Station Properties Limited (in rec) v Lever Action Limited HC Auckland CIV 2009-404-354

[2010] NZHC 1650

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2009-404-354

BETWEEN  STATION PROPERTIES LIMITED (IN RECEIVERSHIP)

Plaintiff/ Respondent

ANDLEVER ACTION LIMITED AND WILLIAM NEIL MCGARVEY

First Defendants / Applicant (second- named First Defendant)

ANDACE HIGH PROPERTY RENTALS LIMITED AND ALAN CHARLES HANSON

Second Defendants

ANDCHARLES OTWAY Third Defendant

Hearing:         24 August 2010

Appearances: Mr Peter Jenkins and Farzana Nizam for Plaintiff/Respondent Ms Raelene Kelly and Ms Kimberly Jarvis for Defendants / Applicants

Judgment:      2 September 2010 at 4 p.m.

JUDGMENT OF ASSOCIATE JUDGE DOOGUE

This judgment was delivered by me on

02.09.10 at 4 pm, pursuant to

Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Date……………

Wilkinson Adams Lawyers, P O Box 803, Dunedin- by email:  raele[email protected]

Bell Gully, P O Box 4199, Auckland – by email: [email protected]

STATION PROPERTIES LIMITED (IN RECEIVERSHIP) V LEVER ACTION LIMITED AND WILLIAM NEIL MCGARVEY AND ORS HC AK CIV 2009-404-354  2 September 2010

ANDVIKRAM KUMAR AND NIRUPAMA KUMAR

Fourth Defendants / Applicants

ANDROBERT JAMES SELWYN Fifth Defendant / Applicant

ANDMICHAEL DONALDSON AND PATRICIA DONALDSON

Sixth Defendants / Applicants

ANDANDREW ALLAN-JOHNS AND CHRISTINE ALLAN-JOHNS Seventh Defendants

Background

[1]      The following background is taken from the memorandum filed by counsel for the respondent.  There is no substantial difference between the parties on these matters of background:

3.        These  proceedings  involve  claims  by  the  plaintiff  for  damages arising  out of the cancellation of sale and purchase agreements entered into by the defendants.

4.The plaintiff, now in receivership, is the developer of an apartment complex  on  the  corner  of  Kent  Street  and  Edgar  Street  in Queenstown known as Bowen View.  Each of the defendants entered into sale and purchase  agreements  with the  plaintiff  to purchase apartments in the Bowen View development in Queenstown.  None of the defendants settled on their purchases as required under their respective agreements.

5.Following the expiration of settlement notices, summary judgment proceedings seeking orders for specific performance of the sale and purchase agreements were issued by the plaintiff.  The proceedings were consolidated on 8 April 2009.

6.        Following a hearing before Associate Judge Robinson on 28 July

2009, summary judgment was entered against the third defendant and the first-named first defendant. The application for summary

judgment against the remaining defendants was dismissed.

[2]      The proceedings now continue against the second named first defendant, and the fourth, fifth and sixth defendants.  Those defendants seek orders for security for costs against the plaintiff.

[3]      As Ms Kelly for the applicants noted there was no opposition to the making of an order for security for costs.  The dispute is only as to quantum.  The applicants’ approach is that the correct basis for deciding the application is that the applicants should be granted security equivalent to the full amount of costs that would be likely to be made under the schedules to the High Court Rules if the respondent failed in its claim.

[4]      Ms  Kelly said  there  were  five  factors  that  the  Court  ought  to  take  into account in making the order in this case.

[5]      The first factor was the merits of the case and Ms Kelly said, in summary, that the most that could be said at this point is that neither the claim nor the defences are frivolous.

[6]      The second factor she said is that the provision of full security is unlikely to prevent the plaintiff from proceeding because the Bank of Scotland was standing behind the plaintiff and adequate financial resources would not be an issue.

[7]      Ms Kelly said the third relevant factor was that the defendants had not caused the impecuniosity of the plaintiff.   There is likely to be a massive shortfall in the liquidation with total creditors being owed over $24,000,000.   The defendants’ contribution, if any is ultimately proved, would be minor.

[8]      The fourth factor, she submitted, was that the defendants had contributed to improving the efficiency of the proceedings by pressing for and consenting to consolidation.   The fifth factor she advanced was that because of the very large deficit in the liquidation it was certain that the defendants would not be able to recover any of their costs.  This was a fact that pointed in favour of full security for all likely costs being directed.

[9]      For the plaintiff, Mr Jenkins reminded me of the provisions of r 5.45 (1)(b) which allows a Judge, if he or she thinks it is just in all the circumstances, to give an order for security for costs, if satisfied 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.

[10]     Rule 5.45(3) makes it clear that an order for security will direct the plaintiff to give security for costs as directed “for a sum that the Judge considers sufficient”.

[11]     He reminded me that the jurisdiction is discretionary both whether to order security or not, and if awarded, the quantum of such security.   Significant in this case, he submitted, is that the amount of any order is not intended to be a pre- estimate of the actual amount of party-party costs, although comparability with the

likely award of costs to a successful defendant under the relevant schedule is often retained: Nikau Holdings Limited v Bank of New Zealand.1

[12]     Mr Jenkins also said that the fact that the plaintiff had the backing of the bank and would be able to meet any order was not relevant. It was not relevant to fixing the amount of the order that the plaintiff would have the resources to meet an order even if a large one.

[13]     I accept that in assessing the level of any security, regard has to be had to the likely size of any award of costs that might be made in the defendants’ favour.  That in turn requires consideration of what classification under the costs scales is likely to be made.   Mr Jenkins referred me to the observation of the Court of Appeal in McLachlan v Mercury Geotherm Ltd (In Receivership)2:

The awarding of 2B across a case is unobjectionable because that is simply recognition of an average case taking normal amounts of time at every step.

[14]     Ms Kelly did not accept that 2B was the appropriate level.  In her calculations she  adopted  the  C  scale  for  some  steps  in  the  proceedings.    The  more  liberal provision of time provided for under the C scale was appropriate, she said:

(b)….the Defendants have  claimed that the time allocations provided for  in the B scale are not sufficient and so have increased the time allocation for some matters to C scale.  The Plaintiff contests that. The Defendants submit that the taking of statements, the drafting and settling of pleadings, the compilation of lists of documents, the preparation   of   answers   to   interrogatories,   the   obtaining   of instructions to proceed with a particular strategy, are all multiplied for four separate Defendants well beyond the time which would usually be required for a single or dual defendant. It seems, with respect, that the Plaintiff has failed to distinguish the time scales from the complexity scales.  Even if the Court were not satisfied that an award on a 2C basis would be warranted, it is submitted that the Court could properly be satisfied that a 2B basis for a costs award might well be insufficient. If the Defendants’ costs were calculated totally upon a 2B basis, the scale costs would amount to (for all four Defendants) $111,906.

1 Nikau Holdings Ltd v Bank of New Zealand (1992) 5 PRNZ 430

2 McLachlan v Mercury Geotherm Ltd (In Receivership) (unreported, CA117/05, 4 December 2006)

[15]     Mr Jenkins’ broad submission was that the fact that there are four different defendants did not necessarily mean that the time commitment was not a factor which on its own justified a departure from the B time allocation.  He pointed out that, for example, in some cases involving a single corporate defendant, it might be necessary for the legal advisors in preparing an affidavit of documents to gather in documents from several sources such as multiple employees of the same company.

[16]     Time band B is applicable where a normal amount of time is considered reasonable.  Band C is applicable where a comparatively large amount of time for the particular step is considered reasonable.

[17]     One of the concerns for the defendants obviously is that where there are multiple defendants the presumption is that they ought to have common representation and that only one set of costs should be allowed.  That proposition is implicit in r 14.15.   The defendants’ apprehension is that the allowance of one set of costs will not be an adequate contribution to the defendants' overall costs. It is that reason that the defendants suggest that the Court can avoid unfairness by directing that a band C time allocation is applicable and if that is not enough, making an order for increased costs under 14.6(3)(a).

[18]     The next issue is to assess the probability or likelihood that the Court might in this case make an order that band C is to apply.

[19]     While many of the legal issues are common to each of the defendants, there will be differences between each of their particular cases.  Discovery of documents is an obvious example.  A further point of difference between each of the defendants arises from the remedies which the plaintiff is seeking.   The plaintiff now claims damages in lieu of an order for specific performance.   One aspect of the damages claim is that separate calculations will be required with respect to each of the units which the defendants are alleged to have agreed to purchase.   That in turn may require separate valuations to be obtained and there may be other factors which differentiate the damages which relate to each unit.  A further point of distinction is that forced sales of various units will take place at different times which may result in different considerations applying to the calculation of damages.

[20]     Overall, I am satisfied that there are two reasons which on their own or in combination could result in 2B costs not being sufficient. They are:

a)        The multiplicity of defendants;

b)The  differing  circumstances  relating  to  the  claim  against  each defendant.

[21]     There is no exact mathematical symmetry between the different time bands under Schedule 3.  Broadly speaking, the difference (where there is a difference) is that band C is two to three times greater than the time allowed under band B.  If the daily allowance of $1,880 is factored in which is the amount for category 2 proceedings, then substantial increases in the party and party costs would flow if band C was allocated in place of band B.  But in the potentially most expensive area (Schedule 3 paragraph 9) which is concerned with preparation for hearing there is no difference between the time allocations because the time to be adopted is the actual time measured in half days.  In that way, it can be said that the mechanism adopted by the rule-makers is self regulating.   In the case of a more complex case which takes longer to hear, the party entitled to costs will be compensated by an order for the extra days.

[22]     Two further minor points arise.  The first is a consequence of the fact that the proceedings commenced with a summary judgment application by the plaintiff.  The defendants filed affidavits in opposition to the application for summary judgment but did not  file a  statement  of  defence.    Rule 12.10  which  permits  the filing of  a statement of defence in this context is permissive and not mandatory.

[23]     Paragraph 2 of Schedule 3 deals with the broad subject of “commencement of defence” which are the opening words of the definition of that cost step.  It includes serving a statement of defence or (emphasis added) notice of opposition.

[24]     The schedule goes on to define further steps in defence under heading 3.6 which reads:

3.6Pleading in response to other party’s amended pleading (payable regardless of outcome except where formal or consented to).

[25]     In this case, having filed documents in opposition to the summary judgment as I have indicated above, the defendants did not file a statement of defence until the plaintiff filed an amended statement of claim, at which time a statement of defence was filed.  The issue that arises is whether it is an unjustified duplication of costs to claim both under step 2 and step 3.6 in these circumstances.

[26]     The point has not been reached where the Court needs to give a decision on that matter because it is not required to rule on the question of costs. But whether the item should be allowed or not could influence the estimate of what scale costs are likely to total.   In my view there would not be any double-claim involved in the defendants in this case claiming under step 2 and step 3.6.   The rule expressly contemplates  two  awards  of  costs  with  the  second  following  from  the  need  to respond to an amended pleading.  That is what has happened here.

[27]     In establishing a basis for the calculations which she advanced subsequently in her submission, Ms Kelly included an estimate of costs for events which have not yet taken place, of which Mr Jenkins said examples were a third teleconference and a second interlocutory application.  He submitted that that was objectionable.

[28]     I do not agree.  By an application of this kind a defendant seeks a security for costs which might yet be incurred.  On most occasions the security is sought on the basis of an expectation that the proceedings will run their full course to trial.   On other occasions, the applicant limits itself to a specified number of pre-trial stages and claims security only for those stages while perhaps reserving the right to make a further claim at a subsequent time for additional security covering the later phases of the case.   Very often, then, there is an element of prediction involved in fixing security for costs or at least an assumption that certain steps are likely to occur.  The application in this case, for example, includes costs for a trial which may never take place.

[29]     I think that Mr Jenkins has a good point though that an applicant for security for costs cannot load up the expected costs by including every contingency which might inflate the total amount of costs that the defendant in due course may be, in theory at least, entitled to.  It would not be just to base an order that the plaintiff pay for security for costs on an extravagant and unreal basis.  But I do not think that the particular steps that Mr Jenkins has complained about are truly objectionable.  They are likely, although of course not certain, to take place.   I do not think that it is unreasonable or unfair for them to be factored in to the estimated costs which are the basis for the calculation of security.

[30]     Returning to the main issue, my decision is that rather than approaching this matter by way of detailed calculations, I should be guided by the consideration that the discretion that I have permits a flexible approach to the amount of security that should be awarded.  That should reflect the possibility that 2B will be insufficient and that the case might not call for 2C to be ordered for all steps.  My determination therefore is that the appropriate approach to take is to provide that costs are to be on a 2B basis together with a safety margin built in of an additional 25%.

[31]     What I propose is that from this point forward counsel should confer further and carry out the requisite calculations.  For the purposes of hearing time they should adopt the current trial duration estimate.

[32]     Thereafter counsel should file a consent memorandum indicating what level of security for costs results from the calculation.  I would propose that the resulting sum which is to be ordered by way of security for costs should be paid in two tranches, one payable by the end of September 2010 and the other 14 days prior to

the commencement of the trial.

J.P. Doogue

Associate Judge