Sports Worx Limited v Uprising Sports Centre Pte Limited
[2024] NZHC 430
•5 March 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2802
[2024] NZHC 430
BETWEEN SPORTS WORX LIMITED
Plaintiff/Counterclaim Defendant
AND
UPRISING SPORTS CENTRE PTE LIMITED
Defendant/Counterclaim Plaintiff
Hearing: On the papers Appearances:
No attendance on behalf of Plaintiff N Woods for the Defendant
Judgment:
5 March 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 5 March 2024 at 12 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Rice Craig, Auckland
SPORTS WORX LTD v UPRISING SPORTS CENTRE PTE LTD [2024] NZHC 430 [5 March 2024]
Introduction
[1] The defendant has filed an application for security for costs as it submits there is reason to believe the plaintiff will be unable to pay the defendant’s costs if the plaintiff's claim is unsuccessful.
[2] The plaintiff has had issues with legal representation with leave granted for the solicitor on the record to withdraw on 7 September 2023. Since then, there have been two case management conferences attended by prospective solicitors. However, no change of representation has been filed.
[3] At the most recent case management conference I directed that the plaintiff was to file any notice of opposition to the security for costs application by 2 November 2023 but none was filed. As a consequence, the defendant has requested that the application be determined on the papers and has filed submissions in support.
[4] The plaintiff has had sufficient opportunity both to engage a solicitor and to file an opposition and so I determine the application below.
Background
[5] The plaintiff is a supplier and installer of synthetic turf. The plaintiff’s claim is for breach of a contract to design and install a synthetic all-weather rugby/football field for the defendant at the Uprising Beach Resort in Pacific Harbour, Fiji. The losses allegedly amount to approximately $485,330 plus interest and indemnity costs.
[6] The defendant says that the payments claimed are not otherwise due and has counterclaimed on the basis that the synthetic turf does not meet the contractual standard and that the works are defective. A list of the claimed defects is annexed to its counterclaim.
[7] The defendant’s counterclaim includes a claim for the cost to rectify the defects of $804,000 plus consequential losses as a result of not being able to use the sports field or facilities. The consequential losses are still to be quantified but include a pre-estimate of loss of income of approximately $875,000.
Relevant legal principles
[8]Rule 5.45 of the High Court Rules 2016 relevantly provides:
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.
[9] The defendant must first meet the threshold in r 5.45(1) that there is reason to believe the plaintiff will be unable to pay costs.
[10] The defendant accepts that a mere assertion that the defendant will be unable to pay costs is insufficient but refers to Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd where it was held:1
By the very nature of the application, however, the defendant cannot be expected to produce anything very conclusive in the way of proof. It has no access at this stage to the plaintiff's books, accounts or other records and can do no more that point to the surrounding circumstances … there should be credible evidence (that is, believable) evidence of surrounding circumstances from which it may be reasonably inferred that the party will be unable to pay the costs.
1 Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd (No 2) [1977] 1 NZLR 516 (SC) at 519.
[11] Furthermore, the defendant refers to R v A, where the Court of Appeal held that "satisfied" does not imply “any onus or standard of proof is required”,2 but merely that the Court needs to come to a decision on the evidence before it.
[12] Once the threshold is met, the Court then has a discretion whether to make an order.3 As held by Kós J in Highgate on Broadway Ltd v Devine, impecuniosity does not require the making of a security for costs order.4 The plaintiff’s right to access justice must be balanced against a defendant’s right to be protected for costs.
[13]In Lee v Lee, the Court of Appeal described the discretion as follows:5
[20] The discretion is a broad one. It may be exercised to require security even if that may prevent a plaintiff from pursuing a claim. But access to the Court for a genuine plaintiff is not lightly to be denied. In A S McLachlan Ltd v MEL Network Ltd this Court summarised the position:
[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.
[14] Similarly, in Reekie v Attorney-General the Supreme Court held that applications for security in first instance proceedings call for careful consideration and judges ought to be slow to make an order for security which will stifle a claim.6
[15] In A S McLachlan Ltd v MEL Network Ltd, the Court of Appeal cautioned that the discretion in r 5.45(2) is not to be “fettered by constructing ‘principles’ from the facts of previous cases”.7
2 R v A (CA255/2009) [2009] NZCA 380 at [9]–[10].
3 High Court Rules 2016, r 5.45(2).
4 Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017 at [20]–[21].
5 Lee v Lee [2019] NZCA 345 citing A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [15]–[16].
6 Reekie v Attorney-General [2014] NZSC 63, [2014] 1 NZLR 737 at [3].
7 A S McLachlan Ltd v MEL Network Ltd, above n 5, at [13].
[16] As far as possible, the Court will endeavour to assess the merits and prospects of success of the claim, bearing in mind the early stage of the proceeding.8 A prima facie case establishing that a plaintiff's claim is unmeritorious, is a factor that weighs in favour of security.9
[17] If the defendant's actions have caused the plaintiff's impecuniosity, it may be unjust for a defendant to receive security for costs. The question is whether there is evidence to support the contention to the standard of a “reasonable probability”— it is a question of linkage rather than a further examination of the merits.10
[18] Delay in applying for security for costs may be relevant to the Court’s exercise of its discretion if it causes unfairness to a plaintiff.11
[19] Where a plaintiff can reasonably draw upon resources from third parties to fund litigation, such as shareholders or other persons interested in the litigation, this may weigh in favour of an order of security notwithstanding the difficulties the impecunious plaintiff might otherwise face. In those circumstances, it is less likely that a prima facie meritorious case will be impeded by the ordering of security.12
[20] Finally in terms of quantum, any order for security is at the discretion of the Court and will not necessarily be fixed by reference to likely costs awards. It will reflect what the Court thinks fit in all the circumstances, which will generally include:13
(a)the amount or nature of the relief claimed;
(b)the nature of the proceeding, including the complexity and novelty of the issues;
(c)the estimated duration of trial; and
8 Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [37].
9 Highgate on Broadway Ltd v Devine, above n 4, at [22(c)].
10 At [23(a)].
11 Oxygen Air Ltd v LG Electronics Australia Pty Ltd [2018] NZHC 945 at [26].
12 Highgate on Broadway Ltd v Devine, above n 4, at [22(d)].
13 McNaughton v Miller [2022] NZCA 273 at [17].
(d)the probable costs payable if the plaintiff is unsuccessful, and potentially the defendant's estimated actual (i.e. solicitor and client) costs.
Issues
[21]There are four questions to be considered:
(a)Is there reason to believe the plaintiff will be unable to pay the defendant's costs if unsuccessful?
(b)If so, is it just in all the circumstances to order the plaintiff to give security?
(c)If so, what is the appropriate quantum and should payment be ordered in stages?
(d)Should a stay be ordered?
Is there reason to believe the plaintiff will be unable to pay the defendant’s costs if unsuccessful?
[22] The defendant submits there is credible evidence from which it may be reasonably inferred that the plaintiff will be unable to pay a costs award:
(a)The affidavit of Rene Munch filed for the defendant annexes a letter that a contractor wrote to the defendant on or about 5 September 2019 advising an invoice arising from the same project is outstanding.
(b)In addition, Mr Munch annexes a Gazette notice indicating that a company applied to liquidate the plaintiff company in December 2022. Mr Munch deposes that the defendant understands these liquidation proceedings were settled out of Court.
(c)On or about 3 August 2023, following the filing of an application by the plaintiff’s solicitor to withdraw, counsel for the defendant wrote to
the plaintiff's solicitor outlining the defendant's concerns regarding the plaintiff’s ability to meet an award of costs and requesting that the plaintiff pay 60 per cent of the projected scale costs or provide some satisfaction that it can pay costs. The plaintiff was invited to disclose its financial position and/or identify assets that may give the defendant an assurance of reasonable security. No assets for security were identified and nor was any financial information disclosed.
(d)The plaintiff’s solicitor has since been granted leave to withdraw and the plaintiff has failed to instruct new solicitors.
[23] In Arnold v Fairfax New Zealand, the Court held that it was not satisfied there was reason to believe that the plaintiff would be unable to pay costs if unsuccessful as the plaintiff had significant equity in two properties. But in that case the plaintiff had filed an affidavit confirming her ability to comply with any cost orders and even suggested registering a caveat against her properties as a sign of her genuine intention to fulfil any obligations. Furthermore, there was no indication of any past failure to meet debts or that she was unlikely to proceed with her claim if there was a risk of enforcement action against her assets.14
[24] Here, there is no evidence of the plaintiff's financial position as the plaintiff did not respond to the defendant’s letter requesting that it provide security and no financial information was disclosed as requested.15
[25] When the plaintiff’s solicitor sought leave to withdraw, I recorded in a minute that a company is required to be represented in court by a solicitor unless leave is granted and that this only occurs in exceptional circumstances. I asked the plaintiff’s solicitor at the time to provide a copy of the minute to the plaintiff to ensure the plaintiff was aware of this prior to the solicitor withdrawing.16
14 Arnold v Fairfax New Zealand Ltd [2017] NZHC 1757 at [14].
15 As opposed to the circumstances in Wishart v Murray [2016] NZHC 3132 discussed at [12]–[14].
16 Minute of 8 August 2023.
[26] As mentioned above, two different prospective counsel have attended case management conferences since but neither has been formally engaged and the plaintiff company currently remains unrepresented.
[27] I do not rely on the reference to the 2019 invoice in Mr Munch’s affidavit as there is no evidence that the amount has still not been paid. Nor do I rely on the Gazette notice notifying that an application to liquidate the plaintiff company had been made as that application has been settled and the circumstances surrounding it are not in evidence.
[28] But the lack of response from the plaintiff to the request for security and the failure to oppose this application together with the withdrawal of the plaintiff’s solicitor and failure to appoint a new solicitor do allow for an adverse inference to be drawn about the plaintiff’s ability to pay a costs order.17
[29] On the evidence before me I am therefore satisfied that there is reason to believe that the plaintiff will be unable to pay costs if it is unsuccessful in its proceeding. The threshold in r 5.45(2) is therefore met.
Is it just in all the circumstances to order the plaintiff to give security?
[30]I now consider whether to exercise the discretion to order security.
Merits of the claim
[31] The defendant submits that the plaintiff's claim lacks merit and that the plaintiff has been slow in advancing matters. By contrast, the defendant says it has a strong defence.
[32] In balancing the interests of the parties, the Court will consider the merits of the claim but there is a limit to what can be found at an interlocutory stage.18 Accepting that it is improper for the Court to pre-judge the merits, the perception that
17 Wishart v Murray, above n 15, at [14].
18 A S McLachlan Ltd v MEL Network Ltd, above n 5, at [21].
the plaintiff's claim lacks merit could influence the decision to grant the application for security.19
[33] The merits of the plaintiff’s case in these proceedings are difficult to assess at this stage. However, I do not consider that the plaintiff’s claim is clearly unmeritorious and so treat the merits as neutral in terms of security.
[34] There is no question that the plaintiff has been slow in advancing matters. The claim was first brought in 2019 but a memorandum for case management review was not filed until January 2023. Matters have not progressed smoothly since then with pleadings issues arising and then the application to withdraw by the plaintiff’s solicitor in July 2023. This slow progress is a factor that weighs in support of security being ordered.
Is it reasonably probable that the defendant caused the plaintiff ’s financial position?
[35] This factor is also difficult to assess because the plaintiff has not opposed the application or provided any information in response to the defendant’s correspondence. The amount being sought by the plaintiff is relatively significant so it is possible that the alleged failure to pay the invoices by the defendant may have caused the plaintiff’s current financial position.
[36] The plaintiff has not opposed the application but in circumstances where the plaintiff is currently unrepresented.
[37] In my view, in the circumstances of this case the possibility that the defendant’s actions may have caused the plaintiff’s financial position ought to be taken into account in the amount of security ordered rather than factoring against security being ordered at all.
Delay
[38] I do not consider the defendant has unreasonably delayed its application. The defendant’s counsel wrote to the plaintiff’s solicitors following the application by the
19 Highgate on Broadway v Devine, above n 4, at [22].
plaintiff’s solicitors to withdraw outlining its concerns to which there was no response. It then filed this application for security. Since then, different counsel have attended case management conferences indicating they may shortly be engaged by the plaintiff and advising security for costs may be able to be resolved. Those counsel have not then been formally engaged and so there have been delays. But the defendant ought not to be prejudiced by these delays.
Other funders
[39] No information is provided about the possibility of other funders but in many cases a director or other associated party may fund security thereby ensuring a defendant will not be exposed to an empty costs award if the plaintiff company is unsuccessful in its claim and without funds to pay.
[40] In circumstances where the plaintiff has not opposed the application there is no basis for relying on a lack of other funders to decline a security award.
Defendant’s counterclaim
[41] The defendant has brought a counterclaim including for the cost to rectify allegedly defective works in the amount of $804,000 and loss of income from the facility currently estimated to be approximately $875,500. Mr Munch deposes that if security for costs is not paid, the practical reality is that there would be little point in advancing the counterclaim to judgment. If a security order is made but not paid, it appears likely that it would bring the proceedings to an end.
Defendant’s costs
[42] Mr Munch deposes that the defendant company is based in Fiji and is having to instruct solicitors in both Fiji and New Zealand. In addition, the defendant’s director (and potentially other witnesses) will have to travel to New Zealand for the hearing. The defendant also expects to instruct expert witnesses in New Zealand. Its costs will therefore be significant.
Conclusion on discretion
[43] In my view it is just in all the circumstances to order security partly to ensure that the plaintiff is serious about prosecuting its claim given the delays that have occurred so far and the cost and inconvenience to the defendant as a result. To ensure the interests of both parties are balanced, I consider the quantum ought to be 60 per cent of the likely costs award as proposed by the defendant’s solicitor. I discuss quantum in more detail below.
What quantum ought to be ordered and should it be in stages?
[44] The defendant submits that an appropriate amount for security is $67,793.70 which the defendant says is 60 per cent of the estimated scale costs on a 2B basis. However the schedule calculating 2B costs attached to the defendant’s affidavit includes items for this security for costs application as well as items for both a substantive hearing by affidavit and a hearing with oral evidence. Furthermore, the cost of the hearing itself does not appear to be included.
[45] I attach an updated schedule allowing for the costs of one interlocutory application as discovery has not yet been completed and so a further interlocutory may be necessary. I include the costs of a half-day hearing for that interlocutory. As far as the substantive trial, I have allowed for a seven-day witness hearing rather than the 10 days proposed by the defendant as some of the time required will arise as a result of the counterclaim. I attach a schedule on this basis, estimating 2B costs to be
$72,531. As noted above, I consider that 60 per cent of these costs ought to be paid by way of security which is $43,519.
[46] The usual approach is to order staged security. Rounding the total security payable down to $43,500, I direct that $21,750 is to be paid by 4 May 2024 with a further $21,750 to be paid at close of pleadings.
Should a stay be ordered?
[47] It is usual for a stay to be ordered until the security is paid. There is a clear reason for a stay in this case to ensure that the plaintiff is serious about prosecuting its claim and so I include orders for a stay below.
[48] The defendant has not expressly sought a direction that the claim be struck out if security is not paid but I include such a direction as otherwise the defendant will be uncertain as to whether the claim is to proceed. I reserve leave to the plaintiff to apply by memoranda for relief from this order prior to the date on which security is due given the plaintiff is currently unrepresented.
Result
[49] The defendant’s application for security for costs is granted on the basis set out below.
Costs
[50]The defendant seeks costs on this application on a 2B basis in the amount of
$6,214.00 (including for the sealing of the order) plus disbursements of $500. These costs are appropriately sought and so I include these in the orders below.
Orders
[51]I order:
(a)the plaintiff is to provide security for the defendant’s costs as follows:
(i) $21,750 by 4 May 2024; and
(ii) $21,750 by the date to be directed for close of pleadings.
(b)the proceeding is stayed until provision of the security directed in [51](a)(i)];
(c)the proceeding is to be struck out if security is not paid as directed (with leave reserved to the plaintiff to apply by memorandum prior to the date on which security is due for relief from this order); and
(d)costs are to be paid in respect of this application by the plaintiff on a 2B basis in the amount of $6,214 plus disbursements of $500.
Associate Judge Sussock
Schedule Estimated 2B scale costs
Item
Days
Estimated costs
Commencement of defence by defendant
2
$4,780.00
Preparation for first case management conference
0.4
$956.00
Filing memorandum for first or subsequent case management conference or mentions
hearing
0.4
$956.00
Appearance at mentions hearing or call over
0.2
$478.00
Appearance of first or subsequent case management conference
0.3
$717.00
List of documents on discovery
2.5
$5,975.00
Inspection of documents
1.5
$3,585.00
Filing or opposing interlocutory applications
0.6
$1,434.00
Preparation of written submission for interlocutory hearing
1.5
$3,585.00
Preparation by applicant of bundle for interlocutory hearing
0.6
$1,434.00
Hearing of interlocutory application
0.5
$1,195.00
Preparation of briefs, list of issues,
authorities, and agreeing common bundle
6.5
$15,353.00
Preparation for hearing
6.5
$15,535.00
Hearing
7
$16,730.00
Total
$72,531
60 per cent of total
$43,519
1
7
1