Reynolds v Finnigan - [2020] NZHC 2389

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-002717

[2020] NZHC 2389

BETWEEN
GRANT BRUCE REYNOLDS, as liquidator for THE LEARNING LADDER LIMITED (IN LIQUIDATION)

First Plaintiff

JOANNE LEE YOUNG
Second Plaintiff

THE LEARNING LADDER LIMITED (IN LIQUIDATION)

Third Plaintiff

AND

PERI MICAELE FINNIGAN and BORIS VAN DELDEN

First Defendant

RED 9 LIMITED
Second Defendant

THE LEARNING LADDER (2018) LIMITED

Third Defendant

PEAT JOHNSON MURRAY LIMITED

Fourth Defendant

Hearing: 4 September 2020

Appearances:

K Robinson and A McCabe for Third Plaintiffs M J Fisher and J T Yoon for Second Defendant H K Mackenzie for Fourth Defendant

Judgment:

14 September 2020

Reissued:

12 October 2020

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

REYNOLDS & ORS v FINNIGAN & ORS [2020] NZHC 2389 [14 September 2020]

Introduction

[1] Mr Grant Reynolds is a licensed insolvency practitioner and the liquidator of the third plaintiff, The Learning Ladder Limited (in liquidation) (TLLL).

[2] In the substantive proceedings, TLLL sues the second defendant, Red 9 Limited (Red 9) for breach of contract. TLLL alleges Red 9 breached a loan agreement where TLLL was not in default, under either the loan or an associated general security agreement (GSA). Red 9, in reliance on the default, appointed the first defendants, Peri Miceale Finnigan and Boris van Delden, as receivers of TLLL.

[3] In the present interlocutory application, Red 9 seeks security for costs against TLLL in the sum of $50,000. The threshold in r 5.45(1)(b) of the High Court Rules 2016 is indisputably met. That is, if TLL is unsuccessful, it will be unable to pay Red 9’s costs. The critical issue I must determine is whether I should order security for costs as a matter of discretion, or, whether Mr Reynolds’ offered undertaking, as liquidator, is the more appropriate and equivalent security.

Background facts

[4] TLLL was incorporated in 2015 with two directors holding 50 of the 100 shares each. The two directors were:

(a)Dayle Yolande Walker (Mrs Walker), who is now the director of the third defendant, The Learning Ladder (2018) Limited (TLLL (2018)); and

(b)Joanne Lee Young (Mrs Young), the second plaintiff.

[5] Mrs Walker and Mrs Young established TLLL to operate a licensed early childhood centre in Howick, Auckland (the business).

[6] Mr Walker, Mrs Walker’s husband, is a chartered accountant who provided professional accounting services to TLLL and Red 9.

[7] In June 2015, TLLL and Red 9 entered into a loan agreement to assist with the purchase of the business. In order to secure the loan under the general security

agreement dated 25 June 2015 (GSA), TLLL granted Red 9 a general security over all of its present and after-acquired personal property.

[8] On 23 January 2018, Mrs Walker applied to the High Court for interim injunctive relief to restrain Mrs Young from drawing a director’s salary. Mrs Young opposed those proceedings, however the application did not proceed as a result of the appointment of receivers.

[9] On 8 March…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2020] NZHC 2389
Decision Date: 14 September 2020

CaseChat Overview and Summary

The case of Reynolds v Finnigan involves a dispute between the liquidators of The Learning Ladder Limited (TLLL), as plaintiffs, and several defendants, including Red 9 Limited. The plaintiffs allege that Red 9 breached a loan agreement, leading to the appointment of receivers for TLLL and subsequent sale of the business. Red 9 has applied for security for costs, seeking $50,000 from TLLL. The key legal issue before the court was whether to grant security for costs or to accept the offered undertaking by Mr. Grant Bruce Reynolds, the liquidator of TLLL, as equivalent security.

The court considered the general principle that access to justice is a fundamental right, and the payment of costs in the event of failure is the cost of exercising that right. It noted that while the threshold for granting security for costs was met, the decision required a broad assessment of the situation of the parties and the nature of the proceedings. The court found that there was a longstanding disinclination to order security for costs in cases brought by liquidators, given their obligation to maximize returns for creditors and to ensure that people are not prevented from taking action due to impecuniosity. However, this principle is not absolute and may be overridden in certain circumstances. The court also considered the distinction between claims brought by a company in liquidation alone versus claims brought by liquidators, emphasizing the personal liability of liquidators and the potential for them to have to look to their own assets if the company's assets are insufficient.

After weighing these factors, the court concluded that the offered undertaking by Mr. Reynolds, along with an undertaking from Mrs. Joanne Lee Young, was the more appropriate and equivalent form of security. The court accepted that there was no real risk that Mr. Reynolds might fail to honor the undertaking or pursue unmeritorious claims against Red 9. The court ordered that Mr. Reynolds and Mrs. Young provide an undertaking accepting personal liability up to a maximum of $35,000 (plus GST, if any) for any costs awarded against TLLL, should TLLL fail to pay those costs. The court dismissed Red 9's application for security for costs and stayed the proceedings against Red 9 if the undertakings were not filed within 14 days. The court also indicated a preliminary view that Red 9 should pay costs to the plaintiffs on a 2B basis.

In summary, the court exercised its discretion to accept the offered undertaking as a form of security for costs, balancing the interests of both parties and considering the unique circumstances of the case.

Orders