No 317 Limited v Canterbury Regional Council
[2014] NZHC 276
•25 February 2014
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2012-409-002607 [2014] NZHC 276
BETWEEN NO 317 LIMITED Plaintiff
ANDCANTERBURY REGIONAL COUNCIL Defendant
Hearing: 7 February 2014
Appearances: P A Cowey for Plaintiff
M Colson and K Dobbs for Defendant
Judgment: 25 February 2014
JUDGMENT OF ASSOCIATE JUDGE OSBORNE
as to orders for tailored discovery and security for costs
Introduction
[1] The plaintiff (“No 317”) once ran bus services. Some of the services were run pursuant to contracts administered by the defendant (“ECAN”) as the Regional Council of the Canterbury region. In June 2010 No 317 entered into two additional bus service agreements (agreements 324 and 325) with ECAN. The services under agreements 324 and 325 were commenced on 1 November 2010 with the agreements expiring in June 2016.
Applications
[2] There are three applications:
Plaintiff’s application for discovery against the defendant
Defendant’s application for discovery against the plaintiff
NO 317 LIMITED v CANTERBURY REGIONAL COUNCIL [2014] NZHC 276 [25 February 2014]
Defendant’s application for further security for costs
No 317’s discovery application
Mode of discovery
[3] The plaintiff applied for modifications to aspects of the listing and exchange protocol under Schedule 9 High Court Rules. The defendant opposed one aspect of the application and the parties have agreed the order which should be made in relation to the mode of discovery. That order will now be made by consent.
Further discovery sought from defendant
[4] The defendant has provided substantial discovery pursuant to orders previously made by the Court and to subsequent agreement on additional categories.
[5] The additional four categories of documents sought by the plaintiff were set out in an annexure to the interlocutory application which I reproduce as Schedule 1 to this judgment.
[6] The additional documents sought relate to the performance of two other transport companies which had contracts with ECAN, the assessment of their performance, and correspondence concerning them.
The Court’s approach to further discovery
[7] In this case, there was an order for discovery made on 29 August 2013 with the parties to deal with some additional issues.
[8] Although No 317 has in this case not relied upon it, r 8.19 High Court Rules that rule which is usually invoked and most applicable where there has been discovery but one party considers that further discovery should have been given. That said the Court’s considerations in relation to the requested documents will be similar whether arising in the context of an initial order for discovery or a later order for particular discovery.
[9] The convenient point for the Court’s consideration of a discovery application is to consider the relevance of the documents sought, which is to be tested against the pleadings. The approach was well set out by Asher J in Commerce Commission v Cathay Pacific Airways Ltd1 where his Honour stated:
[13] The starting point in such a consideration of appropriate tailored discovery orders must be an analysis of the issues. Discovery categories will reflect the issues and will only be ordered for the discovery of documents that are relevant to those issues. Except in exceptional circumstances, these issues will be discernible from a review of the pleadings. Discovery orders that are essentially of a “fishing” nature are not part of tailored discovery. Orders will not be granted where the categories do not relate to a pleaded relevant issue, but rather a non-pleaded issue which might be pleaded should discovery reveal documents that support such a pleading.
[10] A principle of proportionality must then be applied.2
[11] In Commerce Commission v Cathay Pacific Airways Ltd, Asher J expanded upon the proportionality requirement:3
[18] To determine the proportionality arguments in relation to tailored discovery of particular categories it is necessary to consider the chances of finding relevant documents in the discovery exercise and their degree of relevance. This should then be balanced against the cost of carrying out that discovery process. Broader considerations such as the amount at issue, the resources of the parties, and delay to the proceedings may also be relevant, although they do not loom large in this case given the amount at issue, the considerable means of the parties, and their legal resources. …
[12] His Honour went on to recognise that a greater cost caused by a discovery order can be justified if highly relevant documents may be revealed albeit at significant cost.4
The key pleadings
[13] In No 317’s initial statement of claim, it relied on two causes of action:
(a) Repudiation of contract; and
1 Commerce Commission v Cathay Pacific Airways Ltd [2012] NZHC 726 at [13].
2 Rule 8.2(1)(a) High Court Rules.
3 Commerce Commission v Cathay Pacific Airways Ltd, above n 1, at [18].
4 At [21].
(b) Misfeasance in public office.
[14] Following a strike out application the present pleading was filed. No 317 withdrew the misfeasance in public office allegation, maintained the repudiation of contract cause of action (now its second cause of action) and added three new causes of action.
[15] The current statement of claim now alleges: (a) Breach of contract;
(b) Repudiation of contract;
(c) Illegitimate economic duress;
(d) Intimidation or intentional cause of loss by unlawful means.
[16] No 317’s case on its amended pleading (summarised) centres on contracts
324 and 325 and the other contracts which were running on. No 317 alleges:
Contracts 324 and 325 incorporated the terms of the contracting of
ECAN’s Contracting Manual;
From May 2010 ECAN deducted from payments due to No 317 a number of penalties purportedly pursuant to the terms of the contracts), in part based on a “balanced scorecard” assessment while not imposing penalties
on other operators;
ECAN’s actions towards No 317 are contrasted with its actions towards
other operators, on whom they did not impose penalties.
ECAN issued to No 317 in November 2010 a notice of intention to terminate passenger transport services contracts for allegedly material breaches of contract by No 317;
The termination notice was unlawful.
[17] No 317 does not allege that there was an express term in its contracts requiring ECAN to administer the contracts and in particular to deal with breaches of contract in exactly the same way as ECAN dealt with breaches by other operators. Nor does No 317 allege that there was an implied term which required ECAN to treat other operators with similar contracts equivalently, even-handedly, or fairly.
[18] In his submissions, Mr Cowey for the plaintiff submitted there were three key issues arising from the pleadings which were:
(a) Whether ECAN was entitled to make the deductions from payments made to the plaintiff;
(b)Whether there was any lawful justification for the ECAN’s threats to terminate certain contracts unless No 317’s business was sold to a third party; and
(c) Whether there were any valid grounds for ECAN to terminate contracts 324 and 325 as at 19 November 2010.
No 317’s case as to relevance
[19] Mr Cowey, in his written synopsis, identified the asserted relevance of the requested documents in this way:
The plaintiff ’s pleadings allege an on-going pattern of the defendant failing to act even-handedly.
All transport operators will from time to time have had services running late, being missed or other minor breaches. Documents showing how ECAN dealt with these circumstances, and the explanations provided by the three operators, are of undoubted assistance to interpreting the meaning of the contracts. The same explanation for a five minute delay should not result in a penalty for one operator and no penalty for another, other things being equal.
Likewise, the balanced scorecard evaluation assigns points to each operator based on certain criteria.
If documents show the defendant applying a different standard to the plaintiff than to the other two operators, this is likely to support the plaintiff ’s case that ECAN’s pleaded actions were unlawful; i.e. that the contract (including the contracting manual) properly interpreted gave no grounds for the defendant’s actions.
[20] In the last paragraph quoted from that submission, Mr Cowey referred to the
terms of the contracting manual which were incorporated into No 317’s contract.
[21] Mr Cowey in relation to that particular document expanded upon the more general submission he had made as to relevance.
[22] In his written synopsis, Mr Cowey submitted that the requested documents are relevant particularly to issues arising in relation to the contracting manual because (in Mr Cowey’s words) –
(a) The Contracting Manual was poorly worded and ambiguous on key clauses relating to breach and cancellation.
(b) The Contracting Manual imposed an objective reasonableness standard on the defendant in exercise of any decision that a contract had been breached or that grounds for cancellation exist.
(c) The Plaintiff’s claim pleads that the Defendant could not reasonably have held the opinion that:
(i) it was entitled to issue Minor Breach Notices; nor
(ii) any of the alleged breaches amounted to a serious breach justifying termination,
(iii) the breaches were material and incapable of remedy.
[23] Mr Cowey submitted that correspondence between ECAN and the other bus companies concerning the interpretation of the Contracting Manual forms part of the background matrix of facts relevant to the interpretation of the contracts with the plaintiff – Mr Cowey relied upon well-known passages in the judgments in the Supreme Court in Vector Gas Ltd v Bay of Plenty Energy Ltd.5
[24] Mr Cowey concluded that ECAN’s interaction with the other bus companies in respect of ECAN’s decision-making process as to the interpretation of
5 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] 2 NZLR 444 (quoting particularly passages in the judgment of Tipping J at [22] and [31] – [32].
indiscretions and minor breaches and in respect of the other breach and termination provisions of the various contracting manuals would be relevant at trial in assessing whether ECAN acted reasonably in the actions it purported to take against the plaintiff.
Discussion – No 317’s pleadings
[25] The starting point is that is a proceeding which is based upon contracts entered into between No 317 and ECAN. The first two causes of action are purely contractual, being for breach of contract and for repudiation of contract respectively.
[26] The repudiation cause of action turns on what No 317 characterises as ECAN’s unlawful conduct (meaning conduct in breach of contract) in threatening to terminate contracts 324 and 325 unless No 317’s business was sold to a third party.
[27] While the third cause of action pleads illegitimate economic duress, it relies on the same pleadings as those in relation to the repudiation cause of action, namely the allegations of unlawful conduct. The fourth and final cause of action is tortious, pleading alternatively (within the one cause of action) that ECAN engaged in intimidation or intentionally caused loss to No 317 by unlawful means. By its nature, the fourth cause of action again has its basis in the allegation of unlawful means earlier pleaded in relation to the alleged contractual breaches.
Discussion – the interpretation of the contracts
[28] The first chronological point at which Mr Cowey submits documents in relation to dealings with other bus operators are relevant is before and at the time contracts were entered into with them, Mr Cowey seeks to invoke the Supreme Court’s approach in Vector Gas Ltd v Bay of Plenty Energy Ltd6 for the proposition that the context and discussions not limited to No 317 and ECAN but extending to the context and discussions between ECAN and the other bus operators would provide admissible interpretative aids for the No 317/ECAN contracts. Such is not a proposition which emerges from Vector. To the extent that the authorities permit
access to material outside the four corners of the contractual documents they do so in
relation to material and circumstances known to and involving the contracting parties mutually. If that material on its face brings in discussions which happened to emanate from other parties, it may be admissible. If the ECAN/No 317 material contains material which originally emanated from those other operators then it will have been covered by the existing discovery orders. To the extent that ECAN’s dealings with other operators is not contained in the exchanges between ECAN and No 317 itself, it will not provide any interpretative aid of value or assistance to how the objective (mutual) intention of ECAN and No 317 in entering into the relevant contracts is to be construed. Such material is inadmissible precisely because it is irrelevant.
[29] The second chronological point in relation to which Mr Cowey seeks documents is the period in which ECAN was administering its contracts with No 317 and other operators. Mr Cowey again invoked the Vector Gas Ltd v Bay of Plenty Energy Ltd7 judgment, referring in this instance particularly to the observations of Tipping J as to the admissibility of post-contract evidence. That approach (which at this point is not entirely uncontroversial) allows the admission of evidence if it is
capable of demonstrating objectively what meaning both parties intended the contractual words to bear.
[30] How ECAN and other contractors cannot in this context be conflated with how ECAN and No 317 mutually approached their contracts in the post-contract period. The two are conceptually different precisely because the dealings with other contractors do not speak of the mutual approach in relation to the ECAN/No 317 contracts.
[31] The application in this regard also fails on the basis that the material sought is irrelevant and would not be admissible as an aid to interpretation of the ECAN/No
317 contracts.
Discussion – the quality of ECAN’s decision-making
[32] I start with the pleadings as the most important guide to the relevance of documents sought.
[33] No 317’s pleading expressly (and correctly) refers to ECAN’s right to
terminate contracts 324 and 325 if –
… in the reasonable opinion of ECAN [No 317] substantially failed to
comply with the contract terms.
[34] The Contracting Manual contains a parallel provision in relation to ECAN’s right to issue Minor Breach of Contract Notices and to impose penalties. ECAN has the right to take either of those steps under the contracts –
… where in the reasonable opinion of [ECAN] the nature or quantity of non compliance does not constitute a serious breach but still warrants the issue of a formal breach notice.
[35] Thus when one moves away from the interpretation of the contract to matters relating to the implementation of its terms – including whether ECAN reached the point of having the required standard of opinion in relation to any of the material events – the reasonableness of ECAN’s opinion is fundamental. Material which will enable counsel for No 317 to test the reasonableness of ECAN’s opinion is material that should be available to No 317 subject to any questions of proportionality of discovery.
[36] In its discovery application No 317 sought a number of documents which Mr Cowey himself described as “historical”. Historical documents would have marginal relevance, if any.
[37] No 317 on its pleadings seeks damages in relation to penalties imposed by
ECAN from June 2010 with deductions made from payments through to November
2010. No 317’s case culminates in a notice said to have been issued by ECAN around 19 November 2010, it being notice of ECAN’s intention to terminate contracts 324 and 325.
[38] I accept that a trial Judge might properly allow counsel for No 317 to test the reasonableness of ECAN’s decision-making in relation to minor breaches, penalties and termination by reference to any decisions made in relation to similar operators for the same type of alleged breach during the same period. Beyond that, evidence in relation to possible breaches by other operators would be of marginal relevance and would not appropriately be the subject of a discovery order on grounds of proportionality. Furthermore, I do not regard documents which might speak generally of the performance of other operators as falling within a category of proportionate discovery. That includes documents such as the assessments of tenders which ECAN received or had prepared when the awarding of new contracts was being considered. Any ordered discovery should be focussed specifically on detected breaches in the period June to November 2010 and on the response of ECAN. Such documents will permit No 317 and its counsel to understand how such detected breaches were dealt with and, if appropriate, to cross-examine and to make submissions.
[39] I am satisfied that No 317 is entitled to some discovery within the categories sought and the orders I make reflect an entitlement to documentation specifically relevant to breaches and decisions thereon.
ECAN’s discovery application
The application itself
[40] In December 2013, ECAN made application for orders that No 317 provide additional discovery of five categories of documents (with numerous sub- categories).
[41] For the purposes of the hearing Mr Colson reformatted the discovery application in a table which listed specifically 15 categories of documents. By the time of the hearing, some of those categories were either consented to or not opposed by No 317 and submissions at the hearing were focussed on those specifically in dispute.
[42] Schedule 2 attached to this judgment lists the 15 categories of documents sought by ECAN. It identifies the six categories not in dispute, in relation to which I was invited to make orders by consent.
[43] The discussion which follows deals with the nine disputed categories.
No 317’s damages claim as pleaded
[44] By its first cause of action, which is not relevant for this purpose, No 317 seeks to recover damages for what it says were unlawful deductions made by ECAN.
[45] It is the identical damages claim on the remaining three causes of action on which ECAN relies for its application for further discovery. No 317’s prayer for relief is for –
Damages to be quantified at trial, but not less than $5m.
[46] The prayers for relief rely on earlier paragraphs in the statement of claim for
particularisation of the “not less than $5m” claim.
[47] In his submissions, Mr Colson submitted that No 317’s pleading earlier in the statement of claim appear to contain four sets of assertions relevant to quantification. Mr Cowey for No 317 did not take issue with this particular aspect of analysis and I adopt Mr Colson’s characterisation of the key allegations, namely:
(a) In November 2010, No 317 sold its business to Go Bus Holdings Ltd (Go Bus) for approximately $9m. Go Bus has assumed No 317’s liability of $6m for the purchase of a new bus fleet from China;
(b) The sale price was less than the market value of the business and was
discounted solely as a result of ECAN’s unlawful conduct;
(c) The sale price to Go Bus was $3,319,327 less than the secured debt owed by No 317;
(d)The net equity in No 317’s business at 19 November 2010 was not less than $2,500,000;
(e) Mr Colson noted that the No 317’s pleading of its equity position introduces a basis upon which No 317 might at trial seek damages in relation to a lost opportunity (being the opportunity to attract further equity injections). Alternatively, Mr Colson accepted that the current pleading (with it reference to a discount on the market value of the business) leaves it open to No 317 at trial to seek damages based on a sale of assets at an undervalue. Mr Colson submitted that ECAN, so long as No 317 leaves its quantification and particularisation of damages at the present level is entitled to prepare for trial on both bases. This approach, he submitted, reflects an examination of the actual possibilities in the period around November 2010, as deposed by No 317’s director, Clive Peter, in an earlier affidavit sworn in this proceeding, stated:
Between September and November 2010, the Plaintiff was exploring three main options to expand its operation: first an equity injection from two new shareholders; secondly a sale (both Swan Transit, Australia and Go Bus were interested); or a sale/merger with Gobus.
The experts’ evidence
[48] The parties have each retained experts to advise them in relation to valuation issues. ECAN’s application for further discovery is based on the documents identified by Alan Dent as the material he needs to assess the value of the No 317 in November 2010. He identifies the information as also what a potential purchaser of the business would expect to see by way of due diligence before making an offer to purchase the business.
[49] Grant Graham, the expert retained for No 317, identifies some of the documents requested as material (being those no longer in dispute) in his evidence. Mr Graham notes that the sale effected by No 317 (to Go Bus) in November 2010 was a sale of the business and the assets and did not involve a purchase of shares in
No 317. Earlier in his affidavit, Mr Graham describes some of the documents requested by Mr Dent as being –
Only really applicable in a transaction pertaining to the acquisition of shares in a company rather than of a business and related assets.
Discussion
[50] The starting point for considering the relevance of documents requested must be the pleadings as they now stand. This is reinforced by the fact that a trial date has been allocated (albeit with the close of pleadings date yet to be reached). No 317’s pleadings leave open the possibility that it may pursue its damages (when they are ultimately quantified) by reference to either foregone equity injections or the lost value of assets in a fire-sale context or a combination of both. To the extent that Mr Graham would focus solely on documents relevant for valuation purposes to a sale and purchase of business and assets, ECAN is entitled on No 317’s pleading as it stands to treat such proposition as too narrow – ECAN is entitled to have its expert review the documents relevant to both approaches to valuation or calculation of damages.
[51] I accordingly adopt Mr Dent’s as the applicable approach. It then remains for me to consider whether particular categories of documents may even in that context be too broadly stated, as Mr Graham suggested some of them have been.
Item 1 (financial statements for 2008 onwards)
[52] This category has been agreed.
Item 2 (subsequent post-event financial statements)
[53] Any post-event financial statements may assist as a cross-check for the reliability of earlier statements, particularly if those earlier statements were prepared when litigation was contemplated or pending. No 317 has not provided any evidence to indicate that discovery of additional documents would be onerous – no issues of disproportionality arise. Any issues of commercial sensitivity can be dealt with by protocol in the normal way.
Item 3 – monthly management accounts 18 months either side of November 2010
[54] These are documents reasonably requested as a check upon performance up to the alleged contractual breach date and for a cross-check for the period afterwards. In his evidence, Mr Graham expresses an “understanding” that “the company being valued” [sic] was in essence a “fixed income business” but it is clear, as Mr Colson submitted, that with the potential for and actuality of penalties and balanced score- card deductions, income was not fixed in any normal sense of the word.
Item 4 – creditors’ reports
[55] Mr Graham would treat such reports as immaterial as they relate only to an acquisition of shares. Given the pleadings, that is a relevant consideration.
Item 5 – demands by creditors
[56] Precisely the same considerations attach to such demands as attach to
creditors’ reports.
Item 6 – Inland Revenue Department statements of the tax position
[57] As with the financial statements, these are a reasonable request by way of a means of cross-checking others documents and data. There is no evidence to suggest that the time required to effect discovery would be disproportionate to the subject matter of the proceeding.
Item 7 – banking correspondence
[58] Mr Graham’s parallel concern with this documentation is that it pertains to the acquisition of shares in a company rather than the sale of business and related assets. I find it to be in the same category as Item 4 (creditors’ reports).
Item 8 – budget/forecast/strategy papers
[59] ECAN’s request was originally for budget/forecast/strategy papers from 2008 onwards. Mr Graham deposed that with No 317’s increase in contracts in 2010 (doubling its passenger services to ECAN) budget/forecast/strategy papers prior to 1
April 2010 were effectively meaningless. Mr Colson for ECAN accepted that position and reframed the request to such documents for the period from 1 April
2010, which I find to be a relevant group of documents primarily by way of a cross- check.
Items 9, 10, 11, 12
[60] These are not in dispute
Item 13 - internal management reports as to performance of business overall.
[61] Given the pleadings – incorporating issues of the equity in No 317 – this information is reasonably required if the scope is narrowed as my order will do to the documents, representing three prior years, which a purchaser might call for on due diligence by way of a cross-check.
Item 14 – external reviews of the business
[62] Although this document was included in ECAN’s interlocutory application, it was not a document identified by Mr Dent in his evidence as material. In the absence of supplementary evidence from Mr Dent, I am not prepared to make an assumption that it would be material to any assessment by him (or by any other witness).
Item 15 – loan/lending/facility arrangements and lending decisions (with Face
Finance or others)
[63] This is similarly a category of documents which was not referred to by Mr Dent as being material to the valuation issues. Mr Graham expressly deposed that he did not consider it to be a necessary item. In the absence of evidence from Mr Dent, I am not prepared to treat it as material.
Security for costs
Previous provision of security
[64] ECAN, promptly after this proceeding was issued, applied for security for costs.
[65] No 317 placed on record the fact that the threshold test for security (reason to believe that No 317 would be unable to pay the defendant’s costs if unsuccessful) was met.
[66] The parties resolved the application without an interlocutory hearing – No
317 provided a tranche of security in the sum of $50,000 with leave reserved to
ECAN to seek a further tranche if it appeared appropriate at a later point.
The revived application
[67] Pursuant to the leave reserved, ECAN has had its security application brought on for hearing. The application is for a further tranche of security of $90,000. That sum has regard to a calculation of costs and usual disbursements on a mixed 2B and
2C basis totalling $109,672 and anticipated expert’s fees of $40,000 (excluding GST). Counsel completed a calculation as a schedule to ECAN’s application and it was supported by Mr Dent’s evidence that he had estimated his costs of preparing for and giving evidence as being not less than $40,000.
[68] Counsel’s 2B calculation suggested that an award of 2B costs up to the completion of inspection of documents would have amounted to $55,123. A theory of the application is that the first tranche of security ($50,000) has therefore been used up.
No 317’s opposition
[69] No 317 filed a notice of opposition asserting that the amount of additional security was inappropriate given:
(a) The merits of No 317’s claim; and
(b) The fact that No 317’s impecuniosity resulted from a forced sale
caused by ECAN.
[70] In the event, the opposition of No 317 was focused through Mr Cowey’s synopsis of submissions upon the amount of any additional award of security. The synopsis in fact suggested that no additional security (beyond the existing $50,000 plus interest) should be required. At the hearing, however, Mr Cowey informed the Court that No 317 had the previous day made an offer of an additional tranche of security in the sum of $15,000.
[71] Mr Cowey’s synopsis of submissions made some additional points to which I
will return in my discussion of the application.
[72] In his oral submissions, Mr Cowey added a further ground of opposition which had not been previously signalled, namely that it was not appropriate for an order for security of costs to have regard to a disbursement such as an expert’s fee.
[73] I now turn to considerations advanced in relation to the application for further security.
The jurisdiction
[74] ECAN’s application falls to be considered under r 5.45 as the original
application did.
[75] No 317 accepts that the threshold requirement under r 5.45(1)(b) is established.
[76] Accordingly, the jurisdiction invoked by ECAN is that under r 5.45(2) which provides:
(2) A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.
[77] That jurisdiction applies equally to the granting of a further tranche as it does to an initial grant of security.8 The point at which a proceeding is set down for trial will often be an appropriate time at which to consider the quantum of a second tranche of security as there may then be a more reliable forecast as to the duration and nature of trial.9
The merits of No 317’s claim – the cause of No 317’s impecuniosity
[78] In his written synopsis and his oral submissions, Mr Cowey chose not to focus on the merits of the claim or on any suggestion that security should be denied by reason of ECAN’s having caused No 317’s impecuniosity.
[79] This is not a case where a plaintiff can in this context lean on any clear impression as to merit or cause of impecuniosity. The plaintiff may have a claim but it is not a markedly strong claim. Insofar as No 317 has the onus of proving causation of damage, the present relatively unquantified state of its damages claim does not lend itself to any clear impression of a particular prospect of success.
[80] In this regard, the situation has not significantly changed from when No 317 accepted that a first tranche of $50,000 of security should be provided.
The plaintiff ’s funding
[81] It is common ground that the plaintiff is itself without resources to fund this litigation and is doing so from associated parties interested in the subject matter of the litigation.
[82] While access to justice may arise for some impecunious plaintiffs, Mr Cowey accepted that access to justice issues do not directly arise in the circumstances of the present case. As Kós J observed in Highgate on Broadway Ltd v Devine:10
Where a plaintiff is impecunious, but can reasonably draw upon resources from associated third parties such as shareholders or other persons interested
8 Aquaculture Corporation v McFarlane Laboratories (1984) Ltd (1987) 1 PRNZ 467 (HC) per
McGechan J at 472.
9 At 472.
10 Highgate on Broadway Ltd v Devine [2013] NZAR 1017 at [22].
in the subject matter or litigation, that is a ground for the order in security notwithstanding the difficulties the impecunious plaintiff might otherwise face. It is less likely in such a case that a prima facie meritorious case will be thwarted by the ordering of security.
(footnotes omitted)
The likely level of ECAN’s costs on a successful defence
[83] Mr Colson’s calculation of a costs award based largely on 2B calculations but partly on 2C calculations (for discovery, inspection, briefing and preparation for hearing) produced from commencement to trial is the figure of $109,672.
[84] Mr Cowey with his submissions provided a table based on Mr Colson’s but deleting some items which he suggested were inappropriate and dealing with all items on a 2B basis. His table did however also miss some items, notably the defendant’s preparation of a list of issues, authorities and common bundle which accounts for $3,980.
[85] Both counsel made their calculations upon the basis of the present estimate of an eight-day trial. Mr Cowey expressed an anticipation that the trial might be shorter than previously anticipated. I have no basis on the information before me or my general impression for departing from the eight-day estimate.
[86] I view Mr Colson’s table with some amendments as closer to the mark than Mr Cowey’s. The single substantial amendment I would make would be to treat discovery and inspection for this purpose as being on a 2B and not 2C basis which would reduce an ultimate award of costs by approximately $18,000. That would suggest a realistic award of costs and disbursements of approximately $90,000.
Relevance of disbursements and fees of expert witnesses
[87] In his oral submissions, Mr Cowey raised for the first time the suggestion that the Court’s jurisdiction in granting security for costs did not permit the Court to take into account the fees of an expert witness whom the defendant has briefed and intends to call. Indeed, Mr Cowey submitted that disbursements of any kind are outside the permitted purview of an order for security.
[88] I asked Mr Cowey if he could refer to any authority for the proposition that an order for security could not have regard to disbursements or expert witness fees. Mr Cowey said he could not refer me to any authority in relation to r 5.45 but instead relied on the definition of “disbursements” under r 14.12. Rule 14.12 refers to a disbursement as including any expenses which would ordinarily be charged for
separately from legal and professional services in a solicitor’s bill of costs.11
[89] Mr Cowey noted the High Court decision in Progressive Enterprises Ltd v North Shore City Council12 as authority for the proposition that the fees of expert witnesses are witness expenses and are therefore a disbursement.
[90] The definition of “disbursement” in r 14.12(1) relied on by Mr Cowey is not in point. The definition of “disbursement” is prefaced by the words:
In this rule, – …
In other words, the definition is there for the limited purposes of r 14.12 itself.
[91] It is my experience that expert witness fees and other disbursements are regularly taken into account when considering the amount of an award of security. The decision of McGechan J in Aquaculture Corporation v McFarlane Laboratories (1984) Ltd13 illustrates a case where the estimates of travel and accommodation expenses of $21,000 for a five-week trial were taken into account in addition to the legal expenses themselves.
[92] Rule 5.45 does not require the expression “security for costs” to be read as distinguishing “costs” from “disbursements”. In several parts of the High Court Rules, the expression “costs” clearly has the more extended and encompassing meaning relied upon by Mr Colson. For instance, the over-arching principle in r 14.1 that “costs are at the discretion of the Court” clearly encompasses matters
relating to disbursements. Other rules in Subpart 1 Part 14 use the term “costs” in a
11 McGechan on Procedure at HR 14.12.01(4)(a).
12 Progressive Enterprises Ltd v North Shore City Council (2005) 17 PRNZ 919 at [22] – [26].
13 Aquaculture Corporation v McFarlane Laboratories (1984) Ltd, above n 10.
similarly encompassing manner.14
Relevance of previous tranche ($50,000)
[93] The first tranche of $50,000 was agreed by the parties at a time when the Court had indicated that it was prepared to deal with security in this case in tranches. No 317 must have anticipated that once the likely length of trial was clearer an additional award could be expected. In the circumstances I do not accept Mr Cowey’s submission that the $50,000 security already provided should be treated as reasonable or sufficient.
[94] That said, it is unlikely that I would have ordered a sum of as much as
$50,000 to cover attendances to the completion of discovery and inspection given that that is close to what a 2B award of costs might constitute. An award of approximately $40,000 to the completion of inspection would have been likely. I therefore regard a portion of the first tranche as appropriately covering some of the attendances between now and completion of trial.
[95] Assuming scale costs of approximately $90,000, I view in the round a sum of
$70,000 as an appropriate sum by way of security for the legal costs and disbursements themselves. That represents a just award.
Expert witness fees – the amount
[96] In his evidence, Mr Dent did not provide any breakdown of his assessment of
expert witnesses’ fees of $40,000.
[97] As a qualified expert, Mr Dent is entitled to have his estimate treated respectfully. But in the absence of a breakdown by reference to tasks and the basis of charging, the Court cannot be assured that the sum of $40,000 is realistic. The Court must also take into account that there may well be within Mr Dent’s estimate of time provision for a greater period during the trial than will be necessary if the
experts are required to have a conference ahead of the hearing.
14 See rr 14.8, 14.10, 14.11, 14.13, 14.14, 14.15, 14.16, 14.17. Rule 14.13 clearly uses “costs” to refer to both “costs and disbursements” in as much as both are referred to in the rule.
[98] I am prepared to adopt for expert witnesses’ fees on this basis a sum of
$25,000.
[99] As is implicitly conceded by Mr Colson that that figure is to be treated as exclusive of GST as the plaintiff will be entitled to recover its GST output in the normal way.
[100] Approaching Mr Dent’s fee in parallel to ECAN’s legal expenses, I consider a
sum of $20,000 would be the just figure for security.
Security - total amount
[101] I find it just that the plaintiff provide by way of additional security a sum of
$40,000 (reflecting two components) in relation to legal expenses and expert witness fees respectively).
Timing of provision of security
[102] The appropriate date for the provision of that security will be the close of pleadings date. It is appropriate that there be an order that the proceeding be stayed in the event security is not provided. Any stay, in fairness to the defendant, should operate only after the plaintiff has met its obligations in relation to the provision of its briefs.
Costs
[103] At the hearing, I heard from counsel as to costs in relation to these interlocutory applications.
[104] It was common ground that the appropriate level of costs would be on a 2B
basis.
[105] It was also common ground that if there were clear overall outcomes on the various applications that costs would follow the event in relation to each such application.
[106] There have been clear outcomes on two applications, namely its application for against No 317 and on its application for further security for costs. On the remaining application, No 317 was partly successful but ECAN was also successful in resisting discovery of substantial categories of documents. The appropriate orders are that costs follow the event on the two “successful” applications and that there be no order as to costs in relation to the plaintiff’s application.
Orders
[107] I order:
(a) in relation to the plaintiff’s application for discovery against the
defendant:
(i)The defendant is to file and serve by 19 March 2014 a supplementary verified list of documents covering –
1. ECAN’s documented (including electronic) record of any perceived conduct of Red Bus Limited (Red Bus) and/or Leopard Coachline Limited (Leopard) in the period 1 June
2010 to 19 November 2010 which the creator of the document recorded as constituting a possible breach of contract and/or justifying consideration of a Minor Breach Notice, a Penalty or a Termination of Contract.
2. Any document showing a decision of any officer or employee of ECAN in relation to ECAN’s action on possible breaches of contract by Red Bus or Leopard in the period 1 June 2010 to 18 November 2010.
3. The “breaches” referred to in 1 and 2 above are limited to those of the same nature as breaches by No 317 in the period for which ECAN issued Minor Breach Notices, deducted Penalties, or issued its 19 November 2010
Notice.
4. The defendant is entitled to list such documents subject to requirements of commercial sensitivity. Counsel for the plaintiff and any expert witness for the plaintiff may be required to give appropriate undertakings as to commercial sensitivity before any inspection of discovered documents takes place.
(ii) Thedefendant is to provide inspection of the supplementary documents within five working days after the verified list is filed and served.
(b) in relation to the defendant’s application for discovery against the
plaintiff:
(i)The plaintiff is to file and serve by 19 March 2010 a supplementary verified list of documents, covering –
1. post-event financial statements;
2. monthly management accounts 18 months either side of
November 2010;
3. creditors’ reports;
4. demands by creditors;
5. Inland Revenue Department statements of the tax position;
6. banking correspondence;
7. budget/forecast/strategy papers from 1 April 2010 onwards;
8. Internal management reports as to performance of business overall;
(ii) By consent, the plaintiff is to include in its supplementary list
the following additional documents:
Annual financial statements for CBSAL for 2008,2009 and
2010;
Any valuations prepared by or for CBSL – either of the business or business assets from 1 April 2010 until 30
November 2010;
If audited, copies of any reports prepared by the auditors; Profile of contract services;
Consent registers;
(iii)The plaintiff is to provide inspection of the supplementary documents within five working days after filing and service of the plaintiff’s supplementary list.
(c) in relation to the defendant’s application for further security for costs:
(i)The plaintiff is to pay to the Registrar a further $40,000 by way of security for costs by the close of pleadings date;
(ii)If such security is not provided, the proceeding will be stayed for all purposes other than any outstanding obligations of the plaintiff in relation to the provision of briefs of evidence.
(d) In relation to costs:
(i)The plaintiff is to pay the costs of the defendant’s discovery application and of the defendant’s security application on a 2B basis, together with disbursements to be fixed by the Registrar PROVIDED ALWAYS that there be no duplication of items in
Schedule 3 High Court Rules where there was only one event
(such as in relation to conferences or hearings);
There is no order as to costs or disbursements in relation to the
defendant’s application.
Associate Judge Osborne
Solicitors:
Parry Field, Solicitors, Christchurch for Plaintiff
Bell Gully, Solicitors, Wellington for Defendant
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