Tomanovich Holdings Ltd v Gibbston Community Water Co 2014 Ltd

[2018] NZHC 990

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE

CIV-2016-412-000155

[2018] NZHC 990

BETWEEN

TOMANOVICH HOLDINGS LIMITED

Plaintiff

AND

GIBBSTON COMMUNITY WATER COMPANY 2014 LIMITED

Defendant

Hearing:	11 April 2018
Appearances:	D J Ballantyne for Plaintiff A N Isac for Defendant
Judgment:	8 May 2018

JUDGMENT OF GENDALL J

Introduction

[1]    On 22 December 2016 the plaintiff filed in this Court an originating application under s 348 of the Property Law Act 2007 to set aside a transaction whereby Gibbston Water Services Limited (GWS) sold and transferred to the defendant certain potable water assets in the Gibbston Valley in Central Otago. The plaintiff contends that it is a creditor of GWS and the transfer of those water assets to the defendant needs to be set aside as it was a disposition made with an intention to defeat the creditors of GWS, including the plaintiff.

[2]The defendant denies this claim.

TOMANOVICH HOLDINGS LTD v GIBBSTON COMMUNITY WATER COMPANY 2014 LTD [2018] NZHC 990 [8 May 2018]

[3]    This proceeding already has a reasonably complex history. A number of interlocutory applications have been filed. Included in these are applications by the defendant for:

(a)The plaintiff’s proceeding to be struck out;

(b)Further security for costs to be awarded against the plaintiff; and

(c)Further and better discovery.

[4]    The plaintiff has also commenced other interlocutory applications seeking orders for:

(a)The collateral use of documents discovered in this proceeding; and

(b)Particular discovery against a significant number of non-parties.

Neither of those applications were before me here.

[5]    At the hearing before me on 11 April 2018 I heard argument on and considered only two of the defendant’s applications. These were that the plaintiff’s proceeding be struck out, and that further security for costs be awarded against the plaintiff. I now give my decision relating to those matters.

[6]    As to the defendant’s application for an order directing the plaintiff to make further and better discovery, the plaintiff has said that it does not oppose this, although the documents sought were not in the possession or control of the plaintiff. Notwithstanding this, the plaintiff confirms that it will file a supplementary affidavit of documents shortly. That is simply noted. I say nothing more about this further and better discovery application at this point.

Factual background

[7]    The defendant is the current owner and operator of a potable water supply scheme in the Gibbston Valley in Central Otago (the water scheme). The water scheme services approximately 30 neighbouring properties in the valley.

[8]    The present shareholders of the defendant company are most of the landowners in the valley who use the water. Certain other landowners there apparently draw water but  do  not  hold  shares.  Present  directors  of  the  defendant  company   are Dennis Marshall and Christine Erkkila, who are both residents in the Gibbston Valley and participants in the water scheme.

[9]    The sole director of the plaintiff company is Kristina Louise Buxton. Her partner/spouse is David Ian Henderson. He was a former director of the plaintiff company until his bankruptcy which occurred on 29 November 2010. Mr Henderson, although not a named party in this proceeding, has filed three affidavits here.

[10]   On 9 December 2016 Mr Henderson was conditionally discharged from his bankruptcy but an order was made that he was prohibited until 9 December 2022 from entering into, carrying on or taking part in the management or control of any business without the consent of the Court.

[11]   The shares in the plaintiff company, as I understand it, are owned by Henderson family interests.

[12]   These Henderson family interests own certain property in the Gibbston Valley, including the home occupied by Ms Buxton and presumably also Mr Henderson. The Henderson interests draw water from the water scheme but do not hold shares in the defendant company. As I understand the position, the water scheme operates on a strictly non-profit costs recovery basis.

[13]   Prior to December 2014, the water scheme was operated by GWS which was a company at that time owned and controlled by Mr Henderson and his family interests. The shares in GWS were held then by another Henderson family company, Gibbston Water Holdings Limited (GWH).

[14]   The Henderson family ownership of the water scheme through GWS dated back to March 2007 when the Henderson company, GWH, purchased the shares in GWS for $60,000.

[15]   It appears that around that time Mr Henderson, through a range of other companies, promoted a hotel and spa development in the Gibbston Valley area (the “Anthem” development).

[16]   Significant acrimony, it seems, developed at the time, between a number of the neighbours and water users in the valley and the Hendersons. As I understand the position, this related in large measure to the operation of the water scheme by the Henderson family interests and issues over the “Anthem” development and its possible proposal to use water from the water scheme.

[17]   Then, in about June 2010, companies related to the Henderson family which appear to have had control over GWS and the water scheme, including GWH, were placed in receivership and then liquidation. Mr Henderson, as I have noted, was adjudicated bankrupt on 29 November 2010. Litigation ensued, amongst other things, relating to unsuccessful prior attempts which the Henderson family interests had taken to sell the shares in GWH for $1.00 to another related company. The judgment of this Court in relation to the GWS share sale (the Castlereagh Properties decision) was issued on 11 July 2014.1 Five days later, statutory demands were issued against GWS on behalf of five companies associated with the Henderson family interests claiming debts of $41,589. One of those companies was the plaintiff.

[18]   Ultimately, these companies pressed on with attempts to seek the liquidation of GWS. But, before this could occur, on 1 December 2014 the water scheme asset of GWS was sold to the defendant company for $35,000 (plus GST if any). Linked to the sale was an associated Deed of Indemnity entered into between the defendant company and other individuals. This related to an indemnity designed to protect certain parties in the event of litigation being brought subsequently by Mr Henderson and his interests relating to these matters. The defendant company had been incorporated only a short time prior to 1 December 2014.

1      Walker v Gibbston Water Services Ltd, Castlereagh Properties Ltd and Ors [2014] NZHC 1638.

[19]   It is that sale of the water scheme from GWS to the defendant for $35,000 which is essentially the subject of the plaintiff’s challenge here. The plaintiff in its pleading maintains that as a creditor of GWS it has been prejudiced by the disposition of company property, being the sale of the water scheme asset, at an undervalue. It contends that this sale was a disposition which was made with the intent to prejudice it and others as creditors of GWS (as no part of the $35,000 was available to them) and, as a result, GWS essentially became insolvent. As to its claim to be a creditor of GWS, the plaintiff notes that on 16 July 2014 it issued the statutory demand noted above. This claimed the sum of $11,838, said to be an outstanding debt owing to the plaintiff. The statutory demand expired without payment or compromise.

[20]   Turning to the disposition claimed by the plaintiff to be prejudicial, it pleads that the water scheme, as effectively the major asset of GWS, was sold to the defendant at a significant undervalue without any marketing or a valuation being undertaken. In addition, the plaintiff contends that to enable this disposition to occur, some form of financing “ploy” by way of a money-go-round was instituted at the instigation of Robert Bruce Walker (Mr Walker), the liquidator of GWH and others at the time. I reach no conclusion and say nothing further on this last allegation of a financing “ploy” however. It is of no relevance to my ultimate determination on the present applications before me.

[21]   Soon after the sale of its water scheme, GWS was placed into liquidation by shareholders’ resolution. This led initially to a challenge brought by the Henderson family interests over the identity of the liquidator appointed by the shareholders. This challenge culminated in Mr Sheppard being appointed as a new replacement liquidator of GWS as the choice of Mr Henderson and Ms Buxton.

[22]   Reiterating, from the specific terms of its pleading in this proceeding, the plaintiff contends the disposition of the water scheme by GWS to the defendant:

(a)was a disposition of property by a debtor, GWS, who became insolvent as a result of making the disposition; and it

(b)was made with intent to prejudice a creditor in the sense that it had the purpose of defeating the plaintiff’s right of recourse in respect of its debt owed by GWS. It is said it also defeated the intention of the plaintiff and other GWS creditors to appoint their preferred liquidator to sell the water scheme asset for market value and to pursue the accounts receivable of GWS.

[23]   With  respect  to  these  matters,  the  plaintiff  goes  further.   Before  me,   Mr Ballantyne alleges that in an Otago Daily Times newspaper article dated 10 December 2014, interests associated with the defendant admitted that the intention of the series of transactions resulting in the sale was to enable control of the assets of GWS to be taken out of the reach of creditors who were formerly associated with Mr Henderson.

[24]   And, so far as the plaintiff's claim that GWS’ 1 December 2014 sale of the water scheme at $35,000 was below the market value for these assets, it contends that earlier in 2014, a Mr Edney (who, according to the defendant, may be associated with the Henderson interests) offered to pay $60,000 for the shares of GWS and a further

$80,000 in full and final settlement of its debts, thus effectively valuing the assets of GWS at $140,000. This is some $105,000 more than the sale price in the disposition. This offer by Mr Edney, it is pleaded, was repeated later.

[25]   Settlement and transfer of the water scheme from GWS to the defendant occurred in December 2014. Since this date it seems the defendant has maintained and operated the water scheme as a non-profit community based operation for the residents of the Gibbston Valley. Of interest here, it is clear that all parties to this litigation (including Ms Buxton and Mr Henderson) have confirmed that they agree a community based operation of the water scheme is in the best interests of everyone. No objection is taken as to the defendant’s manner of operation of the water scheme since its acquisition in December 2014.

[26]   Notwithstanding this,  on  behalf  of  the  plaintiff,  both  Ms  Buxton  and  Mr Henderson, in claiming that the sale of the water scheme to the defendant at

$35,000 is at a significant undervalue, seek in their pleading not a simple repayment

in full of the debt owing by GWS, but rather “that the sale of assets (the water scheme) from GWS be set aside and the assets vested back in GWS”.

[27]   One additional matter of some possible relevance needs also to be mentioned here. This is the fact that, once the present proceeding was issued, on 14 December 2017 the defendant made an open offer of settlement to the plaintiff, (accompanied by a denial of liability) for reasons it outlined as:

(a)“The disproportionate cost that was being associated with this litigation compared to the relatively low value of the plaintiff's claim”; and

(b)“The very strong impression the defendant has that the plaintiff through Mr Henderson is conducting this litigation for the purpose of seeking to wrest back control of the potable water scheme. This is notable from an email from the plaintiff’s solicitor, from various discussions between counsel and from the fact that financial compensation is not sought in the proceeding, just the setting aside of the sale.”

[28]   The defendant’s offer was to pay 100 per cent of all the creditor claims against GWS of the Henderson companies and interests as approved by the liquidators, together with category 2B scale costs for steps taken up to the date of the offer. The offer, it seems, went on to state that if any doubt arose about the value of those creditor claims, the liquidators and the Henderson entities could avail themselves of the processes under the Companies Act to resolve that value issue.

[29]   Approximately one week later on 22 December 2007, this offer from the defendant was rejected. The defendant says this occurred without explanation.

[30]   A further incident is raised by the defendant as also being of some relevance here. This was a phone call from Mr Henderson to Christine Erkkila, as a director of the defendant company, which was not disputed and took place on 19 December 2017. This call, it is said, was a response to the defendant’s settlement offer of 14 December 2017. A transcript of the telephone conversation is before the Court. According to the defendant, in this call Mr Henderson made a number of implicit threats to Ms Erkkila

relating to the present proceeding. The plaintiff rejects this, but for reasons relating to relevance and otherwise, I am of the view that I need say nothing further at this point regarding that aspect.

Strike out application

[31]   The  defendant  applies  for  the  plaintiff’s  claim  to  be  struck  out  under    r 15.1(1)(d) High Court Rules 2016. Rule 15.1 provides:

(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.

[32]   These submissions fall under the fourth ground of strike out (otherwise an abuse of process) listed in r 15.1. This ground:2

extends beyond the other grounds and captures all other instances of misuse of the court's processes, such as a proceeding that has been brought with an improper motive or is an attempt to obtain a collateral benefit.

[33]   The defendant claims that the proceeding should be struck out as an abuse of process for six reasons:

(a)The plaintiff’s rejection of the defendant’s 14 December 2017 settlement offer leads to the strong inference that these proceedings are

2      Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53 at [89].

being continued to achieve an illegitimate collateral advantage and/or for an improper purpose;

(b)The plaintiff and its associates have misused the Court’s processes by adopting irreconcilable and inconsistent positions in this proceeding and earlier Castlereagh proceedings (which I will mention later);

(c)Mr Henderson has involved himself in this litigation in breach of the High Court’s prohibition orders, and has made improper threats to the defendant in order to further his own interests;

(d)Mr Henderson and the plaintiff were aware of the existence of their claim in December 2014, but did not pursue it within the other proceedings they brought to challenge the transaction;

(e)There has been both an inexcusable delay of over two years before this claim was commenced, and also dilatoriness in advancing it once filed, causing the defendant significant prejudice as result; and

(f)The underlying pleading in relation to an intention to defeat creditors is unsustainable.

[34]   In response, initially the plaintiff submitted that the strike out should not be granted as it has a tenable cause of action. However, this is not the focus of the inquiry under r 15.1(1)(d). Otherwise, the plaintiff goes on to contend that its claim is not an abuse of process. It suggests too that the defendant certainly has not satisfied the reasonably heavy onus upon it to show that the proceeding was brought for an improper purpose.

Improper purpose

[35]The English Court of Appeal has held that:3

3      In Re Majory [1955] Ch 600 (EWCA) at 623–624; adopted by the High Court of Australia in

Williams v Spautz (1992) 174 CLR 509 (HCA) at 528 and 536.

…court proceedings may not be used or threatened for the purpose of obtaining for the person so using or threatening them some collateral advantage to himself, and not for the purpose for which such proceedings are properly designed and exist; and a party so using or threatening proceedings will be liable to be held guilty of abusing the process of the court and therefore disqualified from invoking the powers of the court by proceedings he has abused.

[36]   The improper purpose need not be the sole purpose, as long as it is the predominant purpose.4 The onus is on the party alleging abuse of process to show that the proceeding was brought for an improper purpose. It is “a heavy onus” and one to be exercised only in exceptional circumstances.5 It is unnecessary to prove commission of an improper act to justify exercise of the power to stay.6 However, save in the clearest of cases, it will be necessary to point to some separate manifestation of the defendant’s intent in the form of an overt act such as a demand which identifies the true collateral purpose.7

[37]   The defendant claims that the plaintiff is pursuing these proceedings for an illegitimate collateral advantage or improper purpose. The pleaded purpose of the proceedings is to set aside a particular transaction in order that the assets may be available for the plaintiff and its associated entities to recover their debts. However, the defendant claims that the plaintiff has actually taken these proceedings in order for an entity associated with it and the Henderson interests to regain control over the water scheme  which  was  transferred.  The  defendant  maintains  that  the  conduct  of  Mr Henderson, Ms Buxton and others directly associated with them here has been dubious in the extreme. The defendant justifies its argument here too by the plaintiff’s refusal, without explanation, of the defendant’s settlement offer. By this offer, as I have noted, the defendant would pay the creditor claims and category 2B costs up to the date of the offer, without acknowledging fault.

[38]   The defendant also points to Mr Henderson’s comments that he sees himself as the victim of persecution and state bullying and what it says is his desire to have matters “put right”. The defendant submits that these proceedings are being continued

4      Goldsmith v Sperrings Ltd [1977] 1 WLR 478 (EWCA) at 496; Williams v Spautz, above n 6, at 529.

5      Williams v Spautz, above n 6, at 529; Goldsmith v Sperrings, above n 7, at 498.

6      Williams v Spautz, above n 6, at 527–529.

7      Williams v Spautz, above n 6, at 529.

in order to get back at parties that Mr Henderson sees as having harmed him. The plaintiff’s collateral use and non-party discovery applications it is claimed provide further evidence that these proceedings will be used to further Mr Henderson’s “war” against Mr Walker. As I have noted, Mr Walker is the liquidator of GWH and the PVL Group  of  companies  associated  with  Mr Henderson,  and  he  is  the  man  who Mr Henderson claims at least in part instigated and lies behind the prejudicial disposition.

[39] The plaintiff in response at least as to part argues that the defendant’s 14 December 2017 settlement offer noted at [28] above would not adequately or fairly compensate it and the creditors of GWS for the prejudicial disposition. Furthermore, the offer it is said did not include some relevant parties and was vague as to quantum. The plaintiff says it is also concerned with how the assessment and payment would be carried out.

[40]   The defendant refutes these contentions. It says the proposed settlement would be an appropriate means to remedy what is claimed as a prejudicial disposition here. Creditors such as the plaintiff only have an interest to the level of their debt, and not in the assets themselves. And, the plaintiff, it is claimed, in any event did not properly inform the defendant of its concerns in a timely way, such that they could conceivably have been negotiated through.

[41]   The plaintiff's refusal to accept the defendant’s 14 December 2017 settlement offer (which it is claimed would have settled the entire GWS indebtedness) together with other comments the defendant attributes to Mr Henderson, it is claimed, provide some indication that this whole proceeding is being advanced for an improper purpose. A legitimate purpose here, that is to ensure the repayment of proper debts owing to the plaintiff and the Henderson interests, the defendant says would be achieved by an acceptance of the defendant’s offer. Instead, the plaintiff simply chose to reject this offer summarily without explanation.

[42]   According to the defendant, these factors together with the plaintiff’s delay in bringing this claim point towards this proceeding being an abuse of process. From the authorities, policy considerations in determining whether to order strike out or a stay

on the grounds of abuse of process however require some caution. Considerations to be applied include:

(a)Generally, courts are required to exercise their jurisdiction on matters properly brought before them.

(b)It is important to preserve freedom of access to the courts.

(c)The courts need to be vigilant that abuse of process claims are not advanced other than in clear and appropriate cases and are not brought for tactical reasons; and

(d)Equally, the courts fundamentally should be alert to misuse of their processes and be prepared to exercise their power to stay when the interests of justice demand it.

[43]   On this aspect, it is my view that, although there is merit in some of the “improper purpose” arguments advanced for the defendant here, overall and given the suggestion as to the undervalued consideration paid by the defendant for the water scheme (including the comments I note at [46] following), the interests of justice suggest this is a matter on which the plaintiff's freedom of access to the Court should be preserved.

Inconsistent positions

[44]   The Canadian courts have recognised that it is an abuse of process for a party to deliberately adopt inconsistent factual positions in different proceedings.8 The rationale for this approach was explained in Halagan v Reifel9 as:

…neither pleadings nor any other of the court processes are a game to be played according to what appears to be a strategic advantage at the time. The court expects a party to take a position which is consistent with its evidence and to maintain that position in its dealings with the court. In other words, saying something to one judge and saying the opposite to another will not be countenanced.

8      Mystar Holdings Ltd v 247037 Alberta Ltd [2009]ABQB 480 at [49].

9      Halagan v Reifel [1997] Carswell BC 404 at [8].

[45]   In the Castlereagh10 proceedings, Ms Buxton and the Henderson entities argued that the shares in GWS were worthless and the value of the water scheme assets was limited to $2,500 at most. However, in this Court, they contend that the assets are worth at least $140,000, or even an amount substantially higher than this. The defendant maintains therefore that the available inference is that the plaintiff and the Henderson interests have attempted to mislead the court in one or both of these proceedings and this is an abuse of process.

[46]   The plaintiff replies that while Ms Buxton did depose in the Castlereagh11 proceedings that the assets were worthless without a water permit, the valuation proposed was rejected by the Court. Mander J in his judgment therefore, offered the comment that the replacement value for the water scheme as at 2010 was likely to be around $150,000. Given the High Court's earlier finding, it is suggested therefore that it is appropriate and logical in the present case for Ms Buxton to give evidence more in keeping with what is said to be the true value of the water scheme and its water right.

[47]   Therefore, while the discrepancy might be seen as concerning at first blush, the plaintiff suggests Ms Buxton's evidence here is not an attempt to mislead the Court. That discrepancy is certainly a major one. In all the circumstances here, however, I am prepared to give the plaintiff, Ms Buxton and Mr Henderson the benefit of any doubt that exists as to this aspect. I find that for present purposes any such inconsistent position is not such as to provide a compelling argument for the defendant’s stance here.

Involvement of Mr Henderson

[48]   Mr Henderson, as I have noted, is subject to a prohibition order which prevents him from participating, directly or indirectly, in the running of any business for a time without the consent of the Court. The defendant submits that Mr Henderson has been intimately involved in this litigation in breach of that prohibition. Mr Henderson has

10     Walker v Gibbston Water Services Ltd, Castlereagh Properties Ltd and Ors, above n 1.

11     Above n 1.

provided important affidavits in support of the various applications before me. It was he who responded to the defendant about the settlement offer.

[49]   I am aware, too, that in other proceedings in this Court (CIV-2010-409- 000559) involving Henderson interests/companies, the Official Assignee has by memorandum dated 6 April 2018 raised issues over Mr Henderson’s involvement in this and other business matters. This is in light of a formal complaint it seems the Official Assignee has received against Mr Henderson.

[50]   The plaintiff, however,  takes  issue  here  with  the  defendant's  focus  on  Mr Henderson and its painting of him, in the plaintiff’s words, as "a bad man".

[51]   Although issues not the subject of the present proceeding may arise over these matters, I do note that Mr Henderson is not a direct party to this proceeding. Whilst his alleged behaviour, if the evidence is able to establish the veracity of those allegations, might be seen as somewhat concerning overall, on its own it is not sufficient, in my view, to give rise to an abuse of process.

Failure to pursue claim in other proceedings and inexcusable delay

[52]Sir James Wigram VC stated in Henderson v Henderson12 that:

…where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward only because they have, from negligence, inadvertence, or even accident, omitted part of their case.

[53]   This Court in the past13 has observed that the rule in Henderson v Henderson is a broad, merits based judgment which takes into account the public and private interests involved and the facts of the case. The crucial question is whether the party is misusing or abusing the process of the Court by seeking to raise an issue that it could

12     Henderson v Henderson (1843) 3 Hare 100, 67 ER 319 (Ch) at [115], [319].

13     Rafiq v The Secretary for the Department of Internal Affairs of New Zealand [2014] NZHC 2064 At [18] – [19].

have raised before. This doctrine can apply when the relevant parties in the two actions are different.

[54]   The defendant notes that the plaintiff was well aware of the relevant sale in December 2014. The plaintiff's solicitors wrote at that time stating that an application under s 348 might be brought. The plaintiff had also commenced proceedings then to terminate the liquidation of GWS, or to have an interim liquidator or new liquidator appointed. The plaintiff pleaded that the purpose of incorporating the defendant and an associated company was to "defeat the intention of the plaintiff and other creditors to appoint their preferred liquidator to sell the assets for market value".

[55]   The defendant records that this pleading is essentially identical to one in the present proceeding. It was open to the plaintiff to bring the s 348 challenge at that time, but it chose not to. It was not until December 2014 that the plaintiff brought a totally new proceeding in this matter. The defendant also notes that in this time, the Gibbston community expended around $80,000 in establishing the water scheme. Returning the assets now, it is suggested, would prejudice them.

[56]   In response, the plaintiff replies that any claim of prejudice to the defendant ignores the fact it was a participant in a scheme allegedly set up to drain resources from the plaintiff and its associates. It took advantage of the situation to purchase the assets at an undervalue.

[57]   However, I consider that the plaintiff's delay at one level has caused some degree of prejudice here to the defendant and the Gibbston community.

[58]   I consider that the plaintiff's failure to bring this claim in the earlier proceedings and then delaying two further years, knowing that such a claim could be made, is a factor that might otherwise contribute to this proceeding being seen as in some way tending to be an abuse of process. There is some similarity between the present and earlier proceedings which must mean that to some extent this issue may be seen as falling under the Henderson v Henderson rule. But this is not entirely clear as I see the position. Overall, I am of the view that on its own this is not a matter which justifies the striking out of this proceeding on abuse of process grounds.

Unsustainable pleadings

[59]   The plaintiff's statement of claim specifically alleges that the purpose of the sale of the water assets to the defendant (and related actions):

…was to defeat the intention of the plaintiff and other creditors to appoint their preferred liquidator to sell the assets for market value and to pursue the accounts receivable of GWS.

[60]   The defendant submits that jurisdiction under s 348 is only engaged if a plaintiff can establish the disposition was carried out "with intent to prejudice a creditor". A disposition of property with an intention to defeat the plaintiff's intention to appoint its preferred liquidator, does not fall within the Court's jurisdiction. The defendant contends that the claim, as pleaded, is legally untenable and ought to be struck out.

[61]   While the plaintiff's statement of claim does not follow that of s 348 exactly, I consider that does not mean the claim is untenable. Some minor amendment to the pleadings here may be required. The plaintiff's pleading is a particularisation of how the defendant intended to prejudice GWS's creditors. Had this been the only issue with the plaintiff's proceedings, strike-out would not be justified.

Conclusion on strike-out application

[62]   The sum of the factors discussed above lead me to conclude, but only by a reasonably fine margin, that this proceeding is not an abuse of process under r 15.1(1)(d). It is in the interests of justice for it not to be struck out. The defendant’s strike out application is dismissed and an order to that effect will follow.

Security for costs application

[63]   The defendant’s second (alternative) application is one for an award of further security for costs against the plaintiff. It is made under r 5.45 of the High Court Rules which relevantly provides:

5.45Order for security of costs

(1)Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—

(a)     that a plaintiff—

(i)     is resident out of New Zealand; or

(ii)is a corporation incorporated outside New Zealand; or

(iii)       is a subsidiary (within the meaning of section 5 of the Companies Act 1993) of a corporation incorporated outside New Zealand; or

(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.

…

(5)A Judge may make an order under subclause (2) even if the defendant has taken a step in the proceeding before applying for security.

(6)References in this rule to a plaintiff and defendant are references to the person (however described on the record) who, because of a document filed in the proceeding (for example, a counterclaim), is in the position of plaintiff or defendant.

[64]   In considering whether I should exercise my discretion to order security for costs against the plaintiff, I must balance the interests of the plaintiff (in that it should not lightly be prevented from pursuing its claim) and of the defendant (in that it should be protected against being drawn into unjustified litigation). That balancing test was summarised by the Court of Appeal in A S McLaughlan Ltd v MEL Networks Ltd:14

14     A S McLaughlan Ltd v MEL Networks Ltd [2002] 16 PRNZ 747 (CA) at [15]-[16].

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 likely to be denied.

Of course, the interests of defendants must also be weighed. They must be protected against being drawn into unjustified litigation, particularly where it is overcomplicated and unnecessarily protracted.

[65]   The merits of a plaintiff's case are a proper matter for consideration in the context of security for costs – Ambrose v Pickard.15 Other matters which may be assessed in undertaking that balancing exercise include:

(a)Whether the plaintiff’s impecuniosity was caused by the defendant’s actions;

(b)The means of anyone associated with the proceeding which may be able to assist the plaintiff;

(c)Delay on the part of the defendant in bringing the application; and

(d)Whether the making of an order might prevent the plaintiff from proceeding with a bona fide claim.

[66]   The general approach to be taken in an application of this type was summarised in Busch v Zion Wildlife Gardens Ltd (In Receivership and in Liquidation)16 as follows:

1.The applicant must  first  satisfy  the Court  of  the threshold  under  r 5.45(1) that the plaintiff is impecunious and would be unable to pay the defendant’s costs if the plaintiff is unsuccessful;

2.How should the Court exercise its discretion under r 5.45(2);?

3.What amount should security for costs be fixed at; and

4.Should a stay be ordered?

15     Ambrose v Pickard [2009] NZCA 502.

16     Busch v Zion Wildlife Gardens Ltd (In Receivership and in Liquidation) [2012] NZHC 17.

[67]   Whether or not to order security and, if so, the quantum are discretionary matters, although it is clear that the discretion is not to be fettered by constructing “principles” from the facts of previous cases.

[68]   Rule 5.45(3)(b) allows the Court in its discretion to stay a proceeding until security ordered is given. Although this is discretionary, as McGechan on Procedure17 notes, the Courts generally stay a proceeding until security ordered is given. Unusual situations may warrant the refusal of a stay, however.

[69]   In the present case, as I understand it, the plaintiff has already made two payments by way of initial security for costs under an agreed arrangement reached between the parties. Since those payments were made, however, the plaintiff now formally opposes any further order for security for costs to be made.

[70]   Although this may be seen as somewhat unusual, the opposing plaintiff contends here that the earlier security for costs payments were made voluntarily and simply for pragmatic reasons. It says it is entitled to oppose the present application and does so on proper grounds.

[71]   The defendant’s response, however, is that the fact the plaintiff has already made two security for costs payments confirms its impecuniosity here. I leave that aspect on one side, however.

[72]   What does seem clear from all the material before the Court is that the plaintiff is a non-trading company which does not appear to have any assets. No evidence of any real and substantiated kind has been placed before the Court to verify the financial position of the plaintiff. It was aware that the defendant, in bringing this security for costs application, was contending that the plaintiff was impecunious. And yet the plaintiff has chosen not to refute this in any real way.

[73]   I conclude that the plaintiff has done nothing to counter the defendant’s suggestion that it is impecunious here and I find the impecuniosity test has been satisfied.

17     McGechan on Procedure at para HR 5.45(11)(i).

[74]   The plaintiff then goes on to some extent to endeavour to claim that if the Court is satisfied that it is impecunious, then this impecuniosity has been caused by acts of the defendant. As I understand this argument, it relates to the suggestion that, given this proceeding is concerned with the disposition of the water scheme to the defendant at a claimed undervalue, so the defendant’s debt is not repaid, the defendant has played a real part in any impecuniosity the plaintiff is suffering.

[75]   Claims of this kind are always difficult to establish. In the present case, in my view, there is simply insufficient evidence before the Court to show that acts of the defendant, which was simply the recipient of the water scheme, were such as to cause the plaintiff’s impecuniosity. And, in any event, the claimed debt the plaintiff says is due to it from GWS is only approximately $14,000. Although before me this claim was not advanced with any real vigour by the plaintiff, in all the circumstances here I reject it.

[76]   Next, I turn to the issue of whether the Court should exercise its discretion here to order security for costs. This involves the Court in conducting the balancing exercise to which I refer at para [64] above.

[77]   In looking to this balancing exercise I proceed here on the basis that the plaintiff will be able to make out the factual propositions it advances in its pleadings in support of its claim. A question arises therefore as to whether or not the claim has so little chance of success that the defendant should be protected from being drawn into this litigation without an order for security for costs.

[78]   It is always difficult to assess the likely chances of success of a claim at this early stage. I accept that access to the Courts for a genuine plaintiff should not be denied but against this, as the Court of Appeal noted in A S McLaughlan Ltd,18 the interests of a defendant must also be weighed.

[79]   The plaintiff here has already made two payments by way of security for costs. Given what are said to be the relatively small debt amounts at stake, and what it is suggested will be lengthy interlocutory proceedings which the plaintiff has chosen to

18     A S McLaughlan Ltd v MEL Networks Ltd, above n 14.

signal as being required, I have an obvious concern over issues in this proceeding for the future. Assuming a three day trial in this matter and a further half-day hearing for additional interlocutory matters, security for costs on a 2B basis would amount to at least $33,000 on top of what has already been expended to date. This is for a proceeding brought by the plaintiff on an unpaid creditor claim of approximately

$14,000 said to be owing to it.   These proceedings have already spanned nearly     18 months. Although it is always difficult to assess the merits of a claim at this early stage, my impression is that the overall merits of this claim may not be high. In my view therefore, this and all the other circumstances of this claim are such that here they clearly justify an order for further security for costs being made. It has not been suggested that if such an order for security for costs is made, this will mean the plaintiff effectively will be unable to proceed with this claim.

[80]An order for security is therefore to follow.

[81]As to quantum, in A S McLaughlan Ltd,19 the Court of Appeal made it clear at

[14] that there is no checklist or simple formula for decisions on the quantum of security for costs to be ordered. The amount of security is not necessarily to be fixed by reference to a likely costs award. What the Court must do is to make an assessment of what is just in the particular circumstances of the case.

[82]   On this issue of quantum, counsel for the parties requested that, as no submissions were made before me on quantum, I should receive memoranda from them now directed at this issue. Certainly no advice was given to the Court as to the estimate of time counsel believe a trial in this matter would require, nor the intermediate steps which were to be taken prior to that.

[83]A direction relating to memoranda to be filed on this aspect is to follow.

[84]   I turn now to the issue of a stay of this proceeding pending payment of security. Rule 5.45(3)(b) High Court Rules provides this Court with a discretion as to whether to stay a proceeding such as this until proper security for costs is given.

19     A S McLaughlan Ltd v MEL Networks Ltd, above n 14.

[85]   The authorities on this illustrate, as I have noted, that where security for costs is ordered, proceedings are often stayed until the sum is paid or security properly given.20

[86]   In the present case, as I have noted, the real amounts at issue so far as the plaintiff is concerned are not substantial and yet it is suggested this proceeding still has a significant interlocutory path to run before it is even ready to reach a trial date. In these circumstances an order for stay is appropriate.

Result

[87]   The defendant’s application to strike out the plaintiff’s claim here fails and is dismissed.

[88]   The defendant’s application for further security for costs to be paid by the plaintiff succeeds. As to the quantum of security to be awarded, the following directions are now made:

(a)Within 10 working days of the date of this judgment the defendant is to file and serve its submissions in support of the quantum of further security for costs it seeks against the plaintiff here.

(b)Within a further 10 working days of that date the plaintiff is to file and serve its reply submissions on the issue of the quantum of further security for costs to be awarded.

(c)Within a further five working days of that date the defendant is to file and serve any submissions on the security for costs quantum issue strictly in reply.

(d)Those submissions are then to be referred to me and, in the absence of either party indicating they wish to be heard on the question, I will

20 Concord Enterprises Ltd v Anthony Motors (Hutt) Ltd (No. 2) [1977] 1 NZLR 516; Busch v Zion Wildlife Gardens Ltd, above n 16; and Retail Ready Logistics v Bank of New Zealand [2015] NZHC 2682.

decide the issue as to the quantum of further security for costs to be awarded based on the memoranda filed and the other material before the Court.

[89]   As to the question of a stay, I now make an order that this proceeding is stayed until such time as quantum of the further security for costs to be ordered is determined and the security sum is paid or security properly given.

Costs

[90]   Finally, on the issue of costs relating to these applications before me, these costs are reserved.

[91]   If the parties are unable to agree on the issue of costs on these applications then I direct that they may file memoranda (sequentially) directed to the issue of costs (each memorandum being not more than five pages) and I will decide the issue of costs based upon the memoranda filed and the other material before the Court.

...................................................

Gendall J

Solicitors:

Canterbury Legal, Christchurch Andru Isac, Barrister, Wellington