SCC (New Zealand) Limited v Samsung Electronics New Zealand

[2016] NZHC 2630

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-2552 [2016] NZHC 2630

BETWEEN

SCC (NEW ZEALAND) LIMITED

Plaintiff

AND

SAMSUNG ELECTRONICS NEW ZEALAND

Defendant

Hearing:	27 September 2016
Appearances:	R M Dillon & T A Hwang for Plaintiff M Kersey & V V Kumar for Defendant
Judgment:	2 November 2016

JUDGMENT OF PAUL DAVISON J

This judgment was delivered by me on 2 November 2016 at 4pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Queen City Law, Auckland

Russell McVeagh, Auckland

SCC v SAMSUNG [2016] NZHC 2630 [2 November 2016]

[1]      The plaintiff has brought 13 causes of action against the defendant.   They arise from the business relationship established between the parties in July 2007, pursuant to a “Call Centre Service Agreement” by which the defendant appointed the plaintiff to provide call centre services to it. The agreement was for an initial term of three years commencing 1 July 2007, with provision that it would automatically renew for further periods of one year indefinitely.  A second agreement was entered into on 1 March 2012.

[2]      The dispute between the parties is based on the plaintiff’s claim that it is entitled to payment for various specific services it provided and for which it says it has not been paid.  The defendant has cancelled the agreements with the plaintiff, alleging that the plaintiff had made false claims for payment.  For present purposes, it is unnecessary to detail the specific causes of action relied upon.

[3]      On 18 August 2015, Christiansen AJ ordered, by consent, that the plaintiff is to deposit $70,000 into Court by way of security of costs.

[4]      The defendant now seeks to vary the consent order to increase the security to be given, upon the grounds that the plaintiff’s financial position has deteriorated and it has failed to comply with its discovery obligations, meaning that it will consequently incur further costs, and which will make it more likely that it will be unable to pay costs if ultimately unsuccessful at trial.

[5]      The plaintiff is opposed to the proposed variation, saying that the consent order was made on the basis that the amount of security was agreed upon as being sufficient to cover the proceeding through to its conclusion and determination at a substantive hearing, and consequently should not be disturbed.

Under what rule was the order made?

[6]      The defendant says that the order for security of costs was made pursuant to r

5.45 of the High Court Rules, which provides that a Judge may order a plaintiff to pay security for costs if:

(a)       it appears that the plaintiff will be unable to pay costs if the plaintiff is unsuccessful in the substantive proceeding; and

(b)the Judge thinks that an order for security of costs is just in all the circumstances.

[7]      The defendant further says that since the parties had agreed to a consent order, the test for making an order for security of costs under r 5.45 has been implicitly accepted by both parties to have been satisfied.  The defendant relies on Smellie  J’s  comment  in  Cargill  NZ  Ltd  v  Palmerston  Wool  Co  Ltd  for  this submission, wherein his Honour said: “in a sense [the test for making an order for security for costs] can be taken as having been established because of the consent

order”.1

[8]      I note that Smellie J prefaced his comments with the qualifying phrase, “in a sense”, by which I take it that he was not saying that it was necessarily the case that the making of a consent order must mean that the requirements for the making of an order have been established.  Here, as I have said, the order directing the plaintiff to

pay security of costs was made by consent. Counsel had filed a joint memorandum,2

in which  the plaintiff’s position was explained as follows:

SCC’s position is that it will be able to meet SENZ’s costs if SCC is unsuccessful in its proceeding, and accordingly reserves its position in relation to SENZ’s application for security for costs. However, in order to progress matters with the proceeding, SCC agrees to deposit $70,000 as security in a bank account nominated by the Court, to be held by the Court for the purpose of meeting any adverse costs of SCC in this proceeding.

[9]      In Christiansen AJ’s Minute making the order for security, his Honour noted the plaintiff’s reservation of its position as regards whether it would be unable to pay costs if unsuccessful in its claim, saying:

The Court has now received a joint memorandum from counsel. Whilst not acknowledging it would be unable to pay costs if unsuccessful, the plaintiff has agreed to deposit $70,000 into a bank account to be held by the Court for the purpose of meeting any adverse costs in this proceeding.

1      Cargill NZ Ltd v Palmerston Wool Co Ltd (1997) 11 PRNZ 52 (HC) at 54.

2      Joint Memorandum of Counsel 14 August 2015.

[10]     Accordingly, it is clear that in the circumstances of this case, the plaintiff did not accept or concede that it would be unable to pay an award of costs in the event that  its  claims  against  the  defendant  were  unsuccessful,  and  it  reserved  and maintained its position that it will be able to pay costs if it loses in the substantive proceeding.

[11]      In my view, this is a complete answer to the defendant’s submission that, by agreeing to a consent order, the plaintiff had implicitly acknowledged that it would be unable to pay costs if unsuccessful.  Such a proposition is clearly incorrect, where an express statement on the issue has displaced the possibility of an implicit acknowledgment.   In any event, r 5.45 requires the Judge (and not the parties or counsel) to be satisfied of the matters set out under that rule.   No such judicial assessment or determination took place here.  Accordingly, I agree with Mr Dillon’s submission for the plaintiff, that the consent order was not made pursuant to r 5.45 but pursuant to r 25.54 which provides:

25.54  Consent orders

(1)       Any agreement in writing between the parties to a cause or matter that is dated and signed by the parties or their solicitors may be filed if the Registrar thinks it is reasonable to file the agreement.

(2)      The agreement becomes an order of the court when it is filed.

Should this Court vary the consent order?

[12]     It is settled law that a consent order may be varied where there has been a significant change in circumstances or where the interests of justice require it.3

[13]     Here, the defendant relies upon two changes in the circumstances.

[14]     First,  the  defendant  submits  that  the  plaintiff’s  financial  position  has deteriorated since the consent order was made. The plaintiff, on the other hand, maintains that its financial position has not deteriorated but, in any event, says that the grounds upon which the defendant relies, namely that it has had no further or

other income sources since the termination of its business with the defendant on 4

3      See Stead v The Ship “Ocean Quest of Arne” [1993] 3 NZLR 415 (HC).

November 2014, is a matter that was already in existence at the time of the consent order.  In other words, there has been no change in circumstances.  I agree.

[15]      Secondly, the defendant says that since the plaintiff has failed to comply with its discovery obligations, it will likely incur additional legal costs which will have an adverse impact on its ability to pay the defendant costs if it is unsuccessful.  In my view, any failure by the plaintiff to comply with its discovery obligations is not a matter that amounts to a change in circumstances, such as would warrant disturbing and varying the consent order.  Informal disputes about discovery obligations are a relatively common feature of commercial litigation and, in my view, the likelihood of such issues arising was entirely foreseeable and would have, or at least should have, been within the contemplation of the parties when agreeing upon a sum sufficient for security.

[16]     Mr Yoon, on behalf of the plaintiff, has filed a lengthy affidavit explaining the plaintiff’s technical reasons for non-compliance and, given that it is alleged by the plaintiff that the defendant has also breached its discovery obligations, I am not prepared to say at this stage that any extra costs that may possibly be awarded against the plaintiff are likely to be significant such as to warrant variation in the amount secured.

[17]     Turning to the question of whether the interests of justice in this case require the consent order to be varied,  I am satisfied that there are no circumstances present that would warrant interference with and variation of the consent order.  I accept that an order for the payment of a substantial sum by way of security may have the effect of preventing the plaintiff from pursuing its claim.

[18]     There is  also  the factor  of the delay in  the defendant’s  application. The defendant says there have been delays by the plaintiff in providing discovery, but I do not consider that such delays provide any basis that inform or warrant a revisiting of the amount of the security for costs previously agreed on.

[19]      I note that the defendant also complains that the plaintiff’s case against it

lacks merit. However, if it is unmeritorious now, it would obviously have been

unmeritorious at the time the consent order was made.   In this regard, I note that Moore J in this proceeding delivered a judgment on 14 October 20144, wherein his Honour refused the plaintiff’s application for an interim injunction to prevent the defendant from terminating the 2012 agreement.  In doing so, the Court held that it was not satisfied that the plaintiff had established that there is a serious question to be tried.  In light of that finding, the defendant subsequently agreed to the consent

order fixing security for costs at $70,000, and any view as to a lack of  strength of the plaintiff’s case was no doubt factored into the defendant’s decision to consent at that time.

[20]     Mr Kersey, for the defendant, also refers me to the judgment of Kós J in Highgate on Broadway Ltd v Devine and the assembled list of factors relevant to the making of an order for security set out therein.5    In particular, Mr Kersey relied on the   factor   of   whether   the   plaintiff’s   substantive   claim   was   prima   facie unmeritorious,6  and notes that four of the plaintiff’s causes of action are based on quantum   meruit   in   relation   to   services   claimed   to   have   been   provided notwithstanding  that  the  contract  did  not  provide  for  such  services  or  for  any payment to be made for them.

[21]     The Court’s impression or assessment of any lack of merit in the plaintiff’s case, can of course be a relevant factor in deciding whether or not security should be ordered. However, as the issue of the merit or strength of the plaintiff’s case was no doubt factored into the decision made by the defendant to agree to the consent order, it is not a matter that warrants or requires variation of the consent order.

[22]     Finally,  Mr  Kersey  submits  that  the  plaintiff  has  failed  to  provide  any affidavit evidence as to its financial position and ability to meet an award of costs should it be unsuccessful at trial. He submits that such financial information would provide comfort to the Court and the defendant that the plaintiff has the funds available to meet any award of costs made against it. However, I do not consider that the absence of any detailed financial information from the plaintiff is a matter that is

relevant to whether the Court should vary the consent order for security. The plaintiff

4      SCC (NZ) Ltd v Samsung Electronics New Zealand Ltd [2014] NZHC 2692.

5      Highgate on Broadway Ltd v Devine [2012] NZHC 2288 at [22] – [24].

6      At [22](c).

has paid the sum of security provided for by the consent order, and is under no obligation to provide any details of its financial position. I agree with Mr Dillon that in such circumstances, there is nothing relevant in the plaintiff’s failure to provide such information.

Other matters

[23]     In  its  written  submissions,  the  plaintiff  seeks  an  order  from  the  Court requiring the defendant to comply with its discovery obligations which the plaintiff says are yet to be complied with.   This is a matter that was not advanced in oral submissions and is not an issue within the scope of this present application. Unsurprisingly, this was not addressed by counsel for the defendant in his written or oral submissions, and is a matter that should properly be the subject of a discrete and separate application by the plaintiff. In the circumstances, I decline to deal with the plaintiff’s informal application for an order relating to discovery issues.

Costs

[24]     The  plaintiff  applies  for  full  indemnity  costs  to  be  ordered  against  the defendant  on  the  grounds  that  the  issue  and  quantum  of  security  was  already resolved by the consent order in August 2015, and the plaintiff has been put to unnecessary  cost  in  defending  the  application.  Mr  Dillon  submits  that  the defendant’s application for variation of the consent order should be seen as a vexatious delaying tactic and an attempt to hinder or stifle the plaintiff’s claims.

[25]     While I have dismissed the defendant’s application, and I do not consider that there is any sufficient basis for disturbing or varying the consent order, I do not consider that the fact of the defendant having made the application and thereby causing the plaintiff to incur the costs of opposing it, or the defendant’s conduct in other respects, warrants an award of indemnity costs. The parties must both take some responsibility for the difficulties that have beset them as regards discovery and which appear to have largely contributed to the defendant’s reasons for bringing the application.

[26]     The plaintiff, having been successful, is entitled to costs on a scale 2B basis,

together with disbursements to be fixed by the Registrar.

Paul Davison  J