Nicholson-Clegg v Goodwin

[2013] NZHC 2897

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-001358 [2013] NZHC 2897

BETWEEN  PAMELA FLORENCE NICHOLSON- CLEGG

Plaintiff

ANDJOSEPH MICHAEL GOODWIN Defendant

Hearing:                   11 October 2013

Counsel:                  T J Herbert for Plaintiff

F I Perese for Defendant

Judgment:                4 November 2013 at 4pm

JUDGMENT OF ASSOCIATE JUDGE SARGISSON

This judgment is delivered by me on 4 November 2013 at 4pm pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

Solicitors/Counsel: Goodwin Legal, Auckland Armstrong Murray, Auckland T Herbert, Barrister, Auckland S Perese, Barrister, Auckland

NICHOLSON-CLEGG v GOODWIN [2013] NZHC 2897 [4 November 2013]

[1]      The  plaintiff,  Mrs  Nicholson-Clegg,  claims  in  negligence  against  the defendant, Mr Goodwin, who is a solicitor, for an alleged failure to advise her to obtain independent legal advice in respect of a mortgage.

[2]      Mr Goodwin, seeks an order for security for costs against Mrs Nicholson- Clegg.

[3]      The application is made under High Court Rule 5.45, which relevantly states:

5.45     Order for security of costs

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

(a)      ...

(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)      ...

(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)      ...

[4]      The application is opposed.

[5]      There  is  no  dispute  that  the  jurisdictional  threshold  for  an  order  under r 5.45(1)(b) is met.  Mrs Nicholson-Clegg is impecunious and in all probability will be unable to pay Mr Goodwin’s costs if her claim is unsuccessful.  Broadly stated, therefore, the issue for determination is whether, there are discretionary factors that weigh in favour of an order for order security for Mr Goodwin’s costs.

[6]      The  cases  that  discuss  security for  costs  applications  emphasise  that  the Court’s discretion is not to be fettered by constructing “principles” from the facts of previous cases as they are not a substitute for a careful consideration of the facts of

the particular case.1     Importantly, there is no presumption in the exercise of the Court’s  discretion  under  r 5.45.   The circumstances  of the case as  a whole are relevant.2

[7]      The discretion whether to grant security therefore involves a balancing of the plaintiff’s and the defendant’s interests.3    The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs.  This must also be taken as contemplating that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim.   In those circumstances, an order having this effect should only be made after careful consideration, and where the claim has little chance of success.  Access to the Court for a genuine plaintiff should not lightly be denied.4

[8]      The  difficulties  of  assessing  the  strength  or  weakness  of  a  case  at  an interlocutory stage are well recognised.   However, it is also trite law that where possible, the Court should try to assess the merits of the case.5   Dubious prospects of success increase the chances of the plaintiff facing an order for security.

[9]      Counsel for Mrs Nicholson-Clegg submits that she has a good case against Mr Goodwin for breach of duty as a solicitor. and that based on her impecuniosity it can be inferred that her ability to proceed to trial will be lost, if she is required to provide security.  Such an outcome would, he submits, be unfair, as Mr Goodwin has delayed making his application for security, and in any case it would not be in the overall interests of justice.   Additionally, he submits it would be contrary to the public interest to allow a solicitor who has failed his client in the way alleged by Mrs Nicholson-Clegg, from having to account.

[10]     Counsel  for  Mr  Goodwin  argues,  that  to  the  contrary,  the  case  against Mr Goodwin  is  weak,  that  the  extent  of  the  duty he  owed  was  limited  by the instructions he received, and that Mrs Nicholson-Clegg contributed significantly to

her own loss in any event.  He submits that there is no substance to the claim that Mr

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

2 Attorney-General v Transport Control Systems (NZ) Ltd [1982] 2 NZLR 19 (CA) at 20.
3 A S McLachlan at [15] and [16].
4 At [15].

5 Meates v Taylor (1992) PRNZ 524 (CA) at 527.

Goodwin  delayed  making  his  application  or  to  the  claimed  harm  to  the  public interest.

[11]     I accept that there is no basis for complaint as to delay.   Mr Goodwin’s application was made within the timetable that was agreed at the first case management conference.   Nor is there substance to the assertion that the public interest will be harmed if Mr Goodwin avoids having “to account” by reason of an order for security.   The claim against him does not raise issues of wide or novel public interest that go beyond those that ordinarily arise between the parties to professional negligence claims.

[12]     On the other hand, I accept that Mrs Nicholson-Clegg’s impecuniosity should not deprive her of the ability to proceed if she is a genuine plaintiff with a good arguable case.  Whether or not her impecuniosity would have that effect if an order for security is made cannot be answered on the evidence because Mrs Nicholson- Clegg has not filed evidence.  I can only speculate as to whether she has access to some asset or assets that might be called upon to provide security or  access to feasible and reasonable sources of funding such as her wider family.

[13]     Turning to the merits of Mrs Nicholson-Clegg’s claim, neither side suggests that the merits can be assessed on the pleadings alone.  Had that been the defendant’s position, then no doubt he would have pursued an application to strike out the claim. What is required is careful consideration of the facts to assess or to try to assess the merits and whether the claim has the hallmarks of a good arguable case, as counsel for Mrs Nicholson-Clegg contends, or whether this is a case in which the issues of liability and/or loss barely cross the threshold of being arguable, as counsel for Mr Goodwin  contends.    If  the  former,  then  that  is  a  factor  that  will  weigh  in  the plaintiff’s favour.  If the contrary, it will favour the defendant.  The well recognised difficulties of assessing the strength and weaknesses of a case at the interlocutory stage are, however, compounded in this case, only because Mrs Nicholson-Clegg has not filed affidavit evidence, but because Mr Goodwin’s affidavit deals only with the issue of impecuniousity.   In these circumstances, I can only look to the parties’ pleadings for the purpose of endeavouring to assess where the merits lie.

[14]     Each party’s pleadings paint a different picture of the circumstances in which Mr Goodwin acted in respect of a mortgage over the joint family home owned by Mrs Nicholson-Clegg and her husband which was ultimately sold by the mortgagee causing the loss of her interest in the home.  The essence of Mrs Nicholson-Clegg’s case as  pleaded  is  that  when  her husband  gave instructions  to  Mr Goodwin  to prepare a mortgage in favour of Clegg & Co Finance Limited, Mr Goodwin had a duty to take all reasonable steps to ensure that she was independently advised of the risks involved.  Mrs Nicholson-Clegg’s pleadings set out that she and her husband were directors of the company which carried on business as financiers and that the mortgage was part of an “inter-party guarantee-borrowing transaction”.  She pleads her role as director was passive and that she accepted the invitation to become a director as a matter of convenience to sign documents when two directors’ signatures were required.  She denies receiving any director’s fees and pleads that she had very limited knowledge of the business and that Board discussions and meetings were held without her being present.   In effect, she claims that her husband was the directing mind of the company and that Mr Goodwin had a duty to her in that situation when acting on her husband’s instructions.

[15]     In his statement of defence, Mr Goodwin denies the existence of any such duty.  He accepts that he was engaged by Mr Clegg to act for him and Mr Clegg’s wife but he pleads that his instructions were limited to preparing “such documents and carry out such tasks as were necessary to register a mortgage” against the family home,  the  mortgage  to  be  in  favour  of  Clegg  &  Co  Finance  Limited  for  all obligations owed by Mr Clegg and his wife.

[16]     Mr Goodwin also pleads that Mr Clegg informed him that he and his wife were parties to a trust deed, pursuant to which they had agreed to create a mortgage in favour of Clegg & Co Finance Ltd, as security for the indebtedness to its parent company, Clegg & Co Ltd; that they had originally agreed that the mortgage would be registered over their Parnell property, but that by oversight, registration had not occurred, and the breach of the agreement needed to be remedied by their registering the mortgage against their property at Algies Bay.

[17]     Mr Goodwin denies he was ever engaged to “substantively advise either Mr Clegg or the plaintiff as to their obligations under the trust deed, their indebtedness to [the parent company] or the mortgage, or as to the effects of registration of the mortgage”.  He also denies that he had an obligation to substantively advise either Mr Clegg or the plaintiff as they were both experienced directors of Clegg & Co Finance Ltd, and experienced financiers, and that Mr Clegg was a director and shareholder of the parent company.  He pleads that the duty he owed was to carry out the pair’s limited instructions with reasonable care and he also relies in support on the fee he charged of $100 plus GST, as evidence  of the limited nature of his engagement.

[18]     In  her  statement  of  reply,  Mrs  Nicholson-Clegg  essentially  denies  the allegations Mr Goodwin makes in his statement of defence saying, among other things, that she was not a party to a trust deed, that she had not agreed to create a mortgage in favour of the parent company as security for indebtedness to that company, that she owed no such debt, and that she had not originally agreed to a mortgage over the prior family home at Parnell.  She rejects Mr Goodwin’s pleading that even if he was in breach of duty, the breach could not be responsible for any loss because  she  was  already  committed  to  provide  a  mortgage  and  would  have proceeded in any event.

[19]     Whether this is a case of a woman who naively acquiesced in her husband’s desire to further his business interests at the expense of her personal interest and who should have arguably been advised to get independent advice or whether it is a case of two experienced financiers who wanted Mr Goodwin to undertake an essentially mechanical task of registering a mortgage, is not something I can tell simply on the pleadings.   If the former, then arguably Mrs Nicholson-Clegg should have been advised to get independent legal advice. As the position stands, I cannot assume that Mrs Nicholson-Clegg’s case is hopeless.   Mr Goodwin has not laid the evidential foundation for such a finding.  I can only conclude for present purposes, therefore, that Mrs Nicholson-Clegg’s case cannot be dismissed as unarguable: it must be treated as at least arguable.

Conclusion

[20]     Overall, I am satisfied that this is not a case where the discretion should be exercised to decline the application for the giving of security.  Mrs Nicholson-Clegg acknowledges her impecuniousity and that poses a risk to the defendant should the merit of the case fall in his favour.   This calls for some measure of protection to compensate Mr Goodwin.   Mrs Nicholson-Clegg has not satisfied me that this approach will inevitably halt her proceeding.  I am also satisfied, however, that it is just in all the circumstances that the amount of security to be ordered should be modest.

[21]     Counsel for Mr Goodwin referred to his assessment of scale costs in the event that Mrs Nicholson-Clegg is successful.   He acknowledged that the assessment is overly generous allowing for two case management conferences when the need for the second arises more from the defendant’s decision to pursue and then abandon summary judgment than from any action on Mrs Nicholson-Clegg’s part.  Though I accept that scale costs are a relevant factor in fixing the amount of security, it is but one factor to be taken into account with all others.

[22]     With these competing influences in mind, I fix the amount of security at

$15,000 to be paid as follows:

(a)       By 29 November 2013, $7,500 is to be paid into Court or security given for that amount to the satisfaction of the Registrar.

(b)      $7,500 or other such security to be paid by the close of pleadings date.

(c)       There will be a stay of the proceeding from these respective dates if either payment is not made on the required date.

[23]     Ordinarily costs will follow the event but as each side has enjoyed a measure of success and failure in respect of the application, I direct pursuant to r 14.7 that costs will lie where they fall.

[24]     The Registrar is to allocate a case management conference for the purpose of fixing a date and time to trial and related directions.

Associate Judge H Sargisson