Taylor v Wynn Williams
[2017] NZHC 2598
•25 October 2017
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2016-409-000853 [2017] NZHC 2598
BETWEEN DAVID JOHN TAYLOR
Plaintiff/Applicant
DAVID JOHN TAYLOR and ALISON TAYLOR as trustees of the DJ Taylor Family Trust
Second Applicant
AND
WYNN WILLIAMS Respondent
Hearing: 18 October 2017 Counsel:
D Fraundorfer and M Beech for Applicants
F B Barton and R M Barton for RespondentJudgment:
25 October 2017
JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
[1] Mr and Mrs Taylor, and the trustees of the DJ Taylor Family Trust (the Taylors), were represented by Wynn Williams, solicitors, in proceedings they brought against the Bank of New Zealand (BNZ) and the receivers of a family company owned by the Taylors, Cabellos Holdings Limited (Cabellos). The claim failed, with judgment being entered for both the bank and the receivers.
[2] In the present proceedings the Taylors allege Wynn Williams owed them a duty of care to advise and represent them with reasonable skill and care, and that Wynn Williams breached this duty. As particulars of breach of duty, in the single cause of action, the Taylors say first that expert evidence should have been called from an expert forensic accountant or business analyst, an expert valuer, and an expert receiver, but the Taylors were not advised to do so, and Wynn Williams decided in the course of the proceeding not to do so. Secondly, the Taylors say that
the proceeding should have also been brought against a Mr Paul Hibbs who was the
TAYLOR v WYNN WILLIAMS [2017] NZHC 2598 [25 October 2017]
controlling shareholder of a company called Cameron Gladstone Commercial Limited which owned shares in Cabellos and which in due course became the buyer of Cabellos from the receivers.
[3] Thirdly the Taylors say that Wynn Williams advised them not to appeal the judgment of this Court, and failed to do so within the time prescribed for an appeal to be lodged.
[4] The respondent, Wynn Williams, applies for an order that the plaintiffs give security for costs.
Principles to be applied on an application for security for costs
[5] The application is brought under r 5.45 High Court Rules, which provides, to the extent relevant:
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) 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.
[6] Counsel agree that the Court is to consider the following issues, enunciated in
Busch v Zion Wildlife Gardens Ltd (in rec & in liq):1
1 Busch v Zion Wildlife Gardens Ltd (in rec & in liq) [2012] NZHC 17 at [2].
(a) Has the applicant satisfied the Court of the threshold test under r 5.45(1)?
(b) How should the Court exercise its discretion under r 5.45(2)?
(c) If an order is to be made, in what amount should security be fixed? (d) Should a stay be ordered pending payment?
[7] It is appropriate to consider this application by reference to these issues.
First issue: Has Wynn Williams satisfied the Court that there is reason to believe that the Taylors will be unable to pay the costs of Wynn Williams if unsuccessful?
[8] The Taylors accept that if they are unsuccessful they will be unable to pay an adverse costs award which would, in that event, be made in favour of Wynn Williams. The Court can proceed, therefore, on the basis that the threshold test in r
5.45(1) is satisfied.
Second issue: Should the Court order the giving of security for costs?
[9] Rule 5.45(2) is framed in discretionary terms. The Court is required to consider whether it is just in all the circumstances to order the giving of security. In the present case, the following factors were identified as relevant to the exercise of this discretion:
(a) Wynn Williams says that the case is not strong, trial will involve the Court in reconsidering issues decided at the original trial, and that a trial will take at least three weeks. The Taylors take an opposing view. They say that this is a straightforward case of professional negligence with clear and foreseeable consequences to the Taylors which should be recompensed. They estimate a trial will take approximately a week.
(b)The Taylors say that if an order is made that they give security for costs they will be unable to comply with that order and therefore they will not be able to proceed with this case. On the other hand Wynn Williams says that the Taylors are not on legal aid and are therefore funding this case by some means or other. In that circumstance they
should be able to meet an order that they give security in a reasonable but modest sum. A figure of $50,000 is suggested.
(c) The Taylors say that their present impecuniosity was caused or at least exacerbated by the actions of Wynn Williams. Wynn Williams says that the Taylor’s finances were in a parlous state when they were instructed and are no worse as a consequence of their having lost the earlier case.
[10] A number of other points were debated by counsel but I have found them to be of little assistance. I refer to them briefly. It is said that this application was not brought as early as it could have been, a factor which might be found to be relevant in some cases,2 that Wynn Williams did not comply with its obligations to give initial discovery, and that relative to the financial position of the Taylors, Wynn Williams is a well-resourced law firm.3
[11] So far as the timing of the application is concerned, I take into account that the Taylors have already faced an application to strike out, which took a considerable amount of the time between the issue of these proceedings and now, and that interlocutory matters in the case are still at a relatively early stage with discovery not yet having been undertaken. I find that in all the circumstances of this case there has not been an unreasonable delay in bringing this application.
[12] I do not see any relevance in any issues that there might be in relation to the adequacy of initial disclosure. Nor do I think it relevant that there is economic disparity between the Taylors and Wynn Williams. Wynn Williams is a defendant to a civil proceeding and entitled to the benefit of the High Court Rules, as any other litigant is. The relative worth or financial resources of parties are recognised as relevant not in terms of the financial strength or otherwise of a defendant, but rather in the context of consideration of whether making an order that security be given for future costs will prevent a plaintiff from having access to justice, as discussed below. In my view the decision in Lee v Whangarei District Council, relied on by the
defendant, was on materially different facts and is distinguishable.
2 Jo v Johnston [2013] NZHC 552 at [18].
[13] I turn therefore to the three issues which require consideration when exercising the discretion given to the Court by r 5.45(2). First, I consider the strength of the claim. The test which I have to apply is set out in Highgate on Broadway Ltd v Devine.4 Kós J phrased the issue to be considered by the Court thus:5
(c) Is the plaintiff’s substantive claim prima facie unmeritorious? While it is not appropriate that a Court predetermine the question of merits or form more than “an impression”, if a prima facie case can be established that the respondent’s claim is unmeritorious that will be a factor in favour of security. The position is not in New Zealand as absolute as that suggested by Clarke LJ in Ali v Hudson, i.e. that the weakness of a party’s case will ordinarily be relevant only where it has “no real prospect of succeeding.” In New Zealand a prima facie lack of merit will be weighed in the balance; the less apparently meritorious, then the more likely security is.
[14] Mr Barton dwelt at some length on this issue. In essence his argument is that the faults alleged on the part of Wynn Williams in relation to the trial related to evidence on issues which were not in any event the reasons for which the Taylors’ case was unsuccessful. It failed, Mr Barton says, for legal reasons but with an acknowledgement that even if the Judge was wrong in those conclusions, no losses had been incurred as Cabellos was insolvent at the time that BNZ appointed receivers, the action for which it was called to account in the earlier case. Thus, it is said that the challenge to Wynn Williams’ conduct in not leading evidence to contradict the evidence on insolvency on which the Judge relied, would not have made any difference to the outcome of the case; therefore, even if the Taylors show that Wynn Williams acted incorrectly on this issue, that was not a cause of the Taylors losing the case and therefore suffering the loss they seek to recover.
[15] The same is said in relation to the alleged failure of Wynn Williams to fulfil its duty of care by not calling a valuer in relation to the value of the stock held by Cabellos at the time of the receivership, and other challenges made to the way in
which the receivership was conducted.
4 Highgate on Broadway Ltd v Devine [2012] NZHC 2288, [2013] NZAR 1017.
[16] So far as a suit not having been brought against Mr Hibbs is concerned, Mr Barton says that a claim against Mr Hibbs could still have been brought after judgment was issued, as it would not at that point have been statute barred, but the Taylors did not take that step and therefore caused themselves any loss which might flow from Mr Hibbs not having been sued.
[17] For the Taylors Mr Fraundorfer says that Wynn Williams was put on express written notice by the solicitors for BNZ that it required expert evidence in relation to the allegation that stock was sold at an under value, and that on this and other topics the trial judge referred on a number of occasions to the fact that he did not have before him expert testimony on which he could rely in reaching conclusions on issues raised by the Taylors. Advice was also given by Professor Todd to the same effect in relation to the value of the shares in Cabellos immediately prior to the receivership. The solicitors for the defendants also told Wynn Williams before the trial that they would not accept Mr Taylor’s evidence in relation to insolvency, on which no expert was to be called by the Taylors.
[18] So far as Mr Hibbs is concerned, Mr Fraundorfer says that Wynn Williams was aware that Mr Hibbs may be liable to the Taylors but did not bring a claim against him in the proceeding as it should have. In relation to not advising about an appeal, Mr Fraundorfer notes that a letter indicating that an appeal would not succeed was not sent to the Taylors until mid-afternoon on the last day on which an appeal could be lodged, by which time Mr Taylor had no opportunity to discuss this with Wynn Williams or review the advice with independent advisors.
[19] Whilst acknowledging Mr Barton’s point that the Judge decided a number of legal points against the Taylors and was not therefore strictly required to consider solvency and stock values, Mr Fraundorfer says that if proper advice had been given in relation to the bringing of an appeal, the legal points would have been the initial subject of the appeal. If that had been successful, and expert evidence had been given as it should have been, the Taylors would have succeeded in their claim.
[20] As noted earlier, the role of the Court on this application is only to gain an impression of the likely strength of the case in question. The impression I have is
that the Taylors’ case faces considerable difficulties, but cannot be described as unmeritorious. It is apparent that the solvency of Cabellos, the value of its stock, and the way the receivership was conducted were issues on which expert testimony would have been relevant. In particular, had expert evidence on solvency persuaded the Judge to a different conclusion on this issue, he would have considered all the actions of the bank in the context of a solvent company. It is not possible, or necessary for present purposes, to decide what affect that may have had. There is force in Mr Barton’s submission that the case was lost for other reasons, but this is not the time at which to draw conclusions beyond forming an overall impression.
[21] Further, it seems that Wynn Williams accepts that Mr Hibbs could have been sued, and it is not clear why that step was not taken. Nor, in my opinion, is it a complete answer to that point on the present application that time had not run against the Taylors in terms of suing Mr Hibbs, when the judgment was released on the claim against BNZ and the receivers. Wynn Williams knew all along that the Taylors were strained financially. Mr Taylor was on legal aid, though the Trust was not. It is unrealistic to answer this point with an expectation that having run one lengthy High Court case the Taylors could turn around and run another, when the latter could and should have been combined with the former.
[22] So far as the appeal is concerned, it is certainly arguable that advice in relation to the appeal was given far too late, and left the Taylors with no time to obtain another opinion, or even to instruct Wynn Williams to lodge an appeal in the meantime while they considered the advice they had been given in relation to the likelihood of it succeeding.
[23] Overall, therefore, this case is not without its difficulties, but equally, it cannot be described as prima facie unmeritorious.
[24] I turn now to the Taylors’ financial position. In Highgate on Broadway Kós J
described this issue thus:6
(b) Would ordering security deprive the plaintiff of the capacity to advance a prima facie meritorious claim? Access to justice is an
6 Highgate on Broadway Ltd v Devine, above n 4, at [23](b).
essential human right. The cost of exercising that right is the payment of costs in the event of failure. The right of a successful defendant to costs in that event is arguably subordinate to the plaintiff’s right to be heard. Strong social policy considerations favour the use of Courts as an accessible forum for the resolution of disputes and grievances of almost all kinds. Only where a clear impression can be formed that the plaintiff’s claim is altogether without merit – so that in the alternative it would be amenable to being struck out – would it be right for security to be ordered where to do so would bring the plaintiff’s claim to dead halt. In cases where the claim is being seriously misconducted (with undue complexity or expense), security orders short of effective termination of the claim may be appropriate. As the Court of Appeal said in McLachlan, “access to the Courts for a genuine plaintiff is not lightly to be denied”.
[25] I have referred earlier to Mr Taylor being in receipt of legal aid for the original proceeding. He is not on legal aid for the current proceeding. The Trust does not have any assets. Mr Taylor says that he lives on a minimal income and receives a rental subsidy from WINZ. He has had part-time employment from time to time relocating rental cars around the South Island, and worked full-time for one year on a farm. Presently he is trying to build up a small business. He has received financial support from his family regularly over the last decade and continues to do so, albeit on a reduced basis.
[26] Mr Taylor has an arrangement with his solicitors whereby he pays them a sum of money on a regular basis on account of accruing fees. I am told there is no certainty that the firm will receive full recompense for the true value of their services. The Taylors’ position is that they cannot proceed with the case if ordered to pay security for costs.
[27] Weighing up the evidence in light of this principle, there is plainly a risk that the Taylors’ right of access to justice would be compromised if security were ordered in a way or to an extent which would bring their claim to a halt, and as I have said, I am not able to form an impression that the Taylors’ case is altogether without merit.
[28] The third point to be considered in this case is whether the Taylors’ present
impecuniosity was caused, or at least exacerbated by, the defendant.
[29] In Highgate on Broadway Kós J put it this way:7
(a) Is it reasonably probable that impecuniosity was caused by the defendant? Where it is reasonably probable that the defendant’s actions the subject of a cause of action caused the plaintiff’s impecuniosity, that is a strong consideration against awarding security. The Court will already have formed a view as to whether the cause of action has potential merit. The question then is whether it is reasonably probable that it caused the plaintiff’s financial embarrassment. A question of linkage, rather than any further examination of the merits.
[30] Mr Fraundorfer argues that the failure of the case was a result of the actions of Wynn Williams and is the cause of the Taylors’ present impecunious situation. On the evidence before the Court it is difficult to reach a firm conclusion on this point. It is clear from the references to the financial position of Cabellos in the judgment of Panckhurst J, that that company had suffered very significant losses over a reasonably lengthy period. It seems, on the evidence, that whether it was in fact insolvent might depend on how advances made by the shareholders were to be treated. The evidence before the Judge was that if these were shown as shareholders’ advances, Cabellos was insolvent. It is also the position of the Taylors that Cabellos had a residual value despite its financial position. These factors amply demonstrate the complexity of the task facing the Court in this case, unravelling the conclusion of the Judge to establish what might have been concluded if a different finding had been made on insolvency.
[31] What is not clear, however, is how these factors might have impacted on Mr Taylor’s financial position, or that of the Trust. Certainly the Trust’s principal, if not sole asset, a holiday home, was sold with the proceeds going to the bank. As far as I can see that did not occur as a result of the litigation but rather as a result of the bank calling up its advances.
[32] There is no analysis before the Court on what Mr Taylor’s financial position was before he instructed Wynn Williams, which is the starting-point for a consideration of whether there has been a deterioration stemming from the handling of the case by the firm.
[33] The impression I have on the information before me is that the financial position of the Taylors has not been caused by Wynn Williams, rather that their financial position was not improved because the case was lost. I do not think it can fairly be said that even if below the required standard, the actions of Wynn Williams have caused the Taylors to be in the position they are in. It is more likely, in my view, that they were in straitened circumstances (I note Mr Taylor was in receipt of legal aid), and that position has not improved.
Weighing up the factors in exercise of the Court’s discretion
[34] The case on which the Taylors have embarked is a complex one. It will require a Court to decide what the effect would have been if matters had proceeded differently. So far as this relates to the calling of further evidence, this will require an assessment to be made of what effect this would have had on the findings made by the Judge. That is a very difficult exercise. Its difficulty was recognised for many years by the rule that barristers could not be sued in respect of their attendances in court. That rule has been abolished, but it was in part a recognition over a long period of time of the difficulties of reconstructing an outcome of a case
based on hypothetical evidence.8 Because of this, alone, this case will take a
considerable period to try. Wynn Williams says three weeks. Mr Fraundorfer says about one week. I think it is more likely to take three weeks than one. Interlocutory preparation is at only an early stage. There is no doubt that Wynn Williams will be put to considerable expense in defending this case. Nor is there any doubt that as matters stand it will not have a realistic prospect of recovering any adverse award of costs that may be made.
[35] These facts, coupled with the issues I have discussed, have led me to the view that a modest sum should be paid by way of security for costs. Wynn Williams sought $50,000, against an estimate of likely trial costs of around $150,000. That was not unrealistic. It would, however, result in the Taylors being unable to proceed.
[36] The giving of security for costs can be kept under review as a case proceeds. I have decided that it is appropriate to award security for costs now in a sum of
$15,000 but reserving the right of the defendant to seek to review that sum at the point when the case is ready to be set down for trial. By that point, with all interlocutories complete, the position can be reconsidered.
[37] The way in which security is to be paid is this. First, Wynn Williams owes the Taylors $6,888.17 by way of an unpaid award of costs and disbursements on Wynn Williams’ unsuccessful application to strike this case out. That sum will be retained by Wynn Williams as the first tranche of security.
[38] Secondly, the balance of the sum of $15,000 will be paid to Wynn Williams, to be held in a trust account in the name of the Taylors, described as security for costs, by 12 equal monthly payments of $675.98 on the last day of each month commencing on 30 November 2017. In the event the case is ready to be set down before 30 October 2018, when the last of these payments is due, the Court will make directions in relation to payment of the balance after hearing from the Taylors and Wynn Williams. The funds in this account may not be released to either party without an order of the Court.
[39] I adjourn the application for further consideration at a later date, reserving leave for it to be brought on for hearing after 30 October 2018 or at the time the Court is considering setting a close of pleadings date, whichever is earlier.
[40] Both parties have enjoyed a measure of success. In my view costs should lie where they fall.
J G Matthews
Associate Judge
Solicitors:
Holland Beckett Lawyers, Tauranga
Anderson Lloyd, Dunedin
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