Slavich v Middlemiss (Harkness Henry)
[2012] NZHC 1910
•1 August 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-419-1521 [2012] NZHC 1910
IN THE MATTER OF misleading and deceptive conduct and s43 of the Fair Trading Act
BETWEEN JOHN KENNETH SLAVICH AND ANTHONY NICHOLAS SLAVICH AS TRUSTEES OF THE KAS SLAVICH FAMILY TRUST
Plaintiffs
ANDPAUL LEWIS MIDDLEMISS, WARREN JOHN SCOTTER, LYNDON ANN EARL, CHRISTINE MARY GRICE, ALISDAIR SIMON MENZIES, JACOB QUINN CASEY, MARK MAXTON THOMSON, SIMON KEITH ELLIS, JARROD WADE TRUE AND TOBIAS MICHAEL BRAUN
of the firm of Harkness Henry
First Defendants
ANDMURRAY DAVID BRANCH Second Defendant
Hearing: 24 July 2012
Counsel: KI Bond for defendants
Appearance: JK Slavich, the first named plaintiff appearing for himself and by leave for the other plaintiff
Judgment: 1 August 2012
JUDGMENT OF ASSOCIATE JUDGE FAIRE
[on application for strike out or, in the alternative, for security for costs]
Solicitors: Harkness Henry, Private Bag 3077, Hamilton 3240
And To: J Slavich, PO Box 120, Hamilton 3240
J SLAVICH AND AN SLAVICH AS TRUSTEES OF THE KAS SLAVICH FAMILY TRUST V HARKNESS HENRY (A FIRM), HC AK CIV-2011-419-1521 [1 August 2012]
The application
[1] The defendants apply for orders striking out the plaintiffs’ amended statement
of claim or, in the alternative, ordering that the plaintiffs give security for costs.
Grounds relied upon in support of the strike out application
[2] In summary the grounds relied upon in respect of the strike out application are:
(a) The amended statement of claim discloses no reasonably arguable cause of action;
(b)The amended statement of claim is frivolous, vexatious or otherwise an abuse of process of the Court; and
(c) To the extent that the plaintiffs’ amended statement of claim alleges a breach of the Fair Trading Act 1986, the causes of action are statute- barred by virtue of s 43(5) of the Fair Trading Act 1986.
[3] The strike out application is made in reliance on r 15.1 of the High Court
Rules. Rule 15.1 provides:
15.1 Dismissing or staying all or part of proceeding
(1) The court may strike out all or part of a pleading if it—
(a) discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b) is likely to cause prejudice or delay; or
(c) is frivolous or vexatious; or
(d) is otherwise an abuse of the process of the court.
(2) If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.
(3) Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.
(4) This rule does not affect the court's inherent jurisdiction.
The Court’s approach to a strike out application
[4] The general principles to be applied in a strike out application are well known. They were confirmed in Attorney-General v Prince and Gardner where the Court of Appeal said:1
A striking-out application proceeds on the assumption that the facts pleaded in the statement of claim are true. That is so even although they are not or may not be admitted. It is well settled that before the Court may strike out proceedings the causes of action must be so clearly untenable that they cannot possibly succeed (R Lucas & Son (Nelson Mail) Ltd v O’Brien [1978]
2 NZLR 289 at pp 294-295; Takaro Properties Ltd (in receivership) v
Rowling [1978] 2 NZLR 314 at pp 316-317); the jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied it has the requisite material (Gartside v Sheffield, Young & Ellis [1983] NZLR
37 at p 45; Electricity Corporation Ltd v Geotherm Energy Ltd [1992] 2
NZLR 641); but the fact that applications to strike out raise difficult questions of law, and require extensive argument does not exclude
jurisdiction (Gartside v Sheffield, Young & Ellis).
[5] The principles referred to above were endorsed by the Supreme Court in
Couch v Attorney-General.2
[6] The court can have regard to evidence put forward either in opposition or support of the application provided it does not contradict that which is pleaded in the statement of claim.3
[7] Caution is required, particularly where the case involves allegations of duties of care in novel situations. That has to be measured against the position that defendants should not be subjected to substantial costs by defending untenable
claims.4
1 Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA) at 267.
2 Couch v Attorney-General [2008] NZSC 45; [2008] 3 NZLR 725.
3 Attorney-General v McVeagh [1995] 1 NZLR 558 (CA) at 566.
4 Queenstown Lakes District Council v Charterhall Trustees Ltd [2009] NZCA 374; [2009]
3 NZLR 786 at 790.
[8] Because the inquiry in this case involves limitation issues, it is appropriate that I set out the approach to strike out applications where limitations issues are raised. The position can best be summarised by reference to the judgments of Tipping J in Matai Industries Ltd v Jensen and Murray v Morel & Co Ltd.5
[9] In Matai Industries Ltd Tipping J referred to the decision of the Court of Appeal in England in Ronex Properties Ltd v John Laing Construction Ltd.6 In summary he observed that:
a) A defendant could never apply to strike out a claim against him as disclosing no reasonable cause of action merely because he might have a good limitation defence;
b)A defendant who believes he has a good limitation defence may, however, either plead the defence and seek trial of the defence as a preliminary issue, or, in a clear case, apply to strike out the plaintiff’s claim on the grounds that it is frivolous, vexatious and an abuse of process;
c) The onus is on the defendant to show that the plaintiff’s claim is
statute-barred;
d) Evidence can be tendered by affidavit; and
e) The Court should be slow to strike out a claim or cause of action altogether in limine, but, if the position is quite clear, the defendant should not be vexed by having to go to full trial when the answer is obvious and inevitable.
[10] This approach was approved by Tipping J in the Supreme Court in Murray v
Morel & Co Ltd where he said:7
5 Matai Industries Ltd v Jensen [1989] 1 NZLR 525 (HC); Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721.
6 Ronex Properties Ltd v John Laing Construction Ltd [1983] 1 QB 398.
7 Above n 5, at [33]–[34].
[33] I consider the proper approach, based essentially on Matai, is that in order to succeed in striking out a cause of action as statute-barred, the defendant must satisfy the Court that the plaintiff’s cause of action is so clearly statute-barred that the plaintiff’s claim can properly be regarded as frivolous, vexatious or an abuse of process. If the defendant demonstrates that the plaintiff’s proceeding was commenced after the period allowed for the particular cause of action by the Limitation Act, the defendant will be entitled to an order striking out that cause of action unless the plaintiff shows that there is an arguable case for an extension or postponement which would bring the claim back within time.
[34] In the end the Judge must assess whether, in such a case, the plaintiff has presented enough by way of pleadings and particulars (and evidence, if the plaintiff elects to produce evidence), to persuade the Court that what might have looked like a claim which was clearly subject to a statute bar is not, after all, to be viewed in that way, because of a fairly arguable claim for extension or postponement. If the plaintiff demonstrates that to be so, the Court cannot say that the plaintiff’s claim is frivolous, vexatious or an abuse of process. The plaintiff must, however, produce something by way of pleadings, particulars and, if so advised, evidence, in order to give an air of reality to the contention that the plaintiff is entitled to an extension or postponement which will bring the claim back within time. A plaintiff cannot, as in this case, simply make an unsupported assertion in submissions that s 28 applies. A pleading of fraud should, of course, be made only if it is responsible to do so.
The causes of action
[11] Mr Slavich, who pleaded this case himself, has marshalled the allegations in the amended statement of claim under three causes of action, the headings of which give a broad base for what is alleged. The first cause of action is headed Share offer statements to raise $400,000 to pay outstanding creditors – misleading and deceptive conduct under duty of care. The second cause is headed Share offer statements on solvency and borrowing – second misleading and deceptive conduct under duty of care. The third cause of action is headed Share registration and sale of business – consequence of misleading and deceptive under duty of care.(sic)
The opposition
[12] In summary, the grounds pleaded in opposition to this strike out application are:
(a) The plaintiffs’ causes of action are not founded on alleged breaches of the Fair Trading Act 1986. They are therefore not statute barred; and
(b)The causes of action allege a special relationship and therefore disclose a reasonably arguable cause of action either in negligence or by virtue of the breach of fiduciary duty.
Background
[13] In 2005, the plaintiffs were 25 per cent shareholders in Pacesetter Print Group Ltd which I shall refer to as “the company”. That company changed its name to Adpace Design and Management Services Ltd on 22 July 2008. It must not be confused with another company that bears the name Pacesetter Print Group Ltd and which was placed into receivership on 25 June 2012. That company acquired the assets and liabilities of “the company” in August 2006.
[14] This proceeding arises from a dispute between the plaintiffs and their fellow shareholders. The defendant solicitors and its consultant, Mr Murray Branch, the second defendant. acted for “the company” and its directors and its shareholders, other than the plaintiffs. In early 2005, the board of “the company” became concerned about its financial status and the management of “the company”. It hired the firm of Staples Rodway to carry out a review and to determine an accurate view of “the company’s” financial position. Staples Rodway reported that “the company” was technically insolvent. Discussion over the ensuing months occurred and a number of options were considered. The documents disclose that the board determined on a course of action which it thought would ensure “the company’s” survival and long term viability, both for the shareholders and its staff. It proposed to raise $400,000 by way of a share issue with the shares first being offered to existing shareholders. It also proposed to make an arrangement with “the company’s” bank.
[15] A directors’ resolution was passed which resolved, subject to the shareholders’ approval, that:
(a) $400,000 be raised by “the company” issuing 1,000,000 ordinary
shares at 40c per share;
(b) The shares to be offered to all existing shareholders in accordance
with “the company’s” constitution;
(c) The shareholders shall have 10 days from the posting of the offer in which to take up and pay for the shares that they elect to receive.
The directors recorded that in their opinion the consideration for and the terms of issue of the shares were fair and reasonable to “the company” and all existing shareholders.
[16] On 5 October 2005, the then trustees of the plaintiff trust received separate letters from the defendants’ solicitors, which were dated 30 September 2005. The letters enclosed two documents. One is entitled Summary of Financial Position … and Proposal to Shareholders. This is the share offer. The second document is the special resolution.
[17] The statement of claim pleads that the share offer contained the following key information, namely:
(a) “The company” is technically insolvent;
(b) After lengthy investigation borrowing was not a viable option;
(c) Future arrangements on debtors’ financing are to be made with “the company’s” bank to assist with further creditor payment and cashflow;
(d) $400,000 is to be raised by way of share issue; and
(e) These funds will be used to make payments to outstanding creditors. [18] The important parts of the special resolution provided:
$400,000 be raised by Pacesetter issuing 1 million ordinary shares at $0.40 per share
The shareholders will have 10 days … to … pay for the shares they elect to
receive
… the terms of issue of the shares are fair and reasonable to Pacesetter and to all existing shareholders.
[19] With a letter dated 5 October 2005, the defendants enclosed “the company’s” valuation report dated 21 September 2005. It is entitled Valuation Calculation in relation to Shares in Company. The letter contained the following:
This letter is provided to assist the shareholders in their consideration of the
Board’s proposal as outlined in my letter to you.
The reference to the Board’s proposal is the share offer. The reference to the letter is the letter of 30 September 2005 which was received by the then existing trustees of the plaintiff trust on 5 October 2005.
[20] At the time of the share offer the plaintiffs were advised by Hamilton solicitors, Stace Hammond. That firm was not asked to give financial advice or asked to assess the share offer. One of the trustees of the plaintiff trust says the reason for that was that the trustees had the expertise and experience and the financial knowledge to deal with that themselves. The plaintiffs did, however, instruct their solicitors to write to the defendants on 19 October 2005, requesting financial information in relation to the share offer and further time to consider it. The relevant passages from the correspondence are pleaded in the amended statement of claim and are as follows:
(c) The proposal states that the $400,000 is to be used to make payments to outstanding creditors. The subsequent report, prepared by Staples Rodway dated 21 September 2005, provided to our clients states on page 2 [penultimate paragraph] in relation to creditors “Of this total,
$331,571 was overdue by more than two months.” The following
queries arise:
(i) Can our clients assume that the capital funds are to be applied to these categories of trade creditors?
(ii) If not applied to these categories of trade creditors, can the directors please provide an approximate breakdown of categories and amounts of other liabilities the funds are to be utilised toward?
(iii) If used in part for repayment of interim borrowing from shareholders what was that interim borrowing summarily utilised for?
[21] The defendants responded on the same day on behalf of “the company”. They rejected all requests for financial information and extension of time. The letter contained the following paragraphs:
We would also point out that in relation to the share issue your client is protected by the Board resolving and certifying that the issue is fair and reasonable.
…
In summary, your client should either put his faith in the directors and remain a shareholder (with or without taking up the entitlement), or sell his shares.
[22] The plaintiffs then instructed their solicitors to prepare a letter of acceptance which was duly completed and is dated 21 October 2005. That letter and a blank cheque for $100,000 was delivered to the defendants. The letter also added that the Trust shareholder would take up any entitlements not taken up by other shareholders and would examine whether other shareholders had subscribed to the share offer.
[23] “The company’s” constitution gave the Trust shareholder the right to subscribe to any shares not taken up and paid for by other shareholders under the terms of the share offer.
[24] The way the other shareholders’ position in relation to the share offer was handled was not anticipated by the plaintiffs. Two shareholders, Messrs Beard and Cuff had paid $100,000 to “the company” on 9 and 11 August 2005. That was treated as a pre-payment for the shares to be issued. In the case of another shareholder, Mr Maurd, a cheque swap for $100,000 was arranged which led to “the company” receiving $100,000 and then immediately paying $100,000 in respect of a secured loan granted by Mr Maurd’s company, Pacesetter Properties Ltd.
[25] On 31 October 2005 “the company’s” directors sent to the Registrar of
Companies a document registering new shares as follows:
J Slavich and P Lang (the plaintiff’s then trustees) 25%
Number
280,000
J Maurd 25% 280,000
B Beard and T Beard 25% 280,000
D Cuff plus D Cuff and Nicholson Group 25% 280,000
Total 1,120,000
[26] The plaintiffs’ solicitors continued to press for further financial information from the defendants by letters dated 28 October 2005 and 9 November 2005. The defendants replied in a letter dated 15 November 2005 which recorded that the funds were used to:
…[P]ay creditors in a manner in which the Directors think best serves the interests of Pacesetter … [T]he money received has not been used for the repayment of interim borrowing from shareholders.
[27] Further correspondence followed. The defendants confirmed that two
$100,000 shareholders advances in August 2005 by the Beard and Cuff shareholder groups had been treated as share subscriptions for those shareholders. That position was recorded in a Deed of Agreement between the Beard and Cuff shareholders groups and “the company”. The agreement was prepared by the first defendants. It was signed on or about 31 August 2005.
[28] The plaintiffs also rely on a letter sent by the defendants on 12 September
2006 which responded to a request from counsel acting for the plaintiff trust. The defendants’ letter confirmed that there had been no letters to individual shareholders other than the Slavich Trust. That is understandable because the other shareholder groups were represented on the board of “the company”.
[29] The plaintiffs’ pleading refers to civil proceedings which were issued by the plaintiff trustees against the directors of “the company” in 2006. Those proceedings were settled with the trustees receiving nothing and being required to pay a contribution to costs. There is some debate as to why the trustees settled on the terms they did. The trustees say that they were influenced by the fact that a director of “the company” signed a certificate on 28 September 2005 addressed to the BNZ Bank. It contained the statement:
Immediately after execution of the documents the company was solvent.
The second defendant acted for “the company” in those proceedings. The trustees say that if the certificate was in fact true, they could prove no loss and therefore their proceeding would have no proper purpose.
[30] Mr Slavich issued criminal proceedings. The matters raised in the criminal proceedings are pleaded and relied upon by the plaintiffs in this proceeding. Those criminal proceedings alleged a breach of s 377 of the Companies Act 1993. The allegation made is that one of the directors signed a Solvency Certificate at the time “the company” borrowed from the BNZ when they knew “the company” was insolvent. The criminal proceedings were stayed as an abuse of process by the District Court.
[31] The plaintiffs next plead circumstances surrounding the instruction given to a valuer to prepare a valuation report.
[32] The plaintiffs also plead, and refer to, documents that have been subsequently discovered.
The claim analysed
[33] The plaintiffs plead that their case, and Mr Slavich’s argument in opposition to strike out, are based on the proposition that there exists a special relationship between the plaintiff trustees and the defendants’ solicitors such as to give rise to a duty of care.
[34] This is emphasised by the pleading at paragraph 4.3 of the amended statement of claim which particularises the matters relied upon to create the alleged special relationship as follows:
(a) The second defendant knew that the Trust Shareholders were the only shareholders who received the Share Offer documents from them.
(b) Knew about the bad relationship between one of the trustees and the directors and knew the Trust Shareholder was not represented on Pacesetters board, however all other shareholders were.
(c) The second defendant prepared the Share Offer documents and took direct responsibility for the contents of those documents that were only sent to the Trust Shareholder.
(d) In communicating to the Trust Shareholder by letter he:
(i) Directed attention to the protection given to them by the
Companies Act 1993.
(ii) Suggested that the Trust Shareholder put their faith in the directors or sell their shares.
(e) In preparing earlier agreements for Pacesetter in dealing with some shareholders the first defendant had insured those agreements included the requirements of section 47 and 107(2) of the Companies Act 1993 to protect other shareholders, including the Trust Shareholder.
[35] Mr Bond submitted that the language of special relationship used in the amended statement of claim could suggest that the plaintiffs might be claiming for negligent misstatement. He further submitted, however, that the plaintiffs go on to say that the defendants owed fiduciary duties to the plaintiffs. He questioned how those claimed duties would be reconciled with the clear fiduciary duty, in particular the duty of confidentiality which is owed by the defendants to their clients. He submitted that none of the particulars give rise to a special relationship between the plaintiffs and the defendants.
[36] He submitted further that the foundation for the pleading in paragraph 4.3(c), to the effect that the second defendant took direct responsibility for the content of the share offer documents, is not substantiated by the covering letters which enclosed the documents in that there is simply no assumption of responsibility by the writers of the letters, namely the defendants.
[37] Mr Bond also submitted that, to the extent that the plaintiffs say they rely on written assurances given to their solicitors, all that could be said was that there might be a claim against the directors who had certified that the share offer was fair and reasonable, but nothing more.
[38] A number of cases have had to consider the circumstances in which solicitors have been alleged to owe a duty of care to someone for whom they do not act.
[39] In Brownie Wills v Shrimpton8 the appellant firm of solicitors acted for a company which was indebted to a bank. The firm was instructed by the bank to act on its behalf as well as “the company”, and obtain the directors’ signatures to a guarantee for “the company’s” debt after explaining to them the nature of the guarantee. The respondent was not a client of the appellant firm. He signed the guarantee without seeking or receiving any advice from the appellant. The firm completed the required certificate for the bank. The Court of Appeal held that in the absence of any assumption by Mr Wills of responsibility to act for or look after of Mr Shrimpton there was no room for an argument that Mr Wills was a fiduciary for Mr Shrimpton. The Court added that even if he had been, it is doubtful that a failure
to give advice can properly be characterised as a breach of a fiduciary duty.9 On the
subject of a duty of care the Court said:10
Subject to duties to the Court and professional duties imposed on the profession, a solicitor when acting for a client generally owes no duties to third parties (White v Jones [1995] 2 AC 207 at p 259). Nevertheless sometimes, such as when giving a certificate relating to a document in circumstances where a non-client is intended to rely on it, a solicitor may owe a duty of care to that person (Allied Finance and Investments Ltd v Haddow & Co [1983] NZLR 22). And the solicitor may be acting for a guarantor as well as for the debtor. An example is Christensen v Scott [1996]
1 NZLR 273. Thomas J, speaking for the Court, said at p 279 that professional advisers acting for a company do not simply because of that
relationship owe a duty of care to its shareholders. In that case the defendant firms of accountants and lawyers already had the shareholders as personal
clients. They looked to those firms as their professional advisers to order their financial affairs in such a manner as to protect their interests. It was
therefore a very different case from the present where Mr Shrimpton had no previous connection with Brownie Wills. Whether a duty of care existed in a
particular situation depends upon the nature of the relationship between the
guarantor and the professional adviser. Each case will require careful analysis of the facts.
[40] In Primosso Holdings Ltd v Alpers11 the Court was required to consider the position where Primosso had lent money to clients of a firm of solicitors. The clients
8 Brownie Wills v Shrimpton [1998] 2 NZLR 320 (CA).
9 Ibid, at 326.
10 Ibid, at 324.
11 Primosso Holdings Ltd v Alpers [2006] 2 NZLR 455 (CA).
subsequently became unable to repay the loans. The loans were facilitated by the firm of solicitors. It was alleged that the firm knew about matters which made the clients not good borrowers. The firm of solicitors applied to be struck out from the proceeding. The application was refused in the High Court. The Court of Appeal held, however, in the circumstances that there was no arguable duty of care owed by
the solicitors. The Court said:12
If what the respondents wished to allege was that honest but careless assistance to a deceiver is capable of founding an action in negligence, then this would be a radical extension of the law of negligence. We remark that, in a solicitor/client context, the proposition would have to be as follows: a solicitor acting for a client in a transaction has a duty of care to another party, for whom the solicitor does not act, to take reasonable steps to be satisfied that the client is not using the solicitor to facilitate the deceit of such other party. Such a rule would require every solicitor, when receiving instructions to act in any transaction, to assume that the client might be acting deceitfully and to take reasonable steps to ascertain whether or not that was the case. And, of course, the duty would not just apply to solicitors, but also to any person acting as an agent for any other person in any transaction – accountants, bankers, insurers, stockbrokers or any other manifestation of an agent. Such an extension has, in our preliminary view, considerable conceptual and practical difficulties. But we did not hear any argument in respect of such a radical extension of the law of negligence and we make no further comment upon it.
[41] In this case the plaintiff trustees were not clients of the defendants. The defendants were acting in circumstances and in the knowledge that the plaintiff trustees had their own legal representation. When the share offer and valuation were forwarded to the plaintiffs no commentary about their content was provided by the defendants. No certificate was given by the defendants. Mr Bond submitted that there was nothing in the covering letters to suggest that the defendants certified that the documents which were enclosed were accurate. The defendants did not adopt the documents as their own. There was no question of the plaintiffs indicating that they were relying specifically on any advice given by the defendants. I can find no foundation for a duty of care owed by the solicitors in this case. Nor can I see that there is any basis for asserting that there has been a fiduciary obligation undertaken and a breach of it. There has been no evidence of any assumption of responsibility
to the plaintiffs by the defendants in this case.
12 Ibid, at 455-456
[42] The above analysis leads me to one conclusion, namely that there is no reasonably arguable cause of action available to the plaintiffs against the defendants. The consequence of that conclusion is that the statement of claim must be struck out.
[43] This result makes it unnecessary for me to consider the limitation alternative argument. On the face, of it the proceeding was filed outside the limitation period provided under the Fair Trading Act 1986. However, my reason for not considering the application in relation to the limitation principles further is that Mr Slavich advised me that he did not rely on the Fair Trading Act for his cause of action. For that reason, I consider that aspect no further.
[44] The above finding makes it unnecessary to consider the security for costs application. Some brief comments, however, may assist in case I was found to be wrong on the primary application.
[45] The first is that contrary to Mr Slavich’s submission, an order for security may be made in circumstances where the defendant solicitors are represented either by a partner, or associate, or employee of the firm. In Brownie Wills v Shrimpton the Court said:13
The long-established rule is that, as an exception to the general rule denying costs to a litigant in person, a practising barrister and solicitor who brings or defends a proceeding in person or by a partner or employee of the firm is entitled to the same costs as when acting on behalf of a client. So the lawyer litigant may have the same costs as if another lawyer had been instructed but cannot, of course, charge for consulting, instructing, or attending upon him or herself…
[46] The consequence of that position is that the plaintiffs have an exposure to an order for costs in this proceeding. Prima facie then it is necessary to consider that aspect.
The court’s approach to security for costs applications
[47] The application is made in reliance on r 5.45 of the High Court Rules. The relevant parts of that rule for the purposes of this application are 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.
(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) by paying that sum into court; or
(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.
…
[48] In McLachlan v MEL Network Ltd14 helpful guidance is given as to the approach that should be taken on applications for security for costs. For the purposes of this application the Court’s comments at [13] – [16] are particularly helpful:
[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 such as that in the judgment of Master Williams in Nikau Holdings Ltd v BNZ (1992) 5 PRNZ 430, 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.
[49] The reference in the Court of Appeal decision to r 60(1)(b) is a reference to the predecessor of the current rule that I have set out.
[50] The first part of the inquiry, often referred to as the threshold test, was summed up by Rodney Hansen J in Keeys v Peterson:15
In considering whether the threshold issue of the ability of the plaintiff to pay the defendants’ costs if unsuccessful has been reached, it is, as Hammond J said in Hamilton v Papakura District Council (supra), necessary to make a broad overall assessment. Something more than having difficulty in making payment is, however, required. Some plaintiffs will not be able to meet costs without some financial rearrangement: NZ Kiwifruit Marketing Board v Maheatataka Coolpack Limited (1993) 7 PRNZ 209. And if a plaintiff’s financial position is improving and is likely to improve still further, there may not be reason to find an inability to pay costs: see Rivendell Mushrooms Limited v Horowhenua Electric Power Board (unreported, High Court, Wellington, CP844/92, 13.11.98, Master Thomson).
[51] The first question that must be considered, therefore, is whether there is reason to believe that the plaintiffs will be unable to pay the defendants’ costs if the plaintiffs are unsuccessful in the proceeding. Ms KA de Meyer has sworn an affidavit dealing with the question of security for costs. She advises that the plaintiff trust does not have a balance sheet. She says it holds two groups of shares which are respectively 20 per cent and 33.3 per cent in private farming companies. She says that the trust has a $305,893 shareholder current account, which it can call upon against one of the companies it holds shares in. The two companies concerned are Slavich Properties Co Ltd and Nick Slavich Ltd.
[52] In his submissions, Mr Bond analysed what financial information in relation to both companies is available. I do not set out his submission in full. Suffice to say, the analysis that he carried out indicated that at most there could be an equity of some $24,759. I simply have insufficient information available to me to make any proper analysis of the value of the plaintiff trust’s interests in the two companies in which it holds shares. There does not seem to be anything in the arrangements between the Trust shareholder and the companies concerned to access funds and to make them available to cover any liability for costs. I am left with a real concern that if, in fact, the proceeding continued but was unsuccessful, the trust would not be able to meet any cost award against it.
[53] Mr Bond has carried out an exercise as to the appropriate costs that might be ordered if the matter proceeded to trial in the sum of $31,584. The breakdown of that figure is set out as Schedule 1 to the Notice of Application.
[54] Bearing in mind that there are always allowances for contingencies when the exercise is carried out at an early stage of a proceeding, had I been required to determine the question of security for costs, I would have discounted the amount contained in the Schedule to $25,000. My reason for that is that there will be speculation about the time for trial required and the need for preparation which accounts for $22,560 of the figure claimed for security for costs. However, it is not necessary that I make such an order. I simply indicate in this judgment what I would have done had it been necessary to move to the second aspect of the application.
Costs
[55] Because the proceeding itself has been struck out by the orders that I will make in this judgment, it is necessary that costs in respect of the whole proceeding be determined. As I consider the steps that have been taken, it is apparent to me that Category 2 is appropriate. I can find no reason to depart from Band B.
Orders
[56] I order that:
(a) The plaintiffs’ statement of claim be struck out; and
(b)the plaintiffs pay costs of this proceeding, including the application to strike out, based on Category 2 Band B together with disbursements
as fixed by the Registrar.
JA Faire
Associate Judge
0
2
0