Norris Ward McKinnon v Kaye

[2013] NZHC 554

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV2009-019-001473 [2013] NZHC 554

BETWEEN  NORRIS WARD MCKINNON Plaintiff

ANDANTHONY PRATT KAYE AND MORVA KAYE

Defendants

Hearing:         19 March 2013

Appearances: R J Latton for the plaintiff

A P Kaye in person

Judgment:      20 March 2013

JUDGMENT OF GILBERT J

This judgment was delivered by me on 20 March 2013 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………….

Solicitors:           Kennedys, P O Box 3158, Auckland 1140

Copy to:            Mr & Mrs Kaye, 5/204 Nixon Street, Hamilton 3216

NORRIS WARD MCKINNON V KAYE HC HAM CIV 2009-019-001473 [20 March 2013]

Introduction

[1]      Mr and Mrs Kaye apply to lift the stay of this proceeding ordered by Faire AJ

on 28 November 2012.  Norris Ward McKinnon does not oppose this application.

[2]      Norris  Ward  applies  for  security  for  costs  against  Mr  and  Mrs  Kaye  in relation to their counterclaim.  This is the only live claim because Norris Ward has now dropped its claim against Mr and Mrs Kaye for outstanding fees.

Background

[3]      In mid-2005, Mr and Mrs Kaye agreed to purchase a garden centre business in Cambridge pursuant to three interrelated agreements for sale and purchase, one for each of the two lots being acquired, and one for the business.  The Kayes retained Tanner Fitzgerald to act for them on this purchase.

[4]      The Kayes encountered difficulties on settlement.  Tanner Fitzgerald paid the amount required to settle the purchase of one of the lots without obtaining title.  The mortgagee was concerned about its position and recommended that the Kayes obtain independent advice. This is what led them to engage Norris Ward in August 2006.

[5]         In September 2006, shortly after it was instructed, Norris Ward advised the Kayes that they had a good claim against Tanner Fitzgerald for negligence.   The Kayes accepted this advice and instructed Norris Ward to pursue such a claim.

[6]      In November 2006, with Norris Ward’s assistance, the Kayes obtained title to the lot they had paid for.   Final settlement of the balance of the purchase was completed on 16 March 2007.

[7]      In May 2007, the litigation lawyer dealing with the matter at Norris Ward advised the Kayes that Tanner Fitzgerald had no defence to their claim and that they would achieve a substantial recovery, in the hundreds of thousands of dollars.  This advice was confirmed by letter dated 27 July 2007:

At this early stage, I consider that you have a strong case for negligence and reasonable prospects for securing, at least, the majority of the monies you are seeking in damages [$673,027].

[8]      In a letter dated 23 August 2007, Norris Ward advised the Kayes that there was a good prospect of the claim settling within six to eight months.  The letter also confirmed the likely recoverability of substantial damages:

Having considered your alleged damages I consider that you have reasonable prospects of recovering a substantial amount of these damages being in the hundreds of thousands of dollars.

[9]      By this time, the Kayes needed additional monies to fund the business operations.  They claim that they relied on Norris Ward’s advice as to the likely amount and timing of recovery from Tanner Fitzgerald, as well as advice from a former owner of a garden centre business, in deciding to increase their borrowings rather than realising other properties they owned in Wellington to provide this funding. The refinancing was completed in November 2007.

[10]    In December 2007, Norris Ward advised the Kayes that they should seek summary judgment against Tanner Fitzgerald for damages in excess of $600,000. The Kayes accepted this advice but proceedings were not commenced until late March  2008.  In  June 2008,  Norris  Ward  recommended  that  the  application  for summary  judgment  should  be  withdrawn.      However,  it  continued  to  express optimism about the claim and advised that the Kayes should recover substantial damages.  In September 2008, Norris Ward filed and served an amended statement of claim seeking $1.8 million.

[11]    The Kayes became concerned about the quality of the advice they were receiving from Norris Ward.  They took independent advice from two other lawyers who advised that their claim against Tanner Fitzgerald was worth only a small fraction of what they were claiming, about $60,000.  The Kayes accepted this advice and promptly settled their claim against Tanner Fitzgerald in March 2009.

[12]     Room Outside Limited, the company nominated by the Kayes to take title to the business, was placed in liquidation in April 2009.   The liquidator realised the

assets of this business.  The Kayes’ two properties in Wellington and the two lots in

Cambridge were sold with settlement dates between August 2009 and March 2010.

The proceedings

[13]     In    September    2009,    Norris Ward    commenced    proceedings    in    the District Court seeking payment of outstanding legal fees.  The Kayes responded with a counterclaim seeking substantial damages for alleged negligence by Norris Ward. The proceedings were accordingly transferred to this court.

[14]     The Kayes now calculate that their losses exceed $3.2 million.  These include losses allegedly suffered on the sale of the Wellington and Cambridge properties, loss of monies invested in the garden centre business, loss of their livelihoods, amounts due under personal guarantees, loss of life assurance policies as a result of being unable to pay premiums, additional financing costs, additional legal costs and general damages for stress and anxiety.

[15]     On 3 May 2012, Faire AJ allocated a three week trial date commencing

8 April 2013.

[16]     In  October  2012,  the  Legal  Services Agency  withdrew  legal  aid  for  the Kayes’ claim.  Norris Ward promptly applied for an order for security for costs and an order staying the proceeding until security was provided.  This application was to be heard before Faire AJ on 28 November 2012 but it did not proceed because the Kayes  consented  to  the  trial  fixture  being  vacated  and  an  order  staying  the proceeding so that they could challenge the withdrawal of legal aid.

[17]     The Legal Aid Tribunal has now declined the Kayes’ application for review.

The Kayes intend to appeal against this decision.

[18]     Whether or not legal aid is reinstated, the Kayes wish to pursue their claim. They therefore apply for an order lifting the stay.  Norris Ward does not oppose this application and it is accordingly granted.  The stay having been lifted, I must now deal with Norris Ward’s application for security for costs.

Will the Kayes be able to pay costs if their claim against Norris Ward fails?

[19]     Mr Kayes is in receipt of New Zealand superannuation.   Mrs Kayes  has recently secured employment.  They are living in rented accommodation.  They have no assets other than a car estimated to be worth $10,000.  They have no savings and owe substantial sums to creditors. They do not dispute that they are insolvent.

[20]     The threshold test for making an order for security for costs under r 5.45 of the High Court Rules is clearly met. There is reason to believe that the Kayes will be unable to pay Norris Ward’s costs if they are unsuccessful with their claim.  The sole issue is whether security ought to be ordered in the exercise of my discretion.

Should security for costs be ordered?

[21]     Mr Latton responsibly acknowledged that the Kayes have a good arguable case that Norris Ward breached its retainer and was negligent.  In particular, he concedes that the Kayes may be able to establish that Norris Ward delayed unreasonably in pursuing the claim against Tanner Fitzgerald and gave unrealistic advice about the likely size and timing of recovery.  However, he submits that the losses claimed by the Kayes are excessive and that they are unlikely to recover “any more than a small percentage of the damages they seek”.

[22]     With Mr Kaye’s consent, Mr Latton produced a copy of an offer made on behalf of Norris Ward to settle the claim by paying the Kayes $140,000.  In addition, Norris Ward has written off all outstanding fees and will no longer pursue recovery of these.

[23]     It would be inappropriate for me to express firm views on the merits of the Kayes’ claim.  However, I consider that they are likely to face significant difficulty in establishing that the losses they have claimed were caused by any negligence on the part of Norris Ward.  Norris Ward may have given them false hope about their prospects of making an early recovery of a substantial sum from Tanner Fitzgerald. However, it does not necessarily follow that Norris Ward caused the losses resulting from the failure of the business and the sale of the Wellington and  Cambridge

properties.    Mr Latton may well be right that a substantial portion of the losses claimed are not recoverable from Norris Ward.

[24]     It  seems  clear  that  the  Kayes  are  not  able  to  pay  security  for  costs. Accordingly, if I make an order requiring them to do so, this is likely to prevent them from pursuing their claim.  On the other hand, if I do not make an order for security for costs, it seems equally clear that the Kayes will not be able to pay Norris Ward’s costs if their claim fails.   I must balance these competing interests in deciding whether to make an order for security for costs.

[25]     I have reached the conclusion that an order for security for costs should not be made in this case.  To make such an order would have the effect of denying the Kayes access to the court to have their claim heard.  Although their claim may well be significantly overstated, they do have a good arguable claim in negligence and they may be able to establish that they have suffered loss as a result.  Mr Latton does not argue otherwise.  On the contrary, he concedes that this is the case.  This is why a settlement offer of $140,000 has been made over and above the outstanding legal fees foregone.  In these circumstances, it seems to me that it would be unjust to deny the Kayes access to the court to pursue their legitimate claim.

[26]     Although Norris Ward will be exposed for their costs, it recognises that the Kayes have a good arguable case and that they may be able to recover some of the losses they have claimed.  Norris Ward is therefore prepared to forego its fees and pay $140,000 to settle the Kayes’ claim.  If that offer is not accepted by the Kayes and the matter proceeds to trial, those monies will be available to meet part or all of Norris Ward’s costs of trial.  That sum far exceeds any amount that could reasonably be ordered by way of security for costs in a case like this.

Result

[27]     The order staying the proceeding is lifted by consent.

[28]     The plaintiff’s application for security for costs is declined.

[29]     The  proceeding  is  adjourned  to  a  telephone  conference  at  4.00  pm  on

30 April 2013 before Faire AJ to enable directions to be made for the future conduct of this proceeding, including the allocation of a new trial date.

M A Gilbert J