Powell v K2 Investment Group Limited
[2020] NZHC 3181
•3 December 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2018-409-000191
[2020] NZHC 3181
BETWEEN RICHARD OWEN POWELL
Plaintiff
AND
K2 INVESTMENT GROUP LIMITED
First Defendant
AND
K2 INVESTMENT GROUP AUSTRALIA PTY LIMITED
Second Defendant
AND
GABOR KEMENY
Third Defendant
Hearing: 23 November 2020 Appearances:
S D Campbell and J J Anson-Holland for Plaintiff T E Hutchinson for Defendants
Judgment:
3 December 2020
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 3 December 2020 at 11.00 am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
POWELL v K2 INVESTMENT GROUP LTD [2020] NZHC 3181 [3 December 2020]
The applications
[1] This case is set down for trial in May 2021. The first, second and third defendants (the defendants) make a late application after the close of pleadings for orders:
(a)granting them leave to apply for security for costs;
(b)that the plaintiff pay security for costs in the sum of $143,639 or such other sum as the Court considers sufficient as security for the costs of the defendants;
(c)that the proceeding be stayed until security is provided; and
(d)for the costs of this application.
[2]The applications are opposed by the plaintiff.
Background
[3] I set out the background to the extent required to provide some necessary context.
[4] This dispute has its genesis in a loan agreement of 7 September 2012 entered into between the plaintiff (Mr Powell) and the first defendant (K2 New Zealand) under which in the event of default K2 New Zealand agreed to grant Mr Powell a mortgage over K2 New Zealand’s “50% equitable share” of certain properties at Hastings and Napier. Mr Powell makes a claim in debt against K2 New Zealand but the real issue is whether the loan agreement conferred upon him an interest in the Napier or Hastings properties so as to support his claim against the second and third defendants. Broadly, the defendants argue that K2 New Zealand had no equitable interest in the properties and no authority to mortgage them or, alternatively, if K2 New Zealand had any interest in the properties it held those interests on trust and the loan agreement could not confer on Mr Powell any interest in the properties.
[5] On 6 April 2018, Mr Powell filed this proceeding. The defendants filed statements of defence and a counterclaim seeking the removal of a caveat lodged by Mr Powell over the title to the Hastings property. The Napier properties had been earlier sold and an agreed amount is held in escrow pending determination of this proceeding.
[6] On 19 November 2018, Associate Judge Matthews made directions by consent that the close of pleadings date was 11 January 2019 (except in relation to any interlocutory applications dealing with inadmissibility of evidence) and the Registrar was to allocate a four day hearing following 10 May 2019.
[7] The trial has been delayed for several reasons. Dates originally offered in May 2019 were not suitable due to counsels’ commitments. A trial scheduled to commence on 2 March 2020 was adjourned on the request of Mr Kemeny. The trial was rescheduled to commence on 11 May 2020 but could not proceed due to the COVID- 19 pandemic. Dates offered in August 2020 were unacceptable to Mr Kemeny who has health issues. The trial is now scheduled to commence on 24 May 2021.
[8] The issue of security for costs was raised by the defendants’ former lawyers in a letter to Mr Powell’s lawyers of 20 May 2020. An offer of settlement was made and it was said if it was not accepted Mr Kemeny would apply for security for costs. This application was not filed, however, until 10 September 2020.
The application for leave
[9] This application has been made 29 months after the commencement of the proceeding and 20 months after the close of pleadings date. Accordingly it engages r 7.7(1) of the High Court Rules 2016 which provides as follows:
No statement of defence or amended pleading or affidavit may be filed, and no interlocutory application may be made or step taken, after the close of pleadings date without the leave of a Judge.
[10] In order to obtain leave to take a step after the close of pleadings date, it is the applicant who must surmount three “formidable hurdles” that:1
(a)it is in the interests of justice to grant leave;
(b)the granting of leave will not significantly prejudice the other parties; and
(c)granting leave will not cause significant delay.
[11]In Elders Pastoral Ltd v Marr Ltd, the Court of Appeal said:2
Mr Temm and Mr Ingram argued for what may be called a disciplinary approach to belated applications for amendments: to penalise dilatoriness and to discourage opportunism. In our opinion, if an applicant can surmount the three formidable hurdles of showing that the amendment is in the interests of justice and will not significantly prejudice defendants or cause significant delay, very little if any weight should be given to the suggested desirability of something akin to the denunciation which is an established factor in criminal sentencing. We find it difficult to envisage a case in which the relevant considerations are not all comprehended in the three just mentioned.
[12] These principles were confirmed in NZ Iron Sands Holdings Ltd v Toward Industries Ltd where Wylie J refused leave to apply for further discovery after the close of pleadings saying:3
[33] The close of pleadings date has a clear purpose. It is intended to ensure that pleadings have been completed and that all interlocutory matters have been attended to, so that the parties can concentrate on preparing for trial. Preparation for trial is demanding work which requires clear time and attention, and the rules are directed to ensure that that time should not be subject to disruption by interlocutory matters. In order to obtain leave to file further interlocutory applications after the close of pleadings date, it is necessary to surmount “three formidable hurdles” — namely that it is in the interests of justice to grant leave, that granting leave will not significantly prejudice other parties and that it will not cause significant delay. The closer the application is to trial, the more formidable those hurdles will become.
(Footnotes omitted)
1 Elders Pastoral Ltd v Marr (1987) 2 PRNZ 383 at 385 (CA).
2 At 385.
3 NZ Iron Sands Holdings Ltd v Toward Industries Ltd [2019] NZHC 2883.
[13] As Wylie J makes clear, in determining whether leave should be granted the closer the application is to trial, the more difficult it will be for an applicant to satisfy these hurdles.
[14] The timing of the application and the reasons for the delay in making an application will also be relevant factors.4 Much will turn on the nature of the application also. The risk of injustice to a party by not allowing, say, an amendment to the pleadings to add a genuine cause of action is likely to be far greater than in a case concerning security for costs.
[15] RHH Ltd v Anderson (No 3), concerned an application by plaintiffs for the defendants to answer interrogatories that was filed little more than a week after the close of pleadings date. 5 The plaintiffs required leave of the Court to proceed with the application. Associate Judge Bell said:
[9] The question is whether the court should be dealing with an interrogatories application after the close of pleadings date when the plaintiffs delivered a notice to answer interrogatories before the close of pleadings date but close to it. My concern is that the court is being required to deal with many interlocutory matters after the close of pleadings date. That concern relates not just to this case but to other cases I have had to deal with recently, where there seems to be a tendency for interlocutory applications to be brought when the case has reached an advanced stage. The close of pleadings date has a clear purpose. It is to ensure that the pleadings have been completed and all interlocutory matters have been completed, so that the parties can concentrate on preparing for the hearing; drafting evidence and delivering it, preparing chronologies, preparing lists of documents for the common bundle. That is demanding work which requires clear time and attention. It should not be subject to disruption from interlocutory matters.
[16] Associate Judge Bell considered that interrogatories were not an invariable step taken in the proceedings, the plaintiffs were taking a chance in delivering the interrogatories late and had had ample opportunity to deliver interrogatories earlier in the case and dealing with interrogatories at a late stage was disruptive. Balancing the matters, he considered the plaintiffs had left it too late and it would be improper to allow them to pursue an application to deliver interrogatories and dismissed the application for leave accordingly.6
4 Monster Energy Company v Ox Group Global Pty Ltd [2016] NZHC 2124 at [28].
5 RHH Ltd v Anderson [2018] NZHC 2045.
6 At [16].
Discussion
[17] The immediate difficulty facing the defendants is that they have advanced no evidence or submissions specifically addressing the question whether leave should be granted under r 7.7.
[18] The granting of leave in the circumstances of this case is not a formality and I find this is not an appropriate case to grant the defendants leave to seek security for costs after the close of pleadings. The defendants have failed to clear any of the three hurdles before them.
[19] I am not satisfied that it is in the interests of justice to grant leave. In this context the interests of justice require the application of the High Court Rules in a manner that will best achieve a just determination of the substantive proceeding without unnecessary and prejudicial expense, delay or technicality.7
[20] The Court must allocate a close of pleadings date when allocating a trial date8 to ensure that pleadings and interlocutory matters have been attended to and the parties can concentrate on preparing for trial. This case is not straightforward and it is plainly undesirable that the parties’ and counsels’ attention to the work of preparing for trial is diverted by an interlocutory application which is ancillary to the substantive proceeding.
[21] The seeking of security for costs by a defendant faced with an impecunious plaintiff is not an invariable step in a proceeding. Very often in such circumstances security for costs will not be sought. A refusal to grant leave to the defendants to pursue this application will not prejudice the just determination of the substantive proceeding in any way.
[22] Given the requirements of r 7.7, the defendants can be expected to provide an explanation for why they did not seek security for costs in a timely manner. It appears to be the case that all defendants were aware of Mr Powell’s difficult financial
7 Schmidt v Band of New Zealand Ltd [2019] 2 NZLR 60 at 63; Andrew Beck and others (eds)
McGechan on Procedure (online loose-leaf ed, Thomson Reuters) at [HR 1.2.02].
8 High Court Rules 2016, r 7.6(4).
circumstances from at least August 2018 when he provided discovery. There is no satisfactory explanation why the defendants did not apply for security for costs at that time. Not only that, their then lawyers agreed to timetable directions setting the case down for trial and setting the close of pleadings date at 11 January 2019. The issue of security for costs was first raised in a letter between lawyers on 20 May 2020 but, once again, there is no satisfactory explanation why there was a delay of a further four months before this application was made.
[23] The timing of this application is striking. Not only has an inordinate period of time elapsed since the close of pleadings date but trial dates have been offered and refused, or allocated and then vacated. It is accepted by Ms Hutchinson, counsel for the defendants, that some trial dates have not been allocated or have been lost at the behest of Mr Kemeny. I do not suggest that there was anything inappropriate about that, but in accommodating Mr Kemeny’s circumstances the trial has been delayed and the proceeding would otherwise, in all likelihood, have already been heard and determined without an issue of security for costs arising.
[24] The application for security for costs is also poorly conceived. It was made without first seeking agreement that Mr Powell provide security or asking for details of his finances.9
[25] Often delay in bringing an application for security is fatal when made close to a hearing date or where the applicant has stood by allowing the other party to incur large costs without any request for security having been made.10 This is such a case.
[26] Perhaps even more importantly in the present context, the defendants seek security in a very large sum representing 3C scale costs for the entire proceeding including allowance for second counsel. This overlooks the fact that awards of security for costs are usually forward looking. It will generally not be appropriate to make an order for security for the costs an applicant has already incurred.11
9 Morrell v World Solar Ltd [2018] NZHC 518, Spackman v Martin [2020] NZHC 2148; Millinium Capital Managers Ltd v Soma Group Ltd [2020] NZHC 2967.
10 Oceania Furniture Ltd v Debonaire Products Ltd HC Wellington CIV-2008-485-1701, 24 April 2009.
11 Ambrose v Pickard [2009] NZCA 502 at [30]-[32].
Ms Hutchinson accepts this is the case. She helpfully submitted a schedule of the amount of security sought by the defendants for each step of the proceeding. Assuming Mr Powell fails at trial, an appropriate award of costs in favour of the defendants for steps yet to be taken in this proceeding, whether calculated on a 2B or 2C basis, would be less than $20,000. As the costs incurred by both parties in relation to this application alone are likely to be close to or even exceed that amount it is difficult to see why the defendants would consider the application an appropriate use of the parties’ or the Court’s resources.
[27] Also, the defendants seek a stay until any security ordered is provided. If Mr Powell was required to provide security in even a modest amount of $20,000 there is the possibility, based on what is before me, that he would not be able to pay that amount immediately. This would put the trial at risk. Such a result is undesirable. It would deprive Mr Powell of having his case heard in a timely manner. It would be contrary to what Ms Hutchinson says is her clients’ desire to have the case heard as quickly as possible. It would represent a waste of the Court’s resources and also is contrary to the wider public interest that the work of the Courts be conducted efficiently.
[28] As I do not intend to grant the defendants leave under r 7.7 High Court Rules I do not need to go further and decide the application for security for costs. I observe, however, that the exercise of the Court’s discretion under r 5.45 High Court Rules requires a careful assessment of the circumstances of the particular case.12 Some of the factors I have referred to above in relation to the leave application are also applicable and would weigh against the making of any order that Mr Powell provide security for costs. There is also evidence before me that in so far as Mr Powell may be unable to pay costs, that has been caused by the defendants’ actions. I would not have been minded to grant an order that he provide security for costs in these circumstances.
12 Oceania Furniture Ltd v Debonaire Products Ltd, above n 10, at [8].
Result
[29] I refuse the defendants leave under r 7.7 to apply for security for costs after the close of pleadings date.
[30] I can see no reason why Mr Powell would not be entitled to costs on this application on a 2B basis but counsel did not address me on the matter. I reserve costs and ask counsel to confer in an attempt to reach agreement on costs. If they cannot agree they may submit memoranda within 14 days.
O G Paulsen Associate Judge
Solicitors:
Wynn Williams, Christchurch Anthony Harper, Christchurch
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