Premier Events Group Limited v Beattie

[2013] NZHC 3299

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-3178 [2013] NZHC 3299

BETWEEN  PREMIER EVENTS GROUP LIMITED Plaintiff

ANDMALCOLM JAMES BEATTIE First Defendant

ANTHONY JOSEPH REGAN Second Defendant

CT NZ GROUP LIMITED (previously known as CARTAN GLOBAL LIMITED) Third Defendant

PARNELL PARNTERS GROUP LIMITED Fourth Defendant

CARTAN GLOBAL LLP Fifth Defendant

CARTAN TOURS, INC Sixth Defendant

Hearing:                   5 December 2013

Appearances:           M Pascariu and J Harrop for the Plaintiff

I M Gault and G B Dunphy for the Sixth Defendant
No appearance for the First to Fifth Defendants

Judgment:                10 December 2013

[RESERVED] JUDGMENT OF WYLIE J

This judgment was delivered by me on 10 December 2013 at 3:00 p.m. pursuant to r 11.5 of the High Court Rules 1985.

Registrar/Deputy Registrar

……………………………………

PREMIER EVENTS GROUP LIMITED v BEATTIE [2013] NZHC 3299 [10 December 2013]

Introduction

[1]      The  sixth  defendant,  Cartan  Tours,  Inc  (Cartan)  seeks  security  for  costs against the plaintiff, Premier Events Group Ltd (PEG).  An affidavit was filed by Mr David Elmore, the chairman of the board of directors of Cartan, in support of the application.

[2]      A notice  of  opposition  was  filed  by  PEG,  but  there  was  no  supporting affidavit filed. The first to fifth defendants have taken no part in this application.

[3]      The application is made pursuant to r 5.45 of the High Court Rules.  Before the Court  can  consider  making  an  order for security for  costs,  it  must  first  be satisfied that there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the proceeding.  Here it was common ground that PEG is impecunious.  What was in issue between the parties was whether or not I should order security, in the exercise of the discretion conferred on me by r 5.45(2).

Background

[4]      On 27 May 2010 PEG issued substantive proceedings against two of its former directors, Messrs Beattie and Regan, and against various corporate interests that they had established.  In March 2011, PEG filed an application seeking to join Cartan, a company incorporated in Delaware in the United States of America, and another company – also incorporated in the United States – to the proceedings.  On

24 June 2011 I held that PEG was entitled to serve the proceedings on both Cartan and the other company, without the leave of the Court, under r 6.27(h)(i) of the High Court Rules.1    The first to fifth defendants (along with two other defendants then parties to the proceedings) appealed to the Court of Appeal.   It held that I had correctly focussed on the overall test required by the relevant part of r 6.27, and that my decision that Cartan and the other company could be served without leave should

stand.2

1      Premier Events Group Ltd v Beattie HC Auckland CIV-2010-404-003178, 24 June 2011.

2      Beattie v Premier Events Group Ltd [2012] NZCA 257 at [42]-[43].

[5]      Cartan  and  the  other  company  were  served  in  early  2012.    Both  filed appearances under protest.  PEG then applied to set aside those protests.  Before that application came to hearing PEG reached an accommodation with the other company and ultimately it filed a notice of discontinuance in respect of that company.  The application continued however against Cartan.

[6]      The application came before me on 13 November 2012.  I issued a reserved judgment on 4 December 2012.3   I concluded that PEG had established that it had a good arguable case that its claims against Cartan fell within r 6.27, and that the Court should assume jurisdiction by reason of the matters set out in r 6.28(5)(b)-(d).  There was no appeal against this decision.

The current pleadings

[7]      PEG has recently filed a second amended statement of claim.  It asserts that it was a specialist provider of travel and hospitality services for major sporting events worldwide.   It says that it had established itself as a primary provider of event management services to a number of substantial international clients, including Deutsche Bank and the New Zealand Olympic Committee.   It says that between March 2008 and December 2009 it completed preparatory work, and established the infrastructure for the delivery of travel, ticket and hospitality packages for its clients to the 2011 Rugby World Cup and the 2012 Olympic Games.  It claims that it was in advanced negotiations  with Cartan to  establish  a joint venture  company for the purpose of providing hospitality programmes and related services for the London Olympics.    It  also  alleges  that  it  had  secured  contracts  with  various  entities, including the New Zealand Olympic Committee in relation to the London Olympics, and that it was in advanced negotiations to secure a contract with Deutsche Bank.

[8]      The statement of claim then alleges that Mr Beattie resigned as a director of PEG effective as from 24 December 2009 and that he resigned as an employee effective from 5 March 2010.  It also asserts that Mr Regan resigned as a director as

from 31 March 2010.   It is pleaded that Messrs Regan and Beattie subsequently

3      Premier Events Group Ltd v Beattie [2012] NZHC 3250.

caused the third, fourth and fifth defendants, along with two other entities, to be incorporated between March and July 2010.

[9]      It is asserted that in December 2009, without explanation, Cartan ceased discussions with PEG regarding the finalisation of the proposed joint venture agreement.   PEG also alleges that various of its corporate clients terminated their contractual arrangements with it, including the New Zealand Olympic Committee.

[10]     Many of the causes of  action  pleaded  are against  Messrs  Beattie  and/or Regan and their associated companies.  PEG asserts breach of fiduciary obligation against Messrs Beattie and Regan.   As against Mr Beattie, it asserts breach of a restraint of trade provision.   As against the third, fourth and fifth defendants, it asserts misuse of confidential information.

[11]     Cartan is named in:

(a)      The fourth cause of action – “knowing receipt”.   It is asserted that Messrs Beattie and Regan, and the third, fifth and sixth defendants received the benefit of contracts and/or business opportunities relating to the London Olympic programme on behalf of PEG, and that they received as constructive trustees for PEG an estimated net profit of

$9,902,600.     An  account   for   profits   earned   by  the   corporate defendants, including Cartan, is sought.   In the alternative, an order for payment of the sum of $9,902,600 by the third, fifth and sixth defendants is sought.

(b)The fifth cause of action – “dishonest assistance”.  It is asserted that Messrs Beattie and Regan devised a plan to misappropriate PEG’s clients and business opportunities, and that Cartan acted dishonestly in assisting them in their breach of fiduciary duties owed to PEG.  It is asserted that PEG has suffered loss of $9,902,600, and that the sixth defendant is liable to account to it for this loss of profit.

(c)      The sixth cause of action – “an unlawful means conspiracy”.   An account of the profits said to have been earned by all defendants as a consequence of their allegedly unlawful conduct is sought, together with an order for payment of the sum of $11,960,624 by the first to fifth defendants, and an order that Cartan pay the sum of $9,902,600.

[12]     Cartan has filed a statement of defence.  It denies knowing receipt, and says that it did not receive or attain the benefit of any contracts or  of any business opportunities that PEG had  secured in relation  to the Rugby World Cup  or the London Olympic programme.   It says that it only entered into a contract with the New Zealand Olympic Committee following an approach by that Committee after it had terminated its agreement with PEG.   Further, Cartan denies the assertion of dishonest assistance.  It says that it believed from the outset that PEG was not going forward with its London Olympic programme, and that Messrs Beattie and Regan no longer owed any obligations to PEG.   It says that once it became aware of the dispute between Messrs Beattie and Regan and PEG, it told Messrs Beattie and Regan  that  it  would  not  be  involved  in  any  joint  venture,  profit  sharing,  or partnership arrangement with them until the dispute was resolved.   It denies any involvement in any unlawful means conspiracy, and notes that no claim of misuse of confidential information has been made against it.

The security for costs application

[13]     As noted above, the application is bought pursuant to r 5.45 of the High

Court Rules.  Relevantly, it provides as follows:

5.45     Order for security of costs

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

…

(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.

[14]     The rule gives the Court a broad discretion to order the giving of security for costs. The purpose of security is to provide a party who may win the case against the risk of it being unable to enforce a costs order.4

[15]     The general approach to applications for security for costs was outlined by the Court of Appeal in A S McLachlan Ltd v MEL Network Ltd, where the Court noted as follows:5

[13]     Rule 60(1)(b) High Court Rules provides that where the Court is satisfied, on the application of a defendant, that there is reason to believe that the plaintiff will be unable to pay costs if unsuccessful, “the Court may, if it thinks fit in all the circumstances, order the giving of security for costs”. Whether or not to order security and, if so, the quantum are discretionary. They are matters for the Judge if he or she thinks fit in all the circumstances. The discretion is not to be fettered by constructing “principles” from the facts of previous cases.

[14]      While collections of authorities … can be of assistance, they cannot substitute for a careful assessment of the circumstances of the particular case. It is not a matter of going through a checklist of so-called principles. That creates a risk that a factor accorded weight in a particular case will be given  disproportionate  weight,  or  even  treated  as  a  requirement  for  the making or refusing of an order, in quite different circumstances.

[15]      The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs. That must be taken as contemplating  also  that  an  order  for  substantial  security  may,  in  effect, prevent the plaintiff from pursuing the claim. An order having that effect should be made only after careful consideration and in a case in which the claim has little chance of success. Access to the Courts for a genuine plaintiff is not lightly to be denied.

[16]     Of course, the interests of defendants must also be weighed. They must be protected against being drawn into unjustified litigation, particularly where it is over-complicated and unnecessarily protracted.

[16]     While there is no formal checklist of “principles”, in the present case, there are a number of factors which inform the exercise of the discretion.   They are as

follows:

4      Birnie Capital Property Partnership Ltd v Birnie HC Auckland CIV-2010-404-3000, 29 October

2010 at [24].

5      A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA).  This case was decided by reference to r 60(1)(b) of the now repealed High Court Rules.   Rule 5.45 is in all relevant respects the same as r 60(1)(b).

(a)      The strengths and weaknesses of PEG’s claim against Cartan.

(b)Whether an award of security for costs is likely to prevent PEG from pursuing its claim against Cartan.

(c)       Whether there is a reasonable probability that PEG’s impecuniosity has been caused by Cartan’s actions.

(d)Whether Cartan delayed in bringing the application for security for costs, and the consequences of any delay

[17]     I propose to deal with each in turn.  I will then consider the overall interests of justice.

(a)      The strengths and weaknesses of PEG’s claim against Cartan

[18]     It is difficult to assess the merits of PEG’s claim, and its prospects of success. Much will depend on findings of credibility.  This case is complex, and necessarily the views I express are little more than an impression gleaned from those limited materials which are available to me.   I have already considered the issues, and summarised the materials before me in my judgment given on 4 December 2012. After considering the available materials, I found, in the jurisdiction context, that there is a serious question to be tried in relation to two of PEG’s claims – knowing receipt and unlawful means conspiracy.  Dishonest assistance was not then raised by

the pleadings.  Relevantly, I found as follows:6

[56]      In my judgment, there is a serious question to be tried on the merits as between PEG and Cartan Tours in relation to both the beneficial receipt by Cartan Tours of assets which are traceable as representing PEG’s assets, and of knowledge on behalf of Cartan Tours that the assets it received were traceable to a breach of fiduciary duty by Messrs Beattie and Regan.

…

[59]      I am satisfied that there is a serious legal issue to be tried as between PEG and Cartan Tours in relation to the knowing receipt claim, and that there is a sufficiently strong factual case to support the legal right asserted.

…

6      Premier Events Group Ltd v Beattie, above n 3.

[64]      ...    In  my view,  the evidence that I have  summarised above,  in particular of the meeting held in Vancouver in February 2010, suggests that some   sort   of   agreement   or   understanding   was   reached   between Messrs Beattie,   Regan   and   Cartan Tours.      It   appears   to   have   been contemplated  that  Messrs  Beattie  and  Regan  would  establish  a  new company,  that  that  company  would  seek  to  acquire  PEG’s  clients  and business opportunities, and that Cartan Tours would become a party in some way to the business opportunities that would be created.  What involvement or knowledge Mr Elmore and Cartan Tours had, or should have had, is a matter which can be explored at trial.  For much the same reasons as I have identified above in relation to the knowing receipt cause of action … I am satisfied that there is a serious question to be tried as between PEG and Cartan Tours in relation to the unlawful means conspiracy cause of action, and that there is a sufficiently strong factual basis to support the legal right asserted.

[19]     Mr Gault, appearing for Cartan, did not seek to challenge these findings. Rather he focussed on the substance of the claim against his client company.   He advised that Cartan strongly denies the claims against it, and pointed out that, on Mr Elmore’s affidavit, there is no evidence that Cartan has received any property belonging to PEG, or earned any profits which PEG would otherwise have earned from the Rugby World Cup or the 2012 London Olympics.  He noted that PEG has claimed some $10 million from Cartan, and that this assertion “does not comport” in any way with historic profits made by PEG and/or actual profits made by Cartan.  In this regard he referred to the unchallenged evidence of Mr Elmore.

[20]     Mr Elmore has filed an affidavit.   He has deposed that Cartan made only US$1.4 million in profit from the London Olympics.   He referred to the various companies identified by PEG in its statement of claim, and stated that the only entities which Cartan had any business relationship with were Deutsche Bank and the  New  Zealand  Olympic  Committee.    He  noted  that  PEG  had  not  secured  a contract with Deutsche Bank, and that there is no allegation in the statement of claim that it was even in negotiations with Deutsche Bank for the London Olympic Games programme in 2012.  He says that Cartan’s business relationship with Deutsche Bank had nothing to do with PEG, and that Deutsche Bank purchased tickets from Cartan in its capacity as an authorised representative of the Cayman Islands Olympic Committee.  He further deposed that Cartan made a loss of US$38,252 on the sale of the tickets to Deutsche Bank.  In regard to the New Zealand Olympic Committee, Mr Elmore noted that that Committee terminated its relationship with PEG in February

2010.  He said that the New Zealand Olympic Committee contacted Cartan in July

2010, and asked Cartan to represent it at the London Olympics.  He said that Cartan had no prior discussions with the New Zealand Olympic Committee requesting that it terminate its relationship with PEG, and further that Cartan made a loss as a consequence of its contract with the New Zealand Olympic Committee.

[21]     There was no affidavit in response from PEG, or its sole director, Mr Gill, denying these assertions.

[22]     While I have already concluded on the limited materials available that there are serious questions to be tried on the merits, it seems that PEG’s claim seeking an account for profits from Cartan may face some difficulties.   On the very limited material before me in this application, it would seem that there were no profits made by Cartan which can be attributed to any of PEG’s clients.

[23]     Mr Pascariu responded by asserting that PEG’s claim is based on its estimate of the profit that would have been derived, and he referred to an affidavit filed by Mr Gill in July 2010 in support of the amount claimed.  He also noted that in any event, PEG can seek damages, regardless of the profit made by Cartan, and he noted that damages are sought in both the knowing receipt and the unlawful means conspiracy causes of action.

[24]     On the limited information available to me to date, it remains my view that there is a serious question to be tried on the merits as between Cartan and PEG, but that PEG’s claim for an account of profits may face some difficulty.  I do not see this factor as pointing strongly either for or against an order for the giving of security.

(b)      Is an award of security likely to prevent PEG from pursuing its claim against

Cartan?

[25]     The courts are reluctant to order substantial security, where to do so would in effect prevent a plaintiff from pursuing his or her claim.  As the Court of Appeal confirmed in McLachlan, access to the courts for a genuine plaintiff is not lightly to be denied.

[26]     PEG is  not  able to  fund the litigation  itself.    Mr Gault  did  not  suggest otherwise.   I am told by Mr Pascariu that it has been able to progress these proceedings to date only because of a conditional fee agreement it has with its solicitors.  He argued that making an order for security for costs is likely to have the effect of preventing PEG from pursuing its claim.

[27]     In my judgment Mr Pascariu’s submissions overstated the matters.   First, I note that the condition of fee agreement, while referred to in memoranda filed with the Court, is not before the Court.  Further, it is relevant to consider whether there are other parties or funds available to meet any order that might be made.7    I note that PEG was incorporated in June 2003.  Its sole director is Mr Gill.  Mr Gill, Mr John Gill, and B&M Trustees NZ Ltd hold 32,000 shares in the company – which is

80% of its share capital.  Mr Pascariu told me that they hold those shares on behalf of Mr Gill’s family trust.   The remaining 20% of the share capital is held by Mr Regan and his wife, jointly.  It is clear from a number of materials filed in Court to date that Mr Gill has previously backed PEG, whether directly or through other entities controlled by him.  He provided a personal undertaking as to damages when PEG applied for interim orders against  the other defendants in the proceedings. Moreover, Mr Gill is involved with and controls a number of other companies, including BrandAdvantage Management and Consulting Ltd.   It appears from memoranda filed on PEG’s behalf that that company has in the past agreed to meet PEG’s costs.

[28]     It is clear from the affidavits filed in the proceedings to date that Messrs Gill, Beattie and Regan are at loggerheads and that there is real antipathy between them. Cartan has been drawn into this dispute.

[29]     In my judgment it is reasonable to conclude that an award for security of costs can be met, either by Mr Gill personally, or by a related party, such as BrandAdvantage Management and Consulting Ltd.  This litigation has been running for some considerable time.  Related litigation has been running in the Employment

Court, and other litigation including Mr Gill and his business interests has gone to

7      Birnie Capital Property Partnership Ltd v Birnie, above n 4, at [28]; Highgate on Broadway Ltd v Devine [2013] NZAR 1017 (HC) at [22](d).

trial in this Court.  I do not consider that an award for security against PEG is likely to have the effect of preventing it from advancing its claim against Cartan.

(c)      Is Cartan responsible either wholly or in part for PEG’s impecuniosity?

[30]     Mr  Pascariu,  for  PEG,  contended  that  there  was  a  clear  causative  link between the actions of the defendants, including Cartan, and PEG’s losses resulting in its impecuniosity.

[31]     I cannot accept this argument.

[32]     It is clear that PEG was impecunious before the matters in dispute arose.  For example, on 5 July 2009 Mr Gill notified Mr Regan that PEG had run up huge losses, and that it could not fund the business going forward without finding new capital or loans urgently.   He advised that “the group” was moving to a four day week and that he and Mr Regan had made significant cuts to their salaries.  This was well before Cartan had any involvement – at least on the papers before me.   The earliest that Cartan appears to have been involved with Messrs Beattie and Regan was in February 2010, when Mr Elmore met with Mr Beattie in Vancouver.

[33]     I cannot see that there is any connection between PEG’s impecuniosity and any actions that may have been taken by Cartan, and I am not prepared to on the information available to me to infer that Cartan’s actions, either alone or in conjunction with those of Messrs Beattie and Regan, may have caused PEG’s impecuniosity.

(d)      Delay

[34]     Applications for security for costs made at a late stage in a proceeding can fail.

[35]     In  the  present  case,  Cartan  became  a  party  to  these  proceedings  on  4

December 2012.  Mr Gault accepted that Cartan suspected from the outset that PEG was unlikely to be able to meet an award of costs.  He says, however, that Cartan was unsure of the position, and that emails were sent to PEG’s solicitors in an

attempt to clarify issues.  Mr Elmore annexed to his affidavit copies of the emails which were sent.  He also stated that no response was received.  This is not denied by Mr Pascariu.

[36]     It is common ground that other steps in the proceeding were occurring – in particular, discovery was advanced.   This does not preclude an order for security. Rule 5.45(5) confirms that the Court may make an order for security even if a defendant has taken a step in the proceeding before applying.

[37]   Here, I consider that there has been some delay.   Nevertheless, in the circumstances of this case, I do not consider that that delay is material, and there is nothing to suggest that there is prejudice to PEG.   Indeed, the proceedings are currently  stayed,  pending  receipt  of  a  decision  from  the  Employment  Court potentially relevant to the matters in issue between the parties.

(e)      Interests of justice

[38]     Having considered the matter in the round, in my view it is in the interests of justice that an order for security of costs be made.   It is not inequitable to require PEG to pay security, and the making an order for security for costs is unlikely to prevent PEG from pursuing its claim.  The claim is complex.  It has already been the subject of a considerable number of interlocutory applications.   Cartan has been drawn into a dispute between PEG, Mr Gill, Mr Beattie, and Mr Regan.  It is resident in the United States of America, and is likely to incur considerable costs in being represented in this country.  The matter is set down for trial in April 2014, and it is likely that the trial as between PEG, the first to fifth defendants and Cartan will take some three weeks.  The costs incurred are likely to be substantial.  In my judgment Cartan is entitled to some protection in this regard, given PEG’s perilous financial position.

Quantum of security

[39]     The amount of security is not necessarily to be fixed by reference to a likely costs  award.     Quantum  is  in  such  sum  as  the  Court  thinks  fit,  in  all  the circumstances.8

[40]     Here, I take into account the following:

(a)       A substantial sum – almost $10 million – is sought by PEG.

(b)The proceedings are complex.   There are several causes of action against different defendants, which will require not only factual but also legal argument.   Expert accounting evidence is likely to be required.

(c)      There have already been a very large number of interlocutories in this matter.    Further interlocutories can be anticipated when the Employment  Court  releases  its  decision.      Whether  those interlocutories will involve Cartan remains to be seen.

(d)A five week trial has been scheduled, three weeks of which involves the proceedings to which Cartan is a party.

(e)      If PEG is unsuccessful, Cartan is likely to be entitled to a costs award in the vicinity of some $86,000 (calculated on a category 2B basis). This excludes any allowance for expert’s fees.

(f)      Cartan is likely to incur further substantial disbursements, for example expert witness costs.

(g)I have no doubt that Cartan’s actual costs will significantly exceed scale costs.

8      A S McLachlan Ltd v Mel Network Ltd, above n 5, at [27].

[41]     In some cases, security has been ordered in an amount calculated directly from the relevant schedules in the High Court Rules.9     In other cases,  security calculated in accordance with the rules has been discounted.10     There is no requirement that costs be discounted.  Nor is there any requirement to exclude from the calculation costs already incurred.

[42]     In the present case, I order that security for costs be paid by PEG on an interim basis in the sum of $75,000 to the satisfaction of the Registrar. Alternatively, and on an agreed basis, security can be provided in the form of undertakings, or in any other way acceptable to Cartan.

[43]     The  security is  to  be  staged,  with  payment  of  $37,500  on  or  before  17

January 2014, and payment of the balance, $37,500, on or before 7 February 2014. Should the security not be paid, or an alternative mode of payment or undertaking are not agreed between the parties, the proceeding is stayed as between PEG and Cartan.

[44]     I  reserve  leave  for  the  filing  of  further  applications  as  to  the  mode  of payment, the provision of undertakings, and the terms of a possible stay.   I also reserve leave to Cartan to make application for additional security in the event that it considers additional security is required as a result of fees paid or payable to expert witnesses.

Costs

[45]     Cartan is entitled to an order for its reasonable costs and disbursements.  It is my preliminary view that costs be fixed on a 2B basis.  If counsel accept that view, I would expect that they would be able to agree costs and disbursements.  If not, then I direct as follows:

(a)       Cartan is to file a memorandum in support of any application it wishes to make for costs and disbursements within 10 working days of the

date of release of this judgment.

9      See, for example, Highgate on Broadway Ltd v Devine, above n 7.

10     See, for example, Birnie Capital Property Partnership Ltd v Birnie, above n 4, at [57].

(b)PEG  is  to  file  a  memorandum  in  opposition  within  a  further  10 working days.

[46]     I will then deal with the issue of costs and disbursements on the papers, unless I require the assistance of counsel.

Wylie J

Solicitors / Counsel:

Mr I Pascariu / Mr J Harrop, Minter Ellison, Solicitors, Auckland
Mr I M Gault / Mr G B Dunphy, Bell Gully, Solicitors, Auckland