Reynolds v Finnigan
[2020] NZHC 3170
•2 December 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-002717
[2020] NZHC 3170
BETWEEN GRANT BRUCE REYNOLDS, as liquidator for THE LEARNING LADDER LIMITED (IN LIQUIDATION)
First Plaintiff
JOANNE LEE YOUNG
Second PlaintiffTHE LEARNING LADDER LIMITED (IN LIQUIDATION)
AND
PERI MICAELE FINNIGAN and BORIS VAN DELDEN
First Defendant
RED 9 LIMITED
Second DefendantTHE LEARNING LADDER (2018) LIMITED
Third Defendant
PEAT JOHNSON MURRAY LIMITED
Fourth Defendant
Hearing: 25 November 2020 Appearances:
A Ferguson and A McCabe for Third Plaintiffs M J Fisher and J T Yoon for Second Defendant
Judgment:
2 December 2020
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
REYNOLDS & ORS v FINNIGAN & ORS [2020] NZHC 3170 [2 December 2020]
Introduction
[1] In my judgment of 14 September 2020,1 I dismissed the application by the second defendant, Red 9 Limited (Red 9), for an order that the third plaintiff, The Learning Ladder Limited (TLLL), pay security for costs in the sum of $50,000. 2 As a matter of discretion, I made an order that the liquidator and first plaintiff, Mr Reynolds, and the second plaintiff, Mrs Young, were to file and serve a written undertaking accepting personal liability and on a joint and several basis for any costs awarded in favour of Red 9 against TLLL, up to a maximum of $35,000 (plus GST if any) and should TLLL fail to pay those costs.3
[2] Red 9 now seeks leave to appeal that judgment to the Court of Appeal pursuant to s 56(3) of the Senior Courts Act 2016.
[3] The critical issues I must determine are whether Red 9 has raised any arguable errors which have wider significance beyond the parameters of this case and whether any appeal will delay unnecessarily the determination of the substantive proceedings.
Relevant legal principles
[4] In Finewood Upholstery Ltd v Vaughan, Fitzgerald J held that the requirement for leave to appeal should serve as a “filtering mechanism”, to ensure that unmeritorious appeals of interlocutory orders, or appeals of interlocutory orders of no great significance to either the parties or more generally, do not unnecessarily delay the proceedings at which the orders were made.4
[5] In Finewood, her Honour endorsed the approach of Dobson J in A v Minister of Internal Affairs,5 where he held the following considerations are relevant to applications for leave to appeal:
1 Reynolds v Finnigan [2020] NZHC 2389, re-issued 12 October 2020.
2 Sought under r 5.45 of the High Court Rules 2016.
3 At [43]. The order required Mr Reynolds and Mrs Young to file and serve the undertaking within 14 days.
4 Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].
5 A v Minister of Internal Affairs [2017] NZHC 887.
(a)A high threshold exists for the granting of leave. An allegation of error of law or fact is generally insufficient. An applicant should raise an arguable error;
(b)Leave should only be granted where the circumstances warrant incurring further delay;
(c)The alleged error should be of general or public importance that requires determination, or otherwise be of sufficient importance to the applicant to outweigh the lack of any general or precedential importance.
Application for leave to appeal
[6]Red 9 contends that my judgment contains the following arguable errors:
(a)An error of law in placing an onus on Red 9 as applicant to adduce evidence to demonstrate a real risk that Mr Reynolds, the liquidator, might not be able to honour his personal undertaking ([29] of the judgment);
(b)An error of law in finding, in the absence of any evidence, that personal undertakings from Mr Reynolds and Mrs Young were the more appropriate form of security and equivalent to the payment of a sum of money into court ([29] of the judgment);
(c)An error law in affixing a sum for the purposes of rr 5.45(2) and (3)(i) of the High Court Rules 2016, without taking into account costs incurred in taking steps after the date of filing of the application for security for costs and before the hearing of the application ([37] of the judgment); and
(d)A failure to take into account a relevant consideration in the assessment of the merits of the claim in defence, that consideration being TLLL’s omission to respond to the expert evidence on behalf of Red 9 to the
effect that TLLL’s valuation report has a fatal flaw ([29] of the judgment).
Analysis and decision
[7]Red 9 contends that on a proper construction of r 5.45(3)(a)(ii) of the HCR:
(a)A Judge or registrar cannot exercise his or her jurisdiction to make an order for the giving of security as an alternative to the payment of a sum of money into court without first being reasonably satisfied that the security offered is satisfactory security for that sum of money;
(b)There is an onus of proof on a plaintiff to adduce evidence to satisfy a Judge or the registrar that any security offered by or on behalf of the plaintiff will be satisfactory security for the specified sum of money;
(c)In the absence of evidence as to whether any security offered would constitute valuable security would be any way comparable to the payment of a sum of money into court, a Judge or registrar has no jurisdiction to make an order for the giving of security under r 5.45(3)(a)(ii) and the judge may only make an order under 5.45(3)(a)(i) for the payment of a sum of money into court.
[8] I doubt if those three propositions are controversial, except perhaps the alleged jurisdictional limits referred to in (c). The real issue in this case is the application of the principles where the security at issue is an undertaking by a liquidator and another of the parties. On that issue, Mr Fisher submitted that Mr Reynolds’ status as a licensed insolvency practitioner and court-appointed liquidator was not evidence of whether his personal undertaking was valuable security or was equivalent to the payment of a sum of money into court. He further argues that is not a factor worthy of any weight in the assessment of the merits of the claim.
[9] I accept that the grounds of appeal raised by Red 9 are clearly not of a frivolous or vexatious nature. I also find that the errors relied upon, particularly those relating to the construction and application of r 5.45(3) and as it relates to liquidators’
undertakings, reaches the threshold of an arguable error. In my view, these issues also have wider significance beyond this case. Consideration by the Court of Appeal of undertakings given by liquidators in proceedings brought by them may be of assistance to the Court.
[10] I accept that if leave is granted, there will be some inevitable delay with the ultimate determination of the proceedings. However, the proposed issues on appeal are relatively discrete, the proceedings have not yet been set down for trial (there is no bar to that occurring) and any delay is unlikely to be significant.
[11] For all these reasons, I conclude that the application should be granted and an order made granting leave to appeal to the Court of Appeal.
Costs
[12] Both parties have sought costs in relation to my judgment of 14 September 2020. A critical issue to determine is, who was the successful party?
[13]The relevant background is as follows:
(a)Solicitors for Red 9 wrote to the solicitors for TLLL on 17 January 2020, alleging that TLLL had no funds to meet claims by creditors or shareholders or to fund the liquidator’s costs. At that stage, TLLL was not a party to these proceedings. The solicitors for TLLL responded on 19 March 2020, contending that the financial position of TLLL was irrelevant to the proceedings.
(b)On 8 May 2020, an amended statement of claim was filed adding TLLL as the third plaintiff.
(c)On 14 May 2020, Red 9 filed its application for security for costs against TLLL, as the third plaintiff.
(d)By letter dated 30 June 2020, the solicitors for TLLL proposed that Mrs Young would indemnify TLLL against an adverse costs award. There was no reference in that letter to any indemnity by Mr Reynolds.
(e)On 8 July 2020, the solicitors for TLLL (on a without prejudice save as to costs basis) advised Red 9 that Mr Reynolds was prepared to provide an indemnity for costs awarded against TLLL in favour of Red 9. The letter claimed that there could be no issue about the ability of an insolvency practitioner to meet an order for costs;
(f)A notice of opposition by TLLL was filed and served on 13 July 2020. Paragraph 3(b) of that notice of opposition recorded that both Mr Reynolds and Mrs Young had offered to provide security in the form of an undertaking to pay costs.
[14] I acknowledge that the letter of 8 July 2020 from TLLL’s solicitors did not tender any document as to the nature or substance of any indemnity undertaking that Mr Reynolds might give. I also accept, as Mr Fisher submitted, that the orders I made in my judgment were that Mr Reynolds and Mrs Young provide personal undertakings of a different kind from what had been offered on 30 June 2020 and 8 July 2020. However, I find that in substance TLLL was the successful party in relation to the security for costs application. It is clear that Red 9 was not prepared to accept any form of undertaking (the application for leave to appeal is confirmation of that) and from at least 8 July 2020, an undertaking from Mr Reynolds, as the liquidator, was on offer.
[15] The starting point for determination of this issue is the principle that “success on more limited terms is still success”.6 Although TLLL opposed any form of security, it was prepared, as an alternative, to provide the undertakings which I found should be provided – and as noted, that alternative basis was contained in the notice of opposition. The undertakings have now been filed and served. In the circumstances, it was the submissions of TLLL that prevailed and following a decision by Red 9 to
6 Weaver v Auckland Council [2017] NZCA 330, (2017) 24 PRNZ 379 at [26].
continue with its application that the only form of security that should be ordered was the payment of money into court.
[16] I accordingly find that Red 9 should pay costs to TLLL in relation to the application for security for costs on a 2B basis plus disbursements.7 The claim for an uplift is rejected. However, I accept the submission of Mr Fisher that there should be some deduction for the cost of preparation of the notice of opposition and affidavit in support. It was not until 8 July 2020 that Mr Reynolds offered an undertaking and Red 9 had some reason to be concerned about the financial position of Mrs Young. I also note that TLLL was in breach of timetable directions.
[17] In terms of the schedule for costs attached to the memorandum of counsel for TLLL dated 28 September 2020, no allowance is made for step 23 (item 1). I certify for second counsel (step 27).
[18] In relation to the costs on the application for leave to appeal, I find that the successful party, Red 9, is entitled to costs and on a 2B basis plus disbursements.
[19] Further, I find in relation to both costs awards that while it is appropriate to fix costs at this stage, both costs orders are to lie in court (i.e. there is no immediate obligation to pay) pending the determination of the appeal by the Court of Appeal (or subject to any order of the Court of Appeal).
Result
[20] I grant leave to Red 9 to appeal my judgment of 14 September 2020 to the Court of Appeal.
[21] I direct that the Notice of Appeal to the Court of Appeal is to be filed and served before Christmas 2020 and Red 9 is to take all reasonable steps to secure a prompt hearing of the appeal before the Court of Appeal.
7 The relevant calculation is set out at page 7 of the schedule to TLLL’s submissions on costs dated 28 September 2020.
[22] In relation to the security for costs application, I find that Red 9 Ltd, the second defendant, should pay costs to TLLL, the third plaintiff, on a 2B basis plus disbursements.
[23] In relation to the application for leave to appeal, I find that TLLL, the third plaintiff, is to pay costs to Red 9 Ltd, the second defendant, on a 2B basis plus disbursements.
[24] In relation to both costs orders, they are to lie in court (i.e. no immediate obligation to pay) pending determination of the appeal to the Court of Appeal (or such order as the Court of Appeal might make).
Associate Judge P J Andrew
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