Roband v O'Sheas
[2017] NZHC 354
•7 March 2017
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
CIV-2013-419-966 [2017] NZHC 354
IN THE MATTER of the McGerkinshaw Property Trust BETWEEN
JANINE MAREE ROBAND Plaintiff
AND
OʼSHEAS
First DefendantMICHAEL CANN Second Defendant
Hearing: 22 February 2017 Appearances:
S Rawcliffe for the Plaintiff
R Woods for the First DefendantJudgment:
7 March 2017
JUDGMENT OF GORDON J
This judgment was delivered by me on 7 March 2017 at 3 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors: Harkness Henry, Hamilton
Robertsons, Auckland
ROBAND v OʼSHEAS [2017] NZHC 354 [7 March 2017]
Introduction
[1] The first defendant, O’Sheas, has filed an interlocutory application dated
29 November 2016 seeking security for costs against the plaintiff, Ms Janine Roband, pursuant to r 5.45 of the High Court Rules 2016. Ms Roband opposes the application.
[2] The second defendant, Mr Michael Cann, also made an application seeking security for costs but it was withdrawn prior to the hearing.
Background
[3] The substantive proceedings in this case concern matters relating to the McGerkinshaw Property Trust. Ms Roband and her former husband Mr Cann settled the Trust in 2003. The trustees of the Trust were Ms Roband, Mr Cann and John O’Shea, a partner in O’Sheas, and then solicitor for Ms Roband and Mr Cann.
[4] One of the assets held by the Trust was a property situated at 773 State Highway 26, Newstead. Ms Roband and Mr Cann utilised the Newstead property as a base for their trucking companies, Roadhaul (N.I.) Ltd and RHT Holdings Ltd. In early 2005 the Trust, the two trucking companies, Mr Cann and Ms Roband (collectively, “the group”) transferred their banking facilities to Westpac. As a part of the transfer, the Trust was required to provide guarantees of the companies’ debts, secured over the Newstead property.
[5] In 2006, the Trust acquired a second property at 169 Victoria Road, Hautapu. Westpac provided a $1.1 million loan facility to facilitate the transaction. In return, the Trust and the companies entered into an unlimited interlocking guarantee, under which the Trust was liable for all debts owed to Westpac by the companies, and vice versa. The guarantee was secured by mortgages over the Newstead and Hautapu properties.
[6] In September 2007, Ms Roband and Mr Cann separated. The Newstead property was sold in November of that year for $1.6 million. Westpac then required that the full net proceeds of sale be applied in reduction of the group’s debt to
Westpac. O’Sheas complied with this requirement. As a result, the proceeds of sale were used to repay the loan in relation to the Newstead property as well as other debts owed by the companies to Westpac.
[7] In 2008, Westpac indicated that it would no longer provide finance to the group. In April 2008, the group’s debt was refinanced by means of a new loan facility with BNZ.
[8] As a result of the events detailed above, in December 2013 Ms Roband filed proceedings in the High Court against O’Sheas and Mr Cann. In an amended statement of claim dated 5 September 2014 it was alleged that:
(a) the payment of the Newstead sale proceeds towards reduction of the
companies’ debts to Westpac was undertaken without her authority;
(b)O’Sheas did not properly advise her in relation to the BNZ refinancing and her consent to that transaction was essentially vitiated by the application of improper pressure by a member of O’Sheas’ staff; and
(c) O’Sheas failed to enforce lease agreements relating to the Hautapu
property, including a lease to RHT, such that rent was not paid.
[9] O’Sheas filed a statement of defence on 24 September 2014. Some
15 months later, on 23 December 2015, Ms Roband sought leave to further amend her statement of claim. Leave was granted and an amended statement of claim was filed on 10 March 2016. This second amended statement of claim listed a fourth cause of action: namely, that O’Sheas failed to properly advise Ms Roband in relation to the 2006 guarantee. Ms Roband claims that, had O’Sheas provided adequate advice, she would have refused to allow the Trust to proceed with the purchase of the Hautapu property.
[10] The amendment to the pleadings expanded the scope of discovery. New material, being a clone of the computer hard drive used, at relevant times, for the
administration of the companies and the Trust, was identified. Ms Roband was ordered to make discovery of the clone by 10 August 2016. As a result of the additional evidence Mr Grant Graham, who had been engaged by O’Sheas as an expert witness, was able to make new conclusions regarding the issue of causation. An extension to 21 October 2016 was granted for the filing of this evidence.
[11] In order to succeed on her claim in respect of the 2006 guarantee, Ms Roband is required to prove on the balance of probabilities that O’Sheas’ alleged failure to provide proper advice in respect of the 2006 guarantee was causative of the loss claimed. On the basis of the new evidence provided to him, Mr Graham has concluded that even if the Trust had not purchased the Hautapu property (and therefore had not provided the 2006 guarantee), its existing guarantees to Westpac were such that, following the sale of the Newstead property, the Trust would have been left with only $15,314. Mr Graham notes that this amount does not account for the separate guarantees that the Trust had provided to Speir Finance Ltd in the amount of approximately $1,550,000 in relation to vehicle financing. He concludes that:
… if the Trust had not proceeded with the Hautapu property purchase and so had not provided the 2006 guarantee, it would have been in no better position than it ultimately found itself, as the existing debt and guarantees in place in respect of RHT and RNI’s borrowing, in addition to the Trust’s own debts, would have exhausted all of the Trust’s assets. Accordingly, in my opinion the Trust did not suffer any loss by reason of entering into the 2006 guarantee.
[12] Ms Roband has not yet engaged an expert witness of her own to analyse this
data and so Mr Graham’s evidence on this point is presently unchallenged.
[13] The trial of this matter is to commence on 1 May 2017. Earlier dates of
18 April 2016 and 20 February 2017 were vacated. The April 2016 fixture was vacated after Ms Roband was granted leave to amend her statement of claim for a second time. The February 2017 fixture was vacated because Ms Roband’s barrister and instructing solicitors had been granted leave to withdraw, leaving her without adequate representation.
Application seeking security of costs
[14] O’Sheas now seeks security for costs pursuant to r 5.45 of the High Court
Rules.
[15] The application seeks the total sum of $60,000 as security for costs on the following bases:
(a) Future costs on a 2B basis of $44,600; and
(b) Disbursements, including fees for three expert witnesses.1
[16] O’Sheas says there is a sound justification for increased costs on the basis of the serious allegations of forgery, dishonesty, partiality and the exertion of improper pressure. It says that it should be entitled to conduct its defence so as not only to defend the claims, but also to rebut the allegations which have been made.
[17] Rule 5.45 provides:
5.45 Order for security of costs
(1) Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—
(a) …
(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.
(3) An order under subclause (2)—
(a) requires the plaintiff or plaintiffs against whom the order is made to give security for costs as directed for a sum that the Judge considers sufficient—
(i) paying that sum into court; or
1 O’Sheas has served briefs of evidence from a solicitor, in relation to solicitor and trustee duties, Grant Graham, in relation to issues of causation, and a handwriting expert in relation to forensic handwriting analysis (which evidence has been called in light of Ms Roband’s allegation that the second defendant forged her signature on a relevant communication with Westpac).
(ii) by giving, to the satisfaction of the Judge or the
Registrar, security for that sum; and
(b) may stay the proceeding until the sum is paid or the security given.
(4) …
(5) A Judge may make an order under subclause (2) even if the defendant has taken a step in the proceeding before applying for security.
[18] In order to succeed in an application for security of costs, the defendant must first demonstrate that the threshold test in r 5.45(1) is met. Where a plaintiff’s alleged impecuniosity forms the basis of the application, the defendant must provide “credible (that is, believable) evidence of surrounding circumstances from which it
may reasonably be inferred that the [party] will be unable to pay the costs.”2 It will
be sufficient if a defendant can demonstrate the existence of surrounding circumstances from which an inference of inability to pay can reasonably be drawn.3
[19] If the threshold in r 5.45(1) has been met, the Court has a discretion whether to order security of costs. This is a broad discretion which is not to be fettered by constructing principles from the facts of previous cases.4 However, the court will be reluctant to order security of costs where an order for substantial security is likely to prevent the plaintiff from pursuing its claim.5 This is especially the case where the plaintiff’s impecuniosity may be attributable to the actions of the defendant seeking security.6
Submissions
[20] O’Sheas submits that recent documents filed on 28 October 2016 in relation to the withdrawal application (which was granted on 16 November 2016) made by
Ms Roband’s previous barrister and instructing solicitors demonstrate that
2 Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd (No 2) [1977] 1 NZLR 516 (SC) at 519;
cited in Wishart v Murry [2016] NZHC 3132.
3 Totara Investments v Abooth Ltd HC Auckland CIV-2007-404-990, 4 March 2009 at [28], citing
Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd (No 2), above n 2, and NZ Kiwifruit
Marketing Board v Maheatataka Coolpack Ltd (1993) 7 PRNZ 209 (HC).
4 A S McLachlan v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13].
5 At [15]. See also the discussion in Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [20] and [23(b)].
6 Highgate on Broadway Ltd v Devine, above n 5, at [23(a)].
Ms Roband has failed to meet her legal expenses since October 2015. It submits that this evidence gives reason to believe that Ms Roband will be unable to pay its costs if she is unsuccessful in her claim.
[21] O’Sheas also identifies a number of factors which, in its submission, are relevant to the exercise of the Court’s discretion, including that:
(a) the effect of Mr Graham’s evidence is that Ms Roband’s claim has
little prospect of success;
(b) there is no persuasive evidence to support Ms Roband’s claim that her
impecuniosity is attributable to actions (or omissions) of O’Sheas;
(c) the delay in filing an application for security is partially attributable to Ms Roband’s late amendment of her pleadings and further, the grounds for making an application were reinforced when Ms Roband’s solicitors filed their application for withdrawal;
(d)Ms Roband’s claim that she brought the proceedings in her capacity as a trustee of the Trust is misleading, because the claim also advances Ms Roband’s personal interests as a preferred beneficiary, and irrelevant, since a trustee will not be entitled to an indemnity in relation to the cost of proceedings which have been unreasonably pursued.
[22] Ms Roband has filed an affidavit which essentially sets out her reasons for opposing the application for security. She does not accept that she is unable to pay her existing legal expenses. Rather, Ms Roband states that she has refused to pay the invoices as her previous counsel had agreed they would not be payable until the case had been resolved. However, she also states:
13The funds for this claim have been raised from my relatives. There is a real risk that they are at their limit of how much they will fund for this. I have already spent $170,000.00 and I need to be able to fund further costs to pay my new solicitors for the hearing.
14If security for costs is granted then I am not comfortable asking for even more money to enable me to meet both the security and the further solicitor’s costs to be able to continue with this claim. I am extremely concerned that if this application is granted then I may be unable to raise the amount required and all of the costs that I have spent to date will be wasted.
[23] In respect of factors relevant to the exercise of the Court’s discretion, Ms Roband notes that O’Sheas have known since June 2014 that she has no assets and that there has been a significant delay in making the application for security. Further, if the application is granted, she may not be able to take the claim any further. The combined effect of these two factors is that Ms Roband will have expended a significant sum of money in pursuing a claim which she may not be able to see through to its natural conclusion.
Discussion - threshold
[24] The first matter I must consider is whether there is reason to believe that
Ms Roband will be unable to meet an award of costs against her.
[25] Ms Roband appeared to concede that the threshold test was met. Accordingly the main focus of the parties’ submissions was the discretionary factors. However it is still necessary for me to consider whether it appears that Ms Roband will be unable to pay costs if the proceeding fails. In other words, whether an inference of inability to pay can be drawn from the surrounding circumstances.
[26] On 26 June 2014, Ms Roband’s then solicitors wrote to O’Sheas’ solicitors.
The letter said:
For the record, the plaintiff in her personal capacity has no assets either. She works as an Office Manager earning $60,000 per annum which is wholly consumed in the living expenses of herself and her children. She does not own any property apart from a car worth $14,000.
[27] In September 2016 the solicitors for O’Sheas again wrote to the solicitor for Ms Roband inquiring about her current position in respect of her ability to meet any award of costs against her. Ms Roband’s barrister replied by email referring to the
2014 correspondence, stating, “Nothing has changed since then.”
[28] As to the affidavit evidence, Ms Roband has explained the reasons for her failure to pay existing legal expenses. There is no sworn evidence to the contrary on this application. However Ms Roband’s previous barrister and solicitor were given leave to withdraw on the basis of a large amount of unpaid fees. A representative of the legal firm which previously acted for Ms Roband swore an affidavit in support of the application for leave to withdraw. He deposed that Ms Roband had unpaid invoices dating back to October 2015 and that Ms Roband had advised she was unable to pay them.
[29] The position regarding the relatives who have been funding Ms Roband to this point is not as clear. There is no affidavit evidence from any relative on this issue. However, Ms Roband’s evidence is that she would be “uncomfortable asking for even more money to enable [her] to meet both the security and the further solicitors’ costs to be able to continue with this claim.” There is also the further statement by Ms Roband that “there is a real risk that [her relatives] are at their limit of how much they will fund for this”.
[30] In my view, there must be significant doubt as to whether Ms Roband’s relatives would be able to provide the necessary financial assistance to meet an award of costs. Even if Ms Roband’s relatives have the financial wherewithal to meet an order for costs, however, it does not follow that they will do so. There is no enforceable obligation upon them to pay costs on Ms Roband’s behalf. This is a relevant factor which should be taken into account when considering whether the
threshold under r 5.45(1) has been met.7
[31] I am therefore satisfied that there is credible evidence from which it can be reasonably inferred that Ms Roband will be unable to pay the defendants’ costs.
Discussion – discretionary matters
[32] Turning to the matters which affect the exercise of the Court’s discretion,
there are three factors which, in my view, are particularly relevant.
7 Reid v Castleton-Reid [2016] NZHC 1609.
[33] The first is that an order for security for costs may prevent Ms Roband from pursuing her claim any further. The courts will be reluctant to make an order which effectively prevents a plaintiff from obtaining access to justice.
[34] That factor brings me to the second, and related, consideration, which is the strength of Ms Roband’s case. O’Sheas submits that the evidence of Mr Graham is uncontested, with the effect that Ms Roband has little prospect of success. Ms Woods accepts that Mr Graham’s evidence does not answer the whole of Ms Roband’s claim. There are two unanswered claims, in respect of which Ms Roband seeks relief of $127,641.25. While accepting that Mr Graham’s brief does not answer these two claims, Ms Woods makes it clear that they are nevertheless in dispute. She further submits that these sums amount to around 10 per cent of the total claim and accordingly O’Sheas would have a foundation for a costs order, even if it were unsuccessful in those parts of the action.
[35] For Ms Roband, Ms Rawcliffe submits that while it is clear that reply evidence will be necessary to refute Mr Graham’s evidence Ms Roband has not yet had the chance to respond to it. Her previous solicitors were given leave to withdraw in November; her new solicitors were instructed in late December and their immediate focus was to make an application for an adjournment of the February fixture. That having been achieved, they are in the process of considering reply evidence. Under those circumstances, I am unwilling to find that Ms Roband’s chances of success in the proceeding are sufficiently insignificant to justify making an order that would deprive Ms Roband of access to justice.
[36] The final factor which is relevant to the exercise of the Court’s discretion is the delay in making this application. The reason for not seeking security at an earlier date is explained in the affidavit of John O’Shea sworn in support of the application for security for costs:
7. In the early stages of the proceeding, O’Sheas’ solicitors, Robertsons, made enquiry of Ms Roband’s then solicitors, Lewis’ Law, as to her ability to meet any costs award that may be made should she be unsuccessful in her claim. At that time [24 June 2014], Lewis’ Law advised that Ms Roband had no assets. …
8. At that time, O’Sheas understood that members of Ms Roband’s family were funding her claim. O’Sheas understood that, while not legally aided, Ms Roband had access to sufficient resources to retain counsel and Robert Eades as an expert on solicitors’ and trustees’ duties.
9. Further, it was anticipated that, if an application for security for costs were made, Ms Roband would likely oppose the application on the basis that her financial position was a result of O’Sheas’ alleged breaches. While O’Sheas did not accept any such assertion, O’Sheas was concerned that, at that stage of the proceeding, it did not have a clear evidential basis on which to rebut such an argument. Accordingly, O’Sheas elected not to pursue an application for security for costs at that time.
[37] Mr O’Shea then sets out the events that led to this application:
14. In light of the amendments to the pleadings and the further materials identified from the clone, Robertsons wrote to Phillip Rice, then counsel for Ms Roband, on 15 September 2016 … referring to Lewis’ Law’s June 2014 letter and advising that, in light of the significant amendments to Ms Roband’s claim and discovery issues that had arisen in the later stages of the proceeding, it was appropriate to reconsider the issue of security for costs. Robertsons therefore sought confirmation of Ms Roband’s current financial position. …
15. Robertsons did not receive a response to the September letter. Accordingly, on 1 November 2016 Robertsons wrote again to Mr Rice … seeking a response to the queries in the September letter and also seeking clarification as to who had been funding the proceeding if Ms Roband was impecunious. …
16. Mr Rice responded to the November letter by email, on 1 November
2016. Mr Rice referred to Lewis’ Law’s June 2014 letter and advised that Ms Roband’s financial position had not altered since that time. No information was provided as to the third parties who had funded Ms Roband’s claim. …
17. O’Sheas is now aware that on 28 October 2016, Lewis’ Law had filed an interlocutory application for an order that they be permitted to withdraw from acting as solicitors on the record, and that Mr Rice be permitted to withdraw as counsel, for Ms Roband. The grounds on which the order was sought included that Ms Roband was unable to pay the costs of legal representation. …
[38] While I acknowledge that there have been recent developments in this proceeding which explain the late application for security and also bearing in mind r 5.45(5),8 the fact remains that, as Ms Roband states in her affidavit, O’Sheas have known for some time that she is impecunious. This is evidenced by a letter sent by
the solicitors for O’Sheas on 18 June 2014 which advised that it was “appropriate at
8 Rule 5.45(5) provides that “[a] Judge may make an order under subclause (2) even if the defendant has taken a step in the proceeding before applying for security.”
this stage to consider the issue of security for costs”. In reply, counsel for Ms Roband advised that she was bringing the proceedings in her capacity as trustee and therefore that it would be inappropriate to seek security; but that in any case, neither the Trust nor Ms Roband (in her personal capacity) had any assets from which security could be met. O’Sheas elected not to pursue an application for security at that stage. The result, as Ms Roband has said, is that she has now expended a significant sum of money (whether all of her legal expenses have been paid or not) in bringing the proceedings to this point.
[39] In my view, the delay in making the present application must bear significant weight. I acknowledge the affidavit of Mr O’Shea explaining why this was so but the fact remains that the hearing is scheduled to commence on 1 May 2017, which is only eight weeks away.
Conclusion
[40] I am satisfied that there is reason to believe Ms Roband will be unable to pay the costs of O’Sheas if she is unsuccessful in her proceeding. However in my view, it would not be just in all the circumstances to make an order for security of costs.
[41] The application for security of costs is dismissed.
Costs
[42] Costs should follow the event. In the event that counsel are unable to agree, counsel for Ms Roband is to file a memorandum by 21 March 2017 and O’Sheas is
to respond by 28 March 2017. Memoranda should be limited to five pages in length.
Gordon J
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