at this time.   Those defendants are mindful that the early fixture  for  the  separate  questions  will  enable  prompt  resolution  of  the  critical question.  They do not wish to advance an application that may delay detention of the ownership question.

[7]      Without opposition from Mr Orlov, for My Virtual Home, Open Group Ltd and MVH Group Ltd, or Mr Phillips (in person), I shall adjourn those applications for consideration after judgment has been given on the questions to be tried in March

2011.

[8]      The remaining defendant, Mr Martin, pursues his application for security for costs.  He seeks security against all plaintiffs.  His application is opposed.

[9]      Mr Martin contends that there is jurisdiction to award security because there is reason to believe My Virtual Home, Open Group Ltd and MVH Group Ltd will be unable to pay his costs if their claims were successful.[2]     So far as discretionary considerations are concerned, Mr Nolen, for Mr Martin, adopts the principles set out in A S McLachlan Ltd v MEL Network Ltd.[3]    Mr Nolen submits that security is required to ensure Mr Martin is not placed at such a disadvantage that justice may not be done.[4]

[2] High Court Rules, r 5.45.

[3] A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA).

[4] McGechan on Procedure, HR 5.45.16(3).

[10]     Security for costs is also sought against Mr Phillips, who has provided no evidence of his personal financial position.

[11]     Mr Orlov, for My Virtual Home, Open Group Ltd and MVH Group Ltd opposes security on the basis that Mr Martin has no interest in the determination of the preliminary questions and does not need counsel to participate.   In short, the position advanced by Mr Orlov is that Mr Martin has decided to retain separate counsel to protect his own interests and to avoid the possibility of being called as a witness by either side.  Mr Martin’s actions or inactions are central to some of the factual claims made in respect of ownership.

[12]     Further, Mr Orlov submits that even if Mr Martin succeeds in gaining an order for security for costs that should not prevent the hearing or the trial of the separate questions from proceeding.

Analysis

[13]     Rule 5.45 of the High Court Rules provides:

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.

(3)   An order under subclause (2)—

(a)       requires the plaintiff or plaintiffs against whom the order is made to give security for costs as directed for a sum that the Judge considers sufficient—

(i)       by paying that sum into court; or

(ii)      by giving,  to the satisfaction of the Judge or the

Registrar, security for that sum; and

(b)may stay the proceeding until the sum is paid or the security given.

(4)   A Judge may treat a plaintiff as being resident out of New Zealand even though the plaintiff is temporarily resident in New Zealand.

(5)   A Judge may make an order under subclause (2) even if the defendant has taken a step in the proceeding before applying for security.

(6)   References in this rule to a plaintiff and defendant are references to the person (however described on the record) who, because of a document filed in the proceeding (for example, a counterclaim), is in the position of plaintiff or defendant.

[14]     I am prepared to assume, for the purpose of the present application, that Mr Martin has established the threshold requirement that each of the plaintiffs will be unable to pay the costs of the defendant if unsuccessful.  That leaves the issue to be determined solely as a question of discretion.[5]

[5] Ibid, r 5.45(2).

[15]     I consider there are three factors that, when weighed, are determinative of the application for security.  They are:

a)       This is a complex proceeding in which all parties have now seen the sense in co-operating to ensure questions of ownership are determined at  the  earliest  possible  time.    Any  delay  in  the  hearing  of  the ownership questions will be detrimental to all involved in the proceeding.

b)No  relief  is  sought  against  Mr  Martin,  in  the  context  of  the preliminary questions.   Nevertheless, his conduct is in issue and he has elected to retain his own counsel to call and cross-examine witnesses relevant to the first three questions.  Findings of fact on the preliminary questions may be significant if relief were ultimately sought against Mr Martin in the substantive proceeding.

c)       If an order for security were granted in Mr Martin’s favour but not paid, it would infringe inappropriately on the rights of other defendants, if the proceeding were stayed.  If it were not stayed, Mr Martin would still be left in the position of having to elect whether to incur cost to instruct his own counsel to appear or to co-operate more closely with other defendants with common interests who will, no doubt, be espousing a similar view of the facts.

[16]     In combination, those factors militate against an award of security in favour of Mr Martin.  I understand his reasons for wanting to be represented separately in the proceeding.  However, in light of the consideration set out above, he must also accept the consequences of that decision, so far as incurring cost without security is concerned.   That is especially so in a situation where the remaining defendants acknowledge that to pursue their applications for security would effectively negate the ability to resolve important questions of ownership at an early time.

[17]     In the unusual circumstances of this particular case, I take the view that security for costs should not be given.   However, I do not propose to dismiss Mr

Martin’s application.   Rather, they will be deferred pending determination of the preliminary question.

Result

[18]     I decline to make an order for security for costs at this stage in favour of any of the defendants.

[19]     All applications for security are adjourned to be called before the Judge who presides over the trial of separate questions, on a date to be fixed by the Registrar, after judgment on those questions has been given.

[20]     All questions of costs remain reserved.

P R Heath J

Delivered at 2.00pm on 29 November 2010.

Solicitors:
Equity Law, PO Box 8333, Symonds Street, Auckland

Kensington Swan, Private Bag 92101, Auckland

Lowndes Associates, PO Box 7311, Wellesley Street, Auckland
Copy to:
Mr D W Phillips, State Highway 2, Pokeno 2471